NORFOLK, Va., July 19 /PRNewswire-FirstCall/ -- Heritage
Bankshares, Inc. ("Heritage"; the "Company") (Pinksheets: HBKS),
the parent of Heritage Bank (the "Bank"), today announced unaudited
financial results for the second quarter and first six months of
2007. Net income, after tax, for the quarter ended June 30, 2007
was $139,000, or $0.06 per diluted share, compared to net income,
after tax, of $145,000, or $0.08 per diluted share, for the second
quarter of 2006. The second quarter of 2006 included a $63,000
after-tax gain on the sale of the Bank's retail credit card
portfolio. The Company's net income for the six months ended June
30, 2007, however, increased by $115,000 over the six months ended
June 30, 2006. Net income, after tax, for the first six months of
2007 was $239,000, or $0.10 per diluted share, compared to net
income, after tax, of $124,000, or $0.07 per diluted share, for the
same period in 2006. The diluted earnings per share figures for the
three and six months ended June 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. Michael S. Ives, President and CEO of
the Company and the Bank, commented: "During the last quarter, we
continued to execute our business plan to grow our core deposits as
evidenced by the 25% increase in our core deposits from the second
quarter of 2006 to the second quarter of 2007. We believe that a
strong core deposit base will create value for our shareholders
over the long run. "We look forward to the openings of our
Financial District and Lynnhaven branches in the second half of
2007. We believe that these two branches in prominent locations
will give us an even greater ability to attract core deposits.
"Operating results for the first half of 2007 contain a variety of
expenses relating to the continuing development of our
infrastructure and compliance functions. We expect some of these
expenses to continue over the remainder of 2007 as we transition
our headquarters to the Dominion Enterprises building and take the
necessary steps to ensure our compliance with the letter and spirit
of the Sarbanes-Oxley Act relating to internal controls over
financial reporting." Comparison of Operating Results for the Three
Months Ended June 30, 2007 and 2006 Overview. The Company's pretax
income was $208,000 for the second quarter of 2007, compared to a
pretax income of $210,000 in the second quarter of 2006. Compared
to the second quarter of 2006, net interest income increased by
$47,000, noninterest income decreased by $126,000 and noninterest
expense decreased by $77,000. Net income, after tax, was $139,000,
or $0.06 per diluted share, for the three months ended June 30,
2007, compared to a net income, after tax, of $145,000, or $0.08
per diluted share, for the three months ended June 30, 2006. As
previously mentioned, the second quarter of 2006 included a $63,000
after-tax gain on the sale of the Bank's retail credit card
portfolio. Net Interest Income. The Company's net interest income
before provision for loan losses increased by $47,000 in the second
quarter of 2007 compared to the second quarter of 2006. This was
attributable to an increase of $4.0 million in the average balance
of interest-earning assets, and an increase in net interest margin
from 3.82% to 3.84%. Provision for Loan Losses. There was no
provision for loan losses for the three months ended June 30, 2007
or for the three months ended June 30, 2006. Noninterest Income.
Total noninterest income decreased by $126,000, from $434,000 in
the second quarter of 2006 to $308,000 in the second quarter of
2007. This decrease was primarily due to a $96,000 gain on the sale
of the Bank's retail credit card portfolio in the second quarter of
2006 that did not recur in 2007. Noninterest Expense. Total
noninterest expense decreased by $77,000, from $2.0 million in the
second quarter of 2006 to $1.9 million in the second quarter of
2007 as contract employee expense declined by $84,000. Income
Taxes. The Company's income tax expense for the quarter ended June
30, 2007 was $69,000, which represented an effective tax rate of
33.5%, compared to $65,000 for the quarter ended June 30, 2006,
which represented an effective tax rate of 31.0%. Comparison of
Operating Results for the Six Months Ended June 30, 2007 and 2006
Overview. The Company's pretax income was $358,000 for the first
six months of 2007, compared to a pretax income of $170,000 for the
first six months of 2006, an increase of $188,000. Compared to the
first six months of 2006, net interest income increased by
$225,000, provision for loan losses decreased by $15,000,
noninterest income decreased by $192,000, and noninterest expense
decreased by $140,000. Net income, after tax, was $239,000, or
$0.10 per diluted share, for the six months ended June 30, 2007,
compared to after-tax net income of $124,000, or $0.07 per diluted
share, for the six months ended June 30, 2006. Net Interest Income.
The Company's net interest income before provision for loan losses
increased by $225,000 in the first six months of 2007 compared to
the first six months of 2006. This was attributable to a $6.4
million increase in the average balance of interest-earning assets,
and an increase in net interest margin from 3.69% to 3.80%.
Provision for Loan Losses. Provision for loan losses decreased by
$15,000, from $17,000 in the first six months of 2006 to $2,000 in
the first six months of 2007. Noninterest Income. Total noninterest
income decreased by $192,000, from $751,000 in the first six months
of 2006 to $559,000 in the first six months of 2007. This decrease
was primarily due to the $96,000 gain on sale of the retail credit
card portfolio in the second quarter of 2006, and declines of
$59,000 in service charges on deposit accounts. Noninterest
Expense. Total noninterest expense decreased by $140,000, from $4.1
million in the first six months of 2006 to $3.9 million in the
first six months of 2007, primarily attributable to a decline in
contract employee expense of $180,000. Income Taxes. The Company's
income tax expense for the six months ended June 30, 2007 was
$119,000, which represented an effective tax rate of 33.3%,
compared to income tax expense for the six months ended June 30,
2006 of $46,000, which represented an effective tax rate of 27.0%.
The effective tax rate for the six months ended June 30, 2006 was
impacted by the effect of a tax benefit from the first quarter
2006. Financial Condition of the Company Total Assets. The
Company's total assets increased by $7.4 million, or 3.5%, from
$209.4 million at June 30, 2006 to $216.8 million at June 30, 2007.
The increase in assets resulted primarily from a $12.2 million
increase in the ending balance of loans held for investment, offset
by an aggregate $6.0 million decrease 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 $53.0 million at June 30, 2007,
compared to a combined balance of $59.0 million at June 30, 2006.
During the first quarter of 2007, the Company changed the mix of
these investments by purchasing $35.8 million of FHLMC/FNMA balloon
mortgage-backed securities with an average remaining balloon
maturity of approximately 3.7 years. Loans. Loans held for
investment, net, at June 30, 2007 were $144.0 million, which
represents an increase of $12.2 million, or 9.3%, from the loan
balance of $131.8 million at June 30, 2006. Asset Quality. The
Company's total nonperforming assets decreased to $187,000, or
0.09% of assets, at June 30, 2007, compared to $201,000, or 0.10%
of assets, at June 30, 2006, attributable to a decrease in the
balance of nonaccrual loans. Deposits. Driven by growth in core
deposits, total deposits increased by $12.8 million, or 7.2%, from
$176.9 million at June 30, 2006 to $189.7 million at June 30, 2007.
Core deposits, which are comprised of checking, savings and money
market accounts, increased by $27.6 million, or 25.0%, from $110.0
million at June 30, 2006 to $137.6 million at June 30, 2007. The
effect on total deposits of this increase in core deposits was
partially offset by a $14.7 million decrease in certificate of
deposit balances. Borrowed Funds. Borrowed funds decreased by $11.9
million, from $12.8 million at June 30, 2006 to $900,000 at June
30, 2007, primarily due to the repayment in October 2006 of the
Bank's $10.0 million FHLB advance. Capital. Stockholders' equity
increased by $6.1 million, or 33.8%, from $18.2 million at June 30,
2006 to $24.3 million at June 30, 2007. Stockholders' equity
increased as a result of $6.1 million in total net capital raised
in connection with sales of the Company's common stock in private
placements that closed in July and 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 June 30, 2007 2006
(unaudited) (unaudited) ASSETS Cash and due from banks $6,814
$7,519 Federal funds sold 12,483 36,580 Securities available for
sale, at fair value 40,519 22,376 Securities held to maturity, at
cost 678 680 Loans, net Held for investment, net of allowance for
loan losses 143,993 131,779 Held for sale 330 455 Accrued interest
receivable 849 682 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 8,985 6,772 Other assets 1,430 1,648
Total assets $216,795 $209,415 LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities Deposits Noninterest bearing $53,049 $45,804
Interest-bearing 136,649 131,092 Total deposits 189,698 176,896
Federal Home Loan Bank Advance - 10,000 Securities sold under
agreements to repurchase 850 2,740 Other borrowings 50 50 Accrued
interest payable 296 371 Other liabilities 1,555 1,161 Total
liabilities 192,449 191,218 Stockholders' equity Common stock, $5
par value - authorized 3,000,000 shares; issued and outstanding:
2,278,652 shares at June 30, 2007; 1,861,173 shares at June 30,
2006 11,393 9,306 Additional paid-in capital 6,102 1,781 Retained
earnings 6,937 7,147 Accumulated other comprehensive income (loss),
net (86) (37) Total stockholders' equity 24,346 $18,197 Total
liabilities and stockholders' equity $216,795 $209,415 HERITAGE
BANKSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands,
except per share data) Three Months Ended Six Months Ended June 30
June 30 2007 2006 2007 2006 (unaudited) (unaudited) (unaudited)
(unaudited) Interest income Loans and fees on loans $2,479 $2,494
$4,922 $4,792 Taxable investment securities 519 64 923 126
Nontaxable investment securities 12 12 24 24 Dividends on FRB and
FHLB stock 11 13 22 24 Interest on federal funds sold 108 538 397
1,030 Total interest income 3,129 3,121 6,288 5,996 Interest
expense Deposits 1,241 1,152 2,511 2,207 Borrowings 18 146 57 294
Total interest expense 1,259 1,298 2,568 2,501 Net interest income
1,870 1,823 3,720 3,495 Provision for loan losses - - 2 17 Net
interest income after provision for loan losses 1,870 1,823 3,718
3,478 Noninterest income Service charges on deposit accounts 128
163 254 313 Gains on sale of loans held for sale, net 53 33 83 82
Gain on sale of investment securities - 34 1 34 Late charges and
other fees on loans 24 38 39 54 Other 103 166 182 268 Total
noninterest income 308 434 559 751 Noninterest expense Compensation
1,051 993 2,161 2,027 Data processing 130 128 260 261 Occupancy 144
127 267 251 Furniture and equipment 134 144 271 298 Taxes and
licenses 55 54 109 94 Professional fees 130 178 220 290 Contract
employee services 1 85 6 186 Marketing 45 64 86 124 Telephone 29 21
64 43 Stationery and supplies 42 26 80 71 Other 209 227 395 414
Total noninterest expense 1,970 2,047 3,919 4,059 Income before
provision for income taxes 208 210 358 170 Provision for income
taxes 69 65 119 46 Net income $139 $145 $239 $124 Earnings per
common share Basic $0.06 $0.08 $0.10 $0.07 Diluted $0.06 $0.08
$0.10 $0.07 Dividends per share $0.06 $0.06 $0.12 $0.12 Weighted
average shares outstanding - basic 2,278,652 1,718,517 2,278,507
1,716,593 Effect of dilutive stock options 25,215 37,999 26,806
37,821 Weighted average shares outstanding - assuming dilution
2,303,867 1,756,516 2,305,313 1,754,414 HERITAGE BANKSHARES, INC.
OTHER SELECTED FINANCIAL INFORMATION (Unaudited) (in thousands,
except share and per share data) Three Months Ended Six Months
Ended June 30, June 30, 2007 2006 2007 2006 Financial ratios
Annualized return on average assets 0.26% 0.28% 0.23% 0.12%
Annualized return on average equity 2.26% 3.63% 1.96% 1.57% Average
equity to average assets 11.61% 7.81% 11.55% 7.76% Equity to
assets, at period-end 11.23% 8.69% 11.23% 8.69% Net interest margin
3.84% 3.82% 3.80% 3.69% Per common share Earnings per share - basic
$ 0.06 $0.08 $ 0.10 $0.07 Earnings per share - diluted $0.06 $ 0.08
$0.10 $0.07 Book value per share $10.68 $9.78 $10.68 $9.78
Dividends declared per share $0.06 $0.06 $0.12 $ 0.12 Common stock
outstanding 2,278,652 1,861,173 2,278,652 1,861,173 Weighted
average basic shares outstanding 2,278,652 1,718,517 2,278,507
1,716,593 Weighted average diluted shares 2,303,867 1,756,516
2,305,313 1,754,414 Asset quality Nonaccrual loans $187 $200 $187
$200 Accruing loans past due 90 days or more - 1 - 1 Total
nonperforming loans 187 201 187 201 Real estate owned, net - - - -
Total nonperforming assets $187 $201 $187 $201 Nonperforming assets
to total assets 0.09% 0.10% 0.09% 0.10% Allowance for loan losses
Balance, beginning of period $1,373 $1,362 $1,373 $1,335 Provision
for loan losses - - 2 17 Loans charged-off - (64) (8) (83)
Recoveries 9 2 15 31 Balance, end of period $1,382 $1,300 $1,382
$1,300 Allowance for loan losses to gross loans held for
investment, net of unearned fees and costs 0.95% 0.98% 0.95% 0.98%
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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