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Heritage Financial Group, Inc. Reports Third Quarter Net Income Of $1.3 Million Or $0.18 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 $53.8 million in covered and $69.7 million in non-covered loans at the end of the third quarter of 2013 compared with $78.8 million in covered and $14.3 million in non-covered loans for the year-earlier quarter. The outstanding principal balance of the FDIC-acquired loan portfolios totaled $195.5 million at the end of the third quarter of 2013 compared with $171.6 million for the year-earlier quarter. The details of the accounting for the FDIC-acquired loan portfolios for the third quarter of 2013 are as follows:

  • Covered FDIC-acquired loans decreased $3.3 million from the linked quarter to $53.8 million;
  • Non-covered FDIC-acquired loans decreased $5.0 million to $69.7 million;
  • The FDIC loss-share receivable associated with covered assets acquired in FDIC-assisted acquisitions decreased $3.6 million to $44.5 million;
  • The negative accretion for the FDIC loss-share receivable was $1.5 million and the FDIC loss-share clawback accrual increased to $1.7 million;
  • No provision expense was recorded for FDIC-acquired loans;
  • Loan discount accretion recognized in interest income declined $2.4 million;
  • The non-accretable discount decreased $6.6 million to $48.5 million; and
  • The accretable discount increased $438,000 to $23.4 million.

For the third quarter of 2013, loan discount accretion recognized in interest income declined 39% to $3.7 million from $6.1 million for the linked quarter and declined 23% from $4.8 million for the year-earlier quarter. The FDIC loss-share receivable associated with covered FDIC-acquired assets decreased 7% to $44.5 million from $48.1 million for the linked quarter and declined 34% from $67.7 million for the year-earlier quarter. The reduction in the FDIC loss-share receivable for the linked quarter was primarily driven by negative accretion of $1.5 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 $286,000, which increased the total accrual to $1.7 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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