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, 2000
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: 764,000 shares outstanding as of
8/11/00
<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 Stockholders' Equity
Consolidated Statements of Cash Flows
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Heritage Bankshares, Inc.
Consolidated Balance Sheets
June 30, December 31,
2000 1999
--------------------------------
(Unaudited)
ASSETS
Cash and due from banks $ 3,408,816 3,436,565
Federal funds sold 1,290,457 4,049,069
Securities available for sale 14,534,203 16,908,604
Securities held to maturity 3,594,417 4,316,878
Loans, net of unearned income and allowance 69,312,836 61,437,024
Loans held for sale 435,000 -
Accrued interest receivable 616,682 646,619
Premises and equipment 2,311,454 2,353,524
Other real estate owned 433,340 428,500
Other assets 1,192,564 1,318,933
------------ -------------
$ 97,129,769 $ 94,895,716
============ =============
LIABILITIES
Non-interest bearing deposits 16,525,974 16,350,570
Interest bearing deposits 68,344,492 67,283,837
------------ -------------
84,870,466 83,634,407
Short-term borrowings 50,000 53,045
Securities sold under agreements to repurchase 2,746,878 2,069,810
Accrued interest payable 287,783 302,276
Other liabilities 555,232 562,788
------------ -------------
Total liabilities 88,510,359 86,622,326
------------ -------------
STOCKHOLDERS' EQUITY
Common stock, $5.00 par value-authorized
3,000,000 shares, issued and outstanding
764,000 shares 3,828,500 3,820,000
Additional paid-in capital (343,247) (343,377)
Retained earnings 5,294,005 4,908,908
Accumulated other comprehensive loss (151,348) (120,641)
------------ -------------
Total stockholders' equity 8,619,410 8,273,390
------------ -------------
$ 97,129,769 $ 94,895,716
============ =============
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<TABLE>
Heritage Bankshares, Inc
Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2000 1999 2000 1999
---------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Interest and fees on loans $ 1,586,411 $ 1,277,934 $ 3,040,413 $ 2,490,095
---------------------------------- ------------------------------
Interest on investment securities:
Available for sale 222,839 186,607 457,985 388,791
Held to maturity 58,482 80,160 121,417 163,543
---------------------------------- ------------------------------
281,321 266,767 579,402 552,334
---------------------------------- ------------------------------
Interest on federal funds sold 31,256 81,847 55,049 123,659
---------------------------------- ------------------------------
Total interest income 1,898,988 1,626,548 3,674,864 3,166,088
---------------------------------- ------------------------------
Interest expense:
Interest on deposits 790,160 704,982 1,523,936 1,378,396
Interest on short-term borrowings 50,722 18,202 95,459 40,214
---------------------------------- ------------------------------
Total interest expense 840,882 723,184 1,619,395 1,418,610
---------------------------------- ------------------------------
Net interest income 1,058,106 903,364 2,055,469 1,747,478
Provision for loan losses 33,750 22,000 67,500 45,000
---------------------------------- ------------------------------
Net interest income after provision for loan losses 1,024,356 881,364 1,987,969 1,702,478
Noninterest income:
Services charges 67,318 63,117 132,098 121,369
Other 48,455 85,683 110,971 182,603
---------------------------------- ------------------------------
115,773 148,800 243,069 303,972
---------------------------------- ------------------------------
Noninterest expense:
Salaries and employee benefits 379,454 353,503 752,731 698,469
Other 140,289 135,135 266,337 234,161
Occupancy expenses 53,256 54,009 108,502 99,047
Automated services 56,863 42,095 118,370 87,605
Furniture and equipment expense 43,856 39,179 82,447 72,561
Taxes and licenses 23,540 26,778 47,668 45,732
Stationery and supplies 18,356 14,858 32,056 35,803
---------------------------------- ------------------------------
715,614 665,557 1,408,111 1,273,378
---------------------------------- ------------------------------
Income before income taxes 424,515 364,607 822,927 733,072
Income tax expense 129,600 105,000 250,900 227,500
---------------------------------- ------------------------------
Net income $ 294,915 $ 259,607 $ 572,027 $ 505,572
================================== ==============================
Earnings per common share - basic $ 0.39 $ 0.32 $ 0.75 $ 0.63
======= ======= ======= ======
Earnings per common share - assuming dilution $ 0.38 $ 0.31 $ 0.74 $ 0.60
======= ======= ======= ======
Dividends per share $ 0.23 $ 0.20 $ 0.23 $ 0.20
======= ======= ======= ======
</TABLE>
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<TABLE>
Heritage Bankshares, Inc
Consolidated Statement of Stockholders' Equity
(unaudited)
<CAPTION>
Accumulated
Common Stock Additional Other
------------------- Paid-in Retained Comprehensive
Shares Amount Capital Earnings (Loss) Total
------ ------ ------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 765,700 $3,828,500 ($343,377) $4,908,908 $(120,641) $8,273,390
----------
Net income thru June 30, 2000 - - - 572,027 - 572,027
Net change in unrealized(loss)
on securities available-for-sale
net of deferred income taxes of
$15,819 - - - - (30,707) (30,707)
-------
Total comprehensive income - - - - - 541,320
Stock options exercised in 2000 300 1,500 130 - - 1,630
Common stock reacquired (2,000) (10,000) - (10,750) - (20,750)
Less: Dividends paid in 2000 - - - (176,180) - (176,180)
------- ---------- --------- ---------- --------- ----------
Balance, June 30, 2000 764,000 $3,820,000 ($343,377) $5,294,005 ($151,348) $8,619,410
</TABLE>
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<TABLE>
Heritage Bankshares, Inc
Consolidated Statements of Cash Flows
(Unaudited) June 30, June 30,
<CAPTION>
2000 1999
--------------------------------
<S> <C> <C>
Operating activities:
Net income $ 572,027 $ 505,572
Adjustments to reconcile to net cash
provided by operating activities:
Provision for loan losses 67,500 45,000
Provision for depreciation and amortization 74,748 64,342
Amortization of investment security premiums,
net of discounts (2,661) 9,961
Deferred loan origination fees, net of costs 1,678 (16,498)
Changes in:
Interest receivable 29,937 (41,628)
Interest payable (14,493) (39,345)
Loans held for sale (435,000) 418,093
Other assets 137,349 (65,880)
Other liabilities (7,556) (66,940)
--------------------------------
Net cash provided by operating activities 423,529 812,677
--------------------------------
Investing activities:
Proceeds from maturities of available-for-sale securities 2,335,321 3,623,605
Proceeds from maturities, prepayments and calls of
held-to-maturity securities 721,976 1,602,253
Purchases of available-for-sale securities - (3,491,613)
Purchases of held-to-maturity securities (4,300) (1,082,873)
Loan originations, net of principal repayments (7,944,990) (3,369,244)
Purchases of land, premises and equipment (32,678) (393,198)
--------------------------------
Net cash used by investing activities (4,924,671) (3,111,070)
--------------------------------
Financing activities:
Net increase in demand deposits,
NOW accounts and savings accounts 1,200,347 1,012,609
Net increase in certificates of deposit 35,711 2,453,022
Net increase in securities sold under
agreements to repurchase 677,068 (11,762)
Net increase (decrease) in short-term borrowings (3,045) 926,638
Common stock acquired (20,750) -
Net proceeds from exercise of stock options 1,630 17,000
Cash dividends paid (176,180) (160,810)
--------------------------------
Net cash provided by financing activities 1,714,781 4,236,697
--------------------------------
Increase (decrease) in cash and cash equivalents (2,786,361) 1,938,304
Cash and cash equivalents at beginning of year 7,485,634 7,061,408
--------------------------------
Cash and cash equivalents at end of year $ 4,699,273 $ 8,999,712
--------------------------------
As shown on the Consolidated Balance Sheets:
Cash and due from banks 3,408,816 4,281,222
Federal funds sold 1,290,457 4,718,490
--------------------------------
$ 4,699,273 $ 8,999,712
--------------------------------
Cash paid for:
Interest on deposits and other borrowings $ 1,633,888 $ 733,485
--------------------------------
Income Taxes $ 89,985 $ 42,120
</TABLE>
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<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"), IBV Real Estate Holdings, Inc., Sentinel
Title Services Inc. and Sentinel Trust Services, L.L.C. 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
1999 Annual Report to Shareholders and the 1999 Form 10-K filed with the
Securities and Exchange Commission.
Note 2. Earnings Per Common and Common Equivalent Share
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations.
<TABLE>
<CAPTION>
Three months ended June 30, Six Months Ended June 30,
-----------------------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (numerator, basic and diluted) $294,915 $259,607 $ 572,027 $ 505,572
Weighted average shares outstanding (denominator) 765,333 803,717 766,550 803,383
-------- -------- ------- -------
Earnings per common share-basic $0.39 $0.32 $ 0.75 $ 0.63
Effect of dilutive securities
Weighted average shares outstanding 765,333 803,717 765,550 803,383
Effect of stock options 5,808 45,414 12,627 45,668
----- ------ ------ ------
Diluted average shares outstanding (denomination) 771,141 849,131 778,177 849,051
Earnings per common share-assuming dilution $0.38 $0.31 $ 0.74 $ 0.60
</TABLE>
Note 3: Comprehensive Income
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income". This standard requires an entity to report and display comprehensive
income and its components. Comprehensive income is as follows:
For the Six Months Ended June 30,
Dollars in Thousands 2000 1999
---- ----
Net Income $ 572,027 $ 505,572
Other Comprehensive Income:
Unrealized (loss) on securities
available-for-sale , net of tax (30,707) (109,116)
-------- ---------
Total Comprehensive Income $ 541,320 $ 396,456
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<PAGE>
Item II. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Earnings Summary
----------------
For the six months ended June 30, 2000, net income for Heritage Bankshares,
Inc. totaled $572,000, compared to $506,000 reported for the same period in
1999. Heritage Bank & Trust earned $584,000 and net holding company expenses
were $12,000. Dilutive earnings per common share increased to $0.74 compared to
$0.60 for the same period in 1999. This increase is partially due to a lower
number of average diluted shares outstanding. Average shares outstanding
(dilutive) at June 30, 2000 was 778,177 compared to 849,052 at June 30,1999.
Net Interest Income
-------------------
Net interest income for the first six months of 2000 increased 18% to
$2,055,000 from the $1,747,000 reported for the first six months of 1999. The
primary determinant of this increase was growth in the loan portfolio. Gross
loans at June 30, 2000 were $70,299,000, up $10,388,000 over the June 30, 1999
total of $59,911,000.
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 $67,500 represents a 50% increase from the $45,000 provision for loan
losses for the period ended June 30, 1999. The allowance for loan losses at June
30, 2000 and 1999 as a percentage of loans outstanding was 1.40% and 1.50
respectively.
Net charge-offs during the first six months of 2000 were ($6,700) compared
to $41,000 during the same period in 1999. At June 30, 2000 loans 90 days or
more past due and still accruing and loans on non-accrual status were $87,000 or
.12% of total loans compared to June 30, 1999 when such loans were $735,000 or
1.23% of total loans. Non-performing assets consisting of non-accruing loans and
foreclosed properties totaled $513,000 or .53% of total assets at June 30, 2000.
At June 30, 1999, non-performing assets were $540,000 or .59% of total assets.
Other Income
------------
During the first six months of 2000 other income totaled $111,000,
decreasing $72,000 or 39% over the $183,000 reported in 1999. This decrease is
chiefly due to reduced mortgage loan origination activities. The effect is
partially offset by an increase in fees related to ATM and check card usage and
an increase in checking account related service charges.
Other Expenses
--------------
Other expenses totaled $1,408,000, an 11% increase over the $1,273,000
reported for the same period in 1999. This is primarily attributable to salary
and benefit expense increases. Also contributing to the increase are the
additional data processing and occupancy expenses associated with the Ocean View
branch which opened in April of 1999. As a percent of average assets,
non-interest expenses were 2.91% in the first six months of 2000 compared to
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2.85% in the same period of 1999. The "efficiency ratio" (non-interest expenses
divided by total non-interest income plus net interest income) at June 30, 2000
and June 30, 1999 was 61% and 62% respectively. 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 $1,290,000 the Company had invested in federal
funds on June 30, 2000. Also, as of June 30, 2000 the Company had $7,471,000 in
investment securities that mature or re-price within one year. Additionally,
$23,576,000 or 34% 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 June 30, 2000,the ratio of net loans to total deposits was 82% compared
to 73% for the same period in 1999. Certificates of deposit over $100,000 were
$12,137,000 at June 30, 2000 compared to $8,488,000 for the same period in 1999.
These large denomination certificates of deposit represented 14% of total
deposits at June 30, 2000 and 11% at June 30, 1999.
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 June 30, 2000, the Company's Tier I capital
represented 11.85% of risk-weighted assets and total qualifying capital (Tier I
and Tier II) represented 13.10% 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 June 30, 2000, total capital to total assets was
9.06%.
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Part II . Other Information
Item I. Legal Proceedings
The Company is subject to claims and other legal actions that arise
primarily in the ordinary course of business. Based on presently available
information, 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.
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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 4, 2000
BY: /s/ Robert J. Keogh
-----------------------------
Robert J. Keogh
President & CEO
BY: /s/ Catherine P. Jackson
-----------------------------
Catherine P. Jackson
Sr. Vice-President & Cashier
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