- Net income was $19.8 million,
or $0.56 per diluted share, for the
first quarter of 2022 compared to $19.4
million, or $0.55 per diluted
share, for the fourth quarter of 2021 and $25.3 million, or $0.70 per diluted share, for the first quarter of
2021.
- Reversal of provision for credit losses was $3.6 million for the first quarter of 2022
compared to $5.0 million for the
fourth quarter of 2021 and $7.2
million for the first quarter of 2021.
- Loans receivable grew $5.5
million, or 0.1% (0.6% annualized), in the first quarter of
2022; excluding SBA PPP loan repayments of $80.9 million, loans receivable grew $86.4 million, or 2.4%(1) (9.5%
annualized(1)).
- The ratio of nonperforming assets to total assets decreased
to 0.22% at March 31, 2022 compared to 0.32% at
December 31, 2021 and 0.75% at March 31, 2021.
- Noninterest expense to average total assets, annualized, was
1.95% for the first quarter of 2022 compared to 2.06% for the
fourth quarter of 2021 and 2.22% for the first quarter of
2021.
- Declared a regular cash dividend of $0.21 per common share on April 20, 2022.
OLYMPIA,
Wash., April 21,
2022 /PRNewswire/ -- Heritage Financial Corporation
(NASDAQ GS: HFWA) (the "Company" or "Heritage"), the parent company
of Heritage Bank ("Bank"), today reported net income of
$19.8 million for the first quarter
of 2022 compared to $19.4 million for
the fourth quarter of 2021 and $25.3
million for the first quarter of 2021. Diluted earnings per
share for the first quarter of 2022 were $0.56 compared to $0.55 for the fourth quarter of 2021 and
$0.70 for the first quarter of
2021.
Jeffrey J. Deuel, President and
Chief Executive Officer of Heritage, commented, "While we continue
to see challenges from the COVID-environment, we remain focused on
delivering strong financial performance and improvements in our
operating efficiency by managing expenses and leveraging technology
systems. We are well-positioned for the rising rate environment due
to our ample balance sheet liquidity, including $1.58 billion in cash and cash equivalents.
Additionally, we are seeing loan growth due to a decline in loan
payoff activity and the strong economic climate in the Pacific
Northwest.
Further, we are pleased with the success of our ongoing efforts
to positively contribute to housing in the communities we serve.
Heritage Bank recently partnered with Catholic Housing Services in
constructing a new affordable housing development of 119 new family
units in Seattle's Rainier Beach
Neighborhood. Heritage Bank is providing $31.1 million of construction financing and
$14.8 million of permanent financing
for this project. Catholic Housing Services will utilize
Seattle's Community Preference
Policy, providing housing preference to families with historic ties
to the area which will aid in improving demographic dispersion in
the neighborhood."
Financial Highlights
The following table provides financial highlights at the dates
and for the periods indicated:
|
As of or for the Quarter Ended
|
|
March 31,
2022
|
|
December 31,
2021
|
|
March 31,
2021
|
|
|
|
|
|
|
|
(Dollars in thousands, except per share
amounts)
|
|
Net income
|
$
19,757
|
|
$
19,397
|
|
$
25,344
|
|
Pre-tax, pre-provision
income (1)
|
$
19,762
|
|
$
19,282
|
|
$
23,247
|
|
Diluted earnings per
share
|
$
0.56
|
|
$
0.55
|
|
$
0.70
|
|
Return on average
assets (2)
|
1.08 %
|
|
1.04 %
|
|
1.51 %
|
|
Pre-tax, pre-provision
return on average assets (1) (2)
|
1.08 %
|
|
1.03 %
|
|
1.39 %
|
|
Return on average
common equity (2)
|
9.47 %
|
|
9.06 %
|
|
12.43 %
|
|
Return on average
tangible common equity (1) (2)
|
13.83 %
|
|
13.27 %
|
|
18.37 %
|
|
Net interest margin
(2)
|
2.84 %
|
|
2.85 %
|
|
3.51 %
|
|
Cost of total deposits
(2)
|
0.09 %
|
|
0.09 %
|
|
0.12 %
|
|
Efficiency
ratio
|
64.38 %
|
|
66.61 %
|
|
61.57 %
|
|
Noninterest expense to
average total assets (2)
|
1.95 %
|
|
2.06 %
|
|
2.22 %
|
|
Total assets
|
$ 7,483,814
|
|
$ 7,432,412
|
|
$ 7,028,392
|
|
Loans receivable,
net
|
$ 3,780,845
|
|
$ 3,773,301
|
|
$ 4,531,644
|
|
Total
deposits
|
$ 6,491,500
|
|
$ 6,394,290
|
|
$ 6,033,124
|
|
Loan to deposit ratio
(3)
|
58.9 %
|
|
59.7 %
|
|
76.2 %
|
|
Book value per
share
|
$
23.40
|
|
$
24.34
|
|
$
22.99
|
|
Tangible book value per
share (1)
|
$
16.27
|
|
$
17.19
|
|
$
15.95
|
|
(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 periods indicated:
|
As of or for the
Quarter Ended
|
|
March 31,
2022
|
|
December 31,
2021
|
|
March 31,
2021
|
|
|
|
|
|
|
|
(In
thousands)
|
|
Net deferred fees
recognized during the period
|
$
2,806
|
|
$
4,399
|
|
$
7,040
|
|
Net deferred fees
unrecognized as of period end
|
2,130
|
|
4,936
|
|
22,979
|
|
Principal payments
received during the period, including forgiveness
payments from the SBA
|
83,684
|
|
125,455
|
|
174,264
|
|
Amortized cost as of
period end
|
64,962
|
|
145,840
|
|
886,761
|
Balance Sheet
Total investment securities increased $184.4 million, or 14.4%, to $1.46 billion at March 31, 2022 from
$1.28 billion at December 31,
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:
|
March 31,
2022
|
|
December 31,
2021
|
|
Change
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Amount
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in
thousands)
|
|
Commercial
business:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
$
651,523
|
|
17.1%
|
|
$
621,567
|
|
16.3%
|
|
$
29,956
|
|
4.8%
|
|
SBA
PPP
|
64,962
|
|
1.7
|
|
145,840
|
|
3.8
|
|
(80,878)
|
|
(55.5)
|
|
Owner-occupied commercial real estate
("CRE")
|
935,705
|
|
24.5
|
|
931,150
|
|
24.4
|
|
4,555
|
|
0.5
|
|
Non-owner occupied CRE
|
1,505,483
|
|
39.4
|
|
1,493,099
|
|
39.2
|
|
12,384
|
|
0.8
|
|
Total commercial
business
|
3,157,673
|
|
82.7
|
|
3,191,656
|
|
83.7
|
|
(33,983)
|
|
(1.1)
|
|
Residential real
estate
|
223,442
|
|
5.8
|
|
164,582
|
|
4.3
|
|
58,860
|
|
35.8
|
|
Real estate
construction and land development:
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
83,529
|
|
2.2
|
|
85,547
|
|
2.2
|
|
(2,018)
|
|
(2.4)
|
|
Commercial and multifamily
|
138,583
|
|
3.6
|
|
141,336
|
|
3.7
|
|
(2,753)
|
|
(1.9)
|
|
Total real estate construction
and land
development
|
222,112
|
|
5.8
|
|
226,883
|
|
5.9
|
|
(4,771)
|
|
(2.1)
|
|
Consumer
|
217,951
|
|
5.7
|
|
232,541
|
|
6.1
|
|
(14,590)
|
|
(6.3)
|
|
Loans receivable
|
3,821,178
|
|
100.0%
|
|
3,815,662
|
|
100.0%
|
|
5,516
|
|
0.1
|
|
Allowance for credit
losses on loans
|
(40,333)
|
|
|
|
(42,361)
|
|
|
|
2,028
|
|
(4.8)
|
|
Loans receivable,
net
|
$
3,780,845
|
|
|
|
$
3,773,301
|
|
|
|
$
7,544
|
|
0.2%
|
Loans receivable grew $5.5
million, or 0.1% (0.6% annualized), in the first quarter of
2022. Excluding SBA PPP loan repayments of $80.9 million, loans receivable grew $86.4 million, or 2.4% (9.5% annualized); see
Non-GAAP Financial Measures section herein for the calculation. New
loans funded during the first quarter of 2022 were $235.9 million, including $42.2 million of purchased residential real
estate loans, as compared to $222.2
million in the fourth quarter of 2021. Additionally, loan
repayments declined in the first quarter of 2022 to $149.9 million as compared to $242.9 million in the fourth quarter of 2021,
exclusive of SBA PPP loan repayments, net deferred fees, and net
acquired discounts.
Total deposits increased at a quarterly growth rate of 1.5%, or
an annualized rate of 6.2%, from December 31, 2021. The
following table summarizes the Company's total deposits at the
dates indicated:
|
March 31, 2022
|
|
December 31, 2021
|
|
Change
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Amount
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Noninterest demand
deposits
|
$
2,393,972
|
|
36.9 %
|
|
$
2,343,909
|
|
36.7 %
|
|
$
50,063
|
|
2.1 %
|
|
Interest bearing demand
deposits
|
2,018,032
|
|
31.1
|
|
1,946,605
|
|
30.4
|
|
71,427
|
|
3.7
|
|
Money market
accounts
|
1,099,539
|
|
16.9
|
|
1,120,174
|
|
17.5
|
|
(20,635)
|
|
(1.8)
|
|
Savings
accounts
|
651,541
|
|
10.0
|
|
640,763
|
|
10.0
|
|
10,778
|
|
1.7
|
|
Total non-maturity deposits
|
6,163,084
|
|
94.9
|
|
6,051,451
|
|
94.6
|
|
111,633
|
|
1.8
|
|
Certificates of
deposit
|
328,416
|
|
5.1
|
|
342,839
|
|
5.4
|
|
(14,423)
|
|
(4.2)
|
|
Total deposits
|
$
6,491,500
|
|
100.0 %
|
|
$
6,394,290
|
|
100.0 %
|
|
$
97,210
|
|
1.5 %
|
During the first quarter of 2022, the Company repurchased
$2.0 million, or 80,559 shares of its
common stock at a weighted average price per share of $25.17, as compared to the repurchase of
$1.5 million, or 63,884 shares of its
common stock, at a weighted average price per share of $23.02, during the fourth quarter of 2021. As of
March 31, 2022, there were 657,745 shares available for
repurchase under the current repurchase plan.
The Company and 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:
|
March 31,
2022
|
|
December 31,
2021
|
|
Change
|
|
Capital Ratios:
|
|
|
|
|
|
|
Stockholders' equity to
total assets
|
11.0
%
|
|
11.5
%
|
|
(0.5) %
|
|
Tangible common equity
to tangible assets (1)
|
7.9
|
|
8.4
|
|
(0.5)
|
|
Common equity Tier 1
capital to risk-weighted assets (2)
|
13.4
|
|
13.5
|
|
(0.1)
|
|
Tier 1 leverage capital
to average quarterly assets (2)
|
8.8
|
|
8.7
|
|
0.1
|
|
Tier 1 capital to
risk-weighted assets (2)
|
13.9
|
|
13.9
|
|
—
|
|
Total capital to
risk-weighted assets (2)
|
14.7
|
|
14.8
|
|
(0.1)
|
|
(1) See
Non-GAAP Financial Measures section herein.
|
|
(2) Current quarter ratios are
estimates pending completion and filing of the Company's regulatory
reports.
|
The stockholders' equity to total assets ratio and the tangible
common equity to tangible assets ratio both declined due primarily
to a decrease in accumulated other comprehensive income of
$43.6 million during the first
quarter of 2022 following an increase in market interest rates
during the quarter, which negatively impacted the fair value of our
investment securities available for sale at March 31, 2022.
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
|
|
March 31,
2022
|
|
December 31,
2021
|
|
March 31,
2021
|
|
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
|
$ 42,361
|
|
$ 2,607
|
|
$ 44,968
|
|
$ 48,317
|
|
$ 2,154
|
|
$ 50,471
|
|
$ 70,185
|
|
$ 4,681
|
|
$ 74,866
|
|
(Reversal of)
provision
for credit losses
|
(2,522)
|
|
(1,055)
|
|
(3,577)
|
|
(5,490)
|
|
453
|
|
(5,037)
|
|
(6,135)
|
|
(1,064)
|
|
(7,199)
|
|
Net recovery
(charge-
offs)
|
494
|
|
—
|
|
494
|
|
(466)
|
|
—
|
|
(466)
|
|
175
|
|
—
|
|
175
|
|
Balance, end of
period
|
$ 40,333
|
|
$ 1,552
|
|
$ 41,885
|
|
$ 42,361
|
|
$ 2,607
|
|
$ 44,968
|
|
$ 64,225
|
|
$ 3,617
|
|
$ 67,842
|
The ACL on loans decreased compared to December 31, 2021
due primarily to a reduction of loans individually evaluated for
losses and their related ACL as well as changes in the loan mix and
continued improvement in forecasted economic indicators used to
calculate credit losses.
Credit Quality
Nonperforming assets decreased to 0.22% of total assets at
March 31, 2022 compared to 0.32% of total assets at
December 31, 2021. Nonperforming assets at both March 31,
2022 and December 31, 2021 consisted only of nonaccrual loans.
Changes in nonaccrual loans during the periods indicated were as
follows:
|
Quarter
Ended
|
|
March 31,
2022
|
|
December 31,
2021
|
|
March 31,
2021
|
|
|
|
|
|
|
|
(In
thousands)
|
|
Balance, beginning of
period
|
$
23,754
|
|
$
25,894
|
|
$
58,092
|
|
Additions to nonaccrual loan classification
|
—
|
|
333
|
|
468
|
|
Net
principal payments and transfers to accruing status
|
(3,804)
|
|
(1,435)
|
|
(1,981)
|
|
Payoffs
|
(3,369)
|
|
(540)
|
|
(3,709)
|
|
Charge-offs
|
(54)
|
|
(498)
|
|
(2)
|
|
Balance, end of
period
|
$
16,527
|
|
$
23,754
|
|
$
52,868
|
Nonaccrual loans declined $7.2
million, or 30.4%, due primarily to ongoing collection
efforts, including the partial payoff of two large commercial and
industrial loan relationships, the payoff of one non-owner occupied
CRE relationship, and the transfer of two commercial business loan
relationships back to accruing status.
Net Interest Income and Net Interest Margin
Net interest income decreased $1.0
million, or 2.0%, for the first quarter of 2022 compared to
the fourth 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, offset partially by an increase in interest
income on investment securities.
Net interest income decreased $5.3
million, or 10.1%, compared to the first quarter of 2021
also due primarily to the decrease in deferred SBA PPP loan fees
recognized as well as a slightly lower loan yield. The decrease in
net interest income was offset partially by a higher average
balance of taxable investment securities.
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
|
|
March 31,
2022
|
|
December 31,
2021
|
|
March 31,
2021
|
|
Loan yield
(GAAP)
|
4.41%
|
|
4.42%
|
|
4.47%
|
|
Exclude impact from SBA PPP loans
|
(0.21)
|
|
(0.29)
|
|
0.01
|
|
Exclude impact from incremental accretion on purchased
loans
|
(0.06)
|
|
(0.05)
|
|
(0.12)
|
|
Loan yield, excluding
SBA PPP loans and incremental accretion on
purchased loans (non-GAAP)
(1)
|
4.14%
|
|
4.08%
|
|
4.36%
|
|
(1) See Non-GAAP Financial
Measures section.
|
The impact to loan yield from recoveries of interest and fees on
loans classified as nonaccrual was 11 basis points during the first
quarter of 2022, including the recovery of $774,000 from a non-owner occupied CRE
relationship, compared to one basis point during the fourth quarter
of 2021.
Net interest margin decreased slightly to 2.84% for the first
quarter of 2022 as compared to 2.85% for the fourth quarter of
2021.
Net interest margin decreased from 3.51% for the first quarter
of 2021 due primarily to the change in the mix of total interest
earning assets, including a significant increase in the balance of
lower yielding average interest earning deposits, and secondarily
due to lower loan yield.
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
|
|
March 31,
2022
|
|
December 31,
2021
|
|
March 31,
2021
|
|
Change
|
|
%
Change
|
|
Change
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in
thousands)
|
|
Service charges and
other fees
|
$
2,296
|
|
$
2,302
|
|
$
1,892
|
|
$
(6)
|
|
(0.3)%
|
|
$ 404
|
|
21.4%
|
|
Card revenue
|
2,441
|
|
2,285
|
|
2,097
|
|
156
|
|
6.8
|
|
344
|
|
16.4
|
|
Gain on sale of
investment
securities, net
|
—
|
|
—
|
|
29
|
|
—
|
|
—
|
|
(29)
|
|
(100.0)
|
|
Gain on sale of loans,
net
|
241
|
|
506
|
|
1,370
|
|
(265)
|
|
(52.4)
|
|
(1,129)
|
|
(82.4)
|
|
Interest rate swap
fees
|
279
|
|
174
|
|
152
|
|
105
|
|
60.3
|
|
127
|
|
83.6
|
|
Bank owned life
insurance
income
|
1,695
|
|
500
|
|
656
|
|
1,195
|
|
239.0
|
|
1,039
|
|
158.4
|
|
Gain on sale of other
assets, net
|
204
|
|
2,717
|
|
22
|
|
(2,513)
|
|
(92.5)
|
|
182
|
|
827.3
|
|
Other income
|
1,382
|
|
1,355
|
|
2,033
|
|
27
|
|
2.0
|
|
(651)
|
|
(32.0)
|
|
Total noninterest income
|
$
8,538
|
|
$
9,839
|
|
$
8,251
|
|
$ (1,301)
|
|
(13.2)%
|
|
$ 287
|
|
3.5%
|
Noninterest income decreased during the first quarter of 2022
compared to the fourth quarter of 2021 due primarily to the prior
quarter's gain of $2.7 million
related to the sale and leaseback of the Company's headquarters
included in gain on sale of other assets, net, offset partially by
an increase in bank owned life insurance income due to the
recognition of a death benefit of $1.0
million during the current quarter.
Noninterest income increased from the same period in 2021 due
primarily to the current quarter death benefit discussed above and
increases in service charges and other fees and card revenue
reflecting increased customer transactions as businesses reopened
in our market areas, offset partially by reduced gain on sale of
loans, net as sales volume of secondary market mortgage loans
declined.
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
|
|
March 31,
2022
|
|
December 31,
2021
|
|
March 31,
2021
|
|
Change
|
|
%
Change
|
|
Change
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in
thousands)
|
|
Compensation and
employee
benefits
|
$
21,252
|
|
$
22,798
|
|
$
22,201
|
|
$ (1,546)
|
|
(6.8)%
|
|
$
(949)
|
|
(4.3)%
|
|
Occupancy and
equipment
|
4,331
|
|
4,325
|
|
4,454
|
|
6
|
|
0.1
|
|
(123)
|
|
(2.8)
|
|
Data
processing
|
4,061
|
|
4,694
|
|
3,812
|
|
(633)
|
|
(13.5)
|
|
249
|
|
6.5
|
|
Marketing
|
266
|
|
577
|
|
513
|
|
(311)
|
|
(53.9)
|
|
(247)
|
|
(48.1)
|
|
Professional
services
|
699
|
|
763
|
|
1,270
|
|
(64)
|
|
(8.4)
|
|
(571)
|
|
(45.0)
|
|
State/municipal
business and
use tax
|
796
|
|
850
|
|
972
|
|
(54)
|
|
(6.4)
|
|
(176)
|
|
(18.1)
|
|
Federal deposit
insurance
premium
|
600
|
|
628
|
|
589
|
|
(28)
|
|
(4.5)
|
|
11
|
|
1.9
|
|
Amortization of
intangible assets
|
704
|
|
759
|
|
797
|
|
(55)
|
|
(7.2)
|
|
(93)
|
|
(11.7)
|
|
Other
expense
|
3,011
|
|
3,071
|
|
2,634
|
|
(60)
|
|
(2.0)
|
|
377
|
|
14.3
|
|
Total noninterest expense
|
$
35,720
|
|
$
38,465
|
|
$
37,242
|
|
$ (2,745)
|
|
(7.1)%
|
|
$ (1,522)
|
|
(4.1)%
|
Noninterest expense decreased from the fourth quarter of 2021
due primarily to a decrease in compensation and employee benefits
as the accrual for incentive compensation declined compared to the
fourth quarter of 2021. Data processing declined as software
implementation costs related to technology initiatives were
included in the fourth quarter of 2021.
Noninterest expense decreased from the same period in 2021 due
primarily to a decrease in compensation and employee benefits from
lower headcount and secondarily due to a decrease in professional
services which was elevated during the first quarter of 2021 due to
costs associated with our participation in the second tranche of
the SBA PPP.
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
|
|
March 31,
2022
|
|
December 31,
2021
|
|
March 31,
2021
|
|
Change
|
|
%
Change
|
|
Change
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in
thousands)
|
|
Income before income
taxes
|
$
23,339
|
|
$
24,319
|
|
$
30,446
|
|
$
(980)
|
|
(4.0)%
|
|
$
(7,107)
|
|
(23.3)%
|
|
Income tax
expense
|
$
3,582
|
|
$
4,922
|
|
$
5,102
|
|
$
(1,340)
|
|
(27.2)%
|
|
$
(1,520)
|
|
(29.8)%
|
|
Effective income tax
rate
|
15.3%
|
|
20.2%
|
|
16.8%
|
|
(4.9)%
|
|
(24.3)%
|
|
(1.5)%
|
|
(8.9)%
|
Income tax expense decreased for the first quarter of 2022
compared to the fourth quarter of 2021 and the same period in 2021
primarily reflecting the change in income before income taxes
earned between the periods. Additionally, the effective income tax
rate was higher during the fourth quarter of 2021 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 April 20, 2022, the Company's Board of Directors
declared a quarterly cash dividend of $0.21 per share. The dividend is payable on
May 18, 2022 to shareholders of record as of the close of
business on May 4, 2022.
Earnings Conference Call
The Company will hold a telephone conference call to discuss
this earnings release on Thursday, April 21,
2022 at 11:00 a.m. Pacific
time. To access the call, please dial (844) 200-6205 --
access code 097736 a few minutes prior to 11:00 a.m. Pacific time. The call will be
available for replay through April 28,
2022 by dialing (866) 813-9403 -- access code 921221.
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. Factors that could cause the Company's
actual results to differ materially from those described in the
forward-looking statements, include but are not limited to, the
following: the effect of the COVID-19 pandemic, including on the
Company's credit quality and business operations, as well as its
impact on general economic and financial market conditions and
other uncertainties resulting from the COVID-19 pandemic, such as
the extent and duration of the impact on public health, the U.S.
and global economies, and consumer and corporate customers,
including economic activity, employment levels and market
liquidity; changes in the interest rate environment; changes in
general economic conditions and conditions within the securities
markets; legislative and regulatory changes, including as a result
of the COVID-19 pandemic; 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)
|
|
|
|
|
|
March 31,
2022
|
|
December 31,
2021
|
|
Assets
|
|
|
|
|
Cash on hand and in
banks
|
$
87,907
|
|
$
61,377
|
|
Interest earning
deposits
|
1,488,815
|
|
1,661,915
|
|
Cash and cash equivalents
|
1,576,722
|
|
1,723,292
|
|
Investment securities
available for sale, at fair value (amortized cost of $1,085,016
and
$883,832, respectively)
|
1,039,924
|
|
894,335
|
|
Investment securities
held to maturity, at amortized cost (fair value of $384,822 and
$376,331, respectively)
|
422,213
|
|
383,393
|
|
Total investment securities
|
1,462,137
|
|
1,277,728
|
|
Loans held for
sale
|
1,142
|
|
1,476
|
|
Loans
receivable
|
3,821,178
|
|
3,815,662
|
|
Allowance for credit
losses on loans
|
(40,333)
|
|
(42,361)
|
|
Loans receivable, net
|
3,780,845
|
|
3,773,301
|
|
Other real estate
owned
|
—
|
|
—
|
|
Premises and equipment,
net
|
78,737
|
|
79,370
|
|
Federal Home Loan Bank
stock, at cost
|
8,916
|
|
7,933
|
|
Bank owned life
insurance
|
119,929
|
|
120,196
|
|
Accrued interest
receivable
|
14,582
|
|
14,657
|
|
Prepaid expenses and
other assets
|
190,592
|
|
183,543
|
|
Other intangible
assets, net
|
9,273
|
|
9,977
|
|
Goodwill
|
240,939
|
|
240,939
|
|
Total assets
|
$
7,483,814
|
|
$
7,432,412
|
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
Deposits
|
$
6,491,500
|
|
$
6,394,290
|
|
Junior subordinated
debentures
|
21,253
|
|
21,180
|
|
Securities sold under
agreement to repurchase
|
49,069
|
|
50,839
|
|
Accrued expenses and
other liabilities
|
100,543
|
|
111,671
|
|
Total liabilities
|
6,662,365
|
|
6,577,980
|
|
|
|
|
|
Common stock
|
550,096
|
|
551,798
|
|
Retained
earnings
|
305,581
|
|
293,238
|
|
Accumulated other
comprehensive (loss) income, net
|
(34,228)
|
|
9,396
|
|
Total stockholders' equity
|
821,449
|
|
854,432
|
|
Total liabilities and
stockholders' equity
|
$
7,483,814
|
|
$
7,432,412
|
|
|
|
|
|
Shares
outstanding
|
35,102,372
|
|
35,105,779
|
|
HERITAGE FINANCIAL
CORPORATION
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
|
|
(Dollar amounts in
thousands, except per share amounts)
|
|
|
|
Quarter Ended
|
|
March 31,
2022
|
|
December 31,
2021
|
|
March 31,
2021
|
|
Interest Income
|
|
|
|
|
|
|
Interest and fees on
loans
|
$
41,025
|
|
$
42,695
|
|
$
49,524
|
|
Taxable interest on
investment securities
|
6,003
|
|
5,197
|
|
3,534
|
|
Nontaxable interest on
investment securities
|
860
|
|
1,063
|
|
958
|
|
Interest on interest
earning deposits
|
706
|
|
633
|
|
175
|
|
Total interest income
|
48,594
|
|
49,588
|
|
54,191
|
|
Interest Expense
|
|
|
|
|
|
|
Deposits
|
1,424
|
|
1,464
|
|
1,728
|
|
Junior subordinated
debentures
|
194
|
|
185
|
|
187
|
|
Other
borrowings
|
32
|
|
31
|
|
38
|
|
Total interest
expense
|
1,650
|
|
1,680
|
|
1,953
|
|
Net
interest income
|
46,944
|
|
47,908
|
|
52,238
|
|
Reversal of provision
for credit losses
|
(3,577)
|
|
(5,037)
|
|
(7,199)
|
|
Net
interest income after reversal of provision for credit
losses
|
50,521
|
|
52,945
|
|
59,437
|
|
Noninterest Income
|
|
|
|
|
|
|
Service charges and
other fees
|
2,296
|
|
2,302
|
|
1,892
|
|
Card revenue
|
2,441
|
|
2,285
|
|
2,097
|
|
Gain on sale of
investment securities, net
|
—
|
|
—
|
|
29
|
|
Gain on sale of loans,
net
|
241
|
|
506
|
|
1,370
|
|
Interest rate swap
fees
|
279
|
|
174
|
|
152
|
|
Bank owned life
insurance income
|
1,695
|
|
500
|
|
656
|
|
Gain on sale of other
assets, net
|
204
|
|
2,717
|
|
22
|
|
Other income
|
1,382
|
|
1,355
|
|
2,033
|
|
Total noninterest income
|
8,538
|
|
9,839
|
|
8,251
|
|
Noninterest Expense
|
|
|
|
|
|
|
Compensation and
employee benefits
|
21,252
|
|
22,798
|
|
22,201
|
|
Occupancy and
equipment
|
4,331
|
|
4,325
|
|
4,454
|
|
Data
processing
|
4,061
|
|
4,694
|
|
3,812
|
|
Marketing
|
266
|
|
577
|
|
513
|
|
Professional
services
|
699
|
|
763
|
|
1,270
|
|
State/municipal
business and use taxes
|
796
|
|
850
|
|
972
|
|
Federal deposit
insurance premium
|
600
|
|
628
|
|
589
|
|
Amortization of
intangible assets
|
704
|
|
759
|
|
797
|
|
Other
expense
|
3,011
|
|
3,071
|
|
2,634
|
|
Total noninterest expense
|
35,720
|
|
38,465
|
|
37,242
|
|
Income before income
taxes
|
23,339
|
|
24,319
|
|
30,446
|
|
Income tax expense
|
3,582
|
|
4,922
|
|
5,102
|
|
Net income
|
$
19,757
|
|
$
19,397
|
|
$
25,344
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$
0.56
|
|
$
0.56
|
|
$
0.70
|
|
Diluted earnings per
share
|
$
0.56
|
|
$
0.55
|
|
$
0.70
|
|
Dividends declared per
share
|
$
0.21
|
|
$
0.21
|
|
$
0.20
|
|
Average shares
outstanding - basic
|
35,094,725
|
|
35,154,382
|
|
35,926,950
|
|
Average shares
outstanding - diluted
|
35,412,098
|
|
35,439,998
|
|
36,232,204
|
|
HERITAGE FINANCIAL
CORPORATION
|
|
FINANCIAL STATISTICS
(Unaudited)
|
|
(Dollar amounts in
thousands, except per share amounts)
|
|
|
Nonperforming Assets and Credit Quality
Metrics:
|
|
|
Quarter
Ended
|
|
March 31,
2022
|
|
December 31,
2021
|
|
March 31,
2021
|
|
|
|
|
|
|
|
Allowance for Credit
Losses on Loans:
|
|
Balance, beginning of
period
|
$
42,361
|
|
$
48,317
|
|
$
70,185
|
|
Reversal of provision
for credit losses on loans
|
(2,522)
|
|
(5,490)
|
|
(6,135)
|
|
Charge-offs:
|
|
|
|
|
|
|
Commercial
business
|
(199)
|
|
(519)
|
|
(1)
|
|
Residential real
estate
|
(30)
|
|
—
|
|
—
|
|
Real estate
construction and land development
|
—
|
|
—
|
|
(1)
|
|
Consumer
|
(126)
|
|
(160)
|
|
(185)
|
|
Total charge-offs
|
(355)
|
|
(679)
|
|
(187)
|
|
Recoveries:
|
|
|
|
|
|
|
Commercial
business
|
272
|
|
81
|
|
207
|
|
Residential real
estate
|
3
|
|
—
|
|
—
|
|
Real estate
construction and land development
|
8
|
|
4
|
|
16
|
|
Consumer
|
566
|
|
128
|
|
139
|
|
Total recoveries
|
849
|
|
213
|
|
362
|
|
Net recoveries
(charge-offs)
|
494
|
|
(466)
|
|
175
|
|
Balance, end of
period
|
$
40,333
|
|
$
42,361
|
|
$
64,225
|
|
Net (recoveries)
charge-offs on loans to average loans, annualized
|
(0.05)%
|
|
0.05%
|
|
(0.02)%
|
|
March 31,
2022
|
|
December 31,
2021
|
|
Nonperforming Assets:
|
|
|
|
|
Nonaccrual
loans:
|
|
|
|
|
Commercial business
|
$
15,956
|
|
$
23,107
|
|
Residential real estate
|
—
|
|
47
|
|
Real estate construction and land development
|
571
|
|
571
|
|
Consumer
|
—
|
|
29
|
|
Total nonaccrual
loans
|
16,527
|
|
23,754
|
|
Other real estate
owned
|
—
|
|
—
|
|
Nonperforming
assets
|
$
16,527
|
|
$
23,754
|
|
|
|
|
|
Restructured performing
loans
|
$
62,627
|
|
$
59,110
|
|
Accruing loans past due
90 days or more
|
1,318
|
|
293
|
|
ACL on loans
to:
|
|
|
|
|
Loans receivable
|
1.06 %
|
|
1.11
%
|
|
Loans receivable, excluding SBA PPP loans
(1)
|
1.07 %
|
|
1.15 %
|
|
Nonaccrual loans
|
244.04 %
|
|
178.33 %
|
|
Nonperforming loans to
loans receivable
|
0.43 %
|
|
0.62 %
|
|
Nonperforming assets to
total assets
|
0.22 %
|
|
0.32 %
|
|
(1) See Non-GAAP Financial
Measures section herein.
|
Average Balances, Yields, and Rates Paid:
|
Quarter
Ended
|
|
March 31,
2022
|
|
December 31,
2021
|
|
March 31,
2021
|
|
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)
|
$
3,773,325
|
|
$ 41,025
|
|
4.41%
|
|
$
3,836,029
|
|
$ 42,695
|
|
4.42%
|
|
$
4,490,499
|
|
$ 49,524
|
|
4.47%
|
|
Taxable
securities
|
1,271,557
|
|
6,003
|
|
1.91
|
|
1,016,629
|
|
5,197
|
|
2.03
|
|
674,268
|
|
3,534
|
|
2.13
|
|
Nontaxable securities
(3)
|
146,409
|
|
860
|
|
2.38
|
|
153,686
|
|
1,063
|
|
2.74
|
|
163,914
|
|
958
|
|
2.37
|
|
Interest earning
deposits
|
1,503,287
|
|
706
|
|
0.19
|
|
1,665,640
|
|
633
|
|
0.15
|
|
713,885
|
|
175
|
|
0.10
|
|
Total interest earning assets
|
6,694,578
|
|
48,594
|
|
2.94%
|
|
6,671,984
|
|
49,588
|
|
2.95%
|
|
6,042,566
|
|
54,191
|
|
3.64%
|
|
Noninterest earning
assets
|
740,209
|
|
|
|
|
|
731,613
|
|
|
|
|
|
757,059
|
|
|
|
|
|
Total assets
|
$
7,434,787
|
|
|
|
|
|
$
7,403,597
|
|
|
|
|
|
6,799,625
|
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
336,353
|
|
$ 338
|
|
0.41%
|
|
$
349,708
|
|
$ 364
|
|
0.41%
|
|
$
393,268
|
|
$ 559
|
|
0.58%
|
|
Savings
accounts
|
646,684
|
|
87
|
|
0.05
|
|
631,531
|
|
93
|
|
0.06
|
|
560,094
|
|
95
|
|
0.07
|
|
Interest bearing demand
and
money market
accounts
|
3,066,320
|
|
999
|
|
0.13
|
|
2,996,482
|
|
1,007
|
|
0.13
|
|
2,732,134
|
|
1,074
|
|
0.16
|
|
Total interest bearing deposits
|
4,049,357
|
|
1,424
|
|
0.14
|
|
3,977,721
|
|
1,464
|
|
0.15
|
|
3,685,496
|
|
1,728
|
|
0.19
|
|
Junior subordinated
debentures
|
21,214
|
|
194
|
|
3.71
|
|
21,140
|
|
185
|
|
3.47
|
|
20,913
|
|
187
|
|
3.63
|
|
Securities sold under
agreement
to
repurchase
|
50,017
|
|
32
|
|
0.26
|
|
46,942
|
|
31
|
|
0.26
|
|
40,074
|
|
38
|
|
0.38
|
|
Total interest bearing
liabilities
|
4,120,588
|
|
1,650
|
|
0.16%
|
|
4,045,803
|
|
1,680
|
|
0.16%
|
|
3,746,483
|
|
1,953
|
|
0.21%
|
|
Noninterest demand
deposits
|
2,359,451
|
|
|
|
|
|
2,396,452
|
|
|
|
|
|
2,105,039
|
|
|
|
|
|
Other noninterest
bearing
liabilities
|
108,663
|
|
|
|
|
|
111,959
|
|
|
|
|
|
121,082
|
|
|
|
|
|
Stockholders'
equity
|
846,085
|
|
|
|
|
|
849,383
|
|
|
|
|
|
827,021
|
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$
7,434,787
|
|
|
|
|
|
$
7,403,597
|
|
|
|
|
|
$
6,799,625
|
|
|
|
|
|
Net interest income and
spread
|
|
|
$ 46,944
|
|
2.78%
|
|
|
|
$ 47,908
|
|
2.79%
|
|
|
|
$ 52,238
|
|
3.43%
|
|
Net interest
margin
|
|
|
|
|
2.84%
|
|
|
|
|
|
2.85%
|
|
|
|
|
|
3.51%
|
|
(1)
Annualized; average balances are calculated using daily
balances.
|
|
(2)
Average loans 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 $3.4 million, $5.2 million and $7.3 million
for the first quarter of 2022, fourth quarter of 2021 and first
quarter of 2021, 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
|
|
March 31,
2022
|
|
December 31,
2021
|
|
September
30,
2021
|
|
June 30,
2021
|
|
March 31,
2021
|
|
Earnings:
|
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
$
46,944
|
|
$
47,908
|
|
$
51,378
|
|
$
54,265
|
|
$
52,238
|
|
Reversal of provision
for credit losses
|
(3,577)
|
|
(5,037)
|
|
(3,149)
|
|
(13,987)
|
|
(7,199)
|
|
Noninterest
income
|
8,538
|
|
9,839
|
|
8,228
|
|
8,297
|
|
8,251
|
|
Noninterest
expense
|
35,720
|
|
38,465
|
|
37,166
|
|
36,396
|
|
37,242
|
|
Net income
|
19,757
|
|
19,397
|
|
20,592
|
|
32,702
|
|
25,344
|
|
Pre-tax, pre-provision
net income (3)
|
19,762
|
|
19,282
|
|
22,440
|
|
26,166
|
|
23,247
|
|
Basic earnings per
share
|
$
0.56
|
|
$
0.56
|
|
$
0.58
|
|
$
0.91
|
|
$
0.70
|
|
Diluted earnings per
share
|
$
0.56
|
|
$
0.55
|
|
$
0.58
|
|
$
0.90
|
|
$
0.70
|
|
Average
Balances:
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
(1)
|
$
3,773,325
|
|
$
3,836,029
|
|
$
4,005.585
|
|
$
4,402,868
|
|
$
4,490,499
|
|
Total investment
securities
|
1,417,966
|
|
1,170,315
|
|
1,051,281
|
|
959,512
|
|
838,182
|
|
Total interest earning
assets
|
6,694,578
|
|
6,671,984
|
|
6,474.527
|
|
6,327,171
|
|
6,042,566
|
|
Total assets
|
7,434,787
|
|
7,403,597
|
|
7,214,960
|
|
7,079,205
|
|
6,799,625
|
|
Total interest bearing
deposits
|
4,049,357
|
|
3,977,721
|
|
3,856,663
|
|
3,809,750
|
|
3,685,496
|
|
Total noninterest
demand deposits
|
2,359,451
|
|
2,396,452
|
|
2,313.145
|
|
2,261,373
|
|
2,105,039
|
|
Stockholders'
equity
|
846,085
|
|
849,383
|
|
855,708
|
|
835,761
|
|
827,021
|
|
Financial
Ratios:
|
|
|
|
|
|
|
|
|
|
|
Return on average
assets (2)
|
1.08%
|
|
1.04%
|
|
1.13%
|
|
1.85%
|
|
1.51%
|
|
Pre-tax, pre-provision
return on
average assets (2)(3)
|
1.08
|
|
1.03
|
|
1.23
|
|
1.48
|
|
1.39
|
|
Return on average
common equity (2)
|
9.47
|
|
9.06
|
|
9.55
|
|
15.69
|
|
12.43
|
|
Return on average
tangible common
equity (2) (3)
|
13.83
|
|
13.27
|
|
13.93
|
|
22.94
|
|
18.37
|
|
Efficiency
ratio
|
64.38
|
|
66.61
|
|
62.35
|
|
58.18
|
|
61.57
|
|
Noninterest expense to
average total
assets (2)
|
1.95
|
|
2.06
|
|
2.04
|
|
2.06
|
|
2.22
|
|
Net interest margin
(2)
|
2.84
|
|
2.85
|
|
3.15
|
|
3.44
|
|
3.51
|
|
Net interest spread
(2)
|
2.78
|
|
2.79
|
|
3.08
|
|
3.37
|
|
3.43
|
|
(1) Average
loan receivable, net includes loans held for sale.
|
|
(2)
Annualized.
|
|
(3) See
Non-GAAP Financial Measures section herein.
|
|
As of or for the
Quarter Ended
|
|
March 31,
2022
|
|
December 31,
2021
|
|
September
30,
2021
|
|
June 30,
2021
|
|
March 31,
2021
|
|
Select Balance
Sheet:
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
7,483,814
|
|
$
7,432,412
|
|
$
7,259,038
|
|
$
7,105,672
|
|
$
7,028,392
|
|
Loans receivable,
net
|
3,780,845
|
|
3,773,301
|
|
3,905,567
|
|
4,155,968
|
|
4,531,644
|
|
Total investment
securities
|
1,462,137
|
|
1,277,728
|
|
1,072,600
|
|
1,049,524
|
|
893,558
|
|
Deposits
|
6,491,500
|
|
6,394,290
|
|
6,229,017
|
|
6,074,385
|
|
6,033,124
|
|
Noninterest demand
deposits
|
2,393,972
|
|
2,343,909
|
|
2,312,707
|
|
2,269,020
|
|
2,218,988
|
|
Stockholders'
equity
|
821,449
|
|
854,432
|
|
848,404
|
|
855,984
|
|
827,151
|
|
Financial
Measures:
|
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
$
23.40
|
|
$
24.34
|
|
$
24.13
|
|
$
23.77
|
|
$
22.99
|
|
Tangible book value per
share (1)
|
16.27
|
|
17.19
|
|
16.97
|
|
16.76
|
|
15.95
|
|
Stockholders' equity to
total assets
|
11.0%
|
|
11.5%
|
|
11.7%
|
|
12.0%
|
|
11.8%
|
|
Tangible common equity
to tangible
assets (1)
|
7.9
|
|
8.4
|
|
8.5
|
|
8.8
|
|
8.5
|
|
Loans to deposits
ratio
|
58.9
|
|
59.7
|
|
63.5
|
|
69.3
|
|
76.2
|
|
Regulatory Capital
Ratios:
|
|
|
|
|
|
|
|
|
|
|
Common equity Tier 1
capital to risk-
weighted assets(2)
|
13.4%
|
|
13.5%
|
|
13.3%
|
|
13.6%
|
|
12.8%
|
|
Tier 1 leverage capital
to average
assets(2)
|
8.8%
|
|
8.7%
|
|
8.8%
|
|
9.1%
|
|
9.1%
|
|
Tier 1 capital to
risk-weighted assets(2)
|
13.9%
|
|
13.9%
|
|
13.8%
|
|
14.0%
|
|
13.2%
|
|
Total capital to
risk-weighted assets(2)
|
14.7%
|
|
14.8%
|
|
14.8%
|
|
15.1%
|
|
14.5%
|
|
Credit Quality
Metrics:
|
|
|
|
|
|
|
|
|
|
|
ACL on
loans to:
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
|
1.06%
|
|
1.11%
|
|
1.22%
|
|
1.23%
|
|
1.40%
|
|
Loans receivable, excluding SBA
PPP loans
(1)
|
1.07
|
|
1.15
|
|
1.31
|
|
1.41
|
|
1.73
|
|
Nonperforming loans
|
244.04
|
|
178.33
|
|
186.60
|
|
145.90
|
|
121.48
|
|
Nonperforming loans to
loans
receivable
|
0.43
|
|
0.62
|
|
0.65
|
|
0.84
|
|
1.15
|
|
Nonperforming assets to
total assets
|
0.22
|
|
0.32
|
|
0.36
|
|
0.50
|
|
0.75
|
|
Net (recoveries)
charge-offs on loans
to average loans receivable
|
(0.05)
|
|
0.05
|
|
0.04
|
|
(0.01)
|
|
(0.02)
|
|
Criticized Loans by
Credit Quality Rating:
|
|
Special
mention
|
$
63,269
|
|
$
71,020
|
|
$
90,554
|
|
$
100,317
|
|
$
108,975
|
|
Substandard
|
111,300
|
|
112,450
|
|
126,964
|
|
135,374
|
|
160,461
|
|
Other
Metrics:
|
|
|
|
|
|
|
|
|
|
|
Number of banking
offices
|
49
|
|
49
|
|
53
|
|
53
|
|
53
|
|
Average number of
full-time
equivalent employees
|
751
|
|
782
|
|
813
|
|
822
|
|
840
|
|
Deposits per
branch
|
$
132,480
|
|
$
130,496
|
|
$
117,529
|
|
$
114,611
|
|
$
113,833
|
|
Average assets per
full-time
equivalent employee
|
9,905
|
|
9,469
|
|
8,877
|
|
8,607
|
|
8,098
|
|
(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.
|
March 31,
2022
|
|
December 31,
2021
|
|
September
30,
2021
|
|
June 30,
2021
|
|
March 31,
2021
|
|
Tangible Common
Equity to Tangible Assets and Tangible Book Value Per
Share:
|
|
Total stockholders'
equity (GAAP)
|
$
821,449
|
|
$
854,432
|
|
$
848,404
|
|
$
855,984
|
|
$
827,151
|
|
Exclude intangible assets
|
(250,212)
|
|
(250,916)
|
|
(251,675)
|
|
(252,433)
|
|
(253,230)
|
|
Tangible common equity
(non-GAAP)
|
$
571,237
|
|
$
603,516
|
|
$
596,729
|
|
$
603,551
|
|
$
573,921
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
(GAAP)
|
$
7,483,814
|
|
$
7,432,412
|
|
$
7,259,038
|
|
$
7,105,672
|
|
$
7,028,392
|
|
Exclude intangible assets
|
(250,212)
|
|
(250,916)
|
|
(251,675)
|
|
(252,433)
|
|
(253,230)
|
|
Tangible assets
(non-GAAP)
|
$
7,233,602
|
|
$
7,181,496
|
|
$
7,007,363
|
|
$
6,853,239
|
|
$
6,775,162
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity to
total assets
(GAAP)
|
11.0%
|
|
11.5%
|
|
11.7%
|
|
12.0%
|
|
11.8%
|
|
Tangible common equity
to tangible
assets (non-GAAP)
|
7.9%
|
|
8.4%
|
|
8.5%
|
|
8.8%
|
|
8.5%
|
|
|
|
|
|
|
|
|
|
|
|
Shares
outstanding
|
35,102,372
|
|
35,105,779
|
|
35,166,599
|
|
36,006,560
|
|
35,981,317
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share
(GAAP)
|
$
23.40
|
|
$
24.34
|
|
$
24.13
|
|
$
23.77
|
|
$
22.99
|
|
Tangible book value per
share (non-
GAAP)
|
$
16.27
|
|
$
17.19
|
|
$
16.97
|
|
$
16.76
|
|
$
15.95
|
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.
|
March 31,
2022
|
|
December 31,
2021
|
|
September
30,
2021
|
|
June 30,
2021
|
|
March 31,
2021
|
|
ACL on Loans to
Loans Receivable, excluding SBA PPP Loans:
|
|
Allowance for credit
losses on loans
|
$
40,333
|
|
$
42,361
|
|
$
48,317
|
|
$
51,562
|
|
$
64,225
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
(GAAP)
|
$
3,821,178
|
|
$
3,815,662
|
|
$
3,953,884
|
|
$
4,207,530
|
|
$
4,595,869
|
|
Exclude SBA PPP loans
|
(64,962)
|
|
(145,840)
|
|
(266,896)
|
|
(544,250)
|
|
(886,761)
|
|
Loans receivable,
excluding SBA
PPP loans (non-GAAP)
|
$
3,756,216
|
|
$
3,669,822
|
|
$
3,686,988
|
|
$
3,663,280
|
|
$
3,709,108
|
|
|
|
|
|
|
|
|
|
|
|
ACL on loans to loans
receivable
(GAAP)
|
1.06%
|
|
1.11%
|
|
1.22%
|
|
1.23%
|
|
1.40%
|
|
ACL on loans to loans
receivable,
excluding SBA PPP loans (non-
GAAP)
|
1.07%
|
|
1.15%
|
|
1.31%
|
|
1.41%
|
|
1.73%
|
Similarly, presenting the change in loans receivable excluding
the change in SBA PPP loans is useful in assessing the impact of
these special program loans to the Company's loan production
efforts:
|
March 31,
2022
|
|
December 31,
2021
|
|
Change in Loans
Receivable, excluding SBA PPP Loans:
|
|
Loans receivable
(GAAP)
|
$
3,821,178
|
|
$
3,815,662
|
|
Exclude SBA PPP loans
|
(64,962)
|
|
(145,840)
|
|
Loans receivable,
excluding SBA PPP loans (non-GAAP)
|
$
3,756,216
|
|
$
3,669,822
|
|
|
|
|
|
Change from prior
quarter (amount)
|
|
|
|
|
Change in loans
receivable from prior quarter (GAAP)
|
$
5,516
|
|
|
|
Exclude change in SBA PPP loans from prior quarter
|
(80,878)
|
|
|
|
Change in loans
receivable from prior quarter, excluding SBA PPP loans
(non-GAAP)
|
$
86,394
|
|
|
|
|
|
|
|
Change from prior
quarter (percentage)
|
|
|
|
|
Percent change in loans
receivable (GAAP)
|
0.1%
|
|
|
|
Percent change in loans
receivable, excluding SBA PPP loans (non-GAAP)
|
2.4%
|
|
|
|
Percent change in loans
receivable, annualized (GAAP)
|
0.6%
|
|
|
|
Percent change in loans
receivable, excluding SBA PPP loans, annualized
(non-GAAP)
|
9.5%
|
|
|
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
|
|
March 31,
2022
|
|
December 31,
2021
|
|
September
30,
2021
|
|
June 30,
2021
|
|
March 31,
2021
|
|
Return on Average
Tangible Common Equity, annualized:
|
|
Net income
(GAAP)
|
$
19,757
|
|
$
19,397
|
|
$
20,592
|
|
$
32,702
|
|
$
25,344
|
|
Add
amortization of intangible
assets
|
704
|
|
759
|
|
758
|
|
797
|
|
797
|
|
Exclude tax effect of adjustment
|
(148)
|
|
(159)
|
|
(159)
|
|
(167)
|
|
(167)
|
|
Tangible net income
(non-GAAP)
|
$
20,313
|
|
$
19,997
|
|
$
21,191
|
|
$
33,332
|
|
$
25,974
|
|
|
|
|
|
|
|
|
|
|
|
Average stockholders'
equity (GAAP)
|
$
846,085
|
|
$
849,383
|
|
$
855,708
|
|
$
835,761
|
|
$
827,021
|
|
Exclude average intangible
assets
|
(250,593)
|
|
(251,331)
|
|
(252,159)
|
|
(252,956)
|
|
(253,747)
|
|
Average tangible
common
stockholders' equity (non-GAAP)
|
$
595,492
|
|
$
598,052
|
|
$
603,549
|
|
$
582,805
|
|
$
573,274
|
|
|
|
|
|
|
|
|
|
|
|
Return on average
common equity,
annualized (GAAP)
|
9.47%
|
|
9.06%
|
|
9.55%
|
|
15.69%
|
|
12.43%
|
|
Return on average
tangible common
equity, annualized (non-GAAP)
|
13.83%
|
|
13.27%
|
|
13.93%
|
|
22.94%
|
|
18.37%
|
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
|
|
March 31,
2022
|
|
December 31,
2021
|
|
September
30,
2021
|
|
June 30,
2021
|
|
March 31,
2021
|
|
Pre-tax,
Pre-provision Income and Pre-tax, Pre-provision Return on Average
Assets, annualized:
|
|
Net income
(GAAP)
|
$
19,757
|
|
$
19,397
|
|
$
20,592
|
|
$
32,702
|
|
$
25,344
|
|
Add
income tax expense
|
3,582
|
|
4,922
|
|
4,997
|
|
7,451
|
|
5,102
|
|
Add
reversal of provision for
credit
losses
|
(3,577)
|
|
(5,037)
|
|
(3,149)
|
|
(13,987)
|
|
(7,199)
|
|
Pre-tax, pre-provision
income (non-
GAAP)
|
$
19,762
|
|
$
19,282
|
|
$
22,440
|
|
$
26,166
|
|
$
23,247
|
|
|
|
|
|
|
|
|
|
|
|
Average total assets
(GAAP)
|
$
7,434,787
|
|
$
7,403,597
|
|
$
7,214,960
|
|
$
7,079,205
|
|
$
6,799,625
|
|
|
|
|
|
|
|
|
|
|
|
Return on average
assets,
annualized (GAAP)
|
1.08%
|
|
1.04%
|
|
1.13%
|
|
1.85%
|
|
1.51%
|
|
Pre-tax, pre-provision
return on
average assets (non-GAAP)
|
1.08%
|
|
1.03%
|
|
1.23%
|
|
1.48%
|
|
1.39%
|
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
|
|
March 31,
2022
|
|
December 31,
2021
|
|
March 31,
2021
|
|
Loan Yield,
excluding SBA PPP Loans and Incremental Accretion on Purchased
Loans, annualized:
|
|
Interest and fees on
loans (GAAP)
|
$
41,025
|
|
$
42,695
|
|
$
49,524
|
|
Exclude interest and fees on SBA PPP loans
|
(3,081)
|
|
(4,928)
|
|
(9,136)
|
|
Exclude incremental accretion on purchased loans
|
(584)
|
|
(387)
|
|
(1,075)
|
|
Adjusted interest and
fees on loans (non-GAAP)
|
$
37,360
|
|
$
37,380
|
|
$
39,313
|
|
|
|
|
|
|
|
Average loans
receivable, net (GAAP)
|
$
3,773,325
|
|
$
3,836,029
|
|
$
4,490,499
|
|
Exclude average SBA PPP loans
|
(109,594)
|
|
(204,436)
|
|
(832,148)
|
|
Adjusted average loans
receivable, net (non-GAAP)
|
$
3,663,731
|
|
$
3,631,593
|
|
$
3,658,351
|
|
|
|
|
|
|
|
Loan yield, annualized
(GAAP)
|
4.41%
|
|
4.42%
|
|
4.47%
|
|
Loan yield, excluding
SBA PPP loans and incremental accretion on
purchased loans, annualized
(non-GAAP)
|
4.14%
|
|
4.08%
|
|
4.36%
|
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content:https://www.prnewswire.com/news-releases/heritage-financial-announces-first-quarter-2022-results-and-declares-regular-cash-dividend-301529830.html
SOURCE Heritage Financial Corporation