2014

Heritage Bankshares, Inc. Announces a Record Third Quarter and First Nine Months 2013 Net Income

NORFOLK, Va., Oct. 23, 2013 /PRNewswire/ -- Heritage Bankshares, Inc. ("Heritage"; the "Company") (OTCQB: HBKS), the parent of Heritage Bank (the "Bank"), today announced unaudited financial results for the third quarter and first nine months of 2013.

The Company's net income for the third quarter of 2013 was a record $724,000 compared to net income of $693,000 for the third quarter of 2012, an increase of $31,000.  Net income available to common shareholders was $704,000 for the third quarter of 2013, an increase of $31,000 from net income available to common shareholders of $673,000 for the third quarter of 2012.  Earnings per diluted common share increased $0.01 to $0.30 for the third quarter of 2013 compared to $0.29 for the third quarter of 2012.

The Company's net income for the first nine months of 2013 was $1,844,000, a decrease of $21,000 over net income of $1,865,000 for the first nine months of 2012.  For the first nine months of 2013, the Company's earnings per diluted common share were $0.75 compared to $0.76 for the first nine months of 2012, a decrease of $0.01 per share.

Michael S. Ives, President and CEO of the Company and the Bank, commented:

"During the third quarter, the Company continued to focus on its basic core banking business.  In addition, the Company further improved its operating efficiency with the seamless closings of its former Ocean View and Military Highway branches.

"From our various initiatives to become more efficient, we reduced our noninterest expense from $2.00 million in the third quarter of 2012 to $1.74 million in the third quarter of 2013, a decrease of $0.26 million, or 13%.  This is the third consecutive year in which there has been a decline in the Company's noninterest expense in the third quarter of the year.

"Finally, we are very pleased to announce that the Company's dividend rate for its Small Business Lending Fund ("SBLF") preferred stock has been locked in at 1% through the end of 2015.  The SBLF preferred stock is by far the cheapest form of additional capital for the benefit of our common stockholders for the next two years.  Thereafter, the Company plans to redeem its SBLF preferred stock with the then most advantageous combination of retained earnings and/or various other capital or debt instruments."

Comparison of Operating Results for the Three Months Ended September 30, 2013 and 2012

Overview.   The Company's pretax income was $991,000 for the third quarter of 2013, compared to pretax income of $981,000 for the third quarter of 2012, an increase of $10,000.  A $260,000 decrease in noninterest expense offset a $224,000 decrease in net interest income after provision for loan losses and a $26,000 decrease in noninterest income.

Net Interest Income.  The Company's net interest income before provision for loan losses decreased by $224,000, comparing the third quarters of 2013 and 2012.  Our average loan portfolio increased by $4.9 million, from $212.0 million in the third quarter of 2012 to $216.9 million in the third quarter of 2013, while our average certificates of deposit ("CDs") in other financial institutions increased by $40.6 million and our average investment in securities and other interest-earning assets (excluding loans and CDs) decreased by $42.0 million, for a net increase in interest-earning assets of $3.5 million comparing the two quarters.  Average interest-bearing liabilities decreased by $5.6 million from $176.5 million in the third quarter of 2012 to $170.9 million in the third quarter of 2013.  The average yield on our interest-earning assets was adversely impacted by lower yields on loans and other interest-earning assets, which was only partially offset by a decrease in the average cost of our interest-bearing liabilities.  As a result, our interest rate spread decreased by 35 basis points from 3.22% in the third quarter of 2012 to 2.87% in the third quarter of 2013, and our net interest margin decreased by 34 basis points from 3.43% in the third quarter of 2012 to 3.09% in the third quarter of 2013. 

Provision for Loan Losses.  There was no provision for loan losses or charge-offs in either the quarter ending September 30, 2013 or September 30, 2012.

Noninterest Income.  Total noninterest income decreased by $26,000, from $492,000 in the third quarter of 2012 to $466,000 in the third quarter of 2013.  During the third quarter of 2013, a $20,000 decrease in service charges on deposit accounts and a $296,000 decrease in net gains from the sale of investment securities were partially offset by a $106,000 increase in various fees on loans plus a nonrecurring $190,000 gain on the sale of the Company's investment in Bankers Insurance.

Noninterest Expense.  Total noninterest expense was $1,737,000 for the third quarter of 2013, a $260,000, or 13.0%, decrease from the third quarter of 2012, primarily due to decreases of $96,000, $47,000 and $32,000 in compensation, data processing and occupancy expenses, respectively, as well as a variety of other expenses.

Income Taxes.  The Company's income tax expense for the third quarter of 2013 was $267,000, reflecting an effective tax rate of 27.0%, compared to income tax expense of $288,000 and an effective tax rate of 29.4%, for the third quarter of 2012.

Net Income Available to Common Stockholders.  Because of qualified loan production as of September 30, 2013, the dividend rate on our SBLF preferred stock will be 1.0% through December 31, 2015.  Net income available to common stockholders was $704,000 for the third quarter of 2013, compared to $673,000 for the third quarter of 2012, an increase of $31,000, or $0.01 per diluted common share.

Comparison of Operating Results for the Nine Months Ended September 30, 2013 and 2012

Overview.   The Company's pretax income was $2,553,000 for the first nine months of 2013, compared to pretax income of $2,614,000 for the first nine months of 2012, a decrease of $61,000.  A $684,000 reduction in noninterest expense (which is net of a $127,000 charge-off for furniture and fixtures in two branches that will no longer be utilized by the Company) plus a $34,000 increase in noninterest income only partially offset a decrease of $779,000 in net interest income after provision for loan losses.

Net Interest Income.  The Company's net interest income before provision for loan losses decreased by $814,000, comparing the first nine months of 2013 and 2012.  Our average loan portfolio increased by $4.1 million, from $215.0 million in the first nine months of 2012 to $219.1 million in the first nine months of 2013, while our average CDs in other financial institutions increased by $44.0 million and our average investment in securities and other interest-earning assets (excluding loans and CDs) decreased by $31.7 million, for a net increase in interest-earning assets of $16.4 million comparing the two nine-month periods.  Average interest-bearing liabilities increased by $3.6 million from $171.6 million in the first nine months of 2012 to $175.2 million in the first nine months of 2013, resulting primarily from a $4.8 million increase in average interest-bearing deposits.  The average yield on our interest-earning assets was adversely impacted by lower yields on loans and other interest-earning assets, which was only partially offset by a decrease in the average cost of our interest-bearing liabilities.  As a result, our interest rate spread decreased by 53 basis points from 3.52% in the first nine months of 2012 to 2.99% in the first nine months of 2013, and our net interest margin decreased by 56 basis points from 3.75% in the first nine months of 2012 to 3.19% in the first nine months of 2013.

Provision for Loan Losses.  There was no provision for loan losses or charge-offs in the first nine months ending September 30, 2013 compared to a $35,000 provision and net charge-offs of $51,000 for the first nine months ending September 30, 2012.

Noninterest Income.  Total noninterest income increased by $34,000, from $958,000 in the first nine months of 2012 to $992,000 in the first nine months of 2013.  A $234,000 increase in various fees on loans plus a $190,000 gain on the sale of other assets was partially offset by a $292,000 decrease in gains on the sale of investment securities in the first nine months of 2012 and a $49,000 decrease in service charges on deposit accounts between the two periods.

Noninterest Expense.  Total noninterest expense was $5.462 million for the first nine months of 2013, a $684,000 decrease from $6.146 million in the first nine months of 2012.  This reduction is primarily due to decreases of $401,000, $145,000, and $79,000 in compensation, data processing, and occupancy expenses, respectively, as well as a variety of other expenses.  These decreases were offset by a $127,000 charge-off of furniture, fixtures, and equipment in two branches that will no longer be utilized by the Company.

Income Taxes.  The Company's income tax expense for the first nine months of 2013 was $709,000, reflecting an effective tax rate of 27.8%, compared to income tax expense of $749,000 and an effective tax rate of 28.6%, for the first nine months of 2012.

Net Income Available to Common Stockholders.  The dividend rate on our SBLF preferred stock was 1.46% for the first nine months of 2013, resulting in an SBLF preferred stock dividend expense of $86,000, unchanged from the first nine months of 2012.  Net income available to common stockholders was $1,759,000 for the first nine months of 2013, compared to $1,779,000 for the first nine months of 2012, a decrease of $20,000, or $0.01 per diluted common share.

Financial Condition of the Company

Total Assets.  The Company's total assets remained relatively stable between the two periods, decreasing $325,000 from $312.7 million at September 30, 2012 to $312.4 million at September 30, 2013.

Investments.  Overall investments, including overnight interest-bearing deposits in other banks, federal funds sold, CDs in other banks, and investments in securities, decreased by a net of $1.4 million from $73.4 million at September 30, 2012 to $72.0 million at September 30, 2013.  The Company decreased investments in securities and interest-bearing deposits in other banks by $36.4 million.  CDs in other banks increased by $35.0 million.  We made additional investments of our excess liquidity into CDs at other financial institutions because CDs offered higher yields than comparable maturities of securities and, in the event of substantial increases in intermediate-term interest rates, CDs do not require valuation adjustments on our balance sheet and may be redeemed at par with only early withdrawal penalties impacting our income statement.

Loans.  Loans held for investment, net, remained stable comparing the two period ends, and were $213.5 million at September 30, 2013 and $213.1 million at September 30, 2012.

Asset Quality.  Nonperforming assets were $1.3 million, or 0.41% of total assets, at September 30, 2013, compared to $591,000 in nonperforming assets, or 0.19% of total assets, at September 30, 2012.  There were no nonaccrual loans or accruing loans past due 90 days, and other real estate owned consisted of three bank branch sites that we no longer plan to utilize.

Deposits.  Total deposits at September 30, 2013 were $270.8 million compared to $272.6 million at September 30, 2012, a decrease of $1.8 million.  Core deposits, which are comprised of noninterest-bearing, money market, NOW and savings deposits, increased by $6.1 million, or 2.5%, from $247.6 million at September 30, 2012 to $253.7 million at September 30, 2013.  Noninterest-bearing deposits increased by $4.0 million to $105.0 million at September 30, 2013 and, as a percentage of total deposits, noninterest-bearing deposits increased from 37.0% at September 30, 2012 to 38.8% at September 30, 2013.

Average total deposits increased by $15.2 from $265.4 million for the nine-month period ended September 30, 2012 to $280.6 million for the nine-month period ended September 30, 2013.  Average core deposits increased by $27.9 million over the comparable nine-month periods, while CDs decreased by $12.7 million during that same time period.  Average noninterest-bearing deposits increased by $10.4 million, from $97.7 million in the nine-month period ending September 30, 2012 to $108.1 million in the nine-month period ending September 30, 2013.  As a percentage of average total deposits, average noninterest-bearing deposits increased from 36.8% at September 30, 2012 to 38.5% at September 30, 2013.

Borrowed Funds.  Borrowed funds increased by $448,000, from $757,000 at September 30, 2012 to $1.2 million at September 30, 2013.

Capital.  Stockholders' equity increased by $1.1 million, from $37.205 million at September 30, 2012 to $38.263 million at September 30, 2013, primarily due to a $1.2 million increase in retained earnings, partially offset by a $139,000 decrease in accumulated other comprehensive income primarily related to the reduction of our securities available for sale portfolio.  In December 2012, the Company accelerated its normal payment of dividends of $0.06 per share per quarter that it would have otherwise expected to pay during the 2013 calendar year, and declared an additional special dividend of $0.12 per share for a total dividend per share of $0.36.

Certain reclassifications have been made to prior period financial statements to conform them to the current period presentation.

The tables attached to and incorporated within this release present in greater detail certain of the unaudited financial information described above.

Dividends

The Company expects to pay dividends of $19,500 on the preferred stock issued in connection with our participation in the SBLF program.  This dividend shall be payable and paid on January 2, 2014 to the holders of the SBLF preferred stock of record on December 19, 2013 (currently the sole shareholder of record of the SBLF preferred stock is the Secretary of the Treasury).

About Heritage

Heritage is the parent company of Heritage Bank (www.heritagebankva.com).  Heritage Bank has two full service branches in the city of Norfolk, two full-service branches in the city of Virginia Beach, and one full service branch in the city of Chesapeake.

Forward Looking Statements

The press release contains statements that constitute "forward-looking statements".  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  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, 






2013


2012






(unaudited)


(unaudited)

ASSETS














Cash and due from banks



$           7,192


$           5,693

Interest-bearing deposits in other banks




9,558


33,502

Federal funds sold



25


28

   Total cash and cash equivalents




16,775


39,223

Certificates of deposit in other banks




48,633


13,695

Securities available for sale, at fair value 


10,380


26,188

Securities held to maturity, at cost




3,379


-

Loans, net






   Held for investment, net of allowance for loan losses 



213,466


213,082

Accrued interest receivable



467


588

Stock in Federal Reserve Bank, at cost


597


594

Stock in Federal Home Loan Bank of Atlanta, at cost


469


440

Premises and equipment, net



9,445


10,743

Other real estate owned





1,292


591

Bank-owned life insurance





5,832


5,648

Other assets



1,636


1,904

Total assets



$       312,371


$       312,696









LIABILITIES AND STOCKHOLDERS' EQUITY












Liabilities






Deposits






Noninterest-bearing 


$       104,980


$       100,960

Interest-bearing 


165,801


171,664

Total deposits




270,781


272,624





Federal Home Loan Bank Advances

-


-

Securities sold under agreements to repurchase

986


212

Other borrowings





219


545

Accrued interest payable


21


36

Other liabilities



2,101


2,074

Total liabilities




274,108


275,491








Stockholders' equity





   Senior non-cumulative perpetual preferred stock, Series C,





      7,800 shares and outstanding at both September 30, 2013





      and September 30, 2012, respectively




7,800


7,800









Common stock, $5 par value - 6,000,000 shares authorized;




    2,274,550 and 2,275,891 shares issued and outstanding




    at September 30, 2013 and September 30, 2012, respectively

11,373


11,379

Additional paid-in capital


6,766


6,732

Retained earnings


12,338


11,169

Accumulated other comprehensive income(loss), net

(14)


125

Total stockholders' equity


38,263


37,205

Total liabilities and stockholders' equity

$       312,371


$       312,696

 

HERITAGE BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

Three Months Ended


Nine Months Ended


September 30,


September 30,


2013


2012


2013


2012


(unaudited)


(unaudited)


(unaudited)


(unaudited)

Interest income








Interest income and fees on loans

$           2,236


$           2,485


$           6,922


$           7,740

Interest on taxable investment securities

72


174


269


716

Other interest and dividend income

172


61


491


106

Total interest income

2,480


2,720


7,682


8,562









Interest expense








Deposits

214


228


645


702

Borrowings

4


6


14


23

Total interest expense

218


234


659


725









Net interest income

2,262


2,486


7,023


7,837









Provision for loan losses

-


-


-


35









Net interest income after provision for loan losses

2,262


2,486


7,023


7,802









Noninterest income








Service charges on deposit accounts

47


67


146


195

Late charges and other fees on loans

117


11


311


77

Gain on sale of investment securities

(12)


284


(8)


284

Gain on sale of other assets

190


-


190


-

Income from bank-owned life insurance

45


43


131


161

Other

79


87


222


241

Total noninterest income

466


492


992


958









Noninterest expense








Compensation

912


1,008


2,778


3,179

Data processing

113


160


326


471

Occupancy 

189


221


589


668

Furniture and equipment 

136


161


422


446

Taxes and licenses

67


79


202


239

Professional fees

56


57


193


243

FDIC assessment

36


39


126


116

Loss on sale or impairment of fixed assets

(7)


-


127


-

Loss on sale or impairment of other real estate owned

-


(10)


-


41

Other

235


282


699


743

Total noninterest expense

1,737


1,997


5,462


6,146









Income before provision for income taxes

991


981


2,553


2,614









Provision for income taxes

267


288


709


749









Net income 

$              724


$              693


$           1,844


$            1,865

Preferred stock dividend

$              (20)


$              (20)


$              (85)


$               (86)

Net income available to common stockholders

$              704


$              673


$           1,759


$            1,779









Earnings per common share








Basic

$             0.31


$             0.30


$             0.77


$             0.77

Diluted

$             0.30


$             0.29


$             0.75


$             0.76

Dividends per share

$                   -


$             0.06


$                   -


$             0.18









Weighted average shares outstanding - basic

2,274,709


2,275,891


2,276,191


2,295,413

Effect of dilutive equity awards

63,236


54,362


57,817


49,385

Weighted average shares outstanding - diluted

2,337,945


2,330,253


2,334,008


2,344,798

 

HERITAGE BANKSHARES, INC.







OTHER SELECTED FINANCIAL INFORMATION








(Unaudited)








(in thousands, except share, per share data, and ratios)









Three Months Ended


Nine Months Ended


September 30,


September 30,


2013


2012


2013


2012

Financial ratios








Annualized return on average assets (1)

0.90%


0.86%


0.76%


0.81%

Annualized return on average common equity (2)

9.54%


9.38%


8.32%


8.51%

Average equity to average assets

11.88%


11.66%


11.60%


11.99%

Equity to assets, at period-end

12.25%


11.90%


12.25%


11.90%

Net interest margin (3)

3.09%


3.43%


3.19%


3.75%









Per common share








Earnings per share - basic

$               0.31


$               0.30


$               0.77


$               0.77

Earnings per share - diluted

$               0.30


$               0.29


$               0.75


$               0.76

Book value per share

$             13.39


$             12.92


13.39


$             12.92

Dividends declared per share

$                     -


$               0.06


$                     -


$               0.18









Common stock outstanding

2,274,550


2,275,891


2,274,550


2,275,891

Weighted average shares outstanding - basic

2,274,709


2,275,891


2,276,191


2,295,413

Weighted average shares outstanding - diluted

2,337,945


2,330,253


2,334,008


2,344,798









Asset quality








Nonaccrual loans

$                    -


$                    -


$                    -


$                    -

Accruing loans past due 90 days or more

-


-


-


-

Total nonperforming loans

-


-


-


-









Other real estate owned, net

1,292


591


1,292


591









Total nonperforming assets

$             1,292


$                591


$             1,292


$                591









Nonperforming assets to total assets

0.41%


0.19%


0.41%


0.19%

















Allowance for loan losses








Balance, beginning of period

$             2,075


$             2,115


$             2,075


$             2,091

Provision for loan losses

-


-


-


35

Loans charged-off 

-


(40)


-


(71)

Recoveries 

-


-


-


20

Balance, end of period

$             2,075


$             2,075


$             2,075


$             2,075

























Allowance for loan losses to gross loans held for








      investment, net of unearned fees and costs

0.96%


0.96%


0.96%


0.96%

















(1)Return is defined as net income, after tax, before preferred stock dividend divided by average total assets.



(2)Return is defined as net income, after tax, before preferred stock dividend divided by average common equity.



(3)Tax equivalency calculations have been included in the computation of net interest margin and net interest spread.



 

HERITAGE BANKSHARES, INC.








OTHER SELECTED INFORMATION (continued)







(Unaudited)








(in thousands)

















Three Months Ended


Nine Months Ended


September 30,


September 30,


2013


2012


2013


2012









Average balances








Assets








Loans

216,865


211,956


219,126


215,025

Investment securities

15,070


31,317


18,836


40,133

Certificates of deposits in other banks

48,556


7,913


46,648


2,657

Other investments

17,106


42,855


16,115


26,477

Total interest-earning assets

297,597


294,041


300,725


284,292









Liabilities








Noninterest-bearing deposits

108,369


102,077


108,114


97,669

Money market

131,464


130,332


133,465


116,664

NOW accounts

14,579


13,995


15,025


14,228

Savings

4,119


4,151


4,133


4,229

Certificates of deposit

17,639


26,242


19,848


32,587

Total interest-bearing deposits

167,801


174,720


172,471


167,708

Total deposits

276,170


276,797


280,585


265,377

Other borrowings

3,072


1,815


2,774


3,860

Total interest-bearing liabilities

170,873


176,535


175,245


171,568

 

SOURCE Heritage Bankshares, Inc.



RELATED LINKS
http://www.heritagebankva.com

More by this Source


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

 

PR Newswire Membership

Fill out a PR Newswire membership form or contact us at (888) 776-0942.

Learn about PR Newswire services

Request more information about PR Newswire products and services or call us at (888) 776-0942.