Isabella Bank Corporation Reports First Quarter 2024 Results

Published

Loan, Deposit and Wealth Asset Growth continue in 2024

MT. PLEASANT, Mich., April 18, 2024 /PRNewswire/ -- Isabella Bank Corporation (OTCQX: ISBA) (the "Company") reported first quarter 2024 net income of $3.1 million or $0.42 per diluted share compared to $5.3 million or $0.70 per diluted share in the same quarter of 2023.

FIRST QUARTER 2024 HIGHLIGHTS (compared to first quarter 2023, unless otherwise stated)

  • Total commercial loan growth of 8% annualized, compared to 0.4%
  • Earning asset yield of 4.45%, compared to 3.89%
  • Wealth management income increased 19%
  • Nonperforming loans to total loans ratio of 0.09%

"Earnings declined year-over-year because of continued interest rate pressure.  However, the bank recorded positive results in loans, deposits and wealth management assets as a result of continuing to attract new customers while retaining strong loyalty among our current customers," according to Chief Executive Officer Jerome Schwind.  "We've also maintained excellent liquidity and strong credit quality among loan customers, factors that fuel our underlying strength and resilience during continued high interest rates.

"As previously announced, the corporation paid a quarterly cash dividend of $0.28 per share of common stock, which continues to provide an attractive dividend yield for shareholders."

FINANCIAL CONDITION (March 31, 2024 compared to December 31, 2023)Total assets were $2.06 billion at the end of both the first quarter 2024 and year-end 2023, primarily due to loan growth, which were offset by lower balances in cash and securities.  Excess cash, security amortization, and strong deposit growth provided the funding for loan growth and borrowing payoffs during the quarter.

Total loans grew $16 million to $1.37 billion at the end of first quarter 2024.  Total commercial loans, which include advances to mortgage brokers and agricultural loans, increased $18.3 million as the Company selectively expanded its book of business across many industries, but most notably in construction and real estate sectors.  Residential loan volume remained stable during the quarter as originations kept pace with paydowns, as well as a few sales in the secondary market.  Demand for mortgages remains low given prevailing market rates, housing prices and low inventory.

Securities available for sale decreased $10.6 million to $517.6 million at the end of the first quarter 2024, primarily due to amortization from collateralized mortgage obligations and higher unrealized losses on the total portfolio.  Unrealized losses on securities totaled $34.8 million, or 6.3% of the portfolio, at the end of the first quarter 2024 versus $31.8 million at year-end 2023, reflecting an increase in market rates.

The allowance for credit losses increased $282 thousand to $13.4 million at the end of the first quarter 2024 due to loan growth and specific reserves on a few small commercial loans whose credit ratings were downgraded.  Nonaccruing loans increased $301 thousand to $1.3 million, principally due to one commercial credit that is expected to be settled in the near-term.  Past due accounts between 30 to 89 days as a percentage of total loans was 0.62% during the first quarter 2024, compared to 0.31% at year-end 2023.  The increase primarily is due to a group of customers that typically make payments about 30 days in arrears, which becomes overdue when the 31st day lands on a business day.  Accordingly, the increase is not believed to be an indication of deteriorating credit quality.  Overall, credit quality remains strong, and there are not any negative trends.

Total deposits increased $44.6 million to $1.77 billion at the end of the first quarter 2024.  Demand for retail certificates of deposits (CDs) continues based on the rate environment, resulting in a $19.8 million increase in the balance during the quarter.  Other interest-bearing deposits increased $40.1 million, which underscores strong relationships the bank continues to build in the communities in which it serves.  Demand deposits decreased $15.2 million, which is consistent in seasonal trends in the markets.  Additionally, the strong inflow of deposits provided the opportunity to payoff $40.0 million of higher cost Federal Home Loan Bank advances during the quarter.

The Company's tangible book value per share was $20.35 as of March 31, 2024, compared to $20.59 on December 31, 2023.  Unrealized losses on securities, net of taxes, reduced tangible book value per share by $3.67 and $3.36 at the end of those respective periods.

The Bank is considered a "well-capitalized" institution, as its capital ratios exceeded the minimum designated requirements.  As of March 31, 2024, the Bank's Tier 1 Leverage Ratio was 8.61%, Tier 1 Capital Ratio was 12.10%, and Total Capital Ratio was 13.05% — well above the minimum requirements of 5.0%, 8.0%, and 10.0%, respectively.

RESULTS OF OPERATIONS (March 31, 2024 to March 31, 2023 quarterly comparison)Net interest margin was 2.78% compared to 3.22% in the first quarter 2023.  The decrease was primarily driven by a higher cost of funds.  The book yield from securities was 2.25% and 2.29% at March 31, 2024 and 2023.  The yield includes the effect of the investment of excess cash in shorter term US treasury securities following the COVID pandemic in 2021 and 2022.  As a result, these securities will mature over the next 2 to 5 years, and the proceeds are expected to be reinvested in market rate loans and securities.  The yield on loans expanded to 5.36% in the first quarter 2024, up from 4.70% in the same quarter of 2023.  Approximately 46% of commercial loans are fixed at rates that are lower than current market rates but will contractually reprice to variable rates over the next 3 to 5 years which will improve the overall yield on earning assets.  Costs of interest-bearing liabilities increased to 2.27% from 0.95% in the first quarter 2023, reflecting a higher level of retail CDs and overall deposit relationship pricing.

The provision for credit losses was $392 thousand in the first quarter of 2024 and was $41 thousand in the same quarter of 2023.  The change was largely due to loan growth and a few specific reserves on commercial loans that were downgraded in the first quarter of 2024.

Noninterest income was $3.5 million in the first quarter 2024, up 5% as compared to the same quarter 2023.  Customer service fees grew by $68 thousand to $2.0 million as compared to the same quarter of 2023 on a higher number of transactional accounts.  Wealth management income increased by $153 thousand to $939 thousand from the prior year quarter due to an increase of $89.2 million in assets under management (AUM).  Wealth AUM increased by $19.6 million to $660.6 million from $641.0 million as of fourth quarter 2023 primarily due to new accounts and higher security valuations in the first quarter 2024.

Noninterest expense was $12.7 million in the first quarter 2024 compared to $12.2 million in the first quarter 2023.  Compensation and benefit expenses increased $426 thousand from the comparative quarter in 2023.  The increase reflects annual merit increases and medical claim adjustments totaling $225 thousand.

About the Corporation

Isabella Bank Corporation (OTCQX: ISBA) is the parent holding company of Isabella Bank, a state-chartered community bank headquartered in Mt. Pleasant, Michigan.  Isabella Bank was established in 1903 and has been committed to serving its customers' and communities' local banking needs for over 120 years.  The Bank offers personal and commercial lending and deposit products, as well as investment, trust, and estate planning services.  The Bank has locations throughout eight Mid-Michigan counties: Bay, Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw.

For more information about Isabella Bank Corporation, visit the Investor Relations link at www.isabellabank.com. Isabella Bank Corporation common stock is quoted on the OTCQX tier of the OTC Markets Group, Inc.'s electronic quotation system (www.otcmarkets.com) under the symbol "ISBA."  The Corporation's investor relations firm is Stonegate Capital Partners, Inc. (www.stonegateinc.com).

Forward-Looking StatementsThis press release includes forward-looking statements. To the extent that the foregoing information refers to matters that may occur in the future, please be aware that such forward-looking statements may differ materially from the actual results. Additional information concerning some of the factors that could cause materially different results is included in the sections titled "Risk Factors" and "Forward Looking Statements" set forth in Isabella Bank Corporation's filings with the Securities and Exchange Commission, which are available from the Securities and Exchange Commission's Public Reference facilities and from its website at www.sec.gov.

 

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

March 312024

December 312023

ASSETS

Cash and cash equivalents

Cash and demand deposits due from banks

$           22,987

$           25,628

Fed Funds sold and interest bearing balances due from banks

2,231

8,044

Total cash and cash equivalents

25,218

33,672

Available-for-sale securities, at fair value

517,585

528,148

Mortgage loans available-for-sale

366

Loans

1,365,508

1,349,463

Less allowance for credit losses

13,390

13,108

Net loans

1,352,118

1,336,355

Premises and equipment

27,951

27,639

Bank owned life insurance policies

34,131

33,892

Equity securities without readily determinable fair values

15,848

15,848

Goodwill and other intangible assets

48,284

48,284

Accrued interest receivable and other assets

36,075

35,130

TOTAL ASSETS

$      2,057,576

$      2,058,968

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits

Noninterest bearing

$         413,272

$         428,505

Interest bearing demand deposits

349,401

320,737

Certificates of deposit under $250 and other savings

881,528

857,768

Certificates of deposit over $250

124,106

116,685

Total deposits

1,768,307

1,723,695

Borrowed funds

Federal funds purchased and repurchase agreements

42,998

46,801

Federal Home Loan Bank advances

40,000

Subordinated debt, net of unamortized issuance costs

29,357

29,335

Total borrowed funds

72,355

116,136

Accrued interest payable and other liabilities

16,240

16,735

Total liabilities

1,856,902

1,856,566

Shareholders' equity

Common stock — no par value 15,000,000 shares authorized; issued and outstanding 7,488,101 shares (including 169,677 shares held in the Rabbi Trust) in 2024 and 7,485,889 shares (including 150,581 shares held in the Rabbi Trust) in 2023

126,656

127,323

Shares to be issued for deferred compensation obligations

3,890

3,693

Retained earnings

98,318

97,282

Accumulated other comprehensive income (loss)

(28,190)

(25,896)

Total shareholders' equity

200,674

202,402

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$      2,057,576

$      2,058,968

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands except per share amounts)

Three Months Ended 

 March 31

2024

2023

Interest income

Loans, including fees

$           18,057

$           14,889

Available-for-sale securities

Taxable

2,258

2,502

Nontaxable

626

718

Federal funds sold and other

439

486

Total interest income

21,380

18,595

Interest expense

Deposits

7,163

2,829

Borrowings

Federal funds purchased and repurchase agreements

321

149

Federal Home Loan Bank advances

388

Subordinated debt, net of unamortized issuance costs

266

266

Total interest expense

8,138

3,244

Net interest income

13,242

15,351

Provision for credit losses

392

41

Net interest income after provision for credit losses

12,850

15,310

Noninterest income

Service charges and fees

2,046

1,978

Wealth management fees

939

786

Earnings on bank owned life insurance policies

243

226

Net gain on sale of mortgage loans

34

67

Other

206

236

Total noninterest income

3,468

3,293

Noninterest expenses

Compensation and benefits

7,015

6,589

Furniture and equipment

1,675

1,597

Occupancy

1,031

1,005

Other

2,955

3,007

Total noninterest expenses

12,676

12,198

Income before federal income tax expense

3,642

6,405

Federal income tax expense

511

1,084

NET INCOME

$              3,131

$              5,321

Earnings per common share

Basic

$                0.42

$                0.70

Diluted

$                0.42

$                0.70

Cash dividends per common share

$                0.28

$                0.28

AVERAGE BALANCES, INTEREST RATE, AND NET INTEREST INCOME (UNAUDITED)(Dollars in thousands)

The following schedules present the daily average amount outstanding for each major category of interest earning assets, non-earning assets, interest bearing liabilities, and noninterest bearing liabilities. These schedules also present an analysis of interest income and interest expense for the periods indicated. All interest income is reported on a fully taxable equivalent (FTE) basis using a federal income tax rate of 21%. Loans in nonaccrual status, for the purpose of the following computations, are included in the average loan balances. Federal Reserve Bank (FRB) and Federal Home Loan Bank restricted equity holdings are included in other interest earning assets.

Three Months Ended

March 31, 2024

March 31, 2023

Average

Balance

Tax

Equivalent

Interest

Average

Yield /

Rate

Average

Balance

Tax

Equivalent

Interest

Average

Yield /

Rate

INTEREST EARNING ASSETS

Loans (1)

$    1,348,749

$         18,057

5.36 %

$    1,268,269

$         14,889

4.70 %

Taxable investment securities

467,974

2,228

1.90 %

504,889

2,471

1.96 %

Nontaxable investment securities

89,056

902

4.05 %

106,240

1,021

3.84 %

Fed funds sold

7

5.69 %

17

4.50 %

Other

37,972

439

4.62 %

60,583

486

3.21 %

Total earning assets

1,943,758

21,626

4.45 %

1,939,998

18,867

3.89 %

NONEARNING ASSETS

Allowance for credit losses

(13,100)

(12,660)

Cash and demand deposits due from banks

24,018

25,039

Premises and equipment

28,022

25,864

Accrued income and other assets

84,059

71,063

Total assets

$    2,066,757

$    2,049,304

INTEREST BEARING LIABILITIES

Interest bearing demand deposits

$       345,842

413

0.48 %

$       379,717

146

0.15 %

Savings deposits

633,904

3,333

2.10 %

645,987

1,466

0.91 %

Time deposits

357,541

3,417

3.82 %

267,463

1,217

1.82 %

Federal funds purchased and repurchase agreements

40,623

321

3.16 %

39,709

149

1.50 %

Federal Home Loan Bank advances

27,692

388

5.60 %

— %

Subordinated debt, net of unamortized issuance costs

29,342

266

3.63 %

29,253

266

3.64 %

Total interest bearing liabilities

1,434,944

8,138

2.27 %

1,362,129

3,244

0.95 %

NONINTEREST BEARING LIABILITIES

Demand deposits

412,228

486,491

Other

16,151

13,094

Shareholders' equity

203,434

187,590

Total liabilities and shareholders' equity

$    2,066,757

$    2,049,304

Net interest income (FTE)

$         13,488

$         15,623

Net yield on interest earning assets (FTE)

2.78 %

3.22 %

(1)

Includes loans and mortgage loans available-for-sale

 

SELECTED FINANCIAL DATA (UNAUDITED)

(Dollars in thousands except per share amounts)

Three Months Ended

March 312024

December 312023

September 302023

June 302023

March 312023

PER SHARE

Basic earnings

$            0.42

$            0.51

$            0.59

$            0.62

$           0.70

Diluted earnings

$            0.42

$            0.51

$            0.58

$            0.61

$           0.70

Dividends

$            0.28

$            0.28

$            0.28

$            0.28

$           0.28

Tangible book value (1)

$          20.35

$          20.59

$          18.27

$          18.69

$         19.24

Quoted market value

   High

$          21.74

$          22.00

$          23.00

$          26.00

$         25.10

   Low

$          18.25

$          19.75

$          19.61

$          19.13

$         22.08

   Market price (1)

$          19.40

$          21.50

$          21.05

$          20.50

$         24.80

Common shares outstanding (1)

7,488,101

7,485,889

7,490,557

7,496,826

7,540,015

Average number of common shares outstanding

7,493,334

7,492,532

7,495,168

7,498,584

7,556,585

Average number of diluted common shares outstanding

7,507,739

7,526,514

7,570,374

7,567,527

7,634,417

PERFORMANCE RATIOS

Return on average total assets

0.61 %

0.74 %

0.86 %

0.91 %

1.04 %

Return on average shareholders' equity

6.16 %

8.05 %

9.24 %

9.47 %

11.35 %

Return on average tangible shareholders' equity

8.07 %

10.82 %

12.37 %

12.58 %

15.28 %

Net interest margin yield (FTE)

2.78 %

2.85 %

3.02 %

3.11 %

3.22 %

ASSETS UNDER MANAGEMENT (1)

Loans sold with servicing retained

$      244,829

$      248,756

$      252,176

$      254,934

$     259,512

Assets managed by Isabella Wealth

$      660,645

$      641,027

$      590,666

$      593,530

$     571,453

Total assets under management

$   2,963,050

$  2,948,751

$   2,961,332

$   2,890,912

$  2,915,589

ASSET QUALITY (1)

Nonaccrual loans

$          1,283

$             982

$             520

$             414

$            488

Foreclosed assets

$             579

$             406

$             509

$             405

$            414

Net loan charge-offs (recoveries)

$               46

$             381

$            (254)

$                (3)

$               (9)

Nonperforming loans to gross loans

0.09 %

0.08 %

0.04 %

0.04 %

0.04 %

Nonperforming assets to total assets

0.09 %

0.07 %

0.05 %

0.05 %

0.05 %

Allowance for credit losses to gross loans

0.98 %

0.97 %

0.96 %

0.96 %

0.99 %

CAPITAL RATIOS (1)

Shareholders' equity to assets

9.75 %

9.83 %

8.74 %

9.23 %

9.27 %

Tier 1 leverage

8.80 %

8.76 %

8.77 %

8.70 %

8.58 %

Common equity tier 1 capital

12.36 %

12.54 %

12.43 %

12.39 %

12.71 %

Tier 1 risk-based capital

12.36 %

12.54 %

12.43 %

12.39 %

12.71 %

Total risk-based capital

15.31 %

15.52 %

15.39 %

15.37 %

15.77 %

(1)

At end of period

 

SELECTED FINANCIAL DATA (UNAUDITED)

(Dollars in thousands except per share amounts)

Three Months Ended

March 312024

March 312023

March 312022

PER SHARE

Basic earnings

$            0.42

$            0.70

$            0.63

Diluted earnings

$            0.42

$            0.70

$            0.62

Dividends

$            0.28

$            0.28

$            0.27

Tangible book value (1)

$          20.35

$          19.24

$          19.56

Quoted market value

   High

$          21.74

$          25.10

$          26.00

   Low

$          18.25

$          22.08

$          24.50

   Market price (1)

$          19.40

$          24.80

$          25.85

Common shares outstanding (1)

7,488,101

7,540,015

7,542,758

Average number of common shares outstanding

7,493,334

7,556,585

7,533,711

Average number of diluted common shares outstanding

7,507,739

7,634,417

7,639,688

PERFORMANCE RATIOS

Return on average total assets

0.61 %

1.04 %

0.92 %

Return on average shareholders' equity

6.16 %

11.35 %

9.02 %

Return on average tangible shareholders' equity

8.07 %

15.28 %

11.72 %

Net interest margin yield (FTE)

2.78 %

3.22 %

2.86 %

ASSETS UNDER MANAGEMENT (1)

Loans sold with servicing retained

$      244,829

$      259,512

$      275,556

Assets managed by Isabella Wealth

$      660,645

$      571,453

$      501,829

Total assets under management

$   2,963,050

$   2,915,589

$   2,838,318

ASSET QUALITY (1)

Nonaccrual loans

$          1,283

$             488

$             747

Foreclosed assets

$             579

$             414

$             187

Net loan charge-offs (recoveries)

$               46

$                (9)

$              (64)

Nonperforming loans to gross loans

0.09 %

0.04 %

0.06 %

Nonperforming assets to total assets

0.09 %

0.05 %

0.05 %

Allowance for credit losses to gross loans

0.98 %

0.99 %

0.76 %

CAPITAL RATIOS (1)

Shareholders' equity to assets

9.75 %

9.27 %

9.50 %

Tier 1 leverage

8.80 %

8.58 %

8.12 %

Common equity tier 1 capital

12.36 %

12.71 %

12.83 %

Tier 1 risk-based capital

12.36 %

12.71 %

12.83 %

Total risk-based capital

15.31 %

15.77 %

15.84 %

(1)

At end of period

 

SUPPLEMENTAL BALANCE SHEET DATA (UNAUDITED)

(Dollars in thousands)

March 312024

December 312023

September 302023

June 302023

March 312023

Commercial and industrial

$         226,281

$         209,738

$         195,814

$         194,914

$         189,185

Commercial real estate

561,123

564,244

566,639

564,254

566,410

Advances to mortgage brokers

29,688

18,541

24,807

39,099

Agricultural

93,695

99,994

99,233

96,689

94,760

Residential real estate

356,658

356,418

348,196

343,474

336,186

Consumer

98,063

100,528

99,985

95,972

84,110

Gross loans

$      1,365,508

$      1,349,463

$      1,334,674

$      1,334,402

$      1,270,651

March 312024

December 312023

September 302023

June 302023

March 312023

Noninterest bearing demand deposits

$         413,272

$         428,505

$         445,043

$         458,845

$         478,829

Interest bearing demand deposits

349,401

320,737

363,558

335,922

383,602

Savings deposits

639,491

628,079

628,795

606,644

662,495

Certificates of deposit

366,143

346,374

332,078

313,537

288,602

Internet certificates of deposit

Total deposits

$      1,768,307

$      1,723,695

$      1,769,474

$      1,714,948

$      1,813,528

March 312024

December 312023

September 302023

June 302023

March 312023

U.S. Treasury

$         214,226

$         214,801

$         209,182

$         209,353

$         212,086

States and political subdivisions

90,470

92,876

89,773

95,242

108,719

Auction rate money market preferred

3,013

2,931

2,570

2,637

2,716

Mortgage-backed securities

31,044

32,815

32,923

35,532

37,797

Collateralized mortgage obligations

171,831

177,775

175,630

180,996

200,252

Corporate

7,001

6,950

6,819

6,737

7,080

Available-for-sale securities, at fair value

$         517,585

$         528,148

$         516,897

$         530,497

$         568,650

March 312024

December 312023

September 302023

June 302023

March 312023

Securities sold under agreements to repurchase without stated maturity dates

$           42,998

$           46,801

$           52,330

$           37,102

$           31,995

Federal Home Loan Bank advances

40,000

65,000

55,000

Subordinated debt, net of unamortized issuance costs

29,357

29,335

29,312

29,290

29,267

Total borrowed funds

$           72,355

$         116,136

$         146,642

$         121,392

$           61,262

 

SUPPLEMENTAL STATEMENTS OF INCOME DATA (UNAUDITED)

(Dollars in thousands)

Three Months Ended March 31

2024

2023

Service charges and fees

ATM and debit card fees

$               1,215

$               1,160

Service charges and fees on deposit accounts

614

611

Freddie Mac servicing fee

150

159

Net mortgage servicing rights income (loss)

(37)

(36)

Other fees for customer services

104

84

Total service charges and fees

2,046

1,978

Wealth management fees

939

786

Earnings on corporate owned life insurance policies

243

226

Net gain on sale of mortgage loans

34

67

Other

206

236

Total noninterest income

$               3,468

$               3,293

Three Months Ended March 31

2024

2023

Compensation and benefits

$               7,015

$               6,589

Furniture and equipment

1,675

1,597

Occupancy

1,031

1,005

Other

Audit, consulting, and legal fees

513

535

ATM and debit card fees

469

400

FDIC insurance premiums

252

228

Marketing costs

244

245

Memberships and subscriptions

228

240

Loan underwriting fees

183

215

Donations and community relations

182

184

Director fees

176

204

All other

708

756

Total other noninterest expenses

2,955

3,007

Total noninterest expenses

$             12,676

$             12,198

 

Cision View original content:https://www.prnewswire.com/news-releases/isabella-bank-corporation-reports-first-quarter-2024-results-302121627.html

SOURCE Isabella Bank Corporation

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