Isabella Bank Corporation - 10-Q quarterly report FY2025 Q1

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the quarterly period ended March 31, 2025


☐			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 N. Main St

Mt. Pleasant

48858

(Address of principal executive offices)

(Zip code)

(989) 772-9471

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

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 the definitions 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

The number of common shares outstanding of the registrant’s Common Stock (no par value) was 7,382,358 as of May 7, 2025.

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ISABELLA BANK CORPORATION

QUARTERLY REPORT ON FORM 10-Q

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PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Item 6.

Glossary of Acronyms and Abbreviations

The acronyms and abbreviations identified below may be used throughout this Quarterly Report on Form 10-Q 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						Freddie Mac: Federal Home Loan Mortgage Corporation
ALCO: Asset-Liability Committee						FTE: Fully taxable equivalent
AOCI: Accumulated other comprehensive income						GAAP: U.S. generally accepted accounting principles
ASC: FASB Accounting Standards Codification						HFS: Held-for-sale
ASU: FASB Accounting Standards Update						IRR: Interest rate risk
ATM: Automated teller machine						N/A: Not applicable
AUM: Assets under management						N/M: Not meaningful
BOLI: Bank-owned life insurance						NAV: Net asset value
CECL: Current expected credit losses						NIM: Net interest margin
CIK: Central Index Key						NSF: Non-sufficient funds
DIF: Deposit Insurance Fund						OCI: Other comprehensive income (loss)
DIFS: Department of Insurance and Financial Services						OMSR: Originated mortgage servicing rights
Directors Plan: Isabella Bank Corporation and Related Companies Deferred Compensation Plan for Directors						OREO: Other real estate owned
Dividend Reinvestment Plan: Isabella Bank Corporation Stockholder Dividend Reinvestment Plan and Employee Stock Purchase Plan						Rabbi Trust: A trust established to fund our Directors Plan
ETR: Effective tax rate						RSP: Isabella Bank Corporation Restricted Stock Plan
Exchange Act: Securities Exchange Act of 1934						SOFR: Secured Overnight Financing Rate
FASB: Financial Accounting Standards Board						SEC: U.S. Securities and Exchange Commission
FDIC: Federal Deposit Insurance Corporation						SOX: Sarbanes-Oxley Act of 2002
FFIEC: Federal Financial Institutions Examinations Council						XBRL: eXtensible Business Reporting Language
FHLB: Federal Home Loan Bank						Yield Curve: U.S. Treasury Yield Curve

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)


	March 31 2025		December 31 2024
ASSETS
Cash and demand deposits due from banks	$	28,786	$	22,830
Fed Funds sold and interest bearing balances due from banks	40,393		1,712
Total cash and cash equivalents	69,179		24,542

AFS securities, at fair value	513,040		489,029
FHLB stock	5,600		12,762
Mortgage loans HFS	127		242

Loans	1,367,724		1,423,571
Less allowance for credit losses	12,735		12,895
Net loans	1,354,989		1,410,676

Premises and equipment	28,108		27,659
Cash surrender value of BOLI	45,833		34,882
Goodwill and other intangible assets	48,282		48,283
Other assets	37,429		38,166
Total assets	$	2,102,587	$	2,086,241
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Demand deposits	$	404,194	$	416,373
Interest bearing demand deposits	243,939		237,548
Money market deposits	473,138		423,883
Savings	286,399		281,665
Certificates of deposit	390,239		387,591
Total deposits	1,797,909		1,747,060
Short-term borrowings	47,310		53,567
FHLB advances	—		30,000
Subordinated debt, net of unamortized issuance costs	29,447		29,424
Total borrowed funds	76,757		112,991

Other liabilities	12,365		15,914
Total liabilities	1,887,031		1,875,965
Shareholders’ equity
Common stock — no par value 15,000,000 shares authorized: issued and outstanding 7,408,010 shares in 2025 and 7,424,893 shares in 2024	125,547		126,224
Shares to be issued for deferred compensation obligations	2,508		2,383
Retained earnings	104,940		103,024
Accumulated other comprehensive income (loss)	(17,439)		(21,355)
Total shareholders’ equity	215,556		210,276
Total liabilities and shareholders' equity	$	2,102,587	$	2,086,241

See notes to interim condensed consolidated financial statements (unaudited).

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INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands except per share amounts)


	Three Months Ended March 31
		2025		2024
Interest income
Loans		$	19,348	$	18,057
AFS securities		2,643		2,884
FHLB stock		160		146
Federal funds sold and other		482		293
Total interest income		22,633		21,380
Interest expense
Deposits		7,463		7,163
Short-term borrowings		341		321
FHLB advances		38		388
Subordinated debt		266		266
Total interest expense		8,108		8,138
Net interest income		14,525		13,242
(Reversal of) provision for credit losses		(107)		392
Net interest income after provision for credit losses		14,632		12,850
Noninterest income
Service charges and fees		1,974		1,933
Wealth management fees		979		939
Earnings on BOLI		372		243
Net gain on sale of mortgage loans		30		34
Other		173		319
Total noninterest income		3,528		3,468
Noninterest expenses
Compensation and benefits		7,383		7,015
Occupancy and equipment		2,600		2,706
Other professional services		711		513
ATM and debit card fees		486		469
Marketing		459		426
FDIC insurance premiums		303		252
Other		1,357		1,295
Total noninterest expenses		13,299		12,676
Income before income tax expense		4,861		3,642
Income tax expense		912		511
Net income		$	3,949	$	3,131
Earnings per common share
Basic		$	0.53	$	0.42
Diluted		0.53		0.42
Cash dividends per common share		0.28		0.28

See notes to interim condensed consolidated financial statements (unaudited).

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INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands)


	Three Months Ended March 31
		2025		2024
Net income		$	3,949	$	3,131
Unrealized gains (losses) on AFS securities		5,014		(2,926)
Reclassification adjustment for net (gains) losses included in net income		—		—
Tax effect (1)		(1,098)		632
Unrealized gains (losses) on AFS securities, net of tax		3,916		(2,294)
Comprehensive income (loss)		$	7,865	$	837

(1) See “Note 6 – Capital Ratios and Shareholders' Equity” for tax effect reconciliation.

See notes to interim condensed consolidated financial statements (unaudited).

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INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

(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
December 31, 2023	7,485,889	$	127,323	$	3,693	$	97,282	$	(25,896)	$	202,402
Comprehensive income (loss)	—	—		—		3,131		(2,294)		837
Issuance of common stock	22,456	447		—		—		—		447
Common stock issued for deferred compensation under the RSP	16,240	—		—		—		—		—
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations	—	21		(21)		—		—		—
Share-based payment awards under the Directors Plan	—	—		218		—		—		218
Share-based compensation expense recognized in earnings under the RSP	—	25		—		—		—		25
Common stock purchased for deferred compensation obligations	—	(420)		—		—		—		(420)
Common stock repurchased	(36,484)	(740)		—		—		—		(740)
Cash dividends paid ($0.28 per common share)	—	—		—		(2,095)		—		(2,095)
March 31, 2024	7,488,101	$	126,656	$	3,890	$	98,318	$	(28,190)	$	200,674

December 31, 2024	7,424,893	$	126,224	$	2,383	$	103,024	$	(21,355)	$	210,276
Comprehensive income (loss)	—	—		—		3,949		3,916		7,865
Issuance of common stock	17,332	419		—		—		—		419
Common stock issued for deferred compensation under the RSP	11,367	—		—		—		—		—
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations	—	42		(42)		—		—		—
Share-based payment awards under the Directors Plan	—	—		167		—		—		167
Share-based compensation expense recognized in earnings under the RSP	—	7		—		—		—		7
Common stock purchased for deferred compensation obligations	—	—		—		—		—		—
Common stock repurchased	(45,582)	(1,145)		—		—		—		(1,145)
Cash dividends paid ($0.28 per common share)	—	—		—		(2,033)		—		(2,033)
March 31, 2025	7,408,010	$	125,547	$	2,508	$	104,940	$	(17,439)	$	215,556

See notes to interim condensed consolidated financial statements (unaudited).

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INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)


	Three Months Ended March 31
	2025		2024
Operating activities
Net income	$	3,949	$	3,131
Reconciliation of net income to net cash provided by operating activities
(Reversal of) provision for credit losses	(107)		392
Depreciation	535		506
Net amortization of AFS securities	307		353
Net gain on sale of mortgage loans	(30)		(34)
Increase in cash value of BOLI	(368)		(239)
Share-based payment awards	174		243
Origination of loans HFS	(1,043)		(1,690)
Proceeds from loan sales	1,188		1,358
Net changes in:
Other assets	(142)		(114)
Other liabilities	241		(470)
Net cash provided by (used in) operating activities	4,704		3,436
Investing activities
Proceeds from sales, maturities, calls and prepayments of AFS securities	21,058		7,284
Purchases of AFS securities	(40,362)		—
Proceeds from sale of FHLB Stock	7,162		—
Net change in loans HFI	55,576		(16,354)
Purchases of premises and equipment	(984)		(818)
Purchases of BOLI policies	(10,583)		—
Low income housing tax credit investments	(3,767)		(3)
Net cash provided by (used in) investing activities	28,100		(9,891)
Financing activities
Net increase (decrease) in deposits	50,849		44,612
Net increase (decrease) in short-term borrowings	(6,257)		(3,803)
Net increase (decrease) in FHLB advances	(30,000)		(40,000)
Cash dividends paid on common stock	(2,033)		(2,095)
Proceeds from issuance of common stock	419		447
Common stock repurchased	(1,145)		(740)
Common stock purchased for deferred compensation obligations	—		(420)
Net cash provided by (used in) financing activities	11,833		(1,999)
Increase (decrease) in cash and cash equivalents	44,637		(8,454)
Cash and cash equivalents at beginning of period	24,542		33,672
Cash and cash equivalents at end of period	$	69,179	$	25,218
Supplemental cash flows information
Interest paid	$	7,919	$	7,844
Supplemental noncash information
Transfers of loans to foreclosed assets	218		199

See notes to interim condensed consolidated financial statements (unaudited).

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands except per share amounts)

Note 1 – Significant Accounting Policies

BASIS OF PRESENTATION AND CONSOLIDATION: As used in these notes, as well as in Management's Discussion and Analysis of Financial Condition and Results of Operations, 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.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025. For further information, refer to our Annual Report on Form 10-K for the year ended December 31, 2024.

OPERATING SEGMENTS: Segment information is prepared on the same basis that our CEO, who is our Chief Operating Decision Maker (“CODM”), manages our segments, evaluates financial results, and makes key operating decisions. While the CODM monitors the revenue streams of our various products and services, operations are managed, and financial performance is evaluated on a corporate-wide basis. Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the banking-related operations are considered by management to be aggregated in one reportable operating segment.

The segment is also distinguished by the level of information provided to the CODM, who uses such information to review performance of various components of the business, which are then aggregated if operating performance, products and services, and geographical regions are similar. The CODM will evaluate the financial performance of our business components by evaluating revenue streams, significant expenses, and budget to actual results in assessing our reportable segment and in the determination of allocating resources. Further, the CODM uses revenue streams to evaluate product pricing and significant expenses to assess performance and evaluate return on assets.

Consolidated net income is used to benchmark results against our competitors. Benchmarking and monitoring of budget to actual results are used in assessment performance and in establishing compensation. Revenue from banking operations consists primarily of loan and investment interest, deposit related fees, and wealth fees. Interest expense, provision for credit losses, compensation, and occupancy and equipment costs provide the significant expenses in our banking operations. All operations are domestic.

RECLASSIFICATIONS: Certain amounts reported in the interim 2024 consolidated financial statements have been reclassified to conform with the 2025 presentation. Our 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, 2024.

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Note 2 – AFS Securities

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


	March 31, 2025
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury	$	220,701	$	—	$	7,918	$	212,783
States and political subdivisions	78,938		3		4,719		74,222
Auction rate money market preferred	3,200		—		371		2,829
Mortgage-backed securities	27,545		—		1,717		25,828
Collateralized mortgage obligations	195,979		163		6,064		190,078
Corporate	8,150		—		850		7,300
Total	$	534,513	$	166	$	21,639	$	513,040


	December 31, 2024
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Treasury	$	230,807	$	—	$	10,236	$	220,571
States and political subdivisions	81,135		9		4,576		76,568
Auction rate money market preferred	3,200		—		156		3,044
Mortgage-backed securities	29,068		—		2,182		26,886
Collateralized mortgage obligations	163,156		—		8,482		154,674
Corporate	8,150		—		864		7,286
Total	$	515,516	$	9	$	26,496	$	489,029

The amortized cost and fair value of AFS securities by contractual maturity at March 31, 2025 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	$	59,841	$	160,860	$	—	$	—	$	—	$	220,701
States and political subdivisions	12,770		21,132		18,223		26,813		—		78,938
Auction rate money market preferred	—		—		—		—		3,200		3,200
Mortgage-backed securities	—		—		—		—		27,545		27,545
Collateralized mortgage obligations	—		—		—		—		195,979		195,979
Corporate	—		—		8,150		—		—		8,150
Total amortized cost	$	72,611	$	181,992	$	26,373	$	26,813	$	226,724	$	534,513
Fair value	$	71,223	$	175,122	$	24,317	$	23,643	$	218,735	$	513,040

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.

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The information in the following tables pertains to AFS securities with gross unrealized losses at March 31, 2025 and December 31, 2024, aggregated by investment category and length of time that individual securities have been in a continuous loss position.


	March 31, 2025
	Less Than Twelve Months				Twelve Months or More
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Total Unrealized Losses
U.S. Treasury	$	—	$	—	$	7,918	$	212,783	$	7,918
States and political subdivisions	176		15,510		4,543		40,418		4,719
Auction rate money market preferred	—		—		371		2,829		371
Mortgage-backed securities	—		—		1,717		25,828		1,717
Collateralized mortgage obligations	103		15,649		5,961		143,803		6,064
Corporate	85		1,615		765		5,685		850
Total	$	364	$	32,774	$	21,275	$	431,346	$	21,639
Number of securities in an unrealized loss position:			95				211		306


	December 31, 2024
	Less Than Twelve Months				Twelve Months or More
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Total Unrealized Losses
U.S. Treasury	$	—	$	—	$	10,236	$	220,571	$	10,236
States and political subdivisions	486		23,553		4,090		36,796		4,576
Auction rate money market preferred	—		—		156		3,044		156
Mortgage-backed securities	—		—		2,182		26,886		2,182
Collateralized mortgage obligations	185		5,646		8,297		149,028		8,482
Corporate	—		—		864		7,286		864
Total	$	671	$	29,199	$	25,825	$	443,611	$	26,496
Number of securities in an unrealized loss position:			175				178		353

As of March 31, 2025, 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 intend 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 3 – Loans and ACL

Loan Composition

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


	March 31, 2025				December 31, 2024
	Balance		Percent of Total		Balance		Percent of Total
Commercial and industrial
Secured	$	220,884	16.15	%	$	221,510	15.56	%
Unsecured	28,336		2.07	%	23,384		1.64	%
Total commercial and industrial	249,220		18.22	%	244,894		17.20	%
Commercial real estate
Commercial mortgage owner occupied	183,228		13.40	%	178,376		12.53	%
Commercial mortgage non-owner occupied	206,976		15.13	%	208,118		14.62	%
Commercial mortgage 1-4 family investor	93,845		6.86	%	92,497		6.50	%
Commercial mortgage multifamily	68,185		4.99	%	68,456		4.81	%
Total commercial real estate	552,234		40.38	%	547,447		38.46	%
Advances to mortgage brokers	3,015		0.22	%	63,080		4.43	%
Agricultural
Agricultural mortgage	65,699		4.80	%	67,550		4.75	%
Agricultural other	28,660		2.10	%	32,144		2.26	%
Total agricultural	94,359		6.90	%	99,694		7.01	%
Residential real estate
Senior lien	337,542		24.68	%	332,743		23.37	%
Junior lien	9,409		0.69	%	8,655		0.61	%
Home equity lines of credit	40,397		2.95	%	39,474		2.77	%
Total residential real estate	387,348		28.32	%	380,872		26.75	%
Consumer
Secured - direct	33,220		2.42	%	35,050		2.46	%
Secured - indirect	45,081		3.30	%	49,136		3.45	%
Unsecured	3,247		0.24	%	3,398		0.24	%
Total consumer	81,548		5.96	%	87,584		6.15	%
Total	$	1,367,724	100.00	%	$	1,423,571	100.00	%

We grant commercial, agricultural, residential real estate, and consumer loans to customers primarily in Bay, Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw counties in Michigan. The ability of 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 are 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. Net unamortized deferred loan costs were $3,317 and $3,330 at March 31, 2025 and December 31, 2024, respectively.

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,

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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 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 originated 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 generally 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. Accrued interest receivable on loans was $6,494 and $6,384 at March 31, 2025 and December 31, 2024, respectively, which is included in other assets on the consolidated balance sheets.

Table of Contents

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


	March 31, 2025				December 31, 2024
	Total Nonaccrual Loans		Nonaccrual Loans with No ACL		Total Nonaccrual Loans		Nonaccrual Loans with No ACL
Residential real estate
Senior lien	$	173	$	173	$	282	$	282
Total	$	173	$	173	$	282	$	282

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


	March 31, 2025
	Past Due:										Accruing Loans 90 or More Days Past Due
	30-59 Days		60-89 Days		90 Days or More		Current		Total
Commercial and industrial
Secured	$	79	$	—	$	—	$	220,805	$	220,884	$	—
Unsecured	—		50		—		28,286		28,336		—
Total commercial and industrial	79		50		—		249,091		249,220		—
Commercial real estate
Commercial mortgage owner occupied	26		304		—		182,898		183,228		—
Commercial mortgage non-owner occupied	1,487		—		—		205,489		206,976		—
Commercial mortgage 1-4 family investor	104		—		—		93,741		93,845		—
Commercial mortgage multifamily	—		—		—		68,185		68,185		—
Total commercial real estate	1,617		304		—		550,313		552,234		—
Advances to mortgage brokers	—		—		—		3,015		3,015		—
Agricultural
Agricultural mortgage	—		—		—		65,699		65,699		—
Agricultural other	57		—		—		28,603		28,660		—
Total agricultural	57		—		—		94,302		94,359		—
Residential real estate
Senior lien	3,163		—		56		334,323		337,542		—
Junior lien	—		—		—		9,409		9,409		—
Home equity lines of credit	80		—		—		40,317		40,397		—
Total residential real estate	3,243		—		56		384,049		387,348		—
Consumer
Secured - direct	3		—		26		33,191		33,220		26
Secured - indirect	197		—		—		44,884		45,081		—
Unsecured	6		—		—		3,241		3,247		—
Total consumer	206		—		26		81,316		81,548		26
Total	$	5,202	$	354	$	82	$	1,362,086	$	1,367,724	$	26

Table of Contents


	December 31, 2024
	Past Due:										Accruing Loans 90 or More Days Past Due
	30-59 Days		60-89 Days		90 Days or More		Current		Total
Commercial and industrial
Secured	$	328	$	—	$	—	$	221,182	$	221,510	$	—
Unsecured	—		50		—		23,334		23,384		—
Total commercial and industrial	328		50		—		244,516		244,894		—
Commercial real estate
Commercial mortgage owner occupied	25		304		—		178,047		178,376		—
Commercial mortgage non-owner occupied	792		—		—		207,326		208,118		—
Commercial mortgage 1-4 family investor	—		—		—		92,497		92,497		—
Commercial mortgage multifamily	—		—		—		68,456		68,456		—
Total commercial real estate	817		304		—		546,326		547,447		—
Advances to mortgage brokers	—		—		—		63,080		63,080		—
Agricultural
Agricultural mortgage	—		—		—		67,550		67,550		—
Agricultural other	—		—		—		32,144		32,144		—
Total agricultural	—		—		—		99,694		99,694		—
Residential real estate
Senior lien	3,846		148		163		328,586		332,743		—
Junior lien	19		—		—		8,636		8,655		—
Home equity lines of credit	10		—		—		39,464		39,474		—
Total residential real estate	3,875		148		163		376,686		380,872		—
Consumer
Secured - direct	15		—		19		35,016		35,050		19
Secured - indirect	232		—		—		48,904		49,136		—
Unsecured	4		—		—		3,394		3,398		—
Total consumer	251		—		19		87,314		87,584		19
Total	$	5,271	$	502	$	182	$	1,417,616	$	1,423,571	$	19

Table of Contents

Credit Quality Indicators

The following tables display commercial and agricultural loans by credit risk ratings and year of origination as of:


	March 31, 2025
	2025		2024		2023		2022		2021		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and industrial: Secured
Risk ratings 1-3	$	781	$	14,633	$	14,585	$	2,780	$	4,793	$	4,159	$	11,474	$	—	$	53,205
Risk rating 4	7,922		36,531		33,149		15,511		13,986		3,487		31,460		—		142,046
Risk rating 5	633		3,549		166		13,434		66		9		4,441		—		22,298
Risk rating 6	102		121		272		59		113		9		2,659		—		3,335
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	9,438	$	54,834	$	48,172	$	31,784	$	18,958	$	7,664	$	50,034	$	—	$	220,884
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and industrial: Unsecured
Risk ratings 1-3	$	1,498	$	348	$	1,905	$	132	$	55	$	431	$	2,129	$	—	$	6,498
Risk rating 4	3,475		1,371		1,700		1,686		629		347		11,230		—		20,438
Risk rating 5	—		96		66		—		113		—		1,125		—		1,400
Risk rating 6	—		—		—		—		—		—		—		—		—
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	4,973	$	1,815	$	3,671	$	1,818	$	797	$	778	$	14,484	$	—	$	28,336
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate: Owner occupied
Risk ratings 1-3	$	—	$	1,935	$	4,004	$	1,532	$	10,984	$	17,220	$	—	$	—	$	35,675
Risk rating 4	9,227		24,689		11,227		28,141		35,106		28,638		1,327		—		138,355
Risk rating 5	1,524		195		1,294		860		71		1,418		372		—		5,734
Risk rating 6	—		1,348		304		—		620		1,096		96		—		3,464
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	10,751	$	28,167	$	16,829	$	30,533	$	46,781	$	48,372	$	1,795	$	—	$	183,228
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate: Non-owner occupied
Risk ratings 1-3	$	723	$	302	$	738	$	5,510	$	5,124	$	2,078	$	—	$	—	$	14,475
Risk rating 4	7,856		7,840		32,756		56,898		35,075		30,764		608		—		171,797
Risk rating 5	—		9,671		809		928		1,663		6,085		500		—		19,656
Risk rating 6	—		—		1,000		—		—		48		—		—		1,048
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	8,579	$	17,813	$	35,303	$	63,336	$	41,862	$	38,975	$	1,108	$	—	$	206,976
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Table of Contents


	March 31, 2025
	2025		2024		2023		2022		2021		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial real estate: 1-4 family investor
Risk ratings 1-3	$	121	$	1,154	$	—	$	2,774	$	772	$	1,750	$	4,213	$	—	$	10,784
Risk rating 4	2,597		9,266		12,164		8,448		28,242		15,711		5,456		—		81,884
Risk rating 5	—		—		143		335		70		51		—		—		599
Risk rating 6	—		—		532		—		—		46		—		—		578
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	2,718	$	10,420	$	12,839	$	11,557	$	29,084	$	17,558	$	9,669	$	—	$	93,845
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate: Multifamily
Risk ratings 1-3	$	—	$	638	$	3,121	$	1,673	$	915	$	1,258	$	175	$	—	$	7,780
Risk rating 4	50		2,318		1,936		21,115		11,509		20,065		64		—		57,057
Risk rating 5	—		490		—		—		—		—		—		—		490
Risk rating 6	—		—		—		—		—		2,858		—		—		2,858
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	50	$	3,446	$	5,057	$	22,788	$	12,424	$	24,181	$	239	$	—	$	68,185
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Advances to mortgage brokers
Risk ratings 1-3	$	3,015	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	3,015
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Agricultural mortgage
Risk ratings 1-3	$	230	$	742	$	—	$	2,688	$	2,049	$	3,347	$	37	$	—	$	9,093
Risk rating 4	583		4,023		4,055		12,762		6,794		13,269		1,384		—		42,870
Risk rating 5	—		278		1,505		1,342		5,741		1,609		1,168		—		11,643
Risk rating 6	—		60		—		975		—		1,058		—		—		2,093
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	813	$	5,103	$	5,560	$	17,767	$	14,584	$	19,283	$	2,589	$	—	$	65,699
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Agricultural other
Risk ratings 1-3	$	—	$	633	$	434	$	86	$	107	$	211	$	2,694	$	—	$	4,165
Risk rating 4	138		1,886		1,192		1,656		1,741		776		11,825		—		19,214
Risk rating 5	—		1,687		—		17		—		460		831		—		2,995
Risk rating 6	—		—		172		—		90		—		2,024		—		2,286
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	138	$	4,206	$	1,798	$	1,759	$	1,938	$	1,447	$	17,374	$	—	$	28,660
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Table of Contents


	December 31, 2024
	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial and industrial: Secured
Risk ratings 1-3	$	13,303	$	15,074	$	3,078	$	4,975	$	4,437	$	368	$	10,316	$	—	$	51,551
Risk rating 4	38,143		38,393		17,252		15,561		2,035		2,191		28,145		—		141,720
Risk rating 5	3,627		559		11,644		164		137		53		6,626		—		22,810
Risk rating 6	126		288		1,841		71		—		10		3,093		—		5,429
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	55,199	$	54,314	$	33,815	$	20,771	$	6,609	$	2,622	$	48,180	$	—	$	221,510
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and industrial: Unsecured
Risk ratings 1-3	$	378	$	1,967	$	203	$	69	$	48	$	414	$	1,966	$	—	$	5,045
Risk rating 4	3,073		2,049		2,388		268		370		—		8,896		—		17,044
Risk rating 5	100		—		—		121		—		—		1,074		—		1,295
Risk rating 6	—		—		—		—		—		—		—		—		—
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	3,551	$	4,016	$	2,591	$	458	$	418	$	414	$	11,936	$	—	$	23,384
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate: Owner occupied
Risk ratings 1-3	$	1,963	$	4,032	$	1,694	$	11,125	$	13,300	$	4,421	$	221	$	—	$	36,756
Risk rating 4	24,878		11,550		29,307		35,974		9,780		20,260		1,590		—		133,339
Risk rating 5	197		487		876		72		653		791		372		—		3,448
Risk rating 6	1,354		1,123		—		636		1,117		504		99		—		4,833
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	28,392	$	17,192	$	31,877	$	47,807	$	24,850	$	25,976	$	2,282	$	—	$	178,376
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate: Non-owner occupied
Risk ratings 1-3	$	644	$	795	$	5,568	$	5,178	$	348	$	1,781	$	—	$	—	$	14,314
Risk rating 4	7,902		34,664		61,524		35,620		4,375		29,178		497		—		173,760
Risk rating 5	9,726		—		218		1,681		6,154		709		500		—		18,988
Risk rating 6	—		1,006		—		—		50		—		—		—		1,056
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	18,272	$	36,465	$	67,310	$	42,479	$	10,927	$	31,668	$	997	$	—	$	208,118
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Table of Contents


	December 31, 2024
	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial real estate: 1-4 family investor
Risk ratings 1-3	$	1,165	$	—	$	2,632	$	791	$	846	$	965	$	3,076	$	—	$	9,475
Risk rating 4	9,399		12,535		8,911		28,666		13,930		3,640		4,750		—		81,831
Risk rating 5	—		145		339		72		—		52		—		—		608
Risk rating 6	—		536		—		—		—		47		—		—		583
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	10,564	$	13,216	$	11,882	$	29,529	$	14,776	$	4,704	$	7,826	$	—	$	92,497
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate: Multifamily
Risk ratings 1-3	$	638	$	3,383	$	1,697	$	936	$	545	$	746	$	150	$	—	$	8,095
Risk rating 4	2,081		1,957		21,446		11,646		664		19,617		64		—		57,475
Risk rating 5	—		—		—		—		—		—		—		—		—
Risk rating 6	—		—		—		—		—		2,886		—		—		2,886
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	2,719	$	5,340	$	23,143	$	12,582	$	1,209	$	23,249	$	214	$	—	$	68,456
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Advances to mortgage brokers
Risk ratings 1-3	$	63,080	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	63,080
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Agricultural mortgage
Risk ratings 1-3	$	792	$	—	$	2,700	$	2,144	$	2,550	$	1,250	$	34	$	—	$	9,470
Risk rating 4	4,410		4,118		12,959		6,968		5,737		8,586		1,322		—		44,100
Risk rating 5	281		1,521		1,342		5,757		—		1,364		1,045		—		11,310
Risk rating 6	60		—		1,550		—		—		1,060		—		—		2,670
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	5,543	$	5,639	$	18,551	$	14,869	$	8,287	$	12,260	$	2,401	$	—	$	67,550
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Agricultural other
Risk ratings 1-3	$	634	$	523	$	106	$	137	$	2	$	210	$	3,635	$	—	$	5,247
Risk rating 4	1,940		1,328		1,863		1,893		463		550		13,531		—		21,568
Risk rating 5	1,683		—		—		—		438		—		608		—		2,729
Risk rating 6	—		172		—		90		—		—		2,338		—		2,600
Risk rating 7	—		—		—		—		—		—		—		—		—
Risk rating 8	—		—		—		—		—		—		—		—		—
Risk rating 9	—		—		—		—		—		—		—		—		—
Total	$	4,257	$	2,023	$	1,969	$	2,120	$	903	$	760	$	20,112	$	—	$	32,144
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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We have certain lending policies and procedures in place designed to maximize loan income within an acceptable level of risk. The Board reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management and the Board with frequent reports related to loan production, loan quality, and concentration of credit, loan delinquencies, nonperforming loans and potential problem loans. We seek to diversify the loan portfolio as a means of managing risk associated with fluctuations in economic conditions.

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.

4. 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.

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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.

•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.

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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.

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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 tables display residential real estate and consumer loans by payment status and year of origination as of:


	March 31, 2025
	2025		2024		2023		2022		2021		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Residential real estate: Senior lien
Current	$	10,712	$	58,748	$	39,681	$	46,037	$	72,311	$	105,685	$	—	$	1,033	$	334,207
Past due 30-89 days	—		202		184		219		499		2,058		—		—		3,162
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		173		—		—		173
Total	$	10,712	$	58,950	$	39,865	$	46,256	$	72,810	$	107,916	$	—	$	1,033	$	337,542
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	1	$	—	$	—	$	1
Residential real estate: Junior lien
Current	$	1,073	$	4,174	$	2,929	$	741	$	101	$	391	$	—	$	—	$	9,409
Past due 30-89 days	—		—		—		—		—		—		—		—		—
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	1,073	$	4,174	$	2,929	$	741	$	101	$	391	$	—	$	—	$	9,409
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential real estate: Home equity lines of credit
Current	$	—	$	—	$	—	$	—	$	—	$	—	$	40,317	$	—	$	40,317
Past due 30-89 days	—		—		—		—		—		—		80		—		80
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	—	$	40,397	$	—	$	40,397
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer: Secured - direct
Current	$	2,437	$	9,227	$	8,506	$	5,906	$	3,550	$	3,565	$	—	$	—	$	33,191
Past due 30-89 days	—		—		—		3		—		—		—		—		3
Past due 90 or more days	—		—		—		—		—		26		—		—		26
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	2,437	$	9,227	$	8,506	$	5,909	$	3,550	$	3,591	$	—	$	—	$	33,220
Current year-to-date gross charge-offs	$	—	$	1	$	19	$	36	$	—	$	12	$	—	$	—	$	68
Consumer: Secured - indirect
Current	$	613	$	5,850	$	20,416	$	6,956	$	4,507	$	6,542	$	—	$	—	$	44,884
Past due 30-89 days	—		47		—		—		68		82		—		—		197
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	613	$	5,897	$	20,416	$	6,956	$	4,575	$	6,624	$	—	$	—	$	45,081
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	13	$	—	$	—	$	13

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	March 31, 2025
	2025		2024		2023		2022		2021		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Consumer: Unsecured
Current	$	436	$	1,353	$	503	$	136	$	17	$	8	$	788	$	—	$	3,241
Past due 30-89 days	—		5		—		1		—		—		—		—		6
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	436	$	1,358	$	503	$	137	$	17	$	8	$	788	$	—	$	3,247
Current year-to-date gross charge-offs	$	80	$	1	$	9	$	—	$	—	$	—	$	—	$	—	$	90


	December 31, 2024
	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Residential real estate: Senior lien
Current	$	55,991	$	35,105	$	45,916	$	73,607	$	47,057	$	62,303	$	—	$	8,579	$	328,558
Past due 30-89 days	173		162		331		287		907		2,043		—		—		3,903
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		163		28		91		—		—		282
Total	$	56,164	$	35,267	$	46,247	$	74,057	$	47,992	$	64,437	$	—	$	8,579	$	332,743
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	1	$	—	$	—	$	1
Residential real estate: Junior lien
Current	$	4,229	$	3,092	$	800	$	86	$	71	$	358	$	—	$	—	$	8,636
Past due 30-89 days	—		—		—		19		—		—		—		—		19
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	4,229	$	3,092	$	800	$	105	$	71	$	358	$	—	$	—	$	8,655
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential real estate: Home equity lines of credit
Current	$	—	$	—	$	—	$	—	$	—	$	—	$	39,464	$	—	$	39,464
Past due 30-89 days	—		—		—		—		—		—		10		—		10
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	—	$	—	$	39,474	$	—	$	39,474
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer: Secured - direct
Current	$	10,990	$	9,498	$	6,535	$	3,947	$	2,166	$	1,880	$	—	$	—	$	35,016
Past due 30-89 days	—		—		15		—		—		—		—		—		15
Past due 90 or more days	—		—		—		—		19		—		—		—		19
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	10,990	$	9,498	$	6,550	$	3,947	$	2,185	$	1,880	$	—	$	—	$	35,050
Current year-to-date gross charge-offs	$	—	$	62	$	—	$	—	$	—	$	—	$	—	$	—	$	62

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	December 31, 2024
	2024		2023		2022		2021		2020		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Consumer: Secured - indirect
Current	$	6,526	$	22,624	$	7,682	$	4,990	$	4,018	$	3,064	$	—	$	—	$	48,904
Past due 30-89 days	42		51		50		28		54		7		—		—		232
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	6,568	$	22,675	$	7,732	$	5,018	$	4,072	$	3,071	$	—	$	—	$	49,136
Current year-to-date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer: Unsecured
Current	$	1,654	$	656	$	211	$	22	$	16	$	—	$	835	$	—	$	3,394
Past due 30-89 days	—		—		2		—		—		—		2		—		4
Past due 90 or more days	—		—		—		—		—		—		—		—		—
Nonaccrual	—		—		—		—		—		—		—		—		—
Total	$	1,654	$	656	$	213	$	22	$	16	$	—	$	837	$	—	$	3,398
Current year-to-date gross charge-offs	$	107	$	7	$	14	$	—	$	—	$	—	$	—	$	—	$	128

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).

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The following is a summary of the amortized cost basis of loan modifications granted to borrowers experiencing financial difficulty for the:


		Three Months Ended March 31, 2025
	Term Extension
		Amortized Cost Basis		% of Total Class of Financial Receivable
Commercial and industrial
Secured		$	532	0.24	%
Commercial real estate
Commercial mortgage owner occupied		1,524		0.83	%
Total		$	2,056


	Three Months Ended March 31, 2024
	Other-Than-Insignificant Payment Delay				Term Extension
	Amortized Cost Basis		% of Total Class of Financial Receivable		Amortized Cost Basis		% of Total Class of Financial Receivable
Commercial and industrial
Secured	$	—	0.00	%	$	13	0.01	%
Commercial real estate
Commercial mortgage owner occupied	823		0.46	%	—		0.00	%
Consumer
Secured - indirect	—		0.00	%	2		0.00	%
Total	$	823			$	15

We do not modify any loans by forgiving principal or accrued interest. We had committed to advance $0 and $43 in additional funds to be disbursed in connection with modified loans at March 31, 2025 and December 31, 2024, respectively, as displayed in the tables above.

The following is a summary of the financial effect of the modifications granted to borrowers experiencing financial difficulty for the:

Three Months Ended March 31

2025

2024

Weighted-Average Term Extension (Years)

Payment Delay Term

Weighted-Average Term Extension (Years)

Commercial and industrial

Secured

4.4 years

N/A

3 years

Commercial real estate

Commercial mortgage owner occupied

15 years

7 months

N/A

Consumer

Secured - indirect

N/A

1.3 years

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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 tables summarize the amortized cost basis of loans that have been modified within the past 12 months prior to:


	March 31, 2025
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total
Commercial and industrial
Secured	$	2,168	$	—	$	—	$	—	$	2,168
Commercial real estate
Commercial mortgage owner occupied	2,872		—		—		—		2,872
Agricultural
Agricultural mortgage	1,584		—		—		—		1,584
Agricultural other	924		—		—		—		924
Total	$	7,548	$	—	$	—	$	—	$	7,548


	March 31, 2024
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days or More Past Due		Total
Commercial and industrial
Secured	$	12	$	—	$	—	$	—	$	12
Commercial real estate
Commercial mortgage owner occupied	941		—		—		—		941
Commercial mortgage non-owner occupied	1,023		—		—		—		1,023
Commercial mortgage multifamily	2,976		—		—		—		2,976
Agricultural
Agricultural mortgage	22		—		—		—		22
Consumer
Secured - indirect	2		—		—		—		2
Total	$	4,976	$	—	$	—	$	—	$	4,976

We had no loans that defaulted in the three-month periods ended March 31, 2025 and 2024 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.

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,

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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;

•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.

A summary of activity in the ACL by portfolio segment and the recorded investment in loans by segments follows for the:


	Three Months Ended March 31, 2025
	Commercial and Industrial		Commercial Real Estate		Agricultural		Residential Real Estate		Consumer		Total
December 31, 2024	$	1,316	$	5,171	$	287	$	4,521	$	1,600	$	12,895
Charge-offs	—		—		—		(1)		(171)		(172)
Recoveries	80		2		—		14		128		224
Reversal of credit losses	(157)		1		(21)		66		(101)		(212)
March 31, 2025	$	1,239	$	5,174	$	266	$	4,600	$	1,456	$	12,735


	Three Months Ended March 31, 2024
	Commercial and Industrial		Commercial Real Estate		Agricultural		Residential Real Estate		Consumer		Total
December 31, 2023	$	968	$	5,878	$	270	$	4,336	$	1,656	$	13,108
Charge-offs	—		—		—		(1)		(190)		(191)
Recoveries	2		6		2		64		71		145
Provision for credit losses	297		19		(7)		(91)		110		328
March 31, 2024	$	1,267	$	5,903	$	265	$	4,308	$	1,647	$	13,390

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


	March 31 2025			December 31 2024			September 30 2024			June 30 2024			March 31 2024
ACL
Individually evaluated	$	—		$	—		$	—		$	137		$	349
Collectively evaluated	12,735			12,895			12,635			12,958			13,041
Total	$	12,735		$	12,895		$	12,635		$	13,095		$	13,390
ACL to gross loans
Individually evaluated	0.00		%	0.00		%	0.00		%	0.01		%	0.03		%
Collectively evaluated	0.93		%	0.91		%	0.89		%	0.94		%	0.95		%
Total	0.93		%	0.91		%	0.89		%	0.95		%	0.98		%

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:


	March 31, 2025				December 31, 2024
	Loan Balance		Specific Allocation		Loan Balance		Specific Allocation
Commercial and industrial	$	—	$	—	$	—	$	—
Commercial real estate	—		—		—		—
Agricultural	—		—		—		—
Residential real estate	145		—		254		—
Consumer	—		—		—		—
Total	$	145	$	—	$	254	$	—

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 as of March 31, 2025 include $145 in collateral dependent loans secured by residential real estate.

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Note 4 – Borrowed Funds

Short-term borrowings

Short-term borrowings include securities sold under repurchase agreements without stated maturity dates, federal funds purchased, and FRB Discount Window advances, which all generally mature within one to four days from the transaction date.

A summary of short-term borrowed funds without stated maturity dates was as follows for the:


	Three Months Ended March 31
	2025						2024
	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	$	47,310	$	43,513	3.21	%	$	43,250	$	40,621	3.15	%
Federal funds purchased	—		21		5.43	%	—		2		6.52	%
FRB Discount Window	—		29		4.51	%	—		—		0.00	%

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 $58,094 and $67,539 at March 31, 2025 and December 31, 2024, 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 as of:


	March 31, 2025				December 31, 2024
	Amount		Rate		Amount		Rate
Securities sold under agreements to repurchase without stated maturity dates	$	47,310	3.08	%	$	53,567	3.18	%

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


	March 31 2025		December 31 2024
Pledged to secure borrowed funds	$	394,079	$	395,286
Pledged to secure repurchase agreements	58,094		67,539
Pledged for public deposits and for other purposes necessary or required by law	67,794		86,162
Total	$	519,967	$	548,987

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


	March 31 2025		December 31 2024
U.S. Treasury	$	48,114	$	57,271
Mortgage-backed securities	7,769		7,979
Collateralized mortgage obligations	2,211		2,289
Total	$	58,094	$	67,539

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 March 31, 2025, we had the ability to borrow up to an additional $377,824 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 maturities and weighted average interest rates of FHLB advances as of:


	March 31, 2025				December 31, 2024
	Amount		Rate		Amount		Rate
Fixed rate due 2025	$	—	0.00	%	$	30,000	4.52	%

Subordinated notes

We have $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 as of:


	March 31, 2025				December 31, 2024
	Amount		Rate		Amount		Rate
Fixed rate at 3.25% to floating, due 2031	$	30,000	3.25	%	$	30,000	3.25	%
Unamortized issuance costs	(553)				(576)
Total subordinated debt, net	$	29,447			$	29,424

Note 5 – 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. Potential common shares that may be issued relate solely to outstanding shares in the Directors Plan and grant awards under the RSP.

Earnings per common share have been computed based on the following for the:


	Three Months Ended March 31
		2025		2024
Average number of common shares outstanding for basic calculation		7,419,739		7,493,334
Average potential effect of common shares in the RSP		12,423		14,405
Average number of common shares outstanding used to calculate diluted earnings per common share		7,432,162		7,507,739
Net income		$	3,949	$	3,131
Earnings per common share
Basic		$	0.53	$	0.42
Diluted		0.53		0.42

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Note 6 – Capital Ratios and Shareholders' Equity

As of March 31, 2025 and December 31, 2024, 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. 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. There were no conditions or events since the notifications that we believe have changed our categories. The following tables set forth these requirements and our ratios as of:


	March 31, 2025
	Actual				Minimum Capital Required Plus Capital Conservation Buffer				Minimum Capital Required To Be Considered Well Capitalized (1)
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Common equity Tier 1 capital to risk weighted assets
Isabella Bank	$	176,720	12.08	%	$	102,391	7.00	%	$	95,077	6.50	%
Consolidated	184,713		12.58	%	102,748		7.00	%	N/A		N/A
Tier 1 capital to risk weighted assets
Isabella Bank	176,720		12.08	%	124,331		8.50	%	117,018		8.00	%
Consolidated	184,713		12.58	%	124,765		8.50	%	N/A		N/A
Total capital to risk weighted assets
Isabella Bank	190,072		12.99	%	153,586		10.50	%	146,272		10.00	%
Consolidated	227,512		15.50	%	154,121		10.50	%	N/A		N/A
Tier 1 capital to average assets
Isabella Bank	176,720		8.59	%	82,267		4.00	%	102,834		5.00	%
Consolidated	184,713		8.96	%	82,465		4.00	%	N/A		N/A


	December 31, 2024
	Actual				Minimum Capital Required Plus Capital Conservation Buffer				Minimum Capital Required To Be Considered Well Capitalized (1)
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Common equity Tier 1 capital to risk weighted assets
Isabella Bank	$	172,589	11.53	%	$	104,783	7.00	%	$	97,299	6.50	%
Consolidated	183,348		12.21	%	105,136		7.00	%	N/A		N/A
Tier 1 capital to risk weighted assets
Isabella Bank	172,589		11.53	%	127,237		8.50	%	119,753		8.00	%
Consolidated	183,348		12.21	%	127,665		8.50	%	N/A		N/A
Total capital to risk weighted assets
Isabella Bank	185,997		12.43	%	157,175		10.50	%	149,691		10.00	%
Consolidated	226,179		15.06	%	157,703		10.50	%	N/A		N/A
Tier 1 capital to average assets
Isabella Bank	172,589		8.36	%	82,602		4.00	%	103,252		5.00	%
Consolidated	183,348		8.86	%	82,803		4.00	%	N/A		N/A

(1) "Well-capitalized" minimum Common Equity Tier 1 to Risk-Weighted and Leverage Ratio are not formally defined under applicable regulations for bank holding companies.

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 March 31, 2025, the Bank exceeded all minimum capital requirements.

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The following table summarizes the changes in AOCI by component for the:


	Three Months Ended March 31
	2025						2024
	Unrealized Gains (Losses) on AFS Securities		Defined Benefit Pension Plan		Total		Unrealized Gains (Losses) on AFS Securities		Defined Benefit Pension Plan		Total
Balance, December 31	$	(20,958)	$	(397)	$	(21,355)	$	(25,199)	$	(697)	$	(25,896)
OCI before reclassifications	5,014		—		5,014		(2,926)		—		(2,926)
Amounts reclassified from AOCI	—		—		—		—		—		—
Subtotal	5,014		—		5,014		(2,926)		—		(2,926)
Tax effect	(1,098)		—		(1,098)		632		—		632
OCI, net of tax	3,916		—		3,916		(2,294)		—		(2,294)
Balance, March 31	$	(17,042)	$	(397)	$	(17,439)	$	(27,493)	$	(697)	$	(28,190)

Included in OCI for the three-month periods ended March 31, 2025 and 2024 are changes in unrealized gains and losses related to certain auction rate money market preferred stocks. These investments, 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:


	Three Months Ended March 31
	2025						2024
	Auction Rate Money Market Preferred		All Other AFS Securities		Total		Auction Rate Money Market Preferred		All Other AFS Securities		Total
Unrealized gains (losses) arising during the period	$	(215)	$	5,229	$	5,014	$	82	$	(3,008)	$	(2,926)
Reclassification adjustment for net (gains) losses included in net income	—		—		—		—		—		—
Net unrealized gains (losses)	(215)		5,229		5,014		82		(3,008)		(2,926)
Tax effect	—		(1,098)		(1,098)		—		632		632
Unrealized gains (losses), net of tax	$	(215)	$	4,131	$	3,916	$	82	$	(2,376)	$	(2,294)

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Note 7 – 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 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.

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

March 31, 2025

Valuation Technique

Fair Value

Unobservable Input

Actual Range

Weighted Average

Collateral Dependent Loans

Discount applied to collateral:

Discounted value

145

Real Estate

20%

December 31, 2024

Valuation Technique

Fair Value

Unobservable Input

Actual Range

Weighted Average

Collateral Dependent Loans

Discount applied to collateral:

Discounted value

254

Real Estate

20%

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 3.

The following table lists the quantitative information about OMSR fair value measurement as of:

March 31, 2025

Valuation Technique

Fair Value

Unobservable Input

Rate

Discounted cash flow

2,366

Constant prepayment rate

Discount rate

11%

December 31, 2024

Valuation Technique

Fair Value

Unobservable Input

Rate

Discounted cash flow

2,483

Constant prepayment rate

Discount rate

11%

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:


	March 31, 2025
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
ASSETS
Cash and cash equivalents	$	69,179	$	69,179	$	69,179	$	—	$	—
FHLB stock (1)	5,600		N/A		—		—		—
Mortgage loans HFS	127		131		—		131		—

Gross loans	1,367,724		1,321,419		—		—		1,321,419
Less allowance for credit losses	12,735		12,735		—		—		12,735
Net loans	1,354,989		1,308,684		—		—		1,308,684
Accrued interest receivable	8,790		8,790		8,790		—		—
Equity securities without readily determinable fair values (1)	3,086		N/A		—		—		—
LIABILITIES
Deposits without stated maturities	1,407,670		1,407,670		1,407,670		—		—
Deposits with stated maturities	390,239		388,178		—		388,178		—
Short-term borrowings	47,310		47,254		—		47,254		—
FHLB advances	—		—		—		—		—
Subordinated debt, net of unamortized issuance costs	29,447		27,916		—		27,916		—
Accrued interest payable	997		997		997		—		—


	December 31, 2024
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
ASSETS
Cash and cash equivalents	$	24,542	$	24,542	$	24,542	$	—	$	—
FHLB stock (1)	12,762		N/A		—		—		—
Mortgage loans HFS	242		247		—		247		—

Gross loans	1,423,571		1,363,883		—		—		1,363,883
Less allowance for credit losses	12,895		12,895		—		—		12,895
Net loans	1,410,676		1,350,988		—		—		1,350,988
Accrued interest receivable	8,085		8,085		8,085		—		—
Equity securities without readily determinable fair values (1)	3,086		N/A		—		—		—
LIABILITIES
Deposits without stated maturities	1,359,469		1,359,469		1,359,469		—		—
Deposits with stated maturities	387,591		385,200		—		385,200		—
Short-term borrowings	53,567		53,503		—		53,503		—
FHLB advances	30,000		30,000		—		30,000		—
Subordinated debt, net of unamortized issuance costs	29,424		27,658		—		27,658		—
Accrued interest payable	1,051		1,051		1,051		—		—

(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:


	March 31, 2025											December 31, 2024
	Total		Level 1			Level 2			Level 3			Total		Level 1			Level 2			Level 3
Recurring items
AFS securities
U.S. Treasury	$	212,783	$	—		$	212,783		$	—		$	220,571	$	—		$	220,571		$	—
States and political subdivisions	74,222		—			74,222			—			76,568		—			76,568			—
Auction rate money market preferred	2,829		—			2,829			—			3,044		—			3,044			—
Mortgage-backed securities	25,828		—			25,828			—			26,886		—			26,886			—
Collateralized mortgage obligations	190,078		—			190,078			—			154,674		—			154,674			—
Corporate	7,300		—			7,300			—			7,286		—			7,286			—
Total AFS securities	513,040		—			513,040			—			489,029		—			489,029			—
Nonrecurring items
Collateral dependent (net of ACL)	145		—			—			145			254		—			—			254
Foreclosed assets	649		—			—			649			544		—			—			544
Total	$	513,834	$	—		$	513,040		$	794		$	489,827	$	—		$	489,029		$	798
Percent of assets and liabilities measured at fair value			0.00		%	99.85		%	0.15		%			0.00		%	99.84		%	0.16		%

We recorded an impairment related to foreclosed assets of $63 through earnings for the three month periods ended March 31, 2025 and $0 for the three month period ended March 31, 2024. 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 March 31, 2025. Further, we had no unrealized gains and losses included in OCI for recurring Level 3 fair value measurements held at the end of the reporting period.

Note 8 – Subsequent Events

On April 2, 2025, we recovered the full contractual balance of overdrawn deposit accounts from one customer. These accounts were charged off during the third quarter of 2024 in the amount of $1,622. Additionally, we collected all legal fees associated with the loss and the full contractual balance of all commercial loans outstanding with this customer. The recovery of losses and fees will be reflected in our second quarter 2025 results.

We evaluated subsequent events after March 31, 2025 through the date our interim condensed consolidated financial statements were issued for potential recognition and disclosure. No other subsequent events require financial statement recognition or disclosure between March 31, 2025 and the date our interim condensed consolidated financial statements were issued.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

(Dollars in thousands except per share amounts and ratios, unless otherwise noted)

The following is management's discussion and analysis of our financial condition and results of operations for the unaudited three months ended March 31, 2025 and 2024. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2024 and with the unaudited interim condensed consolidated financial statements and notes, beginning on page 4 of this report.

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.

Forward-Looking Statements

Information in this Quarterly Report on Form 10-Q 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 generally relate to losses, impact of events, financial condition, plans, objectives, outlook for earnings, revenues, expenses, capital and liquidity levels and ratios, asset levels, asset quality, financial position, and other matters regarding or affecting the Corporation and its future business and operations. Forward-looking statements are typically identified by words or phrases such as “will likely result", “expect”, “plan”, “believe”, “estimate”, “anticipate”, “strategy”, “trend”, “forecast”, “outlook”, “project”, “intend”, “assume”, “outcome”, “continue”, “remain”, “potential”, “opportunity”, “comfortable”, “current”, “position”, “maintain”, “sustain”, “seek”,“achieve” and variations of such words and similar expressions, or future or conditional verbs such as will, would, should, could or may. Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. The matters discussed in these forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results and trends to differ materially from those made, projected, or implied in or by the forward-looking statements depending on a variety of uncertainties or other factors described in Corporation’s Annual Report on Form 10-K for the year ended December 31, 2024, or included in any subsequent filing by the Corporation with the Securities and Exchange Commission. Forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. The Corporation cautions you not to unduly rely on forward-looking statements because the assumptions, beliefs, expectations and projections about future events may, and often do, differ materially from actual results. Any forward-looking statement speaks only as to the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.

Non-GAAP Financial Measures

Our accounting and reporting policies conform to GAAP and the prevailing practices in the financial services industry. However, we also evaluate our performance by reference to certain additional financial measures discussed in this Quarterly Report on Form 10-Q that we identify as being “non-GAAP financial measures.” In accordance with SEC rules, we classify a financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to adjustments that have the effect of excluding or including amounts, as the case may be, in the most directly comparable measure calculated and presented in accordance with GAAP as in effect from time to time in the United States in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures or ratios, or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both.

The non-GAAP financial measures that we discuss in this Quarterly Report on Form 10-Q should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this report may differ from that of other companies reporting measures with similar names.

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Executive Summary

Comparison of Operating Results for the three months ended March 31, 2025, and 2024, unless otherwise noted

Net income in the first quarter of 2025 was $3,949, or $0.53 per diluted share, compared with $3,131, or $0.42 per diluted share, in the same quarter 2024. The non-GAAP measure of adjusted net income in the first quarter 2025 totaled $4,254, or $0.57 per diluted share, compared to $3,076 or $0.41 per diluted share, in the same quarter of 2024.The increase in net income for the comparative periods includes an increase in core loan interest income and a decline in provision for credit losses, offset by an increase in noninterest expenses.

Net interest income was $14,525 in the first quarter of 2025 and $13,242 in the same quarter of 2024, representing 3.06% and 2.79% of earning assets, or NIM on an FTE basis, respectively. The current year quarter NIM included a four basis point benefit due to the recovery of contractual interest from nonaccruing loans that paid off during the quarter. The book yield from securities was 2.20% and 2.25% during the first quarters of 2025 and 2024, respectively. Our yield on loans expanded to 5.71% in the first quarter 2025, up from 5.38% in the same quarter of 2024. Excluding loan recoveries, the yield on loans was 5.65%. The expansion in loan yields was a result of higher rates on new loans and variable rate commercial loans that have, and continue to, reprice. At the end of the first quarter 2025, approximately 39% of commercial loans are fixed at rates that are lower than current market rates. Most of those fixed rate loans will contractually reprice to variable rates over the next four years. Our cost of interest-bearing liabilities decreased to 2.26% from 2.28% in the first quarter 2024 due to reductions to rates in the money market and certificate of deposit products. NIM continues to expand as loans reprice and the cost of interest bearing liabilities stabilizes.

The provision for credit losses was a credit of $107 in the first quarter of 2025, which reflects the $160 change in the allowance for credit losses on loans and net recoveries totaling $52, offset by an increase in the reserve for unfunded commitments. The provision for loan losses in the same period of 2024 was $392 reflecting $265 for specific reserves and $46 in net charge offs.

Noninterest income for the three months ended March 31, 2025 and 2024 was $3,528 and $3,468, respectively. Wealth management fees grew $40, or 4%, on relatively flat assets under management as compared to the first quarter of 2024, due to a change in product mix that generated higher administrative fees. AUM in the first quarter 2025 decreased 0.22% while the S&P 500 declined 4.6% in the same period. Earnings on BOLI policies increased $129 over the prior year quarter due to new investments in a separate account BOLI. Other noninterest income in the first quarter included a $55 loss on foreclosed assets, compared to a $69 gain in the first quarter 2024.

Noninterest expenses for the three-month period ended March 31, 2025 increased $623, or 4.9%, in comparison to the same period in 2024. Compensation and benefit expenses increased $368 reflecting annual merit increases and higher medical insurance claims compared to the first quarter of 2024. Other professional services included $121 in legal fees related to our previously announced Nasdaq uplisting application.

Income tax expense was $912, compared to $511 in the first quarter of 2024 and the ETR was 19% and 14%, respectively. The ETR in the first quarter 2025 included a one-time expense totaling $166 due to the taxes owed from the lifetime earnings on BOLI policies that were surrendered during the quarter. Excluding the one-time charge, the ETR was 15%, which is higher than the prior year quarter on higher pretax income.

Financial Condition (March 31, 2025 to December 31, 2024 comparison)

Total assets increased $16,346 to $2,102,587 as of March 31, 2025, primarily due to an increase of $38,681 in interest bearing cash, $18,997 in gross securities, and $10,951 increase in BOLI assets, offset by a $60,065 decrease in advances to mortgage brokers.

Our AFS securities portfolio totaled $513,040 at March 31, 2025, increasing $24,011 at the end of first quarter 2025. The increase was driven by $40,362 in purchases of collateralized mortgage obligation securities with a weighted-average yield of 4.56%. Amortization and maturities of $21,058 partially offset the increase from purchases. Net unrealized losses at March 31, 2025 totaled $21,473, or 4.02%, of the portfolio and improved during the quarter due to the treasury portfolio rapidly approaching maturity and a decrease in market yields. The par value and corresponding book yields that are estimated to mature or payoff by year include: $54,500 in principal with a weighted-average book yield of 2.34% over the remainder of 2025; $217,400 at 1.17% in 2026; and $63,400 at 1.86% in 2027. Some of these securities amortize so the actual principal paydown may differ from these estimates.

Loans outstanding as of March 31, 2025 totaled $1,367,724. Since December 31, 2024, gross loans have decreased $55,847 as a result of a reduction in advance to mortgage brokers. However, the decline in this non-core loan product has provided liquidity and the opportunity to refocus on loans that can be recorded on our balance sheet for longer terms and help to mitigate interest rate risk.

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Core loans, which excludes advances to mortgage brokers, grew $4,218, driven by the commercial real estate and commercial and industrial loan portfolios of $4,787 and $4,326, respectively. Loan growth during the first quarter primarily was in the construction, real estate, and hospitality industries. The commercial pipeline is robust, with some anticipated loan closings in the first quarter extended into the second quarter 2025. Residential mortgages increased $6,476 as customers are favoring adjustable-rate loans, which are put on the balance sheet rather than sold in the secondary market. Core loan growth during the quarter was offset by a decline in agricultural and consumer loan portfolios that continue to roll off amid decreasing demand, competition and our adherence to credit quality standards.

The ACL was $12,735 at March 31, 2025, a decrease of $160 from $12,895 at December 31, 2024. Most of the decline is due to improvement in historical loss experience, driven by the recovery of three previously charged-off loans during the quarter totaling $136, which led to an $88 reduction in the allowance. Nonaccrual loans were $173 as of March 31, 2025 compared to $282 at December 31, 2024. Past due and accruing accounts between 30 to 89 days as a percentage of total loans was 0.41% at March 31, 2025, compared to 0.40% at year-end 2024. Overall, credit quality remains strong, and there are no negative trends.

BOLI assets were $45,833 at March 31, 2025, an increase of $10,951 from December 31, 2024. The growth was mostly driven by a $10,583 investment of new policies in a separate account product at the beginning of January. The investment transaction included a surrender of $5,431 of existing general account policies and redeployment into a separate account BOLI. As part of BOLI restructuring, another $9,045 of general account policies will be exchanged for separate account BOLI, which is expected to be completed by the end of the third quarter. The separate account BOLI currently yields 5.4%, compared to a weighted-average yield of 2.9% from existing general account policies.

Total deposits increased $50,849 from December 31, 2024, to $1,797,909 at March 31, 2025. The growth was driven by the interest-bearing demand, money market, and savings deposits, collectively increasing $60,380 as we continue to deepen customer relationships. Consumer demand for retail certificates of deposit accounts continues based on the rate environment, resulting in a $2,648 increase in the balance during the first three months of 2025. Adversely, demand deposits declined $12,179 during the first quarter 2025.

Total equity was $215,556 at March 31, 2025 compared to $210,276 at year-end 2024. Our tangible book value per share was $22.58 as of March 31, 2025, compared to $21.82 on December 31, 2024. Net unrealized losses on AFS securities reduced tangible book value per share by $2.30 and $2.82 for the respective periods. Share repurchases totaled 45,582 during the first three months of 2025 for a value of $1,145 at an average price of $25.12.

We continue to have robust liquidity levels and capital. As of March 31, 2025, we had $907,003 of unencumbered sources of liquidity and strong capital ratios; the Tier 1 Leverage Ratio was 8.96%, Tier 1 risk-based capital was 12.58%, and Total risk-based capital was 15.50%.

Reclassifications

Certain amounts reported in the interim 2024 consolidated financial statements have been reclassified to conform to the 2025 presentation.

Subsequent Events

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Selected Financial Data (Unaudited)

The following table outlines our results of operations and provides certain performance measures as of, and for the:


	Three Months Ended
	March 31 2025			December 31 2024			September 30 2024			June 30 2024			March 31 2024
PER SHARE
Basic earnings	$	0.53		$	0.54		$	0.44		$	0.47		$	0.42
Diluted earnings	0.53			0.54			0.44			0.46			0.42
Adjusted diluted earnings (1)	0.57			0.52			0.61			0.46			0.41
Dividends	0.28			0.28			0.28			0.28			0.28
Book value (2)	29.10			28.32			28.63			27.06			26.80
Tangible book value (2)	22.58			21.82			22.14			20.60			20.35
Market price (2)	23.59			25.99			21.21			18.20			19.40
PERFORMANCE RATIOS
Return on average total assets	0.77		%	0.76		%	0.62		%	0.68		%	0.61		%
Adjusted return on average total assets (1)	0.83		%	0.74		%	0.87		%	0.68		%	0.60		%
Return on average shareholders' equity	7.48		%	7.47		%	6.26		%	6.97		%	6.19		%
Adjusted return on average shareholders' equity (1)	8.05		%	7.29		%	8.70		%	6.96		%	6.08		%
Return on average tangible shareholders' equity	9.65		%	9.66		%	8.15		%	9.19		%	8.12		%
Adjusted return on average tangible shareholders' equity (1)	10.40		%	9.43		%	11.32		%	9.17		%	7.97		%
Net interest margin yield (FTE) (1)	3.06		%	2.98		%	2.96		%	2.82		%	2.79		%
Efficiency ratio (1)	72.39		%	71.20		%	72.30		%	73.93		%	74.84		%
Gross loan to deposit ratio (2)	76.07		%	81.48		%	79.93		%	80.22		%	77.22		%
Shareholders' equity to total assets (2)	10.25		%	10.08		%	10.11		%	9.82		%	9.75		%
Tangible shareholders' equity to tangible assets (2)	8.14		%	7.95		%	8.00		%	7.65		%	7.58		%
FINANCIAL DATA (in millions)
Total assets (2)	2,103			2,086			2,107			2,060			2,058
AFS securities (2)	513			489			507			506			518
Gross loans (2)	1,368			1,424			1,424			1,382			1,366
ACL (2)	13			13			13			13			13
Deposits (2)	1,798			1,747			1,782			1,722			1,768
Borrowed funds (2)	77			113			97			119			72
Shareholders' equity (2)	216			210			213			202			201
Wealth assets under management (2)	657			658			680			648			661
Net income	4			4			3			3			3
Interest income	23			23			23			22			21
Interest expense	8			9			9			9			8
Net interest income	15			15			14			14			13
Provision for credit losses	—			—			1			—			—
Noninterest income	4			4			4			4			3
Noninterest expenses	13			13			13			13			13

(1) Non-GAAP financial measure; refer to the "Reconciliation of Non-GAAP Financial Measures" section

(2) At end of period

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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. These schedules also present an analysis of interest income and interest expense for the periods indicated. All interest income is reported on a FTE basis using a federal income tax rate of 21%. Loans in nonaccrual status, for the purpose of the following computations, are included in the average loan balances. FRB restricted equity holdings are included in other interest earning assets.


	Three Months Ended
	March 31, 2025						December 31, 2024						March 31, 2024
	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)	$	1,370,765	$	19,348	5.71	%	$	1,412,578	$	20,145	5.66	%	$	1,348,749	$	18,057	5.38	%
AFS securities (2)	514,479		2,827		2.20	%	522,733		2,869		2.15	%	557,030		3,130		2.25	%
FHLB stock	11,011		160		5.82	%	12,762		168		5.25	%	12,762		146		4.57	%
Fed funds sold	4		—		4.32	%	8		—		4.54	%	7		—		5.43	%
Other (3)	47,374		482		4.06	%	15,905		200		4.94	%	25,210		293		4.66	%
Total interest earning assets	1,943,633		22,817		4.75	%	1,963,986		23,382		4.72	%	1,943,758		21,626		4.47	%
NONEARNING ASSETS
Allowance for credit losses	(12,884)						(12,598)						(13,100)
Cash and demand deposits due from banks	23,899						22,800						24,018
Premises and equipment	27,962						27,773						28,022
Other assets	102,927						92,608						84,059
Total assets	$	2,085,537					$	2,094,569					$	2,066,757
INTEREST BEARING LIABILITIES
Interest bearing demand deposits	$	240,860	$	242	0.41	%	$	232,271	$	212	0.36	%	$	245,299	$	201	0.33	%
Money market deposits	460,663		2,929		2.58	%	436,235		2,970		2.71	%	451,476		3,212		2.86	%
Savings	286,364		538		0.76	%	276,856		446		0.64	%	282,971		333		0.47	%
Certificates of deposit	387,820		3,754		3.93	%	386,871		3,955		4.07	%	357,541		3,417		3.84	%
Short-term borrowings	43,563		341		3.18	%	50,862		413		3.22	%	40,623		321		3.17	%
FHLB advances	3,333		38		4.53	%	28,261		352		4.88	%	27,692		388		5.54	%
Subordinated debt, net of unamortized issuance costs	29,433		266		3.62	%	29,410		266		3.62	%	29,342		266		3.63	%
Total interest bearing liabilities	1,452,036		8,108		2.26	%	1,440,766		8,614		2.38	%	1,434,944		8,138		2.28	%
NONINTEREST BEARING LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits	403,024						425,116						412,228
Other liabilities	16,265						15,775						16,151
Shareholders’ equity	214,212						212,912						203,434
Total liabilities and shareholders’ equity	$	2,085,537					$	2,094,569					$	2,066,757
Net interest income (FTE)			$	14,709					$	14,768					$	13,488
Net yield on interest earning assets (FTE) (4)					3.06	%					2.98	%					2.79	%

(1) Includes loans HFS and nonaccrual loans

(2) Average balances for AFS securities are based on amortized cost

(3) Includes average interest-bearing deposits with other banks, net of Federal Reserve daily cash letter

(4) Non-GAAP financial measure; refer to the "Non-GAAP Financial Measures" section

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Loans

The following table displays loan balances as of:


	March 31 2025		December 31 2024		September 30 2024		June 30 2024		March 31 2024		Annualized Growth % Quarter to Date
Commercial and industrial	$	249,220	$	244,894	$	240,589	$	238,245	$	226,281	7.07	%
Commercial real estate	552,234		547,447		547,038		547,005		561,123		3.50	%
Advances to mortgage brokers	3,015		63,080		76,187		39,300		29,688		N/M
Agricultural	94,359		99,694		96,794		94,996		93,695		(21.41)	%
Total commercial loans	898,828		955,115		960,608		919,546		910,787		(23.57)	%
Residential real estate	387,348		380,872		369,846		365,188		356,658		6.80	%
Consumer	81,548		87,584		93,829		96,902		98,063		(27.57)	%
Total	$	1,367,724	$	1,423,571	$	1,424,283	$	1,381,636	$	1,365,508	(15.69)	%

The following table presents the composition of our commercial real estate portfolio by industry as of:


	March 31, 2025				December 31, 2024
	Balance		Percent of Total		Balance		Percent of Total
Real estate
1-4 family investor	$	87,760	15.89	%	$	86,736	15.84	%
Multifamily	60,846		11.02	%	61,033		11.15	%
All other	153,050		27.71	%	147,566		26.96	%
Hotels	83,511		15.12	%	83,426		15.24	%
Health care	42,482		7.69	%	43,197		7.89	%
Retail trade	33,266		6.02	%	33,586		6.14	%
Manufacturing	13,686		2.48	%	12,381		2.26	%
Accommodation services	11,597		2.10	%	11,786		2.15	%
Construction	11,252		2.04	%	10,901		1.99	%
Educational services	11,018		2.00	%	11,160		2.04	%
Wholesale trade	10,720		1.94	%	10,918		1.99	%
Other	33,046		5.99	%	34,757		6.35	%
Total commercial real estate	$	552,234	100.00	%	$	547,447	100.00	%

Commercial real estate loans are subject to a varying degree of risk from changes in interest rates and economic conditions. To control these risks, we maintain strict underwriting standards, lending limits to a single borrower, loan to collateral value limits, and a defined market area. We also monitor and limit loan concentrations to specific industries. Our practices also include appropriate loan reviews, and monitoring of past due levels, concentrations, industry trends, and other qualitative factors.

Deposits

The following table displays deposit balances as of:


	March 31 2025		December 31 2024		September 30 2024		June 30 2024		March 31 2024		Annualized Growth % Quarter to Date
Noninterest bearing demand deposits	$	404,194	$	416,373	$	421,493	$	412,193	$	413,272	(11.70)	%
Interest bearing demand deposits	243,939		237,548		228,902		232,660		250,314		10.76	%
Money market deposits	473,138		423,883		471,745		429,150		453,014		46.48	%
Savings	286,399		281,665		276,095		279,847		285,564		6.72	%
Certificates of deposit	390,239		387,591		383,597		368,449		366,143		2.73	%
Total	$	1,797,909	$	1,747,060	$	1,781,832	$	1,722,299	$	1,768,307	11.64	%

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Asset Quality Analysis

The following table outlines our quarter-to-date asset quality analysis as of, and for the three-month periods ended:


	March 31 2025			December 31 2024			September 30 2024			June 30 2024			March 31 2024
NONPERFORMING ASSETS
Commercial and industrial	$	—		$	—		$	120		$	271		$	567
Commercial real estate	—			—			—			—			234
Agricultural	—			—			—			167			189
Residential real estate	173			282			427			556			293
Consumer	—			—			—			—			—
Total nonaccrual loans	173			282			547			994			1,283
Accruing loans past due 90 days or more	26			19			64			15			—
Total nonperforming loans	199			301			611			1,009			1,283
Foreclosed assets	649			544			546			629			579
Debt securities	—			—			12			12			12
Total nonperforming assets	$	848		$	845		$	1,169		$	1,650		$	1,874
Nonperforming loans to gross loans	0.01		%	0.02		%	0.04		%	0.07		%	0.09		%
Nonperforming assets to total assets	0.04		%	0.04		%	0.06		%	0.08		%	0.09		%
Nonaccrual loans to gross loans	0.01		%	0.02		%	0.04		%	0.07		%	0.09		%
ACL as a % of nonaccrual loans	N/M			N/M			N/M			N/M			N/M
ALLOWANCE FOR CREDIT LOSSES
Allowance at beginning of period	$	12,895		$	12,635		$	13,095		$	13,390		$	13,108
Charge-offs	172			299			1,767			527			191
Recoveries	224			197			408			134			145
Net loan charge-offs (recoveries)	(52)			102			1,359			393			46
(Reversal of) provision for credit losses - loans	(212)			362			899			98			328
Allowance at end of period	$	12,735		$	12,895		$	12,635		$	13,095		$	13,390
ACL to gross loans	0.93		%	0.91		%	0.89		%	0.95		%	0.98		%
Reserve for unfunded commitments	617			512			498			450			379
Provision for credit losses - unfunded commitments	105			14			47			72			64
Reserve to unfunded commitments	0.14		%	0.15		%	0.15		%	0.14		%	0.11		%
NET LOAN CHARGE-OFFS (RECOVERIES)
Commercial and industrial	$	(80)		$	13		$	(6)		$	334		$	(2)
Commercial real estate	(2)			(2)			(318)			(29)			(6)
Agricultural	—			(4)			—			—			(2)
Residential real estate	(13)			(16)			(20)			(19)			(63)
Consumer	43			111			1,703			107			119
Total	$	(52)		$	102		$	1,359		$	393		$	46
Net (recoveries) charge-offs (Quarter to Date annualized to average loans)	(0.02)		%	0.03		%	0.39		%	0.11		%	0.01		%
Net (recoveries) charge-offs (Year to Date annualized to average loans)	(0.02)		%	0.14		%	0.17		%	0.00		%	0.01		%
DELINQUENT AND NONACCRUAL LOANS
Accruing loans 30-89 days past due	$	5,555		$	5,682		$	2,226		$	1,484		$	7,938
Accruing loans past due 90 days or more	26			19			64			15			—
Total accruing past due loans	5,581			5,701			2,290			1,499			7,938
Nonaccrual loans	173			282			547			994			1,283
Total past due and nonaccrual loans	$	5,754		$	5,983		$	2,837		$	2,493		$	9,221

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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 17,332 shares or $419 of common stock during the first three months of 2025, as compared to 22,456 shares or $447 of common stock during the same period in 2024. We offer the Directors Plan in which participants purchase stock units through deferred fees, in lieu of cash payments. Pursuant to this plan, we increased shareholders’ equity by $167 and $218 during the three-month periods ended March 31, 2025 and 2024, respectively. We also grant restricted stock awards pursuant to the RSP. Pursuant to this plan, we increased shareholders’ equity by $7 during the first three months of 2025, as compared to $25 during the same period in 2024.

We have publicly announced a common stock repurchase plan. Pursuant to this plan, we repurchased 45,582 shares or $1,145 of common stock during the first three months of 2025 and 36,484 shares or $740 during the first three months of 2024. As of March 31, 2025, we were authorized to repurchase up to an additional 72,647 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.

The following table sets forth our ratios as of:


	March 31 2025		December 31 2024		September 30 2024		June 30 2024		March 31 2024
Common equity tier 1 capital	12.58	%	12.21	%	12.08	%	12.37	%	12.36	%
Tier 1 capital	12.58	%	12.21	%	12.08	%	12.37	%	12.36	%
Total capital	15.50	%	15.06	%	14.90	%	15.29	%	15.31	%
Tier 1 leverage	8.96	%	8.86	%	8.77	%	8.83	%	8.80	%

Liquidity

Liquidity is monitored regularly by our ALCO, which consists of members of senior management. The committee reviews projected cash flows, key ratios, and liquidity available from both primary and secondary sources.

Our primary sources of liquidity are retail deposits, cash and cash equivalents, and unencumbered AFS securities. Cash, cash equivalents and unencumbered AFS securities totaled $427,091, or 20.31% of assets, as of March 31, 2025, compared to $330,876, or 15.86%, as of December 31, 2024. The increase in the amount and percentage of primary liquidity is a direct result of an increase in cash, driven by loan payoffs and deposit growth, and an increase in unencumbered AFS securities. Liquidity is important for financial institutions because of their need to meet loan funding commitments, depositor withdrawal requests, and various other commitments including expansion of operations, investment opportunities, and payment of cash dividends. Based on these same factors, daily liquidity could vary significantly.

Our secondary sources include the ability to borrow from the FHLB, from the FRB, and through various correspondent banks in the form of federal funds purchased and lines of credit. These funding methods typically carry a higher interest rate than traditional market deposit accounts. Some borrowed funds, including FHLB advances, FRB Discount Window advances, and repurchase agreements, require us to pledge assets, typically in the form of AFS securities or loans, as collateral. As of March 31, 2025, we had available lines of credit of $377,824.

We monitor our daily liquidity position to meet our cash flow needs. We also forecast anticipated funding needs for changes in interest rates and economic conditions, the scheduled maturity and interest rate sensitivity of the investment and loan portfolios and deposits, and regulatory capital requirements. Our liquidity stress testing is designed with consideration of these and other factors that could pose undue risk to liquidity.

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Our liquidity position remained strong at March 31, 2025, which is illustrated in the following table:


	March 31 2025			December 31 2024			September 30 2024			June 30 2024			March 31 2024
Total cash and cash equivalents	$	69,179		$	24,542		$	27,378		$	23,559		$	25,218
Brokered CD capacity	120,000			120,000			120,000			120,000			120,000
Available lines of credit
Fed funds lines with correspondent banks	93,000			93,000			93,000			93,000			93,000
FHLB borrowings	250,884			215,432			233,552			194,403			248,624
FRB Discount Window	28,940			28,698			28,888			28,148			28,083
Other lines of credit	5,000			5,000			5,000			5,000			5,000
Total available lines of credit	377,824			342,130			360,440			320,551			374,707
Unencumbered lendable value of FRB collateral, estimated (1)	340,000			290,000			290,000			290,000			310,000
Total cash and liquidity	$	907,003		$	776,672		$	797,818		$	754,110		$	829,925

Uninsured deposits	$	687,341		$	645,764		$	687,990		$	623,245		$	658,564
Coverage ratio of uninsured deposits with total cash and liquidity	132		%	120		%	116		%	121		%	126		%

(1) Includes estimated unencumbered lendable value of FHLB collateral of $260,000 as of March 31, 2025.

Fair Value

We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. AFS securities, cash flow hedge derivative instruments and certain liabilities are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as mortgage loans AFS, collateral dependent loans, goodwill, foreclosed assets, OMSR, and certain other assets and liabilities. These nonrecurring fair value adjustments typically involve the application of lower of cost or market accounting or write downs of individual assets.

For further information regarding fair value measurements see “Note 7 – Fair Value” of our interim condensed consolidated financial statements.

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 yield curves, interest rate relationships, loan prepayments, and funding sources. These forecasts are compared against net interest income projected in a stable interest rate environment. While many assets and liabilities reprice either at maturity or in accordance with their contractual terms, several balance sheet components demonstrate characteristics that require an evaluation to more accurately reflect their repricing behavior. Key assumptions in the simulation analysis include prepayments on loans, probable calls of investment securities, changes in market conditions, loan volumes and loan pricing, deposit sensitivity, and customer preferences. These assumptions are inherently uncertain as they are subject to fluctuation and revision in a dynamic rate environment. As a result, the simulation analysis cannot precisely forecast the impact of rising and falling interest rates on net interest income. Actual results will differ from simulated results due to many other factors, including changes in balance sheet components, interest rate changes, changes in market conditions, and management strategies. We regularly monitor our projected net interest income sensitivity to ensure that it remains within established limits.

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The following tables summarize our interest rate sensitivity for 12 and 24 months as of March 31, 2025 and December 31, 2024. The results displayed in the tables reflect the modeling of immediate shifts in the yield curve and a flat balance sheet and do not reflect actual or expected changes.


	March 31, 2025
	12 Months								24 Months
Immediate basis point change assumption (short-term)	-200		-100		100		200		-200		-100		100		200
Percent change in net interest income vs. constant rate	(4.74)	%	(2.14)	%	2.00	%	3.99	%	(6.32)	%	(3.14)	%	1.98	%	3.48	%


	December 31, 2024
	12 Months								24 Months
Immediate basis point change assumption (short-term)	-200		-100		100		200		-200		-100		100		200
Percent change in net interest income vs. constant rate	(3.44)	%	(1.55)	%	1.45	%	2.83	%	(4.67)	%	(2.18)	%	1.22	%	2.00	%

Gap analysis, the secondary method to measure IRR, measures the cash flows and/or the earliest repricing of our interest-bearing assets and liabilities. This analysis is useful for measuring trends in the repricing characteristics of the balance sheet. Significant assumptions are required in this process because of the embedded repricing options contained in assets and liabilities. Residential real estate and consumer loans allow the borrower to repay the balance prior to maturity without penalty, while commercial and agricultural loans may have prepayment penalties. The amount of prepayments is dependent upon many factors, including the interest rate of a given loan in comparison to the current offering rates, the level of home sales, and the overall availability of credit in the marketplace. Generally, a decrease in interest rates will result in an increase in cash flows from these assets. Savings and demand accounts may generally be withdrawn on request without prior notice. The timing of cash flows from these deposits is estimated based on historical experience. Certificates of deposit have penalties that discourage early withdrawals.

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.

Contractual Obligations and Loan Commitments

We have various financial obligations, including contractual obligations and commitments related to deposits and borrowings, which may require future cash payments. We also have loan related commitments that may impact liquidity. The commitments include unused lines of credit, commercial and standby letters of credit, and commitments to grant loans. These commitments to grant loans include residential mortgage loans with the majority committed to be sold to the secondary market. Many of these commitments historically have expired without being drawn upon and do not necessarily represent our future cash requirements.

We are party to credit related financial instruments with off-balance-sheet risk. These financial instruments are entered into in the normal course of business to meet the financing needs of our customers. These financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The contractual or notional amounts of these instruments reflect the extent of involvement we have in a particular class of financial instrument.

Our exposure to credit-related loss in the event of nonperformance by the counterparties to the financial instruments for commitments to extend credit and standby letters of credit could be up to the contractual notional amount of those instruments. We use the same credit policies when analyzing the creditworthiness of counterparties as we do for extending loans to customers. No significant losses are anticipated as a result of these commitments.

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Reconciliation of Non-GAAP Financial Measures

The following tables provide a detailed analysis, and reconciliation for, our non-GAAP financial measures as of, and for the:


		Three Months Ended
		March 31 2025			December 31 2024			September 30 2024			June 30 2024			March 31 2024
Net income		$	3,949		$	3,996		$	3,281		$	3,481		$	3,131
Net gains (losses) on foreclosed assets		(55)			74			4			6			69
Overdraft (charge-off) recoveries (1)		—			66			(1,622)			—			—
Profitability initiative cost		—			(23)			—			—			—
Legal fees related to Nasdaq (2)		(121)			—			—			—			—
Income tax impact on items above		37			(25)			340			(1)			(14)
Income tax expense on BOLI surrender (3)		(166)			—			—			—			—
Adjusted net income	(A)	$	4,254		$	3,904		$	4,559		$	3,476		$	3,076

Noninterest expenses		$	13,299		$	13,330		$	13,228		$	12,895		$	12,676
Amortization of acquisition intangibles		1			1			—			1			—
Adjusted noninterest expense	(B)	$	13,298		$	13,329		$	13,228		$	12,894		$	12,676

Net interest income		$	14,525		$	14,555		$	14,488		$	13,550		$	13,242
Tax equivalent adjustment for net interest margin		184			213			232			237			246
Net interest income (FTE)	(C)	14,709			14,768			14,720			13,787			13,488
Noninterest income		3,528			3,972			3,528			3,608			3,468
Tax equivalent adjustment for efficiency ratio		78			54			53			53			51
Adjusted revenue (FTE)		18,315			18,794			18,301			17,448			17,007
Nonrecurring items
Net gains (losses) on foreclosed assets		(55)			74			4			6			69
Total nonrecurring items		(55)			74			4			6			69
Adjusted revenue	(D)	$	18,370		$	18,720		$	18,297		$	17,442		$	16,938

Efficiency ratio	(B/D)	72.39		%	71.20		%	72.30		%	73.93		%	74.84		%
Average earning assets	(E)	1,943,633			1,963,986			1,967,552			1,948,173			1,943,758
Net yield on interest earning assets (FTE)	(C/E)	3.06		%	2.98		%	2.96		%	2.82		%	2.79		%

Average assets	(F)	2,085,537			2,094,569			2,095,200			2,067,211			2,066,757
Average shareholders' equity	(G)	214,212			212,912			208,444			200,734			203,434
Average tangible shareholders' equity	(H)	165,929			164,629			160,161			152,451			155,150
Average diluted shares outstanding (4)	(I)	7,432,162			7,451,718			7,473,184			7,494,828			7,507,739
Adjusted diluted earnings per share	(A/I)	$	0.57		$	0.52		$	0.61		$	0.46		$	0.41

Adjusted return on average assets	(A/F)	0.83		%	0.74		%	0.87		%	0.68		%	0.60		%
Adjusted return on average shareholders' equity	(A/G)	8.05		%	7.29		%	8.70		%	6.96		%	6.08		%
Adjusted return on average tangible shareholders' equity	(A/H)	10.40		%	9.43		%	11.32		%	9.17		%	7.97		%

(1) Includes provision for credit losses related to overdrawn deposit accounts from a single customer in the third quarter of 2024

(2) Included in Other professional services in the consolidated statements of income

(3) Income tax expense on life to date earnings on BOLI policies surrendered

(4) Whole shares

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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

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

Item 4. 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 March 31, 2025, 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 March 31, 2025, 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

During the most recent fiscal quarter, no change occurred in our internal control over financial reporting that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

There have been no material changes to the risk factors disclosed in Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2024.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.

(A)None

(B)None

(C)Repurchases of Common Stock

We have adopted and publicly announced a common stock repurchase plan. The plan was last amended on April 30, 2025, 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 common shares are repurchased under this plan, they are retired with the status of authorized, but unissued, shares.

The following table provides information for the three-month period ended March 31, 2025, with respect to this 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
December 31, 2024					118,229
January 1 - 31	16,336	$	25.77	16,336	101,893
February 1 - 28	24,127	24.95		24,127	77,766
March 1 - 31	5,119	23.83		5,119	72,647
March 31, 2025	45,582	$	25.12	45,582	72,647

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Securities Trading Plans of Executive Officers

During the fiscal quarter ended March 31, 2025, none of the Corporation’s directors or officers adopted, modified or terminated a Rule 10b5-1 trading arrangement, or a non-Rule 10b5-1 trading arrangement, in each case as defined in Item 408 of Regulation S-K.

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Item 6. Exhibits.

(a) Exhibits


Exhibit Number						Exhibits

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 (8 )
3.9						Amendment to Bylaws (9 )
4.1						Indenture, dated as of June 2, 2021, by and between Isabella Bank Corporation and UMB Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 2, 2021) (10 )
4.2						Form of 3.25% Fixed-to-Floating Rate Subordinated Note due 2031 (included in the Indenture included as Exhibit 4.1 to this Quarterly Report on Form 10-Q) (10)
10.1						Isabella Bank Corporation Executive Cash Incentive Plan*
10.2						Form of Subordinated Note Purchase Agreement, dated as of June 2, 2021, by and among the Corporation and the several Purchasers (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 2, 2021) (10)
10.3						Form of Registration Rights Agreement, dated as of June 2, 2021, by and among the Corporation and the several Purchasers (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 2, 2021) (10)
31.1						Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Principal Executive Officer
31.2						Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Principal Financial Officer
32						Section 1350 Certification of Principal Executive Officer and Principal Financial Officer
101.1**						101.INS (Inline XBRL Instance Document)
						101.SCH (Inline XBRL Taxonomy Extension Schema Document)
						101.CAL (Inline XBRL Calculation Linkbase Document)
						101.LAB (Inline XBRL Taxonomy Label Linkbase Document)
						101.DEF (Inline XBRL Taxonomy Linkbase Document)
						101.PRE (Inline XBRL Taxonomy Presentation Linkbase Document)
104						Cover Page Interactive Data File


*						Management Contract or Compensatory Plan or Arrangement.
**						In accordance with Rule 406T of Regulations S-T, the XBRL related information shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
(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.

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(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 August 28, 2009, and incorporated herein by reference.
(9)						Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed December 23, 2009, and incorporated herein by reference.
(10)						Previously filed as an Exhibit to Isabella Bank Corporation Form 8-K, filed June 2, 2021, and incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements 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

Date:

May 8, 2025

/s/ Jerome E. Schwind

Jerome E. Schwind

President and Chief Executive Officer

(Principal Executive Officer)

Date:

May 8, 2025

/s/ William M. Schaefer

William M. Schaefer

Chief Financial Officer

(Principal Financial Officer)

Isabella Bank Corporation - 10-Q quarterly report FY2025 Q1

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