ISABELLA BANK CORPISBA
ISABELLA BANK CORP Fair Value Disclosure
Fair Value
Fair value measurement requires the use of an exit price notion which may differ from entrance pricing. Generally, we believe our assets and liabilities classified as Level 1 or Level 2 approximate an exit price notion.
Following is a description of the valuation methodologies, key inputs, and an indication of the level of the fair value hierarchy in which the assets or liabilities are classified.
AFS securities: AFS securities are recorded at fair value on a recurring basis. Level 1 fair value measurement is based upon quoted prices for identical instruments. Level 2 fair value measurement is based upon quoted prices for similar instruments. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss and liquidity assumptions. The values for Level 1 and Level 2 investment securities are generally obtained from an independent third-party. On a quarterly basis, we compare the values provided to alternative pricing sources.
Loans: We do not record loans at fair value on a recurring basis. However, some loans are individually evaluated for ACL purposes, and a specific ACL may be established. To measure reserve, the fair value of the loan is estimated using the fair value of the collateral, less costs to sell if foreclosure is probable, or the present value of expected future cash flows discounted at the loan’s effective interest rate. Loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans.
We review the net realizable values of the underlying collateral for collateral dependent loans on at least a quarterly basis for all loan types. To determine the collateral value, we utilize independent appraisals, broker price opinions, or internal evaluations. We review these valuations to determine whether an additional discount should be applied given the age of market information that may have been considered as well as other factors such as costs to sell an asset if it is determined that the collateral will be liquidated in connection with the ultimate settlement of the loan. We use these valuations to determine if any specific reserves or charge-offs are necessary. We may obtain new valuations in certain circumstances, including when there has been significant deterioration in the condition of the collateral, if the foreclosure process has begun, or if the existing valuation is deemed to be outdated.
The following tables list the quantitative fair value information about loans measured at fair value on a nonrecurring basis as of December 31:
| 2025 | ||||||||||||||||||||
| Valuation Technique | Fair Value | Unobservable Input | Actual Range | Weighted Average | ||||||||||||||||
| Collateral Dependent Loans | Discount applied to collateral: | |||||||||||||||||||
| Discounted value | $ | 4,319 | Real Estate | 20% - 25% | 20% | |||||||||||||||
| Liquor license | 75% | 75% | ||||||||||||||||||
| Furniture, fixtures & equipment | 40% | 40% | ||||||||||||||||||
| 2024 | ||||||||||||||||||||
| Valuation Technique | Fair Value | Unobservable Input | Actual Range | Weighted Average | ||||||||||||||||
| Collateral Dependent Loans | Discount applied to collateral: | |||||||||||||||||||
| Discounted value | $ | 254 | Real Estate | 20% | 20% | |||||||||||||||
Collateral discount rates may have ranges to accommodate differences in the age of the independent appraisal, broker price opinion, or internal evaluation.
OMSR: OMSR (which are included in other assets) are subject to impairment testing. To test for impairment, we utilize a discounted cash flow analysis using interest rates and prepayment speed assumptions currently quoted for comparable instruments and discount rates. If the valuation model reflects a value less than the carrying value, OMSR are adjusted to fair value through a valuation allowance as determined by the model. As such, we classify OMSR subject to nonrecurring fair value adjustments as Level 3.
The following tables list the quantitative information about OMSR fair value measurement as of December 31:
| 2025 | ||||||||||||||
| Valuation Technique | Fair Value | Unobservable Input | Rate | |||||||||||
| Discounted cash flow | $ | 2,090 | Constant prepayment rate | 7% | ||||||||||
| Discount rate | 11% | |||||||||||||
| 2024 | ||||||||||||||
| Valuation Technique | Fair Value | Unobservable Input | Rate | |||||||||||
| Discounted cash flow | $ | 2,483 | Constant prepayment rate | 7% | ||||||||||
| Discount rate | 11% | |||||||||||||
The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Although we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement.
Estimated Fair Values of Financial Instruments Not Recorded at Fair Value in their Entirety on a Recurring Basis
Disclosure of the estimated fair values of financial instruments, which differ from carrying values, often requires the use of estimates. In cases where quoted market values in an active market are not available, we use present value techniques and other
valuation methods to estimate the fair values of our financial instruments. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used.
The carrying amount and estimated fair value of financial instruments not recorded at fair value in their entirety on a recurring basis were as follows as of December 31:
| 2025 | |||||||||||||||||||||||||||||
| Carrying Value | Estimated Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
| ASSETS | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 26,041 | $ | 26,041 | $ | 26,041 | $ | — | $ | — | |||||||||||||||||||
FHLB stock (1) | 5,600 | N/A | — | — | — | ||||||||||||||||||||||||
| Mortgage loans HFS | 423 | 429 | — | 429 | — | ||||||||||||||||||||||||
| Loans | 1,536,364 | 1,502,009 | — | — | 1,502,009 | ||||||||||||||||||||||||
| Less allowance for credit losses | 13,727 | 13,727 | — | — | 13,727 | ||||||||||||||||||||||||
| Net loans | 1,522,637 | 1,488,282 | — | — | 1,488,282 | ||||||||||||||||||||||||
| Accrued interest receivable | 8,397 | 8,397 | 8,397 | — | — | ||||||||||||||||||||||||
Equity securities without readily determinable fair values (1) | 3,086 | N/A | — | — | — | ||||||||||||||||||||||||
| LIABILITIES | |||||||||||||||||||||||||||||
| Deposits without stated maturities | 1,409,589 | 1,409,589 | 1,409,589 | — | — | ||||||||||||||||||||||||
| Deposits with stated maturities | 410,065 | 409,191 | — | 409,191 | — | ||||||||||||||||||||||||
| Short-term borrowings | 68,000 | 66,355 | — | 66,355 | — | ||||||||||||||||||||||||
| FHLB advances | 45,000 | 45,004 | — | 45,004 | — | ||||||||||||||||||||||||
Subordinated debt, net of unamortized issuance costs | 29,514 | 29,095 | — | 29,095 | — | ||||||||||||||||||||||||
| Accrued interest payable | 1,059 | 1,059 | 1,059 | — | — | ||||||||||||||||||||||||
| 2024 | |||||||||||||||||||||||||||||
| Carrying Value | Estimated Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
| ASSETS | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 24,542 | $ | 24,542 | $ | 24,542 | $ | — | $ | — | |||||||||||||||||||
FHLB stock (1) | 12,762 | N/A | — | — | — | ||||||||||||||||||||||||
| Mortgage loans HFS | 242 | 247 | — | 247 | — | ||||||||||||||||||||||||
| Loans | 1,423,571 | 1,363,883 | — | — | 1,363,883 | ||||||||||||||||||||||||
| Less allowance for credit losses | 12,895 | 12,895 | — | — | 12,895 | ||||||||||||||||||||||||
| Net loans | 1,410,676 | 1,350,988 | — | — | 1,350,988 | ||||||||||||||||||||||||
| Accrued interest receivable | 8,085 | 8,085 | 8,085 | — | — | ||||||||||||||||||||||||
Equity securities without readily determinable fair values (1) | 3,086 | N/A | — | — | — | ||||||||||||||||||||||||
| LIABILITIES | |||||||||||||||||||||||||||||
| Deposits without stated maturities | 1,359,469 | 1,359,469 | 1,359,469 | — | — | ||||||||||||||||||||||||
| Deposits with stated maturities | 387,591 | 385,200 | — | 385,200 | — | ||||||||||||||||||||||||
| Short-term borrowings | 53,567 | 53,503 | — | 53,503 | — | ||||||||||||||||||||||||
| FHLB advances | 30,000 | 30,000 | — | 30,000 | — | ||||||||||||||||||||||||
| Subordinated debt, net of unamortized issuance costs | 29,424 | 27,658 | — | 27,658 | — | ||||||||||||||||||||||||
| Accrued interest payable | 1,051 | 1,051 | 1,051 | — | — | ||||||||||||||||||||||||
(1) Due to the characteristics of equity securities without readily determinable fair values, they are not disclosed under a specific fair value hierarchy. When an impairment or write-down related to these securities is recorded, such amount would be classified as a nonrecurring Level 3 fair value adjustment.
Financial Instruments Recorded at Fair Value
The table below presents the recorded amount of assets and liabilities measured at fair value on December 31:
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||||||||||||
| Recurring items | |||||||||||||||||||||||||||||||||||||||||||||||
| AFS securities | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury | $ | 197,534 | $ | — | $ | 197,534 | $ | — | $ | 220,571 | $ | — | $ | 220,571 | $ | — | |||||||||||||||||||||||||||||||
| States and political subdivisions | 69,205 | — | 69,205 | — | 76,568 | — | 76,568 | — | |||||||||||||||||||||||||||||||||||||||
| Auction rate money market preferred | 2,413 | — | 2,413 | — | 3,044 | — | 3,044 | — | |||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | 22,252 | — | 22,252 | — | 26,886 | — | 26,886 | — | |||||||||||||||||||||||||||||||||||||||
| Collateralized mortgage obligations | 200,466 | — | 200,466 | — | 154,674 | — | 154,674 | — | |||||||||||||||||||||||||||||||||||||||
| Corporate | 5,921 | — | 5,921 | — | 7,286 | — | 7,286 | — | |||||||||||||||||||||||||||||||||||||||
| Total AFS securities | 497,791 | — | 497,791 | — | 489,029 | — | 489,029 | — | |||||||||||||||||||||||||||||||||||||||
| Nonrecurring items | |||||||||||||||||||||||||||||||||||||||||||||||
| Collateral dependent (net of ACL) | 4,319 | — | — | 4,319 | 254 | — | — | 254 | |||||||||||||||||||||||||||||||||||||||
| OMSR | 2,090 | — | — | 2,090 | 2,185 | — | — | 2,185 | |||||||||||||||||||||||||||||||||||||||
| Foreclosed assets | 938 | — | — | 938 | 544 | — | — | 544 | |||||||||||||||||||||||||||||||||||||||
| Total | $ | 505,138 | $ | — | $ | 497,791 | $ | 7,347 | $ | 492,012 | $ | — | $ | 489,029 | $ | 2,983 | |||||||||||||||||||||||||||||||
| Percent of assets and liabilities measured at fair value | 0.00 | % | 98.55 | % | 1.45 | % | 0.00 | % | 99.39 | % | 0.61 | % | |||||||||||||||||||||||||||||||||||
We recorded impairments of $3 and $1 through earnings related to fair value changes in OMSR for the years ended December 31, 2025 and 2024. We also recorded impairments of $89 and $0 through earnings related to fair value changes in foreclosed assets for the years ended December 31, 2025 and 2024. We had no other assets or liabilities recorded at fair value with changes in fair value recognized through earnings, on a recurring basis or nonrecurring basis, as of December 31, 2025 and 2024.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 13, 2026 | Showing above |
| 2024 | Mar 12, 2025 | |
| 2023 | Mar 7, 2024 | |
| 2022 | Mar 7, 2023 | |
| 2021 | Mar 15, 2022 | |
| 2020 | Mar 10, 2021 | |
| 2019 | Mar 16, 2020 | |
| 2018 | Mar 14, 2019 | |
| 2017 | Mar 16, 2018 | |
| 2016 | Mar 7, 2017 | |
| 2015 | Mar 14, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.