OLYMPIA, Wash., July 25,
2018 /PRNewswire/ -- Heritage Financial Corporation (NASDAQ GS:
HFWA) (the "Company" or "Heritage"), the parent company of Heritage
Bank, today reported that the Company had net income of
$11.9 million for the quarter ended
June 30, 2018 compared to $11.8
million for the quarter ended June 30, 2017 and
$9.1 million for the linked-quarter
ended March 31, 2018. Diluted earnings per common share for
the quarter ended June 30, 2018 was $0.35 compared to $0.40 for the quarter ended June 30, 2017
and $0.27 for the linked-quarter
ended March 31, 2018.
The Company had net income of $20.9
million for the six months ended June
30, 2018, or $0.62 per diluted
common share, compared to $21.1
million, or $0.71 per diluted
common share, for the six months ended June
30, 2017.
Brian L. Vance, CEO of Heritage,
commented, "We are pleased with our overall performance for the
second quarter of 2018. Although loan growth was muted due to
unusually high prepayments, loan originations were strong and we
are encouraged with a building pipeline that will help support our
loan growth in future periods. In addition, the overall asset
sensitivity of our balance sheet has allowed us to improve our net
interest margin in this rising rate environment.
"With the addition of the Premier Community Bancorp at the
beginning of this month, our total assets exceed $5 billion. We are excited about the impact
of the addition of this quality organization will have on our
future financial performance through their experienced bankers and
the scale of a larger organization."
Acquisition of Premier Commercial Bancorp
On
July 2, 2018, the Company completed
the acquisition of Premier Commercial Bancorp ("Premier
Commercial"), the holding company for Premier Community Bank, both
of Hillsboro, Oregon ("Premier
Merger"). As of the acquisition date, Premier Commercial was
merged with and into Heritage and Premier Community Bank was merged
with and into Heritage Bank. The Premier Merger will be accounted
for using the acquisition method of accounting.
Pursuant to the terms of the merger agreement, Premier
Commercial shareholders received 0.4863 shares of Heritage common
stock in exchange for each share of Premier Commercial common stock
based on the Heritage closing date per share price on June 29, 2018 of $34.85. Heritage issued an aggregate of 2,848,579
shares of its common stock and paid cash of $2,000 for fractional shares in the transaction
for total consideration paid of $99.3
million. As of June 30, 2018,
Premier Commercial had estimated total assets of $381.7 million, gross loans receivable of
$335.3 million and total deposits of
$319.3 million. Heritage is expected
to complete its acquisition method of accounting during the third
quarter 2018.
Acquisition of Puget Sound Bancorp, Inc.
On
January 16, 2018, the Company
completed the acquisition of Puget Sound Bancorp, Inc. ("Puget
Sound"), the holding company for Puget Sound Bank, both of
Bellevue, Washington ("Puget Sound
Merger"). As of the acquisition date, Puget Sound merged into
Heritage and Puget Sound Bank merged into Heritage Bank. The Puget
Sound Merger was accounted for using the acquisition method of
accounting. Accordingly, Heritage's cost to acquire Puget Sound was
allocated to the assets (including identifiable intangible assets)
and the liabilities of Puget Sound at their respective estimated
fair values as of the acquisition date. The excess of the purchase
price over the fair value of the net assets acquired was allocated
to goodwill. Fair values on the acquisition date are preliminary
and represent management's best estimates based on available
information and facts and circumstances in existence on the
acquisition date. Fair values are subject to refinement for up to
one year after the closing date of the acquisition as additional
information regarding the closing date fair values becomes
available.
Puget Sound shareholders received 1.1688 shares of Heritage
common stock in exchange for each share of Puget Sound stock.
Heritage issued an aggregate of 4,112,258 shares of its common
stock at the closing date per share price on January 12, 2018 of $31.80 and paid cash of $3,000 for fractional shares in the transaction
for total consideration paid of $130.8
million.
The following table provides the estimated fair value of the
assets acquired and liabilities assumed at January 16, 2018 (in thousands):
|
|
Puget Sound
Merger
|
Total merger
consideration
|
|
$
|
130,773
|
|
|
|
|
Assets
|
|
|
Cash on hand and in
banks
|
|
$
|
25,889
|
|
Interest earning
deposits
|
|
54,247
|
|
Investment securities
available for sale
|
|
80,353
|
|
Loans
receivable
|
|
388,462
|
|
Premises and
equipment, net
|
|
732
|
|
Federal Home Loan
Bank stock, at cost
|
|
623
|
|
Bank owned life
insurance
|
|
6,264
|
|
Accrued interest
receivable
|
|
1,448
|
|
Prepaid expenses and
other assets
|
|
1,354
|
|
Other intangible
assets
|
|
11,270
|
|
Total
assets
|
|
$
|
570,642
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
Deposits
|
|
$
|
505,885
|
|
Accrued expenses and
other liabilities
|
|
2,504
|
|
Total
liabilities
|
|
$
|
508,389
|
|
|
|
|
Fair value of net
assets acquired
|
|
$
|
62,253
|
|
Goodwill
acquired
|
|
$
|
68,520
|
|
Balance Sheet
The Company's total assets increased
$113.2 million, or 2.4%, to
$4.79 billion at June 30, 2018
from $4.68 billion at March 31,
2018.
Investment securities increased $52.1
million, or 6.3%, to $873.7
million at June 30, 2018 from $821.6 million at March 31, 2018 primarily
as a result of investment purchases of $78.0
million, offset partially by maturities, calls and payments
of investment securities and an increase in unrealized losses due
to rising interest rates that negatively impacted the fair value of
our bond portfolio.
Total loans receivable, net of allowance for loan losses,
increased $45.7 million, or 1.4%, to
$3.29 billion at June 30, 2018
from $3.25 billion at March 31,
2018. The increase in loans receivable is primarily due to an
increase in non-owner occupied commercial real estate loans of
$54.2 million, offset partially by a
decrease in commercial and industrial loans of $11.6 million.
Total deposits increased $64.2
million, or 1.6%, to $3.97
billion at June 30, 2018 from $3.90 billion at March 31, 2018. The
increase in deposits included increases in interest bearing demand
deposit accounts of $104.7 million,
or 9.2%, and certificates of deposit accounts of $38.3 million, or 9.1%, offset partially by
decreases in money market accounts of $57.2
million, or 8.7%. The increase in interest bearing demand
deposit accounts and decrease in money market accounts was
substantially due to a $48.7 million
transfer between account types by one customer for the purpose of
better alignment with deposit product needs. Non-maturity deposits
as a percentage of total deposits decreased to 88.4% as of
June 30, 2018 from 89.2% as of March 31, 2018 due to
higher proportional increases of certificates of deposit accounts
compared to total non-maturity deposits.
Federal Home Loan Bank advances increased $44.8 million, or 145.9%, to $75.5 million at June 30, 2018 compared to
$30.7 million at March 31, 2018,
to partially fund loan growth.
Total stockholders' equity increased $4.8
million, or 0.8%, to $639.5
million at June 30, 2018 from $634.7 million at March 31, 2018. Changes in
stockholders' equity during the quarter and six months ended
June 30, 2018 were as follows (in thousands):
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June 30,
2018
|
Balance, beginning of
period
|
$
|
634,708
|
|
|
$
|
508,305
|
|
Common
stock issued in the Puget Sound Merger
|
—
|
|
|
130,770
|
|
Net
income
|
11,857
|
|
|
20,944
|
|
Dividends paid
|
(5,130)
|
|
|
(10,247)
|
|
Accumulated other comprehensive loss
|
(2,372)
|
|
|
(9,915)
|
|
Other
|
460
|
|
|
(334)
|
|
Balance, end of
period
|
$
|
639,523
|
|
|
$
|
639,523
|
|
The Company and Heritage Bank continue to maintain capital
levels in excess of the applicable regulatory requirements for them
to be categorized as "well-capitalized". The Company had common
equity Tier 1 risk-based, Tier 1 leverage, Tier 1 risk-based and
total risk-based capital ratios of 11.2%, 10.4%, 11.7% and 12.6%,
respectively, at June 30, 2018, compared to 11.3%, 10.4%,
11.8% and 12.7%, respectively, at March 31, 2018 and 11.5%,
10.5%, 12.1% and 13.1%, respectively, at June 30, 2017.
Credit Quality
The allowance for loan losses increased
$711,000, or 2.1%, to $34.0 million for the quarter ended June 30,
2018 from $33.3 million for the
linked-quarter ended March 31, 2018. The increase was due to
provision for loan losses of $1.8
million recorded during the quarter ended June 30,
2018, offset partially by net charge-offs of $1.0 million recognized during the same
period.
Nonperforming loans to loans receivable, net, increased slightly
to 0.50% at June 30, 2018 from 0.48% at March 31, 2018
due primarily to an increase in nonaccrual loans of $795,000, or 5.1%, to $16.5 million at June 30, 2018 from
$15.7 million at March 31, 2018.
The increase was due substantially to one agricultural loan
relationship in the amount of $826,000 that was classified as nonaccrual during
the quarter ended June 30, 2018.
Changes in nonaccrual loans during the quarter ended
June 30, 2018 were as follows (in thousands):
|
Three Months
Ended
|
|
June 30,
2018
|
Nonaccrual
loans
|
|
Balance, beginning of
period
|
$
|
15,728
|
|
Addition
of previously classified pass graded loans
|
130
|
|
Addition
of previously classified potential problem loans
|
1,367
|
|
Charge-offs
|
(438)
|
|
Net
principal payments
|
(264)
|
|
Balance, end of
period
|
$
|
16,523
|
|
The allowance for loan losses to nonperforming loans was 205.60%
at June 30, 2018 compared to 211.48% at the linked-quarter
ended March 31, 2018. Nonperforming assets increased slightly
to 0.35% of total assets at June 30, 2018 compared to 0.34% of
total assets at March 31, 2018 based on the increase in
nonaccrual loans discussed above as well as the addition to other
real estate owned of $434,000 during
the quarter ended June 30, 2018.
Potential problem loans increased $8.2
million, or 8.8%, to $101.5
million at June 30, 2018 compared to $93.3 million at March 31, 2018. The
increase was due primarily to the addition of one agricultural
borrowing relationship totaling $14.5
million which was downgraded. Changes in potential problem
loans during the quarter ended June 30, 2018 were as follows
(in thousands):
|
Three Months
Ended
|
|
June 30,
2018
|
Potential problem
loans
|
|
Balance, beginning of
period
|
$
|
93,253
|
|
Addition
of previously classified pass graded loans
|
19,829
|
|
Upgrades
to pass graded loan status
|
(5,407)
|
|
Transfers of loans to nonaccrual and troubled debt restructured
status
|
(1,839)
|
|
Charge-offs
|
(112)
|
|
Net
principal payments
|
(4,233)
|
|
Balance, end of
period
|
$
|
101,491
|
|
The allowance for loan losses to loans receivable, net,
increased to 1.02% at June 30, 2018 from 1.01% at
March 31, 2018. The Company believes that its allowance
for loan losses is appropriate to provide for probable incurred
credit losses based on an evaluation of known and inherent risks in
the loan portfolio at June 30, 2018. Included in the carrying
value of loans are net discounts on loans purchased in mergers and
acquisitions which may reduce the need for an allowance for loan
losses on these loans because they are carried at an amount below
the outstanding principal balance. The remaining net discount on
purchased loans was $10.6 million at
June 30, 2018 compared to $12.7
million at March 31, 2018.
Net charge-offs were $1.0 million
for the quarter ended June 30, 2018 compared to net recoveries
of $26,000 for the same quarter in
2017 and net recoveries of $23,000
for the linked-quarter ended March 31, 2018. The increase in
net charge-offs compared to the linked-quarter was due primarily to
charge-offs of two agricultural borrower relationships totaling
$438,000 in addition to smaller
charge-off balances on a large volume of consumer loans.
Operating Results
Net interest income increased
$9.6 million, or 28.2%, to
$43.7 million for the quarter ended
June 30, 2018 compared to $34.1
million for the same period in 2017 and increased
$2.9 million, or 7.1%, from
$40.8 million for the linked-quarter
ended March 31, 2018. Net interest
income increased $17.3 million, or 25.7%,
to $84.6 million for the six months ended
June 30, 2018 compared
to $67.3 million for the six months ended June 30, 2017. The increases in net interest
income for all periods noted were primarily due to increases in
average interest earning assets, which increased substantially in
first quarter 2018 as a result of the Puget Sound Merger. In
addition, the yield on total interest earning assets increased 36
basis points to 4.50% for the quarter ended June 30, 2018
compared to 4.14% for the comparable period in 2017 and increased
14 basis points from 4.36% for the linked quarter ended
March 31, 2018. Yield on total interest earning assets
increased 32 basis points to 4.44% for the six months ended
June 30, 2018 compared to 4.12% for
the six months ended June 30,
2017. Yields on total interest earning assets increased
primarily due to higher market interest rates reflecting increases
in the target federal funds rate. The increases in net interest
income was offset partially by increases in the cost of total
interest bearing liabilities as a result of the rising interest
rates. The cost of total interest bearing liabilities
increased 10 basis points to 0.41% during the quarter ended
June 30, 2018 compared to 0.31% for the quarter ended
June 30, 2017 and increased six basis points from 0.35% for
the linked-quarter ended March 31, 2018. The cost of total
interest bearing liabilities increased nine basis points to 0.38%
for the six months ended June 30,
2018 compared to 0.29% for the same period in 2017.
Net interest margin increased 30 basis points to 4.22% for the
quarter ended June 30, 2018 from 3.92% for the same period in
2017 and increased 10 basis points from 4.12% for the
linked-quarter ended March 31, 2018. The net interest
margin increased 26 basis points for the six months ended
June 30, 2018 to 4.17% from 3.91% for
the same period in 2017. Increases in net interest margin
were due primarily to the increases in net interest income as
discussed above with the primary contributor being the increases in
both the average loan balance and loan yield.
The loan yield, excluding incremental accretion on purchased
loans, increased 28 basis points to 4.81% for the quarter ended
June 30, 2018 compared to 4.53% for the quarter ended
June 30, 2017 and increased 11 basis points from 4.70% for the
linked-quarter ended March 31, 2018. Loan yield,
excluding incremental accretion on purchased loans, increased 22
basis points to 4.75% for the six months ended June 30, 2018 compared to 4.53% for same period
in 2017. The increases in loan yields from prior periods was due to
a combination of higher contractual loan rates as a result of the
increasing interest rate environment as well as an increase in loan
yields from the loans acquired in the Puget Sound merger as
compared to legacy Heritage loans.
The impact on loan yield from incremental accretion on purchased
loans increased two basis points to 0.24% for the quarter ended
June 30, 2018 compared to 0.22% for the quarter ended
June 30, 2017 and increased three basis points from 0.21% for
the linked-quarter ended March 31, 2018. The impact on loan
yield from incremental accretion on purchased loans increased three
basis points to 0.23% for the six months ended June 30, 2018 from 0.20% for the same period in
2017. The increases from all prior periods was primarily a result
of the loans acquired in the Puget Sound merger. The incremental
accretion and the impact to 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.
The following table presents the net interest margin, loan yield
and the effect of the incremental accretion on purchased loans on
these ratios for the periods presented below:
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
|
(Dollars in
thousands)
|
Net interest margin,
excluding incremental accretion on purchased loans
(1)
|
4.03
|
%
|
|
3.96
|
%
|
|
3.75
|
%
|
|
3.99
|
%
|
|
3.76
|
%
|
Impact on net
interest margin from incremental accretion on purchased loans
(1)
|
0.19
|
%
|
|
0.16
|
%
|
|
0.17
|
%
|
|
0.18
|
%
|
|
0.15
|
%
|
Net interest
margin
|
4.22
|
%
|
|
4.12
|
%
|
|
3.92
|
%
|
|
4.17
|
%
|
|
3.91
|
%
|
|
|
|
|
|
|
|
|
|
|
Loan yield, excluding
incremental accretion on purchased loans (1)
|
4.81
|
%
|
|
4.70
|
%
|
|
4.53
|
%
|
|
4.75
|
%
|
|
4.53
|
%
|
Impact on loan yield
from incremental accretion on purchased loans
(1)
|
0.24
|
%
|
|
0.21
|
%
|
|
0.22
|
%
|
|
0.23
|
%
|
|
0.20
|
%
|
Loan yield
|
5.05
|
%
|
|
4.91
|
%
|
|
4.75
|
%
|
|
4.98
|
%
|
|
4.73
|
%
|
|
|
|
|
|
|
|
|
|
|
Incremental accretion
on purchased loans (1)
|
$
|
1,992
|
|
|
$
|
1,632
|
|
|
$
|
1,481
|
|
|
$
|
3,624
|
|
|
$
|
2,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
As of the dates of
the completion of each of the merger and acquisition transactions,
purchased loans were recorded at their estimated fair value,
including our estimate of future expected cash flows until the
ultimate resolution of these credits. The difference between the
contractual loan balance and the fair value represents the
purchased discount. The purchased discount is accreted into income
over the estimated remaining life of the loan or pool of loans,
based upon results of the quarterly cash flow re-estimation. The
incremental accretion income represents the amount of income
recorded on the purchased loans in excess of the contractual stated
interest rate in the individual loan notes.
|
In addition to loan yields, also impacting net interest margin
were increases in the yields on investment securities. The yields
on the aggregate investment portfolio increased 28 basis points to
2.53% for the quarter ended June 30, 2018 compared to 2.25%
for the quarter ended June 30, 2017 and increased 10 basis
points from 2.43% for the linked-quarter ended March 31, 2018.
The yields on the aggregate investment portfolio increased 25 basis
points to 2.48% for the six months ended June 30, 2018
compared to 2.23% for the six months ended June 30, 2017. The
increases compared to the prior periods primarily reflect the
effect of the rise in interest rates on our adjustable rate
investment securities.
Net interest margin has also been impacted by the cost of
interest bearing liabilities which has increased primarily as a
result of the rise in interest rates and secondarily by the
increase in the average balance of total interest bearing
liabilities.
The total cost of deposits increased five basis points to 0.23%
during the quarter ended June 30,
2018 compared to 0.18% during the same quarter in 2017 and
increased two basis points from 0.21% during the linked-quarter
ended March 31, 2018. The total
cost of deposits increased five basis points to 0.22% during the
six months ended June 30, 2018
compared to 0.17% during the same period in 2017.
The Company uses FHLB advances as a source of funding. The cost
of FHLB advances increased 115 basis points to 2.04% during the
quarter ended June 30, 2018 compared to 0.89% during the same
quarter in 2017 and increased 34 basis points from 1.70% during the
linked-quarter ended March 31, 2018. The average balance of
FHLB advances decreased to $79.1
million during the quarter ended June 30, 2018 compared
to an average balance of $107.1
million during the same period in 2017 and increased from an
average balance of $35.7 million
during the linked-quarter ended March 31, 2018.
Donald J. Hinson, Executive Vice
President and Chief Financial Officer, commented, "We are pleased
that our net interest margin performance continues to improve. This
has been accomplished primarily through increases in pre-accretion
loan yield and investment yield while experiencing only marginal
increases in costs of deposits. The weighted average note rate on
new loans originated during quarter ended June 30, 2018 increased to 5.18% from 5.00% for
the quarter ended March 31, 2018 and
from 4.60% for the quarter ended June
30, 2017. As a result of these increases in new loan
rates as well as past and expected future increases in the prime
rate, we expect that pre-accretion loan yield will continue to have
a positive impact on our net interest margin this year."
The provision for loan losses increased $619,000, or 54.7%, to $1.8 million for the quarter ended June 30,
2018 compared to $1.1 million for the
quarter ended June 30, 2017 and increased $598,000, or 51.9%, from the linked-quarter ended
March 31, 2018. The provision for loan losses increased
$904,000, or 45.2%, to $2.9 million for the six months ended
June 30, 2018 compared to
$2.0 million for the six months ended
June 30, 2017. The amount of provision for loan losses was
necessary to increase the allowance for loan losses to an amount
that management determined to be appropriate at June 30, 2018
based on the use of a consistent methodology. The increase in the
provision for loan losses was primarily as a result of organic loan
growth and net charge-offs.
Noninterest income decreased $3.1
million, or 29.3%, to $7.6
million for the quarter ended June 30, 2018 compared to
$10.7 million for the same period in
2017 and decreased $3.0 million, or
16.3%, to $15.1 million for the six
months ended June 30, 2018 compared
to $18.1 million for the same period
in 2017. The decreases from the prior periods were due primarily to
a decrease of $3.0 million in gain on
sale of loans as a result of the sale of a previously classified
purchased credit impaired loan during the quarter ended
June 30, 2017, offset partially by
increases in service charges and other fees due primarily to
changes in fee structures on business deposit accounts completed
during the quarter ended June 30,
2017 in addition to increases in deposit balances.
Noninterest expense increased $7.9
million, or 28.4%, to $35.7
million for the quarter ended June 30, 2018 compared to
$27.8 million for the same period in
2017. Noninterest expense increased $17.4
million, or 31.7%, to $72.5
million for the six months ended June
30, 2018 compared to $55.0
million for the same period in 2017. The increases were
primarily due to expenses from the Puget Sound Merger and Premier
Merger including increases related to compensation and employee
benefits due to additional employees, occupancy and equipment
expense primarily due to additional building and land rent expense,
and additional data processing expense due to an increase in
deposit balances. Noninterest expense also increased during the
quarter and six months ended June 30, 2018 compared to both
periods in 2017 as a result of amortization of intangible assets of
$513,000 and $1.0 million recorded during the quarter and six
months ended June 30, 2018,
respectively, due to the amortization of core deposit intangibles
acquired in the Puget Sound Merger.
Professional services increased during the quarter and six
months ended June 30, 2018 compared
to prior periods due substantially to the buy-out of a third party
contract in the amount $1.7
million. The third party assisted the Company in our
deposit product realignment and was compensated based on success
factors over three years subsequent to implementation. The Company
assessed the contract and determined that it was advantageous to
buy-out the contract prior to the system conversions relating to
the Puget Sound Merger and Premier Merger. The Company expects the
accumulated savings in future professional services expenses to
fully offset the cost of the buy-out by the end of 2019. In
addition, professional services costs also increased in 2018
compared to 2017 as a result of merger activities.
Noninterest expense decreased $1.0
million, or 2.8%, from $36.7
million for the linked-quarter ended March 31, 2018
primarily due to non-recurring compensation and employee benefits
expense related to the Puget Sound Merger paid during the first
quarter 2018, offset partially by the contract buy-out in second
quarter 2018 described above.
Acquisition-related expenses incurred as a result of the Puget
Sound Merger and Premier Merger were approximately $551,000 and $329,000, respectively, during the quarter ended
June 30, 2018 compared to $4.5
million and $324,000,
respectively, during the linked-quarter ended March 31, 2018,
for a total of approximately $5.7
million during the six months ended June 30, 2018. There were no acquisition-related
expenses for the same periods in 2017. Acquisition costs are
primarily included in compensation and employee benefits,
professional services and data processing expenses.
The ratio of noninterest expense to average assets (annualized)
was 3.03% for the quarter ended June 30, 2018 compared to
2.85% for the same period in 2017 and was 3.15% for six months
ended June 30, 2018 compared to 2.85% for the same period in
2017. The increase from the prior periods was due primarily to
acquisition-related expenses. The ratio of noninterest
expense to average assets (annualized) decreased from 3.27% for the
linked-quarter ended March 31, 2018 primarily based on the
changes to the noninterest expense described above.
Income tax expense was $2.0
million for the quarter ended June 30, 2018 compared to
$4.1 million for the quarter ended
June 30, 2017 and $1.4 million
for the linked-quarter ended March 31, 2018. The effective tax
rate was 14.5% for the quarter ended June 30, 2018 compared to
25.6% for the comparable quarter in 2017 and 13.3% for the
linked-quarter ended March 31, 2018. Income tax expense was
$3.4 million for the six months ended
June 30, 2018 compared to
$7.2 million for the six months ended
June 30, 2018. The effective tax rate
was 14.0% for the six months ended June 30,
2018 compared to 25.3% for the six months ended June 30, 2018. The decrease in income tax expense
and the effective tax rate compared to the same periods in 2017 was
due primarily to the impact of the Tax Cuts and Jobs Act enacted in
December 2017 which lowered the corporate income tax rate from
35% to 21%.
Jeffrey J. Deuel, President and
Chief Executive Officer of Heritage Bank, commented, "It is good to
see the positive momentum across the Bank as we complete
the integration of Puget Sound Bank and we see the combined
team begin to get traction. It is also good to have
change-of-control for Premier Community Bank behind us,
and we look forward to having that team help us build out our
presence in Portland in the second half of the year."
Dividends
On July 24, 2018, the Company's Board
of Directors declared a quarterly cash dividend of $0.15 per common share. The dividend is payable
on August 23, 2018 to shareholders of record as of the close
of business on August 9, 2018.
Earnings Conference Call
The Company will hold a
telephone conference call to discuss this earnings release on
July 25, 2018 at 11:00 a.m. Pacific
time. To access the call, please dial (800) 398-9367 a few
minutes prior to 11:00 a.m. Pacific
time. The call will be available for replay through
August 8, 2018, by dialing (800)
475-6701 -- access code 451269.
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 branching network of 65 banking offices in Washington and Oregon. Heritage Bank does business under the
Central Valley Bank name in the Yakima and Kittitas counties of Washington and 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.
Non-GAAP Financial Measures
This news
release contains certain non-GAAP (Generally Accepted Accounting
Principles) financial measures in addition to results presented in
accordance with GAAP. These measures include tangible common
stockholders' equity, tangible book value per share and tangible
common stockholders' equity to tangible assets. Tangible common
stockholders' equity (tangible book value) excludes goodwill and
other intangible assets. Tangible assets exclude goodwill and other
intangible assets. Management 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 reflected in the current quarter
and year-to-date results and facilitate comparison of our
performance with the performance of our peers. Where applicable,
the Company has also presented comparable earnings information
using GAAP financial measures. Reconciliations of the GAAP and
non-GAAP financial measures are presented below.
|
June 30,
2018
|
|
March 31,
2018
|
|
December
31,
2017
|
|
(In
thousands)
|
Stockholders'
equity
|
$
|
639,523
|
|
|
$
|
634,708
|
|
|
$
|
508,305
|
|
Less: goodwill and
other intangible assets
|
203,316
|
|
|
204,112
|
|
|
125,117
|
|
Tangible common
stockholders' equity
|
$
|
436,207
|
|
|
$
|
430,596
|
|
|
$
|
383,188
|
|
|
|
|
|
|
|
Total
assets
|
$
|
4,789,488
|
|
|
$
|
4,676,250
|
|
|
$
|
4,113,270
|
|
Less: goodwill and
other intangible assets
|
203,316
|
|
|
204,112
|
|
|
125,117
|
|
Tangible
assets
|
$
|
4,586,172
|
|
|
$
|
4,472,138
|
|
|
$
|
3,988,153
|
|
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 our actual results to differ
materially from those described in the forward-looking statements,
include the expected revenues, cost savings, synergies and other
benefits from the Puget Sound Merger and the Premier Merger might
not be realized within the expected time frames or at all, and
costs or difficulties relating to integration matters, including
but not limited to, customer and employee retention might be
greater than expected; increased competitive pressures; changes in
the interest rate environment; changes in general economic
conditions and conditions within the securities markets;
legislative and regulatory changes; 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 2018 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)
|
(In thousands,
except shares)
|
|
|
June
30, 2018
|
|
March 31,
2018
|
|
December 31,
2017
|
Assets
|
|
|
|
|
|
Cash on hand and in
banks
|
$
|
94,210
|
|
|
$
|
86,608
|
|
|
$
|
78,293
|
|
Interest earning
deposits
|
35,733
|
|
|
43,701
|
|
|
24,722
|
|
Cash and cash
equivalents
|
129,943
|
|
|
130,309
|
|
|
103,015
|
|
Investment securities
available for sale
|
873,670
|
|
|
821,567
|
|
|
810,530
|
|
Loans held for
sale
|
3,598
|
|
|
2,669
|
|
|
2,288
|
|
Loans receivable,
net
|
3,328,288
|
|
|
3,281,915
|
|
|
2,849,071
|
|
Allowance for loan
losses
|
(33,972)
|
|
|
(33,261)
|
|
|
(32,086)
|
|
Total loans
receivable, net
|
3,294,316
|
|
|
3,248,654
|
|
|
2,816,985
|
|
Other real estate
owned
|
434
|
|
|
—
|
|
|
—
|
|
Premises and
equipment, net
|
75,364
|
|
|
62,147
|
|
|
60,325
|
|
Federal Home Loan
Bank stock, at cost
|
8,616
|
|
|
6,824
|
|
|
8,347
|
|
Bank owned life
insurance
|
82,031
|
|
|
81,700
|
|
|
75,091
|
|
Accrued interest
receivable
|
13,482
|
|
|
13,602
|
|
|
12,244
|
|
Prepaid expenses and
other assets
|
104,718
|
|
|
104,666
|
|
|
99,328
|
|
Other intangible
assets, net
|
15,767
|
|
|
16,563
|
|
|
6,088
|
|
Goodwill
|
187,549
|
|
|
187,549
|
|
|
119,029
|
|
Total
assets
|
$
|
4,789,488
|
|
|
$
|
4,676,250
|
|
|
$
|
4,113,270
|
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
Deposits
|
$
|
3,968,935
|
|
|
$
|
3,904,741
|
|
|
$
|
3,393,060
|
|
Federal Home Loan
Bank advances
|
75,500
|
|
|
30,700
|
|
|
92,500
|
|
Junior subordinated
debentures
|
20,156
|
|
|
20,083
|
|
|
20,009
|
|
Securities sold under
agreement to repurchase
|
22,168
|
|
|
26,100
|
|
|
31,821
|
|
Accrued expenses and
other liabilities
|
63,206
|
|
|
59,918
|
|
|
67,575
|
|
Total
liabilities
|
4,149,965
|
|
|
4,041,542
|
|
|
3,604,965
|
|
|
|
|
|
|
|
Common
stock
|
491,026
|
|
|
490,566
|
|
|
360,590
|
|
Retained
earnings
|
159,803
|
|
|
153,101
|
|
|
149,013
|
|
Accumulated other
comprehensive loss, net
|
(11,306)
|
|
|
(8,959)
|
|
|
(1,298)
|
|
Total stockholders'
equity
|
639,523
|
|
|
634,708
|
|
|
508,305
|
|
Total liabilities and
stockholders' equity
|
$
|
4,789,488
|
|
|
$
|
4,676,250
|
|
|
$
|
4,113,270
|
|
|
|
|
|
|
|
Common stock, shares
outstanding
|
34,021,094
|
|
|
34,018,280
|
|
|
29,927,746
|
|
HERITAGE FINANCIAL
CORPORATION
|
CONDENSED
CONSOLIDATED STATEMENTS OF
INCOME (Unaudited)
|
(Dollar amounts in
thousands, except per share amounts)
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
Interest and fees on
loans
|
$
|
41,141
|
|
|
$
|
38,159
|
|
|
$
|
31,500
|
|
|
$
|
79,300
|
|
|
$
|
61,985
|
|
Taxable interest on
investment securities
|
4,068
|
|
|
3,529
|
|
|
3,141
|
|
|
7,597
|
|
|
6,190
|
|
Nontaxable interest on
investment securities
|
1,220
|
|
|
1,341
|
|
|
1,304
|
|
|
2,561
|
|
|
2,572
|
|
Interest on other
interest earning assets
|
242
|
|
|
218
|
|
|
96
|
|
|
460
|
|
|
143
|
|
Total interest
income
|
46,671
|
|
|
43,247
|
|
|
36,041
|
|
|
89,918
|
|
|
70,890
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
Deposits
|
2,195
|
|
|
1,960
|
|
|
1,407
|
|
|
4,155
|
|
|
2,673
|
|
Junior subordinated
debentures
|
315
|
|
|
283
|
|
|
249
|
|
|
598
|
|
|
487
|
|
Other
borrowings
|
418
|
|
|
167
|
|
|
251
|
|
|
585
|
|
|
464
|
|
Total interest
expense
|
2,928
|
|
|
2,410
|
|
|
1,907
|
|
|
5,338
|
|
|
3,624
|
|
Net interest
income
|
43,743
|
|
|
40,837
|
|
|
34,134
|
|
|
84,580
|
|
|
67,266
|
|
Provision for loan
losses
|
1,750
|
|
|
1,152
|
|
|
1,131
|
|
|
2,902
|
|
|
1,998
|
|
Net interest income
after provision for loan losses
|
41,993
|
|
|
39,685
|
|
|
33,003
|
|
|
81,678
|
|
|
65,268
|
|
Noninterest
income:
|
|
|
|
|
|
|
|
|
|
Service charges and
other fees
|
4,695
|
|
|
4,543
|
|
|
4,426
|
|
|
9,238
|
|
|
8,639
|
|
Gain on sale of
investment securities, net
|
18
|
|
|
35
|
|
|
117
|
|
|
53
|
|
|
117
|
|
Gain on sale of
loans, net
|
706
|
|
|
874
|
|
|
4,138
|
|
|
1,580
|
|
|
5,333
|
|
Interest rate swap
fees
|
309
|
|
|
51
|
|
|
282
|
|
|
360
|
|
|
415
|
|
Other
income
|
1,845
|
|
|
2,045
|
|
|
1,746
|
|
|
3,890
|
|
|
3,568
|
|
Total noninterest
income
|
7,573
|
|
|
7,548
|
|
|
10,709
|
|
|
15,121
|
|
|
18,072
|
|
Noninterest
expense:
|
|
|
|
|
|
|
|
|
|
Compensation and
employee benefits
|
19,321
|
|
|
21,367
|
|
|
16,272
|
|
|
40,688
|
|
|
32,296
|
|
Occupancy and
equipment
|
4,810
|
|
|
4,627
|
|
|
3,818
|
|
|
9,437
|
|
|
7,628
|
|
Data
processing
|
2,507
|
|
|
2,605
|
|
|
2,002
|
|
|
5,112
|
|
|
3,917
|
|
Marketing
|
823
|
|
|
808
|
|
|
805
|
|
|
1,631
|
|
|
1,612
|
|
Professional
services
|
3,529
|
|
|
2,837
|
|
|
1,053
|
|
|
6,366
|
|
|
2,062
|
|
State and local
taxes
|
716
|
|
|
688
|
|
|
639
|
|
|
1,404
|
|
|
1,188
|
|
Federal deposit
insurance premium
|
375
|
|
|
355
|
|
|
357
|
|
|
730
|
|
|
657
|
|
Other real estate
owned, net
|
—
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
52
|
|
Amortization of
intangible assets
|
796
|
|
|
795
|
|
|
323
|
|
|
1,591
|
|
|
647
|
|
Other
expense
|
2,829
|
|
|
2,665
|
|
|
2,519
|
|
|
5,494
|
|
|
4,973
|
|
Total noninterest
expense
|
35,706
|
|
|
36,747
|
|
|
27,809
|
|
|
72,453
|
|
|
55,032
|
|
Income before income
taxes
|
13,860
|
|
|
10,486
|
|
|
15,903
|
|
|
24,346
|
|
|
28,308
|
|
Income tax
expense
|
2,003
|
|
|
1,399
|
|
|
4,075
|
|
|
3,402
|
|
|
7,164
|
|
Net income
|
$
|
11,857
|
|
|
$
|
9,087
|
|
|
$
|
11,828
|
|
|
$
|
20,944
|
|
|
$
|
21,144
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
common share
|
$
|
0.35
|
|
|
$
|
0.27
|
|
|
$
|
0.40
|
|
|
$
|
0.62
|
|
|
$
|
0.71
|
|
Diluted earnings per
common share
|
$
|
0.35
|
|
|
$
|
0.27
|
|
|
$
|
0.40
|
|
|
$
|
0.62
|
|
|
$
|
0.71
|
|
Dividends declared
per common share
|
$
|
0.15
|
|
|
$
|
0.15
|
|
|
$
|
0.13
|
|
|
$
|
0.30
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
Average number of
basic common shares outstanding
|
33,934,661
|
|
|
33,205,546
|
|
|
29,756,198
|
|
|
33,572,117
|
|
|
29,730,195
|
|
Average number of
diluted common shares outstanding
|
34,107,292
|
|
|
33,348,102
|
|
|
29,839,609
|
|
|
33,729,936
|
|
|
29,794,237
|
|
HERITAGE FINANCIAL
CORPORATION
|
FINANCIAL
STATISTICS
|
(Dollars in
thousands, except per share amounts; unaudited)
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
Performance
Ratios:
|
|
|
|
|
|
|
|
|
|
Efficiency
ratio
|
69.58
|
%
|
|
75.95
|
%
|
|
62.01
|
%
|
|
72.67
|
%
|
|
64.49
|
%
|
Noninterest expense
to average assets, annualized
|
3.03
|
%
|
|
3.27
|
%
|
|
2.85
|
%
|
|
3.15
|
%
|
|
2.85
|
%
|
Return on average
assets, annualized
|
1.01
|
%
|
|
0.81
|
%
|
|
1.21
|
%
|
|
0.91
|
%
|
|
1.09
|
%
|
Return on average
equity, annualized
|
7.47
|
%
|
|
5.99
|
%
|
|
9.54
|
%
|
|
6.75
|
%
|
|
8.68
|
%
|
Return on average
tangible common equity, annualized
|
10.99
|
%
|
|
8.70
|
%
|
|
12.78
|
%
|
|
9.86
|
%
|
|
11.67
|
%
|
Net charge-offs on
loans to average loans, annualized
|
0.13
|
%
|
|
—
|
%
|
|
—
|
%
|
|
0.06
|
%
|
|
0.03
|
%
|
|
As of Period
End
|
|
June 30,
2018
|
|
March 31,
2018
|
|
December 31,
2017
|
Financial
Measures:
|
|
|
|
|
|
Book value per common
share
|
$
|
18.80
|
|
|
$
|
18.66
|
|
|
$
|
16.98
|
|
Tangible book value
per common share
|
$
|
12.82
|
|
|
$
|
12.66
|
|
|
$
|
12.80
|
|
Stockholders' equity
to total assets
|
13.4
|
%
|
|
13.6
|
%
|
|
12.4
|
%
|
Tangible common
equity to tangible assets
|
9.5
|
%
|
|
9.6
|
%
|
|
9.6
|
%
|
Common equity Tier 1
capital to risk-weighted assets
|
11.2
|
%
|
|
11.3
|
%
|
|
11.3
|
%
|
Tier 1 leverage
capital to average quarterly assets
|
10.4
|
%
|
|
10.4
|
%
|
|
10.2
|
%
|
Tier 1 capital to
risk-weighted assets
|
11.7
|
%
|
|
11.8
|
%
|
|
11.8
|
%
|
Total capital to
risk-weighted assets
|
12.6
|
%
|
|
12.7
|
%
|
|
12.8
|
%
|
Loans to deposits
ratio (1)
|
83.9
|
%
|
|
84.0
|
%
|
|
84.0
|
%
|
Deposits per
branch
|
$
|
67,270
|
|
|
$
|
65,079
|
|
|
$
|
57,509
|
|
|
|
(1)
|
Loans receivable, net
of deferred costs divided by deposits
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
Allowance for Loan
Losses:
|
|
|
|
|
|
|
|
|
|
Balance, beginning of
period
|
$
|
33,261
|
|
|
$
|
32,086
|
|
|
$
|
31,594
|
|
|
$
|
32,086
|
|
|
$
|
31,083
|
|
Provision for loan
losses
|
1,750
|
|
|
1,152
|
|
|
1,131
|
|
|
2,902
|
|
|
1,998
|
|
Net (charge-offs)
recoveries:
|
|
|
|
|
|
|
|
|
|
Commercial
business
|
(474)
|
|
|
420
|
|
|
313
|
|
|
(54)
|
|
|
383
|
|
One-to-four family
residential
|
(15)
|
|
|
—
|
|
|
1
|
|
|
(15)
|
|
|
1
|
|
Real estate
construction and land development
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
10
|
|
Consumer
|
(552)
|
|
|
(397)
|
|
|
(288)
|
|
|
(949)
|
|
|
(724)
|
|
Total net
(charge-offs) recoveries
|
(1,039)
|
|
|
23
|
|
|
26
|
|
|
(1,016)
|
|
|
(330)
|
|
Balance, end of
period
|
$
|
33,972
|
|
|
$
|
33,261
|
|
|
$
|
32,751
|
|
|
$
|
33,972
|
|
|
$
|
32,751
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
Other Real Estate
Owned:
|
|
|
|
|
|
|
|
|
|
Balance, beginning of
period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
786
|
|
|
$
|
—
|
|
|
$
|
754
|
|
Additions
|
434
|
|
|
—
|
|
|
—
|
|
|
434
|
|
|
32
|
|
Proceeds from
dispositions
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Gain on sales,
net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance, end of
period
|
$
|
434
|
|
|
$
|
—
|
|
|
$
|
786
|
|
|
$
|
434
|
|
|
$
|
786
|
|
|
Three Months
Ended
|
|
Six Months
Ended
|
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
|
June 30,
2018
|
|
June 30,
2017
|
Gain on Sale of
Loans, net:
|
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
$
|
572
|
|
|
$
|
652
|
|
|
$
|
731
|
|
|
$
|
1,224
|
|
|
$
|
1,640
|
|
SBA loans
|
134
|
|
|
222
|
|
|
409
|
|
|
356
|
|
|
695
|
|
Other
loans
|
—
|
|
|
—
|
|
|
2,998
|
|
|
—
|
|
|
2,998
|
|
Total gain on sale of
loans, net
|
$
|
706
|
|
|
$
|
874
|
|
|
$
|
4,138
|
|
|
$
|
1,580
|
|
|
$
|
5,333
|
|
|
As of Period
End
|
|
June 30,
2018
|
|
March 31,
2018
|
|
December 31,
2017
|
Nonperforming
Assets:
|
|
|
|
|
|
Nonaccrual loans by
type:
|
|
|
|
|
|
Commercial
business
|
$
|
15,235
|
|
|
$
|
14,356
|
|
|
$
|
9,098
|
|
One-to-four family
residential
|
77
|
|
|
80
|
|
|
81
|
|
Real estate
construction and land development
|
1,084
|
|
|
1,147
|
|
|
1,247
|
|
Consumer
|
127
|
|
|
145
|
|
|
277
|
|
Total nonaccrual
loans(1)
|
16,523
|
|
|
15,728
|
|
|
10,703
|
|
Other real estate
owned
|
434
|
|
|
—
|
|
|
—
|
|
Nonperforming
assets
|
$
|
16,957
|
|
|
$
|
15,728
|
|
|
$
|
10,703
|
|
|
|
|
|
|
|
Restructured
performing loans
|
$
|
25,957
|
|
|
$
|
26,187
|
|
|
$
|
26,757
|
|
Accruing loans past
due 90 days or more
|
—
|
|
|
—
|
|
|
—
|
|
Potential problem
loans(2)
|
101,491
|
|
|
93,253
|
|
|
83,543
|
|
Allowance for loan
losses to:
|
|
|
|
|
|
Loans receivable,
net
|
1.02
|
%
|
|
1.01
|
%
|
|
1.13
|
%
|
Nonperforming
loans
|
205.60
|
%
|
|
211.48
|
%
|
|
299.79
|
%
|
Nonperforming loans to
loans receivable, net
|
0.50
|
%
|
|
0.48
|
%
|
|
0.38
|
%
|
Nonperforming assets
to total assets
|
0.35
|
%
|
|
0.34
|
%
|
|
0.26
|
%
|
|
|
(1)
|
At June 30, 2018
and December 31, 2017, $6.8 million and $5.2 million of
nonaccrual loans were also considered troubled debt restructured
loans, respectively.
|
(2)
|
Potential problem
loans are those loans that are currently accruing interest and are
not considered impaired, but which are being monitored because the
financial information of the borrower causes the Company concern as
to their ability to comply with their loan repayment
terms.
|
|
As of Period
End
|
|
June 30,
2018
|
|
March 31,
2018
|
|
December 31,
2017
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
Loan
Composition
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
business:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
industrial
|
$
|
800,043
|
|
|
24.0
|
%
|
|
$
|
811,678
|
|
|
24.7
|
%
|
|
$
|
645,396
|
|
|
22.7
|
%
|
Owner-occupied
commercial real estate
|
693,330
|
|
|
20.8
|
|
|
702,356
|
|
|
21.4
|
|
|
622,150
|
|
|
21.8
|
|
Non-owner occupied
commercial real estate
|
1,187,548
|
|
|
35.7
|
|
|
1,133,394
|
|
|
34.6
|
|
|
986,594
|
|
|
34.6
|
|
Total commercial
business
|
2,680,921
|
|
|
80.5
|
|
|
2,647,428
|
|
|
80.7
|
|
|
2,254,140
|
|
|
79.1
|
|
One-to-four family
residential
|
92,518
|
|
|
2.8
|
|
|
89,180
|
|
|
2.7
|
|
|
86,997
|
|
|
3.1
|
|
Real estate
construction and land development:
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
residential
|
71,934
|
|
|
2.2
|
|
|
73,295
|
|
|
2.2
|
|
|
51,985
|
|
|
1.8
|
|
Five or more family
residential and commercial properties
|
93,315
|
|
|
2.8
|
|
|
98,387
|
|
|
3.0
|
|
|
97,499
|
|
|
3.4
|
|
Total real estate
construction and land development
|
165,249
|
|
|
5.0
|
|
|
171,682
|
|
|
5.2
|
|
|
149,484
|
|
|
5.2
|
|
Consumer
|
385,987
|
|
|
11.6
|
|
|
370,275
|
|
|
11.3
|
|
|
355,091
|
|
|
12.5
|
|
Gross loans
receivable
|
3,324,675
|
|
|
99.9
|
|
|
3,278,565
|
|
|
99.9
|
|
|
2,845,712
|
|
|
99.9
|
|
Deferred loan costs,
net
|
3,613
|
|
|
0.1
|
|
|
3,350
|
|
|
0.1
|
|
|
3,359
|
|
|
0.1
|
|
Loans receivable,
net
|
$
|
3,328,288
|
|
|
100.0
|
%
|
|
$
|
3,281,915
|
|
|
100.0
|
%
|
|
$
|
2,849,071
|
|
|
100.0
|
%
|
|
As of Period
End
|
|
June 30,
2018
|
|
March 31,
2018
|
|
December 31,
2017
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
Deposit
Composition
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing
demand deposits
|
$
|
1,157,630
|
|
|
29.2
|
%
|
|
$
|
1,178,202
|
|
|
30.2
|
%
|
|
$
|
944,791
|
|
|
27.8
|
%
|
Interest bearing
demand deposits
|
1,242,622
|
|
|
31.3
|
|
|
1,137,883
|
|
|
29.1
|
|
|
1,051,752
|
|
|
31.1
|
|
Money market
accounts
|
597,673
|
|
|
15.1
|
|
|
654,903
|
|
|
16.8
|
|
|
499,618
|
|
|
14.7
|
|
Savings
accounts
|
510,375
|
|
|
12.8
|
|
|
511,377
|
|
|
13.1
|
|
|
498,501
|
|
|
14.7
|
|
Total non-maturity
deposits
|
3,508,300
|
|
|
88.4
|
|
|
3,482,365
|
|
|
89.2
|
|
|
2,994,662
|
|
|
88.3
|
|
Certificates of
deposit
|
460,635
|
|
|
11.6
|
|
|
422,376
|
|
|
10.8
|
|
|
398,398
|
|
|
11.7
|
|
Total
deposits
|
$
|
3,968,935
|
|
|
100.0
|
%
|
|
$
|
3,904,741
|
|
|
100.0
|
%
|
|
$
|
3,393,060
|
|
|
100.0
|
%
|
|
Three Months
Ended
|
|
June 30,
2018
|
|
March 31,
2018
|
|
June 30,
2017
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
receivable, net (2) (3)
|
$
|
3,266,092
|
|
|
$
|
41,141
|
|
|
5.05
|
%
|
|
$
|
3,150,869
|
|
|
$
|
38,159
|
|
|
4.91
|
%
|
|
$
|
2,657,946
|
|
|
$
|
31,500
|
|
|
4.75
|
%
|
Taxable
securities
|
638,092
|
|
|
4,068
|
|
|
2.56
|
|
|
590,623
|
|
|
3,529
|
|
|
2.42
|
|
|
567,066
|
|
|
3,141
|
|
|
2.22
|
|
Nontaxable securities
(3)
|
201,104
|
|
|
1,220
|
|
|
2.43
|
|
|
223,631
|
|
|
1,341
|
|
|
2.43
|
|
|
224,719
|
|
|
1,304
|
|
|
2.33
|
|
Other interest
earning assets
|
51,022
|
|
|
242
|
|
|
1.90
|
|
|
53,597
|
|
|
218
|
|
|
1.65
|
|
|
39,403
|
|
|
96
|
|
|
0.98
|
|
Total interest earning
assets
|
4,156,310
|
|
|
46,671
|
|
|
4.50
|
%
|
|
4,018,720
|
|
|
43,247
|
|
|
4.36
|
%
|
|
3,489,134
|
|
|
36,041
|
|
|
4.14
|
%
|
Noninterest earning
assets
|
570,409
|
|
|
|
|
|
|
534,865
|
|
|
|
|
|
|
420,658
|
|
|
|
|
|
Total
assets
|
$
|
4,726,719
|
|
|
|
|
|
|
$
|
4,553,585
|
|
|
|
|
|
|
$
|
3,909,792
|
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
|
418,129
|
|
|
$
|
797
|
|
|
0.76
|
%
|
|
$
|
423,569
|
|
|
$
|
760
|
|
|
0.73
|
%
|
|
$
|
363,053
|
|
|
$
|
479
|
|
|
0.53
|
%
|
Savings
accounts
|
512,832
|
|
|
487
|
|
|
0.38
|
|
|
506,158
|
|
|
416
|
|
|
0.33
|
|
|
497,033
|
|
|
316
|
|
|
0.26
|
|
Interest bearing
demand and money market accounts
|
1,796,095
|
|
|
911
|
|
|
0.20
|
|
|
1,745,795
|
|
|
784
|
|
|
0.18
|
|
|
1,484,767
|
|
|
612
|
|
|
0.17
|
|
Total interest bearing
deposits
|
2,727,056
|
|
|
2,195
|
|
|
0.32
|
|
|
2,675,522
|
|
|
1,960
|
|
|
0.30
|
|
|
2,344,853
|
|
|
1,407
|
|
|
0.24
|
|
Junior subordinated
debentures
|
20,108
|
|
|
315
|
|
|
6.28
|
|
|
20,035
|
|
|
283
|
|
|
5.73
|
|
|
19,822
|
|
|
249
|
|
|
5.04
|
|
Securities sold under
agreement to repurchase
|
27,935
|
|
|
16
|
|
|
0.23
|
|
|
30,265
|
|
|
17
|
|
|
0.23
|
|
|
22,852
|
|
|
12
|
|
|
0.21
|
|
Federal Home Loan
Bank advances and other borrowings
|
79,120
|
|
|
402
|
|
|
2.04
|
|
|
35,733
|
|
|
150
|
|
|
1.70
|
|
|
107,132
|
|
|
239
|
|
|
0.89
|
|
Total interest bearing
liabilities
|
2,854,219
|
|
|
2,928
|
|
|
0.41
|
%
|
|
2,761,555
|
|
|
2,410
|
|
|
0.35
|
%
|
|
2,494,659
|
|
|
1,907
|
|
|
0.31
|
%
|
Demand and other
noninterest bearing deposits
|
1,175,331
|
|
|
|
|
|
|
1,113,286
|
|
|
|
|
|
|
873,314
|
|
|
|
|
|
Other noninterest
bearing liabilities
|
60,434
|
|
|
|
|
|
|
63,770
|
|
|
|
|
|
|
44,582
|
|
|
|
|
|
Stockholders'
equity
|
636,735
|
|
|
|
|
|
|
614,974
|
|
|
|
|
|
|
497,237
|
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$
|
4,726,719
|
|
|
|
|
|
|
$
|
4,553,585
|
|
|
|
|
|
|
$
|
3,909,792
|
|
|
|
|
|
Net interest
income
|
|
|
$
|
43,743
|
|
|
|
|
|
|
$
|
40,837
|
|
|
|
|
|
|
$
|
34,134
|
|
|
|
Net interest
spread
|
|
|
|
|
4.09
|
%
|
|
|
|
|
|
4.01
|
%
|
|
|
|
|
|
3.83
|
%
|
Net interest
margin
|
|
|
|
|
4.22
|
%
|
|
|
|
|
|
4.12
|
%
|
|
|
|
|
|
3.92
|
%
|
|
|
(1)
|
Annualized.
|
(2)
|
The average loan
balances presented in the table are net of allowances for loan
losses. Nonaccrual loans have been included in the table as loans
carrying a zero yield.
|
(3)
|
Yields on tax-exempt
securities and loans have not been stated on a tax-equivalent
basis.
|
|
Six Months
Ended
|
|
June 30,
2018
|
|
June 30,
2017
|
|
Average
Balance
|
|
Interest
Earned/
Paid
|
|
Average
Yield/
Rate (1)
|
|
Average
Balance
|
|
Interest
Earned/
Paid
|
|
Average
Yield/
Rate (1)
|
Interest Earning
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
receivable, net (2) (3)
|
$
|
3,208,799
|
|
|
$
|
79,300
|
|
|
4.98
|
%
|
|
$
|
2,644,953
|
|
|
$
|
61,985
|
|
|
4.73
|
%
|
Taxable
securities
|
614,488
|
|
|
7,597
|
|
|
2.49
|
|
|
567,192
|
|
|
6,190
|
|
|
2.20
|
|
Nontaxable securities
(3)
|
212,305
|
|
|
2,561
|
|
|
2.43
|
|
|
223,499
|
|
|
2,572
|
|
|
2.32
|
|
Other interest
earning assets
|
52,302
|
|
|
460
|
|
|
1.77
|
|
|
31,389
|
|
|
143
|
|
|
0.92
|
|
Total interest earning
assets
|
4,087,894
|
|
|
89,918
|
|
|
4.44
|
%
|
|
3,467,033
|
|
|
70,890
|
|
|
4.12
|
%
|
Noninterest earning
assets
|
552,736
|
|
|
|
|
|
|
427,894
|
|
|
|
|
|
Total
assets
|
$
|
4,640,630
|
|
|
|
|
|
|
$
|
3,894,927
|
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
|
420,834
|
|
|
$
|
1,557
|
|
|
0.75
|
%
|
|
$
|
357,209
|
|
|
$
|
894
|
|
|
0.50
|
%
|
Savings
accounts
|
509,514
|
|
|
902
|
|
|
0.36
|
|
|
501,571
|
|
|
581
|
|
|
0.23
|
|
Interest bearing
demand and money market accounts
|
1,771,084
|
|
|
1,696
|
|
|
0.19
|
|
|
1,483,972
|
|
|
1,198
|
|
|
0.16
|
|
Total interest bearing
deposits
|
2,701,432
|
|
|
4,155
|
|
|
0.31
|
|
|
2,342,752
|
|
|
2,673
|
|
|
0.23
|
|
Junior subordinated
debentures
|
20,071
|
|
|
598
|
|
|
6.01
|
|
|
19,786
|
|
|
487
|
|
|
4.96
|
|
Securities sold under
agreement to repurchase
|
29,094
|
|
|
33
|
|
|
0.23
|
|
|
20,946
|
|
|
22
|
|
|
0.21
|
|
Federal Home Loan
Bank advances and other borrowings
|
57,546
|
|
|
552
|
|
|
1.93
|
|
|
104,148
|
|
|
442
|
|
|
0.86
|
|
Total interest bearing
liabilities
|
2,808,143
|
|
|
5,338
|
|
|
0.38
|
%
|
|
2,487,632
|
|
|
3,624
|
|
|
0.29
|
%
|
Demand and other
noninterest bearing deposits
|
1,144,479
|
|
|
|
|
|
|
869,910
|
|
|
|
|
|
Other noninterest
bearing liabilities
|
62,094
|
|
|
|
|
|
|
45,890
|
|
|
|
|
|
Stockholders'
equity
|
625,914
|
|
|
|
|
|
|
491,495
|
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$
|
4,640,630
|
|
|
|
|
|
|
$
|
3,894,927
|
|
|
|
|
|
Net interest
income
|
|
|
$
|
84,580
|
|
|
|
|
|
|
$
|
67,266
|
|
|
|
Net interest
spread
|
|
|
|
|
4.06
|
%
|
|
|
|
|
|
3.83
|
%
|
Net interest
margin
|
|
|
|
|
4.17
|
%
|
|
|
|
|
|
3.91
|
%
|
|
|
(1)
|
Annualized.
|
(2)
|
The average loan
balances presented in the table are net of allowances for loan
losses. Nonaccrual loans have been included in the table as loans
carrying a zero yield.
|
(3)
|
Yields on tax-exempt
securities and loans have not been stated on a tax-equivalent
basis.
|
HERITAGE FINANCIAL
CORPORATION
|
QUARTERLY
FINANCIAL STATISTICS (Unaudited)
|
(In thousands,
except per share amounts)
|
|
|
Three Months
Ended
|
|
June 30,
2018
|
|
March 31,
2018
|
|
December 31,
2017
|
|
September 30,
2017
|
|
June 30,
2017
|
Earnings:
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
$
|
43,743
|
|
|
$
|
40,837
|
|
|
$
|
37,155
|
|
|
$
|
34,942
|
|
|
$
|
34,134
|
|
Provision for loan
losses
|
1,750
|
|
|
1,152
|
|
|
1,338
|
|
|
884
|
|
|
1,131
|
|
Noninterest
income
|
7,573
|
|
|
7,548
|
|
|
9,064
|
|
|
8,443
|
|
|
10,709
|
|
Noninterest
expense
|
35,706
|
|
|
36,747
|
|
|
27,588
|
|
|
27,955
|
|
|
27,809
|
|
Net income
|
11,857
|
|
|
9,087
|
|
|
10,023
|
|
|
10,624
|
|
|
11,828
|
|
Basic earnings per
common share
|
$
|
0.35
|
|
|
$
|
0.27
|
|
|
$
|
0.33
|
|
|
$
|
0.35
|
|
|
$
|
0.40
|
|
Diluted earnings per
common share
|
$
|
0.35
|
|
|
$
|
0.27
|
|
|
$
|
0.33
|
|
|
$
|
0.35
|
|
|
$
|
0.40
|
|
Average
Balances:
|
|
|
|
|
|
|
|
|
|
Total loans
receivable, net
|
$
|
3,266,092
|
|
|
$
|
3,150,869
|
|
|
$
|
2,786,370
|
|
|
$
|
2,737,535
|
|
|
$
|
2,657,946
|
|
Investment
securities
|
839,196
|
|
|
814,254
|
|
|
818,058
|
|
|
791,939
|
|
|
791,785
|
|
Total interest
earning assets
|
4,156,310
|
|
|
4,018,720
|
|
|
3,661,425
|
|
|
3,593,018
|
|
|
3,489,134
|
|
Total
assets
|
4,726,719
|
|
|
4,553,585
|
|
|
4,112,516
|
|
|
4,020,217
|
|
|
3,909,792
|
|
Total interest
bearing deposits
|
2,727,056
|
|
|
2,675,522
|
|
|
2,429,129
|
|
|
2,388,670
|
|
|
2,344,853
|
|
Demand and other
noninterest bearing deposits
|
1,175,331
|
|
|
1,113,286
|
|
|
953,902
|
|
|
916,074
|
|
|
873,314
|
|
Stockholders'
equity
|
636,735
|
|
|
614,974
|
|
|
510,581
|
|
|
505,262
|
|
|
497,237
|
|
Financial
Ratios:
|
|
|
|
|
|
|
|
|
|
Return on average
assets, annualized
|
1.01
|
%
|
|
0.81
|
%
|
|
0.97
|
%
|
|
1.05
|
%
|
|
1.21
|
%
|
Return on average
equity, annualized
|
7.47
|
%
|
|
5.99
|
%
|
|
7.79
|
%
|
|
8.34
|
%
|
|
9.54
|
%
|
Return on average
tangible common equity, annualized
|
10.99
|
%
|
|
8.70
|
%
|
|
10.32
|
%
|
|
11.10
|
%
|
|
12.78
|
%
|
Efficiency
ratio
|
69.58
|
%
|
|
75.95
|
%
|
|
59.69
|
%
|
|
64.43
|
%
|
|
62.01
|
%
|
Noninterest expense
to average total assets, annualized
|
3.03
|
%
|
|
3.27
|
%
|
|
2.66
|
%
|
|
2.76
|
%
|
|
2.85
|
%
|
Net interest
margin
|
4.22
|
%
|
|
4.12
|
%
|
|
4.03
|
%
|
|
3.86
|
%
|
|
3.92
|
%
|
Net interest
spread
|
4.09
|
%
|
|
4.01
|
%
|
|
3.91
|
%
|
|
3.76
|
%
|
|
3.83
|
%
|
|
As of Period End
or for the Three Month Periods Ended
|
|
June 30,
2018
|
|
March 31,
2018
|
|
December 31,
2017
|
|
September 30,
2017
|
|
June 30,
2017
|
Select Balance
Sheet:
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
4,789,488
|
|
|
$
|
4,676,250
|
|
|
$
|
4,113,270
|
|
|
$
|
4,050,056
|
|
|
$
|
3,990,954
|
|
Total loans
receivable, net
|
3,294,316
|
|
|
3,248,654
|
|
|
2,816,985
|
|
|
2,766,113
|
|
|
2,716,756
|
|
Investment
securities
|
873,670
|
|
|
821,567
|
|
|
810,530
|
|
|
800,060
|
|
|
790,594
|
|
Deposits
|
3,968,935
|
|
|
3,904,741
|
|
|
3,393,060
|
|
|
3,320,818
|
|
|
3,291,250
|
|
Noninterest bearing
demand deposits
|
1,157,630
|
|
|
1,178,202
|
|
|
944,791
|
|
|
916,265
|
|
|
919,576
|
|
Stockholders'
equity
|
639,523
|
|
|
634,708
|
|
|
508,305
|
|
|
507,608
|
|
|
500,048
|
|
Financial
Measures:
|
|
|
|
|
|
|
|
|
|
Book value per common
share
|
$
|
18.80
|
|
|
$
|
18.66
|
|
|
$
|
16.98
|
|
|
$
|
16.96
|
|
|
$
|
16.71
|
|
Tangible book value
per common share
|
12.82
|
|
|
12.66
|
|
|
12.80
|
|
|
12.77
|
|
|
12.51
|
|
Stockholders' equity
to assets
|
13.4
|
%
|
|
13.6
|
%
|
|
12.4
|
%
|
|
12.5
|
%
|
|
12.5
|
%
|
Tangible common
equity to tangible assets
|
9.5
|
|
|
9.6
|
|
|
9.6
|
|
|
9.7
|
|
|
9.7
|
|
Loans to deposits
ratio
|
83.9
|
|
|
84.0
|
|
|
84.0
|
|
|
84.2
|
|
|
83.5
|
|
Credit Quality
Metrics:
|
|
|
|
|
|
|
|
|
|
Allowance for loan
losses to:
|
|
|
|
|
|
|
|
|
|
Loans receivable,
net
|
1.02
|
%
|
|
1.01
|
%
|
|
1.13
|
%
|
|
1.12
|
%
|
|
1.19
|
%
|
Nonperforming
loans
|
205.60
|
|
|
211.48
|
|
|
299.79
|
|
|
286.71
|
|
|
298.47
|
|
Nonperforming loans
to loans receivable, net
|
0.50
|
|
|
0.48
|
|
|
0.38
|
|
|
0.39
|
|
|
0.40
|
|
Nonperforming assets
to total assets
|
0.35
|
|
|
0.34
|
|
|
0.26
|
|
|
0.28
|
|
|
0.29
|
|
Net charge-offs on
loans to average loans receivable, net
|
0.13
|
|
|
—
|
|
|
0.09
|
|
|
0.32
|
|
|
—
|
|
Other
Metrics:
|
|
|
|
|
|
|
|
|
|
Number of banking
offices
|
59
|
|
|
60
|
|
|
59
|
|
|
59
|
|
|
59
|
|
Average number of
full-time equivalent employees
|
819
|
|
|
796
|
|
|
736
|
|
|
747
|
|
|
753
|
|
Deposits per
branch
|
$
|
67,270
|
|
|
$
|
65,079
|
|
|
$
|
57,509
|
|
|
$
|
56,285
|
|
|
$
|
55,784
|
|
Average assets per
full-time equivalent employee
|
$
|
5,770
|
|
|
$
|
5,720
|
|
|
$
|
5,587
|
|
|
$
|
5,382
|
|
|
$
|
5,190
|
|
View original
content:http://www.prnewswire.com/news-releases/heritage-financial-announces-second-quarter-2018-results-and-declares-regular-cash-dividend-300686142.html
SOURCE Heritage Financial Corporation