CONTENTS. Century Financial Corporation

Transcription

1 ANNUAL REPORT 2016

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3 CONTENTS Financial Highlights 2 Message to Shareholders 3 Report Independent Auditors 5 Consolidated Balance Sheets 6 Consolidated Statements Income 7 Consolidated Statements Comprehensive Income 8 Consolidated Statements Changes in Shareholders Equity 8 Consolidated Statements Cash Flows 9 Notes to Consolidated Financial Statements 10 Directors 28 Officers 28 Employees 29 Office ATM Locations 30 Company Prile 31 The Annual Meeting shareholders will be held March 21, 2017 at 4:00 p.m., at Dearth Community Center, Garfield Road, Coldwater, Michigan.

4 Financial Highlights Financial Highlights For YearFor Year Net Income Net Income $ $ 2,441,000 2,642,000 $ 2,517,000 2,410,000 Cash Dividends 963, ,909 Cash Dividends 812, ,424 Return on Average Assets 0.91% 0.90% Return on Average Return Assets on Average Equity 0.90% 7.88% 7.86% 0.90% Return on Average Equity 8.20% 8.46% At Year End At Year End Assets $ 295,796,000 $ 287,981,000 Deposits Assets $ 272,033, ,326, ,109,000 $ 270,517,000 Net Loans 177,951, ,902,000 Deposits 236,342, ,660,000 Shareholders' Equity 34,231,000 32,842,000 Net Loans 167,590, ,005,000 Shareholders' Per Equity Share 31,207,000 28,318,000 Basic Diluted Earnings $ 1.37 $ 1.30 Per Share Cash Dividends Book Value -- December Basic Earnings $ 1.26 $ 1.24 Diluted Earnings Cash Dividends is a Michigan bank holding company with Century Bank Trust as its only wholly-owned subsidiary. Century Bank Trust fers a full range financial trust services through a system twelve banking fices located in Branch, St. Joseph Hillsdale Counties in Michigan. 2

5 Message to Shareholders Dear Fellow Shareholders, Dear Fellow Shareholders, It is my pleasure to announce anor strong annual performance for Century I am pleased Financial to announce Corporation that 2013 was its anor subsidiary solid year Century for Century Bank Financial Trust Corporation in Our its company earned $2,642,000 or basic earnings per share $1.37 for year. This subsidiary Century Bank Trust. Your company earned $2,410,000 or basic earnings per share nicely exceeds 2015 when net income $2,517,000 earnings per share $1.30 $1.24 for year. This is a strong increase over 2012 results when net income $2,171,000 were reported to you. earnings per share $1.10 were reported. The 2016 performance represents a return on average assets (ROA) 0.91% a The 2013 return performance on average represents equity a return (ROE) on average 7.88%. assets In 2015, (ROA) ROA 0.90% ROE a return were 0.90% on average equity (ROE) 7.86%, 8.46%. respectively. Corresponding numbers for 2012 were 0.82% ROA 8.16% ROE. There were a number positive things You in will our 2013 hear operations me sincerely that say contributed it time to again 11% increase individuals year-over-year within net our income company strong boost in earnings per share. However, are, without is important a doubt, to recognize defining factor first that foremost drives contributing our success. factor On to page Century 29 Bank this Trust s success is our 130 talented report, dedicated you will employees find a roster who serve our our remarkable customers Team communities. Century members along with ir years service for company. The dedication, enthusiasm energy y bring to serving our customers, During communities 2013 we were shareholders again able to leave exceed me humbled key operating for measure opportunity total work revenue. shoulder-to-shoulder This component is with combination m every day. net interest non-interest income. Our total revenue for 2013 was $13,326,000 compared to $13,033,000 in The diversification our revenue stream during this era historically low interest rates has been an important aspect our results for The 2013 Bank s net interest solid 4.97% income annual constituted increase approximately in net income 64% was revenue driven with by non-interest our teams income focus at on 36%. increasing Major contributors total revenue to revenue through for a balanced year were contribution our commercial both lending, net interest mortgage lending non-interest trust income. investment management teams. Our commercial lenders diligently grew existing relationships established new ones as our local business economy continues to rebound. Our mortgage Highlights lenders, for once year again, are: feverishly worked to assist customers in taking advantage attractively low residential mortgage rates. And our Trust Investment Management Group continued growing our client base who seeks investment management, trust estate Net operating planning services. revenue, This defined group s as dedicated net interest effort for clients non-interest allowed income m to end combined, 2013 at record increased levels 3.75% for both totaling assets under management $14,324,000 for department Net revenue. operating Equally revenue as impressive was $13,806,000 important in to 2013 results was our focus on implementing efficiencies reducing costs in our operations. Our retail deposit operations teams reduced combination total interest non-interest The revenue expense mix by $510,000 for 2016 was compared 66% from to 2012 net interest levels. (spread) income 34% from non-interest (fee) income. Century Bank Net interest Trust s income, balance before sheet continues provision to expense, be very strong increased exhibits $421,000 top tier or banking 4.64%. industry Total interest capital ratios income for liquidity At was total $9,494,000 assets were compared $270,517,000 to $9,073,000 up from in total assets $266,001,000. Total deposits grew slightly more than $6,000,000 ending year at $238,660,000. The asset quality measures loan portfolio within balance sheet remain solid with important The provision for loan losses for 2016 was $355,000 compared to $435,000 in reductions during 2013 in key categories nonaccrual loans or real estate owned. Additionally, a sound allowance for loan loss reserve is maintained as a percentage total loans. Solid management interest expense continued in Total interest expense modestly increased, ending year at $220,000 versus $218,000 in In last year s letter to you, I reinforced Board Directors long-term commitment creating shareholder value focus on dividend. (CFC) adjusted its dividend twice during 2013, increasing it $0.02 per share both in March Overall fee income grew 2.07%, totaling $4,831,000 for 2016 compared to $4,733,000 for December. An annual cash dividend $0.34 per share was paid in 2013, as compared to $0.25 per share in Additionally, via a Board authorized program, CFC repurchased 28,903 shares stock on open market during year. A similar repurchase Trust Investment Management revenue continues as single largest component fee income. This program has group been again approved produced to be utilized record in results Our in 2016, shareholders generating also benefited revenue from $1,801,000 an increase in compared stock price to which $1,788,000 began in year at $ ended it at $ For upcoming Fee income year, from we expect Deposit familiar Services tests components in community service banking charges operating environment fees exchanges continuing increased challenge 4.35% in navigating 2016 low interest with aggregate rates revenue reduced residential $1,702,000 mortgage versus refinance $1,631,000 activity in being main ones. I believe Century Bank Trust is well-positioned has a successful track record that reflects our ability to perform appropriately against se headwinds. Your bank The team gain will on continue sale its mortgage focus loans execute declined on foundation $75,000 in that 2016 drives compared our long-term to 2015 success: - - a slowdown (1) grow that retain was pritable anticipated. business activity, Our (2) residential maintain strong lending asset teams quality, took (3) advantage manage operating stronger expenses dem (4) in implement second efficiencies. half year. Total gain was $660,000 for 2016 compared to $735,000 year prior. Before closing, I want to thank each customer, employee, director shareholder for loyalty confidence you express in our company. Non-interest Your commitment expense continued for 2016 totaled support are $10,355,000 what make compared Century Bank to $9,939,000 Trust such in an exceptional Core operating organization expenses, now into net future. employee-related items, for year were $4,308,000 compared to $4,188,000 in 2015 an increase $120,000 or 2.87%. I look forward to reporting to you as we move into Strong capital, liquidity core deposit funding remain key fundamentals Century Bank Trust s balance sheet. Total assets grew $7,815,000 or 2.71% ending at $295,796,000. At , asset levels Eric H. Beckhusen $287,981,000 were reported. Chairman & CEO 3

6 Message to Shareholders (continued) The loan portfolio grew $4,109,000, or 2.33%, on an annual basis. A balanced contribution from all Banks lending teams provided growth. At , total loans were $180,220,000 with an allowance for loan loss reserve $2,269,000 or 1.26% loan portfolio. For same period in 2015, loans totaled $176,111,000 with an allowance for loan loss reserve $2,209,000 or 1.25% loan portfolio. Century Bank Trust continues to service our customer s residential mortgage loans that are sold to secondary market. This f-balance sheet portfolio was $109,271,000 at compared to $105,847,000 at Net loan loss in 2016, as a percentage average loans, was 0.17% as compared to 0.18% in At December 31, 2016, nonaccrual loans totaled $2,141,000 Or Real Estate Owned was $705,000. At December 2015, se categories stood at $3,046,000 $90,000, respectively. Deposits nicely increased 2.88%, ending 2016 at $257,326,000 up $7,217,000 over total deposits $250,109,000. Our deposit service teams continue ir strong work on maintaining growing keystone deposit products personal business checking savings accounts. Century Bank Trust s capital levels continue to soundly exceed requirements to be considered well capitalized by regulatory agencies. At , core ratios banking institutions are measured by stood at: Total capital/risk weighted assets %, Tier 1 capital/risk weighted assets % Tier 1 capital/average assets %. Execution in all core lines business, managing operations efficiently conservative balance sheet management again drove Bank s performance in As a result, Board Directors continued ir commitment to longterm shareholder value return. (CFC) paid an annual cash dividend in 2016 $0.50 per share. This compares to a $0.44 per share annual payout for The market share price CFC stock (ticker symbol CYFL) was $18.00 at $14.60 at Book values for se same time periods were $17.79 $17.00, respectively. I also want to take this opportunity to inform shareholders Century Bank Trust s plans to terminate settle Bank s defined benefit pension plan. The Board Directors approved termination settlement pension plan, effective January 31, Settlement plan requires approval various parties government agencies. We expect to receive approval during third or fourth quarter Upon settlement, Bank anticipates recording a significant one-time, pre-tax expense, exact amount which will be impacted by plan asset performance during 2017, benefit distribution elections made by participants various economic conditions present at that date, such as market interest rates. The pension plan has been frozen not accruing additional employee benefits since It has always been Board s intent to honor Bank s financial obligations to participants while moving to terminate plan as soon as possible. A few practical reasons driving current decision to move forward include (1) ongoing increasing actuarial, accounting, legal administrative expense plan, (2) unpredictability benefit obligation related expense as a result changing mortality tables, government rules investment returns (3) growing burden on Bank staff to administer plan stay current on rules. The Board feels short-term financial impact terminating plan will be more than fset by mitigating future risks eliminating substantial ongoing legacy pension expenses. Finally, I would like to share retirement Robert (Bob) Shedd from both Century Bank Trust Board Directors as As many you know, Bob s association with our organization both as an executive Director has spanned length 45 years. He joined company, n known as Branch County Bank, on January 1, 1972 was named to Board Directors in Our organization, employees, shareholders, communities have all benefited from his years leadership, foresight guidance. Please join me in congratulating Bob on his distinguished role as a Director community banker. I, like many within our bank family, will forever be grateful for his mentoring, friendship unwavering commitment to Century Bank Trust. In conclusion, I sincerely thank you again for your continued support confidence as a shareholder, your business as a client making those conscious customer referrals to Century Bank Trust. As we transition from 2016 to 2017, we do it with positive momentum. No matter banking environment, our vision remains focused on carrying out those daily actions that build long-term success for our communities, clients Bank. Eric H. Beckhusen Chairman & CEO 4

7 Report Independent Auditors Crowe Horwath LLP Independent Member Crowe Horwath International Crowe Horwath LLP Independent Member Crowe Horwath International INDEPENDENT AUDITOR S REPORT Board Directors Stockholders Coldwater, Michigan INDEPENDENT AUDITOR S REPORT Board Directors Stockholders Report on Financial Statements Coldwater, Michigan We have audited accompanying consolidated financial statements, which comprise consolidated balance sheets as December 31, , related consolidated Report statements Financial Statements income, comprehensive income, changes in shareholders equity cash flows for years n ended, related notes to financial statements. We have audited accompanying consolidated financial statements, which Management s comprise consolidated Responsibility balance sheets for as Financial December Statements 31, , related consolidated statements operations, comprehensive income, changes in shareholders equity cash flows for years n ended, related notes to financial statements. Management is responsible for preparation fair presentation se consolidated financial statements Management s in accordance Responsibility with for accounting Financial principles Statements generally accepted in United States America; this includes design, implementation, maintenance internal control relevant to preparation Management fair presentation is responsible consolidated for preparation financial fair statements presentation that se are free consolidated from material financial misstatement, statements in wher accordance due with to fraud accounting or error. principles generally accepted in United States America; this includes design, implementation, maintenance internal control relevant to preparation fair presentation consolidated Auditor s financial statements Responsibility that are free from material misstatement, wher due to fraud or error. Our Auditor s responsibility Responsibility is to express an opinion on se consolidated financial statements based on our audits. We conducted our audits in accordance with auditing stards generally accepted in United Our responsibility is to express an opinion on se consolidated financial statements based on our audits. We States conducted our America. audits in Those accordance stards with auditing require stards that we generally plan accepted perform in United audit States to obtain America. reasonable Those assurance stards require about that wher we plan consolidated perform financial audit to obtain statements reasonable are assurance free from material about wher misstatement. consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about amounts disclosures in An audit consolidated involves performing financial statements. procedures to The obtain procedures audit evidence selected about depend amounts on auditor s disclosures judgment, in including consolidated financial assessment statements. The risks procedures material selected misstatement depend on consolidated auditor s judgment, financial including statements, wher assessment due to fraud risks or material error. In misstatement making those risk consolidated assessments, financial auditor statements, considers wher internal due to fraud control or relevant error. In making to those entity s risk preparation assessments, fair auditor presentation considers internal consolidated control relevant financial to entity s statements preparation in order fair presentation consolidated financial statements in order to design audit procedures that are appropriate in to design audit procedures that are appropriate in circumstances, but not for purpose circumstances, but not for purpose expressing an opinion on effectiveness entity s internal control. expressing Accordingly, we an express opinion no on such opinion. effectiveness An audit also includes entity s evaluating internal control. appropriateness Accordingly, accounting we express policies no such used opinion. reasonableness An audit also includes significant evaluating accounting estimates appropriateness made by management, accounting as policies well as used evaluating reasonableness overall presentation significant consolidated accounting financial estimates statements. made by management, as well as evaluating overall presentation consolidated financial statements. We believe that audit evidence we have obtained is sufficient appropriate to provide a basis for our audit We opinion. believe that audit evidence we have obtained is sufficient appropriate to provide a basis for our audit opinion. Opinion Opinion In our opinion, consolidated financial statements referred to above present fairly, in all material respects, financial In our opinion, position Century consolidated Financial Corporation financial statements as December referred 31, 2016 to above 2015, present fairly, results in its all operations material its cash flows for years n ended in accordance with accounting principles generally accepted in United respects, financial position as December 31, , States America. results its operations its cash flows for years n ended in accordance with accounting principles generally accepted in United States America. Gr Rapids, Michigan Gr March Rapids, 7, 2016 Michigan March 3, 2017 Crowe Horwath LLP Crowe Horwath LLP 5

8 Consolidated Balance Balance Sheets Sheets December 31, 31, Assets Assets Cash Cash due due from from banks banks $ 4,857,905 8,557,178 $ $ 5,393,519 8,255,630 Short Short term term investments investments 18,725,000 17,390,000 27,603,000 24,040,000 Total Total cash cash cash cash equivalents equivalents 23,582,905 25,947,178 32,996,519 32,295,630 Time deposits in or financial institutions 3,490,623 1,743,000 Securities available for sale 48,381,641 56,937,472 Securities available for sale 55,701,898 46,690,600 Securities Securities held held to maturity to maturity (Fair (Fair value value $11,844,676 $15,371,305 in 2013 in 2016 $7,816,351 $13,709,404 in 2012) in 2015) 15,410,752 11,021,853 13,672,016 12,057,738 Federal Or Home investments Loan Bank Federal Agriculture Mortgage Corp. stock 414, , , ,553 Loans Loans held held for for sale sale 440, , ,288 0 Loans, Loans, net net 177,950, ,589, ,901, ,005,193 Premises Premises equipment, net net 5,026,034 5,326,096 5,090,654 5,618,792 Bank Bank owned owned life life insurance insurance 8,318,680 7,852,680 8,083,460 7,624,398 Accrued Accrued interest interest receivable receivable 986, , , ,230 Or assets 4,472,913 4,507,839 Or assets 4,332,760 5,252,864 Total Assets $ 295,795,540 $ 287,981,027 Total Assets 272,032,993 $ 270,517,158 Liabilities Liabilities Deposits Deposits Noninterest-bearing $ 75,972,570 $ 69,711,720 Noninterest-bearing Time deposits $100,000 or more $ 14,738,093 44,261,084 $ 16,260,313 48,078,081 Time Or deposits time deposits $100,000 or more 10,311,712 19,619,375 12,142,850 22,142,683 Or Or time interest-bearing deposits deposits 156,303,301 17,841, ,994,273 19,554,114 Or Total interest-bearing deposits deposits 257,325, ,620, ,109, ,884,954 Total Accrued deposits interest payable 236,825,647 9,373 10, ,659,832 Or liabilities 4,229,799 5,019,290 Accrued interest payable 14,676 21,396 Total Liabilities 261,564, ,138,907 Or liabilities 4,468,517 3,517,887 Total Liabilities Shareholders' Equity 240,825, ,199,115 Preferred stock -- $1 par value; shares authorized ,000; Shareholders' issued Equity outsting -- none Preferred Common stock stock -- $1 -- $1 par par value; value; shares shares authorized ,000; 3,000,000; issued issued outsting -- none -- 1,923,757 in ,931,757 in 2015 Common Paid in stock capital -- $1 par value; shares authorized -- 3,000,000; 1,923,757 19,047,749 1,931,757 19,162,759 issued Retained earnings outsting -- 1,934,757 in ,934,757 in ,025,930 1,934,757 14,347,069 1,934,757 Paid Accumulated in capital or comprehensive loss (2,766,744) 19,202,709 (2,599,465) 19,202,709 Retained Total Shareholders' earnings Equity 34,230,692 12,680,949 32,842,120 11,052,872 Total Liabilities Shareholders' Equity $ 295,795,540 Accumulated or comprehensive loss (2,611,069) $ 287,981,027 (3,872,295) Total Shareholders' Equity 31,207,346 28,318,043 Total Liabilities Shareholders' Equity $ 272,032,993 $ 270,517,158 6 The accompanying notes are an integral part se consolidated financial statements.

9 Consolidated Statements Income Consolidated Statements Income Year Ended Year Ended December December 31, 31, Interest Income Loans, including fees fees $ $ 8,068,949 7,444,260 $ 7,760,618 $ 7,157,969 Securities Taxable Taxable 1,096,418 1,235,225 1,123,491 1,410,694 Non-taxable Non-taxable 345, , , ,107 Or investments 203,339 91,591 Short term investments 74,068 59,006 Total interest income 9,713,914 9,291,169 Total interest income 9,049,931 8,926,776 Interest Expense Interest Deposits Expense 220, ,839 Deposits Or borrowings , ,706 Or Total borrowings interest expense 220, , Total interest expense 277, ,741 Net Interest Income 9,493,520 9,073,315 Net Provision Interest Income for loan losses 355,000 8,772, ,000 8,537,035 Provision Net interest for loan income losses after provision for loan losses 9,138, ,000 8,638, ,000 Net interest income after provision for loan losses Non-interest Income 8,612,156 8,052,035 Service charges on deposit accounts 1,702,141 1,630,966 Non-interest Income Trust investment management revenue 1,800,577 1,788,025 Service Gain on charges sale on mortgage deposit accounts loans 659,511 1,649, ,701 1,595,252 Trust Gain on investment sale securities management revenue 31,261 1,714, ,569,947 Gain Or on income sale mortgage loans 637, , ,185 1,080,063 Gain/(loss) Total non-interest sale income securities 4,830,855 (2,197) 4,732,877 (15,614) Or income 584, ,051 Total Non-interest non-interest Expense income 4,508,658 4,789,699 Salaries employee benefits 6,047,415 5,751,601 Non-interest Occupancy Expense equipment expense 2,053,857 1,945,003 Or 2,253,829 2,242,764 Salaries employee benefits 5,430,638 5,485,341 Total non-interest expense 10,355,101 9,939,368 Occupancy equipment expense 2,106,838 1,929,500 Or 2,233,961 2,101,862 Income Before Income Taxes 3,614,274 3,431,824 Total non-interest expense 9,771,437 9,516,703 Income Taxes 972, ,795 Net Income Income Before Income Taxes $ 2,642,020 $ 2,517,029 3,349,377 3,325,031 Income Basic Earnings Taxes Per Share $ 1.37 $ 908, ,013 Net Income Available to Shareholders $ 2,440,741 $ 2,410,018 Basic Diluted Earnings Per Share $ 1.26 $ 1.24 The accompanying notes are an integral part se consolidated financial statements. 7

10 10 Consolidated Statements Comprehensive Income Year ended December 31, 2014 Year Ended 2013 December 31, Net Income Available to Shareholders $ 2,440, $ ,410,018 Net Income Available to Shareholders Or Comprehensive Income $ 2,642,020 $ 2,517,029 Or Unrealized Comprehensive gains (losses) Income on securities Unrealized Reclassification holding adjustment gain/(loss) for net realized (gains)/losses Reclassification sales securities adjustment (A) for net (31,261) 0 Unrealized (gains)/losses gains/(losses) on sales securities on securities (A) 2,197 15,614 Unrealized holding (gain)/loss 2,698,328 (226,384) (3,628,229) (208,504) Tax effect (C) (C) (918,178) 87,600 1,228,28970,891 Net tax tax (1,782,347) (170,045) (2,384,326) (137,613) Defined benefit pension plan plan Net gain/(loss) (968,221) (223,988) 1,039,331 (14,123) Reclassification adjustment for for realized pension pension (gains)/losses (gains)/losses (B) (B) 178, , , ,059 Tax effect (C) (C) 268,457 (1,425) 353,373 (76,719) Net tax (521,121) 2, , ,217 Total or comprehensive income/(loss) (1,261,226) (167,279) (1,698,368) 11,604 Comprehensive Income $ 3,701,967 $ $ 2,474,741 $ 711,650 2,528, (A) Included in in gain/(loss) on on sale sale securities (B) Included in in salaries employee benefits benefits (C) (C) Income Income taxes taxes for for include include benefits benefits $61,486 $66,952 $93,723 $81,620 related related to reclassification to reclassification adjustments adjustments Consolidated Statements Consolidated Changes Statements Changes in Shareholders Equity in Shareholders Equity Consolidated Statements Changes in Shareholders Equity Consolidated Statements Changes in Shareholders Equity Accumulated Or Accumulated Common Paid In Retained Comprehensive Or Stock Common Capital Paid In Earnings Retained Income Comprehensive (Loss) Total Stock Capital Earnings Income/(Loss) Total Balance, January 1, 2013 $ 1,963,660 $ 19,540,051 $ 9,304,278 $ (2,173,927) $ 28,634,062 Balance, Net income January 1, 2015 $ 1,934,757 $ 19,202,709 $ 2,410,018 12,680,949 $ (2,611,069) $ 31,207,346 2,410,018 Or Net income comprehensive income 0 0 2,517,029 (1,698,368) 0 2,517,029 (1,698,368) Cash Or dividends, comprehensive $.34 per income share 0 0 (661,424) 0 11,604 (661,424) 11,604 Repurchase Cash dividends, shares $.44 per share (28,903) 0 (337,342) 0 (850,909) 0 (850,909) (366,245) Balance, Repurchase December shares 31, ,934,757 (3,000) 19,202,709 (39,950) 11,052,872 0 (3,872,295) 0 28,318,043 (42,950) Balance, Net income December 31, ,931,757 19,162,759 2,440,741 14,347,069 (2,599,465) 32,842,120 2,440,741 Or Net income comprehensive loss 0 0 2,642,020 1,261, ,642,020 1,261,226 Cash Or dividends, comprehensive $.42 per loss share 0 0 (812,664) 0 (167,279) (167,279) (812,664) Cash dividends, $.50 per share 0 0 (963,159) 0 (963,159) Balance, Repurchase December shares 31, 2014 $ 1,934,757 (8,000) $ 19,202,709 (115,010) $ 12,680,949 0 $ (2,611,069) 0 $ 31,207,346 (123,010) Balance, December 31, 2016 $ 1,923,757 $ 19,047,749 $ 16,025,930 $ (2,766,744) $ 34,230,692 8 The accompanying notes are an integral part se consolidated financial statements.

11 Consolidated Statements Cash Flows Year Ended December 31, Year ended December 31, Cash Flows from Operating Activities Net Income Year Ended $ December 2,440,741 31, $ 2,410,018 Adjustments to Reconcile Net Income to Net Cash from Operating Activities Depreciation Cash Flows from Operating Activities 530, ,335 Net Net amortization Income on securities $ 2,642,020290,791 $ 2,517,029 (58,761) Provision Adjustments for loan to Reconcile losses Net Income to Net Cash from Operating Activities 160, ,000 Gain Depreciation sales mortgage loans 481,459 (562,141) 470,027(1,080,063) Proceeds Net (accretion)/amortization from sales mortgage on loans securities 214,570 15,349,514 76,447 34,176,819 Mortgage Provision loans for originated loan lossesfor sale 355,000 (14,739,510) 435,000(31,952,104) Loss Gain on on sales sales securities mortgage loans (659,511) 2,197 (734,701) 15,614 Loss Proceeds on sales from or sales real mortgage estate owned loans 20,331,638 (19,846) 22,593,520 (15,837) Mortgage loans originated for sale (20,112,577) (21,650,392) Earnings on bank owned life insurance (228,282) (231,710) Gain on sales securities (31,261) 0 Net Change in Assets Liabilities Loss/(gain) on sales or real estate owned 2,140 (1,874) Interest Earnings receivable on bank owned life insurance (235,220) 18,402 (230,780) 49,433 Interest Net Change payable in Assets Liabilities (6,720) (18,184) Or Interest assets receivable (105,246) (196,582) (42,032) (69,367) Or Interest liabilities payable (1,088) (161,052) (4,215) (183,564) Net Or cash assets from operating activities 740,292 3,633,120 (246,171) 4,070,629 Cash Or Flows liabilities from Investing Activities (789,491) 550,773 Redemption Net cash from Federal operating Home activities Loan Bank stock 2,832,725 77,700 3,732,631 0 Purchases Cash Flows securities from Investing available Activities for sale (5,500,000) (33,120,000) Proceeds Redemption from sales, Federal calls Home maturities Loan Bank securities stock available for sale 16,542, ,500 26,088,764 Proceeds Purchases from calls, securities prepayment available for maturities sale securities held to maturity (40,665,000) 1,829,450 (18,790,000) 1,260,421 Purchases Proceeds from securities sales, held calls to maturity maturities securities available for sale 31,296,799 (873,000) 20,275,000 (5,438,000) Proceeds from calls, prepayment maturities securities held to maturity 2,951, ,927 Net change in portfolio loans (19,600,135) (6,150,731) Purchases securities held to maturity (4,773,000) (3,528,000) Proceeds from sales or real estate owned 909, ,431 Purchase time deposits in or financial institutions (1,749,000) (1,743,000) Premises Net change equipment in portfolio expenditures, loans net (5,320,500) (237,952) (6,925,615) (252,838) Net Proceeds cash from from investing sales activities or real estate owned 299,260 (6,851,530) 471,640(16,970,953) Cash Premises Flows from Financing equipment expenditures, Activities net (416,839) (234,585) Net Net change cash in from time investing deposits activities $100,000 or more (18,376,690) (2,523,308) (9,556,133)(7,274,183) Net Cash change Flows in from or Financing deposits Activities 205,930 13,347,733 Repurchase Net change in stock time deposits $100,000 or more (1,522,220) (3,359,062) 0 (366,245) Cash Net dividends change in paid or deposits 8,738,740 (812,664) 17,125,764 (661,424) Net Repurchase cash from financing stock activities (123,010) (3,130,042) (42,950) 5,045,881 Net Change Cash dividends in Cash paid Cash Equivalents (963,159) (6,348,452)(850,909)(7,854,443) Cash Net cash cash from equivalents financing at activities beginning year 6,130,351 32,295,630 12,872,843 40,150,073 Cash Net Change Cash in Equivalents Cash Cash at End Equivalents Year (9,413,614) $ 25,947,178 7,049,341 $ 32,295,630 Cash cash equivalents at beginning year 32,996,519 25,947,178 Supplemental Disclosures Cash Flow Information Cash Cash Equivalents at End Year $ 23,582,905 $ 32,996,519 Cash Paid During Year for Supplemental Disclosures Cash Flow Information Interest $ 284,495 $ 407,925 Cash Paid During Year for Income taxes paid (refunded) 571, ,000 Interest $ 221,482 $ 222,069 Supplemental Disclosures Non-Cash Financing Investing Activities Income taxes paid 977, ,000 Transfers loans to or real estate owned $ 855,651 $ 456,000 Supplemental Disclosures Non-Cash Financing Investing Activities Transfers loans to or real estate owned $ 916,400 $ 178,565 The accompanying notes are an integral part se consolidated financial statements. 9

12 Notes to Consolidated Financial Statements 1. SIGNIFICANT ACCOUNTING POLICIES Nature Operations The consolidated financial statements include accounts Century Century Financial Financial Corporation Corporation ( ( Corporation ), Corporation ), its wholly-owned its wholly-owned subsidiary, subsidiary, Century Century Bank Bank Trust Trust ( ( Bank ), Bank ), combined combined with with its wholly-owned its wholly-owned subsidiaries, subsidiaries, Century Century Insurance Insurance Services Services Century Mortgage Services, after elimination significant intercompany transactions accounts. Century The Corporation Mortgage Services, provides after financial elimination services significant through intercompany its fices located transactions in sourn accounts. Michigan. Its primary deposit products are The checking, Corporation savings, provides financial term certificate services accounts, through its fices its primary located in lending sourn products Michigan. are Its residential primary deposit mortgage, products commercial, are checking, installment savings, consumer term loans. certificate Substantially accounts, all loans its are primary secured lending by specific products items are residential collateral mortgage, including commercial, business assets, installment consumer consumer assets loans. real estate. Substantially Commercial all loans loans are secured are expected by specific to be items repaid by collateral cash flows including from operations business assets, businesses. consumer assets Real estate loans real are secured estate. Commercial by both residential loans are expected commercial to be repaid real estate. by cash Or flows financial from operations instruments businesses. which potentially Real estate represent loans are concentrations secured by both credit residential risk include commercial deposit accounts real estate. in or Or financial institutions. instruments which potentially represent concentrations credit risk include deposit accounts in or financial institutions. Subsequent Events Subsequent The Bank Events has evaluated subsequent events for recognition disclosure through March 3, 2017, which is date financial statements The Bank has were evaluated available subsequent to be issued. events for recognition disclosure through March 6, 2015, which is date financial statements were available to be issued. Use Estimates Use The preparation Estimates financial statements in conformity with accounting principles generally accepted in United States America requires The preparation management financial to make statements estimates in conformity assumptions with accounting based on available principles information. generally accepted These in estimates United States assumptions America affect requires amounts management reported to in make consolidated estimates financial assumptions statements based on available disclosures information. provided. These Actual estimates amounts assumptions could differ affect from those amounts estimates. reported in consolidated financial statements disclosures provided. Actual amounts could differ from those estimates. Cash Flows Cash For Flows purpose this statement, cash cash equivalents are defined to include cash on h, dem deposits with banks, overnight investments certain short term investments with maturities three months or less upon acquisition. Overnight investments For purpose can be liquidated this statement, to cash cash within cash seven equivalents days. Net are cash defined flows to are include reported cash for on customer h, dem loan deposits deposit with transactions banks, short-term overnight investments borrowings. certain short term investments with maturities three months or less upon acquisition. Overnight investments can be liquidated to cash within seven days. Net cash flows are reported for customer loan deposit transactions Securities short-term borrowings. Securities classified as available for sale are reported at ir fair value related unrealized holding gains or losses are reported, Securitiesnet related income tax effects, in or comprehensive income, until realized. Such securities might be sold prior to maturity Securities due classified to changes as available in interest for rates, sale are prepayment reported at risks, ir yield fair value availability related alternative unrealized investments, holding gains liquidity or losses needs are reported, or factors. net related Securities income for tax which effects, management in or comprehensive has positive income, intent until realized. ability Such to hold securities to maturity might be are sold classified prior to as maturity held to due maturity to changes are in reported interest at rates, amortized prepayment cost. risks, Or yield securities, availability such as Federal alternative Home investments, Loan Bank liquidity Federal needs or Agriculture or factors. Mortgage Securities Corp stock, are carried at cost. for Premiums which management discounts has on positive securities intent are recognized ability in interest to hold to income maturity using are classified level yield as held method to maturity over estimated are reported life at security. amortized Gains cost. Or losses securities, on such sale as Federal securities Home are Loan recorded Bank on Federal trade Agriculture date determined Mortgage using Corp stock, specific are carried identification cost. method. Premiums discounts on securities are recognized in interest income using level yield method over estimated life security. Declines Gains fair losses value on securities sale securities below ir are cost recorded that are on or trade than date temporary determined are reflected using as realized specific identification losses. In estimating or-than-temporary method. losses, management considers: (1) length time extent that fair value has been less than cost, (2) financial Declines condition in fair value near term securities prospects below ir issuer, cost that (3) are wher or than market temporary decline are reflected was affected as realized by macroeconomic losses. In estimating conditions, or-than-temporary (4) wher Corporation losses, management has intent considers: to sell (1) debt length security time or more extent likely that than fair not value will has be required been less to than sell cost, debt (2) security before its anticipated recovery. If eir criteria regarding intent or requirement to sell is met, entire difference between amortized financial condition cost fair near value term is recognized prospects as impairment issuer, (3) through wher earnings. market For decline debt was securities affected that by do macroeconomic not meet aforementioned conditions, criteria, (4) wher amount Corporation impairment has is split intent into to two sell components debt security as follows: or more likely (1) or-than-temporary-impairment than not will be required to sell (OTTI) debt security related to credit before loss, its anticipated which must recovery. be recognized If eir in criteria income regarding statement intent or (2) requirement OTTI related to sell to or is met, factors, entire which difference is recognized between in or comprehensive amortized cost income. fair value The is credit recognized loss as is impairment defined as through difference earnings. between For debt securities present value that do not meet cash flows aforementioned expected to be collected criteria, amount amortized impairment cash basis. split For into equity two components securities, as follows: entire amount (1) or-than-temporary-impairment is recognized (OTTI) through related earnings. to The assessment credit loss, which wher must be an recognized or-than-temporary in income decline statement exists involves (2) OTTI a related high degree to or factors, subjectivity which is recognized judgment in or is based on comprehensive information income. available The to credit management loss is defined at a point as in time. difference between present value cash flows expected to be collected amortized cash basis. For equity securities, entire amount impairment is recognized through earnings. The Time Deposits in Or Financial Institutions assessment These are FDIC wher insured an or-than-temporary deposits which mature decline 2018 exists through involves 2021, a high 2023 degree 2025 subjectivity in amounts judgment $249,000 is based or $250,000. on information available to management at a point in time. Loans Held for Sale Loans Mortgage Held for loans Sale originated intended for sale in secondary market are carried at lower aggregate cost or fair value, as determined Mortgage loans by outsting originated commitments intended for from sale investors. secondary Net unrealized market are losses, carried if at any, are lower recorded aggregate as a valuation cost or fair allowance value, as charged deteremined to earnings. by outsting commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance charged Mortgage to earnings. loans held for sale are generally sold with servicing rights retained. The carrying value mortgage loans sold is reduced by Mortgage amount loans allocated held for to sale are servicing generally right. sold Gains with servicing losses rights on retained. sales mortgage The carrying loans value are based mortgage on loans difference sold is between reduced selling price carrying value related loan sold. by amount allocated to servicing right. Gains losses on sales mortgage loans are based on difference between selling price carrying value related loan sold. 8 10

13 Notes to Consolidated Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Loans Loans are are reported at at principal balance outsting, net deferred loan fees costs an allowance for loan losses. Interest income is reported on on interest method includes amortization net deferred net deferred loan fees loan fees costs over costs over loan term. loan Interest term. Interest income on income loans on is generally loans is generally discontinued discontinued at time at loan time is 90 loan days is delinquent ninety days unless delinquent, credit determined is well-secured based upon in process contractual collection. terms In all cases, loan, unless loans are placed credit on is well-secured non-accrual or charged-f in process at an collection. earlier date In if all collection cases, loans principal are placed or interest on non-accrual is considered or charged-f doubtful. All at an interest earlier accrued date if but collection not received principal for loans or placed interest on is non-accrual considered is doubtful. reversed against Past due interest status income. is determined Interest based received on on contractual such loans is terms accounted on loan. All cash interest basis or accrued cost-recovery but not method, received until for loans qualifying placed for on return non-accrual to accrual. is reversed Loans are against returned interest to accrual income. status Interest when all received principal on such loans interest is accounted amounts contractually cash due basis are or brought cost-recovery current method, future until payments qualifying are reasonably for return assured. to accrual. Loans are returned to accrual status when all principal interest amounts contractually due are brought current future payments are Allowance reasonably for assured. Loan Losses The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against allowance Allowance when for Loan management Losses believes uncollectibility a loan balance is confirmed. Subsequent recoveries, if any, are credited to The allowance. Management for loan losses estimates is a valuation allowance allowance balance for required probable using incurred past loan credit loss losses. experience, Loan losses nature are charged volume against allowance portfolio, when information management about believes specific borrower uncollectibility situations a estimated loan balance collateral is confirmed. values, economic Subsequent conditions, recoveries, if or any, factors. are credited to allowance. Management estimates allowance balance required using past loan loss experience, nature volume Allocations portfolio, information allowance about may specific be made borrower for specific situations loans, but estimated entire allowance collateral is values, available economic for any loan conditions, that, in management s or factors. judgment, Allocations should be allowance charged-f. may be made for specific loans, but entire allowance is available for any loan that, in management s judgment, The allowance should consists be charged-f. specific general components. The specific component relates to loans that are individually classified as The impaired allowance or loans consists orwise specific classified as general substard components. or doubtful. The specific component relates to loans that are individually classified as A impaired loan is impaired or loans when orwise full payment classified under as substard loan terms or is doubtful. not expected. Loans, for which terms have been modified, resulting in A a concession, loan is impaired for when which full payment borrower under is experiencing loan financial terms is dificulties, not expected. are considered Loans, for troubled which debt terms restructurings have been modified, classified resulting in as a impaired. concession, Commercial for which commercial borrower real is estate experiencing loans are financial individually dificulties, evaluated are for considered impairment. troubled debt restructurings classified as impaired. Commercial commercial real estate loans are individually evaluated for impairment. Factors Factors considered considered by by management management in determining in determining impairment impairment include include payment payment status, status, collateral collateral value, value, probability probability collecting scheduled principal interest interest payments payments when when due. due. Loans Loans that experience that experience insignificant insignificant payment payment delays delays payment payment shortfalls generally are not classified as as impaired. Management determines significance payment delays delays payment shortfalls on a case-by-case basis, taking into into consideration all all circumstances surrounding surrounding loan loan borrower, borrower, including including length length delay, delay, reasons reasons for delay, for delay, borrower s borrower s prior payment prior record, payment record, amount amount shortfall in relation shortfall to in relation principal to principal interest owed. interest owed. If If a loan loan is is impaired, impaired, a a portion portion allowance allowance is allocated is allocated so that so that loan loan is reported, is reported, net, at net, at present present value value estimated estimated future cash flows using loan s existing rate or at fair value collateral if repayment is expected solely from collateral. future Large cash groups flows smaller using balance loan s homogenous existing rate or loans, at such fair value as consumer collateral residential if repayment real is estate expected loans, solely are from collectively collateral. evaluated Large for groups impairment, smaller accordingly, balance homogenous y are loans, not separately such as consumer identified for residential impairment real disclosures. estate loans, are collectively evaluated for impairment, Troubled debt restructurings accordingly, y are are separately not separately identified identified for impairment for impairment disclosures disclosures. are measured at present value estimated future Troubled cash debt flows restructurings using loan s are separately effective rate identified at inception. for impairment If a troubled disclosures debt restructuring are measured is considered at present to be a value collateral estimated dependent future loan, cash loan flows is using reported, loan s net, at effective fair rate value at inception. collateral. If a troubled For debt troubled restructuring debt restructurings is considered that to be subsequently a collateral dependent default, loan, Corporation loan determines is reported, net, amount at fair value reserve in accordance collateral. with For troubled accounting debt restructurings policy for that allowance subsequently for default, loan losses. Corporation The general determines component amount covers non-impaired reserve in accordance loans with is based accounting on historical policy loss for experience allowance adjusted for loan for losses. current factors. The historical loss experience is determined by portfolio segment is based on actual loss history experienced by Corporation over The general most component recent five covers years. non-impaired This actual loss loans experience is based is supplemented on historical loss with experience or economic adjusted factors for current based factors. on The risks present historical for each portfolio loss experience segment. is determined These economic by portfolio factors segment include consideration is based actual following: loss history levels experienced trends by in delinquencies Corporation over impaired most loans; recent levels five years. trends This in actual charge-fs loss experience recoveries; is supplemented trends in with volume or economic terms factors loans; based effects on any risks changes presentin risk for selection each portfolio underwriting segment. These stards; economic or factors changes include lending consideration policies, procedures, following: levels practices; experience, trends in delinquencies ability, depth impaired lending management loans; levels or trends relevant in charge-fs staff; national recoveries; local trends economic in volume trends terms conditions; loans; industry effects conditions; any changes in effects risk selection changes in credit underwriting concentrations. stards; The or following changes portfolio in lending segments policies, have procedures, been identified: practices; experience, ability, depth lending management Commercial - Loans or relevant to business staff; national that are sole local proprietorships, economic trends partnerships, conditions; limited industry liability conditions; companies effects Commercial changes in corporations. - Loans credit concentrations. These to business loans The are that following for are commercial, sole proprietorships, portfolio segments industrial, partnerships, have or been pressional limited identified: purposes. liability companies The risk characteristics corporations. These loans se are for loans commercial, vary based industrial, on borrowers or pressional business purposes. industry The risk as repayment characteristics is typically se dependent loans vary on based cash flows on borrowers Commercial generated business - from Loans to underlying industry as business that business. repayment is typically dependent on cash flows generated from underlying business. are sole proprietorships, partnerships, limited liability companies corporations. These Residential loans are for commercial, industrial, or pressional purposes. The risk characteristics se loans vary based on borrowers Residential real estate real estate - Loans - Loans to purchase to purchase or refinance or refinance one- to onefour-family to four-family residences. residences. The risks The associated risks associated with this segment business with are this generally segment industry as dependent are repayment generally on is dependent typically overall dependent on real estate overall on value cash real environment flows estate generated value environment from individual underlying payment individual business. obligations. payment Real estate obligations. is subject to Real changes estate in is market subject valuation to changes in market can be unstable valuation for a variety can be unstable reasons. for a variety reasons. Residential real estate - Loans to purchase or refinance one- to four-family residences. The risks associated with this segment are Consumer - Term loans or lines credit for purchase consumer goods, vehicles or home improvement. The risk generally Consumer dependent - Term on loans overall or lines real credit estate for value environment purchase consumer individual goods, payment vehicles obligations. or home improvement. Real estate is subject The to characteristics loans in this segment vary depending on type collateral but generally repayment is expected from a consumer changes risk characteristics in continuing market valuation to generate loans can in a cash be this unstable segment flow that for supports a vary variety depending calculated reasons. type collateral but generally repayment is expected from a consumer continuing to generate a cash flow that payment supports obligation. calculated Secondary payment support obligation. could involve liquidation collateral. Consumer Secondary - Term support loans could or lines involve credit liquidation for purchase collateral. consumer goods, vehicles or home improvement. The risk characteristics loans in this segment vary depending on type collateral but generally repayment is expected from a Bank consumer Owned Life continuing Insurance to generate a cash flow that supports calculated payment obligation. Secondary support could involve The liquidation Corporation collateral. has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at amount that can be realized under insurance contract at balance sheet date, which is cash surrender value adjusted for or changes or amounts due that are probable at settlement. 11

14 Notes to Consolidated Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Servicing Rights Bank Servicing Owned rights Life Insurance represent fair value servicing rights retained on loans sold. Servicing rights are expensed in proportion to, The over Corporation period has, purchased estimated life net insurance servicing policies revenues. on certain Impairment key executives. is evaluated Bank based owned on life insurance fair value is recorded rights, at using groupings amount that can be underlying realized under loans as insurance to interest contract rates at prepayment balance sheet characteristics. date, which Fair cash value surrender is determined value adjusted using prices for similar for or assets changes with or similar amounts characteristics, due that are probable when available, at settlement. or based upon discounted cash flows using market-based assumptions. Any impairment a grouping is reported as a valuation allowance. Servicing fee income, which is reported on income statement as or income, is recorded for fees earned for servicing loans. Servicing Rights The fees are based on a contractual percentage outsting principal. The amortization mortgage servicing rights is netted against Servicing loan rights servicing represent fee income. fair value Servicing servicing fees totaled rights $279,000 retained on loans $262,000 sold. Servicing for years rights ended are expensed December in 31, proportion Late to, fees over ancillary period, fees estimated related to net loan servicing servicing revenues. are not Impairment material. is evaluated based on fair value rights, using groupings underlying loans as to interest rates prepayment characteristics. Fair value is determined using prices Transfers for similar assets Financial with similar Assetscharacteristics, when available, or based upon discounted cash flows using market-based assumptions. Transfers Any financial impairment assets are a accounted grouping is for reported as sales, as when a valuation control allowance. over assets has been surrendered. Control over transferred assets Servicing is deemed fee income, to be surrendered which is reported when on (1) income assets statement have been as isolated or income, from is recorded Corporation, for fees (2) earned transferee for servicing obtains right (free loans. The conditions fees are based that constrain on a contractual it from percentage taking advantage outsting that right) principal. to pledge The or amortization exchange mortgage transferred servicing assets, (3) Corporation does not maintain effective control over transferred assets through an agreement to repurchase m before ir maturity. rights is netted against loan servicing fee income. Servicing fees totaled $218,000 $216,000 for years ended December 31, Late fees ancillary fees related to loan servicing are not material. Foreclosed Assets Transfers Assets acquired Financial collection Assets a loan are recorded at fair value less costs to sell at acquisition. Any reduction to fair value at acquisition Transfers from financial carrying assets value are is accounted recorded for as a as loan sales, loss. when After control acquisition, over assets a valuation has been allowance surrendered. reduces Control reported over amount for furr transferred reductions assets is in deemed fair value. to be Expenses, surrendered gains when (1) losses assets on disposition, have been isolated changes from in Corporation, valuation (2) allowance transferee are reported as or obtains expense. right The (free Corporation conditions had that $705,000 constrain it from $90,000 taking advantage foreclosed assets that right) at December to pledge 31, or exchange transferred assets, (3) Corporation does not maintain effective control over transferred assets through an agreement to repurchase L m is carried before at ir cost. maturity. Premises equipment are stated at cost less accumulated depreciation. Buildings related components Premises Equipment are Foreclosed depreciated Assets using straight-line method furniture, fixtures equipment are depreciated using straight-line or accelerated Assets acquired methods. in collection a loan are recorded at fair value less costs to sell at acquisition. Any reduction to fair value at acquisition from carrying value is recorded as a loan loss. After acquisition, a valuation allowance reduces reported Long-term Assets amount Premises for furr equipment reductions in or fair value. long-term Expenses, assets gains are reviewed losses for on impairment disposition, when changes events indicate valuation ir carrying allowance amount may not are be reported recoverable as or from expense. future The undiscounted Corporation cash had flows. $381,000 If impaired, $460,000 assets foreclosed are recorded assets at December fair value. 31, Premises Equipment Retirement Plans Pension L is carried expense at is cost. net Premises service equipment interest are cost, stated return at cost on less plan accumulated assets, amortization depreciation. Buildings gains losses related not immediately recognized. components are Expense depreciated for using Employee straight-line Stock Ownership method Plan furniture, is amount fixtures contributed equipment as determined are depreciated by using Board Directors. straight-line or accelerated methods. Income Taxes Long-term Income tax Assets expense is tax due or refundable for period plus or minus change during period in deferred tax assets Premises liabilities. equipment Deferred income or tax long-term assets assets liabilities are reviewed are computed for impairment annually when for events temporary indicate differences ir carrying between amount financial statement may not be recoverable tax bases from assets future undiscounted liabilities that cash will flows. result If impaired, in taxable or assets deductible are recorded amounts at fair in value. future based on enacted tax laws rates applicable to periods in which differences are expected to affect taxable income. Valuation allowances are established, Retirement Plans when necessary, to reduce deferred tax assets to amount expected to be realized. Pension A tax position expense is is recognized net service as a benefit interest only cost, if it return is more on plan likely assets, than not amortization that tax position gains would losses be notsustained in a tax examination, immediately recognized. with a tax examination Expense for being Employee presumed Stock to occur. Ownership The Plan amount is recognized amount contributed is largest as determined amount by tax benefit that is greater than 50% likely being realized on examination. For tax positions not meeting more likely than not test, no tax benefit Board Directors. is recorded. Stock Compensation The Corporation recognizes interest /or penalties related to income tax matters in income tax expense. Compensation cost is recognized for stock options issued to employees, based on fair value se awards at date Loan Commitments grant. There have been Related no stock Financial options Instruments granted during 2014 or Financial instruments include f-balance sheet credit instruments, such as commitments to make loans commercial letters credit, Income issued Taxesto meet customer financing needs. The face amount for se items represents exposure to loss before considering customer Income collateral tax expense or is ability tax to due repay. or refundable Such financial for instruments period plus are or minus recorded change when y during are funded. period in deferred tax assets liabilities. Deferred income tax assets liabilities are computed annually for temporary differences between Fair financial Values statement Financial tax Instruments bases assets liabilities that will result in taxable or deductible amounts in future based on enacted Fair values tax laws financial rates applicable instruments to are periods estimated in which using differences relevant market are expected information to affect taxable or income. assumptions, Valuation as more fully disclosed in a separate note. Fair value estimates involve uncertainties matters significant judgment regarding interest rates, allowances are established, when necessary, to reduce deferred tax assets to amount expected to be realized. credit risk, prepayments, or factors, especially in absence broad markets for particular items. Changes in assumptions or A in tax market position conditions is recognized could as significantly a benefit only affect if it is more estimates. likely than not that tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is largest amount tax benefit that Earnings is greater than 50% Dividends likely Per being Sharealized on examination. For tax positions not meeting more likely than not test, no tax Basic benefit earnings is recorded. per share is based on net income divided by weighted average number shares outsting during period. Diluted The Corporation earnings per recognizes share would interest show /or dilutive penalties effect related additional to income tax common matters shares in income issuable tax under expense. stock options. However, re are currently no outsting stock options or or instruments which could cause dilution. 12

15 Notes to Consolidated Financial Statements (continued) 1. SIGNIFICANT ACCOUNTING POLICIES (continued) Comprehensive Income Loan Comprehensive Commitments income Related consists Financial net Instruments income unrealized gains losses on securities available for sale, net tax, changes Financial instruments funded status include f-balance pension sheet plan, credit which instruments, are recognized such as commitments a separate component to make loans equity. commercial letters credit, issued to meet customer financing needs. The face amount for se items represents exposure to loss Loss before Contingencies considering customer collateral or ability to repay. Such financial instruments are recorded when y are funded. Loss contingencies, including claims legal actions arising in ordinary course business, are recorded as liabilities when Fair likelihood Values Financial loss is probable Instruments an amount or range loss can be reasonably estimated. Management does not believe re are Fair now values any such financial matters instruments that will have are estimated a material using effect on relevant financial market statements. information or assumptions, as more fully Dividend disclosed in Restriction a separate note. Fair value estimates involve uncertainties matters significant judgment regarding interest rates, Banking credit regulations risk, prepayments, require maintaining or factors, certain especially capital levels in absence may limit broad markets dividends for paid particular by items. bank to Changes holding company or assumptions by holding or market company conditions to shareholders. could significantly affect estimates. Reclassifications Earnings Dividends Per Share Basic Certain earnings amounts per share in is prior based year on net consolidated income divided financial by statements weighted average have been number reclassified shares outsting to conform during with current year presentation. period. Diluted earnings per share shows dilutive effect additional common shares issuable under stock options. There are currently no outsting stock options. 2. Comprehensive RESTRICTIONS IncomeON CASH Cash Comprehensive on h or on income deposit consists with Federal net income Reserve unrealized Bank $0 gains was required losses to on meet securities regulatory available reserve for sale, clearing net tax, requirements at changes both December in funded 31, status pension plan, which are recognized as a separate component equity. Loss Contingencies Loss contingencies, including claims legal actions arising in ordinary course business, are recorded as liabilities 3. SECURITIES when likelihood loss is probable an amount or range loss can be reasonably estimated. Management does not believe The re fair value are now available any such matters for sale that securities will have a material related effect gross on unrealized financial gains statements. losses recognized in accumulated or comprehensive loss were as follows: Dividend Restriction Banking regulations require maintaining certain capital levels may limit dividends paid by bank to holding Gross Gross Gross Gross company or by holding company to shareholders. Amortized Unrealized Unrealized Fair Fair Reclassifications 2016 Cost Cost Gains Gains Losses Losses Value Value Certain U.S. Treasury amounts securities in prior year obligations consolidated U.S. financial statements have been reclassified to conform with current year presentation. government corporations agencies $ $ 23,990,027 23,990,027 $ $ $ $ (530,520) (530,520) $ $ 23,459,534 23,459,534 Corporate Securities 32,686,912 32,686, , ,694 (552,242) (552,242) 32,242,364 32,242, RESTRICTIONS ON CASH $ $ 56,676,939 56,676,939 $ $ 107, ,721 $ $ (1,082,762) (1,082,762) $ $ 55,701,898 55,701,898 Cash on h or on deposit with Federal Reserve Bank $0 was required to meet regulatory reserve clearing requirements at 2015 both December 31, U.S. Treasury securities obligations U.S. government corporations agencies $ $ 29,494,587 29,494,587 $ $ 4,924 4,924 $ $ (395,888) (395,888) $ $ 29,103,623 29,103,623 Corporate Securities 17,913,410 17,913, , ,128 (429,561) (429,561) 17,586,977 17,586,977 $ $ 47,407,997 47,407,997 $ $ 108, ,052 $ $ (825,449) (825,449) $ $ 46,690,600 46,690,600 The The carrying carrying amount, amount, unrecognized unrecognized gains gains losses, losses, fair fair lue value value securities securities securities held held held to maturity to to maturity maturity were were were as follows: as as follows: follows: Gross Gross Gross Gross Carrying Carrying Unrecognized Unrecognized Fair Fair 2016 Amount Amount Gains Gains Losses Losses Value Value Obligations states political subdivisions $ $ 15,408,070 15,408,070 $ $ 52,493 52,493 $ $ (92,044) (92,044) $ $ 15,368,519 15,368,519 Mortgage-backed securities, residential 2,682 2, ,786 2,786 Totals $ $ 15,410,752 15,410,752 $ $ 52,597 52,597 $ $ (92,044) (92,044) $ $ 15,371,305 15,371, Obligations states political subdivisions $ $ 13,668,223 13,668,223 $ $ 57,068 57,068 $ $ (19,874) (19,874) $ $ 13,705,417 13,705,417 Mortgage-backed securities, residential 3,793 3, ,987 3,987 Totals $ $ 13,672,016 13,672,016 $ $ 57,262 57,262 $ $ (19,874) (19,874) $ $ 13,709,404 13,709,404 13

16 Notes to Consolidated Financial Statements (continued) 3. SECURITIES (continued) The Securities fair value with unrealized available for losses sale at securities year end 2016 related 2015, gross aggregated unrealized by investment gains losses category recognized length in accumulated time that individual or securities comprehensive have been income a were continuous as follows: unrealized loss position, are as follows: Gross Gross Less than 12 Months Amortized 12 Months Unrealized or More Unrealized Total Fair Fair Unrealized Fair Unrealized Fair Unrealized Value Loss Cost Value Gains Loss Losses Value Value Loss U.S. Treasury securities obligations U.S. U.S. government Treasury corporations $ agencies 20,484,100 $ (503,621) $ 34,762,863 $ 1,975,408 $ $ 9,281 (26,899) $ $ (637,735) 22,459,508 $ 37,134,409 (530,520) Corporate Obligations Securities states 14,127, ,543 (77,981) 12,247,232 political subdivisions 2,307,985 (78,589) 1,027,358 (13,455) 3,335,343 (92,044) Corporate securities 14,693,500 (432,962) $ 48,890,533 3,938,807 $ 206,824 (119,280) $ (715,716) 18,632,307 $ 48,381,641 (552, 242) Total temporarily impaired $ 37,485,585 $ (1,015,172) $ 6,941,573 $ (159,634) $ 44,427,158 $ (1,174,806) U.S. Treasury securities obligations U.S. U.S. Treasury $ 0 $ 0 $ 1,578,150 $ (19,874) $ 1,578,150 $ (19,874) Obligations government corporations states agencies $ 40,759,722 $ 0 $ (3,370,659) $ 37,389,063 Corporate political Securities subdivisions 5,985,606 (17,328) 19,387,167 18,124, ,048 (378,560) (122,806) 24,109,717 19,548,409 (395,888) Corporate securities 7,522,876 (148,055) $ 60,146,889 5,018,297 $ 284,048 (281,506) $ (3,493,465) 12,541,173 $ 56,937,472 (429,561) Total temporarily impaired $ 13,508,482 $ (165,383) $ 24,720,558 $ (679,940) $ 38,229,040 $ (845,323) Unrealized The carrying losses amount, on securities unrecognized have not gains been recognized losses, into fair income value because securities held issuer s to maturity bonds are were as high follows: credit quality (rated A or higher), management does not intend to sell securities, it is not likely to be Gross required to sell Gross securities prior to recovery in value, decline in fair value is largely due to changes Carrying in interest rates. Unrecognized The fair value is Unrecognized expected to recover as Fair securities approach maturity Amount Gains Losses Value There Obligations were no sales states securities political in 2016 subdivisions or Securities $ called 11,016,624 in 2016 resulted $ in a 60,714 gain $31,261. $ (37,233) $ 11,040,105 Mortgage-backed securities, residential 5, ,575 The Totals fair value debt securities carrying amount, if different, $ 11,021,853 at year end 2016 $ by 61,060 contractual $ maturity (37,233) were as follows. $ 11,045,680 Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately Held-to-maturity Available for sale Obligations states political subdivisions $ 12,051,049 $ 29,831 $ (243,310) $ 11,837,571 Carrying Fair Amortized Fair Mortgage-backed securities, residential 6,729 Amount Value 416 Cost0 Value 7,145 Totals Due in one year or less $ 12,057,778 $ 3,656,266 $ $ 30,247 3,657,164 $ $ (243,310) 1,981,908 $ $ 11,844,716 1,980,452 Due from one to five years 5,344,885 5,352,325 24,244,138 24,103,562 Due from five to ten years 2,646,227 2,635,734 27,950,894 27,238,126 Securities Due after ten with years unrealized losses at year end , aggregated 3,760,692 by investment category 3,723,296 length 2,500,000 time that individual 2,379,758 securities Mortgage-backed, have been residential in a continuous unrealized loss position, are as follows: 2,682 2, Totals $ 15,410,752 $ 15,371,305 $ 56,676,940 $ 55,701,898 Securities pledged at year end 2016 Less than had Months a carrying amount 12 Months $6,996,339 or More $8,002,347 were Total pledged to secure public deposits. Fair Unrealized Fair Unrealized Fair Unrealized 2014 Value Loss Value Loss Value Loss 4. U.S. LOANS Treasury $ 1,498,325 $ (1,675) $ 30,134,679 $ (636,060) $ 31,633,004 $ (637,735) Major Obligations classifications states loans were as follows as December 31: political subdivisions ,840,568 (37,233) 2,840,568 (37,233) Corporate securities 1,720,355 (11,754) 3,779,765 (66,227) 5,500,120 (77,981) Commercial real estate $ 80,260,268 $ 73,777,013 Total Ortemporarily impaired $ 3,218,680 42,978,506$ (13,429) 47,208,875$ 36,755,012 $ (739,520) $ 39,973,692 $ (752,949) Residential real estate: 2013 One to four family 40,753,976 40,567,680 Home U.S. equity Treasury lines credit $ 30,452,933 9,080,293$ (2,805,319) 8,013,722$ 6,936,130 $ (565,340) $ 37,389,063 $ (3,370,659) Consumer 7,146,840 6,543,660 Subtotal Obligations states 180,219, ,110,950 Allowance political for loan subdivisions losses 2,117,892 (2,269,057) (127,377) (2,209,224) 2,274,823 (115,933) 4,392,715 (243,310) Loans, Corporate net securities $ 4,980, ,950,826 $ (119,105) 173,901, ,561 (3,701) 5,849,207 (122,806) Total temporarily impaired $ 37,551,470 $ (3,051,801) $ 10,079,514 $ (684,974) $ 47,630,985 $ (3,736,775) At December 31, 31, , 2015, certain certain ficers ficers directors, directors, companies companies in which y in which are principal y are owners, principal were indebted owners, to were indebted to Corporation in aggregate in aggregate $659,399 $659,399 $1,289,360, $1,289,360, respectively. respectively. 14

17 Notes to Consolidated Financial Statements (continued) LOANS SECURITIES (continued) (continued) Unrealized losses on securities have not been recognized into income because issuers bonds are high credit quality (rated A The or higher), following management tables present does not activity intend in to sell allowance securities, for loan it losses is not by likely portfolio to be segment required for to sell years securities ending December prior to 31: recovery in value, decline in fair value is largely due to changes Residential in interest rates. The fair value is expected to recover as securities approach maturity. Commercial Real Estate Consumer Unallocated Total 2016 Proceeds from sales securities in were $250,626 $754,681 resulting in gross losses $2,197 $15,614, Allowance respectively. for loan losses: Beginning balance $ 1,182,691 $ 275,210 $ 66,546 $ 684,777 $ 2,209,224 The Provision fair value for loan losses debt securities carrying amount, 149,711if different, 20,474 at year end ,045 by contractual maturity 91,770 were as 355,000 follows. Securities Loans charged-f not due at a single maturity date, primarily (255,327) mortgage-backed (67,422) securities, are shown (119,194) separately. 0 (441,943) Recoveries 100,205 14,100 32, ,776 Total ending balance $ 1,177,280 $ 242,362 $ 72,868 $ 776,547 $ 2,269,057 Held-to-maturity Available for sale 2015 Carrying Fair Amortized Fair Allowance for loan losses: Amount Value Cost Value Beginning balance $ 1,283,895 $ 417,576 $ 69,666 $ 352,490 $ 2,123,627 Due in one year or less $ 797,500 $ 798,067 3,526,797 $ 3,547,523 Provision for loan losses 109,905 (62,180) 54, , ,000 Due Loans from charged-f one to five years (228,168) 5,798,730 (117,251) 5,809,375 (91,232) 12,215, ,310,727 (436,651) Due Recoveries from five to ten years 17,059 1,084,000 37,065 1,084,000 33,124 18,643, ,305,102 87,248 Total ending balance Due after ten years $ 1,182,691 $ 275,210 3,336,395 $ 66,546 3,348,664 $ 684,777 14,504,424 $ 2,209,224 14,218,290 Mortgage-backed, residential 5,229 5, Totals $ 11,021,853 $ 11,045,680 $ 60,146,889 $ 48,381,641 The following table presents balance in allowance for loan Residential losses recorded investment in loans by portfolio segment Securities based on impairment pledged at year method end as 2014 December 2013 Commercial 31: had a carrying Real amount Estate$8,003,028 Consumer $8,002,783 Unallocated were pledged Total to secure public 2016 deposits. Residential Allowance for loan losses: Commercial Real Estate Consumer Unallocated Total 2016 Ending allowance balance attributable to loans: Allowance 4. LOANS Individually for loan evaluated losses: for impairment $ 365,000 $ 0 $ 0 $ 0 $ 365,000 Ending Collectively allowance evaluated balance for attributable impairmentto loans: 812, ,362 72, ,547 1,904,057 Major classifications loans were as follows as December 31: Total Individually ending allowance evaluated balance for impairment $ 1,177, ,000 $ 242,3620 $ 72,8680 $ 776,5470 $ 2,269, ,000 Collectively evaluated for impairment 812, ,362 72, ,547 1,904,057 Loans: Total ending allowance balance 2014 $ 1,177, $ 242,362 $ 72,868 $ 776,547 $ 2,269,057 Individually evaluated for impairment $ 2,617,333 $ 751,834 $ 0 $ 0 $ 3,369,167 Loans: Collectively evaluated for impairment 120,621,441 49,082,435 7,146, ,850,716 Total Individually Commercial ending loans evaluated real balance estate for impairment $ 68,829,459 $ 123,238,774 2,617,333 $ 62,233,373 $ 49,834, ,834 $ 7,146,8400 $ 0 $ 180,219,883 3,369,167 Collectively Or evaluated for impairment 46,447, ,621,441 40,083,635 49,082,435 7,146, ,850, Total ending loans balance $ 123,238,774 $ 49,834,269 $ 7,146,840 $ 0 $ 180,219,883 Residential real estate: Allowance for loan losses: 2015 One to four family 41,276,310 Ending allowance balance attributable to loans: 37,764,946 Allowance Home Individually equity for loan evaluated lines losses: for credit impairment 7,399,354 $ 395,000 $ 7,096,967 0 $ 0 $ 0 $ 395,000 Consumer Ending Collectively allowance evaluated balance for attributable impairmentto loans: 5,760, ,691 4,869, ,210 66, ,777 1,814,224 Total Individually ending allowance evaluated balance for impairment $ 1,182, ,000 $ 275,2100 $ 66,5460 $ 684,7770 $ 2,209, ,000 Subtotal Collectively evaluated for impairment 169,713, , ,048, ,210 66, ,777 1,814,224 Allowance Loans: Total ending for allowance loan losses balance (2,123,627) $ 1,182,691 (3,043,613) $ 275,210 $ 66,546 $ 684,777 $ 2,209,224 Loans, Individually net evaluated for impairment $ 167,589,677 $ 2,688,159 $ 149,005,193 $ 715,252 $ 0 $ 0 $ 3,403,411 Loans: Collectively evaluated for impairment 118,297,729 47,866,150 6,543, ,707,539 Total Individually ending loans evaluated balance for impairment $ 120,985,888 2,688,159 $ 48,581, ,252 $ 6,543,6600 $ 0 $ 176,110,950 3,403,411 Collectively evaluated for impairment 118,297,729 47,866,150 6,543, ,707,539 Total At December ending loans 31, balance , certain $ ficers 120,985,888 $ directors, 48,581,402 companies $ 6,543,660 in which $ y are principal 0 $ owners, 176,110,950 were indebted to Corporation in aggregate $2,474,876 $2,293,919, respectively. 15

18 Notes to Consolidated Financial Statements (continued) 4. LOANS (continued) The Major The following following classifications tables tables present present loans information were activity as follows related in as allowance to impaired December for loans loan 31: by losses class by loans portfolio as segment for for years years ending ending December December 31: 31: Unpaid Allowance Residential for Average Interest Cash Basis Principal Recorded Loan Losses Recorded Income Interest Balance Investment Commercial Allocated Real Estate Investment Consumer Recognized Unallocated Recognized Total With Allowance no related for allowance loan losses: recorded: Beginning balance $ 2,097,859 $ 528,230 $ 79,139 $ 338,385 $ 3,043,613 Commercial real estate $ 845,808 $ 745,835 $ 0 $ 765,520 $ 125,552 $ 121,568 Or Provision for loan losses 109, ,586(62,996) 184, ,893 24,375 1,762 14, ,000 1,514 Residential Loans charged-f real estate 751, ,834 (811,216) (315,917) 0 758,914 (70,544) 32,477 0 (1,197,677) 30,296 Consumer Recoveries , ,747 36, ,691 0 Subtotal 1,707,228 1,607, ,634, , ,378 Total ending balance $ 1,283,895 $ 417,576 $ 69,665 $ 352,490 $ 2,123,627 With an allowance recorded: 2012 Commercial real estate 2,777,210 1,761, ,000 1,773,500 11,648 10,706 Or Allowance for loan losses: Residential real estate Subotal Beginning balance 2,777,210 1,761,912 $ 2,459, ,000 $ 548,826 1,773,500 $ 81,121 $ 11, ,016 $ 3,297,971 10,706 Total Provision for loan losses $ 4,484,438 3,369,167140,580 $ 365, ,868 $ 3,407,827 58,183 $ 171, ,369 $ 164, ,000 Loans charged-f (529,941) (245,892) (90,069) 0 (865,902) 2015 With Recoveries no related allowance recorded: 28,212 68,428 29, ,544 Total ending balance $ 2,097,859 $ 528,230 $ 79,139 $ 338,385 $ 3,043,613 Commercial real estate $ 172,493 $ 105,106 $ 0 $ 80,017 $ 1,628 $ 1,452 Or 180,451 3, , Residential The following real estate tables present 715,256 balance in allowance 715,252for loan losses 0 recorded 720,185 investment in loans 28,358by portfolio 30,318 segment Consumer based on impairment method as December 0 31: Subtotal 1,068, ,258 Residential 0 807,102 29,986 31,770 With an allowance recorded: Commercial Real Estate Consumer Unallocated Total 2013 Commercial real estate 3,810,803 2,579, ,000 2,650,038 11,754 21,936 Allowance Or for loan losses: Residential Ending allowance real estate balance attributable 0 to loans: Subotal 3,810,803 2,579, ,000 2,650,038 11,754 21,936 Individually evaluated for impairment $ 370,000 $ 0 0 $ 0 $ 370,000 Total $ 4,879,003 $ 3,403,411 $ 395,000 $ 3,457,140 $ 41,740 $ 53,706 Collectively evaluated for impairment 913, ,576 69, ,490 1,753,626 The The recorded Total recorded ending investment investment allowance in in balance loans loans does does not include not include accrued accrued $ interest 1,283,895 interest receivable receivable $ loan 417,576 origination loan $ origination fees, net, 69,665 as y fees, $ are net, immaterial. 352,490 as y are For $ immaterial. 2,123,626 For purposes this disclosure, unpaid principal balance is not reduced for net charge-fs. Nonaccrual Loans: loans loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated Individually for impairment evaluated for impairment individually classified impaired $ 3,192,627 loans. $ 626,129 $ 0 $ 0 $ 3,818,756 Collectively evaluated for impairment 112,084,579 48,049,535 5,760, ,894,547 The Total following ending tables loans present balance recorded investment $ in 115,277,206 nonaccrual $ 48,675,664 loans past due $ over 5,760, days still $ on accrual 0 by $ class 169,713,303 loans as December December 31: 31: 2012 Allowance for loan losses: Ending allowance balance attributable to loans: Loans Past Due Over Nonaccrual 90 Days Still Accruing Commercial Individually real evaluated estate for impairment $ $ 1,100,000 1,463,207 $ 2,277,142 40,000 $ 0 $ 0 $ 0 $ 0 1,140,000 Or Collectively evaluated for impairment 997, , , ,692 79, , ,903,613 Residential real estate: Total One to ending four family allowance balance $ 2,097, ,569 $ 528, ,533 $ 79, ,867 $ 338, ,491 $ 3,043,613 Home equity lines credit 55, Consumer Loans: 33,283 40, Total $ 2,140,857 $ 3,046,355 $ 297,367 $ 156,491 Individually evaluated for impairment $ 3,301,002 $ 983,805 $ 15,458 $ 0 $ 4,300,265 Collectively evaluated for impairment 99,016,006 43,878,108 4,854, ,748,541 Total ending loans balance $ 102,317,008 $ 44,861,913 $ 4,869,885 $ 0 $ 152,048,806 16

19 Notes to Consolidated Financial Statements (continued) 4. LOANS (continued) The The following following tables tables present present information aging related recorded to impaired investment loans in by past class due loans loans by as class loans for as years December ending December 31: 31: Greater than Days Unpaid Past Due 89 Days Total Past Due Allowance for Past Due Average Loans Not Past Interest Due Cash TotalBasis 2016 Principal Recorded Loan Losses Recorded Income Interest Commercial real estate Balance $ 1,520,590 Investment $ Allocated 0 $ 1,520,590 Investment $ 78,739,678 Recognized $ Recognized 80,260, Or 388, ,590 42,589,916 42,978,506 Residential real estate: With no related allowance recorded: One to four family 1,499, ,620 1,850,806 38,903,170 40,753,976 Home equity lines credit 128,194 41, ,836 8,910,457 9,080,293 Consumer Commercial real estate $ 69, ,061 $ 0 $ 18,975 0 $ 133,036 0 $ 7,013,804 0 $ 7,146,840 0 Total $ 3,650,621 $ 412,237 $ 4,062,858 $ 176,157,025 $ 180,219,883 Or 48,451 12, , Residential real estate 626, , ,297 14,346 14,293 Consumer Commercial real estate $ 0 $ 2,187,922 $ 2,187,922 $ 71,589,091 $ 73,777,013 Subtotal Or 744,202 16,920639,029 12, , ,447 47,179,055 14,346 47,208,875 14,293 With Residential an allowance real estate recorded: One to four family 933, ,024 1,487,368 39,080,312 40,567,680 Home equity lines credit 150, ,076 7,863,646 8,013,722 Consumer Commercial real estate 4,144, ,726 3,141,227 22, , ,289 3,966,603 6,376,371 9,503 6,543,660 11,351 Total Or 179,500 $ 1,245,066 38,500 $ 2,777,4098,344 $ 4,022, ,496 $ 172,088,475 0 $ 176,110,950 0 Residential real estate Troubled Subotal Debt Restructurings: 4,324,208 3,179, ,000 4,081,099 9,503 11,351 Total The Corporation has allocated $345,000 $ 5,068,410 $330,000 $ 3,818,756 specific reserve $ 370,000 to customers $ 4,727,546 whose loan $ terms 23,849 have been $ modified 25,644 in troubled The Corporation debt restructurings has allocated $345,000 as December $330,000 31, 2016 specific reserve No to additional customers whose amounts loan are terms committed have been to modified be lent in to troubled se borrowers. debt restructurings as December 31, No additional amounts are committed to be lent to se borrowers. During years ended December 31, , terms certain loans were modified as troubled debt restructurings During years ended December 31, , terms certain loans were modified as troubled debt restructurings. With The modification no related allowance terms terms recorded: such such loans loans included included a reduction a reduction stated interest stated rate interest loan rate or an extension loan or an extension maturity date at maturity a date stated at rate a stated interest rate lower interest than lower current than market rate current for new market debt with rate similar for new risk. debt with similar risk. Modifications involving involving a reduction a reduction stated interest stated rate interest rate loan were for loan periods were ranging for periods from ranging 12 months from to months. Modifica- to 351 months. Modifications Commercial involving an involving extension real estate an extension maturity $ date 332,873 were maturity for 12 date months. $ were 204,420 for 12 $ months. 0 $ 243,496 $ 669 $ 805 Or 78,238 34, , The following tables present loans by class modified as troubled debt restructurings that occurred during years ending December 31: Residential real estate 713, , ,867 16,302 14,121 Consumer 20,179 15,458 Pre-Modification 0 Post-Modification 20,270 1,254 1,209 Outsting Outsting Subtotal 1,144,770 Number 920,308 Recorded0 1,011,224 Recorded 18,225 16,135 With an allowance recorded: Loans Investment Investment 2016 Commercial real real estate estate 3,381,798 2,871,0001 $ 1,013,600 43,183 $ 3,030,950 42, ,500 Commercial Or or 190, , ,400 33, ,307 32, Residential real estate: Residential real estate 318, ,275 40, ,980 11,763 12,321 One to four family 1 54,400 56,380 Subotal Total 3,890,755 3,379,9573 $ 1,140, ,611 $ 3,541, ,73911,763 14, Total $ 5,035,525 $ 4,300,265 $ 1,140,000 $ 4,552,461 $ 29,988 $ 30,956 Commercial real estate 2 $ 251,478 $ 323,611 Residential real estate: One to four family 1 90,575 94,175 Consumer The recorded investment in loans does not include accrued interest 1 receivable 8,707 loan origination fees, net, 0 as y are immaterial. Total 4 $ 350,760 $ 417,786 For purposes this disclosure, unpaid principal balance is not reduced for net charge-fs. The troubled debt debt restructurings described described above did above not did increase not increase allowance for allowance loan losses for loan did losses not result in did charge not result fs in in charge years fs in 2016 Nonaccrual years or The loans or majority The loans majority loans past due modified 90 days loans were already modified still identified on were accrual as already problem include identified loans both smaller as problem modifications balance loans homogeneous did not change modifications loans impact that are did collectively impairment evaluated assessment for on those loans. Additionally, individually re classified were no troubled impaired debt loans. restructurings during 2016 or 2015 for which re was a not change impact impairment assessment on those loans. Additionally, re were no troubled debt restructurings during 2016 payment default within twelve months following restructuring. or 2015 for which re was a payment default within twelve months following restructuring. 17

20 Notes to Consolidated Financial Statements (continued) 4. LOANS (continued) Credit The following Quality Indicators: table presents recorded investment in nonaccrual loans past due over 90 days still on accrual by class loans The Corporation as December categorizes 31: loans into risk categories based on relevant information Loans Past about Due Over ability borrowers to service ir debt such as: current financial information, Nonaccrual historical payment experience, 90 credit Days Still documentation, Accruing public information, current economic trends, among or factors. The Corporation analyzes loans individually by classifying loans as to credit risk This analysis includes primarily non-homogenous loans, such as commercial commercial real estate loans, certain related borrowings. This analysis is performed on a quarterly basis. The Corporation uses following definitions for risk ratings: Commercial Watch/Special real Mention estate Borrowers who $ 2,187,922 exhibit potential $ 3,057,500 credit weaknesses $ or downward 0 $ trends deserving 0 management s close attention. Or While potentially weak, se borrowers 335,900 are currently 230,184 marginally acceptable; no 0 loss principal 0 or interest is envisioned. However, Residential if left real uncorrected, estate: se potential weaknesses could result in deteriorations repayment prospects for assets or in One to banks four credit family position at some future date. 601,169 These borrowers 886,582 have characteristics 178,978 which corrective 667,001 management action would remedy. Home equity Included lines this credit category could be turnaround 16,060 situations, 112,248 as well as those borrowers 0 previously rated 0 satisfactory who have shown deterioration, for whatever reason, indicating a downgrading from better categories. An element asset quality, financial Consumer 69,785 69, flexibility, or management is below average. Total $ 3,210,836 $ 4,356,386 $ 179,073 $ 667,775 Potential Problem (Substard) Borrowers with well-defined weaknesses that jeopardize orderly liquidation debt. A potential problem loan is inadequately protected by current sound worth paying capacity obligor or by collateral pledged, if any. Normal repayment from borrower is in jeopardy. There is a distinct possibility that a partial loss interest /or The following tables present aging recorded investment in past due loans by class loans as December 31: principal will occur if deficiencies are not corrected. Loss potential, while existing in aggregate amount potential problem assets, does not have to exist in individual assets classified potential Greater than problem. Problem (Doubtful) Borrowers classified 30 - problem 89 Dayshave all 89 Days weaknesses found Total in potential Loans problem Not borrowers with added provision that weaknesses make collection Past debt Due in full, on Past Due basis currently Past Due existing facts, Past conditions, Due values, Total highly questionable improbable. Serious problems exist to point where partial loss principal is likely. The possibility loss is high, 2014 but because certain important, reasonably specific pending factors that may work to strengn assets, loan s classification as estimated loss is deferred until a more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation Commercial procedures; real estate capital injection; $ perfecting 1,634,237 liens $ on additional 2,187,922 collateral; $ 3,822,159 refinancing $ 65,007,300 plans. $ 68,829,459 Or 444,478 12, ,378 45,990,370 46,447,748 Residential Loans not real meeting estate: criteria above that are analyzed individually as part process described above are considered to be pass One rated to four loans. family Loans listed as not rated are 1,736,275 predominantly homogenous 588,456 loans. 2,324,730 These loans are 38,951,580 monitored for credit 41,276,310 quality based primarily Home equity on payment lines performance. credit 71,784 4,802 76,586 7,322,768 7,399,354 Consumer 57,601 55, ,996 5,647,437 5,760,433 Based on most recent analysis performed, risk category loans by class loans is as follows: Total $ 3,944,374 $ 2,849,475 $ 6,793,849 $ 162,919,454 $ 169,713,303 Potential Pass Watch Problem Problem Not Rated Commercial real estate $ 76,161,149 $ 1,775,130 $ 860,782 $ 1,463,207 $ 0 Commercial Or real estate $ 2,769,300 41,054,130$ 1,406,500 1,144,622$ 4,175, ,228$ 58,057, ,526$ 62,233,3730 Or Residential real estate 103, , ,433 39,754,202 40,083,635 One to four family ,753,976 Residential Home equity real lines estate credit ,080,293 One Consumer to four family 2,271, , ,938, ,826, ,764,946 7,146,840 Home Total equity lines credit $ 117,215,279 58,306 $ 2,919,752 0 $ 58,306 1,322,010 $ 7,038,661 1,781,733 $ 7,096,967 56,981, Consumer 70, ,220 4,798,665 4,869,885 Total $ 5,273,752 $ 2,299,857 $ 7,573,609 $ 144,475,198 $ 152,048,806 Commercial real estate $ 68,474,742 $ 1,968,167 $ 1,056,962 $ 2,277,142 $ 0 Or 45,487,711 1,415, ,911 0 Troubled Residential Debt real Restructurings: estate One to four family ,567,680 The Home Corporation equity lines has allocated credit $270,000 $1,140,000 0 specific reserve 0 to customers whose 0 loan terms have 0 been modified 8,013,722 in troubled Consumer debt restructurings as December 31, No additional 0 amounts are 0 committed to be 0 lent to se 6,543,660 borrowers. Total $ 113,962,453 $ 3,383,420 $ 1,056,962 $ 2,583,053 $ 55,125,062 During years ended December 31, , terms certain loans were modified as troubled debt restructurings. The modification terms such loans included one or a combination following: a reduction stated interest rate loan; an extension maturity date at a stated rate interest lower than current market rate for new debt with similar risk; or a permanent reduction recorded investment in loan. Modifications involving a reduction stated interest rate loan were for periods ranging from 24 months to 36 months. Modifications involving an extension maturity date were for periods ranging from 13 months to 240 months. 18

21 Notes to Consolidated Financial Statements (continued) FAIR LOANS VALUE (continued) Fair value is is exchange price that would be be received for for an an asset or or paid paid to to transfer a liability a (exit (exit price) price) in in principal or or most most The following tables present loans by class modified as troubled debt restructurings that occurred during years ending advantageous market for asset or liability in an orderly transaction between market participants on measurement date. There December 31: are three levels inputs that may be used to measure fair values: Pre-Modification Post-Modification Outsting Outsting Level 1: Quoted prices (unadjusted) for Number identical assets or Recorded liabilities in active markets Recorded that entity has ability to access as measurement date. Loans Investment Investment 2014 Level 2: Significant or observable inputs or than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or or inputs that are Commercial observable real or estate can be corroborated by observable 3 market $ data.. 1,095,871 $ 1,201,598 Or 1 24,361 25,516 Residential Level 3: real Significant estate: unobservable inputs that reflect a reporting entity's own assumptions about One to assumptions four family that market participants would 1 use in pricing an 5,636 asset or liability. 8,268 Consumer 3 23,258 22,183 The Total fair fair values securities available for for sale sale are determined are 8 by $ obtaining by obtaining 1,149,126 quoted quoted prices $ prices on 1,257,565 nationally nationally recognized recognized securities securities exchanges (Level exchanges 1 inputs) (Level or 1 matrix inputs) pricing, or matrix which pricing, is a which mamatical is a mamatical technique technique widely used widely in used industry to industry value debt to value securities debt securities without relying 2013 without exclusively relying exclusively on quoted on prices quoted for prices specific for securities specific securities but rar but by relying rar by on relying securities on securities' relationship relationship to or benchmark to or quoted benchmark securities quoted (Level securities 2 inputs). (Level 2 inputs). Commercial real estate 6 $ 3,474,520 $ 2,726,376 The fair value impaired loans with specific allocations allowance for loan losses is is generally based on on recent real real estate appraisals. Or These These appraisals appraisals may may utilize utilize a a single single valuation 2 valuation approach approach or 261,733 or a a combination combination approaches 212,582 approaches including including comparable comparable sales sales Residential income income approach. real approach. estate: Adjustments Adjustments are routinely are routinely made made in in appraisal appraisal process process by by independent independent appraisers appraisers to adjust to adjust for differences for between differences One to four between comparable family comparable sales income sales data income available, 1 data available, management 94,149 management makes adjustments makes 93,729 adjustments to appraised to values appraised based values on market based conditions. $95,112,389 on Consumer market conditions. Such adjustments Such adjustments are usually are significant usually 1 significant typically result typically 3,944 in a Level result 3 in classification a Level classification inputs for determining inputs for fair value. Non-real estate collateral may be valued using an appraisal, net book value per borrower s financial statements, or aging determining Total fair value. Non-real estate collateral 10 may be valued $ using 3,834,346 an appraisal, $ net 3,033,110 book value per borrower's financial reports, adjusted or discounted based on management s historical knowledge, changes in market conditions from time statements, The troubled or debt aging restructurings reports, adjusted described or discounted above did not based increase on management's allowance for historical loan losses knowledge, in years changes 2014 in market The conditions restructurings from did not time result in charge valuation, fs during management's 2014; 2013 restructurings expertise resulted knowledge in charge fs client $460,112. client's The majority business, resulting loans modified in a Level 3 valuation, management s expertise knowledge client client s business, resulting in a Level 3 fair value classification. 47,418,573 were Impaired already loans identified are evaluated problem on a loans quarterly basis modifications for additional did not impairment change impairment adjusted assessment accordingly. fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment on those adjusted loans. Additionally, accordingly. re were no troubled debt restructurings during 2014 or 2013 for which re was a payment default within twelve months following restructuring. Assets acquired through or instead loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing Credit a new Assets Quality cost acquired basis. Indicators: These through assets or instead are subsequently loan foreclosure accounted are for initially at lower recorded cost at or fair fair value value less less costs estimated to sell costs when to acquired, sell. Fair establishing a new value is The commonly Corporation based cost categorizes on basis. recent These loans real assets estate into risk appraisals are subsequently categories which based are accounted on relevant updated for information no at less lower frequently cost or about than fair ability annually. value less borrowers These estimated to appraisals costs service ir may to sell. debt utilize such a as: single Fair current value valuation financial is commonly approach information, based a on combination historical recent real payment estate approaches experience, appraisals including credit which documentation, are comparable updated no public sales less information, frequently income than current approach. annually. economic These Adjustments trends, appraisals are among routinely may utilize or made a factors. single The valuation appraisal Corporation approach process analyzes or by a combination loans independent individually approaches appraisers by classifying to including adjust loans for comparable as differences to credit sales risk. between This analysis income comparable includes approach. primarily sales non-homogenous income Adjustments data available, are loans, routinely such made management as commercial in appraisal makes commercial adjustments process by real to estate appraised independent loans, values appraisers certain based related on to adjust market borrowings. for conditions. differences This analysis Such between adjustments is performed are on $94,183,144 a usually comparable quarterly significant basis. sales The Corporation income typically data result uses available, in a following Level 3 management classification definitions for makes risk ratings: inputs adjustments for determining to appraised fair values value. based Real estate on market owned conditions. properties are Such Watch/Special evaluated adjustments on a Mention quarterly are usually Borrowers basis significant for additional who exhibit typically impairment potential result credit in a weaknesses adjusted Level 3 accordingly. classification downward No trends real estate inputs deserving owned for management s determining property held fair close at value. year-end attention. Real While 2016 estate or potentially owned 2015 was properties weak, being se measured are evaluated borrowers at fair on are value a currently quarterly on a marginally non-recurring basis for acceptable; additional basis. impairment no loss principal adjusted or interest accordingly. is envisioned. No real However, estate if left uncorrected, owned property se held potential at year-end weaknesses 2016 could or 2015 result was in deterioration being measured at repayment fair value prospects on a non-recurring for assets basis. or in banks credit position at 49,755,130 some future date. These borrowers have characteristics which corrective management action would remedy. Included in this category could be Appraisals for both collateral-dependent impaired loans real estate owned are performed by certified general appraisers (for turnaround situations, as well as those borrowers previously rated satisfactory who have shown deterioration, for whatever reason, indicating Appraisals for both collateral-dependent impaired loans real estate owned are performed by certified general appraisers (for a commercial downgrading properties) from better or certified categories. residential An element appraisers asset quality, (for residential financial properties) flexibility, or whose management qualifications is below average. licenses have been reviewed commercial Potential properties) Problem verified by (Substard) or certified Corporation. residential Borrowers Once appraisers with received, well-defined an (for ficer residential weaknesses reviews properties) that assumptions jeopardize whose qualifications orderly approaches liquidation utilized licenses debt. in have A appraisal potential been problem as reviewed well as loan is overall verified inadequately resulting by protected Corporation. fair value by in comparison Once current received, sound with worth an independent ficer paying reviews data capacity sources assumptions such obligor recent or approaches by market collateral data utilized or pledged, industry-wide appraisal as repayment well On an as annual from overall basis, borrower resulting Corporation is fair in jeopardy. value in compares comparison There a distinct actual with independent possibility selling price that data a partial collateral sources loss such that interest has recent been /or market sold principal to data most will or industry- occur recent if if any. Normal statistics. appraised wide deficiencies statistics. value are to On not determine an corrected. annual what basis, Loss additional potential, Corporation adjustment while existing compares should in be aggregate actual made to selling amount appraisal price potential value collateral problem to arrive that assets, at has fair been does value. sold not The have to most to most exist recent in individual analysis recent appraised performed assets classified value indicated to potential determine that problem. a discount what additional 10% should adjustment be applied should to be properties made to with appraisals value performed to arrive within at fair 12 value. months. The most Problem recent (Doubtful) analysis performed Borrowers indicated classified that problem a discount have all 10% weaknesses should be found applied in potential to properties problem with borrowers appraisals with performed added provision within that 12 months. weaknesses make collection debt in full, on basis currently existing facts, conditions, values, highly questionable improbable. Serious problems exist to point where partial loss principal is likely. The possibility loss is high, but because certain important, reasonably specific pending factors that may work to strengn assets, loan s classification as estimated loss is deferred until a more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures; capital injection; perfecting liens on additional collateral; refinancing plans. Loans not meeting criteria above that are analyzed individually as part process described above are considered to be pass rated loans. Loans listed as not rated are predominantly homogenous loans. These loans are monitored for credit quality based primarily on payment performance. 19

22 Notes to Consolidated Financial Statements (continued) FAIR LOANS VALUE (continued) (continued) Fair value is exchange price that would be received for an asset or paid to transfer a liability (exit price) in principal or most Assets Based on Liabilities most recent Measured analysis on performed, a Recurring Basis risk category loans by class loans is as follows: Potential Assets liabilities measured at fair value on a recurring basis are summarized below: Pass Watch Problem Problem Not Rated Fair Value Fair Measurements Value Measurements Using Using 2014 Quoted Quoted Prices inprices in Significant Significant Active Markets Active Markets Or Or Significant Significant Commercial real estate $ 62,684,980 $ 1,467,320 for Identical $ for Identical 2,018,718 Observable $ Observable 2,658,441 Unobservable $ Unobservable Or 41,940,214 3,961,394 (Level 1) 210,239 (Level 2) 335,900 (Level 3) 0 Assets: Residential real estate Available One to four for family sale securities ,276,310 Home U.S. equity Treasury lines securities credit obligations U.S ,399,354 Consumer government corporations agencies 0 $ 0 0 $ 0 23,459,534 $ 0 5,760,4330 Total Corporate Securities $ 104,625,195 $ 5,428,714 $ 2,228,957 0 $ 32,242,364 2,994,341 $ 54,436,0970 Total Securities $ 0 $ 55,701,898 $ Assets: Available for sale securities Commercial real estate $ 55,235,277 $ 1,517,674 $ 2,422,922 $ 3,057,500 $ 0 U.S. Treasury securities obligations U.S. Or 37,104,125 2,286, , ,070 0 government corporations agencies $ 0 $ 29,103,623 $ 0 Residential Corporate real Securities estate 0 17,586,977 0 Total One to Securities four family 0 $ 0 0 $ 0 46,690, ,805 $ 37,131,1410 Home equity lines credit ,096,967 Assets Consumer Liabilities Measured on a Non-Recurring 0 Basis ,435 4,858,450 Total $ 92,339,402 $ 3,804,501 $ 2,845,535 $ 3,972,810 $ 49,086,558 Assets liabilities measured at fair value on a non-recurring basis are summarized below: Fair Value Measurements Using 5. FAIR VALUE Quoted Prices in Significant Active Markets Or Significant Fair value is exchange price that would be received for an for asset Identical or paid to transfer Observable a liability (exit price) Unobservable in principal or most advantageous market for asset or liability in an orderly transaction Assets between market Inputs participants on measurement Inputs date There are three levels inputs that may be used to measure fair values: (Level 1) (Level 2) (Level 3) Assets: Impaired Level loans: 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that entity has ability to access as measurement date. Commercial real estate $ 0 $ 0 $ 1,396,912 Level 2: Significant or observable inputs or than Level 1 prices such as quoted prices for similar assets or liabilities; Or quoted prices in markets that are not active; or or inputs that are observable or can be corroborated by observable market Residential real estate data. Total $ 0 $ 0 $ 1,396, Level 3: Significant unobservable inputs that reflect a reporting entity s own assumptions about assumptions that Assets: market participants would use in pricing an asset or liability. Impaired loans: The fair values securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges Commercial (Level real 1 inputs) estate or matrix pricing, which is a mamatical $ technique widely 0 $ used in industry 0 $ to value debt 2,184,153 securities without Orrelying exclusively on quoted prices for specific securities but rar 0by relying on securities 0 relationship to or 0 benchmark Residential quoted real estate securities (Level 2 inputs) Total $ 0 $ 0 $ 2,184,153 The fair value impaired loans with specific allocations allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination approaches including comparable sales income approach. Adjustments are routinely made in appraisal process by independent appraisers to adjust for differences between comparable sales income data available, management makes adjustments to appraised values based on market conditions. Such adjustments are usually significant typically result in a Level 3 classification inputs 20

23 Notes to Consolidated Financial Statements (continued) 5. FAIR VALUE (continued) for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per borrower s financial The following represent impairment charges recognized during period: statements, or aging reports, adjusted or discounted based on management s historical knowledge, changes in market conditions from time valuation, management s expertise knowledge client client s business, resulting in a Level Impaired loans, which are measured for impairment using fair value collateral for collateral dependent loans, had a 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment adjusted accordingly. recorded investment $1,761,912, before a valuation allowance $365,000 at year-end 2016, resulting in no significant provision for loan losses for At December 31, 2015 impaired loans had a recorded investment $2,579,193, before a valuation allowance Assets acquired through or instead loan foreclosure are initially recorded at fair value less costs to sell when acquired, $355,000, resulting in a $25,000 provision for loan losses for year ending December 31, establishing a new cost basis. These assets are subsequently accounted at for at lower cost or fair value less estimated costs As discussed previously, fair values impaired loans or real estate carried at fair value are determined by third party to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals. Management makes adjustments to se appraised values based on age appraisal type property. The appraisals may utilize a single valuation approach or a combination approaches including comparable sales income following tables present quantitative information about level 3 fair value measurements for larger classes financial instruments approach. Adjustments are routinely made in appraisal process by independent appraisers to adjust for differences between measured at fair value on a non-recurring basis at December 31: comparable sales income data available, management makes adjustments to appraised values based on market conditions. Such adjustments are usually significant typically result in a Level 3 classification inputs for determining fair value. Real estate owned properties are evaluated on a quarterly basis for additional Valuation impairment adjusted Unobservable accordingly. No Discount real estate Rate owned property 2016 held at year-end 2014 or 2013 was Fair being Value measured at fair Technique(s) value on a non-recurring Input basis. (Range Average) Appraisals Impaired loans: for both collateral-dependent impaired loans real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications licenses have been Commercial reviewed real verified estate by Corporation. $ 1,396,912 Once received, Sales an comparison ficer reviews Management assumptions approaches 10% utilized in appraisal as well as overall resulting fair value in comparison with independent discount data sources for property such as recent market data or industry-wide statistics. On an annual basis, Corporation compares actual selling price type collateral recent that has been sold to most recent appraised value to determine what additional adjustment should be made to market appraisal volatility value to arrive at fair value. The 2015most recent analysis performed indicated that a discount 10% should be applied to properties with appraisals performed within Impaired 12 months. loans: Assets Commercial Liabilities real estate Measured on $ a Recurring 2,184,153 Basis Sales comparison Management 10% discount for property Assets liabilities measured at fair value on a recurring basis are summarized below: type recent market volatility Fair Value Financial Instruments Fair Value Measurements Using The estimated fair values financial instruments excluding available for Quoted for sale sale securities, Prices in thouss, in in are Significant are as follows as follows as as December 31: December 31: Active Markets Or Significant for Identical Observable Unobservable Carrying Fair Carrying Fair Amount Value Assets Amount Inputs Value Inputs 2014 Financial assets (Level 1) (Level 2) (Level 3) Assets: Cash cash equivalents $ 23,583 $ 23,583 $ 32,997 $ 32,997 Available Securities for held sale to maturity securities 15,411 15,371 13,672 13,709 Time U.S. deposits Treasury with securities or institutions obligations U.S. 3,491 3,608 1,743 1,760 Loans government held for sale corporations agencies 440 $ $ 34,134,4090 $ 0 0 Loans, Corporate net Securities 177, , ,247, , ,393 0 Total FHLB Securities FAMC stock 414 $ N/A 0 $ 48,381, $ 0 N/A 2013 Accrued interest receivable Assets: Financial liabilities Available for sale securities Deposits $ 257,326 $ 257,265 $ 250,109 $ 250,156 Accrued U.S. Treasury interest securities payable obligations U.S government corporations agencies $ 0 $ 37,389,063 $ 0 Corporate Securities 0 19,548,409 0 The Total estimated Securities fair value approximates carrying amount for all items $ except those 0 described $ 56,937,472 below. Estimated $ fair value 0 for loans is based on current market rates for new loans with similar maturities, applied until loan is assumed to reprice or be paid. Estimated fair value for time deposits are based on current market rates at year-end applied until maturity. It was not practicable to determine fair value Federal Home Loan Bank stock due to restrictions placed on its transferability. Estimated fair value for or financial instruments f-balance-sheet loan commitments are considered nominal. 21

24 Notes to Consolidated Financial Statements (continued) FAIR PREMISES VALUE AND (continued) EQUIPMENT Assets Major classifications Liabilities Measured premises on a Non-Recurring equipment were Basis follows at December 31: Assets liabilities measured at fair value on a non-recurring basis are summarized 2016 below: 2015 L $ 1,385,439 Fair Value $ Measurements 1,385,439Using Buildings Quoted Prices 8,218,153 in Significant 8,150,133 Furniture, fixtures equipment Active Markets 4,636,011 Or 5,119,822 Significant Total cost for Identical 14,239,603 Observable 14,655,394 Unobservable Less accumulated depreciation Assets (9,213,569) (9,564,740) Inputs Inputs Total $ 5,026,034 $ 5,090, (Level 1) (Level 2) (Level 3) 7. Assets: LOAN SERVICING Impaired Mortgage loans: serviced for ors are not reported as assets. The principal balances se loans at year-end are as follows: Mortgage Commercial loan real portfolios estate serviced for: $ $ $ 2,779,571 Or FHLMC 82,029, ,261, ,156 Residential FHLBI real estate 27,241, ,585, Custodial Total escrow balances maintained in connection with serviced loans $ were $129,648 0 $ $115,449 at December 0 $ 31, 2,809, , 2013 Custodial respectively. escrow balances maintained in connection with serviced loans were $129,648 $115,449 at Decemb Assets: Activity 2015, for respectively. loan servicing rights follows: Impaired loans: Servicing rights Commercial Beginning real year estate $ $ 501,353 0 $ $ 504,248 0 $ 1,857,400 Or Additions 218, , ,282 Amortized to expense (226,220) (242,642) Residential real estate ,275 End year $ 493,854 $ 501,353 Total $ 0 $ 0 $ 2,239,957 The The following fair value represent servicing impairment rights at charges year-end recognized during were approximately period: $1,023,000 $1,105,000. Impaired loans, which are measured for impairment using fair value collateral for collateral dependent loans, had a recorded 8. DEPOSITS investment $3,179,727, before a valuation allowance $370,000 at year-end 2014, resulting in no significant provision At for December loan losses 31, for 2016, scheduled At December maturities 31, 2013 time impaired deposits loans were had as follows: a recorded investment $3,379,957, before a valuation allowance 2017 $1,140,000, resulting in a provision for loan losses $51,000 $ for 17,260,147 year ending December 31, As 2018 discussed previously, fair values impaired loans or real estate carried at fair value are determined by third party 5,702,402 appraisals. Management makes adjustments to se appraised values based on age appraisal type property ,984,010 The following tables present quantitative information about level 3 fair value measurements for larger classes financial ,246 instruments measured at fair value on a non-recurring basis at December 31: Total $ 25,049,805 Valuation Unobservable Discount Rate 2014 Related party deposits totaled $4,829,319 Fair $4,730,710 Value at December Technique(s) 31, , respectively. Input (Range Average) Time Impaired deposits loans: that meet or exceed FDIC Insurance limit $250,000 at year-end were $4,405,132 $5,394,332, respectively. Commercial real estate $ 2,779,571 Sales comparison Management 10% discount for property type recent market volatility 2013 Impaired loans: Commercial real estate $ 1,857,400 Sales comparison Management 10% discount for property type recent market volatility 22

25 Notes to Consolidated Financial Statements (continued) FAIR INCOME VALUE TAx (continued) Fair Value Financial Instruments Income tax expense (benefit) consists : The estimated fair values financial instruments excluding available 2016 for sale securities, 2015 in thouss, are as follows as Current December liability 31: $ 1,062,290 $ 1,093, Deferred (benefit) liability 2014 (90,036) (179,010) Carrying Fair Carrying Fair Total income tax expense (benefit) $ 972,254 $ 914,795 Amount Value Amount Value Deferred Financial tax assets assets liabilities at December 31 consist : Cash cash equivalents $ 25,947 $ ,947 $ ,296 $ 32,296 Deferred Securities tax assets held to maturity 11,022 11,046 12,058 11,845 Allowance Loans held for for loan sale losses 208 $ 740, $ 711, Deferred Loans, net compensation 167, ,914 5, ,005 5, ,379 Nonaccrual FHLB loans FAMC stock ,757 N/A 243, N/A Pension liability 1,093,831 1,095,256 Accrued interest receivable Unrealized loss on securities available for sale 331, ,914 Accrued Financial liabilities 117,300 95,200 Or Deposits $ 236,342 $ 236,253 19,570 $ 238,660 17,293 $ 238,720 Total Accrued deferred interest tax assets payable 15 2,557, ,411, Deferred The estimated tax liabilities fair value approximates carrying amount for all items except those described below. Estimated fair value for loans Deferred is based loan on fees/costs current market rates for new loans with similar maturities, applied (108,698) until loan (122,077) is assumed to reprice or be paid. Estimated Depreciation fair value for time deposits are based on current market rates at year-end (165,840) applied until (184,188) maturity. It was not practicable to Mortgage determine servicing fair rights value Federal Home Loan Bank stock due to restrictions (167,910) placed on its transferability. (170,460) Estimated fair value for Pension or financial expense instruments f-balance-sheet loan commitments are considered (407,213) nominal. (397,032) Or (40,964) (46,616) Total 6. PREMISES deferred tax AND liabilities EQUIPMENT (890,625) (920,373) Major classifications premises equipment were as follows at December 31: Net deferred tax assets ,667,071 1,490, Valuation L allowance $ 1,385,439 0 $ 1,385,439 0 Total Buildings deferred tax assets 8,146,176 $ 1,667,071 $ 1,490,852 8,142,183 Furniture, fixtures equipment 4,889,193 6,050,241 A valuation allowance related to deferred tax assets is required when it is considered more likely than not that all or part benefits related Total to cost such assets will not be realized. Management has determined 14,420,809 that no valuation allowance was 15,577,863 required at year-end 2016 or Less accumulated depreciation (9,094,713) (9,959,071) Total $ 5,326,096 The difference between financial statement tax expense amounts computed by applying $ statutory 5,618,792 federal tax rate 34% to pretax income is reconciled as follows: 7. LOAN SERVICING Mortgage loans serviced for ors are not reported as assets. The principal balances se loans at year-end are as follows: Statutory rate applied to income before taxes 2014 $ 1,228,853 $ 1,166, Mortgage Add (deduct): loan portfolios serviced for: FHLMC Non-taxable income $ 81,158,290 (178,606) $ 83,119,510 (176,846) FHLBI Bank owned life insurance 20,243,452 (79,975) 17,103,241 (78,464) Or 1,982 3,285 Custodial Total income escrow tax balances expense maintained (benefit) in connection with serviced loans $ were $273, ,254 $ $142, ,795 at December 31, , There respectively. were no unrecognized tax benefits at December 31, 2015, Corporation does not expect total amount unrecognized tax benefits to significantly increase or decrease in next twelve months. There There were no were unrecognized no unrecognized tax benefits tax benefits at December at December 31, , 2015, Corporation Corporation does not expect does not expect total amount total unrecognized amount tax benefits Activity unrecognized The Corporation to for significantly loan tax servicing is benefits no increase longer rights to or subject significantly decrease follows: to examination increase next twelve or by decrease months. Internal in Revenue next twelve Service months. for years before The Servicing No Corporation amounts rights is interest, no longer penalties, subject /or to examination accruals by were recorded Internal during Revenue or Service for years for years ended before December , The Corporation is no longer subject to examination by Internal Revenue Service for years before No Beginning amounts interest, year penalties, /or accruals were recorded during $ or 563,157 for years ended December $ 455,376 31, Additions No amounts interest, penalties, /or accruals were recorded 160,158 during or for years ended December 323,493 31, 2016 Amortized to expense (219,067) (215,712) End year $ 504,248 $ 563,157 The fair value servicing rights at year-end were approximately $1,086,000 $1,141,

26 Notes to Consolidated Financial Statements (continued) INCOME EARNINGS TAx PER (Continued) SHARE 10. EARNINGS PER SHARE A reconciliation The computation numerators earnings per denominators share for years for earnings ended per December share for 31, is years as follows: ended December 31 are as follows: Basic earnings per share Net income available to common shareholders $ 2,642,020 $ 2,517,029 Weighted average common shares outsting 1,926,629 1,933,267 Basic earnings per share $ 1.37 $ EMPLOYEE BENEFIT PLANS Defined Benefit Pension Plan The Corporation has a funded noncontributory defined benefit pension plan that covers substantially all its employees. The plan provides defined benefits based on years service final average salary. The Corporation uses a December 31 measurement date. As December 31, 2009 pension plan was frozen. No employee could become a participant plan after December 31, Participants earned no additional benefits under plan after December 31, A participant s benefit will be determined using years benefit service, average compensation, covered compensation as December 31, Participants continued to earn additional vesting years service after December 31, Information about pension plan as for years ended December 31 was as follows: Projected benefit obligation $ 7,110,194 $ 6,908,354 Fair value plan assets 5,123,280 4,887,307 Unfunded status $ (1,986,914)$ (2,021,047) Accrued benefit cost $ 1,986,914 $ 2,021,047 Accumulated benefit obligation 7,110,194 6,908,354 Employer contribution 240, ,468 Benefits paid 403, ,426 Components Net Periodic Benefit Cost or Amounts Recognized in Or Comprehensive Income: Service cost $ 21,419 $ 38,580 Interest cost 269, ,192 Expected return on plan assets (309,122) (319,559) Amortization net loss 228, ,059 Net periodic benefit cost 210, ,272 Net actuarial (gain) loss 435,869 14,123 Prior service cost/(credit) added during year (211,881) 0 Amortization prior service cost (228,179) (240,059) Total recognized in or comprehensive income (4,191) (225,936) Total recognized in net periodic benefit cost or comprehensive income $ 205,867 $ 1,336 Weighted average assumptions used to determine benefit obligations at year-end: Discount rate 3.50% 4.00% Weighted average assumptions used to determine net cost: Discount rate 4.00% 3.75% Expected rate return on plan assets 6.50% 6.50% 24

27 Notes to Consolidated Financial Statements (continued) INCOME EMPLOYEE TAx BENEFIT (Continued) PLANS (continued) The Amounts difference recognized between in accumulated financial statement or comprehensive tax expense loss, amounts before computed taxes, consisted by applying a net gain/(loss) statutory federal $3,217,148 tax rate $3,221,339 34% to pretax at December income is 31, reconciled 2016 as 2015, follows: respectively. The Statutory estimated rate applied net loss to income prior before service taxes cost / (credit) for pension plan that will be amortized $ 1,138,788 from accumulated $ 1,130,511 or comprehensive Add (deduct): loss into periodic benefit costs during year ending December 31, 2017 are $256,000 ($20,000), respectively. Non-taxable income (155,294) (142,756) The Bank s overall investment strategy is to achieve a mix approximately 60% investments for long-term growth 40% for near-term Bank benefit owned payments life insurance with a wide diversification asset types, fund strategies fund managers. (77,617) Equity securities (78,781) primarily include Or investments in common stocks multi-class mutual funds. Debt securities include government 2,759 agencies, investment 6,039 grade global corporate bonds, global high yield corporate bonds. Real estate investments are primarily held in REITS a diversified Total income mutual tax fund. expense Or (benefit) investments consist certificates deposit a money market $ instrument. 908,636 $ 915,013 The expected rate return on plan assets is based on management s estimate future long-term rates return on similar assets There is consistent were no with unrecognized historical returns tax benefits on such at assets. December 31, 2014, Corporation does not expect total amount Target unrecognized asset allocation tax benefits for 2017, to allocations significantly at increase year-end or 2016 decrease 2015, in next weighted twelve average months. rate return by asset class are as follows: The Corporation is no longer subject to examination by Internal Revenue Service for years Weighted before No amounts interest, penalties, /or accruals Target were recorded Percentage during or for Average years ended December 31, Allocation Plan Assets at Year-End Rate Return Equity EARNINGS securities PER SHARE 55% 63% 61% 10.31% Debt securities 40% 34% 35% 5.61% Cash A reconciliation or numerators denominators 5% basic 3% diluted earnings 4% per share for 0.15% years ended December 31 are Total as follows: 100% 100% 8.32% Basic earnings per share The Net Bank income is not available required to to contribute common to shareholders its pension plan in However, Bank reserves $ right 2,440,741 to make contributions $ 2,410,018 to Weighted average common shares outsting 1,934,757 1,945,583 The following benefit payments are expected to be paid: Basic earnings per share $1.26 $ $ 449, , EMPLOYEE BENEFIT PLANS , ,280 Defined Benefit Pension Plan ,408 The Corporation has a funded noncontributory defined benefit pension 3,703,276 plan that covers substantially all its employees. The plan provides defined benefits based on years service final average salary. The Corporation uses a December 31 measurement date. The As preceding December discussion 31, 2009 about pension Plan contributions plan was frozen. benefit No employee payments could presumes become an a ongoing participant Plan. In December plan after December 2016, Corporation s 31, Participants Board Directors earned no approved additional terminating benefits under Plan plan settling after December all liabilities 31, effective A January participant s 31, benefit Plan will termination be determined settlement using years is subject benefit to various service, regulatory average compensation, approvals. Upon settlement, covered compensation Corporation as will December contribute 31, funds Participants necessary will for continue Plan to to satisfy earn additional its obligations vesting years any unrecognized service after loss December will be charged 31, to expense. Fair Value Plan Assets: Information Fair value is about exchange pension price plan that as would be for received years for ended an asset December in principal 31 was as or follows: most advantageous market for asset in an orderly transaction between market participants on measurement date The Corporation used following methods significant assumptions to estimate fair value each type financial instrument: Projected benefit obligation $ 7,322,054 $ 6,301,006 Fair Equity, value debt, plan assets or securities: The fair values for investment securities are determined by quoted 5,097,875 market prices, if 4,882,996 available (Level Unfunded 1). For status securities where quoted prices are not available, fair values are calculated based on $ (2,224,179) market prices similar $ (1,418,010) securities (Level 2). For securities where quoted prices or market prices similar securities are not available, fair values are calculated using discounted cash flows or or market indicators (Level 3). Discounted cash flows are calculated using spread to swap LIBOR curves Accrued that benefit are updated cost to incorporate loss severities, volatility, credit spread optionality. $ During 2,224,179 times when trading $ 1,418,010 is more liquid, Accumulated broker quotes benefit are obligation used (if available) to validate model. Rating agency industry research 7,322,054 reports as well as defaults 6,301,006 deferrals on individual securities are reviewed incorporated in to calculations. Employer contribution 157, ,862 Benefits paid 337, ,087 25

28 Notes to Consolidated Financial Statements (continued) 11. EMPLOYEE BENEFIT PLANS (Continued) The Components fair value Net plan Periodic assets, Benefit by asset Cost class, is as or follows: Amounts Recognized in Or Comprehensive Income: at December at December 31, 2016 Using: at December , 2015 Using: 2013 Service cost Quoted QuotedSignificant Quoted $ 32,916 Significant 0 Interest cost Prices in Prices Active in Active Or O Significant Prices in Active275,415 Or Significant 247,613 Expected return on plan assets Markets Markets for Observable for Unobservable Markets for(313,154) Observable Unobservable (243,111) Amortization net loss Identical Identical Assets Assets Inputs I Inputs Identical Assets 178,643 Inputs Inputs 260,041 Net periodic benefit cost (Level 1) (Level 1) (Level 2) (Le (Level 3) (Level 1) 789,578 (Level 2) (Level 3) 264,543 Plan assets Cash $ $ 137, ,061 $ $ Equity Net actuarial securities(gain) loss 0 $ 0 $ 184,706 $ 968,221 0 $ 0 (779,290) Amortization U.S. large cap prior service cost 1,991,830 1,991, ,903,228 (178,643) 0 (260,041) 0 Total U.S. mid recognized cap in or comprehensive income 279, , , ,578 0 (1,039,331) 0 U.S. small cap Total recognized in net periodic benefit cost 276, , , Preferred stock 75,153 75, , or International comprehensive (developed) income $ 963,398 $ (774,788) 304, , , International (emerging) 235, , , Debt Weighted securities average assumptions used to determine benefit obligations at year-end: U.S. government obligatons Discount rate , % 309, % 0 Certificates deposit , ,252 0 Investment grade corporate bonds 862, , , Weighted High yield average bonds assumptions used to determine 239,995 net 239,995 cost: , Specialty Discount rate 4.50% 3.75% Expected Precious Metals rate return on plan assets 55,400 55, , % 0 6.5% 0 Total Amounts plan assets recognized in accumulated $ or 4,458,180 comprehensive $ 4,458,180 $ loss, 665,100 $ before $ taxes, consisted 0 $ 4,099,431 a net loss $ $3,447, ,876 $ $2,657,697 0 at December 31, , respectively. Employee Stock Ownership Plan (ESOP) The estimated net loss for pension plan that will be amortized from accumulated or comprehensive loss into periodic benefit A non-contributory costs during ESOP year is ending maintained December for 31, benefit 2015 is $240,000. all qualified employees. At year-end , ESOP owned 146, ,657 shares Corporation s common stock. All shares are allocated to participants. Dividends paid on shares The Bank s overall investment strategy is to achieve a mix approximately 55% investments for long-term growth 45% held by ESOP are allocated to participants accounts based upon shares held. Upon retirement or separation, a participant or for near-term benefit payments with a wide diversification asset types, fund strategies fund managers. Equity securities beneficiary generally has 60 days to elect form benefit desired. They may elect to receive an in-kind distribution shares primarily include investments in common stocks multi-class mutual funds. Debt securities include government agencies, allocated to m or may elect to receive value ir ESOP account balance, including shares, distributed in cash over a period investment grade global corporate bonds, global high yield corporate bonds. Real estate investments are primarily held in generally not in excess five years. The value ESOP shares for cash distribution purposes is determined annually by a third party REITS a diversified mutual fund. Or investments consist certificates deposit a money market instrument. appraisal, at year-end 2016 aggregated to approximately $2,441,000. Annual contributions are made at discretion nd Board are The expected Directors rate return were $150,878 on plan assets $158,024 is based for on 2016 management s estimate future long-term rates return on similar assets investment is consistent grade with global historical corporate returns bonds, such global assets. high yield corporate bonds. Real estate investments are primarily held in 12. REITS FINANCIAL a diversified INSTRUMENTS mutual fund. WITH Or OFF-BALANCE-SHEET investments consist certificates RISK deposit a money market instrument. Target asset allocation for 2015, allocations at year-end , weighted average rate return by asset class are as Some financial instruments are used to meet customer financing needs to reduce exposure to interest rate changes. These financial follows: Some financial instruments are used to meet customer financing needs to reduce exposure to interest Weighted rate changes. These financial instruments include commitments Target to make loans, unused lines Percentage credit, stby letters Average credit. These involve, to varying degrees, credit interest-rate Allocation risk in excess amount Plan reported Assets in at Year-End balance sheet. Rate Return ber 31, Outsting commitments to make loans unused lines credit totaled $40,968,000 $35,930,000 at December 31, Equity securities 55% 63% 62% 10.51% , respectively. Commitments under letters credit were $1,942,000 $1,617,000 at December 31, , respectively. Debt securities 40% 36% 36% 4.16% Cash or 5% 1% 3% 0.13% Commitments Total to make loans are agreements to lend to a customer 100% as long as re 100% is no violation any 8.17% condition established in commitment, generally have fixed expiration dates. Stby letters credit are conditional commitments to guarantee a The Bank expects to contribute approximately $8,000 to its pension plan in customer s performance to a third party. Exposure to credit loss if or party does not perform is represented by contractual amount The following se benefit items. payments Collateral are or expected or security to be is paid: normally not obtained for se financial instruments prior to ir use, many commitments are expected to expire without 2015 being used. $343, , , , , ,983,510 26

29 Notes to Consolidated Financial Statements (continued) 13. REGULATORY MATTERS Banks bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines, additionally for banks, prompt corrective action regulations, involve quantitative measures assets, liabilities, certain f-balance sheet items calculated under regulatory accounting practices. Capital amounts classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The final rules implementing Basel Committee on Banking Supervision s capital guidelines for U.S. banks (Basel III rules) became effective for Corporation on January 1, 2015 with full compliance with all requirements being phased in over a multi-year schedule, fully phased in by January 1, The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. The table below presents 2016 minimum reported capital adequacy information assuming full phase-in se new requirements. Management believes as December 31, 2016, Corporation Bank meet all capital adequacy requirements to which y are subject. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, critically undercapitalized, although se terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth expansion, capital restoration plans are required. As December 31, , most recent regulatory notifications categorized Bank as well capitalized under regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed Bank s category. At December 31, Bank's actual capital levels minimum required levels, in thouss, approximated: Minimum required to be well Minimum required capitalized under for capital prompt corrective Actual adequacy purposes action regulations 2016 Amount Ratio Amount Ratio Amount Ratio Total Capital (to risk weighted assets) $ 39, % $ 23, % $ 22, % Tier 1 (Core) Capital (to risk weighted assets) 36, % 19, % 18, % Common Tier 1 (CET1) 36, % 15, % 14, % Tier 1 (Core) Capital (to average assets) 36, % 11, % 14, % 2015 Total capital (to risk weighted assets) $ 37, % $ 21, % $ 20, % Tier 1 (Core) Capital (to risk weighted assets) 35, % 17, % 16, % Common Tier 1 (CET1) 35, % 14, % 13, % Tier 1 (Core) Capital (to average assets) 35, % 11, % 14, % Banking regulations require maintaining certain capital levels may limit dividend paid by Bank to Corporation or Corporation by Corporation to shareholders. to Corporation or by shareholders. 27

30 Directors Notes Consolidated Financial Statements (continued) Century Bank Trust 12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISk (continued) Commitments Eric H. Beckhusen to make loans are agreements to Thomas John lend to D. a Hutchinson G. customer Kramer as long as re is no violation Robert Stanley W. R. any Welch Shedd condition established in commitment, Chairman & CEO, generally have fixed expiration Executive Chief Attorney-at-Law dates. Financial Director, Stby Officer, letters credit are conditional Robert Northshore Retired W. Chairman, commitments Shedd Asset Management to guarantee a customer s Century performance Bank Trust to a third party. Exposure ADAPT, to credit Incorporated loss if or party does not perform Northshore Bronson is represented Plating Asset Co. Management by contractual amount se items. Collateral or or security is normally not obtained for se financial Stanley instruments R. Welch prior to ir use, many Caroline Bruce James Robert S. W. commitments P. P. Brors A. Gordon Lowe Gosling, Christy are expected to expire Thomas Caroline without P. G. being P. Kramer Lowe used. Chairman Stanley Eric J. Wynes R. Welch Board, Certified Attorney-at-Law Public Accountant, Chief Caroline Certified Financial P. Public Lowe Officer, Accountant Christy Bronson Retired President, Chairman, Plating Co. 13. REGULATORY Norman James W. & Gordon, Paulsen, MATTERS CPA, P.C. P.C. ADAPT, Certified Incorporated Public Accountant Bronson Century Bank Plating Co. Trust Bruce S. A. Gosling, Banks are subject to regulatory capital requirements Kelly B. administered Murphy Eric J. Wynes by federal banking agencies. These prompt corrective action regulations John Bruce Certified D. involve S. Hutchinson Public A. Gosling, Accountant, quantitative measures assets, Kelly President, liabilities, B. Murphy President, Eric J. Wynes certain f-balance-sheet items calculated under regulatory accounting Certified Attorney-at-Law Norman & practices. Public Paulsen, Accountant, P.C. C. A. Murphy Oil Co. Century Bank Trust Capital amounts classifications President, C. A. Murphy are also Oil Co. President, subject to qualitative judgments by regulators. Failure to meet various Norman requirements & Paulsen, can P.C. initiate regulatory action. C. A. Management Murphy Oil Co. believes Bank meets all Century capital Bank requirements Trust John D. Hutchinson to which it is subject at year-end Robert W. Shedd Attorney-at-Law John D. Hutchinson Northshore Asset Management Prompt Attorney-at-Law corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly Officers undercapitalized, critically undercapitalized, although se terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, Officers as is asset growth expansion, capital restoration plans are required. As December 31, , most Century Bank Trust recent regulatory notifications categorized Bank as well capitalized under regulatory framework for prompt corrective action. Century There Eric are H. no Bank Beckhusen conditions Trust or events since that notification Alicia K. that Cole management believes have changed Adam M. Bank s Wrightcategory. Chairman & CEO Assistant Vice President & Assistant Vice President & Eric H. Beckhusen Corey L. Collins Karine L. Sexton-Deck Trust Officer Capital Commercial to risk- Loan Officer Chairman & CEO Assistant Vice President & Controller Eric J. Wynes weighted assets Deposit Services Officer President Corey L. Collins Donna L. Penick Tier 1 capital Eric J. Wynes W. Samuel Davenport III Assistant Vice President & DepositTotal Auditor Tier 1 to average assets President Michael D. Eddy Loan Officer Well Dylan capitalized M. Foster Services Officer 10% 6% 5% Assistant Vice President & Adequately Senior Vice capitalized President 8% Karine 4% L. Sexton-Deck4% Dylan M. Foster Mortgage Loan Officer Jason C. Dozeman Under capitalized Michael D. Eddy 6% Controller 3% 3% Senior Vice President Commercial Loan Officer Gaylene S. Adams Assistant Vice President & At Vice December President 31, Bank s actual capital levels Jared Mortgage E. minimum Hfmaster Loan Officer required levels, in thouss, W. Samuel approximated: Gaylene S. Adams Assistant Vice President & Hear E. Davenport EldridgeIII Vice President Investment Officer Loan Trust Officer Operations Minimum Officer required Julie A. Andrews Jared E. Hfmaster to be well Vice Julie President A. Andrews & Senior Trust Officer Assistant Jeffrey Vice S. Holbrook President & Minimum Rebecca required Joshua R. D. Duke Jonescapitalized under Vice President & Senior Trust Officer Investment Assistant Officer Vice President & for capital Marketing Mortgage Director Loan prompt Officer corrective Jessica A. Hy Commercial Actual Loan Officer adequacy purposes action regulations Vice Donna President M. Hobday & Commercial Loan Jeffrey S. Holbrook Hear Tracy E. A. Eldridge Richer 2014 Officer Vice President Assistant Vicki Amount R. Vice Morris President Ratio & Amount Trust Trust Ratio Operations Officer Amount Officer Ratio Total capital (to risk weighted assets) Commercial $ 35,855 Loan Officer 17.9% $ 16, % $ 20, % Assistant Vice President & Tier Donna Ginger 1 capital M. J. Hobday Kesler (to risk weighted assets) Mortgage 33,731 Loan Officer 16.8% 8,011 Tracy AnnMarie A. 4.0% Richer L. Sers 12, % Tier Vice 1 capital President (to average assets) Barry R. Miller 33, % 11,066 Trust Commercial Officer 4.0% Loan 13,832 Officer 5.0% Assistant Andrea Vice J. Strong President & 2013Ginger Barry J. R. Kesler Miller Mortgage Assistant Loan Vice Officer President & AnnMarie Erik L. Schaeffer L. Sers Total Vice Vice capital President Teller (to risk weighted assets) $ Operations 34,500 Officer 18.0% $ 15,345 Commercial Trust 8.0% Officer Loan $ Officer 19, % Vicki R. Morris Tier 1 capital (to risk weighted assets) 32, % 7, % 11, % Ronald H. H. Uhl Uhl Assistant Adam M. Tier 1 capital (to average assets) 32,094 Vice Wright President 12.2% & 10,526 Erik Kathy L. Schaeffer 4.0% A. Tomson 13, % Vice Vice President Mortgage Assistant Loan Vice Officer President & Trust Mortgage OfficerLoan Officer Commercial Loan Officer Banking regulations require maintaining certain capital levels may limit dividend paid by Bank to Corporation or David Alicia L. K. Wright Cole Andrea J. Strong Kathy A. Tomson by Corporation to shareholders. Vice Assistant President Vice President & Assistant Donna L. Vice Penick President & Mortgage Loan Officer Trust Officer Teller Auditor Operations Officer Century Century Century Financial Financial Corporation Corporation Eric H. Beckhusen Chairman & CEO Eric J. Wynes President 28

31 Employees - Years Service Century Bank Trust Karina Aburto 4 Alicia Finnerman Kimberly Little 23 Erik Schaeffer 10 Gaylene Adams 9 Dylan Foster 14 Bobbi Jo Litwiller 18 Karine Sexton-Deck 33 Julie Andrews 13 Gustavo Garicia Rebecca Lunger 17 Hear Shilling Suzann Bailey 33 Benjamin Gary Jade Malovey 1 Lindsey Sikorski 2 Breezi Barajas Betty Geer 4 Jesse Martinez 1 Robin Smith 42 Eric Beckhusen 23 Melissa George 9 Amy Marvin 11 Brooke Smoker Dorothy Bowersox 19 Tyler Hagaman Barry Miller 12 Patricia Somerlott 10 Tammy Brauker 19 Teresa Happ 26 Lisa Monroe Ala Steele 36 Rachael Brayton 6 Mary Kay Hazelbaker 35 Tiffany Moore 4 Andrea Strong 16 Jamie Bream 1 Ruth Hendrie 14 Vicki Morris 5 Keegun Strong 2 Paula Brewer 22 Judy Hilbert 40 Diana Neal Kasey Tice 3 Kathleen Brown Carrie Hiller 22 Mary Kay Nowak 20 Kelsie Tice 3 Melinda Burns 8 Rex Hilton 17 Sarah Nowicki 5 Stacy Tom 16 Brittney Buscher Valerie Hilton 21 Victoria Odisher 5 Kathy Tomson 15 Hear Chapman 20 Lucinda Hoath 15 Lynn Olszewski 9 Ronald Uhl 14 Alicia Cole 18 Donna Hobday 29 Josalynn Parker 9 Kendra Uhrig-Shook Corey Collins 12 Jared Hfmaster 6 Donna Penick 27 Roberto Villa 11 Jill Cook 16 Jeffrey Holbrook 12 Kristi Pfost 26 Alesia Walls 16 D. Kelly Costantino 17 Katie Hunnicutt 1 Benna Price 16 Cayla Waltke 4 Jacob Counterman Jennifer Jasper 3 Christina Rall 25 Katie Ward 5 Debra Covey Katryna Jenkins 1 Penny Rasler 12 Jamie Willison 19 Laurie Cox 28 Mark Johnson 6 Tracy Richer 4 Taylor Wilson 4 Sheila Crawford 4 Joshua Jones 7 Patricia Ridgley 2 Kimberly Wilson 9 Sam Davenport III 13 Brittney Kennedy Kathy Rockey 8 Adam Wright 8 Ashlee Douglas 1 Stephanie Keplinger Brittany Roddy 7 Carrie Wright Jason Dozeman 2 Ginger Kesler 17 Joseph Rodriguez Eric Wynes 15 Karen Dunn 33 Jeffrey Kiersey 2 Darlene Ruden 21 Amy Yearling 22 Monique Dunn 1 Ama Kindig 4 Deborah Russo 4 Sue Yockey 32 Michael Eddy 30 Emily Kirk 1 Ryan Saddler 4 Janet Zabonick 19 Hear Eldridge 23 Brittany Leonard 1 Samantha Saltsman 7 Jacqueline Fields Leah Leosh 8 AnnMarie Sers 5 Lindsey Fillmore 2 Sarah Lewis 2 Mashaun Schabloski 1 29

32 Office ATM Locations Office Locations Coldwater Main Office Bronson Office Nottawa Office Coldwater 100 West Chicago Street 106 East Chicago Street M-86 Main Main Office Office Bronson Office Nottawa Office 100 Coldwater, Michigan Bronson, Michigan Nottawa, Michigan West West Chicago Chicago Street Street East East Chicago Chicago Street Street M-86 M-86 Coldwater, (517) Michigan Bronson, (517) Michigan Nottawa, (269) Michigan Coldwater, Michigan Bronson, Michigan Nottawa, Michigan (517) (517) (269) (517) (517) (269) Coldwater Auto Bank Office Quincy Office Sturgis Main Office Coldwater 64 North Auto Monroe Bank Street Drive-Thru Quincy 109 West Office Chicago Street Sturgis 300 West Main Chicago Office Road 64 Coldwater North Monroe Auto Street Bank Office 109 Quincy West Office Chicago Street 300 Sturgis West Main Chicago Office Road Coldwater, Michigan Quincy, Michigan Sturgis, Michigan Coldwater, 64 North Monroe Michigan Street Quincy, 109 West Michigan Chicago Street Sturgis, 300 West Michigan Chicago Road (517) (517) Coldwater, Michigan (517) (517) Quincy, Michigan (269) (269) Sturgis, Michigan (517) (517) (269) Coldwater East East Office Reading Office Sturgis West Office 745 Coldwater East Chicago East Street Office Street 108 Reading North Office Main Street 201 Sturgis South West Centerville OfficeRoad Road Coldwater, Michigan 745 East Chicago Street Reading, Michigan 108 North Main Street Sturgis, Michigan 201 South Centerville Road (517) (517) Coldwater, (517) Michigan (517) Reading, (269) Michigan (269) Sturgis, Michigan Coldwater (517) Fairfield Drive-Thru Jonesville (517) Loan Center Three (269) Rivers Office 496 Coldwater Marshall Fairfield Street Office 859 Jonesville Olds Road Loan Center 1310 Three West Rivers Broadway Office Coldwater, 496 Marshall Michigan Fairfield Street Office Jonesville, 859 Olds Michigan Road Loan Center Three 1310 Rivers, West Broadway Michigan Office (517) Coldwater, 496 Marshall Michigan Street (517) Jonesville, 859 Olds Road Michigan (269) Three West Rivers, Broadway Michigan (517) Coldwater, Michigan (517) Jonesville, Michigan (269) Three Rivers, Michigan (517) (517) (269) ATM Locations ATM Locations Century Bank Trust Century Bank Trust Century Bank Trust ATM Locations Coldwater Main Office ATM Bronson Office ATM Three Rivers Main Office ATM 100 Century West Bank Chicago Street Trust 106 Century East Chicago Bank Street Trust 1310 Century West Bank Broadway Trust Coldwater, Century Bank Michigan Main Office Trust Bronson, Century Bank Michigan Office Trust Three Century Rivers, Bank Michigan Office Trust 100 Coldwater West Chicago Main Office Street 106 Bronson East Chicago Office Street 1310 Three West Rivers Broadway Office Century Coldwater, 100 West Bank Chicago Trust Michigan Street Century Bronson, 106 East Bank Chicago Trust Michigan Street Century Three 1310 West Bank Rivers, Broadway Trust Michigan Coldwater, AutoBank Michigan Drive-Thru ATM Quincy Bronson, Office Michigan ATM Sturgis Three West Rivers, Office Michigan ATM 64 North Monroe Street 109 West Chicago Street 201 South Centerville Road Coldwater, Century Bank Trust Century Bank Trust Century Bank Trust Century Bank Michigan Trust Quincy, Century Michigan Bank Trust Sturgis, Century Michigan Bank Trust AutoBank Drive-Thru Quincy Office West Branch AutoBank Drive-Thru Quincy Office West Branch Century 64 North Bank Monroe Trust Street Community 109 West Chicago Health Center Street Century 201 South Bank Centerville Trust ATM Road 64 North Monroe Street 109 West Chicago Street 201 South Centerville Road Coldwater, East Michigan Office ATM Hospital Quincy, Gift Michigan Shop ATM Murphy Sturgis, Oil Michigan Gas Station 745 Coldwater, East Chicago Michigan Street 274 Quincy, East Chicago Michigan Street 1450 Sturgis, S Centerville Michigan Road Coldwater, Michigan Coldwater, Michigan Sturgis, Michigan Century Bank Trust Community Health Center Century Bank Trust Century Bank Trust Community Health Center Century Bank Trust East East Branch Branch East East Chicago Chicago Street Street Drive-Thru Drive-Thru ATM Century Bank Trust Century Bank Trust Century Bank ATM Trust ATM Coldwater East East Chicago Fairfield Chicago Drive-Thru Street Street Reading Coldwater, Coldwater, Office Michigan Michigan ATM Murphy North North Oil Gas Nottawa Nottawa StationRoad 496 Coldwater, Coldwater, Marshall Street Michigan Michigan 108 North Main Street 2018 Sturgis, Sturgis, North Michigan Michigan Wayne Street Coldwater, Michigan Reading, Century Michigan Bank Trust Angola, Indiana Century Bank Trust Reading Office Fairfield Plaza 108 North Main Street 496 Marshall Street Reading, Michigan Coldwater, Michigan 24 Hour Online Banking at CenturyBankTrust.com Toll Free (866)

33 Company Prile CENTURY BANK AND TRUST AT A GLANCE Year CB&T Branches was established 1 Loan Office 125 Number Employees STOCK PERFORMANCE $ % Book Value per Share Five year average annual dividend return 12 ATM s 6 years Consecutive increased earnings 20,491 + Total deposit accounts PRIMARY SERVICES Loans Business, Mortgage, Consumer Trust & Investment Management Checking & Savings Accounts for businesses & consumers BRANCH AND ATM LOCATIONS 31