DALLAS, TX -- September 9th, 2024 -- Isabella Bank Corporation (OTCQX: ISBA): Stonegate Capital Partners updates their coverage on Isabella Bank Corporation (OTCQX: ISBA).
Company Summary
- Growth Overview: Isabella Bank reported yet another impressive quarter with strong growth during 2Q24. Net loans were up $16.4M in the quarter, which is an annualized growth rate of 4.9%. The Wealth Management division grew fees by 6.8% compared to 2Q23. ISBA paid a 2Q24 dividend of $0.28 per share. This is currently equal to a dividend yield of 5.7%, which compares favorably to peer dividend yield at an average of 3.3%. This growth was seen despite the industry headwinds stemming from 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 as of 2Q23. Most recently, the Company has opened its Bay City office that offers both loan and wealth services, expanding the Company footprint into Bay County.
- Strong NIM Outlook: Isabella Bank reversed its deteriorating NIM trend seen in the last several quarters, posting a gain of five basis points from 1Q24. Management attributed this improvement to the repricing of earning assets and continued loan growth, which has led to expanded yields surpassing the increase in the cost of funds. ISBA also reported a 1% growth in total commercial loans during the quarter with management noting a strong loan pipeline for the third quarter.
- Financial Condition: At the end of 2Q24 deposits totaled 1.72B, which is down from 1.77B in 1Q24, a change of 2.6%. This compares to a loan portfolio increase of 1.2%. Total assets for the quarter were 2.06B, an increase from 2.04B in 2Q23. It is notable that the percentage of past due and accruing accounts between 30 to 89 days was down to 0.11% from 0.58% at the end of 1Q24. This reduction was largely due to a timing mismatch with a large group of customers. Overall, credit quality remains strong, with no adverse trends observed.
- ISBA Has Strong Ratios: At the end of 2Q24, Tier 1 Capital Ratio was 12.37%. Isabella’s non-performing loans to gross loans percentage was 0.07%, which has steadily decreased from 0.25% in 3Q21. Additionally, ISBA had a Tier 1 leverage ratio of 8.83% in the quarter, which compares very favorably to the minimum requirement of 5%. The Bank currently has $23.6M in cash and equivalents, which is equal to $3.15 cash per share or approximately 16% of the stock value. The book value at quarter end was $27.06, significantly above the Company’s current stock price.
- 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 $19.70 to $24.08 with a mid-point of $21.89. Using a P/BV range of 1.0x to 1.2x with a mid-point of 1.1x results in a valuation range of $27.06 to $32.47 with a mid-point of $29.77.
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 services for public and private companies.
