SecProbe.io

CORRESP
1
filename1.htm

SEC Response Letter

 January 24, 2013

 VIA EDGAR

 Mr. Marc Thomas

 Reviewing Accountant

 Division of Corporation Finance

Securities and Exchange Commission

 100 F Street
NE

 Washington, DC 20549-4561

 Dear
Mr. Thomas:

Re:
Isabella Bank Corporation

 Form
10-K for Fiscal Year Ended December 31, 2011

 Filed March 12, 2012

Form 10-Q for Fiscal Quarter Ended September 30, 2012

 Filed November 7, 2012

 File No. 000-18415

This letter responds to your letter dated December 27, 2012 regarding the filings referenced above for Isabella Bank Corporation
(the “Corporation”). By letter dated December 27, 2012, the Corporation confirmed its counsel’s conversation of the same date with Mr. Paul Cline, Staff Accountant, regarding the Corporation’s request to extend
the time to respond to your letter. As discussed, the staff of the Securities and Exchange Commission (the “Commission”) allowed the Corporation to respond by January 25, 2013, instead of within the 10 business days indicated
in your December 27, 2012 letter.

 For your convenience, each of your comments in your December 27, 2012 letter is
set forth below in bold print immediately prior to the Corporation’s response.

 Mr. Marc Thomas

  Page
 2

 January 24, 2013

 Form 10-K for Fiscal Year Ended December 31, 2011

Loans Past Due and Loans in Non-Accrual Status, page 21

1.
Please revise future filings to disaggregate the 30-89 days loans past due and accruing category to disclose them in 30-59 days and 60-89 days categories. Refer to
ASC 310-10.

 Response: ASC 310-10-50-7A states that: “An entity shall provide an analysis of the
age of the recorded investment in financing receivables at the end of the reporting period that are past due, as determined by the entity’s policy.” It is the Corporation’s policy to analyze loans past due in the following categories:
30-89 days past due and still accruing, 90 or more days past due and still accruing, and loans in nonaccrual status. Accordingly, we believe the Corporation’s disclosures have complied with the requirements of ASC 310-10. However, since the
information is obtainable and pursuant to your request, the Corporation confirms that in future filings the Corporation will disaggregate the 30-89 days loans past due and accruing category to disclose them in 30-59 days and 60-89 days categories in
Note 6, “Loans and Allowance for Loan Losses.” Pursuant to the request in your December 27, 2012 letter, the Corporation is including as Attachment #1 an example proposed revised table for Note 6 on page 66 of the Form 10-K,
prepared as of December 31, 2011 which includes a proposed disaggregated disclosure. In addition, we will include the following disclosure in “Loans Past Due and Loans in Nonaccrual Status” in Management’s Discussion and
Analysis:

 Additional disclosures about loans past due and in nonaccrual status are included in “Note 6 – Loans
and Allowance for Loan Losses” of the Corporation’s consolidated financial statements.

 Mr. Marc Thomas

  Page
 3

 January 24, 2013

 Troubled Debt Restructurings, page 22

2.
Please revise future filings to discuss whether your troubled debt restructuring (TDR) programs are government or company sponsored and to specifically discuss
whether they are short-term or long-term modifications.

 Response: The Corporation acknowledges your
comment and confirms that in future filings the Corporation will provide discussion in Management’s Discussion and Analysis as to whether its troubled debt restructuring (TDR) programs are government or Corporation sponsored and will
specifically discuss whether they were short-term or long-term modifications. Pursuant to the request in your December 27, 2012 letter, the following is a draft proposed disclosure:

The Corporation restructures debt with borrowers who due to temporary financial difficulties are unable to service their debt on the
original terms. The Corporation may extend amortization, reduce interest rates, forgive principal, or a combination of these modifications. Typically, the modifications are for a period of five years or less. There are no TDR’s that were
Government sponsored as of December 31, 2011.

3.
Please revise future filings to discuss how loan modifications affect the timing of the recording of the allowance for loan losses.

Response: The Corporation acknowledges your comment and confirms that in future filings the Corporation will discuss how loan
modifications affect the timing of the recording of the allowance for loan losses. In Note 6 at page 71 in the Corporation’s Form 10-K, the Corporation disclosed that “Based on the Corporation’s historical loss experience, losses
associated with TDR’s are not significantly different than other impaired loans within the same loan segment.” Pursuant to the request in your December 27, 2012 letter, the Corporation proposes to add the following to that disclosure
in future filings:

 Losses associated with TDR’s, if any, are included in the estimation of the allowance for loan
losses in the quarter in which a loan is identified as a TDR, and the Corporation reviews the allowance estimation each reporting period to ensure its continued appropriateness.

 Mr. Marc Thomas

  Page
 4

 January 24, 2013

4.
Please revise future filings to disclose the amount of loan loss allowance recorded for TDR’s. Considering that these loans appear to constitute a significant
amount of impaired loans, provide disaggregated disclosure of TDR’s within your impaired loan disclosures.

 Response: The Corporation acknowledges your comment and proposes that in future filings the Corporation disclose, by total, outstanding balance, unpaid principal balance, and associated valuation
allowance for TDR’s and impaired loans for each required reporting period. Pursuant to the request in your December 27, 2012 letter, the Corporation is including as Attachment #2 the proposed management discussion and analysis
disclosure as of December 31, 2011.

5.
Noting your policy of returning TDR’s to accrual status after six months of performance under the modified terms, please revise future filings to discuss the
timing of loan restructurings such that only $1 million of these loans were classified as non-accrual at December 31, 2011 while $18.3 million in loans were restructured in 2011.

Response: The Corporation acknowledges your comment and confirms that in future filings the Corporation will discuss the timing of
loan restructurings as appropriate. Pursuant to the request in your December 27, 2012 letter, the Corporation is including as Attachment #3 a proposed management discussion and analysis disclosure which details activity for the period
ended December 31, 2011.

6.
Noting that you restructured $18.3 million in loans in 2011 and that restructured loans totaled $18.8 million at December 31, 2011, please revise future filings
to provide a discussion of the changes in TDR’s between periods, clarifying, for instance, how the $5.7 million in restructured loans at December 31, 2010 rolled through to the December 31, 2011 balance. It may be helpful to accompany
your discussion with a roll-forward of TDR’s between periods.

 Response: The Corporation
acknowledges your comment and confirms that in future filings the Corporation will provide a discussion of the changes in TDR’s between periods and include a roll forward summary within management’s discussion and analysis. Pursuant to the
request in your December 27, 2012 letter, the Corporation is including as Attachment #3 a proposed management discussion and analysis disclosure which details activity for the period ended December 31, 2011.

 Mr. Marc Thomas

  Page
 5

 January 24, 2013

 Form 10-Q for Fiscal Period Ended September 30, 2012

General

7.
Please revise the footnotes to the financial statements in future filings on Form 10-Q to include the parent company only financial information of the bank holding
company.

 Response: The Corporation acknowledges your comment and confirms that in future filings the
Corporation will include parent only financial statements for the bank holding company. Attachment #4 contains a proposed disclosure as of September 30, 2012.

 Note 12. Fair Value, page 33

8.
It is not clear to us why you believe that your loans should be categorized as level 2 assets considering their unique characteristics and the various assumptions
made in determining their fair values, including credit quality. We believe these assets fall under the level 3 category. Please revise future filings accordingly or provide us a detailed explanation of why you believe they should be categorized
under level 2.

 Response: The Corporation acknowledges your comment and confirms that in future
filings the Corporation will categorize loans as level 3 assets. Pursuant to the request in your December 27, 2012 letter, the Corporation is including as Attachment #5 a proposed disclosure that includes this re-categorization as of
September 30, 2012, and replaces “Note 12 – Fair Value” on page 33 through 39 of the Form 10-Q.

 Mr. Marc Thomas

  Page
 6

 January 24, 2013

9.
It is not clear to us why you believe that your foreclosed assets should be categorized as level 2 considering their unique characteristics and the various
assumptions made in determining their fair values, including the numerous assumptions made in the appraisal process. We believe these assets fall under the level 3 category. Please revise future filings accordingly or provide us a detailed
explanation of why you believe they should be categorized under level 2.

 Response: The Corporation
acknowledges your comment and confirms that in future filings the Corporation will categorize foreclosed assets as level 3 assets. Pursuant to the request in your December 27, 2012 letter, the Corporation is including as Attachment #5 a
proposed disclosure that includes this re-categorization as of September 30, 2012, and replaces “Note 12 – Fair Value” on page 33 through 39 of the Form 10-Q.

10.
Please revise future filings to disclose the acquisition dates and nature of the operations of Investment Corporate Settlement Solutions and Valley Financial
Corporation, which you classify as equity securities without readily determinable fair values. Discuss the procedures specific to each of these investments that you follow to determine their fair values each balance sheet date. Clarify why you have
not classified them in your table disclosing the fair value hierarchy since you reference level 3 in your narrative.

 Response: Footnote (1) for the line item “Equity securities without readily determinable fair values” in the table included as part of the disclosure “Estimated Fair Values of
Financial Instruments Not Recorded at Fair Value in their Entirety on a Recurring Basis” states that “Due to the characteristics of equity securities without readily determinable fair values, they are not disclosed under a specific fair
value hierarchy.” The Corporation’s reference to these investments on page 35 of its narrative is that in the event a nonrecurring fair value measurement would be required for other-than-temporary impairment, it would be classified as
Level 3. The Corporation is including Attachment #5 which includes amended disclosure that further clarifies the details associated with these investments as of September 30, 2012, and replaces “Note 12 – Fair Value” on
page 33 through 39 of the Form 10-Q.

 Mr. Marc Thomas

  Page
 7

 January 24, 2013

 The Corporation acknowledges that: (1) the Corporation is responsible for the adequacy and accuracy of its disclosures in the Corporation’s filings; (2) staff comments or changes to
disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the Corporation’s filings; and (3) the Corporation may not assert staff comments as a defense in any proceeding initiated by
the Commission or any person under the federal securities laws of the United States.

 We trust that we have adequately
addressed your comments. However, should you have additional comments after reviewing our responses, please contact us and we will address those promptly.

 Sincerely,

 ISABELLA BANK CORPORATION

 /s/ Dennis P. Angner

 Dennis P. Angner

 President and
Chief Financial Officer

 Principal Financial Officer

 ATTACHMENT #1 - This Would Replace the table on page 66 of Note 6 in the Footnote
Disclosure

 Our primary credit quality indicator for residential real estate and consumer loans is the individual loan’s past due
aging. The following tables summarize the Corporation’s past due and current loans as of December 31:

2011

Accruing Interest

Total
Past Due
and
Nonaccrual

and Past Due:

30-59

60-89

90 Days

Days

Days

or More

Nonaccrual

Current

Total

 Commercial

 Commercial real estate

$
1,721

$
—

$
364

$
4,176

$
6,261

$
251,834

$
258,095

 Commercial other

388

38

3

25

454

107,165

107,619

 Total commercial

2,109

38

367

4,201

6,715

358,999

365,714

 Agricultural

 Agricultural real estate

—

—

99

189

288

44,395

44,683

 Agricultural other

—

2

—

415

417

29,545

29,962

 Total agricultural

—

2

99

604

705

73,940

74,645

 Residential real estate

 Senior liens

2,668

336

124

1,292

4,420

213,181

217,601

 Junior liens

203

32

40

94

369

20,877

21,246

 Home equity lines of credit

185

—

125

198

508

39,005

39,513

 Total residential real estate

3,056

368

289

1,584

5,297

273,063

278,360

 Consumer

 Secured

127

31

5

—

163

26,011

26,174

 Unsecured

20

3

—

—

23

5,375

5,398

 Total consumer

147

34

5

—

186

31,386

31,572

 Total

$
5,312

$
442

$
760

$
6,389

$
12,903

$
737,388

$
750,291

 ATTACHMENT #2 - This Would Be An Addition to Existing Impaired Loan Disclosures in the
MD&A

 The following is a summary of information pertaining to impaired loans as of and for the year ended December 31, 2011:

Unpaid

Outstanding

Principal

Valuation

Balance

Balance

Allowance

 TDR’s

 Commercial real estate

$
8,862

$
9,055

$
1,853

 Commercial other

1,047

1,078

271

 Agricultural other

2,779

2,779

822

 Residential real estate senior liens

5,882

6,377

922

 Residential real estate junior liens

101

137

18

 Consumer secured

85

85

—

 Total TDR’s

18,756

19,511

3,886

 Other impaired loans

 Commercial real estate

4,136

6,657

28

 Commercial other

52

116

—

 Agricultural real estate

190

190

—

 Agricultural other

415

535

—

 Residential real estate senior liens

1,389

2,450

189

 Residential real estate junior liens

94

123

17

 Home equity lines of credit

198

498

—

 Consumer secured

20

29

—

 Total other impaired loans

6,494

10,598

234

 Total impaired loans

$
25,250

$
30,109

$
4,120

 ATTACHMENT #3 - This Would Be An Addition to MD&A TDR Disclosures

The following table provides a rollforward of TDR’s for the year ended December 31, 2011:

Accruing Interest

Nonaccrual

Total

Number

Number

Number

of

of

of

Loans

Balance

Loans

Balance

Loans

Balance

 January 1, 2011

35

$
 5,075

10

$
 688

45

$
 5,763

 New modifications

93

17,827

3

481

96

18,308

 Principal payments and pay-offs

(12
)

(4,874
)

(2
)

(254
)

(14
)

(5,128
)

 Balances charged off (1)

—

(15
)

—

(51
)

—

(66
)

 Transfers to ORE

(2
)

(35
)

(1
)

(86
)

(3
)

(121
)

 Transfers to accrual status

2

54

(2
)

(54
)

—

—

 Transfers to nonaccrual status

(4
)

(293
)

4

293

—

—

 December 31, 2011

112

$
17,739

12

$
1,017

124

$
18,756

(1)
Balances charged off in 2011 represent a partial charge off. As such, the number of loans was unaffected.

The Corporation has taken aggressive actions to avoid foreclosures on borrowers who are willing to work with the Corporation in modifying their loans,
thus making them more affordable. These loan modifications have allowed borrowers to develop a payment structure that will allow them to continue makin