Highlands Bancorp, Inc. Reports Improved Results for the Three and Nine Months Ended September 30, 2014

Highlands Bancorp, Inc. (OTCQB:HSBK) parent company of Highlands State Bank, reported third quarter 2014 net income of $257,000 compared to net income of $620,000 for the same period in 2013. For the nine months ended September 30, 2014 net income was $620,000 compared to net income of $1,707,000 for the same period in 2013. Third quarter and year to date 2014 net income before income taxes increased $102,000 and $304,000 respectively, over the same periods in 2013. Third quarter 2014 net income available to common stockholders was $240,000 or $.13 per diluted common share compared to net income available to common stockholders of $603,000 or $.34 per diluted common share for the same period in 2013. The comparable nine month results reflect net income available to common stockholders for 2014 of $569,000 or $.31 per diluted common share compared to net income available to common stockholders of $1,656,000 or $.93 per diluted common share for 2013. The third quarter and year-to-date 2013 results were positively impacted by partial reversals of the Company’s valuation allowance on deferred tax assets of $425,000 and $1,274,000 respectively, which were partially offset by respective period income tax expenses of $131,000, and $297,000, respectively. These resulted in net tax benefits of $294,000 or $.16 per share for the third quarter 2013, and $977,000 or $.55 per share for the nine months ended September 30, 2013.

Net interest income increased by $346,000 to $2,338,000 for the third quarter of 2014 when compared to $1,992,000 for the third quarter of 2013, and by $827,000 to $6,740,000 for the first nine months of 2014 when compared to $5,913,000 for the first nine months of 2013, as a result of loan portfolio growth. The provision for loan losses for the third quarter of 2014 of $115,000 reflected a decrease of $56,000 when compared to $171,000 for the third quarter of 2013, but increased for the nine-month period by $89,000 to $477,000 for 2014 when compared to $388,000 for the same period in 2013. The provision for loan losses decreased for the third quarter of 2014 due to improvement in non-performing loans and management’s continued assessment of the reserves maintained on non-performing loans. There were $223,000 in loan charge-offs for the third quarter of 2014, compared to $418,000 for the third quarter of 2013, and $1,000 in recoveries of previously charged off loans for both the third quarter of 2014 and the third quarter of 2013. Charge-offs and recoveries for the first nine months of 2014 totaled $501,000 and $2,000, respectively. This compares to $438,000 in charge-offs and $1,000 in recoveries for same period in 2013. Non-interest income for the third quarter of 2014 and first nine months of 2014 increased $488,000 and $1,407,000, respectively, when compared to the same periods in 2013 primarily due to gains on sales of loans and fee income generated in the current year by the Bank’s mortgage subsidiary, Secure Lending Solutions, Inc. (“SLS”) which was acquired in early 2014, along with a current period $92,000 gain on the sale of investments, and increased overdraft, debit card interchange, and wire fees. The first nine months of 2013 also reflected write-downs and losses on sales of foreclosed properties (“OREO”) and a write-down on a bank branch sublease. Non-interest expenses increased by $788,000 to $2,396,000 for the third quarter, and increased $1,841,000 to $6,677,000 for the nine months ended September 30, 2014 when compared to similar periods of 2013 due to increased salary and benefit costs from the acquisition of SLS in February 2014 and other additions made to staff, higher occupancy and equipment costs relating to two new branch locations, and increased data processing, advertising, deposit insurance, and loan and telephone charges, which were partially offset by lower OREO costs.

Total assets were $253.1 million on September 30, 2014, increasing $29.6 million or 13.2% when compared to total assets of $223.5 million at December 31, 2013. Deposits increased $23.1 million or 11.8% from $196.1 million on December 31, 2013 to $219.2 million on September 30, 2014. Net loans outstanding, including loans held for sale, on September 30, 2014 were $221.8 million compared to $189.3 million on December 31, 2013, an increase of $32.5 million or 17.2%. Non-accrual loans totaled $2.7 million at September 30, 2014 compared to $4.4 million at December 31, 2013. Non-performing loans and performing TDRs as a percentage of total loans declined to 1.61% at September 30, 2014, from 2.69% at December 31, 2013.

Highlands State Bank is a full service community bank headquartered in Vernon, New Jersey with branch offices in Sparta, Totowa, and Denville, New Jersey. Highlands State Bank provides deposit and loan banking services to consumers and businesses in northern New Jersey.

Forward-Looking Statements

This news release contains certain forward-looking statements, either expressed or implied, which are provided to assist the reader in understanding anticipated future financial performance. These statements involve certain risks, uncertainties, estimates and assumptions made by management, which are subject to factors beyond the company’s control and could impede its ability to achieve these goals. These factors include general economic conditions, trends in interest rates, the ability of our borrowers to repay their loans, and results of regulatory exams, among other factors.