Isabella Bank Corporation

03/13/2026 | Press release | Distributed by Public on 03/13/2026 14:33

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations.
(Dollars in thousands except per share amounts)
The following is management's discussion and analysis of our financial condition and results of operations. This discussion and analysis is intended to provide a better understanding of the consolidated financial statements and statistical data included elsewhere in this Annual Report on Form 10-K.
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 Annual Report on Form 10-K 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.
We believe that, from time to time, these non-GAAP financial measures provide additional understanding of ongoing operations, enhance the comparability of our results of operations with prior periods and show the effects of significant gains and charges in the periods presented without the impact of items or events that may obscure trends in our underlying performance. However, there may be limits in the usefulness of these measures to investors. The way we calculate the non-GAAP financial measures that we discuss in this Annual Report on Form 10-K may differ from that of other companies reporting measures with similar names. Investors should understand how such other banking organizations calculate their financial measures similar to, or with names like, the non-GAAP financial measures we have discussed in this Annual Report on Form 10-K when comparing such non-GAAP financial measures.
As a result, the non-GAAP financial measures that we discuss in this Annual Report on Form 10-K should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this report may differ from that of other companies reporting measures with similar names.
Executive Summary
Comparison of Operating Results for the years ended December 31, 2025 and December 31, 2024
We reported net income for the year ended December 31, 2025 of $18,910, or $2.56 per diluted share, compared with $13,889, or $1.86 per diluted share, for the year ended December 31, 2024. Net income in 2025 was impacted by a $1,556 recovery of an overdrawn deposit account that was charged off in 2024. The impact to diluted earnings per share was a favorable $0.17 in 2025 and an unfavorable $0.16 in 2024.
Net interest income was $62,544 for the year ended December 31, 2025 compared with $55,835 for the year ended December 31, 2024. The comparison of NIM and yield on interest earning assets were 3.16% and 4.84% compared to 2.90%, and 4.65% for 2025 and 2024, respectively. The book yield from securities was 2.38% and 2.22% during 2025 and 2024, respectively. The weighted average maturity of our U.S. Treasury portfolio is less than one year, and the proceeds are expected to be reinvested in market rate loans and securities or to pay off borrowed funds. The yield on loans increased to 5.75%, from 5.58% in 2024 due to higher rates on new loans and variable rate commercial loans that continue to reprice. Our cost of interest bearing liabilities decreased to 2.25% from 2.37% in 2024 due to lower rates on the money market and certificate of deposit products.
The provision for credit losses for the year ended December 31, 2025 was a reversal of $563, compared to a provision of $1,884 for the year ended December 31, 2024. The credit reversal in 2025 includes recoveries of $2,268, which includes a $1,556 recovery related to overdrawn deposit accounts from a single customer that were charged off in 2024. The provision for loan losses in 2025 was also impacted by loan growth. While credit quality remained strong with low levels of past due and nonaccrual loans and net charge offs, we continue to closely monitor credit quality.
Noninterest income for the year ended December 31, 2025 was $15,966, an increase of $1,390, or 9.5%, compared to 2024. Earnings on BOLI policies increased $618 due to new investments in a separate account BOLI, which was offset in part by a one-time expenses of $120 due to restructuring charges. Service charges and fees increased $583 and was mostly the result of internal initiatives designed to align our fees within our market. Wealth management fees also grew $206 due to growth in assets under management. Managed assets increased $49,076 driven by growth in new accounts and higher security valuations.
Noninterest expenses for the year ended December 31, 2025 were $54,950, an increase of $2,821, or 5.4%, compared to 2024. Annual merit increases, increased incentives, and higher medical claims resulted in a $1,465 increase in compensation and benefits. Other professional services increased by $1,028 as a result of an increased utilization of outsourced services as well as additional costs related to profitability initiatives.
Income tax expense for the year ended December 31, 2025 was $5,213, an increase of $2,704, or 107.8%, compared to 2024. The ETR was 22% for the year ended 2025 and 15% for the year ended 2024. Income tax expense in 2025 included a one-time expense totaling $942 to write-off deferred tax assets and a one-time expense totaling $195 related to taxes owed from the lifetime earnings on BOLI policies that were surrendered during the year. Excluding the one-time charges during 2025, the ETR was 17%, which is higher than the prior year due primarily to higher pretax income and a decline in tax credits.
Financial Condition (December 31, 2025 to December 31, 2024 comparison)
Total assets were $2,209,448 as of December 31, 2025, an increase of $123,207, or 5.9%, compared to December 31, 2024. This increase is primarily attributable to loan growth, an increase in BOLI policies, and an increase in the fair value of AFS securities.
Our AFS securities portfolio totaled $497,791 as of December 31, 2025, an increase of $8,762, or 1.8%, since December 31, 2024. The increase during the year was largely driven by purchases of $67,348 and an improvement in unrealized losses of $16,589, partially offset by amortizations, prepayments, and maturities totaling $75,175. Net unrealized losses on our AFS securities portfolio were $9,898 at December 31, 2025 compared to $26,487 at December 31, 2024. Net unrealized losses as a percentage of total AFS securities decreased to 1.9% from 5.1% at the end of 2024 primarily due to the treasury portfolio rapidly approaching maturity.
Loans outstanding as of December 31, 2025 totaled $1,536,364, an increase of $112,793, or 7.9%, since December 31, 2024. During 2025, the commercial real estate and commercial and industrial portfolios grew $48,040 and $19,827, respectively. Residential mortgages increased $47,008 since year-end 2024. Most residential mortgage originations were adjustable-rate loans, which are retained rather than sold in the secondary market. The growth was offset by a $18,093 decline in consumer loans amid decreasing demand, competition, and an adherence to credit quality standards. Loans, excluding advances to mortgage brokers, grew $99,197 or 7.3%.
The ACL was $13,727 as of December 31, 2025, an increase of $832, or 6.5%, compared to December 31, 2024. The increase reflects loan growth and an increase of specific reserves, offset by improvement in historical loss experience driven by the recovery of previously charged-off loans during the year. Nonaccrual loans remained low at $4,578 as of December 31, 2025 compared to $282 at December 31, 2024. The increase in nonaccrual loans related to one well-secured loan of $3,000 at December 31, 2025. Past due and accruing accounts between 30 to 89 days, as a percentage of total loans, were 0.44% at December 31, 2025 compared to 0.40% at December 31, 2024. Overall credit quality remains strong.
BOLI totaled $46,133 as of December 31, 2025, an increase of $11,251, or 32.3%, from December 31, 2024. The growth was primarily attributed to a $10,583 investment of new policies in 2025. During 2025, we also surrendered and/or exchanged over $13,000 of existing general account policies and redeployed the funds into a separate account BOLI structure, which yields a higher rate compared to existing general account policies.
Total deposits were $1,819,654 as of December 31, 2025, an increase of $72,594, or 4.2%, from December 31, 2024. Interest bearing demand deposit accounts increased by $28,639 during 2025. Consumer demand for retail certificates of deposit accounts continues to be strong based on the current market interest rate environment, resulting in a $22,474 increase during the year.
Total equity was $231,396 as of December 31, 2025 compared to $210,276 as of December 31, 2024. Our tangible book value per share (non-GAAP) was $25.01 as of December 31, 2025, compared to $21.82 on December 31, 2024. Net unrealized losses on AFS securities reduced tangible book value per share by $1.09 and $2.82 for the respective periods. Share repurchases totaled 156,957 during 2025 for a value of $4,709 at an average price of $30.00.
We continue to have robust liquidity levels and capital. As of December 31, 2025, we had $781,557 of unencumbered sources of liquidity and strong capital ratios; the Tier 1 Leverage Ratio was 8.84%, Tier 1 risk-based capital was 11.73%, and Total risk-based capital was 14.41%.
Other
We have not received, nor are aware of, any notices of regulatory actions as of March 12, 2026.
Selected Financial Data
The following table outlines our results of operations and provides certain key performance measures as of, and for the years ended December 31:
2025 2024 2023
PER SHARE
Basic earnings $ 2.56 $ 1.86 $ 2.42
Diluted earnings 2.56 1.86 2.40
Dividends 1.12 1.12 1.12
Book value(1)
31.60 28.32 27.04
Tangible book value (1) (2)
25.01 21.82 20.59
Market price (1)
50.00 25.99 21.05
PERFORMANCE RATIOS
Return on average total assets 0.88 % 0.67 % 0.89 %
Return on average shareholders' equity 8.51 % 6.73 % 9.52 %
Return on average tangible shareholders' equity (2)
10.87 % 8.78 % 12.75 %
Net interest margin yield (FTE) 3.16 % 2.90 % 3.05 %
Efficiency ratio (2)
69.11 % 73.01 % 67.76 %
Loan to deposit ratio (1)
84.43 % 81.48 % 78.29 %
Shareholders' equity to total assets (1)
10.47 % 10.08 % 9.83 %
Tangible shareholders' equity to tangible assets (1) (2)
8.47 % 7.95 % 7.66 %
FINANCIAL DATA
Total assets(1)
2,209,448 2,086,241 2,058,968
AFS securities(1)
497,791 489,029 528,148
Loans(1)
1,536,364 1,423,571 1,349,463
ACL(1)
13,727 12,895 13,108
Deposits(1)
1,819,654 1,747,060 1,723,695
Borrowed funds(1)
142,514 112,991 116,136
Shareholders' equity(1)
231,396 210,276 202,402
Wealth assets under management (1)
707,118 658,042 641,027
Net income 18,910 13,889 18,167
Interest income 96,035 89,978 79,631
Interest expense 33,491 34,143 21,687
Net interest income 62,544 55,835 57,944
Provision (reversal) for credit losses (563) 1,884 629
Noninterest income 15,966 14,576 13,827
Noninterest expenses 54,950 52,129 49,310
(1)At end of period.
(2)Non-GAAP financial measure; refer to the "Reconciliation of Non-GAAP Financial Measures" section.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are set forth in "Note 1 - Significant Accounting Policies" of "Notes to Consolidated Financial Statements" in Item 8. Financial Statements and Supplementary Data. Of these significant accounting policies, we consider our policies regarding the ACL, acquisition intangibles and goodwill, and the determination of the fair value and assessment of credit related impairments of investment securities to be our most critical accounting policies.
The ACL requires our most subjective and complex judgment. Changes in economic conditions and other external factors can have a significant impact on the ACL and, therefore, the allowance for credit losses and results of operations. We have developed policies and procedures for assessing the appropriateness of the ACL, recognizing that this process requires a number of assumptions and estimates with respect to our loan portfolio. Our assessments may be impacted in future periods by changes in economic conditions, and the discovery of information with respect to borrowers which is not known to us at the time of the issuance of the consolidated financial statements. Changes in the factors used by management to determine the appropriateness of the allowance or the availability of new information could cause the allowance to be increased or decreased in future periods. Additionally, changes in circumstances related to individually large credits, or certain macroeconomic forecast assumptions may result in volatility.
Estimating how potential changes in economic factors might affect the overall allowance is challenging because a wide variety of factors and inputs are considered in the allowance estimate. Changes in the factors and inputs may not occur at the same rate and may not be consistent across all product types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others.
For additional discussion concerning our ACL and related matters, see "ACL - Loans" and "Note 3 - Loans and ACL" of "Notes to Consolidated Financial Statements" in Item 8. Financial Statements and Supplementary Data.
U.S. generally accepted accounting principles require that we determine the fair value of the assets and liabilities of an acquired entity, and record the fair value on the date of acquisition. We employ a variety of measures in the determination of the fair value, including the use of discounted cash flow analysis, market appraisals, and projected future revenue streams. For certain items that we believe we have the appropriate expertise to determine the fair value, we may choose to use our own calculations of the value. In other cases, where the value is not easily determined, we consult with independent experts to determine the fair value of the identified asset or liability. Once valuations have been determined, the net difference between the price paid for the acquired entity and the net value of assets acquired on our balance sheet, including identifiable intangibles, is recorded as goodwill. Acquisition intangibles and goodwill are qualitatively and quantitatively evaluated annually to determine if it is more likely than not that the carrying balance is impaired. Based on the analysis completed, it was determined that our estimated fair value of Isabella Bank and Isabella Bank Corporation at December 31, 2025 was greater than our recorded book value and no impairment of goodwill was identified.
AFS securities are carried at fair value with changes in the fair value included as a component of other comprehensive income. The market values for most AFS investment securities are typically obtained from outside sources and applied to individual securities within the portfolio. Municipal securities for which no readily determinable market values are available are priced using fair value curves which most closely match the securities' characteristics. AFS securities are reviewed quarterly for possible credit impairment. In determining whether a credit-related impairment exists for debt securities, we assess whether: (a) we do not have the intent to sell the security; and (b) it is more likely than not we will not have to sell the security before recovery of its cost basis. If either of these conditions are met, any previously recognized allowances are charged off and the security's amortized cost is written down to fair value through income. If these conditions are not met, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors.
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 for the last three years. 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.
Year Ended December 31
2025 2024 2023
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)
$ 1,416,079 $ 81,432 5.75 % $ 1,385,287 $ 77,295 5.58 % $ 1,308,891 $ 65,670 5.02 %
AFS securities (2)
520,284 12,361 2.38 % 540,433 12,023 2.22 % 582,563 13,179 2.26 %
FHLB stock 6,934 418 6.03 % 12,762 640 5.01 % 12,762 355 2.78 %
Fed funds sold 52 2 4.37 % 7 - 5.19 % 12 1 5.10 %
Other(3)
54,982 2,466 4.49 % 17,430 950 5.45 % 29,203 1,449 4.96 %
Total interest earning assets 1,998,331 96,679 4.84 % 1,955,919 90,908 4.65 % 1,933,431 80,654 4.17 %
NONEARNING ASSETS
Allowance for credit losses (13,132) (13,061) (12,784)
Cash and demand deposits due from banks 23,690 24,165 24,592
Premises and equipment 28,400 27,915 26,589
Other assets 109,142 86,073 74,319
Total assets $ 2,146,431 $ 2,081,011 $ 2,046,147
INTEREST BEARING LIABILITIES
Interest bearing demand deposits $ 240,220 817 0.34 % $ 237,086 754 0.32 % $ 256,907 269 0.10 %
Money market deposits 473,394 12,219 2.58 % 443,251 12,407 2.80 % 424,077 8,320 1.96 %
Savings 286,134 2,140 0.75 % 279,544 1,600 0.57 % 291,918 787 0.27 %
Certificates of deposit 398,040 15,070 3.79 % 371,750 14,929 4.02 % 308,699 8,976 2.91 %
Short-term borrowings 51,430 1,693 3.29 % 45,124 1,439 3.19 % 43,061 961 2.23 %
FHLB advances 11,301 487 4.31 % 35,464 1,949 5.50 % 23,699 1,309 5.52 %
Subordinated debt, net of unamortized issuance costs
29,466 1,065 3.61 % 29,376 1,065 3.62 % 29,287 1,065 3.64 %
Total interest bearing liabilities 1,489,985 33,491 2.25 % 1,441,595 34,143 2.37 % 1,377,648 21,687 1.57 %
NONINTEREST BEARING LIABILITIES
Demand deposits 418,225 416,927 461,689
Other liabilities 15,896 16,088 16,043
Shareholders' equity 222,325 206,401 190,767
Total liabilities and shareholders' equity $ 2,146,431 $ 2,081,011 $ 2,046,147
Net interest income (FTE) (4)
$ 63,188 $ 56,765 $ 58,967
Net yield on interest earning assets (FTE) (4)
3.16 % 2.90 % 3.05 %
(1)Includes loans HFS and nonaccrual loans.
(2) Average balances for AFS securities are based on amortized cost.
(3) Includes average interest bearing deposits with other banks, net of FRB daily cash letter.
(4) Non-GAAP financial measure; refer to the "Reconciliation of Non-GAAP Financial Measures" section.
Volume and Rate Variance Analysis
The following table sets forth the effect of volume and rate changes on interest income and expense for the periods indicated. For the purpose of this table, changes in interest due to volume and rate were determined as follows:
Volume-change in volume multiplied by the previous period's FTE rate.
Rate-change in the FTE rate multiplied by the previous period's volume.
All interest income presented in the table below is reported on a FTE basis using a federal income tax rate of 21%. The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
2025 Compared to 2024
Increase (Decrease) Due to 		2024 Compared to 2023
Increase (Decrease) Due to
Volume Rate Net Volume Rate Net
Changes in interest income
Loans $ 1,740 $ 2,397 $ 4,137 $ 3,980 $ 7,645 $ 11,625
AFS securities (459) 797 338 (940) (216) (1,156)
FHLB stock (333) 111 (222) - 285 285
Fed funds sold 2 - 2 - (1) (1)
Other 1,711 (195) 1,516 (630) 131 (499)
Total changes in interest income 2,661 3,110 5,771 2,410 7,844 10,254
Changes in interest expense
Interest bearing demand deposits 10 53 63 (22) 507 485
Money market deposits 813 (1,001) (188) 392 3,695 4,087
Savings 39 501 540 (35) 848 813
Certificates of deposit 1,022 (881) 141 2,078 3,875 5,953
Short-term borrowings 206 48 254 48 430 478
FHLB advances (1,110) (352) (1,462) 647 (7) 640
Subordinated debt, net of unamortized issuance costs
3 (3) - 3 (3) -
Total changes in interest expense 983 (1,635) (652) 3,111 9,345 12,456
Net change in interest margin (FTE) $ 1,678 $ 4,745 $ 6,423 $ (701) $ (1,501) $ (2,202)
Loans
The following table displays loan balances for the years ended December 31:
2025 2024 2023 2022 2021
Commercial and industrial $ 220,450 $ 200,623 $ 183,762 $ 172,477 $ 171,805
Commercial real estate 639,758 591,718 590,220 571,963 567,075
Advances to mortgage brokers 76,676 63,080 18,541 - 72,001
Agricultural 102,109 99,694 99,994 104,985 94,634
Residential real estate 427,880 380,872 356,418 336,694 322,239
Consumer 69,491 87,584 100,528 78,054 73,283
Total $ 1,536,364 $ 1,423,571 $ 1,349,463 $ 1,264,173 $ 1,301,037
The following table presents the change in the loan portfolio categories for the years ended December 31:
2025 2024 2023
$ Change % Change $ Change % Change $ Change % Change
Commercial and industrial $ 19,827 9.88 % $ 16,861 9.18 % $ 11,285 6.54 %
Commercial real estate 48,040 8.12 % 1,498 0.25 % 18,257 3.19 %
Advances to mortgage brokers 13,596 21.55 % 44,539 240.22 % 18,541 N/M
Agricultural 2,415 2.42 % (300) (0.30) % (4,991) (4.75) %
Residential real estate 47,008 12.34 % 24,454 6.86 % 19,724 5.86 %
Consumer (18,093) (20.66) % (12,944) (12.88) % 22,474 28.79 %
Total $ 112,793 7.92 % $ 74,108 5.49 % $ 85,290 6.75 %
The following table presents the composition of our commercial real estate portfolio by industry as of December 31:
2025 2024
Balance Percent of Total Balance Percent of Total
Investment and development $ 134,013 20.95 % $ 138,232 23.36 %
1-4 family residential investment 93,806 14.66 % 86,736 14.66 %
Hotels 90,571 14.16 % 83,756 14.15 %
Residential multifamily 71,695 11.21 % 61,033 10.31 %
Health care 59,573 9.31 % 50,083 8.46 %
Storage facilities 37,145 5.81 % 20,507 3.47 %
Retail trade 34,479 5.39 % 35,063 5.93 %
Manufacturing 18,281 2.86 % 17,030 2.88 %
Construction 16,193 2.53 % 12,825 2.17 %
Accommodation services 15,604 2.44 % 16,804 2.84 %
Wholesale trade 11,123 1.74 % 11,073 1.87 %
Educational services 10,582 1.65 % 11,160 1.89 %
Other 46,693 7.29 % 47,416 8.01 %
Total commercial real estate $ 639,758 100.00 % $ 591,718 100.00 %
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.
The following table illustrates the amounts of the ACL and ALLL allocated to each loan segments to loans as of December 31:
2025 2024 2023 2022 2021
ACL Allocation % of Loans ACL Allocation % of Loans ALLL Allocation % of Loans ALLL Allocation % of Loans ALLL Allocation % of Loans
Commercial and Industrial $ 1,136 14.35 $ 1,316 14.09 $ 968 13.62 $ 860 13.64 $ 680 13.21
Commercial Real Estate 5,949 41.64 5,171 41.57 5,878 43.74 461 45.25 1,060 43.59
Advances to mortgage brokers - 4.99 - 4.43 - 1.37 - - - 5.53
Agricultural 327 6.65 287 7.01 270 7.41 577 8.30 289 7.27
Residential Real Estate 5,059 27.85 4,521 26.75 4,336 26.41 617 26.64 747 24.77
Consumer 1,256 4.52 1,600 6.15 1,656 7.45 961 6.17 908 5.63
Total allocated 13,727 100.00 12,895 100.00 13,108 100.00 3,476 100.00 3,684 100.00
Unallocated - - - - - - 6,374 - 5,419 -
Total $ 13,727 100.00 $ 12,895 100.00 $ 13,108 100.00 $ 9,850 100.00 $ 9,103 100.00
While we utilize our best judgment and information available, the ultimate adequacy of the ACL is dependent upon a variety of factors beyond our control, including the performance of our borrowers, the economy, and changes in interest rates. We closely monitor overall credit quality indicators and our policies and procedures related to the analysis of the ACL to ensure that the ACL remains at an appropriate level.
For further discussion of the allocation of the ACL, see "Note 3 - Loans and ACL" of "Notes to Consolidated Financial Statements" in Item 8. Financial Statements and Supplementary Data.
AFS Securities
The following is a schedule of maturities of AFS securities and their weighted average yields as of December 31, 2025. Weighted average yields have been computed on an FTE basis using a tax rate of 21%. Our auction rate money market preferred investments are long-term floating rate instruments. The issuers of auction rate securities generally have the right to redeem or refinance the debt. Because of their lack of contractual maturities, auction rate money market preferred stocks are not reported by a specific maturity group. Mortgage-backed securities and collateralized mortgage obligations are not reported by a specific maturity group due to their variable monthly payments. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.
Maturing
Within
One Year 		After One
Year But
Within
Five Years 		After Five
Years But
Within
Ten Years 		After
Ten Years 		Securities with
Variable Monthly
Payments or
Noncontractual
Maturities
Amount Yield (%) Amount Yield (%) Amount Yield (%) Amount Yield (%) Amount Yield (%)
U.S. Treasury $ 187,879 0.96 $ 9,655 1.13 $ - - $ - - $ - -
States and political subdivisions 12,934 3.63 17,276 3.32 18,814 3.04 20,181 3.90 - -
Mortgage-backed securities - - - - - - - - 22,252 2.39
Collateralized mortgage obligations - - - - - - - - 200,466 3.49
Auction rate money market preferred - - - - - - - - 2,413 5.86
Corporate - - - - 5,921 3.43 - - - -
Total $ 200,813 1.13 $ 26,931 2.53 $ 24,735 3.13 $ 20,181 3.90 $ 225,131 3.40
Deposits
The following table displays deposit balances as of December 31:
2025 2024 2023 2022 2021
Noninterest bearing demand deposits $ 426,342 $ 416,373 $ 428,505 $ 494,346 $ 448,352
Interest bearing demand deposits 266,187 237,548 241,656 281,369 273,065
Money market deposits 436,631 423,883 423,638 411,394 395,078
Savings 280,429 281,665 283,522 305,126 293,082
Certificates of deposit 410,065 387,591 346,374 252,040 300,762
Total $ 1,819,654 $ 1,747,060 $ 1,723,695 $ 1,744,275 $ 1,710,339
The following table displays the change in deposit balances for the years ended December 31:
2025 2024 2023
$ Change % Change $ Change % Change $ Change % Change
Noninterest bearing demand deposits $ 9,969 2.39 % $ (12,132) (2.83) % $ (65,841) (13.32) %
Interest bearing demand deposits 28,639 12.06 % (4,108) (1.70) % (39,713) (14.11) %
Money market deposits 12,748 3.01 % 245 0.06 % 12,244 2.98 %
Savings (1,236) (0.44) % (1,857) (0.65) % (21,604) (7.08) %
Certificates of deposit 22,474 5.80 % 41,217 11.90 % 94,334 37.43 %
Total $ 72,594 4.16 % $ 23,365 1.36 % $ (20,580) (1.18) %
The following table presents estimated balances of uninsured deposits as of December 31:
2025 2024 2023 2022 2021
Uninsured deposits $ 695,537 $ 645,764 $ 600,381 $ 585,901 $ 548,213
Uninsured deposits are the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limits. The balance provided above are estimates and reflect the methodologies and assumptions used for regulatory reporting of uninsured deposits. The remaining maturity of estimated uninsured certificates of deposit, by account, as of December 31, 2025 is presented in the table below. Estimated uninsured certificates of deposit is based on individual accounts and does not reflect uninsured balances by account owner.
Maturity
Within 3 months $ 14,471
Within 3 to 6 months 16,161
Within 6 to 12 months 31,774
Over 12 months 5,269
Total $ 67,675
Asset Quality Analysis
The following table outlines our asset quality analysis as of, and for the years ended December 31:
2025 2024 2023
NONPERFORMING ASSETS
Commercial and industrial $ 442 $ - $ 491
Commercial real estate 3,766 - -
Agricultural - - 205
Residential real estate 370 282 286
Consumer - - -
Total nonaccrual loans 4,578 282 982
Accruing loans past due 90 days or more - 19 87
Total nonperforming loans 4,578 301 1,069
Foreclosed assets 938 544 406
Debt securities - - 12
Total nonperforming assets $ 5,516 $ 845 $ 1,487
Nonperforming loans to total loans 0.30 % 0.02 % 0.08 %
Nonperforming assets to total assets 0.25 % 0.04 % 0.07 %
Nonaccrual loans to total loans 0.30 % 0.02 % 0.07 %
ACL as a % of nonaccrual loans 299.85 % N/M N/M
ALLOWANCE FOR CREDIT LOSSES
Allowance at beginning of period $ 12,895 $ 13,108 $ 9,850
Impact of the adoption of ASC 326 - - 2,744
Charge-offs 892 2,784 824
Recoveries 2,268 884 709
Net loan charge-offs (recoveries) (1,376) 1,900 115
Provision (reversal) for credit losses - loans (544) 1,687 629
Allowance at end of period $ 13,727 $ 12,895 $ 13,108
ACL to loans 0.89 % 0.91 % 0.97 %
Reserve for unfunded commitments 493 512 315
Provision (reversal) for credit losses - unfunded commitments (19) 197 -
Reserve to unfunded commitments 0.14 % 0.15 % 0.10 %
NET LOAN CHARGE-OFFS (RECOVERIES)
Commercial and industrial $ (10) $ 339 $ 197
Commercial real estate (60) (355) (26)
Agricultural (4) (6) (8)
Residential real estate (98) (118) (327)
Consumer (1,204) 2,040 279
Total $ (1,376) $ 1,900 $ 115
Net (recoveries) charge-offs to average loans (0.10) % 0.14 % 0.01 %
DELINQUENT AND NONACCRUAL LOANS
Accruing loans 30-89 days past due $ 6,689 $ 5,682 3,895
Accruing loans past due 90 days or more - 19 87
Total accruing past due loans 6,689 5,701 3,982
Nonaccrual loans 4,578 282 982
Total past due and nonaccrual loans $ 11,267 $ 5,983 $ 4,964
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 42,904 shares or $1,331 of common stock during 2025, and 75,341 shares or $1,523 of common stock in 2024. We offer the Directors Plan in which participants purchase stock units through deferred fees, in lieu of cash payments. Pursuant to this plan, we increased shareholders' equity by $277 and $381 during 2025 and 2024, respectively. We also grant restricted stock awards pursuant to the RSP. Pursuant to the RSP, we increased shareholders' equity by $64 and $95 during 2025 and 2024.
We have publicly announced a common stock repurchase plan. Pursuant to this plan, we repurchased 156,957 shares or $4,709 of common stock during 2025 and 152,577 shares or $3,076 during 2024. As of December 31, 2025, we were authorized to repurchase up to an additional 461,272 shares of common stock.
The FRB has established minimum risk-based capital guidelines. Pursuant to these guidelines, a framework has been established that assigns risk weights to each category of on and off-balance-sheet items to arrive at risk adjusted total assets. Regulatory capital is divided by the risk adjusted assets with the resulting ratio compared to the minimum standard to determine whether a corporation has adequate capital. At December 31, 2025, we and the Bank were "well capitalized" under the regulatory framework for prompt corrective action. Management believes that no conditions or events have occurred since December 31, 2025 that would materially adversely change such capital classifications. From time to time, we may need to raise additional capital to support our and the Bank's further growth and to maintain our "well capitalized" status.
The following table sets forth these requirements and our ratios as of December 31:
2025 2024
Actual Minimum Required - BASEL III Required to be Considered Well Capitalized (1) Actual Minimum Required - BASEL III Required to be Considered Well Capitalized (1)
Common equity tier 1 capital 11.73 % 7.00 % 6.50 % 12.21 % 7.00 % 6.50 %
Tier 1 capital 11.73 % 8.50 % 8.00 % 12.21 % 8.50 % 8.00 %
Total capital 14.41 % 10.50 % 10.00 % 15.06 % 10.50 % 10.00 %
Tier 1 leverage 8.84 % 4.00 % 5.00 % 8.86 % 4.00 % 5.00 %
(1) "Well-capitalized" minimum Common Equity Tier 1 to Risk-Weighted and Leverage Ratio are not formally defined under applicable regulations for bank holding companies.
Liquidity
Liquidity is monitored regularly by our ALCO, which consists of members of senior management. The ALCO 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 $337,011 or 15.25% of assets as of December 31, 2025, compared to $330,876 or 15.86% as of December 31, 2024. The decline in the percentage of primary liquidity is a direct result of an increase in loans and other assets. Liquidity is important for financial institutions because of their need to meet loan funding commitments, depositor withdrawal requests, and various other commitments including expansion of operations, investment opportunities, and payment of cash dividends. Based on these same factors, daily liquidity could vary significantly.
Our secondary sources include the ability to borrow from the FHLB, from the FRB, and through various correspondent banks in the form of federal funds purchased and 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 December 31, 2025, we had available lines of credit of $345,516.
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 at the end of 2025. Components of liquidity are illustrated in the following table as of December 31:
2025 2024
Total cash and cash equivalents $ 26,041 $ 24,542
Brokered CD capacity 130,000 120,000
Available lines of credit
Fed funds lines with correspondent banks 93,000 93,000
FHLB borrowings 218,088 215,432
FRB Discount Window 29,428 28,698
Other lines of credit 5,000 5,000
Total available lines of credit 345,516 342,130
Unencumbered lendable value of FRB collateral, estimated (1)
280,000 290,000
Total cash and liquidity $ 781,557 $ 776,672
Uninsured deposits $ 695,537 $ 645,764
Coverage ratio of uninsured deposits with total cash and liquidity 112 % 120 %
(1)Includes estimated unencumbered lendable value of FHLB collateral of $220,000 and $200,000 as of December 31, 2025 and 2024, respectively.
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 1 - Significant Accounting Policies" and "Note 13 - Fair Value" of "Notes to Consolidated Financial Statements" in Item 8. Financial Statements and Supplementary Data.
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.
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 the yield curve, 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 used as a method to measure interest rate sensitivity. Interest rate sensitivity is determined by the amount of earning assets and interest bearing liabilities repricing within a specific time period, and their relative sensitivity to a change in interest rates. We strive to achieve reasonable stability in the net interest margin through periods of changing interest rates.
We do not believe there has been a material change in the nature or categories of our primary market risk exposure, or the particular markets that present the primary risk of loss. We do not know of or expect there to be any material change in the general nature of our primary market risk exposure in the near-term, and we do not expect to make material changes to our market risk methods in the near-term. We may change those methods in the future to adapt to changes in circumstances or to implement new techniques.
The following table shows the maturity of loans outstanding at December 31, 2025 based on contractual terms. Also provided are the amounts classified according to the sensitivity to changes in interest rates.
1 Year
or Less 		1 to 5
Years 		5 to 15
Years 		Over 15
Years 		Total
Commercial and industrial $ 30,509 $ 131,094 $ 41,939 $ 16,908 $ 220,450
Commercial real estate 28,832 75,535 146,618 388,773 639,758
Advances to mortgage brokers 76,676 - - - 76,676
Agricultural 13,608 22,367 31,364 34,770 102,109
Residential real estate 3,265 15,120 128,998 280,497 427,880
Consumer 1,994 38,582 28,915 - 69,491
Total $ 154,884 $ 282,698 $ 377,834 $ 720,948 $ 1,536,364
Fixed interest rates
Commercial and industrial $ 7,450 $ 66,536 $ 18,781 $ - $ 92,767
Commercial real estate 22,528 52,337 9,939 15,538 100,342
Advances to mortgage brokers 76,676 - - - 76,676
Agricultural 1,311 8,085 4,048 324 13,768
Residential real estate 2,362 4,080 85,227 24,507 116,176
Consumer 1,657 38,233 28,804 - 68,694
Total $ 111,984 $ 169,271 $ 146,799 $ 40,369 $ 468,423
Variable interest rates
Commercial and industrial $ 23,059 $ 64,558 $ 23,158 $ 16,908 $ 127,683
Commercial real estate 6,304 23,198 136,679 373,235 539,416
Advances to mortgage brokers - - - - -
Agricultural 12,297 14,282 27,316 34,446 88,341
Residential real estate 903 11,040 43,771 255,990 311,704
Consumer 337 349 111 - 797
Total $ 42,900 $ 113,427 $ 231,035 $ 680,579 $ 1,067,941
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.
For additional disclosure related to Contractual Obligations and Loan Commitments, see "Note 14 - Off-Balance-Sheet Activities, Commitments and Other Matters" of "Notes to Consolidated Financial Statements" in Item 8. Financial Statements and Supplementary Data.
Reconciliation of Non-GAAP Financial Measures
The following table provides a detailed analysis, and reconciliation for, our non-GAAP financial measures as of, and for the years ended December 31:
2025 2024 2023
Loans $ 1,536,364 $ 1,423,571 $ 1,349,463
Advances to mortgage brokers 76,676 63,080 18,541
Adjusted loans $ 1,459,688 $ 1,360,491 $ 1,330,922
Total shareholders' equity $ 231,396 $ 210,276 202,402
Goodwill and other intangible assets 48,282 48,283 48,284
Tangible equity (A) 183,114 161,993 154,118
Common shares outstanding(1)
(B) 7,322,207 7,424,893 $ 7,485,889
Tangible book value per share (A/B) $ 25.01 $ 21.82 $ 20.59
Noninterest expenses $ 54,950 $ 52,129 $ 49,310
Amortization of acquisition intangibles 1 1 3
Adjusted noninterest expense (C) $ 54,949 $ 52,128 $ 49,307
Net interest income $ 62,544 $ 55,835 $ 57,944
Tax equivalent adjustment for net interest margin 644 930 1,023
Net interest income (FTE) 63,188 56,765 58,967
Noninterest income 15,966 14,576 13,827
Tax equivalent adjustment for BOLI 341 211 193
Adjusted revenue (FTE) 79,495 71,552 72,987
Net gains on sale of AFS securities - - 67
Net gains (losses) on foreclosed assets (18) 153 158
Adjusted revenue (D) $ 79,513 $ 71,399 $ 72,762
Efficiency ratio (C/D) 69.11 % 73.01 % 67.76 %
(1) Whole shares.
Isabella Bank Corporation published this content on March 13, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on March 13, 2026 at 20:34 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]