Isabella Bank Corporation Announces Strong Second Quarter 2021 Earnings: Successful $30 million subordinated debt offering complete

Isabella Bank Corporation (the "Corporation") (OTCQX: ISBA) released its earnings results for the second quarter of 2021. The Corporation reported net income of $4.6 million for the second quarter and $10 million for the first six months of 2021, both increased compared to the same periods a year ago.  Earnings per common share were $0.58 in the second quarter and $1.26 for the first half of the year, up from the same periods of 2020 at $0.53 and $0.91, respectively.

Highlights Include

1. Completed a $30 million private placement of subordinated notes with an initial interest rate of 3.25%.
2. Net interest income — $12.7 million in the second quarter of 2021. Interest expense initiatives reduced costs by 45.9%, or $1.6 million, compared to the same period in 2020.
3. Noninterest expense controls continue to benefit the Corporation.
4. Loan payment deferrals, to provide short-term relief to customers, continued to decline as customers resumed contractual payments. As of June 30, 2021, loan deferrals totaled just 0.3% of gross loans.

“We delivered another strong financial quarter following our record performance from the previous quarter,” said Jae A. Evans, President and Chief Executive Officer of the Corporation. “Here at Isabella Bank, we continue to be a resource to our customers in a recovering economy. We facilitated over 950 PPP loans for a total of $99.5 million in 2020 and funded another 845 PPP loans for a total of $54.6 million this year. We also assisted customers by removing selected deposit account related charges and fees in day-to-day banking and temporarily waiving others."

On June 2, 2021, the Corporation completed a private placement of $30 million in fixed-to-floating rate notes due in 2031. The subordinated notes will initially bear a fixed interest rate of 3.25% until June 15, 2026, after which time until maturity, the notes convert to a floating rate instrument. The notes, issued to institutional investors, are structured to qualify as Tier 2 capital under regulatory guidelines. The Corporation expects to use proceeds from issuance of the notes for general corporate purposes, including potential repurchases of common stock and merger and acquisition activity.

“We are strengthening our ability to increase our presence while we continue to manage operating costs,” Evans said. “We also remain committed to increasing earnings and shareholder value through growth in our loan portfolio and Isabella Wealth.”

Operating Results

Net income: Net income for the second quarter 2021 was $4.6 million, compared to $4.2 million in the second quarter of 2020. For the first six months of 2021, net income was $10 million, compared to $7.3 million in the same period of 2020.

Net interest income: Net interest income for the first six months of 2021 increased by $1.6 million compared to the same period in 2020. Fees related to the U.S. Small Business Administration's Paycheck Protection Program ("PPP") have contributed significantly to interest income in 2021; however, fewer total loans and an interest rate decline led to a $2.1 million decrease in interest income when comparing the first two quarters of 2021 to 2020. Conversely, the reduction in interest rates, as well as reduced reliance on higher-cost borrowings, led to a $3.7 million decrease in interest expense on deposits and borrowings.

Noninterest income and expenses: Net gains on sold mortgage loans along with service charges and fees accounted for much of a $603,000 increase in noninterest income for the first six months of 2021 when compared to the same period in 2020. Noninterest expenses declined $333,000 for the first six months of 2021 compared to 2020, reflecting management's continued focus on reducing operating expenses.

Net yield on interest earning assets: The Corporation’s fully taxable equivalent net yield on interest earning assets was 2.88% for the first six months of 2021 compared to 2.95% in the first six months of 2020. The Corporation’s banking subsidiary, Isabella Bank (the “Bank”), implemented strategic programs focused on improving the net yield on interest-earning assets, such as  enhanced pricing related to loans and reduced reliance on higher-cost borrowed funds and brokered deposits. These efforts have helped, although the current interest rate environment has had a negative impact on the yield of interest-earning assets. Future improvement is expected at a gradual pace.

Balance Sheet

Assets: Total assets and assets under management were $2 billion and $2.8 billion as of June 30, 2021, respectively. Assets under management include loans sold and serviced of $290 million and investment and trust assets managed by Isabella Wealth of $493 million, in addition to assets on our consolidated balance sheet. Assets under management are up $243 million, or 9.4%, compared to June 30, 2020. Market improvement and growth in new client assets managed by Isabella Wealth, as well as growth in deposits, account for this increase.

Loans: Loans outstanding as of June 30, 2021, totaled $1.2 billion. Approximately $62 million of PPP loans are included in the commercial loan balance. During the first six months of 2021, gross loans declined $31.6 million, largely driven by a decrease in advances to mortgage brokers, which also is included in the commercial loan portfolio.  Credit quality indicators remained strong and economic factors continued to improve in the second quarter.

Deposits: Total deposits were $1.64 billion as of June 30, 2021, an increase of $70.2 million since December 31, 2020. Since June 2020, total deposits have increased 13.6%. The increase of deposits is the result of funds from PPP loans, customers receiving stimulus checks, and attracting new customers.

Liquidity: The Corporation's liquidity position remains strong as evidenced by its $797 million of cash and available funds as of June 30, 2021. This total is comprised of $248.2 million in cash and cash equivalents, $248.8 million in available lines of credit and approximately $300 million in unencumbered investment securities.

Capital: The Bank is designated as a “well capitalized” institution, as its capital ratios exceeded the minimum requirements for this designation. As of June 30, 2021, the Bank’s Tier 1 Leverage Ratio was 8.3%, Tier 1 Capital Ratio was 13.5% and Total Capital Ratio was 14.2%. From a consolidated perspective, the Corporation's Tier 1 Leverage Ratio was 8.5%, Tier 1 Capital Ratio was 13.8% and Total Capital Ratio was 17.0% as of June 30, 2021. The minimum requirements to be considered well capitalized are a Tier 1 Leverage Ratio of 5.0%, Tier 1 Capital Ratio of 8.0% and Total Capital Ratio of 10.0%.

Dividend: During the second quarter of 2021, the Corporation paid a $0.27 per common share cash dividend. Based on the Corporation's closing stock price of $23.00 as of June 30, 2021, the annualized cash dividend yield was 4.70%.

About the Corporation

Isabella Bank Corporation (OTCQX: ISBA) is the parent holding company of Isabella Bank, a state-chartered community 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 118 years. The Bank offers personal and commercial lending and deposit products, as well as investment, trust, and estate planning services through Isabella Wealth. The Bank has locations throughout seven Mid-Michigan counties: Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw.

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.