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 30,1999
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)
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: 804,050 shares outstanding as 08/3/99
<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
Notes to Consolidated Financial Statements
2
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<TABLE>
CONSOLIDATED BALANCE SHEETS
HERITAGE BANKSHARES, INC.
(dollars in thousands)
<CAPTION>
June 30, December 31, June 30,
1999 1998 1998
-----------------------------------------------------
ASSETS
<S> <C> <C> <C>
Cash and due from banks $ 4,281 $ 3,604 $ 3,803
Federal funds sold 4,718 3,457 4,815
Securities available for sale 14,009 14,318 15,247
Securities held to maturity 4,601 5,119 5,921
Loans, net of unearned income 59,911 56,566 54,145
Allowance for loan losses (899) (895) (928)
Loans, net of unearned income and allowance 59,012 55,671 53,217
Loans held for sale 520 938 440
Accrued interest receivable 620 579 608
Premises and equipment 2,339 2,010 1,364
Other real estate owned 429 429 429
Other assets 1,289 1,166 1,054
----------- ---------- -----------
$ 91,818 $ 87,291 $ 86,898
=========== ========== ===========
LIABILITIES
Non-interest bearing deposits 15,458 14,522 12,558
Interest bearing deposits 65,291 62,762 63,545
----------- ---------- -----------
80,749 77,284 76,103
Short-term borrowings 51 63 54
Securities sold under agreements to repurchase 1,908 981 2,360
Accrued interest payable 279 318 311
Other liabilities 500 567 568
----------- ---------- -----------
83,487 79,213 79,396
STOCKHOLDERS' EQUITY
Common stock, $5.00 par value-authorized 3,000,000 shares,
issued and outstanding 804,050 shares 4,020 4,006 4,003
Additional paid-in capital (349) (352) (352)
Retained earnings 4,681 4,336 3,797
Unrealized gains (losses) on securities (21) 88 54
----------- ---------- -----------
8,331 8,078 7,502
$ 91,818 $ 87,291 $ 86,898
=========== ========== ===========
</TABLE>
3
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
HERITAGE BANKSHARES, INC
(dollars in thousands except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
----------------------- ------------------------
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans 1,278 1,229 2,490 2,448
Interest on investment securities 266 313 552 657
Interest on federal funds sold 82 112 124 171
----- ----- ----- -----
Total interest income 1,626 1,654 3,166 3,276
Interest expense:
Interest on deposits 706 750 1,378 1,486
Interest on short-term borrowings 18 24 40 48
----- ----- ----- -----
Total interest expense 724 774 1,418 1,534
Net interest income 902 880 1,748 1,742
Provision for loan losses and OREO losses 22 15 45 33
----- ----- ----- -----
Net interest income after provision 880 865 1,703 1,709
Total other income 149 97 304 181
Other expenses:
Salaries and employee benefits 353 294 698 609
Other expenses 311 265 575 498
----- ----- ----- -----
Total other expenses 664 559 1,273 1,107
Income before income taxes 365 403 734 783
Income tax expense 105 132 228 259
----- ----- ----- -----
Net income $ 260 $ 271 $ 506 $ 524
Basic earnings per common share $ 0.32 $ 0.34 $ 0.63 $ 0.65
Cash dividends per common share outstanding $ - $ - $ 0.17 $ 0.20
</TABLE>
5
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
HERITAGE BANKSHARES, INC.
(Dollars in thousands)
<CAPTION>
Six Months Ended
June 30,
1999 1998
---- ----
Operating Activities:
<S> <C> <C>
Net Income $506 $524
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 45 33
Provision for depreciation and amortization 64 60
Amortization of investment security premiums,
net of discounts 10 5
Deferred loan origination fees, net of cost (17) 18
Gain on sale of premises and equipment (5)
Changes in:
Interest receivable (41) 84
Interest payable (39) (26)
Loans held for sale 418
Other assets (66) (44)
Other liabilities (67) (224)
---- -----
Net cash provided by operating activities 813 425
Investing Activities:
Proceeds from maturities of available-for-sale securities 3,624 2,908
Proceeds from maturities of held-to-maturity securities 1,602 1,650
Purchase of available-for-sale securities (3,492) (2,434)
Purchase of held-to-maturity securities (1,083) (705)
Loan originations, net of principal repayments (3,369) (2,466)
Purchases of land, premises and equipment (393) (107)
----- -----
Net cash used by investing activities (3,111) (1,154)
Financing Activities:
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts 1,012 681
Net increase in certificates of deposit 2,453 2,626
Net increase (decrease) in short-term borrowings (12) 2
Net increase in repurchase agreements 927 415
Net proceeds from sale of common stock 17 37
Cash Dividends Paid (161) (136)
----- -----
4,236 3,625
Increase (decrease) in cash and cash equivalents 1,938 2,896
Cash and cash equivalents at beginning of year 7,061 5,716
Cash and cash equivalents at end of year $8,999 $8,612
</TABLE>
6
<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 Holding, Inc. All
significant inter-company 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 are 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 803,383 for the period ended June 30, 1999 and 797,908 for the period
ended June 30, 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 June 30,
-----------------------------------
Dollars in Thousands
Net Income $506 $524
Other Comprehensive Income: (11) 35
Unrealized gain (loss) on securities
available-for-sale, net of tax
Total $495 $559
7
<PAGE>
ITEM II. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Earnings Summary
For the six months ended June 30,1999, net income for Heritage
Bankshares, Inc. totaled $506,000, slightly below the $524,000 reported for the
same period in 1998. Heritage Bank & Trust earned $527,000 and net holding
company expenses were $21,000. Basic earnings per common share were $.63 as
compared to $.66 for the same period in 1998.
Net Interest Income
Net interest income for the first six months of 1999 was $1,747,000, an
increase of $66,000 or 4% over the $1,681,000 reported for the same period in
1998. The primary determinant of this increase was growth in the loan portfolio.
Gross loans at June 30,1999 were $59,911,000, up $5,766,000 over the June
30,1998 total of $54,145,000. Deposits increased $4,645,000 or 6% to $80,749,000
compared to $76,103,000 for the same period in 1998.
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 $45,000 represents a 36% increase from the $33,000 provision
for loan losses at June 30,1998. The allowance for loan losses at June 30,1999
and 1998 as a percentage of net loans outstanding was 1.52 and 1.70%
respectively.
Net charge-offs during the first six months of 1998 were $41000. At
June 30,1999, loans 90 days or more past due and still accruing and loans on
non-accrual status were $735,000 or 1.23% of total loans compared to June
30,1998 when such loans were $389,000 or .72% of total loans. Non-performing
assets consisting of non-accruing loans and foreclosed properties totaled
$540,000 or .59% of total assets at June 30,1999. At June 30,1998,
non-performing assets were $756,000 or .87% of total assets.
Other Income
During the first six months of 1998, other income was $304,000
increasing $62,000 or 26% over the comparable period in 1998. This increase is
the result of fees related to deposit account services.
Other Expenses
Other expenses totaled $1,273,000, which is a 15% increase over the
$1,366,000 reported for the same period in 1998. $89,000 of this increase is the
result of increased costs relating to salaries and employee benefits. Increases
in data processing fees along with occupancy and equipment costs reflect the
addition of a full-service branch location. These costs increased $51,000 from
the same period in 1998. The remaining portion of the increase is the result of
normal operating costs. As a percent of average assets, non-interest expenses
were 2.85% in the first six months of 1999 compared to 2.54% in the same period
of 1998. The "efficiency ratio" (non-interest expenses divided by total
non-interest income plus net interest income) was 62% for the first half of
1999. These measures of operating efficiency compare very favorably to other
financial institutions in the Company's peer group.
8
<PAGE>
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 30,1999, net loans to total deposits was 73% compared to 70%
for the same period in 1998. Certificates of deposit over $100,000 were
$8,488,000 at June 30,1999 compared to $9,703,000 for the same period in 1998.
These large denomination certificates of deposit represented 9% of total assets
at June 30,1999 and 11% of total deposits at June 30,1998.
Interest rate sensitivity varies with different types of interest
earning assets. Rates change daily on the $4,718,000 the Company had invested in
federal funds on June 30,1998. In addition, $20,470,000 or 34% of the bank's
loans will mature or re-price within one year. $6,752,000 of the investments
held by the Company mature within twelve months. 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 15.00% at June 30,1998 to 14.05% at June 30,1999. Tier I
capital decreased from 13.75% to 12.80% compared to the same time period. The
leverage ratio, defined as Tier I capital divided by average assets, was 8.89%
at June 30,1999 compared to 8.60% at June 30,1998.
<PAGE>
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
Item VI. Exhibits and Reports on Form 8-K
a) Exhibits
None.
b) Reports on Form 8-K
None.
9
<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: August 11, 1999
BY: /s/ Robert J. Keogh
---------------------------------
Robert J. Keogh
President & CEO
BY: /s/ Catherine P. Jackson
---------------------------------
Catherine P. Jackson
Sr. Vice-President and Cashier
10
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<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 3838
<INT-BEARING-DEPOSITS> 443
<FED-FUNDS-SOLD> 4718
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13567
<INVESTMENTS-CARRYING> 4954
<INVESTMENTS-MARKET> 4402
<LOANS> 59911
<ALLOWANCE> 899
<TOTAL-ASSETS> 91818
<DEPOSITS> 80749
<SHORT-TERM> 1959
<LIABILITIES-OTHER> 779
<LONG-TERM> 0
0
0
<COMMON> 4020
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 91818
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<INCOME-PRE-EXTRAORDINARY> 733
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<EPS-BASIC> .63
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<LOANS-NON> 111
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</TABLE>
