Exhibit 99.1
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| HERITAGE BANKSHARES, INC. | | 200 East Plume Street |
| | Norfolk, Virginia 23510 |
FOR IMMEDIATE RELEASE
Press Release
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| Contact: | | Michael S. Ives |
| Phone: | | 757-648-1601 |
Heritage Bankshares, Inc. Announces Second Quarter and Six Months 2007 Earnings
Norfolk, Va.: July 19, 2007– Heritage Bankshares, Inc. (“Heritage”; the “Company”) (Pinksheets: HBKS), the parent of Heritage Bank (the “Bank”), today announced unaudited financial results for the second quarter and first six months of 2007.
Net income, after tax, for the quarter ended June 30, 2007 was $139,000, or $0.06 per diluted share, compared to net income, after tax, of $145,000, or $0.08 per diluted share, for the second quarter of 2006. The second quarter of 2006 included a $63,000 after-tax gain on the sale of the Bank’s retail credit card portfolio. The Company’s net income for the six months ended June 30, 2007, however, increased by $115,000 over the six months ended June 30, 2006. Net income, after tax, for the first six months of 2007 was $239,000, or $0.10 per diluted share, compared to net income, after tax, of $124,000, or $0.07 per diluted share, for the same period in 2006. The diluted earnings per share figures for the three and six months ended June 30, 2007, were impacted by an increase of 535,584 outstanding shares of the Company’s common stock, issued in connection with private placements that closed in June, July and December 2006.
Michael S. Ives, President and CEO of the Company and the Bank, commented:
“During the last quarter, we continued to execute our business plan to grow our core deposits as evidenced by the 25% increase in our core deposits from the second quarter of 2006 to the second quarter of 2007. We believe that a strong core deposit base will create value for our shareholders over the long run.”
“We look forward to the openings of our Financial District and Lynnhaven branches in the second half of 2007. We believe that these two branches in prominent locations will give us an even greater ability to attract core deposits.”
“Operating results for the first half of 2007 contain a variety of expenses relating to the continuing development of our infrastructure and compliance functions. We expect some of these expenses to continue over the remainder of 2007 as we transition our headquarters to the Dominion Enterprises building and take the necessary steps to ensure our compliance with the letter and spirit of the Sarbanes-Oxley Act relating to internal controls over financial reporting.”
Comparison of Operating Results for the Three Months Ended June 30, 2007 and 2006
Overview. The Company’s pretax income was $208,000 for the second quarter of 2007, compared to a pretax income of $210,000 in the second quarter of 2006. Compared to the second quarter of 2006, net interest income increased by $47,000, noninterest income decreased by $126,000 and noninterest expense decreased by $77,000. Net income, after tax, was $139,000, or $0.06 per diluted share, for the three months ended June 30, 2007, compared to a net income, after tax, of $145,000, or $0.08 per diluted share, for the three months ended June 30, 2006. As previously mentioned, the second quarter of 2006 included a $63,000 after-tax gain on the sale of the Bank’s retail credit card portfolio.
Net Interest Income. The Company’s net interest income before provision for loan losses increased by $47,000 in the second quarter of 2007 compared to the second quarter of 2006. This was attributable to an increase of $4.0 million in the average balance of interest-earning assets, and an increase in net interest margin from 3.82% to 3.84%.
Provision for Loan Losses. There was no provision for loan losses for the three months ended June 30, 2007 or for the three months ended June 30, 2006.
Noninterest Income. Total noninterest income decreased by $126,000, from $434,000 in the second quarter of 2006 to $308,000 in the second quarter of 2007. This decrease was primarily due to a $96,000 gain on the sale of the Bank’s retail credit card portfolio in the second quarter of 2006 that did not recur in 2007.
Noninterest Expense. Total noninterest expense decreased by $77,000, from $2.0 million in the second quarter of 2006 to $1.9 million in the second quarter of 2007 as contract employee expense declined by $84,000.
Income Taxes. The Company’s income tax expense for the quarter ended June 30, 2007 was $69,000, which represented an effective tax rate of 33.5%, compared to $65,000 for the quarter ended June 30, 2006, which represented an effective tax rate of 31.0%.
Comparison of Operating Results for the Six Months Ended June 30, 2007 and 2006
Overview. The Company’s pretax income was $358,000 for the first six months of 2007, compared to a pretax income of $170,000 for the first six months of 2006, an increase of $188,000. Compared to the first six months of 2006, net interest income increased by $225,000, provision for loan losses decreased by $15,000, noninterest income decreased by $192,000, and noninterest expense decreased by $140,000. Net income, after tax, was $239,000, or $0.10 per diluted share, for the six months ended June 30, 2007, compared to after-tax net income of $124,000, or $0.07 per diluted share, for the six months ended June 30, 2006.
Net Interest Income. The Company’s net interest income before provision for loan losses increased by $225,000 in the first six months of 2007 compared to the first six months of 2006. This was attributable to a $6.4 million increase in the average balance of interest-earning assets, and an increase in net interest margin from 3.69% to 3.80%.
Provision for Loan Losses. Provision for loan losses decreased by $15,000, from $17,000 in the first six months of 2006 to $2,000 in the first six months of 2007.
Noninterest Income. Total noninterest income decreased by $192,000, from $751,000 in the first six months of 2006 to $559,000 in the first six months of 2007. This decrease was primarily due to the $96,000 gain on sale of the retail credit card portfolio in the second quarter of 2006, and declines of $59,000 in service charges on deposit accounts.
Noninterest Expense. Total noninterest expense decreased by $140,000, from $4.1 million in the first six months of 2006 to $3.9 million in the first six months of 2007, primarily attributable to a decline in contract employee expense of $180,000.
Income Taxes. The Company’s income tax expense for the six months ended June 30, 2007 was $119,000, which represented an effective tax rate of 33.3%, compared to income tax expense for the six months ended June 30, 2006 of $46,000, which represented an effective tax rate of 27.0%. The effective tax rate for the six months ended June 30, 2006 was impacted by the effect of a tax benefit from the first quarter 2006.
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Financial Condition of the Company
Total Assets. The Company’s total assets increased by $7.4 million, or 3.5%, from $209.4 million at June 30, 2006 to $216.8 million at June 30, 2007. The increase in assets resulted primarily from a $12.2 million increase in the ending balance of loans held for investment, offset by an aggregate $6.0 million decrease in the combined balances of federal funds sold and securities available for sale.
Funds Sold and Investment Securities. Total federal funds sold and investment securities available for sale were $53.0 million at June 30, 2007, compared to a combined balance of $59.0 million at June 30, 2006. During the first quarter of 2007, the Company changed the mix of these investments by purchasing $35.8 million of FHLMC/FNMA balloon mortgage-backed securities with an average remaining balloon maturity of approximately 3.7 years.
Loans. Loans held for investment, net, at June 30, 2007 were $144.0 million, which represents an increase of $12.2 million, or 9.3%, from the loan balance of $131.8 million at June 30, 2006.
Asset Quality. The Company’s total nonperforming assets decreased to $187,000, or 0.09% of assets, at June 30, 2007, compared to $201,000, or 0.10% of assets, at June 30, 2006, attributable to a decrease in the balance of nonaccrual loans.
Deposits. Driven by growth in core deposits, total deposits increased by $12.8 million, or 7.2%, from $176.9 million at June 30, 2006 to $189.7 million at June 30, 2007. Core deposits, which are comprised of checking, savings and money market accounts, increased by $27.6 million, or 25.0%, from $110.0 million at June 30, 2006 to $137.6 million at June 30, 2007. The effect on total deposits of this increase in core deposits was partially offset by a $14.7 million decrease in certificate of deposit balances.
Borrowed Funds. Borrowed funds decreased by $11.9 million, from $12.8 million at June 30, 2006 to $900,000 at June 30, 2007, primarily due to the repayment in October 2006 of the Bank’s $10.0 million FHLB advance.
Capital. Stockholders’ equity increased by $6.1 million, or 33.8%, from $18.2 million at June 30, 2006 to $24.3 million at June 30, 2007. Stockholders’ equity increased as a result of $6.1 million in total net capital raised in connection with sales of the Company’s common stock in private placements that closed in July and December 2006.
The tables attached to and incorporated within this release present in greater detail certain of the unaudited financial information described above.
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 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
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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.
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HERITAGE BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
| | | | | | | | |
| | | At June 30, | |
| | | 2007 | | | 2006 | |
| | | (unaudited) | | | (unaudited) | |
ASSETS | | | | | | | | |
Cash and due from banks | | $ | 6,814 | | | $ | 7,519 | |
Federal funds sold | | | 12,483 | | | | 36,580 | |
Securities available for sale, at fair value | | | 40,519 | | | | 22,376 | |
Securities held to maturity, at cost | | | 678 | | | | 680 | |
Loans, net | | | | | | | | |
Held for investment, net of allowance for loan losses | | | 143,993 | | | | 131,779 | |
Held for sale | | | 330 | | | | 455 | |
Accrued interest receivable | | | 849 | | | | 682 | |
Stock in Federal Reserve Bank, at cost | | | 313 | | | | 65 | |
Stock in Federal Home Loan Bank of Atlanta, at cost | | | 401 | | | | 859 | |
Premises and equipment, net | | | 8,985 | | | | 6,772 | |
Other assets | | | 1,430 | | | | 1,648 | |
| | | | | | | | |
Total assets | | $ | 216,795 | | | $ | 209,415 | |
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| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| Liabilities | | | | | | | | |
Deposits | | | | | | | | |
Noninterest bearing | | $ | 53,049 | | | $ | 45,804 | |
Interest-bearing | | | 136,649 | | | | 131,092 | |
| | | | | | | | |
Total deposits | | | 189,698 | | | | 176,896 | |
| | | | | | | | |
Federal Home Loan Bank Advance | | | — | | | | 10,000 | |
Securities sold under agreements to repurchase | | | 850 | | | | 2,740 | |
Other borrowings | | | 50 | | | | 50 | |
Accrued interest payable | | | 296 | | | | 371 | |
Other liabilities | | | 1,555 | | | | 1,161 | |
| | | | | | | | |
Total liabilities | | | 192,449 | | | | 191,218 | |
| | | | | | | | |
| Stockholders’ equity | | | | | | | | |
Common stock, $5 par value - authorized 3,000,000 shares; issued and outstanding: 2,278,652 shares at June 30, 2007; 1,861,173 shares at June 30, 2006 | | | 11,393 | | | | 9,306 | |
Additional paid-in capital | | | 6,102 | | | | 1,781 | |
Retained earnings | | | 6,937 | | | | 7,147 | |
Accumulated other comprehensive income (loss), net | | | (86 | ) | | | (37 | ) |
| | | | | | | | |
Total stockholders’ equity | | | 24,346 | | | $ | 18,197 | |
| | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 216,795 | | | $ | 209,415 | |
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HERITAGE BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
| | | | | | | | | | | | |
| | | Three Months Ended
June 30 | | Six Months Ended
June 30 |
| | | 2007 | | 2006 | | 2007 | | 2006 |
| | | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) |
Interest income | | | | | | | | | | | | |
Loans and fees on loans | | $ | 2,479 | | $ | 2,494 | | $ | 4,922 | | $ | 4,792 |
Taxable investment securities | | | 519 | | | 64 | | | 923 | | | 126 |
Nontaxable investment securities | | | 12 | | | 12 | | | 24 | | | 24 |
Dividends on FRB and FHLB stock | | | 11 | | | 13 | | | 22 | | | 24 |
Interest on federal funds sold | | | 108 | | | 538 | | | 397 | | | 1,030 |
| | | | | | | | | | | | |
Total interest income | | | 3,129 | | | 3,121 | | | 6,288 | | | 5,996 |
| | | | |
Interest expense | | | | | | | | | | | | |
Deposits | | | 1,241 | | | 1,152 | | | 2,511 | | | 2,207 |
Borrowings | | | 18 | | | 146 | | | 57 | | | 294 |
| | | | | | | | | | | | |
Total interest expense | | | 1,259 | | | 1,298 | | | 2,568 | | | 2,501 |
| | | | |
Net interest income | | | 1,870 | | | 1,823 | | | 3,720 | | | 3,495 |
| | | | |
Provision for loan losses | | | — | | | — | | | 2 | | | 17 |
| | | | | | | | | | | | |
Net interest income after provision for loan losses | | | 1,870 | | | 1,823 | | | 3,718 | | | 3,478 |
| | | | | | | | | | | | |
Noninterest income | | | | | | | | | | | | |
Service charges on deposit accounts | | | 128 | | | 163 | | | 254 | | | 313 |
Gains on sale of loans held for sale, net | | | 53 | | | 33 | | | 83 | | | 82 |
Gain on sale of investment securities | | | — | | | 34 | | | 1 | | | 34 |
Late charges and other fees on loans | | | 24 | | | 38 | | | 39 | | | 54 |
Other | | | 103 | | | 166 | | | 182 | | | 268 |
| | | | | | | | | | | | |
Total noninterest income | | | 308 | | | 434 | | | 559 | | | 751 |
| | | | |
Noninterest expense | | | | | | | | | | | | |
Compensation | | | 1,051 | | | 993 | | | 2,161 | | | 2,027 |
Data processing | | | 130 | | | 128 | | | 260 | | | 261 |
Occupancy | | | 144 | | | 127 | | | 267 | | | 251 |
Furniture and equipment | | | 134 | | | 144 | | | 271 | | | 298 |
Taxes and licenses | | | 55 | | | 54 | | | 109 | | | 94 |
Professional fees | | | 130 | | | 178 | | | 220 | | | 290 |
Contract employee services | | | 1 | | | 85 | | | 6 | | | 186 |
Marketing | | | 45 | | | 64 | | | 86 | | | 124 |
Telephone | | | 29 | | | 21 | | | 64 | | | 43 |
Stationery and supplies | | | 42 | | | 26 | | | 80 | | | 71 |
Other | | | 209 | | | 227 | | | 395 | | | 414 |
| | | | | | | | | | | | |
Total noninterest expense | | | 1,970 | | | 2,047 | | | 3,919 | | | 4,059 |
| | | | |
Income before provision for income taxes | | | 208 | | | 210 | | | 358 | | | 170 |
| | | | |
Provision for income taxes | | | 69 | | | 65 | | | 119 | | | 46 |
| | | | | | | | | | | | |
Net income | | $ | 139 | | $ | 145 | | $ | 239 | | $ | 124 |
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Earnings per common share | | | | | | | | | | | | |
Basic | | $ | 0.06 | | $ | 0.08 | | $ | 0.10 | | $ | 0.07 |
| | | | | | | | | | | | |
Diluted | | $ | 0.06 | | $ | 0.08 | | $ | 0.10 | | $ | 0.07 |
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Dividends per share | | $ | 0.06 | | $ | 0.06 | | $ | 0.12 | | $ | 0.12 |
| | | | | | | | | | | | |
Weighted average shares outstanding - basic | | | 2,278,652 | | | 1,718,517 | | | 2,278,507 | | | 1,716,593 |
Effect of dilutive stock options | | | 25,215 | | | 37,999 | | | 26,806 | | | 37,821 |
| | | | | | | | | | | | |
Weighted average shares outstanding - assuming dilution | | | 2,303,867 | | | 1,756,516 | | | 2,305,313 | | | 1,754,414 |
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HERITAGE BANKSHARES, INC.
OTHER SELECTED FINANCIAL INFORMATION
(Unaudited)
(in thousands, except share and per share data)
| | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
| | | 2007 | | | 2006 | | | 2007 | | | 2006 | |
Financial ratios | | | | | | | | | | | | | | | | |
Annualized return on average assets | | | 0.26 | % | | | 0.28 | % | | | 0.23 | % | | | 0.12 | % |
Annualized return on average equity | | | 2.26 | % | | | 3.63 | % | | | 1.96 | % | | | 1.57 | % |
Average equity to average assets | | | 11.61 | % | | | 7.81 | % | | | 11.55 | % | | | 7.76 | % |
Equity to assets, at period-end | | | 11.23 | % | | | 8.69 | % | | | 11.23 | % | | | 8.69 | % |
Net interest margin | | | 3.84 | % | | | 3.82 | % | | | 3.80 | % | | | 3.69 | % |
| | | | |
Per common share | | | | | | | | | | | | | | | | |
Earnings per share - basic | | $ | 0.06 | | | $ | 0.08 | | | $ | 0.10 | | | $ | 0.07 | |
Earnings per share - diluted | | $ | 0.06 | | | $ | 0.08 | | | $ | 0.10 | | | $ | 0.07 | |
Book value per share | | $ | 10.68 | | | $ | 9.78 | | | $ | 10.68 | | | $ | 9.78 | |
Dividends declared per share | | $ | 0.06 | | | $ | 0.06 | | | $ | 0.12 | | | $ | 0.12 | |
| | | | |
Common stock outstanding | | | 2,278,652 | | | | 1,861,173 | | | | 2,278,652 | | | | 1,861,173 | |
Weighted average basic shares outstanding | | | 2,278,652 | | | | 1,718,517 | | | | 2,278,507 | | | | 1,716,593 | |
Weighted average diluted shares | | | 2,303,867 | | | | 1,756,516 | | | | 2,305,313 | | | | 1,754,414 | |
| | | | |
Asset quality | | | | | | | | | | | | | | | | |
Nonaccrual loans | | $ | 187 | | | $ | 200 | | | $ | 187 | | | $ | 200 | |
Accruing loans past due 90 days or more | | | — | | | | 1 | | | | — | | | | 1 | |
| | | | | | | | | | | | | | | | |
Total nonperforming loans | | | 187 | | | | 201 | | | | 187 | | | | 201 | |
| | | | |
Real estate owned, net | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Total nonperforming assets | | $ | 187 | | | $ | 201 | | | $ | 187 | | | $ | 201 | |
| | | | | | | | | | | | | | | | |
Nonperforming assets to total assets | | | 0.09 | % | | | 0.10 | % | | | 0.09 | % | | | 0.10 | % |
| | | | |
Allowance for loan losses | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | 1,373 | | | $ | 1,362 | | | $ | 1,373 | | | $ | 1,335 | |
Provision for loan losses | | | — | | | | — | | | | 2 | | | | 17 | |
Loans charged-off | | | — | | | | (64 | ) | | | (8 | ) | | | (83 | ) |
Recoveries | | | 9 | | | | 2 | | | | 15 | | | | 31 | |
| | | | | | | | | | | | | | | | |
Balance, end of period | | $ | 1,382 | | | $ | 1,300 | | | $ | 1,382 | | | $ | 1,300 | |
| | | | | | | | | | | | | | | | |
Allowance for loan losses to gross loans held for investment, net of unearned fees and costs | | | 0.95 | % | | | 0.98 | % | | | 0.95 | % | | | 0.98 | % |
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