UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

Filed by the Registrant  x                            Filed by a Party other than the Registrant  ¨

Check the appropriate box:

ISABELLA BANK CORPORATION

401 N. Main St.

Mt. Pleasant, Michigan 48858

NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS

To Be Held May 1, 20127, 2013

Notice is hereby given that the Annual Meeting of Shareholders of Isabella Bank Corporation will be held on Tuesday, May 1, 20127, 2013 at 5:00 p.m. Eastern Daylight Time, at the Comfort Inn, 2424 S. Mission Street, Mt. Pleasant, Michigan. The meeting is for the purpose of considering and acting upon the following items of business:

1. The election of threefour directors.

2. To transact such other business as may properly come before the meeting, or any adjournment or adjournments thereof.

The Board of Directors has fixed March 28, 201226, 2013 as the record date for determination of shareholders entitled to notice of, and to vote at, the meeting or any adjournments thereof.

Your vote is important. Even if you plan to attend the meeting, please date and sign the enclosed proxy form, indicate your choice with respect to the matters to be voted upon, and return it promptly in the enclosed envelope. Note that if stock is held in more than one name, all parties should sign the proxy form.

By order of the Board of Directors

Debra Campbell, Secretary

Dated: March 28, 2012April 11, 2013

ISABELLA BANK CORPORATION

401 N. Main StSt.

Mt. Pleasant, Michigan 48858

PROXY STATEMENT

General Information

As used in this Proxy Statement, references to the “Corporation”, “we,” “our,” “us,” and similar terms refer solely to the parent holding company, Isabella Bank Corporation. References to the “Consolidated Corporation” refer to consolidated entity consisting of Isabella Bank Corporation and its subsidiaries, and references to “Isabella Bank” or the “Bank” refer to Isabella Bank Corporation’s subsidiary, Isabella Bank.

This Proxy Statement is furnished in connection with the solicitation of proxies, by the Board of Directors of Isabella Bank Corporation (the Corporation), a Michigan financial holding company, to be voted at theour Annual Meeting of Shareholders of the Corporation(the “Annual Meeting”) which is to be held on Tuesday, May 1, 20127, 2013 at 5:00 p.m. at the Comfort Inn, 2424 S. Mission Street, Mt. Pleasant, Michigan, or at any adjournment or adjournments thereof, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders and in this Proxy Statement.

This Proxy Statement has been mailed on April 5, 201211, 2013 to all holders of record of common stock as of the record date. If a shareholder’s shares are held in the name of a broker, bank or other nominee, then that party should give the shareholder instructions for voting the shareholder’s shares.

Voting at the Meeting

The Board of Directors of the Corporation hasWe have fixed the close of business on March 28, 201226, 2013 as the record date for the determination of shareholders entitled to notice of, and to vote at, the Annual Meeting of Shareholders and any adjournment thereof. The Corporation hasWe have only one class of common stock and no preferred stock. As of March 28, 2012,26, 2013, there were 7,614,7427,670,669 shares of common stock of the Corporation outstanding. Each outstanding share entitles the holder thereof to one vote on each separate matter presented for vote at the meeting. ShareholdersYou may vote on matters that are properly presented at the meetingAnnual Meeting by either attending the meeting and casting a vote, or by signing and returning the enclosed proxy. If the enclosed proxy is executed and returned, it may be revoked by you at any time before it is exercised at the meeting. All shareholdersAnnual Meeting. You are encouraged to date and sign the enclosed proxy, indicate theiryour choice, with respect to the matters to be voted upon, and return it to the Corporation.us.

The CorporationWe will hold the Annual Meeting of Shareholders if holders of a majority of the Corporation’s shares of common stock entitled to vote are represented in person or by proxy at the meeting.proxy. If a shareholder signsyou sign and returnsreturn the proxy, those shares will be counted to determine whether the Corporation hasif there is a quorum, even if the shareholder abstainsyou abstain or failsfail to vote on any of the proposals listed on the proxy.proposals.

A shareholder’sYour broker may not vote on the election of directors if the shareholder doesyou do not furnish instructions for such proposals. A shareholderYou should use the voting instruction card provided by the institution that holds his or her sharesus to instruct the broker to vote the shares, or else the shareholder’syour shares will be considered “broker non-votes.”

Broker non-votes are shares held by brokers or nominees as to which voting instructions have not been received from the shares’ beneficial ownersowner or the personsindividual entitled to vote those shares and the broker or nominee does not have discretionary voting power under rules applicable to broker-dealers. Under these rules, proposal oneProposal 1 is not an item on which brokerage firms may vote in their discretion on your behalf of their clients if such clientsunless you have not furnished voting instructions.

At this year’s annual meeting, shareholdersAnnual Meeting, you will elect threefour directors to serve for a term of three years. In voting on the election of directors, a shareholderYou may vote in favor, of the nominees, vote against, or withhold votes as tofor any or all nominees, or vote against or withhold votes as to specific nominees. Directors are elected by a plurality of the votes cast at the annual meeting. This means that the nominees receiving the greatest number of votes will be elected. Shares not voted, including broker non-votes, have no effect on the election of directors.elections.

Proposal 1-Election of Directors

TheOn December 19, 2012, James C. Fabiano and Dale D. Weburg retired from the Board of Directors currently consists(the “Board”) and the number of 12 members anddirectors was reduced to 12. The Board is divided into three classes, with the directors in each class being elected for a term of three years. On April 27, 2011, Dianne C. Morey resigned as a member of the Corporation’s Board of Directors and the number of directors was reduced to 12. At the 2012 Annual Meeting, of Shareholders three directors, Richard J. Barz, SandraThomas L. Caul,Kleinhardt, Joseph LaFramboise, Wilson C. Lauer, and W. Michael McGuire,Sarah R. Opperman, whose terms expire at the annual meeting,Annual Meeting, have been nominated for election through 20152016 for the reasons described below.

Except as otherwise specified, in the proxy, proxies will be voted for election of the threefour nominees. If a nominee becomes unable or unwilling to serve, proxies will be voted for such other person, if any, as shall be designated by the Board of Directors.designated. However, the Corporation’s management now knowswe know of no reason to anticipate that this will occur. The threefour nominees for election as directors who receive the greatest number of votes cast will be elected directors. Each of the nominees has agreed to serve as a director if elected.

Nominees for election and current directors, are listed below. Also shown for each nominee and each current director is his or herincluding their principal occupation for the last five or more years, age, and length of service as a director, of the Corporation.are listed below.

The Board of DirectorsWe unanimously recommendsrecommend that shareholdersyou vote FOR the election of each of the three director nominees nominated by the Board of Directors.nominees.

Director’sDirector Qualifications

TheBoard members of the Corporation’s Board of Directors (the Board) are all wellhighly qualified to serve on the Board and represent our shareholders’your best interest. As described below, under the caption “Nominating and Corporate Governance Committee”, the Board and Nominating and Corporate Governance Committee (the “Nominating Committee”)interests. We select nominees to the Board to establish a Board that is comprised of members who:

Each nominee and current director nominee along with the other directors bringspossess these qualifications to the Board. They providequalities and provides a diverse complement of specific business skills, experience, and knowledge including extensive financial and accounting experience, knowledge of banking, small business operating experience, and specific knowledge of customer market segments including agriculture, oil and gas, health care, food and beverage, manufacturing, and retail.

The following describes the key qualifications each director brings to the Board, in addition to the general qualifications described above and the information included in the biographical summaries provided below.

The following table identifies the individual Board members of our Board serving on each of theseour standing committees:

Director Nominees for Terms Ending in 20152016

Richard J. Barz (age 63) has been a director of Isabella Bank (the Bank) since 2000 and of the Corporation since 2002. Mr. Barz has been employed by the Corporation since 1972 and has been Chief Executive Officer of the Corporation since January 1, 2010 and President and CEO of the Bank since December 2001. Mr. Barz has been very active in community organizations and events. He is the past chairman of the Central Michigan Community Hospital Board of Directors, is the current chairman of the Middle Michigan Development Corporation Board of Directors, and serves on several boards and committees for Central Michigan University and various volunteer organizations throughout mid-Michigan.

SandraThomas L. Caul (age 68) has been a director of the Bank since 1994 and of the Corporation since 2005. Ms. Caul is Vice Chairperson of the Central Michigan Community Hospital Board of Directors, Chairperson of the Mid Michigan Community College Advisory Board, a board member for Central Michigan Community Mental Health Facilities, a member of the Central Michigan Health Advisory Board for Central Michigan University and Chairperson for the Central Michigan University College of Medicine regional division fund raising effort. She also sits on the board of the Central Michigan American Red Cross. Ms. Caul retired in January 2005 as a state representative of the Michigan State House of Representatives. Ms. Caul is a registered nurse.

W. Michael McGuire (age 62) has been a director of the Corporation since 2007 and of the Bank since January 1, 2010. He is a director of the Farwell Division of the Bank. Mr. McGuire is currently an attorney and the Director of the Office of the Corporate Secretary and Assistant Secretary of The Dow Chemical Company, a manufacturer of chemicals, plastics and agricultural products, headquartered in Midland, Michigan.

Current Directors with Terms Ending in 2014

Dennis P. Angner (age 56) has been a director of the Corporation and the Bank since 2000. Mr. Angner has been principally employed by the Corporation since 1984 and has served as President of the Corporation since December 30, 2001 and CFO since January 1, 2010. Mr. Angner served as Chief Executive Officer of the Corporation from December 30, 2001 through December 31, 2009. He is the past Chair of the Michigan Bankers Association and is currently serving as vice chairman of its taxation committee, is a member of the American Bankers Association Government Relations Council, and served on the Central Michigan American Red Cross board for over 20 years.

Dr. Jeffrey J. Barnes (age 49) has been a director of the Bank since September 2007 and was appointed to the Corporation’s Board of Directors effective January 1, 2010. Dr. Barnes is a physician and co-owner of Central Eye Consultants. He is a former member of the Central Michigan Community Hospital Board of Directors.

G. Charles HubscherKleinhardt (age 58) has been a director of the Bank since May 2004 and was appointed to the Corporation’s Board of Directors effective January 1, 2010. Mr. Hubscher is the President of Hubscher and Son, Inc., a sand and gravel producer. He is a director of the National Stone and Gravel Association, the Michigan Aggregates Association, serves on the Board of Trustees for the Mt. Pleasant Area Community Foundation, and is a member of the Zoning Board of Appeals for Deerfield Township.

David J. Maness (age 58) has been a director of the Bank since 2003 and of the Corporation since 2004. Mr. Maness was elected chairman of the board for the Corporation and the Bank in 2010. He is President of Maness Petroleum, a geological and geophysical consulting services company. Mr. Maness is currently serving as a director for the Michigan Oil & Gas Association, and he previously served on the Mt. Pleasant Public Schools Board of Education.

W. Joseph Manifold (age 60) has been a director of the Corporation since 2003 and of the Bank since January 1, 2010. Mr. Manifold is the CFO of Federal Broach Holdings LLC, a holding company which operates several manufacturing companies. Previously, he was a senior manager with Ernst & Young Certified Public Accounting firm working principally on external bank audits and was CFO of the Delfield Company. Prior to joining the Board, Mr. Manifold also served on the Isabella Community Credit Union Board and was Chairman of the Mt. Pleasant Public Schools Board of Education.

Current Directors with Terms Ending in 2013

James C. Fabiano (age 68) has been a director of the Bank since 1979 and of the Corporation since 1988. He served as the Corporation’s chair from 2004 to 2010. Mr. Fabiano is Chairman and CEO of Fabiano Brothers, Inc., a beverage distributor operating in several counties throughout Michigan. Mr. Fabiano is a past recipient of the Mt. Pleasant Area Chamber of Commerce Citizen of the Year award. He is also a past Chairman of the Central Michigan University Board of Trustees.

Thomas L. Kleinhardt (age 57) has been a director of the Bank since October 1998 and was appointed to the Corporation’s Board of Directors effective January 1, 2010. Mr. Kleinhardt is President of McGuire Chevrolet, is active in the Clare Kiwanis Club, and coaches the girls Varsity Basketball team at Farwell High School.

Joseph LaFramboise (age 62)63) has been a director of the Bank since September 2007, and was appointed to the Corporation’s Board of Directors effective January 1, 2010. He is a retired Sales and Marketing Executive of Ford Motor Company. Mr. LaFramboise is an Ambassador of Eagle Village in Evart, Michigan.

Dale D. WeburgWilson C. Lauer (age 68)63) was appointed to the Board on July 1, 2012. Mr. Lauer has served as a director for the Isabella Bank-Breckenridge Division Board since 1997 and owns Lauer Farms LLC, a 2,500 acre cash crop business. Mr. Lauer has served several different community organizations including the Ithaca School District Board, the Gratiot Economic Development Board, and Farm Bureau’s County and State Policy Development Committees.

Sarah R. Opperman (age 53) was appointed to the Board on July 1, 2012. Ms. Opperman is the owner of Opperman Consulting, LLC, which provides public affairs counsel for corporate clients. She was previously employed for 28 years by The Dow Chemical Company, where she held leadership roles in public and government affairs. She was inducted into the CMU Journalism Hall of Fame and is a recipient of the Breckenridge DivisionDow Genesis Award for Excellence in People Development. Ms. Opperman serves on the CMU Board of Trustees, the CMU Research Corporation Board of Directors, and the MidMichigan Health Corporate Board of Directors.

Current Directors with Terms Ending in 2014

Dennis P. Angner (age 57) has been a director of the Corporation and the Bank since 2000. Mr. Angner has been principally employed by the Consolidated Corporation since 1984 and has served as President of the Corporation since December 30, 2001 and CFO since January 1, 2010. Mr. Angner served as Chief Executive Officer of the Corporation from December 30, 2001 through December 31, 2009. He is a past Chair of the Michigan Bankers Association and is currently serving as vice chairman of its taxation committee, is a member of the American Bankers Association Government Relations Council, and served on the Central Michigan American Red Cross board for over 20 years.

Dr. Jeffrey J. Barnes (age 50) has been a director of the Bank since 19872007 and of the Corporation since 2010. Dr. Barnes is a physician and shareholder in Lansing Ophthalmology PC. He is a former member of the Central Michigan Community Hospital Board of Directors.

G. Charles Hubscher (age 59) has been a director of the Bank since 2004 and of the Corporation since 2010. Mr. Hubscher is President of Hubscher and Son, Inc., a sand and gravel producer. He is a director of the National Stone and Gravel Association, the Michigan Aggregates Association, serves on the Board of Trustees for the Mt. Pleasant Area Community Foundation, and is a member of the Zoning Board of Appeals for Deerfield Township.

David J. Maness (age 59) has been a director of the Bank since 2003 and of the Corporation since 2004. Mr. Maness has served as chairman of the board for the Corporation and the Bank since 2010. He is President of Maness Petroleum, a geological and geophysical consulting services company. Mr. Maness is currently serving as a director for the Michigan Oil & Gas Association, and he previously served on the Mt. Pleasant Public Schools Board of Education.

W. Joseph Manifold (age 61) has been a director of the Corporation since 2003 and of the Bank since January 1, 2010. Mr. Manifold is CFO of Federal Broach Holdings LLC, a holding company which operates several manufacturing companies. Previously, he was a senior manager with Ernst & Young Certified Public Accounting firm working principally on external bank audits and was CFO of the Delfield Company. Prior to joining the Board, Mr. Manifold served on the Isabella Community Credit Union Board and was Chairman of the Mt. Pleasant Public Schools Board of Education.

Current Directors with Terms Ending in 2015

Richard J. Barz (age 64) has been a director of the Bank since 2000 and of the Corporation since 2000.2002. Mr. WeburgBarz has been employed by the Consolidated Corporation since 1972 and has been Chief Executive Officer of the Corporation since 2010 and President and CEO of the Bank from 2001 to July 2012. Mr. Barz has been very active in community organizations and events. He is Presidenta past chairman of Weburg Farms, a cash crop farm operation. Mr. Weburg also serves as a trustee of the Central Michigan Community Hospital Board of Directors, is the current chairman of Gratiotthe Middle Michigan Development Corporation Board of Directors, and serves on several boards and committees for Central Michigan University and various volunteer organizations throughout mid-Michigan.

Sandra L. Caul(age 69) has been a director of the Bank since 1994 and of the Corporation since 2005. Ms. Caul is Vice Chairperson of the Central Michigan Community Hospital Board of Directors, Chairperson of the Mid Michigan Community College Advisory Board, a board member for Central Michigan Community Mental Health System.Facilities, a member of the Central Michigan Health Advisory Board for Central Michigan University and Chairperson for the Central Michigan University College of Medicine regional division fund raising effort. She also sits on the board of the Central Michigan American Red Cross. Ms. Caul retired in January 2005 as a state representative of the Michigan State House of Representatives. Ms. Caul is a registered nurse.

W. Michael McGuire (age 63) has been a director of the Corporation since 2007 and of the Bank since January 1, 2010. Mr. McGuire is currently an attorney and the Director of the Office of the Corporate Secretary and Assistant Secretary of The Dow Chemical Company, a manufacturer of chemicals, plastics and agricultural products, headquartered in Midland, Michigan.

Each of the directors has been engaged in their stated professions for more than five years.

Other Named Executive Officers

Steven D. Pung (age 62)63), Executive Vice President of the Bank and a member of the Board of Directors of Financial Group Information Services (a wholly owned subsidiary of the Corporation) has been employed by the CorporationBank since 1978. Timothy M. Miller (age 60)61), President of the Breckenridge Division of the Bank and a member of its Board of Directors, has been an employee of the CorporationBank since 1985. David J. Reetz (age 51)52), Senior Vice President and Chief Lending Officer of the Bank, has been employed by the CorporationBank since 1987.

All officers of the Corporation serve at the pleasure of the Corporation’s Board of Directors.Board.

Corporate Governance

Director Independence

The Corporation hasWe have adopted the director independence standards as defined under Rule 5605(a)(2) of the NASDAQ MarketplaceStock Market Rules. The Board hasWe have determined that Jeffrey J. Barnes, Sandra L. Caul, James C. Fabiano, G. Charles Hubscher, Thomas L. Kleinhardt, Joseph LaFramboise, Wilson C Lauer, David J. Maness, W. Joseph

Manifold, W. Michael McGuire, and Dale D. WeburgSarah R. Opperman are independent directors. Former directors James C. Fabiano and Dale D. Weburg, who retired from the Board on December 19, 2012, were also determined to be independent directors. Richard J. Barz is not independent as he is employed as Chief Executive OfficerCEO of the Corporation.Dennis P. Angner is not independent as he is employed as President and Chief Financial OfficerCFO of the Corporation.

Board Leadership Structure and Risk Oversight

The Corporation’sOur Governance policy provides that only directors who are deemed to be independent as set forth by NASDAQ and SEC rules are eligible to hold the office of Chairman of the Board.chairperson. Additionally, the chairpersons of Board established committees must also be independent directors. It is the Board’sour belief that having a separate Chairmanchairperson and Chief Executive OfficerCEO best serves the interest of the shareholders. The Board of Directors elects its chairperson at the first Board meeting following the annual meeting. Independent members of the Board of Directors meet without insiderinside directors at least twice per year.

Management is responsible for the Corporation’s day to dayour day-to-day risk management and the Board’s role is to engage in informed oversight. The Board utilizes committees to oversee risks associated with compensation financial, and governance. Financial Group Information Services, the Corporation’sour information processing subsidiary, is responsible for overseeing risks associated with information technology. The Isabella Bank Board of Directors is responsible for overseeing credit, investment, interest rate, and trust risks. The chairpersons of the respective boards or committees report on their activities on a regular basis.

TheOur Audit Committee is responsible for overseeing the integrity of theour consolidated financial statements, of the Corporation; the independent auditors’ qualifications and independence;independence, the performance of the Corporation’s, and its subsidiaries’,our internal audit function and those of independent auditors; the Corporation’sauditors, our system of internal controls; the Corporation’scontrols, our financial reporting and system of disclosure controls;controls, and theour compliance by the Corporation with legal and regulatory requirements and with the Corporation’sour Code of Business Conduct and Ethics.

Committees of the Board of Directors and Meeting Attendance

The Board met 12 times during 2011.2012. All incumbent directors attended 75% or more of the meetings held in 2011.2012. The Board has an Audit Committee, a Nominating and Corporate Governance Committee, and a Compensation and Human Resource Committee.

Audit Committee

The Audit Committee is composed of independent directors who meet the requirements for independence as defined in Rule 5605(a)(2) of the NASDAQ Marketplace Rules.directors. Information regarding the functions performed by the Committee, its membership, and the number of meetings held during the year, is set forth in the “Report of the Audit Committee” included elsewhere in this annual proxy statement. The Audit Committee is governed by a written charter approved by the Board. The Audit Committee CharterBoard, which is available on the Bank’s websitewebsite:www.isabellabank.com under the Investor Relations tab..

In accordance with the provisions of the Sarbanes  —  Oxley Act of 2002, directors Manifold and McGuire meet the requirements of Audit Committee Financial Expert and have been so designated by the Board.designated. The Committee also consists of directors Barnes, Hubscher, LaFramboise, and Maness.Maness (ex-officio).

Nominating and Corporate Governance Committee

The Corporation hasWe have a standing Nominating and Corporate Governance Committee consisting of independent directors who meet the requirements for independence as defined in Rule 5605(a)(2) of NASDAQ Marketplace Rules.directors. The Committee consists of directors LaFramboise, Maness (ex-officio), Manifold, and McGuire. The Nominating and Corporate Governance Committee held two meetingsone meeting in 2011,2012, with all directors attendedattending the meetings.

meeting. The Board has approved a Nominating and Corporate Governance Committee Charter which is available on the Bank’s websitewww.isabellabank.com under the Investor Relations tab..

The Nominating and Corporate Governance Committee is responsible for evaluating and recommending individuals for nomination to the Board for approval. The Committee in evaluating nominees, including incumbent directors and any nominees put forth by shareholders, considers business experience, skills, character, judgment, leadership experience, and their knowledge of the geographical markets, business segments or other criteria the Committee deems relevant and appropriate based on the current composition of the Board. The Committee considers diversity in identifying members with respect to our geographical markets served by the Corporation and the business experience of the nominee.

The Nominating and Corporate Governance Committee will consider, as potential nominees persons recommended by shareholders. Recommendations should be submitted in writing to the Secretary of the Corporation, 401 N. Main St., Mt. Pleasant, Michigan 48858 and include the shareholder’s name, address and number of shares of the Corporation owned by the shareholder. The recommendation should also include the name, age, address and qualifications of the recommended candidate for nomination.candidate. Recommendations for the 20132014 Annual Meeting of Shareholders should be delivered no later than December 6, 2012.12, 2013. The Nominating and Corporate Governance Committee does not evaluateevaluates all potential director nominees for director differently based onin the same manner, whether theythe nominations are recommended to the Nominating and Corporate Governance Committee, byreceived from a shareholder, or otherwise.

Compensation and Human Resource Committee

The Compensation and Human Resource Committee of the Corporation is responsible for reviewing and recommending to the Corporation’sour Board the compensation of the Chief Executive Officer and other executive officers, of the Corporation, benefit plans and the overall percentage increase in salaries. The committee consists of independent directors who meet the requirements for independence as defined in Rule 5605(a) (2) of the NASDAQ Marketplace Rules. The Committee consists of directors Maness, Barnes, Caul, Fabiano, Hubscher, Kleinhardt, LaFramboise, Lauer, Manifold, McGuire, and Weburg.Opperman. The Committeecommittee held two meetings during 20112012 with all directors in attendance with the exception of Fabiano who was excused from one of the meetings.attendance. This Committee is governed by a written charter approved by the Board that is available on the Bank’s websitewww.isabellabank.com under the Investor Relations tab..

Communications with the Board

Shareholders may communicate with the Corporation’s Board of Directors by sending written communications to the attention of the Corporation’s Secretary, Isabella Bank Corporation, 401 N. Main St., Mt. Pleasant, Michigan 48858. Communications will be forwarded to the Board or the appropriate committee, as soon as practicable.

Code of Ethics

The Corporation has adopted aOur Code of Business Conduct and Ethics, thatwhich is applicable to the Corporation’s Chief Executive OfficerCEO and the Chief Financial Officer. The Corporation’s Code of Business Conduct and EthicsCFO, is available on the Bank’s websitewww.isabellabank.com under the Investor Relations tab..

Report of the Audit Committee

The Audit Committee oversees the Corporation’s financial reporting process on behalf of the Board. The 20112012 Committee consisted of directors Barnes, Hubscher, LaFramboise, Maness, Manifold, and McGuire.

The Audit Committee is responsible for pre-approving all auditing services and permitted non-audit services for the Corporation by itsour independent auditors, or any other auditing or accounting firm, if those fees are reasonably expected to exceed 5.0% of the current year agreed upon fee for independent audit services, except as noted below. The Audit Committee has established general guidelines for the permissible scope and nature of any permitted non-audit services in connection with its annual review of the audit plan and reviews the guidelines with the Board of Directors.

Management has the primary responsibility for the consolidated financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited consolidated financial statements in the Annual Report with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the consolidated financial statements. The Audit Committee also reviewed with management and the independent auditors, management’s assertion on the design and effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2011.2012.

The Audit Committee reviewed with the Corporation’sour independent auditors, who are responsible for expressing an opinion on the conformity of those audited consolidated financial statements with accounting principles generally accepted in the United States of America, their judgments as to the quality, not just the acceptability, of the Corporation’sour accounting principles and such other matters as are required to be discussed with the Audit Committee by the standards of the Public Company Accounting Oversight Board (United States), including those described in AU Section 380 “Communication with Audit Committees”, as may be modified or supplemented. In addition, the Audit Committee has received the written disclosures and the letter from the independent accountantsauditors required by PCAOB Rule 3526, Communication with Audit Committees Concerning Independence, as may be modified or supplemented, and has discussed with the independent accountantauditor the independent accountants’auditors’ independence.

The Audit Committee discussed with the Corporation’sour internal and independent auditors the overall scope and plans for their respective audits. The Audit Committee meets with the internal and external independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of the Corporation’sour internal controls, and the overall quality of the Corporation’sour financial reporting process. The Audit Committee held sixfive meetings during 2011,2012, and all committee members attended 75% or more of the meetings.

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors (and the Board has approved) that the audited consolidated financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 20112012 for filing with the Securities and Exchange Commission. The Audit Committee has appointed Rehmann Robson P.C.LLC as the independent auditors for the 20122013 audit.

Respectfully submitted,

W. Joseph Manifold, Audit Committee Chairperson

Jeffrey J. Barnes

G. Charles Hubscher

Joseph LaFramboise

David J. Maness

W. Michael McGuire

Compensation Discussion and Analysis

The Compensation and Human Resource Committee (the “Committee”) is responsible for reviewing and recommending the compensation and benefits for the Chief Executive Officer,CEO, President and CFO, and executive officers of the Corporation.officers. The Committee evaluates and approves theour executive officer and senior management compensation plans, policies, and programs of the Corporation and its affiliates.programs. The Chief Executive Officer,CEO, Richard J. Barz, conducts annual performance reviews for Named Executive Officers, excluding himself. Mr. Barz recommends an appropriate salary to the Committee based on the performance review and the officer’s years of service along with competitive market data.

Compensation Objectives

The Committee considers asset growth with the safety and soundness objectives and earnings per share to be the primary ratios in measuring financial performance. The Corporation’sOur philosophy is to maximize long-term return to shareholders consistent with safe and sound banking practices, while maintaining the commitment to superior customer and community service. The Corporation believesWe believe that the performance of executive officers in managing the business should be the basis for determining overall compensation. Consideration is also given to overall economic conditions and current competitive forces in the market place. The objectives of the Committee are to effectively balance salaries and potential compensation to an officer’s individual management responsibilities and encourage each of them to realize their potential for future contributions to the Corporation.contributions. The objectives are designed to attract and retain high performing executive officers who will lead the Corporationprovide leadership while attaining the Corporation’s earnings and performance goals.

What the Compensation Programs are Designed to Reward

The Corporation’sOur compensation programs are designed to reward dedicated and conscientious employment, with the Corporation, loyalty in terms of continued employment, attainment of job related goals and overall profitability of the Corporation.profitability. In measuring an executive officer’s contributions, to the Corporation, the Committee considers numerous factors including, among other things, the Corporation’sour growth in terms of asset size and increase in earnings per share. In rewarding loyalty and long-term service, the Corporation provideswe provide attractive retirement benefits.

Review of Risks Associated with Compensation Plans

Based on an analysis conducted by management and reviewed by the Committee, management doeswe do not believe that the Corporation’s compensation programs for employees are reasonably likely to have a material short or long term adverse effect on the Corporation’s Results of Operation.our operating results.

Use of Consultants

In 2010,2012, the Committee directly engaged the services of Blanchard Chase (now Blanchard Consulting Group),Group, an outsideindependent compensation consulting firm, to assist with a total compensation review for the top twothree executive officers of the Consolidated Corporation (CEO, President and CFO, and Bank President). Blanchard Consulting Group is an independent consulting firm and does not perform any additional services for the Corporationus or any members of senior management. In addition, Blanchard Consulting Group does not have any other personal or business relationships with any Board membermembers or any officer of the Corporation.officers. During 2011, the Committee did not employ any services of outside compensation or benefit consultants to assist it in compensation-related initiatives.

Elements of Compensation

The Corporation’sOur executive compensation program has consisted primarily of base salary and benefits, annual cash bonusperformance incentives, director fees for insider directors,benefits and perquisites, and participation in the Corporation’sour retirement plans.

Why Each of the Elements of Compensation is Chosen

Base Salary and Benefitsare set to provide competitive levels of compensation to attract and retain officers with strong motivated leadership. Each officer’s performance, current compensation, and responsibilities within the Corporation are considered by the Committee when establishing base salaries. The Corporation also believes

it is best to pay sufficient base salary because it believes an over-reliance on equity incentive compensation could potentially skew incentives toward short-term maximization of shareholder value as opposed to building long-term shareholder value. Base salary encourages management to operate the Corporation in a safe and sound manner even when incentive goals may prove unattainable.

Annual Performance Incentives are used to reward executive officers for the Corporation’s overall financial performance. This element of the Corporation’s compensation programs is included in the overall compensation in order to reward employees above and beyond their base salaries when the Corporation’s performance and profitability exceed established annual targets. The inclusion of a modest incentive compensation encourages management to be more creative, diligent and exhaustive in managing the Corporation to achieve specific financial goals without incurring inordinate risks.

Performance incentives paid under the Executive Incentive Plan in 2011 were determined by reference to seven performance measures that related to services performed in 2010. 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 2010 accomplished his or her personal performance goals and was accordingly paid 35% of the 2010 Maximum Award in 2011. 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 assets (weighted 10%); (3) Fully Taxable Equivalent “FTE” net interest margin, excluding loan fees (weighted 10%); (4) in-market deposit growth (weighted 20%); (5) loan growth (weighted 10%); and (6) exceeding peer group return on average assets (weighted 10%). The following chart provides the 2010 target for each of the foregoing targets that were used to determine bonus awards that were paid in 2011, as well as the performance obtained for each target.

Executive Incentive Plan