DALLAS, TX -- April 23rd, 2025 -- Isabella Bank Corporation (OTCQX: ISBA): Stonegate Capital Partners updates their coverage on Isabella Bank Corporation (OTCQX: ISBA). Isabella Bank reported another solid quarter with steady financial performance during 1Q25. Total loans remained steady at $1.37B at the end 1Q25 due to increases in residential and commercial loans, offset by a decrease in advances to mortgage brokers. Wealth Management fees increased by ~4.3% y/y, this was despite the relatively flat AUM growth over the prior year. ISBA maintained a strong dividend yield of approximately 4.3%, greater than the peer average of 3.2%. Despite economic uncertainties and fluctuations in interest rates, Isabella Bank demonstrated resilience in its core operations and earnings momentum.
Overview
- History of Acquisitions and Expansions: Isabella Bank continues its tradition of strategic expansion through organic growth and acquisitions. Since 2008, the Bank has acquired Greenville Community Bank, the Saginaw Office, and the Midland East Office, while also opening six new offices in key markets such as Lake Isabella, Freeland, and Saginaw. Most recently, the Company has expanded into Bay County with the opening of its Bay City office, further strengthening its regional footprint and enhancing loan and wealth management services.
- Strong NIM Continues: Isabella Bank’s NIM increased to 3.06% in 1Q25, up from 2.99% in the prior quarter and 2.79% in 1Q24. This growth was driven by higher loan yields, which expanded to 5.71% due to the recovery of the full contractual interest from nonaccruing loans in the quarter. The Company expects continued NIM stability as more than $70M in securities are set to mature in 2025, allowing for reinvestment. Additionally, 39% of commercial loans currently carry fixed rates below market levels but are set to reprice to variable rates over the next four years.
- Financial Condition: At the end of 1Q25, total assets stood at $2.1B, reflecting a slight increase of $16.3M from 4Q24, primarily due to an increase in interest bearing cash. Total loans decreased to $1.37B, with loans to mortgage brokers driving the decrease by $60.1M. Deposits increased slightly to $1.80B, up $50.8M, primarily due to deepening customer relationships. Past due and accruing accounts between 30 to 89 days was steady at 0.41%, compared to 0.40% in the prior quarter.
- ISBA Has Strong Ratios: At the end of 1Q25, Tier 1 Capital Ratio was 12.48%, up from 12.21% in 4Q24. The Bank’s non-performing loans to gross loans ratio declined to 0.01% from 0.02% in 4Q24, reflecting continued strong credit quality. Additionally, the Tier 1 leverage ratio improved to 8.96%, well above the minimum regulatory requirement of 5%. ISBA held $69.2M in cash and equivalents, equal to 36% of the stock’s market 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 10.0x to 12.0x with a mid-point of 11.0x on FY25 estimates results in a valuation range of $26.78 to $32.13 with a mid-point of $29.45. Using a P/BV range of 1.0x to 1.2x with a mid-point of 1.1x results in a valuation range of $29.10 to $34.92 with a mid-point of $32.01.
