Heritage Financial Group, Inc. Reports First 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 March 31, 2014. Key aspects of the Company's results for the first quarter of 2014 include:
  • Net income of $1.3 million or $0.18 per diluted share, down 61% from $3.4 million or $0.45 per diluted share for the linked quarter and down 66% from $3.9 million or $0.52 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 55% from $4.0 million or $0.53 per diluted share for the linked quarter and down 11% from $2.0 million or $0.27 per diluted share for the year-earlier quarter (see reconciliation of non-GAAP items);
  • Loan growth, excluding loans acquired through FDIC-assisted acquisitions, of $18.0 million or 3% on a linked-quarter basis and $98.8 million or 16% compared with the year-earlier quarter;
  • A decline in nonperforming loans, excluding FDIC-acquired loans, of 2% on a linked-quarter basis and 28% compared with the year-earlier quarter;
  • A decrease in the provision for loan losses, excluding FDIC-acquired loans, to $65,000, down 70% from $220,000 for the linked quarter and down 86% compared with $450,000 for the year-earlier quarter; and
  • An increase in the provision for FDIC-acquired loan losses to $105,000, up from $12,000 for the linked quarter (there was no provision for FDIC-acquired loan losses in the year-earlier quarter).

Commenting on the results, Leonard Dorminey, President and Chief Executive Officer, said, "While accretion from our FDIC-assisted acquisitions and mortgage banking add volatility to our earnings, we are pleased to note ongoing improvement in our core operations. Asset quality indicators in our core loan portfolio continue to improve and organic loan growth is on track for another year of double-digit growth. Our banking expansion efforts continue as we opened a loan production office in Birmingham during the quarter. Our mortgage expansion also continues as we were able to recruit a mortgage banking team in Colorado Springs, Colorado during the quarter. This team, which had previously worked with our mortgage executives, will add significantly to our mortgage expansion efforts."

Dorminey noted that the Company's Board of Directors has declared a regular quarterly cash dividend of $0.07 per share, which will be paid on May 23, 2014, to stockholders of record as of May 9, 2014. Dorminey also noted the Company’s Board of Directors also has extended the current stock repurchase plan for one year. The plan has approximately 340,000 shares authorized for repurchase and now expires in May 2015, unless otherwise completed or extended.

Acquisition News

Commenting on the Company's recently announced acquisition, Dorminey added, "We are excited and optimistic about our pending acquisition of Alarion Financial Services, Inc., which is expected to contribute significantly to our growth plans in Florida and for our mortgage division. This transaction is a significant event, not only for its implications for our franchise, but also because it demonstrates that our company is well positioned to be a consolidator in the post FDIC-assisted transaction merger and acquisition environment."

First Quarter 2014 Results of Operations

The $2.1 million decrease in reported quarterly earnings for the first quarter of 2014 compared with the linked quarter resulted primarily from the following items:
  • Decreased loan discount accretion from FDIC-acquired loans of $2.4 million coupled with steady negative accretion of the FDIC loss-share receivable; and
  • Decreased mortgage banking fees of $783,000.

The $2.6 million decrease in reported quarterly earnings for the first quarter of 2014 compared with the year-earlier quarter primarily resulted from the following items:
  • Reduction in gain on acquisitions of $4.2 million;
  • Increased salaries and employee benefits of $2.2 million; offset by
  • Improved interest income on loans held for sale of $910,000; and
  • Increased interest income on securities of $409,000.

Net interest income for the first quarter of 2014 increased 9% to $14.0 million from $12.9 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 4.66% for the first quarter of 2014, a decline of 69 basis points from 5.35% for the year-earlier period. The reduction in net interest margin for the first quarter of 2014 compared with the year-earlier quarter was driven by a decline in the yield on loans, offset in part by an increase in the yield on investment securities coupled with a reduction 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 remained unchanged at 3.23% for the first quarter of 2014 compared to the year-earlier quarter.

In the first quarter of 2014, the Company continued to achieve loan growth, with its core loan portfolio increasing $18.0 million organically on a linked-quarter basis and advancing $98.8 million overall compared with the year-earlier quarter. For the first quarter of 2014, the Company's loan portfolio, including FDIC-acquired loans, totaled $800.9 million, increasing $11.1 million on a linked-quarter basis from $789.8 million and from $743.8 million compared with the year-earlier quarter. The organic loan growth for the linked quarter was primarily driven by growth in the Albany, Macon, South Atlanta, and Valdosta, Georgia markets, as well as in the Auburn and Birmingham, Alabama markets. Total deposits stood at $1.127 billion at the end of the first quarter of 2014, up 5% from $1.076 billion on a linked-quarter basis, and up 3% from $1.096 billion for the year-earlier quarter.

For the first quarter of 2014, the Company's loans held for sale totaled $126.4 million, increasing $15.8 million, or 14%, on a linked-quarter basis from $110.7 million, and increasing $107.5 million, or 569%, from $18.9 million compared with the year-earlier quarter. The increase in the loans held for sale for the current quarter was driven by an increase in production outpacing loan sales for the quarter. Loan sales to Fannie Mae for the first quarter totaled $88.3 million and, separately, the Company recorded a gain of $717,000 related to the mortgage servicing rights for those loans. During the quarter, the Company made the decision to slow loan sales to Fannie Mae in order to sell to Freddie Mac for better execution. The Company received approval to sell loans to Freddie Mac at the end of the first quarter of 2014, and expects to deliver loans during the second quarter of 2014. Total mortgage production for the first quarter was $135.5 million, up 13% on a linked-quarter basis from $120.4 million and up 146% from $55.0 million compared with the year-earlier quarter.

Noninterest income for the first quarter of 2014 declined 48% to $3.5 million from $6.8 million in the year-earlier quarter, primarily driven by a decrease in gain on acquisitions of $4.2 million offset in part by a decline in negative accretion for the FDIC loss-share receivable of $366,000 and increases in service charges on deposit accounts of $289,000 and bankcard services income of $127,000. Noninterest expense for the first quarter of 2014 increased 16% to $15.5 million from $13.4 million in the year-earlier quarter, primarily driven by increases in salaries and employee benefits of $2.2 million related to the expansion of the mortgage division.

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 $47.7 million in covered and $59.8 million in non-covered loans at the end of the first quarter of 2014 compared with $65.8 million in covered and $83.3 million in non-covered loans for the year-earlier quarter. The outstanding principal balance of the FDIC-acquired loan portfolios totaled $165.8 million at the end of the first quarter of 2014 compared with $234.8 million for the year-earlier quarter. The details of the accounting for the FDIC-acquired loan portfolios for the first quarter of 2014 are as follows:
  • Covered FDIC-acquired loans decreased $3.2 million and non-covered FDIC-acquired loans decreased $3.5 million from the linked quarter;
  • The negative accretion for the FDIC loss-share receivable was $2.0 million and the FDIC loss-share clawback accrual increased to $2.5 million;
  • Provision expense for FDIC-acquired non-covered loans increased to $93,000; and
  • Loan discount accretion recognized in interest income declined $2.4 million.

For the first quarter of 2014, loan discount accretion recognized in interest income declined 39% to $3.9 million from $6.3 million for the linked quarter, and declined 16% from $4.6 million for the year-earlier quarter. Provision expense for non-covered loans of $105,000 was recorded for a valuation adjustment needed for the Frontier portfolio to adjust the yield for the current quarter compared with $12,000 for the linked quarter and no provision expense for the year-earlier quarter. The FDIC loss-share receivable associated with covered FDIC-acquired assets decreased 9% to $37.6 million from $41.3 million for the linked quarter and declined 28% from $52.0 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 $2.0 million affecting the loss-share receivable asset associated with the improvement in expected cash flows of the covered FDIC-acquired performing loan portfolios and FDIC reimbursements received of $1.5 million. An increase to the FDIC clawback liability accrual was recorded as an expense for the current quarter of $543,000, which increased the total accrual to $2.5 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 discount affecting the loss-share receivable was $35.9 million, or 95.4% of the loss-share receivable, for the first quarter of 2014 compared with $50.9 million, or 97.8% of the loss-share receivable, for the year-earlier quarter. The gross balance of covered FDIC-acquired assets decreased to $100.5 million for the first quarter of 2014 compared with $142.9 million for the year-earlier quarter. The FDIC loss-share receivable as a percent of the covered FDIC-acquired assets decreased to 37.5% compared with 36.4% for the year-earlier quarter.

Asset Quality

Total nonperforming assets, excluding FDIC-acquired assets, decreased to $10.3 million, or 0.73% of total assets, compared with $11.2 million, or 0.81% of total assets, for the linked quarter and declined from $15.8 million, or 1.15% of total assets, for the year-earlier quarter. Annualized net recoveries to average outstanding loans, excluding FDIC-acquired loans, were 0.01% for the first quarter of 2014 compared with annualized net charge-offs of 0.10% for the linked quarter and annualized net-charge-offs of 0.27% for the year-earlier quarter. Nonperforming loans, excluding FDIC-acquired loans, totaled $9.2 million for the first quarter of 2014, down from $9.4 million for the linked quarter and from $12.7 million for the year-earlier quarter. Other real estate owned and repossessed assets, excluding FDIC-acquired assets, totaled $1.1 million for the first quarter of 2014, down from $1.8 million for the linked quarter and from $3.0 million for the year-earlier quarter.

The provision for loan losses on non-FDIC-acquired loans decreased to $65,000 for the first quarter of 2014 from $220,000 for the linked quarter and from $450,000 for the year-earlier quarter, primarily driven by improving trends in total criticized and classified loans. For the first quarter in 2014, the allowance for loan losses represented 1.30% of total loans outstanding, excluding FDIC-acquired loans, versus 1.31% for the linked quarter and 1.51% for the year-earlier quarter. The improving loan loss allowance was primarily the result of declining criticized and classified loans as a percentage of total loans.

Capital Management Initiatives

The Company's Board of Directors has declared a regular quarterly cash dividend of $0.07 per share, payable on May 23, 2014, to stockholders of record as of May 9, 2014. The Board of Directors also has extended the Company's current stock repurchase program for an additional year until April 2015, unless extended or otherwise completed earlier, and has total authorization under the program to purchase 340,000 shares, or 4% of the Company's currently outstanding common stock.

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.

The Company's estimated total risk-based capital ratio at March 31, 2014, was 13.8%, 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 8.7% as of March 31, 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 Georgia, Florida and Alabama through 29 banking locations, 15 mortgage offices, and 5 investment offices. As of March 31, 2014, the Company reported total assets of approximately $1.4 billion and total stockholders' equity of approximately $128 million. For more information about the Company, visit HeritageBank of the South on the Web at www.eheritagebank.com under the "Investors" tab.

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 2013 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
March 31,     Dec. 31,

2013
2014     2013
Total noninterest income $ 3,487 $ 6,765 $ 4,536
 
Gain on sale of securities (85 )
Gain on acquisitions       (4,188 )    
Adjusted noninterest income $ 3,487   $ 2,577   $ 4,451  
 
Total noninterest expense $ 15,476 $ 13,356 $ 15,706
Salaries and employee benefits – early retirement and severance expense (7 )
Acquisition-related expenses (52 ) (792 ) (102 )
Impairment loss on assets held for sale (328 )
Realized loss on the disposition of assets held for sale (226 )
Accrual of FDIC acquisitions estimated clawback liability   (543 )   (566 )   (261 )
Adjusted noninterest expense $ 14,881   $ 11,998   $ 14,782  
 
Net income as reported $ 1,343 $ 3,928 $ 3,405
Total adjustments, net of tax*   441     (1,924 )   589  
Adjusted net income $ 1,784   $ 2,004   $ 3,994  
 
Diluted earnings per share $ 0.18 $ 0.52 $ 0.45
Total adjustments, net of tax*   0.06     (0.25 )   0.08  
Adjusted diluted earnings per share $ 0.24   $ 0.27   $ 0.53  
 

* 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)
March 31, December 31,
  2014 2013*
 
 
Cash and due from banks $ 27,703 $ 34,804
Interest-bearing deposits in banks 10,495 3,249
Federal funds sold   1,215     130  
Cash and cash equivalents 39,413 38,183
 
Securities available for sale, at fair value 305,044 294,299
Federal Home Loan Bank stock, at cost 6,282 7,342
Other equity securities, at cost 1,010 1,010
Loans held for sale 126,436 110,669
Loans 762,344 747,862
Covered loans 47,684 50,891
Less allowance for loan losses   9,145     8,955  
Loans, net   800,883     789,798  
 
Other real estate owned 2,632 3,482
Covered other real estate owned   6,095     7,053  
Total other real estate owned   8,727     10,535  
 
FDIC loss-share receivable 37,637 41,306
Premises and equipment, net 38,603 37,978
Goodwill and intangible assets 4,757 4,253
Cash surrender value of bank owned life insurance 24,372 24,183
Other assets   20,376     21,369  
Total assets $ 1,413,540   $ 1,380,925  
 

LIABILITIES AND SHAREHOLDERS' EQUITY
 
Non-interest-bearing deposits $ 163,090 $ 148,253
Interest-bearing deposits   963,564     928,168  
Total deposits   1,126,654     1,076,421  
 
Federal funds purchased and securities sold under repurchase agreements 33,785 37,648
Other borrowings 116,127 131,394
Other liabilities   8,990     10,399  
Total liabilities   1,285,556     1,255,862  
 

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; 7,834,517 and 7,834,537 shares issued and outstanding, respectively
78 78
Capital surplus 78,871 78,566
Retained earnings 58,464 57,614

Accumulated other comprehensive loss, net of tax of $4,098 and $5,175, respectively
(6,147 ) (7,762 )

Unearned employee stock ownership plan (ESOP), 319,210 and 332,535 shares, respectively
  (3,282 )   (3,433 )
Total shareholders' equity   127,984     125,063  
 
Total liabilities & shareholders' equity $ 1,413,540   $ 1,380,925  
 
* 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
March 31, March 31,
2014 2013
 

Interest income:
Interest and fees on loans $ 13,350 $ 13,369
Interest on loans held for sale 1,025 115
Interest on taxable securities 1,206 866
Interest on nontaxable securities 354 285
Interest on federal funds sold 1 1
Interest on deposits in other banks   19     22  
Total interest income   15,955     14,658  
 

Interest expense:
Interest on deposits 1,140 1,054
Interest on other borrowings   844     749  
Total interest expense   1,984     1,803  
 
Net interest income 13,971 12,855
 
Provision for loan losses   170     485  
 
Net interest income after provision for loan losses   13,801     12,370  
 

Noninterest income:
Service charges on deposit accounts 1,443 1,154
Bankcard services income 889 762
Other service charges, commissions and fees 162 99
Brokerage fees 566 481
Mortgage banking activities 2,166 2,182
Bank-owned life insurance 189 202
Gain on acquisitions - 4,188
Accretion of FDIC loss-share receivable (2,031 ) (2,397 )
Other   103     94  
Total noninterest income   3,487     6,765  

Noninterest expense:
Salaries and employee benefits 8,580 6,430
Equipment and occupancy 1,995 1,666
Advertising and marketing 228 187
Professional fees 451 215
Information services expenses 1,200 1,182

Loss (gain) on sales and write-downs of other real estate owned
318 (25 )

(Gain) loss on sales and write-downs of FDIC-acquired other real estate owned
(264 ) 24
Foreclosed asset expenses 87 215
Foreclosed FDIC-acquired asset expenses 333 421
FDIC insurance and other regulatory fees 244 256
Acquisition related expenses 52 792
Deposit intangible expenses 196 194
FDIC loss-share clawback expenses 543 566
Other operating expenses   1,513     1,233  
Total noninterest expense   15,476     13,356  
 
Income before income taxes 1,812 5,779
 
Applicable income tax   469     1,851  
 
Net income $ 1,343   $ 3,928  
 

Earnings per common share:
Basic earnings per share $0.18   $0.52  
Diluted earnings per share $0.18   $0.52  
 

Weighted average-common shares outstanding:
Basic   7,422,044     7,526,344  
Diluted   7,581,775     7,528,522  
 
 
Heritage Financial Group, Inc. and Subsidiary
Consolidated Statements of Income
(Unaudited)
                   
(Dollars in thousands except share and per share data)
 
 
Five Quarter Comparison
3/31/2014     12/31/2013     9/30/2013     6/30/2013     3/31/2013
 

Interest income:
Interest and fees on loans $ 13,350 $ 15,911 $ 13,452 $ 15,702 $ 13,369
Interest on loans held for sale 1,025 619 434 290 115
Interest on taxable securities 1,206 1,231 1,155 1,095 866
Interest on nontaxable securities 354 337 318 308 285
Interest on federal funds sold 1 2 4 2 1
Interest on deposits in other banks   19     15     30     88     22  
Total interest income   15,955     18,115     15,393     17,485     14,658  
 

Interest expense:
Interest on deposits 1,140 1,000 982 1,041 1,054
Interest on other borrowings   844     862     853     844     749  
Total interest expense   1,984     1,862     1,835     1,885     1,803  
 
Net interest income 13,971 16,253 13,558 15,600 12,855
 
 
Provision for loan losses 65 220 350 640 450
Provision for loan losses- FDIC-acquired covered - - - 28 35
Provision for loan losses- FDIC-acquired non-covered 105 12 - - -
                   
Net interest income after provision for loan losses 13,801     16,021     13,208     14,932     12,370  
 

Noninterest income:
Service charges on deposit accounts 1,443 1,642 1,577 1,297 1,154
Bankcard services income 889 890 852 831 762
Other service charges, commissions and fees 162 121 136 157 99
Brokerage fees 566 560 561 536 481
Mortgage banking activities 2,166 2,949 1,953 3,425 2,182
Bank-owned life insurance 189 198 200 201 202
Gain on sales of securities - 85 - - -
Gain on acquisitions - - - - 4,188
Accretion of FDIC loss-share receivable (2,031 ) (2,021 ) (1,499 ) (3,376 ) (2,397 )
Other   103     112     138     124     94  
Total noninterest income   3,487     4,536     3,918     3,195     6,765  

Noninterest expense:
Salaries and employee benefits 8,580 8,722 8,108 8,185 6,430
Equipment and occupancy 1,995 1,922 1,932 1,838 1,666
Advertising and marketing 228 299 335 349 187
Professional fees 451 559 340 302 215
Information services expenses 1,200 1,285 1,335 1,307 1,182

Loss (gain) on sales and write-downs of other real estate owned
318 38 335 58 (25 )

(Gain) loss on sales and write-downs of FDIC-acquired other real estate owned
(264 ) (536 ) (206 ) (251 ) 24
Foreclosed asset expenses 87 240 337 227 215
Foreclosed FDIC-acquired asset expenses 333 286 366 313 421
FDIC insurance and other regulatory fees 244 254 293 278 256
Impairment loss on assets held for sale - 328 - - -
Acquisition related expenses 52 102 280 148 792
Deposit intangible expenses 196 200 204 211 194
FDIC loss-share clawback expenses 543 261 286 124 566
Other operating expenses   1,513     1,746     1,389     1,466     1,233  
Total noninterest expense   15,476     15,706     15,334     14,555     13,356  
 
Income before income taxes 1,812 4,851 1,792 3,572 5,779
 
Applicable income tax   469     1,446     470     912     1,851  
 
Net income $ 1,343   $ 3,405   $ 1,322   $ 2,660   $ 3,928  
 

Earnings per common share:
Basic earnings per share $0.18   $0.46   $0.18   $0.36   $0.52  
Diluted earnings per share $0.18   $0.45   $0.18   $0.36   $0.52  
Dividends $0.07   $0.00   $0.00   $0.00   $0.00  
 

Weighted average-common shares outstanding:
Basic 7,422,044   7,407,722   7,371,804   7,381,370   7,526,344  
Diluted 7,581,775   7,530,606   7,483,812   7,383,992   7,528,522  
 
   
Heritage Financial Group, Inc. and Subsidiary
Condensed Average Balances, Interest Rates and Yields
(Unaudited)
                   
(Dollars in thousands)
 
Three Months Ended
March 31,
2014 2013
Average Average Average Average
Balance Interest Rate Balance Interest Rate

Interest-earning assets:
 
Loans(1)(2) $ 903,153 $ 14,379 6.46 % $ 698,905 $ 13,486 7.83 %
Investment securities (2) 301,407 1,680 2.26 % 237,729 1,248 2.13 %
Other short-term investments   20,715   20 0.39 %   45,613   24 0.21 %
Total interest-earning assets   1,225,275   16,079 5.32 %   982,247   14,758 6.09 %
 
Non-interest earning assets   163,312   166,667
Total assets $ 1,388,587 $ 1,148,914
 

Interest-bearing liabilities:

Deposits:
Interest checking, money market and savings $ 555,828 $ 327 0.24 % $ 475,176 $ 287 0.24 %
Time deposits   382,486   813 0.86 %   321,970   767 0.97 %
Total interest bearing-deposits   938,314   1,140 0.49 %   797,146   1,054 0.54 %
 

Federal Funds purchased and securities sold under repurchase agreements
35,977 329 3.71 % 34,273 328 3.88 %
Other Borrowings   119,413   515 1.75 %   65,965   421 2.59 %
Total interest-bearing liabilities   1,093,704   1,984 0.74 %   897,384   1,803 0.81 %
 

Non-interest bearing liabilities:
Demand Deposits 158,583 119,059
Other Liabilities   8,475   11,671
Total non-interest bearing liabilities   167,058   130,730
 
Total liabilities   1,260,762   1,028,114
 
Shareholders' equity 127,825 120,800
 
Total liabilities & shareholders' equity $ 1,388,587 $ 1,148,914
 
Net interest income $ 14,095 $ 12,955
 
Interest rate spread 4.59 % 5.28 %
 
Net yield on interest-earning assets (net interest margin) 4.66 % 5.35 %
 
Core net interest margin (non-GAAP):
Loans(1)(2) $ 903,153 $ 14,379 6.46 % $ 698,905 $ 13,486 7.83 %
FDIC-acquired loan discount adjustments(3)   61,056   3,850 25.57 %   67,744   4,588 27.47 %
Adjusted loans   964,209   10,529 4.43 %   766,649   8,898 4.71 %
           
Adjusted total interest-earning assets $ 1,286,331   12,229 3.86 % $ 1,049,991   10,170 3.93 %
           
Total interest-bearing liabilities $ 1,093,704   1,984 0.74 % $ 897,384   1,803 0.81 %
 
Core Net interest income $ 10,245 $ 8,367
 
Core Interest rate spread 3.12 % 3.11 %
 
Core Net yield on interest-earning assets (net interest margin non-GAAP) 3.23 % 3.23 %
 
(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:
3/31/2014     12/31/2013     9/30/2013     6/30/2013     3/31/2013
 
Total loans $ 810,028 $ 798,753 $ 789,092 $ 769,921 $ 752,866
Loans held for sale 126,436 110,669 38,042 43,545 18,905
Covered loans 47,684 50,891 53,843 57,176 65,815
Allowance for loan losses 9,145 8,955 8,894 9,047 9,105
Total other real estate owned 8,727 10,535 10,244 11,949 13,851
Covered other real estate owned 6,095 7,053 5,909 7,815 9,460
FDIC loss-share receivable 37,637 41,306 44,527 48,106 52,012
Goodwill and intangible assets 4,757 4,253 4,251 4,455 4,666
Total assets 1,413,540 1,380,925 1,322,309 1,334,016 1,370,550
Non-interest-bearing deposits 163,090 148,253 153,163 148,219 151,709
Interest-bearing deposits 963,564 928,168 899,318 917,712 943,850
Other borrowings 116,127 131,394 101,667 101,940 102,210
Federal funds purchased and securities
sold under agreement to repurchase 33,785 37,648 35,393 33,094 34,251
Stockholders' equity 127,984 125,063 120,534 118,540 120,655
 
Total shares outstanding 7,834,517 7,834,537 7,834,765 7,803,910 7,881,260
Unearned ESOP shares   319,210   332,535   345,860   359,186   372,511
Total shares outstanding net of unearned ESOP   7,515,307   7,502,002   7,488,905   7,444,724   7,508,749
 
Book value per share $ 17.03 $ 16.67 $ 16.10 $ 15.92 $ 16.07

Book value per share including unearned ESOP (non-GAAP)
16.34 15.96 15.38 15.19 15.31
Tangible book value per share (non-GAAP) 16.40 16.10 15.53 15.32 15.45

Tangible book value per share including unearned ESOP (non-GAAP)
15.73 15.42 14.84 14.62 14.72
Market value per share 19.65 19.25 17.42 14.75 14.48
                                         
 
                                         
 
Five Quarter Comparison
3/31/2014       12/31/2013       9/30/2013       6/30/2013       3/31/2013

Key Financial Ratios and other information:
 
Performance Ratios
Annualized return on average assets 0.39% 1.00% 0.40% 0.79% 1.37%
Annualized return on average equity 4.26% 11.10% 4.41% 8.74% 13.01%
Net interest margin 4.66% 5.50% 4.73% 4.78% 5.35%
Net interest spread 4.59% 5.43% 4.66% 4.71% 5.28%
Core net interest margin 3.23% 3.20% 3.23% 3.28% 3.23%
Core net interest spread 3.12% 3.10% 3.13% 3.17% 3.11%
Efficiency ratio 84.20% 71.66% 82.29% 74.17% 80.22%
 
Capital Ratios
Average stockholders' equity to average assets 9.2% 9.0% 9.0% 9.0% 10.5%
Tangible equity to tangible assets (non-GAAP) 8.7% 8.8% 8.8% 8.6% 8.5%
Tier 1 leverage ratio 9.0% 9.5% 9.4% 9.0% 10.4%
Tier 1 risk-based capital ratio 12.8% 13.5% 14.3% 14.3% 15.2%
Total risk-based capital ratio 13.8% 14.5% 15.4% 15.3% 16.3%
 
Other Information
Full-time equivalent employees 455 426 412 401 355
Banking 305 306 308 316 285
Mortgage 143 113 97 79 64
Investments 7 7 7 6 6
Number of banking offices 29 27 27 29 29
Mortgage loan offices 15 14 12 12 12
Investment offices 5 4 4 4 4
                                         
   
Heritage Financial Group, Inc. and Subsidiary
Consolidated Financial Highlights
(Unaudited)
               
(Dollars in thousands)
Five Quarter Comparison

Loans
3/31/2014     12/31/2013     9/30/2013     6/30/2013     3/31/2013
Construction and land $ 53,138 $ 50,167 $ 48,808 $ 42,753 $ 37,659
Farmland 30,116 23,420 22,561 23,447 20,749
Permanent 1 - 4 173,581 174,565 169,105 166,199 163,302
Permanent 1 - 4 - junior liens and revolving 34,661 32,038 30,180 29,432 28,852
Multifamily 25,718 22,650 27,468 26,301 24,280
Nonresidential 262,753 256,567 250,859 234,259 225,946
Commercial business 101,696 101,161 95,108 88,828 83,015
Consumer and other   20,907   23,976   21,499   26,889   19,931
Total core loans $ 702,570 $ 684,544 $ 665,588 $ 638,108 $ 603,734
 
FDIC-acquired non-covered   59,774   63,318   69,661   74,637   83,317
Total loans   762,344   747,862   735,249   712,745   687,051
 
FDIC-acquired covered 47,684 50,891 53,843 57,176 65,815
 
Allowance for loan losses   9,145   8,955   8,894   9,047   9,105
$ 800,883 $ 789,798 $ 780,198 $ 760,874 $ 743,761
                                         
 
                                         

Loan Balances by Geographical Region (excluding FDIC- acquired loans):
Five Quarter Comparison
3/31/2014     12/31/2013     9/30/2013     6/30/2013     3/31/2013
 
Albany, Georgia $ 302,664 $ 294,033 $ 288,089 $ 282,509 $ 273,116
Valdosta, Georgia 103,479 100,936 101,729 96,485 90,385
Ocala, Florida 57,322 58,343 58,115 58,240 58,533
Statesboro, Georgia 121,636 122,928 124,667 118,056 107,650
Auburn, Alabama 36,171 36,130 31,485 26,061 24,386
Macon, Georgia 75,722 68,638 60,197 55,935 49,165
Birmingham, Alabama 2,091 1,590 344 822 499
South Atlanta   3,485   1,946   962   -   -
$ 702,570 $ 684,544 $ 665,588 $ 638,108 $ 603,734
                                         
 
                                         

Asset Quality Data (excluding FDIC -acquired loans):
Five Quarter Comparison
3/31/2014     12/31/2013     9/30/2013     6/30/2013     3/31/2013
 
 
Nonaccrual loans $ 9,245 $ 9,435 $ 10,986 $ 12,223 $ 12,723
Loans - 90 days past due & still accruing   -   -   -   -   -
Total non-performing loans   9,245   9,435   10,986   12,223   12,723
 
OREO   1,104   1,789   2,654   3,046   3,028
Total non-performing assets $ 10,349 $ 11,224 $ 13,640 $ 15,269 $ 15,751
 
 
Trouble debt restructuring - nonaccrual $ 5,702 $ 5,763 $ 5,840 $ 6,496 $ 4,593
Trouble debt restructuring - accruing   1,968   1,983   1,996   2,009   2,023
Total trouble debt restructuring $ 7,670 $ 7,746 $ 7,836 $ 8,505 $ 6,616
 
Accruing past due loans $ 830 $ 1,001 $ 669 $ 934 $ 1,316
 
Total criticized assets 22,026 22,741 26,116 25,785 25,474
Total classified assets 18,717 19,582 23,048 22,985 22,118
 
Allowance for loan losses 9,145 8,955 8,894 9,047 9,105
Net (recoveries) charge-offs $ (20) $ 160 $ 503 $ 698 $ 406
 
 

Asset Quality Ratios:
 
Allowance for loan losses to total core loans 1.30% 1.31% 1.34% 1.42% 1.51%
Allowance for loan losses to average core loans 1.32% 1.33% 1.37% 1.45% 1.53%
Allowance for loan losses to non-performing loans 98.92% 94.91% 80.96% 74.02% 71.56%
Non-performing loans to total core loans 1.32% 1.38% 1.65% 1.92% 2.11%
Non-performing assets to total assets 0.73% 0.81% 1.03% 1.14% 1.15%

Net (recoveries) charge-offs to average core loans (annualized)
-0.01% 0.10% 0.31% 0.45% 0.27%
                                         
   
Heritage Financial Group, Inc. and Subsidiary
Consolidated Financial Highlights
(Unaudited)
               
(Dollars in thousands)
Five Quarter Comparison

FDIC-acquired assets
3/31/2014     12/31/2013     9/30/2013     6/30/2013     3/31/2013
 

FDIC-acquired non-covered loans:
Commercial real estate $ 21,269 $ 22,268 $ 25,027 $ 27,258 $ 30,851
Residential real estate 28,115 30,134 32,318 33,452 34,938
Construction and land 5,573 5,156 5,195 5,941 7,756
Commercial and industrial 1,926 2,604 3,638 4,106 5,125
Consumer and other   2,891   3,156   3,483   3,880   4,647
Total 59,774 63,318 69,661 74,637 83,317

FDIC-acquired covered loans:
Commercial real estate 14,044 14,161 14,956 15,384 18,849
Residential real estate 22,372 23,886 25,082 27,283 30,735
Construction and land 10,332 11,642 12,469 12,645 13,370
Commercial and industrial 801 864 924 1,340 2,216
Consumer and other   135   338   412   524   645
Total   47,684   50,891   53,843   57,176   65,815
Total carrying value of FDIC-acquired loans $ 107,458 $ 114,209 $ 123,504 $ 131,813 $ 149,132
Non-accrete discount for FDIC-acquired loans 30,818 36,746 48,545 55,170 59,558
Accretable discount for FDIC-acquired loans   27,492   26,860   23,445   23,007   26,136
Total discount for FDIC-acquired loans   58,310   63,606   71,990   78,177   85,694
Outstanding principal balance for FDIC-acquired loans $ 165,768 $ 177,815 $ 195,494 $ 209,989 $ 234,826
 

FDIC-acquired OREO:
Non-covered $ 1,527 $ 1,694 $ 1,680 $ 1,087 $ 1,363
Covered   6,095   7,053   5,909   7,815   9,460
Total carrying value of FDIC-acquired OREO $ 7,622 $ 8,747 $ 7,589 $ 8,902 $ 10,823
Total discount for FDIC-acquired OREO   10,255   11,186   12,038   11,013   12,176
Gross carrying value of FDIC-acquired OREO $ 17,877 $ 19,933 $ 19,627 $ 19,915 $ 22,999
 

Total loan discount accretion recognized in income:
Individual assessed discount accretion $ 808 $ 3,132 $ 791 $ 2,336 $ 637
Pooled assessed discount accretion   3,042   3,140   2,927   3,808   3,951
Total loan discount accretion recognized in income $ 3,850 $ 6,272 $ 3,718 $ 6,144 $ 4,588
 

FDIC-acquired ratios:
Total discount to principal balance for FDIC-acquired loans 35.2% 35.8% 36.8% 37.2% 36.5%
                                         
                                         
Five Quarter Comparison

Non-covered FDIC-acquired assets
3/31/2014     12/31/2013     9/30/2013     6/30/2013     3/31/2013
 

Outstanding principal balance:
FDIC-acquired non-covered loan pools $ 58,294 $ 61,893 $ 66,294 $ 70,144 $ 76,675
FDIC-acquired non-covered loans individually assessed 20,644   22,214   27,627   31,603   35,837
Total non-covered outstanding principal loan balance 78,938 84,107 93,921 101,747 112,512
Gross carrying value for FDIC-acquired non-covered OREO   4,254   4,470   4,993   2,529   2,371
Total gross balance of non-covered assets $ 83,192 $ 88,577 $ 98,914 $ 104,276 $ 114,883

Non-covered non-accretable discount for estimated credit losses:
FDIC-acquired non-covered loan pools $ 7,337 8,932 9,297 9,341 9,479
FDIC-acquired non-covered loans individually assessed   4,283   5,397   12,294   14,894   16,482
Total non-covered non-accretable discount 11,620 14,329 21,591 24,235 25,961
FDIC-acquired non-covered OREO discount   2,728   2,776   3,313   1,442   1,008
Total non-covered discount for estimated credit losses   14,348   17,105   24,904   25,677   26,969

Non-covered accretable discount:
Non-covered accretable discount for improvement in cash flows 6,603 5,458 380 318 475
Other non-covered accretable discount   941   1,002   2,288   2,558   2,759
Total non-covered accretable discount   7,544   6,460   2,668   2,876   3,234
Total non-covered discount $ 21,892 $ 23,565 $ 27,572 $ 28,553 $ 30,203
 

Non-covered loan discount accretion recognized in income:
Individual assessed discount accretion $ 428 $ 2,375 $ 619 $ 974 $ 42
Pooled assessed discount accretion   187   249   184   174   24
Total non-covered discount accretion recognized in income $ 615 $ 2,624 $ 803 $ 1,148 $ 66
 

Non-covered FDIC-acquired ratios:
Total discount to principal balance for non-covered FDIC-acquired assets 26.3% 26.6% 27.9% 27.4% 26.3%
Gross balance of non-covered loans to total FDIC-acquired loans 47.6% 47.3% 48.0% 48.5% 47.9%
                                         
                                         
Five Quarter Comparison

Covered FDIC-acquired assets
3/31/2014     12/31/2013     9/30/2013     6/30/2013     3/31/2013
 

Outstanding principal balance:
FDIC-acquired covered loan pools $ 63,789 $ 69,192 $ 74,020

$
79,552 $ 90,020
FDIC-acquired covered loans individually assessed   23,041   24,517   27,554   28,690   32,294
Total covered outstanding principal loan balance 86,830 93,709 101,574 108,242 122,314
Gross carrying value for FDIC-acquired OREO covered   13,622   15,463   14,634   17,385   20,628
Total gross balance of covered assets $ 100,452 $ 109,172 $ 116,208 $ 125,627 $ 142,942

Covered non-accretable discount for estimated credit losses:
FDIC-acquired covered loan pools $ 12,215 $ 15,284 $ 16,281 $ 19,917 $ 20,705
FDIC-acquired covered loans individually assessed   6,983   7,133   10,673   11,018   12,892
Total covered non-accretable discount 19,198 22,417 26,954 30,935 33,597
FDIC-acquired covered OREO discount   7,528   8,410   8,725   9,570   11,168
Total covered discount for estimated credit losses   26,726   30,827   35,679   40,505   44,765

Covered accretable discount:
Covered accretable discount for improvement in cash flows 18,156 18,012 17,676 16,297 18,820
Other covered accretable discount   1,792   2,389   3,101   3,834   4,082
Total covered accretable discount   19,948   20,401   20,777   20,131   22,902
Total covered discount $ 46,674 $ 51,228 $ 56,456 $ 60,636 $ 67,667
 

Covered loan discount accretion recognized in income:
Individual assessed accretion $ 380 $ 757 $ 172 $ 1,362 $ 595
Pooled assessed accretion   2,855   2,891   2,743   3,634   3,927
Total covered discount accretion recognized in income $ 3,235 $ 3,648 $ 2,915 $ 4,996 $ 4,522
 

Covered FDIC-acquired ratios:
Total discount to principal balance for covered FDIC-acquired assets 46.5% 46.9% 48.6% 48.3% 47.3%
 
                                         
                                         
Five Quarter Comparison

FDIC loss-share receivable
3/31/2014     12/31/2013     9/30/2013     6/30/2013     3/31/2013
 

FDIC loss-share receivable:
Single family estimated credit losses $ 8,446 $ 8,995 $ 9,134 $ 9,764 $ 10,720
Non-single family estimated credit losses 27,459 30,077 33,550 35,678 40,148
Pending reimbursements and other   1,732   2,234   1,843   2,664   1,144
Total $ 37,637 $ 41,306 $ 44,527 $ 48,106 $ 52,012
 
FDIC loss-share clawback liability $ 2,484 $ 1,941 $ 1,681 $ 1,393 $ 1,269
 
Total covered discount $ 46,674 $ 51,228 $ 56,456 $ 60,636 $ 67,667
Total covered discount impacting FDIC loss-share receivable $ 44,882 $ 48,839 $ 53,355 $ 56,802 $ 63,585
Total covered discount impacting FDIC loss-share receivable at 80% $ 35,906 $ 39,071 $ 42,684 $ 45,442 $ 50,868
 

FDIC loss-share receivable ratios:
FDIC receivable as % of gross balance of covered assets 37.5% 37.8% 38.3% 38.3% 36.4%
Covered discount at 80% as of % of FDIC receivable 95.4% 94.6% 95.9% 94.5% 97.8%
                                         
 
Heritage Financial Group, Inc. and Subsidiary
Consolidated Financial Highlights
(Unaudited)
                   
                                         

Mortgage Segment Information
Five Quarter Comparison
3/31/2014     12/31/2013     9/30/2013     6/30/2013     3/31/2013
 
Net interest income $ 825 $ 114 $ 218 $ 112 $ 19
Provision for loan losses - - - - -
Noninterest income 2,392 2,951 1,952 3,424 2,182
Noninterest expense 3,815 3,149 2,968 3,239 2,206
Income tax expense (benefit)   (185 )   (26 )   (247 )   92     (2 )
Mortgage profit (loss) $ (413 ) $ (58 ) $ (551 ) $ 205   $ (3 )
 
Mortgage segment assets $ 136,662   $ 120,716   $ 44,588   $ 46,854   $ 20,849  
                                         
 
                                         

Mortgage Segment Selected Other Information:
Five Quarter Comparison
3/31/2014     12/31/2013     9/30/2013     6/30/2013     3/31/2013
 
Retail production $ 98,554 $ 84,381 $ 83,657 $ 97,608 $ 49,450
Wholesale production $ 36,941 $ 36,030 $ 31,646 $ 19,072 $ 5,588
Purchase as a % of total production 80 % 78 % 76 % 66 % 54 %
Refi as a % of total production 20 % 22 % 24 % 34 % 46 %
End of period locks $ 71,121 $ 43,054 $ 47,871 $ 53,910 $ 49,964
                                                   

Copyright Business Wire 2010

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