Isabella Bank Corporation Announces Fourth Quarter and 2023 Earnings

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Continued growth in loans, Isabella Wealth; outpaced by continued interest rate pressure

MT. PLEASANT, Mich., Feb. 16, 2024 /PRNewswire/ — Isabella Bank Corporation (the “Corporation”) (OTCQX:ISBA) reported fourth quarter and year-end 2023 earnings, demonstrating resilience during a year buffeted by rising interest rates on deposit accounts.  Net income for the fourth quarter was $3.8 million and $18.2 million for the year ended December 31, 2023.  Earnings per common share were $0.51 in the fourth quarter and $2.42 for the year.

Among the 2023 highlights:

Gross loans increased more than $85 million, or 7%.
Isabella Wealth assets grew 25% to $641 million, leading to an increase in wealth management fees of $552,000, or 18%, over 2022.
Interest income increased $13.8 million, or 21%, over 2022, offset by an increase in interest expense of $16.4 million.
Shareholders earned a cash dividend of $1.12 per share in 2023, with an annualized dividend yield of 5.21%.

“Our 2023 financial results demonstrate Isabella Bank’s ability to come out of a tough year still delivering strong results for shareholders,” said Jerome E. Schwind, President and Chief Executive Officer.  “Our liquidity and capital ratios remain strong and we delivered results against our strategic plan based on our strength in the marketplace.

“We continued to grow our footprint — including adding our eighth mid-Michigan county — and customers continued to turn to Isabella Bank, driving our growth in loans and our wealth management business,” he added.

Operating Results

Net income: Net income for the fourth quarter of 2023 was $3.8 million, a decrease of $2.5 million compared to the same period in 2022.  For the year ended December 31, 2023, net income was $18.2 million, compared to $22.2 million in 2022.  The declines were driven by a rise in interest expense resulting largely from increased interest rates on deposit accounts.

Net interest income, fourth quarter 2023: Net interest income for the fourth quarter 2023 declined $2.7 million, or 16%, compared to the fourth quarter of 2022.  Interest income increased $3.1 million, or 17.5%, driven by core loan growth, while continued interest rate pressure was the primary cause of a $5.8 million increase in interest expense over the same period in 2022.

Net interest income, year-end 2023: Net interest income for the year ended December 31, 2023 decreased $2.5 million, or 4.2%, compared to 2022.  Rising interest rates and growth in core loans led to a $13.8 million, or 21%, increase in gross interest income during 2023, compared to 2022.  At the same time, rising interest rates on deposits and an increase in borrowings led to a $16.4 million increase in interest expense for 2023, compared to 2022.

Noninterest income and expenses, fourth quarter 2023: Noninterest income increased $244,000 compared to the fourth quarter of 2022, primarily driven by wealth management fees and ATM and debit card income.  Noninterest expenses for the quarter were essentially unchanged in comparison to the fourth quarter of 2022.

Noninterest income and expenses, year-end 2023: Noninterest income for the year ended December 31, 2023 increased $161,000 compared to 2022.  The increase was driven by wealth management fees and ATM and debit card fee income, offset by a decrease in mortgage servicing rights and gain on sale of loans, as residential mortgages sold to the secondary market declined.   Noninterest expense increased $2.5 million compared to 2022, primarily the result of increased compensation, equipment expense, other losses, and FDIC insurance premiums.

Net yield on interest earning assets: The Corporation’s fully taxable equivalent net yield on interest earning assets was 2.85% and 3.05% for the fourth quarter and year ended December 31, 2023, respectively, compared to 3.43% and 3.18% for the same periods in 2022.  To maintain a competitive edge in the rising interest rate environment, rates on several deposit products began to increase in the fourth quarter of 2022 and continued throughout 2023.  Over the last year, the level of borrowings increased to fund loan growth.  These factors have negatively impacted the net yield on interest earning assets slowing its rate of growth.

Balance Sheet

Assets: Total assets were $2.06 billion and assets under management were $2.95 billion as of December 31, 2023.  Managed assets included loans sold and serviced of $249 million as well as $641 million in investment and trust assets managed by our wealth business.

Loans: Loans outstanding as of December 31, 2023 totaled $1.35 billion, growing $85.3 million since December 31, 2022.  Credit quality remained strong, as evidenced by total past due and nonaccrual loans which were 0.37% of gross loans as of December 31, 2023.

Deposits: Deposits were $1.72 billion as of December 31, 2023, declining $20.6 million, or 1.2%, since December 31, 2022.  A decline in demand deposits was driven by contraction in money supply as the Federal Reserve Bank pulled money out of the banking system.

Capital: The Bank continues to be considered a “well-capitalized” institution, as its capital ratios exceeded the minimum designated requirements.  As of December 31, 2023, the Bank’s Tier 1 Leverage Ratio was 8.71%, Tier 1 Capital Ratio was 12.48% and Total Capital Ratio was 13.42%, compared to minimum requirements to be considered well capitalized of 5.0%, 8.0% and 10.0%, respectively.

Dividend: The Corporation paid a $0.28 per common share cash dividend for the fourth quarter of 2023. Total cash dividends paid for the year ended December 31, 2023 totaled $1.12, a 2.75% increase over dividends paid in 2022.  Based on the Corporation’s closing stock price of $21.50 as of December 29, 2023, the annualized cash dividend yield was 5.21%.

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 Statements

This 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)

December 31
2023

December 31
2022

ASSETS

Cash and cash equivalents

Cash and demand deposits due from banks

$           25,628

$           27,420

Fed Funds sold and interest bearing balances due from banks

8,044

11,504

Total cash and cash equivalents

33,672

38,924

Available-for-sale securities, at fair value

528,148

580,481

Mortgage loans available-for-sale

379

Loans

1,349,463

1,264,173

Less allowance for credit losses

13,108

9,850

Net loans

1,336,355

1,254,323

Premises and equipment

27,639

25,553

Corporate owned life insurance policies

33,892

32,988

Equity securities without readily determinable fair values

15,848

15,746

Goodwill and other intangible assets

48,284

48,287

Accrued interest receivable and other assets

35,130

33,586

TOTAL ASSETS

$      2,058,968

$      2,030,267

LIABILITIES AND SHAREHOLDERS’ EQUITY

Deposits

Noninterest bearing

$         428,505

$         494,346

Interest bearing demand deposits

320,737

372,155

Certificates of deposit under $250 and other savings

857,768

810,642

Certificates of deposit over $250

116,685

67,132

Total deposits

1,723,695

1,744,275

Borrowed funds

Federal funds purchased and repurchase agreements

46,801

57,771

Federal Home Loan Bank advances

40,000

Subordinated debt, net of unamortized issuance costs

29,335

29,245

Total borrowed funds

116,136

87,016

Accrued interest payable and other liabilities

16,735

12,766

Total liabilities

1,856,566

1,844,057

Shareholders’ equity

Common stock — no par value 15,000,000 shares authorized; issued and outstanding
7,485,889 shares (including 150,581 shares held in the Rabbi Trust) in 2023 and
7,559,421 shares (including 154,879 shares held in the Rabbi Trust) in 2022

127,323

128,651

Shares to be issued for deferred compensation obligations

3,693

5,005

Retained earnings

97,282

89,748

Accumulated other comprehensive income (loss)

(25,896)

(37,194)

Total shareholders’ equity

202,402

186,210

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$      2,058,968

$      2,030,267

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands except per share amounts)

Three Months Ended 

 December 31

Year Ended 

December 31

2023

2022

2023

2022

Interest income

Loans, including fees

$           17,580

$           14,163

$           65,670

$           53,283

Available-for-sale securities

Taxable

2,303

2,512

9,514

8,363

Nontaxable

623

718

2,642

2,808

Federal funds sold and other

550

522

1,805

1,344

Total interest income

21,056

17,915

79,631

65,798

Interest expense

Deposits

6,399

1,323

18,352

4,021

Borrowings

Federal funds purchased and repurchase agreements

357

53

961

79

Federal Home Loan Bank advances

422

1,309

152

Subordinated debt, net of unamortized issuance costs

266

267

1,065

1,065

Total interest expense

7,444

1,643

21,687

5,317

Net interest income

13,612

16,272

57,944

60,481

Provision for credit losses

684

(57)

629

483

Net interest income after provision for credit losses

12,928

16,329

57,315

59,998

Noninterest income

Service charges and fees

2,212

2,115

8,297

8,730

Wealth management fees

932

788

3,557

3,005

Earnings on corporate owned life insurance policies

239

229

920

884

Net gain on sale of mortgage loans

85

63

317

631

Other

48

77

736

416

Total noninterest income

3,516

3,272

13,827

13,666

Noninterest expenses

Compensation and benefits

6,116

6,407

25,905

24,887

Furniture and equipment

1,697

1,624

6,519

6,006

Occupancy

857

878

3,778

3,691

Other

3,245

3,013

13,108

12,236

Total noninterest expenses

11,915

11,922

49,310

46,820

Income before federal income tax expense

4,529

7,679

21,832

26,844

Federal income tax expense

726

1,357

3,665

4,606

NET INCOME

$              3,803

$              6,322

$           18,167

$           22,238

Earnings per common share

Basic

$                0.51

$                0.84

$                2.42

$                2.95

Diluted

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