FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1996 Commission File Number 33-25687-A
HERITAGE BANCSHARES, INC.
- -------------------------------------------------------------------------------
(Exact name of Small Business Issuer as specified in its charter)
FLORIDA 65-0059575
- ------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
12998 SO. CLEVELAND AVENUE, FORT MYERS, FLORIDA 33901
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(Address of principal executive offices) (Zip code)
ISSUER'S TELEPHONE NUMBER: (941) 482-1441
Check whether the issuer (1) filed
all reports required to be filed by
Section 13 or 15 (d) of the Exchange
Act during the past 12 months (or for
such shorter period that the Regis-
trant was required to file such
reports), and (2) has been subject to
such filing requirements for the past
90 days. YES x No
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT AUGUST 12, 1996
----- -------------------------------
<S> <C>
COMMON STOCK, $1.00 PAR VALUE 543,972 SHARES
</TABLE>
T A B L E O F C O N T E N T S
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
PART I Item 1. Financial Statements 1-6
Item 2. Management`s Discussion and Analysis
of Financial Condition and Results of
Operations 7-8
PART II Item 6. Exhibits and Reports on Form 8-K 9
</TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HERITAGE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30 December 31
ASSETS 1996 1995
-------- -----------
<S> <C> <C>
Cash and due from banks $ 4,173,259 $ 6,651,823
Federal funds sold 100,000 5,955,000
Investment securities available for sale 4,621,402 6,014,483
Mortgage-backed securities available for sale 6,560,358 2,826,014
Loans (net of allowance for loan losses 64,567,880 62,218,629
and deferred loan fees of, $466,818 and
$487,867 at June 30, 1996 and December
31, 1995, respectively)
Mortgage loans held for sale, net 3,792,266 887,627
Premises and equipment, net 2,748,197 2,750,776
Other assets 943,269 866,321
------------- ------------
Total assets $ 87,506,631 $ 88,170,673
============= ============
LIABILITIES AND STOCKHOLDERS` EQUITY
LIABILITIES
Deposits $ 70,605,515 $ 73,896,799
Securities sold under agreement to purchase 7,564,715 6,281,169
FHLB Borrowings 1,200,000 0
Other liabilities 790,771 617,098
------------- ------------
80,161,001 80,795,066
------------- ------------
STOCKHOLDERS` EQUITY
Common stock, $1.00 par value, 10,000,000
shares authorized, 543,972 shares
issued and outstanding 543,972 543,972
Additional paid in capital 4,851,710 4,851,710
Unrealized losses on securities available
for sale (147,854) (13,882)
Retained earnings 2,097,802 1,993,807
------------- ------------
7,345,630 7,375,607
------------- ------------
Total liabilities and stockholders` equity $ 87,506,631 $ 88,170,673
============= ============
</TABLE>
See Accompanying Notes.
- 1 -
HERITAGE BANCSHARES, INC., AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30
----------------------------
1996 1995
---- ----
<S> <C> <C>
Interest income
Interest on loans $ 1,468,962 $ 1,297,332
Interest on investment
securities, taxable 140,138 146,660
Interest on mortgage-backed
securities, taxable 40,413 64,108
Other interest income 22,117 124,970
------------ ------------
Total interest income 1,671,630 1,633,070
------------ ------------
Interest expense
Interest on deposits 602,830 710,429
Interest on borrowings 73,445 31,810
------------ ------------
Total interest expense 676,275 742,239
------------ ------------
Net interest income 995,355 890,831
Provision for loan losses 52,000 27,500
------------ ------------
Net interest income after
provision for loan losses 943,355 863,331
Service charges and fees 76,787 72,977
Gain on sale of mortgage loans 3,913 34,581
Other operating expenses (924,322) (710,314)
------------ ------------
Income before income taxes 99,733 260,575
Provision for income taxes 38,000 98,400
------------ ------------
Net income $ 61,733 $ 162,175
============ ============
Earnings per share $ .11 $ .30
============ ============
Weighted average number of
shares outstanding 543,972 543,972
============ ============
</TABLE>
See Accompanying Notes
-2-
HERITAGE BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
ln the opinion of management, the accompanying unaudited
consolidated condensed financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to
present fairly their consolidated financial position as of June 30,
1996, and the consolidated results of their operations and their
cash flows for the three and six-month periods ended June 30, 1996
and 1995. The results of operation for the six month period ended
June 30, 1996, are not necessarily indicative of the results to be
expected for the year ended December 31, 1996. For further
information refer to the consolidated financial statements and notes
thereto included in the Company's annual report on Form 10-KSB for
the year ended December 31, 1995. On July 11, 1996, a report 8-K was
filed. This filing refers to a Definitive Agreement and Plan of
Share Exchange which provides for the acquisition of Heritage
Bancshares Inc. by SouthTrust Corporation a Delaware
corporation, through the merger of the Company with and into a
wholly-owned subsidiary of SouthTrust.
Note 2. Earnings Per Share
Earnings per share is based on the weighted average number of
common shares outstanding. Common stock equivalents in the form
of outstanding common stock options and warrants are not included
in the calculation of weighted average shares at June 30, 1996
due to the immaterial impact on dilution of earnings per share.
In January 1995, 12,500 warrants were exercised at $10.00 per
share. Total shares outstanding have increased from 531,472 to
543,972 and additional paid in capital increased from $4,739,210
to $4,851,710.
Note 3. Impact of Recently Issued Accounting Standard
As of January 1, 1996, the Company adopted the provision of
Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights," (SFAS No. 122). SFAS No. 122 requires
companies that engage in mortgage banking activities to allocate
the total cost of the mortgage loans it acquires or originates
and then sells with servicing rights retained, between the
estimated fair value of the loans and the capitalized mortgage
servicing rights, if practical. SFAS No. 122 also requires that
capitalized mortgage servicing rights be assessed for impairment
based on the fair value of those rights. SFAS No. 122 applies
prospectively to fiscal years beginning after December 15, 1995.
The Company adopted the provisions of SFAS No. 122 in January,
1996. The adoption did not have a material impact on the
financial position of the Company.
In October 1995, SFAS No. 123 "Accounting for Stock-Based
Compensation," was issued and was effective for the Company
beginning January 1, 1996. SFAS No. 123 provides an alternative
method of accounting for stock-based compensation arrangements,
based on fair value of the stock-based compensation determined by
an option pricing model utilizing various assumptions regarding
the underlying attributes of the options and Company's stock,
rather than the existing method of accounting for stock-based
-5-
compensation which is provided in Accounting Practices Bulletin
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25). The Company has elected to apply APB 25 and, therefore,
there will be no impact on the consolidated financial position
and consolidated results of operations.
Note 5. Acquisition Agreement
On June 28, 1996, officials of Heritage Bancshares, Inc. and
SouthTrust Corporation signed a Definitive Agreement and Plan of
Share Exchange which provides for the acquisition of the Company
by South Trust Corporation. The cash transaction represents a
purchase price of $22.65 per share. The transaction which is
subject to shareholder and regulatory approval, is expected to be
completed by the last quarter of 1996.
-6-
ITEM 2. MANAGEMENT`S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
Total assets of the Company at June 30, 1996, compared to December 31,
1995, decreased by approximately $1 million. This decrease was the result
of $2 million in high yielding certificates of deposit that matured second
quarter 1996. Loan demand continued to be strong during the first six
months of 1996, increasing from $63 million for the year ended 1995, to
$68 million at June 30, 1996. This loan growth and deposit reduction was
funded with federal fund balances and borrowings from Federal Home Loan
Bank. The Company anticipates continued growth in net loans and deposits
for the year ended December 31, 1996. Loan to deposit ratio at June 30,
1996, was 87% compared to 78% for the year ended December 31, 1995.
Due to the large increase in loan balances combined with the liquidation
of deposit funds the Company experienced a short term liquidity crunch.
Management anticipated this temporary short fall and made provision for a
deposit campaign in July to replace the federal funds sold. The Company
had available credit lines of over $10 million to help fund the loan
demand.
For all but the most highly rated banks, the minimum leverage requirement
is 3% of total assets plus an additional 100 to 200 basis points. At June
30, 1996, the Company's leverage ratio was 8.47%. At June 30, 1996, the
Company's total capital to total risk-weighted assets was 12.48% of which
11.69% was Tier I capital. These ratios well exceed regulatory capital
requirements.
Results of Operations
- ---------------------
The Company reported net income of $61,733 and $244,020 for the three and
six-month periods ended June 30, 1996, compared to net income of $162,175
and $318,132 for the same period in 1995. The primary factor contributing
to the reduction in operating results for the first six months ended June
30, 1996, was the accrual of funds to cover expenses associated with the
pending merger with SouthTrust Corporation.
Investment securities comprise approximately 5% of the Company's assets
while mortgage-backed securities comprise approximately 8%. The
unrealized loss of approximately $22,000 on "available for sale"
securities at December 31, 1995, increased to an unrealized loss of
approximately $238,000 at June 30, 1996.
The Company's credit loss reserve ratio at June 30, 1996, was .76%. This
ratio is reflective of the Company's minimal loan losses experienced since
inception and the low level of non-performing assets. At June 30, 1996,
the Company reported $624,000 of loans on non-accrual, of which all but
$6,000 were collateralized by first mortgages on real property. The
Company's interest income lost as a result of these loans being on non-
accrual was approximately $14,700 for the six-month period ended June 30,
1996. At June 30, 1996, the Bank held in other real estate owned,
foreclosed property in the amount of $67,825. The Company currently has a
pending contract for both foreclosed properties and anticipates a minimal
loss due to costs associated with this sale. During the same period, the
-7-
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED - PAGE 2
Company charged off one loan for $67,700 and received recoveries of
$1,600. There were no other loans 90 days past due for the period ended
June 30, 1996. Management reviews and evaluates the allowance for loan
losses on a quarterly basis. Management believes that the allowance for
loan losses at June 30, 1996, is adequate based on the nature of the loan
portfolio and the prevailing economic factors.
Summary of the Company's loan portfolio as of June 30, 1996 and December
31, 1995 is as follows ($ in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Commercial (including commercial real estate) $12,778 $14,131
Real estate mortgage 46,779 37,761
Real estate construction 5,923 7,594
Installment 3,398 3,220
-------- --------
68,878 62,706
-------- --------
Less:
Allowance for credit losses (492) (490)
Net deferred loan costs 25 3
-------- --------
(467) (487)
-------- --------
Loans, net $68,411 $62,219
======== ========
</TABLE>
An analysis of the allowance for credit losses for June 30, 1996
is as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at January 1, 1996 $490,373
Provisions charged to operations 62,725
Loans charged off (62,675)
Recoveries of loans charged off 1,657
--------
Balance at June 30, 1996 $492,080
========
</TABLE>
On January 8, 1996, the Board of Directors of the Company declared a cash
dividend of twenty-five cents ($0.25) per share payable to stockholders of
record on February 1, 1996. The dividend was paid on March 1, 1996.
Other operating expenses increased from $1,438,000 for the first six months
of 1995 to $1,640,000 for the same period in 1996. This increase was due to
the accrual of expenses associated with legal, accounting, payroll and
other acquisition costs.
-8-
PART II. OTHER INFORMATION
6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. No exhibits are required to be filed with this
report.
(b) Reports on Form 8-K. A Form 8-K was filed on July 11,
1996, which refers to a Definitive Agreement and Plan of
Share Exchange which provides for the acquisition of
Heritage Bancshares Inc. by SouthTrust Corporation a
Delaware corporation, through the merger of the Company
with and into a wholly-owned subsidiary of SouthTrust.
-9-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on behalf by the
undersigned thereunto duly authorized.
By: /s/ Leo R. Doerr
-----------------
Leo R. Doerr, President
and Chief Executive
Officer (Principal
Executive Officer)
Date: August 12, 1996
---------------
By: /s/ David M. DuVall
--------------------
David M. DuVall, Executive
Vice President and
Treasurer (Principal
Financial and Accounting
Officer)
Date: August 12, 1996
----------------
HERITAGE BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30
------------------------
1996 1995
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 480,865 $ 774,752
------------- ------------
Cash flow from investing activities:
Capital expenditures (67,585) (36,282)
Purchase of investment securities (2,485,046) -
Maturities of investment securities 1,000,000 1,989,844
Investment in interest bearing deposits (82,510)
Purchase of mortgage-backed securities (1,993,750) -
Proceeds from principal reductions of
investment securities - -
Proceeds from principal reductions
of mortgage-backed securities 433,345 246,018
Proceeds from maturity of mortgage-backed
securities 500,000 -
Proceeds from sale of OREO 36,198 -
Net loans to customers (5,293,860) (3,122,482)
------------- ------------
Net cash used in investing activities (7,870,698) (1,005,412)
------------- ------------
Cash flow from financing activities:
Dividends paid to shareholders (135,993) (54,397)
Net increase (decrease) in demand, Now and
savings deposits 342,973 (1,426,061)
Proceeds from exercise of warrants - 125,000
Net increase (decrease) in certificates
of deposits (3,634,257) 8,705,607
Net increase in repurchase agreements 1,283,546 -
Net increase in other borrowings 1,200,000 -
------------- -------------
Net cash provided by (used in) financing
activities (943,731) 7,350,149
------------- -------------
Net increase (decrease) in cash and
cash equivalents (8,333,564) 7,119,489
Cash and cash equivalents beginning
of period 12,606,823 3,360,064
------------- -------------
Cash and cash equivalents end
of period $ 4,273,259 $ 10,479,553
============ =============
</TABLE>
See Accompanying Notes.
-4-
<TABLE>
<CAPTION>
Six Months Ended June 30
------------------------------
1996 1995
---- ----
<S>
Interest income <C> <C>
Interest on loans $ 2,872,048 $ 2,538,129
Interest on investment
securities, taxable 257,024 299,123
Interest on mortgage-backed
securities, taxable 85,851 129,447
Other interest income 96,591 172,556
____________ ------------
Total interest income 3,311,514 3,139,255
____________ ------------
Interest expense
Interest on deposits 1,235,596 1,305,794
Interest on borrowings 153,252 69,020
____________ ------------
Total interest expense 1,388,848 1,374,814
____________ ------------
Net interest income 1,922,666 1,764,441
Provision for loan losses 62,725 42,500
____________ ------------
Net interest income after
provision for loan losses 1,859,941 1,721,941
Service charges and fees 156,851 152,585
Gains on sale of mortgage loans 4,972 75,122
Gain on sale of securities - -
Other operating expenses (1,639,844) (1,437,616)
____________ ------------
Income before income taxes 381,920 512,032
Provision for income taxes 137,900 193,900
____________ ------------
Net Income $ 244,020 $ 318,132
============ ============
Earnings per share $ .45 $ .59
============ ============
Weighted average number of
shares outstanding 543,972 541,843
============ ============
</TABLE>
See Accompanying Notes
-3-
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONSOLIDATED CONDENSED BALANCE SHEET, CONSOLIDATED CONDENSED STATEMENT OF
INCOME, NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT AND ITEM 2 MD&A OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE FORM 10-QSB FOR 6/30/96 &
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO (B) FORM 10-QSB
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,173,259
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 100,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,181,760
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 68,826,964
<ALLOWANCE> 492,079
<TOTAL-ASSETS> 87,506,631
<DEPOSITS> 70,605,515
<SHORT-TERM> 8,764,715
<LIABILITIES-OTHER> 790,771
<LONG-TERM> 0
0
0
<COMMON> 543,972
<OTHER-SE> 6,801,658
<TOTAL-LIABILITIES-AND-EQUITY> 87,506,631
<INTEREST-LOAN> 2,872,048
<INTEREST-INVEST> 257,875
<INTEREST-OTHER> 96,591
<INTEREST-TOTAL> 3,311,514
<INTEREST-DEPOSIT> 1,235,596
<INTEREST-EXPENSE> 1,388,848
<INTEREST-INCOME-NET> 1,922,666
<LOAN-LOSSES> 62,725
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,639,844
<INCOME-PRETAX> 381,920
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 244,020
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
<YIELD-ACTUAL> 0
<LOANS-NON> 624,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 490,373
<CHARGE-OFFS> 62,675
<RECOVERIES> 1,657
<ALLOWANCE-CLOSE> 492,080
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
