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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 FORM 8-K
 
 
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 13, 2020
  
 
ISABELLA BANK CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
MICHIGAN
 
000-18415
 
38-2830092
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
401 North Main Street, Mt. Pleasant, Michigan
 
48858-1649
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (989) 772-9471
Not Applicable
(Former name or former address, if changed since last report.)
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule l4a-12 under the Exchange Act (17 CFR 240.l4a-l2)
¨
Pre-commencement communications pursuant to Rule l4d-2(b) under the Exchange Act (17 CFR 240.l4d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.l3e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
None
N/A
N/A
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging growth company
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨





Section 2 - Financial Information
Item 2.02 Results of Operations and Financial Condition.
On March 13, 2020, Isabella Bank Corporation issued a press release announcing its results of operations for the quarter and year ended December 31, 2019.
A copy of the press release is filed as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference.
The information in this Item 2.02 of Form 8-K and Exhibit 99.1 attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing made by the registrant under the Securities Act of 1933, whether made before or after the date hereof, except as shall be expressly set forth by specific reference in such filing.
Section 9 - Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits:
Exhibit
No.
 
Description
 
 
 
99.1
 

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
ISABELLA BANK CORPORATION
 
 
 
 
 
 
Dated:
March 13, 2020
 
By:
 
/s/ Jae A. Evans
 
 
 
 
 
Jae A. Evans, President & CEO


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Section 2: EX-99.1 (EXHIBIT 99.1 PRESS RELEASE)

Exhibit


Exhibit 99.1
For Immediate Release
Isabella Bank Corporation
401 North Main Street
Mt. Pleasant, MI 48858-1649

FOR MORE INFORMATION, CONTACT:
Mary Olivieri, Community Relations Officer
Phone: 989-779-6309    Fax: 989-775-5501
Isabella Bank Corporation Announces Fourth Quarter and 2019 Results
Strong Loan and Deposit Growth in 2019

Mt. Pleasant, Michigan, March 13, 2020 - Isabella Bank Corporation (the "Corporation") (OTCQX: ISBA) released its earnings results for the fourth quarter and year ended December 31, 2019.
The Corporation reported net income of $898,000 for the fourth quarter of 2019, a decrease compared to earnings results of each of the first three quarters of 2019, primarily as a result of a loss on a non-core joint venture investment. Net income was $13.0 million and earnings per common share was $1.65 for the year ended December 31, 2019.
Achievements in the fourth quarter of 2019 and the year ended December 31, 2019 include:
Cash dividend yield of 4.4% for the fourth quarter
Loan growth of $57.9 million, or 5.1%, during 2019
Core deposit growth of $54.1 million, or 4.4%, during 2019
Interest income growth of $3.4 million, or 5.39%, in 2019 as compared to 2018

“We are pleased with the continued strong results related to our core business, even though we are disappointed with the results for the fourth quarter because of the joint venture loss,” stated Jae A. Evans, President and Chief Executive Officer of the Corporation.
“In a year in which the interest rate environment continued to present challenges, we successfully increased net interest income by offering competitive lending and deposit products. Our financial results were affected by one-time financial events during the year, including a favorable FDIC assessment credit, as well as a loss recognized on a joint venture investment. The loss should not overshadow the improvement in core earnings, and we remain strongly focused on managing the balance sheet as part of our strategy to grow the bottom line to benefit our customers and our shareholders.”
Net Income
Net income for the fourth quarter of 2019 and year ended December 31, 2019 was $898,000 and $13.0 million, respectively. Net income for the fourth quarter and year ended December 31, 2018 was $3.5 million and $14.0 million, respectively.





Net interest income for the three months ended December 31, 2019 was $12.4 million. Provision for loan losses for the three months ended December 31, 2019 decreased by $360,000 when compared to the same period last year and was the result of continued low levels of losses and maintaining strong credit quality. Fourth quarter 2019 noninterest income decreased $3.6 million from the same period last year as a result of a $3.6 million reduction in the Corporation's joint venture investment in Corporate Settlement Solutions, LLC (“CSS”), which was due to CSS's recorded impairment of intangible assets. Fourth quarter 2019 noninterest expense increased $22,000 from the same period last year.
Interest income for the year ended December 31, 2019 increased $3.4 million compared to 2018, largely due to a combination of improved yields and growth in the loan portfolio. Interest expense on deposits and borrowings increased $2.2 million for the year ended December 31, 2019 when compared to the same period in 2018, primarily due to higher interest rates. Net interest income increased by $1.2 million for the year ended December 31, 2019 compared to 2018. The provision for loan losses decreased by $948,000, primarily due to strong credit quality. Noninterest income for the year ended December 31, 2019 decreased $2.9 million when compared to 2018 primarily as a result of a $3.6 million reduction in the joint venture investment in CSS. Noninterest income in 2019 also included an increase in debit card transaction fee income, gains related to the sale of loans, and gains related to foreclosed assets. Noninterest expenses for the year ended December 31, 2019 exceeded noninterest expenses in 2018 by $198,000. Expenses related to employee incentive plans account for a portion of the increase in noninterest expenses, which was partially offset by an FDIC assessment credit, reduced audit and consulting fees, and ongoing cost control initiatives. These initiatives include managing capital expenditures, vendor costs, and staffing levels.
The Corporation's fully taxable equivalent net yield on interest earning assets was 3.06% and 3.07% for the fourth quarter of 2019 and year ended December 31, 2019, respectively. This compares to 3.02% and 2.98% for the fourth quarter of 2018 and year ended December 31, 2018. The Corporation's banking subsidiary, Isabella Bank (the "Bank"), has implemented various initiatives which, over time, are expected to continue to improve the net yield on interest earning assets. These initiatives included transitioning a larger percentage of assets from lower yielding investment securities to higher yielding loan opportunities, continued growth of the loan portfolio, reduced reliance on borrowings and brokered deposits, and enhanced pricing strategies related to loan and deposit products. However, the current interest rate environment may slow this pace of improvement.
Assets
As of December 31, 2019, total assets were $1.8 billion and assets under management were $2.5 billion. Assets under management include loans sold and serviced of $259.4 million and assets managed by Investment and Trust Services of $436.2 million, in addition to assets on the consolidated balance sheet. As a result of the flat yield curve that has existed for over a year, the opportunity to identify new investment securities for purchase at an acceptable yield has been minimal. Therefore, the Bank's securities portfolio has declined by $65.0 million since December 31, 2018. Based on strategic objectives, the Corporation utilized this available cash flow to reduce higher-cost funding





sources and other borrowings as they mature, resulting in a decline in total assets as of December 31, 2019 when compared to December 31, 2018.
Loans
Loans grew $57.9 million or 5.1% during 2019 to $1.2 billion as of December 31, 2019. This growth was largely driven by the commercial loan portfolio, which increased $41.4 million. Also contributing to this growth was an increase in residential real estate and consumer loans totaling $26.7 million. The portfolio experienced a decline of $10.2 million related to agricultural loans; however, this trend is not expected to continue in 2020.
Deposits
Total deposits increased $21.2 million during 2019 to $1.3 billion as of December 31, 2019. Our core deposits grew $54.1 million, or 4.4%, during 2019. This increase was largely attributed to growth in noninterest bearing demand deposits and savings deposits as the result of an attractive product offering, strategic product pricing and high-quality customer service. In recent periods, excess funds were used to reduce higher-cost deposits such as brokered certificates of deposit accounts. During the past twelve months, brokered certificates of deposit accounts declined $34.7 million, or 55.8%, which improved the Bank's net interest margin.
Capital
The Bank continues to be designated as a “well capitalized” institution as its capital ratios exceeded the minimum requirements for this designation. As of December 31, 2019, the Bank’s Tier 1 Leverage Ratio was 8.5%, Tier 1 Capital Ratio was 11.9% and Total Capital Ratio was 12.5%. From a consolidated perspective, the Corporation's Tier 1 Leverage Ratio was 9.0%, Tier 1 Capital Ratio was 12.6% and Total Capital Ratio was 13.2% as of December 31, 2019.
Dividend
During the fourth quarter of 2019, the Corporation paid a $0.27 per common share cash dividend, an increase of 3.8% compared to the fourth quarter of 2018. Based on the Corporation's closing stock price of $24.31 as of December 31, 2019, the annualized cash dividend yield was 4.4%.
About the Corporation
Isabella Bank Corporation (OTCQX: ISBA) is the parent holding company of Isabella Bank, a state chartered bank headquartered in Mt. Pleasant, Michigan. Isabella Bank was established in 1903 and has been committed to serving the local banking needs of its customers and communities for 117 years. The Bank offers personal and commercial lending and deposit products, as well as investment, trust and estate planning services. The Bank has 30 banking locations throughout seven Mid-Michigan counties: Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw. The Corporation has been recognized on the Detroit Free Press list of “Top Workplaces”.
For more information about Isabella Bank Corporation, visit the Investors link at www.isabellabank.com. Isabella Bank Corporation common stock is quoted on the OTCQX tier of the OTC Markets Group, Inc.’s electronic quotation





system (www.otcmarkets.com) under the symbol “ISBA.” The Corporation's market maker is Boenning & Scattergood, Inc. (www.boenninginc.com) and its investor relations firm is Renmark Financial Communications, Inc. (www.renmarkfinancial.com).
Forward-Looking Statements
This press release includes forward-looking statements. To the extent that the foregoing information refers to matters that may occur in the future, please be aware that such forward-looking statements may differ materially from actual results. Additional information concerning some of the factors that could cause materially different results is included in the sections entitled "Risk Factors" and "Forward Looking Statements" set forth in Isabella Bank Corporation's filings with the Securities and Exchange Commission, which are available from the Securities and Exchange Commission's Public Reference facilities and from its website at www.sec.gov.





ISABELLA BANK CORPORATION
SELECTED FINANCIAL DATA (UNAUDITED)
(Dollars in thousands except per share amounts)
 
Three Months Ended 
 December 31
 
Year Ended 
December 31
INCOME STATEMENT DATA
2019
 
2018
 
2019
 
2018
Interest income
$
16,849

 
$
16,611

 
$
67,306

 
$
63,864

Interest expense
4,492

 
4,258

 
17,861

 
15,631

Net interest income
12,357

 
12,353

 
49,445

 
48,233

Provision for loan losses
(18
)
 
342

 
30

 
978

Noninterest income
(725
)
 
2,865

 
8,039

 
10,981

Noninterest expenses
10,892

 
10,870

 
43,050

 
42,852

Federal income tax expense (benefit)
(140
)
 
476

 
1,380

 
1,363

Net income
$
898

 
$
3,530

 
$
13,024

 
$
14,021

 
 
 
 
 
 
 
 
Net interest margin yield (fully taxable equivalent)
3.06
%
 
3.02
%
 
3.07
%
 
2.98
%
 
 
 
 
 
 
 
 
PER SHARE DATA
 
 
 
 
 
 
 
Basic earnings
$
0.12

 
$
0.45

 
$
1.65

 
$
1.78

Diluted earnings
$
0.11

 
$
0.44

 
$
1.61

 
$
1.74

Dividends
$
0.27

 
$
0.26

 
$
1.05

 
$
1.04

Quoted market value
 
 
 
 
 
 
 
High
$
24.80

 
$
27.00

 
$
24.80

 
$
28.25

Low
$
22.25

 
$
22.50

 
$
22.01

 
$
22.50

Close (1)
$
24.31

 
$
22.56

 
$
24.31

 
$
22.56

Common shares outstanding (1)
7,910,804

 
7,870,969

 
7,910,804

 
7,870,969

 
 
 
 
 
 
 
 
(1) At end of period
 
 
 
 
 
 
 
 
December 31
2019
 
September 30
2019
 
December 31
2018
BALANCE SHEET DATA
 
 
 
 
 
Gross loans
$
1,186,570

 
$
1,191,804

 
$
1,128,707

Investment securities
$
429,839

 
$
445,529

 
$
494,834

Total assets
$
1,814,198

 
$
1,813,684

 
$
1,842,502

Deposits
$
1,313,851

 
$
1,308,773

 
$
1,292,693

Borrowed funds
$
275,999

 
$
277,386

 
$
340,299

Shareholders' equity
$
210,182

 
$
212,376

 
$
195,519

 
 
 
 
 
 
ASSETS UNDER MANAGEMENT
 
 
 
 
 
Loans sold with servicing retained
$
259,375

 
$
258,873

 
$
259,481

Assets managed by Investment and Trust Services
$
436,181

 
$
475,574

 
$
447,487

Total assets under management
$
2,509,754

 
$
2,548,131

 
$
2,549,470

 
 
 
 
 
 
CAPITAL RATIOS
 
 
 
 
 
Tier 1 leverage
9.0
%
 
9.2
%
 
8.7
%
Tier 1 risk-based capital
12.6
%
 
12.6
%
 
12.6
%
Total risk-based capital
13.2
%
 
13.2
%
 
13.3
%


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