Isabella Bank Corp.
Annual Report 2009

Plain-text annual report

For your today and their tomorrow. INVEST locally Annual Report 2009 Isabella Bank Corporation Isabella Bank Corporation, with $1.14 billion in assets and $1.74 billion in assets under management, is the parent company of Isabella Bank. Founded in 1903, Isabella Bank is now the eighth largest bank in asset size headquartered in Michigan. Isabella Bank has 24 offices located throughout Clare, Gratiot, Isabella, Mecosta, Montcalm, and Saginaw counties. Table of Contents year in review financial highlights & industry updates financial data page 3 page 6 page 9 $1,139,263 $268,230 $735,385 $11,982 $775,630 $134,476 $61,385 $35,779 $9,500 $4,101 $0.55 $0.65 $17.89 $01 1.80% 2.85 $957,282 $238,191 $612,687 $7,301 $733,473 $123,080 $53,972 $28,013 $7,211 $7,930 $1.14 $0.62 $17.58 $40.00 12.86% 6.65% 54.27% 0.8% $5,127 $213,450 $591,042 $7,605 $725,840 $115,749 $44,709 $24,977 $682 $7,001 $1.12 $0.58 $16.61 $40.00 12.72% 7.61% 53.89% 0.87% $592,478 $80,902 $36,882 $23,909 $777 $6,77 $1.14 $0.55 $13.44 $36.36 10.91% 9.07% 48.02% 0.97% $678,034 $162,553 $452,895 $563,876 $72,594 $33,821 $23,364 $735 $6,645 $1.13 $0.52 $12.25 $34.711 0.71% 9.39% 46.20% .98% $1,139,263 $268,230 $6,982 $630 $134,476 $61,385 $35,779 $9,500 $4,101 $0.55 $0.65 $17.89 11.80% 2.85% 735% 118.82% 0.37% $957,282 $238,191 $612,687 $7,301 $733,473 $123,080 $53,972 $28,013 $1,211 $7,930 $1.14 $0.62 $17.58 $40.00 12.86% 6.65% 54.27% 0.8% %10,127 $3,450 $591,042 $5 $725,840 $115,749 $44,709 $24,977 $682 $7,001 $1.12 $0.58 $16.61 $40.00 12.72% 7.61% 53.89% 0.87% $741,654 $183,406 $483,242 $6,899 $592,478 $80,902 $36,882 $23,909 $777 $6,77 $1.14 $0.55 $13.44 $36.36 10.91% 9.07% 48.02% 0.97% $678,034 $162,553 $452,895 $6,444 $563,876 $72,594 $33,821 $23,364 $735 $6,645 $1.13 $0.52 $12.25 $34.71 10.71% 9.39% 46.20% 0.98% $213,450 $452,895 $6,444 $563,876 $72,594 $33,821 $23,364 $735 $6,645 $1.13 $0.52 $12.25 $34.71 10.71% 9.39% 46.20% 0.98% $213,450 2009 headlines board of directors & senior officers page 13 page 16 Mission Statement To create an operating environment that will provide shareholders with sustained growth in their investment while maintaining our independence and subsidiaries autonomy. Stock Information Isabella Bank Corporation common stock is listed ISBA on the Pink Sheets OTC Market. under Current stock price and availability can be obtained by contacting the financial advisors of Raymond located at James Financial Services Isabella Bank or through any other licensed broker. 2009 Year in Review By the end of 2009, we had nearly 500 Mobile Banking users. We also introduced a service called Quick and Simple Payments to help our local businesses offer a more convenient way for their customers to make payments to them electronically, without having to write a check. We believe that by offering innovative products and services such as these, we year in review In 2009, banks in Michigan experienced historic levels of loan defaults and massive increases in Federal Deposit Insurance Corporation (FDIC) premiums. Isabella Bank Corporation has not only survived these turbulent economic conditions but we emerged stronger and healthier; retaining earnings and paying healthy dividends. Equally important, we have not lost sight of our community bank heritage and avoided falling prey to the outside influences that created so many problems for other organizations. During challenging years such as 2009, the true test of a bank’s financial strength and stability can best be measured by how effectively they adapt to changes. Below is a quote written by R. Perry Shorts about Isabella Bank that speaks well to this and is especially relevant during today’s difficult economy. In this speech, delivered in 1957 honoring John Benford (President of Isabella County State Bank from 1949-1957), Shorts wrote: “…and the one thing that a Bank is proudest of, is old age— for old age to a Bank is best proof of its ability to survive the ups and downs of business life, especially the downs.” RICHARD J. BARZ Chief Executive Officer that is a reminder This quote Isabella Bank has including experienced several cyclical ups and downs, the Great Depression, during our 106 year history. While 2009 was a difficult year for the banking industry, we have weathered the storm and quite frankly Isabella Bank is doing very well. It was our ability to adapt to changes in the economy, respond efficiently to changes in regulations, and support from our local communities that helped us through a challenging year. Isabella Bank Corporation's net income, earnings per share, and cash dividends all posted increases compared to year-end 2008. In fact, 2009 marked the 28th consecutive year that the Corporation increased cash dividends. JAMES C. FABIANO Chairman of the Board Net Income Earnings Per Share Cash Dividends 2009 $7.80 million $1.04 $0.70 2008 $4.10 million $0.55 $0.65 page 3 We recognize that there are always opportunities for us to improve in this area and in 2009 we dedicated significant time and resources to employee development. We are con- stantly challenging our staff by offering Dale Carnegie training courses, leadership classes, and most recently in 2010 bank-wide service excellence training. We believe that invest- When compared to our peer group averages in Michigan and across the country in 2009, Isabella Bank had higher income. In fact, Isabella Bank had the second highest net income of the 132 banks headquartered in the state of Michigan. Later in Dennis Angner’s letter, you will see a detailed analysis of how Isabella Bank Corporation compared with other bank holding companies on a national We owe our performance to a seasoned staff that remains focused on fundamental banking practices, strict adherence to credit risk policies, diligent asset-liability management, and holding true to our primary mission - to serve the needs of our local communities. level. "This past year, when few banks were in a position to lend, we stood apart from our competition. We were able to tell our story as a safe and strong community bank, still committed to lending in our local communities." to help our local businesses offer a more convenient way for their customers to make payments to them electronically, without having to write a check. We believe that by offering innovative products and services such as these, we maintain a competitive edge in the marketplace. banking industry certainly The faced many challenges in 2009, but for well capitalized banks, such as Isabella Bank, there were great opportunities. This past year, when few banks were in a position to lend, we stood apart from our competition. We were able to tell our story as a safe and strong community bank still committed to lending in our local communities. As a result, we were able to deepen many of our relationships with existing customers and also attract new customers. While many financial institutions avoided expansion, our financial position allowed us to complete many projects to better serve our customers. We know that the more accessible we are, the more competitive we are. In 2009, we completed our addition at one of our busiest offices located on East Pickard Street in Mt. Pleasant. We also added a drive-thru facility to our newest office at Lake Isabella. Both offices have seen an increase in their resources customer activity as a invested in them. In addition, we moved our Corporate Office to Main Street in Mt. Pleasant to accomodate our growth. result of the During 2009, our Trust Department and the Raymond James brokerage services moved together under one convenient location. Each team brings a unique set of expertise to offer customers the most appropriate products and services to meet their financial needs. In addition, offering one location has brought more awareness of the services they offer. The Trust Department and Raymond James brokerage services have been large contributors to our financial success and we look forward to the future growth of these areas. In addition to physical expansion, we also added new electronic services for the convenience of our customers. Mobile Banking, which is the ability to view our online banking from a mobile device, was available to customers in November. By the end of 2009, we had nearly 500 Mobile Banking users. We also introduced a service called Quick and Simple Payments page 4 While our ability to lend and our expansion projects have certainly differentiated us from our competition, we also believe that our ability to deliver excellent customer service presents a unique opportunity as well. We recognize that there are always opportunities for us to improve in this area and in 2009 we dedicated significant employee development. We are constantly challenging our staff by offering Dale Carnegie training courses, leadership classes, and most recently in 2010 bank-wide service excellence training. We believe that investments in our employees’ development will strengthen our organization and give us a competitive edge now and in the future. resources time and to Our employees are a key element of the Corporation’s success. At this time we would like to recognize three employees; Patrick Mease, Chuck Amble, and Tom Gross for their contributions to Isabella Bank and their promotions during 2009. Mr. Mease was promoted to Assistant Vice President of Human Resources and is responsible for planning and coordinating the Bank’s training programs. As discussed earlier, Isabella Bank is committed to employee development and Mr. Mease is an integral part of this initiative. Mr. Amble was promoted to Assistant Vice President of our Collection Department. With increases in loan delinquencies, it is essential that banks have employees who can work with customers through tough financial times. Mr. Amble is one of these individuals and a great asset to our team. Mr. Gross was promoted to Assistant Vice President of Commercial Lending. Banking has changed over the years and it is more important than ever for us to actively seek business development opportunities. Mr. Gross is a large contributor to the success that we have experienced in our business development area. Thank you gentlemen for your dedication to our Bank. In addition to our 2009 promotions, we would like to recognize and congratulate Michael Huenemann, Greg Mapes, and Jerome Schwind as our recent graduates from the prestigious Graduate School of Banking in Madison, Also in a January 2010 press release, we announced that the Board approved a resolution stating their current intent to pay future dividends in equal quarterly amounts. This will assist current and prospective shareholders in calculating the Corporation’s dividend yield and is consistent with industry practice. At the Corporation’s February meeting, the Board Wisconsin. The Graduate School of Banking is a three year program that gives attendees tools and best practices to apply to their current bank positions. This intense program takes many hours outside of work and we would like to thank Mr. Huenemann, Mr. Mapes, and Mr. Schwind for their hard work and dedication. On a solemn note, we would like to recognize two of our board members who passed away in 2009, Warren McGuire and Robert R. Smith. Mr. McGuire was a long term board member who served on our Farwell Board. Warren was an avid the Farwell and Clare communities with supporter of successful business interests in both areas. Mr. Smith was a long term board member of our Breckenridge Board where he served as Chairman. Bob retired from Total Petroleum and was active in several Breckenridge and Gratiot community organizations. We were deeply saddened by their deaths and they will be greatly missed. We would also like to recognize four members of our boards who retired; Nancy Shankel from our Breckenridge Board, Dean Beavers from our Farwell Board, and Todd Taylor and William Ham from our Greenville Board. Thank you for your contributions and dedication to Isabella Bank. Although this letter focuses primarily on 2009, we would like to mention that in January 2010 the Corporation’s Board of Directors approved the proposal to have identical board membership at the Corporation and Bank levels. As a result of these changes Isabella Bank Corporation and Isabella Bank now have common board membership. The Board believes common board membership will improve corporate governance and will lead to decreased costs. In addition to the Isabella Bank Board of Directors and the Isabella Bank Corporation Board of Directors, we have local boards in our Breckenridge, Farwell, Greenville, and Mecosta communities. These boards are essential to us as a community bank. They ensure that customers in each of our locations are represented by members of their own communities and that local people are making the decisions. Also in a January 2010 press release, we announced that the Board approved a resolution stating our current intent to pay future dividends in equal quarterly amounts. This will assist current and prospective shareholders in calculating the Corporation’s dividend yield and is consistent with industry practice. At the Corporation’s February meeting, the Board instituted the change in quarterly dividend payments. The Board approved an $0.18 cash dividend payable on March 31, 2010. Of course, any future dividend payments will depend upon the Corporation’s financial position and the action by the Board at that time. In closing, we would like to express our gratitude to you; our shareholders, our customers, our employees and our communities. It is your support that has helped us through challenging economies and it is your support that will help lead us into the future. We look forward to working together this year. 2009 Expansion Projects Investment & Trust Services Corporate Offices Lake Isabella East Pickard page 5 Financial Highlights and Industry Updates The Corporation’s asset quality as of December 31, 2009 continues to be strong as evidenced by the relatively low percentage of the total loans, 1.28%, that are classified as “non-performing.” This compares very favorably to the average of all banks in the state of Michigan at 4.43%. While overall assets quality remains excellent in this difficult "In 2009, Isabella Bank Corporation’s net income was $7.80 million, an increase of $3.70 million when compared to year-end 2008." favorably to the average of all banks in the state of Michigan at 4.43%. While overall asset quality remains excellent in this difficult economy, net charged-off in 2009 were $5.1 million, which while down slightly from 2008, were still above historical levels. The average of loans charged-off to total loans from 2000 to 2007 was 0.14% versus 0.79% in 2008 and 0.70% in 2009. loans As a result of the increased number of bank failures during the past two years, the FDIC insurance premiums for banks have risen sharply. FDIC insurance and the associated regulatory costs are fully funded by industry premiums and are based upon a 1 to 4 tier risk based premium assessment. A bank rated with a 1 has the lowest risk and the lowest premium while a Tier 4 bank has the highest risk and the highest premium. Although Isabella Bank is currently assessed as a Tier 1 bank, our premiums increased $1.42 million in 2009. The elevated cost associated with FDIC insurance is expected to continue into the foreseeable future. The banking industry is one of the most heavily regulated industries in the United States. Isabella Bank complies with regulations imposed by the FDIC, Michigan’s Office of Financial and Insurance Regulation, the Federal Reserve Board of Governors, and the Department of Housing and Urban Development, just to name a few. Once a year a team of about 15 to 20 Federal and State examiners spend approximately 3 weeks examining our loan quality, computer and backroom operations, and our compliance with regulations such as the Bank Secrecy Act. Then every 18 months, another team of 10 to 15 examiners will review our compliance with consumer compliance laws and ensure we are meeting the needs of our communities as required by the Community Reinvestment Act (CRA). Preparing monthly and quarterly reports, monitoring operations for compliance with the vast number of regulations, and preparing information for examinations are ongoing projects for our employees. DENNIS P. ANGNER President and Chief Financial Officer 2009 Financial Highlights & Industry Updates • Net income of $7.80 million • Assets of $1.14 billion • Book value of $18.69 per share • Net interest income on a fully taxable basis increased $2.46 million, a 6.4% increase In 2009, Isabella Bank Corporation’s net income was $7.80 million, an increase of $3.70 million when compared to year-end 2008. Like banks in Michigan and across the country, our earnings continue to be impacted by elevated loan charge-offs (compared to historical norms), increases in Federal Deposit Insurance Corporation (FDIC) premiums, and the ongoing costs of complying with regulatory changes. The Corporation estimates that these factors have had a combined negative impact on earnings of approximately $0.56 per share. The Corporation’s asset quality as of December 31, 2009 continues to be strong as evidenced by the relatively low percentage of the total loans, 1.28%, that are classified as “non-performing.” This compares very The reporting and monitoring requirements that a bank must have in place to remain in compliance with the different regulators is very complex. The Corporation is required to submit monthly financial reports to our primary regulator, the Federal Reserve. page 6 . A bank rated with a 1 has the lowest risk and the lowest premium while a Tier 4 bank has the highest risk and the highest premium. Although Isabella Bank is currently assessed as a Tier 1 bank, our premiums increased $1.42 million in 2009. The elevated cost associated with FDIC insurance is expected to continue into the foreseeable future. The banking On a quarterly basis, we submit an extremely detailed report for the Bank and the parent company, Isabella Bank Corporation. In addition, there are accounting standards required under the Financial Accounting Standards Board and the Public Company Accounting Oversight Board which govern the content and disclosures of our financial statements and notes and the auditing of these public reports. The Corporation must also meet the Securities Act of 1933 and the Securities Exchange Act of 1934. requirements of the shareholders to comply with Each year, we send out many communication pieces to our customers and these regulatory requirements. For example, we are required under the Bank Secrecy Act to send out a privacy policy annually to each of our customers. For banks like ours, who never have nor will ever share our customers' information with a third party, it is an expensive cost to incur to notify them that we do not share or sell information. Another example of a compliance driven communication piece is the Proxy Statement and Annual Report included in this mailing. We realize this information can be overwhelming so we spend a great deal of time and effort to ensure our communication pieces are user-friendly. While the costs to keep the Corporation in compliance with these numerous and complex laws are staggering, the monetary costs of non-compliance and other could be devastating. Our non-financial penalties backroom staff of professionals does a tremendous job ensuring the Corporation’s compliance with these complex and burdensome regulations. And as important, they do so while making sure that we still maintain our high level of customer service. Peer Group Comparison We subscribe to reports that compare the financial performance of Isabella Bank Corporation to other bank holding companies in the United States who are similar in size ($1.0 billion-$3.0 billion in assets). In all, there are 296 bank holding companies in our peer group. There are several key ratios that we use to monitor the strength and soundness of Isabella Bank: (1) Return on Assets; (2) Problem Loans; (3) Risked Based Capital to Risk Weighted Assets; and (4) Problem Loans to Allowance for Bad Debt. We exceeded the performance of our peer group in all four areas. (As of 12/31/09) RETURN ON ASSETS (ROA) Isabella Peer Group 0.69% -0.25% ROA measures net income by the average asset size of the bank holding company. Isabella Bank Corporati on's ROA in 2009 exceeded the peer group by 0.94%. The peer group is sti ll struggling with extensive loan losses with hopes of improvement in 2010. PROBLEM LOANS Isabella Peer Group 1.28% 3.49% Problem Loans measures the percentage of loans that are over 90 days past due and placed in non-accrual because interest collecti on is doubtf ul. Isabella Bank Corporati on's total problem loans as a percentage of loans were almost 2.73 ti mes lower than our peer group. RISK BASED CAPITAL TO RISK WEIGHTED ASSETS Isabella Peer Group 14.06% 11.79% Risk based capital to risk weighted assets measures the amount of capital held against risk based assets. The Corporati on’s rati o of 14.06% is excepti onally strong when compared to the required rati o of 10.0% necessary the to be considered adequately capitalized under Federal Reserve Board’s risk based capital rules. The Corporati on conti nues to be profi table, well capitalized and has funds available to meet its customers’ borrowing needs. PROBLEM LOANS TO ALLOWANCE FOR BAD DEBT Isabella Peer Group 139.68% 79.92% Problem loans to allowance for bad debt measures the amount of reserves needed for possible loan losses on non-performing loans. Isabella Bank Corporati on has $1.00 in reserves for every $0.72 of non-performing loans, which means Isabella Bank Corporati on has more in reserve than we have problem loans. This is considered a very safe and conservati ve practi ce. The peer group has $1.00 in reserves for every $1.25 of non-performing loans, which is substanti ally less in reserves to absorb future loan losses from their problem loans. Bauer Financial, Inc. recognized Isabella Bank in November 2009 with the disti nguished 4-Star Excellent rati ng. The 4-star rati ng is a symbol of excellence and signifi es that we are recommended by Bauer Financial. The rati ng is based on the overall fi nancial conditi on of Isabella Bank. Earning a 4-Star Excellent rati ng denotes we are among the strongest banks in the nati on. We have proudly maintained a recommended rati ng for 80 consecuti ve quarters. page 7 Invest Locally Invest Locally. It is about about our customers, it is about our communities, and it is about you, our shareholders. Since 1903, invest locally has described how dollars deposited at Isabella Bank are used to help local growth. Financial Data $7.80 million net income $1.74 billion assets under management $1,139,263 $268,230 $735,385 $11,982 $775,630 $134,476 $61,385 $35,779 $9,500 $4,101 $0.55 $0.65 $17.89 $01 1.80% 2.85 $957,282 $238,191 $612,687 $7,301 $733,473 $123,080 $53,972 $28,013 $7,211 $7,930 $1.14 $0.62 $17.58 $40.00 12.86% 6.65% 54.27% 0.8% $5,127 $213,450 $591,042 $7,605 $725,840 $115,749 $44,709 $24,977 $682 $7,001 $1.12 $0.58 $16.61 $40.00 12.72% 7.61% 53.89% 0.87% $592,478 $80,902 $36,882 $23,909 $777 $6,77 $1.14 $0.55 $13.44 $36.36 10.91% 9.07% 48.02% 0.97% $678,034 $162,553 $452,895 $563,876 $72,594 $33,821 $23,364 $735 $6,645 $1.13 $0.52 $12.25 $34.711 0.71% 9.39% 46.20% .98% $1,139,263 $268,230 $6,982 $630 $134,476 $61,385 $35,779 $9,500 $4,101 $0.55 $0.65 $17.89 11.80% 2.85% 735% 118.82% 0.37% $957,282 $238,191 $612,687 $7,301 $733,473 $123,080 $53,972 $28,013 $1,211 $7,930 $1.14 $0.62 $17.58 $40.00 12.86% 6.65% 54.27% 0.8% %10,127 $3,450 $591,042 $5 $725,840 $115,749 $44,709 $24,977 $682 $7,001 $1.12 $0.58 $16.61 $40.00 12.72% 7.61% 53.89% 0.87% $741,654 $183,406 $483,242 $6,899 $592,478 $80,902 $36,882 $23,909 $777 $6,77 $1.14 $0.55 $13.44 $36.36 10.91% 9.07% 48.02% 0.97% $678,034 $162,553 $452,895 $6,444 $563,876 $72,594 $33,821 $23,364 $735 $6,645 $1.13 $0.52 $12.25 $34.71 10.71% 9.39% 46.20% 0.98% $213,450 $0.70 2009 cash dividends Summary of Financial Data Historical Comparison The Corporation’s asset quality as of December 31, 2009 continues to be strong as evidenced by the relatively low percentage of the total loans, 1.28%, that are classified as “non-performing.” This compares very favorably to the average of all banks in the state of Michigan at 4.43%. While overall assets quality remains excellent in this difficult fi nancial data fi nancial data (Dollars in thousands except per share data) Income Statement Data Total Interest Income Net Interest Income Provision for Loans Losses Net Income Balance Sheet Data End of Year Assets Daily Average Assets Daily Average Deposits Daily Average Loans/Net Daily Average Equity *Per Share Data Earnings Per Share Basic Diluted Cash Dividends Book Value (Year End) Market Value (Year End) Financial Ratios Shareholders' Equity to Assets (Year End) Return on Average Equity Return on Average Tangible Equity Cash Dividend Payout to Net Income Return on Average Assets *Retroactively restated for the 10% stock dividend paid on February 29, 2008 2009 2008 2007 2006 2005 $ 58,105 $ 38,266 $ 6,093 $ 7,800 $ 61,385 $ 35,779 $ 9,500 $ 4,101 $ 53,972 $ 28,013 $ 1,211 $ 7,930 $ 44,709 $ 24,977 $ 682 $ 7,001 $ 36,882 $ 23,909 $ 777 $ 6,776 $ 1,143,944 $ 1,139,263 $ 1,127,634 $ 1,113,102 $ 786,714 $ 712,965 $ 139,810 $ 817,041 $ 708,434 $ 143,626 $ 957,282 $ 925,631 $ 727,762 $ 596,739 $ 119,246 $ 910,127 $ 800,174 $ 639,046 $ 515,539 $ 91,964 $ 741,654 $ 700,624 $ 576,091 $ 459,310 $ 74,682 $ 1.04 $ 1.01 $ 0.70 $ 18.69 $ 18.95 12.31% 5.58% 8.54% 67.40% 0.69% $ 0.55 $ 0.53 $ 0.65 $ 17.89 $ 25.50 11.80% 2.86% 4.41% 118.82% 0.37% $ 1.14 $ 1.11 $ 0.62 $ 17.58 $ 40.00 12.86% 6.65% 8.54% 54.27% 0.86% $ 1.12 $ 1.09 $ 0.58 $ 16.61 $ 40.00 12.72% 7.61% 8.31% 53.92% 0.87% $ 1.14 $ 1.14 $ 0.55 $ 13.44 $ 36.36 10.91% 9.07% 9.12% 48.02% 0.97% page 10 This past year, when few banks were in a position to lend, we stood apart from our competition. We were able to tell our story as a safe and strong community bank still committed to lending in our local communities. As a result, we were able to deepen many of our relationships with existing customers and also attract new customers. Total Assets Dividends Per Share* *Retroactively restated for the 10% Stock Dividend Paid on February 29, 2008 1,000 900 800 700 600 500 400 ) s n o i l l i M - s r a l l o D ( 8,000 7,000 6,000 5,000 4,000 3,000 2,000 ) s d n a s u o h T - s r a l l o D ( 0.7 0.6 0.5 0.4 0.3 0.2 0.1 ) s r a l l o D ( 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Net Income Ending Stock Price* *Retroactively restated for the 10% Stock Dividend Paid on February 29, 2008 ) s r a l l o D ( 40 35 30 25 20 15 10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 page 11 Invest Locally As a community bank, our customers’ hard-earned dollars grow locally while helping others in the community buy a new home, purchase a car, or start a business. Invest Locally describes your commitment as shareholders to support a local company that is locally managed. And finally, Invest Locally speaks to our commitment to help our customers and communities grow and prosper. growth & product commitment to our shareholders innovation community support $1,139,263 $268,230 $735,385 $11,982 $775,630 $134,476 $61,385 $35,779 $9,500 $4,101 $0.55 $0.65 $17.89 $01 1.80% 2.85 $957,282 $238,191 $612,687 $7,301 $733,473 $123,080 $53,972 $28,013 $7,211 $7,930 $1.14 $0.62 $17.58 $40.00 12.86% 6.65% 54.27% 0.8% $5,127 $213,450 $591,042 $7,605 $725,840 $115,749 $44,709 $24,977 $682 $7,001 $1.12 $0.58 $16.61 $40.00 12.72% 7.61% 53.89% 0.87% $592,478 $80,902 $36,882 $23,909 $777 $6,77 $1.14 $0.55 $13.44 $36.36 10.91% 9.07% 48.02% 0.97% $678,034 $162,553 $452,895 $563,876 $72,594 $33,821 $23,364 $735 $6,645 $1.13 $0.52 $12.25 $34.711 0.71% 9.39% 46.20% .98% $1,139,263 $268,230 $6,982 $630 $134,476 $61,385 $35,779 $9,500 $4,101 $0.55 $0.65 $17.89 11.80% 2.85% 735% 118.82% 0.37% $957,282 $238,191 $612,687 $7,301 $733,473 $123,080 $53,972 $28,013 $1,211 $7,930 $1.14 $0.62 $17.58 $40.00 12.86% 6.65% 54.27% 0.8% %10,127 $3,450 $591,042 $5 $725,840 $115,749 $44,709 $24,977 $682 $7,001 $1.12 $0.58 $16.61 $40.00 12.72% 7.61% 53.89% 0.87% $741,654 $183,406 $483,242 $6,899 $592,478 $80,902 $36,882 $23,909 $777 $6,77 $1.14 $0.55 $13.44 $36.36 10.91% 9.07% 48.02% 0.97% $678,034 $162,553 $452,895 $6,444 $563,876 $72,594 $33,821 $23,364 $735 $6,645 $1.13 $0.52 $12.25 $34.71 10.71% 9.39% 46.20% 0.98% $213,450 employee recognition local decision-making Community Banking at its Best 2009 Isabella Bank Headlines In this electronic age, many businesses are looking for more convenient ways to accept payments. This year we introduced Quick and Simple Payments which gave our business owners the capability to accept payments online. This service provided a win-win for both our business customers and their clients. Businesses receive payments directly into growth Growth and Product Innovation To remain competitive, it is essential that we offer innovative products and services that meet the ever-changing needs of our customers. In 2009, we completed several expansion projects to better serve the needs of our customers. Expansion Projects East Pickard in Mt. Pleasant Drive-thru added at Lake Isabella Isabella Bank Corporate Offices Trust and Investment Services Center Electronic Payment Services In this electronic age, many businesses are looking for more convenient ways to accept payments. This year we introduced Quick and Simple Payments which gave our business owners the capability to accept payments online. This service provided a win-win for both our business customers and their clients. Businesses receive payments directly into their account and their clients have another convenient option to make a payment. eFunds for Schools Gone are the days of sending our kids to school with a check or cash and worrying about the money being lost. Great for parents and great for schools, eFunds lunches or allows parents to pay for their child’s athletic fees electronically using an online service to deduct the payment directly from their bank account. MOBILE BANKING Many of our customers utilize their mobile device for much more than placing calls. Texts, online access, and organizational tools make mobile devices an essential tool for many of our customers. In 2009, mobile banking was added to our online banking suite of products. This service check account balances, allows transfer funds, and pay bills using their mobile device. customers to TRANSFER FUNDS PAY BILLS CHECK BALANCES From the Convenience of Your Mobile Phone Go to www.isabellabank.com for more informati on commitment Commitment to Our Shareholders In 2009, the Investor Relations Link at www.isabellabank.com was updated with a goal of providing another way for shareholders, customers, and the local communities to access our corporate information. Visitors can view the Isabella Bank Corporation stock price, financial statements, press releases, SEC filings, annual reports, and learn more about the Isabella Bank Corporation Board of Directors. The new site also has an email notification feature that alerts subscribers when new information has been added. 2009 Dividend History 1st Quarter $0.12 2nd Quarter $0.13 3rd Quarter $0.13 4th Quarter $0.13 Special Year End $0.19 TOTAL $0.70 Closing Stock Price (December 31, 2009) : $18.95 Dividend Yield (December 31, 2009): 3.69% page 14 The new site also has an email notification feature that alerts subscribers when new information has been added.Our financial literacy program reached over 2,700 students throughout Clare, Gratiot, Isabella, Mecosta, Montcalm, and Saginaw counties in 2009. The program focuses on teaching saving skills and credit awareness to students of all community Giving Back to Our Community Financial Literacy Our financial literacy program reached over 2,700 students throughout Clare, Gratiot, Isabella, Mecosta, Montcalm, and Saginaw counties in 2009. The program focuses on teaching saving skills and credit awareness to students of all ages. Over 50 employees volunteered their time through events such as job shadow day, bank tours, and other school programs. OUR PART “Our Part” included a special interest rate on certificates of deposits and business loans. This demonstrated the positive momentum that dollars have when they are deposited locally and reinvested right back into our local communities. During a year when the media painted a negative stroke across all members of the banking industry, “Our Part” created a great way to prove that we remain devoted to our local communities, we continue to have money to lend, and we are dedicated to helping our customers earn more on their hard-earned dollars. We believe in supporting local organizations to help strengthen our communities. This is a philosophy that we believe in as a company and it is a philosophy that our employees strongly believe in. employees 2009 Isabella Bank Award Recipients At the core of any successful business is a group of talented and engaged employees. The Bank selected eight recipients of the prestigious “Izzy” award and two teams to receive the Team of the Year Award. Employees and teams were nominated by teamwork, their peers innovation, and customer service. The winners were then selected by a panel comprised of the local Presidents. their outstanding for 2009 “Izzy” winners: Tama Acker Amy Andersen Linda Connell Paul Craddy Tammy Kenny Karen Lewandowski Debbie Markley Sharon Parks Accounting Six Lakes Big Rapids FGIS Mt. Pleasant Farwell Breckenridge Human Resources 2009 Team of the Year winners: Collections Department Chuck Amble, Beth Beltinck, Kim Betts, Julie Bolt, Kathy Clouse, Don Forster, Liz Gregus, Dan Sanders Greenville Teller Line Angie Antcliff, Lezlie Cushion, Elizabeth Guzman, Doris Rhines, Jodi Schofield, Mary Sepanik, Jillian Smith, Lois Solomon, Holly Vermeulen 359 3,716 years of service bank employees 3,300 volunteer hours page 15 Local Decision-Making Board of Directors and Senior Officers Although this letter focuses primarily on 2009, we would like to mention that in January 2010 the Corporation’s Board of Directors approved the proposal to have identical board membership at the Corporation and Bank levels. As a result of these changes Isabella Bank Corporation and Isabella Bank now have common board membership. The Isabella Bank Corporation and Isabella Bank Board of Directors Back Row: W. Michael McGuire | G. Charles Hubscher | Joseph LaFramboise | Ted W. Kortes | Jeffrey J. Barnes Richard J. Barz | Thomas L. Kleinhardt | W. Joseph Manifold Middle: Dianne C. Morey | Sandra L. Caul Front Row: David J. Maness | James C. Fabiano | William J. Strickler | Dennis P. Angner | Dale D. Weburg JAMES C. FABIANO - Chairman Chairman - Fabiano Brothers, Inc. TED W. KORTES President and CEO - Greenville Community Financial Corporation (retired) RICHARD J. BARZ Chief Executive Officer - Isabella Bank Corporation W. JOSEPH MANIFOLD, CPA President - Federal Broach & Machine Co. DENNIS P. ANGNER President and Chief Financial Officer - Isabella Bank Corporation DAVID J. MANESS President - Maness Petroleum Corporation JEFFREY J. BARNES, MD Physician and Owner - Central Eye Consultants SANDRA L. CAUL State Representative (retired) G. CHARLES HUBSCHER President - Hubscher and Son, Inc. JOSEPH LaFRAMBOISE Sales and Marketing Executive - Ford Motor Company (retired) THOMAS L. KLEINHARDT President - McGuire Chevrolet W. MICHAEL McGUIRE Attorney - The Dow Chemical Company DIANNE C. MOREY Owner - Bandit Industries, Inc. WILLIAM J. STRICKLER President - Michiwest Energy, Inc. DALE D. WEBURG Partner - Weburg Farms, Inc. page 16 In addition to the Isabella Bank Board of Directors and the Isabella Bank Corporation Board of Directors, we have local boards in our Breckenridge, Farwell, Greenville, and Mecosta communities. These boards are essential to us as a community bank. They ensure that customers in each of our locations are represented by members of their own Isabella Bank Corporation Officers RICHARD J. BARZ Chief Executive Officer DENNIS P. ANGNER President and Chief Financial Officer PEGGY L. WHEELER Senior Vice President GREGORY S. MAPES Vice President DOUGLAS D. McFARLANE Vice President BARBARA A. PLACE, CPA Vice President PATRICIA A. PLAXTON Vice President AMY C. VOGEL Vice President Isabella Bank Officers RICHARD J. BARZ President and Chief Executive Officer STEVEN D. PUNG Chief Operations Officer DAVID J. REETZ Senior Vice President JAMES L. BINDER Vice President RANDY J. DICKINSON, CPA Vice President BARBARA B. DIEHM Vice President DANIEL E. EVERSOLE Vice President DAVID D. GILLESPIE Vice President MICHAEL K. HUENEMANN Vice President ROBERT K. MADSEN Vice President PAUL C. SIERS Vice President JEFFREY W. SMITH Vice President JONATHAN J. WAINWRIGHT Vice President PEGGY L. WHEELER Vice President LEO R. WICKERT Vice President Breckenridge Division Board of Directors DALE D. WEBURG - Chairman DENNIS P. ANGNER RICHARD J. BARZ DAVID J. KING WILSON C. LAUER TIMOTHY M. MILLER KIRK L. SMITH GREGORY V. VARNER Breckenridge Division Officers TIMOTHY M. MILLER President BRIAN K. GOWARD Vice President KENNETH L. HOWELL Vice President BARBARA K. McKENZIE Vice President JOHN D. RIVETT Vice President Farwell Division Board of Directors HERBERT R. MILLER - Chairman DENNIS P. ANGNER RICHARD J. BARZ THOMAS E. KEDROWSKI THOMAS L. KLEINHARDT W. MICHAEL McGUIRE LARRY R. SCHOFIELD THOMAS J. WALLACE Farwell Division Officers THOMAS J. WALLACE President MELODY M. DARNELL Vice President Equal Employment Opportunity The equal employment opportunity clauses in Section 202 of the Executive Order 11246, as amended; 38 USC 2012, Vietnam Era Veterans Readjustment Act of 1974; Section 503 of the Rehabilitation Act of 1973, as amended; relative to equal employment opportunity and implementing rules and regulations of the Secretary of Labor are adhered to and supported by Isabella Bank Corporation and its subsidiaries. Greenville Division Board of Directors TED W. KORTES - Chairman DENNIS P. ANGNER RICHARD J. BARZ JAE A. EVANS KIRKWOOD E. FABER, DDS GREGORY D. MILLARD JAMES M. MULLENDORE, Jr. LEALAND T. WALLIN Greenville Division Officers JAE A. EVANS President KATHY J. KORSON Vice President DAVID W. SEPPALA Vice President Mecosta Division Board of Directors RICHARD J. BARZ Dr. RALPH P. CREW LAWRENCE E. EMIG KEVIN J. DEFEVER JOSEPH LaFRAMBOISE JEROME E. SCHWIND Mecosta Division Officers JEROME E. SCHWIND President KATHY Y. WALKINGTON Vice President Financial Group Information Services Board of Directors DAVID J. MANESS - Chairman DENNIS P. ANGNER RICHARD J. BARZ JAE A. EVANS THOMAS L. KLEINHARDT TIMOTHY M. MILLER STEVEN D. PUNG JONATHAN J. WAINWRIGHT DALE D. WEBURG Financial Group Information Services Officers JONATHAN J. WAINWRIGHT President JULIE A. HUBER Vice President page 17 Invest Locally . . . Invest Locally. It is about our customers, it is about our communities, and it is about you, our shareholders. Invest Locally describes how dollars that are deposited at Isabella Bank are used to help local growth. As a community bank, our customers’ hard-earned dollars grow locally while helping others in the community buy a new home, purchase a car, or start a business. Invest Locally describes your commitment as shareholders to support a local company that is locally managed. And finally, Invest Locally speaks to our commitment to help our customers and communities grow and prosper. Isabella Bank Corporation 401 N. Main Street Mt. Pleasant, MI 48858 

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