<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 1995
COMMISSION FILE NUMBER 0-12506
HERITAGE BANCORP, INC.
PENNSYLVANIA 23-2228542
120 SOUTH CENTRE STREET, POTTSVILLE, PA 17901
(717) 622-2320
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
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common capital stock, par value $5.00 per share
1,940,580 shares outstanding as of September 30, 1995
<PAGE>
Heritage Bancorp, Inc.
and its wholly owned subsidiary
-------------------------------
<TABLE>
<CAPTION>
Consolidated Balance Sheets (Unaudited)
- - ---------------------------------------
(Dollars in thousands) September 30 December 31
1995 1994
------------ -----------
<S> <C> <C>
ASSETS
- - ------
Cash and due from banks $ 8,489 $ 10,803
Securities:
Held to maturity (fair value 1995 - $26,414;
fair value 1994 - $23,253) 26,165 23,806
Available for sale 83,519 86,225
------------ -----------
109,684 110,031
Loans:
Commercial, financial, and agricultural 77,641 82,201
Real estate - mortgage and construction 61,397 64,264
Consumer 38,221 37,509
------------ -----------
177,259 183,974
Less: Unearned income (1,110) (1,140)
Allowance for loan losses (3,199) (3,012)
------------ -----------
Net loans 172,950 179,822
Premises and equipment, net of accumulated depreciation
(1995 - $6,465; 1994 - $6,013) 5,509 5,722
Accrued income receivable and other 6,743 7,111
------------ -----------
$ 303,375 $ 313,489
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
Deposits:
Noninterest bearing $ 28,888 $ 31,210
Interest bearing 221,920 226,355
------------ -----------
Total deposits 250,808 257,565
Federal funds purchased and securities sold under
agreements to repurchase 8,888 13,326
Term funds borrowed 4,450 4,450
Other liabilities 2,314 2,570
------------ -----------
Total liabilities 266,460 277,911
Stockholders' Equity:
Preferred stock, $25 par value; 10,000,000 shares
authorized and unissued - -
Common stock, $5 par value; authorized 10,000,000 shares
issued 2,001,173 at 1995 and 1994 10,006 10,006
Surplus 669 647
Retained earnings 27,347 26,424
Treasury stock, at cost (1995 - 60,593 shares;
1994 - 15,691 shares) (1,416) (265)
Net unrealized appreciation (depreciation) on securities available
for sale, net of tax (1995 - $159; 1994 - ($635)) 309 (1,234)
------------ -----------
Total stockholders' equity 36,915 35,578
------------ -----------
$ 303,375 $ 313,489
============ ===========
</TABLE>
<PAGE>
Heritage Bancorp, Inc.
and its wholly owned subsidiary
-------------------------------
<TABLE>
<CAPTION>
Consolidated Statements of Income (Unaudited)
- - ---------------------------------------------
(Dollars in thousands) Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 4,172 $ 3,845 $ 12,449 $ 11,065
Investment and mortgage-backed securities:
Taxable 1,577 1,449 4,677 3,969
Tax-exempt 110 66 301 321
Other - 4 3 101
-------- -------- -------- --------
Total interest income 5,859 5,364 17,430 15,456
Interest expense:
Deposits 2,047 1,656 5,901 4,872
Borrowings:
Short-term 137 109 487 135
Long-term 64 69 193 301
-------- -------- -------- --------
Total interest expense 2,248 1,834 6,581 5,308
-------- -------- -------- --------
Net interest income 3,611 3,530 10,849 10,148
Provision for loan losses 65 99 265 416
-------- -------- -------- --------
Net interest income after provision for loan losses 3,546 3,431 10,584 9,732
Other income:
Trust department 134 133 474 438
Service charges 179 176 510 517
Other income 82 92 224 298
Security gains (losses) (13) 62 (7) 188
-------- -------- -------- --------
Total other income 382 463 1,201 1,441
-------- -------- -------- --------
3,928 3,894 11,785 11,173
Other expenses:
Salaries and employee benefits 1,192 1,262 3,784 3,737
Occupancy, net 229 221 680 682
Equipment 178 213 588 645
Communications and supplies 174 132 528 408
Professional fees and outside services 281 278 833 712
Taxes other than income 83 78 259 239
FDIC insurance premiums (17) 146 270 428
Merger - - 687 -
Restructuring - - 391 -
Other 175 201 650 614
-------- -------- -------- --------
Total other expenses 2,295 2,531 8,670 7,465
-------- -------- -------- --------
Income before income taxes 1,633 1,363 3,115 3,708
Federal income taxes 470 418 868 1,077
-------- -------- -------- --------
Net income $ 1,163 $ 945 $ 2,247 $ 2,631
======== ======== ======== ========
Net income per common share $ 0.59 $ 0.48 $ 1.14 $ 1.33
======== ======== ======== ========
</TABLE>
<PAGE>
Heritage Bancorp, Inc.
and its wholly owned subsidiary
-------------------------------
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows (Unaudited)
- - -------------------------------------------------
(Dollars in thousands)
Nine Months Ended September 30
1995 1994
----------------- ------------
<S> <C> <C>
Operating Activities
- - --------------------
Net income $ 2,247 $ 2,631
Adjustments to reconcile net cash provided by
operating activities:
Provisions for loan losses 265 417
Depreciation 461 498
Amortization of securities' premiums and
accretion of discounts 80 124
Realized (gains) losses on sales of securities 7 (188)
(Increase) decrease in accrued income receivable
and other assets (427) (693)
Increase (decrease) in interest payable and other
liabilities (256) 21
---------- ----------
Net cash provided by operating activities 2,377 2,810
---------- ----------
Investing Activities
- - --------------------
Securities held to maturity:
Proceeds from called / matured securities 5,146 6,475
Purchases (5,774) (13,497)
Securities available for sale:
Proceeds from called / matured securities
principal repayments 6,496 12,890
Proceeds from sales 8,343 12,304
Purchases (11,613) (26,186)
Net (increase) decrease in loans 6,607 (2,186)
Purchases of premises and equipment (248) (145)
---------- ----------
Net cash provided by / (used in) investing activities 8,957 (10,345)
---------- ----------
Financing Activities
- - --------------------
Net increase (decrease) in noninterest bearing deposits (2,322) 1,535
Net increase (decrease) in interest bearing deposits (4,435) (1,422)
Net increase (decrease) in short-term borrowings (4,438) 13,126
Repayment of long-term borrowings - (4,500)
Purchase of treasury stock (1,285) (1)
Issuance of treasury stock 156 122
Cash dividends (1,324) (1,149)
---------- ----------
Net cash provided by / (used in) financing activities (13,648) 7,711
---------- ----------
Increase (decrease) in cash and cash equivalents (2,314) 176
Cash and cash equivalents at the beginning of the year 10,803 9,407
---------- ----------
Cash and cash equivalents at September 30 $ 8,489 $ 9,583
========== ==========
</TABLE>
<PAGE>
Heritage Bancorp, Inc.
and its wholly-owned subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1995
Note A --- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended September 30,
1995 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1995.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
EARNINGS PER SHARE:
Earnings per share is based on the weighted average outstanding shares as
follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Third Quarter 1,960,246 shares 1,982,886 shares
Year-to-Date 1,963,031 shares 1,984,397 shares
</TABLE>
<PAGE>
FINANCIAL CONDITION
Heritage National Bank, a member of the Federal Reserve System, is the sole
subsidiary of Heritage Bancorp, Inc.
LOANS
Total assets of the Corporation decreased $10,114,000 or 3.23%, during the first
nine months of 1995. The decrease occurred primarily in the loan portfolio, as
the net balance of $172,950,000 decreased $6,872,000 or 3.82%, from the
December 31, 1994 net balance of $179,822,000. The decrease in loans occurred
specifically in the area of commercial and residential real estate loans while
the consumer loan portfolio remained relatively constant. The commercial loan
portfolio was negatively impacted by an increase in interest rates coupled with
reduced loan volume and early payoffs in this category. The decrease in real
estate loans is partly attributable to the fact that the Bank is selling fixed
rate mortgages on the secondary market through Freddie Mac in order to control
interest rate risk. The Corporation still maintains the servicing rights to
these loans. The total amount sold as of September 30, 1995 was $3,562,000
compared to $1,977,000 at December 30, 1994.
ASSET QUALITY
Changes in the allowance for loan losses for the nine months ended September 30,
1995 and 1994 were are follows (in 000's):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Balance at the beginning of the year $3,012 $2,453
Recoveries of loans 62 23
Provision charged to operations 265 416
Loans charged off (140) (126)
------ ------
Balance at end of period $3,199 $2,766
====== ======
</TABLE>
<PAGE>
The following table summarizes the Corporation's nonaccrual, past due, and
restructured loans at September 30, 1995 and December 31, 1994 (in 000's).
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Loans on nonaccrual $ 800 $1,581
Accruing loans past due 90+ days 2,360 742
Restructured loans 0 0
------ ------
Total $3,160 $2,323
====== ======
</TABLE>
$2,017,000 of the accruing loans past due 90+ days at September 30, 1995 are
secured by real estate or otherwise guaranteed as to repayment. As of September
30, 1995 management was not aware of any other potential problem loans not
identified in the above table.
Information with respect to nonaccrual loans through September 30, 1995 and 1994
(in 000's):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Interest income that would have been
recorded under original terms $ 52 $ 99
Interest income recorded during the period 40 60
</TABLE>
The provision for loan losses for the nine months ended September 30, 1995 was
reduced to $265,000 from $416,000 for the same period in 1994. This was due to
an in-depth analysis of the portfolio credit quality, in which it was determined
the allowance was adequate. One contributing factor to this conclusion was the
allowance for loan losses to nonperforming loans was 400.00% as of September 30,
1995, an increase from 195% at December 31, 1994.
INVESTMENTS
In connection with the business combination with Bankers' Financial Services
Corporation, the Corporation reclassified its security portfolio in the first
quarter of 1995 to ensure securities owned by Bankers were presented in a manner
which conforms with the Corporation. The reclassifications resulted in a net
decrease of $5,088,000 in securities available for sale. Securities previously
carried as available for sale of $5,488,000 were transferred to held to
maturity, and securities previously carried as held to maturity of $400,000 were
transferred to available for sale.
<PAGE>
FINANCIAL CONDITION (continued)
DEPOSITS
Total deposits decreased $6,757,000 or 2.62%, for the nine months ended
September 30, 1995. Noninterest bearing deposits decreased $2,322,000 or 7.44%
and interest bearing deposits decreased $4,435,000 or 1.96%. The majority of the
decrease occurred in interest bearing deposits, specifically in the area of
money market deposits, as depositors withdrew their money from the Bank in favor
of higher paying investment accounts outside the Bank. Noninterest bearing
deposits decreased as the result of seasonal fluctuations that occur, as well as
some deposit run-off associated with the merger.
SHORT-TERM BORROWINGS
Federal funds purchased and securities sold under agreements to repurchase
decreased $4,438,000 or 33.30% when compared to December 31, 1994 balance of
$13,326,000. As loan demand decreased, principal repayments were not needed for
loan funding. Instead, they were used to reduce short-term borrowings.
LIQUIDITY
The Corporation has a one month negative maturity gap of $23,203,000. The
Corporation maintains liquidity through its securities portfolio, which
management considers extremely liquid. The liquidity of this portfolio, coupled
with the Bank's core deposits and credit facilities which have been arranged
through the Federal Home Loan Bank and potential repurchase agreements with a
major investment firm provide the Corporation with funds necessary to meet loan
demand or deposit runoff.
<PAGE>
FINANCIAL CONDITION (continued)
CAPITAL
The Corporation approved a stock buy-back program in March of 1995 authorizing
the corporate officers to repurchase up to $2,000,000 of its own stock. In
excess of 51,000 shares or approximately $1,275,000 of stock has been purchased
as of September 30, 1995 in connection with the stock buy-back program.
The Corporation is required to maintain minimum amounts of capital to total
"risk-weighted" assets, as defined by the banking regulators.
At September 30, 1995, the Corporation is required to have minimum Tier 1 and
total capital ratios of 4.00% and 8.00%, respectively. The Corporation's actual
ratios at that date were 20.43% and 21.68%, respectively, which significantly
exceed the requirements. The Corporation's leverage ratio at September 30, 1995
was 12.02%.
RESULTS OF OPERATIONS
Net income was $1,163,000 ($.59 per share) for the three months ended
September 30, 1995 and $2,247,000 ($1.14 per share) for the nine months ended
September 30, 1995. This compares to $945,000 ($.48 per share) and $2,631,000
($1.33 per share) for the respective periods in 1994. The increase in earnings
for the three months ended September 30, 1995 was primarily the result of a
$158,000 refund of FDIC premiums, a $115,000 increase in net interest income,
and a $78,000 reduction in overhead expenses, coupled with a decrease in
security gains of $75,000 and an increase in income taxes of $52,000.
The decrease in earnings of $384,000 for the nine months ended September 30,
1995 was primarily related to merger and restructuring expenses totalling
$1,078,000 which were accounted for in the first two quarters of 1995. All
merger related expenses have been accrued for and will not have an impact on
earnings for the fourth quarter of 1995.
<PAGE>
NET INTEREST INCOME
On a non-tax equivalent basis, net interest income was $3,611,000 for the three
months and $10,849,000 for the nine months ended September 30, 1995. This
represents an increase of $81,000 or 2.29% and $701,000 or 6.91%, over the same
periods in 1994. Interest income increased $495,000 and $1,974,000 for the three
and nine months ended September 30, 1995. This increase is the result of higher
rates earned on average earnings assets by approximately 97 basis points on an
average balance that decreased $888,000 or .31%.
Interest expense increased $414,000 and $1,273,000 for the three and nine months
ended September 30, 1995 as a result of an increase in rates by approximately 66
basis points. Average sources of funds decreased approximately $1,556,000 or
.58% for the nine months ended September 30, 1995. Therefore, net interest
income has increased as the net interest spread increased by 31 basis points
along with a decrease in the average sources of funds which exceeded the
decrease in average earning assets.
OTHER INCOME
Other income decreased $81,000 or 17.49% and $240,000 or 26.66% in the three and
nine months periods ended September 30, 1995, when compared to the respective
periods in 1994. Trust department income remained relatively consistent at
$134,000 for the three month period ended September 30, 1995 when compared to
the $133,000 recorded in 1994. An increase of $36,000 over last year's total for
the nine month period ended September 30, 1995 is due to an increase in the
number of personal trust and investment accounts.
The Other category recorded a decrease of $10,000 or 10.87% and $74,000 or
24.83% for the three and nine month periods ended September 30, 1995. The
primary reason for the decrease in this category was that in the first quarter
of 1994, $27,000 was earned as income on the cash surrender value of officer
life insurance, whereas no corresponding income was earned in 1995. Also,
contributing to the decrease in this category were late charges on loans. In
1994, The Schuylkill Haven Trust Company recorded late charges on loans when
earned. In order to conform with the Corporation's more conservative policy,
late charges in 1995 are recorded when collected to be
<PAGE>
OTHER INCOME (continued)
consistent with the way they had been recorded by Miners National Bank. This
resulted in a reduction of income of approximately $5,000 and $25,000 in the
three and nine month periods ended September 30, 1995 when compared to the
respective periods in 1994. In addition, during the third quarter of 1994, the
Bank received recoveries on bad checks of approximately $14,000.
Recognized gains (losses) on the sale of securities was ($13,000) and ($7,000)
for the three and nine month period ended September 30, 1995 compared to $62,000
and $188,000 for the same periods in 1994. The Corporation restructured its
portfolio in 1994 and sold off several securities resulting in significant
securities gains. There has been no significant activity in 1995.
OTHER EXPENSE
Other expenses of $2,295,000 and $8,670,000 for the three and nine months ended
September 30, 1995 represents a decrease of $236,000 of 9.32% and an increase of
$1,205,000 or 16.14%, over the respective periods in 1994. The most significant
increase occurred in the areas of merger and restructuring expenses which
amounted to $1,078,000 for the nine month period ended September 30, 1995. These
expenses were necessary for investment banking, legal, consulting, and
accounting costs related to the merger as well as system conversion,
reengineering costs, severance packages, advertising costs, and various office
supplies subsequent to the merger consummation. All merger related expenses for
1995 were accounted for in the first two quarters, and there will not be any
more incurred in 1995.
Equipment totalled $178,000 and $588,000 for the three and nine months ended
September 30, 1995. This represents a decrease in last period results of $35,000
or 16.43% and $57,000 or 8.84%, respectively. The monthly accrual for
depreciation expense was reduced by approximately $4,000 per month or $36,000
for the nine months ended September 30, 1995 when compared to last year's
monthly accrual. This decrease was due to several assets becoming fully
depreciated in 1994. Also, contributing to the decrease was a reduction in
repairs and maintenance for the three and nine month periods of approximately
$6,000 and $4,000 when compared to 1994.
<PAGE>
OTHER EXPENSES (continued)
Communications and supplies increased $42,000 or 31.82% and $120,000 or 29.41%
for the three and nine months ended September 30, 1995. The increase is the
result of additional supply purchases which were necessary due to the name
change of the Corporation.
Professional fees and outside services totalled $281,000 and $833,000 for the
three and nine months ended September 30, 1995. This represents increases over
last periods results of $3,000 or 1.08% and $121,000 or 16.99%, respectively.
The majority of this increase approximately $50,000 related to legal expenses
incurred as a result of problem loan workout activities. Other outside services
that have increased are safekeeping fees by approximately $10,000, ATM
management fees by approximately $15,000, holding company expenses by
approximately $12,000 and $12,000 for strategic planning consultants. Also,
payroll for temporary help in the amount of $20,000 has been charged to this
category.
FDIC insurance premium expenses totalled ($17,000) and $270,000 for the three
and nine months ended September 30, 1995 which represents a decrease of $163,000
or 111.64% and $158,000 or 36.92%, respectively. The Corporation received a
refund from the FDIC in the amount of $158,000 as a result of a retroactive
premium reduction. Since the Corporation is well capitalized, we were assessed
at the lowest rate available at $.04 per $100 of deposits, down from $.23 in
1994. This reduced premium rate will continue to have a favorable impact on the
Corporation's expense in future periods.
The "other" category increased $26,000 or 12.94% and $36,000 or 5.86%, for the
three and nine months ended September 30, 1995. Loan processing fees increased
approximately $40,000 due to increases in credit card and third party dealer
processing costs. Other real estate losses increased by approximately $14,000
resulting from the sale of such properties. Offsetting these increases were
decreases in deferred compensation expense of $40,000. This was due to the Bank
receiving proceeds on a life insurance policy. Also, other insurance expenses
decreased $13,000 when compared to 1994. Customer check expenses increased
approximately $21,000 because the Bank participated in a check buy-back program
as a result of the name change.
<PAGE>
FEDERAL INCOME TAXES
The provision for federal income taxes was $470,000 and $868,000 for the three
months and six months ended September 30, 1995 which represents an increase of
$52,000 and a decrease of $209,000 compared to the respective periods in 1994.
This variance is due to a variances in earnings between reporting periods.
Effective tax rates were 28.78% and 27.87% for the three and nine month periods
ended September 30, 1995. This is compared to 30.67% and 29.05% for the same
periods in 1994. The decrease in effective rates is due to tax-exempt interest
income from loans and securities comprising a higher percentage of income before
income taxes in 1995 compared to 1994.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities - Not Applicable
Item 3. Defaults Upon Senior Securities - Not Applicable
Item 4. Submisson of Matters to a Vote of Security Holders -
Not Applicable
Item 5. Other Information - Not Applicable
Item 6. Exhibits and Reports on Form 8-K - Not Applicable
<PAGE>
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 there unto duly authorized.
HERITAGE BANCORP, INC.
(Registrant)
11/9/95 /s/ Allen E. Kiefer
- - ------------- --------------------------------------------
(Date) Allen E. Kiefer, President and C.E.O.
11/8/95 /s/ Guy H. Boyer
- - ------------- --------------------------------------------
(Date) Guy H. Boyer, CPA, Secretary/Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-01-1995
<EXCHANGE-RATE> 1
<CASH> 8,489
<INT-BEARING-DEPOSITS> 221,920
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 83,519
<INVESTMENTS-CARRYING> 26,155
<INVESTMENTS-MARKET> 26,414
<LOANS> 176,149
<ALLOWANCE> 3,199
<TOTAL-ASSETS> 303,375
<DEPOSITS> 250,808
<SHORT-TERM> 8,888
<LIABILITIES-OTHER> 2,314
<LONG-TERM> 4,450
<COMMON> 10,006
0
0
<OTHER-SE> 26,909
<TOTAL-LIABILITIES-AND-EQUITY> 303,375
<INTEREST-LOAN> 12,449
<INTEREST-INVEST> 4,978
<INTEREST-OTHER> 3
<INTEREST-TOTAL> 17,430
<INTEREST-DEPOSIT> 5,901
<INTEREST-EXPENSE> 6,581
<INTEREST-INCOME-NET> 10,849
<LOAN-LOSSES> 265
<SECURITIES-GAINS> (7)
<EXPENSE-OTHER> 7,462
<INCOME-PRETAX> 3,115
<INCOME-PRE-EXTRAORDINARY> 3,115
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,247
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.14
<YIELD-ACTUAL> 5.03
<LOANS-NON> 800
<LOANS-PAST> 2,360
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,012
<CHARGE-OFFS> 140
<RECOVERIES> 62
<ALLOWANCE-CLOSE> 3,199
<ALLOWANCE-DOMESTIC> 1,034
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,165
</TABLE>
