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Heritage Financial Group, Inc. 2012 Net Income Up 77% Versus 2011, Increasing To $6.8 Million Or $0.85 Per Diluted Share

In the fourth quarter of 2012, the Company continued to achieve loan growth, with its loan portfolio increasing $43.8 million organically on a linked-quarter basis and advancing $151.3 million overall compared with the year-earlier quarter. For the fourth quarter of 2012, the Company's loan portfolio, including loans acquired through FDIC-assisted acquisitions, totaled $670.0 million, which increased $35.1 million on a linked-quarter basis. Total deposits stood at $869.6 million at the end of the fourth quarter of 2012, up 3% or $24.5 million on a linked-quarter basis from $845.1 million, but down from $884.2 million compared with the year-earlier quarter. The linked-quarter increase in deposits was primarily driven by core deposit growth of $15.2 million and wholesale deposit growth of $22.8 million offset in part by $13.5 million in planned runoff of retail time deposits.

Non-interest income for the fourth quarter of 2012 decreased 9% to $2.9 million from $3.2 million in the year-earlier quarter, primarily driven by a negative swing in the accretion for the FDIC loss-share receivable of $2.7 million, which was partially offset by an increased gain on sale of securities of $1.3 million and improvements in mortgage banking fees of $685,000, brokerage fees of $165,000, and bankcard services income of $103,000. Non-interest expense for the fourth quarter of 2012 increased 15% to $12.1 million from $10.5 million in the year-earlier quarter, primarily driven by increased foreclosure expense on FDIC-acquired assets of $457,000, increased salaries and employment benefits of $410,000, increased foreclosure expense, excluding FDIC-acquired assets, of $332,000, and loss on sale and write-downs of other real estate assets, excluding FDIC-acquired, of $307,000.

Accounting for FDIC-Assisted Loans

The Company performs ongoing assessments of the estimated cash flows of its acquired FDIC-assisted loan portfolios. The fair value of the FDIC-assisted loan portfolios consisted of $72.4 million in covered and $11.9 million in non-covered loans at the end of the fourth quarter of 2012 compared with $78.8 million in covered and $14.3 million in non-covered loans at the end of the third quarter of 2012. The principal balance of the FDIC-assisted loan portfolios totaled $152.1 million at the end of the fourth quarter of 2012 compared with $171.6 million as of the end of the third quarter of 2012. The details of the accounting for the FDIC-assisted loan portfolios for the fourth quarter of 2012 are as follows:
  • Covered loans acquired in FDIC-assisted acquisitions decreased $6.3 million to $72.4 million;
  • Non-covered loans acquired in FDIC-assisted acquisitions decreased $2.4 million to $11.9 million;
  • The FDIC loss-share receivable associated with covered loans acquired in FDIC-assisted acquisitions decreased $7.0 million to $60.7 million;
  • The negative accretion for the FDIC loss-share receivable was $2.8 million;
  • Provision expense for individually assessed loans acquired in FDIC-assisted acquisitions was $1.9 million;
  • The non-accretable discount decreased $8.2 million to $46.0 million; and
  • The accretable discount decreased $2.6 million to $21.8 million.

For the fourth quarter of 2012, provision expense of $1.9 million was recorded for loan charge-offs on individually assessed loans acquired in FDIC-assisted acquisitions not provided for by the discount, with approximately 80% of the charge-offs reimbursable by the FDIC. The provision expense for these loans did not affect the Company's loan loss reserve. The FDIC loss-share receivable associated with covered FDIC-assisted loans decreased $7.0 million from $67.7 million for the prior quarter to $60.7 million, primarily driven by reimbursements received from the FDIC of $4.0 million and negative accretion of $2.8 million affecting the loss-share receivable asset associated with the improvement in expected cash flows of the loss-share performing portfolios. A FDIC true-up (claw back) liability was recorded as an expense, which reduced non-interest income for the current quarter by $219,000. This true-up was driven by an improvement in estimates of expected cash flows for both FDIC-assisted acquisitions covered under loss-sharing agreements.

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