NORFOLK, Va., July 24 /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 second quarter and
first six months of 2008. Net income, after tax, for the quarter
ended June 30, 2008 was $184,000, or $0.08 per diluted share,
compared to net income, after tax, of $139,000, or $0.06 per
diluted share, for the second quarter of 2007. Net income, after
tax, for the first six months of 2008 was $231,000, or $0.10 per
diluted share, compared to net income, after tax, of $239,000, or
$0.10 per diluted share, for the same period in 2007. Michael S.
Ives, President and CEO of the Company and the Bank, commented:
"This was a quiet quarter for the Company in that there was very
little impact on our net income from items of income or expense
outside of our core operations. As I have stated on numerous
occasions, we expect our net income to continue to improve from the
growth of the Company and the elimination of transitional expenses.
"Furthermore, we are in the process of identifying and implementing
opportunities for expense savings that should have no material
impact on our basic banking operations. We believe this is only
prudent as all financial institutions now face uncertain economic
conditions. "Finally, we are pleased to report that the asset
quality of the Company remains exceptional. As of June 30, 2008,
the Company did not hold any real estate owned and had total
nonperforming assets of a mere $36,000, constituting less than
0.02% of total assets. Even with these impressive statistics
regarding our asset quality, we will remain diligent to identify
and address quickly any problems that might arise in our loan
portfolio." Comparison of Operating Results for the Three Months
Ended June 30, 2008 and 2007 Overview. The Company's pretax income
was $288,000 for the second quarter of 2008, compared to a pretax
income of $208,000 for the second quarter of 2007. Compared to the
second quarter of 2007, net interest income increased by $152,000,
noninterest income decreased by $96,000 and noninterest expense
decreased by $24,000. Net income, after tax, was $184,000, or $0.08
per diluted share, for the three months ended June 30, 2008,
compared to a net income, after tax, of $139,000, or $0.06 per
diluted share, for the three months ended June 30, 2007. Net
Interest Income. The Company's net interest income before provision
for loan losses increased by $152,000 in the second quarter of 2008
compared to the second quarter of 2007. This increase was primarily
attributable to an increase of $18.1 million in the average balance
of interest-earning assets, which more than offset an increase of
$15.1 million in average interest- bearing liabilities, plus an
increase in net interest spread from 2.68% to 3.07%. Net interest
margin decreased by 4 basis points, from 3.84% in the second
quarter of 2007 to 3.80% in the second quarter of 2008. Provision
for Loan Losses. There was no provision for loan losses for the
three months ended June 30, 2008 or for the three months ended June
30, 2007. Noninterest Income. Total noninterest income decreased by
$96,000, from $311,000 in the second quarter of 2007 to $215,000 in
the second quarter of 2008. This decrease was primarily due to a
decrease of $29,000 in service charges on deposits, a decrease of
$30,000 in gains on sales of mortgage loans held for sale and the
sale of an investment in the second quarter of 2007 which resulted
in a gain of $20,500 that did not recur in 2008. Noninterest
Expense. Total noninterest expense decreased by $24,000. Decreases
of $65,000 and $38,000 in professional fees and compensation
expense, respectively, were largely offset by a $50,000 increase in
courier expense and a $49,000 increase in occupancy, furniture and
fixture expense. Income Taxes. The Company's income tax expense for
the quarter ended June 30, 2008 was $104,000, which represented an
effective tax rate of 36.2%, compared to income tax expense of
$69,000 for the quarter ended June 30, 2007, which represented an
effective tax rate of 33.5%. The effective tax rate increased due
to a higher percentage of net non-deductible items relative to
pre-tax income. Comparison of Operating Results for the Six Months
Ended June 30, 2008 and 2007 Overview. The Company's pretax income
was $371,000 for the first six months of 2008, compared to a pretax
income of $358,000 for the first six months of 2007, an increase of
$13,000. Compared to the first six months of 2007, net interest
income increased by $187,000, provision for loan losses decreased
by $2,000, noninterest income decreased by $103,000 and noninterest
expense increased by $73,000. Net income, after tax, was $231,000,
or $0.10 per diluted share, for the six months ended June 30, 2008,
compared to after- tax net income of $239,000, or $0.10 per diluted
share, for the six months ended June 30, 2007. Net Interest Income.
The Company's net interest income before provision for loan losses
increased by $187,000 for the first six months of 2008 compared to
the first six months of 2007. This increase was primarily
attributable to an $11.8 million increase in the average balance of
interest- earning assets, and an increase in net interest spread
from 2.64% to 2.93%. The net interest margin declined by 6 basis
points, from 3.80% for the second quarter of 2007 to 3.74% for the
second quarter of 2008. Provision for Loan Losses. Provision for
loan losses decreased by $2,000. No provision for loan losses was
recorded in the six months ended June 30, 2008 while $2,000 was
recorded in the first six months of 2007. Noninterest Income. Total
noninterest income decreased by $103,000, from $567,000 in the
first six months of 2007 to $464,000 in the first six months of
2008. This decrease was primarily related to a $49,000 decrease in
service charges on deposits, a $15,000 decrease in gains on sales
of mortgage loans held for sale and a nonrecurring $20,500 gain
related to the sale of an investment in 2007. Noninterest Expense.
Total noninterest expense increased by $73,000, from $3.9 million
in the first six months of 2007 to $4.0 million in the first six
months of 2008. Decreases of $77,000 and $60,000 in compensation
expense and professional fees, respectively, were more than offset
by increases of $143,000 in occupancy, furniture and fixture
expense and $98,000 in courier expense. Income Taxes. The Company's
income tax expense for the six months ended June 30, 2008 was
$140,000, which represented an effective tax rate of 37.7%,
compared to income tax expense for the six months ended June 30,
2007 of $119,000, which represented an effective tax rate of 33.3%.
The effective tax rate increased due to 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 $19.6 million, or 9.0%, from $216.8 million at June
30, 2007 to $236.4 million at June 30, 2008. The increase in assets
resulted primarily from a $22.1 million increase in the ending
balance of loans held for investment. Funds Sold and Investment
Securities. Total federal funds sold and investment securities
available for sale were $46.0 million at June 30, 2008, compared to
a combined balance of $53.0 million at June 30, 2007, reflecting a
decrease in the combined balance of $7.0 million, or 13.2%. Loans.
Loans held for investment, net, at June 30, 2008 were $166.1
million, which represents an increase of $22.1 million, or 15.3%,
from the June 30, 2007 loan balance of $144.0 million. Asset
Quality. The Company's total nonperforming assets decreased to
$36,000, or 0.02% of assets, at June 30, 2008, compared to
$187,000, or 0.09% of assets, at June 30, 2007, attributable to a
decrease in the balance of nonaccrual loans. Deposits. Driven by
growth in core deposits, total deposits increased by $5.6 million,
or 3.0%, from $189.7 million at June 30, 2007 to $195.3 million at
June 30, 2008. Core deposits, which are comprised of checking,
savings and money market accounts, increased by $5.1 million, or
3.7%, from $137.6 million at June 30, 2007 to $142.7 million at
June 30, 2008. Average total deposits increased by $6.4 million, or
3.5%, from $183.7 million during the six months ended June 30, 2007
to $190.1 million during the six months ended June 30, 2008.
Average core deposits increased by $13.0 million, offset by a $6.6
million decrease in the average balance of certificates of deposit,
between the comparable quarters. Borrowed Funds. To fund asset
growth, in addition to the increase in deposit balances, borrowed
funds increased by $13.1 million, from $900,000 at June 30, 2007 to
$14.0 million at June 30, 2008, due an increase in FHLB borrowings.
Capital. Stockholders' equity increased by $1.0 million, or 3.9%,
from $24.3 million at June 30, 2007 to $25.3 million at June 30,
2008. Stockholders' equity increased primarily as a result of a
$366,000 increase in retained earnings and a $448,000 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 tables attached to and
incorporated within this release present in greater detail certain
of the unaudited financial information described above. Subsequent
Event In July 2008, the Company sold approximately $28 million of
FNMA and FHLMC balloon mortgage-backed securities, which yielded
approximately 5%, and expects to record an after-tax gain on the
sale of approximately $329,000 in the third quarter of 2008. The
Company has not yet determined the disposition of the proceeds of
the sale. Dividend On July 23, 2008, Heritage's Board of Directors
declared a $0.06 per share dividend on Heritage's common stock. The
dividend will be paid on August 14, 2008 to shareholders of record
on August 4, 2008. 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. HERITAGE
BANKSHARES, INC. CONSOLIDATED BALANCE SHEETS (in thousands) At June
30, 2008 2007 (unaudited) (unaudited) ASSETS Cash and due from
banks $9,020 $6,814 Federal funds sold 8,049 12,483 Securities
available for sale, at fair value 37,940 40,519 Securities held to
maturity, at cost 575 678 Loans, net Held for investment, net of
allowance for loan losses 166,047 143,993 Held for sale 417 330
Accrued interest receivable 704 849 Stock in Federal Reserve Bank,
at cost 320 313 Stock in Federal Home Loan Bank of Atlanta, at cost
983 401 Premises and equipment, net 11,090 8,985 Other assets 1,249
1,430 Total assets $236,394 $216,795 LIABILITIES AND STOCKHOLDERS'
EQUITY Liabilities Deposits Noninterest bearing $58,896 $53,049
Interest-bearing 136,417 136,649 Total deposits 195,313 189,698
Federal Home Loan Bank Advance 13,000 - Securities sold under
agreements to repurchase 919 850 Other borrowings 50 50 Accrued
interest payable 247 296 Other liabilities 1,560 1,555 Total
liabilities 211,089 192,449 Stockholders' equity Common stock, $5
par value - authorized 3,000,000 shares; issued and outstanding:
2,278,652 shares at June 30, 2008; 2,278,652 shares at June 30,
2007 11,393 11,393 Additional paid-in capital 6,247 6,102 Retained
earnings 7,303 6,937 Accumulated other comprehensive income (loss),
net 362 (86) Total stockholders' equity 25,305 24,346 Total
liabilities and stockholders' equity $236,394 $216,795 HERITAGE
BANKSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands,
except per share data) Three Months Ended Six Months Ended June 30
June 30 2008 2007 2008 2007
(unaudited)(unaudited)(unaudited)(unaudited) Interest income Loans
and fees on loans $2,426 $2,479 $4,943 $4,922 Taxable investment
securities 441 519 905 922 Nontaxable investment securities 13 12
25 25 Dividends on FRB and FHLB stock 14 11 32 22 Interest on
federal funds sold 43 108 82 397 Other interest income 1 3 3 6
Total interest income 2,938 3,132 5,990 6,294 Interest expense
Deposits 874 1,241 1,931 2,511 Borrowings 39 18 146 57 Total
interest expense 913 1,259 2,077 2,568 Net interest income 2,025
1,873 3,913 3,726 Provision for loan losses - - - 2 Net interest
income after provision for loan losses 2,025 1,873 3,913 3,724
Noninterest income Service charges on deposit accounts 99 128 205
254 Gains on sale of loans held for sale, net 23 53 68 83 Gain on
sale of investment securities - - 5 1 Late charges and other fees
on loans 21 24 33 39 Other 72 106 153 190 Total noninterest income
215 311 464 567 Noninterest expense Compensation 1,012 1,050 2,084
2,161 Data processing 141 130 276 260 Occupancy 192 160 406 300
Furniture and equipment 140 123 288 251 Taxes and licenses 64 55
132 109 Professional fees 65 130 160 220 Marketing 40 45 77 85
Telephone 25 29 51 64 Stationery and supplies 26 37 45 69 Other 247
217 487 414 Total noninterest expense 1,952 1,976 4,006 3,933
Income before provision for income taxes 288 208 371 358 Provision
for income taxes 104 69 140 119 Net income $184 $139 $231 $239
Earnings per common share Basic $0.08 $0.06 $0.10 $0.10 Diluted
$0.08 $0.06 $0.10 $0.10 Dividends per share $0.06 $0.06 $0.12 $0.12
Weighted average shares outstanding - basic 2,278,652 2,278,652
2,278,652 2,278,507 Effect of dilutive stock options - - - -
Weighted average shares outstanding - assuming dilution 2,278,652
2,278,652 2,278,652 2,278,507 HERITAGE BANKSHARES, INC. OTHER
SELECTED FINANCIAL INFORMATION (Unaudited) (in thousands, except
share and per share data) Six Months Ended Three Months Ended June
30, June 30, 2008 2007 2008 2007 Financial ratios Annualized return
on average assets 0.32% 0.26% 0.20% 0.23% Annualized return on
average equity 2.89% 2.26% 1.82% 1.96% Average equity to average
assets 11.00% 11.61% 11.21% 11.55% Equity to assets, at period-end
10.70% 11.23% 10.70% 11.23% Net interest margin 3.80% 3.84% 3.74%
3.80% Per common share Earnings per share - basic $0.08 $0.06 $0.10
$0.10 Earnings per share - diluted $0.08 $0.06 $0.10 $0.10 Book
value per share $11.11 $10.68 $11.11 $10.68 Dividends declared per
share $0.06 $0.06 $0.12 $0.12 Common stock outstanding 2,278,652
2,278,652 2,278,652 2,278,652 Weighted average basic shares
outstanding 2,278,652 2,278,652 2,278,652 2,278,507 Weighted
average diluted shares 2,278,652 2,278,652 2,278,652 2,278,507
Asset quality Nonaccrual loans $- $187 $- $187 Accruing loans past
due 90 days or more 36 - 36 - Total nonperforming loans 36 187 36
187 Real estate owned, net - - - - Total nonperforming assets $36
$187 $36 $187 Nonperforming assets to total assets 0.02% 0.09%
0.02% 0.09% Allowance for loan losses Balance, beginning of period
$1,492 $1,373 $1,400 $1,373 Provision for loan losses - - - 2 Loans
charged-off (1) - (1) (8) Recoveries 101 9 193 15 Balance, end of
period $1,592 $1,382 $1,592 $1,382 Allowance for loan losses to
gross loans held for investment, net of unearned fees and costs
0.95% 0.95% 0.95% 0.95% 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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