OLYMPIA, Wash., Jan. 24, 2019 /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 $16.6
million for the quarter ended December 31, 2018
compared to $10.0 million for the
quarter ended December 31, 2017 and $15.5 million for the linked-quarter ended
September 30, 2018. Diluted earnings per common share for the
quarter ended December 31, 2018 was $0.45 compared to $0.33 for the quarter ended December 31,
2017 and $0.42 for the linked-quarter
ended September 30, 2018. The impact of one-time and
merger-related expenses was $0.02 per
share for the quarter ended December 31, 2018 compared to
$0.01 per share for the quarter ended
December 31, 2017 and $0.07 per
share for the quarter ended September 30, 2018.
The Company had net income of $53.1
million for the year ended December
31, 2018, or $1.49 per diluted
common share, compared to $41.8
million, or $1.39 per diluted
common share, for the year ended December
31, 2017. The impact of one-time and merger-related expenses
was $0.27 per share for year ended
December 31, 2018 compared to
$0.02 per share for the year ended
December 31, 2017.
Brian L. Vance, Chief Executive
Officer of Heritage, commented, "We are pleased with our overall
growth in 2018. We achieved some important milestones during
the year including surpassing the $5.0
billion mark in total assets with the acquisitions of Puget
Sound Bancorp, Inc. and Premier Commercial Bancorp. It is
significant to note that our year-over-year asset growth was
29.3%.
"As the year was coming to a close we also hired a new team
of bankers in the Portland,
Oregon market in addition to the team we hired in 2017. With
the two acquisitions and the new teams we have hired, we have
significantly increased our presence and market share in the
largest two markets in the Pacific Northwest, which has been an
important initiative of ours in the past few years.
"Even when including $0.27 of one-time and
merger-related expenses in 2018, we were still able to report
diluted earnings per share of $1.49
for the year, a 7.2% improvement over the prior year. We
are pleased to declare a regular
cash dividend of $0.18 per
share which is a 5.9% increase from the $0.17 per common share declared in the fourth
quarter of 2017. Our tangible common equity remains strong at
9.9% which will support our ongoing strategy of organic growth and
growth from future acquisitions."
Jeffrey J. Deuel, President and
Chief Executive Officer of Heritage Bank commented, "We are pleased
with our overall financial performance. In spite of the fact that
we did not see the loan growth we had expected due to historically
high loan prepayments during the second half of the year, our loan
pipeline and new loan originations remain quite strong.
We also saw nice growth in overall deposits as a
result of our long-term focus on growing deposits. Our
82.4% loan to deposit ratio provides us with the flexibility
to successfully manage through the current competitive
rate environment. We have also seen continuing improvement in
our net interest margin due to disciplined loan and deposit pricing
strategies.
"The combination of legacy Heritage, two acquisitions, two
new teams we brought on in the Portland,
Oregon market over the past 20 months, and some selective
hiring in both the front and back office positions
us well for the future."
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.
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.
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.
Pursuant to the terms of the merger agreement, 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.
Acquisition Accounting
The Premier Merger and Puget
Sound Merger (collectively the "Premier and Puget Mergers") were
accounted for using the acquisition method of accounting.
Accordingly, Heritage's cost to acquire Premier Commercial and
Puget Sound were allocated to the assets (including identifiable
intangible assets) and the liabilities at their respective
estimated fair values as of the acquisition dates. 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. The Company recorded an adjustment to the Premier
Commercial fair values of total loans receivable, prepaid expenses
and other assets and accrued expenses and other liabilities during
the quarter end December 31, 2018
with a net impact to goodwill acquired of $102,000.
The following table provides the estimated fair value of the
assets acquired and liabilities assumed at the merger dates for
each merger (in thousands):
|
|
Premier
Merger
|
|
Puget Sound
Merger
|
Effective
Dates
|
|
7/2/2018
|
|
1/16/2018
|
|
|
|
|
|
Total merger
consideration
|
|
$
|
99,275
|
|
|
$
|
130,773
|
|
|
|
|
|
|
Assets
|
|
|
|
|
Cash on hand and in
banks
|
|
$
|
22,534
|
|
|
$
|
25,889
|
|
Interest earning
deposits
|
|
3,309
|
|
|
54,247
|
|
Investment securities
available for sale
|
|
4,493
|
|
|
80,353
|
|
Loans
receivable
|
|
330,158
|
|
|
388,462
|
|
Other real estate
owned
|
|
1,796
|
|
|
—
|
|
Premises and
equipment, net
|
|
3,053
|
|
|
732
|
|
Federal Home Loan
Bank stock, at cost
|
|
1,120
|
|
|
623
|
|
Bank owned life
insurance
|
|
10,852
|
|
|
6,264
|
|
Accrued interest
receivable
|
|
1,006
|
|
|
1,448
|
|
Prepaid expenses and
other assets
|
|
1,603
|
|
|
1,354
|
|
Other intangible
assets
|
|
7,075
|
|
|
11,270
|
|
Total
assets
|
|
$
|
386,999
|
|
|
$
|
570,642
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
Deposits
|
|
$
|
318,717
|
|
|
$
|
505,885
|
|
Federal Home Loan
Bank advances
|
|
16,000
|
|
|
—
|
|
Securities sold under
agreement to repurchase
|
|
462
|
|
|
—
|
|
Accrued expenses and
other liabilities
|
|
5,935
|
|
|
2,504
|
|
Total
liabilities
|
|
$
|
341,114
|
|
|
$
|
508,389
|
|
|
|
|
|
|
Fair value of net
assets acquired
|
|
$
|
45,885
|
|
|
$
|
62,253
|
|
Goodwill
acquired
|
|
53,390
|
|
|
68,520
|
|
Balance Sheet
The Company's total assets increased
$41.6 million, or 0.8%, to
$5.32 billion at December 31,
2018 from $5.28 billion at
September 30, 2018 and increased $1.20
billion, or 29.3%, from $4.11
billion at December 31, 2017.
Investment securities increased $55.4
million, or 6.0%, to $976.1
million at December 31, 2018 from $920.7 million at September 30, 2018
primarily as a result of deposit growth and earnings. Investment
purchases of $78.8 million were
partially offset by maturities, calls and payments of investment
securities of $27.9 million and a
decrease in unrealized losses of $9.1
million due to a decrease in interest rates during the
fourth quarter that positively impacted the fair value of our bond
portfolio. Investment securities at December 31, 2018
increased $165.6 million, or 20.43%,
from $810.5 million at
December 31, 2017.
Total loans receivable, net increased $4.5 million, or 0.1%, to $3.62 billion at December 31, 2018 from
$3.61 billion at September 30,
2018. Total loans receivable, net, continued to be impacted by
elevated prepayments during the fourth quarter. Total loans
receivable, net increased $802.1 million, or 28.47%,
from $2.82 billion at December 31, 2017
primarily as a result of loans acquired in the Premier and Puget
Mergers totaling $718.6 million. The
year-over-year loan growth included increases in non-owner occupied
commercial real estate loans of $317.9
million, commercial and industrial loans of $208.2 million, and owner-occupied commercial
real estate loans of $157.7 million.
Prepaid expenses and other assets decreased $9.3 million, or 8.5%, to $99.4 million at December 31, 2018 from
$108.7 million at September 30,
2018 primarily as a result of a decrease in the outstanding
interest rate swap balance with our customers of $2.6 million and a decrease in tax related
accounts of $3.5 million.
Total deposits increased $34.3
million, or 0.8%, to $4.43
billion at December 31, 2018 from $4.40 billion at September 30, 2018. The
quarter-over-quarter increase was due primarily to increases in
noninterest bearing demand deposits of $50.4
million and interest bearing demand deposits of $23.4 million partially offset by a decrease in
certificates of deposit of $36.7
million. The decrease in certificates of deposit was due
primarily to a decrease in brokered certificates of deposit of
$30.0 million.
Total deposits increased $1.04
billion, or 30.6%, from $3.39
billion at December 31, 2017. The year-over-year growth
was primarily a result of deposits acquired in the Premier and
Puget Mergers totaling $824.6
million. Non-maturity deposits as a percentage of total
deposits increased to 89.5% as of December 31, 2018 from 88.5%
as of September 30, 2018 and 88.3% as of December 31,
2017.
The increase in deposits for the year ended December 31, 2018, excluding the deposits
acquired in the Premier and Puget Mergers, was primarily due to
increases in interest bearing demand deposits of $188.6 million, or 5.6%, and noninterest bearing
demand deposit accounts of $84.7
million, or 2.5%, offset partially by decreases in money
market accounts of $55.8 million, or
1.6%, and certificates of deposit accounts of $19.2 million, or 0.6%.
The acquired deposits had the following composition at the
merger dates (in thousands):
|
Acquired
Balances
|
|
% of
Total
|
Premier and Puget
Mergers - Deposit Composition
|
|
|
|
Noninterest bearing
demand deposits
|
$
|
332,744
|
|
|
40.4
|
%
|
Interest bearing
demand deposits
|
77,198
|
|
|
9.4
|
|
Money market
accounts
|
321,529
|
|
|
38.9
|
|
Savings
accounts
|
5,452
|
|
|
0.7
|
|
Total non-maturity
deposits
|
736,923
|
|
|
89.4
|
|
Certificates of
deposit
|
87,679
|
|
|
10.6
|
|
Total deposits
acquired
|
$
|
824,602
|
|
|
100.0
|
%
|
The Company had no Federal Home Loan Bank advances at both
December 31, 2018 and September 30, 2018 and $92.5 million outstanding at December 31,
2017. The Company was able to pay down the advances, including the
$16.0 million acquired in the Premier
Merger, during the year ended December 31,
2018 due to the deposit growth and earnings during the
year.
Total stockholders' equity increased $14.6 million, or 2.0%, to $760.7 million at December 31, 2018 from
$746.1 million at September 30,
2018. Total stockholders' equity increased $252.4 million, or 49.7%, from $508.3 million at December 31, 2017. Changes
in stockholders' equity during the quarter and year ended
December 31, 2018 were as follows (in thousands):
|
Three Months
Ended
|
|
Year
Ended
|
|
December 31,
2018
|
Balance, beginning of
period
|
$
|
746,133
|
|
|
$
|
508,305
|
|
Common
stock issued in the Premier and Puget Mergers
|
—
|
|
|
230,043
|
|
Net
income
|
16,609
|
|
|
53,057
|
|
Dividends paid
|
(9,995)
|
|
|
(25,791)
|
|
Accumulated other comprehensive loss
|
7,236
|
|
|
(6,064)
|
|
Other
|
740
|
|
|
1,173
|
|
Balance, end of
period
|
$
|
760,723
|
|
|
$
|
760,723
|
|
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 11.6%, 10.5%, 12.1% and 12.9%,
respectively, at December 31, 2018, compared to 11.4%, 10.4%,
11.8% and 12.6%, respectively, at September 30, 2018 and
11.3%, 10.2%, 11.8% and 12.8%, respectively, at December 31,
2017.
Credit Quality
The allowance for loan losses increased
$567,000, or 1.6%, to $35.0 million at December 31, 2018 from
$34.5 million at September 30,
2018. The increase was due to provision for loan losses of
$1.2 million recorded during the
quarter ended December 31, 2018, offset partially by net
charge-offs of $595,000 recognized
during the same period. The allowance for loan
losses increased $3.0 million, or 9.2%,
from $32.1 million at December 31,
2017 due to a provision for loan losses of $5.1
million, partially offset by net charge-offs of $2.2
million recognized during the year
ended December 31, 2018.
Nonperforming loans to loans receivable, net, decreased to 0.37%
at December 31, 2018 from 0.41% at September 30, 2018 due
primarily to a decrease in nonaccrual loans of $1.1 million, or 7.3%, to $13.7 million at December 31, 2018 from
$14.8 million at September 30,
2018. Nonperforming loans to loans receivable, net, decreased from
0.38% at December 31, 2017 due primarily to a proportionally
higher increase in loans receivable, net of $805.1 million, or 28.3%, compared to an
increase in nonaccrual loans of $3.0
million, or 28.0%, from $10.7
million at December 31, 2017.
Changes in nonaccrual loans during the quarter and year ended
December 31, 2018 were as follows (in thousands):
|
Three Months
Ended
|
|
Year
Ended
|
|
December 31,
2018
|
Nonaccrual
loans
|
|
|
|
Balance, beginning of
period
|
$
|
14,780
|
|
|
$
|
10,703
|
|
Addition
of previously classified pass graded loans
|
96
|
|
|
5,469
|
|
Addition
of previously classified potential problem loans
|
983
|
|
|
5,319
|
|
Addition
of previously classified TDR loans
|
786
|
|
|
786
|
|
Acquired
in Premier Merger
|
—
|
|
|
130
|
|
Charge-offs
|
(303)
|
|
|
(1,027)
|
|
Net
principal payments
|
(2,639)
|
|
|
(7,677)
|
|
Balance, end of
period
|
$
|
13,703
|
|
|
$
|
13,703
|
|
The allowance for loan losses to nonperforming loans was 255.73%
at December 31, 2018 compared to 233.25% at the linked-quarter
ended September 30, 2018 and 299.79% at December 31,
2017. Nonperforming assets decreased to 0.29% of total assets at
December 31, 2018 compared to 0.32% of total assets at
September 30, 2018 due primarily to the decrease in nonaccrual
loans discussed above. Nonperforming assets increased to 0.29% of
total assets compared to 0.26% of total assets at December 31,
2017 based on the increase in nonaccrual loans discussed above and
the increase in other real estate owned during the year ended
December 31, 2018 primarily as a result of the Premier
Merger.
Potential problem loans decreased $4.4
million, or 4.2%, to $101.3
million at December 31, 2018 compared to $105.7 million at September 30, 2018.
Potential problem loans increased $17.8
million, or 21.3%, from $83.5
million at December 31, 2017 due primarily to potential
problems loans acquired in the Premier and Puget Mergers. Changes
in potential problem loans during the quarter and year ended
December 31, 2018 were as follows (in thousands):
|
Three Months
Ended
|
|
Year
Ended
|
|
December 31,
2018
|
Potential problem
loans
|
|
|
|
Balance, beginning of
period
|
$
|
105,742
|
|
|
$
|
83,543
|
|
Addition
of previously classified pass graded loans
|
14,562
|
|
|
63,477
|
|
Acquired
in Premier and Puget Mergers
|
—
|
|
|
14,630
|
|
Upgrades
to pass graded loan status
|
(1,473)
|
|
|
(16,746)
|
|
Transfers of loans to nonaccrual and TDR status
|
(9,727)
|
|
|
(14,970)
|
|
Charge-offs
|
(101)
|
|
|
(401)
|
|
Net
principal payments
|
(7,654)
|
|
|
(28,184)
|
|
Balance, end of
period
|
$
|
101,349
|
|
|
$
|
101,349
|
|
The allowance for loan losses to loans receivable, net,
increased to 0.96% at December 31, 2018 from 0.94% at
September 30, 2018. The allowance for loan losses to loans
receivable, net decreased from 1.13% at December 31, 2017
primarily as a result of the Premier and Puget Mergers. 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 $11.8
million at December 31, 2018 compared to $13.4 million at September 30, 2018 and
$10.1 million at December 31,
2017. 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
December 31, 2018.
Net charge-offs were $595,000 for
the quarter ended December 31, 2018 compared to net
charge-offs of $652,000 for the same
quarter in 2017 and $562,000 for the
linked-quarter ended September 30, 2018. The majority of the
charge-offs recorded during the quarter ended December 31,
2018 relate to smaller charge-off balances on a large volume of
consumer loans. Net charge-offs were $2.2
million for the year ended December 31, 2018 compared
to net charge-offs of $3.2 million
during the year ended December 31, 2017 due primarily to the
closure of a purchased credit impaired ("PCI") pool of commercial
real estate loans during the quarter ended September 30, 2017 of $1.5
million, representing past residual losses estimated and
provided for in the pool's allocated allowance for loan loss. As
the last loan in the PCI pool was resolved during the quarter
ended September 30, 2017, the Company recognized these
past losses as a charge-off to the allowance for loan losses.
Operating Results
Net interest income increased
$174,000, or 0.3%, to $51.3 million for the quarter ended
December 31, 2018 from $51.1
million for the linked-quarter ended September 30, 2018
primarily due to an increase in yield and average balance of
taxable securities, offset partially by a decrease in loan yield
primarily a result of lower incremental accretion on purchased
loans.
Net interest income increased $14.1
million, or 38.0%, to $51.3
million for the quarter ended December 31, 2018
compared to $37.2 million for the
same period in 2017. Net interest income increased $47.6
million, or 34.1%, to $186.9 million for
the year ended December 31,
2018 compared to $139.4 million for the year ended
December 31, 2017. The increases
in net interest income compared to the prior year periods were
primarily due to increases in average interest earning assets,
which increased substantially as a result of the Premier and Puget
Mergers. In addition, the yield on total interest earning assets
increased 40 basis points to 4.68% for the quarter ended
December 31, 2018 compared to 4.28% for the comparable period
in 2017. Yield on total interest earning assets increased 41 basis
points to 4.57% for the year ended December
31, 2018 compared to 4.16% for the year ended December 31, 2017. Yields on total interest
earning assets increased primarily due to increasing market
interest rates over the last year.
The increases in net interest income for all periods were offset
partially by increases in the cost of total interest bearing
liabilities primarily as a result of rising interest rates. The
cost of total interest bearing liabilities increased eight basis
points to 0.45% during the quarter ended December 31, 2018
compared to 0.37% for the quarter ended December 31, 2017 and
increased one basis point from 0.44% for the linked-quarter ended
September 30, 2018. The cost of total interest bearing
liabilities increased nine basis points to 0.42% for the year ended
December 31, 2018 compared to 0.33%
for the same period in 2017.
Net interest margin decreased four basis points to 4.37% for the
quarter ended December 31, 2018 from 4.41% for the
linked-quarter ended September 30, 2018 due to lower
incremental accretion on purchased loans. Net interest margin
increased 34 basis points to 4.37% for the quarter ended
December 31, 2018 from 4.03% for the same period in 2017 and
increased 36 basis points for the year ended December 31, 2018 to 4.29% from 3.93% for 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 51 basis points to 5.06% for the quarter ended
December 31, 2018 compared to 4.55% for the quarter ended
December 31, 2017 and increased five basis points from 5.01%
for the linked-quarter ended September 30, 2018. Loan yield,
excluding incremental accretion on purchased loans, increased 36
basis points to 4.91% for the year ended December 31, 2018 compared to 4.55% for same
period in 2017. The increases in loan yields, excluding incremental
accretion of purchased loans, from all 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 Premier and Puget Mergers as
compared to legacy Heritage loans.
The impact on loan yield from incremental accretion on purchased
loans decreased 10 basis points to 0.19% for the quarter ended
December 31, 2018 from 0.29% for the linked-quarter ended
September 30, 2018 primarily as a result of loans acquired in
the Premier Merger. It is expected that incremental accretion on
portfolios with heavy short-term or revolving loans will experience
higher accretion in the first three to six months after merger
date.
The impact on loan yield from incremental accretion on purchased
loans decreased 19 basis points for the quarter ended
December 31, 2018 compared to 0.38% for the quarter ended
December 31, 2017 due to an usually high prepayment during the
quarter ended December 31, 2017. The
impact on loan yield from incremental accretion on purchased loans
was 0.23% for both the years ended December 31, 2018 and 2017.
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
|
|
Year
Ended
|
|
December
31, 2018
|
|
September
30, 2018
|
|
December
31, 2017
|
|
December
31, 2018
|
|
December
31, 2017
|
|
(Dollars in
thousands)
|
Yield non-GAAP
reconciliation: (2)
|
Net interest margin
(GAAP)
|
4.37
|
%
|
|
4.41
|
%
|
|
4.03
|
%
|
|
4.29
|
%
|
|
3.93
|
%
|
Exclude impact on net
interest margin from incremental accretion on purchased
loans(1)
|
0.15
|
%
|
|
0.23
|
%
|
|
0.29
|
%
|
|
0.18
|
%
|
|
0.18
|
%
|
Net interest margin,
excluding incremental accretion on purchased loans
(non-GAAP)(1)
|
4.22
|
%
|
|
4.18
|
%
|
|
3.74
|
%
|
|
4.11
|
%
|
|
3.75
|
%
|
|
|
|
|
|
|
|
|
|
|
Loan yield
(GAAP)
|
5.25
|
%
|
|
5.30
|
%
|
|
4.93
|
%
|
|
5.14
|
%
|
|
4.78
|
%
|
Exclude impact on loan
yield from incremental accretion on purchased
loans(1)
|
0.19
|
%
|
|
0.29
|
%
|
|
0.38
|
%
|
|
0.23
|
%
|
|
0.23
|
%
|
Loan yield, excluding
incremental accretion on purchased loans
(non-GAAP)(1)
|
5.06
|
%
|
|
5.01
|
%
|
|
4.55
|
%
|
|
4.91
|
%
|
|
4.55
|
%
|
|
|
|
|
|
|
|
|
|
|
Incremental accretion
on purchased loans(1)
|
$
|
1,703
|
|
|
$
|
2,637
|
|
|
$
|
2,634
|
|
|
$
|
7,964
|
|
|
$
|
6,320
|
|
|
|
|
|
(1)
|
As of the date of
completion of each merger and acquisition transaction, 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.
|
|
(2)
|
See Non-GAAP
Financial Measures section herein.
|
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 41 basis points to
2.70% for the quarter ended December 31, 2018 compared to
2.29% for the quarter ended December 31, 2017 and increased 12
basis points from 2.58% for the linked-quarter ended
September 30, 2018. The yields on the aggregate investment
portfolio increased 31 basis points to 2.56% for the year ended
December 31, 2018 compared to 2.25%
for the year ended December 31, 2017.
The increases compared to the prior periods primarily reflect the
effect of the rise in interest rates on our adjustable rate
investment securities as well as higher rates on new purchases of
investments.
The total cost of deposits increased nine basis points to 0.29%
during the quarter ended December 31, 2018 compared to 0.20%
during the same quarter in 2017 and increased two basis points from
0.27% during the linked-quarter ended September 30, 2018. The
total cost of deposits increased seven basis points to 0.25% during
the year ended December 31, 2018
compared to 0.18% during the same period in 2017. Increases in the
cost of interest-bearing deposits reflecting higher market rates
were offset partially by increases in the noninterest bearing
deposit average balances.
Interest expense from other borrowings for the quarter ended
December 31, 2018 of $3,000
reflects only the testing of borrowing capacity facilities compared
to an expense of $357,000 for the
quarter ended December 31, 2017 and
$117,000 for the linked-quarter ended
September 30, 2018. The Company paid
off all the outstanding FHLB advances as of September 30, 2018.
Donald J. Hinson, Executive Vice
President and Chief Financial Officer, commented, "Due to a decline
in incremental accretion on purchase loans, net interest margin
declined from the prior quarter. However, we are pleased with the
continued improvement in our pre-accretion net interest margin.
This has been accomplished primarily through increases in
pre-accretion loan yield while experiencing only marginal increases
in costs of total deposits. The weighted average note rate on new
loans originated during quarter ended December 31, 2018 increased to 5.66% from 5.49%
for the quarter ended September 30,
2018 and from 4.58% for the prior year quarter ended
December 31, 2017. This, along with
the impact of short-term rate increases on adjustable rate loans,
has resulted in an increase of in pre-accretion loan yield of five
basis points from the prior quarter and of 51 basis points from the
fourth quarter of 2017.
"The ability to keep our costs of total deposits at lower levels
has been partially due to our focus on growing our noninterest
bearing demand deposits. Through both organic growth and
acquisitions, noninterest bearing demand deposits increased to
30.7% of total deposits at December 31,
2018 from 27.8% at December 31,
2017. This increase demonstrates our success in growing full
customer relationships which favorably impacts our net interest
margin."
The provision for loan losses decreased $176,000, or 13.2%, to $1.2 million for the quarter ended
December 31, 2018 compared to $1.3
million for the quarter ended December 31, 2017 and
increased $97,000, or 9.1%, from the
linked-quarter ended September 30, 2018. The provision for
loan losses increased $909,000, or
21.5%, to $5.1 million for the year
ended December 31, 2018 compared to
$4.2 million for the year ended
December 31, 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 December 31, 2018 based on the use of a
consistent methodology. The increase in the provision for loan
losses compared to the 2017 periods was primarily as a result of
increases in total loan balances.
Noninterest income decreased $600,000, or 6.6%, to $8.5
million for the quarter ended December 31, 2018
compared to $9.1 million for the
quarter ended December 31, 2017 and decreased $3.9 million, or 11.0%, to $31.7 million for the year ended December 31, 2018 compared to $35.6 million for the same period in 2017. These
decreases were due primarily to lower gain on sale of loans, net,
due to lower originations of loans held for sale. In addition, for
the year ended December 31, 2018, the
decrease in gain on sale of loans reflects a $3.0 million gain on the sale of a previously
classified purchased credit impaired loan during the quarter ended
June 30, 2017. These decreases in
noninterest income were 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 income increased
$384,000, or 4.8%, compared to
linked-quarter ended September 30, 2018 primarily due to
interest rate swap fees of $204,000
compared to none in the linked-quarter.
Noninterest expense increased $9.8
million, or 35.4%, to $37.3
million for the quarter ended December 31, 2018
compared to $27.6 million for the
same period in 2017. Noninterest expense increased $38.8 million, or 35.1%, to $149.4 million for the year ended December 31, 2018 compared to $110.6 million for the same period in 2017. The
increases were primarily due to expenses from the Premier and Puget
Mergers, including increases related to compensation and employee
benefits due to additional employees, occupancy and equipment
expense primarily due to additional rent expense, and additional
data processing expense due to an increase in transactional
accounts and balances. Noninterest expense also increased during
the year ended December 31, 2018
compared to 2017 due to increases of $4.9
million in professional services and $2.5 million in amortization of intangible
assets. Professional services increased during the year ended
December 31, 2018 primarily due to
acquisition-related expenses and the buy-out of a third party
contract in the amount $1.7 million
during the quarter ended June 30,
2018. The third party assisted the Company in its 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 Premier
and Puget Mergers. 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. Amortization of intangible assets
increased during the year ended December 31,
2018 due to additional amortization relating to the Premier
and Puget Mergers.
Noninterest expense decreased $2.3
million, or 5.7%, from $39.6
million for the linked-quarter ended September 30, 2018
primarily due to lower non-recurring acquisition related expenses
recorded in compensation and employee benefits expense of
$1.3 million and professional
services expenses of $1.1 million,
offset partially by higher other expenses of $341,000.
Acquisition-related expenses incurred as a result of the Premier
and Puget Mergers were approximately $1.3
million during the quarter ended December 31, 2018
compared to $423,000 during the
quarter ended December 31, 2017 and
$3.4 million during the
linked-quarter ended September 30, 2018. Acquisition-related
expenses incurred during the year ended December 31, 2018 and 2017 totaled $10.4 million and $810,000, respectively. 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 2.78% for the quarter ended December 31, 2018 compared to
2.66% for the same period in 2017 and was 3.00% for year ended
December 31, 2018 compared to 2.78%
for 2017. These increases were due primarily to acquisition-related
expenses and increases in amortization of intangible assets. The
ratio of noninterest expense to average assets (annualized)
decreased from 2.98% for the linked-quarter ended
September 30, 2018 primarily based on the decrease in
noninterest expense, discussed above.
Income tax expense was $4.6
million for the quarter ended December 31, 2018
compared to $7.3 million for the
quarter ended December 31, 2017 and $3.0 million for the linked-quarter ended
September 30, 2018. The effective tax rate was 21.8% for the
quarter ended December 31, 2018 compared to 42.0% for the
comparable quarter in 2017 and 16.3% for the linked-quarter ended
September 30, 2018. Income tax expense was $11.0 million for the year ended December 31, 2018 compared to $18.4 million for the year ended December 31, 2017. The effective tax rate was
17.2% for the year ended December 31,
2018 compared to 30.5% for the year ended December 31, 2017. The decrease in the 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%. The increase in the effective tax rate
for the quarter ended December 31,
2018 from the prior quarter ended September 30, 2018 was primarily due to a change
in the estimated current tax benefits from certain low income
housing tax credit projects in the amount of $898,000. Although long-term tax benefits from
the projects is still expected to occur, the timing of some of the
benefits was extended to future periods.
Dividends
On January 23, 2019, the Company's
Board of Directors declared a quarterly cash dividend of
$0.18 per common share. The dividend
is payable on February 21, 2019 to shareholders of record as
of the close of business on February 7, 2019.
Earnings Conference Call
The Company will hold a
telephone conference call to discuss this earnings release on
January 24, 2019 at 11:00 a.m. Pacific
time. To access the call, please dial (800) 230-1059 a few
minutes prior to 11:00 a.m. Pacific
time. The call will be available for replay through
February 7, 2019, by dialing (800)
475-6701 -- access code 461313.
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 64 banking offices in Washington and Oregon. Heritage Bank does business under the
Whidbey Island Bank name on Whidbey Island. Heritage's stock is
traded on the NASDAQ Global Select Market under the symbol "HFWA".
More information about Heritage Financial Corporation can be found
on its website at www.hf-wa.com and more information about Heritage
Bank can be found on its website at www.heritagebanknw.com.
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. 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. 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 total stockholders' equity or operating results
determined 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.
|
December 31,
2018
|
|
September 30,
2018
|
|
June
30,
2018
|
|
March
31,
2018
|
|
December 31,
2017
|
|
(dollar in thousands,
except per share amounts)
|
Tangible common
shareholders' equity and tangible assets:
|
Stockholders' equity
(GAAP)
|
$
|
760,723
|
|
|
$
|
746,133
|
|
|
$
|
639,523
|
|
|
$
|
634,708
|
|
|
$
|
508,305
|
|
Exclude goodwill and
other intangible assets
|
261,553
|
|
|
262,565
|
|
|
203,316
|
|
|
204,112
|
|
|
125,117
|
|
Tangible common
stockholders' equity (non-GAAP)
|
$
|
499,170
|
|
|
$
|
483,568
|
|
|
$
|
436,207
|
|
|
$
|
430,596
|
|
|
$
|
383,188
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
(GAAP)
|
$
|
5,317,852
|
|
|
$
|
5,276,214
|
|
|
$
|
4,789,488
|
|
|
$
|
4,676,250
|
|
|
$
|
4,113,270
|
|
Exclude goodwill and
other intangible assets
|
261,553
|
|
|
262,565
|
|
|
203,316
|
|
|
204,112
|
|
|
125,117
|
|
Tangible assets
(non-GAAP)
|
$
|
5,056,299
|
|
|
$
|
5,013,649
|
|
|
$
|
4,586,172
|
|
|
$
|
4,472,138
|
|
|
$
|
3,988,153
|
|
|
|
|
|
|
|
|
|
|
|
Common equity to
assets (GAAP)
|
14.3
|
%
|
|
14.1
|
%
|
|
13.4
|
%
|
|
13.6
|
%
|
|
12.4
|
%
|
Tangible common
equity to tangible assets (non-GAAP)
|
9.9
|
%
|
|
9.6
|
%
|
|
9.5
|
%
|
|
9.6
|
%
|
|
9.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Common stock shares
outstanding
|
36,874,055
|
|
|
36,873,123
|
|
|
34,021,094
|
|
|
34,018,280
|
|
|
29,927,746
|
|
Book value per common
share (GAAP)
|
$
|
20.63
|
|
|
$
|
20.24
|
|
|
$
|
18.80
|
|
|
$
|
18.66
|
|
|
$
|
16.98
|
|
Tangible book value
per common share (non-GAAP)
|
$
|
13.54
|
|
|
$
|
13.11
|
|
|
$
|
12.82
|
|
|
$
|
12.66
|
|
|
$
|
12.80
|
|
|
Three Months
Ended
|
|
Year
Ended
|
|
December
31, 2018
|
|
September
30, 2018
|
|
December
31, 2017
|
|
December
31, 2018
|
|
December
31, 2017
|
|
(dollar in thousands,
except per share amounts)
|
Adjusted return on
average tangible common stockholders' equity:
|
Net income
(GAAP)
|
$
|
16,609
|
|
|
$
|
15,504
|
|
|
$
|
10,023
|
|
|
$
|
53,057
|
|
|
$
|
41,791
|
|
Exclude merger-related
expenses
|
1,301
|
|
|
3,402
|
|
|
423
|
|
|
10,391
|
|
|
810
|
|
Exclude consultant
agreement buyout
|
—
|
|
|
—
|
|
|
—
|
|
|
1,693
|
|
|
—
|
|
Exclude amortization
of intangible assets
|
1,114
|
|
|
1,114
|
|
|
320
|
|
|
3,819
|
|
|
1,286
|
|
Exclude tax effect of
adjustments
|
(507)
|
|
|
(948)
|
|
|
(260)
|
|
|
(3,340)
|
|
|
(734)
|
|
Adjusted tangible net
income (non-GAAP)
|
$
|
18,517
|
|
|
$
|
19,072
|
|
|
$
|
10,506
|
|
|
$
|
65,620
|
|
|
$
|
43,153
|
|
|
|
|
|
|
|
|
|
|
|
Average stockholders'
equity (GAAP)
|
$
|
750,165
|
|
|
$
|
744,389
|
|
|
$
|
510,581
|
|
|
$
|
687,094
|
|
|
$
|
499,776
|
|
Exclude average
intangible assets
|
262,177
|
|
|
262,644
|
|
|
125,303
|
|
|
230,282
|
|
|
125,774
|
|
Average tangible
common stockholders' equity (non-GAAP)
|
$
|
487,988
|
|
|
$
|
481,745
|
|
|
$
|
385,278
|
|
|
$
|
456,812
|
|
|
$
|
374,002
|
|
|
|
|
|
|
|
|
|
|
|
Return on average
common equity, annualized (GAAP)
|
8.78
|
%
|
|
8.26
|
%
|
|
7.79
|
%
|
|
7.72
|
%
|
|
8.36
|
%
|
Return on average
tangible common equity, annualized (non-GAAP)
|
13.50
|
%
|
|
12.77
|
%
|
|
10.32
|
%
|
|
11.61
|
%
|
|
11.17
|
%
|
Adjusted return on
average tangible common equity, annualized (non-GAAP)
|
15.05
|
%
|
|
15.71
|
%
|
|
10.82
|
%
|
|
14.36
|
%
|
|
11.54
|
%
|
|
Three Months
Ended
|
|
Year
Ended
|
|
December
31, 2018
|
|
September
30, 2018
|
|
December
31, 2017
|
|
December
31, 2018
|
|
December
31, 2017
|
|
(dollar in thousands,
except per share amounts)
|
Earnings from core
operations:
|
Net income
(GAAP)
|
$
|
16,609
|
|
|
$
|
15,504
|
|
|
$
|
10,023
|
|
|
$
|
53,057
|
|
|
$
|
41,791
|
|
Exclude merger-related
expense
|
1,301
|
|
|
3,402
|
|
|
423
|
|
|
10,391
|
|
|
810
|
|
Exclude consultant
agreement buyout
|
—
|
|
|
—
|
|
|
—
|
|
|
1,693
|
|
|
—
|
|
Exclude tax effect of
adjustments
|
(273)
|
|
|
(714)
|
|
|
(148)
|
|
|
(2,538)
|
|
|
(284)
|
|
Adjusted net income
(non-GAAP)
|
$
|
17,637
|
|
|
$
|
18,192
|
|
|
$
|
10,298
|
|
|
$
|
62,603
|
|
|
$
|
42,317
|
|
Exclude dividends and
undistributed earnings allocated to participating
securities
|
(69)
|
|
|
(48)
|
|
|
(70)
|
|
|
(321)
|
|
|
(293)
|
|
Adjusted net income
allocated to common shareholders (non-GAAP)
|
$
|
17,568
|
|
|
$
|
18,144
|
|
|
$
|
10,228
|
|
|
$
|
62,282
|
|
|
$
|
42,024
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted
average common shares
|
36,998,880
|
|
|
36,963,244
|
|
|
29,894,494
|
|
|
35,371,590
|
|
|
29,849,331
|
|
Diluted earnings per
share (GAAP)
|
$
|
0.45
|
|
|
$
|
0.42
|
|
|
$
|
0.33
|
|
|
$
|
1.49
|
|
|
$
|
1.39
|
|
Adjusted diluted
earnings per share (non-GAAP)
|
$
|
0.47
|
|
|
$
|
0.49
|
|
|
$
|
0.34
|
|
|
$
|
1.76
|
|
|
$
|
1.41
|
|
|
|
|
|
|
|
|
|
|
|
Average
assets
|
$
|
5,325,376
|
|
|
$
|
5,278,565
|
|
|
$
|
4,112,516
|
|
|
$
|
4,974,018
|
|
|
$
|
3,981,352
|
|
|
|
|
|
|
|
|
|
|
|
Return on average
assets, annualized (GAAP)
|
1.24
|
%
|
|
1.17
|
%
|
|
0.97
|
%
|
|
1.07
|
%
|
|
1.05
|
%
|
Adjusted return on
average assets, annualized (non-GAAP)
|
1.38
|
%
|
|
1.43
|
%
|
|
1.01
|
%
|
|
1.32
|
%
|
|
1.08
|
%
|
|
Three Months
Ended
|
|
Year
Ended
|
|
December
31, 2018
|
|
September
30, 2018
|
|
December
31, 2017
|
|
December
31, 2018
|
|
December
31, 2017
|
|
(dollar in thousands,
except per share amounts)
|
Adjusted
noninterest expense:
|
Noninterest expense
(GAAP)
|
$
|
37,345
|
|
|
$
|
39,597
|
|
|
$
|
27,588
|
|
|
$
|
149,395
|
|
|
$
|
110,575
|
|
Exclude merger-related
expense
|
1,301
|
|
|
3,402
|
|
|
423
|
|
|
10,391
|
|
|
810
|
|
Exclude amortization
of intangible assets
|
1,114
|
|
|
1,114
|
|
|
320
|
|
|
3,819
|
|
|
1,286
|
|
Exclude consultant
agreement buyout
|
—
|
|
|
—
|
|
|
—
|
|
|
1,693
|
|
|
—
|
|
Adjusted noninterest
expense (non-GAAP)
|
$
|
34,930
|
|
|
$
|
35,081
|
|
|
$
|
26,845
|
|
|
$
|
133,492
|
|
|
$
|
108,479
|
|
|
|
|
|
|
|
|
|
|
|
Average
Assets
|
$
|
5,325,376
|
|
|
$
|
5,278,565
|
|
|
$
|
4,112,516
|
|
|
$
|
4,974,018
|
|
|
$
|
3,981,352
|
|
Noninterest expense
to average assets, annualized (GAAP)
|
2.78
|
%
|
|
2.98
|
%
|
|
2.66
|
%
|
|
3.00
|
%
|
|
2.78
|
%
|
Adjusted noninterest
expense to average assets, annualized (non-GAAP)
|
2.60
|
%
|
|
2.64
|
%
|
|
2.59
|
%
|
|
2.68
|
%
|
|
2.72
|
%
|
|
Three Months
Ended
|
|
Year
Ended
|
|
December 31,
2018
|
|
September 30,
2018
|
|
December 31,
2017
|
|
December 31,
2018
|
|
December 31,
2017
|
|
(Dollars in
thousands)
|
Net interest
income and interest and fees on loans:
|
Net interest income
(GAAP)
|
$
|
51,270
|
|
|
$
|
51,096
|
|
|
$
|
37,155
|
|
|
$
|
186,946
|
|
|
$
|
139,363
|
|
Exclude incremental
accretion on purchased loans
|
1,703
|
|
|
2,637
|
|
|
2,634
|
|
|
7,964
|
|
|
6,320
|
|
Adjusted net interest
income (non-GAAP)
|
$
|
49,567
|
|
|
$
|
48,459
|
|
|
$
|
34,521
|
|
|
$
|
178,982
|
|
|
$
|
133,043
|
|
|
|
|
|
|
|
|
|
|
|
Average total
interest earning assets, net
|
$
|
4,653,215
|
|
|
$
|
4,596,734
|
|
|
$
|
3,661,425
|
|
|
$
|
4,358,643
|
|
|
$
|
3,547,786
|
|
Net interest margin,
annualized (GAAP)
|
4.37
|
%
|
|
4.41
|
%
|
|
4.03
|
%
|
|
4.29
|
%
|
|
3.93
|
%
|
Net interest margin,
excluding incremental accretion on purchased loans, annualized
(non-GAAP)
|
4.22
|
%
|
|
4.18
|
%
|
|
3.74
|
%
|
|
4.11
|
%
|
|
3.75
|
%
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on
loans (GAAP)
|
$
|
47,865
|
|
|
$
|
48,301
|
|
|
$
|
34,633
|
|
|
$
|
175,466
|
|
|
$
|
129,213
|
|
Exclude incremental
accretion on purchased loans
|
1,703
|
|
|
2,637
|
|
|
2,634
|
|
|
7,964
|
|
|
6,320
|
|
Adjusted interest and
fees on loans (non-GAAP)
|
$
|
46,162
|
|
|
$
|
45,664
|
|
|
$
|
31,999
|
|
|
$
|
167,502
|
|
|
$
|
122,893
|
|
|
|
|
|
|
|
|
|
|
|
Average total loans
receivable, net
|
$
|
3,615,362
|
|
|
$
|
3,618,031
|
|
|
$
|
2,786,370
|
|
|
$
|
3,414,424
|
|
|
$
|
2,703,934
|
|
Loan yield,
annualized (GAAP)
|
5.25
|
%
|
|
5.30
|
%
|
|
4.93
|
%
|
|
5.14
|
%
|
|
4.78
|
%
|
Loan yield, excluding
incremental accretion on purchased loans, annualized
(non-GAAP)
|
5.06
|
%
|
|
5.01
|
%
|
|
4.55
|
%
|
|
4.91
|
%
|
|
4.55
|
%
|
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 Premier and Puget Mergers 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 2019 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)
|
|
|
December
31, 2018
|
|
September
30, 2018
|
|
December
31, 2017
|
Assets
|
|
|
|
|
|
Cash on hand and in
banks
|
$
|
92,704
|
|
|
$
|
120,833
|
|
|
$
|
78,293
|
|
Interest earning
deposits
|
69,206
|
|
|
49,310
|
|
|
24,722
|
|
Cash and cash
equivalents
|
161,910
|
|
|
170,143
|
|
|
103,015
|
|
Investment securities
available for sale
|
976,095
|
|
|
920,737
|
|
|
810,530
|
|
Loans held for
sale
|
1,555
|
|
|
1,882
|
|
|
2,288
|
|
Loans receivable,
net
|
3,654,160
|
|
|
3,649,054
|
|
|
2,849,071
|
|
Allowance for loan
losses
|
(35,042)
|
|
|
(34,475)
|
|
|
(32,086)
|
|
Total loans
receivable, net
|
3,619,118
|
|
|
3,614,579
|
|
|
2,816,985
|
|
Other real estate
owned
|
1,983
|
|
|
2,032
|
|
|
—
|
|
Premises and
equipment, net
|
81,100
|
|
|
80,439
|
|
|
60,325
|
|
Federal Home Loan
Bank stock, at cost
|
6,076
|
|
|
6,076
|
|
|
8,347
|
|
Bank owned life
insurance
|
93,612
|
|
|
93,296
|
|
|
75,091
|
|
Accrued interest
receivable
|
15,403
|
|
|
15,735
|
|
|
12,244
|
|
Prepaid expenses and
other assets
|
99,447
|
|
|
108,730
|
|
|
99,328
|
|
Other intangible
assets, net
|
20,614
|
|
|
21,728
|
|
|
6,088
|
|
Goodwill
|
240,939
|
|
|
240,837
|
|
|
119,029
|
|
Total
assets
|
$
|
5,317,852
|
|
|
$
|
5,276,214
|
|
|
$
|
4,113,270
|
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
Deposits
|
$
|
4,432,402
|
|
|
$
|
4,398,127
|
|
|
$
|
3,393,060
|
|
Federal Home Loan
Bank advances
|
—
|
|
|
—
|
|
|
92,500
|
|
Junior subordinated
debentures
|
20,302
|
|
|
20,229
|
|
|
20,009
|
|
Securities sold under
agreement to repurchase
|
31,487
|
|
|
32,233
|
|
|
31,821
|
|
Accrued expenses and
other liabilities
|
72,938
|
|
|
79,492
|
|
|
67,575
|
|
Total
liabilities
|
4,557,129
|
|
|
4,530,081
|
|
|
3,604,965
|
|
|
|
|
|
|
|
Common
stock
|
591,806
|
|
|
591,065
|
|
|
360,590
|
|
Retained
earnings
|
176,372
|
|
|
169,758
|
|
|
149,013
|
|
Accumulated other
comprehensive loss, net
|
(7,455)
|
|
|
(14,690)
|
|
|
(1,298)
|
|
Total stockholders'
equity
|
760,723
|
|
|
746,133
|
|
|
508,305
|
|
Total liabilities and
stockholders' equity
|
$
|
5,317,852
|
|
|
$
|
5,276,214
|
|
|
$
|
4,113,270
|
|
|
|
|
|
|
|
Common stock shares
outstanding
|
36,874,055
|
|
|
36,873,123
|
|
|
29,927,746
|
|
HERITAGE FINANCIAL
CORPORATION
|
CONDENSED
CONSOLIDATED STATEMENTS OF
INCOME (Unaudited)
|
(Dollar amounts in
thousands, except per share amounts)
|
|
|
Three Months
Ended
|
|
Year
Ended
|
|
December 31,
2018
|
|
September 30,
2018
|
|
December 31,
2017
|
|
December 31,
2018
|
|
December 31,
2017
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
Interest and fees on
loans
|
$
|
47,865
|
|
|
$
|
48,301
|
|
|
$
|
34,633
|
|
|
$
|
175,466
|
|
|
$
|
129,213
|
|
Taxable interest on
investment securities
|
5,343
|
|
|
4,662
|
|
|
3,381
|
|
|
17,602
|
|
|
12,688
|
|
Nontaxable interest on
investment securities
|
1,003
|
|
|
1,085
|
|
|
1,343
|
|
|
4,649
|
|
|
5,269
|
|
Interest on other
interest earning assets
|
654
|
|
|
528
|
|
|
187
|
|
|
1,642
|
|
|
539
|
|
Total interest
income
|
54,865
|
|
|
54,576
|
|
|
39,544
|
|
|
199,359
|
|
|
147,709
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
Deposits
|
3,228
|
|
|
3,014
|
|
|
1,748
|
|
|
10,397
|
|
|
6,049
|
|
Junior subordinated
debentures
|
335
|
|
|
330
|
|
|
266
|
|
|
1,263
|
|
|
1,014
|
|
Other
borrowings
|
32
|
|
|
136
|
|
|
375
|
|
|
753
|
|
|
1,283
|
|
Total interest
expense
|
3,595
|
|
|
3,480
|
|
|
2,389
|
|
|
12,413
|
|
|
8,346
|
|
Net interest
income
|
51,270
|
|
|
51,096
|
|
|
37,155
|
|
|
186,946
|
|
|
139,363
|
|
Provision for loan
losses
|
1,162
|
|
|
1,065
|
|
|
1,338
|
|
|
5,129
|
|
|
4,220
|
|
Net interest income
after provision for loan losses
|
50,108
|
|
|
50,031
|
|
|
35,817
|
|
|
181,817
|
|
|
135,143
|
|
Noninterest
income:
|
|
|
|
|
|
|
|
|
|
Service charges and
other fees
|
4,852
|
|
|
4,824
|
|
|
4,596
|
|
|
18,914
|
|
|
18,004
|
|
Gain (loss) on sale of
investment securities, net
|
2
|
|
|
82
|
|
|
(155)
|
|
|
137
|
|
|
6
|
|
Gain on sale of loans,
net
|
473
|
|
|
706
|
|
|
1,134
|
|
|
2,759
|
|
|
7,696
|
|
Interest rate swap
fees
|
204
|
|
|
—
|
|
|
302
|
|
|
564
|
|
|
1,045
|
|
Other
income
|
2,933
|
|
|
2,468
|
|
|
3,187
|
|
|
9,291
|
|
|
8,828
|
|
Total noninterest
income
|
8,464
|
|
|
8,080
|
|
|
9,064
|
|
|
31,665
|
|
|
35,579
|
|
Noninterest
expense:
|
|
|
|
|
|
|
|
|
|
Compensation and
employee benefits
|
22,338
|
|
|
23,804
|
|
|
16,149
|
|
|
86,830
|
|
|
64,268
|
|
Occupancy and
equipment
|
5,322
|
|
|
5,020
|
|
|
3,789
|
|
|
19,779
|
|
|
15,396
|
|
Data
processing
|
2,433
|
|
|
2,343
|
|
|
2,169
|
|
|
9,888
|
|
|
8,176
|
|
Marketing
|
721
|
|
|
876
|
|
|
398
|
|
|
3,228
|
|
|
2,943
|
|
Professional
services
|
1,185
|
|
|
2,119
|
|
|
1,262
|
|
|
9,670
|
|
|
4,777
|
|
State and local
taxes
|
875
|
|
|
931
|
|
|
633
|
|
|
3,210
|
|
|
2,461
|
|
Federal deposit
insurance premium
|
375
|
|
|
375
|
|
|
345
|
|
|
1,480
|
|
|
1,435
|
|
Other real estate
owned, net
|
88
|
|
|
18
|
|
|
(34)
|
|
|
106
|
|
|
(70)
|
|
Amortization of
intangible assets
|
1,114
|
|
|
1,114
|
|
|
320
|
|
|
3,819
|
|
|
1,286
|
|
Other
expense
|
2,894
|
|
|
2,997
|
|
|
2,557
|
|
|
11,385
|
|
|
9,903
|
|
Total noninterest
expense
|
37,345
|
|
|
39,597
|
|
|
27,588
|
|
|
149,395
|
|
|
110,575
|
|
Income before income
taxes
|
21,227
|
|
|
18,514
|
|
|
17,293
|
|
|
64,087
|
|
|
60,147
|
|
Income tax
expense
|
4,618
|
|
|
3,010
|
|
|
7,270
|
|
|
11,030
|
|
|
18,356
|
|
Net income
|
$
|
16,609
|
|
|
$
|
15,504
|
|
|
$
|
10,023
|
|
|
$
|
53,057
|
|
|
$
|
41,791
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
common share
|
$
|
0.45
|
|
|
$
|
0.42
|
|
|
$
|
0.33
|
|
|
$
|
1.49
|
|
|
$
|
1.39
|
|
Diluted earnings per
common share
|
$
|
0.45
|
|
|
$
|
0.42
|
|
|
$
|
0.33
|
|
|
$
|
1.49
|
|
|
$
|
1.39
|
|
Dividends declared
per common share
|
$
|
0.27
|
|
|
$
|
0.15
|
|
|
$
|
0.23
|
|
|
$
|
0.72
|
|
|
$
|
0.61
|
|
|
|
|
|
|
|
|
|
|
|
Average number of
basic common shares outstanding
|
36,806,946
|
|
|
36,771,946
|
|
|
29,786,691
|
|
|
35,194,003
|
|
|
29,757,819
|
|
Average number of
diluted common shares outstanding
|
36,998,880
|
|
|
36,963,244
|
|
|
29,894,494
|
|
|
35,371,590
|
|
|
29,849,331
|
|
HERITAGE FINANCIAL
CORPORATION
|
FINANCIAL
STATISTICS (Unaudited)
|
(Dollar amounts in
thousands, except per share amounts)
|
|
|
Three Months
Ended
|
|
Year
Ended
|
|
December 31,
2018
|
|
September 30,
2018
|
|
December 31,
2017
|
|
December 31,
2018
|
|
December 31,
2017
|
Performance
Ratios:
|
|
|
|
|
|
|
|
|
|
Efficiency
ratio
|
62.52
|
%
|
|
66.91
|
%
|
|
59.69
|
%
|
|
68.34
|
%
|
|
63.21
|
%
|
Noninterest expense
to average assets, annualized
|
2.78
|
%
|
|
2.98
|
%
|
|
2.66
|
%
|
|
3.00
|
%
|
|
2.78
|
%
|
Return on average
assets, annualized
|
1.24
|
%
|
|
1.17
|
%
|
|
0.97
|
%
|
|
1.07
|
%
|
|
1.05
|
%
|
Return on average
equity, annualized
|
8.78
|
%
|
|
8.26
|
%
|
|
7.79
|
%
|
|
7.72
|
%
|
|
8.36
|
%
|
Return on average
tangible common equity, annualized
|
13.50
|
%
|
|
12.77
|
%
|
|
10.32
|
%
|
|
11.61
|
%
|
|
11.17
|
%
|
Net charge-offs on
loans to average loans, annualized
|
0.07
|
%
|
|
0.06
|
%
|
|
0.09
|
%
|
|
0.06
|
%
|
|
0.12
|
%
|
|
As of Period
End
|
|
December 31,
2018
|
|
September 30,
2018
|
|
December 31,
2017
|
Financial
Measures:
|
|
|
|
|
|
Book value per common
share
|
$
|
20.63
|
|
|
$
|
20.24
|
|
|
$
|
16.98
|
|
Tangible book value
per common share
|
$
|
13.54
|
|
|
$
|
13.11
|
|
|
$
|
12.80
|
|
Stockholders' equity
to total assets
|
14.3
|
%
|
|
14.1
|
%
|
|
12.4
|
%
|
Tangible common
equity to tangible assets
|
9.9
|
%
|
|
9.6
|
%
|
|
9.6
|
%
|
Common equity Tier 1
capital to risk-weighted assets
|
11.6
|
%
|
|
11.4
|
%
|
|
11.3
|
%
|
Tier 1 leverage
capital to average quarterly assets
|
10.5
|
%
|
|
10.4
|
%
|
|
10.2
|
%
|
Tier 1 capital to
risk-weighted assets
|
12.1
|
%
|
|
11.8
|
%
|
|
11.8
|
%
|
Total capital to
risk-weighted assets
|
12.9
|
%
|
|
12.6
|
%
|
|
12.8
|
%
|
Loans to deposits
ratio (1)
|
82.4
|
%
|
|
83.0
|
%
|
|
84.0
|
%
|
Deposits per
branch
|
$
|
69,256
|
|
|
$
|
68,721
|
|
|
$
|
57,509
|
|
|
|
|
|
(1)
|
Loans receivable, net
of deferred costs divided by deposits
|
|
Three Months
Ended
|
|
Year
Ended
|
|
December 31,
2018
|
|
September 30,
2018
|
|
December 31,
2017
|
|
December 31,
2018
|
|
December 31,
2017
|
Allowance for Loan
Losses:
|
|
|
|
|
|
|
|
|
|
Balance, beginning of
period
|
$
|
34,475
|
|
|
$
|
33,972
|
|
|
$
|
31,400
|
|
|
$
|
32,086
|
|
|
$
|
31,083
|
|
Provision for loan
losses
|
1,162
|
|
|
1,065
|
|
|
1,338
|
|
|
5,129
|
|
|
4,220
|
|
Net (charge-offs)
recoveries:
|
|
|
|
|
|
|
|
|
|
Commercial
business
|
(259)
|
|
|
(179)
|
|
|
(385)
|
|
|
(492)
|
|
|
(1,491)
|
|
One-to-four family
residential
|
(15)
|
|
|
(15)
|
|
|
(14)
|
|
|
(45)
|
|
|
(28)
|
|
Real estate
construction and land development
|
6
|
|
|
3
|
|
|
1
|
|
|
11
|
|
|
(354)
|
|
Consumer
|
(327)
|
|
|
(371)
|
|
|
(254)
|
|
|
(1,647)
|
|
|
(1,344)
|
|
Total net
charge-offs
|
(595)
|
|
|
(562)
|
|
|
(652)
|
|
|
(2,173)
|
|
|
(3,217)
|
|
Balance, end of
period
|
$
|
35,042
|
|
|
$
|
34,475
|
|
|
$
|
32,086
|
|
|
$
|
35,042
|
|
|
$
|
32,086
|
|
|
|
Three Months
Ended
|
|
Year
Ended
|
|
December 31,
2018
|
|
September 30,
2018
|
|
December 31,
2017
|
|
December 31,
2018
|
|
December 31,
2017
|
Other Real Estate
Owned:
|
|
|
|
|
|
|
|
|
|
Balance, beginning of
period
|
$
|
2,032
|
|
|
$
|
434
|
|
|
$
|
523
|
|
|
$
|
—
|
|
|
$
|
754
|
|
Additions from
transfer of loan
|
—
|
|
|
—
|
|
|
—
|
|
|
434
|
|
|
32
|
|
Additions from
acquisitions
|
—
|
|
|
1,796
|
|
|
—
|
|
|
1,796
|
|
|
—
|
|
Proceeds from
dispositions
|
—
|
|
|
(198)
|
|
|
(556)
|
|
|
(198)
|
|
|
(930)
|
|
Gain on sales,
net
|
—
|
|
|
—
|
|
|
33
|
|
|
—
|
|
|
144
|
|
Valuation
adjustments
|
(49)
|
|
|
—
|
|
|
—
|
|
|
(49)
|
|
|
—
|
|
Balance, end of
period
|
$
|
1,983
|
|
|
$
|
2,032
|
|
|
$
|
—
|
|
|
$
|
1,983
|
|
|
$
|
—
|
|
|
|
Three Months
Ended
|
|
Year
Ended
|
|
December 31,
2018
|
|
September 30,
2018
|
|
December 31,
2017
|
|
December 31,
2018
|
|
December 31,
2017
|
Gain on Sale of
Loans, net:
|
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
$
|
473
|
|
|
$
|
706
|
|
|
$
|
897
|
|
|
$
|
2,403
|
|
|
$
|
3,412
|
|
SBA loans
|
—
|
|
|
—
|
|
|
237
|
|
|
356
|
|
|
1,286
|
|
Other
loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,998
|
|
Total gain on sale of
loans, net
|
$
|
473
|
|
|
$
|
706
|
|
|
$
|
1,134
|
|
|
$
|
2,759
|
|
|
$
|
7,696
|
|
|
As of Period
End
|
|
December 31,
2018
|
|
September 30,
2018
|
|
December 31,
2017
|
Nonperforming
Assets:
|
|
|
|
|
|
Nonaccrual loans by
type:
|
|
|
|
|
|
Commercial
business
|
$
|
12,564
|
|
|
$
|
13,487
|
|
|
$
|
9,098
|
|
One-to-four family
residential
|
71
|
|
|
74
|
|
|
81
|
|
Real estate
construction and land development
|
899
|
|
|
1,076
|
|
|
1,247
|
|
Consumer
|
169
|
|
|
143
|
|
|
277
|
|
Total nonaccrual
loans(1)
|
13,703
|
|
|
14,780
|
|
|
10,703
|
|
Other real estate
owned
|
1,983
|
|
|
2,032
|
|
|
—
|
|
Nonperforming
assets
|
$
|
15,686
|
|
|
$
|
16,812
|
|
|
$
|
10,703
|
|
|
|
|
|
|
|
Restructured
performing loans
|
$
|
22,736
|
|
|
$
|
24,449
|
|
|
$
|
26,757
|
|
Accruing loans past
due 90 days or more
|
—
|
|
|
—
|
|
|
—
|
|
Potential problem
loans(2)
|
101,349
|
|
|
105,742
|
|
|
83,543
|
|
Allowance for loan
losses to:
|
|
|
|
|
|
Loans receivable,
net
|
0.96
|
%
|
|
0.94
|
%
|
|
1.13
|
%
|
Nonaccrual
loans
|
255.73
|
%
|
|
233.25
|
%
|
|
299.79
|
%
|
Nonperforming loans
to loans receivable, net
|
0.37
|
%
|
|
0.41
|
%
|
|
0.38
|
%
|
Nonperforming assets
to total assets
|
0.29
|
%
|
|
0.32
|
%
|
|
0.26
|
%
|
|
|
|
|
(1)
|
At December 31,
2018, September 30, 2018 and December 31, 2017, $6.9
million, $6.5 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
|
|
December 31,
2018
|
|
September 30,
2018
|
|
December 31,
2017
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
Loan
Composition
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
business:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
industrial
|
$
|
853,606
|
|
|
23.4
|
%
|
|
$
|
861,530
|
|
|
23.6
|
%
|
|
$
|
645,396
|
|
|
22.7
|
%
|
Owner-occupied
commercial real estate
|
779,814
|
|
|
21.3
|
|
|
785,416
|
|
|
21.5
|
|
|
622,150
|
|
|
21.8
|
|
Non-owner occupied
commercial real estate
|
1,304,463
|
|
|
35.7
|
|
|
1,283,160
|
|
|
35.2
|
|
|
986,594
|
|
|
34.6
|
|
Total commercial
business
|
2,937,883
|
|
|
80.4
|
|
|
2,930,106
|
|
|
80.3
|
|
|
2,254,140
|
|
|
79.1
|
|
One-to-four family
residential
|
101,763
|
|
|
2.8
|
|
|
96,333
|
|
|
2.7
|
|
|
86,997
|
|
|
3.1
|
|
Real estate
construction and land development:
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
residential
|
102,730
|
|
|
2.8
|
|
|
107,148
|
|
|
2.9
|
|
|
51,985
|
|
|
1.8
|
|
Five or more family
residential and commercial properties
|
112,730
|
|
|
3.1
|
|
|
120,787
|
|
|
3.3
|
|
|
97,499
|
|
|
3.4
|
|
Total real estate
construction and land development
|
215,460
|
|
|
5.9
|
|
|
227,935
|
|
|
6.2
|
|
|
149,484
|
|
|
5.2
|
|
Consumer
|
395,545
|
|
|
10.8
|
|
|
391,283
|
|
|
10.7
|
|
|
355,091
|
|
|
12.5
|
|
Gross loans
receivable
|
3,650,651
|
|
|
99.9
|
|
|
3,645,657
|
|
|
99.9
|
|
|
2,845,712
|
|
|
99.9
|
|
Deferred loan costs,
net
|
3,509
|
|
|
0.1
|
|
|
3,397
|
|
|
0.1
|
|
|
3,359
|
|
|
0.1
|
|
Loans receivable,
net
|
$
|
3,654,160
|
|
|
100.0
|
%
|
|
$
|
3,649,054
|
|
|
100.0
|
%
|
|
$
|
2,849,071
|
|
|
100.0
|
%
|
|
|
|
As of Period
End
|
|
December 31,
2018
|
|
September 30,
2018
|
|
December 31,
2017
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
Deposit
Composition
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest bearing
demand deposits
|
$
|
1,362,268
|
|
|
30.7
|
%
|
|
$
|
1,311,825
|
|
|
29.8
|
%
|
|
$
|
944,791
|
|
|
27.8
|
%
|
Interest bearing
demand deposits
|
1,317,513
|
|
|
29.7
|
|
|
1,294,105
|
|
|
29.4
|
|
|
1,051,752
|
|
|
31.1
|
|
Money market
accounts
|
765,316
|
|
|
17.3
|
|
|
768,998
|
|
|
17.5
|
|
|
499,618
|
|
|
14.7
|
|
Savings
accounts
|
520,413
|
|
|
11.8
|
|
|
519,596
|
|
|
11.8
|
|
|
498,501
|
|
|
14.7
|
|
Total non-maturity
deposits
|
3,965,510
|
|
|
89.5
|
|
|
3,894,524
|
|
|
88.5
|
|
|
2,994,662
|
|
|
88.3
|
|
Certificates of
deposit
|
466,892
|
|
|
10.5
|
|
|
503,603
|
|
|
11.5
|
|
|
398,398
|
|
|
11.7
|
|
Total
deposits
|
$
|
4,432,402
|
|
|
100.0
|
%
|
|
$
|
4,398,127
|
|
|
100.0
|
%
|
|
$
|
3,393,060
|
|
|
100.0
|
%
|
|
Three Months
Ended
|
|
December 31,
2018
|
|
September 30,
2018
|
|
December 31,
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)
|
$
|
3,615,362
|
|
|
$
|
47,865
|
|
|
5.25
|
%
|
|
$
|
3,618,031
|
|
|
$
|
48,301
|
|
|
5.30
|
%
|
|
$
|
2,786,370
|
|
|
$
|
34,633
|
|
|
4.93
|
%
|
Taxable
securities
|
772,925
|
|
|
5,343
|
|
|
2.74
|
|
|
707,597
|
|
|
4,662
|
|
|
2.61
|
|
|
587,116
|
|
|
3,381
|
|
|
2.28
|
|
Nontaxable securities
(3)
|
160,626
|
|
|
1,003
|
|
|
2.48
|
|
|
176,322
|
|
|
1,085
|
|
|
2.44
|
|
|
230,942
|
|
|
1,343
|
|
|
2.31
|
|
Other interest
earning assets
|
104,302
|
|
|
654
|
|
|
2.49
|
|
|
94,784
|
|
|
528
|
|
|
2.21
|
|
|
56,997
|
|
|
187
|
|
|
1.30
|
|
Total interest earning
assets
|
4,653,215
|
|
|
54,865
|
|
|
4.68
|
|
|
4,596,734
|
|
|
54,576
|
|
|
4.71
|
|
|
3,661,425
|
|
|
39,544
|
|
|
4.28
|
|
Noninterest earning
assets
|
672,161
|
|
|
|
|
|
|
681,831
|
|
|
|
|
|
|
451,091
|
|
|
|
|
|
Total
assets
|
$
|
5,325,376
|
|
|
|
|
|
|
$
|
5,278,565
|
|
|
|
|
|
|
$
|
4,112,516
|
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
|
496,903
|
|
|
$
|
1,218
|
|
|
0.97
|
%
|
|
$
|
512,547
|
|
|
$
|
1,184
|
|
|
0.92
|
%
|
|
$
|
402,735
|
|
|
$
|
717
|
|
|
0.71
|
%
|
Savings
accounts
|
516,620
|
|
|
613
|
|
|
0.47
|
|
|
518,937
|
|
|
541
|
|
|
0.41
|
|
|
499,677
|
|
|
370
|
|
|
0.29
|
|
Interest bearing
demand and money market accounts
|
2,074,138
|
|
|
1,397
|
|
|
0.27
|
|
|
2,044,236
|
|
|
1,289
|
|
|
0.25
|
|
|
1,526,717
|
|
|
661
|
|
|
0.17
|
|
Total interest bearing
deposits
|
3,087,661
|
|
|
3,228
|
|
|
0.41
|
|
|
3,075,720
|
|
|
3,014
|
|
|
0.39
|
|
|
2,429,129
|
|
|
1,748
|
|
|
0.29
|
|
Junior subordinated
debentures
|
20,255
|
|
|
335
|
|
|
6.56
|
|
|
20,181
|
|
|
330
|
|
|
6.49
|
|
|
19,967
|
|
|
266
|
|
|
5.29
|
|
Securities sold under
agreement to repurchase
|
34,046
|
|
|
29
|
|
|
0.34
|
|
|
33,394
|
|
|
19
|
|
|
0.23
|
|
|
30,697
|
|
|
18
|
|
|
0.23
|
|
Federal Home Loan
Bank advances and other borrowings
|
440
|
|
|
3
|
|
|
2.71
|
|
|
20,892
|
|
|
117
|
|
|
2.22
|
|
|
102,954
|
|
|
357
|
|
|
1.38
|
|
Total interest bearing
liabilities
|
3,142,402
|
|
|
3,595
|
|
|
0.45
|
|
|
3,150,187
|
|
|
3,480
|
|
|
0.44
|
|
|
2,582,747
|
|
|
2,389
|
|
|
0.37
|
|
Noninterest bearing
deposits
|
1,356,186
|
|
|
|
|
|
|
1,314,203
|
|
|
|
|
|
|
953,902
|
|
|
|
|
|
Other noninterest
bearing liabilities
|
76,623
|
|
|
|
|
|
|
69,786
|
|
|
|
|
|
|
65,286
|
|
|
|
|
|
Stockholders'
equity
|
750,165
|
|
|
|
|
|
|
744,389
|
|
|
|
|
|
|
510,581
|
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$
|
5,325,376
|
|
|
|
|
|
|
$
|
5,278,565
|
|
|
|
|
|
|
$
|
4,112,516
|
|
|
|
|
|
Net interest
income
|
|
|
$
|
51,270
|
|
|
|
|
|
|
$
|
51,096
|
|
|
|
|
|
|
$
|
37,155
|
|
|
|
Net interest
spread
|
|
|
|
|
4.23
|
%
|
|
|
|
|
|
4.27
|
%
|
|
|
|
|
|
3.91
|
%
|
Net interest
margin
|
|
|
|
|
4.37
|
%
|
|
|
|
|
|
4.41
|
%
|
|
|
|
|
|
4.03
|
%
|
|
(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.
|
|
Year
Ended
|
|
December 31,
2018
|
|
December 31,
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)
|
$
|
3,414,424
|
|
|
$
|
175,466
|
|
|
5.14
|
%
|
|
$
|
2,703,934
|
|
|
$
|
129,213
|
|
|
4.78
|
%
|
Taxable
securities
|
677,893
|
|
|
17,602
|
|
|
2.60
|
|
|
570,969
|
|
|
12,688
|
|
|
2.22
|
|
Nontaxable securities
(3)
|
190,209
|
|
|
4,649
|
|
|
2.44
|
|
|
226,934
|
|
|
5,269
|
|
|
2.32
|
|
Other interest
earning assets
|
76,117
|
|
|
1,642
|
|
|
2.16
|
|
|
45,949
|
|
|
539
|
|
|
1.17
|
|
Total interest earning
assets
|
4,358,643
|
|
|
199,359
|
|
|
4.57
|
%
|
|
3,547,786
|
|
|
147,709
|
|
|
4.16
|
%
|
Noninterest earning
assets
|
615,375
|
|
|
|
|
|
|
433,566
|
|
|
|
|
|
Total
assets
|
$
|
4,974,018
|
|
|
|
|
|
|
$
|
3,981,352
|
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
|
463,124
|
|
|
$
|
3,959
|
|
|
0.85
|
|
|
$
|
378,044
|
|
|
$
|
2,244
|
|
|
0.59
|
|
Savings
accounts
|
513,680
|
|
|
2,056
|
|
|
0.40
|
|
|
499,435
|
|
|
1,311
|
|
|
0.26
|
|
Interest bearing
demand and money market accounts
|
1,916,319
|
|
|
4,382
|
|
|
0.23
|
|
|
1,498,619
|
|
|
2,494
|
|
|
0.17
|
|
Total interest bearing
deposits
|
2,893,123
|
|
|
10,397
|
|
|
0.36
|
|
|
2,376,098
|
|
|
6,049
|
|
|
0.25
|
|
Junior subordinated
debentures
|
20,145
|
|
|
1,263
|
|
|
6.27
|
|
|
19,860
|
|
|
1,014
|
|
|
5.11
|
|
Securities sold under
agreement to repurchase
|
31,426
|
|
|
82
|
|
|
0.26
|
|
|
25,434
|
|
|
57
|
|
|
0.22
|
|
Federal Home Loan
Bank advances and other borrowings
|
33,914
|
|
|
671
|
|
|
1.98
|
|
|
105,648
|
|
|
1,226
|
|
|
1.16
|
|
Total interest bearing
liabilities
|
2,978,608
|
|
|
12,413
|
|
|
0.42
|
|
|
2,527,040
|
|
|
8,346
|
|
|
0.33
|
|
Noninterest bearing
deposits
|
1,240,621
|
|
|
|
|
|
|
902,716
|
|
|
|
|
|
Other noninterest
bearing liabilities
|
67,695
|
|
|
|
|
|
|
51,820
|
|
|
|
|
|
Stockholders'
equity
|
687,094
|
|
|
|
|
|
|
499,776
|
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$
|
4,974,018
|
|
|
|
|
|
|
$
|
3,981,352
|
|
|
|
|
|
Net interest
income
|
|
|
$
|
186,946
|
|
|
|
|
|
|
$
|
139,363
|
|
|
|
Net interest
spread
|
|
|
|
|
4.15
|
%
|
|
|
|
|
|
3.83
|
%
|
Net interest
margin
|
|
|
|
|
4.29
|
%
|
|
|
|
|
|
3.93
|
%
|
|
|
|
|
(1)
|
Year to
date.
|
|
(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)
|
(Dollar amounts in
thousands, except per share amounts)
|
|
|
Three Months
Ended
|
|
December
31, 2018
|
|
September
30, 2018
|
|
June
30, 2018
|
|
March
31, 2018
|
|
December
31, 2017
|
Earnings:
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
$
|
51,270
|
|
|
$
|
51,096
|
|
|
$
|
43,743
|
|
|
$
|
40,837
|
|
|
$
|
37,155
|
|
Provision for loan
losses
|
1,162
|
|
|
1,065
|
|
|
1,750
|
|
|
1,152
|
|
|
1,338
|
|
Noninterest
income
|
8,464
|
|
|
8,080
|
|
|
7,573
|
|
|
7,548
|
|
|
9,064
|
|
Noninterest
expense
|
37,345
|
|
|
39,597
|
|
|
35,706
|
|
|
36,747
|
|
|
27,588
|
|
Net income
|
16,609
|
|
|
15,504
|
|
|
11,857
|
|
|
9,087
|
|
|
10,023
|
|
Basic earnings per
common share
|
$
|
0.45
|
|
|
$
|
0.42
|
|
|
$
|
0.35
|
|
|
$
|
0.27
|
|
|
$
|
0.33
|
|
Diluted earnings per
common share
|
$
|
0.45
|
|
|
$
|
0.42
|
|
|
$
|
0.35
|
|
|
$
|
0.27
|
|
|
$
|
0.33
|
|
Average
Balances:
|
|
|
|
|
|
|
|
|
|
Total loans
receivable, net
|
$
|
3,615,362
|
|
|
$
|
3,618,031
|
|
|
$
|
3,266,092
|
|
|
$
|
3,150,869
|
|
|
$
|
2,786,370
|
|
Investment
securities
|
933,551
|
|
|
883,919
|
|
|
839,196
|
|
|
814,254
|
|
|
818,058
|
|
Total interest
earning assets
|
4,653,215
|
|
|
4,596,734
|
|
|
4,156,310
|
|
|
4,018,720
|
|
|
3,661,425
|
|
Total
assets
|
5,325,376
|
|
|
5,278,565
|
|
|
4,726,719
|
|
|
4,553,585
|
|
|
4,112,516
|
|
Total interest
bearing deposits
|
3,087,661
|
|
|
3,075,720
|
|
|
2,727,056
|
|
|
2,675,522
|
|
|
2,429,129
|
|
Total noninterest
bearing deposits
|
1,356,186
|
|
|
1,314,203
|
|
|
1,175,331
|
|
|
1,113,286
|
|
|
953,902
|
|
Stockholders'
equity
|
750,165
|
|
|
744,389
|
|
|
636,735
|
|
|
614,974
|
|
|
510,581
|
|
Financial
Ratios:
|
|
|
|
|
|
|
|
|
|
Return on average
assets, annualized
|
1.24
|
%
|
|
1.17
|
%
|
|
1.01
|
%
|
|
0.81
|
%
|
|
0.97
|
%
|
Return on average
equity, annualized
|
8.78
|
|
|
8.26
|
|
|
7.47
|
|
|
5.99
|
|
|
7.79
|
|
Return on average
tangible common equity, annualized
|
13.50
|
|
|
12.77
|
|
|
10.99
|
|
|
8.70
|
|
|
10.32
|
|
Efficiency
ratio
|
62.52
|
|
|
66.91
|
|
|
69.58
|
|
|
75.95
|
|
|
59.69
|
|
Noninterest expense
to average total assets, annualized
|
2.78
|
|
|
2.98
|
|
|
3.03
|
|
|
3.27
|
|
|
2.66
|
|
Net interest
margin
|
4.37
|
|
|
4.41
|
|
|
4.22
|
|
|
4.12
|
|
|
4.03
|
|
Net interest
spread
|
4.23
|
|
|
4.27
|
|
|
4.09
|
|
|
4.01
|
|
|
3.91
|
|
|
As of Period End
or for the Three Month Periods Ended
|
|
December 31,
2018
|
|
September 30,
2018
|
|
June 30,
2018
|
|
March 31,
2018
|
|
December
31,
2017
|
Select Balance
Sheet:
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
5,317,852
|
|
|
$
|
5,276,214
|
|
|
$
|
4,789,488
|
|
|
$
|
4,676,250
|
|
|
$
|
4,113,270
|
|
Total loans
receivable, net
|
3,619,118
|
|
|
3,614,579
|
|
|
3,294,316
|
|
|
3,248,654
|
|
|
2,816,985
|
|
Investment
securities
|
976,095
|
|
|
920,737
|
|
|
873,670
|
|
|
821,567
|
|
|
810,530
|
|
Deposits
|
4,432,402
|
|
|
4,398,127
|
|
|
3,968,935
|
|
|
3,904,741
|
|
|
3,393,060
|
|
Noninterest bearing
demand deposits
|
1,362,268
|
|
|
1,311,825
|
|
|
1,157,630
|
|
|
1,178,202
|
|
|
944,791
|
|
Stockholders'
equity
|
760,723
|
|
|
746,133
|
|
|
639,523
|
|
|
634,708
|
|
|
508,305
|
|
Financial
Measures:
|
|
|
|
|
|
|
|
|
|
Book value per common
share
|
$
|
20.63
|
|
|
$
|
20.24
|
|
|
$
|
18.80
|
|
|
$
|
18.66
|
|
|
$
|
16.98
|
|
Tangible book value
per common share
|
13.54
|
|
|
13.11
|
|
|
12.82
|
|
|
12.66
|
|
|
12.80
|
|
Stockholders' equity
to assets
|
14.3
|
%
|
|
14.1
|
%
|
|
13.4
|
%
|
|
13.6
|
%
|
|
12.4
|
%
|
Tangible common
equity to tangible assets
|
9.9
|
|
|
9.6
|
|
|
9.5
|
|
|
9.6
|
|
|
9.6
|
|
Loans to deposits
ratio
|
82.4
|
|
|
83.0
|
|
|
83.9
|
|
|
84.0
|
|
|
84.0
|
|
Credit Quality
Metrics:
|
|
|
|
|
|
|
|
|
|
Allowance for loan
losses to:
|
|
|
|
|
|
|
|
|
|
Loans receivable,
net
|
0.96
|
%
|
|
0.94
|
%
|
|
1.02
|
%
|
|
1.01
|
%
|
|
1.13
|
%
|
Nonperforming
loans
|
255.73
|
|
|
233.25
|
|
|
205.60
|
|
|
211.48
|
|
|
299.79
|
|
Nonperforming loans
to loans receivable, net
|
0.37
|
|
|
0.41
|
|
|
0.50
|
|
|
0.48
|
|
|
0.38
|
|
Nonperforming assets
to total assets
|
0.29
|
|
|
0.32
|
|
|
0.35
|
|
|
0.34
|
|
|
0.26
|
|
Net charge-offs on
loans to average loans receivable, net
|
0.07
|
|
|
0.06
|
|
|
0.13
|
|
|
—
|
|
|
0.09
|
|
Other
Metrics:
|
|
|
|
|
|
|
|
|
|
Number of banking
offices
|
64
|
|
|
64
|
|
|
59
|
|
|
60
|
|
|
59
|
|
Average number of
full-time equivalent employees
|
867
|
|
|
878
|
|
|
819
|
|
|
796
|
|
|
736
|
|
Deposits per
branch
|
$
|
69,256
|
|
|
$
|
68,721
|
|
|
$
|
67,270
|
|
|
$
|
65,079
|
|
|
$
|
57,509
|
|
Average assets per
full-time equivalent employee
|
$
|
6,142
|
|
|
$
|
6,014
|
|
|
$
|
5,770
|
|
|
$
|
5,720
|
|
|
$
|
5,587
|
|
View original
content:http://www.prnewswire.com/news-releases/heritage-financial-announces-fourth-quarter-and-annual-2018-results-and-declares-regular-cash-dividend-300783494.html
SOURCE Heritage Financial Corporation