PRESIDENT’S MESSAGE TO THE SHAREHOLDERS OF INTEGRITY BANK FOR BUSINESSFebruary 6, 2025 When addressing shareholders, I find that common themes naturally emerge. They often involve assessments of the current state of the Bank and where we expect the Bank to be at the end of the year. How we will get there, however, has become a more compelling question since my last Message to the Shareholders. The financial environment is markedly different than it was just four months ago, and not merely because the country elected a new President of the United States with vastly different plans and policies from those of the former President. The Fed Funds rates are down 100 basis points, and the Treasury Yield Curve is no longer inverted, thereby creating new investment opportunities for the Bank. I will start with where we are today and give you a short summary of the Bank’s results for the calendar quarter ending December 31, 2024. The balance of our outstanding loans grew approximately 25% over the balance at December 31, 2023. Likewise, the average balance of our noninterest-bearing deposits in the fourth calendar quarter of 2024 grew approximately 15% over the average balance of our noninterest-bearing deposits in the fourth calendar quarter of 2023. We are very pleased with this level of growth in our noninterest-bearing deposits, which are the true core deposits of a business bank. Very few banks had material increases in their noninterest-bearing deposits last year other than through bank mergers. As you know, I describe deposit growth for our Bank by reference to average balances over periods of time rather than by reference to deposit balances on specific dates. At business banks, comparative analysis of deposit balances based on points in time can be very deceptive. For example, we received an incoming deposit of approximately $9.5 million on December 28, 2023. These funds were then disbursed by our client to third parties outside of our Bank during the first nine days of January 2024 in the ordinary course of that client’s business. As a business bank, this is a routine series of transactions for us. However, this large, short-term deposit was included in the total deposits that the Bank publicly reported as of December 31, 2023. Obviously, this deposit did not represent any sustained growth in our deposits. Nor does its disbursement represent a decrease in our Bank’s core deposits. Rather, the arrival and departure of these funds is what a business bank does in the ordinary course of its business. Regarding our net income for the fourth calendar quarter of 2024, I have pointed out in my recent Messages that the Bank is currently operating at approximately breakeven. This was true in the past quarter as the Bank’s net income after taxes was approximately $60,000 for the quarter. Our net income for the next calendar quarter is likely to be less than that for various reasons unrelated to any fundamental changes at our Bank. One of those reasons is that our deposit balances for some of our largest clients can vary greatly over the course of the year. These balances tend to be highest in the last months of the year and lowest in the first few months of the year. This negatively impacts our net interest income comparing the first calendar quarter’s net interest income with that of the last two calendar quarters. Of course, it does not represent any change in our underlying client base. I have attached a summary balance sheet and income statement for your further information. For the past few years, I have explained how we carefully manage the Bank’s balance sheet. Unlike many other banks, we have not pursued high-cost deposits for two main reasons. One, there was no need. Other banks pursued these deposits because of liquidity pressures or for an appearance of growth. We had a very high level of liquidity and had no reason to pursue high-cost deposits to reduce liquidity pressures. Similarly, it did not appear proper to us to pursue high-cost deposits for cosmetic reasons to create a veneer of growth without incremental profit. Second, we did not have opportunities to invest these deposits profitably, even if we did receive them. As a result of some changes in the Treasury Yield Curve and declining interest rates, we now have an opportunity to make some profitable, safe investments with new deposits. To that end—and for a limited period of time—we are currently offering a 12-month certificate of deposit (CD) at 4.15% annual percentage yield, primarily targeted to our investors and clients. Another goal of this promotion is to develop more direct relationships with those of you who are not currently clients of our Bank. This will be a “win” for you and a “win” for our Bank. Please see our website for additional information on this offer. Looking forward, we are excited to initiate a number of steps to grow the Bank systematically and successfully in 2025 and beyond. This month we will officially launch our Outreach Program, which was developed late last year. As previously reported, the Outreach Program is designed to introduce our Bank to the broader Virginia Beach business community. To maximize its success, the Bank has implemented a new software platform to track the results of the Outreach Program on an ongoing basis and to report on its progress regularly to our Board of Directors. Of course, these growth initiatives would be pointless without something to say. As part of our outreach efforts, we will focus on our Bank’s capabilities regarding cybersecurity. We have gained extensive knowledge about the true nature of cybersecurity theft and the essential countermeasures that are available in the fight against it. We believe that sharing this knowledge with businesses will highlight one of the benefits of having a business bank as their depository. Finally, I told you previously that Doug Glenn would be joining our Bank this week. This has been delayed due to personal business matters that suddenly arose. Doug expects to resolve these matters over the next few months. Until then, Doug and I agreed that it would be better to push back his first day until he is able to devote his full attention to the Bank. We are now targeting the beginning of May for Doug’s arrival. Mike 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. |