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Highlands Bankshares, Inc. Reports Second Quarter 2018 Results

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Highlands Bankshares, Inc. Reports Second Quarter 2018 Results

Strong Improvement in Net Income, Return on Assets, Net Interest Margin, Loans Held for Investment, Noninterest Bearing Deposits, Efficiency Ratio, and Leverage Ratio

PR Newswire

ABINGDON, Va., Aug. 3, 2018 /PRNewswire/ -- Highlands Bankshares, Inc. (HLND) today reported net income of $923,000 or $0.09 per diluted share, for the quarter ended June 30, 2018, compared with $610,000 or $0.06 per share, for the quarter ended March 31, 2018 and $637,000 or $0.06 per diluted share, for the quarter ended June 30, 2017. The annualized return on average assets and return on average equity for the period were 0.63 percent and 6.89 percent, respectively.

For the six months ended June 30, 2018, the Company reported net income of $1.5 million or $0.15 per diluted share, compared with $1.7 million or $0.16 per diluted share, for the same period of 2017. The annualized return on average assets and return on average equity for the period were 0.52 percent and 5.74 percent, respectively.

"We are very pleased with the results from the second quarter," said Timothy K. Schools, President and Chief Executive Officer of Highlands Bankshares, Inc. "Our performance continues to improve as we strategically position the Company for the future. This quarter, our net interest margin, noninterest bearing deposits as a percent of total assets, and leverage ratio each improved to their highest level in our Company's history. Additionally, loans held for investment rose to its highest level since Highlands' recapitalization in the spring of 2014.  Combined with our improved credit quality, our balance sheet is now the strongest it has ever been.  Opportunities exist to further enhance profitability and we are very excited about the expanded and new customer relationships we are obtaining across all of our markets."


Target

2Q 2018

1Q 2018

2Q 2017

Return on average assets (annualized)

1.25%

0.63%

0.41%

0.42%

Revenue growth

5.00%

-2.35%

-2.44%

5.36%

Net interest margin

3.75%

3.84%

3.78%

3.42%

Non-interest income to assets

1.00%

0.68%

0.73%

1.08%

Non-interest expense to assets

2.75%

3.17%

3.47%

3.41%

Efficiency ratio

55.00%

77.54%

84.44%

84.14%

Net charge-offs to total loans

0.30%

0.03%

0.12%

0.09%






Revenue Growth

Second quarter 2018 total revenue (net interest income plus noninterest income) declined $144,000 to $6.0 million from $6.1 million in the first quarter of 2018. Net interest income was $5.0 million in the second quarter of 2018, down slightly from the first quarter of 2018. During the second quarter, the net interest margin increased six basis points offsetting a decline in average interest earning assets of $11.5 million from first quarter 2018. Average interest earning assets declined due to the payoff of FHLB funding using lower yielding cash and securities and investment security reductions. Second quarter 2018 noninterest income declined $93,000 to $1.0 million from the first quarter of 2018. Mortgage income was lower during the second 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 decreased $534,000 from the first quarter of 2018 and decreased $631,000 from the second quarter of 2017 to $4.6 million in the second quarter of 2018. The improvement was principally related to a reduction in legal and project related expenses as well as a change in the Company's residential mortgage strategy.

For the second quarter of 2018, the efficiency ratio was 77.54 percent, an improvement from 84.44 and 84.14 percent in the first quarter of 2018 and second quarter of 2017, respectively. Noninterest expense as a percentage of assets improved in the second quarter of 2018 to 3.17 percent from 3.47 and 3.41 percent in the first quarter of 2018 and second quarter of 2017, respectively. Assets per employee was $4.2 million as of June 30, 2018, compared with $4.3 and $3.5 million at March 31, 2018 and June 30, 2017, respectively.

Second quarter 2018 noninterest expense included $146,000 of OREO-related expenses as the Company continues to work proactively to reduce long-standing bank owned property/leases.  As of June 30, 2018, other real estate owned and real estate held for sale totaled $3.2 million.  The Company currently has contracts and expects to sell $1.4 million of these balances in third quarter 2018.

Asset Quality

The provision for credit losses for second quarter 2018 was $172,000. Net charge-offs in the second quarter of 2018 were $34,000, or 0.03 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 June 30, 2018, equivalent to March 31, 2018. First quarter 2018 past due loans increased from prior periods primarily related to a single relationship which had been previously reported in the Company's watch list for several years. In second quarter 2018, this relationship became greater than 90 days past due causing June 30, 2018 loans 30-89 days past due to decline to 0.62 percent of loans held for investment, loans greater than 90 days past due to increase to 0.84 percent of loans held for investment, and nonperforming assets to increase to 1.38 percent of loans held for investment and OREO.    


2Q 18

1Q 18

4Q 17

3Q 17

2Q 17

Past due loans to end of period loans

1.47%

1.47%

0.77%

1.07%

0.89%

Past due loans 30-89 days to end of period loans

0.62

1.14

0.39

0.40

0.24

Past due loans 90 plus days to end of period loans

0.84

0.33

0.38

0.67

0.65

Nonperforming assets to loans and OREO

1.38

0.86

1.02

1.24

1.32

Classified assets to tier 1 capital

34

33

31

31

33

Allowance for credit losses to nonperforming loans

106.90

258.97

193.80

158.09

152.15

As of June 30, 2018, the allowance for credit losses totaled $4.1 million, or 0.94 percent of loans held for investment an increase from $4.0 million, or 0.93 percent of loans held for investment at March 31, 2018. Second quarter 2018 allowance coverage was 1.07 times nonperforming loans.

Capital and Liquidity

At June 30, 2018, the regulatory capital ratios for the Company's subsidiary bank, Highlands Union Bank, were: tier 1 leverage ratio of 8.85 percent, tier 1 risk-based capital ratio of 12.08 percent, and total risk-based capital ratio of 13.05 percent. 


2Q 18

1Q 18

4Q17

3Q17

2Q17

Tier 1 leverage ratio

8.85%

8.51%

8.36%

8.41%

7.98%

Tier 1 risk-based capital ratio

12.08

12.13

12.15

12.18

12.12

Total risk-based capital ratio

13.05

13.10

13.11

13.32

13.29

The Company's loans held for investment to deposit ratio was 88.6 percent and the loans held for investment to asset ratio was 75.6 percent at June 30, 2018. The Company maintained cash and investment securities totaling 16.7 percent of assets as of this date. Further, the Company's deposit mix is weighted heavily towards customer deposits which funded 85.3 percent of assets at June 30, 2018 of which 65.1 percent is represented by core deposits, an increase from 57.6 percent at June 30, 2017, to include 25.9 percent in noninterest bearing deposits. Time deposits funded 20.3 percent of assets at June 30, 2018, but very few of these deposits are in accounts that have balances of more than $250,000, reflecting the granularity and strength of the Company's funding.

About Highlands Bankshares, Inc.

Highlands provides a relationship-based and highly personal banking experience to small to mid-sized private businesses, professionals, and related individuals. Focused on providing value to each and every customer, Highlands delivers banking services through highly skilled employees, digital channels, as well as 16 offices located in North Carolina, Eastern Tennessee, and Southwest Virginia.

Cautions Concerning Forward-Looking Statements

This news release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements relating to financial and operational performance and certain plans, expectations, goals and projections. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, these statements are inherently subject to numerous assumptions, risks and uncertainties, and there can be no assurances that actual results, performance or achievements will not differ materially from those set forth or implied in the forward-looking statements. For an explanation of the risks and uncertainties associated with forward-looking statements, see the risk factors and other cautionary language included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017, and other filings with the Securities and Exchange Commission. All forward-looking statements included in this press release are based upon information available at the time of the release, and the Company assumes no obligation to update any forward-looking statement.


 

Quarterly Consolidated Income Statements (unaudited)
























Quarter ended


Percent change compared to

(thousands, except per share information)


June 30, 2018


March 31, 2018


June 30, 2017



Prior quarter


Same quarter
of prior year

INTEREST INCOME












Loans receivable and fees on loans


$                5,276


$                5,315


$                5,002



-0.7%


5.5%

Investment securities


438


478


572



-8.4%


-23.4%

Federal funds sold


57


70


74



-18.6%


-23.0%

Total interest income


5,771


5,863


5,648



-1.6%


2.2%

INTEREST EXPENSE












Deposits


463


463


465



0.0%


-0.4%

Other borrowed funds


323


364


601



-11.3%


-46.3%

Total interest expense


786


827


1,066



-5.0%


-26.3%

Net interest income


4,985


5,036


4,582



-1.0%


8.8%

Provision for loan losses


172


172


35



0.0%


391.4%

Net interest income after provision for
loan losses


4,813


4,864


4,547



-1.0%


5.9%

NONINTEREST INCOME












Mortgage banking income


52


100


726



-48.0%


-92.8%

Service charges on deposit accounts


342


337


395



1.5%


-13.4%

Other service charges, commissions and
fees


428


419


463



2.1%


-7.6%

Other operating income


167


226


89



-26.1%


87.6%

Total noninterest income


989


1,082


1,673



-8.6%


-40.9%

NONINTEREST EXPENSE












Salaries and employee benefits


2,380


2,403


2,928



-1.0%


-18.7%

Occupancy and equipment expense


750


731


723



2.6%


3.7%

OREO-related expenses


146


131


174



11.5%


-16.1%

Other operating expense


1,356


1,901


1,438



-28.7%


-5.7%

Total noninterest expense


4,632


5,166


5,263



-10.3%


-12.0%

Income before income taxes


1,170


780


957



50.0%


22.3%

Income tax expense


247


170


320



45.3%


-22.8%

Net income (loss)


$                    923


$                    610


$                    637



51.3%


44.9%

Net income (loss) per common share:












  Basic


$0.11


$0.07


$0.08






  Diluted


0.09


0.06


0.06


















 

 

Consolidated Income Statements (unaudited)










Six months ended June 30,


Percent change

(thousands, except per share information)


2018


2017


INTEREST INCOME







Loans receivable and fees on loans


$                      10,591


$                      10,051


5.4%

Investment securities


916


1,154


-20.6%

Federal funds sold


127


124


2.4%

Total interest income


11,634


11,329


2.7%

INTEREST EXPENSE







Deposits


926


911


1.6%

Other borrowed funds


687


1,186


-42.1%

Total interest expense


1,613


2,097


-23.1%

Net interest income


10,021


9,232


8.5%

Provision for loan losses


344


52


561.5%

Net interest income after provision for loan losses


9,677


9,180


5.4%

NONINTEREST INCOME







Mortgage banking income


152


952


-84.0%

Service charges on deposit accounts


679


792


-14.3%

Other service charges, commissions and fees


847


961


-11.9%

Other operating income


393


255


54.1%

Total noninterest income


2,071


2,960


-30.0%

NONINTEREST EXPENSE







Salaries and employee benefits


4,783


5,421


-11.8%

Occupancy and equipment expense


1,481


1,392


6.4%

OREO-related expenses


277


194


42.8%

Other operating expense


3,257


2,705


20.4%

Total noninterest expense


9,798


9,712


0.9%

Income (loss) before income taxes


1,950


2,428


-19.7%

Income tax expense (credit)


417


759


-45.1%

Net income (loss)


$                        1,533


$                        1,669


-8.1%

Net income (loss) per common share:







Basic


$0.19


$0.20



Diluted


0.15


0.16



 

 

Consolidated Balance Sheets (unaudited)









Percent change since

(thousands)


June 30, 2018


March 31, 2018


June 30, 2017


Prior quarter


Same quarter of
prior year

ASSETS











Cash and due from banks


$            23,007


$               22,626


$               18,890


1.7%


21.8%

Federal funds sold


963


18,276


25,823


-94.7%


-96.3%

Total cash and cash equivalents


23,970


40,902


44,713


-41.4%


-46.4%

Investment securities


73,553


76,933


98,444


-4.4%


-25.3%

Loans held for sale


1,424


1,795


5,912


-20.7%


-75.9%

Loans held for investment


441,460


431,266


420,230


2.4%


5.1%

Allowance for loan losses


(4,138)


(4,000)


(4,671)


3.5%


-11.4%

Net loans held for investment


437,322


427,266


415,559


2.4%


5.2%

Premises and equipment, net


17,879


18,138


17,919


-1.4%


-0.2%

Real estate held for sale


992


1,370


1,430


-27.6%


-30.6%

Deferred tax assets


7,152


7,263


12,017


-1.5%


-40.5%

Interest receivable


1,728


1,777


1,501


-2.8%


15.1%

Bank-owned life insurance


14,835


14,768


14,502


0.5%


2.3%

Other real estate owned


2,233


2,169


2,516


3.0%


-11.2%

Other assets


2,517


3,148


2,380


-20.0%


5.8%

Total assets


$             583,605


$             595,529


$             616,893


-2.0%


-5.4%












LIABILITIES AND STOCKHOLDERS' EQUITY




LIABILITIES











Deposits:











Noninterest bearing


$          155,337


$             157,907


$             144,945


-1.6%


7.2%

Interest bearing


342,979


352,091


351,954


-2.6%


-2.6%

Total deposits


498,316


509,998


496,899


-2.3%


0.3%

Short-term borrowings


-


-


22,500


0.0%


-100.0%

Long-term debt


30,120


30,133


40,172


0.0%


-25.0%

Other liabilities


1,008


1,954


1,368


-48.4%


-26.3%

Total liabilities


529,444


542,085


560,939


-2.3%


-5.6%

STOCKHOLDERS' EQUITY






Common stock


5,124


5,124


5,124


0.0%


0.0%

Preferred stock


4,184


4,184


4,184


0.0%


0.0%

Additional paid-in capital


19,224


19,169


19,002


0.3%


1.2%

Retained earnings


28,072


27,146


28,454


3.4%


-1.3%

Accumulated other comprehensive income


(2,443)


(2,179)


(810)


12.1%


201.6%

Total stockholders' equity


54,161


53,444


55,954


1.3%


-3.2%

Total liabilities and stockholders' equity


$             583,605


$             595,529


$             616,893


-2.0%


-5.4%












 


 

 

Quarterly Rate Volume Variance Analysis














2Q 2018


1Q 2018


2Q 2017

(dollars in thousands)

Average balance

Interest
income/
expense

Yield/ Rate


Average
balance

Interest
income/
expense

Yield/ Rate


Average
balance

Interest
income/
expense

Yield/ Rate

Interest-earning assets:












Loans (incl loans HFS)

$         433,961

$              5,276

4.87%


$         431,812

$              5,315

4.92%


$         410,977

$              5,002

4.95%

Investments

75,477

438

2.32%


80,257

478

2.38%


99,027

572

2.35%

Fed funds sold and other investments

10,090

57

2.23%


18,926

70

1.48%


29,129

74

0.69%

Total interest-earning assets

519,528

5,771

4.45%


530,995

5,863

4.41%


539,133

5,648

4.24%













Interest-bearing liabilities:












Deposits

350,094

463

0.53%


352,706

463

0.53%


354,074

465

0.51%

FHLB borrowings

30,133

323

4.30%


36,033

364

4.10%


67,693

601

3.50%

Total interest-bearing liabilities

380,227

786

0.83%


388,739

827

0.86%


421,767

1,066

0.99%













Net interest income


4,985




5,036




4,582














Interest rate spread



3.62%




3.55%




3.25%

Net yield on interest-earning assets



3.84%




3.78%




3.42%

 

 

Profitability Ratios, Asset Quality and Capital (unaudited)


Quarter ended


(dollars in thousands)


June 30, 2018


March 31, 2018



June 30, 2017


Profitability Ratios (current quarter, annualized)









Net interest margin


3.84%


3.78%



3.42%


Annualized return on average assets


0.63


0.41



0.42


Annualized return on average equity


6.89


4.49



4.68


Efficiency ratio


77.54%


84.44



84.14













June 30, 2018


March 31, 2018



June 30, 2017


Asset Quality









Loans 90 days past due and still accruing


$                                      -


$                                       -



$                                    -


Non-accrual loans


3,871


1,545



3,070


Total non-performing loans


3,871


1,545



3,070


Other real estate owned


2,233


2,169



2,516


Total non-performing assets


$                               6,104


$                                3,714



$                             5,586


Ratios:









Non-performing loans to loans held for investment


0.88%


0.36%



0.73%


Non-performing assets to loans held for investment and OREO


1.38


0.86



1.32


Allowance for credit losses to loans held for investment


0.94


0.93



1.11


Allowance for credit losses to non-performing loans


106.90


258.97



152.15


Past-due loans to loans held for investment


1.47


1.47



0.89


Annualized net charge-offs to period-end loans held for investment


0.03


0.12



0.09











Capital









Common shares outstanding


8,199


8,199



8,199


Preferred shares outstanding


2,092


2,092



2,092


Book value per share:









        Common


$                                 5.76


$                                  5.67



$                                5.98


        Combined common and preferred


5.26


5.19



5.44


Ratios (Bank only):









        Tier 1 leverage ratio


8.85%


8.51%



7.98%


        Tier 1 risk-based capital ratio


12.08


12.13



12.12


        Total risk-based capital ratio


13.05


13.10



13.29


        Common equity tier 1 ratio


12.08


12.13



12.12


 

 

Cision View original content:http://www.prnewswire.com/news-releases/highlands-bankshares-inc-reports-second-quarter-2018-results-300691478.html

SOURCE Highlands Bankshares, Inc.

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