NORFOLK, Va., July 29 /PRNewswire-FirstCall/ -- Heritage Bankshares, Inc. ("Heritage"; the "Company") (OTC Bulletin Board: HBKS), the parent of Heritage Bank (the "Bank"), today announced unaudited financial results for the second quarter and first six months of 2010.
Net income for the quarter ended June 30, 2010 was $451,000, compared to net income of $231,000 for the second quarter of 2009, an increase of $220,000, or 95.2%. Net income for the first six months ended June 30, 2010 was $813,000, compared to net income of $383,000 for the same period in 2009, an increase of $430,000, or 112.3%.
After the effect of dividends on TARP preferred stock of $146,000, net income available to common stockholders was $305,000, or $0.13 per diluted share for the quarter ending June 30, 2010. In the quarter ending June 30, 2009, the Company had no preferred stock outstanding and, accordingly, there were no preferred stock dividends; thus, net income available to common stockholders equaled our net income of $231,000, or $0.10 per diluted share. Comparing the second quarter of 2010 with the second quarter of 2009, net income available to common stockholders increased by $74,000, or 32.0%, and earnings per share increased by $0.03 per diluted share, or 30.0%.
For the first six months ending June 30, 2010, after the effect of dividends on TARP preferred stock of $293,000, net income available to common stockholders was $520,000, or $0.23 per diluted share. For the six months ending June 30, 2009, the Company had no preferred stock outstanding and no preferred stock dividends; thus, net income available to common stockholders equaled our net income of $383,000, or $0.17 per diluted share. Comparing the first six months of 2010 with the first six months of 2009, net income available to common stockholders increased by $137,000, or 35.8%, and earnings per share increased by $0.06 per diluted share, or 35.3%.
Michael S. Ives, President and CEO of the Company and the Bank, commented:
"The second quarter of 2010 was another solid quarter for the Company with two noteworthy achievements.
"First, the Company experienced a very rare event relating to asset quality for banks that is even more unusual during a recession. On June 30, 2010, the Company had no real estate owned, no nonaccrual loans, and no loans past due 30 days or more. In other words, on that particular date, the Company had the 'Perfect Game' for bank asset quality.
"Also, in the last two days of June, we added approximately $20 million of loans to our portfolio with a weighted average rate of 6.97%. We expect a significant increase in our net interest income in the third quarter of 2010 and thereafter from these additional loans.
"Overall, we are very pleased with our excellent asset quality, our quarterly earnings improvements this year, and our expectations for significant increases in our net interest income in subsequent quarters."
Comparison of Operating Results for the Three Months Ended June 30, 2010 and 2009
Overview. The Company's pretax income was $701,000 for the second quarter of 2010, compared to a pretax income of $349,000 for the second quarter of 2009, an increase of $352,000. Compared to the second quarter of 2009, net interest income increased by $94,000, provision for loan losses increased by $138,000, noninterest income increased by $218,000, and noninterest expense decreased by $178,000.
Net Interest Income. The Company's net interest income before provision for loan losses increased by $94,000 to $2.4 million in the second quarter of 2010 compared to $2.3 million in the second quarter of 2009. This increase in net interest income was primarily attributable to a decrease in average interest-bearing liabilities of $19.4 million, and an increase in average interest-earning assets of $7.6 million, between the second quarter of 2009 and the second quarter of 2010; these quarter over quarter changes resulted in a net interest spread increase of 7 basis points, from 3.31% for the three months ended June 30, 2009 to 3.38% for the three months ended June 30, 2010.
Additionally, net interest margin increased by 4 basis points, from 3.74% in the second quarter of 2009 to 3.78% in the second quarter of 2010. This increase was driven primarily by a $16.6 million decrease in average interest-bearing deposits, coupled with a $17.2 million increase in average noninterest-bearing deposits.
Provision for Loan Losses. The Company's provision for loan losses in the second quarter of 2010 was $159,000. This increase was attributable to an increase of $17.7 million in total loans in the second quarter of 2010. This amount compared to a provision of $21,000 in the second quarter of 2009. In the second quarter of 2010 there were net recoveries of $23,000, compared to net charge-offs of $2,000 in the second quarter of 2009. There were no nonperforming assets at June 30, 2010 compared to $490,000 at June 30, 2009.
Noninterest Income. Total noninterest income increased by $218,000, from $217,000 in the second quarter of 2009 to $435,000 in the second quarter of 2010, primarily as a result of a $232,000 gain on the sale of investment securities.
Noninterest Expense. Total noninterest expense decreased by $178,000, from $2.1 million in the second quarter of 2009 to $2.0 million in the second quarter of 2010. This decrease in noninterest expense was driven primarily by a $139,000 decrease in FDIC assessments from the second quarter 2009 (the second quarter of 2009 included the special assessment of $121,000 in 2009 that did not recur in 2010).
Income Taxes. The Company's income tax expense for the second quarter of 2010 was $250,000, reflecting an effective tax rate of 35.6%, compared to income tax expense of $118,000 for the second quarter of 2009, reflecting an effective tax rate of 33.8%. The lower effective tax rate in the second quarter of 2009 was attributable to nontaxable life insurance income.
Comparison of Operating Results for the Six Months Ended June 30, 2010 and 2009
Overview. The Company's pretax income was $1,265,000 for the six months ending June 30, 2010, compared to a pretax income of $547,000 for the six months ending June 30, 2009, an increase of $718,000. Compared to the first six months of 2009, net interest income increased by $300,000, provision for loan losses increased by $83,000, noninterest income increased by $511,000, and noninterest expense remained constant.
Net Interest Income. The Company's net interest income before provision for loan losses increased by $300,000 to $4.7 million in the first six months of 2010, compared to $4.4 million in the first six months of 2009. This increase in net interest income was primarily attributable to a decrease in average interest-bearing liabilities of $17.4 million, and an increase in average interest-earning assets of $7.9 million between the first six months of 2009 and the first six months of 2010; these year-to-date over year-to-date changes resulted in a net interest spread increase of 17 basis points, from 3.25% for the six months ended June 30, 2009 to 3.42% for the six months ended June 30, 2010.
Additionally, net interest margin increased by 12 basis points, from 3.69% for the first six months of 2009 to 3.81% for the first six months of 2010. This increase was driven primarily by a $14.5 million decrease in average interest-bearing deposits, coupled with a $15.4 million increase in average noninterest-bearing deposits.
Provision for Loan Losses. The Company's provision for loan losses in the first six months of 2010 was $159,000. This amount compared to a provision of $76,000 in the first six months of 2009. The increase is attributable to a $17.7 million net increase in total loans in the second quarter of 2010.
Noninterest Income. Total noninterest income increased by $511,000, from $378,000 in the first six months of 2009 to $889,000 in the first six months of 2010, primarily as a result of $486,000 of gains on the sale of investment securities.
Noninterest Expense. Total noninterest expense remained constant at $4.2 million for the first six months of 2010 and 2009. Increases in compensation expense of $229,000 were offset by decreases in FDIC assessment, occupancy, and professional fees of $142,000, $45,000, and $41,000, respectively. The decrease in FDIC assessment relates primarily to a special assessment in June 2009 of $121,000 that did not occur in 2010.
Income Taxes. The Company's income tax expense for the first six months of 2010 was $452,000, reflecting an effective tax rate of 35.8%, compared to income tax expense of $164,000 for the first six months of 2009, reflecting an effective tax rate of 30.0%. The lower effective tax rate in the first six months of 2009 was attributable to a $48,000 tax benefit resulting from an increase in non-qualified stock options related to certain stock options that were repriced in the first quarter of 2009 and to nontaxable life insurance income.
Financial Condition of the Company
Total Assets. The Company's total assets increased by $31.7 million, or 11.8%, from $267.2 million at June 30, 2009 to $298.8 million at June 30, 2010. The increase in assets resulted primarily from a $12.3 million, or 22.3%, increase in investment securities available for sale, and an $18.7 million, or 10.5%, increase in loans.
Liquid Assets. Liquid assets, which include cash and cash equivalents and investment securities, increased by $12.1 million from $74.1 million at June 30, 2009 to $86.2 million at June 30, 2010. Investment securities available for sale were $67.8 million at June 30, 2010, compared to $55.5 million at June 30, 2009, an increase of $12.3 million, or 22.3%.
Loans. Loans held for investment, net, were $196.0 million at June 30, 2010, which represents an increase of $18.7 million, or 10.5%, from the loan balance of $177.4 million at June 30, 2009. At the end of June 2010, the Company added to its portfolio $20.2 million in seasoned loans that carry a weighted average rate of 6.97%.
Asset Quality. There were no nonperforming assets at June 30, 2010, compared to $490,000, or 0.18% of assets, at June 30, 2009.
Deposits. At June 30, 2010, increases in noninterest-bearing deposits of $10.5 million more than offset decreases in interest-bearing deposits of $6.8 million for a net increase in total deposits of $3.7 million, or 1.6%, from $230.7 million at June 30, 2009 to $234.4 million at June 30, 2010. Core deposits, which are comprised of noninterest-bearing, money market, NOW and savings deposits, increased by $7.2 million, or 4.1%, from $177.0 million at June 30, 2009 to $184.2 million at June 30, 2010. Certificates of deposit decreased by $3.5 million between the comparable six-month periods.
Average total deposits increased by $0.9 million, or 0.4%, from $219.5 million during the six months ended June 30, 2009 to $220.4 million during the six months ended June 30, 2010. Average core deposits increased by $5.1 million between the comparable six-month periods, partially offset by a $4.2 million decrease in certificates of deposit. In addition, the mix of average noninterest-bearing deposits to average total deposits increased from 27.5% to 34.4% between the first six months of 2009 and 2010, thereby contributing to the improvement in our net interest margin.
Borrowed Funds. Borrowed funds increased by $16.9 million, from $8.6 million at June 30, 2009 to $25.5 million at June 30, 2010, primarily to fund loans added at the end of the second quarter.
Capital. Stockholders' equity increased by $10.9 million, or 41.7%, from $26.2 million at June 30, 2009 to $37.1 million at June 30, 2010. Stockholders' equity increased primarily as a result of an infusion of $10.1 million in TARP funding and a $550,000 increase in retained earnings.
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.
Dividend
On July 28, 2010, Heritage's Board of Directors declared a $0.06 per share dividend on Heritage's common stock. The dividend will be paid on August 20, 2010 to shareholders of record on August 9, 2010.
The same day, the Board of Directors also declared quarterly dividends on the preferred stock issued by Heritage in connection with its participation in the TARP Capital Purchase Program. Specifically, the Board declared (a) a cash dividend in the aggregate amount of $126,287.50 on the outstanding shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A, and (b) a cash dividend in the aggregate amount of $6,817.50 on the outstanding shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series B (collectively, the "Preferred Dividends"). The Preferred Dividends are payable on August 16, 2010 to the U.S. Department of the Treasury, the sole holder of record of such preferred stock.
About Heritage
Heritage is the parent company of Heritage Bank (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, significant increases in capital requirements or other significant changes in regulatory requirements, 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 June 30,
------------
2010 2009
---- ----
(unaudited) (unaudited)
ASSETS
Cash and due from banks $6,258 $4,556
Interest-bearing deposits in other banks 11,670 4,731
Federal funds sold 413 9,302
--- -----
Total cash and cash equivalents 18,341 18,589
Securities available for sale, at fair
value 67,810 55,461
Loans, net
Held for investment, net of allowance for
loan losses 196,023 177,359
Held for sale - -
Accrued interest receivable 780 666
Stock in Federal Reserve Bank, at cost 587 324
Stock in Federal Home Loan Bank of Atlanta,
at cost 1,535 1,476
Premises and equipment, net 11,679 12,112
Other real estate owned - 165
Other assets 2,076 1,028
----- -----
Total assets $298,831 $267,180
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $86,919 $76,392
Interest-bearing 147,449 154,270
------- -------
Total deposits 234,368 230,662
------- -------
Federal Home Loan Bank Advances 23,500 5,000
Securities sold under agreements to
repurchase 2,033 3,626
Accrued interest payable 126 194
Other liabilities 1,673 1,500
----- -----
Total liabilities 261,700 240,982
------- -------
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 June 30,
2010 and June 30, 2009, respectively 10,103 -
Fixed rate cumulative perpetual preferred
stock, Series B,
303 and 0 shares issued and outstanding at
June 30,
2010 and June 30, 2009, respectively 303 -
Common stock, $5 par value -6,000,000
shares authorized;
2,305,402 and 2,284,852 shares issued and
outstanding
at June 30, 2010 and June 30, 2009,
respectively 11,527 11,424
Additional paid-in capital 6,581 6,474
Retained earnings 8,098 7,548
Discount on preferred stock (262) -
Accumulated other comprehensive income, net 781 752
--- ---
Total stockholders' equity 37,131 26,198
------ ------
Total liabilities and stockholders' equity $298,831 $267,180
======== ========
HERITAGE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share
data) Three Months Ended
June 30
-------
2010 2009
---- ----
(unaudited) (unaudited)
Interest income
Loans and fees on loans $2,331 $2,259
Taxable investment securities 393 610
Dividends on FRB and FHLB stock 10 5
Interest on federal funds sold - -
Other interest income 31 14
--- ---
Total interest income 2,765 2,888
Interest expense
Deposits 350 564
Borrowings 33 36
--- ---
Total interest expense 383 600
Net interest income 2,382 2,288
Provision for loan losses 159 21
--- ---
Net interest income after
provision for loan losses 2,223 2,267
----- -----
Noninterest income
Service charges on deposit
accounts 115 95
Late charges and other fees on
loans 16 11
Gain on sale of loans held for
sale - 3
Gain on sale of investment
securities 232 -
Income from bank-owned life
insurance - 35
Other 72 73
--- ---
Total noninterest income 435 217
Noninterest expense
Compensation 1,052 1,003
Data processing 139 132
Occupancy 183 204
Furniture and equipment 151 166
Taxes and licenses 85 69
Professional fees 68 87
FDIC assessment 69 208
Marketing 34 21
Telephone 24 26
Stationery and supplies 21 13
Loss on sale of other real estate
owned (3) 23
Other 134 183
--- ---
Total noninterest expense 1,957 2,135
Income before provision for income
taxes 701 349
Provision for income taxes 250 118
--- ---
Net income $451 $231
Preferred stock dividend and
accretion of discount $(146) $-
----- ---
Net income available to common
stockholders $305 $231
==== ====
Earnings per common share
Basic $0.13 $0.10
===== =====
Diluted $0.13 $0.10
===== =====
Dividends per share $0.06 $0.06
===== =====
Weighted average shares
outstanding -basic 2,301,386 2,283,115
Effect of dilutive stock options 7,736 13,199
----- ------
Weighted average shares
outstanding -diluted 2,309,122 2,296,314
========= =========
(in thousands, except per share
data) Six Months Ended
June 30
-------
2010 2009
---- ----
(unaudited) (unaudited)
Interest income
Loans and fees on loans $4,630 $4,469
Taxable investment securities 794 1,176
Dividends on FRB and FHLB stock 19 10
Interest on federal funds sold - 1
Other interest income 66 24
--- ---
Total interest income 5,509 5,680
Interest expense
Deposits 704 1,167
Borrowings 67 75
--- ---
Total interest expense 771 1,242
Net interest income 4,738 4,438
Provision for loan losses 159 76
--- ---
Net interest income after
provision for loan losses 4,579 4,362
----- -----
Noninterest income
Service charges on deposit
accounts 231 187
Late charges and other fees on
loans 32 23
Gain on sale of loans held for
sale - 3
Gain on sale of investment
securities 486 -
Income from bank-owned life
insurance - 35
Other 140 130
--- ---
Total noninterest income 889 378
Noninterest expense
Compensation 2,281 2,052
Data processing 277 259
Occupancy 377 422
Furniture and equipment 301 327
Taxes and licenses 171 136
Professional fees 173 214
FDIC assessment 146 288
Marketing 65 49
Telephone 47 54
Stationery and supplies 36 35
Loss on sale of other real estate
owned 30 23
Other 299 334
--- ---
Total noninterest expense 4,203 4,193
Income before provision for income
taxes 1,265 547
Provision for income taxes 452 164
--- ---
Net income $813 $383
Preferred stock dividend and
accretion of discount $(293) $-
----- ---
Net income available to common
stockholders $520 $383
==== ====
Earnings per common share
Basic $0.23 $0.17
===== =====
Diluted $0.23 $0.17
===== =====
Dividends per share $0.12 $0.12
===== =====
Weighted average shares
outstanding -basic 2,296,592 2,281,184
Effect of dilutive stock options 7,462 11,820
----- ------
Weighted average shares
outstanding -diluted 2,304,054 2,293,004
========= =========
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,
-------- --------
2010 2009 2010 2009
---- ---- ---- ----
Financial
ratios
Annualized
return on
average
assets (1) 0.67% 0.35% 0.61% 0.30%
Annualized
return on
average
equity (1) 4.90% 3.54% 4.43% 2.96%
Average
equity to
average
assets 13.61% 9.99% 13.75% 10.02%
Equity to
assets, at
period-end 12.43% 9.81% 12.43% 9.81%
Net interest
margin 3.78% 3.74% 3.81% 3.69%
Per common
share
Earnings per
share -
basic $0.13 $0.10 $0.23 $0.17
Earnings per
share -
diluted $0.13 $0.10 $0.23 $0.17
Book value
per share $11.71 $11.47 $11.71 $11.47
Dividends
declared per
share $0.06 $0.06 $0.12 $0.12
Common stock
outstanding 2,305,402 2,284,852 2,305,402 2,284,852
Weighted
average
shares
outstanding
-basic 2,301,386 2,283,115 2,296,592 2,281,184
Weighted
average
shares
outstanding
-diluted 2,309,122 2,296,314 2,304,054 2,293,004
Asset quality
Nonaccrual
loans $- $111 $- $111
Accruing
loans past
due 90 days
or more - 8 - 8
--- --- --- ---
Total
nonperforming
loans - 119 - 119
Restructured
loans - 206 - 206
Other real
estate
owned, net - 165 - 165
--- --- --- ---
Total
nonperforming
assets $- $490 $- $490
=== ==== === ====
Nonperforming
assets to
total assets 0.00% 0.18% 0.00% 0.18%
Allowance for
loan losses
Balance,
beginning of
period $1,750 $1,709 $1,773 $1,652
Provision for
loan losses 159 21 159 76
Loans
charged-off - (22) (24) (30)
Recoveries 23 20 24 30
--- ---
Balance, end
of period $1,932 $1,728 $1,932 $1,728
====== ====== ====== ======
Allowance for
loan losses
to gross
loans held
for
investment,
net of
unearned
fees and
costs 0.98% 0.96% 0.98% 0.96%
---- ---- ---- ----
(1) Return is defined as net income, after tax, before preferred
stock dividend and accretion of discount.
SOURCE Heritage Bankshares, Inc.
