Integrated Financial Holdings, Inc. Fourth Quarter 2020 Financial Results

Rhea-AI Summary

Integrated Financial Holdings, Inc. (OTC PINK: IFHI) reported fourth quarter net income of $1.7 million, or $0.78 per diluted share, unchanged from Q4 2019. Loan losses provision dropped to $210,000 from $1.2 million year-over-year. Key metrics include a 1.73% return on average assets and a 26% increase in total assets to $396.5 million. The Bank funded $22.8 million in PPP loans, with strong deposit growth of 36%. Noninterest income rose 38% year-over-year, driven by processing and servicing revenues, while noninterest expenses increased by 50%.

Positive

• Fourth quarter net income of $1.7 million, or $0.78 per diluted share.
• Provision for loan losses decreased to $210,000 from $1.2 million in Q4 2019.
• Total assets increased by $82.3 million, or 26%, to $396.5 million.
• Strong deposit growth of 36% year-over-year.
• Noninterest income rose 38% due to increased processing and servicing revenues.

Negative

• Return on average assets decreased to 1.73% from 2.21% in Q4 2019.
• Net interest income decreased by $2.4 million, or 14%, for the year.

RALEIGH, N.C., Feb. 10, 2021 (GLOBE NEWSWIRE) -- Integrated Financial Holdings, 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 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			35			36			76			83				185			867
Total interest income		4,340			4,493			4,391			4,730			4,304				17,954			22,004
Deposits		759			855			835			845			979				3,294			4,457
Borrowings		2			1			70			109			56				182			630
Total interest expense		761			856			905			954			1,035				3,476			5,087
Net interest income	$	3,579		$	3,637		$	3,486		$	3,776		$	3,269			$	14,478		$	16,917
(1) See reconciliation of non-GAAP financial measures.

	Three Months Ended											Year-To-Date
	12/31/20		9/30/20		6/30/20		3/31/20		12/31/19			12/31/20		12/31/19
Average yields and costs:
Loans	5.77	%	6.44	%	6.87	%	8.07	%	7.14	%		6.71	%	7.02	%
Available-for-sale securities	0.81	%	1.00	%	1.16	%	1.59	%	1.52	%		1.13	%	1.62	%
Interest-bearing balances and other	0.48	%	0.61	%	0.65	%	1.79	%	2.03	%		0.79	%	2.58	%
Total interest-earning assets	4.93	%	5.59	%	5.93	%	7.09	%	6.38	%		5.81	%	6.27	%
Interest-bearing deposits	1.37	%	1.66	%	1.81	%	2.03	%	2.17	%		1.69	%	1.93	%
Borrowed funds	0.20	%	0.06	%	1.20	%	2.65	%	3.60	%		1.43	%	3.74	%
Total interest-bearing liabilities	1.35	%	1.61	%	1.74	%	2.09	%	2.22	%		1.68	%	2.05	%
Cost of funds	0.99	%	1.18	%	1.33	%	1.60	%	1.73	%		1.25	%	1.59	%
Net interest margin	4.07	%	4.52	%	4.70	%	5.66	%	4.84	%		4.68	%	4.82	%

NONINTEREST INCOME
Noninterest income for the three months ended December 31, 2020 was $6.1 million, an increase of $683,000 or 13% as compared to the three months ended December 31, 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 $2.3 million for both the three months ended December 31, 2020, and the three months ended December 31, 2019.
• Mortgage revenue totaled $1.4 million, an increase of $682,000 or 95% as compared to the fourth quarter 2019.  Mortgage loans originated to sell to the secondary market increased from $20.62 million in the fourth quarter 2019 to $41.17 million in the fourth quarter 2020. The increase in both the revenue and origination volume can be attributable to the decrease in market rates tied to the FOMC decision to decrease rates.
• GGL revenue was $1.8 million in the fourth quarter of 2020, a decrease of $473,000 or 21% in comparison to the same period in 2019.  A slowing economy in 2020 driven by the pandemic was partially offset by the Company’s decision in the fourth quarter to unwind some of the “Originate and Hold” loans as the Company moved to deleverage its balance sheet and take advantage of high premiums on loan sales.
  

Noninterest income for the twelve months ended December 31, 2020 was $33.5 million, an increase of $9.2 million or 38% as compared to the $24.3 million in the same prior year period. The most notable increase was due to processing and servicing revenues, which increased by $13.3 million period over period from $7.5 million in the twelve months ended December 31, 2019 to $20.8 million for the twelve months ended December 31, 2020. That growth was primarily driven by the Paycheck Protection Program (“PPP”) as Windsor processed more than 17,500 loan applications totaling more than $2.5 billion in loans for over 40 of its institutional lender clients during the second quarter.

NONINTEREST EXPENSE
Noninterest expense for the fourth quarter of 2020 was $8.6 million, an increase of $2.9 million or 50%, from $5.8 million for the fourth quarter of 2019. The primary cause for the change was an increase in compensation expense year-over-year of $1.5 million from $3.8 million in the fourth quarter of 2019 to $5.3 million for the same period in 2020. This increase was partially reflective of the overall growth of the Company and its new business initiatives including the addition of WTP in the third quarter of 2020 as well as a year-over-year increase in mortgage related compensation tied to the increase in revenues. For the twelve-month period ended December 31, 2020, noninterest expense increased from $24.8 million in the first twelve months of 2019 to $33.3 million for the same period in 2020. The increase was primarily the result of the overall growth of the Company, additional compensation due to mortgage revenue growth and PPP originations in the second quarter of 2020, and software and other related processing costs which increased $2.1 million year-over-year as result of the PPP.

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; 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.

Consolidated Balance Sheet
	Ending Balance
(Dollars in thousands, unaudited)	12/31/20			9/30/20			6/30/20			3/31/20			12/31/19
Assets
Cash and due from banks	$	4,268		$	6,007		$	6,183		$	5,928		$	5,021
Interest-bearing deposits		28,657			13,294			11,644			8,518			9,849
Total cash and cash equivalents		32,925			19,301			17,827			14,446			14,870
Interest-bearing time deposits		2,746			2,746			2,746			2,746			2,746
Available-for-sale securities		25,711			24,462			26,081			24,946			21,087
Loans held for sale		26,308			35,743			23,072			11,839			12,568
Loans held for investment		265,784			244,994			238,926			216,423			223,470
Allowance for loan and lease losses		(5,144	)		(5,029	)		(4,906	)		(4,907	)		(3,837	)
Loans held for investment, net		260,640			239,965			234,020			211,516			219,633
Premises and equipment, net		4,658			4,628			4,761			4,740			4,761
Foreclosed assets		2,372			3,522			4,464			5,243			3,370
Loan servicing assets		3,456			3,265			3,262			3,528			3,358
Bank-owned life insurance		5,136			5,109			5,082			5,048			5,021
Accrued interest receivable		1,556			1,705			1,422			1,067			1,116
Goodwill		13,161			13,161			13,161			13,161			13,150
Other intangible assets, net		7,037			7,224			7,409			7,596			7,782
Other assets		10,833			13,186			12,349			6,370			4,729
Total assets	$	396,539		$	374,017		$	355,656		$	312,246		$	314,191
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Noninterest-bearing	$	80,854		$	78,849		$	66,874		$	59,360		$	49,573
Interest-bearing		220,036			206,913			198,108			162,059			170,869
Total deposits		300,890			285,762			264,982			221,419			220,442
Borrowings		4,000			4,000			6,000			17,649			19,295
Accrued interest payable		427			396			391			433			429
Other liabilities		14,469			8,845			10,771			5,735			6,300
Total liabilities		319,786			299,003			282,144			245,236			246,466
Shareholders’ equity:
Common stock, voting		2,181			2,181			2,193			2,193			2,166
Common stock, non-voting		22			22			22			22			22
Additional paid in capital		24,361			24,220			24,357			24,162			24,245
Retained earnings		50,079			48,349			46,629			40,371			41,203
Accumulated other comprehensive income		271			308			311			262			89
Total IFH, Inc. shareholders’ equity		76,914			75,080			73,512			67,010			67,725
Net loss attributable to noncontrolling
interest		(161	)		(66	)		-			-			-
Total shareholders’ equity		76,753			75,014			73,512			67,010			67,725
Total liabilities and shareholders’ equity	$	396,539		$	374,017		$	355,656		$	312,246		$	314,191

Financial Performance (Consolidated)

(Dollars in thousands except per

Three Months Ended

Year-To-Date

share data; unaudited)

12/31/20

9/30/20

FAQ

What were Integrated Financial Holdings' Q4 2020 earnings results?

IFHI reported fourth quarter net income of $1.7 million, or $0.78 per diluted share, identical to Q4 2019.

How did IFHI perform in terms of loan losses in Q4 2020?

The provision for loan losses for Q4 2020 stood at $210,000, a significant reduction from $1.2 million in the same quarter of the previous year.

What is the total asset growth for IFHI in 2020?

Total assets grew by $82.3 million, or 26%, reaching $396.5 million by December 31, 2020.

How much did IFHI's noninterest income increase in Q4 2020?

Noninterest income increased by 13% in Q4 2020 compared to the same period last year.

What was IFHI's return on average assets for Q4 2020?

The return on average assets for Q4 2020 was 1.73%, down from 2.21% in Q4 2019.