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HCSB Financial Corporation Announces Fourth Quarter 2016 Financial Results

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LORIS, S.C., Jan. 26, 2017 (GLOBE NEWSWIRE) -- HCSB Financial Corporation, (the "Company") (OTCQB: HCFB), the holding company for Horry County State Bank (the "Bank"), announced today financial results for the fourth quarter ended December 31, 2016. The Company announced net income of $1.4 million, or $0.00 per common share, for the fourth quarter of 2016, an increase from a net loss of $1.8 million, or $0.00 per common share at the end of the third quarter of 2016.

"We have wrapped up 2016 on a very positive note, with net income of $1.4 million for the fourth quarter. We believe this gives us great momentum going into 2017 as our focus remains on delivering profitability for our shareholders and valuable financial services to our communities. Our loan production exceeded our internal expectations, and we believe that is poised to continue as our bankers are providing exceptional customer service in each of our markets. In the fourth quarter, we were able to release $1.1 million in loan loss reserves, as the quality of our portfolio has improved significantly with the completion of our asset disposition plan in the second half of the year and the management team gained further understanding about the risk remaining in the loan portfolio. In addition, we have migrated to an independent third party model for calculating our loan loss reserves which gives us great confidence in our estimates and allows us to account for market fluctuations that may occur," remarked Jan Hollar, Chief Executive Officer of the Company and the Bank.

Financial Highlights

During the fourth quarter, the Company reported net income of $1.4 million, as the Company released $1.1 million in loan loss reserves due to the significant reduction in nonperforming assets, continuing positive trends in past dues, the completion of the accelerated asset disposition plan and management gained an improved understanding of the risk within the loan portfolio.  Excluding the reversal of provision, pre-tax net income for the fourth quarter was $29,000, a $1.8 million increase over a net loss of $1.8 million for the third quarter of 2016.   Noninterest expense was down $1.7 million quarter-over-quarter as the net cost of operation of other real estate owned ("OREO") decreased $1.4 million and FDIC insurance expense decreased $183,000.

The Company saw loan growth of $5.9 million, or 3%, for the fourth quarter of 2016 as loan production continues to be a key management focus. Total deposits decreased $10.1 million and totaled $313.3 million at December 31, 2016, compared to $323.4 million at September 30, 2016, as non-interest bearing demand accounts decreased $5.7 million due to seasonality of deposits in our market area, and time deposits decreased $4.3 million primarily due to the maturity of internet-based time deposits which were not renewed.

Interest Income and Net Interest Margin

Net interest income remained flat quarter over quarter, totaling $2.5 million for the fourth and third quarters of 2016. Net interest margin increased 6 basis points to 2.86% for the quarter ended December 31, 2016 from 2.80% for the quarter ended September 30, 2016.  The increase in net interest margin is primarily the result of a 5 basis point increase in yields on interest earning assets, and the cost of borrowings remains stable.  This increase in yields was due to an increase in yield on other interest-earning assets and a decrease in interest-bearing cash for the quarter.

For the year ended December 31, 2016, net interest income increased $124,000, or 1.3%, as compared to the year ended December 31, 2015.  This increase in net interest income was primarily the result of a significant decrease in cost of liabilities, partially offset by a decrease in yields on interest earning assets.  The decrease in cost of liabilities was primarily due to the payoff of subordinated debt, while the decrease in yields on interest earning assets was the result of lower yields on securities.

Non-Interest Income

Non-interest income was $412,000 in the fourth quarter of 2016 compared to $334,000 in the third quarter of 2016.  The third quarter included a $222,000 loss on sale of assets recorded in the third quarter related to the bulk sale of nonperforming loans announced in the second quarter. Also included in non-interest income for the third quarter was a $153,000 gain on sale of securities.  There were no gains or losses on the sale of assets or securities in the fourth quarter of 2016.

Non-interest income for the year ended December 31, 2016 was $20.6 million, which included a $19.1 million gain on the extinguishment of debt, as compared to non-interest income of $3.1 million for the year ended December 31, 2015.  Non-interest income for 2016 also included $222,000 of losses on the sale of assets as compared to a gain on sale of assets of $717,000 in 2015.  Gain on sale of securities for the year ended December 31, 2016 was $68,000 as compared to a gain on sale of securities of $232,000 for the year ended December 31, 2015.

Asset Quality

Overall asset quality continued to improve in the fourth quarter of 2016, as the Bank's classified assets to Tier 1 capital ratio decreased to 46.4% at December 31, 2016.  This compares to a classified asset to Tier 1 capital ratio of 55.3% and 287.2% at September 30, 2016 and December 31, 2015, respectively. OREO decreased by $1.1 million during the quarter to $2.9 million at December 31, 2016 due to the sale of several properties.  Nonperforming loans, increased by $1.1 million to $2.0 million at December 31, 2016 due to the repurchase of two loans from the asset disposition.  Both loans repurchased are SBA guaranteed loans and no additional losses are anticipated. The ratio of nonperforming assets to total assets was 1.31% at December 31, 2016 as compared to 1.30% at September 30, 2016 and the ratio of nonperforming loans to total loans was 0.94% at the end of the fourth quarter of 2016 as compared to 0.45% at the end of the third quarter of 2016.

Allowance for Loan Losses

At December 31, 2016, the allowance for loan losses was $3.8 million, compared to $4.7 million at September 30, 2016.  As a percentage of total loans held-for-investment, the allowance for loan losses was 1.74% in the fourth quarter of 2016, down from 2.24% in the third quarter of 2016 and 2.20% at December 31, 2015.  In the fourth quarter of 2016, the Company implemented a new third party software for the calculation of the allowance for loan losses.  The new model allowed management to perform further analysis of the portfolio and better identify improving credit trends.  Overall, the decrease in the allowance for loan losses as a percentage of total loans was a reflection of improved trends in past dues and significant reductions in nonperforming loans in 2016. Out of the $3.8 million in total allowance for loan losses at December 31, 2016, specific allowances for impaired loans accounted for $643,000 as compared to $788,000 in the third quarter of 2016.

Balance Sheet and Capital

Total assets decreased $5.2 million during the fourth quarter of 2016, while gross loans (including loans held-for-sale) increased $5.9 million compared to the third quarter of 2016 as the Company continued to see solid loan production during the quarter. As discussed earlier, total deposits decreased $10.1 million and totaled $313.3million at December 31, 2016, compared to $323.4 million at September 30, 2016.

As of December 31, 2016 the Bank's leverage ratio, Common Equity Tier 1 ratio (CET1), Tier 1 risk-based capital ratio, and total risk-based capital ratio were 9.95%, 15.14%, 15.14% and 16.39%, respectively.

About HCSB Financial Corporation

HCSB Financial Corporation is the holding company for Horry County State Bank, a full-service community bank providing services in eight branches across Horry County, South Carolina.  Horry County State Bank's website is www.hcsbaccess.com.  HSCB shares are quoted on the OTCQB tier of the OTC Markets Group, Inc. under the symbol "HCFB".

SAFE HARBOR

This news release contains forward-looking statements, as defined by the federal securities laws, including statement about the Company's financial outlook and business environment.  Forward looking statements generally include words such as "expects," "projects," "anticipates," "believes," "estimates," "strategy," "plan," "potential," and other similar expressions.  These statements are provided to assist in the understanding of future financial performance and such performance involves risks and uncertainties that may cause actual results to differ materially from those anticipated in such statements.  Any such statements are based on current expectations and involve a number of risks and uncertainties.  For a discussion of some factors that may cause such forward-looking statements to differ materially from actual results, please refer to the section entitled "Forward-Looking Statements" on pages 1-2 and in the section entitled "Risk Factors" of the Company's annual report on Form 10-K filed with the SEC for the year ended December 31, 2015.  Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise forward-looking statements. 

 HCSB Financial Corporation                   
 Condensed Consolidated Balance Sheet (Unaudited)                   
                       
                       
       As of 
       December 31,     September 30,     June 30,     March 31,     December 31, 
        2016       2016       2016       2016     2015*
      ($ in thousands)
 ASSETS                   
Cash and due from banks $ 25,429     $ 31,174     $ 64,024     $ 41,652     $ 22,137  
Investment securities available for sale   106,529       111,581       80,969       83,205       89,701  
Nonmarketable equity securities   1,345       1,090       1,090       1,276       1,330  
Loans held for sale   -       -       4,280       -       -  
Loans   215,112       209,176       199,072       199,635       209,367  
Allowance for loan losses   (3,750 )     (4,676 )     (4,492 )     (3,719 )     (4,601 )
  Net loans   211,362       204,500       194,580       195,916       204,766  
                       
Premises and equipment, net   14,314       14,456       14,591      
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