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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

·19 min read

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 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

Philip F. Resch

Chief Executive Officer

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

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

%