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Heritage Financial Group, Inc. Reports Higher Third Quarter Net Income Of $2.0 Million Or $0.25 Per Diluted Share

During the third quarter of 2012, the Company repurchased approximately 260,000 shares of common stock at an average price of $13.54, completing its stock repurchase program expiring in December 2012. The Company's Board of Directors has approved another stock repurchase program expiring in October 2013, which authorizes the repurchase of 397,000 shares of common stock, or approximately 5% of the shares currently outstanding.

The Company's estimated total risk-based capital ratio at September 30, 2012, was 19.2%, 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 11.2% as of September 30, 2012.

Looking ahead, the Company intends to maintain its capital strength at the current level to support growth and its acquisition activities. Accordingly, stock buybacks and dividend growth in the future will reflect largely the Company's future earnings power, rather than a return of capital to stockholders.

Third Quarter 2012 Results of Operations

The Company reported net income of $2.0 million or $0.25 per diluted share for the third quarter in 2012 compared with net income of $1.7 million or $0.21 per diluted share for the third quarter in 2011. However, the Company's results for the third quarters of 2012 and 2011 included special items that affect comparability. Results for the third quarter of 2012 included net non-recurring income and expenses of $472,000, net of tax, while the results of the year-earlier quarter included net non-recurring income and expenses of $1.3 million, net of tax. Excluding these special items, the Company's adjusted net income for the third quarter of 2012 was $1.5 million or $0.19 per diluted share compared with net income of $422,000 or $0.05 per diluted share for the third quarter of 2011 (see reconciliation of non-GAAP items).

The $258,000 improvement in reported quarterly earnings primarily resulted from the following items:
  • Improved net interest income of $5.3 million; and
  • Reduced provision expense for loan losses, excluding FDIC-acquired loans, loan losses of $250,000; offset by
  • Reduced non-interest income of $1.5 million;
  • Increased non-interest expense of $2.2 million; and
  • Increased provision expense for FDIC-acquired loan losses of $1.2 million.

Net interest income for the third quarter of 2012 increased 71% to $12.7 million from $7.4 million in the year-earlier quarter, primarily reflecting an increase in interest-earning assets related to both acquisitions and organic growth and a reduction in the cost of interest-bearing deposits. The Company's net interest margin was 5.77% for the third quarter of 2012, an increase of 102 basis points over 4.75% on a linked-quarter basis and 233 basis points over 3.44% in the year-earlier period. The improvement in the third quarter of 2012 net interest margin on a linked-quarter basis was driven by an increase in loan yields on the Company's FDIC-assisted loan portfolios, coupled with a decline in the cost of interest-bearing deposits as rates continue to reset to lower levels.

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