Virginia Heritage Bank Reports Improved Quarterly Earnings Amid Unusual Winter Interruptions

  Virginia Heritage Bank Reports Improved Quarterly Earnings Amid Unusual
  Winter Interruptions

Business Wire

TYSONS CORNER, Va. -- April 25, 2014

Virginia Heritage Bank (OTCBB: VGBK), announced quarterly earnings of $2.2
million after taxes, or $0.36 per share (basic) and $0.35 per share (diluted),
for the quarter ended March 31, 2014. This is an 8.1% increase compared to
earnings of $2.0 million after taxes, or $0.46 per share (basic) and $0.45 per
share (diluted), for the same period a year ago. Earnings per share declined
year-over-year primarily due to the June 2013 capital raise which increased
our common shares outstanding by 1,667,500 shares. The Bank’s first quarter
results produced an annualized rate of return of 0.97% on average assets and
10.36% on average common equity compared to 1.05% and 14.62%, respectively,
for the same period a year ago.

                             Selected Highlights

  *At March 31, 2014, total assets were $917.4 million, an increase of $22.6
    million, or 2.5%, from total assets at December 31, 2013.
  *Total gross loans, excluding loans held for sale, at March 31, 2014 were
    $725.9 million, an increase of $20.0 million, or 2.8% compared to December
    31, 2013.
  *At March 31, 2014, total volume of loans originated for sale amounted to
    $38.3 million, a decrease of $43.4 million, or 53.1% compared to March 31,
    2013.
  *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 0.30% at March 31, 2014, compared
    to 0.64% at March 31, 2013. Annualized net charge-offs were 0.11% of
    average loans for the quarter ended March 31, 2014 and 0.03% for same
    period in 2013.
  *Allowance for loan losses was $10.1 million as of March 31, 2014, or 1.39%
    of gross loans outstanding, excluding loans held for sale. At March 31,
    2014, the Bank had nonaccrual loans of $1.0 million, performing troubled
    debt restructured loans of $1.2 million and loans past due 90 days or more
    but still accruing interest amounting to $10 thousand.
  *Total deposits grew to $737.1 million, an increase of $25.7 million, or
    3.6%, compared to deposits at December 31, 2013.
  *At March 31, 2014, all of the Bank’s capital ratios substantially exceeded
    regulatory requirements.

Income Statement Review

Net interest income

Net interest income was $7.9 million and $6.8 million for quarter ended March
31, 2014 and 2013, respectively. Net interest margin was 3.59% and 3.57% for
the quarter ended March 31, 2014 and 2013, 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 $456 thousand for
the quarter ended March 31, 2014 compared to $634 thousand for the same period
in 2013. 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 $1.4 million for the quarter ended March 31,
2014 and was $3.3 million for the same period in 2013. Total gain on sale of
loans was $1.1 million and $2.6 million for the quarter ended March 31, 2014
and 2013, respectively. The decrease in noninterest income for the three
months ended March 31, 2014 was primarily due to lower volume in mortgage
originations and, to a lesser extent, losses on certain investment securities
transactions.

Noninterest expense

The largest component of noninterest expense is salaries and employee benefits
which amounted to $3.1 million for the quarter ended March 31, 2014 and $3.7
million for the comparable quarter in 2013. All other operating expenses were
$2.4 million for the quarter ended March 31, 2014 compared to $2.7 million for
the same period in 2013. The decrease in salary and employee benefits expense
and other operating expenses for the quarter ended March 31, 2014 was due to
the lower volume in mortgage originations.

Balance Sheet Review

At March 31, 2014, total assets were $917.4 million, an increase of $22.6
million, or 2.5%, from total assets at December 31, 2013. Total gross loans
grew 2.8% to $725.9 million at March 31, 2014, from $705.9 million at December
31, 2013. Loans held for sale were $14.0 million at March 31, 2014 compared to
$10.7 million at December 31, 2013. The Bank’s investment portfolio increased
to $134.9 million at March 31, 2014 compared to $126.8 million at December 31,
2013.

Total deposits were $737.1 million at March 31, 2014, which represents a 3.6%
increase from $711.4 million of total deposits at December 31, 2013. Total
borrowings were $76.5 million at March 31, 2014 and $84.1 million at December
31, 2013. Federal Home Loan Bank advances and repurchase agreements were used
to supplement deposits and fund asset growth.

Total stockholders’ equity was $100.2 million at March 31, 2014 and $96.2
million at December 31, 2013. Accumulated other comprehensive loss decreased
to $2.6 million, net of tax, at March 31, 2014 compared to $4.3 million at
December 31, 2013. This decrease 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 generated satisfactory returns during the first quarter of 2014 despite
unusual weather conditions which impacted client activity. Net income after
tax for the Bank increased 8.1% over last year’s first quarter even though our
mortgage originations were reduced by 53.1%. The Bank ended the quarter with
$917.4 million in assets, 14.0% growth over the first quarter of 2013.

“Economic conditions in the metropolitan Washington market continue to slowly
improve. After the sequestration challenges from 2013, business conditions in
early 2014 appear to be returning to a more normal pace with more predictable
results for business owners. That said, business expansion remains subdued,
however, real estate investment appears to be increasing at a moderate pace.

“We opened our sixth branch office in early April. The branch is located at
4040 North Fairfax Drive in Arlington County which is the most dynamic
sub-market in the Washington, DC region. With the sale of two local community
banks in our market within the last year, we intend to elevate the profile of
the Bank in order to maintain our steady, organic growth trajectory.”

Virginia Heritage Bank is headquartered in Tysons Corner, Virginia. The Bank
has six full service offices in Arlington, Fairfax, Chantilly, Gainesville,
Tysons Corner and Sterling, 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 AND SUBSIDIARY
Consolidated Balance Sheets
(Dollar amounts in thousands, except per share data)

                                       March 31,    December 31, 
Assets                                  2014          2013           % Change
                                        (Unaudited)
                                                                     
Cash and due from banks                 $ 16,757      $  24,855      -32.58  %
Securities available for sale, at         134,900        126,834     6.36    %
fair value
Loans, net of allowance for loan
losses of $10,062 and $9,790,             715,781        696,097     2.83    %
respectively
Loans held for sale                       13,975         10,730      30.24   %
Premises and equipment, net               1,763          1,861       -5.27   %
Accrued interest receivable               2,578          2,379       8.36    %
Federal Home Loan Bank stock, at cost     4,090          4,223       -3.15   %
Federal Reserve Bank stock, at cost       2,423          2,417       0.25    %
Other real estate owned, net of           519            519         0.00    %
valuation allowance of $76
Bank owned life insurance                 15,523         15,408      0.75    %
Deferred income taxes                     4,993          5,973       -16.41  %
Other assets                             4,107        3,545      15.85   %
                                                                     
Total assets                            $ 917,409    $  894,841    2.52    %
                                                                     
Liabilities and Stockholders' Equity
                                                                     
Liabilities:
Noninterest-bearing demand deposits     $ 172,717     $  189,583     -8.90   %
NOW, money-market and savings             132,256        107,064     23.53   %
deposits
Time deposits                            432,089      414,753    4.18    %
                                                                     
Total deposits                            737,062        711,400     3.61    %
                                                                     
Federal funds purchased                   - -            10,000      -100.00 %
Federal Home Loan Bank advances           73,000         73,000      0.00    %
Securities sold under agreements to       3,464          1,067       224.65  %
repurchase
Accrued expenses and other               3,721        3,168      17.46   %
liabilities
                                                                     
Total liabilities                        817,247      798,635    2.33    %
                                                                     
Stockholders' equity:
Preferred stock, Series A, $4 par
value, non-cumulative, $1,000 per
share liquidation preference,             61             61          0.00    %
5,000,000 shares authorized, 15,300
shares issued and outstanding
Common stock, $4 par value,
15,000,000 shares authorized,             24,067         24,059      0.03    %
6,016,801 and 6,014,801 shares issued
and outstanding, respectively
Additional paid-in capital                56,679         56,632      0.08    %
Retained earnings                         21,940         19,774      10.95   %
Accumulated other comprehensive loss     (2,585  )     (4,320  )   -40.16  %
                                                                     
Total stockholders' equity               100,162      96,206     4.11    %
                                                                     
Total liabilities and stockholders'     $ 917,409    $  894,841    2.52    %
equity
                                                                     


VIRGINIA HERITAGE BANK AND SUBSIDIARY
Consolidated Statements of Income
For the Quarter Ended March 31, 2014
(Dollar amounts in thousands, except per share data)

                                      Quarter Ended               
                                       March 31,
                                       2014           2013          % Change
                                       (Unaudited)     (Unaudited)
Interest income:
Interest and fees on loans             $ 8,430         $ 7,540       11.80   %
Investment securities                    758             565         34.16   %
Interest on deposits in other banks     16            9           77.78   %
Total interest income                   9,204         8,114       13.43   %
                                                                     
Interest expense:
Interest on deposits                     1,183           1,252       -5.51   %
Interest on federal funds purchased      1               5           -80.00  %
Interest on Federal Home Loan Bank       137             95          44.21   %
advances
Interest on securities sold under       1             1           0.00    %
agreements to repurchase
Total interest expense                  1,322         1,353       -2.29   %
                                                                     
Net interest income                      7,882           6,761       16.58   %
                                                                     
Provision for loan losses               456           634         -28.08  %
                                                                     
Net interest income after provision     7,426         6,127       21.20   %
for loan losses
                                                                     
Noninterest income:
Gain on sale of loans                    1,087           2,550       -57.37  %
Service charges on deposit accounts      165             167         -1.20   %
(Loss) gain on sale of securities        (206      )     199         -203.52 %
available for sale
Other income                            356           407         -12.53  %
Total noninterest income                1,402         3,323       -57.81  %
                                                                     
Noninterest expenses:
Salaries and employee benefits           3,101           3,678       -15.69  %
Occupancy and equipment expense          621             601         3.33    %
Mortgage closing cost promotions         147             532         -72.37  %
Bank franchise tax                       241             174         38.51   %
FDIC deposit insurance assessments       103             113         -8.85   %
Other operating expenses                1,252         1,268       -1.26   %
Total noninterest expenses              5,465         6,366       -14.15  %
                                                                     
Income before income tax expense         3,363           3,084       9.05    %
                                                                     
Income tax expense                      1,159         1,042       11.23   %
                                                                     
Net income                               2,204           2,042       7.93    %
Dividend on preferred stock             38            38          0.00    %
Net income available to common         $ 2,166        $ 2,004       8.08    %
stockholders
                                                                     
Income per common share:
Basic                                  $ 0.36         $ 0.46        -21.74  %
Diluted                                $ 0.35         $ 0.45        -22.22  %
                                                                     
Weighted average common shares
outstanding:
Basic                                   6,014,801     4,333,209   38.81   %
Diluted                                 6,208,605     4,457,935   39.27   %
                                                                             


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

                                  At or For the Quarter Ended      
                                   March 31,
                                   2014           2013               % Change
                                   (Unaudited)     (Unaudited)
Per Share Data and Shares
Outstanding:
Net income (basic)                 $ 0.36          $  0.46
Net income (diluted)                 0.35             0.45
Common equity book value at          14.10            12.82
period end
Stock price at end of period         19.73            15.00
Weighted average shares (basic)      6,014,801        4,333,209
Weighted average shares              6,208,605        4,457,935
(diluted)
Shares outstanding at end of         6,016,801        4,333,209
period
                                                                      
Selected Balance Sheet Data:
Assets                             $ 917,409       $  804,829         13.99  %
Total gross loans ^(3)               725,843          603,104         20.35  %
Loans held for sale                  13,975           31,909          -56.20 %
Securities available for sale,       134,900          127,747         5.60   %
at fair value
Deposits                             737,062          696,091         5.89   %
Repurchase agreements                3,464            1,866           85.64  %
FHLB advances                        73,000           33,000          121.21 %
Stockholders' equity                 100,162          70,860          41.35  %
                                                                      
Asset Quality:
Nonperforming assets excluding
TDR
to total assets                      0.17      %      0.36       %
Nonperforming assets ^(1) (4)
to total assets                      0.30      %      0.64       %
Nonperforming loans and past due
loans ^(2) (4)
to total assets                      0.25      %      0.71       %
to total gross loans                 0.31      %      0.95       %
Allowance for loan losses to         1.39      %      1.47       %
total gross loans ^(3)
Annualized net charge-offs to        0.11      %      0.03       %
average loans outstanding
                                                                      
Performance Ratios:
Annualized return on average         0.97      %      1.05       %
assets
Annualized return on average         10.36     %      14.62      %
common stockholders' equity ^(5)
Net interest rate spread             3.33      %      3.25       %
Net interest margin                  3.59      %      3.57       %
Efficiency ratio                     56.70     %      63.13      %
                                                                      
Regulatory Capital Ratios:         Actual          Minimum To Be
                                                   Well Capitalized
Total risk-based capital ratio       14.76     %      10.00      %
Tier 1 risk-based capital ratio      13.51     %      6.00       %
Leverage ratio                       11.28     %      5.00       %


    
(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 reflect the exclusion
      of preferred equity of $15.3 million (SBLF).
      


VIRGINIA HERITAGE BANK AND SUBSIDIARY
Business Segments
(Dollar amounts in thousands)

                                Quarter Ended March 31, 2014 (Unaudited)
                                  Retail     Mortgage  Indirect   Combined
                                  Banking     Banking    Lending
Revenues:
Interest income                   $ 8,542     $ 151      $ 511       $ 9,204
Gains on sales of loans             - -         1,087      - -         1,087
Other noninterest income           171        111       33         315
Total operating income             8,713      1,349     544        10,606
                                                                     
Expenses:
Provision for loan losses           357         13         86          456
Interest expense                    1,159       20         143         1,322
Salaries and employee benefits      2,231       818        52          3,101
Other noninterest expenses         1,876      411       77         2,364
Total operating expenses           5,623      1,262     358        7,243
                                                                     
Income before income tax            3,090       87         186         3,363
expense
                                                                     
Income tax expense                 1,065      30        64         1,159
                                                                     
Net income                        $ 2,025     $ 57       $ 122       $ 2,204
                                                                     
Total assets                      $ 789,435   $ 20,456   $ 107,518   $ 917,409
                                                                     
                                  Quarter Ended March 31, 2013 (Unaudited)
                                  Retail      Mortgage   Indirect    Combined
                                  Banking     Banking    Lending
Revenues:
Interest income                   $ 7,245     $ 266      $ 603       $ 8,114
Gains on sales of loans             87          2,463      - -         2,550
Other noninterest income           526        218       29         773
Total operating income             7,858      2,947     632        11,437
                                                                     
Expenses:
Provision for loan losses           597         - -        37          634
Interest expense                    1,120       55         178         1,353
Salaries and employee benefits      2,075       1,471      132         3,678
Other noninterest expenses         1,780      838       70         2,688
Total operating expenses           5,572      2,364     417        8,353
                                                                     
Income before income tax            2,286       583        215         3,084
expense
                                                                     
Income tax expense                 1,042      - -       - -        1,042
                                                                     
Net income                        $ 1,244     $ 583      $ 215       $ 2,042
                                                                     
Total assets                      $ 667,835   $ 35,188   $ 101,806   $ 804,829



Note: Operating expenses for the Mortgage Banking and Indirect Lending
segments consisted 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 for 2013.


Contact:

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