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Highlands Bankshares Earnings Grow 11% to $2.14 Million for the First Nine Months 2015; Propelled by Strong Growth in Loans and Solid Improvements in Asset Quality with NPAs Declining 35% YOY

ABINGDON, Va., Nov. 16, 2015 (GLOBE NEWSWIRE) -- Highlands Bankshares, Inc. (OTC Pink:HBKA), (the "Company")parent company for Highlands Union Bank, (the "Bank"), today reported operating profitability continued to improve reflecting strong loan growth and improving credit quality. Earnings totaled $430,000, or $0.04 per diluted share for the third quarter of 2015, which included a tax expense of $114,000. Net income for the second quarter of 2015 was $1.1 million, or $0.11 per diluted share, which included a $1.0 million tax benefit from the final reversal of its deferred tax asset (DTA) valuation allowance. Third quarter 2014 earnings were $526,000 or $0.05 per diluted share and incurred a tax expense of $47,000.

Net income for the first nine months of 2015, grew 11% to $2.14 million, or $0.22 per diluted share, which included a tax benefit of $746,000, compared to earnings of $1.93 million, or $0.22 per diluted share, including a tax benefit of $983,000 for the first nine months of 2014.

"We reported our seventh consecutive quarter of profitability fueled by solid loan growth, and substantial improvements in asset quality. Nonperforming assets declined 35% with nonaccrual loans decreasing 56% over the past twelve months, and we are continuing to successfully reduce the inventory of foreclosed properties on our books," said Rusty Little, Chief Financial Officer. "Going forward, we expect to continue to deepen our residential mortgage penetration, build commercial relationships and generate solid core deposits throughout the local communities we serve in Southwest Virginia, Eastern Tennessee and Western North Carolina."

As announced last week, Timothy K. Schools was appointed to president and chief executive officer of Highlands Bankshares, Inc., and Highlands Union Bank, by its respective boards of directors, effective November 12, 2015. This appointment is subject to regulatory approval. Schools succeeds longtime Bank president and CEO, Samuel L. Neese, who announced his retirement from the position earlier last week.

Schools brings over 15 years of financial services experience where he has been instrumental in the profitability, growth and risk management of several leading Southeastern banking institutions. He has held executive positions in the guidance and administration of financial services holding companies, including president, chief financial officer and chief risk officer. His background includes significant profit-and-loss management along with a broad array of audit, board, regulatory and Wall Street experience.

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

  • For the first nine months of 2015, net income grew 11% to $2.14 million, or $0.22 per diluted share.
  • Net interest income (after provision for loan losses) expanded both from the preceding and the third quarter a year ago, primarily due to a lower provision for loan losses, increased loan volume and a declining cost of funds. Year-to-date, net interest income (after provision for loan losses) increased 9% to $13.2 million.
  • Total loans grew by $8.2 million, or 2%, to $422.1 million from the second quarter 2015, and increased $17.6 million, or 4%, from a year ago.
  • Nonperforming assets declined by $2.3 million in the third quarter to $13.8 million, or 2.24% total assets, compared to $16.1 million, or 2.63% of total assets in the second quarter of 2015, and decreased by $7.6 million from $21.4 million, or 3.52% of total assets a year earlier.
  • Nonaccrual loans decreased 20% on a linked quarter basis and 56% year-over-year, to $6.5 million.
  • Net interest margin remained strong at 3.46%, improving 10 basis points from 3.36% for the third quarter of 2014.
  • Non-interest bearing deposits grew 3% to $118.5 million year-over-year. Total low cost transaction deposits represented 67% of total deposits, at September 30, 2015.
  • Tangible book value per common share increased 8.0% to $6.09 from a year ago.
  • Capital ratios for Highlands Union Bank were solid with a total risk-based capital ratio of 12.98%.

Income Statement Review

"Our solid net interest margin in the third quarter was generated from growing our loan portfolio and reducing interest expenses by 9% from a year earlier," said Little. Net interest income, after the provision for loan losses, increased 5% to $4.4 million for the third quarter of 2015, compared to $4.2 million for the second quarter of 2015 and grew 2% from $4.3 million for the third quarter of 2014. After provision for loan losses, year-to-date net interest income increased 9% to $13.2 million compared to $12.1 million for the nine months ended September 30, 2014.

Non-interest income was $982,000 for the third quarter, compared to $1.1 million for the third quarter of 2014. For the nine months ended September 30, 2015, non-interest income was $2.9 million, compared to $3.2 million for the like period in 2014. The decline in non-interest income was primarily due to declines in operating income mainly in NSF overdraft fees.

"As we work to resolve problem assets, our costs for managing the inventory of foreclosed assets continue to decline. We generated a net recovery of these properties in the third quarter this year, which further contributed to reducing operating expenses in the quarter," said Little. Total non-interest expense decreased 6% to $4.9 million for the third quarter of 2015, compared to $5.2 million for the preceding quarter and was down slightly from $4.8 million for the comparable quarter a year ago. For the first nine months of 2015, non-interest expense increased 2% to $14.7 million from $14.4 million, although operating expenses for foreclosed assets were down 45%.

Balance Sheet

The net loan portfolio grew 2%, or $8.3 million, to $416.8 million in the third quarter 2015 from the second quarter, and increased by 4%, or $17.8 million, compared to the third quarter of 2014. "Loan demand continues to expand in residential and commercial real estate loans, allowing us to continue to build and grow our relationship banking lines in all our markets," added Little.

Non-interest bearing deposit accounts increased by $3.4 million, or 3%, to $118.5 million from a year earlier and account for 24% of total deposits. Total deposits were $491.4 million at September 30, 2015 compared to $487.2 million at June 30, 2015, and $487.9 million at September 30, 2014.

Total assets were $615.4 million at September 30, 2015, up from $609.6 million at September 30, 2014. Stockholders' equity increased 4% to $54.7 million at September 30, 2015, compared to $52.5 million a year ago. Book value per common share was $6.09 at September 30, 2015, compared $5.78 a year ago.

Credit Quality

"Our nonperforming assets declined substantially on a linked quarter and year-over-year basis to $13.8 million at the end of the quarter," said Little. "We will continue to diligently focus on improving asset quality and work with our customers in reducing nonaccrual loans and selling foreclosed properties."

Nonperforming loans, consisting of non-accrual loans and other loans delinquent 90 days or more, decreased to $6.5 million, or 1.54% of total loans at September 30, 2015, compared to $8.09 million, or 1.95% of total loans at June 30, 2015, and $14.72 million, or 3.64% of total loans at September 30, 2014. The ratio of nonperforming assets was 2.24% to total assets at September 30, 2015, compared to 2.63%, three months earlier, and 3.52% at September 30, 2014.

The allowance for loan losses as a percentage of total loans was 1.26% at September 30, 2015, compared to 1.37% at September 30, 2014. For the nine month ended September 30, 2015, provisions to the allowance for loan losses were $697,000, a decline of 44% from $1.2 million for the like period in 2014.

Capital

Highlands Union Bank continues to remain well-capitalized under all regulatory measures, with capital ratios exceeding the statutory well-capitalized thresholds. For the quarter ended September 30, 2015, capital ratios were as follows:

Regulatory minimums for Well
Ratios Highlands Union Bank Capitalized Status
Tier 1 leverage ratio 7.42% 5%
Common Equity Tier 1 capital ratio 11.71% 7% *
Tier 1 risk-based capital ratio 11.71% 8.5% *
Total risk-based capital ratio 12.98% 10.5% *
* Includes BASEL III fully phased in requirements including capital conservation buffers.

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.

Highlands Bankshares Inc. (OTC Pink: HBKA)
Balance Sheet
(Dollars in Thousands)
(Unaudited) Quarter Ended: Sequential Year over
September 30, 2015 June 30, September 30, 2015 Quarter Year
2015 2015 2014 % Change % Change
Assets:
Cash and Due from Banks $ 20,566 $ 20,384 $ 16,602 1% 24%
Fed Funds Sold 28,247 31,364 45,520 -10% -38%
Cash and Cash Equivalents 48,813 51,748 62,122 -6% -21%
Investment Securities Available for Sale 84,464 83,896 83,239 1% 1%
Other Investments, at cost 6,599 6,599 6,757 0% -2%
Total Investments 91,063 90,495 89,996 1% 1%
Loans 422,146 413,942 404,584 2% 4%
Allowance for Loan Losses 5,333 5,446 5,529 -2% -4%
Total Net Loans 416,813 408,496 399,055 2% 4%
Premises and Equipment, net 20,659 20,112 20,327 3% 2%
Deferred Tax Assets 11,470 11,695 11,150 -2% 3%
Other Real Estate Owned 7,277 7,955 6,720 -9% 8%
Bank Owned Life Insurance 14,482 14,379 14,085 1% 3%
Accrued Interest Receivable 2,310 2,233 2,320 3% 0%
Other Assets 2,557 2,974 3,829 -14% -33%
Total Other Assets 58,755 59,348 58,431 -1% 1%
Total Assets $ 615,444 $ 610,087 $ 609,604 1% 1%
Liabilities and Shareholders' Equity:
Deposits:
Demand, Non-Interest Bearing $ 118,486 $ 118,592 $ 115,127 0% 3%
Interest Bearing $ 372,883 $ 368,608 $ 372,822 1% 0%
Total Deposits 491,369 487,200 487,949 1% 1%
Interest, taxes and other liabilities 1,566 1,010 1,298 55% 21%
Other short-term borrowings 20,051 20,051 20,050 0% 0%
Long-term debt 47,712 47,724 47,764 0% 0%
Capital Securities -- -- --
Total Other Liabilities 69,329 68,785 69,112 1% 0%
Total Liabilities 560,698 555,985 557,061 1% 1%
Shareholders' Equity:
Common Stock 4,907 4,907 4,902 0% 0%
Preferred Stock 4,184 4,184 4,096 0% 2%
Additional Paid-in Capital 17,947 17,947 18,998 0% -6%
Retained Earnings 27,579 27,150 24,843 2% 11%
Accumulated Other Comprehensive Income (Loss) 129 (86) (296) -250% -144%
Total Shareholders' Equity 54,746 54,102 52,543 1% 4%
Total Liabilities and Shareholders' Equity $ 615,444 $ 610,087 $ 609,604 1% 1%
Highlands Bankshares Inc. (OTC Pink: HBKA)
Income Statement
(Dollars in thousands, except per share data)
(Unaudited) Quarter Ended: Sequential Year over
September 30, June 30, September 30, Quarter Year
2015 2015 2014 % Change % Change
Interest Income
Loans receivable and fees on loans $ 5,347 $ 5,276 $ 5,458 1% -2%
Securities available for sale:
Taxable 281 279 277 1% 1%
Exempt from taxable income 84 89 124 -6% -32%
Other investment income 48 61 50 -21% -4%
Federal funds sold 20 25 32 -20% -38%
Total interest income 5,780 5,730 5,941 1% -3%
Interest Expense
Deposits 545 547 630 0% -13%
Other borrowed funds 598 591 621 1% -4%
Total interest expense 1,143 1,138 1,251 0% -9%
Net Interest Income 4,637 4,592 4,690 1% -1%
Provision for Loan Losses 215 382 352 -44% -39%
Net interest income after provision for loan losses 4,422 4,210 4,338 5% 2%
Non-interest Income
Securities gains, losses, net 0 0 0 0% 0%
Service charges on deposit accounts 439 430 485 2% -9%
Other service charges, commissions and fees 391 494 396 -21% -1%
Other operating income 152 157 203 -3% -25%
Total Noninterest Income 982 1,081 1,084 -9% -9%
Non-interest Expense
Salaries and employee benefits 2,585 2,567 2,451 1% 5%
Occupancy expense of bank premises 271 285 202 -5% 34%
Furniture and equipment expense 350 336 290 4% 21%
Other operating expense 1,794 1,415 1,444 27% 24%
Foreclosed Assets - Write-down & operating expenses (139) 589 462 -124% -130%
Total Noninterest Expense 4,861 5,192 4,849 -6% 0%
Income Before Income Taxes 543 99 573
Income Tax Expense (Benefit) 114 (1,035) 47
Net Income $ 430 $ 1,134 $ 526 -62% -18%
Basic earnings per share ($) 0.05 0.14 0.07 -64% -29%
Diluted earnings per share ($) 0.04 0.11 0.05 -64% -20%
Highlands Bankshares Inc. (OTC Pink: HBKA)
Income Statement
(Dollars in thousands, except per share data)
(Unaudited) For the Nine Months Ended One
September 30, September 30, Year
2015 2014 % Change
Interest Income
Loans receivable and fees on loans $ 15,921 $ 16,045 -1%
Securities available for sale:
Taxable 873 691 26%
Exempt from taxable income 281 371 -24%
Other investment income 161 151 7%
Federal Funds sold 66 110 -40%
Total interest income 17,302 17,368 0%
Interest Expense
Deposits 1,662 1,933 -14%
Other borrowed funds 1,774 2,077 -15%
Total interest expense 3,436 4,010 -14%
Net Interest Income 13,866 13,358 4%
Provision for loan losses 697 1,248 -44%
Net interest income after provision for loan losses 13,169 12,110 9%
Non-interest Income
Securities gains, net 16 0
Service charges on deposit accounts 1,260 1,431 -12%
Other service charges, commissions and fees 1,220 1,248 -2%
Other operating income 433 564 -23%
Total Noninterest Income 2,929 3,243 -10%
Non-interest Expense
Salaries and employee benefits 7,598 7,424 2%
Occupancy expense of bank premises 865 778 11%
Furniture and equipment expense 1,026 862 19%
Other operating expense 4,528 4,105 10%
Foreclosed Assets - Write-down and operating expenses 684 1,234 -45%
Total Noninterest Expense 14,701 14,403 2%
Income Before Income Taxes 1,397 950 47%
Income Tax Benefit (746) (983)
Net Income $ 2,143 $ 1,933 11%
Basic earnings per share ($) 0.27 0.29 -7%
Diluted earnings per share ($) 0.22 0.22 0%
Highlands Bankshares Inc. (OTC Pink: HBKA)
Asset Quality and Capital Adequacy
(Dollars in thousands, except per share data)
(Unaudited)
September 30, June 30, September 30,
Period Ended 2015 2015 2014
Asset Quality
Loans 90 days past due & still accruing interest $ -- $ -- $ --
Nonaccrual loans (1) 6,502 8,090 14,715
Total nonperforming loans 6,502 8,090 14,715
OREO and repossessed assets, net 7,305 7,980 6,720
Total Nonperforming Assets $ 13,807 $ 16,070 $ 21,435
Nonperforming loans to portfolio loans 1.54% 1.95% 3.64%
Nonperforming assets to total assets 2.24% 2.63% 3.52%
Allowance for loan losses to total loans 1.26% 1.32% 1.37%
Allowance for loan losses to nonperforming loans 82.02% 67.32% 37.57%
Capital Data (at quarter end)
Book value per common share $ 6.09 $ 6.01 $ 5.78
Tangible book value per common share $ 6.09 $ 6.01 $ 5.64
Tangible common equity to tangible assets 7.77% 7.73% 7.26%
Shares outstanding-common 7,851,780 7,851,780 7,843,494
Shares outstanding-preferred 2,092,287 2,092,287 2,048,179
Book value per share including preferred shares $ 5.51 $ 5.44 $ 5.31
Profitability Ratios (year-to-date)
Net interest margin 3.46% 3.47% 3.36%
Return on average assets 0.47% 0.56% 0.43%
Return on average equity 5.32% 6.43% 5.83%
Capital Adequacy -Bank Only (1)
Tier 1 leverage ratio 7.42% 7.41% 7.59%
Tier 1 risk-based capital ratio 11.71% 11.63% 12.61%
Total risk-based capital ratio 12.98% 12.89% 13.86%
Total risk weighted assets 384,712 383,329 361,186
(1) BASEL III capital adequacy requirements implemented on January 1, 2015

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

Source:Highlands Bankshares, Inc.