Bank 3 Annual Report- FIN 2600-02

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Northwood University, Michigan *

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2600

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Jan 9, 2024

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BANK 3 Annual Report

1 TABLE OF CONTENTS A Message to Our Shareholders 2 Mission, Vision, and Values 5 Key Metrics 7 Consolidated Balance Sheet Consolidated Income Statement Performance Summary Team Overview CFO Overview 11 CLO Overview 13 CDO Overview 16 CIO Overview 18 Meet Our Team 20

2 A MESSAGE TO OUR SHAREHOLDERS DECEMBER 31ST, 2031 DEAR FELLOW SHAREHOLDERS, Throughout the years of 2030 and 2031 there has been an everchanging market within the community. Bank 3 would like to formally thank you for your commitment and contribution to the success of our institution. With plenty competition entering the market at the same time as our institution, we appreciate your loyalty and belief in our mission and values. In these last two years, it has been our mission to improve on our assets, loans, and deposits in order to meet the needs of our customers and maximize to value for our shareholders. With many ups and down throughout the previous period, especially in the beginning, we feel as a company we are now at a place to be able to continue to exponential improve our earnings per shares for years to come. As Chief Financial Officer, I have seen that there are many extremely positive achievements that has come to Bank 3 in the year of 2031. First off, we have achieved an A credit rating. We felt this was extremely important to work up to in order for our customers to feel a sense of safety in our ability to pay back our debts and therefore fund their needs. Lastly, we are proud to have achieved a status of having our market value exceed our book value. We can thank this due to our earnings overall as a bank steadily improving, especially over the past year of 2031. This is important to us because we feel it will be a true foreshadowing of the success of our profitability and future growth in the future. Leaning on our missions and goals, we hope to be able to expand farther into our community as well as other communities in the future, and growing profitability will assist us in funding this growth. With

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3 growing profitability, we also feel we can build the loyalty of our customers at Bank 3, further increasing our touch with the community. Looking towards the future, as an administrative unit we will continue to reanalyze our goals to what best fits our customers and community. We plan on continuing to take on community loans and deposits to the best of our ability and protect our assets wisely. As CEO, communication with my administration has been vital in making the right decisions for our company, customers, and shareholders. Finally, we will manage our risk as we always have. After the ups and downs of the year 2030, especially in our loans, and after a Cease and Assist order, we have proven as a bank that we can overcome adversity. In the beginning of 2030, with federal funding of over $200 million, we were able to adapt to the circumstances of our community, learn from the mistakes, work together as a team, and bring our federal funds down to 0 by the beginning of the next year. Our teamwork has been a vital asset in being able to work through beginning issues and become a steady, promising bank that will not allow these things to happen again. As we continue each quarter to do all in our power to maximize our shareholder value, we begin to look at our history of our stock price in the previous 2 years. When we took over the bank in 2029, we started at a solid stock price of 17.63, through some ups and downs we took some short comings in 2030, but now feel in 2031 17.63 19.42 15.3 22.04 20.85 0 5 10 15 20 25 Q4-2029 Q2-2030 Q4-2030 Q2-2031 Q4-2031 STOCK PRICE FROM 2030-2031

4 we are at a place to continue to keep our stock price above the $20 mark for years to come. We will work to continue to raise our stock price in the future. In the third quarter of 2031, our bank had the highest stock price out of any of our competitors, becoming the #1 bank it our community, it is our goal to be able to work back to this position. As we can see in figure 3, our net income over the past two years has been a bit unpredictable with different changes in the bank and within the market. As our bank has moved to make changes around our funding and liquid assets, we have seen a lot of changes throughout the years. Overall, we feel this is now a positive for our bank in the future because in these first beginning years we were able to find mistakes early on and will incorporate plans to avoid these mistakes in the future. This planning will help us the continue to maximize our shareholder value for years to come and improve our net come year by year. We also have come in during the last quarter ranked second in our market capital rank compared to the other banks in our community. We hope to be able to continue to improve our market capital. We also have had a total return of 27.11% and hope to keep improving these numbers looking towards the future. Thank you for your commitment, Piper Barnhart , CEO 0.436 1.148 0.12 1.16 0.476 0 0.2 0.4 0.6 0.8 1 1.2 1.4 Q4-2029 Q2-2030 Q4-2030 Q2-2031 Q4-2031 NET INCOME FROM 2030-2031

5 MISSION, VISION, AND VALUES MISSION MISSION STATEMENT: WE WILL ENGAGE WITH THE COMMUNITY IN A WAY THAT MAKES THEM FEEL SAFE AND SUPPORTED IN FINANCIAL HIGHS AND LOWS. We believe: • a customer’s trust is the #1 asset to obtain in our relationships • our financial community family should feel their deposits and loans are safe with us • we can be the backbone to our community’s financial success. • In improving our performance daily VISION STATEMENT • We strive to serve the community as its first option bank • Expanding and touching the lives throughout our region • Developing a strong reputation and expanding to new areas • Growing in an image that makes customers view us with their assets in a safe and confident manner VALUES • Determination • Strong Customer Relations • Community oriented • Family-friendly

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6 Mission Statement: We will engage with the community in a way that makes them feel safe and supported in financial highs and lows. We believe: - A customer’s trust is the #1 asset to obtain in our relationships - Our financial community family should feel their deposits and loans are safe with us - We can be the backbone to our community’s financial success. - In improving our performance daily Values - Determination - Strong Customer Relations - Community oriented - Family-friendly Vision Statement - We strive to serve the community as its first option bank - Expanding and touching the lives throughout our region - Developing a strong reputation and expanding to new areas - Growing in an image that makes customers view us with their assets in a safe and confident manner

7 Consolidated Balance Sheet (Presented in Millions of $) (December 31) 2031 2030 2029 ASSETS Cash Items 45.786 36.266 38.162 Fed Funds Sold 58.218 174.396 0.0 Securities 133.419 22.955 64.837 Loans (Net) 684.811 529.464 604.480 Loan Loss Reserve (6.917) (-5.348) (-6.106) Premises 15.506 15.479 15.462 Other Assets 43.962 36.755 34.386 TOTAL ASSETS 981.702 815.316 757.327 LIABILITIES AND EQUITY Total Deposits 881.779 720.667 671.270 Borrowed Funds 0.0 3.0 9.491 Repurchase Agreements 0.0 3.0 0.0 Fed Funds Purchased 0.0 0.0 9.491 FHLB Borrowing 0.0 0.0 0.0 Other Liabilities 37.762 30.327 28.973 Capital Notes 0.0 0.0 0.0 Owner’s Equity 62.161 61.322 47.594 TOTAL LIABILITIES AND EQUITY 981.702 815.316 757.327

8 Consolidated Income Statement (Presented in millions of $) (December 31) 2031 2030 2029 Interest Income Loans 13.859 9.670 10.076 Securities: Taxable 1.599 0.191 0.527 Securities: Tax-Exempt 0.080 0.080 0.256 Fed Funds Sold 1.019 1.300 0.000 Total Interest Income 16.557 11.240 10.859 Interest Expense 11.746 7.272 5.557 Net Interest Income 4 .809 3.969 5.301 Service Charges & Other Income 3.630 1.178 2.381 Loan Loss Provision 1.318 0.076 0.969 Operating Expenses Salaries 3.863 2.666 4.327 Advertising 0.500 0.350 0.100 Occupancy & Other Expenses 2.194 1.904 1.729 Total Operating Expenses 6.558 4.920 6.156 Operating Earnings 0.564 0.151 0.557 Gains/Losses on Asset Sales 0.146 0.000 0.000 Income Taxes 0.233 0.031 0.122 NET INCOME 0.476 0.120 0.436

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Performance Summary Figure 3 One of the main ways we stayed focused in determined in achieving our goals is by analyzing some of our key metrics. These metrics (shown above) helped us the further analyze what direction we truly needed to take our bank every new quarter. When we first took charge of the bank most of these quantities were very steady with the market. It was a rocky path within our first year, but we feel throughout the past year of 2031 we were able to find a true turning point for our bank. After our first two quarters of 2030 our net income and earnings per share nearly doubled immediately. We also saw a quick rise in our stock price. We can account this to our involvement in reaching out into the community and making as many loans as possible, even if on the riskier side. Then after reanalyzing how much of our funding was coming from Federal Financials Q4 2029 Q2 2030 Q4 2030 Q2 2031 Q4 2031 ROE 3.66 7.38 0.78 7.45 3.07 ROA 0.24 0.58 0.06 0.54 0.2 Net Income 0.436 1.148 0.120 1.160 0.476 Earnings Per Share 0.218 0.402 0.042 0.406 0.167 Stock Price 17.63 19.42 15.30 22.04 20.85 Dividends 0.25 0.22 0.15 0.20 0.23

10 Funds and looking towards more long-term goals we decided to reevaluate. This is illustrated by a quick drop in all of our financial quantities by the end of 2030. Finally, after regaining our footing, we were able to accelerate back into a healthy financial number in the first half of 2031. This is displayed through a positive, astounding increase in all of our defining financial measurements. As we round the year of 2031 to a close, we are beginning to see a slight drop again, luckily due to measures we have put in place to protect our bank after the year of 2030, we are ready to bounce back even faster and stay steady in our shareholder earnings for years to come. Overall, since our opening we have seen a positive increase in net income, from $436,000 to $476,000 annually. We also have seen an increase in stock price, from $17.63 to $20.85, within the last 2 years. This further exemplifies how despite the many challenges our bank has been forced to face head on, we have gone in a positive direction from the start. We are now looking to continue to grow our net income and stock price for the future. As far as ROE and ROA, we have seen a very slight decrease since our start, but we can assure that through our team and plans for the future we feel they can quickly be raised and provide for a healthier bank.

11 Chief Financial Officer Olivia Miller As the chief financial officer my job is to obtain cost- effective funding for the bank’s assets in a form to control interest rates and liquidity risk (participant decision manual). I focus on repurchase agreements, certificates of deposit, Federal Home Loan bank borrowing, dividends per share, common stock, and the earnings per share forecast. My main goal is to keep our band well-funded and make sure our liquidity position is good. We want to have enough capital to fund loans but not so much that we have excess capital sitting and not gaining us any money. In the beginning, we had too many loans and not enough deposits. To combat this, we borrowed Fed Funds. The interest rate on those is higher than any of other funding options. As CFO, I decided to shift to repurchase agreements because they offered the lowest rate and hoped that we could sell off some of the Fed Funds. Throughout our two years, we were able to sell of a good chunk of our Fed Funds. I work with the loan officer and deposit officer to keep us balanced. If we need funding, I will look at the best method to use. We have been balanced between our loans and deposits apart from the first two quarters due to a vast increase in loans and a decrease in deposits. 0 20 40 60 80 100 120 140 160 180 200 Quarter 4- 29 Quarter 2- 30 Quarter 4- 30 Quarter 2- 31 Quarter 4- 31 Funding Repos CDs Fed Funds Borrowed

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12 Another thing I focus on as CFO is our capital to risk weighted assets. Our goal is to be well-capitalized but not overcapitalized. The goal is between 8%-10%. For most of our time, we were well-capitalized. For a short period, we were over- capitalized, but we then put our funds into other areas to use it up. Overall, our capital to risk weighted assets were in a good position making us a well- funded bank. The last thing I looked at as CFO was dividends and earnings per share. I wanted to make sure that the dividends we were paying out were in line with earnings per share. I wanted to keep our shareholders happy with their dividend payout but make sure our bank was still profitable. As you can see, there were a few instances where dividends are exceeded earnings per share. Our projects were slightly off and that led us to be slightly off balance, but we worked every quarter to even out our inconsistencies. 8.75% 10.32% 11.47% 10.02% 9.42% 0% 2% 4% 6% 8% 10% 12% QUARTER 4-29 QUARTER 2-30 QUARTER 4-30 QUARTER 2-31 QUARTER 4- 31 Capital/Risk Assets (%) 0.218 0.402 0.042 0.406 0.167 0.25 0.22 0.15 0.2 0.23 QUARTER 4- 29 QUARTER 2- 30 QUARTER 4- 30 QUARTER 2- 31 QUARTER 4- 31 Dividend/EPS EPS Dividend per share

13 Chief Loan Officer Caleb Banko As the Chief Loans Officer (CLO) of our bank, my primary responsibility is to oversee what the interest rate is for each loan. Decide how risky I make our credit policy to be. Lastly, whether to sell our commercial or real estate loans. At Bank 3, I make informed decisions by considering the market rate and predicting how other banks would react, all while maximizing profit. Although my performance has been rocky over the past two years, there have been highs and lows. While trying to maximize profit, I took on necessary risks, which sometimes resulted in uncertainty. In the beginning, I sold a gigantic amount of loans, but we did not have enough funds. So, which caused me to rethink my strategy and I made the loans more difficult to sell until we were below the limit of Feds Funds. However, even after we reached that point, the loans were trending down due to an economic recession . Since the economy was going down everybody's loans in the community were going down because fewer people were going out and getting loans. Later, I did start to get more loans, but my strategy was making the interest higher than the market rate because I made the credit policy a five which means that us as at Bank 3, we were taking on significant risk therefore, we should make more money because we are taking on a huge risk. Unfortunately, this strategy did not work well, as other banks had lower interest rate options.

14 But I wanted our net interest margin (NIM) to increase, which was the risk that was worth taking that sadly did not pay out in the end because we did not reach my goal of 3.3% net interest margin. However, in the highs, our loan growth was huge as we had a lot of unused capital, which helped us to grow our loans The risk of growing the loans that quickly is that I must lower the interest rate which can be trouble if the interest rate starts rising which is exactly what happened in quarter four of 2031.Basically, what that does it make all the commercial and real estate loans which on book lower than then the market. When that happened then our non-performing loan increased, which is not an ideal thing in the banking community. Plus, then the net interest margin decreased because the bad loans are on our book. I decided to sell the bad loans by offsetting them, which increased our assets and improved our non-performing loans. By offsetting the bad loans is that I sell the negative and positive loans while still having a positive net. Which also increased our net interest margin because we got less bad loans and made more profit. It's important to remember that ups and downs are common, and we will bounce back and recover. Despite these challenges, my main goal has always been to improve our loan growth. While there have been ups and downs, I am confident that I will continue to make informed decisions and bounce back from any setbacks.

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15 Chief Deposit Officer Piper Barnhart As Chief Deposit Officer I have taken on the role within bank 3 to provide healthy and beneficial deposit rates for the community. I also have taken on the role of finding the best ways to have our deposits within the bank to help fund the bank towards better capitalization ever quarter. As many may know our previous Chief Deposit Officer, stepped down from his position, and I, Chief Executive Officer, Piper Barnhart, have decided to temporarily take on the role. With taking on this role I was able to see some of the detriments that were affecting our deposits and overall capitalization of the bank. As shown in the figure, within our first two quarters of taking over Bank 3, under the old Chief Deposit Officer, our deposits were almost immediately trending downward. After some analyzation of the market in our community and developing a further understanding of what deposit accounts needed to charge lower or more premium rates, we were able to adjust our deposit charges quarterly to match the needs of the clients in our community. It paid off as shown and we now in the past year and a half have been attracting more and more deposits and will continue to take more on for years to come. 671.27 651.59 720.67 765.98 881.78 500 550 600 650 700 750 800 850 900 Q4-2029 Q2-2030 Q4-2030 Q2-2031 Q4-2031 DEPOSITS FROM 2030-2031

16 One thing we feel is vital to success of our deposits within our community is understanding the presence of our competition. Being able to predict the growth and rates of their deposits helps us to better understand what direction we want to take out own. As we have come to the end of 2031, we are the leading bank in our community for deposits. As shown in the graph above, between the top 4 deposit banks in our nearby community area, our bank provides for 27% of deposits. At the end of this past year, we have reaching above $881 million in deposits, nearly a $210 million increase from when we took over the bank 2 years ago. This dominance in the deposit field will help our bank to continue in its success for many years to come. We will continue to reach customer satisfaction for their deposits and continue to grow in numbers. Bank 1 24% Bank 2 23% Bank 3 27% Bank 5 26% Deposits Among Top 4 Banks in Community Bank 1 Bank 2 Bank 3 Bank 5

17 Chief Investment Officer Brayden Green As the Chief Investment Officer (CIO) of our bank, my primary responsibility in my role of Chief Investment Officer is to oversee and manage the investment activities of our bank. We then will go on to ensure that our investments are going to be aligned with our organization's goals and objectives and doing all of this while maximizing on our returns with minimizing our risks. Over the last two years of being the Chief Investment officer, our investment strategy has focused on diversification and risk management. Here at our bank, we gone on to continue to invest in a mix of assets, including bills, bonds, and swaps. This diversified approach has helped us here at Bank 3 almost weather the market volatility and then be able to deliver consistent returns for our investors. Something that we have looked at here at Bank 3 is that we all help each other decided whether we decided to purchase or not purchase securities based off of the market value at this time. The we will also go on to analyze our excess money, and then we go on to decide where we want to spend it. Having our bank work alongside each other because we are all working towards our main goal. All of us being in the same mindset in our bank is crucial to our success. At the beginning of year 1 as the Chief Investment Officer of Bank 3, we decided to invest quite a bit of money into our securities to gain assets and collateral for our Bank. Unfortunately, though moving to our second quarter in 2030 we at Bank 3 decided to go risky with loans, and it did not end up working out in our favor. We would not have a lot of excess liquidity at this time, so we decided not to really invest and rely on our loans. We then after having our loans take us down money with the Fed, it really limited what we were able to do with our securities and investments. My strategy as the CIO was to try and diversify our security

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18 portfolio, and analyze the market to make decisions on what we should invest in. Throughout the beginning of the first year as the CIO I was very limited in what I could do due to our liquidity situation. Once we became liquid again us at Bank 3 wanted to invest into more securities so then we could gain the ability to take out REPO. When we were able to accomplish this, we then were able to put that money into other sections of our bank. We took a lot of priority into investing into treasury bills and bonds because these are the safest investments especially for us here at Bank 3 due to the limits of risk on them. As you will be able to see in this graph you will realize that there are many challenges with investments and such. Reasons for us here at Bank 3 to make the investments we did are things such as having excess liquidity in our portfolio, to gain reserved assets, and then to gain some collateral. There were many challenges due to our liquidity throughout most of the year in 2030 as you can see, and as well became more liquid throughout time we were able to gain more assets and collateral. This is what us at Bank 3 decided to do because our loans were down.

19 In this graph you will see our securities that have matured here at Bank 3. You will also notice that our securities purchased aren’t going to be exactly like our securities purchased because with some securities they take longer to mature then others. For example, with our treasury bonds they will develop sooner than other securities that we went on to purchase here at Bank 3.

20 MEET OUR TEAM Piper Barnhart, Chief Executive Officer & Chief Deposit Officer Olivia Miller, Chief Financial Officer Caleb Banko, Chief Loan Officer Brayden Green, Chief Investment Officer

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