Isabella Bank Corp(ISBA) - 2024 Q4 - Annual Report

PART I Business Overview Isabella Bank Corporation is a Michigan-based financial services holding company providing community banking and wealth management services, subject to extensive regulatory oversight - Isabella Bank Corporation, incorporated in September 1988, operates 31 offices through its wholly-owned subsidiary, Isabella Bank, across eight Michigan counties[14] - The company offers personalized community banking and wealth management services, encompassing commercial, agricultural, real estate, and consumer loans, alongside diverse deposit and digital banking options[16][17][18] - As of December 31, 2024, the company employed 368 full-time equivalent employees[19] - The Corporation is regulated by the FRB, and Isabella Bank by DIFS and the FRB, with operations influenced by monetary policies and subject to capital and dividend restrictions[22][23][28][31][32] Risk Factors The company faces inherent credit, interest rate, liquidity, operational, reputational, strategic, and regulatory risks that could impact its financial stability and growth - Credit risks include potential deterioration in loan portfolio quality due to economic conditions, borrower health, and industry concentrations, which could lead to increased loan losses and an inadequate Allowance for Credit Losses (ACL)[37][38][40][41] - Interest rate and liquidity risks stem from interest rate fluctuations impacting net interest income, potential negative impacts on investment securities, inability to meet obligations, and restrictions on capital and dividend payments[43][45][46][47][48][49][51][53][54] - Operational and reputational risks encompass losses from internal process failures, employee misconduct, reliance on external vendors, increasing fraud, and potential goodwill impairment[55][59][60][61][62] - Strategic and external risks include adverse economic conditions, monetary policy changes, wealth management industry volatility, strong competition, rapid technological changes, soundness of other financial institutions, and challenges in growth/acquisitions[63][66][68][69][70][71][72][74][75] - Legal, regulatory, and compliance risks involve extensive government regulation, potential fines or penalties, legal proceedings, and the adverse effects of societal responses to climate change[76][79][80][81] - General risk factors include the impact of changes in accounting policies, potential ineffectiveness of internal controls, challenges in attracting and retaining key personnel, and limited liquidity of the common stock traded on the OTC market[83][85][86][87] Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - The company has no unresolved staff comments[88] Cybersecurity The company faces significant and evolving cybersecurity risks, managed through a multi-layered framework and governance to mitigate potential operational and financial impacts - The company is a target for cybersecurity attacks, with risks increasing due to mobile banking, internet services, new products, and third-party software, potentially leading to operational disruptions, data loss, and reputational damage[89][90][91][92] - Cybersecurity insurance is maintained, but damages and claims may exceed coverage[93] - The company utilizes a multi-layered Enterprise Risk Management Framework, including internal controls, reputable security partners, and proactive programs like Vendor Management, Incident Response, and Business Continuity, to manage cybersecurity risk[94][95][97] - Cybersecurity governance involves IT staff with specialized training and committees at both management and board levels (Information Technology Risk Management Committee, Board Risk Committee) to oversee and escalate risks[99][100][101][102][103] Properties The company's executive offices are in Mount Pleasant, Michigan, owning 29 branches and two operations centers, with all facilities deemed sufficient and in good condition - Executive offices are at 401 North Main Street, Mount Pleasant, Michigan[104] - The company owns 29 branches, two operations centers, and vacant land, and leases property in Saginaw and Bay City[104] - All facilities are considered to have sufficient capacity and are in good condition[104] Legal Proceedings The company is not involved in any material legal proceedings, and routine litigation is not expected to materially impact its financial condition or operations - The company is not involved in any material legal proceedings[105] - Routine litigation is not expected to result in any material adverse effect on consolidated operations, earnings, financial condition, or cash flows[105] Mine Safety Disclosures This item is not applicable to Isabella Bank Corporation - This item is not applicable[106] PART II Market for Common Equity, Stockholder Matters & Equity Security Purchases As of December 31, 2024, the company had 7,424,893 common shares outstanding traded on OTCQX, paid $1.12 cash dividend per share, and repurchased 152,577 shares in 2024 - As of December 31, 2024, 7,424,893 common shares outstanding were held by 2,590 shareholders, trading on the OTCQX market under "ISBA"[108][109] Common Stock Sale Price (OTC Markets) | Year | Quarter | Low ($) | High ($) | | :--- | :--- | :--- | :--- | | 2024 | First Quarter | 18.25 | 21.74 | | 2024 | Second Quarter | 17.75 | 19.85 | | 2024 | Third Quarter | 17.55 | 22.00 | | 2024 | Fourth Quarter | 20.10 | 26.23 | | 2023 | First Quarter | 22.08 | 25.10 | | 2023 | Second Quarter | 19.13 | 26.00 | | 2023 | Third Quarter | 19.61 | 23.00 | | 2023 | Fourth Quarter | 19.75 | 22.00 | Cash Dividends Paid Per Share | Year | Total ($) | | :--- | :--- | | 2024 | 1.12 | | 2023 | 1.12 | - The company repurchased 152,577 shares for $3,076 in 2024 and 149,020 shares for $3,415 in 2023, with 118,229 additional shares authorized for repurchase as of December 31, 2024[111][112][129][158] [Reserved]](index=17&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information - This item is reserved[113] Management's Discussion and Analysis In 2024, net income decreased to $13.9 million due to lower net interest income and higher expenses, while total assets grew to $2.09 billion with strong liquidity and capital ratios Net Income and EPS (GAAP & Non-GAAP) | Metric | 2024 ($) | 2023 ($) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net Income (GAAP) | 13,889 | 18,167 | -4,278 (-23.5%) | | Diluted EPS (GAAP) | 1.86 | 2.40 | -0.54 (-22.5%) | | Adjusted Net Income (Non-GAAP) | 15,016 | 17,989 | -2,973 (-16.5%) | | Adjusted Diluted EPS (Non-GAAP) | 2.01 | 2.37 | -0.36 (-15.2%) | Net Interest Income and Margin | Metric | 2024 | 2023 | Change (YoY) | | :--- | :--- | :--- | :--- | | Net Interest Income | $55,835 | $57,944 | -$2,109 (-3.6%) | | Net Interest Margin (FTE) | 2.90% | 3.05% | -0.15 pp | | Yield on Interest Earning Assets | 4.65% | 4.17% | +0.48 pp | | Cost of Interest Bearing Liabilities | 2.37% | 1.57% | +0.80 pp | - Provision for credit losses increased to $1,884 in 2024 (vs. $629 in 2023), including a $1,556 net charge-off related to an overdrawn deposit account, partially offset by loan recoveries[120] Noninterest Income and Expenses | Metric | 2024 ($) | 2023 ($) | Change (YoY) | | :--- | :--- | :--- | :--- | | Noninterest Income | 14,576 | 13,827 | +749 (+5.4%) | | Wealth Management Fees Growth | +13.6% | N/A | N/A | | Customer Service Fees Growth | +4.0% | N/A | N/A | | Noninterest Expenses | 52,129 | 49,310 | +2,819 (+5.7%) | | Compensation & Benefits Increase | +2,671 (+10.3%) | N/A | N/A | | Efficiency Ratio | 73.01% | 67.76% | +5.25 pp | Financial Condition Highlights (as of December 31) | Metric | 2024 ($) | 2023 ($) | Change (YoY) | | :--- | :--- | :--- | :--- | | Total Assets | 2,086,241 | 2,058,968 | +27,273 (+1.3%) | | AFS Securities | 489,029 | 528,148 | -39,119 (-7.4%) | | Net Unrealized Losses on AFS Securities | 26,487 | 31,826 | -5,339 (-16.8%) | | Loans Outstanding (Gross) | 1,423,571 | 1,349,463 | +74,108 (+5.5%) | | ACL | 12,895 | 13,108 | -213 (-1.6%) | | Total Deposits | 1,747,060 | 1,723,695 | +23,365 (+1.4%) | | Total Equity | 210,276 | 202,402 | +7,874 (+3.9%) | | Tangible Book Value Per Share | 21.82 | 20.59 | +1.23 (+6.0%) | - The company maintained robust liquidity with $776,672 of unencumbered sources and strong capital ratios (Tier 1 Leverage: 8.86%, Tier 1 Risk-Based: 12.21%, Total Risk-Based: 15.06%) as of December 31, 2024[130][159][164] Executive Summary Net Income and EPS (GAAP & Non-GAAP) | Metric | 2024 ($) | 2023 ($) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net Income (GAAP) | 13,889 | 18,167 | -4,278 (-23.5%) | | Diluted EPS (GAAP) | 1.86 | 2.40 | -0.54 (-22.5%) | | Adjusted Net Income (Non-GAAP) | 15,016 | 17,989 | -2,973 (-16.5%) | | Adjusted Diluted EPS (Non-GAAP) | 2.01 | 2.37 | -0.36 (-15.2%) | Net Interest Income and Margin | Metric | 2024 | 2023 | Change (YoY) | | :--- | :--- | :--- | :--- | | Net Interest Income | $55,835 | $57,944 | -$2,109 (-3.6%) | | Net Interest Margin (FTE) | 2.90% | 3.05% | -0.15 pp | | Yield on Loans | 5.58% | 5.02% | +0.56 pp | | Cost of Interest Bearing Liabilities | 2.37% | 1.57% | +0.80 pp | - Provision for credit losses increased to $1,884 in 2024 (vs. $629 in 2023), including a $1,556 net charge-off for an overdrawn deposit account[120] Noninterest Income and Expenses | Metric | 2024 ($) | 2023 ($) | Change (YoY) | | :--- | :--- | :--- | :--- | | Noninterest Income | 14,576 | 13,827 | +749 (+5.4%) | | Wealth Management Fees Growth | +13.6% | N/A | N/A | | Customer Service Fees Growth | +4.0% | N/A | N/A | | Noninterest Expenses | 52,129 | 49,310 | +2,819 (+5.7%) | | Compensation & Benefits Increase | +2,671 (+10.3%) | N/A | N/A | | Efficiency Ratio | 73.01% | 67.76% | +5.25 pp | Financial Condition Highlights (as of December 31) | Metric | 2024 ($) | 2023 ($) | Change (YoY) | | :--- | :--- | :--- | :--- | | Total Assets | 2,086,241 | 2,058,968 | +27,273 (+1.3%) | | AFS Securities | 489,029 | 528,148 | -39,119 (-7.4%) | | Net Unrealized Losses on AFS Securities | 26,487 | 31,826 | -5,339 (-16.8%) | | Loans Outstanding (Gross) | 1,423,571 | 1,349,463 | +74,108 (+5.5%) | | ACL | 12,895 | 13,108 | -213 (-1.6%) | | Total Deposits | 1,747,060 | 1,723,695 | +23,365 (+1.4%) | | Total Equity | 210,276 | 202,402 | +7,874 (+3.9%) | | Tangible Book Value Per Share | 21.82 | 20.59 | +1.23 (+6.0%) | - As of December 31, 2024, the company maintained robust liquidity with $776,672 of unencumbered sources and strong capital ratios (Tier 1 Leverage: 8.86%, Tier 1 Risk-Based: 12.21%, Total Risk-Based: 15.06%)[130] Critical Accounting Policies - The Allowance for Credit Losses (ACL) requires subjective judgment, with a hypothetical stress scenario indicating a potential $4,500 higher ACL than recorded as of December 31, 2024[136][137] - Acquisition intangibles and goodwill are evaluated annually for impairment using discounted cash flows and market-based approaches; no impairment was identified in 2024[139] - Available-for-sale (AFS) securities are carried at fair value and reviewed quarterly for credit impairment, with unrealized gains and losses reported in other comprehensive income[140] Average Balances, Interest Rates, and Net Interest Income Average Balances, Interest Income/Expense, and Yields (FTE) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Interest Earning Assets | | | | | Loans (Avg Balance) | $1,385,287 | $1,308,891 | $1,249,634 | | Loans (Interest) | $77,295 | $65,670 | $53,283 | | Loans (Yield) | 5.58% | 5.02% | 4.26% | | AFS Securities (Avg Balance) | $540,433 | $582,563 | $584,317 | | AFS Securities (Interest) | $12,023 | $13,179 | $12,227 | | AFS Securities (Yield) | 2.22% | 2.26% | 2.09% | | Total Interest Earning Assets (Avg Balance) | $1,955,919 | $1,933,431 | $1,933,262 | | Total Interest Earning Assets (Interest) | $90,908 | $80,654 | $66,854 | | Total Interest Earning Assets (Yield) | 4.65% | 4.17% | 3.46% | | Interest Bearing Liabilities | | | | | Total Interest Bearing Liabilities (Avg Balance) | $1,441,595 | $1,377,648 | $1,362,530 | | Total Interest Bearing Liabilities (Interest) | $34,143 | $21,687 | $5,317 | | Total Interest Bearing Liabilities (Rate) | 2.37% | 1.57% | 0.39% | | Net Interest Income (FTE) | $56,765 | $58,967 | $61,537 | | Net Yield on Interest Earning Assets (FTE) | 2.90% | 3.05% | 3.18% | Volume and Rate Variance Analysis (2024 Compared to 2023) | Change in Interest Income | Volume ($) | Rate ($) | Net ($) | | :--- | :--- | :--- | :--- | | Loans | 3,980 | 7,645 | 11,625 | | AFS securities | (940) | (216) | (1,156) | | Total changes in interest income | 2,410 | 7,844 | 10,254 | | Change in Interest Expense | | | | | Interest bearing demand deposits | 4 | 308 | 312 | | Savings | (194) | 5,267 | 5,073 | | Certificates of deposit | 2,078 | 3,875 | 5,953 | | Total changes in interest expense | 2,586 | 9,870 | 12,456 | | Net change in interest margin (FTE) | (176) | (2,026) | (2,202) | Loans Loan Balances by Category (as of December 31) | Loan Category | 2024 ($) | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | :--- | | Commercial and industrial | 244,894 | 209,738 | 178,428 | | Commercial real estate | 547,447 | 564,244 | 566,012 | | Advances to mortgage brokers | 63,080 | 18,541 | — | | Agricultural | 99,694 | 99,994 | 104,985 | | Residential real estate | 380,872 | 356,418 | 336,694 | | Consumer | 87,584 | 100,528 | 78,054 | | Total | 1,423,571 | 1,349,463 | 1,264,173 | Change in Loan Portfolio Categories (YoY) | Loan Category | 2024 ($ Change) | 2024 (% Change) | 2023 ($ Change) | 2023 (% Change) | | :--- | :--- | :--- | :--- | :--- | | Commercial and industrial | 35,156 | 16.76% | 31,310 | 17.55% | | Commercial real estate | (16,797) | (2.98)% | (1,768) | (0.31)% | | Advances to mortgage brokers | 44,539 | N/M | 18,541 | 100.00% | | Agricultural | (300) | (0.30)% | (4,991) | (4.75)% | | Residential real estate | 24,454 | 6.86% | 19,724 | 5.86% | | Consumer | (12,944) | (12.88)% | 22,474 | 28.79% | | Total | 74,108 | 5.49% | 85,290 | 6.75% | Commercial Real Estate Portfolio by Industry (as of December 31, 2024) | Industry | Balance ($) | Percent of Total | | :--- | :--- | :--- | | Non-owner occupied | 122,280 | 22.34% | | 1-4 family investor | 92,497 | 16.90% | | Multifamily | 68,456 | 12.50% | | Hotels | 83,318 | 15.22% | | Health care | 36,493 | 6.67% | | Retail trade | 33,508 | 6.12% | | Manufacturing | 12,238 | 2.24% | | Construction | 8,422 | 1.54% | ACL Allocation to Gross Loans (as of December 31) | Loan Segment | 2024 ACL Allocation ($) | 2024 % of Gross Loans | 2023 ACL Allocation ($) | 2023 % of Gross Loans | | :--- | :--- | :--- | :--- | :--- | | Commercial and industrial | 1,316 | 17.20 | 968 | 15.54 | | Commercial real estate | 5,171 | 38.46 | 5,878 | 41.82 | | Advances to mortgage brokers | — | 4.43 | — | 1.37 | | Agricultural | 287 | 7.01 | 270 | 7.41 | | Residential real estate | 4,521 | 26.75 | 4,336 | 26.41 | | Consumer | 1,600 | 6.15 | 1,656 | 7.45 | | Total | 12,895 | 100.00 | 13,108 | 100.00 | AFS Securities Maturity of AFS Securities and Weighted Average Yields (as of December 31, 2024, FTE basis) | Maturity | Amount ($) | Yield (%) | | :--- | :--- | :--- | | Within One Year | 43,882 | 0.76 | | After One Year But Within Five Years | 211,893 | 0.24 | | After Five Years But Within Ten Years | 24,305 | 3.25 | | After Ten Years | 24,345 | 3.65 | | Securities with Variable Monthly Payments or Noncontractual Maturities | 184,604 | 2.92 | | Total | 489,029 | N/A | Deposits Deposit Balances by Type (as of December 31) | Deposit Type | 2024 ($) | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | :--- | | Noninterest bearing demand deposits | 416,373 | 428,505 | 494,346 | | Interest bearing demand deposits | 341,366 | 320,737 | 372,155 | | Savings | 601,730 | 628,079 | 625,734 | | Certificates of deposit | 387,591 | 346,374 | 252,040 | | Total | 1,747,060 | 1,723,695 | 1,744,275 | Change in Deposit Balances (YoY) | Deposit Type | 2024 ($ Change) | 2024 (% Change) | 2023 ($ Change) | 2023 (% Change) | | :--- | :--- | :--- | :--- | :--- | | Noninterest bearing demand deposits | (12,132) | (2.83)% | (65,841) | (13.32)% | | Interest bearing demand deposits | 20,629 | 6.43% | (51,418) | (13.82)% | | Savings | (26,349) | (4.20)% | 2,345 | 0.37% | | Certificates of deposit | 41,217 | 11.90% | 94,334 | 37.43% | | Total | 23,365 | 1.36% | (20,580) | (1.18)% | Estimated Uninsured Deposits (as of December 31) | Year | Amount ($) | | :--- | :--- | | 2024 | 645,764 | | 2023 | 600,381 | | 2022 | 585,901 | Remaining Maturity of Estimated Uninsured Certificates of Deposit (as of December 31, 2024) | Maturity | Amount ($) | | :--- | :--- | | Within 3 months | 25,046 | | Within 3 to 6 months | 9,536 | | Within 6 to 12 months | 26,186 | | Over 12 months | 4,425 | | Total | 65,193 | Asset Quality Analysis Nonperforming Assets (as of December 31) | Metric | 2024 ($) | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | :--- | | Total nonaccrual loans | 282 | 982 | 457 | | Accruing loans past due 90 days or more | 19 | 87 | — | | Total nonperforming loans | 301 | 1,069 | 457 | | Foreclosed assets | 544 | 406 | 439 | | Debt securities | — | 12 | 77 | | Total nonperforming assets | 845 | 1,487 | 973 | | Nonperforming loans to gross loans | 0.02% | 0.08% | 0.04% | | Nonperforming assets to total assets | 0.04% | 0.07% | 0.05% | Allowance for Credit Losses (ACL) (as of December 31) | Metric | 2024 ($) | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | :--- | | Allowance at beginning of period | 13,108 | 9,850 | 9,103 | | Net loan charge-offs (recoveries) | 1,900 | 115 | (264) | | Provision for credit losses - loans | 1,687 | 629 | 483 | | Allowance at end of period | 12,895 | 13,108 | 9,850 | | ACL to gross loans | 0.91% | 0.97% | 0.78% | Net Loan Charge-offs (Recoveries) (as of December 31) | Loan Category | 2024 ($) | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | :--- | | Commercial and industrial | 339 | 197 | (336) | | Commercial real estate | (355) | (26) | (29) | | Agricultural | (6) | (8) | (9) | | Residential real estate | (118) | (327) | (150) | | Consumer | 2,040 | 279 | 260 | | Total | 1,900 | 115 | (264) | | Net (recoveries) charge-offs to average loans | 0.14% | 0.01% | (0.02)% | Delinquent and Nonaccrual Loans (as of December 31) | Metric | 2024 ($) | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | :--- | | Accruing loans 30-89 days past due | 5,682 | 3,895 | 10,673 | | Accruing loans past due 90 days or more | 19 | 87 | — | | Total accruing past due loans | 5,701 | 3,982 | 10,673 | | Nonaccrual loans | 282 | 982 | 457 | | Total past due and nonaccrual loans | 5,983 | 4,964 | 11,130 | Capital Capital Ratios (as of December 31) | Ratio | 2024 Actual | 2024 Minimum Required | 2024 Well Capitalized | 2023 Actual | 2023 Minimum Required | 2023 Well Capitalized | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Common equity tier 1 capital | 12.21% | 7.00% | 6.50% | 12.54% | 7.00% | 6.50% | | Tier 1 capital | 12.21% | 8.50% | 8.00% | 12.54% | 8.50% | 8.00% | | Total capital | 15.06% | 10.50% | 10.00% | 15.52% | 10.50% | 10.00% | | Tier 1 leverage | 8.86% | 4.00% | 5.00% | 8.76% | 4.00% | 5.00% | - The company issued 75,341 shares ($1,523) in 2024 and repurchased 152,577 shares ($3,076) in 2024, with 118,229 additional shares authorized for repurchase as of December 31, 2024[157][158] Liquidity Primary Sources of Liquidity (as of December 31) | Metric | 2024 ($) | 2023 ($) | Change (YoY) | | :--- | :--- | :--- | :--- | | Retail deposits, cash & cash equivalents, unencumbered AFS securities | 330,876 | 381,417 | -50,541 (-13.2%) | | As % of assets | 15.86% | 18.52% | -2.66 pp | Total Cash and Liquidity (as of December 31) | Metric | 2024 ($) | 2023 ($) | | :--- | :--- | :--- | | Total cash and cash equivalents | 24,542 | 33,672 | | Brokered CD capacity | 120,000 | 120,000 | | Total available lines of credit | 342,130 | 338,080 | | Unencumbered lendable value of FRB collateral (estimated) | 290,000 | 320,000 | | Total cash and liquidity | 776,672 | 811,752 | Uninsured Deposits & Coverage Ratio (as of December 31) | Metric | 2024 | 2023 | | :--- | :--- | | Uninsured deposits | $645,764 | $600,381 | | Coverage ratio of uninsured deposits with total cash and liquidity | 120% | 135% | Fair Value - Fair value measurements are used for recurring adjustments (AFS securities, cash flow hedge derivatives) and nonrecurring adjustments (mortgage loans HFS, impaired loans, goodwill, foreclosed assets, OMSR)[165] - The company maximizes observable inputs (Level 1, 2) and minimizes unobservable inputs (Level 3) in fair value measurements, grouping assets and liabilities based on input reliability[219][222] Market Risk - Primary market risks are interest rate risk (IRR) and liquidity risk, managed through simulation analysis and gap analysis to forecast effects on net interest income and balance sheet structure[167][169][171] Interest Rate Sensitivity (Percent change in net interest income vs. constant rate) | Immediate Basis Point Change (Short-term) | 12 Months (2024) | 24 Months (2024) | 12 Months (2023) | 24 Months (2023) | | :--- | :--- | :--- | :--- | :--- | | -200 | (3.44)% | (4.67)% | 0.94% | 1.41% | | -100 | (1.55)% | (2.18)% | 0.49% | 0.97% | | 100 | 1.45% | 1.22% | (0.54)% | (0.61)% | | 200 | 2.83% | 2.00% | (1.07)% | (1.37)% | Loan Maturity and Interest Rate Sensitivity (as of December 31, 2024) | Loan Type | 1 Year or Less ($) | 1 to 5 Years ($) | 5 to 15 Years ($) | Over 15 Years ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Loans | 149,828 | 246,527 | 383,128 | 644,088 | 1,423,571 | | Fixed interest rates | 95,900 | 186,852 | 168,815 | 27,046 | 478,613 | | Variable interest rates | 53,928 | 59,675 | 214,313 | 617,042 | 944,958 | Contractual Obligations and Loan Commitments - The company has various financial obligations and loan-related commitments, including unused lines of credit, commercial and standby letters of credit, and commitments to grant loans, many of which may expire without being drawn upon[177] Reconciliation of Non-GAAP Financial Measures Adjusted Net Income Reconciliation | Metric | 2024 ($) | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | :--- | | Net income | 13,889 | 18,167 | 22,238 | | Nonrecurring items (net) | (1,127) | 178 | 10 | | Adjusted net income | 15,016 | 17,989 | 22,228 | Efficiency Ratio Reconciliation | Metric | 2024 ($) | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | :--- | | Noninterest expenses | 52,129 | 49,310 | 46,820 | | Amortization of acquisition intangibles | 1 | 3 | 15 | | Adjusted noninterest expense (B) | 52,128 | 49,307 | 46,805 | | Net interest income (FTE) (C) | 56,765 | 58,967 | 61,537 | | Noninterest income | 14,576 | 13,827 | 13,666 | | Tax equivalent adjustment for efficiency ratio | 211 | 193 | 186 | | Nonrecurring items (net) | 153 | 225 | 13 | | Adjusted revenue (D) | 71,399 | 72,762 | 75,376 | | Efficiency ratio (B/D) | 73.01% | 67.76% | 62.10% | Adjusted Performance Ratios | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Adjusted diluted earnings per share | $2.01 | $2.37 | $2.91 | | Adjusted return on average assets | 0.72% | 0.88% | 1.08% | | Adjusted return on average shareholders' equity | 7.28% | 9.43% | 11.40% | | Adjusted return on average tangible shareholders' equity | 9.50% | 12.63% | 15.16% | Quantitative and Qualitative Disclosures About Market Risk This section incorporates by reference the market risk disclosures from Item 7, detailing the company's interest rate and liquidity risk management strategies - The information presented in the "Market Risk" section of Item 7 is incorporated by reference[180] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2022-2024, including balance sheets, income statements, cash flows, and detailed notes, along with the independent auditor's report - This section includes the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Income, Comprehensive Income (Loss), Changes in Shareholders' Equity, Cash Flows, and detailed Notes to Consolidated Financial Statements[181] Report of Independent Registered Public Accounting Firm - Rehmann Robson LLC audited the consolidated financial statements for the three-year period ended December 31, 2024, and the internal control over financial reporting as of December 31, 2024[184] - Issued an unqualified opinion that the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows in conformity with GAAP[185] - Issued an unqualified opinion that Isabella Bank Corporation maintained effective internal control over financial reporting as of December 31, 2024, based on COSO criteria[185] - Identified "Allowance for Credit Losses" as a critical audit matter due to high subjectivity in qualitative adjustments and complexity of models (PD, PA, LGD, EAD)[192][193] Consolidated Balance Sheets Consolidated Balance Sheets (as of December 31) | Asset/Liability/Equity | 2024 ($) | 2023 ($) | | :--- | :--- | :--- | | ASSETS | | | | Total cash and cash equivalents | 24,542 | 33,672 | | AFS securities, at fair value | 489,029 | 528,148 | | Loans, net | 1,410,676 | 1,336,355 | | Goodwill and other intangible assets | 48,283 | 48,284 | | Total assets | 2,086,241 | 2,058,968 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Total deposits | 1,747,060 | 1,723,695 | | Total borrowed funds | 112,991 | 116,136 | | Total liabilities | 1,875,965 | 1,856,566 | | Total shareholders' equity | 210,276 | 202,402 | | Total liabilities and shareholders' equity | 2,086,241 | 2,058,968 | Consolidated Statements of Income Consolidated Statements of Income Highlights (for the year ended December 31) | Metric | 2024 ($) | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | :--- | | Total interest income | 89,978 | 79,631 | 65,798 | | Total interest expense | 34,143 | 21,687 | 5,317 | | Net interest income | 55,835 | 57,944 | 60,481 | | Provision for credit losses | 1,884 | 629 | 483 | | Total noninterest income | 14,576 | 13,827 | 13,666 | | Total noninterest expenses | 52,129 | 49,310 | 46,820 | | Income before income tax expense | 16,398 | 21,832 | 26,844 | | Income tax expense | 2,509 | 3,665 | 4,606 | | Net income | 13,889 | 18,167 | 22,238 | | Basic earnings per common share | $1.86 | $2.42 | $2.95 | | Diluted earnings per common share | $1.86 | $2.40 | $2.91 | | Cash dividends per common share | $1.12 | $1.12 | $1.09 | Consolidated Statements of Comprehensive Income Comprehensive Income (Loss) (for the year ended December 31) | Metric | 2024 ($) | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | :--- | | Net income | 13,889 | 18,167 | 22,238 | | Unrealized gains (losses) on AFS securities, net of tax | 4,241 | 10,629 | (39,701) | | Change in unrealized pension cost, net of tax | 300 | 669 | 648 | | Comprehensive income (loss) | 18,430 | 29,465 | (16,815) | Consolidated Statements of Changes in Shareholders' Equity Shareholders' Equity Changes (for the year ended December 31) | Metric | 2024 ($) | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | :--- | | Balance, beginning of period | 202,402 | 186,210 | 211,048 | | Comprehensive income (loss) | 18,430 | 29,465 | (16,815) | | Issuance of common stock | 1,523 | 1,617 | 1,762 | | Common stock repurchased | (3,076) | (3,415) | (1,124) | | Cash dividends paid | (8,147) | (8,216) | (8,082) | | Balance, end of period | 210,276 | 202,402 | 186,210 | Consolidated Statements of Cash Flows Cash Flow Summary (for the year ended December 31) | Activity | 2024 ($) | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | 19,637 | 24,182 | 26,886 | | Net cash provided by (used in) investing activities | (37,866) | (26,246) | (106,204) | | Net cash provided by (used in) financing activities | 9,099 | (3,188) | 12,912 | | Increase (decrease) in cash and cash equivalents | (9,130) | (5,252) | (66,406) | | Cash and cash equivalents at end of period | 24,542 | 33,672 | 38,924 | Notes to Consolidated Financial Statements - The consolidated financial statements include Isabella Bank Corporation and its wholly-owned subsidiary, Isabella Bank, with operating segments aggregated into one reportable segment[209][211] - Material estimates include the Allowance for Credit Losses (ACL), fair value of AFS investment securities, and valuation of goodwill and other intangible assets[216] - Fair value measurements prioritize observable inputs (Level 1, 2) and minimize unobservable inputs (Level 3) in valuation techniques[218][219][222] - AFS securities are recorded at fair value with unrealized gains/losses in OCI and are reviewed quarterly for credit impairment; no allowance for credit losses was recognized on AFS securities in an unrealized loss position as of December 31, 2024[225][226][271] - Loans held for investment are reported at amortized cost, with interest accrual discontinued for nonperforming loans (90+ days past due or doubtful)[230][231] - The ACL is established through a provision for credit losses, considering historical experience, portfolio nature, borrower ability, collateral value, and economic conditions; it consists of individually and collectively evaluated components[232][233][309][313] - Loan modifications are granted to borrowers experiencing financial difficulty, but principal or accrued interest is not forgiven; no modified loans defaulted in 2024 or 2023 within 12 months of modification[236][301][302][305] - Goodwill is not amortized but evaluated annually for impairment; core deposit intangibles are amortized[252] - Revenue recognition follows ASC 606 for service charges, fees, and gains on loan/security sales, excluding interest income[255][356] - Deferred income tax assets and liabilities are determined using the liability method[257] - Recently adopted ASU No. 2023-07 (Segment Reporting) had no material impact; pending ASU No. 2023-09 (Income Tax Disclosures) and ASU No. 2024-03 (Expense Disaggregation) are not expected to have a significant impact[263][264][265][266] AFS Securities (as of December 31) | Security Type | 2024 Amortized Cost ($) | 2024 Fair Value ($) | 2024 Gross Unrealized Losses ($) | 2023 Amortized Cost ($) | 2023 Fair Value ($) | 2023 Gross Unrealized Losses ($) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | U.S. Treasury | 230,807 | 220,571 | 10,236 | 231,218 | 214,801 | 16,417 | | States and political subdivisions | 81,135 | 76,568 | 4,576 | 94,837 | 92,876 | 2,993 | | Mortgage-backed securities | 29,068 | 26,886 | 2,182 | 35,321 | 32,815 | 2,506 | | Collateralized mortgage obligations | 163,156 | 154,674 | 8,482 | 187,248 | 177,775 | 9,473 | | Corporate | 8,150 | 7,286 | 864 | 8,150 | 6,950 | 1,200 | | Total | 515,516 | 489,029 | 26,496 | 559,974 | 528,148 | 32,858 | Loan Composition (as of December 31, 2024) | Loan Type | Balance ($) | Percent of Total | | :--- | :--- | :--- | | Commercial and industrial | 244,894 | 17.20% | | Commercial real estate | 547,447 | 38.46% | | Advances to mortgage brokers | 63,080 | 4.43% | | Agricultural | 99,694 | 7.01% | | Residential real estate | 380,872 | 26.75% | | Consumer | 87,584 | 6.15% | | Total | 1,423,571 | 100.00% | Nonaccrual Loans (as of December 31) | Loan Class | 2024 Total Nonaccrual ($) | 2023 Total Nonaccrual ($) | | :--- | :--- | :--- | | Commercial and industrial (Secured) | — | 491 | | Agricultural | — | 205 | | Residential real estate (Senior lien) | 282 | 286 | | Total | 282 | 982 | Past Due and Current Loans (as of December 31, 2024) | Loan Class | 30-59 Days Past Due ($) | 60-89 Days Past Due ($) | 90 Days or More Past Due ($) | Current ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Commercial and industrial | 328 | 50 | — | 244,516 | 244,894 | | Commercial real estate | 817 | 304 | — | 546,326 | 547,447 | | Advances to mortgage brokers | — | — | — | 63,080 | 63,080 | | Agricultural | — | — | — | 99,694 | 99,694 | | Residential real estate | 3,875 | 148 | 163 | 376,686 | 380,872 | | Consumer | 251 | — | 19 | 87,314 | 87,584 | | Total | 5,271 | 502 | 182 | 1,417,616 | 1,423,571 | - Internally assigned credit risk ratings for commercial and agricultural loans range from 'Excellent' (1-3) to 'Loss' (9), with 'Special Mention' (5) and 'Substandard' (6) indicating increasing risk[291][292][293][294][295] Changes in ACL (for the year ended December 31) | Metric | 2024 ($) | 2023 ($) | | :--- | :--- | :--- | | Beginning balance | 13,108 | 9,850 | | Charge-offs | (2,784) | (824) | | Recoveries | 884 | 709 | | Credit loss expense | 1,687 | 629 | | Ending balance | 12,895 | 13,108 | Premises and Equipment (as of December 31) | Asset | 2024 ($) | 2023 ($) | | :--- | :--- | :--- | | Land | 6,309 | 6,309 | | Buildings and improvements | 36,370 | 34,984 | | Furniture and equipment | 33,960 | 35,528 | | Less: accumulated depreciation | 48,980 | 49,182 | | Net premises and equipment | 27,659 | 27,639 | - Goodwill carrying amount was $48,282 for both 2024 and 2023; net identifiable intangible assets (core deposit premium) were $1 in 2024 and $2 in 2023, with amortization expense of $1 in 2024[317] Scheduled Annual Maturities of Time Deposits (as of December 31, 2024) | Maturity | Amount ($) | | :--- | :--- | | 2025 | 340,229 | | 2026 | 28,909 | | 2027 | 8,451 | | 2028 | 5,836 | | 2029 | 4,102 | | Thereafter | 64 | | Total | 387,591 | Pledged Assets (as of December 31) | Pledged For | 2024 ($) | 2023 ($) | | :--- | :--- | :--- | | To secure borrowed funds | 395,286 | 391,529 | | To secure repurchase agreements | 67,539 | 67,764 | | For public deposits and other purposes | 86,162 | 84,099 | | Total | 548,987 | 543,392 | - FHLB advances outstanding as of December 31, 2024, were short-term, with maturities within one week, including $30,000 at a 4.52% fixed rate due in 2025[323] - The company has $30,000 in 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031, redeemable at the company's option on or after June 15, 2026[324][325] - The Defined Benefit Pension Plan had a funded status (surplus) of $900 in 2024 (vs. $438 in 2023), with plan assets of $7,303 (2024) primarily in common collective trusts[329][334] - The Directors Plan had 101,493 shares eligible for distribution in 2024, and the Restricted Stock Plan had 14,733 nonvested shares ($323 fair value) at year-end 2024[340][345] Consolidated Capital Ratios (as of December 31) | Ratio | 2024 Actual | 2023 Actual | | :--- | :--- | :--- | | Common equity Tier 1 capital to risk weighted assets | 12.21% | 12.54% | | Tier 1 capital to risk weighted assets | 12.21% | 12.54% | | Total capital to risk weighted assets | 15.06% | 15.52% | | Tier 1 capital to average assets | 8.86% | 8.76% | Accumulated Other Comprehensive Income (Loss) (AOCI) (net of tax) | Component | 2024 ($) | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | :--- | | Unrealized Gains (Losses) on AFS Securities | (20,958) | (25,199) | (35,828) | | Unrecognized Pension Cost on Defined Benefit Pension Plan | (397) | (697) | (1,366) | | Total AOCI | (21,355) | (25,896) | (37,194) | Revenue from Contracts with Customers (subject to ASC 606) (for the year ended December 31) | Category | 2024 ($) | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | :--- | | Debit card income | 4,151 | 4,063 | 3,783 | | Trust service fees | 3,438 | 3,110 | 2,622 | | Investment advisory fees | 603 | 447 | 383 | | Service charges and fees related to deposit accounts | 450 | 362 | 345 | Income Tax Expense (for the year ended December 31) | Metric | 2024 ($) | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | :--- | | Federal tax expense | 2,819 | 2,657 | 4,593 | | Deferred expense (benefit) | (310) | 1,008 | 13 | | Income tax expense | 2,509 | 3,665 | 4,606 | Deferred Tax Assets and Liabilities (as of December 31) | Category | 2024 ($) | 2023 ($) | | :--- | :--- | | Total deferred tax assets | 11,683 | 13,020 | | Total deferred tax liabilities | 4,589 | 5,101 | | Net deferred tax assets (liabilities) | 7,094 | 7,919 | Financial Instruments Recorded at Fair Value (as of December 31, 2024) | Asset/Liability | Total ($) | Level 1 ($) | Level 2 ($) | Level 3 ($) | | :--- | :--- | :--- | :--- | :--- | | Total AFS securities | 489,029 | — | 489,029 | — | | Collateral dependent (net of ACL) | 254 | — | — | 254 | | OMSR | 2,185 | — | — | 2,185 | | Foreclosed assets | 544 | — | — | 544 | | Total | 492,012 | — | 489,029 | 2,983 | - The classification of Originated Mortgage Servicing Rights (OMSR) changed from Level 2 to Level 3 in Q3 2024 due to a reevaluation of the valuation process and reliance on unobservable assumptions[369] Credit Related Financial Instruments (as of December 31) | Instrument | 2024 ($) | 2023 ($) | | :--- | :--- | | Unfunded commitments under lines of credit | 312,577 | 313,646 | | Commercial and standby letters of credit | 2,125 | 1,624 | | Commitments to originate new loans | 26,558 | 6,460 | | Total | 341,260 | 321,730 | - The allowance for credit losses related to off-balance-sheet credit exposure was $512 in 2024 (vs. $315 in 2023)[389] - As of January 1, 2025, approximately $3,700 was available to the Corporation for dividends from the Bank without regulatory approval[391] Related Party Loans and Deposits (as of December 31) | Metric | 2024 ($) | 2023 ($) | | :--- | :--- | | Loans to principal officers, directors, and affiliates | 2,951 | 19,527 | | Deposits from principal officers, directors, and affiliates | 4,024 | 7,735 | - The Isabella Bank Foundation owned 20,000 shares of the company's common stock as of December 31, 2024 and 2023[394] Parent Company Only Condensed Balance Sheets (as of December 31) | Metric | 2024 ($) | 2023 ($) | | :--- | :--- | | Total assets | 239,787 | 231,826 | | Total liabilities | 29,511 | 29,424 | | Shareholders' equity | 210,276 | 202,402 | Parent Company Only Condensed Statements of Income (for the year ended December 31) | Metric | 2024 ($) | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | :--- | | Dividends from subsidiaries | 22,000 | 30,000 | 6,000 | | Total income | 22,522 | 30,204 | 6,029 | | Total expenses | 3,533 | 3,356 | 3,243 | | Net income | 13,889 | 18,167 | 22,238 | Parent Company Only Condensed Statements of Cash Flows (for the year ended December 31) | Activity | 2024 ($) | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | 20,520 | 28,200 | 5,613 | | Net cash provided by (used in) investing activities | — | (77) | 10 | | Net cash provided by (used in) financing activities | (11,032) | (11,638) | (8,633) | | Increase (decrease) in cash and cash equivalents | 9,488 | 16,485 | (3,010) | | Cash and cash equivalents at end of period | 34,498 | 25,010 | 8,525 | Changes in and Disagreements With Accountants The company reported no changes in or disagreements with accountants regarding accounting and financial disclosure matters - There were no changes in or disagreements with accountants on accounting and financial disclosure[402] Controls and Procedures Management and officers concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2024, with no material changes - Disclosure controls and procedures were effective as of December 31, 2024, as concluded by the Principal Executive Officer and Principal Financial Officer[403] - No material changes to internal control over financial reporting occurred during the quarter ended December 31, 2024[404] - Management assessed its internal control over financial reporting as effective as of December 31, 2024, based on the COSO 2013 framework[407] - Rehmann Robson LLC issued an unqualified audit opinion on the 2024 consolidated financial statements and an unqualified opinion on the effectiveness of internal controls[408][410] Other Information No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended December 31, 2024 - No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended December 31, 2024[410] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to Isabella Bank Corporation - This item is not applicable[411] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, corporate governance, and audit committee financial experts is incorporated by reference from the Proxy Statement - Information on directors, executive officers, corporate governance, and Audit Committee financial experts is incorporated by reference from the Proxy Statement[413][414] - The company has adopted a Code of Conduct and Business Ethics for principal executive, financial, and accounting officers, and an insider trading policy for directors, executive officers, and designated individuals[415][416] Executive Compensation Executive compensation information is incorporated by reference from the Proxy Statement - Executive compensation information is incorporated by reference from the Proxy Statement[417] Security Ownership and Related Stockholder Matters Security ownership information is incorporated by reference from the Proxy Statement, alongside details on equity compensation plans for directors and employees - Security ownership information of certain beneficial owners and management is incorporated by reference from the Proxy Statement[418] Equity Compensation Plan Information (as of December 31, 2024) | Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights (A) | Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights (B) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (A)) (C) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by shareholders: None | — | — | — | | Equity compensation plans not approved by shareholders: Deferred director compensation plan | 101,493 | — | — | | Equity compensation plans not approved by shareholders: Restricted Stock Plan | 14,733 | — | — | | Total | 116,226 | N/A | N/A | - The Deferred Director Compensation Plan requires directors to invest at least 25% of their fees in common stock units, and the Restricted Stock Plan awards unvested restricted stock to eligible employees based on performance targets[420][422] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the Proxy Statement - Information on indebtedness of and transactions with management and director independence is incorporated by reference from the Proxy Statement[423] Principal Accountant Fees and Services Information concerning principal accountant fees, services, and pre-approval policies is incorporated by reference from the Proxy Statement - Information concerning fees for professional services provided by Rehmann and pre-approval policies is incorporated by reference from the Proxy Statement[424] PART IV Exhibit and Financial Statement Schedules This section lists financial statements from Item 8, omits schedules, and provides a comprehensive list of Regulation S-K exhibits, including corporate governance and XBRL data - The financial statements listed in Item 8 are filed as part of this report, and all financial statement schedules are omitted as not applicable or included in the consolidated financial statements or related notes[426] - A comprehensive list of exhibits required by Regulation S-K is provided, including corporate governance documents, benefit plans, and XBRL Interactive Data Files[426][427] Form 10-K Summary This item is not applicable to Isabella Bank Corporation - This item is not applicable[428] SIGNATURES - The report is signed by Jerome E. Schwind (President and CEO) and William M. Schaefer (CFO), along with other directors, affirming compliance with the Securities Exchange Act of 1934[432]