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, 1998
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: 800,650 shares outstanding as
08/12/98
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 herein should be
read in conjunction with the consolidated financial statements included in
the Company's 1997 Annual Report to Shareholders and the 1997 Form 10-K
filed with the Securities and Exchange Commission.
Note 2. Earnings Per Common and Common Equivalent Share
Basic 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 787,283 for the period ended June 30, 1998 and
797,908 for the period ended June 30,1997.
Note 3: Comprehensive Income
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income". This new standard requires an entity to report and display
comprehensive income and its components. Comprehensive income is as follows:
For the Six Months Ended June 30,
Dollars in Thousands 1998 1997
Net Income $ 524 $ 504
Other Comprehensive Income:
Unrealized gain (loss) on securities
available-for-sale , net of tax
54 12
$ 578 $ 516
CONSOLIDATED BALANCE SHEETS
HERITAGE BANKSHARES, INC.
(dollars in thousands)
June 30, December 31, June 30,
1998 1997 1997
ASSETS
Cash and due from banks $3,803 $4,019 $2,724
Federal funds sold 4,815 1,697 4,970
Securities available for sale 16,070 15,730 15,445
Securities held to maturity 5,097 6,866 8,467
Loans, net of unearned income 54,585 52,131 47,164
Allowance for loan losses (928) (889) (839)
Loans, net of unearned income
and allowance 53,657 51,242 46,325
Premises and equipment 1,392 1,329 789
Other real estate owned 429 429 444
Other assets 1,636 1,690 1,609
86,899 83,002 80,773
LIABILITIES
Non-interest bearing deposits 12,559 12,902 11,226
Interest bearing deposits 63,545 59,895 59,921
76,104 72,797 71,147
Short-term borrowings 54 52 50
Securities sold under agreements
to repurchase 2,360 1,945 2,079
Other liabilities 877 1,127 966
79,395 75,921 74,242
STOCKHOLDERS' EQUITY
Common stock, $5.00 par
value-authorized 3,000,000
shares,issued and
outstanding 794,550 4,003 3,975 3,956
Additional paid-in capital (352) (361) (371)
Retained earnings 3,798 3,410 2,934
Unrealized gains (losses)
on investment securitie 54 57 12
7,503 7,081 6,531
$86,898 $83,002 $80,773
CONSOLIDATED STATEMENTS OF INCOME
HERITAGE BANKSHARES, INC
(dollars in thousands except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Interest income:
Interest and fees on loans 1,229 1,088 2,448 2,152
Interest on investment
securities 313 352 657 658
Interest on federal funds
sold 112 88 171 217
Total interest income 1,654 1,528 3,276 3,027
Interest expense:
Interest on deposits 750 700 1,486 1,383
Interest on short-term
borrowings 24 18 48 35
Total interest expense 774 718 1,534 1,418
Net interest income 880 810 1,742 1,609
Provision for loan losses
and OREO losses 15 0 33 11
Net interest income after
provision 865 810 1,709 1,598
Total other income 97 69 181 140
Other expenses:
Salaries and employee
benefits 294 277 609 546
Other expenses 265 220 498 428
Total other expenses 559 497 1,107 974
Income before income taxes 403 382 783 764
Income tax expense 132 130 259 260
Net income $271 $252 $524 $504
Net income per common
equivalent share $0.34 $0.31 $0.65 $0.64
Cash dividends per
common share outstanding $- $- $0.17 $0.14
CONSOLIDATED STATEMENTS OF CASH FLOWS
HERITAGE BANKSHARES, INC.
(Dollars in thousands)
Six Months Ended
June 30,
1998 1997
Operating Activities:
Net Income $524 $504
Adjustments to reconcile
net income to net cash
provided by operating activities:
Provision for loan losses 33 11
Provision for depreciation and
amortization 60 34
Amortization of investment
security premiums, net of discounts 5 6
Deferred loan origination fees,
net of cost 18 (17)
Gain on sale of premises and equipment (5) -
Changes in:
Interest receivable 84 (105)
Interest payable (26) (15)
Other assets (44) (141)
Other liabilities (224) 154
Net cash provided by operating
activities 425 431
Investing Activities:
Proceeds from maturities
of available-for-sale securities 2,908 1,100
Proceeds from maturities of
held-to-maturity securities 1,650 623
Purchase of available-for-sale
securities (2,434) (2,196)
Purchase of held-to-maturity
securities (705) (3,266)
Loan originations, net of principal
repayments (2,466) (1,060)
Proceeds from sale of premises
and equipment 6 10
Purchase of land (12) (101)
Purchases of premises and equipment (95) (144)
Net cash used by investing
activities (1,148) (5,034)
Financing Activities:
Net increase in demand deposits,
NOW accounts and savings accounts 681 800
Net increase in certificates of deposit 2,626 1,920
Net increase (decrease) in
short-term borrowings 2 (81)
Net increase in securities purchased under agreements
to repurchase 415 730
Net proceeds from sale of common stock 37 44
Cash Dividends Paid (136) (110)
3,625 3,303
Increase (decrease) in cash and
cash equivalents 2,902 (1,300)
Cash and cash equivalents at
beginning of year 5,716 8,994
Cash and cash equivalents at end
of year $8,618 $7,694
Supplemental schedules and cash flow information:
Cash paid for:
Interest on deposits and other borrowings $1,517 $1,433
ITEM II. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Earnings Summary
For the six months ended June 30, 1998, net income for Heritage Bankshares,
Inc. totaled $524,000, up 4% from the $504,000 reported for the same period
in 1997. Heritage Bank & Trust earned $540,000 and net holding company
expenses were $16,000. Basic earnings per common share were $.66 as
compared to $.64 for the same period in 1997.
Net Interest Income
Net interest income for the first six months of 1998 was $1,742,000, an
increase of $134,000 or 8% over the $1,608,000 reported for the same period
in 1997.
The primary determinant of this increase was growth in the loan portfolio.
Gross loans at June 30, 1998 were $54,585,000, up $7,421,000 over the June
30, 1997 total of $47,164,000. Deposits increased $4,957,000 or 7% to
$76,104,000 compared to $71,147,000 for the same period in 1997.
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 $33,000 represents a 200% increase from the $11,000 provision
for loan losses at June 30, 1997. The allowance for loan losses at June 30,
1998 and 1997 as a percentage of net loans outstanding was 1.70% and 1.78%
respectively.
Net charge-offs during the first six months of 1998 were ($5,000). At June
30, 1998, loans 90 days or more past due and still accruing and loans on
non-accrual status were $389,000 or .71% of total loans compared to June 30,
1997 when such loans were $39,000 or .08% of total loans. Non-performing
assets consisting of non-accruing loans and foreclosed properties totaled
$756,000 or .87% of total assets at June 30, 1998. At June 30, 1997,
non-performing assets were $430,000 or .58% of total assets.
Other Income
During the first six months of 1998, other income was $97,000 increasing
$28,000 or 40% over the comparable period in 1997. This increase is the
result of fees related to deposit account services and a portion of an
enterprise zone related tax credit. This credit is a result of the location
of the bank's Colley Avenue office which opened in late 1997.
Other Expenses
Other expenses totaled $1,107,000 which is a 14% increase over the $974,000
reported for the same period in 1997. $63,000 of this increase is the
result of increased costs relating to salaries and employee benefits. The
remaining portion of the increase is the result of normal operating costs.
As a percent of average assets, noninterest expenses were 2.40% in 1997
compared to 2.54% at June 30, 1998. The "efficiency ratio" (non-interest
expenses divided by total non-interest income plus net interest income)was
58% for the first half of 1998. These measures of operating efficiency
compare very favorably to other financial institutions in the Company's
peer group.
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, 1998, net loans to total deposits was 71% compared to 65% for
the same period in 1997. Certificates of deposit over $100,000 were
$7,936,000 at June 30,1998 compared to $7,936,000 for the same period in
1998. These large denomination certificates of deposit represented 11% of
total assets at June 30, 1998 and 10% of total deposits at June 30, 1997.
Interest rate sensitivity varies with different types of interest earning
assets. Rates change daily on the $4,815,000 the Company had invested in
federal funds on June 30, 1997. In addition, $20,312,000 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 decreased from 15.43% at June 30, 1997 to 15.00% at June 30,1998.
Tier I capital decreased from 13.75% to 13.94% compared to the same time
period. The leverage ratio, defined as Tier I capital divided by average
assets, was 8.63% at June 30, 1998 compared to 8.09% 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
The bank has received regulatory approval to open its fifth full service
branch at the corner of Chesapeake Boulevard and Ocean View Avenue in
Norfolk, Virginia.
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: August 13, 1998 s/Robert J. Keogh
President & CEO
s/Catherine P.Jackson
Sr. Vice President & Cashier
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3732
<INT-BEARING-DEPOSITS> 71
<FED-FUNDS-SOLD> 4815
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16070
<INVESTMENTS-CARRYING> 5097
<INVESTMENTS-MARKET> 5120
<LOANS> 54585
<ALLOWANCE> 928
<TOTAL-ASSETS> 86899
<DEPOSITS> 76104
<SHORT-TERM> 54
<LIABILITIES-OTHER> 3237
<LONG-TERM> 0
0
0
<COMMON> 4003
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 86899
<INTEREST-LOAN> 2448
<INTEREST-INVEST> 657
<INTEREST-OTHER> 171
<INTEREST-TOTAL> 3276
<INTEREST-DEPOSIT> 1486
<INTEREST-EXPENSE> 48
<INTEREST-INCOME-NET> 1742
<LOAN-LOSSES> 33
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1107
<INCOME-PRETAX> 783
<INCOME-PRE-EXTRAORDINARY> 783
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 524
<EPS-PRIMARY> .65
<EPS-DILUTED> .64
<YIELD-ACTUAL> 4.36
<LOANS-NON> 328
<LOANS-PAST> 61
<LOANS-TROUBLED> 225
<LOANS-PROBLEM> 542
<ALLOWANCE-OPEN> 889
<CHARGE-OFFS> 13
<RECOVERIES> 19
<ALLOWANCE-CLOSE> 928
<ALLOWANCE-DOMESTIC> 928
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
