NORFOLK, Va., Feb. 3 /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
2008. Net income, after-tax, for the year ended December 31, 2008
was $688,000, or $0.30 per diluted share, compared to $920,000, or
$0.40 per diluted share, earned in 2007. Nonrecurring items
affected income in both 2008 and 2007. During 2008, there were net
gains on the sale of investment securities of $342,000, after-tax,
and net income for 2007 included after-tax gains of $347,000 on the
sale of the Bank's former Plume Street office and $191,000, net of
related professional fees, from a payment received in connection
with the Company's settlement with a former professional services
provider. Also, income for 2008 does not include a $460,000
after-tax increase over 2007 in other comprehensive income from
$214,000 in 2007 to $674,000 in 2008. Michael S. Ives, President
and CEO of the Company and the Bank, commented: "Over the past
several years, I have often stated three basic premises of our
business plan. First, our expense base will remain largely stable
after the significant increases in our expense base several years
past from the many improvements in our technology, facilities and
personnel. Second, our profitability will improve in direct
correlation with growth in our assets. Third, our asset growth will
be funded by increases in our core deposits rather than the use of
brokered deposits and other forms of expensive borrowed money. "We
believe that our results from 2008 have further validated our
business plan. Our operating expenses from 2008 were virtually
unchanged from 2007. Our net interest income increased by $535,000
primarily from loan growth and an increase in net interest spread.
Our core deposits grew from $134 million to $163 million, an
increase of $29 million or 21%, to provide for our asset growth.
"All of these improvements occurred without the sacrifice of any of
our risk mitigation practices. Reduction of interest rate risk has
been an important feature of our risk mitigation practices. During
the fourth quarter, our net interest margin actually increased from
3.58% in the fourth quarter of 2007 to 3.73% in the fourth quarter
in 2008. We feel that this increase in our net interest margin is
very impressive, in particular compared to the precipitous declines
in the net interest margins of many of our local community bank
competitors. Furthermore, we were able to increase our net interest
margin while maintaining our high level of liquidity, best
evidenced by our loan-to-deposit ratio at the end of 2008 of
approximately 82%. "Because of the deteriorating economic
situation, we have been aggressive in our actions to deal with loan
weaknesses as they arise. These actions resulted in substantial
charge-offs in the fourth quarter but left us with a ratio of
nonperforming assets to total assets of a mere 0.08% and a
delinquency ratio of loans more than 30 days past due to total
loans of only 0.07%. These ratios would be outstanding in a normal
economic environment but are stellar in today's environment. "We
plan to continue our aggressive approach to identify asset quality
issues as quickly as they arise and to act decisively to preserve
the balance sheet of the Bank. "The deteriorating economy, rapidly
declining interest rates, and loan impairments have been disastrous
for many community banks. We feel that the strength and vitality of
our balance sheet have been clearly demonstrated and further
validate our business model. We are confident in the future of our
Bank and are proud of our ever increasing attractiveness as a
banking option for businesses and professional firms in our
market." Comparison of Operating Results for the Twelve Months
Ended December 31, 2008 and 2007 Overview. The Company's pre-tax
income was $1.1 million for the year ended December 31, 2008 as
compared to $1.4 million in 2007, a decrease of $320,000. During
2008, net interest income increased by $535,000, the provision for
loan losses increased by $348,000, noninterest income decreased by
$520,000, and noninterest expense decreased by $13,000. Net income,
after tax, in 2008 was $688,000, representing a decrease of
$232,000 compared to after-tax income of $920,000 in 2007. Diluted
earnings per share decreased by $0.10, from $0.40 per share in 2007
to $0.30 per share in 2008. Net Interest Income. Even as interest
rates declined during 2008, the Company's net interest income,
before provision for loan losses, increased by $535,000. This
increase resulted from a $1.6 million decrease in interest expense
that was partially offset by a $1.0 million decrease in interest
income, as compared to 2007. The increase in net interest income
was attributable primarily to a 46 basis point increase in interest
rate spread and a $13.1 million increase in interest-earning
assets. The average cost of the Company's interest-bearing
liabilities decreased by 134 basis points, from 3.77% in 2007 to
2.43% in 2008. This decrease exceeded the decline of 88 basis
points in the average yield of interest-earning assets, from 6.34%
in 2007 to 5.46% in 2008. Interest on loans decreased by $115,000,
or 1.2%, from $10.0 million in 2007 to $9.9 million in 2008. This
decrease was attributable to a decrease in the yield on the
Company's loan portfolio from 6.87% in 2007 to 5.86% in 2008,
partially offset by a $22.5 million increase in the average balance
of loans. Interest on investment securities decreased by $242,000
in 2008 as compared to 2007. This decrease resulted primarily from
a decrease in year-over-year average yield from 4.99% to 4.56%, as
well as a $1.7 million decrease in the average balance of the
portfolio, from $38.8 million in 2007 to $37.1 million in 2008.
Interest on federal funds sold decreased by $674,000 in 2008,
attributable to both a decrease in the average balance from $16.4
million in 2007 to $8.0 million in 2008, and a decrease in the
average yield from 4.91% in 2007 to 1.76% in 2008. The Company's
interest expense in 2008 decreased by $1.6 million, from $5.3
million in 2007 to $3.7 million in 2008. Although our average
balance of interest-bearing deposits increased by $5.4 million in
2008, interest paid on deposits decreased by $1.7 million,
resulting from a decrease in the average cost of interest-bearing
deposits from 3.76% in 2007 to 2.42% in 2008. Interest paid on
borrowed funds increased by $155,000, from $81,000 in 2007 to
$236,000 in 2008, as the $7.2 million increase in the average
balance of borrowed funds more than offset the decrease in the cost
of borrowings from 4.21% in 2007 to 2.54% in 2008. Provision for
Loan Losses. The Company's provision for loan losses increased by
$348,000, from $105,000 in 2007 to $453,000 in 2008. The increase
in the provision for loan losses in 2008 was largely a result of
$201,000 in net charge-offs incurred during the year. Noninterest
Income. Total noninterest income decreased by $520,000, from $1.9
million in 2007 to $1.4 million in 2008: -- Gains on the sale of
fixed assets decreased by $524,000 in 2008, primarily due to the
Bank's sale of its former Plume Street office in 2007, which
resulted in a gain of $526,000 that did not recur in 2008. -- The
Company similarly recorded non-recurring income of $345,000 in
2007, resulting from payment received in connection with a
settlement with a former professional services provider. -- Service
charges on deposit accounts decreased by $91,000, from $506,000 in
2007 to $415,000 in 2008, due primarily to a decrease in
non-sufficient fund checking fees. -- Gains on the sale of mortgage
loans held for sale decreased by $28,000, from $120,000 in 2007 to
$92,000 in 2008, due to reduced mortgage loan origination volume.
-- Gains on the sale of investment securities increased by
$527,000, from $1,000 in 2007 to $528,000 in 2008. As previously
reported, in July 2008 the Company sold approximately $28.5 million
of FNMA and FHLMC balloon mortgage-backed securities in light of
management concerns surrounding the financial viability of FNMA and
FHLMC prior to their being placed in conservatorship. Noninterest
Expense. Total noninterest expense was $8.0 million in 2008,
essentially unchanged from 2007: -- Compensation expense and
professional fees decreased by $90,000 and $91,000, respectively,
from 2007 to 2008. -- Courier expense increased by $141,000 from
2007 to 2008. The Company moved its courier operations in-house in
late 2008 and, as a result, we expect that courier expense will
decrease in 2009. -- Expenses for taxes and licenses increased by
$53,000 from 2007 to 2008, primarily due an increase in state
franchise tax expense. Income Taxes. The Company's income tax
expense for the year ended December 31, 2008 was $391,000 compared
to $479,000 for 2007, which represented effective tax rates of
36.2% and 34.3%, respectively. Comparison of Operating Results for
the Three Months Ended December 31, 2008 and 2007 Overview. The
Company's pre-tax income was $106,000 for the fourth quarter of
2008, compared to pre-tax income of $524,000 for the fourth quarter
of 2007. For the two quarters, net interest income increased by
$277,000, provision for loan losses increased by $385,000,
noninterest income decreased by $374,000, and noninterest expense
decreased by $64,000. Net income, after-tax, was $71,000, or $0.03
per diluted share, for the three months ended December 31, 2008,
compared to net income, after-tax, of $336,000, or $0.15 per
diluted share, for the three months ended December 31, 2007. Net
Interest Income. The Company's net interest income before provision
for loan losses increased by $277,000 in the fourth quarter of 2008
as compared to the fourth quarter of 2007. This increase resulted
from a $601,000 decrease in interest expense partially offset by a
$324,000 decrease in interest income, each as compared to the
fourth quarter of 2007. The increase in net interest income was
attributable primarily to a 75 basis point increase in interest
rate spread and a $21.1 million increase in interest-earning
assets. The average cost of the Company's interest-bearing
liabilities decreased by 189 basis points, from 3.74% in the fourth
quarter of 2007 to 1.85% in the fourth quarter of 2008. This
decrease exceeded the decline of 114 basis points in the average
yield of interest earning assets, which decreased from 6.19% in the
fourth quarter of 2007 to 5.05% in the fourth quarter of 2008.
Provision for Loan Losses. The Company's provision for loan losses
for the three months ended December 31, 2008 was $385,000, compared
to no provision for the three months ended December 31, 2007. The
increase in the provision for loan losses in the fourth quarter of
2008 was largely as a result of $329,000 in net charge-offs
incurred during the period. Noninterest Income. Total noninterest
income decreased by $374,000, from $620,000 in the fourth quarter
of 2007 to $246,000 in the fourth quarter of 2008, primarily
attributable to $345,000 recorded in the fourth quarter of 2007 in
connection with the Company's settlement with a former professional
services provider which did not recur in the 2008 fourth quarter.
Noninterest Expense. Total noninterest expense decreased by $64,000
in the fourth quarter of 2008 compared to the fourth quarter of
2007, primarily related to a $36,000 decrease in professional fees,
a $30,000 decrease in courier expense and an $18,000 decrease in
compensation expense. Professional fees in the fourth quarter of
2007 included $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
Sarbanes-Oxley requirements. Income Taxes. The Company's income tax
expense for the quarter ended December 31, 2008 was $35,000,
compared to income tax expense of $188,000 for the fourth quarter
of 2007. Financial Condition of the Company Total Assets. The
Company's total assets increased by $44.3 million, or 20.0%, from
$221.2 million at December 31, 2007 to $265.5 million at the end of
2008. Federal Funds Sold and Investment Securities. Total federal
funds sold and investment securities increased by $21.1 million,
from $47.7 million at December 31, 2007 to $68.8 million at
December 31, 2008, primarily attributable to an increase in
mortgage-backed security balances. During the fourth quarter of
2008, the Company purchased $27.9 million of FNMA and FHLMC
mortgage-backed securities, including $15.8 million that settled in
January 2009 and are reflected on the attached (unaudited) balance
sheet as pending settlement at December 31, 2008. At December 31,
2008, the Company's $60.7 million balance of available for sale
securities consisted of $2.3 million of balloon and $58.4 million
of new and seasoned ten-year fully amortizing FNMA and FHLMC
mortgage backed securities. Loans. Loans held for investment at
December 31, 2008 were $176.6 million, which represents an increase
of $22.7 million, or 14.8%, from the loan balance of $153.9 million
at December 31, 2007. Asset Quality. The Company's total
nonperforming assets were $219,000, or 0.08% of assets, at December
31, 2008, compared to $163,000, or 0.07% of assets, at December 31,
2007. The increase was attributable to an increase of $178,000 in
the balance of other real estate owned, partially offset by a
$122,000 decrease in nonperforming loans. Deposits. Total year-end
deposits increased by $29.8 million, or 16.0%, from $186.0 million
at December 31, 2007 to $215.8 million at December 31, 2008. Core
deposits, which are comprised of noninterest-bearing, money market,
NOW and savings deposits, increased by $28.7 million, or 21.4%,
from $134.4 million at December 31, 2007 to $163.1 million at
December 31, 2008. Certificate of deposit balances also increased
by $1.1 million between the two twelve-month periods. Average total
deposits increased by $7.7 million, or 4.1%, from $188.5 million
during the twelve months ended December 31, 2007 to $196.2 million
during the twelve months ended December 31, 2008. Average core
deposits increased by $11.2 million, offset by a $3.5 million
decrease in the average balance of certificates of deposit, between
the comparable twelve-month periods. Borrowed Funds. Borrowed funds
decreased by $2.0 million, from $8.2 million at December 31, 2007
to $6.2 million at December 31, 2008, attributable to a decrease in
the balance of FHLB advances. Other Liabilities. The Company's
$17.3 million balance of other liabilities at December 31, 2008
includes $15.8 million reflecting the January 2009 settlement of
the mortgage-backed securities purchase as described above. The
Company funded the settlement with a combination of deposits and
FHLB advances. Capital. Stockholders' equity increased by $761,000,
or 3.0%, from $25.1 million at December 31, 2007 to $25.9 million
at December 31, 2008. 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 2008 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 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-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
December 31, ----------------- 2008 2007 ---- ---- (unaudited)
(audited) ASSETS Cash and due from banks $5,304 $5,463 Federal
funds sold 8,114 8,957 Securities available for sale, at fair value
44,848 38,115 Securities available for sale, at fair value -
pending settlement 15,894 - Securities held to maturity, at cost -
676 Loans, net Held for investment, net of allowance for loan
losses 176,562 153,850 Held for sale - 878 Accrued interest
receivable 735 812 Stock in Federal Reserve Bank, at cost 323 313
Stock in Federal Home Loan Bank of Atlanta, at cost 622 716
Premises and equipment, net 11,908 9,963 Other real estate owned
178 - Other assets 1,006 1,503 ----- ----- Total assets $265,494
$221,246 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities Deposits Noninterest-bearing $53,988 $48,390
Interest-bearing 161,794 137,624 ------- ------- Total deposits
215,782 186,014 ------- ------- Federal Home Loan Bank Advance
5,000 7,000 Securities sold under agreements to repurchase 1,247
1,131 Other borrowings 1 50 Accrued interest payable 236 321 Other
liabilities 17,342 1,605 ------ ----- Total liabilities 239,608
196,121 ------- ------- Stockholders' equity Common stock, $5 par
value - authorized 3,000,000 shares; issued and outstanding:
2,279,252 shares at December 31, 2008; 2,278,652 shares at December
31, 2007 11,396 11,393 Additional paid-in capital 6,330 6,173
Retained earnings 7,486 7,345 Accumulated other comprehensive
income, net 674 214 --- --- Total stockholders' equity 25,886
25,125 ------ ------ Total liabilities and stockholders' equity
$265,494 $221,246 ======== ======== HERITAGE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share
data) Three Months Ended Twelve Months Ended December 31 December
31 ----------- ----------- 2008 2007 2008 2007 ---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (audited) Interest income Loans
and fees on loans $2,450 $2,511 $9,848 $9,963 Taxable investment
securities 450 474 1,663 1,888 Nontaxable investment securities -
13 33 50 Dividends on FRB and FHLB stock 5 11 47 44 Interest on
federal funds sold 8 229 143 817 Other interest income 4 3 7 12 - -
- -- Total interest income 2,917 3,241 11,741 12,774 Interest
expense Deposits 729 1,353 3,476 5,199 Borrowings 36 13 236 81 --
-- --- -- Total interest expense 765 1,366 3,712 5,280 Net interest
income 2,152 1,875 8,029 7,494 Provision for loan losses 385 - 453
105 --- - --- --- Net interest income after provision for loan
losses 1,767 1,875 7,576 7,389 ----- ----- ----- ----- Noninterest
income Service charges on deposit accounts 99 126 415 506 Late
charges and other fees on loans 9 15 52 66 Gains on sale of loans
held for sale, net - 23 92 120 Gains on sale of investment
securities - - 528 1 Gain on sale of fixed assets 5 - 6 530 Gain on
sale of other real estate owned 37 - 37 - Settlement with a former
professional services provider - 345 - 345 Other 96 111 328 410 --
--- --- --- Total noninterest income 246 620 1,458 1,978
Noninterest expense Compensation 998 1,016 4,089 4,179 Occupancy
199 209 798 781 Furniture and equipment 135 145 555 531 Data
processing 119 133 527 519 Professional fees 116 152 347 438 Taxes
and licenses 66 54 270 217 Marketing 10 16 119 138 Telephone 26 25
101 119 Stationery and supplies 21 22 79 131 FDIC insurance 32 27
96 65 Loss on disposal or impairment of fixed assets 2 5 70 67 Loss
on sale of Investment securities - 4 10 4 Other 183 163 894 779 ---
--- --- --- Total noninterest expense 1,907 1,971 7,955 7,968
Income before provision for income taxes 106 524 1,079 1,399
Provision for income taxes 35 188 391 479 -- --- --- --- Net income
$71 $336 $688 $920 === ==== ==== ==== Earnings per common share
Basic $0.03 $0.15 $0.30 $0.40 ===== ===== ===== ===== Diluted $0.03
$0.15 $0.30 $0.40 ===== ===== ===== ===== Dividends per share $0.06
$0.06 $0.24 $0.24 ===== ===== ===== ===== Weighted average shares
outstanding - basic 2,279,252 2,278,652 2,278,849 2,278,579 Effect
of dilutive stock options 13,431 15,746 15,471 15,965 ------ ------
------ ------ Weighted average shares outstanding - assuming
dilution 2,292,683 2,294,398 2,294,320 2,294,544 =========
========= ========= ========= HERITAGE BANKSHARES, INC. OTHER
SELECTED FINANCIAL INFORMATION (Unaudited) (in thousands, except
share and per share data) Three Months Ended Twelve Months Ended
December 31, December 31, ------------ ------------ 2008 2007 2008
2007 ---- ---- ---- ---- Financial ratios Annualized return on
average assets 0.11% 0.60% 0.30% 0.42% Annualized return on average
equity 1.11% 5.36% 2.71% 3.74% Average equity to average assets
10.20% 11.10% 10.90% 11.36% Equity to assets, at period-end 9.75%
11.36% 9.75% 11.36% Net interest margin 3.73% 3.58% 3.74% 3.72%
Bank Capital Ratios Tier 1 leverage ratio 10.03% 10.81% 10.03%
10.81% Tier 1 risk-based capital ratio 12.37% 13.81% 12.37% 13.81%
Total risk-based capital ratio 13.20% 14.61% 13.20% 14.61% Per
common share Earnings per share - basic $0.03 $0.15 $0.30 $0.40
Earnings per share - diluted $0.03 $0.15 $0.30 $0.40 Book value per
share $11.36 $11.03 $11.36 $11.03 Dividends declared per share
$0.06 $0.06 $0.24 $0.24 Common stock outstanding 2,279,252
2,278,652 2,279,252 2,278,652 Weighted average basic shares
outstanding 2,279,252 2,278,652 2,278,849 2,278,579 Weighted
average diluted shares 2,292,683 2,294,398 2,294,320 2,294,544
Asset quality Nonaccrual loans $31 $136 $31 $136 Accruing loans
past due 90 days or more 10 27 10 27 -- -- -- -- Total
nonperforming loans 41 163 41 163 Other real estate owned, net 178
- 178 - --- - --- - Total nonperforming assets $219 $163 $219 $163
==== ==== ==== ==== Nonperforming assets to total assets 0.08%
0.07% 0.08% 0.07% Allowance for loan losses Balance, beginning of
period $1,596 $1,382 $1,400 $1,373 Provision for loan losses 385 -
453 105 Loans charged-off (340) (86) (398) (197) Recoveries 11 104
197 119 -- --- --- --- Balance, end of period $1,652 $1,400 $1,652
$1,400 ====== ====== ====== ====== Allowance for loan losses to
gross loans held for investment, net of unearned fees and costs
0.93% 0.90% 0.93% 0.90% ---- ---- ---- ---- DATASOURCE: Heritage
Bankshares, Inc. CONTACT: John O. Guthrie of Heritage Bankshares,
Inc., +1-757-648-1523 Web Site: http://www.heritagebankva.com/
Copyright