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Highlands Bankshares, Inc. Reports First Quarter 2018 Results

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Highlands Bankshares, Inc. Reports First Quarter 2018 Results

Strong Year-over-Year Improvement in Net Interest Margin, Asset Quality and Capital Ratios

PR Newswire

ABINGDON, Va., May 1, 2018 /PRNewswire/ -- Highlands Bankshares, Inc. (OTCQX:HLND) today reported net income of $610,000 or $0.06 per diluted share, for the quarter ended March 31, 2018, compared with a net loss of $3.1 million or ($0.38) per share, for the quarter ended December 31, 2017 and net income of $1.0 million, or $0.10 per diluted share, for the quarter ended March 31, 2017.

Fourth quarter 2017 net loss includes additional income tax expense of $4.0 million resulting from the revaluation of the Company's net deferred tax asset related to the enactment of the Tax Cuts and Jobs Act in December 2017. Excluding the one-time tax impact, fourth quarter 2017 net income was $835,000 or $0.08 per diluted share.

"I am pleased to report that Highlands improved results continued into the first quarter of 2018," said Timothy K. Schools, President and Chief Executive Officer. "This quarter marks the seventh consecutive quarter of profitability, excluding the negative impact of the fourth quarter 2017 tax legislation, with the last five quarters being the highest for many years. Building on the previous improvements in asset quality and capital ratios, our net interest margin continued to improve during the quarter to a level of 3.87 percent in March. This improvement has been the result of strong noninterest bearing deposit growth, disciplined loan pricing, and the payoff of high cost FHLB funding with lower yielding cash and securities. The quarter included approximately $350,000 of one-time or project related expenses that are not expected to recur beyond the next quarter or two in addition to approximately $150,000 of mortgage-related expenses that similarly should cease by the third quarter of 2018. Excitingly, while our loan growth for the quarter was relatively flat, our pipeline remains strong and a significant amount of loans and lines of credit were approved during the quarter and are awaiting closure or draw. Further, approximately $15 million of HELOC balances under a 1 percent promotional rate will reprice to prime during the remainder of 2018."


Target

1Q18

4Q17

1Q17

Return on average assets (annualized)

1.25%

0.41%

NM

0.67%

Revenue growth

5.00%

-2.44%

-2.03%

-4.10%

Net interest margin

3.75%

3.78%

3.70%

3.46%

Noninterest income to average assets

1.00%

0.73%

0.94%

0.83%

Noninterest expense to average assets

2.75%

3.47%

3.35%

2.87%

Efficiency ratio

55.00%

84.44%

79.19%

74.94%

Net charge-offs to loans held for investment

0.30%

0.12%

0.73%

0.11%

Revenue Growth

First quarter 2018 total revenue (net interest income plus noninterest income) declined $153,000 to $6.1 million from $6.3 million in the fourth quarter of 2017. Net interest income was $5.0 million in the first quarter of 2018, an increase of $154,000 from $4.9 million in the fourth quarter of 2017. During the first quarter, the net interest margin increased eight basis points offsetting a decline in average interest earning assets of $5.2 million from fourth quarter 2017. Average interest earning assets principally declined due to the payoff of FHLB funding using lower yielding cash and securities. First quarter 2018 noninterest income declined $307,000 to $1.1 million from the fourth quarter of 2018. Mortgage income was lower during the first quarter of 2018, resulting from a decision to modify the Company's mortgage origination strategy. As a result of this change, gross mortgage revenue declined, but the Company anticipates realizing a larger reduction in operating expenses by the third quarter of 2018.

Noninterest Expense and Operating Efficiency

Noninterest expenses increased $200,000 from the fourth quarter of 2018 and increased $717,000 from the first quarter of 2017 to $5.2 million in the first quarter of 2018. First quarter 2017 noninterest expense included a one-time benefit of approximately $250,000 relating to FAS 91 adjustments. For the first quarter of 2018, the efficiency ratio was 84.44 percent, an increase from 79.19 percent in the fourth quarter of 2017 and an increase from 74.94 percent in the first quarter of 2017. Noninterest expense as a percentage of assets increased in the first quarter of 2018 to 3.47 percent from 3.35 percent in the fourth quarter of 2017 and an increase from 2.87 percent in the first quarter of 2017. Assets per employee improved to $4.3 million at March 31, 2018 from $3.8 million at December 31, 2017 and $3.5 million at March 31, 2017. First quarter 2018 other operating expenses included approximately $350,000 of one-time items and short-term project costs that are not anticipated to be part of the Company's ongoing expense base. First quarter 2018 other operating expenses also include mortgage-related costs of $150,000 that are anticipated to be eliminated by the end of the third quarter of 2018.

Asset Quality

The provision for credit losses for first quarter 2018 was $172,000, an increase from $49,000 in fourth quarter 2017. Net charge-offs in the first quarter of 2018 were $127,000, or 0.12 percent annualized of average loans held for investment.  

Total past due loans as a percentage of total loans held for investment were 1.47 percent at March 31, 2018. As of March 31, 2018, loans greater than 90 days past due totaled $1.4 million, or 0.33 percent of loans held for investment, compared to 0.38 percent at December 31, 2017. Loans 30-89 days past due were $4.9 million, or 1.14 percent of loans held for investment. This increase was due primarily to three large relationships having gone past due at quarter end. Nonperforming assets were $3.7 million, or 0.86 percent of loans held for investment and OREO, at March 31, 2018. 



1Q18

4Q17

3Q17

2Q17

1Q17

4Q16

3Q16

2Q16

1Q16

Past due loans to loans held 
for investment


1.47%

0.77%

1.07%

0.89%

1.14%

1.93%

2.17%

2.75%

3.35%

Past due loans 30-89 days to 
loans held for investment


1.14

0.39

0.40

0.24

0.29

0.42

0.81

1.18

1.13

Past due loans 90 plus days to 
loans held to investment


0.33

0.38

0.67

0.65

0.84

1.51

1.36

1.57

2.22

Nonperforming assets to loans 
held for investment and OREO


0.89

1.02

1.24

1.32

1.50

1.64

2.14

2.71

3.43

Classified assets to tier 1 capital 
and allowance for loan loss


33

31

31

33

34

40

41

46

53

Allowance for credit losses to 
nonperforming loans


258.97

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