HCSB Financial Corporation Announces Removal of Regulatory Consent Order and Third Quarter 2016 Financial Results

LORIS, S.C., Oct. 27, 2016 (GLOBE NEWSWIRE) -- HCSB Financial Corporation (OTC Pink:HCFB) (the “Company”), the holding company for Horry County State Bank (the “Bank”), announced today that the Bank received notification on October 26, 2016 from the Federal Deposit Insurance Corporation and the South Carolina State Board of Financial Institutions (the “Supervisory Authorities”) that the Consent Order previously entered into with the Bank on February 10, 2011 was terminated. “We are pleased with the removal of the Consent Order and believe this reflects the hard work of management and our employees over the past several years. This demonstrates the Bank’s return to a healthy financial condition.” commented Jan Hollar, Chief Executive Officer of the Company and the Bank. Although the Consent Order has been terminated, certain regulatory requirements and restrictions remain, including requirements to continue to improve credit quality and earnings, restriction prohibiting dividend payments without prior approval from Supervisory Authorities, and the maintenance of a specified leverage capital ratio.

The Company also announced financial results for the third quarter ended September 30, 2016, including net losses per share available to common shareholders of $0.00 per share, a decrease from earnings of $0.03 per share at the end of the second quarter of 2016.

“The third quarter has been yet another quarter of progress at Horry County State Bank. We are pleased with our significant reduction in nonperforming assets following the completion of our asset disposition plan. The completion of this plan did result in some one-time legal costs which impacted our profitability this quarter, but we believe that with these costs now behind us, we can look toward positive earnings in the fourth quarter. We continue to see an uptick in our loan production, as we add quality, in-market commercial loans to our portfolio, and our asset quality is in line with our internal goals. The key focus areas for our team as we finish out 2016 are quality loan production, continued improvement in asset quality, and meaningful earnings per share,” remarked Jan Hollar, Chief Executive Officer of the Company and the Bank.

Financial Highlights

During the third quarter, the Company reported a net loss of $1.8 million, as the Company continued its efforts to reduce nonperforming assets. The previously announced asset disposition plan was substantially completed in the third quarter of 2016, which resulted in additional losses of $1.4 million from the write down of other real estate owned (“OREO”) and loss on sale of loans. The additional losses taken on OREO resulted from the resolution of a group of properties for which the Bank was not comfortable with potential risks associated with carrying the properties. Net interest income for the third quarter was up $59,000 from the second quarter of 2016 and noninterest expense was down $2.9 million quarter-over-quarter as the net cost of operation of OREO decreased $1.9 million and professional fee decreased $648,000.

The Company saw loan growth of $10.1 million, or 5%, for the third quarter of 2016 as loan production continues to be a key management focus. Total deposits remained flat and totaled $323.3 million at September 30, 2016, compared to $323.2 million at June 30, 2016, as a slight increase in core deposits was offset by a decrease in internet- based time deposits.

Interest Income and Net Interest Margin

Net interest income was up quarter over quarter, totaling $2.5 million for the third quarter of 2016 as compared to $2.4 million in the second quarter of 2016, led by increased interest income on loans and investment securities. Net interest margin decreased 4 basis points to 2.80% for the quarter ended September 30, 2016 from 2.84% for the quarter ended June 30, 2016. The decrease in net interest margin is primarily the result of a 27 basis point decrease in yield on securities as more than $10 million in higher yielding bonds were called during the past four months. This decrease in yield on securities was partially offset by an increase in yield on interest-bearing deposits.

Non-Interest Income

Non-interest income was $334,000 in the third quarter of 2016 compared to $19.5 million in the second quarter of 2016. The second quarter included $19.1 million of gains on the extinguishment of debt related to the settlement of subordinated debt. Included in non-interest income for the third quarter was a $153,000 gain on sale of securities, as compared to a loss on sale of securities of $102,000 in the second quarter of 2016 and a $224,000 loss on sale of assets recorded in the third quarter related to the bulk sale of nonperforming loans announced in the second quarter. Excluding the gain on extinguishment of debt, loss on sale of assets and gain (loss) on the sale of securities for each quarter, non-interest income decreased $35,000 in the third quarter of 2016 as compared to the second quarter of 2016 due to lower ATM and other fee income.

Asset Quality

During the third quarter, asset quality improved significantly due to the implementation of the asset disposition plan that was put in place following the close of the capital raise in the second quarter. OREO decreased by $3.2 million during the quarter to $4.0 million at September 30, 2016 due to the write down and sale of several properties. Nonperforming loans, including nonperforming loans held for sale, decreased by $3.4 million to $931,000 at September 30, 2016 as the asset disposition plan was completed in the third quarter. The ratio of nonperforming assets to total assets dropped to 1.30% at September 30, 2016, as compared to 3.03% at June 30, 2016 and the ratio of nonperforming loans to total loans dropped to 0.45% at the end of the third quarter of 2016 as compared to 2.18% at the end of the second quarter of 2016.

Allowance for Loan Losses

At September 30, 2016, the allowance for loan losses was $4.7 million, compared to $4.5 million at June 30, 2016. As a percentage of total loans held-for-investment, the allowance for loan losses was 2.24% in the third quarter of 2016, down slightly from 2.26% in the second quarter of 2016. The decrease in the allowance for loan losses as a percent of total loans was a reflection of improved levels of past dues. Out of the $4.7 million in total allowance for loan losses at September 30, 2016, specific allowances for impaired loans accounted for $788,000 as compared to $845,000 in the second quarter due to the sale and resolution of nonperforming loans.

Balance Sheet and Capital

Total assets decreased $913,000 during the third quarter of 2016, while gross loans (including loans held-for-sale) increased $10.1 million compared to the second quarter of 2016 as the Company saw solid loan production during the quarter. Total deposits remained flat and totaled $323.3 million at September 30, 2016, compared to $323.2 million at June 30, 2016, as an increase in money market and NOW deposits was offset by a decrease in time deposits which primarily resulted from the maturity of $8.1 million in internet-based time deposits.

As of September 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 9.38%, 15.08%, 15.08% and 16.34%, 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 eight 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
September 30, June 30, March 31, December 31, September 30,
2016 2016 2016 2015* 2015
($ in thousands)
ASSETS
Cash and due from banks$31,174 $64,024 $41,652 $22,137 $29,185
Investment securities available for sale 111,581 80,969 83,205 89,701 84,291
Nonmarketable equity securities 1,090 1,090 1,276 1,330 1,330
Loans held for sale - 4,280 - - -
Loans 209,176 199,072 199,635 209,367 219,982
Allowance for loan losses (4,676) (4,492) (3,719) (4,601) (5,021)
Net loans 204,500 194,580 195,916 204,766 214,961
Premises and equipment, net 14,456 14,591 15,758 15,917 16,069
Assets held-for-sale - 768 - - -
Other real estate owned 4,032 7,256 11,270 13,624 18,510
Bank-owned life insurance 11,562 11,481 11,400 11,319 11,239
Other assets 2,712 3,441 2,886 2,629 2,962
Total assets$381,107 $382,480 $363,363 $361,423 $378,547
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand noninterest-bearing$47,060 $44,077 $40,227 $40,182 $45,135
Money market, NOW and savings 125,785 119,191 122,613 116,678 121,965
Time deposits 150,505 159,974 172,621 173,971 180,514
Total deposits 323,350 323,242 335,461 330,831 347,614
Short-term borrowings 1,662 1,659 1,248 1,716 1,119
Long-term debt 17,000 17,000 34,141 34,138 34,248
Accrued expenses and other liabilities 2,502 3,312 7,161 6,988 6,741
Total liabilities 344,514 345,213 378,011 373,673 389,722
Shareholders' equity:
Preferred stock - 9 12,895 12,895 12,895
Common stock 4,958 3,633 38 38 38
Warrants - - 1,012 1,012 1,012
Additional paid-in capital 82,051 81,903 30,220 30,220 30,214
Retained deficit (49,961) (48,177) (58,090) (54,807) (54,398)
Accumulated other comprehensive loss (455) (101) (723) (1,608) (936)
Total shareholders' equity 36,593 37,267 (14,648) (12,250) (11,175)
Total liabilities and shareholders' equity$381,107 $382,480 $363,363 $361,423 $378,547
Common shares issued and outstanding 495,763,940 363,314,783 3,846,340 3,846,340 3,816,340
* Derived from audited financial statements.


HCSB Financial Corporation
Condensed Consolidated Income Statement (Unaudited)
At or For the Three Months Ended
September 30, June 30, March 31, December 31, September 30,
2016 2016 2016 2015 2015
($ in thousands, except per share amounts)
Interest income
Loans, including fees$2,667 $2,581 $2,483 $2,753 $3,088
Investment securities 426 386 461 479 506
Nonmarketable equity securities 11 14 14 14 8
Interest on deposits at banks 68 73 31 14 16
Total interest income 3,172 3,054 2,989 3,260 3,618
Interest expense
Money market, NOW and savings deposits 115 100 96 98 108
Time deposits 403 412 427 450 487
Borrowings 150 97 523 518 510
Total interest expense 668 609 1,046 1,066 1,105
Net interest income 2,504 2,445 1,943 2,194 2,513
Provision for loan losses - 3,560 1,424 - -
Net interest income (loss) after provision 2,504 (1,115) 519 2,194 2,513
Noninterest income
Service charges on deposit accounts 188 189 161 163 197
Mortgage banking income 7 - - 6 50
Income from bank-owned life insurance 110 110 110 109 109
Gain (loss) on sale of securities available for sale 153 (102) 17 - 20
Gain (loss) on sale of assets (224) - - (4) 736
Gain on extinguishment of debt - 19,115 - - -
Other noninterest income 100 141 128 149 231
Total noninterest income 334 19,453 416 423 1,343
Noninterest expenses
Salaries and employee benefits 1,648 1,668 1,286 1,228 1,330
Occupancy and equipment 493 486 499 493 558
Legal and professional fees 428 1,076 215 494 488
FDIC insurance 204 206 309 320 346
Loss on disposal of fixed assets - 247 - - -
Net cost of operation of other real estate owned 1,392 3,273 1,564 167 382
Other noninterest expense 457 549 345 364 349
Total noninterest expenses 4,622 7,505 4,218 3,066 3,453
Income (loss) before income taxes (1,784) 10,833 (3,283) (449) 403
Income tax expense (benefit) - 920 - (40) 35
Net income (loss) (1,784) 9,913 (3,283) (409) 368
Preferred dividends - - (398) (405) (514)
Net income (loss) available to common shareholders $(1,784) $9,913 $(3,681) $(814) $(146)
Earnings per common share, fully diluted$(0.00) $0.03 $(0.96) $(0.21) $(0.04)
Weighted average diluted common shares 411,085,981 319,862,554 3,846,340 3,846,340 3,816,340


HCSB Financial Corporation
Average Balance Sheets and Net Interest Analysis (Unaudited)
For the Three Months Ended
September 30, 2016 September 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)$204,634 $2,667 5.18% $226,162 $3,088 5.42%
Interest-bearing deposits 51,270 68 0.53% 31,796 16 0.20%
Investment securities 98,153 426 1.74% 89,388 506 2.26%
Other interest-earning assets 1,090 11 4.01% 1,144 8 2.77%
Total interest-earning assets 355,147 3,172 3.55% 348,490 3,618 4.12%
Allowance for loan losses (4,518) (5,573)
Cash and due from banks 1,806 1,787
Premises and equipment 14,544 17,742
Other assets 21,030 32,444
Total assets$388,009 $394,890
Liabilities and shareholders' equity
Interest-bearing liabilities:
Interest-bearing demand$40,423 $17 0.17% $39,904 $15 0.15%
Money market, NOW and savings 86,089 98 0.45% 87,517 93 0.42%
Time deposits 155,542 403 1.03% 189,101 487 1.02%
Total interest-bearing deposits 282,054 518 0.73% 316,522 595 0.75%
Short-term borrowings 1,773 1 0.22% 1,203 1 0.33%
Long-term debt 17,000 149 3.49% 34,248 509 5.90%
Total borrowed funds 18,773 150 3.18% 35,451 510 5.71%
Total interest-bearing liabilities 300,827 668 0.88% 351,973 1,105 1.25%
Net interest rate spread 2,504 2.68% 2,513 2.87%
Noninterest-bearing demand deposits 47,408 47,779
Other liabilities 3,183 6,980
Shareholders' equity 36,591 (11,842)
Total liabilities and shareholders' equity$388,009 $394,890
Net interest margin 2.80% 2.86%
(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
September 30, June 30, March 31, December 31, September 30,
2016 2016 2016 2015 2015
($ in thousands, except per share amounts)
Per Share Data:
Basic Earnings (Loss) per Common Share$(0.00) $0.03 $(0.96) $(0.21) $(0.04)
Book value per common share (1)$0.07 $0.10 $(7.16) $(6.54) $(6.31)
Common shares outstanding 495,764,318 363,314,783 3,846,340 3,846,340 3,816,640
Weighted average dilutive common shares outstanding 411,085,981 319,862,554 3,846,340 3,846,340 3,816,340
Selected Performance Ratios:
Return on Average Assets -1.83% 10.36% -3.67% -0.44% 0.37%
Return on Average Equity (2) -19.40% 111.93% N/A N/A N/A
Net interest margin (non-tax equivalent) 2.80% 2.84% 2.45% 2.66% 2.86%
Non-interest Income as a % of Revenue 9.53% 86.43% 12.22% 11.49% 27.07%
Non-interest Income as a % of Average Assets 0.09% 5.06% 0.12% 0.11% 0.34%
Non-interest Expense as a % of Average Assets 1.19% 1.95% 1.17% 0.83% 0.87%
Asset Quality:
Past due 30-59 days (and still accruing)$535 $636 $3,667 $3,897 $2,058
Past due 60-89 days (and still accruing) 112 159 647 244 808
Past due 90 days plus (and still accruing) - - - - -
Nonaccrual loans 931 332 6,115 8,742 6,792
Nonperforming loans 931 332 6,115 8,742 6,792
Nonperforming loans held for sale (nonaccruing) - 4,012 - - -
OREO 4,032 7,256 11,270 13,624 18,510
Nonperforming assets 4,963 11,600 17,385 22,366 25,302
Nonperforming loans to total loans 0.45% 2.18% 3.06% 4.18% 3.09%
Nonperforming assets to total assets 1.30% 3.03% 4.78% 6.19% 6.68%
Allowance to total loans held-for-investment 2.24% 2.26% 1.86% 2.20% 2.28%
Allowance to nonperforming loans 502.26% 103.41% 60.82% 52.63% 73.93%
Allowance to nonperforming assets 94.22% 38.72% 21.39% 20.57% 19.84%
Net charge-offs (recoveries) to average loans 4.13% 5.57% 4.52% 0.78% 1.02%
(annualized)
Capital Ratios (Bank):
Common Equity Tier 1 (CET1) capital$36,404 $38,114 $9,238 $12,135 $12,169
Tier 1 capital 36,404 38,114 9,238 12,135 12,169
Tier 2 capital 3,039 2,939 2,962 3,267 3,497
Total risk based capital 39,443 41,053 12,200 15,402 15,666
Risk weighted assets 241,456 233,528 236,204 260,024 278,214
Average assets for leverage ratio 388,135 384,914 360,649 370,482 400,954
Common Equity Tier 1 (CET1) ratio 15.08% 16.32% 3.91% 4.67% 4.37%
Tier 1 ratio 15.08% 16.32% 3.91% 4.67% 4.37%
Total risk based capital ratio 16.34% 17.58% 5.17% 5.92% 5.63%
Tier 1 leverage ratio 9.38% 9.90% 2.56% 3.28% 3.04%
(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: Jennifer W. Harris Chief Financial Officer (843) 716-6407 jharris@horrycountystatebank.com

Source:HCSB Financial Corp