Foresight Financial Group, Inc.
Annual Report 2023

Plain-text annual report

C O M M U N I T Y B U I L D I N G T H R O U G H C O M M U N I T Y B A N K I N G 809 Cannell-Puri Court, Suite 5 • Winnebago, Illinois 61088 • 815.847.7500 • foresightfg.com 2023 ANNUAL REPORT we are a market driven, people oriented community banking organization dedicated to enhancing shareholder value by providing our customers with diversified financial services that help them achieve economic success and financial security. we will pursue these goals while balancing shareholder and customer interests with the ongoing welfare of our employees and local communities. The member banks of our group maintain a high degree of independence and sensitivity to the concerns of the local communities and markets that we choose to serve. we will seek to expand sensibly into new markets when we believe that our business model and community banking philosophy can be successfully extended. In summary: “Community Building through Community Banking” www.foresightfg.com OUR SHARED CULTURE • OUR SHARED VALUES MISSION Community Building through Community Banking VISION Leverage the collective strengths of our banks to create customer loyalty, empower employees, and enhance value for our communities and shareholders VALUES Service Excellence, Integrity, Collaboration, Engagement, Innovation, Agility FORESIGHT SUBSIDIARIES www.foresightfg.com Dear Stockholders, We are happy to report that 2023 represented a third consecutive year of record earnings despite the significant challenges we faced during these turbulent economic times. We concluded the year with earnings of $14.5 million, a 6.75% increase over 2022 earnings. Asset quality remains strong and despite funding cost pressures throughout the year, a result of both Fed policy as well as an increasingly competitive banking landscape, our Net Interest Margin continued to drive results that were accretive to our bottom-line success. Year over year, Loans net of allowance for credit losses increased $115 million or 12.05%, Deposits increased $63 million or 4.85%, and Total Assets saw an increase of $97 million or 6.58%. I am also pleased to report that the F2 (Future Forward) initiative, which began back in 2021 and included a number of significant projects and initiatives, not the least of which was the implementation of a shared services environment, has come to a successful conclusion. I would personally like to thank and recognize our amazing staff who have not only been the catalyst for the successful completion of these projects, but who also put in considerable time and effort above and beyond their regular duties. The teamwork and dedication exhibited was truly inspiring and you should all be enormously proud of these folks. That said, we do not plan to rest on our laurels and have already tagged 2024 for a total of twenty-seven new projects, ten of which are already underway, and most significantly includes our new digital banking initiative that will take Foresight to the next level of our overall digital strategy. The sale of State Bank of Herscher as announced in July of 2022, had been expected to close during the second half of 2023. As reported in our announcement dated October 5, 2023, the Foresight Board, after careful consideration, decided to terminate the agreement. Despite best efforts on the part of both Foresight and the buyer it became increasingly clear that the probability of securing regulatory approval within the timelines as outlined in the July 19, 2022, agreement was unlikely the longer the process went on and as such our Board determined that it was in the best financial interests of our shareholders to terminate the proposed transaction. In retrospect, we continue to be confident this was the correct decision and are happy that the directors, officers, and staff of State Bank of Herscher will continue to be an important part of the Foresight bank group as well as a staunch supporter of the communities they serve. On October 25, 2023, the Board of Directors was also pleased to announce the initiation of a program to repurchase $2 million in Foresight stock. Due to the success of that initial program, the repurchase of an additional $2 million was announced on February 20, 2024. These repurchases, in combination with other efforts to increase the organization’s price per share, continue to be a priority of the Board and management to increase shareholder value. We are pleased to report that the stock price, which reached a low of $22.80 per share in November of 2023, has rebounded to $28.30 as of month-end February 2024, an increase of 24%. Based on the current market price of Foresight’s common stock, which the Board continues to believe is significantly undervalued, stock repurchases as well as additional efforts the Board has identified are expected to provide results that are in the best interests of our shareholders. Fiscal year 2023 will also serve as the final full year for two of Foresight Financials’ longest serving and valued executive officers. EVP and CFO Dean Cooke and SVP and Chief Risk Officer Denise Osadjan will be retiring from their positions in 2024 after serving 27 and 33 years, respectively. The depth and breadth of their knowledge and experience will be sorely missed. We were incredibly happy to announce in January of 2024 that Brooke Crull joined Foresight as our new SVP and Chief Risk Officer. Brooke comes to us with a wealth of experience including 16 years with Wipfli LLP in the financial institutions area, most recently as a Senior Audit Manager. Brooke has already established herself as a valued Foresight team member. I would be remiss if I failed to mention the loss of Jennifer Blumer who was brought on in September of 2023 to assume the duties of Dean Cooke as Foresight CFO. Jennifer passed away unexpectedly in January of 2024. Despite her brief time with us, Jennifer left an indelible impression and will be sorely missed. Dean Cooke has been gracious enough to extend his retirement plans to provide us an opportunity to resume a search for his replacement. We are all thankful for Dean’s continued support and dedication to the Company. Looking forward as we move further into 2024, we expect funding costs to continue to drive our Net Interest Margin, thus making 2024 a challenging year. We will closely monitor credit quality trends both industry wide as well as within our portfolio and react accordingly. Despite the economic challenges that we anticipate persisting, we look forward to a positive 2024. Foresight Financial community banks have a traditional, relationship-based business model that focuses on safety and soundness and service to the communities in which we reside. Community Building through Community Banking will continue to be who we are and as such will drive our efforts to achieve that goal while at the same time acting upon opportunities for increased market share and shareholder value as they present themselves. Thank you for being a shareholder of Foresight Financial Group. It is through your support that we continue to realize the success we have achieved to date, and that which we strive for as we move into the future. Respectfully, Peter Q. Morrison President/Chief Executive Officer Trends in Assets, Deposits & Loans (000’s) 1,135,478 1,453,784 1,235,444 1,477,460 1,294,707 1,384,600 1,154,460 1,574,728 1,357,557 954,426 1,069,450 1,180,323 1,213,588 980,024 1,020,093 784,393 778,874 818,611 845,847 1,700,000 - 1,500,000 - 1,300,000 - 1,100,000 - 900,000 - 700,000 - 500,000 - 0 - 12.31.18 12.31.19 12.31.20 12.31.21 12.31.22 12.31.23 *Loans held for investment NET of ALLL. Assets Deposits Loans Trends in Combined Tangible Equity Capital & ACL* Book Equity Capital & ACL* to Non Performing Assets (000’s) 200,000 - 175,000 - 150,000 - 125,000 - 100,000 - 75,000 - 50,000 - 25,000 - 0 - 0 0 8 3 5 1 , 9 1 7 1 5 1 , 1 9 9 2 4 1 , 4 7 8 9 3 1 , 4 0 5 7 6 1 , , 5 8 1 1 6 1 , 2 1 2 9 6 1 , 9 6 6 7 6 1 8 6 5 7 8 1 , 8 5 0 5 5 1 , 0 6 7 8 7 1 , 2 7 7 1 4 1 , 5 4 0 0 1 , 4 1 9 4 , 6 8 1 0 1 , 8 1 9 8 , 2 2 8 6 , 5 4 0 6 1 , **AOCI Gain/(Loss) 12.31.18 (3,117) 12.31.19 2,081 12.31.20 6,319 12.31.21 1,543 12.31.22 (36,988) 12.31.23 (32,510) *ACL: Allowance for Credit Losses **Accumulated Other Comprehensive Income Non-Performing Assets Tangible Equity Capital & ACL Book Equity & ACL 6 2023 Annual Report Net Income (1,000,000’s) 14.50 13.63 11.37 11.02 10.29 11.39 16.0 - 14.0 - 12.0 - 10.0 - 8.0 - 6.0 - 4.0 - 2.0 - 0 - 2018 2019 2020 2021 2022 2023 Common Stock Per Share Tangible Book & Market Value - 12/31 $45.00 - $40.00 - $35.00 - $30.00 - $25.00 - $20.00 - $15.00 - 0 - . 9 6 7 3 $ . 0 1 6 3 $ . 9 6 3 3 $ . 5 9 3 3 $ . 4 2 1 4 $ . 8 8 9 2 $ . 3 1 3 4 $ . 7 6 5 3 $ . 0 9 2 3 $ . 8 0 0 4 $ . 0 5 7 2 $ . 0 9 3 2 $ 12.31.18 12.31.19 12.31.20 12.31.21 12.31.22 12.31.23 Tangible Book Value Market Value 7 2023 Annual Report Plante & Moran, PLLC 10 South Riverside Plaza 9th floor Chicago, IL 60606 Tel: 312.207.1040 Fax: 312.207.1066 plantemoran.com Independent Auditor's Report To the Audit Committee and the Board of Directors Foresight Financial Group, Inc. Opinion We have audited the consolidated financial statements (the "financial statements") of Foresight Financial Group, Inc. and its subsidiaries (the "Company"), which comprise the consolidated balance sheet as of December 31, 2023 and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Basis for Opinion We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our ethical responsibilities in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Emphasis of Matter As described in Note 1 to the financial statements, the Company adopted the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, and ASU No. 2022-02, Troubled Debt Restructurings and Vintage Disclosures, as of January 1, 2023. Our opinion is not modified with respect to this matter. Report on Prior Year Financial Statements The financial statements of Foresight Financial Group, Inc. and its subsidiaries as of December 31, 2022 and 2021 were audited by other auditors, who expressed an unmodified opinion on those statements on March 8, 2023. Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued or available to be issued. 8 2023 Annual ReportTo the Audit Committee and the Board of Directors Foresight Financial Group, Inc. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and, therefore, is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit in accordance with GAAS, we: • Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, no such opinion is expressed. • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit. March 12, 2024 9 2023 Annual ReportASSETS ASSETS Cash and due from banks Interest-bearing deposits in banks Cash and due from banks Federal funds sold Interest-bearing deposits in banks Federal funds sold Total cash and cash equivalents Interest-bearing deposits in banks - term deposits Total cash and cash equivalents Debt securities: Interest-bearing deposits in banks - term deposits Debt securities available-for-sale (AFS) Debt securities: Debt securities held-to-maturity (HTM) Debt securities available-for-sale (AFS) Marketable equity securities and other investments Debt securities held-to-maturity (HTM) Loans held for sale Marketable equity securities and other investments Loans, net of allowance for credit losses of $14,195 and $14,541, Loans held for sale respectively Loans, net of allowance for credit losses of $14,195 and $14,541, Foreclosed assets and other real estate owned, net respectively Premises and equipment, net Foreclosed assets and other real estate owned, net Bank owned life insurance Premises and equipment, net Other assets Bank owned life insurance Total assets Other assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Deposits: Liabilities: Noninterest-bearing Deposits: Interest-bearing Noninterest-bearing Interest-bearing Federal funds purchased Total deposits Total deposits Securities sold under agreements to repurchase Federal funds purchased Federal Home Loan Bank (FHLB) and other borrowings Securities sold under agreements to repurchase Accrued interest payable and other liabilities Federal Home Loan Bank (FHLB) and other borrowings Accrued interest payable and other liabilities Total liabilities Total liabilities Stockholders' equity: Preferred stock (no par value; authorized 500,000 shares) Stockholders' equity: Common stock ($.25 par value; authorized 10,000,000 shares; Preferred stock (no par value; authorized 500,000 shares) 4,080,304 and 4,071,494 shares issued, respectively) Common stock ($.25 par value; authorized 10,000,000 shares; Additional paid-in capital 4,080,304 and 4,071,494 shares issued, respectively) Retained earnings Additional paid-in capital Treasury stock, at cost (569,079 and 509,079 shares, respectively) Retained earnings Accumulated other comprehensive loss Treasury stock, at cost (569,079 and 509,079 shares, respectively) Accumulated other comprehensive loss Total stockholders' equity Total liabilities and stockholders' equity Total stockholders' equity Total liabilities and stockholders' equity Consolidated Balance Sheets (000s omitted except share data) Consolidated Balance Sheets December 31, 2023 and 2022 (000s omitted except share data) 2023 December 31, 2023 and 2022 2022 2023 $22,168 2022 $28,354 20,828 $22,168 2,722 20,828 45,718 2,722 45,718 4,511 4,511 365,618 3,596 365,618 5,718 3,596 990 5,718 990 1,069,450 - 1,069,450 17,525 - 24,644 17,525 36,958 24,644 $1,574,728 36,958 7,975 $28,354 7,493 7,975 43,822 7,493 43,822 6,058 6,058 391,334 4,076 391,334 3,945 4,076 421 3,945 421 954,426 70 954,426 17,598 70 24,058 17,598 31,652 24,058 $1,477,460 31,652 $1,574,728 $1,477,460 $256,205 1,101,352 $256,205 1,357,557 1,101,352 1,153 1,357,557 31,554 1,153 25,954 31,554 17,647 25,954 1,433,865 17,647 $276,055 1,018,652 $276,055 1,294,707 1,018,652 - 1,294,707 36,298 - 7,366 36,298 11,858 7,366 1,350,229 11,858 1,433,865 1,350,229 - - - 1,020 11,432 1,020 174,826 11,432 (13,905) 174,826 (32,510) (13,905) 140,863 (32,510) $1,574,728 140,863 - 1,018 11,138 1,018 164,597 11,138 (12,534) 164,597 (36,988) (12,534) 127,231 (36,988) $1,477,460 127,231 $1,574,728 $1,477,460 10 See Notes to Consolidated Financial Statements See Notes to Consolidated Financial Statements 2023 Annual Report ASSETS ASSETS Cash and due from banks Interest-bearing deposits in banks Cash and due from banks Federal funds sold Interest-bearing deposits in banks Total cash and cash equivalents Federal funds sold Interest-bearing deposits in banks - term deposits Total cash and cash equivalents Debt securities: Interest-bearing deposits in banks - term deposits Debt securities available-for-sale (AFS) Debt securities: Debt securities held-to-maturity (HTM) Debt securities available-for-sale (AFS) Marketable equity securities and other investments Debt securities held-to-maturity (HTM) Loans held for sale Marketable equity securities and other investments Loans, net of allowance for credit losses of $14,195 and $14,541, Loans held for sale respectively Loans, net of allowance for credit losses of $14,195 and $14,541, Foreclosed assets and other real estate owned, net respectively Premises and equipment, net Foreclosed assets and other real estate owned, net LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES AND STOCKHOLDERS’ EQUITY Bank owned life insurance Premises and equipment, net Other assets Bank owned life insurance Other assets Total assets Total assets Liabilities: Deposits: Liabilities: Noninterest-bearing Deposits: Interest-bearing Noninterest-bearing Total deposits Interest-bearing Federal funds purchased Total deposits Securities sold under agreements to repurchase Federal funds purchased Federal Home Loan Bank (FHLB) and other borrowings Securities sold under agreements to repurchase Accrued interest payable and other liabilities Federal Home Loan Bank (FHLB) and other borrowings Accrued interest payable and other liabilities Total liabilities Total liabilities Stockholders' equity: Preferred stock (no par value; authorized 500,000 shares) Stockholders' equity: Common stock ($.25 par value; authorized 10,000,000 shares; Preferred stock (no par value; authorized 500,000 shares) 4,080,304 and 4,071,494 shares issued, respectively) Common stock ($.25 par value; authorized 10,000,000 shares; Additional paid-in capital 4,080,304 and 4,071,494 shares issued, respectively) Retained earnings Additional paid-in capital Retained earnings Treasury stock, at cost (569,079 and 509,079 shares, respectively) Accumulated other comprehensive loss Treasury stock, at cost (569,079 and 509,079 shares, respectively) Accumulated other comprehensive loss Total stockholders' equity Total liabilities and stockholders' equity Total stockholders' equity Total liabilities and stockholders' equity 20,828 $22,168 2,722 45,718 20,828 2,722 45,718 4,511 4,511 365,618 3,596 365,618 5,718 3,596 990 5,718 990 1,069,450 - 1,069,450 17,525 - 24,644 17,525 36,958 24,644 $1,574,728 36,958 7,975 $28,354 7,493 7,975 43,822 7,493 43,822 6,058 6,058 391,334 4,076 391,334 3,945 4,076 421 3,945 421 954,426 70 954,426 17,598 70 24,058 17,598 31,652 24,058 $1,477,460 31,652 $1,574,728 $1,477,460 $256,205 1,101,352 $256,205 1,357,557 1,101,352 1,153 1,357,557 31,554 1,153 25,954 31,554 17,647 25,954 1,433,865 17,647 $276,055 1,018,652 $276,055 1,294,707 1,018,652 - 1,294,707 36,298 - 7,366 36,298 11,858 7,366 1,350,229 11,858 1,433,865 1,350,229 - - - 1,020 11,432 1,020 174,826 11,432 (13,905) 174,826 (32,510) (13,905) 140,863 (32,510) $1,574,728 140,863 - 1,018 11,138 1,018 164,597 11,138 (12,534) 164,597 (36,988) (12,534) 127,231 (36,988) $1,477,460 127,231 $1,574,728 $1,477,460 Consolidated Balance Sheets (000s omitted except share data) Consolidated Balance Sheets December 31, 2023 and 2022 (000s omitted except share data) 2023 December 31, 2023 and 2022 2022 ASSETS Consolidated Balance Sheets (000s omitted except share data) Consolidated Statements of Income December 31, 2023 and 2022 (000s omitted except share data) December 31, 2023, 2022, and 2021 2023 2022 2023 $22,168 2022 $28,354 Cash and due from banks 2023 2022 $22,168 2021 $28,354 Interest and dividend income: Interest-bearing deposits in banks Federal funds sold Loans, including fees Debt securities: Total cash and cash equivalents Taxable Tax-exempt Interest-bearing deposits in banks - term deposits Interest-bearing deposits in banks and other Debt securities: Federal funds sold Debt securities available-for-sale (AFS) Total interest and dividend income Debt securities held-to-maturity (HTM) $59,919 $42,990 20,828 2,722 45,718 6,287 1,935 4,511 6,117 2,518 7,975 7,493 $39,995 43,822 4,276 6,058 2,599 2,198 646 508 188 365,618 190 70,527 3,596 52,461 1 391,334 47,379 4,076 Marketable equity securities and other investments Interest expense: 5,718 3,945 Deposits Loans held for sale Federal funds purchased Loans, net of allowance for credit losses of $14,195 and $14,541, Securities sold under agreements to repurchase respectively FHLB and other borrowings Foreclosed assets and other real estate owned, net Premises and equipment, net Total interest expense Bank owned life insurance Net interest and dividend income Other assets Provision for credit losses Total assets 19,802 990 6,291 5,902 421 78 38 - 668 1,069,450 323 708 - 136 21,256 17,525 6,788 49,271 24,644 45,673 36,958 1,105 552 $1,574,728 36 954,426 211 70 6,149 17,598 24,058 41,230 31,652 756 $1,477,460 Net interest and dividend income, after provision for credit losses LIABILITIES AND STOCKHOLDERS’ EQUITY Noninterest income: 48,166 45,121 40,474 Customer service fees Liabilities: (Loss) gain on sales and calls of AFS securities, net Deposits: Gain on sale of loans, net Noninterest-bearing Loan servicing fees, net Interest-bearing Bank owned life insurance Total deposits ATM / interchange fees Federal funds purchased Other Securities sold under agreements to repurchase Total noninterest income Federal Home Loan Bank (FHLB) and other borrowings Noninterest expenses: Accrued interest payable and other liabilities Salaries and employee benefits Occupancy expense of premises, net Total liabilities Outside services Data processing Stockholders' equity: Foreclosed assets and other real estate owned, net Preferred stock (no par value; authorized 500,000 shares) Other Common stock ($.25 par value; authorized 10,000,000 shares; 4,080,304 and 4,071,494 shares issued, respectively) Additional paid-in capital Income before income taxes Total noninterest expenses Retained earnings Income tax expense Treasury stock, at cost (569,079 and 509,079 shares, respectively) Accumulated other comprehensive loss Net income Total stockholders' equity Earnings per common share: Total liabilities and stockholders' equity Basic Diluted 1,155 (185) 611 1,055 (246) 969 814 $256,205 1,101,352 1,978 585 2,155 1,357,557 580 2,126 1,947 2,421 1,153 7,556 31,554 8,409 25,954 17,647 22,627 22,627 2,298 1,433,865 2,312 870 126 2,663 $276,055 1,334 1,018,652 554 1,294,707 2,063 - 1,884 36,298 9,494 7,366 11,858 21,433 1,350,229 2,292 1,311 3,025 1,553 3,040 3,031 2,737 (43) - (53) 7,384 6,343 36,602 1,020 11,432 35,822 19,120 17,708 174,826 4,574 (13,905) 4,082 $14,546 (32,510) $13,626 140,863 $1,574,728 $3.83 $4.08 $4.08 (112) - 5,964 35,345 1,018 11,138 14,623 164,597 (12,534) 3,237 (36,988) $11,386 127,231 $1,477,460 $3.11 $3.81 $3.09 See Notes to Consolidated Financial Statements See Notes to Consolidated Financial Statements See Notes to Consolidated Financial Statements See Notes to Consolidated Financial Statements 11 2023 Annual Report Consolidated Balance Sheets (000s omitted except share data) Consolidated Statements of Comprehensive Income December 31, 2023 and 2022 (000s omitted except share data) ASSETS Cash and due from banks Interest-bearing deposits in banks Net income Federal funds sold Total cash and cash equivalents Other comprehensive income (loss): Interest-bearing deposits in banks - term deposits Unrealized holding gains (losses) on securities available for sale, Debt securities: net of tax of $1,917, $15,292, & $1,868, respectively Debt securities available-for-sale (AFS) Reclassification adjustments for net securities losses (gains) Debt securities held-to-maturity (HTM) recognized in income, net of tax of $53, $70, & $36, respectively Marketable equity securities and other investments Total other comprehensive income (loss) Loans held for sale Loans, net of allowance for credit losses of $14,195 and $14,541, Total comprehensive income (loss) respectively Foreclosed assets and other real estate owned, net Premises and equipment, net Bank owned life insurance Other assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Deposits: Noninterest-bearing Interest-bearing Total deposits Federal funds purchased Securities sold under agreements to repurchase Federal Home Loan Bank (FHLB) and other borrowings Accrued interest payable and other liabilities Total liabilities Stockholders' equity: December 31, 2023, 2022, and 2021 2023 2022 2023 2022 $22,168 2021 $28,354 $14,546 20,828 2,722 45,718 $13,626 7,975 $11,386 7,493 43,822 4,511 6,058 4,346 (38,707) (4,686) 365,618 391,334 132 3,596 176 5,718 4,478 990 (38,531) (90) 4,076 3,945 (4,776) 421 $19,024 $(24,905) 1,069,450 $6,610 954,426 - 70 17,525 17,598 24,644 36,958 24,058 31,652 $1,574,728 $1,477,460 $256,205 1,101,352 $276,055 1,018,652 1,357,557 1,294,707 1,153 - 31,554 25,954 17,647 36,298 7,366 11,858 1,433,865 1,350,229 Preferred stock (no par value; authorized 500,000 shares) - - Common stock ($.25 par value; authorized 10,000,000 shares; 4,080,304 and 4,071,494 shares issued, respectively) Additional paid-in capital Retained earnings Treasury stock, at cost (569,079 and 509,079 shares, respectively) Accumulated other comprehensive loss Total stockholders' equity Total liabilities and stockholders' equity 1,020 11,432 1,018 11,138 174,826 164,597 (13,905) (32,510) (12,534) (36,988) 140,863 127,231 $1,574,728 $1,477,460 12 See Notes to Consolidated Financial Statements See Notes to Consolidated Financial Statements 2023 Annual Report ASSETS December 31, 2023, 2022, and 2021 2023 2022 ASSETS Consolidated Balance Sheets Consolidated Statements of Comprehensive Income (000s omitted except share data) December 31, 2023 and 2022 (000s omitted except share data) Consolidated Statements of Changes in Stockholders’ Equity (000s omitted except share data) December 31, 2023 and 2022 Consolidated Balance Sheets (000s omitted except share data) December 31, 2023, 2022, and 2021 2023 2022 2023 2022 $22,168 20,828 $14,546 2,722 $13,626 45,718 2021 $28,354 7,975 7,493 $11,386 43,822 Cash and due from banks Interest-bearing deposits in banks Federal funds sold Total cash and cash equivalents Additional Common Stock Paid- in Capital Retained Earnings Accumulated $22,168 Other 20,828 Treasury Comprehensive 2,722 Income (Loss) 45,718 Stock $28,354 7,975 7,493 Total 43,822 Debt securities held-to-maturity (HTM) recognized in income, net of tax of $53, $70, & $36, respectively 132 3,596 176 4,076 (90) Debt securities held-to-maturity (HTM) Net income 4,511 6,058 4,346 (38,707) (4,686) Balance – January 1, 2021 Interest-bearing deposits in banks - term deposits Effect of change in accounting principle - Debt securities: 365,618 391,334 Mortgage servicing rights (net of tax $101) Debt securities available-for-sale (AFS) - - $1,013 $10,513 $142,807 $(6,830) $6,319 4,511 $153,822 6,058 Cash and due from banks Interest-bearing deposits in banks Federal funds sold Net income Total cash and cash equivalents Other comprehensive income (loss): Interest-bearing deposits in banks - term deposits Unrealized holding gains (losses) on securities available for sale, Debt securities: net of tax of $1,917, $15,292, & $1,868, respectively Debt securities available-for-sale (AFS) Reclassification adjustments for net securities losses (gains) Marketable equity securities and other investments Total other comprehensive income (loss) Loans held for sale Loans, net of allowance for credit losses of $14,195 and $14,541, Total comprehensive income (loss) respectively Foreclosed assets and other real estate owned, net LIABILITIES AND STOCKHOLDERS’ EQUITY Premises and equipment, net Bank owned life insurance Other assets Total assets Liabilities: Deposits: Noninterest-bearing Interest-bearing Total deposits Federal funds purchased Securities sold under agreements to repurchase Federal Home Loan Bank (FHLB) and other borrowings Accrued interest payable and other liabilities Stockholders' equity: Common stock ($.25 par value; authorized 10,000,000 shares; 4,080,304 and 4,071,494 shares issued, respectively) Additional paid-in capital Retained earnings Treasury stock, at cost (569,079 and 509,079 shares, respectively) Accumulated other comprehensive loss Total stockholders' equity Total liabilities and stockholders' equity 5,718 4,478 990 (38,531) 3,945 (4,776) 421 $19,024 $(24,905) 1,069,450 $6,610 954,426 - 70 17,525 17,598 24,644 36,958 24,058 31,652 $256,205 1,101,352 $276,055 1,018,652 1,357,557 1,294,707 1,153 - 31,554 25,954 17,647 36,298 7,366 11,858 1,020 11,432 1,018 11,138 (13,905) (32,510) (12,534) (36,988) 140,863 127,231 $1,574,728 $1,477,460 Preferred stock (no par value; authorized 500,000 shares) - - $1,574,728 $1,477,460 Total assets Other comprehensive loss Other assets Net income Cash dividends ($.54 per share) LIABILITIES AND STOCKHOLDERS’ EQUITY Purchase of treasury stock (44,760 shares) Marketable equity securities and other investments Other comprehensive loss Loans held for sale Cash dividends ($.42 per share) Loans, net of allowance for credit losses of $14,195 and $14,541, Purchase of treasury stock (131,500 shares) respectively Stock-based compensation expense Foreclosed assets and other real estate owned, net Restricted stock vested (7,854 shares) Premises and equipment, net 2 - - - - - - - - - 16 239 254 11,386 - (1,544) - - - - 365,618 - 391,334 254 3,596 - 4,076 11,386 5,718 (4,776) 990 - - - (4,172) - - 1,069,450 - 17,525 3,945 (4,776) 421 (1,544) (4,172) 954,426 16 70 241 17,598 Balance – December 31, 2021 Bank owned life insurance 1,015 10,768 152,903 (11,002) 24,644 1,543 155,227 24,058 - - - - - 3 - - - - 25 345 13,626 - (1,932) - - - - - - (1,532) - - 1,018 11,138 164,597 (12,534) 36,958 - 31,652 13,626 $1,574,728 (38,531) $1,477,460 (38,531) - - - - (1,932) (1,532) 25 348 - - - - - - - - - - - 16 278 (2,029) 14,546 - (2,288) - - - (36,988) $256,205 1,101,352 1,357,557 1,153 31,554 - - 25,954 4,478 17,647 - - - - (1,371) 1,433,865 - - 127,231 $276,055 1,018,652 1,294,707 (2,029) - 14,546 36,298 4,478 7,366 (2,288) 11,858 (1,371) 1,350,229 16 280 $11,432 $174,826 $(13,905) - $(32,510) - $140,863 Stock-based compensation expense Liabilities: Restricted stock vested (11,406 shares) Deposits: Balance – December 31, 2022 Noninterest-bearing Interest-bearing Effect of change in accounting principle - Total deposits Adoption of ASU 2016-13 Federal funds purchased Net income Securities sold under agreements to repurchase Other comprehensive income Federal Home Loan Bank (FHLB) and other borrowings Cash dividends ($.64 per share) Accrued interest payable and other liabilities Stockholders' equity: Restricted stock vested (8,810 shares) Preferred stock (no par value; authorized 500,000 shares) Balance – December 31, 2023 Common stock ($.25 par value; authorized 10,000,000 shares; 4,080,304 and 4,071,494 shares issued, respectively) Additional paid-in capital $1,020 2 - - - - - - - - 174,826 164,597 Retained earnings Treasury stock, at cost (569,079 and 509,079 shares, respectively) Accumulated other comprehensive loss Total stockholders' equity Total liabilities and stockholders' equity 1,020 11,432 1,018 11,138 174,826 164,597 (13,905) (32,510) (12,534) (36,988) 140,863 127,231 $1,574,728 $1,477,460 Total liabilities 1,433,865 1,350,229 Purchase of treasury stock (60,000 shares) Total liabilities Stock-based compensation expense See Notes to Consolidated Financial Statements See Notes to Consolidated Financial Statements See Notes to Consolidated Financial Statements See Notes to Consolidated Financial Statements 13 2023 Annual Report ASSETS CASH FLOWS FROM OPERATING ACTIVITIES: Cash and due from banks Interest-bearing deposits in banks Federal funds sold Net income Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: Total cash and cash equivalents Provision for credit losses Interest-bearing deposits in banks - term deposits Foreclosed asset valuation losses Depreciation Debt securities: Net amortization of securities premiums Debt securities available-for-sale (AFS) Originations of loans held-for-sale Debt securities held-to-maturity (HTM) Proceeds from sales of loans held-for-sale Marketable equity securities and other investments Net gains on sales of mortgage loans Loans held for sale Income on bank owned life insurance Loans, net of allowance for credit losses of $14,195 and $14,541, Gain on death benefits respectively Deferred income tax expense (benefit) Foreclosed assets and other real estate owned, net Stock-based compensation expense Premises and equipment, net Restricted stock expense Bank owned life insurance Net loss (gain) on the sales and calls of AFS securities Other assets Net gain on the sales of foreclosed assets Change in mortgage servicing rights Total assets Net change in: Other assets Accrued interest payable and other liabilities LIABILITIES AND STOCKHOLDERS’ EQUITY Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Liabilities: Net change in interest-bearing deposits in banks - term deposits Proceeds from sales of AFS securities Deposits: Noninterest-bearing Interest-bearing Proceeds from maturities, call, and paydowns of AFS securities Proceeds from maturities, call, and paydowns of HTM securities Total deposits Purchases of AFS securities Federal funds purchased Purchases of bank owned life insurance Securities sold under agreements to repurchase Proceeds from death benefits of bank owned life insurance Federal Home Loan Bank (FHLB) and other borrowings (Purchase) redemption of marketable equity securities, net Accrued interest payable and other liabilities Loan originations and principal collections, net Total liabilities Proceeds from sale of foreclosed assets Purchases of premises and equipment, net Stockholders' equity: Net cash used in investing activities Preferred stock (no par value; authorized 500,000 shares) CASH FLOWS FROM FINANCING ACTIVITIES: Net change in deposits Common stock ($.25 par value; authorized 10,000,000 shares; Net change in securities sold under agreements to repurchase 4,080,304 and 4,071,494 shares issued, respectively) Additional paid-in capital Cash dividends paid Consolidated Balance Sheets Consolidated Statements of Cash Flows (000s omitted except share data) (000s omitted except share data) December 31, 2023 and 2022 December 31, 2023, 2022, and 2021 2023 2022 2021 2023 2022 $22,168 $28,354 $14,546 $13,626 20,828 2,722 45,718 1,105 552 - 4,511 64 1,098 2,160 (21,310) 21,184 (443) (585) - 1,106 3,019 365,618 (39,073) 3,596 5,718 41,631 (725) 990 (547) (33) 292 1,069,450 115 16 - 25 7,975 $11,386 7,493 43,822 756 195 6,058 1,053 4,570 391,334 (89,783) 4,076 92,511 3,945 (2,136) 421 (504) (50) 954,426 (86) 70 16 280 17,525 348 241 17,598 185 24,644 246 (43) (67) 36,958 (262) (1,208) $1,574,728 (126) 24,058 (121) 31,652 (523) $1,477,460 (6,507) 5,796 $17,707 (270) 1,463 (878) 2,138 $20,077 $18,659 1,547 6,140 3,086 13,501 25,707 10,348 $256,205 1,101,352 45,029 510 (9,604) 345 1,357,557 1,153 (64,023) - - (1,773) (119,588) 31,554 (930) 662 25,954 (1,678) 17,647 (109,201) 733 1,433,865 237 16,899 $276,055 115,632 1,018,652 340 1,294,707 (219,357) - - 36,298 938 7,366 (975) 11,858 (28,059) 1,350,229 266 (1,025) (89,992) (1,573) (455) (114,644) (111,685) - - 62,843 59,263 80,984 (4,744) (2,288) 1,020 11,432 (1,932) 1,189 3,960 1,018 11,138 (1,544) Retained earnings Net change in federal funds purchased 1,153 174,826 (533) 164,597 (1,591) Purchase of treasury stock Treasury stock, at cost (569,079 and 509,079 shares, respectively) Proceeds from FHLB and other borrowings Accumulated other comprehensive loss Payments on FHLB and other borrowings Total stockholders' equity Net cash provided by financing activities Total liabilities and stockholders' equity Net Increase (Decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year (1,371) (13,905) (1,532) 64,441 (32,510) 18,950 (45,853) 140,863 (28,660) 46,745 $1,574,728 (47,822) (4,172) (12,534) 5,000 (36,988) (22,712) 127,231 59,925 $1,477,460 (33,101) 91,644 $43,822 124,745 $91,644 74,181 1,896 43,822 $45,718 14 See Notes to Consolidated Financial Statements See Notes to Consolidated Financial Statements 2023 Annual Report CASH FLOWS FROM OPERATING ACTIVITIES: Cash and due from banks Interest-bearing deposits in banks Net income Federal funds sold Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: Total cash and cash equivalents Provision for credit losses Interest-bearing deposits in banks - term deposits Foreclosed asset valuation losses Depreciation Debt securities: Net amortization of securities premiums Debt securities available-for-sale (AFS) Originations of loans held-for-sale Debt securities held-to-maturity (HTM) Proceeds from sales of loans held-for-sale Marketable equity securities and other investments Net gains on sales of mortgage loans Loans held for sale Income on bank owned life insurance Loans, net of allowance for credit losses of $14,195 and $14,541, Gain on death benefits respectively Deferred income tax expense (benefit) Foreclosed assets and other real estate owned, net Stock-based compensation expense Premises and equipment, net Restricted stock expense Bank owned life insurance Net loss (gain) on the sales and calls of AFS securities Other assets Net gain on the sales of foreclosed assets Change in mortgage servicing rights Total assets Net change in: Other assets LIABILITIES AND STOCKHOLDERS’ EQUITY Accrued interest payable and other liabilities Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Liabilities: Net change in interest-bearing deposits in banks - term deposits Deposits: Proceeds from sales of AFS securities Noninterest-bearing Proceeds from maturities, call, and paydowns of AFS securities Interest-bearing Proceeds from maturities, call, and paydowns of HTM securities Total deposits Purchases of AFS securities Federal funds purchased Purchases of bank owned life insurance Securities sold under agreements to repurchase Proceeds from death benefits of bank owned life insurance Federal Home Loan Bank (FHLB) and other borrowings (Purchase) redemption of marketable equity securities, net Accrued interest payable and other liabilities Loan originations and principal collections, net Proceeds from sale of foreclosed assets Total liabilities Purchases of premises and equipment, net Stockholders' equity: Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Preferred stock (no par value; authorized 500,000 shares) Net change in deposits Common stock ($.25 par value; authorized 10,000,000 shares; 4,080,304 and 4,071,494 shares issued, respectively) Net change in securities sold under agreements to repurchase Additional paid-in capital Cash dividends paid Retained earnings Net change in federal funds purchased Purchase of treasury stock Treasury stock, at cost (569,079 and 509,079 shares, respectively) Proceeds from FHLB and other borrowings Accumulated other comprehensive loss Payments on FHLB and other borrowings Total stockholders' equity Net cash provided by financing activities Total liabilities and stockholders' equity Net Increase (Decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Consolidated Balance Sheets Consolidated Statements of Cash Flows (000s omitted except share data) (000s omitted except share data) December 31, 2023 and 2022 December 31, 2023, 2022, and 2021 2023 2022 2023 2022 2021 $22,168 $28,354 $14,546 20,828 $13,626 2,722 45,718 7,975 $11,386 7,493 43,822 756 1,053 4,570 391,334 (89,783) 4,076 92,511 3,945 (2,136) 421 (504) (50) 552 64 1,106 3,019 (725) (547) (33) 1,105 1,098 2,160 (443) (585) - 365,618 (21,310) 21,184 3,596 (39,073) 41,631 5,718 990 (6,507) 5,796 $17,707 1,547 13,501 (270) 1,463 (878) 2,138 $20,077 $18,659 6,140 3,086 $256,205 10,348 16,899 $276,055 25,707 1,101,352 45,029 1,018,652 115,632 510 (9,604) 345 1,357,557 1,153 (64,023) 1,294,707 340 (219,357) - - - 31,554 (930) 662 (1,773) (119,588) 25,954 (1,678) 17,647 (109,201) 733 1,433,865 237 - 36,298 938 7,366 (975) 11,858 (28,059) 1,350,229 266 (1,025) (89,992) (1,573) (455) (114,644) (111,685) (1,371) (13,905) (1,532) (12,534) (4,172) 64,441 (32,510) 18,950 (36,988) 5,000 (45,853) 140,863 (28,660) 46,745 $1,574,728 (22,712) 127,231 59,925 $1,477,460 (33,101) 124,745 $91,644 (47,822) 91,644 $43,822 74,181 1,896 43,822 $45,718 ASSETS ASSETS Cash and due from banks SUPPLEMENTAL DISCLOSURES OF CASH FLOW Interest-bearing deposits in banks Federal funds sold INFORMATION: Cash paid for: Total cash and cash equivalents Interest - 4,511 6,058 195 Interest-bearing deposits in banks - term deposits Taxes Debt securities: Debt securities available-for-sale (AFS) SUPPLEMENTAL DISCLOSURES OF NONCASH Debt securities held-to-maturity (HTM) FINANCING ACTIVITIES: Marketable equity securities and other investments Foreclosed assets acquired in settlement of loans Loans held for sale Loans, net of allowance for credit losses of $14,195 and $14,541, 292 1,069,450 115 954,426 (86) 16 - 25 70 16 respectively Foreclosed assets and other real estate owned, net 280 17,525 348 17,598 241 Premises and equipment, net 185 24,644 246 (43) (67) 36,958 (262) (1,208) $1,574,728 24,058 (126) 31,652 (121) (523) $1,477,460 Bank owned life insurance Other assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Deposits: Noninterest-bearing Interest-bearing Total deposits Federal funds purchased Securities sold under agreements to repurchase Federal Home Loan Bank (FHLB) and other borrowings Accrued interest payable and other liabilities Total liabilities Stockholders' equity: Consolidated Balance Sheets Consolidated Statements of Cash Flows (000s omitted except share data) (000s omitted except share data) December 31, 2023 and 2022 December 31, 2023, 2022, and 2021 2023 2022 2023 2022 2021 $22,168 $28,354 20,828 2,722 45,718 7,975 7,493 43,822 $19,940 $6,505 $6,441 $3,600 4,511 $2,882 6,058 $3,109 $620 365,618 391,334 3,596 4,076 5,718 $70 990 3,945 $67 421 1,069,450 954,426 - 70 17,525 17,598 24,644 36,958 24,058 31,652 $1,574,728 $1,477,460 $256,205 1,101,352 $276,055 1,018,652 1,357,557 1,294,707 1,153 - 31,554 25,954 17,647 36,298 7,366 11,858 1,433,865 1,350,229 - - Preferred stock (no par value; authorized 500,000 shares) - - 62,843 59,263 80,984 (4,744) 1,020 1,189 1,018 3,960 (2,288) 11,432 (1,932) 11,138 (1,544) Common stock ($.25 par value; authorized 10,000,000 shares; 4,080,304 and 4,071,494 shares issued, respectively) Additional paid-in capital 1,153 174,826 (533) 164,597 (1,591) Retained earnings Treasury stock, at cost (569,079 and 509,079 shares, respectively) Accumulated other comprehensive loss Total stockholders' equity Total liabilities and stockholders' equity 1,020 11,432 1,018 11,138 174,826 164,597 (13,905) (32,510) (12,534) (36,988) 140,863 127,231 $1,574,728 $1,477,460 See Notes to Consolidated Financial Statements See Notes to Consolidated Financial Statements See Notes to Consolidated Financial Statements See Notes to Consolidated Financial Statements 15 2023 Annual Report (1) Summary of Significant Accounting Policies Notes to Consolidated Financial Statements (000s omitted except share data) The accounting and reporting principles of Foresight Financial Group, Inc. (Company) and its wholly-owned subsidiaries (Banks) conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. The following is a description of the more significant accounting policies: (a) Nature of Operations The Company provides a variety of banking services to individuals and businesses through its facilities in the Rockford, Freeport, German Valley, Davis, Lena, Winnebago, Pecatonica, Kankakee, Loves Park, Machesney Park, Belvidere, and Herscher, Illinois areas. Its primary deposit products are demand deposits and certificates of deposit and its primary lending products are agriculture, agribusiness, commercial, real estate, and installment loans. (b) Basis of Consolidation The financial statements include the accounts and results of operations of the Company and its wholly- owned subsidiaries: German-American State Bank (German), State Bank of Davis (Davis), State Bank (Freeport), Northwest Bank of Rockford (Northwest), Lena State Bank (Lena), and State Bank of Herscher (Herscher) (collectively the “Banks”). All significant intercompany accounts and transactions have been eliminated in consolidation. (c) Subsequent Events The Company has evaluated subsequent events for recognition and disclosure through March 12, 2024, which is the date the financial statements were available to be issued. (d) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The allowance for credit losses, deferred tax assets, fair values of securities, foreclosed assets and financial instruments are particularly susceptible to change in the near-term. (e) Cash and Cash Equivalents For purposes of the statements of cash flows, cash and cash equivalents include cash and due from banks, interest-bearing deposits in banks, and federal funds sold, all of which generally mature within ninety days. (f) Interest-bearing Deposits in Banks Interest-bearing deposits in banks are comprised of liquid non-maturing deposits but also include some balances in time deposits with the maturity being the determining factor for inclusion in cash and cash equivalents with the non-maturing interest-bearing deposits. Interest-bearing deposits in banks are carried at cost. 16 2023 Annual Report (1) Summary of Significant Accounting Policies The accounting and reporting principles of Foresight Financial Group, Inc. (Company) and its wholly-owned subsidiaries (Banks) conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. The following is a description of the more significant accounting policies: (a) Nature of Operations The Company provides a variety of banking services to individuals and businesses through its facilities in the Rockford, Freeport, German Valley, Davis, Lena, Winnebago, Pecatonica, Kankakee, Loves Park, Machesney Park, Belvidere, and Herscher, Illinois areas. Its primary deposit products are demand deposits and certificates of deposit and its primary lending products are agriculture, agribusiness, commercial, real estate, and installment loans. (b) Basis of Consolidation The financial statements include the accounts and results of operations of the Company and its wholly- owned subsidiaries: German-American State Bank (German), State Bank of Davis (Davis), State Bank (Freeport), Northwest Bank of Rockford (Northwest), Lena State Bank (Lena), and State Bank of Herscher (Herscher) (collectively the “Banks”). All significant intercompany accounts and transactions have been eliminated in consolidation. (c) Subsequent Events The Company has evaluated subsequent events for recognition and disclosure through March 12, 2024, which is the date the financial statements were available to be issued. (d) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The allowance for credit losses, deferred tax assets, fair values of securities, foreclosed assets and financial instruments are particularly susceptible to change in the near-term. (e) Cash and Cash Equivalents ninety days. (f) Interest-bearing Deposits in Banks For purposes of the statements of cash flows, cash and cash equivalents include cash and due from banks, interest-bearing deposits in banks, and federal funds sold, all of which generally mature within Interest-bearing deposits in banks are comprised of liquid non-maturing deposits but also include some balances in time deposits with the maturity being the determining factor for inclusion in cash and cash equivalents with the non-maturing interest-bearing deposits. Interest-bearing deposits in banks are carried at cost. Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) (1) Summary of Significant Accounting Policies (continued) (g) Debt Securities Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity (HTM) and recorded at amortized cost. Securities not classified as HTM are classified as available for sale (AFS) and recorded at fair value, with unrealized gains or losses excluded from earnings and reported in other comprehensive income or loss. Amortization of premiums and accretion of discounts are recognized in interest income using the interest method. Premiums that exceed the amount repayable by the issuer at the next call date are amortized to the next call date. Other premiums and discounts are amortized (accreted) over the estimated lives of the securities. Gains and losses on the sale of securities are recorded on the trade date and determined using the specific- identification method. Effective January 1, 2023, the Company uses a current expected credit loss ("CECL") model to estimate the allowance for credit losses on securities held to maturity. The CECL model considers historical loss rates and other qualitative adjustments, as well as a new forward-looking component that considers reasonable and supportable forecasts over the expected life. Management believes the Company will collect all amounts owed on securities held to maturity which are issued by highly rated municipalities or local municipalities with which the Company holds significant banking relationships. Management evaluates municipal securities held to maturity using a probability of default method. The probability of default method estimates the probability a security with a certain credit rating or issuer characteristics will default during its remaining contractual term (probability of default) and how much loss is expected to be incurred if a security defaults (loss given default rate). The Company obtains information from our historical loss rate to estimate the probability of default for each credit rating based on the remaining term of the security and the loss given default rate with the exception of certain immaterial held to maturity securities. The past due status of each security is based on the contractual terms of the security. The accrual of interest on a security is discontinued when the security becomes 90 days delinquent or whenever management believes the issuer will be unable to make payments as they become due. When securities are placed on nonaccrual status, all unpaid accrued interest is reversed against interest income. The Company excludes accrued interest receivable from the amortized cost basis of securities held to maturity when estimating credit losses and when presenting required disclosures in the financial statements. There was $6 and $7 of accrued interest receivable on held to maturity securities as of December 31, 2023 and 2022, respectively. The Company conducts periodic reviews of available-for-sale securities with declines in fair value below their cost to evaluate for potential impairment. In evaluating available-for-sale securities for potential impairment, management considers (1) the length of time and the extent to which the fair value has been less than amortized cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. If the Company determines that it is more likely than not that it will sell the security before recovery of its amortized cost basis, the Company will record an allowance for credit losses related to securities available-for-sale with an offsetting entry to the provision for credit losses on securities on the statement of operations. Prior to the adoption of ASU 2016-13 (CECL) on January 1, 2023, the Company evaluated its available for sale securities in accordance with the methodology specified in the preceding paragraph except that the credit portion of the impairment would reduce the amortized cost basis of the security. 17 2023 Annual Report (1) Summary of Significant Accounting Policies (continued) (h) Marketable Equity Securities and Other Investments Notes to Consolidated Financial Statements (000s omitted except share data) Marketable equity securities have a readily determinable fair value and are measured at fair value with changes in fair value reported in net income. Gains and losses on the sale of marketable equity securities are recorded on the trade date and determined using the specific-identification method. Other investments include equity securities without a readily determinable fair value which consists primarily of Federal Home Loan Bank (FHLB) stock and a participating interest in an energy LLC. The Company has elected to account for equity securities without readily determinable fair values using the alternative measurement method. Under this method, those securities are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment. The Company is required to hold FHLB stock as a member of the FHLB and transfer of the stock is substantially restricted. The FHLB stock is pledged as collateral for outstanding FHLB advances. FHLB stock is evaluated for impairment on an annual basis. (i) Loans Held for Sale Loans originated and intended for sale in the secondary market are carried at the lower of cost or market in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. Mortgage loans held for sale are generally sold with servicing rights retained by the Company. The carrying value of mortgage loans sold is reduced by the cost allocated to the associated mortgage servicing rights. Realized 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. (j) Loans Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff; generally, are reported at their outstanding unpaid principal balances adjusted for purchase premiums or discounts, charge-offs, and an allowance for credit losses. Interest on loans is accrued daily based on the unpaid principal balance. A loan is considered to be delinquent when payments have not been made according to contractual terms, typically evidenced by nonpayment of a monthly installment by the due date. The accrual of interest on a loan is generally discontinued when the loan becomes 90 days delinquent unless the credit is well-secured and in the process of collection. Credit card loans and other personal loans are typically charged off at an earlier date if collection of principal or interest is considered doubtful. Generally, interest accrued but not collected for loans that are placed on nonaccrual status or charged off is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost- recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. Loan-origination fees and direct origination costs are generally recognized as income or expense when received or incurred since capitalization of these fees and costs would not have a significant impact on the financial statements. 18 2023 Annual Report (1) Summary of Significant Accounting Policies (continued) (1) Summary of Significant Accounting Policies (continued) (h) Marketable Equity Securities and Other Investments (k) Allowance for Credit Losses and Unfunded Commitments Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) Marketable equity securities have a readily determinable fair value and are measured at fair value with changes in fair value reported in net income. Gains and losses on the sale of marketable equity securities are recorded on the trade date and determined using the specific-identification method. Other investments include equity securities without a readily determinable fair value which consists primarily of Federal Home Loan Bank (FHLB) stock and a participating interest in an energy LLC. The Company has elected to account for equity securities without readily determinable fair values using the alternative measurement method. Under this method, those securities are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment. The Company is required to hold FHLB stock as a member of the FHLB and transfer of the stock is substantially restricted. The FHLB stock is pledged as collateral for outstanding FHLB advances. FHLB stock is evaluated for impairment on an annual basis. (i) Loans Held for Sale to income. (j) Loans Loans originated and intended for sale in the secondary market are carried at the lower of cost or market in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges Mortgage loans held for sale are generally sold with servicing rights retained by the Company. The carrying value of mortgage loans sold is reduced by the cost allocated to the associated mortgage servicing rights. Realized 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. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff; generally, are reported at their outstanding unpaid principal balances adjusted for purchase premiums or discounts, charge-offs, and an allowance for credit losses. Interest on loans is accrued daily based on the unpaid principal balance. A loan is considered to be delinquent when payments have not been made according to contractual terms, typically evidenced by nonpayment of a monthly installment by the due date. The accrual of interest on a loan is generally discontinued when the loan becomes 90 days delinquent unless the credit is well-secured and in the process of collection. Credit card loans and other personal loans are typically charged off at an earlier date if collection of principal or interest is considered doubtful. Generally, interest accrued but not collected for loans that are placed on nonaccrual status or charged off is reversed against interest income. The interest on these loans is accounted for on the cash basis or cost- recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. Loan-origination fees and direct origination costs are generally recognized as income or expense when received or incurred since capitalization of these fees and costs would not have a significant impact on the financial statements. The allowance for credit losses (ACL) on loans is a valuation allowance that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the Company's loan portfolio. The ACL on loans is established through provisions for credit losses charged against earnings. When available information confirms that specific loans, or portions thereof, are uncollectible, these amounts are charged against the ACL on loans, and subsequent recoveries, if any, are credited to the ACL on loans. Effective January 1, 2023, the Company uses a current expected credit loss ("CECL") model to estimate the ACL on loans. The CECL model considers historical loss rates and other qualitative adjustments, as well as a new forward-looking component that considers reasonable and supportable forecasts over the expected life of each loan. To develop the ACL on loans estimate under the CECL model, the Company segments the loan portfolio into loan pools based on loan type and similar credit risk elements; performs an individual evaluation of certain collateral dependent and other credit- deteriorated loans; calculates the historical loss rates for the segmented loan pools; applies the loss rates over the calculated life of the collectively evaluated loan pools; adjusts for forecasted macro-level economic conditions and other anticipated changes in credit quality; and determines qualitative adjustments based on factors and conditions unique to the Company's loan portfolio. Management considers the following when assessing the risk in the loan portfolio segments:  Residential real estate loans are affected by the local residential real estate market, the local economy, and, for variable rate mortgages, movement in indices tied to these loans. At the time of origination, the Company evaluates the borrower's repayment ability through a review of debt- to-income and credit scores. Appraisals are generally obtained to support the loan amount. Financial information is obtained from the borrowers and/or the individual project to evaluate sufficiency of cash flows to service debt at the time of origination.  Agricultural and commercial real estate loans are dependent on the industries tied to these loans. Agricultural real estate loans are primarily for land acquisition. Commercial real estate loans are primarily secured by office and industrial buildings, warehouses, retail shopping facilities and various special purpose properties, including hotels and restaurants. Financial information is obtained from the borrowers and/or the individual project to evaluate sufficiency of cash flows to service debt; and is periodically updated during the life of the loan. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market, such as geographic location and/or property type.  Commercial and agricultural loans are primarily for working capital, physical asset expansion, asset acquisition loans and other. These loans are made based primarily on historical and projected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic or individual performance factors. Financial information is obtained from the borrowers to evaluate sufficiency of cash flows to service debt and is periodically updated during the life of the loan.  Consumer and other loans may take the form of installment loans, demand loans, or single payment loans and are extended to individuals for household, family, and other personal expenditures. At the time of origination, the Company evaluates the borrower's repayment ability through a review of debt-to-income and credit score. Under the CECL model, loans that do not share similar risk characteristics with loans in their respective pools are individually evaluated for expected credit losses and are excluded from the collectively evaluated loan credit loss estimates. 19 2023 Annual Report (1) Summary of Significant Accounting Policies (continued) (k) Allowance for Credit Losses and Unfunded Commitments (continued) Notes to Consolidated Financial Statements (000s omitted except share data) Management evaluates all collectively evaluated loan pools using the weighted average remaining life ("remaining life") methodology. The remaining life methodology applies calculated quarterly net loss rates to collectively evaluated loan pools on a periodic basis based on the estimated remaining life of each pool. The estimated losses under the remaining life methodology are then adjusted for qualitative factors deemed appropriate by management. The estimated remaining life of each pool is determined using quarterly, pool-based attrition measurements using the Company's loan-level historical data. The Company's historical call report data is utilized for historical loss rate calculations, and the lookback period for each collectively evaluated loan pool is determined by management based upon the estimated remaining life of the pool. Forecasted historical loss rates are calculated using the Company's historical data based on the lookback and forecast period inputs by management. The quantitative analysis described above is supplemented with other qualitative factors based on the risks present for each collectively evaluated loan pool. These qualitative factors include: levels of and trends in delinquencies and nonaccrual loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. In addition to the ACL on loans, the Company maintains a reserve for unfunded loan commitments at a level that management believes is adequate to absorb estimated probable credit losses over the contractual terms of the Company’s noncancellable loan commitments. The reserve for unfunded loan commitments, which is included in accrued interest payable and other liabilities on the accompanying Consolidated Balance Sheets, is established through provisions for credit losses charged against earnings. Unfunded loan commitments are segmented into the same pools used for estimating the ACL on loans. Estimated credit losses on unfunded loan commitments are based on the same methodology, inputs, and assumptions used to estimate credit losses on collectively evaluated loans, adjusted for estimated funding probabilities. The estimated funding probabilities represent management's estimate of the amount of the current unfunded loan commitment that will be funded over the remaining contractual life of the commitment and is based on historical data. The Company may modify loans to borrowers experiencing financial difficulty and grant certain concessions that include principal forgiveness, a term extension, an other-than-insignificant payment delay, an interest rate reduction, or a combination of these concessions. An assessment of whether the borrower is experiencing financial difficulty is made at the time of the loan modification. Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL is adjusted by the same amount. Prior to the implementation of ASU 2016-13 (CECL) on January 1, 2023, the ACL was subject to the guidance included in ASC 310 and ASC 450. Under that guidance, the Company was required to use an incurred loss methodology to estimate credit losses that were estimated to be incurred in the loan portfolio and that could ultimately materialize into confirmed losses in the form of charge-offs. The incurred loss methodology was a backward-looking approach to loss recognition and based on the concept of a triggering event having taken place, causing a loss to be inherent within the portfolio. Additionally, loans that were identified as impaired under the definition of ASC 310, were required to be assessed on an individual basis. The ACL and resulting provision expense levels for comparative periods presented were estimated in accordance with these requirements. 20 2023 Annual Report (1) Summary of Significant Accounting Policies (continued) (1) Summary of Significant Accounting Policies (continued) (k) Allowance for Credit Losses and Unfunded Commitments (continued) (k) Allowance for Credit Losses and Unfunded Commitments (continued) Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) Management evaluates all collectively evaluated loan pools using the weighted average remaining life ("remaining life") methodology. The remaining life methodology applies calculated quarterly net loss rates to collectively evaluated loan pools on a periodic basis based on the estimated remaining life of each pool. The estimated losses under the remaining life methodology are then adjusted for qualitative factors deemed appropriate by management. The estimated remaining life of each pool is determined using quarterly, pool-based attrition measurements using the Company's loan-level historical data. The Company's historical call report data is utilized for historical loss rate calculations, and the lookback period for each collectively evaluated loan pool is determined by management based upon the estimated remaining life of the pool. Forecasted historical loss rates are calculated using the Company's historical data based on the lookback and forecast period inputs by management. The quantitative analysis described above is supplemented with other qualitative factors based on the risks present for each collectively evaluated loan pool. These qualitative factors include: levels of and trends in delinquencies and nonaccrual loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. In addition to the ACL on loans, the Company maintains a reserve for unfunded loan commitments at a level that management believes is adequate to absorb estimated probable credit losses over the contractual terms of the Company’s noncancellable loan commitments. The reserve for unfunded loan commitments, which is included in accrued interest payable and other liabilities on the accompanying Consolidated Balance Sheets, is established through provisions for credit losses charged against earnings. Unfunded loan commitments are segmented into the same pools used for estimating the ACL on loans. Estimated credit losses on unfunded loan commitments are based on the same methodology, inputs, and assumptions used to estimate credit losses on collectively evaluated loans, adjusted for estimated funding probabilities. The estimated funding probabilities represent management's estimate of the amount of the current unfunded loan commitment that will be funded over the remaining contractual life of the commitment and is based on historical data. The Company may modify loans to borrowers experiencing financial difficulty and grant certain concessions that include principal forgiveness, a term extension, an other-than-insignificant payment delay, an interest rate reduction, or a combination of these concessions. An assessment of whether the borrower is experiencing financial difficulty is made at the time of the loan modification. Upon the Company's determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL is adjusted by the same amount. Prior to the implementation of ASU 2016-13 (CECL) on January 1, 2023, the ACL was subject to the guidance included in ASC 310 and ASC 450. Under that guidance, the Company was required to use an incurred loss methodology to estimate credit losses that were estimated to be incurred in the loan portfolio and that could ultimately materialize into confirmed losses in the form of charge-offs. The incurred loss methodology was a backward-looking approach to loss recognition and based on the concept of a triggering event having taken place, causing a loss to be inherent within the portfolio. Additionally, loans that were identified as impaired under the definition of ASC 310, were required to be assessed on an individual basis. The ACL and resulting provision expense levels for comparative periods presented were estimated in accordance with these requirements. Under the incurred loss methodology, the allowance for loan losses was a valuation allowance for probable incurred credit losses. Loan losses were charged against the allowance when management believed the uncollectibility of a loan balance was confirmed. Subsequent recoveries, if any, were credited to the allowance. Management estimated the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance could be made for specific loans, but the entire allowance was available for any loan that, in management's judgment, should be charged off. The allowance consisted of specific and general components. The specific component related to loans that were individually classified as impaired. A loan was impaired when, based on current information and events, it was probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms had been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, were considered troubled debt restructurings (TDRs) and classified as impaired. Factors considered by management in determining impairment included payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experienced insignificant payment delays and payment shortfalls generally were not classified as impaired. Management determined the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. All problem loans meeting Company criteria were individually evaluated for impairment. If a loan was impaired, a portion of the allowance was allocated so that the loan was reported, net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment was expected from the collateral. TDRs were individually evaluated for impairment and included in the separately identified impairment disclosures. TDRs were measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a TDR was considered to be a collateral dependent loan, the loan was reported, net, at the fair value of the collateral. For TDRs that subsequently defaulted, the Company determined the amount of the allowance on that loan in accordance with the accounting policy for the allowance for loan losses on loans individually identified as impaired. The general component covered loans that were collectively evaluated for impairment. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, were collectively evaluated for impairment, and accordingly, they were not included in the impairment disclosures. The general allowance component also included loans that were not individually identified for impairment evaluation, such as commercial loans below the individual evaluation threshold, as well as those loans that are individually evaluated but were not considered impaired. The general component was based on historical loss experience adjusted for current qualitative factors. The historical loss experience was determined by portfolio segment or loan class and was based on the actual loss history experienced by the Company. This actual loss experience was supplemented with other economic factors based on the risks present for each portfolio segment or loan class. These economic factors included: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and employees; national and economic trends and conditions; industry conditions; and effects of changes in credit concentrations. 21 2023 Annual Report (1) Summary of Significant Accounting Policies (continued) (l) Loan Commitments Notes to Consolidated Financial Statements (000s omitted except share data) The Company enters into off-balance-sheet financial instruments consisting of commitments to extend credit and letters of credit issued to meet customer-financing needs. Loan commitments are recorded when they are funded. Standby or performance letters of credit are considered financial guarantees in accordance with Generally Accepted Accounting Standards and are recorded at fair value if material. (m) Loan Servicing The Company services mortgage loans it sells to third-party institutions. Servicing loans includes collecting monthly principal and interest payments from borrowers, passing such payments through to the third-party investors, and maintaining escrow accounts for taxes and insurance. When necessary, the Company also performs collection functions for delinquent loan payments, handles loan foreclosure proceedings, and disposes of foreclosed property. The Company generally earns a servicing fee of 25 basis points on the outstanding loan balance for performing these services as well as fees and interest income from ancillary sources, such as late fees and float. (n) Rate Lock Commitments Commitments to fund mortgage loans (interest-rate lock) to be sold into the secondary market and mandatory delivery forward commitments for the future delivery of these mortgage loans are to be accounted for as derivatives not qualifying for hedge accounting. The fair values of these mortgage derivatives are to be estimated based on the net future cash flows related to the associated servicing of the loans and on changes in mortgage interest rates from the date of the commitments. Changes in fair values on these derivatives are to be included in net gains on sales of loans. The Company has deemed the effect of these derivatives to be immaterial to the financial statements, and, accordingly, has elected not to record fair values associated with these derivatives. (o) Foreclosed Assets and Other Real Estate Owned Assets acquired through or instead of loan foreclosure are initially recorded at fair value less estimated cost of disposal when acquired. Subsequent to foreclosure and transfer to other real estate owned, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenues and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets and other real estate owned. (p) Premises and Equipment Premises and equipment are carried at cost less accumulated depreciation, based on the estimated useful lives of the assets. Depreciation is generally computed on the straight-line method over estimated useful lives ranging from 3 to 40 years as indicated below: 3 – 5 Years Technology equipment (computers, copiers, etc.), company vehicles 5 – 10 Years Furnishings, building infrastructure and major repairs, security technology 10 – 20 Years Remodeling / updates of existing facilities, parking lots 20 – 40 Years Major facility renovations, building expansions, new facilities (q) Bank-Owned Life Insurance The Company has purchased life insurance policies on certain key employees and directors. Bank- owned life insurance is recorded at its cash surrender value, or the amount that could be realized upon immediate liquidation. 22 2023 Annual Report (1) Summary of Significant Accounting Policies (continued) (1) Summary of Significant Accounting Policies (continued) (l) Loan Commitments (r) Significant Group Concentrations of Credit Risk Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) The Company enters into off-balance-sheet financial instruments consisting of commitments to extend credit and letters of credit issued to meet customer-financing needs. Loan commitments are recorded when they are funded. Standby or performance letters of credit are considered financial guarantees in accordance with Generally Accepted Accounting Standards and are recorded at fair value if material. (m) Loan Servicing The Company services mortgage loans it sells to third-party institutions. Servicing loans includes collecting monthly principal and interest payments from borrowers, passing such payments through to the third-party investors, and maintaining escrow accounts for taxes and insurance. When necessary, the Company also performs collection functions for delinquent loan payments, handles loan foreclosure proceedings, and disposes of foreclosed property. The Company generally earns a servicing fee of 25 basis points on the outstanding loan balance for performing these services as well as fees and interest income from ancillary sources, such as late fees and float. (n) Rate Lock Commitments Commitments to fund mortgage loans (interest-rate lock) to be sold into the secondary market and mandatory delivery forward commitments for the future delivery of these mortgage loans are to be accounted for as derivatives not qualifying for hedge accounting. The fair values of these mortgage derivatives are to be estimated based on the net future cash flows related to the associated servicing of the loans and on changes in mortgage interest rates from the date of the commitments. Changes in fair values on these derivatives are to be included in net gains on sales of loans. The Company has deemed the effect of these derivatives to be immaterial to the financial statements, and, accordingly, has elected not to record fair values associated with these derivatives. (o) Foreclosed Assets and Other Real Estate Owned Assets acquired through or instead of loan foreclosure are initially recorded at fair value less estimated cost of disposal when acquired. Subsequent to foreclosure and transfer to other real estate owned, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenues and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets and other real estate owned. (p) Premises and Equipment Premises and equipment are carried at cost less accumulated depreciation, based on the estimated useful lives of the assets. Depreciation is generally computed on the straight-line method over estimated useful lives ranging from 3 to 40 years as indicated below: 3 – 5 Years Technology equipment (computers, copiers, etc.), company vehicles 5 – 10 Years Furnishings, building infrastructure and major repairs, security technology 10 – 20 Years Remodeling / updates of existing facilities, parking lots 20 – 40 Years Major facility renovations, building expansions, new facilities (q) Bank-Owned Life Insurance The Company has purchased life insurance policies on certain key employees and directors. Bank- owned life insurance is recorded at its cash surrender value, or the amount that could be realized upon immediate liquidation. Most of the Company’s activities are with customers located in the area and communities noted above. Note 3 details the type of securities in which the Company invests. Note 4 details the types of lending in which the Company engages. The Company does not have any significant concentrations with any one industry or customer. (s) Revenue from Contracts with Customers The core revenue recognition principle requires the Company to recognize revenue to depict the transfer of services or products to customers in an amount that reflects the consideration to which the Company expects to be entitled to receive in exchange for those services or products recognized as performance obligations are satisfied. The guidance includes a five-step model to apply to revenue recognition, consisting of the following: (1) identify the contract with a customer; (2) identify the performance obligations within the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations within the contract; and (5) recognize revenue when the performance obligations are satisfied. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed; charged either on a periodic basis or based on activity. Since performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying revenue recognition that significantly affects the determination of the amount and timing of revenue from contracts with customers. The following significant revenue-generating transactions are within the scope of revenue recognition, which are presented in the statements of income as components of noninterest income: Customer service fees – The Company earns fees from its deposit customers for transaction- based, account maintenance, and overdraft services. Transaction-based fees, such as statement rendering and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly service charges and maintenance fees, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs as this corresponds with the Company’s performance obligation. Interchange fees – Customers use a bank-issued debit card to purchase goods and services, and the Company earns interchange fees on those transactions, typically a percentage of the sale amount of the transaction. The Company is considered an agent with respect to these transactions. Interchange fee payments received included in other noninterest income, net of related expense, are recognized as income daily, concurrently with the transaction processing services provided to the cardholder through the payment networks. There are no contingent debit card interchange fees recorded by the Company that could be subject to a claw-back in future periods. Trust fees – The Company earns trust fees, included in other noninterest income, from its contracts with trust customers for providing investment management and/or transaction-based services on their accounts. These fees are primarily earned over time as the Company provides the contracted monthly or quarterly services and are assessed based on the total investable assets of the customer’s trust account. A signed contract between the Company and the customer is maintained for all customer trust accounts with payment terms identified. There are no contingent incentive fees recorded by the Company that could be subject to a claw-back in future periods. 23 2023 Annual Report (1) Summary of Significant Accounting Policies (continued) (s) Revenue from Contracts with Customers (continued) Notes to Consolidated Financial Statements (000s omitted except share data) Insurance commissions – Insurance agency commissions, included in other noninterest income, are received from insurance carriers for the agency’s share of commissions from customer premium payments. These commissions are recorded into income when checks are received from the insurance carriers, and there is no contingent portion associated with these commission checks that may be clawed back by the carrier in the future. There may be a short time-lag in recording revenue when cash is received instead of recording the revenue when the policy is signed by the customer, but the time lag is insignificant and does not impact the revenue recognition process. The Company has evaluated the potential amount of premium refunds due to customers when policies are cancelled and has determined such amounts are insignificant. (t) Income Taxes Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. The Company files consolidated Federal and State income tax returns. At December 31, 2023 and 2022, the Company evaluated tax positions taken for filing with the Internal Revenue Service and all state jurisdictions in which it operates. The Company believes that income tax filing positions will be sustained under examination and does not anticipate any adjustments that would result in a material adverse effect on the Company's financial condition, results of operations, or cash flows. Accordingly, the Company has not recorded any reserves or related accruals for interest and penalties for uncertain tax positions at December 31, 2023 and 2022. (u) Comprehensive Income (Loss) Accounting principles generally require the Company to include in net income recognized revenue, expenses, gains and losses. Certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the consolidated balance sheets, net of taxes. Such items, along with net income, are components of comprehensive income. (v) Earnings Per Share Basic earnings per share (EPS) represent income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method. (w) Loss Contingencies Loss contingencies, including claims and legal actions arising from time to time in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are such matters that could have a material effect on the financial statements. 24 2023 Annual Report (1) Summary of Significant Accounting Policies (continued) (1) Summary of Significant Accounting Policies (continued) (s) Revenue from Contracts with Customers (continued) (x) Transfers of Financial Assets Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) Insurance commissions – Insurance agency commissions, included in other noninterest income, are received from insurance carriers for the agency’s share of commissions from customer premium payments. These commissions are recorded into income when checks are received from the insurance carriers, and there is no contingent portion associated with these commission checks that may be clawed back by the carrier in the future. There may be a short time-lag in recording revenue when cash is received instead of recording the revenue when the policy is signed by the customer, but the time lag is insignificant and does not impact the revenue recognition process. The Company has evaluated the potential amount of premium refunds due to customers when policies are cancelled and has determined such amounts are insignificant. (t) Income Taxes Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. The Company files consolidated Federal and State income tax returns. At December 31, 2023 and 2022, the Company evaluated tax positions taken for filing with the Internal Revenue Service and all state jurisdictions in which it operates. The Company believes that income tax filing positions will be sustained under examination and does not anticipate any adjustments that would result in a material adverse effect on the Company's financial condition, results of operations, or cash flows. Accordingly, the Company has not recorded any reserves or related accruals for interest and penalties for uncertain tax positions at December 31, 2023 and 2022. (u) Comprehensive Income (Loss) Accounting principles generally require the Company to include in net income recognized revenue, expenses, gains and losses. Certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the consolidated balance sheets, net of taxes. Such items, along with net income, are components of comprehensive income. (v) Earnings Per Share Basic earnings per share (EPS) represent income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate solely to outstanding stock options and are determined using the treasury stock method. (w) Loss Contingencies Loss contingencies, including claims and legal actions arising from time to time in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are such matters that could have a material effect on the financial statements. Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. (y) Trust Assets Assets of the trust departments of State Bank and State Bank of Herscher, other than trust cash on deposit at the Banks, are not included in these financial statements because they are not assets of the Company. (z) Securities Sold Under Agreements to Repurchase Securities sold under agreements to repurchase liabilities represent amounts advanced by various customers. Securities are pledged to cover these liabilities, which are not covered by federal deposit insurance. (aa) Stock Compensation Plans The Company records the cost of stock-based employee compensation using the fair-value method. Compensation expense for share-based awards is recorded over the vesting period at the fair value of the award at the time of grant. The Company has historically assumed no projected forfeitures on its stock based compensation, since forfeitures have not been significant. (bb) Advertising Advertising costs are expensed as incurred. (cc) Reclassifications Certain amounts in the 2021 and 2022 financial statements have been reclassified to conform to the 2023 presentation. (dd) New Accounting Pronouncements ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments - This standard significantly changes how financial assets measured at amortized cost are presented. Such assets, which include most loans and securities held to maturity, are presented at the net amount expected to be collected over their remaining contractual lives. Estimated credit losses are based on relevant information about historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. The standard also changes the accounting for credit losses related to securities available for sale and purchased financial assets with a more-than-insignificant amount of credit deterioration since origination. As a result of the adoption of the ASU, the Company recorded a reduction to retained earnings of $2,029 as of January 1, 2023, as a cumulative effect of change in accounting principle. The transition adjustment included an increase to the ACL on loans of $2,452, the recording of the unfunded commitment liability of $387, and a corresponding increase in deferred tax assets of $810. Results for the year ended December 31, 2023, are presented under Accounting Standards Codification (ASC) 326 while prior period amounts continue to be reported in accordance with previously applicable accounting standards generally accepted in the United States (US GAAP). 25 2023 Annual Report (1) Summary of Significant Accounting Policies (continued) (dd) New Accounting Pronouncements (continued) Notes to Consolidated Financial Statements (000s omitted except share data) ASU No. 2022-02, Troubled Debt Restructurings and Vintage Disclosures, Topic 326 (Financial Instruments-Credit Losses) – This standard eliminates the recognition and measurement guidance for troubled debt restructurings by creditors under ASC Subtopic 310-40, Receivables-Troubled Debt Restructurings by Creditors, and, instead, requires the Company to evaluate (consistent with other loan modification accounting standards) whether a loan modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosure requirements, and introduce new requirements related to certain modifications of loans made to borrowers experiencing financial difficulty. ASU 2022-02 also requires that public business entities disclose current-period gross charge- offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost. The Company adopted ASU No. 2022-02 on January 1, 2023, on a prospective basis. See Note 4 for new disclosures related to the new accounting standard. (2) Cash Equivalents and Interest-Bearing Deposits Effective March 12, 2021, the Federal Reserve's board of directors approved the final rule reducing the required reserve requirement ratios to zero percent, effectively eliminating the requirement to maintain reserve balances in cash or on deposit with the Federal Reserve Bank. This reduction in the required reserves does not have a defined timeframe and may be revised by the Federal Reserve's board in the future. In the normal course of business, the Company maintains cash and due from bank balances in accounts with correspondent banks. Balances in these accounts may exceed the Federal Deposit Insurance Corporation’s (FDIC) insured limit of $250. These financial institutions have strong credit ratings and that credit risk related to these deposits is not material. Interest-bearing deposits consist of certificates of deposit at other financial institutions. Certificates of deposit are in denominations of $250 or less and are fully insured by the FDIC. Maturities of certificates of deposits at other financial institutions as of December 31, 2023 are as follows: 2024 2025 2026 2027 and thereafter $2,327 1,437 747 - $4,511 26 2023 Annual Report ASU No. 2022-02, Troubled Debt Restructurings and Vintage Disclosures, Topic 326 (Financial Instruments-Credit Losses) – This standard eliminates the recognition and measurement guidance for troubled debt restructurings by creditors under ASC Subtopic 310-40, Receivables-Troubled Debt Restructurings by Creditors, and, instead, requires the Company to evaluate (consistent with other loan modification accounting standards) whether a loan modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosure requirements, and introduce new requirements related to certain modifications of loans made to borrowers experiencing financial difficulty. ASU 2022-02 also requires that public business entities disclose current-period gross charge- offs by year of origination for financing receivables and net investments in leases within the scope of ASC Subtopic 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost. The Company adopted ASU No. 2022-02 on January 1, 2023, on a prospective basis. See Note 4 for new disclosures related to the new accounting standard. Effective March 12, 2021, the Federal Reserve's board of directors approved the final rule reducing the required reserve requirement ratios to zero percent, effectively eliminating the requirement to maintain reserve balances in cash or on deposit with the Federal Reserve Bank. This reduction in the required reserves does not have a defined timeframe and may be revised by the Federal Reserve's board in the future. In the normal course of business, the Company maintains cash and due from bank balances in accounts with correspondent banks. Balances in these accounts may exceed the Federal Deposit Insurance Corporation’s (FDIC) insured limit of $250. These financial institutions have strong credit ratings and that credit risk related to these deposits is not material. Interest-bearing deposits consist of certificates of deposit at other financial institutions. Certificates of deposit are in denominations of $250 or less and are fully insured by the FDIC. Maturities of certificates of deposits at other financial institutions as of December 31, 2023 are as follows: 2024 2025 2026 2027 and thereafter $2,327 1,437 747 - $4,511 (1) Summary of Significant Accounting Policies (continued) (2) Debt Securities (dd) New Accounting Pronouncements (continued) The following tables reflect the amortized costs and approximate fair values of securities at December 31: Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) (2) Cash Equivalents and Interest-Bearing Deposits State and municipal $4,076 $4 $(246) $3,834 Held-to-Maturity Gross Gross Unrealized Unrealized 2023 Amortized Cost Gains Losses Estimated Fair Value State and municipal $3,596 $ - $(231) $3,365 Held-to-Maturity Gross Gross Unrealized Unrealized 2022 Amortized Cost Gains Losses Estimated Fair Value Available-for-Sale Gross Gross Unrealized Unrealized 2023 Amortized Cost Gains Losses Estimated Fair Value U.S. Government sponsored entities $129,106 $8 $(12,685) $116,429 and U.S. agencies State and municipal Agency mortgage-backed Corporate debt securities 110,943 169,542 1,499 130 9 56 (9,600) (23,390) - 101,473 146,161 1,555 $411,090 $203 $(45,675) $365,618 Available-for-Sale Gross Gross Unrealized Unrealized 2022 Amortized Cost Gains Losses Estimated Fair Value U.S. Government sponsored entities $123,066 $4 $(15,140) $107,930 and U.S. agencies State and municipal Agency mortgage-backed 130,888 189,115 146 - (12,499) (24,246) 118,535 164,869 $443,069 $150 $(51,885) $391,334 27 2023 Annual Report Notes to Consolidated Financial Statements (000s omitted except share data) (3) Debt Securities (continued) For the years ended December 31, 2023, 2022 and 2021, proceeds from sales of available-for-sale securities amounted to $13,501, $10,348 and $16,899, respectively. Gross realized gains and losses from the sales and calls of available-for-sale securities for the years ended December 31 are as follows: Realized gains Realized losses 2023 $32 (217) 2022 2021 $170 (416) $211 (85) Securities with carrying amounts of approximately $264,449 and $217,957 at December 31, 2023 and 2022, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law. The amortized costs and estimated fair values of securities at December 31, 2023 are shown below by contractual maturities, except for U.S. agencies which are shown by contractual maturities or their expected call dates if the call dates are considered likely to occur based on present market conditions. Expected maturities may differ from contractual maturities on mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Held-to-Maturity Amortized Cost Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years $356 1,998 1,242 - Estimated Fair Value $346 1,887 1,132 - $3,596 $3,365 Available-for-Sale Amortized Cost Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Agency mortgage-backed $11,771 80,066 88,047 61,664 241,548 169,542 Estimated Fair Value $11,732 75,472 78,009 54,244 219,457 146,161 $411,090 $365,618 28 2023 Annual Report Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) (3) Debt Securities (continued) (3) Debt Securities (continued) For the years ended December 31, 2023, 2022 and 2021, proceeds from sales of available-for-sale securities amounted to $13,501, $10,348 and $16,899, respectively. Gross realized gains and losses from the sales and calls of available-for-sale securities for the years ended December 31 are as follows: The following tables show the fair values and unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2023 and 2022: 2023 $32 (217) 2022 2021 $170 (416) $211 (85) Realized gains Realized losses law. Securities with carrying amounts of approximately $264,449 and $217,957 at December 31, 2023 and 2022, respectively, were pledged to secure public deposits and for other purposes as required or permitted by The amortized costs and estimated fair values of securities at December 31, 2023 are shown below by contractual maturities, except for U.S. agencies which are shown by contractual maturities or their expected call dates if the call dates are considered likely to occur based on present market conditions. Expected maturities may differ from contractual maturities on mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Held-to-Maturity Amortized Cost Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Agency mortgage-backed Estimated Fair Value $346 1,887 1,132 - Estimated Fair Value $11,732 75,472 78,009 54,244 219,457 146,161 $356 1,998 1,242 - $11,771 80,066 88,047 61,664 241,548 169,542 2023 Held-to-Maturity Less Than 12 Months Gross 12 Months or Greater Gross Estimated Unrealized Fair Value Loss Number of Securities Estimated Unrealized Fair Value Loss Number of Securities State and municipal $480 $18 1 $2,885 $213 9 2022 Held-to-Maturity Less Than 12 Months Gross 12 Months or Greater Gross Estimated Unrealized Fair Value Loss Number of Securities Estimated Unrealized Fair Value Loss Number of Securities State and municipal $3,201 $246 10 $ - $ - - 2023 Available-for-Sale Less Than 12 Months 12 Months or Greater Gross Gross Estimated Unrealized Fair Value Loss Number of Securities Estimated Fair Value Unrealized Loss Number of Securities U.S. Government sponsored $6,893 $32 14 $106,026 $12,653 174 Available-for-Sale Amortized Cost Total $12,643 $351 35 $328,952 $45,324 $3,596 $3,365 entities and U.S. agencies State and municipal Agency mortgage-backed 5,750 - 319 - 21 - 78,245 144,681 9,281 23,390 293 428 895 $411,090 $365,618 U.S. Government sponsored $41,193 $2,798 $78 $63,470 $12,342 98 2022 Available-for-Sale Less Than 12 Months 12 Months or Greater Gross Gross Estimated Fair Value Unrealized Loss Number of Securities Estimated Fair Value Unrealized Loss Number of Securities entities and U.S. agencies State and municipal Agency mortgage-backed 75,964 69,899 6,497 6,526 295 248 26,270 94,963 6,002 17,720 Total $187,056 $15,821 621 $184,703 $36,064 83 187 368 29 2023 Annual Report Notes to Consolidated Financial Statements (000s omitted except share data) (3) Debt Securities (continued) Unrealized losses on securities have not been recognized into income because the bonds are of high credit quality, management has the intent and ability to hold for the foreseeable future and the decline in fair value is largely due to market interest rate fluctuations and other market conditions. The issuers continue to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach their maturity dates. Included in mortgage-backed securities are agency issued and government-sponsored enterprise issued mortgage-backed securities. Agency-issued securities are generally guaranteed by a U.S. government agency, such as the Government National Mortgage Association. Government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association, have an implied guarantee by the U.S. government. The municipal bond portfolio consists of highly rated securities rated A or better, all have made payments as agreed, and there is no other evidence of significant deterioration in the underlying issuers’ financial positions. The Company evaluated whether the unrealized losses in the investment portfolio were a result of credit losses or other factors and concluded the unrealized losses were the result of other market conditions, primarily changes in interest rates, and therefore no credit losses identified. (4) Loans The following table presents total loans at December 31, 2023 and 2022 by portfolio segment and class of loan: 2023 2022 Commercial Commercial & industrial Commercial real estate Commercial construction Total commercial Agriculture Agriculture real estate Agriculture production Total agriculture Residential Mortgage 1 - 4 family first lien 1 - 4 family junior lien Residential construction Total residential mortgage Consumer Auto Consumer other Total consumer Other loans and leases Gross loans Allowance for credit losses Unamortized deferred fees, net Net loans 30 $222,760 303,056 51,612 577,428 176,878 112,455 289,333 91,567 29,379 5,193 126,139 58,199 17,857 76,056 15,170 1,084,126 14,195 481 $1,069,450 $212,449 284,826 29,197 526,472 147,486 96,211 243,697 90,108 25,377 12,692 128,177 43,445 13,619 57,064 13,671 969,081 14,541 114 $954,426 2023 Annual Report (3) Debt Securities (continued) (4) Loans (continued) Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) Unrealized losses on securities have not been recognized into income because the bonds are of high credit quality, management has the intent and ability to hold for the foreseeable future and the decline in fair value is largely due to market interest rate fluctuations and other market conditions. The issuers continue to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach their maturity dates. Included in mortgage-backed securities are agency issued and government-sponsored enterprise issued mortgage-backed securities. Agency-issued securities are generally guaranteed by a U.S. government agency, such as the Government National Mortgage Association. Government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association, have an implied guarantee by the U.S. government. The municipal bond portfolio consists of highly rated securities rated A or better, all have made payments as agreed, and there is no other evidence of significant deterioration in the underlying issuers’ financial positions. The Company evaluated whether the unrealized losses in the investment portfolio were a result of credit losses or other factors and concluded the unrealized losses were the result of other market conditions, primarily changes in interest rates, and therefore no credit losses identified. (4) Loans of loan: The following table presents total loans at December 31, 2023 and 2022 by portfolio segment and class 2023 2022 Commercial Commercial & industrial Commercial real estate Commercial construction Total commercial Agriculture Agriculture real estate Agriculture production Total agriculture Residential Mortgage 1 - 4 family first lien 1 - 4 family junior lien Residential construction Consumer Auto Consumer other Total consumer Other loans and leases Gross loans Allowance for credit losses Unamortized deferred fees, net Net loans Total residential mortgage $222,760 303,056 51,612 577,428 176,878 112,455 289,333 91,567 29,379 5,193 126,139 58,199 17,857 76,056 15,170 1,084,126 14,195 481 $1,069,450 $212,449 284,826 29,197 526,472 147,486 96,211 243,697 90,108 25,377 12,692 128,177 43,445 13,619 57,064 13,671 969,081 14,541 114 $954,426 The Company’s allowance for credit losses on loans information for the year ended December 31, 2023, is presented under ASC 326. The Company’s allowance for credit losses on loans information for the year ended December 31, 2022 is presented under the incurred loss impairment model. Refer to the “New Accounting Pronouncements” section of Note 1 for more information. The Company’s activity in the allowance for credit losses for the years ended December 31, 2023 and 2022, by loan segment is summarized below: 2023 Residential Commercial Agriculture Mortgage Consumer Other Total Balance, beginning of period $10,425 $2,396 $966 $667 $87 $14,541 Cumulative effect of change in accounting principal Provision Charge-offs Recoveries collected 2,105 409 4,010 663 264 227 - - (149) 32 63 21 80 107 203 17 152 58 61 5 2,452 833 4,337 706 Balance, end of period $9,592 $2,887 $807 $668 $241 $14,195 2022 Residential Commercial Agriculture Mortgage Consumer Other Total Balance, beginning of period Provision Charge-offs Recoveries collected $7,618 2,787 175 195 $4,236 (1,840) - - Balance, end of period $10,425 $2,396 $1,797 $269 $65 $13,985 (923) 78 170 $966 443 131 86 85 67 4 552 451 455 $667 $87 $14,541 Collateral dependent loans individually evaluated for purposes of the allowance for credit losses by collateral type were as follows at December 31, 2023: Commercial Agriculture Residential Mortgage Consumer Other Total $10,930 1,176 1,168 4,369 47 $17,690 31 2023 Annual Report (4) Loans (continued) Detailed analysis of loans evaluated for impairment by portfolio segment for the year ended December 31, 2022 follows: Notes to Consolidated Financial Statements (000s omitted except share data) Commercial Agriculture Mortgage Consumer Other Total Residential Loans Individually evaluated for impairment $13,794 $271 $1,654 $126 $ - $15,845 Collectively evaluated for impairment 512,678 243,426 126,523 56,938 13,671 953,236 Totals $526,472 $243,697 $128,177 $57,064 $13,671 $969,081 Detailed information regarding impaired loans by class of loan as of December 31, 2022 follows: Recorded Principal Related Average Interest Investment Balance Allowance Investment Recognized Loans with no related allowance for loan losses: Commercial Agriculture Residential mortgage Consumer Other Totals Loans with an allowance for loan losses: Commercial Agriculture Residential mortgage Consumer Other Totals Grand Totals $5,611 218 1,507 77 - $6,229 741 2,303 89 - N/A N/A N/A N/A N/A $5,967 427 1,511 88 - $271 48 295 5 - 7,414 9,362 7,993 619 8,182 8,199 4,256 9,447 480 53 147 49 - 71 160 49 - 53 19 33 - 56 152 55 - - 6 6 - 8,431 8,479 4,361 9,710 492 $15,845 $17,841 $4,361 $17,703 $1,111 32 2023 Annual Report Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) (4) Loans (continued) The Company regularly evaluates various attributes of loans to determine the appropriateness of the allowance for credit losses. The Company generally monitors credit quality indicators for all loans using the following: ‘Pass’ ratings are assigned to loans with adequate collateral and debt service ability; such that collectability of the contractual loan payments is highly probable. ‘Special Mention’ ratings are assigned to loans where management has some concern that the collateral or debt service ability may not be adequate, though the collectability of the contractual loan payments is still probable. ‘Substandard’ ratings are assigned to loans that do not have adequate collateral and / or debt service ability; such that collectability of the contractual loan payments is no longer probable. ‘Doubtful’ ratings are assigned to loans that do not have adequate collateral and / or debt service ability, and collectability of the contractual loan payments is unlikely. Internally prepared ratings for business loans are updated at least annually. Residential real estate and consumer loans are generally evaluated based on whether or not the loan is performing according to the contractual terms of the loan as of the balance sheet date. Information regarding the loan portfolio by risk classification and origination year for the year ended December 31, 2023, follows: 7,414 9,362 7,993 619 Total commercial 87,688 183,275 100,762 37,157 20,648 83,014 64,884 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Commercial Pass Special Mention Substandard $86,334 $172,051 10,463 761 176 1,178 $99,760 $30,821 $20,024 71 553 1,939 4,397 - 1,002 $80,145 2,440 429 $61,303 130 3,451 (4) Loans (continued) 2022 follows: Detailed analysis of loans evaluated for impairment by portfolio segment for the year ended December 31, Commercial Agriculture Mortgage Consumer Other Total Residential Loans Totals Individually evaluated for impairment $13,794 $271 $1,654 $126 $ - $15,845 Collectively evaluated for impairment 512,678 243,426 126,523 56,938 13,671 953,236 $526,472 $243,697 $128,177 $57,064 $13,671 $969,081 Detailed information regarding impaired loans by class of loan as of December 31, 2022 follows: Loans with no related allowance for loan losses: Loans with an allowance for loan losses: Commercial Agriculture Residential mortgage Consumer Other Totals Commercial Agriculture Residential mortgage Consumer Other Totals Grand Totals Recorded Principal Related Average Interest Investment Balance Allowance Investment Recognized $5,611 218 1,507 77 - $6,229 741 2,303 89 - N/A N/A N/A N/A N/A $5,967 427 1,511 88 - $271 48 295 5 - 8,182 8,199 4,256 9,447 480 53 147 49 - 71 160 49 - 53 19 33 - 56 152 55 - - 6 6 - 8,431 8,479 4,361 9,710 492 $15,845 $17,841 $4,361 $17,703 $1,111 Total $550,438 15,219 11,771 577,428 281,392 - 7,941 289,333 123,385 954 1,800 92,497 - - 92,497 25,023 83 67 Agriculture Pass Special Mention Substandard 49,112 - 258 36,952 - 376 32,786 - 2,179 21,128 - 5,082 13,546 - - 35,371 46 Total agriculture 49,370 37,328 34,965 26,210 13,546 35,417 Residential mortgage Pass Special Mention Substandard Total residential mortgage Consumer Pass Special Mention Substandard 37,801 - 15 23,139 - 48 Total consumer 37,816 23,187 Other loans and leases Pass Special Mention Substandard Total other loans and leases 2,650 - - 2,650 1,130 - - 1,130 20,141 - 99 26,416 139 179 21,755 175 554 9,044 62 74 6,082 - 79 14,924 495 748 20,240 26,734 22,484 9,180 6,161 16,167 25,173 126,139 9,829 - 9 9,838 5,230 - - 5,230 2,959 - 10 2,969 1,742 - 14 1,756 906 - - 906 13 - - 13 307 - - 307 5,241 - - 5,241 183 - - 183 - - - - 75,960 - 96 76,056 15,170 - - 15,170 Totals $197,764 $271,654 $173,279 $76,422 $42,124 $140,146 $182,737 $1,084,126 33 2023 Annual Report (4) Loans (continued) The following table presents the amortized cost basis of loans by credit quality indicator, class of financing receivable, and year of origination for term loans at December 31, 2022 follows: Notes to Consolidated Financial Statements (000s omitted except share data) Commercial Commercial & industrial Commercial real estate Commercial construction Total commercial Agriculture Agriculture real estate Agriculture production Total agriculture Residential Mortgage 1 - 4 family first lien 1 - 4 family junior lien Residential construction Total residential mortgage Consumer Auto Consumer other Total consumer Other loans and leases Pass $206,346 275,854 29,197 511,397 142,854 96,012 238,866 88,191 24,989 12,692 125,872 43,318 13,597 56,915 13,671 Special Mention Substandard Doubtful Total $3,070 2,654 - 5,724 4,413 146 4,559 564 167 - 731 95 - 95 - $3,033 6,318 - 9,351 219 53 272 1,353 221 - 1,574 32 22 54 - $ - $212,449 - - - - - - - - - - - - - - 284,826 29,197 526,472 147,486 96,211 243,697 90,108 25,377 12,692 128,177 43,445 13,619 57,064 13,671 Totals $946,721 $11,109 $11,251 $ - $969,081 The gross charge-offs by loan type and year of origination for the year ended December 31, 2023 were as follows: Current Period Gross Charge-offs 2023 2022 2021 2020 2019 Prior Total Commercial Residential mortgage Consumer Other loans and leases $2 $102 - - 61 - 120 - $ - - 17 - $965 $1,473 $1,468 $4,010 25 20 - - 37 - 38 9 - 63 203 61 Totals $63 $222 $17 $1,010 $1,510 $1,515 $4,337 34 2023 Annual Report (4) Loans (continued) (4) Loans (continued) The following table presents the amortized cost basis of loans by credit quality indicator, class of financing Loan aging information by class of loans at December 31 follows: receivable, and year of origination for term loans at December 31, 2022 follows: Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) Commercial Commercial & industrial Commercial real estate Commercial construction Total commercial Agriculture Agriculture real estate Agriculture production Total agriculture Residential Mortgage 1 - 4 family first lien 1 - 4 family junior lien Residential construction Total residential mortgage Consumer Auto Consumer other Total consumer Other loans and leases Pass $206,346 275,854 29,197 511,397 142,854 96,012 238,866 88,191 24,989 12,692 125,872 43,318 13,597 56,915 13,671 Special Mention Substandard Doubtful Total $ - $212,449 $3,070 2,654 - 5,724 4,413 146 4,559 564 167 - 731 95 - 95 - $3,033 6,318 - 9,351 219 53 272 1,353 221 - 1,574 32 22 54 - - - - - - - - - - - - - - - 284,826 29,197 526,472 147,486 96,211 243,697 90,108 25,377 12,692 128,177 43,445 13,619 57,064 13,671 Totals $946,721 $11,109 $11,251 $ - $969,081 The gross charge-offs by loan type and year of origination for the year ended December 31, 2023 were as follows: Current Period Gross Charge-offs 2023 2022 2021 2020 2019 Prior Total Commercial Residential mortgage Consumer Other loans and leases $2 $102 $ - $965 $1,473 $1,468 $4,010 - - 61 120 - - 17 - - 25 20 - 37 - - 38 9 - 63 203 61 Totals $63 $222 $17 $1,010 $1,510 $1,515 $4,337 As of December 31, 2023 Greater Than 30-89 Days 90 Days Past Total Past Total 90 or more days past Past Due Due Due Current Loans due and accruing Commercial Commercial & industrial Commercial real estate Commercial construction Total commercial Agriculture Agriculture real estate Agriculture production Total agriculture Residential mortgage 1 - 4 family first lien 1 - 4 family junior lien Residential construction $432 1,563 - 1,995 316 151 467 859 230 - $121 $553 $222,207 $222,760 - - 1,563 301,493 303,056 - 51,612 51,612 121 2,116 575,312 577,428 - 84 84 316 235 551 176,562 176,878 112,220 112,455 288,782 289,333 364 1,223 - - 230 - 90,344 29,149 5,193 91,567 29,379 5,193 Total residential mortgage 1,089 364 1,453 124,686 126,139 Consumer Auto Consumer other Total consumer Other Loans and Leases 827 196 1,023 - 35 7 42 - 862 203 57,337 17,654 58,199 17,857 1,065 74,991 76,056 - 15,170 15,170 $82 - - 82 - - - 189 - - 189 25 6 31 - Totals $4,574 $611 $5,185 $1,078,941 $1,084,126 $302 35 2023 Annual Report (4) Loans (continued) Notes to Consolidated Financial Statements (000s omitted except share data) As of December 31, 2022 Greater Than 30-89 Days 90 Days Past Total Past Total 90 or more days past Past Due Due Due Current Loans due and accruing Commercial Commercial & industrial Commercial real estate Commercial construction Total commercial Agriculture Agriculture real estate Agriculture production Total agriculture Residential Mortgage 1 - 4 family first lien 1 - 4 family junior lien Residential construction $284 549 - 833 189 11 200 707 373 - $3,010 $3,294 $209,155 $212,449 2,469 3,018 281,808 284,826 - - 29,197 29,197 5,479 6,312 520,160 526,472 - - - 405 44 - 189 147,297 147,486 11 96,200 96,211 200 243,497 243,697 1,112 88,996 90,108 417 24,960 25,377 - 12,692 12,692 Total residential mortgage 1,080 449 1,529 126,648 128,177 Consumer Auto Consumer other Total consumer Other loans and leases Totals 634 189 823 - 90 46 724 42,721 43,445 235 13,384 13,619 136 959 56,105 57,064 - - 13,671 13,671 $2,936 $6,064 $9,000 $960,081 $969,081 $ - 47 - 47 - - - 79 44 - 123 57 46 103 - $273 36 2023 Annual Report As of December 31, 2022 Greater Than Past Due Due Due Current Loans due and accruing $3,010 $3,294 $209,155 $212,449 2,469 3,018 281,808 284,826 - - 29,197 29,197 5,479 6,312 520,160 526,472 - - - 405 44 - 189 147,297 147,486 11 96,200 96,211 200 243,497 243,697 1,112 88,996 90,108 417 24,960 25,377 - 12,692 12,692 Commercial Commercial & industrial Commercial real estate Commercial construction Total commercial Agriculture Agriculture real estate Agriculture production Total agriculture Residential Mortgage 1 - 4 family first lien 1 - 4 family junior lien Residential construction Consumer Auto Consumer other Total consumer Other loans and leases Totals $284 549 - 833 189 11 200 707 373 - 634 189 823 - Total residential mortgage 1,080 449 1,529 126,648 128,177 90 46 724 42,721 43,445 235 13,384 13,619 136 959 56,105 57,064 - - 13,671 13,671 $2,936 $6,064 $9,000 $960,081 $969,081 $ - 47 47 - - - - 79 44 - 123 57 46 103 - $273 (4) Loans (continued) (4) Loans (continued) Information regarding nonaccrual loans during the years ended December 31 follows: Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) 30-89 Days 90 Days Past Total Past Total 90 or more days past December 31, 2023 December 31, 2022 Nonaccrual loans With No ACL Total Nonaccrual Loans Interest Income Recognized During the Period on Nonaccrual Loans Nonaccrual loans With No ACL Total Nonaccrual Loans Interest Income Recognized During the Period on Nonaccrual Loans $44 14 - 58 1,175 - 1,175 - 99 - 99 - - - $5,029 2,156 - 7,185 4,703 3,180 7,883 446 137 - 583 66 26 92 - $ - - - - - 60 60 - - - - - - - - $52 174 - 226 219 - 219 469 28 - 497 - - - - $3,032 2,549 - 5,581 $160 91 - 251 219 53 272 498 39 - 537 66 23 89 - 57 - 57 46 6 - 52 - - 6 - Commercial Commercial & industrial Commercial real estate Commercial construction Total commercial Agriculture Agriculture real estate Agriculture production Total agriculture Residential Mortgage 1 - 4 family first lien 1 - 4 family junior lien Residential construction Total residential mortgage Consumer Auto Consumer other Total consumer Other loans and leases Totals $1,332 $15,743 $60 $942 $6,479 $366 Occasionally, the Company modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses. As of December 31, 2023, the Company had commitments to lend additional funds of $129 on loans modified to borrowers experiencing financial difficulty. 37 2023 Annual Report Notes to Consolidated Financial Statements (000s omitted except share data) (4) Loans (continued) The following presents the amortized cost basis as of December 31, 2023 of loans modified to borrowers experiencing financial difficulty during the year disaggregated by loan class and by type of concession granted. Term Extension Other-than-Insignificant Payment Delay Combination: Term Extension and Principal Forgiveness % of Total Class of % of Total Class of % of Total Class of Amortized Financing Amortized Financing Amortized Financing Cost Basis Receivable Cost Basis Receivable Cost Basis Receivable Commercial Commercial & industrial $3,403 Commercial real estate Total commercial Agriculture Agriculture production Total agriculture Residential Mortgage 1 - 4 family junior lien Total residential mortgage 194 3,597 2,559 2,559 17 17 1.5% 0.1% 0.6% 0.1% 0.1% 0.1% 0.0% $6 114 120 - - - - 0.0% 0.0% 0.0% - - - - $ - - - - - 99 99 - - - - - 0.3% 0.1% Totals $6,173 0.6% $120 0.0% $99 0.0% The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the year ended December 31, 2023. Commercial & industrial Commercial real estate Agriculture production 1 - 4 family junior lien Other-than-Insignificant Payment Delay Term Extension Principal Forgiveness Interest only payments for 7 months Extended 5 to 13 months to the maturity dates Interest only payments for 7 months Extended 1-5 years to maturity dates Extended 13 months to maturity dates Extended 6 years to maturity date Reduced amortized cost basis between $412M and $442M dependent on finalization of the sale of collateral. 38 2023 Annual Report Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) (4) Loans (continued) (4) Loans (continued) The following presents the amortized cost basis as of December 31, 2023 of loans modified to borrowers experiencing financial difficulty during the year disaggregated by loan class and by type of concession granted. The following table presents the amortized cost basis of loans that had a payment default during the year ended December 31, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty: Term Extension Payment Delay and Principal Forgiveness Other-than-Insignificant Combination: Term Extension % of Total Class of % of Total Class of % of Total Class of Amortized Financing Amortized Financing Amortized Financing Cost Basis Receivable Cost Basis Receivable Cost Basis Receivable Commercial Commercial & industrial $3,403 Commercial real estate Total commercial Agriculture Agriculture production Total agriculture Residential Mortgage 1 - 4 family junior lien Total residential mortgage 194 3,597 2,559 2,559 17 17 1.5% 0.1% 0.6% 0.1% 0.1% 0.1% 0.0% $6 114 120 - - - - 0.0% 0.0% 0.0% - - - - $ - - - - - 99 99 - - - - - 0.3% 0.1% Totals $6,173 0.6% $120 0.0% $99 0.0% The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the year ended December 31, 2023. Other-than-Insignificant Interest only payments Extended 5 to 13 months to for 7 months the maturity dates Interest only payments Extended 1-5 years to for 7 months maturity dates Commercial Commercial & industrial Commercial real estate Total commercial Agriculture Agriculture production Total agriculture Totals Term extension $29 41 70 2,179 2,179 $2,249 The following table presents the period-end amortized cost basis of loans that have been modified in the past 12 months to borrowers experiencing financial difficulty by payment status and class of financing receivable: Commercial Commercial & industrial Commercial real estate Total commercial Agriculture Agriculture production Total agriculture Residential Mortgage 1 - 4 family junior lien Payment Delay Term Extension Principal Forgiveness Total residential mortgage Current 30-89 days 90 days Total Greater than $3,380 267 3,647 380 380 116 116 $ - 41 41 2,179 2,179 - - $29 - 29 - - - - $3,409 308 3,717 2,559 2,559 116 116 Commercial & industrial Commercial real estate Agriculture production 1 - 4 family junior lien Totals $4,143 $2,220 $29 $6,392 Extended 13 months to maturity dates Extended 6 years to maturity date Reduced amortized cost basis between $412M and $442M dependent on finalization of the sale of collateral. Prior to the adoption of ASU No. 2022-02, when, for economic or legal reasons related to the borrower's financial difficulties, the Company granted a concession to a borrower that the Company would not otherwise consider, the modified loan was classified as a troubled debt restructuring. Loan modifications may have consisted of forgiveness of interest and/or principal, a reduction of the interest rate, interest-only payments for a period of time, and/or extending amortization terms. All troubled debt restructurings were classified as impaired loans. 39 2023 Annual Report (4) Loans (continued) The following table presents information regarding modifications of loans that were classified as troubled debt restructurings by class of loan that occurred during the year ended December 31, 2022: Notes to Consolidated Financial Statements (000s omitted except share data) Real Estate: Commercial real estate Commercial: Commercial & industrial Total Number of Pre-Modification Post Modification Loans Investment Investment 1 3 4 $3,375 4,408 $7,783 $3,375 4,408 $7,783 The following table summarizes troubled debt restructurings that defaulted within 12 months of their modification as of December 31, 2022: Real Estate: Commercial real estate Commercial: Commercial & industrial Total (5) Loan Servicing Number of Loans Recorded Investment 1 3 4 $3,375 4,484 $7,859 Loans serviced for others are not included in the accompanying consolidated balance sheets. Mortgage loans serviced for others as of December 31, 2023 and 2022, were approximately $275,743 and $286,804, respectively. Custodial escrow balances maintained in conjunction with serviced loans were approximately $3,451 and $3,552 at December 31, 2023 and 2022, respectively. The balances for mortgage servicing rights were $3,303 and $3,236 as of December 31, 2023 and 2022, respectively. The estimated fair value of mortgage servicing rights is determined using a valuation model that calculates the present value of expected future servicing and ancillary income, net of expected servicing costs. The model incorporates various assumptions, such as discount rates and prepayment speeds based on market data from independent organizations. Information about the estimated fair value of mortgage servicing rights at December 31: Range of discount rates Range of prepayment speeds 2023 2022 2021 9.75% - 11.75% 9.00% - 11.00% 9.00% - 11.00% 5.29% - 26.25% 6.30% - 26.25% 6.79% - 33.96% 40 2023 Annual Report (4) Loans (continued) (6) Mortgage Banking Loan Commitments Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) The following table presents information regarding modifications of loans that were classified as troubled debt restructurings by class of loan that occurred during the year ended December 31, 2022: Number of Pre-Modification Post Modification Loans Investment Investment Real Estate: Commercial: Commercial real estate Commercial & industrial Total 1 3 4 $3,375 4,408 $7,783 The following table summarizes troubled debt restructurings that defaulted within 12 months of their modification as of December 31, 2022: The Company enters into commitments to fund residential mortgage loans (interest rate locks) at specified times in the future, with the intention that these loans will be subsequently sold to third-party investors. A mortgage loan commitment binds the Company to lend funds to a potential borrower at a specified interest rate and within a specified period of time, generally up to 60 days after inception of the rate lock. It is the Company’s practice to enter into best efforts and mandatory delivery forward commitments for the future delivery of residential mortgage loans to third-party investors when an interest rate lock commitment is granted. Best efforts forward commitments bind the Company to deliver a mortgage loan to a third-party investor only if the underlying loan is funded. Mandatory delivery forward commitments bind the Company to deliver a residential mortgage loan to a third-party investor even if the underlying loan never funds. As of December 31, 2023 and 2022, the Company had approximately $805 and $907, respectively, in interest rate lock commitments outstanding. As of December 31, 2023 and 2022, the Company had approximately $1,611 and $947, respectively, in mandatory delivery forward commitments outstanding. There were no best effort forward commitments outstanding at December 31, 2023 and $867 outstanding at December 31, 2022. These outstanding mortgage loan commitments are considered to be derivatives. (7) Foreclosed Assets and Other Real Estate Owned There was no other real estate owned at December 31, 2023 and $70 at December 31, 2022. Residential real estate loans that are in process of foreclosure totaled $79 at December 31, 2023 and $29 at December 31, 2022. Number of Loans Recorded Investment (8) Premises and Equipment The components of premises and equipment at December 31 are as follows: Land Buildings and leasehold improvements Furniture, fixtures, and equipment Less accumulated depreciation 2023 2022 $2,640 22,700 14,440 39,780 22,255 $2,640 22,186 13,976 38,802 21,204 $17,525 $17,598 Depreciation expense for the years ended December 31, 2023, 2022 and 2021 amounted to $1,098, $1,106, and $1,053, respectively. (9) Other Assets The components of other assets at December 31 are as follows: 2023 2022 2021 Accrued interest receivable Mortgage servicing rights Net deferred tax assets Range of discount rates Range of prepayment speeds 9.75% - 11.75% 9.00% - 11.00% 9.00% - 11.00% Qualified affordable housing project investments 5.29% - 26.25% 6.30% - 26.25% 6.79% - 33.96% Other 2023 2022 $9,763 3,303 16,960 4,818 2,114 $7,255 3,236 18,227 84 2,850 $36,958 $31,652 41 $3,375 4,408 $7,783 $3,375 4,484 $7,859 Real Estate: Commercial: Commercial real estate Commercial & industrial Total (5) Loan Servicing 1 3 4 Loans serviced for others are not included in the accompanying consolidated balance sheets. Mortgage loans serviced for others as of December 31, 2023 and 2022, were approximately $275,743 and $286,804, respectively. Custodial escrow balances maintained in conjunction with serviced loans were approximately $3,451 and $3,552 at December 31, 2023 and 2022, respectively. The balances for mortgage servicing rights were $3,303 and $3,236 as of December 31, 2023 and 2022, respectively. at December 31: The estimated fair value of mortgage servicing rights is determined using a valuation model that calculates the present value of expected future servicing and ancillary income, net of expected servicing costs. The model incorporates various assumptions, such as discount rates and prepayment speeds based on market data from independent organizations. Information about the estimated fair value of mortgage servicing rights 2023 Annual Report (10) Deposits Deposits consist of the following at December 31, 2023 and 2022: Notes to Consolidated Financial Statements (000s omitted except share data) Non-interest-bearing demand Interest-bearing demand Money market and savings Time 2023 2022 $256,205 220,417 408,278 472,657 $276,055 229,577 411,654 377,421 $1,357,557 $1,294,707 The aggregate amount of time deposits with a minimum denomination of $250 was approximately $143,788 and $101,661 at December 31, 2023 and 2022, respectively. Time deposits are included in the interest- bearing deposits on the consolidated balance sheets. At December 31, 2023, the scheduled maturities of time deposits are as follows: 2023 2024 2025 2026 2027 and thereafter $343,920 96,198 24,026 4,867 3,646 $472,657 (11) Income Taxes The components of income tax expense for the years ended December 31 are as follows: Current - federal Current - state Deferred - federal Deferred - state 2023 2022 2021 $2,956 1,326 4,282 195 97 292 $2,700 1,267 3,967 74 41 115 $2,148 1,175 3,323 (61) (25) (86) Total income tax expense $4,574 $4,082 $3,237 42 2023 Annual Report (10) Deposits (11) Income Taxes (continued) Deposits consist of the following at December 31, 2023 and 2022: A reconciliation of the differences between the statutory federal income tax rate and the effective federal income tax rate with the resulting dollar amounts is shown in the following table: Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) The aggregate amount of time deposits with a minimum denomination of $250 was approximately $143,788 and $101,661 at December 31, 2023 and 2022, respectively. Time deposits are included in the interest- bearing deposits on the consolidated balance sheets. At December 31, 2023, the scheduled maturities of time deposits are as follows: (11) Income Taxes The components of income tax expense for the years ended December 31 are as follows: 2023 2022 $256,205 220,417 408,278 472,657 $276,055 229,577 411,654 377,421 $1,357,557 $1,294,707 $343,920 96,198 24,026 4,867 3,646 $472,657 2023 2022 2021 $2,956 1,326 4,282 195 97 292 $2,700 1,267 3,967 74 41 115 $2,148 1,175 3,323 (61) (25) (86) Non-interest-bearing demand Interest-bearing demand Money market and savings Time 2023 2024 2025 2026 2027 and thereafter Current - federal Current - state Deferred - federal Deferred - state Total income tax expense $4,574 $4,082 $3,237 2023 2022 2021 % of Pretax % of Pretax % of Pretax Amount Earnings Amount Earnings Amount Earnings Statutory federal tax $4,015 21.0% $3,718 21.0% $3,071 21.0% (Decrease) increase in taxes resulting from: Tax-exempt interest Bank-owned life insurance State taxes, net of federal benefit Other (330) (123) 1,124 (112) (1.7%) (0.6%) 5.9% (0.6%) (598) (122) 1,033 51 (3.4%) (0.7%) 5.8% 0.3% (619) (126) 909 2 (4.2%) (0.9%) 6..2% 0.0% Effective tax rates $4,574 24.0% $4,082 23.0% $3,237 22.1% The tax effects of existing temporary differences that give rise to significant portions of the deferred tax liabilities and deferred tax assets at December 31, 2023 and 2022 are summarized as follows: Deferred tax assets: Allowance for credit losses CECL reserve for unfunded loan commitments Available-for-sale securities Deferred compensation and other 2023 2022 $4,046 188 12,962 2,611 $4,144 - 14,747 2,176 Total deferred tax assets $19,807 $21,067 Deferred tax liabilities: FHLB stock dividend Depreciation Mortgage servicing rights and other Purchase accounting adjustments $55 1,299 1,365 128 $55 1,407 1,246 132 Total deferred tax liabilities 2,847 2,840 Net deferred tax assets $16,960 $18,227 No valuation allowance has been recorded since deferred tax assets are expected to be realized. 43 2023 Annual Report Notes to Consolidated Financial Statements (000s omitted except share data) (12) Transactions with Related Parties The Company had, and may be expected to have in the future, loans or other banking transactions in the ordinary course of business with directors, significant stakeholders, principal officers, their immediate families, and affiliated companies in which they are principal stakeholders (commonly referred to as related parties). These loans and transactions were on the same terms as those for comparable loans and transactions with non-related parties. Activity for related party loans for the years ending December 31, is as follows: Balance at beginning of year New credits Repayments Balance at end of year 2023 2022 $3,584 2,026 (1,084) $5,063 594 (2,073) $4,526 $3,584 Deposit accounts from related parties totaled approximately $21,284 and $18,663 at December 31, 2023 and 2022, respectively. (13) Financial Instruments with Off-Balance-Sheet Risk and Concentrations Financial instruments with off-balance-sheet risk: The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of their customers. These financial instruments include commitments to extend credit, credit lines, letters of credit, and overdraft protection. They involve, to varying degrees, elements of credit risk in excess of amounts recognized on the consolidated balance sheets. The Company’s exposure to credit losses in the event of nonperformance by the other parties to the financial instruments, for commitments to extend credit, and letters of credit are represented by the contractual amounts of those instruments. The Banks use the same credit policies in making commitments and issuing letters of credit as they do for on-balance-sheet instruments. A summary of the contractual amounts of the Banks’ exposures to off-balance-sheet risk as of December 31 is as follows: Unused lines of credit and other loan commitments $267,108 $271,980 Commercial letters of credit Performance and standby letters of credit 320 3,915 510 3,637 2023 2022 44 2023 Annual Report (12) Transactions with Related Parties (13) Financial Instruments with Off-Balance-Sheet Risk and Concentrations Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) The Company had, and may be expected to have in the future, loans or other banking transactions in the ordinary course of business with directors, significant stakeholders, principal officers, their immediate families, and affiliated companies in which they are principal stakeholders (commonly referred to as related parties). These loans and transactions were on the same terms as those for comparable loans and transactions with non-related parties. Activity for related party loans for the years ending December 31, is as follows: Balance at beginning of year New credits Repayments Balance at end of year 2023 2022 $3,584 2,026 (1,084) $5,063 594 (2,073) $4,526 $3,584 Deposit accounts from related parties totaled approximately $21,284 and $18,663 at December 31, 2023 and 2022, respectively. (13) Financial Instruments with Off-Balance-Sheet Risk and Concentrations Financial instruments with off-balance-sheet risk: The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of their customers. These financial instruments include commitments to extend credit, credit lines, letters of credit, and overdraft protection. They involve, to varying degrees, elements of credit risk in excess of amounts recognized on the consolidated balance sheets. The Company’s exposure to credit losses in the event of nonperformance by the other parties to the financial instruments, for commitments to extend credit, and letters of credit are represented by the contractual amounts of those instruments. The Banks use the same credit policies in making commitments and issuing letters of credit as they do for on-balance-sheet instruments. A summary of the contractual amounts of the Banks’ exposures to off-balance-sheet risk as of December 31 is as follows: (continued) Commitments to extend credit are agreements to lend to customers as long as there are no violations of any conditions established in the contracts. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Banks evaluate each customer’s credit worthiness on a case-by- case basis. The amount of collateral obtained, if deemed necessary by the Banks upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies; but may include accounts receivable, inventory, crops, livestock, property and equipment, residential real estate, and income-producing commercial properties. Standby, performance and commercial letters of credit are conditional commitments issued by the Banks to guarantee the performance of a customer to a third party. They are considered financial guarantees under FASB guidance. The fair value of these financial guarantees is considered immaterial. The Company participates in the FHLB Mortgage Partnership Finance Program (the "Program"). In addition to entering into forward commitments to sell mortgage loans to a secondary market agency, the Company enters into firm commitments to deliver loans to the FHLB through the Program. Under the Program, loans are funded by the FHLB, and the Company receives an agency fee reported as a component of gain on sale of loans. The Company had no firm commitments outstanding to deliver loans through the Program at December 31, 2023 and 2022. Once delivered to the Program, the Company provides a contractually agreed- upon credit enhancement and performs servicing of the loans. Under the credit enhancement, the Company is liable for losses on loans delivered to the Program after application of any mortgage insurance and a contractually agreed-upon credit enhancement provided by the Program subject to an agreed-upon maximum. The agreed-upon accumulated credit enhancement provided by the Program totaled $539, subject to an agreed- upon maximum. The fee the Company received for this credit enhancement was not material in each of the years ended December 31, 2023, 2022 and 2021. Concentration of credit risk: The Company provides several types of loans to customers including real estate, agricultural, commercial, and installment loans. The largest component of loans is secured by residential real estate, commercial real estate, or other interest in real property. Lending activities are conducted with customers in a wide variety of industries as well as with individuals with a wide variety of credit requirements. The Company does not have a concentration of loans in any specific industry. Credit risk, as it relates to the Company’s business activities, tends to be geographically concentrated in that the majority of the customer base lies within the surrounding communities served by its subsidiary banks. Unused lines of credit and other loan commitments $267,108 $271,980 Commercial letters of credit Performance and standby letters of credit 320 3,915 510 3,637 Securities sold under agreements to repurchase amounted to $31,554 and $36,298 at December 31, 2023 and 2022, respectively, and are collateralized by U.S. agencies and mortgage-backed investment securities with fair values of approximately $61,393 and $59,736. The weighted-average interest rates on these agreements were 2.00% and 1.11% at December 31, 2023 and 2022, respectively. Securities sold under agreements to repurchase mature on a daily basis. 2023 2022 (14) Securities Sold Under Agreements to Repurchase 45 2023 Annual Report Notes to Consolidated Financial Statements (000s omitted except share data) (15) Employee and Director Benefit Plans The Company and the Banks maintain a 401(k) plan with profit sharing features covering substantially all employees under which the Company has historically provided a discretionary match of eligible employee contributions. Total 401(k) expense was approximately $593, $574, and $561, for 2023, 2022, and 2021, respectively. Each plan participant elects how the employer contributions are invested; whereby the participants choose between purchasing the Company’s common stock or investing in the plan’s investment funds. In addition, the Company and the Banks maintain non-qualified deferred compensation plans whereby certain directors and officers are provided with guaranteed annual payments for periods ranging from 10 to 15 years after reaching a variation of retirement ages pending participant plan. The compensation plans are funded by bank-owned life insurance policies which had an aggregate death benefit of approximately $53,902 and $53,372 as of December 31, 2023 and 2022, respectively. The Banks accrue amounts to be paid over the participant’s active service life. The accrued benefits were $3,421, $3,329, and $2,888 at December 31, 2023, 2022 and 2021, respectively. Non-qualified deferred compensation expenses were $339, $539, and $413 in 2023, 2022 and 2021, respectively. (16) Federal Home Loan Bank (FHLB) and Other Borrowings At December 31, the scheduled maturities of FHLB advances and other borrowings are as follows: FHLB Advances at December 31: 2023 2022 Fixed rate advances with rates ranging from 2.31% to 4.49% and weighted average rates of 3.96% and 3.79% as of December 31, 2023 and 2022, respectively. Interest is payable monthly with principal due at maturity. $20,738 $6,500 Advances are collateralized by 1-4 family mortgage loans, other qualifying loans and securities. The total amounts of collateral securing FHLB advances were approximately $133,256 and $188,468 as of December 31, 2023 and 2022, respectively. FHLB advances are subject to a prepayment penalty if they are repaid prior to maturity. FHLB advances are also secured by $1,727 and $1,468 of FHLB stock owned by the Company at December 31, 2023 and 2022, respectively. The Company participates in the Federal Reserve Bank of Chicago’s Discount Window Lending Program. Primary advances generally mature daily and bear interest at a generally approved rate in relation to the federal funds rate. The primary advance interest rate at December 31, 2023 was 5.5%. There were no outstanding advances at December 31, 2023 and 2022. Advances are collateralized by investment securities pledged totaling approximately $14,200 and $8,867 at December 31, 2023 and 2022, respectively, to the Federal Reserve Bank. Additional other borrowings totaled $5,216 and $866 at December 31, 2023 and 2022, respectively, and mature from 2024 to 2032, at interest rates ranging from 2.00% to 4.85%. 46 2023 Annual Report The Company and the Banks maintain a 401(k) plan with profit sharing features covering substantially all employees under which the Company has historically provided a discretionary match of eligible employee contributions. Total 401(k) expense was approximately $593, $574, and $561, for 2023, 2022, and 2021, respectively. Each plan participant elects how the employer contributions are invested; whereby the participants choose between purchasing the Company’s common stock or investing in the plan’s investment funds. In addition, the Company and the Banks maintain non-qualified deferred compensation plans whereby certain directors and officers are provided with guaranteed annual payments for periods ranging from 10 to 15 years after reaching a variation of retirement ages pending participant plan. The compensation plans are funded by bank-owned life insurance policies which had an aggregate death benefit of approximately $53,902 and $53,372 as of December 31, 2023 and 2022, respectively. The Banks accrue amounts to be paid over the participant’s active service life. The accrued benefits were $3,421, $3,329, and $2,888 at December 31, 2023, 2022 and 2021, respectively. Non-qualified deferred compensation expenses were $339, $539, and $413 in 2023, 2022 and 2021, respectively. (16) Federal Home Loan Bank (FHLB) and Other Borrowings At December 31, the scheduled maturities of FHLB advances and other borrowings are as follows: FHLB Advances at December 31: 2023 2022 Fixed rate advances with rates ranging from 2.31% to 4.49% and weighted average rates of 3.96% and 3.79% as of December 31, 2023 and 2022, respectively. Interest is payable monthly with principal due at maturity. $20,738 $6,500 Advances are collateralized by 1-4 family mortgage loans, other qualifying loans and securities. The total amounts of collateral securing FHLB advances were approximately $133,256 and $188,468 as of December 31, 2023 and 2022, respectively. FHLB advances are subject to a prepayment penalty if they are repaid prior to maturity. FHLB advances are also secured by $1,727 and $1,468 of FHLB stock owned by the Company at December 31, 2023 and 2022, respectively. The Company participates in the Federal Reserve Bank of Chicago’s Discount Window Lending Program. Primary advances generally mature daily and bear interest at a generally approved rate in relation to the federal funds rate. The primary advance interest rate at December 31, 2023 was 5.5%. There were no outstanding advances at December 31, 2023 and 2022. Advances are collateralized by investment securities pledged totaling approximately $14,200 and $8,867 at December 31, 2023 and 2022, respectively, to the Federal Reserve Bank. Additional other borrowings totaled $5,216 and $866 at December 31, 2023 and 2022, respectively, and mature from 2024 to 2032, at interest rates ranging from 2.00% to 4.85%. (15) Employee and Director Benefit Plans (16) Federal Home Loan Bank (FHLB) and Other Borrowings (continued) At December 31, the scheduled maturities of FHLB advances and other borrowings are as follows: Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) 2023 2024 2025 2026 2027 2028 2029 and thereafter 2023 2022 $2,526 6,000 5,000 1,541 6,488 4,399 $4,500 500 798 - 1,568 - - $25,954 $7,366 The Company had federal funds purchased with its main correspondent institutions totaling $1,153 at December 31, 2023 and no federal funds purchased at December 31, 2022. Federal funds purchased generally mature within one day from transaction date. The weighted average interest rate was 5.75% as of December 31, 2023. The Company has a $15,000 line of credit with Bankers’ Bank secured by the stock of the Banks. The line has a variable interest rate of Wall Street Journal Prime less 0.50 percentage points. As of December 31, 2023, the balance of the line was $0. (17) Fair Value Measurements Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard describes three levels of inputs that may be used to measure fair value: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices; such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The following is a description of valuation methodologies used for assets recorded at fair value: Securities available-for-sale: The fair values of the Company’s securities available-for-sale are primarily determined by matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities. The values determined by matrix pricing are considered Level 2 fair value measurements. 47 2023 Annual Report (17) Fair Value Measurements (continued) Notes to Consolidated Financial Statements (000s omitted except share data) Marketable equity securities: Marketable equity securities with a readily determinable fair value are measured at fair value on a recurring basis. The fair value measurement of equity securities with a readily determinable fair value are based on the quoted price of the security and is considered a Level 1 fair value measurement. Equity securities without a readily determinable fair value are measured at fair value on a nonrecurring basis when transaction prices for identical or similar securities are identified. Fair value measurements on equity securities without a readily determinable fair value are generally considered a Level 2 fair value measurement. Collateral-dependent individually evaluated loans: The Company does not record loans at fair value on a recurring basis. However, from time to time, fair value adjustments are recorded on these loans to reflect (1) partial write-downs, through charge-offs or specific reserve allowances, that are based on the current appraised or market-quoted value of the underlying collateral or (2) the full charge-off of the loan carrying value. The fair value of collateral dependent individually evaluated loans is generally based on recent real estate appraisals. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification. Non-real estate collateral may be valued using an appraisal, net book value of the borrower’s financial statements or aging reports, adjusted or discounted based on management’s expertise and knowledge of the borrower and borrower’s business. Fair value measurements prepared internally are based on management's comparisons to sales of comparable assets, but include significant unobservable data and are therefore considered Level 3 measurements. Foreclosed assets and other real estate owned: Real estate acquired through or in lieu of loan foreclosure is not measured at fair value on a recurring basis. However, other real estate is initially measured at fair value (less estimated costs to sell) when it is acquired and may also be measured at fair value (less estimated costs to sell) if it becomes subsequently impaired. The fair value measurement for each property may be obtained from an independent appraiser or prepared internally. Fair value measurements obtained from independent appraisers generally utilize a market approach based on sales of comparable assets and/or an income approach. Such measurements are usually considered Level 2 measurements. However, management routinely evaluates fair value measurements of independent appraisers by comparing actual selling prices to the most recent appraisals. If management determines significant adjustments should be made to the independent appraisals based on these evaluations, these measurements are considered Level 3 measurements. Fair value measurements prepared internally are based on management's comparisons to sales of comparable assets but include significant unobservable data and are therefore considered Level 3 measurements. Mortgage servicing rights: Mortgage servicing rights are measured at fair value on a recurring basis. Serviced loan pools are stratified by year of origination, and a fair value measurement is obtained for each stratum from an independent firm. The measurement is based on recent sales of mortgage servicing rights with similar characteristics. Since the fair value measurement is based on observable market data, it is considered a Level 2 measurement. 48 2023 Annual Report Marketable equity securities: Marketable equity securities with a readily determinable fair value are measured at fair value on a recurring basis. The fair value measurement of equity securities with a readily determinable fair value are based on the quoted price of the security and is considered a Level 1 fair value measurement. Equity securities without a readily determinable fair value are measured at fair value on a nonrecurring basis when transaction prices for identical or similar securities are identified. Fair value measurements on equity securities without a readily determinable fair value are generally considered a Level 2 fair value measurement. Collateral-dependent individually evaluated loans: The Company does not record loans at fair value on a recurring basis. However, from time to time, fair value adjustments are recorded on these loans to reflect (1) partial write-downs, through charge-offs or specific reserve allowances, that are based on the current appraised or market-quoted value of the underlying collateral or (2) the full charge-off of the loan carrying value. The fair value of collateral dependent individually evaluated loans is generally based on recent real estate appraisals. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification. Non-real estate collateral may be valued using an appraisal, net book value of the borrower’s financial statements or aging reports, adjusted or discounted based on management’s expertise and knowledge of the borrower and borrower’s business. Fair value measurements prepared internally are based on management's comparisons to sales of comparable assets, but include significant unobservable data and are therefore considered Level 3 measurements. Foreclosed assets and other real estate owned: Real estate acquired through or in lieu of loan foreclosure is not measured at fair value on a recurring basis. However, other real estate is initially measured at fair value (less estimated costs to sell) when it is acquired and may also be measured at fair value (less estimated costs to sell) if it becomes subsequently impaired. The fair value measurement for each property may be obtained from an independent appraiser or prepared internally. Fair value measurements obtained from independent appraisers generally utilize a market approach based on sales of comparable assets and/or an income approach. Such measurements are usually considered Level 2 measurements. However, management routinely evaluates fair value measurements of independent appraisers by comparing actual selling prices to the most recent appraisals. If management determines significant adjustments should be made to the independent appraisals based on these evaluations, these measurements are considered Level 3 measurements. Fair value measurements prepared internally are based on management's comparisons to sales of comparable assets but include significant unobservable data and are therefore considered Level 3 measurements. Mortgage servicing rights: Mortgage servicing rights are measured at fair value on a recurring basis. Serviced loan pools are stratified by year of origination, and a fair value measurement is obtained for each stratum from an independent firm. The measurement is based on recent sales of mortgage servicing rights with similar characteristics. Since the fair value measurement is based on observable market data, it is considered a Level 2 measurement. (17) Fair Value Measurements (continued) (17) Fair Value Measurements (continued) Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) The following table presents the Company’s approximate fair-value hierarchy for the assets measured at fair value as of December 31: As of December 31, 2023 Assets measured at fair value on a recurring basis: Assets: Securities available-for-sale U.S. Government sponsored entities and U.S. agencies State and municipal Agency mortgage-backed Corporate debt securities Marketable equity securities Loans held for sale Mortgage servicing rights Assets measured at fair value on a non-recurring basis: Assets: Fair Value Measurements at Reporting Date Using Total (Level 1) (Level 2) (Level 3) $116,429 101,473 146,161 1,555 1,066 990 3,303 $2,345 $116,429 99,128 146,161 1,555 1,066 990 3,303 Collateral-dependent individually evaluated loans $16,361 $16,361 Collateral-dependent individually evaluated loans, which are measured for impairment using the fair value of collateral, had a carrying value of $17,690 with specific reserves of $1,329 as of December 31, 2023. The changes in level 3 items occurring between December 31, 2022 and December 31, 2023 were increases in collateral-dependent individually evaluated loans and sale of other real estate owned. As of December 31, 2022 Fair Value Measurements at Reporting Date Using Total (Level 1) (Level 2) (Level 3) Assets measured at fair value on a recurring basis: Assets: Securities available-for-sale U.S. Government sponsored entities and U.S. agencies State and municipal Agency mortgage-backed Marketable equity securities Loans held for sale Mortgage servicing rights Assets measured at fair value on a non-recurring basis: Assets: $107,930 118,535 164,869 996 421 3,236 $107,930 116,190 164,869 996 421 3,236 Collateral-dependent impaired loans $4,070 Foreclosed assets and other real estate owned 70 $2,345 $4,070 70 49 2023 Annual Report Notes to Consolidated Financial Statements (000s omitted except share data) (17) Fair Value Measurements (continued) Collateral-dependent impaired loans, which are measured for impairment using the fair value of collateral, had a carrying value of $8,431 with specific reserves of $4,361 as of December 31, 2022. Foreclosed assets and other real estate owned, which are measured at the lower of carrying or fair value less costs to sell, were carried at their fair value of $70 as of December 31, 2022. The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2023 and 2022: Valuation Technique Unobservable Input Range Collateral-dependent individually evaluated loans, Sales comparison Appraised values 10% - 20% net of specific reserves approach Foreclosed assets and other real estate owned Sales comparison Appraised values 10% - 20% approach FASB guidance requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates may not be realized in immediate settlement of the instrument. Accounting guidance excludes certain financial instruments and certain nonfinancial instruments from its disclosure requirements. These fair value disclosures may not represent the fair value of the Company. 50 2023 Annual Report (17) Fair Value Measurements (continued) (17) Fair Value Measurements (continued) Collateral-dependent impaired loans, which are measured for impairment using the fair value of collateral, The estimated fair values of the Company’s financial instruments as of December 31, 2023 are as follows: Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) had a carrying value of $8,431 with specific reserves of $4,361 as of December 31, 2022. Foreclosed assets and other real estate owned, which are measured at the lower of carrying or fair value less costs to sell, were carried at their fair value of $70 as of December 31, 2022. The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2023 and 2022: Valuation Technique Unobservable Input Range Collateral-dependent individually evaluated loans, Sales comparison Appraised values 10% - 20% net of specific reserves Foreclosed assets and other real estate owned Sales comparison Appraised values 10% - 20% approach approach FASB guidance requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates may not be realized in immediate settlement of the instrument. Accounting guidance excludes certain financial instruments and certain nonfinancial instruments from its disclosure requirements. These fair value disclosures may not represent the fair value of the Company. Fair Value Measurements at Reporting Date Using Carrying Amount Fair Value (Level 1) (Level 2) (Level 3) Financial Assets: Cash and cash equivalents Interest-bearing deposits in other banks- term deposits $45,718 $45,718 $45,718 4,511 4,399 4,299 $100 Securities 369,214 368,983 366,638 $2,345 Marketable equity securities and other Loans held for sale 5,718 990 5,718 990 Loans, net of allowance 1,069,450 1,043,192 Accrued interest receivable Mortgage servicing rights Financial liabilities: 9,763 3,303 9,763 3,303 4,639 9,763 1,079 990 3,303 1,043,192 Demand and saving deposits $884,900 $884,900 $884,900 Time deposits 472,657 468,839 $468,839 Federal Funds Purchased 1,153 1,153 1,153 Securities sold under agreements to repurchase FHLB advances and other borrowings Accrued interest payable 31,554 25,954 2,082 31,234 25,571 2,082 2,082 $31,234 25,571 51 2023 Annual Report (17) Fair Value Measurements (continued) Notes to Consolidated Financial Statements (000s omitted except share data) The estimated fair values of the Company’s financial instruments as of December 31, 2022 are as follows: Fair Value Measurements at Reporting Date Using Financial Assets: Cash and cash equivalents $43,822 $43,822 $43,822 Carrying Amount Fair Value (Level 1) (Level 2) (Level 3) Interest-bearing deposits in other banks- term deposits Securities Marketable equity securities and other Loans held for sale Loans, net of allowance Accrued interest receivable Mortgage servicing rights Financial liabilities: 6,058 5,833 5,733 395,410 395,168 3,945 421 3,945 421 954,426 928,416 7,255 3,236 7,255 3,236 2,947 7,255 Demand and saving deposits $917,286 $917,286 $917,286 Time deposits 377,421 367,715 Securities sold under agreements to repurchase FHLB advances and other borrowings Accrued interest payable 36,298 7,366 977 35,819 7,225 977 977 $100 392,823 998 421 3,236 $35,819 $2,345 928,416 $367,715 7,225 52 2023 Annual Report (17) Fair Value Measurements (continued) (18) Stock Compensation Plans Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) The estimated fair values of the Company’s financial instruments as of December 31, 2022 are as follows: Fair Value Measurements at Reporting Date Using Carrying Amount Fair Value (Level 1) (Level 2) (Level 3) Financial Assets: Cash and cash equivalents $43,822 $43,822 $43,822 Interest-bearing deposits in other banks- term deposits 6,058 5,833 5,733 Securities 395,410 395,168 Marketable equity securities and other Loans held for sale Loans, net of allowance Accrued interest receivable Mortgage servicing rights Financial liabilities: 954,426 928,416 3,945 421 7,255 3,236 3,945 421 7,255 3,236 2,947 7,255 Demand and saving deposits $917,286 $917,286 $917,286 Time deposits 377,421 367,715 Securities sold under agreements to repurchase FHLB advances and other borrowings Accrued interest payable 36,298 7,366 977 35,819 7,225 977 977 $100 392,823 998 421 3,236 $35,819 $2,345 928,416 $367,715 7,225 During 2012, the Company approved an equity incentive plan to promote the long-term financial success of the Company through stock-based awards to employees, directors or service providers who contribute to that success. This equity incentive plan permits Company management to approve and grant a maximum of 150,000 shares of common stock-based awards in the form of any combination of stock options, stock appreciation rights, stock awards or cash incentive awards. The 2012 equity incentive plan expired in September 2022 and a new plan was implemented in October 2022. The 2022 plan mirrors the expired 2012 plan with the exception of the cash incentive awards which were excluded from the 2022 plan. Stock Options The fair value of each option award is estimated on the date of grant using a closed form option valuation model (Black-Scholes) based on the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield in effect at the time of the grant. The Company’s accounting policy is to recognize forfeitures as they occur. No options were granted for the year ended December 31, 2023 and 2021. For the year ended December 31, 2022, 5,000 shares of non-qualified stock options were granted under the 2012 equity incentive plan. The following assumptions were used in estimating the fair value of options granted during the year ended December 31, 2022: Expected volatility Expected dividend yield Expected term (in years) Risk free rate 2022 64.09% 1.40% 5.00 3.03% Based on these assumptions the estimated weighted average grant date fair value of options granted was $15.96 during 2022. For the years ended December 31, 2023, 2022 and 2021, the Company recognized $16, $25, and $16 in compensation expense for stock options, respectively. No tax benefits were recognized for the three-year period ended December 31, 2023. The intrinsic value of options exercised during the years ended December 31, 2023, 2022 and 2021 was $0, $0 and $0, respectively. 53 2023 Annual Report (18) Stock Compensation Plans (continued) The following table summarizes the activity of options for the year ended: Notes to Consolidated Financial Statements (000s omitted except share data) December 31,2023 December 31,2022 Weighted Average Exercise Price $34.60 - 35.55 - Options 25,000 5,000 (8,334) - Weighted Average Exercise Price $35.55 $31.40 35.55 - Options 21,666 - (16,666) - Shares under option, beginning of year Granted during the year Forfeited and expired during the year Exercised during the year Shares under option, end of year 5,000 31.40 21,666 34.60 Options exercisable, end of year 1,000 31.40 16,666 35.55 The following table summarizes information about stock options outstanding at December 31, 2023: Exercise Price Number Outstanding $31.40 5,000 Remaining Contractual Life (Years) 8.50 Number Exercisable 1,000 Total shares available for grant under the 2012 equity incentive plan were 0, 0 and 64,603 at December 31, 2023, 2022 and 2021, respectively. Total shares available for grant under the 2022 equity incentive plan was 139,071 and 150,000 as of December 31, 2023 and 2022, respectively. Stock Awards Stock awards are granted in the form of restricted stock awards (RSA’s) and restricted stock units (RSU’s) which typically vest equally over a two-year period; however, there were RSAs and RSUs issued in 2021 that vest over a five-year period. RSA’s share in dividends and have voting rights throughout the vesting period. RSU’s are paid a dividend equivalent during the vesting period but have no voting rights. 54 2023 Annual Report (18) Stock Compensation Plans (continued) The following table summarizes the activity of options for the year ended: (18) Stock Compensation Plans (continued) The following table summarizes information regarding unvested restricted stock and shares outstanding during the year ended: Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) December 31,2023 December 31,2022 Weighted Average Exercise Price Options Options Weighted Average Exercise Price Shares under option, beginning of year 21,666 $34.60 Granted during the year Exercised during the year Forfeited and expired during the year (16,666) - - 35.55 - - 25,000 5,000 (8,334) - $35.55 $31.40 35.55 - Shares under option, end of year 5,000 31.40 21,666 34.60 Options exercisable, end of year 1,000 31.40 16,666 35.55 The following table summarizes information about stock options outstanding at December 31, 2023: Exercise Price Number Outstanding Number Exercisable $31.40 5,000 1,000 Remaining Contractual Life (Years) 8.50 Total shares available for grant under the 2012 equity incentive plan were 0, 0 and 64,603 at December 31, 2023, 2022 and 2021, respectively. Total shares available for grant under the 2022 equity incentive plan was 139,071 and 150,000 as of December 31, 2023 and 2022, respectively. Stock Awards Stock awards are granted in the form of restricted stock awards (RSA’s) and restricted stock units (RSU’s) which typically vest equally over a two-year period; however, there were RSAs and RSUs issued in 2021 that vest over a five-year period. RSA’s share in dividends and have voting rights throughout the vesting period. RSU’s are paid a dividend equivalent during the vesting period but have no voting rights. December 31,2023 December 31,2022 Weighted Weighted Unvested Average Unvested Average Shares Grant Value Shares Grant Value Restricted stock, beginning of year Granted during the year Forfeited during the year Restricted shares (net for taxes) Vested during the year Restricted stock, end of year 14,190 11,426 (812) (1,887) (8,650) 14,267 $33.01 26.93 29.77 32.25 32.25 28.88 19,754 $30.86 9,104 34.00 (1,282) (1,980) 33.03 30.51 (11,406) 30.51 14,190 33.01 During 2023, 2022 and 2021, total accrued compensation expense of $294, $390 and $332 (before tax benefits of $84, $111 and $95) was recorded from amortization of restricted shares expected to vest, respectively. Future projected compensation expense (before tax benefits); assuming all restricted shares eventually vest to employees; would be $173, $41 and $2 for years 2024, 2025, and 2026, respectively. (19) Stock Repurchase Program In November 2020, the Company’s Board of Directors adopted a stock repurchase plan. The plan provided a maximum dollar threshold of aggregate cost of repurchases under the plan, set a limit on the daily number of shares that could be repurchased and provided a maximum per share price. This plan, scheduled to expire on November 30, 2021, was subsequently extended to November 30, 2022 with modification of maximum per share price and daily purchase limits. A revised repurchase plan was approved by the Board of Directors as of December 30, 2021 and effective January 1, 2022, replacing the prior active plan. The revised stock repurchase plan provided additional funding, updated maximum per share price and adjusted daily limits and expired June 1, 2022 with no further extensions approved in 2022. A new stock repurchase plan was approved by the Board of Directors as of October 25, 2023 and effective November 1, 2023. The approved plan sets a maximum repurchase dollar limit, maximum per share price and daily limits. The plan has an expiration date of June 1, 2024. For the years ended December 31, 2023, 2022 and 2021, the Company repurchased 60,000, 44,760 and 131,500 shares under the repurchase program, respectively. The purchase price for the shares of the Company’s stock repurchased is reflected as a reduction to shareholders’ equity as treasury stock. 55 2023 Annual Report (20) Earnings Per Common Share For the years ended December 31, earnings per common share have been computed based on the following: Notes to Consolidated Financial Statements (000s omitted except share data) 2023 2022 2021 Net income $14,546 $13,626 $11,386 Net income available to common stockholders 14,546 13,626 11,386 Average number of common shares outstanding Effect of dilutive options 3,562,885 4,723 3,565,548 12,280 3,665,228 15,844 Average number of common shares outstanding used to calculate diluted earnings per common share 3,567,608 3,577,828 3,681,072 (21) Equity and Regulatory Matters The Company and Banks are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. In September 2019, the FDIC finalized a rule that introduced an optional simplified measure of capital adequacy known as the community bank leverage ratio (CBLR) framework. In order to qualify for the CBLR framework, the Company and Banks must have a Tier 1 leverage ratio of greater than 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. As of December 31, 2023 and 2022, the Company and Banks qualified for and elected to use the CBLR framework. An institution opting into the CBLR framework and meeting all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based capital. As of December 31, 2023, the most recent notification from the regulatory agencies categorized all six Banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Banks must maintain minimum regulatory capital ratios as set forth in the table. There are no conditions or events since December 31, 2023, which management believes have changed the capital categories of the Banks. 56 2023 Annual Report (20) Earnings Per Common Share (21) Equity and Regulatory Matters (continued) For the years ended December 31, earnings per common share have been computed based on the following: The Company and the Banks actual capital amounts and ratios as of December 31 are presented in the following tables: Notes to Consolidated Financial Statements (000s omitted except share data) Notes to Consolidated Financial Statements (000s omitted except share data) 2023 2022 2021 Net income $14,546 $13,626 $11,386 Net income available to common stockholders 14,546 13,626 11,386 Average number of common shares outstanding Effect of dilutive options 3,562,885 4,723 3,565,548 12,280 3,665,228 15,844 Average number of common shares outstanding used to calculate diluted earnings per common share 3,567,608 3,577,828 3,681,072 (21) Equity and Regulatory Matters The Company and Banks are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. In September 2019, the FDIC finalized a rule that introduced an optional simplified measure of capital adequacy known as the community bank leverage ratio (CBLR) framework. In order to qualify for the CBLR framework, the Company and Banks must have a Tier 1 leverage ratio of greater than 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. As of December 31, 2023 and 2022, the Company and Banks qualified for and elected to use the CBLR framework. An institution opting into the CBLR framework and meeting all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based capital. As of December 31, 2023, the most recent notification from the regulatory agencies categorized all six Banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Banks must maintain minimum regulatory capital ratios as set forth in the table. There are no conditions or events since December 31, 2023, which management believes have changed the capital categories of the Banks. Actual To Be Well Capitalized Under Prompt Corrective Action Provisions Amount Amount In $000s Ratio In $000s Ratio 173,232 39,422 31,592 19,755 38,269 11,469 21,149 10.76% 9.22% 9.37% 10.94% 9.91% 11.49% 11.94% 144,899 38,480 30,337 16,247 34,764 8,986 15,937 9.00% 9.00% 9.00% 9.00% 9.00% 9.00% 9.00% Actual To Be Well Capitalized Under Prompt Corrective Action Provisions Amount Amount In $000s Ratio In $000s Ratio 164,081 36,762 30,249 19,082 35,708 10,994 20,406 10.81% 9.64% 9.11% 10.77% 10.26% 11.23% 11.88% 136,583 34,334 29,892 15,942 31,317 8,811 15,465 9.00% 9.00% 9.00% 9.00% 9.00% 9.00% 9.00% As of December 31, 2023 Community Bank Leverage Ratio Company Northwest German Davis Freeport Lena Herscher As of December 31, 2022 Community Bank Leverage Ratio Company Northwest German Davis Freeport Lena Herscher (22) Dividends State banking regulations restrict the amount of dividends that a bank may pay to its stockholders. The regulations provide that dividends are limited to the balance of undivided profits, subject to capital-adequacy requirements, plus an additional amount equal to the Bank’s current-year earnings through the date of any declaration of dividends. The payment of dividends would also be restricted if a Bank does not meet the minimum capital conservation buffer as defined by Basel III regulatory capital guidelines. 57 2023 Annual Report Plante & Moran, PLLC 10 South Riverside Plaza 9th floor Chicago, IL 60606 Tel: 312.207.1040 Fax: 312.207.1066 plantemoran.com Independent Auditor's Report on Supplemental Information To the Audit Committee and the Board of Directors Foresight Financial Group, Inc. We have audited the consolidated financial statements (the "financial statements") of Foresight Financial Group, Inc. and its subsidiaries as of and for the year ended December 31, 2023 and have issued our report thereon dated March 12, 2024, which contained an unmodified opinion on those financial statements. Our audit was performed for the purpose of forming an opinion on the financial statements as a whole. The consolidating schedule 1 - December 31, 2023 balance sheet and consolidating schedule 2 - December 31, 2023 statement of income are presented for the purpose of additional analysis and are not a required part of the financial statements. Such information is the responsibility of management and was derived from, and relates directly to, the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. March 12, 2024 59 2023 Annual ReportConsolidating Schedule – Balance Sheet (000s omitted except share data) December 31, 2023 ASSETS German American State Bank State Bank of Davis Northwest Bank Cash and due from banks Interest-bearing deposits in banks Federal funds sold Interest-bearing deposits in banks - term deposits Debt securities: Debt securities available-for-sale (AFS) Debt securities held-to-maturity (HTM) Marketable equity securities and other investments Loans held for sale Loans, net Foreclosed assets and other real estate owned, net Premises and equipment, net Bank owned life insurance Other assets Investment in subsidiary banks $4,202 5,532 683 1,930 54,200 - 3,519 - $1,473 1,903 380 - $5,014 17,824 940 1,245 66,314 71,993 499 290 - - 964 990 246,476 95,407 303,822 - 2,925 4,014 9,034 - - 738 2,100 5,375 - - 6,419 6,486 7,783 - Total assets $332,515 174,479 423,480 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Noninterest-bearing Interest-bearing Total deposits Federal funds purchased Securities sold under agreements to repurchase Federal Home Loan Bank (FHLB) and other borrowings Accrued interest payable and other liabilities $50,942 246,357 297,299 - 0 2,988 4,620 $18,894 137,374 156,268 - 795 2,000 1,407 $91,344 266,831 358,175 - 16,111 13,940 2,518 Total liabilities 304,907 160,470 390,744 Stockholders' equity: Preferred stock Common stock Additional paid-in capital Retained earnings Treasury stock Accumulated other comprehensive income (loss) Total stockholders' equity - 400 3,122 28,070 - (3,984) 27,608 - 100 1,719 17,935 - (5,745) 14,009 - 1,450 8,020 29,952 - (6,686) 32,736 Total liabilities and stockholders' equity $332,515 $174,479 $423,480 60 2023 Annual Report December 31, 2023 ASSETS Cash and due from banks Interest-bearing deposits in banks Federal funds sold Interest-bearing deposits in banks - term deposits Debt securities: Debt securities available-for-sale (AFS) Debt securities held-to-maturity (HTM) Marketable equity securities and other investments Foreclosed assets and other real estate owned, net Loans held for sale Loans, net Premises and equipment, net Bank owned life insurance Other assets Investment in subsidiary banks LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits: Noninterest-bearing Interest-bearing Total deposits Federal funds purchased Stockholders' equity: Preferred stock Common stock Additional paid-in capital Retained earnings Treasury stock Accumulated other comprehensive income (loss) Total stockholders' equity 54,200 66,314 71,993 $4,202 5,532 683 1,930 3,519 - - - 2,925 4,014 9,034 - $50,942 246,357 297,299 - 0 2,988 4,620 - 400 3,122 28,070 - (3,984) 27,608 $1,473 1,903 380 - 499 290 - - 738 2,100 5,375 - $18,894 137,374 156,268 - 795 2,000 1,407 - 100 1,719 17,935 - (5,745) 14,009 $5,014 17,824 940 1,245 - 964 990 - 6,419 6,486 7,783 - $91,344 266,831 358,175 - 16,111 13,940 2,518 - 1,450 8,020 29,952 - (6,686) 32,736 Securities sold under agreements to repurchase Federal Home Loan Bank (FHLB) and other borrowings Accrued interest payable and other liabilities Total liabilities 304,907 160,470 390,744 Consolidating Schedule – Balance Sheet (000s omitted except share data) Consolidating Schedule – Balance Sheet (000s omitted except share data) German American State Bank State Bank of Davis Northwest Bank State Bank Lena State Bank State Bank of Herscher Foresight Financial Group, Inc. Eliminations Consolidated Total $6,153 $1,522 303 18 - 74,157 3,097 502 - 53 - 594 $3,804 14,812 701 742 29,305 69,649 - 143 - - 300 - 246,476 95,407 303,822 292,029 61,711 70,005 - 1,409 1,643 6,558 - - 260 1,153 3,383 - - 1,665 5,026 3,722 - $194 6,592 $(194) (26,191) - - - - - - - - 4,109 4,222 1,103 - - - - - - - - - - 129,145 (129,145) $22,168 20,828 2,722 4,511 365,618 3,596 5,718 990 1,069,450 - 17,525 24,644 36,958 - Total assets $332,515 174,479 423,480 $385,869 $98,124 $170,426 $145,365 $(155,530) $1,574,728 $43,002 290,476 333,478 - 14,648 4,276 1,969 354,371 - 1,000 4,879 32,390 - (6,771) 31,498 $8,485 75,463 83,948 1,153 - 2,750 1,606 89,457 - 500 3,803 7,166 - (2,802) 8,667 $43,732 111,042 154,774 - - - 1,025 155,799 - 400 18,005 2,744 - (6,522) 14,627 $ - - - - - - 4,502 4,502 - 1,020 11,432 174,826 (13,905) (32,510) 140,863 $(194) (26,191) (26,385) - - - - $256,205 1,101,352 1,357,557 1,153 31,554 25,954 17,647 (26,385) 1,433,865 - (3,850) (39,548) (118,257) - 32,510 (129,145) - 1,020 11,432 174,826 (13,905) (32,510) 140,863 Total liabilities and stockholders' equity $332,515 $174,479 $423,480 $385,869 $98,124 $170,426 $145,365 $(155,530) $1,574,728 61 2023 Annual Report December 31, 2023 Interest and dividend income: Loans, including fees Debt securities: Taxable Tax-exempt Interest-bearing deposits in banks and other Federal funds sold Total interest and dividend income Interest expense: Deposits Federal funds purchased Securities sold under agreements to repurchase FHLB and other borrowings Total interest expense Consolidating Schedule – Statement of Income (000s omitted except share data) German American State Bank State Bank of Davis Northwest Bank $13,734 $5,070 $18,009 865 515 432 44 15,590 1,169 369 173 20 6,801 5,118 1,983 7 - 146 5,271 3 28 68 2,082 1,257 175 734 58 20,233 5,220 16 160 335 5,731 Net interest and dividend income 10,319 4,719 14,502 Provision for credit losses 410 165 472 Net interest and dividend income, after provision for credit losses Noninterest income: Customer service fees Equity in earnings of subsidiaries (Loss) gain on sales and calls of AFS securities, net Gain on sale of loans, net Loan servicing fees, nett Bank owned life insurance ATM / interchange fees Other Total noninterest income Noninterest expense: Salaries and employee benefits Occupancy expense of premises, net Outside services Data processing Foreclosed assets and other real estate owned, net Other Total noninterest expenses Income before income taxes Income tax expense 9,909 4,554 14,030 224 - (3) - - 97 732 697 1,747 4,087 490 930 1,164 (37) 1,907 8,541 3,115 690 59 - (52) - - 48 226 220 501 1,270 132 480 580 - 584 3,046 2,009 437 613 - (32) 611 804 162 710 660 3,528 5,221 846 1,472 1,236 - 1,752 10,527 7,031 1,828 Net income $2,425 $1,572 $5,203 62 2023 Annual Report Consolidating Schedule – Statement of Income (000s omitted except share data) Consolidating Schedule – Statement of Income (000s omitted except share data) German American State Bank State Bank of Davis Northwest Bank State Bank Lena State Bank State Bank of Herscher Foresight Financial Group, Inc. Eliminations Consolidated Total $13,734 $5,070 $18,009 $16,179 $3,356 $3,571 1,375 416 168 26 18,164 5,635 43 480 120 6,278 11,886 (42) 478 166 109 17 4,126 1,143 294 904 23 5,935 1,184 1,003 6 - 39 1,229 2,897 100 3 - - 1,006 4,929 - 9,909 4,554 14,030 11,928 2,797 4,929 Net interest and dividend income 10,319 4,719 14,502 Provision for credit losses 410 165 472 December 31, 2023 Interest and dividend income: Loans, including fees Debt securities: Taxable Tax-exempt Interest-bearing deposits in banks and other Federal funds sold Total interest and dividend income Interest expense: Deposits Federal funds purchased Securities sold under agreements to repurchase FHLB and other borrowings Total interest expense Net interest and dividend income, after provision for credit losses Noninterest income: Customer service fees Equity in earnings of subsidiaries (Loss) gain on sales and calls of AFS securities, net Gain on sale of loans, net Loan servicing fees, nett Bank owned life insurance ATM / interchange fees Other Total noninterest income Noninterest expense: Salaries and employee benefits Occupancy expense of premises, net Outside services Data processing Other Foreclosed assets and other real estate owned, net Total noninterest expenses Income before income taxes Income tax expense Net income 5,118 1,983 865 515 432 44 15,590 7 - 146 5,271 224 (3) - - - 97 732 697 1,747 4,087 490 930 1,164 (37) 1,907 8,541 3,115 690 1,169 369 173 20 6,801 3 28 68 2,082 59 - (52) - - 48 226 220 501 1,270 132 480 580 - 584 3,046 2,009 437 1,257 175 734 58 20,233 5,220 16 160 335 5,731 613 - (32) 611 804 162 710 660 3,528 5,221 846 1,472 1,236 - 1,752 10,527 7,031 1,828 92 0 (40) - - 41 232 915 1,240 3,287 273 764 965 - 996 6,285 6,883 1,794 $2,425 $1,572 $5,203 $5,089 75 0 (58) - - 26 80 58 181 625 83 336 399 (1) 300 1,742 1,236 297 $939 92 0 - - 10 112 175 146 535 1,699 264 400 611 - 487 3,461 2,003 455 $ - - - 19 - 19 - - - - - 19 - 19 - $ - - - (341) - (341) $59,919 6,287 1,935 2,198 188 70,527 (341) 19,802 - - - (341) - - - - 78 668 708 21,256 49,271 1,105 48,166 1,155 - (185) 611 814 585 2,155 2,421 7,556 22,627 2,298 1,311 3,025 (43) 7,384 36,602 19,120 4,574 16,777 (16,777) - - - 99 - 5,477 22,353 6,438 273 238 451 (5) 1,358 8,753 13,619 (927) - - - - - (5,752) (22,529) - (63) (3,309) (2,381) - - (5,753) (16,776) - $1,548 $14,546 $(16,776) $14,546 63 2023 Annual Report Board of Directors Robert W. Stenstrom Chairman, Board of Directors Chairman & CEO, Stenstrom Companies Peter Q. Morrison President, Chief Executive Officer John W. Collman Ag Production Frederick J. Kundert Retired, Harder Corporation John J. Morrissey President, Staff Management & Market Dimensions Principal, Morrissey Family Business Carolyn S. Sluiter, D.V.M. Retired Veterinarian Daniel P. Stein Owner, President of Young Bros. Stamp Works, Term- Lok Inc. and Chairman of Central Bancshares Inc. Jeffrey M. Sterling Retired President/CEO of German American State Bank Judd D. Thruman Partner, Fishburn, Whiton, Thruman, LTD. Executive Officers Peter Q. Morrison President, Chief Executive Officer Dean E. Cooke Chief Financial Officer Brooke Crull Chief Risk Officer Rusti Swanson Chief Credit Officer Nora Koehler Director of Human Resources Andrew LaPour Director of Information Technology Lori Morgan Director of Corporate Operations K. Denise Osadjan Senior Vice President 64 2023 Annual ReportGeneral Information Foresight Financial Group, Inc. P.O. Box 339 809 Cannell-Puri Court, Suite 5 Winnebago, IL 61088 815.847.7500 investor.relations@ffgbank.net Registrar, transfer agent and change of address: Market: OTCQX Best Market Trading symbol: FGFH Computershare Investor Services, LLC PO Box 43006 Providence, RI 02940-3006 800.368.5948 computershare.com/investor Banks’ Board of Directors State Bank of Davis Davis, IL Dan Dietmeier Andrew Garnhart Linda Heckert Jed Kempel Thomas Olsen Carolyn Sluiter Judd Thruman Lena State Bank Lena, IL Todd Bussian Curtis Derrer James Moest Steven Rothschadl Judd Thruman German-American State Bank German Valley, IL John Collman Guy Cunningham Robert Ebbesmeyer Kerry L. Hoops Angela K. Larson Warren Laube Michael Schirger Jeffrey M. Sterling Northwest Bank of Rockford Rockford, IL Stephen P. McKeever John J. Morrissey Ryan Miller Amy M. Ott Jon Reidy Robert W. Stenstrom State Bank of Herscher Herscher, IL Randall Chaplinski Troy Coffman Wayne Koelling Fred Kundert Dana Masching Brian Scott State Bank Freeport, IL Luke Beggin Mary Hartman Vanessa Hughes Jay Kempel Fred Kundert Chris Schneiderman Brian Stewart Ken Thompson 65 2023 Annual ReportC O M M U N I T Y B U I L D I N G T H R O U G H C O M M U N I T Y B A N K I N G 809 Cannell-Puri Court, Suite 5 • Winnebago, Illinois 61088 • 815.847.7500 • foresightfg.com 2023 ANNUAL REPORT 

Continue reading text version or see original annual report in PDF format above