Isabella Bank Corp.
Annual Report 2017

Plain-text annual report

ISABELLA BANK CORPORATION ANNUAL REPORT 2017Our Vision is to be recognized as the leading independent community bank. Mission Statement To provide high quality, personalized service to our customers To enhance shareholder value through strategic growth and profitability To be the employer of choice by providing equitable compensation, a positive work environment, and opportunity for advancement To promote economic growth, business development, and community service Core Values Demonstrate unwavering integrity Community bank focused Continued stability and independence Exceptional customer service delivered in a personal manner EQUAL EMPLOYMENT OPPORTUNITY The equal employment opportunity clauses in Section 202 of the Executive Order 11246, as amended; 38 USC 4212, Vietnam Era Veterans Readjustment Act of 1974; Section 503 of the Rehabilitation Act of 1973, as amended; relative to equal employment opportunity and implement- ing rules and regulations of the Secretary of Labor are adhered to and supported by Isabella Bank Corporation and its subsidiaries. YEAR in REVIEW Jae A. Evans, President & Chief Executive Officer and David J. Maness, Chairman “Efforts and courage are not enough without purpose & direction.” ~ John F. Kennedy We are proud to report, 2017 was another solid year for Isabella Bank Corporation. We recorded earnings of $13.2 million and earnings per common share of $1.69. We experienced strong loan and deposit growth during the year as well as in assets managed by our Investment and Trust Services team. Cash dividends paid during the year were increased, and closed the year with a dividend yield of 3.6% based on the closing stock price of $28.25 as of December 29, 2017. ASSET GROWTH Total assets ended the year over $1.8 billion and our total assets under management were a record $2.6 billion. Assets under management includes $266.8 million of loans sold and serviced, and $478.1 million of assets managed by our Investment and Trust Services team. Assets managed by the Investment and Trust Services team grew 11.8% during 2017. Our Investment and Trust Services team has worked diligently to evolve their strategy from product-based sales to planning and advice which better aligns with the change in industry and customer expectations. loans Gross loans grew by $80.9 million or 8.0%, with increasing a commercial and agricultural combined total $60.9 million. Recent initiatives to expand our retail lending line of business increased both our market presence and share, as loans to consumers, which includes residential mortgages, increased $20.0 million during 2017. In an environment with intense loan competition, our strategies have resulted in significant loan growth while upholding our high-level of underwriting standards. At year-end 2017, the allowance for loan losses to total loans was 0.7% which is the lowest we have recorded over the past 40 years. We continued to see improvement in overall asset quality as our level of non-performing assets to total assets was 0.2% as of year-end. Stability Independence& NET INTEREST INCOME Our net interest income continues to be under pressure due to the extended period of low interest rates. Our fully taxable equivalent interest rate on net earning assets was 3.0% for 2017. Despite the rate environment, a shift on our balance sheet from investment securities to loans and the growth in assets previously mentioned resulted in our net interest income increasing $3.1 million compared to 2016. Deposit growth of $70.2 million in 2017 also contributed to this improvement. In accordance with accounting guidance, we were required to measure the effect of income tax law changes on our level of deferred taxes and recognize these tax effects as a component of income tax expense in the period in which the law was enacted. As a result, our federal income tax expense for the year ended December 31, 2017 included an additional $319,000 of expense. While this was not favorable for 2017, we will begin to see the benefits of the lower tax rate beginning in 2018 which is expected to have a significant impact on net income. Large Business Community Service Award the banking At the 61st Annual Mt. Pleasant Chamber of Commerce Awards Banquet, Isabella Bank was recognized with the 2017 Large Business Community Service Award. This prestigious honor recognizes one large outstanding business that has shown support of Chamber initiatives, and involvement in the community, including dedicating resources in the form of financial support, employee volunteer hours, and leadership to improve the quality of life in Isabella County. is still unknown how It interest rates long before “normalize” and relieve the pressure on interest margins industry. in During 2017, the Federal Reserve increased Bank short-term interest rates and increases. projected future We anticipate improvements in our net interest income through a combination of assets repricing faster than liabilities, our asset mix increasing shifting percentage of loans from investment securities, and strategic growth in loans and other income earning assets. Our commitment to balance sheet growth continues to be our strategy to increase net interest income during this time. NET INCOME The Corporation’s net income for 2017 was $13.2 million compared to $13.8 million in 2016. While net interest income increased $3.1 million in 2017 from the previous year, an increase in compensation and benefits expense of $2.4 million largely offset that amount. This expense increase was related to new positions required for future growth within our markets, increases, additional merit costs related to lending compliance requirements and increased service costs of our defined benefit plan. In addition, the tax expense related to the new tax law, as previously stated, also increased 2017 expenses. to an TAX CUTS & JOBS ACT OF 2017 On December 22, 2017, the Tax Cuts and Jobs Act was enacted. The new law establishes a flat corporate federal statutory income tax rate of 21%, effective January 1, 2018, and eliminates the corporate alternative minimum tax. The new tax law provides for a wide array of changes, only some of which will have a direct impact on our future federal income tax expense. Some of these changes include: limits to the deduction of net interest expense; immediate expense (for tax purposes) for certain qualified depreciable assets; elimination or reduction of certain deductions related to meals and entertainment expenses; and limits to the deductibility of deposit insurance premiums. DIVIDEND GROWTH During 2017, the Corporation paid $1.02 in cash dividends. Cash dividends paid during 2017 represented a 4.1% increase over the cash dividends paid in 2016. In early March of 2018, we announced that the Board of Directors of the Corporation declared a first quarter cash dividend of $0.26 per common share payable on March 30, 2018 to shareholders of record as of March 28, 2018. The first quarter 2018 dividend represents a 4.0% increase over the cash dividend paid in the first quarter of 2017. OVERVIEW We have been pleased with our success in the Saginaw market since we increased our presence there in 2015 with the purchase of a full-service branch. In 2017, we expanded our presence in Saginaw with the opening of a loan production office. As a result of this expansion we experienced significant loan growth of $26.3 million in this market. The level of commitment from our employees to the communities they serve continues to be outstanding. During 2017, employees donated over 8,200 hours to over 560 different organizations across our footprint. We hold community service as an important role in our company culture, mission, and core values. 2018 & BEYOND Looking ahead to 2018, we are excited to roll out new products and services designed to enhance the customer experience. introduced online account opening We recently in February of this year. Online Account Opening provides the capability for new and existing customers to open an account securely from the comfort and convenience of anywhere they choose. In March of this year, we launched our new shareholder portal. Through this new offering, shareholders may view their account activity, update contact information, view previous statements, request the purchase or sale of ISBA stock, and opt-in for electronic Annual Reports and Proxies. Through innovative products and services, exceptional personalized service, community commitment, and strategic growth and profitability, we will continue our core value of stability and independence. On behalf of our Board of Directors, thank you for making an investment in Isabella Bank Corporation. We look forward to visiting with you at our annual shareholder meeting on May 8, 2018 at 5:00 p.m. at the Comfort Inn Conference Center in Mt. Pleasant. Jae A. Evans, President & CEO David J. Maness, Chairman ISABELLA BANK CORPORATION WELCOMES NEIL MCDONNELL AS CHIEF FINANCIAL OFFICER Neil earned his Bachelor of Science – Finance degree from St. John’s University in New York. He built his career over 27 years in the financial services industry. He has served as chief financial officer, controller, treasurer, compliance & risk officer, and director of finance at large international banks, local community banks, as well as de novo banks. “I am pleased to welcome Neil to the Isabella Bank Corporation team. Neil’s extensive experience in industry will be a tremendous asset to the Corporation.” ~Jae Evans the financial He was an active member of his community in Fairfield County, Connecticut, serving as chair of the Investment and Finance Committee for The WorkPlace, Inc. for 18 years. The Workplace, Inc. is a workforce development board created to help people prepare for careers and strengthen the Connecticut workforce. Neil also served two years as a board member for WP Ventures, Inc. and a volunteer coordinator for the Service League of Boys through the local high school. Neil and his wife, Kenda, have three children. Neil looks forward to transitioning to the area and getting involved in the community. ISABELLA BANK CORPORATION SELECTED FINANCIAL DATA (Dollars in thousands except per share amounts)  For the years ended  INCOME STATEMENT DATA  Interest income  Interest expense  Net interest income  Provision for loan losses  Noninterest income  Noninterest expenses  Federal income tax expense  Net income  PER SHARE  Basic earnings  Diluted earnings  Dividends  Tangible book value*  Quoted market value  High  Low  Close*  Common shares outstanding*  PERFORMANCE RATIOS  Return on average total assets  Return on average shareholders' equity  Return on average tangible shareholders' equity  Net interest margin yield (fully taxable equivalent)**  BALANCE SHEET DATA*  Gross loans  Available‐for‐sale securities  Total assets  Deposits  Borrowed funds  Shareholders' equity  Gross loans to deposits  ASSETS UNDER MANAGEMENT*  Loans sold with servicing retained  Assets managed by our Investment and Trust Services  Department  Total assets under management  ASSET QUALITY*  Nonperforming loans to gross loans  Nonperforming assets to total assets  Allowance for loan and lease losses to gross loans  CAPITAL RATIOS*  Shareholders' equity to assets  Tier 1 leverage  Common equity tier 1 capital  Tier 1 risk‐based capital  Total risk‐based capital  2017  2016  2015  2014  2013  58,413  12,494   45,919   253   10,812   40,225   3,016   13,237  1.69  1.65  1.02  18.96  29.95  27.60  28.25  7,857,293     $    $    $    $    $    $    $    $    $  53,666  10,865  42,801  (135)  11,108  37,897  2,348  13,799  1.77  1.73  0.98  18.16  29.90  27.25  27.85  7,821,069    $    $    $    $    $    $    $    $    $  51,502  10,163  41,339  (2,771)  10,359  36,051  3,288  15,130  1.95  1.90  0.94  17.30  29.90  22.00  29.90  7,799,867    $    $    $    $    $    $    $    $    $  51,148  9,970   41,178   (668 )  9,325   35,103   2,344   13,724  1.77  1.74  0.89  16.59  24.00  21.73  22.50  7,776,274     $    $    $    $    $    $    $    $    $  0.7 %  6.7 %  9.1 %  3.0 %  0.8 %  7.1 %  10.0 %  3.0 %  1.0 %  8.3 %  11.5 %  3.1 %  0.9 %  8.1 %  10.8 %  3.2 %  50,418  11,021  39,397  1,111  10,175  33,755  2,196  12,510  1.63  1.59  0.84  15.62  26.00  21.12  23.85  7,723,023  0.9 % 7.7 % 10.7 % 3.2 % 1,091,519  552,307  1,813,130  1,265,258  344,878  194,905    $    $    $    $    $    $  1,010,615  558,096  1,732,151  1,195,040  337,694  187,899    $    $    $    $    $    $  850,492  660,136  1,668,112  1,164,563  309,732  183,971    $    $    $    $    $    $  836,550  567,534  1,549,543  1,074,484  289,709  174,594    $    $    $    $    $    $  810,777  512,062  1,493,137  1,043,766  279,326  160,609  86.3 %  84.6 %  73.0 %  77.9 %  77.7 % 266,789    $  272,882    $  287,029    $  288,639    $  293,665  478,146   $  427,693   $  405,109   $  383,878   $  2,558,065    $  2,432,726    $  2,360,250    $  2,222,060    $  351,420 2,138,222  $  $  $  $  $  $  $  $  $  $  $  $  $  $  $  $  $  $  0.3 %  0.2 %  0.7 %  10.7 %  8.5 %  12.2 %  12.2 %  12.9 %  0.2 %  0.1 %  0.7 %  10.9 %  8.6 %  12.4 %  12.4 %  13.0 %  0.1 %  0.1 %  0.9 %  11.0 %  8.5 %  13.4 %  13.4 %  14.2 %  0.5 %  0.3 %  1.2 %  11.3 %  8.6 %  N/A  14.1 %  15.2 %  0.4 % 0.3 % 1.4 % 10.8 % 8.5 % N/A  13.7 % 14.9 % * At end of year ** For all periods reported, the fully taxable equivalent (FTE) adjustment is based on a 34% federal income tax rate.  Beginning 2018, the      FTE adjustment will be based on a 21% federal income tax rate as a result of the Tax Cuts and Jobs Act enacted on December 22, 2017.  December 31  Change  2017  2016  $  %  $  25,267    $  5,581  30,848  20,167    $  2,727   22,894   5,100   2,854  7,954  25.3 % 104.7 % 34.7 % 552,307 1,560  558,096  1,816   (5,789)   (1.0 )% (256)   (14.1 )% ISABELLA BANK CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands except per share amounts)  Cash and cash equivalents  ASSETS  Cash and demand deposits due from banks  Interest bearing balances due from banks  Total cash and cash equivalents  Available‐for‐sale securities (amortized cost of $551,712 in 2017  and $557,648 in 2016)  Mortgage loans available‐for‐sale  Loans Commercial  Agricultural  Residential real estate  Consumer  Gross loans  Less allowance for loan and lease losses  Net loans  Premises and equipment  Corporate owned life insurance policies  Accrued interest receivable  Equity securities without readily determinable fair values  Goodwill and other intangible assets  Other assets  634,759  128,269  272,368  56,123  1,091,519  7,700  1,083,819  28,450  27,026  7,063  23,454  48,547  10,056  575,664   126,492   266,050   42,409   1,010,615   7,400   1,003,215   29,314   26,300   6,580   21,694   48,666   13,576   TOTAL ASSETS  $  1,813,130    $  1,732,151    $  LIABILITIES AND SHAREHOLDERS’ EQUITY  Deposits Noninterest bearing  NOW accounts  Certificates of deposit under $250 and other savings  Certificates of deposit over $250  Total deposits  Borrowed funds  Accrued interest payable and other liabilities  Total liabilities  Shareholders’ equity  Common stock — no par value 15,000,000 shares authorized;  issued and outstanding 7,857,293 shares in 2017 and  7,821,069 shares in 2016  Shares to be issued for deferred compensation obligations  Retained earnings  Accumulated other comprehensive income (loss)  Total shareholders’ equity  TOTAL LIABILITIES AND SHAREHOLDERS’  EQUITY  $  237,511    $  231,666  728,090  67,991  1,265,258  344,878  8,089  1,618,225  205,071    $  209,325   717,078   63,566   1,195,040   337,694   11,518   1,544,252   140,277 5,502  51,728  (2,602)   194,905  139,525  5,038   46,114   (2,778 )   187,899   59,095  1,777  6,318  13,714  80,904  300  80,604  (864) 726  483  1,760  (119) (3,520)   80,979   32,440   22,341  11,012  4,425  70,218  7,184  (3,429)   73,973  752 464  5,614  176  7,006  10.3 % 1.4 % 2.4 % 32.3 % 8.0 % 4.1 % 8.0 % (2.9 )% 2.8 % 7.3 % 8.1 % (0.2 )% (25.9 )% 4.7 % 15.8 % 10.7 % 1.5 % 7.0 % 5.9 % 2.1 % (29.8 )% 4.8 % 0.5 % 9.2 % 12.2 % (6.3 )% 3.7 % $  1,813,130   $  1,732,151   $  80,979  4.7 % ISABELLA BANK CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands except per share amounts)  Interest income  Loans, including fees  Available‐for‐sale securities  Taxable  Nontaxable  Federal funds sold and other  Total interest income  Interest expense  Deposits  Borrowings  Total interest expense  Net interest income  Provision for loan losses  Year Ended December 31  Change  2017  2016  $  %  $  43,537    $  38,537    $  5,000  13.0 % 8,564   5,570   742   58,413   6,809   5,685   12,494   45,919   253   8,746  5,715  668  53,666  5,836  5,029  10,865  42,801  (135)   (182) (145)   74  4,747  973  656  1,629  3,118  388  (2.1 )% (2.5 )% 11.1 % 8.8 % 16.7 % 13.0 % 15.0 % 7.3 % (287.4 )% Net interest income after provision for loan  losses  45,666  42,936 2,730 6.4 % Noninterest income  Service charges and fees  Earnings on corporate owned life insurance policies  Net gain on sale of mortgage loans  Net gains on sale of available‐for‐sale securities  Other  Total noninterest income  Noninterest expenses  Compensation and benefits  Furniture and equipment  Occupancy  Other  Total noninterest expenses  Income before federal income tax expense  Federal income tax expense  NET INCOME  Earnings per common share  Basic  Diluted  Cash dividends per common share  6,013   726   647   142   3,284   10,812   21,525   5,523   3,133   10,044   40,225   16,253   3,016   13,237    $  1.69    $  1.65    $  1.02    $  5,230  761  651  245  4,221  11,108  19,170  5,275  3,227  10,225  37,897  16,147  2,348  13,799    $  1.77    $  1.73    $  0.98    $  783  (35)   (4) (103)   (937) (296)   2,355  248  (94)   (181) 2,328  106  668  (562) (0.08)   (0.08)   0.04  $  $  $  $  15.0 % (4.6 )% (0.6 )% (42.0 )% (22.2 )% (2.7 )% 12.3 % 4.7 % (2.9 )% (1.8 )% 6.1 % 0.7 % 28.4 % (4.1 )% (4.5 )% (4.6 )% 4.1 %   ISABELLA BANK CORPORATION AVERAGE BALANCES, INTEREST RATE, AND NET INTEREST INCOME  (Dollars in thousands except per share amounts)  The following table presents the daily average amount outstanding for each major category of interest earning assets, non‐ earning assets, interest bearing liabilities, and noninterest bearing liabilities for the last two years.  These schedules also  present an analysis of interest income and interest expense for the periods indicated.  All interest income is reported on a fully  taxable equivalent (FTE) basis using a 34% federal income tax rate for the periods presented in the table below.  Beginning  January 1, 2018, all interest income will be reported on a FTE basis using a 21% federal income tax rate as a result of the Tax  Cuts and Jobs Act enacted on December 22, 2017.  Loans in nonaccrual status, for the purpose of the following computations,  are included in the average loan balances.  Federal Reserve Bank and Federal Home Loan Bank restricted equity holdings are  included in accrued income and other assets.  Average  Balance  2017  Tax  Equivalent   Interest  Year Ended December 31  Average  Yield /   Rate  Average  Balance  2016  Tax  Equivalent   Interest  Average  Yield /   Rate  1,040,630    $  361,783  202,375  663  26,815  1,632,266  (7,607)   19,309 28,933  99,456  1,772,357  43,537  8,564  9,126  5  737  61,969  4.2  %  $  2.4  %  4.5  %  0.8  %  2.8  %  3.8  %  922,333    $  392,810  205,450  —  25,557  1,546,150  38,537  8,746  9,351  —  668  57,302  (7,638)   18,178 28,670  101,995  1,687,355   $  $  213,648  356,963  433,562  352,400  1,356,573  232  1,091  5,486  5,685  12,494  $  0.1  %  $  0.3  %  1.3  %  1.6  %  0.9  %  203,198  336,859  429,731  319,049  1,288,837  163  663  5,010  5,029  10,865  4.2  % 2.2  % 4.6  % —  % 2.6  % 3.7  % 0.1  % 0.2  % 1.2  % 1.6  % 0.8  % INTEREST EARNING ASSETS  Loans  $  Taxable investment securities  Nontaxable investment securities  Fed Funds Sold  Other  Total earning assets  NONEARNING ASSETS  Allowance for loan losses  Cash and demand deposits due from  banks  Premises and equipment  Accrued income and other assets  Total assets  $  INTEREST BEARING LIABILITIES  Interest bearing demand deposits  $  Savings deposits  Time deposits  Borrowed funds  Total interest bearing liabilities  NONINTEREST BEARING LIABILITIES  Demand deposits  Other  Shareholders’ equity  Total liabilities and shareholders’  equity  $  1,772,357 Net interest income (FTE)  Net yield on interest  earning assets (FTE)  208,988  10,641  196,155  194,892  9,841  193,785   $  1,687,355  $  49,475   $  46,437  3.0  %  3.0  %     BOARD of DIRECTORS Back Row, Pictured left to right: G. Charles Hubscher, W. Michael McGuire, Gregory V. Varner, Jerome E. Schwind, Dr. Jeffrey J. Barnes, Joseph LaFramboise, Thomas L. Kleinhardt, David J. Maness. Front Row, Pictured left to right: W. Joseph Manifold, Jill Bourland, Jae A. Evans, Sarah R. Opperman, and Richard J. Barz. DAVID J. MANESS - Chairman President, Maness Petroleum Corporation JAE A. EVANS President & Chief Executive Officer, Isabella Bank Corporation JEROME E. SCHWIND President, Isabella Bank DR. JEFFREY J. BARNES Physician and Shareholder, L.O. Eye Care RICHARD J. BARZ Chief Executive Officer (retired), Isabella Bank Corporation JILL BOURLAND, CPA, HCCP Chief Executive Officer & Partner, Blystone & Bailey, CPAs, PC G. CHARLES HUBSCHER President, Hubscher and Son, Inc. THOMAS L. KLEINHARDT President, McGuire Chevrolet JOSEPH LAFRAMBOISE Sales and Marketing Executive (retired), Ford Motor Company W. JOSEPH MANIFOLD, CPA Chief Financial Officer (retired), Federal Broach & Machine Co. W. MICHAEL MCGUIRE Director of the Office of the Corporate Secretary (retired), The Dow Chemical Company SARAH R. OPPERMAN Principal, Opperman Consulting, LLC GREGORY V. VARNER Research Director, Michigan Bean Commission SENIOR OFFICERS & DIVISION BOARDS ISABELLA BANK CORPORATION OFFICERS ISABELLA BANK OFFICERS CONT. BRECKENRIDGE DIVISION BOARD OF DIRECTORS JAE A. EVANS JULIE F. BOLT President, Chief Executive Officer Vice President, Collections NEIL M. McDONNELL Chief Financial Officer BARBARA A. PLACE, CPA, CBA, CRCM Senior Vice President, Internal Audit MARK K. DENOYELLES Vice President, Investment & Trust RANDY J. DICKINSON, CPA, CTFA Vice President, Investment & Trust AMY C. VOGEL JOSHUA A. ELING Vice President, Chief Risk Officer Vice President, Commercial Loans DEBRA A. CAMPBELL Vice President, Corporate Secretary DONALD F. FORSTER Vice President, Collections CYNDIA S. HEAP, CRCM, CAMS Vice President, Compliance PATRICK J. MEASE, SPHR, SHRM-SCP Vice President, Human Resources MICHAEL P. PRISBY Vice President, Treasurer RHONDA S. TUDOR, CPA Vice President, Controller ISABELLA BANK OFFICERS JEROME E. SCHWIND President DAVID J. REETZ Senior Vice President, Chief Lending Officer PEGGY L. WHEELER Senior Vice President, Chief Operations Officer MICHAEL R. COLBY President, East Division BRIAN K. GOWARD President, Breckenridge Division KEITH E. KENNEY President, Mecosta Division DAVID W. SEPPALA President, Greenville Division BARBARA B. DIEHM Senior Vice President, Branch Administration THOMAS J. WALLACE Senior Vice President, Retail Credit JULIE A. HUBER, CGEIT, CRISC Vice President, Chief Technology Officer GREGORY S. MATTHEWS Vice President, Chief Credit Officer KIMBERLY K. BETTS Vice President, Collections JAMES L. BINDER Vice President, Commercial Loans THOMAS N. GROSS Vice President, Commercial Loans SHELLEY K. HOBBS Vice President, Branch Manager MICHAEL K. HUENEMANN Vice President, Commercial Loans KATHY J. KORSON Vice President, Mortgage Loans ROBERT K. MADSEN Vice President, Commercial Loans GREGORY S. MAPES Vice President, Financial Services BARBARA K. MCKENZIE Vice President, Commercial Loans MICHELLE L. MEASE Vice President, Investment & Trust ERIKA M. ROSS Vice President, Operations CARRIE S. SMITH Vice President, Mortgage Loans JEFFREY W. SMITH Vice President, Commercial Loans LESLIE J. THIELEN Vice President, Consumer Loans KARLA A. WALKER Vice President, Mortgage Loans LEO R. WICKERT, State Licensed Appraiser Vice President, Appraisals TIM M. WILSON Vice President, Branch Manager SANDY M. YUNCKER Vice President, Deposit Operations TRACY A. ZAYLER Vice President, Branch Manager BRIAN K. GOWARD DAVID J. KING TIMOTHY M. MILLER JEROME E. SCHWIND JEFFREY E. SHERWOOD KIRK L. SMITH GREGORY V. VARNER BRENT C. WILSON GREENVILLE DIVISION BOARD OF DIRECTORS BLAKE R. HOLLENBECK DEBRA J. HUCH ALEXANDER R. KEMP GREGORY D. MILLARD BRIAN R. SACKETT JEROME E. SCHWIND DAVID W. SEPPALA KATHY J. VANDERLAAN MECOSTA DIVISION BOARD OF DIRECTORS DR. RALPH P. CREW MATTHEW L. CURRIE KEVIN J. DEFEVER KEITH E. KENNEY JOSEPH LAFRAMBOISE JEROME E. SCHWIND NORTHERN DIVISION BOARD OF DIRECTORS SHARI R. BUCCILLI MICHAEL L. JENKINS THOMAS L. KLEINHARDT W. MICHAEL MCGUIRE JEROME E. SCHWIND STEVEN L. STARK As of March 2018 EMPLOYEE RECOGNITION In 2017, we celebrated alongside our employees as they hit both professional and personal milestones. Please help us recognize the following employees on their recent officer promotions, banking school graduations, and retirements. OFFICER PROMOTIONS Kristen Churchman Human Resources Officer Nora Colthorp Assistant Vice President, Hemlock Office Kim Lambright Assistant Vice President, Auditing Greg Matthews Chief Credit Officer Scott Moore Branch Officer, Clare South Office Sharon Parks Human Resources Officer Paul Scoby Assistant Vice President, Commercial Loans Peggy Wheeler Chief Operations Officer MBA PERRY SCHOOL OF BANKING Kristen Churchman Human Resources Officer Mike McNeil Commercial Lender, Breckenridge RETIREMENTS Dennis Angner, 33 years Linda Bragan, 14 years Robin Cowles, 29 years Cindy Diehm, 43 years Kathy Formsma, 41 years Chris Hafer, 42 years Jane Kiel, 31 years Terri O’Hearn, 19 years Roxanne Schultz, 15 years Lois Solomon, 12 years Marilyn Whitehead, 8 years Nancy Wood, 6 years Isabella Our mission is to be an employer of choice. Our culture and our employees are Corporation’s Bank greatest assets. We continually invest in our people, and their personal and professional development; we do this by providing equitable compensation, a positive work environment, and opportunities for advancement. One way we strengthen our team is through a four-phase mentoring program. We select mentor and mentees to participate in our twelve- month plan designed around our core strategic objectives. “Strengthen employee training increase and development internal expertise and employee engagement.” to A few tips we share with our mentor duos are: help set and achieve goals, honor your commitments, keep an open mind, be a positive role model, the best mentor/mentee and be possible. These tips are discussed openly throughout the introduction, growth, experimental, and reflection phases. We recognize by strengthening our team we will naturally increase brand experience growth, and improve financial success and shareholder value. enhancement, 76 employees participated in our Mentoring & Growth program in 2017. ISABELLA BANK CORPORATION 401 N. Main St. Mt. Pleasant, Michigan 48858 NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS To Be Held May 8, 2018 Notice is hereby given that the Annual Meeting of Shareholders of Isabella Bank Corporation will be held on Tuesday, May 8, 2018 at 5:00 p.m. Eastern Daylight Time, at the Comfort Inn Conference Center, 2424 S. Mission Street, Mt. Pleasant, Michigan. The meeting is for the purpose of considering and acting upon the following items of business: 1. The election of five directors. 2. To transact such other business as may properly come before the meeting, or any adjournment or adjournments thereof. The Board of Directors has fixed March 9, 2018 as the record date for determination of shareholders entitled to notice of, and to vote at, the meeting or any adjournments thereof. By order of the Board of Directors Debra Campbell, Secretary Dated: March 28, 2018 ISABELLA BANK CORPORATION 401 N. Main St. Mt. Pleasant, Michigan 48858 PROXY STATEMENT General Information This Proxy Statement is furnished in connection with the solicitation of proxies, to be voted at our Annual Meeting of Shareholders (the “Annual Meeting”) which is to be held on Tuesday, May 8, 2018 at 5:00 p.m. at the Comfort Inn Conference Center, 2424 S. Mission Street, Mt. Pleasant, Michigan, or at any adjournment or adjournments thereof, for the purposes set forth in the accompanying Notice of the Annual Meeting of Shareholders and in this Proxy Statement. This Proxy Statement has been mailed on March 28, 2018 to all holders of record of common stock as of the record date. If a shareholder’s shares are held in the name of a broker, bank, or other nominee, then that party should give the shareholder instructions for voting the shareholder’s shares. Voting at the Meeting We have fixed the close of business on March 9, 2018 as the record date for the determination of shareholders entitled to notice of, and to vote at, the Annual Meeting and any adjournment thereof. We have only one class of common stock and no preferred stock. As of March 9, 2018, there were 7,861,737 shares of stock outstanding. Each outstanding share entitles the holder thereof to one vote on each separate matter presented for vote at the meeting. You may vote on matters that are properly presented at the Annual Meeting by attending the meeting and casting a vote, signing and returning the enclosed proxy, voting on the internet, or voting by phone. You may change your vote or revoke your proxy at any time before it is voted at the Annual Meeting by filing with the Corporation an instrument revoking it, filing a duly executed proxy bearing a later date (including a proxy given over the internet or by phone) or by attending the meeting and electing to vote in person. You are encouraged to vote by mail, internet, or phone. We will hold the Annual Meeting if a majority of the shares of common stock entitled to vote are represented in person or by proxy. If you execute a proxy, those shares will be counted to determine if there is a quorum, even if you abstain or fail to vote on any of the proposals. Your broker may not vote on Proposal 1 if you do not furnish instructions for such proposal. You should use the voting instruction card provided by us to instruct the broker to vote the shares, or else your shares will be considered “broker non- votes.” Broker non-votes are shares held by brokers or nominees as to which voting instructions have not been received from the shares’ beneficial owner or the individual entitled to vote those shares and the broker or nominee does not have discretionary voting power under rules applicable to broker-dealers. Under these rules, Proposal 1 is not an item on which brokerage firms may vote in their discretion on your behalf unless you have furnished voting instructions. At this year’s Annual Meeting, you will elect five directors to serve for a term of three years. You may vote in favor or abstain with respect to any or all nominees. Directors are elected by a plurality of the votes cast at the Annual Meeting. Abstentions and shares not voted, including broker non-votes, have no effect on the elections. Proposal 1 - Election of Directors The Board of Directors (the “Board”) currently consists of thirteen (13) members divided into three classes, with the directors in each class being elected for a term of three years. The Board decreased from 12 members to 11 with the retirement of Dennis P. Angner effective March 31, 2017 and increased from 11 members to 13 with the appointments of Jerome E. Schwind and Jill Bourland on August 24, 2017. At the Annual Meeting, Richard J. Barz, Jill Bourland, Jae A. Evans, W. Michael McGuire, and Jerome E. Schwind, whose terms expire at the Annual Meeting, have been nominated for election to serve through the 2021 Annual Meeting. Except as otherwise specified, proxies will be voted for election of the five nominees. If a nominee becomes unable or unwilling to serve, proxies will be voted for such other person, if any, as shall be designated. However, we know of no reason to anticipate that this will occur. The five nominees who receive the greatest number of votes cast will be elected directors. Each of the nominees has agreed to serve as a director if elected. Nominees and current directors, including their principal occupation for the last five or more years, age, and length of service as a director, are listed below. We unanimously recommend that you vote FOR the election of each of the nominees. Director Qualifications Board members are highly qualified and represent your best interests. We select nominees who: • Have extensive business leadership. • Bring a diverse perspective and experience. • Are objective and collegial. • Have high ethical standards and have demonstrated sound business judgment. • Are willing and able to commit the significant time and effort to effectively fulfill their responsibilities. • Are active in and knowledgeable of their respective communities. Each nominee and current director possesses these qualities and provides a diverse complement of specific business skills and experience. The following describes the key qualifications each director brings to the Board, in addition to the general qualifications described above and the information included in the biographical summaries provided below. Professional experience in chosen field Expertise in financial or related field Audit Committee Financial Expert Civic and community involvement Leadership and team building skills Diversity by race, gender, or cultural Geo- graphical diversity Finance Tech- nology Market- ing Govern- ance Entre- preneurial skills Human Resources Bank business segment represent- ation X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X Director David J. Maness Dr. Jeffrey J. Barnes Richard J. Barz Jill Bourland Jae A. Evans G. Charles Hubscher Thomas L. Kleinhardt Joseph LaFramboise W. Joseph Manifold W. Michael McGuire Sarah R. Opperman Jerome E. Schwind Gregory V. Varner The following table identifies individual Board members serving on each of our standing committees: Director David J. Maness Dr. Jeffrey J. Barnes Richard J. Barz Jill Bourland Jae A. Evans G. Charles Hubscher Thomas L. Kleinhardt Joseph LaFramboise W. Joseph Manifold W. Michael McGuire Sarah R. Opperman Jerome E. Schwind Gregory V. Varner C — Chairperson O — Ex-Officio Audit Xo X X Xc X X Nominating and Corporate Governance Xo X Compensation and Human Resource Xc X X Xc X X X X X X X X X Director Nominees for Terms Ending in 2021 Richard J. Barz (age 69) has been a director of the Bank since 2000 and of Isabella Bank Corporation since 2002. Mr. Barz retired as Chief Executive Officer of Isabella Bank Corporation on December 31, 2013 after over 41 years of service with the Corporation. Mr. Barz was Chief Executive Officer of Isabella Bank Corporation from 2010 to 2013 and President and Chief Executive Officer of the Bank from 2001 to July 2012. Mr. Barz has been very active in community organizations and events. He is a past Chairman of the Central Michigan Community Hospital Board of Directors, past Chairman of the Middle Michigan Development Corporation Board of Directors, and serves on several boards and committees at various volunteer organizations throughout mid-Michigan. Jill Bourland (age 47) was appointed to the Board of Directors of Isabella Bank Corporation and the Bank on August 24, 2017. Ms. Bourland is CEO and Partner of Blystone & Bailey CPAs P.C. Ms. Bourland is a graduate of Central Michigan University and a Certified Public Accountant. She has over 25 years of audit, tax and accounting experience with a concentration in small business and affordable housing sectors. She currently serves as President of the Mt. Pleasant Area Community Foundation where she previously served as Treasurer and Chair of the Finance Committee. She is involved with the Gratiot-Isabella Technical Education Center Accounting/ Business Advisory Committee. She is also a member of the American Institute of Certified Public Accountants, Michigan Association of Certified Public Accountants and Home Builders Association. Jae A. Evans (age 61) was appointed a director of Isabella Bank Corporation and the Bank and elected Chief Executive Officer of Isabella Bank Corporation effective January 1, 2014. Mr. Evans has been employed by the Corporation since 2008 and served as Chief Operations Officer of the Bank from June 2011 to December 31, 2013 and President of the Greenville Division of the Bank from January 1, 2008 to June 2011. He is a graduate of Central Michigan University and has over 40 years of banking experience. Mr. Evans currently serves as a board member for The Community Bankers of Michigan, McLaren Central Michigan Hospital, and the Central Michigan University Advancement Board. Mr. Evans is also past Chair of the Eightcap, Inc. Governing Board, past Vice Chair of the Carson City Hospital, was president of the Greenville Rotary Club, and past Chair of The Community Bankers of Michigan. W. Michael McGuire (age 68) has been a director of Isabella Bank Corporation since 2007 and of the Bank since January 1, 2010. Mr. McGuire, an attorney, retired in August 2013 as the Director of the Office of the Corporate Secretary and Assistant Secretary of The Dow Chemical Company, a manufacturer of chemicals, plastics and agricultural products, headquartered in Midland, Michigan. Jerome E. Schwind (age 51) was appointed a director of Isabella Bank Corporation on August 24, 2017 and was appointed a director of the Bank on May 25, 2017. Mr. Schwind is President of the Bank and has been employed by the Bank since 1999. He has served in various roles at the Bank including Executive Vice President and Chief Operations Officer. Mr. Schwind received his undergraduate degree from Ferris State University and his MBA from Lake Superior State University. He is also a graduate of the Dale Carnegie Executive Development program, the Graduate School of Banking at the University of Wisconsin-Madison, and the Rollie Denison Leadership Institute. He currently serves as the Chair for the Middle Michigan Development Corporation, is a member of the Finance Advisory Board for the Ferris State University College of Business, member of the Michigan Bankers Association Grassroots Advocacy Committee, and the Michigan Bankers Association Board. Current Directors with Terms Ending in 2019 Thomas L. Kleinhardt (age 63) has been a director of the Bank since 1998 and of Isabella Bank Corporation since 2010. Mr. Kleinhardt is President of McGuire Chevrolet, active in the Clare Kiwanis Club, and the former coach of the girls Varsity Basketball team for both Farwell High School and Clare High School. Joseph LaFramboise (age 68) has been a director of the Bank since 2007 and of Isabella Bank Corporation since 2010. He is a retired Sales and Marketing Executive of Ford Motor Company. Mr. LaFramboise is an Ambassador of Eagle Village in Evart, Michigan. Sarah R. Opperman (age 58) has been a director of the Bank and Isabella Bank Corporation since 2012. Ms. Opperman is the owner of Opperman Consulting, LLC. She previously was employed for 28 years by The Dow Chemical Company, where she held leadership roles in public and government affairs. Ms. Opperman is a member of the Central Michigan University Advancement Board. She also is Chair of the MidMichigan Health Foundation and serves on the United Way of Midland County Board of Directors. Gregory V. Varner (age 63) has been a director of the Bank and Isabella Bank Corporation since 2015. Mr. Varner is the Research Director for the Michigan Bean Commission and currently serves on the Breckenridge Division Board of the Bank. He received a Bachelor of Science in Agricultural Education and a Master of Science in Crop Science from Michigan State University. Current Directors with Terms Ending in 2020 Dr. Jeffrey J. Barnes (age 55) has been a director of the Bank since 2007 and of Isabella Bank Corporation since 2010. Dr. Barnes is a physician and shareholder in L.O. Eye Care P.C. He is a former member of the Central Michigan Community Hospital Board of Directors. G. Charles Hubscher (age 64) has been a director of the Bank since 2004 and of Isabella Bank Corporation since 2010. Mr. Hubscher is President of Hubscher and Son, Inc., a sand and gravel producer. He is a former director of the National Stone and Gravel Association, the Michigan Aggregates Association, serves on the Board of Trustees for the Mt. Pleasant Area Community Foundation, and is a member of the Zoning Board of Appeals for Deerfield Township. David J. Maness (age 64) has been a director of the Bank since 2003 and of Isabella Bank Corporation since 2004. Mr. Maness has served as Chairman of the Board for the Corporation and the Bank since 2010. He is President of Maness Petroleum, a geological and geophysical consulting services company. Mr. Maness is currently serving as a director for the Michigan Oil & Gas Association, and he previously served on the Mt. Pleasant Public Schools Board of Education. W. Joseph Manifold (age 66) has been a director of Isabella Bank Corporation since 2003 and of the Bank since 2010. Mr. Manifold retired as CFO of Federal Broach Holdings LLC, a holding company which operates several manufacturing companies. Previously, he was a senior manager with Ernst & Young Certified Public Accounting firm working principally on external bank audits and was CFO of the Delfield Company. Prior to joining the Board, Mr. Manifold served on the Isabella Community Credit Union Board and was President of the Mt. Pleasant Public Schools Board of Education. Each of the directors has been engaged in their stated professions for more than five years unless otherwise stated. Other Named Executive Officers Neil M. McDonnell (age 54), Chief Financial Officer of the Corporation, joined the Corporation on January 30, 2018. David J. Reetz (age 57), Senior Vice President and Chief Lending Officer of the Bank, has been employed by the Bank since 1987. Rhonda S. Tudor (age 53), Vice President and Controller of the Corporation, has been employed by the Corporation since 2015. Peggy L. Wheeler (age 58), Senior Vice President and Chief Operations Officer of the Bank, has been employed by the Bank since 1977. All officers serve at the pleasure of the Board. Director Independence Corporate Governance We have adopted the director independence standards as defined under of the NASDAQ listing requirements. We have determined that Dr. Jeffrey J. Barnes, Richard J. Barz, Jill Bourland, G. Charles Hubscher, Thomas L. Kleinhardt, Joseph LaFramboise, David J. Maness, W. Joseph Manifold, W. Michael McGuire, Sarah R. Opperman, and Gregory V. Varner are independent directors. Jae A. Evans is not independent as he is employed as President and CEO of Isabella Bank Corporation. Jerome E. Schwind is not independent as he is employed as President of Isabella Bank. Board Leadership Structure and Risk Oversight Our Governance Policy provides that only directors who are deemed to be independent as set forth by the NASDAQ listing requirements and SEC rules are eligible to hold the office of chairperson. Additionally, the chairpersons of Board established committees must also be independent directors. It is our belief that having a separate chairperson and CEO best serves the interest of the shareholders. The Board elects its chairperson at the first Board meeting following the Annual Meeting. Independent members of the Board meet without inside directors at least twice per year. Management is responsible for our day-to-day risk management and the Board’s role is to engage in informed oversight. The Board utilizes committees to oversee risks associated with compensation, and governance. The Isabella Bank Board of Directors is responsible for overseeing credit, investment, information technology, interest rate, and trust risks. The chairpersons of the respective boards or committees report on their activities on a regular basis. Our Audit Committee is responsible for overseeing the integrity of our consolidated financial statements, the independent auditors’ qualifications and independence, the performance of our internal audit function and those of independent auditors, our system of internal controls, our financial reporting and system of disclosure controls, and our compliance with legal and regulatory requirements and with our Code of Business Conduct and Ethics. Committees of the Board of Directors and Meeting Attendance The Board met 13 times during 2017 and all incumbent directors attended 75% or more of the meetings for which they were a member. The Board has an Audit Committee, a Nominating and Corporate Governance Committee, and a Compensation and Human Resource Committee. Audit Committee The Audit Committee is composed of independent directors. Information regarding the functions performed by the Audit Committee, its membership, and the number of meetings held during the year, is set forth in the “Audit Committee Report” included elsewhere in this Proxy Statement. The Audit Committee is governed by a written charter approved by the Board, which is available on the Bank’s website: www.isabellabank.com. In accordance with the provisions of the Sarbanes-Oxley Act of 2002, directors Manifold and McGuire meet the requirements of Audit Committee Financial Expert and have been so designated. The Audit Committee also consists of directors Bourland, Kleinhardt, Maness (ex-officio), and Opperman. Nominating and Corporate Governance Committee We have a standing Nominating and Corporate Governance Committee consisting of independent directors Barnes, Hubscher, Maness (ex-officio), and McGuire. The Nominating and Corporate Governance Committee held two meetings in 2017, with all committee members attending each meeting for which they were a member. The Board has approved a Nominating and Corporate Governance Committee Charter which is available on the Bank’s website: www.isabellabank.com. The Nominating and Corporate Governance Committee is responsible for evaluating and recommending individuals for nomination to the Board for approval. This Committee, in evaluating nominees, including incumbent directors and any nominees put forth by shareholders, considers business experience, skills, character, judgment, leadership experience, and their knowledge of the geographical markets, business segments or other criteria the Committee deems relevant and appropriate based on the current composition of the Board. This Committee considers diversity in identifying members with respect to our geographical markets served and the business experience of the nominee. The Nominating and Corporate Governance Committee will consider, as potential nominees, persons recommended by shareholders. Recommendations should be submitted in writing to the Secretary of the Corporation, 401 N. Main St., Mt. Pleasant, Michigan 48858 and include the shareholder’s name, address and number of shares of the Corporation owned by the shareholder. The recommendation should also include the name, age, address and qualifications of the candidate. Recommendations for the 2019 Annual Meeting of Shareholders should be delivered no later than November 28, 2018. The Nominating and Corporate Governance Committee evaluates all potential director nominees in the same manner, whether the nominations are received from a shareholder, or otherwise. Compensation and Human Resource Committee The Compensation and Human Resource Committee is responsible for reviewing and recommending to the Board the compensation of the Chief Executive Officer and other executive officers, benefit plans, and the overall percentage increase in salaries. This Committee consists of independent directors Barnes, Barz, Bourland, Hubscher, Kleinhardt, LaFramboise, Maness, Manifold, McGuire, Opperman, and Varner. The Compensation and Human Resource Committee held two meetings during 2017. With the exception of one committee member who did not attend one meeting, all committee members attended each meeting for which they were a member. This Committee is governed by a written charter approved by the Board that is available on the Bank’s website: www.isabellabank.com. Communications with the Board Shareholders may communicate with the Board by sending written communications to the attention of the Corporation’s Secretary, Isabella Bank Corporation, 401 N. Main St., Mt. Pleasant, Michigan 48858. Communications will be forwarded to the Board or the appropriate committee, as soon as practicable. Code of Ethics Our Code of Business Conduct and Ethics, which is applicable to the CEO and CFO, is available on the Bank’s website: www.isabellabank.com. Audit Committee Report The Audit Committee oversees the financial reporting process on behalf of the Board. The 2017 Audit Committee consisted of directors Bourland, Kleinhardt, Maness (ex-officio), Manifold, McGuire, and Opperman.* The Audit Committee is responsible for pre-approving all auditing services and permitted non-audit services by our independent auditors, or any other auditing or accounting firm, if those fees are reasonably expected to exceed 5.0% of the current year agreed upon fee for independent audit services. The Audit Committee has established general guidelines for the permissible scope and nature of any permitted non-audit services in connection with its annual review of the audit plan and reviews the guidelines with the Board. Management has the primary responsibility for the consolidated financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited consolidated financial statements in the Annual Report with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the consolidated financial statements. The Audit Committee also reviewed with management and the independent auditors, management’s assertion on the design and effectiveness of our internal control over financial reporting as of December 31, 2017. The Audit Committee reviewed with our independent auditors, who are responsible for expressing an opinion on the conformity of those audited consolidated financial statements with accounting principles generally accepted in the United States of America, their judgments as to the quality, not just the acceptability, of our accounting principles and such other matters as are required to be discussed with the Audit Committee by the standards of the Public Company Accounting Oversight Board (United States), including those described in Auditing Standard No. 16 “Communications with Audit Committees”, as may be modified or supplemented. In addition, the Audit Committee has received the written disclosures and the letter from the independent auditors required by PCAOB Rule 3526, Communication with Audit Committees Concerning Independence, as may be modified or supplemented, and has discussed with the independent auditors the independent auditors’ independence. The Audit Committee discussed with our internal and independent auditors the overall scope and plans for their respective audits. The Audit Committee meets with the internal and external independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of our internal controls, and the overall quality of our financial reporting process. The Audit Committee held five meetings during 2017, and all committee members attended 75% or more of the meetings for which they were a member. In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors (and the Board has approved) that the audited consolidated financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2017 for filing with the Securities and Exchange Commission. The Audit Committee has appointed Rehmann Robson LLC as the independent auditors for the 2018 audit. Respectfully submitted, W. Joseph Manifold, Audit Committee Chairperson Jill Bourland Thomas L. Kleinhardt David J. Maness (ex-officio) W. Michael McGuire Sarah R. Opperman * In September 2017, as part of the Corporation's normal rotation of committee members, Ms. Bourland was appointed to the Audit Committee in place of Mr. LaFramboise. Mr. LaFramboise did not participate in the Audit Committee's review, discussion or recommendation with respect to matters covered by the Audit Committee's report in this Proxy Statement. Compensation Discussion and Analysis The Compensation and Human Resource Committee is responsible for reviewing and recommending to the Board the compensation and benefits for the President and CEO. This Committee also evaluates and approves our executive officer and senior management compensation plans, policies, and programs. The President and CEO is responsible for determining the compensation and benefits for the CFO and named executive officers based on their annual performance reviews and the officers' years of service along with competitive market data. Compensation Objectives The Compensation and Human Resource Committee considers growth in loans and in market deposits (with the safety and soundness objectives), the level of net operating expenses, and earnings per share to be the primary ratios in measuring financial performance. Our philosophy is to maximize long-term return to shareholders consistent with safe and sound banking practices, while maintaining the commitment to superior customer and community service. We believe that the performance of executive officers in managing the business should be the basis for determining overall compensation. Consideration is also given to overall economic conditions and current competitive forces in the market place. The objectives of this Committee are to effectively balance salaries and potential compensation to an officer’s individual management responsibilities and encourage each of them to realize their potential for future contributions. The objectives are designed to attract and retain high performing executive officers who will provide leadership while attaining earnings and performance goals. What the Compensation Programs are Designed to Reward Our compensation programs are designed to reward dedicated and conscientious employment, loyalty in terms of continued employment, attainment of job related goals, and overall growth and profitability. In measuring an executive officer’s contributions, the Compensation and Human Resource Committee considers numerous factors including, among other things, our growth in loans and in market deposits, management of the level of net operating expenses, and increase in earnings per share. In rewarding loyalty and long-term service, we provide competitive retirement benefits. Review of Risks Associated with Compensation Plans Based on an analysis conducted by management and reviewed by the Compensation and Human Resource Committee, we do not believe that compensation programs for employees are reasonably likely to have a material short or long term adverse effect on our operating results. Use of Consultants In 2016, the Compensation and Human Resource Committee directly engaged the services of Blanchard Consulting Group, an independent compensation consulting firm, to assist with a total compensation review for the President and CEO, CFO, Bank President, and executive officers of the Corporation. Blanchard Consulting Group does not perform any additional services for us or any members of senior management. In addition, Blanchard Consulting Group does not have any other personal or business relationships with any Board members or officers. During 2017 and 2015, the Compensation and Human Resource Committee did not employ any services of outside compensation or benefit consultants to assist it in compensation related initiatives. Elements of Compensation Our executive compensation program has consisted primarily of base salary and benefits, annual performance incentives, benefits and perquisites, and participation in our retirement plans. How Elements Fit into Overall Compensation Objectives Individual elements of our compensation objectives are structured to reward strong financial performance, continued service, and to incentivize our leaders to excel in the future. We continually review our compensation objectives to ensure that they are sufficient to attract and retain exceptional officers. Why Each of the Elements of Compensation is Chosen and How We Determine Amounts for Each Element Base Salaries, which include director fees for certain executive officers, are set to provide competitive levels of compensation to attract and retain officers with strong leadership skills. We also believe it is best to pay a sufficient base salary because we believe an over-reliance on equity incentive compensation could potentially skew incentives toward short-term maximization of shareholder value as opposed to building long-term shareholder value. Competitive base salary encourages management to operate in a safe and sound manner even when incentive goals may prove unattainable. The Compensation and Human Resource Committee’s approach to determining the annual base salary of executive officers is to offer competitive salaries in comparison with other similar financial institutions. In 2016, this Committee utilized an independent compensation consultant, Blanchard Consulting Group. The independent compensation consultant established a benchmark peer group of 25 midwest financial institutions in non-urban areas with comparable average assets size ($1.2 billion —$3 billion), number of branch locations, return on average assets, and nonperforming assets. Specific factors used to decide where an executive officer’s salary should be within the established range include the historical financial performance, financial performance outlook, years of service, and job performance. The Compensation and Human Resource Committee targeted total compensation for the President and CEO using ranges obtained from the independent compensation consultant as well as other published surveys and resources. Compensation for the CFO and other named executive officers was based on the ranges provided by the other surveys and resources mentioned above. Annual Performance Incentives are used to reward executive officers based on our overall financial performance. This element of the compensation program is included in the overall compensation in order to reward employees above and beyond their base salaries when our performance and profitability exceed established annual targets. The inclusion of this incentive encourages management to be diligent in managing to achieve specific financial goals without incurring inordinate risks. Annual performance incentives paid in 2017 were determined by reference to four performance measures that related to services performed in 2016. The maximum cash award that may be granted to each eligible employee equals 10% of the employee’s base salary (the “Maximum Award”). The payment of 35% of the 10% Maximum Award (“personal performance goals”) is based on the achievement of goals set for each individual. The Compensation and Human Resource Committee is responsible for establishing personal goals and measuring the achievement of personal goals for the President and CEO. This Committee also reviews the performance of the President and CEO. The President and CEO is responsible for establishing personal goals and measuring the achievement of these goals for the CFO and other named executive officers. The Compensation and Human Resource Committee uses the following quantitative and qualitative factors as measures of corporate performance in determining annual cash bonus amounts to be paid: • Development and implementation of strategic initiatives; • Results of actual annual operating performance as compared to budget; • Community and industry involvement; • Results of audit and regulatory exams; and • Other strategic goals as established by the Board. Each of the executive officers who were eligible to participate in 2016 accomplished their personal performance goals and were accordingly paid 35% of the 2016 Maximum Award in 2017. The payment of the remaining 65% of the 10% Maximum Award (“corporate performance goals”) was conditioned on the achievement of targets in the following four categories: • Earnings per share (weighted 40%); • Net operating expenses to average assets (weighted 10%); • • Loan average balance growth (weighted 25%). In market deposit average balance growth (weighted 25%); and The following chart provides the 2016 target for each corporate performance goal and the performance attained for each target. Target Earnings per share Net operating expenses to average assets In market deposit average balance growth Loan average balance growth (1) Adjusted for incentive calculation measures. 4.47% 25.00% 50.00% 75.00% 100.00% 2016 Targets 2016 Performance (1) Target % Obtained $ 1.65 $ 1.67 $ 1.70 $ 1.72 $ 1.77 100.00% 1.58% 1.56% 1.54% 1.52% 1.59% 0.00% 5.27% 5.52% 4.72% 5.77% 4.97% 6.02% 5.22% 5.40% 11.11% 25.00% 100.00% We have a stock award incentive plan which is an equity-based bonus plan. Under the plan, we may award stock bonuses to the CEO, the Corporation President, and the Bank President. The plan authorizes the issuance of vested stock to eligible employees worth up to 10% of the employee’s annualized base wages, on a calendar year basis. The plan imposes several conditions on the issuance of stock awards and transfers of shares granted under the plan are restricted. The stock bonuses awarded in 2017 were determined by reference to the same four performance measures used for the annual performance incentives that related to 2016 results and also the achievement of personal goals. Benefits and Perquisites. Executive officers are eligible for all of the benefits made available to full-time employees (such as health insurance, group term life insurance and disability insurance) on the same basis as other full-time employees and are subject to the same paid time off and other employee policies. We also provide our executive officers with certain additional perquisites, which we believe are appropriate in order to attract and retain the proper quality of talent for these positions and to recognize that similar executive perquisites are commonly offered by comparable financial institutions. We maintain a plan for qualified officers to provide death benefits to each participant which was amended in 2015 to modify certain participants' benefits and to update certain plan provisions. Insurance policies, designed primarily to fund death benefits, have been purchased on the life of each participant with the Bank as the sole owner and beneficiary of the policies. We believe that perquisites provided to our executive officers in 2017 represented a reasonable percentage of each executive’s total compensation package and are consistent, in the aggregate, with perquisites provided to executive officers of comparable financial institutions. A description and the cost of these perquisites are included in footnote 2 to the “Summary Compensation Table,” the table outlining the change in pension value, and the “Nonqualified Deferred Compensation Table” within the “Executive Officers” section. Retirement Plans. Our retirement plans are designed to assist executives in providing themselves with a financially secure retirement. The retirement plans include a 401(k) plan, a frozen defined benefit pension plan, a frozen non-leveraged employee stock ownership plan (“ESOP”), a retirement bonus plan, a supplemental executive retirement plan, and a stock award incentive plan. We provide a 401(k) plan, in which substantially all employees are eligible to participate. Employees may contribute up to 100% of their compensation subject to certain limits based on federal tax laws. The plan was amended in 2013 to provide a matching safe harbor contribution for all eligible employees equal to 100% of the first 5.0% of an employee's compensation contributed to the Plan during the year. Employees are 100% vested in the safe harbor matching contributions. Our defined benefit pension plan was curtailed effective March 1, 2007 and the current participants’ accrued benefits were frozen as of that date. Participation in the plan was limited to eligible employees as of December 31, 2006. Our non-leveraged ESOP was frozen effective December 31, 2006 to new participants. Contributions to the plan are discretionary and approved by the Board. On December 21, 2016, the Board approved the termination of the ESOP effective December 31, 2016. Actual dissolution of the ESOP is anticipated to occur in mid-2018. The retirement bonus plan is a nonqualified plan of deferred compensation benefits for eligible employees effective January 1, 2007. Benefit amounts are determined pursuant to the payment schedule adopted at the sole and exclusive discretion of the Board. In 2015 we adopted the supplemental executive retirement plan, a nonqualified deferred compensation plan, authorizing annual and discretionary credits to a participant's plan account. Credits are pursuant to a participant's agreement which sets forth the amount and timing of any annual credits and the vesting, payment, “clawback” and other terms to which the credits are subject. Compensation and Human Resource Committee Report The Compensation and Human Resource Committee Report does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Corporation filing under the Securities Act of 1933 or the Exchange Act, except to the extent the Corporation specifically incorporates this Report by reference therein. The Compensation and Human Resource Committee, which includes all of the independent directors of the Board, has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of SEC Regulation S-K with management, and based on such review and discussion, the Compensation and Human Resource Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and the Annual Report on Form 10-K. Submitted by the Compensation and Human Resource Committee of the Board: David J. Maness, Chairperson Dr. Jeffrey J. Barnes Richard J. Barz Jill Bourland* G. Charles Hubscher Thomas L. Kleinhardt Joseph LaFramboise W. Joseph Manifold W. Michael McGuire Sarah R. Opperman Gregory V. Varner * Ms. Bourland was appointed to the Compensation and Human Resource Committee in September 2017. As such, Ms. Bourland did not take part in establishing the compensation of the President and CEO; however, she did attend the Compensation and Human Resource Committee in December 2017 where the President and CEO's performance was reviewed. Executive Officers Executive officers are compensated in accordance with their employment with the applicable entity. The following table shows information on compensation earned in each of the last three fiscal years ended December 31, 2017, for the CEO, CFO, and our three other most highly compensated executive officers. Summary Compensation Table Name and principal position Jae A. Evans President and CEO Isabella Bank Corporation Dennis P. Angner (3) President and CFO (retired) Isabella Bank Corporation Jerome E. Schwind President Isabella Bank David J. Reetz Sr. Vice President and CLO Isabella Bank Peggy L. Wheeler Sr. Vice President and COO Isabella Bank Year 2017 2016 2015 2017 2016 2015 2017 2016 2015 2017 2016 2015 2017 2016 2015 $ $ $ $ $ Salary ($)(1)(5) 402,800 364,473 327,548 173,273 360,722 353,956 293,417 278,164 217,992 164,971 160,166 155,501 142,160 138,020 126,395 Bonus ($) $ 27,396 21,225 17,894 Stock Awards ($) $ 27,396 21,225 — $ 20,244 21,791 20,818 $ 20,244 21,791 — $ 19,515 14,943 13,839 $ 19,515 — — $ $ $ $ $ $ 13,023 10,642 10,082 $ 11,223 9,481 8,119 — $ — — — $ — — Change in pension value and nonqualified deferred compensation earnings ($)(6) All other compensation ($)(2) — $ — — $ $ $ $ 34,000 (304,000) (17,000) 7,000 3,000 (2,000) 28,000 41,777 (9,000) 24,000 29,518 (8,000) 45,598 48,015 40,629 10,577 31,509 30,014 37,081 31,466 31,484 26,883 25,497 22,747 14,172 14,635 14,762 Total ($) $ 503,190 454,938 386,071 $ 258,338 131,813 387,788 $ 376,528 327,573 261,315 $ 232,877 238,082 179,330 $ 191,555 191,654 141,276 Rhonda S. Tudor (4) 2017 $ 122,235 $ 9,650 $ — $ — $ 6,649 $ 138,534 Vice President and Controller (4) Isabella Bank Corporation (1) Salary amounts are paid on a bi-weekly basis which typically consists of 26 regular pay cycles during the calendar year. (2) For all named executives all other compensation includes 401(k) matching contributions. For Jae A. Evans, Jerome E. Schwind, David J. Reetz, and Peggy L. Wheeler, this also includes club dues and auto allowance. For Dennis P. Angner, this also includes auto allowance. (3) Changes in pension value in 2016 are the result of execution of domestic relations order for former spouse. (4) Not a named executive officer prior to 2017. Rhonda S. Tudor served as Interim Chief Financial Officer from March 31, 2017 to January 30, 2018. (5) Executive officer salary includes compensation voluntarily deferred under our 401(k) plan. Director and advisory board fees are also included and are displayed in the following table for each the last three fiscal years ended December 31, 2017: Name Jae A. Evans Dennis P. Angner Jerome E. Schwind David J. Reetz Peggy L. Wheeler Rhonda S. Tudor Director and advisory board fees ($) 2017 2016 2015 $ 27,800 $ 27,550 $ 14,650 37,098 — — — 43,475 23,500 — — — 27,550 45,950 — — — — (6) Includes the aggregate non-cash change in the actuarial present value of the noted executive’s accumulated benefit under the Isabella Bank Corporation Pension Plan. Pay Ratio In accordance with a mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Securities and Exchange Commission has adopted a rule requiring annual disclosure of the ratio of the median employee’s annual total compensation to the total annual compensation of the principal executive officer (“PEO”). The Corporation’s PEO is Jae A. Evans. PEO total annual compensation for 2017 Median Employee total annual compensation for 2017 Ratio of PEO to Median Employee total annual compensation for 2017 $ $ 503,190 34,752 14.5: 1 We determined the median of the annual total compensation of all employees, excluding the PEO. Employees and annual total compensation were based on employment status as of December 31, 2017. We considered all employees: full-time, part-time, seasonal and temporary employees. For full-time and part-time employees not employed for the full calendar year, we elected to annualize their compensation to accurately determine the median of annual total compensation. Total compensation was calculated consistent with calculation to determine Jae A. Evans' annual total compensation, as displayed in the Summary Compensation Table on the previous page. Total compensation is largely derived from payroll and tax records and actuarial values related to our benefit plans. We do not adjust for cost-of-living expenses or any other similar compensation adjustments. The following table provides information on grants of plan-based awards under the stock award incentive plan during 2017: Grants of Plan-Based Awards Table Name Jae A. Evans Dennis P. Angner Grant date 3/1/2017 3/1/2017 Number of shares of stock awarded Grant date fair value of stock awards (1) $ 586 493 16,285 13,700 Jerome E. Schwind 12,533 (1) The fair value of stock awards do not reflect amounts in the “Stock Awards” column in the Summary Compensation Table 3/1/2017 451 due to applicable payroll taxes withheld from the executive officers. Option Exercises and Stock Vested Table The following table provides information on vested shares pursuant to the stock award incentive plan as of December 31, 2017: Name Jae A. Evans Dennis P. Angner Jerome E. Schwind Number of shares acquired on vesting Value Realized on Vesting 1,068 $ 987 451 29,510 27,272 12,533 The following table indicates the present value of accumulated benefits as of December 31, 2017 for each named executive officer in the summary compensation table. Pension Benefits Table Name Jae A. Evans Dennis P. Angner Plan name Isabella Bank Corporation Pension Plan Isabella Bank Corporation Retirement Bonus Plan Isabella Bank Corporation Pension Plan Isabella Bank Corporation Retirement Bonus Plan Jerome E. Schwind Isabella Bank Corporation Pension Plan David J. Reetz Isabella Bank Corporation Retirement Bonus Plan Isabella Bank Corporation Pension Plan Isabella Bank Corporation Retirement Bonus Plan Peggy L. Wheeler Isabella Bank Corporation Pension Plan Isabella Bank Corporation Retirement Bonus Plan Rhonda S. Tudor Isabella Bank Corporation Pension Plan Isabella Bank Corporation Retirement Bonus Plan Number of years of vesting service as of 01/01/17 Present value of accumulated benefit ($) Payments during last fiscal year N/A N/A 34 N/A 19 N/A 31 N/A 39 N/A N/A N/A $ — $ — 371,000 426,130 56,000 — 253,000 262,340 218,000 179,110 — — — — — — — — — — — — — — Defined benefit pension plan. We sponsor the Isabella Bank Corporation Pension Plan, a frozen defined benefit pension plan. The curtailment, which was effective March 1, 2007, froze the current participant’s accrued benefits as of that date and limited participation in the plan to eligible employees as of December 31, 2006. Due to the curtailment of the plan, the number of years of credited service was frozen. As such, the years of credited service for the plan may differ from the participant’s actual years of service. Annual contributions are made to the plan as required by accepted actuarial principles, applicable federal tax laws, and to pay expenses related to operating and maintaining the plan. The amount of contributions on behalf of any one participant cannot be separately or individually computed. Pension plan benefits are based on years of service and the employees’ five highest consecutive years of compensation out of the last ten years of service, through December 31, 2006. A participant may earn a benefit for up to 35 years of accredited service. Earned benefits are 100% vested after five years of service. Benefit payments normally start when a participant reaches age 65. A participant with more than five years of service may elect to take early retirement benefits anytime after reaching age 55. Benefits payable under early retirement are reduced actuarially for each month prior to age 65 in which benefits begin. David J. Reetz and Peggy L. Wheeler are eligible for early retirement under the plan. Under the provisions of the plan, participants are eligible for early retirement after reaching the age of 55 with at least 5 years of service. The early retirement benefit amount is the accrued benefit payable at normal retirement date reduced by 5/9% for each of the first 60 months and 5/18% for each of the next 60 months that the benefit commencement date precedes the normal retirement date. Retirement bonus plan. We sponsor the Isabella Bank Corporation Retirement Bonus Plan. This nonqualified plan is intended to provide eligible employees with additional retirement benefits. To be eligible, the employee needed to be an employee on January 1, 2007, and be a participant in our frozen Executive Supplemental Income Agreement. Participants must also be an officer with at least 10 years of service as of December 31, 2006. We have sole and exclusive discretion to add new participants to the plan by authorizing such participation pursuant to action of the Board. An initial amount was credited for each eligible employee as of January 1, 2007. Subsequent amounts have been credited on each allocation date thereafter as defined in the plan. The amount of the initial allocation and the annual allocation shall be determined pursuant to the payment schedule adopted at our sole and exclusive discretion, as set forth in the plan. David J. Reetz and Peggy L. Wheeler are eligible for early retirement under the plan. Under the provisions of the plan, participants are eligible for early retirement upon attaining 55 years of age. There is no difference between the calculation of benefits payable upon early retirement and normal retirement. The following table shows information concerning non-qualified deferred compensation for 2017. Nonqualified Deferred Compensation Table Name Jae A. Evans Dennis P. Angner Jerome E. Schwind Plan Name Directors Plan SERP Directors Plan Retirement Bonus Plan Directors Plan SERP Retirement Bonus Plan Retirement Bonus Plan Executive contributions in 2017 ($) (1) Registrant contributions in 2017 ($) (2) Aggregate earnings in 2017 ($) (3) Aggregate balance at December 31, 2017 ($) (4) $ — $ $ — $ — 7,325 — 37,098 — — — 95,000 — 22,609 — 12,000 26,180 16,629 2,105 4,583 9,774 8,246 1,909 204 4,824 3,309 59,634 328,709 276,834 426,130 70,074 22,404 262,340 179,110 David J. Reetz Peggy L. Wheeler (1) The amounts shown in this column are the amounts deferred by the officers under the Deferred Compensation Plan for Directors (“Directors Plan”) and are included in the “Salary” column in the Summary Compensation Table above. (2) The amounts shown in this column are the amounts we contributed to the officers’ account under the Retirement Bonus Plan and the SERP. These amounts are not included in the Summary Compensation Table. (3) The amounts shown in this column are the earnings in the officers’ accounts under the Directors Plan, Retirement Bonus Plan and the SERP. These amounts are not included in the Summary Compensation Table because the earnings are not preferential. (4) The amounts shown in this column are the combined balance of the applicable executive officers’ accounts under the Directors Plan, Retirement Bonus Plan and the SERP. Directors Plan. Under the Directors Plan, directors, including named executive officers who serve as directors, are required to invest at least 25% of their board fees in our common stock and may invest up to 100% of their earned fees based on their annual election. These amounts are reflected in the above table. These stock investments can be made either through deferred fees or through the purchase of shares through the Isabella Bank Corporation Stockholder Dividend Reinvestment and Employee Stock Purchase Plan ("DRIP Plan"). Deferred fees, under the Directors Plan, are converted on a quarterly basis into shares of our common stock based on the fair market value of shares at that time. Shares credited to a participant’s account are eligible for stock and cash dividends as paid. DRIP Plan shares are purchased on a monthly basis pursuant to the DRIP Plan. Distribution of deferred fees from the Directors Plan occurs when the participant retires from the Board, attains age 70, or upon the occurrence of certain other events. Distributions must take the form of shares of our common stock. Any common stock issued from deferred fees under the Directors Plan will be considered restricted stock under the Securities Act of 1933, as amended. Common stock purchased through the DRIP Plan are not considered restricted stock under the Securities Act of 1933, as amended. SERP. Under the SERP, we may promise deferred compensation benefits to employees who are members of a select group of management or highly compensated employees, which may include the named executive officers. The SERP authorizes us to make annual and discretionary credits to a participant’s SERP account pursuant to a participation agreement with the participant that sets forth the amount and timing of any annual credits and the vesting, payment, “clawback” and other terms to which the credits are subject. The SERP provides default terms that may be modified by a participant’s participation agreement, including default vesting, interest and payment terms. Under the SERP’s default vesting terms, a participant is initially unvested in the participant’s SERP account and becomes 100% vested upon attaining normal retirement age, retirement, involuntary separation from service without cause, death, disability or a change in control. Special vesting rules apply to amounts that are credited after a change in control. Under the SERP’s interest rule, a participant’s account balance is credited with interest annually, the rate of which may be changed and is initially based on the average rate paid on certificates of deposit with Isabella Bank, updated annually. Under the SERP’s default payment terms, a participant’s vested and nonforfeited account balance will be paid in a single cash lump sum within 90 days after the first to occur of the participant’s separation from service (subject to a 6-month delay for a “specified employee”), death, disability, or any date specified in the participant’s participation agreement. The SERP also includes restrictive covenants that restrict a participant’s ability to compete with us and certain other activities. Potential Payments Upon Termination or Change in Control The estimated amounts payable to each named executive officer upon severance from employment, retirement, termination upon death or disability or termination following a change in control are described below. For all termination scenarios, the amounts assume such termination took place as of December 31, 2017. Any Severance of Employment Regardless of the manner in which a named executive officer’s employment terminates, he or she is entitled to receive amounts earned during his or her term of employment. Such amounts include: • Amounts accrued and vested through the Defined Benefit Pension Plan. • Amounts accrued and vested through the Retirement Bonus Plan. • Amounts deferred in the Directors Plan. • Amounts vested through the Stock Award Incentive Plan. • Unused vacation pay. Retirement In the event of the retirement of an executive officer, the officer would receive the benefits identified above. Death or Disability In the event of death or disability of an executive officer, in addition to the benefits listed above, the executive officer will also receive payments under our life insurance plan or under our disability plan as appropriate. In addition to potential payments upon termination available to all employees, the estates for the executive officers listed below would receive the following payments upon death: Name Jae A. Evans Dennis P. Angner Jerome E. Schwind David J. Reetz Peggy L. Wheeler Rhonda S. Tudor Change in Control While an Active Employee Subsequent to Retirement $ 750,000 $ — 512,638 329,942 284,320 — 375,000 158,623 256,319 164,971 142,160 — We currently do not have a change in control agreement with any of the executive officers; provided, however, pursuant to the Retirement Bonus Plan each participant would become 100% vested in their benefit under the plan if, following a change in control, they voluntarily terminate employment or are terminated without just cause. Similarly, under the SERP each participant would become 100% vested in their SERP account upon a change in control. Also, following a change in control, if a participant is involuntarily terminated without cause or voluntarily terminates for good reason all uncredited annual credits would be credited to his or her SERP account. If termination took place on December 31, 2017, that would have resulted in a credit to Jae Evans’ SERP account of $328,709 and Jerome Schwind's SERP account of $22,404. The following table summarizes the compensation of each non-employee director who served on the Board during 2017. Director Compensation Name Dr. Jeffrey J. Barnes Richard J. Barz Jill Bourland G. Charles Hubscher Thomas L. Kleinhardt Joseph LaFramboise David J. Maness W. Joseph Manifold W. Michael McGuire Sarah R. Opperman Fees paid in cash ($)(1) Fees deferred under Directors Plan ($)(1) Total fees earned ($) $ — $ 29,550 $ 33,150 5,704 — — 18,000 26,402 — 29,853 9,575 — 5,704 33,050 37,100 22,750 26,490 40,500 10,214 29,075 29,550 33,150 11,408 33,050 37,100 40,750 52,892 40,500 40,067 38,650 Gregory V. Varner 44,850 (1) Directors electing to receive all fees in cash, resulting in no contributions to the Directors Plan, invest at least 25% of their board fees in our common stock under the DRIP Plan as described in our Directors Plan within the “Executive Officers” section. 44,850 — We paid $1,350 per board meeting plus a retainer of $10,000 to each member during 2017. Members of the Audit Committee were paid $650 per Audit Committee meeting attended. Members of the Nominating and Corporate Governance Committee were paid $350 per meeting attended. The chairperson of the Board is paid a retainer of $35,000, the chairperson for the Audit Committee is paid a retainer of $6,000, and the vice chairperson for the Audit Committee is paid a retainer of $2,000. Under the Directors Plan, upon a participant’s attainment of age 70, retirement from the Board, or the occurrence of certain other events, the participant is eligible to receive a lump-sum, in-kind distribution of all of the stock that is then credited to the participant's account. The plan does not allow for cash settlement. Stock issued under the Directors Plan is restricted stock under the Securities Act of 1933, as amended. We established a Rabbi Trust to supplement the Directors Plan. The Rabbi Trust is an irrevocable grantor trust to which we may contribute assets for the limited purpose of funding a nonqualified deferred compensation plan. Although we may not reach the assets of the Rabbi Trust for any purpose other than meeting its obligations under the Directors Plan, the assets of the Rabbi Trust remain subject to the claims of our creditors. We may contribute cash or common stock to the Rabbi Trust from time-to- time for the sole purpose of funding the Directors Plan. The Rabbi Trust will use any cash that we may contribute to purchase shares of our common stock on the open market. We transferred $419,173 to the Rabbi Trust in 2017, which held 31,769 shares of our common stock for settlement as of December 31, 2017. As of December 31, 2017, there were 195,140 shares of common stock credited to participants’ accounts, which credits are unfunded as of such date to the extent that they are in excess of the stock and cash that has been credited to the Rabbi Trust. All amounts are unsecured claims against our general assets. The net cost of this benefit was $194,930 in 2017. The following table displays the cumulative number of equity shares credited to the accounts of current directors pursuant to the terms of the Directors Plan as of March 9, 2018: Name Dr. Jeffrey J. Barnes Richard J. Barz Jill Bourland Jae A. Evans G. Charles Hubscher Thomas L. Kleinhardt Joseph LaFramboise David J. Maness W. Joseph Manifold W. Michael McGuire Sarah R. Opperman Jerome E. Schwind Gregory V. Varner # of shares of stock credited 13,604 — 203 2,111 18,613 26,454 12,546 29,529 21,683 10,026 3,560 2,481 9,725 Compensation and Human Resource Committee Interlocks and Insider Participation In 2017, the Compensation and Human Resource Committee members were directors Barnes, Barz, Bourland, Hubscher, Kleinhardt, LaFramboise, Maness, Manifold, McGuire, Opperman, and Varner. No executive officer of the Corporation serves on any board of directors or compensation committee of any entity that compensates any member of the Compensation and Human Resource Committee. Indebtedness of and Transactions with Management Certain directors and officers and members of their families were loan customers of the Bank, or have been directors or officers of corporations, members or managers of limited liability companies, or partners of partnerships which have had transactions with the Bank. In our opinion, all such transactions were made in the ordinary course of business and were substantially on the same terms, including collateral and interest rates, as those prevailing at the same time for comparable transactions with customers not related to the Bank. These transactions do not involve more than normal risk of collectability or present other unfavorable features. Total loans to these customers were approximately $4,335,000 as of December 31, 2017. We address transactions with related parties in our Code of Business Conduct and Ethics Policy. Conflicts of interest are prohibited, except under board approved guidelines. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information as of March 9, 2018 as to our common stock owned beneficially by each director and director nominee, by each named executive officer, and by all directors, director nominees and executive officers as a group. Name of Owner Dennis P. Angner (retired) Dr. Jeffrey J. Barnes Richard J. Barz Jill Bourland Jae A. Evans G. Charles Hubscher Thomas L. Kleinhardt Joseph LaFramboise David J. Maness W. Joseph Manifold W. Michael McGuire Sarah R. Opperman David J. Reetz Jerome E. Schwind Rhonda S. Tudor Gregory V. Varner Peggy L. Wheeler All Directors, nominees and Executive Officers as a Group (17) persons Amount and Nature of Beneficial Ownership (1) Percent of Class 28,072 20,847 33,903 418 13,600 192,405 80,014 13,908 35,898 26,635 106,387 10,682 10,323 5,033 74 10,777 10,967 599,943 0.35% 0.26% 0.42% 0.01% 0.17% 2.39% 0.99% 0.17% 0.45% 0.33% 1.32% 0.13% 0.13% 0.06% (2) 0.13% 0.14% 7.48% (1) Beneficial ownership is defined by rules of the SEC and includes shares that the person has or shares voting or investment power over and shares that the person has a right to acquire within 60 days from March 9, 2018. Totals for directors include shares of stock credited under the Directors Plan as of March 9, 2018 as disclosed in the “Director Compensation” section. Participants in the Directors Plan have a right to acquire shares credited to their accounts upon a distributable event. A description of the Directors Plan under which these shares of stock were issued is set forth in our Directors Plan within the “Executive Officers” section. (2) Percentage is below 0.01%. Independent Registered Public Accounting Firm The Audit Committee has appointed Rehmann Robson LLC as our independent auditors for the year ending December 31, 2018. A representative of Rehmann Robson LLC is expected to be present at the Annual Meeting to respond to appropriate questions from shareholders and to make any comments Rehmann Robson LLC believes are appropriate. Fees for Professional Services Provided by Rehmann Robson LLC The following table shows the aggregate fees billed by Rehmann Robson LLC for the audit and other services provided for: Audit fees Audit related fees Tax fees Total 2017 2016 304,255 $ 295,094 20,651 23,382 28,500 24,410 348,288 $ 348,004 $ $ The audit fees were for performing the integrated audit of our consolidated annual financial statements and the internal control attestation report related to the Federal Deposit Insurance Corporation Improvement Act, reviews of interim quarterly financial statements included in our Forms 10-Q, and services that are normally provided by Rehmann Robson LLC in connection with statutory and regulatory filings or engagements. The audit related fees are typically for various discussions related to the adoption and interpretation of new accounting pronouncements. During 2017, this includes fees for procedures related to nonrecurring regulatory filings. Also included are fees for auditing of our employee benefit plans. The tax fees were for the preparation of our state and federal income tax returns and for consultation on various tax matters. The Audit Committee has considered whether the services provided by Rehmann Robson LLC, other than the audit fees, are compatible with maintaining Rehmann Robson LLC’s independence and believes that the other services provided are compatible. Pre-Approval Policies and Procedures All audit and non-audit services over $5,000 to be performed by Rehmann Robson LLC must be approved in advance by the Audit Committee if those fees are reasonably expected to exceed 5.0% of the current year agreed upon fee for independent audit services. As permitted by SEC rules, the Audit Committee has authorized its chairperson to pre-approve audit, audit- related, tax and non-audit services, provided that such approved service is reported to the full Audit Committee at its next meeting. As early as practicable in each calendar year, the independent auditor provides to the Audit Committee a schedule of the audit and other services that the independent auditor expects to provide or may provide during the next twelve months. The schedule will be specific as to the nature of the proposed services, the proposed fees, timing, and other details that the Audit Committee may request. The Audit Committee will by resolution authorize or decline the proposed services. Upon approval, this schedule will serve as the budget for fees by specific activity or service for the next twelve months. A schedule of additional services proposed to be provided by the independent auditor, or proposed revisions to services already approved, along with associated proposed fees, may be presented to the Audit Committee for their consideration and approval at any time. The schedule will be specific as to the nature of the proposed service, the proposed fee, and other details that the Audit Committee may request. The Audit Committee will by resolution authorize or decline authorization for each proposed new service. Applicable SEC rules and regulations permit waiver of the pre-approval requirements for services other than audit, review or attest services if certain conditions are met. Out of the services characterized above as audit-related, tax and professional services, none were billed pursuant to these provisions in 2017 and 2016 without pre-approval. Shareholder Proposals Any proposals which you intend to present at the next Annual Meeting must be received before November 28, 2018 to be considered for inclusion in our Proxy Statement and proxy for that meeting. Proposals should be made in accordance with Securities and Exchange Commission Rule 14a-8. Directors’ Attendance at the Annual Meeting of Shareholders Our directors are encouraged to attend the Annual Meeting. At the 2017 Annual Meeting, all directors were in attendance. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires our directors and certain officers and persons who own more than 10% of our common stock, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock. These officers, directors, and greater than 10% shareholders are required by SEC regulation to furnish us with copies of these reports. To our knowledge, based solely on review of the copies of such reports furnished, during the year ended December 31, 2017 all Section 16(a) filing requirements were satisfied, with respect to the applicable officers, directors, and greater than 10% beneficial owners with the exception of the following: director Maness filed one late report for one reportable transaction and director and executive officer Schwind filed one late report for one reportable transaction. Other Matters We will bear the cost of soliciting proxies. In addition to solicitation by mail, officers and other employees may solicit proxies by telephone or in person, without compensation other than their regular compensation. As to Other Business Which May Come Before the Meeting We do not intend to bring any other business before the meeting for action. However, if any other business should be presented for action, it is the intention of the persons named in the enclosed form of proxy to vote in accordance with their judgment on such business. By order of the Board of Directors Debra Campbell, Secretary SHAREHOLDERS’ INFORMATION Financial Information and Form 10-K Copies of the 2017 Annual Report, Isabella Bank Corporation Form 10-K, and other financial information not contained herein are available on the Bank’s website (www.isabellabank.com) under the Investors tab, or may be obtained, without charge, by writing to: Debra Campbell Secretary Isabella Bank Corporation 401 N. Main St. Mt. Pleasant, Michigan 48858 ANNUAL SHAREHOLDER MEETING May 8, 2018 at 5:00 p.m. Comfort Inn Conference Center l 2424 South Mission Street, Mt. Pleasant, MI 48858 STOCK INFORMATION Isabella Bank Corporation common stock is traded in the over-the-counter market. The common stock is quoted on the OTCQX tier of the OTC Markets Group, Inc.’s electronic quotation system (www.otcmarkets.com) under the symbol “ISBA”. Other trades in the common stock occur in privately negotiated transactions from time to time of which the Corporation may have limited or no information. Current stock price and availability can be obtained by contacting Shareholder Services, the Isabella Bank Investment and Trust Services Department, Boenning & Scattergood, Inc. or a licensed broker. SHAREHOLDER SER VICES For more information, contact Debra Campbell (989) 779-6237 | 401 North Main Street, Mt. Pleasant, MI 48858 or www.isabellabank.com  Investors TRANSFER AGENT Isabella Bank Corporation (989) 779-6237 | 401 North Main Street, Mt. Pleasant, MI 48858 CORPORATE BROKER Boenning & Scattergood, Inc. (866) 326-8113 | 9922 Brewster Lane, Powell, OH 43065 or www.boenninginc.com LEGAL COUNSEL Foster Swift Collins & Smith, PC 313 South Washington Square, Lansing, MI 48933 or www.fosterswift.com INDEPENDENT CER TIFIED PUBLIC ACCOUNTING FIRM Rehmann Robson LLC 5800 Gratiot Rd. Suite 201, Saginaw, MI 48638 or www.rehmann.com This report includes forward-looking statements. To the extent that the foregoing information refers to matters that may occur in the future, please be aware that such forward-looking statements may differ materially from actual results. Additional information concerning some of the factors that could cause materially different results is included in the sections entitled “Risk Factors” and “Forward Looking Statements” set forth in Isabella Bank Corporation’s filings with the Securities and Exchange Commission, which are available from the Securities and Exchange Commission’s Public Reference facilities and from its website at www.sec.gov. 401 NORTH MAIN STREET, MT. PLEASANT, MI 48858 

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