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corresp

July 22, 2010

VIA EDGAR

Ms. Kathryn McHale

Attorney-Advisor

Division of Corporation Finance

Securities and Exchange Commission

100 F Street NE

Washington, DC 20549-4561

    Re:

    Isabella Bank Corporation

    Form 10-K

    Filed March 11, 2010

    File No. 000-18415

    Form 10-Q

    Filed May 7, 2010

    File No. 000-18415

Dear Ms. McHale:

     This letter responds to your letter of June 30, 2010 regarding the filings referenced above
for Isabella Bank Corporation (the “Corporation”). By letter dated July 6, 2010, the
Corporation confirmed its counsel’s conversation of the same date with Ms. Chris Harley regarding
the Corporation’s request to extend the time to respond to your letter. As discussed with Ms.
Harley, the staff of the Securities and Exchange Commission (the “Staff”) allowed the
Corporation to respond by July 22, 2010, instead of within the 10 business days indicated in your
June 30, 2010 letter.

     For your convenience, each of your comments in your June 30, 2010 letter is set forth below in
bold print immediately prior to the Corporation’s response.

Form 10-K for the Fiscal Year Ended December 31, 2009

Item 1A. Risk Factors

    1.

    Please review your risk factor headings and revise future filings to clearly identify the
actual risk to shareholders in the heading of each risk factor.

     Response: The Corporation acknowledges the Staff’s comment and confirms that in
future filings the Corporation will, where appropriate, revise its risk factor headings to clearly
identify the actual risks to shareholders.

Ms. Kathryn McHale

Page 2

July 22, 2010

Item 10. Executive Compensation

Compensation Discussion and Analysis, page 8

    2.

    We note your disclosure in response to Item 402(s) of Regulation S-K on page 8 of your proxy
statement. Please describe the process you undertook to reach the conclusion that the
Corporation’s compensation programs are not reasonably likely to have a material adverse
effect on the Corporation’s results of operations.

     Response: During the first quarter of 2010, the management of the Corporation
(“Management”) conducted an analysis of the Corporation’s compensation programs as of
December 31, 2009 to determine whether such programs are reasonably likely to have a material
short- or long-term adverse effect on the Corporation’s results of operations. Management believes
that incentive compensation programs have the potential to encourage excessive or imprudent risk
taking of a material nature. Accordingly, although Management reviewed all of the Corporation’s
compensation programs, Management paid particular attention to the Corporation’s incentive
compensation programs that provide for variable incentive payments tied to performance measures.

     The Corporation had one incentive compensation program as of December 31, 2009, the Senior
Executive and Management Incentive Compensation Plan (the “Executive Incentive Plan”).
Effective January 1, 2010, the Corporation adopted a new incentive program for full-time employees
who are not eligible to participate in the Executive Incentive Plan (the “Non-Executive
Incentive Plan”). Management analyzed the risks associated with each of these two incentive
compensation plans (collectively, the “Incentive Plans”) primarily in light of the Proposed
Incentive Compensation Guidance released by the Board of Governors of the Federal Reserve System in
October of 2009 (the “Guidance”).1 Management considered in its analysis the
Guidance’s general principle that incentive compensation should not reward short-term revenue or
profits in a manner that creates a misalignment of employee interest with the long-term well being
and safety and soundness of the Corporation. Management focused its analysis of the Incentive
Plans by applying the following three specific principles in the Guidance with which incentive
compensation plans should comply, and concluded as follows.

Principle One: Incentive compensation plans should provide incentives that do not encourage
excessive risk taking beyond the Corporation’s ability to effectively identify and manage.

Management found that neither of the Incentive Plans encourages excessive risk taking. The
Guidance instructs that the potential for an incentive compensation plan to encourage
employees to take excessive risks may be high if employees’ incentive compensation payments
are

    1

    On June 21, 2010, the Board of Governors of
the Federal Reserve System announced that it was adopting the Guidance in final
form and retaining the same key principles embodied in the proposed Guidance
with a number of adjustments and clarifications that address matters raised in
comments on the proposed Guidance.

Ms. Kathryn McHale

Page 3

July 22, 2010

determined by firm-wide performance measurements, such as profitability. Additionally, the
Guidance instructs that an incentive compensation program is less likely to affect an
employee’s risk-taking behavior if incentives represent a small portion of an employee’s
total compensation. Management applied these concepts to the Incentive Plans and found that
(1) incentive compensation paid pursuant to the Non-Executive Incentive Plan will be based
entirely on Corporation-wide performance measures, (2) 65% of the incentive compensation
paid pursuant to the Executive Incentive Plan is based on Corporation-wide performance
measures and 35% is based on personal performance measures, and (3) incentive compensation
paid pursuant to the Executive Incentive Plan does not, and incentive compensation paid
pursuant to the Non-Executive Incentive Plan will not, represent a significant portion of
any employee’s total compensation. Accordingly, Management concluded that, in accordance
with the Guidance, neither of the Incentive Plans encourages excessive risk taking.

Principle Two: Incentive compensation plans should be compatible with effective controls and
risk management.

Management found that all incentive compensation paid pursuant to the Non-Executive
Incentive Plan will be based on the Corporation’s financial results and that 65% percent of
the incentive compensation paid pursuant to the Executive Incentive Plan is based on the
Corporation’s financial results. Management concluded that controls over financial
reporting required by applicable law, including the Sarbanes-Oxley Act and the Federal
Deposit Insurance Corporation Improvement Act, provide a robust control structure for the
Corporation and mitigate risks related to the Incentive Plans. Additionally, Management
concluded that the Corporation’s internal risk committees for credit, investments, liquidity
and interest sensitivity as well as the Audit Committee provide adequate oversight of
significant risks and controls. Therefore, Management concluded that the Incentive Plans
are compatible with the Corporation’s effective controls and risk management.

Principle Three: Incentive compensation plans should be supported by strong corporate
governance, including active and effective oversight by the Board of Directors.

Management recognized that the Board of Directors designed the Incentive Plans pursuant to
the guiding principle that employees should be encouraged to be aware of and involved in the
Corporation’s financial performance. Management further recognized that the Board of
Directors specifically designed the Incentive Plans to align a small portion of employee
total compensation with the return to shareholders without taking excessive risks.
Management concluded that both of these facts indicate that the Board of Directors’ role in
the Incentive Plans was initially active and effective. In addition, Management recognized
that the Board of Directors has reviewed and approved the Executive Incentive Plan annually
and will review both of the Incentive Plans at least annually. Accordingly, Management
concluded that the Incentive Plans are supported by strong corporate governance, including
continued active and effective oversight by the Board of Directors.

Ms. Kathryn McHale

Page 4

July 22, 2010

     Based on its analysis under the Guidance and its review of the Corporation’s compensation
programs generally, Management concluded that the Corporation’s compensation programs are not
reasonably likely to have a material adverse effect on the Corporation’s results of operations.

     Management reported its analysis and conclusion to the Corporation’s Compensation and Human
Resource Committee (the “Committee”). The Committee thoroughly reviewed Management’s
report and independently determined that the Corporation’s compensation programs are not reasonably
likely to have a material adverse effect on the Corporation’s results of operations.

    3.

    Advise how the particular bonus awards were determined for 2009. In your response and in
future filings disclose any targets for EPS, operating performance, shareholder returns or
other strategic goals. Disclose the actual target and the actual performance obtained for
each target. See Instruction 4 to Item 402(b) of Regulation S-K.

     Response: Bonus awards shown in the Summary Compensation Table that were paid in 2009
were determined pursuant to the terms of the Executive Incentive Plan, as follows. Bonus awards
paid under the Executive Incentive Plan in 2009 were determined by reference to seven performance
measures that related to services performed in 2008. The maximum award that may be granted under
the Executive Incentive Plan to each eligible employee equals 10% of the employee’s base salary
(the “Maximum Award”). The payment of 35% of the Maximum Award was conditioned on the
eligible employee accomplishing personal performance goals that were established by such employee’s
supervisor as part of the employee’s annual performance review. Each of the employees who were
eligible to participate in the Executive Incentive Plan in 2008 accomplished his or her personal
performance goals and was accordingly paid 35% of the Maximum Award in 2009. The payment of the
remaining 65% of the Maximum Award was conditioned on the achievement of Corporation-wide targets
in the following six categories: (1) earnings per share (weighted 40%); (2) net operating expenses
to average assets2 (weighted 15%); (3) FTE net interest margin, excluding loan fees
(weighted 15%); (4) in-market deposit growth (weighted 10%); (5) loan growth (weighted 10%); and
(6) exceeding peer group return on average assets (weighted 10%). The following chart provides the
2008 target for each of the foregoing targets that were used to determine bonus awards that were
paid in 2009, as well as the performance obtained for each target.

    2

    For purposes of the Executive Incentive
Plan, net operating expenses equals the Corporation’s operating expenses, less:
FDIC insurance premiums, director fees, incentive compensation, voluntary
foundation contributions (amount in excess of withdrawals to cover “normal”
donations), deposit premium write-offs, gains from insurance death benefits,
and non-interest income excluding investment gains and losses.

Ms. Kathryn McHale

Page 5

July 22, 2010

    2008 Targets

    2008

    Target

    25.00%

    50.00%

    75.00%

    100.00%

    Performance

    Earnings per share

    $
    1.21

    $
    1.25

    $
    1.29

    $
    1.33

    $
    0.55

    Net operating expenses
to average assets

    2.19
    %

    2.18
    %

    2.17
    %

    2.16
    %

    2.25
    %

    FTE Net Interest Margin

    3.49
    %

    3.51
    %

    3.53
    %

    3.55
    %

    3.69
    %

    In market deposit growth

    4.50
    %

    5.00
    %

    5.50
    %

    6.00
    %

    -8.02
    %

    Loan growth

    5.50
    %

    6.00
    %

    6.50
    %

    7.00
    %

    4.14
    %

    Exceeding peer group
return on average
assets

    0.28
    %

    0.28
    %

    0.29
    %

    0.30
    %

    0.37
    %

     The Corporation confirms that in future filings the Corporation will disclose appropriate
targets and performance for its bonus awards pursuant to Item 402(b) of Regulation S-K.

    4.

    Please explain how the stock award determinations were made for 2009. Your CD&A should
explain how you determined the amounts and why you chose to award the stock. Please also
confirm that in future filings, you will include the disclosure required by Item 402(b) of
Regulation 10-K.

     Response: Since 2007, the Corporation has reported as Stock Awards the payment of
board fees of which inside directors defer pursuant to the terms of the Isabella Bank Corporation
and Related Companies Deferred Compensation Plan for Directors (the “Directors’ Plan”).
Pursuant to the terms of the Directors’ Plan, directors of the Corporation and its subsidiaries,
including inside directors who are executive officers of the Corporation, are required to defer at
least 25% of their earned board fees into the Directors’ Plan. The fees are converted to stock
based on the fair market value of a share of common stock as of the relevant valuation date. Stock
credited to a director’s account is eligible for stock and cash dividends as declared. Upon
retirement from the board or the occurrence of certain other distribution events, a director is
eligible to receive a lump-sum, in-kind distribution of all of the stock that is then in his or her
account, and any unconverted cash is converted to and rounded up to whole shares of stock and
distributed, as well. The Corporation determined in 2007 that, because the Directors’ Plan had
been amended to allow only for in-kind, stock settlement, amounts deferred under the Directors’
Plan were reportable as Stock Awards. Accordingly, the Corporation has since 2007 reported as
Stock Awards board fees of which inside directors defer to the Directors’ Plan. Prior to 2007, the
Corporation reported inside Directors’ deferred board fees as salary.

     Upon further review, the Corporation now believes that board fees the payment of which inside
directors defer to the Directors’ Plan are properly reportable as salary and should not be reported
as Stock Awards. The Corporation believes that this conclusion is consistent with the Instructions
to Item 402(c)(2)(iii) and (iv) of Regulation S-K and with the Staff’s response to Question 119.03
of the Compliance and Disclosure Interpretations: Regulation S-K.

Ms. Kathryn McHale

Page 6

July 22, 2010

     Therefore, based on the foregoing, the Corporation respectfully submits that the Corporation
does not provide Stock Awards as an element of its compensation program and that the Corporation’s
reporting regarding the Directors’ Plan has disclosed all material relevant information regarding
the Directors’ Plan and the benefits provided thereby. Therefore, the Corporation respectfully
advises the Staff that it believes that it is unnecessary for the Corporation to explain how stock
award determinations were made for 2009.

     The Corporation confirms that in future filings the Corporation will include all disclosures
required by Item 402(b) of Regulation S-K.

Summary Compensation Table, page 12

    5.

    In future filings include the aggregate grant date fair value of stock awards. See
Item 402(c).

     Response: The Corporation respectfully directs the Staff to the Corporation’s
response to Comment 4. The Corporation confirms that in future filings the Corporation will
include all disclosures required by Item 402(c) of Regulation S-K.

    6.

    In future filings, please provide the tables required by Items 402(d) and (f) of
Regulation S-K. Also provide an accompanying narrative discussion of the material factors
involved in any grants of stock or options, such as a general description of the criteria
applied in determining the amounts payable or a description of the performance-based
conditions and any other material conditions applicable to the award. Where appropriate,
quantify the objective and the a