Company: ISBA
Filing Date: 2025-03-12
Form Type: 10-K
Source: 0000842517-25-000053
Chunk: 8

Company: ISABELLA BANK CORP
Filing Date: 2025-03-12
Form: 10-K
Item: Item 1A
Chunk 8
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, all of which may undergo material changes. 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.

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

A financial institution’s exposure to risk increases if a disproportionate amount of the loan portfolio is extended to a single borrower, specific industry sector, or geographic area.  A downturn in the economy, natural disaster, or industry-specific stressor may have a larger impact on the financial health of those borrowers, and in turn, the financial institution. 

The Bank’s loan portfolio consists of consumer, commercial, and agricultural loans. 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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Table of Contents

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.  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, and policies of various governmental and regulatory agencies. We monitor the potential effects of changes in interest rates through simulations and gap analyses. To help mitigate the effects of changes in interest rates, we make significant efforts to stagger projected cash flows and maturities of interest sensitive assets and liabilities.

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.

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. We consider many factors in determining whether a credit-related impairment exists including the length of time and extent to which fair value has been less than cost, the investment credit rating, and the probability that the issuer will be unable to pay the amount when due. While we do