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Integrated Financial Holdings, Inc. First Quarter 2023 Financial Results

RALEIGH, N.C., May 01, 2023 (GLOBE NEWSWIRE) -- Integrated Financial Holdings, Inc. (OTCQX: IFHI) (the “Company” or “IFHI”), the financial holding company for West Town Bank & Trust (the “Bank”), released its financial results for the three months ended March 31, 2023. Highlights from the 2023 first quarter results include the following:

  • First quarter net income of $2.4 million, or $1.04 per diluted share compared to first quarter 2022 net income of $3.6 million, or $1.59 per diluted share.   
  • Net interest income of $5.7 million for the first quarter of 2023, compared to $5.2 million for the same period in 2022.  
  • Return on average assets of 2.07% for the three-month period ending March 31, 2023, compared to 3.30% for the same period in 2022.
  • Return on average tangible common equity (a non-GAAP financial measure) of 13.67% for the three-month period ending March 31, 2023, compared to 20.36% for the same period in 2022.

Both quarters were impacted by mark-to-market adjustments on marketable equity securities with a large portion of the year-over-year decline in net income resulting from the difference in that adjustment. Pretax net income declined by $1.8 million from $5.0 million in the three months ended March 31, 2022, to $3.2 million for the same period in 2023 yet the mark-to-market adjustment declined by $4.0 million during that same time.

In reflecting on the first three months of the year, Marc McConnell, President and CEO of IFHI, stated: “From an organizational standpoint, the first quarter was highlighted by two overarching themes – resilience and teamwork. Beginning with the unexpected death of our founding CEO in the first week of the quarter and continuing with the broader challenges faced by the banking industry in March, our entire team was called to action. I must say, I could not be prouder of the way our staff has performed.” McConnell continued, “The recent bank failures placed a spotlight on the importance of sound risk management practices and governance and the speed with which underlying assumptions can change. We have not been impacted by any unexpected runoff of deposits, and we remained laser-focused during the quarter on cost containment and right-sizing the Bank, particularly with the resolution of certain government programs such as the Paycheck Protection Program. Our compensation expense is down 21% year-over-year and 10% from the prior quarter. In addition, the Bank’s ratio of problem assets as a percentage of total assets continued its five-quarter downward trend, bolstering confidence in overall credit quality. As expected, non-interest-bearing deposits dropped due to the recent winddown of our hemp and cannabis banking divisions. Going forward, we remain focused on reinforcing our strongholds and realigning our strategy for new challenges as we adapt to changing market conditions and shape the next chapter for IFHI under the leadership of our restructured executive management team.”

BALANCE SHEET
On March 31, 2023, the Company’s total assets were $467.3 million, net loans held for investment were $313.5 million, loans held for sale (“HFS”) were $39.1 million, total deposits were $356.3 million and total shareholders’ equity attributable to IFHI was $90.8 million. Compared with December 31, 2022, total assets increased $19.4 million or 4%, net loans held for investment increased $19.4 million or 7%, HFS loans increased $4.8 million or 14%, total deposits increased $43.2 million or 14%, and total shareholders’ equity attributable to IFHI increased $3.3 million or 4%. Cash and cash equivalents decreased slightly since the prior year-end as the Company has redeployed an additional $5.8 million in cash into higher yielding loans. The Bank has continued to see growth in loans held for investment primarily as a result of activity in the Government Guaranteed Lending (“GGL”) type loans. At $39.1 million in volume, HFS loans at March 31, 2023 represent potential significant future GGL revenues as those loans are sold in the market and the associated premiums are recognized. Noninterest bearing deposits have decreased by $29.7 million or 28% since December 31, 2022, resulting largely from the Company’s decision to discontinue banking two industries the Company had previously targeted.   The increase in total shareholders’ equity since December 31, 2022 was primarily associated with the posted net income. The market value of the available-for-sale investment portfolio improved slightly since year end with the accumulated other comprehensive loss component of equity related to the change in market pricing improving from a loss of $2.3 million at December 31, 2022 to a loss of $2.2 million at March 31, 2023 as a result of changes in market interest rates. The Company does not have any investments in its portfolio treated as held-to-maturity being carried at cost.

CAPITAL LEVELS
At March 31, 2023, the regulatory capital ratios of West Town Bank & Trust exceeded the minimum thresholds established for well-capitalized banks under applicable banking regulations.

 "Well Capitalized" MinimumBasel III Fully Phased-InWest Town Bank & Trust
Tier 1 common equity ratio6.50%7.00%12.96%
Tier 1 risk-based capital ratio8.00%8.50%12.96%
Total risk-based capital ratio10.00%10.50%14.21%
Tier 1 leverage ratio5.00%4.00%11.50%
    

Primarily as a result of net income, the Company’s book value per common share increased from $38.69 as of December 31, 2022, to $40.28 at March 31, 2023. The Company’s tangible book value per common share (a non-GAAP financial measure) also increased from $30.36 as of December 31, 2022, to $31.99 at March 31, 2023, primarily as a result of net income.

ASSET QUALITY
The Company’s nonperforming assets to total assets ratio decreased from 1.04% at December 31, 2022, to 1.03% at March 31, 2023. Nonaccrual loans at March 31, 2023 decreased $67,000 or 1% as compared to December 31, 2022. The Bank held $315,000 in foreclosed assets as of March 31, 2023 compared to $101,000 at December 31, 2022.

The Company adopted ASU 2016-13 on January 1, 2023. The day one adjustment to the allowance for credit losses was a reduction of approximately $807,000, resulting in an allowance for credit losses of approximately $5.8 million. In addition, the adjustment to the reserve for unfunded commitments was an increase of approximately $100,000, bringing the overall allowance for credit losses on loans to $5.9 million. This adjustment was charged to retained earnings, net of the Company’s effective tax rate.

During the first quarters of 2023 and 2022, the Company recorded provisions for credit losses of $565,000 and $180,000, respectively. The Company recorded $376,000 in net charge-offs during the first quarter of 2023 compared to $105,000 in net charge-offs for the same period in 2022. Management continues to believe it is making progress in improving overall asset quality. Set forth in the table below is certain asset quality information as of the dates indicated:

  (Dollars in thousands)3/31/2312/31/229/30/226/30/223/31/22
Nonaccrual loans$4,485 $4,552 $4,612 $4,656 $6,558 
Foreclosed assets 315  101  -  -  - 
90 days past due and still accruing -  -  -  -  - 
Total nonperforming assets$4,800 $4,653 $4,612 $4,656 $6,558 
      
Net charge-offs (recoveries)$376 $(149)$(29)$(279)$105 
Annualized net charge-offs (recoveries) to total average portfolio loans 0.49% -0.20% -0.04% -0.43% 0.16%
      
Ratio of total nonperforming assets to total assets 1.03% 1.04% 1.05% 1.07% 1.52%
Ratio of total nonperforming loans to total loans, net of allowance 1.43% 1.55% 1.60% 1.79% 2.56%
Ratio of total allowance for credit losses to total loans 1.88% 2.23% 2.27% 2.39% 2.14%
                

NET INTEREST INCOME AND MARGIN
Net interest income for the three months ended March 31, 2023 increased $432,000 or 8% in comparison to the first quarter of 2022 as increasing loan yields year-over-year were partially offset by increased funding costs. Loan yields increased from 7.74% in the first quarter of 2022 to 8.21% for the same period in 2023. The increase in yield from the prior year reflected the impact of 475 basis points of rate increases by the Federal Open Market Committee (“FOMC”) since the beginning of 2022 in response to current economic conditions, as well as a change in loan mix. Overall cost of funds increased from 0.63% in the first quarter of 2022 to 2.01% for the same period in 2023 as average retail certificate of deposit (“CD”) rates trended up, and new CDs were originated at higher market rates. Net interest margin increased from 5.69% during the three months ended March 31, 2022, to 5.85% for the same period in 2023. The increase in margin was also driven by the increase in loan yield resulting from the FOMC actions.

(Dollars in thousands)3/31/2312/31/229/30/226/30/223/31/22
Average balances:     
Loans$345,651 $331,508 $312,475 $319,115 $294,502 
Available-for-sale securities 17,691  17,446  19,096  21,879  21,088 
Other interest-bearing balances 28,998  20,367  30,378  33,328  56,359 
Total interest-earning assets 392,340  369,321  361,949  374,322  371,949 
Total assets 460,412  436,695  428,983  438,732  437,402 
      
Noninterest-bearing deposits 98,555  113,851  94,013  85,042  98,546 
Interest-bearing liabilities:     
Interest-bearing deposits 251,281  212,069  233,464  244,363  235,092 
Borrowings 10,222  8,913  2,174  8,626  6,306 
Total interest-bearing liabilities 261,503  220,982  235,638  252,989  241,398 
Common shareholders' equity 88,574  84,831  88,043  90,721  90,441 
Tangible common equity (1) 69,788  65,879  68,924  71,437  70,939 
      
Interest income/expense:     
Loans$6,997 $6,422 $5,943 $5,491 $5,623 
Available-for-sale securities 120  64  105  104  89 
Interest-bearing balances and other 319  257  169  89  42 
Total interest income 7,436  6,743  6,217  5,684  5,754 
Deposits 1,696  735  532  523  522 
Borrowings 85  93  13  15  9 
Total interest expense 1,781  828  545  538  531 
Net interest income$5,655 $5,915 $5,672 $5,146 $5,223 
      

(1) See reconciliation of non-GAAP financial measures.

 Three Months Ended
 3/31/2312/31/229/30/226/30/223/31/22
Average yields and costs:     
Loans8.21%7.69%7.55%6.90%7.74%
Available-for-sale securities2.71%1.47%2.20%1.90%1.69%
Interest-bearing balances and other4.46%5.01%2.21%1.07%0.30%
Total interest-earning assets7.69%7.24%6.81%6.09%6.27%
Interest-bearing deposits2.74%1.38%0.90%0.86%0.90%
Borrowings3.37%4.14%2.37%0.70%0.58%
Total interest-bearing liabilities2.76%1.49%0.92%0.85%0.89%
Cost of funds2.01%0.98%0.66%0.64%0.63%
Net interest margin5.85%6.35%6.22%5.51%5.69%
           

NONINTEREST INCOME
Noninterest income for the three months ended March 31, 2023, was $6.6 million compared $10.3 million for the same period in 2022. The decrease is primarily attributable to a difference in each period’s mark-to-market income adjustment on the Company’s equity investment in Dogwood State Bank due to successful capital raises for Dogwood in the first quarter of both years. The capital raises helped to establish new market values. The prior year’s first quarter had a positive mark-to-market of $6.0 million compared to $2.0 million for the current year. Excluding the Dogwood investment adjustment, other noninterest income would have been $4.6 million in the first quarter of 2023, up $305,000 or 7% in comparison to $4.3 million for the same period in 2022.

Specific items to note include:

  • Windsor Advantage, LLC (“Windsor”), a subsidiary of the Company which offers an SBA and USDA loan servicing platform, had processing and servicing revenue totaling $2.4 million, an increase of $232,000 or 11% as compared to the $2.2 million in income earned during the same prior-year period.
  • Mortgage revenue totaled $173,000 for the first quarter of 2022 compared to $0 in 2023. Due to the nationwide slowdown in refinancing volume and the impact of a doubling of long-term mortgage rates year-over-year, the Company phased out its mortgage operations by the first quarter of 2023.
  • Government Guaranteed Lending revenue was $904,000 in the first quarter of 2023, a decrease of $220,000 or 20% in comparison to the $1.1 million of revenues for the same period in 2022.  
  • The Company had bank-owned life insurance income of $555,000 in the first quarter of 2023 compared to $25,000 for the same period in 2022. The increase was related to a life insurance policy payout related to the previously announced death of the Company’s founding CEO, Eric Bergevin.

NONINTEREST EXPENSE
Noninterest expense for the first quarter of 2023 was $8.5 million, a decrease of $1.9 or 18%, from $10.4 million for the first quarter of 2022. This change was primarily due to a decrease of $1.5 million or 21% in compensation expense going from $7.1 million in the first quarter of 2022 down to $5.6 million for the same period in 2023 as the Company made efforts to decrease its overhead in light of the changing economic environment. Loan-related expenses, which tend to fluctuate unexpectedly, also decreased by $345,000 or 54% from $638,000 in the first quarter of 2022 to $293,000 for the same period in 2023. These decreases were partially offset by merger-related expenses of $116,000 paid in the first quarter of 2023 associated with the Company’s proposed merger with MVB Financial Corp. (“MVB”) announced during the third quarter of 2022.  

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; 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 or the Company’s planned merger with MVB; 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, including our planned merger with MVB, on our ability to retain key employees; the possibility that the proposed merger with MVB will not close when expected or at all because required regulatory approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all; the possibility that the anticipated benefits of the proposed merger with MVB will not be realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where the Company and MVB do business; 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.        

Consolidated Balance Sheets     
      
 Ending Balance
      
  (In thousands, unaudited)3/31/2312/31/229/30/226/30/223/31/22
Assets
     
Cash and due from banks$6,986 $7,553 $6,272 $4,700 $3,900 
Interest-bearing deposits 21,224  26,430  25,011  21,981  28,876 
Total cash and cash equivalents 28,210  33,983  31,283  26,681  32,776 
Interest-bearing time deposits 999  999  1,249  1,499  1,746 
Available-for-sale securities 17,504  17,712  17,460  19,038  20,386 
Marketable equity securities 19,980  17,982  17,982  17,982  18,000 
Loans held for sale 39,088  34,302  28,399  59,592  51,095 
Loans held for investment 319,465  300,764  295,416  266,259  262,281 
Allowance for credit losses (6,011) (6,709) (6,710) (6,361) (5,622)
Loans held for investment, net 313,454  294,055  288,706  259,898  256,659 
Premises and equipment, net 4,041  4,098  4,264  4,238  4,235 
Foreclosed assets 315  101  -  -  - 
Loan servicing assets 3,604  3,715  3,979  4,178  4,014 
Bank-owned life insurance 5,053  5,357  5,330  5,304  5,271 
Accrued interest receivable 3,090  2,997  2,485  2,139  1,886 
Goodwill 13,161  13,161  13,161  13,161  13,161 
Other intangible assets, net 5,517  5,682  5,848  6,014  6,180 
Other assets 13,243  13,719  17,293  15,764  15,218 
Total assets$467,259 $447,863 $437,439 $435,488 $430,627 
      
Liabilities and Shareholders' Equity     
Liabilities     
Deposits:     
Noninterest-bearing$76,554 $106,255 $106,272 $83,544 $92,499 
Interest-bearing 279,735  206,872  218,835  250,026  233,953 
Total deposits 356,289  313,127  325,107  333,570  326,452 
Borrowings 10,000  30,000  5,000  -  5,000 
Accrued interest payable 806  379  370  308  325 
Other liabilities 10,101  17,600  23,557  9,939  8,320 
Total liabilities 377,196  361,106  354,034  343,817  340,097 
Shareholders' equity:     
Common stock, voting 2,231  2,239  2,239  2,227  2,213 
Common stock, non-voting 22  22  22  22  22 
Additional paid in capital 27,742  24,916  24,674  24,498  24,013 
Retained earnings 62,965  62,611  60,248  67,781  66,372 
Accumulated other comprehensive loss (2,198) (2,301) (2,866) (1,985) (1,296)
Total IFH, Inc. shareholders' equity 90,762  87,487  84,317  92,543  91,324 
Noncontrolling interest (699) (730) (912) (872) (794)
Total shareholders' equity 90,063  86,757  83,405  91,671  90,530 
Total liabilities and shareholders' equity$467,259 $447,863 $437,439 $435,488 $430,627 
      


Consolidated Statements of Income    
      
  (In thousands except perThree Months Ended
  share data; unaudited)3/31/2312/31/229/30/226/30/223/31/22
Interest income     
Loans$6,997 $6,422 $5,943 $5,491 $5,623 
Available-for-sale securities and other 439  321  274  193  131 
Total interest income 7,436  6,743  6,217  5,684  5,754 
Interest expense     
Interest on deposits 1,696  735  532  523  522 
Interest on borrowings 85  93  13  15  9 
Total interest expense 1,781  828  545  538  531 
Net interest income 5,655  5,915  5,672  5,146  5,223 
Provision for credit losses 565  (150) 320  460  180 
Noninterest income     
Loan processing and servicing revenue 2,439  2,849  2,163  2,373  2,207 
Mortgage -  99  477  1,066  173 
Government guaranteed lending 904  2,095  2,213  2,767  1,124 
SBA documentation preparation fees -  2  78  128  144 
Service charges on deposits 133  240  182  118  104 
Bank-owned life insurance 555  26  27  33  25 
Change in fair value of marketable equity securities 1,998  -  -  -  5,994 
Other noninterest income 566  549  222  290  515 
Total noninterest income 6,595  5,860  5,362  6,775  10,286 
Noninterest expense     
Compensation 5,581  6,168  6,880  6,271  7,061 
Occupancy and equipment 344  303  402  254  344 
Loan and special asset expenses 293  57  969  491  638 
Professional services 448  676  207  491  551 
Data processing 265  272  263  271  249 
Software 469  467  460  426  425 
Communications 78  83  86  97  83 
Advertising 248  211  252  321  214 
Amortization of intangibles 166  169  170  170  170 
Merger related expenses 116  192  561  -  - 
Other operating expenses 489  1,236  10,683  846  631 
Total noninterest expense 8,497  9,834  20,933  9,638  10,366 
Income (loss) before income taxes 3,188  2,091  (10,219) 1,823  4,963 
Income tax expense (benefit) 778  (454) (2,646) 492  1,403 
Net income (loss) 2,410  2,545  (7,573) 1,331  3,560 
Noncontrolling interest 58  182  (40) (78) (2)
Net income (loss) attributable to IFH, Inc.$ 2,352 $ 2,363 $ (7,533)$ 1,409 $ 3,562 
      
Basic earnings (loss) per common share$1.06 $1.08 $(3.45)$0.65 $1.65 
Diluted earnings (loss) per common share$1.04 $1.04 $(3.45)$0.63 $1.59 
Weighted average common shares outstanding 2,211  2,194  2,185  2,175  2,159 
Diluted average common shares outstanding 2,265  2,267  2,185  2,244  2,242 
      


Performance Ratios     
      
 Three Months Ended
 3/31/2312/31/229/30/226/30/223/31/22
PER COMMON SHARE     
Basic earnings (loss) per common share$1.06 $1.08 $(3.45)$0.65 $1.65 
Diluted earnings (loss) per common share 1.04  1.04  (3.45) 0.63  1.59 
Book value per common share 40.28  38.69  37.29  41.15  40.86 
Tangible book value per common share (2) 31.99  30.36  28.88  32.62  32.21 
      
FINANCIAL RATIOS (ANNUALIZED)     
Return on average assets 2.07% 2.15% -6.97% 1.29% 3.30%
Return on average common shareholders' equity 10.77% 11.05% -33.95% 6.23% 15.97%
Return on average tangible common equity (2) 13.67% 14.23% -43.36% 7.91% 20.36%
Net interest margin 5.85% 6.35% 6.22% 5.51% 5.69%
Efficiency ratio (1) 69.4% 83.5% 189.7% 80.8% 66.8%
      
(1) Efficiency ratio is calculated by dividing noninterest expense less transaction-related costs by the sum of net interest income and noninterest income, less gains or losses on sale of securities.
     
(2) See reconciliation of non-GAAP measures
     

Loan Concentrations

The top ten commercial loan concentrations as of March 31, 2023, were as follows:

  % of
  Commercial
(Dollars in millions)AmountLoans
Solar electric power generation$72.5 32%
Power and communication line and related structures construction 57.3 26%
Lessors of nonresidential buildings (except miniwarehouses) 15.4 7%
Other activities related to real estate 10.7 5%
Lessors of other real estate property 8.2 4%
Hotels (except casino hotels) and motels 7.1 3%
Lessors of residential buildings and dwellings 6.4 3%
Other heavy and civil engineering construction 4.2 2%
Marinas 3.8 2%
Colleges, Universities, and Professional Schools 3.5 2%
 $189.1 86%
   

Reconciliation of Non-GAAP Measures

 3/31/2312/31/229/30/226/30/223/31/22
   (Dollars in thousands except book value per share)
Tangible book value per common share     
Total IFH, Inc. shareholders' equity$90,762 $87,487 $84,317 $92,543 $91,324 
Less: Goodwill 13,161  13,161  13,161  13,161  13,161 
Less Other intangible assets, net 5,517  5,682  5,848  6,014  6,180 
Total tangible common equity$72,084 $68,644 $65,308 $73,368 $71,983 
      
Ending common shares outstanding 2,253  2,261  2,261  2,249  2,235 
Tangible book value per common share$31.99 $30.36 $28.88 $32.62 $32.21 
      
 Three Months Ended
(Dollars in thousands)3/31/2312/31/229/30/226/30/223/31/22
Return on average tangible common equity     
Average IFH, Inc. shareholders' equity$88,574 $84,831 $88,043 $90,721 $90,441 
Less: Average goodwill 13,161  13,161  13,161  13,161  13,161 
Less Average other intangible assets, net 5,625  5,791  5,958  6,123  6,341 
Average tangible common equity$69,788 $65,879 $68,924 $71,437 $70,939 
      
Net income (loss) attributable to IFH, Inc.$2,352 $2,363 $(7,533)$1,409 $3,562 
Return on average tangible common equity 13.67% 14.23% -43.36% 7.91% 20.36%
                

Contact: Steve Crouse, 919-861-8018


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