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