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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

The non-accretable discount decreased to $46.0 million at the end of the fourth quarter of 2012 from $54.2 million on a linked-quarter basis, primarily driven by the clearing of $4.2 million of discount in conjunction with the resolution of FDIC-assisted loans and transfers to accretable discount of $4.0 million. The accretable discount decreased to $21.8 million for the fourth quarter of 2012 from $24.4 million on a linked-quarter basis, primarily due to loan discount accretion of $6.6 million for the current quarter, which compares with $4.8 million on a linked-quarter basis partially offset by the transfer from the non-accretable discount as a result of the improvement in cash flows.

Asset Quality

Annualized net charge-offs to average outstanding loans, excluding loans acquired in FDIC-assisted acquisitions, were 0.05% for the fourth quarter of 2012 compared with 0.24% for the linked-quarter and in line with the 0.04% experienced for the fourth quarter of 2011. Total non-performing assets, excluding assets acquired in FDIC-assisted acquisitions, decreased to $17.3 million or 1.58% of total assets compared with $17.8 million or 1.68% of total assets for the linked-quarter, but increased from $10.4 million or 0.95% of total assets from 2011. Non-performing loans totaled $14.7 million, down from $16.4 million for the linked-quarter, but up from $7.0 million for 2011.

The primary reason for the increase in non-performing assets from 2011 was the migration of two relationships totaling $6.0 million to non-performing status during the third quarter of 2012. One of the relationships totaling $3.5 million was classified a troubled-debt restructuring and additional collateral of $6.1 million has been secured. The other relationship was a Chapter 11 bankruptcy where the collateral deficiency is fully reserved as of the current quarter. Both of these relationships were previously identified as criticized assets. Other real estate owned and repossessed assets, excluding assets acquired in FDIC-assisted acquisitions, totaled $2.7 million for the fourth quarter of 2012, up from $1.4 million for the linked-quarter, but down from $2.9 million for 2011.

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