Heritage Financial Group, Inc. Reports Third Quarter Net Income Of $1.3 Million Or $0.18 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, 2013. Key aspects of the Company's results for the third quarter of 2013 include:
  • Net income of $1.3 million or $0.18 per diluted share, down 50% from $2.7 million or $0.36 per diluted share for the linked quarter and down 34% from $2.0 million or $0.25 per diluted share for the year-earlier quarter;
  • Excluding special items for each quarter, net income of $1.8 million or $0.24 per diluted share, down 38% from $2.9 million or $0.39 per diluted share for the linked quarter and down 3% from $1.8 million or $0.23 per diluted share for the year-earlier quarter (see reconciliation of non-GAAP items);
  • Loan growth, excluding loans acquired through FDIC-assisted acquisitions, of $27.5 million or 4% on a linked-quarter basis and $123.7 million or 23% compared with the year-earlier quarter;
  • A decrease in FDIC-acquired loans of $8.3 million, or 6%, on a linked-quarter basis;
  • A decrease in the provision for loan losses, excluding FDIC-acquired loans, to $350,000, down 45% from $640,000 for the linked quarter and down 53% compared with $750,000 for the year-earlier quarter;
  • No provision for loan losses for FDIC-acquired loans for the current quarter compared with $28,000 for the linked quarter and $1.2 million for the year-earlier quarter; and
  • Non-performing assets to total assets declined to 1.03% for the third quarter of 2013 compared with 1.14% for the linked quarter and 1.68% for the year-earlier quarter.

Commenting on the results, Leonard Dorminey, President and Chief Executive Officer, said, "While net income declined for the quarter, we continue to make progress on many items that will enhance our ongoing profitability. Organic loan growth continues to significantly outpace the decline in our FDIC-acquired portfolios. Expense management efforts continue to progress as we closed two FDIC-acquired branches during the quarter and made further staffing reductions in our branch network. However, our mortgage banking revenue declined during the quarter, a trend seen across the industry as interest rates have recently risen. Although this rate increase slowed our refinance activity dramatically, we remain excited about our mortgage expansion, as our business is focused primarily on financing home purchases. We are also pleased to have recently received approval to sell mortgage loans directly to Fannie Mae. With this approval, we expect to increase our wholesale mortgage production significantly, improve our margins and enhance the future profitability of our mortgage business."

Operating Initiatives

During the third quarter of 2013, the Company closed its branch in Vincent, Alabama and its Broadway Avenue branch in Sylacauga, Alabama, both of which were added with the FDIC-assisted acquisition of Frontier Bank in March 2013. The Company does not expect to experience a significant reduction in customer relationships and will serve these customers from other nearby locations. Also, the Company completed staffing reductions related to the Frontier acquisition that will result in a decrease of approximately $1.6 million from Frontier's pre-acquisition level of personnel expenses. Separately, the Company reduced Bank staffing by nine full-time equivalent employees, resulting in a one-time charge of $60,000 for severance for the third quarter of 2013, expected severance of $7,000 for the fourth quarter of 2013, and anticipates expense savings of approximately $460,000 per year related to this staffing reduction.

Third Quarter 2013 Results of Operations

The $1.3 million decrease in reported quarterly earnings for the third quarter of 2013 compared with the linked quarter resulted primarily from the following items:
  • Decreased mortgage banking fees of $1.5 million;
  • Decreased loan discount accretion from FDIC-acquired loans of $2.4 million, partially offset by decreased negative accretion of the FDIC loss-share receivable of $1.9 million;
  • Increased legacy other real estate owned write-downs and foreclosed asset expenses of $387,000;
  • Increased acquisition-related expenses of $132,000;
  • Increased FDIC loss-share clawback expenses of $162,000; offset by
  • Increased interest income on core loans and loans held for sale of $320,000;
  • Decreased provision expense of $318,000; and
  • Increased service charges on deposit accounts of $280,000.

Commenting on the third quarter results, Heath Fountain, Executive Vice President and Chief Financial Officer, said, "Loan discount accretion income can vary significantly based on the timing of asset resolutions, and will continue to cause volatility in earnings. However, our loan growth continues to provide momentum for our earnings, and service charges on deposit accounts continue to grow as we expand our customer base. These revenue enhancements, along with our expense management efforts, are driving ongoing improvement in the results of our core bank.

"While other real estate and foreclosed asset expenses increased, primarily relating to one legacy relationship, our asset quality trends continue to improve, as evidenced by the decrease in provision expense," Fountain continued. "Future increases in mortgage revenue will be based on our ability to increase production, and while the refinance business decreased significantly with recent increases in rates, we are encouraged by our current loan pipeline and our recent success in recruiting originators focused on the purchase market."

The $676,000 decline in reported quarterly earnings for the third quarter of 2013 compared with the year-earlier quarter primarily resulted from the following items:
  • Increased non-interest expense of $2.9 million;
  • Reduced non-interest income of $927,000; offset by
  • Decreased provision expense of $1.6 million; and
  • Improved net interest income of $845,000.

Net interest income for the third quarter of 2013 increased 7% to $13.6 million from $12.7 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, offset in part by a reduction in FDIC-acquired loan discount accretion. The Company's net interest margin was 4.73% for the third quarter of 2013, a decline of 104 basis points from 5.77% for the year-earlier period. The reduction in net interest margin for the third quarter of 2013 compared with the year-earlier quarter was driven by a decline in the yield on loans and investment securities, offset in part 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. Excluding FDIC-acquired loan discount adjustments from the net interest margin, the core net interest margin was 3.23% for the third quarter of 2013, a decrease of eight basis points from 3.31% for the year-earlier quarter.

In the third quarter of 2013, the Company continued to achieve loan growth, with its core loan portfolio increasing $27.5 million organically on a linked-quarter basis and advancing $123.7 million overall compared with the year-earlier quarter. For the third quarter of 2013, the Company's loan portfolio, including FDIC-acquired loans, totaled $789.1 million, increasing $19.2 million on a linked-quarter basis from $769.9 million and from $634.9 million compared with the year-earlier quarter. The organic loan growth for the linked quarter was primarily driven by growth in Statesboro, Albany, Valdosta, and Macon, Georgia and Auburn, Alabama markets. For the third quarter of 2013, the Company's loans held for sale totaled $38.0 million, decreasing $5.5 million, or 13%, on a linked-quarter basis from $43.5 million, but significantly increased $30.8 million, or 81%, from $7.2 million compared with the year-earlier quarter. Total deposits stood at $1.052 billion at the end of the third quarter of 2013, down 1% from $1.065 billion on a linked-quarter basis, but up 25% from $845.1 million at September 30, 2012.

Non-interest income for the third quarter of 2013 decreased 19% to $3.9 million from $4.8 million in the year-earlier quarter, primarily driven by a decline in the gain on sale of securities of $1.5 million and an increase in negative accretion for the FDIC loss-share receivable of $377,000, partially offset by increases in service charges on deposit accounts of $292,000 and mortgage banking fees of $264,000. Non-interest expense for the third quarter of 2013 increased 23% to $15.3 million from $12.5 million in the year-earlier quarter, primarily driven by increased salaries and employee benefits of $1.7 million associated with the hiring of employees from the Frontier acquisition and for the mortgage division. The increased equipment and occupancy expense of $615,000 related to the Company's continued efforts to expand the mortgage division and the Frontier acquisition. The increased acquisition-related expense resulted from final expenses associated to the conversion of the Frontier operating system.

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.

The covered FDIC-acquired loan discounts affecting the loss-share receivable was $42.7 million, or 95.9% of the loss-share receivable, for the third quarter 2013 compared with $65.8 million, or 97.3% of the loss-share receivable, for the year-earlier quarter. The gross balance of covered FDIC-acquired assets decreased to $116.2 million for the third quarter of 2013 compared with $173.6 million for the year-earlier quarter. The FDIC loss-share receivable as a percent of the covered FDIC-acquired assets decreased to 38.3% compared with 39.0% for the year-earlier quarter.

Asset Quality

Total non-performing assets, excluding FDIC-acquired assets, decreased to $13.6 million, or 1.03% of total assets, compared with $15.3 million, or 1.14% of total assets, for the linked quarter and declined from $17.8 million, or 1.68% of total assets, for the year-earlier quarter. Annualized net charge-offs to average outstanding loans, excluding FDIC-acquired loans, were 0.31% for the third quarter of 2013 compared with 0.45% for the linked quarter and 0.24% for the year-earlier quarter. Non-performing loans totaled $11.0 million, down from $12.2 million for the linked quarter and from $16.4 million for the year-earlier quarter. Other real estate owned and repossessed assets, excluding FDIC-acquired assets, totaled $2.7 million for the third quarter of 2013, down from $3.0 million for the linked quarter, but up from the $1.4 million for the year-earlier quarter. Approximately $900,000 of this increase is related to one relationship in the Albany, Georgia market area, which has been liquated subsequent to the end of the quarter.

The provision for loan losses on non-FDIC-acquired loans decreased to $350,000 for the third quarter of 2013 from $640,000 for the linked quarter and from $750,000 for the year-earlier quarter, primarily driven by improving trends in total criticized and classified assets. For the third quarter in 2013, the allowance for loan losses represented 1.34% of total loans outstanding, excluding FDIC-acquired loans, versus 1.42% for the linked quarter and 1.57% 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.

Capital Management Initiatives

During the third quarter of 2013, the Company repurchased approximately 5,000 shares of common stock at an average price of $14.91 under its stock repurchase program. Authorization to repurchase approximately 344,000 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 September 30, 2013, was 14.3%, 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 8.8% as of September 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.

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 27 full-service branch locations, 12 mortgage offices, and 4 investment offices. As of September 30, 2013, the Company reported total assets of approximately $1.3 billion and total stockholders' equity of approximately $121 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   Nine Months Ended

September 30,
September 30,   June 30,
2013   2012 2013 2013   2012
Total non-interest income $ 3,918 $ 4,845 $ 2,569 $ 13,875 $ 11,308
Gain on sale of securities (1,484 ) (1,554 )
(Gain) loss on acquisitions       90         (4,188 )   56  
Adjusted non-interest income $ 3,918   $ 3,451   $ 2,569   $ 9,687   $ 9,810  
 
Total non-interest expense $ 15,334 $ 12,462 $ 14,555 $ 43,242 $ 33,938
Salaries and employee benefits – early retirement and severance expense (60 ) (641 ) (60 ) (641 )
Acquisition-related expenses (280 ) (14 ) (148 ) (1,220 ) (414 )
Accrual of FDIC acquisitions estimated clawback liability   (286 )   (484 )   (124 )   (978 )   (484 )
Adjusted non-interest expense $ 14,708   $ 11,323   $ 14,283   $ 40,984   $ 32,399  
 
Net income as reported $ 1,322 $ 1,998 $ 2,660 $ 7,910 $ 4,329
Total adjustments, net of tax*   462     (161 )   203     (1,370 )   27  
Adjusted net income $ 1,784   $ 1,837   $ 2,863   $ 6,540   $ 4,356  
 
Diluted earnings per share $ 0.18 $ 0.25 $ 0.36 $ 1.05 $ 0.54
Total adjustments, net of tax*   0.06     (0.02 )   0.03     (0.18 )   0.00  

Adjusted diluted earnings per share
$ 0.24   $ 0.23   $ 0.39   $ 0.87   $ 0.54  
 

* 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)  
September 30, December 31,
2013 2012*
 
 
Cash and due from banks $ 28,862 $ 23,993
Interest-bearing deposits in banks 13,992 15,393
Federal funds sold   6,900     4,306  
Cash and cash equivalents 49,754 43,692
 
Securities available for sale, at fair value 303,635 221,406
Federal Home Loan Bank stock, at cost 5,992 4,330
Other equity securities, at cost 1,010 1,010
Loans held for sale 38,042 15,608
Loans 735,249 597,579
Covered loans 53,843 72,425
Less allowance for loan losses   8,894     9,061  
Loans, net   780,198     660,943  
 
Other real estate owned 4,335 3,242
Covered other real estate owned   5,909     9,467  
Total other real estate owned   10,244     12,709  
 
FDIC loss-share receivable 44,527 60,731
Premises and equipment, net 38,351 33,015
Goodwill and intangible assets 4,251 4,235
Cash surrender value of bank owned life insurance 23,986 23,382
Other assets   22,319     16,445  
Total assets $ 1,322,309   $ 1,097,506  
 

LIABILITIES AND SHAREHOLDERS' EQUITY
 
Non-interest-bearing deposits $ 153,163 $ 116,272
Interest-bearing deposits   899,318     753,282  
Total deposits   1,052,481     869,554  
 
Federal funds purchased and securities sold under repurchase agreements 35,393 33,219
Other borrowings 101,667 60,000
Other liabilities   12,234     14,084  
Total liabilities   1,201,775     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; 7,834,765 and 8,172,486 shares issued and outstanding, respectively
78 82
Capital surplus 78,262 82,154
Retained earnings 54,209 46,299
Accumulated other comprehensive loss, net of tax of $5,621 and $2,566, respectively (8,431 ) (3,849 )
Unearned employee stock ownership plan (ESOP), 345,860 and 385,836 shares, respectively   (3,584 )   (4,037 )
Total shareholders' equity   120,534     120,649  
 
Total liabilities & shareholders' equity $ 1,322,309   $ 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   Nine Months Ended
September 30,   September 30, September 30,   September 30,
2013 2012 2013 2012
 

Interest income:
Interest and fees on loans $   13,452 $   13,067 $   42,523 $   33,747
Interest on loans held for sale 434 342 839 729
Interest on taxable securities 1,155 924 3,116 2,919
Interest on nontaxable securities 318 298 911 891
Interest on federal funds sold 4 3 7 21
Interest on deposits in other banks     30       17       140       80  
Total interest income     15,393       14,651       47,536       38,387  
 

Interest expense:
Interest on deposits 982 1,257 3,077 3,766
Interest on other borrowings     853       681       2,446       2,025  
Total interest expense     1,835       1,938       5,523       5,791  
 
Net interest income 13,558 12,713 42,013 32,596
 
Provision for loan losses     350       1,934       1,503       3,424  
 
Net interest income after provision for loan losses     13,208       10,779       40,510       29,172  
 

Non-interest income:
Service charges on deposit accounts 1,577 1,285 4,028 3,441
Bankcard services income 852 783 2,445 2,437
Other service charges, commissions and fees 136 80 392 238
Brokerage fees 561 467 1,578 1,375
Mortgage banking activities 1,953 1,689 7,560 3,316
Bank-owned life insurance 200 210 603 561
Gain on sales of securities - 1,484 - 1,554
Gain (loss) on acquisitions - (90 ) 4,188 (56 )
Accretion of FDIC loss-share receivable (1,499 ) (1,122 ) (7,275 ) (1,752 )
Other     138       59       356       194  
Total non-interest income     3,918       4,845       13,875       11,308  

Non-interest expense:
Salaries and employee benefits 8,108 6,380 22,723 17,376
Equipment and occupancy 1,932 1,317 5,436 4,035
Advertising and marketing 335 114 871 509
Professional fees 340 354 857 932
Information services expenses 1,335 1,240 3,824 3,456

Loss (gain) on sales and write-downs of other real estate owned
335 90 368 (58 )

Gain on sales and write-downs of FDIC-acquired other real estate owned
(206 ) (33 ) (433 ) (108 )
Foreclosed asset expenses 337 177 779 617
Foreclosed FDIC-acquired asset expenses 353 563 1,087 1,191
FDIC insurance and other regulatory fees 293 276 827 785
Acquisition related expenses 280 14 1,220 414
Deposit intangible expenses 204 194 609 590
FDIC loss-share clawback expenses 286 484 978 484
Other operating expenses     1,402       1,292       4,096       3,715  
Total non-interest expense     15,334       12,462       43,242       33,938  
 
Income before income taxes 1,792 3,162 11,143 6,542
 
Applicable income tax     470       1,164       3,233       2,213  
 
Net income $   1,322   $   1,998   $   7,910   $   4,329  
 

Earnings per common share:
Basic earnings per share $0.18   $0.25   $1.07   $0.54  
Diluted earnings per share $0.18   $0.25   $1.05   $0.54  
 

Weighted average-common shares outstanding:
Basic     7,371,804       7,942,852       7,425,940       8,052,462  
Diluted     7,483,812       7,944,983       7,519,664       8,054,183  
 
 
 
 
 
 
Heritage Financial Group, Inc. and Subsidiary
Consolidated Statements of Income
(Unaudited)
 
(Dollars in thousands except share and per share data)
 
  Five Quarter Comparison
9/30/2013   6/30/2013   3/31/2013   12/31/2012   9/30/2012
       

Interest income:
Interest and fees on loans $ 13,452 $ 15,702 $ 13,369 $ 15,084 $ 13,067
Interest on loans held for sale 434 290 115 238 342
Interest on taxable securities 1,155 1,095 866 762 924
Interest on nontaxable securities 318 308 285 232 298
Interest on federal funds sold 4 2 1 9 3
Interest on deposits in other banks   30     88     22     26     17  
Total interest income   15,393     17,485     14,658     16,351     14,651  
 

Interest expense:
Interest on deposits 982 1,041 1,054 1,108 1,257
Interest on other borrowings   853     844     749     713     681  
Total interest expense   1,835     1,885     1,803     1,821     1,938  
 
Net interest income 13,558 15,600 12,855 14,530 12,713
 
 
Provision for loan losses 350 640 450 600 750
Provision for loan losses- FDIC-acquired covered - 28 35 1,907 1,172
Provision for loan losses- FDIC-acquired non-covered - - - - 12
                   
Net interest income after provision for loan losses   13,208     14,932     12,370     12,023     10,779  
 

Non-interest income:
Service charges on deposit accounts 1,577 1,297 1,154 1,307 1,285
Bankcard services income 852 831 762 794 783
Other service charges, commissions and fees 136 157 99 89 80
Brokerage fees 561 536 481 463 467
Mortgage banking activities 1,953 3,425 2,182 1,451 1,689
Bank-owned life insurance 200 201 202 210 210
Gain on sales of securities - - - 1,285 1,484
Gain (loss) on acquisitions - - 4,188 - (90 )
Accretion of FDIC loss-share receivable (1,499 ) (3,376 ) (2,397 ) (2,573 ) (1,122 )
Other   138     124     94     66     59  
Total non-interest income   3,918     3,195     6,765     3,092     4,845  

Non-interest expense:
Salaries and employee benefits 8,108 8,185 6,430 6,167 6,380
Equipment and occupancy 1,932 1,838 1,666 1,597 1,317
Advertising and marketing 335 349 187 147 114
Professional fees 340 302 215 387 354
Information services expenses 1,335 1,307 1,182 1,184 1,240

Loss (gain) on sales and write-downs of other real estate owned
335 58 (25 ) 277 90

(Gain) loss on sales and write-downs of FDIC-acquired other real estate owned
(206 ) (251 ) 24 (204 ) (33 )
Foreclosed asset expenses 337 227 215 353 177
Foreclosed FDIC-acquired asset expenses 353 313 421 575 563
FDIC insurance and other regulatory fees 293 278 256 252 276
Acquisition related expenses 280 148 792 3 14
Deposit intangible expenses 204 211 194 191 194
FDIC loss-share clawback expenses 286 124 566 219 484
Other operating expenses   1,402     1,466     1,233     1,166     1,292  
Total non-interest expense   15,334     14,555     13,356     12,314     12,462  
 
Income before income taxes 1,792 3,572 5,779 2,801 3,162
 
Applicable income tax   470     912     1,851     373     1,164  
 
Net income $ 1,322   $ 2,660   $ 3,928   $ 2,428   $ 1,998  
 

Earnings per common share:
Basic earnings per share $0.18   $0.36   $0.52   $0.31   $0.25  
Diluted earnings per share $0.18   $0.36   $0.52   $0.31   $0.25  
Dividends $0.00   $0.00   $0.00   $0.24   $0.04  
 

Weighted average-common shares outstanding:
Basic 7,371,804   7,381,370   7,526,344   7,720,839   7,942,852  
Diluted 7,483,812   7,383,992   7,528,522   7,722,867   7,944,983  
 
 
 
 
 
 
Heritage Financial Group, Inc. and Subsidiary
Condensed Average Balances, Interest Rates and Yields
(Unaudited)
 
(Dollars in thousands)
 
  Three Months Ended   Nine Months Ended
September 30, September 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)
$ 817,366 $ 13,891 6.74 % $ 622,643 $ 13,411 8.57 % $ 770,383 $ 43,371 7.53 % $ 592,060 $ 34,482 7.78 %

Investment securities (2)
303,349 1,582 2.07 % 235,862 1,322 2.23 % 278,438 4,337 2.08 % 249,826 4,113 2.20 %
Other short-term investments   26,862   34 0.50 %   24,814   20 0.32 %   50,941   147 0.39 %   37,613   102 0.36 %
Total interest-earning assets   1,147,577   15,507 5.36 %   883,319   14,753 6.64 %   1,099,762   47,855 5.82 %   879,499   38,697 5.88 %
 
Non-interest earning assets   179,188   186,811   177,064   186,202
Total assets $ 1,326,765 $ 1,070,130 $ 1,276,826 $ 1,065,701
 

Interest-bearing liabilities:

Deposits:
Interest checking, money market and savings $ 549,561 $ 306 0.22 % $ 475,975 $ 313 0.26 % $ 532,053 $ 918 0.23 % $ 470,557 $ 1,071 0.30 %
Time deposits   359,631   676 0.75 %   292,272   944 1.28 %   348,095   2,159 0.83 %   300,657   2,695 1.20 %
Total interest bearing-deposits   909,192   982 0.43 %   768,247   1,257 0.65 %   880,148   3,077 0.47 %   771,214   3,766 0.65 %
 
Federal Funds purchased and securities sold under repurchase agreements 33,965 335 3.91 % 33,916 335 3.93 % 33,846 995 3.93 % 33,259 996 4.00 %
Other Borrowings   101,814   518 2.02 %   35,326   346 3.90 %   90,096   1,451 2.15 %   35,109   1,029 3.91 %
Total interest-bearing liabilities   1,044,971   1,835 0.70 %   837,489   1,938 0.92 %   1,004,090   5,523 0.74 %   839,582   5,791 0.92 %
 

Non-interest bearing liabilities:
Demand Deposits 150,840 94,453 139,208 89,719
Other Liabilities   12,120   13,304   13,091   11,248
Total non-interest bearing liabilities   162,960   107,757   152,299   100,967
 
Total liabilities   1,207,931   945,246   1,156,389   940,549
 
Shareholders' equity 118,834 124,884 120,437 125,152
 
Total liabilities & shareholders' equity $ 1,326,765 $ 1,070,130 $ 1,276,826 $ 1,065,701
 
Net interest income $ 13,672 $ 12,815 $ 42,332 $ 32,906
 
Interest rate spread 4.66 % 5.72 % 5.08 % 4.96 %
 
Net yield on interest-earning assets (net interest margin) 4.73 % 5.77 % 5.15 % 5.00 %
 
Core net interest margin (non-GAAP):
Loans (1)(2) $ 817,366 $ 13,891 6.74 % $ 622,643 $ 13,411 8.57 % $ 770,383 $ 43,371 7.53 % $ 592,060 $ 34,482 7.78 %
FDIC-acquired loan discount adjustments (3)   75,023   3,718 19.66 %   81,643   4,778 23.28 %   75,118   14,450 25.72 %   90,772   9,063 13.34 %
Adjusted loans   892,389   10,173 4.52 %   704,286   8,633 4.88 %   845,501   28,921 4.57 %   682,832   25,419 4.97 %
                       
Adjusted total interest-earning assets $ 1,222,600   11,789 3.83 % $ 964,962   9,975 4.11 % $ 1,174,880   33,405 3.80 % $ 970,271   29,634 4.08 %
                       
Total interest-bearing liabilities $ 1,044,971   1,835 0.70 % $ 837,489   1,938 0.92 % $ 1,004,090   5,523 0.74 % $ 839,582   5,791 0.92 %
 
Core Net interest income $ 9,954 $ 8,037 $ 27,882 $ 23,843
 
Core Interest rate spread 3.13 % 3.19 % 3.07 % 3.16 %
 
Core Net yield on interest-earning assets (net interest margin non-GAAP) 3.23 % 3.31 % 3.17 % 3.28 %
 
(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:
9/30/2013   6/30/2013   3/31/2013   12/31/2012   9/30/2012
   
Total loans $ 789,092 $ 769,921 $ 752,866 $ 670,004 $ 634,932
Loans held for sale 38,042 43,545 18,905 15,608 7,236
Covered loans 53,843 57,176 65,815 72,425 78,757
Allowance for loan losses 8,894 9,047 9,105 9,061 8,530
Total other real estate owned 10,244 11,949 13,851 12,709 11,458
Covered other real estate owned 5,909 7,815 9,460 9,467 9,457
FDIC loss-share receivable 44,527 48,106 52,012 60,731 67,698
Goodwill and intangible assets 4,251 4,455 4,666 4,235 4,426
Total assets 1,322,309 1,334,016 1,370,550 1,097,506 1,054,899
Non-interest-bearing deposits 153,163 148,219 151,709 116,272 108,767
Interest-bearing deposits 899,318 917,712 943,850 753,282 736,312
Other borrowings 101,667 101,940 102,210 60,000 35,000

Federal funds purchased and securities sold under agreement to repurchase
35,393 33,094 34,251 33,219 35,833
Stockholders' equity 120,534 118,540 120,655 120,649 121,793
 
Total shares outstanding 7,834,765 7,803,910 7,881,260 8,172,486 8,229,955
Unearned ESOP shares   345,860     359,186     372,511     385,836     399,162  
Total shares outstanding net of unearned ESOP   7,488,905     7,444,724     7,508,749     7,786,650     7,830,793  
 
Book value per share $ 16.10 $ 15.92 $ 16.07 $ 15.49 $ 15.55

Book value per share including unearned ESOP (non-GAAP)
15.38 15.19 15.31 14.76 14.80
Tangible book value per share (non-GAAP) 15.53 15.32 15.45 14.95 14.99

Tangible book value per share including unearned ESOP (non-GAAP)
14.84 14.62 14.72 14.24 14.26
Market value per share 17.42 14.75 14.48 13.79 13.14
 
 
 
 
Five Quarter Comparison
9/30/2013 6/30/2013   3/31/2013     12/31/2012   9/30/2012

Key Financial Ratios and other information:
 
Performance Ratios
Annualized return on average assets 0.40 % 0.79 % 1.37 % 0.89 % 0.75 %
Annualized return on average equity 4.41 % 8.74 % 13.01 % 7.90 % 6.40 %
Net interest margin 4.73 % 5.61 % 5.51 % 6.37 % 5.77 %
Net interest spread 4.66 % 5.55 % 5.44 % 6.30 % 5.72 %
Efficiency ratio 82.29 % 74.17 % 80.22 % 69.50 % 70.15 %
 
Capital Ratios
Average stockholders' equity to average assets 9.0 % 9.0 % 10.5 % 11.3 % 11.7 %
Tangible equity to tangible assets (non-GAAP) 8.8 % 8.6 % 8.5 % 10.6 % 11.2 %
Tier 1 leverage ratio 9.4 % 9.0 % 10.4 % 11.0 % 10.9 %
Tier 1 risk-based capital ratio 14.3 % 14.3 % 15.2 % 17.2 % 18.0 %
Total risk-based capital ratio 15.4 % 15.3 % 16.3 % 18.4 % 19.2 %
 
Other Information
Full-time equivalent employees 412 401 355 321 316
Banking 308 316 285 264 270
Mortgage 97 79 64 50 39
Investments 7 6 6 7 7
Number of full-service offices 27 29 29 20 23
Mortgage loan offices 12 12 12 13 11
Investment offices 4 4 4 4 4
 
 
 
 
 
 
 
Heritage Financial Group, Inc. and Subsidiary
Consolidated Financial Highlights
(Unaudited)
 
(Dollars in thousands)
  Five Quarter Comparison

Loans
  9/30/2013       6/30/2013       3/31/2013       12/31/2012       9/30/2012  
Construction and land $ 48,808   $ 42,753   $ 37,659   $ 33,340   $ 30,010
Farmland 22,561 23,447 20,749 20,141 20,298
Permanent 1 - 4 169,105 166,199 163,302 161,883 157,551
Permanent 1 - 4 - junior liens and revolving 30,180 29,432 28,852 27,345 25,507
Multifamily 27,468 26,301 24,280 21,293 19,805
Nonresidential 250,859 234,259 225,946 212,570 193,392
Commercial business 95,108 88,828 83,015 83,659 68,800
Consumer and other   21,499     26,889     19,931     25,498     26,521  
Total core loans $ 665,588   $ 638,108   $ 603,734   $ 585,729   $ 541,884  
 
FDIC-acquired non-covered   69,661     74,637     83,317     11,850     14,291  
Total loans   735,249     712,745     687,051     597,579     556,175  
 
FDIC-acquired covered 53,843 57,176 65,815 72,425 78,757
 
Allowance for loan losses   8,894     9,047     9,105     9,061     8,530  
$ 780,198   $ 760,874   $ 743,761   $ 660,943   $ 626,402  
   
 
   

Loan Balances by Geographical Region (excluding FDIC- acquired loans):
Five Quarter Comparison
  9/30/2013       6/30/2013       3/31/2013       12/31/2012       9/30/2012  
 
Albany, Georgia $ 288,089 $ 282,509 $ 273,116 $ 282,151 $ 276,278
Valdosta, Georgia 101,729 96,485 90,385 84,198 78,193
Ocala, Florida 58,115 58,240 58,533 55,197 56,101
Statesboro, Georgia 124,667 118,056 107,650 103,176 95,299
Auburn, Alabama 31,485 26,061 24,386 20,149 12,500
Macon, Georgia 60,197 55,935 49,165 40,858 23,513
Birmingham, Alabama 344 822 499 - -
South Atlanta, Georgia   962     -     -     -     -  
$ 665,588   $ 638,108   $ 603,734   $ 585,729   $ 541,884  
 
 
 

Asset Quality Data (excluding FDIC -acquired loans):
Five Quarter Comparison
  9/30/2013       6/30/2013       3/31/2013       12/31/2012       9/30/2012  
 
 
Nonaccrual loans $ 10,986 $ 12,223 $ 12,723 $ 14,677 $ 16,358
Loans - 90 days past due & still accruing   -     -     -     -     -  
Total non-performing loans   10,986     12,223     12,723     14,677     16,358  
 
OREO   2,654     3,046     3,028     2,620     1,403  
Total non-performing assets $ 13,640   $ 15,269   $ 15,751   $ 17,297   $ 17,761  
 
 
Trouble debt restructuring - nonaccrual $ 5,840 $ 6,496 $ 4,593 $ 6,856 $ 8,981
Trouble debt restructuring - accruing   1,996     2,009     2,023     7     8  
Total trouble debt restructuring $ 7,836   $ 8,505   $ 6,616   $ 6,863   $ 8,989  
 
Accruing past due loans $ 669 $ 934 $ 1,316 $ 2,131 $ 1,038
 
Total criticized assets 26,116 25,785 25,474 28,194 29,342
Total classified assets 23,048 22,985 22,118 25,129 26,754
 
Allowance for loan losses 8,894 9,047 9,105 9,061 8,530
Net charge-offs $ 503 $ 698 $ 406 $ 68 $ 320
 
 

Asset Quality Ratios:
 
Allowance for loan losses to total core loans 1.34 % 1.42 % 1.51 % 1.55 % 1.57 %
Allowance for loan losses to average core loans 1.37 % 1.45 % 1.53 % 1.62 % 1.61 %
Allowance for loan losses to non-performing loans 80.96 % 74.02 % 71.56 % 61.73 % 52.15 %
Non-performing loans to total core loans 1.65 % 1.92 % 2.11 % 2.51 % 3.02 %
Non-performing assets to total assets 1.03 % 1.14 % 1.15 % 1.58 % 1.68 %
Net charge-offs to average core loans (annualized) 0.31 % 0.45 % 0.27 % 0.05 % 0.24 %
 
 
 
 
 
 
 
Heritage Financial Group, Inc. and Subsidiary
Consolidated Financial Highlights
(Unaudited)
 
(Dollars in thousands)
    Five Quarter Comparison

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

FDIC-acquired non-covered loans:
Commercial real estate $ 25,027 $ 27,258 $ 30,851 $ 6,359 $ 7,321
Residential real estate 32,318 33,452 34,938 2,110 2,328
Construction and land 5,195 5,941 7,756 494 550
Commercial and industrial 3,638 4,106 5,125 1,574 2,270
Consumer and other   3,483     3,880     4,647     1,313     1,822  
Total 69,661 74,637 83,317 11,850 14,291

FDIC-acquired covered loans:
Commercial real estate 14,956 15,384 18,849 21,820 23,565
Residential real estate 25,082 27,283 30,735 32,846 35,399
Construction and land 12,469 12,645 13,370 14,248 14,293
Commercial and industrial 924 1,340 2,216 2,670 4,252
Consumer and other   412     524     645     841     1,248  
Total   53,843     57,176     65,815     72,425     78,757  
Total carrying value of FDIC-acquired loans $ 123,504   $ 131,813   $ 149,132   $ 84,275   $ 93,048  
Non-accrete discount for FDIC-acquired loans 48,545 55,170 59,558 46,000 54,204
Accretable discount for FDIC-acquired loans   23,445     23,007     26,136     21,834     24,396  
Total discount for FDIC-acquired loans   71,990     78,177     85,694     67,834     78,600  
Outstanding principal balance for FDIC-acquired loans $ 195,494   $ 209,989   $ 234,826   $ 152,109   $ 171,648  
 

FDIC-acquired OREO:
Non-covered $ 1,680 $ 1,087 $ 1,363 $ 602 $ 598
Covered   5,909     7,815     9,460     9,467     9,457  
Total carrying value of FDIC-acquired OREO $ 7,589   $ 8,902   $ 10,823   $ 10,069   $ 10,055  
Total discount for FDIC-acquired OREO   12,038     11,013     12,176     11,690     12,404  
Gross carrying value of FDIC-acquired OREO $ 19,627   $ 19,915   $ 22,999   $ 21,759   $ 22,459  
 

Total loan discount accretion recognized in income:
Individual assessed discount accretion $ 791 $ 2,336 $ 637 $ 2,515 $ 1,557
Pooled assessed discount accretion   2,927     3,808     3,951     4,131     3,221  
Total loan discount accretion recognized in income $ 3,718   $ 6,144   $ 4,588   $ 6,646   $ 4,778  
 

FDIC-acquired ratios:
Total discount to principal balance for FDIC-acquired loans 36.8 % 37.2 % 36.5 % 44.6 % 45.8 %
   
   
Five Quarter Comparison

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

Outstanding principal balance:
FDIC-acquired non-covered loan pools $ 66,294 $ 70,144 $ 76,675 $ 14,196 $ 16,685
FDIC-acquired non-covered loans individually assessed   27,627     31,603     35,837     2,903     3,048  
Total non-covered outstanding principal loan balance 93,921 101,747 112,512 17,099 19,733
Gross carrying value for FDIC-acquired non-covered OREO   4,993     2,529     2,371     793     789  
Total gross balance of non-covered assets $ 98,914   $ 104,276   $ 114,883   $ 17,892   $ 20,522  

Non-covered non-accretable discount for estimated credit losses:
FDIC-acquired non-covered loan pools $ 9,297 9,341 9,479 1,775 1,891
FDIC-acquired non-covered loans individually assessed   12,294     14,894     16,482     2,130     2,218  
Total non-covered non-accretable discount 21,591 24,235 25,961 3,905 4,109
FDIC-acquired non-covered OREO discount   3,313     1,442     1,008     191     191  
Total non-covered discount for estimated credit losses   24,904     25,677     26,969     4,096     4,300  

Non-covered accretable discount:
Non-covered accretable discount for improvement in cash flows 380 318 475 381 723
Other non-covered accretable discount   2,288     2,558     2,759     963     610  
Total non-covered accretable discount   2,668     2,876     3,234     1,344     1,333  
Total non-covered discount $ 27,572   $ 28,553   $ 30,203   $ 5,440   $ 5,633  
 

Non-covered loan discount accretion recognized in income:
Individual assessed discount accretion $ 619 $ 974 $ 42 $ 29 $ 15
Pooled assessed discount accretion   184     174     24     39     40  
Total non-covered discount accretion recognized in income $ 803   $ 1,148   $ 66   $ 68   $ 55  
 

Non-covered FDIC-acquired ratios:
Total discount to principal balance for non-covered FDIC-acquired assets 27.9 % 27.4 % 26.3 % 30.4 % 27.4 %
Gross balance of non-covered loans to total FDIC-acquired loans 48.0 % 48.5 % 47.9 % 11.2 % 11.5 %
   
   
Five Quarter Comparison

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

Outstanding principal balance:
FDIC-acquired covered loan pools $ 74,020 $ 79,552 $ 90,020 $ 98,570 $ 105,001
FDIC-acquired covered loans individually assessed   27,554     28,690     32,294     36,440     46,914  
Total covered outstanding principal loan balance 101,574 108,242 122,314 135,010 151,915
Gross carrying value for FDIC-acquired OREO covered 14,634     17,385     20,628     20,966     21,670  
Total gross balance of covered assets $ 116,208   $ 125,627   $ 142,942   $ 155,976   $ 173,585  

Covered non-accretable discount for estimated credit losses:
FDIC-acquired covered loan pools $ 16,281 $ 19,917 $ 20,705 $ 27,194 $ 28,618
FDIC-acquired covered loans individually assessed   10,673     11,018     12,892     14,900     21,477  
Total covered non-accretable discount 26,954 30,935 33,597 42,094 50,095
FDIC-acquired covered OREO discount   8,725     9,570     11,168     11,499     12,213  
Total covered discount for estimated credit losses   35,679     40,505     44,765     53,593     62,308  

Covered accretable discount:
Covered accretable discount for improvement in cash flows 17,676 16,297 18,820 15,396 19,988
Other covered accretable discount   3,101     3,834     4,082     5,095     3,075  
Total covered accretable discount   20,777     20,131     22,902     20,491     23,063  
Total covered discount $ 56,456   $ 60,636   $ 67,667   $ 74,084   $ 85,371  
 

Covered loan discount accretion recognized in income:
Individual assessed accretion $ 172 $ 1,362 $ 595 $ 2,486 $ 1,542
Pooled assessed accretion   2,743     3,634     3,927     4,092     3,181  
Total covered discount accretion recognized in income $ 2,915   $ 4,996   $ 4,522   $ 6,578   $ 4,723  
 

Covered FDIC-acquired ratios:
Total discount to principal balance for covered FDIC-acquired assets 48.6 % 48.3 % 47.3 % 47.5 % 49.2 %
 
   
   
Five Quarter Comparison

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

FDIC loss-share receivable:
Single family estimated credit losses $ 9,134 $ 9,764 $ 10,720 $ 11,292 $ 12,297
Non-single family estimated credit losses 33,550 35,678 40,148 43,899 53,540
Pending reimbursements and other   1,843     2,664     1,144     5,540     1,861  
Total $ 44,527   $ 48,106   $ 52,012   $ 60,731   $ 67,698  
 
FDIC loss-share clawback liability $ 1,681   $ 1,393   $ 1,269   $ 703   $ 484  
 
Total covered discount $ 56,456   $ 60,636   $ 67,667   $ 74,084   $ 85,371  
Total covered discount impacting FDIC loss-share receivable $ 53,355   $ 56,802   $ 63,585   $ 68,989   $ 82,296  
Total covered discount impacting FDIC loss-share receivable at 80% $ 42,684   $ 45,442   $ 50,868   $ 55,191   $ 65,837  
 

FDIC loss-share receivable ratios:
FDIC receivable as % of gross balance of covered assets 38.3 % 38.3 % 36.4 % 38.9 % 39.0 %
Covered discount at 80% as of % of FDIC receivable 95.9 % 94.5 % 97.8 % 90.9 % 97.3 %
 
 
 
 
 
 
 
Heritage Financial Group, Inc. and Subsidiary
Consolidated Financial Highlights
(Unaudited)
           
 

Mortgage Segment Information
Five Quarter Comparison
  9/30/2013       6/30/2013       3/31/2013       12/31/2012       9/30/2012  
 
Net interest income $ 218 $ 112 $ 19 $ 156 $ 678
Provision for loan losses - - - - -
Noninterest income 1,952 3,424 2,182 1,452 1,683
Noninterest expense 2,968 3,239 2,206 1,732 1,323
Income tax expense (benefit)   (247 )   92     (2 )   (38 )   322  
Mortgage profit (loss) $ (551 ) $ 205   $ (3 ) $ (86 ) $ 716  
 
Mortgage segment assets $ 44,588   $ 46,854   $ 20,849   $ 16,382   $ 7,339  
 
 
 

Mortgage Segment Selected Other Information:
Five Quarter Comparison
  9/30/2013       6/30/2013       3/31/2013       12/31/2012       9/30/2012  
 
Retail production $ 83,657 $ 97,608 $ 49,450 $ 55,815 $ 43,484
Wholesale production $ 31,646 $ 19,072 $ 5,588 $ - $ -
Purchase as a % of total production 76 % 66 % 54 % 42 % 53 %
Refi as a % of total production 24 % 34 % 46 % 58 % 47 %
End of period Locks $ 47,871 $ 53,910 $ 49,964 $ 20,271 $ 8,132
 
 
 
 

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