IFHI - Integrated Financial Holdings Inc. First Quarter Financial Results

RALEIGH, N.C., April 25, 2024 (GLOBE NEWSWIRE) -- Integrated Financial Holdings, Inc. (OTCQX: IFHI) (the “Company” or “IFHI”), the financial holding company for West Town Bank & Trust (the “Bank”) and Windsor Advantage, LLC (“Windsor”), released its financial results for the three months ended March 31, 2024. Highlights from the 2024 first quarter results include the following:

• First quarter net income of $1.3 million, or $0.55 per diluted share compared to first quarter 2023 net income of $2.4 million, or $1.04 per diluted share.
• Net interest income of $5.8 million for the first quarter of 2024 compared to $5.7 million for the same period in 2023.
• Noninterest expense of $7.3 million for the first quarter of 2024 compared to $8.5 million for the same period in 2023, a reduction of $1.2 million or 15%.
• Return on average assets of 0.97% for the three-month period ending March 31, 2024, compared to 2.07% for the same period in 2023.
• Return on average tangible common equity (a non-GAAP financial measure) of 6.14% for the three-month period ending March 31, 2024 compared to 13.67% for the same period in 2023.
  

Quarter-over-quarter results between the first quarter of 2024 and the same period in 2023 were somewhat skewed by several unusual items in the first quarter of 2023. During the first three months of 2023, the Company recorded a $2.0 million gain on the fair market value of marketable equity securities associated with its minority investment in Dogwood State Bank. In addition, the Company received a $530,000 life insurance benefit from the death of a key executive, had $464,000 in non-recurring revenue associated with winding down one of its business segments and a $550,000 reimbursement of expenses related to a previously settled lawsuit. Despite those nonrecurring items totaling $3.6 million in additional income during the first quarter of 2023 and no such large, nonrecurring items in the first quarter of 2024, the pre-tax net income period over period only decreased $1.5 million. This was primarily due to decreases in almost every category of noninterest expense when comparing the first quarter of 2024 against the first quarter of 2023, with a decline of $1.1 million in compensation being the most notable item. The Company continued to benefit from its efforts to improve efficiency and to streamline operations and reduce overhead costs.

In reflecting on the first quarter of 2024, Marc McConnell, Chairman, President, and CEO of IFHI, stated: “This year’s first quarter performance reflects the resiliency of our team and organization. While we had a year-over-year decline in net income, the decrease was primarily due to prior year nonrecurring income. However, we believe the overall improvement in our cost structure as a result of strategic decisions made by our leadership will enable IFHI to maintain a sustainable trajectory on a recurring basis. The right sizing of our operation has been a consistent focus for our organization as we prioritize the resiliency of our organization’s long-term growth. As we look forward to the remainder of the year and our recently announced merger with Capital Bancorp, Inc. (“CBNK”), we will continue to focus on bolstering the strengths of our GGL lending strategy, our subsidiary Windsor Advantage, and the leadership guiding IFHI into an exciting new phase for our investors and employees alike.”

BALANCE SHEET
At March 31, 2024, the Company’s total assets were $518.2 million, net loans held for investment were $361.9 million, loans held for sale (“HFS”) were $43.4 million, total deposits were $398.6 million and total shareholders’ equity was $101.9 million. Compared with December 31, 2023, total assets decreased $29.3 million or 5%, net loans held for investment increased $2.2 million or 1%, HFS loans increased $3.0 million or 7%, total deposits decreased $37.1 million or 9%, and total shareholders’ equity attributable to IFHI increased $1.6 million or 2%. Cash and cash equivalents decreased $33.4 million or 52% since the prior year-end almost mirroring the decrease in deposits. In the first quarter of 2023, the Bank discontinued banking two industries it had previously targeted resulting in a large outflow of non-maturity deposits. The Bank replaced those funds with a highly successful CD campaign. Most of those time deposits matured in the first quarter of 2024 and management made the decision to allow a large block of those higher cost funds to leave the Bank.

The increase in total shareholders’ equity since December 31, 2023, was primarily associated with earnings. The accumulated other comprehensive loss component of equity for the available-for-sale investment portfolio had a $214,000 negative impact during the three-month period ended March 31, 2024 as a result of changing rate expectations. The accumulated other comprehensive loss component of equity was $2.3 million at March 31, 2024 compared to $2.2 million at December 31, 2023. The Company does not have any investments in its portfolio treated as held-to-maturity being carried at cost.

CAPITAL AND LIQUIDITY STRENGTH
At March 31, 2024, the regulatory capital ratios of the Bank exceeded the minimum thresholds established for well-capitalized banks under applicable banking regulations.

The Company’s book value per common share decreased from $43.72 as of December 31, 2023, to $43.45 at March 31, 2024 as the impact of earnings was offset by an increase of about 51,000 shares outstanding as a result of an annual grant for long-term incentive and the exercising of several blocks of stock options. The Company’s tangible book value per common share (a non-GAAP financial measure) also decreased slightly from $35.80 as of December 31, 2023, to $35.77 at March 31, 2024, for the same reason.

The Bank funds its loan growth primarily with a blend of customer deposits and wholesale funding and has a wide variety of customers and industries in its portfolio. The Bank also offers services that provide FDIC coverage for its customers in excess of the $250,000 per depositor limit. As of March 31, 2024, the average deposit account size was $100,200, and uninsured deposits excluding those required for debt service were $39.1 million or roughly 9.8% of total deposits.

The Bank’s primary on-balance sheet liquidity consists of cash and cash equivalents along with unencumbered available-for-sale investment securities, which totaled $46.4 million as of March 31, 2023. Additionally, the Bank maintains fully collateralized credit facilities with the Federal Home Loan Bank of Chicago (“FHLB”) and the Federal Reserve. As of March 31, 2024, the FHLB credit facility had a borrowing line of $88.1 million with $10.0 million in outstanding advances and available credit of $78.1 million. The Federal Reserve had an available borrowing capacity of $43,000 with no outstanding balance. In addition, the Bank had $18.5 million in additional borrowing capacity with other financial institutions. In aggregate, total primary on-balance sheet liquidity and total available borrowing capacity was 349% of the amount of uninsured deposits (excluding those required for debt service) as of March 31, 2024.

Additionally, the Bank’s business model includes the origination and sale of GGL loans, a process that occurs each month and can be accelerated or slowed down based on the Bank’s current funding needs. At March 31, 2024, the Bank had $43.4 million in loans available for sale, which could generate additional liquidity as needed.

ASSET QUALITY
The Company’s nonperforming assets to total assets ratio increased from 3.00% at December 31, 2023, to 3.35% at March 31, 2024. Nonaccrual loans at March 31, 2024 increased $1.1 million or 6% as compared to December 31, 2023. One relationship for $7.7 million makes up approximately 46% of all of the nonaccrual loans as of March 31, 2024. That relationship is secured by a property with an estimated value of approximately $12.0 million. We believe there is strong secondary support of the guarantors. The Bank held $101,000 in foreclosed assets as of December 31, 2023 but had none as of March 31, 2024.

During the first quarters of 2024 and 2023, the Company recorded provisions for credit losses of $400,000 and $565,000, respectively. The Company recorded $25,000 in net charge-offs during the first quarter of 2024 compared to $376,000 in net charge-offs for the same period in 2023. Set forth in the table below is certain asset quality information as of the dates indicated:

NET INTEREST INCOME AND MARGIN
Net interest income for the three months ended March 31, 2024, increased $190,000 or 3% in comparison to the first quarter of 2023. Loan yields increased from 8.21% in the first quarter of 2023 to 8.85% for the same period in 2024. The increase in yield from the prior year reflected the impact of 50bps of rate increases by the Federal Open Market Committee (“FOMC”) during that 12-month period in response to economic conditions, as well as a change in loan mix. Overall cost of funds increased from 2.01% in the first quarter of 2023 to 3.54% for the same period in 2024 as average retail and brokered certificate of deposit (“CD”) rates trended up and new CDs were originated at higher market rates. On a linked-quarter basis, cost of funds increased 21 basis points from 3.33% during the three months ended December 31, 2023. Net interest margin declined from 5.85% during the three months ended March 31, 2023, to 5.09% for the same period in 2024; however, the impact of that decrease was lessened by a period-over-period increase in average earning assets of $68.5 million.

NONINTEREST INCOME
Noninterest income for the three months ended March 31, 2024, was $3.5 million compared to $6.6 million for the same period in 2023. The decrease is primarily attributable to the previously discussed nonrecurring items in the first quarter of 2023, which included, among other things, a $2.0 million gain in fair market value of marketable equity securities and a $530,000 life insurance benefit. A decrease in government guaranteed lending revenue quarter-over-quarter was offset by an increase in the income of Windsor, a subsidiary of the Company.

Other specific items to note with respect to the most recently completed quarter include:

• Windsor, which offers an SBA and USDA loan servicing platform, had loan processing and servicing revenue totaling $2.9 million, an increase of $503,000 or 21% as compared to the $2.4 million in income earned during the prior first quarter.
• Government Guaranteed Lending (“GGL”) revenue was $514,000 in the first quarter of 2024, a decrease of $390,000 or 43% in comparison to the $904 million of revenues for the same period in 2023.

NONINTEREST EXPENSE
Noninterest expense for the first quarter of 2024 was $7.3 million, a decrease of $1.2 million or 15%, from $8.5 million for the first quarter of 2023. Most notably, compensation expense decreased $1.1 million or 19% going from $5.6 million in the first quarter of 2023 down to $4.5 million for the same period in 2024. All other categories of expenses except Loan and special asset expenses and Other operating expenses were also down.

• Loan and special asset related expenses, which tend to fluctuate unexpectedly, increased by $184,000 or 63% from $293,000 in the first quarter of 2023 to $477,000 for the same period in 2024.
• Other operating expenses increased $193,000 or 39% primarily due to the positive impact during the first quarter of 2023 of a nonrecurring reversal of $550,000 of previously booked litigation-related expense realized upon receipt of an insurance reimbursement which reduced expenses during that prior-quarter period.

ENTRY INTO DEFINTIVE MERGER AGREEMENT WITH CAPITAL BANCORP, INC.
On March 28, 2024, the Company and Capital Bancorp, Inc. (“CBNK”) jointly announced that they had entered into a definitive merger agreement under which CBNK would acquire IFHI in a cash and stock transaction. The proposed transaction is subject to approval of CBNK’s and IFH’s shareholders, regulatory approvals and the satisfaction of other customary closing conditions. Additional detail on the proposed transaction can be found by accessing the merger press release, which is available under the “News and Press” section of IFHI’s website (www.ifhinc.com).

ABOUT INTEGRATED FINANCIAL HOLDINGS, INC.
Integrated Financial Holdings, Inc. is a financial holding company based in Raleigh, North Carolina. The Company is the holding company for West Town Bank & Trust, an Illinois state-chartered bank. West Town Bank & Trust provides banking services through its full-service office located in the greater Chicago area. The Company is also the parent company of Windsor Advantage, LLC, a loan service provider that offers community banks and credit unions with a comprehensive outsourced U.S. Small Business Association (“SBA”) 7(a) and U.S. Department of Agriculture (“USDA”) lending platform. The Company is registered with and supervised by the Federal Reserve. West Town Bank & Trust’s primary regulators are the Illinois Department of Financial and Professional Regulation and the FDIC.

For more information, visit https://ifhinc.com/ .

Important Note Regarding Forward-Looking Statements
This release contains certain forward-looking statements with respect to the financial condition, results of operations, and business of the Company. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of the management of the Company and on the information available to management at the time this release was prepared. These statements can be identified by the use of words such as "expect," "anticipate," "estimate," "believe," variations of these words, and other similar expressions. Readers should not place undue reliance on forward-looking statements as a number of important factors could cause actual results to differ materially from those in the forward-looking statements. Factors that could cause a difference include, among others: changes in the national and local economies or market conditions? changes in interest rates, deposit flows, loan demand, and asset quality, including real estate and other collateral values? that the value realized upon the sale of any foreclosed assets may be less than anticipated, whether due to change in collateral value, inaccurate valuation assumptions or otherwise; changes in Small Business Administration rules, regulations, or loan products, including the section 7(a) program; changes in other government guaranteed loan programs or our ability to participate in such programs; changes in tax law, including the impact of such changes on our tax assets and liabilities; future governmental shutdowns that may impact revenues associated with our lending and other operations that are dependent on government guaranteed loan programs; changes in banking regulations and accounting principles, policies, or guidelines? the failure of our strategic investments or acquisitions to perform as anticipated and the impact of any impairments to our intangible assets, such as goodwill; the impact of our strategic initiatives on our ability to retain key employees; recent adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, liquidity, our strategic initiatives, and regulatory response to these developments; adverse results (including judgments, costs, fines, reputational harm, financial settlements and/or other negative effects) from current or future litigation, regulatory proceedings, investigations, or similar matters, or developments related thereto; and the impact of competition from traditional or new sources, including non-bank financial service providers, such as Fintechs. These, and other factors that may emerge, could cause decisions and actual results to differ materially from current expectations. The Company assumes no obligation to revise, update, or clarify forward-looking statements to reflect events or conditions after the date of this release.

Loan Concentrations

The top ten commercial loan concentrations as of March 31, 2024, were as follows:

Reconciliation of Non-GAAP Measures