InBankshares : INBC Earnings Release Q2 2022

FOR IMMEDIATE RELEASE

INBANKSHARES, CORP REPORTS

SECOND QUARTER 2022 FINANCIAL RESULTS

Company completed acquisition; achieved 58% asset growth and tripled EPS during quarter

Denver, CO - July 28, 2022 - InBankshares, Corp (OTCQX: INBC) (the "Company"), parent company of InBank ("InBank" or the "Bank"), today announced its unaudited financial results for the quarter ended June 30, 2022. The Company reported consolidated net income of $2.1 million or $0.20 per share, for the second quarter of 2022 compared to $444,000, or $0.06 per share, for the first quarter of 2022, and $778,000, or $0.10 per share, for the second quarter of 2021.

The second quarter and the first quarter of 2022 earnings include pre-tax acquisition costs of $876,000 and $173,000, respectively, related to the acquisition of Legacy Bank ("Legacy"), which reduced earnings by $0.07 and $0.02 per common share for the second and first quarters, respectively. The second quarter of 2021 did not include acquisition costs.

Highlights for the quarter:

• Successfully completed the acquisition of Legacy on April 29, 2022 with total acquired assets of $462.7 million, and completed the core system conversion on July 25, 2022
• Core loans held for investment, excluding SBA Paycheck Protection Program ("PPP") loans, increased $327.1 million, or 69.4%, compared to the linked quarter and increased $440.0 million, or 122.7%, compared to the same quarter last year
• Organic loan growth, excluding PPP and acquired loans, totaled $31.3 million (26.6% annualized) for the current quarter and $144.3 million (40.2% annualized) for the trailing one-year period
• Total deposits increased $426.8 million, or 68.0%, compared to the linked quarter and $472.5 million, or 81.2%, compared to Q2 2021
• Organic deposit growth, excluding acquired deposits, totaled $9.6 million (6.1% annualized) for the current quarter and $55.3 million (9.5% annualized) for the trailing one-year period

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• Quarterly net income of $2.1 million and basic EPS of $0.20, which included $0.07 per share negative impact from acquisition-related expenses; an increase of $1.7 million, or 373.9%, and $0.14 per share compared to the linked quarter
• Quarterly pre-provision,pre-tax net revenue ("PPNR") was $4.2 million, compared to $1.0 million for the linked quarter, and $1.4 million for Q2 2021

"I am so proud of our team of talented bankers and associates who successfully completed the transformational merger of Legacy Bank with and into InBank at the end of April. It has been impressive to watch the teamwork and collaboration shown in completing the core system conversion on schedule earlier this week. I am grateful for their tireless preparation and continuing high standard of customer service. With the closing and conversion behind us, and culture integration progressing smoothly, we can turn our focus back to building customer relationships and organically growing market share across our expanded footprint. We are looking forward to wrapping up remaining systems and process integration in the third quarter and expect to recognize the remainder of the integration-related expenses." said Ed Francis, Chairman of the Board, President and Chief Executive Officer of the Company and InBank. Mr. Francis continued, "I was very pleased with our first quarter of combined operations. With two months of contribution from Legacy, it's impressive to see how the companies have come together financially and the many benefits we are seeing from our new scale. The transaction was immediately accretive to earnings per share as our second quarter EPS more than tripled compared to the linked quarter, despite the impact from acquisition-related expenses. We are seeing the immediate benefit of scale and operating leverage as our year-to-date operating expenses excluding merger and acquisition expense grew 11% compared to prior year-to-date, while our operating revenue grew approximately 30%. This quarter we also continued to deploy our liquidity into higher yielding assets, and received the benefit of acquiring the Legacy investment portfolio at fair value in the current interest rate environment, which resulted in an expansion of our net interest margin by over 70 basis points compared to prior quarter.

"Despite the focus on completing the merger, our Denver metro commercial teams continued to grow market share, as we achieved 25% annualized organic core loan growth, excluding PPP, in the second quarter of 2022 and almost 40% for the trailing 12 months. Our organic deposit growth over the prior year was almost 10%. We also expect the continued improvement in organic commercial fee and card revenue growth which has been trailing our asset growth," Mr. Francis concluded.

Merger Update

On April 29, 2022, the Company completed the transaction, whereby Colorado-based Legacy was merged with and into InBank. Legacy operated nine full-service offices serving individuals and business customers in Colorado Springs, Pueblo, Pueblo West, Cañon City, Buena Vista, Lamar, and Wiley, Colorado. The combined bank will serve customers from 19 offices, including 12 full-service offices and two loan production offices in Colorado, and five full-service offices in northern New Mexico. Subsequent to second quarter end, we completed Legacy's core system conversion on July 25, 2022.

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Under the terms of the merger agreement, the Company issued 3,566,345 shares of INBC common stock and paid approximately $21.25 million in cash consideration to the shareholders of Legacy in the aggregate.

The Company's results of operations and financial condition include the Legacy acquisition beginning on April 29, 2022. The following table summarizes preliminary fair value for each major class of assets acquired and liabilities assumed on such date:

		April 29, 2022
		(in thousands)
Merger consideration		$	55,131
Assets acquired, at fair value
Cash and cash equivalents	$	21,292
Investment securities		111,168
Nonmarketable equity investments		834
Loans, net		295,872
Premises and equipment, net		9,099
Core deposit intangible		7,513
BOLI		8,429
Other assets		8,463
Total assets acquired					462,670
Liabilities acquired, at fair value
Deposits		417,210
Other liabilities		1,044
Total liabilities assumed					418,254
Total net assets acquired, at fair value					44,416
Goodwill		$	10,715

Results of Operations

Net income for the second quarter of 2022 was $2.1 million, or $0.20 per share, compared to net income of $444,000, or $0.06 per share, for the linked quarter, and $778,000, or $0.10 per share, for the same quarter last year. The increases over the linked quarter and the same quarter last year were significantly impacted by the acquisition of Legacy. The second quarter of 2022 included two months of combined operations, which resulted in favorable variances in net interest income and noninterest income and were partially offset by unfavorable variances in provision for loan loss, noninterest expense, and income tax expense. Net income for the six months ended June 30, 2022 was $2.5 million, or $0.28 per share, representing an increase of $1.1 million, or 77.2%, compared to $1.4 million, or $0.19 per share, for the same period in 2021.

Net interest income for the second quarter of 2022 was $10.4 million, an increase of $4.8 million, or 85.1%, over the linked quarter, and an increase of $4.2 million, or 67.3%, over the same quarter last year, primarily as a result of the impact of the Legacy acquisition and an expansion in net interest margin.

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• Interest income increased $5.0 million, or 81.2%, to $11.1 million during the second quarter of 2022, compared to $6.1 million during the linked quarter, and increased $4.5 million, or 67.6%, compared to $6.6 million during the same quarter last year.

• • The increase from the linked quarter was primarily due to an increase of $273.9 million in average interest earning assets (both loans and investments) due to the Legacy acquisition and continued organic growth, as well as higher loan and investment yields.
  • The second quarter of 2022 also included a one-time recognition of $766,000 in prior period charged-off loan interest income collected on purchase credit impaired loans.
  • The increase compared to the same quarter last year was primarily due to an increase of $332.4 million increase in average interest earning assets and higher yields on investments and core loans, partially offset by a decrease in PPP loan interest and fee income of $1.0 million.
  • Accretion of the discount on acquired loans was $436,000 in the second quarter of 2022, compared to $161,000 in the linked quarter, and $146,000 in the same quarter in 2021.
• Interest expense was $653,000 during the second quarter of 2022, an increase of $172,000, or 35.8%, compared to $481,000 during the linked quarter, and an increase of $276,000, or 73,2% compared to $377,000 during the same quarter last year.
• • The increase over the linked quarter was primarily due to increases in average interest- bearing deposits and other borrowing balances, partially offset by a two basis point decrease in the cost of funds.
  • The increase from the same quarter last year was due to an increase in interest on $20 million of subordinated debentures that were issued in the fourth quarter of 2021 (see below), and due to increases in average interest-bearing deposits.

Net interest margin (NIM), expressed as net interest income as a percentage of average earning assets, was 4.17% during the second quarter of 2022, compared to 3.14% during the linked quarter, and 3.73% during the same quarter last year. Adjusting the second quarter of 2022 for the one-time loan interest recognition described above, NIM in the second quarter of 2022 would have been 3.86%. The NIM expansion compared to the linked quarter was primarily the result of deploying cash balances into higher yielding investments and loans, as well as increases in yields on all earning-assets due to higher market interest rates. Margin expansion from the same quarter a year ago was primarily attributable to an increase in loan balances as a percentage of earning assets.

Noninterest income for the second quarter of 2022 was $965,000, an increase of $109,000, or 12.7%, over the linked quarter, and an increase of $161,000, or 20.0%, from the same quarter last year. The increase over the linked quarter was primarily due to an increase of $231,000 in service charge income and a $102,000 increase in other noninterest income, partially offset by a decrease of $106,000 in gain on sale of SBA loans and a decrease of $96,000 in gain on sale of other real estate ("OREO"). The increase from the same quarter last year was due to an increase in deposit service charge income, including commercial credit card interchange income, partially offset by a decrease in mortgage income.

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Noninterest expense for the second quarter of 2022 was $8.1 million, an increase of $2.5 million, or 43.4%, when compared to the linked quarter, and an increase of $2.4 million, or 42.7%, from the same quarter last year. The increase over the linked quarter was primarily due to increases in non-core merger and acquisition expense of $703,000 and intangible amortization of $229,000 in connection with the Legacy transaction, plus increases of $1.5 million in salaries and employee benefits, occupancy and equipment, data processing and software, and other expenses combined, primarily due to the addition of Legacy's operating expenses. The increase over the same quarter last year was also primarily due to increases in non-core merger and acquisition expense of $876,000 and intangible amortization of $208,000 in connection with the Legacy transaction, and $1.3 million across most categories of operating expenses due to the Legacy acquisition and organic growth. Full time equivalent ("FTE") employees were 166 at June 30, 2022, compared to 110 at March 31, 2022 and 118 at June 30, 2021.

The Company's core efficiency ratio (non-GAAP), which excludes gain on sales of securities and merger and acquisition expense, was 63.4% in the second quarter of 2022, compared with 84.3% in the linked quarter and 80.6% in the second quarter of 2021.

Balance Sheet Summary

							Acquired			Annualized
Select ending balances	Jun 30,		Mar 31,			Fair Value		Organic	Organic
(dollars in thousands)	2022		2022	$	Change		at 4/29/22	$ Change	% Change
Assets	$ 1,203,390	$	763,576	$	439,814	$	462,670	$	(22,856)	-12.0%
Loans HFI	799,171		480,216		318,955		295,872		23,083	19.2%
Loans HFI, excl PPP	798,563		471,493		327,070		295,755		31,315	26.6%
Investment securities	317,905		239,268		78,637		111,168		(32,531)	-54.4%
Cash and equivalents	20,158		11,420		8,738		21,292		(12,554)	-439.7%
Deposits	1,054,140		627,345		426,795		417,210		9,585	6.1%
Other borrowings	3,000		26,000		(23,000)		-		(23,000)	-353.8%
Subordinated debentures	24,509		24,482		27		-		27	0.4%
							Acquired			Annualized
	Jun 30,		Jun 30,			Fair Value		Organic	Organic
	2022		2021	$	Change		at 4/29/22	$ Change	% Change
Assets	$ 1,203,390	$	708,436	$	494,954	$	462,670	$	32,284	4.6%
Loans HFI	799,171		418,221		380,950		295,872		85,078	20.3%
Loans HFI, excl PPP	798,563		358,536		440,027		295,755		144,272	40.2%
Investment securities	317,905		192,342		125,563		111,168		14,395	7.5%
Cash and equivalents	20,158		68,350		(48,192)		21,292		(69,484)	-101.7%
Deposits	1,054,140		581,655		472,485		417,210		55,275	9.5%
Other borrowings	3,000		34,000		(31,000)		-		(31,000)	-91.2%
Subordinated debentures	24,509		4,885		19,624		-		19,624	401.7%

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