NORFOLK, Va., Oct. 17 /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 third quarter and
first nine months of 2008. Net income, after tax, for the quarter
ended September 30, 2008 was $386,000, or $0.17 per diluted share,
compared to net income, after tax, of $345,000, or $0.15 per
diluted share, for the third quarter of 2007. Net income, after
tax, for the first nine months of 2008 was $617,000, or $0.27 per
diluted share, compared to net income, after tax, of $584,000, or
$0.25 per diluted share, for the same period in 2007. Michael S.
Ives, President and CEO of the Company and the Bank, commented: "We
believe the Company is well-positioned to deal with these uncertain
economic times. As of September 30, 2008, our tangible capital was
10.2% of our total assets. Our net interest margin for the third
quarter of 2008 remained unchanged as compared to the third quarter
of 2007. At the end of this quarter, our noninterest-bearing
deposits were 30.6% of our total deposits, and our total core
deposits, that is checking, savings and money market accounts, were
75.6% of our total deposits. "Liquidity is now at a premium for all
banks, large and small. At September 30, 2008, our loan to deposit
ratio was only 81.1%, which should provide the Bank a high level of
liquidity for future operations. Unlike many community banks, we
have not relied on expensive and volatile funding sources such as
brokered certificates of deposit or other high-yield certificates
of deposit from other geographic areas. Furthermore, certificates
of deposit represented only 24.4% of our deposit base as of
September 30, 2008, so we do not anticipate having to compete
aggressively with institutions seeking to obtain liquidity from
this expensive funding source. "Our non-performing assets were a
remarkable 0.02% of assets at September 30, 2008, unchanged from
June 30, 2008. This ratio would be outstanding and likely difficult
to maintain even in the best of economic times. With the current
economic climate being particularly stressful for consumers and
small businesses, we have to expect some increases in
non-performing assets and net charge-offs over the negligible
levels that we have seen so far this year. However, at this time we
do not foresee any changes in our net charge-offs or non-performing
assets that would have any material impact on the soundness of the
Bank. "During the third quarter, we also undertook several
initiatives designed to reduce the operating expenses of the
Company, such as small staff reductions and the restructuring of
our deposit courier program. We will continue to take all
appropriate measures to operate our Company in an efficient and
sound manner." Comparison of Operating Results for the Three Months
Ended September 30, 2008 and 2007 Overview. The Company's pretax
income was $602,000 for the third quarter of 2008, compared to a
pretax income of $517,00 for the third quarter of 2007. Compared to
the third quarter of 2007, net interest income increased by
$72,000, provision for loan losses decreased by $34,000,
noninterest income decreased by $43,000 and noninterest expense
decreased by $22,000. Net income, after tax, was $386,000, or $0.17
per diluted share, for the three months ended September 30, 2008,
compared to a net income, after tax, of $345,000, or $0.15 per
diluted share, for the three months ended September 30, 2007. Net
Interest Income. The Company's net interest income before provision
for loan losses increased by $72,000 in the third quarter of 2008
compared to the third quarter of 2007. This increase was primarily
attributable to an increase in net interest spread from 2.58% to
3.06%. The net interest margin was 3.72% for the third quarter of
both 2008 and 2007. Provision for Loan Losses. The provision for
loan losses decreased by $34,000, from $102,000 for the three
months ended September 30, 2007 to $68,000 for the three months
ended September 30, 2008. Noninterest Income. Total noninterest
income decreased by $43,000, from $791,000 in the third quarter of
2007 to $748,000 in the third quarter of 2008. This decrease was
due to a decrease of $14,000 in service charges on deposits as well
as a number of other miscellaneous items. As previously announced
in July 2008, the Company recorded in the third quarter of 2008 a
gain of $523,000 on the July 2008 sale of $28.5 million of FNMA and
FHLMC mortgage-backed securities. This gain on sale in the third
quarter of 2008 was offset by a $526,000 gain on the sale of the
Bank's Plume Street office in September 2007 that did not recur in
2008. Noninterest Expense. Total noninterest expense was
approximately $2.0 million for the third quarter of both 2008 and
2007. Income Taxes. The Company's income tax expense for the
quarter ended September 30, 2008 was $216,000, which represented an
effective tax rate of 35.9%, compared to income tax expense of
$172,000 for the quarter ended September 30, 2007, which
represented an effective tax rate of 33.3%. Comparison of Operating
Results for the Nine Months Ended September 30, 2008 and 2007
Overview. The Company's pretax income was $972,000 for the first
nine months of 2008, compared to pretax income of $875,000 for the
first nine months of 2007, an increase of $97,000. Compared to the
first nine months of 2007, net interest income increased by
$258,000, provision for loan losses decreased by $37,000,
noninterest income decreased by $147,000 and noninterest expense
increased by $51,000. Net income, after tax, was $617,000, or $0.27
per diluted share, for the nine months ended September 30, 2008,
compared to after-tax net income of $584,000, or $0.25 per diluted
share, for the nine months ended September 30, 2007. Net Interest
Income. The Company's net interest income before provision for loan
losses increased by $258,000 for the first nine months of 2008
compared to the first nine months of 2007. This increase was
primarily attributable to an increase in net interest spread from
2.61% to 2.97%. Our net interest margin declined by 4 basis points,
from 3.78% for the first nine months of 2007 to 3.74% for the first
nine months of 2008. Provision for Loan Losses. Provision for loan
losses decreased by $37,000, from $105,000 for the nine months
ended September 30, 2007 to $68,000 for the nine months ended
September 30, 2008. Noninterest Income. Total noninterest income
decreased by $147,000, from $1.4 million in the first nine months
of 2007 to $1.2 million in the first nine months of 2008. This
decrease was primarily related to a $64,000 decrease in service
charges on deposits and nonrecurring gains of $22,000 related to
sales of investments in subsidiaries in 2007. Noninterest Expense.
Total noninterest expense was approximately $6.0 million for both
the nine month periods ended September 30, 2008 and 2007. An
increase of $171,000 in courier expense in 2008 was partially
offset by a $73,000 decrease in compensation expense and reductions
in a variety of other operating expenses. The Company moved its
courier operations in-house in October 2008 and expects future
courier expense to decrease as a result of this initiative. Income
Taxes. The Company's income tax expense for the nine months ended
September 30, 2008 was $355,000, which represented an effective tax
rate of 36.6%, compared to income tax expense for the nine months
ended September 30, 2007 of $291,000, which represented an
effective tax rate of 33.3%. Financial Condition of the Company
Total Assets. The Company's total assets increased by $13.0
million, or 5.6%, from $233.1 million at September 30, 2007 to
$246.1 million at September 30, 2008. The increase in assets
resulted primarily from a $27.3 million increase in the ending
balance of loans held for investment, which was partially offset by
a decrease in the balance of federal funds sold. Funds Sold and
Investment Securities. Total federal funds sold and investment
securities available for sale were $49.0 million at September 30,
2008, compared to a combined balance of $69.0 million at September
30, 2007, reflecting a decrease in the combined balance of $20.0
million, or 29.0%. Loans. Loans held for investment, net, at
September 30, 2008 were $170.8 million, which represents an
increase of $27.3 million, or 19.0%, from the September 30, 2007
loan balance of $143.5 million. Asset Quality. The Company's total
nonperforming assets decreased to $52,000, or 0.02% of assets, at
September 30, 2008, compared to $227,000, or 0.10% of assets, at
September 30, 2007, attributable to a decrease in the balance of
nonaccrual loans. Deposits. Driven by growth in core deposits,
total deposits increased by $7.4 million, or 3.6%, from $205.2
million at September 30, 2007 to $212.6 million at September 30,
2008. Core deposits, which are comprised of checking, savings and
money market accounts, increased by $10.6 million, or 7.0%, from
$150.2 million at September 30, 2007 to $160.8 million at September
30, 2008. Average total deposits increased by $5.1 million, or
2.7%, from $186.0 million during the nine months ended September
30, 2007 to $191.1 million during the nine months ended September
30, 2008. Average core deposits increased by $9.7 million, offset
by a $4.6 million decrease in the average balance of certificates
of deposit, between the comparable nine -month periods. Borrowed
Funds. To fund asset growth, in addition to the increase in deposit
balances, borrowed funds increased by $5.4 million, from $1.1
million at September 30, 2007 to $6.5 million at September 30,
2008, primarily due to an increase in FHLB borrowings. Capital.
Stockholders' equity increased by $456,000, or 1.8%, from $24.7
million at September 30, 2007 to $25.1 million at September 30,
2008. Stockholders' equity increased primarily as a result of a
$570,000 increase in retained earnings and additional paid-in
capital, offset by an $117,000 decrease in accumulated after-tax
comprehensive income attributable to a decrease in the market value
of the Company's available-for-sale investment securities
portfolio. At September 30, 2008, the Company's equity to asset
ratio was 10.2% and, based on the Bank's regulatory capital ratios,
was considered "well capitalized." 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. 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 September 30, 2008
2007 (unaudited) (unaudited) ASSETS Cash and due from banks $11,699
$7,141 Federal funds sold 11,849 30,211 Securities available for
sale, at fair value 37,158 38,831 Securities held to maturity, at
cost - 677 Loans, net Held for investment, net of allowance for
loan losses 170,817 143,530 Held for sale - 152 Accrued interest
receivable 668 808 Stock in Federal Reserve Bank, at cost 321 313
Stock in Federal Home Loan Bank of Atlanta, at cost 623 401
Premises and equipment, net 11,519 9,711 Other assets 1,430 1,327
Total assets $246,084 $233,102 LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities Deposits Noninterest bearing $65,135 $53,762
Interest-bearing 147,501 151,431 Total deposits 212,636 205,193
Federal Home Loan Bank Advance 5,000 - Securities sold under
agreements to repurchase 1,498 1,045 Other borrowings - 50 Accrued
interest payable 279 342 Other liabilities 1,526 1,783 Total
liabilities 220,939 208,413 Stockholders' equity Common stock, $5
par value - authorized 3,000,000 shares; issued and outstanding:
2,279,252 shares at September 30, 2008; 2,278,652 shares at
September 30, 2007 11,396 11,393 Additional paid-in capital 6,297
6,134 Retained earnings 7,552 7,145 Accumulated other comprehensive
income (loss), net (100) 17 Total stockholders' equity 25,145
24,689 Total liabilities and stockholders' equity $246,084 $233,102
HERITAGE BANKSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME (in
thousands, except per share data) Three Months Ended Nine Months
Ended September 30 September 30 2008 2007 2008 2007 (unaudited)
(unaudited) (unaudited) (unaudited) Interest income Loans and fees
on loans $2,454 $2,530 $7,398 $7,452 Taxable investment securities
308 491 1,212 1,413 Nontaxable investment securities 7 13 33 38
Dividends on FRB and FHLB stock 10 11 42 33 Interest on federal
funds sold 53 190 135 587 Other interest income 1 3 4 9 Total
interest income 2,833 3,238 8,824 9,532 Interest expense Deposits
816 1,335 2,748 3,845 Borrowings 53 11 199 68 Total interest
expense 869 1,346 2,947 3,913 Net interest income 1,964 1,892 5,877
5,619 Provision for loan losses 68 102 68 105 Net interest income
after provision for loan losses 1,896 1,790 5,809 5,514 Noninterest
income Service charges on deposit accounts 111 125 316 380 Late
charges and other fees on loans 10 12 43 51 Gains on sale of loans
held for sale, net 24 14 91 97 Gains on sale of investment
securities 523 - 528 1 Gain on sale of fixed assets 1 529 1 529
Other 79 111 232 300 Total noninterest income 748 791 1,211 1,358
Noninterest expense Compensation 1,007 1,002 3,090 3,163 Data
processing 132 127 409 387 Occupancy 193 272 599 571 Furniture and
equipment 131 136 419 387 Taxes and licenses 72 54 204 163
Professional fees 71 66 231 286 Marketing 32 37 109 122 Telephone
25 31 75 95 Stationery and supplies 12 39 58 108 Loss on disposal
or impairment of fixed assets 68 61 68 61 Loss on sale of
investment securities 10 - 10 - Other 289 239 776 654 Total
noninterest expense 2,042 2,064 6,048 5,997 Income before provision
for income taxes 602 517 972 875 Provision for income taxes 216 172
355 291 Net income $386 $345 $617 $584 Earnings per common share
Basic $0.17 $0.15 $0.27 $0.26 Diluted $0.17 $0.15 $0.27 $0.25
Dividends per share $0.06 $0.06 $0.18 $0.18 Weighted average shares
outstanding - basic 2,278,840 2,278,652 2,278,715 2,278,555 Effect
of dilutive stock options 18,223 20,878 16,151 16,038 Weighted
average shares outstanding - assuming dilution 2,297,063 2,299,530
2,294,866 2,294,593 HERITAGE BANKSHARES, INC. OTHER SELECTED
FINANCIAL INFORMATION (Unaudited) (in thousands, except share and
per share data) Three Months Ended Nine Months Ended September 30,
September 30, 2008 2007 2008 2007 Financial ratios Annualized
return on average assets 0.67% 0.63% 0.36% 0.36% Annualized return
on average equity 6.03% 5.58% 3.23% 3.18% Average equity to average
assets 11.07% 11.25% 11.16% 11.45% Equity to assets, at period-end
10.22% 10.59% 10.22% 10.59% Net interest margin 3.72% 3.72% 3.74%
3.78% Per common share Earnings per share - basic $0.17 $0.15 $0.27
$0.26 Earnings per share - diluted $0.17 $0.15 $0.27 $0.25 Book
value per share $11.03 $10.84 $11.03 $10.84 Dividends declared per
share $0.06 $0.06 $0.18 $0.18 Common stock outstanding 2,279,252
2,278,652 2,279,252 2,278,652 Weighted average basic shares
outstanding 2,278,840 2,278,652 2,278,715 2,278,555 Weighted
average diluted shares 2,297,063 2,299,530 2,294,866 2,294,593
Asset quality Nonaccrual loans $44 $201 $44 $201 Accruing loans
past due 90 days or more 8 26 8 26 Total nonperforming loans 52 227
52 227 Real estate owned, net - - - - Total nonperforming assets
$52 $227 $52 $227 Nonperforming assets to total assets 0.02% 0.10%
0.02% 0.10% Allowance for loan losses Balance, beginning of period
$1,592 $1,382 $1,400 $1,373 Provision for loan losses 68 102 68 105
Loans charged-off (57) (102) (58) (111) Recoveries (7) - 186 15
Balance, end of period $1,596 $1,382 $1,596 $1,382 Allowance for
loan losses to gross loans held for investment, net of unearned
fees and costs 0.93% 0.95% 0.93% 0.95% DATASOURCE: Heritage
Bankshares, Inc. CONTACT: Michael S. Ives of Heritage Bankshares,
Inc., +1-757-648-1601 Web site: http://www.heritagebankva.com/
Copyright