Loan, deposit and wealth asset growth continue in 2024
Isabella Bank Corporation (OTCQX: ISBA) (the “Company”) reported first quarter 2024 net income of $3.1 million or $0.42 per diluted share compared to $5.3 million or $0.70 per diluted share in the same quarter of 2023.
FIRST QUARTER 2024 HIGHLIGHTS (compared to first quarter 2023, unless otherwise stated)
• Total commercial loan growth of 8% annualized, compared to 0.4%
• Earning asset yield of 4.45%, compared to 3.89%
• Wealth management income increased 19%
• Nonperforming loans to total loans ratio of 0.09%
"Earnings declined year-over-year because of continued interest rate pressure. However, the bank recorded positive results in loans, deposits and wealth management assets as a result of continuing to attract new customers while retaining strong loyalty among our current customers," according to Chief Executive Officer Jerome Schwind. "We’ve also maintained excellent liquidity and strong credit quality among loan customers, factors that fuel our underlying strength and resilience during continued high interest rates.
"As previously announced, the corporation paid a quarterly cash dividend of $0.28 per share of common stock, which continues to provide an attractive dividend yield for shareholders.”
FINANCIAL CONDITION (March 31, 2024 compared to December 31, 2023)
Total assets were $2.06 billion at the end of both the first quarter 2024 and year-end 2023, primarily due to loan growth, which were offset by lower balances in cash and securities. Excess cash, security amortization, and strong deposit growth provided the funding for loan growth and borrowing payoffs during the quarter.
Total loans grew $16 million to $1.37 billion at the end of first quarter 2024. Total commercial loans, which include advances to mortgage brokers and agricultural loans, increased $18.3 million as the Company selectively expanded its book of business across many industries, but most notably in construction and real estate sectors. Residential loan volume remained stable during the quarter as originations kept pace with paydowns, as well as a few sales in the secondary market. Demand for mortgages remains low given prevailing market rates, housing prices and low inventory.
Securities available for sale decreased $10.6 million to $517.6 million at the end of the first quarter 2024, primarily due to amortization from collateralized mortgage obligations and higher unrealized losses on the total portfolio. Unrealized losses on securities totaled $34.8 million, or 6.3% of the portfolio, at the end of the first quarter 2024 versus $31.8 million at year-end 2023, reflecting an increase in market rates.
The allowance for credit losses increased $282 thousand to $13.4 million at the end of the first quarter 2024 due to loan growth and specific reserves on a few small commercial loans whose credit ratings were downgraded. Nonaccruing loans increased $301 thousand to $1.3 million, principally due to one commercial credit that is expected to be settled in the near-term. Past due accounts between 30 to 89 days as a percentage of total loans was 0.62% during the first quarter 2024, compared to 0.31% at year-end 2023. The increase primarily is due to a group of customers that typically make payments about 30 days in arrears, which becomes overdue when the 31st day lands on a business day. Accordingly, the increase is not believed to be an indication of deteriorating credit quality. Overall, credit quality remains strong, and there are not any negative trends.
Total deposits increased $44.6 million to $1.77 billion at the end of the first quarter 2024. Demand for retail certificates of deposits (CDs) continues based on the rate environment, resulting in a $19.8 million increase in the balance during the quarter. Other interest-bearing deposits increased $40.1 million, which underscores strong relationships the bank continues to build in the communities in which it serves. Demand deposits decreased $15.2 million, which is consistent in seasonal trends in the markets. Additionally, the strong inflow of deposits provided the opportunity to payoff $40.0 million of higher cost Federal Home Loan Bank advances during the quarter.
The Company's tangible book value per share was $20.35 as of March 31, 2024, compared to $20.59 on December 31, 2023. Unrealized losses on securities, net of taxes, reduced tangible book value per share by $3.67 and $3.36 at the end of those respective periods.
The Bank is considered a “well-capitalized” institution, as its capital ratios exceeded the minimum designated requirements. As of March 31, 2024, the Bank’s Tier 1 Leverage Ratio was 8.61%, Tier 1 Capital Ratio was 12.10%, and Total Capital Ratio was 13.05% — well above the minimum requirements of 5.0%, 8.0%, and 10.0%, respectively.
RESULTS OF OPERATIONS (March 31, 2024 to March 31, 2023 quarterly comparison)
Net interest margin was 2.78% compared to 3.22% in the first quarter 2023. The decrease was primarily driven by a higher cost of funds. The book yield from securities was 2.25% and 2.29% at March 31, 2024 and 2023. The yield includes the effect of the investment of excess cash in shorter term US treasury securities following the COVID pandemic in 2021 and 2022. As a result, these securities will mature over the next 2 to 5 years, and the proceeds are expected to be reinvested in market rate loans and securities. The yield on loans expanded to 5.36% in the first quarter 2024, up from 4.70% in the same quarter of 2023. Approximately 46% of commercial loans are fixed at rates that are lower than current market rates but will contractually reprice to variable rates over the next 3 to 5 years which will improve the overall yield on earning assets. Costs of interest-bearing liabilities increased to 2.27% from 0.95% in the first quarter 2023, reflecting a higher level of retail CDs and overall deposit relationship pricing.
The provision for credit losses was $392 thousand in the first quarter of 2024 and was $41 thousand in the same quarter of 2023. The change was largely due to loan growth and a few specific reserves on commercial loans that were downgraded in the first quarter of 2024.
Noninterest income was $3.5 million in the first quarter 2024, up 5% as compared to the same quarter 2023. Customer service fees grew by $68 thousand to $2.0 million as compared to the same quarter of 2023 on a higher number of transactional accounts. Wealth management income increased by $153 thousand to $939 thousand from the prior year quarter due to an increase of $89.2 million in assets under management (AUM). Wealth AUM increased by $19.6 million to $660.6 million from $641.0 million as of fourth quarter 2023 primarily due to new accounts and higher security valuations in the first quarter 2024.
Noninterest expense was $12.7 million in the first quarter 2024 compared to $12.2 million in the first quarter 2023. Compensation and benefit expenses increased $426 thousand from the comparative quarter in 2023. The increase reflects annual merit increases and medical claim adjustments totaling $225 thousand.