Isabella Bank Corporation
10/30/2026 | Press release | Distributed by Public on 10/30/2026 13:02
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
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.
General
Isabella Bank Corporation is a registered financial holding company that was incorporated in September 1988 under Michigan law. The Corporation's wholly owned subsidiary, Isabella Bank, has 31 offices located throughout Bay, Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw counties. The area includes significant agricultural production, manufacturing, retail, gaming and tourism, and several colleges and universities.
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.
As previously disclosed, on June 11, 2026, the Corporation, 401 Merger Sub, Inc., a Michigan corporation and a wholly owned subsidiary of the Corporation ("Merger Sub"), and Grand River Commerce, Inc. ("Grand River"), entered into an Agreement and Plan of Merger (the "Merger Agreement"), providing for the merger of Merger Sub with and into Grand River, with Grand River as the surviving entity, immediately followed by the merger of Grand River with and into the Corporation, with the Corporation as the surviving entity. Refer to Note 9 above for additional information.
Forward-Looking Statements
This Form 10-Q contains statements that we believe are "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as "may," "might," "should," "could," "predict," "potential," "believe," "expect," "continue," "will," "likely," "anticipate," "seek," "estimate," "intend," "plan," "strive," "projection," "goal," "target," "outlook," "aim," "would," and "annualized," or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates, and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:
•uncertainty or perceived instability in the banking industry as a whole;
•increased competition for deposits among traditional and nontraditional financial services companies, and related changes in deposit customer behavior;
•the persistent inflationary pressures in the United States and its impact on market interest rates, the labor market, the economy as a whole, and credit quality;
•elevated asset prices;
•risks related to rising interest rates;
•our ability to effectively execute our expansion strategy and manage our growth, including identifying and consummating suitable acquisitions;
•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; and increased competitive pressures on solicitations of customers by competitors;
•risks associated with concentrations of our business in market areas, loans secured by real estate, and public funds deposits as a percentage of total deposits;
•adverse changes in customer spending, borrowing, and savings habits;
•risks associated with our commercial loan portfolio and agricultural loan portfolio;
•risks related to the significant amount of credit that we have extended to a limited number of borrowers and in a limited geographic area;
•damage to our reputation resulting from adverse publicity, regulatory actions, litigation, operational failures, and the failure to meet client expectations and other facts;
•our ability to keep pace with technological change or difficulties we may experience when implementing new technologies;
•cybersecurity risk, including cyber incidents or other failures, disruptions or breaches of our operational or security systems or infrastructure, or those of our third-party vendors or other service providers, including as a result of a cyber-attack;
•costs and effects of litigation, investigations or similar matters to which we may be subject;
•natural disasters, severe weather, acts of god, military conflicts (including the conflicts in the Middle East, the possible expansion of such conflicts and potential geopolitical and economic consequences), acts of terrorism, domestic civil unrest, geopolitical instability, public health outbreaks (such as coronavirus), other international or domestic calamities, and other events beyond our control, including as a result of in the policies of the current U.S. presidential administration or Congress;
•the impacts of tariffs, sanctions and other trade policies of the United States and its global trading counterparts and the resulting impact on the Corporation and its customers;
•compliance with governmental and regulatory requirements, including the Dodd-Frank Act Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 ("EGRRCPA"), and others relating to banking, consumer protection, securities and tax matters;
•changes in accounting principles and standards;
•changes in the laws, rules, regulations, interpretations or policies that apply to the Corporation's business and operations, and any additional regulations, or repeals that may be forthcoming as a result thereof, which could cause the Corporation to incur additional costs and adversely affect the Corporation's business environment, operations and financial results; and
•our ability to navigate the uncertain impacts of current and future governmental monetary and fiscal policies, including the current and future policies of the Board of Governors of the Federal Reserve System ("Federal Reserve") and as a result of initiatives of the Trump administration.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Form 10-Q and the risk factors set forth in our 2025 Annual Report on Form 10-K. Because of these risks and other uncertainties, our actual future results, performance or achievements, or industry results, may be materially different from the results indicated by the forward-looking statements in this Form 10-Q. In addition, our past results of operations are not necessarily indicative of our future results. Accordingly, you should not rely on any forward-looking statements, which
represent our beliefs, assumptions, and estimates only as of the dates on which such forward-looking statements were made. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as required by applicable law.
Non-GAAP Financial Measures
Our accounting and reporting policies conform to GAAP and the prevailing practices in the financial services industry. However, we also evaluate our performance by reference to certain additional financial measures discussed in this Form 10-Q that we identify as being "non-GAAP financial measures." In accordance with SEC rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios, or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both.
Management believes that 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 Form 10-Q 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 Form 10-Q when comparing such non-GAAP financial measures.
As a result, the non-GAAP financial measures that we discuss in this Form 10-Q 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.
Available Information
The Corporation maintains an Internet website at ir.isabellabank.com. The Corporation makes available, free of charge, on its website (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 website (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 website (under ir.isabellabank.com and, more specifically, under the News tab at ir.isabellabank.com/news). The Corporation intends to use its website 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 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 website is not incorporated by reference into, and is not a part of, this Form 10-Q.
Executive Summary
Financial Condition (September 30, 2026 to December 31, 2025 comparison)
Total assets increased $31.1 million, or 1.4%, to $2.2 billion as of September 30, 2026. This increase was primarily due to an increase of $112.5 million in cash and cash equivalents, offset by an $88.3 million decline in AFS securities.
The AFS securities portfolio decreased $88.3 million, or 17.7%, to $409.5 million as of September 30, 2026. The decrease was a result of maturities and principal paydowns of $177.1 million, offset by $100.7 million in purchases. Net unrealized losses on AFS securities were $21.7 million as of September 30, 2026, compared to $9.9 million at December 31, 2025. Net unrealized losses as a percentage of the amortized cost of AFS securities increased to 5.0%, compared to 1.9% at December 31, 2025.
Loans decreased $556,000 to $1.5 billion as of September 30, 2026. The commercial real estate and residential real estate loan portfolios grew $29.9 million and $29.7 million, respectively, but were offset by declines in advances to mortgage brokers and consumer loans of $39.0 million and $10.6 million, respectively. Most residential originations were adjustable-rate products, which are retained on the balance sheet rather than sold in the secondary market. The consumer loan portfolio continues to decrease amid declining demand, continued competition, and our disciplined adherence to credit quality standards.
The ACL increased $671,000, or 4.9%, to $14.4 million as of September 30, 2026. The increase is due to commercial and residential real estate loan growth and an increase in loss rates driven by loans charged off during the year. Nonaccrual loans were $7.5 million as of September 30, 2026 compared to $4.6 million at December 31, 2025. Past due and accruing accounts between 30 to 89 days as a percentage of total loans was 0.10% at September 30, 2026, compared to 0.44% at year-end 2025.
Total deposits increased $73.0 million, or 4.0%, to $1.9 billion as of September 30, 2026. The increase was a result of a $141.8 million increase in money market accounts and a $11.1 million increase in savings deposits. These increases were offset by a $51.3 million decline in certificates of deposit, a $16.6 million decline in noninterest bearing demand deposits, and a $12.1 million decline in interest bearing demand deposits.
Total equity was $245.6 million, or $32.09 per share, at September 30, 2026 compared to $231.4 million, or $31.60 per share, as of December 31, 2025. The increase in total equity is primarily due to the issuance of 322,685 shares of common stock as part of the Corporation's ongoing at-the-market stock offering, increasing total equity by $12.5 million, net of offering-related expenses. Tangible book value per share (non-GAAP) was $25.78 as of September 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 $2.26 and $1.09 for the respective periods.
As of September 30, 2026, we had $850.5 million of unencumbered sources of liquidity and strong consolidated capital ratios. The Tier 1 Leverage Ratio was 9.71%, Tier 1 risk-based capital was 12.96%, and Total risk-based capital was 15.29%.
Comparison of Operating Results for the three and nine months ended September 30, 2026, and 2025, unless otherwise noted
Net income for the three months ended September 30, 2026 was $6.6 million, or $0.86 per diluted share, compared with $5.2 million, or $0.71 per diluted share, for the three months ended September 30, 2025. Net income for the nine months ended September 30, 2026 was $16.6 million, or $2.24 per diluted share, compared with $14.2 million, or $1.92 per diluted share, for the nine months ended September 30, 2025.
Net interest income was $19.4 million for the three months ended September 30, 2026 and $16.2 million for the three months ended September 30, 2025, representing 3.71% and 3.15% of interest earning assets, or NIM on a FTE basis (non-GAAP), respectively. The book yield from securities was 3.20% and 2.42% for the three months ended September 30, 2026 and 2025, respectively. The yield on loans increased to 5.95% for the three months ended September 30, 2026 from 5.78% for the three months ended September 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 three months ended September 30, 2026 decreased to 2.08% from 2.25% for the three months ended September 30, 2025 primarily due to lower rates on money market and certificate of deposit products.
Net interest income was $54.3 million for the nine months ended September 30, 2026 and $45.8 million for the nine months ended September 30, 2025, representing 3.53% and 3.12% of earning assets, or NIM on a FTE basis (non-GAAP), respectively. The book yield from securities was 2.83% and 2.34% for the nine months ended September 30, 2026 and 2025, respectively. The yield on loans increased to 5.88% for the nine months ended September 30, 2026 from 5.75% for the nine months ended September 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 nine months ended September 30, 2026 decreased to 2.10% from 2.25% for the nine months ended September 30, 2025, primarily due to lower rates on money market and certificate of deposit products.
The provision for credit losses was $50,000 for the three months ended September 30, 2026, as a result of net charge offs totaling $207,000, offset by an $81,000 decrease in the ACL on loans and a decrease in the reserve for unfunded commitments. The provision for credit losses for the three months ended September 30, 2025 was $209,000, which reflects a $172,000 increase in the ACL and net charge offs totaling $74,000, offset by a decrease in the reserve for unfunded commitments.
The provision for credit losses was $1.5 million for the nine months ended September 30, 2026, as compared to a credit of $997,000 for the nine months ended September 30, 2025. Net charge offs for the nine months ended September 30, 2026 totaled $844,000, while there were net recoveries of $1.4 million for the nine months ended September 30, 2025.
Noninterest income for the three months ended September 30, 2026 and 2025 was $4.6 million and $4.3 million, respectively. Service charges and fees increased $202,000 and wealth management fees increased $94,000 due to growth in assets under management since second quarter 2025.
Noninterest income for the nine months ended September 30, 2026 and 2025 was $13.3 million and $11.5 million, respectively. Service charges and fees increased $1.1 million, wealth management fees increased $355,000 due to growth in assets under management, and earnings on BOLI policies increased $220,000 due to additional investments in a separate account BOLI. Other noninterest income included gains of $137,000 and $163,000 related to death benefits from BOLI policies for the nine months ended September 30, 2026 and 2025, respectively.
Noninterest expenses for the three months ended September 30, 2026 and 2025 were $15.6 million and $14.0 million, respectively. Compensation and benefit expenses increased $867,000, reflecting annual merit increases, incentives, and higher medical insurance claims. Occupancy and equipment increased $156,000 and merger-related expenses were $672,000.
Noninterest expenses for the nine months ended September 30, 2026 and 2025 were $45.7 million and $41.0 million, respectively. Compensation and benefit expenses increased $2.1 million for the same reasons as the quarterly comparison. Occupancy and equipment expenses increased $636,000 and merger-related expenses were $1.2 million.
Income tax expense for the three months ended September 30, 2026 and 2025 was $1.6 million and $1.0 million, respectively. The ETR for the same periods was 20% and 17%, respectively. Income tax expense for the nine months ended September 30, 2026 and 2025 was $3.8 million and $3.1 million, respectively. The ETR was 18% for both the nine months ended September 30, 2026 and 2025. The ETR in the first nine months of 2026 included the impact of certain non-deductible merger-related expenses. The ETR in the first nine months of 2025 included a one-time tax expense related to the lifetime earnings on BOLI policies that were surrendered.
Selected Financial Data (Unaudited)
The following table outlines our results of operations and provides certain performance measures as of the dates and for the periods indicated:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands, except per share amounts) |
September 30, 2026 |
June 30, 2026 |
March 31, 2026 |
December 31, 2025 |
September 30, 2025 |
September 30, 2026 |
September 30, 2025 |
||||||||||||||||||||||||||||||||||
| PER SHARE | |||||||||||||||||||||||||||||||||||||||||
| Basic earnings | $ | 0.86 | $ | 0.69 | $ | 0.68 | $ | 0.64 | $ | 0.71 | $ | 2.24 | $ | 1.93 | |||||||||||||||||||||||||||
| Diluted earnings | 0.86 | 0.69 | 0.68 | 0.64 | 0.71 | 2.24 | 1.92 | ||||||||||||||||||||||||||||||||||
| Dividends | 0.28 | 0.28 | 0.28 | 0.28 | 0.28 | 0.84 | 0.84 | ||||||||||||||||||||||||||||||||||
|
Book value (1)
|
32.09 | 32.60 | 31.90 | 31.60 | 30.94 | 32.09 | 30.94 | ||||||||||||||||||||||||||||||||||
|
Tangible book
value (1) (2)
|
25.78 | 26.27 | 25.32 | 25.01 | 24.37 | 25.78 | 24.37 | ||||||||||||||||||||||||||||||||||
|
Market price (1)
|
37.47 | 39.50 | 45.67 | 50.00 | 35.25 | 37.47 | 35.25 | ||||||||||||||||||||||||||||||||||
| PERFORMANCE RATIOS | |||||||||||||||||||||||||||||||||||||||||
| Return on average total assets | 1.17 | % | 0.91 | % | 0.91 | % | 0.85 | % | 0.94 | % | 1.00 | % | 0.89 | % | |||||||||||||||||||||||||||
| Return on average shareholders' equity | 10.43 | % | 8.50 | % | 8.58 | % | 8.04 | % | 9.28 | % | 9.20 | % | 8.67 | % | |||||||||||||||||||||||||||
|
Return on average tangible shareholders' equity (2)
|
12.90 | % | 10.66 | % | 10.79 | % | 10.16 | % | 11.83 | % | 11.49 | % | 11.12 | % | |||||||||||||||||||||||||||
| Net interest margin yield (FTE) | 3.71 | % | 3.54 | % | 3.33 | % | 3.28 | % | 3.15 | % | 3.53 | % | 3.12 | % | |||||||||||||||||||||||||||
|
Efficiency ratio (2)
|
64.74 | % | 67.84 | % | 68.50 | % | 65.02 | % | 67.62 | % | 66.95 | % | 70.61 | % | |||||||||||||||||||||||||||
|
Loan to deposit ratio (1)
|
81.15 | % | 87.83 | % | 83.82 | % | 84.43 | % | 74.36 | % | 81.15 | % | 74.36 | % | |||||||||||||||||||||||||||
|
Shareholders' equity to total assets (1)
|
10.96 | % | 11.20 | % | 10.39 | % | 10.47 | % | 10.06 | % | 10.96 | % | 10.06 | % | |||||||||||||||||||||||||||
|
Tangible shareholders' equity to tangible
assets (1) (2)
|
9.00 | % | 9.23 | % | 8.43 | % | 8.47 | % | 8.10 | % | 9.00 | % | 8.10 | % | |||||||||||||||||||||||||||
| FINANCIAL DATA | |||||||||||||||||||||||||||||||||||||||||
|
Total assets (1)
|
$ | 2,240,515 | $ | 2,219,641 | $ | 2,251,956 | $ | 2,209,448 | $ | 2,259,654 | $ | 2,240,515 | $ | 2,259,654 | |||||||||||||||||||||||||||
|
AFS securities (1)
|
409,541 | 439,289 | 492,744 | 497,791 | 511,970 | 409,541 | 511,970 | ||||||||||||||||||||||||||||||||||
|
Loans (1)
|
1,535,808 | 1,589,672 | 1,558,941 | 1,536,364 | 1,431,905 | 1,535,808 | 1,431,905 | ||||||||||||||||||||||||||||||||||
|
ACL (1)
|
14,398 | 14,479 | 14,014 | 13,727 | 13,149 | 14,398 | 13,149 | ||||||||||||||||||||||||||||||||||
|
Deposits (1)
|
1,892,608 | 1,809,913 | 1,859,845 | 1,819,654 | 1,925,602 | 1,892,608 | 1,925,602 | ||||||||||||||||||||||||||||||||||
|
Borrowed funds (1)
|
87,455 | 145,571 | 143,067 | 142,514 | 91,514 | 87,455 | 91,514 | ||||||||||||||||||||||||||||||||||
|
Shareholders' equity (1)
|
245,585 | 248,704 | 233,961 | 231,396 | 227,420 | 245,585 | 227,420 | ||||||||||||||||||||||||||||||||||
|
Wealth assets under management (1)
|
745,954 | 750,840 | 701,510 | 707,118 | 679,724 | 745,954 | 679,724 | ||||||||||||||||||||||||||||||||||
| Net income | 6,605 | 5,041 | 4,992 | 4,690 | 5,240 | 16,638 | 14,220 | ||||||||||||||||||||||||||||||||||
| Interest income | 27,517 | 26,216 | 25,129 | 25,278 | 24,882 | 78,862 | 70,757 | ||||||||||||||||||||||||||||||||||
| Interest expense | 8,144 | 8,132 | 8,247 | 8,550 | 8,720 | 24,523 | 24,941 | ||||||||||||||||||||||||||||||||||
| Net interest income | 19,373 | 18,084 | 16,882 | 16,728 | 16,162 | 54,339 | 45,816 | ||||||||||||||||||||||||||||||||||
| Provision for (reversal of) credit losses | 50 | 895 | 604 | 434 | 209 | 1,549 | (997) | ||||||||||||||||||||||||||||||||||
| Noninterest income | 4,566 | 4,375 | 4,361 | 4,444 | 4,308 | 13,302 | 11,522 | ||||||||||||||||||||||||||||||||||
| Noninterest expenses | 15,648 | 15,386 | 14,662 | 13,921 | 13,985 | 45,696 | 41,029 | ||||||||||||||||||||||||||||||||||
(1) At end of period.
(2) Non-GAAP financial measure; refer to the "Reconciliation of Non-GAAP Financial Measures" section of this Form 10-Q.
Average Balances, Interest Rates, and Net Interest Income
The following schedules present the daily average amount outstanding for each major category of interest earning assets, non-earning assets, interest bearing liabilities, and noninterest bearing liabilities as of the dates and for the periods indicated. These schedules also present an analysis of interest income and interest expense for the periods indicated. All interest income is reported on a FTE basis using a federal income tax rate of 21%. Loans in nonaccrual status, for the purpose of the following computations, are included in the average loan balances. FRB restricted equity holdings are included in other interest earning assets.
| Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2026 | June 30, 2026 | September 30, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) |
Average Balance |
Tax Equivalent Interest |
Average Yield / Rate |
Average Balance |
Tax Equivalent Interest |
Average Yield / Rate |
Average Balance |
Tax Equivalent Interest |
Average Yield / Rate |
||||||||||||||||||||||||||||||||||||||||||||
| INTEREST EARNING ASSETS | |||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Loans (1)
|
$ | 1,528,503 | $ | 22,986 | 5.95 | % | $ | 1,544,323 | $ | 22,607 | 5.86 | % | $ | 1,409,928 | $ | 20,583 | 5.78 | % | |||||||||||||||||||||||||||||||||||
|
AFS securities (2)
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||
| Taxable | 378,202 | 2,939 | 3.08 | % | 432,520 | 2,902 | 2.69 | % | 448,112 | 2,478 | 2.19 | % | |||||||||||||||||||||||||||||||||||||||||
|
Nontaxable (3)
|
61,210 | 578 | 3.75 | % | 63,607 | 600 | 3.78 | % | 69,174 | 660 | 3.79 | % | |||||||||||||||||||||||||||||||||||||||||
| FHLB stock | 5,600 | 58 | 4.18 | % | 5,600 | 64 | 4.55 | % | 5,600 | 70 | 4.95 | % | |||||||||||||||||||||||||||||||||||||||||
| Federal funds sold | 3 | - | 3.91 | % | 2 | - | 3.67 | % | 186 | 2 | 4.35 | % | |||||||||||||||||||||||||||||||||||||||||
|
Other (4)
|
113,704 | 1,082 | 3.72 | % | 18,079 | 173 | 3.81 | % | 123,183 | 1,233 | 3.92 | % | |||||||||||||||||||||||||||||||||||||||||
|
Total interest earning assets (3)
|
2,087,222 | 27,643 | 5.26 | % | 2,064,131 | 26,346 | 5.12 | % | 2,056,183 | 25,026 | 4.83 | % | |||||||||||||||||||||||||||||||||||||||||
| NONEARNING ASSETS | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for credit losses | (14,471) | (14,078) | (13,057) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash and demand deposits due from banks | 24,854 | 22,544 | 25,591 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Premises and equipment | 28,802 | 29,086 | 28,313 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other assets | 120,411 | 116,913 | 109,692 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 2,246,818 | $ | 2,218,596 | $ | 2,206,722 | |||||||||||||||||||||||||||||||||||||||||||||||
| INTEREST BEARING LIABILITIES | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest bearing demand deposits | $ | 264,269 | 199 | 0.30 | % | $ | 257,088 | 205 | 0.32 | % | $ | 234,105 | 144 | 0.24 | % | ||||||||||||||||||||||||||||||||||||||
| Money market deposits | 503,054 | 3,030 | 2.39 | % | 452,737 | 2,625 | 2.33 | % | 534,127 | 3,533 | 2.63 | % | |||||||||||||||||||||||||||||||||||||||||
| Savings | 288,515 | 456 | 0.63 | % | 302,375 | 503 | 0.67 | % | 289,442 | 560 | 0.77 | % | |||||||||||||||||||||||||||||||||||||||||
| Certificates of deposit | 374,370 | 3,150 | 3.34 | % | 396,481 | 3,445 | 3.49 | % | 399,781 | 3,775 | 3.75 | % | |||||||||||||||||||||||||||||||||||||||||
| Short-term borrowings | 94,938 | 806 | 3.37 | % | 115,713 | 1,007 | 3.49 | % | 52,700 | 441 | 3.32 | % | |||||||||||||||||||||||||||||||||||||||||
| FHLB advances | - | - | 0.00 | % | 4,396 | 43 | 3.86 | % | - | - | 0.00 | % | |||||||||||||||||||||||||||||||||||||||||
|
Subordinated debt, net of unamortized issuance costs
|
29,567 | 503 | 6.82 | % | 29,545 | 304 | 4.11 | % | 29,477 | 267 | 3.61 | % | |||||||||||||||||||||||||||||||||||||||||
| Total interest bearing liabilities | 1,554,713 | 8,144 | 2.08 | % | 1,558,335 | 8,132 | 2.09 | % | 1,539,632 | 8,720 | 2.25 | % | |||||||||||||||||||||||||||||||||||||||||
| NONINTEREST BEARING LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Demand deposits | 420,649 | 404,805 | 428,144 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other liabilities | 20,103 | 17,462 | 14,976 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shareholders' equity | 251,353 | 237,994 | 223,970 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 2,246,818 | $ | 2,218,596 | $ | 2,206,722 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Net interest income (FTE) (5)
|
$ | 19,499 | $ | 18,214 | $ | 16,306 | |||||||||||||||||||||||||||||||||||||||||||||||
|
Net yield on interest earning assets (FTE) (5)
|
3.71 | % | 3.54 | % | 3.15 | % | |||||||||||||||||||||||||||||||||||||||||||||||
(1) Includes loans HFS and nonaccrual loans.
(2) Average balances for AFS securities are based on amortized cost.
(3) Includes FTE adjustments of $126,000, $130,000, and $144,000, respectively.
(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.
| Nine Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2026 | September 30, 2025 | ||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Average Balance | Tax Equivalent Interest | Average Yield /Rate | Average Balance | Tax Equivalent Interest | Average Yield /Rate | |||||||||||||||||||||||||||||
| INTEREST EARNING ASSETS | |||||||||||||||||||||||||||||||||||
|
Loans (1)
|
$ | 1,524,924 | $ | 67,057 | 5.88 | % | $ | 1,389,936 | $ | 59,763 | 5.75 | % | |||||||||||||||||||||||
|
AFS securities (2)
|
|||||||||||||||||||||||||||||||||||
| Taxable | 413,508 | 8,330 | 2.69 | % | 449,310 | 7,094 | 2.11 | % | |||||||||||||||||||||||||||
|
Nontaxable (3)
|
64,207 | 1,815 | 3.78 | % | 72,739 | 2,081 | 3.83 | % | |||||||||||||||||||||||||||
| FHLB stock | 5,600 | 197 | 4.70 | % | 7,384 | 355 | 6.41 | % | |||||||||||||||||||||||||||
| Federal funds sold | 4 | - | 3.64 | % | 66 | 2 | 4.35 | % | |||||||||||||||||||||||||||
|
Other (4)
|
65,505 | 1,857 | 3.74 | % | 63,959 | 1,968 | 3.92 | % | |||||||||||||||||||||||||||
|
Total interest earning assets (3)
|
2,073,748 | 79,256 | 5.11 | % | 1,983,394 | 71,263 | 4.80 | % | |||||||||||||||||||||||||||
| NONEARNING ASSETS | |||||||||||||||||||||||||||||||||||
| Allowance for credit losses | (14,079) | (13,104) | |||||||||||||||||||||||||||||||||
| Cash and demand deposits due from banks | 23,509 | 23,844 | |||||||||||||||||||||||||||||||||
| Premises and equipment | 28,998 | 28,195 | |||||||||||||||||||||||||||||||||
| Other assets | 118,002 | 106,430 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 2,230,178 | $ | 2,128,759 | |||||||||||||||||||||||||||||||
| INTEREST BEARING LIABILITIES | |||||||||||||||||||||||||||||||||||
| Interest bearing demand deposits | $ | 262,479 | 698 | 0.36 | % | $ | 236,989 | 606 | 0.34 | % | |||||||||||||||||||||||||
| Money market deposits | 473,552 | 8,374 | 2.36 | % | 481,571 | 9,319 | 2.59 | % | |||||||||||||||||||||||||||
| Savings | 294,090 | 1,447 | 0.66 | % | 287,425 | 1,642 | 0.76 | % | |||||||||||||||||||||||||||
| Certificates of deposit | 392,657 | 10,206 | 3.48 | % | 394,395 | 11,299 | 3.83 | % | |||||||||||||||||||||||||||
| Short-term borrowings | 99,208 | 2,549 | 3.43 | % | 46,008 | 1,106 | 3.21 | % | |||||||||||||||||||||||||||
| FHLB advances | 5,897 | 176 | 3.93 | % | 4,945 | 170 | 4.53 | % | |||||||||||||||||||||||||||
|
Subordinated debt, net of unamortized issuance costs
|
29,545 | 1,073 | 4.84 | % | 29,455 | 799 | 3.61 | % | |||||||||||||||||||||||||||
| Total interest bearing liabilities | 1,557,428 | 24,523 | 2.10 | % | 1,480,788 | 24,941 | 2.25 | % | |||||||||||||||||||||||||||
| NONINTEREST BEARING LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||||||||||||||||||||||||||
| Demand deposits | 412,190 | 413,568 | |||||||||||||||||||||||||||||||||
| Other liabilities | 18,752 | 15,131 | |||||||||||||||||||||||||||||||||
| Shareholders' equity | 241,808 | 219,272 | |||||||||||||||||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 2,230,178 | $ | 2,128,759 | |||||||||||||||||||||||||||||||
|
Net interest income (FTE) (5)
|
$ | 54,733 | $ | 46,322 | |||||||||||||||||||||||||||||||
|
Net yield on interest earning assets (FTE) (5)
|
3.53 | % | 3.12 | % | |||||||||||||||||||||||||||||||
(1) Includes loans HFS and nonaccrual loans.
(2) Average balances for AFS securities are based on amortized cost.
(3) Includes FTE adjustments of $394,000 and $506,000, respectively.
(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.
Loans
The following table displays loan balances as of the dates indicated:
| (dollars in thousands) |
September 30, 2026 |
June 30, 2026 |
March 31, 2026 |
December 31, 2025 |
September 30, 2025 |
||||||||||||||||||||||||
| Commercial and industrial | $ | 212,538 | $ | 231,590 | $ | 225,369 | $ | 220,450 | $ | 218,132 | |||||||||||||||||||
| Commercial real estate | 669,632 | 673,271 | 660,643 | 639,758 | 626,642 | ||||||||||||||||||||||||
| Advances to mortgage brokers | 37,636 | 75,159 | 72,083 | 76,676 | 5,056 | ||||||||||||||||||||||||
| Agricultural | 99,493 | 97,462 | 96,969 | 102,109 | 97,794 | ||||||||||||||||||||||||
| Residential real estate | 457,613 | 449,992 | 438,333 | 427,880 | 412,056 | ||||||||||||||||||||||||
| Consumer | 58,896 | 62,198 | 65,544 | 69,491 | 72,225 | ||||||||||||||||||||||||
| Total | $ | 1,535,808 | $ | 1,589,672 | $ | 1,558,941 | $ | 1,536,364 | $ | 1,431,905 | |||||||||||||||||||
The following table presents the composition of our commercial real estate portfolio by industry as of the dates indicated:
| September 30, 2026 | December 31, 2025 | ||||||||||||||||||||||
| (dollars in thousands) | Balance | Percent of Total | Balance | Percent of Total | |||||||||||||||||||
| Investment and development | $ | 139,507 | 20.83 | % | $ | 134,013 | 20.95 | % | |||||||||||||||
| Hotels | 98,264 | 14.67 | % | 90,571 | 14.16 | % | |||||||||||||||||
| 1-4 family residential investment | 92,704 | 13.84 | % | 93,806 | 14.66 | % | |||||||||||||||||
| Residential multifamily | 84,647 | 12.64 | % | 71,695 | 11.21 | % | |||||||||||||||||
| Health care | 62,011 | 9.26 | % | 59,573 | 9.31 | % | |||||||||||||||||
| Storage facilities | 40,544 | 6.05 | % | 37,145 | 5.81 | % | |||||||||||||||||
| Retail trade | 32,412 | 4.84 | % | 34,479 | 5.39 | % | |||||||||||||||||
| Manufacturing | 18,301 | 2.73 | % | 18,281 | 2.86 | % | |||||||||||||||||
| Accommodation services | 17,022 | 2.54 | % | 15,604 | 2.44 | % | |||||||||||||||||
| Construction | 14,785 | 2.21 | % | 16,193 | 2.53 | % | |||||||||||||||||
| Wholesale trade | 11,231 | 1.68 | % | 11,123 | 1.74 | % | |||||||||||||||||
| Educational services | 10,132 | 1.51 | % | 10,582 | 1.65 | % | |||||||||||||||||
| Other | 48,072 | 7.20 | % | 46,693 | 7.29 | % | |||||||||||||||||
| Total commercial real estate | $ | 669,632 | 100.00 | % | $ | 639,758 | 100.00 | % | |||||||||||||||
Commercial real estate loans are subject to a varying degree of risk from changes in interest rates and economic conditions. To control these risks, we maintain strict underwriting standards, lending limits to a single borrower, loan to collateral value limits, and a defined market area. We also monitor and limit loan concentrations to specific industries. Our practices also include appropriate loan reviews, and monitoring of past due levels, concentrations, industry trends, and other qualitative factors.
Deposits
The following table displays deposit balances as of the dates indicated:
| (dollars in thousands) |
September 30, 2026 |
June 30, 2026 |
March 31, 2026 |
December 31, 2025 |
September 30, 2025 |
||||||||||||||||||||||||
| Noninterest bearing demand deposits | $ | 409,729 | $ | 414,018 | $ | 411,216 | $ | 426,342 | $ | 421,027 | |||||||||||||||||||
| Interest bearing demand deposits | 254,116 | 252,149 | 263,954 | 266,187 | 248,666 | ||||||||||||||||||||||||
| Money market deposits | 578,454 | 453,478 | 477,544 | 436,631 | 558,212 | ||||||||||||||||||||||||
| Savings | 291,508 | 300,867 | 300,732 | 280,429 | 292,899 | ||||||||||||||||||||||||
| Certificates of deposit | 358,801 | 389,401 | 406,399 | 410,065 | 404,798 | ||||||||||||||||||||||||
| Total | $ | 1,892,608 | $ | 1,809,913 | $ | 1,859,845 | $ | 1,819,654 | $ | 1,925,602 | |||||||||||||||||||
Asset Quality Analysis
The following table outlines our asset quality analysis as of the dates and for the periods indicated:
| Three Months Ended | |||||||||||||||||||||||||||||
| (dollars in thousands) |
September 30, 2026 |
June 30, 2026 |
March 31, 2026 |
December 31, 2025 |
September 30, 2025 |
||||||||||||||||||||||||
| NONPERFORMING ASSETS | |||||||||||||||||||||||||||||
| Commercial and industrial | $ | 609 | $ | 623 | $ | 508 | $ | 442 | $ | 16 | |||||||||||||||||||
| Commercial real estate | 3,638 | 3,728 | 3,743 | 3,766 | 3,000 | ||||||||||||||||||||||||
| Agricultural | 2,414 | 2,867 | - | - | - | ||||||||||||||||||||||||
| Residential real estate | 826 | 572 | 167 | 370 | 427 | ||||||||||||||||||||||||
| Consumer | - | - | - | - | - | ||||||||||||||||||||||||
| Total nonaccrual loans | 7,487 | 7,790 | 4,418 | 4,578 | 3,443 | ||||||||||||||||||||||||
| Accruing loans past due 90 days or more | 25 | - | - | - | 18 | ||||||||||||||||||||||||
| Total nonperforming loans | 7,512 | 7,790 | 4,418 | 4,578 | 3,461 | ||||||||||||||||||||||||
| Foreclosed assets | 647 | 620 | 573 | 938 | 1,018 | ||||||||||||||||||||||||
| Total nonperforming assets | $ | 8,159 | $ | 8,410 | $ | 4,991 | $ | 5,516 | $ | 4,479 | |||||||||||||||||||
| Nonperforming loans to total loans | 0.49 | % | 0.49 | % | 0.28 | % | 0.30 | % | 0.24 | % | |||||||||||||||||||
| Nonperforming assets to total assets | 0.36 | % | 0.38 | % | 0.22 | % | 0.25 | % | 0.20 | % | |||||||||||||||||||
| Nonaccrual loans to total loans | 0.49 | % | 0.49 | % | 0.28 | % | 0.30 | % | 0.24 | % | |||||||||||||||||||
| ACL as a % of nonaccrual loans | 192.31 | % | 185.87 | % | 317.20 | % | 299.85 | % | 381.91 | % | |||||||||||||||||||
| ALLOWANCE FOR CREDIT LOSSES | |||||||||||||||||||||||||||||
| Allowance at beginning of period | $ | 14,479 | $ | 14,014 | $ | 13,727 | $ | 13,149 | $ | 12,977 | |||||||||||||||||||
| Charge-offs | 363 | 563 | 350 | 155 | 175 | ||||||||||||||||||||||||
| Recoveries | 156 | 179 | 97 | 121 | 101 | ||||||||||||||||||||||||
| Net loan charge-offs (recoveries) | 207 | 384 | 253 | 34 | 74 | ||||||||||||||||||||||||
| Provision for (reversal of) credit losses - loans | 126 | 849 | 540 | 612 | 246 | ||||||||||||||||||||||||
| Allowance at end of period | $ | 14,398 | $ | 14,479 | $ | 14,014 | $ | 13,727 | $ | 13,149 | |||||||||||||||||||
| ACL to loans | 0.94 | % | 0.91 | % | 0.90 | % | 0.89 | % | 0.92 | % | |||||||||||||||||||
| Reserve for unfunded commitments | 527 | 604 | 557 | 493 | 671 | ||||||||||||||||||||||||
| Provision for (reversal of) credit losses - unfunded commitments | (76) | 46 | 64 | (178) | (37) | ||||||||||||||||||||||||
| Reserve to unfunded commitments | 0.14 | % | 0.17 | % | 0.15 | % | 0.14 | % | 0.16 | % | |||||||||||||||||||
| NET LOAN CHARGE-OFFS (RECOVERIES) | |||||||||||||||||||||||||||||
| Commercial and industrial | $ | 41 | $ | 34 | $ | (1) | $ | 8 | $ | (6) | |||||||||||||||||||
| Commercial real estate | (33) | 223 | 133 | (4) | (4) | ||||||||||||||||||||||||
| Agricultural | - | 97 | - | (4) | - | ||||||||||||||||||||||||
| Residential real estate | 79 | (61) | (14) | (53) | (16) | ||||||||||||||||||||||||
| Consumer | 120 | 91 | 135 | 87 | 100 | ||||||||||||||||||||||||
| Total | $ | 207 | $ | 384 | $ | 253 | $ | 34 | $ | 74 | |||||||||||||||||||
| Net charge-offs / (recoveries) to average loans | 0.01 | % | 0.02 | % | 0.02 | % | 0.00 | % | 0.01 | % | |||||||||||||||||||
| DELINQUENT AND NONACCRUAL LOANS | |||||||||||||||||||||||||||||
| Accruing loans 30-89 days past due | $ | 1,474 | $ | 875 | $ | 5,786 | $ | 6,689 | $ | 500 | |||||||||||||||||||
| Accruing loans past due 90 days or more | 25 | - | - | - | 18 | ||||||||||||||||||||||||
| Total accruing past due loans | 1,499 | 875 | 5,786 | 6,689 | 518 | ||||||||||||||||||||||||
| Nonaccrual loans | 7,487 | 7,790 | 4,418 | 4,578 | 3,443 | ||||||||||||||||||||||||
| Total past due and nonaccrual loans | $ | 8,986 | $ | 8,665 | $ | 10,204 | $ | 11,267 | $ | 3,961 | |||||||||||||||||||
Capital
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 338,399 shares, or $13.5 million of common stock, during the first nine months of 2026, as compared to 36,809 shares, or $1.0 million of common stock, during the same period in 2025.
The previously disclosed at-the-market offering continued during the quarter. During the three months ended September 30, 2026, the Corporation issued 19,314 shares for aggregate gross sale proceeds of $778,456, at an average gross sale price of $40.31 per share, which yielded net proceeds to the Corporation of $744,999, after issuance costs, including sales commissions equal to 3.0% of gross sale proceeds. During the nine months ended September 30, 2026, the Corporation issued 322,685 shares for aggregate gross sale proceeds of $13.0 million, at an average gross sale price of $40.19 per share, which yielded net proceeds to the Corporation of $12.5 million, after issuance costs, including sales commissions equal to 3.0% of gross sale proceeds. As of September 30, 2026, approximately $17.0 million remains available for issuance under the offering.
We also 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 $224,000 and $233,000 during the nine month periods ended September 30, 2026 and 2025, respectively. We also grant restricted stock awards pursuant to the RSP. Pursuant to this plan, we increased shareholders' equity by $43,000 during the first nine months of 2026, as compared to $45,000 during the same period in 2025.
We have publicly announced a common stock repurchase program. Pursuant to this repurchase program, we repurchased 16,600 shares or $762,000 of common stock during the first nine months of 2026 and 122,502 shares or $3.3 million of common stock during the first nine months of 2025. As of September 30, 2026, we were authorized to repurchase up to an additional 444,672 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 September 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 September 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.
The following table sets forth our consolidated capital ratios as of the dates indicated:
|
September 30, 2026 |
June 30, 2026 |
March 31, 2026 |
December 31, 2025 |
September 30, 2025 |
|||||||||||||||||||||||||
| Common equity tier 1 capital | 12.96 | % | 12.34 | % | 11.71 | % | 11.73 | % | 12.37 | % | |||||||||||||||||||
| Tier 1 capital | 12.96 | % | 12.34 | % | 11.71 | % | 11.73 | % | 12.37 | % | |||||||||||||||||||
| Total capital | 15.29 | % | 14.63 | % | 14.01 | % | 14.41 | % | 15.20 | % | |||||||||||||||||||
| Tier 1 leverage | 9.71 | % | 9.59 | % | 8.89 | % | 8.84 | % | 8.71 | % | |||||||||||||||||||
Liquidity
Liquidity is monitored regularly by our ALCO, which consists of members of senior management. The committee 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. Cash and cash equivalents totaled $138.5 million, or 6.18% of assets, as of September 30, 2026, compared to $26.0 million, or 1.18% of assets, as of December 31, 2025. The increase in cash and cash equivalents was as a result of proceeds from the maturity of AFS securities and deposit growth, offset by the paydown of borrowings and purchases of AFS securities. Cash, cash equivalents and unencumbered AFS securities totaled $324.6 million, or 14.49% of assets, as of September 30, 2026, compared to $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 September 30, 2026, we had available lines of credit of $411.9 million.
We monitor our daily liquidity position to meet our cash flow needs. We also forecast anticipated funding needs for changes in interest rates and economic conditions, the scheduled maturity and interest rate sensitivity of the investment and loan portfolios and deposits, and regulatory capital requirements. Our liquidity stress testing is designed with consideration of these and other factors that could pose undue risk to liquidity.
Our liquidity position remained strong as of September 30, 2026, which is illustrated in the following table:
(1) Includes estimated unencumbered lendable value of FHLB collateral of $120.0 million as of September 30, 2026.
| (dollars in thousands) |
September 30, 2026 |
June 30, 2026 |
March 31, 2026 |
December 31, 2025 |
September 30, 2025 |
||||||||||||||||||||||||
| Total cash and cash equivalents | $ | 138,540 | $ | 41,774 | $ | 50,105 | $ | 26,041 | $ | 161,301 | |||||||||||||||||||
| Brokered CD capacity | 130,000 | 130,000 | 130,000 | 130,000 | 130,000 | ||||||||||||||||||||||||
| Available lines of credit | |||||||||||||||||||||||||||||
| Federal funds lines with correspondent banks | 93,000 | 93,000 | 93,000 | 93,000 | 93,000 | ||||||||||||||||||||||||
| FHLB borrowings | 286,189 | 276,278 | 270,159 | 218,088 | 257,288 | ||||||||||||||||||||||||
| FRB Discount Window | 27,755 | 28,730 | 29,511 | 29,428 | 29,267 | ||||||||||||||||||||||||
| Other lines of credit | 5,000 | 5,000 | 5,000 | 5,000 | 5,000 | ||||||||||||||||||||||||
| Total available lines of credit | 411,944 | 403,008 | 397,670 | 345,516 | 384,555 | ||||||||||||||||||||||||
|
Unencumbered lendable value of FRB collateral, estimated (1)
|
170,000 | 180,000 | 240,000 | 280,000 | 300,000 | ||||||||||||||||||||||||
| Total cash and liquidity | $ | 850,484 | $ | 754,782 | $ | 817,775 | $ | 781,557 | $ | 975,856 | |||||||||||||||||||
| Uninsured deposits | $ | 702,791 | $ | 673,868 | $ | 727,884 | $ | 695,537 | $ | 726,514 | |||||||||||||||||||
| Coverage ratio of uninsured deposits with total cash and liquidity | 121 | % | 112 | % | 112 | % | 112 | % | 134 | % | |||||||||||||||||||
Fair Value
We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. AFS securities 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 HFS, collateral 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.
For further information regarding fair value measurements see "Note 8 - Fair Value" of our interim condensed consolidated financial statements included with this Form 10-Q.
Interest Rate Sensitivity and Market Risk
As 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'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.
The primary technique to measure IRR is simulation analysis. Simulation analysis forecasts the effects on the balance sheet structure and net interest income under a variety of scenarios that incorporate changes in interest rates, the shape of yield curves, interest rate relationships, loan prepayments, and funding sources. These forecasts are compared against net interest income projected in a stable interest rate environment. While many assets and liabilities reprice either at maturity or in accordance with their contractual terms, several balance sheet components demonstrate characteristics that require an evaluation to more accurately reflect their repricing behavior. Key assumptions in the simulation analysis include prepayments on loans, probable calls of investment securities, changes in market conditions, loan volumes and loan pricing, deposit sensitivity, and customer preferences. These assumptions are inherently uncertain as they are subject to fluctuation and revision in a dynamic rate environment. As a result, the simulation analysis cannot precisely forecast the impact of rising and falling interest rates on net interest income. Actual results will differ from simulated results due to many other factors, including changes in balance sheet components, interest rate changes, changes in market conditions, and management strategies. We regularly monitor our projected net interest income sensitivity to ensure that it remains within established limits.
Gap analysis, the secondary method to measure IRR, measures the cash flows and/or the earliest repricing of our interest-bearing assets and liabilities. This analysis is useful for measuring trends in the repricing characteristics of the balance sheet. Significant assumptions are required in this process because of the embedded repricing options contained in assets and liabilities. Residential real estate and consumer loans allow the borrower to repay the balance prior to maturity without penalty, while commercial and agricultural loans may have prepayment penalties. The amount of prepayments is dependent upon many factors, including the interest rate of a given loan in comparison to the current offering rates, the level of home sales, and the overall availability of credit in the marketplace. Generally, a decrease in interest rates will result in an increase in cash flows from these assets. Savings and demand accounts may generally be withdrawn on request without prior notice. The timing of cash flows from these deposits is estimated based on historical experience. Certificates of deposit have penalties that discourage early withdrawals.
Gap analysis is also utilized 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.
Contractual Obligations and Loan Commitments
We have various financial obligations, including contractual obligations and commitments related to deposits and borrowings, which may require future cash payments. We also have loan related commitments that may impact liquidity. The commitments include unused lines of credit, commercial and standby letters of credit, and commitments to grant loans. These commitments to grant loans include residential mortgage loans with the majority committed to be sold to the secondary market. Many of these commitments historically have expired without being drawn upon and do not necessarily represent our future cash requirements.
We are party to credit related financial instruments with off-balance-sheet risk. These financial instruments are entered into in the normal course of business to meet the financing needs of our customers. These financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The contractual or notional amounts of these instruments reflect the extent of involvement we have in a particular class of financial instrument.
Our exposure to credit-related loss in the event of nonperformance by the counterparties to the financial instruments for commitments to extend credit and standby letters of credit could be up to the contractual notional amount of those instruments. We use the same credit policies when analyzing the creditworthiness of counterparties as we do for extending loans to customers. No significant losses are anticipated as a result of these commitments.
Reconciliation of Non-GAAP Financial Measures
The following tables provide a detailed analysis, and reconciliation for, our non-GAAP financial measures as of the dates and for the periods indicated:
(1) Whole shares.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands, except per share amounts) |
September 30, 2026 |
June 30, 2026 |
March 31, 2026 |
December 31, 2025 |
September 30, 2025 |
September 30, 2026 |
September 30, 2025 |
|||||||||||||||||||||||||||||||||||||
| Loans | $ | 1,535,808 | $ | 1,589,672 | $ | 1,558,941 | $ | 1,536,364 | $ | 1,431,905 | $ | 1,535,808 | $ | 1,431,905 | ||||||||||||||||||||||||||||||
| Advances to mortgage brokers | 37,636 | 75,159 | 72,083 | 76,676 | 5,056 | 37,636 | 5,056 | |||||||||||||||||||||||||||||||||||||
| Adjusted loans | $ | 1,498,172 | $ | 1,514,513 | $ | 1,486,858 | $ | 1,459,688 | $ | 1,426,849 | $ | 1,498,172 | $ | 1,426,849 | ||||||||||||||||||||||||||||||
| Total shareholders' equity | $ | 245,585 | $ | 248,704 | $ | 233,961 | $ | 231,396 | $ | 227,420 | $ | 245,585 | $ | 227,420 | ||||||||||||||||||||||||||||||
| Goodwill and other intangible assets | 48,282 | 48,282 | 48,282 | 48,282 | 48,282 | 48,282 | 48,282 | |||||||||||||||||||||||||||||||||||||
| Tangible equity | (A) | 197,303 | 200,422 | 185,679 | 183,114 | 179,138 | 197,303 | 179,138 | ||||||||||||||||||||||||||||||||||||
|
Common shares outstanding (1)
|
(B) | 7,653,498 | 7,628,809 | 7,333,319 | 7,322,207 | 7,350,567 | 7,653,498 | 7,350,567 | ||||||||||||||||||||||||||||||||||||
| Tangible book value per share | (A/B) | $ | 25.78 | $ | 26.27 | $ | 25.32 | $ | 25.01 | $ | 24.37 | $ | 25.78 | $ | 24.37 | |||||||||||||||||||||||||||||
| Noninterest expenses | $ | 15,648 | $ | 15,386 | $ | 14,662 | $ | 13,921 | $ | 13,985 | $ | 45,696 | $ | 41,029 | ||||||||||||||||||||||||||||||
| Amortization of acquisition intangibles | - | - | - | - | - | - | 1 | |||||||||||||||||||||||||||||||||||||
| Adjusted noninterest expense | (C) | $ | 15,648 | $ | 15,386 | $ | 14,662 | $ | 13,921 | $ | 13,985 | $ | 45,696 | $ | 41,028 | |||||||||||||||||||||||||||||
| Net interest income | $ | 19,373 | $ | 18,084 | $ | 16,882 | $ | 16,728 | $ | 16,162 | $ | 54,339 | $ | 45,816 | ||||||||||||||||||||||||||||||
| Tax equivalent adjustment for net interest margin | 126 | 130 | 138 | 138 | 144 | 394 | 506 | |||||||||||||||||||||||||||||||||||||
| Net interest income (FTE) | 19,499 | 18,214 | 17,020 | 16,866 | 16,306 | 54,733 | 46,322 | |||||||||||||||||||||||||||||||||||||
| Noninterest income | 4,566 | 4,375 | 4,361 | 4,444 | 4,308 | 13,302 | 11,522 | |||||||||||||||||||||||||||||||||||||
| Tax equivalent adjustment for BOLI | 101 | 91 | 94 | 102 | 98 | 286 | 239 | |||||||||||||||||||||||||||||||||||||
| Adjusted revenue (FTE) | 24,166 | 22,680 | 21,475 | 21,412 | 20,712 | 68,321 | 58,083 | |||||||||||||||||||||||||||||||||||||
| Net gains (losses) on foreclosed assets | (3) | - | 70 | 3 | 31 | 67 | (21) | |||||||||||||||||||||||||||||||||||||
| Adjusted revenue | (D) | $ | 24,169 | $ | 22,680 | $ | 21,405 | $ | 21,409 | $ | 20,681 | $ | 68,254 | $ | 58,104 | |||||||||||||||||||||||||||||
| Efficiency ratio | (C/D) | 64.74 | % | 67.84 | % | 68.50 | % | 65.02 | % | 67.62 | % | 66.95 | % | 70.61 | % | |||||||||||||||||||||||||||||
Isabella Bank Corporation published this content on October 30, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on October 30, 2026 at 19:02 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]