Integrated Financial Holdings, Inc. First Quarter 2022 Financial Results

RALEIGH, N.C., May 04, 2022 (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 months ended March 31, 2022. The first quarter of 2022 was the first quarter in two years where income was only minimally impacted by revenues associated with the Paycheck Protection Program (“PPP”). Highlights from the 2022 first quarter include the following:

• First quarter net income of $3.6 million or $1.59 per diluted share, compared to first quarter 2021 net income of $3.9 million or $1.76 per diluted share.
• Provision for loan losses of $180,000 for the first quarter of 2022, compared to $622,000 for the same period in 2021.
• Return on average assets of 3.30%, compared to 3.99% for the first quarter of 2021.
• Return on average common equity of 15.97%, compared to 20.30% for the first quarter of 2021.
• Return on average tangible common equity (a non-GAAP financial measure) of 20.36%, compared to 27.28% for the first quarter of 2021.
• Loan processing and servicing revenue of $2.7 million, compared to $8.8 million for the first quarter of 2021.
• Government lending revenues of $1.1 million, compared to $1.3 million for the first quarter of 2021.
• Mortgage origination and sales revenue of $173,000, compared to $1.7 million for the first quarter of 2021.
• Other noninterest income $6.5 million, compared to income of $2.2 million for the first quarter of 2021.
  

Eric Bergevin, President & CEO of IFH, stated, “The Company had a solid first quarter while adjusting for rising rates. With PPP in the rearview mirror, our focus continues to be on growing our loan pipeline and diversifying our loan verticals. We sold the majority of our variable rate SBA 7(a) loans during the quarter, but there were significant disruptions in the secondary market for interim fixed rate loans with 5-year repricing options due to rising rates. Accordingly, we continued to hold these USDA loans and will make them available for sale when stabilization of these premiums is recognized. The mortgage market has seen a significant increase in mortgage rates, but demand for purchase loans remains strong. We do have concerns regarding the outlook of the mortgage market in general as secondary market premiums continue to be compressed by investors and competitors across the board. We have solid purchase volume and are keeping a watchful eye out for relief on margins. Asset quality remains good, and we are seeing many items resolve themselves now that the courts are back in session and hearings are moving along. We had a short-term increase in our past due ratios in the first quarter, but those have mostly resolved themselves and we are seeing the ratios normalize quickly. Windsor continues to grow its servicing book and enhance Bank lending participations, growing its overall value. We anticipate that it will continue to be an earnings driver for the company well into and past 2022. Overall, we are off to a good start in 2022 and anticipate continued strong loan demand. We are poised to start selling fixed term loans in the near future once markets stabilize to further facilitate our earnings stream.”

BALANCE SHEET
On March 31, 2022, the Company’s total assets were $430.6 million, net loans held for investment were $262.3 million, loans held for sale (“HFS”) were $51.1 million, total deposits were $326.5 million and total shareholders’ equity attributable to IFH was $91.3 million. Compared with December 31, 2021, total assets decreased $22.3 million or 5%, net loans held for investment increased $2.7 million or 1%, HFS loans increased $23.2 million or 83%, total deposits decreased $21.7 million or 6%, and total shareholders’ equity attributable to IFH increased $2.8 million or 3%. The asset side of the balance sheet saw a favorable shift in mix as a large portion of the excess cash held at the Federal Reserve was redeployed into loans. The Bank has continued to see strong growth in originated for sale loans primarily as a result of a strong loan pipeline for the Government Guaranteed Lending (“GGL”) type loans. At $51.1 million in volume, HFS loans at March 31, 2022 represent significant potential future GGL revenues as those loans are sold in the market and the associated premiums are recognized. Noninterest bearing deposits declined $21.8 million during the quarter, in part, as a result of some ongoing merger and acquisition activity in one of the targeted industries that the Company banks; however, management believes the continued execution of strategic advances into the hemp banking space (trademarked “Hemp Banks Here”) will continue to drive strong deposit growth. The increase in total shareholders’ equity was primarily a result of net income posted for the first quarter of the year.

CAPITAL LEVELS
At March 31, 2022, 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 $36.08 as of March 31, 2021, to $40.86 at March 31, 2022. The Company’s tangible book value per common share (a non-GAAP financial measure) increased from $27.16 as of March 31, 2021, to $32.21 at March 31, 2022, primarily as a result of the net income of the Company.

ASSET QUALITY
The Company’s nonperforming assets to total assets ratio decreased from 1.65% at December 31, 2021, to 1.52% at March 31, 2022, as management continued to aggressively work to reduce its special assets portfolio. Nonaccrual loans at March 31, 2022 decreased $290,000 or 4% as compared to December 31, 2021. The last foreclosed property held by Patriarch, LLC, a subsidiary of the Company formed to expedite the liquidation and recovery of certain Bank assets, was fully liquidated during the first quarter of 2022. Neither Patriarch, LLC, nor the Bank held any foreclosed assets at March 31, 2022.  

The Company recorded a $180,000 provision for loan losses during the first quarter of 2022, as compared to a provision of $622,000 in first quarter 2021, as the problem loan portfolio decreased for the period.   The Bank has granted 143 deferrals since the onset of the COVID-19 pandemic totaling $72 million in exposure to the Bank.  However, as of March 31, 2022, there were only eight loans in a deferred status with net exposure to the Bank of $2.4 million. The Company recorded $105,000 in net charge-offs during the first quarter of 2022 as management continued to make progress in improving overall asset quality. 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, 2022, increased $869,000 or 23% in comparison to the first quarter of 2021 as loan yields increased year over year from 6.24% to 7.74%. Loan yield was positively impacted by the one-time impact of $766,000 in recapture of nonaccrual loan interest on several large problems loans settled during the quarter. Excluding that interest income recapture, loan yield would have been 6.69% with the increase in yield from the prior year resulting from a change in loan mix and slightly reflecting the impact of the 0.25% rate increase by the Federal Open Market Committee (“FOMC”) in the first quarter of 2022 in response to current economic conditions. Overall cost of funds decreased from 0.91% in the first quarter of 2021 to 0.63% for the same period in 2022. The Company continues to see a downward trend in its average retail CD rates as new CDs are originated at a lower market rate. Net interest margin increased from 4.55% during the three months ended March 31, 2021 to 5.69% for the same period in 2022. The increase in margin in the portfolio was also impacted by the previously mentioned nonaccrual interest income recapture. Excluding that impact, net interest margin would have been 4.86% with the adjusted increase primarily attributable to a continued quarter-over-quarter decrease in cost of funds.   Cost of funds has decreased for nine consecutive quarters at the Company.

NONINTEREST INCOME
Noninterest income for the three months ended March 31, 2022, was $10.8 million, a decrease of $2.3 million or 18% as compared to the three months ended March 31, 2021. 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 $2.2 million, a decrease of $6.6 million or 75% as compared to the $8.8 million in income earned during the same prior year period. The decrease is attributable to $6.8 million in PPP fee related income realized in Q1 of 2021 compared to no such income in the same period in 2022.
• Mortgage revenue totaled $173,000, a decrease of $1.5 million or 84% as compared to the first quarter of 2021.   Of that decrease, $776,000 is attributable to the change in valuation on the portfolio of mortgage rate lock commitments. That valuation adjustment takes into account the prior quarters average gain percentage on the portfolio and the size of the already closed held for sale mortgage portfolio and the rate locks on committed mortgage loans at quarter end. With rising rates and a general slowdown in mortgage business, the valuation adjustment shifted from a positive impact of $167,000 in the first quarter of 2021 to a negative impact of $609,000 in the first quarter of 2022. Excluding that valuation adjustment, the realized premiums and other core business income of the mortgage department also declined $756,000 from $1.5 million in the first quarter of 2021 to $782,000 for the same period in 2022. Mortgage loans originated to sell to the secondary market decreased from $39.4 million in the first quarter 2021 to $22.4 million in the first quarter 2022.   The decrease in both the core mortgage revenue and origination volume can be attributable to the nationwide slowdown in refinancing volume with housing supplies continuing to be an issue along with the impact of a nationwide increase of almost 20% for the median price of a new home and an almost doubling of long-term mortgage rates year-over-year.  
• Government Guaranteed Lending revenue was $1.1 million in the first quarter of 2022, a decrease of $201,000 or 15% in comparison to the $1.3 million of revenues for the same period in 2021. However, the loans held for sale portfolio, representing future premium income, increased significantly quarter over quarter and year-over-year. GGL related HFS loans were $47.7 million as of March 31, 2022 compared to $25.4 million at December 31, 2021 and $7.9 million at March 31, 2021.
• Other noninterest income was $6.5 million in the first quarter of 2022 compared to income of $2.2 million in the same period in 2021. The increase is almost entirely attributable to a $6.0 million mark-to-market income adjustment on its investment in Dogwood State Bank due to a successful capital raise for Dogwood, which established a new market value. The prior year’s first quarter had a similar mark-to-market of $2.0 million. Excluding the Dogwood investment adjustment, other noninterest income would have been $509,000, up $303,000 or 160% in comparison to the same period in 2021.

NONINTEREST EXPENSE
Noninterest expense for the first quarter of 2022 was $10.4 million, a decrease of $2.3 million or 18%, from $12.7 million for the first quarter of 2021. Contributing to the year-over-year decrease was software expenses, which decreased due to Windsor fully expensing the PPP platform in 2021. Software expenses were $425,000, a decrease of $3.0 million or 87% in the first quarter of 2022 compared to the same period in 2021 as a result of no additional costs related to the processing of PPP loans in the first quarter of 2022. Compensation increased $1.1 million from $6.0 million to $7.1 million due to additional costs for new hires in 2021 and first quarter of 2022. The decreases in most of the noninterest expense categories, including special assets, data processing, software, communications, and other operating expenses are primarily related to management’s overall effort to grow profitability.

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; and SBA Loan Documentation Services, LLC, a loan documentation origination 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. The Bank also has an investment in West Town Payments, LLC. Due to the nature of the investment, West Town Payments, LLC is considered a variable interest entity, and as a result, is consolidated for accounting purposes.

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; 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, 2022, were as follows:

Reconciliation of Non-GAAP Measures

Contact: Eric Bergevin, 252-482-4400