Heritage Financial Group in Albany, Ga., said Monday that it will revise its accounting treatment of problem loans acquired in a failed-bank deal last year.

The $570.6 million-asset company said the revision would increase operating expenses and reduce second-quarter income by about $129,000, or 1 cent a share.

Heritage bought Tattnall Bank in Reidsville, Ga., on Dec. 4 without a loss-sharing agreement with the Federal Deposit Insurance Corp.

Instead, it received a $15 million purchase discount, $2.3 million of which was set aside as a contingent liability against future losses incurred from working out problem loans.

Heritage said the $2.3 million should now be reflected as a further reduction in the fair value of the loan portfolio.

It also said that workout expenses will be treated as operating losses rather than offsetting them against the contingency.

The company expects to record about $280,000 in workout expenses in the second quarter. The revision will not affect results for calendar year 2009 or for the first quarter of this year.

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