Dorminey noted that in May the Bank completed the purchase of five Park Avenue Bank branches in Georgia. Early in the third quarter, the Bank also opened a branch in Valdosta, after attracting a seasoned and locally experienced team of commercial and retail bankers in that market. While the de novo branch in Valdosta added start-up expenses in the third quarter disproportionate to its revenues, it is seen as a strategically attractive addition to the Bank's presence in South Georgia.
Speaking to asset quality, Dorminey commented, "Although we witnessed an uptick in nonperforming loans in the third quarter on a linked-quarter basis, we believe we will not exceed the top reached in the third quarter last year, as we continue to work through and aggressively write-off problem loans. However, we recognize that the risk of deteriorating credit quality remains so long as unemployment remains high and until real estate values stabilize. As a result, credit costs likely will continue at elevated levels for at least the near term."
Concluding, Dorminey added, "Although it was unfortunate that we were required to write-off our intangible asset because of recent legislative action in Congress, which clearly had an adverse effect on our third quarter results, we believe the fundamentals of our operations remain strong. We have expanded our branch footprint considerably over the past year, entering several attractive new markets, and we have built on those new-market entries with follow-on organic growth in both loans and deposits. We continue to absorb new start-up costs associated with this expansion; however, we expect to see growth in these markets, which should enhance our overall future prospects for revenue and earnings growth."
At the end of the third quarter of 2010, Heritage Financial Group's capital levels remained significantly above the levels required to be considered "well-capitalized" under regulatory standards – the highest capital rating category a financial institution can achieve. The Company's total risk-based capital ratio at September 30, 2010, was 14.5%, significantly exceeding the required minimum of 10% to be considered a well-capitalized institution. The ratio of tangible common equity to total tangible assets was 9.0% as of September 30, 2010 (see reconciliation of GAAP and non-GAAP capital measures later in this release).