Isabella Bank (ISBA) 10-K 2023 FY Annual report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to

Commission File Number: 0-18415

Isabella Bank Corporation

(Exact name of registrant as specified in its charter)

Michigan	38-2830092
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer identification No.)

401 North Main Street, Mount Pleasant, Michigan 48858

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (989) 772-9471

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/A

Securities registered pursuant to Section 12(g) of the Act:

Common Stock - No Par Value

(Title of Class)

Indicated by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ☐  Yes    ☒  No

Indicated by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    ☐  Yes    ☒  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes    ☒  No

The aggregate market value of the voting stock held by non-affiliates of the registrant was $142,188,000 as of the last business day of the registrant’s most recently completed second fiscal quarter.

The number of common shares outstanding of the registrant’s Common Stock (no par value) was 7,502,990 as of March 5, 2024.

DOCUMENTS INCORPORATED BY REFERENCE

(Such documents are incorporated herein only to the extent specifically set forth in response to an item herein.)

Portions of the Isabella Bank Corporation Proxy Statement for its Annual Meeting of Shareholders to be held May 7, 2024 are incorporated by reference in this Form 10-K in response to Part III. The Isabella Bank Corporation Proxy Statement will be mailed on or before March 25, 2024.

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ISABELLA BANK CORPORATION

ANNUAL REPORT ON FORM 10-K

Table of Contents

PART I		4
Item 1.	Business	4
Item 1A.	Risk Factors	6
Item 1B.	Unresolved Staff Comments	8
Item 1C.	Cybersecurity	8
Item 2.	Properties	10
Item 3.	Legal Proceedings	10
Item 4.	Mine Safety Disclosures	10
PART II		11
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	11
Item 6.	[Reserved]	12
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 8.	Financial Statements and Supplementary Data	34
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	87
Item 9A.	Controls and Procedures	87
Item 9B.	Other Information	88
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	88
PART III		89
Item 10.	Directors, Executive Officers and Corporate Governance	89
Item 11.	Executive Compensation	89
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	89
Item 13.	Certain Relationships and Related Transactions, and Director Independence	90
Item 14.	Principal Accountant Fees and Services	90
PART IV		91
Item 15.	Exhibit and Financial Statement Schedules	91
Item 16.	Form 10-K Summary	92
SIGNATURES		93

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Forward Looking Statements

This report contains certain forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended and Rule 3b-6 promulgated thereunder. We intend such forward looking statements to be covered by the safe harbor provisions for forward looking statements contained in the Private Securities Litigation Reform Act of 1995, and are included in this statement for purposes of these safe harbor provisions. Forward looking statements, which are based on certain assumptions and describe future plans, strategies and expectations, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in: interest rates, general economic conditions, federal or state tax laws, monetary and fiscal policy, a health crisis, the quality or composition of our loan or investment portfolio, demand for loan products, fluctuation in the value of collateral securing our loan portfolio, deposit flows, competition, cybersecurity risk, demand for financial services in our market area, and accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward looking statements and undue reliance should not be placed on such statements. Further information concerning our business, including additional factors that could materially affect our consolidated financial results, is included in our filings with the SEC.

Glossary of Acronyms and Abbreviations

The acronyms and abbreviations identified below may be used throughout this Annual Report on Form 10-K or in our other SEC filings. You may find it helpful to refer back to this page while reading this report.

ACL: Allowance for credit losses	FRB: Federal Reserve Bank
AFS: Available-for-sale	FHLB: Federal Home Loan Bank
ALCO: Asset-Liability Committee	Freddie Mac: Federal Home Loan Mortgage Corporation
ALLL: Allowance for loan and lease losses	FTE: Fully taxable equivalent
AOCI: Accumulated other comprehensive income	GAAP: U.S. generally accepted accounting principles
ASC: FASB Accounting Standards Codification	IRR: Interest rate risk
ASU: FASB Accounting Standards Update	IT: Information Technology
ATM: Automated teller machine	N/A: Not applicable
BHC Act: Bank Holding Company Act of 1956	N/M: Not meaningful
Board: Board of Directors of Isabella Bank Corporation	NAV: Net asset value
CECL: Current expected credit losses	NSF: Non-sufficient funds
CFPB: Consumer Financial Protection Bureau	OCI: Other comprehensive income (loss)
CIK: Central Index Key	OMSR: Originated mortgage servicing rights
COVID-19: Coronavirus disease 2019	OREO: Other real estate owned
DIF: Deposit Insurance Fund	PCAOB: Public Company Accounting Oversight Board
DIFS: Department of Insurance and Financial Services	Rabbi Trust: A trust established to fund our Directors Plan
Directors Plan: Isabella Bank Corporation and Related Companies Deferred Compensation Plan for Directors	RSP: Isabella Bank Corporation Restricted Stock Plan
Dividend Reinvestment Plan: Isabella Bank Corporation Stockholder Dividend Reinvestment Plan and Employee Stock Purchase Plan	SOFR: Secured Overnight Financing Rate
Exchange Act: Securities Exchange Act of 1934	SEC: U.S. Securities and Exchange Commission
FASB: Financial Accounting Standards Board	SOX: Sarbanes-Oxley Act of 2002
FDIC: Federal Deposit Insurance Corporation	XBRL: eXtensible Business Reporting Language
FFIEC: Federal Financial Institutions Examinations Council	Yield Curve: U.S. Treasury Yield Curve

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PART I

Item 1. Business.

General

Isabella Bank Corporation is a registered financial services 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.

As used in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations as well as in Item 8. Financial Statements and Supplementary Data, references to “the Corporation”, “Isabella”, “we”, “our”, “us”, and similar terms refer to the consolidated entity consisting of Isabella Bank Corporation and its subsidiary. References to Isabella Bank or “the Bank” refers to Isabella Bank Corporation’s subsidiary, Isabella Bank.

We are a community bank with a focus on providing high quality, personalized service at a fair price. We offer a broad array of banking and wealth management services to businesses, institutions, individuals and their families. We compete with other commercial banks, savings and loan associations, mortgage brokers, finance companies, credit unions, retail brokerage firms, and other companies providing financial services.

Lending activities include loans for commercial and agricultural operations and real estate purposes, residential real estate loans, and consumer loans. We limit lending activities primarily to local markets and purchased loans from the secondary market are minimal. We do not make loans to fund leveraged buyouts, have no foreign corporate or government loans, and have limited holdings of corporate debt securities. Our general lending philosophy is to limit concentrations to individuals and business segments. For additional information related to our lending strategies and policies, see “Note 4 – Loans and ACL” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.

Deposit services offered include checking accounts, savings accounts, certificates of deposit, direct deposits, cash management services, mobile and internet banking, and ATMs. We also offer full service investment management, trust and estate services.

As of December 31, 2023, we had 356 full-time equivalent employees. We provide group life, health, accident, disability, and other insurance programs as well as a number of other employee benefit programs. None of our workforce is subject to collective bargaining agreements.

Available Information

Our SEC filings (including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Definitive Proxy Statements, Current Reports on Form 8-K and amendments to those reports) are available through our website (www.isabellabank.com). We will provide paper copies of our SEC reports free of charge upon request by a shareholder.

The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information regarding Isabella Bank Corporation (CIK #0000842517) and other issuers.

Supervision and Regulation

The earnings and growth of the banking industry are affected by the credit policies of monetary authorities, including the FRB. An important function of the FRB is to regulate the national supply of bank credit in order to combat recessions and respond to inflationary pressures. Among the instruments of monetary policy used by the FRB to implement these objectives are open market operations in U.S. Treasury and U.S. Government Agency securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements against member bank deposits. These methods are used in varying combinations to influence overall growth of bank loans, investments and deposits and also affect interest rates charged on loans or paid for deposits. The monetary policies of the FRB have had a significant effect on the operating results of commercial banks and related financial service providers in the past and are expected to continue to do so in the future. The effect of such policies upon our future business and earnings cannot be predicted.

We, as a financial holding company, are regulated under the BHC Act, and are subject to the supervision of the FRB. We are registered as a financial services holding company with the FRB and are subject to reporting requirements and inspections and audits. Under FRB policy, we are expected to act as a source of financial strength to the Bank and to commit resources to support its subsidiaries. This support may be required at times when, in the absence of such FRB policy, it would not otherwise be required to provide support.

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Under Michigan law, if the capital of a Michigan state chartered bank has become impaired by losses or otherwise, the Commissioner of the DIFS may require that the deficiency in capital be met by assessment upon the bank’s shareholders. Each shareholder would be responsible for a pro rata share of the deficiency, based on the amount of capital stock held by each shareholder. If an assessment is not paid by any shareholder within 30 days of the date of notice to the shareholder, sale of their stock will occur in order to pay such assessment.

Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. This priority would apply to guarantees of capital plans under the FDIC Improvement Act of 1991.

SOX contains important requirements for public companies in the area of financial disclosure and corporate governance. In accordance with Section 302(a) of SOX, written certifications by our principal executive, financial, and accounting officers are required. These certifications attest that our quarterly and annual reports filed with the SEC do not contain any untrue statement of a material fact (see the certifications filed as Exhibits 31.1 and 31.2 to this Form 10-K for such certification of consolidated financial statements and other information for this 2023 Form 10-K). We have also implemented a program designed to comply with Section 404 of SOX, which included the identification of significant processes and accounts, documentation of the design effectiveness over process and entity level controls, and testing of the operating effectiveness of key controls. See Item 9A. Controls and Procedures for our evaluation of disclosure controls and procedures and internal control over financial reporting.

Certain additional information concerning regulatory guidelines for capital adequacy and other regulatory matters is presented herein under the caption “Capital” in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and in “Note 9 – Off-Balance-Sheet Activities, Commitments and Other Matters” and “Note 10 – Minimum Regulatory Capital Requirements” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.

Isabella Bank

The Bank is supervised and regulated by DIFS and the FRB. These agencies and federal and state laws extensively regulate various aspects of the banking business including, among other things, permissible types and amounts of loans, investments and other activities, capital adequacy, branching, interest rates on loans and deposits, and the safety and soundness of banking practices.

Our deposits are insured up to applicable limits by the DIF of the FDIC and are subject to deposit insurance assessments to maintain the DIF. The FDIC assesses insurance premiums based upon a financial ratios method that takes into account asset and capital levels and supervisory ratings.

Banking laws and regulations restrict transactions by insured banks owned by a bank holding company. These restrictions include loans to and certain purchases from the parent holding company, non-bank and bank subsidiaries of the parent holding company. Additional restrictions apply to principal shareholders, officers, directors and their affiliates, and investments by the subsidiary bank in the shares or securities of the parent holding company (or any of the other non-bank or bank affiliates), or acceptance of such shares or securities as collateral security for loans to any borrower.

The Bank is subject to legal limitations on the frequency and amount of dividends that can be paid to Isabella Bank Corporation. For example, a Michigan state chartered bank may not declare a cash dividend or a dividend in kind except out of net profits then on hand after deducting all losses and bad debts, and then only if it will have a surplus amounting to not less than 20% of its capital after the payment of the dividend. Moreover, a Michigan state chartered bank may not declare or pay any cash dividend or dividend in kind until the cumulative dividends on its preferred stock, if any, have been paid in full. Further, if the surplus of a Michigan state chartered bank is at any time less than the amount of its capital, before the declaration of a cash dividend or dividend in kind, it must transfer to surplus not less than 10% of its net profits for the preceding six months (in the case of quarterly or semi-annual dividends) or the preceding two consecutive six month periods (in the case of annual dividends).

The payment of dividends by Isabella Bank Corporation and the Bank is also affected by various regulatory requirements and policies, such as the requirement to keep adequate capital in compliance with regulatory guidelines. Federal laws impose further restrictions on the payment of dividends by insured banks that fail to meet specified capital levels. The FDIC may prevent an insured bank from paying dividends if the bank is in default of payment of any assessment due to the FDIC. In addition, payment of dividends by a bank may be prevented by the applicable federal regulatory authority if such payment is determined, by reason of the financial condition of such bank, to be an unsafe and unsound banking practice. The FRB and the

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FDIC have issued policy statements providing that bank holding companies and insured banks should generally pay dividends only out of current operating earnings. Additionally, the FRB Board of Governors requires a bank holding company to notify the FRB prior to increasing its cash dividend by more than 10% over the prior year.

The aforementioned regulations and restrictions may limit our ability to obtain funds from the Bank for our cash needs, including payment of dividends and operating expenses.

The activities and operations of the Bank are also subject to various federal and state laws and regulations.

Item 1A. Risk Factors.

In the normal course of business, we are exposed to various risks. These risks, if not managed correctly, could have a significant impact on our earnings, capital, share price, and ability to pay dividends. In order to effectively monitor and control the following risks, we utilize an enterprise risk model. We balance our strategic goals, including revenue and profitability objectives, with associated risks through the use of policies, systems, and procedures which have been adopted to identify, assess, control, monitor, and manage each risk area. We continually review the adequacy and effectiveness of these policies, systems, and procedures.

Our enterprise risk process covers each of the following areas.

Changes in credit quality and required allowance for credit losses

To manage the credit risk arising from lending activities, our most significant source of credit risk, we maintain sound underwriting policies and procedures. We continuously monitor asset quality in order to determine the appropriateness of valuation allowances. These valuation allowances take into consideration various factors including, but not limited to, local, regional, and national economic conditions.

We maintain an ACL to reserve for estimated expected credit losses within our loan portfolio. The level of the ACL reflects our evaluation of industry concentrations; specific credit risks; loan loss experience; loan portfolio quality; and economic, political and regulatory conditions. The determination of the appropriate level of the ACL inherently involves a high degree of subjectivity and requires us to make significant estimates, all of which may undergo material changes.

Changes in economic conditions

An economic downturn within our local markets, as well as downturns in the state, national, or global markets, could negatively impact household and corporate incomes. This could lead to decreased demand for both loan and deposit products and lead to an increase of customers who fail to pay interest or principal on their loans. We continually monitor key economic indicators in an effort to anticipate the possible effects of downturns in the local, regional, and national economies.

Our success depends primarily on the general economic conditions of the State of Michigan and the specific local markets in which we operate. We provide banking and financial services to customers located primarily in the Bay, Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw counties in Michigan. The local economic conditions in these areas have a significant impact on the demand for our products and services, as well as the ability of our customers to repay loans, the value of the collateral securing loans, and the stability of our deposit funding sources. A significant decline in general economic conditions, caused by inflation, recession, acts of terrorism, international or domestic occurrences, a health crisis, unemployment, changes in securities markets or other factors could impact these local economic conditions and, in turn, could have a material adverse effect on our financial condition and results of operations.

Interest rate risk

IRR results from the timing differences in the maturity or repricing frequency of a financial institution’s interest earning assets and its interest bearing liabilities. We monitor the potential effects of changes in interest rates through simulations and gap analyses. To help mitigate the effects of changes in interest rates, we make significant efforts to stagger projected cash flows and maturities of interest sensitive assets and liabilities.

Liquidity risk

Liquidity risk is the risk to earnings or capital arising from our inability to meet our obligations when they come due without incurring unacceptable and significant costs. Liquidity risk includes the inability to manage unplanned changes in funding sources, or failure to address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value. We have significant borrowing capacity through correspondent banks and the ability to sell certain investments to fund potential cash shortages, which we may use to help mitigate this risk.

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The value of investment securities may be negatively impacted by fluctuations in the market

A volatile, illiquid market or decline in credit quality could require us to recognize credit-related impairment to the investment securities held in our portfolio. We consider many factors in determining whether a credit-related impairment exists including the length of time and extent to which fair value has been less than cost, the investment credit rating, and the probability that the issuer will be unable to pay the amount when due. The presence of these factors could lead to impairment charges. These risks are mitigated by the fact that we do not intend to sell the security in an unrealized loss position and it is more likely than not that we will not have to sell the security before recovery of its cost basis.

Operational risk

Operational risk is the risk of loss resulting from failed or inadequate internal processes, staffing, information technology systems, or external events. These factors may lead to reputation risk and transaction risk. Reputation risk is managed by developing and retaining marketplace confidence in handling customers’ financial transactions in an appropriate manner and protecting our safety and soundness. Transaction risk includes losses from fraud, error, the inability to deliver products or services, and loss or theft of information. Transaction risk also encompasses product development and delivery, transaction processing, information technology systems, and the internal control environment.

To minimize potential losses due to operational risks, we have established a robust system of internal controls that are regularly tested by our internal audit department in conjunction with the services of certified public accounting firms who assist in performing such internal audit work. The focus of these internal audit procedures is to verify the validity and appropriateness of various transactions, processes, and controls. The results of these procedures are reported to our Audit Committee.

The adoption of, violations of, or nonconformance with laws, rules, regulations, or prescribed practices

The financial services industry and public companies are extensively regulated and must meet regulatory standards set by the FDIC, DIFS, FRB, FASB, SEC, PCAOB, CFPB, and other regulatory bodies. Federal and state laws and regulations are designed primarily to protect deposit insurance funds and consumers, and not necessarily to benefit our shareholders. The nature, extent, and timing of the adoption of significant new laws, changes in existing laws, or repeal of existing laws may have a material impact on our business, results of operations, and financial condition, the effect of which is impossible to predict at this time.

Our compliance department annually assesses the adequacy and effectiveness of our processes for controlling and managing our principal compliance risks.

Changes to the financial services industry as a result of regulatory changes or actions, or significant litigation

The financial services industry is extensively regulated by state and federal regulation that governs almost all aspects of our operations. Laws and regulations may change from time to time and are primarily intended for the protection of consumers, depositors, and the deposit insurance fund. The impact of any changes to laws and regulations or other actions by regulatory agencies may negatively impact us or our ability to increase the value of our business. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets by the institution, and the appropriateness of an institution’s ACL. Future regulatory changes or accounting pronouncements may increase our regulatory capital requirements or adversely affect our regulatory capital levels. Additionally, actions by regulatory agencies or significant litigation against us could require the dedication of significant time and resources to respond to those actions and may lead to penalties.

We may not adjust to changes in the financial services industry

Our financial performance depends in part on our ability to maintain and grow our core deposit customer base and expand our financial services to our existing and new customers. The increasingly competitive environment is, in part, a result of changes in technology and product delivery systems and the accelerating pace of consolidation among financial service providers. New competitors may emerge to increase the degree of competition for our products and services. Financial services and products are also constantly changing. Our financial performance is dependent upon customer demand for our products and services, our ability to develop and offer competitive financial products and services, and our ability to adapt to enhancements in financial technology.

We may be required to recognize an impairment of goodwill

Goodwill represents the excess of the amounts paid to acquire subsidiaries over the fair value of their net assets at the date of acquisition. The majority of the recorded goodwill is related to past acquisitions of other banks, which were subsequently

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merged into Isabella Bank. If it is determined that the goodwill is impaired, we must write-down the goodwill by the amount of the impairment.

We may face pressure from purchasers of our residential mortgage loans to repurchase loans sold or reimburse purchasers for losses related to such loans

We generally sell the fixed rate long-term residential mortgage loans we originate to the secondary market. The purchasers of residential mortgage loans, such as government sponsored entities, increased their efforts to require sellers of residential mortgage loans to either repurchase loans previously sold, or reimburse the purchasers for losses incurred on foreclosed loans due to actual or alleged failure to strictly conform to the terms of the contract.

Consumers may decide not to use banks to complete their financial transactions

Technology and other changes are allowing customers to complete financial transactions without the involvement of banks. For example, consumers can now pay bills and transfer funds directly without banks. The process of diminishing or removing banks as intermediaries in financial transactions could result in the loss of fee income, as well as the loss of customer deposits and income generated from those deposits.

Our estimates and assumptions may be incorrect

Our consolidated financial statements conform with GAAP, which require us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Estimates are based on information available to us at the time the estimates are made. Actual results could differ from estimates. For further discussion regarding significant accounting estimates, see “Note 1 – Significant Accounting Policies” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.

Unauthorized disclosure of sensitive or confidential client or customer information, whether through cyber attacks, breach of computer systems or other means

See Item 1C. Cybersecurity.

Disruption of infrastructure

Our operations depend upon our technological and physical infrastructure, including our equipment and facilities. Extended disruption of our vital infrastructure by fire, power loss, natural disaster, telecommunications failure, computer hacking and viruses, or other events outside of our control, could have a significant impact on our operations. We have developed and tested disaster recovery plans for all significant aspects of our operations.

Anti-takeover provisions

Our articles of incorporation include anti-takeover provisions that require a two-thirds majority vote of our shareholders to approve a sale of the Corporation. Additionally, changes to our articles of incorporation must be approved by a two-thirds majority vote of our shareholders.

Item 1B. Unresolved Staff Comments.

None.

Item 1C. Cybersecurity.

Cybersecurity Risk

As a financial institution, we may be the target of a security breach due to a cybersecurity attack. While we have not encountered a cybersecurity incident that has materially impacted our operations or financial results, a security breach due to a cyber-attack in the future could result in a material impact to us, our customers, and our third-party vendors. The risk of such event could increase in the future due to the expansion of mobile banking and other internet-based product offerings, our use of internet-based services for internal and external purposes, acquisition and integration of new products and other offerings, increased use of third-party software solutions, and the growing reliance on mobile devices.

Cybersecurity incidents have increased in number and severity and it is expected that these trends will continue. Techniques used in cyberattacks evolve frequently, are increasingly sophisticated, and may not be recognized until launched. Cyber-attacks can originate from a wide variety of sources, including both internal and external sources, cyber-criminals, hacktivists, groups linked to terrorist organizations or hostile countries, or third parties whose objective is to broadly disrupt the operations of

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financial institutions. We may be unable to fully prevent cyber-attacks due to the inability to anticipate, detect, or recognize threats to our systems, or to implement effective preventative measures against all breaches. In addition, we do not have control over the cybersecurity of the systems of our customers, counterparty, and third-party service providers.

Our products, services and systems are accessed through critical company or third-party operations. These operations involve the storage, processing and transmission of sensitive data, including proprietary or confidential data, regulated data, and personal information of employees and customers. Successful breaches, employee wrongdoing, or human or technological error could result in unauthorized access, disclosure, modification, misuse, loss, or destruction of company, customer, or other third-party data or systems. Examples of a breach include theft of sensitive, regulated, or confidential data, including personal information; loss of access to critical data or systems through ransomware, destructive attacks, or other means; and business delays, service or system disruptions, or denials of service.

Should we, or the third parties we do business with, fall victim to successful cyber-attacks or experience other cybersecurity incidents, the result could include negative consequences. Such consequences could include, but are not limited to: significant disruption of our operations and those of our customers, including losing access to important business systems; misappropriation of confidential information related to customers, counterparties, employees, or other parties; severe damage to our reputation; the inability, or extended delays in the ability, to fully recover and restore data that has been stolen, manipulated, or destroyed, or the inability to prevent systems from processing fraudulent transactions; violations of applicable privacy and other laws; financial loss to us or our customers, counterparties, or employees; exposure to the risk of litigation, regulation, and other liability, which may include fines or other penalties and increased cybersecurity or other insurance premiums. The extent of a particular cyber-attack and the steps we must take to investigate and respond to it may not be immediately clear, and it may take a significant amount of time before such an investigation can be completed.

We have cybersecurity insurance intended to cover expenses related to notification, credit monitoring, investigation, crisis management, public relations, and legal advice. In addition, we maintain insurance to cover restoration of data, certain physical damage, and third-party injuries caused by potential cybersecurity incidents. However, damage and claims arising from such incidents may not be covered or may exceed the amount of any insurance available. Insurance policies and coverage are reviewed at least annually in detail.

Risk Management

Cybersecurity threats are assessed, identified, and managed within our Enterprise Risk Management Framework. We use a multi-layered approach to effectively manage risk. This approach includes, but is not limited to: (1) employees who are responsible for and manage risk; (2) employees and systems that oversee, monitor, and report risk: and (3) independent assurance, evaluation, and oversight of risk management activities.

Our security strategy is a layered approach. We utilize multiple layers of defense, both internally and externally, to ensure the integrity of our systems and data. We engage reputable security partners (assessors, consultants, auditors, and other third parties) for real time analysis and protection of our network infrastructure. This includes the use of preventative and detective tools to monitor, block, and alert us to suspicious activity. We utilize industry and regulator recognized assessment tools, such as the FFIEC Cybersecurity Assessment Tool and the Ransomware Self-Assessment Tool, to identify potential cybersecurity threats as well as the impact they could have on the Bank. Dashboards are used to track and monitor cybersecurity activity and trends.

We have established programs in place to proactively mitigate and respond to cybersecurity risk. The Vendor Management Program provides management with a framework to evaluate new vendors and ensure ongoing monitoring of third parties, including the evaluation of cybersecurity risk. The Incident Response Plan provides a framework for management to respond to and minimize the impact of an incident involving our information technology systems, or that of one of our third-party providers. The Business Continuity Plan provides information to prepare for and manage a business disruption.

Governance

All employees play a critical role in managing cybersecurity risk. Our Enterprise Risk Management Framework utilizes the three lines of defense model to define roles and responsibilities to effectively manage risk. First line employees own and manage risk, the second line oversees, monitors, and reports risk, and the third line provides independent assurance of risk management activities.

We employ Information Technology staff to analyze and protect our network infrastructure. Members of our IT staff have relevant training and education in computer networks and systems, information security and intelligence, and hold industry certifications related to network security, enterprise IT governance, and risk and information systems control. In addition, our

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employees’ network with peer banks, participate in industry groups, and attend ongoing training to stay abreast of cybersecurity threats and best practices.

Within the Enterprise Risk Management Framework, we have established committees, both at the management and board level, to oversee risk, and ensure cybersecurity risk is escalated appropriately to the Board.

The Information Technology Risk Management Committee is chaired by the Chief Technology Officer and comprised         of IT management and other key stakeholders from across the Bank. They are responsible for identifying, measuring, monitoring, and controlling risk generated within IT, including cybersecurity risk. This committee reviews and updates risk assessments as necessary and monitors activity through risk reports and dashboards. A cybersecurity dashboard, which includes a summary of key risk metrics, is reviewed and monitored by the IT Risk Management. The Chief Technology Officer and Information Security Officer provide quarterly reports to the Board Risk Committee.

The Board Risk Committee assists the Board in fulfilling its responsibilities related to the oversight of the Bank’s     Enterprise Risk Management Framework. The Board Risk Committee oversees executive management's design, implementation, and maintenance of an effective risk management program to ensure compliance with laws and regulations, and operation within the parameters established in the Bank’s risk appetite statement. This includes a review of the cybersecurity dashboard which summarizes key risk indicators and identifies emerging risks.

The Board Risk Committee provides a verbal risk report and meeting minutes to the Board at least quarterly. This includes a discussion of key risks and effectiveness of internal controls. In addition, cybersecurity incidents are escalated to the Board in a timely manner using the processes defined within the Bank’s Incident Response Plan.

Item 2. Properties.

Our executive offices are located at 401 North Main Street in Mount Pleasant, Michigan. In addition to this location, we own 29 branches, two operations centers, and vacant land. We also lease property in Saginaw, Michigan which serves as a full-service branch and Bay City, Michigan which serves as a loan and wealth office. We continually monitor and assess the need for expansion and/or improvement of all facilities. In our opinion, each facility has sufficient capacity and is in good condition.

Item 3. Legal Proceedings.

We are not involved in any material legal proceedings. While we are involved in ordinary, routine litigation incidental to our business, no such routine proceedings are expected to result in any material adverse effect on our consolidated operations, earnings, financial condition, or cash flows.

Item 4. Mine Safety Disclosures.

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

(Dollars in thousands except per share amounts)

Common Stock and Dividend Information

Our authorized common stock consists of 15,000,000 shares, of which 7,485,889 shares are issued and outstanding as of December 31, 2023. As of that date, there were 2,674 shareholders of record.

Our common stock is traded in the over-the-counter market.  Our common stock is quoted on the OTCQX market tier of the OTC Markets Group Inc.’s ("OTC Markets") electronic quotation system (www.otcmarkets.com) under the symbol “ISBA”.  Other trades in our common stock occur in privately negotiated transactions from time to time for which we may have little or no information.

We have reviewed the information available as to the range of reported high and low transactions as reported by OTC Markets. The following table sets forth our compilation of that information for the periods indicated. Price information obtained from OTC Markets reflects inter-dealer prices, without retail mark up, mark down, or commissions and may not necessarily represent actual transactions. The following compiled data is provided for information purposes only and should not be viewed as indicative of the actual or market value of our common stock.

	Number of Common Shares	Sale Price
		Low		High
2023
First Quarter	131,476	$	22.08	$	25.10
Second Quarter	123,123	19.13		26.00
Third Quarter	128,216	19.61		23.00
Fourth Quarter	111,755	19.75		22.00
	494,570
2022
First Quarter	62,813	$	24.50	$	26.00
Second Quarter	68,013	23.00		26.25
Third Quarter	80,927	21.39		24.95
Fourth Quarter	118,260	21.00		24.02
	330,013

The following table sets forth the cash dividends paid for the quarters indicated:

	Per Share
	2023		2022
First Quarter	$	0.28	$	0.27
Second Quarter	0.28		0.27
Third Quarter	0.28		0.27
Fourth Quarter	0.28		0.28
Total	$	1.12	$	1.09

We have adopted and publicly announced a common stock repurchase plan. The plan was last amended on April 28, 2021, to allow for the repurchase of an additional 500,000 shares of common stock after that date. These authorizations do not have expiration dates. As shares are repurchased under this plan, they are retired with the status of authorized, but unissued, shares.

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The following table provides information for the unaudited three-month period ended December 31, 2023, with respect to our common stock repurchase plan:

	Common Shares Repurchased			Total Number of Common Shares Purchased as Part of Publicly Announced Plan or Program	Maximum Number of Common Shares That May Yet Be Purchased Under the Plans or Programs
	Number	Average Price Per Common Share
Balance, September 30					295,505
October 1 - 31	6,671	$	20.99	6,671	288,834
November 1 - 30	6,684	20.20		6,684	282,150
December 1 - 31	11,344	20.63		11,344	270,806
Balance, December 31	24,699	$	20.61	24,699	270,806

Information concerning securities authorized for issuance under equity compensation plans appears under Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 6. [Reserved]

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

ISABELLA BANK CORPORATION FINANCIAL REVIEW

(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.

Executive Summary

We reported net income of $18,167 and earnings per common share of $2.42 for the year ended December 31, 2023. Net income and earnings per common share for the same period of 2022 were $22,238 and $2.95, respectively. Net interest income decreased $2,537, or 4.19%, during 2023 compared to 2022. Rising interest rates and growth in core loans led to a $13,833, or 21.02%, increase in gross interest income during 2023 compared to 2022. Conversely, rising interest rates on deposits and an increase in borrowings led to a $16,370 increase in interest expense for the year ended December 31, 2023 when compared to the same period in 2022.

The provision for credit losses during the year ended December 31, 2023 was $629, compared to $483 for the same period in 2022. Credit quality remained strong at December 31, 2023, as evidenced by total past due and nonaccrual loans which were $4,964, or 0.37%, of gross loans. While maintaining strong credit quality, the ACL and provision for loan losses increased during 2023 as a result of core loan growth and economic related risk factors.

Noninterest income increased $161 during 2023 compared to the same period in 2022. This increase was driven by wealth management fees and ATM and debit card fee income, offset by a decrease in OMSR income and gain on sale of loans, as residential mortgages sold to the secondary market declined. Noninterest expenses increased $2,490 in 2023, when compared to the same period in 2022, and was primarily a result of increased compensation, equipment expense, other losses, and FDIC insurance premiums.

As of December 31, 2023, total assets and assets under management were $2,058,968 and $2,948,751, respectively. Assets under management include loans sold and serviced of $248,756 and investment and trust assets managed by Isabella Wealth of $641,027, in addition to assets on our consolidated balance sheet. Loans outstanding as of December 31, 2023 totaled $1,349,463. During 2023, gross loans grew $85,290 driven by growth in nearly all loan categories. Total deposits were $1,723,695 as of December 31, 2023, declining $20,580, or 1.2%, during the year as competition for deposits remained strong throughout 2023. All regulatory capital ratios for the Bank exceeded the minimum thresholds to be considered a "well capitalized" institution.

Our securities portfolio decreased $52,333 during 2023, predominantly due to maturities and principal paydowns. Unrealized losses on our AFS securities portfolio were $31,826 at December 31, 2023, improving $13,298 since December 31, 2022. Unrealized losses on our AFS securities portfolio resulted from increased short-term and intermediate-term benchmark interest rates throughout 2023. As a result, the higher level of unrealized losses has reduced our balance of shareholders' equity and negatively impacted our tangible book value. Management does not anticipate the need to sell securities and incur a loss as a result of the sale.

Our net yield on interest earning assets (FTE) was 3.05% for 2023, which decreased from 3.18% in 2022. To maintain a competitive edge in a rising interest rate environment, we increased most of our deposit rates beginning in the fourth quarter of 2022 and in recent periods, increased our level of borrowings to fund loan growth. As a result, this has negatively impacted our net yield on interest earning assets and further increases may slow improvement in our net yield on interest earning assets.

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Recent Events and Legislation

2023 Bank Failures and the Condition of the Banking Industry: In March 2023, disruptions in the industry resulted in FDIC seizures of three banking institutions. Each bank had its own unique balance sheet issues, none of which exist at Isabella Bank. Shortly after the FDIC takeovers, the Federal Reserve Bank and the Department of Treasury announced enhanced insurance coverage and a borrowing program to help banks in need of funding. Isabella Bank continues to monitor such events, as well as industry and regulatory responses, to assure we are prepared for any changes that might affect the bank, including the ability to timely address economic uncertainty.

Impact of the Adoption of ASC 326 (CECL): We adopted ASU No. 2016-13, as subsequently updated for certain clarifications, targeted relief and codification improvements, as of January 1, 2023. Based on portfolio characteristics and economic conditions and expectations as of January 1, 2023, we recorded a combined pre-tax increase of $3,059 to the ACL and reserve for unfunded commitments on January 1, 2023 upon the adoption of ASU 2016-13; this implementation resulted in a reduction to retained earnings of $2,417, net of tax, as of January 1, 2023. In connection with the adoption of ASC 326, we revised certain accounting policies and implemented certain accounting policy elections, which are included in “Note 1 – Significant Accounting Policies” of our interim condensed consolidated financial statements.

Reclassifications

Certain amounts reported in management's discussion and analysis of financial condition and results of operations for 2022 and 2021 have been reclassified to conform with the 2023 presentation.

Operating results for periods after January 1, 2023 are presented in accordance with ASC 326 while prior period amounts continue to be reported in accordance with previously applicable standards and the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2022. In addition, the adoption of ASC 326 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses.

Subsequent Events

We evaluated subsequent events after December 31, 2023 through the date our condensed consolidated financial statements were issued for potential recognition and disclosure. No subsequent events require financial statement recognition or disclosure between December 31, 2023 and the date our condensed consolidated financial statements were issued.

Other

We have not received, nor are aware of, any notices of regulatory actions as of March 6, 2024.

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Results of Operations

(Dollars in thousands except per share amounts)

The following table outlines the results of operations and provides certain key performance measures as of, and for the years ended, December 31:

	2023			2022			2021
INCOME STATEMENT DATA
Interest income	$	79,631		$	65,798		$	60,113
Interest expense	21,687			5,317			7,412
Net interest income	57,944			60,481			52,701
Provision for credit losses	629			483			(518)
Noninterest income	13,827			13,666			13,822
Noninterest expenses	49,310			46,820			43,694
Federal income tax expense	3,665			4,606			3,848
Net income	$	18,167		$	22,238		$	19,499
PER SHARE
Basic earnings	$	2.42		$	2.95		$	2.48
Diluted earnings	$	2.40		$	2.91		$	2.45
Dividends	$	1.12		$	1.09		$	1.08
Tangible book value (1)	$	20.59		$	18.25		$	21.61
Quoted market value
High	$	26.00		$	26.25		$	29.00
Low	$	19.13		$	21.00		$	19.45
Close (1)	$	21.50		$	23.50		$	25.50
Common shares outstanding (1)	7,485,889			7,559,421			7,532,641
PERFORMANCE RATIOS
Return on average total assets	0.89		%	1.08		%	0.96		%
Return on average shareholders' equity	9.52		%	11.41		%	8.83		%
Return on average tangible shareholders' equity	12.75		%	15.17		%	11.31		%
Net interest margin yield (FTE)	3.05		%	3.18		%	2.87		%
BALANCE SHEET DATA (1)
Gross loans	$	1,349,463		$	1,264,173		$	1,301,037
AFS securities	$	528,148		$	580,481		$	490,601
Total assets	$	2,058,968		$	2,030,267		$	2,032,158
Deposits	$	1,723,695		$	1,744,275		$	1,710,339
Borrowed funds	$	116,136		$	87,016		$	99,320
Shareholders' equity	$	202,402		$	186,210		$	211,048
Gross loans to deposits	78.29		%	72.48		%	76.07		%
ASSETS UNDER MANAGEMENT (1)
Loans sold with servicing retained	$	248,756		$	264,206		$	278,844
Assets managed by Isabella Wealth	$	641,027		$	513,918		$	516,243
Total assets under management	$	2,948,751		$	2,808,391		$	2,827,245
ASSET QUALITY (1)
Nonperforming loans to gross loans	0.08		%	0.04		%	0.10		%
Nonperforming assets to total assets	0.07		%	0.05		%	0.08		%
ACL to gross loans	0.97		%	0.78		%	0.70		%
CAPITAL RATIOS (1)
Shareholders' equity to assets	9.83		%	9.17		%	10.39		%
Tier 1 leverage	8.76		%	8.61		%	7.97		%
Common equity tier 1 capital	12.54		%	12.91		%	12.07		%
Tier 1 risk-based capital	12.54		%	12.91		%	12.07		%
Total risk-based capital	15.52		%	15.79		%	14.94		%

(1) At end of year

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The following table outlines our interim results of operations and key performance measures as of, and for the unaudited periods ended:

	Quarter to Date
	December 31 2023		September 30 2023		June 30 2023		March 31 2023
INCOME STATEMENT DATA
Total interest income	$	21,056	$	20,485	$	19,495	$	18,595
Total interest expense	7,444		6,183		4,816		3,244
Net interest income	13,612		14,302		14,679		15,351
Provision for loan losses	684		(292)		196		41
Noninterest income	3,516		3,414		3,604		3,293
Noninterest expenses	11,915		12,658		12,539		12,198
Federal income tax expense	726		937		918		1,084
Net income	$	3,803	$	4,413	$	4,630	$	5,321
PER SHARE
Basic earnings	$	0.51	$	0.59	$	0.62	$	0.70
Diluted earnings	$	0.51	$	0.58	$	0.61	$	0.70
Dividends	$	0.28	$	0.28	$	0.28	$	0.28
Quoted market value (1)	$	21.50	$	21.05	$	20.50	$	24.80
Tangible book value (1)	$	20.59	$	18.27	$	18.69	$	19.24

	Quarter to Date
	December 31 2022		September 30 2022		June 30 2022		March 31 2022
INCOME STATEMENT DATA
Total interest income	$	17,915	$	17,019	$	16,102	$	14,762
Total interest expense	1,643		1,216		1,175		1,283
Net interest income	16,272		15,803		14,927		13,479
Provision for loan losses	(57)		18		485		37
Noninterest income	3,272		3,252		3,595		3,547
Noninterest expenses	11,922		11,917		11,661		11,320
Federal income tax expense	1,357		1,233		1,081		935
Net income	$	6,322	$	5,887	$	5,295	$	4,734
PER SHARE
Basic earnings	$	0.84	$	0.78	$	0.70	$	0.63
Diluted earnings	$	0.83	$	0.77	$	0.69	$	0.62
Dividends	$	0.28	$	0.27	$	0.27	$	0.27
Quoted market value (1)	$	23.50	$	21.40	$	24.80	$	25.85
Tangible book value (1)	$	18.25	$	16.96	$	18.85	$	19.56

(1) At end of period

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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. For additional discussion concerning our ACL and related matters, see “ACL - Loans” and “Note 4 – 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 evaluated to determine if it is more likely than not that the carrying balance is impaired on at least an annual basis.

AFS securities are carried at fair value with changes in the fair value included as a component of other comprehensive income. Declines in the fair value of AFS securities below their cost that are other-than-temporary are reflected as realized losses in the consolidated statements of 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.

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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 and FHLB restricted equity holdings are included in other interest earning assets.

	Year Ended December 31
	2023						2022						2021
	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)	$	1,308,891	$	65,670	5.02	%	$	1,249,634	$	53,283	4.26	%	$	1,208,141	$	51,410	4.26	%
Taxable investment securities	485,718		9,399		1.94	%	477,159		8,294		1.74	%	297,357		4,920		1.65	%
Nontaxable investment securities	96,845		3,780		3.90	%	107,158		3,933		3.67	%	117,997		4,235		3.59	%
Fed funds sold	12		1		5.04	%	10		—		2.42	%	5		—		0.02	%
Other	41,965		1,804		4.30	%	99,301		1,344		1.35	%	255,246		706		0.28	%
Total earning assets	1,933,431		80,654		4.17	%	1,933,262		66,854		3.46	%	1,878,746		61,271		3.26	%
NONEARNING ASSETS
Allowance for credit losses	(12,784)						(9,477)						(9,396)
Cash and demand deposits due from banks	24,592						24,708						29,139
Premises and equipment	26,589						24,648						24,760
Accrued income and other assets	74,319						81,823						109,625
Total assets	$	2,046,147					$	2,054,964					$	2,032,874
INTEREST BEARING LIABILITIES
Interest bearing demand deposits	$	346,875	1,086		0.31	%	$	374,623	274		0.07	%	$	345,015	216		0.06	%
Savings deposits	626,027		8,290		1.32	%	630,574		1,135		0.18	%	558,102		616		0.11	%
Time deposits	308,699		8,976		2.91	%	270,296		2,612		0.97	%	336,094		4,610		1.37	%
Federal funds purchased and repurchase agreements	43,061		961		2.23	%	49,974		79		0.16	%	57,453		53		0.09	%
FHLB advances	23,699		1,309		5.52	%	7,863		152		1.93	%	69,342		1,302		1.88	%
Subordinated debt, net of unamortized issuance costs	29,287		1,065		3.64	%	29,200		1,065		3.65	%	17,000		615		3.62	%
Total interest bearing liabilities	1,377,648		21,687		1.57	%	1,362,530		5,317		0.39	%	1,383,006		7,412		0.54	%
NONINTEREST BEARING LIABILITIES
Demand deposits	461,689						482,781						416,247
Other	16,043						14,695						12,858
Shareholders’ equity	190,767						194,958						220,763
Total liabilities and shareholders’ equity	$	2,046,147					$	2,054,964					$	2,032,874
Net interest income (FTE)			$	58,967					$	61,537					$	53,859
Net yield on interest earning assets (FTE)					3.05	%					3.18	%					2.87	%

(1) Includes loans and mortgage loans AFS

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Net interest income is the amount by which interest income on earning assets exceeds the interest expense on interest bearing liabilities. Net interest income is influenced by changes in the balance and mix of assets and liabilities, as well as market interest rates. We exert some control over these factors; however, FRB monetary policy and competition have a significant impact. For analytical purposes, net interest income is adjusted to an FTE basis by including the income tax savings from interest on tax exempt loans and nontaxable investment securities, thus making year to year comparisons more meaningful. The FTE adjustment is based on a federal income tax rate of 21%.

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.

	2023 Compared to 2022   Increase (Decrease) Due to						2022 Compared to 2021   Increase (Decrease) Due to
	Volume		Rate		Net		Volume		Rate		Net
Changes in interest income
Loans	$	2,621	$	9,766	$	12,387	$	1,769	$	104	$	1,873
Taxable investment securities	151		954		1,105		3,114		260		3,374
Nontaxable investment securities	(393)		240		(153)		(396)		94		(302)
Fed Funds Sold	—		1		1		—		—		—
Other	(1,130)		1,590		460		(659)		1,297		638
Total changes in interest income	1,249		12,551		13,800		3,828		1,755		5,583
Changes in interest expense
Interest bearing demand deposits	(22)		834		812		20		38		58
Savings deposits	(8)		7,163		7,155		89		430		519
Time deposits	420		5,944		6,364		(796)		(1,202)		(1,998)
Federal funds purchased and repurchase agreements	(12)		894		882		(8)		34		26
FHLB advances	602		555		1,157		(1,187)		37		(1,150)
Subordinated debt, net of unamortized issuance costs	3		(3)		—		445		5		450
Total changes in interest expense	983		15,387		16,370		(1,437)		(658)		(2,095)
Net change in interest margin (FTE)	$	266	$	(2,836)	$	(2,570)	$	5,265	$	2,413	$	7,678

Over the past several quarters, rising rates on deposit accounts and an increase in borrowed funds have reversed the improvement in our net interest margin. The higher interest rate environment is expected to continue to place pressure and slow improvement on our net yield on interest earning assets.

	Average Yield / Rate for the Three-Month Periods Ended:
	December 31 2023		September 30 2023		June 30 2023		March 31 2023		December 31 2022
Total earning assets	4.38	%	4.30	%	4.11	%	3.89	%	3.77	%
Total interest bearing liabilities	2.13	%	1.79	%	1.41	%	0.95	%	0.49	%
Net yield on interest earning assets (FTE)	2.85	%	3.02	%	3.11	%	3.22	%	3.43	%

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	Quarter to Date Net Interest Income (FTE)
	December 31 2023		September 30 2023		June 30 2023		March 31 2023		December 31 2022
Total interest income (FTE)	$	21,302	$	20,735	$	19,750	$	18,867	$	18,183
Total interest expense	7,444		6,183		4,816		3,244		1,643
Net interest income (FTE)	$	13,858	$	14,552	$	14,934	$	15,623	$	16,540

Past Due and Nonaccrual Loans

Fluctuations in past due and nonaccrual loans can have a significant impact on the ACL. To determine the potential impact, and corresponding estimated losses, we analyze our historical loss trends on loans past due greater than 30 days and nonaccrual loans for indications of additional deterioration.

	Total Past Due and Nonaccrual Loans as of December 31
	2023			2022			2021			2020			2019
Commercial and industrial	$	656		$	617		$	203		$	1,790		$	1,936
Commercial real estate	—			6,887			358			358			559
Agricultural	205			234			987			3,786			4,285
Residential real estate	3,910			3,333			2,287			3,580			4,554
Consumer	193			59			196			96			71
Total	$	4,964		$	11,130		$	4,031		$	9,610		$	11,405
Total past due and nonaccrual loans to gross loans	0.37		%	0.88		%	0.31		%	0.78		%	0.96		%

The increase in past due and nonaccrual loans within the commercial real estate and residential loan portfolios at the end of 2022 was the result of one past due relationship, which has since improved. The accrual of interest on commercial and agricultural loans, as well as residential real estate loans, is discontinued at the time a loan is 90 days or more past due unless the credit is well-secured and in the process of short-term collection. Upon transferring a loan to nonaccrual status, we perform an evaluation to determine the net realizable value of the underlying collateral. This evaluation is used to help determine if a charge-off is necessary. Consumer loans are typically charged-off no later than 180 days past due. Loans may be placed back on accrual status after six months of continued performance and achievement of current payment status.

The following table summarizes nonaccrual loans as of:

	December 31 2023			September 30 2023			June 30 2023			March 31 2023			December 31 2022
Commercial and industrial	$	491		$	17		$	17		$	20		$	82
Commercial real estate	—			—			—			57			14
Agricultural	205			208			218			232			234
Residential real estate	286			295			179			179			127
Total	$	982		$	520		$	414		$	488		$	457
Nonaccrual loans as a % of loans at end of period	0.07		%	0.04		%	0.03		%	0.04		%	0.04		%

A summary of loans past due by type and information related to nonaccrual status loans are included in “Note 4 – Loans and ACL” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.

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Nonperforming Assets

The following table summarizes our nonperforming assets as of December 31:

	2023			2022			2021			2020			2019
Nonaccrual loans	$	982		$	457		$	1,245		$	5,313		$	6,535
Accruing loans past due 90 days or more	87			—			97			—			—
Total nonperforming loans	1,069			457			1,342			5,313			6,535
Foreclosed assets	406			439			211			527			456
Debt securities	12			77			131			230			230
Total nonperforming assets	$	1,487		$	973		$	1,684		$	6,070		$	7,221
Nonperforming loans as a % of total loans	0.08		%	0.04		%	0.10		%	0.43		%	0.55		%
Nonperforming assets as a % of total assets	0.07		%	0.05		%	0.08		%	0.31		%	0.40		%

ACL - Loans

The viability of any financial institution is ultimately determined by its management of risk. Loans represent our single largest concentration of risk. The ACL is our estimation of expected credit losses within the existing loan portfolio. We allocate the ACL throughout the loan portfolio based on our assessment of the underlying risks associated within each loan segment. Our assessments include allocations based on specific valuation allowances, historical charge-offs, internally assigned credit risk ratings, past due and nonaccrual balances, historical loss percentages, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future.

Upon the adoption of ASC 326 on January 1, 2023, the total amount of the allowance for credit losses on loans estimated using the CECL methodology increased $2,744 compared to the total amount of the allowance for credit losses on loans estimated as of December 31, 2022 using the prior incurred loss methodology. The manner in which credit loss allowances are allocated to the individual portfolio segments was partly impacted by a change in the way the underlying loans within each segment are pooled for modeling purposes. The impact of varying economic conditions and portfolio risk factors are now a component of the credit loss models applied to each modeling pool. In that regard, the amounts allocated to the underlying pools of loans within each portfolio segment more directly reflect the economic variables and portfolio stress factors that correlate with credit losses within each portfolio. Under the prior methodology, allocations in excess of those derived from historical loss rates were recognized as unallocated. Nonetheless, despite fluctuations in the allocation of portions of the overall allowance to the various portfolio segments, the entire allowance is available to absorb any credit losses within the entire loan portfolio.

The following table summarizes our charge-offs, recoveries, provision for credit losses, and ACL balances as of, and for the unaudited three month periods ended:

	December 31 2023			September 30 2023			June 30 2023			March 31 2023			December 31 2022
Total charge-offs	$	452		$	179		$	92		$	101		$	249
Total recoveries	71			433			95			110			479
Net loan charge-offs (recoveries)	381			(254)			(3)			(9)			(230)
Net loan charge-offs (recoveries) to average loans outstanding	0.03		%	(0.02)		%	0.00		%	0.00		%	(0.02)		%
Provision for credit losses - loans	$	684		$	(320)		$	190		$	37		$	(57)
Provision for credit losses to average loans outstanding	0.05		%	(0.02)		%	0.01		%	0.00		%	0.00		%
ACL	$	13,108		$	12,767		$	12,833		$	12,640		$	9,850
ACL as a % of loans at end of period	0.97		%	0.96		%	0.96		%	0.99		%	0.78		%

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The following table summarizes charge-off and recovery activity by loan segment for the year ended December 31, 2023:

	Commercial and Industrial			Commercial Real Estate			Agricultural			Residential Real Estate			Consumer			Total
Charge-offs	$	276		$	—		$	4		$	2		$	542		$	824
Recoveries	79			26			12			329			263			709
Net loan charge-offs (recoveries)	$	197		$	(26)		$	(8)		$	(327)		$	279		$	115
Average loans outstanding	$	203,390		$	547,166		$	96,967		$	345,630		$	97,485		$	1,290,638
Net loan charge-offs (recoveries) to average loans outstanding	0.10		%	—		%	(0.01)		%	(0.09)		%	0.29		%	0.01		%

The following table summarizes charge-offs, recoveries, and provision for credit loss activity for the years ended December 31:

	2023			2022			2021			2020			2019
Allowance at beginning of period	$	9,850		$	9,103		$	9,744		$	7,939		$	8,375
Adoption of ASC 326	2,744			—			—			—			—
Charge-offs	824			619			607			381			948
Recoveries	709			883			484			521			482
Provision for credit losses - loans	629			483			(518)			1,665			30
Allowance at end of period	$	13,108		$	9,850		$	9,103		$	9,744		$	7,939
Net loan charge-offs (recoveries)	$	115		$	(264)		$	123		$	(140)		$	466
Net loan charge-offs (recoveries) to average loans outstanding	0.01		%	(0.02)		%	0.01		%	(0.01)		%	0.04		%
ACL as a % of loans at end of period	0.97		%	0.78		%	0.70		%	0.79		%	0.67		%
ACL as a % of nonaccrual loans	1334.83		%	2155.36		%	731.16		%	183.40		%	121.48		%

The following table illustrates the two main components of the ACL as of:

	December 31 2023			September 30 2023			June 30 2023			March 31 2023			December 31 2022
ACL
Individually evaluated	$	84		$	—		$	—		$	—		$	451
Collectively evaluated	13,024			12,767			12,833			12,640			9,399
Total	$	13,108		$	12,767		$	12,833		$	12,640		$	9,850
ACL to gross loans
Individually evaluated	0.01		%	0.00		%	0.00		%	0.00		%	0.04		%
Collectively evaluated	0.96		%	0.96		%	0.96		%	0.99		%	0.74		%
Total	0.97		%	0.96		%	0.96		%	0.99		%	0.78		%

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The following table illustrates the amounts of the ACL and ALLL allocated to each loan segment and the percentage of these loan segments to gross loans as of December 31:

	2023			2022			2021			2020			2019
	ACL Allocation		% of Gross Loans	ALLL Allocation		% of Gross Loans	ALLL Allocation		% of Gross Loans	ALLL Allocation		% of Gross Loans	ALLL Allocation		% of Gross Loans
Commercial and industrial	$	968	15.54	$	860	14.11	$	680	13.91	$	704	17.37	$	644	14.25
Commercial real estate	5,878		41.82	461		44.78	1,060		42.89	1,458		39.99	1,270		42.22
Advances to mortgage brokers	—		1.37	—		—	—		5.53	—		4.06	—		2.99
Agricultural	270		7.41	577		8.30	289		7.27	311		8.12	634		9.87
Residential real estate	4,336		26.41	617		26.64	747		24.77	1,363		24.51	2,047		24.76
Consumer	1,656		7.45	961		6.17	908		5.63	798		5.95	922		5.91
Total Allocated	13,108		100.00	3,476		100.00	3,684		100.00	4,634		100.00	5,517		100.00
Unallocated	—		—	6,374		—	5,419		—	5,110		—	2,422		—
Total	$	13,108	100.00	$	9,850	100.00	$	9,103	100.00	$	9,744	100.00	$	7,939	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 4 – Loans and ACL” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.

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Noninterest Income and Noninterest Expenses

Significant noninterest income balances are highlighted in the following table for the years ended December 31:

					Change						Change
	2023		2022		$		%		2021		$		%
Service charges and fees
ATM and debit card fees	$	5,051	$	4,774	$	277	5.80	%	$	4,600	$	174	3.78	%
Service charges and fees on deposit accounts	2,413		2,566		(153)		(5.96)	%	2,139		427		19.96	%
Freddie Mac servicing fee	630		669		(39)		(5.83)	%	747		(78)		(10.44)	%
Net OMSR income (loss)	(137)		435		(572)		(131.49)	%	(184)		619		336.41	%
Other fees for customer services	340		286		54		18.88	%	312		(26)		(8.33)	%
Total service charges and fees	8,297		8,730		(433)		(4.96)	%	7,614		1,116		14.66	%
Wealth management fees	3,557		3,005		552		18.37	%	3,071		(66)		(2.15)	%
Earnings on corporate owned life insurance policies	920		884		36		4.07	%	800		84		10.50	%
Net gain on sale of mortgage loans	317		631		(314)		(49.76)	%	1,694		(1,063)		(62.75)	%
Other	736		416		320		76.92	%	643		(227)		(35.30)	%
Total noninterest income	$	13,827	$	13,666	$	161	1.18	%	$	13,822	$	(156)	(1.13)	%

During 2022, we experienced an increase in service charges and fees on deposit accounts mainly due to an increase in the number of deposit accounts. Although deposit accounts continued to grow in 2023, we experienced a decline in fees due to the discontinuation of NSF fees. Although we expect a continuation in deposit account growth in 2024, fee levels may not exceed 2023 due to continued regulatory discussions around the practice of service charges and fees.

OMSR income results are driven, in part, by changes in offering rates on residential mortgage loans, anticipated prepayments in the servicing-retained portfolio, and the volume of loans within the servicing-retained portfolio. During 2022, prepayment speeds declined as a result of an increase in interest rates, resulting in income recognized during 2022. During 2023 the volume of loans serviced decreased, resulting in the recognition of losses. OMSR income during 2024 may continue to experience fluctuations and could vary from 2023 levels.

During 2023, we experienced an increase in wealth management fees driven by a combination of the growth in the stock market and increased new business activity. During 2022, there was strong growth in assets managed by Isabella Wealth, however the decline in the market offset the increase in fees related to growth in new business. We expect wealth management fees to exceed 2023 levels in 2024 as a result of new business activity.

The amount of loans sold is driven by customer demand and balance sheet management strategies. We experienced a significant increase in loan demand in early 2021 which led to an increase in the number and dollar amount of loans sold; as such, net gain on sale of mortgage loans increased significantly. In mid-2021, we decided to retain more loan originations on the balance sheet, due to our liquidity position, thereby decreasing the number of mortgage loans sold, which had an impact on the net gain on loans sold. As a result of this change in strategy, coupled with a decline in loan demand due to increased interest rates, net gain on sale of mortgage loans declined in the second half of 2021 and during 2022. During 2023, we experienced a decrease in gain on sale of mortgage loans as loan demand continued to decline. As demand is expected to remain at reduced levels in 2024, gain on sale of mortgage loans is not expected to exceed 2023 levels during 2024.

The fluctuations in all other income are spread throughout various categories, none of which is individually significant.

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Significant noninterest expense balances are highlighted in the following table for the years ended December 31:

					Change						Change
	2023		2022		$		%		2021		$		%
Compensation and benefits	$	25,905	$	24,887	$	1,018	4.09	%	$	23,749	$	1,138	4.79	%
Furniture and equipment	6,519		6,006		513		8.54	%	5,462		544		9.96	%
Occupancy	3,778		3,691		87		2.36	%	3,661		30		0.82	%
Other
Audit, consulting, and legal fees	2,340		2,358		(18)		(0.76)	%	2,066		292		14.13	%
ATM and debit card fees	1,767		1,909		(142)		(7.44)	%	1,810		99		5.47	%
Marketing costs	1,159		1,056		103		9.75	%	939		117		12.46	%
Memberships and subscriptions	1,042		876		166		18.95	%	877		(1)		(0.11)	%
Loan underwriting fees	927		1,004		(77)		(7.67)	%	849		155		18.26	%
FDIC insurance premiums	922		537		385		71.69	%	690		(153)		(22.17)	%
Donations and community relations	915		923		(8)		(0.87)	%	705		218		30.92	%
Other losses	871		546		325		59.52	%	194		352		181.44	%
Director fees	764		790		(26)		(3.29)	%	703		87		12.38	%
All other	2,401		2,237		164		7.33	%	1,989		248		12.47	%
Total other noninterest expenses	13,108		12,236		872		7.13	%	10,822		1,414		13.07	%
Total noninterest expenses	$	49,310	$	46,820	$	2,490	5.32	%	$	43,694	$	3,126	7.15	%

The increase in compensation and benefits has been driven by merit increases and our employee incentive plans. We closely monitor compensation levels to ensure we attract and retain talent in a competitive labor market. While expenses related to our employee incentive plans fluctuate based on financial performance, compensation and benefits expense in 2024 is expected to continue to increase as a result of anticipated merit increases and insurance related benefits.

The decrease in ATM and debit card fees is primarily the result of a cost savings related to vendor reporting services. While the savings in the service fees will continue, ATM and debit card fees are expected to exceed 2023 levels in 2024 as a result of the continuation of increased card usage.

The increase in FDIC insurance premiums is due to the FDIC adopting a final rule, applicable to all insured depository institutions, to increase initial base deposit insurance assessment rate schedules uniformly by 2 basis points, beginning in the first quarterly assessment period of 2023. The increase in assessment rate schedules is intended to increase the likelihood that the reserve ratio of the Deposit Insurance fund reaches the statutory minimum of 1.35 percent by the statutory deadline of September 30, 2028. FDIC premiums are expected to maintain 2023 levels into 2024.

Donations and community relations increased during 2022 as a result of initiatives designed to deepen and strengthen our relationship with the communities in which we operate and serve, which includes an expanded footprint. During 2023 we maintained the same level of community support as in 2022. In 2024 we do not expect donations and community relations to exceed 2023 levels.

During the second quarter of 2023, we recognized a loss related to the settlement of a business matter. No further losses are anticipated related to this matter. As such, other losses are expected to decline during 2024 when compared to 2023 levels.

The fluctuations in all other noninterest expenses are spread throughout various categories, none of which is individually significant.

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Analysis of Changes in Financial Condition

The following table shows the composition and changes in our balance sheet as of December 31:

					Change
	2023		2022		$		%
ASSETS
Cash and cash equivalents	$	33,672	$	38,924	$	(5,252)	(13.49)	%
AFS securities
Amortized cost of AFS securities	559,974		625,605		(65,631)		(10.49)	%
Unrealized gains (losses) on AFS securities	(31,826)		(45,124)		13,298		N/M
AFS securities	528,148		580,481		(52,333)		(9.02)	%
Mortgage loans AFS	—		379		(379)		(100.00)	%
Loans	1,349,463		1,264,173		85,290		6.75	%
Less allowance for credit losses	13,108		9,850		3,258		33.08	%
Net loans	1,336,355		1,254,323		82,032		6.54	%
Premises and equipment	27,639		25,553		2,086		8.16	%
Corporate owned life insurance policies	33,892		32,988		904		2.74	%
Equity securities without readily determinable fair values	15,848		15,746		102		0.65	%
Goodwill and other intangible assets	48,284		48,287		(3)		(0.01)	%
Accrued interest receivable and other assets	35,130		33,586		1,544		4.60	%
TOTAL ASSETS	$	2,058,968	$	2,030,267	$	28,701	1.41	%
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits	$	1,723,695	$	1,744,275	$	(20,580)	(1.18)	%
Borrowed funds	116,136		87,016		29,120		33.47	%
Accrued interest payable and other liabilities	16,735		12,766		3,969		31.09	%
Total liabilities	1,856,566		1,844,057		12,509		0.68	%
Shareholders’ equity	202,402		186,210		16,192		8.70	%
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,058,968	$	2,030,267	$	28,701	1.41	%

A discussion of changes in balance sheet amounts by major categories follows:

Cash and cash equivalents

Included in cash and cash equivalents are funds held with the FRB which fluctuate from period to period. Cash levels declined slightly during 2023 driven by funding for loan growth.

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AFS securities

The primary objective of our investing activities is to manage our overall exposure to changes in interest rates. Secondary considerations include ensuring ample access to liquidity, generating returns, and providing current income. The following is a schedule of the carrying value of AFS securities as of December 31:

	2023		2022		2021
U.S. Treasury	$	214,801	$	208,701	$	209,703
States and political subdivisions	92,876		117,512		121,205
Auction rate money market preferred	2,931		2,342		3,242
Mortgage-backed securities	32,815		39,070		56,148
Collateralized mortgage obligations	177,775		205,728		92,301
Corporate	6,950		7,128		8,002
Total	$	528,148	$	580,481	$	490,601

Excluding those holdings in government sponsored enterprises and municipalities within the State of Michigan, there were no investments in securities of any one issuer that exceeded 10% of shareholders’ equity during 2023, 2022, and 2021. We have a policy prohibiting investments in securities that we deem unsuitable due to their inherent credit or market risks. Prohibited investments include stripped mortgage-backed securities, zero coupon bonds, non-government agency asset-backed securities, and structured notes. Our holdings in mortgage-backed securities and collateralized mortgage obligations include only government agencies and government sponsored agencies as we hold no investments in private label mortgage-backed securities or collateralized mortgage obligations.

The following is a schedule of maturities of AFS securities and their weighted average yields as of December 31, 2023. 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	$	—	—	$	214,801	0.98	$	—	—	$	—	—	$	—	—
States and political subdivisions	15,907		3.65	28,197		3.13	19,450		2.93	29,322		3.58	—		—
Mortgage-backed securities	—		—	—		—	—		—	—		—	32,815		2.36
Collateralized mortgage obligations	—		—	—		—	—		—	—		—	177,775		2.91
Auction rate money market preferred	—		—	—		—	—		—	—		—	2,931		7.78
Corporate	—		—	—		—	6,950		3.78	—		—	—		—
Total	$	15,907	3.65	$	242,998	0.27	$	26,400	3.15	$	29,322	3.58	$	213,521	2.90

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Loans

Loans are the largest component of earning assets. The proper management of credit and market risk inherent in the loan portfolio is critical to our financial stability. To control these risks, we have adopted 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. We have no foreign loans and there were no concentrations greater than 10% of total loans that are not disclosed as a separate category in the following table.

The following table presents the composition of the loan portfolio for the years ended December 31:

	2023		2022		2021		2020		2019
Commercial and industrial	$	209,738	$	178,428	$	180,975	$	215,101	$	169,116
Commercial real estate	564,244		566,012		557,905		495,232		500,876
Advances to mortgage brokers	18,541		—		72,001		50,258		35,523
Agricultural	99,994		104,985		94,634		100,600		117,136
Residential real estate	356,418		336,694		322,239		303,500		293,779
Consumer	100,528		78,054		73,283		73,620		70,140
Total	$	1,349,463	$	1,264,173	$	1,301,037	$	1,238,311	$	1,186,570

The following table presents the change in the loan portfolio categories for the years ended December 31:

	2023				2022				2021
	$ Change		% Change		$ Change		% Change		$ Change		% Change
Commercial and industrial	$	31,310	17.55	%	$	(2,547)	(1.41)	%	$	(34,126)	(15.87)	%
Commercial real estate	(1,768)		(0.31)	%	8,107		1.45	%	62,673		12.66	%
Advances to mortgage brokers	18,541		100.00	%	(72,001)		(100.00)	%	21,743		43.26	%
Agricultural	(4,991)		(4.75)	%	10,351		10.94	%	(5,966)		(5.93)	%
Residential real estate	19,724		5.86	%	14,455		4.49	%	18,739		6.17	%
Consumer	22,474		28.79	%	4,771		6.51	%	(337)		(0.46)	%
Total	$	85,290	6.75	%	$	(36,864)	(2.83)	%	$	62,726	5.07	%

We've experienced an increase in the commercial loan portfolio in recent periods as demand has increased. With the increased activity in mortgage lending in the second quarter of 2023, we elected to resume participation in a mortgage purchase program. Our participation in this program paused during most of 2022 and the first quarter of 2023 due to low mortgage volume. Residential mortgage lending activities continues to increase despite increased interest rates. As interest rates are expected to remain high throughout 2024, growth in residential loans is anticipated to continue, but at a slower pace. We've experienced growth in the consumer portfolio and expect this trend to continue in 2024.

Accrued interest receivable and other assets

Other assets consist primarily of prepaid expenses, OMSR, and net deferred tax assets. For more information related to estimates and deferred taxes, refer to “Note 1 – Significant Accounting Policies” and “Note 15 – Federal Income Taxes” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.

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Deposits

Deposits are our primary source of funding. The following table presents the composition of the deposit portfolio as of December 31:

	2023		2022		2021
Noninterest bearing demand deposits	$	428,505	$	494,346	$	448,352
Interest bearing demand deposits	320,737		372,155		364,563
Savings deposits	628,079		625,734		596,662
Certificates of deposit	346,125		251,541		297,696
Internet certificates of deposit	249		499		3,066
Total	$	1,723,695	$	1,744,275	$	1,710,339

The following table presents the change in the deposit categories for the years ended December 31:

	2023				2022
	$ Change		% Change		$ Change		% Change
Noninterest bearing demand deposits	$	(65,841)	(13.32)	%	$	45,994	10.26	%
Interest bearing demand deposits	(51,418)		(13.82)	%	7,592		2.08	%
Savings deposits	2,345		0.37	%	29,072		4.87	%
Certificates of deposit	94,584		37.60	%	(46,155)		(15.50)	%
Internet certificates of deposit	(250)		(50.10)	%	(2,567)		(83.72)	%
Total	$	(20,580)	(1.18)	%	$	33,936	1.98	%

Total deposits have decreased over the past 12 months driven by a decline in demand deposits. We have experienced significant growth in certificates of deposit accounts during 2023 as a result of increased interest rates. We expect interest rates on deposits to continue to rise into 2024 due to competitive pressures, and anticipate a continuation in the shift of customers moving to higher interest earning products.

The following table presents estimated balances of uninsured deposits as of December 31:

	2023		2022		2021		2020		2019
Uninsured deposits	$	600,381	$	585,901	$	548,213	$	461,859	$	336,399

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, 2023 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	$	13,396
Within 3 to 6 months	14,383
Within 6 to 12 months	23,555
Over 12 months	8,350
Total	$	59,684

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Borrowed Funds

Borrowed funds include FHLB advances, securities sold under agreements to repurchase, subordinated debt, and federal funds purchased. The balance of borrowed funds fluctuates from period to period based on our funding needs that arise from changes in loans, investments, and deposits. To provide balance sheet growth, we may utilize borrowings and brokered deposits to fund earning assets.

The following table presents borrowed funds balances as of December 31:

	2023		2022		2021
Securities sold under agreements to repurchase without stated maturity dates	$	46,801	$	57,771	$	50,162
FHLB advances	40,000		—		20,000
Subordinated debt, net of unamortized issuance costs	29,335		29,245		29,158
Total	$	116,136	$	87,016	$	99,320

FHLB advances outstanding as of December 31, 2023 were short-term, with maturities within a week after December 31, 2023. In 2021, we completed a private placement of $30,000 in aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031 (the "Notes"). The Notes will initially bear a fixed interest rate of 3.25% until June 15, 2026, after which time until maturity on June 15, 2031, the interest rate will reset quarterly to an annual floating rate equal to the then-current 3-month SOFR plus 256 basis points. The Notes are redeemable by us at our option, in whole or in part, on or after June 15, 2026. The Notes are not subject to redemption at the option of the holders. For additional disclosure related to borrowed funds, see “Note 8 – Borrowed Funds” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.

Accrued interest payable and other liabilities

Included in accrued interest payable and other liabilities are obligations related to our defined benefit pension plan and other employee benefits. For more information on the defined benefit pension plan and other employee benefits, see “Note 12 – Benefit Plans” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.

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 indicate our future cash requirements.

For additional disclosure related to Contractual Obligations and Loan Commitments, see “Note 9 – Off-Balance-Sheet Activities, Commitments and Other Matters” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.

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 75,488 shares or $1,617 of common stock during 2023, and 74,445 shares or $1,762 of common stock in 2022. 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 $529 and $463 during 2023 and 2022, respectively. We also grant restricted stock awards pursuant to the RSP, effective June 24, 2020. Pursuant to this plan, we increased shareholders’ equity by $253 and $147 during 2023 and 2022.

We have publicly announced a common stock repurchase plan. Pursuant to this plan, we repurchased 149,020 shares or $3,415 of common stock during 2023 and 47,665 shares or $1,124 during 2022. As of December 31, 2023, we were authorized to repurchase up to an additional 270,806 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.

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The common equity tier 1 capital ratio has a minimum requirement of 4.50%. The minimum standard for primary, or Tier 1 capital is 6.00% and the minimum standard for total capital is 8.00%. The minimum requirements presented below include the minimum required capital levels based on the Basel III Capital Rules. Capital requirements to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules. The following table sets forth these requirements and our ratios as of December 31:

	2023						2022
	Actual		Minimum Required - BASEL III		Required to be Considered Well Capitalized		Actual		Minimum Required - BASEL III		Required to be Considered Well Capitalized
Common equity tier 1 capital	12.54	%	7.00	%	6.50	%	12.91	%	7.00	%	6.50	%
Tier 1 capital	12.54	%	8.50	%	8.00	%	12.91	%	8.50	%	8.00	%
Total capital	15.52	%	10.50	%	10.00	%	15.79	%	10.50	%	10.00	%
Tier 1 leverage	8.76	%	4.00	%	5.00	%	8.61	%	4.00	%	5.00	%

Total capital includes Tier 1 capital and Tier 2 capital. Tier 2 capital includes a permissible portion of the allowances for credit losses and subordinated debt, net of unamortized issuance costs. There are no significant regulatory constraints placed on our capital. At December 31, 2023, the Bank exceeded minimum capital requirements. For further information regarding the Bank’s capital requirements, see “Note 10 – Minimum Regulatory Capital Requirements” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.

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 cash and cash equivalents and unencumbered AFS securities. These categories totaled $381,417 or 18.52% of assets as of December 31, 2023, compared to $488,981 or 24.08% as of December 31, 2022. The decline in the amount and percentage of primary liquidity is a direct result of an increase in loans and a decrease in unencumbered AFS securities collateralizing non-market funding. 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.

Deposit accounts are our primary source of funds. Our secondary sources include the ability to borrow from the FHLB, from the FRB, and through various correspondent banks in the form of federal funds purchased and a line 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, 2023, we had available lines of credit of $338,080.

The frequency and complexity of our liquidity stress testing has increased due to economic uncertainly and changes within the interest rate and economic environment. Our liquidity position remained strong at the end of 2023, which is illustrated in the following table:

	December 31 2023
Total cash and cash equivalents	$	33,672
Available lines of credit
Fed funds lines with correspondent banks	93,000
FHLB borrowings	211,860
FRB Discount Window	28,220
Other lines of credit	5,000
Total available lines of credit	338,080
Unencumbered lendable value of FRB collateral, estimated1	320,000
Total cash and liquidity	$	691,752

(1)Includes estimated unencumbered lendable value of FHLB collateral of $230,000

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The following table summarizes our sources and uses of cash for the years ended December 31:

	2023		2022		$ Variance
Net cash provided by (used in) operating activities	$	23,715	$	26,937	$	(3,222)
Net cash provided by (used in) investing activities	(25,779)		(106,255)		80,476
Net cash provided by (used in) financing activities	(3,188)		12,912		(16,100)
Increase (decrease) in cash and cash equivalents	(5,252)		(66,406)		61,154
Cash and cash equivalents January 1	38,924		105,330		(66,406)
Cash and cash equivalents December 31	$	33,672	$	38,924	$	(5,252)

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, impaired 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 17 – Fair Value” of “Notes to Consolidated Financial Statements” in Item 8. Financial Statements and Supplementary Data.

Market Risk

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 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 market place. Generally, a decrease in interest rates will result in an increase in cash flows from these assets. A significant portion of our securities are callable or have prepayment options. The call and prepayment options are more likely to be exercised in a period of decreasing interest rates. 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.

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We do not believe there has been a material change in the nature or categories of our primary market risk exposure, or the particular markets that present the primary risk of loss. We do not know of or expect there to be any material change in the general nature of our primary market risk exposure in the near term, and we do not expect to make material changes to our market risk methods in the near term. We may change those methods in the future to adapt to changes in circumstances or to implement new techniques.

Gap analysis is also 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. One specific focus of interest rate sensitivity is the loan portfolio, primarily with commercial and agricultural loans.

The following table shows the maturity of loans outstanding at December 31, 2023 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	$	33,643	$	94,909	$	40,710	$	40,476	$	209,738
Commercial real estate	28,478		70,347		148,297		317,122		564,244
Advances to mortgage brokers	18,541		—		—		—		18,541
Agricultural	9,195		24,821		29,919		36,059		99,994
Residential real estate	4,165		17,302		130,237		204,714		356,418
Consumer	2,547		40,303		57,079		599		100,528
Total	$	96,569	$	247,682	$	406,242	$	598,970	$	1,349,463
Fixed interest rates
Commercial and industrial	$	5,300	$	67,963	$	15,781	$	78	$	89,122
Commercial real estate	23,068		58,228		21,030		593		102,919
Advances to mortgage brokers	18,541		—		—		—		18,541
Agricultural	3,126		8,710		4,514		634		16,984
Residential real estate	2,417		8,529		93,303		23,870		128,119
Consumer	2,289		39,912		57,035		599		99,835
Total	$	54,741	$	183,342	$	191,663	$	25,774	$	455,520
Variable interest rates
Commercial and industrial	$	28,343	$	26,946	$	24,929	$	40,398	$	120,616
Commercial real estate	5,410		12,119		127,267		316,529		461,325
Advances to mortgage brokers	—		—		—		—		—
Agricultural	6,069		16,111		25,405		35,425		83,010
Residential real estate	1,748		8,773		36,934		180,844		228,299
Consumer	258		391		44		—		693
Total	$	41,828	$	64,340	$	214,579	$	573,196	$	893,943

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The information presented in the section captioned “Market Risk” in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference.

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Item 8. Financial Statements and Supplementary Data.

The following consolidated financial statements accompanied by the report of our independent registered public accounting firm are set forth beginning on the following page of this report:

Report of Independent Registered Public Accounting Firm, Rehmann Robson LLC (PCAOB ID: 263)

Consolidated Balance Sheets

Consolidated Statements of Changes in Shareholders’ Equity

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Supplementary data regarding quarterly results of operations is included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Isabella Bank Corporation (the "Corporation")

Mount Pleasant, Michigan

Opinion on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Isabella Bank Corporation as of December 31, 2023 and 2022, and the related consolidated statements of changes in shareholders’ equity, income, comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively referred to as the financial statements). We also have audited Isabella Bank Corporation’s internal control over financial reporting as of December 31, 2023, based on criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Isabella Bank Corporation as of December 31, 2023 and 2022, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion Isabella Bank Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.

Adoption of New Accounting Standard

As discussed in Notes 1 and 4 to the consolidated financial statements, Isabella Bank Corporation changed its method for accounting for credit losses on loans in 2023. As explained below, auditing the Corporation's allowance for credit losses on loans, including adoption of the new accounting guidance related to the estimate of allowance for credit losses on loans, was a critical audit matter.

Basis for Opinions

Isabella Bank Corporation’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on Isabella Bank Corporation’s consolidated financial statements and on Isabella Bank Corporation’s internal control over financial reporting based on our integrated audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to Isabella Bank Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material misstatement exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A corporation’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the corporation; (2) provide reasonable assurance that transactions are recorded as

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necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the corporation are being made only in accordance with authorizations of management and directors of the corporation; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the corporation’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

One Critical Audit Matter

The critical audit matter communicated below arising from the current period audit of the financial statements was communicated or is required to be communicated to the Corporation's audit committee and (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, nor our opinion on internal control over financial reporting, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses

Description of the Matter

The Corporation’s loan portfolio totaled $1.3 billion as of December 31, 2023 and the associated allowance for credit losses on loans was $13.1 million at that date. The Corporation’s unfunded loan commitments totaled $321.7 million, with an associated allowance for credit loss of $315 thousand. Together these amounts represent the allowances for credit losses (“ACL”). As described in Notes 1 and 4 to the consolidated financial statements, in the cases of loans, the allowance for credit losses is a contra-asset valuation account, calculated in accordance with ASC 326 that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. As described in Notes 1 and 9 to the consolidated financial statements, in the case of unfunded loan commitments, the allowance for credit losses is a liability account, calculated in accordance with ASC 326, reported as a component of accrued interest payable and other liabilities. The Corporation adopted ASC 326 effective January 1, 2023. The amount of each allowance account represented management’s best estimate of current expected credit losses on these financial instruments considering all available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. In calculating the allowance for credit losses, most loans were segmented into pools based upon similar characteristics and risk profiles. For each loan pool, management measured expected credit losses over the life of each loan utilizing a model which measured probability of default (“PD”), probability of attrition (“PA”), loss given default (“LGD”), and exposure at default (“EAD”). Expected credit losses were calculated as the product of PD (adjusted for attrition), LGD, and EAD. PD and PA were estimated by analyzing internally sourced data related to historical performance of each loan pool over an economic cycle. PD and PA were adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over a reasonable and supportable forecast period. After the reasonable and supportable forecast period, the forecasted macroeconomic variables were reverted to their historical mean utilizing a rational, systematic basis. The LGD was based on historical recovery averages for each loan pool, adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over the reasonable and supportable forecast period. EAD was estimated using a linear regression model that estimates the average percentage of the loan balance that remains at the time of default. In some cases, management determined that an individual loan exhibited unique risk characteristics which differentiated the loan from other loans with the identified loan pools. In such cases the loans were evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Management qualitatively adjusted model results for risk factors that were not considered within the modeling processes but were nonetheless relevant in assessing the expected credit losses within the loan pools. These qualitative factor adjustments modified management’s estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk.

Auditing management’s estimate of the ACL involved a high degree of subjectivity due to the nature of the qualitative factor adjustments included in the allowances for credit losses and complexity due to the implementation of the PD, PA, LGD, and EAD models (the “Models”). Management’s identification and measurement of the qualitative factor adjustments is highly judgmental and could have a significant effect on the ACL.

How We Addressed the Matter in Our Integrated Audit

We obtained an understanding of the Corporation’s process for establishing the ACL, including the implementation of Models and the qualitative factor adjustments of the ACL. We evaluated the design and tested the operating effectiveness of related controls over the reliability and accuracy of data used to calculate and estimate the various components of the ACL, the

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accuracy of the calculation of the ACL, management’s review and approval of methodologies used to establish the ACL, validation procedures over the Models, analysis of changes in various components of the ACL relative to changes in the Corporation’s loan portfolio and economy and evaluation of the overall reasonableness and appropriateness of the ACL. In doing so, we tested the operating effectiveness of review and approval controls in the Corporation’s governance process designed to identify and assess the qualitative factor adjustments which is meant to measure expected credit losses associated with factors not captured fully in the other components of the ACL.

To test the reasonableness of the qualitative factor adjustments, we performed audit procedures that included, among others testing the appropriateness of the methodologies used by the Corporation to estimate the ACL, testing the completeness and accuracy of data and information used by the Corporation in estimating the components of the ACL, assessing the reasonableness of the Models, evaluating the appropriateness of assumptions used in estimating the qualitative factor adjustments, analyzing the changes in assumptions and various components of the ACL relative to changes in the Corporation’s loan portfolio and the economy and evaluating the appropriateness and level of the qualitative factor adjustments. For example, we evaluated the appropriateness of the design and operation of the model, analyzed the changes, assumptions and modifications made to the qualitative factor adjustments, and evaluated the appropriateness and completeness of risk factors used in determining the amount of the qualitative factor adjustments. We also evaluated the data and information utilized by management to estimate the qualitative factor adjustments by independently obtaining internal and external data and information to assess the appropriateness of the data and information used by management and to consider the existence of new and potentially contradictory information used. In addition, we evaluated the overall ACL amounts, inclusive of the adjustments for the qualitative factor adjustments, and whether the amount appropriately reflects losses expected in the loan portfolio as of the consolidated balance sheet date by comparing the overall ACL to those established by similar banking institutions with similar loan portfolios. We also reviewed subsequent events and transactions and considered whether such information serves to corroborate or contradict the Corporation’s conclusion.

/s/Rehmann Robson LLC

We have served as Isabella Bank Corporation's independent auditor since 1996.

Saginaw, Michigan

March 7, 2024

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CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	December 31
	2023		2022
ASSETS
Cash and cash equivalents
Cash and demand deposits due from banks	$	25,628	$	27,420
Fed Funds sold and interest bearing balances due from banks	8,044		11,504
Total cash and cash equivalents	33,672		38,924
AFS securities, at fair value	528,148		580,481
Mortgage loans AFS	—		379
Loans	1,349,463		1,264,173
Less allowance for credit losses	13,108		9,850
Net loans	1,336,355		1,254,323
Premises and equipment	27,639		25,553
Corporate owned life insurance policies	33,892		32,988
Equity securities without readily determinable fair values	15,848		15,746
Goodwill and other intangible assets	48,284		48,287
Accrued interest receivable and other assets	35,130		33,586
TOTAL ASSETS	$	2,058,968	$	2,030,267
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Noninterest bearing	$	428,505	$	494,346
Interest bearing demand deposits	320,737		372,155
Certificates of deposit under $250 and other savings	857,768		810,642
Certificates of deposit over $250	116,685		67,132
Total deposits	1,723,695		1,744,275
Borrowed funds
Federal funds purchased and repurchase agreements	46,801		57,771
FHLB advances	40,000		—
Subordinated debt, net of unamortized issuance costs	29,335		29,245
Total borrowed funds	116,136		87,016
Accrued interest payable and other liabilities	16,735		12,766
Total liabilities	1,856,566		1,844,057
Shareholders’ equity
Common stock — no par value 15,000,000 shares authorized; issued and outstanding 7,485,889 shares (including 150,581 shares held in the Rabbi Trust) in 2023 and 7,559,421 shares (including 154,879 shares held in the Rabbi Trust) in 2022	127,323		128,651
Shares to be issued for deferred compensation obligations	3,693		5,005
Retained earnings	97,282		89,748
Accumulated other comprehensive income (loss)	(25,896)		(37,194)
Total shareholders’ equity	202,402		186,210
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,058,968	$	2,030,267

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in thousands except per share amounts)

	Common Stock
	Common Shares Outstanding	Amount		Common Shares to be Issued for Deferred Compensation Obligations		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Totals
Balance, January 1, 2021	7,997,247	$	142,247	$	4,183	$	64,460	$	7,698	$	218,588
Comprehensive income (loss)	—	—		—		19,499		(5,839)		13,660
Issuance of common stock	67,436	1,593		—		—		—		1,593
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations	—	71		(71)		—		—		—
Share-based payment awards under the Directors Plan	—	—		433		—		—		433
Share-based compensation expense recognized in earnings under the RSP	—	86		—		—		—		86
Common stock purchased for deferred compensation obligations	—	(1,187)		—		—		—		(1,187)
Common stock repurchased	(532,042)	(13,758)		—		—		—		(13,758)
Cash dividends paid ($1.08 per common share)	—	—		—		(8,367)		—		(8,367)
Balance, December 31, 2021	7,532,641	129,052		4,545		75,592		1,859		211,048
Comprehensive income (loss)	—	—		—		22,238		(39,053)		(16,815)
Issuance of common stock	74,445	1,762		—		—		—		1,762
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations	—	3		(3)		—		—		—
Share-based payment awards under the Directors Plan	—	—		463		—		—		463
Share-based compensation expense recognized in earnings under the RSP	—	147		—		—		—		147
Common stock purchased for deferred compensation obligations	—	(1,189)		—		—		—		(1,189)
Common stock repurchased	(47,665)	(1,124)		—		—		—		(1,124)
Cash dividends paid ($1.09 per common share)	—	—		—		(8,082)		—		(8,082)
Balance, December 31, 2022	7,559,421	128,651		5,005		89,748		(37,194)		186,210
Cumulative effect of accounting change - adoption of ASC 326	—	—		—		(2,417)		—		(2,417)
Comprehensive income (loss)	—	—		—		18,167		11,298		29,465
Issuance of common stock	75,488	1,617		—		—		—		1,617
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations	—	1,841		(1,841)		—		—		—
Share-based payment awards under the Directors Plan	—	—		529		—		—		529
Share-based compensation expense recognized in earnings under the RSP	—	253		—		—		—		253
Common stock purchased for deferred compensation obligations	—	(1,624)		—		—		—		(1,624)
Common stock repurchased	(149,020)	(3,415)		—		—		—		(3,415)
Cash dividends paid ($1.12 per common share)	—	—		—		(8,216)		—		(8,216)
Balance, December 31, 2023	7,485,889	$	127,323	$	3,693	$	97,282	$	(25,896)	$	202,402

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands except per share amounts)

	Year Ended December 31
	2023		2022		2021
Interest income
Loans, including fees	$	65,670	$	53,283	$	51,410
AFS securities
Taxable	9,514		8,363		4,920
Nontaxable	2,642		2,808		3,077
Federal funds sold and other	1,805		1,344		706
Total interest income	79,631		65,798		60,113
Interest expense
Deposits	18,352		4,021		5,442
Borrowings
Federal funds purchased and repurchase agreements	961		79		53
FHLB advances	1,309		152		1,302
Subordinated debt, net of unamortized issuance costs	1,065		1,065		615
Total interest expense	21,687		5,317		7,412
Net interest income	57,944		60,481		52,701
Provision for credit losses	629		483		(518)
Net interest income after provision for credit losses	57,315		59,998		53,219
Noninterest income
Service charges and fees	8,297		8,730		7,614
Wealth management fees	3,557		3,005		3,071
Earnings on corporate owned life insurance policies	920		884		800
Net gain on sale of mortgage loans	317		631		1,694
Other	736		416		643
Total noninterest income	13,827		13,666		13,822
Noninterest expenses
Compensation and benefits	25,905		24,887		23,749
Furniture and equipment	6,519		6,006		5,462
Occupancy	3,778		3,691		3,661
Other	13,108		12,236		10,822
Total noninterest expenses	49,310		46,820		43,694
Income before federal income tax expense	21,832		26,844		23,347
Federal income tax expense	3,665		4,606		3,848
NET INCOME	$	18,167	$	22,238	$	19,499
Earnings per common share
Basic	$	2.42	$	2.95	$	2.48
Diluted	$	2.40	$	2.91	$	2.45
Cash dividends per common share	$	1.12	$	1.09	$	1.08

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

	Year Ended December 31
	2023		2022		2021
Net income	$	18,167	$	22,238	$	19,499
Unrealized gains (losses) on AFS securities
Unrealized gains (losses) arising during the period	13,365		(50,015)		(8,371)
Reclassification adjustment for net realized (gains) losses included in net income	(67)		—		—
Comprehensive income (loss) before income tax (expense) benefit	13,298		(50,015)		(8,371)
Tax effect (1)	(2,669)		10,314		1,759
Unrealized gains (losses) on AFS securities, net of tax	10,629		(39,701)		(6,612)
Unrealized gains (losses) on derivative instruments
Unrealized gains (losses) on derivative instruments arising during the period	—		—		53
Tax effect (1)	—		—		(11)
Unrealized gains (losses) on derivative instruments, net of tax	—		—		42
Change in unrecognized pension cost on defined benefit pension plan
Change in unrecognized pension cost arising during the period	752		762		955
Reclassification adjustment for net periodic benefit cost included in net income	95		59		(31)
Net change in unrecognized pension cost	847		821		924
Tax effect (1)	(178)		(173)		(193)
Change in unrealized pension cost, net of tax	669		648		731
Other comprehensive income (loss), net of tax	11,298		(39,053)		(5,839)
Comprehensive income (loss)	$	29,465	$	(16,815)	$	13,660

(1)See “Note 16 – Accumulated Other Comprehensive Income (Loss)” in the accompanying notes to consolidated financial statements for tax effect reconciliation.

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Year Ended December 31
	2023		2022		2021
OPERATING ACTIVITIES
Net income	$	18,167	$	22,238	$	19,499
Reconciliation of net income to net cash provided by operating activities:
Provision for credit losses	629		483		(518)
Depreciation	1,978		2,071		2,314
Amortization of OMSR	137		97		597
Amortization of acquisition intangibles	3		15		29
Amortization of subordinated debt issuance costs	90		87		52
Net amortization of AFS securities	1,474		2,018		2,233
Net gains on sale of AFS securities	(67)		—		—
Net gain on sale of mortgage loans	(317)		(631)		(1,694)
Change in OMSR valuation allowance	—		(532)		—
Net (gains) losses on foreclosed assets	(158)		(13)		(39)
Increase in cash value of corporate owned life insurance policies, net of expenses	(904)		(818)		(751)
Gains from redemption of corporate owned life insurance policies	—		(57)		(271)
Share-based payment awards under the Directors Plan	529		463		433
Share-based payment awards under the RSP	253		147		86
Deferred income tax expense (benefit)	1,008		13		(523)
Origination of loans held-for-sale	(9,657)		(21,382)		(48,957)
Proceeds from loan sales	10,353		23,369		51,657
Net changes in operating assets and liabilities which provided (used) cash:
Accrued interest receivable and other assets	(809)		(2,813)		1,208
Accrued interest payable and other liabilities	1,006		2,182		146
Net cash provided by (used in) operating activities	23,715		26,937		25,501
INVESTING ACTIVITIES
Activity in AFS securities
Sales	18,089		—		—
Maturities, calls, and principal payments	57,001		68,956		100,289
Purchases	(10,866)		(210,869)		(262,266)
Purchase of equity investments	(102)		(250)		—
Net loan principal (originations) collections	(85,783)		36,672		(63,210)
Proceeds from sales of foreclosed assets	569		241		716
Purchases of premises and equipment	(4,064)		(3,205)		(1,593)
Purchases of corporate owned life insurance policies	—		—		(4,272)
Proceeds from redemption of corporate owned life insurance policies	—		359		1,114
Proceeds from sale of FHLB Stock	—		2,288		—
Purchases of FRB Stock	—		(401)		—
Funding of low income housing tax credit investments	(623)		(46)		(413)
Net cash provided by (used in) investing activities	(25,779)		(106,255)		(229,635)

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CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Dollars in thousands)

	Year Ended December 31
	2023		2022		2021
FINANCING ACTIVITIES
Net increase (decrease) in deposits	$	(20,580)	$	33,936	$	144,022
Net increase (decrease) in fed funds purchased and repurchase agreements	(10,970)		7,609		(18,585)
Net increase (decrease) in FHLB advances	40,000		(20,000)		(70,000)
Issuance of subordinated debt, net of unamortized issuance costs	—		—		29,106
Cash dividends paid on common stock	(8,216)		(8,082)		(8,367)
Proceeds from issuance of common stock	1,617		1,762		1,593
Common stock repurchased	(3,415)		(1,124)		(13,758)
Common stock purchased for deferred compensation obligations	(1,624)		(1,189)		(1,187)
Net cash provided by (used in) financing activities	(3,188)		12,912		62,824
Increase (decrease) in cash and cash equivalents	(5,252)		(66,406)		(141,310)
Cash and cash equivalents at beginning of period	38,924		105,330		246,640
Cash and cash equivalents at end of period	$	33,672	$	38,924	$	105,330
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest paid	$	21,052	$	5,313	$	7,601
Income taxes paid	2,350		4,425		4,050
SUPPLEMENTAL NONCASH INFORMATION:
Investment in low income housing tax credits	$	5,000	$	—	$	—
Transfers of loans to foreclosed assets	378		456		361

The accompanying notes are an integral part of these consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands except per share amounts)

Note 1 – Significant Accounting Policies

BASIS OF PRESENTATION AND CONSOLIDATION: The consolidated financial statements include the accounts of Isabella Bank Corporation, a financial services holding company, and its wholly owned subsidiary, Isabella Bank. All intercompany balances and accounts have been eliminated in consolidation. References to “the Corporation”, “Isabella”, “we”, “our”, “us”, and similar terms refer to the consolidated entity consisting of Isabella Bank Corporation and its subsidiary. References to Isabella Bank or “the Bank” refers to Isabella Bank Corporation’s subsidiary, Isabella Bank.

For additional information, see “Note 18 – Related Party Transactions.”

NATURE OF OPERATIONS: Isabella Bank Corporation is a financial services holding company offering a wide array of financial products and services in several mid-Michigan counties. Our banking subsidiary, Isabella Bank, offers banking services throughout 31 locations, 24 hour banking services locally and nationally through shared ATMs, online banking, mobile banking, and direct deposits to businesses, institutions, individuals and their families. Lending services offered include commercial loans, agricultural loans, residential real estate loans, and consumer loans. Deposit services include interest and noninterest bearing checking accounts, savings accounts, money market accounts, certificates of deposit, direct deposits, cash management services, mobile and internet banking, and ATMs. Other related financial products include trust and investment services, safe deposit box rentals, and various insurance related products. Active competition, principally from other commercial banks, savings and loan associations, mortgage brokers, finance companies, credit unions, retail brokerage firms, and insurance companies, exists in all of our principal markets. Our results of operations can be significantly affected by changes in interest rates, changes in the local economic environment and changes in regulations.

USE OF ESTIMATES: In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, we make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the ACL, the fair value of AFS investment securities, and the valuation of goodwill and other intangible assets.

ACCOUNTING CHANGES AND RECLASSIFICATIONS: Certain amounts reported in the 2022 and 2021 consolidated financial statements have been reclassified to conform with the 2023 presentation.

On January 1, 2023, we adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” as subsequently updated for certain clarifications, targeted relief and codification improvements. ASC 326 updated the measurement for credit losses for AFS debt securities and assets measured at amortized cost, which includes loans, trade receivables, and any other financial assets with the contractual right to receive cash and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses.

Prior to ASU No. 2016-13, GAAP required an “incurred loss” methodology for recognizing credit losses that delayed recognition until it was probable a loss has been incurred. Under the incurred loss approach, entities were limited to a probable initial recognition threshold when credit losses were measured; an entity generally considered only past events and current conditions when measuring the incurred loss.

We adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off balance sheet credit exposures. Results for reporting periods beginning January 1, 2023 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP and the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2022. We recorded a net decrease to retained earnings of $2,417 as of January 1, 2023 for the cumulative effect of adopting ASC 326.

We adopted ASC 326 using the prospective transition approach for AFS debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023. As a result, the amortized cost basis remains the same before and after the effective date of ASC 326. The effective interest rate on these debt securities was not changed. Amounts previously recognized in accumulated other comprehensive income as of January 1, 2023 relating to improvements in cash flows expected to be collected will be accreted into income over the remaining life of the asset. Recoveries of amounts previously written off relating to improvements in cash flows beginning January 1, 2023 will be recorded in earnings when received.

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The following table details the impact of the adoption of ASC 326:

	January 1, 2023
	Pre-Adoption Allowance		Impact of Adoption		Post-Adoption Allowance		Cumulative Effect on Retained Earnings
Loans:
Commercial and industrial	$	860	$	(58)	$	802	$	46
Commercial real estate	461		5,532		5,993		(4,370)
Agricultural	577		(247)		330		195
Residential real estate	617		3,535		4,152		(2,793)
Consumer	961		356		1,317		(281)
Unallocated	6,374		(6,374)		—		5,035
Total	$	9,850	$	2,744	$	12,594	$	(2,168)
Off-balance-sheet credit exposures	$	—	$	315	$	315	$	(249)

In connection with the adoption of ASC 326, we revised certain accounting policies and implemented certain accounting policy elections, which are provided below. All other accounting policies are materially the same as those discussed in Note 1 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.

FAIR VALUE MEASUREMENTS: Fair value refers to the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants in the market in which the reporting entity transacts such sales or transfers based on the assumptions market participants would use when pricing an asset or liability. Assumptions are developed based on prioritizing information within a fair value hierarchy that gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, such as the reporting entity’s own data. We may choose to measure eligible items at fair value at specified election dates.

For assets and liabilities recorded at fair value, it is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements for those financial instruments for which there is an active market. In cases where the market for a financial asset or liability is not active, we include appropriate risk adjustments that market participants would make for nonperformance and liquidity risks when developing fair value measurements. Fair value measurements for assets and liabilities for which limited or no observable market data exists are accordingly based primarily upon estimates, are often calculated based on the economic and competitive environment, the characteristics of the asset or liability and other factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values.

We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Investment securities AFS and derivative instruments are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record other assets and liabilities at fair value on a nonrecurring basis, such as mortgage loans AFS, collateral dependent loans, foreclosed assets, OMSR, goodwill, 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.

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Fair Value Hierarchy

Under fair value measurement and disclosure authoritative guidance, we group assets and liabilities measured at fair value into three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value, based on the prioritization of inputs in the valuation techniques. These levels are:

Level 1:	Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2:	Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model based valuation techniques for which all significant assumptions are observable in the market.
Level 3:	Valuation is generated from model based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. Transfers between measurement levels are recognized at the end of reporting periods.

For further discussion of fair value considerations, refer to “Note 17 – Fair Value.”

SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK: Most of our activities are conducted with customers located within the central Michigan area. A significant amount of our outstanding loans are secured by commercial and residential real estate. Other than these types of loans, there is no significant concentration to any other industry or any one customer.

CASH AND CASH EQUIVALENTS: For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and balances due from banks, federal funds sold, and other deposit accounts. Generally, federal funds sold are for a one day period. We maintain deposit accounts in various financial institutions which generally exceed federally insured limits or are not insured. We do not believe we are exposed to any significant interest, credit or other financial risk as a result of these deposits.

AFS SECURITIES: Purchases of investment securities are generally classified as AFS. However, we may elect to classify securities as either held to maturity or trading. Securities classified as AFS debt securities are recorded at fair value, with unrealized gains and losses, net of the effect of deferred income taxes, excluded from earnings and reported in other comprehensive income (loss). Included in AFS securities are auction rate money market preferred securities. These investments, for federal income tax purposes, have no federal income tax impact given the nature of the investments. Auction rate money market preferred securities are recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss). Purchase premiums and discounts are recognized in interest income using the interest method over the term of the securities. Realized gains and losses on the sale of AFS securities are determined using the specific identification method.

ACL - AFS SECURITIES: 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.

In order to determine the amount of the credit loss for a debt security, we calculate the recovery value by performing a discounted cash flow analysis based on the current cash flows and future cash flows we expect to recover. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. The amount of the impairment related to other risk factors is recognized as a component of other comprehensive income. Adjustments to the allowance are reported in the income statement as a provision for credit losses.

We made an accounting policy election to exclude accrued interest receivable on AFS securities from the estimate of credit losses. Accrued interest receivable on AFS securities was $2,247 at December 31, 2023. AFS securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management, or when criteria regarding intent or requirement to sell is met.

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LOANS: Loans that we have the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balance adjusted for any charge-offs, the ACL, and any deferred fees or costs. Interest income on loans is accrued over the term of the loan based on the principal amount outstanding. Loan origination fees and certain direct loan origination costs are capitalized and recognized as a component of interest income over the term of the loan using the appropriate yield methods.

The accrual of interest on agricultural, commercial and mortgage loans is discontinued at the time the loan is 90 days or more past due unless the credit is well secured and in the process of collection. Consumer loans are typically charged-off no later than 180 days past due. Past due status is based on contractual terms of the loan. In all cases, loans are placed in nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. For loans that are placed on nonaccrual status or charged-off, all interest accrued in the current calendar year, but not collected, is reversed against interest income while interest accrued in prior calendar years, but not collected is charged against the ACL. Interest income on loans in nonaccrual status is not recognized until qualifying for return to accrual status. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. For loans not classified as nonaccrual, interest income continues to be accrued over the term of the loan based on the principal amount outstanding.

ACL - LOANS: The ACL on loans is calculated in accordance with ASC 326 and is deducted from the amortized cost basis of loans to present our best estimate of the net amount expected to be collected. The ACL is established through a provision for credit losses charged to earnings. Loan losses are charged against the allowance when we believe the uncollectability of the loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. We made an accounting policy election to exclude accrued interest receivable on loans from the estimate of credit losses. Accrued interest receivable on loans was $5,920 at December 31, 2023.

We evaluate the ACL on a regular basis. Our periodic review of the collectability of loans considers historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions, and reasonable and supportable forecasts. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The ACL consists of a general component and loans individually analyzed. The general component covers loans not specifically analyzed and is based on historical loss experience, current conditions, and reasonable and supportable forecasts. The general component also includes uncertainties that we believe could affect our estimate of probable losses based on qualitative factors.

Loans in nonaccrual status are individually analyzed on a loan-by-loan basis. Loans evaluated individually are not included in the general, or pooled, component of the ACL. For collateralized loans, the loan's specific allowance is measured by the fair value of the collateral approach. The specific reserve is based on the fair value of the collateral, less costs to sell if foreclosure is probable, and an allowance is established when the collateral value is lower than the carrying value of the loan. When the discounted cash flow method is used to measure the loan's specific allowance, the effective interest rate is used to discount expected cash flows to incorporate expected prepayments. An allowance is established when the discounted cash flows are lower than the carrying value of the loan. For large groups of smaller-balance, homogeneous loans, we may collectively evaluate these loans for measurement of an allowance.

LOANS HELD FOR SALE: Mortgage loans held for sale on the secondary market are carried at the lower of cost or fair value as determined by aggregating outstanding commitments from investors or current investor yield requirements. Net unrealized losses, if any, would be recognized as a component of other noninterest expenses.

Mortgage loans held for sale are sold with the mortgage servicing rights retained by us. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold.

TRANSFERS OF FINANCIAL ASSETS: Transfers of financial assets, including mortgage loans and participation loans, are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is determined to be surrendered when 1) the assets have been legally isolated from us, 2) the transferee obtains the right (free of conditions that constrain it from taking advantage of the right) to pledge or exchange the transferred assets, and 3) we do not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Other than servicing, we have no substantive continuing involvement related to these loans.

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SERVICING: Servicing assets are recognized as separate assets when rights are acquired through purchase or through sale of financial assets. We have no purchased servicing rights. For sales of mortgage loans, a portion of the cost of originating the loan is allocated to the servicing right based on relative fair value. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds and default rates and losses.

Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying rights into tranches based on predominant risk characteristics, such as interest rate, loan type, and investor type. Impairment is recognized through a valuation allowance for an individual tranche, to the extent that fair value is less than the capitalized amount for the tranche. If we later determine that all or a portion of the impairment no longer exists for a particular tranche, a reduction of the valuation allowance may be recorded as an increase to income. Capitalized servicing rights are reported in other assets and are amortized into noninterest income in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. The unpaid principal balance of mortgages serviced for others was $248,756 and $264,206 with capitalized servicing rights of $2,422 and $2,559 at December 31, 2023 and 2022, respectively, which are included in other assets.

Servicing fee income is recorded for fees earned for servicing loans for others. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. We recorded servicing fee revenue of $630, $669, and $747 related to residential mortgage loans serviced for others during 2023, 2022, and 2021, respectively, which is included in other noninterest income.

FORECLOSED ASSETS: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the lower of our carrying amount or fair value less estimated selling costs at the date of transfer, establishing a new cost basis. Any write downs based on the asset’s fair value at the date of acquisition are charged to the ACL. After foreclosure, property held for sale is carried at the lower of the new cost basis or fair value less costs to sell. Impairment losses on property to be held and used are measured at the amount by which the carrying amount of property exceeds its fair value. Costs relating to holding these assets are expensed as incurred. We periodically perform valuations and any subsequent write downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of our carrying amount or fair value less costs to sell. Foreclosed assets of $406 and $439 as of December 31, 2023 and 2022, respectively, are included in other assets.

PREMISES AND EQUIPMENT: Land is carried at cost. Buildings and equipment are carried at cost, less accumulated depreciation which is computed principally by the straight-line method based upon the estimated useful lives of the related assets, which range from 3 to 40 years. Major improvements are capitalized and appropriately amortized based upon the useful lives of the related assets or the expected terms of the leases, if shorter, using the straight-line method. Maintenance, repairs and minor alterations are charged to current operations as expenditures occur. We annually review these assets to determine whether carrying values have been impaired.

EQUITY SECURITIES WITHOUT READILY DETERMINABLE FAIR VALUES: Included in equity securities without readily determinable fair values are our holdings in FHLB stock and FRB stock. Equity securities without readily determinable fair values consist of the following holdings as of December 31:

	2023		2022
FHLB Stock	$	12,762	$	12,762
FRB Stock	2,400		2,400
Other	686		584
Total	$	15,848	$	15,746

EQUITY COMPENSATION PLANS: At December 31, 2023, the Directors Plan had 154,119 shares eligible to be issued to participants, for which the Rabbi Trust held 150,581 shares. We had 207,840 shares to be issued at December 31, 2022, with 154,879 shares held in the Rabbi Trust.

Under the RSP, compensation expense for nonvested stock awards is based on the fair value of the award on the measurement date. The fair value of nonvested stock awards is based on the date of the grant and is recognized over the requisite service period. The impact of forfeitures of share-based payment awards on compensation expense is recognized as forfeitures occur.

Compensation costs relating to share-based payment transactions are recognized as the services are rendered, with the cost measured based on the fair value of the equity or liability instruments issued (see “Note 12 – Benefit Plans”).

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CORPORATE OWNED LIFE INSURANCE: We have purchased life insurance policies on key members of management, partially for the purpose of funding certain post-retirement benefits. In the event of death of one of these individuals, we would receive a specified cash payment equal to the face value of the policy. Such policies are recorded at their cash surrender value, or the amount that can be realized on the balance sheet date. Increases in cash surrender value in excess of single premiums paid are reported as other noninterest income.

Of the purchased life insurance policies, we hold post retirement benefits with a present value estimated to be $2,515 and $2,905 as of December 31, 2023 and 2022, respectively, which is included in accrued interest payable and other liabilities. The expenses associated with these policies totaled $173, $61, and $33 for 2023, 2022, and 2021, respectively.

ACQUISITION INTANGIBLES AND GOODWILL: We previously acquired branch facilities and related deposits in business combinations accounted for as a purchase. The acquisitions included amounts related to the valuation of customer deposit relationships (core deposit intangibles). Core deposit intangibles arising from acquisitions are included in goodwill and other intangible assets are being amortized over their estimated lives and evaluated for potential impairment on at least an annual basis. Goodwill, which represents the excess of the purchase price over identifiable assets, is not amortized but is evaluated for impairment on at least an annual basis. Acquisition intangibles and goodwill are typically qualitatively evaluated to determine if it is more likely than not that the carrying balance is impaired. If it is determined that the carrying balance is more likely than not to be impaired, we perform a cash flow valuation to determine the extent of the potential impairment. This valuation method requires a significant degree of our judgment. In the event the projected undiscounted net operating cash flows for these intangible assets are less than the carrying value, the asset is recorded at fair value as determined by the valuation model.

OFF BALANCE SHEET CREDIT RELATED FINANCIAL INSTRUMENTS: In the ordinary course of business, we have entered into commitments to extend credit, including commitments under credit card arrangements, commercial lines of credit, home equity lines of credit, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded only when funded. In connection with these commitments, we established an allowance for credit losses related to off-balance-sheet credit exposures. The allowance, recorded in a liability account, is calculated in accordance with ASC 326 and represents expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. The estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment. The likelihood and expected amount of funding are based on historical utilization rates. No allowance is recognized if we have the unconditional right to cancel the obligation. The allowance is reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. Adjustments to the allowance are reported in our income statement as a component of provision for credit losses.

REVENUE RECOGNITION: Our revenue is comprised primarily of interest income, service charges and fees, gains on the sale of loans and AFS securities, earnings on corporate owned life insurance policies, and other noninterest income. Other noninterest income is typically service and performance driven in nature and comprised primarily of investment and trust advisory fees. We recognize revenue, excluding interest income and other income specifically scoped out, in accordance with ASC 606, Revenue From Contracts with Customers. Revenue is recognized when our performance obligation has been satisfied according to our contractual obligation.

FEDERAL INCOME TAXES: Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax assets or liabilities are determined based on the tax effects of the temporary differences between the book and tax basis on the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. Valuation allowances are established, where necessary, to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the year plus or minus the change during the year in deferred tax assets and liabilities.

We analyze our filing positions in the jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. We also treat interest and penalties attributable to income taxes, to the extent they arise, as a component of our noninterest expenses.

DEFINED BENEFIT PENSION PLAN: We maintain a noncontributory defined benefit pension plan, which was curtailed effective March 1, 2007. The service cost component of the defined benefit pension plan is included in “compensation and benefits” on the consolidated statements of income and is funded consistent with the requirements of federal laws and regulations. All other costs related to the defined benefit pension plan are included in “other” noninterest expenses on the consolidated statements of income. The current benefit obligation is included in "accrued interest payable and other liabilities" on the consolidated balance sheets. Inherent in the determination of defined benefit pension costs are assumptions concerning future events that will affect the amount and timing of required benefit payments under the plan. These assumptions include demographic assumptions such as mortality, a discount rate used to determine the current benefit obligation and a long-term

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expected rate of return on plan assets. Net periodic benefit cost includes the interest cost based on the assumed discount rate, an expected return on plan assets based on an actuarially derived market-related value of assets, and amortization of unrecognized net actuarial gains or losses. Actuarial gains and losses result from experience different from that assumed and from changes in assumptions (excluding asset gains and losses not yet reflected in market-related value). Amortization of actuarial gains and losses is included as a component of net periodic defined benefit pension cost.

For additional information, see “Note 12 – Benefit Plans.”

MARKETING COSTS: Marketing costs are expensed as incurred (see “Note 14 – Other Noninterest Expenses”).

Note 2 – Accounting Standards Updates

Pending Accounting Standards Updates

ASU No. 2023-09: “Income Tax (Topic 740): Improvement to Income tax Disclosures

In December 2023, ASU No. 2023-09 was issued to enhance the transparency and decision usefulness of income tax disclosures. The existing disclosure is being enhanced to provide information to help investors, lenders, creditors and all other allocators of capital asses how an entity's operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. The new authoritative guidance is effective for interim and annual periods beginning after December 15, 2024 and is not expected to have a significant impact on our operations or financial statement disclosures.

Note 3 – AFS Securities

The amortized cost and fair value of AFS securities, with gross unrealized gains and losses, are as follows as of December 31:

	2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury	$	231,218	$	—	$	16,417	$	214,801
States and political subdivisions	94,837		1,032		2,993		92,876
Auction rate money market preferred	3,200		—		269		2,931
Mortgage-backed securities	35,321		—		2,506		32,815
Collateralized mortgage obligations	187,248		—		9,473		177,775
Corporate	8,150		—		1,200		6,950
Total	$	559,974	$	1,032	$	32,858	$	528,148

	2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury	$	231,622	$	—	$	22,921	$	208,701
States and political subdivisions	122,023		392		4,903		117,512
Auction rate money market preferred	3,200		—		858		2,342
Mortgage-backed securities	42,309		—		3,239		39,070
Collateralized mortgage obligations	218,301		—		12,573		205,728
Corporate	8,150		—		1,022		7,128
Total	$	625,605	$	392	$	45,516	$	580,481

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The amortized cost and fair value of AFS securities by contractual maturity at December 31, 2023 are as follows:

	Maturing								Securities with Variable Monthly Payments or Noncontractual Maturities
	Due in One Year or Less		After One Year But Within Five Years		After Five Years But Within Ten Years		After Ten Years				Total
U.S. Treasury	$	—	$	231,218	$	—	$	—	$	—	$	231,218
States and political subdivisions	15,461		28,082		20,003		31,291		—		94,837
Auction rate money market preferred	—		—		—		—		3,200		3,200
Mortgage-backed securities	—		—		—		—		35,321		35,321
Collateralized mortgage obligations	—		—		—		—		187,248		187,248
Corporate	—		—		8,150		—		—		8,150
Total amortized cost	$	15,461	$	259,300	$	28,153	$	31,291	$	225,769	$	559,974
Fair value	$	15,907	$	242,998	$	26,400	$	29,322	$	213,521	$	528,148

Expected maturities for government sponsored enterprises and states and political subdivisions may differ from contractual maturities because issuers may have the right to call or prepay obligations.

As the auction rate money market preferred investments have continual call dates, they are not reported by a specific maturity group. Because of their variable monthly payments, mortgage-backed securities and collateralized mortgage obligations are not reported by a specific maturity group. Approximately $143,000 of the amortized cost of the collateralized mortgage portfolio consist of agency commercial mortgage-backed securities with defined maturity dates of less than ten years.

A summary of the sales activity of AFS securities during the years ended December 31 is displayed in the following table.

	2023		2022		2021
Proceeds from sales of AFS securities	$	18,089	$	—	$	—
Realized gains (losses)	$	67	$	—	$	—
Applicable income tax expense (benefit)	$	14	$	—	$	—

The information on the following tables pertains to AFS securities with gross unrealized losses at December 31, 2023 and 2022 aggregated by investment category and length of time that individual securities have been in a continuous loss position.

	December 31, 2023
	Less Than Twelve Months				Twelve Months or More
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Total Unrealized Losses
U.S. Treasury	$	—	$	—	$	16,417	$	214,801	$	16,417
States and political subdivisions	42		7,172		2,951		37,011		2,993
Auction rate money market preferred	—		—		269		2,931		269
Mortgage-backed securities	1		10		2,505		32,805		2,506
Collateralized mortgage obligations	116		4,554		9,357		173,221		9,473
Corporate	—		—		1,200		6,950		1,200
Total	$	159	$	11,736	$	32,699	$	467,719	$	32,858
Number of securities in an unrealized loss position:			22				186		208

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	December 31, 2022
	Less Than Twelve Months				Twelve Months or More
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Total Unrealized Losses
U.S. Treasury	$	1,388	$	18,331	$	21,533	$	190,370	$	22,921
States and political subdivisions	2,389		48,083		2,514		40,667		4,903
Auction rate money market preferred	—		—		858		2,342		858
Mortgage-backed securities	3,239		39,070		—		—		3,239
Collateralized mortgage obligations	12,408		201,317		165		4,411		12,573
Corporate	—		—		1,022		7,128		1,022
Total	$	19,424	$	306,801	$	26,092	$	244,918	$	45,516
Number of securities in an unrealized loss position:			178				266		444

The unrealized loss on our AFS securities portfolio resulted from the increase in short-term and intermediate-term interest rates.

As of December 31, 2023, no allowance for credit losses has been recognized on AFS securities in an unrealized loss position, as management does not believe any of the securities are impaired due to reasons of credit quality. This is based on our analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors related to our AFS securities and consideration of our historical credit loss experience and internal forecasts. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. Furthermore, management does not have the intent to sell any of the securities classified as AFS in the table above, and believes it is more likely than not that we will not have to sell any such securities before a recovery of cost. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their respective maturity date or repricing date, or if the market yields for such investments decline.

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Note 4 – Loans and ACL

Loan Composition

The following table provides a detailed listing of our loan portfolio at December 31:

	2023				2022
	Balance		Percent of Total		Balance		Percent of Total
Commercial and industrial
Secured	$	189,186	14.02	%	$	161,895	12.80	%
Unsecured	20,552		1.52	%	16,533		1.31	%
Total commercial and industrial	209,738		15.54	%	178,428		14.11	%
Commercial real estate
Commercial mortgage owner occupied	180,636		13.39	%	192,117		15.20	%
Commercial mortgage non-owner occupied	216,292		16.03	%	204,091		16.14	%
Commercial mortgage 1-4 family investor	89,208		6.61	%	85,278		6.75	%
Commercial mortgage multifamily	78,108		5.79	%	84,526		6.69	%
Total commercial real estate	564,244		41.82	%	566,012		44.78	%
Advances to mortgage brokers	18,541		1.37	%	—		—	%
Agricultural
Agricultural mortgage	69,044		5.12	%	73,002		5.77	%
Agricultural	30,950		2.29	%	31,983		2.53	%
Total agricultural	99,994		7.41	%	104,985		8.30	%
Residential real estate
Senior lien	313,459		23.23	%	300,225		23.75	%
Junior lien	5,945		0.44	%	3,282		0.26	%
Home equity lines of credit	37,014		2.74	%	33,187		2.63	%
Total residential real estate	356,418		26.41	%	336,694		26.64	%
Consumer
Secured - direct	37,948		2.81	%	37,127		2.94	%
Secured - indirect	59,324		4.40	%	37,814		2.98	%
Unsecured	3,256		0.24	%	3,113		0.25	%
Total consumer	100,528		7.45	%	78,054		6.17	%
Total	$	1,349,463	100.00	%	$	1,264,173	100.00	%

We grant commercial, agricultural, residential real estate, and consumer loans to customers situated primarily in Bay, Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw counties in Michigan. The ability of the borrowers to honor their repayment obligations is often dependent upon the real estate, agricultural, manufacturing, retail, gaming, tourism, health care, higher education, and general economic conditions of this region. Substantially all of our consumer and residential real estate loans are secured by various items of property, while commercial loans are secured primarily by real estate, business assets, and personal guarantees. A portion of loans is unsecured.

Loans that we have the intent and ability to hold in our portfolio are reported at their outstanding principal balance adjusted for any charge-offs, the ACL, and deferred fees or costs. Unless a loan has a nonaccrual status, interest income is accrued over the term of the loan based on the principal amount outstanding. Loan origination fees and certain direct loan origination costs are capitalized and recognized as a component of interest income over the term of the loan using the appropriate amortization method.

Commercial and agricultural loans include loans for commercial real estate, commercial operating loans, advances to mortgage brokers, farmland and agricultural production, and loans to states and political subdivisions. Repayment of these loans is dependent upon the successful operation and management of a business. We minimize our risk by limiting the amount of direct credit exposure to any one borrower to $18,000. Borrowers with direct credit needs of more than $18,000 may be serviced through the use of loan participations with other commercial banks. Commercial and agricultural real estate loans commonly require loan-to-value limits of 80% or less. Depending upon the type of loan, past credit history, and current operating results, we may require the borrower to pledge accounts receivable, inventory, property, or equipment. Government agency guarantee may be required. Personal guarantees and/or life insurance beneficiary assignments are generally required from the owners of

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closely held corporations, partnerships, and sole proprietorships. In addition, we may require annual financial statements, prepare cash flow analyses, and review credit reports.

We offer adjustable rate mortgages, construction loans, and fixed rate residential real estate loans which have amortization periods up to a maximum of 30 years. We consider the anticipated direction of interest rates, balance sheet duration, the sensitivity of our balance sheet to changes in interest rates, our liquidity needs, and overall loan demand to determine whether or not to sell fixed rate loans to Freddie Mac.

Our lending policies generally limit the maximum loan-to-value ratio on residential real estate loans to 100% of the lower of the appraised value of the property or the purchase price. Private mortgage insurance is typically required on loans with loan-to-value ratios in excess of 80% unless the loan qualifies for government guarantees.

Underwriting criteria for residential real estate loans generally include:

•Evaluation of the borrower’s ability to make monthly payments.

•Evaluation of the value of the property securing the loan.

•Ensuring the payment of principal, interest, taxes, and hazard insurance does not exceed 28% of a borrower’s gross income.

•Ensuring all debt servicing does not exceed 40% of income.

•Verification of acceptable credit reports.

•Verification of employment, income, and financial information.

Appraisals are performed by independent appraisers and are reviewed for appropriateness. Generally, mortgage loan requests are reviewed by our mortgage loan committee or through a secondary market underwriting system; loans in excess of $1,000 require the approval of one or more of the following committees: Internal Loan Committee, the Executive Loan Committee, or the Board of Directors.

Consumer loans include secured and unsecured personal loans. Loans are amortized for a period of up to 15 years based on the age and value of the underlying collateral. The underwriting emphasis is on a borrower’s perceived intent and ability to pay rather than collateral value. No consumer loans are sold to the secondary market.

Nonaccrual and Past Due Loans

The accrual of interest on commercial and agricultural loans, as well as residential real estate loans, is discontinued at the time a loan is 90 days or more past due unless the credit is well-secured and in the process of short-term collection. Upon transferring a loan to nonaccrual status, we perform an evaluation to determine the net realizable value of the underlying collateral. This evaluation is used to help determine if a charge-off is necessary. Consumer loans are typically charged-off no later than 180 days past due. Past due status is based on the contractual term of the loan. In all cases, a loan is placed in nonaccrual status at an earlier date if collection of principal or interest is considered doubtful.

When a loan is placed in nonaccrual status, all interest accrued in the current calendar year, but not collected, is reversed against interest income while interest accrued in prior calendar years, but not collected, is charged against the ACL. Loans may be returned to accrual status after six months of continuous performance and achievement of current payment status.

The following table summarizes nonaccrual loan data by class of loans as of December 31:

	2023				2022
	Total Nonaccrual Loans		Nonaccrual Loans with No ACL		Total Nonaccrual Loans		Nonaccrual Loans with No ACL
Commercial and industrial:
Secured	$	491	$	435	$	82	$	82
Commercial real estate:
Commercial mortgage 1-4 family investor	—		—		14		14
Agricultural:
Agricultural mortgage	38		38		67		67
Agricultural other	167		167		167		167
Residential real estate:
Senior lien	286		286		127		107
Total	$	982	$	926	$	457	$	437

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The following tables summarize the past due and current loans for the entire loan portfolio as of December 31:

	2023
	Past Due:
	30-59 Days		60-89 Days		90 Days or More		Current		Total		Accruing Loans 90 or More Days Past Due
Commercial and industrial
Secured	$	165	$	290	$	201	$	188,530	$	189,186	$	—
Unsecured	—		—		—		20,552		20,552		—
Total commercial and industrial	165		290		201		209,082		209,738		—
Commercial real estate
Commercial mortgage owner occupied	—		—		—		180,636		180,636		—
Commercial mortgage non-owner occupied	—		—		—		216,292		216,292		—
Commercial mortgage 1-4 family investor	—		—		—		89,208		89,208		—
Commercial mortgage multifamily	—		—		—		78,108		78,108		—
Total commercial real estate	—		—		—		564,244		564,244		—
Advances to mortgage brokers	—		—		—		18,541		18,541		—
Agricultural
Agricultural mortgage	—		—		—		69,044		69,044		—
Agricultural	—		—		—		30,950		30,950		—
Total agricultural	—		—		—		99,994		99,994		—
Residential real estate
Senior lien	3,188		349		201		309,721		313,459		87
Junior lien	—		—		—		5,945		5,945		—
Home equity lines of credit	—		—		—		37,014		37,014		—
Total residential real estate	3,188		349		201		352,680		356,418		87
Consumer
Secured - direct	3		—		—		37,945		37,948		—
Secured - indirect	181		—		—		59,143		59,324		—
Unsecured	9		—		—		3,247		3,256		—
Total consumer	193		—		—		100,335		100,528		—
Total	$	3,546	$	639	$	402	$	1,344,876	$	1,349,463	$	87

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	2022
	Past Due:
	30-59 Days		60-89 Days		90 Days or More		Current		Total		Accruing Loans 90 or More Days Past Due
Commercial and industrial
Secured	$	536	$	—	$	—	$	161,359	$	161,895	$	—
Unsecured	—		—		—		16,533		16,533		—
Total commercial and industrial	536		—		—		177,892		178,428		—
Commercial real estate
Commercial mortgage owner occupied	94		—		—		192,023		192,117		—
Commercial mortgage non-owner occupied	4,208		2,570		—		197,313		204,091		—
Commercial mortgage 1-4 family investor	—		—		14		85,264		85,278		—
Commercial mortgage multifamily	—		—		—		84,526		84,526		—
Total commercial real estate	4,302		2,570		14		559,126		566,012		—
Advances to mortgage brokers	—		—		—		—		—		—
Agricultural
Agricultural mortgage	—		—		—		73,002		73,002		—
Agricultural	—		—		—		31,983		31,983		—
Total agricultural	—		—		—		104,985		104,985		—
Residential real estate
Senior lien	3,025		225		—		296,975		300,225		—
Junior lien	—		—		—		3,282		3,282		—
Home equity lines of credit	38		—		—		33,149		33,187		—
Total residential real estate	3,063		225		—		333,406		336,694		—
Consumer
Secured - direct	1		—		—		37,126		37,127		—
Secured - indirect	45		8		—		37,761		37,814		—
Unsecured	4		—		—		3,109		3,113		—
Total consumer	50		8		—		77,996		78,054		—
Total	$	7,951	$	2,803	$	14	$	1,253,405	$	1,264,173	$	—

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Credit Quality Indicators

The following table displays commercial and agricultural loans by credit risk ratings and year of origination as of December 31:

	2023
	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and industrial: Secured
Risk ratings 1-3	$	15,061	$	4,324	$	6,188	$	6,666	$	422	$	449	$	12,305	$	—	$	45,415
Risk rating 4	38,680		35,245		22,065		4,523		2,469		1,762		29,826		—		134,570
Risk rating 5	391		2,634		233		305		111		101		1,994		—		5,769
Risk rating 6	—		—		4		207		6		128		2,596		—		2,941
Risk rating 7	465		—		—		24		2		—		—		—		491
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	54,597	$	42,203	$	28,490	$	11,725	$	3,010	$	2,440	$	46,721	$	—	$	189,186
Current year-to-date gross charge-offs	$	200	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	200
Commercial and industrial: Unsecured
Risk ratings 1-3	$	2,200	$	259	$	129	$	71	$	96	$	707	$	1,663	$	—	$	5,125
Risk rating 4	3,988		3,117		517		470		—		—		7,274		—		15,366
Risk rating 5	—		31		—		—		—		—		30		—		61
Risk rating 6	—		—		—		—		—		—		—		—		—
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	6,188	$	3,407	$	646	$	541	$	96	$	707	$	8,967	$	—	$	20,552
Current year-to-date gross charge-offs	$	8	$	—	$	—	$	—	$	—	$	—	$	68	$	—	$	76
Commercial real estate: Owner occupied
Risk ratings 1-3	$	3,592	$	1,712	$	12,655	$	14,228	$	761	$	3,313	$	211	$	—	$	36,472
Risk rating 4	12,148		33,392		39,406		14,086		13,384		19,942		1,506		—		133,864
Risk rating 5	1,460		727		195		220		3,829		1,761		464		—		8,656
Risk rating 6	—		—		870		234		—		540		—		—		1,644
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	17,200	$	35,831	$	53,126	$	28,768	$	17,974	$	25,556	$	2,181	$	—	$	180,636
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate: Non-owner occupied
Risk ratings 1-3	$	67	$	4,383	$	6,496	$	827	$	172	$	1,766	$	—	$	—	$	13,711
Risk rating 4	37,906		62,979		37,583		11,534		7,589		32,941		1,650		—		192,182
Risk rating 5	—		—		5,838		—		��		3,478		—		—		9,316
Risk rating 6	1,029		—		—		54		—		—		—		—		1,083
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	39,002	$	67,362	$	49,917	$	12,415	$	7,761	$	38,185	$	1,650	$	—	$	216,292
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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	2023
	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial real estate: 1-4 family investor
Risk ratings 1-3	$	286	$	1,445	$	864	$	905	$	666	$	887	$	1,352	$	—	$	6,405
Risk rating 4	13,492		11,641		30,604		15,124		3,036		3,111		4,538		—		81,546
Risk rating 5	152		354		77		—		55		—		—		—		638
Risk rating 6	555		—		—		—		59		5		—		—		619
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	14,485	$	13,440	$	31,545	$	16,029	$	3,816	$	4,003	$	5,890	$	—	$	89,208
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate: Multifamily
Risk ratings 1-3	$	4,509	$	4,682	$	2,053	$	568	$	—	$	1,515	$	—	$	—	$	13,327
Risk rating 4	2,792		19,465		15,981		813		549		21,263		554		—		61,417
Risk rating 5	—		—		—		4		—		—		—		—		4
Risk rating 6	—		—		32		—		—		3,328		—		—		3,360
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	7,301	$	24,147	$	18,066	$	1,385	$	549	$	26,106	$	554	$	—	$	78,108
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Advances to mortgage brokers
Risk ratings 1-3	$	18,541	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	18,541
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Agricultural mortgage
Risk ratings 1-3	$	292	$	2,834	$	1,241	$	2,786	$	604	$	964	$	94	$	—	$	8,815
Risk rating 4	5,622		12,903		8,970		5,940		3,926		7,883		566		—		45,810
Risk rating 5	126		4,098		5,886		689		175		60		756		—		11,790
Risk rating 6	842		—		—		—		—		1,749		—		—		2,591
Risk rating 7	—		—		—		—		—		38		—		—		38
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	6,882	$	19,835	$	16,097	$	9,415	$	4,705	$	10,694	$	1,416	$	—	$	69,044
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	4	$	—	$	—	$	4
Agricultural other
Risk ratings 1-3	$	801	$	81	$	121	$	38	$	183	$	141	$	2,659	$	—	$	4,024
Risk rating 4	1,830		2,481		2,280		619		146		75		14,405		—		21,836
Risk rating 5	753		8		163		507		—		480		2,731		—		4,642
Risk rating 6	—		—		32		—		—		—		249		—		281
Risk rating 7	—		—		—		—		—		—		167		—		167
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	3,384	$	2,570	$	2,596	$	1,164	$	329	$	696	$	20,211	$	—	$	30,950
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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The following table displays the credit quality indicators for commercial and agricultural credit exposures based on internally assigned credit risk ratings as of December 31:

	2022
	Commercial								Agricultural
	Real Estate		Other		Advances to Mortgage Brokers		Total		Real Estate		Other		Total		Total
Rating
1 - Excellent	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
2 - High quality	9,045		4,533		—		13,578		342		100		442		14,020
3 - High satisfactory	68,133		36,608		—		104,741		9,757		4,608		14,365		119,106
4 - Low satisfactory	462,421		126,673		—		589,094		44,258		21,214		65,472		654,566
5 - Special mention	20,770		7,447		—		28,217		12,262		4,634		16,896		45,113
6 - Substandard	5,629		3,085		—		8,714		6,316		1,260		7,576		16,290
7 - Vulnerable	14		82		—		96		67		167		234		330
8 - Doubtful	—		—		—		—		—		—		—		—
9 - Loss	—		—		—		—		—		—		—		—
Total	$	566,012	$	178,428	$	—	$	744,440	$	73,002	$	31,983	$	104,985	$	849,425

Internally assigned credit risk ratings are reviewed, at a minimum, when loans are renewed or when management has knowledge of improvements or deterioration of the credit quality of individual credits. Descriptions of the internally assigned credit risk ratings for commercial and agricultural loans are as follows:

1. EXCELLENT – Substantially Risk Free

Credit has strong financial condition and solid earnings history, characterized by:

•High liquidity, strong cash flow, low leverage.

•Unquestioned ability to meet all obligations when due.

•Experienced management, with management succession in place.

•Secured by cash.

2. HIGH QUALITY – Limited Risk

Credit with sound financial condition and a positive trend in earnings supplemented by:

•Favorable liquidity and leverage ratios.

•Ability to meet all obligations when due.

•Management with successful track record.

•Steady and satisfactory earnings history.

•If loan is secured, collateral is of high quality and readily marketable.

•Access to alternative financing.

•Well defined primary and secondary source of repayment.

•If supported by guaranty, the financial strength and liquidity of the guarantor(s) are clearly evident.

3. HIGH SATISFACTORY – Reasonable Risk

Credit with satisfactory financial condition and further characterized by:

•Working capital adequate to support operations.

•Cash flow sufficient to pay debts as scheduled.

•Management experience and depth appear favorable.

•Loan performing according to terms.

•If loan is secured, collateral is acceptable and loan is fully protected.

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4. LOW SATISFACTORY – Acceptable Risk

Credit with bankable risks, although some signs of weaknesses are shown:

•Would include most start-up businesses.

•Occasional instances of trade slowness or repayment delinquency – may have been 10-30 days slow within the past year.

•Management’s abilities are apparent yet unproven.

•Weakness in primary source of repayment with adequate secondary source of repayment.

•Loan structure generally in accordance with policy.

•If secured, loan collateral coverage is marginal.

To be classified as less than satisfactory, only one of the following criteria must be met.

5. SPECIAL MENTION – Criticized

Credit constitutes an undue and unwarranted credit risk but not to the point of justifying a classification of substandard. The credit risk may be relatively minor yet constitutes an unwarranted risk in light of the circumstances surrounding a specific loan:

•Downward trend in sales, profit levels, and margins.

•Impaired working capital position.

•Cash flow is strained in order to meet debt repayment.

•Loan delinquency (30-60 days) and overdrafts may occur.

•Shrinking equity cushion.

•Diminishing primary source of repayment and questionable secondary source.

•Management abilities are questionable.

•Weak industry conditions.

•Litigation pending against the borrower.

•Loan may need to be restructured to improve collateral position or reduce payments.

•Collateral or guaranty offers limited protection.

•Negative debt service coverage, however the credit is well collateralized and payments are current.

6. SUBSTANDARD – Classified

Credit is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged. There is a distinct possibility we will implement collection procedures if the loan deficiencies are not corrected. Any commercial loan placed in nonaccrual status will be rated “7” or worse. In addition, the following characteristics may apply:

•Sustained losses have severely eroded the equity and cash flow.

•Deteriorating liquidity.

•Serious management problems or internal fraud.

•Original repayment terms liberalized.

•Likelihood of bankruptcy.

•Inability to access other funding sources.

•Reliance on secondary source of repayment.

•Litigation filed against borrower.

•Interest non-accrual may be warranted.

•Collateral provides little or no value.

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•Requires excessive attention of the loan officer.

•Borrower is uncooperative with loan officer.

7. VULNERABLE – Classified

Credit is considered “Substandard” and warrants placing in nonaccrual status. Risk of loss is being evaluated and exit strategy options are under review. Other characteristics that may apply:

•Insufficient cash flow to service debt.

•Minimal or no payments being received.

•Limited options available to avoid the collection process.

•Transition status, expect action will take place to collect loan without immediate progress being made.

8. DOUBTFUL – Workout

Credit has all the weaknesses inherent in a “Substandard” loan with the added characteristic that collection and/or liquidation is pending. The possibility of a loss is extremely high, but its classification as a loss is deferred until liquidation procedures are completed, or reasonably estimable. Other characteristics that may apply:

•Normal operations are severely diminished or have ceased.

•Seriously impaired cash flow.

•Original repayment terms materially altered.

•Secondary source of repayment is inadequate.

•Survivability as a “going concern” is impossible.

•Collection process has begun.

•Bankruptcy petition has been filed.

•Judgments have been filed.

•Portion of the loan balance has been charged-off.

9. LOSS – Charge-off

Credit is considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification is for charged-off loans but does not mean that the asset has absolutely no recovery or salvage value. These loans are further characterized by:

•Liquidation or reorganization under bankruptcy, with poor prospects of collection.

•Fraudulently overstated assets and/or earnings.

•Collateral has marginal or no value.

•Debtor cannot be located.

•Over 120 days delinquent. Internally assigned credit risk ratings are reviewed, at a minimum, when loans are renewed or when management has knowledge of improvements or deterioration of the credit quality of individual credits.

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Our primary credit quality indicator for residential real estate and consumer loans is the individual loan’s past due status. The following table displays residential real estate and consumer loans by payment status and year of origination as of December 31:

	2023
	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Residential real estate: Senior lien
Current	$	45,878	$	52,989	$	80,122	$	52,648	$	23,356	$	54,556	$	—	$	—	$	309,549
Past due 30-89 days	—		784		714		123		478		1,438		—		—		3,537
Past due 90 or more days	—		—		—		—		—		87		—		—		87
Nonaccrual	48		—		—		31		—		207		—		—		286
Total	$	45,926	$	53,773	$	80,836	$	52,802	$	23,834	$	56,288	$	—	$	—	$	313,459
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	2	$	—	$	—	$	2
Residential real estate: Junior lien
Current	$	3,706	$	1,325	$	168	$	134	$	167	$	445	$	—	$	—	$	5,945
Past due 30-89 days	—		—		—		—		—		—		—		—		—
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	3,706	$	1,325	$	168	$	134	$	167	$	445	$	—	$	—	$	5,945
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential real estate: Home equity lines of credit
Current	$	—	$	—	$	—	$	—	$	—	$	—	$	37,014	$	—	$	37,014
Past due 30-89 days	—		—		—		—		—		—		—		—		—
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	—	$	37,014	$	—	$	37,014
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer : Secured - direct
Current	$	14,813	$	10,037	$	6,468	$	3,473	$	1,682	$	1,472	$	—	$	—	$	37,945
Past due 30-89 days	—		—		—		3		—		—		—		—		3
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	14,813	$	10,037	$	6,468	$	3,476	$	1,682	$	1,472	$	—	$	—	$	37,948
Current year-to-date gross charge-offs	$	139	$	12	$	6	$	—	$	3	$	—	$	—	$	—	$	160
Consumer : Secured - indirect
Current	$	30,900	$	10,977	$	6,887	$	5,376	$	2,030	$	2,973	$	—	$	—	$	59,143
Past due 30-89 days	123		—		—		30		3		25		—		—		181
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	31,023	$	10,977	$	6,887	$	5,406	$	2,033	$	2,998	$	—	$	—	$	59,324
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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	2023
	2023		2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Consumer: Unsecured
Current	$	1,576	$	740	$	144	$	86	$	7	$	—	$	694	$	—	$	3,247
Past due 30-89 days	—		9		—		—		—		—		—		—		9
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	1,576	$	749	$	144	$	86	$	7	$	—	$	694	$	—	$	3,256
Current year-to-date gross charge-offs	$	344	$	21	$	13	$	2	$	—	$	1	$	1	$	—	$	382

Loan Modifications

A loan modification includes terms outside of normal lending practices to a borrower experiencing financial difficulty.

Typical modifications granted include, but are not limited to:

•Agreeing to interest rates below prevailing market rates for debt with similar risk characteristics.

•Extending the maturity date or amortization period beyond typical lending guidelines for loans with similar risk characteristics.

•Agreeing to an interest-only payment structure, delaying principal payments, or delaying payments.

•Forgiving principal.

To determine if a borrower is experiencing financial difficulty, factors we consider include:

•The borrower is currently in default on any debt.

•The borrower would likely default on any debt if the concession is not granted.

•The borrower’s cash flow is insufficient to service all debt if the concession is not granted.

•The borrower has declared, or is in the process of declaring, bankruptcy.

•The borrower is unlikely to continue as a going concern (if the entity is a business).

The following is a summary of the amortized cost basis of loan modifications granted to borrowers experiencing financial difficulty for the year ended December 31, 2023.

	2023
	Other-Than-Insignificant Payment Delay				Term Extension				Interest Rate Reduction and Term Extension
	Amortized Cost Basis		% of Total Class of Financial Receivable		Amortized Cost Basis		% of Total Class of Financial Receivable		Amortized Cost Basis		% of Total Class of Financial Receivable
Commercial real estate
Commercial mortgage owner occupied	$	118	0.07	%	$	—	—	%	$	—	—	%
Commercial mortgage non-owner occupied	—		—	%	1,030		0.48	%	—		—	%
Commercial mortgage multifamily	2,977		3.81	%	—		—	%	—		—	%
Agricultural
Agricultural mortgage	—		—	%	227		0.33	%	24		0.03	%
Agricultural	—		—	%	32		0.10	%	—		—	%
Residential real estate
Senior lien	—		—	%	5		—	%	—		—	%
Total	$	3,095			$	1,294			$	24

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We do not modify any loans by forgiving principal or accrued interest. We had committed to advance $0 in additional funds in connection with modified loans at December 31, 2023, as displayed in the table above.

The following table summarizes the financial effect of the modifications granted to borrowers experiencing financial difficulty for the year ended December 31:

	2023
	Payment Delay Term	Weighted-Average Interest Rate Reduction	Weighted-Average Term Extension (Years)
Commercial real estate
Commercial mortgage owner occupied	6 months	N/A	N/A
Commercial mortgage non-owner occupied	N/A	N/A	3.00
Commercial mortgage multifamily	6 months	N/A	N/A
Agricultural
Agricultural mortgage	N/A	4.50%	1.08
Agricultural	N/A	N/A	1.00
Residential real estate
Senior lien	N/A	N/A	2.60

For the year ended December 31, 2022, there were four loans restructured, three with a below market interest rate in the amount of $2,871, and one with both a below market interest rate and extension of amortization period in the amount of $98. Total restructured loans for the year ended December 31, 2022 was $2,969.

We closely monitor the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of our modification efforts. The following table summarizes the performance of such loans that were modified during the year ended December 31, 2023.

	December 31, 2023
	Past Due:
	30-59 Days		60-89 Days		90 Days or More		Total Past Due
Residential real estate
Senior lien	$	—	$	—	$	5	$	5
Total	$	—	$	—	$	5	$	5

We had no loans that defaulted for the years ended December 31, 2023 and 2022 which were modified within 12 months prior to the default date.

ACL - Loans

The credit quality of our loan portfolio is continuously monitored and is reflected within the ACL for loans. The ACL is an estimate of expected losses inherent within our loan portfolio. The ACL is adjusted by a credit loss expense, which is reported in earnings, and reduced by the charge-off of loan amounts, net of recoveries.

The ACL is evaluated on a regular basis for appropriateness. Our periodic review of the collectability of a loan considers historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The primary factors behind the determination of the level of the ACL are specific allocations for loans individually evaluated, historical loss percentages, delinquency status, and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. In future periods evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods.

The methodology for estimating the amount of expected credit losses reported in the ACL has two basic components: a component of individual loans that do not share risk characteristics with other loans; and a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics.

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For a loan that does not share risk characteristics with other loans, an individual analysis is performed to measure an allowance. Loans in nonaccrual status are individually evaluated for specific allocation of the allowance using the fair value of collateral, less costs to sell if foreclosure is probable, or the discounted cash flow method. We do not recognize interest income on loans in nonaccrual status. For loans not classified as nonaccrual, interest income is recognized daily, as earned, according to the terms of the loan agreement and the principal amount outstanding.

In determining the allowance for credit losses, we derive an estimated credit loss assumption from a model that categorizes loan pools based on loan type and credit risk ratings or delinquency bucket. This model calculates an expected loss percentage for each loan class by considering the probability of default, based on the migration of loans from performing to loss by credit risk ratings or delinquency buckets using life-of-loan analysis, and the historical severity of loss, based on the aggregate net lifetime losses incurred per loan class.

The default and severity factors used to calculate the allowance for credit losses for loans that share similar risk characteristics with other loans are adjusted for differences between the historical period used to calculate historical default and loss severity rates and expected conditions over the remaining lives of the loans in the portfolio. These qualitative factors are used to adjust the historical probabilities of default and severity of loss so that they reflect management's expectation of future conditions based on a reasonable and supportable forecast. To the extent the lives of the loans in the portfolio extend beyond the period for which a reasonable and supportable forecast can be made, the model reverts back to the historical rates of default and severity of loss. Qualitative factors include:

•Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, recovery practices not considered elsewhere in estimating credit losses;

•Changes in the experience, ability, and depth of lending management and other relevant staff;

•Changes in interest rates;

•Changes in international, national, regional, and local economic factors (international, national, regional, and local);

•Changes in the nature and volume of the portfolio and in the terms of loans;

•Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;

•Lack of current financial information;

•Competition, legal, and regulatory; and

•Changes in the value of underlying collateral.

Upon the adoption of ASC 326, the estimated ACL using the CECL methodology increased $2,744 compared to the ACL as of December 31, 2022 using the prior incurred loss model. The manner in which credit loss allowances are allocated to the individual portfolio segments was partly impacted by a change in the way the underlying loans within each segment are pooled for modeling purposes. The impact of varying economic conditions and portfolio risk factors are now a component of the credit loss models applied to each modeling pool. In that regard, the amounts allocated to the underlying pools of loans within each portfolio segment more directly reflect the economic variables and portfolio stress factors that correlate with credit losses within each portfolio. Under the prior methodology, allocations in excess of those derived from historical loss rates were recognized as unallocated. Nonetheless, despite fluctuations in the allocation of portions of the overall allowance to the various portfolio segments, the entire allowance is available to absorb any credit losses within the entire loan portfolio.

A summary of changes in the ACL and the recorded investment in loans by segments follows:

	Allowance for Credit Losses
	Year Ended December 31, 2023
	Commercial and Industrial		Commercial Real Estate		Agricultural		Residential Real Estate		Consumer		Unallocated		Total
January 1, 2023	$	860	$	461	$	577	$	617	$	961	$	6,374	$	9,850
Impact of the adoption of ASC 326	(58)		5,532		(247)		3,535		356		(6,374)		2,744
Charge-offs	(276)		—		(4)		(2)		(542)		—		(824)
Recoveries	79		26		12		329		263		—		709
Credit loss expense	363		(141)		(68)		(143)		618		—		629
December 31, 2023	$	968	$	5,878	$	270	$	4,336	$	1,656	$	—	$	13,108

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	Allowance for Loan Losses
	Year Ended December 31, 2022
	Commercial		Agricultural		Residential Real Estate		Consumer		Unallocated		Total
January 1, 2022	$	1,740	$	289	$	747	$	908	$	5,419	$	9,103
Charge-offs	(77)		—		—		(542)		—		(619)
Recoveries	442		9		150		282		—		883
Credit loss expense	(784)		279		(280)		313		955		483
December 31, 2022	$	1,321	$	577	$	617	$	961	$	6,374	$	9,850

	Allowance for Loan Losses and Recorded Investment in Loans
	As of December 31, 2022
	Commercial		Agricultural		Residential Real Estate		Consumer		Unallocated		Total
Allowance
Individually evaluated for impairment	$	12	$	—	$	439	$	—	$	—	$	451
Collectively evaluated for impairment	1,309		577		178		961		6,374		9,399
Total	$	1,321	$	577	$	617	$	961	$	6,374	$	9,850
Loans
Individually evaluated for impairment	$	8,342	$	10,935	$	2,741	$	—			$	22,018
Collectively evaluated for impairment	736,098		94,050		333,953		78,054				1,242,155
Total	$	744,440	$	104,985	$	336,694	$	78,054			$	1,264,173

The following table presents loans that were evaluated for expected credit losses on an individual basis and the related specific allocations, by loan segment as of December 31:

	2023				2022
	Loan Balance		Specific Allocation		Loan Balance		Specific Allocation
Commercial and industrial	$	465	$	56	$	—	$	—
Commercial real estate	234		28		8,342		12
Agricultural	181		—		10,935		—
Residential real estate	203		—		2,741		439
Consumer	—		—		—		—
Total	$	1,083	$	84	$	22,018	$	451

We have designated loans classified as collateral dependent for which we apply the practical expedient to measure the ACL based on the fair value of the collateral less cost to sell, when the repayment is expected to be provided substantially by the sale or operation of the collateral and the borrower is experiencing financial difficulty. The fair value of the collateral is based on appraisals, which may be adjusted due to their age, and the type, location, and condition of the property or area or general market conditions to reflect the expected change in value between the effective date of the appraisal and the measurement date. Appraisals are updated every one to two years depending on the type of loan and the total exposure of the borrower. Loans evaluated for expected credit losses on an individual basis include $1,083 in collateral dependent loans.

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Note 5 – Premises and Equipment

A summary of premises and equipment at December 31 follows:

	2023		2022
Land	$	6,309	$	5,904
Buildings and improvements	34,984		31,260
Furniture and equipment	35,528		35,906
Total	76,821		73,070
Less: accumulated depreciation	49,182		47,517
Premises and equipment, net	$	27,639	$	25,553

Depreciation expense amounted to $1,978, $2,071, and $2,314 in 2023, 2022, and 2021, respectively.

Note 6 – Goodwill and Other Intangible Assets

The carrying amount of goodwill was $48,282 at December 31, 2023 and 2022.

Identifiable intangible assets were as follows as of December 31:

	2023
	Gross Intangible Assets		Accumulated Amortization		Net Intangible Assets
Core deposit premium resulting from acquisitions	$	5,579	$	5,577	$	2

	2022
	Gross Intangible Assets		Accumulated Amortization		Net Intangible Assets
Core deposit premium resulting from acquisitions	$	5,579	$	5,574	$	5

Amortization expense associated with identifiable intangible assets was $3, $15, and $29 in 2023, 2022, and 2021, respectively.

Estimated amortization expense associated with identifiable intangibles for each of the next two years succeeding December 31, 2023, and thereafter is as follows:

	Estimated Amortization Expense
2024	$	1
2025	1
Total	$	2

Note 7 – Deposits

Scheduled annual maturities of time deposits for each of the next five years, and thereafter, are as follows:

	Scheduled Maturities of Time Deposits
2024	$	289,393
2025	30,048
2026	10,921
2027	9,649
2028	6,300
Thereafter	63
Total	$	346,374

Interest expense on time deposits greater than $250 was $3,419 in 2023, $621 in 2022 and $980 in 2021.

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Note 8 – Borrowed Funds

Federal funds purchased and repurchase agreements

Securities sold under repurchase agreements without stated maturity dates, federal funds purchased, and FRB Discount Window advances generally mature within one to four days from the transaction date.

A summary of borrowed funds without stated maturity dates was as follows for the years ended December 31:

	2023						2022
	Maximum Month End Balance		Average Balance		Weighted Average Interest Rate During the Period		Maximum Month End Balance		Average Balance		Weighted Average Interest Rate During the Period
Securities sold under agreements to repurchase without stated maturity dates	$	55,722	$	42,982	2.22	%	$	58,140	$	49,973	0.16	%
Federal funds purchased	—		13		6.13	%	—		1		3.02	%
FRB Discount Window	—		66		5.34	%	—		—		—	%

Securities sold under agreements to repurchase are classified as secured borrowings and are reflected at the amount of cash received in connection with the transaction. The securities underlying the agreements have a carrying value and a fair value of $67,764 and $58,291 at December 31, 2023 and 2022, respectively. Such securities remain under our control. We may be required to provide additional collateral based on the fair value of underlying securities.

Securities sold under repurchase agreements without stated maturity dates were as follows at December 31:

	2023				2022
	Amount		Rate		Amount		Rate
Securities sold under agreements to repurchase without stated maturity dates	$	46,801	3.11	%	$	57,771	0.49	%

We had pledged AFS securities and 1-4 family residential real estate loans in the following amounts at December 31:

	2023		2022
Pledged to secure borrowed funds	$	391,529	$	347,331
Pledged to secure repurchase agreements	67,764		58,291
Pledged for public deposits and for other purposes necessary or required by law	84,099		48,698
Total	$	543,392	$	454,320

AFS securities pledged to repurchase agreements without stated maturity dates consisted of the following at December 31:

	2023		2022
U.S. Treasury	$	55,623	$	29,351
States and political subdivisions	—		11,037
Mortgage-backed securities	9,462		6,819
Collateralized mortgage obligations	2,679		11,084
Total	$	67,764	$	58,291

AFS securities pledged to repurchase agreements are monitored to ensure the appropriate level is collateralized. In the event of maturities, calls, significant principal repayments, or significant decline in market values, we have an adequate level of AFS securities to pledge to satisfy collateral requirements.

As of December 31, 2023, we had the ability to borrow up to an additional $338,080, without pledging additional collateral.

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FHLB advances

FHLB advances are collateralized by a blanket lien on all qualified 1-4 family residential real estate loans, specific AFS securities, and FHLB stock.

The following table lists the maturity and weighted average interest rate of FHLB advances as of:

	2023				2022
	Amount		Rate		Amount		Rate
Fixed rate due 2024	$	40,000	5.55	%	$	—	—	%

FHLB advances outstanding as of December 31, 2023 were short-term, with maturities within one week after December 31, 2023.

Subordinated Notes

On June 2, 2021, we completed a private placement of $30,000 in aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes due 2031 (the "Notes"). The Notes will initially bear a fixed interest rate of 3.25% until June 15, 2026, after which time until maturity on June 15, 2031, the interest rate will reset quarterly to an annual floating rate equal to the then-current 3-month SOFR plus 256 basis points. The Notes are redeemable by us at our option, in whole or in part, on or after June 15, 2026. The Notes are not subject to redemption at the option of the holders.

The following table summarizes our outstanding notes at December 31:

	2023				2022
	Amount		Rate		Amount		Rate
Fixed rate at 3.25% to floating, due 2031	$	30,000	3.25	%	$	30,000	3.25	%
Unamortized issuance costs	(665)				(755)
Total subordinated debt, net	$	29,335			$	29,245

Note 9 – Off-Balance-Sheet Activities, Commitments and Other Matters

Credit-Related Financial Instruments

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 IRR 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.

The following table summarizes our credit related financial instruments with off-balance-sheet risk as of December 31:

	2023		2022
Unfunded commitments under lines of credit	$	313,646	$	264,902
Commercial and standby letters of credit	1,624		1,321
Commitments to grant loans	6,460		24,770
Total	$	321,730	$	290,993

Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers. These commitments may expire without being drawn upon and do not necessarily represent future cash requirements. Advances to mortgage brokers are also included in unfunded commitments under lines of credit. The unfunded commitment amount is the difference between our outstanding balances and maximum outstanding aggregate amount.

Commitments to grant loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The amount of collateral obtained, if it is deemed necessary, is based on management's credit evaluation of the customer. Commitments to grant loans include residential mortgage loans that may be committed to be sold to the secondary market.

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Commercial and standby letters of credit are conditional commitments we issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements, including commercial paper, bond financing, and similar transactions. These commitments to extend credit and letters of credit generally mature within one year. The credit risk involved in these transactions is essentially the same as that involved in extending loans to customers. We evaluate each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon the extension of credit, is based on our credit evaluation of the borrower. While we consider standby letters of credit to be guarantees, the amount of the liability related to such guarantees on the commitment date is not significant and a liability related to such guarantees is not recorded on the consolidated balance sheets.

Our exposure to credit-related loss in the event of nonperformance by the counter parties 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 as we do for extending loans to customers. No significant losses are anticipated as a result of these commitments.

ACL - Off-Balance-Sheet Credit Commitments

In connection with the commitments for credit-related financial instruments discussed above, we established an allowance for credit losses related to this off-balance-sheet credit exposure. The allowance, recorded in a liability account, is calculated in accordance with ASC 326 and represents expected credit losses over the contractual period for which we are exposed to credit risk resulting from a contractual obligation to extend credit. The estimate of expected credit losses considers both the likelihood that funding will occur and the amount expected to be funded over the estimated remaining life of the commitment. The likelihood and expected amount of funding are based on historical utilization rates. No allowance is recognized if we have the unconditional right to cancel the obligation.

The allowance was $315 at December 31, 2023 and is reported as a component of accrued interest payable and other liabilities in our consolidated balance sheets. Adjustments to the allowance are reported in our income statement as a component of provision for credit losses.

Derivative Loan Commitments

Mortgage loan commitments are referred to as derivative loan commitments if the loan that will result from exercise of the commitment will be held for sale upon funding. We enter into commitments to fund residential mortgage loans at specific times in the future, with the intention that these loans will subsequently be sold in the secondary market. A mortgage loan commitment binds us to lend funds to a potential borrower at a specified interest rate within a specified period of time, generally up to 60 days after inception of the rate lock.

Outstanding derivative loan commitments expose us to the risk that the price of the loans arising from the exercise of the loan commitment might decline from the inception of the rate lock to funding of the loan due to increases in mortgage interest rates. If interest rates increase, the value of these loan commitments decreases. Conversely, if interest rates decrease, the value of these loan commitments increase. There were no undesignated interest rate lock commitments at December 31, 2023 and 2022.

Forward Loan Sale Commitments

To protect against the price risk inherent in derivative loan commitments, we utilize both “mandatory delivery” and “best efforts” forward loan sale commitments to mitigate the risk of potential decreases in the values of loan that would result from the exercise of the derivative loan commitments.

With a “mandatory delivery” contract, we commit to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. If we fail to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, we are obligated to pay a “pair-off” fee, based on then current market prices, to the investor to compensate the investor for the shortfall.

With a “best efforts” contract, we commit to deliver an individual mortgage loan of a specified principal amount and quality to an investor if the loan to the underlying borrower closes. Generally, the price the investor will pay the seller for an individual loan is specified prior to the loan being funded (e.g. on the same day the lender commits to lend funds to a potential borrower).

We expect that these forward loan sale commitments will experience changes in fair value opposite to the change in fair value of derivative loan commitments. There were undesignated forward loan sale commitments of $0 and $379 at December 31, 2023 and 2022, respectively. The fair value of these forward loan sale commitments was $0 and $394 at December 31, 2023 and 2022, respectively.

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The fair values of the rate lock loan commitments related to the origination of mortgage loans that will be held for sale and the forward loan sale commitments are deemed insignificant by management and, accordingly, are not recorded in our consolidated financial statements.

Other Matters

Correspondent banks may require us to maintain minimum cash reserve balances. The reserve balances related to correspondent banks amounted to $250 and $500 for the years ended December 31, 2023 and 2022.

Banking regulations limit the transfer of assets in the form of dividends, loans, or advances from the Bank to the Corporation. At December 31, 2023, substantially all of the Bank’s assets were restricted from transfer to the Corporation in the form of loans or advances. Bank dividends are the principal source of funds for the Corporation. Payment of dividends without regulatory approval is limited to the current year’s retained net income plus retained net income for the preceding two years, less any required transfers to common stock. At January 1, 2024, the amount available to the Corporation for dividends from the Bank, without regulatory approval, was approximately $27,600.

Note 10 – Minimum Regulatory Capital Requirements

The Corporation (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the FRB and the FDIC. Failure to meet minimum capital requirements can initiate mandatory and possibly additional discretionary actions by the FRB and the FDIC that, if undertaken, could have a material effect on our financial statements. Under regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that include quantitative measures of assets, liabilities, capital, and certain off-balance-sheet items, as calculated under regulatory accounting standards. Our capital amounts and classifications are also subject to qualitative judgments by the FRB and the FDIC about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the following table) of total capital, tier 1 capital, and common equity tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and tier 1 capital to average assets (as defined). We believe, as of December 31, 2023 and 2022, that we met all capital adequacy requirements.

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. The common equity tier 1 capital ratio has a minimum requirement of 4.50%. The minimum standard for primary, or Tier 1 capital is 6.00% and the minimum standard for total capital is 8.00%.

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As of December 31, 2023 and 2022, the most recent notifications from the FRB and the FDIC categorized us as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain total risk-based, Tier 1 risk-based, Common Equity Tier 1, and Tier 1 leverage ratios as set forth in the following tables. There were no conditions or events since the notifications that we believe have changed our categories. Our actual capital amounts and ratios are also presented in the table.

	Actual				Minimum Capital Requirement				Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2023
Common equity Tier 1 capital to risk weighted assets
Isabella Bank	$	178,316	12.48	%	$	100,043	7.00	%	$	92,897	6.50	%
Consolidated	180,014		12.54	%	100,449		7.00	%	N/A		N/A
Tier 1 capital to risk weighted assets
Isabella Bank	178,316		12.48	%	121,481		8.50	%	114,335		8.00	%
Consolidated	180,014		12.54	%	121,973		8.50	%	N/A		N/A
Total capital to risk weighted assets
Isabella Bank	191,739		13.42	%	150,065		10.50	%	142,919		10.00	%
Consolidated	222,772		15.52	%	150,673		10.50	%	N/A		N/A
Tier 1 capital to average assets
Isabella Bank	178,316		8.71	%	81,935		4.00	%	102,419		5.00	%
Consolidated	180,014		8.76	%	82,154		4.00	%	N/A		N/A

	Actual				Minimum Capital Requirement				Minimum To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2022
Common equity Tier 1 capital to risk weighted assets
Isabella Bank	$	190,060	14.07	%	$	94,565	7.00	%	$	87,811	6.50	%
Consolidated	175,112		12.91	%	94,948		7.00	%	N/A		N/A
Tier 1 capital to risk weighted assets
Isabella Bank	190,060		14.07	%	114,829		8.50	%	108,075		8.00	%
Consolidated	175,112		12.91	%	115,295		8.50	%	N/A		N/A
Total capital to risk weighted assets
Isabella Bank	199,910		14.80	%	141,848		10.50	%	135,093		10.00	%
Consolidated	214,207		15.79	%	142,423		10.50	%	N/A		N/A
Tier 1 capital to average assets
Isabella Bank	190,060		9.36	%	81,181		4.00	%	101,476		5.00	%
Consolidated	175,112		8.61	%	81,392		4.00	%	N/A		N/A

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Note 11 – Computation of Earnings Per Common Share

Basic earnings per common share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes additional common shares that would have been outstanding if dilutive potential common shares had been issued. For further information related to potential common shares that may be issued relate solely to outstanding shares in the Directors Plan and grant awards under the RSP, see "Note 12 – Benefit Plans."

Earnings per common share have been computed based on the following for the years ended December 31:

	2023		2022		2021
Average number of common shares outstanding for basic calculation	7,511,591		7,549,878		7,853,398
Average potential effect of common shares in the Directors Plan (1)	34,962		70,329		99,813
Average potential effect of common shares in the RSP	28,939		27,405		12,750
Average number of common shares outstanding used to calculate diluted earnings per common share	7,575,492		7,647,612		7,965,961
Net income	$	18,167	$	22,238	$	19,499
Earnings per common share
Basic	$	2.42	$	2.95	$	2.48
Diluted	$	2.40	$	2.91	$	2.45

(1) Exclusive of shares held in the Rabbi Trust

Note 12 – Benefit Plans

401(k) Plan

We have a 401(k) plan in which substantially all employees are eligible to participate. Employees may contribute up to 100% of their compensation subject to certain limits based on federal tax laws. The plan was amended in 2013 to provide a matching safe harbor contribution for all eligible employees equal to 100% of the first 5.0% of an employee's compensation contributed to the Plan during the year. Employees are 100% vested in the safe harbor matching contributions.

For 2023, 2022 and 2021, expenses attributable to the plan were $885, $805, and $792, respectively.

Defined Benefit Pension Plan

We maintain a noncontributory defined benefit pension plan, which was curtailed effective March 1, 2007. As a result of the curtailment, future salary increases are no longer considered (the projected benefit obligation is equal to the accumulated benefit obligation), and plan benefits are based on years of service and the individual employee’s five highest consecutive years of compensation out of the last ten years of service through March 1, 2007.

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Changes in the projected benefit obligation and plan assets during each year, the funded status of the plan, and the net amount recognized in our consolidated balance sheets using an actuarial measurement date of December 31, are summarized as follows during the years ended December 31:

	2023		2022
Change in benefit obligation
Benefit obligation, January 1	$	6,896	$	9,725
Interest cost	317		224
Actuarial loss (gain)	(241)		(2,236)
Benefits paid, including plan expenses	(344)		(817)
Benefit obligation, December 31	6,628		6,896
Change in plan assets
Fair value of plan assets, January 1	6,582		8,649
Investment return (loss)	828		(1,250)
Contributions	—		—
Benefits paid, including plan expenses	(344)		(817)
Fair value of plan assets, December 31	7,066		6,582
Surplus (deficiency) in funded status at December 31, included on the consolidated balance sheets in accrued interest payable and other liabilities	$	438	$	(314)
Accumulated benefit obligation at December 31	$	6,628	$	6,896

	2023		2022
Change in accrued pension benefit costs
Accrued benefit cost at January 1	$	(314)	$	(1,076)
Contributions	—		—
Net periodic benefit cost (credit)	(95)		(59)
Net change in unrecognized actuarial loss and prior service cost	847		821
Prepaid (accrued) pension liability at December 31	$	438	$	(314)

We have recorded the funded status of the plan in our consolidated balance sheets. We adjust the funded status in a prepaid account and the underfunded status in a liability account to reflect the current funded status of the plan. Any gains or losses that arise during the year but are not recognized as components of net periodic benefit cost are recognized as a component of other comprehensive income (loss).

The components of net periodic benefit cost are as follows for the years ended December 31:

	2023		2022		2021
Interest cost on benefit obligation	$	317	$	224	$	233
Expected return on plan assets	(371)		(490)		(486)
Amortization of unrecognized actuarial net loss	149		216		222
Settlement loss	—		109		—
Net periodic benefit cost (credit)	$	95	$	59	$	(31)

Settlement losses during 2022 were recognized in connection with lump-sum benefit distributions. Many plan participants elect to receive their retirement benefit payments in the form of lump-sum settlements. Pro rata settlement losses, which can occasionally occur as a result of these lump-sum distributions, are recognized only in years when the total of such distributions exceed the sum of the service and interest expense components of net periodic benefit cost.

Accumulated other comprehensive income at December 31, 2023 includes net unrecognized pension costs before income taxes of $882.

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The actuarial assumptions used in determining the benefit obligation are as follows for the years ended December 31:

	2023		2022		2021
Discount rate	4.69	%	4.88	%	2.43	%
Expected long-term rate of return on plan assets	6.00	%	6.00	%	6.00	%

The actuarial weighted average assumptions used in determining the net periodic pension costs are as follows for the years ended December 31:

	2023		2022		2021
Discount rate	4.88	%	2.43	%	2.30	%
Expected long-term rate of return on plan assets	6.00	%	6.00	%	6.00	%

As a result of the curtailment of the Plan, there is no rate of compensation increase considered in the above assumptions.

The expected long-term rate of return is an estimate of anticipated future long-term rates of return on plan assets as measured on a market value basis. Factors considered in arriving at this assumption include:

•Historical long-term rates of return for broad asset classes.

•Actual past rates of return achieved by the plan.

•The general mix of assets held by the plan.

•The stated investment policy for the plan.

The selected rate of return is net of anticipated investment related expenses.

Pension Plan Assets

Our overall investment strategy is to moderately grow the portfolio by investing 50% of the portfolio in equity securities and 50% in fixed income securities. This strategy is designed to generate a long-term rate of return of 6.00%.  Equity securities primarily consist of the S&P 500 Index with a smaller allocation to the Small Cap and International Index.  Fixed income securities are invested in the Bond Market Index.  The plan has appropriate assets invested in short-term investments to meet near term benefit payments.

The asset mix and the sector weighting of the investments are determined by our benefits committee, which is comprised of members of our management. To manage the plan, we retain a third party investment advisor to conduct consultations. We review the performance of the advisor at least annually.

The fair values of our pension plan assets by asset category were as follows as of December 31:

	2023				2022
	Total		(Level 2)		Total		(Level 2)
Short-term investments	$	103	$	103	$	235	$	235
Common collective trusts
Fixed income	3,273		3,273		2,983		2,983
Equity investments	3,690		3,690		3,364		3,364
Total	$	7,066	$	7,066	$	6,582	$	6,582

The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2023 and 2022:

•Short-term investments: Shares of a money market portfolio valued at amortized cost, which approximates fair value.

•Common collective trusts: These investments are public investment securities valued using the NAV provided by a third party investment advisor. The NAV is quoted on a private market that is not active; however, the unit price is based on underlying investments which are traded on an active market.

We anticipate contributions to the plan in 2024 to approximate net contribution costs.

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Estimated future benefit payments are as follows for the next ten years:

	Estimated Benefit Payments
2024	$	721
2025	656
2026	685
2027	533
2028	545
2029 - 2033	2,342

Directors Plan

Pursuant to the terms of the Directors Plan, our directors are required to invest at least 25% of their board fees in our common stock. These stock investments can be made either through deferred fees or through the purchase of shares through the Dividend Reinvestment Plan. Deferred fees, under the Directors Plan, are converted on a quarterly basis into stock units of our common stock based on the fair value of a share of our common stock as of the relevant valuation date. Stock units credited to a participant’s account are eligible for stock and cash dividends as declared. Dividend Reinvestment Plan shares are purchased pursuant to the Dividend Reinvestment Plan.

Distribution of deferred fees from the Directors Plan occurs when the participant retires from the Board of Directors or upon the occurrence of certain other events. The participant is eligible to receive a distribution in the form of shares of our common stock of all of the stock units that are then in his or her account, and any unconverted cash will be converted to and rounded up to whole shares of stock and distributed, as well. The Directors Plan does not allow for cash settlement, and therefore, such share-based payment awards qualify for classification as equity. We may use authorized but unissued shares or purchase shares of common stock on the open market to meet our obligations under the Directors Plan.

We maintain the Rabbi Trust to fund the Directors Plan. The Rabbi Trust is an irrevocable grantor trust to which we may contribute assets for the limited purpose of funding a nonqualified deferred compensation plan. Although we may not use the assets of the Rabbi Trust for any purpose other than meeting our obligations under the Directors Plan, the assets of the Rabbi Trust remain subject to the claims of our creditors and are included in the consolidated financial statements. We may contribute cash or common stock to the Rabbi Trust from time to time for the sole purpose of funding the Directors Plan. The Rabbi Trust will use any cash that we contribute to purchase shares of our common stock on the open market. Shares held in the Rabbi Trust are included in the calculation of earnings per share.

The components of shares eligible to be issued under the Directors Plan were as follows as of December 31:

	2023			2022
	Eligible Shares	Market Value		Eligible Shares	Market Value
Unissued	3,538	$	76	52,961	$	1,245
Shares held in Rabbi Trust	150,581	3,237		154,879	3,640
Total	154,119	$	3,313	207,840	$	4,885

Cash Incentive Plans

Executive Cash Incentive Plan

We provide an executive cash incentive plan, which provides separate potential payouts for Isabella Bank's CEO, President, and CFO based on achievement of personal and corporate goals. The potential payouts under the plan range from 22% to 35% of the employee's annual salary. Expenses related to this plan for 2023, 2022, and 2021 were $53, $252, and $253 respectively.

Employee Cash Incentive Plan

We provide cash incentive plans to reward employees above and beyond their base salaries when our performance and operating profitability exceed established annual targets. Incentives are also awarded for achievement of personal performance goals. Expenses related to this plan for 2023, 2022 and 2021 were $796, $1,072, and $1,063, respectively.

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Restricted Stock Plan

Under the RSP, an equity based bonus plan, we may award restricted stock bonuses to eligible employees on an annual basis that are not fully transferable or vested until certain conditions are met. Currently, the eligible employees are the Bank's CEO, President, and CFO. The RSP authorizes the issuance of unvested restricted stock to an eligible employee with a maximum award ranging from 25% to 40% of the employee’s annual salary, on a calendar year basis. The employee must also satisfy the annual performance targets and measures established by the Board of Directors. If these grant conditions are not satisfied, then the award of restricted shares will lapse or be adjusted appropriately, at the discretion of the Board of Directors. All such Grant Agreements contain vesting conditions and clawback provisions.

A summary of changes in nonvested restricted stock awards follows for the years ended December 31:

	2023			2022
	Number of Shares	Fair Value		Number of Shares	Fair Value
Balance, January 1	27,072	$	592	20,123	$	418
Granted	—	—		6,949	174
Vested	—	—		—	—
Forfeited	—	—		—	—
Balance, December 31	27,072	$	592	27,072	$	592

Expenses related to the RSP for 2023, 2022, 2021 were $253, $147, and $86 respectively. As of December 31, 2023, there was $92 of total remaining unrecognized compensation expense related to nonvested restricted stock awards granted under the RSP. The remaining expense is expected to be recognized over a weighted-average service period of 1.55 years.

Other Employee Benefit Plans

We maintain nonqualified defined contribution retirement plans to provide supplemental retirement benefits to specified participants. Expenses related to these programs for 2023, 2022 and 2021 were $345, $251, and $352, respectively. Expenses are recognized over the participants’ expected years of service.

We maintain a self-funded medical plan under which we are responsible for the first $100 per year of claims made by a covered family. Expenses are accrued based on estimates of the aggregate liability for claims incurred and our experience. Expenses were $2,281 in 2023, $3,026 in 2022 and $3,297 in 2021.

Note 13 – Revenue

Our revenue is comprised primarily of interest income, service charges and fees, gains on the sale of loans and AFS securities, earnings on corporate owned life insurance policies, and other noninterest income. Other noninterest income is typically service and performance driven in nature and comprised primarily of investment and trust advisory fees. We recognize revenue, excluding interest income, in accordance with ASC 606, Revenue From Contracts with Customers. Revenue is recognized when our performance obligation has been satisfied according to our contractual obligation.

We record receivables when revenue is unpaid and collectability is reasonably assured. Accounts receivable balances primarily represent amounts due from customers for which revenue has been recognized. Accounts receivable balances are recorded in the consolidated balance sheets in accrued interest receivable and other assets. For the years ended December 31, 2023, 2022 and 2021, we satisfied our performance obligations pursuant to contracts with customers. As a result, we have not recorded any contract assets or liabilities. We estimate no returns or allowances for the years ended December 31, 2023, 2022 and 2021.

Our contracts with customers define our performance obligations with clearly established pricing which did not require us to allocate or disaggregate revenue by performance obligation. A summary of revenue recognized for each major category of contracts with customers, subject to ASC 606, is as follows for the years ended December 31:

	2023		2022		2021
Debit card income	$	4,063	$	3,783	$	3,623
Trust service fees	3,110		2,622		2,707
Investment advisory fees	447		383		364
Service charges and fees related to deposit accounts	362		345		312

A significant portion of our revenue consists of interest income which is not subject to the requirements set forth in ASC 606.

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Note 14 – Other Noninterest Expenses

A summary of expenses included in other noninterest expenses is as follows for the years ended December 31:

	2023		2022		2021
Audit, consulting, and legal fees	$	2,340	$	2,358	$	2,066
ATM and debit card fees	1,767		1,909		1,810
Marketing costs	1,159		1,056		939
Memberships and subscriptions	1,042		876		877
Loan underwriting fees	927		1,004		849
FDIC insurance premiums	922		537		690
Donations and community relations	915		923		705
Other losses	871		546		194
Director fees	764		790		703
All other	2,401		2,237		1,989
Total other noninterest expenses	$	13,108	$	12,236	$	10,822

Note 15 – Federal Income Taxes

Components of the consolidated provision for federal income taxes are summarized as follows for the years ended December 31:

	2023		2022		2021
Currently payable	$	2,657	$	4,593	$	4,371
Deferred expense (benefit)	1,008		13		(523)
Income tax expense	$	3,665	$	4,606	$	3,848

The reconciliation of the provision for federal income taxes and the amount computed at the federal statutory tax rate of 21% of income before federal income tax expense is as follows for the year ended December 31:

	2023		2022		2021
Income taxes at statutory rate	$	4,585	$	5,637	$	4,903
Effect of nontaxable income
Interest income on tax exempt municipal securities	(552)		(587)		(643)
Earnings on corporate owned life insurance policies	(193)		(197)		(225)
Other	292		329		312
Total effect of nontaxable income	(453)		(455)		(556)
Effect of nondeductible expenses	86		45		46
Effect of tax credits	(602)		(621)		(617)
Unrecognized deferred tax benefit	49		—		72
Federal income tax expense	$	3,665	$	4,606	$	3,848

The unrecognized deferred tax benefit recorded during 2023 related to a low income housing tax credit investment. The unrecognized deferred tax benefit recorded during 2021 related to our joint venture investment in Corporate Settlement Solutions, LLC, which was sold during the fourth quarter of 2020. The sale of each investment resulted in a capital loss carryforward that is unlikely to be recognized in the foreseeable future. As such, we did not recognize a deferred tax asset as of December 31, 2023, 2022 and 2021 related to our low income housing tax credit investment or the investment in Corporate Settlement Solutions, LLC.

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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for federal income tax purposes. Significant components of our deferred tax assets and liabilities, measured at the 21% statutory rate, included in other assets on our consolidated balance sheets, are summarized as follows as of December 31:

	2023		2022
Deferred tax assets
Allowance for credit losses	$	2,658	$	1,848
Deferred compensation	1,388		1,648
Employee benefit plans	80		82
Core deposit premium and acquisition expenses	764		764
Net unrealized losses on AFS securities	6,627		9,296
Net unrecognized actuarial losses on pension plan	185		363
Life insurance death benefit payable	497		497
Other	821		789
Total deferred tax assets	13,020		15,287
Deferred tax liabilities
Prepaid pension cost	277		297
Premises and equipment	2,251		1,590
Accretion on securities	315		166
Core deposit premium and acquisition expenses	1,022		984
Other	1,236		1,075
Total deferred tax liabilities	5,101		4,112
Net deferred tax assets (liabilities)	$	7,919	$	11,175

While we are subject to U.S. federal income tax, we are no longer subject to examination by taxing authorities for years before 2020. There are no material uncertain tax positions requiring recognition in our consolidated financial statements. We do not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months.

We recognize interest and/or penalties related to income tax matters in income tax expense. We do not have any amounts accrued for interest and penalties at December 31, 2023 and 2022 and we are not aware of any claims for such amounts by federal income tax authorities.

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Note 16 – Accumulated Other Comprehensive Income (Loss)

AOCI includes net income as well as unrealized gains and losses, net of tax, on AFS securities and derivative instruments, as well as changes in the funded status of our defined benefit pension plan. Unrealized gains and losses and changes in the funded status of the pension plan, net of tax, are excluded from net income, and are reflected as a direct charge or credit to shareholders’ equity. Comprehensive income (loss) and the related components are disclosed in the consolidated statements of comprehensive income.

The following table provides a roll-forward of the changes in AOCI by component for the years ended December 31, 2021, 2022 and 2023 (net of tax):

	Unrealized Gains (Losses) on AFS Securities		Unrealized Gains (Losses) on Derivative Instruments		Change in Unrecognized Pension Cost on Defined Benefit Pension Plan		Total
Balance, January 1, 2021	$	10,485	$	(42)	$	(2,745)	$	7,698
OCI before reclassifications	(8,371)		53		955		(7,363)
Amounts reclassified from AOCI	—		—		(31)		(31)
Subtotal	(8,371)		53		924		(7,394)
Tax effect	1,759		(11)		(193)		1,555
OCI, net of tax	(6,612)		42		731		(5,839)
Balance, December 31, 2021	3,873		—		(2,014)		1,859
OCI before reclassifications	(50,015)		—		762		(49,253)
Amounts reclassified from AOCI	—		—		59		59
Subtotal	(50,015)		—		821		(49,194)
Tax effect	10,314		—		(173)		10,141
OCI, net of tax	(39,701)		—		648		(39,053)
Balance, December 31, 2022	(35,828)		—		(1,366)		(37,194)
OCI before reclassifications	13,365		—		752		14,117
Amounts reclassified from AOCI	(67)		—		95		28
Subtotal	13,298		—		847		14,145
Tax effect	(2,669)		—		(178)		(2,847)
OCI, net of tax	10,629		—		669		11,298
Balance, December 31, 2023	$	(25,199)	$	—	$	(697)	$	(25,896)

Included in OCI are changes in unrealized gains and losses related to auction rate money market preferred stocks. Auction rate money market preferred stocks, for federal income tax purposes, have no deferred federal income taxes related to unrealized gains or losses given the nature of the investments.

A summary of the components of unrealized gains on AFS securities included in OCI follows for the years ended December 31:

	2023						2022						2021
	Auction Rate Money Market Preferred Stocks		All Other AFS Securities		Total		Auction Rate Money Market Preferred Stocks		All Other AFS Securities		Total		Auction Rate Money Market Preferred Stocks		All Other AFS Securities		Total
Unrealized gains (losses) arising during the period	$	589	$	12,776	$	13,365	$	(900)	$	(49,115)	$	(50,015)	$	5	$	(8,376)	$	(8,371)
Reclassification adjustment for net (gains) losses included in net income	—		(67)		(67)		—		—		—		—		—		—
Net unrealized gains (losses)	589		12,709		13,298		(900)		(49,115)		(50,015)		5		(8,376)		(8,371)
Tax effect	—		(2,669)		(2,669)		—		10,314		10,314		—		1,759		1,759
Unrealized gains (losses), net of tax	$	589	$	10,040	$	10,629	$	(900)	$	(38,801)	$	(39,701)	$	5	$	(6,617)	$	(6,612)

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The following table details reclassification adjustments and the related affected line items in our consolidated statements of income for the years ended December 31:

Details about AOCI components	Amount Reclassified from AOCI						Affected Line Item in the Consolidated Statements of Income
	2023		2022		2021
Unrealized gains (losses) on AFS securities
	$	67	$	—	$	—	Net gains on sale of AFS securities
	14		—		—		Federal income tax expense
	$	53	$	—	$	—	Net income
Change in unrecognized pension cost on defined benefit pension plan
	$	95	$	59	$	(31)	Other noninterest expenses
	20		12		(7)		Federal income tax (benefit) expense
	$	75	$	47	$	(24)	Net income

Note 17 – Fair Value

Under fair value measurement and disclosure authoritative guidance, we group assets and liabilities measured at fair value into three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value, based on the prioritization of inputs in the valuation techniques. These levels are:

Level 1:	Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2:	Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model based valuation techniques for which all significant assumptions are observable in the market.
Level 3:	Valuation is generated from model based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. Transfers between measurement levels are recognized at the end of reporting periods.

Fair value measurement requires the use of an exit price notion which may differ from entrance pricing. Generally, we believe our assets and liabilities classified as Level 1 or Level 2 approximate an exit price notion.

Following is a description of the valuation methodologies, key inputs, and an indication of the level of the fair value hierarchy in which the assets or liabilities are classified.

AFS securities: AFS securities are recorded at fair value on a recurring basis. Level 1 fair value measurement is based upon quoted prices for identical instruments. Level 2 fair value measurement is based upon quoted prices for similar instruments. If quoted prices are not available, fair values are measured using independent pricing models or other model based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss and liquidity assumptions. The values for Level 1 and Level 2 investment securities are generally obtained from an independent third party. On a quarterly basis, we compare the values provided to alternative pricing sources.

Loans: We do not record loans at fair value on a recurring basis. However, some loans are individually evaluated for ACL purposes, and a specific ACL may be established. To measure reserve, the fair value of the loan is estimated using the fair value of the collateral, less costs to sell if foreclosure is probable, or the present value of expected future cash flows discounted at the loan’s effective interest rate. Loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.

We review the net realizable values of the underlying collateral for collateral dependent loans on at least a quarterly basis for all loan types. To determine the collateral value, we utilize independent appraisals, broker price opinions, or internal evaluations. We review these valuations to determine whether an additional discount should be applied given the age of market

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information that may have been considered as well as other factors such as costs to sell an asset if it is determined that the collateral will be liquidated in connection with the ultimate settlement of the loan. We use these valuations to determine if any specific reserves or charge-offs are necessary. We may obtain new valuations in certain circumstances, including when there has been significant deterioration in the condition of the collateral, if the foreclosure process has begun, or if the existing valuation is deemed to be outdated.

The following tables list the quantitative fair value information about loans measured at fair value on a nonrecurring basis as of:

	December 31, 2023
Valuation Technique	Fair Value	Unobservable Input	Actual Range	Weighted Average
Collateral Dependent Loans -		Discount applied to collateral:
Discounted value	$1,083	Real Estate	20%	20%
		Equipment	25% - 35%	33%
		Accounts receivable	25%	25%

	December 31, 2022
Valuation Technique	Fair Value	Unobservable Input	Actual Range	Weighted Average
		Discount applied to collateral:
		Real Estate	20% - 30%	24%
Impaired Loans -		Equipment	25% - 35%	31%
Discounted value	$17,143	Cash crop inventory	40%	40%
		Livestock	30%	30%
		Accounts receivable	25%	27%
		Furniture, fixtures & equipment	45%	45%

Collateral discount rates may have ranges to accommodate differences in the age of the independent appraisal, broker price opinion, or internal evaluation.

OMSR: OMSR (which are included in other assets) are subject to impairment testing. To test for impairment, we utilize a discounted cash flow analysis using interest rates and prepayment speed assumptions currently quoted for comparable instruments and discount rates. If the valuation model reflects a value less than the carrying value, OMSR are adjusted to fair value through a valuation allowance as determined by the model. As such, we classify OMSR subject to nonrecurring fair value adjustments as Level 2.

The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Although we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement.

Estimated Fair Values of Financial Instruments Not Recorded at Fair Value in their Entirety on a Recurring Basis

Disclosure of the estimated fair values of financial instruments, which differ from carrying values, often requires the use of estimates. In cases where quoted market values in an active market are not available, we use present value techniques and other valuation methods to estimate the fair values of our financial instruments. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used.

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The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a recurring basis were as follows as of December 31:

	2023
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
ASSETS
Cash and cash equivalents	$	33,672	$	33,672	$	33,672	$	—	$	—
Mortgage loans AFS	—		—		—		—		—
Gross loans	1,349,463		1,292,458		—		—		1,292,458
Less allowance for credit losses	13,108		13,108		—		—		13,108
Net loans	1,336,355		1,279,350		—		—		1,279,350
Accrued interest receivable	8,167		8,167		8,167		—		—
Equity securities without readily determinable fair values (1)	15,848		N/A		—		—		—
OMSR	2,422		3,164		—		3,164		—
LIABILITIES
Deposits without stated maturities	1,377,321		1,377,321		1,377,321		—		—
Deposits with stated maturities	346,374		341,489		—		341,489		—
Federal funds purchased and repurchase agreements	46,801		46,704		—		46,704		—
FHLB advances	40,000		40,000		—		40,000		—
Subordinated debt, net of unamortized issuance costs	29,335		26,146		—		26,146		—
Accrued interest payable	890		890		890		—		—

	2022
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
ASSETS
Cash and cash equivalents	$	38,924	$	38,924	$	38,924	$	—	$	—
Mortgage loans AFS	379		395		—		395		—
Gross loans	1,264,173		1,225,669		—		—		1,225,669
Less allowance for credit losses	9,850		9,850		—		—		9,850
Net loans	1,254,323		1,215,819		—		—		1,215,819
Accrued interest receivable	7,472		7,472		7,472		—		—
Equity securities without readily determinable fair values (1)	15,746		N/A		—		—		—
OMSR	2,559		3,174		—		3,174		—
LIABILITIES
Deposits without stated maturities	1,492,235		1,492,235		1,492,235		—		—
Deposits with stated maturities	252,040		240,964		—		240,964		—
Federal funds purchased and repurchase agreements	57,771		57,581		—		57,581		—
FHLB advances	—		—		—		—		—
Subordinated debt, net of unamortized issuance costs	29,245		26,365		—		26,365		—
Accrued interest payable	255		255		255		—		—

(1) Due to the characteristics of equity securities without readily determinable fair values, they are not disclosed under a specific fair value hierarchy. When an impairment or write-down related to these securities is recorded, such amount would be classified as a nonrecurring Level 3 fair value adjustment.

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Financial Instruments Recorded at Fair Value

The table below presents the recorded amount of assets and liabilities measured at fair value on December 31:

	2023											2022
	Total		Level 1			Level 2			Level 3			Total		Level 1			Level 2			Level 3
Recurring items
AFS securities
U.S. Treasury	$	214,801	$	—		$	214,801		$	—		$	208,701	$	—		$	208,701		$	—
States and political subdivisions	92,876		—			92,876			—			117,512		—			117,512			—
Auction rate money market preferred	2,931		—			2,931			—			2,342		—			2,342			—
Mortgage-backed securities	32,815		—			32,815			—			39,070		—			39,070			—
Collateralized mortgage obligations	177,775		—			177,775			—			205,728		—			205,728			—
Corporate	6,950		—			6,950			—			7,128		—			7,128			—
Total AFS securities	528,148		—			528,148			—			580,481		—			580,481			—
Nonrecurring items
Collateral dependent (net of ACL) in 2023 Impaired loans (net of the ALLL) in 2022	1,083		—			—			1,083			17,143		—			—			17,143
Foreclosed assets	406		—			—			406			439		—			—			439
Total	$	529,637	$	—		$	528,148		$	1,489		$	598,063	$	—		$	580,481		$	17,582
Percent of assets and liabilities measured at fair value			0.00		%	99.72		%	0.28		%			0.00		%	97.06		%	2.94		%

We recorded losses of $132 and $6 through earnings related fair value changes in foreclosed assets for the years ended December 31, 2023 and 2022. We had no other assets or liabilities recorded at fair value with changes in fair value recognized through earnings, on a recurring basis or nonrecurring basis, as of December 31, 2023 and 2022.

Note 18 – Related Party Transactions

In the ordinary course of business, we grant loans to principal officers and directors and their affiliates (including their families and companies in which they have 10% or more ownership). Annual activity consisted of the following for the years ended December 31:

	2023		2022
Balance, January 1	$	20,963	$	22,558
New loans	569		1,829
Repayments	(2,005)		(3,424)
Balance, December 31	$	19,527	$	20,963

Total deposits of these principal officers and directors and their affiliates amounted to $7,735 and $12,317 at December 31, 2023 and 2022, respectively.

From time to time, we make charitable donations to The Isabella Bank Foundation (the “Foundation”), which is a non-controlled nonprofit organization formed for the purpose of distributing charitable donations to recipient organizations generally located in the communities we serve. Our donations are recognized as expense when paid to the Foundation. The assets and transactions of the Foundation are not included in our consolidated financial statements.

Assets of the Foundation include cash and cash equivalents, certificates of deposit, and shares of Isabella Bank Corporation common stock. The Foundation owned 20,000 shares of our common stock as of December 31, 2023 and 2022. Such shares are included in the computation of dividends and earnings per share.

The following table displays total assets of, and our donations to, the Foundation as of, and for the years ended December 31:

	2023		2022		2021
Total assets	$	1,221	$	1,385	$	1,511
Donations	$	—	$	50	$	50

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Note 19 – Operating Segments

Our reportable segments are based on legal entities that account for at least 10% of net operating results. The operations of the Bank as of December 31, 2023, 2022, and 2021 represent approximately 90% or more of our consolidated total assets and operating results. As such, no additional segment reporting is presented.

Note 20 – Parent Company Only Financial Information

Condensed Balance Sheets

	December 31
	2023		2022
ASSETS
Cash on deposit at the Bank	$	25,010	$	8,525
Investments in subsidiaries	157,671		158,125
Premises and equipment	1,196		1,171
Other assets	47,949		47,922
TOTAL ASSETS	$	231,826	$	215,743
LIABILITIES AND SHAREHOLDERS’ EQUITY
Subordinated debt, net of unamortized issuance costs	$	29,335	$	29,245
Other liabilities	89		288
Shareholders' equity	202,402		186,210
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	231,826	$	215,743

Condensed Statements of Income

	Year Ended December 31
	2023		2022		2021
Income
Dividends from subsidiaries	$	30,000	$	6,000	$	3,600
Interest income	191		15		12
Other income	13		14		17
Total income	30,204		6,029		3,629
Expenses
Interest expense	1,065		1,065		615
Management fee	952		900		854
Audit, consulting, and legal fees	577		522		590
Director fees	408		417		352
Other	354		339		358
Total expenses	3,356		3,243		2,769
Income before income tax benefit and equity in undistributed earnings of subsidiaries	26,848		2,786		860
Federal income tax benefit	654		670		500
Income before equity in undistributed earnings of subsidiaries	27,502		3,456		1,360
Undistributed earnings of subsidiaries	(9,335)		18,782		18,139
Net income	$	18,167	$	22,238	$	19,499

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Condensed Statements of Cash Flows

	Year Ended December 31
	2023		2022		2021
Operating activities
Net income	$	18,167	$	22,238	$	19,499
Adjustments to reconcile net income to cash provided by operations
Undistributed earnings of subsidiaries	9,335		(18,782)		(18,139)
Share-based payment awards under the Directors Plan	529		463		433
Share-based payment awards under the RSP	253		147		86
Amortization of subordinated debt issuance costs	90		87		52
Depreciation	52		50		50
Deferred income tax expense (benefit)	228		(133)		(267)
Changes in operating assets and liabilities which provided (used) cash
Other assets	(255)		1,383		(304)
Other liabilities	(199)		160		70
Net cash provided by (used in) operating activities	28,200		5,613		1,480
Investing activities
Purchase of equity investments	—		(250)		—
Net (purchases) sales of premises and equipment	(77)		260		(2)
Net cash provided by (used in) investing activities	(77)		10		(2)
Financing activities
Issuance of subordinated debt, net of unamortized issuance costs	—		—		29,106
Cash dividends paid on common stock	(8,216)		(8,082)		(8,367)
Proceeds from the issuance of common stock	1,617		1,762		1,593
Common stock repurchased	(3,415)		(1,124)		(13,758)
Common stock purchased for deferred compensation obligations	(1,624)		(1,189)		(1,187)
Net cash provided by (used in) financing activities	(11,638)		(8,633)		7,387
Increase (decrease) in cash and cash equivalents	16,485		(3,010)		8,865
Cash and cash equivalents at beginning of period	8,525		11,535		2,670
Cash and cash equivalents at end of period	$	25,010	$	8,525	$	11,535

Note 21 – Subsequent Events

We evaluated subsequent events after December 31, 2023 through the date our condensed consolidated financial statements were issued for potential recognition and disclosure. No subsequent events require financial statement recognition or disclosure between December 31, 2023 and the date our condensed consolidated financial statements were issued.

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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

DISCLOSURE CONTROLS AND PROCEDURES

We carried out an evaluation, under the supervision and with the participation of the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange Act) as of December 31, 2023, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of December 31, 2023, were effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

We also conducted an evaluation of internal control over financial reporting to determine whether any changes occurred during the quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on this evaluation, we have concluded that there have been no such changes during the quarter ended December 31, 2023.

Management’s Report on Internal Control Over Financial Reporting

We are responsible for the preparation and integrity of our published consolidated financial statements. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and, accordingly, include amounts based on judgments and estimates. We also prepared the other information included in the Annual Report on Form 10-K and are responsible for the accuracy and consistency with the consolidated financial statements.

We are responsible for establishing and maintaining a system of internal control over financial reporting, which is intended to provide reasonable assurance to our management and Board of Directors regarding the reliability of our consolidated financial statements. The system includes but is not limited to:

•A documented organizational structure and division of responsibility;

•Established policies and procedures, including a code of conduct to foster a strong ethical climate which is communicated throughout our Corporation;

•Internal auditors that monitor the operation of the internal control system and report findings and recommendations to management and the Audit Committee;

•Procedures for taking action in response to an internal audit finding or recommendation;

•Regular reviews of our consolidated financial statements by qualified individuals; and

•The careful selection, training and development of our people.

There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Also, the effectiveness of an internal control system may change over time. We have implemented a system of internal control that was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.

We have assessed our internal control system in relation to criteria for effective internal control over financial reporting described in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations (2013 framework) of the Treadway Commission.

Based upon these criteria, we believe that, as of December 31, 2023, our system of internal control over financial reporting was effective.

Our independent registered public accounting firm, Rehmann Robson LLC ("Rehmann"), has audited our 2023 consolidated financial statements and our internal control over financial reporting as of December 31, 2023. Rehmann was given unrestricted access to all financial records and related data, including minutes of all meetings of stockholders, the Board of Directors and committees of the Board of Directors. Rehmann has issued an unqualified audit opinion on our 2023

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consolidated financial statements and an unqualified opinion on the effectiveness of our internal controls as of December 31, 2023, as a result of the integrated audit.

Isabella Bank Corporation

By:

/s/ Jerome E. Schwind

Jerome E. Schwind

President and Chief Executive Officer

(Principal Executive Officer)

March 7, 2024

/s/ Neil M. McDonnell

Neil M. McDonnell

Chief Financial Officer

(Principal Financial Officer)

March 7, 2024

Item 9B. Other Information.

Securities Trading Plans of Executive Officers

None of our directors or executive officers adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” during the fourth quarter of 2023.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

For information concerning our directors and certain executive officers, see “Election of Directors” and “Delinquent Section 16(a) Reports” in our Proxy Statement for the Annual Meeting of Shareholders to be held May 7, 2024 (“Proxy Statement”) which is incorporated herein by reference.

For Information concerning our Audit Committee financial experts, see “Committees of the Board of Directors and Meeting Attendance” in the Proxy Statement which is incorporated herein by reference.

We have adopted a Code of Conduct and Business Ethics that applies to the principal executive officer, the principal financial officer and the principal accounting officer or controller of the Corporation. We shall provide to any person without charge upon request, a copy of our Code of Conduct and Business Ethics. Written requests should be sent to: Secretary, Isabella Bank Corporation, 401 North Main Street, Mount Pleasant, Michigan 48858.

Item 11. Executive Compensation.

For information concerning executive compensation, see “Executive Officers” and “Remuneration of Directors” in the Proxy Statement which is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

For information concerning the security ownership of certain owners and management, see “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement which is incorporated herein by reference.

Equity Compensation Plan Information

The following table provides information as of December 31, 2023, with respect to compensation plans under which our common shares are authorized for issuance to directors, officers or employees in exchange for consideration in the form of goods or services.

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 (1)	3,538	(3)	—	(5)	—	(6)
Restricted Stock Plan (2)	27,072	(4)	—	(5)	—	(6)
Total	30,610

(1) Pursuant to the terms of the Directors Plan, our directors are required to invest at least 25% of their board fees in our common stock. These stock investments can be made either through deferred fees or through the purchase of shares through the Dividend Reinvestment Plan. Deferred fees, under the Directors Plan, are converted on a quarterly basis into stock units of our common stock based on the fair value of a share of our common stock as of the relevant valuation date. Stock units credited to a participant’s account are eligible for stock and cash dividends as declared. Dividend Reinvestment Plan shares are purchased pursuant to the Dividend Reinvestment Plan.

Distribution of deferred fees from the Directors Plan occurs when the participant retires from the Board of Directors or upon the occurrence of certain other events. The participant is eligible to receive a distribution in the form of shares of our common stock of all of the stock units that are then in his or her account, and any unconverted cash will be converted to and rounded up to whole shares of stock and distributed, as well. The Directors Plan does not allow for cash settlement, and therefore, such share-based payment awards qualify for classification as equity. We may use authorized but unissued shares or purchase shares of common stock on the open market to meet our obligations under the Directors Plan.

(2) The RSP is an equity-based bonus plan. Under the plan, we may award restricted stock bonuses to eligible employees on an annual basis that are not fully transferable. Currently, the eligible employees are Isabella Bank's CEO, President, and CFO. The RSP authorizes the issuance of unvested restricted stock to an eligible employee with a maximum award ranging from 25%

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to 40% of the employee’s annual salary, on a calendar year basis. The employee must also satisfy the annual performance targets and measures established by the Board of Directors. If these grant conditions are not satisfied, then the award of restricted shares will lapse or be adjusted appropriately, at the discretion of the Board of Directors. Awards are converted to shares upon payment to the participant based on the market value of our common stock on the date of award.

(3) As of December 31, 2023, the Directors Plan had 154,119 shares eligible to be distributed under the Directors Plan. The Rabbi Trust holds 150,581 shares for the benefit of participants pursuant to the Directors Plan.  Accordingly, such shares are not included in the number of securities issuable in column (A).

(4) This amount includes shares subject to outstanding stock awards at the maximum amount of shares issuable under such awards.  However, payout of incentive awards is contingent on the individual and the Corporation reaching certain levels of performance.  If the performance criteria for these awards are not fully satisfied, the award recipient will receive less than the maximum number of shares eligible under these grants and may receive nothing from these grants. Additionally, this amount assumes the closing price of our common stock as of the award grant dates for purposes of the conversion from awards to common stock.

(5) The Directors Plan and the RSP do not have an exercise price.

(6) There is no maximum number of shares available for issuance under the Directors Plan and the RSP has a maximum number of 100,000 shares.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

For information, see “Indebtedness of and Transactions with Management” and “Election of Directors” in the Proxy Statement, which is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services.

For information concerning our principal accountant fees and services see “Fees for Professional Services Provided by Rehmann Robson LLC” and “Pre-approval Policies and Procedures” in our Proxy Statement which is incorporated herein by reference.

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PART IV

Item 15. Exhibit and Financial Statement Schedules.

(a)	(1)	Financial Statements: The following documents are filed as part of Item 8 of this report:
		Report of Independent Registered Public Accounting Firm, Rehmann Robson LLC (PCAOB ID: 263)
		Consolidated Balance Sheets
		Consolidated Statements of Changes in Shareholders’ Equity
		Consolidated Statements of Income
		Consolidated Statements of Comprehensive Income (Loss)
		Consolidated Statements of Cash Flows
		Notes to Consolidated Financial Statements
	(2)	Financial Statement Schedules: All schedules are omitted because they are neither applicable nor required, or because the required information is included in the consolidated financial statements or related notes.
	(3)	See the exhibits listed below under Item 15(b):
(b)	The following exhibits required by Item 601 of Regulation S-K are filed as part of this report:
	3.1	Amended Articles of Incorporation (1)
	3.2	Amendment to the Articles of Incorporation (2)
	3.3	Amendment to the Articles of Incorporation (3)
	3.4	Amendment to the Articles of Incorporation (4)
	3.5	Amendment to the Articles of Incorporation (7)
	3.6	Amended Bylaws (5)
	3.7	Amendment to Bylaws (6)
	3.8	Amendment to Bylaws (9)
	3.9	Amendment to Bylaws (10)
	4.1	Indenture, dated as of June 2, 2021, by and between Isabella Bank Corporation and UMB Bank, National Association, as trustee (16)
	4.2	Form of 3.25% Fixed-to-Floating Rate Subordinated Note due 2031 (13)
	10.1	Isabella Bank Corporation and Related Companies Deferred Compensation Plan for Directors* (8)
	10.2	Isabella Bank Corporation Split Dollar Plan* (12)
	10.3	Isabella Bank Corporation Retirement Bonus Plan* (11)
	10.4	Isabella Bank Corporation Supplemental Executive Retirement Plan* (13)
	10.5	Amendment to the Isabella Bank Corporation Supplemental Executive Retirement Plan* (14)
	10.6	Isabella Bank Corporation Restricted Stock Plan* (15)
	10.7	Amendment to the Isabella Bank Corporation Restricted Stock Plan* (17)
	10.8	Isabella Bank Corporation Executive Cash Incentive Plan* (15)
	10.9	Form of Subordinated Note Purchase Agreement, dated as of June 2, 2021, by and among the Corporation and the several Purchasers (16)
	10.10	Form of Registration Rights Agreement, dated as of June 2, 2021, by and among the Corporation and the several Purchasers (16)
	21	Subsidiaries of the Registrant
	23	Consent of Rehmann Robson LLC, Independent Registered Public Accounting Firm
	31.1	Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer
	31.2	Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer
	32	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

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101.INS	XBRL Interactive Data File**
101.SCH	XBRL Interactive Data File**
101.CAL	XBRL Interactive Data File**
101.LAB	XBRL Interactive Data File**
101.PRE	XBRL Interactive Data File**
101.DEF	XBRL Interactive Data File**
104	Cover Page Interactive Data File

*	Management Contract or Compensatory Plan or Arrangement.
**	As provided by Rule 406T in Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Exchange Act
(1)	Previously filed as an Exhibit to the Isabella Bank Corporation Form 10-K, filed March 12, 1991, and incorporated herein by reference
(2)	Previously filed as an Exhibit to the Isabella Bank Corporation Form 10-K, filed March 26, 1994, and incorporated herein by reference.
(3)	Previously filed as an Exhibit to Isabella Bank Corporation Form 10-K, filed March 22, 2000, and incorporated herein by reference.
(4)	Previously filed as an Exhibit to Isabella Bank Corporation Form 10-K, filed March 27, 2001, and incorporated herein by reference.
(5)	Previously filed as an Exhibit to Isabella Bank Corporation Form 10-K, filed March 16, 2005, and incorporated herein by reference.
(6)	Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed November 22, 2006, and incorporated herein by reference.
(7)	Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed May 16, 2008, and incorporated herein by reference.
(8)	Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed March 13, 2019, and incorporated herein by reference.
(9)	Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed August 28, 2009, and incorporated herein by reference.
(10)	Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed December 23, 2009, and incorporated herein by reference.
(11)	Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed December 19, 2008, and incorporated herein by reference.
(12)	Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed March 31, 2015, and incorporated herein by reference.
(13)	Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed April 27, 2015, and incorporated herein by reference.
(14)	Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed February 12, 2019, and incorporated herein by reference.
(15)	Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed June 26, 2020, and incorporated herein by reference.
(16)	Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed June 2, 2021, and incorporated herein by reference.
(17)	Previously filed as an Exhibit to Isabella Bank Corporation Form 10-K, filed March 15, 2022, and incorporated herein by reference.

Item 16. Form 10-K Summary.

Not applicable.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ISABELLA BANK CORPORATION

(Registrant)

By:	/s/ Jerome E. Schwind	Date:	March 7, 2024
	Jerome E. Schwind, President and Chief Executive Officer
	(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signatures	Capacity	Date
/s/ Dr. Jeffrey J. Barnes	Director	March 7, 2024
Dr. Jeffrey J. Barnes
/s/ Jill Bourland	Director	March 7, 2024
Jill Bourland
/s/ Melinda M. Coffin	Director	March 7, 2024
Melinda M. Coffin
/s/ Jae A. Evans	Director	March 7, 2024
Jae A. Evans
/s/ Jennifer L. Gill	Controller	March 7, 2024
Jennifer L. Gill
/s/ Thomas L. Kleinhardt	Director	March 7, 2024
Thomas L. Kleinhardt
/s/ Neil M. McDonnell	Chief Financial Officer (Principal Financial Officer), Isabella Bank President, and Director	March 7, 2024
Neil M. McDonnell
/s/ Sarah R. Opperman	Director	March 7, 2024
Sarah R. Opperman
/s/ Chad R. Payton	Director	March 7, 2024
Chad R. Payton
/s/ Vicki L. Rupp	Director	March 7, 2024
Vicki L. Rupp
/s/ Jerome E. Schwind	President, Chief Executive Officer (Principal Executive Officer), and Director	March 7, 2024
Jerome E. Schwind

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