NORFOLK, Va., Jan. 25 /PRNewswire-FirstCall/ -- Heritage
Bankshares, Inc. ("Heritage"; the "Company") (OTC:HBKS) (BULLETIN
BOARD: HBKS) , the parent of Heritage Bank (the "Bank"), today
announced unaudited financial results for the fourth quarter and
full year 2007. Net income, after tax, for the year ended December
31, 2007 was $920,000, or $0.40 per diluted share, compared to
$180,000, or $0.10 per diluted share, earned in 2006. Net income
for 2007 included after-tax gains of $347,000 on the sale of the
Bank's Plume Street office, and $191,000, net of professional fees,
from a payment received in connection with the Company's settlement
with a former professional services provider. The diluted earnings
per share results for 2007 were impacted by an increase of 425,211
in average diluted outstanding shares as compared to average
diluted outstanding shares in 2006, resulting primarily from
private placements of the Company's common stock that closed in
June, July and December 2006. Michael S. Ives, President and CEO of
the Company and the Bank, commented: "During 2007, our income
statement continued to be impacted by various special items of
income and expense relating to the evolution of our Company. We
expect that the amounts of these types of items will be greatly
reduced in 2008 when we will have completed the bulk of our
repositioning initiatives. "During the second half of 2007, the
quantity and quality of our business development calls improved.
Our retail and commercial bankers focused on the development of our
core business by presenting innovative banking proposals to
prospective clients. "The most tangible evidence of this
improvement has been the growth in the outstanding balances of our
net loans held for investment from $143,530,000 at September 30,
2007 to $153,850,000 at December 31, 2007, an increase of
$10,320,000, or 7.2%, in just one quarter. "The year-end balances
of our noninterest-bearing deposits and our total deposits show
declines from our balances at September 30, 2007. These declines
result primarily from the usual decreases in the deposit balances
of our professional firm clients at year-end and reductions in the
deposit balances of certain of our accounts relating to real estate
finance activity, as well as a decline in the outstanding balance
of our Certificates of Deposit because of the Company's limited
appetite for this very expensive source of funding. "We look
forward with great optimism to the growth and development of our
Company in 2008. Our retail and commercial bankers are engaged in
substantive discussions for new deposit and lending opportunities
with many local business and professional firms. Our liquidity,
capital strength, and asset quality give us a strong platform on
which to grow our Company in 2008." Comparison of Operating Results
for the Twelve Months Ended December 31, 2007 and 2006 Overview.
The Company's pre-tax income was $1.4 million for the year ended
December 31, 2007 as compared to $256,000 in 2006, an increase of
$1.1 million. During 2007, net interest income increased by
$435,000, the provision for loan losses increased by $41,000, other
noninterest income increased by $610,000, and other noninterest
expense decreased by $139,000. Net income, after tax, in 2007 was
$920,000, representing an increase of $740,000 compared to
after-tax income of $180,000 in 2006. Diluted earnings per share
increased by $0.30, from $0.10 per share in 2006 to $0.40 per share
in 2007. Net Interest Income. The Company's net interest income,
before provision for loan losses, increased by $435,000 in 2007.
This increase resulted from a $339,000 increase in interest income
combined with a $96,000 decrease in interest expense, as compared
to 2006. The increase in interest income was attributable to a $6.6
million increase in the average balance of interest- earning
assets, an $8.1 million decrease in the average balance of
interest- bearing liabilities and an increase in net interest
margin from 3.63% to 3.72%, further described below. Interest on
loans increased by $286,000, or 3.0%, from $9.7 million in 2006 to
$10.0 million in 2007. This increase was attributable to an $8.3
million increase in the average balance of loans, largely offset by
a decrease in the yield on the Company's loan portfolio from 7.08%
in 2006 to 6.87% in 2007. Interest on investment securities
increased by $1.2 million in 2007 as compared to 2006. This
increase resulted primarily from a $22.7 million increase in the
average balance of the Company's investment portfolio, from $16.1
million in 2006 to $38.8 million in 2007, and an increase in
year-over- year average yield from 4.30% to 4.99%. The yield
increased as lower yielding securities matured and the Company
purchased high-quality FHLMC/FNMA balloon mortgage-backed
securities in 2007 at an approximate yield of 5.0%. Interest on
federal funds sold decreased by $1.2 million in 2007, due to the
Company's average balance decreasing from $40.9 million in 2006 to
$16.4 million in 2007, partially offset by an increase in the
average yield from 4.84% in 2006 to 4.91% in 2007. The Company's
interest expense in 2007 was $5.3 million, $96,000 less than
interest expense in 2006. Interest paid on deposits increased by
$386,000, resulting from an increase in the average balance of
interest-bearing deposits from $136.5 million in 2006 to $138.1
million in 2007 and from an increase in the average cost of
interest-bearing deposits from 3.53% in 2006 to 3.76% in 2007.
Interest paid on borrowed funds decreased by $482,000, from
$563,000 in 2006 to $81,000 in 2007, as the Company's average
balance of borrowed funds decreased by $9.7 million and the cost of
borrowings decreased from 4.84% to 4.21%. The Company's net
interest margin increased by 9 basis points, from 3.63% for the
year ended December 31, 2006 to 3.72% for the year ended December
31, 2007. The increase in net interest margin related primarily to
the positive impact of $8.2 million in year-over-year growth in the
Company's average noninterest-bearing deposits, which more than
offset the 17 basis point decrease in interest rate spread. The
decrease in the Company's interest rate spread was primarily due to
an increase of 14 basis points, from 3.63% in 2006 to 3.77% in
2007, in the cost of total interest-bearing liabilities, as well as
a small decrease of 3 basis points, from 6.37% to 6.34%, in the
yield of total interest-earning assets. Provision for Loan Losses.
The Company's provision for loan losses for the twelve months ended
December 31, 2007 was $105,000, compared to $64,000 for the twelve
months ended December 31, 2006. Noninterest Income. Total
noninterest income increased by $610,000, from $1.3 million in 2006
to $1.9 million in 2007: -- Gains on the sale of fixed assets
increased by $529,000 in 2007, primarily as a result of a $526,000
gain on the sale of the Bank's Plume Street office. -- The Company
recorded income of $345,000 in 2007 resulting from payment received
in connection with a settlement with a former professional services
provider. -- Gains on the sale of investment securities decreased
by $33,000 in 2007. In addition, the Bank sold its retail credit
card portfolio in 2006 to concentrate on the core strategy of
serving business customers, which resulted in a gain of $96,000
that did not recur in 2007. -- Service charges on deposit accounts
decreased by $121,000, from $627,000 in 2006 to $506,000 in 2007,
due primarily to a decrease in non-sufficient fund fees. -- Gains
on sale of mortgage loans held for sale decreased by $58,000, from
$178,000 in 2006 to $120,000 in 2007, due to reduced mortgage loan
origination volume. -- Late charges and other loan fees decreased
by $26,000, from $92,000 in 2006 to $66,000 in 2007, primarily due
to a decrease in late charges. Noninterest Expense. Total
noninterest expense decreased by $139,000, from $8.1 million in
2006 to $8.0 million in 2007: -- Occupancy expense increased by
$220,000, from $561,000 in 2006 to $781,000 in 2007, primarily due
to a $156,000 increase in rent, depreciation and other
miscellaneous building expenses; $46,000 related to the
satisfaction of a previously undetermined real estate tax
liability; and an $18,000 charge associated with a lease
termination related to the pending relocation of the Bank's Little
Neck office to new offices in the nearby Lynnhaven section of
Virginia Beach, which the Bank expects to occupy upon completion of
construction in early 2008. -- FDIC insurance expense increased by
$43,000 during 2007, due primarily to an increase in the assessment
rate. -- Tax and license expense increased by $32,000, related to
an increase in franchise tax due to deposit growth during 2007. --
Contract employee services decreased by $202,000, from $207,000 in
2006 to $5,000 in 2007, because the Company largely eliminated
expenses for consultants and contract accounting staff utilized in
the Company's previous restatement process. -- Professional fees
decreased by $90,000, from $528,000 in 2006 to $438,000 in 2007.
Legal expense and a variety of general accounting expenses
decreased by $133,000 and $50,000, respectively, however these
decreases were partially offset by an increase of $93,000 in
expenses related to internal audit and compliance with applicable
Sarbanes-Oxley (SOX) requirements. -- Marketing expense decreased
by $79,000, from $217,000 in 2006 to $138,000 in 2007, related
largely to a decrease in advisory board incentive expense. --
Credit card expense of $42,000 incurred in 2006 in connection with
the sale of the Bank's retail credit card portfolio did not recur
in 2007. -- Compensation expense was steady at $4.2 million in both
2007 and 2006, decreasing nominally by $27,000 in 2007. Income
Taxes. The Company's income tax expense for the year ended December
31, 2007 was $479,000 compared to $76,000 for 2006, which
represented effective tax rates of 34.3% and 29.6%, respectively.
Comparison of Operating Results for the Three Months Ended December
31, 2007 and 2006 Overview. The Company recorded net income, after
tax, of $336,000, or $0.15 per diluted share, for the three months
ended December 31, 2007, compared to a net loss of $41,000, or
$0.02 per diluted share, for the three months ended December 31,
2006. Net income for the fourth quarter of 2007 included $200,000,
net of professional fees, in after-tax income resulting from
payment received in connection with the Company's settlement with a
former professional services provider, and $34,600 in after-tax
expense incurred in connection with compliance with applicable SOX
requirements. Pretax income was $524,000 for the fourth quarter of
2007, compared to a pretax loss of $62,000 in the fourth quarter of
2006. Net Interest Income. The Company's net interest income before
provision for loan losses increased by $102,000 in the fourth
quarter of 2007 as compared to the fourth quarter of 2006. Average
interest earning assets increased by $8.0 million from the fourth
quarter of 2006 to the fourth quarter of 2007, average
interest-bearing liabilities decreased by $4.2 million from the
fourth quarter of 2006 to the fourth quarter of 2007, while the net
interest margin increased from 3.52% to 3.58%. Provision for Loan
Losses. There was no provision for loan loss in the fourth quarter
of 2007, compared to a $16,000 provision for loan loss in the
fourth quarter of 2006. Noninterest Income. Total noninterest
income increased by $323,000, from $292,000 in the fourth quarter
of 2006 to $615,000 in the fourth quarter of 2007, primarily
related to the $345,000 received in the Company's settlement with a
former professional services provider. Noninterest Expense. Total
noninterest expense decreased by $145,000, from $2.1 million in the
fourth quarter of 2006 to $2.0 million in the fourth quarter of
2007. Compensation expense decreased by $122,000 primarily due to
decreases in salary and stock-based compensation expenses; loss on
disposal of fixed assets decreased by $70,000 attributable
primarily to the nonrecurrence in the fourth quarter of 2007 of a
fourth quarter 2006 charge related to the planned relocation of the
Bank's downtown office and the replacement of the Bank's telephone
system; and marketing expense decreased by $31,000. These decreases
in noninterest expense were partially offset by a $74,000 increase
in occupancy expense in the fourth quarter of 2007 related to
increases in rent and depreciation expenses and a $23,000 increase
in professional fees. This increase in professional fees resulted
primarily from $95,000 in total expenses incurred in connection
with the Company's settlement with a former professional services
provider and the Company's compliance with applicable SOX
requirements. Income Taxes. The Company's income tax expense for
the quarter ended December 31, 2007 was $188,000, which represented
an effective tax rate of 35.9%, compared to an income tax benefit
of $21,000 for the fourth quarter of 2006. Financial Condition of
the Company Total Assets. The Company's total assets decreased by
$1.7 million, or 0.7%, from $222.9 million at December 31, 2006 to
$221.2 million at the end of 2007. Federal Funds Sold and
Investment Securities. Total federal funds sold and investment
securities decreased by $17.1 million, from $64.9 million at
December 31, 2006 to $47.8 million at December 31, 2007. Loans.
Loans held for investment at December 31, 2007 were $153.9 million,
which represents an increase of $13.8 million, or 9.8%, from the
loan balance of $140.1 million at December 31, 2006. Asset Quality.
The Company's total nonperforming assets were $163,000, or 0.07% of
assets, at December 31, 2007, compared to $178,000, or 0.08 % of
assets, at December 31, 2006. Deposits. Total year-end deposits
decreased by $2.4 million, or 1.3%, from $188.4 million at December
31, 2006 to $186.0 million at December 31, 2007. Core deposits,
which are comprised of noninterest-bearing, money market, NOW and
savings deposits, increased by $12.3 million, or 10.1%, from $122.1
million at December 31, 2006 to $134.4 million at December 31,
2007. This increase in core deposits was offset by a $14.7 million
decrease in certificate of deposit balances. Borrowed Funds.
Borrowed funds decreased by $600,000, from $8.8 million at December
31, 2006 to $8.2 million at December 31, 2007. Securities sold
under agreements to repurchase decreased by $2.6 million, and in
2007 the Company repaid a $5.0 million unsecured term loan that was
outstanding at December 31, 2006. These decreases in borrowed funds
were partially offset by an increase of $7.0 million in short-term
Federal Home Loan Bank Advances. Capital. Stockholders' equity
increased by $721,000, or 3.0%, from $24.4 million at December 31,
2006 to $25.1 million at December 31, 2007. Stockholders' equity
increased primarily as a result of increases in retained earnings,
additional paid-in capital related to stock-based compensation, and
in accumulated after-tax comprehensive income attributable to an
increase in the market value of the Company's available-for-sale
investment securities portfolio. The tables attached to and
incorporated within this release present certain of the unaudited
financial information described in greater detail above. The 2007
financial information contained in this release, including the
attached tables, is unaudited. Certain reclassifications have been
made to prior year financial information to conform to the current
year presentation. 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 At December 31, 2007
and 2006 (in thousands) 2007 2006 (unaudited) ASSETS Cash and due
from banks $5,463 $7,903 Federal funds sold 8,957 19,286 Securities
available for sale, at fair value 38,115 44,901 Securities held to
maturity, at cost 676 679 Loans, net Held for investment, net of
allowance for loan losses 153,850 140,119 Held for sale 878 520
Accrued interest receivable 812 736 Stock in Federal Reserve Bank,
at cost 313 313 Stock in Federal Home Loan Bank of Atlanta, at cost
716 409 Premises and equipment, net 9,963 6,766 Other assets 1,503
1,256 Total assets $221,246 $222,888 LIABILITIES AND STOCKHOLDERS'
EQUITY Liabilities Deposits Noninterest bearing $48,390 $47,695
Interest-bearing 137,624 140,702 Total deposits 186,014 188,397
Federal Home Loan Bank Advance 7,000 - Securities sold under
agreements to repurchase 1,131 3,716 Other borrowings 50 5,050
Accrued interest payable 321 376 Other liabilities 1,605 945 Total
liabilities 196,121 198,484 Commitments and contingent liabilities
- - Stockholders' equity Common stock, $5 par value - authorized
3,000,000 shares; issued and outstanding: 2007 - 2,278,652 shares;
2006 - 2,277,652 shares 11,393 11,388 Additional paid-in capital
6,173 6,032 Retained earnings 7,345 6,972 Accumulated other
comprehensive income, net 214 12 Total stockholders' equity 25,125
24,404 Total liabilities and stockholders' equity $221,246 $222,888
HERITAGE BANKSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME (in
thousands, except per share data) Three Months Twelve Months Ended
Ended December 31 December 31 2007 2006 2007 2006 (unaudited)
(unaudited) (unaudited) Interest and dividend income Loans and fees
on loans $2,511 $2,464 $9,963 $9,677 Taxable investment securities
474 263 1,888 651 Nontaxable investment securities 13 12 50 49
Dividends on FRB and FHLB stock 11 10 44 48 Interest on federal
funds sold 229 484 817 2,007 Other interest income 3 3 12 3 Total
interest income 3,241 3,236 12,774 12,435 Interest expense Deposits
1,353 1,338 5,199 4,813 Borrowings 13 125 81 563 Total interest
expense 1,366 1,463 5,280 5,376 Net interest income 1,875 1,773
7,494 7,059 Provision for loan losses - 16 105 64 Net interest
income after provision for loan losses 1,875 1,757 7,389 6,995
Noninterest income Service charges on deposit accounts 126 145 506
627 Gains on sale of loans held for sale, net 23 50 120 178 Gains
on sale of investment securities - - 1 34 Late charges and other
fees on loans 15 19 66 92 Gain on sale of retail credit card loans
- - - 96 Gain on sale of fixed assets - - 530 1 Settlement with a
former professional services provider 345 - 345 - Other 106 78 385
315 Total noninterest income 615 292 1,953 1,343 Noninterest
expense Compensation 1,016 1,138 4,179 4,206 Data processing 133
138 519 524 Occupancy 209 135 781 561 Furniture and equipment 145
137 531 529 Taxes and licenses 54 46 217 185 Professional fees 152
129 438 528 Contract employee services - 1 5 207 Marketing 16 47
138 217 Telephone 25 36 119 106 Stationery and supplies 22 32 131
144 Loss on disposal of fixed assets 5 75 67 75 Other 189 197 818
800 Total noninterest expense 1,966 2,111 7,943 8,082 Income before
provision for income taxes 524 (62) 1,399 256 Provision for income
taxes 188 (21) 479 76 Net income $336 $(41) $920 $180 Earnings per
share Basic $0.15 $(0.02) $0.40 $0.10 Diluted $0.15 $(0.02) $0.40
$0.10 HERITAGE BANKSHARES, INC. OTHER SELECTED FINANCIAL
INFORMATION (Unaudited) (in thousands, except share and per share
data) Three Months Twelve Months Ended Ended December 31 December
31 2007 2006 2007 2006 Financial ratios Annualized return on
average assets 0.60% -0.08% 0.42% 0.09% Annualized return on
average equity 5.36% -0.85% 3.74% 1.03% Average equity to average
assets 11.10% 8.98% 11.36% 8.36% Equity to assets, at period-end
11.36% 10.95% 11.36% 10.95% Net interest margin 3.58% 3.52% 3.72%
3.63% Per common share Earnings per share - basic $0.15 ($0.02)
$0.40 $0.10 Earnings per share - diluted $0.15 ($0.02) $0.40 $0.10
Book value per share $11.03 $10.71 $11.03 $10.71 Dividends declared
per share $0.06 $0.06 $0.24 $0.24 Common stock outstanding
2,278,652 2,277,652 2,278,652 2,277,652 Weighted average basic
shares outstanding 2,278,652 1,944,319 2,278,579 1,820,300 Weighted
average diluted shares 2,278,652 1,969,343 2,278,579 1,853,368
Asset quality Nonaccrual loans $136 $170 $136 $170 Accruing loans
past due 90 days or more 27 8 27 8 Total nonperforming loans 163
178 163 178 Real estate owned, net - - - - Total nonperforming
assets $163 $178 $163 $178 Nonperforming assets to total assets
0.07% 0.08% 0.07% 0.08% Allowance for loan losses (a) Balance,
beginning of period $1,382 $1,348 $1,373 $1,335 Provision for loan
losses - 16 105 64 Loans charged-off (86) - (197) (91) Recoveries
104 9 119 65 Balance, end of period $1,400 $1,373 $1,400 $1,373 (a)
includes $(28) charged-off upon the sale of the retail banking
credit card portfolio for the twelve months ended December 31,
2006. Allowance for loan losses to gross loans held for investment,
net of unearned fees and costs 0.90% 0.97% 0.90% 0.97% DATASOURCE:
Heritage Bankshares, Inc. CONTACT: Michael S. Ives of Heritage
Bankshares, Inc., +1-757-648-1601 Web site:
http://www.heritagebankva.com/
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