Heritage Southeast Bancorporation, Inc. Reports 2nd Quarter Earnings of $2.9 million, or $0.40 Per Share; Acquisition by VyStar Credit Union on Track to Close in 4th Quarter 2021
07/22/2021 - 09:00 AM
JONESBORO, Ga., July 22, 2021 (GLOBE NEWSWIRE) -- Heritage Southeast Bancorporation, Inc. (“Company”) (OTCQX: HSBI) today announced quarterly net income of $2.9 million or $0.40 per diluted share for the second quarter ended June 30, 2021, compared to $4.3 million or $0.60 per diluted share for the prior quarter. Second quarter earnings included higher operating expenses associated with the scheduled acquisition by VyStar Credit Union later this year.
Highlights of the Company’s results for the quarter ended June 30, 2021 and status of the VyStar Credit Union acquisition include the following:
Shareholders approved the acquisition agreement with VyStar Credit Union on July 12, 2021. Regulatory approvals are expected in the 3rd quarter and integration planning continues. Pre-tax core earnings increased to $4.6 million for the second quarter ended June 30, 2021 from $4.0 million for the first quarter ended March 31, 2021. Net income excluding transaction costs was $4.1 million for the second quarter ended June 30, 2021. Reductions to problem assets continued in the second quarter as total classified assets declined to $3.7 million at June 30, 2021 from $4.8 million at March 31, 2021 and $29.1 million at June 30, 2020. Loan loss provisions remained at zero for the quarter ended June 30, 2021, reflecting the overall improved credit outlook. “Our operating results remain strong as we continue normal operations through the approval process of our acquisition by VyStar Credit Union. While we have received shareholder approval, we await regulatory approvals from the FDIC, Georgia Department of Banking and Finance, the NCUA and Florida Office of Financial Regulation,” stated Leonard Moreland, Chief Executive Officer.
Net Interest Income
The Company’s net interest income decreased slightly to $12.7 million during the second quarter of 2021 from $12.8 million in the first quarter. The Company’s reported net interest margin decreased 22 basis points to 3.36% for the second quarter of 2021 from 3.58% for the first quarter. Both quarters' net interest margin were positively impacted by the accretion of PPP related fees of approximately $825,000 and $855,000 for the second quarter and first quarter of 2021, respectively. The earning asset yield decreased 28 basis points to 3.72% during the second quarter of 2021 while the cost of funds decreased 6 basis points to 0.36% over the same time frame. The net interest margin excluding PPP loans decreased to 3.26% for the second quarter from 3.48% one quarter earlier primarily due to changes in earning asset mix.
Loan Loss Provisions
The Company did not recognize any loan loss provisions for the second quarter. Management believes the improved economic and pandemic climate has provided better clarity on the ability of borrowers to meet their loan obligations. As such, the current level of reserves is believed to be sufficient as of June 30, 2021.
Non-interest Income
Second quarter non-interest income increased to $4.6 million from $4.5 million for the first quarter of 2021. Higher deposit service charges and fees, interchange and ATM fees were partially offset by lower gains on the sale of SBA loans.
Non-interest Expense
Non-interest expense increased $1.7 million to $13.5 million for the second quarter of 2021 from $11.8 million the prior quarter. Other expenses increased to $5.3 million for the second quarter from $3.9 million the prior quarter. The second quarter included approximately $1.6 million in costs associated with the proposed transaction with VyStar Credit Union.
Balance Sheet
Total assets remained at $1.65 billion at June 30, 2021, relative to the previous quarter. Liquidity levels remained elevated as cash and cash equivalents increased $35.4 million to $306.1 million from $270.7 million three months earlier. Securities available for sale decreased slightly by $1.2 million to $173.6 million at June 30, 2021 from $174.8 million three months earlier. Loans, excluding PPP loans, increased $4.9 million to $999.1 million at June 30, 2021 from $994.3 million at March 31, 2021. Meanwhile, PPP loans decreased to $59.2 million at June 30, 2021 from $88.2 million three months earlier.
Total deposits remained at $1.43 billion at June 30, 2021. Non-interest bearing deposits remain the largest component of the deposit portfolio representing 34.1% of total deposits followed by money market and savings deposits at 29.6% , interest-bearing demand deposits at 18.8% and time deposits at 17.5% .
Asset Quality
Classified assets, which include nonperforming assets and accruing classified loans, totaled $3.7 million at June 30, 2021, compared with $4.8 million at March 31, 2021. The decrease during the second quarter reflected a reduction of $749,000 in loans and $306,000 reduction in other real estate owned. Nonperforming assets, which exclude accruing classified loans, totaled $2.9 million at June 30, 2021, or 0.18% of total assets compared to $3.9 million , or 0.24% during the prior quarter.
The allowance for loan losses decreased slightly to $15.2 million , or 1.43% of total loans at June 30, 2021 from $15.3 million , or 1.41% of total loans at March 31, 2021. Excluding PPP loans, which are supported by guarantees from the SBA, the allowance for loans losses were 1.52% of total loans at June 30, 2021.
Capital
Total shareholder equity increased to $149.1 million at June 30, 2021 from $145.8 million one quarter earlier. Shareholder equity relative to total assets was 9.02% and tangible shareholder equity relative to tangible assets was 6.99% at June 30, 2021. Tangible book value per share was $15.65 at June 30, 2021, an increase of 9.1% from June 30, 2020. At June 30, 2021, the Bank’s Leverage Ratio was 9.01% , its Common Equity Tier I and Tier 1 Capital ratios were 12.32% , and its Total Risk-Based Capital ratio was 13.57% . These regulatory capital ratios are significantly above levels required to be considered “well capitalized,” which is the highest possible regulatory designation.
About Heritage Southeast Bancorporation, Inc.
Heritage Southeast Bancorporation, Inc. serves as the holding company for Heritage Southeast Bank, which is headquartered in Jonesboro, GA and operates under the names “Heritage Bank,” “The Heritage Bank,” and “Providence Bank” in its various markets. With approximately $1.7 billion in assets, the Bank provides a well-rounded offering of commercial and consumer products through its 22 locations. For additional information, visit the HSBI website at www.myhsbi.com.
Forward Looking Statements: This press release contains forward-looking statements. These forward-looking statements include, but are not limited to, statements about the benefits of the proposed acquisition of HSBI by VyStar, statements related to the expected timing of the completion of the acquisition, the combined company's plans, objectives, expectations and intentions, and other statements that are not historical facts. Forward-looking statements may be identified by terminology such as "may," "will," "should," "scheduled," "plans," "intends," "anticipates," "expects," "believes," estimates," "potential," or "continue" or negatives of such terms or other comparable terminology. All forward-looking statements in this press release, or in any other written or oral communication that relates to the proposed acquisition or to matters that may affect such proposed acquisition are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of HSBI or VyStar to differ materially from any results expressed or implied by such forward-looking statements. Such factors include, among others, (1) disruption from the proposed acquisition with customers, suppliers, employees or other business partners, (2) the occurrence of any event, change or other circumstances that could give rise to the termination of the agreement, (3) the ability by the parties to obtain required governmental approvals of the acquisition (4) the failure of the closing conditions in the agreement to be satisfied, or any unexpected delay in closing the acquisition, and (5) general competitive, economic, political and market conditions.
HSBI disclaims any obligation to update or revise any forward-looking statements contained in this communication (which statements speak only as of the date hereof), or in any other written or oral communication that relates to the proposed combination or to matters that may affect such proposed combination, whether as a result of new inform ation, future events or otherwise.
Heritage Southeast Bancorporation, Inc. and its subsidiary disclaim any obligation to update or revise any forward-looking statements contained in this press release, which speak only as of the date hereof, whether as a result of new information, future events or otherwise, except as required by law.
CONTACT Leonard A. Moreland Philip F. Resch Chief Executive Officer Chief Financial Officer
Heritage Southeast Bancorporation, Inc.
HERITAGE SOUTHEAST BANCORPORATION, INC. AND SUBSIDIARY Financial Highlights (Unaudited) (in thousands, except per share data) Three Months Ended June 30, March 31, December 31, September 30, June 30, 2021 2021 2020 2020 2020 Earnings: Net Interest Income $ 12,727 $ 12,769 $ 12,530 $ 11,901 $ 11,769 Net Income 2,869 4,333 977 901 948 Net Income excluding transaction costs 4,146 4,333 977 901 948 Per Share Data: Earnings per share: Basic $ 0.41 $ 0.62 $ 0.14 $ 0.13 $ 0.14 Diluted $ 0.40 $ 0.60 $ 0.14 $ 0.13 $ 0.13 Diluted excluding transaction costs $ 0.57 $ 0.60 $ 0.14 $ 0.13 $ 0.13 Weighted average number of shares: Basic 6,967 6,956 6,924 6,921 6,908 Diluted 7,212 7,179 7,139 7,139 7,131 Period-end number of shares (1) 7,220 7,222 7,227 7,229 7,227 Book value per share (period-end) $ 20.65 $ 20.18 $ 19.76 $ 19.62 $ 19.45 Tangible book value per share (period-end) $ 15.65 $ 15.16 $ 14.71 $ 14.54 $ 14.34 Key Ratios (percent): Return on average assets 0.69 % 1.10 % 0.25 % 0.24 % 0.27 % Return on average assets excluding transaction costs 1.00 % 1.10 % 0.25 % 0.24 % 0.27 % Return on average tangible equity 10.34 % 16.28 % 3.66 % 3.44 % 3.70 % Return on average tangible equity excluding transaction costs 14.95 % 16.28 % 3.66 % 3.44 % 3.70 % Yield on interest earning assets 3.72 % 4.00 % 4.05 % 4.03 % 4.32 % Cost of funds 0.36 % 0.42 % 0.52 % 0.60 % 0.61 % Net interest margin 3.36 % 3.58 % 3.53 % 3.43 % 3.71 % Net interest margin, excluding PPP loans 3.26 % 3.48 % 3.50 % 3.67 % 3.78 % Non-interest income as a percent of total revenue 26.6 % 26.0 % 26.7 % 24.7 % 26.0 % Efficiency ratio 76.5 % 67.2 % 83.1 % 75.1 % 77.8 % Efficiency ratio excluding transaction costs 67.2 % 67.2 % 83.1 % 75.1 % 77.8 % Tangible common equity to tangible assets 6.99 % 6.81 % 6.93 % 7.04 % 7.06 % Asset Quality (period-end): Allowance for loan losses to total loans 1.43 % 1.41 % 1.32 % 1.23 % 1.02 % Allowance for loan losses to loans, excluding PPP loans 1.52 % 1.53 % 1.44 % 1.36 % 1.13 % Allowance for loan losses to total nonperforming loans 1113.0 % 731.0 % 143.1 % 118.6 % 54.9 % Nonperforming assets to total assets 0.18 % 0.24 % 0.79 % 1.04 % 1.87 % Net charge-offs (annualized) to average loans 0.04 % -0.43 % 0.19 % 0.15 % 0.04 % Net charge-offs (annualized) to average loans, excluding PPP loans 0.04 % -0.46 % 0.21 % 0.17 % 0.05 % Capital (period-end): Heritage Southeast Bank (HSB) risk based capital ratios: CET1 12.32 % 12.02 % 11.95 % 12.10 % 11.99 % Tier 1 12.32 % 12.02 % 11.95 % 12.10 % 11.99 % Total 13.57 % 13.27 % 13.19 % 13.26 % 12.97 % Leverage 9.01 % 9.10 % 8.98 % 9.08 % 9.55 % Other (period-end): Branches 22 22 22 24 24 FTE 276 278 288 289 302 (1) Includes restricted stock and shares yet to be issued under a supplemental executive retirement plan.
HERITAGE SOUTHEAST BANCORPORATION, INC. AND SUBSIDIARY Consolidated Statements of Income (Unaudited) (in thousands, except per share data) Three Months Ended June 30, March 31, December 31, September 30, June 30, 2021 2021 2020 2020 2020 Interest and dividend revenue: Loans, including fees $ 12,592 $ 12,625 $ 12,938 $ 12,806 $ 12,748 PPP loans, including fees 1,024 1,071 984 666 523 Investment securities 376 516 393 426 394 Fed funds sold, deposits in banks and other 79 55 61 76 40 Total interest and dividend revenue 14,071 14,267 14,376 13,974 13,705 Interest expense: Deposits 843 986 1,256 1,457 1,673 Fed funds purchased and repurchase agreements 6 10 15 21 20 Federal Home Loan Bank advances - - - 1 14 Line of credit 124 110 181 196 135 Subordinated notes 290 310 310 313 - Junior subordinated debentures 81 82 84 85 94 Total interest expense 1,344 1,498 1,846 2,073 1,936 Net interest income 12,727 12,769 12,530 11,901 11,769 Provision for loan losses - - 1,700 2,550 2,550 Net interest revenue after provision for loan losses 12,727 12,769 10,830 9,351 9,219 Noninterest revenue: Service charges and fees 1,291 1,285 1,574 1,433 1,218 Interchange and ATM fees 1,665 1,536 1,480 1,524 1,422 Securities gains, net - - - - 741 Gain on sale of SBA loans 738 906 924 275 61 Other 913 765 579 678 701 Total noninterest revenue 4,607 4,492 4,557 3,910 4,143 Operating expenses: Salaries and employee benefits 6,551 6,528 8,309 6,477 5,877 Occupancy and equipment 1,443 1,402 1,404 1,454 1,388 Other real estate expenses, including losses on sales and impairments, net 165 7 391 113 619 Other 5,332 3,904 4,335 4,070 4,153 Total other operating expenses 13,491 11,841 14,439 12,114 12,037 Income before income tax expense 3,843 5,420 948 1,147 1,325 Income tax expense 974 1,087 (29 ) 246 377 Net income $ 2,869 $ 4,333 $ 977 $ 901 $ 948 Weighted-average number of shares outstanding: Basic 6,967 6,956 6,924 6,921 6,908 Diluted 7,212 7,179 7,139 7,139 7,131 Earnings per share: Basic $ 0.41 $ 0.62 $ 0.14 $ 0.13 $ 0.14 Diluted $ 0.40 $ 0.60 $ 0.14 $ 0.13 $ 0.13
HERITAGE SOUTHEAST BANCORPORATION, INC. AND SUBSIDIARY Consolidated Statements of Income (in thousands, except per share data) Six Months Ended (Unaudited) (Unaudited) June 30, June 30, 2021 2020 Interest and dividend revenue: Loans, including fees $ 25,217 $ 26,312 PPP loans, including fees 2,095 523 Investment securities 892 1,012 Fed funds sold, deposits in banks and other 134 387 Total interest and dividend revenue 28,338 28,234 Interest expense: Deposits 1,829 3,695 Fed funds purchased and repurchase agreements 16 70 Federal Home Loan Bank advances - 37 Line of credit 234 235 Subordinated debt 600 - Junior subordinated debentures 163 215 Total interest expense 2,842 4,252 Net interest income 25,496 23,982 Provision for loan losses - 5,100 Net interest revenue after provision for loan losses 25,496 18,882 Noninterest revenue: Service charges and fees 2,576 2,916 Interchange and ATM fees 3,201 2,685 Securities gains, net - 1,313 Gain on sale of SBA loans 1,644 612 Other 1,678 1,345 Total noninterest revenue 9,099 8,871 Operating expenses: Salaries and employee benefits 13,079 12,733 Occupancy and equipment 2,845 2,697 Other real estate expenses, including losses on sales and impairments, net 172 692 Other 9,236 8,234 Total other operating expenses 25,332 24,356 Income before income tax expense 9,263 3,397 Income tax expense 2,061 833 Net income $ 7,202 $ 2,564 Weighted-average number of shares outstanding: Basic 6,964 6,900 Diluted 7,209 7,124 Earnings per share: Basic $ 1.03 $ 0.37 Diluted $ 1.00 $ 0.36
HERITAGE SOUTHEAST BANCORPORATION, INC. AND SUBSIDIARY Consolidated Balance Sheets (in thousands) (Unaudited) (Unaudited) (Unaudited) (Unaudited) June 30, March 31, December 31, September 30, June 30, 2021 2021 2020 2020 2020 Assets Cash and due from banks $ 27,722 $ 23,851 $ 29,092 $ 23,001 $ 26,767 Interest-bearing deposits with banks 278,360 246,824 189,533 178,473 172,961 Cash and cash equivalents 306,082 270,675 218,625 201,474 199,728 Securities available for sale, at fair value 173,606 174,785 169,329 157,045 131,429 Other investments 786 786 1,203 1,203 1,451 Loans: Loans, excluding PPP loans 999,127 994,251 980,257 949,473 950,920 PPP loans 59,233 88,201 87,775 103,402 103,074 Allowance for loan losses (15,159 ) (15,256 ) (14,117 ) (12,925 ) (10,772 ) Loans, net 1,043,201 1,067,196 1,053,915 1,039,950 1,043,222 Premises and equipment, net 36,114 37,220 37,165 37,154 34,375 Bank owned life insurance 34,174 33,925 28,734 28,536 28,334 Other real estate owned 1,533 1,839 2,593 5,043 8,496 Goodwill 28,275 28,275 28,275 28,275 28,275 Core deposit intangible, net 7,758 7,995 8,232 8,470 8,707 Deferred tax asset, net 13,313 14,362 14,900 14,989 15,276 Other assets 7,423 8,140 8,219 8,058 6,156 Total Assets $ 1,652,265 $ 1,645,198 $ 1,571,190 $ 1,530,197 $ 1,505,449 Liabilities Deposits: Noninterest-bearing $ 488,877 $ 479,653 $ 415,476 $ 427,389 $ 417,690 Interest-bearing demand 270,380 269,517 283,009 237,710 225,292 Money market and savings 425,371 422,904 385,246 355,308 337,169 Time 250,839 261,710 278,825 290,521 301,532 Total deposits 1,435,467 1,433,784 1,362,556 1,310,928 1,281,683 Securities sold under agreements to repurchase 15,241 13,413 13,187 15,407 17,194 Federal Home Loan Bank advances - - - - 4,167 Line of credit 22,688 14,688 14,688 24,688 24,688 Subordinated notes 13,165 19,656 19,646 19,637 19,653 Junior subordinated debentures 9,327 9,288 9,250 9,211 9,173 Accrued expenses and other liabilities 7,312 8,598 9,030 8,441 8,267 Total liabilities 1,503,200 1,499,427 1,428,357 1,388,312 1,364,825 Shareholders' Equity Common stock 702 702 702 702 701 Additional paid in capital 117,151 116,972 116,825 116,628 116,396 Retained earnings 31,186 28,316 23,983 23,007 22,105 Other comprehensive income (loss) 26 (219 ) 1,323 1,548 1,422 Total Shareholders' Equity 149,065 145,771 142,833 141,885 140,624 Total Liabilities and Shareholders' Equity $ 1,652,265 $ 1,645,198 $ 1,571,190 $ 1,530,197 $ 1,505,449
HERITAGE SOUTHEAST BANCORPORATION, INC. AND SUBSIDIARY GAAP to Non-GAAP Reconciliation (Unaudited) (in thousands) Three Months Ended June 30, March 31, December 31, September 30, June 30, 2021 2021 2020 2020 2020 Income before income tax expense (GAAP) $ 3,843 $ 5,420 $ 948 $ 1,147 $ 1,325 Provision for loan losses - - 1,700 2,550 2,550 Other real estate expenses, including losses on sales and impairments, net 165 7 391 113 619 Securities gains, net - - - - (741 ) Loss on sub-lease - - 800 - - Employee restructuring costs - - 1,310 - - Transaction costs 1,612 - - - - PPP impact (1,024 ) (1,396 ) (984 ) (666 ) (1,523 ) Pre-tax core earnings $ 4,596 $ 4,031 $ 4,165 $ 3,144 $ 2,230
HERITAGE SOUTHEAST BANCORPORATION, INC. AND SUBSIDIARY Loan Portfolio (Unaudited) (in thousands) June 30, March 31, December 31, September 30, June 30, 2021 2021 2020 2020 2020 Real estate loans: Construction and land development $ 144,263 $ 152,889 $ 142,513 $ 136,313 $ 148,158 Single-family residential 162,996 165,362 171,153 166,673 167,734 Commercial - owner occupied 260,186 266,258 259,592 255,277 248,001 Commercial - other 214,995 198,965 192,808 191,313 187,032 Multifamily 14,017 6,746 14,171 11,849 11,669 Total real estate loans 796,457 790,220 780,237 761,425 762,594 Commercial loans (not secured by real estate) 190,095 190,365 184,509 171,251 172,134 Consumer loans (not secured by real estate) 13,874 14,861 16,677 17,844 17,117 Gross loans 1,000,426 995,446 981,423 950,520 951,845 Unearned income (1,299 ) (1,195 ) (1,166 ) (1,047 ) (925 ) Loans, net of unearned income $ 999,127 $ 994,251 $ 980,257 $ 949,473 $ 950,920 June 30, March 31, December 31, September 30, June 30, 2021 2021 2020 2020 2020 PPP loans: Up to $50,000 $ 7,033 $ 11,718 $ 11,701 $ 12,762 $ 12,765 $50,001 - $150,000 15,438 24,231 23,448 27,371 27,371 $150,001 - $2 million 26,384 35,498 36,357 47,724 47,724 Greater than $2 million 11,963 17,953 17,953 17,953 17,953 Total PPP loans (1) 60,818 89,400 89,459 105,810 105,813 Unearned income (1,585 ) (1,199 ) (1,684 ) (2,408 ) (2,739 ) PPP loans, net of unearned income $ 59,233 $ 88,201 $ 87,775 $ 103,402 $ 103,074 (1) June 30, 2021 includes $30.5 million and $30.3 million of loans originated in 2021 and 2020, respectively.
HERITAGE SOUTHEAST BANCORPORATION, INC. AND SUBSIDIARY Asset Quality Information (Unaudited) (in thousands) June 30, March 31, December 31, September 30, June 30, 2021 2021 2020 2020 2020 Classified assets: Nonperforming loans $ 1,362 $ 2,087 $ 9,866 $ 10,902 $ 19,638 Other real estate owned 1,533 1,839 2,593 5,043 8,496 Total nonperforming assets 2,895 3,926 12,459 15,945 28,134 Accruing classified loans 811 835 888 1,634 971 Total classified assets $ 3,706 $ 4,761 $ 13,347 $ 17,579 $ 29,105 Classified assets to HSB Tier 1 capital plus ALL 2.3 % 3.1 % 8.9 % 11.9 % 18.1 % Nonperforming assets to total assets 0.18 % 0.24 % 0.79 % 1.04 % 1.87 % Allowance for loan losses: Balance at beginning of period $ 15,256 $ 14,117 $ 12,925 $ 10,772 $ 8,330 Provision for loan losses - - 1,700 2,550 2,550 Charge-offs (195 ) (198 ) (860 ) (403 ) (170 ) Recoveries 98 1,337 352 6 62 Balance at end of period $ 15,159 $ 15,256 $ 14,117 $ 12,925 $ 10,772 Loans, excluding PPP loans $ 999,127 $ 994,251 $ 980,257 $ 949,473 $ 950,920 PPP loans 59,233 88,201 87,775 103,402 103,074 Performing past due loans 1,464 2,500 2,472 2,193 3,506 Allowance as % of loans 1.43 % 1.41 % 1.32 % 1.23 % 1.02 % Allowance as % of loans, excluding PPP loans 1.52 % 1.53 % 1.44 % 1.36 % 1.13 % Allowance as a % of nonperforming loans 1113.0 % 731.0 % 143.1 % 118.6 % 54.9 % Average loans, excluding PPP loans 993,346 988,230 960,808 947,177 946,389 Average PPP loans 77,325 83,489 100,725 102,396 78,981 Net charge-offs (annualized) to average loans 0.04 % -0.43 % 0.19 % 0.15 % 0.04 % Net charge-offs (annualized) to average loans, excluding PPP loans 0.04 % -0.46 % 0.21 % 0.17 % 0.05 %
