Stonegate Initiates Coverage on Isabella Bank Corporation (OTCQX: ISBA)

DALLAS, TX -- August 1st, 2023 --  Isabella Bank Corporation (OTCQX: ISBA): Stonegate Capital Partners initiates their coverage on Isabella Bank Corporation (OTCQX: ISBA). The full report can be accessed by clicking on the following link: ISBA Report

Company Summary

• Growth in the Second Quarter: Isabella grew considerably in the second quarter of 2023. Loans were up 5% in the quarter to $64M, and with them interest income grew 21% Y/Y. The Wealth Management division grew assets under management by $22M, or 4% in the quarter. Dividend yield as of June 30, 2023 was 5.46% at $0.28 per share. This growth was seen despite the industry headwinds due to the current interest rate environment.
• History of Acquisitions and Expansions: Isabella has a history of organic growth and acquisitive expansion. Since 2008, ISBA has acquired Greenville Community Bank, the Saginaw Office, and the Midland East Office. Concurrently, the Bank opened 6 offices in Lake Isabella, Freeland, and Saginaw. From this, Isabella had secured strong shares in its target markets, commanding 58% control of the Isabella county market and 41% of the Clare county market. Most recently, the Company has disclosed plans to expand further with an opening of a Loan Production Office in Bay County, expected in the near future.
• Strategic Plan: The Company embarked on a strategic turn around starting in 2017 with a 5-year plan. Since the start of the plan, ISBA has grown its NIM from 2.95% at the end of 1Q18, which was approximately 80bps below peers. At the end of 2Q23 NIM stood at 3.11%, which is in line with industry comps. This growth trend is also shown in ISBA’s deposits growing from $1.3B at the end of 1Q18 to $1.7B at the end of 2Q23. This growth was accomplished while growing the Wealth Management Division and paying a dividend yield that is consistently greater than peers.
• Experienced Team: The Bank’s executive leadership team has over 190 years of combined industry experience, with some officers serving the Bank for decades. Chief Executive Officer Jae Evans will retire in January 2024 and will be succeeded by President Jerome Schwind, who has been with ISBA for 24 years. Additionally, the Company shows strong employee retention metrics with approximately 37% of its workforce having a tenure greater than 10 years, and an overall employee turnover rate of 18% in 2022 vs peers at 28%.
• ISBA Has Strong Ratios: At the end of 2Q23, tier 1 capital ratio was 13.08%. Isabella’s non-performing loans to total loans percentage was 0.04%, which has steadily decreased from 0.25% in 3Q21. The Bank currently has $26M in cash and equivalents with an additional $344M in available lines of credit.
• Valuation: We use a comp analysis on P/E and P/BV to frame our valuation of ISBA. Using a forward P/E range of 8.5x to 10.5x with a mid-point of 9.5x on FY24 estimates results in a valuation range of $24.30 to $30.02 with a mid-point of $27.16. Using a P/BV range of 1.0x to 1.2x with a mid-point of 1.1x results in a valuation range of $25.13 to $30.16 with a mid-point of $27.65.