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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 September 30, 2024
or
☐Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
For the transition period from                      to                     
Commission File Number: 0-18415
Isabella Bank Corporation
(Exact name of registrant as specified in its charter)
Michigan38-2830092
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
401 N. Main StMt. Pleasant MI48858
(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 classTrading Symbol(s)Name of each exchange on which registered
NoneN/AN/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 7,435,398 as of November 12, 2024.

Table of Contents
ISABELLA BANK CORPORATION
QUARTERLY REPORT ON FORM 10-Q
Table of Contents
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
2
Table of Contents
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 lossesFreddie Mac: Federal Home Loan Mortgage Corporation
AFS: Available-for-saleFTE: Fully taxable equivalent
ALCO: Asset-Liability CommitteeGAAP: U.S. generally accepted accounting principles
AOCI: Accumulated other comprehensive incomeHFS: Held-for-sale
ASC: FASB Accounting Standards CodificationIRR: Interest rate risk
ASU: FASB Accounting Standards UpdateN/A: Not applicable
ATM: Automated teller machineN/M: Not meaningful
BOLI: Bank-owned life insuranceNAV: Net asset value
CECL: Current expected credit lossesNIM: Net Interest Margin
CIK: Central Index KeyNSF: Non-sufficient funds
DIF: Deposit Insurance FundOCI: Other comprehensive income (loss)
DIFS: Department of Insurance and Financial ServicesOMSR: Originated mortgage servicing rights
Directors Plan: Isabella Bank Corporation and Related Companies Deferred Compensation Plan for DirectorsOREO: Other real estate owned
Dividend Reinvestment Plan: Isabella Bank Corporation Stockholder Dividend Reinvestment Plan and Employee Stock Purchase PlanRabbi Trust: A trust established to fund our Directors Plan
Exchange Act: Securities Exchange Act of 1934RSP: Isabella Bank Corporation Restricted Stock Plan
FASB: Financial Accounting Standards BoardSOFR: Secured Overnight Financing Rate
FDIC: Federal Deposit Insurance CorporationSEC: U.S. Securities and Exchange Commission
FFIEC: Federal Financial Institutions Examinations CouncilSOX: Sarbanes-Oxley Act of 2002
FRB: Federal Reserve BankXBRL: eXtensible Business Reporting Language
FHLB: Federal Home Loan BankYield Curve: U.S. Treasury Yield Curve
3
Table of Contents
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
September 30
2024		December 31
2023
ASSETS
Cash and demand deposits due from banks$27,019 $25,628 
Fed Funds sold and interest bearing balances due from banks359 8,044 
Total cash and cash equivalents27,378 33,672 
AFS securities, at fair value506,806 528,148 
FHLB stock12,762 12,762 
Mortgage loans HFS504 — 
Loans1,424,283 1,349,463 
Less allowance for credit losses12,635 13,108 
Net loans1,411,648 1,336,355 
Premises and equipment27,674 27,639 
BOLI policies34,625 33,892 
Goodwill and other intangible assets48,283 48,284 
Other assets37,221 38,216 
Total assets$2,106,901 $2,058,968 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Demand deposits$421,493 $428,505 
Interest bearing demand deposits376,592 320,737 
Savings600,150 628,079 
Certificates of deposit383,597 346,374 
Total deposits1,781,832 1,723,695 
Short-term borrowings52,434 46,801 
FHLB advances15,000 40,000 
Subordinated debt, net of unamortized issuance costs29,402 29,335 
Total borrowed funds96,836 116,136 
Other liabilities15,248 16,735 
Total liabilities1,893,916 1,856,566 
Shareholders’ equity
Common stock — no par value 15,000,000 shares authorized: issued and outstanding 7,438,720 shares in 2024 and 7,485,889 shares in 2023
125,218 127,323 
Shares to be issued for deferred compensation obligations3,981 3,693 
Retained earnings101,065 97,282 
Accumulated other comprehensive income (loss)(17,279)(25,896)
Total shareholders’ equity212,985 202,402 
Total liabilities and shareholders' equity$2,106,901 $2,058,968 





See notes to interim condensed consolidated financial statements (unaudited).
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Table of Contents
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands except per share amounts)
Three Months Ended 
 September 30		Nine Months Ended 
 September 30
 2024202320242023
Interest income
Loans$20,230 $17,270 $57,150 $48,090 
AFS securities2,749 2,963 8,437 9,230 
FHLB stock168 91 472 226 
Federal funds sold and other194 161 750 1,029 
Total interest income23,341 20,485 66,809 58,575 
Interest expense
Deposits7,631 5,015 22,107 11,953 
Short-term borrowings384 284 1,026 604 
FHLB advances571 617 1,597 887 
Subordinated debt, net of unamortized issuance costs267 267 799 799 
Total interest expense8,853 6,183 25,529 14,243 
Net interest income14,488 14,302 41,280 44,332 
Provision for credit losses946 (292)1,508 (55)
Net interest income after provision for credit losses13,542 14,594 39,772 44,387 
Noninterest income
Service charges and fees2,159 2,060 6,333 6,085 
Wealth management fees1,003 858 2,990 2,625 
Earnings on BOLI policies252 229 748 681 
Net gain on sale of mortgage loans37 109 138 232 
Other77 158 395 688 
Total noninterest income3,528 3,414 10,604 10,311 
Noninterest expenses
Compensation and benefits7,251 6,639 21,236 19,789 
Occupancy and equipment2,645 2,535 7,970 7,743 
Other professional services588 672 1,628 1,764 
ATM and debit card fees503 471 1,459 1,280 
FDIC insurance premiums291 228 823 689 
Other1,950 2,113 5,683 6,130 
Total noninterest expenses13,228 12,658 38,799 37,395 
Income before income tax expense3,842 5,350 11,577 17,303 
Income tax expense561 937 1,684 2,939 
Net income$3,281 $4,413 $9,893 $14,364 
Earnings per common share
Basic$0.44 $0.59 $1.32 $1.91 
Diluted0.44 0.58 1.32 1.89 
Cash dividends per common share0.28 0.28 0.84 0.84 






See notes to interim condensed consolidated financial statements (unaudited).
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Table of Contents
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Dollars in thousands)
Three Months Ended 
 September 30		Nine Months Ended 
 September 30
 2024202320242023
Net income$3,281 $4,413 $9,893 $14,364 
Unrealized gains (losses) on AFS securities13,081 (6,708)10,858 (5,736)
Reclassification adjustment for net (gains) losses included in net income— — — (67)
Tax effect (1)
(2,724)1,394 (2,241)1,266 
Unrealized gains (losses) on AFS securities, net of tax10,357 (5,314)8,617 (4,537)
Comprehensive income (loss)$13,638 $(901)$18,510 $9,827 
(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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Table of Contents
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
(Dollars in thousands except per share amounts)
Common Stock
Common Shares
Outstanding		AmountCommon Shares to be
Issued for
Deferred
Compensation
Obligations		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Totals
July 1, 20237,496,826 $126,278 $5,395 $93,175 $(36,417)$188,431 
Comprehensive income (loss)— — — 4,413 (5,314)(901)
Issuance of common stock17,473 362 — — — 362 
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations— 1,803 (1,803)— — — 
Share-based payment awards under the Directors Plan— — 49 — — 49 
Share-based compensation expense recognized in earnings under the RSP— 91 — — — 91 
Common stock purchased for deferred compensation obligations— (357)— — — (357)
Common stock repurchased(23,742)(497)— — — (497)
Cash dividends paid ($0.28 per common share)
— — — (2,055)— (2,055)
September 30, 20237,490,557 $127,680 $3,641 $95,533 $(41,731)$185,123 
July 1, 20247,474,016 $126,126 $3,951 $99,808 $(27,636)$202,249 
Comprehensive income (loss)— — — 3,281 10,357 13,638 
Issuance of common stock17,580 350 — — — 350 
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations— 23 (23)— — — 
Share-based payment awards under the Directors Plan— — 53 — — 53 
Share-based compensation expense recognized in earnings under the RSP— 26 — — — 26 
Common stock purchased for deferred compensation obligations— (290)— — — (290)
Common stock repurchased(52,876)(1,017)— — — (1,017)
Cash dividends paid ($0.28 per common share)
— — — (2,024)— (2,024)
September 30, 20247,438,720 $125,218 $3,981 $101,065 $(17,279)$212,985 
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INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) continued
(Dollars in thousands except per share amounts)
Common Stock
Common Shares
Outstanding		AmountCommon Shares to be
Issued for
Deferred
Compensation
Obligations		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Totals
January 1, 20237,559,421 $128,651 $5,005 $89,748 $(37,194)$186,210 
Cumulative effect of accounting change - adoption of ASC 326— — — (2,417)— (2,417)
Comprehensive income (loss)— — — 14,364 (4,537)9,827 
Issuance of common stock55,456 1,208 — — — 1,208 
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations— 1,841 (1,841)— — — 
Share-based payment awards under the Directors Plan— — 477 — — 477 
Share-based compensation expense recognized in earnings under the RSP— 219 — — — 219 
Common stock purchased for deferred compensation obligations— (1,333)— — — (1,333)
Common stock repurchased(124,320)(2,906)— — — (2,906)
Cash dividends paid ($0.84 per common share)
— — — (6,162)— (6,162)
September 30, 20237,490,557 $127,680 $3,641 $95,533 $(41,731)$185,123 
January 1, 20247,485,889 $127,323 $3,693 $97,282 $(25,896)$202,402 
Comprehensive income (loss)— — — 9,893 8,617 18,510 
Issuance of common stock61,560 1,190 — — — 1,190 
Issuance of common stock for vested shares under the RSP16,240 — — — — — 
Common stock transferred from the Rabbi Trust to satisfy deferred compensation obligations— 44 (44)— — — 
Share-based payment awards under the Directors Plan— — 332 — — 332 
Share-based compensation expense recognized in earnings under the RSP— 71 — — — 71 
Common stock purchased for deferred compensation obligations— (991)— — — (991)
Common stock repurchased(124,969)(2,419)— — — (2,419)
Cash dividends paid ($0.84 per common share)
— — — (6,110)— (6,110)
September 30, 20247,438,720 $125,218 $3,981 $101,065 $(17,279)$212,985 












See notes to interim condensed consolidated financial statements (unaudited).
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Table of Contents
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
Nine Months Ended 
 September 30
 20242023
OPERATING ACTIVITIES
Net income$9,893 $14,364 
Reconciliation of net income to net cash provided by operating activities:
Provision for credit losses1,508 (55)
Depreciation1,555 1,482 
Net amortization of AFS securities1,017 1,120 
Increase in cash value of BOLI policies, net of expenses(733)(666)
Share-based payment awards403 696 
Origination of loans HFS(6,168)(6,972)
Proceeds from loan sales5,802 7,478 
Net changes in:
Other assets(1,033)1,481 
Other liabilities270 (151)
Net cash provided by (used in) operating activities12,514 18,777 
INVESTING ACTIVITIES
Proceeds from sales, maturities, calls and prepayments of AFS securities31,183 62,894 
Purchases of AFS securities— (6,166)
Net loan principal (originations) collections(77,151)(70,614)
Purchases of premises and equipment(1,590)(2,889)
Funding of low income housing tax credit investments(1,690)(612)
Net cash provided by (used in) investing activities(49,248)(17,387)
FINANCING ACTIVITIES
Net increase (decrease) in deposits58,137 25,199 
Net increase (decrease) in short-term borrowings5,633 (5,441)
Net increase (decrease) in FHLB advances(25,000)65,000 
Cash dividends paid on common stock(6,110)(6,162)
Proceeds from issuance of common stock1,190 1,208 
Common stock repurchased(2,419)(2,906)
Common stock purchased for deferred compensation obligations(991)(1,333)
Net cash provided by (used in) financing activities30,440 75,565 
Increase (decrease) in cash and cash equivalents(6,294)76,955 
Cash and cash equivalents at beginning of period33,672 38,924 
Cash and cash equivalents at end of period$27,378 $115,879 
SUPPLEMENTAL CASH FLOWS INFORMATION:
Interest paid$25,203 $13,442 
Income taxes paid1,800 2,250 
SUPPLEMENTAL NONCASH INFORMATION:
Investment in low income housing tax credits— 5,000 
Transfers of loans to foreclosed assets350 341 




See notes to interim condensed consolidated financial statements (unaudited).
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Table of Contents
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands except per share amounts)
Note 1 – Basis of Presentation
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 and nine-month periods ended September 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. For further information, refer to our Annual Report on Form 10-K for the year ended December 31, 2023.
Certain amounts reported in the interim 2023 consolidated financial statements have been reclassified to conform with the 2024 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, 2023.
Note 2 – AFS Securities
The amortized cost and fair value of AFS securities, with gross unrealized gains and losses, are as follows at:
 September 30, 2024
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value
U.S. Treasury$230,909 $— $10,080 $220,829 
States and political subdivisions85,599 61 2,761 82,899 
Auction rate money market preferred3,200 — 83 3,117 
Mortgage-backed securities30,577 — 1,622 28,955 
Collateralized mortgage obligations169,339 5 5,580 163,764 
Corporate8,150 — 908 7,242 
Total$527,774 $66 $21,034 $506,806 
 December 31, 2023
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value
U.S. Treasury$231,218 $— $16,417 $214,801 
States and political subdivisions94,837 1,032 2,993 92,876 
Auction rate money market preferred3,200 — 269 2,931 
Mortgage-backed securities35,321 — 2,506 32,815 
Collateralized mortgage obligations187,248 — 9,473 177,775 
Corporate8,150 — 1,200 6,950 
Total$559,974 $1,032 $32,858 $528,148 
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The amortized cost and fair value of AFS securities by contractual maturity at September 30, 2024 are as follows:
MaturingSecurities 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$19,944 $210,965 $— $— $— $230,909 
States and political subdivisions15,915 22,900 18,429 28,355 — 85,599 
Auction rate money market preferred— — — — 3,200 3,200 
Mortgage-backed securities— — — — 30,577 30,577 
Collateralized mortgage obligations— — — — 169,339 169,339 
Corporate— — 8,150 — — 8,150 
Total amortized cost$35,859 $233,865 $26,579 $28,355 $203,116 $527,774 
Fair value$35,539 $223,815 $24,943 $26,673 $195,836 $506,806 
Expected maturities for government sponsored enterprises and states and political subdivisions may differ from contractual maturities because issuers may have the right to call or prepay obligations.
As the auction rate money market preferred investments have continual call dates, they are not reported by a specific maturity group. Because of their variable monthly payments, mortgage-backed securities and collateralized mortgage obligations are not reported by a specific maturity group.
A summary of the sales activity of AFS securities is as follows for the:
Three Months Ended 
 September 30		Nine Months Ended 
 September 30
2024202320242023
Proceeds from sales of AFS securities$— $— $— $18,089 
Realized gains (losses)— — — 67 
Applicable income tax expense (benefit)— — — 14 
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The information in the following tables pertains to AFS securities with gross unrealized losses at September 30, 2024 and December 31, 2023, aggregated by investment category and length of time that individual securities have been in a continuous loss position.
 September 30, 2024
 Less Than Twelve MonthsTwelve Months or More 
Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses		Fair
Value		Total
Unrealized
Losses
U.S. Treasury$— $— $10,080 $220,829 $10,080 
States and political subdivisions50 5,741 2,711 39,536 2,761 
Auction rate money market preferred— — 83 3,117 83 
Mortgage-backed securities— — 1,622 28,955 1,622 
Collateralized mortgage obligations— — 5,580 157,945 5,580 
Corporate— — 908 7,242 908 
Total$50 $5,741 $20,984 $457,624 $21,034 
Number of securities in an unrealized loss position:51 181 232 
 December 31, 2023
 Less Than Twelve MonthsTwelve Months or More
Gross
Unrealized
Losses		Fair
Value		Gross
Unrealized
Losses		Fair
Value		Total
Unrealized
Losses
U.S. Treasury$— $— $16,417 $214,801 $16,417 
States and political subdivisions42 7,172 2,951 37,011 2,993 
Auction rate money market preferred— — 269 2,931 269 
Mortgage-backed securities1 10 2,505 32,805 2,506 
Collateralized mortgage obligations116 4,554 9,357 173,221 9,473 
Corporate— — 1,200 6,950 1,200 
Total$159 $11,736 $32,699 $467,719 $32,858 
Number of securities in an unrealized loss position:22 186 208 
The unrealized loss on our AFS securities portfolio resulted from the increase in short-term and intermediate-term interest rates.
As of September 30, 2024, 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:
September 30, 2024December 31, 2023
BalancePercent of TotalBalancePercent of Total
Commercial and industrial
Secured$217,693 15.28 %$189,186 14.02 %
Unsecured22,896 1.61 %20,552 1.52 %
Total commercial and industrial240,589 16.89 %209,738 15.54 %
Commercial real estate
Commercial mortgage owner occupied169,779 11.92 %180,636 13.39 %
Commercial mortgage non-owner occupied215,481 15.13 %216,292 16.03 %
Commercial mortgage 1-4 family investor92,154 6.47 %89,208 6.61 %
Commercial mortgage multifamily69,624 4.89 %78,108 5.79 %
Total commercial real estate547,038 38.41 %564,244 41.82 %
Advances to mortgage brokers76,187 5.35 %18,541 1.37 %
Agricultural
Agricultural mortgage66,789 4.69 %69,044 5.12 %
Agricultural other30,005 2.11 %30,950 2.29 %
Total agricultural96,794 6.80 %99,994 7.41 %
Residential real estate
Senior lien324,078 22.75 %313,459 23.23 %
Junior lien8,105 0.57 %5,945 0.44 %
Home equity lines of credit37,663 2.64 %37,014 2.74 %
Total residential real estate369,846 25.96 %356,418 26.41 %
Consumer
Secured - direct37,269 2.62 %37,948 2.81 %
Secured - indirect52,990 3.72 %59,324 4.40 %
Unsecured3,570 0.25 %3,256 0.24 %
Total consumer93,829 6.59 %100,528 7.45 %
Total$1,424,283 100.00 %$1,349,463 100.00 %
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.

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Commercial and agricultural loans include loans for commercial real estate, commercial operating loans, advances to mortgage brokers, farmland and agricultural production, and loans to states and political subdivisions. Repayment of these loans is dependent upon the successful operation and management of a business. We minimize our risk by limiting the amount of direct credit exposure to any one borrower to $18,000. Borrowers with direct credit needs of more than $18,000 may be serviced through the use of loan participations with other commercial banks. Commercial and agricultural real estate loans commonly require loan-to-value limits of 80% or less. Depending upon the type of loan, past credit history, and current operating results, we may require the borrower to pledge accounts receivable, inventory, property, or equipment. Government agency guarantee may be required. Personal guarantees and/or life insurance beneficiary assignments are generally required from the owners of 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.
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The following table summarizes nonaccrual loan data by class of loans as of:
 September 30, 2024December 31, 2023
 Total Nonaccrual LoansNonaccrual Loans with No ACLTotal Nonaccrual LoansNonaccrual Loans with No ACL
Commercial and industrial
Secured$95 $95 $491 $435 
Unsecured2525 — — 
Agricultural
Agricultural mortgage— — 38 38 
Agricultural other— — 167 167 
Residential real estate
Senior lien427 427 286 286 
Total$547 $547 $982 $926 
The following tables summarize the past due and current loans for the entire loan portfolio as of:
 September 30, 2024
 Past Due:  Accruing Loans 90 or More Days Past Due
30-59
Days		60-89
Days		90 Days
or More		CurrentTotal
Commercial and industrial
Secured$36 $— $95 $217,562 $217,693 $— 
Unsecured— — 25 22,871 22,896 — 
Total commercial and industrial36 — 120 240,433 240,589 — 
Commercial real estate
Commercial mortgage owner occupied— 304 — 169,475 169,779 — 
Commercial mortgage non-owner occupied— — — 215,481 215,481 — 
Commercial mortgage 1-4 family investor62 — — 92,092 92,154 — 
Commercial mortgage multifamily— — — 69,624 69,624 — 
Total commercial real estate62 304 — 546,672 547,038 — 
Advances to mortgage brokers— — — 76,187 76,187 — 
Agricultural
Agricultural mortgage3 — — 66,786 66,789 — 
Agricultural other1,100 — — 28,905 30,005 — 
Total agricultural1,103 — — 95,691 96,794 — 
Residential real estate
Senior lien54 356 194 323,474 324,078 — 
Junior lien— 19 — 8,086 8,105 — 
Home equity lines of credit— — — 37,663 37,663 — 
Total residential real estate54 375 194 369,223 369,846 — 
Consumer
Secured - direct115 28 — 37,126 37,269 — 
Secured - indirect292 5 64 52,629 52,990 64 
Unsecured11 3 — 3,556 3,570 — 
Total consumer418 36 64 93,311 93,829 64 
Total$1,673 $715 $378 $1,421,517 $1,424,283 $64 
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 December 31, 2023
 Past Due:  Accruing Loans 90 or More Days Past Due
30-59
Days		60-89
Days		90 Days
or More		CurrentTotal
Commercial and industrial
Secured$165 $290 $201 $188,530 $189,186 $— 
Unsecured— — — 20,552 20,552 — 
Total commercial and industrial165 290 201 209,082 209,738 — 
Commercial real estate
Commercial mortgage owner occupied— — — 180,636 180,636 — 
Commercial mortgage non-owner occupied— — — 216,292 216,292 — 
Commercial mortgage 1-4 family investor— — — 89,208 89,208 — 
Commercial mortgage multifamily— — — 78,108 78,108 — 
Total commercial real estate— — — 564,244 564,244 — 
Advances to mortgage brokers— — — 18,541 18,541 — 
Agricultural
Agricultural mortgage— — — 69,044 69,044 — 
Agricultural other— — — 30,950 30,950 — 
Total agricultural— — — 99,994 99,994 — 
Residential real estate
Senior lien3,188 349 201 309,721 313,459 87 
Junior lien— — — 5,945 5,945 — 
Home equity lines of credit— — — 37,014 37,014 — 
Total residential real estate3,188 349 201 352,680 356,418 87 
Consumer
Secured - direct3 — — 37,945 37,948 — 
Secured - indirect181 — — 59,143 59,324 — 
Unsecured9 — — 3,247 3,256 — 
Total consumer193 — — 100,335 100,528 — 
Total$3,546 $639 $402 $1,344,876 $1,349,463 $87 
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Credit Quality Indicators
The following tables display commercial and agricultural loans by credit risk ratings and year of origination as of:
 September 30, 2024
20242023202220212020PriorRevolving
Loans		Revolving Loans Converted to TermTotal
Commercial and industrial: Secured
Risk ratings 1-3$11,104 $17,451 $4,126 $5,557 $5,135 $462 $7,947 $— $51,782 
Risk rating 430,323 39,808 29,100 16,531 2,656 2,774 31,072 — 152,264 
Risk rating 53,628 241 362 175 46 69 3,520 — 8,041 
Risk rating 6154 283 2,001 81 166 61 2,765 — 5,511 
Risk rating 7— — — — 95 — — — 95 
Risk rating 8— — — — — — — — — 
Risk rating 9— — — — — — — — — 
Total$45,209 $57,783 $35,589 $22,344 $8,098 $3,366 $45,304 $— $217,693 
Current year-to-date gross charge-offs$— $277 $33 $— $17 $— $— $— $327 
Commercial and industrial: Unsecured
Risk ratings 1-3$375 $1,977 $203 $84 $48 $615 $1,599 $— $4,901 
Risk rating 42,455 3,505 2,452 418 398 — 8,700 — 17,928 
Risk rating 5— — — — — — 42 — 42 
Risk rating 6— — — — — — — — — 
Risk rating 7— — — — — — 25 — 25 
Risk rating 8— — — — — — — — — 
Risk rating 9— — — — — — — — — 
Total$2,830 $5,482 $2,655 $502 $446 $615 $10,366 $— $22,896 
Current year-to-date gross charge-offs$— $— $— $— $— $8 $1 $— $9 
Commercial real estate: Owner occupied
Risk ratings 1-3$481 $3,871 $1,594 $12,158 $13,476 $3,034 $120 $— $34,734 
Risk rating 415,403 11,503 30,018 35,965 10,310 22,628 1,239 — 127,066 
Risk rating 5198 904 893 73 670 803 372 — 3,913 
Risk rating 675 823 — 1,409 1,146 513 100 — 4,066 
Risk rating 7— — — — — — — — — 
Risk rating 8— — — — — — — — — 
Risk rating 9— — — — — — — — — 
Total$16,157 $17,101 $32,505 $49,605 $25,602 $26,978 $1,831 $— $169,779 
Current year-to-date gross charge-offs$— $— $— $— $— $— $— $— $— 
Commercial real estate: Non-owner occupied
Risk ratings 1-3$334 $56 $4,528 $6,297 $554 $1,821 $— $— $13,590 
Risk rating 416,800 35,649 62,959 34,962 10,718 29,667 1,084 — 191,839 
Risk rating 5— — 221 5,690 — 3,078 — — 8,989 
Risk rating 6— 1,012 — — 51 — — — 1,063 
Risk rating 7— — — — — — — — — 
Risk rating 8— — — — — — — — — 
Risk rating 9— — — — — — — — — 
Total$17,134 $36,717 $67,708 $46,949 $11,323 $34,566 $1,084 $— $215,481 
Current year-to-date gross charge-offs$— $— $— $— $— $— $— $— $— 
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September 30, 2024
20242023202220212020PriorRevolving
Loans		Revolving Loans Converted to TermTotal
Commercial real estate: 1-4 family investor
Risk ratings 1-3$640 $— $1,139 $810 $860 $979 $2,062 $— $6,490 
Risk rating 47,004 12,902 10,578 29,190 14,203 4,175 6,406 — 84,458 
Risk rating 5— 147 343 73 — 53 — — 616 
Risk rating 6— 541 — — — 49 — — 590 
Risk rating 7— — — — — — — — — 
Risk rating 8— — — — — — — — — 
Risk rating 9— — — — — — — — — 
Total$7,644 $13,590 $12,060 $30,073 $15,063 $5,256 $8,468 $— $92,154 
Current year-to-date gross charge-offs$— $— $— $— $— $— $— $— $— 
Commercial real estate: Multifamily
Risk ratings 1-3$— $3,631 $4,400 $1,947 $551 $1,410 $— $— $11,939 
Risk rating 41,375 2,512 19,010 10,791 672 19,500 557 — 54,417 
Risk rating 5— — — 22 — 329 — — 351 
Risk rating 6— — — — — 2,917 — — 2,917 
Risk rating 7— — — — — — — — — 
Risk rating 8— — — — — — — — — 
Risk rating 9— — — — — — — — — 
Total$1,375 $6,143 $23,410 $12,760 $1,223 $24,156 $557 $— $69,624 
Current year-to-date gross charge-offs$— $— $— $— $— $— $— $— $— 
Advances to mortgage brokers
Risk ratings 1-3$76,187 $— $— $— $— $— $— $— $76,187 
Current year-to-date gross charge-offs$— $— $— $— $— $— $— $— $— 
Agricultural mortgage
Risk ratings 1-3$80 $— $2,727 $1,100 $2,576 $1,136 $2 $— $7,621 
Risk rating 43,144 4,569 13,161 8,534 6,312 9,243 1,418 — 46,381 
Risk rating 5— 1,338 2,894 5,640 — 1,133 661 — 11,666 
Risk rating 660 — — — — 1,061 — — 1,121 
Risk rating 7— — — — — — — — — 
Risk rating 8— — — — — — — — — 
Risk rating 9— — — — — — — — — 
Total$3,284 $5,907 $18,782 $15,274 $8,888 $12,573 $2,081 $— $66,789 
Current year-to-date gross charge-offs$— $— $— $— $— $— $— $— $— 
Agricultural other
Risk ratings 1-3$476 $523 $62 $101 $4 $299 $1,885 $— $3,350 
Risk rating 41,878 1,339 2,049 2,018 511 560 13,152 — 21,507 
Risk rating 51,694 44 4 30 438 — 1,457 — 3,667 
Risk rating 6— 172 — 90 — — 1,219 — 1,481 
Risk rating 7— — — — — — — — — 
Risk rating 8— — — — — — — — — 
Risk rating 9— — — — — — — — — 
Total$4,048 $2,078 $2,115 $2,239 $953 $859 $17,713 $— $30,005 
Current year-to-date gross charge-offs$— $— $— $— $— $— $— $— $— 
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December 31, 2023
 20232022202120202019PriorRevolving
Loans		Revolving Loans Converted to TermTotal
Commercial and industrial: Secured
Risk ratings 1-3$15,061 $4,324 $6,188 $6,666 $422 $449 $12,305 $— $45,415 
Risk rating 438,680 35,245 22,065 4,523 2,469 1,762 29,826 — 134,570 
Risk rating 5391 2,634 233 305 111 101 1,994 — 5,769 
Risk rating 6— — 4 207 6 128 2,596 — 2,941 
Risk rating 7465 — — 24 2 — — — 491 
Risk rating 8— — — — — — — — — 
Risk rating 9— — — — — — — — — 
Total$54,597 $42,203 $28,490 $11,725 $3,010 $2,440 $46,721 $— $189,186 
Current year-to-date gross charge-offs$— $— $— $— $— $— $— $— $— 
Commercial and industrial: Unsecured
Risk ratings 1-3$2,200 $259 $129 $71 $96 $707 $1,663 $— $5,125 
Risk rating 43,988 3,117 517 470 — — 7,274 — 15,366 
Risk rating 5— 31 — — — — 30 — 61 
Risk rating 6— — — — — — — — — 
Risk rating 7— — — — — — — — — 
Risk rating 8— — — — — — — — — 
Risk rating 9— — — — — — — — — 
Total$6,188 $3,407 $646 $541 $96 $707 $8,967 $— $20,552 
Current year-to-date gross charge-offs$— $— $— $— $— $— $— $— $— 
Commercial real estate: Owner occupied
Risk ratings 1-3$3,592 $1,712 $12,655 $14,228 $761 $3,313 $211 $— $36,472 
Risk rating 412,148 33,392 39,406 14,086 13,384 19,942 1,506 — 133,864 
Risk rating 51,460 727 195 220 3,829 1,761 464 — 8,656 
Risk rating 6— — 870 234 — 540 — — 1,644 
Risk rating 7— — — — — — — — — 
Risk rating 8— — — — — — — — — 
Risk rating 9— — — — — — — — — 
Total$17,200 $35,831 $53,126 $28,768 $17,974 $25,556 $2,181 $— $180,636 
Current year-to-date gross charge-offs$— $— $— $— $— $— $— $— $— 
Commercial real estate: Non-owner occupied
Risk ratings 1-3$67 $4,383 $6,496 $827 $172 $1,766 $— $— $13,711 
Risk rating 437,906 62,979 37,583 11,534 7,589 32,941 1,650 — 192,182 
Risk rating 5— — 5,838 — — 3,478 — — 9,316 
Risk rating 61,029 — — 54 — — — — 1,083 
Risk rating 7— — — — — — — — — 
Risk rating 8— — — — — — — — — 
Risk rating 9— — — — — — — — — 
Total$39,002 $67,362 $49,917 $12,415 $7,761 $38,185 $1,650 $— $216,292 
Current year-to-date gross charge-offs$— $— $— $— $— $— $— $— $— 
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December 31, 2023
20232022202120202019PriorRevolving
Loans		Revolving Loans Converted to TermTotal
Commercial real estate: 1-4 family investor
Risk ratings 1-3$286 $1,445 $864 $905 $666 $887 $1,352 $— $6,405 
Risk rating 413,492 11,641 30,604 15,124 3,036 3,111 4,538 — 81,546 
Risk rating 5152 354 77 — 55 — — — 638 
Risk rating 6555 — — — 59 5 — — 619 
Risk rating 7— — — — — — — — — 
Risk rating 8— — — — — — — — — 
Risk rating 9— — — — — — — — — 
Total$14,485 $13,440 $31,545 $16,029 $3,816 $4,003 $5,890 $— $89,208 
Current year-to-date gross charge-offs$— $— $— $— $— $— $— $— $— 
Commercial real estate: Multifamily
Risk ratings 1-3$4,509 $4,682 $2,053 $568 $— $1,515 $— $— $13,327 
Risk rating 42,792 19,465 15,981 813 549 21,263 554 — 61,417 
Risk rating 5— — — 4 — — — — 4 
Risk rating 6— — 32 — — 3,328 — — 3,360 
Risk rating 7— — — — — — — — — 
Risk rating 8— — — — — — — — — 
Risk rating 9— — — — — — — — — 
Total$7,301 $24,147 $18,066 $1,385 $549 $26,106 $554 $— $78,108 
Current year-to-date gross charge-offs$— $— $— $— $— $— $— $— $— 
Advances to mortgage brokers
Risk ratings 1-3$18,541 $— $— $— $— $— $— $— $18,541 
Current year-to-date gross charge-offs$— $— $— $— $— $— $— $— $— 
Agricultural mortgage
Risk ratings 1-3$292 $2,834 $1,241 $2,786 $604 $964 $94 $— $8,815 
Risk rating 45,622 12,903 8,970 5,940 3,926 7,883 566 — 45,810 
Risk rating 5126 4,098 5,886 689 175 60 756 — 11,790 
Risk rating 6842 — — — — 1,749 — — 2,591 
Risk rating 7— — — — — 38 — — 38 
Risk rating 8— — — — — — — — — 
Risk rating 9— — — — — — — — — 
Total$6,882 $19,835 $16,097 $9,415 $4,705 $10,694 $1,416 $— $69,044 
Current year-to-date gross charge-offs$— $— $— $— $— $4 $— $— $4 
Agricultural other
Risk ratings 1-3$801 $81 $121 $38 $183 $141 $2,659 $— $4,024 
Risk rating 41,830 2,481 2,280 619 146 75 14,405 — 21,836 
Risk rating 5753 8 163 507 — 480 2,731 — 4,642 
Risk rating 6— — 32 — — — 249 — 281 
Risk rating 7— — — — — — 167 — 167 
Risk rating 8— — — — — — — — — 
Risk rating 9— — — — — — — — — 
Total$3,384 $2,570 $2,596 $1,164 $329 $696 $20,211 $— $30,950 
Current year-to-date gross charge-offs$— $— $— $— $— $— $— $— $— 

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Table of Contents
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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Table of Contents
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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Table of Contents
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:
September 30, 2024
 20242023202220212020PriorRevolving
Loans		Revolving Loans Converted to TermTotal
Residential real estate: Senior lien
Current$38,341 $42,674 $49,365 $75,791 $49,085 $68,147 $— $— $323,403 
Past due 30-89 days— — — — — 248 — — 248 
Past due 90 or more days— — — — — — — — — 
Nonaccrual— 142 — 163 29 93 — — 427 
Total$38,341 $42,816 $49,365 $75,954 $49,114 $68,488 $— $— $324,078 
Current year-to-date gross charge-offs$— $— $— $— $— $10 $— $— $10 
Residential real estate: Junior lien
Current$3,265 $3,296 $911 $100 $78 $436 $— $— $8,086 
Past due 30-89 days— — — 19 — — — — 19 
Past due 90 or more days— — — — — — — — — 
Nonaccrual— — — — — — — — — 
Total$3,265 $3,296 $911 $119 $78 $436 $— $— $8,105 
Current year-to-date gross charge-offs$— $— $— $— $— $— $— $— $— 
Residential real estate: Home equity lines of credit
Current$— $— $— $— $— $— $37,663 $— $37,663 
Past due 30-89 days— — — — — — — — — 
Past due 90 or more days— — — — — — — — — 
Nonaccrual— — — — — — — — — 
Total$— $— $— $— $— $— $37,663 $— $37,663 
Current year-to-date gross charge-offs$— $— $— $— $— $— $— $— $— 
Consumer: Secured - direct
Current$9,965 $10,612 $7,386 $4,482 $2,434 $2,247 $— $— $37,126 
Past due 30-89 days110 — 24 4 — 5 — — 143 
Past due 90 or more days— — — — — — — — — 
Nonaccrual— — — — — — — — — 
Total$10,075 $10,612 $7,410 $4,486 $2,434 $2,252 $— $— $37,269 
Current year-to-date gross charge-offs$— $73 $— $— $27 $2 $— $— $102 
Consumer: Secured - indirect
Current$6,669 $24,463 $8,426 $5,384 $4,327 $3,360 $— $— $52,629 
Past due 30-89 days38 137 58 — 41 23 — — 297 
Past due 90 or more days— — 64 — — — — — 64 
Nonaccrual— — — — — — — — — 
Total$6,707 $24,600 $8,548 $5,384 $4,368 $3,383 $— $— $52,990 
Current year-to-date gross charge-offs$— $43 $— $— $— $— $— $— $43 
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September 30, 2024
20242023202220212020PriorRevolving
Loans		Revolving Loans Converted to TermTotal
Consumer: Unsecured
Current$1,513 $825 $323 $32 $25 $1 $837 $— $3,556 
Past due 30-89 days6 3 — — — — 5 — 14 
Past due 90 or more days— — — — — — — — — 
Nonaccrual— — — — — — — — — 
Total$1,519 $828 $323 $32 $25 $1 $842 $— $3,570 
Current year-to-date gross charge-offs$1,939 $12 $21 $— $— $1 $21 $— $1,994 
December 31, 2023
20232022202120202019PriorRevolving
Loans		Revolving Loans Converted to TermTotal
Residential real estate: Senior lien
Current$45,878 $52,989 $80,122 $52,648 $23,356 $54,556 $— $— $309,549 
Past due 30-89 days— 784 714 123 478 1,438 — — 3,537 
Past due 90 or more days— — — — — 87 — — 87 
Nonaccrual48 — — 31 — 207 — — 286 
Total$45,926 $53,773 $80,836 $52,802 $23,834 $56,288 $— $— $313,459 
Current year-to-date gross charge-offs$— $— $— $— $— $2 $— $— $2 
Residential real estate: Junior lien
Current$3,706 $1,325 $168 $134 $167 $445 $— $— $5,945 
Past due 30-89 days— — — — — — — — — 
Past due 90 or more days— — — — — — — — — 
Nonaccrual— — — — — — — — — 
Total$3,706 $1,325 $168 $134 $167 $445 $— $— $5,945 
Current year-to-date gross charge-offs$— $— $— $— $— $— $— $— $— 
Residential real estate: Home equity lines of credit
Current$— $— $— $— $— $— $37,014 $— $37,014 
Past due 30-89 days— — — — — — — — — 
Past due 90 or more days— — — — — — — — — 
Nonaccrual— — — — — — — — — 
Total$— $— $— $— $— $— $37,014 $— $37,014 
Current year-to-date gross charge-offs$— $— $— $— $— $— $— $— $— 
Consumer: Secured - direct
Current$14,813 $10,037 $6,468 $3,473 $1,682 $1,472 $— $— $37,945 
Past due 30-89 days— — — 3 — — — — 3 
Past due 90 or more days— — — — — — — — — 
Nonaccrual— — — — — — — — — 
Total$14,813 $10,037 $6,468 $3,476 $1,682 $1,472 $— $— $37,948 
Current year-to-date gross charge-offs$— $— $5 $— $— $— $— $— $5 
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 December 31, 2023
20232022202120202019PriorRevolving
Loans		Revolving Loans Converted to TermTotal
Consumer: Secured - indirect
Current$30,900 $10,977 $6,887 $5,376 $2,030 $2,973 $— $— $59,143 
Past due 30-89 days123 — — 30 3 25 — — 181 
Past due 90 or more days— — — — — — — — — 
Nonaccrual— — — — — — — — — 
Total$31,023 $10,977 $6,887 $5,406 $2,033 $2,998 $— $— $59,324 
Current year-to-date gross charge-offs$— $— $— $— $— $— $— $— $— 
Consumer: Unsecured
Current$1,576 $740 $144 $86 $7 $— $694 $— $3,247 
Past due 30-89 days— 9 — — — — — — 9 
Past due 90 or more days— — — — — — — — — 
Nonaccrual— — — — — — — — — 
Total$1,576 $749 $144 $86 $7 $— $694 $— $3,256 
Current year-to-date gross charge-offs$172 $— $6 $— $— $4 $— $— $182 
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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There were no loan modification for the three months ended September 30, 2023. The following is a summary of the amortized cost basis of loan modifications granted to borrowers experiencing financial difficulty for the:
Three Months Ended September 30, 2024
Interest Rate Reduction
Amortized Cost Basis% of Total Class of Financial Receivable
Agricultural
Agricultural other181 0.60 %
Total$181 
Nine Months Ended September 30, 2024
Interest Rate ReductionOther-Than-Insignificant Payment DelayTerm ExtensionOther-Than-Insignificant Payment Delay and Term Extension
 Amortized Cost Basis% of Total Class of Financial ReceivableAmortized Cost Basis% of Total Class of Financial ReceivableAmortized Cost Basis% of Total Class of Financial ReceivableAmortized Cost Basis% of Total Class of Financial Receivable
Commercial and industrial
Secured$— 0.00 %$1,926 0.88 %$11 0.01 %$— 0.00 %
Commercial real estate
Commercial mortgage owner occupied— 0.00 %823 0.48 %— 0.00 %— 0.00 %
Agricultural
Agricultural mortgage— 0.00 %1,305 1.95 %— 0.00 %— 0.00 %
Agricultural other181 0.60 %— 0.00 %— 0.00 %1,038 3.46 %
Consumer
Secured - indirect— 0.00 %— 0.00 %1 0.00 %— 0.00 %
Total$181 $4,054 $12 $1,038 
Nine Months Ended September 30, 2023
Term ExtensionInterest Rate Reduction
and Term Extension
 Amortized Cost Basis% of Total Class of Financial ReceivableAmortized Cost Basis% of Total Class of Financial Receivable
Commercial real estate
Commercial mortgage non-owner occupied$1,034 0.48 %$— 0.00 %
Agricultural
Agricultural mortgage232 0.33 %26 0.04 %
Agricultural other34 0.12 %— 0.00 %
Residential real estate
Senior lien5 0.00 %— 0.00 %
Total$1,305 $26 
We do not modify any loans by forgiving principal or accrued interest. We had committed to advance $112 and $0 in additional funds to be disbursed in connection with modified loans at September 30, 2024 and 2023, respectively, as displayed in the tables above.
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The following is a summary of the financial effect of the modifications granted to borrowers experiencing financial difficulty for the:
Three Months Ended September 30
20242023
Weighted-Average Interest Rate ReductionWeighted-Average Interest Rate Reduction
Agricultural
Agricultural other0.50%N/A
Nine Months Ended September 30
20242023
Weighted-Average Interest Rate ReductionPayment Delay TermWeighted-Average Term Extension (Years)Weighted-Average Interest Rate ReductionWeighted-Average Term Extension (Years)
Commercial and industrial
SecuredN/A4 months3.00N/AN/A
Commercial real estate
Commercial mortgage owner occupiedN/A7 monthsN/AN/AN/A
Commercial mortgage non-owner occupiedN/AN/AN/AN/A3.00
Agricultural
Agricultural mortgageN/A5 months0.504.50%1.08
Agricultural other0.50%4 months0.33N/A1.00
Residential real estate
Senior lienN/AN/AN/AN/A2.60
Consumer
Secured - indirectN/AN/A1.33N/AN/A
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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:
September 30, 2024
Current30-59 Days
Past Due		60-89 Days
Past Due		90 Days or
More Past Due		Total
Commercial and industrial
Secured$1,937 $— $— $— $1,937 
Commercial real estate
Commercial mortgage owner occupied823 — — — 823 
Commercial mortgage multifamily2,917 — — — 2,917 
Agricultural
Agricultural mortgage1,305 — — — 1,305 
Agricultural other1,219 — — — 1,219 
Consumer
Secured - indirect1 — — — 1 
Total$8,202 $— $— $— $8,202 
September 30, 2023 (1)
Current30-59 Days
Past Due		60-89 Days
Past Due		90 Days or
More Past Due		Total
Commercial real estate
Commercial mortgage non-owner occupied$1,034 $— $— $— $1,034 
Agricultural
Agricultural mortgage258 — — — 258 
Agricultural other34 — — — 34 
Residential real estate
Senior lien5 — — — 5 
Total$1,331 $— $— $— $1,331 
(1) We adopted ASU 2022-02 - Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures effective January 1, 2023, therefore, the September 30, 2023 presentation only includes loans since the guidance became effective.
We had no loans that defaulted in the three and nine-month periods ended September 30, 2024 and 2023 which were modified within 12 months prior to the default date.
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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, 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.
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A summary of activity in the ACL by portfolio segment and the recorded investment in loans by segments follows for the:
Three Months Ended September 30, 2024
Commercial and IndustrialCommercial Real EstateAgriculturalResidential Real EstateConsumerTotal
July 1, 2024$1,264 $5,569 $258 $4,351 $1,653 $13,095 
Charge-offs— — — — (1,767)(1,767)
Recoveries6 318 — 20 64 408 
Credit loss expense(46)(710)— (40)1,695 899 
September 30, 2024$1,224 $5,177 $258 $4,331 $1,645 $12,635 
Nine Months Ended September 30, 2024
Commercial and IndustrialCommercial Real EstateAgriculturalResidential Real EstateConsumerTotal
January 1, 2024$968 $5,878 $270 $4,336 $1,656 $13,108 
Charge-offs(336)— — (10)(2,139)(2,485)
Recoveries10 353 2 112 210 687 
Credit loss expense582 (1,054)(14)(107)1,918 1,325 
September 30, 2024$1,224 $5,177 $258 $4,331 $1,645 $12,635 
Three Months Ended September 30, 2023
Commercial and IndustrialCommercial Real EstateAgriculturalResidential Real EstateConsumerTotal
July 1, 2023$822 $5,968 $264 $4,173 $1,606 $12,833 
Charge-offs(29)— — — (150)(179)
Recoveries70 3 — 266 94 433 
Credit loss expense(34)(101)5 (281)91 (320)
September 30, 2023$829 $5,870 $269 $4,158 $1,641 $12,767 
Nine Months Ended September 30, 2023
Commercial and IndustrialCommercial Real EstateAgriculturalResidential Real EstateConsumerUnallocatedTotal
January 1, 2023$860 $461 $577 $617 $961 $6,374 $9,850 
Impact of the adoption of ASC 326(58)5,532 (247)3,535 356 (6,374)2,744 
Charge-offs(29)— (4)(2)(337)— (372)
Recoveries74 23 6 315 220 — 638 
Credit loss expense(18)(146)(63)(307)441 — (93)
September 30, 2023$829 $5,870 $269 $4,158 $1,641 $— $12,767 
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The following table illustrates the two main components of the ACL as of:
September 30
2024		June 30
2024		March 31
2024		December 31
2023		September 30
2023
ACL
Individually evaluated$— $137 $349 $84 $— 
Collectively evaluated12,635 12,958 13,041 13,024 12,767 
Total$12,635 $13,095 $13,390 $13,108 $12,767 
ACL to gross loans
Individually evaluated0.00 %0.01 %0.03 %0.01 %0.00 %
Collectively evaluated0.89 %0.94 %0.95 %0.96 %0.96 %
Total0.89 %0.95 %0.98 %0.97 %0.96 %
The following table presents loans that were evaluated for expected credit losses on an individual basis and the related specific allocations, by loan segment as of:
 September 30, 2024December 31, 2023
Loan BalanceSpecific AllocationLoan BalanceSpecific Allocation
Commercial and industrial$— $— $465 $56 
Commercial real estate— — 234 28 
Agricultural— — 181 — 
Residential real estate357 — 203 — 
Consumer— — — — 
Total$357 $— $1,083 $84 
We have designated loans classified as collateral dependent for which we apply the practical expedient to measure the ACL based on the fair value of the collateral less cost to sell when the repayment is expected to be provided substantially by the sale or operation of the collateral and the borrower is experiencing financial difficulty. The fair value of the collateral is based on appraisals, which may be adjusted due to their age, and the type, location, and condition of the property or area or general market conditions to reflect the expected change in value between the effective date of the appraisal and the measurement date. Appraisals are updated every one to two years depending on the type of loan and the total exposure of the borrower. Loans evaluated for expected credit losses on an individual basis include $357 in collateral dependent loans.

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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 September 30
20242023
Maximum Month End BalanceAverage BalanceWeighted Average Interest Rate During the PeriodMaximum Month End BalanceAverage BalanceWeighted Average Interest Rate During the Period
Securities sold under agreements to repurchase without stated maturity dates$56,051 $48,151 3.18 %$54,327 $46,574 1.90 %
Federal funds purchased— — 0.00 %— 1 6.13 %
FRB Discount Window5,300 153 5.18 %— 135 5.30 %
Nine Months Ended September 30
20242023
Maximum Month End BalanceAverage BalanceWeighted Average Interest Rate During the PeriodMaximum Month End BalanceAverage BalanceWeighted Average Interest Rate During the Period
Securities sold under agreements to repurchase without stated maturity dates$56,051 $43,140 3.17 %$54,327 $40,601 1.64 %
Federal funds purchased— 1 6.52 %— 17 6.08 %
FRB Discount Window5,300 56 5.21 %— 89 5.28 %
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 $68,327 and $67,764 at September 30, 2024 and December 31, 2023, 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:
September 30, 2024December 31, 2023
AmountRateAmountRate
Securities sold under agreements to repurchase without stated maturity dates$47,134 3.17 %$46,801 3.11 %
We had pledged AFS securities and 1-4 family residential real estate loans in the following amounts at:
September 30
2024		December 31
2023
Pledged to secure borrowed funds$387,466 $391,529 
Pledged to secure repurchase agreements68,327 67,764 
Pledged for public deposits and for other purposes necessary or required by law96,356 84,099 
Total$552,149 $543,392 
AFS securities pledged to repurchase agreements without stated maturity dates consisted of the following at:
September 30
2024		December 31
2023
U.S. Treasury$57,296 $55,623 
Mortgage-backed securities8,559 9,462 
Collateralized mortgage obligations2,472 2,679 
Total$68,327 $67,764 
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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 September 30, 2024, we had the ability to borrow up to an additional $360,440 without pledging additional collateral.
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:
September 30, 2024December 31, 2023
AmountRateAmountRate
Fixed rate due 2024$15,000 5.00 %$40,000 5.55 %
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:
September 30, 2024December 31, 2023
AmountRateAmountRate
Fixed rate at 3.25% to floating, due 2031$30,000 3.25 %$30,000 3.25 %
Unamortized issuance costs(598)(665)
Total subordinated debt, net$29,402 $29,335 
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 
 September 30		Nine Months Ended 
 September 30
2024202320242023
Average number of common shares outstanding for basic calculation7,454,097 7,495,168 7,475,571 7,517,680 
Average potential effect of common shares in the Directors Plan (1)
— 45,637 — 44,415 
Average potential effect of common shares in the RSP19,087 29,569 16,833 29,569 
Average number of common shares outstanding used to calculate diluted earnings per common share7,473,184 7,570,374 7,492,404 7,591,664 
Net income$3,281 $4,413 $9,893 $14,364 
Earnings per common share
Basic$0.44 $0.59 $1.32 $1.91 
Diluted0.44 0.58 1.32 1.89 
(1) Exclusive of shares held in the Rabbi Trust

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Note 6 – Capital Ratios and Shareholders' Equity
As of September 30, 2024 and December 31, 2023, 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:
September 30, 2024
ActualMinimum
Capital
Requirement		Minimum To Be Well
Capitalized Under Prompt Corrective Action Provisions
AmountRatioAmountRatioAmountRatio
Common equity Tier 1 capital to risk weighted assets
Isabella Bank$173,019 11.52 %$105,136 7.00 %$97,627 6.50 %
Consolidated181,981 12.08 %105,507 7.00 %N/AN/A
Tier 1 capital to risk weighted assets
Isabella Bank173,019 11.52 %127,665 8.50 %120,156 8.00 %
Consolidated181,981 12.08 %128,116 8.50 %N/AN/A
Total capital to risk weighted assets
Isabella Bank186,151 12.39 %157,704 10.50 %150,195 10.00 %
Consolidated224,516 14.90 %158,261 10.50 %N/AN/A
Tier 1 capital to average assets
Isabella Bank173,019 8.35 %82,851 4.00 %103,564 5.00 %
Consolidated181,981 8.77 %83,044 4.00 %N/AN/A
December 31, 2023
ActualMinimum
Capital
Requirement		Minimum To Be Well
Capitalized Under Prompt Corrective Action Provisions
AmountRatioAmountRatioAmountRatio
Common equity Tier 1 capital to risk weighted assets
Isabella Bank$178,316 12.48 %$100,043 7.00 %$92,897 6.50 %
Consolidated180,014 12.54 %100,449 7.00 %N/AN/A
Tier 1 capital to risk weighted assets
Isabella Bank178,316 12.48 %121,481 8.50 %114,335 8.00 %
Consolidated180,014 12.54 %121,973 8.50 %N/AN/A
Total capital to risk weighted assets
Isabella Bank191,739 13.42 %150,065 10.50 %142,919 10.00 %
Consolidated222,772 15.52 %150,673 10.50 %N/AN/A
Tier 1 capital to average assets
Isabella Bank178,316 8.71 %81,935 4.00 %102,419 5.00 %
Consolidated180,014 8.76 %82,154 4.00 %N/AN/A
Total capital includes Tier 1 capital and Tier 2 capital. Tier 2 capital includes a permissible portion of the allowances for credit losses and subordinated debt, net of unamortized issuance costs. There are no significant regulatory constraints placed on our capital. At September 30, 2024, the Bank exceeded all minimum capital requirements.
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The following table summarizes the changes in AOCI by component for the:
Three Months Ended September 30
20242023
Unrealized
Gains
(Losses) on
AFS
Securities		Defined
Benefit
Pension Plan		TotalUnrealized
Gains
(Losses) on
AFS
Securities		Defined
Benefit
Pension Plan		Total
Balance, July 1$(26,939)$(697)$(27,636)$(35,051)$(1,366)$(36,417)
OCI before reclassifications13,081 — 13,081 (6,708)— (6,708)
Amounts reclassified from AOCI— — — — — — 
Subtotal13,081 — 13,081 (6,708)— (6,708)
Tax effect(2,724)— (2,724)1,394 — 1,394 
OCI, net of tax10,357 — 10,357 (5,314)— (5,314)
Balance, September 30$(16,582)$(697)$(17,279)$(40,365)$(1,366)$(41,731)
Nine Months Ended September 30
20242023
Unrealized
Gains
(Losses) on
AFS
Securities		Defined
Benefit
Pension Plan		TotalUnrealized
Gains
(Losses) on
AFS
Securities		Defined
Benefit
Pension Plan		Total
Balance, January 1$(25,199)$(697)$(25,896)$(35,828)$(1,366)$(37,194)
OCI before reclassifications10,858 — 10,858 (5,736)— (5,736)
Amounts reclassified from AOCI— — — (67)— (67)
Subtotal10,858 — 10,858 (5,803)— (5,803)
Tax effect(2,241)— (2,241)1,266 — 1,266 
OCI, net of tax8,617 — 8,617 (4,537)— (4,537)
Balance, September 30$(16,582)$(697)$(17,279)$(40,365)$(1,366)$(41,731)
Included in OCI for the three and nine-month periods ended September 30, 2024 and 2023 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.
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A summary of the components of unrealized gains on AFS securities included in OCI follows for the:
Three Months Ended September 30
 20242023
Auction Rate Money Market Preferred StocksAll Other AFS SecuritiesTotalAuction Rate Money Market Preferred StocksAll Other AFS SecuritiesTotal
Unrealized gains (losses) arising during the period$109 $12,972 $13,081 $(67)$(6,641)$(6,708)
Tax effect— (2,724)(2,724)— 1,394 1,394 
Unrealized gains (losses), net of tax$109 $10,248 $10,357 $(67)$(5,247)$(5,314)
 Nine Months Ended September 30
 20242023
Auction Rate Money Market Preferred StocksAll Other AFS SecuritiesTotalAuction Rate Money Market Preferred StocksAll Other AFS SecuritiesTotal
Unrealized gains (losses) arising during the period$186 $10,672 $10,858 $228 $(5,964)$(5,736)
Reclassification adjustment for net (gains) losses included in net income— — — — (67)(67)
Net unrealized gains (losses)186 10,672 10,858 228 (6,031)(5,803)
Tax effect— (2,241)(2,241)— 1,266 1,266 
Unrealized gains (losses), net of tax$186 $8,431 $8,617 $228 $(4,765)$(4,537)
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
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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.
The following tables list the quantitative information about loans measured at fair value on a nonrecurring basis as of:
September 30, 2024
Valuation TechniqueFair ValueUnobservable InputActual RangeWeighted Average
Collateral Dependent Loans -Discount applied to collateral:
Discounted value$357Real Estate
20%
20%
December 31, 2023
Valuation TechniqueFair ValueUnobservable InputActual RangeWeighted Average
Collateral Dependent Loans -Discount applied to collateral:
Discounted value$1,083Real Estate
20%
20%
Equipment
25% - 35%
33%
Accounts receivable
25%
25%
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:
September 30, 2024
Valuation TechniqueFair ValueUnobservable InputRate
Discounted cash flow$2,277 Constant prepayment rate7%
Discount rate11%
During the third quarter of 2024, the classification of OMSR was changed from Level 2 to Level 3. We elected to reevaluate our process for testing for impairment, which included a change in the third-party provider for the valuation. Our valuation is generated using a model-based approach that relies upon significant assumptions not observable in the market. As such, the Level 3 classification is most appropriate based on the valuation approach.
As a result of the change described above, Level 3 transfers in and Level 2 transfer out totaled $2,277 as of September 30, 2024. There were no other transfers to or from Levels 1, 2, or 3 as of September 30, 2024 or December 31, 2023.
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:
 September 30, 2024
Carrying
Value		Estimated
Fair Value		Level 1Level 2Level 3
ASSETS
Cash and cash equivalents$27,378 $27,378 $27,378 $— $— 
FHLB stock (1)
12,762 N/A— — — 
Mortgage loans HFS504 513 — 513 — 
Gross loans1,424,283 1,367,235 — — 1,367,235 
Less allowance for credit losses12,635 12,635 — — 12,635 
Net loans1,411,648 1,354,600 — — 1,354,600 
Accrued interest receivable8,567 8,567 8,567 — — 
Equity securities without readily determinable fair values (1)
3,086 N/A— — — 
OMSR2,218 2,277 — — 2,277 
LIABILITIES
Deposits without stated maturities1,398,235 1,398,235 1,398,235 — — 
Deposits with stated maturities383,597 381,378 — 381,378 — 
Short-term borrowings52,434 52,360 — 52,360 — 
FHLB advances15,000 15,000 — 15,000 — 
Subordinated debt, net of unamortized issuance costs
29,402 27,147 — 27,147 — 
Accrued interest payable973 973 973 — — 
 December 31, 2023
 Carrying
Value		Estimated
Fair Value		Level 1Level 2Level 3
ASSETS
Cash and cash equivalents$33,672 $33,672 $33,672 $— $— 
FHLB stock (1)
12,762 N/A— — — 
Mortgage loans HFS— — — — — 
Gross loans1,349,463 1,292,458 — — 1,292,458 
Less allowance for credit losses13,108 13,108 — — 13,108 
Net loans1,336,355 1,279,350 — — 1,279,350 
Accrued interest receivable8,167 8,167 8,167 — — 
Equity securities without readily determinable fair values (1)
3,086 N/A— — — 
OMSR2,422 3,164 — 3,164 — 
LIABILITIES
Deposits without stated maturities1,377,321 1,377,321 1,377,321 — — 
Deposits with stated maturities346,374 341,489 — 341,489 — 
Short-term borrowings46,801 46,704 — 46,704 — 
FHLB advances40,000 40,000 — 40,000 — 
Subordinated debt, net of unamortized issuance costs
29,335 26,146 — 26,146 — 
Accrued interest payable890 890 890 — — 
(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:
 September 30, 2024December 31, 2023
TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3
Recurring items
AFS securities
U.S. Treasury$220,829 $— $220,829 $— $214,801 $— $214,801 $— 
States and political subdivisions82,899 — 82,899 — 92,876 — 92,876 — 
Auction rate money market preferred3,117 — 3,117 — 2,931 — 2,931 — 
Mortgage-backed securities28,955 — 28,955 — 32,815 — 32,815 — 
Collateralized mortgage obligations163,764 — 163,764 — 177,775 — 177,775 — 
Corporate7,242 — 7,242 — 6,950 — 6,950 — 
Total AFS securities506,806 — 506,806 — 528,148 — 528,148 — 
Nonrecurring items
Collateral dependent (net of ACL)357 — — 357 1,083 — — 1,083 
OMSR2,218 — — 2,218 2,422 — 2,422 — 
Foreclosed assets546 — — 546 406 — — 406 
Total$509,927 $— $506,806 $3,121 $532,059 $— $530,570 $1,489 
Percent of assets and liabilities measured at fair value0.00 %99.39 %0.61 %0.00 %99.72 %0.28 %
We recorded an impairment related to OMSR of $21 through earnings for the three and nine month periods ended September 30, 2024 and $0 for the three and nine month periods ended September 30, 2023. We also recorded an impairment related to foreclosed assets of $0 through earnings for the three and nine month periods ended September 30, 2024 and $27 and $36 for the three and nine month periods ended September 30, 2023 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 September 30, 2024. 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.
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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)
The following is management's discussion and analysis of our financial condition and results of operations for the unaudited three and nine months ended September 30, 2024 and 2023. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 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, 2023, 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 and nine months ended September 30, 2024, and 2023, unless otherwise noted
Net income in the third quarter of 2024 was $3,281, or $0.44 per diluted share, compared with $4,413, or $0.58 per diluted share, in the same quarter 2023. The non-GAAP measure of adjusted net income in the third quarter 2024 totaled $4,559, or $0.61 per diluted share, compared to $4,354 or $0.58 per diluted share, in the same quarter of 2023. Adjusted net income in the current year quarter excludes a $1,622 charge-off related to overdrawn deposit accounts from a single customer.
Net income for the year-to-date period of 2024 was $9,893, or $1.32 per diluted share, compared with $14,364, or $1.89 per diluted share, in the same period of 2023. Adjusted net income was $11,112, or $1.48 per diluted share, compared with $14,193, or $1.87 per diluted share, for the respective periods. The decrease in adjusted net income primarily reflects lower net interest income due to slower repricing of earning assets as compared to the rising costs of interest bearing liabilities. The decrease in net income for the comparative periods also included an increase in provision and compensation expenses.
Net interest income was $14,488 in the third quarter of 2024 and $14,302 in the same quarter of 2023 representing 2.98% and 2.99% of earning assets, or NIM on an FTE basis, respectively. The current year quarter NIM included a 6 basis point benefit due to the recovery of the contractual interest of two previously charged-off commercial loans. The book yield from securities was 2.21% and 2.23% during the third quarters of 2024 and 2023, respectively. The weighted average maturity of our U.S. Treasury portfolio is less than two years, and the future proceeds are expected to be reinvested in market rate loans and securities, or to pay off borrowed funds. Our yield on loans expanded to 5.73% in the third quarter 2024, up from 5.17% in the same quarter of 2023, which includes an increase of 8 basis points due to the recovery of previously charged-off loans. Overall, our loan yields continued to expand due to higher rates on new loans and fixed rate commercial loans that have and continue repricing to variable rates. At the end of the third quarter 2024, approximately 41% 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 three to five years. Our cost of interest bearing liabilities increased to 2.43% from 1.77% in the third quarter 2023 due to several interest rate hikes throughout 2023 and the associated remix from noninterest bearing deposits into higher tier money market and certificate of deposit accounts. While we have experienced a downward trend in our NIM over the past several quarters, we are seeing a reversal of this trend as NIM has expanded 19 basis points over the last two quarters of 2024 as loans reprice and the cost of interest bearing liabilities stabilize.
For the first nine months of 2024, net interest income was $41,280 compared with $44,332 in the same period of 2023. The comparison of NIM and yield on interest earning assets for the first nine months of 2024 were 2.87% and 4.62% compared to 3.13%, and 4.11% for the same period 2023. The yield on loans expanded to 5.55%, from 4.95%, and our cost of interest bearing liabilities increased to 2.37% from 1.39% for the nine months of 2024 and 2023, respectively. The explanations for the improvement in NIM are consistent with those provided in the year-over-year three-month comparison above.
The provision for credit losses was $946 in the third quarter of 2024, compared to a credit of $292 for the same period in 2023. The provision for the current year quarter includes the impact from the recovery of the contractual principal of two previously charged-off commercial loans totaling $314. Given the loan recoveries, our historical loss rate experience improved which provided a benefit of $435 during the quarter. The benefits were offset by a $1,622 charge-off related to overdrawn deposit accounts from a single customer. The loans to the customer and related parties are well collateralized, and no additional credit provisioning was necessary in the third quarter. The credit in the prior year quarter mostly reflects loan recoveries in excess of charge-offs during the period.
For the first nine months of 2024, provision for credit losses was $1,508 and a reversal of $55 in the same period of 2023. The reasons for the increase in provision for the nine month comparison are the same as the three month comparison. Net loan charge-offs have been at historic lows for the past five years due to our disciplined underwriting standards.
Noninterest income for the three months ended September 30, 2024 and 2023 was $3,528 and $3,414, respectively. Wealth management fees grew $145, or 17%, due to an increase in new accounts and higher market valuations. Customer service fees increased $99 compared to the same quarter of 2023 based on a higher number of transaction accounts. For the nine months of 2024, noninterest income was $10,604, compared to $10,311 in the same period of 2023. The reasons for the increase in income for the nine month comparison are the same as the three month comparison.
Noninterest expenses for the three-month period ended September 30, 2024 increased $570, or 4.5%, in comparison to the same period in 2023. Compensation and benefit expenses increased $612 reflecting annual merit increases in 2024, and higher incentive compensation as compared to the third quarter of 2023. For the first nine months of 2024, noninterest expenses were $38,799, compared to $37,395 in the same period of 2023. Annual merit increases and medical claims resulted in a $1,447 increase in compensation and benefit expenses for the first nine months of 2024. Our year-to-date efficiency ratio is 73.65% in 2024 compared to 67.56% in 2023, which primarily reflects lower NIM and a relatively stable base of noninterest expense.
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Financial Condition (September 30, 2024 to December 31, 2023 comparison)
Total assets increased $47,933 to $2,106,901 as of September 30, 2024 due to loan growth funded by growth in deposits during the third quarter. Excess cash generated during the first nine months of 2024 was used to pay off wholesale borrowings totaling $19,633.
Our AFS securities portfolio totaled $506,806 at September 30, 2024, declining $21,342 due to municipal maturities and principal paydowns on mortgage-related securities. Net unrealized losses at September 30, 2024 totaled $20,968, or 3.97%, of the portfolio. The unrealized loss position on our AFS securities portfolio resulted from increases in short-term and intermediate-term benchmark interest rates. Our bond portfolio has a very short remaining life with $220,000 of the U.S. Treasury portfolio maturing by the end of 2026. The $169,339 Collateral Mortgage Obligation portfolio has a projected weighted-average life of 3.5 years and most bonds are bulleted in structure. Nearly half of the tax-exempt municipal portfolio will mature over the next five years.
Loans outstanding as of September 30, 2024 totaled $1,424,283. Since December 31, 2023, gross loans have increased $74,820 as a result of growth in commercial loans and increased participation in advances to mortgage brokers. Additional loan growth came from the residential real estate portfolio due to the slowing of prepayments on steady new volume. At the end of September, $12.6 million of commercial real estate construction loans were closed and are expected to be funded early in the fourth quarter.
The ACL was $12,635 at September 30, 2024, a decrease of $473 from $13,108 at December 31, 2023. Most of the decrease is due to improvement in historical loss experience, which was driven by the recovery of two previously charged-off loans during the quarter totaling $314. Nonaccrual loans were $547 as of September 30, 2024 compared to $926 at December 31, 2023. Past due and accruing accounts between 30 to 89 days as a percentage of total loans was 0.16% at September 30, 2024, compared to 0.29% at year-end 2023. Overall, credit quality remains strong, and there are no negative trends.
Total deposits increased $58,137 since December 31, 2023, to $1,781,832 at the end of the third quarter 2024. Consumer demand for retail certificates of deposit accounts continues based on the rate environment, resulting in a $37,223 increase in the balance during the first nine months of 2024. Interest bearing demand deposits increased $55,855, while savings and demand deposits declined $27,929 and $7,012, respectively.
Total equity was $212,985 at September 30, 2024 compared to $202,402 at year-end 2023. Our tangible book value per share was $22.14 as of September 30, 2024, compared to $20.59 on December 31, 2023. Net unrealized losses on AFS securities reduced tangible book value per share by $2.23 and $3.37 for the respective periods. Share repurchases totaled 124,969 during the first nine months of 2024 for a value of $2,419 at an average price of $19.36.
We continue to have robust liquidity levels and capital. As of September 30, 2024, we had $797,818 of unencumbered sources of liquidity and strong capital ratios; the Tier 1 Leverage Ratio was 8.77%, Tier 1 risk-based capital was 12.08%, and Total risk-based capital was 14.90%.
Reclassifications
Certain amounts reported in the interim 2023 consolidated financial statements have been reclassified to conform to the 2024 presentation.
Subsequent Events
We evaluated subsequent events after September 30, 2024 through the date our interim condensed consolidated financial statements were issued for potential recognition and disclosure. No subsequent events require financial statement recognition or disclosure between September 30, 2024 and the date our interim condensed consolidated financial statements were issued.
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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 EndedNine Months Ended
September 30
2024		June 30
2024		March 31
2024		December 31
2023		September 30
2023		September 30
2024		September 30
2023
PER SHARE
Basic earnings$0.44 $0.47 $0.42 $0.51 $0.59 $1.32 $1.91 
Diluted earnings0.44 0.46 0.42 0.51 0.58 1.32 1.89 
Adjusted diluted earnings (2)
0.61 0.46 0.41 0.50 0.58 1.48 1.87 
Dividends0.28 0.28 0.28 0.28 0.28 0.84 0.84 
Book value (1)
28.63 27.06 26.80 27.04 24.71 28.63 24.71 
Tangible book value (1)
22.14 20.60 20.35 20.59 18.27 22.14 18.27 
Market price (1)
21.21 18.20 19.40 21.50 21.05 21.21 21.05 
PERFORMANCE RATIOS
Return on average total assets0.62 %0.68 %0.61 %0.73 %0.86 %0.64 %0.94 %
Adjusted return on average total assets (2)
0.87 %0.68 %0.60 %0.73 %0.85 %0.71 %0.93 %
Return on average shareholders' equity6.26 %6.97 %6.19 %7.98 %9.17 %6.47 %10.04 %
Adjusted return on average shareholders' equity (2)
8.70 %6.96 %6.08 %7.97 %9.05 %7.27 %9.92 %
Return on average tangible shareholders' equity8.15 %9.19 %8.12 %10.73 %12.27 %8.48 %13.42 %
Adjusted return on average tangible shareholders' equity (2)
11.32 %9.17 %7.97 %10.71 %12.11 %9.52 %13.26 %
Net interest margin yield (FTE) (2)
2.98 %2.85 %2.79 %2.83 %2.99 %2.87 %3.13 %
Efficiency ratio (2)
72.30 %73.93 %74.84 %68.41 %70.56 %73.65 %67.56 %
Gross loan to deposit ratio (1)
79.93 %80.22 %77.22 %78.29 %75.43 %79.93 %75.43 %
Shareholders' equity to total assets (1)
10.11 %9.82 %9.75 %9.83 %8.74 %10.11 %8.74 %
Tangible shareholders' equity to tangible assets (1)
8.00 %7.65 %7.58 %7.66 %6.61 %8.00 %6.61 %
FINANCIAL DATA (in millions)
Total assets (1)
2,107 2,060 2,058 2,059 2,118 2,107 2,118 
AFS securities (1)
507 506 518 528 517 507 517 
Gross loans (1)
1,424 1,382 1,366 1,349 1,335 1,424 1,335 
ACL (1)
13 13 13 13 13 13 13 
Deposits (1)
1,782 1,722 1,768 1,724 1,769 1,782 1,769 
Borrowed funds (1)
97 119 72 116 147 97 147 
Shareholders' equity (1)
213 202 201 202 185 213 185 
Wealth assets under management (1)
680 648 661 641 591 680 591 
Net income3 3 3 4 4 10 14 
Interest income23 22 21 21 20 67 59 
Interest expense9 9 8 7 6 26 14 
Net interest income14 14 13 14 14 41 44 
Provision for credit losses1 — — 1 — 2 — 
Noninterest income4 4 3 4 3 11 10 
Noninterest expenses13 13 13 12 13 39 37 
(1) At end of period
(2) Non-GAAP financial measure; refer to the "Recconcilation of Non-GAAP Financial Measures" section
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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
September 30, 2024June 30, 2024September 30, 2023
Average
Balance		Tax
Equivalent
Interest		Average
Yield /
Rate		Average
Balance		Tax
Equivalent
Interest		Average
Yield /
Rate		Average
Balance		Tax
Equivalent
Interest		Average
Yield /
Rate
INTEREST EARNING ASSETS
Loans (1)
$1,403,810 $20,230 5.73 %$1,375,523 $18,863 5.52 %$1,325,455 $17,270 5.17 %
AFS securities (2)
536,379 2,981 2.21 %545,827 3,041 2.24 %572,038 3,213 2.23 %
FHLB stock12,762 168 5.24 %12,762 158 4.98 %12,762 91 2.83 %
Fed funds sold4 — 5.55 %7 — 5.51 %13 — 5.47 %
Other (3)
14,597 194 5.29 %14,054 263 7.53 %17,638 161 3.62 %
Total interest earning assets1,967,552 23,573 4.77 %1,948,173 22,325 4.61 %1,927,906 20,735 4.27 %
NONEARNING ASSETS
Allowance for credit losses(13,125)(13,431)(12,937)
Cash and demand deposits due from banks25,903 23,931 25,287 
Premises and equipment27,868 27,999 26,629 
Other assets87,002 80,539 74,244 
Total assets$2,095,200 $2,067,211 $2,041,129 
INTEREST BEARING LIABILITIES
Interest bearing demand deposits$358,383 $295 0.33 %$342,931 $334 0.39 %$342,175 $242 0.28 %
Savings599,679 3,437 2.28 %613,601 3,321 2.18 %595,372 2,156 1.44 %
Certificates of deposit375,936 3,899 4.13 %366,440 3,658 4.01 %324,399 2,617 3.20 %
Short-term borrowings48,151 384 3.17 %40,593 321 3.18 %46,574 284 2.42 %
FHLB advances40,588 571 5.60 %45,510 638 5.64 %44,429 617 5.51 %
Subordinated debt, net of unamortized issuance costs
29,388 267 3.61 %29,365 266 3.64 %29,298 267 3.62 %
Total interest bearing liabilities1,452,125 8,853 2.43 %1,438,440 8,538 2.39 %1,382,247 6,183 1.77 %
NONINTEREST BEARING LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits418,973 411,282 451,123 
Other liabilities15,658 16,755 16,802 
Shareholders’ equity208,444 200,734 190,957 
Total liabilities and shareholders’ equity$2,095,200 $2,067,211 $2,041,129 
Net interest income (FTE)$14,720 $13,787 $14,552 
Net yield on interest earning assets (FTE) (4)
2.98 %2.85 %2.99 %
(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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Nine Months Ended
September 30, 2024September 30, 2023
Average BalanceTax Equivalent InterestAverage Yield/RateAverage BalanceTax Equivalent InterestAverage Yield/Rate
INTEREST EARNING ASSETS
Loans (1)
$1,376,122 $57,150 5.55 %$1,298,316 $48,090 4.95 %
AFS securities (2)
546,376 9,153 2.24 %588,796 10,007 2.27 %
FHLB stock12,762 472 4.94 %12,762 226 2.37 %
Fed funds sold6 — 5.59 %11 — 5.08 %
Other (3)
17,941 750 5.58 %30,005 1,029 4.59 %
Total interest earning assets1,953,207 67,525 4.62 %1,929,890 59,352 4.11 %
NONEARNING ASSETS
Allowance for credit losses(13,216)(12,786)
Cash and demand deposits due from banks24,623 25,043 
Premises and equipment27,962 26,300 
Other assets83,878 75,239 
Total assets$2,076,454 $2,043,686 
INTEREST BEARING LIABILITIES
Interest bearing demand deposits$349,086 $1,042 0.40 %$356,608 $582 0.22 %
Savings615,668 10,091 2.19 %623,157 5,471 1.17 %
Certificates of deposit366,672 10,974 4.00 %298,535 5,900 2.64 %
Short-term borrowings43,197 1,026 3.17 %40,707 604 1.98 %
FHLB advances37,883 1,597 5.63 %21,685 887 5.47 %
Subordinated debt, net of unamortized issuance costs
29,365 799 3.63 %29,275 799 3.65 %
Total interest bearing liabilities1,441,871 25,529 2.37 %1,369,967 14,243 1.39 %
NONINTEREST BEARING LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits414,179 466,725 
Other liabilities16,183 15,619 
Shareholders’ equity204,221 191,375 
Total liabilities and shareholders’ equity$2,076,454 $2,043,686 
Net interest income (FTE)$41,996 $45,109 
Net yield on interest earning assets (FTE) (4)
2.87 %3.13 %
(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:
September 30
2024		June 30
2024		March 31
2024		December 31
2023		September 30
2023		Annualized Growth %
Quarter to Date		Annualized Growth %
Year to Date
Commercial and industrial$240,589 $238,245 $226,281 $209,738 $195,814 3.94 %19.61 %
Commercial real estate547,038 547,005 561,123 564,244 566,639 0.02 %(4.07)%
Advances to mortgage brokers76,187 39,300 29,688 18,541 24,807 N/MN/M
Agricultural96,794 94,996 93,695 99,994 99,233 7.57 %(4.27)%
Total commercial loans960,608 919,546 910,787 892,517 886,493 17.86 %10.17 %
Residential real estate369,846 365,188 356,658 356,418 348,196 5.10 %5.02 %
Consumer93,829 96,902 98,063 100,528 99,985 (12.68)%(8.89)%
Total$1,424,283 $1,381,636 $1,365,508 $1,349,463 $1,334,674 12.35 %7.39 %
The following table presents the composition of our commercial real estate portfolio by industry as of:
September 30, 2024December 31, 2023
BalancePercent of TotalBalancePercent of Total
Real estate
Non-owner occupied$129,59523.69 %$129,01622.87 %
1-4 family investor92,154 16.85 %89,208 15.81 %
Multifamily69,624 12.73 %78,108 13.84 %
Owner occupied25,3954.64 %27,7584.92 %
Hotels79,397 14.51 %82,650 14.65 %
Health care35,812 6.55 %40,249 7.13 %
Retail trade34,087 6.23 %34,622 6.14 %
Manufacturing11,687 2.14 %12,341 2.19 %
Accommodation services11,547 2.11 %11,277 2.00 %
Educational services11,188 2.05 %11,589 2.05 %
Wholesale trade11,007 2.01 %10,308 1.83 %
Construction4,056 0.74 %5,079 0.90 %
Other31,489 5.75 %32,039 5.67 %
Total commercial real estate$547,038 100.00 %$564,244 100.00 %
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.

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Deposits
The following table displays deposit balances as of:
September 30
2024		June 30
2024		March 31
2024		December 31
2023		September 30
2023		Annualized Growth %
Quarter to Date		Annualized Growth %
Year to Date
Noninterest bearing demand deposits$421,493 $412,193 $413,272 $428,505 $445,043 9.02 %(2.18)%
Interest bearing demand deposits376,592 338,329 349,401 320,737 363,558 45.24 %23.22 %
Savings600,150 603,328 639,491 628,079 628,795 (2.11)%(5.93)%
Certificates of deposit383,597 368,449 366,143 346,374 332,078 16.45 %14.33 %
Total$1,781,832 $1,722,299 $1,768,307 $1,723,695 $1,769,474 13.83 %4.50 %
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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:
September 30
2024		June 30
2024		March 31
2024		December 31
2023		September 30
2023
NONPERFORMING ASSETS
Commercial and industrial$120 $271 $567 $491 $17 
Commercial real estate— — 234 — — 
Agricultural— 167 189 205 208 
Residential real estate427 556 293 286 295 
Consumer— — — — — 
Total nonaccrual loans547 994 1,283 982 520 
Accruing loans past due 90 days or more64 15 — 87 — 
Total nonperforming loans611 1,009 1,283 1,069 520 
Foreclosed assets546 629 579 406 509 
Debt securities12 12 12 12 77 
Total nonperforming assets$1,169 $1,650 $1,874 $1,487 $1,106 
Nonperforming loans to gross loans0.04 %0.07 %0.09 %0.08 %0.04 %
Nonperforming assets to total assets0.06 %0.08 %0.09 %0.07 %0.05 %
ACL as a % of nonaccrual loans2,309.87 %1,317.40 %1,043.65 %1,334.83 %2,455.19 %
ALLOWANCE FOR CREDIT LOSSES
Allowance at beginning of period$13,095 $13,390 $13,108 $12,767 $12,833 
Charge-offs1,767 527 191 452 179 
Recoveries408 134 145 71 433 
Net loan charge-offs (recoveries)1,359 393 46 381 (254)
Provision for credit losses - loans899 98 328 722 (320)
Allowance at end of period$12,635 $13,095 $13,390 $13,108 $12,767 
ACL to gross loans0.89 %0.95 %0.98 %0.97 %0.96 %
Reserve for unfunded commitments498 450 379 315 352 
Provision for credit losses - unfunded commitments47 72 64 (38)28 
Reserve to unfunded commitments0.15 %0.14 %0.11 %0.10 %0.11 %
NET LOAN CHARGE-OFFS (RECOVERIES)
Commercial and industrial$(6)$334 $(2)$242 $(41)
Commercial real estate(318)(29)(6)(3)(3)
Agricultural— — (2)(6)— 
Residential real estate(20)(19)(63)(14)(266)
Consumer1,703 107 119 162 56 
Total$1,359 $393 $46 $381 $(254)
Net (recoveries) charge-offs (Quarter to Date annualized to average loans)0.39 %0.11 %0.01 %0.11 %(0.08)%
Net (recoveries) charge-offs (Year to Date annualized to average loans)0.17 %0.00 %0.00 %0.00 %(0.03)%
DELINQUENT AND NONACCRUAL LOANS
Accruing loans 30-89 days past due$2,226 $1,484 $7,938 $3,895 $715 
Accruing loans past due 90 days or more64 15 — 87 — 
Total accruing past due loans2,290 1,499 7,938 3,982 715 
Nonaccrual loans547 994 1,283 982 520 
Total past due and nonaccrual loans$2,837 $2,493 $9,221 $4,964 $1,235 

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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 61,560 shares or $1,190 of common stock during the first nine months of 2024, as compared to 55,456 shares or $1,208 of common stock during the same period in 2023. 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 $332 and $477 during the nine-month periods ended September 30, 2024 and 2023, respectively. We also grant restricted stock awards pursuant to the RSP. Pursuant to this plan, we increased shareholders’ equity by $71 during the first nine months of 2024, as compared to $219 during the same period in 2023.
We have publicly announced a common stock repurchase plan. Pursuant to this plan, we repurchased 124,969 shares or $2,419 of common stock during the first nine months of 2024 and 124,320 shares or $2,906 during the first nine months of 2023. As of September 30, 2024, we were authorized to repurchase up to an additional 145,837 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:
September 30
2024		June 30
2024		March 31
2024		December 31
2023		September 30
2023
Common equity tier 1 capital12.08 %12.37 %12.36 %12.54 %12.43 %
Tier 1 capital12.08 %12.37 %12.36 %12.54 %12.43 %
Total capital14.90 %15.29 %15.31 %15.52 %15.39 %
Tier 1 leverage8.77 %8.83 %8.80 %8.76 %8.77 %
Liquidity
Liquidity is monitored regularly by our ALCO, which consists of members of senior management. The committee reviews projected cash flows, key ratios, and liquidity available from both primary and secondary sources.
Our primary sources of liquidity are cash and cash equivalents and unencumbered AFS securities. These categories totaled $340,365, or 16.15% of assets, as of September 30, 2024, compared to $381,417, or 18.52%, as of December 31, 2023. The decrease in the amount and percentage of primary liquidity is a direct result of an increase in loans and a decrease in unencumbered AFS securities collateralizing non-market funding. Liquidity is important for financial institutions because of their need to meet loan funding commitments, depositor withdrawal requests, and various other commitments including expansion of operations, investment opportunities, and payment of cash dividends. Based on these same factors, daily liquidity could vary significantly.
Deposit accounts are our primary source of funds. Our secondary sources include the ability to borrow from the FHLB, from the FRB, and through various correspondent banks in the form of federal funds purchased and a line of credit. These funding methods typically carry a higher interest rate than traditional market deposit accounts. Some borrowed funds, including FHLB advances, FRB Discount Window advances, and repurchase agreements, require us to pledge assets, typically in the form of AFS securities or loans, as collateral. As of September 30, 2024, we had available lines of credit of $360,440.
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 September 30, 2024, which is illustrated in the following table:
September 30
2024		June 30
2024		March 31
2024		December 31
2023		September 30
2023
Total cash and cash equivalents$27,378 $23,559 $25,218 $33,672 $115,879 
Brokered CD capacity120,000 120,000 120,000 120,000 120,000 
Available lines of credit
Fed funds lines with correspondent banks93,000 93,000 93,000 93,000 73,000 
FHLB borrowings233,552 194,403 248,624 211,860 182,125 
FRB Discount Window28,888 28,148 28,083 28,220 27,785 
Other lines of credit5,000 5,000 5,000 5,000 5,000 
Total available lines of credit360,440 320,551 374,707 338,080 287,910 
Unencumbered lendable value of FRB collateral, estimated (1)
290,000 290,000 310,000 320,000 320,000 
Total cash and liquidity$797,818 $754,110 $829,925 $811,752 $843,789 
Uninsured deposits$687,990 $623,245 $658,564 $600,381 $615,633 
Coverage ratio of uninsured deposits with total cash and liquidity116 %121 %126 %135 %137 %
(1) Includes estimated unencumbered lendable value of FHLB collateral of $200,000 as of September 30, 2024.
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 table summarizes our interest rate sensitivity for 12 and 24 months as of September 30, 2024. The results displayed in the table reflect the modeling of immediate shifts in the yield curve and a flat balance sheet and may not reflect actual or expected changes.
September 30, 2024
12 Months24 Months
Immediate basis point change assumption (short-term)-200-100100200-200-100100200
Percent change in net interest income vs. constant rate(3.64)%(1.23)%4.15 %4.86 %(9.34)%(3.64)%6.44 %0.66 %
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 EndedNine Months Ended
September 30
2024		June 30
2024		March 31
2024		December 31
2023		September 30
2023		September 30
2024		September 30
2023
Net income$3,281 $3,481 $3,131 $3,803 $4,413 $9,893 $14,364 
Nonrecurring items:
Net gains on sale of AFS securities— — — — — — 67 
Net gains (losses) on foreclosed assets4 6 69 8 75 79 150 
Other (1)
(1,622)— — — — (1,622)— 
Income tax impact340 (1)(14)(2)(16)324 (46)
Total nonrecurring items(1,278)5 55 6 59 (1,219)171 
Adjusted net income(A)$4,559 $3,476 $3,076 $3,797 $4,354 $11,112 $14,193 
Noninterest expenses$13,228 $12,895 $12,676 $11,915 $12,658 $38,799 $37,395 
Amortization of acquisition intangibles— 1 — 1 — 1 2 
Adjusted noninterest expense(B)$13,228 $12,894 $12,676 $11,914 $12,658 $38,798 $37,393 
Net interest income$14,488 $13,550 $13,242 $13,612 $14,302 $41,280 $44,332 
Tax equivalent adjustment for net interest margin232 237 246 246 250 716 777 
Net interest income (FTE)(C)14,720 13,787 13,488 13,858 14,552 41,996 45,109 
Noninterest income3,528 3,608 3,468 3,516 3,414 10,604 10,311 
Tax equivalent adjustment for efficiency ratio53 53 51 50 48 157 143 
Adjusted revenue (FTE)18,301 17,448 17,007 17,424 18,014 52,757 55,563 
Nonrecurring items
Net gains on sale of AFS securities— — — — — — 67 
Net gains (losses) on foreclosed assets4 6 69 8 75 79 150 
Total nonrecurring items4 6 69 8 75 79 217 
Adjusted revenue(D)$18,297 $17,442 $16,938 $17,416 $17,939 $52,678 $55,346 
Efficiency ratio(B/D)72.30 %73.93 %74.84 %68.41 %70.56 %73.65 %67.56 %
Average earning assets(E)1,967,552 1,948,173 1,943,758 1,943,937 1,927,906 1,953,207 1,929,890 
Net yield on interest earning assets (FTE)(C/E)2.98 %2.85 %2.79 %2.83 %2.99 %2.87 %3.13 %
(1) Provision for credit losses impact of a $1,622 charge-off related to overdrawn deposit accounts from a single customer.
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Three Months EndedNine Months Ended
September 30
2024		June 30
2024		March 31
2024		December 31
2023		September 30
2023		September 30
2024		September 30
2023
Average assets(F)2,095,200 2,067,211 2,066,757 2,053,437 2,041,129 2,076,454 2,043,686 
Average shareholders' equity(G)208,444 200,734 203,434 188,958 190,957 204,221 191,375 
Average tangible shareholders' equity(H)160,161 152,451 155,150 140,674 142,672 155,938 143,089 
Average diluted shares outstanding (2)
(I)7,473,184 7,494,828 7,507,739 7,526,515 7,570,374 7,492,404 7,591,664 
Adjusted diluted earnings per share(A/I)$0.61 $0.46 $0.41 $0.50 $0.58 $1.48 $1.87 
Adjusted return on average assets(A/F)0.87 %0.68 %0.60 %0.73 %0.85 %0.71 %0.93 %
Adjusted return on average shareholders' equity(A/G)8.70 %6.96 %6.08 %7.97 %9.05 %7.27 %9.92 %
Adjusted return on average tangible shareholders' equity(A/H)11.32 %9.17 %7.97 %10.71 %12.11 %9.52 %13.26 %
(2) Whole shares
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 September 30, 2024, 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 September 30, 2024, 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, 2023.
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 28, 2021, to allow for the repurchase of an additional 500,000 shares of common stock after that date. These authorizations do not have expiration dates. As 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 September 30, 2024, with respect to this plan:
 Common Shares RepurchasedTotal Number of Common Shares Purchased as Part of Publicly Announced Plan or ProgramMaximum Number of Common Shares That May Yet Be Purchased Under the Plans or Programs
NumberAverage Price
Per Common Share
June 30, 2024198,713 
July 1 - 319,656 $18.43 9,656 189,057 
August 1 - 3137,768 19.36 37,768 151,289 
September 1 - 305,452 19.81 5,452 145,837 
September 30, 202452,876 $19.23 52,876 145,837 
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 September 30, 2024, 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 NumberExhibits
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)
104Cover Page Interactive Data File
*    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.
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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:November 14, 2024/s/ Jerome E. Schwind
Jerome E. Schwind
President and Chief Executive Officer
(Principal Executive Officer)
Date:November 14, 2024/s/ William M. Schaefer
William M. Schaefer
Chief Financial Officer
(Principal Financial Officer)
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