Isabella Bank Corporation Announces Third Quarter 2023 Earnings

Growth in core loans and deposits; pricing competition continues

MT. PLEASANT, Mich., Oct. 19, 2023 /PRNewswire/ -- Isabella Bank Corporation (the "Corporation") (OTCQX: ISBA) has reported net income of $4.4 million for the third quarter of 2023 and $14.4 million for the nine-month period ended September 30, 2023. Earnings per common share were $0.59 for the third quarter of 2023 and $1.91 for the first nine months of the year.

Third Quarter 2023 Highlights:

• Core loan portfolio grew $14.6 million as borrowing demand remained steady.
• Deposits grew $54.5 million, or 3.2%, despite strong pricing competition in the market.
• Wealth management fees increased 26.4% compared to the third quarter of 2022.
• Shareholders earned a cash dividend of $0.28 per share, with an annualized dividend yield of 5.32%, as of September 30, 2023.

"Our financial results for the third quarter are strong despite the continued pressure of rising interest rates and economic uncertainty," said Jae A. Evans, President and Chief Executive Officer. "Competition for deposits continued during the third quarter, leading to increased deposit rates and pressure on our net interest margin. We've benefited from core and non-core loan growth which has mitigated some of this pressure.

"We remain focused on the long-term success of the bank with strategic decisions and initiatives designed to enhance shareholder value and the customer experience," Evans added. "We are pleased to have recently opened a new loan and wealth office in downtown Bay City, expanding our physical presence to Bay County. In addition, a new full-service branch in Saginaw opened earlier this year. The continued, steady growth of our footprint demonstrates our commitment to customers and communities as a leading, independent community bank."

Operating Results

Net income: Net income for the third quarter of 2023 was $4.4 million, compared to $5.9 million in the third quarter of 2022. Net income for the first nine months of the year was $14.4 million, compared to $15.9 million for the same period in 2022. Interest income continued to improve in the third quarter, but fell short of the growth in interest expense due to rising rates on deposits and increased borrowings.

Net interest income: Net interest income for the third quarter of 2023 decreased by $1.5 million compared to the third quarter of 2022. For the first nine months of the year, net interest income increased by $123,000 compared to the same period in 2022. Rising interest rates and loan growth led to an increase in gross interest income of $3.5 million and $10.7 million for the third quarter and first nine months of 2023, compared to the same periods in 2022. Conversely, rising interest rates on deposits and an increase in borrowings led to a $5.0 million and $10.6 million increase in interest expense for the third quarter and first nine months of 2023, compared to the same periods in 2022.

Noninterest income and expenses: Noninterest income was $3.4 million for the third quarter of 2023 versus $3.3 million for the third quarter of 2022. For the first nine months of 2023, noninterest income decreased $83,000 compared to the same period in 2022, driven by a $574,000 reduction in mortgage servicing rights income and a $336,000 decline in the gain on the sale of mortgage loans, offset largely by a $408,000, or 18.4%, increase in wealth management fees. Noninterest expenses increased $741,000 during the third quarter of 2023 and $2.5 million for the nine-month period ended September 30, 2023 in comparison to the same periods in 2022. The increase was the result of increased compensation, equipment expense, FDIC insurance premiums, and other losses.

Net yield on interest earning assets: The Corporation's fully taxable equivalent net yield on interest earning assets was 3.02% and 3.12% for the three and nine months ended September 30, 2023, compared to 3.28% and 3.10% for the same periods in 2022. While the third quarter of 2023 fell in comparison to the same period in 2022, net yield for the first nine months of 2023 improved 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. To maintain a competitive edge in a rising interest rate environment, the Bank increased most of its deposit rates beginning in the fourth quarter of 2022 and in recent periods, increased the level of borrowings to fund loan growth. As a result, this has negatively impacted the net yield on interest earning assets and further increases could slow the rate of improvement in the net yield on interest earning assets.

Balance Sheet

Assets: Total assets were $2.1 billion and assets under management were $3 billion as of September 30, 2023. Managed assets include loans sold and serviced of $252 million as well as $591 million in investment and trust assets managed by Isabella Wealth. Investment and trust assets increased $77 million, or 14.9%, since December 31, 2022.

Loans: Loans outstanding as of September 30, 2023 totaled $1.3 billion. Core loans increased $14.6 million during the third quarter and rose $45.7 million compared to December 31, 2022. This reflects growth in the commercial and consumer portfolios. In addition, the Bank resumed its engagement in a mortgage participation program in the second quarter, with loans outstanding of $24.8 million as of September 30, 2023. Adherence to strong underwriting standards are reflected in the continued low levels of total past due and nonaccrual loans, which were $1.2 million, or 0.09% of total loans, at the end of the period.

Deposits: Total deposits were $1.8 billion as of September 30, 2023, an increase of $25.2 million, or 1.4%, since December 31, 2022. Strong pricing competition within the industry continues.

Capital: The Bank is considered a "well-capitalized" institution, as its capital ratios exceeded the minimum designated requirements. As of September 30, 2023, the Bank's Tier 1 Leverage Ratio was 8.97%, Tier 1 Capital Ratio was 12.75%, and Total Capital Ratio was 13.67%. 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 third quarter of 2023, the Corporation paid a $0.28 per common share cash dividend. Based on the Corporation's closing stock price of $21.05 as of September 29, 2023, the annualized cash dividend yield was 5.32%.

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 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 31 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 firms include Renmark Financial Communications, Inc. (www.renmarkfinancial.com) and 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.