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

20:00 EDT 5 Aug 2015 | Globe Newswire

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

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