Highlands Bankshares, Inc. Reports Fourth Quarter 2018 and Year End Results
Strong Year-over-Year Improvements in Net Income, Net Interest Margin, Net Charge-Offs, and Leverage Ratio
ABINGDON, Va., Feb. 8, 2019 /PRNewswire/ -- Highlands Bankshares, Inc. (HLND) today reported net income of $1.0 million or $0.09 per diluted share, for the quarter ended December 31, 2018, compared with net income of $1.1 million or $0.11 per diluted share, for the quarter ended September 30, 2018 and a net loss of ($3.1 million), or ($0.38) per diluted share, for the quarter ended December 31, 2017.
For the year ended December 31, 2018, the Company reported net income of $3.6 million or $0.35 per diluted share compared to a net loss of ($437,000) or ($0.05) per diluted share for the year ended December 31, 2017.
Fourth quarter 2017 net income included one-time additional income tax expense of $4.0 million, resulting from the revaluation of the Company's net deferred tax asset related to the enactment of the Tax Cuts and Jobs Act in December 2017. Excluding the one-time tax impact, fourth quarter 2017 net income was $835,000 or $0.08 per diluted share and net income for 2017 was $3.5 million or $0.34 per diluted share.
"2018 was an outstanding year by all measures," reported Timothy K. Schools, Chief Executive Officer. "The tremendous work of our Highlands teammates over recent years resulted in our highest earnings since 2007, highest net interest margin since 2002, highest leverage ratio in the Company's history, and lowest net charge-off ratio since 1995. Equally important, we maintained our well-recognized focus on customer service, earning "Best Bank" designations in our home market of Washington County, Virginia for the second consecutive year, and Watauga County, North Carolina, one of our key growth markets, for the fourth consecutive year. Highlands is well positioned, and we are even more excited about our prospects for 2019 and beyond and appreciate the loyalty of our employees, customers, and shareholders."
Target |
4Q 18 |
3Q 18 |
4Q 17 |
|
Return on average assets (annualized) |
1.25% |
0.64% |
0.74% |
NM |
Revenue growth |
5.00% |
3.10% |
5.22% |
-2.03% |
Net interest margin |
3.75% |
3.95% |
3.97% |
3.70% |
Noninterest income to assets |
1.00% |
0.76% |
0.72% |
0.94% |
Noninterest expense to assets |
2.75% |
3.42% |
3.17% |
3.34% |
Efficiency ratio |
55.00% |
78.27% |
74.90% |
79.19% |
Net charge-offs to total loans (annualized) |
0.30% |
0.04% |
0.10% |
0.73% |
NM - not meaningful |
Revenue Growth
Fourth quarter 2018 total revenue (net interest income plus noninterest income) increased $188,000 to $6.5 million from $6.3 million in the third quarter of 2018. Net interest income was $5.3 million in the fourth quarter of 2018, an increase of $128,000 from $5.2 million in the third quarter of 2018. Net interest income increased in the fourth quarter primarily due to loan growth. Fourth quarter 2018 noninterest income increased $60,000 to $1.1 million from the third quarter of 2018 due to annual true-ups of equity method investments, partially offset by lower secondary marketing mortgage activity. Prospective revenues will benefit from growth in loans held for investment, which increased 3.8 percent in 2018, and noninterest-bearing deposits, which grew 5.2 percent in 2018.
Noninterest Expense and Operating Efficiency
Noninterest expenses increased $359,000 from the third quarter of 2018 and $139,000 from the fourth quarter of 2017 to $5.1 million in the fourth quarter of 2018. Compared to the prior quarter, fourth quarter 2018 included $102,000 of increases related to higher fraud losses, and $416,000 for discretionary employee incentive awards and software maintenance that were not accrued during the year.
Operating efficiency remains a key opportunity and the Company uses three metrics to monitor its performance relative to peers: efficiency ratio (noninterest expense as a percentage of total revenue), noninterest expense as a percentage of assets, and assets per employee. For the fourth quarter of 2018, the efficiency ratio was 78.27 percent, an increase from 74.90 percent in the third quarter of 2018 and a decline from 79.19 percent in the fourth quarter of 2017. Noninterest expense as a percentage of assets increased in the fourth quarter of 2018 to 3.42 percent from 3.17 percent in the third quarter of 2018 and 3.34 percent in the fourth quarter of 2017. Assets per employee improved to $4.1 million at December 31, 2018, compared to $3.9 million at December 31, 2017. Management continues to maintain focus on aligning operating expenses with revenue.
Asset Quality
The provision for credit losses for fourth quarter 2018 was $196,000, compared to $198,000 in third quarter 2018. Net charge-offs in the fourth quarter of 2018 were $50,000, or 0.04 percent annualized of average loans held for investment. Net charge-offs for 2018 totaled $318,000 or 0.07 percent of average loans held for investment, compared to $898,000 or 0.21 percent of average loans during 2017.
Past due loans as a percentage of total loans held for investment were 1.51 percent at December 31, 2018, compared to 0.77 percent at December 31, 2017. As of December 31, 2018, loans greater than 90 days past due totaled $3.6 million, or 0.81 percent of loans held for investment, compared to 0.38 percent at December 31, 2017. Comparing December 31, 2018 to December 31, 2017, 0.41 percent of the increase in total past due loans and loans greater than 90 days past due relate to a single long-time substandard relationship that deteriorated during 2018 and will likely move to other real estate owned during 2019.
Nonperforming assets were $8.1 million, or 1.81 percent of loans held for investment and OREO at December 31, 2018. The increase in nonperforming assets includes $3.6 million or 0.81 percent of loans and OREO that relate to two specific relationships, the past due relationship noted above and a performing relationship that was moved to nonaccrual during the fourth quarter of 2018.
4Q 18 |
3Q 18 |
2Q 18 |
1Q 18 |
4Q 17 |
|
Past due loans to end of period loans |
1.51% |
1.42% |
1.47% |
1.47% |
0.77% |
Past due loans 30-89 days to end of period loans |
0.70 |
0.83 |
0.62 |
1.14 |
0.39 |
Past due loans 90 plus days to end of period loans |
0.81 |
0.59 |
0.84 |
0.33 |
0.38 |
Nonperforming assets to loans and OREO |
1.81 |
1.49 |
1.38 |
0.86 |
1.02 |
Classified assets to tier 1 capital |
38 |
35 |
34 |
33 |
31 |
Allowance for credit losses to nonperforming loans |
73.88 |
93.29 |
106.90 |
258.97 |
193.80 |
As of December 31, 2018, the allowance for loan losses totaled $4.4 million, representing 0.98 percent of loans held for investment, and 73.9 percent of nonperforming loans.
Capital and Liquidity
At December 31, 2018, the regulatory capital ratios for the Company's subsidiary bank, Highlands Union Bank, were: tier 1 leverage ratio of 9.14 percent, tier 1 risk-based capital ratio of 12.26 percent, and total risk-based capital ratio of 13.25 percent
The Company's loans held for investment to deposit ratio was 89.1 percent and the loans held for investment to asset ratio was 75.7 percent at December 31, 2018. The Company maintained cash and investment securities totaling 17.1 percent of assets as of this date. The Company's deposit mix is weighted heavily towards customer deposits, which funded 84.9 percent of assets at December 31, 2018, of which 62.1 percent is represented by core deposits, including 26.4 percent in noninterest bearing deposits. Time deposits funded 21.6 percent of assets at December 31, 2018.
About Highlands Bankshares, Inc.
Highlands provides a relationship-based and highly personal banking experience to small to mid-sized private businesses, professionals, and individuals. Focused on providing value to each and every customer, Highlands delivers banking services through highly skilled employees, digital channels, as well as 16 offices located in North Carolina, Eastern Tennessee, and Southwest Virginia.
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 not 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, 2017, 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.
Quarterly Consolidated Income Statements (unaudited) |
|||||||||||
Quarter ended |
Percent change compared to |
||||||||||
(thousands) |
December 31, 2018 |
September 30, 2018 |
December 31, 2017 |
Prior quarter |
Same quarter of |
||||||
INTEREST INCOME |
|||||||||||
Loans receivable and fees on loans |
$ 5,787 |
$ 5,558 |
$ 5,169 |
4.1% |
12.0% |
||||||
Investment securities |
457 |
434 |
473 |
5.3% |
-3.4% |
||||||
Federal funds sold |
106 |
17 |
35 |
523.5% |
202.9% |
||||||
Total interest income |
6,350 |
6,009 |
5,677 |
5.7% |
11.9% |
||||||
INTEREST EXPENSE |
|||||||||||
Deposits |
668 |
497 |
465 |
34.4% |
43.7% |
||||||
Other borrowed funds |
336 |
294 |
330 |
14.3% |
1.8% |
||||||
Total interest expense |
1,004 |
791 |
795 |
26.9% |
26.3% |
||||||
Net interest income |
5,346 |
5,218 |
4,882 |
2.5% |
9.5% |
||||||
Provision for loan losses |
196 |
198 |
49 |
-1.0% |
300.0% |
||||||
Net interest income after provision for loan |
5,150 |
5,020 |
4,833 |
2.6% |
6.6% |
||||||
NONINTEREST INCOME |
|||||||||||
Mortgage banking income |
47 |
116 |
335 |
-59.5% |
-86.0% |
||||||
Securities gains, net |
- |
- |
13 |
0.0% |
-100.0% |
||||||
Service charges on deposit accounts |
396 |
396 |
384 |
0.0% |
3.1% |
||||||
Other service charges, commissions and fees |
376 |
404 |
441 |
-6.9% |
-14.7% |
||||||
Other operating income |
309 |
152 |
216 |
103.3% |
43.1% |
||||||
Total noninterest income |
1,128 |
1,068 |
1,389 |
5.6% |
-18.8% |
||||||
NONINTEREST EXPENSE |
|||||||||||
Salaries and employee benefits |
2,518 |
2,347 |
2,814 |
7.3% |
-10.5% |
||||||
Occupancy and equipment expense |
570 |
607 |
581 |
-6.1% |
-1.9% |
||||||
OREO-related expenses |
54 |
89 |
- |
-39.3% |
0.0% |
||||||
Other operating expense |
1,925 |
1,665 |
1,533 |
15.6% |
25.6% |
||||||
Total noninterest expense |
5,067 |
4,708 |
4,928 |
7.6% |
2.8% |
||||||
Income before income taxes |
1,211 |
1,380 |
1,294 |
-12.2% |
-6.4% |
||||||
Income tax expense |
243 |
289 |
4,381 |
-15.9% |
NM |
||||||
Net income (loss) |
$ 968 |
$ 1,091 |
$ (3,087) |
-11.3% |
NM |
||||||
Net income (loss) per common share: |
|||||||||||
Basic |
$0.12 |
$0.13 |
$ (0.38) |
||||||||
Diluted |
0.09 |
0.11 |
(0.38) |
||||||||
NM - variance calculation is not meaningful. |
|||||||||||
Consolidated Income Statements (unaudited) |
||||||
Year ended December 31, |
Percent change |
|||||
(thousands, except per share information) |
2018 |
2017 |
||||
INTEREST INCOME |
||||||
Loans receivable and fees on loans |
$ 21,936 |
$ 20,427 |
7.4% |
|||
Investment securities |
1,807 |
2,148 |
-15.9% |
|||
Federal funds sold |
250 |
192 |
30.2% |
|||
Total interest income |
23,993 |
22,767 |
5.4% |
|||
INTEREST EXPENSE |
||||||
Deposits |
2,091 |
1,854 |
12.8% |
|||
Other borrowed funds |
1,317 |
1,985 |
-33.7% |
|||
Total interest expense |
3,408 |
3,839 |
-11.2% |
|||
Net interest income |
20,585 |
18,928 |
8.8% |
|||
Provision for loan losses |
738 |
120 |
515.0% |
|||
Net interest income after provision for loan losses |
19,847 |
18,808 |
5.5% |
|||
NONINTEREST INCOME |
||||||
Mortgage banking income |
315 |
1,942 |
-83.8% |
|||
Securities gains, net |
- |
19 |
- |
|||
Service charges on deposit accounts |
1,471 |
1,568 |
-6.2% |
|||
Other service charges, commissions and fees |
1,627 |
1,881 |
-13.5% |
|||
Other operating income |
854 |
626 |
36.4% |
|||
Total noninterest income |
4,267 |
6,036 |
-29.3% |
|||
NONINTEREST EXPENSE |
||||||
Salaries and employee benefits |
9,648 |
10,858 |
-11.1% |
|||
Occupancy and equipment expense |
2,658 |
2,614 |
1.7% |
|||
OREO-related expenses |
420 |
301 |
39.5% |
|||
Other operating expense |
6,847 |
5,814 |
17.8% |
|||
Total noninterest expense |
19,573 |
19,587 |
-0.1% |
|||
Income (loss) before income taxes |
4,541 |
5,257 |
-13.6% |
|||
Income tax expense |
949 |
5,694 |
-83.3% |
|||
Net income (loss) |
$ 3,592 |
$ (437) |
NM |
|||
Net income (loss) per common share: |
||||||
Basic |
$0.44 |
($0.05) |
||||
Diluted |
0.35 |
(0.05) |
||||
NM - variance calculation is not meaningful. |
||||||
Consolidated Balance Sheets (unaudited) |
||||||||||
Percent change since |
||||||||||
(thousands) |
December 31, 2018 |
September 30, 2018 |
December 31, 2017 |
Prior quarter |
Same quarter of |
|||||
ASSETS |
||||||||||
Cash and due from banks |
$ 19,533 |
$ 23,258 |
$ 15,179 |
-16.0% |
28.7% |
|||||
Federal funds sold |
10,101 |
791 |
15,618 |
1177.0% |
-35.3% |
|||||
Total cash and cash equivalents |
29,634 |
24,049 |
30,797 |
23.2% |
-3.8% |
|||||
Investment securities |
71,405 |
73,348 |
81,643 |
-2.6% |
-12.5% |
|||||
Loans held for sale |
697 |
1,614 |
4,808 |
-56.8% |
-85.5% |
|||||
Loans held for investment |
448,121 |
452,566 |
431,574 |
-1.0% |
3.8% |
|||||
Allowance for loan losses |
(4,373) |
(4,226) |
(3,954) |
3.5% |
10.6% |
|||||
Net loans held for investment |
443,748 |
448,340 |
427,620 |
-1.0% |
3.8% |
|||||
Premises and equipment, net |
17,447 |
17,687 |
18,332 |
-1.4% |
-4.8% |
|||||
Real estate held for sale |
817 |
817 |
1,430 |
0.0% |
-42.9% |
|||||
Deferred tax assets |
6,526 |
6,984 |
7,161 |
-6.6% |
-8.9% |
|||||
Interest receivable |
1,617 |
1,904 |
1,987 |
-15.1% |
-18.6% |
|||||
Bank-owned life insurance |
15,022 |
14,940 |
14,679 |
0.5% |
2.3% |
|||||
Other real estate owned |
2,212 |
2,242 |
2,350 |
-1.3% |
-5.9% |
|||||
Other assets |
2,816 |
1,684 |
3,290 |
67.2% |
-14.4% |
|||||
Total assets |
$ 591,941 |
$ 593,609 |
$ 594,097 |
-0.3% |
-0.4% |
|||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||||
LIABILITIES |
||||||||||
Deposits: |
||||||||||
Noninterest bearing |
$ 156,408 |
$ 154,196 |
$ 148,633 |
1.4% |
5.2% |
|||||
Interest bearing |
346,408 |
340,410 |
350,150 |
1.8% |
-1.1% |
|||||
Total deposits |
502,816 |
494,606 |
498,783 |
1.7% |
0.8% |
|||||
Short-term borrowings |
29,973 |
42,107 |
10,000 |
-28.8% |
199.7% |
|||||
Long-term debt |
120 |
120 |
30,146 |
0.0% |
-99.6% |
|||||
Other liabilities |
2,391 |
1,937 |
1,364 |
23.4% |
75.3% |
|||||
Total liabilities |
535,300 |
538,770 |
540,293 |
-0.6% |
-0.9% |
|||||
STOCKHOLDERS' EQUITY |
||||||||||
Common stock |
5,156 |
5,156 |
5,124 |
0.0% |
0.6% |
|||||
Preferred stock |
4,184 |
4,184 |
4,184 |
0.0% |
0.0% |
|||||
Additional paid-in capital |
19,277 |
19,246 |
19,113 |
0.2% |
0.9% |
|||||
Retained earnings |
30,100 |
29,163 |
26,539 |
3.2% |
13.4% |
|||||
Accumulated other comprehensive income |
(2,076) |
(2,910) |
(1,156) |
-28.7% |
79.6% |
|||||
Total stockholders' equity |
56,641 |
54,839 |
53,804 |
3.3% |
5.3% |
|||||
Total liabilities and stockholders' equity |
$ 591,941 |
$ 593,609 |
$ 594,097 |
-0.3% |
-0.4% |
|||||
Profitability Ratios, Asset Quality and Capital (unaudited) |
|||||||
Quarter ended |
|||||||
(dollars in thousands) |
December 31, 2018 |
September 30, 2018 |
December 31, 2017 |
||||
Profitability Ratios (current quarter, annualized) |
|||||||
Net interest margin |
3.95% |
3.97% |
3.70% |
||||
Annualized return (loss) on average assets |
0.64 |
0.74 |
(0.02) |
||||
Annualized return (loss) on average equity |
6.95 |
7.94 |
(0.22) |
||||
Efficiency ratio |
78.27% |
74.90 |
79.19 |
||||
December 31, 2018 |
September 30, 2018 |
December 31, 2017 |
|||||
Asset Quality |
|||||||
Loans 90 days past due and still accruing |
$ - |
$ - |
$ 26 |
||||
Non-accrual loans |
5,920 |
4,530 |
2,064 |
||||
Total non-performing loans |
5,920 |
4,530 |
2,090 |
||||
Other real estate owned |
2,212 |
2,242 |
2,350 |
||||
Total non-performing assets |
$ 8,132 |
$ 6,772 |
$ 4,440 |
||||
Ratios: |
|||||||
Non-performing loans to loans held for investment |
1.32% |
1.00% |
0.48% |
||||
Non-performing assets to loans held for investment and OREO |
1.81 |
1.49 |
1.02 |
||||
Allowance for credit losses to loans held for investment |
0.98 |
0.93 |
0.94 |
||||
Allowance for credit losses to non-performing loans |
73.87 |
93.29 |
193.83 |
||||
Past-due loans to loans held for investment |
1.51 |
1.42 |
0.77 |
||||
Annualized net charge-offs (recoveries)to period-end loans held for |
0.04 |
0.10 |
0.73 |
||||
Capital |
|||||||
Common shares outstanding |
8,251 |
8,249 |
8,199 |
||||
Preferred shares outstanding |
2,092 |
2,092 |
2,092 |
||||
Book value per share: |
|||||||
Common |
$ 6.02 |
$ 5.82 |
$ 5.72 |
||||
Combined common and preferred |
5.48 |
5.31 |
5.23 |
||||
Ratios (Bank only): |
|||||||
Tier 1 leverage ratio |
9.14% |
9.14% |
8.36% |
||||
Tier 1 risk-based capital ratio |
12.26 |
12.30 |
12.15 |
||||
Total risk-based capital ratio |
13.25 |
13.28 |
13.11 |
||||
Common equity tier 1 ratio |
12.26 |
12.30 |
12.15 |
||||
SOURCE Highlands Bankshares, Inc.
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