- Net income was $18.2 million,
or $0.51 per diluted share, for the
third quarter of 2023 compared to $16.8
million, or $0.48 per diluted
share, for the second quarter of 2023.
- Return on average equity increased to 8.80% for the third
quarter of 2023 compared to 8.19% for the second quarter of 2023.
Return on average tangible common equity(1) increased to
12.90% compared to 12.04% for the second quarter of 2023.
- Capital remains strong with a leverage ratio of 9.9% and a
total capital ratio of 14.1% at September
30, 2023.
- Loans receivable increased $15.5
million in the third quarter of 2023.
- Nonaccrual loans declined to 0.07% of total loans receivable
at September 30, 2023.
- Net interest margin was 3.47% for the third quarter of 2023
compared to 3.56% for the second quarter of 2023.
- Total deposits increased $39.6
million in the third quarter of 2023.
- Cost of total deposits was 0.83% for the third quarter of
2023 compared to 0.61% for the second quarter of 2023.
- Declared a regular cash dividend of $0.22 per share on October
18, 2023.
OLYMPIA,
Wash., Oct. 19, 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 $18.2
million for the third quarter of 2023 compared to
$16.8 million for the second quarter
of 2023 and $21.0 million for the
third quarter of 2022. Diluted earnings per share for the third
quarter of 2023 were $0.51 compared
to $0.48 for the second quarter of
2023 and $0.59 for the third quarter
of 2022.
Jeffrey J. Deuel, President and
Chief Executive Officer of Heritage, commented, "We are pleased
with our earnings for the third quarter, especially with the
ongoing challenges in the current rate environment. We are
maintaining a strong balance sheet with ample liquidity. The solid
foundation of our core deposit franchise and credit culture
continues to serve us well. We believe our steadfast focus on
prudent risk management and expense management, coupled with
strategic and measured growth, will provide sustainable long-term
returns for our shareholders.
We are proud to report that Heritage Bank is partnering with
Columbia Non-Profit Housing and Vancouver Housing Authority on the
construction of a new 82-unit affordable housing project in
Vancouver, Washington. The Bank is
providing a $17.7 million
construction loan as well as investing $21.4
million in equity. The project will serve seniors in the
community, including seniors that were previously homeless, and
provide them with stable housing. Heritage is proud to be a partner
in bringing more affordable housing to Vancouver."
|
|
(1)
|
See Non-GAAP Financial
Measures section herein.
|
Financial Highlights
The following table provides financial highlights at the dates
and for the periods indicated:
|
As of or for the
Quarter Ended
|
|
September 30,
2023
|
|
June 30,
2023
|
|
September
30,
2022
|
|
(Dollars in
thousands, except per share amounts)
|
Net income
|
$
18,219
|
|
$
16,846
|
|
$
20,990
|
Pre-tax, pre-provision
income(1)
|
$
20,919
|
|
$
21,780
|
|
$
27,592
|
Diluted earnings per
share
|
$
0.51
|
|
$
0.48
|
|
$
0.59
|
Return on average
assets(2)
|
1.00 %
|
|
0.95 %
|
|
1.13 %
|
Pre-tax, pre-provision
return on average assets(1)(2)
|
1.15 %
|
|
1.22 %
|
|
1.49 %
|
Return on average
common equity(2)
|
8.80 %
|
|
8.19 %
|
|
10.27 %
|
Return on average
tangible common equity(1)(2)
|
12.90 %
|
|
12.04 %
|
|
15.20 %
|
Net interest
margin(2)
|
3.47 %
|
|
3.56 %
|
|
3.57 %
|
Cost of total
deposits(2)
|
0.83 %
|
|
0.61 %
|
|
0.09 %
|
Efficiency
ratio
|
66.2 %
|
|
65.5 %
|
|
58.7 %
|
Noninterest expense to
average total assets(2)
|
2.25 %
|
|
2.32 %
|
|
2.11 %
|
Total assets
|
$ 7,150,588
|
|
$ 7,115,410
|
|
$ 7,200,312
|
Loans receivable,
net
|
$ 4,219,911
|
|
$ 4,204,936
|
|
$ 3,959,206
|
Total
deposits
|
$ 5,635,187
|
|
$ 5,595,543
|
|
$ 6,237,735
|
Loan to deposit
ratio(3)
|
75.7 %
|
|
76.0 %
|
|
64.1 %
|
Book value per
share
|
$
23.31
|
|
$
23.39
|
|
$
22.13
|
Tangible book value per
share(1)
|
$
16.25
|
|
$
16.34
|
|
$
15.04
|
|
|
(1)
|
See Non-GAAP Financial
Measures section herein.
|
(2)
|
Annualized.
|
(3)
|
Loans receivable
divided by total deposits.
|
Balance Sheet
Cash and cash equivalents increased $112.1 million, or 103.5%, to $220.5 million at September 30, 2023 from $108.4 million at June 30,
2023 due primarily to a decrease in investment
securities.
Total investment securities decreased $136.4 million, or 6.7%, to $1.89 billion at September
30, 2023 from $2.03 billion at
June 30, 2023. Total investment
securities available for sale decreased $129.0 million due primarily to maturities and
prepayments of $85.4 million which
included $40.8 million in securities
called during the quarter, as well as $47.2
million in investment securities sold at a loss of
$1.9 million. The decreases in
investment securities available for sale were partially offset by
purchases of $22.7 million.
The following table summarizes the Company's investment
securities at the dates indicated:
|
September 30,
2023
|
|
June 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
|
$
23,533
|
|
$
(3,109)
|
|
$
20,424
|
|
$
68,514
|
|
$
(4,255)
|
|
$
64,259
|
|
$
(43,835)
|
Municipal
securities
|
126,763
|
|
(19,958)
|
|
106,805
|
|
145,681
|
|
(15,666)
|
|
130,015
|
|
(23,210)
|
Residential CMO and
MBS(1)
|
468,174
|
|
(66,993)
|
|
401,181
|
|
465,625
|
|
(54,653)
|
|
410,972
|
|
(9,791)
|
Commercial CMO and
MBS(1)
|
651,713
|
|
(54,500)
|
|
597,213
|
|
698,833
|
|
(50,492)
|
|
648,341
|
|
(51,128)
|
Corporate
obligations
|
4,000
|
|
(220)
|
|
3,780
|
|
4,000
|
|
(226)
|
|
3,774
|
|
6
|
Other asset-backed
securities
|
18,317
|
|
(173)
|
|
18,144
|
|
19,491
|
|
(302)
|
|
19,189
|
|
(1,045)
|
Total
|
$
1,292,500
|
|
$ (144,953)
|
|
$
1,147,547
|
|
$
1,402,144
|
|
$ (125,594)
|
|
$
1,276,550
|
|
$ (129,003)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2023
|
|
June 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
|
$
151,040
|
|
$
(35,221)
|
|
$
115,819
|
|
$
151,005
|
|
$
(30,245)
|
|
$ 120,760
|
|
$
35
|
Residential CMO and
MBS(1)
|
273,609
|
|
(27,445)
|
|
246,164
|
|
280,032
|
|
(17,219)
|
|
262,813
|
|
(6,423)
|
Commercial CMO and
MBS(1)
|
322,196
|
|
(47,922)
|
|
274,274
|
|
323,239
|
|
(42,002)
|
|
281,237
|
|
(1,043)
|
Total
|
$
746,845
|
|
$ (110,588)
|
|
$
636,257
|
|
$
754,276
|
|
$
(89,466)
|
|
$ 664,810
|
|
$
(7,431)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment
securities
|
$
2,039,345
|
|
$ (255,541)
|
|
$
1,783,804
|
|
$
2,156,420
|
|
$ (215,060)
|
|
$
1,941,360
|
|
|
|
|
(1)
|
U.S. government agency
and government-sponsored enterprise mortgage-backed securities and
collateralized mortgage obligations.
|
Loans receivable increased $15.5 million, or 0.4%, to
$4.27 billion at September 30, 2023 from $4.25 billion at June 30,
2023. New loans funded in the third quarter of 2023 and
second quarter of 2023 were $98.5
million and $133.6 million,
respectively. Loan prepayments increased slightly during the third
quarter of 2023 to $60.6 million,
compared to $52.3 million during the
second quarter of 2023.
Non-owner occupied CRE loans increased by $45.6 million, or 2.8%, during the third quarter
of 2023 due to new loan originations and advances on existing loans
offset partially by loan repayments. Commercial and industrial
loans decreased $17.3 million, or
2.4%, due primarily to loan repayments of $17.0 million during the third quarter of
2023.
The following table summarizes the Company's loans receivable,
net at the dates indicated:
|
September 30,
2023
|
|
June 30,
2023
|
|
Change
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
$
|
|
%
|
|
(Dollars in
thousands)
|
Commercial
business:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and
industrial
|
$
691,318
|
|
16.2 %
|
|
$
708,588
|
|
16.7 %
|
|
$
(17,270)
|
|
(2.4) %
|
Owner-occupied
commercial real estate ("CRE")
|
953,779
|
|
22.4
|
|
958,912
|
|
22.6
|
|
(5,133)
|
|
(0.5)
|
Non-owner occupied
CRE
|
1,690,099
|
|
39.5
|
|
1,644,490
|
|
38.6
|
|
45,609
|
|
2.8
|
Total commercial
business
|
3,335,196
|
|
78.1
|
|
3,311,990
|
|
77.9
|
|
23,206
|
|
0.7
|
Residential real
estate
|
377,448
|
|
8.8
|
|
375,659
|
|
8.8
|
|
1,789
|
|
0.5
|
Real estate
construction and land development:
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
70,804
|
|
1.7
|
|
78,660
|
|
1.9
|
|
(7,856)
|
|
(10.0)
|
Commercial and
multifamily
|
310,024
|
|
7.3
|
|
307,041
|
|
7.2
|
|
2,983
|
|
1.0
|
Total real estate
construction and land development
|
380,828
|
|
9.0
|
|
385,701
|
|
9.1
|
|
(4,873)
|
|
(1.3)
|
Consumer
|
173,386
|
|
4.1
|
|
177,994
|
|
4.2
|
|
(4,608)
|
|
(2.6)
|
Loans
receivable
|
4,266,858
|
|
100.0 %
|
|
4,251,344
|
|
100.0 %
|
|
15,514
|
|
0.4
|
Allowance for credit
losses on loans
|
(46,947)
|
|
|
|
(46,408)
|
|
|
|
(539)
|
|
1.2
|
Loans receivable,
net
|
$
4,219,911
|
|
|
|
$
4,204,936
|
|
|
|
$
14,975
|
|
0.4 %
|
Total deposits increased $39.6
million, or 0.7%, to $5.64
billion at September 30, 2023
from $5.60 billion at June 30, 2023. Certificates of deposit increased
$187.4 million, or 42.5%, from
June 30, 2023 primarily due to
transfers from non-maturity deposit accounts as customers moved
balances to higher yielding accounts. Brokered deposits, which are
included in certificates of deposit, increased $62.8 million to $107.5
million at September 30, 2023
from $44.7 million at June 30, 2023. During the third quarter of 2023,
$14.7 million in deposits were sold
as part of the sale of the Ellensburg branch, which included $13.6 million of non-maturity deposits.
The following table summarizes the Company's total deposits at
the dates indicated:
|
September 30,
2023
|
|
June 30,
2023
|
|
Change
|
|
Balance
|
|
% of
Total
|
|
Balance
(1)
|
|
% of
Total
|
|
$
|
|
%
|
|
(Dollars in
thousands)
|
Noninterest demand
deposits
|
$
1,789,293
|
|
31.7 %
|
|
$
1,857,492
|
|
33.2 %
|
|
$
(68,199)
|
|
(3.7) %
|
Interest bearing demand
deposits
|
1,630,007
|
|
28.9
|
|
1,618,539
|
|
28.9
|
|
11,468
|
|
0.7
|
Money market
accounts
|
1,081,253
|
|
19.2
|
|
1,143,284
|
|
20.4
|
|
(62,031)
|
|
(5.4)
|
Savings
accounts
|
506,028
|
|
9.0
|
|
535,065
|
|
9.6
|
|
(29,037)
|
|
(5.4)
|
Total non-maturity
deposits
|
5,006,581
|
|
88.8
|
|
5,154,380
|
|
92.1
|
|
(147,799)
|
|
(2.9)
|
Certificates of
deposit
|
628,606
|
|
11.2
|
|
441,163
|
|
7.9
|
|
187,443
|
|
42.5
|
Total
deposits
|
$
5,635,187
|
|
100.0 %
|
|
$
5,595,543
|
|
100.0 %
|
|
$
39,644
|
|
0.7 %
|
|
|
(1)
|
Deposit balances
include deposits held for sale of $15.9 million at June 30,
2023.
|
Total borrowings were $450.0
million at September 30, 2023
and June 30, 2023. All borrowings
were to 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 decreased $6.2
million, or 0.8%, to $813.5
million at September 30, 2023
compared to $819.7 million at
June 30, 2023 due primarily to an
increase of $15.2 million in
accumulated other comprehensive loss as a result of declining fair
values of investment securities available for sale and $7.8 million in dividends paid offset partially
by $18.2 million of 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:
|
September 30,
2023
|
|
June 30,
2023
|
|
Change
|
Stockholders' equity to
total assets
|
11.4 %
|
|
11.5 %
|
|
(0.1) %
|
Tangible common equity
to tangible assets(1)
|
8.2
|
|
8.3
|
|
(0.1)
|
Common equity tier 1
capital ratio (2)
|
12.9
|
|
12.8
|
|
0.1
|
Leverage ratio
(2)
|
9.9
|
|
9.9
|
|
—
|
Tier 1 capital ratio
(2)
|
13.3
|
|
13.2
|
|
0.1
|
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 1.10% at September
30, 2023 compared to 1.09% at June
30, 2023. During the third quarter of 2023, the Company
recorded a $635,000 reversal of
provision for credit losses on loans, compared to a
$2.0 million provision for credit
losses on loans during the second quarter of 2023. The reversal of
the provision for credit losses on loans during the third quarter
of 2023 was primarily driven by net recoveries for the quarter of
$1.2 million.
During the third quarter of 2023, the Company recorded a
$243,000 reversal of provision for
credit losses on unfunded commitments compared to a $79,000 reversal of provision for credit losses
on unfunded commitments during the second quarter of 2023. The
increase in the reversal of provision for credit losses on unfunded
commitments during the third quarter of 2023 was due primarily to
an increase in loan utilization rates in commercial and industrial
loans which reduced the unfunded exposure.
The following table provides detail on the changes in the ACL on
loans and the ACL on unfunded, and the related (reversal of)
provision for credit losses for the periods indicated:
|
As of or for the
Quarter Ended
|
|
September 30,
2023
|
|
June 30,
2023
|
|
September 30,
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
|
$ 46,408
|
|
$ 1,777
|
|
$ 48,185
|
|
$ 44,469
|
|
$ 1,856
|
|
$ 46,325
|
|
$ 39,696
|
|
$
997
|
|
$ 40,693
|
(Reversal of) provision
for credit losses
|
(635)
|
|
(243)
|
|
(878)
|
|
1,988
|
|
(79)
|
|
1,909
|
|
1,919
|
|
26
|
|
1,945
|
Net recoveries (net
charge-offs)
|
1,174
|
|
—
|
|
1,174
|
|
(49)
|
|
—
|
—
|
(49)
|
|
474
|
|
—
|
|
474
|
Balance, end of
period
|
$ 46,947
|
|
$ 1,534
|
|
$ 48,481
|
|
$ 46,408
|
|
$ 1,777
|
|
$ 48,185
|
|
$ 42,089
|
|
$ 1,023
|
|
$ 43,112
|
Credit Quality
The percentage of classified loans to loans receivable increased
slightly to 1.47% at September 30,
2023 compared to 1.38% at June 30,
2023. Classified loans include loans rated substandard or
worse.
The following table illustrates total loans by risk rating and
their respective percentage of total loans at the dates
indicated:
|
September 30,
2023
|
|
June 30,
2023
|
|
Balance
|
|
% of
Total
|
|
Balance
|
|
% of
Total
|
|
(Dollars in
thousands)
|
Risk Rating:
|
|
|
|
|
|
|
|
Pass
|
$
4,132,053
|
|
96.8 %
|
|
$
4,108,068
|
|
96.6 %
|
Special
Mention
|
72,152
|
|
1.7
|
|
84,623
|
|
2.0
|
Substandard
|
62,653
|
|
1.5
|
|
58,653
|
|
1.4
|
Total
|
$
4,266,858
|
|
100.0 %
|
|
$
4,251,344
|
|
100.0 %
|
Nonaccrual loans to loans receivable was 0.07% and 0.11% at
September 30, 2023 and June 30, 2023, respectively. Nonaccrual loans
decreased primarily due to the payoff of an agricultural loan for
$1.6 million which also included a
recovery of $1.1 million recognized
during the third quarter of 2023. Changes in nonaccrual loans
during the periods indicated were as follows:
|
Quarter
Ended
|
|
September 30,
2023
|
|
June 30,
2023
|
|
September
30,
2022
|
|
(In
thousands)
|
Balance, beginning of
period
|
$
4,630
|
|
$
4,815
|
|
$
10,475
|
Additions
|
440
|
|
—
|
|
—
|
Net principal payments
and transfers to accruing status
|
(81)
|
|
(185)
|
|
(4,016)
|
Payoffs
|
(1,924)
|
|
—
|
|
(225)
|
Balance, end of
period
|
$
3,065
|
|
$
4,630
|
|
$
6,234
|
Liquidity
Total liquidity sources available at September 30, 2023 were $2.72 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 September 30,
2023 represented a coverage ratio of 48.3% of total deposits
and 131.9% of estimated uninsured deposits.
The following table summarizes the Company's available
liquidity:
|
Quarter
Ended
|
|
September 30,
2023
|
|
June 30,
2023
|
|
(Dollars in
thousands)
|
FRB borrowing
availability
|
$
823,117
|
|
$
859,730
|
FHLB borrowing
availability(1)
|
1,202,172
|
|
1,216,990
|
Unencumbered investment
securities available for sale(2)
|
779,871
|
|
872,109
|
Cash and cash
equivalents
|
220,503
|
|
108,378
|
Fed funds line
borrowing availability with correspondent banks
|
145,000
|
|
145,000
|
Total sources of
liquidity
|
3,170,663
|
|
3,202,207
|
Less: Borrowings
outstanding
|
(450,000)
|
|
(450,000)
|
Total available
liquidity
|
$
2,720,663
|
|
$
2,752,207
|
|
|
(1)
|
Includes FHLB total
borrowing availability of $1.20 billion at September 30, 2023 based
on pledged assets, however, maximum credit capacity is 45% of the
Bank's total assets one quarter in arrears or
$3.10 billion.
|
(2)
|
Investment securities
available for sale at fair value.
|
Net Interest Income and Net Interest Margin
Net interest income decreased $206,000, or 0.4%, during the third quarter of
2023 compared to the second quarter of 2023 due primarily to an
increase of $3.6 million in interest
expense partially offset by a $3.4
million increase in interest income. Net interest margin
decreased nine basis points to 3.47% during the third quarter of
2023 from 3.56% during the second quarter of 2023. The cost of
interest bearing deposits increased 31 basis points to 1.23% for
the third quarter of 2023 as compared to 0.92% for the second
quarter of 2023. This increase was primarily due to customers
transferring balances from non-maturity deposits to higher rate
certificates of deposit and secondarily to an increase in brokered
deposits. The yield on interest earning assets increased 12 basis
points to 4.58% for the third quarter of 2023 as compared to 4.46%
for the second quarter of 2023. The yield on loans receivable, net
increased 11 basis points to 5.30% during the third quarter of 2023
as compared to 5.19% during the second quarter of 2023 due to
higher rates on new and renewed loans. The yield on interest
earning deposits increased 32 basis points to 5.42% during the
third quarter of 2023 as compared to 5.10% during the second
quarter of 2023 due to an increase in market rates.
Net interest income decreased $3.7
million, or 6.2%, during the third quarter of 2023 compared
to the third quarter of 2022 and the net interest margin decreased
ten basis points from 3.57% 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
|
|
September 30,
2023
|
|
June 30,
2023
|
|
September 30,
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)
|
$ 4,201,554
|
|
$ 56,119
|
|
5.30 %
|
|
$ 4,145,556
|
|
$ 53,623
|
|
5.19 %
|
|
$ 3,859,839
|
|
$ 43,847
|
|
4.51 %
|
Taxable
securities
|
1,931,649
|
|
14,590
|
|
3.00
|
|
1,989,297
|
|
14,774
|
|
2.98
|
|
1,868,900
|
|
12,362
|
|
2.62
|
Nontaxable securities
(3)
|
60,654
|
|
448
|
|
2.93
|
|
71,803
|
|
520
|
|
2.90
|
|
133,022
|
|
892
|
|
2.66
|
Interest earning
deposits
|
169,186
|
|
2,310
|
|
5.42
|
|
90,754
|
|
1,154
|
|
5.10
|
|
730,600
|
|
4,009
|
|
2.18
|
Total interest earning
assets
|
6,363,043
|
|
73,467
|
|
4.58 %
|
|
6,297,410
|
|
70,071
|
|
4.46 %
|
|
6,592,361
|
|
61,110
|
|
3.68 %
|
Noninterest earning
assets
|
849,689
|
|
|
|
|
|
845,455
|
|
|
|
|
|
775,375
|
|
|
|
|
Total
assets
|
$ 7,212,732
|
|
|
|
|
|
$ 7,142,865
|
|
|
|
|
|
$ 7,367,736
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
553,015
|
|
$
4,585
|
|
3.29 %
|
|
$
421,451
|
|
$
2,483
|
|
2.36 %
|
|
$
297,786
|
|
$ 290
|
|
0.39 %
|
Savings
accounts
|
523,882
|
|
172
|
|
0.13
|
|
551,201
|
|
157
|
|
0.11
|
|
654,697
|
|
99
|
|
0.06
|
Interest bearing demand
and money market accounts
|
2,764,251
|
|
7,120
|
|
1.02
|
|
2,782,353
|
|
5,967
|
|
0.86
|
|
3,065,007
|
|
1,089
|
|
0.14
|
Total interest bearing
deposits
|
3,841,148
|
|
11,877
|
|
1.23
|
|
3,755,005
|
|
8,607
|
|
0.92
|
|
4,017,490
|
|
1,478
|
|
0.15
|
Junior subordinated
debentures
|
21,649
|
|
540
|
|
9.90
|
|
21,577
|
|
499
|
|
9.28
|
|
21,356
|
|
312
|
|
5.80
|
Securities sold under
agreement to repurchase
|
31,729
|
|
38
|
|
0.48
|
|
39,755
|
|
63
|
|
0.64
|
|
42,959
|
|
34
|
|
0.31
|
Borrowings
|
451,032
|
|
5,394
|
|
4.74
|
|
417,896
|
|
5,078
|
|
4.87
|
|
—
|
|
—
|
|
—
|
Total interest bearing
liabilities
|
4,345,558
|
|
17,849
|
|
1.63 %
|
|
4,234,233
|
|
14,247
|
|
1.35 %
|
|
4,081,805
|
|
1,824
|
|
0.18 %
|
Noninterest demand
deposits
|
1,859,374
|
|
|
|
|
|
1,900,640
|
|
|
|
|
|
2,356,688
|
|
|
|
|
Other noninterest
bearing liabilities
|
186,306
|
|
|
|
|
|
183,250
|
|
|
|
|
|
118,191
|
|
|
|
|
Stockholders'
equity
|
821,494
|
|
|
|
|
|
824,742
|
|
|
|
|
|
811,052
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$ 7,212,732
|
|
|
|
|
|
$ 7,142,865
|
|
|
|
|
|
$ 7,367,736
|
|
|
|
|
Net interest income and
spread
|
|
|
$ 55,618
|
|
2.95 %
|
|
|
|
$ 55,824
|
|
3.11 %
|
|
|
|
$ 59,286
|
|
3.50 %
|
Net interest
margin
|
|
|
|
|
3.47 %
|
|
|
|
|
|
3.56 %
|
|
|
|
|
|
3.57 %
|
|
|
(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 $940,000, $726,000 and $857,000 for the third quarter of 2023,
second quarter of 2023 and third 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 during the third quarter of 2023
from the second quarter of 2023 and the same period in 2022 due
primarily to a $1.9 million loss on
sale of investment securities available for sale partially offset
by a $610,000 gain on sale of the
Ellensburg branch and related
deposits which is included in other 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
|
|
September 30,
2023
|
|
June 30,
2023
|
|
September
30,
2022
|
|
$
|
|
%
|
|
$
|
|
%
|
|
(Dollars in
thousands)
|
Service charges and
other fees
|
$
2,856
|
|
$
2,682
|
|
$
2,688
|
|
$ 174
|
|
6.5 %
|
|
$ 168
|
|
6.3 %
|
Card revenue
|
2,273
|
|
2,123
|
|
2,365
|
|
150
|
|
7.1
|
|
(92)
|
|
(3.9)
|
Loss on sale of
investment securities
|
(1,940)
|
|
—
|
|
—
|
|
(1,940)
|
|
(100.0)
|
|
(1,940)
|
|
(100.0)
|
Gain on sale of loans,
net
|
157
|
|
101
|
|
133
|
|
56
|
|
55.4
|
|
24
|
|
18.0
|
Interest rate swap
fees
|
62
|
|
115
|
|
78
|
|
(53)
|
|
(46.1)
|
|
(16)
|
|
(20.5)
|
Bank owned life
insurance income
|
734
|
|
837
|
|
723
|
|
(103)
|
|
(12.3)
|
|
11
|
|
1.5
|
Gain on sale of other
assets, net
|
—
|
|
—
|
|
265
|
|
—
|
|
—
|
|
(265)
|
|
(100.0)
|
Other income
|
2,129
|
|
1,423
|
|
1,201
|
|
706
|
|
49.6
|
|
928
|
|
77.3
|
Total noninterest
income
|
$
6,271
|
|
$
7,281
|
|
$
7,453
|
|
$
(1,010)
|
|
(13.9) %
|
|
$
(1,182)
|
|
(15.9) %
|
Noninterest Expense
Noninterest expense decreased $355,000, or 0.9%, during the third quarter of
2023 from the second quarter of 2023. Compensation and employee
benefits increased $227,000 as
one-time adjustments to reduce incentive accruals were made during
the second quarter of 2023. Professional services decreased due a
decrease in contracted services during the third quarter of 2023.
Other expense decreased primarily due to a decrease in customer
account loss expense as compared to the second quarter of 2023.
Noninterest expense increased $1.8
million, or 4.7%, during the third quarter of 2023 compared
to the same period in 2022 due primarily to an $802,000 increase in compensation and employee
benefits resulting from an increase in the number of full-time
equivalent employees including the addition of commercial and
relationship banking teams in 2023 and an increase in salaries and
wages due to upward market pressure. Occupancy and equipment
expense increased due to the expansion into Eugene, Oregon and Boise, Idaho. Data processing costs increased
due primarily to the expansion of digital services including the
addition of the ability to open accounts online. Federal deposit
insurance premiums increased due to the increase in the assessment
rate starting in January 2023.
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
|
|
September 30,
2023
|
|
June 30,
2023
|
|
September
30,
2022
|
|
$
|
|
%
|
|
$
|
|
%
|
|
(Dollars in
thousands)
|
Compensation and
employee benefits
|
$
25,008
|
|
$
24,781
|
|
$
24,206
|
|
$ 227
|
|
0.9 %
|
|
$ 802
|
|
3.3 %
|
Occupancy and
equipment
|
4,814
|
|
4,666
|
|
4,422
|
|
148
|
|
3.2
|
|
392
|
|
8.9
|
Data
processing
|
4,366
|
|
4,500
|
|
4,185
|
|
(134)
|
|
(3.0)
|
|
181
|
|
4.3
|
Marketing
|
389
|
|
441
|
|
358
|
|
(52)
|
|
(11.8)
|
|
31
|
|
8.7
|
Professional
services
|
582
|
|
751
|
|
639
|
|
(169)
|
|
(22.5)
|
|
(57)
|
|
(8.9)
|
State/municipal
business and use taxes
|
1,088
|
|
1,054
|
|
963
|
|
34
|
|
3.2
|
|
125
|
|
13.0
|
Federal deposit
insurance premium
|
818
|
|
797
|
|
500
|
|
21
|
|
2.6
|
|
318
|
|
63.6
|
Amortization of
intangible assets
|
595
|
|
623
|
|
671
|
|
(28)
|
|
(4.5)
|
|
(76)
|
|
(11.3)
|
Other
expense
|
3,310
|
|
3,712
|
|
3,203
|
|
(402)
|
|
(10.8)
|
|
107
|
|
3.3
|
Total noninterest
expense
|
$
40,970
|
|
$
41,325
|
|
$
39,147
|
|
$
(355)
|
|
(0.9) %
|
|
$ 1,823
|
|
4.7 %
|
Income Tax Expense
Income tax expense increased during the third quarter of 2023
compared to the second quarter of 2023 due primarily to an increase
in income before income taxes.
The following table presents the income tax expense and related
metrics and the change for the periods indicated:
|
Quarter
Ended
|
|
Change
|
|
September 30,
2023
|
|
June 30,
2023
|
|
September
30,
2022
|
|
Quarter Over
Quarter
|
Prior Year
Quarter
|
|
(Dollars in
thousands)
|
Income before income
taxes
|
$
21,797
|
|
$
19,871
|
|
$
25,647
|
|
$
1,926
|
|
$
(3,850)
|
Income tax
expense
|
$
3,578
|
|
$
3,025
|
|
$
4,657
|
|
$
553
|
|
$
(1,079)
|
Effective income tax
rate
|
16.4 %
|
|
15.2 %
|
|
18.2 %
|
|
1.2 %
|
|
(1.8) %
|
Dividends
On October 18, 2023, the Company's Board of Directors
declared a quarterly cash dividend of $0.22 per share. The dividend is payable on
November 15, 2023 to shareholders of record as of the close of
business on November 1, 2023.
Earnings Conference Call
The Company will hold a telephone conference call to discuss
this earnings release on Thursday, October 19, 2023 at
10:00 a.m. Pacific time. To access
the call, please dial (833) 470-1428 -- access code 934719 a few
minutes prior to 10:00 a.m. Pacific
time. The call will be available for replay through
October 26, 2023 by dialing (866)
813-9403 -- access code 930230.
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; changes
in the interest rate environment, including the recent 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)
|
|
|
September 30,
2023
|
|
June 30,
2023
|
|
December 31,
2022
|
Assets
|
|
|
|
|
|
Cash on hand and in
banks
|
$
61,568
|
|
$
73,464
|
|
$
74,295
|
Interest earning
deposits
|
158,935
|
|
34,914
|
|
29,295
|
Cash and cash
equivalents
|
220,503
|
|
108,378
|
|
103,590
|
Investment securities
available for sale, at fair value (amortized cost of
$1,292,500, $1,402,144,
and $1,460,033, respectively)
|
1,147,547
|
|
1,276,550
|
|
1,331,443
|
Investment securities
held to maturity, at amortized cost (fair value of
$636,257,
$664,810, and $673,434, respectively)
|
746,845
|
|
754,276
|
|
766,396
|
Total investment
securities
|
1,894,392
|
|
2,030,826
|
|
2,097,839
|
Loans held for
sale
|
263
|
|
752
|
|
—
|
Loans
receivable
|
4,266,858
|
|
4,251,344
|
|
4,050,858
|
Allowance for credit
losses on loans
|
(46,947)
|
|
(46,408)
|
|
(42,986)
|
Loans receivable,
net
|
4,219,911
|
|
4,204,936
|
|
4,007,872
|
Premises and equipment,
net
|
76,436
|
|
79,401
|
|
76,930
|
Federal Home Loan Bank
stock, at cost
|
8,373
|
|
8,373
|
|
8,916
|
Bank owned life
insurance
|
123,639
|
|
122,905
|
|
122,059
|
Accrued interest
receivable
|
18,794
|
|
18,969
|
|
18,547
|
Prepaid expenses and
other assets
|
341,952
|
|
293,950
|
|
296,181
|
Other intangible
assets, net
|
5,386
|
|
5,981
|
|
7,227
|
Goodwill
|
240,939
|
|
240,939
|
|
240,939
|
Total
assets
|
$
7,150,588
|
|
$
7,115,410
|
|
$
6,980,100
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
Deposits
|
$
5,635,187
|
|
$
5,579,657
|
|
$
5,907,420
|
Deposits held for
sale
|
—
|
|
15,886
|
|
17,420
|
Total
deposits
|
5,635,187
|
|
5,595,543
|
|
5,924,840
|
Borrowings
|
450,000
|
|
450,000
|
|
—
|
Junior subordinated
debentures
|
21,692
|
|
21,619
|
|
21,473
|
Securities sold under
agreement to repurchase
|
23,158
|
|
38,215
|
|
46,597
|
Accrued expenses and
other liabilities
|
207,005
|
|
190,300
|
|
189,297
|
Total
liabilities
|
6,337,042
|
|
6,295,677
|
|
6,182,207
|
|
|
|
|
|
|
Common stock
|
548,652
|
|
550,103
|
|
552,397
|
Retained
earnings
|
377,522
|
|
367,085
|
|
345,346
|
Accumulated other
comprehensive loss, net
|
(112,628)
|
|
(97,455)
|
|
(99,850)
|
Total stockholders'
equity
|
813,546
|
|
819,733
|
|
797,893
|
Total liabilities and
stockholders' equity
|
$
7,150,588
|
|
$
7,115,410
|
|
$
6,980,100
|
|
|
|
|
|
|
Shares
outstanding
|
34,901,076
|
|
35,047,800
|
|
35,106,697
|
HERITAGE FINANCIAL
CORPORATION
|
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
|
(Dollars in
thousands, except per share amounts)
|
|
|
Quarter
Ended
|
|
Nine Months
Ended
|
|
September 30,
2023
|
|
June 30,
2023
|
|
September 30,
2022
|
|
September
30,
2023
|
|
September
30,
2022
|
Interest
Income
|
|
|
|
|
|
|
|
|
|
Interest and fees on
loans
|
$
56,119
|
|
$
53,623
|
|
$
43,847
|
|
$
160,192
|
|
$
125,762
|
Taxable interest on
investment securities
|
14,590
|
|
14,774
|
|
12,362
|
|
44,021
|
|
25,972
|
Nontaxable interest on
investment securities
|
448
|
|
520
|
|
892
|
|
1,554
|
|
2,645
|
Interest on interest
earning deposits
|
2,310
|
|
1,154
|
|
4,009
|
|
4,436
|
|
7,057
|
Total interest
income
|
73,467
|
|
70,071
|
|
61,110
|
|
210,203
|
|
161,436
|
Interest
Expense
|
|
|
|
|
|
|
|
|
|
Deposits
|
11,877
|
|
8,607
|
|
1,478
|
|
25,012
|
|
4,315
|
Junior subordinated
debentures
|
540
|
|
499
|
|
312
|
|
1,521
|
|
745
|
Securities sold under
agreement to repurchase
|
38
|
|
63
|
|
34
|
|
148
|
|
98
|
Borrowings
|
5,394
|
|
5,078
|
|
—
|
|
12,238
|
|
—
|
Total interest
expense
|
17,849
|
|
14,247
|
|
1,824
|
|
38,919
|
|
5,158
|
Net interest
income
|
55,618
|
|
55,824
|
|
59,286
|
|
171,284
|
|
156,278
|
(Reversal of) provision
for credit losses
|
(878)
|
|
1,909
|
|
1,945
|
|
2,856
|
|
(2,836)
|
Net interest income
after (reversal of) provision for credit losses
|
56,496
|
|
53,915
|
|
57,341
|
|
168,428
|
|
159,114
|
Noninterest
Income
|
|
|
|
|
|
|
|
|
|
Service charges and
other fees
|
2,856
|
|
2,682
|
|
2,688
|
|
8,162
|
|
7,739
|
Card revenue
|
2,273
|
|
2,123
|
|
2,365
|
|
6,396
|
|
6,774
|
Loss on sale of
investment securities, net
|
(1,940)
|
|
—
|
|
—
|
|
(2,226)
|
|
—
|
Gain on sale of loans,
net
|
157
|
|
101
|
|
133
|
|
307
|
|
593
|
Interest rate swap
fees
|
62
|
|
115
|
|
78
|
|
230
|
|
383
|
Bank owned life
insurance income
|
734
|
|
837
|
|
723
|
|
2,280
|
|
3,182
|
Gain on sale of other
assets, net
|
—
|
|
—
|
|
265
|
|
2
|
|
469
|
Other income
|
2,129
|
|
1,423
|
|
1,201
|
|
6,659
|
|
3,867
|
Total noninterest
income
|
6,271
|
|
7,281
|
|
7,453
|
|
21,810
|
|
23,007
|
Noninterest
Expense
|
|
|
|
|
|
|
|
|
|
Compensation and
employee benefits
|
25,008
|
|
24,781
|
|
24,206
|
|
75,325
|
|
67,236
|
Occupancy and
equipment
|
4,814
|
|
4,666
|
|
4,422
|
|
14,372
|
|
12,924
|
Data
processing
|
4,366
|
|
4,500
|
|
4,185
|
|
13,208
|
|
12,431
|
Marketing
|
389
|
|
441
|
|
358
|
|
1,232
|
|
968
|
Professional
services
|
582
|
|
751
|
|
639
|
|
1,961
|
|
1,867
|
State/municipal
business and use taxes
|
1,088
|
|
1,054
|
|
963
|
|
3,150
|
|
2,626
|
Federal deposit
insurance premium
|
818
|
|
797
|
|
500
|
|
2,465
|
|
1,525
|
Amortization of
intangible assets
|
595
|
|
623
|
|
671
|
|
1,841
|
|
2,079
|
Other
expense
|
3,310
|
|
3,712
|
|
3,203
|
|
10,346
|
|
8,918
|
Total noninterest
expense
|
40,970
|
|
41,325
|
|
39,147
|
|
123,900
|
|
110,574
|
Income before income
taxes
|
21,797
|
|
19,871
|
|
25,647
|
|
66,338
|
|
71,547
|
Income tax
expense
|
3,578
|
|
3,025
|
|
4,657
|
|
10,816
|
|
12,216
|
Net income
|
$
18,219
|
|
$
16,846
|
|
$
20,990
|
|
$
55,522
|
|
$
59,331
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
$
0.52
|
|
$
0.48
|
|
$
0.60
|
|
$
1.58
|
|
$
1.69
|
Diluted earnings per
share
|
$
0.51
|
|
$
0.48
|
|
$
0.59
|
|
$
1.57
|
|
$
1.67
|
Dividends declared per
share
|
$
0.22
|
|
$
0.22
|
|
$
0.21
|
|
$
0.66
|
|
$
0.63
|
Average shares
outstanding - basic
|
35,022,676
|
|
35,058,155
|
|
35,103,984
|
|
35,062,760
|
|
35,103,048
|
Average shares
outstanding - diluted
|
35,115,165
|
|
35,126,590
|
|
35,468,890
|
|
35,305,456
|
|
35,438,672
|
HERITAGE FINANCIAL
CORPORATION
|
FINANCIAL STATISTICS
(Unaudited)
|
(Dollars in
thousands)
|
Nonperforming Assets
and Credit Quality Metrics:
|
|
|
Quarter
Ended
|
|
Nine Months
Ended
|
|
September 30,
2023
|
|
June 30,
2023
|
|
September
30,
2022
|
|
September
30,
2023
|
|
September
30,
2022
|
Allowance for Credit
Losses on Loans:
|
|
|
|
|
Balance, beginning of
period
|
$
46,408
|
|
$
44,469
|
|
$
39,696
|
|
$
42,986
|
|
$
42,361
|
Provision for (reversal
of) credit losses on loans
|
(635)
|
|
1,988
|
|
1,919
|
|
3,066
|
|
(1,252)
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
Commercial
business
|
(15)
|
|
—
|
|
—
|
|
(176)
|
|
(316)
|
Residential real
estate
|
—
|
|
—
|
|
—
|
|
—
|
|
(30)
|
Consumer
|
(123)
|
|
(144)
|
|
(138)
|
|
(420)
|
|
(396)
|
Total
charge-offs
|
(138)
|
|
(144)
|
|
(138)
|
|
(596)
|
|
(742)
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
Commercial
business
|
1,253
|
|
38
|
|
455
|
|
1,342
|
|
876
|
Residential real
estate
|
—
|
|
—
|
|
—
|
|
—
|
|
3
|
Real estate
construction and land development
|
—
|
|
—
|
|
107
|
|
—
|
|
174
|
Consumer
|
59
|
|
57
|
|
50
|
|
149
|
|
669
|
Total
recoveries
|
1,312
|
|
95
|
|
612
|
|
1,491
|
|
1,722
|
Net recoveries /
(charge-offs)
|
1,174
|
|
(49)
|
|
474
|
|
895
|
|
980
|
Balance, end of
period
|
$
46,947
|
|
$
46,408
|
|
$
42,089
|
|
$
46,947
|
|
$
42,089
|
Net (recoveries)
charge-offs on loans to average loans receivable,
net(1)
|
(0.11) %
|
|
— %
|
|
(0.05) %
|
|
(0.03) %
|
|
(0.03) %
|
|
September 30,
2023
|
|
June 30,
2023
|
|
December 31,
2022
|
Nonperforming
Assets:
|
|
|
|
|
|
Nonaccrual
loans:
|
|
|
|
|
|
Commercial
business
|
$
3,065
|
|
$
4,630
|
|
$
5,869
|
Real estate
construction and land development
|
—
|
|
—
|
|
37
|
Total nonaccrual
loans
|
3,065
|
|
4,630
|
|
5,906
|
Other real estate
owned
|
—
|
|
—
|
|
—
|
Accruing loans past due
90 days or more
|
2,158
|
|
2,274
|
|
1,615
|
Nonperforming
assets
|
$
5,223
|
|
$
6,904
|
|
$
7,521
|
|
|
|
|
|
|
ACL on loans
to:
|
|
|
|
|
|
Loans
receivable
|
1.10 %
|
|
1.09 %
|
|
1.06 %
|
Nonaccrual
loans
|
1,531.71 %
|
|
1,002.33 %
|
|
727.84 %
|
Nonaccrual loans to
loans receivable
|
0.07 %
|
|
0.11 %
|
|
0.15 %
|
Nonperforming loans to
loans receivable
|
0.12 %
|
|
0.16 %
|
|
0.19 %
|
Nonperforming assets to
total assets
|
0.07 %
|
|
0.10 %
|
|
0.11 %
|
HERITAGE FINANCIAL
CORPORATION
|
FINANCIAL STATISTICS
(Unaudited)
|
(Dollars in
thousands)
|
Average Balances,
Yields, and Rates Paid:
|
|
|
Nine Months Ended
September 30,
|
|
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)
|
$ 4,129,429
|
|
$
160,192
|
|
5.19 %
|
|
$ 3,815,387
|
|
$
125,762
|
|
4.41 %
|
Taxable
securities
|
1,975,818
|
|
44,021
|
|
2.98
|
|
1,532,450
|
|
25,972
|
|
2.27
|
Nontaxable
securities(3)
|
71,702
|
|
1,554
|
|
2.90
|
|
138,904
|
|
2,645
|
|
2.55
|
Interest earning
deposits
|
114,753
|
|
4,436
|
|
5.17
|
|
1,146,183
|
|
7,057
|
|
0.82
|
Total interest earning
assets
|
6,291,702
|
|
210,203
|
|
4.47 %
|
|
6,632,924
|
|
161,436
|
|
3.25 %
|
Noninterest earning
assets
|
848,035
|
|
|
|
|
|
762,877
|
|
|
|
|
Total
assets
|
$ 7,139,737
|
|
|
|
|
|
$ 7,395,801
|
|
|
|
|
Interest Bearing
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
$
442,301
|
|
$
8,292
|
|
2.51 %
|
|
$
318,547
|
|
$ 952
|
|
0.40 %
|
Savings
accounts
|
558,467
|
|
471
|
|
0.11
|
|
651,292
|
|
274
|
|
0.06
|
Interest bearing demand
and money market accounts
|
2,791,695
|
|
16,249
|
|
0.78
|
|
3,066,229
|
|
3,089
|
|
0.13
|
Total interest bearing
deposits
|
3,792,463
|
|
25,012
|
|
0.88
|
|
4,036,068
|
|
4,315
|
|
0.14
|
Junior subordinated
debentures
|
21,576
|
|
1,521
|
|
9.43
|
|
21,286
|
|
745
|
|
4.68
|
Securities sold under
agreement to repurchase
|
38,187
|
|
148
|
|
0.52
|
|
47,057
|
|
98
|
|
0.28
|
Borrowings
|
339,296
|
|
12,238
|
|
4.82 %
|
|
—
|
|
—
|
|
— %
|
Total interest bearing
liabilities
|
4,191,522
|
|
38,919
|
|
1.24 %
|
|
4,104,411
|
|
5,158
|
|
0.17 %
|
Noninterest demand
deposits
|
1,942,134
|
|
|
|
|
|
2,355,285
|
|
|
|
|
Other noninterest
bearing liabilities
|
186,469
|
|
|
|
|
|
113,534
|
|
|
|
|
Stockholders'
equity
|
819,612
|
|
|
|
|
|
822,571
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$ 7,139,737
|
|
|
|
|
|
$ 7,395,801
|
|
|
|
|
Net interest income and
spread
|
|
|
$
171,284
|
|
3.23 %
|
|
|
|
$
156,278
|
|
3.08 %
|
Net interest
margin
|
|
|
|
|
3.64 %
|
|
|
|
|
|
3.15 %
|
|
|
(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 $2.4 million and $6.7 million for the nine months ended
September 30, 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
|
|
September
30,
2023
|
|
June 30,
2023
|
|
March 31,
2023
|
|
December 31,
2022
|
|
September
30,
2022
|
Earnings:
|
|
|
|
|
|
|
|
|
|
Net interest
income
|
$
55,618
|
|
$
55,824
|
|
$
59,842
|
|
$
63,107
|
|
$
59,286
|
(Reversal of) provision
for credit losses
|
(878)
|
|
1,909
|
|
1,825
|
|
1,410
|
|
1,945
|
Noninterest
income
|
6,271
|
|
7,281
|
|
8,258
|
|
6,584
|
|
7,453
|
Noninterest
expense
|
40,970
|
|
41,325
|
|
41,605
|
|
40,392
|
|
39,147
|
Net income
|
18,219
|
|
16,846
|
|
20,457
|
|
22,544
|
|
20,990
|
Pre-tax, pre-provision
net income (3)
|
20,919
|
|
21,780
|
|
26,495
|
|
29,299
|
|
27,592
|
Basic earnings per
share
|
$
0.52
|
|
$
0.48
|
|
$
0.58
|
|
$
0.64
|
|
$
0.60
|
Diluted earnings per
share
|
$
0.51
|
|
$
0.48
|
|
$
0.58
|
|
$
0.64
|
|
$
0.59
|
Average
Balances:
|
|
|
|
|
|
|
|
|
|
Loans receivable, net
(1)
|
$
4,201,554
|
|
$
4,145,556
|
|
$
4,039,395
|
|
$
3,963,042
|
|
$
3,859,839
|
Total investment
securities
|
1,992,303
|
|
2,061,100
|
|
2,090,232
|
|
2,106,608
|
|
2,001,922
|
Total interest earning
assets
|
6,363,043
|
|
6,297,410
|
|
6,213,003
|
|
6,292,188
|
|
6,592,361
|
Total assets
|
7,212,732
|
|
7,142,865
|
|
7,061,959
|
|
7,100,844
|
|
7,367,736
|
Total interest bearing
deposits
|
3,841,148
|
|
3,755,005
|
|
3,780,570
|
|
3,878,325
|
|
4,017,490
|
Total noninterest
demand deposits
|
1,859,374
|
|
1,900,640
|
|
2,068,688
|
|
2,239,806
|
|
2,356,688
|
Stockholders'
equity
|
821,494
|
|
824,742
|
|
812,500
|
|
780,401
|
|
811,052
|
Financial
Ratios:
|
|
|
|
|
|
|
|
|
|
Return on average
assets (2)
|
1.00 %
|
|
0.95 %
|
|
1.17 %
|
|
1.26 %
|
|
1.13 %
|
Pre-tax, pre-provision
return on average assets (2)(3)
|
1.15
|
|
1.22
|
|
1.52
|
|
1.64
|
|
1.49
|
Return on average
common equity (2)
|
8.80
|
|
8.19
|
|
10.21
|
|
11.46
|
|
10.27
|
Return on average
tangible common equity (2) (3)
|
12.90
|
|
12.04
|
|
15.05
|
|
17.21
|
|
15.20
|
Efficiency
ratio
|
66.2
|
|
65.5
|
|
61.1
|
|
58.0
|
|
58.7
|
Noninterest expense to
average total assets (2)
|
2.25
|
|
2.32
|
|
2.39
|
|
2.26
|
|
2.11
|
Net interest spread
(2)
|
2.95
|
|
3.11
|
|
3.66
|
|
3.87
|
|
3.50
|
Net interest margin
(2)
|
3.47
|
|
3.56
|
|
3.91
|
|
3.98
|
|
3.57
|
|
|
(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
|
|
September
30,
2023
|
|
June 30,
2023
|
|
March 31,
2023
|
|
December 31,
2022
|
|
September
30,
2022
|
Select Balance
Sheet:
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
7,150,588
|
|
$
7,115,410
|
|
$
7,236,806
|
|
$
6,980,100
|
|
$
7,200,312
|
Loans receivable,
net
|
4,219,911
|
|
4,204,936
|
|
4,083,003
|
|
4,007,872
|
|
3,959,206
|
Total investment
securities
|
1,894,392
|
|
2,030,826
|
|
2,078,235
|
|
2,097,839
|
|
2,129,461
|
Deposits
|
5,635,187
|
|
5,595,543
|
|
5,789,022
|
|
5,924,840
|
|
6,237,735
|
Noninterest demand
deposits
|
1,789,293
|
|
1,857,492
|
|
1,982,909
|
|
2,099,464
|
|
2,308,583
|
Stockholders'
equity
|
813,546
|
|
819,733
|
|
826,082
|
|
797,893
|
|
776,702
|
Financial
Measures:
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
$
23.31
|
|
$
23.39
|
|
$
23.53
|
|
$
22.73
|
|
$
22.13
|
Tangible book value per
share (1)
|
16.25
|
|
16.34
|
|
16.48
|
|
15.66
|
|
15.04
|
Stockholders' equity to
total assets
|
11.4 %
|
|
11.5 %
|
|
11.4 %
|
|
11.4 %
|
|
10.8 %
|
Tangible common equity
to tangible assets (1)
|
8.2
|
|
8.3
|
|
8.3
|
|
8.2
|
|
7.6
|
Loans to deposits
ratio
|
75.7
|
|
76.0
|
|
71.3
|
|
68.4
|
|
64.1
|
Regulatory Capital
Ratios:(2)
|
|
|
|
|
|
|
|
|
|
Common equity tier 1
capital ratio
|
12.9 %
|
|
12.8 %
|
|
12.9 %
|
|
12.8 %
|
|
12.8 %
|
Leverage
ratio
|
9.9
|
|
9.9
|
|
9.9
|
|
9.7
|
|
9.2
|
Tier 1 capital
ratio
|
13.3
|
|
13.2
|
|
13.3
|
|
13.2
|
|
13.3
|
Total capital
ratio
|
14.1
|
|
14.1
|
|
14.1
|
|
14.0
|
|
14.0
|
Credit Quality
Metrics:
|
|
|
|
|
|
|
|
|
|
ACL on
loans to:
|
|
|
|
|
|
|
|
|
|
Loans
receivable
|
1.10 %
|
|
1.09 %
|
|
1.08 %
|
|
1.06 %
|
|
1.05 %
|
Nonperforming
loans
|
1,531.7
|
|
1,002.3
|
|
923.6
|
|
727.8
|
|
675.2
|
Nonaccrual loans to
loans receivable
|
0.07
|
|
0.11
|
|
0.12
|
|
0.15
|
|
0.16
|
Nonperforming loans to
loans receivable
|
0.12
|
|
0.16
|
|
0.17
|
|
0.19
|
|
0.16
|
Nonperforming assets to
total assets
|
0.07
|
|
0.10
|
|
0.10
|
|
0.11
|
|
0.09
|
Net charge-offs
(recoveries) on loans to average loans receivable,
net(3)
|
(0.11)
|
|
—
|
|
0.02
|
|
(0.02)
|
|
(0.05)
|
Criticized Loans by
Credit Quality Rating:
|
Special
mention
|
$
72,152
|
|
$
84,623
|
|
$
96,832
|
|
$
69,449
|
|
$
84,439
|
Substandard
|
62,653
|
|
58,653
|
|
48,824
|
|
65,765
|
|
66,376
|
Other
Metrics:
|
|
|
|
|
|
|
|
|
|
Number of banking
offices
|
50
|
|
51
|
|
51
|
|
50
|
|
50
|
Deposits per
branch
|
$
112,704
|
|
$
109,717
|
|
$
113,510
|
|
$
118,497
|
|
$
124,755
|
Average number of
full-time equivalent employees
|
814
|
|
811
|
|
808
|
|
806
|
|
790
|
Average assets per
full-time equivalent employee
|
8,861
|
|
8,807
|
|
8,740
|
|
8,810
|
|
9,326
|
|
|
(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.
|
September
30,
2023
|
|
June 30,
2023
|
|
March 31,
2023
|
|
December 31,
2022
|
|
September
30,
2022
|
Tangible Common
Equity to Tangible Assets and Tangible Book Value Per
Share:
|
Total stockholders'
equity (GAAP)
|
$
813,546
|
|
$
819,733
|
|
$
826,082
|
|
$
797,893
|
|
$
776,702
|
Exclude intangible
assets
|
(246,325)
|
|
(246,920)
|
|
(247,543)
|
|
(248,166)
|
|
(248,837)
|
Tangible common equity
(non-GAAP)
|
$
567,221
|
|
$
572,813
|
|
$
578,539
|
|
$
549,727
|
|
$
527,865
|
|
|
|
|
|
|
|
|
|
|
Total assets
(GAAP)
|
$
7,150,588
|
|
$
7,115,410
|
|
$
7,236,806
|
|
$
6,980,100
|
|
$
7,200,312
|
Exclude intangible
assets
|
(246,325)
|
|
(246,920)
|
|
(247,543)
|
|
(248,166)
|
|
(248,837)
|
Tangible assets
(non-GAAP)
|
$
6,904,263
|
|
$
6,868,490
|
|
$
6,989,263
|
|
$
6,731,934
|
|
$
6,951,475
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity to
total assets (GAAP)
|
11.4 %
|
|
11.5 %
|
|
11.4 %
|
|
11.4 %
|
|
10.8 %
|
Tangible common equity
to tangible assets (non-GAAP)
|
8.2 %
|
|
8.3 %
|
|
8.3 %
|
|
8.2 %
|
|
7.6 %
|
|
|
|
|
|
|
|
|
|
|
Shares
outstanding
|
34,901,076
|
|
35,047,800
|
|
35,108,120
|
|
35,106,697
|
|
35,104,248
|
|
|
|
|
|
|
|
|
|
|
Book value per share
(GAAP)
|
$
23.31
|
|
$
23.39
|
|
$
23.53
|
|
$
22.73
|
|
$
22.13
|
Tangible book value per
share (non-GAAP)
|
$
16.25
|
|
$
16.34
|
|
$
16.48
|
|
$
15.66
|
|
$
15.04
|
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
|
|
September
30,
2023
|
|
June 30,
2023
|
|
March 31,
2023
|
|
December 31,
2022
|
|
September
30,
2022
|
Return on Average
Tangible Common Equity, annualized:
|
Net income
(GAAP)
|
$
18,219
|
|
$
16,846
|
|
$
20,457
|
|
$
22,544
|
|
$
20,990
|
Add amortization of
intangible assets
|
595
|
|
623
|
|
623
|
|
671
|
|
671
|
Exclude tax effect of
adjustment
|
(125)
|
|
(131)
|
|
(131)
|
|
(141)
|
|
(141)
|
Tangible net income
(non-GAAP)
|
$
18,689
|
|
$
17,338
|
|
$
20,949
|
|
$
23,074
|
|
$
21,520
|
|
|
|
|
|
|
|
|
|
|
Average stockholders'
equity (GAAP)
|
$
821,494
|
|
$
824,742
|
|
$
812,500
|
|
$
780,401
|
|
$
811,052
|
Exclude average
intangible assets
|
(246,663)
|
|
(247,278)
|
|
(247,922)
|
|
(248,560)
|
|
(249,245)
|
Average tangible common
stockholders' equity (non-GAAP)
|
$
574,831
|
|
$
577,464
|
|
$
564,578
|
|
$
531,841
|
|
$
561,807
|
|
|
|
|
|
|
|
|
|
|
Return on average
common equity, annualized (GAAP)
|
8.80 %
|
|
8.19 %
|
|
10.21 %
|
|
11.46 %
|
|
10.27 %
|
Return on average
tangible common equity, annualized (non-GAAP)
|
12.90 %
|
|
12.04 %
|
|
15.05 %
|
|
17.21 %
|
|
15.20 %
|
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
|
|
September
30,
2023
|
|
June 30,
2023
|
|
March 31,
2023
|
|
December 31,
2022
|
|
September
30,
2022
|
Pre-tax,
Pre-provision Income and Pre-tax, Pre-provision Return on Average
Assets, annualized:
|
Net income
(GAAP)
|
$
18,219
|
|
$
16,846
|
|
$
20,457
|
|
$
22,544
|
|
$
20,990
|
Add income tax
expense
|
3,578
|
|
3,025
|
|
4,213
|
|
5,345
|
|
4,657
|
Add/(subtract)
provision for (reversal of) credit losses
|
(878)
|
|
1,909
|
|
1,825
|
|
1,410
|
|
1,945
|
Pre-tax, pre-provision
income (non-GAAP)
|
$
20,919
|
|
$
21,780
|
|
$
26,495
|
|
$
29,299
|
|
$
27,592
|
|
|
|
|
|
|
|
|
|
|
Average total assets
(GAAP)
|
$
7,212,732
|
|
$
7,142,865
|
|
$
7,061,959
|
|
$
7,100,844
|
|
$
7,367,736
|
|
|
|
|
|
|
|
|
|
|
Return on average
assets, annualized (GAAP)
|
1.00 %
|
|
0.95 %
|
|
1.17 %
|
|
1.26 %
|
|
1.13 %
|
Pre-tax, pre-provision
return on average assets (non-GAAP)
|
1.15 %
|
|
1.22 %
|
|
1.52 %
|
|
1.64 %
|
|
1.49 %
|
View original
content:https://www.prnewswire.com/news-releases/heritage-financial-announces-third-quarter-2023-results-and-declares-regular-cash-dividend-301961488.html
SOURCE Heritage Financial Corporation