Isabella Bank Corporation Announces Second Quarter 2023 Earnings

Growth in loans, Isabella Wealth during Q2; results remain strong despite interest rate headwinds

MT. PLEASANT, Mich., July 21, 2023 /PRNewswire/ -- Isabella Bank Corporation (the "Corporation") (OTCQX: ISBA) has reported net income of $4.6 million for the second quarter of 2023 and $10 million for the six-month period ended June 30, 2023. Earnings per common share were $0.62 for the second quarter of 2023 and $1.32 for the first half of the year.

Second Quarter 2023 Highlights:

• Loans grew $64 million, or 5%, during the quarter.
• Interest income improved 21%, compared to second quarter of 2022.
• Assets managed by Isabella Wealth grew more than $22 million, or 4%, during the quarter.
• Shareholders earned a cash dividend of $0.28 per share, with an annualized dividend yield of 5.46%, as of June 30, 2023.

"Our financial performance remains strong despite the challenges our industry faces with current interest rate dynamics," said Jae A. Evans, President and Chief Executive Officer. "Competition for deposits was strong during the quarter, leading to continued pressure on our net interest margin and a decline in deposits. Despite this decline, our liquidity position remains strong.

"We are safeguarding the long-term success of the bank with strategic decisions and initiatives that will enhance shareholder value and the customer experience. One such action, for which planning began last year, is our first move into Bay County. The upcoming opening of our Bay City loan production office (LPO) is a great opportunity for us to assist individuals and businesses throughout the area with their loan needs," Evans said. "The continued growth of our footprint demonstrates our ongoing commitment to customers and communities as a leading, independent community bank."

Operating Results

Net income: Net income for second quarter 2023 was $4.6 million, compared to $5.3 million in the second quarter of 2022. Net income for the first six months of the year was $10 million, remaining stable year over year. Interest income continued to improve in the second quarter and nearly offset the increase in interest expense due to rising rates on deposits.

Net interest income: Net interest income for second quarter 2023 decreased $248,000 compared to the second quarter of 2022. For the first six months of the year, net interest income increased $1.6 million compared to the same period in 2022. Rising interest rates and continued loan growth led to an increase in gross interest income of $3.4 million and $7.2 million for the second quarter and first six months of 2023, compared to the same periods in 2022. While the Bank continues to benefit from a strategic reduction in higher-cost borrowings, implemented in prior periods, rising interest rates on deposits led to a $3.6 million and $5.6 million increase in interest expense for the second quarter and first six months of 2023, compared the same periods in 2022.

Noninterest income and expenses: Noninterest income was $3.6 million for the second quarter of both 2023 and 2022. For the first six months of 2023, noninterest income decreased $245,000 compared to the same period in 2022, driven by a $554,000 reduction in mortgage servicing rights income, as rising interest rates led to a decline in both the volume and balance of loans serviced. Noninterest expenses increased $878,000 during the second quarter of 2023 and $1.8 million for the six-month period ended June 30, 2023 in comparison to the same periods in 2022. The increase was primarily the result of increased expense related to compensation, equipment, and FDIC insurance.

Net yield on interest earning assets: The Corporation's fully taxable equivalent net yield on interest earning assets was 3.11% and 3.17% for the three and six months ended June 30, 2023, compared to 3.16% and 3.01% for the same periods in 2022. While the second quarter of 2023 fell in comparison to the same period in 2022, net yield for the first half of 2023 improved significantly through strategic initiatives - such as the reduced reliance on higher-cost borrowed funds and brokered deposits - that were implemented in prior periods in anticipation of rising interest rates.

Balance Sheet

Assets: Total assets were $2 billion and assets under management were $2.9 billion as of June 30, 2023. Managed assets include loans sold and serviced of $255 million as well as $594 million in investment and trust assets managed by Isabella Wealth. Investment and trust assets increased $80 million, or 15.5%, since December 31, 2022.

Loans: Loans outstanding as of June 30, 2023 totaled $1.3 billion. Gross loans increased $63.8 million during the second quarter and rose $70.2 million compared to December 31, 2022. This reflects growth in the consumer portfolio and a resumption of the Bank's engagement with a mortgage participation program. Adherence to strong underwriting standards continued to be reflected in the low levels of total past due and nonaccrual loans, which were $3.7 million, or 0.28% of total loans, at the end of the period.

Deposits: Total deposits were $1.7 billion as of June 30, 2023, a decrease of $29.3 million, or 1.7%, since December 31, 2022. The decline occurred during the second quarter, and was driven by strong pricing competition within the industry.

Capital: The Bank is considered a "well-capitalized" institution, as its capital ratios exceeded the minimum designated requirements. As of June 30, 2023, the Bank's Tier 1 Leverage Ratio was 9.17%, Tier 1 Capital Ratio was 13.08%, and Total Capital Ratio was 14.00%. 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 2023, the Corporation paid a $0.28 per common share cash dividend. Based on the Corporation's closing stock price of $20.50 as of June 30, 2023, the annualized cash dividend yield was 5.46%.

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 120 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 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 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.