January 24, 2013 at 16:15 PM EST
Heritage Financial Group, Inc. 2012 Net Income up 77% versus 2011, Increasing to $6.8 Million or $0.85 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 and year ended December 31, 2012. Highlights of the Company's results for the year ended 2012 include:

  • Net income of $6.8 million or $0.85 per diluted share, up 77% from net income of $3.8 million or $0.47 per diluted share for the year ended 2011;
  • Excluding special items for each year, net income was $5.4 million or $0.67 per diluted share for 2012 versus net income of $1.6 million or $0.19 per diluted share for 2011 (see reconciliation of non-GAAP items);
  • Loan growth for the year, excluding loans acquired through FDIC-assisted acquisitions, of $151.3 million or 35% from 2011;
  • A decrease in loans acquired through FDIC-assisted acquisitions for the year of $41.9 million or 33% from 2011;
  • A decrease in provision for loan losses, excluding FDIC-acquired loans, of $395,000 to $2.5 million for the year compared with $2.9 million for 2011;
  • Provision for loan losses of $3.4 million for FDIC-acquired loans with approximately 80% of the losses reimbursable by the FDIC versus no provision expense on such loans for 2011; and
  • A decrease in net charge-offs to 0.19% for the year compared with 0.82% for 2011.

Commenting on the results, Leonard Dorminey, President and Chief Executive Officer, said, "During 2012, our team worked hard to explore new opportunities for growth, effectively assimilate our recent acquisitions to capitalize on the benefits of that expansion, and optimize our operations at every level of our organization. Those efforts paid off handsomely in 2012 with significantly increased earnings, robust organic loan growth, and strong contributions from our mortgage banking and brokerage departments. Moreover, during 2012, we implemented several expense management initiatives that are anticipated to reduce costs by approximately $1.2 million in 2013.

"While we expect to face ongoing challenges in 2013 regarding both the competitive and interest rate environments, we remain confident in our outlook for the coming year," Dorminey continued. "Considering the fundamental strength of our operations, the success we have achieved in integrating recent acquisitions, our expanded footprint in the Southeast, and bolstered by anticipated cost reductions, we look forward to a successful and promising year in 2013."

Expense Management Initiatives

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

Additionally, during the fourth quarter of 2012, the Company closed two branches, one each in Collins and Guyton, Georgia, which were acquired in FDIC-assisted acquisitions. Combined, these branches had loans of approximately $5 million and deposits of $13 million. The Company does not expect to experience a significant reduction in customer relationships in these areas and will seek to service these customers from nearby branches. The Company anticipates expense savings of approximately $500,000 per year beginning in 2013 related to these closures.

Capital Management Initiatives

During the fourth quarter of 2012, the Company paid a special one-time dividend of $0.20 per share in addition to the normal quarterly dividend of $0.04 per share. The special one-time dividend was equivalent to and in lieu of regular quarterly dividends that would have been anticipated to be paid in 2013. The Company also repurchased approximately 73,000 shares of common stock at an average price of $13.50 under its stock repurchase program. The program, which expires in October 2013 unless extended or otherwise completed, has a remaining authorization to repurchase approximately 324,000 shares.

During the fourth quarter of 2012, the Company's previously announced shelf offering on Form S-3 with the Securities and Exchange Commission ("SEC") became effective. Under the shelf registration statement, the Company may offer and sell from time to time in the future, in one or more offerings, common stock, preferred stock, debt securities, warrants, depositary shares, or units consisting of any combination of the foregoing. The aggregate offering price of all securities that could be sold under the registration statement may not exceed $60 million.

The Company's estimated total risk-based capital ratio at December 31, 2012, was 18.4%, significantly exceeding the required minimum of 10% to be considered a well-capitalized institution. The ratio of tangible common equity to total tangible assets was 10.6% as of December 31, 2012.

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, but that regular quarterly dividends will be reinstated in 2014.

Fourth Quarter 2012 Results of Operations

Highlights of the Company's results for the fourth quarter of 2012 include:

  • Net income of $2.4 million or $0.31 per diluted share, up 80% from net income of $1.4 million or $0.17 per diluted share for the fourth quarter of 2011 and up 22% from $2.0 million or $0.25 per diluted share for the third quarter of 2012;
  • Excluding special items for each quarter, net income was $1.2 million or $0.16 per diluted share for the fourth quarter of 2012 versus net income of $1.0 million or $0.13 per diluted share for the year-earlier quarter and $1.5 million or $0.19 per diluted share for the third quarter of 2012 (see reconciliation of non-GAAP items);
  • Loan growth, excluding loans acquired through FDIC-assisted acquisitions, of $151.3 million or 35% for 2012 and $43.8 million or 8% on a linked-quarter basis;
  • A decrease in loans acquired through FDIC-assisted acquisitions of $41.9 million or 33% for 2012 and a decrease of $8.8 million or 9% on a linked-quarter basis;
  • A slight increase in provision for loan losses, excluding FDIC-acquired loans, of $5,000 to $600,000 for the fourth quarter of 2012 compared with $595,000 for the same quarter for 2011 and a decrease of $150,000 compared with $750,000 for the third quarter of 2012;
  • Provision for loan losses for the fourth quarter of 2012 of $1.9 million for FDIC-acquired loans with approximately 80% of the losses reimbursable by the FDIC compared with no provision expense on such loans for the fourth quarter of 2011 and $1.2 million for the third quarter of 2012; and
  • Annualized net charge-offs of 0.05% for the fourth quarter of 2012 were in line with the 0.04% experienced for the fourth quarter of 2011 and represented a significant decline from 0.24% for the third quarter of 2012.

The $1.1 million improvement in reported quarterly earnings for the fourth quarter of 2012 compared with the same period in 2011 primarily resulted from the following items:

  • Improved net interest income of $5.3 million; offset by
  • Reduced non-interest income of $300,000;
  • Increased non-interest expense of $1.6 million; and
  • Increased provision expense for FDIC-acquired loan losses of $1.9 million, with approximately 80% of the losses reimbursable by the FDIC.

Net interest income for the fourth quarter of 2012 increased 58% to $14.5 million from $9.2 million in the year-earlier quarter, primarily reflecting an increase in interest-earning assets related to both acquisitions and organic growth and a reduction in the cost of interest-bearing deposits. The Company's net interest margin was 6.37% for the fourth quarter of 2012, an increase of 60 basis points over 5.77% on a linked-quarter basis and 218 basis points over 4.19% in the year-earlier period. The improvement in the fourth quarter of 2012 net interest margin on a linked-quarter basis was driven by an increase in loan yields on the Company's FDIC-assisted loan portfolios, coupled with a decline in the cost of interest-bearing deposits as rates continue to reset to lower levels. Excluding purchase accounting adjustments, which include FDIC-assisted loan discount accretion from the net interest margin, the core net interest margin was 3.19% for the fourth quarter of 2012, an increase of 77 basis points from 2.42% for the same quarter in 2011, but a decline of 13 basis points from 3.32% on a linked-quarter basis.

In the fourth quarter of 2012, the Company continued to achieve loan growth, with its loan portfolio increasing $43.8 million organically on a linked-quarter basis and advancing $151.3 million overall compared with the year-earlier quarter. For the fourth quarter of 2012, the Company's loan portfolio, including loans acquired through FDIC-assisted acquisitions, totaled $670.0 million, which increased $35.1 million on a linked-quarter basis. Total deposits stood at $869.6 million at the end of the fourth quarter of 2012, up 3% or $24.5 million on a linked-quarter basis from $845.1 million, but down from $884.2 million compared with the year-earlier quarter. The linked-quarter increase in deposits was primarily driven by core deposit growth of $15.2 million and wholesale deposit growth of $22.8 million offset in part by $13.5 million in planned runoff of retail time deposits.

Non-interest income for the fourth quarter of 2012 decreased 9% to $2.9 million from $3.2 million in the year-earlier quarter, primarily driven by a negative swing in the accretion for the FDIC loss-share receivable of $2.7 million, which was partially offset by an increased gain on sale of securities of $1.3 million and improvements in mortgage banking fees of $685,000, brokerage fees of $165,000, and bankcard services income of $103,000. Non-interest expense for the fourth quarter of 2012 increased 15% to $12.1 million from $10.5 million in the year-earlier quarter, primarily driven by increased foreclosure expense on FDIC-acquired assets of $457,000, increased salaries and employment benefits of $410,000, increased foreclosure expense, excluding FDIC-acquired assets, of $332,000, and loss on sale and write-downs of other real estate assets, excluding FDIC-acquired, of $307,000.

Accounting for FDIC-Assisted Loans

The Company performs ongoing assessments of the estimated cash flows of its acquired FDIC-assisted loan portfolios. The fair value of the FDIC-assisted loan portfolios consisted of $72.4 million in covered and $11.9 million in non-covered loans at the end of the fourth quarter of 2012 compared with $78.8 million in covered and $14.3 million in non-covered loans at the end of the third quarter of 2012. The principal balance of the FDIC-assisted loan portfolios totaled $152.1 million at the end of the fourth quarter of 2012 compared with $171.6 million as of the end of the third quarter of 2012. The details of the accounting for the FDIC-assisted loan portfolios for the fourth quarter of 2012 are as follows:

  • Covered loans acquired in FDIC-assisted acquisitions decreased $6.3 million to $72.4 million;
  • Non-covered loans acquired in FDIC-assisted acquisitions decreased $2.4 million to $11.9 million;
  • The FDIC loss-share receivable associated with covered loans acquired in FDIC-assisted acquisitions decreased $7.0 million to $60.7 million;
  • The negative accretion for the FDIC loss-share receivable was $2.8 million;
  • Provision expense for individually assessed loans acquired in FDIC-assisted acquisitions was $1.9 million;
  • The non-accretable discount decreased $8.2 million to $46.0 million; and
  • The accretable discount decreased $2.6 million to $21.8 million.

For the fourth quarter of 2012, provision expense of $1.9 million was recorded for loan charge-offs on individually assessed loans acquired in FDIC-assisted acquisitions not provided for by the discount, with approximately 80% of the charge-offs reimbursable by the FDIC. The provision expense for these loans did not affect the Company's loan loss reserve. The FDIC loss-share receivable associated with covered FDIC-assisted loans decreased $7.0 million from $67.7 million for the prior quarter to $60.7 million, primarily driven by reimbursements received from the FDIC of $4.0 million and negative accretion of $2.8 million affecting the loss-share receivable asset associated with the improvement in expected cash flows of the loss-share performing portfolios. A FDIC true-up (claw back) liability was recorded as an expense, which reduced non-interest income for the current quarter by $219,000. This true-up was driven by an improvement in estimates of expected cash flows for both FDIC-assisted acquisitions covered under loss-sharing agreements.

The non-accretable discount decreased to $46.0 million at the end of the fourth quarter of 2012 from $54.2 million on a linked-quarter basis, primarily driven by the clearing of $4.2 million of discount in conjunction with the resolution of FDIC-assisted loans and transfers to accretable discount of $4.0 million. The accretable discount decreased to $21.8 million for the fourth quarter of 2012 from $24.4 million on a linked-quarter basis, primarily due to loan discount accretion of $6.6 million for the current quarter, which compares with $4.8 million on a linked-quarter basis partially offset by the transfer from the non-accretable discount as a result of the improvement in cash flows.

Asset Quality

Annualized net charge-offs to average outstanding loans, excluding loans acquired in FDIC-assisted acquisitions, were 0.05% for the fourth quarter of 2012 compared with 0.24% for the linked-quarter and in line with the 0.04% experienced for the fourth quarter of 2011. Total non-performing assets, excluding assets acquired in FDIC-assisted acquisitions, decreased to $17.3 million or 1.58% of total assets compared with $17.8 million or 1.68% of total assets for the linked-quarter, but increased from $10.4 million or 0.95% of total assets from 2011. Non-performing loans totaled $14.7 million, down from $16.4 million for the linked-quarter, but up from $7.0 million for 2011.

The primary reason for the increase in non-performing assets from 2011 was the migration of two relationships totaling $6.0 million to non-performing status during the third quarter of 2012. One of the relationships totaling $3.5 million was classified a troubled-debt restructuring and additional collateral of $6.1 million has been secured. The other relationship was a Chapter 11 bankruptcy where the collateral deficiency is fully reserved as of the current quarter. Both of these relationships were previously identified as criticized assets. Other real estate owned and repossessed assets, excluding assets acquired in FDIC-assisted acquisitions, totaled $2.7 million for the fourth quarter of 2012, up from $1.4 million for the linked-quarter, but down from $2.9 million for 2011.

The provision for loan losses on non-FDIC-acquired loans slightly increased to $600,000 for the fourth quarter of 2012 from $595,000 for the same quarter in 2011, primarily driven by organic loan growth offset in part by improving net charge-off trends. For the fourth quarter in 2012, the allowance for loan losses represented 1.55% of total loans outstanding, excluding loans acquired in FDIC-assisted acquisitions, versus 1.57% for the linked-quarter and 1.72% for the same quarter in 2011.

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

Heritage Financial Group, Inc. is the holding company for HeritageBank of the South, a community-oriented bank serving primarily South Georgia, North Central Florida and Eastern Alabama through 20 full-service branch locations, 13 mortgage offices, and 4 investment offices. As of December 31, 2012, the Company reported total assets of approximately $1.1 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 2011 Annual Report on Form 10-K and in any of the Company's subsequent SEC filings. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included in its other filings with the SEC.

HERITAGE FINANCIAL GROUP, INC.

Unaudited Reconciliation of Non-GAAP Measures Presented in Earnings Release

(Dollars in thousands, except per share data)

Three Months EndedTwelve Months Ended

December 31,

December 31,Sept. 30,
20122011201220122011
Total interest income $ 16,351 $ 11,569 $ 14,651 $ 54,738 $ 39,449
Loan held for sale – fair

value election

(156 ) (156 )
Adjusted interest income $ 16,351 $ 11,569 $ 14,495 $ 54,582 $ 39,449
Total non-interest income $ 2,873 $ 3,172 $ 4,361 $ 13,696 $ 17,467
Mortgage banking activities – fair value election (336 ) (336 )
(Gain) loss on sale of securities and securities impairment (1,285 ) 25 (1,484 ) (2,838 ) (684 )
Accrual of FDIC acquisitions estimated true-up liability 219 484 703
(Gain) loss on acquisitions 90 56 (4,217 )
Adjusted non-interest income $ 1,807 $ 3,197 $ 3,115 $ 11,281 $ 12,566
Total non-interest expense $ 12,095 $ 10,528 $ 11,978 $ 45,549 $ 38,746
Salaries and employee benefits – early retirement program (641 ) (641 )
Acquisition-related expenses (3 ) (254 ) (14 ) (418 ) (1,309 )
Adjusted non-interest expense $ 12,092 $ 10,274 $ 11,323 $ 44,490 $ 37,437
Net income as reported $ 2,428 $ 1,352 $ 1,998 $ 6,757 $ 3,825
Total adjustments, net of tax* (922 ) 160 (472 ) (1,396 ) (2,259 )
Adjustment for state tax credits (264 ) (477 )
Adjusted net income $ 1,242 $ 1,035 $ 1,526 $ 5,361 $ 1,566
Diluted earnings per share $ 0.31 $ 0.17 $ 0.25 $ 0.85 $ 0.47
Total adjustments, net of tax* (0.15 ) (0.04 ) (0.06 ) (0.18 ) (0.28 )
Adjusted diluted earnings

per share

$ 0.16 $ 0.13 $ 0.19 $ 0.67 $ 0.19

* The effective tax rate is used for the period presented 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.

Unaudited Financial Highlights

(Dollars in thousands, except per share data)

Three Months Ended
December 31,

Twelve Months Ended

December 31,

2012201120122011
Interest income $ 16,351 $ 11,569 $ 54,738 $ 39,449
Interest expense 1,821 2,357 7,613 10,350
Net interest income 14,530 9,212 47,125 29,099
Provision for loan losses 600 595 2,500 2,895
Provision for loan losses – covered 1,907 3,418
Provision for loan losses – non covered 12
Net interest income after provision

for loan losses

12,023 8,617 41,195 26,204
Non-interest income 2,873 3,172 13,696 17,467
Non-interest expense 12,095 10,528 45,549 38,746
Income before income taxes 2,801 1,261 9,342 4,925
Income tax expense (benefit) 373 (91 ) 2,585 1,100
Net income $ 2,428 $ 1,352 $ 6,757 $ 3,825
Net income per share:
Basic $ 0.31 $ 0.17 $ 0.85 $ 0.47
Diluted $ 0.31 $ 0.17 $ 0.85 $ 0.47
Weighted average shares outstanding:
Basic 7,720,839 8,139,992 7,969,104 8,188,843
Diluted 7,722,867 8,140,905 7,970,903 8,190,062
Dividends declared per share $ 0.24 $ 0.03 $ 0.36 $ 0.12
Dec. 31,

2012

Sept. 30,

2012

Dec. 31,

2011

Total assets $ 1,097,506 $ 1,054,899 $ 1,089,852
Cash and cash equivalents 23,993 22,016 34,521
Interest-bearing deposits in banks 15,393 17,026 43,101
Securities available for sale 221,406 209,287 259,017
Loans 670,004 634,932 560,620
Allowance for loan losses 9,061 8,530 7,494
Total deposits 869,554 845,079 884,187
Federal Home Loan Bank advances 60,000 35,000 35,000
Stockholders' equity 120,649 121,792 124,136
Heritage Financial Group, Inc.
Fourth Quarter 2012 Earnings Release Supplement
(Unaudited)
(Dollars in thousands, except per share data)
Three Months EndedTwelve Months Ended
December 31,December 31,
2012201120122011
Income Statement Data

Interest income

Loans $ 15,084 $ 9,945 $ 48,831 $ 33,428
Loans held for sale 238 198 967 297
Securities - taxable 762 1,095 3,681 4,536
Securities - nontaxable 232 251 1,123 880
Federal funds sold 9 15 30 60
Interest-bearing deposits in banks 26 65 106 248
Total interest income 16,351 11,569 54,738 39,449

Interest expense

Deposits 1,108 1,671 4,874 7,550
Other borrowings 713 686 2,739 2,800
Total interest expense 1,821 2,357 7,613 10,350
Net interest income 14,530 9,212 47,125 29,099
Provision for loan losses 600 595 2,500 2,895
Provision for loan losses - FDIC acquired covered 1,907 - 3,418 -
Provision for loan losses - FDIC acquired non covered - - 12 -
Net interest income after provision for loan losses 12,023 8,617 41,195 26,204

Non-interest income

Service charges on deposit accounts 1,307 1,237 4,748 4,777
Bankcard services income 794 691 3,231 2,637
Other service charges, fees & commissions 89 99 326 305
Brokerage fees 463 298 1,838 1,386
Mortgage banking activities 1,451 763 4,768 2,377
Bank owned life insurance 210 148 771 588
Impairment loss on securities available for sale - (43 ) - (43 )
Gain on sale of securities 1,285 18 2,838 684
Gain (loss) on acquisitions - - (56 ) 4,217
Accretion of FDIC loss-share receivable (2,792 ) (72 ) (5,028 ) 381
Other 66 33 260 158
Total non-interest income 2,873 3,172 13,696 17,467

Non-interest expense

Salaries and employee benefits 6,167 5,758 23,543 20,393
Equipment and occupancy 1,597 1,314 5,632 4,276
Advertising & marketing 147 233 656 785
Professional fees 387 224 1,319 1,303
Information services expenses 1,184 1,130 4,641 3,676

(Gain) loss on sale and write-downs of other real estate owned

277 (30 ) 219 767

Gain on sale and write-downs of FDIC acquired other real estate

(204 ) (92 ) (313 ) (383 )
Foreclosed asset expenses 353 22 970 725
Foreclosed FDIC acquired asset expenses 575 118 1,767 118
FDIC insurance and other regulatory fees 252 179 1,037 954
Acquisition related expenses 3 254 418 1,309
Deposit Intangible expense 191 207 781 692
Other operating 1,166 1,211 4,879 4,131
Total non-interest expense 12,095 10,528 45,549 38,746
Income before taxes 2,801 1,261 9,342 4,925
Applicable income tax (benefit) 373 (91 ) 2,585 1,100
Net income $ 2,428 $ 1,352 $ 6,757 $ 3,825
Weighted average shares - basic 7,720,839 8,139,992 7,969,104 8,188,843
Weighted average shares - diluted 7,722,867 8,140,905 7,970,903 8,190,062
Basic earnings per share $ 0.31 $ 0.17 $ 0.85 $ 0.47
Diluted earnings per share 0.31 0.17 0.85 0.47
Cash dividend declared per share 0.24 0.03 0.36 0.12
Heritage Financial Group, Inc.
Fourth Quarter 2012 Earnings Release Supplement
(Unaudited)
(Dollars in thousands, except per share data)
December 31,
20122011
Balance Sheet Data (Ending Balance)
Total loans $ 670,004 $ 560,620
Loans held for sale 15,608 7,471
Covered loans 72,425 107,457
Allowance for loan losses 9,061 7,494
Total foreclosed assets 12,709 13,441
Covered other real estate owned 9,457 10,084
FDIC loss-share receivable 60,731 83,901
Intangible assets 4,235 4,848
Total assets 1,097,506 1,089,852
Non-interest-bearing deposits 116,272 78,823
Interest-bearing deposits 753,282 805,364
Federal Home Loan Bank advances 60,000 35,000

Federal funds purchased and securities sold under agreement to repurchase

33,219 35,049
Stockholders' equity 120,649 124,136
Total shares outstanding 8,172,486 8,712,031
Unearned ESOP shares 385,836 439,138
Total shares outstanding net of unearned ESOP 7,786,650 8,272,893
Book value per share $ 15.49 $ 15.01
Book value per share including unearned ESOP (non-GAAP) 14.76 14.25
Tangible book value per share (non-GAAP) 14.95 14.42
Tangible book value per share including unearned ESOP (non-GAAP) 14.24 13.69
Market value per share 13.79 11.80
Three Months EndedTwelve Months Ended
December 31,December 31,
2012201120122011
Average Balance Sheet Data
Average interest-bearing deposits in banks $ 29,422 $ 56,025 $ 27,112 $ 55,090
Average federal funds sold 12,842 22,805 11,670 23,416
Average investment securities 211,524 240,101 240,198 220,163
Average loans 647,476 559,556 604,351 513,027
Average mortgage loans held for sale 11,161 7,599 6,871 4,154
Average FDIC loss-share receivable 65,534 86,544 75,813 61,128
Average earning assets 912,134 878,487 887,702 815,686
Average assets 1,087,078 1,085,490 1,071,075 988,496
Average noninterest-bearing deposits 115,014 80,376 96,077 70,120
Average interest-bearing deposits 747,632 801,246 765,287 707,286
Average total deposits 862,646 881,622 861,364 777,406

Average federal funds purchased and securities sold under agreement to repurchase

34,324 36,621 33,528 33,390
Average Federal Home Loan Bank advances 50,489 35,000 38,975 46,365
Average interest-bearing liabilities 131,706 872,867 108,692 78,627
Average stockholders' equity 122,927 124,257 124,593 122,727
Performance Ratios
Annualized return on average assets 0.89 % 0.51 % 1.26 % 0.77 %
Annualized return on average equity 7.90 % 4.49 % 10.85 % 6.23 %
Net interest margin 6.37 % 4.19 % 5.35 % 3.41 %
Net interest spread 6.30 % 4.17 % 5.30 % 3.58 %
Core net interest margin 3.19 % 2.42 % 3.20 % 2.98 %
Core net interest spread 3.05 % 2.27 % 3.07 % 2.81 %
Efficiency ratio 69.50 % 85.01 % 74.89 % 83.21 %
Capital Ratios
Average stockholders' equity to average assets 11.3 % 12.7 % 11.6 % 12.4 %
Tangible equity to tangible assets (non-GAAP) 10.6 % 12.3 % 10.6 % 11.0 %
Tier 1 leverage ratio (1) 11.0 % 11.2 % 11.0 % 11.2 %
Tier 1 risk-based capital ratio (1) 17.2 % 21.2 % 17.2 % 21.2 %
Total risk-based capital ratio (1) 18.4 % 22.4 % 18.4 % 22.4 %
Other Information
Full-time equivalent employees 321 327 321 327
Banking 264 286 264 286
Mortgage 50 34 50 34
Investments 7 7 7 7
Number of full-service offices 20 22 20 22
Mortgage loan offices 13 11 13 11
Investment offices 4 3 4 3

(1)

December 31, 2012 consolidated ratios are estimated and may be subject to change pending the filing of the call report; all other periods are presented as filed.

Heritage Financial Group, Inc.
Fourth Quarter 2012 Earnings Release Supplement
(Unaudited)
(Dollars in thousands, except per share data)
Five Quarter Comparison for the Three Months Ended
12/31/129/30/126/30/123/31/1212/31/11
Income Statement Data

Interest income

Loans $ 15,084 $ 13,067 $ 10,532 $ 10,147 $ 9,945
Loans held for sale 238 342 204 182 198
Securities - taxable 762 924 1,016 979 1,095
Securities - nontaxable 232 298 295 299 251
Federal funds sold 9 3 4 15 15
Interest-bearing deposits in banks 26 17 26 37 65
Total interest income 16,351 14,651 12,077 11,659 11,569

Interest expense

Deposits 1,108 1,257 1,246 1,263 1,671
Other borrowings 713 681 672 672 686
Total interest expense 1,821 1,938 1,918 1,935 2,357
Net interest income 14,530 12,713 10,159 9,724 9,212
Provision for loan losses 600 750 750 400 595
Provision for loan losses - FDIC acquired covered 1,907 1,172 338 - -
Provision for loan losses - FDIC acquired non covered - 12 3 - -
Net interest income after provision for loan losses 12,023 10,779 9,068 9,324 8,617

Non-interest income

Service charges on deposit accounts 1,307 1,285 1,135 1,020 1,237
Bankcard services income 794 783 831 824 691
Other service charges, fees & commissions 89 80 73 85 188
Brokerage fees 463 467 462 446 298
Mortgage banking activities 1,451 1,689 938 689 674
Bank owned life insurance 210 210 211 140 148
Life insurance proceeds - - -

-

-
Impairment loss on securities available for sale - - -

-

(43 )
Gain on sale of securities 1,285 1,484 27 42 18
Gain (loss) on acquisitions - (90 ) 34 - 0
Accretion of FDIC loss-share receivable (2,792 ) (1,606 ) (133 ) (498 ) (72 )
Other 66 59 101 35 33
Total non-interest income 2,873 4,361 3,679 2,783 3,172

Non-interest expense

Salaries and employee benefits 6,167 6,380 5,460 5,536 5,758
Equipment and occupancy 1,597 1,317 1,395 1,324 1,314
Advertising & marketing 147 114 214 180 233
Professional fees 387 354 340 238 224
Information services expenses 1,184 1,240 1,163 1,052 1,130

(Gain) loss on sale and write-downs of other real estate owned

277 90 (141 ) (7 ) (27 )

Loss (gain) on sale and write-downs of FDIC acquired other real estate

(204 ) (33 ) (249 ) 174 (92 )
Foreclosed asset expenses 353 177 218 221 22
Foreclosed FDIC acquired asset expenses 575 563 466 162 118
FDIC insurance and other regulatory fees 252 276 265 245 179
Acquisition related expenses 3 14 69 331 254
Deposit intangible expense 191 194 195 201 207
Other operating 1,166 1,292 1,279 1,144 1,208
Total non-interest expense 12,095 11,978 10,674 10,801 10,528
Income before taxes 2,801 3,162 2,073 1,306 1,261
Applicable income tax (benefit) 373 1,164 713 335 (91 )
Net income $ 2,428 $ 1,998 $ 1,360 $ 971 $ 1,352
Weighted average shares - basic 7,720,839 7,942,852 8,071,354 8,144,382 8,229,293
Weighted average shares - diluted 7,722,867 7,944,983 8,072,935 8,145,730 8,230,206
Basic earnings per share $ 0.31 $ 0.25 $ 0.17 $ 0.12 $ 0.17
Diluted earnings per share 0.31 0.25 0.17 0.12 0.17
Cash dividend declared per share 0.24 0.04 0.04 0.04 0.03
Heritage Financial Group, Inc.
Fourth Quarter 2012 Earnings Release Supplement
(Unaudited)
(Dollars in thousands, except per share data)
Five Quarter Comparison
12/31/129/30/126/30/123/31/1212/31/11
Balance Sheet Data (at period end)
Total loans $ 670,004 $ 634,932 $ 605,001 $ 562,495 $ 560,620
Loans held for sale 15,608 7,236 6,017 4,731 7,471
Covered loans 72,425 78,757 87,386 95,493 107,457
Allowance for loan losses 9,061 8,530 8,099 7,629 7,494
Total foreclosed assets 12,709 11,458 9,290 12,117 13,441
Covered other real estate owned 9,457 9,457 7,571 8,445 10,084
FDIC loss-share receivable 60,731 67,698 76,294 82,925 83,901
Intangible assets 4,235 4,426 4,621 4,647 4,848
Total assets 1,097,506 1,054,899 1,063,426 1,075,510 1,089,852
Non-interest-bearing deposits 116,272 108,767 87,815 88,582 78,823
Interest-bearing deposits 753,282 736,312 772,453 780,161 805,364
Federal home loan bank advances 60,000 35,000 35,000 35,000 35,000

Federal funds purchased and securities sold under agreement to repurchase

33,219 35,833 31,746 37,227 35,049
Stockholders' equity 120,649 121,793 123,291 125,067 124,136
Total shares outstanding 8,172,486 8,229,955 8,490,247 8,668,752 8,712,031
Unearned ESOP shares 385,836 399,162 412,487 425,813 439,138
Total shares outstanding net of unearned ESOP 7,786,650 7,830,793 8,077,760 8,242,939 8,272,893
Book value per share $ 15.49 $ 15.55 $ 15.26 $ 15.17 $ 15.01

Book value per share including unearned ESOP (non-GAAP)

14.76 14.80 14.52 14.43 14.25
Tangible book value per share (non-GAAP) 14.95 14.99 14.69 14.61 14.42

Tangible book value per share including unearned ESOP (non-GAAP)

14.24 14.26 13.98 13.89 13.69
Market value per share 13.79 13.14 12.87 11.82 11.80
Five Quarter Comparison
12/31/129/30/126/30/123/31/1212/31/11
Average Balance Sheet Data
Average interest-bearing deposits in banks $ 29,422 $ 19,343 $ 21,897 $ 37,999 $ 56,025
Average federal funds sold 12,842 5,471 6,038 22,363 22,805
Average investment securities 211,524 235,862 252,894 257,863 240,101
Average loans 647,476 625,464 583,366 560,385 559,556
Average mortgage loans held for sale 11,161 6,198 5,519 4,550 7,599
Average FDIC Loss-Share Receivable 65,534 74,045 79,812 84,017 86,544
Average earning assets 912,134 883,319 869,393 883,160 878,487
Average assets 1,087,078 1,070,130 1,053,140 1,074,260 1,085,490
Average noninterest-bearing deposits 115,014 94,453 89,763 84,920 80,376
Average interest-bearing deposits 747,632 768,247 760,409 784,944 801,246
Average total deposits 862,646 862,700 850,172 869,864 881,622

Average federal funds purchased and securities sold under agreement to repurchase

34,324 33,916 32,043 33,822 36,621
Average Federal Home Loan Bank advances 50,489 35,326 35,000 35,000 35,000
Average interest-bearing liabilities 131,706 837,489 827,452 853,766 872,867
Average stockholders' equity 122,927 124,884 125,083 125,503 124,257
Performance Ratios
Annualized return on average assets 0.89 % 0.75 % 0.52 % 0.36 % 0.51 %
Annualized return on average equity 7.90 % 6.40 % 4.35 % 3.09 % 4.49 %
Net interest margin 6.37 % 5.77 % 4.75 % 4.49 % 4.19 %
Net interest spread 6.30 % 5.72 % 4.70 % 4.46 % 4.17 %
Efficiency ratio 69.50 % 70.15 % 77.14 % 86.36 % 85.01 %
Capital Ratios
Average stockholders' equity to average assets 11.3 % 11.7 % 11.9 % 11.7 % 11.4 %
Tangible equity to tangible assets (non-GAAP) 10.6 % 11.2 % 11.2 % 11.2 % 11.0 %
Tier 1 leverage ratio 11.0 % 10.9 % 11.3 % 11.4 % 11.2 %
Tier 1 risk-based capital ratio 17.2 % 18.0 % 19.1 % 21.0 % 21.2 %
Total risk-based capital ratio 18.4 % 19.2 % 20.3 % 22.2 % 22.4 %
Other Information
Full-time equivalent employees 321 316 319 324 327
Banking 264 270 279 283 286
Mortgage 50 39 33 34 34
Investments 7 7 7 7 7
Number of full-service offices 20 23 22 21 22
Mortgage loan offices 13 11 11 11 11
Investment offices 4 4 3 3 3
Heritage Financial Group, Inc.
Fourth Quarter 2012 Earnings Release Supplement
(Dollars in thousands)
Three Months Ended
December 31,
20122011
Loans by Type
Construction and land $ 33,340 $ 26,804
Farmland 20,141 17,921
Permanent 1 - 4 161,883 129,745
Permanent 1 - 4 - junior liens and revolving 27,345 26,154
Multifamily 21,293 15,797
Nonresidential 212,570 138,970
Commercial business 83,659 55,179
Consumer and other 25,498 23,872
585,729 434,442
Loans acquired through FDIC-assisted acquisitions:
Non covered 11,850 18,721
Covered 72,425 107,457
84,275 126,178
670,004 560,620
OREO (excluding assets acquired through FDIC-assisted acquisitions): 2,650 2,851
OREO assets acquired through FDIC-assisted acquisitions:
Non Covered 602 511
Covered 9,457 10,047
12,709 12,355
Asset Quality Data (excluding assets acquired through FDIC-assisted acquisitions):
Allowance for loan losses to total loans 1.55 % 1.72 %
Allowance for loan losses to average loans 1.62 % 1.32 %
Allowance for loan losses to non-performing loans 61.73 % 106.41 %
Accruing past due loans $ 2,131 $ 371
Nonaccrual loans 14,678 7,043
Loans - 90 days past due & still accruing - -
Total non-performing loans 14,678 7,043
OREO and repossessed assets 2,650 3,356
Total non-performing assets 17,328 10,399
Non-performing loans to total loans 2.51 % 1.62 %
Non-performing assets to total assets 1.58 % 0.95 %
QTD Net charge-offs to average loans (annualized) 0.05 % 0.04 %
Net charge-offs QTD $ 68 $ 37
YTD Net charge-offs to average loans 0.19 % 0.82 %
Net charge-offs YTD $ 933 $ 3,502
Trouble debt restructuring - nonaccrual $ 6,856 $ 4,176
Trouble debt restructuring - accruing 7 6,231
Total trouble debt restructuring 6,863 10,407
Total criticized assets 28,194 33,226
Total classified assets $ 25,129 $ 23,853

Heritage Financial Group, Inc.
Fourth Quarter 2012 Earnings Release Supplement
(Dollars in thousands)
Five Quarter Comparison for the Quarter Ended
12/31/129/30/126/30/123/31/1212/31/11
Loans by Type
Construction and land $ 33,340 $ 30,010 $ 31,134 $ 24,375 $ 26,804
Farmland 20,141 20,298 18,121 17,150 17,921
Permanent 1 - 4 161,883 157,551 148,162 132,172 129,745
Permanent 1 - 4 - junior liens and revolving 27,345 25,507 25,289 25,220 26,154
Multifamily 21,293 19,805 19,639 18,577 15,797
Nonresidential 212,570 193,392 177,307 150,492 138,970
Commercial business 83,659 68,800 58,589 59,697 55,179
Consumer and other 25,498 26,519 24,172 21,935 23,872
585,729 541,882 502,413 449,618 434,442
Loans acquired through FDIC-assisted acquisitions:
Non covered 11,850 14,291 15,202 17,384 18,721
Covered 72,425 78,757 87,386 95,493 107,457
670,004 634,930 605,001 562,495 560,620
Asset Quality Data (excluding Loans acquired through FDIC-assisted acquisitions):
Allowance for loan losses to total loans 1.55 % 1.57 % 1.61 % 1.70 % 1.72 %
Allowance for loan losses to average loans 1.62 % 1.61 % 1.70 % 1.35 % 1.32 %
Allowance for loan losses to non-performing loans 61.73 % 52.15 % 81.27 % 71.42 % 106.40 %
Accruing past due loans $ 2,131 $ 1,038 $ 3,215 $ 452 $ 371
Nonaccrual loans 14,678 16,358 9,965 10,681 7,043
Loans - 90 days past due & still accruing - - - - -
Total non-performing loans 14,678 16,358 9,965 10,681 7,043
OREO and repossessed assets 2,650 1,403 1,519 2,992 2,851
Total non-performing assets 17,328 17,761 11,484 13,673 10,399
Non-performing loans to total loans 2.51 % 3.02 % 1.98 % 2.38 % 1.62 %
Non-performing assets to total assets 1.58 % 1.68 % 1.08 % 1.75 % 0.95 %
Net charge-offs to average loans (annualized) 0.05 % 0.24 % 0.23 % 0.24 % 0.04 %
Net charge-offs $ 68 $ 320 $ 279 $ 265 $ 37

Note:

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

Contacts:

Heritage Financial Group, Inc.
T. Heath Fountain, 229-878-2055
Executive Vice President and Chief Financial Officer
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