By NORFOLK, Va., Jan. 31, 2014 /PRNewswire/ -- Heritage Bankshares, Inc. ("Heritage"; the "Company") (OTCQB: HBKS), the parent of Heritage Bank (the "Bank"), today announced record unaudited financial results for the fourth quarter and full year 2013. As well, effective the first quarter of 2014, the Company will double its regular quarterly dividend from $0.06 per common share to $0.12 per common share.
The Company's net income for the full year of 2013 was a record $2,521,000, an increase of $193,000 over net income of $2,328,000 for the full year of 2012. Net income available to common shareholders was $2,416,000 for the full year of 2013, an increase of $225,000 from net income available to common shareholders of $2,191,000 for the full year of 2012. For the full year of 2013, the Company's earnings per diluted common share were $1.04 compared to $0.94 for the full year of 2012, an increase of $0.10 per share.
The Company experienced a record fourth quarter net income for the fourth quarter of 2013 of $677,000, compared to net income of $463,000 for the fourth quarter of 2012, an increase of $214,000. Net income available to common shareholders was $658,000 for the fourth quarter of 2013, an increase of $246,000 from net income available to common shareholders of $412,000 for the fourth quarter of 2012. Earnings per diluted common share increased $0.10 to $0.28 for the fourth quarter of 2013 compared to $0.18 for the fourth quarter of 2012.
Michael S. Ives, President and CEO of the Company and the Bank, commented:
"Today, we announced record net income for 2013. The financial impact of our restructuring played a significant role in our excellent financial results. In 2013, our total noninterest expense was $7,319,000 which represented a 9% decrease from our noninterest expense of $8,080,000 in 2012, and represents our lowest level of noninterest expense in the last five years.
"Our restructuring, which took place over a period of approximately 18 months, is now substantially complete. We expect to receive the full financial benefit of our restructuring on our noninterest expense in 2014.
"In addition, our asset quality continues to be excellent. At June 30, 2010, we had an asset quality "perfect game" - that is no loans past due over 30 days, no nonaccrual loans, and no real estate owned. At December 31, 2013, we almost replicated our "perfect game" except for holding a former branch site in real estate owned.
"Given the Company's high level of stability, our Board of Directors concluded that we could double our regular quarterly dividend for our stockholders.
"For 2014, we have shifted our focus from our restructuring to loan growth. To assist in this effort, I have assumed direct responsibility for loan growth by serving as our interim Chief Lending Officer as well as Chief Executive Officer. I believe that my direct involvement in loan production on a daily basis will enhance our prospects for loan growth, particularly in the second quarter of 2014 and beyond, as we build our loan pipeline."
Comparison of Operating Results for the Full Years Ended December 31, 2013 and 2012
Overview. The Company's pretax income was $3,491,000 for the full year of 2013, compared to pretax income of $3,249,000 for the full year of 2012, an increase of $242,000. A $761,000 reduction in noninterest expense (which is net of a $142,000 charge-off for furniture and fixtures in two branches that are no longer utilized by the Company) plus a $403,000 increase in noninterest income more than offset a decrease of $922,000 in net interest income after provision for loan losses.
Net Interest Income. The Company's net interest income before provision for loan losses decreased by $957,000, comparing the full year of 2013 and 2012. Our average loan portfolio increased by $3.6 million, from $215.0 million in the full year of 2012 to $218.6 million in the full year of 2013, while our average certificates of deposit ("CDs") in other financial institutions increased by $38.5 million and our average investment in securities and other interest-earning assets (excluding loans and CDs) decreased by $34.1 million, for a net increase in interest-earning assets of $8.0 million comparing the two twelve-month periods. Average interest-bearing liabilities decreased by $1.3 million from $175.7 million in the twelve months of 2012 to $174.4 million in the twelve months of 2013. The average yield on our interest-earning assets was adversely impacted by lower yields on loans and other interest-earning assets, which was only partially offset by a decrease in the average cost of our interest-bearing liabilities. As a result, our interest rate spread decreased by 39 basis points from 3.36% in the twelve months of 2012 to 2.97% in the twelve months of 2013, and our net interest margin decreased by 40 basis points from 3.58% in the twelve months of 2012 to 3.18% in the twelve months of 2013.
Provision for Loan Losses. There was no provision for loan losses in the year ending December 31, 2013 compared to a $35,000 provision in the year ending December 31, 2012. Net charge-offs during the year ending December 31, 2013 were $145,000 compared to net charge-offs of $51,000 for the year ending December 31, 2012.
Noninterest Income. Total noninterest income increased by $403,000, from $1,115,000 in the twelve months of 2012 to $1,518,000 in the twelve months of 2013. A $419,000 increase in gain on sale of other real estate owned was the result of the sale of two bank branch sites during the last quarter of 2013. A $222,000 increase in various fees on loans plus a $190,000 increase in gain on the sale of other assets was partially offset by a $292,000 decrease in gains on the sale of investment securities, comparing the two twelve-month periods.
Noninterest Expense. Total noninterest expense was $7.319 million for the twelve months of 2013, a $761,000 decrease from $8.080 million in the twelve months of 2012. This reduction is primarily due to decreases of $308,000, $193,000, and $113,000 in compensation, data processing, and occupancy expenses, respectively, as well as a variety of other expenses. These decreases were partially offset by a $142,000 charge-off of furniture, fixtures, and equipment in two branches that will no longer be utilized by the Company.
Income Taxes. The Company's income tax expense for the twelve months of 2013 was $970,000, reflecting an effective tax rate of 27.8%, compared to income tax expense of $921,000 and an effective tax rate of 28.3%, for the twelve months of 2012.
Net Income Available to Common Stockholders. Because of qualified loan production as of September 30, 2013, the dividend rate on our SBLF preferred stock will be 1.0% through December 31, 2015. The average dividend rate on our SBLF preferred stock was 1.34% for the twelve months of 2013, resulting in an SBLF preferred stock dividend of $105,000, a $32,000 decrease from the twelve months of 2012. The average SBLF preferred stock dividend rate for the twelve months of 2012 was 1.75%, resulting in a preferred stock dividend of $137,000. Net income available to common stockholders was $2,416,000 for the twelve months of 2013, compared to $2,191,000 for the twelve months of 2012, an increase of $225,000, or $0.10 per diluted common share.
Comparison of Operating Results for the Three Months Ended December 31, 2013 and 2012
Overview. The Company's pretax income was $938,000 for the fourth quarter of 2013, compared to pretax income of $635,000 for the fourth quarter of 2012, an increase of $303,000. A $117,000 decrease in noninterest expense and a $329,000 increase in noninterest income offset a $143,000 decrease in net interest income after provision for loan losses.
Net Interest Income. The Company's net interest income before provision for loan losses decreased by $143,000, comparing the fourth quarters of 2013 and 2012. Our average loan portfolio increased by $2.3 million, from $214.7 in the fourth quarter of 2012 to $217.0 million in the fourth quarter of 2013, while our average CDs in other financial institutions increased by $22.0 million and our average investment in securities and other interest-earning assets (excluding loans and CDs) decreased by $41.4 million, for a net decrease in interest-earning assets of $17.1 million comparing the two quarters. Average interest-bearing liabilities decreased by $16.1 million from $188.0 million in the fourth quarter of 2012 to $171.9 million in the fourth quarter of 2013. Comparing the two quarters, our net interest rate spread is unchanged at 2.92%, while our net interest margin remained approximately stable at 3.14% in the fourth quarter of 2012 and 3.12% in the fourth quarter of 2013.
Provision for Loan Losses. There was no provision for loan losses in either the quarter ending December 31, 2013 or December 31, 2012. There were net charge-offs of $145,000 in the fourth quarter of 2013.
Noninterest Income. Total noninterest income increased by $329,000, from $197,000 in the fourth quarter of 2012 to $526,000 in the fourth quarter of 2013. During the fourth quarter of 2013, two bank branch sites were sold for a net gain on sale of other real estate owned of $349,000, compared to a $30,000 net loss on sale of other real estate owned in the fourth quarter of 2012.
Noninterest Expense. Total noninterest expense was $1,857,000 for the fourth quarter of 2013, a $117,000 decrease from the fourth quarter of 2012, primarily due to decreases of $46,000 and $34,000 in data processing and occupancy expenses, respectively, as well as a variety of other expenses.
Income Taxes. The Company's income tax expense for the fourth quarter of 2013 was $261,000, reflecting an effective tax rate of 27.8%, compared to income tax expense of $172,000 and an effective tax rate of 27.1%, for the fourth quarter of 2012.
Net Income Available to Common Stockholders. Net income available to common stockholders was $658,000 for the fourth quarter of 2013, compared to $412,000 for the fourth quarter of 2012, an increase of $246,000, or $0.10 per diluted common share.
Financial Condition of the Company
Total Assets. The Company's total assets at December 31, 2013 were $309.0 million, a $27.6 million decrease from $336.6 million at December 31, 2012.
Investments. Overall investments, including overnight interest-bearing deposits in other banks, federal funds sold, CDs in other banks, and investments in securities, decreased by a net of $21.4 million from $89.8 million at December 31, 2012 to $68.4 million at December 31, 2013. The Company decreased investments in securities and interest-bearing deposits in other banks by $34.2 million. CDs in other banks increased by $12.9 million because this type of investment offered higher yields than comparable maturities of securities and, in the event of substantial increases in intermediate-term interest rates, CDs do not require valuation adjustments on our balance sheet and may be redeemed at par with only early withdrawal penalties impacting our income statement.
Loans. Loans held for investment, net, decreased $4.6 million comparing the two period ends, from $221.0 million at December 31, 2012 to $216.4 million at December 31, 2013, as the result of loan payoffs at the end of 2013. Average loans for the twelve-month period ending December 31, 2013 were $218.6 million, a $3.6 million increase from average loans of $215.0 million for the twelve-month period ending December 31, 2012.
Asset Quality. Nonperforming assets were $743,000, or 0.24% of total assets, at December 31, 2013, compared to $699,000 in nonperforming assets, or 0.21% of total assets, at December 31, 2012. There were no nonaccrual loans or accruing loans past due 90 days, and other real estate owned consisted only of one bank branch site that closed in July 2013.
Deposits. Average total deposits increased by $6.3 million from $272.4 million for the twelve-month period ended December 31, 2012 to $278.7 million for the twelve-month period ended December 31, 2013. Average core deposits, which are comprised of noninterest-bearing, money market, NOW and savings deposits, increased by $17.8 million over the comparable twelve-month periods, while CDs decreased by $11.5 million during that same time period. Average noninterest-bearing deposits increased by $6.9 million, from $100.1 million in the twelve-month period ending December 31, 2012 to $107.0 million in the twelve-month period ending December 31, 2013. As a percentage of average total deposits, average noninterest-bearing deposits increased from 36.8% at December 31, 2012 to 38.4% at December 31, 2013.
Total deposits at December 31, 2013 were $263.6 million compared to $295.1 million at December 31, 2012, a decrease of $31.5 million. Core deposits decreased by $24.6 million, or 9.0%, from $271.5 million at December 31, 2012 to $246.9 million at December 31, 2013. Noninterest-bearing deposits decreased by $12.2 million to $99.3 million at December 31, 2013, while, as a percentage of total deposits, noninterest-bearing deposits remained stable, 37.7% at December 31, 2013 compared to 37.8% at December 31, 2012.
Borrowed Funds. Borrowed funds, which consist of Federal Home Loan Bank advances, securities sold under agreements to repurchase, and other borrowings, increased by $1.6 million, from $3.1 million at December 31, 2012 to $4.7 million at December 31, 2013, primarily from increased overnight advances from the Federal Home Loan Bank of Atlanta.
Capital. Stockholders' equity increased by $2.2 million, from $36.7 million at December 31, 2012 to $38.9 million at December 31, 2013, primarily due to a $2.4 million increase in retained earnings, partially offset by a $183,000 decrease in accumulated other comprehensive income related to changes in our securities available for sale portfolio, and the accompanying market adjustments. In December 2012, the Company accelerated its normal payment of dividends of $0.06 per share per quarter, or $0.24 per share per year, that it would have otherwise expected to pay during the 2013 calendar year, and declared an additional special dividend of $0.12 per share for a total dividend per share of $0.36.
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.
Dividends
On January 31, 2014, our Board of Directors doubled the Company's regular quarterly dividend by declaring a $0.12 per share dividend on our common stock. The dividend will be paid on February 28, 2014 to common shareholders of record on February 14, 2014.
The Company expects to pay dividends of $19,500 on the preferred stock issued in connection with our participation in the SBLF program. This dividend shall be payable and paid on April 1, 2014 to the holders of the SBLF preferred stock of record on March 20, 2013 (currently the sole shareholder of record of the SBLF preferred stock is the Secretary of the Treasury).
About Heritage
Heritage is the parent company of Heritage Bank (www.heritagebankva.com). Heritage Bank has two full service branches in the city of Norfolk, two full-service branches in the city of Virginia Beach, and one full service branch in the city of Chesapeake.
Forward Looking Statements
The press release contains statements that constitute "forward-looking statements". 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 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,
---------------
2013 2012
---- ----
(unaudited) (audited)
ASSETS
Cash and due from banks $4,897 $5,746
Interest-bearing deposits in
other banks 5,919 32,717
Federal funds sold 110 25
--- ---
Total cash and cash equivalents 10,926 38,488
Certificates of deposit in other
banks 48,767 35,892
Securities available for sale, at fair value 10,287 21,162
Securities held to maturity, at
cost 3,358 -
Loans, net
Held for investment, net of allowance for
loan losses 216,412 220,962
Accrued interest receivable 517 624
Stock in Federal Reserve Bank, at cost 597 594
Stock in Federal Home Loan Bank of Atlanta, at cost 582 440
Premises and equipment, net 9,325 10,602
Other real estate owned 743 210
Bank-owned life
insurance 5,757 5,690
Other assets 1,690 1,954
----- -----
Total assets $308,961 $336,618
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $99,322 $111,518
Interest-bearing 164,270 183,628
------- -------
Total deposits 263,592 295,146
------- -------
Federal Home Loan Bank Advances 4,000 -
Securities sold under agreements to repurchase 511 2,605
Other borrowings 135 465
Accrued interest payable 21 33
Other liabilities 1,817 1,695
----- -----
Total liabilities 270,076 299,944
------- -------
Stockholders' equity
Senior non-cumulative perpetual preferred stock,
Series C,
7,800 shares and outstanding at both December 31,
2013
and December 31, 2012,
respectively 7,800 7,800
Common stock, $5 par value -6,000,000 shares
authorized;
2,274,507 and 2,275,891 shares issued and
outstanding
at December 31, 2013 and December 31, 2012,
respectively 11,373 11,380
Additional paid-in capital 6,792 6,761
Retained earnings 12,995 10,625
Accumulated other comprehensive income(loss), net (75) 108
--- ---
Total stockholders' equity 38,885 36,674
------ ------
Total liabilities and stockholders' equity $308,961 $336,618
======== ========
HERITAGE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except
per share data) Three Months Ended Twelve Months Ended
December 31, December 31,
------------ ------------
2013 2012 2013 2012
---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (audited)
Interest income
Interest income and fees
on loans $2,249 $2,426 $9,171 $10,166
Interest on taxable
investment securities 66 108 335 824
Other interest and
dividend income 172 125 663 231
--- --- --- ---
Total interest income 2,487 2,659 10,169 11,221
Interest expense
Deposits 215 242 860 943
Borrowings 3 5 17 29
--- --- --- ---
Total interest expense 218 247 877 972
Net interest income 2,269 2,412 9,292 10,249
Provision for loan
losses - - - 35
--- --- --- ---
Net interest income
after provision for
loan losses 2,269 2,412 9,292 10,214
----- ----- ----- ------
Noninterest income
Service charges on
deposit accounts 46 56 191 252
Late charges and other
fees on loans 8 21 320 98
Gain on sale of
investment securities - - (8) 284
Gain on sale of other
assets - - 190 -
Gain on sale of other
real estate owned 349 (30) 349 (70)
Income from bank-owned
life insurance 62 42 194 203
Other 61 108 282 348
--- --- --- ---
Total noninterest income 526 197 1,518 1,115
Noninterest expense
Compensation 1,065 972 3,843 4,151
Data processing 113 159 437 630
Occupancy 185 219 774 887
Furniture and equipment 148 132 570 579
Taxes and licenses 67 79 269 318
Professional fees 67 94 268 373
FDIC assessment 38 39 164 155
Loss on sale or
impairment of fixed
assets 15 - 142 -
Other 159 280 852 987
--- --- --- ---
Total noninterest
expense 1,857 1,974 7,319 8,080
Income before provision
for income taxes 938 635 3,491 3,249
Provision for income
taxes 261 172 970 921
--- --- --- ---
Net income $677 $463 $2,521 $2,328
Preferred stock dividend $(19) $(51) $(105) $(137)
---- ---- ----- -----
Net income available to
common stockholders $658 $412 $2,416 $2,191
==== ==== ====== ======
Earnings per common
share
Basic $0.29 $0.18 $1.06 $0.96
===== ===== ===== =====
Diluted $0.28 $0.18 $1.04 $0.94
===== ===== ===== =====
Dividends per share $ - $0.42 $ - $0.60
===================== ===== ===================== =====
Weighted average shares
outstanding -basic 2,274,543 2,275,891 2,275,779 2,290,533
Effect of dilutive
equity awards 57,103 52,650 57,639 50,201
------ ------ ------ ------
Weighted average shares
outstanding -diluted 2,331,646 2,328,541 2,333,418 2,340,734
========= ========= ========= =========
HERITAGE BANKSHARES, INC.
OTHER SELECTED FINANCIAL INFORMATION
(Unaudited)
(in thousands, except share,
per share data, and ratios)
Three Months Ended Twelve Months Ended
December 31, December 31,
2013 2012 2013 2012
---- ---- ---- ----
Financial ratios
Annualized return on average assets (1) 0.85% 0.55% 0.78% 0.74%
Annualized return on average common equity (2) 8.71% 6.24% 8.42% 7.96%
Average equity to average assets 12.21% 11.11% 11.75% 11.76%
Equity to assets, at period-end 12.59% 10.89% 12.59% 10.89%
Per common share
Earnings per share - basic $0.29 $0.18 $1.06 $0.96
Earnings per share - diluted $0.28 $0.18 $1.04 $0.94
Book value per share $13.67 $12.69 13.67 $12.69
Dividends declared per share $ - $0.42 $ - $0.60
Common stock outstanding 2,274,507 2,275,891 2,274,507 2,275,891
Weighted average shares outstanding - basic 2,274,543 2,275,891 2,275,779 2,290,533
Weighted average shares outstanding - diluted 2,331,646 2,328,541 2,333,418 2,340,734
Asset quality
Nonaccrual loans $ - $ - $ - $ -
Accruing loans past due 90 days or more - 489 - 489
--- --- --- ---
Total nonperforming loans - 489 - 489
Other real estate owned, net 743 210 743 210
--- --- --- ---
Total nonperforming assets $743 $699 $743 $699
==== ==== ==== ====
Nonperforming assets to total assets 0.24% 0.21% 0.24% 0.21%
Allowance for loan losses
Balance, beginning of period $2,075 $2,075 $2,075 $2,091
Provision for loan losses - - - 35
Loans charged-off (148) - (148) (71)
Recoveries 3 - 3 20
Balance, end of period $1,930 $2,075 $1,930 $2,075
====== ====== ====== ======
Allowance for loan losses to gross loans held for
investment, net of unearned fees and costs 0.88% 0.93% 0.88% 0.93%
---- ---- ---- ----
(1)Return is defined as net income, after tax, before preferred stock dividend divided by average total assets.
(2)Return is defined as net income, after tax, before preferred stock dividend divided by average common equity.
HERITAGE BANKSHARES, INC.
OTHER SELECTED INFORMATION (continued)
(Unaudited)
(in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------ ------------
2013 2012 2013 2012
---- ---- ---- ----
Yields on average balances Average Average Average Average
Assets Balance (1) Yield Balance (1) Yield Balance (1) Yield Balance (1) Yield
---------- ----- ---------- ----- ---------- ----- ---------- -----
Loans(2) $217,041 4.21% $214,747 4.58% $218,600 4.29% $214,956 4.82%
Investment securities 13,743 1.91% 22,429 1.93% 17,552 1.90% 35,682 2.31%
Certificates of deposits in other
banks 48,697 1.23% 26,691 1.23% 47,164 1.23% 8,698 1.22%
Other investments 15,583 0.53% 48,332 0.34% 15,982 0.52% 31,971 0.39%
Total interest-earning assets $295,064 3.42% $312,199 3.45% $299,298 3.47% $291,307 3.92%
-------- -------- -------- --------
Liabilities
Noninterest-bearing deposits $103,792 - $107,531 - $107,024 - $100,147 -
-------- -------- -------- --------
Money market 134,123 0.56% 142,869 0.56% 133,631 0.56% 123,251 0.56%
NOW accounts 14,252 0.05% 14,315 0.04% 14,830 0.05% 14,250 0.05%
Savings 4,176 0.15% 4,233 0.15% 4,144 0.15% 4,230 0.15%
Certificates of deposit 16,719 0.49% 24,342 0.62% 19,059 0.52% 30,515 0.80%
------ ------ ------ ------
Total interest-bearing deposits 169,270 0.50% 185,759 0.52% 171,664 0.50% 172,246 0.55%
------- ------- ------- -------
Total deposits 273,062 293,290 278,688 272,393
Other borrowings 2,643 0.45% 2,228 0.98% 2,741 0.61% 3,449 0.82%
----- ----- ----- -----
Total interest-bearing liabilities $171,913 0.50% $187,987 0.53% $174,405 0.50% $175,695 0.56%
-------- -------- -------- --------
Net interest spread (3) 2.92% 2.92% 2.97% 3.36%
Net interest margin (3) 3.12% 3.14% 3.18% 3.58%
Capital Ratios
Consolidated company
Total capital to risk-weighted
assets 16.38% 15.54% 16.38% 15.54%
Tier 1 capital to risk-weighted
assets 15.61% 14.71% 15.61% 14.71%
Tier 1 capital to average assets 12.31% 10.91% 12.31% 10.91%
Bank
Total capital to risk-weighted
assets 14.71% 14.70% 14.71% 14.70%
Tier 1 capital to risk-weighted
assets 13.93% 13.86% 13.93% 13.86%
Tier 1 capital to average assets 11.09% 10.33% 11.09% 10.33%
(1) The calculations are based on daily average balances.
(2) Yields are stated on a taxable-equivalent basis assuming tax rates in effect for the periods presented.
(3)Tax equivalency calculations have been included in the computation of net interest margin and net interest spread.
SOURCE Heritage Bankshares, Inc.
