- Net income was $18.6 million,
or $0.52 per diluted share, for the
second quarter of 2022 compared to $19.8
million, or $0.56 per diluted
share, for the first quarter of 2022 and $32.7 million, or $0.90 per diluted share, for the second quarter
of 2021.
- Loans receivable grew $52.9
million, or 1.4% (5.6% annualized), in the second quarter of
2022; excluding SBA PPP loan repayments of $53.6 million, loans receivable grew $106.5 million, or 2.8% (11.2%
annualized).
- Expanded our existing presence in the Portland-Vancouver MSA
and gained an important entry into the Eugene, Oregon market through the hiring of
four experienced banking teams, including commercial relationship
managers, deposit relationship managers, support staff and
leadership.
- Net interest margin increased to 3.04% for the second
quarter of 2022 from 2.84% for the first quarter of 2022.
- The ratio of nonperforming assets to total assets decreased
to 0.14% at June 30, 2022 compared to
0.22% at March 31, 2022 and 0.32% at
December 31, 2021.
- Noninterest expense to average total assets, annualized, was
1.94% for the second quarter of 2022 compared to 1.95% for the
first quarter of 2022 and 2.06% for the second quarter of
2021.
- Declared a regular cash dividend of $0.21 per common share on July 20, 2022.
OLYMPIA,
Wash, July 21, 2022 /PRNewswire/ -- Heritage
Financial Corporation (NASDAQ GS: HFWA) (the "Company" or
"Heritage"), the parent company of Heritage Bank (the "Bank"),
today reported net income of $18.6
million for the second quarter of 2022 compared to
$19.8 million for the first quarter
of 2022 and $32.7 million for the
second quarter of 2021. Diluted earnings per share for the second
quarter of 2022 were $0.52 compared
to $0.56 for the first quarter of
2022 and $0.90 for the second quarter
of 2021.
Jeffrey J. Deuel, President and
Chief Executive Officer of Heritage, commented, "We are pleased
with the positive progress we are seeing in loan growth as well as
the continuing improvement in the underlying credit quality of our
loan portfolio. We are beginning to see the benefits of our asset
sensitivity and core deposit base in the current rate environment,
which is noticeable in our increased net interest margin this
quarter.
We are also excited about the new teams we hired to expand our
production capabilities in the Portland-Vancouver MSA and
Eugene, Oregon. These are
attractive markets for us to grow loans and deposits, and the teams
of bankers are a natural fit with the Heritage culture.
During the second quarter, we closed on the financing of
Northwest Housing Alternatives' (a leading Oregon-wide affordable housing provider
headquartered in the Portland
Metro area) 42-unit Trillium House Project in Warrenton, Oregon, a coastal community which
is underserved in affordable housing. The construction loan was
$11.6 million and the structure
included our first Agricultural Worker Housing Tax Credit
investment in addition to a Low Income Housing Tax Credit
investment. We are pleased with the success of our efforts to
positively impact housing in the markets we serve."
Financial Highlights
The following table provides financial highlights at the dates
and for the periods indicated:
|
As of or for the
Quarter Ended
|
|
June 30,
2022
|
|
March 31,
2022
|
|
June 30,
2021
|
|
(Dollars in
thousands, except per share amounts)
|
Net income
|
$
18,584
|
|
$
19,757
|
|
$
32,702
|
Pre-tax, pre-provision
income (1)
|
$
21,357
|
|
$
19,762
|
|
$
26,166
|
Diluted earnings per
share
|
$
0.52
|
|
$
0.56
|
|
$
0.90
|
Return on average
assets (2)
|
1.01 %
|
|
1.08 %
|
|
1.85 %
|
Pre-tax, pre-provision
return on average assets (1) (2)
|
1.16 %
|
|
1.08 %
|
|
1.48 %
|
Return on average
common equity (2)
|
9.19 %
|
|
9.47 %
|
|
15.69 %
|
Return on average
tangible common equity (1) (2)
|
13.68 %
|
|
13.83 %
|
|
22.94 %
|
Net interest margin
(2)
|
3.04 %
|
|
2.84 %
|
|
3.44 %
|
Cost of total deposits
(2)
|
0.09 %
|
|
0.09 %
|
|
0.10 %
|
Efficiency
ratio
|
62.57 %
|
|
64.38 %
|
|
58.18 %
|
Noninterest expense to
average total assets (2)
|
1.94 %
|
|
1.95 %
|
|
2.06 %
|
Total assets
|
$ 7,316,467
|
|
$ 7,483,814
|
|
$ 7,105,672
|
Loans receivable,
net
|
$ 3,834,368
|
|
$ 3,780,845
|
|
$ 4,155,968
|
Total
deposits
|
$ 6,330,190
|
|
$ 6,491,500
|
|
$ 6,074,385
|
Loan to deposit ratio
(3)
|
61.2 %
|
|
58.9 %
|
|
69.3 %
|
Book value per
share
|
$
22.94
|
|
$
23.40
|
|
$
23.77
|
Tangible book value per
share (1)
|
$
15.83
|
|
$
16.27
|
|
$
16.76
|
Tangible book value per
share, excluding AOCI (1) (4)
|
$
17.59
|
|
$
17.25
|
|
$
16.32
|
|
|
(1)
|
See Non-GAAP Financial
Measures section herein.
|
(2)
|
Annualized.
|
(3)
|
Loans receivable
divided by total deposits.
|
(4)
|
Accumulated other
comprehensive income or loss ("AOCI").
|
Balance Sheet
Cash and cash equivalents decreased $582.7 million, or 37.0%, to $994.1 million at June 30,
2022 from $1.58 billion at
March 31, 2022 due primarily to the
increase in investment securities and secondarily due to a decrease
in deposits.
The following table provides information regarding our
investment securities at the dates indicated:
|
June 30,
2022
|
|
March 31,
2022
|
|
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Change
|
|
%
Change
|
|
(Dollars in
thousands)
|
Investment
securities available for sale, at fair value:
|
U.S. government and
agency securities
|
$
65,668
|
|
3.6 %
|
|
$
39,555
|
|
2.7 %
|
|
$
26,113
|
|
66.0 %
|
Municipal
securities
|
200,010
|
|
11.1
|
|
210,239
|
|
14.4
|
|
(10,229)
|
|
(4.9)
|
Residential CMO and
MBS
|
398,156
|
|
22.1
|
|
358,409
|
|
24.5
|
|
39,747
|
|
11.1
|
Commercial CMO and
MBS
|
493,620
|
|
27.4
|
|
404,505
|
|
27.7
|
|
89,115
|
|
22.0
|
Corporate
obligations
|
5,978
|
|
0.3
|
|
2,009
|
|
0.1
|
|
3,969
|
|
197.6
|
Other asset-backed
securities
|
24,156
|
|
1.3
|
|
25,207
|
|
1.7
|
|
(1,051)
|
|
(4.2)
|
Total
|
$
1,187,588
|
|
65.8 %
|
|
$
1,039,924
|
|
71.1 %
|
|
$
147,664
|
|
14.2 %
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities held to maturity, at amortized cost:
|
U.S. government and
agency securities
|
$
150,960
|
|
8.4 %
|
|
$
150,973
|
|
10.3 %
|
|
$
(13)
|
|
— %
|
Residential CMO and
MBS
|
159,007
|
|
8.8
|
|
54,486
|
|
3.7
|
|
104,521
|
|
191.8
|
Commercial CMO and
MBS
|
305,686
|
|
17.0
|
|
216,754
|
|
14.9
|
|
88,932
|
|
41.0
|
Total
|
$
615,653
|
|
34.2 %
|
|
$
422,213
|
|
28.9 %
|
|
$
193,440
|
|
45.8 %
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment
securities
|
$
1,803,241
|
|
100.0 %
|
|
$
1,462,137
|
|
100.0 %
|
|
$
341,104
|
|
23.3 %
|
Total investment securities increased $341.1 million, or 23.3%, to $1.80 billion at June 30,
2022 from $1.46 billion at
March 31, 2022 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:
|
June 30,
2022
|
|
March 31,
2022
|
|
Change
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Amount
|
|
%
|
|
(Dollars in
thousands)
|
Commercial
business:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
industrial
|
$
698,828
|
|
18.0 %
|
|
$
651,523
|
|
17.1 %
|
|
$
47,305
|
|
7.3 %
|
SBA PPP
|
11,334
|
|
0.3
|
|
64,962
|
|
1.7
|
|
(53,628)
|
|
(82.6)
|
Owner-occupied
commercial real estate ("CRE")
|
950,699
|
|
24.6
|
|
935,705
|
|
24.5
|
|
14,994
|
|
1.6
|
Non-owner occupied
CRE
|
1,515,796
|
|
39.1
|
|
1,505,483
|
|
39.4
|
|
10,313
|
|
0.7
|
Total commercial
business
|
3,176,657
|
|
82.0
|
|
3,157,673
|
|
82.7
|
|
18,984
|
|
0.6
|
Residential real
estate
|
265,382
|
|
6.9
|
|
223,442
|
|
5.8
|
|
41,940
|
|
18.8
|
Real estate
construction and land development:
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
90,546
|
|
2.3
|
|
83,529
|
|
2.2
|
|
7,017
|
|
8.4
|
Commercial and
multifamily
|
128,060
|
|
3.3
|
|
138,583
|
|
3.6
|
|
(10,523)
|
|
(7.6)
|
Total real estate
construction and land development
|
218,606
|
|
5.6
|
|
222,112
|
|
5.8
|
|
(3,506)
|
|
(1.6)
|
Consumer
|
213,419
|
|
5.5
|
|
217,951
|
|
5.7
|
|
(4,532)
|
|
(2.1)
|
Loans
receivable
|
3,874,064
|
|
100.0 %
|
|
3,821,178
|
|
100.0 %
|
|
52,886
|
|
1.4
|
Allowance for credit
losses on loans
|
(39,696)
|
|
|
|
(40,333)
|
|
|
|
637
|
|
(1.6)
|
Loans receivable,
net
|
$
3,834,368
|
|
|
|
$
3,780,845
|
|
|
|
$
53,523
|
|
1.4 %
|
Loans receivable grew $52.9
million, or 1.4% (5.6% annualized), in the second quarter of
2022. New loans funded during the second and first quarter of 2022
were $242.4 million and $226.0 million, respectively, including purchased
residential real estate loans of $27.3
million and $42.2 million,
respectively. Loan repayments were $136.5
million during the second quarter of 2022 compared to
$140.0 million in the first quarter
of 2022, exclusive of SBA PPP loan repayments, net deferred fees,
and net acquired discounts.
Total deposits decreased $161.3
million, or 2.5%, from March 31,
2022. The following table summarizes the Company's total
deposits at the dates indicated:
|
June 30,
2022
|
|
March 31,
2022
|
|
Change
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
Amount
|
|
%
|
|
(Dollars in
thousands)
|
Noninterest demand
deposits
|
$
2,325,139
|
|
36.7 %
|
|
$
2,393,972
|
|
36.9 %
|
|
$
(68,833)
|
|
(2.9) %
|
Interest bearing demand
deposits
|
1,977,527
|
|
31.3
|
|
2,018,032
|
|
31.1
|
|
(40,505)
|
|
(2.0)
|
Money market
accounts
|
1,062,178
|
|
16.8
|
|
1,099,539
|
|
16.9
|
|
(37,361)
|
|
(3.4)
|
Savings
accounts
|
654,577
|
|
10.3
|
|
651,541
|
|
10.0
|
|
3,036
|
|
0.5
|
Total non-maturity
deposits
|
6,019,421
|
|
95.1
|
|
6,163,084
|
|
94.9
|
|
(143,663)
|
|
(2.3)
|
Certificates of
deposit
|
310,769
|
|
4.9
|
|
328,416
|
|
5.1
|
|
(17,647)
|
|
(5.4)
|
Total
deposits
|
$
6,330,190
|
|
100.0 %
|
|
$
6,491,500
|
|
100.0 %
|
|
$ (161,310)
|
|
(2.5) %
|
During the second quarter of 2022, the Company repurchased
$0.5 million, or 19,531 shares of its
common stock at a weighted average price per share of $24.63, as compared to the repurchase of
$2.0 million, or 80,559 shares of its
common stock, at a weighted average price per share of $25.17, during the first quarter of 2022. As of
June 30, 2022, there were 638,214
shares available for repurchase under the current repurchase
plan.
Total stockholders' equity decreased $16.1 million during the second quarter of 2022
due primarily to a decrease in AOCI of $27.6
million following an increase in market interest rates
during the quarter, which negatively impacted the fair value of our
investment securities available for sale at June 30, 2022. AOCI has no effect on our
regulatory capital ratios as the Company opted to exclude it from
our common equity tier 1 capital calculations.
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:
|
June 30,
2022
|
|
March 31,
2022
|
|
Change
|
Stockholders' equity to
total assets
|
11.0 %
|
|
11.0 %
|
|
— %
|
Tangible common equity
to tangible assets (1)
|
7.9
|
|
7.9
|
|
—
|
Tangible common equity
to tangible assets, excluding AOCI (1)
|
8.7
|
|
8.3
|
|
0.4
|
Common equity Tier 1
capital to risk-weighted assets (2)
|
13.2
|
|
13.4
|
|
(0.2)
|
Tier 1 leverage capital
to average quarterly assets (2)
|
8.9
|
|
8.8
|
|
0.1
|
Tier 1 capital to
risk-weighted assets (2)
|
13.6
|
|
13.9
|
|
(0.3)
|
Total capital to
risk-weighted assets (2)
|
14.4
|
|
14.7
|
|
(0.3)
|
|
|
(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
|
|
June 30,
2022
|
|
March 31,
2022
|
|
June 30,
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
|
$ 40,333
|
|
$ 1,552
|
|
$ 41,885
|
|
$ 42,361
|
|
$ 2,607
|
|
$ 44,968
|
|
$ 64,225
|
|
$ 3,617
|
|
$ 67,842
|
Reversal of provision
for credit losses
|
(649)
|
|
(555)
|
|
(1,204)
|
|
(2,522)
|
|
(1,055)
|
|
(3,577)
|
|
(12,821)
|
|
(1,166)
|
|
(13,987)
|
Net recovery
|
12
|
|
—
|
|
12
|
|
494
|
|
—
|
|
494
|
|
158
|
|
—
|
|
158
|
Balance, end of
period
|
$ 39,696
|
|
$
997
|
|
$ 40,693
|
|
$ 40,333
|
|
$ 1,552
|
|
$ 41,885
|
|
$ 51,562
|
|
$ 2,451
|
|
$ 54,013
|
The ACL on loans decreased compared to March 31, 2022 due primarily to a reduction of
loans individually evaluated for losses and their related ACL. The
ACL on Unfunded decreased due primarily to higher utilization rates
on commercial and industrial lines of credit.
Credit Quality
Nonperforming assets decreased to 0.14% of total assets at
June 30, 2022 compared to 0.22% of
total assets at March 31, 2022.
Nonperforming assets at both June 30,
2022 and March 31, 2022
consisted only of nonaccrual loans. Changes in nonaccrual loans
during the periods indicated were as follows:
|
Quarter
Ended
|
|
June 30,
2022
|
|
March 31,
2022
|
|
June 30,
2021
|
|
(In
thousands)
|
Balance, beginning of
period
|
$
16,527
|
|
$
23,754
|
|
$
52,868
|
Additions
|
720
|
|
—
|
|
401
|
Net principal payments
and transfers to accruing status
|
(5,964)
|
|
(3,804)
|
|
(2,093)
|
Payoffs
|
(691)
|
|
(3,369)
|
|
(15,835)
|
Charge-offs
|
(117)
|
|
(54)
|
|
—
|
Balance, end of
period
|
$
10,475
|
|
$
16,527
|
|
$
35,341
|
Nonaccrual loans declined during the second quarter of 2022 due
primarily to the transfer of two CRE loan relationships totaling
$4.9 million back to accrual
status.
Net Interest Income and Net
Interest Margin
Net interest income increased $3.1
million, or 6.6%, compared to the first quarter of 2022 due
primarily to increases in yields earned on investment securities
and interest earning deposits following increases in market
interest rates. The increase in yields was offset partially by 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 $4.2
million, or 7.8%, compared to the second quarter of 2021 due
primarily to the decrease in deferred SBA PPP loan fees recognized,
offset partially by a higher average balance of taxable investment
securities and higher yield earned on interest earning
deposits.
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
|
|
June 30,
2022
|
|
March 31,
2022
|
|
June 30,
2021
|
Loan yield
(GAAP)
|
4.30 %
|
|
4.41 %
|
|
4.62 %
|
Exclude impact from
SBA PPP loans
|
(0.15)
|
|
(0.21)
|
|
(0.13)
|
Exclude impact from
incremental accretion on purchased loans
|
(0.03)
|
|
(0.06)
|
|
(0.04)
|
Loan yield, excluding
SBA PPP loans and incremental accretion on purchased loans
(non-GAAP) (1)
|
4.12 %
|
|
4.14 %
|
|
4.45 %
|
|
|
(1)
|
See Non-GAAP Financial
Measures section.
|
The impact to loan yield from recoveries of interest and fees on
loans classified as nonaccrual was one basis point during the
second quarter of 2022 compared to 11 basis points during the first
quarter of 2022 and 18 basis points during the second quarter of
2021.
Net interest margin increased to 3.04% for the second quarter of
2022 as compared to 2.84% for the first quarter of 2022 due
primarily to a shift into higher yielding interest earning assets
with a lower ratio of lower yielding interest earning deposits to
total interest earning assets and secondarily due to higher yields
on interest earning assets.
Net interest margin decreased from 3.44% for the second quarter
of 2021 due primarily to the change in the mix of total interest
earning assets into a higher proportion of lower yielding
investment securities and interest earning deposits, resulting
mostly from a significant decrease in SBA PPP loan balances.
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
|
|
June 30,
2022
|
|
March 31,
2022
|
|
June 30,
2021
|
|
Change
|
|
%
Change
|
|
Change
|
|
%
Change
|
|
(Dollar amounts in
thousands)
|
Service charges and
other fees
|
$
2,391
|
|
$
2,296
|
|
$
2,067
|
|
$ 95
|
|
4.1 %
|
|
$ 324
|
|
15.7 %
|
Card revenue
|
2,332
|
|
2,441
|
|
2,338
|
|
(109)
|
|
(4.5)
|
|
(6)
|
|
(0.3)
|
Gain on sale of loans,
net
|
219
|
|
241
|
|
1,003
|
|
(22)
|
|
(9.1)
|
|
(784)
|
|
(78.2)
|
Interest rate swap
fees
|
26
|
|
279
|
|
209
|
|
(253)
|
|
(90.7)
|
|
(183)
|
|
(87.6)
|
Bank owned life
insurance income
|
764
|
|
1,695
|
|
717
|
|
(931)
|
|
(54.9)
|
|
47
|
|
6.6
|
Gain on sale of other
assets, net
|
—
|
|
204
|
|
724
|
|
(204)
|
|
(100.0)
|
|
(724)
|
|
(100.0)
|
Other income
|
1,284
|
|
1,382
|
|
1,239
|
|
(98)
|
|
(7.1)
|
|
45
|
|
3.6
|
Total noninterest
income
|
$
7,016
|
|
$
8,538
|
|
$
8,297
|
|
$ (1,522)
|
|
(17.8) %
|
|
$ (1,281)
|
|
(15.4) %
|
Noninterest income decreased from the first quarter of 2022 due
primarily to the recognition of a bank owned life insurance death
benefit income of $1.0 million in the
prior quarter.
Noninterest income decreased from the same period in 2021 due
primarily to reduced gain on sale of loans, net as sales volume of
secondary market mortgage loans declined and secondarily due to
gain on sale of branches held for sale recognized during the second
quarter of 2021.
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
|
|
June 30,
2022
|
|
March 31,
2022
|
|
June 30,
2021
|
|
Change
|
|
%
Change
|
|
Change
|
|
%
Change
|
|
(Dollar amounts in
thousands)
|
Compensation and
employee benefits
|
$
21,778
|
|
$
21,252
|
|
$
21,803
|
|
$ 526
|
|
2.5 %
|
|
$ (25)
|
|
(0.1) %
|
Occupancy and
equipment
|
4,171
|
|
4,331
|
|
4,091
|
|
(160)
|
|
(3.7)
|
|
80
|
|
2.0
|
Data
processing
|
4,185
|
|
4,061
|
|
3,998
|
|
124
|
|
3.1
|
|
187
|
|
4.7
|
Marketing
|
344
|
|
266
|
|
567
|
|
78
|
|
29.3
|
|
(223)
|
|
(39.3)
|
Professional
services
|
529
|
|
699
|
|
1,037
|
|
(170)
|
|
(24.3)
|
|
(508)
|
|
(49.0)
|
State/municipal
business and use tax
|
867
|
|
796
|
|
991
|
|
71
|
|
8.9
|
|
(124)
|
|
(12.5)
|
Federal deposit
insurance premium
|
425
|
|
600
|
|
339
|
|
(175)
|
|
(29.2)
|
|
86
|
|
25.4
|
Amortization of
intangible assets
|
704
|
|
704
|
|
797
|
|
—
|
|
—
|
|
(93)
|
|
(11.7)
|
Other
expense
|
2,704
|
|
3,011
|
|
2,773
|
|
(307)
|
|
(10.2)
|
|
(69)
|
|
(2.5)
|
Total noninterest
expense
|
$
35,707
|
|
$
35,720
|
|
$
36,396
|
|
$ (13)
|
|
— %
|
|
$
(689)
|
|
(1.9) %
|
Noninterest expense decreased slightly from the first quarter of
2022 due primarily to a reduction in several expense categories,
offset partially by an increase in compensation and employee
benefits related to the addition of commercial and
relationship banking teams.
Noninterest expense decreased from the same period in 2021 due
primarily to third-party expenses related to PPP loan forgiveness
and higher legal costs related to loan collection efforts included
in professional services expense for the second quarter of
2021.
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
|
|
June 30,
2022
|
|
March 31,
2022
|
|
June 30,
2021
|
|
Change
|
|
%
Change
|
|
Change
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollar amounts in
thousands)
|
Income before income
taxes
|
$ 22,561
|
|
$ 23,339
|
|
$ 40,153
|
|
$ (778)
|
|
(3.3) %
|
|
$ (17,592)
|
|
(43.8) %
|
Income tax
expense
|
$ 3,977
|
|
$ 3,582
|
|
$ 7,451
|
|
$ 395
|
|
11.0 %
|
|
$
(3,474)
|
|
(46.6) %
|
Effective income tax
rate
|
17.6 %
|
|
15.3 %
|
|
18.6 %
|
|
2.3 %
|
|
15.0 %
|
|
(1.0) %
|
|
(5.4) %
|
Income tax expense increased compared to the first quarter of
2022 due primarily to a higher effective income tax rate during the
second quarter of 2022 following an increase in estimated annual
pre-tax income for the year ended 2022, 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.
Income tax expense decreased compared to the same period in 2021
primarily reflecting the change in income before income taxes
earned between the periods.
Dividend
On July 20, 2022, the Company's Board of Directors declared
a quarterly cash dividend of $0.21
per share. The dividend is payable on August 17, 2022 to
shareholders of record as of the close of business on
August 3, 2022.
Earnings Conference Call
The Company will hold a telephone conference call to discuss
this earnings release on Thursday, July 21,
2022 at 11:00 a.m. Pacific
time. To access the call, please dial (844) 200-6205 --
access code 476131 a few minutes prior to 11:00 a.m. Pacific time. The call will be
available for replay through July 28,
2022 by dialing (866) 813-9403 -- access code 467910.
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 U.S. and global economies, and consumer and
corporate customers, including economic activity, employment
levels, and labor shortages including the effects of inflation, a
potential recession or slowed economic growth caused by increasing
political instability from acts of war including Russia's invasion of Ukraine, as well as increasing oil prices and
supply chain disruptions 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
or the possibility of a new COVID-19 variant; 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)
|
|
|
June 30,
2022
|
|
March 31,
2022
|
|
December 31,
2021
|
Assets
|
|
|
|
|
|
Cash on hand and in
banks
|
$
93,675
|
|
$
87,907
|
|
$
61,377
|
Interest earning
deposits
|
900,380
|
|
1,488,815
|
|
1,661,915
|
Cash and cash
equivalents
|
994,055
|
|
1,576,722
|
|
1,723,292
|
Investment securities
available for sale, at fair value (amortized cost of
$1,267,715, $1,085,016 and $883,832, respectively)
|
1,187,588
|
|
1,039,924
|
|
894,335
|
Investment securities
held to maturity, at amortized cost (fair value of
$559,312, $384,822 and $376,331, respectively)
|
615,653
|
|
422,213
|
|
383,393
|
Total investment
securities
|
1,803,241
|
|
1,462,137
|
|
1,277,728
|
Loans held for
sale
|
1,311
|
|
1,142
|
|
1,476
|
Loans
receivable
|
3,874,064
|
|
3,821,178
|
|
3,815,662
|
Allowance for credit
losses on loans
|
(39,696)
|
|
(40,333)
|
|
(42,361)
|
Loans receivable,
net
|
3,834,368
|
|
3,780,845
|
|
3,773,301
|
Other real estate
owned
|
—
|
|
—
|
|
—
|
Premises and equipment,
net
|
77,164
|
|
78,737
|
|
79,370
|
Federal Home Loan Bank
stock, at cost
|
8,916
|
|
8,916
|
|
7,933
|
Bank owned life
insurance
|
120,646
|
|
119,929
|
|
120,196
|
Accrued interest
receivable
|
15,908
|
|
14,582
|
|
14,657
|
Prepaid expenses and
other assets
|
211,350
|
|
190,592
|
|
183,543
|
Other intangible
assets, net
|
8,569
|
|
9,273
|
|
9,977
|
Goodwill
|
240,939
|
|
240,939
|
|
240,939
|
Total
assets
|
$
7,316,467
|
|
$
7,483,814
|
|
$
7,432,412
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
Deposits
|
$
6,330,190
|
|
$
6,491,500
|
|
$
6,394,290
|
Junior subordinated
debentures
|
21,326
|
|
21,253
|
|
21,180
|
Securities sold under
agreement to repurchase
|
41,827
|
|
49,069
|
|
50,839
|
Accrued expenses and
other liabilities
|
117,758
|
|
100,543
|
|
111,671
|
Total
liabilities
|
6,511,101
|
|
6,662,365
|
|
6,577,980
|
|
|
|
|
|
|
Common stock
|
550,417
|
|
550,096
|
|
551,798
|
Retained
earnings
|
316,732
|
|
305,581
|
|
293,238
|
Accumulated other
comprehensive (loss) income, net
|
(61,783)
|
|
(34,228)
|
|
9,396
|
Total stockholders'
equity
|
805,366
|
|
821,449
|
|
854,432
|
Total liabilities and
stockholders' equity
|
$
7,316,467
|
|
$
7,483,814
|
|
$
7,432,412
|
|
|
|
|
|
|
Shares
outstanding
|
35,103,929
|
|
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
|
|
Six Months
Ended
|
|
June 30,
2022
|
|
March 31,
2022
|
|
June 30,
2021
|
|
June 30,
2022
|
|
June 30,
2021
|
Interest
Income
|
|
|
|
|
|
|
|
|
|
Interest and fees on
loans
|
$
40,890
|
|
$
41,025
|
|
$
50,750
|
|
$
81,915
|
|
$
100,274
|
Taxable interest on
investment securities
|
7,607
|
|
6,003
|
|
4,050
|
|
13,610
|
|
7,584
|
Nontaxable interest on
investment securities
|
893
|
|
860
|
|
947
|
|
1,753
|
|
1,905
|
Interest on interest
earning deposits
|
2,342
|
|
706
|
|
263
|
|
3,048
|
|
438
|
Total interest
income
|
51,732
|
|
48,594
|
|
56,010
|
|
100,326
|
|
110,201
|
Interest
Expense
|
|
|
|
|
|
|
|
|
|
Deposits
|
1,413
|
|
1,424
|
|
1,524
|
|
2,837
|
|
3,252
|
Junior subordinated
debentures
|
239
|
|
194
|
|
186
|
|
433
|
|
373
|
Other
borrowings
|
32
|
|
32
|
|
35
|
|
64
|
|
73
|
Total interest
expense
|
1,684
|
|
1,650
|
|
1,745
|
|
3,334
|
|
3,698
|
Net interest
income
|
50,048
|
|
46,944
|
|
54,265
|
|
96,992
|
|
106,503
|
Reversal of provision
for credit losses
|
(1,204)
|
|
(3,577)
|
|
(13,987)
|
|
(4,781)
|
|
(21,186)
|
Net interest income
after reversal of provision for credit losses
|
51,252
|
|
50,521
|
|
68,252
|
|
101,773
|
|
127,689
|
Noninterest
Income
|
|
|
|
|
|
|
|
|
|
Service charges and
other fees
|
2,391
|
|
2,296
|
|
2,067
|
|
4,687
|
|
3,959
|
Card revenue
|
2,332
|
|
2,441
|
|
2,338
|
|
4,773
|
|
4,435
|
Gain on sale of
investment securities, net
|
—
|
|
—
|
|
—
|
|
—
|
|
29
|
Gain on sale of loans,
net
|
219
|
|
241
|
|
1,003
|
|
460
|
|
2,373
|
Interest rate swap
fees
|
26
|
|
279
|
|
209
|
|
305
|
|
361
|
Bank owned life
insurance income
|
764
|
|
1,695
|
|
717
|
|
2,459
|
|
1,373
|
Gain on sale of other
assets, net
|
—
|
|
204
|
|
724
|
|
204
|
|
746
|
Other income
|
1,284
|
|
1,382
|
|
1,239
|
|
2,666
|
|
3,272
|
Total noninterest
income
|
7,016
|
|
8,538
|
|
8,297
|
|
15,554
|
|
16,548
|
Noninterest
Expense
|
|
|
|
|
|
|
|
|
|
Compensation and
employee benefits
|
21,778
|
|
21,252
|
|
21,803
|
|
43,030
|
|
44,004
|
Occupancy and
equipment
|
4,171
|
|
4,331
|
|
4,091
|
|
8,502
|
|
8,545
|
Data
processing
|
4,185
|
|
4,061
|
|
3,998
|
|
8,246
|
|
7,810
|
Marketing
|
344
|
|
266
|
|
567
|
|
610
|
|
1,080
|
Professional
services
|
529
|
|
699
|
|
1,037
|
|
1,228
|
|
2,307
|
State/municipal
business and use taxes
|
867
|
|
796
|
|
991
|
|
1,663
|
|
1,963
|
Federal deposit
insurance premium
|
425
|
|
600
|
|
339
|
|
1,025
|
|
928
|
Amortization of
intangible assets
|
704
|
|
704
|
|
797
|
|
1,408
|
|
1,594
|
Other
expense
|
2,704
|
|
3,011
|
|
2,773
|
|
5,715
|
|
5,407
|
Total noninterest
expense
|
35,707
|
|
35,720
|
|
36,396
|
|
71,427
|
|
73,638
|
Income before income
taxes
|
22,561
|
|
23,339
|
|
40,153
|
|
45,900
|
|
70,599
|
Income tax
expense
|
3,977
|
|
3,582
|
|
7,451
|
|
7,559
|
|
12,553
|
Net income
|
$
18,584
|
|
$
19,757
|
|
$
32,702
|
|
$
38,341
|
|
$
58,046
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$
0.53
|
|
$
0.56
|
|
$
0.91
|
|
$
1.09
|
|
$
1.61
|
Diluted earnings per
share
|
$
0.52
|
|
$
0.56
|
|
$
0.90
|
|
$
1.08
|
|
$
1.60
|
Dividends declared per
share
|
$
0.21
|
|
$
0.21
|
|
$
0.20
|
|
$
0.42
|
|
$
0.40
|
Average shares
outstanding - basic
|
35,110,334
|
|
35,094,725
|
|
35,994,740
|
|
35,102,572
|
|
35,961,032
|
Average shares
outstanding - diluted
|
35,409,524
|
|
35,412,098
|
|
36,289,464
|
|
35,412,722
|
|
36,268,861
|
HERITAGE
FINANCIAL CORPORATION FINANCIAL STATISTICS
(Unaudited) (Dollar amounts in thousands, except per
share amounts)
|
|
Nonperforming Assets and Credit Quality
Metrics:
|
|
|
Quarter
Ended
|
|
Six Months
Ended
|
|
June 30,
2022
|
|
March 31,
2022
|
|
June 30,
2021
|
|
June 30,
2022
|
|
June 30,
2021
|
Allowance for Credit
Losses on Loans:
|
|
|
|
|
Balance, beginning of
period
|
$
40,333
|
|
$
42,361
|
|
$
64,225
|
|
$
42,361
|
|
$
70,185
|
Reversal of provision
for credit losses on loans
|
(649)
|
|
(2,522)
|
|
(12,821)
|
|
(3,171)
|
|
(18,956)
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
Commercial
business
|
(117)
|
|
(199)
|
|
(13)
|
|
(316)
|
|
(14)
|
Residential real
estate
|
—
|
|
(30)
|
|
—
|
|
(30)
|
|
—
|
Real estate
construction and land development
|
—
|
|
—
|
|
—
|
|
—
|
|
(1)
|
Consumer
|
(132)
|
|
(126)
|
|
(120)
|
|
(258)
|
|
(305)
|
Total
charge-offs
|
(249)
|
|
(355)
|
|
(133)
|
|
(604)
|
|
(320)
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
Commercial
business
|
149
|
|
272
|
|
143
|
|
421
|
|
350
|
Residential real
estate
|
—
|
|
3
|
|
—
|
|
3
|
|
—
|
Real estate
construction and land development
|
59
|
|
8
|
|
4
|
|
67
|
|
20
|
Consumer
|
53
|
|
566
|
|
144
|
|
619
|
|
283
|
Total
recoveries
|
261
|
|
849
|
|
291
|
|
1,110
|
|
653
|
Net recoveries
(charge-offs)
|
12
|
|
494
|
|
158
|
|
506
|
|
333
|
Balance, end of
period
|
$
39,696
|
|
$
40,333
|
|
$
51,562
|
|
$
39,696
|
|
$
51,562
|
Net (recoveries)
charge-offs on loans to average loans, annualized
|
— %
|
|
(0.05) %
|
|
(0.01) %
|
|
(0.03) %
|
|
(0.02) %
|
|
June 30,
2022
|
|
March 31,
2022
|
|
December 31,
2021
|
Nonperforming
Assets:
|
|
|
|
|
|
Nonaccrual
loans:
|
|
|
|
|
|
Commercial
business
|
$
10,475
|
|
$
15,956
|
|
$
23,107
|
Residential real
estate
|
—
|
|
—
|
|
47
|
Real estate
construction and land development
|
—
|
|
571
|
|
571
|
Consumer
|
—
|
|
—
|
|
29
|
Total nonaccrual
loans
|
10,475
|
|
16,527
|
|
23,754
|
Other real estate
owned
|
—
|
|
—
|
|
—
|
Nonperforming
assets
|
$
10,475
|
|
$
16,527
|
|
$
23,754
|
|
|
|
|
|
|
Restructured performing
loans
|
$
63,694
|
|
$
62,627
|
|
$
59,110
|
Accruing loans past due
90 days or more
|
2,036
|
|
1,318
|
|
293
|
ACL on loans
to:
|
|
|
|
|
|
Loans
receivable
|
1.02 %
|
|
1.06 %
|
|
1.11 %
|
Loans receivable,
excluding SBA PPP loans (1)
|
1.03 %
|
|
1.07 %
|
|
1.15 %
|
Nonaccrual
loans
|
378.96 %
|
|
244.04 %
|
|
178.33 %
|
Nonperforming loans to
loans receivable
|
0.27 %
|
|
0.43 %
|
|
0.62 %
|
Nonperforming assets to
total assets
|
0.14 %
|
|
0.22 %
|
|
0.32 %
|
|
|
(1)
|
See Non-GAAP Financial
Measures section herein.
|
Average Balances,
Yields, and Rates Paid:
|
|
Quarter
Ended
|
|
June 30,
2022
|
|
March 31,
2022
|
|
June 30,
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)
|
$ 3,812,045
|
|
$ 40,890
|
|
4.30 %
|
|
$ 3,773,325
|
|
$ 41,025
|
|
4.41 %
|
|
$ 4,402,868
|
|
$ 50,750
|
|
4.62 %
|
Taxable
securities
|
1,450,328
|
|
7,607
|
|
2.10
|
|
1,271,557
|
|
6,003
|
|
1.91
|
|
799,023
|
|
4,050
|
|
2.03
|
Nontaxable securities
(3)
|
137,429
|
|
893
|
|
2.61
|
|
146,409
|
|
860
|
|
2.38
|
|
160,489
|
|
947
|
|
2.37
|
Interest earning
deposits
|
1,213,156
|
|
2,342
|
|
0.77
|
|
1,503,287
|
|
706
|
|
0.19
|
|
964,791
|
|
263
|
|
0.11
|
Total interest earning
assets
|
6,612,958
|
|
51,732
|
|
3.14 %
|
|
6,694,578
|
|
48,594
|
|
2.94 %
|
|
6,327,171
|
|
56,010
|
|
3.55 %
|
Noninterest earning
assets
|
772,658
|
|
|
|
|
|
740,209
|
|
|
|
|
|
752,034
|
|
|
|
|
Total
assets
|
$ 7,385,616
|
|
|
|
|
|
$ 7,434,787
|
|
|
|
|
|
7,079,205
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
321,926
|
|
$ 324
|
|
0.40 %
|
|
$
336,353
|
|
$ 338
|
|
0.41 %
|
|
$
381,417
|
|
$ 481
|
|
0.51 %
|
Savings
accounts
|
652,407
|
|
88
|
|
0.05
|
|
646,684
|
|
87
|
|
0.05
|
|
591,616
|
|
89
|
|
0.06
|
Interest bearing demand
and money market accounts
|
3,067,373
|
|
1,001
|
|
0.13
|
|
3,066,320
|
|
999
|
|
0.13
|
|
2,836,717
|
|
954
|
|
0.13
|
Total interest bearing
deposits
|
4,041,706
|
|
1,413
|
|
0.14
|
|
4,049,357
|
|
1,424
|
|
0.14
|
|
3,809,750
|
|
1,524
|
|
0.16
|
Junior subordinated
debentures
|
21,287
|
|
239
|
|
4.50
|
|
21,214
|
|
194
|
|
3.71
|
|
20,986
|
|
186
|
|
3.55
|
Securities sold under
agreement to repurchase
|
48,272
|
|
32
|
|
0.27
|
|
50,017
|
|
32
|
|
0.26
|
|
43,259
|
|
35
|
|
0.32
|
Total interest bearing
liabilities
|
4,111,265
|
|
1,684
|
|
0.16 %
|
|
4,120,588
|
|
1,650
|
|
0.16 %
|
|
3,873,995
|
|
1,745
|
|
0.18 %
|
Noninterest demand
deposits
|
2,349,746
|
|
|
|
|
|
2,359,451
|
|
|
|
|
|
2,261,373
|
|
|
|
|
Other noninterest
bearing liabilities
|
113,644
|
|
|
|
|
|
108,663
|
|
|
|
|
|
108,076
|
|
|
|
|
Stockholders'
equity
|
810,961
|
|
|
|
|
|
846,085
|
|
|
|
|
|
835,761
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$ 7,385,616
|
|
|
|
|
|
$ 7,434,787
|
|
|
|
|
|
$ 7,079,205
|
|
|
|
|
Net interest income and
spread
|
|
|
$ 50,048
|
|
2.98 %
|
|
|
|
$ 46,944
|
|
2.78 %
|
|
|
|
$ 54,265
|
|
3.37 %
|
Net interest
margin
|
|
|
|
|
3.04 %
|
|
|
|
|
|
2.84 %
|
|
|
|
|
|
3.44 %
|
|
|
(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 $2.4 million, $3.5 million and $8.2 million for the second
quarter of 2022, first quarter of 2022 and second quarter of 2021,
respectively.
|
(3)
|
Yields on tax-exempt
loans and securities have not been stated on a tax-equivalent
basis.
|
|
Six Months
Ended
|
|
June 30,
2022
|
|
June 30,
2021
|
|
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)
|
$ 3,792,792
|
|
$ 81,915
|
|
4.36 %
|
|
$ 4,446,442
|
|
$
100,274
|
|
4.55 %
|
Taxable
securities
|
1,361,437
|
|
13,610
|
|
2.02
|
|
736,990
|
|
7,584
|
|
2.08
|
Nontaxable securities
(3)
|
141,894
|
|
1,753
|
|
2.49
|
|
162,192
|
|
1,905
|
|
2.37
|
Interest earning
deposits
|
1,357,420
|
|
3,048
|
|
0.45
|
|
840,030
|
|
438
|
|
0.11
|
Total interest earning
assets
|
6,653,543
|
|
100,326
|
|
3.04 %
|
|
6,185,654
|
|
110,201
|
|
3.59 %
|
Noninterest earning
assets
|
756,523
|
|
|
|
|
|
754,533
|
|
|
|
|
Total
assets
|
$ 7,410,066
|
|
|
|
|
|
$ 6,940,187
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
329,100
|
|
$ 662
|
|
0.41 %
|
|
$
387,310
|
|
$
1,040
|
|
0.54 %
|
Savings
accounts
|
649,562
|
|
175
|
|
0.05
|
|
575,942
|
|
184
|
|
0.06
|
Interest bearing demand
and money market accounts
|
3,066,849
|
|
2,000
|
|
0.13
|
|
2,784,714
|
|
2,028
|
|
0.15
|
Total interest bearing
deposits
|
4,045,511
|
|
2,837
|
|
0.14
|
|
3,747,966
|
|
3,252
|
|
0.17
|
Junior subordinated
debentures
|
21,250
|
|
433
|
|
4.11
|
|
20,950
|
|
373
|
|
3.59
|
Securities sold under
agreement to repurchase
|
49,140
|
|
64
|
|
0.26
|
|
41,676
|
|
73
|
|
0.35
|
Total interest bearing
liabilities
|
4,115,901
|
|
3,334
|
|
0.16 %
|
|
3,810,592
|
|
3,698
|
|
0.20 %
|
Noninterest demand
deposits
|
2,354,571
|
|
|
|
|
|
2,183,638
|
|
|
|
|
Other noninterest
bearing liabilities
|
111,167
|
|
|
|
|
|
114,542
|
|
|
|
|
Stockholders'
equity
|
828,427
|
|
|
|
|
|
831,415
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$ 7,410,066
|
|
|
|
|
|
$ 6,940,187
|
|
|
|
|
Net interest income and
spread
|
|
|
$ 96,992
|
|
2.88 %
|
|
|
|
$
106,503
|
|
3.39 %
|
Net interest
margin
|
|
|
|
|
2.94 %
|
|
|
|
|
|
3.47 %
|
|
|
(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 $5.8 million and $15.4 million for the six months ended
June 30, 2022 and 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
|
|
June 30,
2022
|
|
March 31,
2022
|
|
December 31,
2021
|
|
September
30,
2021
|
|
June 30,
2021
|
Earnings:
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
$
50,048
|
|
$
46,944
|
|
$
47,908
|
|
$
51,378
|
|
$
54,265
|
Reversal of provision
for credit losses
|
(1,204)
|
|
(3,577)
|
|
(5,037)
|
|
(3,149)
|
|
(13,987)
|
Noninterest
income
|
7,016
|
|
8,538
|
|
9,839
|
|
8,228
|
|
8,297
|
Noninterest
expense
|
35,707
|
|
35,720
|
|
38,465
|
|
37,166
|
|
36,396
|
Net income
|
18,584
|
|
19,757
|
|
19,397
|
|
20,592
|
|
32,702
|
Pre-tax, pre-provision
net income (3)
|
21,357
|
|
19,762
|
|
19,282
|
|
22,440
|
|
26,166
|
Basic earnings per
share
|
$
0.53
|
|
$
0.56
|
|
$
0.56
|
|
$
0.58
|
|
$
0.91
|
Diluted earnings per
share
|
$
0.52
|
|
$
0.56
|
|
$
0.55
|
|
$
0.58
|
|
$
0.90
|
Average
Balances:
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
(1)
|
$
3,812,045
|
|
$
3,773,325
|
|
$
3,836,029
|
|
$
4,005,585
|
|
$
4,402,868
|
Total investment
securities
|
1,587,757
|
|
1,417,966
|
|
1,170,315
|
|
1,051,281
|
|
959,512
|
Total interest earning
assets
|
6,612,958
|
|
6,694,578
|
|
6,671,984
|
|
6,474,527
|
|
6,327,171
|
Total assets
|
7,385,616
|
|
7,434,787
|
|
7,403,597
|
|
7,214,960
|
|
7,079,205
|
Total interest bearing
deposits
|
4,041,706
|
|
4,049,357
|
|
3,977,721
|
|
3,856,663
|
|
3,809,750
|
Total noninterest
demand deposits
|
2,349,746
|
|
2,359,451
|
|
2,396,452
|
|
2,313,145
|
|
2,261,373
|
Stockholders'
equity
|
810,961
|
|
846,085
|
|
849,383
|
|
855,708
|
|
835,761
|
Financial
Ratios:
|
|
|
|
|
|
|
|
|
|
Return on average
assets (2)
|
1.01 %
|
|
1.08 %
|
|
1.04 %
|
|
1.13 %
|
|
1.85 %
|
Pre-tax, pre-provision
return on average assets (2)(3)
|
1.16
|
|
1.08
|
|
1.03
|
|
1.23
|
|
1.48
|
Return on average
common equity (2)
|
9.19
|
|
9.47
|
|
9.06
|
|
9.55
|
|
15.69
|
Return on average
tangible common equity (2) (3)
|
13.68
|
|
13.83
|
|
13.27
|
|
13.93
|
|
22.94
|
Efficiency
ratio
|
62.57
|
|
64.38
|
|
66.61
|
|
62.35
|
|
58.18
|
Noninterest expense to
average total assets (2)
|
1.94
|
|
1.95
|
|
2.06
|
|
2.04
|
|
2.06
|
Net interest spread
(2)
|
2.98
|
|
2.78
|
|
2.79
|
|
3.08
|
|
3.37
|
Net interest margin
(2)
|
3.04
|
|
2.84
|
|
2.85
|
|
3.15
|
|
3.44
|
|
|
(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
|
|
June 30,
2022
|
|
March 31,
2022
|
|
December 31,
2021
|
|
September
30,
2021
|
|
June 30,
2021
|
Select Balance
Sheet:
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
7,316,467
|
|
$
7,483,814
|
|
$
7,432,412
|
|
$
7,259,038
|
|
$
7,105,672
|
Loans receivable,
net
|
3,834,368
|
|
3,780,845
|
|
3,773,301
|
|
3,905,567
|
|
4,155,968
|
Total investment
securities
|
1,803,241
|
|
1,462,137
|
|
1,277,728
|
|
1,072,600
|
|
1,049,524
|
Deposits
|
6,330,190
|
|
6,491,500
|
|
6,394,290
|
|
6,229,017
|
|
6,074,385
|
Noninterest demand
deposits
|
2,325,139
|
|
2,393,972
|
|
2,343,909
|
|
2,312,707
|
|
2,269,020
|
Stockholders'
equity
|
805,366
|
|
821,449
|
|
854,432
|
|
848,404
|
|
855,984
|
Financial
Measures:
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
$
22.94
|
|
$
23.40
|
|
$
24.34
|
|
$
24.13
|
|
$
23.77
|
Tangible book value per
share (1)
|
15.83
|
|
16.27
|
|
17.19
|
|
16.97
|
|
16.76
|
Tangible book value per
share, excluding AOCI (1)
|
17.59
|
|
17.25
|
|
16.92
|
|
16.55
|
|
16.32
|
Stockholders' equity to
total assets
|
11.0 %
|
|
11.0 %
|
|
11.5 %
|
|
11.7 %
|
|
12.0 %
|
Tangible common equity
to tangible assets (1)
|
7.9
|
|
7.9
|
|
8.4
|
|
8.5
|
|
8.8
|
Tangible common equity
to tangible assets, excluding AOCI (1)
|
8.7
|
|
8.3
|
|
8.3
|
|
8.3
|
|
8.6
|
Loans to deposits
ratio
|
61.2
|
|
58.9
|
|
59.7
|
|
63.5
|
|
69.3
|
Regulatory Capital
Ratios:
|
|
|
|
|
|
|
|
|
|
Common equity Tier 1
capital to risk-weighted assets(2)
|
13.2 %
|
|
13.4 %
|
|
13.5 %
|
|
13.3 %
|
|
13.6 %
|
Tier 1 leverage capital
to average assets(2)
|
8.9 %
|
|
8.8 %
|
|
8.7 %
|
|
8.8 %
|
|
9.1 %
|
Tier 1 capital to
risk-weighted assets(2)
|
13.6 %
|
|
13.9 %
|
|
13.9 %
|
|
13.8 %
|
|
14.0 %
|
Total capital to
risk-weighted assets(2)
|
14.4 %
|
|
14.7 %
|
|
14.8 %
|
|
14.8 %
|
|
15.1 %
|
Credit Quality
Metrics:
|
|
|
|
|
|
|
|
|
|
ACL on
loans to:
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
1.02 %
|
|
1.06 %
|
|
1.11 %
|
|
1.22 %
|
|
1.23 %
|
Loans receivable,
excluding SBA PPP loans (1)
|
1.03
|
|
1.07
|
|
1.15
|
|
1.31
|
|
1.41
|
Nonperforming
loans
|
378.96
|
|
244.04
|
|
178.33
|
|
186.60
|
|
145.90
|
Nonperforming loans to
loans receivable
|
0.27
|
|
0.43
|
|
0.62
|
|
0.65
|
|
0.84
|
Nonperforming assets to
total assets
|
0.14
|
|
0.22
|
|
0.32
|
|
0.36
|
|
0.50
|
Net (recoveries)
charge-offs on loans to average loans receivable
|
—
|
|
(0.05)
|
|
0.05
|
|
0.04
|
|
(0.01)
|
Criticized Loans by
Credit Quality Rating:
|
Special
mention
|
$
72,062
|
|
$
63,269
|
|
$
71,020
|
|
$
90,554
|
|
$
100,317
|
Substandard
|
94,419
|
|
111,300
|
|
112,450
|
|
126,694
|
|
135,374
|
Other
Metrics:
|
|
|
|
|
|
|
|
|
|
Number of banking
offices
|
49
|
|
49
|
|
49
|
|
53
|
|
53
|
Average number of
full-time equivalent employees
|
765
|
|
751
|
|
782
|
|
813
|
|
822
|
Deposits per
branch
|
$
129,188
|
|
$
132,480
|
|
$
130,496
|
|
$
117,529
|
|
$
114,611
|
Average assets per
full-time equivalent employee
|
9,654
|
|
9,900
|
|
9,468
|
|
8,874
|
|
8,612
|
|
|
(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.
Additionally, recent changes in market interest rates introduced
significant volatility in the unrealized gain or loss of investment
securities available for sale ("UGL") and the related AOCI.
Management excluded UGL and AOCI from tangible assets and tangible
common equity, respectively, to improve comparability of capital
levels as UGL and AOCI are excluded from the calculation of
regulatory capital ratios.
|
June 30,
2022
|
|
March 31,
2022
|
|
December 31,
2021
|
|
September
30,
2021
|
|
June 30,
2021
|
Tangible Common
Equity to Tangible Assets and Tangible Book Value Per
Share:
|
Total stockholders'
equity (GAAP)
|
$
805,366
|
|
$
821,449
|
|
$
854,432
|
|
$
848,404
|
|
$
855,984
|
Exclude intangible
assets
|
(249,508)
|
|
(250,212)
|
|
(250,916)
|
|
(251,675)
|
|
(252,433)
|
Tangible common equity
(non-GAAP)
|
$
555,858
|
|
$
571,237
|
|
$
603,516
|
|
$
596,729
|
|
$
603,551
|
Exclude
AOCI
|
61,783
|
|
34,228
|
|
(9,396)
|
|
(14,734)
|
|
(16,061)
|
Tangible common equity,
excluding AOCI (non-GAAP)
|
$
617,641
|
|
$
605,465
|
|
$
594,120
|
|
$
581,995
|
|
$
587,490
|
|
|
|
|
|
|
|
|
|
|
Total assets
(GAAP)
|
$
7,316,467
|
|
$
7,483,814
|
|
$
7,432,412
|
|
$
7,259,038
|
|
$
7,105,672
|
Exclude intangible
assets
|
(249,508)
|
|
(250,212)
|
|
(250,916)
|
|
(251,675)
|
|
(252,433)
|
Tangible assets
(non-GAAP)
|
$
7,066,959
|
|
$
7,233,602
|
|
$
7,181,496
|
|
$
7,007,363
|
|
$
6,853,239
|
Exclude UGL, net of
tax
|
61,783
|
|
34,228
|
|
(9,396)
|
|
(14,734)
|
|
(16,061)
|
Tangible assets,
excluding UGL, net of tax (non-GAAP)
|
$
7,128,742
|
|
$
7,267,830
|
|
$
7,172,100
|
|
$
6,992,629
|
|
$
6,837,178
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity to
total assets (GAAP)
|
11.0 %
|
|
11.0 %
|
|
11.5 %
|
|
11.7 %
|
|
12.0 %
|
Tangible common equity
to tangible assets (non-GAAP)
|
7.9 %
|
|
7.9 %
|
|
8.4 %
|
|
8.5 %
|
|
8.8 %
|
Tangible common equity
to tangible assets, excluding AOCI (non-GAAP)
|
8.7 %
|
|
8.3 %
|
|
8.3 %
|
|
8.3 %
|
|
8.6 %
|
|
|
|
|
|
|
|
|
|
|
Shares
outstanding
|
35,103,929
|
|
35,102,372
|
|
35,105,779
|
|
35,166,599
|
|
36,006,560
|
|
|
|
|
|
|
|
|
|
|
Book value per share
(GAAP)
|
$
22.94
|
|
$
23.40
|
|
$
24.34
|
|
$
24.13
|
|
$
23.77
|
Tangible book value per
share (non-GAAP)
|
$
15.83
|
|
$
16.27
|
|
$
17.19
|
|
$
16.97
|
|
$
16.76
|
Tangible book value per
share, excluding AOCI (non-GAAP)
|
$
17.59
|
|
$
17.25
|
|
$
16.92
|
|
$
16.55
|
|
$
16.32
|
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.
|
June 30,
2022
|
|
March 31,
2022
|
|
December 31,
2021
|
|
September
30,
2021
|
|
June 30,
2021
|
ACL on Loans to
Loans Receivable, excluding SBA PPP Loans:
|
Allowance for credit
losses on loans
|
$
39,696
|
|
$
40,333
|
|
$
42,361
|
|
$
48,317
|
|
$
51,562
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
(GAAP)
|
$
3,874,064
|
|
$
3,821,178
|
|
$
3,815,662
|
|
$
3,953,884
|
|
$
4,207,530
|
Exclude SBA PPP
loans
|
(11,334)
|
|
(64,962)
|
|
(145,840)
|
|
(266,896)
|
|
(544,250)
|
Loans receivable,
excluding SBA PPP loans (non-GAAP)
|
$
3,862,730
|
|
$
3,756,216
|
|
$
3,669,822
|
|
$
3,686,988
|
|
$
3,663,280
|
|
|
|
|
|
|
|
|
|
|
ACL on loans to loans
receivable (GAAP)
|
1.02 %
|
|
1.06 %
|
|
1.11 %
|
|
1.22 %
|
|
1.23 %
|
ACL on loans to loans
receivable, excluding SBA PPP loans (non-GAAP)
|
1.03 %
|
|
1.07 %
|
|
1.15 %
|
|
1.31 %
|
|
1.41 %
|
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
|
|
June 30,
2022
|
|
March 31,
2022
|
|
December 31,
2021
|
|
September
30,
2021
|
|
June 30,
2021
|
Return on Average
Tangible Common Equity, annualized:
|
Net income
(GAAP)
|
$
18,584
|
|
$
19,757
|
|
$
19,397
|
|
$
20,592
|
|
$
32,702
|
Add amortization of
intangible assets
|
704
|
|
704
|
|
759
|
|
758
|
|
797
|
Exclude tax effect of
adjustment
|
(148)
|
|
(148)
|
|
(159)
|
|
(159)
|
|
(167)
|
Tangible net income
(non-GAAP)
|
$
19,140
|
|
$
20,313
|
|
$
19,997
|
|
$
21,191
|
|
$
33,332
|
|
|
|
|
|
|
|
|
|
|
Average stockholders'
equity (GAAP)
|
$
810,961
|
|
$
846,085
|
|
$
849,383
|
|
$
855,708
|
|
$
835,761
|
Exclude average
intangible assets
|
(249,890)
|
|
(250,593)
|
|
(251,331)
|
|
(252,159)
|
|
(252,955)
|
Average tangible common
stockholders' equity (non-GAAP)
|
$
561,071
|
|
$
595,492
|
|
$
598,052
|
|
$
603,549
|
|
$
582,806
|
|
|
|
|
|
|
|
|
|
|
Return on average
common equity, annualized (GAAP)
|
9.19 %
|
|
9.47 %
|
|
9.06 %
|
|
9.55 %
|
|
15.69 %
|
Return on average
tangible common equity, annualized (non-GAAP)
|
13.68 %
|
|
13.83 %
|
|
13.27 %
|
|
13.93 %
|
|
22.94 %
|
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 Accounting Standards Update
2016-13.
|
Quarter
Ended
|
|
June 30,
2022
|
|
March 31,
2022
|
|
December 31,
2021
|
|
September
30,
2021
|
|
June 30,
2021
|
Pre-tax,
Pre-provision Income and Pre-tax, Pre-provision Return on Average
Assets, annualized:
|
Net income
(GAAP)
|
$
18,584
|
|
$
19,757
|
|
$
19,397
|
|
$
20,592
|
|
$
32,702
|
Add income tax
expense
|
3,977
|
|
3,582
|
|
4,922
|
|
4,997
|
|
7,451
|
Add reversal of
provision for credit losses
|
(1,204)
|
|
(3,577)
|
|
(5,037)
|
|
(3,149)
|
|
(13,987)
|
Pre-tax, pre-provision
income (non-GAAP)
|
$
21,357
|
|
$
19,762
|
|
$
19,282
|
|
$
22,440
|
|
$
26,166
|
|
|
|
|
|
|
|
|
|
|
Average total assets
(GAAP)
|
$
7,385,616
|
|
$
7,434,787
|
|
$
7,403,597
|
|
$
7,214,960
|
|
$
7,079,205
|
|
|
|
|
|
|
|
|
|
|
Return on average
assets, annualized (GAAP)
|
1.01 %
|
|
1.08 %
|
|
1.04 %
|
|
1.13 %
|
|
1.85 %
|
Pre-tax, pre-provision
return on average assets (non-GAAP)
|
1.16 %
|
|
1.08 %
|
|
1.03 %
|
|
1.23 %
|
|
1.48 %
|
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 CECL. 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 have substantially decreased within a short time
frame.
|
Quarter
Ended
|
|
June 30,
2022
|
|
March 31,
2022
|
|
June 30,
2021
|
Loan Yield,
excluding SBA PPP Loans and Incremental Accretion on Purchased
Loans, annualized:
|
Interest and fees on
loans (GAAP)
|
$
40,890
|
|
$
41,025
|
|
$
50,750
|
Exclude interest and
fees on SBA PPP loans
|
(1,782)
|
|
(3,081)
|
|
(10,003)
|
Exclude incremental
accretion on purchased loans
|
(270)
|
|
(584)
|
|
(495)
|
Adjusted interest and
fees on loans (non-GAAP)
|
$
38,838
|
|
$
37,360
|
|
$
40,252
|
|
|
|
|
|
|
Average loans
receivable, net (GAAP)
|
$
3,812,045
|
|
$
3,773,325
|
|
$
4,402,868
|
Exclude average SBA
PPP loans
|
(34,090)
|
|
(109,594)
|
|
(777,156)
|
Adjusted average loans
receivable, net (non-GAAP)
|
$
3,777,955
|
|
$
3,663,731
|
|
$
3,625,712
|
|
|
|
|
|
|
Loan yield, annualized
(GAAP)
|
4.30 %
|
|
4.41 %
|
|
4.62 %
|
Loan yield, excluding
SBA PPP loans and incremental accretion on purchased loans,
annualized (non-GAAP)
|
4.12 %
|
|
4.14 %
|
|
4.45 %
|
View original
content:https://www.prnewswire.com/news-releases/heritage-financial-announces-second-quarter-2022-results-and-declares-regular-cash-dividend-301590802.html
SOURCE Heritage Financial Corporation