PRESIDENT’S ANNUAL MEETING REPORT TO THE SHAREHOLDERS OF INTEGRITY BANK FOR BUSINESSNovember 8, 2023 Each year, when I prepare my report to the Shareholders, I take time to reflect on our results from the past year and our expectations for the year ahead. We live in dynamic times for community banking where opportunities and challenges equally abound. It is considered a curse on someone to say “May you live in interesting times.” I have to admit that Integrity appears to live in interesting times. We prepared and filed our applications to open Integrity in 2020 during the worst times of the COVID pandemic. After we opened Integrity, the Federal Open Market Committee dramatically increased the Fed Funds Rate by 525 basis points bringing to an abrupt end a lengthy period of ultra-low interest rates. Suffice it to say, Integrity’s initial business plan for opening a new Bank, however thoughtful at the time, was superseded by events. So let’s take a look at Integrity’s financial performance over the past calendar quarter to understand Integrity today. In my Shareholder Letter of August 17, 2023, I reported to you that Integrity had basically achieved an approximate breakeven level of profitability in the second calendar quarter. This trend continued in the third calendar quarter. We reported a net loss of $19,385, but this loss included a non-recurring net negative impact of a $13,572 adjustment to our reserves from the implementation of a new accounting standard known as the Current Expected Credit Loss or CECL. This makes the true operating loss only $5,813, essentially breakeven. Meanwhile, our balance sheet continues to be strong. On September 30, 2023, our balance sheet showed $55 million of cash and unpledged marketable securities, $39.7 million of loans, and $66.3 million of deposits. Of particular note is that we had $29.5 million of noninterest- bearing deposits on that date, an increase of $3.87 million over the past year. Very few banks have shown any increase in their noninterest-bearing deposits over the past year, much less an increase of over 15% for Integrity. These are just numbers. The question is what do they mean and what do they tell us about the future. The failures of Silicon Valley Bank and Signature Bank in March highlighted the underlying liquidity pressures on most banks, both large and small. From the outset, Integrity has maintained high levels of liquidity. On September 30th, Integrity held $55 million of cash and unpledged marketable securities and had access to much more, if needed. This liquidity covered over 150% of our uninsured deposits, an outstanding percentage for a business bank. Together with a tangible capital ratio over 20%, this is the portrait of a safe and sound bank with a fortress balance sheet. Unlike our local competitors, we have no need to supplement our core deposits with brokered deposits, reciprocal deposits, or high-yield certificates of deposits or money market accounts to maintain an acceptable level of liquidity. In the community banking world, loan growth has long been the focus of observers assessing the progress of community banks. This may have been proper for many years while interest rates were ultra-low and deposits plentiful. This is certainly not the case now. For Integrity and many banks, pure loan growth without material accompanying core deposits is not currently a priority and may well be counterproductive for liquidity purposes. On the other hand, Integrity considers relationship lending, involving both loans and proportionally material core deposits, to be our highest priority. This is fundamental community bank balance sheet management to preserve our fortress balance sheet. We do not anticipate any change in this approach to Integrity’s loan and deposit acquisition strategy in the year ahead. When we talk about Integrity’s fortress balance sheet, I don’t want you to think that we are being smug and oblivious to the world around us. We have had two major bank liquidity failures already and self-styled bank experts are predicting more bank liquidity failures. Other bank prognosticators point to possibly impaired commercial real estate loans as the Achilles heel of the banking industry in current interest rates. Rapid increases or decreases in interest rates could further challenge bank balance sheets and asset-liability management. The likelihood of the occurrence and severity of these types of events is impossible to predict with any degree of accuracy or timing. We follow the general rule of hope for the best but prepare for the worst. Our fortress balance sheet is designed for Integrity to weather any storm that may come our way. By now we have made it clear to our shareholders, clients, and the community that Integrity is prepared for the future. Our liquidity ratios, capital ratios, and banking technology and service capabilities are second to none for business banking. Our fortress balance sheet provides us with the luxury of avoiding fear and being able to react proactively when challenges and opportunities arise. We are proud of the Bank that we have built and are confident in our future. Integrity has the bright future that all shareholders expected Integrity to have when we opened the Bank two and one half years ago.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS This 2023 Annual Report (the “Report”) and the other written reports and oral statements made from time to time by Integrity Bank for Business, a Virginia banking corporation (the “Bank” or the “Company”), its officers, directors, and authorized representatives may contain “forward looking statements” regarding future events and future results of the Company. Forward-looking statements can be identified by words such as “anticipates,” “estimates,” “intends,” “plans,” “goal,” “seek,” “believes,” “projects,” “will,” “expects,” “strategy,” “future,” “likely,” “may,” “should,” and similar references to future periods. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on the Company’s current beliefs, expectations, and assumptions regarding the future of its business, future 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 many of which are outside of the Company’s control. The Company’s actual results and financial condition may differ materially from those results indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Any forward-looking statement made by the Company in this Report or any other written or oral information or reports is based only on information currently available to the Company and speaks only as of the date on which it is made. The Company undertakes no obligation to update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. |