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Virginia Heritage Bank Announces Results for the Third Quarter 2013

  Virginia Heritage Bank Announces Results for the Third Quarter 2013

Business Wire

TYSONS CORNER, Va. -- October 25, 2013

Virginia Heritage Bank (OTCBB: VGBK), announced quarterly earnings of $2.0
million after taxes, or $0.33 per share (basic) and $0.32 per share (diluted),
for the period ended September 30, 2013. This is a 15% decrease compared to
earnings of $2.3 million after taxes, or $0.53 per share (basic and diluted),
for the same period a year ago. On a year-to-date basis, earnings were $6.5
million after taxes, or $1.30 per share (basic) and $1.26 per share (diluted)
through September 30, 2013 versus $5.9 million after taxes, or $1.30 per share
(basic) and $1.29 per share (diluted), in 2012.

The Bank’s third quarter results produced an annualized rate of return of
0.96% on average assets and 10.00% on average common equity compared to 1.33%
and 17.91%, respectively, for the same period a year ago. On a year-to-date
basis, the annualized rate of return was 1.08% on average assets and 13.34% on
average common equity compared to 1.19% and 15.05%, respectively, for 2012.

                             Selected Highlights

  *At September 30, 2013, total assets were $835.2 million, an increase of
    $103.8 million, or 14%, from total assets at September 30, 2012.
  *Total gross loans, excluding loans held for sale, at September 30, 2013
    were $644.2 million, an increase of $80.2 million, or 14% compared to
    September 30, 2012.
  *Asset quality continues to be strong and remained significantly better
    than peers. Nonperforming assets, including other real estate owned, as a
    percentage of total assets, decreased to 0.46% at September 30, 2013,
    compared to 0.75% at September 30, 2012. Annualized net charge-offs were
    0% of average loans for the quarter ended September 30, 2013 and 2012,
    respectively.
  *Allowance for loan losses was $9.7 million as of September 30, 2013, or
    1.51% of gross loans outstanding, excluding loans held for sale. At
    September 30, 2013, the Bank had nonaccrual loans of $2.3 million,
    performing troubled debt restructured loans of $1.5 million and loans past
    due 90 days or more but still accruing interest amounting to $69 thousand.
  *Total deposits grew to $710.7 million, an increase of $88.6 million, or
    14%, compared to September 30, 2012.
  *At September 30, 2013, all of the Bank’s capital ratios substantially
    exceeded regulatory requirements.

Income Statement Review

Net interest income

Net interest income was $7.3 million and $6.5 million for quarter ended
September 30, 2013 and 2012, respectively. Net interest margin was 3.49% and
3.73% for the quarter ended September 30, 2013 and 2012, respectively.

Net interest income was $21.0 million and $17.9 million for the nine months
ended September 30, 2013 and 2012, respectively. Net interest margin was 3.54%
and 3.70% for the nine months ended September 30, 2013 and 2012, respectively.
The Bank’s growth in net interest income is directly attributable to the
Bank’s asset growth.

Provision for loan losses

The Bank recognized a provision for possible loan losses of $306 thousand for
the quarter ended September 30, 2013 compared to $800 thousand for the same
period in 2012.

For the nine months ended September 30, 2013 and 2012, the Bank provisioned
$1.5 million and $2.6 million, respectively, to the allowance for loan losses.
The Bank maintains a policy of adding an appropriate amount to the allowance
for loan losses to ensure adequate reserves based on, among other factors, the
portfolio composition, specific credit extended by the Bank and general
economic conditions.

Noninterest income

The Bank’s primary sources of noninterest income are the gain on sale of
loans, gain on sale of securities, service charges and loan processing fees.
Noninterest income amounted to $1.9 million for the quarter ended September
30, 2013 and was $3.8 million for the same period in 2012. Total gain on sale
of loans was $1.4 million and $2.9 million for the quarter ended September 30,
2013 and 2012, respectively. In addition, the Bank recorded a loss on sale of
securities available for sale of $8 thousand for the three months ended
September 30, 2013 compared to a gain of $504 thousand for the same period in
2012.

Noninterest income for the nine months ended September 30, 2013 and 2012 was
$8.8 million and $9.9 million, respectively. Total gain on sale of loans was
$6.7 million for the nine months ended September 30, 2013 compared to $7.0
million for the nine months ended September 30, 2012. In addition, the gain on
sale of securities held for sale decreased to $518 thousand for the nine
months ended September 30, 2013 compared to $1.5 million for the same period
in 2012.

The decrease in noninterest income for the three and nine months ended
September 30, 2013 was primarily due to lower volume in mortgage originations
and a reduction in securities gains.

Noninterest expense

The largest component of noninterest expense is salaries and employee
benefits. Salary and employee benefits expense amounted to $3.5 million for
the quarter ended September 30, 2013 and 2012. All other operating expenses
were $2.4 million for the quarter ended September 30, 2013 compared to $2.6
million for the same period in 2012.

Salary and employee benefits expense was $10.9 million versus $9.5 million for
the nine months ended September 30, 2013 and 2012, respectively. All other
operating expenses were $7.8 million for the nine months ended September 30,
2013 and $6.9 million for the same period in 2012.

The increase in salary and employee benefits expense for the nine months ended
September 30, 2013 was due to additional staffing needs based on the growth of
the Bank. The increase in other operating expenses for the same period was
primarily due to the growth of the Bank’s customer base and related data
processing and administrative expenses.

Balance Sheet Review

At September 30, 2013, total assets were $835.2 million, an increase of $103.8
million, or 14%, from total assets at September 30, 2012. Total gross loans
grew 14% to $644.2 million at September 30, 2013, from $564.0 million at
September 30, 2012. Loans held for sale were $16.7 million at September 30,
2013 compared to $21.7 million at September 30, 2012. During this period, the
Bank’s investment portfolio increased to $133.8 million compared to $110.7
million a year ago.

Total deposits were $710.7 million at September 30, 2013, which represents a
14% increase from $622.1 million of total deposits at September 30, 2012.
Total borrowings were $26.8 million at September 30, 2013 and $35.0 million at
September 30, 2012. Federal Home Loan Bank advances and repurchase agreements
were used to supplement deposits and fund asset growth.

Total stockholders’ equity was $94.7 million at September 30, 2013 and $68.3
million at September 30, 2012. The increase in stockholders’ equity was due to
net income of $6.5 million for the nine months ended September 30, 2013 and
net proceeds of $22.3 million from the Bank’s recent sale of 1,667,500 shares
of its common stock at a price of $14.25 per share. Total common shares
outstanding increased from 4,333,209 to 6,002,459 as a result of the common
stock offering.

Management Comments

David P. Summers, Chairman of the Board and Chief Executive Officer of the
Bank said:

“The third quarter results were impacted by a reduction in mortgage closed
loan volume of $43 million compared to the third quarter of 2012. The recent
increase in long term interest rates has caused a significant reduction in
mortgage refinance activity. The increase in long term interest rates also
impacted our securities sales as we incurred a loss of $8 thousand on sale of
investment securities in the third quarter of 2013 compared to $504 thousand
in gains in the third quarter of 2012.

“In spite of the adverse impact of higher long term rates on our mortgage
results and our investment securities portfolio, our core earnings grew 21%
year over year. Our net interest margin has stabilized at 3.49% for the most
recent quarter and our asset quality metrics are superior to most of our peer
bank competitors. Our net operating efficiency ratio for the quarter was 64%
and is evidence of good cost control during a period of generally reduced
economic activity. The Greater Washington region was certainly impacted by the
government shutdown and we remain diligent as to assessing the longer term
impact on our clients.

“We continue to focus on developing additional non-maturity deposits and
expanding our commercial, commercial real estate and consumer loan portfolios.
Current economic conditions remain challenging and we are dedicated to our
goal of good quality growth and profitability for our shareholders.”

Virginia Heritage Bank is headquartered in Tysons Corner, Virginia. The Bank
has five full service offices in Fairfax City, Chantilly, Gainesville, Tysons
Corner and Dulles, Virginia. The Bank also has a mortgage division located in
Chantilly, Virginia.

This release contains forward-looking statements, including our expectations
with respect to future events that are subject to various risks and
uncertainties. Factors that could cause actual results to differ materially
from management’s projections, forecasts, estimates and expectations include:
fluctuation in market rates of interest and loan and deposit pricing, adverse
changes in the overall national economy as well as adverse economic conditions
in our specific market areas, maintenance and development of well-established
and valued client relationships and referral source relationships, and
acquisition or loss of key production personnel. We caution readers that the
list of factors above is not exclusive. The forward-looking statements are
made as of the date of this release, and we may not undertake steps to update
the forward-looking statements to reflect the impact of any circumstances or
events that arise after the date the forward-looking statements are made. In
addition, our past results of operations are not necessarily indicative of
future performance.


VIRGINIA HERITAGE BANK
Balance Sheets
(Dollar amounts in thousands, except per share data)


                                                                % Change
                        September       December        September       Current     Year Over
                        30,             31,             30,
Assets                  2013            2012            2012            Year          Year
                        (Unaudited)                     (Unaudited)
                                                                                              
Cash and due from       $ 23,013        $ 12,761        $  22,647       80.34   %     1.62    %
banks
Securities
available for sale,       133,833         118,629          110,673      12.82   %     20.93   %
at fair value
Loans, net of
allowance for loan
losses of $9,697,         634,466         579,284          556,169      9.53    %     14.08   %
$8,262 and $7,786,
respectively
Loans held for sale       16,727          48,136           21,662       -65.25  %     -22.78  %
Premises and              1,919           2,051            2,012        -6.44   %     -4.62   %
equipment, net
Accrued interest          2,334           2,368            2,533        -1.44   %     -7.86   %
receivable
Federal Home Loan         2,063           2,352            1,902        -12.29  %     8.46    %
Bank stock, at cost
Federal Reserve           2,329           1,751            1,751        33.01   %     33.01   %
Bank stock, at cost
Other real estate
owned, net of
valuation allowance       - -             479              360          -100.00 %     -100.00 %
of $0, $81 and $40,
respectively
Bank owned life           9,054           5,178            5,136        74.86   %     76.29   %
insurance
Other assets             9,468         8,584          6,610        10.30   %     43.24   %
                                                                                              
Total assets            $ 835,206      $ 781,573      $  731,455      6.86    %     14.18   %
                                                                                              
Liabilities and
Stockholders'
Equity
                                                                                              
Liabilities:
Noninterest-bearing     $ 191,782       $ 182,790       $  172,475      4.92    %     11.19   %
demand deposits
NOW, money-market
and savings               106,021         85,160           77,316       24.50   %     37.13   %
deposits
Time deposits            412,941       392,188        372,274      5.29    %     10.92   %
                                                                                              
Total deposits            710,744         660,138          622,065      7.67    %     14.26   %
                                                                                              
Federal funds             - -             13,000           10,000       -100.00 %     -100.00 %
purchased
Federal Home Loan         25,000          33,000           23,000       -24.24  %     8.70    %
Bank advances
Securities sold
under agreements to       1,822           1,600            1,993        13.88   %     -8.58   %
repurchase
Accrued expenses
and other                2,926         4,518          6,144        -35.24  %     -52.38  %
liabilities
                                                                                              
Total liabilities        740,492       712,256        663,202      3.96    %     11.65   %
                                                                                              
Stockholders'
equity:
Preferred stock,
Series A, $4 par
value,
non-cumulative,
$1,000 per share          61              61               61           0.00    %     0.00    %
liquidation
preference, 15,300
shares issued and
outstanding
Common stock, $4
par value,
15,000,000 shares
authorized,
6,002,459,                24,010          17,333           17,333       38.52   %     38.52   %
4,333,209 and
4,333,209 shares
issued and
outstanding,
respectively
Additional paid-in        56,506          41,038           41,019       37.69   %     37.76   %
capital
Retained earnings         17,350          10,927           9,187        58.78   %     88.85   %
Accumulated other
comprehensive            (3,213  )      (42     )       653          N/M          N/M     
(loss) gain
                                                                                              
Total stockholders'      94,714        69,317         68,253       36.64   %     38.77   %
equity
                                                                                              
Total liabilities
and stockholders'       $ 835,206      $ 781,573      $  731,455      6.86    %     14.18   %
equity
                                                                                              

N/M - Not
Meaningful
                                                                                              


VIRGINIA HERITAGE BANK
Statements of Income
For the Three and Nine Months Ended September 30, 2013 and 2012 (Unaudited)
(Dollar amounts in thousands, except per share data)

                                                                                    
                 Three Months Ended                              Nine Months Ended
                 September 30,                                   September 30,
                 2013              2012            % Change      2013            2012            % Change
Interest
income:
Interest and
fees on          $ 7,887           $ 7,334         7.54    %     $ 23,233        $ 20,616        12.69  %
loans
Investment         633               679           -6.77   %       1,723           1,955         -11.87 %
securities
Interest on
deposits in       24              2             1100.00 %      42             23            82.61  %
other banks
Total
interest          8,544           8,015         6.60    %      24,998         22,594        10.64  %
income
                                                                                                        
Interest
expense:
Interest on        1,223             1,395         -12.33  %       3,719           4,441         -16.26 %
deposits
Interest on
federal            - -               1             100.00  %       7               2             250.00 %
funds
purchased
Interest on
Federal Home       70                86            -18.60  %       235             284           -17.25 %
Loan Bank
advances
Interest on
securities
sold under        1               1             0.00    %      2              3             -33.33 %
agreements
to
repurchase
Total
interest          1,294           1,483         -12.74  %      3,963          4,730         -16.22 %
expense
                                                                                                        
Net interest       7,250             6,532         10.99   %       21,035          17,864        17.75  %
income
                                                                                                        
Provision
for loan          306             800           -61.75  %      1,458          2,610         -44.14 %
losses
                                                                                                        
Net interest
income after
provision         6,944           5,732         21.14   %      19,577         15,254        28.34  %
for loan
losses
                                                                                                        
Noninterest
income:
Gain on sale       1,389             2,893         -51.99  %       6,662           7,032         -5.26  %
of loans
Service
charges on         191               48            297.92  %       581             137           324.09 %
deposit
accounts
(Loss) gain
on sale of
securities         (8        )       504           -101.59 %       518             1,513         -65.76 %
available
for sale
Other income      305             403           -24.32  %      1,068          1,202         -11.15 %
Total
noninterest       1,877           3,848         -51.22  %      8,829          9,884         -10.67 %
income
                                                                                                        
Noninterest
expenses:
Salaries and
employee           3,457             3,545         -2.48   %       10,896          9,518         14.48  %
benefits
Occupancy
and                599               526           13.88   %       1,796           1,673         7.35   %
equipment
expense
Mortgage
closing cost       161               610           -73.61  %       1,162           1,236         -5.99  %
promotions
Bank
franchise          174               156           11.54   %       523             457           14.44  %
tax
FDIC deposit
insurance          123               112           9.82    %       381             284           34.15  %
assessments
Other
operating         1,333           1,162         14.72   %      3,933          3,288         19.62  %
expenses
Total
noninterest       5,847           6,111         -4.32   %      18,691         16,456        13.58  %
expenses
                                                                                                        
Income
before             2,974             3,469         -14.27  %       9,715           8,682         11.90  %
income tax
expense
                                                                                                        
Income tax        971             1,123         -13.54  %      3,178          2,815         12.90  %
expense
                                                                                                        
Net income         2,003             2,346         -14.62  %       6,537           5,867         11.42  %
Dividend on
preferred         38              38            0.00    %      115            251           -54.18 %
stock
Net income
available to     $ 1,965          $ 2,308         -14.86  %     $ 6,422         $ 5,616         14.35  %
common
stockholders
                                                                                                        
Income per
common
share:
Basic            $ 0.33           $ 0.53          -37.74  %     $ 1.30          $ 1.30          0.00   %
Diluted          $ 0.32           $ 0.53          -39.62  %     $ 1.26          $ 1.29          -2.33  %
                                                                                                        
Weighted
average
common
shares
outstanding:
Basic             6,002,459       4,333,209     38.52   %      4,948,854      4,333,209     14.21  %
Diluted           6,157,646       4,357,956     41.30   %      5,084,683      4,353,460     16.80  %
                                                                                                        


VIRGINIA HERITAGE BANK
Financial Highlights (Unaudited)
(Dollar amounts in thousands, except per share data)

                                                               
                  At or For the Quarter Ended         At or For the Nine Months Ended
                  September 30,                       September 30,
                  2013              2012              2013              2012
Per Share
Data and
Shares
Outstanding:
Net income        $ 0.33            $ 0.53            $ 1.30            $ 1.30
(basic) ^(4)
Net income
(diluted)           0.32              0.53              1.26              1.29
^(4)
Common equity
book value at       13.23             12.22             13.23             12.22
period end
Weighted
average             6,002,459         4,333,209         4,948,854         4,333,209
shares
(basic)
Weighted
average             6,157,646         4,357,956         5,084,683         4,353,460
shares
(diluted)
Shares
outstanding         6,002,459         4,333,209         6,002,459         4,333,209
at end of
period
                                                                                    
Asset
Quality:
Nonperforming
assets
excluding TDR
to total            0.28      %       0.28      %
assets
Nonperforming
assets
^(1)(5)
to total            0.46      %       0.75      %
assets
Nonperforming
loans and
past due
loans ^(2)(5)
to total            0.47      %       0.76      %
assets
to total            0.61      %       0.98      %
gross loans
Allowance for
loan losses
to total            1.51      %       1.38      %
gross loans
^(3)
Annualized
net
charge-offs         0.00      %       0.00      %       0.00      %       0.25      %
to average
loans
outstanding
                                                                                    
Performance
Ratios:
Annualized
return on           0.96      %       1.33      %       1.08      %       1.19      %
average
assets
Annualized
return on
average             10.00     %       17.91     %       13.34     %       15.05     %
common
stockholders'
equity ^(6)
Net interest        3.19      %       3.33      %       3.23      %       3.34      %
rate spread
Net interest        3.49      %       3.73      %       3.54      %       3.70      %
margin
Efficiency          64.06     %       58.87     %       62.59     %       59.31     %
ratio
                                                                                    
Regulatory                          Minimum To Be
Capital           Actual
Ratios:                             Well
                                    Capitalized
Total
risk-based          15.84     %       10.00     %
capital ratio
Tier 1
risk-based          14.59     %       6.00      %
capital ratio
Leverage            11.77     %       5.00      %
ratio

                                                                                    

(1)  Includes nonaccrual loans, troubled debt restructured loans and other
      real estate owned.
(2)   Includes nonaccrual loans, troubled debt restructured loans and loans
      past due 90 days or more and still accruing interest.
(3)   Excludes loans held for sale.
(4)   The net income per share data has been restated for 2012 to reflect the
      net income available to common shareholders after SBLF dividends.
(5)   Both nonperforming assets and nonperforming loans have been restated to
      include performing troubled debt restructured loans.
      Annualized return on average stockholders' equity has been restated for
(6)   2012 to reflect the exclusion of preferred equity of $15.3 million
      (SBLF).


VIRGINIA HERITAGE BANK
Business Segments (Unaudited)
(Dollar amounts in thousands)

                                                            
                            Nine Months Ended September 30, 2013
                            Retail        Mortgage     Indirect
                                                                     Combined
                            Banking       Banking      Lending
Revenues:
Interest income             $ 22,573      $ 754        $ 1,671       $ 24,998
Gains on sales of loans       342           6,320        - -           6,662
Other noninterest            1,465        628         74           2,167
income
Total operating income       24,380       7,702       1,745        33,827
                                                                       
Expenses:
Provision for loan            1,421         - -          37            1,458
losses
Interest expense              3,348         135          480           3,963
Salaries and employee         6,543         3,945        408           10,896
benefits
Other noninterest            5,491        2,106       198          7,795
expenses
Total operating              16,803       6,186       1,123        24,112
expenses
                                                                       
Income tax expense           3,178        - -         - -          3,178
                                                                       
Net income                  $ 4,399       $ 1,516      $ 622         $ 6,537
                                                                       
Total assets                $ 720,970     $ 20,533     $ 93,703      $ 835,206
                                                                       
                            
                            Nine Months Ended September 30, 2012
                            Retail        Mortgage     Indirect
                                                                     Combined
                            Banking       Banking      Lending
Revenues:
Interest income             $ 20,098      $ 587        $ 1,909       $ 22,594
Gains on sales of loans       - -           7,032        - -           7,032
Other noninterest            2,015        740         97           2,852
income
Total operating income       22,113       8,359       2,006        32,478
                                                                       
Expenses:
Provision for loan            2,337         - -          273           2,610
losses
Interest expense              3,972         145          613           4,730
Salaries and employee         5,191         4,229        98            9,518
benefits
Other noninterest            4,648        2,053       237          6,938
expenses
Total operating              16,148       6,427       1,221        23,796
expenses
                                                                       
Income tax expense           2,815        - -         - -          2,815
                                                                       
Net income                  $ 3,150       $ 1,932      $ 785         $ 5,867
                                                                       
Total assets                $ 607,221     $ 23,786     $ 100,448     $ 731,455



Note: Operating expenses for the Mortgage Banking and Indirect Lending
segments consist largely of direct expenses only while the majority of the
Bank's operating expenses and income tax expense is shown in the Retail
Banking segment.

Contact:

Virginia Heritage Bank
David Summers, 703-277-2200
or
Chris Brockett, 703-277-2200
 
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