Isabella Bank Corporation

05/06/2026 | Press release | Distributed by Public on 05/06/2026 12:50

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.
(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.
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.
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 lingering inflationary pressures, and the risk of the resurgence of elevated levels of inflation, 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;
•our ability to effectively execute our expansion strategy and manage our growth, including identifying and consummating suitable acquisitions;
•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 web site at ir.isabellabank.com. The Corporation makes available, free of charge, on its web site (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 site (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 site (under ir.isabellabank.com and, more specifically, under the News tab at ir.isabellabank.com/news). The Corporation intends to use its web site 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, 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 site 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.
Executive Summary
Financial Condition (March 31, 2026 to December 31, 2025 comparison)
Total assets increased $42,508 to $2,251,956 as of March 31, 2026. This increase was primarily due to an increase of $23,103 in interest bearing cash and a $22,577 increase in loans.
The AFS securities portfolio decreased $5,047 to $492,744 as of March 31, 2026. The decrease was a result of maturities and principal paydowns of $53,053, offset by $48,918 in purchases. Net unrealized losses on AFS securities were $10,622 as of March 31, 2026, compared to $9,898 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 to $1,558,941 as of March 31, 2026. Adjusted loans (non-GAAP), which exclude advances to mortgage brokers, increased $27,170, primarily by growth in the commercial real estate and residential real estate portfolios of $20,885 and $10,453, respectively. Most residential originations were adjustable rate products, which are put 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 to $14,014 as of March 31, 2026. The increase is due to loan growth and an increase in loss rates driven by loans charged off during the quarter. Nonaccrual loans were $4,418 as of March 31, 2026 compared to $4,578 at December 31, 2025. Past due and accruing accounts between 30 to 89 days as a percentage of total loans was 0.37% at March 31, 2026, compared to 0.44% at year-end 2025. We believe that our credit quality remains strong.
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, or $31.90 per share, at March 31, 2026 compared to $231,396, or $31.60 per share, as of December 31, 2025. Our tangible book value per share (non-GAAP) was $25.32 as of March 31, 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 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 March 31, 2026, we had $817,775 of unencumbered sources of liquidity and strong consolidated capital ratios; the Tier 1 Leverage Ratio was 8.89%, Tier 1 risk-based capital was 11.71%, and Total risk-based capital was 14.01%.
Comparison of Operating Results for the three months ended March 31, 2026, and 2025, unless otherwise noted
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 in first quarter 2026 and $14,525 in first quarter 2025, representing 3.33% and 3.06% of earning assets, or NIM on an FTE basis, respectively. The book yield from securities was 2.52% and 2.20% during the first quarters of 2026 and 2025, respectively. Our yield on loans expanded to 5.78% in first quarter 2026 from 5.71% in first quarter 2025. The increase in loan yields was primarily due to higher rates on new loans and variable rate commercial loans that continue to reprice. Our cost of interest-bearing liabilities in first quarter 2026 decreased to 2.14% from 2.26% in first quarter 2025 due to lower rates on money market and certificate of deposit products.
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 March 31, 2026 and 2025 was $4,361 and $3,528, respectively. Service charges and fees increased $398 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 compared to first quarter 2025 due to additional investments in a separate account BOLI in 2025. Other noninterest income in 2026 includes a $131 gain related to a death benefit from a BOLI policy.
Noninterest expenses for the three-month period ended March 31, 2026 increased $1,363 in comparison to the same period in 2025. Compensation and benefit expenses increased $545, reflecting annual merit increases, incentives, and higher medical
insurance claims compared to first quarter 2025. Other professional services increased $304 as a result of costs related to profitability initiatives and product implementation costs.
Income tax expense for the three months ended March 31, 2026 and 2025 was $985 and $912, respectively, while the ETR for the same periods was 16% and 19%, respectively. The ETR in the first three months of 2025 included a one-time tax expense totaling $166 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% for the first three months of 2025.
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
March 31
2026 		December 31
2025 		September 30
2025 		June 30
2025 		March 31
2025
PER SHARE
Basic earnings $ 0.68 $ 0.64 $ 0.71 $ 0.68 $ 0.53
Diluted earnings 0.68 0.64 0.71 0.68 0.53
Dividends 0.28 0.28 0.28 0.28 0.28
Book value (1)
31.90 31.60 30.94 29.95 29.10
Tangible book value (1) (2)
25.32 25.01 24.37 23.39 22.58
Market price (1)
45.67 50.00 35.25 30.15 23.59
PERFORMANCE RATIOS
Return on average total assets 0.91 % 0.85 % 0.94 % 0.96 % 0.77 %
Return on average shareholders' equity 8.58 % 8.04 % 9.28 % 9.19 % 7.48 %
Return on average tangible shareholders' equity (2)
10.79 % 10.16 % 11.83 % 11.78 % 9.65 %
Net interest margin yield (FTE) 3.33 % 3.28 % 3.15 % 3.14 % 3.06 %
Efficiency ratio (2)
68.50 % 65.02 % 67.62 % 72.14 % 72.39 %
Loan to deposit ratio (1)
83.82 % 84.43 % 74.36 % 75.57 % 76.07 %
Shareholders' equity to total assets (1)
10.39 % 10.47 % 10.06 % 10.23 % 10.25 %
Tangible shareholders' equity to tangible assets (1) (2)
8.43 % 8.47 % 8.10 % 8.17 % 8.14 %
FINANCIAL DATA
Total assets (1)
$ 2,251,956 $ 2,209,448 $ 2,259,654 $ 2,156,168 $ 2,102,587
AFS securities (1)
492,744 497,791 511,970 500,560 513,040
Loans (1)
1,558,941 1,536,364 1,431,905 1,397,513 1,367,724
ACL (1)
14,014 13,727 13,149 12,977 12,735
Deposits (1)
1,859,845 1,819,654 1,925,602 1,849,376 1,797,909
Borrowed funds (1)
143,067 142,514 91,514 72,677 76,757
Shareholders' equity (1)
233,961 231,396 227,420 220,500 215,556
Wealth assets under management (1)
701,510 707,118 679,724 678,959 656,617
Net income 4,992 4,690 5,240 5,031 3,949
Interest income 25,129 25,278 24,882 23,242 22,633
Interest expense 8,247 8,550 8,720 8,113 8,108
Net interest income 16,882 16,728 16,162 15,129 14,525
Provision for (reversal of) credit losses 604 434 209 (1,099) (107)
Noninterest income 4,361 4,444 4,308 3,686 3,528
Noninterest expenses 14,662 13,921 13,985 13,745 13,299
(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
March 31, 2026 December 31, 2025 March 31, 2025
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)
$ 1,501,654 $ 21,464 5.78 % $ 1,493,654 $ 21,669 5.74 % $ 1,370,765 $ 19,348 5.71 %
AFS securities (2) (3)
498,254 3,126 2.52 % 515,050 3,186 2.47 % 514,479 2,827 2.20 %
FHLB stock 5,600 75 5.36 % 5,600 63 4.54 % 11,011 160 5.82 %
Federal funds sold 7 - 3.54 % 9 - 3.86 % 4 - 4.32 %
Other (4)
64,190 602 3.75 % 28,344 498 6.88 % 47,374 482 4.06 %
Total interest earning assets (3)
2,069,705 25,267 4.94 % 2,042,657 25,416 4.94 % 1,943,633 22,817 4.75 %
NONEARNING ASSETS
Allowance for credit losses (13,680) (13,213) (12,884)
Cash and demand deposits due from banks 23,113 23,239 23,899
Premises and equipment 29,110 29,009 27,962
Other assets 116,639 117,201 102,927
Total assets $ 2,224,887 $ 2,198,893 $ 2,085,537
INTEREST BEARING LIABILITIES
Interest bearing demand deposits $ 266,101 294 0.45 % $ 249,809 211 0.34 % $ 240,860 242 0.41 %
Money market deposits 464,438 2,719 2.37 % 449,129 2,900 2.56 % 460,663 2,929 2.58 %
Savings 291,413 488 0.68 % 282,306 498 0.70 % 286,364 538 0.76 %
Certificates of deposit 407,483 3,611 3.59 % 408,861 3,771 3.66 % 387,820 3,754 3.93 %
Short-term borrowings 86,885 736 3.44 % 67,521 587 3.45 % 43,563 341 3.18 %
FHLB advances 13,444 133 3.96 % 30,163 317 4.12 % 3,333 38 4.53 %
Subordinated debt, net of unamortized issuance costs
29,522 266 3.61 % 29,500 266 3.61 % 29,433 266 3.62 %
Total interest bearing liabilities 1,559,286 8,247 2.14 % 1,517,289 8,550 2.24 % 1,452,036 8,108 2.26 %
NONINTEREST BEARING LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits 411,011 432,038 403,024
Other liabilities 18,653 18,182 16,265
Shareholders' equity 235,937 231,384 214,212
Total liabilities and shareholders' equity $ 2,224,887 $ 2,198,893 $ 2,085,537
Net interest income (FTE) (5)
$ 17,020 $ 16,866 $ 14,709
Net yield on interest earning assets (FTE) (5)
3.33 % 3.28 % 3.06 %
(1) Includes loans HFS and nonaccrual loans.
(2) Average balances for AFS securities are based on amortized cost.
(3) Includes FTE adjustments of $138, $138, and $184, 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:
March 31
2026 		December 31
2025 		September 30
2025 		June 30
2025 		March 31
2025
Commercial and industrial $ 225,369 $ 220,450 $ 218,132 $ 207,719 $ 205,172
Commercial real estate 660,643 639,758 626,642 614,383 596,282
Advances to mortgage brokers 72,083 76,676 5,056 3,005 3,015
Agricultural 96,969 102,109 97,794 96,842 94,359
Residential real estate 438,333 427,880 412,056 398,668 387,348
Consumer 65,544 69,491 72,225 76,896 81,548
Total $ 1,558,941 $ 1,536,364 $ 1,431,905 $ 1,397,513 $ 1,367,724
The following table presents the composition of our commercial real estate portfolio by industry as of the dates indicated:
March 31, 2026 December 31, 2025
Balance Percent of Total Balance Percent of Total
Investment and development $ 140,784 21.31 % $ 134,013 20.95 %
1-4 family residential investment 97,059 14.69 % 93,806 14.66 %
Hotels 92,326 13.98 % 90,571 14.16 %
Residential multifamily 76,549 11.59 % 71,695 11.21 %
Health care 59,582 9.02 % 59,573 9.31 %
Storage facilities 37,028 5.60 % 37,145 5.81 %
Retail trade 34,235 5.18 % 34,479 5.39 %
Manufacturing 18,083 2.74 % 18,281 2.86 %
Accommodation services 16,970 2.57 % 15,604 2.44 %
Construction 15,449 2.34 % 16,193 2.53 %
Educational services 10,433 1.58 % 10,582 1.65 %
Wholesale trade 11,173 1.69 % 11,123 1.74 %
Other 50,972 7.71 % 46,693 7.29 %
Total commercial real estate $ 660,643 100.00 % $ 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:
March 31
2026 		December 31
2025 		September 30
2025 		June 30
2025 		March 31
2025
Noninterest bearing demand deposits $ 411,216 $ 426,342 $ 421,027 $ 493,477 $ 404,194
Interest bearing demand deposits 263,954 266,187 248,666 223,376 243,939
Money market deposits 477,544 436,631 558,212 446,845 473,138
Savings 300,732 280,429 292,899 289,746 286,399
Certificates of deposit 406,399 410,065 404,798 395,932 390,239
Total $ 1,859,845 $ 1,819,654 $ 1,925,602 $ 1,849,376 $ 1,797,909
Asset Quality Analysis
The following table outlines our asset quality analysis as of the dates and for the periods indicated:
Three Months Ended
March 31
2026 		December 31
2025 		September 30
2025 		June 30
2025 		March 31
2025
NONPERFORMING ASSETS
Commercial and industrial $ 508 $ 442 $ 16 $ 17 $ -
Commercial real estate 3,743 3,766 3,000 533 -
Agricultural - - - - -
Residential real estate 167 370 427 614 173
Consumer - - - - -
Total nonaccrual loans 4,418 4,578 3,443 1,164 173
Accruing loans past due 90 days or more - - 18 31 26
Total nonperforming loans 4,418 4,578 3,461 1,195 199
Foreclosed assets 573 938 1,018 667 649
Debt securities - - - - -
Total nonperforming assets $ 4,991 $ 5,516 $ 4,479 $ 1,862 $ 848
Nonperforming loans to total loans 0.28 % 0.30 % 0.24 % 0.09 % 0.01 %
Nonperforming assets to total assets 0.22 % 0.25 % 0.20 % 0.09 % 0.04 %
Nonaccrual loans to total loans 0.28 % 0.30 % 0.24 % 0.08 % 0.01 %
ACL as a % of nonaccrual loans 317.20 % 299.85 % 381.91 % N/M N/M
ALLOWANCE FOR CREDIT LOSSES
Allowance at beginning of period $ 13,727 $ 13,149 $ 12,977 $ 12,735 $ 12,895
Charge-offs 350 155 175 390 172
Recoveries 97 121 101 1,822 224
Net loan charge-offs (recoveries) 253 34 74 (1,432) (52)
Provision for (reversal of) credit losses - loans 540 612 246 (1,190) (212)
Allowance at end of period $ 14,014 $ 13,727 $ 13,149 $ 12,977 $ 12,735
ACL to loans 0.90 % 0.89 % 0.92 % 0.93 % 0.93 %
Reserve for unfunded commitments 557 493 671 708 617
Provision for (reversal of) credit losses - unfunded commitments 64 (178) (37) 91 105
Reserve to unfunded commitments 0.15 % 0.14 % 0.16 % 0.16 % 0.14 %
NET LOAN CHARGE-OFFS (RECOVERIES)
Commercial and industrial $ (1) $ 8 $ (6) $ 68 $ (80)
Commercial real estate 133 (4) (4) (50) (2)
Agricultural - (4) - - -
Residential real estate (14) (53) (16) (16) (13)
Consumer 135 87 100 (1,434) 43
Total $ 253 $ 34 $ 74 $ (1,432) $ (52)
Net (recoveries) charge-offs to average loans 0.02 % 0.00 % 0.01 % (0.10 %) 0.00 %
DELINQUENT AND NONACCRUAL LOANS
Accruing loans 30-89 days past due $ 5,786 $ 6,689 $ 500 $ 1,076 $ 5,555
Accruing loans past due 90 days or more - - 18 31 26
Total accruing past due loans 5,786 6,689 518 1,107 5,581
Nonaccrual loans 4,418 4,578 3,443 1,164 173
Total past due and nonaccrual loans $ 10,204 $ 11,267 $ 3,961 $ 2,271 $ 5,754
Capital
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. 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 $156 and $167 during the three-month periods ended March 31, 2026 and 2025, respectively. We also grant restricted stock awards pursuant to the RSP. Pursuant to this plan, we increased shareholders' equity by $16 during the first three months of 2026, as compared to $7 during the same period in 2025.
We have publicly announced a common stock repurchase program. Pursuant to this repurchase program, we repurchased 8,062 shares or $402 of common stock during the first three months of 2026 and 45,582 shares or $1,145 of common stock during the first three months of 2025. As of March 31, 2026, we were authorized to repurchase up to an additional 453,210 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 March 31, 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 March 31, 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:
March 31
2026 		December 31
2025 		September 30
2025 		June 30
2025 		March 31
2025
Common equity tier 1 capital 11.71 % 11.73 % 12.37 % 12.46 % 12.58 %
Tier 1 capital 11.71 % 11.73 % 12.37 % 12.46 % 12.58 %
Total capital 14.01 % 14.41 % 15.20 % 15.34 % 15.50 %
Tier 1 leverage 8.89 % 8.84 % 8.71 % 9.04 % 8.96 %
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, cash equivalents and unencumbered AFS securities totaled $303,441, or 13.47% of assets, as of March 31, 2026, compared to $337,011, 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 March 31, 2026, we had available lines of credit of $397,670.
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 March 31, 2026, which is illustrated in the following table:
March 31
2026 		December 31
2025 		September 30
2025 		June 30
2025 		March 31
2025
Total cash and cash equivalents $ 50,105 $ 26,041 $ 161,301 $ 108,554 $ 69,179
Brokered CD capacity 130,000 130,000 130,000 120,000 120,000
Available lines of credit
Federal funds lines with correspondent banks 93,000 93,000 93,000 93,000 93,000
FHLB borrowings 270,159 218,088 257,288 249,890 250,884
FRB Discount Window 29,511 29,428 29,267 29,084 28,940
Other lines of credit 5,000 5,000 5,000 5,000 5,000
Total available lines of credit 397,670 345,516 384,555 376,974 377,824
Unencumbered lendable value of FRB collateral, estimated (1)
240,000 280,000 300,000 320,000 340,000
Total cash and liquidity $ 817,775 $ 781,557 $ 975,856 $ 925,528 $ 907,003
Uninsured deposits $ 727,884 $ 695,537 $ 726,514 $ 726,240 $ 687,341
Coverage ratio of uninsured deposits with total cash and liquidity 112 % 112 % 134 % 127 % 132 %
(1) Includes estimated unencumbered lendable value of FHLB collateral of $170,000 as of March 31, 2026.
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, 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, 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 7 - 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:
Three Months Ended
March 31
2026 		December 31
2025 		September 30
2025 		June 30
2025 		March 31
2025
Loans $ 1,558,941 $ 1,536,364 $ 1,431,905 $ 1,397,513 $ 1,367,724
Advances to mortgage brokers 72,083 76,676 5,056 3,005 3,015
Adjusted loans $ 1,486,858 $ 1,459,688 $ 1,426,849 $ 1,394,508 $ 1,364,709
Total shareholders' equity $ 233,961 $ 231,396 $ 227,420 $ 220,500 $ 215,556
Goodwill and other intangible assets 48,282 48,282 48,282 48,282 48,282
Tangible equity (A) 185,679 183,114 179,138 172,218 167,274
Common shares outstanding (1)
(B) 7,333,319 7,322,207 7,350,567 7,361,684 7,408,010
Tangible book value per share (A/B) $ 25.32 $ 25.01 $ 24.37 $ 23.39 $ 22.58
Noninterest expenses $ 14,662 $ 13,921 $ 13,985 $ 13,745 $ 13,299
Amortization of acquisition intangibles - - - - 1
Adjusted noninterest expense (C) $ 14,662 $ 13,921 $ 13,985 $ 13,745 $ 13,298
Net interest income $ 16,882 $ 16,728 $ 16,162 $ 15,129 $ 14,525
Tax equivalent adjustment for net interest margin 138 138 144 178 184
Net interest income (FTE) 17,020 16,866 16,306 15,307 14,709
Noninterest income 4,361 4,444 4,308 3,686 3,528
Tax equivalent adjustment for BOLI 94 102 98 63 78
Adjusted revenue (FTE) 21,475 21,412 20,712 19,056 18,315
Net gains (losses) on foreclosed assets 70 3 31 3 (55)
Adjusted revenue (D) $ 21,405 $ 21,409 $ 20,681 $ 19,053 $ 18,370
Efficiency ratio (C/D) 68.50 % 65.02 % 67.62 % 72.14 % 72.39 %
(1) Whole shares.
Isabella Bank Corporation published this content on May 06, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 06, 2026 at 18:50 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]