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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2023
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)

Michigan |  | 38-2830092
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer identification No.)

401 North Main Street, Mount Pleasant, Michigan 48858
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (989) 772-9471
Securities registered pursuant to Section 12(b) of the Act:

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

Securities registered pursuant to Section 12(g) of the Act:
Common Stock - No Par Value
(Title of Class)
Indicated by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicated by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
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 definition 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The aggregate market value of the voting stock held by non-affiliates of the registrant was $142,188,000 as of the last business day of the registrant’s most recently completed second fiscal quarter.
The number of common shares outstanding of the registrant’s Common Stock (no par value) was 7,502,990 as of March 5, 2024.
DOCUMENTS INCORPORATED BY REFERENCE
(Such documents are incorporated herein only to the extent specifically set forth in response to an item herein.)
Portions of the Isabella Bank Corporation Proxy Statement for its Annual Meeting of Shareholders to be held May 7, 2024 are incorporated by reference in this Form 10-K in response to Part III. The Isabella Bank Corporation Proxy Statement will be mailed on or before March 25, 2024.
1

Table of Contents
ISABELLA BANK CORPORATION
ANNUAL REPORT ON FORM 10-K
Table of Contents

PART I |  |  |  | 4
Item 1. |  | Business |  | 4
Item 1A. |  | Risk Factors |  | 6
Item 1B. |  | Unresolved Staff Comments |  | 8
Item 1C. |  | Cybersecurity |  | 8
Item 2. |  | Properties |  | 10
Item 3. |  | Legal Proceedings |  | 10
Item 4. |  | Mine Safety Disclosures |  | 10
PART II |  |  |  | 11
Item 5. |  | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 11
Item 6. |  | [Reserved] |  | 12
Item 7. |  | Management’s Discussion and Analysis of Financial Condition and Results of Operations |  | 13
Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk |  | 33
Item 8. |  | Financial Statements and Supplementary Data |  | 34
Item 9. |  | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |  | 87
Item 9A. |  | Controls and Procedures |  | 87
Item 9B. |  | Other Information |  | 88
Item 9C. |  | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |  | 88
PART III |  |  |  | 89
Item 10. |  | Directors, Executive Officers and Corporate Governance |  | 89
Item 11. |  | Executive Compensation |  | 89
Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |  | 89
Item 13. |  | Certain Relationships and Related Transactions, and Director Independence |  | 90
Item 14. |  | Principal Accountant Fees and Services |  | 90
PART IV |  |  |  | 91
Item 15. |  | Exhibit and Financial Statement Schedules |  | 91
Item 16. |  | Form 10-K Summary |  | 92
SIGNATURES |  |  |  | 93

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Table of Contents
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 our 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 Annual Report on Form 10-K 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 losses |  | FRB: Federal Reserve Bank
AFS: Available-for-sale |  | FHLB: Federal Home Loan Bank
ALCO: Asset-Liability Committee |  | Freddie Mac: Federal Home Loan Mortgage Corporation
ALLL: Allowance for loan and lease losses |  | FTE: Fully taxable equivalent
AOCI: Accumulated other comprehensive income |  | GAAP: U.S. generally accepted accounting principles
ASC: FASB Accounting Standards Codification |  | IRR: Interest rate risk
ASU: FASB Accounting Standards Update |  | IT: Information Technology
ATM: Automated teller machine |  | N/A: Not applicable
BHC Act: Bank Holding Company Act of 1956 |  | N/M: Not meaningful
Board: Board of Directors of Isabella Bank Corporation |  | NAV: Net asset value
CECL: Current expected credit losses |  | NSF: Non-sufficient funds
CFPB: Consumer Financial Protection Bureau |  | OCI: Other comprehensive income (loss)
CIK: Central Index Key |  | OMSR: Originated mortgage servicing rights
COVID-19: Coronavirus disease 2019 |  | OREO: Other real estate owned
DIF: Deposit Insurance Fund |  | PCAOB: Public Company Accounting Oversight Board
DIFS: Department of Insurance and Financial Services |  | Rabbi Trust: A trust established to fund our Directors Plan
Directors Plan: Isabella Bank Corporation and Related Companies Deferred Compensation Plan for Directors |  | RSP: Isabella Bank Corporation Restricted Stock Plan
Dividend Reinvestment Plan: Isabella Bank Corporation Stockholder Dividend Reinvestment Plan and Employee Stock Purchase Plan |  | SOFR: Secured Overnight Financing Rate
Exchange Act: Securities Exchange Act of 1934 |  | SEC: U.S. Securities and Exchange Commission
FASB: Financial Accounting Standards Board |  | SOX: Sarbanes-Oxley Act of 2002
FDIC: Federal Deposit Insurance Corporation |  | XBRL: eXtensible Business Reporting Language
FFIEC: Federal Financial Institutions Examinations Council |  | Yield Curve: U.S. Treasury Yield Curve

3

Table of Contents
PART I
Item 1. Business.
General
Isabella Bank Corporation is a registered financial services holding company that was incorporated in September 1988 under Michigan law. The Corporation's wholly owned subsidiary, Isabella Bank, has 31 offices located throughout Bay, Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw counties. The area includes significant agricultural production, manufacturing, retail, gaming and tourism, and several colleges and universities.
As used in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations as well as in Item 8. Financial Statements and Supplementary Data, references to “the Corporation”, “Isabella”, “we”, “our”, “us”, and similar terms refer to the consolidated entity consisting of Isabella Bank Corporation and its subsidiary. References to Isabella Bank or “the Bank” refers to Isabella Bank Corporation’s subsidiary, Isabella Bank.
We are a community bank with a focus on providing high quality, personalized service at a fair price. We offer a broad array of banking and wealth management services to businesses, institutions, individuals and their families. We compete with other commercial banks, savings and loan associations, mortgage brokers, finance companies, credit unions, retail brokerage firms, and other companies providing financial services.
Lending activities include loans for commercial and agricultural operations and real estate purposes, residential real estate loans, and consumer loans. We limit lending activities primarily to local markets and purchased loans from the secondary market are minimal. We do not make loans to fund leveraged buyouts, have no foreign corporate or government loans, and have limited holdings of corporate debt securities. Our general lending philosophy is to limit concentrations to individuals and business segments. For additional information related to our lending strategies and policies, see “Note 4 – Loans and ACL” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.
Deposit services offered include checking accounts, savings accounts, certificates of deposit, direct deposits, cash management services, mobile and internet banking, and ATMs. We also offer full service investment management, trust and estate services.
As of December 31, 2023, we had 356 full-time equivalent employees. We provide group life, health, accident, disability, and other insurance programs as well as a number of other employee benefit programs. None of our workforce is subject to collective bargaining agreements.
Available Information
Our SEC filings (including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Definitive Proxy Statements, Current Reports on Form 8-K and amendments to those reports) are available through our website (www.isabellabank.com). We will provide paper copies of our SEC reports free of charge upon request by a shareholder.
The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information regarding Isabella Bank Corporation (CIK #0000842517) and other issuers.
Supervision and Regulation
The earnings and growth of the banking industry are affected by the credit policies of monetary authorities, including the FRB. An important function of the FRB is to regulate the national supply of bank credit in order to combat recessions and respond to inflationary pressures. Among the instruments of monetary policy used by the FRB to implement these objectives are open market operations in U.S. Treasury and U.S. Government Agency securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements against member bank deposits. These methods are used in varying combinations to influence overall growth of bank loans, investments and deposits and also affect interest rates charged on loans or paid for deposits. The monetary policies of the FRB have had a significant effect on the operating results of commercial banks and related financial service providers in the past and are expected to continue to do so in the future. The effect of such policies upon our future business and earnings cannot be predicted.
We, as a financial holding company, are regulated under the BHC Act, and are subject to the supervision of the FRB. We are registered as a financial services holding company with the FRB and are subject to reporting requirements and inspections and audits. Under FRB policy, we are expected to act as a source of financial strength to the Bank and to commit resources to support its subsidiaries. This support may be required at times when, in the absence of such FRB policy, it would not otherwise be required to provide support.
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Under Michigan law, if the capital of a Michigan state chartered bank has become impaired by losses or otherwise, the Commissioner of the DIFS may require that the deficiency in capital be met by assessment upon the bank’s shareholders. Each shareholder would be responsible for a pro rata share of the deficiency, based on the amount of capital stock held by each shareholder. If an assessment is not paid by any shareholder within 30 days of the date of notice to the shareholder, sale of their stock will occur in order to pay such assessment.
Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. This priority would apply to guarantees of capital plans under the FDIC Improvement Act of 1991.
SOX contains important requirements for public companies in the area of financial disclosure and corporate governance. In accordance with Section 302(a) of SOX, written certifications by our principal executive, financial, and accounting officers are required. These certifications attest that our quarterly and annual reports filed with the SEC do not contain any untrue statement of a material fact (see the certifications filed as Exhibits 31.1 and 31.2 to this Form 10-K for such certification of consolidated financial statements and other information for this 2023 Form 10-K). We have also implemented a program designed to comply with Section 404 of SOX, which included the identification of significant processes and accounts, documentation of the design effectiveness over process and entity level controls, and testing of the operating effectiveness of key controls. See Item 9A. Controls and Procedures for our evaluation of disclosure controls and procedures and internal control over financial reporting.
Certain additional information concerning regulatory guidelines for capital adequacy and other regulatory matters is presented herein under the caption “Capital” in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and in “Note 9 – Off-Balance-Sheet Activities, Commitments and Other Matters” and “Note 10 – Minimum Regulatory Capital Requirements” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.
Isabella Bank
The Bank is supervised and regulated by DIFS and the FRB. These agencies and federal and state laws extensively regulate various aspects of the banking business including, among other things, permissible types and amounts of loans, investments and other activities, capital adequacy, branching, interest rates on loans and deposits, and the safety and soundness of banking practices.
Our deposits are insured up to applicable limits by the DIF of the FDIC and are subject to deposit insurance assessments to maintain the DIF. The FDIC assesses insurance premiums based upon a financial ratios method that takes into account asset and capital levels and supervisory ratings.
Banking laws and regulations restrict transactions by insured banks owned by a bank holding company. These restrictions include loans to and certain purchases from the parent holding company, non-bank and bank subsidiaries of the parent holding company. Additional restrictions apply to principal shareholders, officers, directors and their affiliates, and investments by the subsidiary bank in the shares or securities of the parent holding company (or any of the other non-bank or bank affiliates), or acceptance of such shares or securities as collateral security for loans to any borrower.
The Bank is subject to legal limitations on the frequency and amount of dividends that can be paid to Isabella Bank Corporation. For example, a Michigan state chartered bank may not declare a cash dividend or a dividend in kind except out of net profits then on hand after deducting all losses and bad debts, and then only if it will have a surplus amounting to not less than 20% of its capital after the payment of the dividend. Moreover, a Michigan state chartered bank may not declare or pay any cash dividend or dividend in kind until the cumulative dividends on its preferred stock, if any, have been paid in full. Further, if the surplus of a Michigan state chartered bank is at any time less than the amount of its capital, before the declaration of a cash dividend or dividend in kind, it must transfer to surplus not less than 10% of its net profits for the preceding six months (in the case of quarterly or semi-annual dividends) or the preceding two consecutive six month periods (in the case of annual dividends).
The payment of dividends by Isabella Bank Corporation and the Bank is also affected by various regulatory requirements and policies, such as the requirement to keep adequate capital in compliance with regulatory guidelines. Federal laws impose further restrictions on the payment of dividends by insured banks that fail to meet specified capital levels. The FDIC may prevent an insured bank from paying dividends if the bank is in default of payment of any assessment due to the FDIC. In addition, payment of dividends by a bank may be prevented by the applicable federal regulatory authority if such payment is determined, by reason of the financial condition of such bank, to be an unsafe and unsound banking practice. The FRB and the
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FDIC have issued policy statements providing that bank holding companies and insured banks should generally pay dividends only out of current operating earnings. Additionally, the FRB Board of Governors requires a bank holding company to notify the FRB prior to increasing its cash dividend by more than 10% over the prior year.
The aforementioned regulations and restrictions may limit our ability to obtain funds from the Bank for our cash needs, including payment of dividends and operating expenses.
The activities and operations of the Bank are also subject to various federal and state laws and regulations.
Item 1A. Risk Factors.
In the normal course of business, we are exposed to various risks. These risks, if not managed correctly, could have a significant impact on our earnings, capital, share price, and ability to pay dividends. In order to effectively monitor and control the following risks, we utilize an enterprise risk model. We balance our strategic goals, including revenue and profitability objectives, with associated risks through the use of policies, systems, and procedures which have been adopted to identify, assess, control, monitor, and manage each risk area. We continually review the adequacy and effectiveness of these policies, systems, and procedures.
Our enterprise risk process covers each of the following areas.
Changes in credit quality and required allowance for credit losses
To manage the credit risk arising from lending activities, our most significant source of credit risk, we maintain sound underwriting policies and procedures. We continuously monitor asset quality in order to determine the appropriateness of valuation allowances. These valuation allowances take into consideration various factors including, but not limited to, local, regional, and national economic conditions.
We maintain an ACL to reserve for estimated expected credit losses within our loan portfolio. The level of the ACL reflects our evaluation of industry concentrations; specific credit risks; loan loss experience; loan portfolio quality; and economic, political and regulatory conditions. The determination of the appropriate level of the ACL inherently involves a high degree of subjectivity and requires us to make significant estimates, all of which may undergo material changes.
Changes in economic conditions
An economic downturn within our local markets, as well as downturns in the state, national, or global markets, could negatively impact household and corporate incomes. This could lead to decreased demand for both loan and deposit products and lead to an increase of customers who fail to pay interest or principal on their loans. We continually monitor key economic indicators in an effort to anticipate the possible effects of downturns in the local, regional, and national economies.
Our success depends primarily on the general economic conditions of the State of Michigan and the specific local markets in which we operate. We provide banking and financial services to customers located primarily in the Bay, Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw counties in Michigan. The local economic conditions in these areas have a significant impact on the demand for our products and services, as well as the ability of our customers to repay loans, the value of the collateral securing loans, and the stability of our deposit funding sources. A significant decline in general economic conditions, caused by inflation, recession, acts of terrorism, international or domestic occurrences, a health crisis, unemployment, changes in securities markets or other factors could impact these local economic conditions and, in turn, could have a material adverse effect on our financial condition and results of operations.
Interest rate risk
IRR results from the timing differences in the maturity or repricing frequency of a financial institution’s interest earning assets and its interest bearing liabilities. We monitor the potential effects of changes in interest rates through simulations and gap analyses. To help mitigate the effects of changes in interest rates, we make significant efforts to stagger projected cash flows and maturities of interest sensitive assets and liabilities.
Liquidity risk
Liquidity risk is the risk to earnings or capital arising from our inability to meet our obligations when they come due without incurring unacceptable and significant costs. Liquidity risk includes the inability to manage unplanned changes in funding sources, or failure to address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value. We have significant borrowing capacity through correspondent banks and the ability to sell certain investments to fund potential cash shortages, which we may use to help mitigate this risk.
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The value of investment securities may be negatively impacted by fluctuations in the market
A volatile, illiquid market or decline in credit quality could require us to recognize credit-related impairment to the investment securities held in our portfolio. We consider many factors in determining whether a credit-related impairment exists including the length of time and extent to which fair value has been less than cost, the investment credit rating, and the probability that the issuer will be unable to pay the amount when due. The presence of these factors could lead to impairment charges. These risks are mitigated by the fact that we do not intend to sell the security in an unrealized loss position and it is more likely than not that we will not have to sell the security before recovery of its cost basis.
Operational risk
Operational risk is the risk of loss resulting from failed or inadequate internal processes, staffing, information technology systems, or external events. These factors may lead to reputation risk and transaction risk. Reputation risk is managed by developing and retaining marketplace confidence in handling customers’ financial transactions in an appropriate manner and protecting our safety and soundness. Transaction risk includes losses from fraud, error, the inability to deliver products or services, and loss or theft of information. Transaction risk also encompasses product development and delivery, transaction processing, information technology systems, and the internal control environment.
To minimize potential losses due to operational risks, we have established a robust system of internal controls that are regularly tested by our internal audit department in conjunction with the services of certified public accounting firms who assist in performing such internal audit work. The focus of these internal audit procedures is to verify the validity and appropriateness of various transactions, processes, and controls. The results of these procedures are reported to our Audit Committee.
The adoption of, violations of, or nonconformance with laws, rules, regulations, or prescribed practices
The financial services industry and public companies are extensively regulated and must meet regulatory standards set by the FDIC, DIFS, FRB, FASB, SEC, PCAOB, CFPB, and other regulatory bodies. Federal and state laws and regulations are designed primarily to protect deposit insurance funds and consumers, and not necessarily to benefit our shareholders. The nature, extent, and timing of the adoption of significant new laws, changes in existing laws, or repeal of existing laws may have a material impact on our business, results of operations, and financial condition, the effect of which is impossible to predict at this time.
Our compliance department annually assesses the adequacy and effectiveness of our processes for controlling and managing our principal compliance risks.
Changes to the financial services industry as a result of regulatory changes or actions, or significant litigation
The financial services industry is extensively regulated by state and federal regulation that governs almost all aspects of our operations. Laws and regulations may change from time to time and are primarily intended for the protection of consumers, depositors, and the deposit insurance fund. The impact of any changes to laws and regulations or other actions by regulatory agencies may negatively impact us or our ability to increase the value of our business. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets by the institution, and the appropriateness of an institution’s ACL. Future regulatory changes or accounting pronouncements may increase our regulatory capital requirements or adversely affect our regulatory capital levels. Additionally, actions by regulatory agencies or significant litigation against us could require the dedication of significant time and resources to respond to those actions and may lead to penalties.
We may not adjust to changes in the financial services industry
Our financial performance depends in part on our ability to maintain and grow our core deposit customer base and expand our financial services to our existing and new customers. The increasingly competitive environment is, in part, a result of changes in technology and product delivery systems and the accelerating pace of consolidation among financial service providers. New competitors may emerge to increase the degree of competition for our products and services. Financial services and products are also constantly changing. Our financial performance is dependent upon customer demand for our products and services, our ability to develop and offer competitive financial products and services, and our ability to adapt to enhancements in financial technology.
We may be required to recognize an impairment of goodwill
Goodwill represents the excess of the amounts paid to acquire subsidiaries over the fair value of their net assets at the date of acquisition. The majority of the recorded goodwill is related to past acquisitions of other banks, which were subsequently
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merged into Isabella Bank. If it is determined that the goodwill is impaired, we must write-down the goodwill by the amount of the impairment.
We may face pressure from purchasers of our residential mortgage loans to repurchase loans sold or reimburse purchasers for losses related to such loans
We generally sell the fixed rate long-term residential mortgage loans we originate to the secondary market. The purchasers of residential mortgage loans, such as government sponsored entities, increased their efforts to require sellers of residential mortgage loans to either repurchase loans previously sold, or reimburse the purchasers for losses incurred on foreclosed loans due to actual or alleged failure to strictly conform to the terms of the contract.
Consumers may decide not to use banks to complete their financial transactions
Technology and other changes are allowing customers to complete financial transactions without the involvement of banks. For example, consumers can now pay bills and transfer funds directly without banks. The process of diminishing or removing banks as intermediaries in financial transactions could result in the loss of fee income, as well as the loss of customer deposits and income generated from those deposits.
Our estimates and assumptions may be incorrect
Our consolidated financial statements conform with GAAP, which require us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Estimates are based on information available to us at the time the estimates are made. Actual results could differ from estimates. For further discussion regarding significant accounting estimates, see “Note 1 – Significant Accounting Policies” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.
Unauthorized disclosure of sensitive or confidential client or customer information, whether through cyber attacks, breach of computer systems or other means
See Item 1C. Cybersecurity.
Disruption of infrastructure
Our operations depend upon our technological and physical infrastructure, including our equipment and facilities. Extended disruption of our vital infrastructure by fire, power loss, natural disaster, telecommunications failure, computer hacking and viruses, or other events outside of our control, could have a significant impact on our operations. We have developed and tested disaster recovery plans for all significant aspects of our operations.
Anti-takeover provisions
Our articles of incorporation include anti-takeover provisions that require a two-thirds majority vote of our shareholders to approve a sale of the Corporation. Additionally, changes to our articles of incorporation must be approved by a two-thirds majority vote of our shareholders.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
Cybersecurity Risk
As a financial institution, we may be the target of a security breach due to a cybersecurity attack. While we have not encountered a cybersecurity incident that has materially impacted our operations or financial results, a security breach due to a cyber-attack in the future could result in a material impact to us, our customers, and our third-party vendors. The risk of such event could increase in the future due to the expansion of mobile banking and other internet-based product offerings, our use of internet-based services for internal and external purposes, acquisition and integration of new products and other offerings, increased use of third-party software solutions, and the growing reliance on mobile devices.
Cybersecurity incidents have increased in number and severity and it is expected that these trends will continue. Techniques used in cyberattacks evolve frequently, are increasingly sophisticated, and may not be recognized until launched. Cyber-attacks can originate from a wide variety of sources, including both internal and external sources, cyber-criminals, hacktivists, groups linked to terrorist organizations or hostile countries, or third parties whose objective is to broadly disrupt the operations of
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financial institutions. We may be unable to fully prevent cyber-attacks due to the inability to anticipate, detect, or recognize threats to our systems, or to implement effective preventative measures against all breaches. In addition, we do not have control over the cybersecurity of the systems of our customers, counterparty, and third-party service providers.
Our products, services and systems are accessed through critical company or third-party operations. These operations involve the storage, processing and transmission of sensitive data, including proprietary or confidential data, regulated data, and personal information of employees and customers. Successful breaches, employee wrongdoing, or human or technological error could result in unauthorized access, disclosure, modification, misuse, loss, or destruction of company, customer, or other third-party data or systems. Examples of a breach include theft of sensitive, regulated, or confidential data, including personal information; loss of access to critical data or systems through ransomware, destructive attacks, or other means; and business delays, service or system disruptions, or denials of service.
Should we, or the third parties we do business with, fall victim to successful cyber-attacks or experience other cybersecurity incidents, the result could include negative consequences. Such consequences could include, but are not limited to: significant disruption of our operations and those of our customers, including losing access to important business systems; misappropriation of confidential information related to customers, counterparties, employees, or other parties; severe damage to our reputation; the inability, or extended delays in the ability, to fully recover and restore data that has been stolen, manipulated, or destroyed, or the inability to prevent systems from processing fraudulent transactions; violations of applicable privacy and other laws; financial loss to us or our customers, counterparties, or employees; exposure to the risk of litigation, regulation, and other liability, which may include fines or other penalties and increased cybersecurity or other insurance premiums. The extent of a particular cyber-attack and the steps we must take to investigate and respond to it may not be immediately clear, and it may take a significant amount of time before such an investigation can be completed.
We have cybersecurity insurance intended to cover expenses related to notification, credit monitoring, investigation, crisis management, public relations, and legal advice. In addition, we maintain insurance to cover restoration of data, certain physical damage, and third-party injuries caused by potential cybersecurity incidents. However, damage and claims arising from such incidents may not be covered or may exceed the amount of any insurance available. Insurance policies and coverage are reviewed at least annually in detail.
Risk Management
Cybersecurity threats are assessed, identified, and managed within our Enterprise Risk Management Framework. We use a multi-layered approach to effectively manage risk. This approach includes, but is not limited to: (1) employees who are responsible for and manage risk; (2) employees and systems that oversee, monitor, and report risk: and (3) independent assurance, evaluation, and oversight of risk management activities.
Our security strategy is a layered approach. We utilize multiple layers of defense, both internally and externally, to ensure the integrity of our systems and data. We engage reputable security partners (assessors, consultants, auditors, and other third parties) for real time analysis and protection of our network infrastructure. This includes the use of preventative and detective tools to monitor, block, and alert us to suspicious activity. We utilize industry and regulator recognized assessment tools, such as the FFIEC Cybersecurity Assessment Tool and the Ransomware Self-Assessment Tool, to identify potential cybersecurity threats as well as the impact they could have on the Bank. Dashboards are used to track and monitor cybersecurity activity and trends.
We have established programs in place to proactively mitigate and respond to cybersecurity risk. The Vendor Management Program provides management with a framework to evaluate new vendors and ensure ongoing monitoring of third parties, including the evaluation of cybersecurity risk. The Incident Response Plan provides a framework for management to respond to and minimize the impact of an incident involving our information technology systems, or that of one of our third-party providers. The Business Continuity Plan provides information to prepare for and manage a business disruption.
Governance
All employees play a critical role in managing cybersecurity risk. Our Enterprise Risk Management Framework utilizes the three lines of defense model to define roles and responsibilities to effectively manage risk. First line employees own and manage risk, the second line oversees, monitors, and reports risk, and the third line provides independent assurance of risk management activities.
We employ Information Technology staff to analyze and protect our network infrastructure. Members of our IT staff have relevant training and education in computer networks and systems, information security and intelligence, and hold industry certifications related to network security, enterprise IT governance, and risk and information systems control. In addition, our
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employees’ network with peer banks, participate in industry groups, and attend ongoing training to stay abreast of cybersecurity threats and best practices.
Within the Enterprise Risk Management Framework, we have established committees, both at the management and board level, to oversee risk, and ensure cybersecurity risk is escalated appropriately to the Board.
The Information Technology Risk Management Committee is chaired by the Chief Technology Officer and comprised of IT management and other key stakeholders from across the Bank. They are responsible for identifying, measuring, monitoring, and controlling risk generated within IT, including cybersecurity risk. This committee reviews and updates risk assessments as necessary and monitors activity through risk reports and dashboards. A cybersecurity dashboard, which includes a summary of key risk metrics, is reviewed and monitored by the IT Risk Management. The Chief Technology Officer and Information Security Officer provide quarterly reports to the Board Risk Committee.
The Board Risk Committee assists the Board in fulfilling its responsibilities related to the oversight of the Bank’s Enterprise Risk Management Framework. The Board Risk Committee oversees executive management's design, implementation, and maintenance of an effective risk management program to ensure compliance with laws and regulations, and operation within the parameters established in the Bank’s risk appetite statement. This includes a review of the cybersecurity dashboard which summarizes key risk indicators and identifies emerging risks.
The Board Risk Committee provides a verbal risk report and meeting minutes to the Board at least quarterly. This includes a discussion of key risks and effectiveness of internal controls. In addition, cybersecurity incidents are escalated to the Board in a timely manner using the processes defined within the Bank’s Incident Response Plan.
Item 2. Properties.
Our executive offices are located at 401 North Main Street in Mount Pleasant, Michigan. In addition to this location, we own 29 branches, two operations centers, and vacant land. We also lease property in Saginaw, Michigan which serves as a full-service branch and Bay City, Michigan which serves as a loan and wealth office. We continually monitor and assess the need for expansion and/or improvement of all facilities. In our opinion, each facility has sufficient capacity and is in good condition.
Item 3. Legal Proceedings.
We are not involved in any material legal proceedings. While we are involved in ordinary, routine litigation incidental to our business, no such routine proceedings are expected to result in any material adverse effect on our consolidated operations, earnings, financial condition, or cash flows.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
(Dollars in thousands except per share amounts)
Common Stock and Dividend Information
Our authorized common stock consists of 15,000,000 shares, of which 7,485,889 shares are issued and outstanding as of December 31, 2023. As of that date, there were 2,674 shareholders of record.
Our common stock is traded in the over-the-counter market. Our common stock is quoted on the OTCQX market tier of the OTC Markets Group Inc.’s ("OTC Markets") electronic quotation system (www.otcmarkets.com) under the symbol “ISBA”. Other trades in our common stock occur in privately negotiated transactions from time to time for which we may have little or no information.
We have reviewed the information available as to the range of reported high and low transactions as reported by OTC Markets. The following table sets forth our compilation of that information for the periods indicated. Price information obtained from OTC Markets reflects inter-dealer prices, without retail mark up, mark down, or commissions and may not necessarily represent actual transactions. The following compiled data is provided for information purposes only and should not be viewed as indicative of the actual or market value of our common stock.

| Number of Common Shares |  | Sale Price
| Low |  | High
2023 |  |  |  |  |
First Quarter | 131,476 |  |  | $ | 22.08 |  |  | $ | 25.10 |
Second Quarter | 123,123 |  |  | 19.13 |  |  | 26.00 |
Third Quarter | 128,216 |  |  | 19.61 |  |  | 23.00 |
Fourth Quarter | 111,755 |  |  | 19.75 |  |  | 22.00 |
| 494,570 |  |  |  |  |
2022 |  |  |  |  |
First Quarter | 62,813 |  |  | $ | 24.50 |  |  | $ | 26.00 |
Second Quarter | 68,013 |  |  | 23.00 |  |  | 26.25 |
Third Quarter | 80,927 |  |  | 21.39 |  |  | 24.95 |
Fourth Quarter | 118,260 |  |  | 21.00 |  |  | 24.02 |
| 330,013 |  |  |  |  |

The following table sets forth the cash dividends paid for the quarters indicated:

| Per Share
| 2023 |  | 2022
First Quarter | $ | 0.28 |  |  | $ | 0.27 |
Second Quarter | 0.28 |  |  | 0.27 |
Third Quarter | 0.28 |  |  | 0.27 |
Fourth Quarter | 0.28 |  |  | 0.28 |
Total | $ | 1.12 |  |  | $ | 1.09 |

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 shares are repurchased under this plan, they are retired with the status of authorized, but unissued, shares.
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The following table provides information for the unaudited three-month period ended December 31, 2023, with respect to our common stock repurchase plan:

| Common Shares Repurchased |  | Total Number of Common Shares Purchased as Part of Publicly Announced Plan or Program |  | Maximum Number of Common Shares That May Yet Be Purchased Under the Plans or Programs
| Number |  | Average Price Per Common Share |  |
Balance, September 30 |  |  |  |  |  |  | 295,505 |
October 1 - 31 | 6,671 |  |  | $ | 20.99 |  |  | 6,671 |  |  | 288,834 |
November 1 - 30 | 6,684 |  |  | 20.20 |  |  | 6,684 |  |  | 282,150 |
December 1 - 31 | 11,344 |  |  | 20.63 |  |  | 11,344 |  |  | 270,806 |
Balance, December 31 | 24,699 |  |  | $ | 20.61 |  |  | 24,699 |  |  | 270,806 |

Information concerning securities authorized for issuance under equity compensation plans appears under Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 6. [Reserved]
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Item 7. 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. This discussion and analysis is intended to provide a better understanding of the consolidated financial statements and statistical data included elsewhere in this Annual Report on Form 10-K.
Executive Summary
We reported net income of $18,167 and earnings per common share of $2.42 for the year ended December 31, 2023. Net income and earnings per common share for the same period of 2022 were $22,238 and $2.95, respectively. Net interest income decreased $2,537, or 4.19%, during 2023 compared to 2022. Rising interest rates and growth in core loans led to a $13,833, or 21.02%, increase in gross interest income during 2023 compared to 2022. Conversely, rising interest rates on deposits and an increase in borrowings led to a $16,370 increase in interest expense for the year ended December 31, 2023 when compared to the same period in 2022.
The provision for credit losses during the year ended December 31, 2023 was $629, compared to $483 for the same period in 2022. Credit quality remained strong at December 31, 2023, as evidenced by total past due and nonaccrual loans which were $4,964, or 0.37%, of gross loans. While maintaining strong credit quality, the ACL and provision for loan losses increased during 2023 as a result of core loan growth and economic related risk factors.
Noninterest income increased $161 during 2023 compared to the same period in 2022. This increase was driven by wealth management fees and ATM and debit card fee income, offset by a decrease in OMSR income and gain on sale of loans, as residential mortgages sold to the secondary market declined. Noninterest expenses increased $2,490 in 2023, when compared to the same period in 2022, and was primarily a result of increased compensation, equipment expense, other losses, and FDIC insurance premiums.
As of December 31, 2023, total assets and assets under management were $2,058,968 and $2,948,751, respectively. Assets under management include loans sold and serviced of $248,756 and investment and trust assets managed by Isabella Wealth of $641,027, in addition to assets on our consolidated balance sheet. Loans outstanding as of December 31, 2023 totaled $1,349,463. During 2023, gross loans grew $85,290 driven by growth in nearly all loan categories. Total deposits were $1,723,695 as of December 31, 2023, declining $20,580, or 1.2%, during the year as competition for deposits remained strong throughout 2023. All regulatory capital ratios for the Bank exceeded the minimum thresholds to be considered a "well capitalized" institution.
Our securities portfolio decreased $52,333 during 2023, predominantly due to maturities and principal paydowns. Unrealized losses on our AFS securities portfolio were $31,826 at December 31, 2023, improving $13,298 since December 31, 2022. Unrealized losses on our AFS securities portfolio resulted from increased short-term and intermediate-term benchmark interest rates throughout 2023. As a result, the higher level of unrealized losses has reduced our balance of shareholders' equity and negatively impacted our tangible book value. Management does not anticipate the need to sell securities and incur a loss as a result of the sale.
Our net yield on interest earning assets (FTE) was 3.05% for 2023, which decreased from 3.18% in 2022. To maintain a competitive edge in a rising interest rate environment, we increased most of our deposit rates beginning in the fourth quarter of 2022 and in recent periods, increased our level of borrowings to fund loan growth. As a result, this has negatively impacted our net yield on interest earning assets and further increases may slow improvement in our net yield on interest earning assets.
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Recent Events and Legislation
2023 Bank Failures and the Condition of the Banking Industry: In March 2023, disruptions in the industry resulted in FDIC seizures of three banking institutions. Each bank had its own unique balance sheet issues, none of which exist at Isabella Bank. Shortly after the FDIC takeovers, the Federal Reserve Bank and the Department of Treasury announced enhanced insurance coverage and a borrowing program to help banks in need of funding. Isabella Bank continues to monitor such events, as well as industry and regulatory responses, to assure we are prepared for any changes that might affect the bank, including the ability to timely address economic uncertainty.
Impact of the Adoption of ASC 326 (CECL): We adopted ASU No. 2016-13, as subsequently updated for certain clarifications, targeted relief and codification improvements, as of January 1, 2023. Based on portfolio characteristics and economic conditions and expectations as of January 1, 2023, we recorded a combined pre-tax increase of $3,059 to the ACL and reserve for unfunded commitments on January 1, 2023 upon the adoption of ASU 2016-13; this implementation resulted in a reduction to retained earnings of $2,417, net of tax, as of January 1, 2023. In connection with the adoption of ASC 326, we revised certain accounting policies and implemented certain accounting policy elections, which are included in “Note 1 – Significant Accounting Policies” of our interim condensed consolidated financial statements.
Reclassifications
Certain amounts reported in management's discussion and analysis of financial condition and results of operations for 2022 and 2021 have been reclassified to conform with the 2023 presentation.
Operating results for periods after January 1, 2023 are presented in accordance with ASC 326 while prior period amounts continue to be reported in accordance with previously applicable standards and the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2022. In addition, the adoption of ASC 326 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses.
Subsequent Events
We evaluated subsequent events after December 31, 2023 through the date our condensed consolidated financial statements were issued for potential recognition and disclosure. No subsequent events require financial statement recognition or disclosure between December 31, 2023 and the date our condensed consolidated financial statements were issued.
Other
We have not received, nor are aware of, any notices of regulatory actions as of March 6, 2024.
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Results of Operations
(Dollars in thousands except per share amounts)
The following table outlines the results of operations and provides certain key performance measures as of, and for the years ended, December 31:

| 2023 |  | 2022 |  | 2021
INCOME STATEMENT DATA |  |  |  |  |
Interest income | $ | 79,631 |  |  | $ | 65,798 |  |  | $ | 60,113 |
Interest expense | 21,687 |  |  | 5,317 |  |  | 7,412 |
Net interest income | 57,944 |  |  | 60,481 |  |  | 52,701 |
Provision for credit losses | 629 |  |  | 483 |  |  | (518) |
Noninterest income | 13,827 |  |  | 13,666 |  |  | 13,822 |
Noninterest expenses | 49,310 |  |  | 46,820 |  |  | 43,694 |
Federal income tax expense | 3,665 |  |  | 4,606 |  |  | 3,848 |
Net income | $ | 18,167 |  |  | $ | 22,238 |  |  | $ | 19,499 |
PER SHARE |  |  |  |  |
Basic earnings | $ | 2.42 |  |  | $ | 2.95 |  |  | $ | 2.48 |
Diluted earnings | $ | 2.40 |  |  | $ | 2.91 |  |  | $ | 2.45 |
Dividends | $ | 1.12 |  |  | $ | 1.09 |  |  | $ | 1.08 |
Tangible book value (1) | $ | 20.59 |  |  | $ | 18.25 |  |  | $ | 21.61 |
Quoted market value |  |  |  |  |
High | $ | 26.00 |  |  | $ | 26.25 |  |  | $ | 29.00 |
Low | $ | 19.13 |  |  | $ | 21.00 |  |  | $ | 19.45 |
Close (1) | $ | 21.50 |  |  | $ | 23.50 |  |  | $ | 25.50 |
Common shares outstanding (1) | 7,485,889 |  |  | 7,559,421 |  |  | 7,532,641 |
PERFORMANCE RATIOS |  |  |  |  |
Return on average total assets | 0.89 | % |  | 1.08 | % |  | 0.96 | %
Return on average shareholders' equity | 9.52 | % |  | 11.41 | % |  | 8.83 | %
Return on average tangible shareholders' equity | 12.75 | % |  | 15.17 | % |  | 11.31 | %
Net interest margin yield (FTE) | 3.05 | % |  | 3.18 | % |  | 2.87 | %
BALANCE SHEET DATA (1) |  |  |  |  |
Gross loans | $ | 1,349,463 |  |  | $ | 1,264,173 |  |  | $ | 1,301,037 |
AFS securities | $ | 528,148 |  |  | $ | 580,481 |  |  | $ | 490,601 |
Total assets | $ | 2,058,968 |  |  | $ | 2,030,267 |  |  | $ | 2,032,158 |
Deposits | $ | 1,723,695 |  |  | $ | 1,744,275 |  |  | $ | 1,710,339 |
Borrowed funds | $ | 116,136 |  |  | $ | 87,016 |  |  | $ | 99,320 |
Shareholders' equity | $ | 202,402 |  |  | $ | 186,210 |  |  | $ | 211,048 |
Gross loans to deposits | 78.29 | % |  | 72.48 | % |  | 76.07 | %
ASSETS UNDER MANAGEMENT (1) |  |  |  |  |
Loans sold with servicing retained | $ | 248,756 |  |  | $ | 264,206 |  |  | $ | 278,844 |
Assets managed by Isabella Wealth | $ | 641,027 |  |  | $ | 513,918 |  |  | $ | 516,243 |
Total assets under management | $ | 2,948,751 |  |  | $ | 2,808,391 |  |  | $ | 2,827,245 |
ASSET QUALITY (1) |  |  |  |  |
Nonperforming loans to gross loans | 0.08 | % |  | 0.04 | % |  | 0.10 | %
Nonperforming assets to total assets | 0.07 | % |  | 0.05 | % |  | 0.08 | %
ACL to gross loans | 0.97 | % |  | 0.78 | % |  | 0.70 | %
CAPITAL RATIOS (1) |  |  |  |  |
Shareholders' equity to assets | 9.83 | % |  | 9.17 | % |  | 10.39 | %
Tier 1 leverage | 8.76 | % |  | 8.61 | % |  | 7.97 | %
Common equity tier 1 capital | 12.54 | % |  | 12.91 | % |  | 12.07 | %
Tier 1 risk-based capital | 12.54 | % |  | 12.91 | % |  | 12.07 | %
Total risk-based capital | 15.52 | % |  | 15.79 | % |  | 14.94 | %

(1) At end of year
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The following table outlines our interim results of operations and key performance measures as of, and for the unaudited periods ended:

| Quarter to Date
| December 31 2023 |  | September 30 2023 |  | June 30 2023 |  | March 31 2023
INCOME STATEMENT DATA |  |  |  |  |  |  |
Total interest income | $ | 21,056 |  |  | $ | 20,485 |  |  | $ | 19,495 |  |  | $ | 18,595 |
Total interest expense | 7,444 |  |  | 6,183 |  |  | 4,816 |  |  | 3,244 |
Net interest income | 13,612 |  |  | 14,302 |  |  | 14,679 |  |  | 15,351 |
Provision for loan losses | 684 |  |  | (292) |  |  | 196 |  |  | 41 |
Noninterest income | 3,516 |  |  | 3,414 |  |  | 3,604 |  |  | 3,293 |
Noninterest expenses | 11,915 |  |  | 12,658 |  |  | 12,539 |  |  | 12,198 |
Federal income tax expense | 726 |  |  | 937 |  |  | 918 |  |  | 1,084 |
Net income | $ | 3,803 |  |  | $ | 4,413 |  |  | $ | 4,630 |  |  | $ | 5,321 |
PER SHARE |  |  |  |  |  |  |
Basic earnings | $ | 0.51 |  |  | $ | 0.59 |  |  | $ | 0.62 |  |  | $ | 0.70 |
Diluted earnings | $ | 0.51 |  |  | $ | 0.58 |  |  | $ | 0.61 |  |  | $ | 0.70 |
Dividends | $ | 0.28 |  |  | $ | 0.28 |  |  | $ | 0.28 |  |  | $ | 0.28 |
Quoted market value (1) | $ | 21.50 |  |  | $ | 21.05 |  |  | $ | 20.50 |  |  | $ | 24.80 |
Tangible book value (1) | $ | 20.59 |  |  | $ | 18.27 |  |  | $ | 18.69 |  |  | $ | 19.24 |

| Quarter to Date
| December 31 2022 |  | September 30 2022 |  | June 30 2022 |  | March 31 2022
INCOME STATEMENT DATA |  |  |  |  |  |  |
Total interest income | $ | 17,915 |  |  | $ | 17,019 |  |  | $ | 16,102 |  |  | $ | 14,762 |
Total interest expense | 1,643 |  |  | 1,216 |  |  | 1,175 |  |  | 1,283 |
Net interest income | 16,272 |  |  | 15,803 |  |  | 14,927 |  |  | 13,479 |
Provision for loan losses | (57) |  |  | 18 |  |  | 485 |  |  | 37 |
Noninterest income | 3,272 |  |  | 3,252 |  |  | 3,595 |  |  | 3,547 |
Noninterest expenses | 11,922 |  |  | 11,917 |  |  | 11,661 |  |  | 11,320 |
Federal income tax expense | 1,357 |  |  | 1,233 |  |  | 1,081 |  |  | 935 |
Net income | $ | 6,322 |  |  | $ | 5,887 |  |  | $ | 5,295 |  |  | $ | 4,734 |
PER SHARE |  |  |  |  |  |  |
Basic earnings | $ | 0.84 |  |  | $ | 0.78 |  |  | $ | 0.70 |  |  | $ | 0.63 |
Diluted earnings | $ | 0.83 |  |  | $ | 0.77 |  |  | $ | 0.69 |  |  | $ | 0.62 |
Dividends | $ | 0.28 |  |  | $ | 0.27 |  |  | $ | 0.27 |  |  | $ | 0.27 |
Quoted market value (1) | $ | 23.50 |  |  | $ | 21.40 |  |  | $ | 24.80 |  |  | $ | 25.85 |
Tangible book value (1) | $ | 18.25 |  |  | $ | 16.96 |  |  | $ | 18.85 |  |  | $ | 19.56 |

(1) At end of period
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CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are set forth in “Note 1 – Significant Accounting Policies” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data. Of these significant accounting policies, we consider our policies regarding the ACL, acquisition intangibles and goodwill, and the determination of the fair value and assessment of credit related impairments of investment securities to be our most critical accounting policies.
The ACL requires our most subjective and complex judgment. Changes in economic conditions and other external factors can have a significant impact on the ACL and, therefore, the allowance for credit losses and results of operations. We have developed policies and procedures for assessing the appropriateness of the ACL, recognizing that this process requires a number of assumptions and estimates with respect to our loan portfolio. Our assessments may be impacted in future periods by changes in economic conditions, and the discovery of information with respect to borrowers which is not known to us at the time of the issuance of the consolidated financial statements. For additional discussion concerning our ACL and related matters, see “ACL - Loans” and “Note 4 – Loans and ACL” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.
U.S. generally accepted accounting principles require that we determine the fair value of the assets and liabilities of an acquired entity, and record the fair value on the date of acquisition. We employ a variety of measures in the determination of the fair value, including the use of discounted cash flow analysis, market appraisals, and projected future revenue streams. For certain items that we believe we have the appropriate expertise to determine the fair value, we may choose to use our own calculations of the value. In other cases, where the value is not easily determined, we consult with independent experts to determine the fair value of the identified asset or liability. Once valuations have been determined, the net difference between the price paid for the acquired entity and the net value of assets acquired on our balance sheet, including identifiable intangibles, is recorded as goodwill. Acquisition intangibles and goodwill are qualitatively evaluated to determine if it is more likely than not that the carrying balance is impaired on at least an annual basis.
AFS securities are carried at fair value with changes in the fair value included as a component of other comprehensive income. Declines in the fair value of AFS securities below their cost that are other-than-temporary are reflected as realized losses in the consolidated statements of income. The market values for most AFS investment securities are typically obtained from outside sources and applied to individual securities within the portfolio. Municipal securities for which no readily determinable market values are available are priced using fair value curves which most closely match the securities' characteristics. AFS securities are reviewed quarterly for possible credit impairment. In determining whether a credit-related impairment exists for debt securities, we assess whether: (a) we do not have the intent to sell the security; and (b) it is more likely than not we will not have to sell the security before recovery of its cost basis. If either of these conditions are met, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value through income. If these conditions are not met, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors.
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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 for the last three years. 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.

| Year Ended December 31
| 2023 |  | 2022 |  | 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) | $ | 1,308,891 |  |  | $ | 65,670 |  |  | 5.02 | % |  | $ | 1,249,634 |  |  | $ | 53,283 |  |  | 4.26 | % |  | $ | 1,208,141 |  |  | $ | 51,410 |  |  | 4.26 | %
Taxable investment securities | 485,718 |  |  | 9,399 |  |  | 1.94 | % |  | 477,159 |  |  | 8,294 |  |  | 1.74 | % |  | 297,357 |  |  | 4,920 |  |  | 1.65 | %
Nontaxable investment securities | 96,845 |  |  | 3,780 |  |  | 3.90 | % |  | 107,158 |  |  | 3,933 |  |  | 3.67 | % |  | 117,997 |  |  | 4,235 |  |  | 3.59 | %
Fed funds sold | 12 |  |  | 1 |  |  | 5.04 | % |  | 10 |  |  | — |  |  | 2.42 | % |  | 5 |  |  | — |  |  | 0.02 | %
Other | 41,965 |  |  | 1,804 |  |  | 4.30 | % |  | 99,301 |  |  | 1,344 |  |  | 1.35 | % |  | 255,246 |  |  | 706 |  |  | 0.28 | %
Total earning assets | 1,933,431 |  |  | 80,654 |  |  | 4.17 | % |  | 1,933,262 |  |  | 66,854 |  |  | 3.46 | % |  | 1,878,746 |  |  | 61,271 |  |  | 3.26 | %
NONEARNING ASSETS |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Allowance for credit losses | (12,784) |  |  |  |  |  |  | (9,477) |  |  |  |  |  |  | (9,396) |  |  |  |  |
Cash and demand deposits due from banks | 24,592 |  |  |  |  |  |  | 24,708 |  |  |  |  |  |  | 29,139 |  |  |  |  |
Premises and equipment | 26,589 |  |  |  |  |  |  | 24,648 |  |  |  |  |  |  | 24,760 |  |  |  |  |
Accrued income and other assets | 74,319 |  |  |  |  |  |  | 81,823 |  |  |  |  |  |  | 109,625 |  |  |  |  |
Total assets | $ | 2,046,147 |  |  |  |  |  |  | $ | 2,054,964 |  |  |  |  |  |  | $ | 2,032,874 |  |  |  |  |
INTEREST BEARING LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest bearing demand deposits | $ | 346,875 |  |  | 1,086 |  |  | 0.31 | % |  | $ | 374,623 |  |  | 274 |  |  | 0.07 | % |  | $ | 345,015 |  |  | 216 |  |  | 0.06 | %
Savings deposits | 626,027 |  |  | 8,290 |  |  | 1.32 | % |  | 630,574 |  |  | 1,135 |  |  | 0.18 | % |  | 558,102 |  |  | 616 |  |  | 0.11 | %
Time deposits | 308,699 |  |  | 8,976 |  |  | 2.91 | % |  | 270,296 |  |  | 2,612 |  |  | 0.97 | % |  | 336,094 |  |  | 4,610 |  |  | 1.37 | %
Federal funds purchased and repurchase agreements | 43,061 |  |  | 961 |  |  | 2.23 | % |  | 49,974 |  |  | 79 |  |  | 0.16 | % |  | 57,453 |  |  | 53 |  |  | 0.09 | %
FHLB advances | 23,699 |  |  | 1,309 |  |  | 5.52 | % |  | 7,863 |  |  | 152 |  |  | 1.93 | % |  | 69,342 |  |  | 1,302 |  |  | 1.88 | %
Subordinated debt, net of unamortized issuance costs | 29,287 |  |  | 1,065 |  |  | 3.64 | % |  | 29,200 |  |  | 1,065 |  |  | 3.65 | % |  | 17,000 |  |  | 615 |  |  | 3.62 | %
Total interest bearing liabilities | 1,377,648 |  |  | 21,687 |  |  | 1.57 | % |  | 1,362,530 |  |  | 5,317 |  |  | 0.39 | % |  | 1,383,006 |  |  | 7,412 |  |  | 0.54 | %
NONINTEREST BEARING LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand deposits | 461,689 |  |  |  |  |  |  | 482,781 |  |  |  |  |  |  | 416,247 |  |  |  |  |
Other | 16,043 |  |  |  |  |  |  | 14,695 |  |  |  |  |  |  | 12,858 |  |  |  |  |
Shareholders’ equity | 190,767 |  |  |  |  |  |  | 194,958 |  |  |  |  |  |  | 220,763 |  |  |  |  |
Total liabilities and shareholders’ equity | $ | 2,046,147 |  |  |  |  |  |  | $ | 2,054,964 |  |  |  |  |  |  | $ | 2,032,874 |  |  |  |  |
Net interest income (FTE) |  |  | $ | 58,967 |  |  |  |  |  |  | $ | 61,537 |  |  |  |  |  |  | $ | 53,859 |  |  |
Net yield on interest earning assets (FTE) |  |  |  |  | 3.05 | % |  |  |  |  |  | 3.18 | % |  |  |  |  |  | 2.87 | %

(1) Includes loans and mortgage loans AFS
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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. We exert some control over these factors; however, 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. The FTE adjustment is based on a federal income tax rate of 21%.
Volume and Rate Variance Analysis
The following table sets forth the effect of volume and rate changes on interest income and expense for the periods indicated. For the purpose of this table, changes in interest due to volume and rate were determined as follows:
Volume—change in volume multiplied by the previous period's FTE rate.
Rate—change in the FTE rate multiplied by the previous period's volume.
All interest income presented in the table below is reported on a FTE basis using a federal income tax rate of 21%. 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.

| 2023 Compared to 2022 Increase (Decrease) Due to |  | 2022 Compared to 2021 Increase (Decrease) Due to
| Volume |  | Rate |  | Net |  | Volume |  | Rate |  | Net
Changes in interest income |  |  |  |  |  |  |  |  |  |  |
Loans | $ | 2,621 |  |  | $ | 9,766 |  |  | $ | 12,387 |  |  | $ | 1,769 |  |  | $ | 104 |  |  | $ | 1,873 |
Taxable investment securities | 151 |  |  | 954 |  |  | 1,105 |  |  | 3,114 |  |  | 260 |  |  | 3,374 |
Nontaxable investment securities | (393) |  |  | 240 |  |  | (153) |  |  | (396) |  |  | 94 |  |  | (302) |
Fed Funds Sold | — |  |  | 1 |  |  | 1 |  |  | — |  |  | — |  |  | — |
Other | (1,130) |  |  | 1,590 |  |  | 460 |  |  | (659) |  |  | 1,297 |  |  | 638 |
Total changes in interest income | 1,249 |  |  | 12,551 |  |  | 13,800 |  |  | 3,828 |  |  | 1,755 |  |  | 5,583 |
Changes in interest expense |  |  |  |  |  |  |  |  |  |  |
Interest bearing demand deposits | (22) |  |  | 834 |  |  | 812 |  |  | 20 |  |  | 38 |  |  | 58 |
Savings deposits | (8) |  |  | 7,163 |  |  | 7,155 |  |  | 89 |  |  | 430 |  |  | 519 |
Time deposits | 420 |  |  | 5,944 |  |  | 6,364 |  |  | (796) |  |  | (1,202) |  |  | (1,998) |
Federal funds purchased and repurchase agreements | (12) |  |  | 894 |  |  | 882 |  |  | (8) |  |  | 34 |  |  | 26 |
FHLB advances | 602 |  |  | 555 |  |  | 1,157 |  |  | (1,187) |  |  | 37 |  |  | (1,150) |
Subordinated debt, net of unamortized issuance costs | 3 |  |  | (3) |  |  | — |  |  | 445 |  |  | 5 |  |  | 450 |
Total changes in interest expense | 983 |  |  | 15,387 |  |  | 16,370 |  |  | (1,437) |  |  | (658) |  |  | (2,095) |
Net change in interest margin (FTE) | $ | 266 |  |  | $ | (2,836) |  |  | $ | (2,570) |  |  | $ | 5,265 |  |  | $ | 2,413 |  |  | $ | 7,678 |

Over the past several quarters, rising rates on deposit accounts and an increase in borrowed funds have reversed the improvement in our net interest margin. The higher interest rate environment is expected to continue to place pressure and slow improvement on our net yield on interest earning assets.

| Average Yield / Rate for the Three-Month Periods Ended:
| December 31 2023 |  | September 30 2023 |  | June 30 2023 |  | March 31 2023 |  | December 31 2022
Total earning assets | 4.38 | % |  | 4.30 | % |  | 4.11 | % |  | 3.89 | % |  | 3.77 | %
Total interest bearing liabilities | 2.13 | % |  | 1.79 | % |  | 1.41 | % |  | 0.95 | % |  | 0.49 | %
Net yield on interest earning assets (FTE) | 2.85 | % |  | 3.02 | % |  | 3.11 | % |  | 3.22 | % |  | 3.43 | %

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| Quarter to Date Net Interest Income (FTE)
| December 31 2023 |  | September 30 2023 |  | June 30 2023 |  | March 31 2023 |  | December 31 2022
Total interest income (FTE) | $ | 21,302 |  |  | $ | 20,735 |  |  | $ | 19,750 |  |  | $ | 18,867 |  |  | $ | 18,183 |
Total interest expense | 7,444 |  |  | 6,183 |  |  | 4,816 |  |  | 3,244 |  |  | 1,643 |
Net interest income (FTE) | $ | 13,858 |  |  | $ | 14,552 |  |  | $ | 14,934 |  |  | $ | 15,623 |  |  | $ | 16,540 |

Past Due and Nonaccrual Loans
Fluctuations in past due and nonaccrual loans can have a significant impact on the ACL. To determine the potential impact, and corresponding estimated losses, we analyze our historical loss trends on loans past due greater than 30 days and nonaccrual loans for indications of additional deterioration.

| Total Past Due and Nonaccrual Loans as of December 31
| 2023 |  | 2022 |  | 2021 |  | 2020 |  | 2019
Commercial and industrial | $ | 656 |  |  | $ | 617 |  |  | $ | 203 |  |  | $ | 1,790 |  |  | $ | 1,936 |
Commercial real estate | — |  |  | 6,887 |  |  | 358 |  |  | 358 |  |  | 559 |
Agricultural | 205 |  |  | 234 |  |  | 987 |  |  | 3,786 |  |  | 4,285 |
Residential real estate | 3,910 |  |  | 3,333 |  |  | 2,287 |  |  | 3,580 |  |  | 4,554 |
Consumer | 193 |  |  | 59 |  |  | 196 |  |  | 96 |  |  | 71 |
Total | $ | 4,964 |  |  | $ | 11,130 |  |  | $ | 4,031 |  |  | $ | 9,610 |  |  | $ | 11,405 |
Total past due and nonaccrual loans to gross loans | 0.37 | % |  | 0.88 | % |  | 0.31 | % |  | 0.78 | % |  | 0.96 | %

The increase in past due and nonaccrual loans within the commercial real estate and residential loan portfolios at the end of 2022 was the result of one past due relationship, which has since improved. 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 following table summarizes nonaccrual loans as of:

| December 31 2023 |  | September 30 2023 |  | June 30 2023 |  | March 31 2023 |  | December 31 2022
Commercial and industrial | $ | 491 |  |  | $ | 17 |  |  | $ | 17 |  |  | $ | 20 |  |  | $ | 82 |
Commercial real estate | — |  |  | — |  |  | — |  |  | 57 |  |  | 14 |
Agricultural | 205 |  |  | 208 |  |  | 218 |  |  | 232 |  |  | 234 |
Residential real estate | 286 |  |  | 295 |  |  | 179 |  |  | 179 |  |  | 127 |
Total | $ | 982 |  |  | $ | 520 |  |  | $ | 414 |  |  | $ | 488 |  |  | $ | 457 |
Nonaccrual loans as a % of loans at end of period | 0.07 | % |  | 0.04 | % |  | 0.03 | % |  | 0.04 | % |  | 0.04 | %

A summary of loans past due by type and information related to nonaccrual status loans are included in “Note 4 – Loans and ACL” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.
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Nonperforming Assets
The following table summarizes our nonperforming assets as of December 31:

| 2023 |  | 2022 |  | 2021 |  | 2020 |  | 2019
Nonaccrual loans | $ | 982 |  |  | $ | 457 |  |  | $ | 1,245 |  |  | $ | 5,313 |  |  | $ | 6,535 |
Accruing loans past due 90 days or more | 87 |  |  | — |  |  | 97 |  |  | — |  |  | — |
Total nonperforming loans | 1,069 |  |  | 457 |  |  | 1,342 |  |  | 5,313 |  |  | 6,535 |
Foreclosed assets | 406 |  |  | 439 |  |  | 211 |  |  | 527 |  |  | 456 |
Debt securities | 12 |  |  | 77 |  |  | 131 |  |  | 230 |  |  | 230 |
Total nonperforming assets | $ | 1,487 |  |  | $ | 973 |  |  | $ | 1,684 |  |  | $ | 6,070 |  |  | $ | 7,221 |
Nonperforming loans as a % of total loans | 0.08 | % |  | 0.04 | % |  | 0.10 | % |  | 0.43 | % |  | 0.55 | %
Nonperforming assets as a % of total assets | 0.07 | % |  | 0.05 | % |  | 0.08 | % |  | 0.31 | % |  | 0.40 | %

ACL - Loans
The viability of any financial institution is ultimately determined by its management of risk. Loans represent our single largest concentration of risk. The ACL is our estimation of expected credit losses within the existing loan portfolio. We allocate the ACL throughout the loan portfolio based on our assessment of the underlying risks associated within each loan segment. Our assessments include allocations based on specific valuation allowances, historical charge-offs, internally assigned credit risk ratings, past due and nonaccrual balances, historical loss percentages, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future.
Upon the adoption of ASC 326 on January 1, 2023, the total amount of the allowance for credit losses on loans estimated using the CECL methodology increased $2,744 compared to the total amount of the allowance for credit losses on loans estimated as of December 31, 2022 using the prior incurred loss methodology. The manner in which credit loss allowances are allocated to the individual portfolio segments was partly impacted by a change in the way the underlying loans within each segment are pooled for modeling purposes. The impact of varying economic conditions and portfolio risk factors are now a component of the credit loss models applied to each modeling pool. In that regard, the amounts allocated to the underlying pools of loans within each portfolio segment more directly reflect the economic variables and portfolio stress factors that correlate with credit losses within each portfolio. Under the prior methodology, allocations in excess of those derived from historical loss rates were recognized as unallocated. Nonetheless, despite fluctuations in the allocation of portions of the overall allowance to the various portfolio segments, the entire allowance is available to absorb any credit losses within the entire loan portfolio.
The following table summarizes our charge-offs, recoveries, provision for credit losses, and ACL balances as of, and for the unaudited three month periods ended:

| December 31 2023 |  | September 30 2023 |  | June 30 2023 |  | March 31 2023 |  | December 31 2022
Total charge-offs | $ | 452 |  |  | $ | 179 |  |  | $ | 92 |  |  | $ | 101 |  |  | $ | 249 |
Total recoveries | 71 |  |  | 433 |  |  | 95 |  |  | 110 |  |  | 479 |
Net loan charge-offs (recoveries) | 381 |  |  | (254) |  |  | (3) |  |  | (9) |  |  | (230) |
Net loan charge-offs (recoveries) to average loans outstanding | 0.03 | % |  | (0.02) | % |  | 0.00 | % |  | 0.00 | % |  | (0.02) | %
Provision for credit losses - loans | $ | 684 |  |  | $ | (320) |  |  | $ | 190 |  |  | $ | 37 |  |  | $ | (57) |
Provision for credit losses to average loans outstanding | 0.05 | % |  | (0.02) | % |  | 0.01 | % |  | 0.00 | % |  | 0.00 | %
ACL | $ | 13,108 |  |  | $ | 12,767 |  |  | $ | 12,833 |  |  | $ | 12,640 |  |  | $ | 9,850 |
ACL as a % of loans at end of period | 0.97 | % |  | 0.96 | % |  | 0.96 | % |  | 0.99 | % |  | 0.78 | %

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The following table summarizes charge-off and recovery activity by loan segment for the year ended December 31, 2023:

| Commercial and Industrial |  | Commercial Real Estate |  | Agricultural |  | Residential Real Estate |  | Consumer |  | Total
Charge-offs | $ | 276 |  |  | $ | — |  |  | $ | 4 |  |  | $ | 2 |  |  | $ | 542 |  |  | $ | 824 |
Recoveries | 79 |  |  | 26 |  |  | 12 |  |  | 329 |  |  | 263 |  |  | 709 |
Net loan charge-offs (recoveries) | $ | 197 |  |  | $ | (26) |  |  | $ | (8) |  |  | $ | (327) |  |  | $ | 279 |  |  | $ | 115 |
Average loans outstanding | $ | 203,390 |  |  | $ | 547,166 |  |  | $ | 96,967 |  |  | $ | 345,630 |  |  | $ | 97,485 |  |  | $ | 1,290,638 |
Net loan charge-offs (recoveries) to average loans outstanding | 0.10 | % |  | — | % |  | (0.01) | % |  | (0.09) | % |  | 0.29 | % |  | 0.01 | %

The following table summarizes charge-offs, recoveries, and provision for credit loss activity for the years ended December 31:

| 2023 |  | 2022 |  | 2021 |  | 2020 |  | 2019
Allowance at beginning of period | $ | 9,850 |  |  | $ | 9,103 |  |  | $ | 9,744 |  |  | $ | 7,939 |  |  | $ | 8,375 |
Adoption of ASC 326 | 2,744 |  |  | — |  |  | — |  |  | — |  |  | — |
Charge-offs | 824 |  |  | 619 |  |  | 607 |  |  | 381 |  |  | 948 |
Recoveries | 709 |  |  | 883 |  |  | 484 |  |  | 521 |  |  | 482 |
Provision for credit losses - loans | 629 |  |  | 483 |  |  | (518) |  |  | 1,665 |  |  | 30 |
Allowance at end of period | $ | 13,108 |  |  | $ | 9,850 |  |  | $ | 9,103 |  |  | $ | 9,744 |  |  | $ | 7,939 |
Net loan charge-offs (recoveries) | $ | 115 |  |  | $ | (264) |  |  | $ | 123 |  |  | $ | (140) |  |  | $ | 466 |
Net loan charge-offs (recoveries) to average loans outstanding | 0.01 | % |  | (0.02) | % |  | 0.01 | % |  | (0.01) | % |  | 0.04 | %
ACL as a % of loans at end of period | 0.97 | % |  | 0.78 | % |  | 0.70 | % |  | 0.79 | % |  | 0.67 | %
ACL as a % of nonaccrual loans | 1334.83 | % |  | 2155.36 | % |  | 731.16 | % |  | 183.40 | % |  | 121.48 | %

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

| December 31 2023 |  | September 30 2023 |  | June 30 2023 |  | March 31 2023 |  | December 31 2022
ACL |  |  |  |  |  |  |  |  |
Individually evaluated | $ | 84 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 451 |
Collectively evaluated | 13,024 |  |  | 12,767 |  |  | 12,833 |  |  | 12,640 |  |  | 9,399 |
Total | $ | 13,108 |  |  | $ | 12,767 |  |  | $ | 12,833 |  |  | $ | 12,640 |  |  | $ | 9,850 |
ACL to gross loans |  |  |  |  |  |  |  |  |
Individually evaluated | 0.01 | % |  | 0.00 | % |  | 0.00 | % |  | 0.00 | % |  | 0.04 | %
Collectively evaluated | 0.96 | % |  | 0.96 | % |  | 0.96 | % |  | 0.99 | % |  | 0.74 | %
Total | 0.97 | % |  | 0.96 | % |  | 0.96 | % |  | 0.99 | % |  | 0.78 | %

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The following table illustrates the amounts of the ACL and ALLL allocated to each loan segment and the percentage of these loan segments to gross loans as of December 31:

| 2023 |  | 2022 |  | 2021 |  | 2020 |  | 2019
| ACL Allocation |  | % of Gross Loans |  | ALLL Allocation |  | % of Gross Loans |  | ALLL Allocation |  | % of Gross Loans |  | ALLL Allocation |  | % of Gross Loans |  | ALLL Allocation |  | % of Gross Loans
Commercial and industrial | $ | 968 |  |  | 15.54 |  |  | $ | 860 |  |  | 14.11 |  |  | $ | 680 |  |  | 13.91 |  |  | $ | 704 |  |  | 17.37 |  |  | $ | 644 |  |  | 14.25 |
Commercial real estate | 5,878 |  |  | 41.82 |  |  | 461 |  |  | 44.78 |  |  | 1,060 |  |  | 42.89 |  |  | 1,458 |  |  | 39.99 |  |  | 1,270 |  |  | 42.22 |
Advances to mortgage brokers | — |  |  | 1.37 |  |  | — |  |  | — |  |  | — |  |  | 5.53 |  |  | — |  |  | 4.06 |  |  | — |  |  | 2.99 |
Agricultural | 270 |  |  | 7.41 |  |  | 577 |  |  | 8.30 |  |  | 289 |  |  | 7.27 |  |  | 311 |  |  | 8.12 |  |  | 634 |  |  | 9.87 |
Residential real estate | 4,336 |  |  | 26.41 |  |  | 617 |  |  | 26.64 |  |  | 747 |  |  | 24.77 |  |  | 1,363 |  |  | 24.51 |  |  | 2,047 |  |  | 24.76 |
Consumer | 1,656 |  |  | 7.45 |  |  | 961 |  |  | 6.17 |  |  | 908 |  |  | 5.63 |  |  | 798 |  |  | 5.95 |  |  | 922 |  |  | 5.91 |
Total Allocated | 13,108 |  |  | 100.00 |  |  | 3,476 |  |  | 100.00 |  |  | 3,684 |  |  | 100.00 |  |  | 4,634 |  |  | 100.00 |  |  | 5,517 |  |  | 100.00 |
Unallocated | — |  |  | — |  |  | 6,374 |  |  | — |  |  | 5,419 |  |  | — |  |  | 5,110 |  |  | — |  |  | 2,422 |  |  | — |
Total | $ | 13,108 |  |  | 100.00 |  |  | $ | 9,850 |  |  | 100.00 |  |  | $ | 9,103 |  |  | 100.00 |  |  | $ | 9,744 |  |  | 100.00 |  |  | $ | 7,939 |  |  | 100.00 |

While we utilize our best judgment and information available, the ultimate adequacy of the ACL is dependent upon a variety of factors beyond our control, including the performance of our borrowers, the economy, and changes in interest rates. We closely monitor overall credit quality indicators and our policies and procedures related to the analysis of the ACL to ensure that the ACL remains at an appropriate level.
For further discussion of the allocation of the ACL, see “Note 4 – Loans and ACL” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.
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Noninterest Income and Noninterest Expenses
Significant noninterest income balances are highlighted in the following table for the years ended December 31:

|  |  |  |  | Change |  |  |  | Change
| 2023 |  | 2022 |  | $ |  | % |  | 2021 |  | $ |  | %
Service charges and fees |  |  |  |  |  |  |  |  |  |  |  |  |
ATM and debit card fees | $ | 5,051 |  |  | $ | 4,774 |  |  | $ | 277 |  |  | 5.80 | % |  | $ | 4,600 |  |  | $ | 174 |  |  | 3.78 | %
Service charges and fees on deposit accounts | 2,413 |  |  | 2,566 |  |  | (153) |  |  | (5.96) | % |  | 2,139 |  |  | 427 |  |  | 19.96 | %
Freddie Mac servicing fee | 630 |  |  | 669 |  |  | (39) |  |  | (5.83) | % |  | 747 |  |  | (78) |  |  | (10.44) | %
Net OMSR income (loss) | (137) |  |  | 435 |  |  | (572) |  |  | (131.49) | % |  | (184) |  |  | 619 |  |  | 336.41 | %
Other fees for customer services | 340 |  |  | 286 |  |  | 54 |  |  | 18.88 | % |  | 312 |  |  | (26) |  |  | (8.33) | %
Total service charges and fees | 8,297 |  |  | 8,730 |  |  | (433) |  |  | (4.96) | % |  | 7,614 |  |  | 1,116 |  |  | 14.66 | %
Wealth management fees | 3,557 |  |  | 3,005 |  |  | 552 |  |  | 18.37 | % |  | 3,071 |  |  | (66) |  |  | (2.15) | %
Earnings on corporate owned life insurance policies | 920 |  |  | 884 |  |  | 36 |  |  | 4.07 | % |  | 800 |  |  | 84 |  |  | 10.50 | %
Net gain on sale of mortgage loans | 317 |  |  | 631 |  |  | (314) |  |  | (49.76) | % |  | 1,694 |  |  | (1,063) |  |  | (62.75) | %
Other | 736 |  |  | 416 |  |  | 320 |  |  | 76.92 | % |  | 643 |  |  | (227) |  |  | (35.30) | %
Total noninterest income | $ | 13,827 |  |  | $ | 13,666 |  |  | $ | 161 |  |  | 1.18 | % |  | $ | 13,822 |  |  | $ | (156) |  |  | (1.13) | %

During 2022, we experienced an increase in service charges and fees on deposit accounts mainly due to an increase in the number of deposit accounts. Although deposit accounts continued to grow in 2023, we experienced a decline in fees due to the discontinuation of NSF fees. Although we expect a continuation in deposit account growth in 2024, fee levels may not exceed 2023 due to continued regulatory discussions around the practice of service charges and fees.
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. During 2022, prepayment speeds declined as a result of an increase in interest rates, resulting in income recognized during 2022. During 2023 the volume of loans serviced decreased, resulting in the recognition of losses. OMSR income during 2024 may continue to experience fluctuations and could vary from 2023 levels.
During 2023, we experienced an increase in wealth management fees driven by a combination of the growth in the stock market and increased new business activity. During 2022, there was strong growth in assets managed by Isabella Wealth, however the decline in the market offset the increase in fees related to growth in new business. We expect wealth management fees to exceed 2023 levels in 2024 as a result of new business activity.
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 due to increased interest rates, net gain on sale of mortgage loans declined in the second half of 2021 and during 2022. During 2023, we experienced a decrease in gain on sale of mortgage loans as loan demand continued to decline. As demand is expected to remain at reduced levels in 2024, gain on sale of mortgage loans is not expected to exceed 2023 levels during 2024.
The fluctuations in all other income are spread throughout various categories, none of which is individually significant.
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Significant noninterest expense balances are highlighted in the following table for the years ended December 31:

|  |  |  |  | Change |  |  |  | Change
| 2023 |  | 2022 |  | $ |  | % |  | 2021 |  | $ |  | %
Compensation and benefits | $ | 25,905 |  |  | $ | 24,887 |  |  | $ | 1,018 |  |  | 4.09 | % |  | $ | 23,749 |  |  | $ | 1,138 |  |  | 4.79 | %
Furniture and equipment | 6,519 |  |  | 6,006 |  |  | 513 |  |  | 8.54 | % |  | 5,462 |  |  | 544 |  |  | 9.96 | %
Occupancy | 3,778 |  |  | 3,691 |  |  | 87 |  |  | 2.36 | % |  | 3,661 |  |  | 30 |  |  | 0.82 | %
Other |  |  |  |  |  |  |  |  |  |  |  |  |
Audit, consulting, and legal fees | 2,340 |  |  | 2,358 |  |  | (18) |  |  | (0.76) | % |  | 2,066 |  |  | 292 |  |  | 14.13 | %
ATM and debit card fees | 1,767 |  |  | 1,909 |  |  | (142) |  |  | (7.44) | % |  | 1,810 |  |  | 99 |  |  | 5.47 | %
Marketing costs | 1,159 |  |  | 1,056 |  |  | 103 |  |  | 9.75 | % |  | 939 |  |  | 117 |  |  | 12.46 | %
Memberships and subscriptions | 1,042 |  |  | 876 |  |  | 166 |  |  | 18.95 | % |  | 877 |  |  | (1) |  |  | (0.11) | %
Loan underwriting fees | 927 |  |  | 1,004 |  |  | (77) |  |  | (7.67) | % |  | 849 |  |  | 155 |  |  | 18.26 | %
FDIC insurance premiums | 922 |  |  | 537 |  |  | 385 |  |  | 71.69 | % |  | 690 |  |  | (153) |  |  | (22.17) | %
Donations and community relations | 915 |  |  | 923 |  |  | (8) |  |  | (0.87) | % |  | 705 |  |  | 218 |  |  | 30.92 | %
Other losses | 871 |  |  | 546 |  |  | 325 |  |  | 59.52 | % |  | 194 |  |  | 352 |  |  | 181.44 | %
Director fees | 764 |  |  | 790 |  |  | (26) |  |  | (3.29) | % |  | 703 |  |  | 87 |  |  | 12.38 | %
All other | 2,401 |  |  | 2,237 |  |  | 164 |  |  | 7.33 | % |  | 1,989 |  |  | 248 |  |  | 12.47 | %
Total other noninterest expenses | 13,108 |  |  | 12,236 |  |  | 872 |  |  | 7.13 | % |  | 10,822 |  |  | 1,414 |  |  | 13.07 | %
Total noninterest expenses | $ | 49,310 |  |  | $ | 46,820 |  |  | $ | 2,490 |  |  | 5.32 | % |  | $ | 43,694 |  |  | $ | 3,126 |  |  | 7.15 | %

The increase in compensation and benefits has been driven by merit increases and our employee incentive plans. We closely monitor compensation levels to ensure we attract and retain talent in a competitive labor market. While expenses related to our employee incentive plans fluctuate based on financial performance, compensation and benefits expense in 2024 is expected to continue to increase as a result of anticipated merit increases and insurance related benefits.
The decrease in ATM and debit card fees is primarily the result of a cost savings related to vendor reporting services. While the savings in the service fees will continue, ATM and debit card fees are expected to exceed 2023 levels in 2024 as a result of the continuation of increased card usage.
The increase in FDIC insurance premiums is due to the FDIC adopting a final rule, applicable to all insured depository institutions, to increase initial base deposit insurance assessment rate schedules uniformly by 2 basis points, beginning in the first quarterly assessment period of 2023. The increase in assessment rate schedules is intended to increase the likelihood that the reserve ratio of the Deposit Insurance fund reaches the statutory minimum of 1.35 percent by the statutory deadline of September 30, 2028. FDIC premiums are expected to maintain 2023 levels into 2024.
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. During 2023 we maintained the same level of community support as in 2022. In 2024 we do not expect donations and community relations to exceed 2023 levels.
During the second quarter of 2023, we recognized a loss related to the settlement of a business matter. No further losses are anticipated related to this matter. As such, other losses are expected to decline during 2024 when compared to 2023 levels.
The fluctuations in all other noninterest expenses are spread throughout various categories, none of which is individually significant.
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Analysis of Changes in Financial Condition
The following table shows the composition and changes in our balance sheet as of December 31:

|  |  |  |  | Change
| 2023 |  | 2022 |  | $ |  | %
ASSETS |  |  |  |  |  |  |
Cash and cash equivalents | $ | 33,672 |  |  | $ | 38,924 |  |  | $ | (5,252) |  |  | (13.49) | %
AFS securities |  |  |  |  |  |  |
Amortized cost of AFS securities | 559,974 |  |  | 625,605 |  |  | (65,631) |  |  | (10.49) | %
Unrealized gains (losses) on AFS securities | (31,826) |  |  | (45,124) |  |  | 13,298 |  |  | N/M
AFS securities | 528,148 |  |  | 580,481 |  |  | (52,333) |  |  | (9.02) | %
Mortgage loans AFS | — |  |  | 379 |  |  | (379) |  |  | (100.00) | %
Loans | 1,349,463 |  |  | 1,264,173 |  |  | 85,290 |  |  | 6.75 | %
Less allowance for credit losses | 13,108 |  |  | 9,850 |  |  | 3,258 |  |  | 33.08 | %
Net loans | 1,336,355 |  |  | 1,254,323 |  |  | 82,032 |  |  | 6.54 | %
Premises and equipment | 27,639 |  |  | 25,553 |  |  | 2,086 |  |  | 8.16 | %
Corporate owned life insurance policies | 33,892 |  |  | 32,988 |  |  | 904 |  |  | 2.74 | %
Equity securities without readily determinable fair values | 15,848 |  |  | 15,746 |  |  | 102 |  |  | 0.65 | %
Goodwill and other intangible assets | 48,284 |  |  | 48,287 |  |  | (3) |  |  | (0.01) | %
Accrued interest receivable and other assets | 35,130 |  |  | 33,586 |  |  | 1,544 |  |  | 4.60 | %
TOTAL ASSETS | $ | 2,058,968 |  |  | $ | 2,030,267 |  |  | $ | 28,701 |  |  | 1.41 | %
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |  |  |  |
Liabilities |  |  |  |  |  |  |
Deposits | $ | 1,723,695 |  |  | $ | 1,744,275 |  |  | $ | (20,580) |  |  | (1.18) | %
Borrowed funds | 116,136 |  |  | 87,016 |  |  | 29,120 |  |  | 33.47 | %
Accrued interest payable and other liabilities | 16,735 |  |  | 12,766 |  |  | 3,969 |  |  | 31.09 | %
Total liabilities | 1,856,566 |  |  | 1,844,057 |  |  | 12,509 |  |  | 0.68 | %
Shareholders’ equity | 202,402 |  |  | 186,210 |  |  | 16,192 |  |  | 8.70 | %
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 2,058,968 |  |  | $ | 2,030,267 |  |  | $ | 28,701 |  |  | 1.41 | %

A discussion of changes in balance sheet amounts by major categories follows:
Cash and cash equivalents
Included in cash and cash equivalents are funds held with the FRB which fluctuate from period to period. Cash levels declined slightly during 2023 driven by funding for loan growth.
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AFS securities
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. The following is a schedule of the carrying value of AFS securities as of December 31:

| 2023 |  | 2022 |  | 2021
U.S. Treasury | $ | 214,801 |  |  | $ | 208,701 |  |  | $ | 209,703 |
States and political subdivisions | 92,876 |  |  | 117,512 |  |  | 121,205 |
Auction rate money market preferred | 2,931 |  |  | 2,342 |  |  | 3,242 |
Mortgage-backed securities | 32,815 |  |  | 39,070 |  |  | 56,148 |
Collateralized mortgage obligations | 177,775 |  |  | 205,728 |  |  | 92,301 |
Corporate | 6,950 |  |  | 7,128 |  |  | 8,002 |
Total | $ | 528,148 |  |  | $ | 580,481 |  |  | $ | 490,601 |

Excluding those holdings in government sponsored enterprises and municipalities within the State of Michigan, there were no investments in securities of any one issuer that exceeded 10% of shareholders’ equity during 2023, 2022, and 2021. We have a policy prohibiting investments in securities that we deem unsuitable due to their inherent credit or market risks. Prohibited investments include stripped mortgage-backed securities, zero coupon bonds, non-government agency asset-backed securities, and structured notes. Our holdings in mortgage-backed securities and collateralized mortgage obligations include only government agencies and government sponsored agencies as we hold no investments in private label mortgage-backed securities or collateralized mortgage obligations.
The following is a schedule of maturities of AFS securities and their weighted average yields as of December 31, 2023. Weighted average yields have been computed on an FTE basis using a tax rate of 21%. Our auction rate money market preferred investments are long-term floating rate instruments. The issuers of auction rate securities generally have the right to redeem or refinance the debt. Because of their lack of contractual maturities, auction rate money market preferred stocks are not reported by a specific maturity group. Mortgage-backed securities and collateralized mortgage obligations are not reported by a specific maturity group due to their variable monthly payments. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.

| Maturing |  |  |  |
| Within One Year |  | After One Year But Within Five Years |  | After Five Years But Within Ten Years |  | After Ten Years |  | Securities with Variable Monthly Payments or Noncontractual Maturities
| Amount |  | Yield (%) |  | Amount |  | Yield (%) |  | Amount |  | Yield (%) |  | Amount |  | Yield (%) |  | Amount |  | Yield (%)
U.S. Treasury | $ | — |  |  | — |  |  | $ | 214,801 |  |  | 0.98 |  |  | $ | — |  |  | — |  |  | $ | — |  |  | — |  |  | $ | — |  |  | — |
States and political subdivisions | 15,907 |  |  | 3.65 |  |  | 28,197 |  |  | 3.13 |  |  | 19,450 |  |  | 2.93 |  |  | 29,322 |  |  | 3.58 |  |  | — |  |  | — |
Mortgage-backed securities | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 32,815 |  |  | 2.36 |
Collateralized mortgage obligations | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 177,775 |  |  | 2.91 |
Auction rate money market preferred | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2,931 |  |  | 7.78 |
Corporate | — |  |  | — |  |  | — |  |  | — |  |  | 6,950 |  |  | 3.78 |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 15,907 |  |  | 3.65 |  |  | $ | 242,998 |  |  | 0.27 |  |  | $ | 26,400 |  |  | 3.15 |  |  | $ | 29,322 |  |  | 3.58 |  |  | $ | 213,521 |  |  | 2.90 |

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Loans
Loans are the largest component of earning assets. The proper management of credit and market risk inherent in the loan portfolio is critical to our financial stability. To control these risks, we have adopted strict underwriting standards, lending limits to a single borrower, loan to collateral value limits, and a defined market area. We also monitor and limit loan concentrations to specific industries. We have no foreign loans and there were no concentrations greater than 10% of total loans that are not disclosed as a separate category in the following table.
The following table presents the composition of the loan portfolio for the years ended December 31:

| 2023 |  | 2022 |  | 2021 |  | 2020 |  | 2019
Commercial and industrial | $ | 209,738 |  |  | $ | 178,428 |  |  | $ | 180,975 |  |  | $ | 215,101 |  |  | $ | 169,116 |
Commercial real estate | 564,244 |  |  | 566,012 |  |  | 557,905 |  |  | 495,232 |  |  | 500,876 |
Advances to mortgage brokers | 18,541 |  |  | — |  |  | 72,001 |  |  | 50,258 |  |  | 35,523 |
Agricultural | 99,994 |  |  | 104,985 |  |  | 94,634 |  |  | 100,600 |  |  | 117,136 |
Residential real estate | 356,418 |  |  | 336,694 |  |  | 322,239 |  |  | 303,500 |  |  | 293,779 |
Consumer | 100,528 |  |  | 78,054 |  |  | 73,283 |  |  | 73,620 |  |  | 70,140 |
Total | $ | 1,349,463 |  |  | $ | 1,264,173 |  |  | $ | 1,301,037 |  |  | $ | 1,238,311 |  |  | $ | 1,186,570 |

The following table presents the change in the loan portfolio categories for the years ended December 31:

| 2023 |  | 2022 |  | 2021
| $ Change |  | % Change |  | $ Change |  | % Change |  | $ Change |  | % Change
Commercial and industrial | $ | 31,310 |  |  | 17.55 | % |  | $ | (2,547) |  |  | (1.41) | % |  | $ | (34,126) |  |  | (15.87) | %
Commercial real estate | (1,768) |  |  | (0.31) | % |  | 8,107 |  |  | 1.45 | % |  | 62,673 |  |  | 12.66 | %
Advances to mortgage brokers | 18,541 |  |  | 100.00 | % |  | (72,001) |  |  | (100.00) | % |  | 21,743 |  |  | 43.26 | %
Agricultural | (4,991) |  |  | (4.75) | % |  | 10,351 |  |  | 10.94 | % |  | (5,966) |  |  | (5.93) | %
Residential real estate | 19,724 |  |  | 5.86 | % |  | 14,455 |  |  | 4.49 | % |  | 18,739 |  |  | 6.17 | %
Consumer | 22,474 |  |  | 28.79 | % |  | 4,771 |  |  | 6.51 | % |  | (337) |  |  | (0.46) | %
Total | $ | 85,290 |  |  | 6.75 | % |  | $ | (36,864) |  |  | (2.83) | % |  | $ | 62,726 |  |  | 5.07 | %

We've experienced an increase in the commercial loan portfolio in recent periods as demand has increased. With the increased activity in mortgage lending in the second quarter of 2023, we elected to resume participation in a mortgage purchase program. Our participation in this program paused during most of 2022 and the first quarter of 2023 due to low mortgage volume. Residential mortgage lending activities continues to increase despite increased interest rates. As interest rates are expected to remain high throughout 2024, growth in residential loans is anticipated to continue, but at a slower pace. We've experienced growth in the consumer portfolio and expect this trend to continue in 2024.
Accrued interest receivable and other assets
Other assets consist primarily of prepaid expenses, OMSR, and net deferred tax assets. For more information related to estimates and deferred taxes, refer to “Note 1 – Significant Accounting Policies” and “Note 15 – Federal Income Taxes” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.
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Deposits
Deposits are our primary source of funding. The following table presents the composition of the deposit portfolio as of December 31:

| 2023 |  | 2022 |  | 2021
Noninterest bearing demand deposits | $ | 428,505 |  |  | $ | 494,346 |  |  | $ | 448,352 |
Interest bearing demand deposits | 320,737 |  |  | 372,155 |  |  | 364,563 |
Savings deposits | 628,079 |  |  | 625,734 |  |  | 596,662 |
Certificates of deposit | 346,125 |  |  | 251,541 |  |  | 297,696 |
Internet certificates of deposit | 249 |  |  | 499 |  |  | 3,066 |
Total | $ | 1,723,695 |  |  | $ | 1,744,275 |  |  | $ | 1,710,339 |

The following table presents the change in the deposit categories for the years ended December 31:

| 2023 |  | 2022
| $ Change |  | % Change |  | $ Change |  | % Change
Noninterest bearing demand deposits | $ | (65,841) |  |  | (13.32) | % |  | $ | 45,994 |  |  | 10.26 | %
Interest bearing demand deposits | (51,418) |  |  | (13.82) | % |  | 7,592 |  |  | 2.08 | %
Savings deposits | 2,345 |  |  | 0.37 | % |  | 29,072 |  |  | 4.87 | %
Certificates of deposit | 94,584 |  |  | 37.60 | % |  | (46,155) |  |  | (15.50) | %
Internet certificates of deposit | (250) |  |  | (50.10) | % |  | (2,567) |  |  | (83.72) | %
Total | $ | (20,580) |  |  | (1.18) | % |  | $ | 33,936 |  |  | 1.98 | %

Total deposits have decreased over the past 12 months driven by a decline in demand deposits. We have experienced significant growth in certificates of deposit accounts during 2023 as a result of increased interest rates. We expect interest rates on deposits to continue to rise into 2024 due to competitive pressures, and anticipate a continuation in the shift of customers moving to higher interest earning products.
The following table presents estimated balances of uninsured deposits as of December 31:

| 2023 |  | 2022 |  | 2021 |  | 2020 |  | 2019
Uninsured deposits | $ | 600,381 |  |  | $ | 585,901 |  |  | $ | 548,213 |  |  | $ | 461,859 |  |  | $ | 336,399 |

Uninsured deposits are the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limits. The balance provided above are estimates and reflect the methodologies and assumptions used for regulatory reporting of uninsured deposits. The remaining maturity of estimated uninsured certificates of deposit, by account, as of December 31, 2023 is presented in the table below. Estimated uninsured certificates of deposit is based on individual accounts and does not reflect uninsured balances by account owner.

Maturity |
Within 3 months | $ | 13,396 |
Within 3 to 6 months | 14,383 |
Within 6 to 12 months | 23,555 |
Over 12 months | 8,350 |
Total | $ | 59,684 |

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Borrowed Funds
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 presents borrowed funds balances as of December 31:

| 2023 |  | 2022 |  | 2021
Securities sold under agreements to repurchase without stated maturity dates | $ | 46,801 |  |  | $ | 57,771 |  |  | $ | 50,162 |
FHLB advances | 40,000 |  |  | — |  |  | 20,000 |
Subordinated debt, net of unamortized issuance costs | 29,335 |  |  | 29,245 |  |  | 29,158 |
Total | $ | 116,136 |  |  | $ | 87,016 |  |  | $ | 99,320 |

FHLB advances outstanding as of December 31, 2023 were short-term, with maturities within a week after December 31, 2023. In 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. For additional disclosure related to borrowed funds, see “Note 8 – Borrowed Funds” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.
Accrued interest payable and other liabilities
Included in accrued interest payable and other liabilities are obligations related to our defined benefit pension plan and other employee benefits. For more information on the defined benefit pension plan and other employee benefits, see “Note 12 – Benefit Plans” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.
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 indicate our future cash requirements.
For additional disclosure related to Contractual Obligations and Loan Commitments, see “Note 9 – Off-Balance-Sheet Activities, Commitments and Other Matters” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.
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 75,488 shares or $1,617 of common stock during 2023, and 74,445 shares or $1,762 of common stock in 2022. We offer the Directors Plan in which participants purchase stock units through deferred fees, in lieu of cash payments. Pursuant to this plan, we increased shareholders’ equity by $529 and $463 during 2023 and 2022, respectively. We also grant restricted stock awards pursuant to the RSP, effective June 24, 2020. Pursuant to this plan, we increased shareholders’ equity by $253 and $147 during 2023 and 2022.
We have publicly announced a common stock repurchase plan. Pursuant to this plan, we repurchased 149,020 shares or $3,415 of common stock during 2023 and 47,665 shares or $1,124 during 2022. As of December 31, 2023, we were authorized to repurchase up to an additional 270,806 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.
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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 December 31:

| 2023 |  | 2022
| Actual |  | Minimum Required - BASEL III |  | Required to be Considered Well Capitalized |  | Actual |  | Minimum Required - BASEL III |  | Required to be Considered Well Capitalized
Common equity tier 1 capital | 12.54 | % |  | 7.00 | % |  | 6.50 | % |  | 12.91 | % |  | 7.00 | % |  | 6.50 | %
Tier 1 capital | 12.54 | % |  | 8.50 | % |  | 8.00 | % |  | 12.91 | % |  | 8.50 | % |  | 8.00 | %
Total capital | 15.52 | % |  | 10.50 | % |  | 10.00 | % |  | 15.79 | % |  | 10.50 | % |  | 10.00 | %
Tier 1 leverage | 8.76 | % |  | 4.00 | % |  | 5.00 | % |  | 8.61 | % |  | 4.00 | % |  | 5.00 | %

Total capital includes Tier 1 capital and Tier 2 capital. Tier 2 capital includes a permissible portion of the allowances for credit losses and subordinated debt, net of unamortized issuance costs. There are no significant regulatory constraints placed on our capital. At December 31, 2023, the Bank exceeded minimum capital requirements. For further information regarding the Bank’s capital requirements, see “Note 10 – Minimum Regulatory Capital Requirements” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.
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 $381,417 or 18.52% of assets as of December 31, 2023, compared to $488,981 or 24.08% as of December 31, 2022. The decline in the amount and percentage of primary liquidity is a direct result of an increase in loans and a decrease in unencumbered AFS securities collateralizing non-market funding. 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. 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 December 31, 2023, we had available lines of credit of $338,080.
The frequency and complexity of our liquidity stress testing has increased due to economic uncertainly and changes within the interest rate and economic environment. Our liquidity position remained strong at the end of 2023, which is illustrated in the following table:

| December 31 2023
Total cash and cash equivalents | $ | 33,672 |
Available lines of credit |
Fed funds lines with correspondent banks | 93,000 |
FHLB borrowings | 211,860 |
FRB Discount Window | 28,220 |
Other lines of credit | 5,000 |
Total available lines of credit | 338,080 |
Unencumbered lendable value of FRB collateral, estimated 1 | 320,000 |
Total cash and liquidity | $ | 691,752 |

(1)Includes estimated unencumbered lendable value of FHLB collateral of $230,000
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The following table summarizes our sources and uses of cash for the years ended December 31:

| 2023 |  | 2022 |  | $ Variance
Net cash provided by (used in) operating activities | $ | 23,715 |  |  | $ | 26,937 |  |  | $ | (3,222) |
Net cash provided by (used in) investing activities | (25,779) |  |  | (106,255) |  |  | 80,476 |
Net cash provided by (used in) financing activities | (3,188) |  |  | 12,912 |  |  | (16,100) |
Increase (decrease) in cash and cash equivalents | (5,252) |  |  | (66,406) |  |  | 61,154 |
Cash and cash equivalents January 1 | 38,924 |  |  | 105,330 |  |  | (66,406) |
Cash and cash equivalents December 31 | $ | 33,672 |  |  | $ | 38,924 |  |  | $ | (5,252) |

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 1 – Significant Accounting Policies” and “Note 17 – Fair Value” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.
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 the yield curve, interest rate relationships, loan prepayments, and funding sources. These forecasts are compared against net interest income projected in a stable interest rate environment. While many assets and liabilities reprice either at maturity or in accordance with their contractual terms, several balance sheet components demonstrate characteristics that require an evaluation to more accurately reflect their repricing behavior. Key assumptions in the simulation analysis include prepayments on loans, probable calls of investment securities, changes in market conditions, loan volumes and loan pricing, deposit sensitivity, and customer preferences. These assumptions are inherently uncertain as they are subject to fluctuation and revision in a dynamic rate environment. As a result, the simulation analysis cannot precisely forecast the impact of rising and falling interest rates on net interest income. Actual results will differ from simulated results due to many other factors, including changes in balance 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.
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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.
Gap analysis is also utilized as a method to measure interest rate sensitivity. Interest rate sensitivity is determined by the amount of earning assets and interest bearing liabilities repricing within a specific time period, and their relative sensitivity to a change in interest rates. We strive to achieve reasonable stability in the net interest margin through periods of changing interest rates. One specific focus of interest rate sensitivity is the loan portfolio, primarily with commercial and agricultural loans.
The following table shows the maturity of loans outstanding at December 31, 2023 based on contractual terms. Also provided are the amounts classified according to the sensitivity to changes in interest rates.

| 1 Year or Less |  | 1 to 5 Years |  | 5 to 15 Years |  | Over 15 Years |  | Total
Commercial and industrial | $ | 33,643 |  |  | $ | 94,909 |  |  | $ | 40,710 |  |  | $ | 40,476 |  |  | $ | 209,738 |
Commercial real estate | 28,478 |  |  | 70,347 |  |  | 148,297 |  |  | 317,122 |  |  | 564,244 |
Advances to mortgage brokers | 18,541 |  |  | — |  |  | — |  |  | — |  |  | 18,541 |
Agricultural | 9,195 |  |  | 24,821 |  |  | 29,919 |  |  | 36,059 |  |  | 99,994 |
Residential real estate | 4,165 |  |  | 17,302 |  |  | 130,237 |  |  | 204,714 |  |  | 356,418 |
Consumer | 2,547 |  |  | 40,303 |  |  | 57,079 |  |  | 599 |  |  | 100,528 |
Total | $ | 96,569 |  |  | $ | 247,682 |  |  | $ | 406,242 |  |  | $ | 598,970 |  |  | $ | 1,349,463 |
Fixed interest rates |  |  |  |  |  |  |  |  |
Commercial and industrial | $ | 5,300 |  |  | $ | 67,963 |  |  | $ | 15,781 |  |  | $ | 78 |  |  | $ | 89,122 |
Commercial real estate | 23,068 |  |  | 58,228 |  |  | 21,030 |  |  | 593 |  |  | 102,919 |
Advances to mortgage brokers | 18,541 |  |  | — |  |  | — |  |  | — |  |  | 18,541 |
Agricultural | 3,126 |  |  | 8,710 |  |  | 4,514 |  |  | 634 |  |  | 16,984 |
Residential real estate | 2,417 |  |  | 8,529 |  |  | 93,303 |  |  | 23,870 |  |  | 128,119 |
Consumer | 2,289 |  |  | 39,912 |  |  | 57,035 |  |  | 599 |  |  | 99,835 |
Total | $ | 54,741 |  |  | $ | 183,342 |  |  | $ | 191,663 |  |  | $ | 25,774 |  |  | $ | 455,520 |
Variable interest rates |  |  |  |  |  |  |  |  |
Commercial and industrial | $ | 28,343 |  |  | $ | 26,946 |  |  | $ | 24,929 |  |  | $ | 40,398 |  |  | $ | 120,616 |
Commercial real estate | 5,410 |  |  | 12,119 |  |  | 127,267 |  |  | 316,529 |  |  | 461,325 |
Advances to mortgage brokers | — |  |  | — |  |  | — |  |  | — |  |  | — |
Agricultural | 6,069 |  |  | 16,111 |  |  | 25,405 |  |  | 35,425 |  |  | 83,010 |
Residential real estate | 1,748 |  |  | 8,773 |  |  | 36,934 |  |  | 180,844 |  |  | 228,299 |
Consumer | 258 |  |  | 391 |  |  | 44 |  |  | — |  |  | 693 |
Total | $ | 41,828 |  |  | $ | 64,340 |  |  | $ | 214,579 |  |  | $ | 573,196 |  |  | $ | 893,943 |

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information presented in the section captioned “Market Risk” in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference.
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Item 8. Financial Statements and Supplementary Data.
The following consolidated financial statements accompanied by the report of our independent registered public accounting firm are set forth beginning on the following page of this report:

Report of Independent Registered Public Accounting Firm, Rehmann Robson LLC (PCAOB ID: 263)
Consolidated Balance Sheets
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

Supplementary data regarding quarterly results of operations is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
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Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Isabella Bank Corporation (the "Corporation")
Mount Pleasant, Michigan
Opinion on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Isabella Bank Corporation as of December 31, 2023 and 2022, and the related consolidated statements of changes in shareholders’ equity, income, comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively referred to as the financial statements). We also have audited Isabella Bank Corporation’s internal control over financial reporting as of December 31, 2023, based on criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Isabella Bank Corporation as of December 31, 2023 and 2022, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion Isabella Bank Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
Adoption of New Accounting Standard
As discussed in Notes 1 and 4 to the consolidated financial statements, Isabella Bank Corporation changed its method for accounting for credit losses on loans in 2023. As explained below, auditing the Corporation's allowance for credit losses on loans, including adoption of the new accounting guidance related to the estimate of allowance for credit losses on loans, was a critical audit matter.
Basis for Opinions
Isabella Bank Corporation’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on Isabella Bank Corporation’s consolidated financial statements and on Isabella Bank Corporation’s internal control over financial reporting based on our integrated audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to Isabella Bank Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material misstatement exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A corporation’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the corporation; (2) provide reasonable assurance that transactions are recorded as
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necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the corporation are being made only in accordance with authorizations of management and directors of the corporation; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the corporation’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
One Critical Audit Matter
The critical audit matter communicated below arising from the current period audit of the financial statements was communicated or is required to be communicated to the Corporation's audit committee and (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, nor our opinion on internal control over financial reporting, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses
Description of the Matter
The Corporation’s loan portfolio totaled $1.3 billion as of December 31, 2023 and the associated allowance for credit losses on loans was $13.1 million at that date. The Corporation’s unfunded loan commitments totaled $321.7 million, with an associated allowance for credit loss of $315 thousand. Together these amounts represent the allowances for credit losses (“ACL”). As described in Notes 1 and 4 to the consolidated financial statements, in the cases of loans, the allowance for credit losses is a contra-asset valuation account, calculated in accordance with ASC 326 that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. As described in Notes 1 and 9 to the consolidated financial statements, in the case of unfunded loan commitments, the allowance for credit losses is a liability account, calculated in accordance with ASC 326, reported as a component of accrued interest payable and other liabilities. The Corporation adopted ASC 326 effective January 1, 2023. The amount of each allowance account represented management’s best estimate of current expected credit losses on these financial instruments considering all available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. In calculating the allowance for credit losses, most loans were segmented into pools based upon similar characteristics and risk profiles. For each loan pool, management measured expected credit losses over the life of each loan utilizing a model which measured probability of default (“PD”), probability of attrition (“PA”), loss given default (“LGD”), and exposure at default (“EAD”). Expected credit losses were calculated as the product of PD (adjusted for attrition), LGD, and EAD. PD and PA were estimated by analyzing internally sourced data related to historical performance of each loan pool over an economic cycle. PD and PA were adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over a reasonable and supportable forecast period. After the reasonable and supportable forecast period, the forecasted macroeconomic variables were reverted to their historical mean utilizing a rational, systematic basis. The LGD was based on historical recovery averages for each loan pool, adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over the reasonable and supportable forecast period. EAD was estimated using a linear regression model that estimates the average percentage of the loan balance that remains at the time of default. In some cases, management determined that an individual loan exhibited unique risk characteristics which differentiated the loan from other loans with the identified loan pools. In such cases the loans were evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Management qualitatively adjusted model results for risk factors that were not considered within the modeling processes but were nonetheless relevant in assessing the expected credit losses within the loan pools. These qualitative factor adjustments modified management’s estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk.
Auditing management’s estimate of the ACL involved a high degree of subjectivity due to the nature of the qualitative factor adjustments included in the allowances for credit losses and complexity due to the implementation of the PD, PA, LGD, and EAD models (the “Models”). Management’s identification and measurement of the qualitative factor adjustments is highly judgmental and could have a significant effect on the ACL.
How We Addressed the Matter in Our Integrated Audit
We obtained an understanding of the Corporation’s process for establishing the ACL, including the implementation of Models and the qualitative factor adjustments of the ACL. We evaluated the design and tested the operating effectiveness of related controls over the reliability and accuracy of data used to calculate and estimate the various components of the ACL, the
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accuracy of the calculation of the ACL, management’s review and approval of methodologies used to establish the ACL, validation procedures over the Models, analysis of changes in various components of the ACL relative to changes in the Corporation’s loan portfolio and economy and evaluation of the overall reasonableness and appropriateness of the ACL. In doing so, we tested the operating effectiveness of review and approval controls in the Corporation’s governance process designed to identify and assess the qualitative factor adjustments which is meant to measure expected credit losses associated with factors not captured fully in the other components of the ACL.
To test the reasonableness of the qualitative factor adjustments, we performed audit procedures that included, among others testing the appropriateness of the methodologies used by the Corporation to estimate the ACL, testing the completeness and accuracy of data and information used by the Corporation in estimating the components of the ACL, assessing the reasonableness of the Models, evaluating the appropriateness of assumptions used in estimating the qualitative factor adjustments, analyzing the changes in assumptions and various components of the ACL relative to changes in the Corporation’s loan portfolio and the economy and evaluating the appropriateness and level of the qualitative factor adjustments. For example, we evaluated the appropriateness of the design and operation of the model, analyzed the changes, assumptions and modifications made to the qualitative factor adjustments, and evaluated the appropriateness and completeness of risk factors used in determining the amount of the qualitative factor adjustments. We also evaluated the data and information utilized by management to estimate the qualitative factor adjustments by independently obtaining internal and external data and information to assess the appropriateness of the data and information used by management and to consider the existence of new and potentially contradictory information used. In addition, we evaluated the overall ACL amounts, inclusive of the adjustments for the qualitative factor adjustments, and whether the amount appropriately reflects losses expected in the loan portfolio as of the consolidated balance sheet date by comparing the overall ACL to those established by similar banking institutions with similar loan portfolios. We also reviewed subsequent events and transactions and considered whether such information serves to corroborate or contradict the Corporation’s conclusion.
/s/Rehmann Robson LLC
We have served as Isabella Bank Corporation's independent auditor since 1996.
Saginaw, Michigan
March 7, 2024
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CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

| December 31
| 2023 |  | 2022
ASSETS |  |  |
Cash and cash equivalents |  |  |
Cash and demand deposits due from banks | $ | 25,628 |  |  | $ | 27,420 |
Fed Funds sold and interest bearing balances due from banks | 8,044 |  |  | 11,504 |
Total cash and cash equivalents | 33,672 |  |  | 38,924 |
AFS securities, at fair value | 528,148 |  |  | 580,481 |
Mortgage loans AFS | — |  |  | 379 |
Loans | 1,349,463 |  |  | 1,264,173 |
Less allowance for credit losses | 13,108 |  |  | 9,850 |
Net loans | 1,336,355 |  |  | 1,254,323 |
Premises and equipment | 27,639 |  |  | 25,553 |
Corporate owned life insurance policies | 33,892 |  |  | 32,988 |
Equity securities without readily determinable fair values | 15,848 |  |  | 15,746 |
Goodwill and other intangible assets | 48,284 |  |  | 48,287 |
Accrued interest receivable and other assets | 35,130 |  |  | 33,586 |
TOTAL ASSETS | $ | 2,058,968 |  |  | $ | 2,030,267 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |
Deposits |  |  |
Noninterest bearing | $ | 428,505 |  |  | $ | 494,346 |
Interest bearing demand deposits | 320,737 |  |  | 372,155 |
Certificates of deposit under $250 and other savings | 857,768 |  |  | 810,642 |
Certificates of deposit over $250 | 116,685 |  |  | 67,132 |
Total deposits | 1,723,695 |  |  | 1,744,275 |
Borrowed funds |  |  |
Federal funds purchased and repurchase agreements | 46,801 |  |  | 57,771 |
FHLB advances | 40,000 |  |  | — |
Subordinated debt, net of unamortized issuance costs | 29,335 |  |  | 29,245 |
Total borrowed funds | 116,136 |  |  | 87,016 |
Accrued interest payable and other liabilities | 16,735 |  |  | 12,766 |
Total liabilities | 1,856,566 |  |  | 1,844,057 |
Shareholders’ equity |  |  |
Common stock — no par value 15,000,000 shares authorized; issued and outstanding 7,485,889 shares (including 150,581 shares held in the Rabbi Trust) in 2023 and 7,559,421 shares (including 154,879 shares held in the Rabbi Trust) in 2022 | 127,323 |  |  | 128,651 |
Shares to be issued for deferred compensation obligations | 3,693 |  |  | 5,005 |
Retained earnings | 97,282 |  |  | 89,748 |
Accumulated other comprehensive income (loss) | (25,896) |  |  | (37,194) |
Total shareholders’ equity | 202,402 |  |  | 186,210 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 2,058,968 |  |  | $ | 2,030,267 |

The accompanying notes are an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Dollars in thousands except per share amounts)

| Common Stock |  |  |  |  |  |  |  |
| Common Shares Outstanding |  | Amount |  | Common Shares to be Issued for Deferred Compensation Obligations |  | Retained Earnings |  | Accumulated Other Comprehensive Income (Loss) |  | Totals
Balance, January 1, 2021 | 7,997,247 |  |  | $ | 142,247 |  |  | $ | 4,183 |  |  | $ | 64,460 |  |  | $ | 7,698 |  |  | $ | 218,588 |
Comprehensive income (loss) | — |  |  | — |  |  | — |  |  | 19,499 |  |  | (5,839) |  |  | 13,660 |
Issuance of common stock | 67,436 |  |  | 1,593 |  |  | — |  |  | — |  |  | — |  |  | 1,593 |
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations | — |  |  | 71 |  |  | (71) |  |  | — |  |  | — |  |  | — |
Share-based payment awards under the Directors Plan | — |  |  | — |  |  | 433 |  |  | — |  |  | — |  |  | 433 |
Share-based compensation expense recognized in earnings under the RSP | — |  |  | 86 |  |  | — |  |  | — |  |  | — |  |  | 86 |
Common stock purchased for deferred compensation obligations | — |  |  | (1,187) |  |  | — |  |  | — |  |  | — |  |  | (1,187) |
Common stock repurchased | (532,042) |  |  | (13,758) |  |  | — |  |  | — |  |  | — |  |  | (13,758) |
Cash dividends paid ($1.08 per common share) | — |  |  | — |  |  | — |  |  | (8,367) |  |  | — |  |  | (8,367) |
Balance, December 31, 2021 | 7,532,641 |  |  | 129,052 |  |  | 4,545 |  |  | 75,592 |  |  | 1,859 |  |  | 211,048 |
Comprehensive income (loss) | — |  |  | — |  |  | — |  |  | 22,238 |  |  | (39,053) |  |  | (16,815) |
Issuance of common stock | 74,445 |  |  | 1,762 |  |  | — |  |  | — |  |  | — |  |  | 1,762 |
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations | — |  |  | 3 |  |  | (3) |  |  | — |  |  | — |  |  | — |
Share-based payment awards under the Directors Plan | — |  |  | — |  |  | 463 |  |  | — |  |  | — |  |  | 463 |
Share-based compensation expense recognized in earnings under the RSP | — |  |  | 147 |  |  | — |  |  | — |  |  | — |  |  | 147 |
Common stock purchased for deferred compensation obligations | — |  |  | (1,189) |  |  | — |  |  | — |  |  | — |  |  | (1,189) |
Common stock repurchased | (47,665) |  |  | (1,124) |  |  | — |  |  | — |  |  | — |  |  | (1,124) |
Cash dividends paid ($1.09 per common share) | — |  |  | — |  |  | — |  |  | (8,082) |  |  | — |  |  | (8,082) |
Balance, December 31, 2022 | 7,559,421 |  |  | 128,651 |  |  | 5,005 |  |  | 89,748 |  |  | (37,194) |  |  | 186,210 |
Cumulative effect of accounting change - adoption of ASC 326 | — |  |  | — |  |  | — |  |  | (2,417) |  |  | — |  |  | (2,417) |
Comprehensive income (loss) | — |  |  | — |  |  | — |  |  | 18,167 |  |  | 11,298 |  |  | 29,465 |
Issuance of common stock | 75,488 |  |  | 1,617 |  |  | — |  |  | — |  |  | — |  |  | 1,617 |
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations | — |  |  | 1,841 |  |  | (1,841) |  |  | — |  |  | — |  |  | — |
Share-based payment awards under the Directors Plan | — |  |  | — |  |  | 529 |  |  | — |  |  | — |  |  | 529 |
Share-based compensation expense recognized in earnings under the RSP | — |  |  | 253 |  |  | — |  |  | — |  |  | — |  |  | 253 |
Common stock purchased for deferred compensation obligations | — |  |  | (1,624) |  |  | — |  |  | — |  |  | — |  |  | (1,624) |
Common stock repurchased | (149,020) |  |  | (3,415) |  |  | — |  |  | — |  |  | — |  |  | (3,415) |
Cash dividends paid ($1.12 per common share) | — |  |  | — |  |  | — |  |  | (8,216) |  |  | — |  |  | (8,216) |
Balance, December 31, 2023 | 7,485,889 |  |  | $ | 127,323 |  |  | $ | 3,693 |  |  | $ | 97,282 |  |  | $ | (25,896) |  |  | $ | 202,402 |

The accompanying notes are an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share amounts)

| Year Ended December 31
| 2023 |  | 2022 |  | 2021
Interest income |  |  |  |  |
Loans, including fees | $ | 65,670 |  |  | $ | 53,283 |  |  | $ | 51,410 |
AFS securities |  |  |  |  |
Taxable | 9,514 |  |  | 8,363 |  |  | 4,920 |
Nontaxable | 2,642 |  |  | 2,808 |  |  | 3,077 |
Federal funds sold and other | 1,805 |  |  | 1,344 |  |  | 706 |
Total interest income | 79,631 |  |  | 65,798 |  |  | 60,113 |
Interest expense |  |  |  |  |
Deposits | 18,352 |  |  | 4,021 |  |  | 5,442 |
Borrowings |  |  |  |  |
Federal funds purchased and repurchase agreements | 961 |  |  | 79 |  |  | 53 |
FHLB advances | 1,309 |  |  | 152 |  |  | 1,302 |
Subordinated debt, net of unamortized issuance costs | 1,065 |  |  | 1,065 |  |  | 615 |
Total interest expense | 21,687 |  |  | 5,317 |  |  | 7,412 |
Net interest income | 57,944 |  |  | 60,481 |  |  | 52,701 |
Provision for credit losses | 629 |  |  | 483 |  |  | (518) |
Net interest income after provision for credit losses | 57,315 |  |  | 59,998 |  |  | 53,219 |
Noninterest income |  |  |  |  |
Service charges and fees | 8,297 |  |  | 8,730 |  |  | 7,614 |
Wealth management fees | 3,557 |  |  | 3,005 |  |  | 3,071 |
Earnings on corporate owned life insurance policies | 920 |  |  | 884 |  |  | 800 |
Net gain on sale of mortgage loans | 317 |  |  | 631 |  |  | 1,694 |
Other | 736 |  |  | 416 |  |  | 643 |
Total noninterest income | 13,827 |  |  | 13,666 |  |  | 13,822 |
Noninterest expenses |  |  |  |  |
Compensation and benefits | 25,905 |  |  | 24,887 |  |  | 23,749 |
Furniture and equipment | 6,519 |  |  | 6,006 |  |  | 5,462 |
Occupancy | 3,778 |  |  | 3,691 |  |  | 3,661 |
Other | 13,108 |  |  | 12,236 |  |  | 10,822 |
Total noninterest expenses | 49,310 |  |  | 46,820 |  |  | 43,694 |
Income before federal income tax expense | 21,832 |  |  | 26,844 |  |  | 23,347 |
Federal income tax expense | 3,665 |  |  | 4,606 |  |  | 3,848 |
NET INCOME | $ | 18,167 |  |  | $ | 22,238 |  |  | $ | 19,499 |
Earnings per common share |  |  |  |  |
Basic | $ | 2.42 |  |  | $ | 2.95 |  |  | $ | 2.48 |
Diluted | $ | 2.40 |  |  | $ | 2.91 |  |  | $ | 2.45 |
Cash dividends per common share | $ | 1.12 |  |  | $ | 1.09 |  |  | $ | 1.08 |

The accompanying notes are an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)

| Year Ended December 31
| 2023 |  | 2022 |  | 2021
Net income | $ | 18,167 |  |  | $ | 22,238 |  |  | $ | 19,499 |
Unrealized gains (losses) on AFS securities |  |  |  |  |
Unrealized gains (losses) arising during the period | 13,365 |  |  | (50,015) |  |  | (8,371) |
Reclassification adjustment for net realized (gains) losses included in net income | (67) |  |  | — |  |  | — |
Comprehensive income (loss) before income tax (expense) benefit | 13,298 |  |  | (50,015) |  |  | (8,371) |
Tax effect (1) | (2,669) |  |  | 10,314 |  |  | 1,759 |
Unrealized gains (losses) on AFS securities, net of tax | 10,629 |  |  | (39,701) |  |  | (6,612) |
Unrealized gains (losses) on derivative instruments |  |  |  |  |
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 |
Change in unrecognized pension cost on defined benefit pension plan |  |  |  |  |
Change in unrecognized pension cost arising during the period | 752 |  |  | 762 |  |  | 955 |
Reclassification adjustment for net periodic benefit cost included in net income | 95 |  |  | 59 |  |  | (31) |
Net change in unrecognized pension cost | 847 |  |  | 821 |  |  | 924 |
Tax effect (1) | (178) |  |  | (173) |  |  | (193) |
Change in unrealized pension cost, net of tax | 669 |  |  | 648 |  |  | 731 |
Other comprehensive income (loss), net of tax | 11,298 |  |  | (39,053) |  |  | (5,839) |
Comprehensive income (loss) | $ | 29,465 |  |  | $ | (16,815) |  |  | $ | 13,660 |

(1)See “Note 16 – Accumulated Other Comprehensive Income (Loss)” in the accompanying notes to consolidated financial statements for tax effect reconciliation.
The accompanying notes are an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

| Year Ended December 31
| 2023 |  | 2022 |  | 2021
OPERATING ACTIVITIES |  |  |  |  |
Net income | $ | 18,167 |  |  | $ | 22,238 |  |  | $ | 19,499 |
Reconciliation of net income to net cash provided by operating activities: |  |  |  |  |
Provision for credit losses | 629 |  |  | 483 |  |  | (518) |
Depreciation | 1,978 |  |  | 2,071 |  |  | 2,314 |
Amortization of OMSR | 137 |  |  | 97 |  |  | 597 |
Amortization of acquisition intangibles | 3 |  |  | 15 |  |  | 29 |
Amortization of subordinated debt issuance costs | 90 |  |  | 87 |  |  | 52 |
Net amortization of AFS securities | 1,474 |  |  | 2,018 |  |  | 2,233 |
Net gains on sale of AFS securities | (67) |  |  | — |  |  | — |
Net gain on sale of mortgage loans | (317) |  |  | (631) |  |  | (1,694) |
Change in OMSR valuation allowance | — |  |  | (532) |  |  | — |
Net (gains) losses on foreclosed assets | (158) |  |  | (13) |  |  | (39) |
Increase in cash value of corporate owned life insurance policies, net of expenses | (904) |  |  | (818) |  |  | (751) |
Gains from redemption of corporate owned life insurance policies | — |  |  | (57) |  |  | (271) |
Share-based payment awards under the Directors Plan | 529 |  |  | 463 |  |  | 433 |
Share-based payment awards under the RSP | 253 |  |  | 147 |  |  | 86 |
Deferred income tax expense (benefit) | 1,008 |  |  | 13 |  |  | (523) |
Origination of loans held-for-sale | (9,657) |  |  | (21,382) |  |  | (48,957) |
Proceeds from loan sales | 10,353 |  |  | 23,369 |  |  | 51,657 |
Net changes in operating assets and liabilities which provided (used) cash: |  |  |  |  |
Accrued interest receivable and other assets | (809) |  |  | (2,813) |  |  | 1,208 |
Accrued interest payable and other liabilities | 1,006 |  |  | 2,182 |  |  | 146 |
Net cash provided by (used in) operating activities | 23,715 |  |  | 26,937 |  |  | 25,501 |
INVESTING ACTIVITIES |  |  |  |  |
Activity in AFS securities |  |  |  |  |
Sales | 18,089 |  |  | — |  |  | — |
Maturities, calls, and principal payments | 57,001 |  |  | 68,956 |  |  | 100,289 |
Purchases | (10,866) |  |  | (210,869) |  |  | (262,266) |
Purchase of equity investments | (102) |  |  | (250) |  |  | — |
Net loan principal (originations) collections | (85,783) |  |  | 36,672 |  |  | (63,210) |
Proceeds from sales of foreclosed assets | 569 |  |  | 241 |  |  | 716 |
Purchases of premises and equipment | (4,064) |  |  | (3,205) |  |  | (1,593) |
Purchases of corporate owned life insurance policies | — |  |  | — |  |  | (4,272) |
Proceeds from redemption of corporate owned life insurance policies | — |  |  | 359 |  |  | 1,114 |
Proceeds from sale of FHLB Stock | — |  |  | 2,288 |  |  | — |
Purchases of FRB Stock | — |  |  | (401) |  |  | — |
Funding of low income housing tax credit investments | (623) |  |  | (46) |  |  | (413) |
Net cash provided by (used in) investing activities | (25,779) |  |  | (106,255) |  |  | (229,635) |

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CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Dollars in thousands)

| Year Ended December 31
| 2023 |  | 2022 |  | 2021
FINANCING ACTIVITIES |  |  |  |  |
Net increase (decrease) in deposits | $ | (20,580) |  |  | $ | 33,936 |  |  | $ | 144,022 |
Net increase (decrease) in fed funds purchased and repurchase agreements | (10,970) |  |  | 7,609 |  |  | (18,585) |
Net increase (decrease) in FHLB advances | 40,000 |  |  | (20,000) |  |  | (70,000) |
Issuance of subordinated debt, net of unamortized issuance costs | — |  |  | — |  |  | 29,106 |
Cash dividends paid on common stock | (8,216) |  |  | (8,082) |  |  | (8,367) |
Proceeds from issuance of common stock | 1,617 |  |  | 1,762 |  |  | 1,593 |
Common stock repurchased | (3,415) |  |  | (1,124) |  |  | (13,758) |
Common stock purchased for deferred compensation obligations | (1,624) |  |  | (1,189) |  |  | (1,187) |
Net cash provided by (used in) financing activities | (3,188) |  |  | 12,912 |  |  | 62,824 |
Increase (decrease) in cash and cash equivalents | (5,252) |  |  | (66,406) |  |  | (141,310) |
Cash and cash equivalents at beginning of period | 38,924 |  |  | 105,330 |  |  | 246,640 |
Cash and cash equivalents at end of period | $ | 33,672 |  |  | $ | 38,924 |  |  | $ | 105,330 |
SUPPLEMENTAL CASH FLOWS INFORMATION: |  |  |  |  |
Interest paid | $ | 21,052 |  |  | $ | 5,313 |  |  | $ | 7,601 |
Income taxes paid | 2,350 |  |  | 4,425 |  |  | 4,050 |
SUPPLEMENTAL NONCASH INFORMATION: |  |  |  |  |
Investment in low income housing tax credits | $ | 5,000 |  |  | $ | — |  |  | $ | — |
Transfers of loans to foreclosed assets | 378 |  |  | 456 |  |  | 361 |

The accompanying notes are an integral part of these consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
Note 1 – Significant Accounting Policies
BASIS OF PRESENTATION AND CONSOLIDATION: The consolidated financial statements include the accounts of Isabella Bank Corporation, a financial services holding company, and its wholly owned subsidiary, Isabella Bank. All intercompany balances and accounts have been eliminated in consolidation. References to “the Corporation”, “Isabella”, “we”, “our”, “us”, and similar terms refer to the consolidated entity consisting of Isabella Bank Corporation and its subsidiary. References to Isabella Bank or “the Bank” refers to Isabella Bank Corporation’s subsidiary, Isabella Bank.
For additional information, see “Note 18 – Related Party Transactions.”
NATURE OF OPERATIONS: Isabella Bank Corporation is a financial services holding company offering a wide array of financial products and services in several mid-Michigan counties. Our banking subsidiary, Isabella Bank, offers banking services throughout 31 locations, 24 hour banking services locally and nationally through shared ATMs, online banking, mobile banking, and direct deposits to businesses, institutions, individuals and their families. Lending services offered include commercial loans, agricultural loans, residential real estate loans, and consumer loans. Deposit services include interest and noninterest bearing checking accounts, savings accounts, money market accounts, certificates of deposit, direct deposits, cash management services, mobile and internet banking, and ATMs. Other related financial products include trust and investment services, safe deposit box rentals, and various insurance related products. Active competition, principally from other commercial banks, savings and loan associations, mortgage brokers, finance companies, credit unions, retail brokerage firms, and insurance companies, exists in all of our principal markets. Our results of operations can be significantly affected by changes in interest rates, changes in the local economic environment and changes in regulations.
USE OF ESTIMATES: In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, we make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the ACL, the fair value of AFS investment securities, and the valuation of goodwill and other intangible assets.
ACCOUNTING CHANGES AND RECLASSIFICATIONS: Certain amounts reported in the 2022 and 2021 consolidated financial statements have been reclassified to conform with the 2023 presentation.
On January 1, 2023, we adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” as subsequently updated for certain clarifications, targeted relief and codification improvements. ASC 326 updated the measurement for credit losses for AFS debt securities and assets measured at amortized cost, which includes loans, trade receivables, and any other financial assets with the contractual right to receive cash and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses.
Prior to ASU No. 2016-13, GAAP required an “incurred loss” methodology for recognizing credit losses that delayed recognition until it was probable a loss has been incurred. Under the incurred loss approach, entities were limited to a probable initial recognition threshold when credit losses were measured; an entity generally considered only past events and current conditions when measuring the incurred loss.
We adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off balance sheet credit exposures. Results for reporting periods beginning January 1, 2023 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP and the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2022. We recorded a net decrease to retained earnings of $2,417 as of January 1, 2023 for the cumulative effect of adopting ASC 326.
We adopted ASC 326 using the prospective transition approach for AFS debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023. As a result, the amortized cost basis remains the same before and after the effective date of ASC 326. The effective interest rate on these debt securities was not changed. Amounts previously recognized in accumulated other comprehensive income as of January 1, 2023 relating to improvements in cash flows expected to be collected will be accreted into income over the remaining life of the asset. Recoveries of amounts previously written off relating to improvements in cash flows beginning January 1, 2023 will be recorded in earnings when received.
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The following table details the impact of the adoption of ASC 326:

| January 1, 2023
| Pre-Adoption Allowance |  | Impact of Adoption |  | Post-Adoption Allowance |  | Cumulative Effect on Retained Earnings
Loans: |  |  |  |  |  |  |
Commercial and industrial | $ | 860 |  |  | $ | (58) |  |  | $ | 802 |  |  | $ | 46 |
Commercial real estate | 461 |  |  | 5,532 |  |  | 5,993 |  |  | (4,370) |
Agricultural | 577 |  |  | (247) |  |  | 330 |  |  | 195 |
Residential real estate | 617 |  |  | 3,535 |  |  | 4,152 |  |  | (2,793) |
Consumer | 961 |  |  | 356 |  |  | 1,317 |  |  | (281) |
Unallocated | 6,374 |  |  | (6,374) |  |  | — |  |  | 5,035 |
Total | $ | 9,850 |  |  | $ | 2,744 |  |  | $ | 12,594 |  |  | $ | (2,168) |
Off-balance-sheet credit exposures | $ | — |  |  | $ | 315 |  |  | $ | 315 |  |  | $ | (249) |

In connection with the adoption of ASC 326, we revised certain accounting policies and implemented certain accounting policy elections, which are provided below. All other accounting policies are materially the same as those discussed in Note 1 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.
FAIR VALUE MEASUREMENTS: Fair value refers to the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants in the market in which the reporting entity transacts such sales or transfers based on the assumptions market participants would use when pricing an asset or liability. Assumptions are developed based on prioritizing information within a fair value hierarchy that gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, such as the reporting entity’s own data. We may choose to measure eligible items at fair value at specified election dates.
For assets and liabilities recorded at fair value, it is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements for those financial instruments for which there is an active market. In cases where the market for a financial asset or liability is not active, we include appropriate risk adjustments that market participants would make for nonperformance and liquidity risks when developing fair value measurements. Fair value measurements for assets and liabilities for which limited or no observable market data exists are accordingly based primarily upon estimates, are often calculated based on the economic and competitive environment, the characteristics of the asset or liability and other factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values.
We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Investment securities AFS and derivative instruments are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record other assets and liabilities at fair value on a nonrecurring basis, such as mortgage loans AFS, collateral dependent loans, foreclosed assets, OMSR, goodwill, and certain other assets and liabilities. These nonrecurring fair value adjustments typically involve the application of lower of cost or market accounting or write downs of individual assets.
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Fair Value Hierarchy
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.
For further discussion of fair value considerations, refer to “Note 17 – Fair Value.”
SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK: Most of our activities are conducted with customers located within the central Michigan area. A significant amount of our outstanding loans are secured by commercial and residential real estate. Other than these types of loans, there is no significant concentration to any other industry or any one customer.
CASH AND CASH EQUIVALENTS: For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from banks, federal funds sold, and other deposit accounts. Generally, federal funds sold are for a one day period. We maintain deposit accounts in various financial institutions which generally exceed federally insured limits or are not insured. We do not believe we are exposed to any significant interest, credit or other financial risk as a result of these deposits.
AFS SECURITIES: Purchases of investment securities are generally classified as AFS. However, we may elect to classify securities as either held to maturity or trading. Securities classified as AFS debt securities are recorded at fair value, with unrealized gains and losses, net of the effect of deferred income taxes, excluded from earnings and reported in other comprehensive income (loss). Included in AFS securities are auction rate money market preferred securities. These investments, for federal income tax purposes, have no federal income tax impact given the nature of the investments. Auction rate money market preferred securities are recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss). Purchase premiums and discounts are recognized in interest income using the interest method over the term of the securities. Realized gains and losses on the sale of AFS securities are determined using the specific identification method.
ACL - AFS SECURITIES: AFS securities are reviewed quarterly for possible credit impairment. In determining whether a credit-related impairment exists for debt securities, we assess whether: (a) we do not have the intent to sell the security; and (b) it is more likely than not we will not have to sell the security before recovery of its cost basis. If either of these conditions are met, any previously recognized allowances are charged-off and the security's amortized cost is written down to fair value through income. If these conditions are not met, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors.
In order to determine the amount of the credit loss for a debt security, we calculate the recovery value by performing a discounted cash flow analysis based on the current cash flows and future cash flows we expect to recover. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. The amount of the impairment related to other risk factors is recognized as a component of other comprehensive income. Adjustments to the allowance are reported in the income statement as a provision for credit losses.
We made an accounting policy election to exclude accrued interest receivable on AFS securities from the estimate of credit losses. Accrued interest receivable on AFS securities was $2,247 at December 31, 2023. AFS securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management, or when criteria regarding intent or requirement to sell is met.
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LOANS: Loans that we have the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balance adjusted for any charge-offs, the ACL, and any deferred fees or costs. Interest income on loans is accrued over the term of the loan based on the principal amount outstanding. Loan origination fees and certain direct loan origination costs are capitalized and recognized as a component of interest income over the term of the loan using the appropriate yield methods.
The accrual of interest on agricultural, commercial and mortgage loans is discontinued at the time the loan is 90 days or more past due unless the credit is well secured and in the process of collection. Consumer loans are typically charged-off no later than 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed in nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. For loans that are placed on nonaccrual status or charged-off, all interest accrued in the current calendar year, but not collected, is reversed against interest income while interest accrued in prior calendar years, but not collected is charged against the ACL. Interest income on loans in nonaccrual status is not recognized until qualifying for return to accrual status. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. For loans not classified as nonaccrual, interest income continues to be accrued over the term of the loan based on the principal amount outstanding.
ACL - LOANS: The ACL on loans is calculated in accordance with ASC 326 and is deducted from the amortized cost basis of loans to present our best estimate of the net amount expected to be collected. The ACL is established through a provision for credit losses charged to earnings. Loan losses are charged against the allowance when we believe the uncollectability of the loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. We made an accounting policy election to exclude accrued interest receivable on loans from the estimate of credit losses. Accrued interest receivable on loans was $5,920 at December 31, 2023.
We evaluate the ACL on a regular basis. Our periodic review of the collectability of loans 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, prevailing economic conditions, and reasonable and supportable forecasts. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The ACL consists of a general component and loans individually analyzed. The general component covers loans not specifically analyzed and is based on historical loss experience, current conditions, and reasonable and supportable forecasts. The general component also includes uncertainties that we believe could affect our estimate of probable losses based on qualitative factors.
Loans in nonaccrual status are individually analyzed on a loan-by-loan basis. Loans evaluated individually are not included in the general, or pooled, component of the ACL. For collateralized loans, the loan's specific allowance is measured by the fair value of the collateral approach. The specific reserve is based on the fair value of the collateral, less costs to sell if foreclosure is probable, and an allowance is established when the collateral value is lower than the carrying value of the loan. When the discounted cash flow method is used to measure the loan's specific allowance, the effective interest rate is used to discount expected cash flows to incorporate expected prepayments. An allowance is established when the discounted cash flows are lower than the carrying value of the loan. For large groups of smaller-balance, homogeneous loans, we may collectively evaluate these loans for measurement of an allowance.
LOANS HELD FOR SALE: Mortgage loans held for sale on the secondary market are carried at the lower of cost or fair value as determined by aggregating outstanding commitments from investors or current investor yield requirements. Net unrealized losses, if any, would be recognized as a component of other noninterest expenses.
Mortgage loans held for sale are sold with the mortgage servicing rights retained by us. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold.
TRANSFERS OF FINANCIAL ASSETS: Transfers of financial assets, including mortgage loans and participation loans, are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is determined to be surrendered when 1) the assets have been legally isolated from us, 2) the transferee obtains the right (free of conditions that constrain it from taking advantage of the right) to pledge or exchange the transferred assets, and 3) we do not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Other than servicing, we have no substantive continuing involvement related to these loans.
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SERVICING: Servicing assets are recognized as separate assets when rights are acquired through purchase or through sale of financial assets. We have no purchased servicing rights. For sales of mortgage loans, a portion of the cost of originating the loan is allocated to the servicing right based on relative fair value. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses.
Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying rights into tranches based on predominant risk characteristics, such as interest rate, loan type, and investor type. Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the capitalized amount for the tranche. If we later determine that all or a portion of the impairment no longer exists for a particular tranche, a reduction of the valuation allowance may be recorded as an increase to income. Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. The unpaid principal balance of mortgages serviced for others was $248,756 and $264,206 with capitalized servicing rights of $2,422 and $2,559 at December 31, 2023 and 2022, respectively, which are included in other assets.
Servicing fee income is recorded for fees earned for servicing loans for others. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. We recorded servicing fee revenue of $630, $669, and $747 related to residential mortgage loans serviced for others during 2023, 2022, and 2021, respectively, which is included in other noninterest income.
FORECLOSED ASSETS: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the lower of our carrying amount or fair value less estimated selling costs at the date of transfer, establishing a new cost basis. Any write downs based on the asset’s fair value at the date of acquisition are charged to the ACL. After foreclosure, property held for sale is carried at the lower of the new cost basis or fair value less costs to sell. Impairment losses on property to be held and used are measured at the amount by which the carrying amount of property exceeds its fair value. Costs relating to holding these assets are expensed as incurred. We periodically perform valuations and any subsequent write downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of our carrying amount or fair value less costs to sell. Foreclosed assets of $406 and $439 as of December 31, 2023 and 2022, respectively, are included in other assets.
PREMISES AND EQUIPMENT: Land is carried at cost. Buildings and equipment are carried at cost, less accumulated depreciation which is computed principally by the straight-line method based upon the estimated useful lives of the related assets, which range from 3 to 40 years. Major improvements are capitalized and appropriately amortized based upon the useful lives of the related assets or the expected terms of the leases, if shorter, using the straight-line method. Maintenance, repairs and minor alterations are charged to current operations as expenditures occur. We annually review these assets to determine whether carrying values have been impaired.
EQUITY SECURITIES WITHOUT READILY DETERMINABLE FAIR VALUES: Included in equity securities without readily determinable fair values are our holdings in FHLB stock and FRB stock. Equity securities without readily determinable fair values consist of the following holdings as of December 31:

| 2023 |  | 2022
FHLB Stock | $ | 12,762 |  |  | $ | 12,762 |
FRB Stock | 2,400 |  |  | 2,400 |
Other | 686 |  |  | 584 |
Total | $ | 15,848 |  |  | $ | 15,746 |

EQUITY COMPENSATION PLANS: At December 31, 2023, the Directors Plan had 154,119 shares eligible to be issued to participants, for which the Rabbi Trust held 150,581 shares. We had 207,840 shares to be issued at December 31, 2022, with 154,879 shares held in the Rabbi Trust.
Under the RSP, compensation expense for nonvested stock awards is based on the fair value of the award on the measurement date. The fair value of nonvested stock awards is based on the date of the grant and is recognized over the requisite service period. The impact of forfeitures of share-based payment awards on compensation expense is recognized as forfeitures occur.
Compensation costs relating to share-based payment transactions are recognized as the services are rendered, with the cost measured based on the fair value of the equity or liability instruments issued (see “Note 12 – Benefit Plans”).
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CORPORATE OWNED LIFE INSURANCE: We have purchased life insurance policies on key members of management, partially for the purpose of funding certain post-retirement benefits. In the event of death of one of these individuals, we would receive a specified cash payment equal to the face value of the policy. Such policies are recorded at their cash surrender value, or the amount that can be realized on the balance sheet date. Increases in cash surrender value in excess of single premiums paid are reported as other noninterest income.
Of the purchased life insurance policies, we hold post retirement benefits with a present value estimated to be $2,515 and $2,905 as of December 31, 2023 and 2022, respectively, which is included in accrued interest payable and other liabilities. The expenses associated with these policies totaled $173, $61, and $33 for 2023, 2022, and 2021, respectively.
ACQUISITION INTANGIBLES AND GOODWILL: We previously acquired branch facilities and related deposits in business combinations accounted for as a purchase. The acquisitions included amounts related to the valuation of customer deposit relationships (core deposit intangibles). Core deposit intangibles arising from acquisitions are included in goodwill and other intangible assets are being amortized over their estimated lives and evaluated for potential impairment on at least an annual basis. Goodwill, which represents the excess of the purchase price over identifiable assets, is not amortized but is evaluated for impairment on at least an annual basis. Acquisition intangibles and goodwill are typically qualitatively evaluated to determine if it is more likely than not that the carrying balance is impaired. If it is determined that the carrying balance is more likely than not to be impaired, we perform a cash flow valuation to determine the extent of the potential impairment. This valuation method requires a significant degree of our judgment. In the event the projected undiscounted net operating cash flows for these intangible assets are less than the carrying value, the asset is recorded at fair value as determined by the valuation model.
OFF BALANCE SHEET CREDIT RELATED FINANCIAL INSTRUMENTS: In the ordinary course of business, we have entered into commitments to extend credit, including commitments under credit card arrangements, commercial lines of credit, home equity lines of credit, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded only when funded. In connection with these commitments, we established an allowance for credit losses related to off-balance-sheet credit exposures. The allowance, recorded in a liability account, is calculated in accordance with ASC 326 and represents expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. The estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment. The likelihood and expected amount of funding are based on historical utilization rates. No allowance is recognized if we have the unconditional right to cancel the obligation. The allowance is reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. Adjustments to the allowance are reported in our income statement as a component of provision for credit losses.
REVENUE RECOGNITION: Our revenue is comprised primarily of interest income, service charges and fees, gains on the sale of loans and AFS securities, earnings on corporate owned life insurance policies, and other noninterest income. Other noninterest income is typically service and performance driven in nature and comprised primarily of investment and trust advisory fees. We recognize revenue, excluding interest income and other income specifically scoped out, in accordance with ASC 606, Revenue From Contracts with Customers. Revenue is recognized when our performance obligation has been satisfied according to our contractual obligation.
FEDERAL INCOME TAXES: Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax assets or liabilities are determined based on the tax effects of the temporary differences between the book and tax basis on the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. Valuation allowances are established, where necessary, to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the year plus or minus the change during the year in deferred tax assets and liabilities.
We analyze our filing positions in the jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. We also treat interest and penalties attributable to income taxes, to the extent they arise, as a component of our noninterest expenses.
DEFINED BENEFIT PENSION PLAN: We maintain a noncontributory defined benefit pension plan, which was curtailed effective March 1, 2007. The service cost component of the defined benefit pension plan is included in “compensation and benefits” on the consolidated statements of income and is funded consistent with the requirements of federal laws and regulations. All other costs related to the defined benefit pension plan are included in “other” noninterest expenses on the consolidated statements of income. The current benefit obligation is included in "accrued interest payable and other liabilities" on the consolidated balance sheets. Inherent in the determination of defined benefit pension costs are assumptions concerning future events that will affect the amount and timing of required benefit payments under the plan. These assumptions include demographic assumptions such as mortality, a discount rate used to determine the current benefit obligation and a long-term
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expected rate of return on plan assets. Net periodic benefit cost includes the interest cost based on the assumed discount rate, an expected return on plan assets based on an actuarially derived market-related value of assets, and amortization of unrecognized net actuarial gains or losses. Actuarial gains and losses result from experience different from that assumed and from changes in assumptions (excluding asset gains and losses not yet reflected in market-related value). Amortization of actuarial gains and losses is included as a component of net periodic defined benefit pension cost.
For additional information, see “Note 12 – Benefit Plans.”
MARKETING COSTS: Marketing costs are expensed as incurred (see “Note 14 – Other Noninterest Expenses”).
Note 2 – Accounting Standards Updates
Pending Accounting Standards Updates
ASU No. 2023-09: “Income Tax (Topic 740): Improvement to Income tax Disclosures
In December 2023, ASU No. 2023-09 was issued to enhance the transparency and decision usefulness of income tax disclosures. The existing disclosure is being enhanced to provide information to help investors, lenders, creditors and all other allocators of capital asses how an entity's operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. The new authoritative guidance is effective for interim and annual periods beginning after December 15, 2024 and is not expected to have a significant impact on our operations or financial statement disclosures.
Note 3 – AFS Securities
The amortized cost and fair value of AFS securities, with gross unrealized gains and losses, are as follows as of December 31:

| 2023
| Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value
U.S. Treasury | $ | 231,218 |  |  | $ | — |  |  | $ | 16,417 |  |  | $ | 214,801 |
States and political subdivisions | 94,837 |  |  | 1,032 |  |  | 2,993 |  |  | 92,876 |
Auction rate money market preferred | 3,200 |  |  | — |  |  | 269 |  |  | 2,931 |
Mortgage-backed securities | 35,321 |  |  | — |  |  | 2,506 |  |  | 32,815 |
Collateralized mortgage obligations | 187,248 |  |  | — |  |  | 9,473 |  |  | 177,775 |
Corporate | 8,150 |  |  | — |  |  | 1,200 |  |  | 6,950 |
Total | $ | 559,974 |  |  | $ | 1,032 |  |  | $ | 32,858 |  |  | $ | 528,148 |

| 2022
| Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value
U.S. Treasury | $ | 231,622 |  |  | $ | — |  |  | $ | 22,921 |  |  | $ | 208,701 |
States and political subdivisions | 122,023 |  |  | 392 |  |  | 4,903 |  |  | 117,512 |
Auction rate money market preferred | 3,200 |  |  | — |  |  | 858 |  |  | 2,342 |
Mortgage-backed securities | 42,309 |  |  | — |  |  | 3,239 |  |  | 39,070 |
Collateralized mortgage obligations | 218,301 |  |  | — |  |  | 12,573 |  |  | 205,728 |
Corporate | 8,150 |  |  | — |  |  | 1,022 |  |  | 7,128 |
Total | $ | 625,605 |  |  | $ | 392 |  |  | $ | 45,516 |  |  | $ | 580,481 |

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The amortized cost and fair value of AFS securities by contractual maturity at December 31, 2023 are as follows:

| Maturing |  | Securities with Variable Monthly Payments or Noncontractual Maturities |  |
| Due in One Year or Less |  | After One Year But Within Five Years |  | After Five Years But Within Ten Years |  | After Ten Years |  |  | Total
U.S. Treasury | $ | — |  |  | $ | 231,218 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 231,218 |
States and political subdivisions | 15,461 |  |  | 28,082 |  |  | 20,003 |  |  | 31,291 |  |  | — |  |  | 94,837 |
Auction rate money market preferred | — |  |  | — |  |  | — |  |  | — |  |  | 3,200 |  |  | 3,200 |
Mortgage-backed securities | — |  |  | — |  |  | — |  |  | — |  |  | 35,321 |  |  | 35,321 |
Collateralized mortgage obligations | — |  |  | — |  |  | — |  |  | — |  |  | 187,248 |  |  | 187,248 |
Corporate | — |  |  | — |  |  | 8,150 |  |  | — |  |  | — |  |  | 8,150 |
Total amortized cost | $ | 15,461 |  |  | $ | 259,300 |  |  | $ | 28,153 |  |  | $ | 31,291 |  |  | $ | 225,769 |  |  | $ | 559,974 |
Fair value | $ | 15,907 |  |  | $ | 242,998 |  |  | $ | 26,400 |  |  | $ | 29,322 |  |  | $ | 213,521 |  |  | $ | 528,148 |

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. Approximately $143,000 of the amortized cost of the collateralized mortgage portfolio consist of agency commercial mortgage-backed securities with defined maturity dates of less than ten years.
A summary of the sales activity of AFS securities during the years ended December 31 is displayed in the following table.

| 2023 |  | 2022 |  | 2021
Proceeds from sales of AFS securities | $ | 18,089 |  |  | $ | — |  |  | $ | — |
Realized gains (losses) | $ | 67 |  |  | $ | — |  |  | $ | — |
Applicable income tax expense (benefit) | $ | 14 |  |  | $ | — |  |  | $ | — |

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

| December 31, 2023
| Less Than Twelve Months |  | Twelve Months or More |  |
| Gross Unrealized Losses |  | Fair Value |  | Gross Unrealized Losses |  | Fair Value |  | Total Unrealized Losses
U.S. Treasury | $ | — |  |  | $ | — |  |  | $ | 16,417 |  |  | $ | 214,801 |  |  | $ | 16,417 |
States and political subdivisions | 42 |  |  | 7,172 |  |  | 2,951 |  |  | 37,011 |  |  | 2,993 |
Auction rate money market preferred | — |  |  | — |  |  | 269 |  |  | 2,931 |  |  | 269 |
Mortgage-backed securities | 1 |  |  | 10 |  |  | 2,505 |  |  | 32,805 |  |  | 2,506 |
Collateralized mortgage obligations | 116 |  |  | 4,554 |  |  | 9,357 |  |  | 173,221 |  |  | 9,473 |
Corporate | — |  |  | — |  |  | 1,200 |  |  | 6,950 |  |  | 1,200 |
Total | $ | 159 |  |  | $ | 11,736 |  |  | $ | 32,699 |  |  | $ | 467,719 |  |  | $ | 32,858 |
Number of securities in an unrealized loss position: |  |  | 22 |  |  |  |  | 186 |  |  | 208 |

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| December 31, 2022
| Less Than Twelve Months |  | Twelve Months or More |  |
| Gross Unrealized Losses |  | Fair Value |  | Gross Unrealized Losses |  | Fair Value |  | Total Unrealized Losses
U.S. Treasury | $ | 1,388 |  |  | $ | 18,331 |  |  | $ | 21,533 |  |  | $ | 190,370 |  |  | $ | 22,921 |
States and political subdivisions | 2,389 |  |  | 48,083 |  |  | 2,514 |  |  | 40,667 |  |  | 4,903 |
Auction rate money market preferred | — |  |  | — |  |  | 858 |  |  | 2,342 |  |  | 858 |
Mortgage-backed securities | 3,239 |  |  | 39,070 |  |  | — |  |  | — |  |  | 3,239 |
Collateralized mortgage obligations | 12,408 |  |  | 201,317 |  |  | 165 |  |  | 4,411 |  |  | 12,573 |
Corporate | — |  |  | — |  |  | 1,022 |  |  | 7,128 |  |  | 1,022 |
Total | $ | 19,424 |  |  | $ | 306,801 |  |  | $ | 26,092 |  |  | $ | 244,918 |  |  | $ | 45,516 |
Number of securities in an unrealized loss position: |  |  | 178 |  |  |  |  | 266 |  |  | 444 |

The unrealized loss on our AFS securities portfolio resulted from the increase in short-term and intermediate-term interest rates.
As of December 31, 2023, no allowance for credit losses has been recognized on AFS securities in an unrealized loss position, as management does not believe any of the securities are impaired due to reasons of credit quality. This is based on our analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors related to our AFS securities and consideration of our historical credit loss experience and internal forecasts. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. Furthermore, management does not have the intent to sell any of the securities classified as AFS in the table above, and believes it is more likely than not that we will not have to sell any such securities before a recovery of cost. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their respective maturity date or repricing date, or if the market yields for such investments decline.
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Note 4 – Loans and ACL
Loan Composition
The following table provides a detailed listing of our loan portfolio at December 31:

| 2023 |  | 2022
| Balance |  | Percent of Total |  | Balance |  | Percent of Total
Commercial and industrial |  |  |  |  |  |  |
Secured | $ | 189,186 |  |  | 14.02 | % |  | $ | 161,895 |  |  | 12.80 | %
Unsecured | 20,552 |  |  | 1.52 | % |  | 16,533 |  |  | 1.31 | %
Total commercial and industrial | 209,738 |  |  | 15.54 | % |  | 178,428 |  |  | 14.11 | %
Commercial real estate |  |  |  |  |  |  |
Commercial mortgage owner occupied | 180,636 |  |  | 13.39 | % |  | 192,117 |  |  | 15.20 | %
Commercial mortgage non-owner occupied | 216,292 |  |  | 16.03 | % |  | 204,091 |  |  | 16.14 | %
Commercial mortgage 1-4 family investor | 89,208 |  |  | 6.61 | % |  | 85,278 |  |  | 6.75 | %
Commercial mortgage multifamily | 78,108 |  |  | 5.79 | % |  | 84,526 |  |  | 6.69 | %
Total commercial real estate | 564,244 |  |  | 41.82 | % |  | 566,012 |  |  | 44.78 | %
Advances to mortgage brokers | 18,541 |  |  | 1.37 | % |  | — |  |  | — | %
Agricultural |  |  |  |  |  |  |
Agricultural mortgage | 69,044 |  |  | 5.12 | % |  | 73,002 |  |  | 5.77 | %
Agricultural | 30,950 |  |  | 2.29 | % |  | 31,983 |  |  | 2.53 | %
Total agricultural | 99,994 |  |  | 7.41 | % |  | 104,985 |  |  | 8.30 | %
Residential real estate |  |  |  |  |  |  |
Senior lien | 313,459 |  |  | 23.23 | % |  | 300,225 |  |  | 23.75 | %
Junior lien | 5,945 |  |  | 0.44 | % |  | 3,282 |  |  | 0.26 | %
Home equity lines of credit | 37,014 |  |  | 2.74 | % |  | 33,187 |  |  | 2.63 | %
Total residential real estate | 356,418 |  |  | 26.41 | % |  | 336,694 |  |  | 26.64 | %
Consumer |  |  |  |  |  |  |
Secured - direct | 37,948 |  |  | 2.81 | % |  | 37,127 |  |  | 2.94 | %
Secured - indirect | 59,324 |  |  | 4.40 | % |  | 37,814 |  |  | 2.98 | %
Unsecured | 3,256 |  |  | 0.24 | % |  | 3,113 |  |  | 0.25 | %
Total consumer | 100,528 |  |  | 7.45 | % |  | 78,054 |  |  | 6.17 | %
Total | $ | 1,349,463 |  |  | 100.00 | % |  | $ | 1,264,173 |  |  | 100.00 | %

We grant commercial, agricultural, residential real estate, and consumer loans to customers situated primarily in Bay, Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw counties in Michigan. The ability of the borrowers to honor their repayment obligations is often dependent upon the real estate, agricultural, manufacturing, retail, gaming, tourism, health care, higher education, and general economic conditions of this region. 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 is unsecured.
Loans that we have the intent and ability to hold in our portfolio are reported at their outstanding principal balance adjusted for any charge-offs, the ACL, and deferred fees or costs. Unless a loan has a nonaccrual status, interest income is accrued over the term of the loan based on the principal amount outstanding. Loan origination fees and certain direct loan origination costs are capitalized and recognized as a component of interest income over the term of the loan using the appropriate amortization method.
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
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closely held corporations, partnerships, and sole proprietorships. In addition, we may require annual financial statements, prepare cash flow analyses, and review credit reports.
We offer adjustable rate mortgages, construction loans, and fixed rate residential real estate loans which have amortization periods up to a maximum of 30 years. We consider the anticipated direction of interest rates, balance sheet duration, the sensitivity of our balance sheet to changes in interest rates, our liquidity needs, and overall loan demand to determine whether or not to sell fixed rate loans to Freddie Mac.
Our lending policies generally limit the maximum loan-to-value ratio on residential real estate loans to 100% of the lower of the appraised value of the property or the purchase price. Private mortgage insurance is typically required on loans with loan-to-value ratios in excess of 80% unless the loan qualifies for government guarantees.
Underwriting criteria for 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 one or more of the following committees: Internal Loan Committee, the Executive Loan Committee, or the Board of Directors.
Consumer loans include secured and unsecured personal loans. Loans are amortized for a period of up to 15 years based on the age and value of the underlying collateral. The underwriting emphasis is on a borrower’s perceived intent and ability to pay rather than collateral value. No consumer loans are sold to the secondary market.
Nonaccrual and Past Due Loans
The accrual of interest on commercial and agricultural loans, as well as residential real estate loans, is discontinued at the time a loan is 90 days or more past due unless the credit is well-secured and in the process of short-term collection. Upon transferring a loan to nonaccrual status, we perform an evaluation to determine the net realizable value of the underlying collateral. This evaluation is used to help determine if a charge-off is necessary. Consumer loans are typically charged-off no later than 180 days past due. Past due status is based on the contractual term of the loan. In all cases, a loan is placed in nonaccrual status at an earlier date if collection of principal or interest is considered doubtful.
When a loan is placed in nonaccrual status, all interest accrued in the current calendar year, but not collected, is reversed against interest income while interest accrued in prior calendar years, but not collected, is charged against the ACL. Loans may be returned to accrual status after six months of continuous performance and achievement of current payment status.
The following table summarizes nonaccrual loan data by class of loans as of December 31:

| 2023 |  | 2022
| Total Nonaccrual Loans |  | Nonaccrual Loans with No ACL |  | Total Nonaccrual Loans |  | Nonaccrual Loans with No ACL
Commercial and industrial: |  |  |  |  |  |  |
Secured | $ | 491 |  |  | $ | 435 |  |  | $ | 82 |  |  | $ | 82 |
Commercial real estate: |  |  |  |  |  |  |
Commercial mortgage 1-4 family investor | — |  |  | — |  |  | 14 |  | 14 |
Agricultural: |  |  |  |  |  |  |
Agricultural mortgage | 38 |  |  | 38 |  |  | 67 |  |  | 67 |
Agricultural other | 167 |  |  | 167 |  |  | 167 |  |  | 167 |
Residential real estate: |  |  |  |  |  |  |
Senior lien | 286 |  |  | 286 |  |  | 127 |  |  | 107 |
Total | $ | 982 |  |  | $ | 926 |  |  | $ | 457 |  |  | $ | 437 |

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

| 2023
| Past Due: |  |  |  |  |  |
| 30-59 Days |  | 60-89 Days |  | 90 Days or More |  | Current |  | Total |  | Accruing Loans 90 or More Days Past Due
Commercial and industrial |  |  |  |  |  |  |  |  |  |  |
Secured | $ | 165 |  |  | $ | 290 |  |  | $ | 201 |  |  | $ | 188,530 |  |  | $ | 189,186 |  |  | $ | — |
Unsecured | — |  |  | — |  |  | — |  |  | 20,552 |  |  | 20,552 |  |  | — |
Total commercial and industrial | 165 |  |  | 290 |  |  | 201 |  |  | 209,082 |  |  | 209,738 |  |  | — |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |
Commercial mortgage owner occupied | — |  |  | — |  |  | — |  |  | 180,636 |  |  | 180,636 |  |  | — |
Commercial mortgage non-owner occupied | — |  |  | — |  |  | — |  |  | 216,292 |  |  | 216,292 |  |  | — |
Commercial mortgage 1-4 family investor | — |  |  | — |  |  | — |  |  | 89,208 |  |  | 89,208 |  |  | — |
Commercial mortgage multifamily | — |  |  | — |  |  | — |  |  | 78,108 |  |  | 78,108 |  |  | — |
Total commercial real estate | — |  |  | — |  |  | — |  |  | 564,244 |  |  | 564,244 |  |  | — |
Advances to mortgage brokers | — |  |  | — |  |  | — |  |  | 18,541 |  |  | 18,541 |  |  | — |
Agricultural |  |  |  |  |  |  |  |  |  |  |
Agricultural mortgage | — |  |  | — |  |  | — |  |  | 69,044 |  |  | 69,044 |  |  | — |
Agricultural | — |  |  | — |  |  | — |  |  | 30,950 |  |  | 30,950 |  |  | — |
Total agricultural | — |  |  | — |  |  | — |  |  | 99,994 |  |  | 99,994 |  |  | — |
Residential real estate |  |  |  |  |  |  |  |  |  |  |
Senior lien | 3,188 |  |  | 349 |  |  | 201 |  |  | 309,721 |  |  | 313,459 |  |  | 87 |
Junior lien | — |  |  | — |  |  | — |  |  | 5,945 |  |  | 5,945 |  |  | — |
Home equity lines of credit | — |  |  | — |  |  | — |  |  | 37,014 |  |  | 37,014 |  |  | — |
Total residential real estate | 3,188 |  |  | 349 |  |  | 201 |  |  | 352,680 |  |  | 356,418 |  |  | 87 |
Consumer |  |  |  |  |  |  |  |  |  |  |
Secured - direct | 3 |  |  | — |  |  | — |  |  | 37,945 |  |  | 37,948 |  |  | — |
Secured - indirect | 181 |  |  | — |  |  | — |  |  | 59,143 |  |  | 59,324 |  |  | — |
Unsecured | 9 |  |  | — |  |  | — |  |  | 3,247 |  |  | 3,256 |  |  | — |
Total consumer | 193 |  |  | — |  |  | — |  |  | 100,335 |  |  | 100,528 |  |  | — |
Total | $ | 3,546 |  |  | $ | 639 |  |  | $ | 402 |  |  | $ | 1,344,876 |  |  | $ | 1,349,463 |  |  | $ | 87 |

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| 2022
| Past Due: |  |  |  |  |  |
| 30-59 Days |  | 60-89 Days |  | 90 Days or More |  | Current |  | Total |  | Accruing Loans 90 or More Days Past Due
Commercial and industrial |  |  |  |  |  |  |  |  |  |  |
Secured | $ | 536 |  |  | $ | — |  |  | $ | — |  |  | $ | 161,359 |  |  | $ | 161,895 |  |  | $ | — |
Unsecured | — |  |  | — |  |  | — |  |  | 16,533 |  |  | 16,533 |  |  | — |
Total commercial and industrial | 536 |  |  | — |  |  | — |  |  | 177,892 |  |  | 178,428 |  |  | — |
Commercial real estate |  |  |  |  |  |  |  |  |  |  |
Commercial mortgage owner occupied | 94 |  |  | — |  |  | — |  |  | 192,023 |  |  | 192,117 |  |  | — |
Commercial mortgage non-owner occupied | 4,208 |  |  | 2,570 |  |  | — |  |  | 197,313 |  |  | 204,091 |  |  | — |
Commercial mortgage 1-4 family investor | — |  |  | — |  |  | 14 |  |  | 85,264 |  |  | 85,278 |  |  | — |
Commercial mortgage multifamily | — |  |  | — |  |  | — |  |  | 84,526 |  |  | 84,526 |  |  | — |
Total commercial real estate | 4,302 |  |  | 2,570 |  |  | 14 |  |  | 559,126 |  |  | 566,012 |  |  | — |
Advances to mortgage brokers | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Agricultural |  |  |  |  |  |  |  |  |  |  |
Agricultural mortgage | — |  |  | — |  |  | — |  |  | 73,002 |  |  | 73,002 |  |  | — |
Agricultural | — |  |  | — |  |  | — |  |  | 31,983 |  |  | 31,983 |  |  | — |
Total agricultural | — |  |  | — |  |  | — |  |  | 104,985 |  |  | 104,985 |  |  | — |
Residential real estate |  |  |  |  |  |  |  |  |  |  |
Senior lien | 3,025 |  |  | 225 |  |  | — |  |  | 296,975 |  |  | 300,225 |  |  | — |
Junior lien | — |  |  | — |  |  | — |  |  | 3,282 |  |  | 3,282 |  |  | — |
Home equity lines of credit | 38 |  |  | — |  |  | — |  |  | 33,149 |  |  | 33,187 |  |  | — |
Total residential real estate | 3,063 |  |  | 225 |  |  | — |  |  | 333,406 |  |  | 336,694 |  |  | — |
Consumer |  |  |  |  |  |  |  |  |  |  |
Secured - direct | 1 |  |  | — |  |  | — |  |  | 37,126 |  |  | 37,127 |  |  | — |
Secured - indirect | 45 |  |  | 8 |  |  | — |  |  | 37,761 |  |  | 37,814 |  |  | — |
Unsecured | 4 |  |  | — |  |  | — |  |  | 3,109 |  |  | 3,113 |  |  | — |
Total consumer | 50 |  |  | 8 |  |  | — |  |  | 77,996 |  |  | 78,054 |  |  | — |
Total | $ | 7,951 |  |  | $ | 2,803 |  |  | $ | 14 |  |  | $ | 1,253,405 |  |  | $ | 1,264,173 |  |  | $ | — |

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

| 2023
| 2023 |  | 2022 |  | 2021 |  | 2020 |  | 2019 |  | Prior |  | Revolving Loans |  | Revolving Loans Converted to Term |  | Total
Commercial and industrial: Secured |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk ratings 1-3 | $ | 15,061 |  |  | $ | 4,324 |  |  | $ | 6,188 |  |  | $ | 6,666 |  |  | $ | 422 |  |  | $ | 449 |  |  | $ | 12,305 |  |  | $ | — |  |  | $ | 45,415 |
Risk rating 4 | 38,680 |  |  | 35,245 |  |  | 22,065 |  |  | 4,523 |  |  | 2,469 |  |  | 1,762 |  |  | 29,826 |  |  | — |  |  | 134,570 |
Risk rating 5 | 391 |  |  | 2,634 |  |  | 233 |  |  | 305 |  |  | 111 |  |  | 101 |  |  | 1,994 |  |  | — |  |  | 5,769 |
Risk rating 6 | — |  |  | — |  |  | 4 |  |  | 207 |  |  | 6 |  |  | 128 |  |  | 2,596 |  |  | — |  |  | 2,941 |
Risk rating 7 | 465 |  |  | — |  |  | — |  |  | 24 |  |  | 2 |  |  | — |  |  | — |  |  | — |  |  | 491 |
Risk rating 8 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Risk rating 9 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 54,597 |  |  | $ | 42,203 |  |  | $ | 28,490 |  |  | $ | 11,725 |  |  | $ | 3,010 |  |  | $ | 2,440 |  |  | $ | 46,721 |  |  | $ | — |  |  | $ | 189,186 |
Current year-to-date gross charge-offs | $ | 200 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 200 |
Commercial and industrial: Unsecured |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk ratings 1-3 | $ | 2,200 |  |  | $ | 259 |  |  | $ | 129 |  |  | $ | 71 |  |  | $ | 96 |  |  | $ | 707 |  |  | $ | 1,663 |  |  | $ | — |  |  | $ | 5,125 |
Risk rating 4 | 3,988 |  |  | 3,117 |  |  | 517 |  |  | 470 |  |  | — |  |  | — |  |  | 7,274 |  |  | — |  |  | 15,366 |
Risk rating 5 | — |  |  | 31 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 30 |  |  | — |  |  | 61 |
Risk rating 6 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Risk rating 7 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Risk rating 8 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Risk rating 9 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 6,188 |  |  | $ | 3,407 |  |  | $ | 646 |  |  | $ | 541 |  |  | $ | 96 |  |  | $ | 707 |  |  | $ | 8,967 |  |  | $ | — |  |  | $ | 20,552 |
Current year-to-date gross charge-offs | $ | 8 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 68 |  |  | $ | — |  |  | $ | 76 |
Commercial real estate: Owner occupied |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk ratings 1-3 | $ | 3,592 |  |  | $ | 1,712 |  |  | $ | 12,655 |  |  | $ | 14,228 |  |  | $ | 761 |  |  | $ | 3,313 |  |  | $ | 211 |  |  | $ | — |  |  | $ | 36,472 |
Risk rating 4 | 12,148 |  |  | 33,392 |  |  | 39,406 |  |  | 14,086 |  |  | 13,384 |  |  | 19,942 |  |  | 1,506 |  |  | — |  |  | 133,864 |
Risk rating 5 | 1,460 |  |  | 727 |  |  | 195 |  |  | 220 |  |  | 3,829 |  |  | 1,761 |  |  | 464 |  |  | — |  |  | 8,656 |
Risk rating 6 | — |  |  | — |  |  | 870 |  |  | 234 |  |  | — |  |  | 540 |  |  | — |  |  | — |  |  | 1,644 |
Risk rating 7 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Risk rating 8 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Risk rating 9 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 17,200 |  |  | $ | 35,831 |  |  | $ | 53,126 |  |  | $ | 28,768 |  |  | $ | 17,974 |  |  | $ | 25,556 |  |  | $ | 2,181 |  |  | $ | — |  |  | $ | 180,636 |
Current year-to-date gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Commercial real estate: Non-owner occupied |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk ratings 1-3 | $ | 67 |  |  | $ | 4,383 |  |  | $ | 6,496 |  |  | $ | 827 |  |  | $ | 172 |  |  | $ | 1,766 |  |  | $ | — |  |  | $ | — |  |  | $ | 13,711 |
Risk rating 4 | 37,906 |  |  | 62,979 |  |  | 37,583 |  |  | 11,534 |  |  | 7,589 |  |  | 32,941 |  |  | 1,650 |  |  | — |  |  | 192,182 |
Risk rating 5 | — |  |  | — |  |  | 5,838 |  |  | — |  |  | — |  |  | 3,478 |  |  | — |  |  | — |  |  | 9,316 |
Risk rating 6 | 1,029 |  |  | — |  |  | — |  |  | 54 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,083 |
Risk rating 7 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Risk rating 8 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Risk rating 9 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 39,002 |  |  | $ | 67,362 |  |  | $ | 49,917 |  |  | $ | 12,415 |  |  | $ | 7,761 |  |  | $ | 38,185 |  |  | $ | 1,650 |  |  | $ | — |  |  | $ | 216,292 |
Current year-to-date gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |

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| 2023
| 2023 |  | 2022 |  | 2021 |  | 2020 |  | 2019 |  | Prior |  | Revolving Loans |  | Revolving Loans Converted to Term |  | Total
Commercial real estate: 1-4 family investor |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk ratings 1-3 | $ | 286 |  |  | $ | 1,445 |  |  | $ | 864 |  |  | $ | 905 |  |  | $ | 666 |  |  | $ | 887 |  |  | $ | 1,352 |  |  | $ | — |  |  | $ | 6,405 |
Risk rating 4 | 13,492 |  |  | 11,641 |  |  | 30,604 |  |  | 15,124 |  |  | 3,036 |  |  | 3,111 |  |  | 4,538 |  |  | — |  |  | 81,546 |
Risk rating 5 | 152 |  |  | 354 |  |  | 77 |  |  | — |  |  | 55 |  |  | — |  |  | — |  |  | — |  |  | 638 |
Risk rating 6 | 555 |  |  | — |  |  | — |  |  | — |  |  | 59 |  |  | 5 |  |  | — |  |  | — |  |  | 619 |
Risk rating 7 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Risk rating 8 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Risk rating 9 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 14,485 |  |  | $ | 13,440 |  |  | $ | 31,545 |  |  | $ | 16,029 |  |  | $ | 3,816 |  |  | $ | 4,003 |  |  | $ | 5,890 |  |  | $ | — |  |  | $ | 89,208 |
Current year-to-date gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Commercial real estate: Multifamily |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk ratings 1-3 | $ | 4,509 |  |  | $ | 4,682 |  |  | $ | 2,053 |  |  | $ | 568 |  |  | $ | — |  |  | $ | 1,515 |  |  | $ | — |  |  | $ | — |  |  | $ | 13,327 |
Risk rating 4 | 2,792 |  |  | 19,465 |  |  | 15,981 |  |  | 813 |  |  | 549 |  |  | 21,263 |  |  | 554 |  |  | — |  |  | 61,417 |
Risk rating 5 | — |  |  | — |  |  | — |  |  | 4 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 4 |
Risk rating 6 | — |  |  | — |  |  | 32 |  |  | — |  |  | — |  |  | 3,328 |  |  | — |  |  | — |  |  | 3,360 |
Risk rating 7 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Risk rating 8 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Risk rating 9 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 7,301 |  |  | $ | 24,147 |  |  | $ | 18,066 |  |  | $ | 1,385 |  |  | $ | 549 |  |  | $ | 26,106 |  |  | $ | 554 |  |  | $ | — |  |  | $ | 78,108 |
Current year-to-date gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Advances to mortgage brokers |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk ratings 1-3 | $ | 18,541 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 18,541 |
Current year-to-date gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Agricultural mortgage |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk ratings 1-3 | $ | 292 |  |  | $ | 2,834 |  |  | $ | 1,241 |  |  | $ | 2,786 |  |  | $ | 604 |  |  | $ | 964 |  |  | $ | 94 |  |  | $ | — |  |  | $ | 8,815 |
Risk rating 4 | 5,622 |  |  | 12,903 |  |  | 8,970 |  |  | 5,940 |  |  | 3,926 |  |  | 7,883 |  |  | 566 |  |  | — |  |  | 45,810 |
Risk rating 5 | 126 |  |  | 4,098 |  |  | 5,886 |  |  | 689 |  |  | 175 |  |  | 60 |  |  | 756 |  |  | — |  |  | 11,790 |
Risk rating 6 | 842 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 1,749 |  |  | — |  |  | — |  |  | 2,591 |
Risk rating 7 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 38 |  |  | — |  |  | — |  |  | 38 |
Risk rating 8 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Risk rating 9 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 6,882 |  |  | $ | 19,835 |  |  | $ | 16,097 |  |  | $ | 9,415 |  |  | $ | 4,705 |  |  | $ | 10,694 |  |  | $ | 1,416 |  |  | $ | — |  |  | $ | 69,044 |
Current year-to-date gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 4 |  |  | $ | — |  |  | $ | — |  |  | $ | 4 |
Agricultural other |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Risk ratings 1-3 | $ | 801 |  |  | $ | 81 |  |  | $ | 121 |  |  | $ | 38 |  |  | $ | 183 |  |  | $ | 141 |  |  | $ | 2,659 |  |  | $ | — |  |  | $ | 4,024 |
Risk rating 4 | 1,830 |  |  | 2,481 |  |  | 2,280 |  |  | 619 |  |  | 146 |  |  | 75 |  |  | 14,405 |  |  | — |  |  | 21,836 |
Risk rating 5 | 753 |  |  | 8 |  |  | 163 |  |  | 507 |  |  | — |  |  | 480 |  |  | 2,731 |  |  | — |  |  | 4,642 |
Risk rating 6 | — |  |  | — |  |  | 32 |  |  | — |  |  | — |  |  | — |  |  | 249 |  |  | — |  |  | 281 |
Risk rating 7 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 167 |  |  | — |  |  | 167 |
Risk rating 8 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Risk rating 9 | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 3,384 |  |  | $ | 2,570 |  |  | $ | 2,596 |  |  | $ | 1,164 |  |  | $ | 329 |  |  | $ | 696 |  |  | $ | 20,211 |  |  | $ | — |  |  | $ | 30,950 |
Current year-to-date gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |

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

| 2022 |  |
| Commercial |  | Agricultural |  |
| Real Estate |  | Other |  | Advances to Mortgage Brokers |  | Total |  | Real Estate |  | Other |  | Total |  | Total
Rating |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
1 - Excellent | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
2 - High quality | 9,045 |  |  | 4,533 |  |  | — |  |  | 13,578 |  |  | 342 |  |  | 100 |  |  | 442 |  |  | 14,020 |
3 - High satisfactory | 68,133 |  |  | 36,608 |  |  | — |  |  | 104,741 |  |  | 9,757 |  |  | 4,608 |  |  | 14,365 |  |  | 119,106 |
4 - Low satisfactory | 462,421 |  |  | 126,673 |  |  | — |  |  | 589,094 |  |  | 44,258 |  |  | 21,214 |  |  | 65,472 |  |  | 654,566 |
5 - Special mention | 20,770 |  |  | 7,447 |  |  | — |  |  | 28,217 |  |  | 12,262 |  |  | 4,634 |  |  | 16,896 |  |  | 45,113 |
6 - Substandard | 5,629 |  |  | 3,085 |  |  | — |  |  | 8,714 |  |  | 6,316 |  |  | 1,260 |  |  | 7,576 |  |  | 16,290 |
7 - Vulnerable | 14 |  |  | 82 |  |  | — |  |  | 96 |  |  | 67 |  |  | 167 |  |  | 234 |  |  | 330 |
8 - Doubtful | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
9 - Loss | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 566,012 |  |  | $ | 178,428 |  |  | $ | — |  |  | $ | 744,440 |  |  | $ | 73,002 |  |  | $ | 31,983 |  |  | $ | 104,985 |  |  | $ | 849,425 |

Internally assigned credit risk ratings are reviewed, at a minimum, when loans are renewed or when management has knowledge of improvements or deterioration of the credit quality of individual credits. Descriptions of the internally assigned credit risk ratings for commercial and agricultural loans are as follows:
1. EXCELLENT – Substantially Risk Free
Credit has strong financial condition and solid earnings history, characterized by:
•High liquidity, strong cash flow, low leverage.
•Unquestioned ability to meet all obligations when due.
•Experienced management, with management succession in place.
•Secured by cash.
2. HIGH QUALITY – Limited Risk
Credit with sound financial condition and a positive trend in earnings supplemented by:
•Favorable liquidity and leverage ratios.
•Ability to meet all obligations when due.
•Management with successful track record.
•Steady and satisfactory earnings history.
•If loan is secured, collateral is of high quality and readily marketable.
•Access to alternative financing.
•Well defined primary and secondary source of repayment.
•If supported by guaranty, the financial strength and liquidity of the guarantor(s) are clearly evident.
3. HIGH SATISFACTORY – Reasonable Risk
Credit with satisfactory financial condition and further characterized by:
•Working capital adequate to support operations.
•Cash flow sufficient to pay debts as scheduled.
•Management experience and depth appear favorable.
•Loan performing according to terms.
•If loan is secured, collateral is acceptable and loan is fully protected.
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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.
•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.
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•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. Internally assigned credit risk ratings are reviewed, at a minimum, when loans are renewed or when management has knowledge of improvements or deterioration of the credit quality of individual credits.
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Our primary credit quality indicator for residential real estate and consumer loans is the individual loan’s past due status. The following table displays residential real estate and consumer loans by payment status and year of origination as of December 31:

| 2023
| 2023 |  | 2022 |  | 2021 |  | 2020 |  | 2019 |  | Prior |  | Revolving Loans |  | Revolving Loans Converted to Term |  | Total
Residential real estate: Senior lien |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current | $ | 45,878 |  |  | $ | 52,989 |  |  | $ | 80,122 |  |  | $ | 52,648 |  |  | $ | 23,356 |  |  | $ | 54,556 |  |  | $ | — |  |  | $ | — |  |  | $ | 309,549 |
Past due 30-89 days | — |  |  | 784 |  |  | 714 |  |  | 123 |  |  | 478 |  |  | 1,438 |  |  | — |  |  | — |  |  | 3,537 |
Past due 90 or more days | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 87 |  |  | — |  |  | — |  |  | 87 |
Nonaccrual | 48 |  |  | — |  |  | — |  |  | 31 |  |  | — |  |  | 207 |  |  | — |  |  | — |  |  | 286 |
Total | $ | 45,926 |  |  | $ | 53,773 |  |  | $ | 80,836 |  |  | $ | 52,802 |  |  | $ | 23,834 |  |  | $ | 56,288 |  |  | $ | — |  |  | $ | — |  |  | $ | 313,459 |
Current year-to-date gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 2 |  |  | $ | — |  |  | $ | — |  |  | $ | 2 |
Residential real estate: Junior lien |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current | $ | 3,706 |  |  | $ | 1,325 |  |  | $ | 168 |  |  | $ | 134 |  |  | $ | 167 |  |  | $ | 445 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,945 |
Past due 30-89 days | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Past due 90 or more days | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Nonaccrual | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 3,706 |  |  | $ | 1,325 |  |  | $ | 168 |  |  | $ | 134 |  |  | $ | 167 |  |  | $ | 445 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,945 |
Current year-to-date gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Residential real estate: Home equity lines of credit |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 37,014 |  |  | $ | — |  |  | $ | 37,014 |
Past due 30-89 days | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Past due 90 or more days | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Nonaccrual | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 37,014 |  |  | $ | — |  |  | $ | 37,014 |
Current year-to-date gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Consumer : Secured - direct |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current | $ | 14,813 |  |  | $ | 10,037 |  |  | $ | 6,468 |  |  | $ | 3,473 |  |  | $ | 1,682 |  |  | $ | 1,472 |  |  | $ | — |  |  | $ | — |  |  | $ | 37,945 |
Past due 30-89 days | — |  |  | — |  |  | — |  |  | 3 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 3 |
Past due 90 or more days | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Nonaccrual | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 14,813 |  |  | $ | 10,037 |  |  | $ | 6,468 |  |  | $ | 3,476 |  |  | $ | 1,682 |  |  | $ | 1,472 |  |  | $ | — |  |  | $ | — |  |  | $ | 37,948 |
Current year-to-date gross charge-offs | $ | 139 |  |  | $ | 12 |  |  | $ | 6 |  |  | $ | — |  |  | $ | 3 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 160 |
Consumer : Secured - indirect |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current | $ | 30,900 |  |  | $ | 10,977 |  |  | $ | 6,887 |  |  | $ | 5,376 |  |  | $ | 2,030 |  |  | $ | 2,973 |  |  | $ | — |  |  | $ | — |  |  | $ | 59,143 |
Past due 30-89 days | 123 |  |  | — |  |  | — |  |  | 30 |  |  | 3 |  |  | 25 |  |  | — |  |  | — |  |  | 181 |
Past due 90 or more days | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Nonaccrual | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 31,023 |  |  | $ | 10,977 |  |  | $ | 6,887 |  |  | $ | 5,406 |  |  | $ | 2,033 |  |  | $ | 2,998 |  |  | $ | — |  |  | $ | — |  |  | $ | 59,324 |
Current year-to-date gross charge-offs | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |

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| 2023
| 2023 |  | 2022 |  | 2021 |  | 2020 |  | 2019 |  | Prior |  | Revolving Loans |  | Revolving Loans Converted to Term |  | Total
Consumer: Unsecured |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current | $ | 1,576 |  |  | $ | 740 |  |  | $ | 144 |  |  | $ | 86 |  |  | $ | 7 |  |  | $ | — |  |  | $ | 694 |  |  | $ | — |  |  | $ | 3,247 |
Past due 30-89 days | — |  |  | 9 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 9 |
Past due 90 or more days | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Nonaccrual | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total | $ | 1,576 |  |  | $ | 749 |  |  | $ | 144 |  |  | $ | 86 |  |  | $ | 7 |  |  | $ | — |  |  | $ | 694 |  |  | $ | — |  |  | $ | 3,256 |
Current year-to-date gross charge-offs | $ | 344 |  |  | $ | 21 |  |  | $ | 13 |  |  | $ | 2 |  |  | $ | — |  |  | $ | 1 |  |  | $ | 1 |  |  | $ | — |  |  | $ | 382 |

Loan Modifications
A loan modification includes terms outside of normal lending practices to a borrower experiencing financial difficulty.
Typical modifications granted include, but are not limited to:
•Agreeing to interest rates below prevailing market rates for debt with similar risk characteristics.
•Extending the maturity date or amortization period beyond typical lending guidelines for loans with similar risk characteristics.
•Agreeing to an interest-only payment structure, delaying principal payments, or delaying payments.
•Forgiving principal.
To determine if a borrower is experiencing financial difficulty, factors we consider include:
•The borrower is currently in default on any debt.
•The borrower would likely default on any debt if the concession is not granted.
•The borrower’s cash flow is insufficient to service all debt if the concession is not granted.
•The borrower has declared, or is in the process of declaring, bankruptcy.
•The borrower is unlikely to continue as a going concern (if the entity is a business).
The following is a summary of the amortized cost basis of loan modifications granted to borrowers experiencing financial difficulty for the year ended December 31, 2023.

| 2023
| Other-Than-Insignificant Payment Delay |  | Term Extension |  | Interest Rate Reduction and Term Extension
| Amortized Cost Basis |  | % of Total Class of Financial Receivable |  | Amortized Cost Basis |  | % of Total Class of Financial Receivable |  | Amortized Cost Basis |  | % of Total Class of Financial Receivable
Commercial real estate |  |  |  |  |  |  |  |  |  |  |
Commercial mortgage owner occupied | $ | 118 |  |  | 0.07 | % |  | $ | — |  |  | — | % |  | $ | — |  |  | — | %
Commercial mortgage non-owner occupied | — |  |  | — | % |  | 1,030 |  |  | 0.48 | % |  | — |  |  | — | %
Commercial mortgage multifamily | 2,977 |  |  | 3.81 | % |  | — |  |  | — | % |  | — |  |  | — | %
Agricultural |  |  |  |  |  |  |  |  |  |  |
Agricultural mortgage | — |  |  | — | % |  | 227 |  |  | 0.33 | % |  | 24 |  |  | 0.03 | %
Agricultural | — |  |  | — | % |  | 32 |  |  | 0.10 | % |  | — |  |  | — | %
Residential real estate |  |  |  |  |  |  |  |  |  |  |
Senior lien | — |  |  | — | % |  | 5 |  |  | — | % |  | — |  |  | — | %
Total | $ | 3,095 |  |  |  |  | $ | 1,294 |  |  |  |  | $ | 24 |  |  |

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We do not modify any loans by forgiving principal or accrued interest. We had committed to advance $0 in additional funds in connection with modified loans at December 31, 2023, as displayed in the table above.
The following table summarizes the financial effect of the modifications granted to borrowers experiencing financial difficulty for the year ended December 31:

| 2023
| Payment Delay Term |  | Weighted-Average Interest Rate Reduction |  | Weighted-Average Term Extension (Years)
Commercial real estate |  |  |  |  |
Commercial mortgage owner occupied | 6 months |  | N/A |  | N/A
Commercial mortgage non-owner occupied | N/A |  | N/A |  | 3.00
Commercial mortgage multifamily | 6 months |  | N/A |  | N/A
Agricultural |  |  |  |  |
Agricultural mortgage | N/A |  | 4.50% |  | 1.08
Agricultural | N/A |  | N/A |  | 1.00
Residential real estate |  |  |  |  |
Senior lien | N/A |  | N/A |  | 2.60

For the year ended December 31, 2022, there were four loans restructured, three with a below market interest rate in the amount of $2,871, and one with both a below market interest rate and extension of amortization period in the amount of $98. Total restructured loans for the year ended December 31, 2022 was $2,969.
We closely monitor the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of our modification efforts. The following table summarizes the performance of such loans that were modified during the year ended December 31, 2023.

| December 31, 2023
| Past Due: |  |
| 30-59 Days |  | 60-89 Days |  | 90 Days or More |  | Total Past Due
Residential real estate |  |  |  |  |  |  |
Senior lien | $ | — |  |  | $ | — |  |  | $ | 5 |  |  | $ | 5 |
Total | $ | — |  |  | $ | — |  |  | $ | 5 |  |  | $ | 5 |

We had no loans that defaulted for the years ended December 31, 2023 and 2022 which were modified within 12 months prior to the default date.
ACL - Loans
The credit quality of our loan portfolio is continuously monitored and is reflected within the ACL for loans. The ACL is an estimate of expected losses inherent within our loan portfolio. The ACL is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries.
The ACL is evaluated on a regular basis for appropriateness. Our periodic review of the collectability of a loan considers historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The primary factors behind the determination of the level of the ACL are specific allocations for loans individually evaluated, historical loss percentages, delinquency status, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods.
The methodology for estimating the amount of expected credit losses reported in the ACL has two basic components: a component of individual loans that do not share risk characteristics with other loans; and a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics.
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For a loan that does not share risk characteristics with other loans, an individual analysis is performed to measure an allowance. Loans in nonaccrual status are individually evaluated for specific allocation of the allowance using the fair value of collateral, less costs to sell if foreclosure is probable, or the discounted cash flow method. We do not recognize interest income on loans in nonaccrual status. For loans not classified as nonaccrual, interest income is recognized daily, as earned, according to the terms of the loan agreement and the principal amount outstanding.
In determining the allowance for credit losses, we derive an estimated credit loss assumption from a model that categorizes loan pools based on loan type and credit risk ratings or delinquency bucket. This model calculates an expected loss percentage for each loan class by considering the probability of default, based on the migration of loans from performing to loss by credit risk ratings or delinquency buckets using life-of-loan analysis, and the historical severity of loss, based on the aggregate net lifetime losses incurred per loan class.
The default and severity factors used to calculate the allowance for credit losses for loans that share similar risk characteristics with other loans are adjusted for differences between the historical period used to calculate historical default and loss severity rates and expected conditions over the remaining lives of the loans in the portfolio. These qualitative factors are used to adjust the historical probabilities of default and severity of loss so that they reflect management's expectation of future conditions based on a reasonable and supportable forecast. To the extent the lives of the loans in the portfolio extend beyond the period for which a reasonable and supportable forecast can be made, the model reverts back to the historical rates of default and severity of loss. Qualitative factors include:
•Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, recovery practices not considered elsewhere in estimating credit losses;
•Changes in the experience, ability, and depth of lending management and other relevant staff;
•Changes in interest rates;
•Changes in international, national, regional, and local economic factors (international, national, regional, and local);
•Changes in the nature and volume of the portfolio and in the terms of loans;
•Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;
•Lack of current financial information;
•Competition, legal, and regulatory; and
•Changes in the value of underlying collateral.
Upon the adoption of ASC 326, the estimated ACL using the CECL methodology increased $2,744 compared to the ACL as of December 31, 2022 using the prior incurred loss model. The manner in which credit loss allowances are allocated to the individual portfolio segments was partly impacted by a change in the way the underlying loans within each segment are pooled for modeling purposes. The impact of varying economic conditions and portfolio risk factors are now a component of the credit loss models applied to each modeling pool. In that regard, the amounts allocated to the underlying pools of loans within each portfolio segment more directly reflect the economic variables and portfolio stress factors that correlate with credit losses within each portfolio. Under the prior methodology, allocations in excess of those derived from historical loss rates were recognized as unallocated. Nonetheless, despite fluctuations in the allocation of portions of the overall allowance to the various portfolio segments, the entire allowance is available to absorb any credit losses within the entire loan portfolio.
A summary of changes in the ACL and the recorded investment in loans by segments follows:

| Allowance for Credit Losses
| Year Ended December 31, 2023
| Commercial and Industrial |  | Commercial Real Estate |  | Agricultural |  | Residential Real Estate |  | Consumer |  | Unallocated |  | Total
January 1, 2023 | $ | 860 |  |  | $ | 461 |  |  | $ | 577 |  |  | $ | 617 |  |  | $ | 961 |  |  | $ | 6,374 |  |  | $ | 9,850 |
Impact of the adoption of ASC 326 | (58) |  |  | 5,532 |  |  | (247) |  |  | 3,535 |  |  | 356 |  |  | (6,374) |  |  | 2,744 |
Charge-offs | (276) |  |  | — |  |  | (4) |  |  | (2) |  |  | (542) |  |  | — |  |  | (824) |
Recoveries | 79 |  |  | 26 |  |  | 12 |  |  | 329 |  |  | 263 |  |  | — |  |  | 709 |
Credit loss expense | 363 |  |  | (141) |  |  | (68) |  |  | (143) |  |  | 618 |  |  | — |  |  | 629 |
December 31, 2023 | $ | 968 |  |  | $ | 5,878 |  |  | $ | 270 |  |  | $ | 4,336 |  |  | $ | 1,656 |  |  | $ | — |  |  | $ | 13,108 |

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| Allowance for Loan Losses
| Year Ended December 31, 2022
| Commercial |  | Agricultural |  | Residential Real Estate |  | Consumer |  | Unallocated |  | Total
January 1, 2022 | $ | 1,740 |  |  | $ | 289 |  |  | $ | 747 |  |  | $ | 908 |  |  | $ | 5,419 |  |  | $ | 9,103 |
Charge-offs | (77) |  |  | — |  |  | — |  |  | (542) |  |  | — |  |  | (619) |
Recoveries | 442 |  |  | 9 |  |  | 150 |  |  | 282 |  |  | — |  |  | 883 |
Credit loss expense | (784) |  |  | 279 |  |  | (280) |  |  | 313 |  |  | 955 |  |  | 483 |
December 31, 2022 | $ | 1,321 |  |  | $ | 577 |  |  | $ | 617 |  |  | $ | 961 |  |  | $ | 6,374 |  |  | $ | 9,850 |

| Allowance for Loan Losses and Recorded Investment in Loans
| As of December 31, 2022
| Commercial |  | Agricultural |  | Residential Real Estate |  | Consumer |  | Unallocated |  | Total
Allowance |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment | $ | 12 |  |  | $ | — |  |  | $ | 439 |  |  | $ | — |  |  | $ | — |  |  | $ | 451 |
Collectively evaluated for impairment | 1,309 |  |  | 577 |  |  | 178 |  |  | 961 |  |  | 6,374 |  |  | 9,399 |
Total | $ | 1,321 |  |  | $ | 577 |  |  | $ | 617 |  |  | $ | 961 |  |  | $ | 6,374 |  |  | $ | 9,850 |
Loans |  |  |  |  |  |  |  |  |  |  |
Individually evaluated for impairment | $ | 8,342 |  |  | $ | 10,935 |  |  | $ | 2,741 |  |  | $ | — |  |  |  |  | $ | 22,018 |
Collectively evaluated for impairment | 736,098 |  |  | 94,050 |  |  | 333,953 |  |  | 78,054 |  |  |  |  | 1,242,155 |
Total | $ | 744,440 |  |  | $ | 104,985 |  |  | $ | 336,694 |  |  | $ | 78,054 |  |  |  |  | $ | 1,264,173 |

The following table presents loans that were evaluated for expected credit losses on an individual basis and the related specific allocations, by loan segment as of December 31:

| 2023 |  | 2022
| Loan Balance |  | Specific Allocation |  | Loan Balance |  | Specific Allocation
Commercial and industrial | $ | 465 |  |  | $ | 56 |  |  | $ | — |  |  | $ | — |
Commercial real estate | 234 |  |  | 28 |  |  | 8,342 |  |  | 12 |
Agricultural | 181 |  |  | — |  |  | 10,935 |  |  | — |
Residential real estate | 203 |  |  | — |  |  | 2,741 |  |  | 439 |
Consumer | — |  |  | — |  |  | — |  |  | — |
Total | $ | 1,083 |  |  | $ | 84 |  |  | $ | 22,018 |  |  | $ | 451 |

We have designated loans classified as collateral dependent for which we apply the practical expedient to measure the ACL based on the fair value of the collateral less cost to sell, when the repayment is expected to be provided substantially by the sale or operation of the collateral and the borrower is experiencing financial difficulty. The fair value of the collateral is based on appraisals, which may be adjusted due to their age, and the type, location, and condition of the property or area or general market conditions to reflect the expected change in value between the effective date of the appraisal and the measurement date. Appraisals are updated every one to two years depending on the type of loan and the total exposure of the borrower. Loans evaluated for expected credit losses on an individual basis include $1,083 in collateral dependent loans.
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Note 5 – Premises and Equipment
A summary of premises and equipment at December 31 follows:

| 2023 |  | 2022
Land | $ | 6,309 |  |  | $ | 5,904 |
Buildings and improvements | 34,984 |  |  | 31,260 |
Furniture and equipment | 35,528 |  |  | 35,906 |
Total | 76,821 |  |  | 73,070 |
Less: accumulated depreciation | 49,182 |  |  | 47,517 |
Premises and equipment, net | $ | 27,639 |  |  | $ | 25,553 |

Depreciation expense amounted to $1,978, $2,071, and $2,314 in 2023, 2022, and 2021, respectively.
Note 6 – Goodwill and Other Intangible Assets
The carrying amount of goodwill was $48,282 at December 31, 2023 and 2022.
Identifiable intangible assets were as follows as of December 31:

| 2023
| Gross Intangible Assets |  | Accumulated Amortization |  | Net Intangible Assets
Core deposit premium resulting from acquisitions | $ | 5,579 |  |  | $ | 5,577 |  |  | $ | 2 |

| 2022
| Gross Intangible Assets |  | Accumulated Amortization |  | Net Intangible Assets
Core deposit premium resulting from acquisitions | $ | 5,579 |  |  | $ | 5,574 |  |  | $ | 5 |

Amortization expense associated with identifiable intangible assets was $3, $15, and $29 in 2023, 2022, and 2021, respectively.
Estimated amortization expense associated with identifiable intangibles for each of the next two years succeeding December 31, 2023, and thereafter is as follows:

| Estimated Amortization Expense
2024 | $ | 1 |
2025 | 1 |
Total | $ | 2 |

Note 7 – Deposits
Scheduled annual maturities of time deposits for each of the next five years, and thereafter, are as follows:

| Scheduled Maturities of Time Deposits
2024 | $ | 289,393 |
2025 | 30,048 |
2026 | 10,921 |
2027 | 9,649 |
2028 | 6,300 |
Thereafter | 63 |
Total | $ | 346,374 |

Interest expense on time deposits greater than $250 was $3,419 in 2023, $621 in 2022 and $980 in 2021.
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Note 8 – 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.
A summary of borrowed funds without stated maturity dates was as follows for the years ended December 31:

| 2023 |  | 2022
| Maximum Month End Balance |  | Average Balance |  | Weighted Average Interest Rate During the Period |  | Maximum Month End Balance |  | Average Balance |  | Weighted Average Interest Rate During the Period
Securities sold under agreements to repurchase without stated maturity dates | $ | 55,722 |  |  | $ | 42,982 |  |  | 2.22 | % |  | $ | 58,140 |  |  | $ | 49,973 |  |  | 0.16 | %
Federal funds purchased | — |  |  | 13 |  |  | 6.13 | % |  | — |  |  | 1 |  |  | 3.02 | %
FRB Discount Window | — |  |  | 66 |  |  | 5.34 | % |  | — |  |  | — |  |  | — | %

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 $67,764 and $58,291 at December 31, 2023 and 2022, respectively. Such securities remain under our control. We may be required to provide additional collateral based on the fair value of underlying securities.
Securities sold under repurchase agreements without stated maturity dates were as follows at December 31:

| 2023 |  | 2022
| Amount |  | Rate |  | Amount |  | Rate
Securities sold under agreements to repurchase without stated maturity dates | $ | 46,801 |  |  | 3.11 | % |  | $ | 57,771 |  |  | 0.49 | %

We had pledged AFS securities and 1-4 family residential real estate loans in the following amounts at December 31:

| 2023 |  | 2022
Pledged to secure borrowed funds | $ | 391,529 |  |  | $ | 347,331 |
Pledged to secure repurchase agreements | 67,764 |  |  | 58,291 |
Pledged for public deposits and for other purposes necessary or required by law | 84,099 |  |  | 48,698 |
Total | $ | 543,392 |  |  | $ | 454,320 |

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

| 2023 |  | 2022
U.S. Treasury | $ | 55,623 |  |  | $ | 29,351 |
States and political subdivisions | — |  |  | 11,037 |
Mortgage-backed securities | 9,462 |  |  | 6,819 |
Collateralized mortgage obligations | 2,679 |  |  | 11,084 |
Total | $ | 67,764 |  |  | $ | 58,291 |

AFS securities pledged to repurchase agreements are monitored to ensure the appropriate level is collateralized. In the event of maturities, calls, significant principal repayments, or significant decline in market values, we have an adequate level of AFS securities to pledge to satisfy collateral requirements.
As of December 31, 2023, we had the ability to borrow up to an additional $338,080, without pledging additional collateral.
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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 maturity and weighted average interest rate of FHLB advances as of:

| 2023 |  | 2022
| Amount |  | Rate |  | Amount |  | Rate
Fixed rate due 2024 | $ | 40,000 |  |  | 5.55 | % |  | $ | — |  |  | — | %

FHLB advances outstanding as of December 31, 2023 were short-term, with maturities within one week after December 31, 2023.
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 at December 31:

| 2023 |  | 2022 |  |
| Amount |  | Rate |  | Amount |  | Rate |  |  |  |
Fixed rate at 3.25% to floating, due 2031 | $ | 30,000 |  |  | 3.25 | % |  | $ | 30,000 |  |  | 3.25 | % |  |  |  |
Unamortized issuance costs | (665) |  |  |  |  | (755) |  |  |  |  |  |  |
Total subordinated debt, net | $ | 29,335 |  |  |  |  | $ | 29,245 |  |  |  |  |  |  |

Note 9 – Off-Balance-Sheet Activities, Commitments and Other Matters
Credit-Related Financial Instruments
We are party to credit related financial instruments with off-balance-sheet risk. These financial instruments are entered into in the normal course of business to meet the financing needs of our customers. These financial instruments involve, to varying degrees, elements of credit and IRR in excess of the amounts recognized in the consolidated balance sheets. The contractual or notional amounts of these instruments reflect the extent of involvement we have in a particular class of financial instrument.
The following table summarizes our credit related financial instruments with off-balance-sheet risk as of December 31:

| 2023 |  | 2022
Unfunded commitments under lines of credit | $ | 313,646 |  |  | $ | 264,902 |
Commercial and standby letters of credit | 1,624 |  |  | 1,321 |
Commitments to grant loans | 6,460 |  |  | 24,770 |
Total | $ | 321,730 |  |  | $ | 290,993 |

Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers. These commitments may expire without being drawn upon and do not necessarily represent future cash requirements. Advances to mortgage brokers are also included in unfunded commitments under lines of credit. The unfunded commitment amount is the difference between our outstanding balances and maximum outstanding aggregate amount.
Commitments to grant loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The amount of collateral obtained, if it is deemed necessary, is based on management's credit evaluation of the customer. Commitments to grant loans include residential mortgage loans that may be committed to be sold to the secondary market.
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Commercial and standby letters of credit are conditional commitments we issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements, including commercial paper, bond financing, and similar transactions. These commitments to extend credit and letters of credit generally mature within one year. The credit risk involved in these transactions is essentially the same as that involved in extending loans to customers. We evaluate each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon the extension of credit, is based on our credit evaluation of the borrower. While we consider standby letters of credit to be guarantees, the amount of the liability related to such guarantees on the commitment date is not significant and a liability related to such guarantees is not recorded on the consolidated balance sheets.
Our exposure to credit-related loss in the event of nonperformance by the counter parties to the financial instruments for commitments to extend credit and standby letters of credit could be up to the contractual notional amount of those instruments. We use the same credit policies as we do for extending loans to customers. No significant losses are anticipated as a result of these commitments.
ACL - Off-Balance-Sheet Credit Commitments
In connection with the commitments for credit-related financial instruments discussed above, we established an allowance for credit losses related to this off-balance-sheet credit exposure. The allowance, recorded in a liability account, is calculated in accordance with ASC 326 and represents expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. The estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment. The likelihood and expected amount of funding are based on historical utilization rates. No allowance is recognized if we have the unconditional right to cancel the obligation.
The allowance was $315 at December 31, 2023 and is reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. Adjustments to the allowance are reported in our income statement as a component of provision for credit losses.
Derivative Loan Commitments
Mortgage loan commitments are referred to as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding. We enter into commitments to fund residential mortgage loans at specific times in the future, with the intention that these loans will subsequently be sold in the secondary market. A mortgage loan commitment binds us to lend funds to a potential borrower at a specified interest rate within a specified period of time, generally up to 60 days after inception of the rate lock.
Outstanding derivative loan commitments expose us to the risk that the price of the loans arising from the exercise of the loan commitment might decline from the inception of the rate lock to funding of the loan due to increases in mortgage interest rates. If interest rates increase, the value of these loan commitments decreases. Conversely, if interest rates decrease, the value of these loan commitments increase. There were no undesignated interest rate lock commitments at December 31, 2023 and 2022.
Forward Loan Sale Commitments
To protect against the price risk inherent in derivative loan commitments, we utilize both “mandatory delivery” and “best efforts” forward loan sale commitments to mitigate the risk of potential decreases in the values of loan that would result from the exercise of the derivative loan commitments.
With a “mandatory delivery” contract, we commit to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. If we fail to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, we are obligated to pay a “pair-off” fee, based on then current market prices, to the investor to compensate the investor for the shortfall.
With a “best efforts” contract, we commit to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. Generally, the price the investor will pay the seller for an individual loan is specified prior to the loan being funded (e.g. on the same day the lender commits to lend funds to a potential borrower).
We expect that these forward loan sale commitments will experience changes in fair value opposite to the change in fair value of derivative loan commitments. There were undesignated forward loan sale commitments of $0 and $379 at December 31, 2023 and 2022, respectively. The fair value of these forward loan sale commitments was $0 and $394 at December 31, 2023 and 2022, respectively.
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The fair values of the rate lock loan commitments related to the origination of mortgage loans that will be held for sale and the forward loan sale commitments are deemed insignificant by management and, accordingly, are not recorded in our consolidated financial statements.
Other Matters
Correspondent banks may require us to maintain minimum cash reserve balances. The reserve balances related to correspondent banks amounted to $250 and $500 for the years ended December 31, 2023 and 2022.
Banking regulations limit the transfer of assets in the form of dividends, loans, or advances from the Bank to the Corporation. At December 31, 2023, substantially all of the Bank’s assets were restricted from transfer to the Corporation in the form of loans or advances. Bank dividends are the principal source of funds for the Corporation. Payment of dividends without regulatory approval is limited to the current year’s retained net income plus retained net income for the preceding two years, less any required transfers to common stock. At January 1, 2024, the amount available to the Corporation for dividends from the Bank, without regulatory approval, was approximately $27,600.
Note 10 – Minimum Regulatory Capital Requirements
The Corporation (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the FRB and the FDIC. Failure to meet minimum capital requirements can initiate mandatory and possibly additional discretionary actions by the FRB and the FDIC that, if undertaken, could have a material effect on our financial statements. Under regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that include quantitative measures of assets, liabilities, capital, and certain off-balance-sheet items, as calculated under regulatory accounting standards. Our capital amounts and classifications are also subject to qualitative judgments by the FRB and the FDIC about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the following table) of total capital, tier 1 capital, and common equity tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and tier 1 capital to average assets (as defined). We believe, as of December 31, 2023 and 2022, that we met all capital adequacy requirements.
The FRB has established minimum risk-based capital guidelines. Pursuant to these guidelines, a framework has been established that assigns risk weights to each category of on and off-balance-sheet items to arrive at risk adjusted total assets. Regulatory capital is divided by the risk adjusted assets with the resulting ratio compared to the minimum standard to determine whether a corporation has adequate capital. The common equity tier 1 capital ratio has a minimum requirement of 4.50%. The minimum standard for primary, or Tier 1 capital is 6.00% and the minimum standard for total capital is 8.00%.
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As of December 31, 2023 and 2022, the most recent notifications from the FRB and the FDIC categorized us as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain total risk-based, Tier 1 risk-based, Common Equity Tier 1, and Tier 1 leverage ratios as set forth in the following tables. There were no conditions or events since the notifications that we believe have changed our categories. Our actual capital amounts and ratios are also presented in the table.

| Actual |  | Minimum Capital Requirement |  | Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
| Amount |  | Ratio |  | Amount |  | Ratio |  | Amount |  | Ratio
December 31, 2023 |  |  |  |  |  |  |  |  |  |  |
Common equity Tier 1 capital to risk weighted assets |  |  |  |  |  |  |  |  |  |  |
Isabella Bank | $ | 178,316 |  |  | 12.48 | % |  | $ | 100,043 |  |  | 7.00 | % |  | $ | 92,897 |  |  | 6.50 | %
Consolidated | 180,014 |  |  | 12.54 | % |  | 100,449 |  |  | 7.00 | % |  | N/A |  | N/A
Tier 1 capital to risk weighted assets |  |  |  |  |  |  |  |  |  |  |
Isabella Bank | 178,316 |  |  | 12.48 | % |  | 121,481 |  |  | 8.50 | % |  | 114,335 |  |  | 8.00 | %
Consolidated | 180,014 |  |  | 12.54 | % |  | 121,973 |  |  | 8.50 | % |  | N/A |  | N/A
Total capital to risk weighted assets |  |  |  |  |  |  |  |  |  |  |
Isabella Bank | 191,739 |  |  | 13.42 | % |  | 150,065 |  |  | 10.50 | % |  | 142,919 |  |  | 10.00 | %
Consolidated | 222,772 |  |  | 15.52 | % |  | 150,673 |  |  | 10.50 | % |  | N/A |  | N/A
Tier 1 capital to average assets |  |  |  |  |  |  |  |  |  |  |
Isabella Bank | 178,316 |  |  | 8.71 | % |  | 81,935 |  |  | 4.00 | % |  | 102,419 |  |  | 5.00 | %
Consolidated | 180,014 |  |  | 8.76 | % |  | 82,154 |  |  | 4.00 | % |  | N/A |  | N/A

| Actual |  | Minimum Capital Requirement |  | Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
| Amount |  | Ratio |  | Amount |  | Ratio |  | Amount |  | Ratio
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |
Common equity Tier 1 capital to risk weighted assets |  |  |  |  |  |  |  |  |  |  |
Isabella Bank | $ | 190,060 |  |  | 14.07 | % |  | $ | 94,565 |  |  | 7.00 | % |  | $ | 87,811 |  |  | 6.50 | %
Consolidated | 175,112 |  |  | 12.91 | % |  | 94,948 |  |  | 7.00 | % |  | N/A |  | N/A
Tier 1 capital to risk weighted assets |  |  |  |  |  |  |  |  |  |  |
Isabella Bank | 190,060 |  |  | 14.07 | % |  | 114,829 |  |  | 8.50 | % |  | 108,075 |  |  | 8.00 | %
Consolidated | 175,112 |  |  | 12.91 | % |  | 115,295 |  |  | 8.50 | % |  | N/A |  | N/A
Total capital to risk weighted assets |  |  |  |  |  |  |  |  |  |  |
Isabella Bank | 199,910 |  |  | 14.80 | % |  | 141,848 |  |  | 10.50 | % |  | 135,093 |  |  | 10.00 | %
Consolidated | 214,207 |  |  | 15.79 | % |  | 142,423 |  |  | 10.50 | % |  | N/A |  | N/A
Tier 1 capital to average assets |  |  |  |  |  |  |  |  |  |  |
Isabella Bank | 190,060 |  |  | 9.36 | % |  | 81,181 |  |  | 4.00 | % |  | 101,476 |  |  | 5.00 | %
Consolidated | 175,112 |  |  | 8.61 | % |  | 81,392 |  |  | 4.00 | % |  | N/A |  | N/A

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Note 11 – Computation of Earnings Per Common Share
Basic earnings per common share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes additional common shares that would have been outstanding if dilutive potential common shares had been issued. For further information related to potential common shares that may be issued relate solely to outstanding shares in the Directors Plan and grant awards under the RSP, see "Note 12 – Benefit Plans."
Earnings per common share have been computed based on the following for the years ended December 31:

| 2023 |  | 2022 |  | 2021
Average number of common shares outstanding for basic calculation | 7,511,591 |  |  | 7,549,878 |  |  | 7,853,398 |
Average potential effect of common shares in the Directors Plan (1) | 34,962 |  |  | 70,329 |  |  | 99,813 |
Average potential effect of common shares in the RSP | 28,939 |  |  | 27,405 |  |  | 12,750 |
Average number of common shares outstanding used to calculate diluted earnings per common share | 7,575,492 |  |  | 7,647,612 |  |  | 7,965,961 |
Net income | $ | 18,167 |  |  | $ | 22,238 |  |  | $ | 19,499 |
Earnings per common share |  |  |  |  |
Basic | $ | 2.42 |  |  | $ | 2.95 |  |  | $ | 2.48 |
Diluted | $ | 2.40 |  |  | $ | 2.91 |  |  | $ | 2.45 |

(1) Exclusive of shares held in the Rabbi Trust
Note 12 – Benefit Plans
401(k) Plan
We have a 401(k) plan in which substantially all employees are eligible to participate. Employees may contribute up to 100% of their compensation subject to certain limits based on federal tax laws. The plan was amended in 2013 to provide a matching safe harbor contribution for all eligible employees equal to 100% of the first 5.0% of an employee's compensation contributed to the Plan during the year. Employees are 100% vested in the safe harbor matching contributions.
For 2023, 2022 and 2021, expenses attributable to the plan were $885, $805, and $792, respectively.
Defined Benefit Pension Plan
We maintain a noncontributory defined benefit pension plan, which was curtailed effective March 1, 2007. As a result of the curtailment, future salary increases are no longer considered (the projected benefit obligation is equal to the accumulated benefit obligation), and plan benefits are based on years of service and the individual employee’s five highest consecutive years of compensation out of the last ten years of service through March 1, 2007.
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Changes in the projected benefit obligation and plan assets during each year, the funded status of the plan, and the net amount recognized in our consolidated balance sheets using an actuarial measurement date of December 31, are summarized as follows during the years ended December 31:

| 2023 |  | 2022
Change in benefit obligation |  |  |
Benefit obligation, January 1 | $ | 6,896 |  |  | $ | 9,725 |
Interest cost | 317 |  |  | 224 |
Actuarial loss (gain) | (241) |  |  | (2,236) |
Benefits paid, including plan expenses | (344) |  |  | (817) |
Benefit obligation, December 31 | 6,628 |  |  | 6,896 |
Change in plan assets |  |  |
Fair value of plan assets, January 1 | 6,582 |  |  | 8,649 |
Investment return (loss) | 828 |  |  | (1,250) |
Contributions | — |  |  | — |
Benefits paid, including plan expenses | (344) |  |  | (817) |
Fair value of plan assets, December 31 | 7,066 |  |  | 6,582 |
Surplus (deficiency) in funded status at December 31, included on the consolidated balance sheets in accrued interest payable and other liabilities | $ | 438 |  |  | $ | (314) |
Accumulated benefit obligation at December 31 | $ | 6,628 |  |  | $ | 6,896 |

| 2023 |  | 2022
Change in accrued pension benefit costs |  |  |
Accrued benefit cost at January 1 | $ | (314) |  |  | $ | (1,076) |
Contributions | — |  |  | — |
Net periodic benefit cost (credit) | (95) |  |  | (59) |
Net change in unrecognized actuarial loss and prior service cost | 847 |  |  | 821 |
Prepaid (accrued) pension liability at December 31 | $ | 438 |  |  | $ | (314) |

We have recorded the funded status of the plan in our consolidated balance sheets. We adjust the funded status in a prepaid account and the underfunded status in a liability account to reflect the current funded status of the plan. Any gains or losses that arise during the year but are not recognized as components of net periodic benefit cost are recognized as a component of other comprehensive income (loss).
The components of net periodic benefit cost are as follows for the years ended December 31:

| 2023 |  | 2022 |  | 2021
Interest cost on benefit obligation | $ | 317 |  |  | $ | 224 |  |  | $ | 233 |
Expected return on plan assets | (371) |  |  | (490) |  |  | (486) |
Amortization of unrecognized actuarial net loss | 149 |  |  | 216 |  |  | 222 |
Settlement loss | — |  |  | 109 |  |  | — |
Net periodic benefit cost (credit) | $ | 95 |  |  | $ | 59 |  |  | $ | (31) |

Settlement losses during 2022 were recognized in connection with lump-sum benefit distributions. Many plan participants elect to receive their retirement benefit payments in the form of lump-sum settlements. Pro rata settlement losses, which can occasionally occur as a result of these lump-sum distributions, are recognized only in years when the total of such distributions exceed the sum of the service and interest expense components of net periodic benefit cost.
Accumulated other comprehensive income at December 31, 2023 includes net unrecognized pension costs before income taxes of $882.
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The actuarial assumptions used in determining the benefit obligation are as follows for the years ended December 31:

| 2023 |  | 2022 |  | 2021
Discount rate | 4.69 | % |  | 4.88 | % |  | 2.43 | %
Expected long-term rate of return on plan assets | 6.00 | % |  | 6.00 | % |  | 6.00 | %

The actuarial weighted average assumptions used in determining the net periodic pension costs are as follows for the years ended December 31:

| 2023 |  | 2022 |  | 2021
Discount rate | 4.88 | % |  | 2.43 | % |  | 2.30 | %
Expected long-term rate of return on plan assets | 6.00 | % |  | 6.00 | % |  | 6.00 | %

As a result of the curtailment of the Plan, there is no rate of compensation increase considered in the above assumptions.
The expected long-term rate of return is an estimate of anticipated future long-term rates of return on plan assets as measured on a market value basis. Factors considered in arriving at this assumption include:
•Historical long-term rates of return for broad asset classes.
•Actual past rates of return achieved by the plan.
•The general mix of assets held by the plan.
•The stated investment policy for the plan.
The selected rate of return is net of anticipated investment related expenses.
Pension Plan Assets
Our overall investment strategy is to moderately grow the portfolio by investing 50% of the portfolio in equity securities and 50% in fixed income securities. This strategy is designed to generate a long-term rate of return of 6.00%. Equity securities primarily consist of the S&P 500 Index with a smaller allocation to the Small Cap and International Index. Fixed income securities are invested in the Bond Market Index. The plan has appropriate assets invested in short-term investments to meet near term benefit payments.
The asset mix and the sector weighting of the investments are determined by our benefits committee, which is comprised of members of our management. To manage the plan, we retain a third party investment advisor to conduct consultations. We review the performance of the advisor at least annually.
The fair values of our pension plan assets by asset category were as follows as of December 31:

| 2023 |  | 2022
| Total |  | (Level 2) |  | Total |  | (Level 2)
Short-term investments | $ | 103 |  |  | $ | 103 |  |  | $ | 235 |  |  | $ | 235 |
Common collective trusts |  |  |  |  |  |  |
Fixed income | 3,273 |  |  | 3,273 |  |  | 2,983 |  |  | 2,983 |
Equity investments | 3,690 |  |  | 3,690 |  |  | 3,364 |  |  | 3,364 |
Total | $ | 7,066 |  |  | $ | 7,066 |  |  | $ | 6,582 |  |  | $ | 6,582 |

The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2023 and 2022:
•Short-term investments: Shares of a money market portfolio valued at amortized cost, which approximates fair value.
•Common collective trusts: These investments are public investment securities valued using the NAV provided by a third party investment advisor. The NAV is quoted on a private market that is not active; however, the unit price is based on underlying investments which are traded on an active market.
We anticipate contributions to the plan in 2024 to approximate net contribution costs.
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Estimated future benefit payments are as follows for the next ten years:

|  | Estimated Benefit Payments
2024 |  | $ | 721 |
2025 |  | 656 |
2026 |  | 685 |
2027 |  | 533 |
2028 |  | 545 |
2029 - 2033 |  | 2,342 |

Directors Plan
Pursuant to the terms of the Directors Plan, our directors are required to invest at least 25% of their board fees in our common stock. These stock investments can be made either through deferred fees or through the purchase of shares through the Dividend Reinvestment Plan. Deferred fees, under the Directors Plan, are converted on a quarterly basis into stock units of our common stock based on the fair value of a share of our common stock as of the relevant valuation date. Stock units credited to a participant’s account are eligible for stock and cash dividends as declared. Dividend Reinvestment Plan shares are purchased pursuant to the Dividend Reinvestment Plan.
Distribution of deferred fees from the Directors Plan occurs when the participant retires from the Board of Directors or upon the occurrence of certain other events. The participant is eligible to receive a distribution in the form of shares of our common stock of all of the stock units that are then in his or her account, and any unconverted cash will be converted to and rounded up to whole shares of stock and distributed, as well. The Directors Plan does not allow for cash settlement, and therefore, such share-based payment awards qualify for classification as equity. We may use authorized but unissued shares or purchase shares of common stock on the open market to meet our obligations under the Directors Plan.
We maintain the Rabbi Trust to fund the Directors Plan. The Rabbi Trust is an irrevocable grantor trust to which we may contribute assets for the limited purpose of funding a nonqualified deferred compensation plan. Although we may not use the assets of the Rabbi Trust for any purpose other than meeting our obligations under the Directors Plan, the assets of the Rabbi Trust remain subject to the claims of our creditors and are included in the consolidated financial statements. We may contribute cash or common stock to the Rabbi Trust from time to time for the sole purpose of funding the Directors Plan. The Rabbi Trust will use any cash that we contribute to purchase shares of our common stock on the open market. Shares held in the Rabbi Trust are included in the calculation of earnings per share.
The components of shares eligible to be issued under the Directors Plan were as follows as of December 31:

| 2023 |  | 2022
| Eligible Shares |  | Market Value |  | Eligible Shares |  | Market Value
Unissued | 3,538 |  |  | $ | 76 |  |  | 52,961 |  |  | $ | 1,245 |
Shares held in Rabbi Trust | 150,581 |  |  | 3,237 |  |  | 154,879 |  |  | 3,640 |
Total | 154,119 |  |  | $ | 3,313 |  |  | 207,840 |  |  | $ | 4,885 |

Cash Incentive Plans
Executive Cash Incentive Plan
We provide an executive cash incentive plan, which provides separate potential payouts for Isabella Bank's CEO, President, and CFO based on achievement of personal and corporate goals. The potential payouts under the plan range from 22% to 35% of the employee's annual salary. Expenses related to this plan for 2023, 2022, and 2021 were $53, $252, and $253 respectively.
Employee Cash Incentive Plan
We provide cash incentive plans to reward employees above and beyond their base salaries when our performance and operating profitability exceed established annual targets. Incentives are also awarded for achievement of personal performance goals. Expenses related to this plan for 2023, 2022 and 2021 were $796, $1,072, and $1,063, respectively.
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Restricted Stock Plan
Under the RSP, an equity based bonus plan, 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 such Grant Agreements contain vesting conditions and clawback provisions.
A summary of changes in nonvested restricted stock awards follows for the years ended December 31:

| 2023 |  | 2022
| Number of Shares |  | Fair Value |  | Number of Shares |  | Fair Value
Balance, January 1 | 27,072 |  |  | $ | 592 |  |  | 20,123 |  |  | $ | 418 |
Granted | — |  |  | — |  |  | 6,949 |  |  | 174 |
Vested | — |  |  | — |  |  | — |  |  | — |
Forfeited | — |  |  | — |  |  | — |  |  | — |
Balance, December 31 | 27,072 |  | $ | 592 |  |  | 27,072 |  | $ | 592 |

Expenses related to the RSP for 2023, 2022, 2021 were $253, $147, and $86 respectively. As of December 31, 2023, there was $92 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 1.55 years.
Other Employee Benefit Plans
We maintain nonqualified defined contribution retirement plans to provide supplemental retirement benefits to specified participants. Expenses related to these programs for 2023, 2022 and 2021 were $345, $251, and $352, respectively. Expenses are recognized over the participants’ expected years of service.
We maintain a self-funded medical plan under which we are responsible for the first $100 per year of claims made by a covered family. Expenses are accrued based on estimates of the aggregate liability for claims incurred and our experience. Expenses were $2,281 in 2023, $3,026 in 2022 and $3,297 in 2021.
Note 13 – Revenue
Our revenue is comprised primarily of interest income, service charges and fees, gains on the sale of loans and AFS securities, earnings on corporate owned life insurance policies, and other noninterest income. Other noninterest income is typically service and performance driven in nature and comprised primarily of investment and trust advisory fees. We recognize revenue, excluding interest income, in accordance with ASC 606, Revenue From Contracts with Customers. Revenue is recognized when our performance obligation has been satisfied according to our contractual obligation.
We record receivables when revenue is unpaid and collectability is reasonably assured. Accounts receivable balances primarily represent amounts due from customers for which revenue has been recognized. Accounts receivable balances are recorded in the consolidated balance sheets in accrued interest receivable and other assets. For the years ended December 31, 2023, 2022 and 2021, we satisfied our performance obligations pursuant to contracts with customers. As a result, we have not recorded any contract assets or liabilities. We estimate no returns or allowances for the years ended December 31, 2023, 2022 and 2021.
Our contracts with customers define our performance obligations with clearly established pricing which did not require us to allocate or disaggregate revenue by performance obligation. A summary of revenue recognized for each major category of contracts with customers, subject to ASC 606, is as follows for the years ended December 31:

| 2023 |  | 2022 |  | 2021
Debit card income | $ | 4,063 |  |  | $ | 3,783 |  |  | $ | 3,623 |
Trust service fees | 3,110 |  |  | 2,622 |  |  | 2,707 |
Investment advisory fees | 447 |  |  | 383 |  |  | 364 |
Service charges and fees related to deposit accounts | 362 |  |  | 345 |  |  | 312 |

A significant portion of our revenue consists of interest income which is not subject to the requirements set forth in ASC 606.
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Note 14 – Other Noninterest Expenses
A summary of expenses included in other noninterest expenses is as follows for the years ended December 31:

| 2023 |  | 2022 |  | 2021
Audit, consulting, and legal fees | $ | 2,340 |  |  | $ | 2,358 |  |  | $ | 2,066 |
ATM and debit card fees | 1,767 |  |  | 1,909 |  |  | 1,810 |
Marketing costs | 1,159 |  |  | 1,056 |  |  | 939 |
Memberships and subscriptions | 1,042 |  |  | 876 |  |  | 877 |
Loan underwriting fees | 927 |  |  | 1,004 |  |  | 849 |
FDIC insurance premiums | 922 |  |  | 537 |  |  | 690 |
Donations and community relations | 915 |  |  | 923 |  |  | 705 |
Other losses | 871 |  |  | 546 |  |  | 194 |
Director fees | 764 |  |  | 790 |  |  | 703 |
All other | 2,401 |  |  | 2,237 |  |  | 1,989 |
Total other noninterest expenses | $ | 13,108 |  |  | $ | 12,236 |  |  | $ | 10,822 |

Note 15 – Federal Income Taxes
Components of the consolidated provision for federal income taxes are summarized as follows for the years ended December 31:

| 2023 |  | 2022 |  | 2021
Currently payable | $ | 2,657 |  |  | $ | 4,593 |  |  | $ | 4,371 |
Deferred expense (benefit) | 1,008 |  |  | 13 |  |  | (523) |
Income tax expense | $ | 3,665 |  |  | $ | 4,606 |  |  | $ | 3,848 |

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

| 2023 |  | 2022 |  | 2021
Income taxes at statutory rate | $ | 4,585 |  |  | $ | 5,637 |  |  | $ | 4,903 |
Effect of nontaxable income |  |  |  |  |
Interest income on tax exempt municipal securities | (552) |  |  | (587) |  |  | (643) |
Earnings on corporate owned life insurance policies | (193) |  |  | (197) |  |  | (225) |
Other | 292 |  |  | 329 |  |  | 312 |
Total effect of nontaxable income | (453) |  |  | (455) |  |  | (556) |
Effect of nondeductible expenses | 86 |  |  | 45 |  |  | 46 |
Effect of tax credits | (602) |  |  | (621) |  |  | (617) |
Unrecognized deferred tax benefit | 49 |  |  | — |  |  | 72 |
Federal income tax expense | $ | 3,665 |  |  | $ | 4,606 |  |  | $ | 3,848 |

The unrecognized deferred tax benefit recorded during 2023 related to a low income housing tax credit investment. The unrecognized deferred tax benefit recorded during 2021 related to our joint venture investment in Corporate Settlement Solutions, LLC, which was sold during the fourth quarter of 2020. The sale of each investment resulted in a capital loss carryforward that is unlikely to be recognized in the foreseeable future. As such, we did not recognize a deferred tax asset as of December 31, 2023, 2022 and 2021 related to our low income housing tax credit investment or the investment in Corporate Settlement Solutions, LLC.
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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for federal income tax purposes. Significant components of our deferred tax assets and liabilities, measured at the 21% statutory rate, included in other assets on our consolidated balance sheets, are summarized as follows as of December 31:

| 2023 |  | 2022
Deferred tax assets |  |  |
Allowance for credit losses | $ | 2,658 |  |  | $ | 1,848 |
Deferred compensation | 1,388 |  |  | 1,648 |
Employee benefit plans | 80 |  |  | 82 |
Core deposit premium and acquisition expenses | 764 |  |  | 764 |
Net unrealized losses on AFS securities | 6,627 |  |  | 9,296 |
Net unrecognized actuarial losses on pension plan | 185 |  |  | 363 |
Life insurance death benefit payable | 497 |  |  | 497 |
Other | 821 |  |  | 789 |
Total deferred tax assets | 13,020 |  |  | 15,287 |
Deferred tax liabilities |  |  |
Prepaid pension cost | 277 |  |  | 297 |
Premises and equipment | 2,251 |  |  | 1,590 |
Accretion on securities | 315 |  |  | 166 |
Core deposit premium and acquisition expenses | 1,022 |  |  | 984 |
Other | 1,236 |  |  | 1,075 |
Total deferred tax liabilities | 5,101 |  |  | 4,112 |
Net deferred tax assets (liabilities) | $ | 7,919 |  |  | $ | 11,175 |

While we are subject to U.S. federal income tax, we are no longer subject to examination by taxing authorities for years before 2020. There are no material uncertain tax positions requiring recognition in our consolidated financial statements. We do not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months.
We recognize interest and/or penalties related to income tax matters in income tax expense. We do not have any amounts accrued for interest and penalties at December 31, 2023 and 2022 and we are not aware of any claims for such amounts by federal income tax authorities.
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Note 16 – Accumulated Other Comprehensive Income (Loss)
AOCI includes net income as well as unrealized gains and losses, net of tax, on AFS securities and derivative instruments, as well as changes in the funded status of our defined benefit pension plan. Unrealized gains and losses and changes in the funded status of the pension plan, net of tax, are excluded from net income, and are reflected as a direct charge or credit to shareholders’ equity. Comprehensive income (loss) and the related components are disclosed in the consolidated statements of comprehensive income.
The following table provides a roll-forward of the changes in AOCI by component for the years ended December 31, 2021, 2022 and 2023 (net of tax):

| Unrealized Gains (Losses) on AFS Securities |  | Unrealized Gains (Losses) on Derivative Instruments |  | Change in Unrecognized Pension Cost on Defined Benefit Pension Plan |  | Total
Balance, January 1, 2021 | $ | 10,485 |  |  | $ | (42) |  |  | $ | (2,745) |  |  | $ | 7,698 |
OCI before reclassifications | (8,371) |  |  | 53 |  |  | 955 |  |  | (7,363) |
Amounts reclassified from AOCI | — |  |  | — |  |  | (31) |  |  | (31) |
Subtotal | (8,371) |  |  | 53 |  |  | 924 |  |  | (7,394) |
Tax effect | 1,759 |  |  | (11) |  |  | (193) |  |  | 1,555 |
OCI, net of tax | (6,612) |  |  | 42 |  |  | 731 |  |  | (5,839) |
Balance, December 31, 2021 | 3,873 |  |  | — |  |  | (2,014) |  |  | 1,859 |
OCI before reclassifications | (50,015) |  |  | — |  |  | 762 |  |  | (49,253) |
Amounts reclassified from AOCI | — |  |  | — |  |  | 59 |  |  | 59 |
Subtotal | (50,015) |  |  | — |  |  | 821 |  |  | (49,194) |
Tax effect | 10,314 |  |  | — |  |  | (173) |  |  | 10,141 |
OCI, net of tax | (39,701) |  |  | — |  |  | 648 |  |  | (39,053) |
Balance, December 31, 2022 | (35,828) |  |  | — |  |  | (1,366) |  |  | (37,194) |
OCI before reclassifications | 13,365 |  |  | — |  |  | 752 |  |  | 14,117 |
Amounts reclassified from AOCI | (67) |  |  | — |  |  | 95 |  |  | 28 |
Subtotal | 13,298 |  |  | — |  |  | 847 |  |  | 14,145 |
Tax effect | (2,669) |  |  | — |  |  | (178) |  |  | (2,847) |
OCI, net of tax | 10,629 |  |  | — |  |  | 669 |  |  | 11,298 |
Balance, December 31, 2023 | $ | (25,199) |  |  | $ | — |  |  | $ | (697) |  |  | $ | (25,896) |

Included in OCI are changes in unrealized gains and losses related to auction rate money market preferred stocks. Auction rate money market preferred stocks, for federal income tax purposes, have no deferred federal income taxes related to unrealized gains or losses given the nature of the investments.
A summary of the components of unrealized gains on AFS securities included in OCI follows for the years ended December 31:

| 2023 |  | 2022 |  | 2021
| Auction Rate Money Market Preferred Stocks |  | All Other AFS Securities |  | Total |  | Auction Rate Money Market Preferred Stocks |  | All Other AFS Securities |  | Total |  | Auction Rate Money Market Preferred Stocks |  | All Other AFS Securities |  | Total
Unrealized gains (losses) arising during the period | $ | 589 |  |  | $ | 12,776 |  |  | $ | 13,365 |  |  | $ | (900) |  |  | $ | (49,115) |  |  | $ | (50,015) |  |  | $ | 5 |  |  | $ | (8,376) |  |  | $ | (8,371) |
Reclassification adjustment for net (gains) losses included in net income | — |  |  | (67) |  |  | (67) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Net unrealized gains (losses) | 589 |  |  | 12,709 |  |  | 13,298 |  |  | (900) |  |  | (49,115) |  |  | (50,015) |  |  | 5 |  |  | (8,376) |  |  | (8,371) |
Tax effect | — |  |  | (2,669) |  |  | (2,669) |  |  | — |  |  | 10,314 |  |  | 10,314 |  |  | — |  |  | 1,759 |  |  | 1,759 |
Unrealized gains (losses), net of tax | $ | 589 |  |  | $ | 10,040 |  |  | $ | 10,629 |  |  | $ | (900) |  |  | $ | (38,801) |  |  | $ | (39,701) |  |  | $ | 5 |  |  | $ | (6,617) |  |  | $ | (6,612) |

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

Details about AOCI components | Amount Reclassified from AOCI |  | Affected Line Item in the Consolidated Statements of Income
| 2023 |  | 2022 |  | 2021 |  |
Unrealized gains (losses) on AFS securities |  |  |  |  |  |  |
| $ | 67 |  |  | $ | — |  |  | $ | — |  |  | Net gains on sale of AFS securities
| 14 |  |  | — |  |  | — |  |  | Federal income tax expense
| $ | 53 |  |  | $ | — |  |  | $ | — |  |  | Net income
Change in unrecognized pension cost on defined benefit pension plan |  |  |  |  |  |  |
| $ | 95 |  |  | $ | 59 |  |  | $ | (31) |  |  | Other noninterest expenses
| 20 |  |  | 12 |  |  | (7) |  |  | Federal income tax (benefit) expense
| $ | 75 |  |  | $ | 47 |  |  | $ | (24) |  |  | Net income

Note 17 – Fair Value
Under fair value measurement and disclosure authoritative guidance, we group assets and liabilities measured at fair value into three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value, based on the prioritization of inputs in the valuation techniques. These levels are:

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

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. Transfers between measurement levels are recognized at the end of reporting periods.
Fair value measurement requires the use of an exit price notion which may differ from entrance pricing. Generally, we believe our assets and liabilities classified as Level 1 or Level 2 approximate an exit price notion.
Following is a description of the valuation methodologies, key inputs, and an indication of the level of the fair value hierarchy in which the assets or liabilities are classified.
AFS securities: AFS securities are recorded at fair value on a recurring basis. Level 1 fair value measurement is based upon quoted prices for identical instruments. Level 2 fair value measurement is based upon quoted prices for similar instruments. If quoted prices are not available, fair values are measured using independent pricing models or other model based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss and liquidity assumptions. The values for Level 1 and Level 2 investment securities are generally obtained from an independent third party. On a quarterly basis, we compare the values provided to alternative pricing sources.
Loans: We do not record loans at fair value on a recurring basis. However, some loans are individually evaluated for ACL purposes, and a specific ACL may be established. To measure reserve, the fair value of the loan is estimated using the fair value of the collateral, less costs to sell if foreclosure is probable, or the present value of expected future cash flows discounted at the loan’s effective interest rate. Loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.
We review the net realizable values of the underlying collateral for collateral dependent loans on at least a quarterly basis for all loan types. To determine the collateral value, we utilize independent appraisals, broker price opinions, or internal evaluations. We review these valuations to determine whether an additional discount should be applied given the age of market
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information that may have been considered as well as other factors such as costs to sell an asset if it is determined that the collateral will be liquidated in connection with the ultimate settlement of the loan. We use these valuations to determine if any specific reserves or charge-offs are necessary. We may obtain new valuations in certain circumstances, including when there has been significant deterioration in the condition of the collateral, if the foreclosure process has begun, or if the existing valuation is deemed to be outdated.
The following tables list the quantitative fair value information about loans measured at fair value on a nonrecurring basis as of:

| December 31, 2023
Valuation Technique | Fair Value | Unobservable Input |  | Actual Range |  | Weighted Average
Collateral Dependent Loans - |  | Discount applied to collateral: |  |  |  |
Discounted value | $1,083 | Real Estate |  | 20% |  | 20%
|  | Equipment |  | 25% - 35% |  | 33%
|  | Accounts receivable |  | 25% |  | 25%

| December 31, 2022
Valuation Technique | Fair Value | Unobservable Input |  | Actual Range |  | Weighted Average
|  | Discount applied to collateral: |  |  |  |
|  | Real Estate |  | 20% - 30% |  | 24%
Impaired Loans - |  | Equipment |  | 25% - 35% |  | 31%
Discounted value | $17,143 | Cash crop inventory |  | 40% |  | 40%
|  | Livestock |  | 30% |  | 30%
|  | Accounts receivable |  | 25% |  | 27%
|  | Furniture, fixtures & equipment |  | 45% |  | 45%

Collateral discount rates may have ranges to accommodate differences in the age of the independent appraisal, broker price opinion, or internal evaluation.
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 December 31:

| 2023
| Carrying Value |  | Estimated Fair Value |  | Level 1 |  | Level 2 |  | Level 3
ASSETS |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 33,672 |  |  | $ | 33,672 |  |  | $ | 33,672 |  |  | $ | — |  |  | $ | — |
Mortgage loans AFS | — |  |  | — |  |  | — |  |  | — |  |  | — |
Gross loans | 1,349,463 |  |  | 1,292,458 |  |  | — |  |  | — |  |  | 1,292,458 |
Less allowance for credit losses | 13,108 |  |  | 13,108 |  |  | — |  |  | — |  |  | 13,108 |
Net loans | 1,336,355 |  |  | 1,279,350 |  |  | — |  |  | — |  |  | 1,279,350 |
Accrued interest receivable | 8,167 |  |  | 8,167 |  |  | 8,167 |  |  | — |  |  | — |
Equity securities without readily determinable fair values (1) | 15,848 |  |  | N/A |  | — |  |  | — |  |  | — |
OMSR | 2,422 |  |  | 3,164 |  |  | — |  |  | 3,164 |  |  | — |
LIABILITIES |  |  |  |  |  |  |  |  |
Deposits without stated maturities | 1,377,321 |  |  | 1,377,321 |  |  | 1,377,321 |  |  | — |  |  | — |
Deposits with stated maturities | 346,374 |  |  | 341,489 |  |  | — |  |  | 341,489 |  |  | — |
Federal funds purchased and repurchase agreements | 46,801 |  |  | 46,704 |  |  | — |  |  | 46,704 |  |  | — |
FHLB advances | 40,000 |  |  | 40,000 |  |  | — |  |  | 40,000 |  |  | — |
Subordinated debt, net of unamortized issuance costs | 29,335 |  |  | 26,146 |  |  | — |  |  | 26,146 |  |  | — |
Accrued interest payable | 890 |  |  | 890 |  |  | 890 |  |  | — |  |  | — |

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

(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 December 31:

| 2023 |  | 2022
| Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |  | Level 1 |  | Level 2 |  | Level 3
Recurring items |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
AFS securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury | $ | 214,801 |  |  | $ | — |  |  | $ | 214,801 |  |  | $ | — |  |  | $ | 208,701 |  |  | $ | — |  |  | $ | 208,701 |  |  | $ | — |
States and political subdivisions | 92,876 |  |  | — |  |  | 92,876 |  |  | — |  |  | 117,512 |  |  | — |  |  | 117,512 |  |  | — |
Auction rate money market preferred | 2,931 |  |  | — |  |  | 2,931 |  |  | — |  |  | 2,342 |  |  | — |  |  | 2,342 |  |  | — |
Mortgage-backed securities | 32,815 |  |  | — |  |  | 32,815 |  |  | — |  |  | 39,070 |  |  | — |  |  | 39,070 |  |  | — |
Collateralized mortgage obligations | 177,775 |  |  | — |  |  | 177,775 |  |  | — |  |  | 205,728 |  |  | — |  |  | 205,728 |  |  | — |
Corporate | 6,950 |  |  | — |  |  | 6,950 |  |  | — |  |  | 7,128 |  |  | — |  |  | 7,128 |  |  | — |
Total AFS securities | 528,148 |  |  | — |  |  | 528,148 |  |  | — |  |  | 580,481 |  |  | — |  |  | 580,481 |  |  | — |
Nonrecurring items |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Collateral dependent (net of ACL) in 2023 Impaired loans (net of the ALLL) in 2022 | 1,083 |  |  | — |  |  | — |  |  | 1,083 |  |  | 17,143 |  |  | — |  |  | — |  |  | 17,143 |
Foreclosed assets | 406 |  |  | — |  |  | — |  |  | 406 |  |  | 439 |  |  | — |  |  | — |  |  | 439 |
Total | $ | 529,637 |  |  | $ | — |  |  | $ | 528,148 |  |  | $ | 1,489 |  |  | $ | 598,063 |  |  | $ | — |  |  | $ | 580,481 |  |  | $ | 17,582 |
Percent of assets and liabilities measured at fair value |  |  | 0.00 | % |  | 99.72 | % |  | 0.28 | % |  |  |  | 0.00 | % |  | 97.06 | % |  | 2.94 | %

We recorded losses of $132 and $6 through earnings related fair value changes in foreclosed assets for the years ended December 31, 2023 and 2022. We had no other assets or liabilities recorded at fair value with changes in fair value recognized through earnings, on a recurring basis or nonrecurring basis, as of December 31, 2023 and 2022.
Note 18 – Related Party Transactions
In the ordinary course of business, we grant loans to principal officers and directors and their affiliates (including their families and companies in which they have 10% or more ownership). Annual activity consisted of the following for the years ended December 31:

| 2023 |  | 2022
Balance, January 1 | $ | 20,963 |  |  | $ | 22,558 |
New loans | 569 |  |  | 1,829 |
Repayments | (2,005) |  |  | (3,424) |
Balance, December 31 | $ | 19,527 |  |  | $ | 20,963 |

Total deposits of these principal officers and directors and their affiliates amounted to $7,735 and $12,317 at December 31, 2023 and 2022, respectively.
From time to time, we make charitable donations to The Isabella Bank Foundation (the “Foundation”), which is a non-controlled nonprofit organization formed for the purpose of distributing charitable donations to recipient organizations generally located in the communities we serve. Our donations are recognized as expense when paid to the Foundation. The assets and transactions of the Foundation are not included in our consolidated financial statements.
Assets of the Foundation include cash and cash equivalents, certificates of deposit, and shares of Isabella Bank Corporation common stock. The Foundation owned 20,000 shares of our common stock as of December 31, 2023 and 2022. Such shares are included in the computation of dividends and earnings per share.
The following table displays total assets of, and our donations to, the Foundation as of, and for the years ended December 31:

| 2023 |  | 2022 |  | 2021
Total assets | $ | 1,221 |  |  | $ | 1,385 |  |  | $ | 1,511 |
Donations | $ | — |  |  | $ | 50 |  |  | $ | 50 |

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Note 19 – Operating Segments
Our reportable segments are based on legal entities that account for at least 10% of net operating results. The operations of the Bank as of December 31, 2023, 2022, and 2021 represent approximately 90% or more of our consolidated total assets and operating results. As such, no additional segment reporting is presented.
Note 20 – Parent Company Only Financial Information
Condensed Balance Sheets

| December 31
| 2023 |  | 2022
ASSETS |  |  |
Cash on deposit at the Bank | $ | 25,010 |  |  | $ | 8,525 |
Investments in subsidiaries | 157,671 |  |  | 158,125 |
Premises and equipment | 1,196 |  |  | 1,171 |
Other assets | 47,949 |  |  | 47,922 |
TOTAL ASSETS | $ | 231,826 |  |  | $ | 215,743 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |
Subordinated debt, net of unamortized issuance costs | $ | 29,335 |  |  | $ | 29,245 |
Other liabilities | 89 |  |  | 288 |
Shareholders' equity | 202,402 |  |  | 186,210 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 231,826 |  |  | $ | 215,743 |

Condensed Statements of Income

| Year Ended December 31
| 2023 |  | 2022 |  | 2021
Income |  |  |  |  |
Dividends from subsidiaries | $ | 30,000 |  |  | $ | 6,000 |  |  | $ | 3,600 |
Interest income | 191 |  |  | 15 |  |  | 12 |
Other income | 13 |  |  | 14 |  |  | 17 |
Total income | 30,204 |  |  | 6,029 |  |  | 3,629 |
Expenses |  |  |  |  |
Interest expense | 1,065 |  |  | 1,065 |  |  | 615 |
Management fee | 952 |  |  | 900 |  |  | 854 |
Audit, consulting, and legal fees | 577 |  |  | 522 |  |  | 590 |
Director fees | 408 |  |  | 417 |  |  | 352 |
Other | 354 |  |  | 339 |  |  | 358 |
Total expenses | 3,356 |  |  | 3,243 |  |  | 2,769 |
Income before income tax benefit and equity in undistributed earnings of subsidiaries | 26,848 |  |  | 2,786 |  |  | 860 |
Federal income tax benefit | 654 |  |  | 670 |  |  | 500 |
Income before equity in undistributed earnings of subsidiaries | 27,502 |  |  | 3,456 |  |  | 1,360 |
Undistributed earnings of subsidiaries | (9,335) |  |  | 18,782 |  |  | 18,139 |
Net income | $ | 18,167 |  |  | $ | 22,238 |  |  | $ | 19,499 |

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Condensed Statements of Cash Flows

| Year Ended December 31
| 2023 |  | 2022 |  | 2021
Operating activities |  |  |  |  |
Net income | $ | 18,167 |  |  | $ | 22,238 |  |  | $ | 19,499 |
Adjustments to reconcile net income to cash provided by operations |  |  |  |  |
Undistributed earnings of subsidiaries | 9,335 |  |  | (18,782) |  |  | (18,139) |
Share-based payment awards under the Directors Plan | 529 |  |  | 463 |  |  | 433 |
Share-based payment awards under the RSP | 253 |  |  | 147 |  |  | 86 |
Amortization of subordinated debt issuance costs | 90 |  |  | 87 |  |  | 52 |
Depreciation | 52 |  |  | 50 |  |  | 50 |
Deferred income tax expense (benefit) | 228 |  |  | (133) |  |  | (267) |
Changes in operating assets and liabilities which provided (used) cash |  |  |  |  |
Other assets | (255) |  |  | 1,383 |  |  | (304) |
Other liabilities | (199) |  |  | 160 |  |  | 70 |
Net cash provided by (used in) operating activities | 28,200 |  |  | 5,613 |  |  | 1,480 |
Investing activities |  |  |  |  |
Purchase of equity investments | — |  |  | (250) |  |  | — |
Net (purchases) sales of premises and equipment | (77) |  |  | 260 |  |  | (2) |
Net cash provided by (used in) investing activities | (77) |  |  | 10 |  |  | (2) |
Financing activities |  |  |  |  |
Issuance of subordinated debt, net of unamortized issuance costs | — |  |  | — |  |  | 29,106 |
Cash dividends paid on common stock | (8,216) |  |  | (8,082) |  |  | (8,367) |
Proceeds from the issuance of common stock | 1,617 |  |  | 1,762 |  |  | 1,593 |
Common stock repurchased | (3,415) |  |  | (1,124) |  |  | (13,758) |
Common stock purchased for deferred compensation obligations | (1,624) |  |  | (1,189) |  |  | (1,187) |
Net cash provided by (used in) financing activities | (11,638) |  |  | (8,633) |  |  | 7,387 |
Increase (decrease) in cash and cash equivalents | 16,485 |  |  | (3,010) |  |  | 8,865 |
Cash and cash equivalents at beginning of period | 8,525 |  |  | 11,535 |  |  | 2,670 |
Cash and cash equivalents at end of period | $ | 25,010 |  |  | $ | 8,525 |  |  | $ | 11,535 |

Note 21 – Subsequent Events
We evaluated subsequent events after December 31, 2023 through the date our condensed consolidated financial statements were issued for potential recognition and disclosure. No subsequent events require financial statement recognition or disclosure between December 31, 2023 and the date our condensed consolidated financial statements were issued.
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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. 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 December 31, 2023, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of December 31, 2023, were effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
We also conducted an evaluation of internal control over financial reporting to determine whether any changes occurred during the quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on this evaluation, we have concluded that there have been no such changes during the quarter ended December 31, 2023.
Management’s Report on Internal Control Over Financial Reporting
We are responsible for the preparation and integrity of our published consolidated financial statements. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and, accordingly, include amounts based on judgments and estimates. We also prepared the other information included in the Annual Report on Form 10-K and are responsible for the accuracy and consistency with the consolidated financial statements.
We are responsible for establishing and maintaining a system of internal control over financial reporting, which is intended to provide reasonable assurance to our management and Board of Directors regarding the reliability of our consolidated financial statements. The system includes but is not limited to:
•A documented organizational structure and division of responsibility;
•Established policies and procedures, including a code of conduct to foster a strong ethical climate which is communicated throughout our Corporation;
•Internal auditors that monitor the operation of the internal control system and report findings and recommendations to management and the Audit Committee;
•Procedures for taking action in response to an internal audit finding or recommendation;
•Regular reviews of our consolidated financial statements by qualified individuals; and
•The careful selection, training and development of our people.
There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Also, the effectiveness of an internal control system may change over time. We have implemented a system of internal control that was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.
We have assessed our internal control system in relation to criteria for effective internal control over financial reporting described in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations (2013 framework) of the Treadway Commission.
Based upon these criteria, we believe that, as of December 31, 2023, our system of internal control over financial reporting was effective.
Our independent registered public accounting firm, Rehmann Robson LLC ("Rehmann"), has audited our 2023 consolidated financial statements and our internal control over financial reporting as of December 31, 2023. Rehmann was given unrestricted access to all financial records and related data, including minutes of all meetings of stockholders, the Board of Directors and committees of the Board of Directors. Rehmann has issued an unqualified audit opinion on our 2023
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consolidated financial statements and an unqualified opinion on the effectiveness of our internal controls as of December 31, 2023, as a result of the integrated audit.
Isabella Bank Corporation

By:
/s/ Jerome E. Schwind
Jerome E. Schwind
President and Chief Executive Officer
(Principal Executive Officer)
March 7, 2024
/s/ Neil M. McDonnell
Neil M. McDonnell
Chief Financial Officer
(Principal Financial Officer)
March 7, 2024

Item 9B. Other Information.
Securities Trading Plans of Executive Officers
None of our directors or executive officers adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” during the fourth quarter of 2023.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
For information concerning our directors and certain executive officers, see “Election of Directors” and “Delinquent Section 16(a) Reports” in our Proxy Statement for the Annual Meeting of Shareholders to be held May 7, 2024 (“Proxy Statement”) which is incorporated herein by reference.
For Information concerning our Audit Committee financial experts, see “Committees of the Board of Directors and Meeting Attendance” in the Proxy Statement which is incorporated herein by reference.
We have adopted a Code of Conduct and Business Ethics that applies to the principal executive officer, the principal financial officer and the principal accounting officer or controller of the Corporation. We shall provide to any person without charge upon request, a copy of our Code of Conduct and Business Ethics. Written requests should be sent to: Secretary, Isabella Bank Corporation, 401 North Main Street, Mount Pleasant, Michigan 48858.
Item 11. Executive Compensation.
For information concerning executive compensation, see “Executive Officers” and “Remuneration of Directors” in the Proxy Statement which is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
For information concerning the security ownership of certain owners and management, see “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement which is incorporated herein by reference.
Equity Compensation Plan Information
The following table provides information as of December 31, 2023, with respect to compensation plans under which our common shares are authorized for issuance to directors, officers or employees in exchange for consideration in the form of goods or services.

Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights (A) |  | Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights (B) |  | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (A)) (C)
Equity compensation plans approved by shareholders: |  |  |  |  |  |  |  |
None | — |  |  |  | — |  |  |  | — |  |
Equity compensation plans not approved by shareholders: |  |  |  |  |  |  |  |
Deferred director compensation plan (1) | 3,538 |  | (3) |  | — |  | (5) |  | — |  | (6)
Restricted Stock Plan (2) | 27,072 |  | (4) |  | — |  | (5) |  | — |  | (6)
Total | 30,610 |  |  |  |  |  |  |  |

(1) Pursuant to the terms of the Directors Plan, our directors are required to invest at least 25% of their board fees in our common stock. These stock investments can be made either through deferred fees or through the purchase of shares through the Dividend Reinvestment Plan. Deferred fees, under the Directors Plan, are converted on a quarterly basis into stock units of our common stock based on the fair value of a share of our common stock as of the relevant valuation date. Stock units credited to a participant’s account are eligible for stock and cash dividends as declared. Dividend Reinvestment Plan shares are purchased pursuant to the Dividend Reinvestment Plan.
Distribution of deferred fees from the Directors Plan occurs when the participant retires from the Board of Directors or upon the occurrence of certain other events. The participant is eligible to receive a distribution in the form of shares of our common stock of all of the stock units that are then in his or her account, and any unconverted cash will be converted to and rounded up to whole shares of stock and distributed, as well. The Directors Plan does not allow for cash settlement, and therefore, such share-based payment awards qualify for classification as equity. We may use authorized but unissued shares or purchase shares of common stock on the open market to meet our obligations under the Directors Plan.
(2) The RSP is an equity-based bonus plan. Under the plan, we may award restricted stock bonuses to eligible employees on an annual basis that are not fully transferable. Currently, the eligible employees are Isabella 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%
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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. Awards are converted to shares upon payment to the participant based on the market value of our common stock on the date of award.
(3) As of December 31, 2023, the Directors Plan had 154,119 shares eligible to be distributed under the Directors Plan. The Rabbi Trust holds 150,581 shares for the benefit of participants pursuant to the Directors Plan. Accordingly, such shares are not included in the number of securities issuable in column (A).
(4) This amount includes shares subject to outstanding stock awards at the maximum amount of shares issuable under such awards. However, payout of incentive awards is contingent on the individual and the Corporation reaching certain levels of performance. If the performance criteria for these awards are not fully satisfied, the award recipient will receive less than the maximum number of shares eligible under these grants and may receive nothing from these grants. Additionally, this amount assumes the closing price of our common stock as of the award grant dates for purposes of the conversion from awards to common stock.
(5) The Directors Plan and the RSP do not have an exercise price.
(6) There is no maximum number of shares available for issuance under the Directors Plan and the RSP has a maximum number of 100,000 shares.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
For information, see “Indebtedness of and Transactions with Management” and “Election of Directors” in the Proxy Statement, which is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
For information concerning our principal accountant fees and services see “Fees for Professional Services Provided by Rehmann Robson LLC” and “Pre-approval Policies and Procedures” in our Proxy Statement which is incorporated herein by reference.
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PART IV
Item 15. Exhibit and Financial Statement Schedules.

(a) |  | (1) | Financial Statements: The following documents are filed as part of Item 8 of this report:
|  |  | Report of Independent Registered Public Accounting Firm, Rehmann Robson LLC (PCAOB ID: 263)
|  |  | Consolidated Balance Sheets
|  |  | Consolidated Statements of Changes in Shareholders’ Equity
|  |  | Consolidated Statements of Income
|  |  | Consolidated Statements of Comprehensive Income (Loss)
|  |  | Consolidated Statements of Cash Flows
|  |  | Notes to Consolidated Financial Statements
|  | (2) | Financial Statement Schedules: All schedules are omitted because they are neither applicable nor required, or because the required information is included in the consolidated financial statements or related notes.
|  | (3) | See the exhibits listed below under Item 15(b):
(b) |  | The following exhibits required by Item 601 of Regulation S-K are filed as part of this report:
|  | 3.1 | Amended Articles of Incorporation (1)
|  | 3.2 | Amendment to the Articles of Incorporation (2)
|  | 3.3 | Amendment to the Articles of Incorporation (3)
|  | 3.4 | Amendment to the Articles of Incorporation (4)
|  | 3.5 | Amendment to the Articles of Incorporation (7)
|  | 3.6 | Amended Bylaws (5)
|  | 3.7 | Amendment to Bylaws (6)
|  | 3.8 | Amendment to Bylaws (9)
|  | 3.9 | Amendment to Bylaws (10)
|  | 4.1 | Indenture, dated as of June 2, 2021, by and between Isabella Bank Corporation and UMB Bank, National Association, as trustee (16)
|  | 4.2 | Form of 3.25% Fixed-to-Floating Rate Subordinated Note due 2031 (1 3)
|  | 10.1 | Isabella Bank Corporation and Related Companies Deferred Compensation Plan for Directors* (8)
|  | 10.2 | Isabella Bank Corporation Split Dollar Plan* (12)
|  | 10.3 | Isabella Bank Corporation Retirement Bonus Plan* (11)
|  | 10.4 | Isabella Bank Corporation Supplemental Executive Retirement Plan* (13)
|  | 10.5 | Amendment to the Isabella Bank Corporation Supplemental Executive Retirement Plan* (14)
|  | 10.6 | Isabella Bank Corporation Restricted Stock Plan* (15)
|  | 10.7 | Amendment to the Isabella Bank Corporation Restricted Stock Plan* (17)
|  | 10.8 | Isabella Bank Corporation Executive Cash Incentive Plan* (15)
|  | 10.9 | Form of Subordinated Note Purchase Agreement, dated as of June 2, 2021, by and among the Corporation and the several Purchasers (16)
|  | 10.10 | Form of Registration Rights Agreement, dated as of June 2, 2021, by and among the Corporation and the several Purchasers (16)
|  | 21 | Subsidiaries of the Registrant
|  | 23 | Consent of Rehmann Robson LLC, Independent Registered Public Accounting Firm
|  | 31.1 | Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer
|  | 31.2 | Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer
|  | 32 | Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

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|  | 101.INS | XBRL Interactive Data File**
|  | 101.SCH | XBRL Interactive Data File**
|  | 101.CAL | XBRL Interactive Data File**
|  | 101.LAB | XBRL Interactive Data File**
|  | 101.PRE | XBRL Interactive Data File**
|  | 101.DEF | XBRL Interactive Data File**
|  | 104 | Cover Page Interactive Data File

* |  | Management Contract or Compensatory Plan or Arrangement.
** |  | As provided by Rule 406T in Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Exchange Act
(1) |  | Previously filed as an Exhibit to the Isabella Bank Corporation Form 10-K, filed March 12, 1991, and incorporated herein by reference
(2) |  | Previously filed as an Exhibit to the Isabella Bank Corporation Form 10-K, filed March 26, 1994, and incorporated herein by reference.
(3) |  | Previously filed as an Exhibit to Isabella Bank Corporation Form 10-K, filed March 22, 2000, and incorporated herein by reference.
(4) |  | Previously filed as an Exhibit to Isabella Bank Corporation Form 10-K, filed March 27, 2001, and incorporated herein by reference.
(5) |  | Previously filed as an Exhibit to Isabella Bank Corporation Form 10-K, filed March 16, 2005, and incorporated herein by reference.
(6) |  | Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed November 22, 2006, and incorporated herein by reference.
(7) |  | Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed May 16, 2008, and incorporated herein by reference.
(8) |  | Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed March 13, 2019, and incorporated herein by reference.
(9) |  | Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed August 28, 2009, and incorporated herein by reference.
(10) |  | Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed December 23, 2009, and incorporated herein by reference.
(11) |  | Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed December 19, 2008, and incorporated herein by reference.
(12) |  | Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed March 31, 2015, and incorporated herein by reference.
(13) |  | Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed April 27, 2015, and incorporated herein by reference.
(14) |  | Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed February 12, 2019, and incorporated herein by reference.
(15) |  | Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed June 26, 2020, and incorporated herein by reference.
(16) |  | Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed June 2, 2021, and incorporated herein by reference.
(17) |  | Previously filed as an Exhibit to Isabella Bank Corporation Form 10-K, filed March 15, 2022, and incorporated herein by reference.

Item 16. Form 10-K Summary.
Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
(Registrant)

By: |  | /s/ Jerome E. Schwind |  | Date: |  | March 7, 2024
|  | Jerome E. Schwind, President and Chief Executive Officer |  |  |  |
|  | (Principal Executive Officer) |  |  |  |

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signatures |  | Capacity |  | Date
/s/ Dr. Jeffrey J. Barnes |  | Director |  | March 7, 2024
Dr. Jeffrey J. Barnes |  |  |  |
/s/ Jill Bourland |  | Director |  | March 7, 2024
Jill Bourland |  |  |  |
/s/ Melinda M. Coffin |  | Director |  | March 7, 2024
Melinda M. Coffin |  |  |  |
/s/ Jae A. Evans |  | Director |  | March 7, 2024
Jae A. Evans |  |  |  |
/s/ Jennifer L. Gill |  | Controller |  | March 7, 2024
Jennifer L. Gill |  |  |  |
/s/ Thomas L. Kleinhardt |  | Director |  | March 7, 2024
Thomas L. Kleinhardt |  |  |  |
/s/ Neil M. McDonnell |  | Chief Financial Officer (Principal Financial Officer), Isabella Bank President, and Director |  | March 7, 2024
Neil M. McDonnell |  |  |
/s/ Sarah R. Opperman |  | Director |  | March 7, 2024
Sarah R. Opperman |  |  |  |
/s/ Chad R. Payton |  | Director |  | March 7, 2024
Chad R. Payton |  |  |  |
/s/ Vicki L. Rupp |  | Director |  | March 7, 2024
Vicki L. Rupp |  |  |  |
/s/ Jerome E. Schwind |  | President, Chief Executive Officer (Principal Executive Officer), and Director |  | March 7, 2024
Jerome E. Schwind |  |  |

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