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HCSB Financial Corporation Announces First Quarter 2017 Financial Results

LORIS, S.C., April 27, 2017 (GLOBE NEWSWIRE) -- HCSB Financial Corporation, (the “Company”) (OTCQB:HCFB), the holding company for Horry County State Bank (the “Bank”), announced today financial results for the first quarter ended March 31, 2017. The Company announced net income of $293,000, or $0.00 per common share, for the first quarter of 2017, compared to net income of $1.4 million, or $0.00 per common share for the fourth quarter of 2016.

“Our Company is proud that we continue to deliver on our objectives from a year ago. We received notification that the Written Agreement issued by the Federal Reserve has been removed, we had another quarter of core earnings, strong loan growth and we have a promising outlook for 2017,” remarked Jan Hollar, Chief Executive Officer of the Company and the Bank. “We are also excited to announce a merger with United Community Banks, Inc. (UCBI) headquartered in Blairsville, GA with regional headquarters in Greenville, SC. This partnership will allow us to offer expanded products and services to our customers throughout the Myrtle Beach MSA and improve total banking relationships.”

Financial Highlights

During the first quarter of 2017, the Company reported net income of $293,000, as compared to net income of $1.4 million in the fourth quarter of 2016 and a net loss of $3.7 million in the first quarter of 2016. Net income, excluding provision for loan losses and income tax expense (non-GAAP), for the quarter ended March 31, 2017 was $293,000, an increase of $264,000 as compared to net income, excluding provision for loan losses and income tax benefit (non-GAAP), of $29,000 for the fourth quarter of 2016. Noninterest expense continued to decrease in the first quarter and was down $144,000 quarter-over-quarter as the net cost of operation of other real estate owned (“OREO”) decreased $102,000 and salary and employee benefit costs decreased $56,000 as compared to the fourth quarter of 2016.

The Company saw strong loan growth of $13.9 million, or 6%, for the first quarter of 2017 and totaled $229.0 million at March 31, 2017. Total deposits increased $9.1 million, or 3%, and totaled $322.3 million at March 31, 2017, compared to $313.3 million at December 31, 2016, as non-interest bearing demand accounts increased $2.3 million and interest-bearing accounts increased $26.4 million. Time deposits decreased $19.7 million, as management continued to focus on reducing the Company’s internet-based time deposits which were not renewed at maturity.

Interest Income and Net Interest Margin

Net interest income increased $119,000, or 5%, quarter-over-quarter, totaling $2.6 million for the first quarter of 2017 as compared to $2.5 million for the fourth quarter of 2016 and $1.9 million in the first quarter of 2016. Net interest margin increased 22 basis points to 3.08% for the quarter ended March 31, 2017 from 2.86% for the quarter ended December 31, 2016. The increase in net interest margin is primarily the result of a 6 basis point increase in yields on loans, a 9 basis point increase in yields on investment securities, and a 27 basis point increase in yields on interest-bearing deposits held with other financial institutions. The cost of liabilities also decreased as the cost of long-term borrowings decreased 32 basis points due to refinancing of certain Federal Home Loan Bank advances in the fourth quarter of 2016. The cost of deposits remained stable in the first quarter of 2017. Net interest margin for the first quarter of 2016 was 2.4% as the cost of borrowings were 5.91% due to outstanding subordinated debt and trust preferred securities that were redeemed in the second quarter of 2016.

Non-Interest Income

Non-interest income was $413,000 in the first quarter of 2017 compared to $412,000 in the fourth quarter of 2016 and $416,000 in the first quarter of 2016. There were no gains or losses on the sale of assets or securities in the first quarter of 2017 or the fourth quarter of 2016, while the Company recorded $17,000 in gains on the sale of securities in the first quarter of 2016.

Non-Interest Expense

Non-interest expense was $2.7 million in the first quarter of 2017 compared to $2.9 million in the fourth quarter of 2016 and $4.2 million in the first quarter of 2016. Decreases in non-interest expense from the fourth quarter of 2016 to the first quarter of 2017 were due primarily to a $56,000 decrease in compensation expense due to a decrease in employees and a $102,000 decrease in net cost of operation of other real estate owned as the company recorded gains on the sale of OREO and was released from a previously recorded liability. Partially offsetting these decreases was an increase in legal and professional fees, which increased $66,000 from the fourth quarter of 2016 to the first quarter of 2017.

Asset Quality

Overall asset quality continued to improve in the first quarter of 2017, as the Bank’s classified assets to Tier 1 capital ratio decreased to 36.6% at March 31, 2017. This compares to a classified assets to Tier 1 capital ratio of 46.4% and 336.9% at December 31, 2016 and March 31, 2016, respectively. OREO decreased by $270,000 during the quarter to $2.6 million at March 31, 2017 due to the sale of a property. Nonperforming loans decreased by $110,000 to $1.9 million at March 31, 2017. The ratio of nonperforming assets to total assets was 1.18% at March 31, 2017 as compared to 1.31% at December 31, 2016 and the ratio of nonperforming loans to total loans was 0.84% at the end of the first quarter of 2017 as compared to 0.94% at the end of the fourth quarter of 2016.

Allowance for Loan Losses

At March 31, 2017, the allowance for loan losses was $3.7 million, compared to $3.8 million at December 31, 2016. As a percentage of total loans held-for-investment, the allowance for loan losses was 1.62% as of March 31, 2017, down from 1.74% at December 31, 2016. Overall, the decrease in the allowance for loan losses as a percentage of total loans was due to a decrease in specific reserves. Out of the $3.7 million in total allowance for loan losses at March 31, 2017, specific allowances for impaired loans accounted for $593,000 as compared to $643,000 in the fourth quarter of 2016.

Balance Sheet and Capital

Total assets increased $8.7 million during the first quarter of 2017, as gross loans (including loans held-for-sale) increased $13.9 million compared to the fourth quarter of 2016. Total deposits also increased $9.1 million and totaled $322.3 million at March 31, 2017, compared to $313.3 million at December 31, 2016.

As of March 31, 2017 the Bank’s leverage ratio, Common Equity Tier 1 ratio (CET1), Tier 1 risk-based capital ratio, and total risk-based capital ratio were 10.08%, 14.69%, 14.69% and 15.94%, 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 OTCQB tier of the OTC Markets Group, Inc. under the symbol “HCFB”.

Caution About Forward-Looking Statements

Certain statements in this news release contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to future plans, goals, projections and expectations, and are thus prospective. Such forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors, include, among others, the following: (1) the businesses of United Community Banks, Inc. (“United”) and the Company may not be integrated successfully or such integration may take longer to accomplish than expected; (2) the expected cost savings and any revenue synergies from the merger may not be fully realized within the expected timeframes or at all; (3) disruption from the merger may make it more difficult to maintain relationships with clients, associates, or suppliers; (4) the required governmental approvals of the merger may not be obtained on the anticipated proposed terms and schedule or at all; (5) the Company’s shareholders may not approve the merger; (6) competitive pressures among depository and other financial institutions may increase significantly and have an effect on pricing, spending, third-party relationships and revenues; (7) the strength of the United States economy in general and the strength of the local economies in which we conduct operations may be different than expected resulting in, among other things, a deterioration in the credit quality or a reduced demand for credit, including the resultant effect on the company’s loan portfolio and allowance for loan losses; (8) the rate of delinquencies and amounts of charge-offs, the level of allowance for loan loss, the rates of loan growth, or adverse changes in asset quality in our loan portfolio, which may result in increased credit risk-related losses and expenses; (9) changes in the U.S. legal and regulatory framework; (10) adverse conditions in the stock market, the public debt markets and other capital markets (including changes in interest rate conditions) could have a negative impact on the company; (11) technology and cybersercurity risks, including potential business disruptions, reputational risks, and financial losses, associated with potential attacks on or failures by our computer systems and computer systems of our vendors and other third parties; and (12) risks, uncertainties and other factors disclosed in our most recent Annual Report on Form 10-K filed with the SEC, or in any of our Quarterly Reports on Form 10-Q or Current Reports on Form 8-K filed with the SEC since the end of the fiscal year covered by our most recently filed Annual Report on Form 10-K, which are available at the SEC’s Internet site (http://www.sec.gov).

Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate. We can give no assurance that the results contemplated in the forward-looking statements will be realized. The inclusion of this forward-looking information should not be construed as a representation by our company or any person that the future events, plans, or expectations contemplated by our company will be achieved. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Additional Information and Where to Find It

Investors and security holders are urged to carefully review and consider each of United’s and the Company’s public filings with the SEC, including but not limited to their Annual Reports on Form 10-K, their proxy statements, their Current Reports on Form 8-K and their Quarterly Reports on Form 10-Q. The documents filed by United with the SEC may be obtained free of charge at United’s website at http://www.ucbi.com or at the SEC’s website at http://www.sec.gov. These documents may also be obtained free of charge from United by requesting them in writing to Investor Relations, United Community Banks, Inc., 125 Highway 515 East, Blairsville, Georgia 30514-0398, or by telephone to Investor Relations at (706) 781-2265. The documents filed by the Company with the SEC may be obtained free of charge at the Company’s website at https://www.hcsbaccess.com, or at the SEC’s website at http://www.sec.gov. These documents may also be obtained free of charge from the Company by requesting them in writing to HCSB Financial Corporation, 3640 Ralph Ellis Blvd., Loris, South Carolina 29569 Attn: Jan H. Hollar, or by telephone to Mrs. Hollar at (843) 716-6117.

United plans to file a registration statement on Form S-4 with the Securities and Exchange Commission to register the shares of United’s common stock that will be issued to the Company’s shareholders in connection with the proposed merger. The registration statement will include a joint proxy statement of the Company and prospectus of United and other relevant materials in connection with the proposed merger. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT AND JOINT PROXY/PROSPECTUS WHEN IT BECOMES AVAILABLE AND ANY OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED MERGER OR INCORPORATED BY REFERENCE INTO THE REGISTRATION STATEMENT OR JOINT PROXY/PROSPECTUS BECAUSE SUCH DOCUMENTS WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. A definitive joint proxy statement/prospectus will be sent to the shareholders of the Company seeking the required shareholder approval. Investors and security holders will be able to obtain the registration statement and the joint proxy statement/prospectus free of charge from the SEC’s website or from United or the Company as described above.

This communication shall not constitute an offer to sell or the solicitation of an offer to buy securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

Participants in the Merger Solicitation

United, the Company, and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the Company’s shareholders in connection with the proposed merger. Information regarding the directors and executive officers of United and their ownership of United common stock is set forth in its 2016 Annual Report on Form 10-K, definitive proxy statement for United’s 2017 annual meeting of shareholders, as filed with the Securities and Exchange Commission on March 24, 2017, and other documents subsequently filed by United with the SEC. Information regarding the directors and executive officers of the Company and their ownership of the Company’s common stock is set forth in its Definitive Proxy Statement on Form DEF14A filed on June 20, 2016 and other documents subsequently filed by the Company with the SEC. Such information will also be included in the registration statement and joint proxy statement/prospectus for the Company’s special meeting of shareholders, which will be filed by United with the SEC. Additional information regarding the interests of such participants will be included in the registration statement and joint proxy statement/prospectus and other relevant documents regarding the proposed merger filed with the SEC when they become available. Free copies of these documents may be obtained as described above.

HCSB Financial Corporation
Condensed Consolidated Balance Sheet (Unaudited)
As of
March 31, December 31, September 30, June 30, March 31,
2017 2016* 2016 2016 2016
($ in thousands)
ASSETS
Cash and due from banks $ 22,190 $ 25,429 $ 31,174 $ 64,024 $ 41,652
Investment securities available-for-sale 104,341 106,529 111,581 80,969 83,205
Nonmarketable equity securities 1,359 1,345 1,090 1,090 1,276
Loans held-for-sale - - - 4,280 -
Loans 229,033 215,112 209,176 199,072 199,635
Allowance for loan losses (3,717) (3,750) (4,676) (4,492) (3,719)
Net loans 225,316 211,362 204,500 194,580 195,916
Premises and equipment, net 14,182 14,314 14,456 14,591 15,758
Assets held-for-sale - - - 768 -
Other real estate owned 2,617 2,887 4,032 7,256 11,270
Bank-owned life insurance 11,721 11,643 11,562 11,481 11,400
Deferred tax assets 20,569 19,646 16,270 16,270 19,587
Valuation allowance for deferred tax assets (20,569) (19,646) (16,270) (16,270) (19,587)
Other assets 2,288 2,425 2,712 3,441 2,886
Total assets $ 384,014 $ 375,934 $ 381,107 $ 382,480 $ 363,363
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand noninterest-bearing $ 43,666 $ 41,324 $ 47,060 $ 44,077 $ 40,227
Money market, NOW and savings 152,109 125,714 125,785 119,191 122,613
Time deposits 126,563 146,231 150,505 159,974 172,621
Total deposits 322,338 313,269 323,350 323,242 335,461
Short-term borrowings 848 1,983 1,662 1,659 1,248
Long-term debt 24,000 24,000 17,000 17,000 34,141
Accrued expenses and other liabilities 716 1,355 2,502 3,312 7,161
Total liabilities 347,902 340,607 344,514 345,213 378,011
Shareholders' equity:
Preferred stock - - - 9 12,895
Common stock 4,958 4,958 4,958 3,633 38
Warrants - - - - 1,012
Additional paid-in capital 68,550 68,411 68,273 81,903 30,220
Retained deficit (34,490) (34,783) (36,183) (48,177) (58,090)
Accumulated other comprehensive loss (2,906) (3,259) (455) (101) (723)
Total shareholders' equity 36,112 35,327 36,593 37,267 (14,648)
Total liabilities and shareholders' equity $ 384,014 $ 375,934 $ 381,107 $ 382,480 $ 363,363
Common shares issued and outstanding 495,763,940 495,763,940 495,763,940 363,314,783 3,846,340
*Derived from audited financial statements.


HCSB Financial Corporation
Condensed Consolidated Income Statement (Unaudited)
At or For the Three Months Ended
March 31, December 31, September 30, June 30, March 31,
2017 2016 2016 2016 2016
($ in thousands, except per share amounts)
Interest income
Loans, including fees $ 2,724 $ 2,630 $ 2,667 $ 2,581 $ 2,483
Investment securities 480 473 426 386 461
Nonmarketable equity securities 15 13 11 14 14
Interest on deposits at banks 40 37 68 73 31
Total interest income 3,259 3,153 3,172 3,054 2,989
Interest expense
Money market, NOW and savings deposits 140 108 115 100 96
Time deposits 346 385 403 412 427
Borrowings 151 157 150 97 523
Total interest expense 637 650 668 609 1,046
Net interest income 2,622 2,503 2,504 2,445 1,943
Provision for loan losses - (1,061) - 3,560 1,424
Net interest income (loss) after provision 2,622 3,564 2,504�� (1,115) 519
Noninterest income
Service charges on deposit accounts 162 168 188 189 161
Mortgage banking income 31 41 7 - -
Income from bank-owned life insurance 108 111 110 110 110
Gain (loss) on sale of securities available for sale - - 153 (102) 17
Loss on sale of assets - - (222) - -
Gain on extinguishment of debt - - - 19,115 -
Other noninterest income 112 92 98 141 128
Total noninterest income 413 412 334 19,453 416
Noninterest expenses
Salaries and employee benefits 1,560 1,616 1,638 1,668 1,286
Occupancy and equipment 476 458 493 486 499
Legal and professional fees 417 351 428 1,076 215
FDIC insurance 44 21 204 206 309
Impairment on assets held-for-sale - - 1 247 -
Net cost of operation of other real estate owned (65) 37 1,392 3,273 1,564
Other noninterest expense 310 403 467 549 345
Total noninterest expenses 2,742 2,886 4,622 7,505 4,218
Income (loss) before income taxes 293 1,090 (1,784) 10,833 (3,283)
Income tax expense (benefit) - (310) - 920 -
Net income (loss) 293 1,400 (1,784) 9,913 (3,283)
Preferred dividends - - - - (398)
Gain on redemption of preferred shares - - - 13,778 -
Net income (loss) available to common shareholders $ 293 $ 1,400 $ (1,784) $ 23,691 $ (3,681)
Earnings per common share, fully diluted $ 0.00 $ 0.00 $ (0.00) $ 0.03 $ (0.96)
Weighted average diluted common shares 469,054,565 508,945,190 411,085,981 319,862,554 3,846,340

HCSB Financial Corporation
Average Balance Sheets and Net Interest Analysis (Unaudited)
For the Three Months Ended
March 31, 2017 March 31, 2016
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)$ 218,316 $ 2,724 5.07% $ 205,314 $ 2,483 4.85%
Interest-bearing deposits 20,662 40 0.79% 26,037 31 0.48%
Investment securities 105,773 480 1.82% 86,902 461 2.12%
Other interest-earning assets 1,346 15 4.53% 1,142 14 4.92%
Total interest-earning assets 346,097 3,259 3.83% 319,395 2,989 3.75%
Allowance for loan losses (3,753) (4,600)
Cash and due from banks 2,018 1,768
Premises and equipment (net) 14,262 15,855
Other assets 17,537 27,705
Total assets$ 376,161 $ 360,123
Liabilities and shareholders' equity
Interest-bearing liabilities:
Interest-bearing demand$ 40,911 $ 13 0.13% $ 39,164 $ 17 0.17%
Money market, NOW and savings 94,490 127 0.55% 77,346 79 0.41%
Time deposits 128,835 332 1.05% 174,946 427 0.98%
Brokered deposits 8,074 14 0.71% - - 0.00%
Total interest-bearing deposits 272,310 486 0.73% 291,456 523 0.72%
Short-term borrowings 1,182 1 0.34% 1,253 - 0.00%
Long-term debt 24,000 150 2.54% 34,248 523 6.13%
Total borrowed funds 25,182 151 2.44% 35,501 523 5.91%
Total interest-bearing liabilities 297,492 637 0.87% 326,957 1,046 1.28%
Net interest rate spread 2,622 2.96% 1,943 2.47%
Noninterest-bearing demand deposits 41,387 37,889
Other liabilities 1,526 7,133
Shareholders' equity 35,756 (11,856)
Total liabilities and shareholders' equity$ 376,161 $ 360,123
Net interest margin 3.08% 2.44%
(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
March 31, December 31, September 30, June 30, March 31,
2017 2016 2016 2016 2016
($ in thousands, except per share amounts)
Per Share Data:
Basic Earnings (Loss) per Common Share$0.00 $0.00 $(0.00) $0.03 $(0.96)
Book value per common share (1)$0.07 $0.07 $0.07 $0.10 $(7.16)
Common shares outstanding 495,763,940 495,763,940 495,763,940 363,314,783 3,846,340
Weighted average dilutive common shares outstanding 469,054,565 508,945,190 411,085,981 319,862,554 3,846,340
Selected Performance Ratios:
Return on Average Assets 0.32% 1.47% -1.85% 11.07% -3.57%
Return on Average Equity (2) 3.33% 15.33% -19.92% -336.28% N/A
Net interest margin (non-tax equivalent) 3.08% 2.86% 2.80% 2.84% 2.45%
Non-interest Income as a % of Revenue 11.25% 11.56% 9.53% 86.43% 12.22%
Non-interest Income as a % of Average Assets 0.11% 0.11% 0.09% 5.40% 0.11%
Non-interest Expense as a % of Average Assets 0.73% 0.76% 1.20% 2.08% 1.14%
Asset Quality:
Past due 30-59 days (and still accruing)$283 $888 $535 $636 $3,667
Past due 60-89 days (and still accruing) 52 150 112 159 647
Past due 90 days plus (and still accruing) - - - - -
Nonaccrual loans 1,915 2,025 931 332 6,115
Nonperforming loans 1,915 2,025 931 332 6,115
Nonperforming loans held for sale (nonaccruing) - - - 4,012 -
OREO 2,617 2,887 4,032 7,256 11,270
Nonperforming assets 4,532 4,912 4,963 11,600 17,385
Nonperforming loans to total loans 0.84% 0.94% 0.45% 0.17% 3.06%
Nonperforming assets to total assets 1.18% 1.31% 1.30% 3.03% 4.78%
Allowance to total loans held-for-investment 1.62% 1.74% 2.24% 2.26% 1.86%
Allowance to nonperforming loans 194.10% 185.19% 502.26% 1353.01% 60.82%
Allowance to nonperforming assets 82.02% 76.34% 94.22% 38.72% 21.39%
Net charge-offs (recoveries) to average loans 0.06% -0.26% -0.36% 5.46% 4.32%
(annualized)
Capital Ratios (Bank):
Common Equity Tier 1 (CET1) capital$38,175 $37,721 $36,404 $38,114 $9,238
Tier 1 capital 38,175 37,721 36,404 38,114 9,238
Tier 2 capital 3,254 3,122 3,039 2,939 2,962
Total risk based capital 41,429 40,843 39,443 41,053 12,200
Risk weighted assets 259,836 249,122 241,456 233,528 236,204
Average assets for leverage ratio 378,649 379,052 388,135 384,914 360,649
Common Equity Tier 1 (CET1) ratio 14.69% 15.14% 15.08% 16.32% 3.91%
Tier 1 ratio 14.69% 15.14% 15.08% 16.32% 3.91%
Total risk based capital ratio 15.94% 16.39% 16.34% 17.58% 5.17%
Tier 1 leverage ratio 10.08% 9.95% 9.38% 9.90% 2.56%
(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