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, 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)
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:797,650 shares outstanding
as of 5/11/98
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 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 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 795,833 for the period ended March 31, 1998 and
785,850 for the period ended March 31, 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 Three Months Ended March 31,
Dollars in Thousands 1998 1997
Net Income $ 253 $ 252
Other Comprehensive Income:
Unrealized gain (loss)
on securities available
- -for-sale,net of tax 62 (41)
$ 315 $ 211
CONSOLIDATED BALANCE SHEETS
HERITAGE BANKSHARES, INC.
(unaudited)
(dollars in thousands)
March 31, December 31, March 31,
1998 1997 1997
ASSETS
Cash and due from banks $ 3,792 $4,019 $ 2,836
Federal funds sold 8,010 1,697 10,505
Securities available for sale 15,152 15,730 14,474
Securities held to maturity 6,088 6,866 6,954
Loans, net of unearned income 51,850 52,131 46,323
Allowance for loan losses (906) (889) (848)
Loans, net of unearned income
and allowance 50,944 51,242 45,475
Premises and equipment 1,341 1,329 668
Other real estate owned 429 429 444
Other assets 1,589 1,690 1,390
87,345 83,002 82,746
LIABILITIES
Non-interest bearing deposits 13,085 12,902 12,308
Interest bearing deposits 62,911 59,895 61,188
75,996 72,797 73,496
Short-term borrowings 50 52 60
Securities sold under agreements
to repurchase 3,149 1,945 2,056
Other liabilities 799 1,127 827
79,994 75,921 76,439
STOCKHOLDERS' EQUITY
Common stock, $5.00 par
value-authorized 3,000,000 shares,
issued and outstanding 797,400 shares 3,985 3,975 3,935
Additional paid-in capital (359) (361) (380)
Retained earnings 3,663 3,410 2,792
Unrealized gains (losses) on investment
securities 62 57 (41)
7,351 7,081 6,306
$ 87,345 $83,002 $82,745
CONSOLIDATED STATEMENTS OF INCOME
HERITAGE BANKSHARES, INC
(dollars in thousands except per share amounts)
Three Months Ended
March 31,
1998 1997
Interest income:
Interest and fees on loans 1,219 1,064
Interest on investment securities
344 306
Interest on federal funds sold 59 130
Total interest income 1,622 1,500
Interest expense:
Interest on deposits 736 685
Interest on short-term borrowings 24 17
Total interest expense 760 702
Net interest income 862 798
Provision for loan losses 18 11
Net interest income after provision 844 787
Total other income 84 71
Other expenses:
Salaries and employee benefits 315 269
Other expenses 233 207
Total other expenses 548 476
Income before income taxes 380 382
Income tax expense 127 130
Net income $ 253 $ 252
Basic earnings per common share $ 0.32 $ 0.31
Cash dividends per common share
outstanding $ - $ -
CONSOLIDATED STATEMENTS OF CASH FLOWS
HERITAGE BANKSHARES, INC.
(Dollars in thousands)
Three Months Ended
March 31,
Operating Activities: 1998 1997
Net Income $253 $252
Adjustments to reconcile net
income to net cash
provided by operating activities:
Provision for loan losses 18 11
Provision for depreciation and
amortization 29 19
Amortization of investment security
premiums,net of discounts 2 3
Deferred loan origination fees, net of cost (8) (3)
Changes in:
Interest receivable 133 65
Interest payable (26) 1
Other assets (33) (56)
Other liabilities (302) 1
Net cash provided by operating activities 66 293
Investing Activities:
Proceeds from maturities of
available-for-sale securities 1,566 285
Proceeds from maturities of
held-to-maturity securities 1,173 339
Purchase of available-for-sale
securities (1,178) (499)
Purchase of held-to-maturity securities (200) (1,467)
Loan originations, net of
principal repayments 288 (223)
Proceeds from sale of premises
and equipment 0 10
Purchases of premises and equipment (41) (110)
Net cash used by investing activities 1,608 (1,665)
Financing Activities:
Net increase in demand deposits,
NOW accounts and savings accounts 1,228 2,391
Net increase in certificates of deposit 1,971 2,679
Net in short-term borrowings (2) (71)
Net increase in repurchase agreements 1,203 706
Net proceeds from sale of common stock 12 14
Cash Dividends Paid 0 0
4,412 5,719
Increase in cash and cash equivalents 6,086 4,347
Cash and cash equivalents at
beginning of year 5,716 8,994
Cash and cash equivalents at end of year $11,802 $13,341
Supplemental schedules and cash flow information:
Cash paid for:
Interest on deposits and other borrowings $728 $ 702
Item II. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Earnings Summary
For the three months ended March 31, 1998, net income for Heritage
Bankshares, Inc. totaled $253,000, compared to $252,000 reported for the same
period in 1997. Heritage Bank & Trust earned $255,000 and net holding
company expenses were $2,000. Basic earnings per common share were $0.32
as compared to $0.31 for the same period in 1997.
Net Interest Income
Net interest income for the first three months of 1998 was $862,000,
an increase of $64,000 or 8% over the $798,000 reported for the first
three months of 1997. The primary determinant of this increase was
growth in the loan portfolio. Gross loans at March 31, 1998 were
$51,850,000, up $5,527,000 over the March 31, 1997 total of $46,323,000.
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 $18,000 represents a 64% increase from
the $11,000 provision for loan losses at March 31, 1997. The allowance
for loan losses at March 31, 1998 and 1997 as a percentage of net loans
outstanding was 1.75% and 1.83% respectively.
Net charge offs during the first three months of 1998 were $2,000
compared to $6,000 during the same period in 1997. At March 31, 1998 loans
90 days or more past due and still accruing and loans on non-accrual status
were $56,000 or .11% of total loans compared to March 31, 1997 when such
loans were $30,000 or .06% of total loans. Non-performing assets consisting
of non-accruing loans and foreclosed properties totaled $485,000 or .52% of
total assets at March 31, 1998. At March 31,1997, non-performing assets
were $474,000 or .56% of total assets.
Other Income
During the first three months of 1998 other income was $84,000,
increasing $13,000 or 18% over the comparable period in 1996. The major
component of other income is service charges on deposit accounts which
totaled $57,000 at March 31, 1998 compared to $44,000 at March 31, 1997.
Other Expenses
Other expenses totaled $548,000 which is a 15% increase over the
$476,000 reported for the same period in 1997. This change reflects
increases in salaries and benefits, occupancy expense,data processing,
taxes-other and licenses and other operating expenses. The increase in
these expenses is primarily attributable to the opening of a new banking
office in late 1997. As a percent of average assets, noninterest expenses
were 2.51% in the first quarter of 1998 and 2.35% in the same period of 1997.
The "efficiency ratio" (non-interest expenses divided by total non-interest
income plus net interest income) was 58% for the first quarter of 1998.
These measures of operating efficiency compare very favorably to other
financial institutions in the Company's peer group.
Interest Sensitivity and Liquidity
Interest rate sensitivity is the relationship between changes in market
interest rates and net interest income due to the repricing characteristics
of assets and liabilities.
Interest rate sensitivity varies with different types of interest
earning assets. Rates change daily on the $8,010,000 the Company had
invested in federal funds on March 31, 1998. In addition, $22,312,000
or 43% of the bank's loans have adjustable interest rates or mature
within 30 days. Managing these assets is of primary importance in
maintaining the appropriate balance between interest sensitive
earning assets and interest bearing liabilities.
At March 31, 1998, net loans to total deposits was 67% compared
to 62% for the same period in 1997. Certificates of deposit over
$100,000 were $9,140,000 at March 31, 1998 compared to $6,806,000
for the same period in 1997. These large denomination certificates
of deposit represented 12% of total deposits at March 31, 1998 and
9% of total deposits at March 31, 1997.
Capital Resources
The Federal Reserve Board has established quantitative measures
to ensure risk-adjusted capital adequacy. Capital under these guidelines
is defined as Tier I and Tier II. At Heritage Bankshares, Inc. the only
components of Tier I and Tier II capital are shareholders' equity and a
portion of the allowance for loan losses, respectively.
The regulatory minimum ratio for total qualifying capital is 8.00%
of which 4.00% must be Tier I capital. At March 31, 1998, the Company's
Tier I capital represented 13.74% of risk weighted assets and total
qualifying capital (Tier I and Tier II) represented 14.99% of risk
weighted asets. Both ratios are well above current regulatory guidelines.
The Federal Reserve Board has guidelines for capital to assets (leverage)
for bank holding companies. These guidelines require a minimum level for
capital adquacy purposes of 4.00%. At March 31, 1998, total capital to
total assets was 8.42%
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
vailable , 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: May 7, 1998
BY:/s/ Robert J. Keogh
---------------------
Robert J. Keogh
President & CEO
BY:/s/Catherine P. Jackson
-------------------------
Catherine P. Jackson
Senior Vice-President
and Cashier
\PAGE \* arabic 1
1
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF HERITAGE BANKSHARES, INC., AS OF MARCH 31, 1998
AND TEH RELATED STATEMENTS OF INCOME, CHANGES IN SHAREHOLDERS' EQUITY AND CASH
FLOWS FOR THE PERIOD ENDING MARCH 31, 1998. THESE STATEMENTS ARE UNAUDITED.
</LEGEND>
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<PERIOD-END> MAR-31-1998
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<DEPOSITS> 75,996
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