DALLAS, TX — February 20th, 2024 — Isabella Bank Corporation (OTCQX: ISBA): Stonegate Capital Partners updates their coverage on Isabella Bank Corporation (OTCQX: ISBA).
Full Report: https://stonegateinc.com/download/isba-q4-2023/?wpdmdl=770&refresh=65d51b04b93eb1708464900
Company Summary
- Growth Overview: Isabella grew considerably in the fourth quarter of 2023 and in FY23. Core loans were up $14.8M in the quarter and rose $85.3M since the end of FY22. The Wealth Management division grew assets by 25% in the year which grew fees by 18% compared to FY22. ISBA paid a 4Q23 dividend of $0.28 per share. This is currently equal to a dividend yield of 5.2%, which compares favorably to peer dividend yield at an average of 3.4%. 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 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 grown its NIM from 2.95% at the end of 1Q18, which was approximately 80bps below peers. At the end of 4Q23 NIM stood at 3.05%, 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 $1.7B at the end of 4Q23. 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. Additionally, the Company shows strong employee retention metrics with approximately 38% 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 4Q23, tier 1 capital ratio was 12.48%. Isabella’s non-performing loans to total loans percentage was 0.08%, which has steadily decreased from 0.25% in 3Q21. Additionally, ISBA had a leverage ratio of 8.71% in the quarter, which compares very favorably to the minimum requirement of 5%. The Bank currently has $33.7M in cash and equivalents, which is equal to $4.50 cash per share or approximately 22% 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 8.0x to 10.0x with a mid-point of 9.0x on FY24 estimates results in a valuation range of $25.53 to $31.91 with a mid-point of $28.72. Using a P/BV range of 1.0x to 1.2x with a mid-point of 1.1x results in a valuation range of $27.04 to $32.45 with a mid-point of $29.74.
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.