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Highlands Bankshares Earnings Grow to $1.1 Million in Second Quarter of 2015

ABINGDON, Va., Aug. 6, 2015 (GLOBE NEWSWIRE) -- Highlands Bankshares, Inc. (OTC Pink:HBKA), (the "Company") parent company for Highlands Union Bank, (the "Bank"), today announced earnings grew to $1.1 million, or $0.11 per diluted share, for the second quarter of 2015, compared to $580,000, or $0.06 per diluted share, for the first quarter of 2015, and $906,000, or $0.10 per diluted share for the second quarter of 2014. Net income for the second quarter included a $1.0 million tax benefit from the final reversal of its deferred tax asset (DTA) valuation allowance, compared to the first quarter of 2015 that incurred a tax expense of $177,000. The second quarter of 2014 also included a tax benefit of $1.2 million primarily from the DTA valuation allowance reversal.

For the first six months of 2015, earnings grew to $1.7 million, or $0.17 per diluted share, including a tax benefit of $858,000. Earnings for the first six months of 2014 were $1.4 million, or $0.17 per diluted share, including a tax benefit of $1.0 million.

"During the second quarter we generated good operating results, producing our sixth consecutive quarter of profitability, driven by year-over-year loan and non-interest bearing deposit growth together with improving asset quality," said Samuel L. Neese, Chief Executive Officer and Executive Vice President. "As the regional economy continues its steady recovery, we are seeing increasing demand for loans throughout our markets in Southwest Virginia, Eastern Tennessee and Western North Carolina. At the same time, we are maintaining solid asset quality metrics with nonperforming assets declining 12% from the first quarter."

Second Quarter 2015 Highlights (at or for the period ended June 30, 2015, except as noted)

  • In the second quarter of both 2015 and 2014, the Bank reversed $1.0 million of the valuation allowance that was established against its deferred tax asset due to continued improvement in earnings performance and asset quality.
  • Net interest margin was healthy at 3.45%, expanding 25 basis points from the second quarter of 2014.
  • Net loans grew 2% from a year ago to $408.5 million.
  • Nonperforming assets decreased by $2.1 million to $16.1 million during the quarter due to the continued resolution of problem credits and sales of OREO.
  • Non-interest bearing deposits grew 9% to $118.6 million year-over-year.
  • Book value per common share increased 3.0% to $5.96 from a year ago.
  • Investment securities grew 51% year-over-year to $83.9 million, contributing to margin expansion.
  • Capital ratios for Highlands Union Bank were solid with a total risk-based capital ratio of 12.89% and Tier 1 leverage ratio of 7.41%, at quarter end.

Income Statement Review

"Our solid net interest margin in the second quarter was generated from higher balances and yields on our investment securities, growth in the loan portfolio, and reduced interest expense," said Rusty Little, Jr., Chief Financial Officer. Net interest income grew 6% year-over-year and net interest margin improved 25 basis points.

Non-interest income increased 25% to $1.1 million for the second quarter, compared to the preceding quarter. Non-interest income for the quarter declined 7% from $1.2 million a year ago, primarily due to declines in overdraft fees. Total non-interest expense was $5.2 million for the second quarter 2015, compared to $4.6 million for the preceding quarter and $5.0 million for the comparable quarter a year ago. "Our increases in non-interest expense are partially attributable to our continued aggressive resolution of problem assets, including OREO auctions and direct sales," Little noted.

Balance Sheet

The net loan portfolio grew 1% or $4.7 million to $408.5 million in the second quarter 2015 from the linked quarter, and increased by 2% or $8.6 million year-over-year. "We are seeing loan demand pick up primarily in residential and commercial real estate loans, and we continue to emphasize growing our relationship banking lines in all our markets," said Neese.

Deposits totaled $487.2 million at June 30, 2015 compared to $487.9 million at March 31, 2015, and increased modestly from $480.4 million at June 30, 2014. Non-interest bearing deposit accounts increased 9% to $118.6 million from a year earlier and account for 24% of total deposits.

Total assets were $610.1 million at June 30, 2015, up from $605.8 million at June 30, 2014. Stockholders' equity increased 5% to $54.1 million at June 30, 2015, compared to $51.6 million a year ago. Book value per common share was $5.96 at June 30, 2015, compared $5.78 a year ago.

Credit Quality

"We continue to focus on improving asset quality by working with our customers and aggressively marketing foreclosed assets through a variety of channels including local auctions. We made good progress during the quarter, reducing our OREO and repossessed assets by $1.1 million. In July, we also have under contract another $1.6 million in OREO sales, further improving asset quality," said Neese.

Nonperforming assets at June 30, 2015 declined to $16.1 million, or 2.63% of total assets, compared to $18.2 million, or 3.01% of total assets a year ago. Nonperforming loans to portfolio loans was 1.95% at June 30, 2015, compared to 2.34% at June 30, 2014. The allowance for loan losses was $5.4 million at June 30, 2015, or 1.32% of total loans, compared to 1.40% a year ago.

About Highlands Bankshares, Inc.

Highlands Bankshares, Inc. is a bank holding company and parent company of Highlands Union Bank. The Company and the Bank are headquartered in Abingdon, Virginia, with a total of 14 branches located in Southwest Virginia, Eastern Tennessee and Western North Carolina.

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 no 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, 2014, 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.

Balance Sheet
(Dollars in Thousands)
(Unaudited) Quarter Ended: Sequential Year over
June 30 March 31, June 30 Quarter Year
2015 2015 2014 % Change % Change
Assets:
Cash and Due from Banks $ 20,384 $ 19,120 $ 15,997 7% 27%
Fed Funds Sold 31,364 36,833 67,375 -15% -53%
Cash and Cash Equivalents 51,748 55,953 83,372 -8% -38%
Investment Securities Available for Sale 83,896 85,538 55,640 -2% 51%
Other Investments, at cost 6,599 6,599 6,530 0% 1%
Total Investments 90,495 92,137 62,170 -2% 46%
Loans 413,942 409,116 405,590 1% 2%
Allowance for Loan Losses 5,446 5,289 5,673 3% -4%
Total Net Loans 408,496 403,827 399,917 1% 2%
Premises and Equipment, net 20,112 20,088 20,025 0% 0%
Deferred Tax Assets 11,695 10,487 11,129 12% 5%
Other Real Estate Owned 7,955 9,081 8,706 -12% -9%
Bank Owned Life Insurance 14,379 14,280 14,345 1% 0%
Accrued Interest Receivable 2,233 2,234 2,275 0% -2%
Other Assets 2,974 2,313 3,825 29% -22%
Total Other Assets 59,348 58,483 60,305 1% -2%
Total Assets $ 610,087 $ 610,400 $ 605,764 0% 1%
Liabilities and Shareholders' Equity:
Deposits:
Demand, Non-Interest Bearing $ 118,592 $ 117,005 $ 108,395 1% 9%
Interest Bearing 368,608 370,987 372,050 -1% -1%
Total Deposits 487,200 487,992 480,445 0% 1%
Interest, taxes and other liabilities 1,010 1,317 2,749 -23% -63%
Other short-term borrowings 20,051 20,050 20,050 0% 0%
Long-term debt 47,724 47,738 47,776 0% 0%
Capital Securities -- -- 3,150
Total Other Liabilities 68,785 69,105 73,725 0% -7%
Total Liabilities 555,985 557,097 554,170 0% 0%
Shareholders' Equity:
Common Stock 4,907 4,907 4,803 0% 2%
Preferred Stock 4,184 4,184 4,096 0% 2%
Additional Paid-in Capital 17,947 17,947 18,541 0% -3%
Retained Earnings 27,150 26,016 24,317 4% 12%
Accumulated Other Comprehensive Income (Loss) (86) 249 (163) -135% -47%
Total Shareholders' Equity 54,102 53,303 51,594 1% 5%
Total Liabilities and Shareholders' Equity $ 610,087 $ 610,400 $ 605,764 0% 1%
Income Statement
(Dollars in thousands, except per share data)
(Unaudited) Quarter Ended: Sequential Year over
June 30, March 31, June 30, Quarter Year
2015 2015 2014 % Change % Change
Interest Income
Loans receivable and fees on loans $ 5,276 $ 5,298 $ 5,195 0% 2%
Securities available for sale:
Taxable 279 313 192 -11% 45%
Exempt from taxable income 89 108 124 -18% -28%
Other investment income 61 52 56 17% 9%
Federal funds sold 25 21 40 19% -38%
Total interest income 5,730 5,792 5,607 -1% 2%
Interest Expense
Deposits 547 570 640 -4% -15%
Other borrowed funds 591 585 715 1% -17%
Total interest expense 1,138 1,155 1,355 -1% -16%
Net Interest Income 4,592 4,637 4,252 -1% 8%
Provision for Loan Losses 382 100 631 282% -39%
Net interest income after provision for loan losses 4,210 4,537 3,621 -7% 16%
Non-interest Income
Securities gains, losses, net -- 16 -- -100% 0%
Service charges on deposit accounts 430 391 494 10% -13%
Other service charges, commissions and fees 494 335 453 47% 9%
Other operating income 157 124 212 27% -26%
Total Noninterest Income 1,081 866 1,159 25% -7%
Non-interest Expense
Salaries and employee benefits 2,567 2,446 2,506 5% 2%
Occupancy expense of bank premises 285 309 296 -8% -4%
Furniture and equipment expense 336 340 270 -1% 24%
Other operating expense 1,415 1,317 1,472 7% -4%
Foreclosed Assets - Write-down and operating expenses 589 234 499 152% 18%
Total Noninterest Expense 5,192 4,646 5,043 12% 3%
Income (Loss) Before Income Taxes 99 757 (263)
Income Tax Expense (Benefit) (1,035) 177 (1,169)
Net Income $ 1,134 $ 580 $ 906 96% 25%
Basic earnings per share $ 0.14 $ 0.07 $ 0.13 100% 8%
Diluted earnings per share $ 0.11 $ 0.06 $ 0.10 83% 10%
Income Statement
(Dollars in thousands, except per share data)
(Unaudited) For the Six Months Ended One
June 30, June 30, Year
2015 2014 % Change
Interest Income
Loans receivable and fees on loans $ 10,574 $ 10,587 0%
Securities available for sale:
Taxable 592 414 43%
Exempt from taxable income 197 247 -20%
Other investment income 113 101 12%
Federal Funds sold 46 78 -41%
Total interest income 11,522 11,427 1%
Interest Expense
Deposits 1,117 1,303 -14%
Other borrowed funds 1,176 1,456 -19%
Total interest expense 2,293 2,759 -17%
Net Interest Income 9,229 8,668 6%
Provision for (recapture of) loan losses 482 896 -46%
Net interest income after provision for loan losses 8,747 7,772 13%
Non-interest Income
Securities gains, losses, net 16 --
Service charges on deposit accounts 821 946 -13%
Other service charges, commissions and fees 829 852 -3%
Other operating income 281 361 -22%
Total Noninterest Income 1,947 2,159 -10%
Non-interest Expense
Salaries and employee benefits 5,013 4,973 1%
Occupancy expense of bank premises 594 576 3%
Furniture and equipment expense 676 572 18%
Other operating expense 2,732 2,661 3%
Foreclosed Assets - Write-down and operating expenses 823 772 7%
Total Noninterest Expense 9,838 9,554 3%
Income (Loss) Before Income Taxes 856 377 127%
Income Tax Expense (Benefit) (858) (1,030)
Net Income $ 1,714 $ 1,407 22%
Basic earnings per share $ 0.22 $ 0.23 $ (0.04)
Diluted earnings per share $ 0.17 $ 0.17 $ --
Asset Quality and Capital Adequacy
(Dollars in thousands, except per share data)
(Unaudited)
June 30, March 31, June 30,
Period Ended 2015 2015 2014
Asset Quality
Loans 90 days past due & still accruing interest $ -- $ -- $ 11
Nonaccrual loans (1) 8,090 9,057 9,482
Total nonperforming loans 8,090 9,057 9,493
OREO and repossessed assets, net 7,980 9,109 8,716
Total Nonperforming Assets $ 16,070 $ 18,166 $ 18,209
Nonperforming loans to portfolio loans 1.95% 2.21% 2.34%
Nonperforming assets to total assets 2.63% 2.98% 3.01%
Allowance for loan losses to total loans 1.32% 1.29% 1.40%
Allowance for loan losses to nonperforming loans 67.32% 58.40% 59.76%
Capital Data (at quarter end)
Book value per share $ 5.96 $ 5.86 $ 5.78
Tangible book value per share $ 5.96 $ 5.86 $ 5.64
Tangible common equity to tangible assets 7.67% 7.53% 7.16%
Shares outstanding-common 7,851,780 7,851,780 7,684,401
Shares outstanding-preferred 2,092,287 2,092,287 2,048,179
Book value per share including preferred shares $ 5.44 $ 5.36 $ 5.30
Profitability Ratios (for the quarter)
Net interest margin 3.45% 3.46% 3.20%
Return on average assets 0.74% 0.38% 0.60%
Return on average equity 8.46% 4.37% 7.77%
Profitability Ratios (year-to-date)
Net interest margin 3.47% 3.46% 3.26%
Return on average assets 0.56% 0.38% 0.47%
Return on average equity 6.43% 4.37% 6.89%
Capital Adequacy - Bank Only (1)
Tier 1 leverage ratio 7.41% 7.42% 7.39%
Tier 1 risk-based capital ratio 11.63% 11.65% 12.33%
Total risk-based capital ratio 12.89% 12.92% 13.58%
Total risk weighted assets $ 383,971 $ 382,877 $ 361,047
(1) BASEL III capital adequacy requirements implemented on January 1, 2015

CONTACT: Highlands Bankshares, Inc. Sam Neese, Chief Executive Officer Rusty Little, Chief Financial Officer Jim Edmondson, Vice President Tel: 276-628-9181 The Cereghino Group IR CONTACT: 206-388-5785

Source:Highlands Bankshares, Inc.