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 June 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 07/31/96
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
6/30/96 12/31/95 6/30/95
ASSETS
<S> <C> <C> <C>
Cash and due from banks $2,167 $3,224 $2,610
Federal funds sold 6,122 5,720 9,985
Ivestment securities-AFS 8,028 5,701 2,478
Investment securities HTM 5,981 7,302 7,140
Loans net of unearned income 42,862 43,783 40,048
Allowance for loan losses (806) (763) (780)
Net loans 42,056 43,020 39,268
Other real estate owned 610 514 650
Premises and equipment 504 636 525
Other assets 1,246 1,168 1,089
66,714 67,285 63,745
LIABILITIES
Non-interest bearing deposits 9,437 12,663 10,405
Interest bearing deposits 50,857 48,390 47,672
60,294 61,053 58,077
Short-term borrowings 80 66 71
Other liabilities 792 827 687
61,166 61,946 58,835
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 2,049 1,764 1,365
Unrealized gains(losses) on investment
securities (42) 34 4
5,548 5,339 4,910
66,714 67,285 63,745
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Consolidated Statements of Income
Heritage Banskhares, Inc. Three Months Ended Six Months Ended
6/30/96 6/30/95 6/30/96 6/30/95
Interest Income
<S> <C> <C> <C> <C>
Interest and fees on loans $ 988 $962 $2,007 $1,889
Interest on investment securities 202 140 367 289
Interest on federal funds sold 81 106 192 172
Total Interest income 1,271 1,208 2,566 2,350
Interest Expense
Interest on deposits 583 527 1,181 982
Interest on short-term borrowings 0 2 1 2
Total interest expense 583 529 1,182 984
Net interest income 688 679 1,384 1,366
Provision for loan losses (31) (48) (66) (103)
Net interest after provision 657 631 1,318 1,263
Total other income 66 60 131 116
Other Expenses
Salaries and emploee benefits 228 225 474 460
Other Expenses 208 250 415 494
Total other expenses 436 475 889 954
Income before income taxes 287 216 560 425
Income tax expense (92) (38) (180) (79)
Net income 195 178 380 346
Net income per common equivalent share $0.25 $0.23 $0.48 $0.44
Cash dividends per common share outstanding $0.00 $0.00 $0.12 $0.08
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Consolidated Statement of Cash Flows Three Months Ended
<S>
Operating Activities: 6/30/96 6/30/95
<C> <C>
Net income $380 $168
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 66 55
Provision for depreciation and amortization 41 31
Amortization of investment security premiums,
net of discounts (1) 2
Deferred loan origination fees, net of cost (4) (9)
Changes in :
Interest receivable 5 15
Interest payable 20 14
Other assets ( 3) (77)
Other liabilities (119) (45)
Net Cash provided by operating activities 385 154
Investing Activities
Proceeds from maturities of AFS securities 1,056 2,038
Proceeds from maturities of HTM securities 2,320 311
Purchase of AFS securities (3,492) (499)
Purchase of HTM securities (999) 0
Loan originations, net of principal repayments 938 (1,132)
Purchases of premises and equipment (23) (10)
Net cash used by investing activities (200) 708
Financing Activities
Net increase(decrease) in demand deposits,
NOW accounts and savings accounts (2,533) (711)
Net increase in certificates of deposit 1,773 6,963
Net increase (decreaSe) in short-term borrowings 14 (23)
Net proceed from sale of common stock 0 67
Cash Dividends Paid (94) (63)
840 6,233
Increase in cash and cash equivalents (655) 7,323
Cash and cash equivalents at beginning of year 8,944 5,273
Cash and cash equivalents at end of year 8,289 12,592
Supplemental schedules and cash flow information:
Cash paid for
Interest on deposits and other borrowings $1,202 $923
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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 June 30, 1996 and for the period
ended June 30, 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 six months ended June 30, 1996, net income for Heritage
Bankshares, Inc. totaled $380,000, up 9.83% from the $346,000 reported for the
second quarter of 1995. Heritage Bank & Trust earned $392,000 and net holding
company expenses were $12,000. Earnings per common share were $0.48 as
compared to $0.44 for the same period in 1995.
Net Interest Income
Net interest income for the first six months of 1996 was $1,318,000, an
increase of $55,000 or 4.35% over the $1,263,000 reported for the first six
months of 1995.
The primary determinant of this increase was growth in loans, investment
securities and to a lesser extent deposits. Gross loans at June 30, 1996
were $42,862,000, up $2,814,000 over the June 30, 1995 total of $40,048,000.
Deposits increased $2,217,000 or 3.81% to $60,294,000 compared to $58,077,000
for the same period in 1995. At June 30, 1996 investment securities were
$14,009,000 compared to $9,618,000 in 1995 representing a 45.65% 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 $66,000 represents a 35.92% decrease from the
$103,000 provision at June 30, 1995. The allowance for loan losses at
June 30, 1996 and 1995 as a percentage of net loans outstanding was 1.88%
and 1.95% respectively.
Net charge offs during the first six months of 1996 were $13,000
compared to $38,000 during the same period in 1995. At June 30, 1996 loans
90 days or more past due and still accruing and loans on non-accrual status
were $27,000 or .06% of total loans compared to June 30, 1995 when such
loans were $10,000 or .02% of total loans. Non-performing assets consisting
of non-accruing loans and foreclosed properties totaled $514,000 or .77% of
total assets at June 30, 1996. At June 30, 1995, non-performing assets were
$535,000 or .84% of total assets.
Other Income
During the first three months of 1996 other income was $131,000,
increasing $15,000 or 12.93% 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 $889,000 or 6.82% lower than the $954,000 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 June 30, the ratio of net loans to total deposits was 70% compared
to 68% for the same period in 1995. Certificates of deposit over $100,000
were $6,101,000 at June 30, 1996 compared to $6,547,000 for the same period
in 1995. These large denomination certificates of deposits represented 10.12%
of total deposits at June 30, 1996 and 10.27% of total deposits at June 30,
1995.
Interest rate sensitivity varies with different types of interest
earning assets. Rates change daily on federal funds. The bank had
$6,122,000 invested in federal funds on June 30, 1996. In addition,
$19,704,000 or 45.97% 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 13.50% at June 30, 1995 to 14.67%
at June 30, 1996. Tier I capital increased from 12.24% to 13.41% compared
to the same time period. The leverage ratio, defined as Tier I capital
divided by average assets, was 8.08% at June 30, 1995 and 8.10% on June 30,
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: August 8, 1996
BY: Robert J. Keogh
President & CEO
BY: Catherine P. Jackson
Vice-President and Cashier