Heritage Financial Group, Inc. Reports Second Quarter Net Income Of $2.7 Million Or $0.36 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 June 30, 2013. Highlights of the Company's results for the second quarter of 2013 include:
  • Net income of $2.7 million or $0.36 per diluted share, up almost twofold from net income of $1.4 million or $0.17 per diluted share for the year-earlier quarter, but down 32% from $3.9 million or $0.52 per diluted share for the linked quarter, primarily due to the recording of a bargain purchase gain on an acquisition in the first quarter of 2013;
  • Excluding special items for each quarter, net income was $2.9 million or $0.39 per diluted share, up twofold from net income of $1.4 million or $0.17 per diluted share for the year-earlier quarter and up 43% from net income of $2.0 million or $0.27 per diluted share for the linked quarter (see reconciliation of non-GAAP items);
  • Loan growth, excluding loans acquired through FDIC-assisted acquisitions, of $34.4 million or 6% on a linked-quarter basis;
  • Loans held for sale increased $24.6 million or 130% on a linked-quarter basis;
  • A decrease in FDIC-acquired loans of $17.3 million or 12% on a linked-quarter basis;
  • A decrease in the provision for loan losses, excluding FDIC-acquired loans, to $640,000 compared with $750,000 for the year-earlier quarter, and an increase from $450,000 for the linked quarter; and
  • A decline in the provision for loan losses for FDIC-acquired loans, with approximately 80% of the losses reimbursable by the FDIC, to $28,000 compared with $341,000 for the year-earlier quarter and $35,000 for the linked quarter.

Commenting on the results, Leonard Dorminey, President and Chief Executive Officer, said, "We are pleased to report ongoing growth in our business and improving financial results. We continue to benefit from our efforts to increase revenue and manage our expenses. Additionally, our mortgage division has again achieved significant increases in volume and our commercial bank network continued to see solid loan growth.

"We remain on schedule with our conversion and integration plans for Frontier Bank," Dorminey continued. "We continue to make progress with integrating the new team into our system and filling key strategic roles to expand in the former Frontier Bank footprint. We are excited about the opportunities for loan growth in these new markets."

Expense Management Initiatives

In connection with the Frontier FDIC-assisted acquisition, the Company is on track to close its branch in Vincent, Alabama, and its Broadway Avenue branch in Sylacauga, Alabama, during the third quarter of 2013. The Company does not expect to experience a significant reduction in customer relationships and will serve these customers from other nearby locations. Separately, the Company is on track with the implementation of staffing reductions related to the Frontier acquisition that will be completed during the third quarter of 2013, resulting in a decrease of approximately $1.6 million from Frontier's pre-acquisition level of personnel expenses.

Commenting on the expense management initiatives in the Frontier acquisition, Heath Fountain, Executive Vice President and Chief Financial Officer, said, "While expenses increased related to the Frontier acquisition and our mortgage expansion, we continue to make progress in expense management initiatives within our branch network. We will convert the former Frontier branches to our core system in the third quarter, and we are well on schedule to achieve all of our previously identified cost-saving targets."

Capital Management Initiatives

During the second quarter of 2013, the Company repurchased approximately 77,000 shares of common stock at an average price of $14.26 under its stock repurchase program. Authorization to repurchase approximately 350,000 shares remains under the current program, which is set to expire in April 2014, unless extended or otherwise completed.

The Company's estimated total risk-based capital ratio at June 30, 2013, was 14.4%, 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 8.6% as of June 30, 2013.

Looking ahead, the Company intends to maintain its capital strength at the current level to support growth and its acquisition activities. Accordingly, future stock buybacks and future dividends will be premised largely on the Company's future earnings power rather than a return of capital to stockholders. As previously announced, it is not currently anticipated that any quarterly dividends will be paid in 2013, with the Company having accelerated 2013 dividends in December 2012, but the Company expects to resume regular quarterly dividends in 2014.

Second Quarter 2013 Results of Operations

The $1.3 million improvement in reported quarterly earnings for the second quarter of 2013 compared with the year-earlier quarter primarily resulted from the following items:
  • Improved net interest income of $6.1 million;
  • Decreased provision expense of $423,000; offset by
  • Reduced non-interest income of $1.1 million; and
  • Increased non-interest expense of $3.9 million.

Net interest income for the second quarter of 2013 increased 60% to $16.2 million from $10.2 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 liabilities. The Company's net interest margin was 5.61% for the second quarter of 2013, an increase of 10 basis points from 5.51% on a linked-quarter basis, and an increase of 86 basis points over 4.75% in the year-earlier period. The improvement in net interest margin for the second quarter of 2013 compared with the year-earlier quarter was driven by an increase in loan yields on the Company's FDIC-acquired loan portfolio coupled with reductions in the cost of interest-bearing liabilities as rates continue to reset to lower levels and the Company takes advantage of historically low interest rates on non-deposit funding, all of which were offset in part by declining yields on the investment portfolio. Excluding FDIC-acquired loan discount adjustments from the net interest margin, the core net interest margin was 3.27% for the second quarter of 2013, a decrease of nine basis points from 3.38% on a linked-quarter basis and six basis points from 3.33% for the year-earlier quarter.

In the second quarter of 2013, the Company continued to achieve loan growth, with its core loan portfolio increasing $34.4 million organically on a linked-quarter basis and advancing $135.7 million overall compared with the year-earlier quarter. For the second quarter of 2013, the Company's loan portfolio, including FDIC-acquired loans, totaled $769.9 million, increasing $17.1 million on a linked-quarter basis from $752.9 million and from $605.0 million compared with the year-earlier quarter. The organic loan growth for the linked quarter was driven by all the Company's markets with the exception of the Ocala, Florida market, which recorded a slight reduction. For the second quarter of 2013, the Company's loans held for sale totaled $43.5 million, increasing $24.6 million on a linked-quarter basis from $18.9 million and from $6.0 million compared with the year-earlier quarter. Total deposits stood at $1.066 billion at the end of the second quarter of 2013, up 24% from $860.3 million at June 30, 2012, but down 3% or $30.0 million from $1.096 billion on a linked-quarter basis. The linked quarter decrease in deposits was primarily driven by planned run-off of non-relationship customers from the Frontier acquisition, which accounted for $22.0 million of the decrease.

Non-interest income for the second quarter of 2013 decreased 30% to $2.6 million from $3.7 million in the year-earlier quarter, primarily because of an increase in negative accretion for the FDIC loss-share receivable of $3.2 million partially offset by an increase in mortgage banking fees of $1.9 million. Non-interest expense for the second quarter of 2013 increased 36% to $14.6 million from $10.7 million in the year-earlier quarter, primarily driven by increased salaries and employee benefits of $2.7 million associated with the hiring of employees from the Frontier acquisition and for the mortgage division. The increased equipment and occupancy expense of $443,000 related to the Company's continued efforts to expand the mortgage division and the Frontier acquisition.

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.

The covered FDIC-acquired loan discounts affecting the loss-share receivable was $56.8 million, or 94.5% of the loss-share receivable, for the second quarter 2013 compared with $63.6 million, or 97.8% of the loss-share receivable, for the linked quarter. The gross balance of covered FDIC-acquired assets decreased to $125.6 million for the second quarter of 2013 compared with $142.9 million for the linked quarter. The FDIC loss-share receivable as a percent of the covered FDIC-acquired assets increased to 38.3% compared with 36.4% for the linked quarter.

Asset Quality

Total non-performing assets, excluding FDIC-acquired assets, decreased to $15.3 million, or 1.14% of total assets, compared with $15.8 million, or 1.15% of total assets, for the linked quarter, but it increased from $11.5 million, or 1.08% of total assets, from the year-earlier quarter. Annualized net charge-offs to average outstanding loans, excluding FDIC-acquired loans, were 0.45% for the second quarter of 2013 compared with 0.27% for the linked quarter and 0.23% for the year-earlier quarter. Non-performing loans totaled $12.2 million, down from $12.7 million for the linked quarter, but up from $10.0 million for the year-earlier quarter. Other real estate owned and repossessed assets, excluding FDIC-acquired assets, totaled $3.0 million for the second quarter of 2013, in line with the $3.0 million for the linked quarter and up from the $1.5 million for the year-earlier quarter.

The provision for loan losses on non-FDIC-acquired loans decreased to $640,000 for the second quarter of 2013 from $750,000 for the year-earlier quarter, primarily driven by improving trends in total criticized and classified assets. For the second quarter in 2013, the allowance for loan losses represented 1.42% of total loans outstanding, excluding FDIC-acquired loans, versus 1.51% for the linked quarter and 1.61% for the year-earlier quarter. The improving loan loss allowance is primarily the result of declining criticized and classified assets as a percentage of total loans.

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 29 full-service branch locations, 12 mortgage offices, and 4 investment offices. As of June 30, 2013, the Company reported total assets of approximately $1.3 billion and total stockholders' equity of approximately $119 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 2012 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   Six Months Ended

June 30,
June 30,   March 31,

2013
2013   2012 2013   2012
Total non-interest income $ 2,569 $ 3,679 $ 5,810 $ 8,943 $ 6,463
Gain on sale of securities and securities impairment (27 ) (70 )
Gain on acquisitions       (34 )   (4,188 )   (4,188 )   (34 )
Adjusted non-interest income $ 2,569   $ 3,618   $ 1,622   $ 4,755   $ 6,359  
 
Total non-interest expense $ 14,555 $ 10,674 $ 12,790 $ 27,909 $ 21,475
Acquisition-related expenses (148 ) (69 ) (792 ) (940 ) (400 )
Accrual of FDIC acquisitions estimated clawback liability   (124 )       (566 )   (690 )    
Adjusted non-interest expense $ 14,283   $ 10,605   $ 11,432   $ 26,279   $ 21,075  
 
Net income as reported $ 2,660 $ 1,360 $ 3,928 $ 6,588 $ 2,331
Total adjustments, net of tax*   203     5     (1,924 )   (1,802 )   209  
Adjusted net income $ 2,863   $ 1,365   $ 2,004   $ 4,786   $ 2,540  
 
Diluted earnings per share $ 0.36 $ 0.17 $ 0.52 $ 0.88 $ 0.29
Total adjustments, net of tax*   0.03     0.00     (0.25 )   (0.24 )   0.02  

Adjusted diluted earnings per share
$ 0.39   $ 0.17   $ 0.27   $ 0.64   $ 0.31  
 

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

Net Income and Diluted Earnings Per Share are presented in accordance with Generally Accepted Accounting Principles ("GAAP"). Adjusted Noninterest Income, Adjusted Noninterest Expense, Adjusted Net Income and Adjusted Diluted Earnings 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. and Subsidiary
Consolidated Balance Sheets
(Unaudited)
 
(Dollars in thousands)
 
  (Unaudited)  
June 30, December 31,
2013 2012*
 
 
Cash and due from banks $ 37,260 $ 23,993
Interest-bearing deposits in banks 24,765 15,393
Federal funds sold 5,602   4,306  
Cash and cash equivalents 67,627 43,692
 
Securities available for sale, at fair value 305,345 221,406
Federal Home Loan Bank stock, at cost 5,992 4,330
Other equity securities, at cost 1,010 1,010
Loans held for sale 43,545 15,608
Loans 712,745 597,579
Covered loans 57,176 72,425
Less allowance for loan losses 9,047   9,061  
Loans, net 760,874   660,943  
 
Other real estate owned 4,134 3,242
Covered other real estate owned 7,815   9,467  
Total other real estate owned 11,949   12,709  
 
FDIC loss-share receivable 48,106 60,731
Premises and equipment, net 38,425 33,015
Goodwill and intangible assets 4,455 4,235
Cash surrender value of bank owned life insurance 23,785 23,382
Other assets 22,903   16,445  
Total assets $ 1,334,016   $ 1,097,506  
 

LIABILITIES AND SHAREHOLDERS' EQUITY
 
Non-interest-bearing deposits $ 148,219 $ 116,272
Interest-bearing deposits 917,712   753,282  
Total deposits 1,065,931   869,554  
 
Federal funds purchased and securities sold under repurchase agreements 33,094 33,219
Other borrowings 101,940 60,000
Other liabilities 14,511   14,084  
Total liabilities 1,215,476   976,857  
 

SHAREHOLDERS' EQUITY
 

Preferred stock, par value; $0.01; 5,000,000 shares authorized; none issued
- -

Common stock, par value $0.01; 45,000,000 shares authorized; 7,803,910 and 8,172,486 shares issued and outstanding, respectively
78 82
Capital surplus 77,508 82,154
Retained earnings 52,887 46,299
Accumulated other comprehensive loss, net of tax of $5,465 and $2,566, respectively (8,198 ) (3,849 )
Unearned employee stock ownership plan (ESOP), 359,186 and 385,836 shares, respectively (3,735 ) (4,037 )
Total shareholders' equity 118,540   120,649  
 
Total liabilities & shareholders' equity $ 1,334,016   $ 1,097,506  
 
* Derived from Audited Consolidated Financial Statements.
 
 
 
 
 
 
Heritage Financial Group, Inc. and Subsidiary
Consolidated Statements of Income
(Unaudited)
 
(Dollars in thousands except share and per share data)
 
    Three Months Ended   Six Months Ended
June 30,   June 30, June 30,   June 30,
2013 2012 2013 2012
 

Interest income:
Interest and fees on loans $ 15,702 $ 10,532 $ 29,071 $ 20,680
Interest on loans held for sale 916 204 1,420 387
Interest on taxable securities 1,095 1,016 1,961 1,995
Interest on nontaxable securities 308 295 593 593
Interest on federal funds sold 2 4 3 18
Interest on deposits in other banks   88     26     110     63  
Total interest income   18,111     12,077     33,158     23,736  
 

Interest expense:
Interest on deposits 1,041 1,246 2,095 2,509
Interest on other borrowings   844     672     1,593     1,344  
Total interest expense   1,885     1,918     3,688     3,853  
 
Net interest income 16,226 10,159 29,470 19,883
 
Provision for loan losses   668     1,091     1,153     1,491  
 
Net interest income after provision for loan losses   15,558     9,068     28,317     18,392  
 

Non-interest income:
Service charges on deposit accounts 1,297 1,135 2,451 2,156
Bankcard services income 831 831 1,593 1,654
Other service charges, commissions and fees 157 73 256 158
Brokerage fees 536 462 1,017 908
Mortgage banking activities 2,799 938 4,592 1,627
Bank-owned life insurance 201 211 403 351
Gain on sales of securities - 27 - 70
Gain on acquisitions - 34 4,188 34
Accretion of FDIC loss-share receivable (3,376 ) (133 ) (5,775 ) (630 )
Other   124     101     218     135  
Total non-interest income   2,569     3,679     8,943     6,463  

Non-interest expense:
Salaries and employee benefits 8,185 5,460 14,615 10,995
Equipment and occupancy 1,838 1,395 3,504 2,718
Advertising and marketing 349 214 536 395
Professional fees 302 340 517 578
Information services expenses 1,307 1,163 2,489 2,216

Loss (gain) on sales and write-downs of other real estate owned
58 (141 ) 33 (148 )

Gain on sales and write-downs of FDIC-acquired other real estate owned
(251 ) (249 ) (227 ) (75 )
Foreclosed asset expenses 227 218 442 440
Foreclosed FDIC-acquired asset expenses 313 466 734 628
FDIC insurance and other regulatory fees 278 265 534 509
Acquisition related expenses 148 69 940 400
Deposit intangible expenses 211 195 405 396
FDIC loss-share clawback expenses 124 - 690 -
Other operating expenses   1,466     1,279     2,697     2,423  
Total non-interest expense   14,555     10,674     27,909     21,475  
 
Income before income taxes 3,572 2,073 9,351 3,380
 
Applicable income tax   912     713     2,763     1,049  
 
Net income $ 2,660 1,360 $ 6,588 2,331
 

Earnings per common share:
Basic earnings per share $ 0.36   $ 0.17   $ 0.88   $ 0.29  
Diluted earnings per share $ 0.36   $ 0.17   $ 0.88   $ 0.29  
 

Weighted average-common shares outstanding:
Basic   7,381,370     8,071,354     7,453,457     8,107,868  
Diluted   7,383,992     8,072,935     7,455,892     8,109,356  
 
 
 
 
 
 
Heritage Financial Group, Inc. and Subsidiary
Consolidated Statements of Income
(Unaudited)
 
(Dollars in thousands except share and per share data)
           
 
Five Quarter Comparison
6/30/2013     3/31/2013     12/31/2012     9/30/2012     6/30/2012
 

Interest income:
Interest and fees on loans $ 15,702 $ 13,369 $ 15,084 $ 13,067 $ 10,532
Interest on loans held for sale 916 504 238 342 204
Interest on taxable securities 1,095 866 762 924 1,016
Interest on nontaxable securities 308 285 232 298 295
Interest on federal funds sold 2 1 9 3 4
Interest on deposits in other banks 88   22   26   17   26  
Total interest income 18,111   15,047   16,351   14,651   12,077  
 

Interest expense:
Interest on deposits 1,041 1,054 1,108 1,257 1,246
Interest on other borrowings 844   749   713   681   672  
Total interest expense 1,885   1,803   1,821   1,938   1,918  
 
Net interest income 16,226 13,244 14,530 12,713 10,159
 
 
Provision for loan losses 640 450 600 750 750
Provision for loan losses- FDIC-acquired covered 28 35 1,907 1,172 338
Provision for loan losses- FDIC-acquired non-covered - - - 12 3
         
Net interest income after provision for loan losses 15,558   12,759   12,023   10,779   9,068  
 

Non-interest income:
Service charges on deposit accounts 1,297 1,154 1,307 1,285 1,135
Bankcard services income 831 762 794 783 831
Other service charges, commissions and fees 157 99 89 80 73
Brokerage fees 536 481 463 467 462
Mortgage banking activities 2,799 1,793 1,451 1,689 938
Bank-owned life insurance 201 202 210 210 211
Gain on sales of securities - - 1,285 1,484 27
Gain (loss) on acquisitions - 4,188 - (90 ) 34
Accretion of FDIC loss-share receivable (3,376 ) (2,397 ) (2,573 ) (1,122 ) (133 )
Other 124   94   66   59   101  
Total non-interest income 2,569   6,376   3,092   4,845   3,679  

Non-interest expense:
Salaries and employee benefits 8,185 6,430 6,167 6,380 5,460
Equipment and occupancy 1,838 1,666 1,597 1,317 1,395
Advertising and marketing 349 187 147 114 214
Professional fees 302 215 387 354 340
Information services expenses 1,307 1,182 1,184 1,240 1,163

Loss (gain) on sales and write-downs of other real estate owned
58 (25 ) 277 90 (141 )

(Gain) loss on sales and write-downs of FDIC-acquired other real estate owned
(251 ) 24 (204 ) (33 ) (249 )
Foreclosed asset expenses 227 215 353 177 218
Foreclosed FDIC-acquired asset expenses 313 421 575 563 466
FDIC insurance and other regulatory fees 278 256 252 276 265
Acquisition related expenses 148 792 3 14 69
Deposit intangible expenses 211 194 191 194 195
FDIC loss-share clawback expenses 124 566 219 484 -
Other operating expenses 1,466   1,233   1,166   1,292   1,279  
Total non-interest expense 14,555   13,356   12,314   12,462   10,674  
 
Income before income taxes 3,572 5,779 2,801 3,162 2,073
 
Applicable income tax 912   1,851   373   1,164   713  
 
Net income $ 2,660 $ 3,928 $ 2,428 $ 1,998 $ 1,360
 

Earnings per common share:
Basic earnings per share $0.36   $0.52   $0.31   $0.25   $0.17  
Diluted earnings per share $0.36   $0.52   $0.31   $0.25   $0.17  
Dividends $0.00   $0.00   $0.24   $0.04   $0.04  
 

Weighted average-common shares outstanding:
Basic 7,381,370   7,526,344   7,720,839   7,942,852   8,071,354  
Diluted 7,383,992   7,528,522   7,722,867   7,944,983   8,072,935  
 
 
 
 
 
 
Heritage Financial Group, Inc. and Subsidiary
Condensed Average Balances, Interest Rates and Yields
(Unaudited)
 
(Dollars in thousands)
 
  Three Months Ended   Six Months Ended
June 30, June 30,
2013   2012 2013   2012
Average     Average Average     Average Average     Average Average     Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest Rate

Interest-earning assets:
 

Loans(1)(2)
$ 793,576 $ 16,620 8.40 % $ 588,564 $ 10,738 7.34 % $ 746,503 $ 30,495 8.24 % $ 576,602 $ 21,071 7.35 %

Investment securities(2)
293,516 1,508 2.06 % 252,894 1,411 2.24 % 265,777 2,756 2.09 % 256,884 2,791 2.18 %
Other short-term investments   80,554   90 0.45 %   27,935   30 0.43 %   63,180   113 0.36 %   44,083   81 0.37 %
Total interest-earning assets   1,167,646   18,218 6.26 %   869,393   12,179 5.63 %   1,075,460   33,364 6.26 %   877,569   23,943 5.49 %
 
Non-interest earning assets   185,264   183,747   175,981   185,897
Total assets $ 1,352,910 $ 1,053,140 $ 1,251,441 $ 1,063,466
 

Interest-bearing liabilities:

Deposits:
Interest checking, money market and savings $ 570,606 $ 324 0.23 % $ 470,902 $ 345 0.29 % $ 523,154 $ 611 0.24 % $ 467,821 $ 756 0.32 %
Time deposits   362,264   717 0.79 %   289,507   901 1.25 %   342,229   1,484 0.87 %   304,897   1,753 1.16 %
Total interest bearing-deposits   932,870   1,041 0.45 %   760,409   1,246 0.66 %   865,383   2,095 0.49 %   772,718   2,509 0.65 %
 
Federal Funds purchased and securities sold under repurchase agreements 33,305 332 4.00 % 32,043 330 4.14 % 33,787 660 3.94 % 32,926 661 4.04 %
Other Borrowings   102,115   512 2.01 %   35,000   342 3.93 %   84,140   933 2.24 %   35,000   683 3.92 %
Total interest-bearing liabilities   1,068,290   1,885 0.71 %   827,452   1,918 0.93 %   983,310   3,688 0.76 %   840,644   3,853 0.92 %
 

Non-interest bearing liabilities:
Demand Deposits 147,376 89,763 133,296 87,325
Other Liabilities   15,546   10,842   13,584   10,209
Total non-interest bearing liabilities   162,922   100,605   146,880   97,534
 
Total liabilities   1,231,212   928,057   1,130,190   938,178
 
Shareholders' equity 121,698 125,083 121,251 125,288
 
Total liabilities & shareholders' equity $ 1,352,910 $ 1,053,140 $ 1,251,441 $ 1,063,466
 
Net interest income $ 16,333 $ 10,261 $ 29,676 $ 20,090
 
Interest rate spread 5.55 % 4.70 % 5.50 % 4.56 %
 
Net yield on interest-earning assets (net interest margin) 5.61 % 4.75 % 5.56 % 4.60 %
 
Core net interest margin (non-GAAP):
Loans(1)(2) $ 793,576 $ 16,620 8.40 % $ 588,564 $ 10,738 7.34 % $ 746,503 $ 30,495 8.24 % $ 576,602 $ 21,071 7.35 %
FDIC-acquired loan discount adjustments(3)   82,508   6,144 29.87 %   91,414   2,300 10.12 %   75,167   10,732 28.79 %   95,387   4,285 9.03 %
Adjusted loans   876,084   10,476 4.80 %   679,978   8,438 4.99 %   821,670   19,763 4.85 %   671,989   16,786 5.02 %
                       
Adjusted total interest-earning assets $ 1,250,154   12,074 3.87 % $ 960,807   9,879 4.14 % $ 1,150,627   22,632 3.97 % $ 972,956   19,658 4.06 %
                       
Total interest-bearing liabilities $ 1,068,290   1,885 0.71 % $ 827,452   1,918 0.93 % $ 983,310   3,688 0.76 % $ 840,644   3,853 0.92 %
 
Core Net interest income $ 10,189 $ 7,961 $ 18,944 $ 15,805
 
Core Interest rate spread 3.17 % 3.20 % 3.21 % 3.14 %
 
Core Net yield on interest-earning assets (net interest margin non-GAAP) 3.27 % 3.33 % 3.32 % 3.27 %
 

(1)
Average loan balances includes nonaccrual loans for the periods presented.

(2)
Fully Taxable Equivalent (“FTE”) at the rate of 34%. The FTE basis adjusts for the tax benefits of income on certain tax-exempt loans and investments using the federal statutory rate of 34% for each period presented. The Company believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts.

(3)
FDIC-acquired loan discount adjustments include the reduction of interest income for FDIC-acquired loan discount accretion excluding contractual interest payments and the increase of core loans for the total balance of FDIC-acquired loan discounts.
 
 
 
 
 
 
Heritage Financial Group, Inc. and Subsidiary
Consolidated Financial Highlights
(Unaudited)
 
(Dollars in thousands except share and per share data)
 
  Five Quarter Comparison

Financial Condition Data:
6/30/2013     3/31/2013     12/31/2012     9/30/2012     6/30/2012
       
Total loans $ 769,921 $ 752,866 $ 670,004 $ 634,932 $ 605,001
Loans held for sale 43,545 18,905 15,608 7,236 6,017
Covered loans 57,176 65,815 72,425 78,757 87,386
Allowance for loan losses 9,047 9,105 9,061 8,530 8,099
Total other real estate owned 11,949 13,851 12,709 11,458 9,290
Covered other real estate owned 7,815 9,460 9,467 9,457 7,571
FDIC loss-share receivable 48,106 52,012 60,731 67,698 76,294
Goodwill and intangible assets 4,455 4,666 4,235 4,426 4,621
Total assets 1,334,016 1,370,550 1,097,506 1,054,899 1,063,426
Non-interest-bearing deposits 148,219 151,709 116,272 108,767 87,815
Interest-bearing deposits 917,712 943,850 753,282 736,312 772,453
Other borrowings 101,940 102,210 60,000 35,000 35,000

Federal funds purchased and securities sold under agreement to repurchase
33,094 34,251 33,219 35,833 31,746
Stockholders' equity 118,540 120,655 120,649 121,793 123,291
 
Total shares outstanding 7,803,910 7,881,260 8,172,486 8,229,955 8,490,247
Unearned ESOP shares 359,186   372,511   385,836   399,162   412,487  
Total shares outstanding net of unearned ESOP 7,444,724   7,508,749   7,786,650   7,830,793   8,077,760  
 
Book value per share $ 15.92 $ 16.07 $ 15.49 $ 15.55 $ 15.26

Book value per share including unearned ESOP (non-GAAP)
15.19 15.31 14.76 14.80 14.52
Tangible book value per share (non-GAAP) 15.32 15.45 14.95 14.99 14.69

Tangible book value per share including unearned ESOP (non-GAAP)
14.62 14.72 14.24 14.26 13.98
Market value per share 14.75 14.48 13.79 13.14 12.87
 
 
 
 
Five Quarter Comparison
6/30/2013     3/31/2013     12/31/2012     9/30/2012     6/30/2012

Key Financial Ratios and other information:
 
Performance Ratios
Annualized return on average assets 0.79 % 1.37 % 0.89 % 0.75 % 0.52 %
Annualized return on average equity 8.74 % 13.01 % 7.90 % 6.40 % 4.35 %
Net interest margin 5.61 % 5.51 % 6.37 % 5.77 % 4.75 %
Net interest spread 5.55 % 5.44 % 6.30 % 5.72 % 4.70 %
Efficiency ratio 74.17 % 80.22 % 69.50 % 70.15 % 77.14 %
 
Capital Ratios
Average stockholders' equity to average assets 9.0 % 10.5 % 11.3 % 11.7 % 11.9 %
Tangible equity to tangible assets (non-GAAP) 8.6 % 8.5 % 10.6 % 11.2 % 11.2 %
Tier 1 leverage ratio 9.0 % 10.4 % 11.0 % 10.9 % 11.3 %
Tier 1 risk-based capital ratio 14.3 % 15.2 % 17.2 % 18.0 % 19.1 %
Total risk-based capital ratio 15.3 % 16.3 % 18.4 % 19.2 % 20.3 %
 
Other Information
Full-time equivalent employees 401 355 321 316 319
Banking 316 285 264 270 279
Mortgage 79 64 50 39 33
Investments 6 6 7 7 7
Number of full-service offices 29 29 20 23 22
Mortgage loan offices 12 12 13 11 11
Investment offices 4 4 4 4 3
 
 
 
 
 
 
 
Heritage Financial Group, Inc. and Subsidiary
Consolidated Financial Highlights
(Unaudited)
 
(Dollars in thousands)
  Five Quarter Comparison

Loans
6/30/2013     3/31/2013     12/31/2012     9/30/2012     6/30/2012
Construction and land $ 42,753   $ 37,659   $ 33,340   $ 30,010   $ 31,134
Farmland 23,447 20,749 20,141 20,298 18,121
Permanent 1 - 4 166,199 163,302 161,883 157,551 148,162
Permanent 1 - 4 - junior liens and revolving 29,432 28,852 27,345 25,507 25,289
Multifamily 26,301 24,280 21,293 19,805 19,639
Nonresidential 234,259 225,946 212,570 193,392 177,307
Commercial business 88,828 83,015 83,659 68,800 58,589
Consumer and other 26,889   19,931   25,498   26,521   24,172  
Total core loans $ 638,108   $ 603,734   $ 585,729   $ 541,884   $ 502,413  
 
FDIC-acquired non-covered 74,636   83,317   11,850   14,291   15,202  
Total loans 712,744   687,051   597,579   556,175   517,615  
 
FDIC-acquired covered 57,176 65,815 72,425 78,757 87,386
 
Allowance for loan losses 9,047   9,105   9,061   8,530   8,099  
$ 760,873   $ 743,761   $ 660,943   $ 626,402   $ 596,902  
 
 
 

Loan Balances by Geographical Region (excluding FDIC- acquired loans):
Five Quarter Comparison
6/30/2013     3/31/2013     12/31/2012     9/30/2012     6/30/2012
 
Albany, Georgia $ 282,509 $ 273,116 $ 282,151 $ 276,278 $ 265,194
Valdosta, Georgia 96,485 90,385 84,198 78,193 71,813
Ocala, Florida 58,240 58,533 55,197 56,101 55,120
Statesboro, Georgia 118,056 107,650 103,176 95,299 84,236
Auburn, Alabama 26,061 24,386 20,149 12,500 12,174
Macon, Georgia 55,935 49,165 40,858 23,513 13,876
Birmingham, Alabama 822   499   -   -   -  
$ 638,108   $ 603,734   $ 585,729   $ 541,884   $ 502,413  
 
 
 

Asset Quality Data (excluding FDIC -acquired loans):
Five Quarter Comparison
6/30/2013     3/31/2013     12/31/2012     9/30/2012     6/30/2012
 
 
Nonaccrual loans $ 12,223 $ 12,723 $ 14,678 $ 16,358 $ 9,965
Loans - 90 days past due & still accruing -   -   -   -   -  
Total non-performing loans 12,223   12,723   14,678   16,358   9,965  
 
OREO 3,046   3,028   2,650   1,403   1,519  
Total non-performing assets $ 15,269   $ 15,751   $ 17,328   $ 17,761   $ 11,484  
 
 
Trouble debt restructuring - nonaccrual $ 6,496 $ 4,593 $ 6,856 $ 8,981 $ 6,392
Trouble debt restructuring - accruing 2,009   2,023   7   8   3,497  
Total trouble debt restructuring $ 8,505   $ 6,616   $ 6,863   $ 8,989   $ 9,889  
 
Accruing past due loans $ 934 $ 1,316 $ 2,131 $ 1,038 $ 3,215
 
Total criticized assets 25,785 25,474 28,194 29,342 32,705
Total classified assets 22,985 22,118 25,129 26,754 28,374
 
Allowance for loan losses 9,047 9,105 9,061 8,530 8,099
Net charge-offs $ 698 $ 406 $ 68 $ 320 $ 279
 
 

Asset Quality Ratios:
 
Allowance for loan losses to total core loans 1.42 % 1.51 % 1.55 % 1.57 % 1.61 %
Allowance for loan losses to average core loans 1.45 % 1.53 % 1.62 % 1.61 % 1.70 %
Allowance for loan losses to non-performing loans 74.02 % 71.56 % 61.73 % 52.15 % 81.27 %
Non-performing loans to total core loans 1.92 % 2.11 % 2.51 % 3.02 % 1.98 %
Non-performing assets to total assets 1.14 % 1.15 % 1.58 % 1.68 % 1.08 %
Net charge-offs to average core loans (annualized) 0.45 % 0.27 % 0.05 % 0.24 % 0.23 %
 
 
 
 
 
 
 
Heritage Financial Group, Inc. and Subsidiary
Consolidated Financial Highlights
(Unaudited)
 
(Dollars in thousands)
  Five Quarter Comparison

FDIC-acquired assets
6/30/2013     3/31/2013     12/31/2012     9/30/2012     6/30/2012
       

FDIC-acquired non-covered loans:
Commercial real estate $ 27,258 $ 30,851 $ 6,359 $ 7,321 $ 7,684
Residential real estate 33,451 34,938 2,110 2,328 1,939
Construction and land 5,941 7,756 494 550 722
Commercial and industrial 4,106 5,125 1,574 2,270 2,711
Consumer and other   3,880     4,647     1,313     1,822     2,146  
Total 74,636 83,317 11,850 14,291 15,202

FDIC-acquired covered loans:
Commercial real estate 15,384 18,849 21,820 23,565 25,609
Residential real estate 27,283 30,735 32,846 35,399 38,724
Construction and land 12,645 13,370 14,248 14,293 16,495
Commercial and industrial 1,340 2,216 2,670 4,252 5,074
Consumer and other   524     645     841     1,248     1,484  
Total   57,176     65,815     72,425     78,757     87,386  
Total carrying value of FDIC-acquired loans $ 131,812   $ 149,132   $ 84,275   $ 93,048   $ 102,588  
Non-accrete discount for FDIC-acquired loans 55,170 59,558 46,000 54,204 66,556
Accretable discount for FDIC-acquired loans   23,007     26,136     21,834     24,396     18,848  
Total discount for FDIC-acquired loans   78,177     85,694     67,834     78,600     85,404  
Outstanding principal balance for FDIC-acquired loans $ 209,989   $ 234,826   $ 152,109   $ 171,648   $ 187,992  
 

FDIC-acquired OREO:
Non-covered $ 1,087 $ 1,363 $ 602 $ 598 $ 200
Covered   7,815     9,460     9,467     9,457     7,571  
Total carrying value of FDIC-acquired OREO $ 8,902   $ 10,823   $ 10,069   $ 10,055   $ 7,771  
Total discount for FDIC-acquired OREO   11,013     12,176     11,690     12,404     13,872  
Gross carrying value of FDIC-acquired OREO $ 19,915   $ 22,999   $ 21,759   $ 22,459   $ 21,643  
 

FDIC-acquired ratios:
Total discount to principal balance for FDIC-acquired loans 37.2 % 36.5 % 44.6 % 45.8 % 45.4 %
 
 
Five Quarter Comparison

Non-covered FDIC-acquired assets
6/30/2013     3/31/2013     12/31/2012     9/30/2012     6/30/2012
 

Outstanding principal balance:
FDIC-acquired non-covered loan pools $ 70,144 $ 76,675 $ 14,196 $ 16,685 $ 17,620

FDIC-acquired non-covered loans individually assessed
31,603     35,837     2,903     3,048     3,160  
Total non-covered outstanding principal loan balance 101,747 112,512 17,099 19,733 20,780
Gross carrying value for FDIC-acquired non-covered OREO   2,529     2,371     793     789     391  
Total gross balance of non-covered assets $ 104,276   $ 114,883   $ 17,892   $ 20,522   $ 21,171  

Non-covered non-accretable discount for estimated credit losses:
FDIC-acquired non-covered loan pools $ 9,341 9,479 1,775 1,891 2,093
FDIC-acquired non-covered loans individually assessed   14,894     16,482     2,130     2,218     2,260  
Total non-covered non-accretable discount 24,235 25,961 3,905 4,109 4,353
FDIC-acquired non-covered OREO discount   1,442     1,008     191     191     191  
Total non-covered discount for estimated credit losses 25,677     26,969     4,096     4,300     4,544  

Non-covered accretable discount:
Non-covered accretable discount for improvement in cash flows 318 475 381 723 490
Other non-covered accretable discount   2,558     2,759     963     610     735  
Total non-covered accretable discount   2,876     3,234     1,344     1,333     1,225  
Total non-covered discount $ 28,553   $ 30,203   $ 5,440   $ 5,633   $ 5,769  
 

Non-covered FDIC-acquired ratios:
Total discount to principal balance for non-covered FDIC-acquired loans 27.4 % 26.3 % 30.4 % 27.4 % 27.2 %
Gross balance of non-covered loans to total FDIC-acquired loans 48.5 % 47.9 % 11.2 % 11.5 % 11.1 %
 
 
Five Quarter Comparison

Covered FDIC-acquired assets
6/30/2013     3/31/2013     12/31/2012     9/30/2012     6/30/2012
 

Outstanding principal balance:
FDIC-acquired covered loan pools $ 79,552 $ 90,020 $ 98,570 $ 105,001 $ 113,410
FDIC-acquired covered loans individually assessed 28,690     32,294     36,440     46,914     53,802  
Total covered outstanding principal loan balance 108,242 122,314 135,010 151,915 167,212
Gross carrying value for FDIC-acquired OREO covered   17,385     20,628     20,966     21,670     21,252  
Total gross balance of covered assets $ 125,627   $ 142,942   $ 155,976   $ 173,585   $ 188,464  

Covered non-accretable discount for estimated credit losses:
FDIC-acquired covered loan pools $ 19,917 $ 20,705 $ 27,194 $ 28,618 $ 37,927
FDIC-acquired covered loans individually assessed 11,018     12,892     14,900     21,477     24,276  
Total covered non-accretable discount 30,935 33,597 42,094 50,095 62,203
FDIC-acquired covered OREO discount   9,570     11,168     11,499     12,213     13,681  
Total covered discount for estimated credit losses 40,505     44,765     53,593     62,308     75,884  

Covered accretable discount:
Covered accretable discount for improvement in cash flows 16,297 18,820 15,396 19,988 13,898
Other covered accretable discount   3,834     4,082     5,095     3,075     3,725  
Total covered accretable discount   20,131     22,902     20,491     23,063     17,623  
Total covered discount $ 60,636   $ 67,667   $ 74,084   $ 85,371   $ 93,507  
 

Covered FDIC-acquired ratios:
Total discount to principal balance for covered FDIC-acquired loans 48.3 % 47.3 % 47.5 % 49.2 % 49.6 %
 
 
 
Five Quarter Comparison

FDIC loss-share receivable
6/30/2013     3/31/2013     12/31/2012     9/30/2012     6/30/2012
 

FDIC loss-share receivable:
Single family estimated credit losses $ 9,764 $ 10,720 $ 11,292 $ 12,297 $ 12,457
Non-single family estimated credit losses 35,678 40,148 43,899 53,540 58,978
Pending reimbursements and other   2,664     1,144     5,540     1,861     4,859  
Total $ 48,106   $ 52,012   $ 60,731   $ 67,698   $ 76,294  
 
FDIC loss-share clawback liability $ 1,393   $ 1,269   $ 703   $ 484   $ -  
 
Total covered discount $ 60,636   $ 67,667   $ 74,084   $ 85,371   $ 93,507  
Total covered discount impacting FDIC loss-share receivable $ 56,802   $ 63,585   $ 68,989   $ 82,296   $ 89,782  
Total covered discount impacting FDIC loss-share receivable at 80% $ 45,442   $ 50,868   $ 55,191   $ 65,837   $ 71,826  
 

FDIC loss-share receivable ratios:
FDIC receivable as % of gross balance of covered assets 38.3 % 36.4 % 38.9 % 39.0 % 40.5 %
Covered discount at 80% as of % of FDIC receivable 94.5 % 97.8 % 90.9 % 97.3 % 94.1 %
 
 
 

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