EX-99.1 2 exhibit991-4qearningsrelea.htm EXHIBIT 99.1 Exhibit


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
prior year
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
losses
 
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
 
0

 
0

 
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

 
0

 
 
-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
 
0
 
19
 
0
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
prior year
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 investment
 
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

 
 

CONTACT: John Gray, 276-619-4937, jgray@hubank.com