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Annual Shareholder Meeting ▪ May 3, 2011 at 5:00 p.m.
Comfort Inn & Conference Center │ 2424 S. Mission St., Mt. Pleasant 48858
Investor Relations
Debra Campbell │ (989) 779-6237 │ 401 N. Main St., Mt. Pleasant, MI 48558
or visit www.isabellabank.com ► Investor Relations
M
ission 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 traded under
the symbol ISBA on the OTCQB Tier of the OTC Markets
Group Inc. Eletronic Interdealer Quotation System. Current
stock price and availability can be obtained by contacting
the financial advisors of Raymond James Financial
Services located at Isabella Bank or through any other
licensed broker.
For more information about Isabella Bank Corporation,
visit the Investor Relations link at www.isabellabank.com.
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.
y
ear in review
RICHARD J. BARZ
Chief Executive Officer
DAVID J. MANESS
Chairman of the Board
On behalf of our Board, I am pleased to report that 2010 was
a very successful year for Isabella Bank Corporation. Our net
income for the year totaled $9.05 million, a 16.0% increase over
2009. As a result of our solid performance, we paid total cash
dividends of $0.72 per share, a 2.85% increase when compared
to the prior year. This marked the 29th consecutive year that we
increased cash dividends and based upon our closing stock price of
$17.30 on December 31, 2010, our annualized dividend yield was a
respectable 4.16%.
Net Income
Cash Dividends
2010
$9.05 million
$0.72
2009
$7.80 million
$0.70
Our industry, without question, has faced numerous challenges,
but the current economy has also presented opportunities for
financially strong banks. This past year, we took advantage of these
opportunities to grow our deposits, expand our market footprint,
improve operational efficiencies and invest in technology, all while
upholding our values as a community bank.
Growth and Expansion
In 2010, our in-market deposits grew by a strong 9.31%. While our
interest rates and service charges are competitive, we attribute
a large part of this growth to our financial strength. The recent
financial crisis has caused many consumers to be more cautious, and
as a result, they are requesting information about an institution’s
financial stability prior to opening a new account. This year, we
have welcomed a number of new customers into the Isabella
Bank family and are pleased that they have entrusted us with their
financial needs.
Whenever we discuss growth, we are inevitably asked about
expansion. This past year, we were presented with a great opportunity
when a building, vacated by another financial institution, became
available in a community we have long considered for expansion.
Values and Service
For over 100 years, our employees and Directors have successfully
helped us pass along the importance of our core values from one
generation to the next. We value making decisions locally, providing
community support, operating conservatively, and delivering
superior customer service. We feel these combined values provide
our customers with a partner who truly understands their financial
needs, offers products and services that they can trust, and who feels
as passionate about their community as they do.
We are blessed to have employees who are dedicated to
upholding the values of Isabella Bank. We would like to recognize
In August 2010, we opened our 25th office on North Saginaw
Road in Midland. To-date the deposit growth has far exceeded our
expectations and we cannot say enough about the warm hospitality
of the Midland community. We look forward to a strong partnership
for many years to come.
Efficiencies and Technology
Our success depends not only on our growth and expansion but
also on our ability to plan for the future. Annually, we ask each
member of our team to set personal goals that help us accomplish
the objectives of our strategic plan. This plan identifies the goals that
we wish to accomplish in the next year, as well as how they fit into
our vision for the next 5 and 10 years. As a result, our employees
have created several new revenue opportunities as well as decreased
operational costs. These ideas have added to the overall efficiencies
and profitability of our organization.
Technology also plays an important role in creating efficiencies. In
2010, we began the process of implementing document imaging,
which is a way for us to electronically file our paper documents. If
you have opened a new account or applied for a loan recently, you
realize how many pieces of paper we print each day. Document
imaging will create a central access point for employees to quickly
retrieve the documents without requesting them from another office
or searching a file cabinet; saving time and money.
Midland Branch - August 2010
Mrs. Joyce Gluch (Shepherd), Mr. Roger Williams (Clare), and Mrs. Deb
Young (Remus) who have been promoted to Branch Officers this year.
We would also like to congratulate Mr. Josh Eling (Big Rapids) and
Mrs. Liz Gregus (Adjustments Department) for their promotions to
Assistant Vice President and Mrs. Barb Diehm (Branch Administration)
for her promotion to Senior Vice President. We would also like to
recognize an employee who retired this year after sharing 42 years
with us, Mrs. Kathy Walkington (Canadian Lakes).
Thank you all for your contributions to our Bank.
Our Directors, like our employees, play a crucial role
in helping us uphold our community bank heritage.
We would like to recognize two of our Directors
who retired from the Isabella Bank Corporation
and Isabella Bank Boards on December 31, 2010;
Mr. William Strickler and Mr. Theodore Kortes. For
the past 15 years, Bill has served our Boards in a
number of different roles including most recently as Chairman of the
Isabella Bank Board. He brought over 50 years of experience in the
oil and gas industry to our Boards as well as a true understanding
of the entrepreneurial spirit of a business owner. Prior to joining
our Boards, Ted served on the Greenville Community Bank Board.
Ted brought over 40 years of banking experience to our Boards and
understood the importance of community banks, like ours, to local
economies. Thank you both for your contributions to our Bank.
We would also like to recognize an individual who has faithfully
served as Chairman of the Isabella Bank Corporation Board since
2004, Mr. James Fabiano. This past May, Jim retired as Chairman
of our Board, and although he continues to sit on both the Isabella
Bank Corporation and Isabella Bank Boards, we would be remiss
if we did not pay tribute to his contributions. His leadership has
been instrumental in directing the growth and development of our
organization. Thank you Jim for your dedication to Isabella Bank.
In May, our Boards elected Mr. David Maness to succeed Mr.
Fabiano as Chairman of the Isabella Bank Corporation Board and
to succeed Mr. Strickler as Chairman of the Isabella Bank Board.
Dave has been a member of the Isabella Bank Board since 2003,
the Isabella Bank Corporation Board since 2004,
and also served as the Chairman of our internal
technology company, Financial Group Information
Services (FGIS), from 2004-2010. In addition to his
role on our Boards, he also serves as President of
Maness Petroleum, a geological and geophysical
consulting services company. Dave will serve our
Boards well as Chairman; he has a passion for serving
our local communities, understands the importance
of community banking, and continuously looks for
This year, we have welcomed a
number of new customers into
the Isabella Bank family and are
pleased that they have entrusted
us with their financial needs.
ways in which we can improve.
The support from our shareholders, customers, employees, and
communities is what has made Isabella Bank what it is today. Thank
you for your continued support and faith in Isabella Bank. We
look forward to seeing you at the Annual Shareholder Meeting on
May 3, 2011, at 5:00 p.m. at the Comfort Inn and Conference Center
in Mt. Pleasant.
★★★★
Bauer Financial, Inc.
Isabella Bank has earned a 4-star excellent rating from Bauer
Financial, Inc. The 4-star rating recognizes Isabella Bank among the
strongest banks in the nation.
F inancial
highlights
& industry updates
DENNIS P. ANGNER
President and Chief Financial Officer
2010 Financial Highlights
► Record net income of $9.05 million
► Year-end assets of $1.23 billion (7.2% increase over 2009)
► Deposit Growth of 9.31%
In 2010, Isabella Bank Corporation’s net income was $9.05
million, an increase of $1.25 million when compared to year-end
2009. Our net income was the second highest out of the 124
banks headquartered in the state of Michigan. Like all banks in
Michigan and across the country, our earnings continue to be
impacted by elevated loan charge-offs (compared to historical
norms), increased FDIC insurance premiums and loan collection
costs. The Corporation estimates that these factors have had a
combined negative impact on earnings of approximately $0.40
per share.
The Bank’s asset quality as of December 31, 2010 continues to
be strong as evidenced by the relatively low percentage of the
total loans, 0.83%, that are classified as “nonperforming.” This
compares very favorably to the average of all banks in the state
of Michigan at 3.13%. Below you will see a comparison between
2009 and 2010 for Isabella Bank and the Michigan peer group.
Isabella Bank
State of MI Peer Group
2010
0.83%
3.13%
2009
1.28%
3.25%
As a result of the increased number of bank failures during the
past three years, banks will continue to be charged historically
high FDIC insurance premiums. 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 alone totaled $1.25 million in 2010.
In 2010, there were several historic pieces of legislation passed
into law that will have a substantial impact on all businesses,
particularly on the banking industry.
O
n March 23, 2010, the Patient Protection and Affordable Care Act was
signed into law. We feel that the following provisions will increase
health care costs for the Corporation in the short-term:
► mandates that some health care insurance benefits will be
"essential" coverage for which there will be no co-pays;
► requires minimum standards for health insurance policies and
removes all annual and lifetime coverage caps;
► extends insurance coverage of employees’ children until
age 26;
► assesses an annual tax on health insurance providers;
► imposes a 2.3% excise tax on manufacturers and importers of
certain medical devices, which is expected to increase the cost of
these devices by $20 billion.
On July 10, 2010, President Obama signed into law the Dodd-Frank
Wall Street Reform and Consumer Protection Act (the “Dodd-Frank
Act”). The Dodd-Frank Act makes sweeping changes in the regulation of
financial institutions aimed at strengthening the sound operation of the
financial services sector. Many of the provisions in the Dodd-Frank Act
will not become effective until future years. Among other provisions,
the Dodd-Frank Act includes the following:
► directs the Federal Reserve to issue rules which are expected
to limit debit-card interchange fees for financial institutions
with assets in excess of $10 billion;
► creates a new Consumer Financial Protection Bureau that will
have rulemaking and enforcement authority for a wide range
of consumer protection laws affecting financial institutions;
► increases leverage and risk-based capital requirements, FDIC
premiums and examination fees;
► provides for new disclosure, "say-on-pay," and other rules
relating to executive compensation and corporate governance
for public companies, including public financial institutions;
► permanently increases the federal deposit insurance coverage
limit to $250,000;
► provides for mortgage reform addressing a customer's ability to
repay, restricts variable-rate lending, and makes more loans
subject to disclosure requirements and other restrictions;
► creates a financial stability oversight council that will
recommend to the Federal Reserve increasingly strict rules
for capital, leverage, liquidity, risk management and other
requirements as companies grow in size and complexity.
On a positive note, the Dodd-Frank Act changed the formula for
calculating FDIC premiums in favor of smaller institutions. Starting in
the third quarter of 2011, premiums will be assessed based upon total
assets instead of deposits. Although this change will mean that we are
assessed upon a higher base, the rate at which we are charged will be
lower. This change will shift the cost of insurance from smaller banks,
like ours, to approximately 20 of the largest banks. I expect that the
change will save us approximately $300,000 per year.
The legislation mentioned above will create many challenges for the
financial industry. The challenge will not only be in adapting to these
new rules and the costs involved, but also communicating these
changes to our customers in a manner that does not disrupt the level
of service they have come to expect from us. These changes are
significant, but be assured, we will continue to review our operations to
improve efficiencies so that we may continue to offer our products and
services at an affordable price for our customers.
Peer Group Comparison
We subscribe to reports that compare the financial performance of Isabella Bank to other banks in the United
States who are similar in size ($1.0 billion-$3.0 billion in assets). In all, there are 322 banks 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) Allowance for Bad Debt to Problem Loans; (3) Problem Loans; and (4) Risked Based Capital to Risk Weighted Assets.
Return on Assets (ROA)
Isabella Bank 0.96% │ Peer Group 0.36%
Problem Loans
Isabella Bank 0.83% │ Peer Group 3.68%
ROA measures net income by the average asset size of
the bank. Our ROA in 2010 was 0.96%, which is 2.67
times higher than our peer group. The peer group is
still struggling with extensive loan losses with hopes of
improvement in 2011.
Problem Loans measures the percent of loans that are
over 90 days past due and placed in non-accrual because
interest collection is doubtful. Our total problem loans
as a percentage of loans are 0.83% compared to 3.68%
for our peer group. The peer group’s average is over 4.4
times higher than Isabella Bank’s.
Allowance for Bad Debt to Problem Loans
Isabella Bank 203% │ Peer Group 62%
Allowance for Bad Debt to Problem Loans measures the
amount of reserves needed for inherent losses related
to nonperforming loans. We have $2.03 in reserves
for every $1.00 of nonperforming loans, which means
we have more in reserve than we have problem loans.
This is considered a very safe and conservative practice.
Our peer group has $0.62 in reserves for every $1.00
of nonperforming loans, which is substantially less in
reserve to absorb future inherent losses from their
problem loans. We consider our allowance for bad debt
reserve balance to be appropriate to incur the inherent
losses in our overall loan portfolio.
Risk Based Capital to Risk Weighted Assets
Isabella Bank 12.79% │ Peer Group 14.04%
This measures the amount of capital held against risk
based assets. The Bank's ratio of 12.79% is strong when
compared to the required ratio of 10.0% necessary to
be considered adequately capitalized under the Federal
Reserve Board's risk based capital rules. The Bank
continues to be profitable, well capitalized and has
funds available to meet its customers' borrowing needs.
F inancial
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
2010
$ 57,217
$ 40,013
$ 4,857
$ 9,045
$ 1,225,810
$ 1,182,930
$ 840,392
$ 712,272
$ 139,855
$ 1.20
$ 1.17
$ 0.72
$ 19.23
$ 17.30
11.84%
6.47%
9.55%
59.93%
0.76%
2009
$ 58,105
$ 38,266
$ 6,093
$ 7,800
$ 1,143,944
$ 1,127,634
$ 786,714
$ 712,965
$ 139,810
$ 1.04
$ 1.01
$ 0.70
$ 18.69
$ 18.95
12.31%
5.58%
8.53%
67.40%
0.69%
2008
$ 61,385
$ 35,779
$ 9,500
$ 4,101
$ 1,139,263
$ 1,113,102
$ 817,041
$ 708,434
$ 143,626
$ 0.55
$ 0.53
$ 0.65
$ 17.89
$ 25.50
11.80%
2.86%
4.41%
118.82%
0.37%
(Dollars in thousands except per share data)
2007
$ 53,972
$ 28,013
$ 1,211
$ 7,930
$ 957,282
$ 925,631
$ 727,762
$ 596,739
$ 119,246
$ 1.14
$ 1.11
$ 0.62
$ 17.58
$ 40.00
12.86%
6.65%
8.54%
54.27%
0.86%
2006
$ 44,709
$ 24,977
$ 682
$ 7,001
$ 910,127
$ 800,174
$ 639,046
$ 515,539
$ 91,964
$ 1.12
$ 1.09
$ 0.58
$ 16.61
$ 40.00
12.72%
7.61%
8.31%
53.92%
0.87%
*Retroactively restated for the 10% stock dividend paid on February 29, 2008
Total Assets
Dividends Per Share*
*Retroactively restated for the 10% Stock Dividend Paid on February 29, 2008
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B oard of
Directors
RICHARD J. BARZ
Chief Executive Officer, Isabella Bank Corporation
DAVID J. MANESS - Chairman
President, Maness Petroleum Corporation
THOMAS L. KLEINHARDT
President, McGuire Chevrolet
DENNIS P. ANGNER
President and Chief Financial Officer,
Isabella Bank Corporation
W. JOSEPH MANIFOLD, CPA
Chief Financial Officer,
Federal Broach & Machine Co.
TED W. KORTES*
President and CEO,
Greenville Community Financial Corporation (retired)
JEFFREY J. BARNES, MD
Physician and Co-Owner, Central Eye Consultants
SANDRA L. CAUL
State Representative (retired)
JAMES C. FABIANO
Chairman & Chief Executive Officer,
Fabiano Brothers, Inc.
G. CHARLES HUBSCHER
President, Hubscher and Son, Inc.
JOSEPH LaFRAMBOISE
Sales and Marketing Executive,
Ford Motor Company (retired)
W. MICHAEL McGUIRE
Director of the Office of the Corporate Secretary,
The Dow Chemical Company
DIANNE C. MOREY
Owner, Bandit Industries, Inc.
WILLIAM J. STRICKLER*
President, Michiwest Energy, Inc.
DALE D. WEBURG
President, Weburg Farms, Inc.
(Board Members pictured in Left to Right Order)
* Retired December 31, 2010
Isabella Bank Corporation Officers
RICHARD J. BARZ
Chief Executive Officer
DENNIS P. ANGNER
President and Chief Financial Officer
PEGGY L. WHEELER
Senior Vice President
CYNTHIA J. DIEHM
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
Chief Lending Officer
BARBARA B. DIEHM
Senior Vice President
JAMES L. BINDER
Vice President
JULIA F. BOLT
Vice President
RANDY J. DICKINSON, CPA
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
TIMOTHY M. WILSON
Division Senior Lender
Greenville Division Board of Directors
LEALAND T. WALLIN - Chairman
DENNIS P. ANGNER
RICHARD J. BARZ
JAE A. EVANS
KIRKWOOD E. FABER, DDS
DEBRA JORGENSEN-HUCH
ALEX KEMP
GREGORY D. MILLARD
JAMES M. MULLENDORE, Jr.
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
Financial Group Information Services
Board of Directors
DALE D. WEBURG - Chairman
DENNIS P. ANGNER
RICHARD J. BARZ
JAE A. EVANS
THOMAS L. KLEINHARDT
DAVID J. MANESS
TIMOTHY M. MILLER
STEVEN D. PUNG
JONATHAN J. WAINWRIGHT
Financial Group Information
Services Officers
JONATHAN J. WAINWRIGHT
President
JULIE A. HUBER
Vice President
Board of Directors and Senior Officers as of April 2011
Isabella Bank Corporation │ 401 N. Main Street │ Mt. Pleasant, MI 48858