FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996 Commission File Number 33-25687-A
HERITAGE BANCSHARES, INC.
_______________________________________________________________________________
(Exact name of Small Business Issuer as specified in its charter)
FLORIDA 65-0059575
_______________________________________________________________________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12998 SO. CLEVELAND AVENUE, FORT MYERS, FLORIDA 33901
_______________________________________________________________________________
(Address of principal executive offices) (Zip code)
ISSUER'S TELEPHONE NUMBER: (813) 482-1441
Check whether the issuer (1) filed
all reports required to be filed by
Section 13 or 15 (d) of the Exchange
Act during the past 12 months (or for
such shorter period that the Regis-
trant was required to file such
reports), and (2) has been subject to
such filing requirements for the past
90 days. Yes X No .
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CLASS OUTSTANDING AT MAY 5, 1996
_____ ____________________________
<S> <C>
COMMON STOCK, $1.00 PAR VALUE 543,972 SHARES
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T A B L E O F C O N T E N T S
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Page
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PART I Item 1. Financial Statements 1-5
Item 2. Management`s Discussion and Analysis
of Financial Condition and Results of
Operations 6-7
PART II Item 6. Exhibits and Reports on Form 8-K 8
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HERITAGE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
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<CAPTION>
March 31, December 31,
ASSETS 1996 1995
----------- -------------
<S> <C> <C>
Cash and due from banks $ 3,023,686 $ 5,614,319
Federal funds sold 6,500,000 5,955,000
Interest bearing deposits 43,072 1,037,504
Investment securities available for sale 8,922,797 6,014,483
Mortgage-backed securities available for sale 2,679,258 2,826,014
Loans (net of allowance for credit losses 61,661,086 62,218,629
and deferred loan fees of $493,806 and
$487,867 at March 31, 1996 and December
31, 1995, respectively)
Mortgage loans held for sale, net 2,743,909 887,627
Premises and equipment, net 2,768,386 2,750,776
Other assets 806,802 866,321
------------ ------------
Total assets $ 89,148,996 $ 88,170,673
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 73,756,659 $ 73,896,799
Securities sold under agreement to purchase 7,454,502 6,281,169
Other liabilities 551,379 617,098
------------- -------------
81,762,540 80,795,066
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STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, 10,000,000
shares authorized, 543,972 shares
issued and outstanding 543,972 531,972
Additional paid in capital 4,851,710 4,851,710
Unrealized gain on securities available
for sale (50,035) (13,882)
Retained earnings 2,040,809 1,993,807
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7,386,456 7,375,607
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Total liabilities and stockholders' equity $ 89,148,996 $ 88,170,673
============= =============
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See Accompanying Notes
HERITAGE BANCSHARES, INC., AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
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Three Months Ended March 31
---------------------------
1996 1995
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<S> <C> <C>
Interest income
Interest on loans $ 1,403,086 $ 1,240,797
Interest on investment
securities, taxable 116,886 152,463
Interest on mortgage-backed
securities, taxable 45,438 65,339
Other interest income 74,474 47,586
------------ -----------
Total interest income 1,639,884 1,506,185
------------ -----------
Interest expense
Interest on deposits 712,573 632,575
------------ -----------
Net interest income 927,311 873,610
Provision for credit losses 10,725 15,000
------------ -----------
Net interest income after
provision for credit losses 916,586 858,610
Service charges and fees 80,064 79,608
Gain on sale of mortgage loans 1,059 40,541
Other expenses (715,522) (727,302)
------------ -----------
Income before income taxes 282,187 251,457
Provision for income taxes 99,900 95,500
------------ -----------
Net income $ 182,287 $ 155,957
============= ===========
Earnings per share $ 0.34 $ 0.29
============= ===========
Weighted average number of
shares outstanding 543,972 543,972
============= ===========
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See Accompanying Notes
HERITAGE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
Three Months Ended March 31
---------------------------
1996 1995
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<S> <C> <C>
Net cash provided by operating activities $ 233,631 $ 873,033
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Cash flow from investing activities:
Capital expenditures (52,396) (26,523)
Purchase of investment securities (3,488,796) -
Maturities of investment securities 500,000 -
Investment in interest bearing deposits - (130,367)
Proceeds from principal reductions of
investment securities 50,000 -
Proceeds from principal reductions of
mortgage backed securities 122,011 138,290
Proceeds from sale of OREO 42,986 -
Net loans to customers (1,344,701) (1,396,707)
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Net cash used in investing activities (4,170,896) (1,415,307)
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Cash flow from financing activities:
Dividends paid to shareholders (135,993) -
Net increase (decrease) in demand, Now and
savings deposits 487,219 (314,027)
Proceeds from exercise of warrants 125,000
Net increase in certificates
of deposits (627,359) 7,904,675
Net increase in repurchase agreements 1,173,333 -
------------- -------------
Net cash provided by financing
activities 897,200 7,715,648
------------- -------------
Net increase (decrease) in cash and
cash equivalents (3,040,065) 7,173,374
Cash and cash equivalents beginning
of period 12,606,823 3,343,830
------------- -------------
Cash and cash equivalents end
of period $ 9,566,758 $ 10,517,204
============= =============
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See Accompanying Notes.
HERITAGE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
In the opinion of management, the accompanying unaudited
consolidated condensed financial statements contain all
adjustments (consisting of only normal recurring adjustments)
necessary to present fairly their consolidated financial
position as of March 31, 1996, and the consolidated results of
their operations and their cash flows for the three-month
periods ended March 31, 1996 and 1995. The results of
operation for the three month period ended March 31, 1996, are
not necessarily indicative of the results to be expected for the
year ended December 31, 1996. For further information refer to
the consolidated financial statements and notes thereto included
in the Company's annual report on Form 10-KSB for the year ended
December 31, 1995.
Note 2. Earnings Per Share
Earnings per share is based on the weighted average number of
common shares outstanding. Common stock equivalents in the form
of outstanding common stock options and warrants are not included
in the calculation of weighted average shares at March 31, 1996
due to the immaterial impact on dilution earnings per share.
Note 3. Capital
On January 8, 1996, the Board of Directors of the Company
declared a cash dividend of twenty-five cents ($0.25) per share
payable to stockholders of record on February 1, 1996. The
dividend was paid on March 1, 1996.
Note 4. Impact of Recently Issued Accounting Standard
As of January 1, 1996, the Company adopted the provision of
Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights," (SFAS No. 122). SFAS No. 122 requires
companies that engage in mortgage banking activities to allocate
the total cost of the mortgage loans it acquires or originates
and then sells with servicing rights retained, between the
estimated fair value of the loans and the capitalized mortgage
servicing rights, if practical. SFAS No. 122 also requires that
capitalized mortgage servicing rights be assessed for impairment
based on the fair value of those rights. SFAS No. 122 applies
prospectively to fiscal years beginning after December 15, 1995.
The Company adopted the provisions of SFAS No. 122 in January,
1996. The adoption did not have a material impact on the
financial position of the Company.
In October 1995, SFAS No. 123 "Accounting for Stock-Based
Compensation," was issued and was effective for the Company
beginning January 1, 1996. SFAS No. 123 provides an alternative
method of accounting for stock-based compensation arrangements,
based on fair value of the stock-based compensation determined by
an option pricing model utilizing various assumptions regarding
the underlying attributes of the options and Company's stock,
rather than the existing method of accounting for stock-based
compensation which is provided in Accounting Practices Bulletin
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25). The Company has elected to apply APB 25 and, therefore,
there will be no impact on the consolidated financial position
and consolidated results of operations.
Note 5. Acquisition Agreement
On April 30, 1996, officials of Heritage Bancshares, Inc. and
SouthTrust Corporation signed a letter of intent for the purchase
of Heritage Bancshares, Inc. by South Trust Corporation. The
cash transaction represents a purchase price of $22.65 per share.
The transaction which is subject to execution of a definitive
merger agreement, shareholder and regulatory approval, is
expected to be completed by the last quarter of 1996.
ITEM 2. MANAGEMENT`S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
Total assets of the Company at March 31, 1996, compared to December 31,
1995, increased by approximately $1 million. This increase was the result
of deposit funds received by the Company's banking subsidiary, and were
invested in short term government securities. The Company anticipates
continued growth in net loans and deposits for the year ended December 31,
1996.
Liquidity of the Company remains strong at March 31, 1996, as cash and
federal funds sold were approximately $9.5 million.
For all but the most highly rated banks, the minimum leverage requirement
is 3% of total assets plus an additional 100 to 200 basis points. At
March 31, 1996, the Company's leverage ratio was 8.6%. At March 31, 1996,
the Company's total capital to total risk-weighted assets was 12.95% of
which 12.13% was Tier I capital. These ratios well exceed regulatory
capital requirements.
Results of Operations
- ---------------------
The Company reported net income of $182,287 for the three-month period
ended March 31, 1996, compared to net income of $155,957 for the same
period in 1995. The primary factor contributing to the increase in
operating results for the first quarter ended March 31, 1996 was an
increase in interest and fees on loans while reducing operating expenses.
Investment securities comprise approximately 10% of the Company's assets
while mortgage-backed securities comprise approximately 3%. For the three-
month period ended March 31, 1996, the portfolio maintained net unrealized
losses of approximately $58,000 which was a increase of $36,000 from
December 31, 1995's net unrealized losses of approximately $22,000 on
"available for sale" securities. As a result of FASB Special Report
entitled "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities" which allowed companies
a one time opportunity to reassess its classification of certain
investments, the Company transferred all of its "held to maturity"
investments to "available for sale". The amortized cost of the
investments transferred was $5,879,079 and the unrealized loss was
$79,859.
The Company maintained its credit loss reserve ratio at .77% at March 31,
1996. This ratio is reflective of the Company's minimal credit losses
experienced since inception and the low level of non-performing assets.
At March 31, 1996, the Company reported $766,000 of loans on non-accrual,
of which $697,000 were collateralized by first and second mortgages on
real property. Management anticipates returning $154,000 to accrual status
during the second quarter of 1996. At March 31, 1996, the Bank held in
other real estate owned foreclosed property in the amount of $64,000.
Because of the value of the collateral, management of the Company believes
that no further losses on this loan, upon disposition of the foreclosed
collateral, will occur. There was one other loan 90 days past due in the
amount of $21,000. The Company charged off no loans during the period
ended March 31, 1996. The Company's interest income lost as a result of
these loans being on non-accrual was approximately $22,100 for the three-
month period ended March 31, 1996. Management reviews and evaluates the
allowance for credit losses on a quarterly basis. Management believes
that the allowance for credit losses at March 31, 1996, is adequate based
on the nature of the loan portfolio and the prevailing economic factors.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED - PAGE 2
Summary of the Company's loan portfolio as of March 31, 1996 and December
31, 1995 ($ in thousands):
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<CAPTION>
1996 1995
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<S> <C> <C>
Commercial, financial and agricultural $12,385 $14,131
Real estate mortgage 40,508 37,761
Real estate construction 6,376 7,594
Installment 2,886 3,220
-------- --------
62,155 62,706
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Less:
Allowance for credit losses (501) (490)
Net deferred loan fees 7 3
--------- --------
(494) (487)
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Loans, net $61,661 $62,219
========= ========
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An analysis of the allowance for credit losses for March 31, 1996
is as follows:
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Balance at January 1, 1996 $490,373
Provisions charged to operations 10,725
Loans charged off -
Recoveries of loans charged off -
Balance at March 31, 1996 $501,098
=========
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On January 8, 1996, the Board of Directors of the Company declared a cash
dividend of twenty-five cents ($0.25) per share payable to stockholders of
record on February 1, 1996. The dividend was paid on March 1, 1996.
Other non-interest expenses decreased from $727,000 for first quarter 1995
to $715,000 for the same period in 1996. $10,000 was a decrease in
occupancy expense associated with the Naples Loan Production Office which
was closed during the second quarter of 1995. Other normal operating costs
were consistent with first quarter 1995.
PART II. OTHER INFORMATION
6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. No exhibits are required to be filed with this report.
(b) Reports on Form 8-K. No report on Form 8-K was filed during the
quarter ended March 31, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on behalf by the
undersigned thereunto duly authorized.
LEO R DOERR
____________________________
Leo R. Doerr, President and
Chief Executive Officer
(Principal Executive Officer)
MAY 7, 1996
Date: _____________________
DAVID M DUVALL
_____________________________
David M. DuVall, Executive Vice
President and Treasurer
(Principal Financial and
Accounting Officer)
MAY 7, 1996
Date: _____________________
ACKNOWLEDGE COPY