Document And Entity Information
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Document And Entity Information
6 Months Ended
Jun. 30, 2012
Jul. 31, 2012
Document And Entity Information [Abstract]    
Document type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2012  
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2012  
Entity Registrant Name HERITAGE BANKSHARES INC /VA  
Entity Central Index Key 0000719731  
Current Fiscal Year End Date --12-31  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   2,275,891

Consolidated Balance Sheets
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Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2012
Dec. 31, 2011
ASSETS    
Cash and due from banks $ 5,204 $ 5,335
Interest-bearing deposits in other banks 37,988 8,646
Federal funds sold 25 33
Total cash and cash equivalents 43,217 14,014
Securities available for sale, at fair value 32,349 [1] 45,310 [1]
Loans, net    
Held for investment, net of allowance for loan losses 215,968 213,183
Accrued interest receivable 652 694
Stock in Federal Reserve Bank, at cost 594 591
Stock in Federal Home Loan Bank of Atlanta, at cost 579 834
Premises and equipment, net 10,874 11,029
Other real estate owned 1,666 1,719
Bank owned life insurance 5,604 5,616
Other assets 1,768 1,594
Total assets 313,271 294,584
LIABILITIES AND STOCKHOLDERS' EQUITY    
Noninterest-bearing 104,903 92,839
Interest-bearing 167,459 157,139
Total deposits 272,362 249,978
Federal Home Loan Bank Advances   4,000
Securities sold under agreements to repurchase 1,067 1,502
Other borrowings 624 782
Accrued interest payable 43 83
Other liabilities 2,303 1,802
Total liabilities 276,399 258,147
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 June 30, 2012 and December 31, 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 June 30, 2012 and December 31, 2011, respectively 11,379 11,525
Additional paid-in capital 6,705 6,704
Retained earnings 10,632 9,967
Accumulated other comprehensive income, net 356 441
Total stockholders' equity 36,872 36,437
Total liabilities and stockholders' equity $ 313,271 $ 294,584
[1] At June 30, 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 $)
Jun. 30, 2012
Dec. 31, 2011
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
3 Months Ended 6 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Jun. 30, 2012
Jun. 30, 2011
Interest income        
Interest income and fees on loans $ 2,587 $ 2,856 $ 5,255 $ 5,710
Interest on taxable investment securities 267 173 543 321
Dividends on FRB and FHLB stock 12 12 24 25
Interest on federal funds sold            
Other interest income 14 23 21 50
Total interest income 2,880 3,064 5,843 6,106
Interest expense        
Deposits 223 308 475 614
Borrowings 8 11 17 26
Total interest expense 231 319 492 640
Net interest income 2,649 2,745 5,351 5,466
Provision for loan losses 35 11 35 11
Net interest income after provision for loan losses 2,614 2,734 5,316 5,455
Noninterest income        
Service charges on deposit accounts 61 81 129 173
Late charges and other fees on loans 19 15 66 32
Gain on sale of investment securities   87   87
Income from bank-owned life insurance 52   117  
Other 73 62 154 138
Total noninterest income 205 245 466 430
Noninterest expense        
Compensation 1,072 1,110 2,171 2,193
Data processing 156 143 311 288
Occupancy 224 197 447 389
Furniture and equipment 148 151 286 296
Taxes and licenses 80 81 159 166
Professional fees 79 98 186 217
FDIC assessment 37 21 77 100
Marketing 27 40 53 79
Telephone 32 28 64 60
Loss on sale or impairment of other real estate owned 16 1 53 1
Other 198 230 342 384
Total noninterest expense 2,069 2,100 4,149 4,173
Income before provision for income taxes 750 879 1,633 1,712
Provision for income taxes 209 288 461 561
Net income 541 591 1,172 1,151
Preferred stock dividend and accretion of discount (19) (111) (67) (310)
Net income available to common stockholders $ 522 $ 480 $ 1,105 $ 841
Earnings per common share        
Basic $ 0.23 $ 0.21 $ 0.48 $ 0.36
Diluted $ 0.22 $ 0.21 $ 0.47 $ 0.36
Dividends per share $ 0.06 $ 0.06 $ 0.12 $ 0.12
Weighted average shares outstanding - basic 2,304,529 2,306,348 2,305,174 2,306,925
Effect of dilutive stock options 54,553 9,706 46,896 10,147
Weighted average shares outstanding - diluted 2,359,082 2,316,054 2,352,070 2,317,072

Consolidated Statements Of Cash Flows
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Consolidated Statements Of Cash Flows (USD $)
6 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Cash flows from operating activities:    
Net income $ 1,172,000 $ 1,151,000
Adjustments to reconcile net income to net cash provided by operating activities:    
Provision for loan losses 35,000 11,000
Amortization of loan yield adjustments, net 135,000 172,000
Depreciation, amortization and accretion, net 311,000 306,000
Stock based compensation 52,000 32,000
Deferred compensation 30,000 19,000
Exercise of stock options tax benefit 1,000  
Net (gains) losses on:    
Sale of securities   (87,000)
Sale or impairment of other real estate owned 53,000 1,000
Net gain on bank owned life insurance (117,000)  
Changes in assets/liabilities, net    
Increase in interest receivable and other assets (87,000) (111,000)
Increase in interest payable and other liabilities 441,000 48,000
Net cash provided by operating activities 2,026,000 1,542,000
Cash flows from investing activities:    
Proceeds from maturities and principal repayments of securities available for sale 21,807,000 4,694,000
Purchases of securities available for sale (18,996,000) (16,921,000)
Proceeds from sales of securities available for sale 10,000,000 6,005,391
Net decrease in certificates of deposit   975,000
Net increase in loans held for investment (2,955,000) (574,000)
Purchases of Federal Home Loan Bank stock and Federal Reserve Bank stock (59,000) (5,000)
Redemption of FHLB stock 311,000 438,000
Purchases of premises and equipment (147,000) (90,000)
Purchases of and premiums paid for bank-owned life insurance (12,000) (13,000)
Proceeds from bank owned life insurance 141,000  
Net cash provided by/(used for) investing activities 10,090,000 (5,491,000)
Cash flows from financing activities:    
Proceeds from exercise of stock options 8,000  
Net increase in deposits 22,384,000 11,826,000
Net increase/(decrease) in Federal Home Loan Bank advances (4,000,000)  
Net decrease in securities sold under agreements to repurchase (435,000) (367,000)
Repayments of other borrowings (158,000) (152,000)
Repurchase of preferred stock   (2,606,000)
Repurchase of common stock (368,000) (55,000)
Cash dividends paid (344,000) (522,000)
Net cash provided by financing activities 17,087,000 8,124,000
Increase in cash and cash equivalents 29,203,000 4,175,000
Cash and cash equivalents, beginning of period 14,014,000 16,380,000
Cash and cash equivalents, end of period 43,217,000 20,555,000
Supplemental disclosure:    
Interest paid 532,000 649,000
Income taxes paid $ 463,000 $ 679,000

Consolidated Statements Of Comprehensive Income
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Consolidated Statements Of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2012
Jun. 30, 2011
Jun. 30, 2012
Jun. 30, 2011
Consolidated Statements Of Comprehensive Income [Abstract]        
Net income for period ended June 30 $ 541 $ 591 $ 1,172 $ 1,151
Unrealized holding gains (losses) on securities available for sale 103 (6) (130) (122)
Tax effect on unrealized gains (losses) (35) 2 45 42
Realized gains on sales of available for sale securities   (87)   (87)
Tax effect on realized gains   29   29
Total comprehensive income $ 609 $ 529 $ 1,087 $ 1,013

Principles Of Consolidation And Basis Of Presentation
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Principles Of Consolidation And Basis Of Presentation
6 Months Ended
Jun. 30, 2012
Principles Of Consolidation And Basis Of Presentation [Abstract]  
Principles Of Consolidation And Basis Of Presentation

Note 1 – Principles of Consolidation and Basis of Presentation

The accompanying unaudited 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. 

Heritage Bankshares, Inc. (the “Company”) is a bank holding company incorporated under the laws of the Commonwealth of Virginia in 1983, and the Company serves as the holding company for its wholly-owned subsidiaries.  The Company’s only subsidiary, Heritage Bank (the “Bank”), 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 accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial reporting and with the instructions for Form 10‑Q.  Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.  These unaudited consolidated financial statements should be read in conjunction with and with reference to the audited consolidated financial statements and accompanying footnotes included in the Company’s annual report on Form 10‑K for the year ended December 31, 2011.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

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

The Company believes its critical accounting policies are those that are particularly sensitive in terms of judgments and the extent to which estimates are used, and such policies include (a) the valuation of the allowance for loan losses and the impairment of loans, (b) the impairment of financial investments and other accounts, (c) the deferral of loan fees and direct loan origination costs, and (d) accounting for income taxes.

Allowance for Loan Losses; Impairment of Loans.  The Bank maintains an allowance for loan losses at a level that, 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.  The 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 in accordance with 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 are further 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 guidance for receivables; (3) Loan Segments – an amount to adjust the historical allocation for the four loan segments based on environmental factors as provided by guidance for contingencies; and (4) Unallocated – an amount to reflect the imprecision inherent in these calculations.

Impairment of Financial Investments and Other Accounts.  Impairment of investment securities, other equity investments and other asset accounts results in a write-down that must be included in net income when the fair value of the asset declines below cost and the decline is other-than-temporary.  The fair values of these investments and other assets are subject to change, as they are influenced by market conditions and management decisions.

Deferral of Loan Fees and Direct Loan Origination Costs.  Generally accepted accounting principles relating to accounts receivable require that loan fees and direct loan origination costs be deferred and recognized as an adjustment to the loan’s yield.  While the amount of fees to be deferred is generally apparent in the origination of a loan, the Company utilizes estimates to determine the amount of deferred direct origination costs, especially payroll costs, that are attributable to the loan origination process.  Management’s estimates of the amount of costs associated with successful loan origination activities are reviewed and updated annually.

Accounting for Income Taxes.  The determination of the Company’s effective tax rate requires judgment.  In the ordinary course of business, there are transactions and calculations for which the ultimate tax outcomes are uncertain.  In addition, the Company’s tax returns are subject to audit by various tax authorities.  Although we believe that our estimates are reasonable, there can be no assurance that the final tax outcome will not be materially different than that which is reflected in the income tax provision and accrual.

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

Recent Accounting Pronouncements

There were no authoritative pronouncements that would have a material impact on the Company during the quarter ending June 30, 2012.

 

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.


Principles Of Consolidation And Basis Of Presentation (Policy)
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Principles Of Consolidation And Basis Of Presentation (Policy)
6 Months Ended
Jun. 30, 2012
Principles Of Consolidation And Basis Of Presentation [Abstract]  
Allowance For Loan Losses; Impairment Of Loans

Allowance for Loan Losses; Impairment of Loans.  The Bank maintains an allowance for loan losses at a level that, 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.  The 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 in accordance with 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 are further 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 guidance for receivables; (3) Loan Segments – an amount to adjust the historical allocation for the four loan segments based on environmental factors as provided by guidance for contingencies; and (4) Unallocated – an amount to reflect the imprecision inherent in these calculations.
Impairment Of Financial Investments And Other Accounts
Deferral Of Loan Fees And Direct Loan Origination Costs
Accounting For Income Taxes
Subsequent Events

Share-Based Compensation
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Share-Based Compensation
6 Months Ended
Jun. 30, 2012
Share-Based Compensation [Abstract]  
Share-Based Compensation

Note 2 – Share-Based Compensation

The following table presents a summary of stock option activity for the period of January 1, 2012 through June 30, 2012.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Weighted Average Exercise Price

 

Weighted Average Remaining Term(years)

 

Aggregate Intrinsic Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at January 1, 2012

 235,800

 

 

$

 12.65

 

 

 

 

 

 

Granted

 -

 

 

 

 -

 

 

 

 

 

 

Exercised

(1,000)

 

 

 

(7.50)

 

 

 

 

 

 

Forfeited/expired

 -

 

 

 

 -

 

 

 

 

 

 

Outstanding at June 30, 2012

 234,800

 

 

$

 12.67

 

 

 4.2

 

$

 189

Exercisable at June 30, 2012

 226,400

 

 

$

 12.75

 

 

 4.2

 

$

 176

 

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the quarter and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2012.  The amount changes based on the fair market value of the Company’s common stock, as reflected by stock market prices.  The Company’s current policy is to issue new shares of common stock to satisfy option exercises.  The aggregate intrinsic value of options exercised during the six months ended June 30, 2012 was $3,700.  Cash received from exercises of options during the first six months of 2012 was $7,500.  There were no options exercised during the six months ended June 30, 2011.

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 Heritage 2006 Equity Incentive Plan, as amended (“2006 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 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, fair value of the shares was measured by the closing price of a share of the Company’s common stock on the OTC Bulletin Board on the grant date of the applicable award or, if the Company’s shares were not traded on the grant-date, then the closing price of a share of common stock on the OTC Bulletin Board on the next preceding date on which a trade occurred.  In addition, because the share-recipients are not entitled to dividends until the shares vest, the grant date fair value of the award was 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.

 

The following table presents a summary of restricted stock award activity for the period of January 1, 2012 to June 30, 2012.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

 

Fair Value at Grant Date

 

 

 

 

 

 

Outstanding at January 1, 2012

 -

 

 

 

 -

Granted

 43,600

 

 

$

 11.28

Vested

 -

 

 

 

 -

Forfeited/expired

 -

 

 

 

 -

Outstanding at June 30, 2012

 43,600

 

 

$

 11.28

 

The amount charged against income, before income tax benefit of $13,935, in relation to stock‑based payment arrangements was $51,493 for the six months ended June 30, 2012.  The amount charged against income, before income tax benefit of $1,244, in relation to stock‑based payment arrangements was $31,839 for the six months ended June 30, 2011.  At June 30, 2012, unrecognized compensation expense, net of estimated forfeitures, related to unvested stock option and restricted stock grants was $463,445 and is currently expected to be recognized over a weighted average period of 2.3 years as follows:

 

 

 

 

 

 

 


Share-Based Compensation (Tables)
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Share-Based Compensation (Tables)
6 Months Ended
Jun. 30, 2012
Share-Based Compensation [Abstract]  
Summary Of Stock Option Activity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Weighted Average Exercise Price

 

Weighted Average Remaining Term(years)

 

Aggregate Intrinsic Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at January 1, 2012

 235,800

 

 

$

 12.65

 

 

 

 

 

 

Granted

 -

 

 

 

 -

 

 

 

 

 

 

Exercised

(1,000)

 

 

 

(7.50)

 

 

 

 

 

 

Forfeited/expired

 -

 

 

 

 -

 

 

 

 

 

 

Outstanding at June 30, 2012

 234,800

 

 

$

 12.67

 

 

 4.2

 

$

 189

Exercisable at June 30, 2012

 226,400

 

 

$

 12.75

 

 

 4.2

 

$

 176

Summary Of Restricted Stock Award Activity

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

 

Fair Value at Grant Date

 

 

 

 

 

 

Outstanding at January 1, 2012

 -

 

 

 

 -

Granted

 43,600

 

 

$

 11.28

Vested

 -

 

 

 

 -

Forfeited/expired

 -

 

 

 

 -

Outstanding at June 30, 2012

 43,600

 

 

$

 11.28

Schedule Of Stock-Based Compensation Expense

Share-Based Compensation (Narrative) (Details)
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Share-Based Compensation (Narrative) (Details) (USD $)
0 Months Ended 6 Months Ended
Jan. 25, 2012
Jun. 30, 2012
Jun. 30, 2011
Share-Based Compensation [Abstract]      
Aggregate intrinsic value of options exercised   $ 3,700  
Cash received from exercises of options   7,500  
Shares of restricted stock granted 43,600 43,600  
Vesting rate 20.00%    
Vesting period 5 years    
Income tax benefit   13,935 1,244
Amount charged against income in relation to stock-based payment arrangements   51,493 31,839
Unrecognized compensation expense   $ 463,445  
Unrecognized compensation expense, expected recognition period   2 years 3 months 18 days