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HCSB Financial Corporation Announces Second Quarter 2016 Financial Results

LORIS, S.C., July 29, 2016 (GLOBE NEWSWIRE) -- HCSB Financial Corporation (OTC Pink:HCFB), the holding company for Horry County State Bank, announced today financial results for the second quarter ended June 30, 2016. The Company announced net earnings per share available to common shareholders of $0.03 per share, an increase from the loss of $0.96 per share at the end of the first quarter of 2016.

“We have made tremendous progress during the second quarter and through the first half of 2016. The capital raise, the repurchase of our senior securities, and the hiring of key executives, are all important accomplishments on our road to profitability, efficiency, and increased loan production. Our Company is now well-capitalized, and we have a strong team of commercial bankers in place to begin building our loan portfolio with quality commercial loans in our markets,” remarked Jan Hollar, Chief Executive Officer of the Company and the Bank.

The new executive team is now in place and leading the Bank into its next chapter. In addition to Jan Hollar as CEO, the Company announced the following additions to the executive team during the first half of 2016: Jack McElveen as Chief Credit Officer, Rick Patterson as Chief Operating Officer, and Jennifer Harris as Chief Financial Officer.

Financial Highlights

During the second quarter, the Company raised $45 million in capital in an offering led by a group of accredited institutional investors, as well as $1.4 million in a follow-on offering to legacy shareholders, employees, and other investors. Portions of this capital has already been used to accomplish several of the Company’s goals. First, the Company repurchased all of its outstanding trust preferred securities as well as the preferred stock issued to the United States Treasury as part of the Troubled Asset Relief Program (TARP), ending the Company’s obligation to Treasury. In addition, the Company was able to repurchase subordinated debt that the Company issued to certain accredited investors in 2010.

The Company is committed to improving its asset quality through a planned bulk sale of nonperforming assets. A portion of the capital raised is being used for this purpose. The terms of the sale have been finalized, and the sale closed early in the third quarter of 2016.

Also during the second quarter, the Company booked $9 million in new loans, the largest portion of which were in the commercial real estate category. This uptick in loan production is in line with the Bank’s strategy to increase lending within prudent limits and high standards of credit quality.

Interest Income and Net Interest Margin

Net interest income was up quarter over quarter, totaling $2.4 million for the second quarter of 2016 as compared to $1.9 million in the first quarter of 2016. The Company also experienced a 39 basis point increase in its net interest margin to 2.84% for the quarter ended June 30, 2016 from 2.45% for the quarter ended March 31, 2016. The increase in margin is primarily the result of a 380 basis point decrease in cost of borrowings, as trust preferred securities were repurchased and subordinated debt was settled early in the second quarter of 2016.

Non-Interest Income

Non-interest income increased to $19.5 million in the second quarter of 2016 compared to $416,000 in the first quarter of 2016. The current quarter included $19.1 million of gains on the extinguishment of debt related to the settlement of subordinated debt noted above. Also included in non-interest income for the quarter ended June 30, 2016 was a $102,000 loss on the sale of securities, as the Company begins to restructure its current portfolio to better mitigate interest rate risk within the portfolio. This compares to a gain on sale of securities of $17,000 in the first quarter of 2016. Excluding the gain on extinguishment of debt and gain (loss) on the sale of securities for each quarter, non-interest income increased $41,000 in the second quarter of 2016 as compared to the first quarter of 2016.

Asset Quality

During the second quarter, asset quality improved significantly due to the asset disposition plan put into place following the capital raise. Other real estate owned (OREO) decreased by $4.0 million during the quarter to $7.3 million at June 30, 2016 due to the write down and sale of several properties. Nonperforming loans decreased by $1.8 million to $4.3 million at June 30, 2016, of which $4.28 million are classified as held-for-sale as the Company finalizes the sale of those assets in early third quarter. The ratio of nonperforming assets to total assets dropped to 3.03%, as compared to 4.78% at March 31, 2016 and the ratio of nonperforming loans to total loans dropped to 2.18% at the end of the second quarter of 2016 as compared to 3.06% at the end of the first quarter of 2016. The Company expects continued improvement in these ratios and other asset quality metrics as the classified asset reduction plan is completed in the third quarter of 2016.

Allowance for Loan Losses

At June 30, 2016, the allowance for loan losses was $4.5 million, compared to $3.7 million at March 31, 2016. As a percentage of total loans held-for-investment, the allowance for loan losses was 2.26% in the second quarter of 2016, up from 1.86% in the first quarter of 2016. Our reserves increased modestly due to charge-offs taken during the quarter, the extension of the lookback period in the calculation of historic loss rates, as well as an increase in qualitative factors which management felt prudent given significant changes in credit administration. Out of the $4.5 million in total allowance for loan losses at June 30, 2016, specific allowances for impaired loans accounted for $845,000 as compared to $1.2 million in the first quarter due to the sale and resolution of nonperforming loans.

Balance Sheet and Capital

Total assets increased $19.1 million during the second quarter of 2016, and gross loans (including loans held-for-sale) increased $3.7 million compared to the first quarter of 2016 as the Company saw solid loan production during the quarter. Total deposits decreased $12.2 million, which primarily resulted from the maturity of $9.9 million in internet-based time deposits.

The Company’s capital ratios have improved significantly following the capital raise in April 2016. As of June 30, 2016 the Bank’s leverage ratio, Common Equity Tier 1 ratio (CET1), Tier 1 risk-based capital ratio, and total risk-based capital ratio were 9.90%, 16.32%, 16.32% and 17.58%, respectively.

About HCSB Financial Corporation

HCSB Financial Corporation is the holding company for Horry County State Bank, a full-service community bank providing services in 8 branches across Horry County, South Carolina. Horry County State Bank’s website is www.hcsbaccess.com. HSCB shares are quoted on the OTC Pink under the symbol “HCFB”.

SAFE HARBOR

This news release contains forward-looking statements, as defined by the federal securities laws, including statement about the Company’s financial outlook and business environment. Forward looking statements generally include words such as “expects,” “projects,” “anticipates,” “believes,” “estimates,” “strategy,” “plan,” “potential,” and other similar expressions. These statements are provided to assist in the understanding of future financial performance and such performance involves risks and uncertainties that may cause actual results to differ materially from those anticipated in such statements. Any such statements are based on current expectations and involve a number of risks and uncertainties. For a discussion of some factors that may cause such forward-looking statements to differ materially from actual results, please refer to the section entitled “Forward-Looking Statements” on pages 1-2 and in the section entitled “Risk Factors” of the Company’s annual report on Form 10-K filed with the SEC for the year ended December 31, 2015. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise forward-looking statements.

HCSB Financial Corporation
Condensed Consolidated Balance Sheet (Unaudited)
As of
June 30, March 31, December 31, September 30, June 30,
2016 2016 2015* 2015 2015
($ in thousands)
ASSETS
Cash and due from banks$ 64,024 $ 41,652 $ 22,137 $ 29,185 $ 43,085
Investment securities available for sale 80,969 83,205 89,701 84,291 91,466
Nonmarketable equity securities 1,090 1,276 1,330 1,330 1,330
Loans held for sale 4,280 - - - 6,179
Loans 199,072 199,635 209,367 219,982 225,576
Allowance for loan losses (4,492) (3,719) (4,601) (5,021) (5,599)
Net loans 194,580 195,916 204,766 214,961 219,977
Premises and equipment, net 14,591 15,758 15,917 16,069 16,178
Assets held-for-sale 768 - - - -
Other real estate owned 7,256 11,270 13,624 18,510 17,897
Bank-owned life insurance 11,481 11,400 11,319 11,239 11,159
Other assets 3,441 2,886 2,629 2,962 6,599
Total assets$ 382,480 $ 363,363 $ 361,423 $ 378,547 $ 413,870
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand noninterest-bearing$ 44,077 $ 40,227 $ 40,182 $ 45,135 $ 46,155
Money market, NOW and savings 119,191 122,613 116,678 121,965 138,076
Time deposits 159,974 172,621 173,971 180,514 200,275
Total deposits 323,242 335,461 330,831 347,614 384,506
Short-term borrowings 1,659 1,248 1,716 1,119 1,066
Long-term debt 17,000 34,141 34,138 34,248 34,248
Accrued expenses and other liabilities 3,312 7,161 6,988 6,741 6,168
Total liabilities 345,213 378,011 373,673 389,722 425,988
Shareholders' equity:
Preferred stock 9 12,895 12,895 12,895 12,895
Common stock 3,633 38 38 38 38
Warrants - 1,012 1,012 1,012 1,012
Additional paid-in capital 81,903 30,220 30,220 30,214 30,214
Retained deficit (48,177) (58,090) (54,807) (54,398) (54,766)
Accumulated other comprehensive loss (101) (723) (1,608) (936) (1,511)
Total shareholders' equity 37,267 (14,648) (12,250) (11,175) (12,118)
Total liabilities and shareholders' equity$ 382,480 $ 363,363 $ 361,423 $ 378,547 $ 413,870
Common shares issued and outstanding 363,314,783 3,846,340 3,846,340 3,816,340 3,816,340
* Derived from audited financial statements.


HCSB Financial Corporation
Condensed Consolidated Income Statement (Unaudited)
At or For the Three Months Ended
June 30, March 31, December 31, September 30, June 30,
2016 2016 2015 2015 2015
($ in thousands, except per share amounts)
Interest income
Loans, including fees$ 2,581 $ 2,483 $ 2,753 $ 3,088 $ 2,954
Investment securities 386 461 479 506 510
Nonmarketable equity securities 14 14 14 8 15
Interest on deposits at banks 73 31 14 16 21
Total interest income 3,054 2,989 3,260 3,618 3,500
Interest expense
Money market, NOW and savings deposits 100 96 98 108 112
Time deposits 412 427 450 487 529
Borrowings 97 523 518 510 497
Total interest expense 609 1,046 1,066 1,105 1,138
Net interest income 2,445 1,943 2,194 2,513 2,362
Provision for loan losses 3,560 1,424 - - -
Net interest income (loss) after provision (1,115) 519 2,194 2,513 2,362
Noninterest income
Service charges on deposit accounts 189 161 163 197 201
Mortgage banking income - - 6 50 63
Income from bank-owned life insurance 110 110 109 109 106
Gain (loss) on sale of securities available for sale (102) 17 - 20 78
Gain (loss) on sale of assets - - (4) 736 (9)
Gain on extinguishment of debt 19,115 - - - -
Other noninterest income 141 128 149 231 227
Total noninterest income 19,453 416 423 1,343 666
Noninterest expenses
Salaries and employee benefits 1,668 1,286 1,228 1,330 1,402
Occupancy and equipment 486 499 493 558 534
Legal and professional fees 1,076 215 494 488 372
Deposit charges and FDIC insurance 206 309 320 346 363
Loss on disposal of fixed assets 247 - - - -
Net cost of operation of other real estate owned 3,273 1,564 167 382 365
Other noninterest expense 549 345 364 349 394
Total noninterest expenses 7,505 4,218 3,066 3,453 3,430
Income (loss) before income taxes 10,833 (3,283) (449) 403 (402)
Income tax expense (benefit) 920 - (40) 35 5
Net income (loss) 9,913 (3,283) (409) 368 (407)
Preferred dividends - (398) (405) (514) (296)
Net income (loss) available to common shareholders $ 9,913 $ (3,681) $ (814) $ (146) $ (703)
Earnings per common share, fully diluted$ 0.03 $ (0.96) $ (0.21) $ (0.04) $ (0.18)
Weighted average diluted common shares 319,862,554 3,846,340 3,846,340 3,816,340 3,816,640


HCSB Financial Corporation
Average Balance Sheets and Net Interest Analysis (Unaudited)
For the Three Months Ended
June 30, 2016 June 30, 2015
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate (2) Balance Expense Rate (2)
Assets ($ in thousands)
Interest-earning assets:
Loans and loans held for sale (1)$ 201,380 $ 2,581 5.15% $ 231,604 $ 2,954 5.17%
Interest-bearing deposits 66,958 73 0.44% 33,129 21 0.26%
Investment securities 76,970 386 2.01% 103,333 510 1.97%
Other interest-earning assets 1,090 14 5.17% 1,144 15 5.32%
Total interest-earning assets 346,398 3,054 3.55% 369,210 3,500 3.84%
Allowance for loan losses (3,821) (5,477)
Cash and due from banks 1,762 2,108
Premises and equipment 15,676 20,140
Other assets 24,650 32,786
Total assets$ 384,665 $ 418,767
Liabilities and shareholders' equity
Interest-bearing liabilities:
Interest-bearing demand$ 40,565 $ 18 0.18% $ 43,090 $ 16 0.15%
Money market, NOW and savings 78,870 82 0.42% 92,553 96 0.42%
Time deposits 164,464 412 1.01% 205,823 529 1.04%
Total interest-bearing deposits 283,899 512 0.73% 341,466 641 0.76%
Short-term borrowings 1,418 1 0.28% 1,084 1 0.37%
Long-term debt 19,017 96 2.03% 34,248 496 5.87%
Total borrowed funds 20,435 97 1.91% 35,332 497 5.70%
Total interest-bearing liabilities 304,334 609 0.80% 376,798 1,138 1.22%
Net interest rate spread 2,445 2.75% 2,362 2.62%
Noninterest-bearing demand deposits 40,568 46,608
Other liabilities 4,142 6,413
Shareholders' equity 35,621 (11,052)
Total liabilities and shareholders' equity$ 384,665 $ 418,767
Net interest margin 2.84% 2.59%
(1) Nonaccrual loans are included in the average loan balances.
(2) Yield/ rate calculated on Actual/Actual day count basis, except for yield on investments which is calculated on a 30/360 day count basis.

HCSB Financial Corporation
Selected Ratios (Unaudited)
At or For the Three Months Ended
June 30, March 31, December 31, September 30, June 30,
2016 2016 2015 2015 2015
($ in thousands, except per share amounts)
Per Share Data:
Basic Earnings (Loss) per Common Share$ 0.03 $ (0.96) $ (0.21) $ (0.04) $ (0.18)
Book value per common share (1)$ 0.10 $ (7.16) $ (6.54) $ (6.31) $ (6.55)
Common shares outstanding 363,314,783 3,846,340 3,846,340 3,816,340 3,816,640
Weighted average dilutive common shares outstanding 319,862,554 3,846,340 3,846,340 3,816,340 3,816,640
Selected Performance Ratios:
Return on Average Assets 10.36% -3.67% -0.44% 0.37% -0.39%
Return on Average Equity (2) 111.93% N/A N/A N/A N/A
Net interest margin (non-tax equivalent) 2.84% 2.45% 2.66% 2.86% 2.59%
Non-interest Income as a % of Revenue 86.43% 12.22% 11.49% 27.07% 15.99%
Non-interest Income as a % of Average Assets 5.06% 0.12% 0.11% 0.34% 0.16%
Non-interest Expense as a % of Average Assets 1.95% 1.17% 0.83% 0.87% 0.82%
Asset Quality:
Past due 30-59 days (and still accruing)$ 636 $ 3,667 $ 3,897 $ 2,058 $ 623
Past due 60-89 days (and still accruing) 159 647 244 808 331
Past due 90 days plus (and still accruing) - - - - 2
Nonaccrual loans 332 6,115 8,742 6,792 9,000
Nonperforming loans 332 6,115 8,742 6,792 9,002
Nonperforming loans held for sale (nonaccruing) 4,012 - - - -
OREO 7,256 11,270 13,624 18,510 17,897
Nonperforming assets 11,600 17,385 22,366 25,302 26,899
Nonperforming loans to total loans 2.18% 3.06% 4.18% 3.09% 3.99%
Nonperforming assets to total assets 3.03% 4.78% 6.19% 6.68% 6.50%
Allowance to total loans held-for-investment 2.26% 1.86% 2.20% 2.28% 2.48%
Allowance to nonperforming loans 103.41% 60.82% 52.63% 73.93% 62.20%
Allowance to nonperforming assets 38.72% 21.39% 20.57% 19.84% 20.81%
Net charge-offs (recoveries) to average loans 5.57% 4.52% 0.78% 1.02% -0.36%
(annualized)
Capital Ratios (Bank):
Common Equity Tier 1 (CET1) capital$ 38,114 $ 9,238 $ 12,135 $ 12,169 11,434
Tier 1 capital 38,114 9,238 12,135 12,169 $ 11,434
Tier 2 capital 2,939 2,962 3,267 3,497 3,708
Total risk based capital 41,053 12,200 15,402 15,666 15,142
Risk weighted assets 233,528 236,204 260,024 278,214 294,742
Average assets for leverage ratio 384,914 360,649 370,482 400,954 418,697
Common Equity Tier 1 (CET1) ratio 16.32% 3.91% 4.67% 4.37% 3.88%
Tier 1 ratio 16.32% 3.91% 4.67% 4.37% 3.88%
Total risk based capital ratio 17.58% 5.17% 5.92% 5.63% 5.14%
Tier 1 leverage ratio 9.90% 2.56% 3.28% 3.04% 2.73%
(1) Book value per share excludes non-voting preferred shares
(2) Ratio not applicable in prior periods due to negative equity

For additional information contact: Jan H. Hollar Chief Executive Officer (843) 716-6117 jhollar@horrycountystatebank.com

Source:HCSB Financial Corp