Isabella Bank Corp.
Annual Report 2014

Plain-text annual report

ISABELLA BANK CORPORATION ANNUAL REPORT  CULTURE In a highly commoditized industry, such as ours, culture serves as a strategic asset. This past year, we compiled a series of thoughts and values shared over the years about our culture into a book. We hope you enjoy reading excerpts from the book in this year’s annual report. 2014 YEAR in REVIEW David J. Maness, Chairman and Jae A. Evans, Chief Executive Officer OUR MISSION STATEMENT To create an operating environment that will provide shareholders with sustained growth in their investment while maintaining our independence. TO OUR SHAREHOLDERS, CUSTOMERS, AND NEIGHBORS, Once again, we celebrated record earnings, strong dividend growth, and several product launches in 2014. The Detroit Free Press named us to their list of Top 100 Workplaces and the Michigan Bankers Association recognized us for our continued commitment to financial literacy. We are pleased to share with you highlights from this past year as well as a preview of 2015. DRIVING SHAREHOLDER VALUE Maximizing shareholder value through dividend and stock price appreciation is vital to our future success and independence. Our strategic plan focuses on building shareholder value by increasing profitability and expanding the visibility of our stock. Profitability allows us to pay our shareholders dividends and retain earnings for future growth opportunities. In 2014, we celebrated record earnings of $13.72 million, a $1.21 million or 9.70% increase over 2013. In addition, we increased our cash dividend EQUAL EMPLOYMENT OPPORTUNITY The equal employment opportunity clauses in Section 202 of the Executive Order 11246, as amended; 38 USC 4212, Vietnam Era Veterans Readjustment Act of 1974; Section 503 of the Rehabilitation Act of 1973, as amended; relative to equal employment opportunity and implementing rules and regulations of the Secretary of Labor are adhered to and supported by Isabella Bank Corporation and its subsidiaries. for the 33rd consecutive year to $0.89 per share, a 5.95% increase over the prior year. Based upon our average stock price of $22.51 for December 2014, our shareholders received an annualized cash dividend yield of 3.95%. “Based upon our average stock price of $22.51 for December 2014, our shareholders Received an annualized cash dividend yield of 3.95%.” In August 2014, we moved our stock to the OTCQX Banks tier of the OTC Markets Group’s electronic quotation system. This tier is exclusively designed for established community and regional banks, which allows us to differentiate ourselves from start-up companies and improve our stock’s visibility on a national level. To be eligible for this market, financial institutions are required to meet high financial standards, stay current with all disclosures required by the Securities and Exchange Commission and our banking regulators, remain compliant with security laws, and be sponsored by a corporate broker. When we transitioned to the OTCQX Banks tier, our Board selected a regionally recognized firm, Boenning & Scattergood, Inc., to serve as our corporate broker. A corporate broker performs many duties, one of which is to increase a stock’s visibility in the market. Boenning & Scattergood’s knowledge of community bank securities, coupled with their reputation, made them the ideal choice. In addition to these efforts, our investor website, shareholder and community events, and press releases are part of a communication strategy to bring awareness to our stock. Our website provides stock information, dividend history, financial data, and biographies of our directors for those seeking to learn more about our company. It also allows individuals to enroll for daily stock price alerts and stay current with our latest news. Events complement these initiatives by providing us an opportunity to personally connect with current and potential shareholders. DELIVERING CUSTOMER EXPERIENCE From our traditional branch network and bank products to our electronic and financial planning services, we have a complete array of solutions to serve our customers. This past year, we remodeled three offices and started on a fourth, introduced four new electronic services, and expanded our investment and trust department to accommodate the growing financial needs of our customers. We have included pictures below of the building projects we completed in 2014. Last fall, we finished our expansion project in Midland which gave us room to add a business development lender and financial advisor. The Midland market continues to be an area Midland Office Shepherd Office Ithaca Office CONVENIENCE ACROSS BANKING CHANNELS Even as bankers, we cannot always find time during the day to make a deposit or apply for a loan. For some customers, banking is an errand, an obstacle that stands between them and their free time. In 2014, we introduced four new electronic services designed to make banking more convenient for our customers: Online consumer loan application - convenient access to apply online for a vehicle, boat, or RV loan. iPad application - tailored view of online banking information designed for the tablet experience. Person-to-Person (P2P) payments - send money electronically to another individual using their email address. Mobile Deposit - take a picture of a check with a smartphone to make an electronic deposit. of growth for us and the additional staff will position us well for the future. We also completed interior renovations of both our Shepherd and Ithaca offices and started an expansion project of our South Mission office in Mt. Pleasant. We take great pride in our offices and encourage you to stop in to see the improvements. While we enjoy when our customers visit our offices, we also understand it is not always the most convenient way to bank for everyone. In 2014, we introduced online consumer loan applications, an iPad® application for our online banking customers, Person-to-Person payments, and Mobile Deposit. These services give individuals who want to apply for a loan, pay someone electronically, view account information, and deposit a check an alternative to traditional branch banking. We have included a short article about these services to the right. Outside of our bank products, our customers also have convenient access to financial advisors and trust officers. Our investment and trust services complement our traditional bank products and provide us with additional sources of revenue. In 2014, the assets managed by our investment and trust group grew by 9.24% which accounted for a 28.31% increase in net revenues when compared to 2013. To accommodate this growth, as well as future growth, we expanded our sales and support team in 2014. LOOKING AHEAD From new technology enhancements to the expansion of our loan products, we look forward to adding convenience to both our customer and shareholder experiences in 2015. We wanted to share just a few of the initiatives currently underway. A new option with our personal checking accounts called Bank-to-Bank (B2B) transfers will complement both our Mobile Deposit and Person-to-Person payment solutions. Bank-to-Bank transfers allow Exceeding expectations. We strive to have devoted customers who speak passionately about our Bank and recommend us to their friends, neighbors, and co-workers. In order to “WOW” the customer, we must exceed their expectations. -ISABELLA BANK CULTURE BOOK during the past few years. While we cannot control the security practices of other businesses, we can take precautionary measures to help minimize our risk. In 2015, we will prepare to deploy debit cards with the new EMV (Europay, MasterCard®, and Visa®) technology. Each card will contain a microchip, which when used at a merchant with a chip-enabled register, will add another layer of security to debit customers to send money electronically to and from their accounts at another financial institution. We are also expanding our consumer and mortgage product offerings in 2015 through two new strategic initiatives. While we currently offer indirect financing of automobiles and recreational vehicles through our local dealerships, we will be enhancing our program to become more efficient and generate more leads. The second initiative will allow us to offer new mortgage in our markets including Federal Housing both Administration (FHA) and Veterans Administration (VA) loans. Adding these new products and services will improve our ability to compete with other financial institutions in the communities we serve. products SUR VEY PLACES CORPORATION IN TOP 100 WORKPLACES For the past two years, we have asked our employees to participate in a survey from the Detroit Free Press. The survey includes questions about compensation, benefits, advancement opportunities, and our culture. The results are then compiled into the annual Detroit Free Press Top 100 Workplaces list. Within our strategic plan, one of our goals is to be the employer of choice in our markets. The Detroit Free Press survey is just one way that we can gauge employee satisfaction. We are pleased to share we made the list for the second year in a row. In 2014, we ranked eighth in the category of midsize companies. Over the last few years, several of our shareholders have requested electronic shareholder statements. We are pleased to report we will launch a new shareholder portal with this capability by the end of 2015. Within the site, shareholders will be able statements, to view transactions, and request address changes. Look for more information about this new service correspondence. access card purchases. team. reflect upon As we last year and our the for 2015, our plans accomplishments are not possible without an incredible We would be remiss if we did not take a few moments to recognize and celebrate the tremendous efforts put forth by our employees as well as the support and loyalty of our shareholders and customers. You are the heart and soul of our organization. On behalf of our Board, thank you for making an investment in your local community bank. We look forward to visiting with you at our annual shareholder meeting on May 5, 2015 at 5:00 p.m. at the Comfort Inn Conference Center in Mt. Pleasant. in future shareholder The data breaches at several well-known retailers affected many individuals using debit or credit cards Jae A. Evans, CEO David J. Maness, Chairman Every employee directly impacts the future of our organization. -ISABELLA BANK CULTURE BOOK Employee Recognition In 2014, we celebrated alongside our employees as they hit both professional and personal milestones. Please help us recognize the following employees on their recent officer promotions, banking school graduations, and retirements. OFFICER PROMOTIONS Tom Wallace Senior Vice President, Retail Lending Kim Betts Vice President, Collections Tom Gross Vice President, Business Development Julie Huber Vice President, Chief Technology Officer Greg Mapes Vice President, Deposit Administration Patrick Mease Vice President, Human Resources Amy Vogel Vice President, Chief Risk Officer Sandy Yuncker Vice President, Customer Service Bob Byram Assistant Vice President, Business Development Miles Coffland Assistant Vice President, Auditing Jennifer Gill Assistant Vice President, Finance and Reporting Adam House Assistant Vice President, Compliance Chari Turnwald Assistant Vice President, Bank Secrecy Act/Anti-Money Laundering Mellissa Farrell Branch Officer Paul Scoby Business Development Officer In 2014, OUR employees dOCUMENTED more than 6,500 volunteer hours of communit y ser vice. ABA NATIONAL & INTERMEDIATE COMPLIANCE SCHOOLS Adam House Assistant Vice President, Compliance GRADUATE SCHOOL OF BANKING – MADISON Andrew Martin Senior Credit Analyst, Commercial Loans Erika Ross Vice President, Marketing Aaron Wirsing Vice President, Finance and Reporting MBA PERRY SCHOOL OF BANKING Mari Kay Bleeker Financial Services Representative Bob Byram Assistant Vice President, Business Development Michele O’Brien Staff Auditor, Auditing RETIREMENTS Angie Antcliff, Greenville 9 years Beth Beltnick, Mt. Pleasant 11 years Kathy Clouse, Mt. Pleasant 36 years Melody Darnell, Farwell 43 years Jim Dennis, Mt. Pleasant 15 years Vickie Dysinger, Farwell 21 years Dan Eversole, Mt. Pleasant 8 years Karen Hoppe, Hemlock 20 years Margaret Lawson, Lake 33 years Dewey Murray, Mt. Pleasant 44 years Paul Siers, Mt. Pleasant 36 years Keith Spycher, Mt. Pleasant 34 years 2014 Financial Repor t Dennis P. Angner, President & Chief Financial Officer I am pleased to share that continued dedication to our culture, which consists of commitment to our core community banking principles and focus on long term sustainable growth, has once again led to record net income in 2014. During the year, we earned a record $13.72 million resulting in earnings per common share of $1.77. Our continued strong earnings have primarily been the result of improvements in credit quality indicators including reductions in net loan charge-offs and historically low levels of nonperforming and past due loans. These improvements led to a reduction in the level of the allowance for loan and lease losses in both amount and as a percentage of gross loans. This resulted in a reversal in the provision for loan losses of $668,000 for the year. During the year, total assets grew by 3.78% to $1.55 billion, and assets under management increased to $2.22 billion which includes loans sold and serviced and assets managed by our Investment and Trust Services Department of $672.52 million. We enjoyed total loan growth of $25.55 million which was driven by commercial and agricultural loan growth of $51.99 million. This was partially offset by declines in both residential real estate and consumer loans of $26.44 million as demand for residential real estate loans remained soft and the market for consumer loans continued to be dominated by direct financing from automobile manufacturers. While our net yield on interest earning assets of 3.45% remains historically low, it has stabilized. The low net yield on interest earning assets is a direct result of accommodative Federal Reserve Bank monetary policy. While we expect the Federal Reserve Bank to increase short term interest rates in 2015, we do not anticipate any significant improvements in our net yield on interest earning assets as the rates paid on interest bearing liabilities will likely increase faster than those of interest earning assets. Net interest income will increase only through continued growth in loans, investments, and other income earning assets. Looking forward to 2015, I am confident that we will be able to increase net interest income through continued growth in our balance sheet. Additionally, we have several strategic initiatives in place to increase noninterest income and limit or reduce noninterest expenses. In closing, I encourage you to review the following pages which outline our key performance measures and ratios. Dennis P. Angner, CFO Investing in Our Future Our employees and directors have a vested interest in the success of our organization. As of December 31, 2014, our employees, directors and their families owned approximately 9.4% of our outstanding shares. Financial Highlights (Dollars in thousands except per share data) Income Statement Data Interest Income Interest Expense Net Interest Income Provision for Loan Losses Noninterest Income Noninterest Expenses Federal Income Tax Expense Net Income Per Share Data Basic Earnings Diluted Earnings Dividends Tangible Book Value* Quoted Market Value High Low Close* 2014 2013 2012 2011 2010 $ 53,951 $ 9,970 $ 43,981 ($ 668) $9,325 $ 37,906 $2,344 $ 13,724 $ 1.77 $ 1.74 $ 0.89 $ 16.59 $ 24.00 $ 21.73 $ 22.50 $ 54,076 $ 11,021 $ 43,055 $ 1,111 $10,175 $ 37,413 $2,196 $ 12,510 $ 1.63 $ 1.59 $ 0.84 $ 15.62 $ 26.00 $ 21.12 $ 23.85 $ 56,401 $ 13,423 $ 42,978 $ 2,300 $11,530 $ 37,639 $2,363 $ 12,206 $ 1.61 $ 1.56 $ 0.80 $ 14.72 $ 24.98 $ 21.75 $ 21.75 $ 57,905 $ 16,203 $ 41,702 $ 3,826 $ 8,218 $ 34,530 $ 1,354 $ 10,210 $ 1.35 $ 1.31 $ 0.76 $ 13.90 $ 24.45 $ 17.10 $ 23.70 $ 57,217 $ 17,204 $ 40,013 $ 4,857 $9,300 $ 33,807 $1,604 $ 9,045 $ 1.20 $ 1.17 $ 0.72 $ 13.22 $ 19.00 $ 15.75 $ 17.30 Common Shares Outstanding* 7,776,274 7,723,023 7,671,846 7,589,226 7,550,074 Performance Ratios Return on Average Total Assets Return on Average Shareholders’ Equity Return on Average Tangible Shareholders’ Equity Net Interest Margin Yield (Fully Taxable Equivalent) 0.90% 8.06% 10.80% 3.45% 0.86% 7.67% 10.71% 3.50% 0.88% 7.60% 11.41% 3.70% 0.79% 6.74% 10.30% 3.87% 0.76% 6.22% 9.51% 4.04% Balance Sheet Data* Gross Loans Available-for-Sale Securities Total Assets Deposits Borrowed Funds Shareholders’ Equity Gross Loans to Deposits Assets Under Management* 2014 2013 2012 2011 2010 $ 833,582 $ 567,534 $ 808,037 $ 512,062 $ 772,753 $ 504,010 $ 750,291 $ 425,120 $ 735,304 $ 330,724 $ 1,549,543 $ 1,493,137 $ 1,430,639 $ 1,337,925 $ 1,225,810 $ 1,074,484 $ 1,043,766 $ 1,017,667 $ 289,709 $ 174,594 77.58% $ 279,326 $ 160,609 77.42% $ 241,001 $ 164,489 75.93% $ 958,164 $ 216,136 $ 154,783 78.31% $ 877,339 $ 194,917 $ 145,161 83.81% Loans Sold with Servicing Retained $ 288,639 $ 293,665 $ 303,425 $ 302,636 $ 312,252 Assets Managed by our Investment & Trust Services Department $ 383,878 $ 351,420 $ 319,301 $ 297,393 $ 307,983 Total Assets Under Management $ 2,222,060 $ 2,138,222 $ 2,053,365 $ 1,937,954 $ 1,846,045 Asset Quality* Nonperforming Loans to Gross Loans Nonperforming Assets to Total Assets Allowance for Loan and Lease Losses to Gross Loans Capital Ratios* Shareholders' Equity to Assets Tier 1 Capital to Average Assets Tier 1 Risk-Based Capital Total Risk-Based Capital 0.50% 0.33% 0.42% 0.32% 1.00% 0.68% 0.95% 0.67% 0.83% 0.67% 1.21% 1.42% 1.54% 1.65% 1.68% 11.27% 8.59% 14.08% 15.18% 10.76% 8.46% 13.67% 14.92% 11.50% 8.29% 13.23% 14.48% 11.57% 8.18% 12.92% 14.17% 11.84% 8.24% 12.44% 13.69% * at end of year Total Assets Assets Under Management Net Income Dividends Per Common Share Ending Stock Price ) s n o i l l i M - s r a l l o D ( 2,300 2,000 1,700 1,400 1,100 800 500 15,000 13,000 11,000 9,000 7,000 5,000 3,000 ) s d n a s u o h T - s r a l l o D ( ) s r a l l o D ( 0.9 0.8 0.7 0.6 0.5 0.4 0.3 25 20 15 10 ) s r a l l o D ( 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Focused on the customer we place our highest value on INTEGRIT Y. This is the foundation for every experience we have with our customers. -ISABELLA BANK CULTURE BOOK BOARD OF DIRECTORS Pictured left to right: G. Charles Hubscher, W. Michael McGuire, David J. Maness, Joseph LaFramboise, Dennis P. Angner, Dr. Jeffrey J. Barnes, Jae A. Evans, Thomas L. Kleinhardt, Sarah R. Opperman, Richard J. Barz, and W. Joseph Manifold, CPA DAVID J. MANESS - Chairman President, Maness Petroleum Corporation JAE A. EVANS Chief Executive Officer, Isabella Bank Corporation DENNIS P. ANGNER President and Chief Financial Officer, Isabella Bank Corporation DR. JEFFREY J. BARNES Physician and Shareholder, Lansing Ophthalmology, PC RICHARD J. BARZ Chief Executive Officer (retired), Isabella Bank Corporation G. CHARLES HUBSCHER President, Hubscher and Son, Inc. JOSEPH LAFRAMBOISE Sales and Marketing Executive (retired), Ford Motor Company THOMAS L. KLEINHARDT President, McGuire Chevrolet W. JOSEPH MANIFOLD, CPA Chief Financial Officer, Federal Broach & Machine Co. W. MICHAEL MCGUIRE Director of the Office of the Corporate Secretary (retired), The Dow Chemical Company SARAH R. OPPERMAN Principal, Opperman Consulting, LLC As of March 2015 While banking is a commodity, it is still a people business, and people do business with people. Our employees separate us from our competition. -ISABELLA BANK CULTURE BOOK SENIOR OFFICERS & DIVISION BOARDS ISABELLA BANK CORPORATION OFFICERS JAE A. EVANS Chief Executive Officer DENNIS P. ANGNER President, Chief Financial Officer BARBARA A. PLACE, CPA, CBA, CRCM Senior Vice President PEGGY L. WHEELER Senior Vice President DEBRA A. CAMPBELL Vice President CYNTHIA J. DIEHM Vice President JULIE A. HUBER, CGEIT Vice President, Chief Technology Officer PATRICK J. MEASE, SPHR, SHRM-SCP Vice President PATRICIA A. PLAXTON Vice President AMY C. VOGEL Vice President, Chief Risk Officer AARON D. WIRSING Vice President ISABELLA BANK OFFICERS STEVEN D. PUNG President JEROME E. SCHWIND Executive Vice President, Chief Operations Officer DAVID J. REETZ Senior Vice President, Chief Lending Officer BARBARA B. DIEHM Senior Vice President THOMAS J. WALLACE Senior Vice President KIMBERLY K. BETTS Vice President JAMES L. BINDER Vice President JULIE F. BOLT Vice President ISABELLA BANK OFFICERS CONT. MARK K. DENOYELLES Vice President RANDY J. DICKINSON, CPA, CTFA Vice President THOMAS N. GROSS Vice President MICHAEL K. HUENEMANN Vice President ROBERT K. MADSEN Vice President GREGORY S. MAPES Vice President BRECKENRIDGE DIVISION BOARD OF DIRECTORS GREGORY V. VARNER - Chairman DENNIS P. ANGNER DAVID J. KING TIMOTHY M. MILLER STEVEN D. PUNG JEFFREY E. SHERWOOD KIRK L. SMITH BRENT C. WILSON FARWELL DIVISION BOARD OF DIRECTORS GREGORY S. MATTHEWS HERBERT R. MILLER - Chairman Vice President ERIKA M. ROSS Vice President CARRIE S. SMITH Vice President JEFFREY W. SMITH Vice President LEO R. WICKERT, State Licensed Appraiser Vice President SANDY M. YUNCKER Vice President BRECKENRIDGE DIVISION OFFICERS TIMOTHY M. MILLER President BRIAN K. GOWARD Vice President BARBARA K. MCKENZIE Vice President GREENVILLE DIVISION OFFICERS RICHARD K. RUSSO President KATHY J. KORSON Vice President DAVID W. SEPPALA Vice President MECOSTA DIVISION OFFICERS KEITH E. KENNEY President THOMAS E. KEDROWSKI THOMAS L. KLEINHARDT W. MICHAEL MCGUIRE STEVEN D. PUNG LARRY R. SCHOFIELD GREENVILLE DIVISION BOARD OF DIRECTORS JAMES M. MULLENDORE, JR. - Chairman DENNIS P. ANGNER DR. KIRKWOOD E. FABER DEBRA JORGENSEN-HUCH ALEXANDER R. KEMP GREGORY D. MILLARD STEVEN D. PUNG RICHARD K. RUSSO BRIAN R. SACKETT MECOSTA DIVISION BOARD OF DIRECTORS DR. RALPH P. CREW KEVIN J. DEFEVER LAWRENCE E. EMIG KEITH E. KENNEY JOSEPH LAFRAMBOISE STEVEN D. PUNG As of March 2015 Stock Information Isabella Bank Corporation common stock is traded in the over the counter market. The 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”. Other trades in the common stock occur in privately negotiated transactions from time to time of which the Corporation may have limited or no information. Current stock price and availability can be obtained by contacting a licensed broker, the Isabella Bank Investment and Trust Services Department, Boenning & Scattergood Inc., or Shareholder Services. Shareholder Ser vices For more information, contact Debra Campbell (989) 779-6237 | 401 North Main Street, Mt. Pleasant, MI 48858 or www.isabellabank.com  Investors Transfer Agent Isabella Bank Corporation (989) 779-6237 | 401 North Main Street, Mt. Pleasant, MI 48858 CORPORATE BROKER Boenning & Scattergood, Inc. (866) 326-8113 | 9922 Brewster Lane, Powell, OH 43065 or www.boenninginc.com Legal Counsel Foster Swift Collins & Smith, PC 313 South Washington Square, Lansing, MI 48933 or www.fosterswift.com Independent CER TIFIED Public Accounting Firm Rehmann Robson, LLC 5800 Gratiot Rd. Suite 201, Saginaw, MI 48638 or www.rehmann.com ANNUAL SHAREHOLDER MEETING May 5, 2015 at 5:00 p.m. Comfort Inn Conference Center l 2424 South Mission Street, Mt. Pleasant, MI 48858 ISBA This report 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. 401 NORTH MAIN STREET, MT. PLEASANT, MI 48858 27 Convenient locations Barryton Beal City Big Rapids (2) Blanchard Breckenridge Canadian Lakes Clare (2) Farwell Freeland Greenville Hemlock Ithaca Lake Lake Isabella Midland Mt. Pleasant (5) Remus Shepherd Six Lakes Stanton Weidman 

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