May 1, 2014
Heritage Bank Main Branch, 2330 S. Virginia St. Reno
2013 was a great year for Heritage Bancorp and our subsidiary Heritage Bank of Nevada. We completed the acquisition of a 23,500 square foot three story building with a basement located at 2330 South Virginia Street in Reno. The building is less than a half mile from our previous head office location thus allowing us to maintain our existing client service levels without interruption, and continue building on the synergies we have established over an eighteen year period. We began negotiating the purchase of the building in 2012 with the acquisition culminating in April of 2013. Demolition of the building’s dated interior, and the subsequent planning and construction of the new tenant improvements took approximately nine months. We were able to start moving into the new facility during the last week of December, 2013. Comments from the community about the building improvements and the architectural features have been incredibly positive. We’re excited to see how much impact the increased visibility of our new location will have on our future business.
2013 proved to be another year of record profit. We were able to increase profitability by 33% from $3.74 a share to $4.98 a share. Those core earnings were accomplished at the same time we were able to continue to build our allowance for future loses from 2.21% of total loans at year end 2012 to 2.28% at year end 2013. The primary driver for increasing the loan loss reserve was the continued uncertainty in the national economy, and not credit quality, as we were also able to make a dramatic improvement in nonperforming loans.
Last year was the first year in the past fourteen years that Heritage Bank has experienced a decrease in total assets. The main contributing factor was a decline in total deposits which decreased 2.2% from $478 million at year end 2012 to $468 million at year end 2013. This slight downturn in total deposits over the last year is attributable to our customers growing weary of the low rate environment and taking their money out of the bank to either deleverage or invest in the stock market. While deposits were flat to down, our loan growth was exceptionally good. The loan portfolio grew 13.3% from $335 million outstanding year end 2012 to $380 million year end 2013.
Heritage Bank continues to excel in providing SBA and other government guaranteed programs to Northern Nevada small business owners. This year, for a third consecutive year, we were named the #1 SBA Lender in Northern Nevada as the largest processor of SBA 504 loans. During 2013, Heritage Bank helped fund 11 projects totaling $7.9 million for Northern Nevada business owners that needed financing to expand, purchase their own building or purchase equipment. These projects helped create 59 new jobs in Northern Nevada.
We continue to improve our systems and service levels by incorporating the latest in technological advancements. In 2013 Heritage upgraded our operating system resulting in a more robust network and infrastructure. The upgrade has enhanced our system’s security and reliability and improved our disaster and business recovery capabilities. We have rigorous fraud systems in place that actively monitor our customers' debit cards for suspicious activity. In addition, we have improved our customer interface and network usage by adding a Remote Mobile Check Capture function along with the development of our very own client branded Mobile Banking App for our iPhone and Android users.
In 2005, Heritage Bancorp started a stock buy back program enabling us to provide liquidity for our shareholders. To date we have purchased 385,682 shares using $9,363,405 in excess capital. With our current capital levels exceeding regulatory requirements, we are going to continue the buy back program during 2014.
In 2005, Heritage Bank was one of twenty-three community banks in Nevada, eight of which were either headquartered or had branches in Northern Nevada. Today, we are the only bank headquartered in Northern Nevada and the second largest state-charted bank in the entire state. This unique position as the only locally-owned and managed bank in the area allows us a strong position as the area’s community banking partner. Over the next year we plan to continue to take advantage of the incredible market position that our bank has been able to achieve in Northern Nevada.
Heritage Bank of Nevada is well positioned to increase profitability during 2014. We expect the national economy as well as the Northern Nevada economy to continue to improve. As always we remain focused on providing an outstanding customer service experience for our customers and a work environment of which our employees can be proud. We appreciate our team of employees, our customers, our stockholders, and our Board of Directors who continue to support the goals and ambition of Heritage Bancorp and our affiliate Heritage Bank of Nevada.