EX-99.1 2 a2q2019earningsrelease.htm EXHIBIT 99.1 Exhibit


Highlands Bankshares, Inc. Reports Second Quarter 2019 Results

ABINGDON, Va., August 12, 2019 /PRNewswire/ -- Highlands Bankshares, Inc. (HLND) today reported net income of $571,000 or $0.06 per diluted share for the quarter ended June 30, 2019, compared to $1.1 million or $0.10 per diluted share, for the quarter ended March 31, 2019, and net income of $923,000, or $0.09 per diluted share, for the quarter ended June 30, 2018. The annualized return on average assets and return on average equity for the second quarter of 2019 were 0.37 percent and 3.89 percent respectively.
"Second quarter 2019 was significantly impacted by our continued focus on asset quality,” reported Bryan Booher, Interim President and Chief Executive Officer. "We recorded $836,000 in provision for loan losses during the second quarter, primarily to replenish the allowance for credit losses following a $565,000 charge-off recorded on a single relationship after we completed foreclosure proceedings. While our efforts to resolve this large exposure were painful to second quarter net income, we removed a significant problem asset from our balance sheet.”
“Aside from the credit-related items, our second quarter of 2019 was generally in line with the first quarter. Noninterest income improved slightly and noninterest expense declined when compared to the first quarter, while net interest income was flat,” Booher continued. “Our sales efforts during the second quarter were successful, with the loan portfolio growing $9.4 million after two quarters of net shrinkage. Deposits have grown $15.6 million or 3.1 percent so far during 2019.”
Consolidated net income for the six months ending June 30, 2019 totaled $1.6 million, compared to $1.5 million earned during the same period of 2018, as the benefit of lower noninterest expense was largely offset by higher provision for loan losses.
Revenue Growth
Second quarter 2019 total revenue (net interest income plus noninterest income) increased slightly to $6.0 million. Net interest income was $5.1 million in both the second and first quarters of 2019, as the favorable impact of loan growth offset a 9 basis point reduction in the net interest margin. Second quarter 2019 noninterest income totaled $933,000 compared to $890,000 in the first quarter of 2019 due higher BOLI and cardholder interchange income.  
Noninterest Expense and Operating Efficiency
Noninterest expenses increased slightly over the first quarter of 2019, the net impact of lower personnel and occupancy expense, partially offset by higher legal and other professional fees. In the second quarter of 2019, the efficiency ratio was 75.36 percent, compared to 75.91 percent in the first quarter of 2019.
Asset Quality
The provision for credit losses for second quarter 2019 was $836,000, compared to $103,000 in first quarter 2019. Net charge-offs in the second quarter of 2019 totaled $689,000, or 0.62 percent annualized of average loans held for investment, compared to $380,000 or 0.34 percent annualized of loans held for investment for the first quarter of 2019.
Past due loans as a percentage of total loans held for investment were 1.26 percent at June 30, 2019, compared to 1.36 percent at March 31, 2019. As of June 30, 2019, loans greater than 90 days past due totaled $3.4 million, or 0.74 percent of loans held for investment, compared to 0.77 percent at March 31, 2019. Nonperforming assets were $8.3 million, or 1.83 percent of loans held for investment and OREO at June 30, 2019.
As of June 30, 2019, the allowance for credit losses totaled $4.2 million, representing 0.96 percent of loans held for investment, and 79.64 percent of nonperforming loans.
Capital and Liquidity
At June 30, 2019, the Company's subsidiary bank, Highlands Union Bank, reported a tier 1 leverage ratio of 9.19 percent, tier 1 risk-based capital ratio of 12.89 percent, and total risk-based capital ratio of 13.87 percent
The Company's loans held for investment to deposit ratio was 87.1 percent and the loans held for investment to asset ratio was 73.8 percent at June 30, 2019. The Company maintained cash and investment securities totaling 19.1 percent of assets as of this date. The Company's funding mix is weighted heavily towards customer deposits, which funded 84.7 percent of assets at June 30, 2019.




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 Company's Annual Report on Form 10-K for the year ended December 31, 2018, 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)
 
June 30, 2019
 
March 31, 2019
 
June 30, 2018
 
Prior quarter
 
Same quarter of prior year
INTEREST INCOME
 
 
 
 
 
 
 
 
 
 
Loans receivable and fees on loans
 
$
5,652

 
$
5,653

 
$
5,276

 
—
 %
 
7.1
 %
Investment securities
 
433

 
412

 
438

 
5.1
 %
 
(1.1
)%
Federal funds sold and overnight investments
 
227

 
141

 
57

 
61
 %
 
298.2
 %
Total interest income
 
6,312

 
6,206

 
5,771

 
1.7
 %
 
9.4
 %
INTEREST EXPENSE
 
 
 
 
 
 
 
 
 
 
Deposits
 
955

 
824

 
463

 
15.9
 %
 
106.3
 %
Other borrowed funds
 
275

 
273

 
323

 
0.7
 %
 
(14.9
)%
Total interest expense
 
1,230

 
1,097

 
786

 
12.1
 %
 
56.5
 %
Net interest income
 
5,082

 
5,109

 
4,985

 
(0.5
)%
 
1.9
 %
Provision for loan losses
 
836

 
103

 
172

 
711.7
 %
 
386
 %
Net interest income after provision for loan losses
 
4,246

 
5,006

 
4,813

 
(15.2
)%
 
(11.8
)%
NONINTEREST INCOME
 
 
 
 
 
 
 
 
 
 
Service charges on deposit accounts
 
338

 
342

 
342

 
(1.2
)%
 
(1.2
)%
Other service charges, commissions and fees
 
378

 
339

 
428

 
11.5
 %
 
(11.7
)%
Mortgage banking income
 
48

 
48

 
52

 
—
 %
 
(7.7
)%
Securities gains, net
 
(7
)
 
—

 
—

 
 
 
 
Other operating income
 
176

 
161

 
167

 
9.3
 %
 
5.4
 %
Total noninterest income
 
933

 
890

 
989

 
4.8
 %
 
(5.7
)%
NONINTEREST EXPENSE
 
 
 
 
 
 
 
 
 
 
Salaries and employee benefits
 
2,281

 
2,416

 
2,380

 
(5.6
)%
 
(4.2
)%
Occupancy and equipment expense
 
527

 
615

 
750

 
(14.3
)%
 
(29.7
)%
OREO-related expenses
 
92

 
50

 
146

 
84
 %
 
(37
)%
Other operating expense
 
1,633

 
1,473

 
1,356

 
10.9
 %
 
20.4
 %
Total noninterest expense
 
4,533

 
4,554

 
4,632

 
(0.5
)%
 
(2.1
)%
Income before income taxes
 
646

 
1,342

 
1,170

 
(51.9
)%
 
(44.8
)%
Income tax expense
 
75

 
282

 
247

 
(73.4
)%
 
(69.6
)%
Net income
 
$
571

 
$
1,060

 
$
923

 
(46.1
)%
 
(38.1
)%
Net income per common share:
 
 
 
 
 
 
 
 
 
 
Basic
 
$
0.07

 
$
0.13

 
$
0.11

 
 
 
 
Diluted
 
0.06

 
0.10

 
0.09

 
 
 
 




Consolidated Income Statements (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30,
 
 
 
(thousands)
 
2019
 
2018
 
Percent change
 
INTEREST INCOME
 
 
 
 
 
 
 
Loans receivable and fees on loans
 
$
11,305

 
$
10,591

 
6.7
 %
 
Investment securities
 
845

 
916

 
(7.8
)%
 
Federal funds sold and overnight investments
 
368

 
127

 
189.8
 %
 
Total interest income
 
12,518

 
11,634

 
7.6
 %
 
INTEREST EXPENSE
 
 
 
 
 
 
 
Deposits
 
1,779

 
926

 
92.1
 %
 
Other borrowed funds
 
548

 
687

 
(20.2
)%
 
Total interest expense
 
2,327

 
1,613

 
44.3
 %
 
Net interest income
 
10,191

 
10,021

 
1.7
 %
 
Provision for loan losses
 
939

 
344

 
173.0
 %
 
Net interest income after provision for loan losses
 
9,252

 
9,677

 
(4.4
)%
 
NONINTEREST INCOME
 
 
 
 
 
 
 
Service charges on deposit accounts
 
680

 
679

 
0.1
 %
 
Other service charges, commissions and fees
 
717

 
847

 
(15.3
)%
 
Mortgage banking income
 
96

 
152

 
(36.8
)%
 
Securities gains, net
 
(7
)
 
—

 
—

 
Other operating income
 
337

 
393

 
(14.2
)%
 
Total noninterest income
 
1,823

 
2,071

 
(12.0
)%
 
NONINTEREST EXPENSE
 
 
 
 
 
 
 
Salaries and employee benefits
 
4,697

 
4,783

 
(1.8
)%
 
Occupancy and equipment expense
 
1,142

 
1,481

 
(22.9
)%
 
OREO-related expenses
 
142

 
277

 
(48.7
)%
 
Other operating expense
 
3,106

 
3,257

 
(4.6
)%
 
Total noninterest expense
 
9,087

 
9,798

 
(7.3
)%
 
Income before income taxes
 
1,988

 
1,950

 
1.9
 %
 
Income tax expense
 
357

 
417

 
(14.4
)%
 
Net income
 
$
1,631

 
$
1,533

 
6.4
 %
 
Net income per common share:
 
 
 
 
 
 
 
Basic
 
$
0.20

 
$
0.19

 
 
 
Diluted
 
0.16

 
0.15

 
 
 





Consolidated Balance Sheets (unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percent change since
(thousands)
 
June 30, 2019
 
December 31, 2018
 
June 30, 2018
 
Prior quarter
 
Same quarter of prior year
ASSETS
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
 
$
26,684

 
$
19,965

 
$
23,007

 
33.7
 %
 
16.0
 %
Federal funds sold
 
21,138

 
10,101

 
963

 
109.3
 %
 
2,095.0
 %
Total cash and cash equivalents
 
47,822

 
30,066

 
23,970

 
59.1
 %
 
99.5
 %
Investment securities
 
68,997

 
71,405

 
73,553

 
(3.4
)%
 
(6.2
)%
Loans held for sale
 
863

 
265

 
1,424

 
225.7
 %
 
(39.4
)%
Loans held for investment
 
451,590

 
448,121

 
441,460

 
0.8
 %
 
2.3
 %
Allowance for loan losses
 
(4,243
)
 
(4,373
)
 
(4,138
)
 
(3.0
)%
 
2.5
 %
Net loans held for investment
 
447,347

 
443,748

 
437,322

 
0.8
 %
 
2.3
 %
Premises and equipment, net
 
17,159

 
17,447

 
17,879

 
(1.7
)%
 
(4.0
)%
Real estate held for sale
 
590

 
817

 
992

 
(27.8
)%
 
(40.5
)%
Deferred tax assets
 
5,706

 
6,526

 
7,152

 
(12.6
)%
 
(20.2
)%
Interest receivable
 
2,010

 
1,617

 
1,728

 
24.3
 %
 
16.3
 %
Bank-owned life insurance
 
15,215

 
15,022

 
14,835

 
1.3
 %
 
2.6
 %
Other real estate owned
 
2,892

 
2,212

 
2,233

 
30.7
 %
 
29.5
 %
Other assets
 
3,120

 
2,816

 
2,991

 
10.8
 %
 
4.3
 %
Total assets
 
$
611,721

 
$
591,941

 
$
584,079

 
3.3
 %
 
4.7
 %
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
Noninterest bearing
 
$
153,982

 
$
156,408

 
$
155,337

 
(1.6
)%
 
(0.9
)%
Interest bearing
 
364,462

 
346,408

 
342,979

 
5.2
 %
 
6.3
 %
Total deposits
 
518,444

 
502,816

 
498,316

 
3.1
 %
 
4.0
 %
Short-term borrowings
 
30,000

 
30,000

 
—

 
—
 %
 
—
 %
Long-term debt
 
67

 
93

 
30,120

 
(28.0
)%
 
(99.8
)%
Other liabilities
 
3,179

 
2,391

 
1,482

 
33.0
 %
 
114.5
 %
Total liabilities
 
551,690

 
535,300

 
529,918

 
3.1
 %
 
4.1
 %
STOCKHOLDERS' EQUITY
 
 
 
Common stock
 
5,156

 
5,156

 
5,124

 
—
 %
 
0.6
 %
Preferred stock
 
4,184

 
4,184

 
4,184

 
—
 %
 
—
 %
Additional paid-in capital
 
19,292

 
19,277

 
19,224

 
0.1
 %
 
0.4
 %
Retained earnings
 
31,762

 
30,131

 
28,072

 
5.4
 %
 
13.1
 %
Accumulated other comprehensive loss
 
(363
)
 
(2,107
)
 
(2,443
)
 
(82.8
)%
 
(85.1
)%
Total stockholders' equity
 
60,031

 
56,641

 
54,161

 
6.0
 %
 
10.8
 %
Total liabilities and stockholders' equity
 
$
611,721

 
$
591,941

 
$
584,079

 
3.3
 %
 
4.7
 %
 
 
 
 
 
 
 
 
 
 
 




Profitability Ratios, Asset Quality and Capital (unaudited)
 
Quarter ended
(dollars in thousands)
 
June 30, 2019
 
March 31, 2019
 
June 30, 2018
 
Profitability Ratios (current quarter, annualized)
 
 
 
 
 
 
 
Net interest margin
 
3.75
%
 
3.86
%
 
3.84
%
 
Annualized return on average assets
 
0.37

 
0.71

 
0.63

 
Annualized return on average equity
 
3.89

 
7.53

 
6.89

 
Efficiency ratio
 
75.36

 
75.91

 
77.54

 
 
 
 
 
 
 
 
 
 
 
June 30, 2019
 
December 31, 2018
 
June 30, 2018
 
Asset Quality
 
 
 
 
 
 
 
Loans 90 days past due and still accruing
 
$
168

 
$
107

 
$
—

 
Non-accrual loans
 
5,265

 
5,920

 
3,871

 
Total non-performing loans
 
5,433

 
6,027

 
3,871

 
Other real estate owned
 
2,892

 
2,212

 
2,233

 
Total non-performing assets
 
$
8,325

 
$
8,239

 
$
6,104

 
Ratios:
 
 
 
 
 
 
 
Non-performing loans to loans held for investment
 
1.20
%
 
1.34
%
 
0.88
%
 
Non-performing assets to loans held for investment and OREO
 
1.83

 
1.83

 
1.38

 
Allowance for credit losses to loans held for investment
 
0.96

 
0.98

 
0.94

 
Allowance for credit losses to non-performing loans
 
79.64

 
73.87

 
106.90

 
Past-due loans to loans held for investment
 
1.36

 
1.51

 
1.47

 
Annualized net charge-offs to loans held for investment
 
0.62

 
0.04

 
0.03

 
 
 
 
 
 
 
 
 
Capital
 
 
 
 
 
 
 
Common shares outstanding
 
8,251

 
8,251

 
8,199

 
Preferred shares outstanding
 
2,092

 
2,092

 
2,092

 
Book value per share:
 
 
 
 
 
 
 
Common
 
$
6.43

 
$
6.02

 
$
5.76

 
Combined common and preferred
 
5.80

 
5.48

 
5.26

 
Ratios (Bank only, estimated):
 
 
 
 
 
 
 
Tier 1 leverage ratio
 
9.19
%
 
9.22
%
 
8.85
%
 
Tier 1 risk-based capital ratio
 
12.89

 
12.94

 
12.22

 
Total risk-based capital ratio
 
13.87

 
13.90

 
13.20

 
Common equity tier 1 ratio
 
12.89

 
12.94

 
12.22

 

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