Integrated Financial Holdings Fourth Quarter 2020 Financial Results

2/10/21

RALEIGH, N.C., Feb. 10, 2021 (GLOBE NEWSWIRE) -- Integrated Financial Holdings, Inc. (OTC PINK: IFHI), the financial holding company for West Town Bank & Trust, released its financial results for the three and twelve months ended December 31, 2020. Highlights include the following:

  • Fourth quarter net income of $1.7 million or $0.78 per diluted share, similar to net income of $1.7 million or $0.78 per diluted share for the fourth quarter of 2019.  Income quarter over quarter for 2020 was positively impacted by increased mortgage loan activity and realization of a tax credit.
  • Provision for loan losses of $210,000 for the fourth quarter of 2020 compared to $1.2 million for the same period in 2019.
  • Return on average assets of 1.73%, compared to 2.21% for the fourth quarter of 2019.
  • Return on average common equity of 8.95%, compared to 10.24% for the fourth quarter of 2019.
  • Return on average tangible common equity (a non-GAAP financial measure) of 12.14%, compared to 14.79% for the third quarter of 2019.
  • Loan processing and servicing revenue of $2.3 million, unchanged for the same period in 2019.
  • Mortgage origination and sales revenue of $1.4 million as compared to $716,000 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 the operating impact from Sound Bank, whereas the financial results through May 6, 2019 are impacted by the performance of Sound Bank.

Eric Bergevin, President & CEO, commented, “We are pleased to have finished 2020 with strong fourth quarter earnings, overall growth and improved asset quality. Recent updates to legislation through the Consolidated Appropriations Act are expected to yield continued improvements in earnings and asset quality. First, the SBA announced new guidelines specific to the SBA 7(a) Loan Program (“the Program”), including a temporary increase to the guaranteed amount on all transactions and an increased allocation of overall funds available through the Program. In addition, with “Second Round” PPP loans underway, our teams at the Bank, Windsor Advantage and SBA Loan Documentation Services expect to be very active, just as with the first round. During 2020, we recognized strong deposit growth as the Bank’s Hemp and Commercial Account Services teams continue to be laser focused on providing a best-in-class experience for these businesses and lowering our cost of funds while enhancing margin. The low interest rate environment has led to continued mortgage loan growth in the fourth quarter as we continued to scale the department back up to efficiently process increased originations. We believe that the year-to-date performance metrics we reached in 2020; 26% growth in the balance sheet, dilutive earnings-per-share in excess of $4.00, double digit Return on Equity of 12.18% and a Return on Assets of almost 2.50%, all represent significant milestones given the economic crisis as a result of the pandemic that occurred during the year. The entire Company is hopeful for 2021 as we are beginning to see the reopening of businesses that have been significantly affected during the COVID-19 crisis. This will ultimately lead to continued growth, better asset quality and enhance long-term earnings.”

BALANCE SHEET At December 31, 2020, the Company’s total assets were $396.5 million, net loans held for investment were $260.6 million, loans held for sale were $26.3 million, total deposits were $300.9 million and total shareholders’ equity attributable to IFH was $76.9 million. Compared with December 31, 2019, total assets increased $82.3 million or 26%, net loans held for investment increased $41.0 million or 19%, loans held for sale increased $13.7 million or 109%, total deposits increased $80.4 million or 36%, and total shareholders’ equity attributable to IFH increased $9.2 million or 14%. The increases in assets and loans reflect the Bank’s continued growth in its Government Guaranteed Loans (“GGL”) program as well as participation in the PPP. The Bank funded $22.8 million of PPP loans for its existing customers during 2020 with $11.0 million of those fundings still on the balance sheet at year end. In addition, excluding $60.0 million originated specifically for the Main Street Lending Program, the Bank originated $148.7 million in Government Guaranteed Loans (“GGL”) during the year. The Bank sold $30.4 million in GGL loans in 2020 after ending its “Originate and Hold” strategy which began in mid-first quarter of 2020 as a method of increasing leverage and short-term net interest income. 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 third quarter, the Bank formed a new company, West Town Payments, LLC (“WTP”), and entered into an agreement whereby the Bank owns a minority interest in 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 year of operation of WTP are included in the consolidated balances for IFH and the noncontrolling interest portion shown separately.

CAPITAL LEVELS At December 31, 2020, the regulatory capital ratios of West Town Bank & Trust exceeded the minimum thresholds established for well-capitalized banks under applicable banking regulations.
“Well Capitalized” Minimum Basel III Fully Phased-In West Town Bank & Trust
Tier 1 common equity ratio 6.50% 7.00% 12.04%
Tier 1 risk-based capital ratio 8.00% 8.50% 12.04%
Total risk-based capital ratio 10.00% 10.50% 13.30%
Tier 1 leverage ratio 5.00% 4.00% 10.06%

The Company’s book value per common share increased from $30.78 at December 31, 2019 to $34.91 at December 31, 2020. The Company’s tangible book value per common share (a non-GAAP financial measure) increased from $21.27 at December 31, 2019 to $25.74 at December 31, 2020, primarily as a result of 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 2.74% at December 31, 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 $694,000 or 8% as of December 31, 2020 as compared to December 31,2019 while foreclosed assets decreased $998,000 or 30% during the same period. Patriarch, LLC, a subsidiary of the Company, formed to expedite the liquidation and recovery of certain Bank assets, held $2.3 million 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 $210,000 provision for loan losses during the fourth quarter of 2020, as compared to a provision of $1.2 million in fourth quarter 2019, as the problem loan portfolio decreased for the period.  The Company had 32 COVID-related deferred loans as of December 31, 2020, with net exposure of $15.6 million. Since June 30, 2020, COVID-related deferrals have decreased by 100 loans, with a net exposure decrease of $41.4 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 fourth quarter 2020.
(Dollars in thousands) 12/31/20 9/30/20 6/30/20 3/31/20 12/31/19
Nonaccrual loans $ 8,506 $ 8,790 $ 7,799 $ 7,732 $ 9,200
Foreclosed assets 2,372 3,522 4,464 5,243 3,370
90 days past due and still accruing - - - - -
Total nonperforming assets $ 10,878 $ 12,312 $ 12,263 $ 12,975 $ 12,570
Net charge-offs $ 96 $ 2 $ 667 $ 2,390 $ 779
Annualized net charge-offs to total average portfolio loans 0.14 % 0.00 % 1.13 % 4.39 % 1.36 %
Ratio of total nonperforming assets to total assets 2.74 % 3.29 % 3.45 % 4.16 % 3.99 %
Ratio of total nonperforming loans to total loans, net
of allowance 3.26 % 3.66 % 3.33 % 3.66 % 4.19 %
Ratio of total allowance for loan losses to total loans 1.94 % 2.05 % 2.05 % 2.27 % 1.72 %

NET INTEREST INCOME AND MARGIN Net interest income for the three months ended December 31, 2020 increased $310,000 or 9% in comparison to the fourth quarter of 2019, as loan growth year over year offset the decrease in the low interest rate environment. The net interest margin was 4.07% for the fourth quarter of 2020 compared to 4.84% for the same period in 2019. Interest-earning asset yields decreased from 6.38% to 4.93% and interest-bearing liabilities cost decreased from 2.22% to 1.35% year-over-year between December 31, 2019 and December 31, 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 response to the pandemic.

Net interest income for the twelve months ended December 31, 2020 decreased $2.4 million or 14% 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 and the decrease in margin as a result of the rate changes by the FOMC.
Three Months Ended Year-To-Date
(Dollars in thousands) 12/31/20 9/30/20 6/30/20 3/31/20 12/31/19 12/31/20 12/31/19
Average balances:
Loans $ 292,092 $ 270,897 $ 250,125 $ 226,683 $ 229,965 $ 259,949 $ 295,228
Available-for-sale securities 25,711 25,581 24,743 23,861 21,572 24,974 21,192
Other interest-bearing balances 31,403 22,596 22,326 17,046 16,238 23,343 33,537
Total interest-earning assets 349,206 319,074 297,194 267,590 267,775 308,266 349,957
Total assets 396,539 371,395 353,179 313,476 311,293 358,647 400,199
Noninterest-bearing deposits 80,854 77,857 64,617 56,329 52,464 69,914 71,802
Interest-bearing liabilities:
Interest-bearing deposits 220,035 204,204 185,507 166,567 179,162 194,079 230,107
Borrowed funds 4,000 6,793 23,459 16,475 6,167 12,682 16,803
Total interest-bearing liabilities 224,035 210,997 208,966 183,042 185,329 206,761 246,910
Common shareholders' equity 76,723 73,970 71,035 68,445 67,078 72,653 74,064
Tangible common equity (1) 56,525 53,463 50,343 47,570 46,448 52,085 49,144
Interest income/expense:
Loans $ 4,250 $ 4,394 $ 4,283 $ 4,559 $ 4,139 $ 17,486 $ 20,794
Investment securities 52 64 72 95 82 283 343
Interest-bearing balances and other 38

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