Heritage Financial Group, Inc. Reports Third Quarter Net Income Of $1.7 Million Or $0.21 Per Diluted Share

"Despite the increase in provision expense for the quarter, we continue to see improvement in the credit quality of our non-FDIC-assisted loan portfolio, as evidenced by the decline in non-performing assets, excluding assets acquired in FDIC-assisted acquisitions," Dorminey continued. "We also are pleased with the progress we are making in our FDIC-acquired portfolios."

Results of Operations

The Company reported net income of $1.7 million or $0.21 per diluted share for the three months ended September 30, 2011, compared with a net loss of $443,000 or $0.05 per diluted share for the three months ended September 30, 2010. This $2.2 million change in earnings was primarily the result of the following items:

• Improved net interest income of $2.3 million due to solid growth in interest-earning assets;
• Improved non-interest income of $3.4 million, reflecting a $2.0 million bargain purchase gain associated with the First Southern FDIC-assisted acquisition, an increase of $492,000 in mortgage origination fees, and a net increase in FDIC loss-share receivable accretion of $448,000; offset by
• Increased provision expense of $50,000, driven by an increase in the charge-offs on the non-FDIC-assisted loan portfolio; and
• Increased non-interest expense of $2.0 million due to increased salaries and employment benefits of $1.9 million driven by the hiring of an additional 107 full-time equivalent employees on top of growth in most other non-interest expense categories, which was partially offset by a one-time, noncash charge of $1.0 million during the 2010 quarter to write-off an intangible asset.

The Company's results for the third quarter ended September 30, 2011, included acquisition-related expenses of $299,000 and an increase in the pre-tax bargain purchase gain of $2.0 million associated with the First Southern acquisition. In the year-earlier quarter, the Company incurred a charge of $1.0 million to write-off an intangible asset related to its 2006 expansion into Florida. Excluding these items, the Company would have reported net income of $568,000 or $0.07 per diluted share for the third quarter of 2011 compared with net income of $448,000 or $0.05 per diluted share in the third quarter of 2010.

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