Virginia Heritage Bank Reports Improved Quarterly Earnings Amid Unusual Winter Interruptions

TYSONS CORNER, Va.--()--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 fair value 134,900 126,834 6.36 %
Loans, net of allowance for loan losses of $10,062 and $9,790, respectively 715,781 696,097 2.83 %
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 valuation allowance of $76 519 519 0.00 %
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 deposits 132,256 107,064 23.53 %
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 repurchase 3,464 1,067 224.65 %
Accrued expenses and other liabilities   3,721     3,168   17.46 %
 
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, 5,000,000 shares authorized, 15,300 shares issued and outstanding

61 61 0.00 %

Common stock, $4 par value, 15,000,000 shares authorized, 6,016,801 and 6,014,801 shares issued and outstanding, respectively

24,067 24,059 0.03 %
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' equity $ 917,409   $ 894,841   2.52 %
 
 
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 advances 137 95 44.21 %
Interest on securities sold under agreements to repurchase   1     1 0.00 %
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 for loan losses   7,426     6,127 21.20 %
 
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 available for sale (206 ) 199 -203.52 %
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 stockholders $ 2,166   $ 2,004 8.08 %
 
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 period end 14.10 12.82
Stock price at end of period 19.73 15.00
Weighted average shares (basic) 6,014,801 4,333,209
Weighted average shares (diluted) 6,208,605 4,457,935
Shares outstanding at end of period 6,016,801 4,333,209
 

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, at fair value 134,900 127,747 5.60 %
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 total gross loans (3) 1.39 % 1.47 %
Annualized net charge-offs to average loans outstanding 0.11 % 0.03 %
 

Performance Ratios:

Annualized return on average assets 0.97 % 1.05 %
Annualized return on average common stockholders' equity (5) 10.36 % 14.62 %
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
Banking

 

Mortgage
Banking

 

Indirect
Lending

  Combined
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 expense 3,090 87 186 3,363
 
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
Banking

Mortgage
Banking

Indirect
Lending

Combined

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 expense 2,286 583 215 3,084
 
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.

 

Contacts

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

Sharing

Contacts

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