INSBANK Parent InsCorp Reports Second Quarter Results, Declares Quarterly Cash Dividend, and Authorizes Share Repurchase

NASHVILLE, Tenn., Aug. 2, 2024 -- InsCorp, Inc. reported net income of $1,820,000, or $0.63 per share, in the second quarter of 2024 ("2Q24") versus $1,763,000, or $0.61 per share, in 1Q24 and respective levels of $1,776,000 and $0.62 in 2Q23. "While we're pleased with growth in net income over the prior quarter, the more exciting aspect of Q2 was key additions to our team," said Jim Rieniets, President & CEO of INSBANK. "During the quarter a number of experienced, local professionals joined us in both production and operations roles, which should allow us to maintain growth momentum across our business lines." InsCorp generated a ROAE of 10.1% in 2Q24 versus 10.0% in 1Q24 and 10.8% in 2Q23.

Excluding gains and losses from hedging activities, operating EPS of $0.65 in 2Q24 compared to $0.67 in 1Q24 and $0.70 in 2Q23. A lower tax rate in 2Q24 benefitted EPS in the quarter by $0.01 compared to 1Q24 and 2Q23. Excluding gains and losses from hedging activities, pretax income of $2,461,000 in 2Q24 was 4.8% lower than the previous quarter and 7.0% lower than 2Q23. The mark-to-market pretax adjustment to interest rate floor contracts was ($93,000) in 2Q24 versus ($252,000) in 1Q24 and ($304,000) in 2Q23, which reflected changes in the futures market for interest rates during the quarter. These hedging contracts remain in place as an insurance policy against an unexpected drop in rates.

Bank-wide loan originations continued to gain momentum—increasing to $57 million in 2Q24 versus $23 million in 1Q24, $48 million in 4Q23, and $26 million in 3Q23. Originations reflected strength in Medquity, commercial real estate ("CRE"), construction ("C&D"), and commercial and industrial ("C&I") loans. The loan pipeline increased to $79 million, as of June 30, 2024, which exceeded $67 million a quarter ago, $53 million at 2023-end, $19 million at 3Q24-end, and $35 million a year ago. Choppy loan growth over the past year (+1% year-over-year; "Y/Y") resulted from elevated payoffs over much of the year and a smaller pipeline in 3Q23 and 4Q23.

Given a resumption of loan growth to 4% on a linked quarter annualized basis ("LQA") and continued momentum in origination and the pipeline levels in 2Q24, management is optimistic that loan growth will improve during the remainder of 2024. Coupled with the arrival of funded loan growth of $7.1 million late in 2Q24, unfunded commitment growth in construction loans of $17.6M in 2Q24, should benefit net interest income and margin comparisons on a LQ basis in 3Q24 and 4Q24. Growth in the loan pipeline to $79 million represents a positive signal for growth in the second half of 2024, too.

Medquity, INSBANK's healthcare business, continues to provide solid growth and diversification given its national focus and reduced sensitivity to economic and real estate cycles. In 2Q24, Medquity reported loan growth of 9% Y/Y (+6% LQA) to $209 million, lifting the segment's loans to nearly 31% of the loan portfolio versus approximately 28% a year ago. Medquity's origination and pipeline activity remained strong and suggest solid growth over the balance of 2024.

"Our team had one of its best-ever quarters for new commercial deposit accounts, and the growth in noninterest bearing deposits reflects that activity," Rieniets stated. "As we have methodically focused on treasury resources in recent years, we're pleased to report both balance expansion in operating accounts as well as double-digit fee income growth on an annualized basis." Customer rationalization of low-cost deposits into a combination of higher yielding CDs, loan payoffs, and business investment has adversely affected INSBANK's deposit mix over the past two years. Importantly, demand deposit balances (noninterest bearing and interest bearing) increased 6% LQ to approximately $226 million at 2Q24-end, or 33.3% of deposits, compared to $213 million, or 31.7% of deposits, at 1Q24-end.

Revenue declined 1.1% Y/Y and improved 2.7% LQA to $6,212,000 in 2Q24. Net interest income declined 4% Y/Y (+2% LQA) to $5,622,000 in the quarter. This was mostly offset by noninterest income growth of 37% Y/Y (+9% LQA) to $590,000 in 2Q24. Expense growth of 5% Y/Y (+13% LQA) to $3,676,000 primarily consisted of increased personnel costs, as increases in occupancy and other lines were mostly offset by decreases in data processing and marketing and advertising.

The bank-level net interest margin of 3.08% in 2Q24 compared to 2.94% in 1Q24 and 3.38% in 2Q23. Although the Company benefited from an increase in the loan yield of 49 basis points ("bps") Y/Y to 6.73% in 2Q24, the cost of deposits increased 88 bps Y/Y (+8 bps LQ) to 3.89% in 2Q24. In a static interest rate environment, management would expect the margin to improve gradually given continued sales traction in transaction and money market accounts and funded loan growth. Management is optimistic that continued customer growth and a solid deposit customer pipeline will result in low-cost deposit balance growth going forward.

Asset quality measures remain healthy. Net chargeoffs represented 0.00% of average loans in 2Q24, unchanged compared to 1Q24 and 2Q23. Provision for credit losses totaled $75,000 in 2Q24 compared to $25,000 in 1Q24 and $141,000 in 2Q23. The allowance for credit losses represented 1.35% of loans, which remained above peer. The $140,000 increase in the allowance for unfunded commitments to $449,000, or 0.41% of unfunded loans, was mostly due to an increase in unfunded construction loan commitments of $17.6 million to $50.2 million, and to an increase in C&I commitments of $3.8 million to $36.5 million at 2Q24-end compared to 1Q24-end.

Nonperforming assets were 1.08% of loans versus 1.11% a quarter ago and 0.18% a year ago. The entire Y/Y change reflected the migration of one real estate secured credit from the bank's watch list at the end of 2023. Virtually all nonperforming assets are real estate-secured, for which specific reserves are relatively low. "Thus far in this cycle, the only observable sector in our portfolio experiencing stress is assisted living and memory care, where the pandemic reduced occupancy while increasing healthcare labor costs. Fortunately, both trends seem to be improving for operators in the sector, and this segment only accounts for 3.0% of our loan portfolio," Rieniets stated.

Although the aggregate level of watch list loans increased slightly compared to the prior quarter-end, the balance decreased approximately 41% Y/Y. The watch list to total loan ratio remained consistent with the level that existed prior to the pandemic. Loans 30-days past due represented 0.14% of loans, as of June 30, 2024, compared to 0.01% a quarter ago and 0.00% a year ago. The change in 30-day past dues represented the movement of one well-collateralized relationship.

C&D and CRE concentration levels remain below regulatory guidance and historically normal levels. Specifically, C&D increased + 0.9% linked quarter ("LQ") to 78.3% of total capital, while CRE increased 0.2% LQ to 284.9% of capital. C&D and CRE to capital ratios remained below the year ago levels of 87.2% and 312.6%, respectively, historically normal levels for the bank, and respective regulatory guidance levels of 100% and 300%. "Our bank is known to have a robust CRE risk management program, and those portfolio analytics continue to demonstrate durability," said CEO Rieniets. "Additionally, our consistent application of underwriting standards across the economic cycle positions INSBANK to take advantage of growth opportunities in the vibrant middle-Tennessee market." The decline in these ratios was due in part to payoffs and paydowns as well as growth in capital of 44% over the past three years, which exceeded the growth in non-farm, non-residential real estate of 29% over the same period. 

Measures of liquidity risk remain healthy and remain adequate to fund loan growth over the near-term. Specifically, balance sheet liquidity ended 2Q24 at $109 million compared to $110 million a quarter ago and $97 million a year ago. Estimated uninsured deposits were approximately 22% of total deposits at quarter-end versus 21% a quarter ago and 19% a year ago. Balance sheet liquidity and reciprocal deposit capacity of $139 million at 2Q24-end provide ample risk mitigation strategies and capacity to fund loan growth over the near-term, in addition to a solid deposit relationship pipeline.

Tangible book value increased 11.4%, or $2.54 per share, Y/Y to $24.89, as of June 30, 2024. InsCorp, Inc.'s tangible common equity ratio increased to 8.61%, as of June 30, 2024, versus 8.52% a quarter ago and 8.11% a year ago. Accumulated Other Comprehensive Income was ($1,437,000), or approximately 1.4% of bank-level tier-1 capital of $96,867,000. INSBANK remains well capitalized with a tier-1 leverage ratio of 11.63%, a common equity tier-1 capital ratio of 12.52%, and a total risk-based capital ratio of 13.77%. INSBANK's risk-based capital ratios increased by 75 bps Y/Y.

"With healthy equity ratios, internally generated capital of roughly 10%, and access to funding at the holding company level, we're fortunate to be in a position to enhance shareholder value in a variety of ways," said Jim Rieniets, CEO and Board Chairman of INSBANK and InsCorp, Inc. "Alongside supporting further balance sheet growth and dividends to shareholders, the recent share repurchase authorization provides another potential means of increasing shareholder returns." InsCorp, Inc.'s Board authorized the repurchase of 125,000 shares, or 4.3% of the Company's outstanding shares, through January 27, 2026, and the payment of a quarterly dividend of $0.10 per common share payable on September 6, 2024, to shareholders of record on August 16, 2024. The annualized quarterly dividend rate of $0.40 per share represents an annualized increase of 17.6% compared to dividends of $0.34 per share in 2023.

About INSBANK 

Since 2000, INSBANK has offered its clients highly personalized service provided by experienced relationship managers, while positioning itself as an innovator, utilizing technologies to deliver those services efficiently and conveniently. In addition to its commercial focused operation, INSBANK operates through three divisions, Medquity, TMA Medical Banking and Finworth.  Medquity offers healthcare banking solutions to physicians, partnerships, and practices nationwide, while TMA Medical Banking provides banking services specifically to members of the Tennessee Medical Association. Finworth offers nationally available virtual private client services for interest bearing deposits. INSBANK is owned by InsCorp, Inc., a Tennessee bank holding company. Shares of InsCorp, Inc., are traded on the OTCQX under the ticker symbol IBTN. The bank is headquartered in Nashville at 2106 Crestmoor Road and has an office in Brentwood at 5614 Franklin Pike Circle. For more information, please visit www.insbank.com.

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