ISBA 10-K & 10-Q changes, risk factors and insider trading
Isabella Bank Corp. · Nasdaq · State Commercial Banks · CIK 842517 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “The obligations associated with being a public company require significant resources and management attention.”
New heading “Many of our new activities and expansion plans require regulatory approvals, and failure to obtain them may restrict our growth.”
New heading “The FRB may require the Corporation to commit capital resources to support the Bank.”
New heading “An active public trading market may not be sustained.”
New heading “The market price of our common stock could be volatile and may fluctuate significantly, which could cause the value of an investment in our common stock to decline, result in losses to our shareholders and litigation against us.”
New heading “Future equity issuances, including through our current or any future equity compensation plans, could result in dilution, which could cause the price of our shares of common stock to decline.”
New heading “An investment in our common stock is not an insured deposit and is subject to risk of loss.”
Removed heading “Although publicly traded, our common stock has substantially less liquidity than stocks listed on NYSE, NYSE American and NASDAQ exchanges.”
Largest changes
“We are subject to various privacy, information security, and data protection laws, including requirements concerning security breach notification, and we could be negatively impacted by these laws. Various state and federal banking regulators and states have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory, or law enforcement notification in certain circumstances in the event of a security breach. Moreover, legislators and regulators in the U.S. …”see in full comparison
“Factors beyond our control can significantly influence and cause adverse changes to occur in the fair values of securities in our investment securities portfolio. These factors include, but are not limited to, rating agency actions in respect of the investment securities in our portfolio, defaults by the issuers of such securities, concerns with respect to the enforceability of the payment or other key terms of such securities, changes in market interest rates, continued instability in the capital markets, and lack of liquidity or marketability. …”see in full comparison
“The market price of our common stock may be volatile and could be subject to wide fluctuations in price in response to various factors, some of which are beyond our control. In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition, or results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits. …”see in full comparison
“The market price of our common stock could be volatile and may fluctuate significantly, which could cause the value of an investment in our common stock to decline, result in losses to our shareholders and litigation against us.”see in full comparison
“Although publicly traded, our common stock has substantially less liquidity than stocks listed on NYSE, NYSE American and NASDAQ exchanges.”see in full comparison
“Future equity issuances, including through our current or any future equity compensation plans, could result in dilution, which could cause the price of our shares of common stock to decline.”see in full comparison
Full comparison: every changed paragraph (53)
An investment in our common stock is subject to risks inherentand to our business.uncertainties. The material risks and uncertainties that management believes affect us are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all the other information included or incorporated by reference herein. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations. This Annual Report on Form 10-K is qualified in its entirety by these risk factors.
There are risks inherent in making any loan, including risks inherent in dealing with individual borrowers, risks of non-payment, risks resulting from uncertainties as to the future value of collateral, and risks resulting from changes in economic and industry conditions and increases in inflation and interest rates. The credit quality of our loan portfolio can be influenced by several factors, including changes in economic conditions, the financial health of borrowers, industry-specific risks, and local market conditions. A downturn in the local or national economy could lead to higher unemployment rates, reduced consumer spending, and lower demand for credit, which in turn could increase the risk of loan defaults and charge-offs. Changes in the economy can also cause the assumptions that we made at origination to change and can cause borrowers to be unable to make payments on their loans, and significant changes in collateral values can cause us to be unable to collect the full value of loans we make. In addition, increases in interest rates and inflation increase costs and decrease profits, reducing the ability of borrowers to make payments on loans. Even in stable economic environments, we may experience higher-than-expected loan delinquencies or defaults, which could lead to increased provisions for loancredit losses and adversely impact our profitability and capital.
To manage the credit risk arising from lending activities, we maintain sound underwriting policies and procedures. We continuously monitor asset quality to determine the appropriateness of valuation allowances. However, there is no assurance that our credit risk monitoring and loan approval procedures are or will be adequate or will reduce the inherent risks associated with lending.
Credit losses could increase, and the allowance may not be adequate to cover actual loancredit losses.
We maintain an ACL to reserve for estimated expected credit losses within our loan portfolio. The level of the ACL reflects our evaluation of industry concentrations; specific credit risks; loan loss experience; loan portfolio quality; and economic, politicalpolitical, and regulatory conditions. The determination of the appropriate level of the ACL inherently involves a high degree of subjectivity and requires management to make significant estimates related to current and expected future credit risks and trends, all of which may undergo material changes. Deterioration in general economic conditions and unforeseen risks affecting clients may have an adverse effect on borrowers’ capacity to repay timely their obligations before risk grades could reflect those changing conditions. In times of improving credit quality, with growth in our loan portfolio, the ACL may decrease as a percent of total loans. Changes in economic and market conditions may increase the risk that the allowance would become inadequate if borrowers experience economic and other conditions adverse to their businesses. Although management believes the ACL is appropriate to absorb probable losses within the loan portfolio, this allowance may not be adequate. An increase inMaintaining the allowanceadequacy of our ACL may require that we make significant and unanticipated increases the allowance, which would result in an expense for the period, thereby reducing the amount of reported net income, which may also adversely affect capital.
In addition, federal banking regulators, as an integral part of their respective supervisory functions, periodically review our ACL. The bank regulatory agencies may require us to change classifications or grades on loans, increase the ACL with large provisions for credit losses, and recognize further loan charge-offs based upon their judgments, which may be different from ours. Any increase in the ACL required by these regulatory agencies could have a negative effect on our results of operations and financial condition.
As a financial institution, our earnings and cash flows are largely dependent upon our ability to generate net interest income.income, which is the difference between interest income we earn as a result of interest paid to us on loans and investments and interest we pay to third parties such as our depositors and those from whom we borrow funds. As interest rates change, net interest income is affected. Interest rate risk results from the timing differences in the maturity or repricing frequency of a financial institution’s interest earning assets, such as loans and securities, and its interest-bearinginterest bearing liabilities, such as deposits and borrowed funds.
Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions, changes in monetary policy, demand for loans, securities and deposits, and policies of various governmental and regulatory agencies.agencies, and a change over time in the mix of our loans and investment securities as well as our deposits and other liabilities. Sustained low levels of market interest rates, as experienced prior to 2022, would place downward pressure on our net interest margins and, therefore, on our earnings. Conversely, increases in interest rates, though they could increase our interest margins absent a commensurate rise in our cost of funds, also have the potential to affect borrowers’ ability to repay, particularly for the small and medium sized businesses to which we lend, subjecting us to potential loan losses. This effect could be exacerbated by an inflationary environment. We monitor the potential effects of changes in interest rates through simulations and gap analyses. To help mitigate the effects of changes in interest rates, we make significant efforts to stagger projected cash flows and maturities of interest sensitive assets and liabilities.
Factors beyond our control can significantly influence and cause adverse changes to occur in the fair values of securities in our investment securities portfolio. These factors include, but are not limited to, rating agency actions in respect of the investment securities in our portfolio, defaults by the issuers of such securities, concerns with respect to the enforceability of the payment or other key terms of such securities, changes in market interest rates, continued instability in the capital markets, and lack of liquidity or marketability. Any of these factors, as well as others, could cause other-than-temporary impairments and realized or unrealized losses in future periods and declines in other comprehensive income, which could materially and adversely affect our business, results of operations, financial condition, and prospects.
Liquidity risk is the risk to earnings or capital arising from our inability to meet obligations, such as deposit withdrawals, loan disbursements, and other operating costs, when they come due without incurring unacceptable and significant costs. Liquidity risk includes the inability to manage unplanned changes in funding sources, or failure to address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value. Retail deposits, cash, and unencumbered AFS securities are our primary sources of liquidity, supplemented by alternative and wholesale funding sources. In addition, from time to time, we borrow from the FHLB. Potential alternative sources of liquidity include the sale of loans, the acquisition of national market non-core deposits, the issuance of additional collateralized borrowings such as the FHLB, advances, access to the FRB discount window, and the issuance of additional equity securities and/or debt. Our ability to manage liquidity will be hindered if we are unable to maintain access to funding or if adequate financing is not available to accommodate future growth at acceptable costs. In addition, if we rely too heavily on more expensive funding sources to support future growth, our operating margins and profitability would be adversely affected. Furthermore, if the Corporation is unable to raise adequate funds through external sources, the Corporation may need to sell assets with unrealized losses in order to generate additional liquidity, which could decrease the capital of the Corporation and have an adverse effect on our business, financial condition, and results of operations.
The Corporation is a separate and distinct legal entity from the Bank and its non-banking subsidiaries. The Corporation depends on dividends, distributionsdistributions, and other payments from its banking and non-banking subsidiaries to fund dividend payments on its common stock, debt service of subordinated borrowings, fund stock repurchase programprogram, and to fund strategic initiatives or other obligations. The Bank is not obligated to pay dividends to us. Furthermore, the Corporation’s subsidiaries are subject to laws that authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to the Corporation based on assertion that certain payments from subsidiaries are considered an unsafe or unsound practice, which could impede our access to funds that we may need to make payments on our obligations or dividend payments, if and when declared from time to time by our board of directorsBoard in its sole discretion out of funds legally available for that purpose.
Wholesale funding sources may prove insufficient to replace deposits, support operationsoperations, and future growth.
We must maintain sufficient funds to respond to the needs of customers. To manage liquidity, we use several wholesale funding sources in addition to core deposit growth, loan repayments, and maturities of loans and securities. These sources include FHLB and FRB advances, proceeds from the sale of securities, and loans and liquidity resources at the holding company. At times, the cost of these funds can exceed the cost of core deposits in our market area as well as digital deposits, which could have a material adverse effect on our net interest income margins. Wholesale funding is subject to certain practical limits such as the FHLB’s maximum borrowing capacity and our liquidity targets. Our maximum borrowing capacity from the FHLB is based on the amount and fair market value and face amount, respectively, of commercial loans and securities we can pledge. If we are unable to pledge sufficient collateral to secure funding from the FHLB, we may lose access to this source of liquidity that we have historically relied upon. Additionally, we are required to establish limits on certain types of deposits including brokered deposits and listing service deposits, as well as total wholesale funding sources. If we reach these limits, future asset growth may be reduced or halted. If we are unable to access any of these types of funding sources or if our costs related to them increase, our liquidity and ability to support demand for loans could be materially adversely affected. If we were not able to replace such wholesale funding, we may have to liquidate loans, which may be at losses that would have a material adverse effect on our capital, our business, and your investment in the Corporation.
We must maintain sufficient funds to respond to the needs of customers. To manage liquidity, we use several funding sources in addition to core deposit growth, loan repayments and maturities of loans and securities. These sources include FHLB and FRB advances, proceeds from the sale of securities and loans and liquidity resources at the holding company. Our ability to manage liquidity will be severely constrained if unable to maintain access to funding or if adequate financing is not available to accommodate future growth at acceptable costs. In addition, if we need to rely heavily on more expensive funding sources to support future growth, revenues may not increase proportionately to cover costs. In this case, our operating margins and profitability would be adversely affected.
Our future growth will largely depend on our ability to maintain and grow our deposit base and our ability to retain our trust clients, who provide deposits. In the current environment of elevated interest rates, our deposits may not be as stable or as interest rate insensitive as similar deposits may have been in the past, and some existing or prospective deposit customers of banks generally, including the Bank, may be inclined to pursue other investment alternatives, which may negatively impact our net interest margin. Additionally, negative news about the Corporation or the Bank, or the banking industry in general, could negatively impact market and/or customer perceptions of the Corporation and the Bank, which could lead to a loss of depositor confidence and an increase in deposit withdrawals. The account and deposit balances can decrease when clients perceive alternative investments, such as the stock market or real estate, as providing a better risk/return tradeoff. In general, deposits are a low cost and stable source of funding. We compete with banks and other financial institutions for deposits. Funding costs may increase if deposits are lost and we are forced to replace them with more expensive sources of funding, if customers shift their deposits into higher cost products or if we need to raise interest rates to avoid losing deposits. Furthermore, the portion of our deposit portfolio that is comprised of large uninsured deposits may be more likely to be withdrawn rapidly under adverse economic conditions. If our clients move money out of bank deposits into investments or to other financial institutions, we could lose a relatively low-cost source of funds, increasing our funding costs and reducing our net interest income, net interest margin, and net income.
Deposits are a lower cost and stable source of funding. We compete with banks and other financial institutions for deposits. Funding costs may increase if deposits are lost and we are forced to replace them with more expensive sources of funding, if customers shift their deposits into higher cost products or if we need to raise interest rates to avoid losing deposits. Higher funding costs reduce our net interest income, net interest margin, and net income.
The secondary mortgage markets are impacted by interest rates and investor demand for residential mortgage loans and increased investor yield requirements for these loans. These conditions may fluctuate in the future. As a result, a prolonged period of secondary market illiquidity may reduce our loan production volumes, change loan portfolio composition, and reduce operating results. Secondary markets are affected by Fannie Mae, Freddie Mac, and Ginny Mae for loan purchases that meet their conforming loan requirements. These agencies could limit purchases of conforming loans due to capital constraints, changes in conforming loan criteriacriteria, or other factors. Proposals to reform mortgage finance could affect the role of these agencies and the market for conforming loans.
Like most financial institutions, we are exposed to many types of operational risk. Operational risk is the risk of loss resulting from failed or inadequate internal processes, people, and systems or from external events. Errors or lapses in internal controls could result in financial loss, regulatory violations, or reputational damage. Our dependence upon automated systems may further increase the risk that system errors will result in losses that are difficult to detect. Operational risks may also arise from employee misconduct, including fraud or theft. It is not always possible to prevent employee error or misconduct, and the precautions we take to prevent and detect this activity may not always be effective. These factors may lead to reputation risk and transaction risk.
Unauthorized disclosure of sensitive or confidential client or customer information, whether through cyber-attacks,cyber attacks, breach of computer systems or other means could severely harm the Company’sCorporation’s business.
Regulations relating to privacy, information security, and data protection could increase our costs, affect or limit how we collect and use personal information, and adversely affect our business opportunities.
We are subject to various privacy, information security, and data protection laws, including requirements concerning security breach notification, and we could be negatively impacted by these laws. Various state and federal banking regulators and states have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory, or law enforcement notification in certain circumstances in the event of a security breach. Moreover, legislators and regulators in the U.S. are increasingly adopting or revising privacy, information security, and data protection laws that potentially could have a significant impact on our current and planned privacy, data protection, and information security-related practices, our collection, use, sharing, retention, and safeguarding of consumer or employee information, and some of our current or planned business activities. This could also increase our costs of compliance and business operations and could reduce income from certain business initiatives. This includes increased privacy-related enforcement activity at the federal level by the Federal Trade Commission, as well as at the state level. Compliance with current or future privacy, data protection, and information security laws (including those regarding security breach notification) affecting customer or employee data to which we are subject could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could have a material adverse effect on our business, financial conditions, or results of operations. Our failure to comply with privacy, data protection, and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions, and damage to our reputation, which could have a material adverse effect on our business, financial condition, or results of operations.
The Bank’s risk management framework seeks to mitigate risk and loss by ensuring a culture of risk management is integrated throughout the Bank’s operational processes, strategic planning, and business lines. The Bank has established policies and procedures intended to identify, measure, monitor, reportreport, and manage risk. This includes oversight of compliance, credit, legal, liquidity, market, operational, strategic, reputational, and wealth risk. If our risk management framework proves ineffective, we could incur losses, regulatory penalties, and reputational damage that may affect our financial condition or results of operations.
Under current accounting standards, goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis or more frequently if an event occurs or circumstances change that reduce the fair value of a reporting unit below its carrying amount. A decline in our stock price or the occurrence of a triggering event following any of our quarterly earnings releases and prior to the filing of the periodic report for that period could, under certain circumstances, require performance of a goodwill impairment test and result in an impairment charge being recorded for that period which was not reflected in such earnings release. DuringOur 2024,most our annualrecent impairment test conducted in October, using discounted cash flows and market-based approaches, indicated that the estimated fair value of our sole reporting unit “Isabella Bank” exceeded the carrying value. In a future assessment, we could conclude that all or a portion of our goodwill is impaired, which would result in a non-cash charge to earnings.
Deterioration in national, statestate, and local economic conditions may adversely affect our financial performance.
The results of operations for financial institutions, including our Bank, may be adversely affected by changes in local, state, and national economic conditions. We provide banking and financial services to individuals and businesses located primarily in the Bay, Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw counties in Michigan. The local economic conditions in these areas have a significant impact on the demand for our products and services, as well as the ability of our customers to repay loans, the value of the collateral securing loans, and the stability of our deposit funding sources. A significant decline in general economic conditions, caused by inflation, recession, acts of terrorism, international or domestic occurrences, a health crisis, unemployment, changes in securities marketsmarkets, or other factors could impact these local economic conditions and, in turn, could have a material adverse effect on our financial condition and results of operations.
An economic downturn in the state, national, or global markets,markets could also negatively impact our financial condition and results of our operations. Broader economic and geopolitical developments, including global trade tensions, political instability, and natural disasters, can create volatility in financial markets and affect the economic outlook. A significant decline in U.S. GDP, rising inflation, or prolonged high unemployment rates could reduce demand for loans, increase credit risk, and reduce consumer confidence. Geopolitical events, such as trade wars or foreign conflicts, can disrupt markets and introduce volatility, which may indirectly affect our operations by influencing local economic conditions, interest rates, and the availability of capital.
Our wealth management operations present special risks not borne by institutions that focus exclusively on other traditional retail and commercial banking products. For example, the investment advisory industry is subject to fluctuations in the stock market and interest rate volatility that may have a significant adverse effect on transaction fees, client activityactivity, and client investment portfolio gains and losses. Also, additional or modified regulations may adversely affect our wealth management operations. In addition, our wealth management operations are dependent on our financial advisors, whose departure could result in the loss of a significant number of client accounts. A significant decline in fees and commissions or trading losses suffered in the investment portfolio could adversely affect our income and potentially require the contribution of additional capital to support our operations.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated because of trading, clearing, counterparties and other relationships. Further, when volatility, market events or similar issues affect a subset of financial institutions, or when there are news reports or high-profile incidents relating to trends, concerns, and other issues in the banking industry, the ramifications can affect the sector, regardless of the effect, or lack thereof, on any specific institution. We have exposure to different industries and counterparties through transactions with counterparties in the bank and non-bank financial services industries, including brokers and dealers, commercial banks, investment banksbanks, and other institutional clients. As a result, defaults by, or even rumors or questions about, one or more bank or non-bank financial services companies, or the bank or non-bank financial services industries generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Future events of this nature could have an adverse effect on our business, financial conditioncondition, and results of operations.
We may grow organically both by geographic expansion and through business line expansion, as well as through acquisitions of banks and non-bank financial services companies within or outside our principal market areas. We regularly identify and explore specific acquisition opportunities as part of our ongoing business practices. However, we have no current arrangements, understandings, or agreements to make any material acquisitions. We face significant competition from numerous other financial services institutions, many of which will have greater financial resources or more liquid securities than we do, when considering acquisition opportunities. Accordingly, attractive acquisition opportunities may not be available to us. There can be no assurance that we will be successful in identifying or completing any future acquisitions.
We may grow organically both by geographic expansion and through business line expansion, as well as through acquisitions. Success of these activities depends on our ability to continue to maintain and develop an infrastructure appropriate to support and integrate such growth. Success may also depend on acceptance of the Bank by customers in these new markets and, in the case of expansion through acquisitions, these factors include the long-term recruitment and retention of key personnel and acquired customer relationships. Profitability depends on whether the marginal revenue generated in the new markets will offset the increased expenses of operating a larger entity, with more staff, more locations, and more product offerings. Failure to achieve any of these success factors may have a negative impact on our financial condition and results of operations.
The financial services industry is undergoing rapid technological change which includes the frequent introduction of new technology-driven products and services.services, including those based on artificial intelligence. The effective use of technology increases efficiency and enables financial institutions to better serve customers. Our future success depends, in part, upon our ability to address the needs of customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional operational efficiencies.
The introduction of new products and services can entail significant time and resources. Our failure to manage risks and uncertainties associated with new products and services exposes us to enhanced risk of operational lapses which may result in the recognition of financial statement liabilities. Regulatory and internal control requirements, capital requirements, competitive alternatives, vendor relationshipsrelationships, and shifting market preferences may also determine if such initiatives can be brought to market in a manner that is timely and attractive to our customers. Products and services relying on internet and mobile technologies may expose us to fraud and cybersecurity risks. Emerging technologies, such as artificial intelligence, may further increase the risk of a cyber-attack. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption, cyber attack, or other security breach of its information systems, there can be no assurance that any such occurrences will not occur or, if they do occur, that they will be adequately addressed. Failure to successfully manage these risks in the development and implementation of new products or services could have a material adverse effect on our business and reputation.
LEGAL, REGULATORYREGULATORY, AND COMPLIANCE RISKS
As a federally insured financial institution, we are subject to regulation and oversight by various regulatory bodies including the FDIC, DIFS, FRB, SEC, and the CFPB. Federal and state laws and regulations are designed primarily to protect the deposit insurance fund, consumers, and the stability of the U.S. financial system, and not necessarily our shareholders. If we do not appropriately comply with regulations, the Bank may be subject to fines, penalties or judgements,judgments, or material regulatory restrictions in its business.
The obligations associated with being a public company require significant resources and management attention.
We expect to incur incremental costs related to operating as a public company. We are subject to the reporting requirements of the Exchange Act, which require that we file annual, quarterly and current reports with respect to our business and financial condition and proxy and other information statements, and the rules and regulations implemented by the SEC, the Sarbanes-Oxley Act, the Dodd-Frank Act, the PCAOB, and Nasdaq, each of which imposes additional reporting and other obligations. We expect these rules and regulations and changes in laws, regulations, and standards relating to corporate governance and public disclosure to increase legal and financial compliance costs and make some activities more time consuming and costly. These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Our investment in compliance with existing and evolving regulatory requirements will result in increased administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities, which could have a material adverse effect on our business, financial condition and results of operations.
Many of our new activities and expansion plans require regulatory approvals, and failure to obtain them may restrict our growth.
Generally, we must receive federal regulatory approval before we can acquire an FDIC-insured depository institution or related business. Such regulatory approvals may not be granted on terms that are acceptable to us, or at all. We may also be required to sell banking locations as a condition to receiving regulatory approval, which condition may not be acceptable to us or, if acceptable to us, may reduce the benefit of any acquisition. In addition, as opportunities arise, we may continue de novo branching as a part of our expansion strategy. De novo branching and acquisitions carry with them numerous risks, including the inability to obtain all required regulatory approvals. The failure to obtain these regulatory approvals for potential future strategic acquisitions and de novo banking locations could impact our business plans and restrict our growth.
The FRB may require the Corporation to commit capital resources to support the Bank.
The Dodd-Frank Act and the FRB require a bank holding company to act as a source of financial and managerial strength to a subsidiary bank and to commit resources to support such subsidiary bank. Accordingly, a capital injection may be required to provide financial assistance to the Bank if it experiences financial distress. Such capital injection may be required at times when the Corporation may not have the resources to provide and therefore may be required to borrow the funds or raise capital to make the required capital injection. Any borrowing by the Corporation in order to make the required capital injection may be more difficult and expensive and may adversely impact the Corporation’s financial condition, results of operations and/or future prospects.
We may be subject to various legal and regulatory proceedings in the future. Actions by regulatory agencies or significant litigation against us could require significant time and resources to respond to those actions and may lead to penalties. Whether the claims and legal action related to our performance are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant liability, adversely affect reputation, and reduce demand for our products and services. Any financial liability or reputational damage could have a material adverse effect on our business, financial conditioncondition, and results of operations.
Pandemics, severe weather, natural disasters, acts of war or terrorism, and other adverse external events could have a significant impact on our ability to conduct business. Such events could affect the stability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenuerevenue, and/or cause us to incur additional expenses. Such events may have a particularly negative impact upon the business of customers who are engaged in the hospitality industry in our markets, which could have a direct negative impact on our business and results of operations. Further, work-from-home and other modified business practices may introduce additional operational risks, including cybersecurity and execution risks, which may result in inefficiencies or delays, and may affect our ability to, or the way we conduct our business activities.Weactivities. We have developed and tested disaster recovery plans for all significant aspects of our operations to minimize disruption.
Our success depends, in large part, on our ability to attract and retain key personnel. Competition for qualified personnel in the financial services industry can be intense, and we may not be able to hire or retain the key personnel. The unexpected loss of key personnel could have an adverse impact on our business because of their skills, knowledge of the markets in which we operate, years of industry experienceexperience, and the difficulty of promptly finding a qualified replacement.
An active public trading market may not be sustained.
We completed the uplisting of the Corporation’s common stock from the OTCQX market to the Nasdaq Capital Market on May 12, 2025. An active trading market for shares of our common stock may not be sustained. If an active trading market is not sustained, you may have difficulty selling your shares of our common stock at an attractive price, or at all. Consequently, you may not be able to sell your shares of our common stock at or above an attractive price at the time that you would like to sell.
The market price of our common stock could be volatile and may fluctuate significantly, which could cause the value of an investment in our common stock to decline, result in losses to our shareholders and litigation against us.
The market price of our common stock may be volatile and could be subject to wide fluctuations in price in response to various factors, some of which are beyond our control. In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition, or results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits. Despite unsuccessful, as in the past, securities class action lawsuits have been instituted against some companies following periods of volatility in the market price of its securities. We could in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management’s attention and resources from our normal business, which could adversely affect our results of operation and financial condition.
Future equity issuances, including through our current or any future equity compensation plans, could result in dilution, which could cause the price of our shares of common stock to decline.
We may issue additional shares of our common stock in the future pursuant to current or future equity compensation plans, upon conversions of preferred stock or debt, upon exercise of warrants or in connection with future acquisitions or financings. We may seek to raise additional funds, finance acquisitions, or develop strategic relationships by issuing additional shares of our common stock. If we choose to raise capital by selling shares of our common stock, or securities convertible into shares of our common stock, for any reason, the issuance could have a dilutive effect on the holders of our common stock and could have a material negative effect on the market price of our common stock.
An investment in our common stock is not an insured deposit and is subject to risk of loss.
An investment in our common stock is not a bank deposit and is not insured against loss or guaranteed by the FDIC, any deposit insurance fund, or by any other public or private entity. As a result, you could lose some or all of your investment.
Although publicly traded, our common stock has substantially less liquidity than stocks listed on NYSE, NYSE American and NASDAQ exchanges.
Our common stock is traded on the OTC market under the symbol “ISBA.” The development and maintenance of an active public trading market depends upon the existence of willing buyers and sellers, the presence of which is beyond our control. While we are a publicly traded company, the volume of trading activity in our stock is still relatively limited. Even if a more active market develops, there can be no assurance that such a market will continue, or that our shareholders will be able to sell their shares at or above the price at which they acquired shares.
Management's Discussion & Analysis (MD&A)
Removed heading “Forward-Looking Statements”
Removed heading “Reclassifications”
Removed heading “Subsequent Events”
Largest changes
“Information in this Annual Report on Form 10-K contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended and Rule 3b-6 promulgated thereunder. We intend such forward looking statements to be covered by the safe harbor provisions for forward looking statements contained in the Private Securities Litigation Reform Act of 1995, and are included in this statement for purposes of these safe harbor provisions. …”see in full comparison
“(1) “Well-capitalized” minimum Common Equity Tier 1 to Risk-Weighted and Leverage Ratio are not formally defined under applicable regulations for bank holding companies.”see in full comparison
The ACL wassee in full comparison$12,895$13,727atas of December 31,2024,2025,aandecreaseincrease of$213$832,fromor$13,1086.5%,atcompared to December 31,2023.2024.MostThe increase reflects loan growth and an increase ofthespecificdecreasereserves,isoffsetdue toby improvement in historical lossexperience, which wasexperience driven by the recovery of previously charged-off loans during the year.This improvement was offset by core loan growth and the impact from a few commercial loans totaling $33,875 that migrated to a special mention risk rating during the fourth quarter. The downgraded loans are well collateralized and are not an indication of a negative trend in the broader portfolio.Nonaccrual loanswereremained$282low at $4,578 as of December 31,20242025 compared to$982$282 at December 31,2023.2024. The increase in nonaccrual loans related to one well-secured loan of $3,000 at December 31, 2025. Past due and accruing accounts between 30 to 89daysdays, as a percentage of totalloansloans,waswere 0.44% at December 31, 2025 compared to 0.40% at December 31,2024,2024.compared to 0.29% at year-end 2023. Overall,Overall credit quality remainsstrong, and there are no negative trends.strong.
Noninterest income for the year ended December 31,see in full comparison20242025 was$14,576,$15,966, an increase of$749,$1,390, or5.4%,9.5%, compared to 2024. Earnings on BOLI policies increased $618 due to new investments incomparisona separate account BOLI, which was offset in part by a one-time expenses of $120 due to2023.restructuring charges. Service charges and fees increased $583 and was mostly the result of internal initiatives designed to align our fees within our market. Wealth management fees also grew$484, or 13.6%,$206 due tohighergrowth in assets under management. Managed assets increased$17,015$49,076 driven by growth in new accounts and higher security valuations.Customer service fees increased $329, based on a higher number of transaction accounts.
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Forward-Looking Statements
Information in this Annual Report on Form 10-K contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended and Rule 3b-6 promulgated thereunder. We intend such forward looking statements to be covered by the safe harbor provisions for forward looking statements contained in the Private Securities Litigation Reform Act of 1995, and are included in this statement for purposes of these safe harbor provisions. Forward-looking statements generally relate to losses, impact of events, financial condition, plans, objectives, outlook for earnings, revenues, expenses, capital and liquidity levels and ratios, asset levels, asset quality, financial position, and other matters regarding or affecting the Corporation and its future business and operations. Forward-looking statements are typically identified by words or phrases such as “will likely result", “expect”, “plan”, “believe”, “estimate”, “anticipate”, “strategy”, “trend”, “forecast”, “outlook”, “project”, “intend”, “assume”, “outcome”, “continue”, “remain”, “potential”, “opportunity”, “comfortable”, “current”, “position”, “maintain”, “sustain”, “seek”,“achieve” and variations of such words and similar expressions, or future or conditional verbs such as will, would, should, could or may. Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. The matters discussed in these forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results and trends to differ materially from those made, projected, or implied in or by the forward-looking statements depending on a variety of uncertainties or other factors described in this report, or included in any subsequent filing by the Corporation with the Securities and Exchange Commission. Forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. The Corporation cautions you not to unduly rely on forward-looking statements because the assumptions, beliefs, expectations and projections about future events may, and often do, differ materially from actual results. Any forward-looking statement speaks only as to the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.
We believe that, from time to time, these non-GAAP financial measures provide additional understanding of ongoing operations, enhance the comparability of our results of operations with prior periods and show the effects of significant gains and charges in the periods presented without the impact of items or events that may obscure trends in our underlying performance. However, there may be limits in the usefulness of these measures to investors. The way we calculate the non-GAAP financial measures that we discuss in this Annual Report on Form 10-K may differ from that of other companies reporting measures with similar names. Investors should understand how such other banking organizations calculate their financial measures similar to, or with names like, the non-GAAP financial measures we have discussed in this Annual Report on Form 10-K when comparing such non-GAAP financial measures.
TheAs a result, the non-GAAP financial measures that we discuss in this Annual Report on Form 10-K should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this report may differ from that of other companies reporting measures with similar names.
Comparison of Operating Results for the yearyears ended December 31, 20242025 and 2023December 31, 2024
We reported net income for the year ended December 31, 2025 of $18,910, or $2.56 per diluted share, compared with $13,889, or $1.86 per diluted share, for the year ended December 31, 2024. Net income in 2025 was impacted by a $1,556 recovery of an overdrawn deposit account that was charged off in 2024. The impact to diluted earnings per share was a favorable $0.17 in 2025 and an unfavorable $0.16 in 2024.
We reported net income for the year ended December 31, 2024 of $13,889, or $1.86 per diluted share, compared with $18,167, or $2.40 per diluted share, for the same period of 2023. The non-GAAP measure of net income was $15,016, or $2.01 per diluted share, compared to $17,989, or $2.37 per diluted share, for the respective periods. The adjusted net income for 2024 excludes a net charge-off of $1,556 related to overdrawn deposit accounts from a single customer. The decrease in adjusted net income primarily reflects the impact on net interest income due to slower repricing of earning assets as compared to the rising costs of interest bearing liabilities. The decrease in net income for the comparative periods also included an increase in provision for credit losses and compensation expenses.
Net interest income was $55,835$62,544 infor 2024the year ended December 31, 2025 compared with $57,944$55,835 infor the sameyear periodended ofDecember 2023.31, 2024. The comparison of NIM and yield on interest earning assets were 2.90%3.16% and 4.84% compared to 2.90%, and 4.65% comparedfor to 3.05%,2025 and 4.17% for 2024 and 2023,2024, respectively. The book yield from securities was 2.22%2.38% and 2.26%2.22% during 20242025 and 2023,2024, respectively. The weighted average maturity of our U.S. Treasury portfolio is less than 1.4one years,year, and the proceeds are expected to be reinvested in market rate loans and securities,securities or to pay off borrowed funds. The yield on loans expandedincreased to 5.58%,5.75%, from 5.02%5.58% in 2024 due to higher rates on new loans and fixedvariable rate commercial loans that have and continue to reprice to variable rates. At the end of 2024, approximately 40% of commercial loans were fixed at rates lower than current market rates, but the majority will contractually reprice to variable rates over the next four years.reprice. Our cost of interest bearing liabilities increaseddecreased to 2.37%2.25% from 1.57%2.37% in 2023,2024 but have stabilized in comparisondue to lower rates on the firstmoney halfmarket and certificate of thedeposit year.products.
The provision for credit losses for the year ended December 31, 2025 was a reversal of $563, compared to a provision of $1,884 for the year ended December 31, 2024. The credit reversal in 2025 includes recoveries of $2,268, which includes a $1,556 recovery related to overdrawn deposit accounts from a single customer that were charged off in 2024. The provision for loan losses in 2025 was also impacted by loan growth. While credit quality remained strong with low levels of past due and nonaccrual loans and net charge offs, we continue to closely monitor credit quality.
The provision for credit losses for the year ended December 31, 2024 was $1,884, compared to $629 for the same period in 2023. The provision for 2024 includes the recovery of contractual principal of two previously charged-off commercial loans totaling $314. Given these loan recoveries, our historical loss rate experience improved which provided a benefit of $435. The benefits were offset by a $1,556 net charge-off related to an overdrawn deposit account from a single customer and additional reserves for core loan growth.
Noninterest income for the year ended December 31, 20242025 was $14,576,$15,966, an increase of $749,$1,390, or 5.4%,9.5%, compared to 2024. Earnings on BOLI policies increased $618 due to new investments in comparisona separate account BOLI, which was offset in part by a one-time expenses of $120 due to 2023.restructuring charges. Service charges and fees increased $583 and was mostly the result of internal initiatives designed to align our fees within our market. Wealth management fees also grew $484, or 13.6%,$206 due to highergrowth in assets under management. Managed assets increased $17,015$49,076 driven by growth in new accounts and higher security valuations. Customer service fees increased $329, based on a higher number of transaction accounts.
Noninterest expenses were $52,129 for the year ended December 31, 2024,2025 increasingwere $2,819$54,950, whenan increase of $2,821, or 5.4%, compared to the same period in 2023.2024. Annual merit increasesincreases, increased incentives, and higher medical claims resulted in a $2,671$1,465 increase in compensation and benefits. OurOther efficiencyprofessional ratioservices wasincreased 73.01%by in$1,028 2024as compareda result of an increased utilization of outsourced services as well as additional costs related to 67.76%profitability in 2023 and the increase primarily reflects lower NIM and a relatively stable base of noninterest expense.initiatives.
Income tax expense for the year ended December 31, 2025 was $5,213, an increase of $2,704, or 107.8%, compared to 2024. The ETR was 22% for the year ended 2025 and 15% for the year ended 2024. Income tax expense in 2025 included a one-time expense totaling $942 to write-off deferred tax assets and a one-time expense totaling $195 related to taxes owed from the lifetime earnings on BOLI policies that were surrendered during the year. Excluding the one-time charges during 2025, the ETR was 17%, which is higher than the prior year due primarily to higher pretax income and a decline in tax credits.
Total assets were $2,086,241$2,209,448 atas of December 31, 2024,2025, increasingan $27,273increase dueof $123,207, or 5.9%, compared to December 31, 2024. This increase is primarily attributable to loan growthgrowth, fundedan byincrease depositsin BOLI policies, and amortizationan increase in the fair value of AFS securities.
Our AFS securities portfolio totaled $489,029$497,791 atas of December 31, 2024,2025, decliningan $39,119increase dueof to$8,762, municipalor 1.8%, since December 31, 2024. The increase during the year was largely driven by purchases of $67,348 and an improvement in unrealized losses of $16,589, partially offset by amortizations, prepayments, and maturities andtotaling principal paydowns on mortgage-related securities.$75,175. Net unrealized losses on our AFS securities portfolio were $9,898 at December 31, 2025 compared to $26,487 at December 31, 2024, improving $5,339 since December 31, 2023.2024. Net unrealized losses as a percentage of total AFS securities improveddecreased to 5.1%1.9% from 5.7%5.1% at the end of 20232024 primarily due to an increase in bond yields. Bond rates may vary from quarter to quarter, however, unrealized losses are expected to decrease as most of the bondtreasury portfolio approachesrapidly itsapproaching maturity over the next two years.maturity.
Loans outstanding as of December 31, 2025 totaled $1,536,364, an increase of $112,793, or 7.9%, since December 31, 2024. During 2025, the commercial real estate and commercial and industrial portfolios grew $48,040 and $19,827, respectively. Residential mortgages increased $47,008 since year-end 2024. Most residential mortgage originations were adjustable-rate loans, which are retained rather than sold in the secondary market. The growth was offset by a $18,093 decline in consumer loans amid decreasing demand, competition, and an adherence to credit quality standards. Loans, excluding advances to mortgage brokers, grew $99,197 or 7.3%.
Loans outstanding as of December 31, 2024 totaled $1,423,571, increasing $74,108 since December 31, 2023. Growth during 2024 was driven by an increase of $44,539 in advances to mortgage brokers, $35,156 in commercial and industrial loans, and $24,454 in residential loans, offset by a $16,797 decrease in commercial real estate loans. The growth in commercial and industrial loans primarily was in the hotel management and construction industries. The increase in residential loans was related to steady new volume and continued slowing of prepayments. The decline in commercial real estate loans during 2024 included a $6.4 payoff during the fourth quarter on a relationship that had an elevated credit risk as well as declines in the multifamily real estate, healthcare, and hotel industries. Core loans, which excludes advances to mortgage brokers, grew $29,569 or 2.2%.
The ACL was $12,895$13,727 atas of December 31, 2024,2025, aan decreaseincrease of $213$832, fromor $13,1086.5%, atcompared to December 31, 2023.2024. MostThe increase reflects loan growth and an increase of thespecific decreasereserves, isoffset due toby improvement in historical loss experience, which wasexperience driven by the recovery of previously charged-off loans during the year. This improvement was offset by core loan growth and the impact from a few commercial loans totaling $33,875 that migrated to a special mention risk rating during the fourth quarter. The downgraded loans are well collateralized and are not an indication of a negative trend in the broader portfolio. Nonaccrual loans wereremained $282low at $4,578 as of December 31, 20242025 compared to $982$282 at December 31, 2023.2024. The increase in nonaccrual loans related to one well-secured loan of $3,000 at December 31, 2025. Past due and accruing accounts between 30 to 89 daysdays, as a percentage of total loansloans, waswere 0.44% at December 31, 2025 compared to 0.40% at December 31, 2024,2024. compared to 0.29% at year-end 2023. Overall,Overall credit quality remains strong, and there are no negative trends.strong.
BOLI totaled $46,133 as of December 31, 2025, an increase of $11,251, or 32.3%, from December 31, 2024. The growth was primarily attributed to a $10,583 investment of new policies in 2025. During 2025, we also surrendered and/or exchanged over $13,000 of existing general account policies and redeployed the funds into a separate account BOLI structure, which yields a higher rate compared to existing general account policies.
Total deposits were $1,819,654 as of December 31, 2025, an increase of $72,594, or 4.2%, from December 31, 2024. Interest bearing demand deposit accounts increased by $28,639 during 2025. Consumer demand for retail certificates of deposit accounts continues to be strong based on the current market interest rate environment, resulting in a $22,474 increase during the year.
Total deposits were $1,747,060 as of December 31, 2024, increasing $23,365, or 1.4%, from December 31, 2023. Retail certificates of deposit accounts were up $41,217, driven by continued demand due to the rate environment. Interest bearing demand deposits increased $20,629, while savings and demand deposits declined $26,349 and $12,132, respectively. The decline in savings products was driven in part by expected outflows of businesses and municipalities to fund large, regional projects and disintermediation into higher yielding accounts.
Total equity was $210,276$231,396 atas of December 31, 20242025 compared to $202,402$210,276 atas year-endof 2023.December 31, 2024. Our tangible book value per share (non-GAAP) was $21.82$25.01 as of December 31, 2024,2025, compared to $20.59$21.82 on December 31, 2023.2024. Net unrealized losses on AFS securities reduced tangible book value per share by $2.82$1.09 and $3.37$2.82 for the respective periods. Share repurchases totaled 152,577156,957 during 20242025 for a value of $3,076$4,709 at an average price of $20.16.$30.00.
Reclassifications
Certain amounts reported in management's discussion and analysis of financial condition and results of operations for 2023 and 2022 have been reclassified to conform with the 2024 presentation.
Subsequent Events
We evaluated subsequent events after December 31, 2024 through the date our consolidated financial statements were issued for potential recognition and disclosure. No subsequent events require financial statement recognition or disclosure between December 31, 2024 and the date our consolidated financial statements were issued.
(1) At end of period.
(12) Non-GAAP financial measure; refer to the "RecconcilationReconciliation of Non-GAAP Financial Measures" section (2) At end of periodsection.
Estimating how potential changes in economic factors might affect the overall allowance is challenging because a wide variety of factors and inputs are considered in the allowance estimate. Changes in the factors and inputs may not occur at the same rate and may not be consistent across all product types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. However, to consider the impact of a hypothetical stressed forecast, we estimated the ACL using forecast inputs that were severely unfavorable to the expected scenario for the external factors related to economic conditions, the value of underlying collateral, and the volume and severity of past due, nonaccrual, and adversely classified loans. This stress scenario resulted in an ACL that is approximately $4,500 higher than the recorded ACL as of December 31, 2024.
U.S. generally accepted accounting principles require that we determine the fair value of the assets and liabilities of an acquired entity, and record the fair value on the date of acquisition. We employ a variety of measures in the determination of the fair value, including the use of discounted cash flow analysis, market appraisals, and projected future revenue streams. For certain items that we believe we have the appropriate expertise to determine the fair value, we may choose to use our own calculations of the value. In other cases, where the value is not easily determined, we consult with independent experts to determine the fair value of the identified asset or liability. Once valuations have been determined, the net difference between the price paid for the acquired entity and the net value of assets acquired on our balance sheet, including identifiable intangibles, is recorded as goodwill. Acquisition intangibles and goodwill are qualitatively and quantitatively evaluated annually to determine if it is more likely than not that the carrying balance is impaired on at least an annual basis.impaired. Based on the analysis completed, it was determined that our estimated fair value of Isabella Bank and Isabella Bank Corporation at December 31, 20242025 was greater than our recorded book value and no impairment of goodwill was identified.
AFS securities are carried at fair value with changes in the fair value included as a component of other comprehensive income. The market values for most AFS investment securities are typically obtained from outside sources and applied to individual securities within the portfolio. Municipal securities for which no readily determinable market values are available are priced using fair value curves which most closely match the securities'securities’ characteristics. AFS securities are reviewed quarterly for possible credit impairment. In determining whether a credit-related impairment exists for debt securities, we assess whether: (a) we do not have the intent to sell the security; and (b) it is more likely than not we will not have to sell the security before recovery of its cost basis. If either of these conditions are met, any previously recognized allowances are charged-offcharged off and the security'ssecurity’s amortized cost is written down to fair value through income. If these conditions are not met, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors.
(1) Includes loans HFS and nonaccrual loans.
(2) Average balances for AFS securities are based on amortized cost.
(3) Includes average interest bearing deposits with other banks, net of FRB daily cash letter.
(4) Non-GAAP financial measure; refer to the "Reconciliation of Non-GAAP Financial Measures" section.
(1) Includes loans HFS and nonaccrual loans (2) Average balances for AFS securities are based on amortized cost (3) Includes average interest-bearing deposits with other banks, net of Federal Reserve daily cash letter (4) Non-GAAP financial measure; refer to the "Non-GAAP Financial Measures" section
The following table illustrates the amounts of the ACL and ALLL allocated to each loan segments to gross loans as of December 31:
Capital consists solely of common stock, retained earnings, and accumulated other comprehensive income (loss). We are authorized to raise capital through dividend reinvestment, employee and director stock purchases, and shareholder stock purchases. Pursuant to these authorizations, we issued 42,904 shares or $1,331 of common stock during 2025, and 75,341 shares or $1,523 of common stock during 2024, and 75,488 shares or $1,617 of common stock in 2023.2024. We offer the Directors Plan in which participants purchase stock units through deferred fees, in lieu of cash payments. Pursuant to this plan, we increased shareholders’ equity by $381$277 and $529$381 during 20242025 and 2023,2024, respectively. We also grant restricted stock awards pursuant to the RSP. Pursuant to thisthe plan,RSP, we increased shareholders’ equity by $95$64 and $253$95 during 20242025 and 2023.2024.
The FRB has established minimum risk-based capital guidelines. Pursuant to these guidelines, a framework has been established that assigns risk weights to each category of on and off-balance-sheet items to arrive at risk adjusted total assets. Regulatory capital is divided by the risk adjusted assets with the resulting ratio compared to the minimum standard to determine whether a corporation has adequate capital. At December 31, 2025, we and the Bank were “well capitalized” under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since December 31, 2025 that would materially adversely change such capital classifications. From time to time, we may need to raise additional capital to support our and the Bank’s further growth and to maintain our “well capitalized” status.
(1) “Well-capitalized” minimum Common Equity Tier 1 to Risk-Weighted and Leverage Ratio are not formally defined under applicable regulations for bank holding companies.
Liquidity is monitored regularly by our ALCO, which consists of members of senior management. The committeeALCO reviews projected cash flows, key ratios, and liquidity available from both primary and secondary sources.
Our primary sources of liquidity are retail deposits, cash and cash equivalents, and unencumbered AFS securities. TheseCash, categoriescash equivalents, and unencumbered AFS securities totaled $330,876$337,011 or 15.86%15.25% of assets as of December 31, 2024,2025, compared to $381,417$330,876 or 18.52%15.86% as of December 31, 2023.2024. The decline in the amount and percentage of primary liquidity is a direct result of an increase in loans and aother decrease in unencumbered AFS securities collateralizing non-market funding.assets. Liquidity is important for financial institutions because of their need to meet loan funding commitments, depositor withdrawal requests, and various other commitments including expansion of operations, investment opportunities, and payment of cash dividends. Based on these same factors, daily liquidity could vary significantly.
Our secondary sources include the ability to borrow from the FHLB, from the FRB, and through various correspondent banks in the form of federal funds purchased and a linelines of credit. These funding methods typically carry a higher interest rate than traditional market deposit accounts. Some borrowed funds, including FHLB advances, FRB Discount Window advances, and repurchase agreements, require us to pledge assets, typically in the form of AFS securities or loans, as collateral. As of December 31, 2024,2025, we had available lines of credit of $342,130.$345,516.
We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. AFS securities, cash flow hedge derivative instruments and certain liabilities are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as mortgage loans AFS, impairedcollateral dependent loans, goodwill, foreclosed assets, OMSR, and certain other assets and liabilities. These nonrecurring fair value adjustments typically involve the application of lower of cost or market accounting or write downs of individual assets.
OurAs a financial institution, our primary market risks are interest rate risk and liquidity risk. IRR is the exposure of our net interest income to changes in interest rates. IRR results from the difference in the maturity or repricing frequency of a financial institution'sinstitution’s interest earning assets and its interest bearing liabilities. Managing IRR is the fundamental method by which financial institutions earn income and create shareholder value. Excessive exposure to IRR could pose a significant risk to our earnings and capital.
The FRB has adopted a policy requiring banks to effectively manage the various risks that can have a material impact on safety and soundness. The risks include credit, interest rate, liquidity, operational, and reputational. We have policies, procedures, and internal controls for measuring and managing these risks. Specifically, our ALCO policy and procedures include defining acceptable types and terms of investments and funding sources, liquidity requirements, limits on investments in long-term assets, limiting the mismatch in repricing opportunities of assets and liabilities, and the frequency of measuring and reporting to our Board of Directors.Board.
The following tables summarize our interest rate sensitivity for 12 and 24 months as of December 31, 2024 and 2023. The results displayed in the tables reflect the modeling of immediate shifts in the yield curve and a flat balance sheet and do not reflect actual or expected changes.
We do not believe there has been a material change in the nature or categories of our primary market risk exposure, or the particular markets that present the primary risk of loss. We do not know of or expect there to be any material change in the general nature of our primary market risk exposure in the near term, and we do not expect to make material changes to our market risk methods in the near term. We may change those methods in the future to adapt to changes in circumstances or to implement new techniques.
Gap analysis is also utilizedused as a method to measure interest rate sensitivity. Interest rate sensitivity is determined by the amount of earning assets and interest bearing liabilities repricing within a specific time period, and their relative sensitivity to a change in interest rates. We strive to achieve reasonable stability in the net interest margin through periods of changing interest rates.
We do not believe there has been a material change in the nature or categories of our primary market risk exposure, or the particular markets that present the primary risk of loss. We do not know of or expect there to be any material change in the general nature of our primary market risk exposure in the near-term, and we do not expect to make material changes to our market risk methods in the near-term. We may change those methods in the future to adapt to changes in circumstances or to implement new techniques.
The following tablestable provideprovides a detailed analysis, and reconciliation for, our non-GAAP financial measures as of, and for the years ended December 31:
(1) Includes provision for credit losses related to overdrawn deposit accounts from a single customer in the third quarter of 2024.
(21) Whole sharesshares.
What changed in the latest 10-Q
Risk Factors
In evaluating an investment in any of our securities, investors should consider carefully, among other things, information under the heading “Forward-Looking Statements” in Part I, Item 2, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” of this Form 10-Q and the risk factors previously disclosed under the heading “Risk Factors” in Part I, Item 1A of our 2025 Annual Report on Form 10-K. Management believes there have been no material changes in the risk factors disclosed by the Corporation in Part I, Item 1A, “Risk Factors,” of the 2025 Annual Report on Form 10-K. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
No wording changes found in this section.
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Management's Discussion & Analysis (MD&A)
New heading “Recent Developments”
Removed heading “Reclassifications”
Largest changes
“The Exchange Ratio is defined in the Merger Agreement as a number, as adjusted, of shares of Isabella Common Stock equal to the quotient of (A) 839,003 shares of Isabella Common Stock, divided by (B) the difference of (1) the aggregate number of shares of Grand River Common Stock issued and outstanding immediately prior to the Effective Time, other than certain shares held by Grand River or the Corporation or dissenting shares, minus (2) the Cash Conversion Number, rounded to the nearest ten thousandth.”see in full comparison
see in full comparisonWe continue to have robust liquidity levels and capital.As ofMarchJune31,30, 2026, we had$817,775$754.8 million of unencumbered sources of liquidity and strong consolidated capital ratios; the Tier 1 Leverage Ratio was8.89%,9.59%, Tier 1 risk-based capital was11.71%,12.34%, and Total risk-based capital was14.01%.14.63%.
“•risks relating to the proposed Merger including, without limitation: the timing of consummation of the proposed transaction between the Corporation and Grand River; the risk that any condition to closing of the proposed Merger may not be satisfied or waived; the risk that the Merger may not be completed at all; the diversion of management time on issues related to the proposed Merger; the expected impact of the proposed Merger and on the combined entities’ operations, financial condition, and financial results; …”see in full comparison
“Capital consists solely of common stock, retained earnings, and accumulated other comprehensive income (loss). We are authorized to raise capital through the issuance of securities from our shelf registration statement on Form S-3 (the “Registration Statement,” dividend reinvestment, employee and director stock purchases, and shareholder stock purchases. Under the Registration Statement, we established an at-the-market common stock offering program permitting the sale of common stock up to an aggregate gross sales price of $30 million. …”see in full comparison
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(Dollars in thousands except per share amounts and ratios, unless otherwise noted) The following is management's discussion and analysis of our financial condition and results of operations for the unaudited periods covered by this Form 10-Q. This analysis should be read in conjunction with our 2025 Annual Report on Form 10-K and with the unaudited interim condensed consolidated financial statements and notes, beginning on page 4 of this Form 10-Q. Unless we state otherwise or the context otherwise requires, references in this Form 10-Q to “we,” “our,” “us,” and “the Corporation” refer to Isabella Bank Corporation, a Michigan corporation and registered financial holding company, our wholly-owned banking subsidiary, Isabella Bank, and our other consolidated subsidiaries. References to “the Bank” refer to Isabella Bank.
Recent Developments
On June 16, 2026, the Corporation and the Bank entered into an equity distribution agreement with Piper Sandler & Co., as sales agent, pursuant to which the Corporation may offer and sell, from time to time, shares of its common stock with an aggregate gross sales price of up to $30.0 million, including through “at-the-market” offerings and other permitted methods. The sales agent is entitled to a commission of up to 3.0% of the gross sales price of the common stock sold in such offering. The Corporation is not obligated to sell any shares of its common stock pursuant to the equity distribution agreement, and may suspend or terminate sales thereunder at any time. Any shares sold will be issued pursuant to the Corporation’s effective shelf registration statement on Form S-3 and related prospectus supplement, and net proceeds, if any, are expected to be used for general corporate purposes, which may include, without limitation, contribution to the capital of the Bank to support its lending activities and growth.
On June 11, 2026, the Corporation, 401 Merger Sub, Inc., a Michigan corporation and a wholly owned subsidiary of the Corporation, and Grand River, entered into an Agreement and Plan of Merger. The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into Grand River, with Grand River as the surviving entity, and immediately following the Merger, Grand River will merge with and into the Corporation, with the Corporation as the surviving entity. The Merger Agreement further provides that immediately following the Second Step Merger, Grand River Bank, a Michigan state-chartered member bank and wholly owned subsidiary of Grand River, will merge with and into the Bank, with the Bank as the surviving bank. We expect to complete the Merger in the fourth quarter of 2026, subject to satisfaction of closing conditions, including receipt of customary required regulatory approvals and the approval of the Agreement by the shareholders of Grand River.
Upon the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger, each voting and non-voting share of common stock of Grand River issued and outstanding immediately prior to the Effective Time, other than certain shares held by Grand River or the Corporation or dissenting shares, will be converted into the right to receive, at the election of the holder thereof, and subject to adjustment and proration, as applicable, (i) an amount of cash equal to the quotient of (A) $18,262,391, divided by (B) the product obtained by multiplying (x) the number of shares of Grand River Common Stock issued and outstanding as of the Effective Time by (y) 0.35, rounded to the nearest cent, or (ii) the number of shares of common stock of the Corporation, no par value, multiplied by the Exchange Ratio.
The Exchange Ratio is defined in the Merger Agreement as a number, as adjusted, of shares of Isabella Common Stock equal to the quotient of (A) 839,003 shares of Isabella Common Stock, divided by (B) the difference of (1) the aggregate number of shares of Grand River Common Stock issued and outstanding immediately prior to the Effective Time, other than certain shares held by Grand River or the Corporation or dissenting shares, minus (2) the Cash Conversion Number, rounded to the nearest ten thousandth.
Merger Consideration elections by Grand River shareholders will be subject to proration procedures whereby 65% of the shares of Grand River Common Stock will be exchanged for the Per Share Stock Consideration and 35% of the shares of Grand River common stock will be exchanged for the Per Share Cash Consideration. Based on the assumption of 9,136,529 shares of Grand River Common Stock issued and outstanding as of the Effective Time, the Per Share Cash Consideration to be paid is estimated to be approximately $5.71 and the Exchange Ratio is estimated to be approximately 0.1413. At March 31, 2026, Grand River had approximately $511.7 million in total assets, $433.0 million in total loans and $438.9 million in total deposits. The pro forma company is projected to have approximately $2.7 billion in total assets.
•the lingeringpersistent inflationary pressures, and the risk of the resurgence of elevated levels of inflation,pressures in the United States and our market areas, and its impact on market interest rates, the labor market, the economy as a whole, and credit quality;
•elevated asset prices;
•risks relating to the proposed Merger including, without limitation: the timing of consummation of the proposed transaction between the Corporation and Grand River; the risk that any condition to closing of the proposed Merger may not be satisfied or waived; the risk that the Merger may not be completed at all; the diversion of management time on issues related to the proposed Merger; the expected impact of the proposed Merger and on the combined entities’ operations, financial condition, and financial results; the businesses of Corporation and Grand River may not be combined successfully, or such combination may take longer to accomplish than expected; the cost savings from the proposed Merger may not be fully realized or may take longer to realize than expected; operating costs, customer loss and business disruption following the proposed Merger, including adverse effects on relationships with employees, may be greater than expected; the risk of deposit and customer attrition; increased competitive pressures on solicitations of customers by competitors; regulatory approvals of the proposed Merger may not be obtained, or adverse conditions may be imposed in connection with regulatory approvals of the proposed Merger; and the risk that the Grand River shareholders may not approve the proposed Merger;
The Corporation maintains an Internet web sitewebsite at ir.isabellabank.com. The Corporation makes available, free of charge, on its web sitewebsite (under ir.isabellabank.com/sec-filings/default) the Corporation’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or Section 15(d) of the Exchange Act as soon as reasonably practicable after the Corporation files such material with, or furnishes it to, the SEC. The Corporation also makes available, free of charge, through its web sitewebsite (under ir.isabellabank.com/governance/governance-documents) links to the Corporation’s Code of Conduct and Business Ethics and the charters for its board committees. In addition, the SEC maintains an Internet site (at www.sec.gov ) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
The Corporation routinely posts important information for investors on its web sitewebsite (under ir.isabellabank.com and, more specifically, under the News tab at ir.isabellabank.com/news). The Corporation intends to use its web sitewebsite as a means of disclosing material non-public information and for complying with its disclosure obligations under SEC Regulation FD (Fair Disclosure). Accordingly, investors should monitor the Corporation’s web site,website, in addition to following the Corporation’s press releases, SEC filings, public conference calls, presentations and webcasts.
The information contained on, or that may be accessed through, the Corporation’s web sitewebsite is not incorporated by reference into, and is not a part of, this Form 10-Q.
Reclassifications
Certain amounts reported in the interim 2025 consolidated financial statements have been reclassified to conform with the 2026 presentation. The most significant of these changes related to amounts that were previously reported as commercial and industrial loans being reclassified as commercial real estate loans.
Financial Condition (MarchJune 31,30, 2026 to December 31, 2025 comparison)
Total assets increased $42,508$10.2 million, or 0.5%, to $2,251,956$2.2 billion as of MarchJune 31,30, 2026. This increase was primarily due to an increase of $23,103$53.3 million in interestloans bearingand an increase of $15.7 million in cash and cash equivalents. These increases were offset by a $22,577$58.5 increasemillion decline in loans.AFS securities.
The AFS securities portfolio decreased $5,047$58.5 million, or 11.8%, to $492,744$439.3 million as of MarchJune 31,30, 2026. The decrease was a result of maturities and principal paydowns of $53,053,$121.8 million, offset by $48,918$64.4 million in purchases. Net unrealized losses on AFS securities were $10,622$10.8 million as of MarchJune 31,30, 2026, compared to $9,898$9.9 million at December 31, 2025. Net unrealized losses as a percentage of the amortized cost of AFS securities were consistent compared to December 31, 2025, at 2%.
Loans increased $22,577$53.3 million, or 3.5%, to $1,558,941$1.6 billion as of MarchJune 31,30, 2026. Adjusted loans (non-GAAP), which exclude advances to mortgage brokers, increased $27,170,2026, primarily by growth in the commercial real estate and residential real estate portfolios of $20,885$33.5 million and $10,453,$22.1 million, respectively. Most residential originations were adjustable rate products, which are putretained on the balance sheet rather than sold in the secondary market. The consumer loan portfolio continues to decrease amid declining demand, competition, and our adherence to credit quality standards. Advances to mortgage brokers decreased $4,593 during the quarter due to lower participation demand from our counterparty.
The ACL increased $287$752,000, or 5.5%, to $14,014$14.5 million as of MarchJune 31,30, 2026. The increase is due to loan growth and an increase in loss rates driven by loans charged off during the quarter.year. Nonaccrual loans were $4,418$7.8 million as of MarchJune 31,30, 2026 compared to $4,578$4.6 million at December 31, 2025. Past due and accruing accounts between 30 to 89 days as a percentage of total loans was 0.37%0.06% at MarchJune 31,30, 2026, compared to 0.44% at year-end 2025. We believe that our credit quality remains strong.
Total deposits decreased $9.7 million, or 0.5%, to $1.8 billion as of June 30, 2026. The decline was a result of a $20.7 million decline in certificates of deposit, a $14.0 million decline in interest bearing demand deposits, and a $12.3 million decline in noninterest bearing demand deposits. These declines were offset by a $20.4 million increase in savings deposits and a $16.8 million increase in money market accounts.
Total deposits increased $40,191 to $1,859,845 as of March 31, 2026. The growth was primarily a result of new customer relationships and included a $40,913 increase in money market accounts and a $20,303 increase in savings deposits. The growth was offset by a $15,126 decline in noninterest bearing deposits and a $3,666 decline in certificates of deposit.
Total equity was $233,961,$248.7 million, or $31.90$32.60 per share, at MarchJune 31,30, 2026 compared to $231,396,$231.4 million, or $31.60 per share, as of December 31, 2025. OurThe tangibleincrease in total equity is primarily due to the issuance of 303,371 shares as part of the previously announced at-the-market stock offering, increasing total equity by $11.7 million, net of estimated expenses. Tangible book value per share (non-GAAP) was $25.32$26.27 as of MarchJune 31,30, 2026, compared to $25.01 as of December 31, 2025. Net unrealized losses in the AFS securities portfolio reduced tangible book value per share (non-GAAP) by $1.17$1.14 and $1.09 for the respective periods. Share repurchases totaled 8,062 during the first three months of 2026 for a value of $402 at an average repurchase price of $49.86 per share.
We continue to have robust liquidity levels and capital. As of MarchJune 31,30, 2026, we had $817,775$754.8 million of unencumbered sources of liquidity and strong consolidated capital ratios; the Tier 1 Leverage Ratio was 8.89%,9.59%, Tier 1 risk-based capital was 11.71%,12.34%, and Total risk-based capital was 14.01%.14.63%.
Comparison of Operating Results for the three and six months ended MarchJune 31,30, 2026, and 2025, unless otherwise noted
Net income for the three months ended June 30, 2026 was $5.0 million, or $0.69 per diluted share, compared with $5.0 million, or $0.68 per diluted share, for the three months ended June 30, 2025. Net income for the six months ended June 30, 2026 was $10.0 million, or $1.37 per diluted share, compared with $9.0 million, or $1.21 per diluted share, for the six months ended June 30, 2025.
Net income in first quarter 2026 was $4,992, or $0.68 per diluted share, compared with $3,949, or $0.53 per diluted share, in first quarter 2025.
Net interest income was $16,882$18.1 inmillion firstfor quarterthe three months ended June 30, 2026 and $14,525$15.1 inmillion firstfor quarterthe three months ended June 30, 2025, representing 3.33%3.54% and 3.06%3.14% of earning assets, or NIM on an FTE basis,basis (non-GAAP), respectively. The book yield from securities was 2.52%2.82% and 2.20%2.38% duringfor the firstthree quartersmonths ofended June 30, 2026 and 2025, respectively. OurThe yield on loans expandedincreased to 5.78%5.86% infor firstthe quarterthree months ended June 30, 2026 from 5.71% infor firstthe quarterthree months ended June 30, 2025. The increase in loan yields was primarily due to higher rates on new loans and variable rate commercial loans that continue to reprice. OurThe cost of interest-bearing liabilities infor firstthe quarterthree months ended June 30, 2026 decreased to 2.14%2.09% from 2.26%2.24% infor firstthe quarterthree months ended June 30, 2025 primarily due to lower rates on money market and certificate of deposit products.
Net interest income was $35.0 million for the six months ended June 30, 2026 and $29.7 million for the six months ended June 30, 2025, representing 3.43% and 3.10% of earning assets, or NIM on an FTE basis (non-GAAP), respectively. The book yield from securities was 2.67% and 2.31% for the six months ended June 30, 2026 and 2025, respectively. The yield on loans increased to 5.82% for the six months ended June 30, 2026 from 5.72% for the six months ended June 30, 2025. The increase in loan yields was primarily due to higher rates on new loans and variable rate commercial loans that continue to reprice. The cost of interest-bearing liabilities for the six months ended June 30, 2026 decreased to 2.12% from 2.25% for the six months ended June 30, 2025 primarily due to lower rates on money market and certificate of deposit products.
The provision for credit losses was $895,000 for the three months ended June 30, 2026, driven by a $465,000 increase in the ACL on loans and net charge offs totaling $384,000. The provision for credit losses for the three months ended June 30, 2025 was a credit of $1.1 million, which reflects $1.4 million in net recoveries, offset by a $242,000 increase in the ACL on loans and an increase in the reserve for unfunded commitments. Recoveries of $1.6 million during second quarter 2025 were related to overdrawn deposit accounts from a single customer that were charged off during the third quarter of 2024.
The provision for credit losses was $1.5 million for the six months ended June 30, 2026, as compared to a credit of $1.2 million for the six months ended June 30, 2025. Net charge offs for the six months ended June 30, 2026 totaled $637,000, while there were net recoveries of $1.5 million for the six months ended June 30, 2025.
The provision for credit losses was $604 in first quarter 2026, driven by a $287 increase in the ACL on loans, net charge offs totaling $253, and an increase in the reserve for unfunded commitments. The provision for credit losses in first quarter 2025 was a credit of $107 due to the change in ACL on loans and $52 in net recoveries, offset by an increase in the reserve for unfunded commitments.
Noninterest income for the three months ended MarchJune 31,30, 2026 and 2025 was $4,361$4.4 million and $3,528,$3.7 million, respectively. Service charges and fees increased $398$504,000 as a result of internal initiatives designed to align our fees with the market. Wealth management fees grew $129 due to growth in assets under management since first quarter 2025. Earnings on BOLI policies increased $76$134,000 compared to firstsecond quarter 2025 due to additional investments in a separate account BOLI in 2025. OtherWealth noninterestmanagement incomefees grew $132,000 due to growth in 2026assets includesunder amanagement $131since gainsecond relatedquarter to a death benefit from a BOLI policy.2025.
Noninterest income for the six months ended June 30, 2026 and 2025 was $8.7 million and $7.2 million, respectively. Service charges and fees increased $907,000 as a result of internal initiatives designed to align our fees with the market. Wealth management fees grew $261,000 due to growth in assets under management. Earnings on BOLI policies increased $210,000 due to additional investments in a separate account BOLI in 2025. Other noninterest income in 2026 includes a $137,000 gain related to a death benefit from a BOLI policy.
Noninterest expenses for the three-monththree periodmonths ended MarchJune 31,30, 2026 increasedand $1,3632025 inwere comparison$15.4 tomillion theand same$13.7 periodmillion, in 2025.respectively. Compensation and benefit expenses increased $545,$651,000, reflecting annual merit increases, incentives, and higher medical insurance claimsclaims. comparedOccupancy toand firstequipment increased $240,000 and merger-related expenses of $505,000 were included in noninterest expenses in second quarter 2025. Other professional services increased $304 as a result of costs related to profitability initiatives and product implementation costs.2026.
Noninterest expenses for the six months ended June 30, 2026 and 2025 were $30.0 million and $27.0 million, respectively. Compensation and benefit expenses increased $1.2 million for the same reasons as the quarterly comparison. Occupancy and equipment expenses increased $480,000 and merger-related expenses during second quarter 2026 totaled $505,000.
Income tax expense for both of the three months ended MarchJune 31,30, 2026 and 2025 was $985$1.1 and $912, respectively,million, while the ETR was 18% for both periods. Income tax expense for both of the six months ended June 30, 2026 and 2025 was $2.1 million, while the ETR was 17% for the samesix periodsmonths wasended 16%June 30, 2026 and 19%,19% respectively.for the six months ended June 30, 2025. The ETR in the first threesix months of 2025 included a one-time tax expense totaling $166$166,000 due to the taxes owed from the lifetime earnings on BOLI policies that were surrendered during first quarter 2025. Excluding the one-time charge, the ETR was 15%17% for the first threesix months of 2025.
(4) Includes average interest bearing deposits with other banks, net of FRB daily cash letter.
(5) Non-GAAP financial measure; refer to the "Reconciliation of Non-GAAP Financial Measures" section of this Form 10-Q.
(1) Includes loans HFS and nonaccrual loans.
(2) Average balances for AFS securities are based on amortized cost.
(3) Includes FTE adjustments of $268,000 and $362,000, respectively.
Capital consists solely of common stock, retained earnings, and accumulated other comprehensive income (loss). We are authorized to raise capital through the issuance of securities from our shelf registration statement on Form S-3 (the “Registration Statement,” dividend reinvestment, employee and director stock purchases, and shareholder stock purchases. Under the Registration Statement, we established an at-the-market common stock offering program permitting the sale of common stock up to an aggregate gross sales price of $30 million. The at-the-market offering provides us with additional flexibility to access the capital markets efficiently and is intended to be used for general corporate purposes, which may include, without limitation, contribution to the capital of the Bank to support its lending activities and growth. Pursuant to these authorizations, including our at-the-market offering, we issued 310,276 shares, or $12.4 million of common stock, during the first six months of 2026, as compared to 28,830 shares, or $759,000 of common stock, during the same period in 2025.
Capital consists solely of common stock, retained earnings, and accumulated other comprehensive income (loss). We are authorized to raise capital through dividend reinvestment, employee and director stock purchases, and shareholder stock purchases. Pursuant to these authorizations, we issued 9,682 shares or $433 of common stock during the first three months of 2026, as compared to 17,332 shares or $419 of common stock during the same period in 2025. Wealso offer the Directors Plan in which participants purchase stock units through deferred fees, in lieu of cash payments. Pursuant to this plan, we increased shareholders’ equity by $156$190,000 and $167$201,000 during the three-monthsix-month periods ended MarchJune 31,30, 2026 and 2025, respectively. We also grant restricted stock awards pursuant to the RSP. Pursuant to this plan, we increased shareholders’ equity by $16$29,000 during the first threesix months of 2026, as compared to $7$21,000 during the same period in 2025.
We have publicly announced a common stock repurchase program. Pursuant to this repurchase program, we repurchased 8,06213,166 shares or $402$626,000 of common stock during the first threesix months of 2026 and 45,582103,406 shares or $1,145$2.7 million of common stock during the first threesix months of 2025. As of MarchJune 31,30, 2026, we were authorized to repurchase up to an additional 453,210448,106 shares of common stock under the repurchase program.
The FRB has established minimum risk-based capital guidelines. Pursuant to these guidelines, a framework has been established that assigns risk weights to each category of on and off-balance-sheet items to arrive at risk adjusted total assets. Regulatory capital is divided by the risk adjusted assets with the resulting ratio compared to the minimum standard to determine whether a corporation has adequate capital. As of MarchJune 31,30, 2026, we and the Bank were “well capitalized” under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since MarchJune 31,30, 2026 that would materially adversely change such capital classifications. From time to time, we may need to raise additional capital to support our and the Bank’s further growth and to maintain our “well capitalized” status.
Our primary sources of liquidity are retail deposits, cash and cash equivalents, and unencumbered AFS securities. Cash, cash equivalents and unencumbered AFS securities totaled $303,441,$237.9 million, or 13.47%10.72% of assets, as of MarchJune 31,30, 2026, compared to $337,011,$337.0 million, or 15.25%, as of December 31, 2025. The decrease in the amount and percentage of primary liquidity is primarily due to a decrease in AFS securities, offset by an increase in cash and cash equivalents. Liquidity is important for financial institutions because of their need to meet loan funding commitments, depositor withdrawal requests, and various other commitments including expansion of operations, investment opportunities, and payment of cash dividends. Based on these same factors, daily liquidity could vary significantly.
Our secondary sources include the ability to borrow from the FHLB, from the FRB, and through various correspondent banks in the form of federal funds purchased and lines of credit. These funding methods typically carry a higher interest rate than traditional market deposit accounts. Some borrowed funds, including FHLB advances, FRB Discount Window advances, and repurchase agreements, require us to pledge assets, typically in the form of AFS securities or loans, as collateral. As of MarchJune 31,30, 2026, we had available lines of credit of $397,670.$403.0 million.
Our liquidity position remained strong as of MarchJune 31,30, 2026, which is illustrated in the following table:
(1) Includes estimated unencumbered lendable value of FHLB collateral of $170,000$120.0 million as of MarchJune 31,30, 2026.
ISBA insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 6 Form 4 filings (1 insider, 6 trade dates, 43 shares, about $1.8K) and open-market sales in 0 filings. Net open-market shares: 43 (purchases minus sales); net value about $1.8K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-09-16 | Bourland Jill |
Open-market purchase | 8 | $39.40 | $300 |
| 2026-09-01 | Barnes Jeffrey J |
Grant/award | 242 | $38.55 | $9.3K |
| 2026-09-01 | Bourland Jill |
Grant/award | 10 | $38.55 | $386 |
| 2026-09-01 | Coffin Melinda Marie |
Grant/award | 31 | $38.55 | $1.2K |
| 2026-09-01 | Opperman Sarah R |
Grant/award | 46 | $38.55 | $1.8K |
| 2026-09-01 | Rupp Vicki L |
Grant/award | 33 | $38.55 | $1.3K |
| 2026-09-01 | Sackett Brian Roy |
Grant/award | 24 | $38.55 | $925 |
| 2026-09-01 | Schwind Jerome E |
Grant/award | 123 | $38.55 | $4.7K |
| 2026-09-01 | Tessin Brian B |
Grant/award | 8 | $38.55 | $308 |
| 2026-09-01 | Mcdonnell Neil Michael |
Grant/award | 3 | $38.55 | $116 |
| 2026-08-17 | Bourland Jill |
Open-market purchase | 7 | $41.59 | $300 |
| 2026-07-16 | Bourland Jill |
Open-market purchase | 8 | $39.07 | $300 |
| 2026-06-16 | Bourland Jill |
Open-market purchase | 7 | $41.43 | $300 |
| 2026-06-01 | Mcdonnell Neil Michael |
Grant/award | 3 | $41.49 | $124 |
| 2026-06-01 | Barnes Jeffrey J |
Grant/award | 225 | $41.49 | $9.3K |
| 2026-06-01 | Schwind Jerome E |
Grant/award | 113 | $41.49 | $4.7K |
| 2026-06-01 | Opperman Sarah R |
Grant/award | 43 | $41.49 | $1.8K |
| 2026-06-01 | Sackett Brian Roy |
Grant/award | 22 | $41.49 | $913 |
| 2026-06-01 | Bourland Jill |
Grant/award | 9 | $41.49 | $373 |
| 2026-06-01 | Rupp Vicki L |
Grant/award | 30 | $41.49 | $1.2K |
| 2026-06-01 | Coffin Melinda Marie |
Grant/award | 30 | $41.49 | $1.2K |
| 2026-06-01 | Tessin Brian B |
Grant/award | 7 | $41.49 | $290 |
| 2026-05-18 | Bourland Jill |
Open-market purchase | 7 | $41.05 | $300 |
| 2026-04-16 | Bourland Jill |
Open-market purchase | 6 | $48.90 | $300 |
Well-known investors holding ISBA (13F)
None of the 59 investors we track reported a position in their latest 13F.