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 March 31, 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 05/10/96
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
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Consolidated Balance Sheets
3/31/96 12/31/95 3/31/95
ASSETS
<S> <C> <C> <C>
Cash and due from banks $2,660 $3,224 $2,423
Federal funds sold 8,105 5,720 3,705
Ivestment securities-AFS 5,872 5,701 4,206
Investment securities HTM 7,030 7,302 7,401
Loans net of unearned income 43,380 43,783 38,589
Allowance for loan losses (801) (763) (691)
Net loans 42,579 43,020 37,898
Other real estate owned 509 514 530
Premises and equipment 621 636 675
Other assets 1,139 1,168 1,022
68,515 67,285 57,860
LIABILITIES
Non-interest bearing deposits 2,324 12,663 9,301
Interest bearing deposits 49,892 48,390 43,057
62,216 61,053 52,358
Short-term borrowings 55 66 107
Other liabilities 747 827 642
63,018 61,946 53,107
STOCKHOLDERS' EQUITY
Common stock, $5.00 par value-
authorized 3,000,000
shares, issued and outstanding
outstanding 784,150 3,921 3,921 3,921
Additional paid in capital (380) (380) (380)
Retained earnings 1,948 1,764 1,250
Unrealized gains(losses) on investment
securities 8 34 ( 38)
5,497 5,339 4,753
68,515 67,285 57,860
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<TABLE>
Consolidated Statements of Income
Heritage Banskhares, Inc. Three Months Ended
3/31/96 3/31/95
Interest Income
<S> <C> <C>
Interest and fees on loans $1,019 $927
Interest on investment securities 165 149
Interest on federal funds sold 111 66
Total Interest income 1,295 1,142
Interest Expense
Interest on deposits 598 455
Interest on short-term borrowings 1 0
Total interest expense 599 455
Net interest income 696 687
Provision for loan losses (35) (55)
Net interest after provision 661 632
Total other income 65 56
Other Expenses
Salaries and emploee benefits 246 235
Other Expenses 208 244
Total other expenses 454 479
Income before income taxes 272 209
Income tax expense (88) (41)
Net income 184 168
Net income per common equivalent share $0.24 $0.21
Cash dividends per common share outstanding $0.00 $0.00
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Consolidated Statement of Cash Flows Three Months Ended
<S>
Operating Activities: 3/31/96 3/31/95
<C> <C>
Net income $184 $168
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 35 55
Provision for depreciation and amortization 22 31
Amortization of investment security premiums,
net of discounts 0 2
Deferred loan origination fees, net of cost (3) (9)
Changes in :
Interest receivable 55 15
Interest payable 0 14
Other assets (10) (77)
Other liabilities (81) (45)
Net cash provided by operating activities 202 154
Investing Activities:
Proceeds from maturities of AFS securities 1,030 263
Proceeds from maturities of HTM securities 1,272 48
Purchase of AFS securities (1,233) (499)
Purchase of HTM securities (999) 0
Loan originations, net of principal repayments 413 284
Purchases of premises and equipment (16) (8)
Net cash used by investing activities 467 88
Financing Activities
Net increase(decrease) in demand deposits,
NOW accounts and savings accounts 40 (1,098)
Net increase in certificates of deposit 1,123 1,631
Net increase (decreaSe) in short-term borrowings (11) 13
Net proceed from sale of common stock 0 67 0 67
Increase in cash and cash equivalents 1,821 855
Cash and cash equivalents at beginning of year 8,944 5,273
Cash and cash equivalents at end of year 10,765 6,128
Supplemental schedules and cash flow information:
Cash paid for
Interest on deposits and other borrowings 598 441
</TABLE>
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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.
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 March 31, 1996 for the period
ended March 31, 1995. Common stock equivalents were not dilutive for 1995
and 1996.
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Item II. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Earnings Summary
For the three months ended March 31, 1996, net income for Heritage
Bankshares, Inc. totaled $184,000, up 10% from the $168,000 reported for the
first quarter of 1995. Heritage Bank & Trust earned $187,000 and net holding
company expenses were $3,000. Earnings per common share were $0.24 as
compared to $0.21 for the same period in 1995.
Net Interest Income
Net interest income for the first three months of 1996 was $666,000, an
increase of $34,000 or 5% over the $632,000 reported for the first three
months of 1995.
The primary determinant of this increase was growth in loans and
deposits. Gross loans at March 31, 1996 were $42,579,000, up $4,680,000 over
the March 31, 1995 total of $37,898,000. Deposits increased $9,858,000 or
19% to $62,219,000 compared to $52,358,000 for the same period in 1995.
Federal funds sold increased $4,400,000 to $8,105,000 as compared to
$3,705,000 at March 31, 1995. At March 31, 1996 investment securities were
$12,902,000 compared to $11,607,000 in 1995 representing an 11% 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 losses of $30,000 represents a 45% decrease from the
$55,000 provision at March 31, 1995. The allowance for loan losses at
March 31, 1996 and 1995 as a percentage of net loans outstanding was 1.85%
and 1.78% respectively.
Net charge offs during the first three months of 1996 were $20,000
compared to $3,000 during the same period in 1995. At March 31, 1996 loans
90 days or more past due and still accruing and loans on non-accrual status
were $29,000 or .07% of total loans compared to March 31, 1995 when such
loans were $13,000 or .03% of total loans. Non-performing assets consisting
of non-accruing loans and foreclosed properties totaled $532,000 or .78% of
total assets at March 31, 1996. At March 31, 1995, non-performing assets were
$542,000 or .94% of total assets.
Other Income
During the first three months of 1996 other income was $65,000,
increasing $9,000 or 16% over the comparable period in 1995. The increase was
due to higher occupancy levels in the Company's other real estate owned
properties combined with a modest increase in other service charges,
commissions and fee income.
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Other Expenses
Other expenses were $454,000 or 8% lower than the $493,000 reported for
the same period in 1995. A substantial reduction in the Federal Deposit
Insurance Corporation premiums paid by the Company accounts for the decrease.
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 March 31, the ratio of net loans to total deposits was 68% compared
to 72% for the same period in 1995. Certificates of deposit over $100,000
were $7,929,000 at March 31, 1996 compared to $7,046,000 for the same period
in 1995. These large denomination certificates of deposits represented 13%
of total deposits at March 31, 1996 and 12% of total deposits at March 31,
1995.
Interest rate sensitivity varies with different types of interest
earning assets. Rates change daily on federal funds. The bank had
$8,105,000 invested in federal funds on March 31, 1996. In addition,
$19,930,000 or 46% 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 Company continues to exceed all established minimum capital ratios.
Total risk based capital increased from 13.44% at March 31, 1995 to 14.18%
at March 31, 1996. Tier I capital increased from 12.56% to 12.92% compared
to the same time period. The leverage ratio, defined as Tier I capital
divided by average assets, was 8.10% at March 31, 1995 and 7.87% on March 31,
1996.
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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.
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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: May 10, 1996
BY: Robert J. Keogh
President & CEO
BY: Catherine P. Jackson
Vice-President and Cashier
