- Net income was $22.5 million,
or $0.64 per diluted share, for the
fourth quarter of 2022 compared to $21.0
million, or $0.59 per diluted
share, for the third quarter of 2022 and $19.4 million, or $0.55 per diluted share, for the fourth quarter
of 2021.
- Loans receivable increased $49.6
million, or 1.2% (4.9% annualized), in the fourth quarter of
2022.
- Loans receivable increased $235.2
million, or 6.2% for the year ended December 31, 2022. Excluding SBA PPP loan
repayments of $144.4 million, loans
receivable increased $379.6 million
for the year ended December 31,
2022.
- Net interest income increased $3.8
million, or 6.4%, to $63.1
million for the fourth quarter of 2022 compared to
$59.3 million for the third quarter
of 2022, and increased $15.2 million,
or 31.7% compared to $47.9 million
for the fourth quarter of 2021.
- Net interest margin increased to 3.98% for the fourth
quarter of 2022 from 3.57% for the third quarter of 2022 and 2.85%
for the fourth quarter of 2021.
- Cost of total deposits was 0.16% for the fourth quarter of
2022 compared to 0.09% for both the third quarter of 2022 and the
fourth quarter of 2021.
- Expanded geographic footprint into Idaho with the opening of a branch in
Boise on January 10, 2023.
- Declared a regular cash dividend of $0.22 per share on January
25, 2023, an increase of 4.8% from the $0.21 regular cash dividend per share declared in
the third quarter of 2022.
OLYMPIA,
Wash., Jan. 26, 2023 /PRNewswire/ -- Heritage
Financial Corporation (NASDAQ GS: HFWA) (the "Company" or
"Heritage"), the parent company of Heritage Bank (the "Bank"),
today reported net income of $22.5
million for the fourth quarter of 2022 compared to
$21.0 million for the third quarter
of 2022 and $19.4 million for the
fourth quarter of 2021. Diluted earnings per share for the fourth
quarter of 2022 were $0.64 compared
to $0.59 for the third quarter of
2022 and $0.55 for the fourth quarter
of 2021. Net income for the year ended 2022 totaled
$81.9 million, or $2.31 per diluted share as compared to
$98.0 million, or $2.73 per diluted share for 2021.
Jeffrey J. Deuel, President and
Chief Executive Officer of Heritage, commented, "We are very
pleased with our profitability over the past year due to
higher net interest margin, low-cost deposits and strong loan
growth, along with our prudent expense management. Our net interest
margin in the fourth quarter increased by 113 basis points from the
fourth quarter of 2021, while our cost of total deposits only
increased by 7 basis points. In addition, excluding the impacts of
SBA PPP loan repayments, total loan balances increased by 10.3%
from year end 2021. These achievements were made possible by our
foundation of a strong balance sheet and a talented team of
bankers.
We successfully expanded our teams in the Portland and Eugene MSAs in 2022, and we are
excited to start 2023 by announcing our entry into the Boise MSA,
which is our first branch in Idaho. We believe this will be
an attractive market for Heritage to expand and continue to
grow.
Further, we are proud that Heritage Bank is partnering with
College Housing Northwest ("CHNW") in financing 79 affordable
student housing rental units located on the Eastside of
Portland. CHNW works to provide
innovative housing support to college students, especially to those
aging out of the foster care system. Heritage Bank is providing
$7.4 million of term loan financing
for the project as well as assisting CHNW to acquire additional
buildings with access to innovative funding from government and
foundation sources."
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,
2022
|
|
September
30,
2022
|
|
December 31,
2021
|
|
(Dollars in
thousands, except per share amounts)
|
Net income
|
$
22,544
|
|
$
20,990
|
|
$
19,397
|
Pre-tax, pre-provision
income (1)
|
$
29,299
|
|
$
27,592
|
|
$
19,282
|
Diluted earnings per
share
|
$
0.64
|
|
$
0.59
|
|
$
0.55
|
Return on average
assets (2)
|
1.26 %
|
|
1.13 %
|
|
1.04 %
|
Pre-tax, pre-provision
return on average assets (1) (2)
|
1.64 %
|
|
1.49 %
|
|
1.03 %
|
Return on average
common equity (2)
|
11.46 %
|
|
10.27 %
|
|
9.06 %
|
Return on average
tangible common equity (1) (2)
|
17.21 %
|
|
15.20 %
|
|
13.27 %
|
Net interest margin
(2)
|
3.98 %
|
|
3.57 %
|
|
2.85 %
|
Cost of total deposits
(2)
|
0.16 %
|
|
0.09 %
|
|
0.09 %
|
Efficiency
ratio
|
58.0 %
|
|
58.7 %
|
|
66.6 %
|
Noninterest expense to
average total assets (2)
|
2.26 %
|
|
2.11 %
|
|
2.06 %
|
Total assets
|
$ 6,980,100
|
|
$ 7,200,312
|
|
$ 7,432,412
|
Loans receivable,
net
|
$ 4,007,872
|
|
$ 3,959,206
|
|
$ 3,773,301
|
Total
deposits
|
$ 5,924,840
|
|
$ 6,237,735
|
|
$ 6,394,290
|
Loan to deposit ratio
(3)
|
68.4 %
|
|
64.1 %
|
|
59.7 %
|
Book value per
share
|
$
22.73
|
|
$
22.13
|
|
$
24.34
|
Tangible book value per
share (1)
|
$
15.66
|
|
$
15.04
|
|
$
17.19
|
Tangible book value per
share, excluding AOCI (1) (4)
|
$
18.50
|
|
$
18.03
|
|
$
16.92
|
|
|
(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 $303.7 million, or 74.6%, to $103.6 million at December
31, 2022 from $407.3 million
at September 30, 2022 due primarily
to an increase in loans receivable and a decrease in
deposits.
Total investment securities decreased $31.6 million, or 1.5%, to $2.10 billion at December
31, 2022 from $2.13 billion at
September 30, 2022 due primarily to
maturities and prepayments of $55.3
million and sales of $30.4
million, partially offset by purchases of $48.1 million.
The following table summarizes the Company's loans receivable,
net at the dates indicated:
|
December 31,
2022
|
|
September 30,
2022
|
|
Change
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
$
|
|
%
|
|
(Dollars in
thousands)
|
Commercial
business:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
industrial
|
$
692,100
|
|
17.1 %
|
|
$
735,028
|
|
18.4 %
|
|
$
(42,928)
|
|
(5.8) %
|
SBA PPP
|
1,468
|
|
—
|
|
3,593
|
|
0.1
|
|
(2,125)
|
|
(59.1)
|
Owner-occupied
commercial real estate ("CRE")
|
937,040
|
|
23.1
|
|
959,486
|
|
24.0
|
|
(22,446)
|
|
(2.3)
|
Non-owner occupied
CRE
|
1,586,632
|
|
39.2
|
|
1,547,114
|
|
38.6
|
|
39,518
|
|
2.6
|
Total commercial
business
|
3,217,240
|
|
79.4
|
|
3,245,221
|
|
81.1
|
|
(27,981)
|
|
(0.9)
|
Residential real
estate
|
343,631
|
|
8.5
|
|
296,019
|
|
7.4
|
|
47,612
|
|
16.1
|
Real estate
construction and land development:
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
80,074
|
|
2.0
|
|
92,297
|
|
2.3
|
|
(12,223)
|
|
(13.2)
|
Commercial and
multifamily
|
214,038
|
|
5.3
|
|
160,723
|
|
4.0
|
|
53,315
|
|
33.2
|
Total real estate
construction and land development
|
294,112
|
|
7.3
|
|
253,020
|
|
6.3
|
|
41,092
|
|
16.2
|
Consumer
|
195,875
|
|
4.8
|
|
207,035
|
|
5.2
|
|
(11,160)
|
|
(5.4)
|
Loans
receivable
|
4,050,858
|
|
100.0 %
|
|
4,001,295
|
|
100.0 %
|
|
49,563
|
|
1.2
|
Allowance for credit
losses on loans
|
(42,986)
|
|
|
|
(42,089)
|
|
|
|
(897)
|
|
2.1
|
Loans receivable,
net
|
$
4,007,872
|
|
|
|
$
3,959,206
|
|
|
|
$
48,666
|
|
1.2 %
|
|
Loans receivable grew $49.6
million, or 1.2% (4.9% annualized), in the fourth quarter of
2022. New loans funded in the fourth and third quarter of 2022 were
$203.1 million and $206.7 million, respectively. This includes
purchased residential real estate loans of $40.5 million and $29.0 million, respectively, during the
fourth and third quarter of 2022. Loan repayments also increased
during the fourth quarter of 2022 to $147.0
million, as compared to $71.6
million during the third quarter of 2022, exclusive of SBA
PPP loan repayments, net deferred fees, and net acquired
discounts.
Commercial and industrial loans decreased primarily due to
declines in line of credit utilization rates during the fourth
quarter of 2022 compared to the third quarter of 2022. Commercial
and multifamily construction loans increased by $53.3 million or 33.2% due to new loan
originations and advances on outstanding loans during the fourth
quarter of 2022. Total new commitments for commercial and
multifamily construction loans increased to $173.4 million in the fourth quarter of 2022 as
compared to $91.7 million in the
third quarter of 2022.
Prepaid expenses and other assets increased $65.5 million or 28.4% to $296.2 million at December
31, 2022 from $230.7 million
at September 30, 2022 due primarily
to an increase in commitments for low income housing tax
credits. Accrued expenses and other liabilities increased
$65.3 million or 52.6% to
$189.3 million at December 31, 2022 from $124.0 million at September 30, 2022 due to an increase in the
unfunded portion of the commitment for these low income housing tax
credits.
The following table summarizes the Company's total deposits at
the dates indicated:
|
December 31,
2022
|
|
September 30,
2022
|
|
Change
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
$
|
|
%
|
|
(Dollars in
thousands)
|
Noninterest demand
deposits
|
$
2,099,464
|
|
35.5 %
|
|
$
2,308,583
|
|
37.0 %
|
|
$ (209,119)
|
|
(9.1) %
|
Interest bearing demand
deposits
|
1,830,727
|
|
30.9
|
|
1,997,989
|
|
32.0
|
|
(167,262)
|
|
(8.4)
|
Money market
accounts
|
1,063,243
|
|
17.9
|
|
996,214
|
|
16.0
|
|
67,029
|
|
6.7
|
Savings
accounts
|
623,833
|
|
10.5
|
|
647,526
|
|
10.4
|
|
(23,693)
|
|
(3.7)
|
Total non-maturity
deposits
|
5,617,267
|
|
94.8
|
|
5,950,312
|
|
95.4
|
|
(333,045)
|
|
(5.6)
|
Certificates of
deposit
|
307,573
|
|
5.2
|
|
287,423
|
|
4.6
|
|
20,150
|
|
7.0
|
Total
deposits
|
$
5,924,840
|
|
100.0 %
|
|
$
6,237,735
|
|
100.0 %
|
|
$ (312,895)
|
|
(5.0) %
|
|
Total deposits decreased $312.9
million, or 5.0%, from September 30,
2022. The decrease was due to competitive pricing pressures
and customers moving excess funds to alternative higher yielding
investments as well as general declines in individual customer
balances. Money market account and certificate of deposit
balances increased from the prior quarter due to marketing efforts
to retain deposit accounts.
Total stockholders' equity increased $21.2 million during the fourth quarter of 2022
due primarily to net income recognized for the quarter. 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,
2022
|
|
September
30,
2022
|
|
Change
|
Stockholders' equity to
total assets
|
11.4 %
|
|
10.8 %
|
|
0.6 %
|
Tangible common equity
to tangible assets (1)
|
8.2
|
|
7.6
|
|
0.6
|
Tangible common equity,
excluding AOCI, to tangible assets, excluding UGL
(1)
|
9.5
|
|
9.0
|
|
0.5
|
Common equity tier 1
capital ratio (2)
|
12.8
|
|
12.8
|
|
—
|
Leverage ratio
(2)
|
9.7
|
|
9.2
|
|
0.5
|
Tier 1 capital ratio
(2)
|
13.2
|
|
13.3
|
|
(0.1)
|
Total capital ratio
(2)
|
14.0
|
|
14.0
|
|
—
|
|
|
(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 provision for
(reversal of) credit losses for the periods indicated:
|
As of or for the
Quarter Ended
|
|
December 31,
2022
|
|
September 30,
2022
|
|
December 31,
2021
|
|
ACL on
Loans
|
|
ACL on
Unfunded
|
|
Total
|
|
ACL on
Loans
|
|
ACL on
Unfunded
|
|
Total
|
|
ACL on
Loans
|
|
ACL on
Unfunded
|
|
Total
|
|
(Dollars in
thousands)
|
Balance, beginning of
period
|
$ 42,089
|
|
$ 1,023
|
|
$ 43,112
|
|
$ 39,696
|
|
$
997
|
|
$ 40,693
|
|
$ 48,317
|
|
$ 2,154
|
|
$ 50,471
|
Provision for (reversal
of) credit losses
|
689
|
|
721
|
|
1,410
|
|
1,919
|
|
26
|
|
1,945
|
|
(5,490)
|
|
453
|
|
(5,037)
|
Net recoveries
(charge-offs)
|
208
|
|
—
|
|
208
|
|
474
|
|
—
|
|
474
|
|
(466)
|
|
—
|
|
(466)
|
Balance, end of
period
|
$ 42,986
|
|
$ 1,744
|
|
$ 44,730
|
|
$ 42,089
|
|
$ 1,023
|
|
$ 43,112
|
|
$ 42,361
|
|
$ 2,607
|
|
$ 44,968
|
|
The ACL on loans increased compared to September 30, 2022 due primarily to an increase
related to the growth in loans receivable. The ACL on unfunded
increased compared to September 30,
2022 due primarily to an increase in unfunded commitment
balances.
Credit Quality
Nonperforming assets decreased to 0.08% of total assets at
December 31, 2022 compared to 0.09%
of total assets at September 30,
2022. Nonperforming assets at both December 31, 2022 and September 30, 2022 consisted only of nonaccrual
loans. Changes in nonaccrual loans during the periods indicated
were as follows:
|
Quarter
Ended
|
|
December 31,
2022
|
|
September
30,
2022
|
|
December 31,
2021
|
|
(In
thousands)
|
Balance, beginning of
period
|
$
6,234
|
|
$
10,475
|
|
$
25,894
|
Additions
|
605
|
|
—
|
|
333
|
Net principal payments
and transfers to accruing status
|
(828)
|
|
(4,016)
|
|
(1,435)
|
Payoffs
|
(105)
|
|
(225)
|
|
(540)
|
Charge-offs
|
—
|
|
—
|
|
(498)
|
Balance, end of
period
|
$
5,906
|
|
$
6,234
|
|
$
23,754
|
|
Net Interest Income and Net Interest Margin
Net interest income increased $3.8
million, or 6.4%, compared to the third quarter of 2022 and
increased $15.2 million, or 31.7%,
compared to the fourth quarter of 2021 due primarily to an increase
in yields earned on interest earning assets following increases in
market interest rates. The yield on interest earning assets
increased to 4.16% as compared to 3.68% in the third quarter of
2022 and 2.95% in the fourth quarter of 2021.
The cost of interest bearing liabilities increased to 0.29%,
compared to 0.18% in the third quarter of 2022 and 0.16% in
the fourth quarter of 2021 primarily due to increased costs
of interest bearing deposits due to competitive rate pressures on
deposit accounts.
The following table presents the loan yield and the impact of
SBA PPP loans and the incremental accretion on purchased loans on
this financial measure for the periods presented below:
|
Quarter
Ended
|
|
December 31,
2022
|
|
September
30,
2022
|
|
December 31,
2021
|
Loan yield
(GAAP)
|
4.86 %
|
|
4.51 %
|
|
4.42 %
|
Exclude impact from
SBA PPP loans
|
(0.01)
|
|
(0.02)
|
|
(0.29)
|
Exclude impact from
incremental accretion on purchased loans
|
(0.02)
|
|
(0.05)
|
|
(0.05)
|
Loan yield, excluding
SBA PPP loans and incremental accretion on purchased loans
(non-GAAP) (1)
|
4.83 %
|
|
4.44 %
|
|
4.08 %
|
|
|
(1)
|
See Non-GAAP Financial
Measures section.
|
|
|
|
|
Net interest margin increased to 3.98% for the fourth quarter of
2022 as compared to 3.57% for the third quarter of 2022 and 2.85%
for the fourth quarter of 2021 due to a shift into higher yielding
interest earning assets as well as higher average yields on all
interest earning assets following increases in market interest
rates while maintaining a low cost of deposits.
Noninterest Income
The following table presents the key components of noninterest
income and the change for the periods indicated:
|
Quarter
Ended
|
|
Quarter Over
Quarter Change
|
|
Prior Year
Quarter Change
|
|
December 31,
2022
|
|
September
30,
2022
|
|
December 31,
2021
|
|
$
|
|
%
|
|
$
|
|
%
|
|
(Dollar amounts in
thousands)
|
Service charges and
other fees
|
$
2,651
|
|
$
2,688
|
|
$
2,479
|
|
$ (37)
|
|
(1.4) %
|
|
$ 172
|
|
6.9 %
|
Card revenue
|
2,111
|
|
2,365
|
|
2,108
|
|
(254)
|
|
(10.7)
|
|
3
|
|
0.1
|
Loss on sale of
investment securities, net
|
(256)
|
|
—
|
|
—
|
|
(256)
|
|
—
|
|
(256)
|
|
(100.0)
|
Gain on sale of loans,
net
|
40
|
|
133
|
|
506
|
|
(93)
|
|
(69.9)
|
|
(466)
|
|
(92.1)
|
Interest rate swap
fees
|
19
|
|
78
|
|
174
|
|
(59)
|
|
(75.6)
|
|
(155)
|
|
(89.1)
|
Bank owned life
insurance income
|
565
|
|
723
|
|
500
|
|
(158)
|
|
(21.9)
|
|
65
|
|
13.0
|
Gain on sale of other
assets, net
|
—
|
|
265
|
|
2,717
|
|
(265)
|
|
—
|
|
(2,717)
|
|
(100.0)
|
Other income
|
1,454
|
|
1,201
|
|
1,355
|
|
253
|
|
21.1
|
|
99
|
|
7.3
|
Total noninterest
income
|
$
6,584
|
|
$
7,453
|
|
$
9,839
|
|
$
(869)
|
|
(11.7) %
|
|
$
(3,255)
|
|
(33.1) %
|
|
Noninterest income decreased from the third quarter of 2022 due
primarily to decreased card revenue, a loss on the sale of
investment securities recognized during the fourth quarter of 2022
and a gain on sale of branches held for sale recognized during the
third quarter of 2022.
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, a loss on the sale of
investment securities recognized during the fourth quarter of 2022
and a gain on sale of branches held for sale recognized during the
fourth 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
|
|
December 31,
2022
|
|
September
30,
2022
|
|
December 31,
2021
|
|
$
|
|
%
|
|
$
|
|
%
|
|
(Dollar amounts in
thousands)
|
Compensation and
employee benefits
|
$
24,856
|
|
$
24,206
|
|
$
22,798
|
|
$ 650
|
|
2.7 %
|
|
$
2,058
|
|
9.0 %
|
Occupancy and
equipment
|
4,541
|
|
4,422
|
|
4,325
|
|
119
|
|
2.7
|
|
216
|
|
5.0
|
Data
processing
|
4,369
|
|
4,185
|
|
4,694
|
|
184
|
|
4.4
|
|
(325)
|
|
(6.9)
|
Marketing
|
675
|
|
358
|
|
577
|
|
317
|
|
88.5
|
|
98
|
|
17.0
|
Professional
services
|
630
|
|
639
|
|
763
|
|
(9)
|
|
(1.4)
|
|
(133)
|
|
(17.4)
|
State/municipal
business and use tax
|
1,008
|
|
963
|
|
850
|
|
45
|
|
4.7
|
|
158
|
|
18.6
|
Federal deposit
insurance premium
|
490
|
|
500
|
|
628
|
|
(10)
|
|
(2.0)
|
|
(138)
|
|
(22.0)
|
Amortization of
intangible assets
|
671
|
|
671
|
|
759
|
|
—
|
|
—
|
|
(88)
|
|
(11.6)
|
Other
expense
|
3,152
|
|
3,203
|
|
3,071
|
|
(51)
|
|
(1.6)
|
|
81
|
|
2.6
|
Total noninterest
expense
|
$
40,392
|
|
$
39,147
|
|
$
38,465
|
|
$
1,245
|
|
3.2 %
|
|
$
1,927
|
|
5.0 %
|
|
Noninterest expense increased from the third quarter of 2022 and
the same period in 2021 due primarily to an increase in
compensation and employee benefits due to an increase in the number
of full-time equivalent employees including the addition of
commercial and relationship banking teams in the second quarter of
2022 and an increase in salaries and wages due to upward market
pressure. Marketing expenses increased from the third quarter
of 2022 due to timing of marketing efforts.
Income Tax Expense
The following table presents the income tax expense and related
metrics and the change for the periods indicated:
|
Quarter
Ended
|
|
Quarter Over
Quarter Change
|
|
Prior Year
Quarter Change
|
|
December 31,
2022
|
|
September
30,
2022
|
|
December 31,
2021
|
|
$
|
|
%
|
|
$
|
|
%
|
|
(Dollar amounts in
thousands)
|
Income before income
taxes
|
$
27,889
|
|
$
25,647
|
|
$
24,319
|
|
$
2,242
|
|
8.7 %
|
|
$
3,570
|
|
14.7 %
|
Income tax
expense
|
$
5,345
|
|
$
4,657
|
|
$
4,922
|
|
$
688
|
|
14.8 %
|
|
$
423
|
|
8.6 %
|
Effective income tax
rate
|
19.2 %
|
|
18.2 %
|
|
20.2 %
|
|
1.0 %
|
|
5.5 %
|
|
(1.0) %
|
|
(5.0) %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense increased compared to the third quarter of
2022 due primarily to a higher effective income tax rate during the
fourth quarter of 2022 following an increase in 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 as well as an increase in the effective state income tax
rate.
Income tax expense increased compared to the same period in 2021
primarily due to higher estimated pre-tax income in the fourth
quarter of 2022 as compared to the fourth quarter of 2021.
Dividends
On January 25, 2023, the Company's Board of Directors
declared a quarterly cash dividend of $0.22 per share, a 4.8% increase from the
$0.21 dividend per share declared in
the third quarter of 2022. The dividend is payable
on February 22, 2023 to shareholders of record as of the
close of business on February 8, 2023.
Earnings Conference Call
The Company will hold a telephone conference call to discuss
this earnings release on Thursday, January 26, 2023 at
10:00 a.m. Pacific time. To access
the call, please dial (844) 200-6205 -- access code 603267 a few
minutes prior to 10:00 a.m. Pacific
time. The call will be available for replay through
February 2, 2023 by dialing (866)
813-9403 -- access code 855414.
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 51 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, either
nationally or in our market areas, including as a result of
employment levels, labor shortages and 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; 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
as a result of new COVID-19 variants; 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 2023 and
beyond to differ materially from those expressed in any
forward-looking statements by, or on behalf of, us, and could
negatively affect the Company's operating and stock price
performance.
HERITAGE FINANCIAL
CORPORATION
|
CONDENSED
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
|
(Dollar amounts in
thousands, except shares)
|
|
|
December 31,
2022
|
|
September
30,
2022
|
|
December 31,
2021
|
Assets
|
|
|
|
|
|
Cash on hand and in
banks
|
$
74,295
|
|
$
100,428
|
|
$
61,377
|
Interest earning
deposits
|
29,295
|
|
306,896
|
|
1,661,915
|
Cash and cash
equivalents
|
103,590
|
|
407,324
|
|
1,723,292
|
Investment securities
available for sale, at fair value (amortized cost of $1,460,033,
$1,491,440 and $883,832, respectively)
|
1,331,443
|
|
1,356,142
|
|
894,335
|
Investment securities
held to maturity, at amortized cost (fair value of $673,434,
$677,335 and $376,331, respectively)
|
766,396
|
|
773,319
|
|
383,393
|
Total investment
securities
|
2,097,839
|
|
2,129,461
|
|
1,277,728
|
Loans held for
sale
|
—
|
|
—
|
|
1,476
|
Loans
receivable
|
4,050,858
|
|
4,001,295
|
|
3,815,662
|
Allowance for credit
losses on loans
|
(42,986)
|
|
(42,089)
|
|
(42,361)
|
Loans receivable,
net
|
4,007,872
|
|
3,959,206
|
|
3,773,301
|
Other real estate
owned
|
—
|
|
—
|
|
—
|
Premises and equipment,
net
|
76,930
|
|
76,683
|
|
79,370
|
Federal Home Loan Bank
stock, at cost
|
8,916
|
|
8,916
|
|
7,933
|
Bank owned life
insurance
|
122,059
|
|
121,369
|
|
120,196
|
Accrued interest
receivable
|
18,547
|
|
17,812
|
|
14,657
|
Prepaid expenses and
other assets
|
296,181
|
|
230,704
|
|
183,543
|
Other intangible
assets, net
|
7,227
|
|
7,898
|
|
9,977
|
Goodwill
|
240,939
|
|
240,939
|
|
240,939
|
Total
assets
|
$
6,980,100
|
|
$
7,200,312
|
|
$
7,432,412
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
Deposits
|
$
5,907,420
|
|
$
6,214,964
|
|
$
6,394,290
|
Deposits held for
sale
|
17,420
|
|
22,771
|
|
—
|
Total
deposits
|
5,924,840
|
|
6,237,735
|
|
6,394,290
|
Junior subordinated
debentures
|
21,473
|
|
21,399
|
|
21,180
|
Securities sold under
agreement to repurchase
|
46,597
|
|
40,449
|
|
50,839
|
Accrued expenses and
other liabilities
|
189,297
|
|
124,027
|
|
111,671
|
Total
liabilities
|
6,182,207
|
|
6,423,610
|
|
6,577,980
|
|
|
|
|
|
|
Common stock
|
552,397
|
|
551,419
|
|
551,798
|
Retained
earnings
|
345,346
|
|
330,284
|
|
293,238
|
Accumulated other
comprehensive (loss) income, net
|
(99,850)
|
|
(105,001)
|
|
9,396
|
Total stockholders'
equity
|
797,893
|
|
776,702
|
|
854,432
|
Total liabilities and
stockholders' equity
|
$
6,980,100
|
|
$
7,200,312
|
|
$
7,432,412
|
|
|
|
|
|
|
Shares
outstanding
|
35,106,697
|
|
35,104,248
|
|
35,105,779
|
HERITAGE FINANCIAL
CORPORATION
|
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
|
(Dollar amounts in
thousands, except per share amounts)
|
|
|
Quarter
Ended
|
|
Year
Ended
|
|
December 31,
2022
|
|
September
30,
2022
|
|
December 31,
2021
|
|
December 31,
2022
|
|
December 31,
2021
|
Interest
Income
|
|
|
|
|
|
|
|
|
|
Interest and fees on
loans
|
$
48,513
|
|
$
43,847
|
|
$
42,695
|
|
$
174,275
|
|
$
189,832
|
Taxable interest on
investment securities
|
14,655
|
|
12,362
|
|
5,197
|
|
40,627
|
|
17,492
|
Nontaxable interest on
investment securities
|
843
|
|
892
|
|
1,063
|
|
3,488
|
|
3,899
|
Interest on interest
earning deposits
|
2,010
|
|
4,009
|
|
633
|
|
9,067
|
|
1,608
|
Total interest
income
|
66,021
|
|
61,110
|
|
49,588
|
|
227,457
|
|
212,831
|
Interest
Expense
|
|
|
|
|
|
|
|
|
|
Deposits
|
2,457
|
|
1,478
|
|
1,464
|
|
6,772
|
|
6,160
|
Junior subordinated
debentures
|
410
|
|
312
|
|
185
|
|
1,156
|
|
742
|
Other
borrowings
|
47
|
|
34
|
|
31
|
|
144
|
|
140
|
Total interest
expense
|
2,914
|
|
1,824
|
|
1,680
|
|
8,072
|
|
7,042
|
Net interest
income
|
63,107
|
|
59,286
|
|
47,908
|
|
219,385
|
|
205,789
|
Provision for (reversal
of) credit losses
|
1,410
|
|
1,945
|
|
(5,037)
|
|
(1,426)
|
|
(29,372)
|
Net interest income
after provision for (reversal of) credit losses
|
61,697
|
|
57,341
|
|
52,945
|
|
220,811
|
|
235,161
|
Noninterest
Income
|
|
|
|
|
|
|
|
|
|
Service charges and
other fees
|
2,651
|
|
2,688
|
|
2,479
|
|
10,390
|
|
9,207
|
Card revenue
|
2,111
|
|
2,365
|
|
2,108
|
|
8,885
|
|
8,325
|
(Loss) gain on sale of
investment securities, net
|
(256)
|
|
—
|
|
—
|
|
(256)
|
|
29
|
Gain on sale of loans,
net
|
40
|
|
133
|
|
506
|
|
633
|
|
3,644
|
Interest rate swap
fees
|
19
|
|
78
|
|
174
|
|
402
|
|
661
|
Bank owned life
insurance income
|
565
|
|
723
|
|
500
|
|
3,747
|
|
2,520
|
Gain on sale of other
assets, net
|
—
|
|
265
|
|
2,717
|
|
469
|
|
4,405
|
Other income
|
1,454
|
|
1,201
|
|
1,355
|
|
5,321
|
|
5,824
|
Total noninterest
income
|
6,584
|
|
7,453
|
|
9,839
|
|
29,591
|
|
34,615
|
Noninterest
Expense
|
|
|
|
|
|
|
|
|
|
Compensation and
employee benefits
|
24,856
|
|
24,206
|
|
22,798
|
|
92,092
|
|
88,765
|
Occupancy and
equipment
|
4,541
|
|
4,422
|
|
4,325
|
|
17,465
|
|
17,243
|
Data
processing
|
4,369
|
|
4,185
|
|
4,694
|
|
16,800
|
|
16,533
|
Marketing
|
675
|
|
358
|
|
577
|
|
1,643
|
|
2,143
|
Professional
services
|
630
|
|
639
|
|
763
|
|
2,497
|
|
3,846
|
State/municipal
business and use taxes
|
1,008
|
|
963
|
|
850
|
|
3,634
|
|
3,884
|
Federal deposit
insurance premium
|
490
|
|
500
|
|
628
|
|
2,015
|
|
2,106
|
Amortization of
intangible assets
|
671
|
|
671
|
|
759
|
|
2,750
|
|
3,111
|
Other
expense
|
3,152
|
|
3,203
|
|
3,071
|
|
12,070
|
|
11,638
|
Total noninterest
expense
|
40,392
|
|
39,147
|
|
38,465
|
|
150,966
|
|
149,269
|
Income before income
taxes
|
27,889
|
|
25,647
|
|
24,319
|
|
99,436
|
|
120,507
|
Income tax
expense
|
5,345
|
|
4,657
|
|
4,922
|
|
17,561
|
|
22,472
|
Net income
|
$
22,544
|
|
$
20,990
|
|
$
19,397
|
|
$
81,875
|
|
$
98,035
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$
0.64
|
|
$
0.60
|
|
$
0.56
|
|
$
2.33
|
|
$
2.75
|
Diluted earnings per
share
|
$
0.64
|
|
$
0.59
|
|
$
0.55
|
|
$
2.31
|
|
$
2.73
|
Dividends declared per
share
|
$
0.21
|
|
$
0.21
|
|
$
0.21
|
|
$
0.84
|
|
$
0.81
|
Average shares
outstanding - basic
|
35,104,701
|
|
35,103,984
|
|
35,154,382
|
|
35,103,465
|
|
35,677,851
|
Average shares
outstanding - diluted
|
35,480,848
|
|
35,468,890
|
|
35,439,998
|
|
35,463,896
|
|
35,973,386
|
HERITAGE FINANCIAL
CORPORATION
|
FINANCIAL STATISTICS
(Unaudited)
|
(Dollar amounts in
thousands, except per share amounts)
|
|
Nonperforming Assets
and Credit Quality Metrics:
|
|
|
Quarter
Ended
|
|
Year
Ended
|
|
December 31,
2022
|
|
September
30,
2022
|
|
December 31,
2021
|
|
December 31,
2022
|
|
December 31,
2021
|
Allowance for Credit
Losses on Loans:
|
|
|
|
|
Balance, beginning of
period
|
$
42,089
|
|
$
39,696
|
|
$
48,317
|
|
$
42,361
|
|
$
70,185
|
Provision for (reversal
of) credit losses on loans
|
689
|
|
1,919
|
|
(5,490)
|
|
(563)
|
|
(27,298)
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
Commercial
business
|
—
|
|
—
|
|
(519)
|
|
(316)
|
|
(1,276)
|
Residential real
estate
|
—
|
|
—
|
|
—
|
|
(30)
|
|
—
|
Real estate
construction and land development
|
—
|
|
—
|
|
—
|
|
—
|
|
(1)
|
Consumer
|
(151)
|
|
(138)
|
|
(160)
|
|
(547)
|
|
(669)
|
Total
charge-offs
|
(151)
|
|
(138)
|
|
(679)
|
|
(893)
|
|
(1,946)
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
Commercial
business
|
53
|
|
455
|
|
81
|
|
929
|
|
816
|
Residential real
estate
|
—
|
|
—
|
|
—
|
|
3
|
|
—
|
Real estate
construction and land development
|
210
|
|
107
|
|
4
|
|
384
|
|
32
|
Consumer
|
96
|
|
50
|
|
128
|
|
765
|
|
572
|
Total
recoveries
|
359
|
|
612
|
|
213
|
|
2,081
|
|
1,420
|
Net recoveries
(charge-offs)
|
208
|
|
474
|
|
(466)
|
|
1,188
|
|
(526)
|
Balance, end of
period
|
$
42,986
|
|
$
42,089
|
|
$
42,361
|
|
$
42,986
|
|
$
42,361
|
Net (recoveries)
charge-offs on loans to average loans, annualized
|
(0.02) %
|
|
(0.05) %
|
|
0.05 %
|
|
(0.03) %
|
|
0.01 %
|
|
December 31,
2022
|
|
September
30,
2022
|
|
December 31,
2021
|
Nonperforming
Assets:
|
|
|
|
|
|
Nonaccrual
loans:
|
|
|
|
|
|
Commercial
business
|
$
5,869
|
|
$
6,234
|
|
$
23,107
|
Residential real
estate
|
—
|
|
—
|
|
47
|
Real estate
construction and land development
|
37
|
|
—
|
|
571
|
Consumer
|
—
|
|
—
|
|
29
|
Total nonaccrual
loans
|
5,906
|
|
6,234
|
|
23,754
|
Other real estate
owned
|
—
|
|
—
|
|
—
|
Nonperforming
assets
|
$
5,906
|
|
$
6,234
|
|
$
23,754
|
|
|
|
|
|
|
Restructured performing
loans
|
$
50,441
|
|
$
71,863
|
|
$
59,110
|
Accruing loans past due
90 days or more
|
1,615
|
|
20
|
|
293
|
ACL on loans
to:
|
|
|
|
|
|
Loans
receivable
|
1.06 %
|
|
1.05 %
|
|
1.11 %
|
Loans receivable,
excluding SBA PPP loans (1)
|
1.06 %
|
|
1.05 %
|
|
1.15 %
|
Nonaccrual
loans
|
727.84 %
|
|
675.15 %
|
|
178.33 %
|
Nonperforming loans to
loans receivable
|
0.15 %
|
|
0.16 %
|
|
0.62 %
|
Nonperforming assets to
total assets
|
0.08 %
|
|
0.09 %
|
|
0.32 %
|
|
(1)
|
See Non-GAAP Financial
Measures section herein.
|
Average Balances,
Yields, and Rates Paid:
|
|
|
Quarter
Ended
|
|
December 31,
2022
|
|
September 30,
2022
|
|
December 31,
2021
|
|
Average
Balance
|
|
Interest
Earned/
Paid
|
|
Average
Yield/
Rate (1)
|
|
Average
Balance
|
|
Interest
Earned/
Paid
|
|
Average
Yield/
Rate (1)
|
|
Average
Balance
|
|
Interest
Earned/
Paid
|
|
Average
Yield/
Rate (1)
|
Interest Earning
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
(2)(3)
|
$ 3,963,042
|
|
$ 48,513
|
|
4.86 %
|
|
$ 3,859,839
|
|
$ 43,847
|
|
4.51 %
|
|
$ 3,836,029
|
|
$ 42,695
|
|
4.42 %
|
Taxable
securities
|
1,983,178
|
|
14,655
|
|
2.93
|
|
1,868,900
|
|
12,362
|
|
2.62
|
|
1,016,629
|
|
5,197
|
|
2.03
|
Nontaxable securities
(3)
|
123,430
|
|
843
|
|
2.71
|
|
133,022
|
|
892
|
|
2.66
|
|
153,686
|
|
1,063
|
|
2.74
|
Interest earning
deposits
|
222,538
|
|
2,010
|
|
3.58
|
|
730,600
|
|
4,009
|
|
2.18
|
|
1,665,640
|
|
633
|
|
0.15
|
Total interest earning
assets
|
6,292,188
|
|
66,021
|
|
4.16 %
|
|
6,592,361
|
|
61,110
|
|
3.68 %
|
|
6,671,984
|
|
49,588
|
|
2.95 %
|
Noninterest earning
assets
|
808,656
|
|
|
|
|
|
775,375
|
|
|
|
|
|
731,613
|
|
|
|
|
Total
assets
|
$ 7,100,844
|
|
|
|
|
|
$ 7,367,736
|
|
|
|
|
|
7,403,597
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
299,364
|
|
$ 455
|
|
0.60 %
|
|
$
297,786
|
|
$ 290
|
|
0.39 %
|
|
$
349,708
|
|
$ 364
|
|
0.41 %
|
Savings
accounts
|
632,536
|
|
107
|
|
0.07
|
|
654,697
|
|
99
|
|
0.06
|
|
631,531
|
|
93
|
|
0.06
|
Interest bearing demand
and money market accounts
|
2,946,425
|
|
1,895
|
|
0.26
|
|
3,065,007
|
|
1,089
|
|
0.14
|
|
2,996,482
|
|
1,007
|
|
0.13
|
Total interest bearing
deposits
|
3,878,325
|
|
2,457
|
|
0.25
|
|
4,017,490
|
|
1,478
|
|
0.15
|
|
3,977,721
|
|
1,464
|
|
0.15
|
Junior subordinated
debentures
|
21,430
|
|
410
|
|
7.59
|
|
21,356
|
|
312
|
|
5.80
|
|
21,140
|
|
185
|
|
3.47
|
Securities sold under
agreement to repurchase
|
43,694
|
|
41
|
|
0.37
|
|
42,959
|
|
34
|
|
0.31
|
|
46,942
|
|
31
|
|
0.26
|
FHLB advances and other
borrowings
|
543
|
|
6
|
|
4.38
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
Total interest bearing
liabilities
|
3,943,992
|
|
2,914
|
|
0.29 %
|
|
4,081,805
|
|
1,824
|
|
0.18 %
|
|
4,045,803
|
|
1,680
|
|
0.16 %
|
Noninterest demand
deposits
|
2,239,806
|
|
|
|
|
|
2,356,688
|
|
|
|
|
|
2,396,452
|
|
|
|
|
Other noninterest
bearing liabilities
|
136,645
|
|
|
|
|
|
118,191
|
|
|
|
|
|
111,959
|
|
|
|
|
Stockholders'
equity
|
780,401
|
|
|
|
|
|
811,052
|
|
|
|
|
|
849,383
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$ 7,100,844
|
|
|
|
|
|
$ 7,367,736
|
|
|
|
|
|
$ 7,403,597
|
|
|
|
|
Net interest income and
spread
|
|
|
$ 63,107
|
|
3.87 %
|
|
|
|
$ 59,286
|
|
3.50 %
|
|
|
|
$ 47,908
|
|
2.79 %
|
Net interest
margin
|
|
|
|
|
3.98 %
|
|
|
|
|
|
3.57 %
|
|
|
|
|
|
2.85 %
|
|
(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 $723,000, $856,000 and $5.2 million for the fourth quarter of
2022, third quarter of 2022 and fourth quarter of 2021,
respectively.
|
|
(3)
|
Yields on tax-exempt
loans and securities have not been stated on a tax-equivalent
basis.
|
|
Year
Ended
|
|
December 31,
2022
|
|
December 31,
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)
|
$ 3,852,604
|
|
$
174,275
|
|
4.52 %
|
|
$ 4,181,464
|
|
$
189,832
|
|
4.54 %
|
Taxable
securities
|
1,646,058
|
|
40,627
|
|
2.47
|
|
846,892
|
|
17,492
|
|
2.07
|
Nontaxable securities
(3)
|
135,004
|
|
3,488
|
|
2.58
|
|
158,968
|
|
3,899
|
|
2.45
|
Interest earning
deposits
|
913,374
|
|
9,067
|
|
0.99
|
|
1,193,724
|
|
1,608
|
|
0.13
|
Total interest earning
assets
|
6,547,040
|
|
227,457
|
|
3.47 %
|
|
6,381,048
|
|
212,831
|
|
3.34 %
|
Noninterest earning
assets
|
774,415
|
|
|
|
|
|
745,202
|
|
|
|
|
Total
assets
|
$ 7,321,455
|
|
|
|
|
|
$ 7,126,250
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
313,712
|
|
$
1,407
|
|
0.45 %
|
|
$
372,279
|
|
$
1,811
|
|
0.49 %
|
Savings
accounts
|
646,565
|
|
381
|
|
0.06
|
|
598,492
|
|
367
|
|
0.06
|
Interest bearing demand
and money market accounts
|
3,036,031
|
|
4,984
|
|
0.16
|
|
2,862,504
|
|
3,982
|
|
0.14
|
Total interest bearing
deposits
|
3,996,308
|
|
6,772
|
|
0.17
|
|
3,833,275
|
|
6,160
|
|
0.16
|
Junior subordinated
debentures
|
21,322
|
|
1,156
|
|
5.42
|
|
21,025
|
|
742
|
|
3.53
|
Securities sold under
agreement to repurchase
|
46,209
|
|
138
|
|
0.30
|
|
45,655
|
|
140
|
|
0.31
|
FHLB advances and other
borrowings
|
137
|
|
6
|
|
4.38
|
|
—
|
|
—
|
|
—
|
Total interest bearing
liabilities
|
4,063,976
|
|
8,072
|
|
0.20 %
|
|
3,899,955
|
|
7,042
|
|
0.18 %
|
Noninterest demand
deposits
|
2,326,178
|
|
|
|
|
|
2,269,921
|
|
|
|
|
Other noninterest
bearing liabilities
|
119,359
|
|
|
|
|
|
114,307
|
|
|
|
|
Stockholders'
equity
|
811,942
|
|
|
|
|
|
842,067
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$ 7,321,455
|
|
|
|
|
|
$ 7,126,250
|
|
|
|
|
Net interest income and
spread
|
|
|
$
219,385
|
|
3.27 %
|
|
|
|
$
205,789
|
|
3.16 %
|
Net interest
margin
|
|
|
|
|
3.35 %
|
|
|
|
|
|
3.23 %
|
|
(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 $7.4 million and $28.4 million for the years ended December 31,
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
|
|
December 31,
2022
|
|
September
30,
2022
|
|
June 30,
2022
|
|
March 31,
2022
|
|
December 31,
2021
|
Earnings:
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
$
63,107
|
|
$
59,286
|
|
$
50,048
|
|
$
46,944
|
|
$
47,908
|
Provision for (reversal
of) credit losses
|
1,410
|
|
1,945
|
|
(1,204)
|
|
(3,577)
|
|
(5,037)
|
Noninterest
income
|
6,584
|
|
7,453
|
|
7,016
|
|
8,538
|
|
9,839
|
Noninterest
expense
|
40,392
|
|
39,147
|
|
35,707
|
|
35,720
|
|
38,465
|
Net income
|
22,544
|
|
20,990
|
|
18,584
|
|
19,757
|
|
19,397
|
Pre-tax, pre-provision
net income (3)
|
29,299
|
|
27,592
|
|
21,357
|
|
19,762
|
|
19,282
|
Basic earnings per
share
|
$
0.64
|
|
$
0.60
|
|
$
0.53
|
|
$
0.56
|
|
$
0.56
|
Diluted earnings per
share
|
$
0.64
|
|
$
0.59
|
|
$
0.52
|
|
$
0.56
|
|
$
0.55
|
Average
Balances:
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
(1)
|
$
3,963,042
|
|
$
3,859,839
|
|
$
3,812,045
|
|
$
3,773,325
|
|
$
3,836,029
|
Total investment
securities
|
2,106,608
|
|
2,001,922
|
|
1,587,757
|
|
1,417,966
|
|
1,170,315
|
Total interest earning
assets
|
6,292,188
|
|
6,592,361
|
|
6,612,958
|
|
6,694,578
|
|
6,671,984
|
Total assets
|
7,100,844
|
|
7,367,736
|
|
7,385,616
|
|
7,434,787
|
|
7,403,597
|
Total interest bearing
deposits
|
3,878,325
|
|
4,017,490
|
|
4,041,706
|
|
4,049,357
|
|
3,977,721
|
Total noninterest
demand deposits
|
2,239,806
|
|
2,356,688
|
|
2,349,746
|
|
2,359,451
|
|
2,396,452
|
Stockholders'
equity
|
780,401
|
|
811,052
|
|
810,961
|
|
846,085
|
|
849,383
|
Financial
Ratios:
|
|
|
|
|
|
|
|
|
|
Return on average
assets (2)
|
1.26 %
|
|
1.13 %
|
|
1.01 %
|
|
1.08 %
|
|
1.04 %
|
Pre-tax, pre-provision
return on average assets (2)(3)
|
1.64
|
|
1.49
|
|
1.16
|
|
1.08
|
|
1.03
|
Return on average
common equity (2)
|
11.46
|
|
10.27
|
|
9.19
|
|
9.47
|
|
9.06
|
Return on average
tangible common equity (2) (3)
|
17.21
|
|
15.20
|
|
13.68
|
|
13.83
|
|
13.27
|
Efficiency
ratio
|
58.0
|
|
58.7
|
|
62.6
|
|
64.4
|
|
66.6
|
Noninterest expense to
average total assets (2)
|
2.26
|
|
2.11
|
|
1.94
|
|
1.95
|
|
2.06
|
Net interest spread
(2)
|
3.87
|
|
3.50
|
|
2.98
|
|
2.78
|
|
2.79
|
Net interest margin
(2)
|
3.98
|
|
3.57
|
|
3.04
|
|
2.84
|
|
2.85
|
|
(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
|
|
December 31,
2022
|
|
September
30,
2022
|
|
June 30,
2022
|
|
March 31,
2022
|
|
December 31,
2021
|
Select Balance
Sheet:
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
6,980,100
|
|
$
7,200,312
|
|
$
7,316,467
|
|
$
7,483,814
|
|
$
7,432,412
|
Loans receivable,
net
|
4,007,872
|
|
3,959,206
|
|
3,834,368
|
|
3,780,845
|
|
3,773,301
|
Total investment
securities
|
2,097,839
|
|
2,129,461
|
|
1,803,241
|
|
1,462,137
|
|
1,277,728
|
Deposits
|
5,924,840
|
|
6,237,735
|
|
6,330,190
|
|
6,491,500
|
|
6,394,290
|
Noninterest demand
deposits
|
2,099,464
|
|
2,308,583
|
|
2,325,139
|
|
2,393,972
|
|
2,343,909
|
Stockholders'
equity
|
797,893
|
|
776,702
|
|
805,366
|
|
821,449
|
|
854,432
|
Financial
Measures:
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
$
22.73
|
|
$
22.13
|
|
$
22.94
|
|
$
23.40
|
|
$
24.34
|
Tangible book value per
share (1)
|
15.66
|
|
15.04
|
|
15.83
|
|
16.27
|
|
17.19
|
Tangible book value per
share, excluding AOCI (1)
|
18.50
|
|
18.03
|
|
17.59
|
|
17.25
|
|
16.92
|
Stockholders' equity to
total assets
|
11.4 %
|
|
10.8 %
|
|
11.0 %
|
|
11.0 %
|
|
11.5 %
|
Tangible common equity
to tangible assets (1)
|
8.2
|
|
7.6
|
|
7.9
|
|
7.9
|
|
8.4
|
Tangible common equity,
excluding AOCI, to tangible assets, excluding
UGL (1)
|
9.5
|
|
9.0
|
|
8.7
|
|
8.3
|
|
8.3
|
Loans to deposits
ratio
|
68.4
|
|
64.1
|
|
61.2
|
|
58.9
|
|
59.7
|
Regulatory Capital
Ratios:
|
|
|
|
|
|
|
|
|
|
Common equity tier 1
capital ratio(2)
|
12.8 %
|
|
12.8 %
|
|
13.2 %
|
|
13.4 %
|
|
13.5 %
|
Leverage
ratio(2)
|
9.7
|
|
9.2
|
|
8.9
|
|
8.8
|
|
8.7
|
Tier 1 capital
ratio(2)
|
13.2
|
|
13.3
|
|
13.6
|
|
13.9
|
|
13.9
|
Total capital
ratio(2)
|
14.0
|
|
14.0
|
|
14.4
|
|
14.7
|
|
14.8
|
Credit Quality
Metrics:
|
|
|
|
|
|
|
|
|
|
ACL on
loans to:
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
1.06 %
|
|
1.05 %
|
|
1.02 %
|
|
1.06 %
|
|
1.11 %
|
Loans receivable,
excluding SBA PPP loans (1)
|
1.06
|
|
1.05
|
|
1.03
|
|
1.07
|
|
1.15
|
Nonperforming
loans
|
727.84
|
|
675.15
|
|
378.96
|
|
244.04
|
|
178.33
|
Nonperforming loans to
loans receivable
|
0.15
|
|
0.16
|
|
0.27
|
|
0.43
|
|
0.62
|
Nonperforming assets to
total assets
|
0.08
|
|
0.09
|
|
0.14
|
|
0.22
|
|
0.32
|
Net (recoveries)
charge-offs on loans to average loans receivable
|
(0.02)
|
|
(0.05)
|
|
—
|
|
(0.05)
|
|
0.05
|
Criticized Loans by
Credit Quality Rating:
|
Special
mention
|
$
69,449
|
|
$
84,439
|
|
$
72,062
|
|
$
63,269
|
|
$
71,020
|
Substandard
|
65,765
|
|
66,376
|
|
94,419
|
|
111,300
|
|
112,450
|
Other
Metrics:
|
|
|
|
|
|
|
|
|
|
Number of banking
offices
|
50
|
|
50
|
|
49
|
|
49
|
|
49
|
Deposits per
branch
|
$
118,497
|
|
$
124,755
|
|
$
129,188
|
|
$
132,480
|
|
$
130,496
|
Average number of
full-time equivalent employees
|
813
|
|
790
|
|
765
|
|
751
|
|
782
|
Average assets per
full-time equivalent employee
|
8,734
|
|
9,326
|
|
9,654
|
|
9,900
|
|
9,468
|
|
|
(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 AOCI and UGL from tangible common equity and
tangible assets, respectively, to improve comparability of capital
levels as AOCI and UGL are excluded from the calculation of
regulatory capital ratios.
|
December 31,
2022
|
|
September
30,
2022
|
|
June 30,
2022
|
|
March 31,
2022
|
|
December 31,
2021
|
Tangible Common
Equity to Tangible Assets and Tangible Book Value Per
Share:
|
Total stockholders'
equity (GAAP)
|
$
797,893
|
|
$
776,702
|
|
$
805,366
|
|
$
821,449
|
|
$
854,432
|
Exclude intangible
assets
|
(248,166)
|
|
(248,837)
|
|
(249,508)
|
|
(250,212)
|
|
(250,916)
|
Tangible common equity
(non-GAAP)
|
549,727
|
|
527,865
|
|
555,858
|
|
571,237
|
|
603,516
|
Exclude
AOCI
|
99,850
|
|
105,001
|
|
61,783
|
|
34,228
|
|
(9,396)
|
Tangible common equity,
excluding AOCI (non-GAAP)
|
$
649,577
|
|
$
632,866
|
|
$
617,641
|
|
$
605,465
|
|
$
594,120
|
|
|
|
|
|
|
|
|
|
|
Total assets
(GAAP)
|
$
6,980,100
|
|
$
7,200,312
|
|
$
7,316,467
|
|
$
7,483,814
|
|
$
7,432,412
|
Exclude intangible
assets
|
(248,166)
|
|
(248,837)
|
|
(249,508)
|
|
(250,212)
|
|
(250,916)
|
Tangible assets
(non-GAAP)
|
6,731,934
|
|
6,951,475
|
|
7,066,959
|
|
7,233,602
|
|
7,181,496
|
Exclude UGL, net of
tax
|
99,850
|
|
105,001
|
|
61,783
|
|
34,228
|
|
(9,396)
|
Tangible assets,
excluding UGL, net of tax (non-GAAP)
|
$
6,831,784
|
|
$
7,056,476
|
|
$
7,128,742
|
|
$
7,267,830
|
|
$
7,172,100
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity to
total assets (GAAP)
|
11.4 %
|
|
10.8 %
|
|
11.0 %
|
|
11.0 %
|
|
11.5 %
|
Tangible common equity
to tangible assets (non-GAAP)
|
8.2 %
|
|
7.6 %
|
|
7.9 %
|
|
7.9 %
|
|
8.4 %
|
Tangible common equity,
excluding AOCI, to tangible assets, excluding UGL
|
9.5 %
|
|
9.0 %
|
|
8.7 %
|
|
8.3 %
|
|
8.3 %
|
|
|
|
|
|
|
|
|
|
|
Shares
outstanding
|
35,106,697
|
|
35,104,248
|
|
35,103,929
|
|
35,102,372
|
|
35,105,779
|
|
|
|
|
|
|
|
|
|
|
Book value per share
(GAAP)
|
$
22.73
|
|
$
22.13
|
|
$
22.94
|
|
$
23.40
|
|
$
24.34
|
Tangible book value per
share (non-GAAP)
|
$
15.66
|
|
$
15.04
|
|
$
15.83
|
|
$
16.27
|
|
$
17.19
|
Tangible book value per
share, excluding AOCI (non-GAAP)
|
$
18.50
|
|
$
18.03
|
|
$
17.59
|
|
$
17.25
|
|
$
16.92
|
|
|
|
|
|
|
|
|
|
|
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 for these loans.
|
December 31,
2022
|
|
September
30,
2022
|
|
June 30,
2022
|
|
March 31,
2022
|
|
December 31,
2021
|
ACL on Loans to
Loans Receivable, excluding SBA PPP Loans:
|
Allowance for credit
losses on loans
|
$
42,986
|
|
$
42,089
|
|
$
39,696
|
|
$
40,333
|
|
$
42,361
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
(GAAP)
|
$
4,050,858
|
|
$
4,001,295
|
|
$
3,874,064
|
|
$
3,821,178
|
|
$
3,815,662
|
Exclude SBA PPP
loans
|
(1,468)
|
|
(3,593)
|
|
(11,334)
|
|
(64,962)
|
|
(145,840)
|
Loans receivable,
excluding SBA PPP loans (non-GAAP)
|
$
4,049,390
|
|
$
3,997,702
|
|
$
3,862,730
|
|
$
3,756,216
|
|
$
3,669,822
|
|
|
|
|
|
|
|
|
|
|
ACL on loans to loans
receivable (GAAP)
|
1.06 %
|
|
1.05 %
|
|
1.02 %
|
|
1.06 %
|
|
1.11 %
|
ACL on loans to loans
receivable, excluding SBA PPP loans (non-GAAP)
|
1.06 %
|
|
1.05 %
|
|
1.03 %
|
|
1.07 %
|
|
1.15 %
|
|
|
|
|
|
|
|
|
|
|
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,
2022
|
|
September
30,
2022
|
|
June 30,
2022
|
|
March 31,
2022
|
|
December 31,
2021
|
Return on Average
Tangible Common Equity, annualized:
|
Net income
(GAAP)
|
$
22,544
|
|
$
20,990
|
|
$
18,584
|
|
$
19,757
|
|
$
19,397
|
Add amortization of
intangible assets
|
671
|
|
671
|
|
704
|
|
704
|
|
759
|
Exclude tax effect of
adjustment
|
(141)
|
|
(141)
|
|
(148)
|
|
(148)
|
|
(159)
|
Tangible net income
(non-GAAP)
|
$
23,074
|
|
$
21,520
|
|
$
19,140
|
|
$
20,313
|
|
$
19,997
|
|
|
|
|
|
|
|
|
|
|
Average stockholders'
equity (GAAP)
|
$
780,401
|
|
$
811,052
|
|
$
810,961
|
|
$
846,085
|
|
$
849,383
|
Exclude average
intangible assets
|
(248,560)
|
|
(249,245)
|
|
(249,890)
|
|
(250,593)
|
|
(251,331)
|
Average tangible common
stockholders' equity (non-GAAP)
|
$
531,841
|
|
$
561,807
|
|
$
561,071
|
|
$
595,492
|
|
$
598,052
|
|
|
|
|
|
|
|
|
|
|
Return on average
common equity, annualized (GAAP)
|
11.46 %
|
|
10.27 %
|
|
9.19 %
|
|
9.47 %
|
|
9.06 %
|
Return on average
tangible common equity, annualized (non-GAAP)
|
17.21 %
|
|
15.20 %
|
|
13.68 %
|
|
13.83 %
|
|
13.27 %
|
|
|
|
|
|
|
|
|
|
|
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 has been 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
|
|
December 31,
2022
|
|
September
30,
2022
|
|
June 30,
2022
|
|
March 31,
2022
|
|
December 31,
2021
|
Pre-tax,
Pre-provision Income and Pre-tax, Pre-provision Return on Average
Assets, annualized:
|
Net income
(GAAP)
|
$
22,544
|
|
$
20,990
|
|
$
18,584
|
|
$
19,757
|
|
$
19,397
|
Add income tax
expense
|
5,345
|
|
4,657
|
|
3,977
|
|
3,582
|
|
4,922
|
Add provision for
(reversal of) credit losses
|
1,410
|
|
1,945
|
|
(1,204)
|
|
(3,577)
|
|
(5,037)
|
Pre-tax, pre-provision
income (non-GAAP)
|
$
29,299
|
|
$
27,592
|
|
$
21,357
|
|
$
19,762
|
|
$
19,282
|
|
|
|
|
|
|
|
|
|
|
Average total assets
(GAAP)
|
$
7,100,844
|
|
$
7,367,736
|
|
$
7,385,616
|
|
$
7,434,787
|
|
$
7,403,597
|
|
|
|
|
|
|
|
|
|
|
Return on average
assets, annualized (GAAP)
|
1.26 %
|
|
1.13 %
|
|
1.01 %
|
|
1.08 %
|
|
1.04 %
|
Pre-tax, pre-provision
return on average assets (non-GAAP)
|
1.64 %
|
|
1.49 %
|
|
1.16 %
|
|
1.08 %
|
|
1.03 %
|
|
|
|
|
|
|
|
|
|
|
The Company believes presenting loan yield excluding the effect
of discount accretion on acquired 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 acquired loans represents the amount of interest income recorded
on acquired 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
|
|
December 31,
2022
|
|
September
30,
2022
|
|
December 31,
2021
|
Loan Yield,
excluding SBA PPP Loans and Incremental Accretion on Purchased
Loans, annualized:
|
Interest and fees on
loans (GAAP)
|
$
48,513
|
|
$
43,847
|
|
$
42,695
|
Exclude interest and
fees on SBA PPP loans
|
(77)
|
|
(275)
|
|
(4,928)
|
Exclude incremental
accretion on purchased loans
|
(184)
|
|
(398)
|
|
(387)
|
Adjusted interest and
fees on loans (non-GAAP)
|
$
48,252
|
|
$
43,174
|
|
$
37,380
|
|
|
|
|
|
|
Average loans
receivable, net (GAAP)
|
$
3,963,042
|
|
$
3,859,839
|
|
$
3,836,029
|
Exclude average SBA
PPP loans
|
(2,250)
|
|
(5,726)
|
|
(204,436)
|
Adjusted average loans
receivable, net (non-GAAP)
|
$
3,960,792
|
|
$
3,854,113
|
|
$
3,631,593
|
|
|
|
|
|
|
Loan yield, annualized
(GAAP)
|
4.86 %
|
|
4.51 %
|
|
4.42 %
|
Loan yield, excluding
SBA PPP loans and acquired accretion on purchased loans, annualized
(non-GAAP)
|
4.83 %
|
|
4.44 %
|
|
4.08 %
|
View original
content:https://www.prnewswire.com/news-releases/heritage-financial-announces-fourth-quarter-and-annual-2022-results-and-declares-regular-cash-dividend-301731255.html
SOURCE Heritage Financial Corporation