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, 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)
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: 789,250 shares outstanding as of
4/25/97
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
CONSOLIDATED BALANCE SHEETS
HERITAGE BANKSHARES, INC.
(dollars in thousands)
March 31, December 31, March 31,
1997 1996 1996
ASSETS
Cash and due from banks $ 2,836 $ 3,069 $ 2,660
Federal funds sold 10,505 5,925 8,105
Securities available for sale 14,474 14,367 5,872
Securities held to maturity 6,954 5,830 7,030
Loans, net of unearned income 46,323 46,102 43,380
Allowance for loan losses (848) (842) (801)
Loans, net of unearned
income and allowance 45,475 45,260 42,579
Premises and equipment 668 588 621
Other real estate owned 444 444 509
Other assets 1,390 1,363 1,139
82,745 76,846 68,515
LIABILITIES
Non-interest bearing deposits 12,308 12,499 12,324
Interest bearing deposits 61,188 55,928 49,892
73,496 68,427 62,216
Short-term borrowings 60 131 55
Securities sold under agreements
to repurchase 2,056 1,349 -
Other liabilities 827 827 747
76,439 70,734 63,018
STOCKHOLDERS' EQUITY
Common stock, $5.00 par
value-authorized
3,000,000 shares,issued and
outstanding 788,750 shares 3,935 3,921 3,921
Additional paid-in capital (380) (380) (380)
Retained earnings 2,792 2,540 1,948
Unrealized gains (losses)
on investment securities (41) 31 8
6,306 6,112 5,497
$ 82,745 $76,846 $68,515
CONSOLIDATED STATEMENTS OF INCOME
HERITAGE BANKSHARES, INC
(dollars in thousands except per share amounts)
Three Months Ended
March 31,
1997 1996
Interest income:
Interest and fees on loans 1,064 1,018
Interest on investment securities 306 165
Interest on federal funds sold 130 111
Total interest income 1,500 1,294
Interest expense:
Interest on deposits 685 598
Interest on short-term borrowings 17 1
Total interest expense 702 599
Net interest income 798 695
Provision for loan losses
and OREO losses 11 35
Net interest income after provision 787 660
Total other income 71 65
Other expenses:
Salaries and employee benefits 269 246
Other expenses 207 206
Total other expenses 476 452
Income before income taxes 382 273
Income tax expense 130 88
Net income $ 252 $ 185
Net income per common equivalent
share $ 0.31 $ 0.24
Cash dividends per common
share outstanding $ - $ -
CONSOLIDATED STATEMENTS OF CASH FLOWS
HERITAGE BANKSHARES, INC.
(Dollars in thousands)
Three Months Ended
March 31, 1997 1996
Operating Activities:
Net Income $252 $184
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses 11 30
Provision for losses on real
estate owned 0 5
Provision for depreciation
and amortization 19 22
Amortization of investment
security premiums,net of
discounts 3 0
Deferred loan origination
fees, net of cost (3) (3)
Changes in:
Interest receivable 65 55
Interest payable 1 0
Other assets (56) (10)
Other liabilities 1 (81)
Net cash provided by
operating activities 293 202
Investing Activities:
Proceeds from maturities of
available-for-sale securities 285 1,030
Proceeds from maturities of
held-to-maturity securities 339 1,272
Purchase of available-for
- -sale securities (499) (1,233)
Purchase of held-to-maturity
securities (1,467) (999)
Loan originations, net of
principal repayments (223) 413
Proceeds from sale of
premises and equipment 10 0
Purchases of premises
and equipment (110) (16)
Net cash used by investing
activities (1,665) 467
Financing Activities:
Net increase (decrease) in
demand deposits,NOW accounts
and savings accounts 2,391 40
Net increase in certificates
of deposit 2,679 1,123
Net increase (decrease) in
short-term borrowings (71) (11)
Net increase in repurchase
agreements 706 0
Net proceeds from sale of
common stock 14 0
Cash Dividends Paid 0 0
5,719 1,152
Increase (decrease) in cash
and cash equivalents 4,347 1,821
Cash and cash equivalents
at beginning of year 8,994 8,944
Cash and cash equivalents
at end of year $13,341 $10,765
Supplemental schedules and cash flow information:
Cash paid for:
Interest on deposits and
other borrowings $ 702 $598
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 788,750 for the period ended March 31, 1997 and for the period
ended March 31, 1996. Common stock equivalents were dilutive for 1996 and
1997.
Item II. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Earnings Summary
For the three months ended March 31, 1997, net income for Heritage
Bankshares, Inc. totaled $252,000, up 36% from the $185,000 reported for the
same period in 1996. Heritage Bank & Trust earned $256,000 and net holding
company expenses were $4,000. Earnings per common share (fully
dilutive) were $0.31 as compared to $0.23 for the same period in 1996.
Net Interest Income
Net interest income for the first three months of 1997 was $787,000, an
increase of $121,000 or 18% over the $666,000 reported for the first three
months of 1996.
The primary determinant of this increase was growth in the loan and
investment portfolios. At March 31, 1997, investment securities were
$21,429,000 compared to $12,902,000 in 1996 representing a 52%increase.
Gross loans at March 31, 1997 were $46,323,000, up $2,943,000 over the March
31, 1996 total of $43,380,000. Federal funds sold increased $2,400,000 to
$10,505,000 as compared to $8,105,000 at March 31, 1996. Deposits increased
$11,280,000 or 18% to $73,496,000 compared to $62,216,000 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 a 63% decrease from the $30,000 provision
for loan losses at March 31, 1996. The allowance for loan losses at March
31, 1997 and 1996 as a percentage of net loans outstanding was 1.83% and
1.85% respectively.
Net charge offs during the first three months of 1997 were $6,000 compared
to $9,000 during the same period in 1996. At March 31, 1997 loans 90 days or
more past due and still accruing and loans on non-accrual status were $14,000
or .06% of total loans compared to March 31, 1996 when such loans were $6,000
or .07% of total loans. Non-performing assets consisting of non-accruing
loans and foreclosed properties totaled $460,000 or .56% of total assets at
March 31, 1997. At March 31, 1996, non-performing assets were $532,000 or
.78% of total assets.
Other Income
During the first three months of 1997 other income was $71,000, increasing
$6,000 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 $606,000 which is an 11% increase over the
$546,000 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 March 31, 1997, net loans to total deposits was 62% compared to 68% for
the same period in 1996. Certificates of deposit over $100,000 were $6,806,000
at March 31, 1997 compared to $7,929,000 for the same period in 1996. These
large denomination certificates of deposit represented 9% of total deposits
at March 31, 1997 and 13% of total deposits at March 31, 1996.
Interest rate sensitivity varies with different types of interest earning
assets. Rates change daily on the $10,505,000 the Company had invested in
federal funds on March 31, 1997. In addition, $19,075,000 or 41% 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 14.18% at March 31, 1996 to 14.96% at March 31, 1997.
Tier I capital increased from 12.92% to 13.70% compared to the same time
period. The leverage ratio, defined as Tier I capital divided by average
assets, was 7.87% at March 31, 1996 compared to 7.85% at March 31, 1995.
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 ,
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 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: April 25, 1997
BY:_______________________
Robert J. Keogh
President & CEO
BY:___________________________
Catherine P. Jackson
Vice-President and Cashier
1
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