Document And Entity Information
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Document And Entity Information (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Feb. 28, 2013
Jun. 30, 2012
Document And Entity Information [Abstract]      
Document type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2012    
Document Fiscal Period Focus FY    
Document Fiscal Year Focus 2012    
Entity Registrant Name HERITAGE BANKSHARES INC /VA    
Entity Central Index Key 0000719731    
Trading Symbol hbks    
Current Fiscal Year End Date --12-31    
Entity Filer Category Smaller Reporting Company    
Entity Common Stock, Shares Outstanding   2,276,617  
Entity Public Float     $ 20,212
Entity Voluntary Filers No    
Entity Well-known Seasoned Issuer No    
Entity Current Reporting Status Yes    

Consolidated Balance Sheets
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Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
ASSETS    
Cash and due from banks $ 5,746 $ 5,335
Interest-bearing deposits in other banks 32,717 8,646
Federal funds sold 25 33
Total cash and cash equivalents 38,488 14,014
Certificates of deposit in other banks 35,892  
Securities available for sale, at fair value 21,162 [1] 45,310 [1]
Loans, held for investment, net of allowance for loan losses of $2,075 and $2,091, respectively 220,962 213,183
Accrued interest receivable 624 694
Stock in Federal Reserve Bank, at cost 594 591
Stock in Federal Home Loan Bank of Atlanta, at cost 440 834
Premises and equipment, net 10,602 11,029
Other real estate owned 210 1,719
Bank owned life insurance 5,690 5,616
Other assets 1,954 1,676
Total assets 336,618 294,666
LIABILITIES AND STOCKHOLDERS' EQUITY    
Noninterest-bearing 111,518 92,839
Interest-bearing 183,628 157,139
Total deposits 295,146 249,978
Federal Home Loan Bank Advances   4,000
Securities sold under agreements to repurchase 2,605 1,502
Other borrowings 465 782
Accrued interest payable 33 83
Other liabilities 1,695 1,884
Total liabilities 299,944 258,229
Commitments and contingencies      
Stockholders' equity    
Preferred stock, no par value- 1,000,000 shares authorized; Senior non-cumulative perpetual preferred stock; Series C, 7,800 shares issued and outstanding at both December 31, 2012 and 2011 7,800 7,800
Common stock, $5 par value - 6,000,000 shares authorized; 2,275,891 shares and 2,304,965 shares issued and outstanding at December 31, 2012 and December 31, 2011, respectively 11,380 11,525
Additional paid-in capital 6,761 6,704
Retained earnings 10,625 9,967
Accumulated other comprehensive income, net 108 441
Total stockholders' equity 36,674 36,437
Total liabilities and stockholders' equity $ 336,618 $ 294,666
[1] At December 31, 2012 and December 31, 2011, the Company held no securities classified as held to maturity.

Consolidated Balance Sheets (Parenthetical)
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Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Allowance for loan losses $ 2,075 $ 2,091
Preferred stock, par value      
Preferred stock, shares authorized 1,000,000 1,000,000
Common stock, par value $ 5 $ 5
Common stock, shares authorized 6,000,000 6,000,000
Common stock, shares issued 2,275,891 2,304,965
Common stock, shares outstanding 2,275,891 2,304,965
Senior Non-Cumulative Perpetual Preferred Stock, Series C [Member]
   
Preferred stock, shares issued 7,800 7,800
Preferred stock, shares outstanding 7,800 7,800

Consolidated Statements Of Income
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Consolidated Statements Of Income (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Interest income    
Interest income and fees on loans $ 10,166 $ 11,267
Interest on taxable investment securities 824 798
Other interest and dividend income 231 141
Total interest income 11,221 12,206
Interest expense    
Deposits 943 1,219
Borrowings 29 44
Total interest expense 972 1,263
Net interest income 10,249 10,943
Provision for (recovery of) loan losses 35 (15)
Net interest income after provision for (recovery of) loan losses 10,214 10,958
Noninterest income    
Service charges on deposit accounts 252 334
Late charges and other fees on loans 98 129
Gain on sale of investment securities 284 87
Income from bank-owned life insurance 203 19
Other 348 299
Total noninterest income 1,185 868
Noninterest expense    
Compensation 4,151 4,383
Data processing 630 580
Occupancy 887 838
Furniture and equipment 579 583
Taxes and licenses 318 338
Professional fees 332 366
FDIC assessment 155 170
Loss on sale or impairment of other real estate owned 70 54
Other 1,028 1,012
Total noninterest expense 8,150 8,324
Income before provision for income taxes 3,249 3,502
Provision for income taxes 921 1,134
Net income 2,328 2,368
Preferred stock dividend and accretion of discount (137) (581)
Net income available to common stockholders $ 2,191 $ 1,787
Earnings per common share    
Basic $ 0.96 $ 0.78
Diluted $ 0.94 $ 0.77
Dividends per share $ 0.60 $ 0.24
Weighted average shares outstanding - basic 2,290,533 2,305,267
Effect of dilutive equity awards 50,201 10,606
Weighted average shares outstanding - diluted 2,340,734 2,315,873

Consolidated Statements Of Comprehensive Income
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Consolidated Statements Of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Consolidated Statements Of Comprehensive Income [Abstract]    
Net income $ 2,328 $ 2,368
Unrealized holding gains (losses) on securities available for sale (221) 132
Tax effect on unrealized gains (losses) 75 (45)
Realized gains on sales of available for sale securities (284) (87)
Tax effect on realized gains 97 29
Total other comprehensive income (loss) (333) 29
Total comprehensive income $ 1,995 $ 2,397

Consolidated Statements Of Shareholders' Equity
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Consolidated Statements Of Shareholders' Equity (USD $)
In Thousands, except Share data
Preferred Shares [Member]
Fixed Rate Cumulative Perpetual Preferred Stock, Series A [Member]
Preferred Shares [Member]
Fixed Rate Cumulative Perpetual Preferred Stock, Series B [Member]
Preferred Shares [Member]
Senior Non-Cumulative Perpetual Preferred Stock, Series C [Member]
Preferred Shares [Member]
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income [Member]
Fixed Rate Cumulative Perpetual Preferred Stock, Series A [Member]
Fixed Rate Cumulative Perpetual Preferred Stock, Series B [Member]
Senior Non-Cumulative Perpetual Preferred Stock, Series C [Member]
Total
Balance at Dec. 31, 2010       $ 10,171 $ 11,538 $ 6,658 $ 8,801 $ 412       $ 37,580
Balance, shares at Dec. 31, 2010       10,406 2,307,502              
Total comprehensive income             2,368 29       2,397
Exercise of stock options         10 8           18
Exercise of stock options, shares         2,000             2,000
Repurchase of common shares         (23) (33)           (56)
Repurchase of stock, shares         (4,537)              
Equity-based compensation expense           83           83
Issuance of stock     7,800               7,800  
Issuance of stock, shares     7,800                  
Costs related to issuance of perpetual preferred stock           (12)           (12)
Redemption of stock (10,103) (303)             (10,103) (303)    
Redemption of stock, shares (10,103) (303)                    
Net accretion from issuance of preferred stock warrants       235     (235)          
Cash dividends on preferred stock             (414)         (414)
Cash dividends on common stock             (553)         (553)
Balance at Dec. 31, 2011       7,800 11,525 6,704 9,967 441       36,437
Balance, shares at Dec. 31, 2011       7,800 2,304,965              
Total comprehensive income             2,328 (333)       1,995
Exercise of stock options         5 4           9
Exercise of stock options, shares         1,000             1,000
Repurchase of common shares         (150) (54) (164)         (368)
Repurchase of stock, shares         (30,074)              
Equity-based compensation expense           107           107
Cash dividends on preferred stock             (137)       (137) (137)
Cash dividends on common stock             (1,369)         (1,369)
Balance at Dec. 31, 2012       $ 7,800 $ 11,380 $ 6,761 $ 10,625 $ 108       $ 36,674
Balance, shares at Dec. 31, 2012       7,800 2,275,891              

Consolidated Statements Of Shareholders' Equity (Parenthetical)
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Consolidated Statements Of Shareholders' Equity (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Consolidated Statements Of Stockholders' Equity [Abstract]    
Exercise of stock options, tax benefit $ 1 $ 3
Cash dividends on common stock, per share $ 0.60 $ 0.24

Consolidated Statements Of Cash Flows
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Consolidated Statements Of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Cash flows from operating activities:    
Net income $ 2,328 $ 2,368
Adjustments to reconcile net income to net cash provided by operating activities:    
Provision for (recovery of) loan losses 35 (15)
Amortization of loan yield adjustments, net 298 326
Depreciation, amortization and accretion, net 603 607
Stock based compensation 107 83
Deferred compensation 77 82
Exercise of stock options tax benefit 1 3
Net (gains) losses on:    
Sale of securities (284) (87)
Sale, disposal, or impairment of premises and equipment   (1)
Sale of other long lived assets (30)  
Sale or impairment of other real estate owned 70 (3)
Net income on bank owned life insurance (203) (19)
Changes in assets/liabilities, net    
Increase in interest receivable and other assets (47) (19)
Increase (decrease) in interest payable and other liabilities (291) (45)
Net cash provided by operating activities 2,664 3,280
Cash flows from investing activities:    
Proceeds from maturities and principal repayments of securities available for sale 28,200 8,061
Purchases of securities available for sale (18,996) (41,921)
Proceeds from sales of securities available for sale 14,696 6,005
Proceeds from sale of other real estate owned 1,535 28
Net decrease (increase) in certificates of deposit in other banks (35,892) 2,260
Net increase in loans held for investment (8,208) (632)
Purchases of Federal Home Loan Bank stock and Federal Reserve Bank stock (59) (4)
Redemption of FHLB stock and Federal Reserve Bank stock 450 939
Purchases of premises and equipment (173) (440)
Proceeds from sales of premises and equipment   2
Proceeds from sale of other long lived assets 40  
Purchases of and premiums paid for bank-owned life insurance (12) (5,013)
Proceeds from bank owned life insurance 141  
Net cash used for investing activities (18,278) (30,715)
Cash flows from financing activities:    
Proceeds from exercise of stock options 8 15
Net increase in deposits 45,168 25,875
Net decrease in Federal Home Loan Bank advances (4,000) 4,000
Net decrease in securities sold under agreements to repurchase 1,103 (875)
Repayments of other borrowings (317) (305)
Proceeds from issuance of preferred stock   7,788
Redemption of preferred stock   (10,406)
Retirement of common stock (368) (56)
Cash dividends paid (1,506) (967)
Net cash provided by financing activities 40,088 25,069
Increase (decrease) in cash and cash equivalents 24,474 (2,366)
Cash and cash equivalents, beginning of period 14,014 16,380
Cash and cash equivalents, end of period 38,488 14,014
Supplemental disclosure:    
Interest paid 1,022 1,281
Income taxes paid 1,099 1,329
Noncash financing activities:    
Transfer of loans to other real estate owned $ 96 $ 1,481

Summary Of Significant Accounting Policies
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Summary Of Significant Accounting Policies
12 Months Ended
Dec. 31, 2012
Summary Of Significant Accounting Policies [Abstract]  
Summary Of Significant Accounting Policies

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Heritage Bankshares, Inc. and its wholly‑owned subsidiary, Heritage Bank. All significant intercompany balances and transactions have been eliminated in consolidation. 

Nature of Operations

Heritage Bankshares, Inc. (the “Company”) is a bank holding company incorporated under the laws of the Commonwealth of Virginia in 1983, and at December 31, 2012 the Company serves as the holding company for its wholly‑owned subsidiary, Heritage Bank.

Heritage Bank (the “Bank”) is a wholly-owned subsidiary of the Company and is a state banking corporation engaged in the general commercial and retail banking business.  The Bank is a full‑service bank conducting a general commercial and consumer banking business with its customers located throughout the Hampton Roads area of Virginia.  The Bank has one wholly‑owned subsidiary, Sentinel Financial Group, Inc. (“Sentinel Financial”).  At December 31, 2012, Sentinel Financial owned an interest in Bankers Insurance, LLC, providers of various insurance and products.  The financial activities pertaining to these interests are recorded on the cost method of accounting for investments.  In addition, at December 31, 2012, Sentinel Financial owned other real estate owned.  This real estate is recorded at fair value.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.  Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, and the valuation of deferred tax assets.

Significant Group Concentrations of Credit Risk

The Company invests in a variety of securities, principally obligations of the United States, U.S. government sponsored enterprises, mortgage‑backed securities and obligations of states and political subdivisions.  Note 3 presents the Company’s investment activities.  Substantially all of the Company’s lending activities are with customers located in southeastern Virginia.  Note 4 presents the Company’s lending activities.  The Company does not have any significant concentrations of loans in any one industry or customer. 

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold and overnight investments with Federal Home Loan Bank.

Certificates of Deposit in Other Banks

The Company occasionally invests in certificates of deposit at other financial institutions with original maturity dates up to ten years.

Investment Securities

Investment securities are classified in three categories and accounted for as follows:

·

Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held‑to‑maturity securities and reported at amortized cost.

·

Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings.

·

Debt and equity securities not classified as either held-to-maturity or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported as other comprehensive income, a separate component of stockholders’ equity.

Gains and losses on sales of securities are computed based on specific identification of the adjusted cost of each security and included in other income.  Amortization of premiums and accretion of discounts are computed by the effective yield method and recognized in interest income.

Declines in the fair value of individual held-to-maturity and available‑for‑sale securities below their cost that are other than temporary would result in write‑downs of the individual securities to fair value.  These write-downs would be included in the Company’s calculation of earnings as realized losses.

Loans

Loans are reported at their principal outstanding balance, net of charge-offs, deferred loan fees and costs on originated loans, unearned income, and unamortized premiums or discounts, if any, on purchased loans.  Interest income is generally recognized when income is earned using the interest method.  Loan origination fees and certain direct loan origination costs are deferred and the net amounts are amortized as an adjustment to yield on the respective loans.

Loans Held For Sale

Mortgage loans originated and intended for sale in the secondary market, if any, are carried at cost.  Loans held for sale are pre-committed to secondary market investors and, subsequent to being closed, are held for short holding periods pending receipt of loan documents.

Allowance For Loan Losses

The Bank maintains an allowance for loan losses at a level which, in management’s judgment, is adequate to absorb estimated credit losses on existing loans.  The amount of the allowance is affected by:  (1) loan charge‑offs, which decrease the allowance, (2) recoveries on loans previously charged‑off, which increase the allowance, and (3) the provision for loan losses charged to income, which increases the allowance.

The Bank analyzes its loan portfolio through ongoing credit review processes and constructs a comprehensive allowance analysis for its loan portfolio at least quarterly.  This analysis includes two basic elements:  (1) specific allowances for individual loans, and (2) general allowances for loan portfolio segments, which factor in historical loan loss experience and delinquency rates for the Bank and the banking industry and numerous other environmental factors.

The Bank evaluates various loans individually for impairment based on guidance for receivables.  An evaluation is based upon either discounted cash flows or collateral evaluations.  If the evaluation shows that a particular loan is impaired, then a specific reserve is established, or a charge-off is made, for the amount of any impairment.

For loans without an individual measure of impairment, the Bank makes estimates of losses for groups of loans as provided by guidance for contingencies.  As part of the loan loss reserve methodology, loans are placed into one of four major categories or segments of loans:  (1) commercial and industrial loans, (2) consumer loans, (3) 1-4 family residential loans (including home equity loans and lines), and (4) multi‑family and other commercial real estate loans.

The Bank then considers the impact of various bank, industry, economic and other environmental factors and documents which factors are used in the analysis.

The Bank’s allowance for loan losses is divided into four distinct portions:  (1) Historical – an amount based on the Bank’s actual net charge‑offs; (2) Impaired Loans – an amount for specific allocations on significant individual credits as prescribed by generally accepted accounting principles related to receivables; (3) Loan Segments – an amount to adjust the historical allocation for the four loan segments based on environmental factors as provided by guidance on contingencies; and (4) Unallocated – an amount to reflect the imprecision inherent in these calculations.

Income Recognition on Nonaccrual Loans

Loans are generally classified as nonaccrual if they are past due as to maturity or payment of principal or interest for a period of more than 90 days, unless such loans are well-secured and in the process of collection.  If a loan or a portion of a loan is classified as doubtful, or is partially charged off, the loan is generally classified as nonaccrual.  Loans that are on a current payment status or past due less than 90 days may also be classified as nonaccrual if repayment in full of principal and/or interest is in doubt.

Loans may be returned to accrual status when all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment within an acceptable period of time and there is a sustained period of repayment performance by the borrower.  

While a loan is classified as nonaccrual, and the future collectibility of the recorded loan balance is doubtful, collections of interest and principal are generally applied as a reduction to principal outstanding.  When the future collectibility of the recorded loan balance is expected, interest income may be recognized on a cash basis. 

Other Real Estate Owned

Other real estate owned is comprised of real estate acquired through foreclosure, acceptance of a deed in lieu of foreclosure or loans in which the Company receives physical possession of the debtor’s real estate or change of management’s intent towards its own property.  Other real estate owned is carried at the lower of the recorded investment in the loan or the fair value of the real estate.  Net operating income of such properties, exclusive of depreciation, is included in other income and related depreciation expense is included in other expense.

Restructured Loans

Loans are considered troubled debt restructurings if, for economic or legal reasons, a concession has been granted to the borrower related to the borrower’s financial difficulties that the Company would not have otherwise considered.  The Company restructures certain loans in instances where a determination is made that greater economic value will be realized under new terms rather than through foreclosure, liquidation or other disposition.  The terms of the renegotiation generally involve some or all of the following characteristics:  a reduction in the interest pay rate to reflect actual operating income, an extension of the loan maturity date to allow time for stabilization of operating income, and/or partial forgiveness of principal and interest.

The carrying value of a restructured loan is reduced by the fair value of assets or equity interest received from the borrower, if any.  The Company generally continues to classify restructured nonaccrual loans as nonaccrual until such time as the loans demonstrate performance.  The accrual of interest resumes when such loans can demonstrate performance, generally evidenced by six months of pre- or post-restructuring payment performance in accordance with the restructured terms, or by the presence of other significant factors.  In addition, at the time of restructuring, loans are classified as impaired.

Off Balance Sheet Credit Related Financial Instruments

In the ordinary course of business, the Company enters into commitments to extend credit and issue standby letters of credit.  Such financial instruments are recorded when they are funded.

Sale of Loans

Transfers of loans are accounted for as sales when control over the loans has been surrendered.  Control over transferred loans is deemed to be surrendered when (1) the loans have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred loans, and (3) the Company does not maintain effective control over the transferred loans through an agreement to repurchase them before their maturity.  In addition, participated loans sold by the Bank with disproportionate cash flows to the buyer are considered to be incomplete transfers because risk is not proportionate.  Generally accepted accounting principles require that this type of participation be classified as a borrowing with the entire loan balance reported in loans held for investment and not reduced for the participation.

 

Premises and Equipment

Land is carried at cost.  Buildings, leasehold improvements and equipment are carried at cost, less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets, ranging from 2 years to 40 years.

Federal Reserve Bank Stock and Federal Home Loan Bank Stock

As a member of the Federal Reserve Bank, the Company is required to hold shares of FRB capital stock, $100 par value, in an amount equal to 6% of the Bank’s total common stock and capital surplus.

As a member of the Federal Home Loan Bank of Atlanta, the Company is required to hold shares of capital stock in the FHLB in an amount equal to 0.15% of total assets plus 4.50% of borrowings from the FHLB.  The Bank, as a member institution, is required to own certain stock investments in the Federal Home Loan Bank of Atlanta and the Federal Reserve Bank.  Additional stock at FHLB must be purchased as a percentage of borrowings and is generally pledged against these borrowings.  No ready market exists for the FHLB stock and it has no quoted market value.  However, redemption of this stock has historically been at par value. 

Income Taxes

The Company files a consolidated tax return.  Provisions for income taxes reflect tax expense incurred as a consolidated group.  Tax expense is allocated among the members of the consolidated group in accordance with an intercompany agreement for tax expense.  Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of investment securities, deferred loan fees, allowance for loan losses, allowance for losses on foreclosed real estate, premises and equipment and deferred compensation for financial and income tax reporting.  The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.  An allowance is provided if it is more likely than not that the Company will not realize the benefits of a deferred tax asset.  Through December 31, 2012, no valuation allowance has been provided against the Company’s deferred tax asset.

The Company analyzes tax positions taken or expected to be taken on its tax returns to determine if it has any liability related to uncertain tax positions in accordance with guidance on income taxes.  Liabilities, if any, resulting from this evaluation are recorded in the current period.

Deferred Compensation Plans

The Company maintains deferred compensation agreements with certain current and former directors and the beneficiary of its former chief executive officer, as well as a Supplemental Executive Retirement Plan with its current Chief Executive Officer.  The Company’s policy is to accrue the present value of estimated amounts to be paid under the contracts over the required service period to the date the participant is fully eligible to receive the benefits.  At December 31, 2012, the discount rate the Company utilized to determine the deferred compensation liability under such plans was determined by computing the average of the last three year‑end periods’ AA corporate bond yield, whose approximate maturity corresponded to the approximate time remaining to pay out the expected benefits for each participant.

Bank-Owned Life Insurance

The Company has purchased life insurance policies on certain current and former employees and directors.  Company-owned life insurance is recorded at its cash surrender value, or the amount that can be realized.

Stock Compensation Plans

At December 31, 2012, the Company has one stock‑based compensation plan, the Heritage 2006 Equity Incentive Plan, as amended and restated effective January 28, 2009, and as subsequently amended in 2012 (the “2006 Incentive Plan”).  The Company has adopted accounting guidance related to share‑based payments, which requires that the fair value of equity instruments, such as stock options, be recognized as an expense in the issuing entity’s financial statements as services are performed.

On January 25, 2012, the Company’s Board of Directors granted, effective February 1, 2012, 43,600 shares of restricted stock to certain executives under the 2006 Equity Incentive Plan.  The shares vest at a rate of 20% over a five year period beginning on February 1, 2013 and on each February 1 thereafter.  Upon the death, retirement or permanent disability of the executive or a change of control of the Company, any remaining unvested shares will vest immediately.

 

As defined in the 2006 Incentive Plan, as amended, fair value of the shares is measured by the price of the last sale of a share of the Company’s common stock on the OTC Markets Group occuring prior to the grant of the applicable award or, if inapplicable, the fair market value as determined in good faith by the Board.  In addition, to the extent the share-recipients are not entitled to dividends until the shares vest, the grant date fair value of the award is reduced by the present value of the dividends expected to be paid on the underlying shares during the service period, discounted at the appropriate risk-free interest rate.

 

Earnings Per Common Share

Basic earnings per common share represent income available to common stockholders divided by the weighted-average number of common shares outstanding during the period.  Diluted earnings per common share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued.  Potential common shares that may be issued by the Company relate to outstanding stock options and are determined using the treasury stock method. 

Comprehensive Income

Accounting principles generally require that recognized revenue and expenses, and realized gains and losses, be included in net income.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available‑for‑sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.  These items are also reflected in the Statements of Comprehensive Income.

Business Segments

The Company currently reports its activities as a single business segment.  In determining appropriate segment definition and reporting, the Company considers components of the business about which financial information relating to performance and resource allocation is available and regularly evaluated by management.  Management determines components for which it will implement performance and resource measurement procedures based upon criteria of relative importance and materiality to the organization.

Reclassifications

Certain reclassifications have been made to prior year financial statements to conform them to the current year presentation.

Recent Accounting Pronouncements 

The following is a summary of recent authoritative pronouncements:

In January 2013, the FASB amended the Balance Sheet topic of the ASC to address implementation issues about the scope of ASU No. 2011-11 related to disclosures about offsetting assets and liabilities. The amendments clarify that the ASU only applies to certain derivatives accounted for in accordance the Derivatives and Hedging topic of the ASC, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset or subject to an enforceable master netting arrangement or similar agreement.  The amendments are effective for reporting periods beginning on or after January 1, 2013.  The Company does not expect these amendments to have a material effect on its financial statements.

 

The FASB amended the Comprehensive Income topic of the ASC in February 2013.  The amendments addresses reporting of amounts reclassified out of accumulated other comprehensive income.  Specifically, the amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements.  However, the amendments do require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component.  In addition, in certain circumstances an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income.  The amendments are effective for the Company on a prospective basis for reporting periods beginning after December 15, 2012.   Early adoption is permitted.  The Company does not expect these amendments to have a material effect on its financial statements.

 

Other accounting standards that have been issued or proposed by the FASB or other standards‑setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

Subsequent Events

In accordance with accounting guidance, the Company evaluated events and transactions for potential recognition or disclosure in our financial statements through the date the financial statements were issued.


Principles Of Consolidation And Basis Of Presentation (Policy)
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Principles Of Consolidation And Basis Of Presentation (Policy)
12 Months Ended
Dec. 31, 2012
Principles Of Consolidation And Basis Of Presentation [Abstract]  
Principles of Consolidation

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Heritage Bankshares, Inc. and its wholly‑owned subsidiary, Heritage Bank. All significant intercompany balances and transactions have been eliminated in consolidation. 

Use Of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.  Actual results could differ from those estimates.  Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, and the valuation of deferred tax assets.

Significant Group Concentrations Of Credit Risk

Significant Group Concentrations of Credit Risk

The Company invests in a variety of securities, principally obligations of the United States, U.S. government sponsored enterprises, mortgage‑backed securities and obligations of states and political subdivisions.  Note 3 presents the Company’s investment activities.  Substantially all of the Company’s lending activities are with customers located in southeastern Virginia.  Note 4 presents the Company’s lending activities.  The Company does not have any significant concentrations of loans in any one industry or customer. 

Cash And Cash Equivalents

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold and overnight investments with Federal Home Loan Bank.

Certificates Of Deposit In Other Banks

Certificates of Deposit in Other Banks

The Company occasionally invests in certificates of deposit at other financial institutions with original maturity dates up to ten years.

Investment Securities

Investment Securities

Investment securities are classified in three categories and accounted for as follows:

·

Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held‑to‑maturity securities and reported at amortized cost.

·

Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings.

·

Debt and equity securities not classified as either held-to-maturity or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported as other comprehensive income, a separate component of stockholders’ equity.

Gains and losses on sales of securities are computed based on specific identification of the adjusted cost of each security and included in other income.  Amortization of premiums and accretion of discounts are computed by the effective yield method and recognized in interest income.

Declines in the fair value of individual held-to-maturity and available‑for‑sale securities below their cost that are other than temporary would result in write‑downs of the individual securities to fair value.  These write-downs would be included in the Company’s calculation of earnings as realized losses.

Loans

Loans

Loans are reported at their principal outstanding balance, net of charge-offs, deferred loan fees and costs on originated loans, unearned income, and unamortized premiums or discounts, if any, on purchased loans.  Interest income is generally recognized when income is earned using the interest method.  Loan origination fees and certain direct loan origination costs are deferred and the net amounts are amortized as an adjustment to yield on the respective loans.

Loans Held For Sale

Loans Held For Sale

Mortgage loans originated and intended for sale in the secondary market, if any, are carried at cost.  Loans held for sale are pre-committed to secondary market investors and, subsequent to being closed, are held for short holding periods pending receipt of loan documents.

Allowance For Loan Losses

Allowance For Loan Losses

The Bank maintains an allowance for loan losses at a level which, in management’s judgment, is adequate to absorb estimated credit losses on existing loans.  The amount of the allowance is affected by:  (1) loan charge‑offs, which decrease the allowance, (2) recoveries on loans previously charged‑off, which increase the allowance, and (3) the provision for loan losses charged to income, which increases the allowance.

The Bank analyzes its loan portfolio through ongoing credit review processes and constructs a comprehensive allowance analysis for its loan portfolio at least quarterly.  This analysis includes two basic elements:  (1) specific allowances for individual loans, and (2) general allowances for loan portfolio segments, which factor in historical loan loss experience and delinquency rates for the Bank and the banking industry and numerous other environmental factors.

The Bank evaluates various loans individually for impairment based on guidance for receivables.  An evaluation is based upon either discounted cash flows or collateral evaluations.  If the evaluation shows that a particular loan is impaired, then a specific reserve is established, or a charge-off is made, for the amount of any impairment.

For loans without an individual measure of impairment, the Bank makes estimates of losses for groups of loans as provided by guidance for contingencies.  As part of the loan loss reserve methodology, loans are placed into one of four major categories or segments of loans:  (1) commercial and industrial loans, (2) consumer loans, (3) 1-4 family residential loans (including home equity loans and lines), and (4) multi‑family and other commercial real estate loans.

The Bank then considers the impact of various bank, industry, economic and other environmental factors and documents which factors are used in the analysis.

The Bank’s allowance for loan losses is divided into four distinct portions:  (1) Historical – an amount based on the Bank’s actual net charge‑offs; (2) Impaired Loans – an amount for specific allocations on significant individual credits as prescribed by generally accepted accounting principles related to receivables; (3) Loan Segments – an amount to adjust the historical allocation for the four loan segments based on environmental factors as provided by guidance on contingencies; and (4) Unallocated – an amount to reflect the imprecision inherent in these calculations.

Income Recognition On Nonaccrual Loans

Income Recognition on Nonaccrual Loans

Loans are generally classified as nonaccrual if they are past due as to maturity or payment of principal or interest for a period of more than 90 days, unless such loans are well-secured and in the process of collection.  If a loan or a portion of a loan is classified as doubtful, or is partially charged off, the loan is generally classified as nonaccrual.  Loans that are on a current payment status or past due less than 90 days may also be classified as nonaccrual if repayment in full of principal and/or interest is in doubt.

Loans may be returned to accrual status when all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment within an acceptable period of time and there is a sustained period of repayment performance by the borrower.  

While a loan is classified as nonaccrual, and the future collectibility of the recorded loan balance is doubtful, collections of interest and principal are generally applied as a reduction to principal outstanding.  When the future collectibility of the recorded loan balance is expected, interest income may be recognized on a cash basis. 

Other Real Estate Owned

Other Real Estate Owned

Other real estate owned is comprised of real estate acquired through foreclosure, acceptance of a deed in lieu of foreclosure or loans in which the Company receives physical possession of the debtor’s real estate or change of management’s intent towards its own property.  Other real estate owned is carried at the lower of the recorded investment in the loan or the fair value of the real estate.  Net operating income of such properties, exclusive of depreciation, is included in other income and related depreciation expense is included in other expense.

Restructured Loans

Restructured Loans

Loans are considered troubled debt restructurings if, for economic or legal reasons, a concession has been granted to the borrower related to the borrower’s financial difficulties that the Company would not have otherwise considered.  The Company restructures certain loans in instances where a determination is made that greater economic value will be realized under new terms rather than through foreclosure, liquidation or other disposition.  The terms of the renegotiation generally involve some or all of the following characteristics:  a reduction in the interest pay rate to reflect actual operating income, an extension of the loan maturity date to allow time for stabilization of operating income, and/or partial forgiveness of principal and interest.

The carrying value of a restructured loan is reduced by the fair value of assets or equity interest received from the borrower, if any.  The Company generally continues to classify restructured nonaccrual loans as nonaccrual until such time as the loans demonstrate performance.  The accrual of interest resumes when such loans can demonstrate performance, generally evidenced by six months of pre- or post-restructuring payment performance in accordance with the restructured terms, or by the presence of other significant factors.  In addition, at the time of restructuring, loans are classified as impaired.

Off Balance Sheet Credit Related Financial Instruments

Off Balance Sheet Credit Related Financial Instruments

In the ordinary course of business, the Company enters into commitments to extend credit and issue standby letters of credit.  Such financial instruments are recorded when they are funded.

Sale Of Loans

Sale of Loans

Transfers of loans are accounted for as sales when control over the loans has been surrendered.  Control over transferred loans is deemed to be surrendered when (1) the loans have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred loans, and (3) the Company does not maintain effective control over the transferred loans through an agreement to repurchase them before their maturity.  In addition, participated loans sold by the Bank with disproportionate cash flows to the buyer are considered to be incomplete transfers because risk is not proportionate.  Generally accepted accounting principles require that this type of participation be classified as a borrowing with the entire loan balance reported in loans held for investment and not reduced for the participation.

Premises And Equipment

Premises and Equipment

Land is carried at cost.  Buildings, leasehold improvements and equipment are carried at cost, less accumulated depreciation computed on the straight-line method over the estimated useful lives of the assets, ranging from 2 years to 40 years.

Federal Reserve Bank Stock And Federal Home Loan Bank Stock

Federal Reserve Bank Stock and Federal Home Loan Bank Stock

As a member of the Federal Reserve Bank, the Company is required to hold shares of FRB capital stock, $100 par value, in an amount equal to 6% of the Bank’s total common stock and capital surplus.

As a member of the Federal Home Loan Bank of Atlanta, the Company is required to hold shares of capital stock in the FHLB in an amount equal to 0.15% of total assets plus 4.50% of borrowings from the FHLB.  The Bank, as a member institution, is required to own certain stock investments in the Federal Home Loan Bank of Atlanta and the Federal Reserve Bank.  Additional stock at FHLB must be purchased as a percentage of borrowings and is generally pledged against these borrowings.  No ready market exists for the FHLB stock and it has no quoted market value.  However, redemption of this stock has historically been at par value. 

Income Taxes

Income Taxes

The Company files a consolidated tax return.  Provisions for income taxes reflect tax expense incurred as a consolidated group.  Tax expense is allocated among the members of the consolidated group in accordance with an intercompany agreement for tax expense.  Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of investment securities, deferred loan fees, allowance for loan losses, allowance for losses on foreclosed real estate, premises and equipment and deferred compensation for financial and income tax reporting.  The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled.  An allowance is provided if it is more likely than not that the Company will not realize the benefits of a deferred tax asset.  Through December 31, 2012, no valuation allowance has been provided against the Company’s deferred tax asset.

The Company analyzes tax positions taken or expected to be taken on its tax returns to determine if it has any liability related to uncertain tax positions in accordance with guidance on income taxes.  Liabilities, if any, resulting from this evaluation are recorded in the current period.

Deferred Compensation Plans

Deferred Compensation Plans

The Company maintains deferred compensation agreements with certain current and former directors and the beneficiary of its former chief executive officer, as well as a Supplemental Executive Retirement Plan with its current Chief Executive Officer.  The Company’s policy is to accrue the present value of estimated amounts to be paid under the contracts over the required service period to the date the participant is fully eligible to receive the benefits.  At December 31, 2012, the discount rate the Company utilized to determine the deferred compensation liability under such plans was determined by computing the average of the last three year‑end periods’ AA corporate bond yield, whose approximate maturity corresponded to the approximate time remaining to pay out the expected benefits for each participant.

Bank-Owned Life Insurance

Bank-Owned Life Insurance

The Company has purchased life insurance policies on certain current and former employees and directors.  Company-owned life insurance is recorded at its cash surrender value, or the amount that can be realized.

Stock Compensation Plans

Stock Compensation Plans

At December 31, 2012, the Company has one stock‑based compensation plan, the Heritage 2006 Equity Incentive Plan, as amended and restated effective January 28, 2009, and as subsequently amended in 2012 (the “2006 Incentive Plan”).  The Company has adopted accounting guidance related to share‑based payments, which requires that the fair value of equity instruments, such as stock options, be recognized as an expense in the issuing entity’s financial statements as services are performed.

On January 25, 2012, the Company’s Board of Directors granted, effective February 1, 2012, 43,600 shares of restricted stock to certain executives under the 2006 Equity Incentive Plan.  The shares vest at a rate of 20% over a five year period beginning on February 1, 2013 and on each February 1 thereafter.  Upon the death, retirement or permanent disability of the executive or a change of control of the Company, any remaining unvested shares will vest immediately.

 

As defined in the 2006 Incentive Plan, as amended, fair value of the shares is measured by the price of the last sale of a share of the Company’s common stock on the OTC Markets Group occuring prior to the grant of the applicable award or, if inapplicable, the fair market value as determined in good faith by the Board.  In addition, to the extent the share-recipients are not entitled to dividends until the shares vest, the grant date fair value of the award is reduced by the present value of the dividends expected to be paid on the underlying shares during the service period, discounted at the appropriate risk-free interest rate.

Earnings Per Common Share

Earnings Per Common Share

Basic earnings per common share represent income available to common stockholders divided by the weighted-average number of common shares outstanding during the period.  Diluted earnings per common share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued.  Potential common shares that may be issued by the Company relate to outstanding stock options and are determined using the treasury stock method. 

Comprehensive Income

Comprehensive Income

Accounting principles generally require that recognized revenue and expenses, and realized gains and losses, be included in net income.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available‑for‑sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.  These items are also reflected in the Statements of Comprehensive Income.

Business Segments

Business Segments

The Company currently reports its activities as a single business segment.  In determining appropriate segment definition and reporting, the Company considers components of the business about which financial information relating to performance and resource allocation is available and regularly evaluated by management.  Management determines components for which it will implement performance and resource measurement procedures based upon criteria of relative importance and materiality to the organization.

Reclassifications

Reclassifications

Certain reclassifications have been made to prior year financial statements to conform them to the current year presentation.

Subsequent Events

Subsequent Events

In accordance with accounting guidance, the Company evaluated events and transactions for potential recognition or disclosure in our financial statements through the date the financial statements were issued.


Summary Of Significant Accounting Policies (Narrative) (Details)
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Summary Of Significant Accounting Policies (Narrative) (Details) (USD $)
12 Months Ended
Dec. 31, 2012
FRB Stock, par value $ 100
FRB, Stock purchase requirement, percentage of company's common stock 6.00%
FHLB, Asset-based stock purchase requirement, percentage 0.15%
FHLB, Activity-based stock purchase requirement, percentage 4.50%
Minimum [Member]
 
Estimated useful life, premises and equipment 2 years
Maximum [Member]
 
Estimated useful life, premises and equipment 40 years

Summary Of Significant Accounting Policies (Narrative II) (Details)
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Summary Of Significant Accounting Policies (Narrative II) (Details)
12 Months Ended
Dec. 31, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Shares, Granted 43,600
Vesting rate 20.00%
Vesting period 5 years
Restricted Stock [Member]
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Shares, Granted 43,600
Vesting rate 20.00%
Vesting period 5 years

Restrictions On Cash And Due From Banks
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Restrictions On Cash And Due From Banks
12 Months Ended
Dec. 31, 2012
Restrictions On Cash And Due From Banks [Abstract]  
Restrictions On Cash And Due From Banks

NOTE 2 – RESTRICTIONS ON CASH AND DUE FROM BANKS

The Bank is required to maintain average balances on hand or with the Federal Reserve Bank.  At December 31, 2012 and 2011, these required reserve balances amounted to $0 and $4,018,000, respectively.


Restrictions On Cash And Due From Banks (Details)
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Restrictions On Cash And Due From Banks (Details) (USD $)
Dec. 31, 2012
Dec. 31, 2011
Restrictions On Cash And Due From Banks [Abstract]    
Required reserves $ 0 $ 4,018,000

Securities
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Securities
12 Months Ended
Dec. 31, 2012
Securities [Abstract]  
Securities

NOTE 3 - SECURITIES

 

The tables below present amortized cost, unrealized gains and losses, and fair value of the Company’s investments in securities available for sale at December 31, 2012 and December 31, 2011. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Securities Available for Sale

 

 

 

 

 

 

 

 

 

 

 

U.S Treasury notes

$

2,002 

 

$

23 

 

$

 -

 

$

2,025 

U.S. government sponsored enterprises

 

18,996 

 

 

141 

 

 

 -

 

 

19,137 

Total securities available for sale

$

20,998 

 

$

164 

 

$

 -

 

$

21,162 

Total securities (1)

$

20,998 

 

$

164 

 

$

 -

 

$

21,162 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Securities Available for Sale

 

 

 

 

 

 

 

 

 

 

 

U.S Treasury Notes

$

2,004 

 

$

39 

 

$

 -

 

$

2,043 

U.S. government sponsored enterprises

 

34,000 

 

 

188 

 

 

 -

 

 

34,188 

Mortgage-backed securities

 

8,637 

 

 

442 

 

 

 -

 

 

9,079 

Total securities available for sale

$

44,641 

 

$

669 

 

$

 -

 

$

45,310 

Total securities (1)

$

44,641 

 

$

669 

 

$

 -

 

$

45,310 

 

 

 

 

(1) At December 31, 2012 and December 31, 2011, the Company held no securities classified as held to maturity.

Investment securities having an amortized cost of $10,000,000 and $9,000,000 at December 31, 2012 and 2011, respectively, were made available for retail repurchase agreements.  The estimated fair values of these securities were $10,105,000 and $9,078,000 at December 31, 2012 and 2011, respectively.

 

There were no investment securities with unrealized losses at either December 31, 2012 or December 31, 2011.  Current year unrealized losses on investment securities, if any, are a result of changes in interest rates during the periods.  Unrealized losses on investment securities, if any, are considered by management to be temporary given the credit ratings on these investment securities and the short duration of any unrealized loss due to credit quality.

 

The amortized cost and fair value of investment securities at December 31, 2012, by contractual maturity, are reflected below.  Actual maturities will differ from contractual maturities because some securities may be called or prepaid prior to their contractual maturity.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities Available for Sale

 

Amortized Cost

 

Fair Value

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

Due in one year or less

$

 -

 

$

 -

Due after one year through five years

 

2,002 

 

 

2,025 

Due after five years through ten years

 

18,996 

 

 

19,137 

Due after ten years

 

 -

 

 

 -

Total

$

20,998 

 

$

21,162 

 

Gross proceeds from sales of securities available for sale were $14,696,000 for 2012 and $6,005,000 for 2011.  Gross realized gains associated with these sales were $284,000 for 2012 and $87,000 for 2011, respectively.  There were no gross losses associated with the sale of securities available for sale during either 2012 or 2011.  There were no unrealized losses on investment securities at December 31, 2012 or 2011.  Gains and losses on the sale of investment securities are recorded as of the trade date and are determined using the specific identification method.