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, 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: 791,250 shares outstanding as
08/04/97
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 numberof shares used in the computation of earnings per
share was 820,164 for the period ending June 30, 1997 and 784,150 for the
period ended June 30, 1996. Common stock equivalents were dilutive for 1997
but were not dilutive for 1996.
CONSOLIDATED BALANCE SHEETS
HERITAGE BANKSHARES, INC.
(dollars in thousands)
June 30, December 31, June 30,
1997 1996 1996
ASSETS
Cash and due from banks $ 2,724 $3,069 $ 2,167
Federal funds sold 4,970 5,925 6,122
Securities available
for sale 15,445 14,367 8,028
Securities held
to maturity 8,467 5,830 5,981
Loans, net of
unearned income 47,164 46,102 42,862
Allowance for
loan losses (839) (842) (806)
Loans, net of unearned
income and allowance 46,325 45,260 42,056
Premises and equipment 789 588 610
Other real estate owned 444 444 504
Other assets 1,609 1,363 1,246
80,773 76,846 66,714
LIABILITIES
Non-interest
bearing deposits 11,226 12,499 9,437
Interest bearing
deposits 59,921 55,928 50,857
71,147 68,427 60,294
Short-term borrowings 50 131 80
Securities sold under agreements to
repurchase 2,079 1,349 -
Other liabilities 966 827 792
74,242 70,734 61,166
STOCKHOLDERS' EQUITY
Common stock, $5.00 par
value-authorized
3,000,000 shares,issued
and outstanding 791,250 3,956 3,921 3,921
Additional paid-in capital (371) (380) (380)
Retained earnings 2,934 2,540 2,049
Unrealized gains (losses)
on investment securities 12 31 (42)
6,531 6,112 5,548
$80,773 $ 76,846 $ 66,714
CONSOLIDATED STATEMENTS OF
INCOME
HERITAGE BANKSHARES, INC
(dollars in thousands except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Interest income:
Interest and fees
on loans 1,088 988 2,152 2,007
Interest on investment
securities 352 202 658 367
Interest on federal
funds sold 88 81 217 192
Total interest income 1,528 1,271 3,027 2,566
Interest expense:
Interest on deposits 700 583 1,383 1,181
Interest on short-term
borrowings 18 - 35 1
Total interest expense 718 583 1,418 1,182
Net interest income 810 688 1,609 1,384
Provision for loan losses
and OREO losses - 31 11 66
Net interest income after
provision 810 657 1,598 1,318
Total other income 69 66 140 131
Other expenses:
Salaries and employee
benefits 277 228 546 474
Other expenses 220 208 428 415
Total other expenses 497 436 974 889
Income before income
taxes 382 287 764 560
Income tax expense 130 92 260 180
Net income $ 252 $195 $504 $ 380
Net income per common
equivalent share $0.31 $0.25 $0.64 $0.48
Cash dividends per common share
outstanding $ - $ - $ 0.14 $ 0.12
CONSOLIDATED STATEMENTS OF CASH FLOWS
HERITAGE BANKSHARES, INC.
(Dollars in thousands)
Six Months Ended
June 30,
1997 1996
Operating Activities:
Net Income $504 $380
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 11 66
Provision for depreciation and amortization 34 41
Amortization of investment security premiums,
net of discounts 6 (1)
Deferred loan origination fees, net of cost (17) (4)
Changes in:
Interest receivable (105) 5
Interest payable (15) 20
Other assets (141) (3)
Other liabilities 154 119
Net cash provided by operating activities 431 385
Investing Activities:
Proceeds from maturities of available-for-sale
securities 1,100 1,056
Proceeds from maturities of held-to-maturity
securities 623 2,320
Purchase of available-for-sale securities (2,196)(3,492)
Purchase of held-to-maturity securities (3,266) (999)
Loan originations, net of principal repayments (1,060) 938
Proceeds from sale of premises and equipment 10 -
Purchase of land (101) -
Purchases of premises and equipment (144) (23)
Net cash used by investing activities (5,034) (200)
Financing Activities:
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts 800 (2,533)
Net increase in certificates of deposit 1,920 1,773
Net increase (decrease) in short-term borrowings (81) 14
Net increase in securities purchased under agreements
to repurchase 730 -
Net proceeds from sale of common stock 44 -
Cash dividends paid (110) (94)
3,303 (840)
Increase (decrease) in cash and cash equivalents(1,300) (655)
Cash and cash equivalents at beginning of year 8,994 8,944
Cash and cash equivalents at end of year $7,694 $8,289
Supplemental schedules and cash flow information:
Cash paid for:
Interest on deposits and other borrowings $1,433 $1,202
ITEM II. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Earnings Summary
For the six months ended June 30, 1997, net income for Heritage Bankshares,
Inc.totaled $504,000, up 33% from the $380,000 reported for the same period
in 1996. Heritage Bank & Trust earned $515,000 and net holding company
expenses were $11,000. Earnings per common share (fully dilutive) were $.61
as compared to $.48 (not fully dilutive) for the same period in 1996.
Net Interest Income
Net interest income for the first six months of 1997 was $1,608,000, an
increase of $224,000 or 16% over the $1,384,000 reported for the same period
in 1996.
The primary determinant of this increase was growth in the loan and investment
portfolios. At June 30, 1997, investment securities were $23,912,000
compared to $14,009,000 in 1996 representing a 71% increase. Gross loans at
June 30, 1997 were $47,164,000, up $4,272,000 over the June 30, 1996 total of
$42,862,000. Deposits increased $10,853,000 or 18% to $71,147,000 compared
to $60,294,000 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 $11,000 represents
an 83% decrease from the $66,000 provision for loan losses at June 30, 1996.
The allowance for loan losses at June 30, 1997 and 1996 as a percentage of
net loans outstanding was 1.78% and 1.88% respectively.
Net charge-offs during the first six months of 1997 and 1996 were $13,000.
At June 30, 1997, loans 90 days or more past due and still accruing and
loans on non-accrual status were $39,000 or .08% of total loans compared to
June 30, 1996 when such loans were $27,000 or .06% of total loans. Non-
performing assets consisting of non-accruing loans and foreclosed properties
totaled $483,000 or .58% of total assets at June 30, 1997. At June 30,
1996, non-performing assets were $531,000 or .77% of total assets.
Other Income
During the first six months of 1997, other income was $140,000 increasing
$9,000 or 7% over the comparable period in 1996. This increase is the result
of fees related to deposit account services.
Other Expenses
Other expenses totaled $1,233,000 which is a 15% increase over the $1,069,000
reported for the same period in 1996. This change is the result of increased
costs relating to salaries and employee benefits.
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, 1997, net loans to total deposits was 65% compared to 70% for the
same period in 1996. Certificates of deposit over $100,000 were $7,936,000 at
June 30,1997 compared to $6,101,000 for the same period in 1996. These large
denomination certificates of deposit represented 11% of total deposits at
June 30, 1997 and 10% of total deposits at June 30, 1996.
Interest rate sensitivity varies with different types of interest earning
assets. Rates change daily on the $4,970,000 the Company had invested in
federal funds on June 30, 1997. In addition, $17,550,000 or 37% 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 14.67% at June 30, 1996 to 15.19% at June 30,1997. Tier I
capital increased from 13.41% to 13.94% compared to the same time period.
The leverage ratio, defined as Tier I capital divided by average assets, was
8.10% at June 30, 1996 compared to 8.04% at June 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. Exhibits and Reports on Form 8-K
a) Exhibits
None.
b) Reports on Form 8-K
None.
Signatures
Pursuant to the registration reuirements of the Securities Exchange Act of 1934,
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Heritage Bankshares, Inc
(Registrant)
Date: August 7, 1997
By: Robert J. Keogh
Presiden & CEO
By: Catherine P. Jackson
Senior Vice President and Cashier
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