- Net income was $20.5 million,
or $0.58 per diluted share, for the
first quarter of 2023 compared to $22.5
million, or $0.64 per diluted
share, for the fourth quarter of 2022 and $19.8 million, or $0.56 per diluted share, for the first quarter of
2022.
- Loans receivable increased $76.6
million, or 1.9% (7.7% annualized), in the first quarter of
2023.
- Capital remains strong with a leverage ratio of 9.9% and a
total capital ratio of 14.1% at March 31,
2023.
- The ratio of nonperforming assets to total assets decreased
to 0.07% at March 31, 2023 compared
to 0.08% at December 31, 2022 and
0.22% at March 31, 2022.
- Net interest margin was 3.91% for the first quarter of 2023
compared to 3.98% for the fourth quarter of 2022 and 2.84% for the
first quarter of 2022.
- Cost of total deposits was 0.31% for the first quarter of
2023 compared to 0.16% for the fourth quarter of 2022 and 0.09% for
the first quarter of 2022.
- Declared a regular cash dividend of $0.22 per share on April
19, 2023.
OLYMPIA,
Wash., April 20, 2023 /PRNewswire/ -- Heritage
Financial Corporation (NASDAQ GS: HFWA) (the "Company" or
"Heritage"), the parent company of Heritage Bank (the "Bank"),
today reported net income of $20.5
million for the first quarter of 2023 compared to
$22.5 million for the fourth quarter
of 2022 and $19.8 million for the
first quarter of 2022. Diluted earnings per share for the first
quarter of 2023 were $0.58 compared
to $0.64 for the fourth quarter of
2022 and $0.56 for the first quarter
of 2022.
Jeffrey J. Deuel, President and
Chief Executive Officer of Heritage, commented, "Results for the
first quarter showcase the strengths of our business model with a
strong balance sheet, core deposits, ample liquidity and prudent
risk management. We reported solid profitability and loan growth
while strengthening capital ratios and maintaining credit quality.
Although we are experiencing the industry-wide pressure on deposit
balances, we have a long track record of core funding with 34.3% of
our deposits as non-interest bearing as of March 31, 2023. Further, we are encouraged by the
contributions of our new teams in the Portland, Eugene and Boise MSAs which are enhancing our
strong core deposit base.
We are delighted to report that Heritage Bank is partnering with
El Centro De La Raza in constructing 87 new affordable housing
units in Seattle's Columbia City neighborhood. Heritage is
providing construction financing totaling $35.1 million and $9.4
million of permanent financing for the project. In addition
to affordable housing, this project will also build an office for a
local non-profit, a church to redevelop the longstanding Columbia
City Church of Hope, and a new childcare center for El Centro De La
Raza. Heritage is proud to be a partner in bringing more affordable
housing to families of Columbia
City and pairing it with affordable childcare.
We are also pleased to announce that during March 2023, Washington
State Department of Commerce notified HBCDE, LLC, a
subsidiary of Heritage Bank and a certified Community Development
Entity, that our Commercial Real Estate Loan Program was selected
for funding. HBCDE's program is one of five capital access programs
receiving a total of $163 million
awarded to Washington State
through the American Rescue Plan Act of 2021, which provided
$10 billion to fund the State Small
Business Credit Initiative ("SSBCI"). We are excited to have this
substantial SSBCI subsidy to help us finance business owners that
have had diminished access to credit on reasonable terms or who are
expanding into underserved communities."
Financial Highlights
The following table provides financial highlights at the dates
and for the periods indicated:
|
As of or for the
Quarter Ended
|
|
March 31,
2023
|
|
December 31,
2022
|
|
March 31,
2022
|
|
(Dollars in
thousands, except per share amounts)
|
|
Net income
|
$
20,457
|
|
$
22,544
|
|
$
19,757
|
|
Pre-tax, pre-provision
income (1)
|
$
26,495
|
|
$
29,299
|
|
$
19,762
|
|
Diluted earnings per
share
|
$
0.58
|
|
$
0.64
|
|
$
0.56
|
|
Return on average
assets (2)
|
1.17 %
|
|
1.26 %
|
|
1.08 %
|
|
Pre-tax, pre-provision
return on average assets (1) (2)
|
1.52 %
|
|
1.64 %
|
|
1.08 %
|
|
Return on average
common equity (2)
|
10.21 %
|
|
11.46 %
|
|
9.47 %
|
|
Return on average
tangible common equity (1) (2)
|
15.05 %
|
|
17.21 %
|
|
13.83 %
|
|
Net interest margin
(2)
|
3.91 %
|
|
3.98 %
|
|
2.84 %
|
|
Cost of total deposits
(2)
|
0.31 %
|
|
0.16 %
|
|
0.09 %
|
|
Efficiency
ratio
|
61.1 %
|
|
58.0 %
|
|
64.4 %
|
|
Noninterest expense to
average total assets (2)
|
2.39 %
|
|
2.26 %
|
|
1.95 %
|
|
Total assets
|
$ 7,236,806
|
|
$ 6,980,100
|
|
$ 7,483,814
|
|
Loans receivable,
net
|
$ 4,083,003
|
|
$ 4,007,872
|
|
$ 3,780,845
|
|
Total
deposits
|
$ 5,789,022
|
|
$ 5,924,840
|
|
$ 6,491,500
|
|
Loan to deposit ratio
(3)
|
71.3 %
|
|
68.4 %
|
|
58.9 %
|
|
Book value per
share
|
$
23.53
|
|
$
22.73
|
|
$
23.40
|
|
Tangible book value per
share (1)
|
$
16.48
|
|
$
15.66
|
|
$
16.27
|
|
(1) See Non-GAAP Financial Measures
section herein.
(2) Annualized.
(3) Loans receivable divided by total
deposits.
|
Liquidity
Total liquidity sources available at March 31, 2023 were $3.09
billion. This includes internal as well as external sources
of liquidity. The Company has access to Federal Home Loan Bank
advances,the Federal Reserve Bank's Discount Window and Bank Term
Funding Program.
The following table summarizes the Company's available
liquidity:
|
March 31,
2023
|
|
Total
Available
|
Amount
Used
|
Net
Availability
|
|
(Dollars in
thousands)
|
|
Internal
Sources
|
|
|
|
|
Cash and cash
equivalents
|
$
301,481
|
$
—
|
$
301,481
|
|
Unencumbered investment
securities available for sale(1)
|
1,116,013
|
—
|
1,116,013
|
|
External
Sources
|
|
|
—
|
|
Federal Home Loan Bank
(FHLB) borrowing availability(2)
|
1,197,964
|
383,100
|
814,864
|
|
Federal Reserve Bank
(FRB) borrowing availability
|
640,635
|
—
|
640,635
|
|
Fed funds line
borrowing availability with correspondent banks
|
215,000
|
—
|
215,000
|
|
Total
liquidity
|
$
3,471,093
|
$
383,100
|
$
3,087,993
|
|
(1) Investment securities available
for sale at fair value.
(2)
Includes FHLB borrowing availability of $1.20 billion at March 31,
2023 based on pledged assets, however, maximum credit capacity is
45% of the Bank's total assets one quarter in arrears or
$3.10 billion.
|
Balance Sheet
Cash and cash equivalents increased $197.9 million, or 191.0%, to $301.5 million at March
31, 2023 from $103.6 million
at December 31, 2022 due primarily to
an increase in borrowings offset by an increase in loans receivable
and a decrease in deposits.
Total investment securities decreased $19.6 million, or 0.9%, to $2.08 billion at March 31,
2023 from $2.10 billion at
December 31, 2022 due primarily to
maturities and prepayments of $32.9
million and sales of $22.7
million, partially offset by purchases of $15.0 million. Net unrealized losses declined by
$39.1 million due primarily to
improvement in fair values of investment securities available for
sale and held to maturity since December 31,
2022. The following table summarizes the Company's
investment securities at the dates indicated including change in
net unrealized loss:
|
March 31,
2023
|
|
December 31,
2022
|
|
$ Change in
Net
Unrealized
Loss
|
|
Amortized
Cost
|
|
Net
Unrealized
Loss
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Net
Unrealized
Loss
|
|
Fair
Value
|
|
|
(Dollars in
thousands)
|
|
Investment
securities available for sale:
|
|
U.S. government and
agency securities
|
$
68,514
|
|
$
(3,964)
|
|
$
64,550
|
|
$
68,912
|
|
$
(5,053)
|
|
$
63,859
|
|
$
1,089
|
|
Municipal
securities
|
146,525
|
|
(14,028)
|
|
132,497
|
|
171,087
|
|
(18,061)
|
|
153,026
|
|
4,033
|
|
Residential CMO and
MBS(1)
|
481,380
|
|
(47,668)
|
|
433,712
|
|
479,473
|
|
(55,087)
|
|
424,386
|
|
7,419
|
|
Commercial CMO and
MBS(1)
|
704,156
|
|
(40,659)
|
|
663,497
|
|
714,136
|
|
(49,715)
|
|
664,421
|
|
9,056
|
|
Corporate
obligations
|
4,000
|
|
(183)
|
|
3,817
|
|
4,000
|
|
(166)
|
|
3,834
|
|
(17)
|
|
Other asset-backed
securities
|
20,394
|
|
(395)
|
|
19,999
|
|
22,425
|
|
(508)
|
|
21,917
|
|
113
|
|
Total
|
1,424,969
|
|
(106,897)
|
|
1,318,072
|
|
1,460,033
|
|
(128,590)
|
|
1,331,443
|
|
21,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities held to maturity:
|
|
U.S. government and
agency securities
|
150,969
|
|
(28,298)
|
|
122,671
|
|
150,936
|
|
(33,585)
|
|
117,351
|
|
5,287
|
|
Residential CMO and
MBS(1)
|
285,337
|
|
(12,303)
|
|
273,034
|
|
290,318
|
|
(17,440)
|
|
272,878
|
|
5,137
|
|
Commercial CMO and
MBS(1)
|
323,857
|
|
(34,915)
|
|
288,942
|
|
325,142
|
|
(41,937)
|
|
283,205
|
|
7,022
|
|
Total
|
760,163
|
|
(75,516)
|
|
684,647
|
|
766,396
|
|
(92,962)
|
|
673,434
|
|
17,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment
securities
|
$
2,185,132
|
|
$ (182,413)
|
|
$
2,002,719
|
|
$
2,226,429
|
|
$ (221,552)
|
|
$ 2,004,877
|
|
$
39,139
|
|
(1) U.S.
government agency and government-sponsored enterprise
mortgage-backed securities and collateralized mortgage
obligations.
|
The following table summarizes the Company's loans receivable,
net at the dates indicated:
|
March 31,
2023
|
|
December 31,
2022
|
|
Change
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
$
|
|
%
|
|
(Dollars in
thousands)
|
|
Commercial
business:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
industrial
|
$
684,998
|
|
16.6 %
|
|
$
692,100
|
|
17.1 %
|
|
$
(7,102)
|
|
(1.0) %
|
|
SBA PPP
|
900
|
|
—
|
|
1,468
|
|
—
|
|
(568)
|
|
(38.7)
|
|
Owner-occupied
commercial real estate ("CRE")
|
949,064
|
|
23.0
|
|
937,040
|
|
23.1
|
|
12,024
|
|
1.3
|
|
Non-owner occupied
CRE
|
1,601,789
|
|
38.8
|
|
1,586,632
|
|
39.2
|
|
15,157
|
|
1.0
|
|
Total commercial
business
|
3,236,751
|
|
78.4
|
|
3,217,240
|
|
79.4
|
|
19,511
|
|
0.6
|
|
Residential real
estate
|
363,777
|
|
8.8
|
|
343,631
|
|
8.5
|
|
20,146
|
|
5.9
|
|
Real estate
construction and land development:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
72,926
|
|
1.8
|
|
80,074
|
|
2.0
|
|
(7,148)
|
|
(8.9)
|
|
Commercial and
multifamily
|
270,547
|
|
6.6
|
|
214,038
|
|
5.3
|
|
56,509
|
|
26.4
|
|
Total real estate
construction and land development
|
343,473
|
|
8.4
|
|
294,112
|
|
7.3
|
|
49,361
|
|
16.8
|
|
Consumer
|
183,471
|
|
4.4
|
|
195,875
|
|
4.8
|
|
(12,404)
|
|
(6.3)
|
|
Loans
receivable
|
4,127,472
|
|
100.0 %
|
|
4,050,858
|
|
100.0 %
|
|
76,614
|
|
1.9
|
|
Allowance for credit
losses on loans
|
(44,469)
|
|
|
|
(42,986)
|
|
|
|
(1,483)
|
|
3.4
|
|
Loans receivable,
net
|
$
4,083,003
|
|
|
|
$
4,007,872
|
|
|
|
$
75,131
|
|
1.9 %
|
Loans receivable grew $76.6
million, or 1.9% (7.7% annualized), in the first quarter of
2023. New loans funded in the first quarter of 2023 and fourth
quarter of 2022 were $138.1 million
and $203.1 million, respectively.
Fourth quarter of 2022 included purchased residential real estate
loans of $40.5 million. Loan
repayments decreased during the first quarter of 2023 to
$60.8 million, compared to
$147.0 million during the fourth
quarter of 2022, exclusive of SBA PPP loan repayments, net deferred
fees, and net acquired discounts. Commercial and multifamily
construction loans increased by $56.5
million or 26.4% due to new loan originations and advances
on outstanding loans during the first quarter of 2023. Total new
commitments for commercial and multifamily construction loans was
$76.3 million in the first quarter of
2023.
The following table summarizes the Company's total deposits at
the dates indicated:
|
March 31,
2023
|
|
December 31,
2022
|
|
Change
|
|
Balance
(1)
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
$
|
|
%
|
|
(Dollars in
thousands)
|
|
Noninterest demand
deposits
|
$
1,982,909
|
|
34.3 %
|
|
$
2,099,464
|
|
35.5 %
|
|
$ (116,555)
|
|
(5.6) %
|
|
Interest bearing demand
deposits
|
1,675,393
|
|
28.9
|
|
1,830,727
|
|
30.9
|
|
(155,334)
|
|
(8.5)
|
|
Money market
accounts
|
1,155,559
|
|
20.0
|
|
1,063,243
|
|
17.9
|
|
92,316
|
|
8.7
|
|
Savings
accounts
|
578,807
|
|
10.0
|
|
623,833
|
|
10.5
|
|
(45,026)
|
|
(7.2)
|
|
Total non-maturity
deposits
|
5,392,668
|
|
93.2
|
|
5,617,267
|
|
94.8
|
|
(224,599)
|
|
(4.0)
|
|
Certificates of
deposit
|
396,354
|
|
6.8
|
|
307,573
|
|
5.2
|
|
88,781
|
|
28.9
|
|
Total
deposits
|
$
5,789,022
|
|
100.0 %
|
|
$
5,924,840
|
|
100.0 %
|
|
$ (135,818)
|
|
(2.3) %
|
|
(1) Deposit
balances includes deposits held for sale at March 31, 2023 and
December 31, 2022
|
Total deposits decreased $135.8
million, or 2.3%, from December 31,
2022. The decrease was due to competitive pricing pressures
and customers moving excess funds to alternative higher yielding
investments as well as general declines in individual customer
balances. Money market accounts increased due primarily to an
increase in public deposits. Certificate of deposit balances
increased mostly due to the addition of $52.3 million in brokered deposits.
Federal Home Loan Bank advances were $383.1 million at March
31, 2023. There were no borrowings at December 31, 2022. All borrowings at
March 31, 2023 were overnight
advances.
Total stockholders' equity increased $28.2 million during the first quarter of 2023
due primarily to net income recognized for the quarter as well as a
reduction of accumulated other comprehensive loss as a result of
improved fair values of available for sale investment securities.
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:
|
March 31,
2023
|
|
December 31,
2022
|
|
Change
|
|
Stockholders' equity to
total assets
|
11.4 %
|
|
11.4 %
|
|
— %
|
|
Tangible common equity
to tangible assets (1)
|
8.3
|
|
8.2
|
|
0.1
|
|
Common equity tier 1
capital ratio (2)
|
12.9
|
|
12.8
|
|
0.1
|
|
Leverage ratio
(2)
|
9.9
|
|
9.7
|
|
0.2
|
|
Tier 1 capital ratio
(2)
|
13.3
|
|
13.2
|
|
0.1
|
|
Total capital ratio
(2)
|
14.1
|
|
14.0
|
|
0.1
|
|
(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
|
|
March 31,
2023
|
|
December 31,
2022
|
|
March 31,
2022
|
|
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
|
$ 42,986
|
|
$ 1,744
|
|
$ 44,730
|
|
$ 42,089
|
|
$ 1,023
|
|
$ 43,112
|
|
$ 42,361
|
|
$ 2,607
|
|
$ 44,968
|
|
Provision for (reversal
of) credit losses
|
1,713
|
|
112
|
|
1,825
|
|
689
|
|
721
|
|
1,410
|
|
(2,522)
|
|
(1,055)
|
|
(3,577)
|
|
(Net charge-offs)
recoveries
|
(230)
|
|
—
|
|
(230)
|
|
208
|
|
—
|
|
208
|
|
494
|
|
—
|
|
494
|
|
Balance, end of
period
|
$ 44,469
|
|
$ 1,856
|
|
$ 46,325
|
|
$ 42,986
|
|
$ 1,744
|
|
$ 44,730
|
|
$ 40,333
|
|
$ 1,552
|
|
$ 41,885
|
The ACL on loans increased during the first quarter of 2023
compared to December 31, 2022 due
primarily to an increase related to the growth in loans receivable
as well as a change in mix of loans. The ACL on unfunded increased
during the first quarter of 2023 compared to December 31, 2022 due primarily to an increase in
unfunded commitment balances.
Credit Quality
Nonperforming assets decreased to 0.07% of total assets at
March 31, 2023 compared to 0.08% of
total assets at December 31, 2022 and
0.22% at March 31, 2022.
Nonperforming assets at both March 31,
2023, December 31, 2022 and
March 31, 2022 consisted only of
nonaccrual loans. Changes in nonaccrual loans during the periods
indicated were as follows:
|
Quarter
Ended
|
|
March 31,
2023
|
|
December 31,
2022
|
|
March 31,
2022
|
|
(In
thousands)
|
|
Balance, beginning of
period
|
$
5,906
|
|
$
6,234
|
|
$
23,754
|
|
Additions
|
468
|
|
605
|
|
—
|
|
Net principal payments
and transfers to accruing status
|
(909)
|
|
(828)
|
|
(3,804)
|
|
Payoffs
|
(650)
|
|
(105)
|
|
(3,369)
|
|
Charge-offs
|
—
|
|
—
|
|
(54)
|
|
Balance, end of
period
|
$
4,815
|
|
$
5,906
|
|
$
16,527
|
Net Interest Income and Net Interest Margin
Net interest income decreased $3.3
million, or 5.2%, during the first quarter of 2023 compared
to the fourth quarter of 2022 due primarily to an increase in cost
of interest bearing liabilities including an increase in deposit
costs due to competitive rate pressures as well as an increase in
borrowing costs. Net interest income increased $12.9 million, or 27.5%, during the first quarter
of 2023 compared to the first quarter of 2022 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 4.35% during the first quarter of 2023 compared
to 4.16% in the fourth quarter of 2022 and 2.94% in the first
quarter of 2022.
The cost of interest bearing liabilities increased to 0.69%
during the first quarter of 2023 compared to 0.29% in the fourth
quarter of 2022 and 0.16% in the first quarter of 2022 primarily
due to increased costs of interest bearing deposits due to
competitive rate pressures as well as an increase in borrowings
which were at a higher rate.
Net interest margin decreased to 3.91% for the first quarter of
2023 as compared to 3.98% for the fourth quarter of 2022 due to an
increase in rates on interest bearing liabilities. Net
interest margin increased from 2.84% for the first quarter of 2022
due to a shift into higher yielding interest earning assets as well
as higher average yields on all interest earning assets following
increases in market interest rates.
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
|
|
March 31,
2023
|
|
December 31,
2022
|
|
March 31,
2022
|
|
$
|
|
%
|
|
$
|
|
%
|
|
(Dollar amounts in
thousands)
|
|
Service charges and
other fees
|
$
2,624
|
|
$
2,651
|
|
$
2,474
|
|
$ (27)
|
|
(1.0) %
|
|
$ 150
|
|
6.1 %
|
|
Card revenue
|
2,000
|
|
2,111
|
|
2,263
|
|
(111)
|
|
(5.3)
|
|
(263)
|
|
(11.6)
|
|
Loss on sale of
investment securities, net
|
(286)
|
|
(256)
|
|
—
|
|
(30)
|
|
11.7
|
|
(286)
|
|
(100.0)
|
|
Gain on sale of loans,
net
|
49
|
|
40
|
|
241
|
|
9
|
|
22.5
|
|
(192)
|
|
(79.7)
|
|
Interest rate swap
fees
|
53
|
|
19
|
|
279
|
|
34
|
|
178.9
|
|
(226)
|
|
(81.0)
|
|
Bank owned life
insurance income
|
709
|
|
565
|
|
1,695
|
|
144
|
|
25.5
|
|
(986)
|
|
(58.2)
|
|
Gain on sale of other
assets, net
|
2
|
|
—
|
|
204
|
|
2
|
|
100.0
|
|
(202)
|
|
(99.0)
|
|
Other income
|
3,107
|
|
1,454
|
|
1,382
|
|
1,653
|
|
113.7
|
|
1,725
|
|
124.8
|
|
Total noninterest
income
|
$
8,258
|
|
$
6,584
|
|
$
8,538
|
|
$
1,674
|
|
25.4 %
|
|
$
(280)
|
|
(3.3) %
|
Noninterest income increased during the first quarter of 2023
from the fourth quarter of 2022 due primarily to an increase in
other income which included a gain from a one-time sale of Visa
Inc. Class B common stock of $1.6 million.
Noninterest income decreased during the first quarter of 2023
compared to the same period in 2022 due to a decline in card
revenue, interest rate swap fees and gain on sale of loans as well
as a decline in bank owned life insurance income due to a death
benefit recognized in the first quarter of 2022. These declines
were offset partially by an increase in other income which included
the gain on sale of Visa Inc. Class B common stock discussed
above.
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
|
|
March 31,
2023
|
|
December 31,
2022
|
|
March 31,
2022
|
|
$
|
|
%
|
|
$
|
|
%
|
|
(Dollar amounts in
thousands)
|
|
Compensation and
employee benefits
|
$
25,536
|
|
$
24,856
|
|
$
21,252
|
|
$ 680
|
|
2.7 %
|
|
$
4,284
|
|
20.2 %
|
|
Occupancy and
equipment
|
4,892
|
|
4,541
|
|
4,331
|
|
351
|
|
7.7
|
|
561
|
|
13.0
|
|
Data
processing
|
4,342
|
|
4,369
|
|
4,061
|
|
(27)
|
|
(0.6)
|
|
281
|
|
6.9
|
|
Marketing
|
402
|
|
675
|
|
266
|
|
(273)
|
|
(40.4)
|
|
136
|
|
51.1
|
|
Professional
services
|
628
|
|
630
|
|
699
|
|
(2)
|
|
(0.3)
|
|
(71)
|
|
(10.2)
|
|
State/municipal
business and use tax
|
1,008
|
|
1,008
|
|
796
|
|
—
|
|
—
|
|
212
|
|
26.6
|
|
Federal deposit
insurance premium
|
850
|
|
490
|
|
600
|
|
360
|
|
73.5
|
|
250
|
|
41.7
|
|
Amortization of
intangible assets
|
623
|
|
671
|
|
704
|
|
(48)
|
|
(7.2)
|
|
(81)
|
|
(11.5)
|
|
Other
expense
|
3,324
|
|
3,152
|
|
3,011
|
|
172
|
|
5.5
|
|
313
|
|
10.4
|
|
Total noninterest
expense
|
$
41,605
|
|
$
40,392
|
|
$
35,720
|
|
$
1,213
|
|
3.0 %
|
|
$
5,885
|
|
16.5 %
|
Noninterest expense increased during the first quarter of 2023
from the fourth quarter of 2022 due primarily to an increase in
compensation and employee benefits due to an increase in benefit
costs and higher payroll taxes paid in the first quarter each year.
Occupancy and equipment expense increased due to an increase in the
number of locations resulting from the expansion into Boise, Idaho as well as an increase in
maintenance costs related to winter weather conditions. Federal
deposit insurance premiums increased during the first quarter of
2023 from the fourth quarter of 2022 due to an increase in
assessment rates effective January 1,
2023.
Noninterest expense increased during the first quarter of 2023
compared to the same period in 2022 due primarily to an increase in
compensation and employee benefits resulting from an increase in
the number of full-time equivalent employees including the addition
of commercial and relationship banking teams in 2022 and an
increase in salaries and wages due to upward market pressure.
Occupancy and equipment expense increased due to the expansion into
Eugene, Oregon and Boise, Idaho as well as an increase in
maintenance costs related to winter weather conditions. Data
processing costs increased due primarily to the expansion of
digital services including the addition of the ability to open
accounts online. The federal deposit insurance premium increased
due to the increase in the assessment rate discussed above.
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
|
|
March 31,
2023
|
|
December 31,
2022
|
|
March 31,
2022
|
|
$
|
|
%
|
|
$
|
|
%
|
|
(Dollar amounts in
thousands)
|
|
Income before income
taxes
|
$
24,670
|
|
$
27,889
|
|
$
23,339
|
|
$
(3,219)
|
|
(11.5) %
|
|
$
1,331
|
|
5.7 %
|
|
Income tax
expense
|
$
4,213
|
|
$
5,345
|
|
$
3,582
|
|
$
(1,132)
|
|
(21.2) %
|
|
$ 631
|
|
17.6 %
|
|
Effective income tax
rate
|
17.1 %
|
|
19.2 %
|
|
15.3 %
|
|
(2.1) %
|
|
(10.9) %
|
|
1.8 %
|
|
11.8 %
|
Income tax expense decreased during the first quarter of 2023
compared to the fourth quarter of 2022 due primarily to a lower
effective income tax rate during the first quarter of 2023
following a decrease in pre-tax income which increased 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 increased during the first quarter of 2023
compared to the same period in 2022 primarily due to higher
estimated pre-tax income in 2023 than in 2022.
Dividends
On April 19, 2023, the Company's Board of Directors
declared a quarterly cash dividend of $0.22 per share. The dividend is payable on
May 18, 2023 to shareholders of record as of the close of
business on May 4, 2023.
Earnings Conference Call
The Company will hold a telephone conference call to discuss
this earnings release on Thursday, April 20, 2023 at
10:00 a.m. Pacific time. To access
the call, please dial (833) 470-1428 -- access code 343702 a few
minutes prior to 10:00 a.m. Pacific
time. The call will be available for replay through
April 27, 2023 by dialing (866)
813-9403 -- access code 862416.
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 51 banking offices in Washington, Oregon and Idaho. 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; the uncertain impacts of quantitative
tightening and current and future monetary policies of the Federal
Reserve; 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 new COVID-19 variants; 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 2023 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)
|
|
March 31,
2023
|
|
December 31,
2022
|
|
Assets
|
|
|
|
|
Cash on hand and in
banks
|
$
68,969
|
|
$
74,295
|
|
Interest earning
deposits
|
232,512
|
|
29,295
|
|
Cash and cash
equivalents
|
301,481
|
|
103,590
|
|
Investment securities
available for sale, at fair value (amortized cost of
$1,424,969 $1,460,033, respectively)
|
1,318,072
|
|
1,331,443
|
|
Investment securities
held to maturity, at amortized cost (fair value of $684,647
$673,434, respectively)
|
760,163
|
|
766,396
|
|
Total investment
securities
|
2,078,235
|
|
2,097,839
|
|
Loans
receivable
|
4,127,472
|
|
4,050,858
|
|
Allowance for credit
losses on loans
|
(44,469)
|
|
(42,986)
|
|
Loans receivable,
net
|
4,083,003
|
|
4,007,872
|
|
Premises and equipment,
net
|
80,094
|
|
76,930
|
|
Federal Home Loan Bank
stock, at cost
|
23,697
|
|
8,916
|
|
Bank owned life
insurance
|
122,767
|
|
122,059
|
|
Accrued interest
receivable
|
18,548
|
|
18,547
|
|
Prepaid expenses and
other assets
|
281,438
|
|
296,181
|
|
Other intangible
assets, net
|
6,604
|
|
7,227
|
|
Goodwill
|
240,939
|
|
240,939
|
|
Total
assets
|
$
7,236,806
|
|
$
6,980,100
|
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
Deposits
|
$
5,771,787
|
|
$
5,907,420
|
|
Deposits held for
sale
|
17,235
|
|
17,420
|
|
Total
deposits
|
5,789,022
|
|
5,924,840
|
|
Federal Home Loan Bank
advances
|
383,100
|
|
—
|
|
Junior subordinated
debentures
|
21,546
|
|
21,473
|
|
Securities sold under
agreement to repurchase
|
39,161
|
|
46,597
|
|
Accrued expenses and
other liabilities
|
177,895
|
|
189,297
|
|
Total
liabilities
|
6,410,724
|
|
6,182,207
|
|
|
|
|
|
Common stock
|
550,869
|
|
552,397
|
|
Retained
earnings
|
358,010
|
|
345,346
|
|
Accumulated other
comprehensive loss, net
|
(82,797)
|
|
(99,850)
|
|
Total stockholders'
equity
|
826,082
|
|
797,893
|
|
Total liabilities and
stockholders' equity
|
$
7,236,806
|
|
$
6,980,100
|
|
|
|
|
|
Shares
outstanding
|
35,108,120
|
|
35,106,697
|
|
HERITAGE FINANCIAL
CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollar amounts in thousands, except per
share amounts)
|
|
Quarter
Ended
|
|
March 31,
2023
|
|
December 31,
2022
|
|
March 31,
2022
|
|
Interest
Income
|
|
|
|
|
|
|
Interest and fees on
loans
|
$
50,450
|
|
$
48,513
|
|
$
41,025
|
|
Taxable interest on
investment securities
|
14,657
|
|
14,655
|
|
6,003
|
|
Nontaxable interest on
investment securities
|
586
|
|
843
|
|
860
|
|
Interest on interest
earning deposits
|
972
|
|
2,010
|
|
706
|
|
Total interest
income
|
66,665
|
|
66,021
|
|
48,594
|
|
Interest
Expense
|
|
|
|
|
|
|
Deposits
|
4,528
|
|
2,457
|
|
1,424
|
|
Junior subordinated
debentures
|
482
|
|
410
|
|
194
|
|
Other
borrowings
|
1,813
|
|
47
|
|
32
|
|
Total interest
expense
|
6,823
|
|
2,914
|
|
1,650
|
|
Net interest
income
|
59,842
|
|
63,107
|
|
46,944
|
|
Provision for (reversal
of) credit losses
|
1,825
|
|
1,410
|
|
(3,577)
|
|
Net interest income
after provision for (reversal of) credit losses
|
58,017
|
|
61,697
|
|
50,521
|
|
Noninterest
Income
|
|
|
|
|
|
|
Service charges and
other fees
|
2,624
|
|
2,651
|
|
2,474
|
|
Card revenue
|
2,000
|
|
2,111
|
|
2,263
|
|
Loss on sale of
investment securities, net
|
(286)
|
|
(256)
|
|
—
|
|
Gain on sale of loans,
net
|
49
|
|
40
|
|
241
|
|
Interest rate swap
fees
|
53
|
|
19
|
|
279
|
|
Bank owned life
insurance income
|
709
|
|
565
|
|
1,695
|
|
Gain on sale of other
assets, net
|
2
|
|
—
|
|
204
|
|
Other income
|
3,107
|
|
1,454
|
|
1,382
|
|
Total noninterest
income
|
8,258
|
|
6,584
|
|
8,538
|
|
Noninterest
Expense
|
|
|
|
|
|
|
Compensation and
employee benefits
|
25,536
|
|
24,856
|
|
21,252
|
|
Occupancy and
equipment
|
4,892
|
|
4,541
|
|
4,331
|
|
Data
processing
|
4,342
|
|
4,369
|
|
4,061
|
|
Marketing
|
402
|
|
675
|
|
266
|
|
Professional
services
|
628
|
|
630
|
|
699
|
|
State/municipal
business and use taxes
|
1,008
|
|
1,008
|
|
796
|
|
Federal deposit
insurance premium
|
850
|
|
490
|
|
600
|
|
Amortization of
intangible assets
|
623
|
|
671
|
|
704
|
|
Other
expense
|
3,324
|
|
3,152
|
|
3,011
|
|
Total noninterest
expense
|
41,605
|
|
40,392
|
|
35,720
|
|
Income before income
taxes
|
24,670
|
|
27,889
|
|
23,339
|
|
Income tax
expense
|
4,213
|
|
5,345
|
|
3,582
|
|
Net income
|
$
20,457
|
|
$
22,544
|
|
$
19,757
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$
0.58
|
|
$
0.64
|
|
$
0.56
|
|
Diluted earnings per
share
|
$
0.58
|
|
$
0.64
|
|
$
0.56
|
|
Dividends declared per
share
|
$
0.22
|
|
$
0.21
|
|
$
0.21
|
|
Average shares
outstanding - basic
|
35,108,390
|
|
35,104,701
|
|
35,094,725
|
|
Average shares
outstanding - diluted
|
35,445,340
|
|
35,480,848
|
|
35,412,098
|
|
HERITAGE FINANCIAL
CORPORATION
FINANCIAL STATISTICS (Unaudited)
(Dollar amounts in thousands)
|
|
Nonperforming Assets
and Credit Quality Metrics:
|
|
Quarter
Ended
|
|
March 31,
2023
|
|
December 31,
2022
|
|
March 31,
2022
|
|
Allowance for Credit
Losses on Loans:
|
|
Balance, beginning of
period
|
$
42,986
|
|
$
42,089
|
|
$
42,361
|
|
Provision for (reversal
of) credit losses on loans
|
1,713
|
|
689
|
|
(2,522)
|
|
Charge-offs:
|
|
|
|
|
|
|
Commercial
business
|
(161)
|
|
—
|
|
(199)
|
|
Residential real
estate
|
—
|
|
—
|
|
(30)
|
|
Consumer
|
(153)
|
|
(151)
|
|
(126)
|
|
Total
charge-offs
|
(314)
|
|
(151)
|
|
(355)
|
|
Recoveries:
|
|
|
|
|
|
|
Commercial
business
|
51
|
|
53
|
|
272
|
|
Residential real
estate
|
—
|
|
—
|
|
3
|
|
Real estate
construction and land development
|
—
|
|
210
|
|
8
|
|
Consumer
|
33
|
|
96
|
|
566
|
|
Total
recoveries
|
84
|
|
359
|
|
849
|
|
Net (charge-offs) /
recoveries
|
(230)
|
|
208
|
|
494
|
|
Balance, end of
period
|
$
44,469
|
|
$
42,986
|
|
$
40,333
|
|
Net charge-offs
(recoveries) on loans to average loans receivable,
net(1)
|
0.02 %
|
|
(0.02) %
|
|
(0.05) %
|
|
(1)
Annualized.
|
|
March 31,
2023
|
|
December 31,
2021
|
|
Nonperforming
Assets:
|
|
|
|
|
Nonaccrual
loans:
|
|
|
|
|
Commercial
business
|
$
4,815
|
|
$
5,869
|
|
Real estate
construction and land development
|
—
|
|
37
|
|
Total nonaccrual
loans
|
4,815
|
|
5,906
|
|
Nonperforming
assets
|
$
4,815
|
|
$
5,906
|
|
|
|
|
|
Accruing loans past due
90 days or more
|
2,344
|
|
1,615
|
|
ACL on loans
to:
|
|
|
|
|
Loans
receivable
|
1.08 %
|
|
1.06 %
|
|
Nonaccrual
loans
|
923.55 %
|
|
727.84 %
|
|
Nonperforming loans to
loans receivable
|
0.12 %
|
|
0.15 %
|
|
Nonperforming assets to
total assets
|
0.07 %
|
|
0.08 %
|
|
Average Balances,
Yields, and Rates Paid:
|
|
Quarter
Ended
|
|
March 31,
2023
|
|
December 31,
2022
|
|
March 31,
2022
|
|
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)
|
$ 4,039,395
|
|
$ 50,450
|
|
5.07 %
|
|
$ 3,963,042
|
|
$ 48,513
|
|
4.86 %
|
|
$ 3,773,325
|
|
$ 41,025
|
|
4.41 %
|
|
Taxable
securities
|
2,007,339
|
|
14,657
|
|
2.96
|
|
1,983,178
|
|
14,655
|
|
2.93
|
|
1,271,557
|
|
6,003
|
|
1.91
|
|
Nontaxable securities
(3)
|
82,893
|
|
586
|
|
2.87
|
|
123,430
|
|
843
|
|
2.71
|
|
146,409
|
|
860
|
|
2.38
|
|
Interest earning
deposits
|
83,376
|
|
972
|
|
4.73
|
|
222,538
|
|
2,010
|
|
3.58
|
|
1,503,287
|
|
706
|
|
0.19
|
|
Total interest earning
assets
|
6,213,003
|
|
66,665
|
|
4.35 %
|
|
6,292,188
|
|
66,021
|
|
4.16 %
|
|
6,694,578
|
|
48,594
|
|
2.94 %
|
|
Noninterest earning
assets
|
848,956
|
|
|
|
|
|
808,656
|
|
|
|
|
|
740,209
|
|
|
|
|
|
Total
assets
|
$ 7,061,959
|
|
|
|
|
|
$ 7,100,844
|
|
|
|
|
|
$ 7,434,787
|
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
350,206
|
|
$
1,224
|
|
1.42 %
|
|
$
299,364
|
|
$ 455
|
|
0.60 %
|
|
$
336,353
|
|
$ 338
|
|
0.41 %
|
|
Savings
accounts
|
601,166
|
|
142
|
|
0.10
|
|
632,536
|
|
107
|
|
0.07
|
|
646,684
|
|
87
|
|
0.05
|
|
Interest bearing demand
and money market accounts
|
2,829,198
|
|
3,162
|
|
0.45
|
|
2,946,425
|
|
1,895
|
|
0.26
|
|
3,066,320
|
|
999
|
|
0.13
|
|
Total interest bearing
deposits
|
3,780,570
|
|
4,528
|
|
0.49
|
|
3,878,325
|
|
2,457
|
|
0.25
|
|
4,049,357
|
|
1,424
|
|
0.14
|
|
Junior subordinated
debentures
|
21,501
|
|
482
|
|
9.09
|
|
21,430
|
|
410
|
|
7.59
|
|
21,214
|
|
194
|
|
3.71
|
|
Securities sold under
agreement to repurchase
|
43,202
|
|
47
|
|
0.44
|
|
43,694
|
|
41
|
|
0.37
|
|
50,017
|
|
32
|
|
0.26
|
|
FHLB advances and other
borrowings
|
145,605
|
|
1,766
|
|
4.92
|
|
543
|
|
6
|
|
4.38
|
|
—
|
|
—
|
|
—
|
|
Total interest bearing
liabilities
|
3,990,878
|
|
6,823
|
|
0.69 %
|
|
3,943,992
|
|
2,914
|
|
0.29 %
|
|
4,120,588
|
|
1,650
|
|
0.16 %
|
|
Noninterest demand
deposits
|
2,068,688
|
|
|
|
|
|
2,239,806
|
|
|
|
|
|
2,359,451
|
|
|
|
|
|
Other noninterest
bearing liabilities
|
189,893
|
|
|
|
|
|
136,645
|
|
|
|
|
|
108,663
|
|
|
|
|
|
Stockholders'
equity
|
812,500
|
|
|
|
|
|
780,401
|
|
|
|
|
|
846,085
|
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$ 7,061,959
|
|
|
|
|
|
$ 7,100,844
|
|
|
|
|
|
$ 7,434,787
|
|
|
|
|
|
Net interest income and
spread
|
|
|
$ 59,842
|
|
3.66 %
|
|
|
|
$ 63,107
|
|
3.87 %
|
|
|
|
$ 46,944
|
|
2.78 %
|
|
Net interest
margin
|
|
|
|
|
3.91 %
|
|
|
|
|
|
3.98 %
|
|
|
|
|
|
2.84 %
|
|
(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 $752,000, $723,000 and $3.5 million for the
first quarter of 2023, fourth quarter of 2022 and first quarter of
2022, 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
|
|
March 31,
2023
|
|
December 31,
2022
|
|
September
30,
2022
|
|
June 30,
2022
|
|
March 31,
2022
|
|
Earnings:
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
$
59,842
|
|
$
63,107
|
|
$
59,286
|
|
$
50,048
|
|
$
46,944
|
|
Provision for (reversal
of) credit losses
|
1,825
|
|
1,410
|
|
1,945
|
|
(1,204)
|
|
(3,577)
|
|
Noninterest
income
|
8,258
|
|
6,584
|
|
7,453
|
|
7,016
|
|
8,538
|
|
Noninterest
expense
|
41,605
|
|
40,392
|
|
39,147
|
|
35,707
|
|
35,720
|
|
Net income
|
20,457
|
|
22,544
|
|
20,990
|
|
18,584
|
|
19,757
|
|
Pre-tax, pre-provision
net income (3)
|
26,495
|
|
29,299
|
|
27,592
|
|
21,357
|
|
19,762
|
|
Basic earnings per
share
|
$
0.58
|
|
$
0.64
|
|
$
0.60
|
|
$
0.53
|
|
$
0.56
|
|
Diluted earnings per
share
|
$
0.58
|
|
$
0.64
|
|
$
0.59
|
|
$
0.52
|
|
$
0.56
|
|
Average
Balances:
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
(1)
|
$
4,039,395
|
|
$
3,963,042
|
|
$
3,859,839
|
|
$
3,812,045
|
|
$
3,773,325
|
|
Total investment
securities
|
2,090,232
|
|
2,106,608
|
|
2,001,922
|
|
1,587,757
|
|
1,417,966
|
|
Total interest earning
assets
|
6,213,003
|
|
6,292,188
|
|
6,592,361
|
|
6,612,958
|
|
6,694,578
|
|
Total assets
|
7,061,959
|
|
7,100,844
|
|
7,367,736
|
|
7,385,616
|
|
7,434,787
|
|
Total interest bearing
deposits
|
3,780,570
|
|
3,878,325
|
|
4,017,490
|
|
4,041,706
|
|
4,049,357
|
|
Total noninterest
demand deposits
|
2,068,688
|
|
2,239,806
|
|
2,356,688
|
|
2,349,746
|
|
2,359,451
|
|
Stockholders'
equity
|
812,500
|
|
780,401
|
|
811,052
|
|
810,961
|
|
846,085
|
|
Financial
Ratios:
|
|
|
|
|
|
|
|
|
|
|
Return on average
assets (2)
|
1.17 %
|
|
1.26 %
|
|
1.13 %
|
|
1.01 %
|
|
1.08 %
|
|
Pre-tax, pre-provision
return on average assets (2)(3)
|
1.52
|
|
1.64
|
|
1.49
|
|
1.16
|
|
1.08
|
|
Return on average
common equity (2)
|
10.21
|
|
11.46
|
|
10.27
|
|
9.19
|
|
9.47
|
|
Return on average
tangible common equity (2) (3)
|
15.05
|
|
17.21
|
|
15.20
|
|
13.68
|
|
13.83
|
|
Efficiency
ratio
|
61.1
|
|
58.0
|
|
58.7
|
|
62.6
|
|
64.4
|
|
Noninterest expense to
average total assets (2)
|
2.39
|
|
2.26
|
|
2.11
|
|
1.94
|
|
1.95
|
|
Net interest spread
(2)
|
3.66
|
|
3.87
|
|
3.50
|
|
2.98
|
|
2.78
|
|
Net interest margin
(2)
|
3.91
|
|
3.98
|
|
3.57
|
|
3.04
|
|
2.84
|
|
(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
|
|
March 31,
2023
|
|
December 31,
2022
|
|
September
30,
2022
|
|
June 30,
2022
|
|
March 31,
2022
|
|
Select Balance
Sheet:
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
7,236,806
|
|
$
6,980,100
|
|
$
7,200,312
|
|
$
7,316,467
|
|
$
7,483,814
|
|
Loans receivable,
net
|
4,083,003
|
|
4,007,872
|
|
3,959,206
|
|
3,834,368
|
|
3,780,845
|
|
Total investment
securities
|
2,078,235
|
|
2,097,839
|
|
2,129,461
|
|
1,803,241
|
|
1,462,137
|
|
Deposits
|
5,789,022
|
|
5,924,840
|
|
6,237,735
|
|
6,330,190
|
|
6,491,500
|
|
Noninterest demand
deposits
|
1,982,909
|
|
2,099,464
|
|
2,308,583
|
|
2,325,139
|
|
2,393,972
|
|
Stockholders'
equity
|
826,082
|
|
797,893
|
|
776,702
|
|
805,366
|
|
821,449
|
|
Financial
Measures:
|
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
$
23.53
|
|
$
22.73
|
|
$
22.13
|
|
$
22.94
|
|
$
23.40
|
|
Tangible book value per
share (1)
|
16.48
|
|
15.66
|
|
15.04
|
|
15.83
|
|
16.27
|
|
Stockholders' equity to
total assets
|
11.4 %
|
|
11.4 %
|
|
10.8 %
|
|
11.0 %
|
|
11.0 %
|
|
Tangible common equity
to tangible assets (1)
|
8.3
|
|
8.2
|
|
7.6
|
|
7.9
|
|
7.9
|
|
Loans to deposits
ratio
|
71.3
|
|
68.4
|
|
64.1
|
|
61.2
|
|
58.9
|
|
Regulatory Capital
Ratios:
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1
capital ratio(2)
|
12.9 %
|
|
12.8 %
|
|
12.8 %
|
|
13.2 %
|
|
13.4 %
|
|
Leverage
ratio(2)
|
9.9
|
|
9.7
|
|
9.2
|
|
8.9
|
|
8.8
|
|
Tier 1 capital
ratio(2)
|
13.3
|
|
13.2
|
|
13.3
|
|
13.6
|
|
13.9
|
|
Total capital
ratio(2)
|
14.1
|
|
14.0
|
|
14.0
|
|
14.4
|
|
14.7
|
|
Credit Quality
Metrics:
|
|
|
|
|
|
|
|
|
|
|
ACL on
loans to:
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
1.08 %
|
|
1.06 %
|
|
1.05 %
|
|
1.02 %
|
|
1.06 %
|
|
Nonperforming
loans
|
923.55
|
|
727.84
|
|
675.15
|
|
378.96
|
|
244.04
|
|
Nonperforming loans to
loans receivable
|
0.12
|
|
0.15
|
|
0.16
|
|
0.27
|
|
0.43
|
|
Nonperforming assets to
total assets
|
0.07
|
|
0.08
|
|
0.09
|
|
0.14
|
|
0.22
|
|
Net charge-offs
(recoveries) on loans to average loans receivable,
net(3)
|
0.02
|
|
(0.02)
|
|
(0.05)
|
|
—
|
|
(0.05)
|
|
Criticized Loans by
Credit Quality Rating:
|
|
Special
mention
|
$
96,832
|
|
$
69,449
|
|
$
84,439
|
|
$
72,062
|
|
$
63,269
|
|
Substandard
|
48,824
|
|
65,765
|
|
66,376
|
|
94,419
|
|
111,300
|
|
Other
Metrics:
|
|
|
|
|
|
|
|
|
|
|
Number of banking
offices
|
51
|
|
50
|
|
50
|
|
49
|
|
49
|
|
Deposits per
branch
|
$
113,510
|
|
$
118,497
|
|
$
124,755
|
|
$
129,188
|
|
$
132,480
|
|
Average number of
full-time equivalent employees
|
808
|
|
806
|
|
790
|
|
765
|
|
751
|
|
Average assets per
full-time equivalent employee
|
8,740
|
|
8,810
|
|
9,326
|
|
9,654
|
|
9,900
|
|
(1) See
Non-GAAP Financial Measures section herein.
(2) Current quarter ratios are
estimates pending completion and filing of the Company's regulatory
reports.
(3)
Annualized.
|
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.
|
March 31,
2023
|
|
December 31,
2022
|
|
September
30,
2022
|
|
June 30,
2022
|
|
March 31,
2022
|
|
Tangible Common
Equity to Tangible Assets and Tangible Book Value Per
Share:
|
|
Total stockholders'
equity (GAAP)
|
$
826,082
|
|
$
797,893
|
|
$
776,702
|
|
$
805,366
|
|
$
821,449
|
|
Exclude intangible
assets
|
(247,543)
|
|
(248,166)
|
|
(248,837)
|
|
(249,508)
|
|
(250,212)
|
|
Tangible common equity
(non-GAAP)
|
$
578,539
|
|
$
549,727
|
|
$
527,865
|
|
$
555,858
|
|
$
571,237
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
(GAAP)
|
$
7,236,806
|
|
$
6,980,100
|
|
$
7,200,312
|
|
$
7,316,467
|
|
$
7,483,814
|
|
Exclude intangible
assets
|
(247,543)
|
|
(248,166)
|
|
(248,837)
|
|
(249,508)
|
|
(250,212)
|
|
Tangible assets
(non-GAAP)
|
$
6,989,263
|
|
$
6,731,934
|
|
$
6,951,475
|
|
$
7,066,959
|
|
$
7,233,602
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity to
total assets (GAAP)
|
11.4 %
|
|
11.4 %
|
|
10.8 %
|
|
11.0 %
|
|
11.0 %
|
|
Tangible common equity
to tangible assets (non-GAAP)
|
8.3 %
|
|
8.2 %
|
|
7.6 %
|
|
7.9 %
|
|
7.9 %
|
|
|
|
|
|
|
|
|
|
|
|
Shares
outstanding
|
35,108,120
|
|
35,106,697
|
|
35,104,248
|
|
35,103,929
|
|
35,102,372
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share
(GAAP)
|
$
23.53
|
|
$
22.73
|
|
$
22.13
|
|
$
22.94
|
|
$
23.40
|
|
Tangible book value per
share (non-GAAP)
|
$
16.48
|
|
$
15.66
|
|
$
15.04
|
|
$
15.83
|
|
$
16.27
|
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
|
|
March 31,
2023
|
|
December 31,
2022
|
|
September
30,
2022
|
|
June 30,
2022
|
|
March 31,
2022
|
|
Return on Average
Tangible Common Equity, annualized:
|
|
Net income
(GAAP)
|
$
20,457
|
|
$
22,544
|
|
$
20,990
|
|
$
18,584
|
|
$
19,757
|
|
Add amortization of
intangible assets
|
623
|
|
671
|
|
671
|
|
704
|
|
704
|
|
Exclude tax effect of
adjustment
|
(131)
|
|
(141)
|
|
(141)
|
|
(148)
|
|
(148)
|
|
Tangible net income
(non-GAAP)
|
$
20,949
|
|
$
23,074
|
|
$
21,520
|
|
$
19,140
|
|
$
20,313
|
|
|
|
|
|
|
|
|
|
|
|
Average stockholders'
equity (GAAP)
|
$
812,500
|
|
$
780,401
|
|
$
811,052
|
|
$
810,961
|
|
$
846,085
|
|
Exclude average
intangible assets
|
(247,922)
|
|
(248,560)
|
|
(249,245)
|
|
(249,890)
|
|
(250,593)
|
|
Average tangible common
stockholders' equity (non-GAAP)
|
$
564,578
|
|
$
531,841
|
|
$
561,807
|
|
$
561,071
|
|
$
595,492
|
|
|
|
|
|
|
|
|
|
|
|
Return on average
common equity, annualized (GAAP)
|
10.21 %
|
|
11.46 %
|
|
10.27 %
|
|
9.19 %
|
|
9.47 %
|
|
Return on average
tangible common equity, annualized (non-GAAP)
|
15.05 %
|
|
17.21 %
|
|
15.20 %
|
|
13.68 %
|
|
13.83 %
|
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.
|
Quarter
Ended
|
|
March 31,
2023
|
|
December 31,
2022
|
|
September
30,
2022
|
|
June 30,
2022
|
|
March 31,
2022
|
|
Pre-tax,
Pre-provision Income and Pre-tax, Pre-provision Return on Average
Assets, annualized:
|
|
Net income
(GAAP)
|
$
20,457
|
|
$
22,544
|
|
$
20,990
|
|
$
18,584
|
|
$
19,757
|
|
Add income tax
expense
|
4,213
|
|
5,345
|
|
4,657
|
|
3,977
|
|
3,582
|
|
Add provision for
(reversal of) credit losses
|
1,825
|
|
1,410
|
|
1,945
|
|
(1,204)
|
|
(3,577)
|
|
Pre-tax, pre-provision
income (non-GAAP)
|
$
26,495
|
|
$
29,299
|
|
$
27,592
|
|
$
21,357
|
|
$
19,762
|
|
|
|
|
|
|
|
|
|
|
|
Average total assets
(GAAP)
|
$
7,061,959
|
|
$
7,100,844
|
|
$
7,367,736
|
|
$
7,385,616
|
|
$
7,434,787
|
|
|
|
|
|
|
|
|
|
|
|
Return on average
assets, annualized (GAAP)
|
1.17 %
|
|
1.26 %
|
|
1.13 %
|
|
1.01 %
|
|
1.08 %
|
|
Pre-tax, pre-provision
return on average assets (non-GAAP)
|
1.52 %
|
|
1.64 %
|
|
1.49 %
|
|
1.16 %
|
|
1.08 %
|
View original
content:https://www.prnewswire.com/news-releases/heritage-financial-announces-first-quarter-2023-results-and-declares-regular-cash-dividend-301802789.html
SOURCE Heritage Financial Corporation