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

Heritage Financial Group, Inc. (NASDAQ: HBOS), the holding company for HeritageBank of the South, today announced unaudited financial results for the quarter ended September 30, 2012. Highlights of the Company's results for the third quarter of 2012 include:
  • Net income of $2.0 million or $0.25 per diluted share, up 15% from net income of $1.7 million or $0.21 per diluted share for the third quarter of 2011 and up 47% from $1.4 million or $0.17 per diluted share for the second quarter of 2012;
  • Excluding special items for each quarter, net income was $1.5 million or $0.19 per diluted share for 2012 versus net income of $422,000 or $0.05 per diluted share for 2011 and $1.4 million or $0.17 per diluted share from the second quarter of 2012 (see reconciliation of non-GAAP items);
  • The completion of a previously announced early retirement program, which added $641,000 in additional expense for the quarter, but which is expected to save approximately $700,000 annually beginning in 2013;
  • Loan growth for the quarter, excluding loans acquired through FDIC-assisted acquisitions, of $39.5 million or 8%;
  • A decrease in loans acquired through FDIC-assisted acquisitions of $9.5 million or 9% for the quarter;
  • A decrease in provision for loan losses, excluding FDIC-acquired loans, of $250,000 to $750,000 for the third quarter of 2012 compared with $1.0 million for the same quarter for 2011 and $750,000 for the second quarter of 2012;
  • Provision for loan losses of $1.2 million for FDIC-acquired loans with approximately 80% of the losses reimbursable by the FDIC compared with no provision expense on such loans for the third quarter of 2011 and $341,000 for the second quarter of 2012;
  • A decrease in annualized net charge-offs to 0.24% for the third quarter of 2012 compared with 0.73% for the third quarter of 2011 and 0.23% for the second quarter of 2012; and
  • Elected fair value accounting for mortgage loans held for sale for the third quarter resulting in an overall positive impact to earnings of $492,000.

Commenting on the results, Leonard Dorminey, President and Chief Executive Officer, said, "We are pleased to report another quarter of significant organic loan growth, continued improvement in core earnings, and ongoing acquisition and expansion activities. Regarding expansion activity, we were pleased to announce the addition of a new management team to our mortgage division. We expect this team to lead significant growth in our mortgage business, particularly in the Atlanta, Georgia market. We also opened a full-service banking office in Macon, Georgia, during the quarter, which will enhance the success of our mortgage and commercial banking operations in that market."

Dorminey added, "In addition to our efforts to increase revenues, we are concurrently working on expense management initiatives. During the quarter, we completed an early retirement program that will generate annual savings of approximately $700,000. We also continue to take steps to efficiently manage our capital. During the quarter, we completed our stock buyback plan adopted in December 2011. Concurrently, we are announcing a new 5% buyback plan along with a shelf stock offering of $60 million. These two plans will allow us to efficiently manage our capital levels at our current size, while also providing us with the tools we need to take advantage of acquisition and internal growth opportunities that may arise."

Expense Management Initiatives

During the third quarter of 2012, the Company completed the early retirement program announced during the second quarter of 2012 regarding certain employees at a cost of $641,000. It is anticipated that the early retirement program will generate annual savings of approximately $700,000 per year beginning in 2013.

Additionally, the Company is still on track to close its Collins, Georgia and Guyton, Georgia branches that it acquired in FDIC-assisted acquisitions. Combined, these branches have loans of approximately $5 million and deposits of $13 million. The Company expects that it will not experience a material reduction in customer relationships in these areas and will seek to service these customers from nearby branches. The Company expects these branches to close in the fourth quarter of 2012, subject to customary regulatory conditions, and anticipates expense savings of approximately $500,000 per year related to these closures.

Capital Management Initiatives

The Company announced that it will file a shelf offering on Form S-3 with the Securities and Exchange Commission (SEC). Under the shelf registration statement, once declared effective by the SEC, the Company may offer and sell from time to time in the future, in one or more offerings, common stock, preferred stock, debt securities, warrants, depository shares, or units consisting of any combination of the forgoing.

The aggregate offering price of all securities that may be sold under the registration statement will not exceed $60 million. This shelf offering will give the Company flexibility to take advantage of acquisition opportunities that may arise in the future by accessing the capital markets on a timely and cost-effective basis. The specifics of any future offering, along with the prices and terms of any such securities offered by the Company, will be determined at the time of any such offering and will be described in detail in a prospectus supplement filed in connection with such offering. At this present time, the Company has no specific plans for an offering.

"Although we do not have any current plans to raise capital, we believe that the shelf registration statement will provide a benefit to the Company and our stockholders by enabling us to take advantage of favorable market conditions in capital raising transactions and to facilitate and expedite opportunistic acquisition and growth activities," said T. Heath Fountain, Executive Vice President and Chief Financial Officer. "The dollar amounts set forth are the amounts that we currently anticipate will be adequate to meet our needs under this registration statement over the next two years. We may use less, and we may continue to issue other shares of common stock pursuant to available registration exemptions or other registration statements. Any draw-down under the registration statement will only be done with the advance approval of our Board of Directors."

The shelf registration statement relating to these securities will be filed with the SEC, but will not become effective until the SEC declares the statement so. These securities may not be sold nor may offers to buy be accepted prior to the time the shelf registration statement becomes effective. This press release does not constitute an offer to sell or the solicitation of an offer to buy the securities, nor shall there be any sale of the securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state or jurisdiction. Any offering of the securities covered by the shelf registration statement will only be by means of a prospectus and an accompanying prospectus supplement.

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.

In the third quarter of 2012, the Company continued to achieve loan growth, with its loan portfolio increasing $39.5 million organically on a linked-quarter basis and advancing $121.9 million overall compared with the year-earlier quarter. For the third quarter of 2012, the Company's loan portfolio, including loans acquired through FDIC-assisted acquisitions, totaled $634.9 million, which increased $29.9 million on a linked-quarter basis. Total deposits stood at $845.1 million at the end of the third quarter of 2012, down 2% or $15.2 million on a linked-quarter basis from $860.3 million, primarily reflecting a planned runoff of time deposits.

Non-interest income for the third quarter of 2012 decreased 26% to $4.4 million from $5.9 million in the year-earlier quarter, primarily driven by a negative swing in the accretion for the FDIC loss-share receivable of $2.1 million and a negative change in gain on acquisitions of $2.1 million, which were partially offset by an increased gain on sale of securities of $1.3 million and improvements in mortgage banking fees of $1.0 million and bankcard services income of $98,000. Non-interest expense for the third quarter of 2012 increased 22% to $12.0 million from $9.8 million in the year-earlier quarter, primarily driven increased salaries and employment benefits of $1.0 million, driven in part by $641,000 in early retirement expense, and increased foreclosure expense on FDIC-acquired assets of $563,000 and loss on sale and write-downs of other real estate assets, excluding FDIC-acquired, of $229,000 offset in part by reduced acquisition-related expenses of $285,000.

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 $78.8 million in covered and $14.3 million in non-covered loans at the end of the third quarter of 2012 compared with $87.4 million in covered and $15.2 million in non-covered loans at the end of the second quarter of 2012. The principal balance of the FDIC-assisted loan portfolios totaled $171.6 million at the end of the third quarter of 2012 compared with $188.0 million as of the end of the second quarter of 2012. The details of the accounting for the FDIC-assisted loan portfolios for the third quarter of 2012 are as follows:
  • Covered loans acquired in FDIC-assisted acquisitions decreased $8.6 million to $78.8 million;
  • Non-covered loans acquired in FDIC-assisted acquisitions decreased $911,000 to $14.3 million;
  • The FDIC loss-share receivable associated with covered loans acquired in FDIC-assisted acquisitions decreased $8.6 million to $67.7 million;
  • The negative accretion for the FDIC loss-share receivable was $1.6 million;
  • Provision expense for loans acquired in FDIC-assisted acquisitions was $1.2 million;
  • The non-accretable discount decreased $12.3 million to $54.2 million; and
  • The accretable discount increased $5.6 million to $24.4 million.

For the third quarter of 2012, provision expense of $1.2 million was recorded for loan charge-offs on 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 $8.6 million from $76.3 million for the prior quarter to $67.7 million, primarily driven by reimbursements received from the FDIC of $7.0 million and negative accretion of $1.6 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 $484,000. This true-up was driven by an improvement in estimates of expected cash flows for both FDIC-assisted acquisitions.

The non-accretable discount decreased to $54.2 million at the end of the third quarter of 2012 from $66.5 million on a linked-quarter basis, primarily driven by the clearing of $3.6 million of discount in conjunction with the resolution of FDIC-assisted loans and transfers to accretable discount of $8.7 million. The accretable discount increased to $24.4 million for the third quarter of 2012 from $18.8 million on a linked-quarter basis, primarily due to the transfer from the non-accretable discount as a result of the improvement in cash flows, partially offset by loan discount accretion of $4.8 million for the current quarter which compares with $2.1 million on a linked-quarter basis.

Asset Quality

Annualized net charge-offs to average outstanding loans, excluding loans acquired in FDIC-assisted acquisitions, were down to 0.24% for the third quarter of 2012 versus 0.73% for the third quarter of 2011. Total non-performing assets, excluding assets acquired in FDIC-assisted acquisitions, reversed an improving trend as a percentage of assets compared with the prior year and were $17.8 million or 1.68% of total assets for the third quarter of 2012 compared with $9.8 million or 0.89% of total assets for the same quarter in 2011. The primary reason for the increase in non-performing assets was the migration of two relationships totaling $6.0 million to non-performing status. 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 $1.4 million for the third quarter of 2012, down from $1.8 million for the same quarter in 2011.

The provision for loan losses on non-FDIC-acquired loans decreased 25% to $750,000 for the third quarter of 2012 from $1.0 million for the same quarter in 2011, primarily driven by improving net charge-off trends. For the third quarter in 2012, the allowance for loan losses represented 1.57% of total loans outstanding, excluding loans acquired in FDIC-assisted acquisitions, versus 1.65% for the same quarter in 2011.

About Heritage Financial Group, Inc. and HeritageBank of the South

Heritage Financial Group, Inc. is the holding company for HeritageBank of the South, a community-oriented bank serving primarily South Georgia, North Central Florida and Eastern Alabama through 23 full-service branch locations, 11 mortgage offices, and 4 investment offices. As of September 30, 2012, the Company reported total assets of approximately $1.1 billion and total stockholders' equity of approximately $122 million. For more information about the Company, visit HeritageBank of the South on the Web at www.eheritagebank.com and see Investor Relations under About Us.

Cautionary Note Regarding Forward Looking Statements

Except for historical information contained herein, the matters included in this news release and other information in the Company's filings with the Securities and Exchange Commission may contain certain "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the fact that they do not relate strictly to historical or current facts and often use words or phrases "opportunities," "prospects," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," "intends" or similar expressions. The forward-looking statements made herein represent the current expectations, plans or forecasts of the Company's future results and revenues. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995 and includes this statement for purposes of these safe harbor provisions. These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and are often beyond the Company's control. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements. Investors should not place undue reliance on any forward-looking statement and should consider the uncertainties and risks, discussed under Item 1A. "Risk Factors" of the Company's 2011 Annual Report on Form 10-K and in any of the Company's subsequent SEC filings. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included in its other filings with the SEC.
   

HERITAGE FINANCIAL GROUP, INC.

Unaudited Reconciliation of Non-GAAP Measures Presented in Earnings Release

(Dollars in thousands, except per share data)
 
Three Months Ended Nine Months Ended

September 30,
September 30,   June 30,
2012   2011 2012 2012   2011
Total interest income $ 14,651 $ 10,148 $ 12,077 $ 38,387 $ 27,881

Loan held for sale – fair value election
  (156 )           (156 )    
Adjusted interest income $ 14,495   $ 10,148   $ 12,077   $ 38,231   $ 27,881  
 
Total non-interest income $ 4,361 $ 5,892 $ 3,679 $ 10,824 $ 14,294

Mortgage banking activities – fair value election
(336 ) (336 )
Gain on sale of securities (1,484 ) (213 ) (1,554 ) (666 )

Accrual of FDIC acquisitions estimated true-up liability
484 484
Bargain purchase (gain) loss   90     (2,000 )   (34 )   56     (4,217 )
Adjusted non-interest income $ 3,115   $ 3,679   $ 3,645   $ 9,474   $ 9,411  
 
Total non-interest expense $ 11,978 $ 9,779 $ 10,674 $ 33,453 $ 28,218
Salaries and employee benefits – early retirement program (641 ) (641 )
Acquisition-related expenses   (14 )   (299 )   (69 )   (414 )   (1,056 )
Adjusted non-interest expense $ 11,323   $ 9,480   $ 10,605   $ 32,398   $ 27,162  
 
Net income as reported $ 1,998 $ 1,740 $ 1,360 $ 4,349 $ 2,474
Adjustments for interest income, interest expense, non-interest income and non-interest expense, net of tax*   (472 )   (1,318 )   23     (298 )   (2,584 )
Adjusted net income (loss) $ 1,526   $ 422   $ 1,383   $ 4,051   $ (110 )
 
Diluted earnings per share $ 0.25 $ 0.21 $ 0.17 $ 0.54 $ 0.30
Adjustments for interest income, interest expense, non-interest income and non-interest expense, net of tax*   (0.06 )   (0.16 )   0.00     (0.04 )   (0.31 )
Adjusted diluted earnings (loss) per share $ 0.19   $ 0.05   $ 0.17   $ 0.50   $ (0.01 )
 

* The effective tax rate is used for the period presented to determine net of tax amounts.
 

Net Income (Loss) and Diluted Earnings (Loss) Per Share are presented in accordance with Generally Accepted Accounting Principles (GAAP). Adjusted Noninterest Income, Adjusted Noninterest Expense, Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss) Per Share are non-GAAP financial measures. The Company believes that these non-GAAP measures aid in understanding and comparing current-year and prior-year results, both of which include unusual items of different natures. These non-GAAP measures should be viewed in addition to, and not as a substitute for, the Company's reported results.
 
   

HERITAGE FINANCIAL GROUP, INC.

Unaudited Financial Highlights

(Dollars in thousands, except per share data)
 

Three Months Ended September 30,

Nine Months Ended September 30,
2012   2011 2012   2011
Interest income $ 14,651 $ 10,148 $ 38,387 $ 27,881
Interest expense   1,938   2,735   5,791   7,993
Net interest income 12,713 7,413 32,596 19,888
Provision for loan losses 750 1,000 1,900 2,300
Provision for loan losses – covered 1,172 1,513
Provision for loan losses – non covered   12     12  

Net interest income after provision

for loan losses
10,779 6,413 29,171 17,588
Non-interest income 4,361 5,892 10,824 14,294
Non-interest expense   11,978   9,779   33,453   28,218
Income before income taxes 3,162 2,526 6,542 3,664
Income tax expense   1,164   786   2,213   1,190
Net income $ 1,998 $ 1,740 $ 4,329 $ 2,474
Net income per share:
Basic $ 0.25 $ 0.21 $ 0.54 $ 0.30
Diluted $ 0.25 $ 0.21 $ 0.54 $ 0.30
Weighted average shares outstanding:
Basic   7,942,852   8,305,615   8,052,462   8,205,305
Diluted   7,944,983   8,307,010   8,054,183   8,206,906
Dividends declared per share $ 0.04 $ 0.03 $ 0.12 $ 0.09
 

Sept. 30, 2012

June 30, 2012

Sept. 30, 2011
Total assets $ 1,054,899 $ 1,063,426 $ 1,102,504
Cash and cash equivalents 22,016 22,499 23,292
Interest-bearing deposits in banks 17,026 32,153 99,211
Securities available for sale 209,287 227,984 218,384
Loans 634,932 605,001 560,940
Allowance for loan losses 8,530 8,099 6,936
Total deposits 845,079 860,268 900,103
Federal Home Loan Bank advances 35,000 35,000 35,000
Stockholders' equity 121,792 123,291 123,638
 
Heritage Financial Group, Inc.
Third Quarter 2012 Earnings Release Supplement
(Unaudited)
(Dollars in thousands, except per share data)
  Three Months Ended   Nine Months Ended
September 30, September 30,
2012   2011 2012   2011
Income Statement Data

Interest income
Loans $ 13,067 $ 8,774 $ 33,747 $ 23,483
Loans held for sale 342 45 729 99
Securities - taxable 924 1,013 2,919 3,441
Securities - nontaxable 298 207 891 629
Federal funds sold 3 16 21 45
Interest-bearing deposits in banks   17     93     80     184  
Total interest income   14,651     10,148     38,387     27,881  

Interest expense
Deposits 1,257 2,048 3,766 5,879
Other borrowings   681     687     2,025     2,114  
Total interest expense   1,938     2,735     5,791     7,993  
Net interest income 12,713 7,413 32,596 19,888
Provision for loan losses 750 1,000 1,900 2,300
Provision for loan losses - FDIC acquired covered 1,172 - 1,513 -
Provision for loan losses - FDIC acquired non covered   12     -     12     -  
Net interest income after provision for loan losses   10,779     6,413     29,171     17,588  

Non-interest income
Service charges on deposit accounts 1,285 1,267 3,441 3,540
Bankcard services income 783 685 2,437 1,946
Other service charges, fees & commissions 80 61 238 205
Brokerage fees 467 328 1,375 1,088
Mortgage banking activities 1,689 719 3,316 1,611
Bank owned life insurance 210 146 561 440
Gain on sale of securities 1,484 213 1,554 666
Gain (loss) on acquisitions (90 ) 2,000 (56 ) 4,217
Accretion of FDIC loss-share receivable (1,606 ) 448 (2,236 ) 453
Other   59     25     194     128  
Total non-interest income   4,361     5,892     10,824     14,294  

Non-interest expense
Salaries and employee benefits 6,380 5,384 17,375 14,635
Equipment and occupancy 1,317 1,201 4,035 2,961
Advertising & marketing 114 167 509 551
Professional fees 354 326 932 1,079
Information services expenses 1,240 1,063 3,456 2,546

(Gain) loss on sale and write-downs of other real estate owned
90 (139 ) (58 ) 798

Gain on sale and write-downs of FDIC acquired other real estate
(33 ) (246 ) (108 ) (291 )
Foreclosed asset expenses 177 288 617 703
Foreclosed FDIC acquired asset expenses 563 - 1,191 -
FDIC insurance and other regulatory fees 276 128 785 775
Acquisition related expenses 14 299 414 1,056
Deposit Intangible expense 194 183 590 485
Other operating   1,292     1,125     3,715     2,920  
Total non-interest expense   11,978     9,779     33,453     28,218  
Income before taxes 3,162 2,526 6,542 3,664
Applicable income tax   1,164     786     2,213     1,190  
Net income $ 1,998   $ 1,740   $ 4,329   $ 2,474  
 
Weighted average shares - basic 7,942,852 8,305,615 8,052,462 8,205,305
Weighted average shares - diluted 7,944,983 8,307,010 8,054,183 8,206,906
 
Basic earnings per share $ 0.25 $ 0.21 $ 0.54 $ 0.30
Diluted earnings per share 0.25 0.21 0.54 0.30
Cash dividend declared per share 0.04 0.03 0.12 0.09
 
 
Heritage Financial Group, Inc.
Third Quarter 2012 Earnings Release Supplement
(Unaudited)
(Dollars in thousands, except per share data)
      September 30,
2012   2011
Balance Sheet Data (Ending Balance)
Total loans $ 634,932 $ 560,940
Loans held for sale 7,236 5,538
Covered loans 78,757 116,206
Allowance for loan losses 8,530 6,936
Total foreclosed assets 11,458 12,355
Covered other real estate owned 9,457 10,514
FDIC loss-share receivable 67,698 87,757
Intangible assets 4,426 5,056
Total assets 1,054,899 1,102,504
Non-interest-bearing deposits 108,767 84,716
Interest-bearing deposits 736,312 815,387
Federal Home Loan Bank advances 35,000 35,000

Federal funds purchased and securities sold under agreement to repurchase
35,833 36,118
Stockholders' equity 121,793 123,637
 
Total shares outstanding 8,229,955 8,712,140
Unearned ESOP shares   399,162     452,348  
Total shares outstanding net of unearned ESOP   7,830,793     8,259,792  
 
Book value per share $ 15.55 $ 14.97
Book value per share including unearned ESOP (non-GAAP)

 
14.80

 
14.19
Tangible book value per share (non-GAAP) 14.99 14.36
Tangible book value per share including unearned ESOP (non-GAAP) 14.26 13.61
Market value per share 13.14 10.39
 
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
Average Balance Sheet Data
Average interest-bearing deposits in banks $ 19,343 $ 102,769 $ 26,337 $ 54,737
Average federal funds sold 5,471 26,889 11,276 23,607
Average investment securities 235,862 201,762 249,826 213,518
Average loans 625,464 533,487 589,871 497,353
Average mortgage loans held for sale 6,198 4,336 5,430 2,998
Average FDIC loss-share receivable 74,045 71,942 79,264 52,568
Average earning assets 883,319 864,907 879,499 792,220
Average assets 1,070,130 1,040,575 1,065,701 956,622
Average noninterest-bearing deposits 94,453 76,940 89,719 66,664
Average interest-bearing deposits 768,247 761,344 771,214 675,966
Average total deposits 862,700 838,284 860,933 742,630

Average federal funds purchased and securities sold under agreement to repurchase
33,916 33,678 33,259 32,304
Average Federal Home Loan Bank advances 35,326 35,000 35,109 50,195
Average interest-bearing liabilities 837,489 830,022 839,582 758,567
Average stockholders' equity 124,884 123,844 125,152 122,210
 
Performance Ratios
Annualized return on average assets 0.75 % 0.67 % 0.81 % 0.52 %
Annualized return on average equity 6.40 % 5.62 % 6.92 % 4.05 %
Net interest margin 5.77 % 3.44 % 5.00 % 3.41 %
Net interest spread 5.72 % 3.38 % 4.96 % 3.35 %
Efficiency ratio 70.15 % 73.50 % 77.05 % 82.55 %
 
Capital Ratios
Average stockholders' equity to average assets 11.7 % 12.7 % 11.7 % 12.8 %
Tangible equity to tangible assets (non-GAAP) 11.2 % 12.3 % 11.2 % 10.8 %
Tier 1 leverage ratio (1) 10.9 % 11.3 % 10.9 % 11.3 %
Tier 1 risk-based capital ratio (1) 18.0 % 20.2 % 18.0 % 20.2 %
Total risk-based capital ratio (1) 19.2 % 21.4 % 19.2 % 21.4 %
 
Other Information
Full-time equivalent employees 316 313 316 313
Banking 270 270 270 270
Mortgage 39 36 39 36
Investments 7 7 7 7
Number of full-service offices 23 23 23 23
Mortgage loan offices 11 11 11 11
Investment offices 4 3 4 3
 
(1) September 30, 2012 consolidated ratios are estimated and may be subject to change pending the filing of the call report; all other periods are presented as filed.
 
Heritage Financial Group, Inc.
Third Quarter 2012 Earnings Release Supplement
(Unaudited)
(Dollars in thousands, except per share data)
  Five Quarter Comparison for the Three Months Ended
9/30/12   6/30/12   3/31/12   12/31/11   9/30/11
Income Statement Data

Interest income
Loans $ 13,067 $ 10,532 $ 10,147 $ 9,945 $ 8,774
Loans held for sale 342 204 182 198 45
Securities - taxable 924 1,016 979 1,095 1,013
Securities - nontaxable 298 295 299 251 207
Federal funds sold 3 4 15 15 16
Interest-bearing deposits in banks   17     26     37     65     93  
Total interest income   14,651     12,077     11,659     11,569     10,148  

Interest expense
Deposits 1,257 1,246 1,263 1,671 2,048
Other borrowings   681     672     672     686     687  
Total interest expense   1,938     1,918     1,935     2,357     2,735  
Net interest income 12,713 10,159 9,724 9,212 7,413
Provision for loan losses 750 750 400 595 1,000
Provision for loan losses - FDIC acquired covered 1,172 338 - - -
Provision for loan losses - FDIC acquired non covered   12     3     -     -     -  
Net interest income after provision for loan losses   10,779     9,068     9,324     8,617     6,413  

Non-interest income
Service charges on deposit accounts 1,285 1,135 1,020 1,237 1,267
Bankcard services income 783 831 824 691 684
Other service charges, fees & commissions 80 73 85 188 62
Brokerage fees 467 462 446 298 328
Mortgage banking activities 1,689 938 689 674 719
Bank owned life insurance 210 211 140 148 146
Life insurance proceeds - - - - -
Gain on sale of securities 1,484 27 42 18 213
Bargain purchase gain (90 ) 34 - - 2,000
Accretion of FDIC loss-share receivable (1,606 ) (133 ) (498 ) (72 ) 448
Other   59     101     35     33     25  
Total non-interest income   4,361     3,679     2,783     3,215     5,892  

Non-interest expense
Salaries and employee benefits 6,380 5,460 5,536 5,758 5,384
Equipment and occupancy 1,317 1,395 1,324 1,314 1,201
Advertising & marketing 114 214 180 233 167
Professional fees 354 340 238 224 326
Information services expenses 1,240 1,163 1,052 1,130 1,063

(Gain) loss on sale and write-downs of other real estate owned
90 (141 ) (7 ) (27 ) (139 )

Loss (gain) on sale and write-downs of FDIC acquired other real estate
(33 ) (249 ) 174 (92 ) (246 )
Foreclosed asset expenses 177 218 221 22 216
Foreclosed FDIC acquired asset expenses 563 466 162 118 72
FDIC insurance and other regulatory fees 276 265 245 179 128
Acquisition related expenses 14 69 331 254 299
Deposit intangible expense 194 195 201 207 183
Other operating   1,292     1,279     1,144     1,208     1,125  
Total non-interest expense   11,978     10,674     10,801     10,528     9,779  
Income (loss) before taxes 3,162 2,073 1,306 1,304 2,526
Applicable income tax (benefit)   1,164     713     335     (91 )   786  
Net income (loss) $ 1,998   $ 1,360   $ 971   $ 1,395   $ 1,740  
 
Weighted average shares - basic 7,942,852 8,071,354 8,144,382 8,229,293 8,305,615
Weighted average shares - diluted 7,944,983 8,072,935 8,145,730 8,230,206 8,307,010
 
Basic earnings (loss) per share $ 0.25 $ 0.17 $ 0.12 $ 0.17 $ 0.21
Diluted earnings (loss) per share 0.25 0.17 0.12 0.17 0.21
Cash dividend declared per share 0.04 0.04 0.04 0.03 0.03
 
Heritage Financial Group, Inc.
Third Quarter 2012 Earnings Release Supplement
(Unaudited)
(Dollars in thousands, except per share data)
  Five Quarter Comparison
9/30/12   6/30/12   3/31/12   12/31/11   9/30/11
Balance Sheet Data (at period end)
Total loans $ 634,932 $ 605,001 $ 562,495 $ 560,620 $ 560,940
Loans held for sale 7,236 6,017 4,731 7,471 5,538
Covered loans 78,757 87,386 95,493 107,457 116,206
Allowance for loan losses 8,530 8,099 7,629 7,494 6,936
Total foreclosed assets 11,458 9,290 12,117 13,441 12,355
Covered other real estate owned 9,457 7,571 8,445 10,084 10,514
FDIC loss-share receivable 67,698 76,294 82,925 83,901 87,757
Intangible assets 4,426 4,621 4,647 4,848 5,056
Total assets 1,054,899 1,063,426 1,075,510 1,089,852 1,102,504
Non-interest-bearing deposits 108,767 87,815 88,582 78,823 84,716
Interest-bearing deposits 736,312 772,453 780,161 805,364 815,387
Federal home loan bank advances 35,000 35,000 35,000 35,000 35,000

Federal funds purchased and securities sold under agreement to repurchase
35,833 31,746 37,227 35,049 36,118
Stockholders' equity 121,793 123,291 125,067 124,136 123,637
 
Total shares outstanding 8,229,955 8,490,247 8,668,752 8,712,031 8,712,140
Unearned ESOP shares   399,162     412,487     425,813     439,138     452,348  
Total shares outstanding net of unearned ESOP   7,830,793     8,077,760     8,242,939     8,272,893     8,259,792  
 
Book value per share $ 15.55 $ 15.26 $ 15.17 $ 15.01 $ 14.97

Book value per share including unearned ESOP (non-GAAP)
14.80 14.52 14.43 14.25 14.19
Tangible book value per share (non-GAAP) 14.99 14.69 14.61 14.42 14.36

Tangible book value per share including unearned ESOP (non-GAAP)
14.26 13.98 13.89 13.69 13.61
Market value per share 13.14 12.87 11.82 11.80 10.39
 
Five Quarter Comparison
9/30/12 6/30/12 3/31/12 12/31/11 9/30/11
Average Balance Sheet Data
Average interest-bearing deposits in banks $ 19,343 $ 21,897 $ 37,999 $ 56,025 $ 102,769
Average federal funds sold 5,471 6,038 22,363 22,805 26,889
Average investment securities 235,862 252,894 257,863 240,101 201,762
Average loans 625,464 583,366 560,385 559,556 533,487
Average mortgage loans held for sale 6,198 5,519 4,550 7,599 4,336
Average FDIC Loss-Share Receivable 74,045 79,812 84,017 86,544 71,942
Average earning assets 883,319 869,393 883,160 878,487 864,907
Average assets 1,070,130 1,053,140 1,074,260 1,085,490 1,040,575
Average noninterest-bearing deposits 94,453 89,763 84,920 80,376 76,940
Average interest-bearing deposits 768,247 760,409 784,944 801,246 761,344
Average total deposits 862,700 850,172 869,864 881,622 838,284

Average federal funds purchased and securities sold under agreement to repurchase
33,916 32,043 33,822 36,621 33,678
Average Federal Home Loan Bank advances 35,326 35,000 35,000 35,000 35,000
Average interest-bearing liabilities 837,489 827,452 853,766 872,867 830,022
Average stockholders' equity 124,884 125,083 125,503 124,257 123,844
 
Performance Ratios
Annualized return on average assets 0.75 % 0.52 % 0.36 % 0.51 % 0.67 %
Annualized return on average equity 6.40 % 4.35 % 3.09 % 4.49 % 5.62 %
Net interest margin 5.77 % 4.75 % 4.49 % 4.19 % 3.44 %
Net interest spread 5.72 % 4.70 % 4.46 % 4.17 % 3.38 %
Efficiency ratio 70.15 % 77.14 % 86.36 % 85.01 % 73.50 %
 
Capital Ratios
Average stockholders' equity to average assets 11.7 % 11.9 % 11.7 % 11.4 % 11.9 %
Tangible equity to tangible assets (non-GAAP) 11.2 % 11.2 % 11.2 % 11.0 % 10.8 %
Tier 1 leverage ratio 10.9 % 11.3 % 11.4 % 11.2 % 11.3 %
Tier 1 risk-based capital ratio 18.0 % 19.1 % 21.0 % 21.2 % 21.2 %
Total risk-based capital ratio 19.2 % 20.3 % 22.2 % 22.4 % 22.4 %
 
Other Information
Full-time equivalent employees 316 319 324 327 313
Banking 270 279 283 286 270
Mortgage 39 33 34 34 36
Investments 7 7 7 7 7
Number of full-service offices 23 22 21 22 23
Mortgage loan offices 11 11 11 11 11
Investment offices 4 3 3 3

 
3
 
 
Heritage Financial Group, Inc.
Third Quarter 2012 Earnings Release Supplement
(Dollars in thousands)
   
Three Months Ended
September 30,
2012 2011
Loans by Type
Construction and land $ 30,010 $ 28,115
Farmland 20,298 18,272
Permanent 1 - 4 157,551 134,269
Permanent 1 - 4 - junior liens and revolving 25,507 26,071
Multifamily 19,805 13,754
Nonresidential 193,392 129,730
Commercial business 68,800 47,854
Consumer and other   26,519     21,955  
  541,882     420,020  
Loans acquired through FDIC-assisted acquisitions:
Non covered 14,291 24,714
Covered   78,757     116,206  
  93,048     140,920  
   
  634,930     560,940  
 
OREO (excluding assets acquired through FDIC-assisted acquisitions): 1,403 1,596
 
OREO assets acquired through FDIC-assisted acquisitions:
Non Covered 598 245
Covered   9,457     10,514  
  11,458     12,355  
 
Asset Quality Data (excluding assets acquired through FDIC-assisted acquisitions):
Allowance for loan losses to total loans 1.57 % 1.65 %
Allowance for loan losses to average loans 1.61 % 1.29 %
Allowance for loan losses to non-performing loans 52.15 % 86.78 %
Accruing past due loans $ 1,038 $ 1,487
Nonaccrual loans 16,358 7,994
Loans - 90 days past due & still accruing - -
Total non-performing loans 16,358 7,994
OREO and repossessed assets 1,403 1,841
Total non-performing assets 17,761 9,835
Non-performing loans to total loans 3.02 % 1.90 %
Non-performing assets to total assets 1.68 % 0.89 %
QTD Net charge-offs to average loans (annualized) 0.24 % 0.73 %
Net charge-offs QTD $ 320 $ 650
 
         
Heritage Financial Group, Inc.
Third Quarter 2012 Earnings Release Supplement
(Dollars in thousands)
 
Five Quarter Comparison for the Quarter Ended
9/30/12 6/30/12 3/31/12 12/31/11 9/30/11
Loans by Type
Construction and land $ 30,010 $ 31,134 $ 24,375 $ 26,804 $ 28,115
Farmland 20,298 18,121 17,150 17,921 18,272
Permanent 1 - 4 157,551 148,162 132,172 129,745 134,269
Permanent 1 - 4 - junior liens and revolving 25,507 25,289 25,220 26,154 26,071
Multifamily 19,805 19,639 18,577 15,797 13,754
Nonresidential 193,392 177,307 150,492 138,970 129,730
Commercial business 68,800 58,589 59,697 55,179 47,854
Consumer and other   26,519     24,172     21,935     23,872     21,955  
  541,882     502,413     449,618     434,442     420,020  
 
Loans acquired through FDIC-assisted acquisitions:
Non covered 14,291 15,202 17,384 18,721 24,714
Covered   78,757     87,386     95,493     107,457     116,206  
  634,930     605,001     562,495     560,620     560,940  
 
 
Asset Quality Data (excluding Loans acquired through FDIC-assisted acquisitions):
Allowance for loan losses to total loans 1.57 % 1.61 % 1.70 % 1.72 % 1.65 %
Allowance for loan losses to average loans 1.61 % 1.70 % 1.35 % 1.32 % 1.29 %
Allowance for loan losses to non-performing loans 52.15 % 81.27 % 71.42 % 106.40 % 86.76 %
Accruing past due loans $ 1,038 $ 3,215 $ 452 $ 371 $ 1,487
Nonaccrual loans 16,358 9,965 10,681 7,043 7,994
Loans - 90 days past due & still accruing - - - - -
Total non-performing loans 16,358 9,965 10,681 7,043 7,994
OREO and repossessed assets 1,403 1,519 2,992 3,356 1,841
Total non-performing assets 17,761 11,484 13,673 10,399 9,835
Non-performing loans to total loans 3.02 % 1.98 % 2.38 % 1.62 % 1.90 %
Non-performing assets to total assets 1.68 % 1.08 % 1.75 % 0.95 % 0.89 %
Net charge-offs to average loans (annualized) 0.24 % 0.23 % 0.24 % 0.04 % 0.73 %
Net charge-offs $ 320 $ 279 $ 265 $ 37 $ 650
 

Note:
Certain prior-period amounts have been reclassified to conform with current presentation.
Loans acquired through FDIC-assisted acquisitions include loans acquired in the acquisition of The Tattnall Bank in December of 2009, the acquisition of Citizens Bank of Effingham in February 2011 and First Southern National Bank in August 2011. The acquisition of The Tattnall Bank did not involve a loss-share agreement with the FDIC. The acquisition of Citizens Bank of Effingham involved a loss-share agreement in which the FDIC will, for a specified number of years, reimburse the Bank for 80% of all losses and related expenses on covered assets.
 

Copyright Business Wire 2010

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