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, 1999
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: 803,550 shares outstanding
as of 5/11/99
<PAGE>
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
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
HERITAGE BANKSHARES, INC.
(dollars in thousands)
<CAPTION>
March 31, December 31, March 31,
1999 1998 1998
-------------------------------------------------------
ASSETS
<S> <C> <C> <C>
Cash and due from banks $ 4,066 $ 3,604 $ 3,792
Federal funds sold
4,782 3,457 8,010
Securities available for sale
13,149 14,318 15,152
Securities held to maturity
4,938 5,119 6,088
Loans, net of unearned income
57,792 56,566 50,669
Loans held for sale
193 938 1,181
Allowance for loan losses
(904) (895) (906)
Loans, net of unearned income and allowance
57,081 56,609 49,763
Accrued interest receivable
657 579 559
Premises and equipment
2,173 2,010 1,341
Other real estate owned
429 429 429
Other assets
1,183 1,166 1,030
----------- ----------- -----------
88,458 87,291 87,345
LIABILITIES
Non-interest bearing deposits
14,721 14,522 13,085
Interest bearing deposits
63,039 62,762 62,911
----------- ----------- -----------
77,760 77,284 75,996
Short-term borrowings
51 63 50
Securities sold under agreements to repurchase
1,546 981 3,149
Accrued interest payable
280 318 316
Other liabilities
535 567 483
----------- ----------- -----------
80,172 79,213 79,994
STOCKHOLDERS' EQUITY
Common stock, $5.00 par value-authorized 3,000,000 shares,
issued and outstanding 803,550 shares
4,018 4,006 3,985
Additional paid-in capital
(351) (352) (359)
Retained earnings
4,582 4,336 3,663
Unrealized gains (losses) on investment securities
37 88 62
----------- ----------- -----------
8,286 8,078 7,351
$ 88,458 $ 87,291 $ 87,345
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
HERITAGE BANKSHARES, INC
(dollars in thousands except per share amounts)
<CAPTION>
Three Months Ended
March 31,
1999 1998
-----------------------------
Interest income:
<S> <C> <C>
Interest and fees on loans 1,212 1,219
Interest on investment securities 286 344
Interest on federal funds sold 42 59
------ ------
Total interest income 1,540 1,622
Interest expense:
Interest on deposits 674 736
Interest on short-term borrowings 22 24
------ ------
Total interest expense 696 760
Net interest income 844 862
Provision for loan losses and OREO losses 23 18
------ ------
Net interest income after provision 821 844
Total other income 155 84
Other expenses:
Salaries and employee benefits 345 315
Other expenses 263 233
------ ------
Total other expenses 608 548
Income before income taxes 368 380
Income tax expense 123 127
------ ------
Net income $ 245 $ 253
Basic earnings per common share $ 0.31 $ 0.32
Cash dividends per common share outstanding $ - $ -
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
HERITAGE BANKSHARES, INC.
(Dollars in thousands)
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Operating Activities:
Net Income $ 246 $ 253
------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 23 18
Provision for depreciation and amortization 27 29
Amortization of investment security premiums,
net of discounts 6 2
Deferred loan origination fees, net of cost (7) (8)
Changes in:
Interest receivable (78) 133
Interest payable (38) (26)
Other assets 754 (33)
Other liabilities (32) (302)
------- --------
Net cash provided by operating activities 901 66
Investing Activities:
Proceeds from maturities of available-for-sale securities
Proceeds from maturities of held-to-maturity securities
Purchase of available-for-sale securities (1,000) (1,178)
Purchase of held-to-maturity securities (576) (200)
Loan originations, net of principal repayments (1,233) 288
Proceeds from sale of premises and equipment 0 0
Purchases of premises and equipment (191) (41)
------- --------
Net cash used by investing activities (158) 1,608
Financing Activities:
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts 512 1,228
Net increase in certificates of deposit (34) 1,971
Net increase (decrease) in short-term borrowings (12) (2)
Net increase in repurchase agreements 565 1,203
Net proceeds from sale of common stock 13 12
Cash Dividends Paid 0 0
------- --------
1,044 4,412
Increase (decrease) in cash and cash equivalents 1,787 6,086
Cash and cash equivalents at beginning of year 7,061 5,716
Cash and cash equivalents at end of year $ 8,848 $ 11,802
Supplemental schedules and cash flow information:
Cash paid for:
Interest on deposits and other borrowings $ 733 $ 728
------------------------------
Income Taxes $ 0 $ 0
</TABLE>
<PAGE>
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
1998 Annual Report to Shareholders and the 1998 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 803,050 for the period ended March 31, 1999 and 795,833 for the period
ended March 31, 1998.
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 1999 1998
---- ----
Net Income $ 246 $ 253
Other Comprehensive Income:
Unrealized gain (loss) on securities
available-for-sale , net of tax 24 41
----- -----
$ 270 $ 294
<PAGE>
Item II. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Earnings Summary
For the three months ended March 31, 1999, net income for Heritage
Bankshares, Inc. totaled $246,000, compared to $253,000 reported for the same
period in 1998. Heritage Bank & Trust earned $251,000 and net holding company
expenses were $5,000. Basic earnings per common share were $0.31 as compared to
$0.32 for the same period in 1998.
Net Interest Income
Net interest income for the first three months of 1999 was $844,000,
slightly above the $834,000 reported for the first three months of 1998. The
primary determinant of this increase was growth in the loan portfolio. Gross
loans at March 31, 1999 were $57,792,000, up $7,123,000 over the March 31, 1998
total of $50,669,000.
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 $22,500 represents a 25% increase from the $18,000 provision for loan
losses at March 31, 1998. The allowance for loan losses at March 31, 1999 and
1998 as a percentage of net loans outstanding was 1.56% and 1.79% respectively.
Net charge-offs during the first three months of 1999 were $13,000 compared
to $2,000 during the same period in 1998. At March 31, 1999 loans 90 days or
more past due and still accruing and loans on non-accrual status were $596,000
or 1.03% of total loans compared to March 31, 1998 when such loans were $56,000
or .11% of total loans. Non-performing assets consisting of non-accruing loans
and foreclosed properties totaled $559,000 or .63% of total assets at March 31,
1999. At March 31, 1998, non-performing assets were $484,000 or .52% of total
assets.
Other Income
During the first three months of 1999 other income was $155,000, increasing
$43,000 or 38% over the comparable period in 1998. An increase in mortgage loan
origination activities and account volume coupled with increased usage of fee
generating services such as ATMs and check cards account for the increase.
Other Expenses
Other expenses totaled $608,000, a 10% increase over the $548,000 reported
for the same period in 1998. The increase in these expenses is primarily
attributable to the opening of a new banking office in early April 1999. As a
percent of average assets, non-interest expenses were 2.79% in the first quarter
of 1999 and 2.51% in the same period of 1998. The "efficiency ratio"
(non-interest expenses divided by total non-interest income plus net interest
income) was 61% 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 re-pricing characteristics of
assets and liabilities.
Interest rate sensitivity varies with different types of interest earning
assets. Rates change daily on the $4,782,000 the Company had invested in federal
funds on March 31, 1999. Also, as of March 31, 1999 the Company had $6,749,000
in investment securities that mature or re-price within one year. Additionally,
$23,633,000 or 30% of the bank's loans have adjustable interest rates or mature
within 1 year. Managing these assets is of primary importance in maintaining the
appropriate balance between interest sensitive earning assets and interest
bearing liabilities.
At March 31, 1999,net loans to total deposits was 73% compared to 65% for
the same period in 1998. Certificates of deposit over $100,000 were $9,037,000
at March 31, 1999 compared to $9,140,000 for the same period in 1998. These
large denomination certificates of deposit represented 12% of total deposits at
March 31, 1999 and at March 31, 1998.
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, 1999, the Company's Tier I capital
represented 13.80% of risk weighted assets and total qualifying capital (Tier I
and Tier II) represented 15.05% of risk weighted assets. 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
adequacy purposes of 4.00%. At March 31, 1999, total capital to total assets was
9.37%.
<PAGE>
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.
<PAGE>
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 12, 1999
BY: /s/ Robert J. Keogh
---------------------------------
Robert J. Keogh
President & CEO
BY: /s/ Catherine P. Jackson
---------------------------------
Catherine P. Jackson
Sr. Vice-President & Cashier
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 3959
<INT-BEARING-DEPOSITS> 107
<FED-FUNDS-SOLD> 4782
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13149
<INVESTMENTS-CARRYING> 4938
<INVESTMENTS-MARKET> 4978
<LOANS> 57792
<ALLOWANCE> 904
<TOTAL-ASSETS> 88458
<DEPOSITS> 77760
<SHORT-TERM> 1597
<LIABILITIES-OTHER> 815
<LONG-TERM> 0
0
0
<COMMON> 4018
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 88458
<INTEREST-LOAN> 1212
<INTEREST-INVEST> 286
<INTEREST-OTHER> 42
<INTEREST-TOTAL> 0
<INTEREST-DEPOSIT> 673
<INTEREST-EXPENSE> 22
<INTEREST-INCOME-NET> 844
<LOAN-LOSSES> 23
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<EXPENSE-OTHER> 608
<INCOME-PRETAX> 368
<INCOME-PRE-EXTRAORDINARY> 368
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 246
<EPS-PRIMARY> .31
<EPS-DILUTED> .30
<YIELD-ACTUAL> 4.29
<LOANS-NON> 131
<LOANS-PAST> 465
<LOANS-TROUBLED> 264
<LOANS-PROBLEM> 506
<ALLOWANCE-OPEN> 895
<CHARGE-OFFS> 14
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 904
<ALLOWANCE-DOMESTIC> 904
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
