NORFOLK, Va., July 27 /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 2009.
On June 30, 2009 all federally insured financial institutions were required to record a FDIC special assessment expense based primarily on institution assets on that date, and accordingly the Company recorded a special assessment expense of $121,000, or $79,860 after tax, at the end of the second quarter. Excluding this FDIC special assessment, net income, after tax, for the quarter ended June 30, 2009 was $311,000, or $0.14 per diluted share, compared to net income, after tax, of $180,000, or $0.08 per diluted share, for the second quarter of 2008. Excluding the special assessment, net income, after tax, for the first six months of 2009 was $463,000, or $0.20 per diluted share, compared to net income, after tax, of $210,000, or $0.09 per diluted share, for the same period in 2008.
Including the FDIC special assessment expense, net income, after tax, for the quarter ended June 30, 2009 was $231,000, or $0.10 per diluted share, compared to net income, after tax, of $180,000, or $0.08 per diluted share, for the second quarter of 2008; and net income, after tax, for the first six months of 2009 was $383,000, or $0.17 per diluted share, compared to net income, after tax, of $210,000, or $0.09 per diluted share, for the same period in 2008.
Michael S. Ives, President and CEO of the Company and the Bank, commented:
"Excluding the impact of the FDIC Special Assessment, our net income for the second quarter of 2009 improved substantially over our net income for the second quarter of 2008. The primary driver of this improvement was the increase in our net interest income of approximately $500,000 during the first six months of 2009, stemming from our asset growth as well as an improvement in our net interest spread. Furthermore, just as we have stated on many occasions, our noninterest expense has remained somewhat stable as we have increased our assets. In fact, our noninterest expense actually declined comparing the first six months of 2009 to the first six months of 2008, excluding the increase in FDIC assessments during 2009.
Ives continued: "Notwithstanding the ongoing recession, our asset quality continues to be excellent with nonperforming assets constituting only 0.18% of our total assets. Nevertheless, it is probable that there will be some deterioration in our loan portfolio from the recession over time. We will continue to be vigilant to minimize the adverse impact on the Company from any such deterioration, if it were to occur."
Comparison of Operating Results for the Three Months Ended June 30, 2009 and 2008
Overview. The Company's pretax income was $349,000 for the second quarter of 2009, compared to a pretax income of $283,000 for the second quarter of 2008. Compared to the second quarter of 2008, net interest income increased by $263,000, provision for loan losses increased by $21,000, noninterest income increased by $2,000 and noninterest expense increased by $178,000. Net income, after tax, was $231,000, or $0.10 per diluted share, for the three months ended June 30, 2009, compared to net income, after tax, of $180,000, or $0.08 per diluted share, for the three months ended June 30, 2008.
Net Interest Income. The Company's net interest income before provision for loan losses increased by $263,000 in the second quarter of 2009 compared to the second quarter of 2008. This increase was primarily attributable to an increase of $31.3 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 3.07% to 3.31%. Net interest margin decreased by 6 basis points, from 3.80% in the second quarter of 2008 to 3.74% in the second quarter of 2009.
Provision for Loan Losses. Provision for loan losses for the three months ended June 30, 2009 was $21,000 compared to no provision for the three months ended June 30, 2008. Net charge-offs totaled $2,000 in the second quarter of 2009 compared to net recoveries of $100,000 in the second quarter of 2008.
Noninterest Income. Total noninterest income increased by $2,000, from $215,000 in the second quarter of 2008 to $217,000 in the second quarter of 2009. This increase was primarily due to a Bank-owned life insurance net death benefit of $35,000 recorded in the second quarter of 2009, largely offset by a decrease of $10,000 in late charges and other fees on loans and a decrease of $20,000 in gains on sales of mortgage loans held for sale.
Noninterest Expense. Total noninterest expense increased by $178,000, from $2.0 million in the second quarter of 2008 to $2.1 million in the second quarter of 2009. This increase in noninterest expense was driven primarily by a $176,000 increase in FDIC insurance expense, a $22,000 increase in professional fees, a $22,000 increase in shareholder expense and a $23,000 increase in expenses and impairments on other real estate owned, partially offset by a $68,000 decrease in courier expense. The $176,000 increase in FDIC insurance expense included a $121,000 charge for the FDIC's special assessment at June 30, 2009.
Income Taxes. The Company's income tax expense for the quarter ended June 30, 2009 was $118,000, which represented an effective tax rate of 33.8%, compared to income tax expense of $103,000 for the quarter ended June 30, 2008, which represented an effective tax rate of 36.2%. The lower effective tax rate in the second quarter of 2009 was primarily attributable to nontaxable Bank-owned life insurance income recorded in the second quarter of 2009.
Comparison of Operating Results for the Six Months Ended June 30, 2009 and 2008
Overview. The Company's pretax income was $547,000 for the first six months of 2009, compared to a pretax income of $338,000 for the first six months of 2008, an increase of $209,000. Compared to the first six months of 2008, net interest income increased by $525,000, provision for loan losses increased by $76,000, noninterest income decreased by $86,000 and noninterest expense increased by $154,000. Net income, after tax, was $383,000, or $0.17 per diluted share, for the six months ended June 30, 2009, compared to after-tax net income of $210,000, or $0.09 per diluted share, for the six months ended June 30, 2008.
Net Interest Income. The Company's net interest income before provision for loan losses increased by $525,000 for the first six months of 2009 compared to the first six months of 2008. This increase was primarily attributable to an increase of $33.2 million in the average balance of interest-earning assets, which more than offset an increase of $22.8 million in average interest-bearing liabilities, and to an increase in net interest spread from 2.93% to 3.25%. Net interest margin decreased by 5 basis points, from 3.74% for the first six months of 2008 to 3.69% for the first six months of 2009.
Provision for Loan Losses. Provision for loan losses for the six months ended June 30, 2009 was $76,000 compared to no provision for the six months ended June 30, 2008. There were no net recoveries in the six months ended June 30, 2009 compared to $192,000 in net recoveries for the six months ended June 30, 2008.
Noninterest Income. Total noninterest income decreased by $86,000, from $464,000 in the first six months of 2008 to $378,000 in the first six months of 2009. This decrease was primarily related to an $18,000 decrease in service charges on deposits and a $65,000 decrease in gains on sales of mortgage loans held for sale.
Noninterest Expense. Total noninterest expense increased by $154,000, from $4.0 million in the first six months of 2008 to $4.2 million in the first six months of 2009. Increases of $224,000, $54,000, $24,000 and $23,000 in FDIC insurance expense, professional fees, shareholder expense and expenses and impairments on other real estate owned, respectively, were partially offset by decreases of $134,000 and $30,000 in courier expense and compensation expense, respectively.
Income Taxes. The Company's income tax expense for the six months ended June 30, 2009 was $164,000, which represented an effective tax rate of 30.0%, compared to income tax expense for the six months ended June 30, 2008 of $128,000, which represented an effective tax rate of 38.1%. The lower effective tax rate for the first six 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. The effective tax rate for the first six months of 2008 resulted from a higher percentage of net non-deductible items relative to pre-tax income.
Financial Condition of the Company
Total Assets. The Company's total assets increased by $30.8 million, or 13.0%, from $236.4 million at June 30, 2008 to $267.2 million at June 30, 2009. The increase in assets resulted primarily from increases of $17.5 million and $11.3 million in the ending balances of securities available for sale and loans held for investment, respectively.
Funds Sold and Investment Securities. Total federal funds sold and investment securities available for sale were $64.8 million at June 30, 2009, compared to a combined balance of $46.0 million at June 30, 2008, reflecting an increase in the combined balance of $18.8 million, or 40.8%.
Loans. Loans held for investment, net, at June 30, 2009 were $177.4 million, which represents an increase of $11.3 million, or 6.8%, from the June 30, 2008 loan balance of $166.1 million.
Asset Quality. The Company's total nonperforming assets increased to $487,000, or 0.18 % of assets, at June 30, 2009, compared to $36,000, or 0.02% of assets, at June 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 $35.3 million, or 18.1%, from $195.3 million at June 30, 2008 to $230.6 million at June 30, 2009. Core deposits, which are comprised of checking, savings and money market accounts, increased by $34.3 million, or 24.0%, from $142.7 million at June 30, 2008 to $177.0 million at June 30, 2009.
Average total deposits increased by $29.4 million, or 15.5%, from $190.1 million for the six months ended June 30, 2008 to $219.5 million for the six months ended June 30, 2009. Average core deposits increased by $28.2 million and average certificates of deposit balances increased by $1.2 million between the comparable six month periods.
Borrowed Funds. Due to the increase in deposit balances, borrowed funds decreased by $5.4 million, from $14.0 million at June 30, 2008 to $8.6 million at June 30, 2009.
Capital. Stockholders' equity increased by $936,000, or 3.7%, from $25.3 million at June 30, 2008 to $26.2 million at June 30, 2009. Stockholders' equity increased primarily as a result of a $288,000 increase in retained earnings, a $227,000 increase in additional paid-in capital and a $390,000 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 June 30, 2008 decreased by $42,397 compared to the originally-reported amount; and retained earnings at March 31, 2009 decreased by $77,438 compared to the originally-reported amount, after taking into account the tax-effect of the cumulative correction. Further, after-tax net income for the three months ended June 30, 2008 decreased by $4,000, from $184,000, originally reported, to $180,000 (earnings were $0.08 per diluted share both before and after the correction). After-tax net income for the six months ended June 30, 2008 decreased by $21,000, from $231,000, or $0.10 per diluted share as originally reported, to $210,000, or $0.09 per diluted share.
The tables attached to and incorporated within this release present in greater detail certain of the unaudited financial information described above.
Dividend
On July 22, 2009, the Company's Board of Directors declared a $0.06 per share dividend on its common stock. The dividend will be paid on August 14, 2009 to shareholders of record on August 3, 2009.
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, 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 June 30,
----------------------------
2009 2008
----------- -----------
(unaudited) (unaudited)
ASSETS
Cash and due from banks $9,287 $9,020
Federal funds sold 9,302 8,049
Securities available for sale, at fair value 55,461 37,940
Securities held to maturity, at cost - 575
Loans, net
Held for investment, net of allowance
for loan losses 177,359 166,047
Held for sale - 417
Accrued interest receivable 666 704
Stock in Federal Reserve Bank, at cost 324 320
Stock in Federal Home Loan Bank of
Atlanta, at cost 1,476 983
Premises and equipment, net 12,112 11,090
Other real estate owned 165 -
Other assets 1,028 1,216
-------- --------
Total assets $267,180 $236,361
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $76,392 $58,896
Interest-bearing 154,270 136,417
-------- --------
Total deposits 230,662 195,313
-------- --------
Federal Home Loan Bank Advances 5,000 13,000
Securities sold under agreements
to repurchase 3,626 919
Other borrowings - 50
Accrued interest payable 194 247
Other liabilities 1,500 1,570
-------- --------
Total liabilities 240,982 211,099
-------- --------
Stockholders' equity
Common stock, $5 par value -
authorized 3,000,000 shares;
issued and outstanding: 2,284,852
shares at June 30, 2009; 2,278,652
shares at June 30, 2008 11,424 11,393
Additional paid-in capital 6,474 6,247
Retained earnings 7,548 7,260
Accumulated other comprehensive
income, net 752 362
-------- --------
Total stockholders' equity 26,198 25,262
-------- --------
Total liabilities and stockholders'
equity $267,180 $236,361
======== ========
HERITAGE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -----------------------
2009 2008 2009 2008
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
Interest income
Loans and fees on
loans $2,259 $2,426 $4,469 $4,943
Taxable investment
securities 610 441 1,176 905
Nontaxable investment
securities - 13 - 25
Dividends on FRB and
FHLB stock 5 14 10 32
Interest on federal
funds sold - 43 1 82
Other interest income 14 1 24 3
----------- ----------- ----------- -----------
Total interest income 2,888 2,938 5,680 5,990
Interest expense
Deposits 564 874 1,167 1,931
Borrowings 36 39 75 146
----------- ----------- ----------- -----------
Total interest expense 600 913 1,242 2,077
Net interest income 2,288 2,025 4,438 3,913
Provision for loan losses 21 - 76 -
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 2,267 2,025 4,362 3,913
----------- ----------- ----------- -----------
Noninterest income
Service charges on
deposit accounts 95 99 187 205
Late charges and other
fees on loans 11 21 23 33
Gains on sale of loans
held for sale, net 3 23 3 68
Gain on sale of investment
securities - - - 5
Income from bank-owned
life insurance 35 - 35 -
Other 73 72 130 153
----------- ----------- ----------- -----------
Total noninterest income 217 215 378 464
Noninterest expense
Compensation 1,003 1,012 2,054 2,084
Data processing 132 141 259 276
Occupancy 204 192 422 406
Furniture and equipment 166 140 327 288
Taxes and licenses 69 64 136 132
Professional fees 87 65 214 160
FDIC insurance 208 32 288 64
Marketing 29 40 55 77
Telephone 26 25 54 51
Stationery and supplies 13 26 35 45
Other 198 220 349 456
----------- ----------- ----------- -----------
Total noninterest expense 2,135 1,957 4,193 4,039
Income before provision
for income taxes 349 283 547 338
Provision for income taxes 118 103 164 128
----------- ----------- ----------- -----------
Net income $231 $180 $383 $210
=========== =========== =========== ===========
Earnings per common share
Basic $0.10 $0.08 $0.17 $0.09
=========== =========== =========== ===========
Diluted $0.10 $0.08 $0.17 $0.09
=========== =========== =========== ===========
Dividends per share $0.06 $0.06 $0.12 $0.12
=========== =========== =========== ===========
Weighted average shares
outstanding - basic 2,283,115 2,278,652 2,281,184 2,278,652
Effect of dilutive
stock options 13,199 11,898 11,820 15,116
----------- ----------- ----------- -----------
Weighted average shares
outstanding - diluted 2,296,314 2,290,550 2,293,004 2,293,768
=========== =========== =========== ===========
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,
-------------------- --------------------
2009 2008 2009 2008
--------- --------- --------- ---------
Financial ratios
Annualized return on
average assets 0.35% 0.31% 0.30% 0.19%
Annualized return on
average equity 3.54% 2.84% 2.96% 1.65%
Average equity to
average assets 9.99% 10.98% 10.02% 11.20%
Equity to assets,
at period-end 9.81% 10.69% 9.81% 10.69%
Net interest margin 3.74% 3.80% 3.69% 3.74%
Per common share
Earnings per share - basic $0.10 $0.08 $0.17 $0.09
Earnings per share - diluted $0.10 $0.08 $0.17 $0.09
Book value per share $11.47 $11.09 $11.47 $11.09
Dividends declared per share $0.06 $0.06 $0.12 $0.12
Common stock outstanding 2,284,852 2,278,652 2,284,852 2,278,652
Weighted average shares
outstanding - basic 2,283,115 2,278,652 2,281,184 2,278,652
Weighted average shares
outstanding - diluted 2,296,314 2,290,550 2,293,004 2,293,768
Asset quality
Nonaccrual loans $111 $- $111 $-
Accruing loans past due
90 days or more 8 36 8 36
--------- --------- --------- ---------
Total nonperforming loans 119 36 119 36
Restructured loans 203 - 203 -
Other real estate owned, net 165 - 165 -
--------- --------- --------- ---------
Total nonperforming assets $487 $36 $487 $36
========= ========= ========= =========
Nonperforming assets to
total assets 0.18% 0.02% 0.18% 0.02%
Allowance for loan losses
Balance, beginning of period $1,709 $1,492 $1,652 $1,400
Provision for loan losses 21 - 76 -
Loans charged-off (22) (1) (30) (1)
Recoveries 20 101 30 193
--------- --------- --------- ---------
Balance, end of period $1,728 $1,592 $1,728 $1,592
========= ========= ========= =========
Allowance for loan losses to
gross loans held for
investment, net of unearned
fees and costs 0.96% 0.95% 0.96% 0.95%
--------- --------- --------- ---------
SOURCE Heritage Bankshares, Inc.
