Heritage Southeast Bancorporation, Inc. Reports First Quarter 2022 Earnings Up 24% to $3.8 Million, or $0.53 Per Share Relative to Fourth Quarter 2021; Year Over Year Core Loan Growth up 8.5%

JONESBORO, Ga., April 21, 2022 (GLOBE NEWSWIRE) -- Heritage Southeast Bancorporation, Inc. (“Company”) (OTCQX: HSBI) today announced first quarter 2022 earnings of $3.8 million, or $0.53 per share compared to $3.1 million, or $0.43 per share in the prior quarter ended December 31, 2021.  First quarter earnings reflected lower operating expenses partially offset by lower net interest income and lower non-interest income relative to the prior quarter. 

Highlights of the Company’s results for the quarter ended March 31, 2022 and status of the VyStar Credit Union acquisition include the following:

• On March 31, 2022, HSBI, Heritage Southeast Bank and VyStar Credit Union mutually agreed to extend the outside date for consummation of the proposed transaction through June 30, 2022, while permitting either party to terminate the agreement in the event certain regulatory hurdles are not cleared by April 30, 2022.
• Earnings per share excluding transaction costs was $0.59 per diluted share for the first quarter ended March 31, 2022 compared to $0.67 per share for the prior quarter and $0.60 one year earlier.
• Total loans, excluding PPP loans, increased $34.3 million during the first quarter, or 3.3%.  Relative to one year earlier, total loans, excluding PPP loans, increased $84.5 million, or 8.5%.
• Return on tangible equity excluding transaction costs was 14.76% for the first quarter ended March 31, 2022 compared to 16.41% the previous quarter.

“Our strong core operating results continue to benefit from the tremendous efforts our team has put into the organization in recent years.  Strong loan growth is a result of focused efforts by our bankers and a good economic climate for our borrowers.  Asset quality continues to reflect minimal delinquencies while loan loss recoveries continue to exceed charge-offs” said Leonard Moreland, Chief Executive Officer.  “We look forward to an improved net interest margin resulting from Federal Reserve actions and the continued repositioning of our balance sheet through loan growth as lower yielding investments convert into higher yielding loans.  Additionally, we expect gains on the sale of SBA loans will rebound from the slow first quarter and more expense control will contribute to better core earnings for the remainder of fiscal 2022,” Moreland added.

Net Interest Income

The Company’s net interest income decreased to $12.3 million during the first quarter of 2022 from $12.6 million in the fourth quarter ended December 31, 2021. The Company’s reported net interest margin decreased 6 basis points to 3.25% for the first quarter of 2022 from 3.31% for the preceding quarter. Net interest income and net interest margin was negatively impacted by lower revenue on the PPP portfolio and lower yields on loans partially offset by higher yields on investment securities.  At March 31, 2022, the Company held PPP loans totaling $4.2 million, down approximately $6.7 million from the previous quarter.  Related interest and fees totaled $235,000 in the period compared to $428,000 during the fourth quarter ended December 31, 2021. The earning asset yield decreased 8 basis points to 3.52% during the first quarter of 2022 while the cost of funds decreased 2 basis points to 0.27% over the same time frame. The net interest margin excluding PPP loans decreased to 3.20% for the first quarter from 3.23% one quarter earlier.

Loan Loss Provision

The Company did not recognize any loan loss provision for the first quarter. Management believes the improved economic and pandemic climate has provided better clarity on the ability for borrowers to meet their loan obligations. Additionally, asset quality continued to improve.  As such, the current level of reserves is believed to be sufficient as of March 31, 2022.  

Non-interest Income

First quarter non-interest income decreased to $4.1 million from $5.4 million for the fourth quarter of 2021. Gains on the sale of SBA loans decreased to $419,000 during the quarter from $1.5 million the previous quarter.  Though the disparity between the two quarters is partially due to the timing of sale closings, the pipeline remains strong and management expects 2022 to continue to be an active year for SBA loan sales. Further, service charges and fees as well as interchange and ATM fees decreased from the prior quarter due to historically low levels in these line items during the first quarter of the year.    

Non-interest Expense

Non-interest expense decreased to $11.7 million for the first quarter of 2022 from $14.2 million the prior quarter. The current quarter reflected $604,000 in transaction related costs associated with employee retention and professional fees.  The prior quarter included approximately $2.5 million in costs associated with the proposed transaction with VyStar Credit Union.

Balance Sheet

Total assets increased slightly to $1.70 billion at March 31, 2022, relative to $1.65 billion at the previous quarter end.  Elevated liquidity levels continued to increase as cash and cash equivalents increased to $313.0 million, from $291.2 million three months earlier.  Securities available for sale decreased by $8.3 million to $189.0 million at March 31, 2022 from $197.3 million three months earlier.  Loans, excluding PPP loans, increased to $1.08 billion at March 31, 2022 from $1.04 billion at December 31, 2021.  Meanwhile, PPP loans decreased to $4.2 million at March 31, 2022 from $10.9 million three months earlier.  

Total deposits increased to $1.47 billion at March 31, 2022 from $1.43 billion three months earlier. Non-interest-bearing deposits remain the largest component of the deposit portfolio representing 35.3% of total deposits followed by money market and savings deposits at 31.2%, interest-bearing demand deposits at 18.5% and time deposits at 15.0%. 

Asset Quality

Classified assets, which include nonperforming assets and accruing classified loans, decreased to $3.1 million at March 31, 2022, compared with $3.3 million at December 31, 2021. The decrease during the first quarter reflected a decrease of $349,000 in accruing classified loans. Nonperforming assets, which exclude accruing classified loans, totaled $2.8 million at March 31, 2022, or 0.16% of total assets.

The allowance for loan losses increased slightly to $15.4 million, or 1.42% of total loans at March 31, 2022 from $15.2 million, or 1.44% of total loans at December 31, 2021. The increase was due to net loan recoveries totaling $168,000 during the period as no loan loss provision was required.  Excluding PPP loans, which are supported by guarantees from the SBA, the allowance for loan losses was 1.43% of total loans at March 31, 2022.      

Capital

Total shareholder equity was $150.8 million at March 31, 2022.  Shareholder equity relative to total assets was 8.89% and tangible shareholder equity relative to tangible assets was 6.95% at March 31, 2022.  Tangible book value per share was $16.02 at March 31, 2022.  At March 31, 2022, the Bank’s Leverage Ratio was 9.89%, its Common Equity Tier I and Tier 1 Capital ratios were 12.50%, and its Total Risk-Based Capital ratio was 13.69%.  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 23 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 information, 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 Chief Executive Officer		Philip F. Resch Chief Financial Officer
Heritage Southeast Bancorporation, Inc. 101 North Main Street P.O. Box 935 Jonesboro, GA 30236 (770) 824-9934

HERITAGE SOUTHEAST BANCORPORATION, INC. AND SUBSIDIARY
Financial Highlights
(Unaudited) (in thousands, except per share data)
	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2022			2021			2021			2021			2021
Earnings:
Net Interest Income	$	12,325		$	12,633		$	13,152		$	12,727		$	12,769
Net Income		3,840			3,108			3,503			2,869			4,333
Net Income excluding transaction costs		4,288			4,809			4,368			4,146			4,333
Per Share Data:
Earnings per share:
Basic	$	0.55		$	0.45		$	0.50		$	0.41		$	0.62
Diluted	$	0.53		$	0.43		$	0.49		$	0.40		$	0.60
Diluted excluding transaction costs	$	0.59		$	0.67		$	0.60		$	0.57		$	0.60
Weighted average number of shares:
Basic		7,008			6,979			6,976			6,967			6,956
Diluted		7,225			7,218			7,222			7,212			7,179
Period-end number of shares(1)		7,212			7,220			7,220			7,220			7,222
Book value per share (period-end)	$	20.92		$	21.32		$	21.09		$	20.65		$	20.18
Tangible book value per share (period-end)	$	16.02		$	16.40		$	16.13		$	15.65		$	15.16
Key Ratios (percent):
Return on average assets		0.93	%		0.75	%		0.84	%		0.69	%		1.10	%
Return on average assets excluding transaction costs		1.04	%		1.16	%		1.05	%		1.00	%		1.10	%
Return on average tangible equity		13.21	%		10.61	%		12.15	%		10.34	%		16.28	%
Return on average tangible equity excluding transaction costs		14.76	%		16.41	%		15.15	%		14.95	%		16.28	%
Yield on interest earning assets		3.52	%		3.60	%		3.78	%		3.72	%		4.00	%
Cost of funds		0.27	%		0.29	%		0.33	%		0.36	%		0.42	%
Net interest margin		3.25	%		3.31	%		3.45	%		3.36	%		3.58	%
Net interest margin, excluding PPP loans		3.20	%		3.23	%		3.28	%		3.26	%		3.48	%
Non-interest income as a percent of total revenue		25.1	%		29.9	%		25.4	%		26.6	%		26.0	%
Efficiency ratio		69.9	%		77.4	%		72.0	%		76.5	%		67.2	%
Efficiency ratio excluding transaction costs		66.3	%		63.7	%		65.9	%		67.2	%		67.2	%
Tangible common equity to tangible assets		6.95	%		7.31	%		7.26	%		6.99	%		6.81	%
Asset Quality (period-end):
Allowance for loan losses to total loans		1.42	%		1.44	%		1.39	%		1.43	%		1.41	%
Allowance for loan losses to loans, excluding PPP loans		1.43	%		1.46	%		1.42	%		1.52	%		1.53	%
Allowance for loan losses to total nonperforming loans		811.4	%		877.7	%		692.3	%		1113.0	%		731.0	%
Nonperforming assets to total assets		0.16	%		0.16	%		0.20	%		0.18	%		0.24	%
Net charge-offs (annualized) to average loans		-0.06	%		-0.15	%		0.12	%		0.04	%		-0.43	%
Net charge-offs (annualized) to average loans, excluding PPP loans		-0.06	%		-0.15	%		0.13	%		0.04	%		-0.46	%
Capital (period-end):
Heritage Southeast Bank (HSB) risk based capital ratios:
CET1		12.50	%		12.67	%		12.29	%		12.32	%		12.02	%
Tier 1		12.50	%		12.67	%		12.29	%		12.32	%		12.02	%
Total		13.69	%		13.90	%		13.50	%		13.57	%		13.27	%
Leverage		9.89	%		9.81	%		9.40	%		9.01	%		9.10	%
Other (period-end):
Branches		23			23			23			22			22
FTE		275			280			278			276			278
(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
	March 31,		December 31,		September 30,		June 30,		March 31,
	2022		2021		2021		2021		2021
Interest and dividend revenue:
Loans, including fees	$	12,247	$	12,666	$	12,705	$	12,592	$	12,625
PPP loans, including fees		235		428		1,014		1,024		1,071
Investment securities		756		518		564		376		516
Fed funds sold, deposits in banks and other		113		113		107		79		55
Total interest and dividend revenue		13,351		13,725		14,390		14,071		14,267
Interest expense:
Deposits		656		703		760		843		986
Fed funds purchased and repurchase agreements		14		8		8		6		10
Line of credit		271		253		192		124		110
Subordinated notes		-		47		198		290		310
Junior subordinated debentures		85		81		80		81		82
Total interest expense		1,026		1,092		1,238		1,344		1,498
Net interest income		12,325		12,633		13,152		12,727		12,769
Provision for loan losses		-		-		-		-		-
Net interest revenue after provision for loan losses		12,325		12,633		13,152		12,727		12,769
Noninterest revenue:
Service charges and fees		1,476		1,608		1,571		1,291		1,285
Interchange and ATM fees		1,453		1,506		1,517		1,665		1,536
Gain on sale of SBA loans		419		1,521		652		738		906
Other		779		759		741		913		765
Total noninterest revenue		4,127		5,394		4,481		4,607		4,492
Operating expenses:
Salaries and employee benefits		6,341		6,692		6,760		6,551		6,528
Occupancy and equipment		1,350		1,394		1,434		1,443		1,402
Other real estate expenses, including losses
on sales and impairments, net		7		93		27		165		7
Transaction costs		604		2,480		1,069		1,612		-
Other		3,441		3,538		3,634		3,720		3,904
Total other operating expenses		11,743		14,197		12,924		13,491		11,841
Income before income tax expense		4,709		3,830		4,709		3,843		5,420
Income tax expense		869		722		1,206		974		1,087
Net income	$	3,840	$	3,108	$	3,503	$	2,869	$	4,333
Weighted-average number of shares outstanding:
Basic		7,008		6,979		6,976		6,967		6,956
Diluted		7,225		7,218		7,222		7,212		7,179
Earnings per share:
Basic	$	0.55	$	0.45	$	0.50	$	0.41	$	0.62
Diluted	$	0.53	$	0.43	$	0.49	$	0.40	$	0.60

 

HERITAGE SOUTHEAST BANCORPORATION, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(in thousands)
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
	March 31,			December 31,			September 30,			June 30,			March 31,
	2022			2021			2021			2021			2021
Assets
Cash and due from banks	$	30,191		$	29,689		$	28,201		$	27,722		$	23,851
Interest-bearing deposits with banks		282,852			261,513			259,342			278,360			246,824
Cash and cash equivalents		313,043			291,202			287,543			306,082			270,675
Securities available for sale, at fair value		188,954			197,309			171,804			173,606			174,785
Other investments		827			786			786			786			786
Loans:
Loans, excluding PPP loans		1,078,736			1,044,413			1,044,938			999,127			994,251
PPP loans		4,171			10,912			23,051			59,233			88,201
Allowance for loan losses		(15,396	)		(15,228	)		(14,837	)		(15,159	)		(15,256	)
Loans, net		1,067,511			1,040,097			1,053,152			1,043,201			1,067,196
Premises and equipment, net		34,400			35,136			35,770			36,114			37,220
Bank owned life insurance		34,871			34,634			34,404			34,174			33,925
Other real estate owned		857			857			1,128			1,533			1,839
Goodwill		28,275			28,275			28,275			28,275			28,275
Core deposit intangible, net		7,046			7,283			7,521			7,758			7,995
Deferred tax asset, net		13,622			12,093			12,261			13,313			14,362
Other assets		7,280			6,893			7,366			7,423			8,140
Total Assets	$	1,696,686		$	1,654,565		$	1,640,010		$	1,652,265		$	1,645,198
Liabilities
Deposits:
Noninterest-bearing	$	519,305		$	485,754		$	490,341		$	488,877		$	479,653
Interest-bearing demand		271,545			275,115			259,811			270,380			269,517
Money market and savings		457,768			439,965			427,272			425,371			422,904
Time		220,349			226,604			237,292			250,839			261,710
Total deposits		1,468,967			1,427,438			1,414,716			1,435,467			1,433,784
Securities sold under agreements to repurchase		27,373			23,988			23,424			15,241			13,413
Line of credit		34,688			34,188			23,688			22,688			14,688
Subordinated notes		-			-			8,674			13,165			19,656
Junior subordinated debentures		9,442			9,403			9,365			9,327			9,288
Accrued expenses and other liabilities		5,377			5,588			7,862			7,312			8,598
Total liabilities		1,545,847			1,500,605			1,487,729			1,503,200			1,499,427
Shareholders' Equity
Common stock		702			703			702			702			702
Additional paid in capital		117,307			117,443			117,298			117,151			116,972
Retained earnings		41,637			37,798			34,689			31,186			28,316
Other comprehensive income (loss)		(8,807	)		(1,984	)		(408	)		26			(219	)
Total Shareholders' Equity		150,839			153,960			152,281			149,065			145,771
Total Liabilities and Shareholders' Equity	$	1,696,686		$	1,654,565		$	1,640,010		$	1,652,265		$	1,645,198

 

HERITAGE SOUTHEAST BANCORPORATION, INC. AND SUBSIDIARY
GAAP to Non-GAAP Reconciliation
(Unaudited) (in thousands, except per share data)
	Three Months Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2022			2021			2021			2021			2021
Net income (GAAP)	$	3,840		$	3,108		$	3,503		$	2,869		$	4,333
Transaction costs		604			2,480			1,069			1,612			-
Income tax benefit related to transaction costs		(156	)		(779	)		(204	)		(335	)		-
Net income excluding transaction costs	$	4,288		$	4,809		$	4,368		$	4,146		$	4,333
Diluted earnings per share:
GAAP	$	0.53		$	0.43		$	0.49		$	0.40		$	0.60
Excluding transaction costs	$	0.59		$	0.67		$	0.60		$	0.57		$	0.60
Weighted average number of shares - diluted		7,225			7,218			7,222			7,212			7,179

 

HERITAGE SOUTHEAST BANCORPORATION, INC. AND SUBSIDIARY
Loan Portfolio
(Unaudited) (in thousands)
	March 31,			December 31,			September 30,			June 30,			March 31,
	2022			2021			2021			2021			2021
Real estate loans:
Construction and land development	$	173,066		$	159,630		$	154,487		$	144,263		$	152,889
Single-family residential		151,033			158,667			163,412			162,996			165,362
Commercial - owner occupied		267,815			265,900			275,220			260,186			266,258
Commercial - other		258,112			239,994			228,229			214,995			198,965
Multifamily		6,487			6,592			13,826			14,017			6,746
Total real estate loans		856,513			830,783			835,174			796,457			790,220
Commercial loans (not secured by real estate)		212,109			202,966			197,084			190,095			190,365
Consumer loans (not secured by real estate)		11,596			12,081			14,015			13,874			14,861
Gross loans		1,080,218			1,045,830			1,046,273			1,000,426			995,446
Unearned income		(1,482	)		(1,417	)		(1,335	)		(1,299	)		(1,195	)
Loans, net of unearned income	$	1,078,736		$	1,044,413		$	1,044,938		$	999,127		$	994,251
	March 31,			December 31,			September 30,			June 30,			March 31,
	2022			2021			2021			2021			2021
PPP loans:
Up to $50,000	$	209		$	644		$	2,344		$	7,033		$	11,718
$50,001 - $150,000		318			804			3,936			15,438			24,231
$150,001 - $2 million		3,754			9,788			15,328			26,384			35,498
Greater than $2 million		-			-			2,155			11,963			17,953
Total PPP loans(1)		4,281			11,236			23,763			60,818			89,400
Unearned income		(110	)		(324	)		(712	)		(1,585	)		(1,199	)
PPP loans, net of unearned income	$	4,171		$	10,912		$	23,051		$	59,233		$	88,201
(1)March 31, 2022 includes $4.0 million and $310,000 of loans originated in 2021 and 2020, respectively.

 

HERITAGE SOUTHEAST BANCORPORATION, INC. AND SUBSIDIARY
Asset Quality Information
(Unaudited) (in thousands)
	March 31,			December 31,			September 30,			June 30,			March 31,
	2022			2021			2021			2021			2021
Classified assets:
Nonperforming loans	$	1,897		$	1,735		$	2,143		$	1,362		$	2,087
Other real estate owned		857			857			1,128			1,533			1,839
Total nonperforming assets		2,754			2,592			3,271			2,895			3,926
Accruing classified loans		327			676			804			811			835
Total classified assets	$	3,081		$	3,268		$	4,075		$	3,706		$	4,761
Classified assets to HSB Tier 1 capital plus ALL		1.7	%		1.9	%		2.5	%		2.3	%		3.1	%
Nonperforming assets to total assets		0.16	%		0.16	%		0.20	%		0.18	%		0.24	%
Allowance for loan losses:
Balance at beginning of period	$	15,228		$	14,837		$	15,159		$	15,256		$	14,117
Provision for loan losses		-			-			-			-			-
Charge-offs		(99	)		(295	)		(403	)		(195	)		(198	)
Recoveries		267			686			81			98			1,337
Balance at end of period	$	15,396		$	15,228		$	14,837		$	15,159		$	15,256
Loans, excluding PPP loans	$	1,078,736		$	1,044,413		$	1,044,938		$	999,127		$	994,251
PPP loans		4,171			10,912			23,051			59,233			88,201
Performing past due loans		1,638			1,277			3,541			1,464			2,500
Allowance as % of loans		1.42	%		1.44	%		1.39	%		1.43	%		1.41	%
Allowance as % of loans, excluding PPP loans		1.43	%		1.46	%		1.42	%		1.52	%		1.53	%
Allowance as a % of nonperforming loans		811.4	%		877.7	%		692.3	%		1113.0	%		731.0	%
Average loans, excluding PPP loans		1,056,269			1,044,492			1,017,213			993,346			988,230
Average PPP loans		8,075			15,164			40,910			77,325			83,489
Net charge-offs (annualized) to average loans		-0.06	%		-0.15	%		0.12	%		0.04	%		-0.43	%
Net charge-offs (annualized) to average loans, excluding PPP loans		-0.06	%		-0.15	%		0.13	%		0.04	%		-0.46	%