ISBA - Isabella Bank Corporation Announces Strong Second Quarter 2022 Earnings

July, 21 2022 06:01 PM Isabella Bank Corp

PR Newswire

Earnings trend continues; strategies lift EPS and margin

MT. PLEASANT, Mich. , July 21, 2022 /PRNewswire/ -- Isabella Bank Corporation (the "Corporation") (OTCQX: ISBA) reported net income of $5.3 million for the second quarter of 2022 and $10 million for the six-month period ended June 30 , 2022. Earnings per common share were $0.70 in the second quarter and $1.33 for the first six months of 2022.

Second-quarter 2022 highlights include:

Earnings per share of $0.70 grew 21% in comparison to the second quarter of 2021.
Net interest income improved $2.2 million compared to the second quarter of 2021, aided by a 39% decline in interest expense.
Net interest margin yield benefited from rising interest rates, increasing 37 basis points compared to the second quarter of 2021.
Loans grew $53.5 million during the second quarter, driven by commercial loans.

"We continue to deliver solid financial results as shown in our second quarter performance," said Jae A. Evans , President & CEO. " Isabella Bank continues to experience increased net income and improvement in net interest margin. With additional interest rate increases anticipated by the Federal Reserve, we expect these improvements to continue throughout the remainder of 2022.

"Despite continued concerns over how inflation and other events happening around the world may impact the financial services industry, we continue to pursue strategic initiatives to enhance shareholder and customer value," Evans added.

"During the second quarter, we announced the construction of a new full-service branch in Saginaw , expanding our presence within the Great Lakes Bay Region. The Bank also successfully completed a planned online banking conversion during the quarter, thereby enhancing our customers' experience. We remain committed to meeting the needs of our communities and our customers by providing innovative and competitive products and services."

Operating Results

Net income: Net income for the second quarter 2022 was $5.3 million , a 14.6% increase compared to $4.6 million in the second quarter of 2021. For the first six months of 2022 and 2021, net income was $10 million . Net interest income improved, offset by increased operating expenses, as described below.

Net interest income: Net interest income for the first half of 2022 increased $2.5 million compared to the same period in 2021. While Paycheck Protection Program loan fees declined during the period, rising interest rates within the loan portfolio and growth in loans and investment securities drove a $934,000 increase in gross interest income during the six-month period ended June 30, 2022 , compared to the same period in 2021. The Corporation continued to benefit from a reduction in higher-cost borrowings as interest expense on deposits and borrowings decreased $1.6 million , or 38.8%, for the six-month period ended June 30, 2022 , compared to the same period in 2021. A $522,000 provision for loan losses expense was recorded during the first half of 2022, compared to a $492,000 provision reversal during the same period in 2021, as initial concerns over potential credit quality issues related to the onset of the pandemic did not materialize.

Noninterest income and expenses: Noninterest income increased $295,000 during the first half of 2022, compared to the same period in 2021. A $968,000 increase in service charges and fees that included $577,000 of OMSR income, was partially offset by a $726,000 reduction in gain on sale of loans as residential mortgage originations declined. Noninterest expenses for the first six months of 2022 increased $1.7 million , as a result of increased compensation, other losses, consulting, marketing, and donations and community relations, as many charitable organizations resumed activities and events.

Net yield on interest earning assets: The Corporation's fully taxable equivalent net yield on interest earning assets was 3.16% and 3.01% for the three and six months ended June 30, 2022, as compared to 2.79% and 2.88% for the same periods in 2021. This marked improvement is the result of strategies management implemented In 2019 and 2020, focused on improving the net yields as rates declined, including enhanced pricing related to loans and a reduced reliance on higher-cost borrowed funds and brokered deposits. Considering the rate increases during the first half of 2022 and the anticipation of future rate increases in the remainder of the year, the Corporation expects continued improvement in the net yield on interest earning assets.

Balance Sheet

Assets: The Corporation had $2.05 billion in total assets and $2.8 billion of assets under management as of June 30, 2022. Managed assets included loans sold and serviced of $273.3 million and $454.5 million in investment and trust assets managed by Isabella Wealth.

Loans: Loans outstanding as of June 30, 2022 totaled $1.3 billion . While gross loans declined $29.1 million since December 31, 2021, due to a decrease in advances to mortgage brokers, loans increased $53.5 million or 4.4%, during the second quarter of 2022. Credit quality remains strong as evidenced by total past due and nonaccrual loans which were 0.12% of gross loans as of June 30, 2022.

Deposits: Total deposits were $1.8 billion as of June 30, 2022, an increase of $49.5 million , or 2.90%, since December 31, 2021. Growth in accounts from new customers is the driving factor behind this increase.

Capital: The Bank is considered a "well-capitalized" institution, as its capital ratios exceeded the minimum designated requirements. As of June 30, 2022, the Bank's Tier 1 Leverage Ratio was 8.99%, Tier 1 Capital Ratio was 13.50% and Total Capital Ratio was 14.22%. The minimum requirements to be considered well capitalized are a Tier 1 Leverage Ratio of 5.0%, Tier 1 Capital Ratio of 8.0% and Total Capital Ratio of 10.0%.

Dividend: During the second quarter of 2022, the Corporation paid a $0.27 per common share cash dividend. Based on the Corporation's closing stock price of $24.80 as of June 30, 2022, the annualized cash dividend yield was 4.35%.

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 the local banking needs of its customers and communities for 119 years. The Bank offers personal and commercial lending and deposit products, as well as investment, trust, and estate planning services through Isabella Wealth. The Bank has locations throughout seven Mid-Michigan counties: Clare , Gratiot , Isabella, Mecosta , Midland , Montcalm , and Saginaw .

For more information about Isabella Bank Corporation, visit the investors 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 market maker is Boenning & Scattergood, Inc. ( www.boenninginc.com ) and its investor relations firm is Renmark Financial Communications, Inc. ( www.renmarkfinancial.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 .

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)


June 30 2022

December 31 2021
ASSETS



Cash and cash equivalents



Cash and demand deposits due from banks
25,871

25,563
Interest bearing balances due from banks
56,146

79,767
Total cash and cash equivalents
82,017

105,330
Available-for-sale securities, at fair value
557,590

490,601
Mortgage loans available-for-sale
906

1,735
Loans



Commercial
772,567

807,439
Agricultural
94,726

93,955
Residential real estate
329,795

326,361
Consumer
74,822

73,282
Gross loans
1,271,910

1,301,037
Less allowance for loan and lease losses
9,700

9,103
Net loans
1,262,210

1,291,934
Premises and equipment
24,169

24,419
Corporate owned life insurance policies
32,552

32,472
Equity securities without readily determinable fair values
15,095

17,383
Goodwill and other intangible assets
48,294

48,302
Accrued interest receivable and other assets
25,540

19,982
TOTAL ASSETS
2,048,373

2,032,158
LIABILITIES AND SHAREHOLDERS' EQUITY



Deposits



Noninterest bearing
488,110

448,352
Interest bearing demand deposits
370,284

364,563
Certificates of deposit under $250 and other savings
834,933

818,841
Certificates of deposit over $250
66,539

78,583
Total deposits
1,759,866

1,710,339
Borrowed funds



Federal funds purchased and repurchase agreements
47,247

50,162
Federal Home Loan Bank advances
10,000

20,000
Subordinated debt, net of unamortized issuance costs
29,203

29,158
Total borrowed funds
86,450

99,320
Accrued interest payable and other liabilities
11,377

11,451
Total liabilities
1,857,693

1,821,110
Shareholders' equity



Common stock — no par value 15,000,000 shares authorized; issued and outstanding 7,553,113 shares (including 126,388 shares held in the Rabbi Trust) in 2022 and 7,532,641 shares (including 105,654 shares held in the Rabbi Trust) in 2021
129,115

129,052
Shares to be issued for deferred compensation obligations
4,791

4,545
Retained earnings
81,614

75,592
Accumulated other comprehensive income (loss)
(24,840)

1,859
Total shareholders' equity
190,680

211,048
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
2,048,373

2,032,158

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands except per share amounts)


Three Months Ended June 30

Six Months Ended June 30

2022

2021

2022

2021
Interest income







Loans, including fees
13,179

12,504

25,557

25,601
Available-for-sale securities







Taxable
2,027

1,140

3,642

2,305
Nontaxable
704

803

1,364

1,668
Federal funds sold and other
192

193

301

356
Total interest income
16,102

14,640

30,864

29,930
Interest expense







Deposits
854

1,444

1,790

3,112
Borrowings







Federal funds purchased and repurchase agreements
8

11

17

27
Federal Home Loan Bank advances
47

389

119

794
Subordinated debt, net of unamortized issuance costs
266

83

532

83
Total interest expense
1,175

1,927

2,458

4,016
Net interest income
14,927

12,713

28,406

25,914
Provision for loan losses
485

31

522

(492)
Net interest income after provision for loan losses
14,442

12,682

27,884

26,406
Noninterest income







Service charges and fees
2,284

1,830

4,493

3,525
Wealth management fees
784

806

1,538

1,502
Net gain on sale of mortgage loans
170

375

394

1,120
Earnings on corporate owned life insurance policies
222

190

432

376
Other
135

114

285

324
Total noninterest income
3,595

3,315

7,142

6,847
Noninterest expenses







Compensation and benefits
6,037

5,700

12,111

11,577
Furniture and equipment
1,442

1,327

2,892

2,700
Occupancy
929

915

1,895

1,860
Other
3,253

2,553

6,083

5,175
Total noninterest expenses
11,661

10,495

22,981

21,312
Income before federal income tax expense
6,376

5,502

12,045

11,941
Federal income tax expense
1,081

881

2,016

1,922
NET INCOME
5,295

4,621

10,029

10,019
Earnings per common share







Basic
0.70

0.58

1.33

1.26
Diluted
0.69

0.57

1.31

1.24
Cash dividends per common share
0.27

0.27

0.54

0.54

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 (FHLB) restricted equity holdings are included in other interest earning assets.


Three Months Ended

June 30, 2022

June 30, 2021

Average Balance

Tax Equivalent Interest

Average Yield / Rate

Average Balance

Tax Equivalent Interest

Average Yield / Rate
INTEREST EARNING ASSETS











Loans
1,259,573

13,179

4.19 %

1,200,998

12,504

4.16 %
Taxable investment securities
475,010

2,027

1.71 %

281,245

1,140

1.62 %
Nontaxable investment securities
109,367

975

3.57 %

122,514

1,117

3.65 %
Fed funds sold
6

—

1.47 %

3

—

0.01 %
Other
77,176

192

1.00 %

265,227

193

0.29 %
Total earning assets
1,921,132

16,373

3.41 %

1,869,987

14,954

3.20 %
NONEARNING ASSETS











Allowance for loan losses
(9,288)





(9,326)




Cash and demand deposits due from banks
22,838





28,629




Premises and equipment
24,269





24,826




Accrued income and other assets
84,590





106,780




Total assets
2,043,541





2,020,896
















INTEREST BEARING LIABILITIES











Interest bearing demand deposits
375,123

56

0.06 %

330,586

45

0.05 %
Savings deposits
627,916

171

0.11 %

550,145

149

0.11 %
Time deposits
274,284

627

0.91 %

347,155

1,250

1.44 %
Federal funds purchased and repurchase agreements
46,029

8

0.07 %

52,239

11

0.08 %
Federal Home Loan Bank advances
10,000

47

1.88 %

84,725

389

1.84 %
Subordinated debt, net of unamortized issuance costs
29,188

266

3.65 %

9,551

83

3.48 %
Total interest bearing liabilities
1,362,540

1,175

0.34 %

1,374,401

1,927

0.56 %
NONINTEREST BEARING LIABILITIES











Demand deposits
470,139





412,600




Other
15,237





12,478




Shareholders' equity
195,625





221,417




Total liabilities and shareholders' equity
2,043,541





2,020,896




Net interest income (FTE)


15,198





13,027


Net yield on interest earning assets (FTE)




3.16 %





2.79 %


Six Months Ended

June 30, 2022

June 30, 2021

Average Balance

Tax Equivalent Interest

Average Yield / Rate

Average Balance

Tax Equivalent Interest

Average Yield / Rate
INTEREST EARNING ASSETS











Loans
1,247,746

25,557

4.10 %

1,201,344

25,601

4.26 %
Taxable investment securities
448,405

3,642

1.62 %

236,099

2,305

1.95 %
Nontaxable investment securities
105,507

1,895

3.59 %

127,157

2,311

3.63 %
Fed funds sold
4

—

1.12 %

3

—

0.01 %
Other
120,027

301

0.50 %

280,083

356

0.25 %
Total earning assets
1,921,689

31,395

3.27 %

1,844,686

30,573

3.31 %
NONEARNING ASSETS











Allowance for loan losses
(9,209)





(9,574)




Cash and demand deposits due from banks
24,827





28,787




Premises and equipment
24,364





24,987




Accrued income and other assets
93,648





109,898




Total assets
2,055,319





1,998,784
















INTEREST BEARING LIABILITIES











Interest bearing demand deposits
379,275

106

0.06 %

322,931

122

0.08 %
Savings deposits
621,661

330

0.11 %

540,776

298

0.11 %
Time deposits
282,172

1,354

0.96 %

357,466

2,692

1.51 %
Federal funds purchased and repurchase agreements
47,535

17

0.07 %

53,187

27

0.10 %
Federal Home Loan Bank advances
12,431

119

1.91 %

87,348

794

1.82 %
Subordinated debt, net of unamortized issuance costs
29,177

532

3.65 %

4,665

83

3.56 %
Total interest bearing liabilities
1,372,251

2,458

0.36 %

1,366,373

4,016

0.59 %
NONINTEREST BEARING LIABILITIES











Demand deposits
464,271





397,959




Other
16,061





13,311




Shareholders' equity
202,736





221,141




Total liabilities and shareholders' equity
2,055,319





1,998,784




Net interest income (FTE)


28,937





26,557


Net yield on interest earning assets (FTE)




3.01 %





2.88 %

SELECTED FINANCIAL DATA (UNAUDITED)
(Dollars in thousands except per share amounts)


Three Months Ended

June 30 2022

March 31 2022

December 31 2021

September 30 2021

June 30 2021
PER SHARE









Basic earnings
0.70

0.63

0.63

0.59

0.58
Diluted earnings
0.69

0.62

0.63

0.58

0.57
Dividends
0.27

0.27

0.27

0.27

0.27
Tangible book value
18.85

19.56

21.61

21.87

21.73
Quoted market value









High
26.25

26.00

29.00

26.74

23.90
Low
23.00

24.50

24.75

22.55

21.00
Close ⁽¹⁾
24.80

25.85

25.50

26.03

23.00
Common shares outstanding ⁽¹⁾
7,553,113

7,542,758

7,532,641

7,926,610

7,946,658
Average number of common shares outstanding
7,545,001

7,533,711

7,570,961

7,932,227

7,944,455
Average number of diluted common shares outstanding
7,650,145

7,639,688

7,679,019

8,044,572

8,063,164
PERFORMANCE RATIOS









Return on average total assets
1.04 %

0.92 %

0.96 %

0.91 %

0.91 %
Return on average shareholders' equity
10.83 %

9.02 %

8.83 %

8.35 %

8.35 %
Return on average tangible shareholders' equity
14.38 %

11.72 %

11.31 %

10.65 %

10.69 %
Net interest margin yield (FTE)
3.16 %

2.86 %

2.86 %

2.85 %

2.79 %
ASSETS UNDER MANAGEMENT ⁽¹⁾









Loans sold with servicing retained
273,294

275,556

278,844

285,392

290,033
Assets managed by Isabella Wealth
454,535

501,829

516,243

491,784

493,287
Total assets under management
2,776,202

2,838,318

2,827,245

2,859,877

2,814,727
ASSET QUALITY ⁽¹⁾









Nonaccrual status loans
540

747

1,245

3,077

3,329
Performing troubled debt restructurings
21,905

22,335

25,276

26,189

26,785
Foreclosed assets
241

187

211

348

365
Net loan charge-offs (recoveries)
(11)

(64)

71

160

(58)
Nonperforming loans to gross loans
0.05 %

0.06 %

0.10 %

0.25 %

0.28 %
Nonperforming assets to total assets
0.05 %

0.05 %

0.08 %

0.18 %

0.19 %
Allowance for loan and lease losses to gross loans
0.76 %

0.76 %

0.70 %

0.73 %

0.78 %
CAPITAL RATIOS ⁽¹⁾









Shareholders' equity to assets
9.31 %

9.50 %

10.39 %

10.64 %

10.88 %
Tier 1 leverage
8.38 %

8.12 %

7.97 %

8.37 %

8.46 %
Common equity tier 1 capital
12.44 %

12.83 %

12.07 %

13.07 %

13.81 %
Tier 1 risk-based capital
12.44 %

12.83 %

12.07 %

13.07 %

13.81 %
Total risk-based capital
15.33 %

15.84 %

14.94 %

16.03 %

17.00 %

⁽¹⁾ At end of period


Six Months Ended

June 30 2022

June 30 2021

June 30 2020
PER SHARE





Basic earnings
1.33

1.26

0.91
Diluted earnings
1.31

1.24

0.90
Dividends
0.54

0.54

0.54
Tangible book value
18.85

21.73

21.52
Quoted market value





High
26.25

23.90

24.50
Low
23.00

19.45

15.60
Close ⁽¹⁾
24.80

23.00

18.25
Common shares outstanding ⁽¹⁾
7,553,113

7,946,658

7,977,019
Average number of common shares outstanding
7,539,799

7,956,889

7,927,298
Average number of diluted common shares outstanding
7,645,357

8,075,763

8,081,475
PERFORMANCE RATIOS





Return on average total assets
0.98 %

1.00 %

0.78 %
Return on average shareholders' equity
9.89 %

9.06 %

6.67 %
Return on average tangible shareholders' equity
13.00 %

11.61 %

4.30 %
Net interest margin yield (FTE)
3.01 %

2.88 %

2.95 %
ASSETS UNDER MANAGEMENT ⁽¹⁾





Loans sold with servicing retained
273,294

290,033

263,332
Assets managed by Isabella Wealth
454,535

493,287

395,214
Total assets under management
2,776,202

2,814,727

2,571,773
ASSET QUALITY ⁽¹⁾





Nonaccrual status loans
540

3,329

5,319
Performing troubled debt restructurings
21,905

26,785

20,536
Foreclosed assets
241

365

776
Net loan charge-offs (recoveries)
(75)

(108)

(45)
Nonperforming loans to gross loans
0.05 %

0.28 %

0.42 %
Nonperforming assets to total assets
0.05 %

0.19 %

0.33 %
Allowance for loan and lease losses to gross loans
0.76 %

0.78 %

0.69 %
CAPITAL RATIOS ⁽¹⁾





Shareholders' equity to assets
9.31 %

10.88 %

11.50 %
Tier 1 leverage
8.38 %

8.46 %

8.86 %
Common equity tier 1 capital
12.44 %

13.81 %

12.90 %
Tier 1 risk-based capital
12.44 %

13.81 %

12.90 %
Total risk-based capital
15.33 %

17.00 %

13.60 %

⁽¹⁾ At end of period

SUPPLEMENTAL BALANCE SHEET DATA (UNAUDITED)
(Dollars in thousands)


June 30 2022

March 31 2022

December 31 2021

September 30 2021

June 30 2021
Commercial
772,567

727,614

807,439

757,993

723,888
Agricultural
94,726

88,169

93,955

93,782

95,197
Residential real estate
329,795

328,559

326,361

321,620

312,567
Consumer
74,822

74,029

73,282

75,163

75,011
Gross loans
1,271,910

1,218,371

1,301,037

1,248,558

1,206,663


June 30 2022

March 31 2022

December 31 2021

September 30 2021

June 30 2021
Noninterest bearing demand deposits
488,110

461,473

448,352

430,950

428,410
Interest bearing demand deposits
370,284

387,187

364,563

374,137

326,971
Savings deposits
635,397

635,195

596,662

572,136

549,134
Certificates of deposit
265,477

279,708

297,696

312,027

326,214
Internet certificates of deposit
598

598

3,066

3,066

5,777
Total deposits
1,759,866

1,764,161

1,710,339

1,692,316

1,636,506


June 30 2022

March 31 2022

December 31 2021

September 30 2021

June 30 2021
U.S. Treasury
214,474

218,268

209,703

192,069

132,593
States and political subdivisions
119,649

114,015

121,205

128,689

130,960
Auction rate money market preferred
2,497

2,867

3,242

3,246

3,260
Mortgage-backed securities
45,796

49,578

56,148

62,030

68,155
Collateralized mortgage obligations
167,572

152,441

92,301

100,767

109,294
Corporate
7,602

7,750

8,002

7,583

4,192
Available-for-sale securities, at fair value
557,590

544,919

490,601

494,384

448,454


June 30 2022

March 31 2022

December 31 2021

September 30 2021

June 30 2021
Securities sold under agreements to repurchase without stated maturity dates
47,247

51,353

50,162

67,519

62,274
Federal Home Loan Bank advances
10,000

10,000

20,000

60,000

70,000
Subordinated debt, net of unamortized issuance costs
29,203

29,181

29,158

29,136

29,121
Total borrowed funds
86,450

90,534

99,320

156,655

161,395

SUPPLEMENTAL STATEMENTS OF INCOME DATA (UNAUDITED)
(Dollars in thousands)


Three Months Ended June 30

Six Months Ended June 30

2022

2021

2022

2021
Service charges and fees







ATM and debit card fees
1,202

1,127

2,295

2,126
Service charges and fees on deposit accounts
631

481

1,240

917
Net OMSR income (loss)
213

(68)

477

(100)
Freddie Mac servicing fee
167

181

338

395
Other fees for customer services
71

109

143

187
Total service charges and fees
2,284

1,830

4,493

3,525
Wealth management fees
784

806

1,538

1,502
Earnings on corporate owned life insurance policies
222

190

432

376
Net gain on sale of mortgage loans
170

375

394

1,120
Other
135

114

285

324
Total noninterest income
3,595

3,315

7,142

6,847


Three Months Ended June 30

Six Months Ended June 30

2022

2021

2022

2021
Compensation and benefits
6,037

5,700

12,111

11,577
Furniture and equipment
1,442

1,327

2,892

2,700
Occupancy
929

915

1,895

1,860
Other







Audit, consulting, and legal fees
605

452

1,154

888
ATM and debit card fees
508

462

942

879
Marketing costs
364

238

603

447
Donations and community relations
139

108

426

254
Memberships and subscriptions
207

217

424

428
Loan underwriting fees
215

200

397

390
Director fees
187

180

388

339
FDIC insurance premiums
131

129

256

360
All other
897

567

1,493

1,190
Total other noninterest expenses
3,253

2,553

6,083

5,175
Total noninterest expenses
11,661

10,495

22,981

21,312

SOURCE Isabella Bank Corporation

Company Name:	Isabella Bank Corp
Stock Symbol:	ISBA
Market:	OTC
Website:	isabellabank.com

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