DALLAS, TX -- April 22nd, 2024 -- Isabella Bank Corporation (OTCQX: ISBA): Stonegate Capital Partners updates their coverage on Isabella Bank Corporation (OTCQX: ISBA).
Company Summary
- Growth Overview: Isabella grew considerably in the first quarter of 2024. Core loans were up $15.8M in the quarter and $30.5M y/y. The Wealth Management division grew assets by 15.6% year-over-year and grew fees by 19.5% compared to 1Q23. ISBA paid a 4Q23 dividend of $0.28 per share. This is currently equal to a dividend yield of 6.2%, which compares favorably to peer dividend yield at an average of 3.6%. 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 57% control of the Isabella County market and 40% of the Clare County market. Most recently, the Company has opened its Bay City office that offers both loan and wealth services, expanding the Company footprint into Bay County.
- 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 strengthened its NIM relative to peers from 2.95% at the end of 1Q18, which was approximately 80bps below peers. At the end of 1Q24 NIM stood at 2.78%, which we forecast 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 $1.77B at the end of 1Q24. 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 150 years of combined industry experience, with some officers serving the Bank for decades. Additionally, the Company shows strong employee retention metrics with approximately 61% of its workforce having a tenure greater than 10 years, and an overall employee turnover rate of 17% in 2023 vs peers at 28% in 2022, the last year that data is available.
- ISBA Has Strong Ratios: At the end of 4Q23, tier 1 capital ratio was 12.36%. Isabella’s non-performing loans to total loans percentage was 0.09%, which has steadily decreased from 0.25% in 3Q21. Additionally, ISBA had a leverage ratio of 8.80% in the quarter, which compares very favorably to the minimum requirement of 5%. The Bank currently has $25.2M in cash and equivalents, which is equal to $3.38 cash per share or approximately 19% of the stock value.
- 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 9.0x to 11.0x with a mid-point of 10.0x on FY25 estimates results in a valuation range of $19.49 to $23.82 with a mid-point of $21.65. Using a P/BV range of 1.0x to 1.2x with a mid-point of 1.1x results in a valuation range of $26.80 to $32.16 with a mid-point of $29.48.
About Stonegate
Stonegate Capital Partners is a leading capital markets advisory firm providing investor relations, equity research, and institutional investor outreach services for public companies. Our affiliate, Stonegate Capital Markets (member FINRA) provides a full spectrum of investment banking, equity research and capital raising for public and private companies.
