- Net income was $21.0 million,
or $0.59 per diluted share, for the
third quarter of 2022 compared to $18.6
million, or $0.52 per diluted
share, for the second quarter of 2022 and $20.6 million, or $0.58 per diluted share, for the third quarter of
2021.
- Loans receivable grew $127.2
million, or 3.3% (13.0% annualized), in the third quarter of
2022.
- Net interest income increased $9.2
million, or 18.5%, to $59.3
million for the third quarter of 2022 compared to
$50.0 million for the second quarter
of 2022.
- Net interest margin increased to 3.57% for the third quarter
of 2022 from 3.04% for the second quarter of 2022 and 3.15% for the
third quarter of 2021.
- Cost of total deposits was unchanged at 0.09% for the third
quarter of 2022 from 0.09% for both the second quarter of 2022 and
the third quarter of 2021.
- The ratio of nonperforming assets to total assets decreased
to 0.09% at September 30, 2022
compared to 0.14% at June 30, 2022
and 0.36% at September 30,
2021.
- Declared a regular cash dividend of $0.21 per common share on October 19, 2022.
OLYMPIA,
Wash., Oct. 20, 2022 /PRNewswire/ -- Heritage
Financial Corporation (NASDAQ GS: HFWA) (the "Company" or
"Heritage"), the parent company of Heritage Bank (the "Bank"),
today reported net income of $21.0
million for the third quarter of 2022 compared to
$18.6 million for the second quarter
of 2022 and $20.6 million for the
third quarter of 2021. Diluted earnings per share for the third
quarter of 2022 were $0.59 compared
to $0.52 for the second quarter of
2022 and $0.58 for the third quarter
of 2021.
Jeffrey J. Deuel, President and
Chief Executive Officer of Heritage, commented, "Results for the
third quarter showcase the strengths of our business model which
includes a strong balance sheet, prudent risk management and a
foundation of stable core deposits. Compared to second quarter of
2022, our net interest income grew 18.5% and net interest margin
expanded by 53 basis points as we benefit from higher interest
rates on growing earning assets, while our cost of total deposits
was unchanged at 0.09%.
Despite a challenging operating environment, we continue to see
attractive growth as reflected in the $206.7
million in loans funded and the banking teams we hired in
Portland MSA and Eugene markets during the second quarter. We
believe Heritage is well positioned to continue to take advantage
of opportunities and navigate the economic environment in future
periods.
We are proud that Heritage Bank is partnering with Low Income
Housing Institute ("LIHI") in constructing 85 new affordable units
in Seattle's Central District, to
be known as Good Shepherd Housing, as it is being built in
partnership with the Lutheran Church of the Good Shepherd. Heritage
is providing $17.9 million of
construction financing and $19.9
million of low income housing tax credit equity investment.
LIHI focuses on permanent supportive housing and services for
formerly homeless households and this project will continue to
support this mission."
|
Financial
Highlights
|
|
The following table
provides financial highlights at the dates and for the periods
indicated:
|
|
|
As of or for the
Quarter Ended
|
|
September
30,
2022
|
|
June 30,
2022
|
|
September
30,
2021
|
|
(Dollars in
thousands, except per share amounts)
|
|
Net income
|
$
20,990
|
|
$
18,584
|
|
$
20,592
|
|
Pre-tax, pre-provision
income (1)
|
$
27,592
|
|
$
21,357
|
|
$
22,440
|
|
Diluted earnings per
share
|
$
0.59
|
|
$
0.52
|
|
$
0.58
|
|
Return on average
assets (2)
|
1.13 %
|
|
1.01 %
|
|
1.13 %
|
|
Pre-tax, pre-provision
return on average assets (1) (2)
|
1.49 %
|
|
1.16 %
|
|
1.23 %
|
|
Return on average
common equity (2)
|
10.27 %
|
|
9.19 %
|
|
9.55 %
|
|
Return on average
tangible common equity (1) (2)
|
15.20 %
|
|
13.68 %
|
|
13.93 %
|
|
Net interest margin
(2)
|
3.57 %
|
|
3.04 %
|
|
3.15 %
|
|
Cost of total deposits
(2)
|
0.09 %
|
|
0.09 %
|
|
0.09 %
|
|
Efficiency
ratio
|
58.66 %
|
|
62.57 %
|
|
62.35 %
|
|
Noninterest expense to
average total assets (2)
|
2.11 %
|
|
1.94 %
|
|
2.04 %
|
|
Total assets
|
$ 7,200,312
|
|
$ 7,316,467
|
|
$ 7,259,038
|
|
Loans receivable,
net
|
$ 3,959,206
|
|
$ 3,834,368
|
|
$ 3,905,567
|
|
Total
deposits
|
$ 6,237,735
|
|
$ 6,330,190
|
|
$ 6,229,017
|
|
Loan to deposit ratio
(3)
|
64.1 %
|
|
61.2 %
|
|
63.5 %
|
|
Book value per
share
|
$
22.13
|
|
$
22.94
|
|
$
24.13
|
|
Tangible book value per
share (1)
|
$
15.04
|
|
$
15.83
|
|
$
16.97
|
|
Tangible book value per
share, excluding AOCI (1) (4)
|
$
18.03
|
|
$
17.59
|
|
$
16.55
|
|
|
|
(1)
|
See Non-GAAP Financial
Measures section herein.
|
|
(2)
|
Annualized.
|
|
(3)
|
Loans receivable
divided by total deposits.
|
|
(4)
|
Accumulated other
comprehensive income or loss ("AOCI").
|
Balance Sheet
Cash and cash equivalents decreased $586.7 million, or 59.0%, to $407.3 million at September 30, 2022 from $994.1 million at June 30,
2022 due primarily to increases in investment securities and
loans receivable and a decrease in deposits.
The following table provides information regarding our
investment securities at the dates indicated:
|
September 30,
2022
|
|
June 30,
2022
|
|
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Change
|
|
%
Change
|
|
(Dollars in
thousands)
|
|
Investment
securities available for sale, at fair value:
|
|
U.S. government and
agency securities
|
$
63,749
|
|
3.0 %
|
|
$
65,668
|
|
3.6 %
|
|
$
(1,919)
|
|
(2.9) %
|
|
Municipal
securities
|
185,713
|
|
8.7
|
|
200,010
|
|
11.1 %
|
|
(14,297)
|
|
(7.1)
|
|
Residential CMO and
MBS
|
438,370
|
|
20.6
|
|
398,156
|
|
22.1 %
|
|
40,214
|
|
10.1
|
|
Commercial CMO and
MBS
|
639,441
|
|
30.0
|
|
493,620
|
|
27.4 %
|
|
145,821
|
|
29.5
|
|
Corporate
obligations
|
5,834
|
|
0.3
|
|
5,978
|
|
0.3 %
|
|
(144)
|
|
(2.4)
|
|
Other asset-backed
securities
|
23,035
|
|
1.1
|
|
24,156
|
|
1.3 %
|
|
(1,121)
|
|
(4.6)
|
|
Total
|
$
1,356,142
|
|
63.7 %
|
|
$
1,187,588
|
|
65.8 %
|
|
$
168,554
|
|
14.2 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities held to maturity, at amortized cost:
|
|
U.S. government and
agency securities
|
$
150,948
|
|
7.1 %
|
|
$
150,960
|
|
8.4 %
|
|
$
(12)
|
|
— %
|
|
Residential CMO and
MBS
|
296,432
|
|
13.9
|
|
159,007
|
|
8.8 %
|
|
137,425
|
|
86.4
|
|
Commercial CMO and
MBS
|
325,939
|
|
15.3
|
|
305,686
|
|
17.0 %
|
|
20,253
|
|
6.6
|
|
Total
|
$
773,319
|
|
36.3 %
|
|
$
615,653
|
|
34.2 %
|
|
$
157,666
|
|
25.6 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment
securities
|
$
2,129,461
|
|
100.0 %
|
|
$
1,803,241
|
|
100.0 %
|
|
$
326,220
|
|
18.1 %
|
Total investment securities increased $326.2 million, or 18.1%, to $2.13 billion at September
30, 2022 from $1.80 billion at
June 30, 2022 due primarily to
purchases to deploy excess liquidity into higher yielding, longer
duration assets. Purchases were partially offset by a $55.2 million decrease in the fair value of
investment securities available for sale as a result of an increase
in market interest rates during the three months ended September 30, 2022.
The following table summarizes the Company's loans receivable,
net at the dates indicated:
|
September 30,
2022
|
|
June 30,
2022
|
|
Change
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Amount
|
|
%
|
|
(Dollars in
thousands)
|
|
Commercial
business:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
industrial
|
$
735,028
|
|
18.4 %
|
|
$
698,828
|
|
18.0 %
|
|
$
36,200
|
|
5.2 %
|
|
SBA PPP
|
3,593
|
|
0.1
|
|
11,334
|
|
0.3
|
|
(7,741)
|
|
(68.3)
|
|
Owner-occupied
commercial real estate ("CRE")
|
959,486
|
|
24.0
|
|
950,699
|
|
24.6
|
|
8,787
|
|
0.9
|
|
Non-owner occupied
CRE
|
1,547,114
|
|
38.6
|
|
1,515,796
|
|
39.1
|
|
31,318
|
|
2.1
|
|
Total commercial
business
|
3,245,221
|
|
81.1
|
|
3,176,657
|
|
82.0
|
|
68,564
|
|
2.2
|
|
Residential real
estate
|
296,019
|
|
7.4
|
|
265,382
|
|
6.9
|
|
30,637
|
|
11.5
|
|
Real estate
construction and land development:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
92,297
|
|
2.3
|
|
90,546
|
|
2.3
|
|
1,751
|
|
1.9
|
|
Commercial and
multifamily
|
160,723
|
|
4.0
|
|
128,060
|
|
3.3
|
|
32,663
|
|
25.5
|
|
Total real estate
construction and land development
|
253,020
|
|
6.3
|
|
218,606
|
|
5.6
|
|
34,414
|
|
15.7
|
|
Consumer
|
207,035
|
|
5.2
|
|
213,419
|
|
5.5
|
|
(6,384)
|
|
(3.0)
|
|
Loans
receivable
|
4,001,295
|
|
100.0 %
|
|
3,874,064
|
|
100.0 %
|
|
127,231
|
|
3.3
|
|
Allowance for credit
losses on loans
|
(42,089)
|
|
|
|
(39,696)
|
|
|
|
(2,393)
|
|
6.0
|
|
Loans receivable,
net
|
$
3,959,206
|
|
|
|
$
3,834,368
|
|
|
|
$
124,838
|
|
3.3 %
|
Loans receivable grew $127.2
million, or 3.3% (13.0% annualized), in the third quarter of
2022. New loans funded during the third and second quarter of 2022
were $206.7 million and $242.4 million, respectively, including purchased
residential real estate loans of $29.0 million and $27.3 million, respectively. Line of credit
utilization increased during the third quarter and loan repayments
were lower at $71.6 million during
the third quarter of 2022 compared to $136.5
million in the second quarter of 2022, exclusive of SBA PPP
loan repayments, net deferred fees, and net acquired discounts.
The following table summarizes the Company's total deposits at
the dates indicated:
|
September 30,
2022
|
|
June 30,
2022
|
|
Change
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Amount
|
|
%
|
|
(Dollars in
thousands)
|
|
Noninterest demand
deposits
|
$
2,308,583
|
|
37.0 %
|
|
$
2,325,139
|
|
36.7 %
|
|
$
(16,556)
|
|
(0.7) %
|
|
Interest bearing demand
deposits
|
1,997,989
|
|
32.0
|
|
1,977,527
|
|
31.3
|
|
20,462
|
|
1.0
|
|
Money market
accounts
|
996,214
|
|
16.0
|
|
1,062,178
|
|
16.8
|
|
(65,964)
|
|
(6.2)
|
|
Savings
accounts
|
647,526
|
|
10.4
|
|
654,577
|
|
10.3
|
|
(7,051)
|
|
(1.1)
|
|
Total non-maturity
deposits
|
5,950,312
|
|
95.4
|
|
6,019,421
|
|
95.1
|
|
(69,109)
|
|
(1.1)
|
|
Certificates of
deposit
|
287,423
|
|
4.6
|
|
310,769
|
|
4.9
|
|
(23,346)
|
|
(7.5)
|
|
Total
deposits
|
$
6,237,735
|
|
100.0 %
|
|
$
6,330,190
|
|
100.0 %
|
|
$
(92,455)
|
|
(1.5) %
|
Total deposits decreased $92.5
million, or 1.5%, from June 30,
2022. The decrease was due primarily to competitive pricing
pressures and customers moving excess funds to alternative higher
yielding investments.
Total stockholders' equity decreased $28.7 million during the third quarter of 2022
due to an increased loss in AOCI of $43.2
million following an increase in market interest rates
during the quarter, which negatively impacted the fair value of our
investment securities available for sale portfolio at September 30, 2022. AOCI has no effect on our
regulatory capital ratios as the Company opted to exclude it from
our common equity Tier 1 capital calculations.
The Company and Bank continue to maintain capital levels in
excess of the applicable regulatory requirements for them both to
be categorized as "well-capitalized". The following table
summarizes capital ratios for the Company at the dates
indicated:
|
September
30,
2022
|
|
June 30,
2022
|
|
Change
|
|
Stockholders' equity to
total assets
|
10.8 %
|
|
11.0 %
|
|
(0.2) %
|
|
Tangible common equity
to tangible assets (1)
|
7.6
|
|
7.9
|
|
(0.3)
|
|
Tangible common equity
to tangible assets, excluding AOCI (1)
|
9.0
|
|
8.7
|
|
0.3
|
|
Common equity tier 1
capital ratio (2)
|
12.8
|
|
13.2
|
|
(0.4)
|
|
Leverage ratio
(2)
|
9.2
|
|
8.9
|
|
0.3
|
|
Tier 1 capital ratio
(2)
|
13.3
|
|
13.6
|
|
(0.3)
|
|
Total capital ratio
(2)
|
14.0
|
|
14.4
|
|
(0.4)
|
|
|
|
(1)
|
See Non-GAAP Financial
Measures section herein.
|
|
(2)
|
Current quarter ratios
are estimates pending completion and filing of the Company's
regulatory reports.
|
Allowance for Credit Losses and
Provision for Credit Losses
The following table provides detail on the changes in the
allowance for credit losses ("ACL") on loans and the ACL on
unfunded commitments ("Unfunded") and the related provision for
(reversal of) credit losses for the periods indicated:
|
As of or for the
Quarter Ended
|
|
September 30,
2022
|
|
June 30,
2022
|
|
September 30,
2021
|
|
ACL on
Loans
|
|
ACL on
Unfunded
|
|
Total
|
|
ACL on
Loans
|
|
ACL on
Unfunded
|
|
Total
|
|
ACL on
Loans
|
|
ACL on
Unfunded
|
|
Total
|
|
(Dollars in
thousands)
|
|
Balance, beginning of
period
|
$ 39,696
|
|
$
997
|
|
$ 40,693
|
|
$ 40,333
|
|
$ 1,552
|
|
$ 41,885
|
|
$ 51,562
|
|
$ 2,451
|
|
$ 54,013
|
|
Provision for (reversal
of) credit losses
|
1,919
|
|
26
|
|
1,945
|
|
(649)
|
|
(555)
|
|
(1,204)
|
|
(2,852)
|
|
(297)
|
|
(3,149)
|
|
Net recoveries
(charge-offs)
|
474
|
|
—
|
|
474
|
|
12
|
|
—
|
|
12
|
|
(393)
|
|
—
|
|
(393)
|
|
Balance, end of
period
|
$ 42,089
|
|
$ 1,023
|
|
$ 43,112
|
|
$ 39,696
|
|
$
997
|
|
$ 40,693
|
|
$ 48,317
|
|
$ 2,154
|
|
$ 50,471
|
The ACL on loans increased compared to June 30, 2022 due primarily to an increase
related to the growth in loans receivable offset partially by
a reduction related to loans individually evaluated for losses.
Credit Quality
Nonperforming assets decreased to 0.09% of total assets at
September 30, 2022 compared to 0.14%
of total assets at June 30, 2022.
Nonperforming assets at both September 30,
2022 and June 30, 2022
consisted only of nonaccrual loans. Changes in nonaccrual loans
during the periods indicated were as follows:
|
Quarter
Ended
|
|
September
30,
2022
|
|
June 30,
2022
|
|
September
30,
2021
|
|
(In
thousands)
|
|
Balance, beginning of
period
|
$
10,475
|
|
$
16,527
|
|
$
35,341
|
|
Additions
|
—
|
|
720
|
|
293
|
|
Net principal payments
and transfers to accruing status
|
(4,016)
|
|
(5,964)
|
|
(8,139)
|
|
Payoffs
|
(225)
|
|
(691)
|
|
(911)
|
|
Charge-offs
|
—
|
|
(117)
|
|
(690)
|
|
Balance, end of
period
|
$
6,234
|
|
$
10,475
|
|
$
25,894
|
Nonaccrual loans declined during the third quarter of 2022 due
primarily to the transfer of one owner occupied CRE loan
relationship totaling $3.4 million
back to accrual status.
Net Interest Income and Net
Interest Margin
Net interest income increased $9.2
million, or 18.5%, compared to the second quarter of 2022
and increased $7.9 million, or 15.4%,
compared to the third quarter of 2021 due primarily to an increase
in yields earned on interest earning assets following increases in
market interest rates. The yield on interest earning assets
increased to 3.68% as compared to 3.14% in the second quarter of
2022 and 3.25% in the third quarter of 2021. SBA PPP interest and
fee income decreased $1.5 million
compared to the second quarter of 2022 and decreased $7.8 million compared to the third quarter of
2021.
The following table presents the loan yield and the impact of
SBA PPP loans and the incremental accretion on purchased loans on
this financial measure for the periods presented below:
|
Quarter
Ended
|
|
September
30,
2022
|
|
June 30,
2022
|
|
September
30,
2021
|
|
Loan yield
(GAAP)
|
4.51 %
|
|
4.30 %
|
|
4.64 %
|
|
Exclude impact from
SBA PPP loans
|
(0.02)
|
|
(0.15)
|
|
(0.38)
|
|
Exclude impact from
incremental accretion on purchased loans
|
(0.05)
|
|
(0.03)
|
|
(0.07)
|
|
Loan yield, excluding
SBA PPP loans and incremental accretion on purchased loans
(non-GAAP) (1)
|
4.44 %
|
|
4.12 %
|
|
4.19 %
|
|
|
|
(1)
|
See Non-GAAP Financial
Measures section.
|
Net interest margin increased to 3.57% for the third quarter of
2022 as compared to 3.04% for the second quarter of 2022 and 3.15%
for the third quarter of 2021 due to a shift into higher yielding
interest earning assets as well as higher average yields on all
interest earning assets excluding the impact from SBA PPP
loans.
Noninterest Income
The following table presents the key components of noninterest
income and the change for the periods indicated:
|
Quarter
Ended
|
|
Quarter Over Quarter
Change
|
|
Prior Year Quarter
Change
|
|
September
30,
2022
|
|
June 30,
2022
|
|
September
30,
2021
|
|
Change
|
|
%
Change
|
|
Change
|
|
%
Change
|
|
(Dollar amounts in
thousands)
|
|
Service charges and
other fees
|
$
2,688
|
|
$
2,577
|
|
$
2,400
|
|
$ 111
|
|
4.3 %
|
|
$ 288
|
|
12.0 %
|
|
Card revenue
|
2,365
|
|
2,146
|
|
2,150
|
|
219
|
|
10.2
|
|
215
|
|
10.0
|
|
Gain on sale of loans,
net
|
133
|
|
219
|
|
765
|
|
(86)
|
|
(39.3)
|
|
(632)
|
|
(82.6)
|
|
Interest rate swap
fees
|
78
|
|
26
|
|
126
|
|
52
|
|
200.0
|
|
(48)
|
|
(38.1)
|
|
Bank owned life
insurance income
|
723
|
|
764
|
|
647
|
|
(41)
|
|
(5.4)
|
|
76
|
|
11.7
|
|
Gain on sale of other
assets, net
|
265
|
|
—
|
|
942
|
|
265
|
|
—
|
|
(677)
|
|
(71.9)
|
|
Other income
|
1,201
|
|
1,284
|
|
1,198
|
|
(83)
|
|
(6.5)
|
|
3
|
|
0.3
|
|
Total noninterest
income
|
$
7,453
|
|
$
7,016
|
|
$
8,228
|
|
$ 437
|
|
6.2 %
|
|
$
(775)
|
|
(9.4) %
|
Noninterest income increased from the second quarter of 2022 due
mostly to gain on sale of branches held for sale as well as
increased card revenue.
Noninterest income decreased from the same period in 2021 due
primarily to reduced gain on sale of loans, net as sales volume of
secondary market mortgage loans declined and secondarily due to a
higher gain on sale of branches held for sale recognized during the
third quarter of 2021.
Noninterest Expense
The following table presents the key components of noninterest
expense and the change for the periods indicated:
|
Quarter
Ended
|
|
Quarter Over Quarter
Change
|
|
Prior Year Quarter
Change
|
|
September
30,
2022
|
|
June 30,
2022
|
|
September
30,
2021
|
|
Change
|
|
%
Change
|
|
Change
|
|
%
Change
|
|
(Dollar amounts in
thousands)
|
|
Compensation and
employee benefits
|
$
24,206
|
|
$
21,778
|
|
$
21,963
|
|
$
2,428
|
|
11.1 %
|
|
$
2,243
|
|
10.2 %
|
|
Occupancy and
equipment
|
4,422
|
|
4,171
|
|
4,373
|
|
251
|
|
6.0
|
|
49
|
|
1.1
|
|
Data
processing
|
4,185
|
|
4,185
|
|
4,029
|
|
—
|
|
—
|
|
156
|
|
3.9
|
|
Marketing
|
358
|
|
344
|
|
486
|
|
14
|
|
4.1
|
|
(128)
|
|
(26.3)
|
|
Professional
services
|
639
|
|
529
|
|
776
|
|
110
|
|
20.8
|
|
(137)
|
|
(17.7)
|
|
State/municipal
business and use tax
|
963
|
|
867
|
|
1,071
|
|
96
|
|
11.1
|
|
(108)
|
|
(10.1)
|
|
Federal deposit
insurance premium
|
500
|
|
425
|
|
550
|
|
75
|
|
17.6
|
|
(50)
|
|
(9.1)
|
|
Amortization of
intangible assets
|
671
|
|
704
|
|
758
|
|
(33)
|
|
(4.7)
|
|
(87)
|
|
(11.5)
|
|
Other
expense
|
3,203
|
|
2,704
|
|
3,160
|
|
499
|
|
18.5
|
|
43
|
|
1.4
|
|
Total noninterest
expense
|
$
39,147
|
|
$
35,707
|
|
$
37,166
|
|
$
3,440
|
|
9.6 %
|
|
$
1,981
|
|
5.3 %
|
Noninterest expense increased from the second quarter of 2022
and the same period in 2021 due primarily to an increase in
compensation and employee benefits due to an increase in the number
of full-time equivalent employees including the addition of
commercial and relationship banking teams in the second quarter of
2022, an increase in salaries and wages effective July 1, 2022 due to upward market pressure and an
increase in accrual for incentive compensation.
Income Tax Expense
The following table presents the income tax expense and related
metrics and the change for the periods indicated:
|
Quarter
Ended
|
|
Quarter Over Quarter
Change
|
|
Prior Year Quarter
Change
|
|
September
30,
2022
|
|
June 30,
2022
|
|
September
30,
2021
|
|
Change
|
|
%
Change
|
|
Change
|
|
%
Change
|
|
(Dollar amounts in
thousands)
|
|
Income before income
taxes
|
$
25,647
|
|
$
22,561
|
|
$
25,589
|
|
$
3,086
|
|
13.7 %
|
|
$
58
|
|
0.2 %
|
|
Income tax
expense
|
$
4,657
|
|
$
3,977
|
|
$
4,997
|
|
$ 680
|
|
17.1 %
|
|
$
(340)
|
|
(6.8) %
|
|
Effective income tax
rate
|
18.2 %
|
|
17.6 %
|
|
19.5 %
|
|
0.6 %
|
|
3.4 %
|
|
(1.3) %
|
|
(6.7) %
|
Income tax expense increased compared to the second quarter of
2022 due primarily to a higher effective income tax rate during the
third quarter of 2022 following an increase in estimated annual
pre-tax income for the year ended 2022, which decreased the impact
of favorable permanent tax items such as tax-exempt investments,
investments in bank owned life insurance and low-income housing tax
credits.
Income tax expense decreased compared to the same period in 2021
primarily due to a lower effective tax rate due to higher estimated
pre-tax income for the year ended 2021, which decreased the impact
of favorable permanent tax items such as tax-exempt investments,
investments in bank owned life insurance and low-income housing tax
credits.
Dividend
On October 19, 2022, the Company's Board of Directors
declared a quarterly cash dividend of $0.21 per share. The dividend is payable on
November 16, 2022 to shareholders of record as of the close of
business on November 2, 2022.
Earnings Conference Call
The Company will hold a telephone conference call to discuss
this earnings release on Thursday, October 20, 2022 at
10:00 a.m. Pacific time. To access
the call, please dial (844) 200-6205 -- access code 481365 a few
minutes prior to 10:00 a.m. Pacific
time. The call will be available for replay through
October 27, 2022 by dialing (866)
813-9403 -- access code 989637.
About Heritage Financial
Heritage Financial Corporation is an Olympia-based bank holding company with
Heritage Bank, a full-service commercial bank, as its sole
wholly-owned banking subsidiary. Heritage Bank has a branch network
of 50 banking offices in Washington and Oregon. Heritage Bank does business under the
Whidbey Island Bank name on Whidbey Island. Heritage's stock is
traded on the NASDAQ Global Select Market under the symbol "HFWA".
More information about Heritage Financial Corporation can be found
on its website at www.hf-wa.com and more information about Heritage
Bank can be found on its website at www.heritagebanknw.com.
Forward-Looking
Statements
This press release includes "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of
1995. Such statements often include words such as "believe,"
"expect," "anticipate," "estimate," and "intend" or future or
conditional verbs such as "will," "would," "should," "could," or
"may." Forward-looking statements are not historical facts but
instead represent management's current expectations and forecasts
regarding future events, many of which are inherently uncertain and
outside of our control. Actual results may differ, possibly
materially, from those currently expected or projected in these
forward-looking statements. Factors that could cause the Company's
actual results to differ materially from those described in the
forward-looking statements, include but are not limited to, the
following:changes in general economic conditions, either nationally
or in our market areas, including as a result of employment levels,
labor shortages and the effects of inflation, a potential recession
or slowed economic growth caused by increasing political
instability from acts of war including Russia's invasion of Ukraine, as well as increasing oil prices and
supply chain disruptions; changes in the interest rate environment;
the quality and composition of our securities portfolio and the
impact of any adverse changes including market liquidity within the
securities markets; legislative and regulatory changes, including
as a result of the COVID-19 pandemic and the possibility of a new
COVID-19 variant; and other factors described in Heritage's latest
Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and
other documents filed with or furnished to the Securities and
Exchange Commission-which are available on our website at
www.heritagebanknw.com and on the SEC's website at www.sec.gov. The
Company cautions readers not to place undue reliance on any
forward-looking statements. Moreover, any of the forward-looking
statements that we make in this press release or the documents we
file with or furnish to the SEC are based only on information then
actually known to the Company and upon management's beliefs and
assumptions at the time they are made which may turn out to be
wrong because of inaccurate assumptions we might make, because of
the factors described above or because of other factors that we
cannot foresee. The Company does not undertake and specifically
disclaims any obligation to revise any forward-looking statements
to reflect the occurrence of anticipated or unanticipated events or
circumstances after the date of such statements. These risks could
cause our actual results for 2022 and beyond to differ materially
from those expressed in any forward-looking statements by, or on
behalf of, us, and could negatively affect the Company's operating
and stock price performance.
|
HERITAGE
FINANCIAL CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollar
amounts in thousands, except shares)
|
|
|
September
30,
2022
|
|
June 30,
2022
|
|
December 31,
2021
|
|
Assets
|
|
|
|
|
|
|
Cash on hand and in
banks
|
$
100,428
|
|
$
93,675
|
|
$
61,377
|
|
Interest earning
deposits
|
306,896
|
|
900,380
|
|
1,661,915
|
|
Cash and cash
equivalents
|
407,324
|
|
994,055
|
|
1,723,292
|
|
Investment securities
available for sale, at fair value (amortized cost of $1,491,440,
$1,267,715 and $883,832, respectively)
|
1,356,142
|
|
1,187,588
|
|
894,335
|
|
Investment securities
held to maturity, at amortized cost (fair value of $677,335,
$559,312 and $376,331, respectively)
|
773,319
|
|
615,653
|
|
383,393
|
|
Total investment
securities
|
2,129,461
|
|
1,803,241
|
|
1,277,728
|
|
Loans held for
sale
|
—
|
|
1,311
|
|
1,476
|
|
Loans
receivable
|
4,001,295
|
|
3,874,064
|
|
3,815,662
|
|
Allowance for credit
losses on loans
|
(42,089)
|
|
(39,696)
|
|
(42,361)
|
|
Loans receivable,
net
|
3,959,206
|
|
3,834,368
|
|
3,773,301
|
|
Other real estate
owned
|
—
|
|
—
|
|
—
|
|
Premises and equipment,
net
|
76,683
|
|
77,164
|
|
79,370
|
|
Federal Home Loan Bank
stock, at cost
|
8,916
|
|
8,916
|
|
7,933
|
|
Bank owned life
insurance
|
121,369
|
|
120,646
|
|
120,196
|
|
Accrued interest
receivable
|
17,812
|
|
15,908
|
|
14,657
|
|
Prepaid expenses and
other assets
|
230,704
|
|
211,350
|
|
183,543
|
|
Other intangible
assets, net
|
7,898
|
|
8,569
|
|
9,977
|
|
Goodwill
|
240,939
|
|
240,939
|
|
240,939
|
|
Total
assets
|
$
7,200,312
|
|
$
7,316,467
|
|
$
7,432,412
|
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
|
Deposits
|
$
6,237,735
|
|
$
6,330,190
|
|
$
6,394,290
|
|
Junior subordinated
debentures
|
21,399
|
|
21,326
|
|
21,180
|
|
Securities sold under
agreement to repurchase
|
40,449
|
|
41,827
|
|
50,839
|
|
Accrued expenses and
other liabilities
|
124,027
|
|
117,758
|
|
111,671
|
|
Total
liabilities
|
6,423,610
|
|
6,511,101
|
|
6,577,980
|
|
|
|
|
|
|
|
Common stock
|
551,419
|
|
550,417
|
|
551,798
|
|
Retained
earnings
|
330,284
|
|
316,732
|
|
293,238
|
|
Accumulated other
comprehensive (loss) income, net
|
(105,001)
|
|
(61,783)
|
|
9,396
|
|
Total stockholders'
equity
|
776,702
|
|
805,366
|
|
854,432
|
|
Total liabilities and
stockholders' equity
|
$
7,200,312
|
|
$
7,316,467
|
|
$
7,432,412
|
|
|
|
|
|
|
|
Shares
outstanding
|
35,104,248
|
|
35,103,929
|
|
35,105,779
|
|
HERITAGE
FINANCIAL CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME (Unaudited)
(Dollar amounts in
thousands, except per share amounts)
|
|
|
Quarter
Ended
|
|
Nine Months
Ended
|
|
September
30,
2022
|
|
June 30,
2022
|
|
September
30,
2021
|
|
September
30,
2022
|
|
September
30,
2021
|
|
Interest
Income
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on
loans
|
$
43,847
|
|
$
40,890
|
|
$
46,863
|
|
$
125,762
|
|
$
147,137
|
|
Taxable interest on
investment securities
|
12,362
|
|
7,607
|
|
4,711
|
|
25,972
|
|
12,295
|
|
Nontaxable interest on
investment securities
|
892
|
|
893
|
|
931
|
|
2,645
|
|
2,836
|
|
Interest on interest
earning deposits
|
4,009
|
|
2,342
|
|
537
|
|
7,057
|
|
975
|
|
Total interest
income
|
61,110
|
|
51,732
|
|
53,042
|
|
161,436
|
|
163,243
|
|
Interest
Expense
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
1,478
|
|
1,413
|
|
1,444
|
|
4,314
|
|
4,696
|
|
Junior subordinated
debentures
|
312
|
|
239
|
|
184
|
|
745
|
|
557
|
|
Other
borrowings
|
34
|
|
32
|
|
36
|
|
98
|
|
109
|
|
Total interest
expense
|
1,824
|
|
1,684
|
|
1,664
|
|
5,157
|
|
5,362
|
|
Net interest
income
|
59,286
|
|
50,048
|
|
51,378
|
|
156,279
|
|
157,881
|
|
Provision for (reversal
of) credit losses
|
1,945
|
|
(1,204)
|
|
(3,149)
|
|
(2,836)
|
|
(24,335)
|
|
Net interest income
after provision for (reversal of) credit losses
|
57,341
|
|
51,252
|
|
54,527
|
|
159,115
|
|
182,216
|
|
Noninterest
Income
|
|
|
|
|
|
|
|
|
|
|
Service charges and
other fees
|
2,688
|
|
2,577
|
|
2,400
|
|
7,739
|
|
6,728
|
|
Card revenue
|
2,365
|
|
2,146
|
|
2,150
|
|
6,773
|
|
6,216
|
|
Gain on sale of
investment securities, net
|
—
|
|
—
|
|
—
|
|
—
|
|
29
|
|
Gain on sale of loans,
net
|
133
|
|
219
|
|
765
|
|
593
|
|
3,138
|
|
Interest rate swap
fees
|
78
|
|
26
|
|
126
|
|
383
|
|
487
|
|
Bank owned life
insurance income
|
723
|
|
764
|
|
647
|
|
3,182
|
|
2,020
|
|
Gain on sale of other
assets, net
|
265
|
|
—
|
|
942
|
|
469
|
|
1,688
|
|
Other income
|
1,201
|
|
1,284
|
|
1,198
|
|
3,866
|
|
4,470
|
|
Total noninterest
income
|
7,453
|
|
7,016
|
|
8,228
|
|
23,005
|
|
24,776
|
|
Noninterest
Expense
|
|
|
|
|
|
|
|
|
|
|
Compensation and
employee benefits
|
24,206
|
|
21,778
|
|
21,963
|
|
67,236
|
|
65,967
|
|
Occupancy and
equipment
|
4,422
|
|
4,171
|
|
4,373
|
|
12,924
|
|
12,918
|
|
Data
processing
|
4,185
|
|
4,185
|
|
4,029
|
|
12,431
|
|
11,839
|
|
Marketing
|
358
|
|
344
|
|
486
|
|
968
|
|
1,566
|
|
Professional
services
|
639
|
|
529
|
|
776
|
|
1,866
|
|
3,083
|
|
State/municipal
business and use taxes
|
963
|
|
867
|
|
1,071
|
|
2,627
|
|
3,034
|
|
Federal deposit
insurance premium
|
500
|
|
425
|
|
550
|
|
1,525
|
|
1,478
|
|
Amortization of
intangible assets
|
671
|
|
704
|
|
758
|
|
2,079
|
|
2,352
|
|
Other
expense
|
3,203
|
|
2,704
|
|
3,160
|
|
8,918
|
|
8,567
|
|
Total noninterest
expense
|
39,147
|
|
35,707
|
|
37,166
|
|
110,574
|
|
110,804
|
|
Income before income
taxes
|
25,647
|
|
22,561
|
|
25,589
|
|
71,546
|
|
96,188
|
|
Income tax
expense
|
4,657
|
|
3,977
|
|
4,997
|
|
12,216
|
|
17,550
|
|
Net income
|
$
20,990
|
|
$
18,584
|
|
$
20,592
|
|
$
59,330
|
|
$
78,638
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$
0.60
|
|
$
0.53
|
|
$
0.58
|
|
$
1.69
|
|
$
2.19
|
|
Diluted earnings per
share
|
$
0.59
|
|
$
0.52
|
|
$
0.58
|
|
$
1.67
|
|
$
2.18
|
|
Dividends declared per
share
|
$
0.21
|
|
$
0.21
|
|
$
0.20
|
|
$
0.63
|
|
$
0.60
|
|
Average shares
outstanding - basic
|
35,103,984
|
|
35,110,334
|
|
35,644,192
|
|
35,103,048
|
|
35,854,258
|
|
Average shares
outstanding - diluted
|
35,468,890
|
|
35,409,524
|
|
35,929,518
|
|
35,438,672
|
|
36,152,052
|
|
HERITAGE
FINANCIAL CORPORATION
FINANCIAL STATISTICS
(Unaudited)
(Dollar amounts in thousands, except per
share amounts)
|
|
Nonperforming Assets and Credit Quality
Metrics:
|
|
|
Quarter
Ended
|
|
Nine Months
Ended
|
|
September
30,
2022
|
|
June 30,
2022
|
|
September
30,
2021
|
|
September
30,
2022
|
|
September
30,
2021
|
|
Allowance for Credit
Losses on Loans:
|
|
|
|
|
|
Balance, beginning of
period
|
$
39,696
|
|
$
40,333
|
|
$
51,562
|
|
$
42,361
|
|
$
70,185
|
|
Provision for (reversal
of) credit losses on loans
|
1,919
|
|
(649)
|
|
(2,852)
|
|
(1,252)
|
|
(21,808)
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
Commercial
business
|
—
|
|
(117)
|
|
(743)
|
|
(316)
|
|
(757)
|
|
Residential real
estate
|
—
|
|
—
|
|
—
|
|
(30)
|
|
—
|
|
Real estate
construction and land development
|
—
|
|
—
|
|
—
|
|
—
|
|
(1)
|
|
Consumer
|
(138)
|
|
(132)
|
|
(204)
|
|
(396)
|
|
(509)
|
|
Total
charge-offs
|
(138)
|
|
(249)
|
|
(947)
|
|
(742)
|
|
(1,267)
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
Commercial
business
|
455
|
|
149
|
|
385
|
|
876
|
|
735
|
|
Residential real
estate
|
—
|
|
—
|
|
—
|
|
3
|
|
—
|
|
Real estate
construction and land development
|
107
|
|
59
|
|
8
|
|
174
|
|
28
|
|
Consumer
|
50
|
|
53
|
|
161
|
|
669
|
|
444
|
|
Total
recoveries
|
612
|
|
261
|
|
554
|
|
1,722
|
|
1,207
|
|
Net recoveries
(charge-offs)
|
474
|
|
12
|
|
(393)
|
|
980
|
|
(60)
|
|
Balance, end of
period
|
$
42,089
|
|
$
39,696
|
|
$
48,317
|
|
$
42,089
|
|
$
48,317
|
|
Net (recoveries)
charge-offs on loans to average loans, annualized
|
(0.05) %
|
|
— %
|
|
0.04 %
|
|
(0.03) %
|
|
— %
|
|
September
30,
2022
|
|
June 30,
2022
|
|
December 31,
2021
|
|
Nonperforming
Assets:
|
|
|
|
|
|
|
Nonaccrual
loans:
|
|
|
|
|
|
|
Commercial
business
|
$
6,234
|
|
$
10,475
|
|
$
23,107
|
|
Residential real
estate
|
—
|
|
—
|
|
47
|
|
Real estate
construction and land development
|
—
|
|
—
|
|
571
|
|
Consumer
|
—
|
|
—
|
|
29
|
|
Total nonaccrual
loans
|
6,234
|
|
10,475
|
|
23,754
|
|
Other real estate
owned
|
—
|
|
—
|
|
—
|
|
Nonperforming
assets
|
$
6,234
|
|
$
10,475
|
|
$
23,754
|
|
|
|
|
|
|
|
Restructured performing
loans
|
$
71,863
|
|
$
63,694
|
|
$
59,110
|
|
Accruing loans past due
90 days or more
|
20
|
|
2,036
|
|
293
|
|
ACL on loans
to:
|
|
|
|
|
|
|
Loans
receivable
|
1.05 %
|
|
1.02 %
|
|
1.11 %
|
|
Loans receivable,
excluding SBA PPP loans (1)
|
1.05 %
|
|
1.03 %
|
|
1.15 %
|
|
Nonaccrual
loans
|
675.15 %
|
|
378.96 %
|
|
178.33 %
|
|
Nonperforming loans to
loans receivable
|
0.16 %
|
|
0.27 %
|
|
0.62 %
|
|
Nonperforming assets to
total assets
|
0.09 %
|
|
0.14 %
|
|
0.32 %
|
|
|
|
(1)
|
See
Non-GAAP Financial Measures section herein.
|
|
Average Balances,
Yields, and Rates Paid:
|
|
|
Quarter
Ended
|
|
September 30,
2022
|
|
June 30,
2022
|
|
September 30,
2021
|
|
Average
Balance
|
|
Interest
Earned/
Paid
|
|
Average
Yield/
Rate (1)
|
|
Average
Balance
|
|
Interest
Earned/
Paid
|
|
Average
Yield/
Rate (1)
|
|
Average
Balance
|
|
Interest
Earned/
Paid
|
|
Average
Yield/
Rate (1)
|
|
Interest Earning
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
(2)(3)
|
$ 3,859,839
|
|
$ 43,847
|
|
4.51 %
|
|
$ 3,812,045
|
|
$ 40,890
|
|
4.30 %
|
|
$ 4,005,585
|
|
$ 46,863
|
|
4.64 %
|
|
Taxable
securities
|
1,868,900
|
|
12,362
|
|
2.62
|
|
1,450,328
|
|
7,607
|
|
2.10
|
|
893,374
|
|
4,711
|
|
2.09
|
|
Nontaxable securities
(3)
|
133,022
|
|
892
|
|
2.66
|
|
137,429
|
|
893
|
|
2.61
|
|
157,907
|
|
931
|
|
2.34
|
|
Interest earning
deposits
|
730,600
|
|
4,009
|
|
2.18
|
|
1,213,156
|
|
2,342
|
|
0.77
|
|
1,417,661
|
|
537
|
|
0.15
|
|
Total interest earning
assets
|
6,592,361
|
|
61,110
|
|
3.68 %
|
|
6,612,958
|
|
51,732
|
|
3.14 %
|
|
6,474,527
|
|
53,042
|
|
3.25 %
|
|
Noninterest earning
assets
|
775,375
|
|
|
|
|
|
772,658
|
|
|
|
|
|
740,433
|
|
|
|
|
|
Total
assets
|
$ 7,367,736
|
|
|
|
|
|
$ 7,385,616
|
|
|
|
|
|
7,214,960
|
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
297,786
|
|
$ 290
|
|
0.39 %
|
|
$
321,926
|
|
$ 324
|
|
0.40 %
|
|
$
365,278
|
|
$ 407
|
|
0.44 %
|
|
Savings
accounts
|
654,697
|
|
99
|
|
0.06
|
|
652,407
|
|
88
|
|
0.05
|
|
609,818
|
|
90
|
|
0.06
|
|
Interest bearing demand
and money market accounts
|
3,065,007
|
|
1,089
|
|
0.14
|
|
3,067,373
|
|
1,001
|
|
0.13
|
|
2,881,567
|
|
947
|
|
0.13
|
|
Total interest bearing
deposits
|
4,017,490
|
|
1,478
|
|
0.15
|
|
4,041,706
|
|
1,413
|
|
0.14
|
|
3,856,663
|
|
1,444
|
|
0.15
|
|
Junior subordinated
debentures
|
21,356
|
|
312
|
|
5.80
|
|
21,287
|
|
239
|
|
4.50
|
|
21,060
|
|
184
|
|
3.47
|
|
Securities sold under
agreement to repurchase
|
42,959
|
|
34
|
|
0.31
|
|
48,272
|
|
32
|
|
0.27
|
|
52,197
|
|
36
|
|
0.27
|
|
Total interest bearing
liabilities
|
4,081,805
|
|
1,824
|
|
0.18 %
|
|
4,111,265
|
|
1,684
|
|
0.16 %
|
|
3,929,920
|
|
1,664
|
|
0.17 %
|
|
Noninterest demand
deposits
|
2,356,688
|
|
|
|
|
|
2,349,746
|
|
|
|
|
|
2,313,145
|
|
|
|
|
|
Other noninterest
bearing liabilities
|
118,191
|
|
|
|
|
|
113,644
|
|
|
|
|
|
116,187
|
|
|
|
|
|
Stockholders'
equity
|
811,052
|
|
|
|
|
|
810,961
|
|
|
|
|
|
855,708
|
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$ 7,367,736
|
|
|
|
|
|
$ 7,385,616
|
|
|
|
|
|
$ 7,214,960
|
|
|
|
|
|
Net interest income and
spread
|
|
|
$ 59,286
|
|
3.50 %
|
|
|
|
$ 50,048
|
|
2.98 %
|
|
|
|
$ 51,378
|
|
3.08 %
|
|
Net interest
margin
|
|
|
|
|
3.57 %
|
|
|
|
|
|
3.04 %
|
|
|
|
|
|
3.15 %
|
|
|
|
(1)
|
Annualized; average
balances are calculated using daily balances.
|
|
(2)
|
Average loans
receivable, net includes loans held for sale and loans classified
as nonaccrual, which carry a zero yield. Interest earned on loans
receivable, net includes the amortization of net deferred loan fees
of $0.9 million, $2.4 million and $7.8 million for the third
quarter of 2022, second quarter of 2022 and third quarter of 2021,
respectively.
|
|
(3)
|
Yields on tax-exempt
loans and securities have not been stated on a tax-equivalent
basis.
|
|
Nine Months
Ended
|
|
September 30,
2022
|
|
September 30,
2021
|
|
Average
Balance
|
|
Interest
Earned/
Paid
|
|
Average
Yield/
Rate (1)
|
|
Average
Balance
|
|
Interest
Earned/
Paid
|
|
Average
Yield/
Rate (1)
|
|
Interest Earning
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
(2) (3)
|
$ 3,815,387
|
|
$
125,762
|
|
4.41 %
|
|
$ 4,297,875
|
|
$
147,137
|
|
4.58 %
|
|
Taxable
securities
|
1,532,450
|
|
25,972
|
|
2.27
|
|
789,691
|
|
12,295
|
|
2.08
|
|
Nontaxable securities
(3)
|
138,904
|
|
2,645
|
|
2.55
|
|
160,748
|
|
2,836
|
|
2.36
|
|
Interest earning
deposits
|
1,146,183
|
|
7,057
|
|
0.82
|
|
1,034,690
|
|
975
|
|
0.13
|
|
Total interest earning
assets
|
6,632,924
|
|
161,436
|
|
3.25 %
|
|
6,283,004
|
|
163,243
|
|
3.47 %
|
|
Noninterest earning
assets
|
762,877
|
|
|
|
|
|
749,781
|
|
|
|
|
|
Total
assets
|
$ 7,395,801
|
|
|
|
|
|
$ 7,032,785
|
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
318,547
|
|
$ 952
|
|
0.40 %
|
|
$
379,885
|
|
$
1,447
|
|
0.51 %
|
|
Savings
accounts
|
651,292
|
|
273
|
|
0.06
|
|
587,358
|
|
274
|
|
0.06
|
|
Interest bearing demand
and money market accounts
|
3,066,229
|
|
3,089
|
|
0.13
|
|
2,817,353
|
|
2,975
|
|
0.14
|
|
Total interest bearing
deposits
|
4,036,068
|
|
4,314
|
|
0.14
|
|
3,784,596
|
|
4,696
|
|
0.17
|
|
Junior subordinated
debentures
|
21,286
|
|
745
|
|
4.68
|
|
20,987
|
|
557
|
|
3.55
|
|
Securities sold under
agreement to repurchase
|
47,057
|
|
98
|
|
0.28
|
|
45,221
|
|
109
|
|
0.32
|
|
Total interest bearing
liabilities
|
4,104,411
|
|
5,157
|
|
0.17 %
|
|
3,850,804
|
|
5,362
|
|
0.19 %
|
|
Noninterest demand
deposits
|
2,355,285
|
|
|
|
|
|
2,227,281
|
|
|
|
|
|
Other noninterest
bearing liabilities
|
113,534
|
|
|
|
|
|
115,098
|
|
|
|
|
|
Stockholders'
equity
|
822,571
|
|
|
|
|
|
839,602
|
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$ 7,395,801
|
|
|
|
|
|
$ 7,032,785
|
|
|
|
|
|
Net interest income and
spread
|
|
|
$
156,279
|
|
3.08 %
|
|
|
|
$
157,881
|
|
3.28 %
|
|
Net interest
margin
|
|
|
|
|
3.15 %
|
|
|
|
|
|
3.36 %
|
|
|
|
(1)
|
Average balances are
calculated using daily balances.
|
|
(2)
|
Average loan
receivable, net includes loans held for sale and loans classified
as nonaccrual, which carry a zero yield. Interest earned on loans
receivable, net includes the amortization of net deferred loan fees
of $6.7 million and $23.2 million for the nine months ended
September 30, 2022 and 2021, respectively.
|
|
(3)
|
Yields on tax-exempt
loans and securities have not been stated on a tax-equivalent
basis.
|
|
HERITAGE
FINANCIAL CORPORATION
QUARTERLY FINANCIAL
STATISTICS (Unaudited)
(Dollar amounts in thousands,
except per share amounts)
|
|
|
Quarter
Ended
|
|
September
30,
2022
|
|
June 30,
2022
|
|
March 31,
2022
|
|
December 31,
2021
|
|
September
30,
2021
|
|
Earnings:
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
$
59,286
|
|
$
50,048
|
|
$
46,944
|
|
$
47,908
|
|
$
51,378
|
|
Provision for (reversal
of) credit losses
|
1,945
|
|
(1,204)
|
|
(3,577)
|
|
(5,037)
|
|
(3,149)
|
|
Noninterest
income
|
7,453
|
|
7,016
|
|
8,538
|
|
9,839
|
|
8,228
|
|
Noninterest
expense
|
39,147
|
|
35,707
|
|
35,720
|
|
38,465
|
|
37,166
|
|
Net income
|
20,990
|
|
18,584
|
|
19,757
|
|
19,397
|
|
20,592
|
|
Pre-tax, pre-provision
net income (3)
|
27,592
|
|
21,357
|
|
19,762
|
|
19,282
|
|
22,440
|
|
Basic earnings per
share
|
$
0.60
|
|
$
0.53
|
|
$
0.56
|
|
$
0.56
|
|
$
0.58
|
|
Diluted earnings per
share
|
$
0.59
|
|
$
0.52
|
|
$
0.56
|
|
$
0.55
|
|
$
0.58
|
|
Average
Balances:
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
(1)
|
$
3,859,839
|
|
$
3,812,045
|
|
$
3,773,325
|
|
$
3,836,029
|
|
$
4,005,585
|
|
Total investment
securities
|
2,001,922
|
|
1,587,757
|
|
1,417,966
|
|
1,170,315
|
|
1,051,281
|
|
Total interest earning
assets
|
6,592,361
|
|
6,612,958
|
|
6,694,578
|
|
6,671,984
|
|
6,474,527
|
|
Total assets
|
7,367,736
|
|
7,385,616
|
|
7,434,787
|
|
7,403,597
|
|
7,214,960
|
|
Total interest bearing
deposits
|
4,017,490
|
|
4,041,706
|
|
4,049,357
|
|
3,977,721
|
|
3,856,663
|
|
Total noninterest
demand deposits
|
2,356,688
|
|
2,349,746
|
|
2,359,451
|
|
2,396,452
|
|
2,313,145
|
|
Stockholders'
equity
|
811,052
|
|
810,961
|
|
846,085
|
|
849,383
|
|
855,708
|
|
Financial
Ratios:
|
|
|
|
|
|
|
|
|
|
|
Return on average
assets (2)
|
1.13 %
|
|
1.01 %
|
|
1.08 %
|
|
1.04 %
|
|
1.13 %
|
|
Pre-tax, pre-provision
return on average assets (2)(3)
|
1.49
|
|
1.16
|
|
1.08
|
|
1.03
|
|
1.23
|
|
Return on average
common equity (2)
|
10.27
|
|
9.19
|
|
9.47
|
|
9.06
|
|
9.55
|
|
Return on average
tangible common equity (2) (3)
|
15.20
|
|
13.68
|
|
13.83
|
|
13.27
|
|
13.93
|
|
Efficiency
ratio
|
58.66
|
|
62.57
|
|
64.38
|
|
66.61
|
|
62.35
|
|
Noninterest expense to
average total assets (2)
|
2.11
|
|
1.94
|
|
1.95
|
|
2.06
|
|
2.04
|
|
Net interest spread
(2)
|
3.50
|
|
2.98
|
|
2.78
|
|
2.79
|
|
3.08
|
|
Net interest margin
(2)
|
3.57
|
|
3.04
|
|
2.84
|
|
2.85
|
|
3.15
|
|
|
|
(1)
|
Average loan
receivable, net includes loans held for sale.
|
|
(2)
|
Annualized.
|
|
(3)
|
See Non-GAAP Financial
Measures section herein.
|
|
As of or for the
Quarter Ended
|
|
September
30,
2022
|
|
June 30,
2022
|
|
March 31,
2022
|
|
December 31,
2021
|
|
September
30,
2021
|
|
Select Balance
Sheet:
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
7,200,312
|
|
$
7,316,467
|
|
$
7,483,814
|
|
$
7,432,412
|
|
$
7,259,038
|
|
Loans receivable,
net
|
3,959,206
|
|
3,834,368
|
|
3,780,845
|
|
3,773,301
|
|
3,905,567
|
|
Total investment
securities
|
2,129,461
|
|
1,803,241
|
|
1,462,137
|
|
1,277,728
|
|
1,072,600
|
|
Deposits
|
6,237,735
|
|
6,330,190
|
|
6,491,500
|
|
6,394,290
|
|
6,229,017
|
|
Noninterest demand
deposits
|
2,308,583
|
|
2,325,139
|
|
2,393,972
|
|
2,343,909
|
|
2,312,707
|
|
Stockholders'
equity
|
776,702
|
|
805,366
|
|
821,449
|
|
854,432
|
|
848,404
|
|
Financial
Measures:
|
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
$
22.13
|
|
$
22.94
|
|
$
23.40
|
|
$
24.34
|
|
$
24.13
|
|
Tangible book value per
share (1)
|
15.04
|
|
15.83
|
|
16.27
|
|
17.19
|
|
16.97
|
|
Tangible book value per
share, excluding AOCI (1)
|
18.03
|
|
17.59
|
|
17.25
|
|
16.92
|
|
16.55
|
|
Stockholders' equity to
total assets
|
10.8 %
|
|
11.0 %
|
|
11.0 %
|
|
11.5 %
|
|
11.7 %
|
|
Tangible common equity
to tangible assets (1)
|
7.6
|
|
7.9
|
|
7.9
|
|
8.4
|
|
8.5
|
|
Tangible common equity
to tangible assets, excluding AOCI (1)
|
9.0
|
|
8.7
|
|
8.3
|
|
8.3
|
|
8.3
|
|
Loans to deposits
ratio
|
64.1
|
|
61.2
|
|
58.9
|
|
59.7
|
|
63.5
|
|
Regulatory Capital
Ratios:
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1
capital ratio(2)
|
12.8 %
|
|
13.2 %
|
|
13.4 %
|
|
13.5 %
|
|
13.3 %
|
|
Leverage
ratio(2)
|
9.2 %
|
|
8.9 %
|
|
8.8 %
|
|
8.7 %
|
|
8.8 %
|
|
Tier 1 capital
ratio(2)
|
13.3 %
|
|
13.6 %
|
|
13.9 %
|
|
13.9 %
|
|
13.8 %
|
|
Total capital
ratio(2)
|
14.0 %
|
|
14.4 %
|
|
14.7 %
|
|
14.8 %
|
|
14.8 %
|
|
Credit Quality
Metrics:
|
|
|
|
|
|
|
|
|
|
|
ACL on
loans to:
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
1.05 %
|
|
1.02 %
|
|
1.06 %
|
|
1.11 %
|
|
1.22 %
|
|
Loans receivable,
excluding SBA PPP loans (1)
|
1.05
|
|
1.03
|
|
1.07
|
|
1.15
|
|
1.31
|
|
Nonperforming
loans
|
675.15
|
|
378.96
|
|
244.04
|
|
178.33
|
|
186.60
|
|
Nonperforming loans to
loans receivable
|
0.16
|
|
0.27
|
|
0.43
|
|
0.62
|
|
0.65
|
|
Nonperforming assets to
total assets
|
0.09
|
|
0.14
|
|
0.22
|
|
0.32
|
|
0.36
|
|
Net (recoveries)
charge-offs on loans to average loans receivable
|
—
|
|
—
|
|
(0.05)
|
|
0.05
|
|
0.04
|
|
Criticized Loans by
Credit Quality Rating:
|
|
Special
mention
|
$
84,439
|
|
$
72,062
|
|
$
63,269
|
|
$
71,020
|
|
$
90,554
|
|
Substandard
|
66,376
|
|
94,419
|
|
111,300
|
|
112,450
|
|
126,694
|
|
Other
Metrics:
|
|
|
|
|
|
|
|
|
|
|
Number of banking
offices
|
50
|
|
49
|
|
49
|
|
49
|
|
53
|
|
Average number of
full-time equivalent employees
|
790
|
|
765
|
|
751
|
|
782
|
|
813
|
|
Deposits per
branch
|
$
124,755
|
|
$
129,188
|
|
$
132,480
|
|
$
130,496
|
|
$
117,529
|
|
Average assets per
full-time equivalent employee
|
9,326
|
|
9,654
|
|
9,900
|
|
9,468
|
|
8,874
|
|
|
|
(1)
|
See Non-GAAP Financial
Measures section herein.
|
|
(2)
|
Current quarter
ratios are estimates pending completion and filing of the Company's
regulatory reports.
|
HERITAGE FINANCIAL
CORPORATION
NON-GAAP FINANCIAL MEASURES
(Unaudited)
(Dollar amounts in thousands, except per
share amounts)
This earnings release contains certain financial measures not
presented in accordance with Generally Accepted Accounting
Principles ("GAAP") in addition to financial measures presented in
accordance with GAAP. The Company has presented these non-GAAP
financial measures in this earnings release because it believes
that they provide useful and comparative information to assess
trends in the Company's capital, performance and asset quality
reflected in the current quarter and comparable period results and
to facilitate comparison of its performance with the performance of
its peers. These non-GAAP measures have inherent limitations, are
not required to be uniformly applied and are not audited. They
should not be considered in isolation or as a substitute for
financial measures presented in accordance with GAAP. These
non-GAAP measures may not be comparable to similarly titled
measures reported by other companies. Reconciliations of the GAAP
and non-GAAP financial measures are presented below.
The Company considers the tangible common equity to tangible
assets ratio and tangible book value per share to be useful
measurements of the adequacy of the Company's capital levels.
Additionally, recent changes in market interest rates introduced
significant volatility in the unrealized gain or loss of investment
securities available for sale ("UGL") and the related AOCI.
Management excluded UGL and AOCI from tangible assets and tangible
common equity, respectively, to improve comparability of capital
levels as UGL and AOCI are excluded from the calculation of
regulatory capital ratios.
|
September
30,
2022
|
|
June 30,
2022
|
|
March 31,
2022
|
|
December 31,
2021
|
|
September
30,
2021
|
|
Tangible Common
Equity to Tangible Assets and Tangible Book Value Per
Share:
|
|
Total stockholders'
equity (GAAP)
|
$
776,702
|
|
$
805,366
|
|
$
821,449
|
|
$
854,432
|
|
$
848,404
|
|
Exclude intangible
assets
|
(248,837)
|
|
(249,508)
|
|
(250,212)
|
|
(250,916)
|
|
(251,675)
|
|
Tangible common equity
(non-GAAP)
|
$
527,865
|
|
$
555,858
|
|
$
571,237
|
|
$
603,516
|
|
$
596,729
|
|
Exclude
AOCI
|
105,001
|
|
61,783
|
|
34,228
|
|
(9,396)
|
|
(14,734)
|
|
Tangible common equity,
excluding AOCI (non-GAAP)
|
$
632,866
|
|
$
617,641
|
|
$
605,465
|
|
$
594,120
|
|
$
581,995
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
(GAAP)
|
$
7,200,312
|
|
$
7,316,467
|
|
$
7,483,814
|
|
$
7,432,412
|
|
$
7,259,038
|
|
Exclude intangible
assets
|
(248,837)
|
|
(249,508)
|
|
(250,212)
|
|
(250,916)
|
|
(251,675)
|
|
Tangible assets
(non-GAAP)
|
$
6,951,475
|
|
$
7,066,959
|
|
$
7,233,602
|
|
$
7,181,496
|
|
$
7,007,363
|
|
Exclude UGL, net of
tax
|
105,001
|
|
61,783
|
|
34,228
|
|
(9,396)
|
|
(14,734)
|
|
Tangible assets,
excluding UGL, net of tax (non-GAAP)
|
$
7,056,476
|
|
$
7,128,742
|
|
$
7,267,830
|
|
$
7,172,100
|
|
$
6,992,629
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity to
total assets (GAAP)
|
10.8 %
|
|
11.0 %
|
|
11.0 %
|
|
11.5 %
|
|
11.7 %
|
|
Tangible common equity
to tangible assets (non-GAAP)
|
7.6 %
|
|
7.9 %
|
|
7.9 %
|
|
8.4 %
|
|
8.5 %
|
|
Tangible common equity
to tangible assets, excluding AOCI (non-GAAP)
|
9.0 %
|
|
8.7 %
|
|
8.3 %
|
|
8.3 %
|
|
8.3 %
|
|
|
|
|
|
|
|
|
|
|
|
Shares
outstanding
|
35,104,248
|
|
35,103,929
|
|
35,102,372
|
|
35,105,779
|
|
35,166,599
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share
(GAAP)
|
$
22.13
|
|
$
22.94
|
|
$
23.40
|
|
$
24.34
|
|
$
24.13
|
|
Tangible book value per
share (non-GAAP)
|
$
15.04
|
|
$
15.83
|
|
$
16.27
|
|
$
17.19
|
|
$
16.97
|
|
Tangible book value per
share, excluding AOCI (non-GAAP)
|
$
18.03
|
|
$
17.59
|
|
$
17.25
|
|
$
16.92
|
|
$
16.55
|
The Company considers presenting the ratio of ACL on loans to
loans receivable, excluding SBA PPP loans, to be a useful
measurement in evaluating the adequacy of the Company's ACL on
loans as the balance of SBA PPP loans was significant to the loan
portfolio; however, since SBA PPP loans are guaranteed by the SBA,
the Company has not provided an ACL on loans for these loans.
|
September
30,
2022
|
|
June 30,
2022
|
|
March 31,
2022
|
|
December 31,
2021
|
|
September
30,
2021
|
|
ACL on Loans to
Loans Receivable, excluding SBA PPP Loans:
|
|
Allowance for credit
losses on loans
|
$
42,089
|
|
$
39,696
|
|
$
40,333
|
|
$
42,361
|
|
$
48,317
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
(GAAP)
|
$
4,001,295
|
|
$
3,874,064
|
|
$
3,821,178
|
|
$
3,815,662
|
|
$
3,953,884
|
|
Exclude SBA PPP
loans
|
(3,593)
|
|
(11,334)
|
|
(64,962)
|
|
(145,840)
|
|
(266,896)
|
|
Loans receivable,
excluding SBA PPP loans (non-GAAP)
|
$
3,997,702
|
|
$
3,862,730
|
|
$
3,756,216
|
|
$
3,669,822
|
|
$
3,686,988
|
|
|
|
|
|
|
|
|
|
|
|
ACL on loans to loans
receivable (GAAP)
|
1.05 %
|
|
1.02 %
|
|
1.06 %
|
|
1.11 %
|
|
1.22 %
|
|
ACL on loans to loans
receivable, excluding SBA PPP loans (non-GAAP)
|
1.05 %
|
|
1.03 %
|
|
1.07 %
|
|
1.15 %
|
|
1.31 %
|
The Company considers the return on average tangible common
equity ratio to be a useful measurement of the Company's ability to
generate returns for its common shareholders. By removing the
impact of intangible assets and their related amortization and tax
effects, the performance of the Company's ongoing business
operations can be evaluated.
|
Quarter
Ended
|
|
September
30,
2022
|
|
June 30,
2022
|
|
March 31,
2022
|
|
December 31,
2021
|
|
September
30,
2021
|
|
Return on Average
Tangible Common Equity, annualized:
|
|
Net income
(GAAP)
|
$
20,990
|
|
$
18,584
|
|
$
19,757
|
|
$
19,397
|
|
$
20,592
|
|
Add amortization of
intangible assets
|
671
|
|
704
|
|
704
|
|
759
|
|
758
|
|
Exclude tax effect of
adjustment
|
(141)
|
|
(148)
|
|
(148)
|
|
(159)
|
|
(159)
|
|
Tangible net income
(non-GAAP)
|
$
21,520
|
|
$
19,140
|
|
$
20,313
|
|
$
19,997
|
|
$
21,191
|
|
|
|
|
|
|
|
|
|
|
|
Average stockholders'
equity (GAAP)
|
$
811,052
|
|
$
810,961
|
|
$
846,085
|
|
$
849,383
|
|
$
855,708
|
|
Exclude average
intangible assets
|
(249,245)
|
|
(249,890)
|
|
(250,593)
|
|
(251,331)
|
|
(252,159)
|
|
Average tangible common
stockholders' equity (non-GAAP)
|
$
561,807
|
|
$
561,071
|
|
$
595,492
|
|
$
598,052
|
|
$
603,549
|
|
|
|
|
|
|
|
|
|
|
|
Return on average
common equity, annualized (GAAP)
|
10.27 %
|
|
9.19 %
|
|
9.47 %
|
|
9.06 %
|
|
9.55 %
|
|
Return on average
tangible common equity, annualized (non-GAAP)
|
15.20 %
|
|
13.68 %
|
|
13.83 %
|
|
13.27 %
|
|
13.93 %
|
The Company believes that presenting pre-tax pre-provision
income, which reflects its profitability before income taxes and
provision for credit losses, and the pre-tax, pre-provision return
on average assets, are useful measurements in assessing its
operating income and expenses by removing the volatility that may
be associated with credit loss provisions. The Company also
believes that during a crisis such as the COVID-19 pandemic, this
information is useful as the impact of the pandemic on credit loss
provisions of various institutions has varied based on the
geography of the communities served by a particular institution and
the decision to adopt or defer the current expected credit losses
("CECL") methodology required by Accounting Standards Update
2016-13.
|
Quarter
Ended
|
|
September
30,
2022
|
|
June 30,
2022
|
|
March 31,
2022
|
|
December 31,
2021
|
|
September
30,
2021
|
|
Pre-tax,
Pre-provision Income and Pre-tax, Pre-provision Return on Average
Assets, annualized:
|
|
Net income
(GAAP)
|
$
20,990
|
|
$
18,584
|
|
$
19,757
|
|
$
19,397
|
|
$
20,592
|
|
Add income tax
expense
|
4,657
|
|
3,977
|
|
3,582
|
|
4,922
|
|
4,997
|
|
Add provision for
(reversal of) credit losses
|
1,945
|
|
(1,204)
|
|
(3,577)
|
|
(5,037)
|
|
(3,149)
|
|
Pre-tax, pre-provision
income (non-GAAP)
|
$
27,592
|
|
$
21,357
|
|
$
19,762
|
|
$
19,282
|
|
$
22,440
|
|
|
|
|
|
|
|
|
|
|
|
Average total assets
(GAAP)
|
$
7,367,736
|
|
$
7,385,616
|
|
$
7,434,787
|
|
$
7,403,597
|
|
$
7,214,960
|
|
|
|
|
|
|
|
|
|
|
|
Return on average
assets, annualized (GAAP)
|
1.13 %
|
|
1.01 %
|
|
1.08 %
|
|
1.04 %
|
|
1.13 %
|
|
Pre-tax, pre-provision
return on average assets (non-GAAP)
|
1.49 %
|
|
1.16 %
|
|
1.08 %
|
|
1.03 %
|
|
1.23 %
|
The Company believes presenting loan yield excluding the effect
of discount accretion on purchased loans is useful in assessing the
impact of acquisition accounting on loan yield as the effect of
loan discount accretion is expected to decrease as the acquired
loans mature or roll off its balance sheet. Incremental accretion
on purchased loans represents the amount of interest income
recorded on purchased loans in excess of the contractual stated
interest rate in the individual loan notes due to incremental
accretion of purchased discount or premium. Purchased discount or
premium is the difference between the contractual loan balance and
the fair value of acquired loans at the acquisition date, or as
modified by the adoption of CECL. The purchased discount is
accreted into income over the remaining life of the loan. The
impact of incremental accretion on loan yield will change during
any period based on the volume of prepayments, but it is expected
to decrease over time as the balance of the purchased loans
decreases.
Similarly, presenting loan yield excluding the effect of SBA PPP
loans is useful in assessing the impact of these special program
loans that have substantially decreased within a short time
frame.
|
Quarter
Ended
|
|
September
30,
2022
|
|
June 30,
2022
|
|
September
30,
2021
|
|
Loan Yield,
excluding SBA PPP Loans and Incremental Accretion on Purchased
Loans, annualized:
|
|
Interest and fees on
loans (GAAP)
|
$
43,847
|
|
$
40,890
|
|
$
46,863
|
|
Exclude interest and
fees on SBA PPP loans
|
(275)
|
|
(1,782)
|
|
(8,042)
|
|
Exclude incremental
accretion on purchased loans
|
(398)
|
|
(270)
|
|
(681)
|
|
Adjusted interest and
fees on loans (non-GAAP)
|
$
43,174
|
|
$
38,838
|
|
$
38,140
|
|
|
|
|
|
|
|
Average loans
receivable, net (GAAP)
|
$
3,859,839
|
|
$
3,812,045
|
|
$
4,005,585
|
|
Exclude average SBA
PPP loans
|
(5,726)
|
|
(34,090)
|
|
(392,570)
|
|
Adjusted average loans
receivable, net (non-GAAP)
|
$
3,854,113
|
|
$
3,777,955
|
|
$
3,613,015
|
|
|
|
|
|
|
|
Loan yield, annualized
(GAAP)
|
4.51 %
|
|
4.30 %
|
|
4.64 %
|
|
Loan yield, excluding
SBA PPP loans and incremental accretion on purchased loans,
annualized (non-GAAP)
|
4.44 %
|
|
4.12 %
|
|
4.19 %
|
View original
content:https://www.prnewswire.com/news-releases/heritage-financial-announces-third-quarter-2022-results-and-declares-regular-cash-dividend-301654546.html
SOURCE Heritage Financial Corporation