OLYMPIA, Wash., Oct. 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 $17.9
million for the quarter ended September 30, 2019
compared to $16.0 million for the
linked-quarter ended June 30, 2019 and $15.5 million for the quarter ended
September 30, 2018. Diluted earnings per share for the quarter
ended September 30, 2019 was $0.48 compared to $0.43 for the linked-quarter ended June 30,
2019 and $0.42 for the quarter ended
September 30, 2018.
Jeffrey J. Deuel, President and
Chief Executive Officer of Heritage commented, "We are pleased with
our overall financial performance. Although loan growth was muted
due to continued high loan prepayments, we saw strong deposit
growth during the third quarter which helped us fund asset growth
and cross the $5.5 billion asset
level. We are particularly pleased with the growth in noninterest
bearing demand deposits which helps mitigate the impacts of the
rate environment on our net interest margin.
"We are also pleased with our efforts to make a difference in
our local communities. We are proud to be a construction lender and
tax credit investor to Bridge Housing's Cornelius Place project. In partnership with the
City of Cornelius, Bienestar and
Bridge Housing, we financed this completed and occupied 45-unit
senior affordable housing apartment building located in
Cornelius, Oregon.
"In addition, Heritage continues to be a driving force behind
small business lending in Washington and Oregon. In the SBA 504 loan program, Heritage
Bank ranked #1 in production in the Seattle district during the twelve months
ended September 30 and, in the 7(a)
loan program for the Seattle and
Portland districts combined, we
increased production by 150% from the prior year."
Financial Highlights
The following table provides
financial highlights for the dates indicated:
|
As of Period End
or for the Three Months Ended
|
|
September
30,
2019
|
|
June
30,
2019
|
|
September
30,
2018
|
|
(Dollars in
thousands, except per share amounts)
|
|
Net income
|
$
|
17,895
|
|
|
$
|
15,984
|
|
|
$
|
15,504
|
|
|
Diluted earnings per
share
|
$
|
0.48
|
|
|
$
|
0.43
|
|
|
$
|
0.42
|
|
|
Return on average
assets, annualized
|
1.31
|
%
|
|
1.20
|
%
|
|
1.17
|
%
|
|
Return on average
equity, annualized
|
8.86
|
%
|
|
8.19
|
%
|
|
8.26
|
%
|
|
Return on average
tangible common equity, annualized
|
13.66
|
%
|
|
12.89
|
%
|
|
13.49
|
%
|
|
Net interest
margin
|
4.21
|
%
|
|
4.33
|
%
|
|
4.41
|
%
|
|
Cost of total
deposits
|
0.38
|
%
|
|
0.37
|
%
|
|
0.27
|
%
|
|
Efficiency
ratio
|
62.55
|
%
|
|
64.62
|
%
|
|
66.68
|
%
|
|
Noninterest expense
to average total assets, annualized
|
2.69
|
%
|
|
2.81
|
%
|
|
2.97
|
%
|
|
Total
assets
|
$
|
5,515,185
|
|
|
$
|
5,376,686
|
|
|
$
|
5,276,214
|
|
|
Total loans
receivable, net
|
$
|
3,694,825
|
|
|
$
|
3,681,920
|
|
|
$
|
3,614,579
|
|
|
Total
deposits
|
$
|
4,562,257
|
|
|
$
|
4,347,708
|
|
|
$
|
4,398,127
|
|
|
Loan to deposit
ratio(1)
|
81.8
|
%
|
|
85.5
|
%
|
|
83.0
|
%
|
|
Book value per
share
|
$
|
21.96
|
|
|
$
|
21.60
|
|
|
$
|
20.24
|
|
|
Tangible book value
per share
|
$
|
14.90
|
|
|
$
|
14.56
|
|
|
$
|
13.11
|
|
|
|
|
(1)
|
Loans receivable, net
of deferred costs divided by deposits
|
Total loans receivable, net increased $12.9 million, or 0.4%, to $3.69 billion at September 30, 2019 from
$3.68 billion at June 30, 2019
due primarily to an increase in consumer loans of $10.6 million, total commercial business loans of
$8.0 million, and one-to-four family
residential loans of $3.7 million,
offset partially by a decrease in total real estate construction
and land development loans of $8.9
million.
The following table summarizes the Company's loan portfolio by
type of loan at the dates indicated:
|
September 30,
2019
|
|
June 30,
2019
|
|
December 31,
2018
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
(Dollars in
thousands)
|
|
Commercial
business:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
industrial
|
$
|
853,995
|
|
|
22.9
|
%
|
|
$
|
845,046
|
|
|
22.7
|
%
|
|
$
|
853,606
|
|
|
23.4
|
%
|
|
Owner-occupied
commercial real estate
|
787,591
|
|
|
21.1
|
|
|
772,499
|
|
|
20.8
|
|
|
779,814
|
|
|
21.3
|
%
|
|
Non-owner occupied
commercial real estate
|
1,316,992
|
|
|
35.3
|
|
|
1,333,047
|
|
|
35.8
|
|
|
1,304,463
|
|
|
35.7
|
%
|
|
Total commercial
business
|
2,958,578
|
|
|
79.3
|
|
|
2,950,592
|
|
|
79.3
|
|
|
2,937,883
|
|
|
80.4
|
|
|
One-to-four family
residential
|
121,174
|
|
|
3.2
|
|
|
117,425
|
|
|
3.2
|
|
|
101,763
|
|
|
2.8
|
|
|
Real estate
construction and land development:
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
residential
|
98,034
|
|
|
2.6
|
|
|
111,319
|
|
|
3.0
|
|
|
102,730
|
|
|
2.8
|
|
|
Five or more family
residential and commercial properties
|
147,686
|
|
|
4.0
|
|
|
143,341
|
|
|
3.8
|
|
|
112,730
|
|
|
3.1
|
|
|
Total real estate
construction and land development
|
245,720
|
|
|
6.6
|
|
|
254,660
|
|
|
6.8
|
|
|
215,460
|
|
|
5.9
|
|
|
Consumer
|
403,485
|
|
|
10.8
|
|
|
392,926
|
|
|
10.6
|
|
|
395,545
|
|
|
10.8
|
|
|
Gross loans
receivable
|
3,728,957
|
|
|
99.9
|
|
|
3,715,603
|
|
|
99.9
|
|
|
3,650,651
|
|
|
99.9
|
|
|
Deferred loan costs,
net
|
2,386
|
|
|
0.1
|
|
|
2,680
|
|
|
0.1
|
|
|
3,509
|
|
|
0.1
|
|
|
Loans receivable,
net
|
3,731,343
|
|
|
100.0
|
%
|
|
3,718,283
|
|
|
100.0
|
%
|
|
3,654,160
|
|
|
100.0
|
%
|
|
Allowance for loan
losses
|
(36,518)
|
|
|
|
|
(36,363)
|
|
|
|
|
(35,042)
|
|
|
|
|
Total Loans
receivable, net
|
$
|
3,694,825
|
|
|
|
|
$
|
3,681,920
|
|
|
|
|
$
|
3,619,118
|
|
|
|
Total deposits increased $214.5
million, or 4.9%, to $4.56
billion at September 30, 2019 from $4.35 billion at June 30, 2019 due to an
increase in total non-maturity deposits of $194.0 million, or 5.0%. Noninterest demand
deposits increased $108.7 million, or
8.2%, to $1.43 billion, or 31.3% of
total deposits, at September 30, 2019 from $1.32 billion, or 30.3% of total deposits, at
June 30, 2019. Certificate of deposit accounts increased
$20.5 million, or 4.1%, to
$524.3 million at September 30,
2019 from $503.8 million at
June 30, 2019. Non-maturity deposits as a percentage of total
deposits increased slightly to 88.5% as of September 30, 2019
from 88.4% as of June 30, 2019. There were no Federal Home
Loan Bank Advances outstanding at September 30, 2019 compared
to $90.7 million outstanding at
June 30, 2019 as the increase in total deposits funded the
full repayment during the quarter ended September 30, 2019.
The following table summarizes the Company's deposits at the
dates indicated:
|
September 30,
2019
|
|
June 30,
2019
|
|
December 31,
2018
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
(Dollars in
thousands)
|
|
Noninterest bearing
demand deposits
|
$
|
1,429,435
|
|
|
31.3
|
%
|
|
$
|
1,320,743
|
|
|
30.3
|
%
|
|
$
|
1,362,268
|
|
|
30.7
|
%
|
|
Interest bearing
demand deposits
|
1,324,177
|
|
|
29.0
|
|
|
1,263,843
|
|
|
29.1
|
|
|
1,317,513
|
|
|
29.7
|
|
|
Money market
accounts
|
776,107
|
|
|
17.0
|
|
|
757,156
|
|
|
17.4
|
|
|
765,316
|
|
|
17.3
|
|
|
Savings
accounts
|
508,228
|
|
|
11.2
|
|
|
502,198
|
|
|
11.6
|
|
|
520,413
|
|
|
11.8
|
|
|
Total non-maturity
deposits
|
4,037,947
|
|
|
88.5
|
|
|
3,843,940
|
|
|
88.4
|
|
|
3,965,510
|
|
|
89.5
|
|
|
Certificates of
deposit
|
524,310
|
|
|
11.5
|
|
|
503,768
|
|
|
11.6
|
|
|
466,892
|
|
|
10.5
|
|
|
Total
deposits
|
$
|
4,562,257
|
|
|
100.0
|
%
|
|
$
|
4,347,708
|
|
|
100.0
|
%
|
|
$
|
4,432,402
|
|
|
100.0
|
%
|
During the quarter ended September 30, 2019, the Company
repurchased 264,712 shares of its common stock at an weighted
average price per share of $26.23, or
$6.9 million in total under its
current stock repurchase plan. As of September 30, 2019, there
were 639,922 shares available for repurchase under the current
stock repurchase plan.
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%, 10.8%, 12.1% and 12.9%,
respectively, at September 30, 2019, compared to 11.8%, 10.8%,
12.2% and 13.0%, respectively, at June 30, 2019 and 11.7%,
10.5%, 12.1%, and 12.9%, respectively, at December 31,
2018.
Credit Quality
The allowance for loan losses increased
$155,000, or 0.4%, to $36.5 million at September 30, 2019 from
$36.4 million at June 30, 2019.
The increase was due to provision for loan losses of $466,000, offset partially by net charge-offs of
$311,000 recognized during the
quarter ended September 30, 2019 due primarily to net
charge-offs of $374,000 on a large
volume of small dollar consumer loans and a commercial and
industrial loan charge-off of $249,000, offset partially by a recovery of
$292,000 from a previously charged
off non-owner occupied commercial real estate loan. Net charge-offs
were $1.2 million for the
linked-quarter ended June 30, 2019 and $562,000 for the same quarter in 2018.
Nonperforming assets increased to 0.77% of total assets at
September 30, 2019 compared to 0.38% of total assets at
June 30, 2019. The increase was due primarily to an increase
in nonaccrual loans as a result of the addition of two commercial
lending relationships totaling $22.3
million which showed increased signs of cash flow
deterioration during the quarter ended September 30, 2019. One of the relationships
is an agricultural business relationship of $20.0 million, of which $6.8 million was previously classified as
troubled debt restructured ("TDR") loans.
Changes in nonaccrual loans during the periods indicated were as
follows:
|
Three Months
Ended
|
|
September 30,
2019
|
|
June 30,
2019
|
|
September 30,
2018
|
|
(Dollars in
thousands)
|
|
Balance, beginning of
period
|
$
|
19,293
|
|
|
$
|
17,461
|
|
|
$
|
16,523
|
|
|
Addition of previously
classified pass graded loans
|
275
|
|
|
3,583
|
|
|
1,177
|
|
|
Addition of previously
classified potential problem loans
|
15,645
|
|
|
164
|
|
|
645
|
|
|
Addition of previously
classified TDR loans
|
7,051
|
|
|
—
|
|
|
—
|
|
|
Net principal
payments
|
(454)
|
|
|
(1,554)
|
|
|
(3,409)
|
|
|
Acquired in Premier
Merger
|
—
|
|
|
—
|
|
|
130
|
|
|
Charge-offs
|
(299)
|
|
|
(361)
|
|
|
(286)
|
|
|
Balance, end of
period
|
$
|
41,511
|
|
|
$
|
19,293
|
|
|
$
|
14,780
|
|
The increase to the ratio of nonperforming assets to total
assets was partially offset by a decrease in other real estate
owned of $383,000, or 31.3%, to
$841,000 at September 30, 2019
from $1.2 million at June 30,
2019. This decrease was due primarily to the sale of a property
which occurred during the quarter ended September 30,
2019.
Potential problem loans decreased $28.8
million, or 25.2%, to $85.3
million at September 30, 2019 compared to $114.1 million at June 30, 2019. The
decrease was primarily attributed to the transfer of four
commercial lending relationships totaling $17.7 million at June 30, 2019 to nonaccrual
or TDR status including $11.3 million
related to the one agricultural business relationship previously
discussed. The activity for the quarter ended September 30,
2019 also includes payment in full of two commercial and
industrial relationships totaling $3.3
million and the significant pay down of two commercial
business lines of credit totaling $3.1
million.
Changes in potential problem loans during the periods indicated
were as follows:
|
Three Months
Ended
|
|
September 30,
2019
|
|
June 30,
2019
|
|
September 30,
2018
|
|
(Dollars in
thousands)
|
|
Balance, beginning of
period
|
$
|
114,095
|
|
|
$
|
94,116
|
|
|
$
|
101,491
|
|
|
Addition of
previously classified pass graded loans
|
5,566
|
|
|
30,911
|
|
|
8,451
|
|
|
Acquired in Premier
Merger
|
—
|
|
|
—
|
|
|
10,139
|
|
|
Upgrades to pass
graded loan status
|
(5,958)
|
|
|
(2,858)
|
|
|
(6,230)
|
|
|
Net principal
payments
|
(8,962)
|
|
|
(3,091)
|
|
|
(7,065)
|
|
|
Transfers of loans to
nonaccrual and TDR status
|
(19,319)
|
|
|
(4,743)
|
|
|
(1,001)
|
|
|
Charge-offs
|
(83)
|
|
|
(240)
|
|
|
(43)
|
|
|
Balance, end of
period
|
$
|
85,339
|
|
|
$
|
114,095
|
|
|
$
|
105,742
|
|
The allowance for loan losses to loans receivable, net, remained
at 0.98% at both September 30, 2019 and June 30, 2019.
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 $9.1 million at September 30, 2019 compared
to $10.0 million at June 30,
2019 and $13.4 million at
September 30, 2018.
The allowance for loan losses to nonaccrual loans decreased to
87.97% at September 30, 2019 compared to 188.48% at
June 30, 2019. The decrease was the result of the significant
additions to nonaccrual loans during the quarter ended September 30, 2019 which did not require
proportional increase in the specific reserve based on the specific
impairment analysis. 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 September 30, 2019.
Operating Results
Net interest income decreased
$293,000, or 0.6%, to $50.2 million for the quarter ended
September 30, 2019 from $50.5
million for the linked-quarter ended June 30, 2019 due
primarily to a decrease in the yield of interest earning assets
substantially as a result of decreasing interest rates on
adjustable rate commercial business loans from the decreases in
short-term market rates during the quarter ended September 30, 2019. Net interest income decreased
$883,000, or 1.7%, compared to
$51.1 million for the same period in
2018 due to a decrease in the loan yield, primarily as a result of
lower incremental accretion on purchased loans, and an increase in
the cost of total interest bearing deposits, offset partially by a
higher average balance and yield on taxable security
investments.
Net interest margin decreased 12 basis points to 4.21% for the
quarter ended September 30, 2019 from 4.33% for the
linked-quarter ended June 30, 2019 and decreased 20 basis
points from 4.41% for the quarter ended September 30, 2018 due
primarily to decreases in loan yields and increases in the cost of
total interest bearing deposits.
Loan yield decreased 12 basis points to 5.16% for the quarter
ended September 30, 2019 from 5.28% for the linked-quarter
ended June 30, 2019 due partly to decreases in the short-term
market rates during the quarter ended September 30, 2019 and a decrease of five basis
points due to the reversal of loan interest income related to the
one agricultural business relationship of $20.0 million which was transferred to nonaccrual
status during the quarter ended September 30, 2019.
Additionally, loan yield decreased four basis points due to lower
incremental accretion on purchased loans during the quarter ended
September 30, 2019. Loan yield
decreased 14 basis points from 5.30% for the quarter ended
September 30, 2018 due primarily to lower incremental
accretion on purchased loans of 17 basis points and the reversal of
interest income from the transfer of the agricultural relationship
to nonaccrual during the quarter ended September 30, 2019, offset partially by higher
short-term market rates during the quarter ended September 30, 2019 compared to the same period in
2018.
The impact on loan yield from incremental accretion on purchased
loans decreased four basis points to 0.12% for the quarter ended
September 30, 2019 from 0.16% for the linked-quarter ended
June 30, 2019 and decreased 17 basis points from 0.29% for the
quarter end September 30, 2018. The decreases were primarily a
result of the decrease in the balances of loans acquired in the
mergers with Puget Sound Bancorp, Inc. and Premier Commercial
Bancorp (the "Premier and Puget Mergers") both of which occurred in
2018. 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
|
|
September 30,
2019
|
|
June 30,
2019
|
|
September 30,
2018
|
|
(Dollars in
thousands)
|
|
Yield non-GAAP
reconciliations:(2)
|
|
Net interest margin
(GAAP)
|
4.21
|
%
|
|
4.33
|
%
|
|
4.41
|
%
|
|
Exclude impact on net
interest margin from incremental accretion on purchased
loans(1)
|
0.09
|
%
|
|
0.12
|
%
|
|
0.23
|
%
|
|
Net interest margin,
excluding incremental accretion on purchased loans (non-
GAAP)(1)
|
4.12
|
%
|
|
4.21
|
%
|
|
4.18
|
%
|
|
|
|
|
|
|
|
Loan yield
(GAAP)
|
5.16
|
%
|
|
5.28
|
%
|
|
5.30
|
%
|
|
Exclude impact on
loan yield from incremental accretion on purchased
loans(1)
|
0.12
|
%
|
|
0.16
|
%
|
|
0.29
|
%
|
|
Loan yield, excluding
incremental accretion on purchased loans
(non-GAAP)(1)
|
5.04
|
%
|
|
5.12
|
%
|
|
5.01
|
%
|
|
|
|
|
|
|
|
Incremental accretion
on purchased loans(1)
|
$
|
1,090
|
|
|
$
|
1,416
|
|
|
$
|
2,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
The yield on the aggregate investment portfolio decreased nine
basis points to 2.71% for the quarter ended September 30, 2019
from 2.80% for the linked-quarter ended June 30, 2019 due to a
decrease in market interest rates impacting adjustable rate
securities. The yield on the aggregate investment portfolio
increased 13 basis points from 2.58% for the quarter ended
September 30, 2018 due primarily to the effect of higher
yielding interest rates on new purchases of investment
securities.
The cost of total deposits increased one basis point to 0.38%
during the quarter ended September 30, 2019 from 0.37% during
the linked-quarter ended June 30, 2019 due to competitive
pressures. The cost of total deposits increased 11 basis points
compared to 0.27% during the same quarter in 2018 due to an
increase in interest rates and competitive pressures.
Donald J. Hinson, Executive Vice
President and Chief Financial Officer, commented, "We are pleased
with the stabilization of our cost of total deposits while at the
same time growing deposits significantly during the quarter. The
increase in noninterest bearing demand deposits played a
significant role in maintaining our low cost of deposits and is
evidence of our continued successful focus on relationship banking
in the communities we serve."
The provision for loan losses decreased $901,000, or 65.9%, to $466,000 for the quarter ended September 30,
2019 from $1.4 million for the
linked-quarter ended June 30, 2019 due primarily to a decrease
in net-charge-offs to $311,000 during
the quarter ended September 30, 2019 compared to
net-charge-offs of $1.2 million
during the linked-quarter ended June 30, 2019. The provision
for loan losses decreased $599,000,
or 56.2%, compared to $1.1 million
for the quarter ended September 30, 2018 due primarily to the
provision expense necessary during the quarter ended
September 30, 2018 as a result of increases in total loan
balances from the Premier and Puget Mergers. The amount of
provision for loan losses during the quarter ended September 30, 2019 was necessary to increase the
allowance for loan losses to an amount that management determined
to be appropriate at September 30, 2019 based on the use of a
consistent methodology.
Noninterest income increased $894,000, or 11.8%, to $8.5 million for the quarter ended
September 30, 2019 from the linked-quarter ended June 30,
2019 primarily due to an increase in gain on sale of loans, net of
$625,000 as gains on sales of
mortgage loans increased and, based on a rate environment
more favorable to sales, the Bank resumed sales of the guaranteed
portion of Small Business Administration ("SBA") loans. In
addition, the gain on sale of investment securities, net increased
$199,000. Proceeds from the sale of
mortgage loans and the guaranteed portion of SBA loans increased
$16.8 million, or 147.6%, to
$28.2 million during the quarter
ended September 30, 2019 from $11.4
million for the linked quarter ended June 30, 2019.
Noninterest income increased $408,000, or 5.1%, from $8.1 million for the same period in 2018 due
primarily to increases in the gain on sale of loans, net and gain
on sale of investment securities, net.
Noninterest expense decreased $828,000, or 2.2%, to $36.7 million for the quarter ended
September 30, 2019 from $37.5
million for the linked-quarter ended June 30, 2019 due
primarily to a decrease in federal deposit insurance premium
expense as a result of a small bank credit awarded by the Federal
Deposit Insurance Corporation ("FDIC") recognized during the
quarter ended September 30, 2019. The
Bank has $883,000 in small bank
credits on future assessments remaining as of September 30, 2019, which may be recognized in
future periods when allowed for by the FDIC upon insurance fund
levels being met. The decrease in noninterest expense was also due
to a decrease in other real estate owned, net expense due to the
$279,000 loss on disposition of other
real estate owned property recognized during the quarter ended
June 30, 2019. The decrease in
noninterest expense was partially offset by an increase in
state/municipal business and use taxes expense as a result of an
assessment in the amount of $537,000
from a Washington State Department
of Revenue Business and Occupation audit and an increase in
professional service expense of $171,000 due to consulting fees related to the
implementation efforts for the pending Current Expected Credit
Losses accounting standard.
Noninterest expense decreased $2.7
million, or 6.9%, compared to $39.5
million for the quarter ended September 30, 2018.
Acquisition-related expenses incurred during the quarter ended
September 30, 2018 were approximately
$3.4 million, of which $1.9 million and $1.1
million were due to compensation and employee benefits
expense and professional service expense, respectively. There were
no acquisition-related expenses incurred during the quarter ended
September 30, 2019.
Income tax expense was $3.6
million for the quarter ended September 30, 2019
compared to $3.2 million for the
linked-quarter ended June 30, 2019 and $3.1 million for the comparable quarter ended
September 30, 2018. The effective tax rate was 16.8% for the
quarter ended September 30, 2019 compared to 16.7% for the
linked-quarter ended June 30, 2019 and 16.9% for the quarter
ended September 30, 2018.
Dividends
On October 23, 2019, the Company's
Board of Directors declared a quarterly cash dividend of
$0.19 per share and a special cash
dividend of $0.10 per common share.
The dividends are payable on November 21, 2019 to shareholders
of record as of the close of business on November 7, 2019.
Earnings Conference Call
The Company will hold a
telephone conference call to discuss this earnings release on
October 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
November 7, 2019, by dialing (800)
475-6701 -- access code 472935.
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 62 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.
|
September 30,
2019
|
|
June 30,
2019
|
|
March 31,
2019
|
|
December 31,
2018
|
|
September 30,
2018
|
|
(Dollar amounts in
thousands, except per share amounts)
|
|
Tangible common
equity to tangible assets and tangible book value per
share:
|
|
Total stockholders'
equity (GAAP)
|
$
|
804,127
|
|
|
$
|
796,625
|
|
|
$
|
778,191
|
|
|
$
|
760,723
|
|
|
$
|
746,133
|
|
|
Exclude intangible
assets
|
(258,527)
|
|
|
(259,502)
|
|
|
(260,528)
|
|
|
(261,553)
|
|
|
(262,565)
|
|
|
Tangible common
equity (non-GAAP)
|
$
|
545,600
|
|
|
$
|
537,123
|
|
|
$
|
517,663
|
|
|
$
|
499,170
|
|
|
$
|
483,568
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
(GAAP)
|
$
|
5,515,185
|
|
|
$
|
5,376,686
|
|
|
$
|
5,342,099
|
|
|
$
|
5,316,927
|
|
|
$
|
5,276,214
|
|
|
Exclude intangible
assets
|
(258,527)
|
|
|
(259,502)
|
|
|
(260,528)
|
|
|
(261,553)
|
|
|
(262,565)
|
|
|
Tangible assets
(non-GAAP)
|
$
|
5,256,658
|
|
|
$
|
5,117,184
|
|
|
$
|
5,081,571
|
|
|
$
|
5,055,374
|
|
|
$
|
5,013,649
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
to total assets (GAAP)
|
14.6
|
%
|
|
14.8
|
%
|
|
14.6
|
%
|
|
14.3
|
%
|
|
14.1
|
%
|
|
Tangible common
equity to tangible assets (non-GAAP)
|
10.4
|
%
|
|
10.5
|
%
|
|
10.2
|
%
|
|
9.9
|
%
|
|
9.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Shares
outstanding
|
36,618,381
|
|
|
36,882,771
|
|
|
36,899,138
|
|
|
36,874,055
|
|
|
36,873,123
|
|
|
Book value per share
(GAAP)
|
$
|
21.96
|
|
|
$
|
21.60
|
|
|
$
|
21.09
|
|
|
$
|
20.63
|
|
|
$
|
20.24
|
|
|
Tangible book value
per share (non-GAAP)
|
$
|
14.90
|
|
|
$
|
14.56
|
|
|
$
|
14.03
|
|
|
$
|
13.54
|
|
|
$
|
13.11
|
|
|
Three Months
Ended
|
|
September
30,
2019
|
|
June
30,
2019
|
|
September
30,
2018
|
|
(Dollar amounts in
thousands)
|
|
Return on average
tangible common equity, annualized:
|
|
Net income
(GAAP)
|
$
|
17,895
|
|
|
$
|
15,984
|
|
|
$
|
15,504
|
|
|
Exclude amortization
of intangible assets
|
975
|
|
|
1,026
|
|
|
1,114
|
|
|
Exclude tax effect of
adjustment
|
(205)
|
|
|
(215)
|
|
|
(234)
|
|
|
Tangible net income
(non-GAAP)
|
$
|
18,665
|
|
|
$
|
16,795
|
|
|
$
|
16,384
|
|
|
|
|
|
|
|
|
Average stockholders'
equity (GAAP)
|
$
|
801,393
|
|
|
$
|
782,719
|
|
|
$
|
744,389
|
|
|
Exclude average
intangible assets
|
(259,166)
|
|
|
(260,167)
|
|
|
(262,644)
|
|
|
Average tangible
common stockholders' equity (non-GAAP)
|
$
|
542,227
|
|
|
$
|
522,552
|
|
|
$
|
481,745
|
|
|
|
|
|
|
|
|
Return on average
equity, annualized (GAAP)
|
8.86
|
%
|
|
8.19
|
%
|
|
8.26
|
%
|
|
Return on average
tangible common equity, annualized (non-GAAP)
|
13.66
|
%
|
|
12.89
|
%
|
|
13.49
|
%
|
|
Three Months
Ended
|
|
September 30,
2019
|
|
June 30,
2019
|
|
September 30,
2018
|
|
(Dollars in
thousands)
|
|
Net interest
margin, excluding incremental accretion on purchased loans,
annualized and loan yield, excluding incremental accretion on
purchased loans, annualized:
|
|
Net interest income
(GAAP)
|
$
|
50,243
|
|
|
$
|
50,536
|
|
|
$
|
51,126
|
|
|
Exclude incremental
accretion on purchased loans
|
(1,090)
|
|
|
(1,416)
|
|
|
(2,637)
|
|
|
Adjusted net interest
income (non-GAAP)
|
$
|
49,153
|
|
|
$
|
49,120
|
|
|
$
|
48,489
|
|
|
|
|
|
|
|
|
Average total
interest earning assets, net
|
$
|
4,736,704
|
|
|
$
|
4,681,588
|
|
|
$
|
4,596,734
|
|
|
Net interest margin,
annualized (GAAP)
|
4.21
|
%
|
|
4.33
|
%
|
|
4.41
|
%
|
|
Net interest margin,
excluding incremental accretion on purchased loans, annualized
(non-GAAP)
|
4.12
|
%
|
|
4.21
|
%
|
|
4.18
|
%
|
|
|
|
|
|
|
|
Interest and fees on
loans (GAAP)
|
$
|
47,845
|
|
|
$
|
48,107
|
|
|
$
|
48,301
|
|
|
Exclude incremental
accretion on purchased loans
|
(1,090)
|
|
|
(1,416)
|
|
|
(2,637)
|
|
|
Adjusted interest and
fees on loans (non-GAAP)
|
$
|
46,755
|
|
|
$
|
46,691
|
|
|
$
|
45,664
|
|
|
|
|
|
|
|
|
Average total loans
receivable, net
|
$
|
3,677,405
|
|
|
$
|
3,654,475
|
|
|
$
|
3,618,031
|
|
|
Loan yield,
annualized (GAAP)
|
5.16
|
%
|
|
5.28
|
%
|
|
5.30
|
%
|
|
Loan yield, excluding
incremental accretion on purchased loans, annualized
(non-GAAP)
|
5.04
|
%
|
|
5.12
|
%
|
|
5.01
|
%
|
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 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)
|
|
(Dollar amounts in
thousands, except shares)
|
|
|
September 30,
2019
|
|
June 30,
2019
|
|
December 31,
2018
|
|
Assets
|
|
|
|
|
|
|
Cash on hand and in
banks
|
$
|
115,500
|
|
|
$
|
95,878
|
|
|
$
|
92,704
|
|
|
Interest earning
deposits
|
121,468
|
|
|
43,412
|
|
|
69,206
|
|
|
Cash and cash
equivalents
|
236,968
|
|
|
139,290
|
|
|
161,910
|
|
|
Investment securities
available for sale
|
966,102
|
|
|
960,680
|
|
|
976,095
|
|
|
Loans held for
sale
|
5,211
|
|
|
3,692
|
|
|
1,555
|
|
|
Loans receivable,
net
|
3,731,343
|
|
|
3,718,283
|
|
|
3,654,160
|
|
|
Allowance for loan
losses
|
(36,518)
|
|
|
(36,363)
|
|
|
(35,042)
|
|
|
Total loans
receivable, net
|
3,694,825
|
|
|
3,681,920
|
|
|
3,619,118
|
|
|
Other real estate
owned
|
841
|
|
|
1,224
|
|
|
1,983
|
|
|
Premises and
equipment, net
|
86,563
|
|
|
84,296
|
|
|
81,100
|
|
|
Federal Home Loan
Bank stock, at cost
|
6,377
|
|
|
10,005
|
|
|
6,076
|
|
|
Bank owned life
insurance
|
102,981
|
|
|
94,417
|
|
|
93,612
|
|
|
Accrued interest
receivable
|
14,722
|
|
|
15,401
|
|
|
15,403
|
|
|
Prepaid expenses and
other assets
|
142,068
|
|
|
126,259
|
|
|
98,522
|
|
|
Other intangible
assets, net
|
17,588
|
|
|
18,563
|
|
|
20,614
|
|
|
Goodwill
|
240,939
|
|
|
240,939
|
|
|
240,939
|
|
|
Total
assets
|
$
|
5,515,185
|
|
|
$
|
5,376,686
|
|
|
$
|
5,316,927
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
|
Deposits
|
$
|
4,562,257
|
|
|
$
|
4,347,708
|
|
|
$
|
4,432,402
|
|
|
Federal Home Loan
Bank advances
|
—
|
|
|
90,700
|
|
|
—
|
|
|
Junior subordinated
debentures
|
20,522
|
|
|
20,448
|
|
|
20,302
|
|
|
Securities sold under
agreement to repurchase
|
25,883
|
|
|
23,141
|
|
|
31,487
|
|
|
Accrued expenses and
other liabilities
|
102,396
|
|
|
98,064
|
|
|
72,013
|
|
|
Total
liabilities
|
4,711,058
|
|
|
4,580,061
|
|
|
4,556,204
|
|
|
|
|
|
|
|
|
Common
stock
|
585,581
|
|
|
591,703
|
|
|
591,806
|
|
|
Retained
earnings
|
206,021
|
|
|
195,168
|
|
|
176,372
|
|
|
Accumulated other
comprehensive gain (loss), net
|
12,525
|
|
|
9,754
|
|
|
(7,455)
|
|
|
Total stockholders'
equity
|
804,127
|
|
|
796,625
|
|
|
760,723
|
|
|
Total liabilities and
stockholders' equity
|
$
|
5,515,185
|
|
|
$
|
5,376,686
|
|
|
$
|
5,316,927
|
|
|
|
|
|
|
|
|
Shares
outstanding
|
36,618,381
|
|
|
36,882,771
|
|
|
36,874,055
|
|
|
HERITAGE FINANCIAL
CORPORATION
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF
INCOME (Unaudited)
|
|
(Dollar amounts in
thousands, except per share amounts)
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
September 30,
2019
|
|
June 30,
2019
|
|
September 30,
2018
|
|
September 30,
2019
|
|
September 30,
2018
|
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on
loans
|
$
|
47,845
|
|
|
$
|
48,107
|
|
|
$
|
48,301
|
|
|
$
|
142,651
|
|
|
$
|
127,601
|
|
|
Taxable interest on
investment securities
|
5,704
|
|
|
5,933
|
|
|
4,662
|
|
|
17,460
|
|
|
12,259
|
|
|
Nontaxable interest on
investment securities
|
798
|
|
|
893
|
|
|
1,085
|
|
|
2,641
|
|
|
3,646
|
|
|
Interest on other
interest earning assets
|
537
|
|
|
283
|
|
|
558
|
|
|
1,155
|
|
|
1,016
|
|
|
Total interest
income
|
54,884
|
|
|
55,216
|
|
|
54,606
|
|
|
163,907
|
|
|
144,522
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
4,250
|
|
|
4,017
|
|
|
3,014
|
|
|
11,870
|
|
|
7,169
|
|
|
Junior subordinated
debentures
|
332
|
|
|
340
|
|
|
330
|
|
|
1,026
|
|
|
928
|
|
|
Other
borrowings
|
59
|
|
|
323
|
|
|
136
|
|
|
444
|
|
|
721
|
|
|
Total interest
expense
|
4,641
|
|
|
4,680
|
|
|
3,480
|
|
|
13,340
|
|
|
8,818
|
|
|
Net interest
income
|
50,243
|
|
|
50,536
|
|
|
51,126
|
|
|
150,567
|
|
|
135,704
|
|
|
Provision for loan
losses
|
466
|
|
|
1,367
|
|
|
1,065
|
|
|
2,753
|
|
|
3,967
|
|
|
Net interest income
after provision for loan losses
|
49,777
|
|
|
49,169
|
|
|
50,061
|
|
|
147,814
|
|
|
131,737
|
|
|
Noninterest
income:
|
|
|
|
|
|
|
|
|
|
|
Service charges and
other fees
|
4,779
|
|
|
4,845
|
|
|
4,824
|
|
|
14,109
|
|
|
14,062
|
|
|
Gain on sale of
investment securities, net
|
281
|
|
|
33
|
|
|
82
|
|
|
329
|
|
|
135
|
|
|
Gain on sale of loans,
net
|
993
|
|
|
368
|
|
|
706
|
|
|
1,613
|
|
|
2,286
|
|
|
Interest rate swap
fees
|
152
|
|
|
161
|
|
|
—
|
|
|
313
|
|
|
360
|
|
|
Other
income
|
2,253
|
|
|
2,157
|
|
|
2,438
|
|
|
7,087
|
|
|
6,330
|
|
|
Total noninterest
income
|
8,458
|
|
|
7,564
|
|
|
8,050
|
|
|
23,451
|
|
|
23,173
|
|
|
Noninterest
expense:
|
|
|
|
|
|
|
|
|
|
|
Compensation and
employee benefits
|
21,733
|
|
|
21,982
|
|
|
23,804
|
|
|
65,629
|
|
|
64,492
|
|
|
Occupancy and
equipment
|
5,268
|
|
|
5,451
|
|
|
5,020
|
|
|
16,177
|
|
|
14,457
|
|
|
Data
processing
|
2,333
|
|
|
2,109
|
|
|
2,343
|
|
|
6,615
|
|
|
7,455
|
|
|
Marketing
|
816
|
|
|
1,106
|
|
|
876
|
|
|
3,020
|
|
|
2,507
|
|
|
Professional
services
|
1,434
|
|
|
1,305
|
|
|
2,119
|
|
|
3,912
|
|
|
8,485
|
|
|
State/municipal
business and use taxes
|
1,370
|
|
|
809
|
|
|
795
|
|
|
2,977
|
|
|
2,199
|
|
|
Federal deposit
insurance premium
|
9
|
|
|
426
|
|
|
375
|
|
|
720
|
|
|
1,105
|
|
|
Other real estate
owned, net
|
(35)
|
|
|
289
|
|
|
18
|
|
|
340
|
|
|
18
|
|
|
Amortization of
intangible assets
|
975
|
|
|
1,026
|
|
|
1,114
|
|
|
3,026
|
|
|
2,705
|
|
|
Other
expense
|
2,816
|
|
|
3,044
|
|
|
2,997
|
|
|
8,375
|
|
|
8,491
|
|
|
Total noninterest
expense
|
36,719
|
|
|
37,547
|
|
|
39,461
|
|
|
110,791
|
|
|
111,914
|
|
|
Income before income
taxes
|
21,516
|
|
|
19,186
|
|
|
18,650
|
|
|
60,474
|
|
|
42,996
|
|
|
Income tax
expense
|
3,621
|
|
|
3,202
|
|
|
3,146
|
|
|
10,043
|
|
|
6,548
|
|
|
Net income
|
$
|
17,895
|
|
|
$
|
15,984
|
|
|
$
|
15,504
|
|
|
$
|
50,431
|
|
|
$
|
36,448
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$
|
0.49
|
|
|
$
|
0.43
|
|
|
$
|
0.42
|
|
|
$
|
1.37
|
|
|
$
|
1.04
|
|
|
Diluted earnings per
share
|
$
|
0.48
|
|
|
$
|
0.43
|
|
|
$
|
0.42
|
|
|
$
|
1.36
|
|
|
$
|
1.04
|
|
|
Dividends declared
per share
|
$
|
0.19
|
|
|
$
|
0.18
|
|
|
$
|
0.15
|
|
|
$
|
0.55
|
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of
basic shares outstanding
|
36,742,862
|
|
|
36,870,159
|
|
|
36,771,946
|
|
|
36,812,548
|
|
|
34,650,448
|
|
|
Average number of
diluted shares outstanding
|
36,876,548
|
|
|
37,014,873
|
|
|
36,963,244
|
|
|
36,973,024
|
|
|
34,820,602
|
|
|
HERITAGE FINANCIAL
CORPORATION
|
|
FINANCIAL
STATISTICS (Unaudited)
|
|
(Dollar amounts in
thousands, except per share amounts)
|
|
|
As of Period
End
|
|
September 30,
2019
|
|
June 30,
2019
|
|
December 31,
2018
|
|
Capital
Ratios:
|
|
|
|
|
|
|
Stockholders' equity
to total assets
|
14.6
|
%
|
|
14.8
|
%
|
|
14.3
|
%
|
|
Tangible common
equity to tangible assets
|
10.4
|
%
|
|
10.5
|
%
|
|
9.9
|
%
|
|
Common equity Tier 1
capital to risk-weighted assets
|
11.6
|
%
|
|
11.8
|
%
|
|
11.7
|
%
|
|
Tier 1 leverage
capital to average quarterly assets
|
10.8
|
%
|
|
10.8
|
%
|
|
10.5
|
%
|
|
Tier 1 capital to
risk-weighted assets
|
12.1
|
%
|
|
12.2
|
%
|
|
12.1
|
%
|
|
Total capital to
risk-weighted assets
|
12.9
|
%
|
|
13.0
|
%
|
|
12.9
|
%
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
September 30,
2019
|
|
June 30,
2019
|
|
September 30,
2018
|
|
September 30,
2019
|
|
September 30,
2018
|
|
Allowance for Loan
Losses:
|
|
|
Balance, beginning of
period
|
$
|
36,363
|
|
|
$
|
36,152
|
|
|
$
|
33,972
|
|
|
$
|
35,042
|
|
|
$
|
32,086
|
|
|
Provision for loan
losses
|
466
|
|
|
1,367
|
|
|
1,065
|
|
|
2,753
|
|
|
3,967
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
Commercial
business
|
(306)
|
|
|
(774)
|
|
|
(300)
|
|
|
(1,183)
|
|
|
(923)
|
|
|
One-to-four family
residential
|
(15)
|
|
|
(15)
|
|
|
(15)
|
|
|
(45)
|
|
|
(30)
|
|
|
Consumer
|
(501)
|
|
|
(566)
|
|
|
(530)
|
|
|
(1,653)
|
|
|
(1,709)
|
|
|
Total
charge-offs
|
(822)
|
|
|
(1,355)
|
|
|
(845)
|
|
|
(2,881)
|
|
|
(2,662)
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
Commercial
business
|
381
|
|
|
62
|
|
|
121
|
|
|
602
|
|
|
690
|
|
|
Real estate
construction and land development
|
3
|
|
|
7
|
|
|
3
|
|
|
628
|
|
|
5
|
|
|
Consumer
|
127
|
|
|
130
|
|
|
159
|
|
|
374
|
|
|
389
|
|
|
Total
recoveries
|
511
|
|
|
199
|
|
|
283
|
|
|
1,604
|
|
|
1,084
|
|
|
Net
charge-offs
|
(311)
|
|
|
(1,156)
|
|
|
(562)
|
|
|
(1,277)
|
|
|
(1,578)
|
|
|
Balance, end of
period
|
$
|
36,518
|
|
|
$
|
36,363
|
|
|
$
|
34,475
|
|
|
$
|
36,518
|
|
|
$
|
34,475
|
|
|
Net charge-offs on
loans to average loans, annualized
|
0.03
|
%
|
|
0.13
|
%
|
|
0.06
|
%
|
|
0.05
|
%
|
|
0.06
|
%
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
September 30,
2019
|
|
June 30,
2019
|
|
September 30,
2018
|
|
September 30,
2019
|
|
September 30,
2018
|
|
Other Real Estate
Owned:
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of
period
|
$
|
1,224
|
|
|
$
|
1,904
|
|
|
$
|
434
|
|
|
$
|
1,983
|
|
|
$
|
—
|
|
|
Additions from
transfer of loan
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
434
|
|
|
Additions from
acquisitions
|
—
|
|
|
—
|
|
|
1,796
|
|
|
—
|
|
|
1,796
|
|
|
Proceeds from
dispositions
|
(435)
|
|
|
(350)
|
|
|
(198)
|
|
|
(864)
|
|
|
(198)
|
|
|
Gain (loss) on sales,
net
|
52
|
|
|
(279)
|
|
|
—
|
|
|
(227)
|
|
|
—
|
|
|
Valuation
adjustments
|
—
|
|
|
(51)
|
|
|
—
|
|
|
(51)
|
|
|
—
|
|
|
Balance, end of
period
|
$
|
841
|
|
|
$
|
1,224
|
|
|
$
|
2,032
|
|
|
$
|
841
|
|
|
$
|
2,032
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
September 30,
2019
|
|
June 30,
2019
|
|
September 30,
2018
|
|
September 30,
2019
|
|
September 30,
2018
|
|
Gain on Sale of
Loans, net:
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
$
|
728
|
|
|
$
|
368
|
|
|
$
|
706
|
|
|
$
|
1,348
|
|
|
$
|
1,930
|
|
|
SBA loans
|
265
|
|
|
—
|
|
|
—
|
|
|
265
|
|
|
356
|
|
|
Total gain on sale of
loans, net
|
$
|
993
|
|
|
$
|
368
|
|
|
$
|
706
|
|
|
$
|
1,613
|
|
|
$
|
2,286
|
|
|
As of Period
End
|
|
September 30,
2019
|
|
June 30,
2019
|
|
December 31,
2018
|
|
Nonperforming
Assets:
|
|
|
|
|
|
|
Nonaccrual loans by
type:
|
|
|
|
|
|
|
Commercial
business
|
$
|
40,742
|
|
|
$
|
18,287
|
|
|
$
|
12,564
|
|
|
One-to-four family
residential
|
19
|
|
|
19
|
|
|
71
|
|
|
Real estate
construction and land development
|
560
|
|
|
793
|
|
|
899
|
|
|
Consumer
|
190
|
|
|
194
|
|
|
169
|
|
|
Total nonaccrual
loans(1)
|
41,511
|
|
|
19,293
|
|
|
13,703
|
|
|
Other real estate
owned
|
841
|
|
|
1,224
|
|
|
1,983
|
|
|
Nonperforming
assets
|
$
|
42,352
|
|
|
$
|
20,517
|
|
|
$
|
15,686
|
|
|
|
|
|
|
|
|
Restructured
performing loans
|
$
|
19,416
|
|
|
$
|
25,925
|
|
|
$
|
22,736
|
|
|
Accruing loans past
due 90 days or more
|
—
|
|
|
—
|
|
|
—
|
|
|
Potential problem
loans(2)
|
85,339
|
|
|
114,095
|
|
|
101,349
|
|
|
Allowance for loan
losses to:
|
|
|
|
|
|
|
Loans receivable,
net
|
0.98
|
%
|
|
0.98
|
%
|
|
0.96
|
%
|
|
Nonaccrual
loans
|
87.97
|
%
|
|
188.48
|
%
|
|
255.73
|
%
|
|
Nonperforming loans
to loans receivable, net
|
1.11
|
%
|
|
0.52
|
%
|
|
0.37
|
%
|
|
Nonperforming assets
to total assets
|
0.77
|
%
|
|
0.38
|
%
|
|
0.30
|
%
|
|
|
|
(1)
|
At September 30,
2019, June 30, 2019 and December 31, 2018, $17.5 million,
8.1 million and $6.9 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.
|
|
Three Months
Ended
|
|
September 30,
2019
|
|
June 30,
2019
|
|
September 30,
2018
|
|
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)
|
|
(Dollars in
thousands)
|
|
Interest Earning
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
receivable, net (2) (3)
|
$
|
3,677,405
|
|
|
$
|
47,845
|
|
|
5.16
|
%
|
|
$
|
3,654,475
|
|
|
$
|
48,107
|
|
|
5.28
|
%
|
|
$
|
3,618,031
|
|
|
$
|
48,301
|
|
|
5.30
|
%
|
|
Taxable
securities
|
823,498
|
|
|
5,704
|
|
|
2.75
|
|
|
840,254
|
|
|
5,933
|
|
|
2.83
|
|
|
707,597
|
|
|
4,662
|
|
|
2.61
|
|
|
Nontaxable securities
(3)
|
129,061
|
|
|
798
|
|
|
2.45
|
|
|
139,278
|
|
|
893
|
|
|
2.57
|
|
|
176,322
|
|
|
1,085
|
|
|
2.44
|
|
|
Other interest
earning assets
|
106,740
|
|
|
537
|
|
|
2.00
|
|
|
47,581
|
|
|
283
|
|
|
2.39
|
|
|
94,784
|
|
|
558
|
|
|
2.34
|
|
|
Total interest
earning assets
|
4,736,704
|
|
|
54,884
|
|
|
4.60
|
%
|
|
4,681,588
|
|
|
55,216
|
|
|
4.73
|
%
|
|
4,596,734
|
|
|
54,606
|
|
|
4.71
|
%
|
|
Noninterest earning
assets
|
679,687
|
|
|
|
|
|
|
669,217
|
|
|
|
|
|
|
681,831
|
|
|
|
|
|
|
Total
assets
|
$
|
5,416,391
|
|
|
|
|
|
|
$
|
5,350,805
|
|
|
|
|
|
|
$
|
5,278,565
|
|
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
|
508,092
|
|
|
$
|
1,861
|
|
|
1.45
|
%
|
|
$
|
514,220
|
|
|
$
|
1,694
|
|
|
1.32
|
%
|
|
$
|
512,547
|
|
|
$
|
1,184
|
|
|
0.92
|
%
|
|
Savings
accounts
|
507,533
|
|
|
680
|
|
|
0.53
|
|
|
500,135
|
|
|
707
|
|
|
0.57
|
|
|
518,937
|
|
|
541
|
|
|
0.41
|
|
|
Interest bearing
demand and money market accounts
|
2,040,926
|
|
|
1,709
|
|
|
0.33
|
|
|
2,016,901
|
|
|
1,616
|
|
|
0.32
|
|
|
2,044,236
|
|
|
1,289
|
|
|
0.25
|
|
|
Total interest bearing
deposits
|
3,056,551
|
|
|
4,250
|
|
|
0.55
|
|
|
3,031,256
|
|
|
4,017
|
|
|
0.53
|
|
|
3,075,720
|
|
|
3,014
|
|
|
0.39
|
|
|
Junior subordinated
debentures
|
20,474
|
|
|
332
|
|
|
6.43
|
|
|
20,400
|
|
|
340
|
|
|
6.68
|
|
|
20,181
|
|
|
330
|
|
|
6.49
|
|
|
Securities sold under
agreement to repurchase
|
29,258
|
|
|
48
|
|
|
0.65
|
|
|
29,265
|
|
|
45
|
|
|
0.62
|
|
|
33,394
|
|
|
19
|
|
|
0.23
|
|
|
FHLB advances and
other borrowings
|
3,755
|
|
|
11
|
|
|
1.16
|
|
|
42,101
|
|
|
278
|
|
|
2.65
|
|
|
20,892
|
|
|
117
|
|
|
2.22
|
|
|
Total interest
bearing liabilities
|
3,110,038
|
|
|
4,641
|
|
|
0.59
|
%
|
|
3,123,022
|
|
|
4,680
|
|
|
0.60
|
%
|
|
3,150,187
|
|
|
3,480
|
|
|
0.44
|
%
|
|
Demand and other
noninterest bearing deposits
|
1,416,336
|
|
|
|
|
|
|
1,345,917
|
|
|
|
|
|
|
1,314,203
|
|
|
|
|
|
|
Other noninterest
bearing liabilities
|
88,624
|
|
|
|
|
|
|
99,147
|
|
|
|
|
|
|
69,786
|
|
|
|
|
|
|
Stockholders'
equity
|
801,393
|
|
|
|
|
|
|
782,719
|
|
|
|
|
|
|
744,389
|
|
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$
|
5,416,391
|
|
|
|
|
|
|
$
|
5,350,805
|
|
|
|
|
|
|
$
|
5,278,565
|
|
|
|
|
|
|
Net interest
income
|
|
|
$
|
50,243
|
|
|
|
|
|
|
$
|
50,536
|
|
|
|
|
|
|
$
|
51,126
|
|
|
|
|
Net interest
spread
|
|
|
|
|
4.01
|
%
|
|
|
|
|
|
4.13
|
%
|
|
|
|
|
|
4.27
|
%
|
|
Net interest
margin
|
|
|
|
|
4.21
|
%
|
|
|
|
|
|
4.33
|
%
|
|
|
|
|
|
4.41
|
%
|
|
Average interest
earning assets to average interest bearing liabilities
|
|
|
|
|
152.30
|
%
|
|
|
|
|
|
149.91
|
%
|
|
|
|
|
|
145.92
|
%
|
|
|
|
(1)
|
Annualized.
|
|
(2)
|
The average loan
balances presented in the table are net of allowances for loan
losses and include loans held for sale. 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.
|
|
Nine Months
Ended
|
|
September 30,
2019
|
|
September 30,
2018
|
|
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)
|
$
|
3,651,659
|
|
|
$
|
142,651
|
|
|
5.22
|
%
|
|
$
|
3,346,709
|
|
|
$
|
127,601
|
|
|
5.10
|
%
|
|
Taxable
securities
|
828,254
|
|
|
17,460
|
|
|
2.82
|
|
|
645,866
|
|
|
12,259
|
|
|
2.54
|
|
|
Nontaxable securities
(3)
|
139,312
|
|
|
2,641
|
|
|
2.53
|
|
|
200,179
|
|
|
3,646
|
|
|
2.44
|
|
|
Other interest
earning assets
|
70,280
|
|
|
1,155
|
|
|
2.20
|
|
|
66,619
|
|
|
1,016
|
|
|
2.04
|
|
|
Total interest earning
assets
|
4,689,505
|
|
|
163,907
|
|
|
4.67
|
%
|
|
4,259,373
|
|
|
144,522
|
|
|
4.54
|
%
|
|
Noninterest earning
assets
|
672,365
|
|
|
|
|
|
|
596,239
|
|
|
|
|
|
|
Total
assets
|
$
|
5,361,870
|
|
|
|
|
|
|
$
|
4,855,612
|
|
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
|
508,177
|
|
|
$
|
4,994
|
|
|
1.31
|
%
|
|
$
|
451,741
|
|
|
$
|
2,741
|
|
|
0.81
|
%
|
|
Savings
accounts
|
505,112
|
|
|
2,061
|
|
|
0.55
|
|
|
512,689
|
|
|
1,444
|
|
|
0.38
|
|
|
Interest bearing
demand and money market accounts
|
2,036,253
|
|
|
4,815
|
|
|
0.32
|
|
|
1,863,135
|
|
|
2,984
|
|
|
0.21
|
|
|
Total interest bearing
deposits
|
3,049,542
|
|
|
11,870
|
|
|
0.52
|
|
|
2,827,565
|
|
|
7,169
|
|
|
0.34
|
|
|
Junior subordinated
debentures
|
20,401
|
|
|
1,026
|
|
|
6.72
|
|
|
20,108
|
|
|
928
|
|
|
6.17
|
|
|
Securities sold under
agreement to repurchase
|
30,512
|
|
|
139
|
|
|
0.61
|
|
|
30,543
|
|
|
52
|
|
|
0.23
|
|
|
Federal Home Loan
Bank advances and other borrowings
|
15,909
|
|
|
305
|
|
|
2.56
|
|
|
45,194
|
|
|
669
|
|
|
1.98
|
|
|
Total interest bearing
liabilities
|
3,116,364
|
|
|
13,340
|
|
|
0.57
|
%
|
|
2,923,410
|
|
|
8,818
|
|
|
0.40
|
%
|
|
Noninterest bearing
deposits
|
1,365,134
|
|
|
|
|
|
|
1,201,676
|
|
|
|
|
|
|
Demand and other
noninterest bearing liabilities
|
96,723
|
|
|
|
|
|
|
64,686
|
|
|
|
|
|
|
Stockholders'
equity
|
783,649
|
|
|
|
|
|
|
665,840
|
|
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$
|
5,361,870
|
|
|
|
|
|
|
$
|
4,855,612
|
|
|
|
|
|
|
Net interest
income
|
|
|
$
|
150,567
|
|
|
|
|
|
|
$
|
135,704
|
|
|
|
|
Net interest
spread
|
|
|
|
|
4.10
|
%
|
|
|
|
|
|
4.14
|
%
|
|
Net interest
margin
|
|
|
|
|
4.29
|
%
|
|
|
|
|
|
4.26
|
%
|
|
Average interest
earning assets to average interest bearing liabilities
|
|
|
|
|
150.48
|
%
|
|
|
|
|
|
145.70
|
%
|
|
|
|
(1)
|
Annualized.
|
|
(2)
|
The average loan
balances presented in the table are net of allowances for loan
losses and include loans held for sale. 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
|
|
September 30,
2019
|
|
June 30,
2019
|
|
March 31,
2019
|
|
December 31,
2018
|
|
September 30,
2018
|
|
Earnings:
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
$
|
50,243
|
|
|
$
|
50,536
|
|
|
$
|
49,788
|
|
|
$
|
51,289
|
|
|
$
|
51,126
|
|
|
Provision for loan
losses
|
466
|
|
|
1,367
|
|
|
920
|
|
|
1,162
|
|
|
1,065
|
|
|
Noninterest
income
|
8,458
|
|
|
7,564
|
|
|
7,429
|
|
|
8,445
|
|
|
8,050
|
|
|
Noninterest
expense
|
36,719
|
|
|
37,547
|
|
|
36,525
|
|
|
37,273
|
|
|
39,461
|
|
|
Net income
|
17,895
|
|
|
15,984
|
|
|
16,552
|
|
|
16,609
|
|
|
15,504
|
|
|
Basic earnings per
share
|
$
|
0.49
|
|
|
$
|
0.43
|
|
|
$
|
0.45
|
|
|
$
|
0.45
|
|
|
$
|
0.42
|
|
|
Diluted earnings per
share
|
$
|
0.48
|
|
|
$
|
0.43
|
|
|
$
|
0.45
|
|
|
$
|
0.45
|
|
|
$
|
0.42
|
|
|
Average
Balances:
|
|
|
|
|
|
|
|
|
|
|
Total loans
receivable, net
|
$
|
3,677,405
|
|
|
$
|
3,654,475
|
|
|
$
|
3,622,494
|
|
|
$
|
3,615,362
|
|
|
$
|
3,618,031
|
|
|
Investment
securities
|
952,559
|
|
|
979,532
|
|
|
970,806
|
|
|
933,551
|
|
|
883,919
|
|
|
Total interest
earning assets
|
4,736,704
|
|
|
4,681,588
|
|
|
4,649,259
|
|
|
4,653,215
|
|
|
4,596,734
|
|
|
Total
assets
|
5,416,391
|
|
|
5,350,805
|
|
|
5,317,325
|
|
|
5,325,376
|
|
|
5,278,565
|
|
|
Total interest
bearing deposits
|
3,056,551
|
|
|
3,031,256
|
|
|
3,060,869
|
|
|
3,087,661
|
|
|
3,075,720
|
|
|
Total noninterest
bearing deposits
|
1,416,336
|
|
|
1,345,917
|
|
|
1,332,223
|
|
|
1,356,186
|
|
|
1,314,203
|
|
|
Stockholders'
equity
|
801,393
|
|
|
782,719
|
|
|
766,451
|
|
|
750,165
|
|
|
744,389
|
|
|
Financial
Ratios:
|
|
|
|
|
|
|
|
|
|
|
Return on average
assets, annualized
|
1.31
|
%
|
|
1.20
|
%
|
|
1.26
|
%
|
|
1.24
|
%
|
|
1.17
|
%
|
|
Return on average
common equity, annualized
|
8.86
|
|
|
8.19
|
|
|
8.76
|
|
|
8.78
|
|
|
8.26
|
|
|
Return on average
tangible common equity, annualized
|
13.66
|
|
|
12.89
|
|
|
13.94
|
|
|
14.22
|
|
|
13.49
|
|
|
Efficiency
ratio
|
62.55
|
|
|
64.62
|
|
|
63.84
|
|
|
62.40
|
|
|
66.68
|
|
|
Noninterest expense
to average total assets, annualized
|
2.69
|
|
|
2.81
|
|
|
2.79
|
|
|
2.78
|
|
|
2.97
|
|
|
Net interest
margin
|
4.21
|
|
|
4.33
|
|
|
4.34
|
|
|
4.37
|
|
|
4.41
|
|
|
Net interest
spread
|
4.01
|
|
|
4.13
|
|
|
4.17
|
|
|
4.23
|
|
|
4.27
|
|
|
|
|
|
|
As of Period End
or for the Three Months Ended
|
|
September 30,
2019
|
|
June 30,
2019
|
|
March 31,
2019
|
|
December 31,
2018
|
|
September
30,
2018
|
|
Select Balance
Sheet:
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
5,515,185
|
|
|
$
|
5,376,686
|
|
|
$
|
5,342,099
|
|
|
$
|
5,316,927
|
|
|
$
|
5,276,214
|
|
|
Total loans
receivable, net
|
3,694,825
|
|
|
3,681,920
|
|
|
3,660,279
|
|
|
3,619,118
|
|
|
3,614,579
|
|
|
Investment
securities
|
966,102
|
|
|
960,680
|
|
|
985,009
|
|
|
976,095
|
|
|
920,737
|
|
|
Deposits
|
4,562,257
|
|
|
4,347,708
|
|
|
4,393,715
|
|
|
4,432,402
|
|
|
4,398,127
|
|
|
Noninterest bearing
demand deposits
|
1,429,435
|
|
|
1,320,743
|
|
|
1,338,675
|
|
|
1,362,268
|
|
|
1,311,825
|
|
|
Stockholders'
equity
|
804,127
|
|
|
796,625
|
|
|
778,191
|
|
|
760,723
|
|
|
746,133
|
|
|
Financial
Measures:
|
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
$
|
21.96
|
|
|
$
|
21.60
|
|
|
$
|
21.09
|
|
|
$
|
20.63
|
|
|
$
|
20.24
|
|
|
Tangible book value
per share
|
14.90
|
|
|
14.56
|
|
|
14.03
|
|
|
13.54
|
|
|
13.11
|
|
|
Stockholders' equity
to total assets
|
14.6
|
%
|
|
14.8
|
%
|
|
14.6
|
%
|
|
14.3
|
%
|
|
14.1
|
%
|
|
Tangible common
equity to tangible assets
|
10.4
|
|
|
10.5
|
|
|
10.2
|
|
|
9.9
|
|
|
9.6
|
|
|
Loans to deposits
ratio
|
81.8
|
|
|
85.5
|
|
|
84.1
|
|
|
82.4
|
|
|
83.0
|
|
|
Credit Quality
Metrics:
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan
losses to:
|
|
|
|
|
|
|
|
|
|
|
Loans receivable,
net
|
0.98
|
%
|
|
0.98
|
%
|
|
0.98
|
%
|
|
0.96
|
%
|
|
0.94
|
%
|
|
Nonperforming
loans
|
87.97
|
|
|
188.48
|
|
|
207.04
|
|
|
255.73
|
|
|
233.25
|
|
|
Nonperforming loans
to loans receivable, net
|
1.11
|
|
|
0.52
|
|
|
0.47
|
|
|
0.37
|
|
|
0.41
|
|
|
Nonperforming assets
to total assets
|
0.77
|
|
|
0.38
|
|
|
0.36
|
|
|
0.30
|
|
|
0.32
|
|
|
Net charge-offs
(recoveries) on loans to average loans receivable, net
|
0.03
|
|
|
0.13
|
|
|
(0.02)
|
|
|
0.07
|
|
|
0.06
|
|
|
Other
Metrics:
|
|
|
|
|
|
|
|
|
|
|
Number of banking
offices
|
62
|
|
|
62
|
|
|
63
|
|
|
64
|
|
|
64
|
|
|
Average number of
full-time equivalent employees
|
877
|
|
|
880
|
|
|
878
|
|
|
867
|
|
|
878
|
|
|
Deposits per
branch
|
$
|
73,585
|
|
|
$
|
70,124
|
|
|
$
|
69,742
|
|
|
$
|
69,256
|
|
|
$
|
68,721
|
|
|
Average assets per
full-time equivalent employee
|
$
|
6,176
|
|
|
$
|
6,082
|
|
|
$
|
6,054
|
|
|
$
|
6,142
|
|
|
$
|
6,014
|
|
View original
content:http://www.prnewswire.com/news-releases/heritage-financial-announces-third-quarter-2019-results-and-declares-regular-and-special-cash-dividends-300944481.html
SOURCE Heritage Financial Corporation