Heritage Financial Group, Inc., the holding company for HeritageBank of the South, today announced unaudited financial results for the quarter ended March 31, 2015. Key highlights of the Company's report for the first quarter of 2015 include:

• Net income of $3.9 million or $0.43 per diluted share, up 56% from $2.5 million or $0.28 per diluted share for the linked quarter, and up 189% from $1.3 million or $0.18 per diluted share for the year-earlier quarter;
• Net income, excluding special items for each quarter, of $4.0 million or $0.44 per diluted share, up 36% from $2.9 million or $0.32 per diluted share for the linked quarter, and up 123% from $1.8 million or $0.24 per diluted share for the year-earlier quarter (see non-GAAP reconciliation);
• Core net interest margin expanded to 3.60%, up 16 basis points from 3.44% for the linked quarter and up 37 basis points from 3.23% for the year-earlier quarter;
• Loan growth, excluding acquired loans, of $7.3 million or 1% on a linked-quarter basis and $104.5 million or 15% compared with the year-earlier quarter;
• A decline in nonperforming loans, excluding acquired loans, of 9% on a linked-quarter basis and 40% compared with the year-earlier quarter;
• A decrease in the provision for loan losses, excluding acquired loans, to $75,000 from $285,000 for the linked-quarter, but up from $65,000 for the year-earlier quarter; and
• An increase in mortgage originations to $448.1 million, up $103.4 million or 30% from the linked-quarter and up $312.6 million or 231% from the year-earlier quarter.

Commenting on the announcement, Leonard Dorminey, President and Chief Executive Officer, said, "During the first quarter of 2015, our company continued to make significant and meaningful progress on a number of fronts. First, and most important, we were pleased to see continued improvement in our operations, building on the momentum evident in our business as 2014 came to an end. We continue to successfully assimilate the purchase of a branch of The PrivateBank in our Atlanta market and the acquisition of Alarion Bank, which provided for our entry into the Gainesville market and expanded our presence in Ocala. Additionally, we continue to see solid growth in our mortgage lending business. Together, these factors helped drive attractive earnings growth for the Company in the first quarter of 2015.

"Another area in which we have made important headway during 2015 is with our previously announced merger with Renasant Bank," Dorminey continued. "Both companies have scheduled special meetings of stockholders for June 16, 2015, to consider and approve the merger, and we currently expect to mail proxy materials for that meeting to stockholders on or about May 1, 2015. Pending stockholder approvals, and other conditions set forth in the merger agreement, we expect the merger to close during the third quarter of 2015."

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 22, 2015, to stockholders of record as of May 8, 2015.

First Quarter 2015 Results of Operations

The $1.4 million increase in reported quarterly earnings for the first quarter of 2015 compared with the linked-quarter resulted primarily from the following items:

• Increased net interest income of $976,000;
• Growth in revenue from mortgage banking activities of $3.1 million;
• Decreased acquisition-related expenses of $173,000; offset by
• Increased salaries and employee benefits of $1.1 million, driven primarily by mortgage banking expansion;
• Decreased gain on sales of securities of $190,000; and
• Decreased service charges on deposit accounts of $243,000.

The $2.5 million increase in reported quarterly earnings for the first quarter of 2015 compared with the year-earlier quarter primarily reflected the following items:

• Increased salaries and employee benefits of $7.1 million due primarily to personnel additions related to mortgage banking expansion and the Alarion merger;
• Increased equipment and occupancy expense of $709,000; offset by
• Growth in revenue from mortgage banking activities of $8.9 million; and
• Increased net interest income of $4.5 million.

Net interest income for the first quarter of 2015 increased 32% to $18.4 million from $14.0 million in the year-earlier quarter, primarily reflecting an increase in interest-earning assets related to acquisitions, mortgage and organic growth. The Company's net interest margin was 4.80% for the first quarter of 2015, an increase of 13 basis points from 4.67% for the year-earlier period. The increase in the net interest margin for the first quarter of 2015 compared with the year-earlier quarter was driven by a decline in the yield on interest-bearing liabilities of 14 basis points, reflecting lower cost of deposits and borrowings. Excluding acquired credit impaired loan discount adjustments from the net interest margin, the core net interest margin was 3.60% for the first quarter of 2015, an improvement of 37 basis points from 3.23% for the year-earlier quarter.

In the first quarter of 2015, the Company continued to achieve loan growth, with its non-acquired loan portfolio increasing $7.3 million organically on a linked-quarter basis and advancing $104.5 million overall compared with the year-earlier quarter. For the first quarter of 2015, the Company's loan portfolio, including acquired loans, totaled $1.104 billion, increasing $28.8 million on a linked-quarter basis from $1.075 billion and $303.4 million from $800.1 million compared with the year-earlier quarter, driven primarily by the Alarion merger and to a lesser extent The PrivateBank branch acquisition and organic loan growth. The organic loan growth from the linked-quarter reflected primarily growth in the Gainesville/Ocala, Macon, Birmingham, Auburn/Columbus, and Atlanta markets. Total deposits stood at $1.394 billion at the end of the first quarter of 2015, up 5% from $1.322 billion on a linked-quarter basis, and up 24% from $1.127 billion for the year-earlier quarter, driven primarily by the Alarion merger and The PrivateBank branch acquisition.

For the first quarter of 2015, the Company's loans held for sale totaled $233.5 million, increasing $72.4 million or 45% on a linked-quarter basis from $161.1 million, and increasing $107.0 million or 85% from $126.4 million compared with the year-earlier quarter. The increase in the loans held for sale is due to the increase in mortgage loan production. Total mortgage production for the first quarter was $448.1 million, up 30% on a linked-quarter basis from $344.7 million and up 231% from $135.5 million compared with the year-earlier quarter.

Noninterest income for the first quarter of 2015 improved 234% to $11.7 million from $3.5 million in the year-earlier quarter, primarily reflecting increases in revenue from mortgage banking activities of $8.9 million. Noninterest expense for the first quarter of 2015 increased 56% to $24.1 million from $15.5 million in the year-earlier quarter, driven primarily by increases in salaries and employee benefits of $7.1 million related to the expansion of the mortgage division and the Alarion merger.

Asset Quality

Total nonperforming assets, excluding acquired assets, increased to $7.5 million, or 0.41% of total assets compared with $6.7 million or 0.39% of total assets, for the linked-quarter and declined from $10.3 million or 0.73% of total assets for the year-earlier quarter. Annualized net charge-offs to average outstanding loans, excluding acquired loans, were 0.04% for the first quarter of 2015 compared with annualized net charge-offs of 0.07% for the linked-quarter and annualized net recoveries of 0.01% for the year-earlier quarter. Nonperforming loans, excluding acquired loans, totaled $5.6 million for the first quarter of 2015, down from $6.1 million for the linked-quarter and down from $9.2 million for the year-earlier quarter. Other real estate owned and repossessed assets, excluding acquired assets, totaled $2.0 million for the first quarter of 2015, up from $577,000 for the linked-quarter and from $1.1 million for the year-earlier quarter.

The provision for loan losses on non-acquired loans decreased to $75,000 for the first quarter of 2015 from $285,000 for the linked-quarter, primarily driven by lower loan growth, but increased from $65,000 for the year-earlier quarter. For the first quarter of 2015, the allowance for loan losses represented 1.24% of total loans outstanding, excluding acquired loans, versus 1.25% for the linked quarter and 1.30% for the year-earlier quarter.