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Loans and ACL

12 Months Ended

Dec. 31, 2024

Loan Composition

The following table provides a detailed listing of our loan portfolio at December 31:


	2024				2023
	Balance		Percent of Total		Balance		Percent of Total
Commercial and industrial
Secured	$	221,510	15.56	%	$	189,186	14.02	%
Unsecured	23,384		1.64	%	20,552		1.52	%
Total commercial and industrial	244,894		17.20	%	209,738		15.54	%
Commercial real estate
Commercial mortgage owner occupied	178,376		12.53	%	180,636		13.39	%
Commercial mortgage non-owner occupied	208,118		14.62	%	216,292		16.03	%
Commercial mortgage 1-4 family investor	92,497		6.50	%	89,208		6.61	%
Commercial mortgage multifamily	68,456		4.81	%	78,108		5.79	%
Total commercial real estate	547,447		38.46	%	564,244		41.82	%
Advances to mortgage brokers	63,080		4.43	%	18,541		1.37	%
Agricultural
Agricultural mortgage	67,550		4.75	%	69,044		5.12	%
Agricultural other	32,144		2.26	%	30,950		2.29	%
Total agricultural	99,694		7.01	%	99,994		7.41	%
Residential real estate
Senior lien	332,743		23.37	%	313,459		23.23	%
Junior lien	8,655		0.61	%	5,945		0.44	%
Home equity lines of credit	39,474		2.77	%	37,014		2.74	%
Total residential real estate	380,872		26.75	%	356,418		26.41	%
Consumer
Secured - direct	35,050		2.46	%	37,948		2.81	%
Secured - indirect	49,136		3.45	%	59,324		4.40	%
Unsecured	3,398		0.24	%	3,256		0.24	%
Total consumer	87,584		6.15	%	100,528		7.45	%
Total	$	1,423,571	100.00	%	$	1,349,463	100.00	%

We grant commercial, agricultural, residential real estate, and consumer loans to customers primarily in Bay, Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw counties in Michigan. The ability of borrowers to honor their repayment obligations is often dependent upon the real estate, agricultural, manufacturing, retail, gaming, tourism, health care, higher education, and general economic conditions of this region. Substantially all of our consumer and residential real estate loans are secured by various items of property, while commercial loans are secured primarily by real estate, business assets, and personal guarantees. 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

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:


	2024				2023
	Total Nonaccrual Loans		Nonaccrual Loans with No ACL		Total Nonaccrual Loans		Nonaccrual Loans with No ACL
Commercial and industrial
Secured	$	—	$	—	$	491	$	435
Agricultural
Agricultural mortgage	—		—		38		38
Agricultural other	—		—		167		167
Residential real estate
Senior lien	282		282		286		286
Total	$	282	$	282	$	982	$	926

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


	2024
	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	$	328	$	—	$	—	$	221,182	$	221,510	$	—
Unsecured	—		50		—		23,334		23,384		—
Total commercial and industrial	328		50		—		244,516		244,894		—
Commercial real estate
Commercial mortgage owner occupied	25		304		—		178,047		178,376		—
Commercial mortgage non-owner occupied	792		—		—		207,326		208,118		—
Commercial mortgage 1-4 family investor	—		—		—		92,497		92,497		—
Commercial mortgage multifamily	—		—		—		68,456		68,456		—
Total commercial real estate	817		304		—		546,326		547,447		—
Advances to mortgage brokers	—		—		—		63,080		63,080		—
Agricultural
Agricultural mortgage	—		—		—		67,550		67,550		—
Agricultural other	—		—		—		32,144		32,144		—
Total agricultural	—		—		—		99,694		99,694		—
Residential real estate
Senior lien	3,846		148		163		328,586		332,743		—
Junior lien	19		—		—		8,636		8,655		—
Home equity lines of credit	10		—		—		39,464		39,474		—
Total residential real estate	3,875		148		163		376,686		380,872		—
Consumer
Secured - direct	15		—		19		35,016		35,050		19
Secured - indirect	232		—		—		48,904		49,136		—
Unsecured	4		—		—		3,394		3,398		—
Total consumer	251		—		19		87,314		87,584		19
Total	$	5,271	$	502	$	182	$	1,417,616	$	1,423,571	$	19


	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 other	—		—		—		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

Credit Quality Indicators

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


	2024
	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and industrial: Secured
Risk ratings 1-3	$	13,303	$	15,074	$	3,078	$	4,975	$	4,437	$	368	$	10,316	$	—	$	51,551
Risk rating 4	38,143		38,393		17,252		15,561		2,035		2,191		28,145		—		141,720
Risk rating 5	3,627		559		11,644		164		137		53		6,626		—		22,810
Risk rating 6	126		288		1,841		71		—		10		3,093		—		5,429
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	55,199	$	54,314	$	33,815	$	20,771	$	6,609	$	2,622	$	48,180	$	—	$	221,510
Current year-to-date gross charge-offs	$	—	$	277	$	33	$	—	$	38	$	—	$	—	$	—	$	348
Commercial and industrial: Unsecured
Risk ratings 1-3	$	378	$	1,967	$	203	$	69	$	48	$	414	$	1,966	$	—	$	5,045
Risk rating 4	3,073		2,049		2,388		268		370		—		8,896		—		17,044
Risk rating 5	100		—		—		121		—		—		1,074		—		1,295
Risk rating 6	—		—		—		—		—		—		—		—		—
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	3,551	$	4,016	$	2,591	$	458	$	418	$	414	$	11,936	$	—	$	23,384
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	8	$	25	$	—	$	33
Commercial real estate: Owner occupied
Risk ratings 1-3	$	1,963	$	4,032	$	1,694	$	11,125	$	13,300	$	4,421	$	221	$	—	$	36,756
Risk rating 4	24,878		11,550		29,307		35,974		9,780		20,260		1,590		—		133,339
Risk rating 5	197		487		876		72		653		791		372		—		3,448
Risk rating 6	1,354		1,123		—		636		1,117		504		99		—		4,833
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	28,392	$	17,192	$	31,877	$	47,807	$	24,850	$	25,976	$	2,282	$	—	$	178,376
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate: Non-owner occupied
Risk ratings 1-3	$	644	$	795	$	5,568	$	5,178	$	348	$	1,781	$	—	$	—	$	14,314
Risk rating 4	7,902		34,664		61,524		35,620		4,375		29,178		497		—		173,760
Risk rating 5	9,726		—		218		1,681		6,154		709		500		—		18,988
Risk rating 6	—		1,006		—		—		50		—		—		—		1,056
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	18,272	$	36,465	$	67,310	$	42,479	$	10,927	$	31,668	$	997	$	—	$	208,118
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


	2024
	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial real estate: 1-4 family investor
Risk ratings 1-3	$	1,165	$	—	$	2,632	$	791	$	846	$	965	$	3,076	$	—	$	9,475
Risk rating 4	9,399		12,535		8,911		28,666		13,930		3,640		4,750		—		81,831
Risk rating 5	—		145		339		72		—		52		—		—		608
Risk rating 6	—		536		—		—		—		47		—		—		583
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	10,564	$	13,216	$	11,882	$	29,529	$	14,776	$	4,704	$	7,826	$	—	$	92,497
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate: Multifamily
Risk ratings 1-3	$	638	$	3,383	$	1,697	$	936	$	545	$	746	$	150	$	—	$	8,095
Risk rating 4	2,081		1,957		21,446		11,646		664		19,617		64		—		57,475
Risk rating 5	—		—		—		—		—		—		—		—		—
Risk rating 6	—		—		—		—		—		2,886		—		—		2,886
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	2,719	$	5,340	$	23,143	$	12,582	$	1,209	$	23,249	$	214	$	—	$	68,456
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Advances to mortgage brokers
Risk ratings 1-3	$	63,080	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	63,080
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Agricultural mortgage
Risk ratings 1-3	$	792	$	—	$	2,700	$	2,144	$	2,550	$	1,250	$	34	$	—	$	9,470
Risk rating 4	4,410		4,118		12,959		6,968		5,737		8,586		1,322		—		44,100
Risk rating 5	281		1,521		1,342		5,757		—		1,364		1,045		—		11,310
Risk rating 6	60		—		1,550		—		—		1,060		—		—		2,670
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	5,543	$	5,639	$	18,551	$	14,869	$	8,287	$	12,260	$	2,401	$	—	$	67,550
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Agricultural other
Risk ratings 1-3	$	634	$	523	$	106	$	137	$	2	$	210	$	3,635	$	—	$	5,247
Risk rating 4	1,940		1,328		1,863		1,893		463		550		13,531		—		21,568
Risk rating 5	1,683		—		—		—		438		—		608		—		2,729
Risk rating 6	—		172		—		90		—		—		2,338		—		2,600
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	4,257	$	2,023	$	1,969	$	2,120	$	903	$	760	$	20,112	$	—	$	32,144
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


	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	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


	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	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

We have certain lending policies and procedures in place designed to maximize loan income within an acceptable level of risk. The Board reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management and the Board with frequent reports related to loan production, loan quality, and concentration of credit, loan delinquencies, nonperforming loans and potential problem loans. We seek to diversify the loan portfolio as a means of managing risk associated with fluctuations in economic conditions.

Internally assigned credit risk ratings are reviewed, at a minimum, when loans are renewed or when management has knowledge of improvements or deterioration of the credit quality of individual credits. 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.

4. 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.

•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.

Our primary credit quality indicator for residential real estate and consumer loans is the individual loan’s past due status. The following tables display residential real estate and consumer loans by payment status and year of origination as of December 31:


	2024
	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Residential real estate: Senior lien
Current	$	55,991	$	35,105	$	45,916	$	73,607	$	47,057	$	62,303	$	—	$	8,579	$	328,558
Past due 30-89 days	173		162		331		287		907		2,043		—		—		3,903
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		163		28		91		—		—		282
Total	$	56,164	$	35,267	$	46,247	$	74,057	$	47,992	$	64,437	$	—	$	8,579	$	332,743
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	10	$	—	$	—	$	10
Residential real estate: Junior lien
Current	$	4,229	$	3,092	$	800	$	86	$	71	$	358	$	—	$	—	$	8,636
Past due 30-89 days	—		—		—		19		—		—		—		—		19
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	4,229	$	3,092	$	800	$	105	$	71	$	358	$	—	$	—	$	8,655
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential real estate: Home equity lines of credit
Current	$	—	$	—	$	—	$	—	$	—	$	—	$	39,464	$	—	$	39,464
Past due 30-89 days	—		—		—		—		—		—		10		—		10
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	—	$	39,474	$	—	$	39,474
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer: Secured - direct
Current	$	10,990	$	9,498	$	6,535	$	3,947	$	2,166	$	1,880	$	—	$	—	$	35,016
Past due 30-89 days	—		—		15		—		—		—		—		—		15
Past due 90 or more days	—		—		—		—		19		—		—		—		19
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	10,990	$	9,498	$	6,550	$	3,947	$	2,185	$	1,880	$	—	$	—	$	35,050
Current year-to-date gross charge-offs	$	16	$	93	$	9	$	—	$	27	$	8	$	—	$	—	$	153
Consumer: Secured - indirect
Current	$	6,526	$	22,624	$	7,682	$	4,990	$	4,018	$	3,064	$	—	$	—	$	48,904
Past due 30-89 days	42		51		50		28		54		7		—		—		232
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	6,568	$	22,675	$	7,732	$	5,018	$	4,072	$	3,071	$	—	$	—	$	49,136
Current year-to-date gross charge-offs	$	—	$	67	$	64	$	—	$	—	$	3	$	—	$	—	$	134


	2024
	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Consumer: Unsecured
Current	$	1,654	$	656	$	211	$	22	$	16	$	—	$	835	$	—	$	3,394
Past due 30-89 days	—		—		2		—		—		—		2		—		4
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	1,654	$	656	$	213	$	22	$	16	$	—	$	837	$	—	$	3,398
Current year-to-date gross charge-offs	$	2,047	$	15	$	21	$	—	$	—	$	2	$	21	$	—	$	2,106


	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


	2023
	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
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	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
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 years ended December 31:


	2024
	Interest Rate Reduction				Other-Than-Insignificant Payment Delay				Term Extension				Other-Than-Insignificant Payment Delay and Term Extension
	Amortized Cost Basis		% of Total Class of Financial Receivable		Amortized Cost Basis		% of Total Class of Financial Receivable		Amortized Cost Basis		% of Total Class of Financial Receivable		Amortized Cost Basis		% of Total Class of Financial Receivable
Commercial and industrial
Secured	$	—	0.00	%	$	1,782	0.80	%	$	10	0.00	%	$	—	0.00	%
Commercial real estate
Commercial mortgage owner occupied	—		0.00	%	818		0.46	%	1,353		0.76	%	—		0.00	%
Agricultural
Agricultural mortgage	—		0.00	%	1,305		1.93	%	281		0.42	%	—		0.00	%
Agricultural other	132		0.41	%	—		0.00	%	—		0.00	%	1,107		3.44	%
Consumer
Secured - indirect	—		0.00	%	—		0.00	%	1		0.00	%	—		0.00	%
Total	$	132			$	3,905			$	1,645			$	1,107


	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	%	$	—	0.00	%	$	—	0.00	%
Commercial mortgage non-owner occupied	—		0.00	%	1,030		0.48	%	—		0.00	%
Commercial mortgage multifamily	2,977		3.81	%	—		0.00	%	—		0.00	%
Agricultural
Agricultural mortgage	—		0.00	%	227		0.33	%	24		0.03	%
Agricultural other	—		0.00	%	32		0.10	%	—		0.00	%
Residential real estate
Senior lien	—		0.00	%	5		0.00	%	—		0.00	%
Total	$	3,095			$	1,294			$	24

We do not modify any loans by forgiving principal or accrued interest. We had committed to advance $43 and $0 in additional funds in connection with modified loans at December 31, 2024 and 2023, respectively, as displayed in the tables above.

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

2024

Payment Delay Term

Weighted-Average Interest Rate Reduction

Weighted-Average Term Extension (Years)

Commercial and industrial

Secured

4 months

N/A

3.00

Commercial real estate

Commercial mortgage owner occupied

7 months

N/A

3.00

Agricultural

Agricultural mortgage

5 months

N/A

6.27

Agricultural other

4 months

0.50%

0.33

Consumer

Secured - indirect

N/A

1.33

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

Commercial mortgage non-owner occupied

N/A

3.00

Commercial mortgage multifamily

6 months

N/A

Agricultural

Agricultural mortgage

N/A

4.50%

1.08

Agricultural other

N/A

1.00

Residential real estate

Senior lien

N/A

2.60

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


	2024
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total
Commercial and industrial
Secured	$	1,782	$	10	$	—	$	—	$	1,792
Commercial real estate
Commercial mortgage owner occupied	2,171		—		—		—		2,171
Agricultural
Agricultural mortgage	1,586		—		—		—		1,586
Agricultural other	1,239		—		—		—		1,239
Consumer
Secured - indirect	1		—		—		—		1
Total	$	6,779	$	10	$	—	$	—	$	6,789


	2023
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total
Commercial real estate
Commercial mortgage owner occupied	$	118	$	—	$	—	$	—	$	118
Commercial mortgage non-owner occupied	1,030		—		—		—		1,030
Commercial mortgage multifamily	2,977		—		—		—		2,977
Agricultural
Agricultural mortgage	251		—		—		—		251
Agricultural other	32		—		—		—		32
Residential real estate
Senior lien	—		—		—		5		5
Total	$	4,408	$	—	$	—	$	5	$	4,413

We had no loans that defaulted for the years ended December 31, 2024 and 2023 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.

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;

•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.

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


	2024
	Commercial and Industrial		Commercial Real Estate		Agricultural		Residential Real Estate		Consumer		Total
December 31, 2023	$	968	$	5,878	$	270	$	4,336	$	1,656	$	13,108
Charge-offs	(381)		—		—		(10)		(2,393)		(2,784)
Recoveries	42		355		6		128		353		884
Credit loss expense	687		(1,062)		11		67		1,984		1,687
December 31, 2024	$	1,316	$	5,171	$	287	$	4,521	$	1,600	$	12,895


	2023
	Commercial and Industrial		Commercial Real Estate		Agricultural		Residential Real Estate		Consumer		Unallocated		Total
December 31, 2022	$	860	$	461	$	577	$	617	$	961	$	6,374	$	9,850
Impact of the adoption of ASC 326	(58)		5,532		(247)		3,535		356		(6,374)		2,744
Charge-offs	(276)		—		(4)		(2)		(542)		—		(824)
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

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


	2024			2023
ACL
Individually evaluated	$	—		$	84
Collectively evaluated	12,895			13,024
Total	$	12,895		$	13,108
ACL to gross loans
Individually evaluated	—		%	0.01		%
Collectively evaluated	0.91		%	0.96		%
Total	0.91		%	0.97		%

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:


	2024				2023
	Loan Balance		Specific Allocation		Loan Balance		Specific Allocation
Commercial and industrial	$	—	$	—	$	465	$	56
Commercial real estate	—		—		234		28
Agricultural	—		—		181		—
Residential real estate	254		—		203		—
Consumer	—		—		—		—
Total	$	254	$	—	$	1,083	$	84

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 $254 in collateral dependent loans.