UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended December 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period from ________________
to________________________________
Commission File Number: 1-13823
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HERITAGE BANCORP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 58-2356162
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
201 West Main Street, Laurens, South Carolina 29360
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(Address of principal executive office)
(864) 984-4581
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(Registrant's 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 No X
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Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock Issued and Outstanding: None.
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Table of Contents
Page
Part I. Financial Information
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Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets at December 31, 1997
and September 30, 1997 1
Consolidated Statements of Income for the Three
Month Periods Ended December 31, 1997 and 1996 2
Consolidated Statements of Cash Flows for the Three
Month Periods Ended December 31, 1997 and 1996 3-4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 7
Part II. Other Information
- -------- ------------------ 8
Signatures 9
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ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
HERITAGE BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
ASSETS December 31, September 30,
1997 1997
(Unaudited)
Cash $ 2,581 $ 2,012
Federal funds sold and overnight interest-
bearing deposits 17,592 12,647
--------- ---------
Total cash and cash equivalents 20,173 14,659
Investment securities:
Held-to-maturity - at amortized cost
(fair value: December 31, 1997 - $16,979;
September 30, 1997 - $15,954) 16,742 15,988
Available-for-sale - at fair value
(amortized cost: December 31, 1997
- $6,063; September 30, 1997 - $6,063) 8,856 8,390
Mortgage-backed securities - held to maturity
- at amortized cost (fair value: December 31,
1997 - $5,075; September 30, 1997 - $6,635) 5,105 6,665
Loans receivable - net 192,086 192,663
Loans held-for-sale - at lower of cost or market
(market value: December 31, 1997 - $1,100;
September 30, 1997 - $1,065) 1,072 1,045
Office properties and equipment - net 4,217 4,278
Federal Home Loan Bank Stock - at cost 2,042 2,042
Accrued interest receivable 1,212 1,242
Real estate acquired in settlement of loans - net 545 410
Other assets 279 117
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TOTAL $ 252,329 $ 247,499
========= =========
LIABILITIES AND EQUITY
LIABILITIES:
Deposit accounts $ 219,230 $ 215,412
Accrued interest on deposit accounts 333 338
Other liabilities 2,712 2,514
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Total liabilities 222,275 218,264
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EQUITY:
Retained income - substantially restricted 28,294 27,769
Unrealized gain on available-for-sale
securities, net of taxes 1,760 1,466
--------- ---------
Total equity 30,054 29,235
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TOTAL $ 252,329 $ 247,499
========= =========
See notes to consolidated financial statements.
1
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HERITAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars)
(Unaudited)
Three Months Ended
December 31,
------------------
1997 1996
INTEREST INCOME:
Interest on loans $ 3,874 $ 3,684
Investment securities and other 562 616
Mortgage-backed securities 76 131
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Total interest income 4,512 4,431
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INTEREST EXPENSE:
Deposits 3,118 3,015
Federal Home Loan Bank borrowings 81
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Total interest expense 3,118 3,096
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NET INTEREST INCOME 1,394 1,335
PROVISION FOR LOAN LOSSES -- --
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NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 1,394 1,335
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OTHER INCOME:
Service charges and fees 49 54
Other income, net (1)
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Total other income 48 54
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OTHER OPERATING EXPENSES:
Employee compensation and benefits 323 336
Deposit insurance premiums 33 119
Occupancy and equipment expense 104 96
Data processing - service bureau fees 33 32
Office supplies, postage, printing, etc. 17 16
Professional fees 17 12
(Income) expense of real estate operations 26 (77)
Other 35 47
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Total other operating expenses 588 581
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INCOME BEFORE INCOME TAXES 854 808
PROVISION FOR INCOME TAXES 330 310
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NET INCOME $ 524 $ 498
======= =======
See notes to consolidated financial statements.
2
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HERITAGE BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
Three Months Ended
December 31,
------------------
1997 1996
OPERATING ACTIVITIES:
Net income $ 524 $ 498
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred income tax benefit (2) --
Amortization (accretion) of premium (discounts)
on investment and mortgage-backed securities (2) 10
Amortization of net deferred income (31) (43)
Proceeds from the sale of loans held-for-sale 85 --
Depreciation on office properties and equipment 71 61
Provision for losses on real estate acquired
in settlement of loans 14 5
Loss (gain) on sales of real estate acquired
in settlement of loans 9 (91)
(Increase) decrease in accrued interest
receivable and other assets (132) 87
Increase (decrease) in accrued interest
payable and other liabilities 24 (1,776)
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Net cash provided by (used in)
operating activities 560 (1,249)
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INVESTING ACTIVITIES:
Proceeds from maturities and calls of
available-for-sale investment securities -- 1,500
Proceeds from maturities and calls of
held-to-maturity investment securities 2,750 3,000
Purchase of held-to-maturity investment
securities (3,500) (496)
Principal repayments on mortgaged-backed
securities 1,558 540
Purchase of loans receivable (1,427) --
Net loan originations and principal
payments on loans 1,866 (4,003)
Proceeds from sales of real estate acquired
in settlement of loans 206 135
Capitalized costs of real estate acquired
in settlement of loans (308) --
Acquisition of office properties and equipment (9) (10)
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Net cash provided by investing activities 1,136 666
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FINANCING ACTIVITIES:
Net increase in deposits 3,818 580
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Net cash provided by financing activities 3,818 580
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3
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HERITAGE BANCORP, INC.
STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
Three Months Ended
December 31,
------------------
1997 1996
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,514 (3)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 14,659 5,875
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CASH AND CASH EQUIVALENTS AT END OF YEAR $20,173 $ 5,872
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 3,121 $ 3,078
======= =======
Income taxes $ -- $ 10
======= =======
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Transfers from loans to real estate acquired in
settlement of loans $ 56 $ 183
======= =======
Increase in net unrealized gain on available-for-
sale investment securities $ 294 $ 128
======= =======
See notes to consolidated financial statements.
4
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HERITAGE BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Heritage Bancorp, Inc. (the "Corporation") was incorporated under Delaware
law in November 1997 by Heritage Federal Savings & Loan Association (the
"Association") in connection with the planned conversion of the Association
from federally chartered mutual savings and loan association to a federally
chartered stock savings and loan association, the issuance of the
Association's stock to the Corporation and the offer and sale of the
Corporation's common stock by the Corporation (the "Conversion"). Upon
consummation of the Conversion, the Corporation will become the unitary
holding company for the Association. This transaction received conditional
regulatory approval on February 3, 1998. For purposes of this Form 10-Q,
the financial statements and management's discussion and analysis of
financial condition and results of operations are presented for the
Association since the Corporation was not active during any of the periods
presented. No pro forma effect has been given to the planned sale of the
Corporation's common stock in the Conversion.
The accompanying consolidated financial statements of the Corporation have
been prepared in accordance with instructions to Form 10-Q. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
However, such information reflects all adjustments (consisting solely of
normal recurring adjustments) which are, in the opinion of management,
necessary for fair statement of results for the interim periods.
The results of operations for the three months ended December 31, 1997 are
not necessarily indicative of the results to be expected for the year
ending September 30, 1998. The consolidated financial statements and notes
thereto should be read in conjunction with the audited financial statements
and notes thereto for the year ended September 30, 1997, contained in the
Corporation's prospectus dated February 3, 1998.
5
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Comparison of Financial Condition at December 31, 1997 and September 30, 1997
Total assets increased $4.8 million, or 2.0%, during the first quarter of
fiscal 1998 to $252.3 million. Loans receivable decreased $577,000 as low
long-term interest rates led many borrowers to refinance their loans.
Mortgage-backed securities decreased to $5.1 million from $6.7 million as a
result of continued repayments. Investment securities increased to $25.6
million from $24.4 million. Cash and cash equivalents increased to $20.2
million from $14.7 million as the Association continued to accumulate cash
faster than it was able to originate loans.
Total liabilities increased $4.0 million, or 1.8%, during the first quarter
of fiscal 1998 to $222.3 million. Deposit accounts increased $3.8 million, or
1.8%, to $219.2 million. The Association had no borrowings at December 31,
1997.
Total equity increased $819,000, or 2.8%, to $30.0 million at December 31,
1997 from $29.2 million at September 30, 1997. Retained income increased
$524,000 while unrealized gain on available-for-sale securities increased
$294,000.
Nonperforming Assets
Nonaccrual loans decreased $110,000 to $824,000 at December 31, 1997 from
$934,000 at September 30, 1997. Nonaccrual one- to four-family mortgage loans
and builder construction loans decreased $28,000 and $176,000, respectively,
while nonaccrual home equity loans increased $94,000. At December 31, 1997,
total nonaccrual loans accounted for 0.43% of net loans receivable, compared
to 0.48% at September 30, 1997. Real estate owned increased $134,000 to
$544,000 at December 31, 1997 from $410,000 at September 30, 1997 as a result
of foreclosures during the quarter. Total nonperforming assets were 0.54% of
total assets at December 31, 1997, which is unchanged from September 30, 1997.
Comparison of Operating Results for the Three Months Ended December 31, 1997
and 1996
General. Net income increased $26,000, or 5.2%, to $524,000 for the three
months ended December 31, 1997 from $498,000 for the three months ended
December 31, 1996. The increase in net income was primarily the result of an
increase in interest income, which was partially offset by a small decrease in
other income and small increases in other operating expenses and income taxes.
Net Interest Income. Net interest income increased $59,000, or 4.4%, from
the first quarter of fiscal 1997 to the first quarter of fiscal 1998.
Interest income increased $81,000, or 1.8%, between the periods. Interest
income on loans increased $191,000 as a result of an increase in the average
balance of loans receivable and an increase in the average yield to 8.02% from
7.94%. Interest income on investment and mortgage-backed securities decreased
$110,000 primarily as a result of smaller balances of these investments. The
average yield on total interest-earning assets was 7.46% for the first quarter
of fiscal 1998 compared to 7.47% for the first quarter of fiscal 1997.
Interest expense increased $22,000, or 0.7%, between the periods. Interest
expense on deposits increased $103,000, or 3.3%, as a result of an increase in
the average balance of deposits. Interest expense on FHLB deposits was $0
compared with $81,000 in the first quarter of fiscal 1997. The average rate
paid on interest-bearing liabilities was 5.77% for the first quarter of fiscal
1998, which is unchanged from the same period in the prior year.
6
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Provision for Loan Losses. There was no provision for loan losses in
either the first quarter of fiscal 1998 or the first quarter of fiscal 1997.
During the three months ended December 31, 1997, the Association had
charge-offs of $1,000 and no recoveries. At December 31, 1997, the
Association's allowance for loan losses totaled $873,000, which equaled 0.43%
of total loans.
Other Income. Other income decreased $6,000, or 11.1%, to $48,000 for the
three months ended December 31, 1997 from $54,000 for the three months ended
December 31, 1996. The decrease was primarily due to a decrease in service
charges and fees, which accounts for substantially all of the Association's
other income.
Other Operating Expenses. Other operating expenses increased $6,000, or
1.0%, from the first quarter of fiscal 1997 to the first quarter of fiscal
1998. Deposit insurance premiums decreased $86,000 as a result of the
reduction in premiums. Employee benefit and compensation expense decreased
$13,000. Expenses for real estate owned were $26,000 in the first quarter of
fiscal 1998 compared to income of $77,000 in the first quarter of fiscal 1997.
In the three months ended December 31, 1996, the Association sold real estate
owned for a net gain of $92,000.
Income Taxes. The provision for income taxes was $330,000 in the first
quarter of fiscal 1998 compared to $310,000 in the first quarter of fiscal
1997. The income tax provision was higher in fiscal 1998 because of higher
taxable income.
Liquidity and Capital Resources
The Association's primary sources of funds are customer deposits, proceeds
from principal and interest payments on and the sale of loans, maturing
securities and FHLB of Atlanta advances. While maturities and scheduled
amortization of loans are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition. The Association must maintain an
adequate level of liquidity to ensure the availability of sufficient funds
to fund loan originations and deposit withdrawals, to satisfy other financial
commitments and to take advantage of investment opportunities. The
Association generally maintains sufficient cash and short-term investments to
meet short-term liquidity needs. At December 31, 1997, cash and cash
equivalents totaled $20.2 million, or 8.0% of total assets, and investment
securities classified as available-for-sale totaled $8.9 million. At
December 31, 1997, the Association also maintained, but did not draw upon, an
uncommitted credit facility with the FHLB of Atlanta.
As of December 31, 1997, the Association's regulatory capital was in
excess of all applicable regulatory requirements. At December 31, 1997,
under regulations of the Office of Thrift Supervision, the Association s
actual tangible, core and risk-based capital ratios were 11.0%, 11.0% and
23.6%, respectively, compared to regulatory requirements of 1.5%, 3.0% and
8.0%, respectively.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the quantitative and qualitative
disclosures about market risks as of December 31, 1997 than presented in the
Company's prospectus dated February 3, 1998.
7
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HERITAGE BANCORP, INC.
Part II. Other Information
Item 1. Legal Proceedings
-----------------
Not applicable
Item 2. Changes in Securities and Use of Proceeds
------------------------------------------
Not applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K: None.
8
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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.
HERITAGE BANCORP, INC.
Date: March 18,1998 By: /s/ J. Edward Wells
-------------------------------------
J. Edward Wells
President and Chief Executive Officer
Date: March 18, 1998 By: /s/ Edwin I. Shealy
-------------------------------------
Edwin I. Shealy
Treasurer and Chief Financial Officer
9
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<S> <C>
<PERIOD-TYPE> 3-MOS
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<PERIOD-END> DEC-31-1997
<CASH> 2581
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<FED-FUNDS-SOLD> 10425
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0
0
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