NORFOLK, Va., Oct. 29 /PRNewswire-FirstCall/ -- Heritage
Bankshares, Inc. ("Heritage"; the "Company") (Pinksheets: HBKS),
the parent of Heritage Bank (the "Bank"), today announced unaudited
financial results for the third quarter and first nine months of
2007. Net income, after tax, for the quarter ended September 30,
2007 was $345,000, or $0.15 per diluted share, compared to net
income, after tax, of $98,000, or $0.05 per diluted share, for the
third quarter of 2006. Net income, after tax, for the first nine
months of 2007 was $584,000, or $0.25 per diluted share, compared
to net income, after tax, of $221,000, or $0.12 per diluted share,
for the same period in 2006. The diluted earnings per share figures
for the three and nine month periods ended September 30, 2007 were
impacted by an increase of 535,584 outstanding shares of the
Company's common stock, issued in connection with private
placements that closed in June, July and December 2006. In other
nonfinancial news, during the third quarter the Company completed
the relocation of its executive offices and Financial District
banking center to the Dominion Enterprises building in Downtown
Norfolk. As part of the relocation, the Bank consolidated its
Norfolk lending office and its Loan Administration Department into
the new facility and completed the sale of the Bank's Plume Street
location which had served as Company headquarters for 28 years.
Comparison of Operating Results for the Three Months Ended
September 30, 2007 and 2006 Overview. The Company's pretax income
was $517,000 for the third quarter of 2007, compared to a pretax
income of $148,000 in the third quarter of 2006. Compared to the
third quarter of 2006, net interest income increased by $99,000,
provision for loan losses increased by $71,000, noninterest income
increased by $487,000, and noninterest expense increased by
$146,000. Net income, after tax, was $345,000, or $0.15 per diluted
share, for the three months ended September 30, 2007, compared to a
net income, after tax, of $98,000, or $0.05 per diluted share, for
the three months ended September 30, 2006. Net Interest Income. The
Company's net interest income before provision for loan losses
increased by $99,000 in the third quarter of 2007 compared to the
third quarter of 2006. This was attributable to an increase of $4.5
million in the average balance of interest-earning assets, and an
increase in net interest margin from 3.61% to 3.72%. Provision for
Loan Losses. The provision for loan losses for the three months
ended September 30, 2007 was $102,000, compared to $31,000 for the
three months ended September 30, 2006. The increase in the
provision for loan losses resulted from an impairment provision
added in the third quarter of 2007 related to two loans to one
borrower in the aggregate principal amount of $144,000. These loans
were originated in 2003 under loan underwriting and loan
administration practices no longer used by the Company. Noninterest
Income. Total noninterest income increased by $487,000, from
$300,000 in the third quarter of 2006 to $787,000 in the third
quarter of 2007. This increase was primarily due to a $526,000 gain
on the sale of the Bank's Plume Street office which closed in
September 2007. The increase on the gain on sale was partially
offset by a $44,000 decrease in service charges on deposit
accounts. Noninterest Expense. Total noninterest expense increased
by $146,000, from $1.9 million in the third quarter of 2006 to
$2.05 million in the third quarter of 2007. Occupancy expense
increased by a total of $128,000 attributable to a $58,000 increase
in rent expense related to the new Downtown office and duplicative
rent expense of the Norfolk lending office incurred during the
consolidation into the new office; $46,000 related to satisfaction
of a previously unassessed real estate tax liability; and an
$18,000 impairment expense related to the pending relocation of the
Bank's Little Neck office to new offices located in the nearby
Lynnhaven section of Virginia Beach, which the Bank expects to
occupy upon completion of construction in January 2008. In
addition, the Company incurred a $61,000 expense related to
disposal and impairment of fixed assets primarily in connection
with the Little Neck office relocation. These increases in
noninterest expense were partially offset by a $43,000 decrease in
professional fee expense. Income Taxes. The Company's income tax
expense for the quarter ended September 30, 2007 was $172,000,
which represented an effective tax rate of 33.3%, compared to
$50,000 for the quarter ended September 30, 2006, which represented
an effective tax rate of 34.1%. Comparison of Operating Results for
the Nine Months Ended September 30, 2007 and 2006 Overview. The
Company's pretax income was $875,000 for the first nine months of
2007, compared to pretax income of $317,000 for the first nine
months of 2006, an increase of $558,000. Compared to the first nine
months of 2006, net interest income increased by $325,000,
provision for loan losses increased by $57,000, noninterest income
increased by $296,000, and noninterest expense increased by $6,000.
Net income, after tax, was $584,000, or $0.25 per diluted share,
for the nine months ended September 30, 2007, compared to after tax
net income of $221,000, or $0.12 per diluted share, for the nine
months ended September 30, 2006. Net Interest Income. The Company's
net interest income before provision for loan losses increased by
$325,000 in the first nine months of 2007 compared to the first
nine months of 2006. This was attributable to a $5.8 million
increase in the average balance of interest-earning assets, and an
increase in net interest margin from 3.66% to 3.77%. Provision for
Loan Losses. Provision for loan losses increased by $57,000, from
$48,000 in the first nine months of 2006 to $105,000 in the first
nine months of 2007, primarily attributable to the impairment
provision added during the third quarter. Noninterest Income. Total
noninterest income increased by $296,000, from $1.1 million in the
first nine months of 2006 to $1.4 million in the first nine months
of 2007. This increase was primarily due to a $526,000 gain on sale
of the Bank's Plume Street office in the third quarter of 2007,
offset partially by a decline of $102,000 in service charges on
deposit accounts and the nonrecurrence of a $96,000 gain on the
sale of the retail credit card portfolio and $33,000 in gains from
the sale of investment securities in the second quarter of 2006.
Noninterest Expense. Total noninterest expense for the nine-month
period ended September 30, 2007 and 2006 was unchanged at $6.0
million. Occupancy expenses increased by $145,000, primarily
attributable to a $74,000 increase in rent expense and the
satisfaction of a $46,000 previously unassessed real estate tax
liability. Also, the Company incurred a $61,000 charge associated
primarily with disposal and impairment of fixed assets related to
the pending relocation of the Bank's Little Neck office.
Compensation expense increased by $98,000, which was primarily
related to an increase in stock-based compensation expense. These
increases in noninterest expenses were partially offset by
decreases in contract employee expense and professional fees by
$200,000 and $114,000, respectively. Income Taxes. The Company's
income tax expense for the nine months ended September 30, 2007 was
$291,000, which represented an effective tax rate of 33.3%,
compared to income tax expense for the nine months ended September
30, 2006 of $96,000, which represented an effective tax rate of
30.3%. The effective tax rate for the nine months ended September
30, 2006 was impacted by the effect of a tax benefit from the first
quarter of 2006. Financial Condition of the Company Total Assets.
The Company's total assets increased by $16.4 million, or 7.6%,
from $216.7 million at September 30, 2006 to $233.1 million at
September 30, 2007. The increase in assets resulted primarily from
an $8.4 million increase in the ending balance of loans held for
investment and an aggregate $5.7 million increase in the combined
balances of federal funds sold and securities available for sale.
Funds Sold and Investment Securities. Total federal funds sold and
investment securities available for sale were $69.0 million at
September 30, 2007, compared to a combined balance of $63.4 million
at September 30, 2006. Loans. Loans held for investment, net, at
September 30, 2007 were $143.5 million, which represents an
increase of $8.4 million, or 6.2%, from the loan balance of $135.1
million at September 30, 2006. Asset Quality. The Company's
nonperforming assets at September 30, 2007 and 2006 were $227,000
and $215,000, respectively, or 0.10% of assets at the end of both
periods. Deposits. Driven by growth in core deposits, total
deposits increased by $24.6 million, from $180.6 million at
September 30, 2006 to $205.2 million at September 30, 2007. Average
total deposits increased by $11.5 million from the third quarter
2006 to the third quarter 2007. Average core deposits, which are
comprised of checking, savings and money market accounts, increased
by $22.7 million, or 19.9%, from an average of $114.2 million
during the third quarter ended September 30, 2006 to $136.9 million
during the quarter ended September 30, 2007. The effect on average
total deposits of this increase in core deposits was partially
offset by an average $11.2 million decrease in certificate of
deposit balances. Borrowed Funds. Borrowed funds decreased by $15.0
million, from $16.1 million at September 30, 2006 to $1.1 at
September 30, 2007, primarily due to the repayment in October 2006
of the Bank's $10.0 million FHLB advance, and the repayment in
January 2007 of a $5.0 million unsecured loan obtained by the
Company in September 2006. Capital. Stockholders' equity increased
by $5.6 million, or 29.2%, from $19.1 million at September 30, 2006
to $24.7 million at September 30, 2007. Stockholders' equity
increased primarily as a result of $5.4 million in total net
capital raised in connection with sales of the Company's common
stock in a private placement that closed in December 2006. The
tables attached to and incorporated within this release present in
greater detail certain of the unaudited financial information
described above. About Heritage Heritage is the parent company of
Heritage Bank (http://www.heritagebankva.com/). Heritage Bank has
four full-service branches in the city of Norfolk, and one
full-service branch in the city of Virginia Beach. Heritage Bank
provides a full range of banking services including business,
personal and mortgage loans. Forward Looking Statements The press
release contains statements that constitute "forward-looking
statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements
address future events, developments or results and typically use
words such as believe, anticipate, expect, intend, plan, forecast,
outlook, or estimate. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause
Heritage's actual results, performance, achievements, and business
strategy to differ materially from the anticipated results,
performance, achievements or business strategy expressed or implied
by such forward-looking statements. Factors that could cause such
actual results, performance, achievements and business strategy to
differ materially from anticipated results, performance,
achievements and business strategy include: general and local
economic conditions, competition, capital requirements of the
planned expansion, customer demand for Heritage's banking products
and services, and the risks and uncertainties described in
Heritage's most recent Form 10-KSB filed with the Securities and
Exchange Commission. Heritage disclaims any intention or obligation
to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. HERITAGE
BANKSHARES, INC. CONSOLIDATED BALANCE SHEETS (in thousands) At
September 30, 2007 2006 (unaudited) (unaudited) ASSETS Cash and due
from banks $ 7,141 $ 7,539 Federal funds sold 30,211 17,281
Securities available for sale, at fair value 38,831 46,104
Securities held to maturity, at cost 677 679 Loans, net Held for
investment, net of allowance for loan losses 143,530 135,112 Held
for sale 152 290 Accrued interest receivable 808 679 Stock in
Federal Reserve Bank, at cost 313 65 Stock in Federal Home Loan
Bank of Atlanta, at cost 401 859 Premises and equipment, net 9,711
6,796 Other assets 1,327 1,314 Total assets $ 233,102 $ 216,718
LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits
Noninterest bearing $ 53,762 $ 43,340 Interest-bearing 151,431
137,267 Total deposits 205,193 180,607 Federal Home Loan Bank
Advance - 10,000 Securities sold under agreements to repurchase
1,045 1,009 Other borrowings 50 5,050 Accrued interest payable 342
392 Other liabilities 1,783 554 Total liabilities 208,413 197,612
Stockholders' equity Common stock, $5 par value - authorized
3,000,000 shares; issued and outstanding: 2,278,652 shares at
September 30, 2007; 1,927,652 shares at September 30, 2006 11,393
9,638 Additional paid-in capital 6,134 2,335 Retained earnings
7,145 7,129 Accumulated other comprehensive income, net 17 4 Total
stockholders' equity 24,689 19,106 Total liabilities and
stockholders' equity $ 233,102 $ 216,718 HERITAGE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share
data) Three Months Ended Nine Months Ended September 30 September
30 2007 2006 2007 2006 (unaudited) (unaudited) (unaudited)
(unaudited) Interest income Loans and fees on loans $ 2,530 $ 2,421
$ 7,452 $ 7,213 Taxable investment securities 491 262 1,413 388
Nontaxable investment securities 13 12 38 36 Dividends on FRB and
FHLB stock 11 14 33 38 Interest on federal funds sold 190 493 587
1,523 Total interest income 3,235 3,202 9,523 9,198 Interest
expense Deposits 1,335 1,268 3,845 3,475 Borrowings 11 144 68 438
Total interest expense 1,346 1,412 3,913 3,913 Net interest income
1,889 1,790 5,610 5,285 Provision for loan losses 102 31 105 48 Net
interest income after provision for loan losses 1,787 1,759 5,505
5,237 Noninterest income Service charges on deposit accounts 125
169 380 482 Gains on sale of loans held for sale, net 14 46 97 128
Gain on sale of investment securities - - 1 34 Late charges and
other fees on loans 12 19 51 73 Gain on sale of retail credit card
loans - - - 96 Gain on sale of fixed assets 529 - 529 1 Other 107
66 289 237 Total noninterest income 787 300 1,347 1,051 Noninterest
expense Compensation 1,002 1,036 3,163 3,065 Data processing 127
126 387 387 Occupancy 255 127 523 378 Furniture and equipment 147
142 419 440 Taxes and licenses 54 45 163 139 Professional fees 66
109 286 400 Contract employee services - 19 5 205 Marketing 37 46
122 170 Telephone 31 27 95 70 Stationery and supplies 45 41 125 112
Loss on disposal or impairment of fixed assets 61 - 61 - Other 232
193 628 605 Total noninterest expense 2,057 1,911 5,977 5,971
Income before provision for income taxes 517 148 875 317 Provision
for income taxes 172 50 291 96 Net income $ 345 $ 98 $ 584 $ 221
Earnings per common share Basic $ 0.15 $ 0.05 $ 0.26 $ 0.12 Diluted
$ 0.15 $ 0.05 $ 0.25 $ 0.12 Dividends per share $ 0.06 $ 0.06 $
0.18 $ 0.18 Weighted average shares outstanding - basic 2,278,652
1,903,695 2,278,555 1,778,960 Effect of dilutive stock options
20,878 31,607 25,227 35,750 Weighted average shares outstanding -
assuming dilution 2,299,530 1,935,302 2,303,782 1,814,710 HERITAGE
BANKSHARES, INC. OTHER SELECTED FINANCIAL INFORMATION (Unaudited)
(in thousands, except share per share data) Three Months Ended Nine
Months Ended September 30, September 30, 2007 2006 2007 2006
Financial ratios Annualized return on average assets 0.63 % 0.18 %
0.36 % 0.14 % Annualized return on average equity 5.58 % 2.06 %
3.18 % 1.75 % Average equity to average assets 11.25 % 8.87 % 11.45
% 8.15 % Equity to assets, at period-end 10.59 % 8.82 % 10.59 %
8.82 % Net interest margin 3.72 % 3.61 % 3.77 % 3.66 % Per common
share Earnings per share - basic $ 0.15 $ 0.05 $ 0.26 $ 0.12
Earnings per share - diluted $ 0.15 $ 0.05 $ 0.25 $ 0.12 Book value
per share $ 10.84 $ 9.91 $ 10.84 $ 9.91 Dividends declared per
share $ 0.06 $ 0.06 $ 0.18 $ 0.18 Common stock outstanding
2,278,652 1,927,652 2,278,652 1,927,652 Weighted average basic
shares outstanding 2,278,652 1,903,695 2,278,555 1,778,960 Weighted
average diluted shares 2,299,530 1,935,302 2,303,782 1,814,710
Asset quality Nonaccrual loans $ 201 $ 185 $ 201 $ 185 Accruing
loans past due 90 days or more 26 30 26 30 Total nonperforming
loans 227 215 227 215 Real estate owned, net - - - - Total
nonperforming assets $ 227 $ 215 $ 227 $ 215 Nonperforming assets
to total assets 0.10 % 0.10 % 0.10 % 0.10 % Allowance for loan
losses Balance, beginning of period $ 1,382 $ 1,300 $ 1,373 $ 1,335
Provision for loan losses 102 31 105 48 Loans charged-off (102) (7)
(111) (90) Recoveries - 24 15 55 Balance, end of period $ 1,382 $
1,348 $ 1,382 $ 1,348 Allowance for loan losses to gross loans held
for investment, net of unearned fees and costs 0.95 % 0.99 % 0.95 %
0.99 % DATASOURCE: Heritage Bankshares, Inc. CONTACT: John O.
Guthrie of Heritage Bankshares, Inc., +1-757-648-1523 Web site:
http://www.heritagebankva.com/
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