NORFOLK, Va., Jan. 29 /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 of 2009. Net income for the quarter ended December 31,
2009 was $463,000 compared to net income of $67,000 for the fourth
quarter of 2008. After the effect of dividends on preferred stock,
net income available to common stockholders was $317,000, or $0.14
per diluted share, compared to net income available to common
stockholders of $67,000, or $0.03 per diluted share, for the fourth
quarter of 2008. Net income for 2009 was $1,052,000 compared to net
income of $662,000 for 2008. After the effect of dividends on
preferred stock, net income available to common stockholders for
2009 was $896,000, or $0.39 per diluted share, compared to net
income available to common stockholders of $662,000, or $0.29 per
diluted share, for 2008. Net income for 2008 included an after tax
gain of $342,000 on the sale of investment securities in the second
and third quarters. The Company took the unusual step of selling a
large number of securities in the third quarter of 2008 to avoid
any potential impairment of these securities from the turbulence in
the financial markets existing at that time. There were no gains on
the sale of investment securities in 2009. Michael S. Ives,
President and CEO of the Company and the Bank, commented: "In this
difficult economic environment, we are quite pleased with our
results for the fourth quarter. Our net income before preferred
stock dividends for the fourth quarter was $463,000, well in excess
of our net income of $67,000 for the fourth quarter last year.
Furthermore, our asset quality remains excellent, with
nonperforming assets of only 0.11% of assets. "Several years ago,
many community banks grew their real estate loan portfolios rapidly
through aggressive lending practices. Many of these loans had
little or no actual equity in the underlying transactions and
involved high loan-to-value ratios with the calculations of value
based on wildly optimistic assumptions. Absent rare circumstances
such as borrowers with exceptional liquidity or substantial core
deposits with our Bank, we did not compete for these types of
loans. As a result, growth in our loan portfolio has been limited
over the past several years. Our patience and restraint have been
rewarded with strong asset quality in the midst of a severe
recession. "Now, however, in light of changes in the prevailing
lending landscape, loans are more attractive to us and we plan to
increase our lending efforts. Among other changes, borrowers no
longer laugh when we ask for actual equity in transactions;
loan-to-value ratios are now at appropriate levels; and, most
importantly, values are being calculated with reasonable
assumptions for the long term. Furthermore, our low cost of funds
allows us to provide aggressive pricing for loans that meet our
credit criteria. "I have steadfastly maintained my belief that our
net income will grow rapidly as we grow loans and deposits because
of our stable expense base. Our results over the past few years
support this proposition. "Our noninterest expenses were $8.0
million for 2007, $8.0 million for 2008, and $8.1 million
(including the special FDIC assessment of $121,000) for 2009. Over
the same period, our assets grew from $221.2 million at December
31, 2007 to $265.5 million at December 31, 2008 and to $274.6
million at December 31, 2009. Similarly, our net interest income
grew from $7.5 million in 2007 to $8.0 million in 2008 to $9.0
million in 2009. Our expectation is that these trends will continue
in 2010 with only modest increases in operating expenses that we
currently anticipate will be more than offset by increases in our
net interest income from loan and deposit growth. "Some of our
shareholders may still be wondering why our Company would issue
preferred stock to the United States Treasury under the TARP
Capital Purchase Program when so many banks have declined to
participate in TARP or have replaced TARP preferred stock with
dilutive common stock or expensive and dilutive convertible
preferred stock. After months of deliberation and careful financial
analysis, our Board of Directors concluded that the acceptance of
TARP proceeds would be the most cost-effective means for the
Company to grow and still maximize growth in earnings per share.
"More specifically, the increase in our capital base from the
issuance of preferred stock under TARP allows the Company to grow
by at least $80,000,000 in assets. Comparable growth in our capital
through the issuance of new common stock or convertible preferred
stock at the currently depressed valuation levels for community
bank stocks would have resulted in massive dilution to our existing
shareholders, which we avoided through participation in the TARP
program. When the capital markets recover for community banks in
the future, the Company can always repurchase the TARP preferred
stock through some combination of retained earnings, capital loans
and/or the issuance of additional common stock at a much higher
valuation. But until then, the Company can continue to grow its
assets and earnings without capital constraints, and the current
shareholders can benefit from this growth without serious dilution
to their earnings per share." Comparison of Operating Results for
the Three Months Ended December 31, 2009 and 2008 Overview. The
Company's pretax income was $709,000 for the fourth quarter of
2009, compared to pretax income of $100,000 for the fourth quarter
of 2008. Compared to the fourth quarter of 2008, net interest
income increased by $209,000, provision for loan losses decreased
by $357,000, noninterest income decreased by $30,000 and
noninterest expense decreased by $73,000. Net Interest Income. The
Company's net interest income before provision for loan losses
increased by $209,000 to $2.4 million in the fourth quarter of 2009
compared to $2.2 million in the fourth quarter of 2008. This
increase was primarily attributable to an increase of $29.1 million
in the average balance of interest-earning assets, which more than
offset an increase of $861,000 in average interest-bearing
liabilities, and to an increase in net interest spread from 3.20%
to 3.25%. The net interest margin decreased by 10 basis points,
from 3.73% in the fourth quarter of 2008 to 3.63% in the fourth
quarter of 2009. Provision for Loan Losses. Provision for loan
losses for the three months ended December 31, 2009 was $28,000
compared to a $385,000 loan loss provision for the three months
ended December 31, 2008. Noninterest Income. Total noninterest
income decreased by $30,000, from $246,000 in the fourth quarter of
2008 to $216,000 in the fourth quarter of 2009. This decrease was
primarily attributable to net gains of $37,000 on the sale of other
real estate owned in the fourth quarter of 2008 that did not recur
in 2009. Noninterest Expense. Total noninterest expense decreased
by $73,000, from $1.9 million in the fourth quarter of 2008 to $1.8
million in the fourth quarter of 2009. This decrease in noninterest
expense was driven primarily by a $59,000 decrease in compensation
and by a net decrease of $58,000 in a variety of other expenses.
These increases were partially offset by a $45,000 increase in FDIC
insurance expense, which resulted from an increase in FDIC
assessment rates and growth in deposit balances. Income Taxes. The
Company's income tax expense for the quarter ended December 31,
2009 was $246,000, which represented an effective tax rate of
34.7%, compared to income tax expense of $33,000 for the quarter
ended December 31, 2008, which represented an effective tax rate of
32.9%. The higher effective tax rate was primarily attributable to
a higher percentage of net non-deductible items relative to pre-tax
income in the fourth quarter of 2009. Comparison of Operating
Results for the Twelve Months Ended December 31, 2009 and 2008
Overview. The Company's pretax income was $1,593,000 for the twelve
months ended December 31, 2009, compared to pretax income of
$1,039,000 for the twelve months ended December 31, 2008, resulting
in an increase of $554,000. Compared to 2008, net interest income
increased by $1,033,000, provision for loan losses decreased by
$284,000, noninterest income decreased by $666,000 and noninterest
expense increased by $97,000. Net Interest Income. The Company's
net interest income before provision for loan losses increased by
$1,033,000 to $9.1 million for the twelve months ended December 31,
2009 compared to $8.0 million for the twelve months ended December
31, 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 $16.0 million in average
interest-bearing liabilities, and to an increase in net interest
spread from 3.03% to 3.25%. Net interest margin decreased by 8
basis points, from 3.74% for 2008 to 3.66% for 2009. Provision for
Loan Losses. Provision for loan losses for the twelve months ended
December 31, 2009 was $169,000 compared to a $453,000 provision for
the twelve months ended December 31, 2008, a decrease of $284,000.
Net charge-offs in the twelve months ended December 31, 2009 were
$48,000 compared to $201,000 in net charge-offs for the twelve
months ended December 31, 2008. Noninterest Income. Total
noninterest income decreased by $666,000, from $1.4 million in 2008
to $782,000 in 2009. This decrease was primarily due to a $518,000
decrease in net gains on the sale of investment securities, an
$89,000 decrease in gains on sales of mortgage loans held for sale,
and a $37,000 decrease in gains on sale of other real estate owned.
Noninterest Expense. Total noninterest expense increased by
$97,000, from $8.0 million in the twelve months ended December 31,
2008 to $8.1 million in the twelve months ended December 31, 2009.
Increases of $320,000 and $122,000 in FDIC insurance expense and
professional fees, respectively, were partially offset by a
$231,000 decrease in courier expense, a $62,000 decrease in loss on
disposal or impairment of fixed assets, and a $41,000 decrease in
marketing expenses. Income Taxes. The Company's income tax expense
for the twelve months ended December 31, 2009 was $541,000, which
represented an effective tax rate of 34.0%, compared to income tax
expense for the twelve months ended December 31, 2008 of $377,000,
which represented an effective tax rate of 36.3%. The lower
effective tax rate for 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. Financial Condition
of the Company Total Assets. The Company's total assets increased
by $9.1 million, or 3.4%, from $265.5 million at December 31, 2008
to $274.6 million at December 31, 2009. The increase in assets
resulted primarily from increases of $12.5 million and $5.0 million
in the ending balances of cash and cash equivalents and loans,
respectively, partially offset by a decrease of $10.6 million in
securities available for sale. Total Cash and Cash Equivalents and
Investment Securities. Total cash and cash equivalents and
investment securities available for sale were $76.0 million at
December 31, 2009, compared to a combined balance of $74.2 million
at December 31, 2008, reflecting an increase in the combined
balance of $1.9 million. Loans. Loans held for investment, net, at
December 31, 2009 were $181.6 million, which represents an increase
of $5.0 million, or 2.8%, from the December 31, 2008 loan balance
of $176.6 million. Asset Quality. The Company's total nonperforming
assets remained very low but did increase slightly to $314,000, or
0.11% of assets, at December 31, 2009, compared to $219,000, or
0.08% of assets, at December 31, 2008, attributable to an increase
in the balance of other real estate owned. Deposits. Driven by
continued growth in core deposits, total deposits increased by
$13.3 million, or 6.2%, from $215.8 million at December 31, 2008 to
$229.1 million at December 31, 2009. Core deposits, which are
comprised of checking, savings and money market accounts, grew from
$163.1 million at December 31, 2008 to $187.3 million at December
31, 2009, an increase of $24.2 million, or 14.8%. Average total
deposits increased by $27.4 million, or 13.9%, from $196.2 million
for the twelve months ended December 31, 2008 to $223.6 million for
the twelve months ended December 31, 2009. Average core deposits
increased by $27.9 million and average certificate of deposit
balances decreased by $583,000 between the comparable twelve month
periods. Borrowed Funds. Borrowed funds increased by $768,000, from
$6.2 million at December 31, 2008 to $7.0 million at December 31,
2009. Capital. Stockholders' equity increased by $11.0 million, or
42.3%, from $25.8 million at December 31, 2008 to $36.8 million at
December 31, 2009. Stockholders' equity increased primarily as a
result of the $10.1 million of preferred stock issued by the
Company on September 25, 2009 to the U.S. Treasury under its TARP
Capital Purchase Program. Stockholders' equity also increased due
to a $415,000 increase in retained earnings that was largely
attributable to an increase in the net income of the Company.
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 December 31, 2008 decreased by
$47,390 compared to the originally-reported amount. Further, net
income for the three months ended December 31, 2008 decreased by
$3,910, from $71,000, as originally reported, to $67,000 (earnings
were $0.03 per diluted share both before and after the correction).
Net income for the twelve months ended December 31, 2008 decreased
by $26,000, from $688,000 (or $0.30 per diluted share), as
originally reported, to $662,000 (or $0.29 per diluted share). The
tables attached to and incorporated within this release present in
greater detail certain of the unaudited financial information
described above. Dividends On January 27, 2010, the Board of
Directors declared a quarterly dividend on the Company's common
stock in the amount of $.06 per share, payable on February 19, 2010
to shareholders of record on February 8, 2010. The same day, the
Board of Directors also declared quarterly dividends on the
preferred stock issued by the Company 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 February 15, 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
(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, 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 December 31, ----------------- 2009 2008 ----
---- (unaudited) (audited) ASSETS Cash and due from banks $4,598
$4,344 Interest-bearing deposits in other banks 18,674 960 Federal
funds sold 2,668 8,114 ----- ----- Total cash and cash equivalents
25,940 13,418 Securities available for sale, at fair value 50,103
60,742 Loans, net Held for investment, net of allowance for loan
losses 181,544 176,562 Held for sale - - Accrued interest
receivable 747 735 Stock in Federal Reserve Bank, at cost 586 323
Stock in Federal Home Loan Bank of Atlanta, at cost 1,476 622
Premises and equipment, net 11,891 11,908 Other real estate owned
313 178 Other assets 1,954 972 ----- --- Total assets $274,554
$265,460 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities Deposits Noninterest-bearing $76,429 $53,988
Interest-bearing 152,707 161,794 ------- ------- Total deposits
229,136 215,782 ------- ------- Federal Home Loan Bank Advances
5,000 5,000 Securities sold under agreements to repurchase 2,016
1,247 Other borrowings - 1 Accrued interest payable 119 236 Other
liabilities 1,505 17,355 ----- ------ Total liabilities 237,776
239,621 ------- ------- 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 December 31, 2009 and December 31, 2008,
respectively 10,103 - Fixed rate cumulative perpetual preferred
stock, Series B, 303 and 0 shares issued and outstanding at
December 31, 2009 and December 31, 2008, respectively 303 - Common
stock, $5 par value - 6,000,000 shares authorized; 2,291,352 and
2,279,252 shares issued and outstanding at December 31, 2009 and
December 31, 2008, respectively 11,456 11,396 Additional paid-in
capital 6,473 6,330 Retained earnings 7,854 7,439 Discount on
preferred stock (289) - Accumulated other comprehensive income, net
878 674 --- --- Total stockholders' equity 36,778 25,839 ------
------ Total liabilities and stockholders' equity $274,554 $265,460
======== ======== HERITAGE BANKSHARES, INC. CONSOLIDATED STATEMENTS
OF INCOME (in thousands, except per share data) Three Months Ended
Twelve Months Ended December 31 December 31 ----------- -----------
2009 2008 2009 2008 ---- ---- ---- ---- (unaudited) (unaudited)
(unaudited) (audited) Interest income Loans and fees on loans
$2,279 $2,450 $9,015 $9,848 Taxable investment securities 474 450
2,141 1,663 Nontaxable investment securities - - - 33 Dividends on
FRB and FHLB stock 8 5 27 47 Interest on federal funds sold - 8 2
143 Other interest income 44 4 93 7 -- - -- - Total interest income
2,805 2,917 11,278 11,741 Interest expense Deposits 412 729 2,076
3,476 Borrowings 32 36 140 236 -- -- --- --- Total interest expense
444 765 2,216 3,712 Net interest income 2,361 2,152 9,062 8,029
Provision for loan losses 28 385 169 453 -- --- --- --- Net
interest income after provision for loan losses 2,333 1,767 8,893
7,576 ----- ----- ----- ----- Noninterest income Service charges on
deposit accounts 112 99 398 415 Late charges and other fees on
loans 7 9 43 52 Gains on sale of loans held for sale, net - - 3 92
Gain on sale of other real estate owned - 37 - 37 Gain on sale of
investment securities - - - 518 Gain on bank-owned life insurance
18 20 54 20 Other 79 81 284 314 -- -- --- --- Total noninterest
income 216 246 782 1,448 Noninterest expense Compensation 936 995
4,066 4,078 Data processing 125 119 506 527 Occupancy 181 199 793
798 Furniture and equipment 154 135 630 555 Taxes and licenses 68
66 273 270 Professional fees 109 116 469 347 FDIC insurance 82 37
456 136 Marketing 12 13 82 123 Telephone 24 26 102 101 Loss on
disposal or impairment of fixed assets 3 2 8 70 Other 146 205 697
980 --- --- --- --- Total noninterest expense 1,840 1,913 8,082
7,985 Income before provision for income taxes 709 100 1,593 1,039
Provision for income taxes 246 33 541 377 --- -- --- --- Net income
$463 $67 $1,052 $662 Preferred stock dividend and accretion of
discount $(146) $- $(156) $- ----- -- ----- -- Net income available
to common stockholders $317 $67 $896 $662 ==== === ==== ====
Earnings per common share Basic $0.14 $0.03 $0.39 $0.29 ===== =====
===== ===== Diluted $0.14 $0.03 $0.39 $0.29 ===== ===== ===== =====
Dividends per share $0.06 $0.06 $0.24 $0.24 ===== ===== ===== =====
Weighted average shares outstanding - basic 2,291,352 2,279,252
2,285,074 2,278,849 Effect of dilutive stock options 6,928 13,431
10,287 15,471 ----- ------ ------ ------ Weighted average shares
outstanding - diluted 2,298,280 2,292,683 2,295,361 2,294,320
========= ========= ========= ========= 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, ------------ ------------ 2009 2008
2009 2008 ---- ---- ---- ---- Financial ratios Annualized return on
average assets 0.46% 0.11% 0.34% 0.28% Annualized return on average
equity 3.40% 1.06% 3.08% 2.60% Average equity to average assets
13.44% 10.18% 10.99% 10.89% Equity to assets, at period-end 13.40%
9.73% 13.40% 9.73% Net interest margin 3.63% 3.73% 3.66% 3.74% Per
common share Earnings per share - basic $0.14 $0.03 $0.39 $0.29
Earnings per share - diluted $0.14 $0.03 $0.39 $0.29 Book value per
share $11.64 $11.34 $11.64 $11.34 Dividends declared per share
$0.06 $0.06 $0.24 $0.24 Common stock outstanding 2,291,352
2,279,252 2,291,352 2,279,252 Weighted average shares outstanding -
basic 2,291,352 2,279,252 2,285,074 2,278,849 Weighted average
shares outstanding - diluted 2,298,280 2,292,683 2,295,361
2,294,320 Asset quality Nonaccrual loans $1 $31 $1 $31 Accruing
loans past due 90 days or more - 10 - 10 - -- - -- Total
nonperforming loans 1 41 1 41 Other real estate owned, net 313 178
313 178 --- --- --- --- Total nonperforming assets $314 $219 $314
$219 ==== ==== ==== ==== Nonperforming assets to total assets 0.11%
0.08% 0.11% 0.08% Allowance for loan losses Balance, beginning of
period $1,771 $1,596 $1,652 $1,400 Provision for loan losses 28 385
169 453 Loans charged-off (28) (340) (96) (398) Recoveries 2 11 48
197 - -- -- --- Balance, end of period $1,773 $1,652 $1,773 $1,652
====== ====== ====== ====== Allowance for loan losses to gross
loans held for investment, net of unearned fees and costs 0.97%
0.93% 0.97% 0.93% ---- ---- ---- ---- DATASOURCE: Heritage
Bankshares, Inc. CONTACT: Michael S. Ives of Heritage Bankshares,
Inc. +1-757-648-1601 Web Site: http://www.heritagebankva.com/
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