Virginia Heritage Bank Reports Continued Profits for 2013 and Expansion for 2014

  Virginia Heritage Bank Reports Continued Profits for 2013 and Expansion for
  2014

Business Wire

TYSONS CORNER, Va. -- January 24, 2014

Virginia Heritage Bank (OTCBB: VGBK), announced quarterly earnings of $2.5
million after taxes, or $0.40 per share (basic) and $0.39 per share (diluted),
for the quarter ended December 31, 2013. This is a 38% increase compared to
earnings of $1.8 million after taxes, or $0.40 per share (basic) and $0.39 per
share (diluted), for the same period a year ago. For the year ended December
31, 2013, earnings were $9.0 million after taxes, or $1.70 per share (basic)
and $1.65 per share (diluted) versus $7.6 million after taxes, or $1.70 per
share (basic) and $1.68 per share (diluted), in 2012.

The Bank’s fourth quarter results produced an annualized rate of return of
1.15% on average assets and 12.12% on average common equity compared to 0.95%
and 13.24%, respectively, for the same period a year ago. For the year ended
December 31, 2013, the rate of return was 1.10% on average assets and 13.14%
on average common equity compared to 1.13% and 15.07%, respectively, for 2012.

                             Selected Highlights

  *At December 31, 2013, total assets were $894.8 million, an increase of
    $113.2 million, or 14%, from total assets at December 31, 2012.
  *Total gross loans, excluding loans held for sale, at December 31, 2013
    were $705.9 million, an increase of $118.4 million, or 20% compared to
    December 31, 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 0.33% at December 31, 2013,
    compared to 0.63% at December 31, 2012. Net charge-offs were 0.04% of
    average loans for the year ended December 31, 2013 and 0.24% for 2012.
  *Allowance for loan losses was $9.8 million as of December 31, 2013, or
    1.39% of gross loans outstanding, excluding loans held for sale. At
    December 31, 2013, the Bank had nonaccrual loans of $1.1 million,
    performing troubled debt restructured loans of $2.1 million and loans past
    due 90 days or more but still accruing interest amounting to $17 thousand.
  *Total deposits grew to $711.4 million, an increase of $51.3 million, or
    8%, compared to deposits at December 31, 2012.
  *At December 31, 2013, all of the Bank’s capital ratios substantially
    exceeded regulatory requirements.

Income Statement Review

Net interest income

Net interest income was $7.7 million and $6.8 million for quarter ended
December 31, 2013 and 2012, respectively. Net interest margin was 3.61% and
3.67% for the quarter ended December 31, 2013 and 2012, respectively.

Net interest income was $28.7 million and $24.7 million for the year ended
December 31, 2013 and 2012, respectively. Net interest margin was 3.56% and
3.69% for the year ended December 31, 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 December 31, 2013 compared to $800 thousand for the same
period in 2012.

For the year ended December 31, 2013 and 2012, the Bank provisioned $1.8
million and $3.4 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 $1.8 million for the quarter ended December 31,
2013 and was $4.8 million for the same period in 2012. Total gain on sale of
loans was $1.3 million and $4.0 million for the quarter ended December 31,
2013 and 2012, respectively. In addition, the Bank recorded a gain on sale of
securities available for sale of $39 thousand for the three months ended
December 31, 2013 compared to a gain of $245 thousand for the same period in
2012.

Noninterest income for the year ended December 31, 2013 and 2012 was $10.7
million and $14.6 million, respectively. Total gain on sale of loans was $7.9
million for the year ended December 31, 2013 compared to $11.0 million for the
year ended December 31, 2012. In addition, the gain on sale of securities held
for sale decreased to $557 thousand for the year ended December 31, 2013
compared to $1.8 million for the same period in 2012.

The decrease in noninterest income for the three months and year ended
December 31, 2013 was primarily due to lower volume in mortgage originations
and a reduction in securities gains. Overall, mortgage banking activity during
2013 is a more typical representation of normal volume. The volume reported in
2012 was unusually high due to heavy refinancing during the low rate
environment.

Noninterest expense

The largest component of noninterest expense is salaries and employee benefits
which amounted to $3.4 million for the quarter ended December 31, 2013 and
$4.1 million in 2012. All other operating expenses were $2.2 million for the
quarter ended December 31, 2013 compared to $4.0 million for the same period
in 2012. The decrease in salary and employee benefits expense and other
operating expenses for the quarter ended December 31, 2013 was due to the
lower volume in mortgage originations discussed earlier. With regard to the
decrease in other operating expenses, the prior year included a one-time
charge of approximately $1.0 million representing the settlement of a claim by
the U.S. Bankruptcy Trustee for a former loan customer.

Salary and employee benefits expense was $14.3 million versus $13.6 million
for the year ended December 31, 2013 and 2012, respectively. All other
operating expenses were $10.0 million for the year ended December 31, 2013 and
$11.0 million for the same period in 2012. The increase in salary and employee
benefits expense for the year ended December 31, 2013 was due to additional
staffing needs based on the growth of the Bank. The decrease in other
operating expenses for 2013 was primarily due to the lower volume in mortgage
originations discussed earlier.

Balance Sheet Review

At December 31, 2013, total assets were $894.8 million, an increase of $113.2
million, or 14%, from total assets at December 31, 2012. Total gross loans
grew 20% to $705.9 million at December 31, 2013, from $587.5 million at
December 31, 2012. Loans held for sale were $10.7 million at December 31, 2013
compared to $48.1 million at December 31, 2012. During this period, the Bank’s
investment portfolio increased to $126.8 million compared to $118.6 million, a
year ago.

Total deposits were $711.4 million at December 31, 2013, which represents an
8% increase from $660.1 million of total deposits at December 31, 2012. Total
borrowings were $84.1 million at December 31, 2013 and $47.6 million at
December 31, 2012. Federal Home Loan Bank advances and repurchase agreements
were used to supplement deposits and fund asset growth.

Total stockholders’ equity was $96.2 million at December 31, 2013 and $69.3
million at December 31, 2012. The increase in stockholders’ equity was
primarily due to net income of $9.0 million for the year ended December 31,
2013 and net proceeds of $22.1 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 6,014,801 as a result of
the common stock offering and stock option exercises. Accumulated other
comprehensive loss increased to $4.3 million, net of tax, at December 31, 2013
compared to $42 thousand for 2012. This increase represents the change in
market value of the investment securities available for sale.

Management Comments

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

“We are pleased to report these improved results for 2013 compared to 2012.
With earnings growth of almost 18% year over year, balance sheet expansion of
14% and asset quality metrics that far exceed our peer group, our management,
staff and Board of Directors are proud of the Bank’s exceptional 2013
performance.

“These results were realized despite a significant reduction in our mortgage
loan sales and securities gains compared to 2012. 2013 revenue from these
sources was $4.6 million less than in 2012. However, due to better performance
from our other core lines of business, we were able to increase after tax
earnings to $9.0 million in 2013, a $1.4 million increase over 2012.

“We are also pleased with our successful mid-year capital raise which netted
the Bank $22.1 million of proceeds from the sale of 1,667,500 shares of common
stock. This additional capital has allowed us to continue our growth strategy.
One part of that strategy is the opening of our sixth branch in Arlington,
Virginia, which is anticipated to open the first quarter of 2014. We also
expect to open our seventh branch office in Reston, Virginia, by year end
2014. To expand our ability to reach more customers efficiently, we will be
establishing a 'virtual' branch in 2014, offering tailored products and
services delivered electronically for the growing internet market. This should
be a differentiator within our peer group.”

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)
                                                                      
                                        December 31,   December 31,
Assets                                  2013           2012           % Change
                                        (Unaudited)
                                                                      
Cash and due from banks                 $  24,855      $  12,761      94.77  %
Securities available for sale, at          126,834        118,629     6.92   %
fair value
Loans, net of allowance for loan
losses of $9,790 and $8,262,               696,097        579,284     20.17  %
respectively
Loans held for sale                        10,730         48,136      -77.71 %
Premises and equipment, net                1,861          2,051       -9.26  %
Accrued interest receivable                2,379          2,368       0.46   %
Federal Home Loan Bank stock, at cost      4,223          2,352       79.55  %
Federal Reserve Bank stock, at cost        2,417          1,751       38.04  %
Other real estate owned, net of
valuation allowance of $76 and $81,        519            479         8.35   %
respectively
Bank owned life insurance                  15,408         5,178       197.57 %
Other assets                              9,518        8,584      10.88  %
                                                                      
Total assets                            $  894,841    $  781,573    14.49  %
                                                                      
Liabilities and Stockholders' Equity
                                                                      
Liabilities:
Noninterest-bearing demand deposits     $  189,583     $  182,790     3.72   %
NOW, money-market and savings              107,064        85,160      25.72  %
deposits
Time deposits                             414,753      392,188    5.75   %
                                                                      
Total deposits                             711,400        660,138     7.77   %
                                                                      
Federal funds purchased                    10,000         13,000      -23.08 %
Federal Home Loan Bank advances            73,000         33,000      121.21 %
Securities sold under agreements to        1,067          1,600       -33.31 %
repurchase
Accrued expenses and other                3,168        4,518      -29.88 %
liabilities
                                                                      
Total liabilities                         798,635      712,256    12.13  %
                                                                      
Stockholders' equity:
Preferred stock, Series A, $4 par
value, non-cumulative,
$1,000 per share liquidation               61             61          0.00   %
preference, 15,300 shares issued and
outstanding
Common stock, $4 par value,
15,000,000 shares authorized,              24,059         17,333      38.80  %
6,014,801 and 4,333,209 shares issued
and outstanding, respectively
Additional paid-in capital                 56,632         41,038      38.00  %
Retained earnings                          19,774         10,927      80.96  %
Accumulated other comprehensive loss      (4,320  )     (42     )   N/M
                                                                      
Total stockholders' equity                96,206       69,317     38.79  %
                                                                      
Total liabilities and stockholders'     $  894,841    $  781,573    14.49  %
equity
                                                                      

N/M - Not Meaningful
                                                                      

                                                                           
VIRGINIA HERITAGE BANK
Statements of Income
For the Three Months and Year Ended December 31, 2013 and 2012
(Dollar amounts in thousands, except per share data)
                                                                                  
               Three Months Ended                     Year Ended
               December 31,                           December 31,
               2013          2012          % Change   2013          2012          % Change
               (Unaudited)   (Unaudited)              (Unaudited)
Interest
income:
Interest and
fees on        $ 8,219       $ 7,607       8.05   %   $ 31,453      $ 28,223      11.44  %
loans
Investment       708           604         17.22  %     2,430         2,559       -5.04  %
securities
Interest on
deposits in     11           9           22.22  %    54           32          68.75  %
other banks
Total
interest        8,938        8,220       8.73   %    33,937       30,814      10.14  %
income
                                                                                  
Interest
expense:
Interest on      1,187         1,324       -10.35 %     4,906         5,765       -14.90 %
deposits
Interest on
federal          5             2           150.00 %     12            5           140.00 %
funds
purchased
Interest on
Federal Home     83            90          -7.78  %     319           374         -14.71 %
Loan Bank
advances
Interest on
securities
sold under      1            1           0.00   %    3            3           0.00   %
agreements
to
repurchase
Total
interest        1,276        1,417       -9.95  %    5,240        6,147       -14.76 %
expense
                                                                                  
Net interest     7,662         6,803       12.63  %     28,697        24,667      16.34  %
income
                                                                                  
Provision
for loan        306          800         -61.75 %    1,764        3,410       -48.27 %
losses
                                                                                  
Net interest
income after
provision       7,356        6,003       22.54  %    26,933       21,257      26.70  %
for loan
losses
                                                                                  
Noninterest
income:
Gain on sale     1,258         3,995       -68.51 %     7,919         11,028      -28.19 %
of loans
Service
charges on       160           20          700.00 %     652           72          805.56 %
deposit
accounts
Gain on sale
of
securities       39            245         -84.08 %     557           1,759       -68.33 %
available
for sale
Other income    390          497         -21.53 %    1,548        1,782       -13.13 %
Total
noninterest     1,847        4,757       -61.17 %    10,676       14,641      -27.08 %
income
                                                                                  
Noninterest
expenses:
Salaries and
employee         3,381         4,129       -18.12 %     14,277        13,647      4.62   %
benefits
Occupancy
and              618           575         7.48   %     2,414         2,248       7.38   %
equipment
expense
Mortgage
closing cost     136           925         -85.30 %     1,299         2,161       -39.89 %
promotions
Bank
franchise        174           156         11.54  %     698           613         13.87  %
tax
FDIC deposit
insurance        134           111         20.72  %     514           394         30.46  %
assessments
Other
operating       1,128        2,275       -50.42 %    5,061        5,564       -9.04  %
expenses
Total
noninterest     5,571        8,171       -31.82 %    24,263       24,627      -1.48  %
expenses
                                                                                  
Income
before           3,632         2,589       40.29  %     13,346        11,271      18.41  %
income tax
expense
                                                                                  
Income tax      1,169        810         44.32  %    4,346        3,625       19.89  %
expense
                                                                                  
Net income       2,463         1,779       38.45  %     9,000         7,646       17.71  %
Dividend on
preferred       38           38          0.00   %    153          289         -47.06 %
stock
Net income
available to   $ 2,425       $ 1,741       39.29  %   $ 8,847       $ 7,357       20.25  %
common
stockholders
                                                                                  
Income per
common
share:
Basic          $ 0.40        $ 0.40        0.00   %   $ 1.70        $ 1.70        0.00   %
Diluted        $ 0.39        $ 0.39        0.00   %   $ 1.65        $ 1.68        -1.79  %
                                                                                  
Weighted
average
common
shares
outstanding:
Basic           6,014,801    4,333,209   38.81  %    5,217,531    4,333,209   20.41  %
Diluted         6,173,199    4,408,375   40.03  %    5,359,521    4,371,355   22.61  %
                                                                                  


VIRGINIA HERITAGE BANK
Financial Highlights
(Dollar amounts in thousands, except per share data)
                                                            
                At or For the Quarter Ended       At or For the Year Ended
                December 31,                      December 31,
                2013            2012              2013            2012
                (Unaudited)     (Unaudited)       (Unaudited)
Per Share
Data and
Shares
Outstanding:
Net income      $ 0.40          $ 0.40            $ 1.70          $ 1.70
(basic)
Net income        0.39            0.39              1.65            1.68
(diluted)
Common equity
book value at     13.45           12.47             13.45           12.47
period end
Stock price
at end of         17.92           12.70             17.92           12.70
period
Weighted
average           6,014,801       4,333,209         5,217,531       4,333,209
shares
(basic)
Weighted
average           6,173,199       4,408,375         5,359,521       4,371,355
shares
(diluted)
Shares
outstanding       6,014,801       4,333,209         6,014,801       4,333,209
at end of
period

Asset
Quality:
Nonperforming
assets
excluding TDR
to total          0.19      %     0.23      %
assets
Nonperforming
assets ^(1)
(4)
to total          0.33      %     0.63      %
assets
Nonperforming
loans and
past due
loans ^(2)
(4)
to total          0.27      %     0.57      %
assets
to total          0.35      %     0.76      %
gross loans
Allowance for
loan losses
to total          1.39      %     1.41      %
gross loans
^(3)
Annualized
net
charge-offs       0.12      %     0.21      %       0.04      %     0.24      %
to average
loans
outstanding
                                                                  
Performance
Ratios:
Annualized
return on         1.15      %     0.95      %       1.10      %     1.13      %
average
assets
Annualized
return on
average           12.12     %     13.24     %       13.14     %     15.07     %
common
stockholders'
equity ^(5)
Net interest      3.33      %     3.30      %       3.25      %     3.33      %
rate spread
Net interest      3.61      %     3.67      %       3.56      %     3.69      %
margin
Efficiency        58.59     %     70.68     %       61.62     %     62.65     %
ratio
                                                                  
Regulatory                      Minimum To Be
Capital         Actual          Well
Ratios:                         Capitalized
Total
risk-based        14.86     %     10.00     %
capital ratio
Tier 1
risk-based        13.61     %     6.00      %
capital ratio
Leverage          11.72     %     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) Both nonperforming assets and nonperforming loans have been restated to
include performing troubled debt restructured loans.
(5) Annualized return on average stockholders' equity has been restated for
2012 to reflect the exclusion of preferred equity of $15.3 million (SBLF).
                                                                  

                           VIRGINIA HERITAGE BANK
                            Business Segments)
                            (Dollar amounts in thousands)
                                                                 
                            Year Ended December 31, 2013 (Unaudited)
                            Retail         Mortgage      Indirect    Combined
                            Banking        Banking       Lending
Revenues:
Interest income             $  30,823      $  925        $ 2,189     $ 33,937
Gains on sales of loans        557            7,362        - -         7,919
Other noninterest income      1,911         742         104        2,757
Total operating income        33,291        9,029       2,293      44,613
                                                                     
Expenses:
Provision for loan             1,727          - -          37          1,764
losses
Interest expense               4,457          159          624         5,240
Salaries and employee          9,103          4,684        490         14,277
benefits
Other noninterest             7,211         2,507       268        9,986
expenses
Total operating expenses      22,498        7,350       1,419      31,267
                                                                     
Income before income tax       10,793         1,679        874         13,346
expense
                                                                     
Income tax expense            4,346         - -         - -        4,346
                                                                     
Net income                  $  6,447       $  1,679      $ 874       $ 9,000
                                                                     
Total assets                $  779,937     $  15,985     $ 98,919    $ 894,841
                                                                     
                            Year Ended December 31, 2012
                            Retail         Mortgage      Indirect    Combined
                            Banking        Banking       Lending
Revenues:
Interest income             $  27,308      $  929        $ 2,577     $ 30,814
Gains on sales of loans        303            10,725       - -         11,028
Other noninterest income      2,440         1,044       129        3,613
Total operating income        30,051        12,698      2,706      45,455
                                                                     
Expenses:
Provision for loan             3,063          - -          347         3,410
losses
Interest expense               5,122          218          807         6,147
Salaries and employee          7,302          6,161        184         13,647
benefits
Other noninterest             7,370         3,300       310        10,980
expenses
Total operating expenses      22,857        9,679       1,648      34,184
                                                                     
Income before income tax       7,194          3,019        1,058       11,271
expense
                                                                     
Income tax expense            3,625         - -         - -        3,625
                                                                     
Net income                  $  3,569       $  3,019      $ 1,058     $ 7,646
                                                                     
Total assets                $  624,475     $  52,104     $ 104,994   $ 781,573
                                       
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
Chris Brockett, 703-277-2200
 
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