PRESIDENT’S ANNUAL MEETING REPORT TO THE SHAREHOLDERS OF INTEGRITY BANK FOR BUSINESSNovember 7, 2024 For our Bank, there are two important meetings taking place today. Obviously, the first one is our Annual Shareholders Meeting. The second one is the November Federal Open Market Committee Meeting. This afternoon we should learn more about the trajectory for presumed decreases in the Fed Funds rate. Before then, discussion of this is purely speculative, and I will not address it further this morning. Turning to our Bank, many of my discussions with our shareholders center on the future prospects and growth of our Bank. Before I talk about the future, I want to talk about the present. When we opened our Bank in May, 2021, we had told our investors that we would pursue three core operating objectives. These were the development of operational excellence for our deposit clients, the maintenance of low operating expenses, and the ongoing maintenance of excellent credit quality in our loan portfolio. So far, we have kept our word. But building this base for our Bank is just the first step, albeit an essential step, for a successful business bank. We must grow this Bank for our shareholders to have the benefit of this outstanding operational Bank. First, I want to address lending. At September 30, 2024, the outstanding balance of our loan portfolio was approximately $42,550,000, a 17% increase above the outstanding balance of our loan portfolio at December 31, 2023. In addition, as of October 31st of this year, the outstanding balance of our loan portfolio further increased to approximately $44,740,000, a 23% increase above the outstanding balance of our loan portfolio at December 31, 2023. Of course, on a quarter-to-quarter basis, closings or payoffs of large loans will skew quarterly comparisons for our Bank. However, the overall net trend of loan growth has been clear in 2024. Admittedly, these are not large outstanding balances. However, this shows that our loan portfolio has grown by double-digit percentages so far this year. These growth percentages would be the envy of many banks. When we opened our Bank in 2021, deposit rates were low and most banks were very liquid from the abundant deposits then available to banks. That changed very dramatically in 2022. In March, 2022, the Federal Open Market Committee began to rapidly increase the Fed Funds rates to combat inflation, culminating in a Fed Funds rate of 5.50% in July, 2023. This was a 525 basis points increase in 16 months. The Fed Funds rates govern short-term interest rates. Increases in the prevailing national deposit rates tracked the increases in the Fed Funds rates over that period of time. In March, 2023, the other shoe fell. Two large banks, Silicon Valley Bank and Signature Bank, failed because of their unwillingness to maintain adequate liquidity for their deposit operations. Bank shareholders and bank regulators immediately put pressure on banks, both large and small, with liquidity issues to raise more deposits quickly. That too pushed deposit rates higher. You saw that in our local market as many local banks scrambled to raise deposits quickly by offering high-rate deposits to shore up their liquidity. Unlike many banks, our Bank never had liquidity issues and had more than sufficient liquidity throughout that period of time to fund loans and investments. The Bank had no reason to increase its expenses by offering high-rate deposit accounts on which the Bank would only make a negligible marginal profit or even incur a loss. Deposit growth with high-rate deposit accounts merely for the sake of appearances was simply not good business for any bank not facing liquidity pressures. With that being said, the Bank continued to pursue new business clients to open their operating and reserve accounts with the Bank. These are core deposits and the essence of what we do. In this, the Bank had some success. The Bank had $25.6 million of noninterest-bearing deposits on December 31, 2023 and $27.8 million of noninterest-bearing deposits on September 30, 2024, an increase of 8.6%. Very few banks increased their noninterest-bearing deposits over that period of time. Our most pressing immediate issues relate to the recruiting of several new senior executives. Candidly, this has taken longer than we anticipated to find just the right executives for our business plan. Anne Vanderberry agreed to extend her service as our Chief Financial Officer through December 31, 2024 to assist us in our search for her successor. We do have an important announcement to make on this. Doug Glenn has agreed to join Integrity in early February, 2025, to serve as Chief Operating Officer and Chief Financial Officer. Doug previously served as the President and CEO of the Bank of Hampton Roads, a large community bank operating in Virginia and North Carolina. He successfully led the recapitalization and workout of that very troubled bank. After that, he practiced law and served as a consultant to various companies, several of which were financial services companies. He also served on the Board of Directors of First Carolina Bank, a large community bank headquartered in Raleigh, North Carolina with a branch office in Virginia Beach. Among his duties at Integrity, Doug will serve as the Chief Financial Officer focusing on our cash flow, investments, and budgeting. In addition, as Chief Operating Officer, he will supervise various daily administrative and operational matters. Most importantly, Doug will be our senior marketing executive and be one of the leaders of the new outreach program that we plan to implement in January. This outreach program has the dual purpose of increasing the awareness of Integrity in our local business community and of uncovering new banking opportunities for the Bank. Bringing all of this together, we are encouraged by the trends developing in 2024 for growth in our noninterest-bearing deposits and in our loans. We hope that these trends continue unabated through the end of our fiscal year in June, 2025, to be accomplished through increased calling efforts overall and targeting select client opportunities for new business. Right now, the trend is our friend. At our Bank, I frequently quote Scarlett O’Hara from Gone with the Wind saying “After all, tomorrow is another day.” Since our opening, we have faced many challenges. Now, we know precisely what we should do and we are going to try our best to do it well. Michael S. Ives
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS The above letter from the CEO of Integrity Bank for Business (the “Bank”) may contain “forward looking statements” regarding future events and future results of the Bank. Forward-looking statements can be identified by words such as “anticipates,” “estimates,” “intends,” “plans,” “believes,” “projects,” “will,” “expects,” “may,” and similar references to future periods. Forward-looking statements are neither historical facts nor assurances of future performance, but are based only on the Bank’s current beliefs, expectations, and assumptions regarding the future of its business, plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict and outside of the Bank’s control. The Bank’s actual results and financial condition may differ materially from those indicated in forward-looking statements, and therefore you should not rely on forward-looking statements. Any forward-looking statement made by the Bank is based only on information available to the Bank as of the date on which it is made, and the Bank has no obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise. |