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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

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