OLYMPIA, Wash., Jan. 28, 2021 /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 $23.9 million for the quarter ended
December 31, 2020 compared to $16.6
million for the linked-quarter ended September 30, 2020
and $17.1 million for the quarter
ended December 31, 2019. Diluted earnings per share for the
quarter ended December 31, 2020 were $0.66 compared to $0.46 for the linked-quarter ended
September 30, 2020 and $0.47 for
the quarter ended December 31, 2019.
Jeffrey J. Deuel, President and
Chief Executive Officer of Heritage, commented, "We are pleased
with our progress in 2020 in spite of the overlay of the pandemic
which has been difficult for everyone. I am very proud of our team
for navigating the challenges of the current environment and
staying focused on expense control, continuing to enhance our back
office processes, and effectively managing risk. We continue to
enhance our technology solutions which we expect will improve
operating efficiencies.
Further, we are pleased with the success of our continuing
efforts to have a positive impact on housing in our local
communities. We are proud to have been selected as the construction
lender for the Community Roots Housing's (formerly known as Capitol
Hill Housing) workforce housing development in Seattle's Capitol Hill neighborhood. The
project, known as Heartwood Apartments, will consist of 126 units
with a mix of 113 studio and 13 one-bedroom units and will be built
out of a panelized mass timber construction and adhere to standards
that will garner a Green 4-star certification."
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 first round 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 quarter ended
December 31, 2020, the Bank received
principal and interest forgiveness payments from the SBA of
$159.2 million, which represented
approximately 17.7% of the originated SBA PPP loans. Subsequent to
year-end, the Bank started processing applications under the second
round of the SBA's PPP in accordance with the Coronavirus Response
and Relief Supplementary Appropriations Act enacted on December 27, 2020.
During the year ended December 31, 2020, under the CARES
Act and related regulatory guidance, and as direct result of
COVID-19 related issues, the Bank accommodated a variety of loan
modifications on 2,041 loans with a balance of $666.6 million at March
31, 2020 (the "COVID Modifications"). The Bank follows
regulatory guidance and does not report the COVID Modifications as
a troubled-debt restructured ("TDR") loan or assess TDR status
unless the payment deferment period exceeds 180-days. COVID
Modifications and TDRs with payment deferrals are collectively
considered payment deferral modification status. At
December 31, 2020, approximately 175 loans totaling
$69.9 million were in payment
deferral modification status, with 50.3% of those classified as
TDR. Approximately 88.0% of COVID Modifications with payment
deferrals during the year ended December 31,
2020 are no longer on payment deferral status at
December 31, 2020.
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
|
|
December
31,
2020
|
|
September
30,
2020
|
|
December
31,
2019
|
|
(Dollars in
thousands, except per share amounts)
|
Net income
|
$
|
23,882
|
|
|
$
|
16,636
|
|
|
$
|
17,126
|
|
Pre-tax,
pre-provision income (1)
|
$
|
25,178
|
|
|
$
|
21,843
|
|
|
$
|
22,129
|
|
Diluted earnings per
share
|
$
|
0.66
|
|
|
$
|
0.46
|
|
|
$
|
0.47
|
|
Return on average
assets (2)
|
1.42
|
%
|
|
1.00
|
%
|
|
1.22
|
%
|
Return on average
equity (2)
|
11.74
|
%
|
|
8.28
|
%
|
|
8.42
|
%
|
Return on average
tangible common equity (1) (2)
|
17.62
|
%
|
|
12.66
|
%
|
|
12.94
|
%
|
Net interest margin
(2)
|
3.53
|
%
|
|
3.38
|
%
|
|
4.02
|
%
|
Cost of total
deposits (2)
|
0.14
|
%
|
|
0.19
|
%
|
|
0.39
|
%
|
Efficiency
ratio
|
60.50
|
%
|
|
62.27
|
%
|
|
61.93
|
%
|
Noninterest expense
to average total assets (2)
|
2.30
|
%
|
|
2.17
|
%
|
|
2.57
|
%
|
Total
assets
|
$
|
6,615,318
|
|
|
$
|
6,685,889
|
|
|
$
|
5,552,970
|
|
Loans receivable,
net
|
$
|
4,398,462
|
|
|
$
|
4,593,390
|
|
|
$
|
3,731,708
|
|
Total
deposits
|
$
|
5,597,990
|
|
|
$
|
5,689,048
|
|
|
$
|
4,582,676
|
|
Loan to deposit ratio
(3)
|
79.8
|
%
|
|
82.0
|
%
|
|
82.2
|
%
|
Book value per
share
|
$
|
22.85
|
|
|
$
|
22.36
|
|
|
$
|
22.10
|
|
Tangible book value
per share (1)
|
$
|
15.77
|
|
|
$
|
15.27
|
|
|
$
|
15.07
|
|
|
|
(1)
|
See Non-GAAP
Financial Measures section herein.
|
(2)
|
Annualized.
|
(3)
|
Loans receivable
divided by deposits.
|
Investment securities decreased $32.3
million, or 3.9%, to $802.2
million at December 31, 2020 from $834.5 million at September 30, 2020
primarily as a result of calls, maturities and payments of
investment securities of $56.3
million, offset partially by investment purchases of
$35.2 million.
Loans receivable decreased $198.1
million, or 4.2%, to $4.47
billion at December 31, 2020 from $4.67 billion at September 30, 2020 due
primarily to a decrease of $152.7
million, or 17.6%, in SBA PPP loans as the Bank started
processing forgiveness applications and receiving principal
forgiveness payments from the SBA during the quarter. Additionally,
loans receivable decreased due to a decrease in consumer loans of
$32.1 million as a result of the
cessation of the indirect auto loan business during the quarter
ended March 31, 2020 and a decrease
in commercial and industrial loans of $17.5
million due primarily to decreases in existing loans through
payment activities, including a decrease of $13.2 million in two significant relationships,
offset partially by an increase in non-owner occupied commercial
real estate ("CRE") loans of $25.3
million due primarily to new loan originations.
The following table summarizes the Company's loan portfolio by
type of loan and amortized cost at the dates indicated:
|
December 31,
2020
|
|
September 30,
2020
|
|
December 31,
2019
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
(Dollars in
thousands)
|
Commercial
business:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
industrial
|
$
|
733,098
|
|
|
16.4
|
%
|
|
$
|
750,557
|
|
|
16.1
|
%
|
|
$
|
852,220
|
|
|
22.6
|
%
|
SBA PPP
|
715,121
|
|
|
16.0
|
|
|
867,782
|
|
|
18.6
|
|
|
—
|
|
|
—
|
|
Owner-occupied
CRE
|
856,684
|
|
|
19.2
|
|
|
859,338
|
|
|
18.4
|
|
|
805,234
|
|
|
21.4
|
|
Non-owner occupied
CRE
|
1,410,303
|
|
|
31.5
|
|
|
1,384,973
|
|
|
29.7
|
|
|
1,288,779
|
|
|
34.2
|
|
Total commercial
business
|
3,715,206
|
|
|
83.1
|
|
|
3,862,650
|
|
|
82.8
|
|
|
2,946,233
|
|
|
78.2
|
|
Residential real
estate
|
122,756
|
|
|
2.7
|
|
|
131,921
|
|
|
2.8
|
|
|
131,660
|
|
|
3.5
|
|
Real estate
construction and land development:
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
78,259
|
|
|
1.8
|
|
|
99,650
|
|
|
2.1
|
|
|
104,296
|
|
|
2.8
|
|
Commercial and
multifamily
|
227,454
|
|
|
5.1
|
|
|
215,472
|
|
|
4.6
|
|
|
170,350
|
|
|
4.5
|
|
Total real estate
construction and land development
|
305,713
|
|
|
6.9
|
|
|
315,122
|
|
|
6.7
|
|
|
274,646
|
|
|
7.3
|
|
Consumer
|
324,972
|
|
|
7.3
|
|
|
357,037
|
|
|
7.7
|
|
|
415,340
|
|
|
11.0
|
|
Loans
receivable
|
4,468,647
|
|
|
100.0
|
%
|
|
4,666,730
|
|
|
100.0
|
%
|
|
3,767,879
|
|
|
100.0
|
%
|
Allowance for credit
losses on loans
|
(70,185)
|
|
|
|
|
(73,340)
|
|
|
|
|
(36,171)
|
|
|
|
Loans receivable,
net
|
$
|
4,398,462
|
|
|
|
|
$
|
4,593,390
|
|
|
|
|
$
|
3,731,708
|
|
|
|
Total deposits decreased $91.1
million, or 1.6%, to $5.60
billion at December 31, 2020 from $5.69 billion at September 30, 2020 due
primarily to decreases in money market accounts of $116.8 million, or 10.8%, and certificates of
deposit of $44.5 million, or 10.0%,
offset partially by increases in interest bearing demand deposits
of $63.5 million, or 3.8%, and
savings accounts of $15.5 million, or
3.0%. The decrease in money market accounts was primarily due to a
$95.7 million decrease relating to a
public depositor relationship during the quarter ended December 31, 2020. The Bank has yet to see a
significant outflow of deposits from borrowers that received SBA
PPP loans. Non-maturity deposits as a percentage of total deposits
increased to 92.9% at December 31, 2020 from 92.2% at
September 30, 2020.
The following table summarizes the Company's deposits at the
dates indicated:
|
December 31,
2020
|
|
September 30,
2020
|
|
December 31,
2019
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
(Dollars in
thousands)
|
Noninterest demand
deposits
|
$
|
1,980,531
|
|
|
35.4
|
%
|
|
$
|
1,989,247
|
|
|
35.0
|
%
|
|
$
|
1,446,502
|
|
|
31.6
|
%
|
Interest bearing
demand deposits
|
1,716,123
|
|
|
30.7
|
|
|
1,652,661
|
|
|
29.0
|
|
|
1,348,817
|
|
|
29.4
|
|
Money market
accounts
|
962,983
|
|
|
17.2
|
|
|
1,079,814
|
|
|
19.0
|
|
|
753,684
|
|
|
16.4
|
|
Savings
accounts
|
538,819
|
|
|
9.6
|
|
|
523,286
|
|
|
9.2
|
|
|
509,095
|
|
|
11.2
|
|
Total non-maturity
deposits
|
5,198,456
|
|
|
92.9
|
|
|
5,245,008
|
|
|
92.2
|
|
|
4,058,098
|
|
|
88.6
|
|
Certificates of
deposit
|
399,534
|
|
|
7.1
|
|
|
444,040
|
|
|
7.8
|
|
|
524,578
|
|
|
11.4
|
|
Total
deposits
|
$
|
5,597,990
|
|
|
100.0
|
%
|
|
$
|
5,689,048
|
|
|
100.0
|
%
|
|
$
|
4,582,676
|
|
|
100.0
|
%
|
Total stockholders' equity increased $17.3 million, or 2.2%, to $820.4 million at December 31, 2020 from
$803.1 million at September 30,
2020. Changes in stockholders' equity during the periods indicated
were as follows:
|
Three Months
Ended
|
|
December
31,
2020
|
|
September
30,
2020
|
|
December
31,
2019
|
|
(In
thousands)
|
Balance, beginning of
period
|
$
|
803,129
|
|
|
$
|
793,652
|
|
|
$
|
804,127
|
|
Net income
|
23,882
|
|
|
16,636
|
|
|
17,126
|
|
Accumulated other
comprehensive loss, net
|
(190)
|
|
|
(773)
|
|
|
(2,147)
|
|
Dividends
paid
|
(7,233)
|
|
|
(7,227)
|
|
|
(10,673)
|
|
Shares
repurchased
|
(14)
|
|
|
(7)
|
|
|
(1)
|
|
Other
|
865
|
|
|
848
|
|
|
879
|
|
Balance, end of
period
|
$
|
820,439
|
|
|
$
|
803,129
|
|
|
$
|
809,311
|
|
During the quarter ended December 31, 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.
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:
|
December
31,
2020
|
|
September
30,
2020
|
|
December
31,
2019
|
Capital
Ratios:
|
|
|
|
|
|
Stockholders' equity
to total assets
|
12.4
|
%
|
|
12.0
|
%
|
|
14.6
|
%
|
Tangible common
equity to tangible assets (1)
|
8.9
|
%
|
|
8.5
|
%
|
|
10.4
|
%
|
Tangible common
equity to tangible assets, excluding SBA PPP loans
(1)
|
10.0
|
%
|
|
9.9
|
%
|
|
10.4
|
%
|
Common equity Tier 1
capital to risk-weighted assets (2) (3)
|
12.3
|
%
|
|
11.7
|
%
|
|
11.5
|
%
|
Tier 1 leverage
capital to average quarterly assets (2) (3)
|
9.0
|
%
|
|
8.8
|
%
|
|
10.6
|
%
|
Tier 1 capital to
risk-weighted assets (2) (3)
|
12.8
|
%
|
|
12.2
|
%
|
|
12.0
|
%
|
Total capital to
risk-weighted assets (2) (3)
|
14.0
|
%
|
|
13.4
|
%
|
|
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.
|
(3)
|
Current quarter
ratios are estimates pending completion and filing of the Company's
regulatory reports.
|
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. The allowance for credit losses ("ACL") on
loans does not include a reserve for SBA PPP loans as these loans
are fully guaranteed by the SBA.
During the quarter ended December 31, 2020, the ACL on
loans decreased $3.2 million, or
4.3%, to $70.2 million due primarily
to a reversal of provision for credit losses on loans of
$2.8 million and net charge-offs of
$363,000 during the quarter ended
December 31, 2020.
The reversal of provision for credit losses on loans recognized
during the quarter ended December 31, 2020 was primarily due
to decreases in loan balances, decreases in the allowance on
individually evaluated loans and as a result of slight improvements
in the economic forecast at December 31, 2020 as compared to
the forecast for the linked-quarter ended September 30,
2020.
The Bank recognized net charge-offs of $363,000 during the quarter ended
December 31, 2020 due primarily to a partial charge-off of one
commercial and multifamily real estate construction and land
development loan of $417,000 as a
result of cost overruns and delays in construction. Net charge-offs
were $481,000 for the linked-quarter
ended September 30, 2020 and $1.9
million 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
|
|
December 31,
2020
|
|
September 30,
2020
|
|
December 31,
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
|
$
|
73,340
|
|
|
$
|
5,022
|
|
|
$
|
78,362
|
|
|
$
|
71,501
|
|
|
$
|
4,612
|
|
|
$
|
76,113
|
|
|
$
|
36,518
|
|
|
$
|
306
|
|
|
$
|
36,824
|
|
(Reversal of)
provision for credit losses
|
(2,792)
|
|
|
(341)
|
|
|
(3,133)
|
|
|
2,320
|
|
|
410
|
|
|
2,730
|
|
|
1,558
|
|
|
—
|
|
|
1,558
|
|
Net
charge-offs
|
(363)
|
|
|
—
|
|
|
(363)
|
|
|
(481)
|
|
|
—
|
|
|
(481)
|
|
|
(1,905)
|
|
|
—
|
|
|
(1,905)
|
|
Balance, end of
period
|
$
|
70,185
|
|
|
$
|
4,681
|
|
|
$
|
74,866
|
|
|
$
|
73,340
|
|
|
$
|
5,022
|
|
|
$
|
78,362
|
|
|
$
|
36,171
|
|
|
$
|
306
|
|
|
$
|
36,477
|
|
Credit Quality
Nonperforming assets increased to 0.88%
of total assets at December 31, 2020 compared to 0.79% of
total assets at September 30, 2020, due primarily to an
increase in nonaccrual loans of $5.5
million, or 10.4%, during the quarter ended December 31, 2020. Nonperforming assets at
December 31, 2020 and September 30, 2020 consist only of
nonaccrual loans. The increase in nonaccrual loans was primarily
caused by two predominately commercial and industrial loan
relationships totaling $5.6 million
exhibiting increased signs of cash flow deterioration, due
partially to the COVID-19 pandemic, during the quarter ended
December 31, 2020. Additionally, two
predominately owner-occupied CRE loan relationships totaling
$2.2 million which had prior COVID
Modifications continued to decline in credit quality, warranting a
transfer to nonaccrual status. The Bank is actively working with
the borrowers to secure a positive resolution of these nonaccrual
loans.
Changes in nonaccrual loans during the periods indicated were as
follows:
|
Three Months
Ended
|
|
December
31,
2020
|
|
September
30,
2020
|
|
December
31,
2019
|
|
(In
thousands)
|
Balance, beginning of
period
|
$
|
52,604
|
|
|
$
|
33,628
|
|
|
$
|
41,497
|
|
Additions of
previously classified pass graded loans
|
1,298
|
|
|
17,873
|
|
|
764
|
|
Additions of
previously classified potential problem loans
|
2,446
|
|
|
2,979
|
|
|
1,043
|
|
Additions of
previously classified TDR loans
|
4,601
|
|
|
—
|
|
|
4,686
|
|
Net principal payments
and transfers to accruing status
|
(2,268)
|
|
|
(1,429)
|
|
|
(2,216)
|
|
Charge-offs
|
(589)
|
|
|
(447)
|
|
|
(1,249)
|
|
Balance, end of
period
|
$
|
58,092
|
|
|
$
|
52,604
|
|
|
$
|
44,525
|
|
The ACL on loans to nonaccrual loans decreased to 120.82% at
December 31, 2020 compared to 139.42% at September 30,
2020 due primarily to the increase in nonaccrual loans and
secondarily by the decrease in the ACL on loans.
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 $45.2
million, or 28.3%, to $205.0
million at December 31, 2020 compared to $159.8 million at September 30, 2020. The
increase was primarily attributed to additions of previously
classified pass graded loans impacted by the COVID-19 pandemic, of
which 98.9% were downgraded to special mention and 1.1% were
downgraded to substandard. Of the $80.5
million of additions, $43.5
million, or 54.1%, had COVID Modifications. Potential
problem loan increases were offset partially by transfers of loans
to TDR status of $14.9 million, of
which $14.2 million, or 95.4%, were
loans with initial COVID Modifications that were subsequently
modified to extend beyond the COVID Modification's 180-days payment
deferment period.
Changes in potential problem loans during the periods indicated
were as follows:
|
Three Months
Ended
|
|
December
31,
2020
|
|
September
30,
2020
|
|
December
31,
2019
|
|
(In
thousands)
|
Balance, beginning of
period
|
$
|
159,764
|
|
|
$
|
100,554
|
|
|
$
|
85,314
|
|
Addition of previously
classified pass graded loans
|
80,470
|
|
|
70,177
|
|
|
23,498
|
|
Upgrades to pass
graded loan status
|
(2,795)
|
|
|
(2,948)
|
|
|
(8,367)
|
|
Net principal
payments
|
(15,071)
|
|
|
(4,840)
|
|
|
(10,537)
|
|
Transfers of loans to
nonaccrual and TDR status
|
(17,381)
|
|
|
(3,179)
|
|
|
(2,120)
|
|
Balance, end of
period
|
$
|
204,987
|
|
|
$
|
159,764
|
|
|
$
|
87,788
|
|
Operating Results
Net interest income increased
$2.8 million, or 5.6%, to
$52.5 million for the quarter ended
December 31, 2020 from $49.7
million for the linked-quarter ended September 30, 2020
due primarily to an increase in the yield of total interest
earning assets, and specifically the increase in loan yield due to
the impact of loan forgiveness, which prompted the recognition of
the remaining net deferred fees of the underlying loans. Net
interest income additionally increased due to the decreases in the
cost of total interest bearing liabilities, which decreased due to
maturities of higher yielding certificates of deposit during the
third and fourth quarters of 2020 and decreases in offering rates
on certain non-maturity deposit products.
Net interest income increased $3.3
million, or 6.8%, from $49.1
million for the quarter ended December 31, 2019 due primarily to decreases in
the cost of total interest bearing liabilities due primarily to
decreases in short-term market interest rates and an increase in
average total interest earning assets, predominately from SBA PPP
loans, offset partially by decreases in the yield on total interest
earning assets reflecting decreases in market interest rates.
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 increased 15 basis points to 3.53% for the
quarter ended December 31, 2020 from 3.38% for the
linked-quarter ended September 30, 2020 due primarily to the
21 basis point impact of the recognition of the remaining net
deferred fees on the forgiven SBA PPP loans, offset partially by
the impact of the change in the mix of total interest earning
assets (a lower ratio of higher yielding loans and investment
securities as a percentage of total earning assets). Average
interest earning deposits increased $169.8
million, or 43.6%, and earned a yield of only 10 basis
points during the quarter ended December 31,
2020, while average loans receivable, net decreased
$64.4 million, or 1.4%, and
investment securities decreased $46.9
million, or 5.5%. Additionally, net interest margin
increased due to the seven basis point decrease in the cost of
total interest bearing deposits to 0.22% during the quarter ended
December 31, 2020 from 0.29% during the linked-quarter ended
September 30, 2020 due primarily to maturities of higher
yielding certificates of deposit and a decrease in interest rates
offered on our non-maturity deposits to prevailing market
rates.
Net interest margin decreased 49 basis points from 4.02% for the
quarter ended December 31, 2019 due primarily to decreases in
yields on adjustable-rate interest earning assets following
decreases in short-term market rates and the change in the mix of
total interest earning assets, including a significant increase in
average interest earning deposits to 9.5% of total earning assets
at December 31, 2020 compared to 3.7%
at December 31, 2019, offset
partially by decreases in the cost of total interest bearing
deposits.
Loan yield increased 27 basis points to 4.39% for the quarter
ended December 31, 2020 from 4.12% for the linked-quarter
ended September 30, 2020 due mostly to the impact of the
recognition of the remaining net deferred fees of forgiven SBA PPP
loans of 27 basis points, offset slightly by decreases in yield on
adjustable rate loans and newly originated loans. Loan yield,
excluding SBA PPP loans and incremental accretion on purchased
loans, was 4.34% for the quarter ended December 31, 2020
compared to 4.35% for the linked-quarter ended September 30,
2020. There was no impact to loan yield from nonaccrual activity as
compared to the linked-quarter ended September 30, 2020.
Loan yield decreased 61 basis points from 5.00% for the quarter
ended December 31, 2019 due primarily to the multiple and
sustained decreases in short-term market rates and the
lower-yielding SBA PPP loans. Loan yield, excluding SBA PPP loans
and incremental accretion on purchased loans, was 4.89% for the
comparable quarter ended December 31, 2019. The impact from
nonaccrual activity on loan yield from the same period in 2019 was
an improvement of one basis point.
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
|
|
December
31,
2020
|
|
September
30,
2020
|
|
December
31,
2019
|
Non-GAAP
Measure:(1)
|
Loan yield
(GAAP)
|
4.39
|
%
|
|
4.12
|
%
|
|
5.00
|
%
|
Exclude impact from
SBA PPP loans
|
0.02
|
%
|
|
0.31
|
%
|
|
—
|
%
|
Exclude impact from
incremental accretion on purchased loans(2)
|
(0.07)
|
%
|
|
(0.08)
|
%
|
|
(0.11)
|
%
|
Loan yield, excluding
SBA PPP loans and incremental accretion on purchased loans
(non-GAAP)
|
4.34
|
%
|
|
4.35
|
%
|
|
4.89
|
%
|
(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 six basis
points to 2.17% for the quarter ended December 31, 2020 from
2.23% for the linked-quarter ended September 30, 2020 and
decreased 48 basis points from 2.65% for the quarter ended
December 31, 2019 due primarily to sustained 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 five basis points to
0.14% during the quarter ended December 31, 2020 from 0.19%
for the linked-quarter ended September 30, 2020 primarily
related to a decrease in the cost of certificates of deposit and
interest bearing demand and money market accounts due to the
reasons mentioned previously. The cost of total deposits decreased
25 basis points from 0.39% for the quarter ended December 31,
2019 due primarily to decreases in market interest rates following
decreases in the federal funds target rates.
Reversal of provision for credit losses of $3.1 million was recorded during the quarter
ended December 31, 2020, which is comprised of the estimated
reversal of credit losses for loans and estimated reversal of
credit losses for unfunded commitments.
The Bank recorded reversal of provision for credit losses on
loans of $2.8 million during the
quarter ended December 31, 2020 compared to provision for
credit losses on loans of $2.3
million during the quarter ended September 30, 2020.
The reversal of provision was necessary to decrease the ACL on
loans to an amount that management determined to be appropriate and
estimated the credit losses on loans at December 31, 2020
based on its adopted CECL methodology, as described in the
Allowance for Credit Losses section above. The provision for loan
losses for the same period in 2019 was estimated under the
previously utilized incurred loss methodology.
Noninterest income increased $3.1
million, or 37.5%, to $11.3
million for the quarter ended December 31, 2020 from
$8.2 million for the linked-quarter
ended September 30, 2020 due primarily to an increase in other
income of $1.6 million, or 116.1%,
which consisted primarily of a net gain on sale of two branches of
$935,000 (discussed below), a
termination fee from the divestiture of our trust department of
$651,000 and a decrease in the
counterparty valuation adjustment on back-to-back interest rate
swaps of $450,000. The increase in
noninterest income was also due to an increase in bank-owned life
insurance income due primarily to a death benefit of $1.2 million and an increase in the gain on sale
of loans, net of $476,000, or 33.0%,
from the combination of higher origination and sales volume and
higher earned sales margin during the quarter ended
December 31, 2020, reflecting the low interest rate
environment.
Noninterest income increased $2.3
million, or 25.2%, from $9.0
million for the same period in 2019 due primarily to an
increase in gain on sale of loans, net of $1.1 million, or 136.6%, due to higher
origination volume and sales margin similar to that discussed above
in addition to an increase in bank-owned life insurance income from
the combination of the death benefit and an increase in the
average cash surrender value compared to the same period in 2019.
Noninterest income also increased due to an increase in other
income of $883,000, or 41.9%,
primarily as a result of the net gain on sale of branches and the
termination fee discussed above, offset partially by decreases in
interest rate swap fees of $689,000,
or 75.0%, due to fluctuation in customer demand.
Noninterest expense increased $2.5
million, or 7.0%, to $38.6
million for the quarter ended December 31, 2020 from
$36.0 million for the linked-quarter
ended September 30, 2020 due primarily to an increase in other
expense of $1.4 million, or 66.8%,
primarily related to the branch consolidation plan discussed below,
including impairments of leases of $490,000 and branches held for sale of
$630,000. The increase in noninterest
expense was also due to an increase in compensation and employee
benefits of $841,000, or 3.9%,
primarily related to increases in incentive plan expense and
severance packages related to the branch consolidation plan.
Noninterest expense increased $2.6
million, or 7.1%, compared to $36.0
million for the quarter ended December 31, 2019 due
primarily to an increase in federal deposit insurance premium
expense of $698,000 from an increase
in the Bank's assessment rate during the quarter ended December 31, 2020 and utilization of the Bank's
small bank credit for the full assessment due during the quarter
ended December 31, 2019. All small
credits were fully utilized by the third quarter of 2020.
Noninterest expense also increased due to the increase in other
expense of $791,000, or 29.6%, due
primarily to branch consolidation impairments previously mentioned,
offset partially by the reduction of employee lodging, meal and
travel expenses related to the Company's suspension of
non-essential travel due to COVID-19. Noninterest expense also
increased due to an increase in state/municipal business and use
taxes expense as a result of an increase in the tax rate starting
in second quarter 2020 to 1.8% from 1.5%.
Income tax expense was $4.4
million for the quarter ended December 31, 2020
compared $2.5 million for the
linked-quarter ended September 30, 2020 and $3.4 million for the quarter ended
December 31, 2019. The effective tax rate was 15.6% for the
quarter ended December 31, 2020 compared to 13.0% for the
linked-quarter ended September 30, 2020 and 16.7% for the
quarter ended December 31, 2019. The increase in the effective
tax rate from the linked-quarter ended September 30, 2020 was due primarily to an
increase in estimated annual pre-tax income for the year ended
December 31, 2020 which decreased the
impact of favorable permanent tax items such as tax-exempt
investments, investments in bank owned life insurance and
low-income housing tax credits. The decrease in the effective tax
rate from the quarter ended December 31, 2019 was due to the
year-over-year decrease in estimated annual pre-tax income which
had the opposite impact on favorable permanent tax items discussed
above for the linked-quarter explanation.
Branch Consolidation Plan
Subsequent to December 31, 2020, the Company completed its plan
to consolidate nine branches, integrating them into other branches
within its network, to create a more efficient branch footprint.
One branch was closed during October
2020 and eight branches were closed mid-January 2021, representing a decrease of 15%
in the number of total branches. 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 Branch Consolidation Plan resulted in a reduction in pre-tax
income of $1.5 million for the three
months ended December 31, 2020 as
recognized in the following line items on the Condensed
Consolidated Statements of Income:
|
Three Months
Ended
December 31, 2020
|
|
(In
thousands)
|
Noninterest
income
|
|
Other income (Net
loss on sale on branch sold prior to December 31, 2020)
(1)
|
$
|
(99)
|
|
|
|
Noninterest
expense
|
|
Compensation and
other benefits expense (Severance)
|
$
|
260
|
|
Occupancy and
equipment expense (Write-off of fixed assets)
|
18
|
|
Other expense
(Impairments of leases and property held for sale)
|
1,120
|
|
Total noninterest
expense impact
|
$
|
1,398
|
|
|
|
Net impact in pre-tax
income
|
$
|
(1,497)
|
|
|
|
(1)
|
Excludes gain of $1.0
million not related to the Branch Consolidation Plan.
|
Dividend
On January 27, 2021, the Company's Board
of Directors declared a quarterly cash dividend of $0.20 per share. The dividend is payable on
February 24, 2021 to shareholders of record as of the close of
business on February 10, 2021.
Stock Repurchase Plan
As noted above, the Company
suspended its stock repurchase plan in March
2020 in response to the COVID-19 pandemic. Due to the
Company's capital position and the reduced uncertainty surrounding
the impact of the COVID-19 pandemic, the Company is reinstituting
its stock repurchase plan effective February
1, 2021. As of December 31,
2020, there were 1,643,276 shares available for repurchase
under the current stock repurchase plan. The actual timing, number
and value of shares repurchased under the stock repurchase plan
will depend on a number of factors including price, general
business and market conditions, and alternative investment
opportunities. The stock repurchase plan does not obligate the
Company to acquire any specific number of shares in any period, and
may be expanded, extended, modified or discontinued at any
time.
Earnings Conference Call
The Company will hold a
telephone conference call to discuss this earnings release on
January 28, 2021 at 11:00 a.m. Pacific time. To access the call,
please dial (877) 692-8955 -- access code 4204813 a few minutes
prior to 11:00 a.m. Pacific time. The
call will be available for replay through February 11, 2021 by dialing (866) 207-1041 --
access code 5472289.
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 53 banking offices in Washington and Oregon. Heritage Bank does business under the
Whidbey Island Bank name on Whidbey Island. Heritage's stock is
traded on the NASDAQ Global Select Market under the symbol "HFWA".
More information about Heritage Financial Corporation can be found
on its website at www.hf-wa.com and more information about Heritage
Bank can be found on its website at www.heritagebanknw.com.
Non-GAAP Financial Measures
This news release contains
certain non-GAAP (Generally Accepted Accounting Principles)
financial measures in addition to results presented in accordance
with GAAP. Management has presented these non-GAAP financial
measures in this earnings release because it believes that they
provide useful and comparative information to assess trends in the
Company's capital reflected in the current quarter and year-to-date
results and facilitate comparison of our performance with the
performance of our peers. Where applicable, the Company has also
presented comparable earnings information using GAAP financial
measures. These non-GAAP measures have inherent limitations, are
not required to be uniformly applied and are not audited. They
should not be considered in isolation or as a substitute for total
stockholders' equity or operating results determined in accordance
with GAAP. These non-GAAP measures may not be comparable to
similarly titled measures reported by other companies.
Reconciliations of the GAAP and non-GAAP financial measures are
presented below.
|
December
31,
2020
|
|
September
30,
2020
|
|
June 30,
2020
|
|
March 31,
2020
|
|
December
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)
|
$
|
820,439
|
|
|
$
|
803,129
|
|
|
$
|
793,652
|
|
|
$
|
798,438
|
|
|
$
|
809,311
|
|
Exclude intangible
assets
|
(254,027)
|
|
|
(254,886)
|
|
|
(255,746)
|
|
|
(256,649)
|
|
|
(257,552)
|
|
Tangible common
equity (non-GAAP)
|
$
|
566,412
|
|
|
$
|
548,243
|
|
|
$
|
537,906
|
|
|
$
|
541,789
|
|
|
$
|
551,759
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
(GAAP)
|
$
|
6,615,318
|
|
|
$
|
6,685,889
|
|
|
$
|
6,562,359
|
|
|
$
|
5,587,300
|
|
|
$
|
5,552,970
|
|
Exclude intangible
assets
|
(254,027)
|
|
|
(254,886)
|
|
|
(255,746)
|
|
|
(256,649)
|
|
|
(257,552)
|
|
Tangible assets
(non-GAAP)
|
$
|
6,361,291
|
|
|
$
|
6,431,003
|
|
|
$
|
6,306,613
|
|
|
$
|
5,330,651
|
|
|
$
|
5,295,418
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
(GAAP)
|
$
|
6,615,318
|
|
|
$
|
6,685,889
|
|
|
$
|
6,562,359
|
|
|
$
|
5,587,300
|
|
|
$
|
5,552,970
|
|
Exclude intangible
assets
|
(254,027)
|
|
|
(254,886)
|
|
|
(255,746)
|
|
|
(256,649)
|
|
|
(257,552)
|
|
Exclude SBA PPP
loans
|
(715,121)
|
|
|
(867,782)
|
|
|
(856,490)
|
|
|
—
|
|
|
—
|
|
Tangible assets,
excluding SBA PPP loans (non-GAAP)
|
$
|
5,646,170
|
|
|
$
|
5,563,221
|
|
|
$
|
5,450,123
|
|
|
$
|
5,330,651
|
|
|
$
|
5,295,418
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
to total assets (GAAP)
|
12.4
|
%
|
|
12.0
|
%
|
|
12.1
|
%
|
|
14.3
|
%
|
|
14.6
|
%
|
Tangible common
equity to tangible assets (non-GAAP)
|
8.9
|
%
|
|
8.5
|
%
|
|
8.5
|
%
|
|
10.2
|
%
|
|
10.4
|
%
|
Tangible common
equity to tangible assets, excluding SBA PPP loans
(non-GAAP)
|
10.0
|
%
|
|
9.9
|
%
|
|
9.9
|
%
|
|
10.2
|
%
|
|
10.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Shares
outstanding
|
35,912,243
|
|
|
35,910,300
|
|
|
35,908,908
|
|
|
35,888,494
|
|
|
36,618,729
|
|
Book value per share
(GAAP)
|
$
|
22.85
|
|
|
$
|
22.36
|
|
|
$
|
22.10
|
|
|
$
|
22.25
|
|
|
$
|
22.10
|
|
Tangible book value
per share (non-GAAP)
|
$
|
15.77
|
|
|
$
|
15.27
|
|
|
$
|
14.98
|
|
|
$
|
15.10
|
|
|
$
|
15.07
|
|
|
December
31,
2020
|
|
September
30,
2020
|
|
June 30,
2020
|
|
March 31,
2020
|
|
December
31,
2019
|
|
(Dollar amounts in
thousands)
|
ACL on loans to
loans receivable, excluding SBA PPP loans
|
Allowance for credit
losses on loans
|
$
|
70,185
|
|
|
$
|
73,340
|
|
|
$
|
71,501
|
|
|
$
|
47,540
|
|
|
$
|
36,171
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
(GAAP)
|
$
|
4,468,647
|
|
|
$
|
4,666,730
|
|
|
$
|
4,666,333
|
|
|
$
|
3,852,376
|
|
|
$
|
3,767,879
|
|
Exclude SBA PPP
loans
|
(715,121)
|
|
|
(867,782)
|
|
|
(856,490)
|
|
|
—
|
|
|
—
|
|
Loans receivable,
excluding SBA PPP loans (non-GAAP)
|
$
|
3,753,526
|
|
|
$
|
3,798,948
|
|
|
$
|
3,809,843
|
|
|
$
|
3,852,376
|
|
|
$
|
3,767,879
|
|
|
|
|
|
|
|
|
|
|
|
ACL on loans to loans
receivable (GAAP)
|
1.57
|
%
|
|
1.57
|
%
|
|
1.53
|
%
|
|
1.23
|
%
|
|
0.96
|
%
|
ACL on loans to loans
receivable, excluding SBA PPP loans (non-GAAP)
|
1.87
|
%
|
|
1.93
|
%
|
|
1.88
|
%
|
|
1.23
|
%
|
|
0.96
|
%
|
|
Three Months
Ended
|
|
December
31,
2020
|
|
September
30,
2020
|
|
December
31,
2019
|
|
(Dollar amounts in
thousands)
|
Pre-tax,
pre-provision income:
|
Net income
(GAAP)
|
$
|
23,882
|
|
|
$
|
16,636
|
|
|
$
|
17,126
|
|
Add income tax
expense
|
4,429
|
|
|
2,477
|
|
|
3,445
|
|
Add (reversal of)
provision for credit losses
|
(3,133)
|
|
|
2,730
|
|
|
1,558
|
|
Pre-tax,
pre-provision income (non-GAAP)
|
$
|
25,178
|
|
|
$
|
21,843
|
|
|
$
|
22,129
|
|
|
Three Months
Ended
|
|
December
31,
2020
|
|
September
30,
2020
|
|
December
31,
2019
|
|
(Dollar amounts in
thousands)
|
Return on average
tangible common equity, annualized:
|
Net income
(GAAP)
|
$
|
23,882
|
|
|
$
|
16,636
|
|
|
$
|
17,126
|
|
Add amortization of
intangible assets
|
859
|
|
|
860
|
|
|
975
|
|
Exclude tax effect of
adjustment
|
(180)
|
|
|
(181)
|
|
|
(205)
|
|
Tangible net income
(non-GAAP)
|
$
|
24,561
|
|
|
$
|
17,315
|
|
|
$
|
17,896
|
|
|
|
|
|
|
|
Average stockholders'
equity (GAAP)
|
$
|
808,999
|
|
|
$
|
799,738
|
|
|
$
|
806,868
|
|
Exclude average
intangible assets
|
(254,587)
|
|
|
(255,453)
|
|
|
(258,177)
|
|
Average tangible
common stockholders' equity (non-GAAP)
|
$
|
554,412
|
|
|
$
|
544,285
|
|
|
$
|
548,691
|
|
|
|
|
|
|
|
Return on average
equity, annualized (GAAP)
|
11.74
|
%
|
|
8.28
|
%
|
|
8.42
|
%
|
Return on average
tangible common equity, annualized (non-GAAP)
|
17.62
|
%
|
|
12.66
|
%
|
|
12.94
|
%
|
|
Three Months
Ended
|
|
December
31,
2020
|
|
September
30,
2020
|
|
December
31,
2019
|
|
(Dollar amounts in
thousands)
|
Loan yield,
excluding SBA PPP loans and incremental accretion on purchased
loans, annualized:
|
Interest and fees on
loans (GAAP)
|
$
|
50,089
|
|
|
$
|
47,647
|
|
|
$
|
46,864
|
|
Exclude SBA PPP loans
interest and fees
|
(8,739)
|
|
|
(5,810)
|
|
|
—
|
|
Exclude incremental
accretion on purchased loans
|
(795)
|
|
|
(944)
|
|
|
(997)
|
|
Adjusted interest and
fees on loans (non-GAAP)
|
$
|
40,555
|
|
|
$
|
40,893
|
|
|
$
|
45,867
|
|
|
|
|
|
|
|
Average loans
receivable, net
|
$
|
4,540,962
|
|
|
$
|
4,605,389
|
|
|
$
|
3,719,128
|
|
Exclude average SBA
PPP loans
|
(822,460)
|
|
|
(863,127)
|
|
|
—
|
|
Adjusted average
loans receivable, net (non-GAAP)
|
$
|
3,718,502
|
|
|
$
|
3,742,262
|
|
|
$
|
3,719,128
|
|
|
|
|
|
|
|
Loan yield,
annualized (GAAP)
|
4.39
|
%
|
|
4.12
|
%
|
|
5.00
|
%
|
Loan yield, excluding
SBA PPP loans and incremental accretion on purchased loans,
annualized (non-GAAP)
|
4.34
|
%
|
|
4.35
|
%
|
|
4.89
|
%
|
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 2021 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)
|
|
|
December
31,
2020
|
|
September
30,
2020
|
|
December
31,
2019
|
Assets
|
|
|
|
|
|
Cash on hand and in
banks
|
$
|
91,918
|
|
|
$
|
89,039
|
|
|
$
|
95,039
|
|
Interest earning
deposits
|
651,404
|
|
|
487,203
|
|
|
133,529
|
|
Cash and cash
equivalents
|
743,322
|
|
|
576,242
|
|
|
228,568
|
|
Investment securities
available for sale, at fair value, net (amortized cost of $770,195,
$802,391 and $939,160, respectively)
|
802,163
|
|
|
834,492
|
|
|
952,312
|
|
Loans held for
sale
|
4,932
|
|
|
8,250
|
|
|
5,533
|
|
Loans
receivable
|
4,468,647
|
|
|
4,666,730
|
|
|
3,767,879
|
|
Allowance for credit
losses on loans
|
(70,185)
|
|
|
(73,340)
|
|
|
(36,171)
|
|
Loans receivable,
net
|
4,398,462
|
|
|
4,593,390
|
|
|
3,731,708
|
|
Other real estate
owned
|
—
|
|
|
—
|
|
|
841
|
|
Premises and
equipment, net
|
85,452
|
|
|
89,831
|
|
|
87,888
|
|
Federal Home Loan
Bank stock, at cost
|
6,661
|
|
|
6,661
|
|
|
6,377
|
|
Bank owned life
insurance
|
107,580
|
|
|
108,311
|
|
|
103,616
|
|
Accrued interest
receivable
|
19,418
|
|
|
18,888
|
|
|
14,446
|
|
Prepaid expenses and
other assets
|
193,301
|
|
|
194,938
|
|
|
164,129
|
|
Other intangible
assets, net
|
13,088
|
|
|
13,947
|
|
|
16,613
|
|
Goodwill
|
240,939
|
|
|
240,939
|
|
|
240,939
|
|
Total
assets
|
$
|
6,615,318
|
|
|
$
|
6,685,889
|
|
|
$
|
5,552,970
|
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
Deposits
|
$
|
5,597,990
|
|
|
$
|
5,689,048
|
|
|
$
|
4,582,676
|
|
Junior subordinated
debentures
|
20,887
|
|
|
20,814
|
|
|
20,595
|
|
Securities sold under
agreement to repurchase
|
35,683
|
|
|
29,043
|
|
|
20,169
|
|
Accrued expenses and
other liabilities
|
140,319
|
|
|
143,855
|
|
|
120,219
|
|
Total
liabilities
|
5,794,879
|
|
|
5,882,760
|
|
|
4,743,659
|
|
|
|
|
|
|
|
Common
stock
|
571,021
|
|
|
570,170
|
|
|
586,459
|
|
Retained
earnings
|
224,400
|
|
|
207,751
|
|
|
212,474
|
|
Accumulated other
comprehensive income, net
|
25,018
|
|
|
25,208
|
|
|
10,378
|
|
Total stockholders'
equity
|
820,439
|
|
|
803,129
|
|
|
809,311
|
|
Total liabilities and
stockholders' equity
|
$
|
6,615,318
|
|
|
$
|
6,685,889
|
|
|
$
|
5,552,970
|
|
|
|
|
|
|
|
Shares
outstanding
|
35,912,243
|
|
|
35,910,300
|
|
|
36,618,729
|
|
HERITAGE FINANCIAL
CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF
INCOME (Unaudited) (Dollar amounts in
thousands, except per share amounts)
|
|
|
Three Months
Ended
|
|
Year
Ended
|
|
December
31,
2020
|
|
September
30,
2020
|
|
December
31,
2019
|
|
December
31,
2020
|
|
December
31,
2019
|
Interest
income:
|
|
|
|
|
|
|
|
|
|
Interest and fees on
loans
|
$
|
50,089
|
|
|
$
|
47,647
|
|
|
$
|
46,864
|
|
|
$
|
192,417
|
|
|
$
|
189,515
|
|
Taxable interest on
investment securities
|
3,473
|
|
|
3,865
|
|
|
5,585
|
|
|
17,541
|
|
|
23,045
|
|
Nontaxable interest on
investment securities
|
973
|
|
|
953
|
|
|
755
|
|
|
3,659
|
|
|
3,396
|
|
Interest on interest
earning deposits
|
142
|
|
|
98
|
|
|
739
|
|
|
703
|
|
|
1,894
|
|
Total interest
income
|
54,677
|
|
|
52,563
|
|
|
53,943
|
|
|
214,320
|
|
|
217,850
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
Deposits
|
1,993
|
|
|
2,639
|
|
|
4,479
|
|
|
12,265
|
|
|
16,349
|
|
Junior subordinated
debentures
|
191
|
|
|
196
|
|
|
313
|
|
|
890
|
|
|
1,339
|
|
Other
borrowings
|
38
|
|
|
50
|
|
|
36
|
|
|
168
|
|
|
480
|
|
Total interest
expense
|
2,222
|
|
|
2,885
|
|
|
4,828
|
|
|
13,323
|
|
|
18,168
|
|
Net interest
income
|
52,455
|
|
|
49,678
|
|
|
49,115
|
|
|
200,997
|
|
|
199,682
|
|
(Reversal of)
provision for credit losses
|
(3,133)
|
|
|
2,730
|
|
|
1,558
|
|
|
36,106
|
|
|
4,311
|
|
Net interest income
after (reversal of) provision for credit losses
|
55,588
|
|
|
46,948
|
|
|
47,557
|
|
|
164,891
|
|
|
195,371
|
|
Noninterest
income:
|
|
|
|
|
|
|
|
|
|
Service charges and
other fees
|
4,213
|
|
|
4,039
|
|
|
4,603
|
|
|
16,228
|
|
|
18,712
|
|
Gain on sale of
investment securities, net
|
55
|
|
|
40
|
|
|
1
|
|
|
1,518
|
|
|
330
|
|
Gain on sale of loans,
net
|
1,919
|
|
|
1,443
|
|
|
811
|
|
|
5,044
|
|
|
2,424
|
|
Interest rate swap
fees
|
230
|
|
|
396
|
|
|
919
|
|
|
1,691
|
|
|
1,232
|
|
Bank owned life
insurance income
|
1,880
|
|
|
909
|
|
|
572
|
|
|
4,319
|
|
|
2,160
|
|
Other
income
|
2,988
|
|
|
1,383
|
|
|
2,105
|
|
|
8,429
|
|
|
7,604
|
|
Total noninterest
income
|
11,285
|
|
|
8,210
|
|
|
9,011
|
|
|
37,229
|
|
|
32,462
|
|
Noninterest
expense:
|
|
|
|
|
|
|
|
|
|
Compensation and
employee benefits
|
22,257
|
|
|
21,416
|
|
|
21,939
|
|
|
88,106
|
|
|
87,568
|
|
Occupancy and
equipment
|
5,728
|
|
|
5,676
|
|
|
5,513
|
|
|
22,664
|
|
|
21,690
|
|
Data
processing
|
2,350
|
|
|
2,363
|
|
|
2,361
|
|
|
9,396
|
|
|
8,976
|
|
Marketing
|
783
|
|
|
755
|
|
|
461
|
|
|
3,100
|
|
|
3,481
|
|
Professional
services
|
1,289
|
|
|
1,086
|
|
|
1,280
|
|
|
5,921
|
|
|
5,192
|
|
State/municipal
business and use taxes
|
1,128
|
|
|
964
|
|
|
777
|
|
|
3,754
|
|
|
3,754
|
|
Federal deposit
insurance premium
|
703
|
|
|
848
|
|
|
5
|
|
|
1,789
|
|
|
725
|
|
Other real estate
owned, net
|
—
|
|
|
—
|
|
|
12
|
|
|
(145)
|
|
|
352
|
|
Amortization of
intangible assets
|
859
|
|
|
860
|
|
|
975
|
|
|
3,525
|
|
|
4,001
|
|
Other
expense
|
3,465
|
|
|
2,077
|
|
|
2,674
|
|
|
10,830
|
|
|
11,049
|
|
Total noninterest
expense
|
38,562
|
|
|
36,045
|
|
|
35,997
|
|
|
148,940
|
|
|
146,788
|
|
Income before income
taxes
|
28,311
|
|
|
19,113
|
|
|
20,571
|
|
|
53,180
|
|
|
81,045
|
|
Income tax
expense
|
4,429
|
|
|
2,477
|
|
|
3,445
|
|
|
6,610
|
|
|
13,488
|
|
Net income
|
$
|
23,882
|
|
|
$
|
16,636
|
|
|
$
|
17,126
|
|
|
$
|
46,570
|
|
|
$
|
67,557
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$
|
0.66
|
|
|
$
|
0.46
|
|
|
$
|
0.47
|
|
|
$
|
1.29
|
|
|
$
|
1.84
|
|
Diluted earnings per
share
|
$
|
0.66
|
|
|
$
|
0.46
|
|
|
$
|
0.47
|
|
|
$
|
1.29
|
|
|
$
|
1.83
|
|
Dividends declared
per share
|
$
|
0.20
|
|
|
$
|
0.20
|
|
|
$
|
0.29
|
|
|
$
|
0.80
|
|
|
$
|
0.84
|
|
Average number of
basic shares outstanding
|
35,910,430
|
|
|
35,908,845
|
|
|
36,597,048
|
|
|
36,014,445
|
|
|
36,758,230
|
|
Average number of
diluted shares outstanding
|
36,188,579
|
|
|
35,988,734
|
|
|
36,824,470
|
|
|
36,170,066
|
|
|
36,985,766
|
|
HERITAGE FINANCIAL
CORPORATION FINANCIAL STATISTICS
(Unaudited) (Dollar amounts in thousands, except per
share amounts)
|
|
Nonperforming
Assets and Credit Quality Metrics:
|
|
|
Three Months
Ended
|
|
Year
Ended
|
|
December
31,
2020
|
|
September
30,
2020
|
|
December
31,
2019
|
|
December
31,
2020
|
|
December
31,
2019
|
Other Real Estate
Owned:
|
|
|
|
|
|
|
|
|
|
Balance, beginning of
period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
841
|
|
|
$
|
841
|
|
|
$
|
1,983
|
|
Additions from
transfer of loan
|
—
|
|
|
—
|
|
|
—
|
|
|
270
|
|
|
—
|
|
Proceeds from
dispositions
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,290)
|
|
|
(864)
|
|
Gain (loss) on sales,
net
|
—
|
|
|
—
|
|
|
—
|
|
|
179
|
|
|
(227)
|
|
Valuation
adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(51)
|
|
Balance, end of
period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
841
|
|
|
$
|
—
|
|
|
$
|
841
|
|
|
Three Months
Ended
|
|
Year
Ended
|
|
December
31,
2020
|
|
September
30,
2020
|
|
December
31,
2019
|
|
December
31,
2020
|
|
December
31,
2019
|
Allowance for
Credit Losses on Loans:
|
|
|
|
Balance, beginning of
period
|
$
|
73,340
|
|
|
$
|
71,501
|
|
|
$
|
36,518
|
|
|
$
|
36,171
|
|
|
$
|
35,042
|
|
Impact of CECL
adoption
|
—
|
|
|
—
|
|
|
—
|
|
|
1,822
|
|
|
—
|
|
Adjusted balance,
beginning of period
|
73,340
|
|
|
71,501
|
|
|
36,518
|
|
|
37,993
|
|
|
35,042
|
|
(Reversal of)
provision for credit losses on loans
|
(2,792)
|
|
|
2,320
|
|
|
1,558
|
|
|
35,433
|
|
|
4,311
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
Commercial
business
|
(198)
|
|
|
(507)
|
|
|
(1,509)
|
|
|
(3,751)
|
|
|
(2,692)
|
|
Residential real
estate
|
—
|
|
|
—
|
|
|
(15)
|
|
|
—
|
|
|
(60)
|
|
Real estate
construction and land development
|
(417)
|
|
|
—
|
|
|
(133)
|
|
|
(417)
|
|
|
(133)
|
|
Consumer
|
(313)
|
|
|
(335)
|
|
|
(451)
|
|
|
(1,454)
|
|
|
(2,104)
|
|
Total
charge-offs
|
(928)
|
|
|
(842)
|
|
|
(2,108)
|
|
|
(5,622)
|
|
|
(4,989)
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
Commercial
business
|
310
|
|
|
80
|
|
|
55
|
|
|
1,530
|
|
|
657
|
|
Residential real
estate
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
Real estate
construction and land development
|
118
|
|
|
139
|
|
|
9
|
|
|
278
|
|
|
637
|
|
Consumer
|
137
|
|
|
142
|
|
|
139
|
|
|
570
|
|
|
513
|
|
Total
recoveries
|
565
|
|
|
361
|
|
|
203
|
|
|
2,381
|
|
|
1,807
|
|
Net
charge-offs
|
(363)
|
|
|
(481)
|
|
|
(1,905)
|
|
|
(3,241)
|
|
|
(3,182)
|
|
Balance, end of
period
|
$
|
70,185
|
|
|
$
|
73,340
|
|
|
$
|
36,171
|
|
|
$
|
70,185
|
|
|
$
|
36,171
|
|
Net charge-offs on
loans to average loans, annualized
|
0.03
|
%
|
|
0.04
|
%
|
|
0.20
|
%
|
|
0.07
|
%
|
|
0.09
|
%
|
|
Three Months
Ended
|
|
Year
Ended
|
|
December
31,
2020
|
|
September
30,
2020
|
|
December
31,
2019
|
|
December
31,
2020
|
|
December
31,
2019
|
Allowance for
Credit Losses on Unfunded Commitments:
|
|
Balance, beginning of
period
|
$
|
5,022
|
|
|
$
|
4,612
|
|
|
$
|
306
|
|
|
$
|
306
|
|
|
$
|
306
|
|
Impact of CECL
adoption
|
—
|
|
|
—
|
|
|
—
|
|
|
3,702
|
|
|
—
|
|
Adjusted balance,
beginning of period
|
5,022
|
|
|
4,612
|
|
|
306
|
|
|
4,008
|
|
|
306
|
|
(Reversal of)
provision for credit losses on unfunded commitments
|
(341)
|
|
|
410
|
|
|
—
|
|
|
673
|
|
|
—
|
|
Balance, end of
period
|
$
|
4,681
|
|
|
$
|
5,022
|
|
|
$
|
306
|
|
|
$
|
4,681
|
|
|
$
|
306
|
|
|
December
31,
2020
|
|
September
30,
2020
|
|
December
31,
2019
|
Nonperforming
Assets:
|
|
|
|
|
|
Nonaccrual loans
(1):
|
|
|
|
|
|
Commercial
business
|
$
|
56,786
|
|
|
$
|
50,930
|
|
|
$
|
44,320
|
|
Residential real
estate
|
184
|
|
|
157
|
|
|
19
|
|
Real estate
construction and land development
|
1,022
|
|
|
1,439
|
|
|
—
|
|
Consumer
|
100
|
|
|
78
|
|
|
186
|
|
Total nonaccrual
loans
|
58,092
|
|
|
52,604
|
|
|
44,525
|
|
Other real estate
owned
|
—
|
|
|
—
|
|
|
841
|
|
Nonperforming
assets
|
$
|
58,092
|
|
|
$
|
52,604
|
|
|
$
|
45,366
|
|
|
|
|
|
|
|
Restructured
performing loans
|
$
|
30,227
|
|
|
$
|
19,615
|
|
|
$
|
14,469
|
|
Accruing loans past
due 90 days or more
|
—
|
|
|
—
|
|
|
—
|
|
Potential problem
loans (2)
|
204,987
|
|
|
159,764
|
|
|
87,788
|
|
ACL on loans
to:
|
|
|
|
|
|
Loans
receivable
|
1.57
|
%
|
|
1.57
|
%
|
|
0.96
|
%
|
Loans receivable,
excluding SBA PPP loans (3)
|
1.87
|
%
|
|
1.93
|
%
|
|
0.96
|
%
|
Nonaccrual
loans
|
120.82
|
%
|
|
139.42
|
%
|
|
81.24
|
%
|
Nonperforming loans
to loans receivable
|
1.30
|
%
|
|
1.13
|
%
|
|
1.18
|
%
|
Nonperforming assets
to total assets
|
0.88
|
%
|
|
0.79
|
%
|
|
0.82
|
%
|
|
|
(1)
|
At December 31,
2020, September 30, 2020 and December 31, 2019, $43.1 million,
$20.5 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
|
|
December 31,
2020
|
|
September 30,
2020
|
|
December 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)
|
$
|
4,540,962
|
|
|
$
|
50,089
|
|
|
4.39
|
%
|
|
$
|
4,605,389
|
|
|
$
|
47,647
|
|
|
4.12
|
%
|
|
$
|
3,719,128
|
|
|
$
|
46,864
|
|
|
5.00
|
%
|
Taxable
securities
|
649,287
|
|
|
3,473
|
|
|
2.13
|
|
|
697,128
|
|
|
3,865
|
|
|
2.21
|
|
|
826,541
|
|
|
5,585
|
|
|
2.68
|
|
Nontaxable securities
(3)
|
164,025
|
|
|
973
|
|
|
2.36
|
|
|
163,070
|
|
|
953
|
|
|
2.32
|
|
|
123,177
|
|
|
755
|
|
|
2.43
|
|
Interest earning
deposits
|
559,491
|
|
|
142
|
|
|
0.10
|
|
|
389,653
|
|
|
98
|
|
|
0.10
|
|
|
180,862
|
|
|
739
|
|
|
1.62
|
|
Total interest
earning assets
|
5,913,765
|
|
|
54,677
|
|
|
3.68
|
%
|
|
5,855,240
|
|
|
52,563
|
|
|
3.57
|
%
|
|
4,849,708
|
|
|
53,943
|
|
|
4.41
|
%
|
Noninterest earning
assets
|
761,712
|
|
|
|
|
|
|
765,740
|
|
|
|
|
|
|
707,390
|
|
|
|
|
|
Total
assets
|
$
|
6,675,477
|
|
|
|
|
|
|
$
|
6,620,980
|
|
|
|
|
|
|
$
|
5,557,098
|
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
|
421,633
|
|
|
$
|
720
|
|
|
0.68
|
%
|
|
$
|
466,920
|
|
|
$
|
1,133
|
|
|
0.97
|
%
|
|
$
|
526,247
|
|
|
$
|
2,027
|
|
|
1.53
|
%
|
Savings
accounts
|
532,301
|
|
|
106
|
|
|
0.08
|
|
|
514,072
|
|
|
117
|
|
|
0.09
|
|
|
508,924
|
|
|
572
|
|
|
0.45
|
|
Interest bearing
demand and money market accounts
|
2,680,084
|
|
|
1,167
|
|
|
0.17
|
|
|
2,639,511
|
|
|
1,389
|
|
|
0.21
|
|
|
2,101,001
|
|
|
1,880
|
|
|
0.36
|
|
Total interest bearing
deposits
|
3,634,018
|
|
|
1,993
|
|
|
0.22
|
|
|
3,620,503
|
|
|
2,639
|
|
|
0.29
|
|
|
3,136,172
|
|
|
4,479
|
|
|
0.57
|
|
Junior subordinated
debentures
|
20,840
|
|
|
191
|
|
|
3.65
|
|
|
20,766
|
|
|
196
|
|
|
3.75
|
|
|
20,548
|
|
|
313
|
|
|
6.04
|
|
Securities sold under
agreement to repurchase
|
35,278
|
|
|
38
|
|
|
0.43
|
|
|
32,856
|
|
|
50
|
|
|
0.61
|
|
|
22,360
|
|
|
36
|
|
|
0.64
|
|
Total interest bearing
liabilities
|
3,690,136
|
|
|
2,222
|
|
|
0.24
|
%
|
|
3,674,125
|
|
|
2,885
|
|
|
0.31
|
%
|
|
3,179,080
|
|
|
4,828
|
|
|
0.60
|
%
|
Noninterest demand
deposits
|
2,034,425
|
|
|
|
|
|
|
1,998,772
|
|
|
|
|
|
|
1,462,683
|
|
|
|
|
|
Other noninterest
bearing liabilities
|
141,917
|
|
|
|
|
|
|
148,345
|
|
|
|
|
|
|
108,467
|
|
|
|
|
|
Stockholders'
equity
|
808,999
|
|
|
|
|
|
|
799,738
|
|
|
|
|
|
|
806,868
|
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$
|
6,675,477
|
|
|
|
|
|
|
$
|
6,620,980
|
|
|
|
|
|
|
$
|
5,557,098
|
|
|
|
|
|
Net interest
income
|
|
|
$
|
52,455
|
|
|
|
|
|
|
$
|
49,678
|
|
|
|
|
|
|
$
|
49,115
|
|
|
|
Net interest
spread
|
|
|
|
|
3.44
|
%
|
|
|
|
|
|
3.26
|
%
|
|
|
|
|
|
3.81
|
%
|
Net interest
margin
|
|
|
|
|
3.53
|
%
|
|
|
|
|
|
3.38
|
%
|
|
|
|
|
|
4.02
|
%
|
Average interest
earning assets to average interest bearing liabilities
|
|
|
|
|
160.26
|
%
|
|
|
|
|
|
159.36
|
%
|
|
|
|
|
|
152.55
|
%
|
|
|
(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.
|
|
Year
Ended
|
|
December 31,
2020
|
|
December 31,
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)
|
$
|
4,335,564
|
|
|
$
|
192,417
|
|
|
4.44
|
%
|
|
$
|
3,668,665
|
|
|
$
|
189,515
|
|
|
5.17
|
%
|
Taxable
securities
|
731,378
|
|
|
17,541
|
|
|
2.40
|
|
|
827,822
|
|
|
23,045
|
|
|
2.78
|
|
Nontaxable securities
(3)
|
152,447
|
|
|
3,659
|
|
|
2.40
|
|
|
135,245
|
|
|
3,396
|
|
|
2.51
|
|
Interest earning
deposits
|
315,847
|
|
|
703
|
|
|
0.22
|
|
|
98,153
|
|
|
1,894
|
|
|
1.93
|
|
Total interest earning
assets
|
5,535,236
|
|
|
214,320
|
|
|
3.87
|
%
|
|
4,729,885
|
|
|
217,850
|
|
|
4.61
|
%
|
Noninterest earning
assets
|
758,386
|
|
|
|
|
|
|
681,193
|
|
|
|
|
|
Total
assets
|
$
|
6,293,622
|
|
|
|
|
|
|
$
|
5,411,078
|
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
|
482,316
|
|
|
$
|
5,675
|
|
|
1.18
|
%
|
|
$
|
512,732
|
|
|
$
|
7,021
|
|
|
1.37
|
%
|
Savings
accounts
|
489,471
|
|
|
526
|
|
|
0.11
|
|
|
506,073
|
|
|
2,633
|
|
|
0.52
|
|
Interest bearing
demand and money market accounts
|
2,491,477
|
|
|
6,064
|
|
|
0.24
|
|
|
2,052,573
|
|
|
6,695
|
|
|
0.33
|
|
Total interest bearing
deposits
|
3,463,264
|
|
|
12,265
|
|
|
0.35
|
|
|
3,071,378
|
|
|
16,349
|
|
|
0.53
|
|
Junior subordinated
debentures
|
20,730
|
|
|
890
|
|
|
4.29
|
|
|
20,438
|
|
|
1,339
|
|
|
6.55
|
|
Securities sold under
agreement to repurchase
|
27,805
|
|
|
160
|
|
|
0.58
|
|
|
28,457
|
|
|
175
|
|
|
0.61
|
|
FHLB advances and
other borrowings
|
1,466
|
|
|
8
|
|
|
0.55
|
|
|
11,899
|
|
|
305
|
|
|
2.56
|
|
Total interest bearing
liabilities
|
3,513,265
|
|
|
13,323
|
|
|
0.38
|
%
|
|
3,132,172
|
|
|
18,168
|
|
|
0.58
|
%
|
Noninterest demand
deposits
|
1,835,165
|
|
|
|
|
|
|
1,389,721
|
|
|
|
|
|
Other noninterest
bearing liabilities
|
139,612
|
|
|
|
|
|
|
99,683
|
|
|
|
|
|
Stockholders'
equity
|
805,580
|
|
|
|
|
|
|
789,502
|
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$
|
6,293,622
|
|
|
|
|
|
|
$
|
5,411,078
|
|
|
|
|
|
Net interest
income
|
|
|
$
|
200,997
|
|
|
|
|
|
|
$
|
199,682
|
|
|
|
Net interest
spread
|
|
|
|
|
3.49
|
%
|
|
|
|
|
|
4.03
|
%
|
Net interest
margin
|
|
|
|
|
3.63
|
%
|
|
|
|
|
|
4.22
|
%
|
Average interest
earning assets to average interest bearing liabilities
|
|
|
|
|
157.55
|
%
|
|
|
|
|
|
151.01
|
%
|
|
|
(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
|
|
December
31,
2020
|
|
September
30,
2020
|
|
June 30,
2020
|
|
March 31,
2020
|
|
December
31,
2019
|
Earnings:
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
$
|
52,455
|
|
|
$
|
49,678
|
|
|
$
|
50,313
|
|
|
$
|
48,551
|
|
|
$
|
49,115
|
|
(Reversal of)
provision for credit losses
|
(3,133)
|
|
|
2,730
|
|
|
28,563
|
|
|
7,946
|
|
|
1,558
|
|
Noninterest
income
|
11,285
|
|
|
8,210
|
|
|
8,248
|
|
|
9,486
|
|
|
9,011
|
|
Noninterest
expense
|
38,562
|
|
|
36,045
|
|
|
37,073
|
|
|
37,260
|
|
|
35,997
|
|
Net income
(loss)
|
23,882
|
|
|
16,636
|
|
|
(6,139)
|
|
|
12,191
|
|
|
17,126
|
|
Basic earnings
(losses) per share
|
$
|
0.66
|
|
|
$
|
0.46
|
|
|
$
|
(0.17)
|
|
|
$
|
0.34
|
|
|
$
|
0.47
|
|
Diluted earnings
(losses) per share
|
$
|
0.66
|
|
|
$
|
0.46
|
|
|
$
|
(0.17)
|
|
|
$
|
0.34
|
|
|
$
|
0.47
|
|
Average
Balances:
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
(1)
|
$
|
4,540,962
|
|
|
$
|
4,605,389
|
|
|
$
|
4,442,108
|
|
|
$
|
3,748,573
|
|
|
$
|
3,719,128
|
|
Investment
securities
|
813,312
|
|
|
860,198
|
|
|
924,987
|
|
|
937,839
|
|
|
949,718
|
|
Total interest
earning assets
|
5,913,765
|
|
|
5,855,240
|
|
|
5,552,494
|
|
|
4,811,769
|
|
|
4,849,708
|
|
Total
assets
|
6,675,477
|
|
|
6,620,980
|
|
|
6,310,024
|
|
|
5,560,212
|
|
|
5,557,098
|
|
Total interest
bearing deposits
|
3,634,018
|
|
|
3,620,503
|
|
|
3,430,542
|
|
|
3,164,389
|
|
|
3,136,172
|
|
Total noninterest
demand deposits
|
2,034,425
|
|
|
1,998,772
|
|
|
1,883,227
|
|
|
1,420,247
|
|
|
1,462,683
|
|
Stockholders'
equity
|
808,999
|
|
|
799,738
|
|
|
807,539
|
|
|
806,071
|
|
|
806,868
|
|
Financial
Ratios:
|
|
|
|
|
|
|
|
|
|
Return on average
assets (2)
|
1.42
|
%
|
|
1.00
|
%
|
|
(0.39)
|
%
|
|
0.88
|
%
|
|
1.22
|
%
|
Return on average
common equity (2)
|
11.74
|
|
|
8.28
|
|
|
(3.06)
|
|
|
6.08
|
|
|
8.42
|
|
Return on average
tangible common equity (2) (3)
|
17.62
|
|
|
12.66
|
|
|
(3.96)
|
|
|
9.46
|
|
|
12.94
|
|
Efficiency
ratio
|
60.50
|
|
|
62.27
|
|
|
63.31
|
|
|
64.20
|
|
|
61.93
|
|
Noninterest expense
to average total assets (2)
|
2.30
|
|
|
2.17
|
|
|
2.36
|
|
|
2.70
|
|
|
2.57
|
|
Net interest margin
(2)
|
3.53
|
|
|
3.38
|
|
|
3.64
|
|
|
4.06
|
|
|
4.02
|
|
Net interest spread
(2)
|
3.44
|
|
|
3.26
|
|
|
3.48
|
|
|
3.87
|
|
|
3.81
|
|
|
|
(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
|
|
December
31,
2020
|
|
September
30,
2020
|
|
June 30,
2020
|
|
March 31,
2020
|
|
December
31,
2019
|
Select Balance
Sheet:
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
6,615,318
|
|
|
$
|
6,685,889
|
|
|
$
|
6,562,359
|
|
|
$
|
5,587,300
|
|
|
$
|
5,552,970
|
|
Loans receivable,
net
|
4,398,462
|
|
|
4,593,390
|
|
|
4,594,832
|
|
|
3,804,836
|
|
|
3,731,708
|
|
Investment
securities
|
802,163
|
|
|
834,492
|
|
|
879,927
|
|
|
961,092
|
|
|
952,312
|
|
Deposits
|
5,597,990
|
|
|
5,689,048
|
|
|
5,567,733
|
|
|
4,617,948
|
|
|
4,582,676
|
|
Noninterest demand
deposits
|
1,980,531
|
|
|
1,989,247
|
|
|
1,999,754
|
|
|
1,415,177
|
|
|
1,446,502
|
|
Stockholders'
equity
|
820,439
|
|
|
803,129
|
|
|
793,652
|
|
|
798,438
|
|
|
809,311
|
|
Financial
Measures:
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
$
|
22.85
|
|
|
$
|
22.36
|
|
|
$
|
22.10
|
|
|
$
|
22.25
|
|
|
$
|
22.10
|
|
Tangible book value
per share (1)
|
15.77
|
|
|
15.27
|
|
|
14.98
|
|
|
15.10
|
|
|
15.07
|
|
Stockholders' equity
to total assets
|
12.4
|
%
|
|
12.0
|
%
|
|
12.1
|
%
|
|
14.3
|
%
|
|
14.6
|
%
|
Tangible common
equity to tangible assets (1)
|
8.9
|
|
|
8.5
|
|
|
8.5
|
|
|
10.2
|
|
|
10.4
|
|
Tangible common
equity to tangible assets, excluding SBA PPP loans
(1)
|
10.0
|
|
|
9.9
|
|
|
9.9
|
|
|
10.2
|
|
|
10.4
|
|
Loans to deposits
ratio
|
79.8
|
|
|
82.0
|
|
|
83.8
|
|
|
83.4
|
|
|
82.2
|
|
Credit Quality
Metrics:
|
|
|
|
|
|
|
|
|
|
ACL on
loans to:
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
1.57
|
%
|
|
1.57
|
%
|
|
1.53
|
%
|
|
1.23
|
%
|
|
0.96
|
%
|
Loans receivable,
excluding SBA PPP loans (1)
|
1.87
|
|
|
1.93
|
|
|
1.88
|
|
|
1.23
|
|
|
0.96
|
|
Nonperforming
loans
|
120.82
|
|
|
139.42
|
|
|
212.62
|
|
|
139.16
|
|
|
81.24
|
|
Nonperforming loans
to loans receivable
|
1.30
|
|
|
1.13
|
|
|
0.72
|
|
|
0.89
|
|
|
1.18
|
|
Nonperforming assets
to total assets
|
0.88
|
|
|
0.79
|
|
|
0.51
|
|
|
0.63
|
|
|
0.82
|
|
Net charge-offs on
loans to average loans receivable
|
0.03
|
|
|
0.04
|
|
|
0.18
|
|
|
0.04
|
|
|
0.20
|
|
Criticized Loans
by Credit Quality Rating:
|
|
|
|
|
|
|
|
|
|
Special
mention
|
$
|
164,388
|
|
|
$
|
104,781
|
|
|
$
|
60,498
|
|
|
$
|
61,968
|
|
|
$
|
48,859
|
|
Substandard
|
126,163
|
|
|
123,570
|
|
|
90,552
|
|
|
89,510
|
|
|
93,413
|
|
Doubtful/Loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
524
|
|
Other
Metrics:
|
|
|
|
|
|
|
|
|
|
Number of banking
offices
|
61
|
|
|
62
|
|
|
62
|
|
|
62
|
|
|
62
|
|
Average number of
full-time equivalent employees
|
848
|
|
|
857
|
|
|
877
|
|
|
877
|
|
|
889
|
|
Deposits per
branch
|
$
|
91,770
|
|
|
$
|
91,759
|
|
|
$
|
89,802
|
|
|
$
|
74,483
|
|
|
$
|
73,914
|
|
Average assets per
full-time equivalent employee
|
7,873
|
|
|
7,727
|
|
|
7,195
|
|
|
6,342
|
|
|
6,253
|
|
|
|
(1)
|
See Non-GAAP
Financial Measures section herein.
|
View original
content:http://www.prnewswire.com/news-releases/heritage-financial-announces-fourth-quarter-and-annual-2020-results-and-declares-regular-cash-dividend-301216954.html
SOURCE Heritage Financial Corporation