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Heritage Financial Group, Inc. Reports Second Quarter Net Income Of $2.7 Million Or $0.36 Per Diluted Share

Accounting for FDIC-Assisted Acquisitions

The Company performs ongoing assessments of the estimated cash flows of its FDIC-acquired loan portfolios. The fair value of the FDIC-acquired loan portfolios consisted of $57.2 million in covered and $74.6 million in non-covered loans at the end of the second quarter of 2013 compared with $65.8 million in covered and $83.3 million in non-covered loans for the linked quarter. The outstanding principal balance of the FDIC-acquired loan portfolios totaled $210.0 million at the end of the second quarter of 2013 compared with $234.8 million for the linked quarter. The details of the accounting for the FDIC-acquired loan portfolios for the second quarter of 2013 are as follows:

  • Covered FDIC-acquired loans decreased $8.6 million to $57.2 million;
  • Non-covered FDIC-acquired loans decreased $8.7 million to $74.6 million;
  • The FDIC loss-share receivable associated with covered assets acquired in FDIC-assisted acquisitions decreased $3.9 million to $48.1 million;
  • The negative accretion for the FDIC loss-share receivable was $3.4 million and the FDIC loss-share clawback accrual was increased to $1.4 million;
  • Provision expense for individually assessed FDIC-acquired loans was $28,000;
  • The non-accretable discount decreased $4.4 million to $55.2 million; and
  • The accretable discount decreased $3.1 million to $23.0 million.

For the second quarter of 2013, provision expense of $28,000 was recorded for loan charge-offs on individually assessed FDIC-acquired loans 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-acquired assets decreased $3.9 million from $52.0 million for the prior quarter to $48.1 million, primarily driven by negative accretion of $3.4 million affecting the loss-share receivable asset associated with the improvement in expected cash flows of the covered FDIC-acquired performing loan portfolios. An increase to the FDIC clawback liability accrual was recorded as an expense for the current quarter of $124,000, which increased the total accrual to $1.4 million. This clawback was caused by an improvement in estimates of expected cash flows for both FDIC-assisted acquisitions covered under loss-sharing agreements.

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