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, 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)
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: 775,825 shares outstanding as of
11/8/00
<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
<PAGE>
<TABLE>
Heritage Bankshares, Inc.
Consolidated Balance Sheets
<CAPTION>
September December 31,
2000 1999
----------------------------------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash and due from banks $ 2,997,214 $3,436,565
Federal funds sold 4,776,890 4,049,069
Securities available for sale 14,334,797 16,908,604
Securities held to maturity 3,111,832 4,316,878
Loans, net of unearned income and allowance 67,264,063 61,437,024
Loans held for sale - -
Accrued interest receivable 634,571 646,619
Premises and equipment 2,293,789 2,353,524
Other real estate owned 433,340 428,500
Other assets 1,414,138 1,318,933
------------ ------------
$ 97,260,634 $ 94,895,716
============= ============
LIABILITIES
Non-interest bearing deposits 15,019,732 16,350,570
Interest bearing deposits 69,446,789 67,283,837
------------ ------------
84,466,521 83,634,407
Short-term borrowings 52,321 53,045
Securities sold under agreements to repurchase 2,783,858 2,069,810
Accrued interest payable 363,190 302,276
Other liabilities 627,016 562,788
------------ ------------
Total liabilities 88,292,906 86,622,326
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $5.00 par value-authorized 3,000,000 shares
issued and outstanding 761,500 and 765,700 shares, respectively 3,807,500 3,828,500
Additional paid-in capital (342,397) (343,377)
Retained earnings 5,584,763 4,908,908
Accumulated other comprehensive loss (79,138) (120,641)
------------ ------------
Total stockholders' equity 8,970,728 8,273,390
------------ ------------
$ 97,263,634 $ 94,895,716
============= ============
</TABLE>
3
<PAGE>
<TABLE>
Heritage Bankshares, Inc
Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Interest and fees on loans $ 1,624,201 $ 1,339,890 $ 4,664,614 $ 3,829,985
------------------------------ ------------------------------
Interest on investment securities:
Available for sale 214,495 216,069 672,480 598,579
Held to maturity 51,792 48,155 173,127 217,979
------------------------------ ------------------------------
266,287 264,224 845,607 816,558
------------------------------ ------------------------------
Interest on federal funds sold 55,322 89,035 110,371 212,694
------------------------------ ------------------------------
Total interest income 1,945,810 1,693,149 5,620,592 4,859,237
------------------------------ ------------------------------
Interest expense:
Interest on deposits 856,931 735,535 2,380,867 2,113,931
Interest on short-term borrowings 32,478 21,582 127,937 61,796
------------------------------ ------------------------------
Total interest expense 889,409 757,117 2,508,804 2,175,727
------------------------------ ------------------------------
Net interest income 1,056,401 936,032 3,111,788 2,683,510
Provision for loan losses 33,750 22,500 101,250 67,500
------------------------------ ------------------------------
Net interest income after provision for loan losses 1,022,651 913,532 3,010,538 2,616,010
Noninterest income:
Services charges 64,431 67,765 196,529 189,134
Other 91,080 93,519 202,051 276,122
------------------------------ ------------------------------
155,511 161,284 398,580 465,256
------------------------------ ------------------------------
Noninterest expense:
Salaries and employee benefits 402,201 361,606 1,154,932 1,060,075
Other 133,100 154,636 399,437 358,121
Occupancy expenses 56,277 38,290 164,779 155,844
Automated services 55,212 53,460 173,582 141,065
Furniture and equipment expense 41,240 22,935 123,687 107,664
Taxes and licenses 26,036 26,197 73,704 71,929
Stationery and supplies 18,331 13,025 50,387 48,828
------------------------------ ------------------------------
732,397 670,149 2,140,508 1,943,526
------------------------------ ------------------------------
Income before income taxes 445,765 404,667 1,268,610 1,137,739
Income tax expense 137,800 123,300 388,700 350,800
------------------------------ ------------------------------
Net income $ 307,965 $ 281,367 $ 879,910 $ 786,939
============================== ==============================
Earnings per common share - basic $ 0.40 $ 0.35 $ 1.15 $ 0.98
============= ============= ============= ===============
Earnings per common share - assuming dilution $ 0.40 $ 0.33 $ 1.15 $ 0.93
============= ============= ============= ===============
Dividends paid per share $ 0.00 $ 0.00 $ 0.23 $ 0.20
============= ============= ============= ===============
</TABLE>
4
<PAGE>
<TABLE>
Heritage Bankshares, Inc.
Consolidated Statement of Stockholders' Equity
September 30, 2000
(unaudited)
<CAPTION>
Other
Common Stock Additional Comprehensive
------------------------- Paid-in Retained Income
Shares Amount Capital Earnings (Loss) Total
------------------------------------------------------------------------------------
<S> <C> <C> <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 for the nine months 879,910 879,910
ended September 30, 2000
Net changes in unrealized gain(loss)
on securities available-for-sale, net
of deferred income taxes of $21,380 41,503 41,503
------
Total comprehensive income 921,413
Stock options exercised in 2000 1,300 6,500 980 7,480
Common Stock Re-acquired (5,500) (27,500) (27,875) (55,375)
Less: Dividends paid in 2000 (176,180) (176,180)
------------------------------------------------------------------------------------
Balance, September 30, 2000 761,500 $3,807,500 $(342,397) $5,584,763 $ (79,138) $8,970,728
=== ==== ======= ========== ========= ========== ========== ==========
</TABLE>
5
<PAGE>
<TABLE>
Heritage Bankshares, Inc.
Consolidated Statement of Cash Flows
(unaudited) September 30, September 30,
2000 1999
------------------------------------
Cash flows from operating activities
<S> <C> <C>
Net income $ 879,910 $ 786,939
Adjustments to reconcile to net cash provided
by operating activities
Provision for loan losses 101,250 67,500
Provision for depreciation and amortization 112,294 99,146
Amortization of investment security premiums,
net of discounts (4,878) 20,323
Deferred loan origination fees, net of costs 5,134 (15,914)
Changes in:
Interest receivable 12,048 (83,845)
Interest payable 60,914 (34,071)
Loans held for sale 0 273,293
Other assets (124,422) (39,215)
Other liabilities 64,228 (115,000)
------------------------------------
Net cash provided by operating activities 1,106,477 959,156
------------------------------------
Cash flows from investing activities
Proceeds from maturities of available-for-sale securities 2,648,287 5,466,322
Proceeds from maturities, prepayments and calls of
held-to-maturity securities 1,202,626 1,868,576
Purchases of available-for-sale securities - (6,456,377)
Purchases of held-to-maturity securities (4,300) (1,082,873)
Loan originations, net of principal repayments (5,933,423) (4,853,565)
Purchases of premises and equipment (52,560) (450,256)
------------------------------------
Net cash used by investing activities (2,139,370) (5,508,173)
------------------------------------
Cash flows from financing activities
Net increase (decrease) in demand, NOW and savings account deposits (736,503) 1,755,869
Net increase in certificates of deposit 1,568,617 2,803,585
Net increase in securities sold under
agreements to repurchase 714,048 1,564,313
Net (decrease) in short-term borrowings (724) (12,804)
Common stock acquired (55,375) -
Net proceeds from exercise of stock options 7,480 40,033
Cash dividends paid (176,180) (160,810)
------------------------------------
Net cash provided by financing activities 1,321,363 5,990,186
------------------------------------
Increase in cash and cash equivalents 288,470 1,441,169
Cash and cash equivalents at beginning of period 7,485,634 7,061,408
------------------------------------
Cash and cash equivalents at end of period $ 7,774,104 $ 8,502,577
------------------------------------
As shown on the Consolidated Balance Sheets:
Cash and due from banks 2,997,214 4,356,241
Federal funds sold 4,776,890 4,146,336
------------------------------------
$ 7,774,104 $ 8,502,577
------------------------------------
Cash paid for:
Interest on deposits and other borrowings $ 1,558,481 $ 1,452,681
------------------------------------
Income Taxes $ 194,245 $ 197,120
</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"), 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 Nine months ended
September 30, September 30,
-------------------------- --------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (numerator, basic and diluted) $307,965 $281,367 $ 879,910 $ 786,939
-----------------------------------------------------
Weighted average shares outstanding (denominator) 761,000 807,700 764,033 804,822
-----------------------------------------------------
Earnings per common share-basic $ 0.40 $ 0.35 $ 1.15 $ 0.98
-----------------------------------------------------
Effect of dilutive securities
Weighted average shares outstanding 761,000 807,700 764,033 804,822
Effect of stock options 14,815 40,987 3,465 43,984
-----------------------------------------------------
Diluted average shares outstanding (denominator) 775,815 848,687 767,499 848,806
Earnings per common share-assuming dilution $ 0.40 $ 0.33 $ 1.15 $ 0.93
-----------------------------------------------------
</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 nine months Ended Sept. 30,
-----------------------------------
Dollars in Thousands 2000 1999
---- ----
Net Income $ 879,910 $ 786,939
Other Comprehensive Income:
Unrealized gain (loss) on securities
available-for-sale , net of tax 21,380 (65,612)
-------- ---------
Total Comprehensive Income $901,440 $ 721,327
7
<PAGE>
Item II. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Earnings Summary
For the nine months ended September 30, 2000, net income for Heritage
Bankshares, Inc. totaled $880,000, compared to $787,000 reported for the same
period in 1999. Heritage Bank & Trust earned $890,000 and net holding company
expenses were $10,000. Dilutive earnings per common share increased to $1.15
compared to $0.93 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 September 30, 2000 was 767,499 compared to 848,806 at September
30,1999.
Net Interest Income
Net interest income for the first nine months of 2000 increased 16% to
$3,112,000 from the $2,684,000 reported for the same period in 1999. The primary
determinant of this increase was growth in the loan portfolio. Net loans at
September 30, 2000 were $67,264,000, up $5,827,000 over the September 30, 1999
total of $61,437,000.
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 $101,250 represents a 50% increase from the $67,500 provision for loan
losses for the period ended September 30, 1999. The allowance for loan losses at
September 30, 2000 and 1999 as a percentage of loans outstanding was 1.52% and
1.51 respectively.
Net charge-offs during the first nine months of 2000 were ($27,000)
compared to $33,000 during the same period in 1999. At September 30, 2000 loans
90 days or more past due and still accruing and loans on non-accrual status were
$166,000 or.39% of total loans compared to September 30, 1999 when such loans
were $498,000 or .81% of total loans. Non-performing assets consisting of
non-accruing loans and foreclosed properties totaled $531,000 or .54% of total
assets at September 30, 2000. At September 30, 1999, non-performing assets were
$581,000 or .62% of total assets.
Other Income
During the first nine months of 2000 other income totaled $399,000,
decreasing $67,000 or 14% over the $465,000 reported in 1999. This decrease is
chiefly due to a decrease in the volume of mortgage loans sold in the secondary
market. Fees from mortgage loans sold as of September 30, 2000 totaled $49,000
compared to the same period in 1999 when such fees totaled $105,000.
Other Expenses
For the nine months ended September 30, 2000 other expenses totaled
$2,141,000, a 10% increase over the $1,944,000 reported for the same period in
1999. The increase is primarily attributable to increased salary and benefit
expenses. As a percent of average assets, non-interest expenses were 3.30% in
the first nine months of 2000 compared to 2.84% in the same period of 1999. The
"efficiency ratio" (non-interest expenses divided by total non-interest income
plus net interest income) at September 30, 2000 and June 30, 1999 was 61% and
62% respectively.
8
<PAGE>
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 $4,777,000 the Company had invested in federal
funds on September 30, 2000. Also, as of September 30, 2000 the Company had
$7,642,000 in investment securities that mature or re-price within one year.
Additionally, $22,299,000 or 33% 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. An interest sensitivity analysis appears
below.
<TABLE>
Heritage Bankshares, Inc
Interest Sensitivity Analysis
September 30, 2000
(unaudited)
<CAPTION>
Within Over 3 Over 1 Yr Over 3 Yr
1 through 3 through through through Over
months 12 months 3 yrs 5 yrs 5 yrs Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Federal funds $4,777 $0 $0 $0 $0 $4,777
Investment securities 3,195 4,447 7,621 1,476 827 $17,566
Loans 18,843 3,456 8,787 7,177 30,040 68,303
Total Earning Assets $26,815 $7,903 $16,408 $8,653 $30,867 $90,646
Interest and non-interest bearing liabilities:
Commercial DDA $5,999 $0 $3,599 $2,400 $0 $11,998
Personal DDA 0 0 1,813 604 604 3,022
TT&L Note 52 0 0 0 0 52
Savings 0 0 3,083 1,028 1,028 5,138
Money Market 0 2,614 2,614 0 0 5,228
NOW 0 0 6,222 2,074 2,074 10,370
Certificates 20,702 13,672 11,648 2,665 25 48,712
Federal Funds Purchased 0 0 0 0 0 0
Repurchase Agreements 2,784 0 0 0 0 2,784
Total Interest and non interest
bearing liabilities $29,538 $16,274 $28,990 $8,770 $3,731 $87,303
Interest sensitivity gap (2,723) (8,371) (12,582) (117) 27,136 3,343
Cumulative gap (2,723) (11,094) (23,676) (23,793) 3,343
Ratio interest sensitive assets
to interest-sensitive liabilities 0.91 0.49 0.57 0.99 8.27 1.04
Ratio of cumulative gap to
total earning assets -3.00% -12.24% -26.12% -26.25% 3.69%
</TABLE>
(1) Assets and liabilities are presented in the period they mature or reprice,
whichever is earlier.
At September 30, 2000,the ratio of net loans to total deposits was 80%
compared to 73% for the same period in 1999. Certificates of deposit over
9
<PAGE>
$100,000 were $13,670,000 at September 30, 2000 compared to $9,138,000 for the
same period in 1999. These large denomination certificates of deposit
represented 16% of total deposits at September 30, 2000 and 11% at September 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 September 30, 2000, the Company's Tier I
capital represented 13.10% of risk-weighted assets and total qualifying capital
(Tier I and Tier II) represented 14.36% 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 September 30, 2000, total capital to total assets
was 9.36%.
10
<PAGE>
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.
11
<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 11, 2000
BY:/s/ Robert J. Keogh
-------------------------------
Robert J. Keogh
President & CEO
BY:/s/ Catherine P. Jackson
-------------------------------
Catherine P. Jackson
Chief Operating Officer
12
