Jonesboro-based Heritage Bank, with two locations in Fayetteville, is reporting a half-million-dollar loss for the first three months of this year and describes “pressure” on earnings, due in part to delinquent real estate loans, representing about 6 percent of its outstanding loans.

CCF Holding Company, the holding company for Heritage Bank, reported last week a net loss of $505,334, or $0.14 per basic share. “This represents a decrease of $1.77 million over earnings of $1.27 million, or $0.35 per basic share for the same quarter in 2007,” according to a company news release.

“During the quarter, the bank incurred a loss of $923,000 as a result of a deposit account fraud,” the release stated. Without the fraud loss, the bank holding company says it would have been near break-even for the quarter.

“The reduction in earnings year over year is a result of an increase in non-performing loans, expenses related to other real estate owned, an increase in the provision for loan losses, and the loss related to the deposit fraud,” the Heritage Bank release said.

“The continued deterioration of the residential construction and development portfolio of the bank is causing pressure on the bank’s earnings,” the release stated.

The bank company reported “non-accrual loans totaling $18.7 million, or 6.1 percent of total loans.”

The bad loans include: $6.7 million in loans secured by new construction single family detached homes in various stages of completion; $6.6 million in loans secured by developed vacant lots; $3.2 million of commercial loans, primarily secured by commercial real estate located in Henry, Clayton and Fayette counties; $860,000 secured by land located in Coweta and Newton counties; $1.3 million secured by developed property in Cobb and Bibb counties; and $86,000 in consumer loans secured by personal property.

“Interest has been reversed on all of these loans, with the loss of interest reflected in the current earnings numbers reported. Many of the loans are beyond 90 days delinquent. The bank is handling these loans through several avenues including pursuing guarantors rather than foreclosure in situations where management believes the guarantors have assets worth pursuing, or working with borrowers to liquidate the underlying collateral and in some situations, foreclosure,” the news release stated.

Other problem real estate loans totaling $8.3 million includes $1.8 million secured by 22.5 acres of commercial property in Fulton County; $5.1 million secured by 33 completed new construction single family detached homes located in Fayette, Henry, Coweta, Clayton, Rockdale and Spalding counties; $200,000 secured by rental properties located in Spalding County; and $1.2 million in residential lots located in Henry, Fayette, Coweta, DeKalb and Clayton counties.

“The bank is foreclosing on loans greater than 90 days past due where the borrower is not able to move the inventory. Fair market appraisals have been completed on each property with a second value noted for ‘quick sale.’ These properties have been written down to the ‘quick sale’ value, less marketing and any expense required to complete the property. To date, the lower book value has allowed the bank to sell several of these properties without the need for wholesale or auction packaging. The bank has in place the program it feels will maximize the value of its real estate owned while continuing to move these properties in a reasonable time period,” the news release said.

“As of March 31, 2008, the bank’s residential real estate related loan portfolio totaled $79.5 million and includes the following: Development loans totaling $33.4 million, of which $1.3 million were non-performing; construction loans on residential properties totaling $28.8 million, of which $6.7 million were non-performing; and developed lots totaling $17.3 million, of which $4.2 million were non-performing,” the bank holding company’s news release stated.

According to the bank, “First quarter 2008 pretax earnings were impacted by the following:

“1. Non-performing loans increased $1.3 million since Dec. 31, 2007, and the related charges to interest income during the first quarter of 2008 totaled $229,000.

“2. Expenses related to other real estate owned totaled $130,000.

“3. The loan loss reserve provision of $850,000 during the quarter represented an increase of $550,000 over the previous quarter ended Dec. 31, 2007, which had provision expense of $300,000, and an increase of $710,000 over the quarter ended March 31, 2007.

“4. The one-time charge of $923,000 was recognized due to the deposit account fraud. Net operating results for the company, net of the deposit account fraud, would have been approximately break-even for the quarter."

Despite its problem real estate loans, the holding company said the bank remains strong. “The company has a strong capital position, with all ratios exceeding regulatory guidelines for a bank to be considered well-capitalized,” the news release said.

The bank has assets of $432.2 million as of March 31, 2008. Its two Fayetteville locations are 440 North Jeff Davis Drive and 855 South Glynn Street.

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