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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