NORFOLK, Va., Oct. 30 /PRNewswire-FirstCall/ -- Heritage
Bankshares, Inc. ("Heritage"; the "Company") (Pinksheets: HBKS),
the parent of Heritage Bank (the "Bank"), today announced unaudited
financial results for the third quarter, and first nine months, of
2006. For the three months ended September 30, 2006, the Company
recorded a net income of $98,000 or $0.05 per diluted share, and
for the nine months ended September 30, 2006, the Company earned
$221,000, or $0.12 per diluted share. Michael S. Ives, President
and CEO of the Company and the Bank, commented: "During the third
quarter, we have continued to make progress on our operational and
accounting issues. We implemented an improved repurchase agreement
account for our larger customers. Our accounting records have now
been adjusted to resolve all known issues. We expect to file our
2005 10-KSB in November and given our confidence in the timing of
this filing, we have scheduled our combined Annual Meetings for
2005 and 2006 for December 28, 2006. Furthermore, we expect to file
our 2006 10-KSB in a timely manner in March of next year and to
hold our 2007 Annual Meeting at an appropriate date thereafter.
"For the fourth quarter, we will continue to focus on filing our
regulatory reports and other organizational issues. We expect to be
able to devote our primary energies to business development in
2007, with a particular focus on growing our core deposits. For our
Company to succeed financially, we must have substantial growth in
our core deposits in 2007." Operating Results for the Quarter Ended
September 30, 2006 The Company recorded net income, after tax, for
the quarter ended September 30, 2006 of $98,000, or $0.05 per
diluted share. The pre-tax income was $148,000 and was comprised of
net interest income of $1.8 million, provision for loan losses of
$31,000, noninterest income of $300,000 and noninterest expense of
$1.9 million. Contract employee services for the third quarter were
$19,000, primarily related to expenses for consultants and contract
accounting staff utilized in resolving the Company's accounting
issues. Operating Results for the Nine Months Ended September 30,
2006 Net income, after tax, for the nine months ended September 30,
2006 was $221,000, or $0.12 per diluted share. The Company's
pre-tax income was $318,000. Net interest income for the nine-month
period was $5.3 million. Provision for loan loss recorded for the
nine months ended September 30, 2006 was $48,000. Noninterest
income for the nine months was $1.1 million, which included gains
on sale of $96,000 and $34,000 related to the sale of the Bank's
retail credit card portfolio and equity securities held by the
Company, respectively. Noninterest expense for the nine months was
$6.0 million and was impacted by $81,000 in legal expense
associated with the Company's restatement, as well as $205,000 of
contract employee services, primarily related to expenses for
consultants and contract accounting staff utilized in the Company's
restatement process. In addition, the Company recorded an $8,000
loss related to the sale of equity securities. Financial Condition
of the Company For the first nine months of 2006, total assets grew
to $217 million at September 30, 2006, an increase of $12 million
from $205 million in total assets at December 31, 2005. Net loans
held for investment at September 30, 2006 increased by $4.7 million
to $135.1 million, compared to $130.4 million at December 31, 2005.
Federal funds sold and investment securities increased by a total
of $8 million, from $56 million at December 31, 2005, to $64
million at September 30, 2006. The Bank's deposit growth continued
during the first nine months of 2006. Total deposits increased by
$7.8 million to $180.6 million at September 30, 2006, compared to
$172.8 million at December 31, 2005. Of particular note, total
noninterest bearing deposits increased by $5.4 million to $43.4
million at September 30, 2006 from $38.0 million at the end of
2005. Furthermore, total transaction deposits have increased in the
first nine months of 2006, growing by $15.0 million in the period,
from $101.7 million at December 31, 2005 to $116.7 million at
September 30, 2006. Total borrowings increased by $1.8 million to
$16.1 million at September 30, 2006, compared to $14.3 million at
December 31, 2005. Retail repurchase agreement balances decreased
by $3.2 million during the period, but the decrease was offset in
its entirety by a $5.0 million unsecured, 5-year term loan obtained
by the Company in September 2006. The Company contributed the
proceeds of the loan to the capital of the Bank. In October 2006,
the Company repaid, without penalty, its $10 million FHLB advance
to reduce its level of liquidity. The Company's total nonperforming
assets at September 30, 2006 were $215,000, or 0.10% of assets,
approximately the same level as that at December 31, 2005. Capital.
Stockholders' equity increased by $3 million, or 19%, from $16.1
million at December 31, 2005 to $19.1 million at September 30,
2006. Stockholders' equity increased primarily as a result of $2.1
million in net proceeds received on June 30, 2006 by the Company in
connection with the first of two closings under a sale of the
Company's common stock in a private placement. In the second
closing on July 31, 2006, the Company received additional net
proceeds of $729,000. Including both the first and second closings
under the private placement, the Company sold a total of 185,584
shares and received total proceeds of approximately $2.9 million.
Subject to shareholder approval, the Company's Board of Directors
has approved the Heritage 2006 Equity Incentive Plan ("2006
Incentive Plan"), which authorizes the grant of stock options,
stock appreciation rights, restricted stock and certain other
equity awards with respect to not more than 250,000 shares of the
Company's common stock. Also, subject to shareholder approval of
the 2006 Incentive Plan, the Board of Directors has granted 70,000
stock options to Mr. Ives at an exercise price of $15.56; a total
of 24,000 stock options to certain of its nonemployee directors at
an exercise price of $18.67; and a total of 74,000 stock options to
certain other executives of the Company at an exercise price of
$16.65. The 2006 Incentive Plan and the outstanding option grants
thereunder are subject to the approval of the shareholders of the
Company within twelve (12) months after July 26, 2006. Concurrently
with its approval of the 2006 Incentive Plan, the Board of
Directors terminated the Company's ability to issue new awards
under its existing 1987 Stock Option Plan and 1999 Stock Option
Plan, pending the approval by the Company's shareholders of the
2006 Incentive Plan. FAS No. 123(R), Accounting for Stock-Based
Compensation, requires that the fair value of stock options be
recognized as an expense in the financial statements as services
are performed. As the Company is currently reviewing option
valuation methodologies, it can not at this time predict the
expense impact on results of operations related to the 2006 grants.
The tables attached to and incorporated within this release
present, in greater detail, certain of the unaudited financial
information described above. The 2006 financial information
contained in this release, including the attached tables, is
unaudited and may be adjusted upon completion of review by the
Company's independent accountants. In connection with its
subsequent review of previously reported, preliminary financial
results, the Company has made miscellaneous adjustments to net
income reported for the first and second quarter of 2006, and for
2005. Net income for the first quarter has been revised to a net
loss of $21,500 as compared to a net loss of $12,000 originally
reported; second quarter net income was revised to $145,400
compared to $135,000 as originally reported; and for the first half
of 2006 has been revised to a net income of $123,900 as compared to
$123,000 originally reported. There was no change in basic and
diluted earnings per share originally reported for the first
quarter, second quarter and six months ended June 30, 2006. Net
income for the year 2005 has been revised to $809,000 from $840,000
as originally reported. Basic and diluted earnings per share
decreased $0.02 from the originally reported, preliminary figures,
from $0.49 and $0.48 to $0.47 and $0.46, respectively.
Comprehensive financial results from 2005 will be included in the
Company's forthcoming annual report on Form 10-KSB. About Heritage
Heritage is the parent company of Heritage Bank
(http://www.heritagebankva.com/). Heritage Bank has four
full-service branches in the city of Norfolk, and one full-service
branch in the city of Virginia Beach. Heritage Bank provides a full
range of banking services including business, personal and mortgage
loans. Forward Looking Statements The press release contains
statements that constitute "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements address future events,
developments or results and typically use words such as believe,
anticipate, expect, intend, plan, forecast, outlook, or estimate.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause Heritage's actual
results, performance, achievements, and business strategy to differ
materially from the anticipated results, performance, achievements
or business strategy expressed or implied by such forward-looking
statements. Factors that could cause such actual results,
performance, achievements and business strategy to differ
materially from anticipated results, performance, achievements and
business strategy include: general and local economic conditions,
competition, capital requirements of the planned expansion,
customer demand for Heritage's banking products and services, and
the risks and uncertainties described in Heritage's most recent
Form 10-KSB filed with the Securities and Exchange Commission.
Heritage disclaims any intention or obligation to update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise. Selected Financial
Information (Dollars in thousands, except per share data)
Consolidated Statements of Income For the For the Three Nine Months
Months Ended Ended 09/30/2006 09/30/2006 Interest Income Interest
and fees on loans $2,421 $7,213 Interest and dividends on
investment securities Available for sale 258 374 Held to maturity
17 50 Total interest on investment securities 275 424 Dividends on
FRB and FHLB stock 14 38 Interest on federal funds sold 493 1,523
Total interest income 3,203 9,198 Interest expense Interest on
deposits 1,268 3,475 Interest on borrowings 144 437 Total interest
expense 1,412 3,912 Net interest income 1,791 5,286 Provision for
loan losses 31 48 Net interest income after provision for loan
losses 1,760 5,238 Noninterest income Service charges on deposits
169 483 Gain on sale of mortgage loans, net 46 128 Gain on sale of
securities -- 34 Gain on sale of credit cards -- 96 Late charges
and other fees on loans 19 73 Other 66 237 Total noninterest income
300 1,051 Noninterest expense Compensation 1,034 3,061 Professional
fees 109 400 Furniture and equipment expense 142 440 Contract
employee services 19 205 Data processing 126 387 Occupancy expenses
127 378 Marketing 46 170 Taxes and licenses 45 139 Loss on sale of
securities -- 8 Other 264 783 Total noninterest expense 1,912 5,971
Income before income taxes 148 318 Income tax expense 50 97 Net
income $98 221 Earnings per share: Basic $0.05 $0.12 Diluted $0.05
$0.12 Basic weighted average shares outstanding 1,903,695 1,778,940
Effect of dilutive stock options 31,607 35,750 Diluted weighted
average shares outstanding 1,935,302 1,814,690 Consolidated Balance
Sheet At September 30, 2006 ASSETS Cash and due from banks $7,538
Federal funds sold 17,281 Securities available for sale 46,104
Securities held to maturity 680 Loans, net 135,112 Loans held for
sale 290 Accrued interest receivable 679 Stock in Federal Home Loan
Bank, at cost 859 Stock in Federal Reserve Bank, at cost 65
Premises and equipment, net 6,796 Other real estate owned -- Other
assets 1,314 Total assets $216,718 LIABILITIES AND STOCKHOLDERS'
EQUITY Liabilities Deposits Noninterest bearing deposits $43,340
Interest-bearing deposits 137,267 Total deposits 180,607 Securities
sold under agreements to repurchase 1,009 Notes payable 5,000
Federal Home Loan Bank Advance 10,000 Other borrowings 50 Accrued
interest payable 392 Other liabilities 554 Total liabilities
197,612 Stockholders' equity Common stock, $5 par value 9,638
Additional paid-in capital 2,335 Retained earnings 7,129
Accumulated other comprehensive income (loss), net 4 Total
stockholders' equity 19,106 Total liabilities and stockholders'
equity $216,718 Other Selected Financial Information At or for the
Quarter Ended September 30, 2006 Book value per share $9.91 Common
stock outstanding 1,927,652 Net interest margin (for the 9 months
ended 9/30/06, the net interest margin was 3.63%) 3.58% Asset
Quality: Nonaccrual loans $185 Accruing loans past due 90 days or
more 30 Total nonperforming loans 215 Real estate owned, net --
Total nonperforming assets $215 Nonperforming assets to total
assets 0.10% Allowance for Loan Losses: Balance, June 30, 2006
$1,300 Provision for loan losses 31 Loans charged-off (7)
Recoveries 24 Balance, September 30, 2006 $1,348 Allowance for loan
losses to loans held for investment, net of unearned fees and costs
0.99% DATASOURCE: Heritage Bankshares, Inc. CONTACT: Michael S.
Ives of Heritage Bankshares, Inc., +1-757-523-2651 Web site:
http://www.heritagebankva.com/
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