Press Release

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 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.