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 March 31, 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: 766,000 shares outstanding as of 5/3/99
<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 Cash Flows
2
<PAGE>
<TABLE>
Heritage Bankshares, Inc.
Consolidated Balance Sheets
(unaudited)
<CAPTION>
March 31, December 31, March 31,
2000 1999 1999
-------------------------------------------------
ASSETS
<S> <C> <C> <C>
Cash and due from banks $ 4,564,848 3,436,565 $ 4,065,501
Federal funds sold 403,498 4,049,069 4,782,036
Securities available for sale 15,587,820 16,908,604 13,148,835
Securities held to maturity 3,805,889 4,316,878 4,937,821
Loans, net of unearned income and allowance 66,615,639 61,437,024 56,887,977
Loans held for sale 127,920 - 192,864
Accrued interest receivable 652,195 646,619 656,995
Premises and equipment 2,345,696 428,500 2,172,532
Other real estate owned 428,500 2,353,524 428,500
Other assets 1,350,877 1,318,933 1,185,246
------------- ------------ -------------
$ 95,882,882 $94,895,716 $ 88,458,307
============= ============ =============
LIABILITIES
Non-interest bearing deposits 17,638,999 16,350,570 14,721,055
Interest bearing deposits 64,931,051 67,283,837 63,039,142
------------- ------------ -------------
82,570,050 83,634,407 77,760,197
Short-term borrowings 875,215 2,069,810 51,012
Securities sold under agreements to repurchase 3,095,206 53,045 1,545,883
Accrued interest payable 299,674 302,276 279,936
Other liabilities 522,614 562,788 535,054
------------- ------------ -------------
87,362,759 86,622,326 80,172,082
------------- ------------ -------------
STOCKHOLDERS' EQUITY
Common stock, $5.00 par value-authorized 3,000,000 shares,
issued and outstanding 765,900 shares 3,829,500 3,828,500 4,017,750
Additional paid-in capital (343,207) (343,377) (350,552)
Retained earnings 5,186,020 4,908,908 4,582,032
Unrealized gains (losses) on investment securities (152,190) (120,641) 36,995
------------- ------------ -------------
8,520,123 8,273,390 8,286,225
------------- ------------ -------------
$ 95,882,882 94,895,716 $ 88,458,307
============= ============ =============
</TABLE>
3
<PAGE>
<TABLE>
Heritage Bankshares, Inc
Consolidated Statement of Income
(Unaudited)
<CAPTION>
March 31, December 31, March 31,
2000 1999 1999
---------------------------------------------
<S> <C> <C> <C>
Interest and fees on loans $ 1,454,002 $ 5,185,754 $ 1,212,161
---------------------------------------------
Interest on investment securities:
Available for sale 235,146 848,820 202,184
Held to maturity 62,935 277,027 83,383
---------------------------------------------
298,081 1,125,847 285,567
---------------------------------------------
Interest on federal funds sold 23,793 289,102 41,812
---------------------------------------------
Total interest income 1,775,876 6,600,703 1,539,540
---------------------------------------------
Interest expense:
Interest on deposits 733,776 2,882,323 673,414
Interest on short-term borrowings 44,737 84,956 22,012
---------------------------------------------
Total interest expense 778,513 2,967,279 695,426
---------------------------------------------
Net interest income 997,363 3,633,424 844,114
Provision for loan losses 33,750 101,250 22,500
---------------------------------------------
Net interest income after provision for loan losses 963,613 3,532,174 821,614
Noninterest income:
Services charges 64,780 258,757 58,252
Other 62,516 363,462 96,920
---------------------------------------------
127,296 622,219 155,172
---------------------------------------------
Noninterest expense:
Salaries and employee benefits 373,277 1,444,685 344,966
Other 126,048 477,647 99,526
Occupancy expenses 55,246 212,444 45,038
Automated services 61,507 198,400 45,510
Furniture and equipment expense 38,591 148,518 33,382
Taxes and licenses 24,128 102,430 18,954
Stationery and supplies 13,700 66,795 20,945
---------------------------------------------
692,497 2,650,919 608,321
---------------------------------------------
Income before income taxes 398,412 1,503,474 368,465
Income tax expense 121,300 444,324 122,500
Net income $ 277,112 $ 1,059,150 $ 245,965
Earnings per common share - basic $ 0.36 $ 1.33 $ 0.31
Earnings per common share - assuming dilution $ 0.35 $ 1.26 $ 0.29
</TABLE>
4
<PAGE>
<TABLE>
Heritage Bankshares, Inc
Consolidated Statement of Cash Flows
(unaudited) March 31, December 31, March 31,
2000 1999 1999
---------------------------------------------------
Operating activities:
<S> <C> <C> <C>
Net income $ 277,112 $ 1,059,150 $ 245,965
Adjustments to reconcile to net cash
provided by operating activities:
Provision for loan losses 33,750 101,250 22,500
Provision for depreciation and amortization 37,305 136,125 29,078
Amortization of investment security premiums,
net of discounts (848) 21,355 6,366
Deferred loan origination fees, net of costs (5,315) (21,621) (6,665)
Changes in:
Interest receivable (5,576) (68,003) (78,379)
Interest payable (2,602) (15,719) (38,059)
Loans held for sale (127,920) 938,456 745,592
Other assets (15,690) (45,644) 7,901
Other liabilities (40,174) (4,321) (32,056)
---------------------------------------------------
Net cash provided by operating activities 150,042 2,101,028 902,243
---------------------------------------------------
Investing activities:
Proceeds from maturities of available-for-sale securities 1,276,016 6,740,890 2,085,740
Proceeds from maturities, prepayments and calls of
held-to-maturity securities 508,803 1,878,301 756,260
Purchases of available-for-sale securities - (9,663,065) (999,936)
Purchases of held-to-maturity securities - (1,082,873) (576,154)
Loan originations, net of principal repayments (5,207,050) (5,845,839) (1,232,997)
Purchases of land, premises and equipment (29,477) (478,356) (191,382)
---------------------------------------------------
Net cash used by investing activities (3,451,709) (8,450,942) (158,469)
---------------------------------------------------
Financing activities:
Net increase in demand deposits,
NOW accounts and savings accounts 3,957,885 2,000,402 511,674
Net increase (decrease) in certificates of deposit (5,022,242) 4,351,067 (34,414)
Net increase (decrease) in securities sold under
agreements to repurchase 1,025,396 1,088,539 564,612
Net increase (decrease) in short-term borrowings 822,170 (10,189) (12,222)
Common stock acquired - (535,500) -
Net proceeds from exercise of stock options 1,170 40,630 12,705
Cash dividends paid - (160,810) -
Net cash provided by financing activities 784,379 6,774,139 1,042,355
---------------------------------------------------
Increase in cash and cash equivalents (2,517,288) 424,226 1,786,129
Cash and cash equivalents at beginning of year 7,485,634 7,061,408 7,061,408
---------------------------------------------------
Cash and cash equivalents at end of year $ 4,968,346 $ 7,485,634 $ 8,847,537
---------------------------------------------------
As shown on the Consolidated Balance Sheets:
Cash and due from banks 4,564,848 3,436,565 4,065,501
Federal funds sold 403,498 4,049,069 4,782,036
---------------------------------------------------
$ 4,968,346 $ 7,485,634 $ 8,847,537
---------------------------------------------------
Cash paid for:
Interest on deposits and other borrowings $ 781,115 $ 2,982,997 $ 733,485
---------------------------------------------------
Income Taxes $ - $ 543,036 $ -
</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"), 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.
2000 1999
---- ----
Net income (numerator, basic and diluted) $ 277,112 $ 245,965
Weighted average shares outstanding (denominator) 765,767 803,050
---------- ----------
Earnings per common share-basic $ .36 $ .31
---------- ----------
Effect of dilutive securities
Weighted average shares outstanding 765,767 803,050
Effect of stock options 18,636 46,157
---------- ----------
Diluted average shares outstanding (denominator) 784,403 849,207
---------- ----------
Earnings per common share-assuming dilution $ .35 $ .29
---------- ----------
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 March 31,
Dollars in Thousands 2000 1999
---- ----
Net Income $ 277,112 $ 245,965
Other Comprehensive Income:
Unrealized (loss) on securities
available-for-sale , net of tax (31,549) (51,000)
-------- --------
Total Comprehensive Income $ 245,563 $194,965
6
<PAGE>
Item II. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Earnings Summary
For the three months ended March 31, 2000, net income for Heritage
Bankshares, Inc. totaled $277,000, compared to $246,000 reported for the same
period in 1999. Heritage Bank & Trust earned $279,000 and net holding company
expenses were $2,000. Dilutive earnings per common share increased to $0.35
compared to $0.29 for the same period in 1999.
Net Interest Income
Net interest income for the first three months of 2000 increased 18% to
$997,000 from the $844,000 reported for the first three months of 1999. The
primary determinant of this increase was growth in the loan portfolio. Gross
loans at March 31, 2000 were $67,569,000, up $9,777,000 over the March 31, 1999
total of $57,792,000.
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 $34,000 represents a 51% increase from the $22,500 provision for loan
losses for the period ended March 31, 1999. The allowance for loan losses at
March 31, 2000 and 1999 as a percentage of loans outstanding was 1.41% and 1.56%
respectively.
Net charge-offs during the first three months of 2000 were ($8,300)
compared to $13,000 during the same period in 1999. At March 31, 2000 loans 90
days or more past due and still accruing and loans on non-accrual status were
$98,000 or .14% of total loans compared to March 31, 1999 when such loans were
$596,000 or 1.03% of total loans. Non-performing assets consisting of
non-accruing loans and foreclosed properties totaled $506,000 or .53% of total
assets at March 31, 2000. At March 31, 1999, non-performing assets were $559,000
or .63% of total assets.
Other Income
During the first three months of 2000 other income was $127,000, decreasing
$28,000 or 22% over the $155,000 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 $692,000, a 14% increase over the $609,000 reported
for the same period in 1999. This is primarily attributable to salary and
benefit expense increases. As a percent of average assets, non-interest expenses
were 2.91% in the first quarter of 2000 and 2.79% in the same period of 1999.
The "efficiency ratio" (non-interest expenses divided by total non-interest
income plus net interest income) was 61% for both quarters. These measures of
operating efficiency compare very favorably to other financial institutions in
the Company's peer group. Interest Sensitivity and Liquidity
7
<PAGE>
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 $403,000 the Company had invested in federal
funds on March 31, 2000. Also, as of March 31, 2000 the Company had $7,202,000
in investment securities that mature or re-price within one year. Additionally,
$22,505,000 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.
At March 31, 2000,the ratio of net loans to total deposits was 81% compared
to 73% for the same period in 1999. Certificates of deposit over $100,000 were
$7,676,000 at March 31, 2000 compared to $9,037,000 for the same period in 1999.
These large denomination certificates of deposit represented 9% of total
deposits at March 31, 2000 and 12% at March 31, 1999. Short-term borrowings
included $825,000 in funds drawn against the Bank's line of credit with the
Federal Home Loan Bank of Atlanta. The interest rate on these funds changes
daily and is indexed to the prevailing federal funds rate.
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 March 31, 2000, the Company's Tier I capital
represented 12.29 of risk-weighted assets and total qualifying capital (Tier I
and Tier II) represented 13.54% 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 March 31, 2000, total capital to total assets was
8.89%.
8
<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.
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: May 10, 2000
BY: /s/ Robert J. Keogh
-----------------------
Robert J. Keogh
President & CEO
BY: /s/ Catherine P. Jackson
----------------------------
Catherine P. Jackson
Sr. Vice-President & Cashier
10
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 4527
<INT-BEARING-DEPOSITS> 38
<FED-FUNDS-SOLD> 403
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15588
<INVESTMENTS-CARRYING> 3806
<INVESTMENTS-MARKET> 3765
<LOANS> 67569
<ALLOWANCE> 954
<TOTAL-ASSETS> 95883
<DEPOSITS> 82570
<SHORT-TERM> 3970
<LIABILITIES-OTHER> 822
<LONG-TERM> 0
0
0
<COMMON> 3830
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 95883
<INTEREST-LOAN> 1454
<INTEREST-INVEST> 319
<INTEREST-OTHER> 3
<INTEREST-TOTAL> 1776
<INTEREST-DEPOSIT> 734
<INTEREST-EXPENSE> 45
<INTEREST-INCOME-NET> 997
<LOAN-LOSSES> 34
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 692
<INCOME-PRETAX> 398
<INCOME-PRE-EXTRAORDINARY> 398
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 277
<EPS-BASIC> .36
<EPS-DILUTED> .35
<YIELD-ACTUAL> 4.63
<LOANS-NON> 77
<LOANS-PAST> 21
<LOANS-TROUBLED> 378
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 912
<CHARGE-OFFS> 2
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 954
<ALLOWANCE-DOMESTIC> 954
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
