October 6, 2025

When we pass by a construction site, we see workers wearing Hard Hats and signs everywhere saying Hard Hats Are Required. Hard Hats are symbols of construction in progress and a future new building. In our mind's eye, we see the future new building and not the building under construction.

It is fair to say that our Bank has been under construction since we opened in 2021. At that time, we had varying ideas of what our Bank would be upon the completion of our initial construction.

When we opened our Bank in 2021, interest rates had been at historic lows for many years. There was no apparent reason that would change in the near future. Accordingly, the initial business plan that we submitted to our bank regulators and discussed with our potential investors was based on then prevailing interest rates for loans and deposits continuing for the next three years.

Our initial business plan was a simple one. We would raise deposits, which were inexpensive and plentiful at that time, and then quickly invest those deposits in local loans, primarily by refinancing existing loans at other banks. Margins were thin but we would account for that challenge by the minimization of operating expenses and avoiding material charge-offs on our loans.

But, as the saying goes, "the best laid plans of mice and men often go awry." Two dramatic changes in banking conditions occurred over the next two years.

First, beginning in 2022, interest rates soared in a very short period of time. New loans, and particularly refinancings, became much less available. Deposits were no longer plentiful. Then, in 2023, Silicon Valley Bank and Signature Bank collapsed from liquidity and securities valuations pressures. Public confidence in the banking system fell.  As a result, large and small banks faced liquidity issues and had to bid against each other for high-cost deposits to stave off their liquidity issues.

Our Bank had maintained high levels of liquidity from our opening, so we were not threatened by this intense competition for deposits among banks. Nevertheless, this competition for deposits did have a material adverse impact on our ability to grow our deposits as quickly as we had expected when we first opened our Bank.

We had to make major changes to our operating strategy "on the fly" to reach profitability in this new banking environment.
 
Are we behind our initial schedule for growth and profitability? The answer is Yes. But we have now reached the point where we no longer have to wear Hard Hats.  Our initial construction is complete.

So, where are we today? As I told you in my more recent President's Messages, we have been operating at basically a breakeven level for the past fiscal year. Our net income for the past fiscal year was a loss of approximately $73,000  and our net income for the most recent quarter ending June 30,2025, was approximately $3,000. 

Comparisons may be helpful here. For our fiscal year 2023-24, our annual loss was approximately $285,000 so our annual loss of approximately $73,000 for fiscal year 2024-25 was an improvement of approximately $212,000 year over year. 

However, we now have taken off our Hard Hats.  The future benefits from the careful construction of our Bank are becoming clearer. Our net income after tax for the first two months of this fiscal year, July and August, is approximately $37,000.

Furthermore, in my most recent President's Message, I reported to you that, subject to various assumptions including then prevailing interest rates, the Economic Value of our Equity on June 30, 2025, was approximately $27.6 million which is approximately $6.3 million greater than our "book equity" of approximately $21.3 million. Economic Value of Equity is, of course, one measure of "franchise value" and shows the benefits from the careful construction of our Bank.

For the near future, we plan to maintain our focus on controlling our noninterest operating expenses which will in turn bring a significant percentage of our net interest income from growth in loans, securities, and core deposits into additional net income. That has been the model for our Bank from the beginning.

There is one exception to this. We are continuing to explore adding additional lending and deposit bankers to our team. These additional bankers would increase our compensation expense before they brought offsetting net interest income from new loans and deposits. There is always lag time for this to occur no matter how talented new bankers may be.

The confidence of our team continues to grow as the opportunities for our Bank become indisputable from the changes in our local community banking landscape. We have much to do and are ready and eager to do it.

Michael S. Ives
President and Chief Executive Officer
Integrity Bank for Business