OLYMPIA, Wash., April 30, 2020 /PRNewswire/ -- Heritage
Financial Corporation (NASDAQ GS: HFWA) (the "Company" or
"Heritage"), the parent company of Heritage Bank ("Bank"), today
reported that the Company had net income of $12.2 million for the quarter ended
March 31, 2020 compared to $17.1
million for the linked-quarter ended December 31, 2019
and $16.6 million for the quarter
ended March 31, 2019. Diluted earnings per share for the
quarter ended March 31, 2020 was $0.33 compared to $0.47 for the linked-quarter ended
December 31, 2019 and $0.45 for
the quarter ended March 31, 2019. Financial results for the
quarter ended March 31, 2020 included
a provision for credit losses on loans of $10.0 million as a result of adopting CECL and
reflects forecasted credit deterioration due to the Coronavirus
("COVID-19") pandemic.
Jeffrey J. Deuel, President and
Chief Executive Officer of Heritage commented, "We are pleased with
our performance and progress in the first quarter, despite the
challenges from COVID-19 and a rapid decrease in interest rates. We
believe Heritage is well positioned to navigate these challenges
and we will continue to benefit from our core deposit franchise and
conservative credit culture, while maintaining our focus on a
stable net interest margin and expense management. Further,
the robust liquidity and capital position on our balance
sheet provides us with a solid foundation to address
challenges and take advantage of opportunities."
CARES Act and Paycheck Protection Program (PPP)
In response to the global challenges from the COVID-19 pandemic,
the Company is now offering a variety of relief options designed to
support our clients and communities, including participating in the
U.S. Small Business Administration's ("SBA") Paycheck Protection
Program ("PPP") in accordance with the Coronavirus Aid, Relief, and
Economic Security Act enacted on March 27,
2020 ("CARES Act"). These SBA loans are designed to help
small businesses remain viable and enable them to pay their
employees. As of April 26, 2020, the
Bank has funded 2,817 PPP loans totaling $687.1 million with an average loan size of
$244,000. The Bank earns 1.0%
interest on these loans as well as a fee from the SBA based on the
size of the loan.
Mr. Deuel added, "We are very pleased to have been able to
provide funding to so many small businesses in our local
communities. Of the over 2,800 PPP loans we have funded through
April 26th, over 50% were for loans
under $100,000 and over 80% for loans
under $350,000."
Financial Highlights
The following table provides financial highlights at the dates
and for the periods indicated:
|
As of Period End
or for the Three Months Ended
|
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
|
(Dollars in
thousands, except per share amounts)
|
Net income
|
$
|
12,191
|
|
|
$
|
17,126
|
|
|
$
|
16,552
|
|
Diluted earnings per
share
|
$
|
0.33
|
|
|
$
|
0.47
|
|
|
$
|
0.45
|
|
Return on average
assets (1)
|
0.88
|
%
|
|
1.22
|
%
|
|
1.26
|
%
|
Return on average
equity (1)
|
6.08
|
%
|
|
8.42
|
%
|
|
8.76
|
%
|
Return on average
tangible common equity (1)
|
9.46
|
%
|
|
12.94
|
%
|
|
13.94
|
%
|
Net interest
margin
|
4.06
|
%
|
|
4.02
|
%
|
|
4.34
|
%
|
Cost of total
deposits (1)
|
0.37
|
%
|
|
0.39
|
%
|
|
0.33
|
%
|
Efficiency
ratio
|
64.20
|
%
|
|
61.93
|
%
|
|
63.84
|
%
|
Noninterest expense
to average total assets (1)
|
2.70
|
%
|
|
2.57
|
%
|
|
2.79
|
%
|
Total
assets
|
$
|
5,587,300
|
|
|
$
|
5,552,970
|
|
|
$
|
5,342,099
|
|
Loans receivable,
net
|
$
|
3,804,836
|
|
|
$
|
3,731,708
|
|
|
$
|
3,660,279
|
|
Total
deposits
|
$
|
4,617,948
|
|
|
$
|
4,582,676
|
|
|
$
|
4,393,715
|
|
Loan to deposit ratio
(2)
|
83.4
|
%
|
|
82.2
|
%
|
|
84.1
|
%
|
Book value per
share
|
$
|
22.25
|
|
|
$
|
22.10
|
|
|
$
|
21.09
|
|
Tangible book value
per share
|
$
|
15.10
|
|
|
$
|
15.07
|
|
|
$
|
14.03
|
|
|
|
(1)
|
Annualized
|
(2)
|
Loans receivable
divided by deposits
|
Loans receivable, net increased $73.1
million, or 2.0%, to $3.80
billion at March 31, 2020 from $3.73 billion at December 31, 2019 due
primarily to increases in total commercial and industrial loans of
$37.5 million, non-owner occupied
commercial real estate loans of $23.5
million and real estate construction and land development
loans of $12.4 million. The increase
in commercial and industrial loans was driven primarily by an
increase in funding on existing commercial lines of credit of
$29.7 million during the three months
ended March 31, 2020. The commercial
and industrial loans utilization rate was 40.2% and 35.8% at
March 31, 2020 and December 31, 2019, respectively.
The following table summarizes the Company's loan portfolio by
type of loan and amortized cost at the dates indicated:
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
(Dollars in
thousands)
|
Commercial
business:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
industrial
|
$
|
889,685
|
|
|
23.1
|
%
|
|
$
|
852,220
|
|
|
22.6
|
%
|
|
$
|
841,456
|
|
|
22.7
|
%
|
Owner-occupied
commercial real estate
|
805,636
|
|
|
20.9
|
|
|
805,234
|
|
|
21.4
|
|
|
784,291
|
|
|
21.2
|
|
Non-owner occupied
commercial real estate
|
1,312,308
|
|
|
34.1
|
|
|
1,288,779
|
|
|
34.2
|
|
|
1,333,895
|
|
|
36.1
|
|
Total commercial
business
|
3,007,629
|
|
|
78.1
|
|
|
2,946,233
|
|
|
78.2
|
|
|
2,959,642
|
|
|
80.0
|
|
One-to-four family
residential
|
136,782
|
|
|
3.5
|
|
|
131,660
|
|
|
3.5
|
|
|
106,076
|
|
|
2.9
|
|
Real estate
construction and land development:
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
residential
|
98,730
|
|
|
2.6
|
|
|
104,296
|
|
|
2.8
|
|
|
109,906
|
|
|
3.0
|
|
Five or more family
residential and commercial properties
|
188,304
|
|
|
4.9
|
|
|
170,350
|
|
|
4.5
|
|
|
125,948
|
|
|
3.4
|
|
Total real estate
construction and land development
|
287,034
|
|
|
7.5
|
|
|
274,646
|
|
|
7.3
|
|
|
235,854
|
|
|
6.4
|
|
Consumer
|
420,931
|
|
|
10.9
|
|
|
415,340
|
|
|
11.0
|
|
|
397,652
|
|
|
10.7
|
|
Loans
receivable
|
3,852,376
|
|
|
100.0
|
%
|
|
3,767,879
|
|
|
100.0
|
%
|
|
3,699,224
|
|
|
100.0
|
%
|
Allowance for credit
losses on loans
|
(47,540)
|
|
|
|
|
(36,171)
|
|
|
|
|
(36,152)
|
|
|
|
Loans receivable,
net
|
$
|
3,804,836
|
|
|
|
|
$
|
3,731,708
|
|
|
|
|
$
|
3,663,072
|
|
|
|
Total deposits increased $35.3
million, or 0.8%, to $4.62
billion at March 31, 2020 from $4.58 billion at December 31, 2019 due
primarily to increases in money market accounts of $124.4 million, or 16.5%, to $878.1 million and in interest bearing demand
deposits of $24.3 million, or 1.8%,
to $1.37 billion, partially offset by
decreases in savings accounts of $83.5
million, or 16.4%, to $425.6
million and in noninterest bearing demand deposits of
$31.3 million, or 2.2%, to
$1.42 billion. The increase in money
market account and the decrease in savings accounts was primarily
due to the transfer between deposit accounts of $95.3 million from a large public depositor.
Non-maturity deposits as a percentage of total deposits remained
constant at 88.6% at both March 31, 2020 and December 31,
2019.
The following table summarizes the Company's deposits at the
dates indicated:
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
(Dollars in
thousands)
|
Noninterest bearing
demand deposits
|
$
|
1,415,177
|
|
|
30.6
|
%
|
|
$
|
1,446,502
|
|
|
31.6
|
%
|
|
$
|
1,338,675
|
|
|
30.5
|
%
|
Interest bearing
demand deposits
|
1,373,091
|
|
|
29.7
|
|
|
1,348,817
|
|
|
29.4
|
|
|
1,293,828
|
|
|
29.4
|
|
Money market
accounts
|
878,075
|
|
|
19.0
|
|
|
753,684
|
|
|
16.4
|
|
|
740,518
|
|
|
16.9
|
|
Savings
accounts
|
425,616
|
|
|
9.3
|
|
|
509,095
|
|
|
11.2
|
|
|
499,568
|
|
|
11.3
|
|
Total non-maturity
deposits
|
4,091,959
|
|
|
88.6
|
|
|
4,058,098
|
|
|
88.6
|
|
|
3,872,589
|
|
|
88.1
|
|
Certificates of
deposit
|
525,989
|
|
|
11.4
|
|
|
524,578
|
|
|
11.4
|
|
|
521,126
|
|
|
11.9
|
|
Total
deposits
|
$
|
4,617,948
|
|
|
100.0
|
%
|
|
$
|
4,582,676
|
|
|
100.0
|
%
|
|
$
|
4,393,715
|
|
|
100.0
|
%
|
Prepaid expenses and other assets increased $16.7 million, or 10.2%, to $180.8 million at March 31, 2020 from
$164.1 million at December 31,
2019 primarily as a result of an increase in the fair value of
back-to-back interest rate swap contracts of $19.8 million with a corresponding increase in
accrued expenses and other liabilities for the same amount.
Total stockholders' equity decreased $10.9 million, or 1.3%, to $798.4 million at March 31, 2020 from
$809.3 million at December 31,
2019. Changes in stockholders' equity during the three months ended
March 31, 2020 were as follows:
|
Three Months
Ended
|
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
|
(In
thousands)
|
Balance, beginning of
period
|
$
|
809,311
|
|
|
$
|
804,127
|
|
|
$
|
760,723
|
|
Cumulative effect from
change in accounting policy (1)
|
(5,615)
|
|
|
—
|
|
|
(399)
|
|
Net
income
|
12,191
|
|
|
17,126
|
|
|
16,552
|
|
Accumulated other comprehensive gain (loss), net
|
7,914
|
|
|
(2,147)
|
|
|
8,016
|
|
Dividends paid
|
(7,343)
|
|
|
(10,673)
|
|
|
(6,662)
|
|
Shares
repurchased
|
(19,060)
|
|
|
(1)
|
|
|
(802)
|
|
Other
|
1,040
|
|
|
879
|
|
|
763
|
|
Balance, end of
period
|
$
|
798,438
|
|
|
$
|
809,311
|
|
|
$
|
778,191
|
|
|
|
(1)
|
Effective
January 1, 2020, Company adopted ASU 2016-13, Financial
Instruments - Credit Losses. Effective January 1, 2019, the
Company adopted ASU 2016-02, Leases.
|
During the quarter ended March 31, 2020, the Company
repurchased the remaining 639,922 shares of its common stock
available under the previous stock repurchase plan at a weighted
average price per share of $23.95, or $15.3 million. The Company commenced a new stock
repurchase plan on March 12, 2020,
and repurchased 155,778 shares of its common stock under that plan
at a weighted average price per share of $20.34, or $3.2
million during the quarter ended March 31, 2020.
As of March 31, 2020, there were 1.6 million shares available
for repurchase under the new stock repurchase plan. The new stock
repurchase plan was suspended on March 18,
2020 and will be monitored with the opportunity to
reinstitute when the Company deems it appropriate.
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 following table
summarizes capital ratios for the Company at the dates
indicated:
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
Capital
Ratios:
|
|
|
|
|
|
Stockholders' equity
to total assets
|
14.3
|
%
|
|
14.6
|
%
|
|
14.6
|
%
|
Tangible common
equity to tangible assets
|
10.2
|
%
|
|
10.4
|
%
|
|
10.2
|
%
|
Common equity Tier 1
capital to risk-weighted assets (1)
|
11.2
|
%
|
|
11.5
|
%
|
|
11.8
|
%
|
Tier 1 leverage
capital to average quarterly assets (1)
|
10.4
|
%
|
|
10.6
|
%
|
|
10.7
|
%
|
Tier 1 capital to
risk-weighted assets (1)
|
11.6
|
%
|
|
12.0
|
%
|
|
12.2
|
%
|
Total capital to
risk-weighted assets (1)
|
12.5
|
%
|
|
12.8
|
%
|
|
13.0
|
%
|
|
|
(1)
|
As of March 31, 2020,
the capital measures reflect the revised CECL capital transition
provisions adopted by the Federal Reserve and the FDIC, that allow
us the option to delay for two years an estimate of CECL's effect
on regulatory capital, relative to the incurred loss methodology's
effect on regulatory capital, followed by a three-year transition
period.
|
Donald J. Hinson, Executive Vice
President and Chief Financial Officer, commented, "We continue to
maintain a strong capital position which has allowed us to maintain
our dividend this quarter in spite of an uncertain economic
environment. Although we were active in stock buybacks in the first
quarter, we halted our buybacks in March and will not resume
buybacks until we are confident we can fully understand the impact
of COVID-19 pandemic on our long-term capital position."
Allowance for Credit Losses on Loans
Effective January 1, 2020, the
Bank adopted the Financial Accounting Standard Board's Accounting
Standards Update 2016-13: Financial Instruments: Credit
Losses (Topic 326), as amended, and commonly referred to as the
Current Expected Credit Loss model ("CECL"), under the modified
retrospective method. The adoption replaced the allowance for loan
losses with the allowance for credit losses ("ACL") on loans on the
Condensed Consolidated Statements of Financial Condition and
replaced the related provision for loan losses with the provision
for credit losses on loans on the Condensed Consolidated Statements
of Income. Upon adoption, the Bank recorded an increase in the
beginning ACL on loans of $1.8
million, increasing the ACL on loans as a percentage of
loans receivable to 1.01% as compared to 0.96% at December 31,
2019 prior to adoption. The adoption of CECL also included
transition of purchase credit impaired ("PCI") loans to purchase
credit deteriorated ("PCD") loans. The Bank elected to account for
the PCD loans individually, terminating the pools of loans that
were previously accounted for under Accounting Standards
Codification 310-30. Upon adoption, an ACL was determined for PCI
loans, resulting in an aggregate ACL of $370,000, which was a decrease of $1.9 million from the allowance for loans losses
of $2.3 million for these loans at
December 31, 2019, as calculated
under the prior incurred loss methodology.
The ACL on PCD loans was added to the loans' carrying amount to
establish a new PCD amortized cost basis. The difference between
the unpaid principal balance and the new amortized cost basis of
the PCD loan is the noncredit premium or discount, which will be
amortized into interest income over the remaining life of the loan.
The PCD transition resulted in a net noncredit discount of
$4.3 million, or an increase of
$1.5 million in the net purchased
discount, from the pre-adoption amount of $2.8 million. The total net purchased discount,
including the non-PCI loans, was $9.9
million at January 1, 2020
compared to $8.4 million as of
December 31, 2019. The net purchased
discount was $9.0 million at
March 31, 2020.
Excluding the impacts of the adoption, the ACL on loans
increased $9.5 million, or 25.1%, to
$47.5 million at March 31, 2020.
The increase was due primarily to provision for credit losses on
loans of $10.0 million which reflects
forecasted credit deterioration due to the COVID-19 pandemic.
The Bank recognized net charge-offs of $417,000 during the quarter ended March 31,
2020. Net charge-offs included commercial and industrial loan
charge-offs of $1.1 million,
including $373,000 related to one
lending relationship, partially offset by the full recovery of an
agricultural lending relationship charge-off of $963,000 recorded during the quarter ended
December 31, 2019. Net charge-offs
were $1.9 million for the
linked-quarter ended December 31, 2019 and net recoveries were
$190,000 for the same quarter in
2019.
The Company believes that its ACL on loans is appropriate to
provide for current expected credit losses in the loan portfolio at
March 31, 2020.
Credit Quality
Nonperforming assets decreased to 0.63% of total assets at
March 31, 2020 compared to 0.82% of total assets at
December 31, 2019. The decrease was due primarily to the
payment in full of an agricultural lending relationship of
$7.8 million and the payment in full
of a commercial business relationship of $2.3 million.
Changes in nonaccrual loans during the periods indicated were as
follows:
|
Three Months
Ended
|
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
|
(In
thousands)
|
Balance, beginning of
period
|
$
|
44,525
|
|
|
$
|
41,497
|
|
|
$
|
13,696
|
|
Addition of previously
classified pass graded loans
|
255
|
|
|
764
|
|
|
—
|
|
Addition of previously
classified potential problem loans (1)
|
2,579
|
|
|
1,043
|
|
|
6,189
|
|
Addition of previously
classified TDR loans
|
—
|
|
|
4,686
|
|
|
—
|
|
Net
principal payments, transfer to OREO, and transfer to accruing
status
|
(12,570)
|
|
|
(2,216)
|
|
|
(2,393)
|
|
Charge-offs
|
(626)
|
|
|
(1,249)
|
|
|
(39)
|
|
Balance, end of
period
|
$
|
34,163
|
|
|
$
|
44,525
|
|
|
$
|
17,453
|
|
|
|
(1)
|
Includes $1.3 million
of loans which were previously pooled PCI loans and were converted
to PCD loans upon adoption of CECL.
|
The ACL on loans to nonaccrual loans increased to 139.16% at
March 31, 2020 compared to an allowance for loan losses to
nonaccrual loans of 81.24% at December 31, 2019. The increase
was due primarily to the increase in the ACL on loans and the
decrease in nonaccrual loans, both as discussed above.
The increase in the ratio of nonperforming assets to total
assets was unaffected by other real estate owned as the balance was
$841,000 at both March 31, 2020
and December 31, 2019.
Potential problem loans increased $14.4
million, or 16.4%, to $102.2
million at March 31, 2020 compared to $87.8 million at December 31, 2019. The
increase was primarily attributed to the addition of four
commercial business relationships totaling $18.1 million which were downgraded as a result
of impacts from the COVID-19 pandemic and eight commercial business
relationships totaling $7.8 million
which were downgraded to increase oversight of these credits due to
other issues. The activity for the three months
ended March 31, 2020 also includes payment in full
of three commercial and industrial relationships totaling
$4.7 million.
Changes in potential problem loans during the periods indicated
were as follows:
|
Three Months
Ended
|
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
|
(In
thousands)
|
Balance, beginning of
period
|
$
|
87,788
|
|
|
$
|
85,314
|
|
|
$
|
101,320
|
|
Addition of
previously classified pass graded loans
|
29,919
|
|
|
23,498
|
|
|
9,779
|
|
Upgrades to pass
graded loan status
|
(476)
|
|
|
(8,367)
|
|
|
—
|
|
Net principal
payments
|
(9,825)
|
|
|
(10,537)
|
|
|
(13,521)
|
|
Transfers of loans to
nonaccrual and TDR status
|
(5,239)
|
|
|
(2,120)
|
|
|
(3,303)
|
|
Charge-offs
|
—
|
|
|
—
|
|
|
(187)
|
|
Balance, end of
period
|
$
|
102,167
|
|
|
$
|
87,788
|
|
|
$
|
94,088
|
|
We believe we are taking the steps necessary to effectively
manage our portfolio through the ongoing uncertainty surrounding
the duration, impact and government response to the COVID-19
pandemic. The primary method of relief is to allow the borrower up
to 90-day loan payment deferments, although we have also allowed
borrowers to pay interest only payments, waived loan late fees, and
suspended foreclosure proceedings.
Operating Results
Net interest income decreased $558,000, or 1.1%, to $48.6 million for the quarter ended
March 31, 2020 from $49.1
million for the linked-quarter ended December 31, 2019
due primarily to a decrease in the yield of interest earning assets
as a result of decreases in interest rates on adjustable rate
instruments, following significant decreases in the federal funds
target rate by the Federal Reserve in response to the COVID-19
pandemic. Net interest income decreased $1.2
million, or 2.5%, compared to $49.8
million for the same period in 2019 due to a decrease in the
yield of interest earning assets, primarily as a result of a
downward shift in the yield curve and a lagging decrease in the
cost of interest bearing deposits.
The federal funds target rate history since December 31, 2018 is as follows:
Change
Date
|
|
Rate
(%)
|
|
Rate Change
(%)
|
December 31,
2018
|
|
2.25 -
2.50%
|
|
N/A
|
July 31,
2019
|
|
2.00 -
2.25%
|
|
-0.25%
|
September 18,
2019
|
|
1.75 -
2.00%
|
|
-0.25%
|
October 30,
2019
|
|
1.50 -
1.75%
|
|
-0.25%
|
March 3,
2020
|
|
1.00 -
1.25%
|
|
-0.50%
|
March 15,
2020
|
|
0.00 -
0.25%
|
|
-1.00%
|
Net interest margin increased four basis points to 4.06% for the
quarter ended March 31, 2020 from 4.02% for the linked-quarter
ended December 31, 2019 due to primarily to changes in the mix
of interest earning assets. Average interest earning assets
decreased $37.9 million, or 0.8%,
from the linked-quarter due to a decrease in average interest
earning deposits of $55.5 million, or
30.7%, which generally earns at a lesser rate than other assets,
offset partially by an increase in average loans receivable, net of
$29.4 million, or 0.8%. Net interest
margin decreased 28 basis points from 4.34% for the quarter ended
March 31, 2019 due to decreases in yields of all interest
earning assets and an increase in the cost of total interest
bearing liabilities.
Loan yield decreased three basis points to 4.97% for the quarter
ended March 31, 2020 from 5.00% for the linked-quarter ended
December 31, 2019 due primarily to decreases in short-term
market rates. The loan yield decrease was offset partially by a
change in the mix of the loan portfolio. Average total real estate
construction and land development ("construction") loans increased
by $25.9 million, or 88.0% of the
$29.4 million increase in average
loans receivable during the quarter ended March 31, 2020. During the quarter ended
March 31, 2020 and the linked-quarter
ended December 31, 2019, construction
loan yields were 5.77% and 6.20%, respectively. The loan yield
decrease as compared to linked-quarter was also partially offset by
the favorable impact of the change in nonaccrual loan activity of
seven basis points.
Loan yield decreased 26 basis points from 5.23% for the quarter
ended March 31, 2019 due primarily to decreases in short-term
market rates.
Incremental accretion on purchased loans was impacted by the PCI
to PCD transition during the quarter ended March 31, 2020, as explained in the Allowance for
Credit Losses section above, which increased the net purchase
discount under the modified retrospective method allowed under the
CECL adoption. The impact on loan yield from incremental accretion
on purchased loans was 11 basis points for both the quarter ended
March 31, 2020 and the linked-quarter ended December 31,
2019 and decreased four basis points from 0.15% for the quarter
ended March 31, 2019. 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
|
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
|
(Dollars in
thousands)
|
Yield non-GAAP
reconciliations:(2)
|
Net interest margin
(GAAP)
|
4.06
|
%
|
|
4.02
|
%
|
|
4.34
|
%
|
Exclude impact on net
interest margin from incremental accretion on purchased
loans(1)
|
(0.08)
|
%
|
|
(0.08)
|
%
|
|
(0.12)
|
%
|
Net interest margin,
excluding incremental accretion on purchased loans (non-
GAAP)(1)
|
3.98
|
%
|
|
3.94
|
%
|
|
4.22
|
%
|
|
|
|
|
|
|
Loan yield
(GAAP)
|
4.97
|
%
|
|
5.00
|
%
|
|
5.23
|
%
|
Exclude impact on
loan yield from incremental accretion on purchased
loans(1)
|
(0.11)
|
%
|
|
(0.11)
|
%
|
|
(0.15)
|
%
|
Loan yield, excluding
incremental accretion on purchased loans
(non-GAAP)(1)
|
4.86
|
%
|
|
4.89
|
%
|
|
5.08
|
%
|
|
|
|
|
|
|
Incremental accretion
on purchased loans(1)
|
$
|
1,012
|
|
|
$
|
997
|
|
|
$
|
1,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the
amount of interest income recorded on purchased loans in excess of
the contractual stated interest rate in the individual loan notes
due to incremental accretion of purchased discount or premium.
Purchased discount or premium is the difference between the
contractual loan balance and the fair value of acquired loans at
the acquisition date, or as modified under ASU 2016-13 adoption.
The purchased discount is accreted into income over the remaining
life of the loan.
|
|
|
(2)
|
See Non-GAAP
Financial Measures section herein.
|
The yield on the aggregate investment portfolio increased nine
basis points to 2.74% for the quarter ended March 31, 2020
from 2.65% for the linked-quarter ended December 31, 2019 due
primarily to an increase in the prepayments of investment
securities during the period, including the recognition of related
discounts, offset partially by a decrease in market interest rates
impacting adjustable rate securities. The yield decreased nine
basis points from 2.83% for the quarter ended March 31, 2019
due to decreases in market interest rates impacting adjustable rate
securities.
The cost of total deposits decreased two basis points to 0.37%
during the quarter ended March 31, 2020 from 0.39% during the
linked-quarter ended December 31, 2019 due primarily to a
decrease in market interest rates. Cost of total deposits
increased four basis points from 0.33% during the same quarter in
2019 due to competitive pressures and the lag in deposit
repricing.
The following table presents the provision for credit losses for
the periods presented below:
|
Three Months
Ended
|
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
|
(In
thousands)
|
Provision for
Credit Losses
|
|
|
|
|
|
Provision for credit
losses on loans
|
$
|
9,964
|
|
|
$
|
1,558
|
|
|
$
|
920
|
|
Reversal of provision
for credit losses on unfunded commitments
|
(2,018)
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
7,946
|
|
|
$
|
1,558
|
|
|
$
|
920
|
|
The Company recorded provision for credit losses on loans of
$10.0 million during the quarter
ended March 31, 2020 due primarily to
forecasted credit deterioration due to the impact of the COVID-19
pandemic. The provision for loan losses for the linked-quarter
ended December 31, 2019 and for the same period in 2019 were
estimated under the previously utilized incurred loss methodology.
The amount of provision for credit losses on loans during the
quarter ended March 31, 2020 was necessary to increase the ACL
on loans to an amount that management determined to be appropriate
at March 31, 2020 based on its adopted CECL methodology.
The Company recorded reversal of provision for credit losses on
unfunded commitments of $2.0 million
during the quarter ended March 31,
2020 primarily as a result of a decrease in the unfunded
commercial construction loan balance resulting from increased
funding of the underlying projects during the quarter ended
March 31, 2020. The ACL for unfunded commitments was increased
$3.7 million on January 1, 2020 as part of the CECL adoption. The
Company did not record provision (reversal of provision) for credit
losses on unfunded commitments during the linked-quarter ended
December 31, 2019 or for the same period in 2019 under the
incurred loss methodology.
Noninterest income increased $469,000, or 5.2%, to $9.5
million for the quarter ended March 31, 2020 from
$9.0 million for the linked-quarter
ended December 31, 2019 due primarily to gain on sale of
investment securities, net of $1.0
million as a result of our active management of the
portfolio in the current environment. The increase in noninterest
income was also due to an increase in other noninterest income due
primarily to a bank owned life insurance death benefit payout
during the quarter ended March 31, 2020. These increases in
noninterest income were offset partially by decreases in interest
rate swap fees and gain on sale of loans, net during the quarter
ended March 31, 2020 from lower transaction volume.
Noninterest income increased $2.1
million, or 27.6%, from $7.4
million for the same period in 2019 due primarily to the
increases in gain on sale of investment securities and other
noninterest income mentioned previously.
Noninterest expense increased $1.3
million, or 3.5%, to $37.3
million for the quarter ended March 31, 2020 from
$36.0 million for the linked-quarter
ended December 31, 2019 due primarily to an increase in
compensation and employee benefits as a result of higher payroll
taxes as annual limitations have not been realized and employee
benefits primarily a result of the cost of new medical plans, and
an increase in marketing expense due to the timing of contributions
to community sponsorships.
Noninterest expense increased $735,000, or 2.0%, compared to $36.5 million for the quarter ended
March 31, 2019 due primarily an increase in compensation and
employee benefits as a result of an increase in salaries and
related payroll taxes, an increase in benefits as previously
mentioned, and an increase in stock compensation expense. The
increase in noninterest expense was partially offset by 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 March 31, 2020.
The Bank has $139,000 in small bank
credits on future assessments remaining as of March 31, 2020,
which may be recognized in future periods when allowed for by the
FDIC upon insurance fund levels being met.
Income tax expense was $640,000
for the quarter ended March 31, 2020 compared to $3.4 million for the linked-quarter ended
December 31, 2019 and $3.2
million for the quarter ended March 31, 2019. The
effective tax rate was 5.0% for the quarter ended March 31,
2020 compared to 16.7% for the linked-quarter ended
December 31, 2019 and 16.3% for the quarter ended
March 31, 2019. The decrease in the effective tax rate from
the linked-quarter ended December 31, 2019 and quarter ended
March 31, 2019 was due to lower pre-tax income (also
reflecting increasing tax-exempt investments) and a provision in
CARES Act, which permitted the Company to recognize a $1.0 million benefit from net operating losses
related to prior acquisitions during the quarter ended March 31, 2020.
Dividends
On April 29, 2020, the Company's Board of Directors
declared a quarterly cash dividend of $0.20 per share, which is unchanged compared to
the quarterly dividend paid in the prior quarter. The dividends are
payable on May 27, 2020 to shareholders of record as of the
close of business on May 13, 2020.
Earnings Conference Call
The Company will hold a telephone conference call to discuss
this earnings release on April 30, 2020 at 11:00 a.m. Pacific time. To access the call,
please dial (877) 692-8955 -- access code 2317360 a few minutes
prior to 11:00 a.m. Pacific time. The
call will be available for replay through May 14, 2020 by dialing (866) 207-1041 -- access
code 3443789.
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.
|
March 31,
2020
|
|
December 31,
2019
|
|
September 30,
2019
|
|
June 30,
2019
|
|
March 31,
2019
|
|
(Dollar amounts in
thousands, except per share amounts)
|
Tangible common
equity to tangible assets and tangible book value per
share:
|
Total stockholders'
equity (GAAP)
|
$
|
798,438
|
|
|
$
|
809,311
|
|
|
$
|
804,127
|
|
|
$
|
796,625
|
|
|
$
|
778,191
|
|
Exclude intangible
assets
|
(256,649)
|
|
|
(257,552)
|
|
|
(258,527)
|
|
|
(259,502)
|
|
|
(260,528)
|
|
Tangible common
equity (non-GAAP)
|
$
|
541,789
|
|
|
$
|
551,759
|
|
|
$
|
545,600
|
|
|
$
|
537,123
|
|
|
$
|
517,663
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
(GAAP)
|
$
|
5,587,300
|
|
|
$
|
5,552,970
|
|
|
$
|
5,515,185
|
|
|
$
|
5,376,686
|
|
|
$
|
5,342,099
|
|
Exclude intangible
assets
|
(256,649)
|
|
|
(257,552)
|
|
|
(258,527)
|
|
|
(259,502)
|
|
|
(260,528)
|
|
Tangible assets
(non-GAAP)
|
$
|
5,330,651
|
|
|
$
|
5,295,418
|
|
|
$
|
5,256,658
|
|
|
$
|
5,117,184
|
|
|
$
|
5,081,571
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
to total assets (GAAP)
|
14.3
|
%
|
|
14.6
|
%
|
|
14.6
|
%
|
|
14.8
|
%
|
|
14.6
|
%
|
Tangible common
equity to tangible assets (non-GAAP)
|
10.2
|
%
|
|
10.4
|
%
|
|
10.4
|
%
|
|
10.5
|
%
|
|
10.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Shares
outstanding
|
35,888,494
|
|
|
36,618,729
|
|
|
36,618,381
|
|
|
36,882,771
|
|
|
36,899,138
|
|
Book value per share
(GAAP)
|
$
|
22.25
|
|
|
$
|
22.10
|
|
|
$
|
21.96
|
|
|
$
|
21.60
|
|
|
$
|
21.09
|
|
Tangible book value
per share (non-GAAP)
|
$
|
15.10
|
|
|
$
|
15.07
|
|
|
$
|
14.90
|
|
|
$
|
14.56
|
|
|
$
|
14.03
|
|
|
Three Months
Ended
|
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
|
(Dollar amounts in
thousands)
|
Return on average
tangible common equity, annualized:
|
Net income
(GAAP)
|
$
|
12,191
|
|
|
$
|
17,126
|
|
|
$
|
16,552
|
|
Exclude amortization
of intangible assets
|
903
|
|
|
975
|
|
|
1,025
|
|
Exclude tax effect of
adjustment
|
(190)
|
|
|
(205)
|
|
|
(215)
|
|
Tangible net income
(non-GAAP)
|
$
|
12,904
|
|
|
$
|
17,896
|
|
|
$
|
17,362
|
|
|
|
|
|
|
|
Average stockholders'
equity (GAAP)
|
$
|
806,071
|
|
|
$
|
806,868
|
|
|
$
|
766,451
|
|
Exclude average
intangible assets
|
(257,234)
|
|
|
(258,177)
|
|
|
(261,194)
|
|
Average tangible
common stockholders' equity (non-GAAP)
|
$
|
548,837
|
|
|
$
|
548,691
|
|
|
$
|
505,257
|
|
|
|
|
|
|
|
Return on average
equity, annualized (GAAP)
|
6.08
|
%
|
|
8.42
|
%
|
|
8.76
|
%
|
Return on average
tangible common equity, annualized (non-GAAP)
|
9.46
|
%
|
|
12.94
|
%
|
|
13.94
|
%
|
|
Three Months
Ended
|
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
|
(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)
|
$
|
48,557
|
|
|
$
|
49,115
|
|
|
$
|
49,788
|
|
Exclude incremental
accretion on purchased loans
|
(1,012)
|
|
|
(997)
|
|
|
(1,373)
|
|
Adjusted net interest
income (non-GAAP)
|
$
|
47,545
|
|
|
$
|
48,118
|
|
|
$
|
48,415
|
|
|
|
|
|
|
|
Average total
interest earning assets, net
|
$
|
4,811,769
|
|
|
$
|
4,849,708
|
|
|
$
|
4,649,259
|
|
Net interest margin,
annualized (GAAP)
|
4.06
|
%
|
|
4.02
|
%
|
|
4.34
|
%
|
Net interest margin,
excluding incremental accretion on purchased loans, annualized
(non-GAAP)
|
3.98
|
%
|
|
3.94
|
%
|
|
4.22
|
%
|
|
|
|
|
|
|
Interest and fees on
loans (GAAP)
|
$
|
46,277
|
|
|
$
|
46,864
|
|
|
$
|
46,699
|
|
Exclude incremental
accretion on purchased loans
|
(1,012)
|
|
|
(997)
|
|
|
(1,373)
|
|
Adjusted interest and
fees on loans (non-GAAP)
|
$
|
45,265
|
|
|
$
|
45,867
|
|
|
$
|
45,326
|
|
|
|
|
|
|
|
Average loans
receivable, net
|
$
|
3,748,573
|
|
|
$
|
3,719,128
|
|
|
$
|
3,622,494
|
|
Loan yield,
annualized (GAAP)
|
4.97
|
%
|
|
5.00
|
%
|
|
5.23
|
%
|
Loan yield, excluding
incremental accretion on purchased loans, annualized
(non-GAAP)
|
4.86
|
%
|
|
4.89
|
%
|
|
5.08
|
%
|
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 effect of the COVID-19
pandemic, including on our credit quality and business operations,
as well as its impact on general economic and financial market
conditions and other uncertainties resulting from the COVID-19
pandemic, such as the extent and duration of the impact on public
health, the U.S. and global economies, and consumer and corporate
customers, including economic activity, employment levels and
market liquidity; 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 2020 and
beyond to differ materially from those expressed in any
forward-looking statements by, or on behalf of, us, and could
negatively affect the Company's operating and stock price
performance.
HERITAGE FINANCIAL
CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF
FINANCIAL CONDITION (Unaudited) (Dollar amounts in
thousands, except shares)
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
Assets
|
|
|
|
Cash on hand and in
banks
|
$
|
105,097
|
|
|
$
|
95,039
|
|
Interest earning
deposits
|
57,816
|
|
|
133,529
|
|
Cash and cash
equivalents
|
162,913
|
|
|
228,568
|
|
Investment securities
available for sale, at fair value, net (amortized cost of $937,828
and $939,160 at March 31, 2020 and December 31, 2019)
|
961,092
|
|
|
952,312
|
|
Loans held for
sale
|
3,808
|
|
|
5,533
|
|
Loans
receivable
|
3,852,376
|
|
|
3,767,879
|
|
Allowance for credit
losses on loans
|
(47,540)
|
|
|
(36,171)
|
|
Loans receivable,
net
|
3,804,836
|
|
|
3,731,708
|
|
Other real estate
owned
|
841
|
|
|
841
|
|
Premises and
equipment, net
|
87,958
|
|
|
87,888
|
|
Federal Home Loan
Bank stock, at cost
|
6,661
|
|
|
6,377
|
|
Bank owned life
insurance
|
106,756
|
|
|
103,616
|
|
Accrued interest
receivable
|
14,940
|
|
|
14,446
|
|
Prepaid expenses and
other assets
|
180,846
|
|
|
164,129
|
|
Other intangible
assets, net
|
15,710
|
|
|
16,613
|
|
Goodwill
|
240,939
|
|
|
240,939
|
|
Total
assets
|
$
|
5,587,300
|
|
|
$
|
5,552,970
|
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
Deposits
|
$
|
4,617,948
|
|
|
$
|
4,582,676
|
|
Junior subordinated
debentures
|
20,668
|
|
|
20,595
|
|
Securities sold under
agreement to repurchase
|
11,792
|
|
|
20,169
|
|
Accrued expenses and
other liabilities
|
138,454
|
|
|
120,219
|
|
Total
liabilities
|
4,788,862
|
|
|
4,743,659
|
|
|
|
|
|
Common
stock
|
568,439
|
|
|
586,459
|
|
Retained
earnings
|
211,707
|
|
|
212,474
|
|
Accumulated other
comprehensive gain, net
|
18,292
|
|
|
10,378
|
|
Total stockholders'
equity
|
798,438
|
|
|
809,311
|
|
Total liabilities and
stockholders' equity
|
$
|
5,587,300
|
|
|
$
|
5,552,970
|
|
|
|
|
|
Shares
outstanding
|
35,888,494
|
|
|
36,618,729
|
|
HERITAGE FINANCIAL
CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts in thousands, except per share
amounts)
|
|
|
|
Three Months
Ended
|
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
Interest
income:
|
|
|
|
|
|
Interest and fees on
loans
|
$
|
46,277
|
|
|
$
|
46,864
|
|
|
$
|
46,699
|
|
Taxable interest on
investment securities
|
5,639
|
|
|
5,585
|
|
|
5,823
|
|
Nontaxable interest on
investment securities
|
756
|
|
|
755
|
|
|
950
|
|
Interest on other
interest earning assets
|
420
|
|
|
739
|
|
|
335
|
|
Total interest
income
|
53,092
|
|
|
53,943
|
|
|
53,807
|
|
Interest
expense:
|
|
|
|
|
|
Deposits
|
4,216
|
|
|
4,479
|
|
|
3,603
|
|
Junior subordinated
debentures
|
285
|
|
|
313
|
|
|
354
|
|
Other
borrowings
|
34
|
|
|
36
|
|
|
62
|
|
Total interest
expense
|
4,535
|
|
|
4,828
|
|
|
4,019
|
|
Net interest
income
|
48,557
|
|
|
49,115
|
|
|
49,788
|
|
Provision for credit
losses
|
7,946
|
|
|
1,558
|
|
|
920
|
|
Net interest income
after provision for credit losses
|
40,611
|
|
|
47,557
|
|
|
48,868
|
|
Noninterest
income:
|
|
|
|
|
|
Service charges and
other fees
|
4,376
|
|
|
4,603
|
|
|
4,485
|
|
Gain on sale of
investment securities, net
|
1,014
|
|
|
1
|
|
|
15
|
|
Gain on sale of
loans, net
|
547
|
|
|
811
|
|
|
252
|
|
Interest rate swap
fees
|
296
|
|
|
919
|
|
|
—
|
|
Other
income
|
3,247
|
|
|
2,677
|
|
|
2,677
|
|
Total noninterest
income
|
9,480
|
|
|
9,011
|
|
|
7,429
|
|
Noninterest
expense:
|
|
|
|
|
|
Compensation and
employee benefits
|
22,506
|
|
|
21,939
|
|
|
21,914
|
|
Occupancy and
equipment
|
5,731
|
|
|
5,513
|
|
|
5,458
|
|
Data
processing
|
2,360
|
|
|
2,361
|
|
|
2,173
|
|
Marketing
|
866
|
|
|
461
|
|
|
1,098
|
|
Professional
services
|
1,377
|
|
|
1,280
|
|
|
1,173
|
|
State/municipal
business and use taxes
|
757
|
|
|
777
|
|
|
798
|
|
Federal deposit
insurance premium
|
—
|
|
|
5
|
|
|
285
|
|
Other real estate
owned, net
|
25
|
|
|
12
|
|
|
86
|
|
Amortization of
intangible assets
|
903
|
|
|
975
|
|
|
1,025
|
|
Other
expense
|
2,735
|
|
|
2,674
|
|
|
2,515
|
|
Total noninterest
expense
|
37,260
|
|
|
35,997
|
|
|
36,525
|
|
Income before income
taxes
|
12,831
|
|
|
20,571
|
|
|
19,772
|
|
Income tax
expense
|
640
|
|
|
3,445
|
|
|
3,220
|
|
Net income
|
$
|
12,191
|
|
|
$
|
17,126
|
|
|
$
|
16,552
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$
|
0.34
|
|
|
$
|
0.47
|
|
|
$
|
0.45
|
|
Diluted earnings per
share
|
$
|
0.33
|
|
|
$
|
0.47
|
|
|
$
|
0.45
|
|
Dividends declared
per share
|
$
|
0.20
|
|
|
$
|
0.29
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
Average number of
basic shares outstanding
|
36,342,090
|
|
|
36,597,048
|
|
|
36,825,532
|
|
Average number of
diluted shares outstanding
|
36,596,641
|
|
|
36,824,470
|
|
|
37,010,640
|
|
HERITAGE FINANCIAL
CORPORATION FINANCIAL STATISTICS
(Unaudited) (Dollar amounts in thousands, except per
share amounts)
|
|
|
|
Three Months
Ended
|
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
Other Real Estate
Owned:
|
|
|
|
|
|
Balance, beginning of
period
|
$
|
841
|
|
|
$
|
841
|
|
|
$
|
1,983
|
|
Additions from
transfer of loan
|
270
|
|
|
—
|
|
|
—
|
|
Proceeds from
dispositions
|
(266)
|
|
|
—
|
|
|
(79)
|
|
Loss on sales,
net
|
(4)
|
|
|
—
|
|
|
—
|
|
Balance, end of
period
|
$
|
841
|
|
|
$
|
841
|
|
|
$
|
1,904
|
|
|
|
|
|
|
Three Months
Ended
|
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
Allowance for
Credit Losses on Loans:
|
|
|
|
Balance, beginning of
period
|
$
|
36,171
|
|
|
$
|
36,518
|
|
|
$
|
35,042
|
|
Impact of CECL
adoption
|
1,822
|
|
|
—
|
|
|
—
|
|
Adjusted balance,
beginning of period
|
37,993
|
|
|
36,518
|
|
|
35,042
|
|
Provision for credit
losses on loans
|
9,964
|
|
|
1,558
|
|
|
920
|
|
Charge-offs:
|
|
|
|
|
|
Commercial
business
|
(1,222)
|
|
|
(1,509)
|
|
|
(103)
|
|
One-to-four family
residential
|
—
|
|
|
(15)
|
|
|
(15)
|
|
Real estate
construction and land development
|
—
|
|
|
(133)
|
|
|
—
|
|
Consumer
|
(375)
|
|
|
(451)
|
|
|
(586)
|
|
Total
charge-offs
|
(1,597)
|
|
|
(2,108)
|
|
|
(704)
|
|
Recoveries:
|
|
|
|
|
|
Commercial
business
|
1,069
|
|
|
55
|
|
|
159
|
|
One-to-four family
residential
|
3
|
|
|
—
|
|
|
—
|
|
Real estate
construction and land development
|
14
|
|
|
9
|
|
|
618
|
|
Consumer
|
94
|
|
|
139
|
|
|
117
|
|
Total
recoveries
|
1,180
|
|
|
203
|
|
|
894
|
|
Net (charge-offs)
recoveries
|
(417)
|
|
|
(1,905)
|
|
|
190
|
|
Balance, end of
period
|
$
|
47,540
|
|
|
$
|
36,171
|
|
|
$
|
36,152
|
|
Net charge-offs on
loans to average loans, annualized
|
0.04
|
%
|
|
0.20
|
%
|
|
(0.02)
|
%
|
|
|
|
Three Months
Ended
|
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
Allowance for
Credit Losses on Unfunded Commitments:
|
|
Balance, beginning of
period
|
$
|
306
|
|
|
$
|
306
|
|
|
$
|
306
|
|
Impact of CECL
adoption
|
3,702
|
|
|
—
|
|
|
—
|
|
Adjusted balance,
beginning of period
|
4,008
|
|
|
306
|
|
|
306
|
|
Reversal of provision
for credit losses on unfunded commitments
|
(2,018)
|
|
|
—
|
|
|
—
|
|
Balance, end of
period
|
$
|
1,990
|
|
|
$
|
306
|
|
|
$
|
306
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
Nonperforming
Assets:
|
|
|
|
|
|
|
|
Nonaccrual loans
(1):
|
|
|
|
|
|
|
|
Commercial
business
|
|
|
|
|
$
|
33,908
|
|
|
$
|
44,320
|
|
One-to-four family
residential
|
|
|
|
|
163
|
|
|
19
|
|
Consumer
|
|
|
|
|
92
|
|
|
186
|
|
Total nonaccrual
loans
|
|
|
|
|
34,163
|
|
|
44,525
|
|
Other real estate
owned
|
|
|
|
|
841
|
|
|
841
|
|
Nonperforming
assets
|
|
|
|
|
$
|
35,004
|
|
|
$
|
45,366
|
|
|
|
|
|
|
|
|
|
Restructured
performing loans
|
|
|
|
|
$
|
19,309
|
|
|
$
|
14,469
|
|
Accruing loans past
due 90 days or more
|
|
|
|
|
—
|
|
|
—
|
|
Potential problem
loans (2)
|
|
|
|
|
102,167
|
|
|
87,788
|
|
ACL on loans
to:
|
|
|
|
|
|
|
|
Loans
receivable
|
|
|
|
|
1.23
|
%
|
|
0.96
|
%
|
Nonaccrual
loans
|
|
|
|
|
139.16
|
%
|
|
81.24
|
%
|
Nonperforming loans
to loans receivable
|
|
|
|
|
0.89
|
%
|
|
1.18
|
%
|
Nonperforming assets
to total assets
|
|
|
|
|
0.63
|
%
|
|
0.82
|
%
|
|
|
(1)
|
At March 31,
2020 and December 31, 2019, $20.0 million and $26.3 million of
nonaccrual loans were also considered troubled debt restructured
loans, respectively.
|
|
|
(2)
|
Potential problem
loans are loans classified as Special Mention or worse that are not
classified as a TDR or nonaccrual loan and are not individually
evaluated for credit loss, but which management is closely
monitoring because the financial information of the borrower causes
concern as to their ability to meet their loan repayment
terms.
|
|
Three Months
Ended
|
|
March 31,
2020
|
|
December 31,
2019
|
|
March 31,
2019
|
|
Average
Balance
|
|
Interest
Earned/
Paid
|
|
Average
Yield/
Rate (1)
|
|
Average
Balance
|
|
Interest
Earned/
Paid
|
|
Average
Yield/
Rate (1)
|
|
Average
Balance
|
|
Interest
Earned/
Paid
|
|
Average
Yield/
Rate (1)
|
Interest Earning
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
(2) (3)
|
$
|
3,748,573
|
|
|
$
|
46,277
|
|
|
4.97
|
%
|
|
$
|
3,719,128
|
|
|
$
|
46,864
|
|
|
5.00
|
%
|
|
$
|
3,622,494
|
|
|
$
|
46,699
|
|
|
5.23
|
%
|
Taxable
securities
|
815,686
|
|
|
5,639
|
|
|
2.78
|
|
|
826,541
|
|
|
5,585
|
|
|
2.68
|
|
|
820,981
|
|
|
5,823
|
|
|
2.88
|
|
Nontaxable securities
(3)
|
122,153
|
|
|
756
|
|
|
2.49
|
|
|
123,177
|
|
|
755
|
|
|
2.43
|
|
|
149,825
|
|
|
950
|
|
|
2.57
|
|
Interest earning
deposits
|
125,357
|
|
|
420
|
|
|
1.35
|
|
|
180,862
|
|
|
739
|
|
|
1.62
|
|
|
55,959
|
|
|
335
|
|
|
2.43
|
|
Total interest
earning assets
|
4,811,769
|
|
|
53,092
|
|
|
4.44
|
%
|
|
4,849,708
|
|
|
53,943
|
|
|
4.41
|
%
|
|
4,649,259
|
|
|
53,807
|
|
|
4.69
|
%
|
Noninterest earning
assets
|
748,443
|
|
|
|
|
|
|
707,390
|
|
|
|
|
|
|
668,066
|
|
|
|
|
|
Total
assets
|
$
|
5,560,212
|
|
|
|
|
|
|
$
|
5,557,098
|
|
|
|
|
|
|
$
|
5,317,325
|
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
|
528,009
|
|
|
$
|
2,012
|
|
|
1.53
|
%
|
|
$
|
526,247
|
|
|
$
|
2,027
|
|
|
1.53
|
%
|
|
$
|
502,153
|
|
|
$
|
1,440
|
|
|
1.16
|
%
|
Savings
accounts
|
434,459
|
|
|
188
|
|
|
0.17
|
|
|
508,924
|
|
|
572
|
|
|
0.45
|
|
|
507,670
|
|
|
674
|
|
|
0.54
|
|
Interest bearing
demand and money market accounts
|
2,201,921
|
|
|
2,016
|
|
|
0.37
|
|
|
2,101,001
|
|
|
1,880
|
|
|
0.36
|
|
|
2,051,046
|
|
|
1,489
|
|
|
0.29
|
|
Total interest bearing
deposits
|
3,164,389
|
|
|
4,216
|
|
|
0.54
|
|
|
3,136,172
|
|
|
4,479
|
|
|
0.57
|
|
|
3,060,869
|
|
|
3,603
|
|
|
0.48
|
|
Junior subordinated
debentures
|
20,620
|
|
|
285
|
|
|
5.56
|
|
|
20,548
|
|
|
313
|
|
|
6.04
|
|
|
20,328
|
|
|
354
|
|
|
7.06
|
|
Securities sold under
agreement to repurchase
|
19,246
|
|
|
33
|
|
|
0.69
|
|
|
22,360
|
|
|
36
|
|
|
0.64
|
|
|
33,055
|
|
|
47
|
|
|
0.58
|
|
FHLB advances and
other borrowings
|
989
|
|
|
1
|
|
|
0.41
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,849
|
|
|
15
|
|
|
3.29
|
|
Total interest
bearing liabilities
|
3,205,244
|
|
|
4,535
|
|
|
0.57
|
%
|
|
3,179,080
|
|
|
4,828
|
|
|
0.60
|
%
|
|
3,116,101
|
|
|
4,019
|
|
|
0.52
|
%
|
Demand and other
noninterest bearing deposits
|
1,420,247
|
|
|
|
|
|
|
1,462,683
|
|
|
|
|
|
|
1,332,223
|
|
|
|
|
|
Other noninterest
bearing liabilities
|
128,650
|
|
|
|
|
|
|
108,467
|
|
|
|
|
|
|
102,550
|
|
|
|
|
|
Stockholders'
equity
|
806,071
|
|
|
|
|
|
|
806,868
|
|
|
|
|
|
|
766,451
|
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$
|
5,560,212
|
|
|
|
|
|
|
$
|
5,557,098
|
|
|
|
|
|
|
$
|
5,317,325
|
|
|
|
|
|
Net interest
income
|
|
|
$
|
48,557
|
|
|
|
|
|
|
$
|
49,115
|
|
|
|
|
|
|
$
|
49,788
|
|
|
|
Net interest
spread
|
|
|
|
|
3.87
|
%
|
|
|
|
|
|
3.81
|
%
|
|
|
|
|
|
4.17
|
%
|
Net interest
margin
|
|
|
|
|
4.06
|
%
|
|
|
|
|
|
4.02
|
%
|
|
|
|
|
|
4.34
|
%
|
Average interest
earning assets to average interest bearing liabilities
|
|
|
|
|
150.12
|
%
|
|
|
|
|
|
152.55
|
%
|
|
|
|
|
|
149.20
|
%
|
|
|
(1)
|
Annualized.
|
|
|
(2)
|
The average loan
balances presented in the table are net of allowances for credit
losses on loans 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
|
|
March 31,
2020
|
|
December 31,
2019
|
|
September 30,
2019
|
|
June 30,
2019
|
|
March 31,
2019
|
Earnings:
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
$
|
48,557
|
|
|
$
|
49,115
|
|
|
$
|
50,243
|
|
|
$
|
50,536
|
|
|
$
|
49,788
|
|
Provision for credit
losses
|
7,946
|
|
|
1,558
|
|
|
466
|
|
|
1,367
|
|
|
920
|
|
Noninterest
income
|
9,480
|
|
|
9,011
|
|
|
8,458
|
|
|
7,564
|
|
|
7,429
|
|
Noninterest
expense
|
37,260
|
|
|
35,997
|
|
|
36,719
|
|
|
37,547
|
|
|
36,525
|
|
Net income
|
12,191
|
|
|
17,126
|
|
|
17,895
|
|
|
15,984
|
|
|
16,552
|
|
Basic earnings per
share
|
$
|
0.34
|
|
|
$
|
0.47
|
|
|
$
|
0.49
|
|
|
$
|
0.43
|
|
|
$
|
0.45
|
|
Diluted earnings per
share
|
$
|
0.33
|
|
|
$
|
0.47
|
|
|
$
|
0.48
|
|
|
$
|
0.43
|
|
|
$
|
0.45
|
|
Average
Balances:
|
|
|
|
|
|
|
|
|
|
Loans receivable,
net
|
$
|
3,748,573
|
|
|
$
|
3,719,128
|
|
|
$
|
3,677,405
|
|
|
$
|
3,654,475
|
|
|
$
|
3,622,494
|
|
Investment
securities
|
937,839
|
|
|
949,718
|
|
|
952,559
|
|
|
979,532
|
|
|
970,806
|
|
Total interest
earning assets
|
4,811,769
|
|
|
4,849,708
|
|
|
4,736,704
|
|
|
4,681,588
|
|
|
4,649,259
|
|
Total
assets
|
5,560,212
|
|
|
5,557,098
|
|
|
5,416,391
|
|
|
5,350,805
|
|
|
5,317,325
|
|
Total interest
bearing deposits
|
3,164,389
|
|
|
3,136,172
|
|
|
3,056,551
|
|
|
3,031,256
|
|
|
3,060,869
|
|
Total noninterest
bearing deposits
|
1,420,247
|
|
|
1,462,683
|
|
|
1,416,336
|
|
|
1,345,917
|
|
|
1,332,223
|
|
Stockholders'
equity
|
806,071
|
|
|
806,868
|
|
|
801,393
|
|
|
782,719
|
|
|
766,451
|
|
Financial
Ratios:
|
|
|
|
|
|
|
|
|
|
Return on average
assets (1)
|
0.88
|
%
|
|
1.22
|
%
|
|
1.31
|
%
|
|
1.20
|
%
|
|
1.26
|
%
|
Return on average
common equity (1)
|
6.08
|
|
|
8.42
|
|
|
8.86
|
|
|
8.19
|
|
|
8.76
|
|
Return on average
tangible common equity (1)
|
9.46
|
|
|
12.94
|
|
|
13.66
|
|
|
12.89
|
|
|
13.94
|
|
Efficiency
ratio
|
64.20
|
|
|
61.93
|
|
|
62.55
|
|
|
64.62
|
|
|
63.84
|
|
Noninterest expense
to average total assets (1)
|
2.70
|
|
|
2.57
|
|
|
2.69
|
|
|
2.81
|
|
|
2.79
|
|
Net interest
margin
|
4.06
|
|
|
4.02
|
|
|
4.21
|
|
|
4.33
|
|
|
4.34
|
|
Net interest
spread
|
3.87
|
|
|
3.81
|
|
|
4.01
|
|
|
4.13
|
|
|
4.17
|
|
|
As of Period End
or for the Three Months Ended
|
|
March 31,
2020
|
|
December 31,
2019
|
|
September 30,
2019
|
|
June 30,
2019
|
|
March 31,
2019
|
Select Balance
Sheet:
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
5,587,300
|
|
|
$
|
5,552,970
|
|
|
$
|
5,515,185
|
|
|
$
|
5,376,686
|
|
|
$
|
5,342,099
|
|
Loans receivable,
net
|
3,804,836
|
|
|
3,731,708
|
|
|
3,694,825
|
|
|
3,681,920
|
|
|
3,660,279
|
|
Investment
securities
|
961,092
|
|
|
952,312
|
|
|
966,102
|
|
|
960,680
|
|
|
985,009
|
|
Deposits
|
4,617,948
|
|
|
4,582,676
|
|
|
4,562,257
|
|
|
4,347,708
|
|
|
4,393,715
|
|
Noninterest bearing
demand deposits
|
1,415,177
|
|
|
1,446,502
|
|
|
1,429,435
|
|
|
1,320,743
|
|
|
1,338,675
|
|
Stockholders'
equity
|
798,438
|
|
|
809,311
|
|
|
804,127
|
|
|
796,625
|
|
|
778,191
|
|
Financial
Measures:
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
$
|
22.25
|
|
|
$
|
22.10
|
|
|
$
|
21.96
|
|
|
$
|
21.60
|
|
|
$
|
21.09
|
|
Tangible book value
per share
|
15.10
|
|
|
15.07
|
|
|
14.90
|
|
|
14.56
|
|
|
14.03
|
|
Stockholders' equity
to total assets
|
14.3
|
%
|
|
14.6
|
%
|
|
14.6
|
%
|
|
14.8
|
%
|
|
14.6
|
%
|
Tangible common
equity to tangible assets
|
10.2
|
|
|
10.4
|
|
|
10.4
|
|
|
10.5
|
|
|
10.2
|
|
Loans to deposits
ratio
|
83.4
|
|
|
82.2
|
|
|
81.8
|
|
|
85.5
|
|
|
84.1
|
|
Credit Quality
Metrics:
|
|
|
|
|
|
|
|
|
|
ACL on
loans to:
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
1.23
|
%
|
|
0.96
|
%
|
|
0.98
|
%
|
|
0.98
|
%
|
|
0.98
|
%
|
Nonperforming
loans
|
139.16
|
|
|
81.24
|
|
|
88.00
|
|
|
188.51
|
|
|
207.14
|
|
Nonperforming loans
to loans receivable
|
0.89
|
|
|
1.18
|
|
|
1.11
|
|
|
0.52
|
|
|
0.47
|
|
Nonperforming assets
to total assets
|
0.63
|
|
|
0.82
|
|
|
0.77
|
|
|
0.38
|
|
|
0.36
|
|
Net charge-offs
(recoveries) on loans to average loans receivable, net
|
0.04
|
|
|
0.20
|
|
|
0.03
|
|
|
0.13
|
|
|
(0.02)
|
|
Criticized Loans
by Credit Quality Rating:
|
|
|
|
|
|
|
|
|
|
Special
mention
|
$
|
61,968
|
|
|
$
|
48,859
|
|
|
$
|
51,267
|
|
|
$
|
64,634
|
|
|
$
|
49,330
|
|
Substandard
|
89,510
|
|
|
93,413
|
|
|
90,204
|
|
|
89,274
|
|
|
78,329
|
|
Doubtful/Loss
|
—
|
|
|
524
|
|
|
524
|
|
|
524
|
|
|
524
|
|
Other
Metrics:
|
|
|
|
|
|
|
|
|
|
Number of banking
offices
|
62
|
|
|
62
|
|
|
62
|
|
|
62
|
|
|
63
|
|
Average number of
full-time equivalent employees
|
877
|
|
|
889
|
|
|
877
|
|
|
880
|
|
|
878
|
|
Deposits per
branch
|
$
|
74,483
|
|
|
$
|
73,914
|
|
|
$
|
73,585
|
|
|
$
|
70,124
|
|
|
$
|
69,742
|
|
Average assets per
full-time equivalent employee
|
$
|
6,342
|
|
|
$
|
6,253
|
|
|
$
|
6,176
|
|
|
$
|
6,082
|
|
|
$
|
6,054
|
|
View original
content:http://www.prnewswire.com/news-releases/heritage-financial-announces-first-quarter-2020-results-and-declares-regular-cash-dividend-301050012.html
SOURCE Heritage Financial Corporation