IFHI - Integrated Financial Holdings Inc. Second Quarter 2021 Financial Results

RALEIGH, N.C., Aug. 02, 2021 (GLOBE NEWSWIRE) -- Integrated Financial Holdings, Inc. (OTCQX: IFHI) (the “Company” or “IFH”), the financial holding company for West Town Bank & Trust (“the Bank”), released its financial results for the three and six months ended June 30, 2021.  Highlights include the following:

• Second quarter net income of $4.6 million or $2.07 per diluted share compared to 2020 second quarter net income of $6.3 million or $2.84 per diluted share.
• Provision for loan losses of $50,000 for the second quarter of 2021 compared to $665,000 for the same period in 2020.
• Return on average assets of 4.39%, compared to 7.11% for the second quarter of 2020.
• Return on average common equity of 22.53%, compared to 35.18% for the second quarter of 2020.
• Return on average tangible common equity (a non-GAAP financial measure) of 29.84%, compared to 49.55% for the second quarter of 2020.
• Loan processing and servicing revenue of $5.8 million, compared to $14.2 million for the second quarter of 2020.
• Government lending revenues of $3.8 million, compared to $37,000 for the second quarter of 2020.
• Mortgage origination and sales revenue of $1.8 million as compared to $1.6 million for the second quarter of 2020.
• Other noninterest income of $908,000 compared to ($56,000) for the second quarter of 2020.

Eric Bergevin, President & CEO of the Company commented, “We are very pleased with the Company’s strong second quarter earnings, overall growth and improved asset quality.  The Bank’s Mortgage Department continues to flourish and is on track to having a record-setting year in terms of overall origination levels.  Secondary market premiums on the SBA 7(a) side of things remain near all-time highs, yielding extremely positive results for the Bank’s Government Guaranteed Lending (“GGL”) Department as well.  Overall growth in non-interest-bearing deposits has been significant, paralleling growth in GGL along with the Bank’s continued push to garner commercial deposits among hemp-related businesses in need of reliable banking partners.  Finally, as a result of increased guaranteed portions on all SBA 7(a) loans implemented by Congress earlier this year, community financial institutions have gravitated heavily towards lending efforts in the space, in-turn leading to impressive growth for Windsor Advantage (“Windsor”) far and beyond a core growth rate we have ever seen for the company through two quarters.  Windsor has already onboarded a record number of new lenders year-to-date to its outsourced SBA lending platform and the majority of its existing clients have gained significant traction as processing volume ramps up.”

BALANCE SHEET
At June 30, 2021, the Company’s total assets were $440.3 million, net loans held for investment were $258.8 million, loans held for sale were $14.6 million, total deposits were $337.4 million and total shareholders’ equity attributable to IFH was $84.5 million.  Compared with December 31, 2020, total assets increased $51.1 million or 13%, net loans held for investment increased $5.5 million or 2%, loans held for sale decreased $11.7 million or 44%, total deposits increased $36.5 million or 12%, and total shareholders’ equity attributable to IFH increased $7.5 million or 10%.  The increase in assets was primarily the result of additional liquidity created by strong deposit growth initiatives as over half of the GGL loans originated during the quarter were sold.  The Bank originated $60.1 million in GGL loans during the second quarter and sold $33.6 million during the same period.  The Bank has continued to see strong growth in deposits primarily as a result of corresponding growth in in GGL loans, many of which require customer deposits, as well as continued execution of a strategic advance into the hemp banking space (trademarked “Hemp Banks Here”).  The increase in total shareholders’ equity was primarily a result of net income posted for the year.

During the second quarter of 2021, the Company issued 18,900 shares of its common stock associated with various stock-based compensation programs and option exercises and repurchased 59,928 shares of its voting common stock.

CAPITAL LEVELS
At June 30, 2021, the regulatory capital ratios of West Town Bank & Trust exceeded the minimum thresholds established for well-capitalized banks under applicable banking regulations.

The Company’s book value per common share increased from $33.19 at June 30, 2020 to $38.32 at June 30, 2021.  The Company’s tangible book value per common share (a non-GAAP financial measure) increased from $23.90 at June 30, 2020 to $29.29 at June 30, 2021, primarily as a result of the net income of the Company.

ASSET QUALITY
The Company’s nonperforming assets to total assets ratio decreased from 2.74% at December 31, 2020 to 1.55% at June 30, 2021, as management continued to address credit concerns (specifically in the hospitality portfolio) surrounding the potential economic impact of COVID-19 and the widespread societal responses to the pandemic and worked to reduce its portfolio of foreclosed assets. Nonaccrual loans decreased $2.7 million or 32% as compared to December 31, 2020 while foreclosed assets decreased $1.8 million or 74% during the same period. Patriarch, LLC, a subsidiary of the Company formed to expedite the liquidation and recovery of certain Bank assets, held $618,000 in foreclosed assets while the Bank held no such assets.  The Company regularly conducts impairment analyses on all nonperforming assets with updated appraisals to ensure the assets are carried at the lower of fair market value (less cost to sell) or book value.

The Company recorded a $50,000 provision for loan losses during the second quarter of 2021, as compared to a provision of $665,000 in second quarter 2020, as the problem loan portfolio decreased for the period.  The Company has granted 139 deferrals since June 30, 2020 totaling $71.1 million.  However, as of June 30, 2021, there were only 11 loans in deferral status with net exposure of $3.9 million.  Expected loss estimates consider the impacts of decreased economic activity and higher unemployment, partially offset by the mitigating benefits of government stimulus and industry-wide loan modification efforts. The Company recorded $24,000 net charge-offs during the second quarter of 2021. 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 June 30, 2021 increased $634,000 or 18% in comparison to the second quarter of 2020 as loan growth year over year offset the decrease in margin as a result of the low interest rate environment.  The net interest margin was 4.48% for the second quarter of 2021 compared to 4.70% for the same period in 2020.  Interest-earning asset yields decreased from 5.93% to 5.21% while interest-bearing liabilities cost decreased from 1.79% to 1.11% year-over-year between June 30, 2021 and 2020.  The overall decrease in both yield on assets and rates on liabilities are reflective of the rate decreases by the Federal Open Market Committee (“FOMC”) in the first quarter of 2020 in response to the pandemic.

NONINTEREST INCOME
Noninterest income for the three months ended June 30, 2021 was $12.6 million, a decrease of $3.6 million or 22% as compared to the three months ended June 30, 2020.  Specific items to note include:

• Windsor, a subsidiary of the Company which offers an SBA and USDA loan servicing platform, had processing and servicing revenue totaling $5.7 million, a decrease of $8.4 million or 59% as compared to the $14.2 million in income earned from the investment in Windsor during the same prior year period. Both periods included Paycheck Protection Program (“PPP”) fee related income with $3.5 million in revenues directly attributable to PPP in the second quarter of 2021 compared to $13.0 million for the same period in 2020.  In addition, increased volume of the servicing portfolio from new and existing clients helped to build overall revenues for Windsor.
• Mortgage revenue totaled $1.8 million, an increase of $200,000 or 13% as compared to the second quarter of 2020.  Mortgage loans originated to sell to the secondary market increased from $46.2 million in the first quarter 2020 to $51.0 million in the second quarter 2021.  The increase in both the revenue and origination volume can be attributable to the decrease in market rates tied to the FOMC decision to decrease rates.
• GGL revenue was $3.8 million in the second quarter of 2021, an increase of $3.8 million in comparison to the $37,000 of revenues for the same period in 2020.  GGL volume year-over-year was impacted by increased economic activity nationwide.
• Other noninterest income totaled $908,000 in the second quarter or 2021, an increase $964,000 in comparison to the same period in 2020.  The Company recognized an increase of $508,000 in the fair value of its loan servicing rights during the second quarter of 2021 compared to a loss in fair value of $266,000 in the same period in the prior year.

NONINTEREST EXPENSE
Noninterest expense for the second quarter of 2021 was $10.6 million, a decrease of $230,000 or 2%, from $10.8 million for the second quarter of 2020.  The primary cause for the year-over-year decrease was the cost of the software needed to process the PPP loans in the second quarter of 2021.  Software costs at Windsor, the subsidiary that does the majority of the PPP loan processing, decreased from $2.0 million in the second quarter of 2020 to $1.3 million in the same period in 2021.  However, the corresponding revenues of Windsor decreased during that same period by $8.4 million.  The increases in all noninterest expense categories, including compensation, occupancy, special assets, data processing, software, communications and other operating expenses are primarily related to the overall growth of the Company and its new business initiatives including the addition of West Town Payments, LLC in the third quarter of 2020 as well as a year-over-year increase in mortgage and GGL related compensation tied to the increases in revenues.

ABOUT INTEGRATED FINANCIAL HOLDINGS, INC.
Integrated Financial Holdings, Inc. is a financial holding company based in Raleigh, North Carolina.  The Company changed its name from West Town Bancorp, Inc. in the third quarter of 2020.  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 servicing company; West Town Insurance Agency, Inc., an insurance agency; Patriarch, LLC, a real estate management company; SBA Loan Documentation Services, LLC, a loan documentation origination company; and Glenwood Structured Finance, LLC, a loan broker and large loan syndication company.  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? 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 inability to realize cost savings or revenues or to implement integration plans and other consequences associated with the Company’s acquisition and divesture activities; 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, and the impact of competition from traditional or new sources. 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 June 30, 2021 were as follows:

Reconciliation of Non-GAAP Measures

Contact: Eric Bergevin, 252-482-4400