HCSB Financial Corporation Announces Removal of Regulatory Consent Order and Third Quarter 2016 Financial Results

Loris, South Carolina, UNITED STATES


LORIS, S.C., Oct. 27, 2016 (GLOBE NEWSWIRE) -- HCSB Financial Corporation (OTC Pink:HCFB) (the “Company”), the holding company for Horry County State Bank (the “Bank”), announced today that the Bank received notification on October 26, 2016 from the Federal Deposit Insurance Corporation and the South Carolina State Board of Financial Institutions (the “Supervisory Authorities”) that the Consent Order previously entered into with the Bank on February 10, 2011 was terminated.  “We are pleased with the removal of the Consent Order and believe this reflects the hard work of management and our employees over the past several years.  This demonstrates the Bank’s return to a healthy financial condition.” commented Jan Hollar, Chief Executive Officer of the Company and the Bank.  Although the Consent Order has been terminated, certain regulatory requirements and restrictions remain, including requirements to continue to improve credit quality and earnings, restriction prohibiting dividend payments without prior approval from Supervisory Authorities, and the maintenance of a specified leverage capital ratio.

The Company also announced financial results for the third quarter ended September 30, 2016, including net losses per share available to common shareholders of $0.00 per share, a decrease from earnings of $0.03 per share at the end of the second quarter of 2016.

“The third quarter has been yet another quarter of progress at Horry County State Bank. We are pleased with our significant reduction in nonperforming assets following the completion of our asset disposition plan. The completion of this plan did result in some one-time legal costs which impacted our profitability this quarter, but we believe that with these costs now behind us, we can look toward positive earnings in the fourth quarter. We continue to see an uptick in our loan production, as we add quality, in-market commercial loans to our portfolio, and our asset quality is in line with our internal goals. The key focus areas for our team as we finish out 2016 are quality loan production, continued improvement in asset quality, and meaningful earnings per share,” remarked Jan Hollar, Chief Executive Officer of the Company and the Bank.

Financial Highlights

During the third quarter, the Company reported a net loss of $1.8 million, as the Company continued its efforts to reduce nonperforming assets. The previously announced asset disposition plan was substantially completed in the third quarter of 2016, which resulted in additional losses of $1.4 million from the write down of other real estate owned (“OREO”) and loss on sale of loans.  The additional losses taken on OREO resulted from the resolution of a group of properties for which the Bank was not comfortable with potential risks associated with carrying the properties. Net interest income for the third quarter was up $59,000 from the second quarter of 2016 and noninterest expense was down $2.9 million quarter-over-quarter as the net cost of operation of OREO decreased $1.9 million and professional fee decreased $648,000.

The Company saw loan growth of $10.1 million, or 5%, for the third quarter of 2016 as loan production continues to be a key management focus. Total deposits remained flat and totaled $323.3 million at September 30, 2016, compared to $323.2 million at June 30, 2016, as a slight increase in core deposits was offset by a decrease in internet- based time deposits.

Interest Income and Net Interest Margin

Net interest income was up quarter over quarter, totaling $2.5 million for the third quarter of 2016 as compared to $2.4 million in the second quarter of 2016, led by increased interest income on loans and investment securities. Net interest margin decreased 4 basis points to 2.80% for the quarter ended September 30, 2016 from 2.84% for the quarter ended June 30, 2016.  The decrease in net interest margin is primarily the result of a 27 basis point decrease in yield on securities as more than $10 million in higher yielding bonds were called during the past four months. This decrease in yield on securities was partially offset by an increase in yield on interest-bearing deposits.   

Non-Interest Income

Non-interest income was $334,000 in the third quarter of 2016 compared to $19.5 million in the second quarter of 2016.  The second quarter included $19.1 million of gains on the extinguishment of debt related to the settlement of subordinated debt. Included in non-interest income for the third quarter was a $153,000 gain on sale of securities, as compared to a loss on sale of securities of $102,000 in the second quarter of 2016 and a $224,000 loss on sale of assets recorded in the third quarter related to the bulk sale of nonperforming loans announced in the second quarter. Excluding the gain on extinguishment of debt, loss on sale of assets and gain (loss) on the sale of securities for each quarter, non-interest income decreased $35,000 in the third quarter of 2016 as compared to the second quarter of 2016 due to lower ATM and other fee income.

Asset Quality

During the third quarter, asset quality improved significantly due to the implementation of the asset disposition plan that was put in place following the close of the capital raise in the second quarter. OREO decreased by $3.2 million during the quarter to $4.0 million at September 30, 2016 due to the write down and sale of several properties.  Nonperforming loans, including nonperforming loans held for sale, decreased by $3.4 million to $931,000 at September 30, 2016 as the asset disposition plan was completed in the third quarter. The ratio of nonperforming assets to total assets dropped to 1.30% at September 30, 2016, as compared to 3.03% at June 30, 2016 and the ratio of nonperforming loans to total loans dropped to 0.45% at the end of the third quarter of 2016 as compared to 2.18% at the end of the second quarter of 2016.

Allowance for Loan Losses

At September 30, 2016, the allowance for loan losses was $4.7 million, compared to $4.5 million at June 30, 2016.  As a percentage of total loans held-for-investment, the allowance for loan losses was 2.24% in the third quarter of 2016, down slightly from 2.26% in the second quarter of 2016.  The decrease in the allowance for loan losses as a percent of total loans was a reflection of improved levels of past dues. Out of the $4.7 million in total allowance for loan losses at September 30, 2016, specific allowances for impaired loans accounted for $788,000 as compared to $845,000 in the second quarter due to the sale and resolution of nonperforming loans.

Balance Sheet and Capital

Total assets decreased $913,000 during the third quarter of 2016, while gross loans (including loans held-for-sale) increased $10.1 million compared to the second quarter of 2016 as the Company saw solid loan production during the quarter. Total deposits remained flat and totaled $323.3 million at September 30, 2016, compared to $323.2 million at June 30, 2016, as an increase in money market and NOW deposits was offset by a decrease in time deposits which primarily resulted from the maturity of $8.1 million in internet-based time deposits. 

As of September 30, 2016 the Bank’s leverage ratio, Common Equity Tier 1 ratio (CET1), Tier 1 risk-based capital ratio, and total risk-based capital ratio were 9.38%, 15.08%, 15.08% and 16.34%, respectively.

About HCSB Financial Corporation

HCSB Financial Corporation is the holding company for Horry County State Bank, a full-service community bank providing services in eight branches across Horry County, South Carolina.  Horry County State Bank’s website is www.hcsbaccess.com.  HSCB shares are quoted on the OTC Pink under the symbol “HCFB”.

SAFE HARBOR

This news release contains forward-looking statements, as defined by the federal securities laws, including statement about the Company’s financial outlook and business environment.  Forward looking statements generally include words such as “expects,” “projects,” “anticipates,” “believes,” “estimates,” “strategy,” “plan,” “potential,” and other similar expressions.  These statements are provided to assist in the understanding of future financial performance and such performance involves risks and uncertainties that may cause actual results to differ materially from those anticipated in such statements.  Any such statements are based on current expectations and involve a number of risks and uncertainties.  For a discussion of some factors that may cause such forward-looking statements to differ materially from actual results, please refer to the section entitled “Forward-Looking Statements” on pages 1-2 and in the section entitled “Risk Factors” of the Company’s annual report on Form 10-K filed with the SEC for the year ended December 31, 2015.  Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise forward-looking statements.

 
HCSB Financial Corporation
Condensed Consolidated Balance Sheet (Unaudited)
            
    As of
    September 30,   June 30,   March 31,   December 31,   September 30,
    2016   2016   2016  2015*  2015 
                      
   ($ in thousands)
 ASSETS          
Cash and due from banks$31,174  $64,024  $41,652  $22,137  $29,185 
Investment securities available for sale 111,581   80,969   83,205   89,701   84,291 
Nonmarketable equity securities 1,090   1,090   1,276   1,330   1,330 
Loans held for sale -   4,280   -   -   - 
Loans 209,176   199,072   199,635   209,367   219,982 
Allowance for loan losses (4,676)  (4,492)  (3,719)  (4,601)  (5,021)
 Net loans 204,500   194,580   195,916   204,766   214,961 
            
Premises and equipment, net 14,456   14,591   15,758   15,917   16,069 
Assets held-for-sale -   768   -   -   - 
Other real estate owned 4,032   7,256   11,270   13,624   18,510 
Bank-owned life insurance 11,562   11,481   11,400   11,319   11,239 
Other assets 2,712   3,441   2,886   2,629   2,962 
            
 Total assets$381,107  $382,480  $363,363  $361,423  $378,547 
            
 LIABILITIES AND SHAREHOLDERS' EQUITY          
            
Deposits:         
Demand noninterest-bearing$47,060  $44,077  $40,227  $40,182  $45,135 
Money market, NOW and savings 125,785   119,191   122,613   116,678   121,965 
Time deposits 150,505   159,974   172,621   173,971   180,514 
 Total deposits 323,350   323,242   335,461   330,831   347,614 
            
Short-term borrowings 1,662   1,659   1,248   1,716   1,119 
Long-term debt 17,000   17,000   34,141   34,138   34,248 
Accrued expenses and other liabilities 2,502   3,312   7,161   6,988   6,741 
 Total liabilities 344,514   345,213   378,011   373,673   389,722 
            
Shareholders' equity:         
 Preferred stock -   9   12,895   12,895   12,895 
 Common stock 4,958   3,633   38   38   38 
 Warrants -   -   1,012   1,012   1,012 
 Additional paid-in capital 82,051   81,903   30,220   30,220   30,214 
 Retained deficit (49,961)  (48,177)  (58,090)  (54,807)  (54,398)
 Accumulated other comprehensive loss (455)  (101)  (723)  (1,608)  (936)
 Total shareholders' equity 36,593   37,267   (14,648)  (12,250)  (11,175)
            
Total liabilities and shareholders' equity$381,107  $382,480  $363,363  $361,423  $378,547 
            
 Common shares issued and outstanding 495,763,940   363,314,783   3,846,340   3,846,340   3,816,340 
            
* Derived from audited financial statements.
 


HCSB Financial Corporation
Condensed Consolidated Income Statement (Unaudited)
            
    At or For the Three Months Ended
    September 30,   June 30,   March 31,    December 31,   September 30,
    2016   2016   2016   2015   2015 
                      
   ($ in thousands, except per share amounts)
 Interest income          
 Loans, including fees$2,667  $2,581  $2,483  $2,753  $3,088 
 Investment securities 426   386   461   479   506 
 Nonmarketable equity securities 11   14   14   14   8 
 Interest on deposits at banks 68   73   31   14   16 
  Total interest income 3,172   3,054   2,989   3,260   3,618 
 Interest expense          
 Money market, NOW and savings deposits 115   100   96   98   108 
 Time deposits 403   412   427   450   487 
 Borrowings 150   97   523   518   510 
  Total interest expense 668   609   1,046   1,066   1,105 
  Net interest income 2,504   2,445   1,943   2,194   2,513 
Provision for loan losses -   3,560   1,424   -   - 
  Net interest income (loss) after provision 2,504   (1,115)  519   2,194   2,513 
 Noninterest income          
 Service charges on deposit accounts 188   189   161   163   197 
 Mortgage banking income 7   -   -   6   50 
 Income from bank-owned life insurance 110   110   110   109   109 
 Gain (loss) on sale of securities available for sale 153   (102)  17   -   20 
 Gain (loss) on sale of assets (224)  -   -   (4)  736 
 Gain on extinguishment of debt -   19,115   -   -   - 
 Other noninterest income 100   141   128   149   231 
  Total noninterest income 334   19,453   416   423   1,343 
 Noninterest expenses          
 Salaries and employee benefits 1,648   1,668   1,286   1,228   1,330 
 Occupancy and equipment 493   486   499   493   558 
 Legal and professional fees 428   1,076   215   494   488 
 FDIC insurance 204   206   309   320   346 
 Loss on disposal of fixed assets -   247   -   -   - 
 Net cost of operation of other real estate owned 1,392   3,273   1,564   167   382 
 Other noninterest expense 457   549   345   364   349 
  Total noninterest expenses 4,622   7,505   4,218   3,066   3,453 
  Income (loss) before income taxes (1,784)  10,833   (3,283)  (449)  403 
Income tax expense (benefit) -   920   -   (40)  35 
  Net income (loss)   (1,784)  9,913   (3,283)  (409)  368 
Preferred dividends -   -   (398)  (405)  (514)
  Net income (loss) available to common shareholders $(1,784) $9,913  $(3,681) $(814) $(146)
            
Earnings per common share, fully diluted$(0.00) $0.03  $(0.96) $(0.21) $(0.04)
Weighted average diluted common shares 411,085,981   319,862,554   3,846,340   3,846,340   3,816,340 
            


HCSB Financial Corporation
Average Balance Sheets and Net Interest Analysis (Unaudited)
            
 For the Three Months Ended
 September 30, 2016 September 30, 2015
 Average Income/ Yield/ Average Income/ Yield/
 Balance Expense Rate (2) Balance Expense Rate (2)
                        
Assets($ in thousands)
Interest-earning assets:           
Loans and loans held for sale (1)$204,634  $2,667   5.18% $226,162  $3,088   5.42%
Interest-bearing deposits 51,270   68   0.53%  31,796   16   0.20%
Investment securities 98,153   426   1.74%  89,388   506   2.26%
Other interest-earning assets 1,090   11   4.01%  1,144   8   2.77%
            
Total interest-earning assets 355,147   3,172   3.55%  348,490   3,618   4.12%
            
Allowance for loan losses (4,518)      (5,573)    
Cash and due from banks 1,806       1,787     
Premises and equipment 14,544       17,742     
Other assets 21,030       32,444     
            
Total assets$388,009      $394,890     
            
Liabilities and shareholders' equity           
Interest-bearing liabilities:           
Interest-bearing demand$40,423  $17   0.17% $39,904  $15   0.15%
Money market, NOW and savings 86,089   98   0.45%  87,517   93   0.42%
Time deposits 155,542   403   1.03%  189,101   487   1.02%
Total interest-bearing deposits 282,054   518   0.73%  316,522   595   0.75%
Short-term borrowings 1,773   1   0.22%  1,203   1   0.33%
Long-term debt 17,000   149   3.49%  34,248   509   5.90%
Total borrowed funds 18,773   150   3.18%  35,451   510   5.71%
            
Total interest-bearing liabilities 300,827   668   0.88%  351,973   1,105   1.25%
            
Net interest rate spread   2,504   2.68%    2,513   2.87%
            
Noninterest-bearing demand deposits 47,408       47,779     
Other liabilities 3,183       6,980     
Shareholders' equity 36,591       (11,842)    
            
Total liabilities and shareholders' equity$388,009      $394,890     
            
Net interest margin     2.80%      2.86%
            
(1) Nonaccrual loans are included in the average loan balances.
(2) Yield/ rate calculated on Actual/Actual day count basis, except for yield on investments which is calculated on a 30/360 day count basis.
            


HCSB Financial Corporation
Selected Ratios (Unaudited) 
          
 At or For the Three Months Ended
 September 30, June 30, March 31, December 31,  September 30,
  2016   2016   2016   2015   2015 
                    
 ($ in thousands, except per share amounts)
Per Share Data:         
Basic Earnings (Loss) per Common Share$(0.00) $0.03  $(0.96) $(0.21) $(0.04)
Book value per common share (1)$0.07  $0.10  $(7.16) $(6.54) $(6.31)
Common shares outstanding 495,764,318   363,314,783   3,846,340   3,846,340   3,816,640 
Weighted average dilutive common shares outstanding 411,085,981   319,862,554   3,846,340   3,846,340   3,816,340 
          
Selected Performance Ratios:         
Return on Average Assets -1.83%  10.36%  -3.67%  -0.44%  0.37%
Return on Average Equity (2) -19.40%  111.93% N/A N/A N/A
Net interest margin (non-tax equivalent) 2.80%  2.84%  2.45%  2.66%  2.86%
Non-interest Income as a % of Revenue 9.53%  86.43%  12.22%  11.49%  27.07%
Non-interest Income as a % of Average Assets 0.09%  5.06%  0.12%  0.11%  0.34%
Non-interest Expense as a % of Average Assets 1.19%  1.95%  1.17%  0.83%  0.87%
          
Asset Quality:         
Past due 30-59 days (and still accruing)$535  $636  $3,667  $3,897  $2,058 
Past due 60-89 days (and still accruing) 112   159   647   244   808 
Past due 90 days plus (and still accruing) -   -   -   -   - 
Nonaccrual loans 931   332   6,115   8,742   6,792 
Nonperforming loans 931   332   6,115   8,742   6,792 
Nonperforming loans held for sale (nonaccruing) -   4,012   -   -   - 
OREO 4,032   7,256   11,270   13,624   18,510 
Nonperforming assets 4,963   11,600   17,385   22,366   25,302 
          
          
Nonperforming loans to total loans 0.45%  2.18%  3.06%  4.18%  3.09%
Nonperforming assets to total assets 1.30%  3.03%  4.78%  6.19%  6.68%
Allowance to total loans held-for-investment 2.24%  2.26%  1.86%  2.20%  2.28%
Allowance to nonperforming loans 502.26%  103.41%  60.82%  52.63%  73.93%
Allowance to nonperforming assets 94.22%  38.72%  21.39%  20.57%  19.84%
Net charge-offs (recoveries) to average loans 4.13%  5.57%  4.52%  0.78%  1.02%
(annualized)         
          
Capital Ratios (Bank):         
Common Equity Tier 1 (CET1) capital$36,404  $38,114  $9,238  $12,135  $12,169 
Tier 1 capital 36,404   38,114   9,238   12,135   12,169 
Tier 2 capital 3,039   2,939   2,962   3,267   3,497 
Total risk based capital 39,443   41,053   12,200   15,402   15,666 
Risk weighted assets 241,456   233,528   236,204   260,024   278,214 
Average assets for leverage ratio 388,135   384,914   360,649   370,482   400,954 
          
Common Equity Tier 1 (CET1) ratio 15.08%  16.32%  3.91%  4.67%  4.37%
Tier 1 ratio 15.08%  16.32%  3.91%  4.67%  4.37%
Total risk based capital ratio 16.34%  17.58%  5.17%  5.92%  5.63%
Tier 1 leverage ratio 9.38%  9.90%  2.56%  3.28%  3.04%
          
(1)  Book value per share excludes non-voting preferred shares
(2)  Ratio not applicable in prior periods due to negative equity



        

Contact Data