Integrated Financial Holdings, Inc. Second Quarter Financial Results

RALEIGH, N.C., July 29, 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 and six months ended June 30, 2024. Highlights from the 2024 second quarter results include the following:

• Second quarter 2024 net income of $605,000, or $0.26 per diluted share compared to second quarter 2023 net income of $3.6 million, or $1.60 per diluted share.
• Net interest income of $5.9 million for the second quarter of 2024 compared to $5.5 million for the same period in 2023.
• Noninterest expense of $8.2 million for the second quarters of 2024 and 2023.
• Return on average assets of 0.47% for the three-month period ending June 30, 2024, compared to 3.05% for the same period in 2023.
• Return on average tangible common equity (a non-GAAP financial measure) of 2.89% for the three-month period ending June 30, 2024 compared to 19.84% for the same period in 2023.

Quarter-over-quarter results between the second quarter of 2024 and the same period in 2023 were somewhat skewed by several unusual items positively impacting the second quarter of 2023 and merger-related expenses associated with the proposed merger with Capital Bancorp, Inc. (“CBNK”) negatively impacting the second quarter of 2024. During the second quarter of 2023, the sale of the Bank’s ownership interest in West Town Payments, LLC (“WTP”) resulted in a pretax gain of about $366,000, and an exit from the Bank’s hemp-related business line resulted in a pretax gain of about $464,000. Conversely, the Company recorded $681,000 in pre-tax, merger-related expenses in the second quarter of 2024 as compared to $61,000 during the 2023 second quarter. In addition, due to the uneven nature of large USDA closings, government guaranteed lending revenue decreased by $2.3 million in the 2024 second quarter compared to the 2023 second quarter. The anticipated closing volume for the back half of 2024 remains strong. On a linked-quarter basis, government guaranteed lending revenue was $1.2 million for the second quarter of 2024 compared to $514,000 for the first quarter of 2024. Finally, charge-offs associated with two specific loans and considerable growth in the loan portfolio year over year drove an increase in the provision for credit losses from $130,000 in the second quarter of 2023 to $1.6 million in the second quarter of 2024.

In reflecting on the second quarter of 2024, Marc McConnell, Chairman, President, and CEO of IFHI, stated: “This quarter we remained focused on our main objective: priming the organization for strategic long-term growth as we continue preparing for our upcoming planned merger with Capital Bancorp, Inc. Though income this quarter was skewed by unusual items, we believe we are well positioned for net interest income growth in upcoming quarters. As a result of strong loan growth, our average earning assets have increased $54 million year over year. Our team will continue to execute our strategic plan as we maintain our foothold in the industry as a leader in GGL lending, relying on our sustainable growth trajectory and strong leadership to guide us into this next quarter.”

BALANCE SHEET
At June 30, 2024, the Company’s total assets were $558.5 million, net loans held for investment were $388.4 million, loans held for sale (“HFS”) were $44.1 million, total deposits were $400.8 million and total shareholders’ equity was $102.8 million. Compared with December 31, 2023, total assets increased $10.9 million or 2%, net loans held for investment increased $35.6 million or 10%, HFS loans increased $3.6 million or 9%, total deposits decreased $34.9 million or 8%, and total shareholders’ equity increased $2.4 million or 2%. Cash and cash equivalents decreased $27.7 million or 43% since the prior year-end. 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 over the first half of 2023. 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 $113,000 negative impact during the six-month period ended June 30, 2024 as a result of changing rate expectations. The accumulated other comprehensive loss component of equity was $2.2 million at June 30, 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 June 30, 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 increased from $43.72 as of December 31, 2023, to $43.85 at June 30, 2024 as the impact of earnings was slightly offset by an increase of about 50,000 shares outstanding as a result of an annual grant for long-term incentive and the exercising of several blocks of stock options in the first quarter. The Company’s tangible book value per common share (a non-GAAP financial measure) also increased from $35.80 as of December 31, 2023, to $36.23 at June 30, 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 June 30, 2024, the average deposit account size was $98,600, and uninsured deposits excluding those required for debt service were $38.8 million or roughly 9.7% 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 $57.8 million as of June 30, 2024. Additionally, the Bank maintains fully collateralized credit facilities with the Federal Home Loan Bank of Chicago (“FHLB”) and the Federal Reserve. As of June 30, 2024, the FHLB credit facility had a borrowing line of $87.0 million with $45.0 million in outstanding advances and available credit of $42.0 million. The Federal Reserve had an available borrowing capacity of $39,000 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 377% of the amount of uninsured deposits (excluding those required for debt service) as of June 30, 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 June 30, 2024, the Bank had $44.0 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 3.10% at June 30, 2024. Nonaccrual loans at June 30, 2024 increased $991,000 or 6% as compared to December 31, 2023. One relationship for $7.7 million makes up approximately 44% of all of the nonaccrual loans as of June 30, 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 June 30, 2024.

During the second quarters of 2024 and 2023, the Company recorded provisions for credit losses of $1.6 million and $130,000, respectively. The Company recorded $1.0 million in net charge-offs during the second quarter of 2024 compared to $86,000 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 June 30, 2024, increased $318,000 or 6% in comparison to the second quarter of 2023. Loan yields increased from 8.43% in the second quarter of 2023 to 8.73% 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 2.70% in the second quarter of 2023 to 3.66% 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. Net interest margin declined from 5.48% during the three months ended June 30, 2023, to 5.12% 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 $53.6 million.  

For the six months ended June 30, 2024 net interest income increased from $11.2 million in 2023 to $11.7 million in 2024. The increase of $508,000 or 5% was due to an increase in average loan volume offset by a decrease in net interest margin. Average loans increased from $351.5 million for the six months ended June 30, 2023 to $413.0 million for the same period in 2024. Net interest margin during those same periods decreased from 5.66% in 2023 to 5.10% in 2024.

NONINTEREST INCOME
Noninterest income for the three months ended June 30, 2024, was $4.9 million compared to $7.8 million for the same period in 2023. The decrease is primarily attributable to the nonrecurring items in the second quarter of 2023, which included, among other things, the previously discussed sale of the ownership interest in WTP and the gain on the exit in hemp-related deposits. In addition, there was a decrease in government guaranteed lending revenue quarter-over-quarter as a result of delayed deal flow. Those declines were partially offset by an increase in the income of Windsor, a subsidiary of the Company. Specifically:

• Windsor, which offers an SBA and USDA loan servicing platform, had loan processing and servicing revenue totaling $3.4 million, an increase of $762,000 or 29% as compared to the $2.7 million in income earned during the prior second quarter.
• Government Guaranteed Lending (“GGL”) revenue was $1.2 million in the second quarter of 2024, a decrease of $2.3 million or 66% in comparison to the $3.6 million of revenues for the same period in 2023.  

NONINTEREST EXPENSE
Noninterest expense for the second quarter of 2024 and 2023 was $8.2 million. Declines in recurring expenses were offset by an increase in nonrecurring expenses for a net year-over-year increase of $13,000 or 0%. Most notably, compensation expense decreased $1.0 million or 19% going from $5.4 million in the second quarter of 2023 down to $4.4 million for the same period in 2024. This was offset by $681,000 in merger-related expenses associated with the Company’s previously announced proposed merger with Capital Bancorp, Inc. Other notable expense categories were:  

• Loan and special asset related expenses, which tend to fluctuate unexpectedly, increased by $257,000 or 74% from $346,000 in the first quarter of 2023 to $603,000 for the same period in 2024.
• Other operating expenses increased $183,000 or 38% from $486,000 in the second quarter of 2023 to $669,000 for the same period in 2024.

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; that loan closing volume in future periods may not meet current expectations; 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; the ability to complete, or any delays in completing, the pending merger between the Company and Capital Bancorp, Inc.; any failure to realize the anticipated benefits of the pending merger transaction when expected or at all; certain restrictions during the pendency of the transaction that may impact the Company’s ability to pursue certain business opportunities or strategic transactions; the possibility that the pending merger transaction may be more expensive to complete than anticipated, including as a result of conditions imposed by regulators, unexpected conditions, factors or events; 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 June 30, 2024, were as follows:

Reconciliation of Non-GAAP Measures

Contact: Steve Crouse, 919-861-8018