What changed in this filing

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Item 1A. Risk Factors

2026-03-13 compared with 2025-03-12 · 111 added, 35 removed, 207 unchanged (41% of the section changed)

Risk Factors.

An investment in our common stock is subject to risks inherent to our business.

An investment in our common stock is subject to risks and uncertainties.

The material risks and uncertainties that management believes affect us are described below.

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Credit losses are inherent in the business of making loans and could have a material adverse effect on our operating results.

There are risks inherent in making any loan, including risks inherent in dealing with individual borrowers, risks of non-payment, risks resulting from uncertainties as to the future value of collateral, and risks resulting from changes in economic and industry conditions and increases in inflation and interest rates.

The credit quality of our loan portfolio can be influenced by several factors, including changes in economic conditions, the financial health of borrowers, industry-specific risks, and local market conditions.

A downturn in the local or national economy could lead to higher unemployment rates, reduced consumer spending, and lower demand for credit, which in turn could increase the risk of loan defaults and charge-offs.

Even in stable economic environments, we may experience higher-than-expected loan delinquencies or defaults, which could lead to increased provisions for loan losses and adversely impact our profitability and capital.

Changes in the economy can also cause the assumptions that we made at origination to change and can cause borrowers to be unable to make payments on their loans, and significant changes in collateral values can cause us to be unable to collect the full value of loans we make.

In addition, increases in interest rates and inflation increase costs and decrease profits, reducing the ability of borrowers to make payments on loans.

Even in stable economic environments, we may experience higher-than-expected loan delinquencies or defaults, which could lead to increased provisions for credit losses and adversely impact our profitability and capital.

To manage the credit risk arising from lending activities, we maintain sound underwriting policies and procedures.

We continuously monitor asset quality to determine the appropriateness of valuation allowances.

Credit losses could increase, and the allowance may not be adequate to cover actual loan losses.

However, there is no assurance that our credit risk monitoring and loan approval procedures are or will be adequate or will reduce the inherent risks associated with lending.

Credit losses could increase, and the allowance may not be adequate to cover actual credit losses.

We maintain an ACL to reserve for estimated expected credit losses within our loan portfolio.

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The determination of the appropriate level of the ACL inherently involves a high degree of subjectivity and requires management to make significant estimates related to current and expected future credit risks and trends, all of which may undergo material changes.

Deterioration in general economic conditions and unforeseen risks affecting clients may have an adverse effect on borrowers’ capacity to repay timely their obligations before risk grades could reflect those changing conditions.

In times of improving credit quality, with growth in our loan portfolio, the ACL may decrease as a percent of total loans.

Changes in economic and market conditions may increase the risk that the allowance would become inadequate if

borrowers experience economic and other conditions adverse to their businesses.

Although management believes the ACL is appropriate to absorb probable losses within the loan portfolio, this allowance may not be adequate.

An increase in the allowance would result in an expense for the period, thereby reducing the amount of reported net income, which may also adversely affect capital.

Maintaining the adequacy of our ACL may require that we make significant and unanticipated increases the allowance, which would result in an expense for the period, thereby reducing the amount of reported net income, which may also adversely affect capital.

In addition, federal banking regulators, as an integral part of their respective supervisory functions, periodically review our ACL.

The bank regulatory agencies may require us to change classifications or grades on loans, increase the ACL with large provisions for credit losses, and recognize further loan charge-offs based upon their judgments, which may be different from ours.

Any increase in the ACL required by these regulatory agencies could have a negative effect on our results of operations and financial condition.

Concentrations within the loan portfolio may increase exposure to credit losses.

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While our risk management framework includes robust underwriting standards, diversified lending practices, and monitoring of concentration risk within the portfolio, unforeseen economic shocks or industry-specific downturns could still lead to higher-than-expected loan losses, charge-offs, and impairments to collateral.

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INTEREST RATE AND LIQUIDITY RISKS

Changes in interest rates may reduce our net interest income.

As a financial institution, our earnings and cash flows are largely dependent upon our ability to generate net interest income.

As a financial institution, our earnings and cash flows are largely dependent upon our ability to generate net interest income, which is the difference between interest income we earn as a result of interest paid to us on loans and investments and interest we pay to third parties such as our depositors and those from whom we borrow funds.

As interest rates change, net interest income is affected.

Interest rate risk results from the timing differences in the maturity or repricing frequency of a financial institution’s interest earning assets, such as loans and securities, and its interest bearing liabilities, such as deposits and borrowed funds.

Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions, changes in monetary policy, demand for loans, securities and deposits, policies of various governmental and regulatory agencies, and a change over time in the mix of our loans and investment securities as well as our deposits and other liabilities.

Sustained low levels of market interest rates, as experienced prior to 2022, would place downward pressure on our net interest margins and, therefore, on our earnings.

Conversely, increases in interest rates, though they could increase our interest margins absent a commensurate rise in our cost of funds, also have the potential to affect borrowers’ ability to repay, particularly for the small and medium sized businesses to which we lend, subjecting us to potential loan losses.

This effect could be exacerbated by an inflationary environment.

We monitor the potential effects of changes in interest rates through simulations and gap analyses.

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The value of our investment securities portfolio may be negatively impacted by fluctuations in the market, including credit deterioration of the issuers of individual securities.

Factors beyond our control can significantly influence and cause adverse changes to occur in the fair values of securities in our investment securities portfolio.

These factors include, but are not limited to, rating agency actions in respect of the investment securities in our portfolio, defaults by the issuers of such securities, concerns with respect to the enforceability of the payment or other key terms of such securities, changes in market interest rates, continued instability in the capital markets, and lack of liquidity or marketability.

Any of these factors, as well as others, could cause other-than-temporary impairments and realized or unrealized losses in future periods and declines in other comprehensive income, which could materially and adversely affect our business, results of operations, financial condition, and prospects.

A volatile interest rate environment, illiquid market, or decline in credit quality could require us to recognize a credit-related impairment to the investment securities held in our portfolio.

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Retail deposits, cash, and unencumbered AFS securities are our primary sources of liquidity, supplemented by alternative and wholesale funding sources.

In addition, from time to time, we borrow from the FHLB.

Potential alternative sources of liquidity include the sale of loans, the acquisition of national market non-core deposits, the issuance of additional collateralized borrowings such as the FHLB, advances, access to the FRB discount window, and the issuance of additional equity securities and/or debt.

Our ability to manage liquidity will be hindered if we are unable to maintain access to funding or if adequate financing is not available to accommodate future growth at acceptable costs.

In addition, if we rely too heavily on more expensive funding sources to support future growth, our operating margins and profitability would be adversely affected.

Furthermore, if the Corporation is unable to raise adequate funds through external sources, the Corporation may need to sell assets with unrealized losses in order to generate additional liquidity, which could decrease the capital of the Corporation and have an adverse effect on our business, financial condition, and results of operations.

Minimum capital requirements may adversely affect our ability to pay cash dividends, reduce our profitability, or otherwise adversely affect our business, financial condition or results of operations.

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The Corporation depends on dividends, distributions, and other payments from its banking and non-banking subsidiaries to fund dividend payments on its common stock, debt service of subordinated borrowings, fund stock repurchase program, and to fund strategic initiatives or other obligations.

The Corporation’s subsidiaries are subject to laws that authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to the Corporation based on assertion that certain payments from subsidiaries are considered an unsafe or unsound practice, which could impede our access to funds that we may need to make payments on our obligations or dividend payments, if and when declared from time to time by our board of directors in its sole discretion out of funds legally available for that purpose.

The Bank is not obligated to pay dividends to us.

Furthermore, the Corporation’s subsidiaries are subject to laws that authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to the Corporation based on assertion that certain payments from subsidiaries are considered an unsafe or unsound practice, which could impede our access to funds that we may need to make payments on our obligations or dividend payments, if and when declared from time to time by our Board in its sole discretion out of funds legally available for that purpose.

Earnings may not grow if we are unable to successfully attract core deposits and lending opportunities and execute opportunities to generate fee-based income.

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The Corporation’s ability to continue to grow depends, in part, upon our ability to expand our market share, to successfully attract core deposits and identify loan and investment opportunities, as well as opportunities to generate fee-based income.

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to manage growth successfully will also depend on whether we can continue to efficiently fund asset growth and maintain asset quality and cost controls, as well as on factors beyond our control, such as economic conditions and interest-rate trends.

Our ability to manage growth successfully will also depend on whether we can continue to efficiently fund asset growth and maintain asset quality and cost controls, as well as on factors beyond our control, such as economic conditions and interest-rate trends.

Wholesale funding sources may prove insufficient to replace deposits, support operations, and future growth.

We must maintain sufficient funds to respond to the needs of customers.

To manage liquidity, we use several funding sources in addition to core deposit growth, loan repayments and maturities of loans and securities.

To manage liquidity, we use several wholesale funding sources in addition to core deposit growth, loan repayments, and maturities of loans and securities.

These sources include FHLB and FRB advances, proceeds from the sale of securities, and loans and liquidity resources at the holding company.

Our ability to manage liquidity will be severely constrained if unable to maintain access to funding or if adequate financing is not available to accommodate future growth at acceptable costs.

In addition, if we need to rely heavily on more expensive funding sources to support future growth, revenues may not increase proportionately to cover costs.

In this case, our operating margins and profitability would be adversely affected.

At times, the cost of these funds can exceed the cost of core deposits in our market area as well as digital deposits, which could have a material adverse effect on our net interest income margins.

Wholesale funding is subject to certain practical limits such as the FHLB’s maximum borrowing capacity and our liquidity targets.

Our maximum borrowing capacity from the FHLB is based on the amount and fair market value and face amount, respectively, of commercial loans and securities we can pledge.

If we are unable to pledge sufficient collateral to secure funding from the FHLB, we may lose access to this source of liquidity that we have historically relied upon.

Additionally, we are required to establish limits on certain types of deposits including brokered deposits and listing service deposits, as well as total wholesale funding sources.

If we reach these limits, future asset growth may be reduced or halted.

If we are unable to access any of these types of funding sources or if our costs related to them increase, our liquidity and ability to support demand for loans could be materially adversely affected.

If we were not able to

replace such wholesale funding, we may have to liquidate loans, which may be at losses that would have a material adverse effect on our capital, our business, and your investment in the Corporation.

Loss of deposits or a change in deposit mix could increase our cost of funding.

Deposits are a lower cost and stable source of funding.

Our future growth will largely depend on our ability to maintain and grow our deposit base and our ability to retain our trust clients, who provide deposits.

In the current environment of elevated interest rates, our deposits may not be as stable or as interest rate insensitive as similar deposits may have been in the past, and some existing or prospective deposit customers of banks generally, including the Bank, may be inclined to pursue other investment alternatives, which may negatively impact our net interest margin.

Additionally, negative news about the Corporation or the Bank, or the banking industry in general, could negatively impact market and/or customer perceptions of the Corporation and the Bank, which could lead to a loss of depositor confidence and an increase in deposit withdrawals.

The account and deposit balances can decrease when clients perceive alternative investments, such as the stock market or real estate, as providing a better risk/return tradeoff.

In general, deposits are a low cost and stable source of funding.

We compete with banks and other financial institutions for deposits.

Funding costs may increase if deposits are lost and we are forced to replace them with more expensive sources of funding, if customers shift their deposits into higher cost products or if we need to raise interest rates to avoid losing deposits.

Higher funding costs reduce our net interest income, net interest margin, and net income.

Furthermore, the portion of our deposit portfolio that is comprised of large uninsured deposits may be more likely to be withdrawn rapidly under adverse economic conditions.

If our clients move money out of bank deposits into investments or to other financial institutions, we could lose a relatively low-cost source of funds, increasing our funding costs and reducing our net interest income, net interest margin, and net income.

Prepayments of loans may negatively impact our business as customers may prepay the principal amount of their outstanding loans at any time.

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Operational risks may also arise from employee misconduct, including fraud or theft.

It is not always possible to prevent employee error or misconduct, and the precautions we take to prevent and detect this activity may not always be effective.

These factors may lead to reputation risk and transaction risk.

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While we strive to maintain robust internal controls and oversight, there is no guarantee that operational failures will be entirely avoided.

Unauthorized disclosure of sensitive or confidential client or customer information, whether through cyber-attacks, breach of computer systems or other means could severely harm the Company’s business.

Unauthorized disclosure of sensitive or confidential client or customer information, whether through cyber attacks, breach of computer systems or other means could severely harm the Corporation’s business.

Cybersecurity.

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Regulations relating to privacy, information security, and data protection could increase our costs, affect or limit how we collect and use personal information, and adversely affect our business opportunities.

We are subject to various privacy, information security, and data protection laws, including requirements concerning security breach notification, and we could be negatively impacted by these laws.

Various state and federal banking regulators and states have also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory, or law enforcement notification in certain circumstances in the event of a security breach.

Moreover, legislators and regulators in the U.S.

are increasingly adopting or revising privacy, information security, and data protection laws that potentially could have a significant impact on our current and planned privacy, data protection, and information security-related practices, our collection, use, sharing, retention, and safeguarding of consumer or employee information, and some of our current or planned business activities.

This could also increase our costs of compliance and business operations and could reduce income from certain business initiatives.

This includes increased privacy-related enforcement activity at the federal level by the Federal Trade Commission, as well as at the state level.

Compliance with current or future privacy, data protection, and information security laws (including those regarding security breach notification) affecting customer or employee data to which we are subject could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could have a material adverse effect on our business, financial conditions, or results of operations.

Our failure to comply with privacy, data protection, and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions, and damage to our reputation, which could have a material adverse effect on our business, financial condition, or results of operations.

Our operations rely on external vendors.

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A decline in our stock price or the occurrence of a triggering event following any of our quarterly earnings releases and prior to the filing of the periodic report for that period could, under certain circumstances, require performance of a goodwill impairment test and result in an impairment charge being recorded for that period which was not reflected in such earnings release.

During 2024, our annual impairment test conducted in October, using discounted cash flows and market-based approaches, indicated that the estimated fair value of our sole reporting unit “Isabella Bank” exceeded the carrying value.

Our most recent impairment test indicated that the estimated fair value of our sole reporting unit “Isabella Bank” exceeded the carrying value.

In a future assessment, we could conclude that all or a portion of our goodwill is impaired, which would result in a non-cash charge to earnings.

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We continually monitor key economic indicators to anticipate the possible effects of downturns in the local, regional, and national economies.

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Monetary policy and economic environment could impact our financial performance.

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Expansion, growth, and acquisitions could negatively impact earnings if not successful.

We may grow organically both by geographic expansion and through business line expansion, as well as through acquisitions.

Success of these activities depends on our ability to continue to maintain and develop an infrastructure appropriate to support

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and integrate such growth.

We may grow organically both by geographic expansion and through business line expansion, as well as through acquisitions of banks and non-bank financial services companies within or outside our principal market areas.

We regularly identify and explore specific acquisition opportunities as part of our ongoing business practices.

However, we have no current arrangements, understandings, or agreements to make any material acquisitions.

We face significant competition from numerous other financial services institutions, many of which will have greater financial resources or more liquid securities than we do, when considering acquisition opportunities.

Accordingly, attractive acquisition opportunities may not be available to us.

There can be no assurance that we will be successful in identifying or completing any future acquisitions.

Success of these activities depends on our ability to continue to maintain and develop an infrastructure appropriate to support and integrate such growth.

Success may also depend on acceptance of the Bank by customers in these new markets and, in the case of expansion through acquisitions, these factors include the long-term recruitment and retention of key personnel and acquired customer relationships.

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We may be adversely affected by continuous technological change.

The financial services industry is undergoing rapid technological change which includes the frequent introduction of new technology-driven products and services.

The financial services industry is undergoing rapid technological change which includes the frequent introduction of new technology-driven products and services, including those based on artificial intelligence.

The effective use of technology increases efficiency and enables financial institutions to better serve customers.

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Products and services relying on internet and mobile technologies may expose us to fraud and cybersecurity risks.

Emerging technologies, such as artificial intelligence, may further increase the risk of a cyber-attack.

While we have policies and procedures designed to prevent or limit the effect of the failure, interruption, cyber attack, or other security breach of its information systems, there can be no assurance that any such occurrences will not occur or, if they do occur, that they will be adequately addressed.

Failure to successfully manage these risks in the development and implementation of new products or services could have a material adverse effect on our business and reputation.

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financial system, and not necessarily our shareholders.

If we do not appropriately comply with regulations, the Bank may be subject to fines, penalties or judgements, or material regulatory restrictions in its business.

If we do not appropriately comply with regulations, the Bank may be subject to fines, penalties or judgments, or material regulatory restrictions in its business.

The nature, extent, and timing of the adoption of significant new laws, changes in existing laws, or repeal of existing laws may have a material impact on our business, results of operations, and financial condition, the effect of which is impossible to predict in advance.

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Future regulatory changes or accounting pronouncements may also increase our regulatory capital requirements or adversely affect our regulatory capital levels.

The obligations associated with being a public company require significant resources and management attention.

We expect to incur incremental costs related to operating as a public company.

We are subject to the reporting requirements of the Exchange Act, which require that we file annual, quarterly and current reports with respect to our business and financial condition and proxy and other information statements, and the rules and regulations implemented by the SEC, the Sarbanes-Oxley Act, the Dodd-Frank Act, the PCAOB, and Nasdaq, each of which imposes additional reporting and other obligations.

We expect these rules and regulations and changes in laws, regulations, and standards relating to corporate governance and public disclosure to increase legal and financial compliance costs and make some activities more time consuming and costly.

These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies.

This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

Our investment in compliance with existing and evolving regulatory requirements will result in increased administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities, which could have a material adverse effect on our business, financial condition and results of operations.

Many of our new activities and expansion plans require regulatory approvals, and failure to obtain them may restrict our growth.

Generally, we must receive federal regulatory approval before we can acquire an FDIC-insured depository institution or related business.

Such regulatory approvals may not be granted on terms that are acceptable to us, or at all.

We may also be required to sell banking locations as a condition to receiving regulatory approval, which condition may not be acceptable to us or, if acceptable to us, may reduce the benefit of any acquisition.

In addition, as opportunities arise, we may continue de novo branching as a part of our expansion strategy.

De novo branching and acquisitions carry with them numerous risks, including the inability to obtain all required regulatory approvals.

The failure to obtain these regulatory approvals for potential future strategic acquisitions and de novo banking locations could impact our business plans and restrict our growth.

The FRB may require the Corporation to commit capital resources to support the Bank.

The Dodd-Frank Act and the FRB require a bank holding company to act as a source of financial and managerial strength to a subsidiary bank and to commit resources to support such subsidiary bank.

Accordingly, a capital injection may be required to provide financial assistance to the Bank if it experiences financial distress.

Such capital injection may be required at times when the Corporation may not have the resources to provide and therefore may be required to borrow the funds or raise capital to make the required capital injection.

Any borrowing by the Corporation in order to make the required capital injection may be more difficult and expensive and may adversely impact the Corporation’s financial condition, results of operations and/or future prospects.

Legal and regulatory proceedings could adversely affect us or the financial services industry in general.

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The Bank and its customers may face cost increases, asset value reductions, operating process changes, among other impacts.

The impact on our customers will likely vary depending on their

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specific attributes, including reliance on our role in carbon intensive activities that may be negatively affected by economic transition towards a lower-carbon economy.

The impact on our customers will likely vary depending on their specific attributes, including reliance on our role in carbon intensive activities that may be negatively affected by economic transition towards a lower-carbon economy.

The Bank could experience a drop in demand for its products and services, particularly in certain sectors.

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Such events may have a particularly negative impact upon the business of customers who are engaged in the hospitality industry in our markets, which could have a direct negative impact on our business and results of operations.

Further, work-from-home and other modified business practices may introduce additional operational risks, including cybersecurity and execution risks, which may result in inefficiencies or delays, and may affect our ability to, or the way we conduct our business activities.We have developed and tested disaster recovery plans for all significant aspects of our operations to minimize disruption.

We have developed and tested disaster recovery plans for all significant aspects of our operations to minimize disruption.

GENERAL RISK FACTORS

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The unexpected loss of key personnel could have an adverse impact on our business because of their skills, knowledge of the markets in which we operate, years of industry experience, and the difficulty of promptly finding a qualified replacement.

Although publicly traded, our common stock has substantially less liquidity than stocks listed on NYSE, NYSE American and NASDAQ exchanges.

Our common stock is traded on the OTC market under the symbol “ISBA.” The development and maintenance of an active public trading market depends upon the existence of willing buyers and sellers, the presence of which is beyond our control.

While we are a publicly traded company, the volume of trading activity in our stock is still relatively limited.

Even if a more active market develops, there can be no assurance that such a market will continue, or that our shareholders will be able to sell their shares at or above the price at which they acquired shares.

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An active public trading market may not be sustained.

We completed the uplisting of the Corporation’s common stock from the OTCQX market to the Nasdaq Capital Market on May 12, 2025.

An active trading market for shares of our common stock may not be sustained.

If an active trading market is not sustained, you may have difficulty selling your shares of our common stock at an attractive price, or at all.

Consequently, you may not be able to sell your shares of our common stock at or above an attractive price at the time that you would like to sell.

The market price of our common stock could be volatile and may fluctuate significantly, which could cause the value of an investment in our common stock to decline, result in losses to our shareholders and litigation against us.

The market price of our common stock may be volatile and could be subject to wide fluctuations in price in response to various factors, some of which are beyond our control.

In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition, or results of operations.

If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits.

Despite unsuccessful, as in the past, securities class action lawsuits have been instituted against some companies following periods of volatility in the market price of its securities.

We could in the future be the target of similar litigation.

Securities litigation could result in substantial costs and divert management’s attention and resources from our normal business, which could adversely affect our results of operation and financial condition.

Future equity issuances, including through our current or any future equity compensation plans, could result in dilution, which could cause the price of our shares of common stock to decline.

We may issue additional shares of our common stock in the future pursuant to current or future equity compensation plans, upon conversions of preferred stock or debt, upon exercise of warrants or in connection with future acquisitions or financings.

We may seek to raise additional funds, finance acquisitions, or develop strategic relationships by issuing additional shares of our common stock.

If we choose to raise capital by selling shares of our common stock, or securities convertible into shares of our common stock, for any reason, the issuance could have a dilutive effect on the holders of our common stock and could have a material negative effect on the market price of our common stock.

An investment in our common stock is not an insured deposit and is subject to risk of loss.

An investment in our common stock is not a bank deposit and is not insured against loss or guaranteed by the FDIC, any deposit insurance fund, or by any other public or private entity.

As a result, you could lose some or all of your investment.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors