Integrated Financial Holdings, Inc. Third Quarter 2020 Financial Results

RALEIGH, N.C., Nov. 02, 2020 (GLOBE NEWSWIRE) — Integrated Financial Holdings, Inc (formerly West Town Bancorp, Inc.) (OTC PINK: IFHI) (the “Company” or “IFH”), the financial holding company for West Town Bank & Trust (“the Bank”), released its financial results for the three and nine months ended September 30, 2020. Highlights include the following:
Third quarter net income of $1.7 million or $0.78 per diluted share, compared to net income of $2.2 million or $0.91 per diluted share for the third quarter of 2019.   Income for 2019 was positively impacted by a nonrecurring adjustment which decreased loan and legal related expenses pertaining to the guaranteed loan portfolio as the Company was able to recapture some of its previously expensed costs resulting in a negative expense for that prior year quarter.Provision for loan losses of $125,000 for the third quarter of 2020 compared to $200,000 for the same period in 2019.Return on average assets of 1.84%, compared to 2.85% for the third quarter of 2019.Return on average common equity of 9.23%, compared to 12.49% for the third quarter of 2019.Return on average tangible common equity (a non-GAAP financial measure) of 12.76%, compared to 17.94% for the third quarter of 2019.Windsor processing and servicing revenue of $2.6 million, compared to $1.8 million for the same period in 2019.Mortgage origination and sales revenue of $2.4 million as compared to $975,000 for the same period in 2019.
As previously announced, on May 6, 2019, Sound Bank (now known as Dogwood State Bank), formerly a wholly owned subsidiary of IFH, completed a recapitalization that resulted in a significant reduction in IFH’s ownership position in the Bank. Therefore, on a comparative basis, the Company’s year-to-date financial results for 2020 do not include any operating impact from Sound Bank, whereas the financial results for the same period in 2019 are impacted by the performance of Sound Bank.   Eric Bergevin, President & CEO, commented, “We are pleased with our third quarter financial results with improvements in asset quality, and we are very satisfied with the Company’s rebranding to IFH, aligning our identity and messaging with the strategic endeavors we embody. Our financial results are primarily due to several initiatives taken during the year. First, we continued to execute on our Originate-and-Hold strategy whereby we grew our GGL portfolio and held onto the guaranteed piece, thereby leveraging capital and increasing net interest income. Second, we began selling a small portion of 10-year government guaranteed loans before premium deterioration started to occur. Finally, mortgage volume has remained vibrant during the period and Windsor has had a record quarter for SBA 7(a) loan closings. As expected, our conservative approach as COVID-19 started shutting down the economy early this year has resulted in much lower provisions, charge-off’s and NPA’s in the third quarter and we expect this trend to continue into fourth quarter and 2021. Our corporate expansion and rebranding efforts have gained traction with the growth and maturation of our new subsidiaries, including SBA Loan Documentation Services, LLC, Glenwood Structured Finance, LLC and the current launch of West Town Payments, LLC, which is a direct acquirer for payment processing. Our new payments team is expected to augment the new and already robust deposit initiatives we kicked-off earlier this year as evidenced by our increased growth in non-interest bearing deposits accounts.”BALANCE SHEET
At September 30, 2020, the Company’s total assets were $374.0 million, net loans held for investment were $240.0 million, loans held for sale were $35.7 million, total deposits were $285.8 million and total shareholders’ equity was $75.0 million. Compared with December 31, 2019, total assets increased $59.8 million or 19%, net loans held for investment increased $20.3 million or 9%, loans held for sale increased $23.2 million or 184%, total deposits increased $65.3 million or 30%, and total shareholders’ equity increased $7.4 million or 11%. The increases in assets and loans reflect the Bank’s participation in the PPP program, funding $22.8 million for its existing customers and originating $55.6 million in Government Guaranteed Loans (“GGL”), while selling only $18.6 million in GGL loans due to the “Originate-and-Hold” strategy which began in mid-first quarter of 2020. The Originate-and-Hold strategy indicates the Company holds the guaranteed portion of loans originated rather than selling them in the secondary market at a premium based on secondary market indicators. While this strategy has a short-term negative impact on profitability, the impact of leveraging the capital of the Company’s bank subsidiary, earning the additional spread income and ultimately taking the gains on premium should enhance overall long-term profitability. Executing a strategic advance into the hemp banking space (trademarked “Hemp Banks Here”) and added resources to Commercial Account Services (full-service treasury management solutions) to service this segment, along with the Bank’s GGL customers, has resulted in increased deposit levels. The increase in total shareholders’ equity was primarily a result of the income posted for the second quarter.During the quarter, the Bank formed a new company, West Town Payments, LLC (“WTP”), and entered into an agreement whereby the Bank owns 48% of the common shares of the entity. WTP provides physical point-of-sale, online, contactless and mobile payment solutions to both targeted and generalist verticals and is well-equipped with the experience and compliance-driven framework to work directly with the Bank’s hemp-related customers. The financial position and results of the first three months of operation of WTP are included in the consolidated balances for IFH and the noncontrolling interest portion shown separately. Melissa Marsal, the Bank’s EVP/Chief Operating Officer, commented “Partnering with West Town Payments is a strategic alignment aimed to provide better, faster and more reliable service to our customers, starting with hemp businesses. Through combined expertise in commercial banking, on-boarding due diligence, compliance monitoring and payment processing, the Bank is poised to further increase deposits and provide an unmatched client experience in the hemp banking industry.”CAPITAL LEVELS
At September 30, 2020, 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 $29.86 at September 30, 2019 to $34.08 at September 30, 2020. The Company’s tangible book value per common share (a non-GAAP financial measure) increased from $20.57 at September 30, 2019 to $24.83 at September 30, 2020, as a result of share repurchases over the period and the net income of the Company.ASSET QUALITY
The Company’s nonperforming assets to total assets ratio decreased from 3.99% at December 31, 2019 to 3.29% at September 30, 2020, as management continued to address credit concerns surrounding the potential economic impact of COVID-19 and the widespread societal responses to the pandemic. Nonaccrual loans decreased $410,000 as of September 30, 2020 as compared to December 31,2019 while foreclosed assets increased $152,000 during the same period. Patriarch, LLC, a subsidiary of the holding company, formed to expedite the liquidation and recovery of certain Bank assets, held $3.3 million in foreclosed assets. The Company regularly conducts impairment analyses on all nonperforming assets with updated appraisals to ensure the assets are carried at the lower of net realizable value or book value, with any deficits charged off immediately versus carrying specific reserves.The Company recorded a $125,000 provision for loan losses during the third quarter of 2020, as compared to a provision of $200,000 in third quarter 2019, as management continues to respond to concerns over deteriorating economic conditions driven by the ongoing COVID-19 pandemic. COVID-related deferrals under the CARES Act peaked at 115 loans as of June 30, 2020 with net exposure of $54.2 million. COVID-related deferrals have since decreased to 25 loans with net exposure of $16.8 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 minimal net charge-offs during the third quarter 2020.NET INTEREST INCOME AND MARGIN
Net interest income for the three months ended September 30, 2020 increased $155,000 or 4% in comparison to the third quarter of 2019, as loan growth year over year offset the impact of net interest margin. The net interest margin was 4.52% for the third quarter of 2020 compared to 5.34% for the same period in 2019. Interest-earning asset yields decreased from 6.89% to 5.59% and interest-bearing liabilities cost decreased from 2.27% to 1.61% year-over-year between September 30, 2019 and September 30, 2020.Net interest income for the nine months ended September 30, 2020 decreased $2.7 million or 20% in comparison to the same period in 2019, largely due to the deconsolidation of Sound Bank from the consolidated financial statements as of May 6, 2019.
NONINTEREST INCOME
Noninterest income for the three months ended September 30, 2020 was $6.6 million, an increase of $2.6 million or 67% as compared to the three months ended September 30, 2019. 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 $2.6 million for the three months ended September 30, 2020, an increase of $805,000, or 45% as compared to the $1.8 million in income earned during the three months ended September 30, 2019. The increase is attributable to a record quarter in SBA 7(a) loan closings and continued growth in the servicing portfolio.Mortgage revenue totaled $2.4 million, an increase of $1.4 million or 146% as compared to the third quarter 2019. Mortgage loans originated to sell to the secondary market increased from $26.4 million in the third quarter 2019 to $50.3 million in the third quarter 2020.GGL revenue was $571,000 in the third quarter of 2020, a decrease of $412,000 or 42% in comparison to the same period in 2019. GGL volume was impacted by the Company’s “Originate-and-Hold” strategy as the Company moved to leverage its balance sheet for long-term profitability.Noninterest income for the nine months ended September 30, 2020 was $27.4 million, an increase of $8.6 million or 45% as compared to the $18.9 million in the same prior year period. The most notable increase was due to Windsor revenues, which increased by $13.2 million period over period from $5.2 million in the nine months ended September 30, 2019 to $18.5 million for the nine months ended September 30, 2020. That growth was primarily driven by the Paycheck Protection Plan (“PPP”) as Windsor processed more than 16,000 loan applications totaling more than $2.3 billion for over 40 of its institutional lender clients during the second quarter.NONINTEREST EXPENSE
Noninterest expense for the third quarter of 2020 was $7.8 million, an increase of $3.4 million or 78%, from $4.4 million for the third quarter of 2019. The primary cause for the change was a nonrecurring adjustment which decreased loan and legal related expenses in the third quarter of 2019 related to the guaranteed loan portfolio as the Bank was able to recapture some of its previously expensed costs which positively impacted that quarter. In addition, “one time” software expense and “one time” compensation expense increased $3.4 million from $3.2 million in the third quarter of 2019 to $6.6 million for the same period in 2020 as the Company processed more the large volume of PPP applications and continued to expand and grow its business lines including the addition of WTP in the current quarter. For the nine-month period ended September 30, 2020, noninterest expense increased from $19.0 million in the first nine months of 2019 to $24.7 million for the same period in 2020, primarily as a result of additional compensation due to the PPP program in the second quarter of 2020.ABOUT INTEGRATED FINANCIAL HOLDINGS, INC.
Integrated Financial Holdings, Inc. is a financial holding company based in Raleigh, NC. The Company changed its name from West Town Bancorp, Inc. in the third quarter 2020 after a successful shareholder vote approving the action on July 23, 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 ConcentrationsThe top ten commercial loan concentrations as of September 30, 2020 were as follows:Eric Bergevin, 252-482-4400