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 30,1997
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)
757-523-2600
(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: 794,550 shares outstanding as
11/10/97
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
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 Holding, 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 buy 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 822,721 for the period ending September 30,1997 and 801,544 for
the period ended September 30,1996. Common stock equivalents were dilutive
for 1997 and for 1996.
CONSOLIDATED BALANCE SHEETS
HERITAGE BANKSHARES, INC.
(dollars in thousands)
September30, December 31, September 30,
1997 1996 1996
ASSETS
Cash and due from banks $ 2,681 $ 3,069 $ 2,167
Federal funds sold 4,505 5,925 6,122
Securities available for sale 14,969 14,367 8,028
Securities held to maturity 7,937 5,830 5,981
Loans, net of unearned income 50,833 46,102 42,862
Allowance for loan losses (833) (842) (806)
Loans, net of unearned
income and allowance 50,000 45,260 42,056
Accrued interest receivable 583 535
Premises and equipment 1,003 588 610
Other real estate owned 436 444 504
Other assets 946 828 1,246
83,060 76,846 66,714
LIABILITIES
Non-interest bearing deposits 15,200 12,499 9,437
Interest bearing deposits 58,107 55,928 50,857
73,307 68,427 60,294
Short-term borrowings 51 131 80
Securities sold under
agreements to repurchase 1,888 1,349 -
Other liabilities 988 827 792
76,234 70,734 61,166
STOCKHOLDERS' EQUITY
Common stock, $5.00 par
value-authorized
3,000,000 shares,
issued and outstanding 794,550
3,973 3,921 3,921
Additional paid-in capital (362) (380) (380)
Retained earnings 3,169 2,540 2,049
Unrealized gains (losses)
on investment securities 46 31 (42)
6,826 6,112 5,548
$ 83,060 $ 76,846 $ 66,714
CONSOLIDATED STATEMENTS OF
INCOME
HERITAGE BANKSHARES, INC
(dollars in thousands except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Interest income:
Interest and fees on 1,133 1,017 3,285 3,025
loans
Securities 360 222 1,018 589
Federal Funds sold 63 119 280 310
Total interest income 1,556 1,358 4,583 3,924
Interest expense:
Interest on deposits 720 630 2,103 1,811
Interest on short-term 19 1 55 2
Total interest expense 739 631 2,158 1,813
Net interest income 817 727 2,425 2,111
Prov for loan OREO losses 20 12 31 78
Net int inc after provision 797 715 2,394 2,033
Total other income 75 65 215 196
Other expenses:
Salaries and employee benefits 290 229 836 703
Other expenses 226 208 654 624
Total other expenses 516 437 1,490 1,327
Income before income taxes 356 343 1,119 902
Income tax expense 120 108 380 288
Net income $ 236 $235 $ 739 $ 614
Net income per common
equivalent share $ 0.29 $0.29 $ 0.90 $ 0.77
Cash dividends per common
share outstanding $ - $ - $ 0.14 $ 0.12
ITEM II. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Earnings Summary
For the nine months ended September 30,1997, net income for Heritage
Bankshares,Inc. totaled $739,000, up 20% from the $614,000 reported for
the same period in 1996.
Heritage Bank & Trust earned $752,000 and net holding company expenses were
$13,000. Earnings per common share (fully dilutive) were $.90 as compared to
$.77 for the same period in 1996.
Net Interest Income
Net interest income for the first nine months of 1997 was $2,394,000, an
increase of $361,000 or 18% over the $2,033,000 reported for the same period in
1996.
The primary determinant of this increase was growth in the loan and investment
portfolios. At September 30,1997, investment securities were $27,411,000
compared to $24,030,000 in 1996 representing a 14% increase. Gross loans at
September 30,1997 were $50,833,000, up $5,859,000 over the September 30,1996
total of $44,974,000. Deposits increased $6,011,000 or 9% to $73,307,000
compared to $67,296,000 for the same period in 1996.
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 $23,000 represents an 63% decrease from the $63,000 provision
for loan losses at September 30,1996. The allowance for loan losses at
September 30,1997 and 1996 as a percentage of net loans outstanding was
1.64% and 1.82% respectively.
Net charge-offs during the first nine months of 1997 and 1996 were $33,000.
At September 30,1997, loans 90 days or more past due and still accruing and
loans on non-accrual status were $45,000 or .09% of total loans compared to
September 30,1996 when such loans were $24,000 or .05% of total loans.
Non-performing assets consisting of non-accruing loans and foreclosed
properties totaled $459,000 or .55% of total assets at September 30,1997.
At September 30,1996, non-performing assets were $523,000 or .69% of
total assets.
Other Income
During the first nine months of 1997, other income was $215,000 increasing
$19,000 or 9% over the comparable period in 1996. This increase is the
result of fees related to deposit account services.
Other Expenses
Other expenses totaled $1,490,000 which is a 12% increase over the $1,326,000
reported for the same period in 1996. This increase is the result of an
accrual for employee incentives to be paid in the first quarter of 1998. The
incentive amount is paid based on the Company meeting financial goals set by
the Board of Directors. The amount accrued through September 30, 1997 was
$72,800.00.
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 30,1997, net loans to total deposits was 68% compared to 66% for
the same period in 1996. Certificates of deposit over $100,000 were
$9,429,000 at September 30,1997 compared to $6,144,000 for the same period
in 1996. These large denomination certificates of deposit represented 13%
of total deposits at September 30,1997 and 10% of total deposits at September
30,1996.
Interest rate sensitivity varies with different types of interest earning
assets. Rates change daily on the $4,505,000 the Company had invested in
federal funds on September 30,1997. In addition, $17,762,000 or 35% of the
bank's loans have adjustable interest rates.
Also, at September 30, 1997, $4,462,000 of the $22,906,000 investment portfolio
would mature or could reprice within one year. 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 14.48% at September 30,1996 to 14.77% at September 30,1997.
Tier I capital increased from 13.22% to 13.52% compared to the same time
period. The leverage ratio, defined as Tier I capital divided by average
assets, was 8.29% at September 30,1996 compared to 8.33% at September 30,1997.
Part II. Other Information
Item I. Legal Proceedings
The Company is subject is subject to claims and lawsuits which arise primarily
in the ordinary course of business. Based on information presently available,
there are no such claims involving the Company.
Item V. Other Information
None required.
Item VI. Recent Accounting Pronouncements
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128 entitled Earnings Per Share, which is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. Early adoption of the statement is not permitted.
The Company has applied this statement to the nine-month period ended
September 30, 1997 and 1996, and the year ended December 31, 1996, and has
determined that the adoption of this statement would not have a material
impact on the earnings per share calculations for these periods. After
adoption, all prior period earnings per share calculations will be restated
to comply with this statement.
Item VII. 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: November 10, 1997 By:___________________
Robert J. Keogh
President & CEO
By:___________________
Catherine P. Jackson
Senior Vice-President & Cashier
11
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