NORFOLK, Va., Oct. 22 /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 third quarter and
first nine months of 2009. Net income for the quarter ended
September 30, 2009 was $206,000 compared to net income of $385,000
for the third quarter of 2008. After the effect of dividends on
preferred stock, net income available to common stockholders was
$196,000, or $0.09 per diluted share compared to net income
available to common stockholders, of $385,000, or $0.17 per diluted
share, for the third quarter of 2008. Net income for the first nine
months of 2009 was $588,000 compared to net income of $595,000 for
the same period in 2008. After the effect of dividends on preferred
stock, net income available to common stockholders for the first
nine months of 2009 was $578,000, or $0.25 per diluted share,
compared to net income available to common stockholders, of
$595,000, or $0.26 per diluted share for the same period in 2008.
Net income for the third quarter of 2008 included an after tax gain
of $339,000 on the sale of investment securities in the third
quarter of 2008. The Company took the unusual step of selling a
large number of securities in the third quarter of 2008 to avoid
any potential impairment of these securities from the turbulence in
the financial markets existing at that time. There were no gains on
the sale of investment securities in the third quarter of 2009.
Michael S. Ives, President and CEO of the Company and the Bank,
commented: "Our Company is well prepared for growth now that the
recession is beginning to wane. We can make new loans at aggressive
rates to creditworthy customers because of our high levels of
liquidity and capital and our low cost of funds. We are not
burdened with a large number of nonperforming assets. We look
forward to 2010 with great anticipation for substantial growth for
our Company." Comparison of Operating Results for the Three Months
Ended September 30, 2009 and 2008 Overview. The Company's pretax
income was $337,000 for the third quarter of 2009, compared to
pretax income of $600,000 for the third quarter of 2008. Compared
to the third quarter of 2008, net interest income increased by
$299,000, provision for loan losses decreased by $3,000,
noninterest income decreased by $527,000 and noninterest expense
increased by $38,000. Net Interest Income. The Company's net
interest income before provision for loan losses increased by
$299,000 in the third quarter of 2009 compared to the third quarter
of 2008. This increase was primarily attributable to an increase of
$37.2 million in the average balance of interest-earning assets,
which more than offset an increase of $17.6 million in average
interest-bearing liabilities, and to an increase in net interest
spread from 3.06% to 3.25%. Net interest margin decreased by 8
basis points, from 3.72% in the third quarter of 2008 to 3.64% in
the third quarter of 2009. Provision for Loan Losses. Provision for
loan losses for the three months ended September 30, 2009 was
$65,000 compared to a $68,000 loan loss provision for the three
months ended September 30, 2008. Noninterest Income. Total
noninterest income decreased by $527,000, from $738,000 in the
third quarter of 2008 to $211,000 in the third quarter of 2009.
This decrease was primarily attributable to nonrecurring net gains
of $513,000 in the third quarter of 2008 related to sales of
investment securities. Noninterest Expense. Total noninterest
expense increased by $38,000, from $2.03 million in the third
quarter of 2008 to $2.07 million in the third quarter of 2009. This
increase in noninterest expense was driven primarily by a $74,000
increase in professional fees attributable to several legal
projects unrelated to asset quality issues; a $73,000 increase in
compensation expense largely related to a $105,000 one-time charge
for the immediate vesting of benefits under a supplemental
executive retirement plan; and a $52,000 increase in FDIC insurance
expense impacted by an increase in FDIC assessment rates and growth
in deposit balances. These increases were partially offset by a
$96,000 decrease in courier expense and a $68,000 decrease in loss
on disposal or impairment of fixed assets, as well as decreases in
a variety of miscellaneous expenses. Income Taxes. The Company's
income tax expense for the quarter ended September 30, 2009 was
$131,000, which represented an effective tax rate of 39.0%,
compared to income tax expense of $215,000 for the quarter ended
September 30, 2008, which represented an effective tax rate of
35.9%. The higher effective tax rate was primarily attributable to
a higher percentage of net non-deductible items relative to pre-tax
income in the third quarter of 2009. Comparison of Operating
Results for the Nine Months Ended September 30, 2009 and 2008
Overview. The Company's pretax income was $884,000 for the first
nine months of 2009, compared to pretax income of $939,000 for the
first nine months of 2008, a decrease of $55,000. Compared to the
first nine months of 2008, net interest income increased by
$824,000, provision for loan losses increased by $73,000,
noninterest income decreased by $636,000 and noninterest expense
increased by $170,000. Net Interest Income. The Company's net
interest income before provision for loan losses increased by
$824,000 for the first nine months of 2009 compared to the first
nine months of 2008. This increase was primarily attributable to an
increase of $34.6 million in the average balance of
interest-earning assets, which more than offset an increase of
$21.1 million in average interest-bearing liabilities, and to an
increase in net interest spread from 2.97% to 3.25%. Net interest
margin decreased by 7 basis points, from 3.74% for the first nine
months of 2008 to 3.67% for the first nine months of 2009.
Provision for Loan Losses. Provision for loan losses for the nine
months ended September 30, 2009 was $141,000 compared to a $68,000
provision for the nine months ended September 30, 2008. Net
charge-offs in the nine months ended September 30, 2009 were
$22,000 compared to $128,000 in net recoveries for the nine months
ended September 30, 2008. Noninterest Income. Total noninterest
income decreased by $636,000, from $1.2 million in the first nine
months of 2008 to $566,000 in the first nine months of 2009. This
decrease was primarily due to a $518,000 decrease in net gains on
the sale of investment securities, a $89,000 decrease in gains on
sales of mortgage loans held for sale and a $30,000 decrease in the
service charges on deposit accounts. Noninterest Expense. Total
noninterest expense increased by $170,000, from $6.1 million in the
first nine months of 2008 to $6.3 million in the first nine months
of 2009. Increases of $275,000 and $128,000 in FDIC insurance
expense and professional fees, respectively, were partially offset
by a $230,000 decrease in courier expense. Income Taxes. The
Company's income tax expense for the nine months ended September
30, 2009 was $296,000, which represented an effective tax rate of
33.4%, compared to income tax expense for the nine months ended
September 30, 2008 of $344,000, which represented an effective tax
rate of 36.7%. The lower effective tax rate for the first nine
months of 2009 was primarily attributable to a $48,000 tax benefit
resulting from an increase in nonqualified stock options related to
certain of the stock options that were repriced in the first
quarter of 2009 and to nontaxable life insurance income recorded in
the second quarter of 2009. Financial Condition of the Company
Total Assets. The Company's total assets increased by $24.6
million, or 10.0%, from $246.1 million at September 30, 2008 to
$270.7 million at September 30, 2009. The increase in assets
resulted primarily from increases of $12.6 million, $6.1 million
and $5.0 million in the ending balances of securities available for
sale, loans held for investment and cash and cash equivalents,
respectively. Total Cash and Cash Equivalents and Investment
Securities. Total cash and cash equivalents and investment
securities available for sale were $78.3 million at September 30,
2009, compared to a combined balance of $60.7 million at September
30, 2008, reflecting an increase in the combined balance of $17.6
million. Loans. Loans held for investment, net, at September 30,
2009 were $176.9 million, which represents an increase of $6.1
million, or 3.6%, from the September 30, 2008 loan balance of
$170.8 million. Asset Quality. The Company's total nonperforming
assets increased to $553,000, or 0.20% of assets, at September 30,
2009, compared to $52,000, or 0.02% of assets, at September 30,
2008, attributable to an increase in the balance of other real
estate owned as well as increases in nonaccrual and restructured
loans. Deposits. Driven by continued growth in core deposits, total
deposits increased by $13.5 million, or 6.3%, from $212.6 million
at September 30, 2008 to $226.1 million at September 30, 2009. Core
deposits, which are comprised of checking, savings and money market
accounts, increased by $13.7 million, or 8.6%, from $160.8 million
at September 30, 2008 to $174.5 million at September 30, 2009.
Average total deposits increased by $30.6 million, or 16.0%, from
$191.1 million for the nine months ended September 30, 2008 to
$221.7 million for the nine months ended September 30, 2009.
Average core deposits increased by $29.5 million and average
certificate of deposit balances increased by $1.1 million between
the comparable nine month periods. Borrowed Funds. Borrowed funds
decreased by $257,000, from $6.5 million at September 30, 2008 to
$6.2 million at September 30, 2009. Capital. Stockholders' equity
increased by $11.6 million, or 46.3%, from $25.1 million at
September 30, 2008 to $36.7 million at September 30, 2009.
Stockholders' equity increased primarily as a result of the $10.1
million of preferred stock issued by the Company on September 25,
2009 to the U.S. Treasury under its Capital Purchase Program.
Stockholders' equity also increased due to a $1.2 million 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. Certain reclassifications have
been made to prior period financial statements to conform them to
the current period presentation. The unaudited financial statements
and accompanying information contained in this press release
reflect the impact of corrections to FDIC insurance expense related
to prior periods. Specifically, as a result of such corrections to
prior-period FDIC insurance expense, retained earnings at September
30, 2008 decreased by $43,479 compared to the originally-reported
amount. Further, net income for the three months ended September
30, 2008 decreased by $1,000, from $386,000, as originally
reported, to $385,000 (earnings were $0.17 per diluted share both
before and after the correction). Net income for the nine months
ended September 30, 2008 decreased by $22,000, from $617,000, or
$0.27 per diluted share as originally reported, to $595,000, or
$0.26 per diluted share. 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 two full-service
branches 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-K 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,
------------------ 2009 2008 ---- ---- (unaudited) (unaudited)
ASSETS Cash and due from banks $8,492 $11,449 Interest-bearing
deposits in other banks 11,232 250 Federal funds sold 8,820 11,849
----- ------ Total cash and cash equivalents 28,544 23,548
Securities available for sale, at fair value 49,776 37,158 Loans,
net Held for investment, net of allowance for loan losses 176,927
170,817 Held for sale - - Accrued interest receivable 641 668 Stock
in Federal Reserve Bank, at cost 324 321 Stock in Federal Home Loan
Bank of Atlanta, at cost 1,476 623 Premises and equipment, net
12,015 11,519 Other real estate owned 153 - Other assets 880 1,399
--- ----- Total assets $270,736 $246,053 ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits
Noninterest-bearing $72,602 $65,135 Interest-bearing 153,471
147,501 ------- ------- Total deposits 226,073 212,636 -------
------- Federal Home Loan Bank Advances 5,000 5,000 Securities sold
under agreements to repurchase 1,241 1,498 Accrued interest payable
168 280 Other liabilities 1,525 1,538 ----- ----- Total liabilities
234,007 220,952 ------- ------- Stockholders' equity Preferred
stock, no par value - 1,000,000 shares authorized: Fixed rate
cumulative perpetual preferred stock, Series A, 10,103 and 0 shares
issued and outstanding at September 30, 2009 and September 30,
2008, respectively 10,103 - Fixed rate cumulative perpetual
preferred stock, Series B, 303 and 0 shares issued and outstanding
at September 30, 2009 and September 30, 2008, respectively 303 -
Common stock, $5 par value - 6,000,000 shares authorized; 2,291,352
and 2,279,252 shares issued and outstanding at September 30, 2009
and September 30, 2008, respectively 11,457 11,396 Additional
paid-in capital 6,435 6,297 Retained earnings 7,615 7,508 Discount
on preferred stock (302) - Accumulated other comprehensive income,
net 1,118 (100) ----- ---- Total stockholders' equity 36,729 25,101
------ ------ Total liabilities and stockholders' equity $270,736
$246,053 ======== ======== HERITAGE BANKSHARES, INC. CONSOLIDATED
STATEMENTS OF INCOME (in thousands, except per share data) Three
Months Ended Nine Months Ended September 30 September 30
------------ ------------ 2009 2008 2009 2008 ---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited) Interest income
Loans and fees on loans $2,266 $2,454 $6,735 $7,398 Taxable
investment securities 491 308 1,666 1,212 Nontaxable investment
securities - 7 - 33 Dividends on FRB and FHLB stock 10 10 20 42
Interest on federal funds sold 1 53 2 135 Other interest income 24
1 49 4 -- - --- - Total interest income 2,792 2,833 8,472 8,824
Interest expense Deposits 496 816 1,664 2,748 Borrowings 33 53 107
199 -- -- --- --- Total interest expense 529 869 1,771 2,947 Net
interest income 2,263 1,964 6,701 5,877 Provision for loan losses
65 68 141 68 -- -- --- -- Net interest income after provision for
loan losses 2,198 1,896 6,560 5,809 ----- ----- ----- -----
Noninterest income Service charges on deposit accounts 99 111 286
316 Late charges and other fees on loans 12 10 36 43 Gains on sale
of loans held for sale, net - 24 3 92 Gain on sale of investment
securities - 513 - 518 Gain on bank-owned life insurance - - 35 -
Other 100 80 206 233 --- -- --- --- Total noninterest income 211
738 566 1,202 Noninterest expense Compensation 1,080 1,007 3,134
3,090 Data processing 123 132 381 409 Occupancy 191 193 613 599
Furniture and equipment 149 131 476 419 Taxes and licenses 68 72
204 204 Professional fees 145 71 359 231 FDIC insurance 86 34 374
99 Marketing 20 32 75 109 Telephone 24 25 79 75 Loss on disposal or
impairment of fixed assets - 68 4 68 Other 186 269 543 769 --- ---
--- --- Total noninterest expense 2,072 2,034 6,242 6,072 Income
before provision for income taxes 337 600 884 939 Provision for
income taxes 131 215 296 344 --- --- --- --- Net income $206 $385
$588 $595 Preferred stock dividend and accretion of discount $(10)
$- $(10) $- ---- -- ---- -- Net income available to common
stockholders $196 $385 $578 $595 ==== ==== ==== ==== Earnings per
common share Basic $0.09 $0.17 $0.25 $0.26 ===== ===== ===== =====
Diluted $0.09 $0.17 $0.25 $0.26 ===== ===== ===== ===== Dividends
per share $0.06 $0.06 $0.18 $0.18 ===== ===== ===== ===== Weighted
average shares outstanding - basic 2,286,579 2,278,840 2,282,982
2,278,715 Effect of dilutive stock options 10,579 18,223 11,407
16,151 ------ ------ ------ ------ Weighted average shares
outstanding - diluted 2,297,158 2,297,063 2,294,389 2,294,866
========= ========= ========= ========= HERITAGE BANKSHARES, INC.
OTHER SELECTED FINANCIAL INFORMATION (Unaudited) (in thousands,
except share and per share data) Three Months Ended Nine Months
Ended September 30, September 30, ------------- --------- 2009 2008
2009 2008 ---- ---- ---- ---- Financial ratios Annualized return on
average assets 0.30% 0.67% 0.30% 0.35% Annualized return on average
equity 2.86% 6.01% 2.93% 3.11% Average equity to average assets
10.31% 11.07% 10.12% 11.16% Equity to assets, at period-end 13.57%
10.20% 13.57% 10.20% Net interest margin 3.64% 3.72% 3.67% 3.74%
Per common share Earnings per share - basic $0.09 $0.17 $0.25 $0.26
Earnings per share - diluted $0.09 $0.17 $0.25 $0.26 Book value per
share $11.62 $11.01 $11.62 $11.01 Dividends declared per share
$0.06 $0.06 $0.18 $0.18 Common stock outstanding 2,291,352
2,279,252 2,291,352 2,279,252 Weighted average shares outstanding -
basic 2,286,579 2,278,840 2,282,982 2,278,715 Weighted average
shares outstanding -diluted 2,297,158 2,297,063 2,294,389 2,294,866
Asset quality Nonaccrual loans $189 $44 $189 $44 Accruing loans
past due 90 days or more 6 8 6 8 ------ ------ ------ ------ Total
nonperforming loans 195 52 195 52 Restructured loans 205 - 205 -
Other real estate owned, net 153 - 153 - ------ ------ ------
------ Total nonperforming assets $553 $52 $553 $52 ====== ======
====== ====== Nonperforming assets to total assets 0.20% 0.02%
0.20% 0.02% Allowance for loan losses Balance, beginning of period
$1,728 $1,592 $1,652 $1,400 Provision for loan losses 65 68 141 68
Loans charged-off (39) (57) (69) (58) Recoveries 17 (7) 47 186
------ ------ ------ ------ Balance, end of period $1,771 $1,596
$1,771 $1,596 ====== ====== ====== ====== Allowance for loan losses
to gross loans held for investment, net of unearned fees and costs
0.99% 0.93% 0.99% 0.93% ---- ---- ---- ---- 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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