- Net income was $6.2 million,
or $0.18 per diluted share, for the
fourth quarter of 2023 compared to $18.2
million, or $0.51 per diluted
share, for the third quarter of 2023.
- Significant items in the fourth quarter of 2023 results
include a loss on sale of securities totaling $10.0 million, or $0.22 per diluted share, and costs relating to
expense management measures totaling $2.0
million, or $0.04 per diluted
share.
- Book value per share increased to $24.44 at December 31,
2023, compared to $23.31 at
September 30, 2023. Tangible book
value per share increased to $17.40
at December 31, 2023, compared to
$16.25 at September 30, 2023(1).
- Capital remains strong with a leverage ratio of 10.0% and a
total capital ratio of 14.1% at December 31,
2023.
- Loans receivable increased $68.8
million, or 1.6%, during the fourth quarter of 2023 and
$284.8 million, or 7.0% during the
year ended December 31,
2023.
- Net interest margin was 3.41% for the fourth quarter of 2023
compared to 3.47% for the third quarter of 2023.
- Cost of total deposits was 1.01% for the fourth quarter of
2023 compared to 0.83% for the third quarter of 2023.
- Declared a regular cash dividend of $0.23 per share on January
24, 2024, an increase of 4.5% from the $0.22 regular cash dividend per share declared in
the fourth quarter of 2023.
(1) See
Non-GAAP Financial Measures section herein.
|
OLYMPIA,
Wash., Jan. 25, 2024 /PRNewswire/ -- Heritage
Financial Corporation (NASDAQ GS: HFWA) (the "Company" or
"Heritage"), the parent company of Heritage Bank (the "Bank"),
today reported net income of $6.2
million for the fourth quarter of 2023 compared to
$18.2 million for the third quarter
of 2023 and $22.5 million for the
fourth quarter of 2022. Diluted earnings per share for the fourth
quarter of 2023 were $0.18 compared
to $0.51 for the third quarter of
2023 and $0.64 for the fourth quarter
of 2022. Net income for the year ended 2023 totaled
$61.8 million, or $1.75 per diluted share as compared to
$81.9 million, or $2.31 per diluted share for 2022.
In the fourth quarter of 2023, the Company incurred a pre-tax
loss of $10.0 million on the sale of
investment securities due to the strategic repositioning of its
investment portfolio, which affected diluted earnings per share by
$0.22 for the quarter. The
Company sold $151.8 million in
investment securities with an estimated weighted average book yield
of 2.41% and purchased $140.7 million
of investment securities with an estimated weighted average book
yield of 6.08%. The remaining proceeds from sales were invested in
interest earning deposits. As a result of these actions, we
anticipate an estimated annualized improvement of $5.3 million in interest income.
Further, costs relating to expense management measures totaling
$2.0 million were recognized in the
fourth quarter relating to contract renewal negotiations, contract
cancellations and severance payments which were undertaken to
improve future earnings. These noninterest expenses impacted
diluted earnings per share by $0.04
for the quarter. These costs, in addition to approximately
$1.2 million of severance costs
incurred in the first quarter of 2024 due to staff reductions, are
expected to provide annualized costs savings of approximately
$5.3 million in future periods.
Jeffrey J. Deuel, President and
Chief Executive Officer of Heritage, commented, "We are pleased
with our accomplishments in the fourth quarter which included
strong loan growth, expense management measures and repositioning
of our investment portfolio. Although costs related to these
activities are impacting current earnings, we expect enhanced
earnings in future periods. We believe these actions, coupled with
our strong balance sheet, will provide sustainable long-term
returns for our shareholders.
We are also pleased to report that Heritage Bank is partnering
with Community Roots Housing on the renovation of the historic
Devonshire Apartments. This project will preserve 62 units of
affordable housing in Seattle's
Belltown Neighborhood. Heritage provided a $16.9 million construction loan and $2.6 million permanent loan to update the
building, which was originally built in 1925. The renovations will
provide significant seismic upgrades, make the building more energy
efficient and improve living conditions for residents, all while
preserving the historic brickwork façade. The project will continue
to provide affordable housing, serving residents earning 50% to 60%
of the Area Median Income. Heritage is proud to be a partner in
preserving aging affordable housing stock in Seattle."
Financial Highlights
The following table provides financial highlights at the dates
and for the periods indicated:
|
As of or for the
Quarter Ended
|
|
December 31,
2023
|
|
September
30,
2023
|
|
December 31,
2022
|
|
(Dollars in
thousands, except per share amounts)
|
Net income
|
$
6,233
|
|
$
18,219
|
|
$
22,544
|
Pre-tax, pre-provision
income(1)
|
$
8,001
|
|
$
20,919
|
|
$
29,299
|
Diluted earnings per
share
|
$
0.18
|
|
$
0.51
|
|
$
0.64
|
Return on average
assets(2)
|
0.35 %
|
|
1.00 %
|
|
1.26 %
|
Pre-tax, pre-provision
return on average assets(1)(2)
|
0.44 %
|
|
1.15 %
|
|
1.64 %
|
Return on average
common equity(2)
|
3.04 %
|
|
8.80 %
|
|
11.46 %
|
Return on average
tangible common equity(1)(2)
|
4.69 %
|
|
12.90 %
|
|
17.21 %
|
Net interest
margin(2)
|
3.41 %
|
|
3.47 %
|
|
3.98 %
|
Cost of total
deposits(2)
|
1.01 %
|
|
0.83 %
|
|
0.16 %
|
Efficiency
ratio
|
84.2 %
|
|
66.2 %
|
|
58.0 %
|
Noninterest expense to
average total assets(2)
|
2.37 %
|
|
2.25 %
|
|
2.26 %
|
Total assets
|
$ 7,174,957
|
|
$ 7,150,588
|
|
$ 6,980,100
|
Loans receivable,
net
|
$ 4,287,628
|
|
$ 4,219,911
|
|
$ 4,007,872
|
Total
deposits
|
$ 5,599,872
|
|
$ 5,635,187
|
|
$ 5,924,840
|
Loan to deposit
ratio(3)
|
77.4 %
|
|
75.7 %
|
|
68.4 %
|
Book value per
share
|
$
24.44
|
|
$
23.31
|
|
$
22.73
|
Tangible book value per
share(1)
|
$
17.40
|
|
$
16.25
|
|
$
15.66
|
|
|
(1)
|
See Non-GAAP Financial
Measures section herein.
|
(2)
|
Annualized.
|
(3)
|
Loans receivable
divided by total deposits.
|
Balance Sheet
Total investment securities decreased $20.6 million, or 1.1%, to $1.87 billion at December
31, 2023 from $1.89 billion at
September 30, 2023. As previously
discussed, the Company sold $151.8
million in investment securities at a loss of $10.0 million during the fourth quarter of 2023.
These funds were redeployed in investment purchases of $140.7 million and interest earning deposits.
The following table summarizes the Company's investment
securities at the dates indicated:
|
December 31,
2023
|
|
September 30,
2023
|
|
$ Change in
Fair Value
|
|
Amortized
Cost
|
|
Net
Unrealized
Loss
|
|
Fair Value
|
|
Amortized
Cost
|
|
Net
Unrealized
Loss
|
|
Fair
Value
|
|
|
(Dollars in
thousands)
|
Investment
securities available for sale:
|
U.S. government and
agency securities
|
$
16,047
|
|
$
(2,297)
|
|
$
13,750
|
|
$
23,533
|
|
$
(3,109)
|
|
$
20,424
|
|
$
(6,674)
|
Municipal
securities
|
92,231
|
|
(12,706)
|
|
79,525
|
|
126,763
|
|
(19,958)
|
|
106,805
|
|
(27,280)
|
Residential CMO and
MBS(1)
|
555,518
|
|
(43,469)
|
|
512,049
|
|
468,174
|
|
(66,993)
|
|
401,181
|
|
110,868
|
Commercial CMO and
MBS(1)
|
538,910
|
|
(34,652)
|
|
504,258
|
|
651,713
|
|
(54,500)
|
|
597,213
|
|
(92,955)
|
Corporate
obligations
|
7,745
|
|
(132)
|
|
7,613
|
|
4,000
|
|
(220)
|
|
3,780
|
|
3,833
|
Other asset-backed
securities
|
17,336
|
|
(178)
|
|
17,158
|
|
18,317
|
|
(173)
|
|
18,144
|
|
(986)
|
Total
|
$
1,227,787
|
|
$
(93,434)
|
|
$
1,134,353
|
|
$
1,292,500
|
|
$ (144,953)
|
|
$
1,147,547
|
|
$
(13,194)
|
|
December 31,
2023
|
|
September 30,
2023
|
|
$ Change in
Amortized Cost
|
|
Amortized
Cost
|
|
Net
Unrecognized
Loss
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Net
Unrecognized
Loss
|
|
Fair
Value
|
|
|
(Dollars in
thousands)
|
Investment
securities held to maturity:
|
U.S. government and
agency securities
|
$
151,075
|
|
$
(27,701)
|
|
$
123,374
|
|
$
151,040
|
|
$
(35,221)
|
|
$ 115,819
|
|
$
35
|
Residential CMO and
MBS(1)
|
267,204
|
|
(14,101)
|
|
253,103
|
|
273,609
|
|
(27,445)
|
|
246,164
|
|
(6,405)
|
Commercial CMO and
MBS(1)
|
321,163
|
|
(35,190)
|
|
285,973
|
|
322,196
|
|
(47,922)
|
|
274,274
|
|
(1,033)
|
Total
|
$
739,442
|
|
$
(76,992)
|
|
$
662,450
|
|
$
746,845
|
|
$ (110,588)
|
|
$ 636,257
|
|
$
(7,403)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment
securities
|
$
1,967,229
|
|
$ (170,426)
|
|
$
1,796,803
|
|
$
2,039,345
|
|
$ (255,541)
|
|
$
1,783,804
|
|
|
|
|
(1)
|
U.S. government agency
and government-sponsored enterprise mortgage-backed securities and
collateralized mortgage obligations.
|
Loans receivable increased $68.8 million, or 1.6%, to
$4.34 billion at December 31, 2023 from $4.27 billion at September
30, 2023. New loans funded in the fourth quarter of 2023 and
third quarter of 2023 totaled $113.4
million and $98.5 million,
respectively. Loan prepayments decreased slightly during the fourth
quarter of 2023 to $42.8 million,
compared to $60.6 million during the
third quarter of 2023.
Commercial and industrial loans increased $27.0 million, or 3.9%, due primarily to new loan
production of $54.1 million during
the fourth quarter of 2023 offset partially by repayments.
Commercial and multifamily construction loans increased
$25.8 million, or 8.3% due primarily
to advances on outstanding commitments.
The following table summarizes the Company's loans receivable,
net at the dates indicated:
|
December 31,
2023
|
|
September 30,
2023
|
|
Change
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
$
|
|
%
|
|
(Dollars in
thousands)
|
Commercial
business:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
industrial
|
$
718,291
|
|
16.6 %
|
|
$
691,318
|
|
16.2 %
|
|
$
26,973
|
|
3.9 %
|
Owner-occupied
commercial real estate
("CRE")
|
958,620
|
|
22.1
|
|
953,779
|
|
22.4
|
|
4,841
|
|
0.5
|
Non-owner occupied
CRE
|
1,697,574
|
|
39.1
|
|
1,690,099
|
|
39.5
|
|
7,475
|
|
0.4
|
Total commercial
business
|
3,374,485
|
|
77.8
|
|
3,335,196
|
|
78.1
|
|
39,289
|
|
1.2
|
Residential real
estate
|
375,342
|
|
8.7
|
|
377,448
|
|
8.8
|
|
(2,106)
|
|
(0.6)
|
Real estate
construction and land development:
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
78,610
|
|
1.8
|
|
70,804
|
|
1.7
|
|
7,806
|
|
11.0
|
Commercial and
multifamily
|
335,819
|
|
7.7
|
|
310,024
|
|
7.3
|
|
25,795
|
|
8.3
|
Total real estate
construction and land
development
|
414,429
|
|
9.5
|
|
380,828
|
|
9.0
|
|
33,601
|
|
8.8
|
Consumer
|
171,371
|
|
4.0
|
|
173,386
|
|
4.1
|
|
(2,015)
|
|
(1.2)
|
Loans
receivable
|
4,335,627
|
|
100.0 %
|
|
4,266,858
|
|
100.0 %
|
|
68,769
|
|
1.6
|
Allowance for credit
losses on loans
|
(47,999)
|
|
|
|
(46,947)
|
|
|
|
(1,052)
|
|
2.2
|
Loans receivable,
net
|
$
4,287,628
|
|
|
|
$
4,219,911
|
|
|
|
$
67,717
|
|
1.6 %
|
Total deposits decreased $35.3
million, or 0.6%, to $5.60
billion at December 31, 2023
from $5.64 billion at September 30, 2023. Certificates of deposit
increased $64.4 million, or 10.2%,
from September 30, 2023 primarily due
to transfers from non-maturity deposit accounts as customers moved
balances to higher yielding accounts.
The following table summarizes the Company's total deposits at
the dates indicated:
|
December 31,
2023
|
|
September 30,
2023
|
|
Change
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
$
|
|
%
|
|
(Dollars in
thousands)
|
Noninterest demand
deposits
|
$
1,715,847
|
|
30.7 %
|
|
$
1,789,293
|
|
31.7 %
|
|
$
(73,446)
|
|
(4.1) %
|
Interest bearing demand
deposits
|
1,608,745
|
|
28.7
|
|
1,630,007
|
|
28.9
|
|
(21,262)
|
|
(1.3)
|
Money market
accounts
|
1,094,351
|
|
19.5
|
|
1,081,253
|
|
19.2
|
|
13,098
|
|
1.2
|
Savings
accounts
|
487,956
|
|
8.7
|
|
506,028
|
|
9.0
|
|
(18,072)
|
|
(3.6)
|
Total non-maturity
deposits
|
4,906,899
|
|
87.6
|
|
5,006,581
|
|
88.8
|
|
(99,682)
|
|
(2.0)
|
Certificates of
deposit
|
692,973
|
|
12.4
|
|
628,606
|
|
11.2
|
|
64,367
|
|
10.2
|
Total
deposits
|
$
5,599,872
|
|
100.0 %
|
|
$
5,635,187
|
|
100.0 %
|
|
$
(35,315)
|
|
(0.6) %
|
The Company discontinued offering securities sold under
agreement to repurchase during the fourth quarter of 2023. Total
securities sold under agreements to repurchase were $23.2 million at September
30, 2023.
Total borrowings were $500.0
million at December 31, 2023
compared to $450.0 million at
September 30, 2023. Borrowings of
$50.0 million at a rate 5.09% were
paid off and were offset by advances of $100.0 million at a rate of 4.89% during the
fourth quarter of 2023. All borrowings were from the Federal
Reserve Bank ("FRB") Bank Term Funding Program ("BTFP"). The BTFP
offers loans of up to one year in length to institutions pledging
eligible investment securities. The advance rate on the collateral
is at par value.
Total stockholders' equity increased $39.7 million, or 4.9%, to $853.3 million at December
31, 2023 compared to $813.5
million at September 30, 2023
due primarily to a decrease of $40.2
million in accumulated other comprehensive loss as a result
of increasing fair values of investment securities available for
sale and $6.2 million of net income
recognized for the quarter offset partially by $7.7 million in dividends paid to common
shareholders.
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:
|
December 31,
2023
|
|
September
30,
2023
|
|
Change
|
Stockholders' equity to
total assets
|
11.9 %
|
|
11.4 %
|
|
0.5 %
|
Tangible common equity
to tangible assets (1)
|
8.8
|
|
8.2
|
|
0.6
|
Common equity tier 1
capital ratio (2)
|
12.9
|
|
12.9
|
|
—
|
Leverage ratio
(2)
|
10.0
|
|
9.9
|
|
0.1
|
Tier 1 capital ratio
(2)
|
13.3
|
|
13.3
|
|
—
|
Total capital ratio
(2)
|
14.1
|
|
14.1
|
|
—
|
|
|
(1)
|
See Non-GAAP Financial
Measures section herein.
|
(2)
|
Current quarter ratios
are estimates pending completion and filing of the Company's
regulatory reports.
|
Allowance for Credit Losses and Provision for Credit
Losses
The allowance for credit losses ("ACL") on loans as a percentage
of loans receivable was 1.11% at December
31, 2023 compared to 1.10% at September 30, 2023. During the fourth quarter of
2023, the Company recorded a $1.7
million provision for credit losses on loans, compared to a
$635,000 reversal of provision for
credit losses on loans during the third quarter of 2023. The
provision for credit losses on loans during the fourth quarter of
2023 was primarily driven by loan growth during the quarter.
During the fourth quarter of 2023, the Company recorded a
$246,000 reversal of provision for
credit losses on unfunded commitments compared to a $243,000 reversal of provision for credit losses
on unfunded commitments during the third quarter of 2023. The
reversal of provision for credit losses on unfunded commitments
during the fourth quarter of 2023 was due primarily to a
$39.0 million decrease in the
unfunded exposure on construction loans.
The following table provides detail on the changes in the ACL on
loans and the ACL on unfunded, and the related provision for
(reversal of) credit losses for the periods indicated:
|
As of or for the
Quarter Ended
|
|
December 31,
2023
|
|
September 30,
2023
|
|
December 31,
2022
|
|
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
|
$ 46,947
|
|
$ 1,534
|
|
$ 48,481
|
|
$ 46,408
|
|
$ 1,777
|
|
$ 48,185
|
|
$ 42,089
|
|
$ 1,023
|
|
$ 43,112
|
Provision for
(reversal
of) credit losses
|
1,670
|
|
(246)
|
|
1,424
|
|
(635)
|
|
(243)
|
|
(878)
|
|
689
|
|
721
|
|
1,410
|
(Net charge-offs)
net
recoveries
|
(618)
|
|
—
|
|
(618)
|
|
1,174
|
|
—
|
—
|
1,174
|
|
208
|
|
—
|
|
208
|
Balance, end of
period
|
$ 47,999
|
|
$ 1,288
|
|
$ 49,287
|
|
$ 46,947
|
|
$ 1,534
|
|
$ 48,481
|
|
$ 42,986
|
|
$ 1,744
|
|
$ 44,730
|
Credit Quality
The percentage of classified loans to loans receivable increased
slightly to 1.61% at December 31,
2023, compared to 1.47% at September
30, 2023. Classified loans include loans rated substandard
or worse. Total classified loans and loans designated as special
mention increased by $14.9 million to
$149.7 million at December 31, 2023, compared to $134.8 million at September 30, 2023. This increase was primarily
due to the transfer of a $7.1 million
commercial and industrial loan to special mention and a
$6.0 million commercial and
industrial lending relationship to substandard offset partially by
repayments and transfers of previously classified and special
mention loans to a pass rating.
The following table illustrates total loans by risk rating and
their respective percentage of total loans at the dates
indicated:
|
December 31,
2023
|
|
September 30,
2023
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
(Dollars in
thousands)
|
Risk Rating:
|
|
|
|
|
|
|
|
Pass
|
$
4,185,893
|
|
96.6 %
|
|
$
4,132,053
|
|
96.8 %
|
Special
Mention
|
79,977
|
|
1.8
|
|
72,152
|
|
1.7
|
Substandard
|
69,757
|
|
1.6
|
|
62,653
|
|
1.5
|
Total
|
$
4,335,627
|
|
100.0 %
|
|
$
4,266,858
|
|
100.0 %
|
Nonaccrual loans to loans receivable was 0.10% and 0.07% at
December 31, 2023 and September 30, 2023, respectively. Nonaccrual
loans increased primarily due to the addition of a $2.1 million commercial and industrial loan
during the fourth quarter of 2023 which is 100% government
guaranteed. Changes in nonaccrual loans during the periods
indicated were as follows:
|
Quarter
Ended
|
|
December 31,
2023
|
|
September
30,
2023
|
|
December 31,
2022
|
|
(In
thousands)
|
Balance, beginning of
period
|
$
3,065
|
|
$
4,630
|
|
$
6,234
|
Additions
|
2,149
|
|
440
|
|
605
|
Net principal payments
and transfers to accruing status
|
(333)
|
|
(81)
|
|
(828)
|
Payoffs
|
(413)
|
|
(1,924)
|
|
(105)
|
Balance, end of
period
|
$
4,468
|
|
$
3,065
|
|
$
5,906
|
Liquidity
Total liquidity sources available at December 31, 2023 were $2.86 billion. This includes internal as well as
external sources of liquidity. The Company has access to FHLB
advances, the FRB Discount Window and BTFP. The Company's available
liquidity sources at December 31,
2023 represented a coverage ratio of 51.1% of total deposits
and 136.3% of estimated uninsured deposits.
The following table summarizes the Company's available
liquidity:
|
Quarter
Ended
|
|
December 31,
2023
|
|
September
30,
2023
|
|
(Dollars in
thousands)
|
FRB borrowing
availability
|
$
819,492
|
|
$
823,117
|
FHLB borrowing
availability(1)
|
1,417,518
|
|
1,202,172
|
Unencumbered investment
securities available for sale(2)
|
756,258
|
|
779,871
|
Cash and cash
equivalents
|
224,973
|
|
220,503
|
Fed funds line
borrowing availability with correspondent banks
|
145,000
|
|
145,000
|
Total sources of
liquidity
|
3,363,241
|
|
3,170,663
|
Less: Borrowings
outstanding
|
(500,000)
|
|
(450,000)
|
Total available
liquidity
|
$
2,863,241
|
|
$
2,720,663
|
|
|
(1)
|
Includes FHLB total
borrowing availability of $1.42 billion at December 31, 2023 based
on pledged assets, however, maximum credit capacity is 45% of the
Bank's total assets one quarter in arrears or
$3.22 billion.
|
(2)
|
Investment securities
available for sale at fair value.
|
Net Interest Income and Net Interest Margin
Net interest income decreased $1.7
million, or 3.1%, during the fourth quarter of 2023 compared
to the third quarter of 2023 due primarily to an increase of
$2.5 million in interest expense
partially offset by a $795,000
increase in interest income. Net interest margin decreased six
basis points to 3.41% during the fourth quarter of 2023 from 3.47%
during the third quarter of 2023.
The cost of interest bearing deposits increased 25 basis points
to 1.48% for the fourth quarter of 2023 from 1.23% for the third
quarter of 2023.
This increase was primarily due to customers transferring
balances from non-maturity deposits to higher rate certificates of
deposit. The yield on interest earning assets increased 12 basis
points to 4.70% for the fourth quarter of 2023 compared to 4.58%
for the third quarter of 2023. The yield on loans receivable, net
increased five basis points to 5.35% during the fourth quarter of
2023 compared to 5.30% during the third quarter of 2023 due to
higher rates on new and renewed loans and recoveries of interest on
loans classified as nonaccrual loans that paid off during the
quarter which contributed three basis points to the yield on loans
receivable. The yield on taxable securities increased 15 basis
points to 3.15% during the fourth quarter of 2023 compared to 3.00%
during the third quarter of 2023 due to sales of $151.8 million of lower yielding investments with
a weighted average yield of 2.41% offset by purchases of
$140.7 million of higher yielding
investments with a weighted average yield of 6.08%.
Net interest income decreased $9.2
million, or 14.6%, during the fourth quarter of 2023
compared to the fourth quarter of 2022 and the net interest margin
decreased 57 basis points from 3.98% during this same period. The
decrease was due primarily to an increase in interest expense due
to an increase in deposit rates and borrowing expense partially
offset by an increase in yields earned on interest earning assets
following increases in market interest rates.
The following table provides relevant net interest income
information for the periods indicated:
|
Quarter
Ended
|
|
December 31,
2023
|
|
September 30,
2023
|
|
December 31,
2022
|
|
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)
|
|
(Dollars in
thousands)
|
Interest Earning
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
(2)(3)
|
$ 4,233,743
|
|
$ 57,092
|
|
5.35 %
|
|
$ 4,201,554
|
|
$ 56,119
|
|
5.30 %
|
|
$ 3,963,042
|
|
$ 48,513
|
|
4.86 %
|
Taxable
securities
|
1,824,205
|
|
14,488
|
|
3.15
|
|
1,931,649
|
|
14,590
|
|
3.00
|
|
1,983,178
|
|
14,655
|
|
2.93
|
Nontaxable securities
(3)
|
37,382
|
|
300
|
|
3.18
|
|
60,654
|
|
448
|
|
2.93
|
|
123,430
|
|
843
|
|
2.71
|
Interest earning
deposits
|
174,475
|
|
2,382
|
|
5.42
|
|
169,186
|
|
2,310
|
|
5.42
|
|
222,538
|
|
2,010
|
|
3.58
|
Total interest earning
assets
|
6,269,805
|
|
74,262
|
|
4.70 %
|
|
6,363,043
|
|
73,467
|
|
4.58 %
|
|
6,292,188
|
|
66,021
|
|
4.16 %
|
Noninterest earning
assets
|
871,071
|
|
|
|
|
|
849,689
|
|
|
|
|
|
808,656
|
|
|
|
|
Total
assets
|
$ 7,140,876
|
|
|
|
|
|
$ 7,212,732
|
|
|
|
|
|
$ 7,100,844
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
638,101
|
|
$
6,261
|
|
3.89 %
|
|
$
553,015
|
|
$
4,585
|
|
3.29 %
|
|
$
299,364
|
|
$ 455
|
|
0.60 %
|
Savings
accounts
|
497,484
|
|
231
|
|
0.18
|
|
523,882
|
|
172
|
|
0.13
|
|
632,536
|
|
107
|
|
0.07
|
Interest bearing demand
and
money market accounts
|
2,713,482
|
|
7,846
|
|
1.15
|
|
2,764,251
|
|
7,120
|
|
1.02
|
|
2,946,425
|
|
1,895
|
|
0.26
|
Total interest bearing
deposits
|
3,849,067
|
|
14,338
|
|
1.48
|
|
3,841,148
|
|
11,877
|
|
1.23
|
|
3,878,325
|
|
2,457
|
|
0.25
|
Junior subordinated
debentures
|
21,729
|
|
553
|
|
10.10
|
|
21,649
|
|
540
|
|
9.90
|
|
21,430
|
|
410
|
|
7.59
|
Securities sold under
agreement
to repurchase
|
17,511
|
|
5
|
|
0.11
|
|
31,729
|
|
38
|
|
0.48
|
|
43,694
|
|
41
|
|
0.37
|
Borrowings
|
459,784
|
|
5,495
|
|
4.74
|
|
451,032
|
|
5,394
|
|
4.74
|
|
543
|
|
6
|
|
4.38
|
Total interest
bearing
liabilities
|
4,348,091
|
|
20,391
|
|
1.86 %
|
|
4,345,558
|
|
17,849
|
|
1.63 %
|
|
3,943,992
|
|
2,914
|
|
0.29 %
|
Noninterest demand
deposits
|
1,772,261
|
|
|
|
|
|
1,859,374
|
|
|
|
|
|
2,239,806
|
|
|
|
|
Other noninterest
bearing
liabilities
|
207,141
|
|
|
|
|
|
186,306
|
|
|
|
|
|
136,645
|
|
|
|
|
Stockholders'
equity
|
813,383
|
|
|
|
|
|
821,494
|
|
|
|
|
|
780,401
|
|
|
|
|
Total liabilities
and
stockholders' equity
|
$ 7,140,876
|
|
|
|
|
|
$ 7,212,732
|
|
|
|
|
|
$ 7,100,844
|
|
|
|
|
Net interest income and
spread
|
|
|
$ 53,871
|
|
2.84 %
|
|
|
|
$ 55,618
|
|
2.95 %
|
|
|
|
$ 63,107
|
|
3.87 %
|
Net interest
margin
|
|
|
|
|
3.41 %
|
|
|
|
|
|
3.47 %
|
|
|
|
|
|
3.98 %
|
|
|
(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 $832,000, $940,000 and $723,000 for the fourth quarter of 2023,
third quarter of 2023 and fourth quarter of 2022,
respectively.
|
(3)
|
Yields on tax-exempt
loans and securities have not been stated on a tax-equivalent
basis.
|
Noninterest Income
Noninterest income decreased $9.4
million during the fourth quarter of 2023 from the third
quarter of 2023 and decreased $9.7
million from the same period in 2022 due primarily to a
$10.0 million pre-tax loss on the
sale of investment securities available for sale. Card revenue
decreased during the fourth quarter of 2023 compared to the third
quarter of 2023 due to annual incentives of $250,000 recognized in the third quarter of 2023
as well as general declines in income due to lower transaction
account volume. Other income decreased during the fourth quarter of
2023 compared to the third quarter of 2023 due to a $610,000 gain on sale of the Ellensburg branch which was recognized in the
third quarter of 2023.
The following table presents the key components of noninterest
income and the change for the periods indicated:
|
Quarter
Ended
|
|
Quarter Over
Quarter Change
|
|
Prior Year
Quarter Change
|
|
December 31,
2023
|
|
September
30,
2023
|
|
December 31,
2022
|
|
$
|
|
%
|
|
$
|
|
%
|
|
(Dollars in
thousands)
|
Service charges and
other fees
|
$
2,804
|
|
$
2,856
|
|
$
2,651
|
|
$ (52)
|
|
(1.8) %
|
|
$ 153
|
|
5.8 %
|
Card revenue
|
1,944
|
|
2,273
|
|
2,111
|
|
(329)
|
|
(14.5)
|
|
(167)
|
|
(7.9)
|
Loss on sale of
investment securities
|
(10,005)
|
|
(1,940)
|
|
(256)
|
|
(8,065)
|
|
415.7
|
|
(9,749)
|
|
3808.2
|
Gain on sale of loans,
net
|
36
|
|
157
|
|
40
|
|
(121)
|
|
(77.1)
|
|
(4)
|
|
(10.0)
|
Interest rate swap
fees
|
—
|
|
62
|
|
19
|
|
(62)
|
|
(100.0)
|
|
(19)
|
|
(100.0)
|
Bank owned life
insurance income
|
654
|
|
734
|
|
565
|
|
(80)
|
|
(10.9)
|
|
89
|
|
15.8
|
Other income
|
1,420
|
|
2,129
|
|
1,454
|
|
(709)
|
|
(33.3)
|
|
(34)
|
|
(2.3)
|
Total noninterest
income
|
$
(3,147)
|
|
$
6,271
|
|
$
6,584
|
|
$
(9,418)
|
|
(150.2) %
|
|
$
(9,731)
|
|
(147.8) %
|
Noninterest Expense
Noninterest expense increased $1.8
million, or 4.3%, during the fourth quarter of 2023 from the
third quarter of 2023. Compensation and employee benefits expenses
decreased primarily due to a reduction in employees and included
$148,000 in severance costs. Data
processing expenses increased due primarily to a $320,000 accrual for the early termination of a
technology-related contract. Marketing expenses increased due to an
increase in marketing efforts during the fourth quarter of 2023.
Professional services increased due primarily to a $1.5 million expense related to renewal of the
core vendor contract during the fourth quarter of 2023.
Noninterest expense increased $2.3
million, or 5.8%, during the fourth quarter of 2023 compared
to the same period in 2022. Occupancy and equipment expense
increased due primarily to our expansion into Boise, Idaho and annual increases in lease
expenses. Federal deposit insurance premiums increased due to the
increase in the assessment rate starting in January 2023. Data processing expenses and
professional services increased primarily due to the same reasons
stated above.
The following table presents the key components of noninterest
expense and the change for the periods indicated:
|
Quarter
Ended
|
|
Quarter Over
Quarter Change
|
|
Prior Year
Quarter Change
|
|
December 31,
2023
|
|
September
30,
2023
|
|
December 31,
2022
|
|
$
|
|
%
|
|
$
|
|
%
|
|
(Dollars in
thousands)
|
Compensation and
employee
benefits
|
$
24,758
|
|
$
25,008
|
|
$
24,856
|
|
$
(250)
|
|
(1.0) %
|
|
$ (98)
|
|
(0.4) %
|
Occupancy and
equipment
|
4,784
|
|
4,814
|
|
4,541
|
|
(30)
|
|
(0.6)
|
|
243
|
|
5.4
|
Data
processing
|
4,863
|
|
4,366
|
|
4,369
|
|
497
|
|
11.4
|
|
494
|
|
11.3
|
Marketing
|
698
|
|
389
|
|
675
|
|
309
|
|
79.4
|
|
23
|
|
3.4
|
Professional
services
|
2,266
|
|
582
|
|
630
|
|
1,684
|
|
289.3
|
|
1,636
|
|
259.7
|
State/municipal
business and use
taxes
|
909
|
|
1,088
|
|
1,008
|
|
(179)
|
|
(16.5)
|
|
(99)
|
|
(9.8)
|
Federal deposit
insurance premium
|
847
|
|
818
|
|
490
|
|
29
|
|
3.5
|
|
357
|
|
72.9
|
Amortization of
intangible assets
|
593
|
|
595
|
|
671
|
|
(2)
|
|
(0.3)
|
|
(78)
|
|
(11.6)
|
Other
expense
|
3,005
|
|
3,310
|
|
3,152
|
|
(305)
|
|
(9.2)
|
|
(147)
|
|
(4.7)
|
Total noninterest
expense
|
$
42,723
|
|
$
40,970
|
|
$
40,392
|
|
$ 1,753
|
|
4.3 %
|
|
$ 2,331
|
|
5.8 %
|
Income Tax Expense
Income tax expense decreased during the fourth quarter of 2023
compared to the third quarter of 2023, primarily due to a decrease
in income before income taxes. Additionally, the effective income
tax rate was lower during the fourth quarter of 2023, resulting
from a decrease in annual pre-tax income for the year ended 2023
which increased the impact of favorable permanent tax items such as
tax-exempt investments, investments in bank owned life insurance
and tax credits. The effective income tax rate for the year
ended December 31, 2023 was 15.3% as
compared to 17.7% for the year ended December 31, 2022.
The following table presents the income tax expense and related
metrics and the change for the periods indicated:
|
Quarter
Ended
|
|
Change
|
|
December 31,
2023
|
|
September
30,
2023
|
|
December 31,
2022
|
|
Quarter Over
Quarter
|
Prior Year
Quarter
|
|
(Dollars in
thousands)
|
Income before income
taxes
|
$
6,577
|
|
$
21,797
|
|
$
27,889
|
|
$
(15,220)
|
|
$
(21,312)
|
Income tax
expense
|
$
344
|
|
$
3,578
|
|
$
5,345
|
|
$
(3,234)
|
|
$
(5,001)
|
Effective income tax
rate
|
5.2 %
|
|
16.4 %
|
|
19.2 %
|
|
(11.2) %
|
|
(14.0) %
|
Dividends
On January 24, 2024, the Company's Board of Directors
declared a quarterly cash dividend of $0.23 per share. The dividend is payable on
February 22, 2024 to shareholders of record as of the close of
business on February 8, 2024.
Earnings Conference Call
The Company will hold a telephone conference call to discuss
this earnings release on Thursday, January 25, 2024 at
10:00 a.m. Pacific time. To access
the call, please dial (833) 470-1428 -- access code 290327 a few
minutes prior to 10:00 a.m. Pacific
time. The call will be available for replay through
February 1, 2024 by dialing (866)
813-9403 -- access code 301843.
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 50 banking offices in Washington, Oregon and Idaho. 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: changes in general economic conditions nationally or in
our local market areas, other markets where the Company has lending
relationships, or other aspects of the Company's business
operations or financial markets including, without limitation, as a
result of employment levels, labor shortages and the effects of
inflation, a potential recession or slowed economic growth, or
increased political instability due to acts of war; changes in the
interest rate environment, including prior increases in the Board
of Governors of the Federal Reserve System (the "Federal Reserve")
benchmark rate and duration at which such increased interest rate
levels are maintained, which could adversely affect our revenues
and expenses, the value of assets and obligations, and the
availability and cost of capital and liquidity; the impact of
continuing inflation and the current and future monetary policies
of the Federal Reserve in response thereto; the impact of bank
failures or adverse developments at other banks and related
negative press about the banking industry in general on investor
and depositor sentiment; the effects of any federal government
shutdown; changes in the interest rate environment; the quality and
composition of our securities portfolio and the impact of any
adverse changes including market liquidity within the securities
markets; legislative and regulatory changes, including changes in
banking, securities and tax law, in regulatory policies and
principles, or the interpretation of regulatory capital or other
rules; credit and interest rate risks associated with the Company's
businesses, customers, borrowings, repayment, investment, and
deposit practices; fluctuations in deposits; liquidity issues,
including our ability to borrow funds or raise additional capital,
if necessary; disruptions, security breaches, or other adverse
events, failures or interruptions in, or attacks on, our
information technology systems or on the third-party vendors who
perform several of our critical processing functions; effects of
critical accounting policies and judgments, including the use of
estimates in determining fair value of certain of our assets, which
estimates may prove to be incorrect and result in significant
declines in valuation; 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 (the "SEC") 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.
HERITAGE FINANCIAL
CORPORATION
|
CONDENSED
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
|
(Dollars in
thousands, except shares)
|
|
|
December 31,
2023
|
|
September
30,
2023
|
|
December 31,
2022
|
Assets
|
|
|
|
|
|
Cash on hand and in
banks
|
$
55,851
|
|
$
61,568
|
|
$
74,295
|
Interest earning
deposits
|
169,122
|
|
158,935
|
|
29,295
|
Cash and cash
equivalents
|
224,973
|
|
220,503
|
|
103,590
|
Investment securities
available for sale, at fair value (amortized cost of
$1,227,787, $1,292,500 and $1,460,033,
respectively)
|
1,134,353
|
|
1,147,547
|
|
1,331,443
|
Investment securities
held to maturity, at amortized cost (fair value of
$662,450, $636,257 and $673,434,
respectively)
|
739,442
|
|
746,845
|
|
766,396
|
Total investment
securities
|
1,873,795
|
|
1,894,392
|
|
2,097,839
|
Loans held for
sale
|
—
|
|
263
|
|
—
|
Loans
receivable
|
4,335,627
|
|
4,266,858
|
|
4,050,858
|
Allowance for credit
losses on loans
|
(47,999)
|
|
(46,947)
|
|
(42,986)
|
Loans receivable,
net
|
4,287,628
|
|
4,219,911
|
|
4,007,872
|
Premises and equipment,
net
|
74,899
|
|
76,436
|
|
76,930
|
Federal Home Loan Bank
stock, at cost
|
4,186
|
|
8,373
|
|
8,916
|
Bank owned life
insurance
|
125,655
|
|
123,639
|
|
122,059
|
Accrued interest
receivable
|
19,518
|
|
18,794
|
|
18,547
|
Prepaid expenses and
other assets
|
318,571
|
|
341,952
|
|
296,181
|
Other intangible
assets, net
|
4,793
|
|
5,386
|
|
7,227
|
Goodwill
|
240,939
|
|
240,939
|
|
240,939
|
Total
assets
|
$
7,174,957
|
|
$
7,150,588
|
|
$
6,980,100
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
Deposits
|
$
5,599,872
|
|
$
5,635,187
|
|
$
5,907,420
|
Deposits held for
sale
|
—
|
|
—
|
|
17,420
|
Total
deposits
|
5,599,872
|
|
5,635,187
|
|
5,924,840
|
Borrowings
|
500,000
|
|
450,000
|
|
—
|
Junior subordinated
debentures
|
21,765
|
|
21,692
|
|
21,473
|
Securities sold under
agreement to repurchase
|
—
|
|
23,158
|
|
46,597
|
Accrued expenses and
other liabilities
|
200,059
|
|
207,005
|
|
189,297
|
Total
liabilities
|
6,321,696
|
|
6,337,042
|
|
6,182,207
|
|
|
|
|
|
|
Common stock
|
549,748
|
|
548,652
|
|
552,397
|
Retained
earnings
|
375,989
|
|
377,522
|
|
345,346
|
Accumulated other
comprehensive loss, net
|
(72,476)
|
|
(112,628)
|
|
(99,850)
|
Total stockholders'
equity
|
853,261
|
|
813,546
|
|
797,893
|
Total liabilities and
stockholders' equity
|
$
7,174,957
|
|
$
7,150,588
|
|
$
6,980,100
|
|
|
|
|
|
|
Shares
outstanding
|
34,906,233
|
|
34,901,076
|
|
35,106,697
|
HERITAGE FINANCIAL
CORPORATION
|
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
|
(Dollars in
thousands, except per share amounts)
|
|
|
Quarter
Ended
|
|
Year
Ended
|
|
December 31,
2023
|
|
September
30,
2023
|
|
December 31,
2022
|
|
December 31,
2023
|
|
December 31,
2022
|
Interest
Income
|
|
|
|
|
|
|
|
|
|
Interest and fees on
loans
|
$
57,092
|
|
$
56,119
|
|
$
48,513
|
|
$
217,284
|
|
$
174,275
|
Taxable interest on
investment
securities
|
14,488
|
|
14,590
|
|
14,655
|
|
58,509
|
|
40,627
|
Nontaxable interest on
investment
securities
|
300
|
|
448
|
|
843
|
|
1,854
|
|
3,488
|
Interest on interest
earning deposits
|
2,382
|
|
2,310
|
|
2,010
|
|
6,818
|
|
9,067
|
Total interest
income
|
74,262
|
|
73,467
|
|
66,021
|
|
284,465
|
|
227,457
|
Interest
Expense
|
|
|
|
|
|
|
|
|
|
Deposits
|
14,338
|
|
11,877
|
|
2,457
|
|
39,350
|
|
6,772
|
Junior subordinated
debentures
|
553
|
|
540
|
|
410
|
|
2,074
|
|
1,156
|
Securities sold under
agreement to
repurchase
|
5
|
|
38
|
|
41
|
|
153
|
|
138
|
Borrowings
|
5,495
|
|
5,394
|
|
6
|
|
17,733
|
|
6
|
Total interest
expense
|
20,391
|
|
17,849
|
|
2,914
|
|
59,310
|
|
8,072
|
Net interest
income
|
53,871
|
|
55,618
|
|
63,107
|
|
225,155
|
|
219,385
|
Provision for (reversal
of) credit losses
|
1,424
|
|
(878)
|
|
1,410
|
|
4,280
|
|
(1,426)
|
Net interest income
after
provision for (reversal of)
credit losses
|
52,447
|
|
56,496
|
|
61,697
|
|
220,875
|
|
220,811
|
Noninterest
Income
|
|
|
|
|
|
|
|
|
|
Service charges and
other fees
|
2,804
|
|
2,856
|
|
2,651
|
|
10,966
|
|
10,390
|
Card revenue
|
1,944
|
|
2,273
|
|
2,111
|
|
8,340
|
|
8,885
|
Loss on sale of
investment securities,
net
|
(10,005)
|
|
(1,940)
|
|
(256)
|
|
(12,231)
|
|
(256)
|
Gain on sale of loans,
net
|
36
|
|
157
|
|
40
|
|
343
|
|
633
|
Interest rate swap
fees
|
—
|
|
62
|
|
19
|
|
230
|
|
402
|
Bank owned life
insurance income
|
654
|
|
734
|
|
565
|
|
2,934
|
|
3,747
|
Gain on sale of other
assets, net
|
—
|
|
—
|
|
—
|
|
2
|
|
469
|
Other income
|
1,420
|
|
2,129
|
|
1,454
|
|
8,079
|
|
5,321
|
Total noninterest
income
|
(3,147)
|
|
6,271
|
|
6,584
|
|
18,663
|
|
29,591
|
Noninterest
Expense
|
|
|
|
|
|
|
|
|
|
Compensation and
employee benefits
|
24,758
|
|
25,008
|
|
24,856
|
|
100,083
|
|
92,092
|
Occupancy and
equipment
|
4,784
|
|
4,814
|
|
4,541
|
|
19,156
|
|
17,465
|
Data
processing
|
4,863
|
|
4,366
|
|
4,369
|
|
18,071
|
|
16,800
|
Marketing
|
698
|
|
389
|
|
675
|
|
1,930
|
|
1,643
|
Professional
services
|
2,266
|
|
582
|
|
630
|
|
4,227
|
|
2,497
|
State/municipal
business and use
taxes
|
909
|
|
1,088
|
|
1,008
|
|
4,059
|
|
3,634
|
Federal deposit
insurance premium
|
847
|
|
818
|
|
490
|
|
3,312
|
|
2,015
|
Amortization of
intangible assets
|
593
|
|
595
|
|
671
|
|
2,434
|
|
2,750
|
Other
expense
|
3,005
|
|
3,310
|
|
3,152
|
|
13,351
|
|
12,070
|
Total noninterest
expense
|
42,723
|
|
40,970
|
|
40,392
|
|
166,623
|
|
150,966
|
Income before income
taxes
|
6,577
|
|
21,797
|
|
27,889
|
|
72,915
|
|
99,436
|
Income tax
expense
|
344
|
|
3,578
|
|
5,345
|
|
11,160
|
|
17,561
|
Net income
|
$
6,233
|
|
$
18,219
|
|
$
22,544
|
|
$
61,755
|
|
$
81,875
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$
0.18
|
|
$
0.52
|
|
$
0.64
|
|
$
1.76
|
|
$
2.33
|
Diluted earnings per
share
|
$
0.18
|
|
$
0.51
|
|
$
0.64
|
|
$
1.75
|
|
$
2.31
|
Dividends declared per
share
|
$
0.22
|
|
$
0.22
|
|
$
0.21
|
|
$
0.88
|
|
$
0.84
|
Average shares
outstanding - basic
|
34,902,029
|
|
35,022,676
|
|
35,104,701
|
|
35,022,247
|
|
35,103,465
|
Average shares
outstanding - diluted
|
35,084,635
|
|
35,115,165
|
|
35,480,848
|
|
35,258,189
|
|
35,463,896
|
HERITAGE FINANCIAL
CORPORATION
|
FINANCIAL STATISTICS
(Unaudited)
|
(Dollars in
thousands)
|
Nonperforming Assets and Credit Quality
Metrics:
|
|
|
Quarter
Ended
|
|
Year
Ended
|
|
December 31,
2023
|
|
September
30,
2023
|
|
December 31,
2022
|
|
December 31,
2023
|
|
December 31,
2022
|
Allowance for Credit
Losses on Loans:
|
|
|
|
|
Balance, beginning of
period
|
$
46,947
|
|
$
46,408
|
|
$
42,089
|
|
$
42,986
|
|
$
42,361
|
Provision for (reversal
of) credit
losses on loans
|
1,670
|
|
(635)
|
|
689
|
|
4,736
|
|
(563)
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
Commercial
business
|
(543)
|
|
(15)
|
|
—
|
|
(719)
|
|
(316)
|
Residential real
estate
|
—
|
|
—
|
|
—
|
|
—
|
|
(30)
|
Real estate
construction and land
development
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
Consumer
|
(166)
|
|
(123)
|
|
(151)
|
|
(586)
|
|
(547)
|
Total
charge-offs
|
(709)
|
|
(138)
|
|
(151)
|
|
(1,305)
|
|
(893)
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
Commercial
business
|
30
|
|
1,253
|
|
53
|
|
1,372
|
|
929
|
Residential real
estate
|
—
|
|
—
|
|
—
|
|
—
|
|
3
|
Real estate
construction and land
development
|
—
|
|
—
|
|
210
|
|
—
|
|
384
|
Consumer
|
61
|
|
59
|
|
96
|
|
210
|
|
765
|
Total
recoveries
|
91
|
|
1,312
|
|
359
|
|
1,582
|
|
2,081
|
Net (charge-offs) /
recoveries
|
(618)
|
|
1,174
|
|
208
|
|
277
|
|
1,188
|
Balance, end of
period
|
$
47,999
|
|
$
46,947
|
|
$
42,986
|
|
$
47,999
|
|
$
42,986
|
Net charge-offs
(recoveries) on loans
to average loans receivable,
net(1)
|
0.06 %
|
|
(0.11) %
|
|
(0.02) %
|
|
(0.01) %
|
|
(0.03) %
|
|
December 31,
2023
|
|
September
30,
2023
|
|
December 31,
2022
|
Nonperforming
Assets:
|
|
|
|
|
|
Nonaccrual
loans:
|
|
|
|
|
|
Commercial
business
|
$
4,468
|
|
$
3,065
|
|
$
5,869
|
Real estate
construction and land development
|
—
|
|
—
|
|
37
|
Total nonaccrual
loans
|
4,468
|
|
3,065
|
|
5,906
|
Accruing loans past due
90 days or more
|
1,293
|
|
2,158
|
|
1,615
|
Total nonperforming
loans
|
5,761
|
|
5,223
|
|
7,521
|
Other real estate
owned
|
—
|
|
—
|
|
—
|
Nonperforming
assets
|
$
5,761
|
|
$
5,223
|
|
$
7,521
|
|
|
|
|
|
|
ACL on loans
to:
|
|
|
|
|
|
Loans
receivable
|
1.11 %
|
|
1.10 %
|
|
1.06 %
|
Nonaccrual
loans
|
1,074.28 %
|
|
1,531.71 %
|
|
727.84 %
|
Nonaccrual loans to
loans receivable
|
0.10 %
|
|
0.07 %
|
|
0.15 %
|
Nonperforming loans to
loans receivable
|
0.13 %
|
|
0.12 %
|
|
0.19 %
|
Nonperforming assets to
total assets
|
0.08 %
|
|
0.07 %
|
|
0.11 %
|
HERITAGE FINANCIAL
CORPORATION
|
FINANCIAL STATISTICS
(Unaudited)
|
(Dollars in
thousands)
|
Average Balances,
Yields, and Rates Paid:
|
|
|
Year Ended December
31,
|
|
2023
|
|
2022
|
|
Average
Balance
|
|
Interest
Earned/
Paid
|
|
Average
Yield/
Rate (1)
|
|
Average
Balance
|
|
Interest
Earned/
Paid
|
|
Average
Yield/
Rate (1)
|
Interest Earning
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable,
net(2)(3)
|
$ 4,155,722
|
|
$
217,284
|
|
5.23 %
|
|
$ 3,852,604
|
|
$
174,275
|
|
4.52 %
|
Taxable
securities
|
1,937,603
|
|
58,509
|
|
3.02
|
|
1,646,058
|
|
40,627
|
|
2.47
|
Nontaxable
securities(3)
|
63,051
|
|
1,854
|
|
2.94
|
|
135,004
|
|
3,488
|
|
2.58
|
Interest earning
deposits
|
129,807
|
|
6,818
|
|
5.25
|
|
913,374
|
|
9,067
|
|
0.99
|
Total interest earning
assets
|
6,286,183
|
|
284,465
|
|
4.53 %
|
|
6,547,040
|
|
227,457
|
|
3.47 %
|
Noninterest earning
assets
|
853,841
|
|
|
|
|
|
774,415
|
|
|
|
|
Total
assets
|
$ 7,140,024
|
|
|
|
|
|
$ 7,321,455
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
491,653
|
|
$ 14,554
|
|
2.96 %
|
|
$
313,712
|
|
$
1,407
|
|
0.45 %
|
Savings
accounts
|
543,096
|
|
701
|
|
0.13
|
|
646,565
|
|
381
|
|
0.06
|
Interest bearing demand
and money market accounts
|
2,771,981
|
|
24,095
|
|
0.87
|
|
3,036,031
|
|
4,984
|
|
0.16
|
Total interest bearing
deposits
|
3,806,730
|
|
39,350
|
|
1.03
|
|
3,996,308
|
|
6,772
|
|
0.17
|
Junior subordinated
debentures
|
21,615
|
|
2,074
|
|
9.60
|
|
21,322
|
|
1,156
|
|
5.42
|
Securities sold under
agreement to repurchase
|
32,976
|
|
153
|
|
0.46
|
|
46,209
|
|
138
|
|
0.30
|
Borrowings
|
369,665
|
|
17,733
|
|
4.80 %
|
|
137
|
|
6
|
|
4.38 %
|
Total interest bearing
liabilities
|
4,230,986
|
|
59,310
|
|
1.40 %
|
|
4,063,976
|
|
8,072
|
|
0.20 %
|
Noninterest demand
deposits
|
1,899,317
|
|
|
|
|
|
2,326,178
|
|
|
|
|
Other noninterest
bearing liabilities
|
191,679
|
|
|
|
|
|
119,359
|
|
|
|
|
Stockholders'
equity
|
818,042
|
|
|
|
|
|
811,942
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$ 7,140,024
|
|
|
|
|
|
$ 7,321,455
|
|
|
|
|
Net interest income and
spread
|
|
|
$
225,155
|
|
3.13 %
|
|
|
|
$
219,385
|
|
3.27 %
|
Net interest
margin
|
|
|
|
|
3.58 %
|
|
|
|
|
|
3.35 %
|
|
(1)
|
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 $3.3 million and $7.4 million for the years ended December 31,
2023 and 2022, 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)
|
(Dollars in
thousands, except per share amounts)
|
|
|
Quarter
Ended
|
|
December 31,
2023
|
|
September
30,
2023
|
|
June 30,
2023
|
|
March 31,
2023
|
|
December 31,
2022
|
Earnings:
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
$
53,871
|
|
$
55,618
|
|
$
55,824
|
|
$
59,842
|
|
$
63,107
|
Provision for (reversal
of) credit losses
|
1,424
|
|
(878)
|
|
1,909
|
|
1,825
|
|
1,410
|
Noninterest
income
|
(3,147)
|
|
6,271
|
|
7,281
|
|
8,258
|
|
6,584
|
Noninterest
expense
|
42,723
|
|
40,970
|
|
41,325
|
|
41,605
|
|
40,392
|
Net income
|
6,233
|
|
18,219
|
|
16,846
|
|
20,457
|
|
22,544
|
Pre-tax, pre-provision
net income (3)
|
8,001
|
|
20,919
|
|
21,780
|
|
26,495
|
|
29,299
|
Basic earnings per
share
|
$
0.18
|
|
$
0.52
|
|
$
0.48
|
|
$
0.58
|
|
$
0.64
|
Diluted earnings per
share
|
$
0.18
|
|
$
0.51
|
|
$
0.48
|
|
$
0.58
|
|
$
0.64
|
Average
Balances:
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
(1)
|
$
4,233,743
|
|
$
4,201,554
|
|
$
4,145,556
|
|
$
4,039,395
|
|
$
3,963,042
|
Total investment
securities
|
1,861,587
|
|
1,992,303
|
|
2,061,100
|
|
2,090,232
|
|
2,106,608
|
Total interest earning
assets
|
6,269,805
|
|
6,363,043
|
|
6,297,410
|
|
6,213,003
|
|
6,292,188
|
Total assets
|
7,140,876
|
|
7,212,732
|
|
7,142,865
|
|
7,061,959
|
|
7,100,844
|
Total interest bearing
deposits
|
3,849,067
|
|
3,841,148
|
|
3,755,005
|
|
3,780,570
|
|
3,878,325
|
Total noninterest
demand deposits
|
1,772,261
|
|
1,859,374
|
|
1,900,640
|
|
2,068,688
|
|
2,239,806
|
Stockholders'
equity
|
813,383
|
|
821,494
|
|
824,742
|
|
812,500
|
|
780,401
|
Financial
Ratios:
|
|
|
|
|
|
|
|
|
|
Return on average
assets (2)
|
0.35 %
|
|
1.00 %
|
|
0.95 %
|
|
1.17 %
|
|
1.26 %
|
Pre-tax, pre-provision
return on
average assets (2)(3)
|
0.44
|
|
1.15
|
|
1.22
|
|
1.52
|
|
1.64
|
Return on average
common equity (2)
|
3.04
|
|
8.80
|
|
8.19
|
|
10.21
|
|
11.46
|
Return on average
tangible common
equity (2) (3)
|
4.69
|
|
12.90
|
|
12.04
|
|
15.05
|
|
17.21
|
Efficiency
ratio
|
84.2
|
|
66.2
|
|
65.5
|
|
61.1
|
|
58.0
|
Noninterest expense to
average total
assets (2)
|
2.37
|
|
2.25
|
|
2.32
|
|
2.39
|
|
2.26
|
Net interest spread
(2)
|
2.84
|
|
2.95
|
|
3.11
|
|
3.66
|
|
3.87
|
Net interest margin
(2)
|
3.41
|
|
3.47
|
|
3.56
|
|
3.91
|
|
3.98
|
|
|
(1)
|
Average loans
receivable, net includes loans held for sale.
|
(2)
|
Annualized.
|
(3)
|
See Non-GAAP Financial
Measures section herein.
|
HERITAGE FINANCIAL
CORPORATION
|
QUARTERLY FINANCIAL
STATISTICS (Unaudited)
|
(Dollars in
thousands, except per share amounts)
|
|
|
As of or for the
Quarter Ended
|
|
December 31,
2023
|
|
September
30,
2023
|
|
June 30,
2023
|
|
March 31,
2023
|
|
December 31,
2022
|
Select Balance
Sheet:
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
7,174,957
|
|
$
7,150,588
|
|
$
7,115,410
|
|
$
7,236,806
|
|
$
6,980,100
|
Loans receivable,
net
|
4,287,628
|
|
4,219,911
|
|
4,204,936
|
|
4,083,003
|
|
4,007,872
|
Total investment
securities
|
1,873,795
|
|
1,894,392
|
|
2,030,826
|
|
2,078,235
|
|
2,097,839
|
Deposits
|
5,599,872
|
|
5,635,187
|
|
5,595,543
|
|
5,789,022
|
|
5,924,840
|
Noninterest demand
deposits
|
1,715,847
|
|
1,789,293
|
|
1,857,492
|
|
1,982,909
|
|
2,099,464
|
Stockholders'
equity
|
853,261
|
|
813,546
|
|
819,733
|
|
826,082
|
|
797,893
|
Financial
Measures:
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
$
24.44
|
|
$
23.31
|
|
$
23.39
|
|
$
23.53
|
|
$
22.73
|
Tangible book value per
share (1)
|
17.40
|
|
16.25
|
|
16.34
|
|
16.48
|
|
15.66
|
Stockholders' equity to
total assets
|
11.9 %
|
|
11.4 %
|
|
11.5 %
|
|
11.4 %
|
|
11.4 %
|
Tangible common equity
to tangible
assets (1)
|
8.8
|
|
8.2
|
|
8.3
|
|
8.3
|
|
8.2
|
Loans to deposits
ratio
|
77.4
|
|
75.7
|
|
76.0
|
|
71.3
|
|
68.4
|
Regulatory Capital
Ratios:(2)
|
|
|
|
|
|
|
|
|
|
Common equity tier 1
capital ratio
|
12.9 %
|
|
12.9 %
|
|
12.8 %
|
|
12.9 %
|
|
12.8 %
|
Leverage
ratio
|
10.0
|
|
9.9
|
|
9.9
|
|
9.9
|
|
9.7
|
Tier 1 capital
ratio
|
13.3
|
|
13.3
|
|
13.2
|
|
13.3
|
|
13.2
|
Total capital
ratio
|
14.1
|
|
14.1
|
|
14.1
|
|
14.1
|
|
14.0
|
Credit Quality
Metrics:
|
|
|
|
|
|
|
|
|
|
ACL on
loans to:
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
1.11 %
|
|
1.10 %
|
|
1.09 %
|
|
1.08 %
|
|
1.06 %
|
Nonperforming
loans
|
1,074.3
|
|
1,531.7
|
|
1,002.3
|
|
923.6
|
|
727.8
|
Nonaccrual loans to
loans receivable
|
0.10
|
|
0.07
|
|
0.11
|
|
0.12
|
|
0.15
|
Nonperforming loans to
loans receivable
|
0.13
|
|
0.12
|
|
0.16
|
|
0.17
|
|
0.19
|
Nonperforming assets to
total assets
|
0.08
|
|
0.07
|
|
0.10
|
|
0.10
|
|
0.11
|
Net charge-offs
(recoveries) on loans
to average loans receivable,
net(3)
|
0.06
|
|
(0.11)
|
|
—
|
|
0.02
|
|
(0.02)
|
Criticized Loans by
Credit Quality Rating:
|
Special
mention
|
$
79,977
|
|
$
72,152
|
|
$
84,623
|
|
$
96,832
|
|
$
69,449
|
Substandard
|
69,757
|
|
62,653
|
|
58,653
|
|
48,824
|
|
65,765
|
Other
Metrics:
|
|
|
|
|
|
|
|
|
|
Number of banking
offices
|
50
|
|
50
|
|
51
|
|
51
|
|
50
|
Deposits per
branch
|
$
111,997
|
|
$
112,704
|
|
$
109,717
|
|
$
113,510
|
|
$
118,497
|
Average number of
full-time
equivalent employees
|
803
|
|
821
|
|
813
|
|
809
|
|
806
|
Average assets per
full-time
equivalent employee
|
8,893
|
|
8,785
|
|
8,786
|
|
8,729
|
|
8,810
|
|
|
(1)
|
See Non-GAAP Financial
Measures section herein.
|
(2)
|
Current quarter ratios
are estimates pending completion and filing of the Company's
regulatory reports.
|
(3)
|
Annualized.
|
HERITAGE FINANCIAL
CORPORATION
NON-GAAP FINANCIAL MEASURES
(Unaudited)
(Dollars in thousands, except per share
amounts)
This earnings release contains certain financial measures not
presented in accordance with Generally Accepted Accounting
Principles ("GAAP") in addition to financial measures presented in
accordance with GAAP. The Company has presented these non-GAAP
financial measures in this earnings release because it believes
that they provide useful and comparative information to assess
trends in the Company's capital, performance and asset quality
reflected in the current quarter and comparable period results and
to facilitate comparison of its performance with the performance of
its peers. These non-GAAP measures have inherent limitations, are
not required to be uniformly applied and are not audited. They
should not be considered in isolation or as a substitute for
financial measures presented in accordance with GAAP. These
non-GAAP measures may not be comparable to similarly titled
measures reported by other companies. Reconciliations of the GAAP
and non-GAAP financial measures are presented below.
The Company considers the tangible common equity to tangible
assets ratio and tangible book value per share to be useful
measurements of the adequacy of the Company's capital levels.
|
December 31,
2023
|
|
September
30,
2023
|
|
June 30,
2023
|
|
March 31,
2023
|
|
December 31,
2022
|
Tangible Common
Equity to Tangible Assets and Tangible Book Value Per
Share:
|
Total stockholders'
equity (GAAP)
|
$
853,261
|
|
$
813,546
|
|
$
819,733
|
|
$
826,082
|
|
$
797,893
|
Exclude intangible
assets
|
(245,732)
|
|
(246,325)
|
|
(246,920)
|
|
(247,543)
|
|
(248,166)
|
Tangible common equity
(non-GAAP)
|
$
607,529
|
|
$
567,221
|
|
$
572,813
|
|
$
578,539
|
|
$
549,727
|
|
|
|
|
|
|
|
|
|
|
Total assets
(GAAP)
|
$
7,174,957
|
|
$
7,150,588
|
|
$
7,115,410
|
|
$
7,236,806
|
|
$
6,980,100
|
Exclude intangible
assets
|
(245,732)
|
|
(246,325)
|
|
(246,920)
|
|
(247,543)
|
|
(248,166)
|
Tangible assets
(non-GAAP)
|
$
6,929,225
|
|
$
6,904,263
|
|
$
6,868,490
|
|
$
6,989,263
|
|
$
6,731,934
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity to
total assets
(GAAP)
|
11.9 %
|
|
11.4 %
|
|
11.5 %
|
|
11.4 %
|
|
11.4 %
|
Tangible common equity
to tangible
assets (non-GAAP)
|
8.8 %
|
|
8.2 %
|
|
8.3 %
|
|
8.3 %
|
|
8.2 %
|
|
|
|
|
|
|
|
|
|
|
Shares
outstanding
|
34,906,233
|
|
34,901,076
|
|
35,047,800
|
|
35,108,120
|
|
35,106,697
|
|
|
|
|
|
|
|
|
|
|
Book value per share
(GAAP)
|
$
24.44
|
|
$
23.31
|
|
$
23.39
|
|
$
23.53
|
|
$
22.73
|
Tangible book value per
share (non-GAAP)
|
$
17.40
|
|
$
16.25
|
|
$
16.34
|
|
$
16.48
|
|
$
15.66
|
HERITAGE FINANCIAL
CORPORATION
NON-GAAP FINANCIAL MEASURES
(Unaudited)
(Dollars in thousands, except per share
amounts)
The Company considers the return on average tangible common
equity ratio to be a useful measurement of the Company's ability to
generate returns for its common shareholders. By removing the
impact of intangible assets and their related amortization and tax
effects, the performance of the Company's ongoing business
operations can be evaluated.
|
Quarter
Ended
|
|
December 31,
2023
|
|
September
30,
2023
|
|
June 30,
2023
|
|
March 31,
2023
|
|
December 31,
2022
|
Return on Average
Tangible Common Equity, annualized:
|
Net income
(GAAP)
|
$
6,233
|
|
$
18,219
|
|
$
16,846
|
|
$
20,457
|
|
$
22,544
|
Add amortization of
intangible
assets
|
593
|
|
595
|
|
623
|
|
623
|
|
671
|
Exclude tax effect of
adjustment
|
(125)
|
|
(125)
|
|
(131)
|
|
(131)
|
|
(141)
|
Tangible net income
(non-GAAP)
|
$
6,701
|
|
$
18,689
|
|
$
17,338
|
|
$
20,949
|
|
$
23,074
|
|
|
|
|
|
|
|
|
|
|
Average stockholders'
equity (GAAP)
|
$
813,383
|
|
$
821,494
|
|
$
824,742
|
|
$
812,500
|
|
$
780,401
|
Exclude average
intangible
assets
|
(246,022)
|
|
(246,663)
|
|
(247,278)
|
|
(247,922)
|
|
(248,560)
|
Average tangible
common
stockholders' equity (non-GAAP)
|
$
567,361
|
|
$
574,831
|
|
$
577,464
|
|
$
564,578
|
|
$
531,841
|
|
|
|
|
|
|
|
|
|
|
Return on average
common equity,
annualized (GAAP)
|
3.04 %
|
|
8.80 %
|
|
8.19 %
|
|
10.21 %
|
|
11.46 %
|
Return on average
tangible common
equity, annualized (non-GAAP)
|
4.69 %
|
|
12.90 %
|
|
12.04 %
|
|
15.05 %
|
|
17.21 %
|
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.
|
Quarter
Ended
|
|
December 31,
2023
|
|
September
30,
2023
|
|
June 30,
2023
|
|
March 31,
2023
|
|
December 31,
2022
|
Pre-tax,
Pre-provision Income and Pre-tax, Pre-provision Return on Average
Assets, annualized:
|
Net income
(GAAP)
|
$
6,233
|
|
$
18,219
|
|
$
16,846
|
|
$
20,457
|
|
$
22,544
|
Add income tax
expense
|
344
|
|
3,578
|
|
3,025
|
|
4,213
|
|
5,345
|
Add/(subtract)
provision for
(reversal of) credit losses
|
1,424
|
|
(878)
|
|
1,909
|
|
1,825
|
|
1,410
|
Pre-tax, pre-provision
income (non-
GAAP)
|
$
8,001
|
|
$
20,919
|
|
$
21,780
|
|
$
26,495
|
|
$
29,299
|
|
|
|
|
|
|
|
|
|
|
Average total assets
(GAAP)
|
$
7,140,876
|
|
$
7,212,732
|
|
$
7,142,865
|
|
$
7,061,959
|
|
$
7,100,844
|
|
|
|
|
|
|
|
|
|
|
Return on average
assets, annualized
(GAAP)
|
0.35 %
|
|
1.00 %
|
|
0.95 %
|
|
1.17 %
|
|
1.26 %
|
Pre-tax, pre-provision
return on
average assets (non-GAAP)
|
0.44 %
|
|
1.15 %
|
|
1.22 %
|
|
1.52 %
|
|
1.64 %
|
View original
content:https://www.prnewswire.com/news-releases/heritage-financial-announces-fourth-quarter-and-annual-2023-results-and-declares-regular-cash-dividend-302044166.html
SOURCE Heritage Financial Corporation