OLYMPIA, Wash., Jan. 27, 2022 /PRNewswire/ -- Heritage Financial
Corporation (NASDAQ GS: HFWA) (the "Company" or "Heritage"), the
parent company of Heritage Bank ("Bank"), today reported net income
of $19.4 million for the fourth
quarter of 2021 compared to $20.6
million for the third quarter of 2021 and $23.9 million for the fourth quarter of 2020.
Diluted earnings per share for the fourth quarter of 2021 were
$0.55 compared to $0.58 for the third quarter of 2021 and
$0.66 for the fourth quarter of 2020.
Net income for the year ended 2021 totaled $98.0 million, or $2.73 per diluted share, compared to $46.6 million, or $1.29 per diluted share for 2020.
Jeffrey J. Deuel, President and
Chief Executive Officer of Heritage, commented, "While we continue
to be challenged by the COVID-environment and the related
uncertainty, we begin 2022 on solid ground. We are well-positioned
to take advantage of a rising rate environment and we continue to
benefit from the strong economic climate in the region.
Further, we are pleased with the success of our ongoing efforts
to positively impact housing in the communities we serve. In the
fourth quarter, we partnered with Sabin Community Development
Corporation, providing $13.4 million
of construction financing and $11.7
million of permanent funding through our Low Income Housing
Tax Credit investment to build affordable housing units for both
families and seniors allowing people of color who are at risk of
gentrification to live in the heart of Portland's historically African-American
community in North / Northeast
Portland."
Financial Higlights
The following table
provides financial highlights at the dates and for the periods
indicated:
|
|
|
As of or for the
Quarter Ended
|
|
December
31,
2021
|
|
September
30,
2021
|
|
December
31,
2020
|
|
|
|
|
|
|
|
(Dollars in
thousands, except per share amounts)
|
Net income
|
$
19,397
|
|
$
20,592
|
|
$
23,882
|
Pre-tax,
pre-provision income (1)
|
$
19,282
|
|
$
22,440
|
|
$
25,178
|
Diluted earnings per
share
|
$
0.55
|
|
$
0.58
|
|
$
0.66
|
Return on average
assets (2)
|
1.04 %
|
|
1.13 %
|
|
1.42 %
|
Pre-tax,
pre-provision return on average assets (1)
(2)
|
1.03 %
|
|
1.23 %
|
|
1.50 %
|
Return on average
common equity (2)
|
9.06 %
|
|
9.55 %
|
|
11.74 %
|
Return on average
tangible common equity (1) (2)
|
13.27 %
|
|
13.93 %
|
|
17.62 %
|
Net interest margin
(2)
|
2.85 %
|
|
3.15 %
|
|
3.53 %
|
Cost of total
deposits (2)
|
0.09 %
|
|
0.09 %
|
|
0.14 %
|
Efficiency
ratio
|
66.61 %
|
|
62.35 %
|
|
60.50 %
|
Noninterest expense
to average total assets (2)
|
2.06 %
|
|
2.04 %
|
|
2.30 %
|
Total
assets
|
$
7,432,412
|
|
$
7,259,038
|
|
$
6,615,318
|
Loans receivable,
net
|
$
3,773,301
|
|
$
3,905,567
|
|
$
4,398,462
|
Total
deposits
|
$
6,381,337
|
|
$
6,215,558
|
|
$
5,597,990
|
Loan to deposit ratio
(3)
|
59.8 %
|
|
63.6 %
|
|
79.8 %
|
Book value per
share
|
$
24.34
|
|
$
24.13
|
|
$
22.85
|
Tangible book value
per share (1)
|
$
17.19
|
|
$
16.97
|
|
$
15.77
|
(1) See
Non-GAAP Financial Measures section herein.
|
(2) Annualized.
|
(3) Loans
receivable divided by total deposits.
|
SBA PPP Loans
The Company has supported its community and customers during the
COVID-19 pandemic through its participation in the Small Business
Administration's ("SBA") Paycheck Protection Program ("PPP"). The
SBA PPP ended on May 31, 2021.
The following table
summarizes the SBA PPP activity as of and for the period
indicated:
|
|
As of or for the
Quarter Ended
|
|
December 31,
2021
|
|
September 30,
2021
|
|
December 31,
2020
|
|
|
|
|
|
|
|
(In
thousands)
|
Net deferred fees
recognized during the period
|
$
4,399
|
|
$
7,030
|
|
$
6,623
|
Net deferred fees
unrecognized as of period end
|
4,936
|
|
9,335
|
|
15,392
|
Principal payments
received during the period, including forgiveness
payments
from the SBA
|
125,455
|
|
284,385
|
|
159,284
|
Amortized cost as of
period end
|
145,840
|
|
266,896
|
|
715,121
|
Balance Sheet
Total investment securities increased $205.1 million, or 19.1%, to $1.28 billion at December 31, 2021 from
$1.07 billion at September 30,
2021 due primarily to purchases to deploy excess liquidity into
higher yielding assets.
The following table
summarizes the Company's loans receivable, net at the dates
indicated:
|
|
|
December 31,
2021
|
|
September 30,
2021
|
|
Change
|
|
Balance
|
|
%
of Total
|
|
Balance
|
|
%
of Total
|
|
Amount
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
thousands)
|
Commercial
business:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
industrial
|
$
621,567
|
|
16.3 %
|
|
$
652,776
|
|
16.5 %
|
|
$
(31,209)
|
|
(4.8) %
|
SBA PPP
|
145,840
|
|
3.8
|
|
266,896
|
|
6.8
|
|
(121,056)
|
|
(45.4)
|
Owner-occupied
CRE
|
931,150
|
|
24.4
|
|
907,568
|
|
23.0
|
|
23,582
|
|
2.6
|
Non-owner occupied
CRE
|
1,493,099
|
|
39.2
|
|
1,459,795
|
|
36.8
|
|
33,304
|
|
2.3
|
Total commercial
business
|
3,191,656
|
|
83.7
|
|
3,287,035
|
|
83.1
|
|
(95,379)
|
|
(2.9)
|
Residential real
estate
|
164,582
|
|
4.3
|
|
125,697
|
|
3.2
|
|
38,885
|
|
30.9
|
Real estate
construction and land development:
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
85,547
|
|
2.2
|
|
90,081
|
|
2.3
|
|
(4,534)
|
|
(5.0)
|
Commercial and
multifamily
|
141,336
|
|
3.7
|
|
205,516
|
|
5.2
|
|
(64,180)
|
|
(31.2)
|
Total real estate
construction and land development
|
226,883
|
|
5.9
|
|
295,597
|
|
7.5
|
|
(68,714)
|
|
(23.2)
|
Consumer
|
232,541
|
|
6.1
|
|
245,555
|
|
6.2
|
|
(13,014)
|
|
(5.3)
|
Loans
receivable
|
3,815,662
|
|
100.0 %
|
|
3,953,884
|
|
100.0 %
|
|
(138,222)
|
|
(3.5)
|
Allowance for credit
losses on loans
|
(42,361)
|
|
|
|
(48,317)
|
|
|
|
5,956
|
|
(12.3)
|
Loans receivable,
net
|
$
3,773,301
|
|
|
|
$
3,905,567
|
|
|
|
$
(132,266)
|
|
(3.4) %
|
The Company generated strong loan production with outstanding
balances of $222.2 million during the
fourth quarter of 2021 as compared to $195.5
million in the third quarter of 2021. Loan repayments for
the fourth and third quarters of 2021, exclusive of SBA PPP loans,
were $242.9 million and $164.5 million, respectively, with an overall
decline in outstanding balances of $138.2
million in the fourth quarter of 2021. The increase in
commercial real estate ("CRE") loans included the transfer of
several completed projects from real estate construction and land
development loans.
Total deposits increased at an annualized rate of 10.6% from
September 30, 2021. The following table summarizes the
Company's total deposits at the dates indicated:
|
December 31,
2021
|
|
September 30,
2021
|
|
Change
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Amount
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
thousands)
|
Noninterest demand
deposits
|
$
2,330,956
|
|
36.5 %
|
|
$
2,299,248
|
|
37.0 %
|
|
$
31,708
|
|
1.4 %
|
Interest bearing
demand deposits
|
1,946,605
|
|
30.5
|
|
1,870,618
|
|
30.1
|
|
75,987
|
|
4.1
|
Money market
accounts
|
1,120,174
|
|
17.6
|
|
1,072,427
|
|
17.3
|
|
47,747
|
|
4.5
|
Savings
accounts
|
640,763
|
|
10.0
|
|
617,469
|
|
9.9
|
|
23,294
|
|
3.8
|
Total non-maturity
deposits
|
6,038,498
|
|
94.6
|
|
5,859,762
|
|
94.3
|
|
178,736
|
|
3.1
|
Certificates of
deposit
|
342,839
|
|
5.4
|
|
355,796
|
|
5.7
|
|
(12,957)
|
|
(3.6)
|
Total
deposits
|
$
6,381,337
|
|
100.0 %
|
|
$
6,215,558
|
|
100.0 %
|
|
$
165,779
|
|
2.7 %
|
During the fourth quarter of 2021, the Company repurchased
$1.5 million, or 63,884 shares of its
common stock, under the current repurchase plan, at a weighted
average price per share of $23.02, as
compared to the repurchase of $20.6
million, or 841,088 shares of its common stock, at a
weighted average price per share of $24.54 during the third quarter of 2021.
Repurchases under the current repurchase plan for the year ended
2021 totaled $22.1 million, or
904,972 shares of common stock, at a weighted average price per
share of $24.43 and represented
approximately 2.5% of common stock outstanding at December 31, 2020. As of December 31, 2021,
there were 738,304 shares available for repurchase under the
current repurchase plan.
The Company and Heritage Bank continue to maintain capital
levels in excess of the applicable regulatory requirements for them
both to be categorized as "well-capitalized". The following table
summarizes capital ratios for the Company at the dates
indicated:
|
December
31,
2021
|
|
September
30,
2021
|
|
Change
|
Capital
Ratios:
|
|
|
|
|
|
Stockholders' equity
to total assets
|
11.5%
|
|
11.7%
|
|
(0.2)%
|
Tangible common
equity to tangible assets (1)
|
8.4
|
|
8.5
|
|
(0.1)
|
Common equity Tier 1
capital to risk-weighted assets (2)
|
13.5
|
|
13.3
|
|
0.2
|
Tier 1 leverage
capital to average quarterly assets (2)
|
8.7
|
|
8.8
|
|
(0.1)
|
Tier 1 capital to
risk-weighted assets (2)
|
13.9
|
|
13.8
|
|
0.1
|
Total capital to
risk-weighted assets (2)
|
14.8
|
|
14.8
|
|
—
|
(1) See
Non-GAAP Financial Measures section herein.
|
(2) Current
quarter ratios are estimates pending completion and filing of the
Company's regulatory reports.
|
Allowance for Credit Losses and Provision for Credit
Losses
The following table provides detail on the changes in the
allowance for credit losses ("ACL") on loans and the ACL on
unfunded commitments ("Unfunded") and the related (reversal of)
provision for credit losses for the periods indicated:
|
As of or for the
Quarter Ended
|
|
December 31,
2021
|
|
September 30,
2021
|
|
December 31,
2020
|
|
ACL on
Loans
|
|
ACL on
Unfunded
|
|
Total
|
|
ACL on
Loans
|
|
ACL on
Unfunded
|
|
Total
|
|
ACL on
Loans
|
|
ACL on
Unfunded
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
thousands)
|
Balance, beginning
of
period
|
$ 48,317
|
|
$
2,154
|
|
$ 50,471
|
|
$ 51,562
|
|
$
2,451
|
|
$ 54,013
|
|
$ 73,340
|
|
$
5,022
|
|
$ 78,362
|
(Reversal of)
provision
for
credit losses
|
(5,490)
|
|
453
|
|
(5,037)
|
|
(2,852)
|
|
(297)
|
|
(3,149)
|
|
(2,792)
|
|
(341)
|
|
(3,133)
|
Net
charge-offs
|
(466)
|
|
—
|
|
(466)
|
|
(393)
|
|
—
|
|
(393)
|
|
(363)
|
|
—
|
|
(363)
|
Balance, end of
period
|
$ 42,361
|
|
$
2,607
|
|
$ 44,968
|
|
$ 48,317
|
|
$
2,154
|
|
$ 50,471
|
|
$ 70,185
|
|
$
4,681
|
|
$ 74,866
|
The ACL on loans decreased compared to September 30, 2021
due primarily to continued improvement in forecasted economic
indicators used to calculate credit losses as well as changes in
the loan mix.
Credit Quality
Nonperforming assets decreased to 0.32% of total assets at
December 31, 2021 compared to 0.36% of total assets at
September 30, 2021. Nonperforming assets at both
December 31, 2021 and September 30, 2021 consisted only
of nonaccrual loans. Changes in nonaccrual loans during the periods
indicated were as follows:
|
Quarter
Ended
|
|
December
31,
2021
|
|
September
30,
2021
|
|
December
31,
2020
|
|
|
|
(In
thousands)
|
|
|
Balance, beginning of
period
|
$
25,894
|
|
$
35,341
|
|
$
52,604
|
Additions to
nonaccrual loan classification
|
333
|
|
293
|
|
8,345
|
Net principal payments
and transfers to accruing status
|
(1,435)
|
|
(8,139)
|
|
(2,186)
|
Payoffs
|
(540)
|
|
(911)
|
|
(82)
|
Charge-offs
|
(498)
|
|
(690)
|
|
(589)
|
Balance, end of
period
|
$
23,754
|
|
$
25,894
|
|
$
58,092
|
Net Interest Income and Net Interest Margin
Net interest income decreased $3.5
million, or 6.8%, for the fourth quarter of 2021 compared to
the third quarter of 2021 due primarily to a decrease in deferred
SBA PPP loan fees recognized due to a decrease in the volume of
forgiven SBA PPP loans.
Net interest income decreased $4.5
million, or 8.7%, compared to the fourth quarter of 2020
also due to the decrease in deferred SBA PPP loan fees recognized
as well as lower loan yield. The decrease in net interest income
was offset partially by a higher average balance of taxable
securities and other interest earning deposits in addition to a
lower cost of deposits reflecting a continued decrease in rates on
deposit accounts due to the ongoing low-rate environment.
The following table presents the loan yield and the impact of
SBA PPP loans and the incremental accretion on purchased loans on
this financial measure for the periods presented below:
|
Quarter
Ended
|
|
December
31,
2021
|
|
September
30,
2021
|
|
December
31,
2020
|
Loan yield
(GAAP)
|
4.42
|
%
|
|
4.64
|
%
|
|
4.39
|
%
|
Exclude impact from
SBA PPP loans
|
(0.29)
|
|
|
(0.38)
|
|
|
0.02
|
|
Exclude impact from
incremental accretion on purchased loans
|
(0.05)
|
|
|
(0.07)
|
|
|
(0.07)
|
|
Loan yield, excluding
SBA PPP loans and incremental accretion on
purchased loans
(non-GAAP) (1)
|
4.08
|
%
|
|
4.19
|
%
|
|
4.34
|
%
|
(1) See
Non-GAAP Financial Measures section.
|
Net interest margin decreased to 2.85% for the fourth quarter of
2021 as compared to 3.15% for the third quarter of 2021 due
primarily to lower loan yield and an increase in the balance of
lower yielding average interest earning deposits.
Net interest margin decreased from 3.53% for the fourth quarter
of 2020 due primarily to the change in the mix of total interest
earning assets, including an increase in the balance of lower
yielding average interest earning deposits.
Noninterest Income
The following table presents the key components of noninterest
income and the change for the periods indicated:
|
Quarter
Ended
|
|
Quarter Over
Quarter Change
|
|
Prior Year
Quarter Change
|
|
December
31,
2021
|
|
September
30,
2021
|
|
December
31,
2020
|
|
Change
|
|
%
Change
|
|
Change
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in
thousands)
|
|
|
|
|
|
|
|
|
Service charges and
other fees
|
$
4,609
|
|
$
4,566
|
|
$
4,213
|
|
$
43
|
|
0.9 %
|
|
$
396
|
|
9.4 %
|
Gain on sale of
investment
securities, net
|
—
|
|
—
|
|
55
|
|
—
|
|
—
|
|
(55)
|
|
(100.0)
|
Gain on sale of
loans, net
|
506
|
|
765
|
|
1,919
|
|
(259)
|
|
(33.9)
|
|
(1,413)
|
|
(73.6)
|
Interest rate swap
fees
|
174
|
|
126
|
|
230
|
|
48
|
|
38.1
|
|
(56)
|
|
(24.3)
|
Bank owned life
insurance
income
|
500
|
|
647
|
|
1,880
|
|
(147)
|
|
(22.7)
|
|
(1,380)
|
|
(73.4)
|
Gain on sale of other
assets, net
|
2,717
|
|
942
|
|
921
|
|
1,775
|
|
188.4
|
|
1,796
|
|
195.0
|
Other
income
|
1,333
|
|
1,182
|
|
2,067
|
|
151
|
|
12.8
|
|
(734)
|
|
(35.5)
|
Total noninterest
income
|
$
9,839
|
|
$
8,228
|
|
$
11,285
|
|
$
1,611
|
|
19.6 %
|
|
$ (1,446)
|
|
(12.8) %
|
Noninterest income increased during the fourth quarter of 2021
compared to the third quarter of 2021 due primarily to a gain of
$2.7 million related to the sale and
leaseback of the Company's headquarters in Olympia, WA included in gain on sale of other
assets.
Noninterest income decreased from the same period in 2020 due
primarily to reduced gain on sale of loans, net as sales volume of
secondary market mortgage loans declined and less bank owned life
insurance income and other income as the fourth quarter of 2020
included the recognition of a death benefit of $1.2 million and a termination fee of
$651,000 from the divestiture of our
trust department. The decrease in noninterest income was offset
partially by an increase in gain on sale of other assets due to the
gain on sale of the Company's headquarters discussed above.
Noninterest Expense
The following table presents the key components of noninterest
expense and the change for the periods indicated:
|
Quarter
Ended
|
|
Quarter Over
Quarter Change
|
|
Prior Year
Quarter Change
|
|
December
31,
2021
|
|
September
30,
2021
|
|
December
31,
2020
|
|
Change
|
|
%
Change
|
|
Change
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in
thousands)
|
|
|
|
|
|
|
|
|
Compensation and
employee
benefits
|
$
23,155
|
|
$
22,176
|
|
$
22,257
|
|
$
979
|
|
4.4 %
|
|
$
898
|
|
4.0 %
|
Occupancy and
equipment
|
4,325
|
|
4,373
|
|
4,364
|
|
(48)
|
|
(1.1)
|
|
(39)
|
|
(0.9)
|
Data
processing
|
4,694
|
|
4,029
|
|
3,714
|
|
665
|
|
16.5
|
|
980
|
|
26.4
|
Marketing
|
703
|
|
775
|
|
783
|
|
(72)
|
|
(9.3)
|
|
(80)
|
|
(10.2)
|
Professional
services
|
816
|
|
816
|
|
1,289
|
|
—
|
|
—
|
|
(473)
|
|
(36.7)
|
State/municipal
business and
use tax
|
850
|
|
1,071
|
|
1,128
|
|
(221)
|
|
(20.6)
|
|
(278)
|
|
(24.6)
|
Federal deposit
insurance premium
|
628
|
|
550
|
|
703
|
|
78
|
|
14.2
|
|
(75)
|
|
(10.7)
|
Amortization of
intangible assets
|
759
|
|
758
|
|
859
|
|
1
|
|
0.1
|
|
(100)
|
|
(11.6)
|
Other
expense
|
2,535
|
|
2,618
|
|
3,465
|
|
(83)
|
|
(3.2)
|
|
(930)
|
|
(26.8)
|
Total noninterest
expense
|
$
38,465
|
|
$
37,166
|
|
$
38,562
|
|
$
1,299
|
|
3.5 %
|
|
$
(97)
|
|
(0.3) %
|
Noninterest expense increased from the third quarter of 2021 due
primarily to an increase in compensation and employee benefits as a
result of severance payments following a strategic reduction in
force and an increase in accrual for incentive payments.
Additionally, data processing increased as the Bank continues to
invest in technology.
Noninterest expense remained relatively constant compared to the
fourth quarter of 2020. However, there was a decrease in expenses
related to branch consolidations recognized during the fourth
quarter of 2020, predominately within other expense, offset
partially by increases in compensation and employee benefits and
data processing for the same reasons discussed above.
Income Tax Expense
The following table presents the income tax expense and related
metrics and the change for the periods indicated:
|
Quarter
Ended
|
|
Quarter Over
Quarter Change
|
|
Prior Year
Quarter Change
|
|
December
31,
2021
|
|
September
30,
2021
|
|
December
31,
2020
|
|
Change
|
|
%
Change
|
|
Change
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in
thousands)
|
|
|
|
|
|
|
|
|
Income before income
taxes
|
$
24,319
|
|
$
25,589
|
|
$
28,311
|
|
$ (1,270)
|
|
(5.0) %
|
|
$ (3,992)
|
|
(14.1) %
|
Income tax
expense
|
$
4,922
|
|
$
4,997
|
|
$
4,429
|
|
$
(75)
|
|
(1.5) %
|
|
$
493
|
|
11.1
%
|
Effective income tax
rate
|
20.2 %
|
|
19.5 %
|
|
15.6 %
|
|
0.7 %
|
|
3.6 %
|
|
4.6 %
|
|
29.5 %
|
Income tax expense decreased for the fourth quarter of 2021
compared to the third quarter of 2021 and increased compared to the
same period in 2020 primarily reflecting the change in income
before income taxes earned between the periods. Additionally, the
effective income tax rate increased between the same periods due
primarily to an increase in annual pre-tax income for the year
ended 2021, 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.
Dividend
On January 26, 2022, the Company's Board of Directors
declared a quarterly cash dividend of $0.21 per share. The dividend is payable on
February 23, 2022 to shareholders of record as of the close of
business on February 9, 2022.
Earnings Conference Call
The Company will hold a telephone conference call to discuss
this earnings release on January 27,
2022 at 11:00 a.m. Pacific
time. To access the call, please dial (844) 200-6205 --
access code 09084 a few minutes prior to 11:00 a.m. Pacific time. The call will be
available for replay through February 3,
2022 by dialing (866) 813-9403 -- access code 668648.
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 branch network
of 49 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.
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 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 2022 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,
2021
|
|
September
30,
2021
|
|
December
31,
2020
|
Assets
|
|
|
|
|
|
Cash on hand and in
banks
|
$
61,377
|
|
$
86,954
|
|
$
91,918
|
Interest earning
deposits
|
1,661,915
|
|
1,547,785
|
|
651,404
|
Cash and cash
equivalents
|
1,723,292
|
|
1,634,739
|
|
743,322
|
Investment securities
available for sale, at fair value (amortized cost of
$883,832, $744,336 and $770,195, respectively)
|
894,335
|
|
761,526
|
|
802,163
|
Investment securities
held to maturity, at amortized cost (fair value of
$376,330, $307,330 and $0, respectively)
|
383,393
|
|
311,074
|
|
—
|
Total investment
securities
|
1,277,728
|
|
1,072,600
|
|
802,163
|
Loans held for
sale
|
1,476
|
|
2,636
|
|
4,932
|
Loans
receivable
|
3,815,662
|
|
3,953,884
|
|
4,468,647
|
Allowance for credit
losses on loans
|
(42,361)
|
|
(48,317)
|
|
(70,185)
|
Loans receivable,
net
|
3,773,301
|
|
3,905,567
|
|
4,398,462
|
Other real estate
owned
|
—
|
|
—
|
|
—
|
Premises and
equipment, net
|
79,370
|
|
79,958
|
|
85,452
|
Federal Home Loan
Bank ("FHLB") stock, at cost
|
7,933
|
|
7,933
|
|
6,661
|
Bank owned life
insurance
|
120,196
|
|
109,634
|
|
107,580
|
Accrued interest
receivable
|
14,657
|
|
14,802
|
|
19,418
|
Prepaid expenses and
other assets
|
183,543
|
|
179,494
|
|
193,301
|
Other intangible
assets, net
|
9,977
|
|
10,736
|
|
13,088
|
Goodwill
|
240,939
|
|
240,939
|
|
240,939
|
Total
assets
|
$
7,432,412
|
|
$
7,259,038
|
|
$
6,615,318
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
Deposits
|
$
6,381,337
|
|
$
6,215,558
|
|
$
5,597,990
|
Junior subordinated
debentures
|
21,180
|
|
21,107
|
|
20,887
|
Securities sold under
agreement to repurchase
|
50,839
|
|
44,096
|
|
35,683
|
Accrued expenses and
other liabilities
|
124,624
|
|
129,873
|
|
140,319
|
Total
liabilities
|
6,577,980
|
|
6,410,634
|
|
5,794,879
|
|
|
|
|
|
|
Common
stock
|
551,798
|
|
552,385
|
|
571,021
|
Retained
earnings
|
293,238
|
|
281,285
|
|
224,400
|
Accumulated other
comprehensive income, net
|
9,396
|
|
14,734
|
|
25,018
|
Total stockholders'
equity
|
854,432
|
|
848,404
|
|
820,439
|
Total liabilities and
stockholders' equity
|
$
7,432,412
|
|
$
7,259,038
|
|
$
6,615,318
|
|
|
|
|
|
|
Shares
outstanding
|
35,105,779
|
|
35,166,599
|
|
35,912,243
|
HERITAGE FINANCIAL
CORPORATION
|
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
|
(Dollar amounts in
thousands, except per share amounts)
|
|
|
Quarter
Ended
|
|
Year
Ended
|
|
December
31,
2021
|
|
September
30,
2021
|
|
December
31,
2020
|
|
December
31,
2021
|
|
December
31,
2020
|
Interest
Income
|
|
|
|
|
|
|
|
|
|
Interest and fees on
loans
|
$
42,695
|
|
$
46,863
|
|
$
50,089
|
|
$
189,832
|
|
$
192,417
|
Taxable interest on
investment securities
|
5,197
|
|
4,711
|
|
3,473
|
|
17,492
|
|
17,541
|
Nontaxable interest
on investment
securities
|
1,063
|
|
931
|
|
973
|
|
3,899
|
|
3,659
|
Interest on interest
earning deposits
|
633
|
|
537
|
|
142
|
|
1,608
|
|
703
|
Total interest
income
|
49,588
|
|
53,042
|
|
54,677
|
|
212,831
|
|
214,320
|
Interest
Expense
|
|
|
|
|
|
|
|
|
|
Deposits
|
1,464
|
|
1,444
|
|
1,993
|
|
6,160
|
|
12,265
|
Junior subordinated
debentures
|
185
|
|
184
|
|
191
|
|
742
|
|
890
|
Other
borrowings
|
31
|
|
36
|
|
38
|
|
140
|
|
168
|
Total interest
expense
|
1,680
|
|
1,664
|
|
2,222
|
|
7,042
|
|
13,323
|
Net interest
income
|
47,908
|
|
51,378
|
|
52,455
|
|
205,789
|
|
200,997
|
(Reversal of)
provision for credit losses
|
(5,037)
|
|
(3,149)
|
|
(3,133)
|
|
(29,372)
|
|
36,106
|
Net interest income
after (reversal
of) provision for credit losses
|
52,945
|
|
54,527
|
|
55,588
|
|
235,161
|
|
164,891
|
Noninterest
Income
|
|
|
|
|
|
|
|
|
|
Service charges and
other fees
|
4,609
|
|
4,566
|
|
4,213
|
|
17,597
|
|
16,228
|
Gain on sale of
investment securities,
net
|
—
|
|
—
|
|
55
|
|
29
|
|
1,518
|
Gain on sale of
loans, net
|
506
|
|
765
|
|
1,919
|
|
3,644
|
|
5,044
|
Interest rate swap
fees
|
174
|
|
126
|
|
230
|
|
661
|
|
1,691
|
Bank owned life
insurance income
|
500
|
|
647
|
|
1,880
|
|
2,520
|
|
4,319
|
Gain on sale of other
assets, net
|
2,717
|
|
942
|
|
921
|
|
4,405
|
|
955
|
Other
income
|
1,333
|
|
1,182
|
|
2,067
|
|
5,759
|
|
7,474
|
Total noninterest
income
|
9,839
|
|
8,228
|
|
11,285
|
|
34,615
|
|
37,229
|
Noninterest
Expense
|
|
|
|
|
|
|
|
|
|
Compensation and
employee benefits
|
23,155
|
|
22,176
|
|
22,257
|
|
89,880
|
|
88,106
|
Occupancy and
equipment
|
4,325
|
|
4,373
|
|
4,364
|
|
17,243
|
|
17,611
|
Data
processing
|
4,694
|
|
4,029
|
|
3,714
|
|
16,533
|
|
14,449
|
Marketing
|
703
|
|
775
|
|
783
|
|
3,039
|
|
3,100
|
Professional
services
|
816
|
|
816
|
|
1,289
|
|
4,065
|
|
5,921
|
State/municipal
business and use taxes
|
850
|
|
1,071
|
|
1,128
|
|
3,884
|
|
3,754
|
Federal deposit
insurance premium
|
628
|
|
550
|
|
703
|
|
2,106
|
|
1,789
|
Other real estate
owned, net
|
—
|
|
—
|
|
—
|
|
—
|
|
(145)
|
Amortization of
intangible assets
|
759
|
|
758
|
|
859
|
|
3,111
|
|
3,525
|
Other
expense
|
2,535
|
|
2,618
|
|
3,465
|
|
9,408
|
|
10,830
|
Total noninterest
expense
|
38,465
|
|
37,166
|
|
38,562
|
|
149,269
|
|
148,940
|
Income before income
taxes
|
24,319
|
|
25,589
|
|
28,311
|
|
120,507
|
|
53,180
|
Income tax
expense
|
4,922
|
|
4,997
|
|
4,429
|
|
22,472
|
|
6,610
|
Net income
|
$
19,397
|
|
$
20,592
|
|
$
23,882
|
|
$
98,035
|
|
$
46,570
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$
0.56
|
|
$
0.58
|
|
$
0.66
|
|
$
2.75
|
|
$
1.29
|
Diluted earnings per
share
|
$
0.55
|
|
$
0.58
|
|
$
0.66
|
|
$
2.73
|
|
$
1.29
|
Dividends declared
per share
|
$
0.21
|
|
$
0.20
|
|
$
0.20
|
|
$
0.81
|
|
$
0.80
|
Average shares
outstanding - basic
|
35,154,382
|
|
35,644,192
|
|
35,910,430
|
|
35,677,851
|
|
36,014,445
|
Average shares
outstanding - diluted
|
35,439,998
|
|
35,929,518
|
|
36,188,579
|
|
35,973,386
|
|
36,170,066
|
HERITAGE FINANCIAL
CORPORATION
|
FINANCIAL
STATISTICS (Unaudited)
|
(Dollar amounts in
thousands, except per share amounts)
|
|
Nonperforming
Assets and Credit Quality Metrics:
|
|
|
Quarter
Ended
|
|
Year
Ended
|
|
|
December
31,
2021
|
|
September
30,
2021
|
|
December
31,
2020
|
|
December
31,
2021
|
|
December
31,
2020
|
|
|
|
|
|
|
|
|
|
|
Allowance for
Credit Losses on Loans:
|
Balance, beginning of
period
|
$
48,317
|
|
|
$
51,562
|
|
|
$
73,340
|
|
|
$
70,185
|
|
|
$
36,171
|
|
Impact of CECL
adoption
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,822
|
|
Adjusted balance,
beginning of period
|
48,317
|
|
|
51,562
|
|
|
73,340
|
|
|
70,185
|
|
|
37,993
|
|
(Reversal of)
provision for credit
losses on
loans
|
(5,490)
|
|
|
(2,852)
|
|
|
(2,792)
|
|
|
(27,298)
|
|
|
35,433
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
Commercial
business
|
(519)
|
|
|
(743)
|
|
|
(198)
|
|
|
(1,276)
|
|
|
(3,751)
|
|
Real estate
construction and land
development
|
—
|
|
|
—
|
|
|
(417)
|
|
|
(1)
|
|
|
(417)
|
|
Consumer
|
(160)
|
|
|
(204)
|
|
|
(313)
|
|
|
(669)
|
|
|
(1,454)
|
|
Total
charge-offs
|
(679)
|
|
|
(947)
|
|
|
(928)
|
|
|
(1,946)
|
|
|
(5,622)
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
Commercial
business
|
81
|
|
|
385
|
|
|
310
|
|
|
816
|
|
|
1,530
|
|
Residential real
estate
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Real estate
construction and land
development
|
4
|
|
|
8
|
|
|
118
|
|
|
32
|
|
|
278
|
|
Consumer
|
128
|
|
|
161
|
|
|
137
|
|
|
572
|
|
|
570
|
|
Total
recoveries
|
213
|
|
|
554
|
|
|
565
|
|
|
1,420
|
|
|
2,381
|
|
Net
charge-offs
|
(466)
|
|
|
(393)
|
|
|
(363)
|
|
|
(526)
|
|
|
(3,241)
|
|
Balance, end of
period
|
$
42,361
|
|
|
$
48,317
|
|
|
$
70,185
|
|
|
$
42,361
|
|
|
$
70,185
|
|
Net charge-offs on
loans to average
loans,
annualized
|
0.05
|
%
|
|
0.04%
|
|
|
0.03%
|
|
|
0.01%
|
|
|
0.07%
|
|
|
December
31,
2021
|
|
September
30,
2021
|
|
December
31,
2020
|
Nonperforming
Assets:
|
|
|
|
|
|
Nonaccrual
loans:
|
|
|
|
|
|
Commercial
business
|
$
23,107
|
|
|
$
25,243
|
|
|
$
56,786
|
|
Residential real
estate
|
47
|
|
|
51
|
|
|
184
|
|
Real estate
construction and land development
|
571
|
|
|
571
|
|
|
1,022
|
|
Consumer
|
29
|
|
|
29
|
|
|
100
|
|
Total nonaccrual
loans
|
23,754
|
|
|
25,894
|
|
|
58,092
|
|
Other real estate
owned
|
—
|
|
|
—
|
|
|
—
|
|
Nonperforming
assets
|
$
23,754
|
|
|
$
25,894
|
|
|
$
58,092
|
|
|
|
|
|
|
|
|
|
Restructured
performing loans
|
$
59,110
|
|
|
$
60,684
|
|
|
$
52,872
|
|
Accruing loans past
due 90 days or more
|
293
|
|
|
—
|
|
|
—
|
|
ACL on loans
to:
|
|
|
|
|
|
|
Loans
receivable
|
1.11%
|
|
|
1.22%
|
|
|
1.57%
|
|
Loans receivable,
excluding SBA PPP loans (1)
|
1.15%
|
|
|
1.31%
|
|
|
1.87%
|
|
Nonaccrual
loans
|
178.33%
|
|
|
186.60%
|
|
|
120.82%
|
|
Nonperforming loans
to loans receivable
|
0.62%
|
|
|
0.65%
|
|
|
1.30%
|
|
Nonperforming assets
to total assets
|
0.32%
|
|
|
0.36%
|
|
|
0.88%
|
|
(1) See
Non-GAAP Financial Measures section herein.
|
Average Balances,
Yields, and Rates Paid:
|
|
|
Quarter
Ended
|
|
December 31,
2021
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Average
Balance
|
|
Interest
Earned/
Paid
|
|
Average
Yield/
Rate (1)
|
|
Average
Balance
|
|
Interest
Earned/
Paid
|
|
Average
Yield/
Rate (1)
|
|
Average
Balance
|
|
Interest
Earned/
Paid
|
|
Average
Yield/
Rate (1)
|
Interest Earning
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
(2)(3)
|
$
3,836,029
|
|
$ 42,695
|
|
4.42
|
%
|
|
$
4,005,585
|
|
$ 46,863
|
|
4.64
%
|
|
$
4,540,962
|
|
$ 50,089
|
|
4.39
%
|
Taxable
securities
|
1,016,629
|
|
5,197
|
|
2.03
|
|
|
893,374
|
|
4,711
|
|
2.09
|
|
|
649,287
|
|
3,473
|
|
2.13
|
|
Nontaxable securities
(3)
|
153,686
|
|
1,063
|
|
2.74
|
|
|
157,907
|
|
931
|
|
2.34
|
|
|
164,025
|
|
973
|
|
2.36
|
|
Interest earning
deposits
|
1,665,640
|
|
633
|
|
0.15
|
|
|
1,417,661
|
|
537
|
|
0.15
|
|
|
559,491
|
|
142
|
|
0.10
|
|
Total interest earning
assets
|
6,671,984
|
|
49,588
|
|
2.95
%
|
|
6,474,527
|
|
53,042
|
|
3.25
%
|
|
5,913,765
|
|
54,677
|
|
3.68
%
|
Noninterest earning
assets
|
731,613
|
|
|
|
|
|
740,433
|
|
|
|
|
|
761,712
|
|
|
|
|
Total
assets
|
$
7,403,597
|
|
|
|
|
|
$
7,214,960
|
|
|
|
|
|
6,675,477
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
349,708
|
|
$
364
|
|
0.41
%
|
|
$
365,278
|
|
$
407
|
|
0.44
%
|
|
$
421,633
|
|
$
720
|
|
0.68
%
|
Savings
accounts
|
631,531
|
|
93
|
|
0.06
|
|
|
609,818
|
|
90
|
|
0.06
|
|
|
532,301
|
|
106
|
|
0.08
|
|
Interest bearing
demand and money market accounts
|
2,996,482
|
|
1,007
|
|
0.13
|
|
|
2,881,567
|
|
947
|
|
0.13
|
|
|
2,680,084
|
|
1,167
|
|
0.17
|
|
Total interest bearing
deposits
|
3,977,721
|
|
1,464
|
|
0.15
|
|
|
3,856,663
|
|
1,444
|
|
0.15
|
|
|
3,634,018
|
|
1,993
|
|
0.22
|
|
Junior subordinated
debentures
|
21,140
|
|
185
|
|
3.47
|
|
|
21,060
|
|
184
|
|
3.47
|
|
|
20,840
|
|
191
|
|
3.65
|
|
Securities sold under
agreement to repurchase
|
46,942
|
|
31
|
|
0.26
|
|
|
52,197
|
|
36
|
|
0.27
|
|
|
35,278
|
|
38
|
|
0.43
|
|
Total interest bearing
liabilities
|
4,045,803
|
|
1,680
|
|
0.16
%
|
|
3,929,920
|
|
1,664
|
|
0.17
%
|
|
3,690,136
|
|
2,222
|
|
0.24
%
|
Noninterest demand
deposits
|
2,383,651
|
|
|
|
|
|
2,300,795
|
|
|
|
|
|
2,034,425
|
|
|
|
|
Other noninterest
bearing liabilities
|
124,760
|
|
|
|
|
|
128,537
|
|
|
|
|
|
141,917
|
|
|
|
|
Stockholders'
equity
|
849,383
|
|
|
|
|
|
855,708
|
|
|
|
|
|
808,999
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$
7,403,597
|
|
|
|
|
|
$
7,214,960
|
|
|
|
|
|
$
6,675,477
|
|
|
|
|
Net interest and
spread
|
|
|
$ 47,908
|
|
2.79
%
|
|
|
|
$ 51,378
|
|
3.08
%
|
|
|
|
$ 52,455
|
|
3.44
%
|
Net interest
margin
|
|
|
|
|
2.85
%
|
|
|
|
|
|
3.15
%
|
|
|
|
|
|
3.53
%
|
(1) Annualized;
average balances are calculated using daily balances.
|
(2) Average
loan receivable, net includes loans held for sale and loans
classified as nonaccrual, which carry a zero yield. Interest
earned on loans receivable, net includes the amortization of net
deferred loan fees of $5.2 million, $7.8 million and $6.9 million
for
the fourth quarter of 2021, third quarter of 2021 and fourth
quarter of 2020, respectively.
|
(3)
Yields on tax-exempt loans and securities have not been stated on a
tax-equivalent basis.
|
|
Year
Ended
|
|
December 31,
2021
|
|
December 31,
2020
|
|
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)
|
$
4,181,464
|
|
$ 189,832
|
|
4.54
|
%
|
|
$
4,335,564
|
|
$ 192,417
|
|
4.44
|
%
|
Taxable
securities
|
846,892
|
|
17,492
|
|
2.07
|
|
|
731,378
|
|
17,541
|
|
2.40
|
|
Nontaxable securities
(3)
|
158,968
|
|
3,899
|
|
2.45
|
|
|
152,447
|
|
3,659
|
|
2.40
|
|
Interest earning
deposits
|
1,193,724
|
|
1,608
|
|
0.13
|
|
|
315,847
|
|
703
|
|
0.22
|
|
Total interest earning
assets
|
6,381,048
|
|
212,831
|
|
3.34
|
%
|
|
5,535,236
|
|
214,320
|
|
3.87
|
%
|
Noninterest earning
assets
|
745,202
|
|
|
|
|
|
758,386
|
|
|
|
|
Total
assets
|
$
7,126,250
|
|
|
|
|
|
$
6,293,622
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
372,279
|
|
$
1,811
|
|
0.49
|
%
|
|
$
482,316
|
|
$
5,675
|
|
1.18
|
%
|
Savings
accounts
|
598,492
|
|
367
|
|
0.06
|
|
|
489,471
|
|
526
|
|
0.11
|
|
Interest bearing
demand and money market accounts
|
2,862,504
|
|
3,982
|
|
0.14
|
|
|
2,491,477
|
|
6,064
|
|
0.24
|
|
Total interest bearing
deposits
|
3,833,275
|
|
6,160
|
|
0.16
|
|
|
3,463,264
|
|
12,265
|
|
0.35
|
|
Junior subordinated
debentures
|
21,025
|
|
742
|
|
3.53
|
|
|
20,730
|
|
890
|
|
4.29
|
|
Securities sold under
agreement to repurchase
|
45,655
|
|
140
|
|
0.31
|
|
|
27,805
|
|
160
|
|
0.58
|
|
FHLB advances and
other borrowings
|
—
|
|
—
|
|
—
|
|
|
1,466
|
|
8
|
|
0.55
|
|
Total interest bearing
liabilities
|
3,899,955
|
|
7,042
|
|
0.18
|
%
|
|
3,513,265
|
|
13,323
|
|
0.38
|
%
|
Noninterest demand
deposits
|
2,256,608
|
|
|
|
|
|
1,835,165
|
|
|
|
|
Other noninterest
bearing liabilities
|
127,620
|
|
|
|
|
|
139,612
|
|
|
|
|
Stockholders'
equity
|
842,067
|
|
|
|
|
|
805,580
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$
7,126,250
|
|
|
|
|
|
$
6,293,622
|
|
|
|
|
Net interest income
and spread
|
|
|
$ 205,789
|
|
3.16
|
%
|
|
|
|
$ 200,997
|
|
3.49
|
%
|
Net interest
margin
|
|
|
|
|
3.23
|
%
|
|
|
|
|
|
3.63
|
%
|
(1)
Average balances are calculated using daily balances.
|
(2) Average
loan receivable, net includes loans held for sale and loans
classified as nonaccrual, which carry a zero yield.
Interest
|
|
earned
on loans receivable, net includes the amortization of net deferred
loan fees of $28.4 million and $14.4 million for the
years
ended
2021 and 2020, respectively.
|
(3)
Yields on tax-exempt loans and securities have not been stated on a
tax-equivalent basis.
|
HERITAGE FINANCIAL
CORPORATION
|
|
QUARTERLY
FINANCIAL STATISTICS (Unaudited)
|
|
(Dollar amounts in
thousands, except per share amounts)
|
|
|
|
|
Quarter
Ended
|
|
|
December
31,
2021
|
|
September
30,
2021
|
|
June 30,
2021
|
|
March 31,
2021
|
|
December
31,
2020
|
|
Earnings:
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
$
47,908
|
|
$
51,378
|
|
$
54,265
|
|
$
52,238
|
|
$
52,455
|
|
(Reversal of)
provision for credit losses
|
(5,037)
|
|
(3,149)
|
|
(13,987)
|
|
(7,199)
|
|
(3,133)
|
|
Noninterest
income
|
9,839
|
|
8,228
|
|
8,297
|
|
8,251
|
|
11,285
|
|
Noninterest
expense
|
38,465
|
|
37,166
|
|
36,396
|
|
37,242
|
|
38,562
|
|
Net income
|
19,397
|
|
20,592
|
|
32,702
|
|
25,344
|
|
23,882
|
|
Pre-tax,
pre-provision net income (3)
|
19,282
|
|
22,440
|
|
26,166
|
|
23,247
|
|
25,178
|
|
Basic earnings per
share
|
$
0.56
|
|
$
0.58
|
|
$
0.91
|
|
$
0.70
|
|
$
0.66
|
|
Diluted earnings per
share
|
$
0.55
|
|
$
0.58
|
|
$
0.90
|
|
$
0.70
|
|
$
0.66
|
|
Average
Balances:
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
(1)
|
$
3,836,029
|
|
$
4,005,585
|
|
$
4,402,868
|
|
$
4,490,499
|
|
$
4,540,962
|
|
Total investment
securities
|
1,170,315
|
|
1,051,281
|
|
959,512
|
|
838,182
|
|
813,312
|
|
Total interest
earning assets
|
6,671,984
|
|
6,474,527
|
|
6,327,171
|
|
6,042,566
|
|
5,913,765
|
|
Total
assets
|
7,403,597
|
|
7,214,960
|
|
7,079,205
|
|
6,799,625
|
|
6,675,477
|
|
Total interest
bearing deposits
|
3,977,721
|
|
3,856,663
|
|
3,809,750
|
|
3,685,496
|
|
3,634,018
|
|
Total noninterest
demand deposits
|
2,383,651
|
|
2,300,795
|
|
2,246,929
|
|
2,091,359
|
|
2,034,425
|
|
Stockholders'
equity
|
849,383
|
|
855,708
|
|
835,761
|
|
827,021
|
|
808,999
|
|
Financial
Ratios:
|
|
|
|
|
|
|
|
|
|
|
Return on average
assets (2)
|
1.04
|
%
|
|
1.13
|
%
|
|
1.85
|
%
|
|
1.51
|
%
|
|
1.42
|
%
|
|
Pre-tax,
pre-provision return on
average assets
(2)(3)
|
1.03
|
|
1.23
|
|
1.48
|
|
1.39
|
|
1.50
|
|
Return on average
common equity (2)
|
9.06
|
|
9.55
|
|
15.69
|
|
12.43
|
|
11.74
|
|
Return on average
tangible common
equity (2) (3)
|
13.27
|
|
13.93
|
|
22.94
|
|
18.37
|
|
17.62
|
|
Efficiency
ratio
|
66.61
|
|
62.35
|
|
58.18
|
|
61.57
|
|
60.50
|
|
Noninterest expense
to average total
assets (2)
|
2.06
|
|
2.04
|
|
2.06
|
|
2.22
|
|
2.30
|
|
Net interest margin
(2)
|
2.85
|
|
3.15
|
|
3.44
|
|
3.51
|
|
3.53
|
|
Net interest spread
(2)
|
2.79
|
|
3.08
|
|
3.37
|
|
3.43
|
|
3.44
|
|
(1)
Average loan receivable, net includes loans held for sale and loans
classified as nonaccrual, which carry a zero yield.
|
(2)
Annualized.
|
(3)
See Non-GAAP Financial Measures section herein.
|
|
As of or for the
Quarter Ended
|
|
December
31,
2021
|
|
September
30,
2021
|
|
June 30,
2021
|
|
March 31,
2021
|
|
December
31,
2020
|
Select Balance
Sheet:
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
7,432,412
|
|
$
7,259,038
|
|
$
7,105,672
|
|
$
7,028,392
|
|
$
6,615,318
|
Loans receivable,
net
|
3,773,301
|
|
3,905,567
|
|
4,155,968
|
|
4,531,644
|
|
4,398,462
|
Total investment
securities
|
1,277,728
|
|
1,072,600
|
|
1,049,524
|
|
893,558
|
|
802,163
|
Deposits
|
6,381,337
|
|
6,215,558
|
|
6,061,706
|
|
6,019,698
|
|
5,597,990
|
Noninterest demand
deposits
|
2,330,956
|
|
2,299,248
|
|
2,256,341
|
|
2,205,562
|
|
1,980,531
|
Stockholders'
equity
|
854,432
|
|
848,404
|
|
855,984
|
|
827,151
|
|
820,439
|
Financial
Measures:
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
$
24.34
|
|
$
24.13
|
|
$
23.77
|
|
$
22.99
|
|
$
22.85
|
Tangible book value
per share (1)
|
17.19
|
|
16.97
|
|
16.76
|
|
15.95
|
|
15.77
|
Stockholders' equity
to total assets
|
11.5 %
|
|
11.7 %
|
|
12.0 %
|
|
11.8 %
|
|
12.4 %
|
Tangible common
equity to tangible
assets
(1)
|
8.4
|
|
8.5
|
|
8.8
|
|
8.5
|
|
8.9
|
Loans to deposits
ratio
|
59.8
|
|
63.6
|
|
69.4
|
|
76.3
|
|
79.8
|
Regulatory Capital
Ratios:
|
|
|
|
|
|
|
|
|
|
Common equity Tier 1
capital to risk-
weighted
assets(2)
|
13.5 %
|
|
13.3 %
|
|
13.6
%
|
|
12.8 %
|
|
12.3 %
|
Tier 1 leverage
capital to average assets(2)
|
8.7 %
|
|
8.8 %
|
|
9.1 %
|
|
9.1 %
|
|
9.0 %
|
Tier 1 capital to
risk-weighted assets(2)
|
13.9 %
|
|
13.8 %
|
|
14.0 %
|
|
13.2 %
|
|
12.8 %
|
Total capital to
risk-weighted assets(2)
|
14.8 %
|
|
14.8 %
|
|
15.1 %
|
|
14.5 %
|
|
14.0 %
|
Credit Quality
Metrics:
|
|
|
|
|
|
|
|
|
|
ACL on
loans to:
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
1.11 %
|
|
1.22 %
|
|
1.23 %
|
|
1.40 %
|
|
1.57 %
|
Loans receivable,
excluding SBA
PPP loans (1)
|
1.15
|
|
1.31
|
|
1.41
|
|
1.73
|
|
1.87
|
Nonperforming
loans
|
178.33
|
|
186.60
|
|
145.90
|
|
121.48
|
|
120.82
|
Nonperforming loans
to loans
receivable
|
0.62
|
|
0.65
|
|
0.84
|
|
1.15
|
|
1.30
|
Nonperforming assets
to total assets
|
0.32
|
|
0.36
|
|
0.50
|
|
0.75
|
|
0.88
|
Net charge-offs
(recoveries) on loans to average loans receivable
|
0.05
|
|
0.04
|
|
(0.01)
|
|
(0.02)
|
|
0.03
|
Criticized Loans
by Credit Quality
Rating:
|
|
|
|
|
|
|
|
|
|
Special
mention
|
$
71,020
|
|
$
90,554
|
|
$
100,317
|
|
$
108,975
|
|
$
132,036
|
Substandard
|
112,450
|
|
126,964
|
|
135,374
|
|
160,461
|
|
158,515
|
Other
Metrics:
|
|
|
|
|
|
|
|
|
|
Number of banking
offices
|
49
|
|
53
|
|
53
|
|
53
|
|
61
|
Average number of
full-time equivalent
employees
|
782
|
|
813
|
|
822
|
|
840
|
|
848
|
Deposits per
branch
|
$
130,231
|
|
$
117,275
|
|
$
114,372
|
|
$
113,579
|
|
$
91,770
|
Average assets per
full-time
equivalent
employee
|
9,469
|
|
8,877
|
|
8,607
|
|
8,098
|
|
7,873
|
(1)
See Non-GAAP Financial Measures section herein.
|
(2) Current
quarter ratios are estimates pending completion and filing of the
Company's regulatory reports.
|
HERITAGE FINANCIAL
CORPORATION
|
NON-GAAP FINANCIAL
MEASURES (Unaudited)
|
(Dollar amounts in
thousands, except per share amounts)
|
|
This earnings release
contains certain financial measures not presented in accordance
with Generally Accepted Accounting
Principles ("GAAP") in addition to financial measures presented in
accordance with GAAP. The Company 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, performance and asset
quality reflected in the current quarter and comparable period
results and to facilitate comparison of its performance with the
performance of its peers. 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 financial measures presented 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.
|
|
The Company considers
the tangible common equity to tangible assets ratio and tangible
book value per share to be useful
measurements of the adequacy of the Company's capital
levels.
|
|
|
December
31,
2021
|
|
September
30,
2021
|
|
June 30,
2021
|
|
March 31,
2021
|
|
December
31,
2020
|
Tangible Common
Equity to Tangible Assets and Tangible Book Value Per
Share:
|
Total stockholders'
equity (GAAP)
|
$
854,432
|
|
$
848,404
|
|
$
855,984
|
|
$
827,151
|
|
$
820,439
|
Exclude intangible
assets
|
(250,916)
|
|
(251,675)
|
|
(252,433)
|
|
(253,230)
|
|
(254,027)
|
Tangible common
equity (non-GAAP)
|
$
603,516
|
|
$
596,729
|
|
$
603,551
|
|
$
573,921
|
|
$
566,412
|
|
|
|
|
|
|
|
|
|
|
Total assets
(GAAP)
|
$
7,432,412
|
|
$
7,259,038
|
|
$
7,105,672
|
|
$
7,028,392
|
|
$
6,615,318
|
Exclude intangible
assets
|
(250,916)
|
|
(251,675)
|
|
(252,433)
|
|
(253,230)
|
|
(254,027)
|
Tangible assets
(non-GAAP)
|
$
7,181,496
|
|
$
7,007,363
|
|
$
6,853,239
|
|
$
6,775,162
|
|
$
6,361,291
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
to total assets (GAAP)
|
11.5
%
|
|
11.7
%
|
|
12.0 %
|
|
11.8
%
|
|
12.4 %
|
Tangible common
equity to tangible assets (non-GAAP)
|
8.4 %
|
|
8.5 %
|
|
8.8 %
|
|
8.5 %
|
|
8.9 %
|
|
|
|
|
|
|
|
|
|
|
Shares
outstanding
|
35,105,779
|
|
35,166,599
|
|
36,006,560
|
|
35,981,317
|
|
35,912,243
|
|
|
|
|
|
|
|
|
|
|
Book value per share
(GAAP)
|
$
24.34
|
|
$
24.13
|
|
$
23.77
|
|
$
22.99
|
|
$
22.85
|
Tangible book value
per share (non-
GAAP)
|
$
17.19
|
|
$
16.97
|
|
$
16.76
|
|
$
15.95
|
|
$
15.77
|
The Company considers presenting the ratio of ACL on loans to
loans receivable, excluding SBA PPP loans, to be a useful
measurement in evaluating the adequacy of the Company's ACL on
loans as the balance of SBA PPP loans was significant to the loan
portfolio; however, since SBA PPP loans are guaranteed by the SBA,
the Company has not provided an ACL on loans for these loans.
|
December
31,
2021
|
|
September
30,
2021
|
|
June 30,
2021
|
|
March 31,
2021
|
|
December
31,
2020
|
ACL on Loans to
Loans Receivable, excluding SBA PPP Loans:
|
Allowance for credit
losses on loans
|
$
42,361
|
|
$
48,317
|
|
$
51,562
|
|
$
64,225
|
|
$
70,185
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
(GAAP)
|
$
3,815,662
|
|
$
3,953,884
|
|
$
4,207,530
|
|
$
4,595,869
|
|
$
4,468,647
|
Exclude SBA PPP
loans
|
(145,840)
|
|
(266,896)
|
|
(544,250)
|
|
(886,761)
|
|
(715,121)
|
Loans receivable,
excluding SBA PPP
loans
(non-GAAP)
|
$
3,669,822
|
|
$
3,686,988
|
|
$
3,663,280
|
|
$
3,709,108
|
|
$
3,753,526
|
|
|
|
|
|
|
|
|
|
|
ACL on loans to loans
receivable
(GAAP)
|
1.11
%
|
|
1.22 %
|
|
1.23 %
|
|
1.40 %
|
|
1.57 %
|
ACL on loans to loans
receivable,
excluding SBA PPP
loans (non-
GAAP)
|
1.15 %
|
|
1.31 %
|
|
1.41 %
|
|
1.73 %
|
|
1.87 %
|
The Company considers the return on average tangible common
equity ratio to be a useful measurement of the Company's ability to
generate returns for its common shareholders. By removing the
impact of intangible assets and their related amortization and tax
effects, the performance of the Company's ongoing business
operations can be evaluated.
|
Quarter
Ended
|
|
December
31,
2021
|
|
September
30,
2021
|
|
June 30,
2021
|
|
March 31,
2021
|
|
December
31,
2020
|
Return on Average
Tangible Common Equity, annualized:
|
Net income
(GAAP)
|
$
19,397
|
|
$
20,592
|
|
$
32,702
|
|
$
25,344
|
|
$
23,882
|
Add amortization of
intangible assets
|
759
|
|
758
|
|
797
|
|
797
|
|
859
|
Exclude tax effect of
adjustment
|
(159)
|
|
(159)
|
|
(167)
|
|
(167)
|
|
(180)
|
Tangible net income
(non-GAAP)
|
$
19,997
|
|
$
21,191
|
|
$
33,332
|
|
$
25,974
|
|
$
24,561
|
|
|
|
|
|
|
|
|
|
|
Average stockholders'
equity (GAAP)
|
$
849,383
|
|
$
855,708
|
|
$
835,761
|
|
$
827,021
|
|
$
808,999
|
Exclude average
intangible assets
|
(251,331)
|
|
(252,159)
|
|
(252,956)
|
|
(253,747)
|
|
(254,587)
|
Average tangible
common stockholders' equity (non-GAAP)
|
$
598,052
|
|
$
603,549
|
|
$
582,805
|
|
$
573,274
|
|
$
554,412
|
|
|
|
|
|
|
|
|
|
|
Return on average
common equity, annualized (GAAP)
|
9.06 %
|
|
9.55 %
|
|
15.69 %
|
|
12.43 %
|
|
11.74 %
|
Return on average
tangible common equity, annualized (non-GAAP)
|
13.27 %
|
|
13.93 %
|
|
22.94 %
|
|
18.37 %
|
|
17.62 %
|
The Company believes that presenting pre-tax pre-provision
income, which reflects its profitability before income taxes and
provision for credit losses, and the pre-tax, pre-provision return
on average assets, are useful measurements in assessing its
operating income and expenses by removing the volatility that may
be associated with credit loss provisions. The Company also
believes that during a crisis such as the COVID-19 pandemic, this
information is useful as the impact of the pandemic on credit loss
provisions of various institutions has varied based on the
geography of the communities served by a particular institution and
the decision to adopt or defer the current expected credit losses
("CECL") methodology required by ASU 2016-13.
|
Quarter
Ended
|
|
December
31,
2021
|
|
September
30,
2021
|
|
June 30,
2021
|
|
March 31,
2021
|
|
December
31,
2020
|
Pre-tax,
Pre-provision Income and Pre-tax, Pre-provision Return on Average
Equity, annualized:
|
Net income
(GAAP)
|
$
19,397
|
|
$
20,592
|
|
$
32,702
|
|
$
25,344
|
|
$
23,882
|
Add income tax
expense
|
4,922
|
|
4,997
|
|
7,451
|
|
5,102
|
|
4,429
|
Add (reversal of)
provision for
credit
losses
|
(5,037)
|
|
(3,149)
|
|
(13,987)
|
|
(7,199)
|
|
(3,133)
|
Pre-tax,
pre-provision income (non-
GAAP)
|
$
19,282
|
|
$
22,440
|
|
$
26,166
|
|
$
23,247
|
|
$
25,178
|
|
|
|
|
|
|
|
|
|
|
Average total assets
(GAAP)
|
$
7,403,597
|
|
$
7,214,960
|
|
$
7,079,205
|
|
$
6,799,625
|
|
$
6,675,477
|
|
|
|
|
|
|
|
|
|
|
Return on average
assets, annualized
(GAAP)
|
1.04 %
|
|
1.13 %
|
|
1.85 %
|
|
1.51 %
|
|
1.42 %
|
Pre-tax,
pre-provision return on
average
assets (non-GAAP)
|
1.03 %
|
|
1.23 %
|
|
1.48 %
|
|
1.39 %
|
|
1.50 %
|
The Company believes presenting loan yield excluding the effect
of discount accretion on purchased loans is useful in assessing the
impact of acquisition accounting on loan yield as the effect of
loan discount accretion is expected to decrease as the acquired
loans mature or roll off its balance sheet. Incremental accretion
on purchased loans 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 Accounting Standards Update ("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.
Similarly, presenting loan yield excluding the effect of SBA PPP
loans is useful in assessing the impact of these special program
loans that are anticipated to substantially decrease within a short
time frame.
|
Quarter
Ended
|
|
December
31,
2021
|
|
September
30,
2021
|
|
December
31,
2020
|
Loan Yield,
excluding SBA PPP Loans and Incremental Accretion on Purchased
Loans, annualized:
|
Interest and fees on
loans (GAAP)
|
$
42,695
|
|
|
$
46,863
|
|
|
$
50,089
|
|
Exclude interest and
fees on SBA PPP loans
|
(4,928)
|
|
|
(8,042)
|
|
|
(8,739)
|
|
Exclude incremental
accretion on purchased loans
|
(387)
|
|
|
(681)
|
|
|
(795)
|
|
Adjusted interest and
fees on loans (non-GAAP)
|
$
37,380
|
|
|
$
38,140
|
|
|
$
40,555
|
|
|
|
|
|
|
|
|
|
Average loans
receivable, net (GAAP)
|
$
3,836,029
|
|
|
$
4,005,585
|
|
|
$
4,540,962
|
|
Exclude average SBA
PPP loans
|
(204,436)
|
|
|
(392,570)
|
|
|
(822,460)
|
|
Adjusted average
loans receivable, net (non-GAAP)
|
$
3,631,593
|
|
|
$
3,613,015
|
|
|
$
3,718,502
|
|
|
|
|
|
|
|
|
Loan yield,
annualized (GAAP)
|
4.42
|
%
|
|
4.64
|
%
|
|
4.39
|
%
|
Loan yield, excluding
SBA PPP loans and incremental accretion on
purchased loans, annualized (non-GAAP)
|
4.08
|
%
|
|
4.19
|
%
|
|
4.34
|
%
|
View original
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SOURCE Heritage Financial Corporation