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 September 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: 807,700 shares outstanding as 11/10/99
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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
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
HERITAGE BANKSHARES, INC.
(dollars in thousands)
<CAPTION>
September 30, December 31, September 30,
1999 1998 1998
------------------------------------------------------
ASSETS
<S> <C> <C> <C>
Cash and due from banks $ 4,356 $ 3,604 $ 3,253
Federal funds sold 4,146 3,457 6,245
Securities available for sale 15,099 14,318 13,727
Securities held to maturity 4,329 5,119 5,665
Loans, net of unearned income 61,402 56,566 54,478
Allowance for loan losses (930) (895) (926)
Loans, net of unearned income and allowance 60,472 55,671 53,552
Loans held for sale 665 938 125
Accrued interest receivable 662 579 285
Premises and equipment 2,362 2,010 1,777
Other real estate owned 429 429 429
Other assets 1,272 1,166 1,142
------------ ---------- -----------
$ 93,792 $ 87,291 $ 86,200
============ ========== ===========
LIABILITIES
Non-interest bearing deposits 16,493 14,522 13,450
Interest bearing deposits 65,349 62,762 62,794
------------ ---------- -----------
81,842 77,284 76,244
Short-term borrowings 50 63 52
Securities sold under agreements to repurchase 2,546 981 1,319
Accrued interest payable 284 318 307
Other liabilities 452 567 443
------------ ---------- -----------
85,174 79,213 78,365
STOCKHOLDERS' EQUITY
Common stock, $5.00 par value-authorized 3,000,000 shares,
issued and outstanding 807,700 shares 4,038 4,006 4,001
Additional paid-in capital (343) (352) (353)
Retained earnings 4,962 4,336 4,078
Unrealized gains (losses) on investment securities (39) 88 109
------------ ---------- -----------
8,618 8,078 7,835
$ 93,792 $ 87,291 $ 86,200
============ ========== ===========
</TABLE>
3
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<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
HERITAGE BANKSHARES, INC
(dollars in thousands except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----------------------------- ----------------------------
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans 1,340 1,283 3,830 3,731
Interest on investment securities 264 310 816 967
Interest on federal funds sold 89 89 213 260
Total interest income 1,693 1,682 4,859 4,958
Interest expense:
Interest on deposits 736 753 2,114 2,239
Interest on short-term borrowings 21 19 61 67
----- ----- ----- -----
Total interest expense 757 772 2,175 2,306
Net interest income 936 910 2,684 2,652
Provision for loan losses and OREO losses 23 0 68 33
----- ----- ----- -----
Net interest income after provision 913 910 2,616 2,619
Total other income 161 109 465 290
Other expenses:
Salaries and employee benefits 362 324 1,060 933
Other expenses 307 277 883 775
----- ----- ----- -----
Total other expenses 669 601 1,943 1,708
Income before income taxes 405 418 1,138 1,201
Income tax expense 123 137 351 396
----- ----- ----- -----
Net income $ 282 $ 281 $ 787 $ 805
Basic earnings per common share $ 0.35 $ 0.35 $ 0.98 $ 1.01
Cash dividends per common share outstanding $ - $ - $ 0.20 $ 0.17
</TABLE>
4
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<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
HERITAGE BANKSHARES, INC.
(Dollars in thousands)
<CAPTION>
Nine Months Ended
September 30,
1999 1998
---- ----
Operating Activities:
<S> <C> <C>
Net Income $787 $805
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 68 33
Provision for depreciation and amortization 99 91
Amortization of investment security premiums,
net of discounts 20 8
Deferred loan origination fees, net of cost (16) 2
Gain on sale of premises and equipment 0 (5)
Changes in:
Interest receivable (84) (121)
Interest payable (34) (35)
Loans held for sale 273 0
Other assets (39) 235
Other liabilities (115) (341)
------ ------
Net cash provided by operating activities 959 672
Investing Activities:
Proceeds from maturities of available-for-sale securities 5,466 4,508
Proceeds from maturities of held-to-maturity securities 1,869 1,907
Purchase of available-for-sale securities (6,456) (2,239)
Purchase of held-to-maturity securities (1,083) (900)
Loan originations, net of principal repayments (4,854) (2,345)
Proceeds from sale of premises and equipment 0 6
Purchases of land, premises and equipment (450) (544)
------ ------
Net cash used by investing activities (5,508) 393
Financing Activities:
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts 1,754 3,000
Net increase in certificates of deposit 2,804 447
Net increase (decrease) in short-term borrowings (13) 0
Net increase in repurchase agreements 1,565 (627)
Net proceeds from sale of common stock 41 34
Cash Dividends Paid (161) (136)
------ ------
5,990 2,718
Increase (decrease) in cash and cash equivalents 1,441 3,783
Cash and cash equivalents at beginning of year 7,061 5,716
Cash and cash equivalents at end of year $8,502 $9,499
Supplemental schedules and cash flow information:
Cash paid for:
Interest on deposits and other borrowings $ 2,210 $ 2,342
</TABLE>
5
<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 804,822 for the period ended September 30, 1999 and 798,933 for the period
ended September 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 September 30,
Dollars in Thousands
- ---------------------------------------- --------------------------------------
Net Income $787 $805
- ---------------------------------------- --------------------------------------
Other Comprehensive Income: (39) 109
Unrealized gain (loss) on securities
available-for-sale, net of tax
- ---------------------------------------- --------------------------------------
Total $748 $914
- ---------------------------------------- --------------------------------------
6
<PAGE>
ITEM II. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Earnings Summary
- ----------------
For the nine months ended September 30,1999, net income for Heritage
Bankshares, Inc. totaled $787,000, $18,0000 below the $805,000 reported for the
same period in 1998. Heritage Bank & Trust earned $811,000 and net holding
company expenses were $24,000. Basic earnings per common share were $.98 as
compared to $1.01 for the same period in 1998.
Net Interest Income
- -------------------
Net interest income for the nine months ending September 30,1999 was
$2,684,000, an increase of $128,000 or 5% over the $2,556,000 reported for the
same period in 1998. The primary determinant of this increase was growth in the
loan portfolio. Gross loans at September 30,1999 were $61,402,000, up $6,924,000
over the September 30,1998 total of $54,478,000. Deposits increased $5,598,000
or 7% to $81,842,000 compared to $76,244,000 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 $68,000 represents a 105% increase from the $33,000 provision
for loan losses at September 30,1998. The allowance for loan losses at September
30,1999 and 1998 as a percentage of net loans outstanding was 1.54 and 1.73%
respectively.
Net charge-offs during the first nine months of 1999 were $33,000. At
September 30,1999, loans 90 days or more past due and still accruing and loans
on non-accrual status were $498,000 or .81% of total loans compared to September
30,1998 when such loans were $440,000 or .81% of total loans. Non-performing
assets consisting of non-accruing loans and foreclosed properties totaled
$581,000 or .62% of total assets at September 30,1999. At September 30,1998,
non-performing assets were $788,000 or .91% of total assets.
Other Income
- ------------
During the first nine months of 1999, other income was $465,000
increasing $79,000 or 20% over the comparable period in 1998. This increase is
the result of fees related to deposit account services.
Other Expenses
- --------------
Other expenses totaled $1,944,000, which is a 14% increase over the
$1,709,000 reported for the same period in 1998. $127,000 of this increase is
the result of increased costs relating to salaries and employee benefits which
relates to staffing of a new branch location. Increases in data processing fees
along with occupancy and equipment costs also reflect the addition of the branch
location. These costs increased $96,000 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 2.84% in the first nine
months of 1999 compared to 2.62% in the same period of 1998. The "efficiency
ratio" (non-interest expenses divided by total non-interest income plus net
interest income) was 62%. These measures of operating efficiency compare very
favorably to other financial institutions in the Company's peer group.
7
<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 September 30,1999, net loans to total deposits was 74% compared to
70% for the same period in 1998. Certificates of deposit over $100,000 were
$9,138,000 at September 30, 1999 compared to $9,488,000 for the same period in
1998. These large denomination certificates of deposit represented 10% of total
assets at September 30,1999 and 11% of total deposits at September 30,1998.
Interest rate sensitivity varies with different types of interest
earning assets. Rates change daily on the $4,146,000 the Company had invested in
federal funds on September 30, 1999. In addition, $16,471,000 or 27% of the
bank's loans will mature or re-price within one year. $4,926,000 of the
investments held by the Company will 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 15.43% at September 30,1998 to 14.66% at September
30,1999. Tier I capital decreased from 14.18% to 13.40% compared to the same
time period. The leverage ratio, defined as Tier I capital divided by average
assets, was 9.50% at September 30,1999 compared to 8.88% at September 30, 1998.
8
<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: November 10, 1999
BY: /s/ Robert J. Keogh
-------------------------------
Robert J. Keogh
President & CEO
BY: /s/ Catherine P. Jackson
-------------------------------
Catherine P. Jackson
Sr. Vice-President and Cashier
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 3901
<INT-BEARING-DEPOSITS> 455
<FED-FUNDS-SOLD> 4146
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15099
<INVESTMENTS-CARRYING> 4329
<INVESTMENTS-MARKET> 4240
<LOANS> 61402
<ALLOWANCE> 930
<TOTAL-ASSETS> 93792
<DEPOSITS> 81842
<SHORT-TERM> 2596
<LIABILITIES-OTHER> 736
<LONG-TERM> 0
0
0
<COMMON> 4038
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 93792
<INTEREST-LOAN> 3830
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<INTEREST-TOTAL> 4859
<INTEREST-DEPOSIT> 2114
<INTEREST-EXPENSE> 62
<INTEREST-INCOME-NET> 2684
<LOAN-LOSSES> 68
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<EXPENSE-OTHER> 1944
<INCOME-PRETAX> 1138
<INCOME-PRE-EXTRAORDINARY> 1138
<EXTRAORDINARY> 0
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<NET-INCOME> 351
<EPS-BASIC> .97
[EPS-BASIC] .98
<YIELD-ACTUAL> 4.37
<LOANS-NON> 153
<LOANS-PAST> 576
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<LOANS-PROBLEM> 446
<ALLOWANCE-OPEN> 895
<CHARGE-OFFS> 47
<RECOVERIES> 14
<ALLOWANCE-CLOSE> 930
<ALLOWANCE-DOMESTIC> 930
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
