NORFOLK, Va., April 24 /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 first quarter 2008.
Net income, after tax, for the quarter ended March 31, 2008 was
$47,000, or $0.02 per diluted share, compared to net income, after
tax, of $100,000, or $0.04 per diluted share, for the first quarter
of 2007. Michael S. Ives, President and CEO of the Company and the
Bank, commented: "Our financial results for the First Quarter
continue to reflect transitional costs for the Company. The Company
incurred approximately $32,000 of expense related to the opening of
our Lynnhaven Banking Center and the simultaneous closing of the
nearby Little Neck Banking Center. "In addition, our courier
expense rose by approximately $48,000 for the Quarter as we have
undertaken major changes in our courier program. We expect to
complete these changes by the end of the Third Quarter of 2008 with
significant reductions in our courier expense thereafter. "After
the opening of our Hilltop Banking Center in late 2008 or early
2009, we expect that we will have completed our repositioning and
transitional activities. Thereafter, we believe that net interest
income from our asset growth is likely to result in direct
increases in our overall profitability because there should only be
limited incremental expenses associated with this growth. "While
the financial benefits of the transition of our Company will be
realized in the future, other tangible benefits are being realized
now. For example, as of March 31, 2008, our loans less than 90 days
delinquent were only $13,000 or 0.01% of our total loan portfolio,
and we did not have any net charge-offs, nonaccrual loans or real
estate owned. These are remarkable statistics in a challenging
economic environment. We cannot realistically expect our loan
portfolio to continue to perform at these levels during a prolonged
economic downturn, but the improvement in our asset quality over
the past several years is obvious and a direct result of the
Company's conservative lending program." Comparison of Operating
Results for the Three Months Ended March 31, 2008 and 2007
Overview. The Company's pretax income was $82,000 for the first
quarter of 2008, compared to a pretax income of $150,000 for the
first quarter of 2007, a decrease of $68,000. Compared to the first
quarter of 2007, net interest income increased by $35,000,
provision for loan losses decreased by $2,000, noninterest income
decreased by $8,000, and noninterest expense increased by $97,000.
Net income, after tax, was $47,000, or $0.02 per diluted share, for
the three months ended March 31, 2008, compared to a net income,
after tax, of $100,000, or $0.04 per diluted share, for the three
months ended March 31, 2007. Net Interest Income. The Company's net
interest income before provision for loan losses increased by
$35,000 in the first quarter of 2008 compared to the first quarter
of 2007. This increase in net interest income was primarily
attributable to a 19 basis point increase in the net interest
spread, from 2.60% in the three months ended March 31, 2007 to
2.79% in the three months ended March 31, 2008. The net interest
margin decreased by 8 basis points, from 3.77% to 3.69% during the
comparable periods primarily as a result of the impact of a $5.5
million increase in average interest-earning assets, offset by a
$7.8 million increase in average interest-bearing liabilities and a
$122,000 decrease in average noninterest-bearing deposits.
Provision for Loan Losses. There was no provision for loan losses
in the first quarter of 2008 compared to a $2,000 provision in the
first quarter of 2007. Noninterest Income. Total noninterest income
decreased by $8,000, from $248,000 in the first quarter of 2007 to
$240,000 in the first quarter of 2008. Noninterest Expense. Total
noninterest expense increased by $97,000, from $1.95 million in the
first quarter of 2007 to $2.05 million in the first quarter of
2008. This increase in noninterest expense was driven by a $97,000
increase in occupancy - related expense attributable primarily to
our new Downtown office and to a $20,000 charge taken upon the
relocation of the Bank's Little Neck office to the new Lynnhaven
office, and a $48,000 increase in courier expense. These increases
were partially offset by a $40,000 decrease in compensation expense
related largely to lower salary and benefit costs in the first
quarter of 2008, compared to the comparable quarter in 2007. Income
Taxes. The Company's income tax expense for the quarter ended March
31, 2008 was $35,000, which represented an effective tax rate of
43.0%, compared to income tax expense of $50,000 for the first
quarter of 2007, which represented an effective tax rate of 33.0%.
The effective tax rate increased in the first quarter of 2008 due
to a higher percentage of net non-deductible items relative to
pre-tax income. Financial Condition of the Company Total Assets.
The Company's total assets increased by $24.2 million, or 11.4%,
from $211.8 million at March 31, 2007 to $236.0 million at March
31, 2008. The increase in assets resulted primarily from a $19.8
million, or 14.2%, increase in the ending balance of loans held for
investment. Funds Sold and Investment Securities. Total federal
funds sold and investment securities available for sale were $55.4
million at March 31, 2008, compared to $53.2 million at March 31,
2007. Loans. Loans held for investment, net, at March 31, 2008 were
$160.0 million, which represents an increase of $19.8 million, or
14.2%, from the loan balance of $140.2 million at March 31, 2007.
Asset Quality. The Company's total nonperforming assets decreased
to $36,000, or 0.02% of assets, at March 31, 2008, compared to
$188,000, or 0.09% of assets, at March 31, 2007, attributable to a
decrease in the balance of nonaccrual loans. At March 31, 2008,
loans delinquent less than 90 days were $13,000, or 0.01% of total
gross loans held for investment, compared to $60,000, or 0.04% of
total gross loans at the comparable quarter in 2007. Total loans
delinquent at March 31, 2008 were $49,000, or 0.03%, of gross loans
held for investment, compared to $248,000, or 0.18%, at March 31,
2007. Deposits. Driven by growth in core deposits, total ending
deposit balances increased by $17.7 million, or 9.6%, from $183.8
million at March 31, 2007 to $201.5 million at March 31, 2008. Core
deposits, which are comprised of checking, savings and money market
accounts, increased by $22.5 million, or 17.7%, from $126.9 million
at March 31, 2007 to $149.4 million at March 31, 2008. This
increase in core deposits was partially offset by a $4.8 million
decrease in certificate of deposit balances. Average total deposits
decreased by $1.6 million, or 0.90%, from $184.1 million during the
three months ended March 31, 2007 to $182.5 million during the
three months ended March 31, 2008. Average core deposits increased
by $9.7 million, offset by a $11.3 million decrease in average
balances of certificate of deposits, between the comparable
quarters. Borrowed Funds. Borrowed funds increased by $5.1 million,
from $2.0 million at March 31, 2007 to $7.1 million at March 31,
2008, primarily due to a $5.0 million FHLB intermediate term
advance at a fixed rate of 2.40% in the first quarter of 2008.
Capital. Stockholders' equity increased by $1.1 million, or 4.4%,
from $24.4 million at March 31, 2007 to $25.5 million at March 31,
2008. Stockholders' equity increased primarily as a result of a
$320,000 increase in retained earnings, and a $617,000 increase 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 in greater detail certain
of the unaudited financial information described above. Dividend On
April 23, 2008, Heritage's Board of Directors declared a $0.06 per
share dividend on Heritage's common stock. The dividend will be
paid on June 13, 2008 to shareholders of record on June 4, 2008.
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 March 31, 2008 2007
(unaudited) (unaudited) ASSETS Cash and due from banks $6,322
$7,253 Federal funds sold 17,255 10,564 Securities available for
sale, at fair value 38,182 42,604 Securities held to maturity, at
cost 576 678 Loans, net Held for investment, net of allowance for
loan losses 160,038 140,199 Held for sale 279 287 Accrued interest
receivable 725 821 Stock in Federal Reserve Bank, at cost 313 313
Stock in Federal Home Loan Bank of Atlanta, at cost 668 401
Premises and equipment, net 10,618 7,338 Other assets 1,022 1,313
Total assets $235,998 $211,771 LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities Deposits Noninterest bearing $60,940 $47,401
Interest-bearing 140,531 136,401 Total deposits 201,471 183,802
Federal Home Loan Bank Advance 5,000 - Securities sold under
agreements to repurchase 2,062 1,962 Other borrowings 50 50 Accrued
interest payable 304 360 Other liabilities 1,594 1,157 Total
liabilities 210,481 187,331 Stockholders' equity Common stock, $5
par value - authorized 3,000,000 shares; issued and outstanding:
2,278,652 shares at March 31, 2008; 2,278,652 shares at March 31,
2007 11,393 11,393 Additional paid-in capital 6,209 6,069 Retained
earnings 7,256 6,936 Accumulated other comprehensive income, net
659 42 Total stockholders' equity 25,517 24,440 Total liabilities
and stockholders' equity $235,998 $211,771 HERITAGE BANKSHARES,
INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per
share data) Three Months Ended March 31, 2008 2007 (unaudited)
(unaudited) Interest income Loans and fees on loans $2,517 $2,443
Taxable investment securities 463 404 Nontaxable investment
securities 13 12 Dividends on FRB and FHLB stock 18 11 Interest on
federal funds sold 39 289 Other interest income 2 3 Total interest
income 3,052 3,162 Interest expense Deposits 1,056 1,270 Borrowings
108 39 Total interest expense 1,164 1,309 Net interest income 1,888
1,853 Provision for loan losses - 2 Net interest income after
provision for loan losses 1,888 1,851 Noninterest income Service
charges on deposit accounts 107 126 Gains on sale of loans held for
sale, net 45 30 Gain on sale of investment securities - 1 Late
charges and other fees on loans 11 15 Other 77 76 Total noninterest
income 240 248 Noninterest expense Compensation 1,072 1,112 Data
processing 135 130 Occupancy 214 139 Furniture and equipment 149
127 Taxes and licenses 68 54 Professional fees 95 90 Marketing 37
41 Telephone 26 35 Stationery and supplies 20 32 Other 230 189
Total noninterest expense 2,046 1,949 Income (loss) before
provision for income taxes 82 150 Provision for (benefit from)
income taxes 35 50 Net income (loss) $47 $100 Earnings (loss) per
common share Basic $0.02 $0.04 Diluted $0.02 $0.04 Dividends per
share $0.06 $0.06 Weighted average shares outstanding - basic
2,278,652 2,278,362 Effect of dilutive stock options - - Weighted
average shares outstanding - assuming dilution 2,278,652 2,278,362
HERITAGE BANKSHARES, INC. OTHER SELECTED FINANCIAL INFORMATION
(Unaudited) (in thousands, except share and per share data) Three
Months Ended March 31, 2008 2007 Financial ratios Annualized return
on average assets 0.08% 0.19% Annualized return on average equity
0.74% 1.66% Average equity to average assets 11.43% 11.49% Equity
to assets, at period-end 10.81% 11.54% Net interest margin 3.69%
3.77% Per common share Earnings per share - basic $0.02 $0.04
Earnings per share - diluted $0.02 $0.04 Book value per share
$11.20 $10.73 Dividends declared per share $0.06 $0.06 Common stock
outstanding 2,278,652 2,278,652 Weighted average basic shares
outstanding 2,278,652 2,278,362 Weighted average diluted shares
2,278,652 2,278,362 Asset quality Nonaccrual loans $- $162 Accruing
loans past due 90 days or more 36 26 Total nonperforming loans 36
188 Real estate owned, net - - Total nonperforming assets $36 $188
Nonperforming assets to total assets 0.02% 0.09% Allowance for loan
losses Balance, beginning of period $1,400 $1,373 Provision for
loan losses - 2 Loans charged-off - (8) Recoveries 92 6 Balance,
end of period $1,492 $1,373 Allowance for loan losses to gross
loans held for investment, net of unearned fees and costs 0.92%
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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