News Column

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

January 24, 2014

TYSONS CORNER, Va. --(BUSINESS WIRE)-- 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 fair value 126,834 118,629 6.92 % Loans, net of allowance for loan losses of $9,790 and $8,262 , respectively 696,097 579,284 20.17 % 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 , respectively 519 479 8.35 % 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 deposits 107,064 85,160 25.72 % 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 repurchase 1,067 1,600 -33.31 % Accrued expenses and other liabilities 3,168 4,518 -29.88 % Total liabilities 798,635 712,256 12.13 % Stockholders' equity: Preferred stock, Series A, $4 par value, non-cumulative, $1,000 per share liquidation preference, 15,300 shares issued and outstanding 61 61 0.00 % Common stock, $4 par value, 15,000,000 shares authorized, 6,014,801 and 4,333,209 shares issued and outstanding, respectively 24,059 17,333 38.80 % 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' equity $ 894,841 $ 781,573 14.49 % 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 loans $ 8,219 $ 7,607 8.05 % $ 31,453 $ 28,223 11.44 % Investment securities 708 604 17.22 % 2,430 2,559 -5.04 % Interest on deposits in other banks 11 9 22.22 % 54 32 68.75 % Total interest income 8,938 8,220 8.73 % 33,937 30,814 10.14 % Interest expense: Interest on deposits 1,187 1,324 -10.35 % 4,906 5,765 -14.90 % Interest on federal funds purchased 5 2 150.00 % 12 5 140.00 % Interest on Federal Home Loan Bank advances 83 90 -7.78 % 319 374 -14.71 % Interest on securities sold under agreements to repurchase 1 1 0.00 % 3 3 0.00 % Total interest expense 1,276 1,417 -9.95 % 5,240 6,147 -14.76 % Net interest income 7,662 6,803 12.63 % 28,697 24,667 16.34 % Provision for loan losses 306 800 -61.75 % 1,764 3,410 -48.27 % Net interest income after provision for loan losses 7,356 6,003 22.54 % 26,933 21,257 26.70 % Noninterest income: Gain on sale of loans 1,258 3,995 -68.51 % 7,919 11,028 -28.19 % Service charges on deposit accounts 160 20 700.00 % 652 72 805.56 % Gain on sale of securities available for sale 39 245 -84.08 % 557 1,759 -68.33 % Other income 390 497 -21.53 % 1,548 1,782 -13.13 % Total noninterest income 1,847 4,757 -61.17 % 10,676 14,641 -27.08 % Noninterest expenses: Salaries and employee benefits 3,381 4,129 -18.12 % 14,277 13,647 4.62 % Occupancy and equipment expense 618 575 7.48 % 2,414 2,248 7.38 % Mortgage closing cost promotions 136 925 -85.30 % 1,299 2,161 -39.89 % Bank franchise tax 174 156 11.54 % 698 613 13.87 % FDIC deposit insurance assessments 134 111 20.72 % 514 394 30.46 % Other operating expenses 1,128 2,275 -50.42 % 5,061 5,564 -9.04 % Total noninterest expenses 5,571 8,171 -31.82 % 24,263 24,627 -1.48 % Income before income tax expense 3,632 2,589 40.29 % 13,346 11,271 18.41 % Income tax expense 1,169 810 44.32 % 4,346 3,625 19.89 % Net income 2,463 1,779 38.45 % 9,000 7,646 17.71 % Dividend on preferred stock 38 38 0.00 % 153 289 -47.06 % Net income available to common stockholders $ 2,425 $ 1,741 39.29 % $ 8,847 $ 7,357 20.25 % 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 (basic) $ 0.40 $ 0.40 $ 1.70 $ 1.70 Net income (diluted) 0.39 0.39 1.65 1.68 Common equity book value at period end 13.45 12.47 13.45 12.47 Stock price at end of period 17.92 12.70 17.92 12.70 Weighted average shares (basic) 6,014,801 4,333,209 5,217,531 4,333,209 Weighted average shares (diluted) 6,173,199 4,408,375 5,359,521 4,371,355 Shares outstanding at end of period 6,014,801 4,333,209 6,014,801 4,333,209 Asset Quality: Nonperforming assets excluding TDR to total assets 0.19 % 0.23 % Nonperforming assets (1) (4) to total assets 0.33 % 0.63 % Nonperforming loans and past due loans (2) (4) to total assets 0.27 % 0.57 % to total gross loans 0.35 % 0.76 % Allowance for loan losses to total gross loans (3) 1.39 % 1.41 % Annualized net charge-offs to average loans outstanding 0.12 % 0.21 % 0.04 % 0.24 % Performance Ratios: Annualized return on average assets 1.15 % 0.95 % 1.10 % 1.13 % Annualized return on average common stockholders' equity (5) 12.12 % 13.24 % 13.14 % 15.07 % Net interest rate spread 3.33 % 3.30 % 3.25 % 3.33 % Net interest margin 3.61 % 3.67 % 3.56 % 3.69 % Efficiency ratio 58.59 % 70.68 % 61.62 % 62.65 % Regulatory Capital Ratios: Actual Minimum To Be Well Capitalized Total risk-based capital ratio 14.86 % 10.00 % Tier 1 risk-based capital ratio 13.61 % 6.00 % Leverage ratio 11.72 % 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 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 Banking Mortgage Banking Indirect Lending Combined 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 losses 1,727 - - 37 1,764 Interest expense 4,457 159 624 5,240 Salaries and employee benefits 9,103 4,684 490 14,277 Other noninterest expenses 7,211 2,507 268 9,986 Total operating expenses 22,498 7,350 1,419 31,267 Income before income tax expense 10,793 1,679 874 13,346 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 Banking Mortgage Banking Indirect Lending Combined 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 losses 3,063 - - 347 3,410 Interest expense 5,122 218 807 6,147 Salaries and employee benefits 7,302 6,161 184 13,647 Other noninterest expenses 7,370 3,300 310 10,980 Total operating expenses 22,857 9,679 1,648 34,184 Income before income tax expense 7,194 3,019 1,058 11,271 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. Virginia Heritage Bank David Summers , 703-277-2200 Chris Brockett , 703-277-2200 Source: Virginia Heritage Bank


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