SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ___________________ to ___________________
Commission file number: 000-24933
HERITAGE BANCORP, INC.
(Name of Small Business Issue in its Charter)
VIRGINIA 54-1914902
- ---------------------------------- ----------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
Of Incorporation or Organization)
1313 DOLLEY MADISON BLVD., MCLEAN, VIRGINIA 22101
(Address of Principal Executive Offices)
(703) 356-6060
(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, If Changed Since
Last Report)
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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of March 31, 2000.
Common stock, $1 par value--2,294,617 shares outstanding
--------------------------------------------------------
1
<PAGE>
INDEX
Part I. Financial Information PAGE NO.
Item 1. Financial Statements
Consolidated Balance Sheets--
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Income--
Three months ended March 31, 2000 and 1999 4
Consolidated Statements of Stockholders' Equity--
Three months ended March 31, 2000 and 1999 5
Consolidated Statements of Cash Flows--
Three months ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 13
Part II. Other Information: 14
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HERITAGE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
March 31, December 31,
ASSETS: 2000 1999
----------- ------------
<S> <C> <C>
Cash and due from banks $ 2,990 $ 2,667
Securities available for sale (at market value) 23,764 24,054
Federal funds sold 0 0
Loans, net 35,649 31,268
Premises and equipment 872 849
Other assets 1,146 1,101
------- -------
Total assets $64,421 $59,939
======= =======
LIABILITIES:
Deposits
Non-interest bearing $11,152 $13,708
Interest-bearing 36,881 34,285
------- -------
Total deposits 48,033 47,993
Short-term debt 7,603 3,001
Other liabilities 217 347
------- -------
Total liabilities 55,853 51,341
------- -------
STOCKHOLDERS' EQUITY:
Common stock; $1 par value per share;
authorized 10,000,000 shares; issued and
outstanding 2,294,617 shares 2,295 2,295
Surplus 6,530 6,530
Undivided profits 235 210
Accumulated other comprehensive
income (loss), net (492) (437)
------- -------
Total stockholders' equity 8,568 8,598
------- -------
Total liabilities and
stockholders' equity $64,421 $59,939
======= =======
</TABLE>
Notes to financial statements are an integral part of these statements.
3
<PAGE>
HERITAGE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars)
(unaudited)
Three Months Ended
------------------
March 31,
---------
2000 1999
------- -------
INTEREST INCOME:
Loans and fees $ 725 $ 699
Federal funds sold 7 81
Investment securities 386 319
------- -------
Total interest income 1,118 1,099
INTEREST EXPENSE:
Interest on deposits 330 348
Interest on federal funds purchased
and other borrowings 44 12
------- -------
Total interest expense 374 360
------- -------
Net interest income 744 739
PROVISION FOR LOAN
AND LEASE LOSSES (28) 7
------- -------
Net interest income after
provision for loan losses 772 732
OTHER INCOME:
Service charges & fees 46 34
Securities gains (losses) (13) --
------- -------
Total other income 33 34
OTHER EXPENSES:
Salaries & employee benefits 319 295
Occupancy expenses 105 52
Furniture & equipment expenses 64 39
Other operating expenses 280 184
------- -------
Total other expenses 768 570
------- -------
Income before income taxes 37 196
Applicable income taxes 12 19
------- -------
Net income $ 25 $ 177
======= =======
EARNINGS PER SHARE, BASIC $ .01 $ .08
======= =======
EARNINGS PER SHARE, ASSUMING
DILUTION $ .01 $ .08
======= =======
Notes to financial statements are an integral part of these statements.
4
<PAGE>
HERITAGE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three months ended March 31, 2000
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive Comprehensive
Stock Surplus Earnings Income Income Total
----- ------- -------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 $ 2,295 $ 6,530 $ 28 $ 75 $8,928
Comprehensive income:
Net income -- -- 177 -- $ 177 177
Other comprehensive income:
Unrealized holding gains (losses) on
securities available for sale arising
during the period net of tax of $(39) -- -- -- (74) (74) (74)
--
Other comprehensive income, net of tax -- -- -- -- --
Total comprehensive income -- -- -- -- $ 103
====== ======= ===== ====== ======= ======
Balance, March 31, 1999 $2,295 $ 6,530 $ 205 $ 1 $9,031
====== ======= ===== ====== ======
Balance, January 1, 2000 $ 2,295 $ 6,530 $ 210 $ (437) $8,598
Comprehensive income:
Net income -- -- 25 -- $ 25 25
Other comprehensive income:
Unrealized holding gains (losses) on
securities available for sale arising
during the period net of tax of $(28- -- -- -- (55) (55) (55)
Other comprehensive income, net of tax -- -- -- -- --
Total comprehensive income -- -- -- -- $ (30)
====== ======= ====== ======= ======= ======
Balance, March 31, 2000 $2,295 $ 6,530 $ 235 $ (492) $8,568
====== ======= ====== ======= ======
</TABLE>
Notes to financial statements are an integral part of these statements.
5
<PAGE>
HERITAGE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31,
------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 25 $ 177
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 24 12
Provision for loan losses (28) 7
Amortization of premiums, net 2 9
Loss on sale of securities available for sale 13 --
Changes in assets and liabilities:
(Increase) in other assets (17) (259)
(Decrease) in other liabilities (130) --
-------- --------
Net cash provided by operating activities (111) (54)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in loans (4,353) 523
Purchase of securities available for sale (813) (7,055)
Proceeds from sales of securities available for sale 987 --
Proceeds from calls and maturities of securities available for sale 18 4,000
Purchase of premises and equipment (47) (90)
-------- --------
Net cash (used in) investing activities (4,208) (2,622)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits 40 (2,820)
Net increase (decrease) in short-term borrowings 4,602 (1,009)
-------- --------
Net Cash provided by financing activities 4,642 (3,829)
-------- --------
Net increase (decrease) in cash and cash equivalents 323 (6,505)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 2,667 14,375
-------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 2,990 $ 7,870
======== ========
Supplemental disclosures of cash flow information
Cash payments for:
Interest on deposits $ 369 $ 344
Income taxes $ -- $ --
Supplemental schedule of non-cash investing activities
Unrealized gain (loss) on securities available for sale $ (83) $ (74)
</TABLE>
Notes to financial statements are an integral part of these statements.
6
<PAGE>
HERITAGE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. GENERAL
The consolidated statements include the accounts of Heritage Bancorp,
Inc. (the "Company") and its subsidiary, The Heritage Bank (the "Bank").
All significant intercompany balances and transactions have been
eliminated. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the financial
positions as of March 31, 2000 and December 31, 1999, and the results of
operations and cash flows for the three months ended March 31, 2000 and
1999.
The results of operations for the three months ended March 31, 2000 and
1999 are not necessarily indicative of the results to be expected for the
full year.
2. INVESTMENT SECURITIES
Amortized cost and carrying amount (estimated fair value) of securities
available for sale are summarized as follows:
<TABLE>
<CAPTION>
March 31, 2000
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In thousands of dollars) Cost Gains Losses Value
---------------------------------------------------
<S> <C> <C> <C> <C>
US government agencies & corporations $ 23,110 $ -- $ 723 $ 22,387
Obligations of states & political subdivisions 510 -- 2 508
Corporate debt obligations 523 -- 19 504
Other securities 100 -- -- 100
Federal reserve stock 265 -- -- 265
-------- -------- ------- --------
$ 24,508 $ -- $ 744 $ 23,764
======== ======== ======= ========
Securities available for sale at December 31, 1999 consist of the following:
<CAPTION>
December 31, 1999
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
(In thousands of dollars) Cost Gains Losses Value
---------------------------------------------------
<S> <C> <C> <C> <C>
US government & federal agencies $ 22,916 $ -- $ (643) $ 22,273
Obligations of states & political subdivisions 1,010 -- (4) 1,006
Corporate debt obligations 525 -- (15) 510
Federal reserve stock 265 -- -- 265
-------- -------- ------- --------
$ 24,716 $ -- $ (662) $ 24,054
======== ======== ======= ========
<CAPTION>
Three Months Ended
(in thousands of dollars) March 31,
---------
2000 1999
---- ----
<S> <C> <C>
Gross proceeds from sales of securities 987 --
====== =====
Gross gains on sale of securities -- --
Gross losses on sale of securities 13 --
------ -----
Net securities gains (losses) 13 --
====== ======
</TABLE>
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(unaudited)
3. LOANS
Major classifications of loans are as follows:
(in thousands of dollars) March 31, December 31,
2000 1999
--------- ------------
Commercial $ 4,475 $ 3,665
Real estate:
Construction 1,696 1,157
Residential (1-4 family) 10,541 10,475
Commercial 16,680 13,088
Agricultural 966 972
Consumer 1,331 1,507
All other Loans 356 825
-------- --------
36,045 31,689
Less allowance for loan losses (396) (421)
-------- --------
$ 35,649 $ 31,268
======== ========
The following schedule summarizes the changes in the allowance for loan and
lease losses:
Three Months Three Months
Ending Ending December 31,
(in thousands of dollars) March 31, 2000 March 31, 1999 1999
-------------- -------------- ----
Balance, beginning $ 421 $ 429 $ 429
Provision charged against income (28) 7 --
Recoveries 3 2 12
Loans charged off -- 20 20
----- ----- -----
Balance, ending $ 396 $ 418 $ 421
===== ===== =====
There were no nonperforming assets on March 31, 2000 or on December 31, 1999.
There were no loans past due 90 days or more and still accruing on March 31,
2000 or on December 31, 1999.
4. EARNINGS PER SHARE
The following shows the weighted average number of shares used in computing
earnings per share and the effect on weighted average number of shares of
diluted potential common stock income available to common shareholders.
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
-------------- --------------
Per Share Per Share
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic Earnings Per Share 2,294,617 $ .01 2,294,617 $ .08
Effect of dilutive securities:
Nonemployee directors' stock options 10,000 24,500
Employee incentive stock options 16,125 31,050
--------- ---------
Diluted Earnings Per Share 2,320,742 $ .01 2,350,167 $ .08
========= ======= ========= =======
</TABLE>
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(unaudited)
5. CAPITAL REQUIREMENTS
A comparison of the Company's capital as of March 31, 2000 with the minimum
requirements is presented below:
Minimum
Actual Requirements
------ ------------
Tier I risk-based capital 18.34% 4.00%
Total risk-based capital 19.14% 8.00%
Leverage ratio 14.84% 4.00%
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
FORWARD-LOOKING STATEMENTS
Certain information contained in this discussion may include
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements are generally identified by phrases
such as "the Company expects," "the Company believes" or words of similar
import. Such forward-looking statements involve known and unknown risks
including, but not limited to, changes in general economic and business
conditions, interest rate fluctuations, competition within and from outside the
banking industry, new products and services in the banking industry, risk
inherent in making loans such as repayment risks and fluctuating collateral
values, problems with technology utilized by the Company, changing trends in
customer profiles and changes in laws and regulations applicable to the Company.
Although the Company believes that its expectations with respect to the
forward-looking statements are based upon reliable assumptions within the bounds
of its knowledge of its business and operations, there can be no assurance that
actual results, performance or achievements of the Company will not differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements.
GENERAL
The following presents management's discussion and analysis of the
consolidated financial condition and results of operations of Heritage Bancorp,
Inc. (the "Company") as of the dates and for the periods indicated. This
discussion should be read in conjunction with the Company's Consolidated
Financial Statements and the Notes thereto, and other financial data appearing
elsewhere in this report. The Company is the parent bank holding company for The
Heritage Bank (the "Bank"). The Bank is a Virginia chartered bank headquartered
in McLean, Virginia that currently operates two full-service offices and engages
in a broad range of lending and deposit services aimed at individual and small
to medium-sized business customers in their respective market areas. The Bank's
third branch location will open mid May 2000.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2000 AND DECEMBER 31, 1999.
As of March 31, 2000 the Company's total assets were $64,421,000 as compared
to $59,939,000 as of December 31, 1999, which represents an increase of 7.5%.
The 2000 increase in total assets of $4,482,000 was primarily due to the
increased loan production. Total loans increased by 13.7% or $4,356,000 to
$36,045,000 at March 31, 2000 from $31,689,000 at December 31, 1999.
Total deposits increased $40,000 to $48,033,000 at March 31, 2000 as
compared to $47,993,000 at December 31, 1999. Repurchase agreements at March 31,
2000 were $7,603,000 or 153.3% greater than the December 31, 1999 balance of
$3,001,000. The Bank temporarily funded loans with a repurchase agreement with
another bank using its investment securities as collateral. At March 31, 2000,
the total of the Bank's repurchase agreements with another bank was $4,500,000.
Customer related repurchase agreements totaled $3,103,000 and $3,001,000 at
March 31, 2000 and December 31, 1999, respectively.
Federal funds sold and cash and due from banks represent the Company's cash
and cash equivalents. Federal funds sold and cash and cash due from banks at
March 31, 2000 totaled $2,990,000 compared to $2,667,000 at December 31, 1999,
representing an increase of $323,000, or 12.1%. The Bank had no balances in
federal funds sold at March 31, 2000 and December 31, 1999. The increase in due
from banks was attributable to usual fluctuations in clearing balances at the
Federal Reserve Bank.
Securities available for sale decreased $290,000 or 1.2% to $23,764,000 at
March 31, 2000 from $24,054,000 at December 31, 1999. The net $290,000 decrease
was primarily due to the sale of two securities for liquidity in January and the
purchase of one additional floating rate security to increase the yield on
earning assets.
10
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999.
Net income. The Company reported net income for the three months ended March
31, 2000 of $25,000 or $.01 basic and diluted earnings per share as compared to
the $177,000 net income or $.08 basic and diluted earnings per share for the
same period of 1999. Net income decreased $152,000 from March 31, 1999 as
compared to the same period of 2000. This decrease was primarily due to
increased operational and facility costs due to the Sterling branch which opened
in April of 1999 and additional space rented for operational expansion at the
Main office address in McLean in March of 1999.
Net-interest income. Net interest income is the difference between interest
earned on loans, investment securities and short-term investments, and the
interest paid on deposits and repurchase agreements. Factors affecting net
interest income include interest rates earned on loans and investments and those
paid on deposits and repurchase agreements, the mix and volume of earning assets
and interest bearing liabilities and the level of non-earning assets and
non-interest bearing liabilities. Net interest income for the quarter ended
March 31, 2000 increased $5,000 or .7% over the same quarter of 1999.
Non-interest income. During the three-month period ended March 31, 2000
non-interest income decreased $1,000 over the same period of 1999. A loss on
sale of securities of $13,000 in January 2000 was partially offset by increases
in overdraft and return check charges, and other commission fees such as ATM
fees and merchant discount fees. The securities were sold to provide some
liquidity for loan funding.
Non-interest expense. In the first quarter of 2000 non-interest expenses
increased $198,000 or 34.7% over the same period of 1999 due to increased
operational and facility costs due to the Sterling branch which opened in April
of 1999 and additional space rented for operational expansion at the Main office
address in March of 1999. These increased leases raised occupancy expense by
$53,000 for the three months ended March 31, 2000 as compared to the same period
of 1999. Additional salaries of $41,000 due to increase employees at the
Sterling branch also contributed to the increased non-interest expenses for the
quarter.
Provision for loan losses. In view of the loan growth for the first three
months of 1999 and the fact that there was no deterioration in the Bank's loan
portfolio, a provision of $7,000 was made for loan losses in the first quarter
of 1999. The allowance for loan losses at March 31, 1999 was 1.33% of
outstanding loans. In view of the improvement in the Bank's loan portfolio, an
analysis of the reserve for loan losses indicated that the reserves were greater
than required. Management determined that a reserve of 1.10% would be an
acceptable level. A credit of $28,000 was made to the provision to reduce the
reserve balance at March 31, 2000. The level of the allowance for loan losses is
based upon management's review of the loan portfolio and includes the present
and prospective financial condition of borrowers, consideration of actual loan
loss experience and projected economic conditions in general and for the Bank's
service areas in particular. Management believes that the provision for loan
losses and the allowance for loan losses are reasonable and adequate to cover
any known losses and any losses reasonably expected in the existing loan
portfolio. While management estimates loan losses using the best available
information, such as independent appraisals on collateral, no assurance can be
given that future additions to the allowance will not be necessary based on
changes in economic and real estate market conditions, further information
obtained regarding known problem loans, identification of additional problem
loans and other factors, both within and outside management's control.
Income Taxes. The Company recognized a net income tax expense of $12,000 in
the first quarter of 2000, as compared to $19,000 in the same period of 1999. A
net operating loss carryforward of the Company became completely utilized for
accounting purposes in 1999.
11
<PAGE>
LOAN QUALITY
The Bank attempts to manage the risk characteristics of its loan portfolio
through various control processes, such as credit evaluation of borrowers,
establishment of lending limits and application of lending procedures, including
the holding of adequate collateral and the maintenance of compensating balances.
However, the Bank seeks to rely primarily on the cash flow of its borrowers as
the principal source of repayment. Although credit policies are designed to
minimize risk, management recognizes that loan losses will occur and that the
amount of these losses will fluctuate depending on the risk characteristics of
the loan portfolio, as well as general and regional economic conditions.
The allowance for loan losses represents a reserve for potential losses in
the loan portfolio. The adequacy of the allowance for loan losses is evaluated
periodically based on a review of all significant loans, with a particular
emphasis on non-accruing, past due and other loans that management believes
require special attention. As of March 31, 2000, the Company had no loans in
non-accrual or 90 days past due as compared to $17,000 in non-accrual or 90 days
past due as of March 31, 1999.
For significant problem loans, management's review consists of evaluation of
the financial strengths of the borrower, the related collateral, and the effects
of economic conditions. Specific reserves against the remaining loan portfolio
are based on analysis of historical loan loss ratios, loan charge-offs,
delinquency trends, and previous collection experience, along with an assessment
of the effects of external economic conditions.
As of March 31, 2000, the allowance for loan losses was 1.10% of outstanding
loans, which was a decrease from the March 31, 1999 percentage of 1.33%.
Management's judgment as to the level of future losses on existing loans is
based on management's internal review of the loan portfolio, including an
analysis of the borrowers' current financial position, the consideration of
current and anticipated economic conditions and their potential effects on
specific borrowers, an evaluation of the existing relationships among loans,
potential loan losses, and the present level of the loan loss allowance; and
results of examinations by independent consultants. In determining the
collectibility of certain loans, management also considers the fair value of any
underlying collateral. However, management's determination of the appropriate
allowance level is based upon a number of assumptions about future events, which
are believed to be reasonable, but which may or may not prove valid. Thus, there
can be no assurance that charge-offs in future periods will not exceed the
allowance for loan loss or that additional increases in the loan loss allowance
will not be required.
CAPITAL RESOURCES
Stockholders' equity was $8,568,000 as of March 31, 2000 as compared to
$8,598,000 as of December 31, 1999. The $30,000 decrease, or .3%, was partially
due to a $55,000 increase in the unrealized loss on investment securities
available-for-sale that was offset by net income of $25,000. No dividends have
been declared by the Company since its inception. In addition, no options under
the Stock Option Plan have been exercised during 2000.
Under the Federal Reserve's capital regulations, for as long as the
Company's assets are under $150 million, the Company's capital ratios are
reviewed on a bank-only basis. The Bank exceeded its capital adequacy
requirements as of March 31, 2000 and December 31, 1999. The Company continually
monitors its capital adequacy ratios to assure that the Bank remains within the
guidelines.
12
<PAGE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
The primary objective of asset/liability management is to ensure the steady
growth of the Company's primary earnings component, net interest income. Net
interest income can fluctuate with significant interest rate movements. To
lessen the impact of these rate swings, management endeavors to structure the
balance sheet so that repricing opportunities exist for both assets and
liabilities in roughly equivalent amounts at approximately the same time
intervals. Imbalances in these repricing opportunities at any point in time
constitute interest rate sensitivity.
The measurement of the Company's interest rate sensitivity, or "gap," is one
of the principal techniques used in asset/liability management.
Interest-sensitive gap is the dollar difference between assets and liabilities
that are subject to interest-rate repricing within a given time period,
including both floating rate or adjustable rate instruments and instruments
which are approaching maturity.
In theory, maintaining a nominal level of interest rate sensitivity can
diminish interest rate risk. In practice, this is made difficult by a number of
factors, including cyclical variations in loan demand, different impacts on
interest-sensitive assets and liabilities when interest rates change, and the
availability of funding sources. Accordingly, the Company undertakes to manage
the interest-rate sensitivity gap by adjusting the maturity of and establishing
rate prices on the earning asset portfolio and certain interest-bearing
liabilities to keep it in line with management's expectations relative to market
interest rates. Management generally attempts to maintain a balance between
rate-sensitive assets and liabilities as the exposure period is lengthened to
minimize the overall interest rate risk to the Company.
The Bank's Executive Committee that oversees the asset/liability management
function meets periodically to monitor and manage the structure of the balance
sheet, control interest rate exposure, and evaluate pricing strategies for the
Company. The asset mix of the balance sheet is continually evaluated in terms of
several variables: yield, credit quality, appropriate funding sources and
liquidity. Management of the liability mix of the balance sheet focuses on
expanding the various funding sources.
Securities maintained in the available-for-sale portfolio may be sold prior
to maturity in order to provide the Company and the Bank with increased
liquidity. Available-for-sale investment securities totaled $23,764,000 and
$24,054,000 as of March 31, 2000 and December 31, 1999.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - Definative Merger Agreement
On April 18, 2000, the Company announced the signing of a definitive
agreement providing for the merger of the Company with Cardinal Financial
Corporation ("Cardinal"), a bank holding company headquartered in Fairfax,
Virginia. Under the terms of the merger agreement, Cardinal will issue a
combination of cash and shares of convertible preferred stock to the Company's
stockholders in exchange for all of the shares of the Company's common stock.
The Company's stockholders will be able to elect to receive $6.00 in cash or
1.2 shares of convertible preferred stock for each share of the Company's common
stock, subject to certain adjustments to permit Cardinal to issue an equal
amount of cash and convertible preferred stock. The preferred stock will have a
liquidation value of $5.00 and
13
<PAGE>
the right to dividend payments at the rate of 7.25% per annum. Each share of
preferred stock will also be convertible into shares of Cardinal's common stock
at any time at the option of its holder.
It is expected that The Heritage Bank will be renamed "Cardinal Bank -
Potomac" and become a subsidiary of Cardinal, the surviving company in the
merger. Following the merger, three members of the Company's Board of Directors
will join Cardinal's Board. Subject to certain conditions including receipt of
regulatory approval, and approval of the shareholders of Cardinal and the
Company, the closing of the merger is anticipated to occur in the third quarter
of 2000. The merger will be accounted for under the purchase method.
Item 6. Exhibits and reports on Form 8-K
a) Exhibits
27 Financial Data Schedule (filed electronically only)
b) Form 8-K - None
14
<PAGE>
SIGNATURES
Pursuant to the 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.
Date: May 15, 2000 BY /s/ Terrie G. Spiro
--------------------
President & CEO
Date: May 15, 2000 BY /s/ Janet A. Valentine
--------------------------------
Exec. Vice President
& Chief Financial Officer
15
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated financial statements of Heritage Bancorp, Inc. for the
three months ended March 31, 2000 and is qualified in its entirety by reference
to such financial statements and the notes thereto.
</LEGEND>
<CIK> 0001065304
<NAME> Heritage Bancorp, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> DEC-31-2000
<PERIOD-END> JAN-01-2000
<EXCHANGE-RATE> 1.000
<CASH> 2,990,000
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<TOTAL-ASSETS> 64,421,000
<DEPOSITS> 48,033,000
<SHORT-TERM> 7,603,000
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<LONG-TERM> 0
0
0
<COMMON> 2,295,000
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<INTEREST-LOAN> 725,000
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<INTEREST-OTHER> 7,000
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<LOAN-LOSSES> (28,000)
<SECURITIES-GAINS> (13,000)
<EXPENSE-OTHER> 768,000
<INCOME-PRETAX> 37,000
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<CHANGES> 0
<NET-INCOME> 25,000
<EPS-BASIC> 0.01
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<ALLOWANCE-DOMESTIC> 396,000
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</TABLE>
