East Michigan News

Isabella Bank issued the following announcement on Mar. 13. 

Isabella Bank Corporation (the "Corporation") (OTCQX: ISBA) released its earnings results for the fourth quarter and year ended December 31, 2019.

The Corporation reported net income of $898,000 for the fourth quarter of 2019, a decrease compared to earnings results of each of the first three quarters of 2019, primarily as a result of a loss on a non-core joint venture investment. Net income was $13.0 million and earnings per common share was $1.65 for the year ended December 31, 2019.

Achievements in the fourth quarter of 2019 and the year ended December 31, 2019 include:

• Cash dividend yield of 4.4% for the fourth quarter
• Loan growth of $57.9 million, or 5.1%, during 2019
• Core deposit growth of $54.1 million, or 4.4%, during 2019
• Interest income growth of $3.4 million, or 5.39%, in 2019 as compared to 2018

"We are pleased with the continued strong results related to our core business, even though we are disappointed with the results for the fourth quarter because of the joint venture loss," stated Jae A. Evans, President and Chief Executive Officer of the Corporation.

"In a year in which the interest rate environment continued to present challenges, we successfully increased net interest income by offering competitive lending and deposit products. Our financial results were affected by one-time financial events during the year, including a favorable FDIC assessment credit, as well as a loss recognized on a joint venture investment. The loss should not overshadow the improvement in core earnings, and we remain strongly focused on managing the balance sheet as part of our strategy to grow the bottom line to benefit our customers and our shareholders."

Net Income

Net income for the fourth quarter of 2019 and year ended December 31, 2019 was $898,000 and $13.0 million, respectively. Net income for the fourth quarter and year ended December 31, 2018 was $3.5 million and $14.0 million, respectively.

Net interest income for the three months ended December 31, 2019 was $12.4 million. Provision for loan losses for the three months ended December 31, 2019 decreased by $360,000 when compared to the same period last year and was the result of continued low levels of losses and maintaining strong credit quality. Fourth quarter 2019 noninterest income decreased $3.6 million from the same period last year as a result of a $3.6 million reduction in the Corporation's joint venture investment in Corporate Settlement Solutions, LLC ("CSS"), which was due to CSS's recorded impairment of intangible assets. Fourth quarter 2019 noninterest expense increased $22,000 from the same period last year.

Interest income for the year ended December 31, 2019 increased $3.4 million compared to 2018, largely due to a combination of improved yields and growth in the loan portfolio. Interest expense on deposits and borrowings increased $2.2 million for the year ended December 31, 2019 when compared to the same period in 2018, primarily due to higher interest rates. Net interest income increased by $1.2 million for the year ended December 31, 2019 compared to 2018. The provision for loan losses decreased by $948,000, primarily due to strong credit quality. Noninterest income for the year ended December 31, 2019 decreased $2.9 million when compared to 2018 primarily as a result of a $3.6 million reduction in the joint venture investment in CSS. Noninterest income in 2019 also included an increase in debit card transaction fee income, gains related to the sale of loans, and gains related to foreclosed assets. Noninterest expenses for the year ended December 31, 2019 exceeded noninterest expenses in 2018 by $198,000. Expenses related to employee incentive plans account for a portion of the increase in noninterest expenses, which was partially offset by an FDIC assessment credit, reduced audit and consulting fees, and ongoing cost control initiatives. These initiatives include managing capital expenditures, vendor costs, and staffing levels.

The Corporation's fully taxable equivalent net yield on interest earning assets was 3.06% and 3.07% for the fourth quarter of 2019 and year ended December 31, 2019, respectively. This compares to 3.02% and 2.98% for the fourth quarter of 2018 and year ended December 31, 2018. The Corporation's banking subsidiary, Isabella Bank (the "Bank"), has implemented various initiatives which, over time, are expected to continue to improve the net yield on interest earning assets. These initiatives included transitioning a larger percentage of assets from lower yielding investment securities to higher yielding loan opportunities, continued growth of the loan portfolio, reduced reliance on borrowings and brokered deposits, and enhanced pricing strategies related to loan and deposit products. However, the current interest rate environment may slow this pace of improvement.

Assets

As of December 31, 2019, total assets were $1.8 billion and assets under management were $2.5 billion. Assets under management include loans sold and serviced of $259.4 million and assets managed by Investment and Trust Services of $436.2 million, in addition to assets on the consolidated balance sheet. As a result of the flat yield curve that has existed for over a year, the opportunity to identify new investment securities for purchase at an acceptable yield has been minimal. Therefore, the Bank's securities portfolio has declined by $65.0 million since December 31, 2018. Based on strategic objectives, the Corporation utilized this available cash flow to reduce higher-cost funding sources and other borrowings as they mature, resulting in a decline in total assets as of December 31, 2019 when compared to December 31, 2018.

Loans

Loans grew $57.9 million or 5.1% during 2019 to $1.2 billion as of December 31, 2019. This growth was largely driven by the commercial loan portfolio, which increased $41.4 million. Also contributing to this growth was an increase in residential real estate and consumer loans totaling $26.7 million. The portfolio experienced a decline of $10.2 million related to agricultural loans; however, this trend is not expected to continue in 2020.

Deposits

Total deposits increased $21.2 million during 2019 to $1.3 billion as of December 31, 2019. Our core deposits grew $54.1 million, or 4.4%, during 2019. This increase was largely attributed to growth in noninterest bearing demand deposits and savings deposits as the result of an attractive product offering, strategic product pricing and high-quality customer service. In recent periods, excess funds were used to reduce higher-cost deposits such as brokered certificates of deposit accounts.  During the past twelve months, brokered certificates of deposit accounts declined $34.7 million, or 55.8%, which improved the Bank's net interest margin.

Capital

The Bank continues to be designated as a "well capitalized" institution as its capital ratios exceeded the minimum requirements for this designation. As of December 31, 2019, the Bank's Tier 1 Leverage Ratio was 8.5%, Tier 1 Capital Ratio was 11.9% and Total Capital Ratio was 12.5%. From a consolidated perspective, the Corporation's Tier 1 Leverage Ratio was 9.0%, Tier 1 Capital Ratio was 12.6% and Total Capital Ratio was 13.2% as of December 31, 2019.

Dividend

During the fourth quarter of 2019, the Corporation paid a $0.27 per common share cash dividend, an increase of 3.8% compared to the fourth quarter of 2018. Based on the Corporation's closing stock price of $24.31 as of December 31, 2019, the annualized cash dividend yield was 4.4%.

Original source can be found here.