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HeritageBank reports quarterly net income of $1.7M

POSTED: November 8, 2011 11:51 a.m.

ALBANY—Heritage Financial Group, Inc. (NASDAQ: HBOS), the holding company for HeritageBank of the South, announced unaudited financial results for the quarter ending Sept. 30. Key aspects of the Company’s results for the third quarter of 2011 include:

Net income of $1.7 million or $0.21 per diluted share compared with a net loss of $443,000 or $0.05 per diluted share in the year-earlier quarter;

Excluding special items in the current and year-earlier quarter, net income for the third quarter was $568,000 or $0.07 per diluted share versus net income of $448,000 or $0.05 per diluted share in the third quarter of 2010 (see reconciliation of non-GAAP items);

Organic loan growth, excluding loans acquired in FDIC-assisted acquisitions, of $3.9 million or 1 percent on a linked-quarter basis;

Loans acquired through FDIC-assisted acquisitions increased $56.3 million or 10 percent on a linked-quarter basis, driven primarily by the First Southern National Bank (First Southern) FDIC-assisted acquisition;

Core non-time deposit growth of $19.4 million, excluding deposits associated with the First Southern acquisition;

An increase in the allowance for loan losses to 1.65 percent of period-end loans, excluding loans acquired in FDIC-assisted acquisitions, from 1.58 percent of loans, excluding loans acquired in FDIC-assisted acquisitions, at June 30, 2011;

An increase in annualized net charge-offs to 0.73 percent for the third quarter of 2011 from 0.26 percent on a linked-quarter basis; and

A decline in non-performing assets (NPAs), excluding loans acquired in FDIC-assisted acquisitions, to 0.89 percent from 1.17 percent on a linked-quarter basis.

“During the third quarter of 2011, we continued our expansion efforts with our third FDIC-assisted transaction,” said Leonard Dorminey, president and chief executive officer. “The First Southern acquisition moves us to number three in market share in Statesboro, further improving our foothold in Southeast Georgia and continuing our successful capital deployment. We continue to look for further opportunities for strategic expansion.

“Despite the increase in provision expense for the quarter, we continue to see improvement in the credit quality of our non-FDIC-assisted loan portfolio, as evidenced by the decline in non-performing assets, excluding assets acquired in FDIC-assisted acquisitions,” Dorminey continued. “We also are pleased with the progress we are making in our FDIC-acquired portfolios.”

Results of operations

The company reported net income of $1.7 million or $0.21 per diluted share for the three months ending Sept. 30, compared with a net loss of $443,000 or $0.05 per diluted share for the three months ended September 30, 2010. This $2.2 million change in earnings was primarily the result of the following items:

• Improved net interest income of $2.3 million due to solid growth in interest-earning assets;

• Improved non-interest income of $3.4 million, reflecting a $2.0 million bargain purchase gain associated with the First Southern FDIC-assisted acquisition, an increase of $492,000 in mortgage origination fees, and a net increase in FDIC loss-share receivable accretion of $448,000, offset by

• Increased provision expense of $50,000, driven by an increase in the charge-offs on the non-FDIC-assisted loan portfolio; and

• Increased non-interest expense of $2.0 million due to increased salaries and employment benefits of $1.9 million driven by the hiring of an additional 107 full-time equivalent employees on top of growth in most other non-interest expense categories, which was partially offset by a one-time, noncash charge of $1.0 million during the 2010 quarter to write-off an intangible asset.

The company’s results for the third quarter ending Sept. 30, included acquisition-related expenses of $299,000 and an increase in the pre-tax bargain purchase gain of $2.0 million associated with the First Southern acquisition.

In the year-earlier quarter, the company incurred a charge of $1.0 million to write-off an intangible asset related to its 2006 expansion into Florida. Excluding these items, the Company would have reported net income of $568,000 or $0.07 per diluted share for the third quarter of 2011 compared with net income of $448,000 or $0.05 per diluted share in the third quarter of 2010.

Net interest income for the third quarter increased 45 percent to $7.4 million from $5.1 million in the year-earlier quarter, primarily reflecting an increase in interest-earning assets related to both acquisitions and organic growth. The company’s net interest margin for the third quarter of 2011 increased eight basis points to 3.44 percent on a linked-quarter basis from 3.36 percent in the second quarter of 2011 and declined six basis points from 3.50 percent in the year-earlier period.

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