US SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the Quarter Ended September 30, 1996
Commission file number 0-11255
HERITAGE BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1234322
(State of Incorporation) (IRS Employer ID No.)
200 East Plume Street
Norfolk, VA 23514
(Address of principal executive offices) (Zip Code)
804-523-2600
(Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
YES x NO__
Common stock, par value $5.00 per share: 784,150 shares outstanding as of
10/22/96
HERITAGE BANKSHARES, INC.
Part I. Financial Information
Item I. Financial Statements
The following financial information of Heritage Bankshares, Inc. and
subsidiaries is included herein:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
HERITAGE BANKSHARES, INC.
(dollars in thousands)
September 30, December 31, September 30,
1996 1995 1995
ASSETS
Cash and due from banks 3,435 3,224 2,610
Federal funds sold 8,360 5,720 9,985
Securities available for sale 10,280 5,701 2,478
Securities held to maturity 5,390 7,302 7,140
Loans, net of unearned income 44,974 43,783 40,048
Allowance for loan losses (818) (763) (780)
Loans, net 44,156 43,020 39,268
Premises and equipment 592 636 650
Other real estate owned 499 514 525
Other assets 1,218 1,168 1,089
73,930 67,285 63,745
LIABILITIES
Non-interest bearing deposits 10,623 12,663 10,405
Interest bearing deposits 56,673 48,390 47,672
67,296 61,053 58,077
Short-term borrowings 71 66 71
Other liabilities 764 827 687
68,131 61,946 58,835
STOCKHOLDERS' EQUITY
Common stock, $5.00 par value-
authorized 3,000,000 shares,
issued and outstanding 784,150
shares 3,921 3,921 3,921
Additional paid-in capital (380) (380) (380)
Retained earnings 2,284 1,764 1,365
Unrealized gains (losses) on
investment securities (26) 34 4
5,799 5,339 4,910
73,930 67,285 63,745
CONSOLIDATED STATEMENTS OF INCOME
HERITAGE BANKSHARES, INC
(dollars in thousands except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30,
1996 1995 1996 1995
Interest income:
Interest and fees on loans 1,018 966 3,025 2,855
Interest on invest.securities 222 169 589 458
Interest on federal funds sold 118 131 310 303
Total interest income 1,358 1,266 3,924 3,616
Interest expense:
Interest on deposits 630 591 1,811 1,573
Interest on short-term borrow. 1 1 2 3
Total interest expense 631 592 1,813 1,576
Net interest income 727 674 2,111 2,040
Provision for loan/OREO losses 12 42 78 145
Net int. inc. after provision 715 632 2,033 1,895
Total other income 65 75 196 173
Other expenses:
Salaries and employee benefits 229 230 703 690
Other expenses 208 252 624 728
Total other expenses 437 482 1,327 1,418
Income before income taxes 343 225 902 650
Income tax expense 108 38 288 117
Net income 235 187 614 533
Net income per common
equivalent share $0.30 $0.24 $ 0.78 $ 0.68
Cash dividends per common
share outstanding $ - $ - $ 0.12 $ 0.08
CONSOLIDATED STATEMENTS OF CASH FLOWS
HERITAGE BANKSHARES, INC.
(Dollars in thousands)
Nine Months Ended
September 30,
1996 1995
Operating Activities:
Net Income
$614 $533
Adjustments to reconcile
net income to net cash
provided by operating activities:
Provision for loan losses 78 145
Provision for depreciation and
amortization 54 77
Amortization of investment
security premiums,net of discounts 0 3
Deferred loan origination fees,
net of cost (4) (21)
Changes in:
Interest receivable 18 (27)
Interest payable (11) 46
Other assets (34) (120)
Other liabilities (50) (46)
Net cash provided by operating
activities 665 590
Investing Activities:
Proceeds from maturities of
available-for-sale securities 1,078 2,314
Proceeds from maturities of
held-to-maturity securities 3,911 1,121
Purchase of available-for-sale
securities (5,737) (4,723)
Purchase of held-to-maturity
securities (2,000) (771)
Loan originations, net of
principal repayments
(1,196) (1,194)
Purchases of premises and equipment (23) (15)
Net cash used by investing activities (3,967) (3,268)
Financing Activities:
Net increase (decrease) in demand
deposits,NOW accounts and savings
accounts 883 554
Net increase (decrease) in certificates
of deposit 5,360 6,563
Net increase (decrease) in short-term
borrowings 4 (18)
Net proceeds from sale of common stock 0 67
Cash Dividends Paid (94) (63)
6,153 7,103
Increase (decrease) in cash and cash
equivalents 2,851 4,425
Cash and cash equivalents at beginning
of year 8,944 5,273
Cash and cash equivalents at end
of year
11,795 9,698
Supplemental schedules and cash flow information:
Cash paid for:
Interest on deposits and other borrowings $1,679 $1,530
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HERITAGE BANKSHARES, INC.
Note 1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Heritage Bankshares, Inc. (the "Company") and its wholly-owned subsidiaries
Heritage Bank & Trust (the "Bank"), and IBV Real Estate Holdings, Inc. All
significant intercompany accounts and transactions have been eliminated.
The consolidated financial statements have not been audited; however, in the
opinion of management, all adjustments necessary for a fair presentation of
the consolidated financial statements have been included and are of a normal,
recurring nature. The financial information included herein should be read
in conjunction with the consolidated financial statements included in the
Company's 1996 Annual Report to Shareholders and the 1996 Form 10-K filed
with the Securities and Exchange Commission.
Note 2. Earnings Per Common and Common Equivalent Share
Earnings per common and common equivalent share is obtained by dividing
net income by the weighted average number of common shares outstanding.
The weighted average number of shares used in the computation of earnings per
share was 784,150 for the period ended September 30, 1996 and for the period
ended September 30, 1995 Common stock equivalents were not dilutive for 1996
and 1996.
Item II. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Earnings Summary
For the nine months ended September 30, 1996, net income for Heritage
Bankshares, Inc. totaled $614,000, up 15% from the $533,000 reported for the
same period in 1995. Heritage Bank & Trust earned $627,000 and net holding
company expenses were $13,000. Earnings per common share were $0.78 as
compared to $0.68 for the same period in 1995.
Net Interest Income
Net interest income for the first nine months of 1996 was $715,000, an
increase of $83,000 or 13% over the $632,000 reported for the first nine
months of 1995.
The primary determinant of this increase was growth in loans and
deposits. Gross loans at September 30, 1996 were $44,974,000, up $4,965,000
over the September 30, 1995 total of $40,009,000. Deposits increased $8,354,
000 or 14% to $67,296,000 compared to $58,942,000 for the same period in 1995.
Federal funds sold increased $720,000 to $8,360,000 as compared to
$7,640,000 at September 30, 1995. At September 30, 1996 investment
securities were $15,709,000 compared to $13,522,000 in 1995 representing a
16% increase.
Provision For Loan Losses
The allowance for loan losses is maintained at a level necessary to
provide for potential losses associated with lending activities. The
provision for loan /OREO losses of $78,000 represents a 46% decrease from
the $145,000 provision for loan losses at September 30, 1995. The allowance
for loan losses at September 30, 1996 and 1995 as a percentage of net loans
outstanding was 1.82% and 1.78% respectively.
Net charge offs during the first nine months of 1996 were $8,000
compared to $73,000 during the same period in 1995. At September 30, 1996
loans 90 days or more past due and still accruing and loans on non-accrual
status were $24,000 or .05% of total loans compared to September 30, 1995
when such loans were $108,000 or .27% of total loans. Non-performing assets
consisting of non-accruing loans and foreclosed properties totaled $509,000
or .69% of total assets at September 30, 1996. At September 30, 1995, non-
performing assets were $727,000 or 1.12% of total assets.
Other Income
During the first nine months of 1996 other income was $196,000,
increasing $23,000 or 13% over the comparable period in 1995. Income
resulting from higher occupancy levels in real estate owned by the bank
account for most of this increase. Other real estate owned income
(rents less expenses) was $26,000 at September 30, 1996.
Other Expenses
Other expenses were $1,327,000 or 6% lower than the $1,418,000 reported
for the same period in 1995. This decrease reflects management's continuing
success in controlling overhead expenses.
Interest Sensitivity and Liquidity
The primary functions of asset/liability management are to assure
adequate liquidity and maintain an appropriate balance between interest
sensitive earning assets and interest bearing liabilities. Liquidity
management involves the ability to fund depositors' withdrawals and
extensions of credit to borrowers. Interest rate sensitivity management
seeks to avoid fluctuating net interest margins and to enhance consistent
growth of net interest income through periods of changing interest rates.
At September 30, 1996, net loans to total deposits was 66% compared to
67% for the same period in 1995. Certificates of deposit over $100,000 were
$6,144,000 at September 30, 1996 compared to $7,035,000 for the same period
in 1995. These large denomination certificates of deposits represented 9%
of total deposits at September 30, 1996 and 12% of total deposits at
September 30, 1995.
Interest rate sensitivity varies with different types of interest
earning assets. Rates change daily on federal funds. The bank had
$8,360,000 invested in federal funds on September 30, 1996. In addition,
$21,890,000 or 49% of the bank's loans have adjustable interest rates.
Managing these assets is of primary importance in maintaining the appropriate
balance between interest sensitive earning assets and interest bearing
liabilities.
Capital Resources
The capital structure of the Company remains strong. Total risk based
capital increased from 13.969% at September 30, 1995 to 14.48% at September
30, 1996. Tier I capital increased from 12.71% to 13.22% compared to the
same time period. The leverage ratio, defined as Tier I capital divided by
average assets, increased from 8.22% at September 30, 1995 to 8.29% as of
September 30, 1996.
Part II . Other Information
Item I. Legal Proceedings
The Company is subject to claims and lawsuits which arise primarily in
the ordinary course of business. Based on information presently available
from management and advice received from legal counsel, there are no such
meritorious claims involving the Company.
Item V. Other Information
None required
Item VI. Exhibits and Reports on Form 8-K
a) Exhibits
None.
b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the registration requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Heritage Bankshares, Inc.
(Registrant)
Date: October 23, 1996
BY:_______________________
Robert J. Keogh
President & CEO
BY:___________________________
Catherine P. Jackson
Vice-President and Cashier
1
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