OLYMPIA, Wash., Oct. 22, 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 $16.6 million for the quarter ended
September 30, 2020 compared to net loss of $6.1 million for the linked-quarter ended
June 30, 2020 and net income of $17.9
million for the quarter ended September 30, 2019.
Diluted earnings per share for the quarter ended September 30,
2020 was $0.46 compared to diluted
losses per share of $0.17 for the
linked-quarter ended June 30, 2020 and diluted earnings per
share of $0.48 for the quarter ended
September 30, 2019.
Jeffrey J. Deuel, President and
Chief Executive Officer of Heritage, commented, "We are pleased
with our third quarter financial performance. The overlay of
COVID-19 has been difficult for everyone; however, the Heritage
team has navigated these challenges and we are focused on improving
our financial results and effectively managing risk. We continue to
utilize technology solutions and provide digital banking for our
customers, which we believe will provide opportunities to improve
operating efficiencies and likewise less reliance on high-cost
physical branch locations.
Further, we are pleased with our continuing efforts to have a
positive impact in our local communities. We are proud to have
recently been selected as the construction lender for the Vancouver
Housing Authority's Plum Meadows Apartments to renovate a
16-building affordable housing community in Vancouver, Washington. In addition, we have
been selected as construction lender for the Community Roots
Housing's (formerly Capitol Hill Housing) renovation of the
Boylston Howell, John Carney and
Bremer apartments, three affordable housing projects in
Seattle."
COVID-19 Response
The Company continues to be committed to supporting its
community and its customers during these unprecedented times. This
includes participation in the 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"), as
amended. Through the conclusion of the SBA's PPP on August 8, 2020, the Bank had funded 4,642 SBA PPP
loans totaling $897.4 million with an
average loan size of $193,000. Of the
funded loans, approximately 21% of both the count and the
originated balance were loans to new customers.
During the nine months ended September 30, 2020, under the
CARES Act and related regulatory guidance, the Bank has
accommodated loan modifications on 1,972 loans with a balance of
$636.9 million at March 31, 2020. Approximately 80% of loans that
obtained payment deferral modifications during the nine months
ended September 30, 2020 are no longer on payment deferral
status. At September 30, 2020, 260
loans totaling $117.1 million were
still in payment deferral modification status, with 42% of those
making interest only payments, and approximately $94.5 million, or 81%, of payment deferral
modification status loans were on their second modification,
generally consisting of a 90-day deferral. Loans modified under the
CARES Act and related regulatory guidance are not reported as
troubled-debt restructured ("TDR") loans per the enacted guidance.
The Bank assesses TDR status, at a minimum, once the loan deferment
period reaches 180-days.
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
|
|
September
30,
2020
|
|
June 30,
2020
|
|
September
30,
2019
|
|
(Dollars in
thousands, except per share amounts)
|
Net income
(loss)
|
$
|
16,636
|
|
|
$
|
(6,139)
|
|
|
$
|
17,895
|
|
Pre-tax,
pre-provision income (1)
|
$
|
21,843
|
|
|
$
|
21,488
|
|
|
$
|
21,982
|
|
Diluted earnings
(losses) per share
|
$
|
0.46
|
|
|
$
|
(0.17)
|
|
|
$
|
0.48
|
|
Return on average
assets (2)
|
1.00
|
%
|
|
(0.39)
|
%
|
|
1.31
|
%
|
Return on average
equity (2)
|
8.28
|
%
|
|
(3.06)
|
%
|
|
8.86
|
%
|
Return on average
tangible common equity (1) (2)
|
12.66
|
%
|
|
(3.96)
|
%
|
|
13.66
|
%
|
Net interest margin
(2)
|
3.38
|
%
|
|
3.64
|
%
|
|
4.21
|
%
|
Cost of total
deposits (2)
|
0.19
|
%
|
|
0.26
|
%
|
|
0.38
|
%
|
Efficiency
ratio
|
62.27
|
%
|
|
63.31
|
%
|
|
62.55
|
%
|
Noninterest expense
to average total assets (2)
|
2.17
|
%
|
|
2.36
|
%
|
|
2.69
|
%
|
Total
assets
|
$
|
6,685,889
|
|
|
$
|
6,562,359
|
|
|
$
|
5,515,185
|
|
Loans receivable,
net
|
$
|
4,593,390
|
|
|
$
|
4,594,832
|
|
|
$
|
3,694,825
|
|
Total
deposits
|
$
|
5,689,048
|
|
|
$
|
5,567,733
|
|
|
$
|
4,562,257
|
|
Loan to deposit ratio
(3)
|
82.0
|
%
|
|
83.8
|
%
|
|
81.8
|
%
|
Book value per
share
|
$
|
22.36
|
|
|
$
|
22.10
|
|
|
$
|
21.96
|
|
Tangible book value
per share (1)
|
$
|
15.27
|
|
|
$
|
14.98
|
|
|
$
|
14.90
|
|
|
|
(1)
|
See Non-GAAP
Financial Measures section herein.
|
(2)
|
Annualized.
|
(3)
|
Loans receivable
divided by deposits.
|
Investment securities decreased $45.4
million, or 5.2%, to $834.5
million at September 30, 2020 from $879.9 million at June 30, 2020 primarily as
a result of maturities, calls and payments of investment securities
of $53.8 million, offset partially by
investment purchases of $14.4 million
during the quarter ended September 30, 2020.
Loans receivable, net had a nominal change in total balance at
September 30, 2020 compared to June 30,
2020, but there were changes in balances by loan class.
Commercial and industrial loans decreased $42.7 million and consumer loans decreased
$31.0 million while non-owner
occupied commercial real estate ("CRE") loans increased
$33.2 million, owner-occupied CRE
loans increased $21.0 million and SBA
PPP loans increased $11.3 million.
The decrease in commercial and industrial loans was primarily due
to decreases in lines of credit balances. The utilization rate for
commercial and industrial lines of credit was 23.3% and 26.2% at
September 30, 2020 and June 30, 2020, respectively. The
decrease in consumer loans was primarily due to the cessation of
the indirect auto loan business line during the quarter ended
March 31, 2020. Increases in
owner-occupied CRE and non-owner occupied CRE were primarily due to
originations and transfers of completed construction loans, offset
partially by loans paid in full and payments on existing loans.
The following table summarizes the Company's loan portfolio by
type of loan and amortized cost at the dates indicated:
|
September 30,
2020
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
%
of
Total
|
|
(Dollars in
thousands)
|
Commercial
business:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
industrial
|
$
|
750,557
|
|
|
16.1
|
%
|
|
$
|
793,217
|
|
|
17.0
|
%
|
|
$
|
852,220
|
|
|
22.6
|
%
|
SBA PPP
|
867,782
|
|
|
18.6
|
|
|
856,490
|
|
|
18.4
|
|
|
—
|
|
|
—
|
|
Owner-occupied
CRE
|
859,338
|
|
|
18.4
|
|
|
838,303
|
|
|
18.0
|
|
|
805,234
|
|
|
21.4
|
|
Non-owner occupied
CRE
|
1,384,973
|
|
|
29.7
|
|
|
1,351,775
|
|
|
29.0
|
|
|
1,288,779
|
|
|
34.2
|
|
Total commercial
business
|
3,862,650
|
|
|
82.8
|
|
|
3,839,785
|
|
|
82.4
|
|
|
2,946,233
|
|
|
78.2
|
|
One-to-four family
residential
|
131,921
|
|
|
2.8
|
|
|
132,546
|
|
|
2.8
|
|
|
131,660
|
|
|
3.5
|
|
Real estate
construction and land development:
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family
residential
|
99,650
|
|
|
2.1
|
|
|
108,821
|
|
|
2.3
|
|
|
104,296
|
|
|
2.8
|
|
Five or more family
residential and commercial properties
|
215,472
|
|
|
4.6
|
|
|
197,163
|
|
|
4.2
|
|
|
170,350
|
|
|
4.5
|
|
Total real estate
construction and land development
|
315,122
|
|
|
6.7
|
|
|
305,984
|
|
|
6.5
|
|
|
274,646
|
|
|
7.3
|
|
Consumer
|
357,037
|
|
|
7.7
|
|
|
388,018
|
|
|
8.3
|
|
|
415,340
|
|
|
11.0
|
|
Loans
receivable
|
4,666,730
|
|
|
100.0
|
%
|
|
4,666,333
|
|
|
100.0
|
%
|
|
3,767,879
|
|
|
100.0
|
%
|
Allowance for credit
losses on loans
|
(73,340)
|
|
|
|
|
(71,501)
|
|
|
|
|
(36,171)
|
|
|
|
Loans receivable,
net
|
$
|
4,593,390
|
|
|
|
|
$
|
4,594,832
|
|
|
|
|
$
|
3,731,708
|
|
|
|
Total deposits increased $121.3
million, or 2.2%, to $5.69
billion at September 30, 2020 from $5.57 billion at June 30, 2020 due primarily
to increases in money market accounts of $98.1 million, or 10.0%, interest bearing demand
deposits of $59.6 million, or 3.7%,
and savings accounts of $20.8
million, or 4.1%, offset partially by a decrease in
certificate of deposit accounts of $46.6
million, or 9.5%. The increase in total deposits was due
primarily to a combination of new deposit relationships obtained in
conjunction with the SBA PPP lending process and existing customers
maintaining higher cash balances. Non-maturity deposits as a
percentage of total deposits increased to 92.2% at
September 30, 2020 from 91.2% at June 30, 2020.
The following table summarizes the Company's deposits at the
dates indicated:
|
September 30,
2020
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
(Dollars in
thousands)
|
Noninterest demand
deposits
|
$
|
1,989,247
|
|
|
35.0
|
%
|
|
$
|
1,999,754
|
|
|
35.9
|
%
|
|
$
|
1,446,502
|
|
|
31.6
|
%
|
Interest bearing
demand deposits
|
1,652,661
|
|
|
29.0
|
|
|
1,593,074
|
|
|
28.6
|
|
|
1,348,817
|
|
|
29.4
|
|
Money market
accounts
|
1,079,814
|
|
|
19.0
|
|
|
981,750
|
|
|
17.6
|
|
|
753,684
|
|
|
16.4
|
|
Savings
accounts
|
523,286
|
|
|
9.2
|
|
|
502,508
|
|
|
9.1
|
|
|
509,095
|
|
|
11.2
|
|
Total non-maturity
deposits
|
5,245,008
|
|
|
92.2
|
|
|
5,077,086
|
|
|
91.2
|
|
|
4,058,098
|
|
|
88.6
|
|
Certificates of
deposit
|
444,040
|
|
|
7.8
|
|
|
490,647
|
|
|
8.8
|
|
|
524,578
|
|
|
11.4
|
|
Total
deposits
|
$
|
5,689,048
|
|
|
100.0
|
%
|
|
$
|
5,567,733
|
|
|
100.0
|
%
|
|
$
|
4,582,676
|
|
|
100.0
|
%
|
Total stockholders' equity increased $9.5
million, or 1.2%, to $803.1
million at September 30, 2020 from $793.7 million at June 30, 2020. Changes in
stockholders' equity during the periods indicated were as
follows:
|
Three Months
Ended
|
|
September
30,
2020
|
|
June 30,
2020
|
|
December
31,
2019
|
|
(In
thousands)
|
Balance, beginning of
period
|
$
|
793,652
|
|
|
$
|
798,438
|
|
|
$
|
804,127
|
|
Net income
(loss)
|
16,636
|
|
|
(6,139)
|
|
|
17,126
|
|
Accumulated other
comprehensive (loss) gain, net
|
(773)
|
|
|
7,689
|
|
|
(2,147)
|
|
Dividends
paid
|
(7,227)
|
|
|
(7,226)
|
|
|
(10,673)
|
|
Shares
repurchased
|
(7)
|
|
|
(38)
|
|
|
(1)
|
|
Other
|
848
|
|
|
928
|
|
|
879
|
|
Balance, end of
period
|
$
|
803,129
|
|
|
$
|
793,652
|
|
|
$
|
809,311
|
|
During the quarter ended September 30, 2020, no shares were
repurchased under the Company's stock repurchase plan as the
Company halted repurchases in March
2020 (other than the cancellation of stock to pay
withholding taxes on vested restricted stock awards or units) in
response to the COVID-19 pandemic. As of September 30, 2020,
there were 1,643,276 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 following table
summarizes capital ratios for the Company at the dates
indicated:
|
September
30,
2020
|
|
June 30,
2020
|
|
December
31,
2019
|
Capital
Ratios:
|
|
|
|
|
|
Stockholders' equity
to total assets
|
12.0
|
%
|
|
12.1
|
%
|
|
14.6
|
%
|
Tangible common
equity to tangible assets (1)
|
8.5
|
%
|
|
8.5
|
%
|
|
10.4
|
%
|
Tangible common
equity to tangible assets, excluding SBA PPP loans
(1)
|
9.9
|
%
|
|
9.9
|
%
|
|
10.4
|
%
|
Common equity Tier 1
capital to risk-weighted assets (2)
|
11.7
|
%
|
|
11.4
|
%
|
|
11.5
|
%
|
Tier 1 leverage
capital to average quarterly assets (2)
|
8.8
|
%
|
|
9.1
|
%
|
|
10.6
|
%
|
Tier 1 capital to
risk-weighted assets (2)
|
12.2
|
%
|
|
11.8
|
%
|
|
12.0
|
%
|
Total capital to
risk-weighted assets (2)
|
13.4
|
%
|
|
13.1
|
%
|
|
12.8
|
%
|
|
|
(1)
|
See Non-GAAP
Financial Measures section herein.
|
(2)
|
Capital measures
beginning in 2020 reflect the revised CECL capital transition
provisions adopted by the Board of Governors of the Federal Reserve
System ("Federal Reserve") and the Federal Deposit Insurance
Corporation ("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 of Heritage, commented, "We
continue to be pleased with our overall capital position as well as
the increase in our risk-based capital ratios. We believe this
capital strength, in addition to our foundation of proactive and
disciplined risk management, will sustain us through the current
economic conditions."
Allowance for Credit Losses
Effective January 1, 2020, the
Company 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 "CECL," under the modified retrospective method; therefore,
periods prior to the effective date are not comparable.
During the quarter ended September 30, 2020, the allowance
for credit losses ("ACL") on loans increased $1.8 million, or 2.6%, to $73.3 million at September 30, 2020 due
primarily to a provision for credit losses on loans of $2.3 million, offset partially by net charge-offs
of $481,000 during the quarter ended
September 30, 2020.
The provision for credit losses recognized during the quarter
ended September 30, 2020 was primarily due to the increase in
the ACL on individually evaluated loans due to the addition of
loans to nonaccrual status during the current quarter, offset
partially by a decrease in the ACL for loans collectively evaluated
due primarily to improvements in the economic forecast. The
macroeconomic forecast by Oxford Economics for the quarter ended
September 30, 2020 reflected less severe magnitudes of
variables, such as unemployment rate and GDP, as compared to the
forecast for the linked-quarter ended June 30, 2020 as more
becomes known about the impacts of COVID-19.
The Bank recognized net charge-offs of $481,000 during the quarter ended
September 30, 2020 due primarily to charge-offs of two
commercial and industrial loan relationships totaling $447,000 as a result of the impact of the
COVID-19 pandemic. Net charge-offs were $2.0
million for the linked-quarter ended June 30, 2020 and
$311,000 for the same quarter in
2019.
The following table provides detail on the changes in the ACL on
loans and unfunded commitments and the related provision for credit
losses for the periods indicated:
|
As of Period End
or for the
Three Months Ended
|
|
As of Period End
or for the
Three Months Ended
|
|
As of Period End
or for the
Three Months Ended
|
|
September 30,
2020
|
|
June 30,
2020
|
|
September 30,
2019
|
|
ACL on
Loans
|
|
ACL on Unfunded
Commitment
|
|
Total
|
|
ACL on
Loans
|
|
ACL on Unfunded
Commitment
|
|
Total
|
|
ACL on
Loans
|
|
ACL on Unfunded
Commitment
|
|
Total
|
|
(Dollars in
thousands)
|
Balance,
beginning of
period
|
$
|
71,501
|
|
|
$
|
4,612
|
|
|
$
|
76,113
|
|
|
$
|
47,540
|
|
|
$
|
1,990
|
|
|
$
|
49,530
|
|
|
$
|
36,363
|
|
|
$
|
306
|
|
|
$
|
36,669
|
|
Provision for
credit losses
|
2,320
|
|
|
410
|
|
|
2,730
|
|
|
25,941
|
|
|
2,622
|
|
|
28,563
|
|
|
466
|
|
|
—
|
|
|
466
|
|
Net
charge-offs
|
(481)
|
|
|
—
|
|
|
(481)
|
|
|
(1,980)
|
|
|
—
|
|
|
(1,980)
|
|
|
(311)
|
|
|
—
|
|
|
(311)
|
|
Balance, end
of
period
|
$
|
73,340
|
|
|
$
|
5,022
|
|
|
$
|
78,362
|
|
|
$
|
71,501
|
|
|
$
|
4,612
|
|
|
$
|
76,113
|
|
|
$
|
36,518
|
|
|
$
|
306
|
|
|
$
|
36,824
|
|
Credit Quality
Nonperforming assets increased to 0.79% of total assets at
September 30, 2020 compared to 0.51% of total assets at
June 30, 2020, due to an increase in nonaccrual loans.
Nonperforming assets at September 30, 2020 and June 30, 2020 consist only of nonaccrual loans.
Of the additions to nonaccrual loans, $19.6
million, or 94.0%, were of loans that were previously
modified under the CARES Act that exhibited a continued decline in
credit quality, warranting transfer to nonaccrual status. The
additions include three commercial lending relationships totaling
$17.4 million, comprised of a parking
facility, a hotel and a group of restaurants under common
ownership. The Bank is actively working with the borrowers to
secure a positive resolution.
Changes in nonaccrual loans during the periods indicated were as
follows:
|
Three Months
Ended
|
|
September
30,
2020
|
|
June 30,
2020
|
|
December
31,
2019
|
|
(In
thousands)
|
Balance, beginning of
period
|
$
|
33,628
|
|
|
$
|
34,163
|
|
|
$
|
41,497
|
|
Additions of
previously classified pass graded loans
|
17,873
|
|
|
4
|
|
|
764
|
|
Additions of
previously classified potential problem loans
|
2,979
|
|
|
989
|
|
|
1,043
|
|
Addition of previously
classified TDR loans
|
—
|
|
|
—
|
|
|
4,686
|
|
Net principal payments
and transfers to accruing status
|
(1,429)
|
|
|
(1,499)
|
|
|
(2,216)
|
|
Charge-offs
|
(447)
|
|
|
(29)
|
|
|
(1,249)
|
|
Balance, end of
period
|
$
|
52,604
|
|
|
$
|
33,628
|
|
|
$
|
44,525
|
|
The ACL on loans to nonaccrual loans decreased to 139.42% at
September 30, 2020 compared to 212.62% at June 30, 2020
due primarily to the increase in nonaccrual loans as discussed
above.
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. Potential problem loans increased
$59.2 million, or 58.9%, to
$159.8 million at September 30,
2020 compared to $100.6 million at
June 30, 2020. The increase was primarily attributed to
downgrades related to COVID-19, including $44.4 million of loans that were modified under
the CARES Act and indicated additional signs of weakness and
$23.8 million of loans that had not
been modified under the CARES Act. The Bank's practice on COVID-19
related loan issues was to downgrade to a "Watch" grade if the loan
was modified, unless the borrower showed strong financials or other
factors indicated a less severe grade was appropriate. Loans with
COVID-19 issues were classified as potential problem loans if
additional factors were identified to cause a more severe
grade.
Of the total additions of previously classified pass graded
loans, $46.5 million were downgraded
to special mention and $23.7 million
were downgraded to substandard. Potential problem loan additions
were offset partially by transfers of loans to nonaccrual and TDR
status and net principal payments.
Changes in potential problem loans during the periods indicated
were as follows:
|
Three Months
Ended
|
|
September
30,
2020
|
|
June 30,
2020
|
|
December
31,
2019
|
|
(In
thousands)
|
Balance, beginning of
period
|
$
|
100,554
|
|
|
$
|
102,167
|
|
|
$
|
85,314
|
|
Addition of previously
classified pass graded loans
|
70,177
|
|
|
14,023
|
|
|
23,498
|
|
Upgrades to pass
graded loan status
|
(2,948)
|
|
|
(6,116)
|
|
|
(8,367)
|
|
Net principal
payments
|
(4,840)
|
|
|
(8,377)
|
|
|
(10,537)
|
|
Transfers of loans to
nonaccrual and TDR status
|
(3,179)
|
|
|
(1,143)
|
|
|
(2,120)
|
|
Balance, end of
period
|
$
|
159,764
|
|
|
$
|
100,554
|
|
|
$
|
87,788
|
|
Operating Results
Net interest income decreased $635,000, or 1.3%, to $49.7 million for the quarter ended
September 30, 2020 from $50.3
million for the linked-quarter ended June 30, 2020
due primarily to sustained decreases in yields on adjustable
rate instruments outpacing decreases in the cost of interest
bearing liabilities, reflecting decreases in short-term market
rates occurring earlier in 2020. Net interest income decreased
$565,000, or 1.1%, from $50.2 million for the same period in 2019 due
primarily to decreases in yields on adjustable rate instruments
following several decreases in short-term market rates over the
last year and the impact of the low-yielding SBA PPP loans,
partially offset by decreases in the cost of interest bearing
liabilities.
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 16,
2020
|
|
0.00 -
0.25%
|
|
-1.00%
|
Net interest margin decreased 26 basis points to 3.38% for the
quarter ended September 30, 2020 from 3.64% for the
linked-quarter ended June 30, 2020 due primarily to decreases
in the yield of interest earning assets and the change in the mix
of interest earning assets, offset partially by decreases in the
cost of interest bearing liabilities. Average interest earning
assets increased $302.7 million, or
5.5%, from the linked-quarter due primarily to an increase in
average SBA PPP loans of $195.7
million, or 29.3%, and an increase in average interest
earning deposits of $204.3 million,
or 110.2%. The yields on SBA PPP loans of 2.68% and interest
earning deposits of 0.10% during the quarter ended September 30, 2020 are substantially lower than
other interest earning assets, primarily loans. Average loans
receivable, net, excluding SBA PPP loans, decreased to 63.9% of
interest earning assets during the quarter ended September 30, 2020 compared to 68.0% during the
linked-quarter ended June 30, 2020.
This decrease, coupled with the decrease in loan yield described
below, was the primary contributor to the decrease in the net
interest margin. The cost of interest bearing deposits decreased 11
basis points to 0.29% during the quarter ended September 30,
2020 from 0.40% during the linked-quarter ended June 30, 2020
due primarily to the decrease in market rates.
Net interest margin decreased 83 basis points from 4.21% for the
quarter ended September 30, 2019 due to similar reasons
discussed above, including decreases in yields on adjustable
instruments following decreases in short-term market rates,
low-yielding SBA PPP loans and a significant increase in interest
earning deposits combined with a 190 basis point decline in their
yield from the same period in 2019, offset partially by decreases
in the cost of interest bearing liabilities.
Loan yield decreased 26 basis points to 4.12% for the quarter
ended September 30, 2020 from 4.38% for the linked-quarter
ended June 30, 2020 due primarily to sustained decreases in
short-term market rates and the negative impact to interest income
due to loans transferred to nonaccrual status during the quarter
ended September 30, 2020. Loan yield,
excluding SBA PPP loans and incremental accretion on purchased
loans was 4.35% for the quarter ended September 30,
2020 compared to 4.56% for the linked for the linked-quarter
ended June 30, 2020. The impact of nonaccrual activity on loan
yield from the linked-quarter was six basis points.
Loan yield decreased 104 basis points from 5.16% for the quarter
ended September 30, 2019 due primarily to the multiple and
sustained decreases in short-term market rates and secondarily due
to the impact of low-yielding SBA PPP loans. Loan yield, excluding
SBA PPP loans and incremental accretion on purchased loans was
5.04% for the comparable quarter ended September 30, 2019. The
impact of nonaccrual activity on loan yield from the prior year
quarter was two basis points.
The following table presents the loan yield and the impacts of
the balances and interest and fees earned on SBA PPP loans and the
incremental accretion on purchased loans on this financial measure
for the periods presented below:
|
Three Months
Ended
|
|
September
30,
2020
|
|
June 30,
2020
|
|
September
30,
2019
|
|
(Dollars in
thousands)
|
Non-GAAP
Measure:(1)
|
Loan yield
(GAAP)
|
4.12
|
%
|
|
4.38
|
%
|
|
5.16
|
%
|
Exclude impact from
SBA PPP loans
|
0.31
|
%
|
|
0.24
|
%
|
|
—
|
%
|
Exclude impact from
incremental accretion on purchased loans(2)
|
(0.08)
|
%
|
|
(0.06)
|
%
|
|
(0.12)
|
%
|
Loan yield, excluding
SBA PPP loans and incremental accretion on purchased loans
(non-GAAP)
|
4.35
|
%
|
|
4.56
|
%
|
|
5.04
|
%
|
|
|
(1)
|
See Non-GAAP
Financial Measures section.
|
(2)
|
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 by the adoption of ASU
2016-13. The purchased discount is accreted into income over the
remaining life of the loan. The impact of incremental accretion on
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 yield on the investment portfolio decreased 18 basis
points to 2.23% for the quarter ended September 30, 2020 from
2.41% for the linked-quarter ended June 30, 2020 and decreased
48 basis points from 2.71% for the quarter ended September 30,
2019 due primarily to decreases in market interest rates impacting
adjustable rate securities and lower yields on recent purchases of
investment securities compared to the existing portfolio.
The cost of total deposits decreased seven basis points to
0.19% during the quarter ended September 30, 2020 from 0.26%
for the linked-quarter ended June 30, 2020 primarily related
to a decrease in the cost of certificates of deposit to 0.97% for
the quarter ended September 30, 2020 from 1.42% for the
linked-quarter ended June 30, 2020. The cost of total deposits
decreased 19 basis points from 0.38% for the quarter ended
September 30, 2019 due primarily to decreases in market
interest rates following decreases in the federal funds target rate
previously mentioned.
Provision for credit losses of $2.7
million was recorded during the quarter ended
September 30, 2020, which is comprised of the estimated credit
losses for loans and estimated credit losses for unfunded
commitments.
The Bank recorded provision for credit losses on loans of
$2.3 million during the quarter ended
September 30, 2020 compared to $25.9
million during the quarter ended June 30, 2020. The
provision was due primarily to increases in the ACL on individually
evaluated loans that were transferred to nonaccrual status during
the quarter, offset partially by a decrease in the ACL on
collectively evaluated loans primarily due to modest improvements
in the macroeconomic forecast described in the Allowance for Credit
Losses section above. The amount of provision for credit losses on
loans recorded during the quarter ended September 30, 2020 was
necessary to increase the ACL on loans to an amount that management
determined to be appropriate and estimated the credit losses on
loans at September 30, 2020 based on its adopted CECL
methodology. The provision for loan losses for the same period in
2019 was estimated under the previously utilized incurred loss
methodology.
Noninterest income remained relatively constant at $8.2 million for both the quarter ended
September 30, 2020 and the linked-quarter ended June 30,
2020, and decreased $248,000, or
2.9%, from $8.5 million for the same
period in 2019 due primarily to a decrease in service charges and
other fees of $740,000, or 15.5%. The
decrease in service charges and other fees was due primarily to a
decrease in overdraft fees of $561,000 from changes in customer spending habits
during the COVID pandemic. The decrease in noninterest income was
offset partially by an increase in gain on sale of loans of
$450,000, or 45.3%, due to an
increase in volume of loans sold during the quarter ended
September 30, 2020 reflecting the low
interest rate environment.
Noninterest expense decreased $1.0
million, or 2.8%, to $36.0
million for the quarter ended September 30, 2020 from
$37.1 million for the linked-quarter
ended June 30, 2020 due primarily to a decrease in
professional services of $1.1
million, or 49.9%. This decrease in professional services
was due to elevated expense levels in the linked-quarter ended
June 30, 2020 resulting from the
launch of the new mobile and online commercial banking platform,
"Heritage Direct," which was completed during the quarter.
Additionally, the decrease in noninterest expense was due to a
decrease in compensation and employee benefits of $511,000, or 2.3%, resulting from a combination
of a decrease in full-time equivalent employees, lower incentive
compensation expense, and a decrease in overtime pay (elevated in
the prior quarter due to the SBA PPP loan process), offset
partially by a reduction of the compensation deferred as a result
of lower SBA PPP origination volume during the quarter ended
September 30, 2020. These decreases
in noninterest expense were offset partially by an increase in
federal deposit insurance premium expense of $610,000, or 256.3%, due primarily to the impact
of the decrease in the Bank's Tier 1 leverage ratio on the Bank's
assessment rate and the remaining usage of the Bank's small bank
credit during the quarter ended June 30,
2020.
Noninterest expense decreased $674,000, or 1.8%, compared to $36.7 million for the quarter ended
September 30, 2019 due primarily to a decrease in other
expense of $739,000, or 26.2%, due
substantially from the reduction of employee lodging, meal and
travel expenses related to the Company's suspension of
non-essential travel due to COVID-19; a decrease
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 recognized during the quarter ended
September 30, 2019; and a decrease in
professional services primarily due to consulting fees recognized
during the quarter ended September 30,
2019 related to CECL implementation efforts. The decrease in
noninterest expense was offset partially by an increase in federal
deposit insurance premium expense of $839,000 for the reasons described above and the
utilization of the Bank's small bank credit for the full assessment
due during the quarter ended September 30,
2019.
Income tax expense was $2.5
million for the quarter ended September 30, 2020
compared to income tax benefit of $936,000 for the linked-quarter ended
June 30, 2020 and income tax expense of $3.6 million for the quarter ended
September 30, 2019. The effective tax rate was 13.0% for the
quarter ended September 30, 2020 compared to an effective tax
benefit rate of 13.2% for the linked-quarter ended June 30,
2020 and an effective tax rate of 16.8% for the quarter ended
September 30, 2019. The decrease in the effective tax rate
from the quarter ended September 30, 2019 was due to the
year-over-year decrease in estimated annual pre-tax income which
results in an increased impact of favorable permanent tax items
such as tax-exempt investments, investments in bank owned life
insurance and low-income housing tax credits.
Branch Consolidation Plan
After careful consideration and analysis, the Company has
decided to consolidate nine branches to create a more efficient
branch footprint, including one branch during October 2020 and eight branches during
January 2021. This is a decrease of
15% in the number of total branches and will reduce the branch
count from 62 to 53. The Company plans to integrate these locations
into other branches within its network. These actions are a result
of the Company's increased focus on balancing physical locations
and digital banking channels, driven by increased client usage of
online and mobile banking and a commitment to improve digital
banking technology.
The Company anticipates annual expense savings of approximately
$2.3 million as a result of these
consolidations. The Company expects to incur total pre-tax expense
related to the consolidations of $1.6
million.
Dividends
On October 21, 2020, the Company's Board of Directors
declared a quarterly cash dividend of $0.20 per share. The dividends are payable on
November 18, 2020 to shareholders of record as of the close of
business on November 4, 2020.
Earnings Conference Call
The Company will hold a telephone conference call to discuss
this earnings release on October 22,
2020 at 11:00 a.m. Pacific
time. To access the call, please dial (844) 721-7241 --
access code 348422 a few minutes prior to 11:00 a.m. Pacific time. The call will be
available for replay through November 5,
2020 by dialing (866) 207-1041 -- access code 4372884.
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,
2020
|
|
June 30,
2020
|
|
March 31,
2020
|
|
December
31,
2019
|
|
September
30,
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)
|
$
|
803,129
|
|
|
$
|
793,652
|
|
|
$
|
798,438
|
|
|
$
|
809,311
|
|
|
$
|
804,127
|
|
Exclude intangible
assets
|
(254,886)
|
|
|
(255,746)
|
|
|
(256,649)
|
|
|
(257,552)
|
|
|
(258,527)
|
|
Tangible common
equity (non-GAAP)
|
$
|
548,243
|
|
|
$
|
537,906
|
|
|
$
|
541,789
|
|
|
$
|
551,759
|
|
|
$
|
545,600
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
(GAAP)
|
$
|
6,685,889
|
|
|
$
|
6,562,359
|
|
|
$
|
5,587,300
|
|
|
$
|
5,552,970
|
|
|
$
|
5,515,185
|
|
Exclude intangible
assets
|
(254,886)
|
|
|
(255,746)
|
|
|
(256,649)
|
|
|
(257,552)
|
|
|
(258,527)
|
|
Tangible assets
(non-GAAP)
|
$
|
6,431,003
|
|
|
$
|
6,306,613
|
|
|
$
|
5,330,651
|
|
|
$
|
5,295,418
|
|
|
$
|
5,256,658
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
(GAAP)
|
$
|
6,685,889
|
|
|
$
|
6,562,359
|
|
|
$
|
5,587,300
|
|
|
$
|
5,552,970
|
|
|
$
|
5,515,185
|
|
Exclude intangible
assets
|
(254,886)
|
|
|
(255,746)
|
|
|
(256,649)
|
|
|
(257,552)
|
|
|
(258,527)
|
|
Exclude SBA PPP
loans
|
(867,782)
|
|
|
(856,490)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Tangible assets,
excluding SBA PPP loans (non-GAAP)
|
$
|
5,563,221
|
|
|
$
|
5,450,123
|
|
|
$
|
5,330,651
|
|
|
$
|
5,295,418
|
|
|
$
|
5,256,658
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
to total assets (GAAP)
|
12.0
|
%
|
|
12.1
|
%
|
|
14.3
|
%
|
|
14.6
|
%
|
|
14.6
|
%
|
Tangible common
equity to tangible assets (non-GAAP)
|
8.5
|
%
|
|
8.5
|
%
|
|
10.2
|
%
|
|
10.4
|
%
|
|
10.4
|
%
|
Tangible common
equity to tangible assets, excluding SBA PPP loans
(non-GAAP)
|
9.9
|
%
|
|
9.9
|
%
|
|
10.2
|
%
|
|
10.4
|
%
|
|
10.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Shares
outstanding
|
35,910,300
|
|
|
35,908,908
|
|
|
35,888,494
|
|
|
36,618,729
|
|
|
36,618,381
|
|
Book value per share
(GAAP)
|
$
|
22.36
|
|
|
$
|
22.10
|
|
|
$
|
22.25
|
|
|
$
|
22.10
|
|
|
$
|
21.96
|
|
Tangible book value
per share (non-GAAP)
|
$
|
15.27
|
|
|
$
|
14.98
|
|
|
$
|
15.10
|
|
|
$
|
15.07
|
|
|
$
|
14.90
|
|
|
September
30,
2020
|
|
June 30,
2020
|
|
March 31,
2020
|
|
December
31,
2019
|
|
September
30,
2019
|
|
(Dollars in
thousands)
|
ACL on loans to
loans receivable, excluding SBA PPP loans
|
Allowance for credit
losses on loans
|
$
|
(73,340)
|
|
|
$
|
(71,501)
|
|
|
$
|
(47,540)
|
|
|
$
|
(36,171)
|
|
|
$
|
(36,518)
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
(GAAP)
|
$
|
4,666,730
|
|
|
$
|
4,666,333
|
|
|
$
|
3,852,376
|
|
|
$
|
3,767,879
|
|
|
$
|
3,731,343
|
|
Exclude SBA PPP
loans
|
(867,782)
|
|
|
(856,490)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Loans receivable,
excluding SBA PPP loans (non-GAAP)
|
$
|
3,798,948
|
|
|
$
|
3,809,843
|
|
|
$
|
3,852,376
|
|
|
$
|
3,767,879
|
|
|
$
|
3,731,343
|
|
|
|
|
|
|
|
|
|
|
|
ACL on loans to loans
receivable (GAAP)
|
1.57
|
%
|
|
1.53
|
%
|
|
1.23
|
%
|
|
0.96
|
%
|
|
0.98
|
%
|
ACL on loans to loans
receivable, excluding SBA PPP loans (non-GAAP)
|
1.93
|
%
|
|
1.88
|
%
|
|
1.23
|
%
|
|
0.96
|
%
|
|
0.98
|
%
|
|
Three Months
Ended
|
|
September
30,
2020
|
|
June 30,
2020
|
|
September
30,
2019
|
|
(Dollar amounts in
thousands)
|
Pre-tax,
pre-provision income:
|
Net income (loss)
(GAAP)
|
$
|
16,636
|
|
|
$
|
(6,139)
|
|
|
$
|
17,895
|
|
Add income tax expense
(benefit)
|
2,477
|
|
|
(936)
|
|
|
3,621
|
|
Add provision for
credit losses
|
2,730
|
|
|
28,563
|
|
|
466
|
|
Pre-tax,
pre-provision income (non-GAAP)
|
$
|
21,843
|
|
|
$
|
21,488
|
|
|
$
|
21,982
|
|
|
Three Months
Ended
|
|
September
30,
2020
|
|
June 30,
2020
|
|
September
30,
2019
|
|
(Dollar amounts in
thousands)
|
Return on average
tangible common equity, annualized:
|
Net income (loss)
(GAAP)
|
$
|
16,636
|
|
|
$
|
(6,139)
|
|
|
$
|
17,895
|
|
Add amortization of
intangible assets
|
860
|
|
|
903
|
|
|
975
|
|
Exclude tax effect of
adjustment
|
(181)
|
|
|
(190)
|
|
|
(205)
|
|
Tangible net income
(loss) (non-GAAP)
|
$
|
17,315
|
|
|
$
|
(5,426)
|
|
|
$
|
18,665
|
|
|
|
|
|
|
|
Average stockholders'
equity (GAAP)
|
$
|
799,738
|
|
|
$
|
807,539
|
|
|
$
|
801,393
|
|
Exclude average
intangible assets
|
(255,453)
|
|
|
(256,338)
|
|
|
(259,166)
|
|
Average tangible
common stockholders' equity (non-GAAP)
|
$
|
544,285
|
|
|
$
|
551,201
|
|
|
$
|
542,227
|
|
|
|
|
|
|
|
Return on average
equity, annualized (GAAP)
|
8.28
|
%
|
|
(3.06)
|
%
|
|
8.86
|
%
|
Return on average
tangible common equity, annualized (non-GAAP)
|
12.66
|
%
|
|
(3.96)
|
%
|
|
13.66
|
%
|
|
Three Months
Ended
|
|
September
30,
2020
|
|
June 30,
2020
|
|
September
30,
2019
|
|
(Dollars in
thousands)
|
Loan yield,
excluding SBA PPP loans and incremental accretion on purchased
loans, annualized:
|
Interest and fees on
loans (GAAP)
|
$
|
47,647
|
|
|
$
|
48,404
|
|
|
$
|
47,845
|
|
Exclude SBA PPP loans
interest and fees
|
(5,810)
|
|
|
(4,923)
|
|
|
—
|
|
Exclude incremental
accretion on purchased loans
|
(944)
|
|
|
(696)
|
|
|
(1,090)
|
|
Adjusted interest and
fees on loans (non-GAAP)
|
$
|
40,893
|
|
|
$
|
42,785
|
|
|
$
|
46,755
|
|
|
|
|
|
|
|
Average loans
receivable, net
|
$
|
4,605,389
|
|
|
$
|
4,442,108
|
|
|
$
|
3,677,405
|
|
Exclude average SBA
PPP loans
|
(863,127)
|
|
|
(667,390)
|
|
|
—
|
|
Adjusted average
loans receivable, net (non-GAAP)
|
$
|
3,742,262
|
|
|
$
|
3,774,718
|
|
|
$
|
3,677,405
|
|
|
|
|
|
|
|
Loan yield,
annualized (GAAP)
|
4.12
|
%
|
|
4.38
|
%
|
|
5.16
|
%
|
Loan yield, excluding
SBA PPP loans and incremental accretion on purchased loans,
annualized (non-GAAP)
|
4.35
|
%
|
|
4.56
|
%
|
|
5.04
|
%
|
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. The COVID-19, pandemic is adversely
affecting us, our customers, counterparties, employees, and
third-party service providers, and the ultimate extent of the
impacts on our business, financial position, results of operations,
liquidity, and prospects is uncertain. Continued deterioration in
general business and economic conditions, including further
increases in unemployment rates, or turbulence in domestic or
global financial markets could adversely affect our revenues and
the values of our assets and liabilities, reduce the availability
of funding, lead to a tightening of credit, and further increase
stock price volatility. In addition, changes to statutes,
regulations, or regulatory policies or practices as a result of, or
in response to COVID-19, could affect us in substantial and
unpredictable ways. Other factors that could cause or contribute to
such differences include, but are not limited to: 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)
|
|
|
September
30,
2020
|
|
June 30,
2020
|
|
December
31,
2019
|
Assets
|
|
|
|
|
|
Cash on hand and in
banks
|
$
|
89,039
|
|
|
$
|
100,872
|
|
|
$
|
95,039
|
|
Interest earning
deposits
|
487,203
|
|
|
314,203
|
|
|
133,529
|
|
Cash and cash
equivalents
|
576,242
|
|
|
415,075
|
|
|
228,568
|
|
Investment securities
available for sale, at fair value, net (amortized cost of $802,391,
$846,839 and $939,160, respectively)
|
834,492
|
|
|
879,927
|
|
|
952,312
|
|
Loans held for
sale
|
8,250
|
|
|
3,783
|
|
|
5,533
|
|
Loans
receivable
|
4,666,730
|
|
|
4,666,333
|
|
|
3,767,879
|
|
Allowance for credit
losses on loans
|
(73,340)
|
|
|
(71,501)
|
|
|
(36,171)
|
|
Loans receivable,
net
|
4,593,390
|
|
|
4,594,832
|
|
|
3,731,708
|
|
Other real estate
owned
|
—
|
|
|
—
|
|
|
841
|
|
Premises and
equipment, net
|
89,831
|
|
|
86,897
|
|
|
87,888
|
|
Federal Home Loan
Bank stock, at cost
|
6,661
|
|
|
6,661
|
|
|
6,377
|
|
Bank owned life
insurance
|
108,311
|
|
|
107,401
|
|
|
103,616
|
|
Accrued interest
receivable
|
18,888
|
|
|
17,813
|
|
|
14,446
|
|
Prepaid expenses and
other assets
|
194,938
|
|
|
194,224
|
|
|
164,129
|
|
Other intangible
assets, net
|
13,947
|
|
|
14,807
|
|
|
16,613
|
|
Goodwill
|
240,939
|
|
|
240,939
|
|
|
240,939
|
|
Total
assets
|
$
|
6,685,889
|
|
|
$
|
6,562,359
|
|
|
$
|
5,552,970
|
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
Deposits
|
$
|
5,689,048
|
|
|
$
|
5,567,733
|
|
|
$
|
4,582,676
|
|
Junior subordinated
debentures
|
20,814
|
|
|
20,741
|
|
|
20,595
|
|
Securities sold under
agreement to repurchase
|
29,043
|
|
|
24,444
|
|
|
20,169
|
|
Accrued expenses and
other liabilities
|
143,855
|
|
|
155,789
|
|
|
120,219
|
|
Total
liabilities
|
5,882,760
|
|
|
5,768,707
|
|
|
4,743,659
|
|
|
|
|
|
|
|
Common
stock
|
570,170
|
|
|
569,329
|
|
|
586,459
|
|
Retained
earnings
|
207,751
|
|
|
198,342
|
|
|
212,474
|
|
Other comprehensive
income, net
|
25,208
|
|
|
25,981
|
|
|
10,378
|
|
Total stockholders'
equity
|
803,129
|
|
|
793,652
|
|
|
809,311
|
|
Total liabilities and
stockholders' equity
|
$
|
6,685,889
|
|
|
$
|
6,562,359
|
|
|
$
|
5,552,970
|
|
|
|
|
|
|
|
Shares
outstanding
|
35,910,300
|
|
|
35,908,908
|
|
|
36,618,729
|
|
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,
2020
|
|
June 30,
2020
|
|
September
30,
2019
|
|
September
30,
2020
|
|
September
30,
2019
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
Interest and fees on
loans
|
$
|
47,647
|
|
|
$
|
48,404
|
|
|
$
|
47,845
|
|
|
$
|
142,328
|
|
|
$
|
142,651
|
|
Taxable interest on
investment securities
|
3,865
|
|
|
4,570
|
|
|
5,704
|
|
|
14,068
|
|
|
17,460
|
|
Nontaxable interest on
investment securities
|
953
|
|
|
977
|
|
|
798
|
|
|
2,686
|
|
|
2,641
|
|
Interest on other
interest earning assets
|
98
|
|
|
43
|
|
|
537
|
|
|
561
|
|
|
1,155
|
|
Total interest
income
|
52,563
|
|
|
53,994
|
|
|
54,884
|
|
|
159,643
|
|
|
163,907
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
Deposits
|
2,639
|
|
|
3,417
|
|
|
4,250
|
|
|
10,272
|
|
|
11,870
|
|
Junior subordinated
debentures
|
196
|
|
|
218
|
|
|
332
|
|
|
699
|
|
|
1,026
|
|
Other
borrowings
|
50
|
|
|
46
|
|
|
59
|
|
|
130
|
|
|
444
|
|
Total interest
expense
|
2,885
|
|
|
3,681
|
|
|
4,641
|
|
|
11,101
|
|
|
13,340
|
|
Net interest
income
|
49,678
|
|
|
50,313
|
|
|
50,243
|
|
|
148,542
|
|
|
150,567
|
|
Provision for credit
losses
|
2,730
|
|
|
28,563
|
|
|
466
|
|
|
39,239
|
|
|
2,753
|
|
Net interest income
after provision for credit losses
|
46,948
|
|
|
21,750
|
|
|
49,777
|
|
|
109,303
|
|
|
147,814
|
|
Noninterest
income:
|
|
|
|
|
|
|
|
|
|
Service charges and
other fees
|
4,039
|
|
|
3,600
|
|
|
4,779
|
|
|
12,015
|
|
|
14,109
|
|
Gain on sale of
investment securities, net
|
40
|
|
|
409
|
|
|
281
|
|
|
1,463
|
|
|
329
|
|
Gain on sale of loans,
net
|
1,443
|
|
|
1,135
|
|
|
993
|
|
|
3,125
|
|
|
1,613
|
|
Interest rate swap
fees
|
396
|
|
|
769
|
|
|
152
|
|
|
1,461
|
|
|
313
|
|
Other
income
|
2,292
|
|
|
2,335
|
|
|
2,253
|
|
|
7,880
|
|
|
7,087
|
|
Total noninterest
income
|
8,210
|
|
|
8,248
|
|
|
8,458
|
|
|
25,944
|
|
|
23,451
|
|
Noninterest
expense:
|
|
|
|
|
|
|
|
|
|
Compensation and
employee benefits
|
21,416
|
|
|
21,927
|
|
|
21,733
|
|
|
65,849
|
|
|
65,629
|
|
Occupancy and
equipment
|
5,676
|
|
|
5,529
|
|
|
5,268
|
|
|
16,936
|
|
|
16,177
|
|
Data
processing
|
2,363
|
|
|
2,323
|
|
|
2,333
|
|
|
7,046
|
|
|
6,615
|
|
Marketing
|
755
|
|
|
696
|
|
|
816
|
|
|
2,317
|
|
|
3,020
|
|
Professional
services
|
1,086
|
|
|
2,169
|
|
|
1,434
|
|
|
4,632
|
|
|
3,912
|
|
State/municipal
business and use taxes
|
964
|
|
|
905
|
|
|
1,370
|
|
|
2,626
|
|
|
2,977
|
|
Federal deposit
insurance premium
|
848
|
|
|
238
|
|
|
9
|
|
|
1,086
|
|
|
720
|
|
Other real estate
owned, net
|
—
|
|
|
(170)
|
|
|
(35)
|
|
|
(145)
|
|
|
340
|
|
Amortization of
intangible assets
|
860
|
|
|
903
|
|
|
975
|
|
|
2,666
|
|
|
3,026
|
|
Other
expense
|
2,077
|
|
|
2,553
|
|
|
2,816
|
|
|
7,365
|
|
|
8,375
|
|
Total noninterest
expense
|
36,045
|
|
|
37,073
|
|
|
36,719
|
|
|
110,378
|
|
|
110,791
|
|
Income (loss) before
income taxes
|
19,113
|
|
|
(7,075)
|
|
|
21,516
|
|
|
24,869
|
|
|
60,474
|
|
Income tax expense
(benefit)
|
2,477
|
|
|
(936)
|
|
|
3,621
|
|
|
2,181
|
|
|
10,043
|
|
Net income
(loss)
|
$
|
16,636
|
|
|
$
|
(6,139)
|
|
|
$
|
17,895
|
|
|
$
|
22,688
|
|
|
$
|
50,431
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings
(losses) per share
|
$
|
0.46
|
|
|
$
|
(0.17)
|
|
|
$
|
0.49
|
|
|
$
|
0.63
|
|
|
$
|
1.37
|
|
Diluted earnings
(losses) per share
|
$
|
0.46
|
|
|
$
|
(0.17)
|
|
|
$
|
0.48
|
|
|
$
|
0.63
|
|
|
$
|
1.36
|
|
Dividends declared
per share
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.19
|
|
|
$
|
0.60
|
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
|
|
Average number of
basic shares outstanding
|
35,908,845
|
|
|
35,898,716
|
|
|
36,742,862
|
|
|
36,049,369
|
|
|
36,812,548
|
|
Average number of
diluted shares outstanding
|
35,988,734
|
|
|
35,898,716
|
|
|
36,876,548
|
|
|
36,193,615
|
|
|
36,973,024
|
|
HERITAGE FINANCIAL
CORPORATION
FINANCIAL
STATISTICS (Unaudited)
(Dollar amounts in
thousands, except per share amounts)
|
|
Nonperforming
Assets and Credit Quality Metrics:
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
September
30,
2020
|
|
June 30,
2020
|
|
September
30,
2019
|
|
September
30,
2020
|
|
September
30,
2019
|
Other Real Estate
Owned:
|
|
|
|
|
|
|
|
|
|
Balance, beginning of
period
|
$
|
—
|
|
|
$
|
841
|
|
|
$
|
1,224
|
|
|
$
|
841
|
|
|
$
|
1,983
|
|
Additions from
transfer of loan
|
—
|
|
|
—
|
|
|
—
|
|
|
270
|
|
|
—
|
|
Proceeds from
dispositions
|
—
|
|
|
(1,024)
|
|
|
(435)
|
|
|
(1,290)
|
|
|
(864)
|
|
Gain (loss) on sales,
net
|
—
|
|
|
183
|
|
|
52
|
|
|
179
|
|
|
(227)
|
|
Valuation
adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(51)
|
|
Balance, end of
period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
841
|
|
|
$
|
—
|
|
|
$
|
841
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
September
30,
2020
|
|
June 30,
2020
|
|
September
30,
2019
|
|
September
30,
2020
|
|
September
30,
2019
|
Allowance for
Credit Losses on Loans:
|
|
|
|
Balance, beginning of
period
|
$
|
71,501
|
|
|
$
|
47,540
|
|
|
$
|
36,363
|
|
|
$
|
36,171
|
|
|
$
|
35,042
|
|
Impact of CECL
adoption
|
—
|
|
|
—
|
|
|
—
|
|
|
1,822
|
|
|
—
|
|
Adjusted balance,
beginning of period
|
71,501
|
|
|
47,540
|
|
|
36,363
|
|
|
37,993
|
|
|
35,042
|
|
Provision for credit
losses on loans
|
2,320
|
|
|
25,941
|
|
|
466
|
|
|
38,225
|
|
|
2,753
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
Commercial
business
|
(507)
|
|
|
(1,824)
|
|
|
(306)
|
|
|
(3,553)
|
|
|
(1,183)
|
|
One-to-four family
residential
|
—
|
|
|
—
|
|
|
(15)
|
|
|
—
|
|
|
(45)
|
|
Consumer
|
(335)
|
|
|
(431)
|
|
|
(501)
|
|
|
(1,141)
|
|
|
(1,653)
|
|
Total
charge-offs
|
(842)
|
|
|
(2,255)
|
|
|
(822)
|
|
|
(4,694)
|
|
|
(2,881)
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
Commercial
business
|
80
|
|
|
71
|
|
|
381
|
|
|
1,220
|
|
|
602
|
|
One-to-four family
residential
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
Real estate
construction and land development
|
139
|
|
|
7
|
|
|
3
|
|
|
160
|
|
|
628
|
|
Consumer
|
142
|
|
|
197
|
|
|
127
|
|
|
433
|
|
|
374
|
|
Total
recoveries
|
361
|
|
|
275
|
|
|
511
|
|
|
1,816
|
|
|
1,604
|
|
Net
charge-offs
|
(481)
|
|
|
(1,980)
|
|
|
(311)
|
|
|
(2,878)
|
|
|
(1,277)
|
|
Balance, end of
period
|
$
|
73,340
|
|
|
$
|
71,501
|
|
|
$
|
36,518
|
|
|
$
|
73,340
|
|
|
$
|
36,518
|
|
Net charge-offs on
loans to average loans, annualized
|
0.04
|
%
|
|
0.18
|
%
|
|
0.03
|
%
|
|
0.09
|
%
|
|
0.05
|
%
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
September
30,
2020
|
|
June 30,
2020
|
|
September
30,
2019
|
|
September
30,
2020
|
|
September
30,
2019
|
Allowance for
Credit Losses on Unfunded Commitments:
|
|
Balance, beginning of
period
|
$
|
4,612
|
|
|
$
|
1,990
|
|
|
$
|
306
|
|
|
$
|
306
|
|
|
$
|
306
|
|
Impact of CECL
adoption
|
—
|
|
|
—
|
|
|
—
|
|
|
3,702
|
|
|
—
|
|
Adjusted balance,
beginning of period
|
4,612
|
|
|
1,990
|
|
|
306
|
|
|
4,008
|
|
|
306
|
|
Provision for credit
losses on unfunded commitments
|
410
|
|
|
2,622
|
|
|
—
|
|
|
1,014
|
|
|
—
|
|
Balance, end of
period
|
$
|
5,022
|
|
|
$
|
4,612
|
|
|
$
|
306
|
|
|
$
|
5,022
|
|
|
$
|
306
|
|
|
September
30,
2020
|
|
June 30,
2020
|
|
December
31,
2019
|
Nonperforming
Assets:
|
|
|
|
|
|
Nonaccrual loans
(1):
|
|
|
|
|
|
Commercial
business
|
$
|
50,930
|
|
|
$
|
33,382
|
|
|
$
|
44,320
|
|
One-to-four family
residential
|
157
|
|
|
160
|
|
|
19
|
|
Real estate
construction and land development
|
1,439
|
|
|
—
|
|
|
—
|
|
Consumer
|
78
|
|
|
86
|
|
|
186
|
|
Total nonaccrual
loans
|
52,604
|
|
|
33,628
|
|
|
44,525
|
|
Other real estate
owned
|
—
|
|
|
—
|
|
|
841
|
|
Nonperforming
assets
|
$
|
52,604
|
|
|
$
|
33,628
|
|
|
$
|
45,366
|
|
|
|
|
|
|
|
Restructured
performing loans
|
$
|
19,615
|
|
|
$
|
20,687
|
|
|
$
|
14,469
|
|
Accruing loans past
due 90 days or more
|
—
|
|
|
—
|
|
|
—
|
|
Potential problem
loans (2)
|
159,764
|
|
|
100,554
|
|
|
87,788
|
|
ACL on loans
to:
|
|
|
|
|
|
Loans
receivable
|
1.57
|
%
|
|
1.53
|
%
|
|
0.96
|
%
|
Loans receivable,
excluding SBA PPP loans (3)
|
1.93
|
%
|
|
1.88
|
%
|
|
0.96
|
%
|
Nonaccrual
loans
|
139.42
|
%
|
|
212.62
|
%
|
|
81.24
|
%
|
Nonperforming loans
to loans receivable
|
1.13
|
%
|
|
0.72
|
%
|
|
1.18
|
%
|
Nonperforming assets
to total assets
|
0.79
|
%
|
|
0.51
|
%
|
|
0.82
|
%
|
|
|
(1)
|
At September 30,
2020, June 30, 2020 and December 31, 2019, $20.5 million,
$20.9 million and $26.3 million of nonaccrual loans were also
considered TDR 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.
|
(3)
|
See Non-GAAP
Financial Measures section herein.
|
Average Balances,
Yields, and Rates Paid:
|
|
|
Three Months
Ended
|
|
September 30,
2020
|
|
June 30,
2020
|
|
September 30,
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)
|
$
|
4,605,389
|
|
|
$
|
47,647
|
|
|
4.12
|
%
|
|
$
|
4,442,108
|
|
|
$
|
48,404
|
|
|
4.38
|
%
|
|
$
|
3,677,405
|
|
|
$
|
47,845
|
|
|
5.16
|
%
|
Taxable
securities
|
697,128
|
|
|
3,865
|
|
|
2.21
|
|
|
764,691
|
|
|
4,570
|
|
|
2.40
|
|
|
823,498
|
|
|
5,704
|
|
|
2.75
|
|
Nontaxable securities
(3)
|
163,070
|
|
|
953
|
|
|
2.32
|
|
|
160,296
|
|
|
977
|
|
|
2.45
|
|
|
129,061
|
|
|
798
|
|
|
2.45
|
|
Interest earning
deposits
|
389,653
|
|
|
98
|
|
|
0.10
|
|
|
185,399
|
|
|
43
|
|
|
0.09
|
|
|
106,740
|
|
|
537
|
|
|
2.00
|
|
Total interest
earning assets
|
5,855,240
|
|
|
52,563
|
|
|
3.57
|
%
|
|
5,552,494
|
|
|
53,994
|
|
|
3.91
|
%
|
|
4,736,704
|
|
|
54,884
|
|
|
4.60
|
%
|
Noninterest earning
assets
|
765,740
|
|
|
|
|
|
|
757,530
|
|
|
|
|
|
|
679,687
|
|
|
|
|
|
Total
assets
|
$
|
6,620,980
|
|
|
|
|
|
|
$
|
6,310,024
|
|
|
|
|
|
|
$
|
5,416,391
|
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
|
466,920
|
|
|
$
|
1,133
|
|
|
0.97
|
%
|
|
$
|
513,539
|
|
|
$
|
1,810
|
|
|
1.42
|
%
|
|
$
|
508,092
|
|
|
$
|
1,861
|
|
|
1.45
|
%
|
Savings
accounts
|
514,072
|
|
|
117
|
|
|
0.09
|
|
|
476,312
|
|
|
115
|
|
|
0.10
|
|
|
507,533
|
|
|
680
|
|
|
0.53
|
|
Interest bearing
demand and money market accounts
|
2,639,511
|
|
|
1,389
|
|
|
0.21
|
|
|
2,440,691
|
|
|
1,492
|
|
|
0.25
|
|
|
2,040,926
|
|
|
1,709
|
|
|
0.33
|
|
Total interest bearing
deposits
|
3,620,503
|
|
|
2,639
|
|
|
0.29
|
|
|
3,430,542
|
|
|
3,417
|
|
|
0.40
|
|
|
3,056,551
|
|
|
4,250
|
|
|
0.55
|
|
Junior subordinated
debentures
|
20,766
|
|
|
196
|
|
|
3.75
|
|
|
20,693
|
|
|
218
|
|
|
4.24
|
|
|
20,474
|
|
|
332
|
|
|
6.43
|
|
Securities sold under
agreement to repurchase
|
32,856
|
|
|
50
|
|
|
0.61
|
|
|
23,702
|
|
|
39
|
|
|
0.66
|
|
|
29,258
|
|
|
48
|
|
|
0.65
|
|
FHLB advances and
other borrowings
|
—
|
|
|
—
|
|
|
—
|
|
|
4,909
|
|
|
7
|
|
|
0.57
|
|
|
3,755
|
|
|
11
|
|
|
1.16
|
|
Total interest bearing
liabilities
|
3,674,125
|
|
|
2,885
|
|
|
0.31
|
%
|
|
3,479,846
|
|
|
3,681
|
|
|
0.43
|
%
|
|
3,110,038
|
|
|
4,641
|
|
|
0.59
|
%
|
Noninterest demand
deposits
|
1,998,772
|
|
|
|
|
|
|
1,883,227
|
|
|
|
|
|
|
1,416,336
|
|
|
|
|
|
Other noninterest
bearing liabilities
|
148,345
|
|
|
|
|
|
|
139,412
|
|
|
|
|
|
|
88,624
|
|
|
|
|
|
Stockholders'
equity
|
799,738
|
|
|
|
|
|
|
807,539
|
|
|
|
|
|
|
801,393
|
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$
|
6,620,980
|
|
|
|
|
|
|
$
|
6,310,024
|
|
|
|
|
|
|
$
|
5,416,391
|
|
|
|
|
|
Net interest
income
|
|
|
$
|
49,678
|
|
|
|
|
|
|
$
|
50,313
|
|
|
|
|
|
|
$
|
50,243
|
|
|
|
Net interest
spread
|
|
|
|
|
3.26
|
%
|
|
|
|
|
|
3.48
|
%
|
|
|
|
|
|
4.01
|
%
|
Net interest
margin
|
|
|
|
|
3.38
|
%
|
|
|
|
|
|
3.64
|
%
|
|
|
|
|
|
4.21
|
%
|
Average interest
earning assets to average interest bearing liabilities
|
|
|
|
|
159.36
|
%
|
|
|
|
|
|
159.56
|
%
|
|
|
|
|
|
152.30
|
%
|
|
|
(1)
|
Annualized.
|
(2)
|
The average loan
balances presented in the table are net of the ACL 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.
|
|
Nine Months
Ended
|
|
September 30,
2020
|
|
September 30,
2019
|
|
Average
Balance
|
|
Interest
Earned/
Paid
|
|
Average
Yield/
Rate
(1)
|
|
Average
Balance
|
|
Interest
Earned/
Paid
|
|
Average
Yield/
Rate
(1)
|
Interest Earning
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
(2) (3)
|
$
|
4,266,598
|
|
|
$
|
142,328
|
|
|
4.46
|
%
|
|
$
|
3,651,659
|
|
|
$
|
142,651
|
|
|
5.22
|
%
|
Taxable
securities
|
758,941
|
|
|
14,068
|
|
|
2.48
|
|
|
828,254
|
|
|
17,460
|
|
|
2.82
|
|
Nontaxable securities
(3)
|
148,560
|
|
|
2,686
|
|
|
2.42
|
|
|
139,312
|
|
|
2,641
|
|
|
2.53
|
|
Interest earning
deposits
|
234,040
|
|
|
561
|
|
|
0.32
|
|
|
70,280
|
|
|
1,155
|
|
|
2.20
|
|
Total interest earning
assets
|
5,408,139
|
|
|
159,643
|
|
|
3.94
|
%
|
|
4,689,505
|
|
|
163,907
|
|
|
4.67
|
%
|
Noninterest earning
assets
|
757,269
|
|
|
|
|
|
|
672,365
|
|
|
|
|
|
Total
assets
|
$
|
6,165,408
|
|
|
|
|
|
|
$
|
5,361,870
|
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
|
502,691
|
|
|
$
|
4,955
|
|
|
1.32
|
%
|
|
$
|
508,177
|
|
|
$
|
4,994
|
|
|
1.31
|
%
|
Savings
accounts
|
475,091
|
|
|
420
|
|
|
0.12
|
|
|
505,112
|
|
|
2,061
|
|
|
0.55
|
|
Interest bearing
demand and money market accounts
|
2,428,148
|
|
|
4,897
|
|
|
0.27
|
|
|
2,036,253
|
|
|
4,815
|
|
|
0.32
|
|
Total interest bearing
deposits
|
3,405,930
|
|
|
10,272
|
|
|
0.40
|
|
|
3,049,542
|
|
|
11,870
|
|
|
0.52
|
|
Junior subordinated
debentures
|
20,693
|
|
|
699
|
|
|
4.51
|
|
|
20,401
|
|
|
1,026
|
|
|
6.72
|
|
Securities sold under
agreement to repurchase
|
25,296
|
|
|
122
|
|
|
0.64
|
|
|
30,512
|
|
|
139
|
|
|
0.61
|
|
FHLB advances and
other borrowings
|
1,959
|
|
|
8
|
|
|
0.55
|
|
|
15,909
|
|
|
305
|
|
|
2.56
|
|
Total interest bearing
liabilities
|
3,453,878
|
|
|
11,101
|
|
|
0.43
|
%
|
|
3,116,364
|
|
|
13,340
|
|
|
0.57
|
%
|
Noninterest demand
deposits
|
1,768,260
|
|
|
|
|
|
|
1,365,134
|
|
|
|
|
|
Other noninterest
bearing liabilities
|
138,837
|
|
|
|
|
|
|
96,723
|
|
|
|
|
|
Stockholders'
equity
|
804,433
|
|
|
|
|
|
|
783,649
|
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$
|
6,165,408
|
|
|
|
|
|
|
$
|
5,361,870
|
|
|
|
|
|
Net interest
income
|
|
|
$
|
148,542
|
|
|
|
|
|
|
$
|
150,567
|
|
|
|
Net interest
spread
|
|
|
|
|
3.51
|
%
|
|
|
|
|
|
4.10
|
%
|
Net interest
margin
|
|
|
|
|
3.67
|
%
|
|
|
|
|
|
4.29
|
%
|
Average interest
earning assets to average interest bearing liabilities
|
|
|
|
|
156.58
|
%
|
|
|
|
|
|
150.48
|
%
|
|
|
(1)
|
Annualized.
|
(2)
|
The average loan
balances presented in the table are net of the ACL 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
|
|
September
30,
2020
|
|
June 30,
2020
|
|
March 31,
2020
|
|
December
31,
2019
|
|
September
30,
2019
|
Earnings:
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
$
|
49,678
|
|
|
$
|
50,313
|
|
|
$
|
48,551
|
|
|
$
|
49,115
|
|
|
$
|
50,243
|
|
Provision for credit
losses
|
2,730
|
|
|
28,563
|
|
|
7,946
|
|
|
1,558
|
|
|
466
|
|
Noninterest
income
|
8,210
|
|
|
8,248
|
|
|
9,486
|
|
|
9,011
|
|
|
8,458
|
|
Noninterest
expense
|
36,045
|
|
|
37,073
|
|
|
37,260
|
|
|
35,997
|
|
|
36,719
|
|
Net income
(loss)
|
16,636
|
|
|
(6,139)
|
|
|
12,191
|
|
|
17,126
|
|
|
17,895
|
|
Basic earnings
(losses) per share
|
$
|
0.46
|
|
|
$
|
(0.17)
|
|
|
$
|
0.34
|
|
|
$
|
0.47
|
|
|
$
|
0.49
|
|
Diluted earnings
(losses) per share
|
$
|
0.46
|
|
|
$
|
(0.17)
|
|
|
$
|
0.33
|
|
|
$
|
0.47
|
|
|
$
|
0.48
|
|
Average
Balances:
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
(1)
|
$
|
4,605,389
|
|
|
$
|
4,442,108
|
|
|
$
|
3,748,573
|
|
|
$
|
3,719,128
|
|
|
$
|
3,677,405
|
|
Investment
securities
|
860,198
|
|
|
924,987
|
|
|
937,839
|
|
|
949,718
|
|
|
952,559
|
|
Total interest
earning assets
|
5,855,240
|
|
|
5,552,494
|
|
|
4,811,769
|
|
|
4,849,708
|
|
|
4,736,704
|
|
Total
assets
|
6,620,980
|
|
|
6,310,024
|
|
|
5,560,212
|
|
|
5,557,098
|
|
|
5,416,391
|
|
Total interest
bearing deposits
|
3,620,503
|
|
|
3,430,542
|
|
|
3,164,389
|
|
|
3,136,172
|
|
|
3,056,551
|
|
Total noninterest
demand deposits
|
1,998,772
|
|
|
1,883,227
|
|
|
1,420,247
|
|
|
1,462,683
|
|
|
1,416,336
|
|
Stockholders'
equity
|
799,738
|
|
|
807,539
|
|
|
806,071
|
|
|
806,868
|
|
|
801,393
|
|
Financial
Ratios:
|
|
|
|
|
|
|
|
|
|
Return on average
assets (2)
|
1.00
|
%
|
|
(0.39)
|
%
|
|
0.88
|
%
|
|
1.22
|
%
|
|
1.31
|
%
|
Return on average
common equity (2)
|
8.28
|
|
|
(3.06)
|
|
|
6.08
|
|
|
8.42
|
|
|
8.86
|
|
Return on average
tangible common equity (2) (3)
|
12.66
|
|
|
(3.96)
|
|
|
9.46
|
|
|
12.94
|
|
|
13.66
|
|
Efficiency
ratio
|
62.27
|
|
|
63.31
|
|
|
64.20
|
|
|
61.93
|
|
|
62.55
|
|
Noninterest expense
to average total assets (2)
|
2.17
|
|
|
2.36
|
|
|
2.70
|
|
|
2.57
|
|
|
2.69
|
|
Net interest margin
(2)
|
3.38
|
|
|
3.64
|
|
|
4.06
|
|
|
4.02
|
|
|
4.21
|
|
Net interest spread
(2)
|
3.26
|
|
|
3.48
|
|
|
3.87
|
|
|
3.81
|
|
|
4.01
|
|
|
|
(1)
|
The average loan
balances presented in the table are net of the ACL on loans and
include loans held for sale.
|
(2)
|
Annualized
|
(3)
|
See Non-GAAP
Financial Measures section herein.
|
|
As of Period End
or for the Three Months Ended
|
|
September
30,
2020
|
|
June 30,
2020
|
|
March 31,
2020
|
|
December
31,
2019
|
|
September
30,
2019
|
Select Balance
Sheet:
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
6,685,889
|
|
|
$
|
6,562,359
|
|
|
$
|
5,587,300
|
|
|
$
|
5,552,970
|
|
|
$
|
5,515,185
|
|
Loans receivable,
net
|
4,593,390
|
|
|
4,594,832
|
|
|
3,804,836
|
|
|
3,731,708
|
|
|
3,694,825
|
|
Investment
securities
|
834,492
|
|
|
879,927
|
|
|
961,092
|
|
|
952,312
|
|
|
966,102
|
|
Deposits
|
5,689,048
|
|
|
5,567,733
|
|
|
4,617,948
|
|
|
4,582,676
|
|
|
4,562,257
|
|
Noninterest demand
deposits
|
1,989,247
|
|
|
1,999,754
|
|
|
1,415,177
|
|
|
1,446,502
|
|
|
1,429,435
|
|
Stockholders'
equity
|
803,129
|
|
|
793,652
|
|
|
798,438
|
|
|
809,311
|
|
|
804,127
|
|
Financial
Measures:
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
$
|
22.36
|
|
|
$
|
22.10
|
|
|
$
|
22.25
|
|
|
$
|
22.10
|
|
|
$
|
21.96
|
|
Tangible book value
per share (1)
|
15.27
|
|
|
14.98
|
|
|
15.10
|
|
|
15.07
|
|
|
14.90
|
|
Stockholders' equity
to total assets
|
12.0
|
%
|
|
12.1
|
%
|
|
14.3
|
%
|
|
14.6
|
%
|
|
14.6
|
%
|
Tangible common
equity to tangible assets (1)
|
8.5
|
|
|
8.5
|
|
|
10.2
|
|
|
10.4
|
|
|
10.4
|
|
Tangible common
equity to tangible assets, excluding SBA PPP loans
(1)
|
9.9
|
|
|
9.9
|
|
|
10.2
|
|
|
10.4
|
|
|
10.4
|
|
Loans to deposits
ratio
|
82.0
|
|
|
83.8
|
|
|
83.4
|
|
|
82.2
|
|
|
81.8
|
|
Credit Quality
Metrics:
|
|
|
|
|
|
|
|
|
|
ACL on
loans to:
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
1.57
|
%
|
|
1.53
|
%
|
|
1.23
|
%
|
|
0.96
|
%
|
|
0.98
|
%
|
Loans receivable,
excluding SBA PPP loans (1)
|
1.93
|
|
|
1.88
|
|
|
1.23
|
|
|
0.96
|
|
|
0.98
|
|
Nonperforming
loans
|
139.42
|
|
|
212.62
|
|
|
139.16
|
|
|
81.24
|
|
|
88.00
|
|
Nonperforming loans
to loans receivable
|
1.13
|
|
|
0.72
|
|
|
0.89
|
|
|
1.18
|
|
|
1.11
|
|
Nonperforming assets
to total assets
|
0.79
|
|
|
0.51
|
|
|
0.63
|
|
|
0.82
|
|
|
0.77
|
|
Net charge-offs on
loans to average loans receivable
|
0.04
|
|
|
0.18
|
|
|
0.04
|
|
|
0.20
|
|
|
0.03
|
|
Criticized Loans
by Credit Quality Rating:
|
|
|
|
|
|
|
|
|
|
Special
mention
|
$
|
104,781
|
|
|
$
|
60,498
|
|
|
$
|
61,968
|
|
|
$
|
48,859
|
|
|
$
|
51,267
|
|
Substandard
|
123,570
|
|
|
90,553
|
|
|
89,510
|
|
|
93,413
|
|
|
90,204
|
|
Doubtful/Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
524
|
|
|
524
|
|
Other
Metrics:
|
|
|
|
|
|
|
|
|
|
Number of banking
offices
|
62
|
|
|
62
|
|
|
62
|
|
|
62
|
|
|
62
|
|
Average number of
full-time equivalent employees
|
857
|
|
|
877
|
|
|
877
|
|
|
889
|
|
|
877
|
|
Deposits per
branch
|
$
|
91,759
|
|
|
$
|
89,802
|
|
|
$
|
74,483
|
|
|
$
|
73,914
|
|
|
$
|
73,585
|
|
Average assets per
full-time equivalent employee
|
7,727
|
|
|
7,195
|
|
|
6,342
|
|
|
6,253
|
|
|
6,176
|
|
|
|
(1)
|
See Non-GAAP
Financial Measures section herein.
|
View original
content:http://www.prnewswire.com/news-releases/heritage-financial-announces-third-quarter-2020-results-and-declares-regular-cash-dividend-301157767.html
SOURCE Heritage Financial Corporation