Heritage Financial Corporation · NASDAQ:HFWA
Heritage Financial — Sandler O'Neill + Partners conference (March 2018)
30 slides from Heritage Financial's conference presentation, Mar 6, 2018
Slide 1: Sandler O'Neill + Partners, March 2018
Brian Vance Chief Executive Officer Jeff Deuel Chief Operating Officer Don Hinson Chief Financial Officer Sandler O’Neill + Partners March 2018
Slide 2: Forward-Looking Statement
FORWARD – LOOKING STATEMENT 2 This presentation contains forward-looking statements that are subject to risks and uncertainties, including, but not limited to: • The expected revenues, cost savings, synergies and other benefits from our other merger and acquisition activities might not be realized w
Slide 3: Company Overview
3 COMPANY OVERVIEW
Slide 4: Company Profile
COMPANY PROFILE 4 Corporate Overview NASDAQ Symbol HFWA Headquarters Olympia, WA # of Branches 60 Year Established 1927 Note: Financial information as of 12/31/2017 and market information as of 2/27/2018 Financial Snapshot Market Capitalization $1.03 billion Institutional Ownership 82.8% Total Asset
Slide 5: Company Strategy
COMPANY STRATEGY 5 Disciplined approach to acquisition opportunities Completed acquisition for Puget Sound Bancorp, Inc. in Bellevue, WA Allocate capital to organically grow our core banking business Successful hiring of individuals and teams of bankers in Seattle and Portland markets Impr
Slide 6: Acquisition of Puget Sound Bancorp, Inc.
ACQUISITION OF PUGET SOUND BANCORP, INC. 6 • Puget Sound is a “pure play” business banking franchise headquartered in the Seattle metropolitan area with total assets of $561.8 million (4) • Acquisition follows HFWA’s stated strategic goal of growing in the Seattle-Bellevue market • The exchange rati
Slide 7: Strong and Diverse Economic Landscape
Note: Information for Seattle MSA, where available (1) www.cnbc.com (2) Bureau of Economic Analysis (3) U.S. Census data (4) www.zillow.com STRONG AND DIVERSE ECONOMIC LANDSCAPE 7 Thriving local economy with job growth in technology and aerospace sectors Washington named “America’s Top State for
Slide 8: Historical Growth – Organic and Acquisitive
Completed Puget Sound Bancorp, Inc. acquisition in Q1 2018* 8 HISTORICAL GROWTH – ORGANIC AND ACQUISITIVE Acquired North Pacific Bancorporation Acquired Washington Independent Bancshares Inc. Acquired Western Washington Bancorp Completed 2 FDIC deals - Pierce Commercial Bank and Cowlitz Bank acquiri
Slide 9: King County Metro
9 KING COUNTY METRO Funds Under Management = Loans + Deposits Source: Company and Puget Sound Bancorp, Inc. financials, as of 12/31/2017 Note: All dollars in millions King County HFWA Branch • $598 million in total funds under management in King County, or $1.5 billion on a pro forma basis with Puge
Slide 10: King County Growth
KING COUNTY GROWTH Record number of newcomers, again 2016 marks the third consecutive year that a record number of people moved to King County from out of state, based on driver’s license data. The old record, set in 1990, held for 24 years before it was broken in 2014. Consecutive record- breaking
Slide 11: Future Growth and Opportunities
FUTURE GROWTH AND OPPORTUNITIES 11 Note: Financial information as of 12/31/2017 *Map includes banks headquartered along the I-5 corridor and does not include coastal headquartered banks • Significant number of banks remaining in HFWA footprint, further consolidation is expected - 15 banks with less
Slide 12: Management Team
MANAGEMENT TEAM 12 Name Position Banking Experience HFWA Service Previous Experience Brian Vance President and Chief Executive Officer of Heritage Financial Corporation 45 years 22 years WestOne Bank/U.S. Bank Jeff Deuel President and Chief Operating Officer of Heritage Bank 35 years 8 years JPMChas
Slide 13: Financial Update
13 FINANCIAL UPDATE
Slide 14: Financial Update – Q4 & YTD 2017
FINANCIAL UPDATE – Q4 & YTD 2017 14 • Diluted earnings per share was $0.33 for the quarter and $1.39 for the year • Net income of $10.0 million for the quarter and $41.8 million for the year • Revaluation of the net deferred tax asset negatively impacted EPS by $0.09 per share and net income by $2.6
Slide 15: Balance Sheet Mix
15 BALANCE SHEET MIX Loan Portfolio Source: Company financials, as of 12/31/2017 Note: All dollars in millions *Includes loans held for sale and allowance for loan losses • 4.93% loan yield in Q4 2017 • 44.5% of loans are commercial loans (C&I and owner-occupied CRE) • $2.8 billion in total loans De
Slide 16: Balance Sheet Trends
16 BALANCE SHEET TRENDS Source: Company financials, as of 12/31/2017 Note: End of period balance. All dollars in millions *Loans include loans receivable, net and loans held for sale **Includes taxable and tax-exempt securities without adjustment for tax-equivalent basis Deposits Investment Securiti
Slide 17: Net Interest Margin
3.82% 3.71% 3.77% 3.68% 3.75% 3.75% 3.74% 3.74% 0.22% 0.29% 0.18% 0.17% 0.14% 0.17% 0.11% 0.28% 4.04% 4.00% 3.95% 3.85% 3.89% 3.92% 3.85% 4.02% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Core NIM Accretion* 17 NET INTEREST MARGIN Net Interest
Slide 18: Core Deposit Franchise
$- $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 2014 2015 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Non-Interest Bearing Demand Interest Bearing Demand Money Market Accounts Savings Accounts CDs CORE DEPOSIT FRANCHISE 18Source: Company financials, as of 12/31/2017 Note: All dollars in thousands
Slide 19: Profitability Trends
PROFITABILITY TRENDS 19 Source: Company financials, as of 12/31/2017 Note: All dollars in thousands Note: Performance ratios are annualized ROAA ROATCE Net Income Efficiency Ratio 65.0% 67.2% 62.0% 64.4% 59.7% 0.0% 25.0% 50.0% 75.0% 100.0% Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 1.03% 0.97% 1.21% 1.
Slide 20: Non-Interest Expense
$27,903 $46,745 $48,074 $45,068 $46,307 $31,612 $52,634 $58,134 $61,405 $64,268 3.86% 3.49% 3.01% 2.84% 2.78% 2.00% 2.50% 3.00% 3.50% 4.00% $- $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 2013 2014 2015 2016 2017 Compensation & Benefits Expense Non-Compensation Expense NIE/Avg. Assets $11,056 $
Slide 21: Credit Quality Trends
0.98% 0.65% 0.55% 0.43% 0.45% 0.39% 0.33% 0.32% 0.39% 0.41% 0.30% 0.30% 0.30% 0.29% 0.28% 0.26% 2.38% 1.28% 1.29% 1.23% 1.22% 1.20% 1.21% 1.24% 1.21% 1.13% 1.17% 1.18% 1.19% 1.19% 1.12% 1.13% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60% Q1 2014 Q2 2014* Q
Slide 22: Credit Quality vs. Peer Group
0.57% 3.32% 2.19% 2.07% 1.41% 0.74% 0.43% 0.32% 0.30% 0.26% 2.33% 3.60% 2.92% 2.53% 1.32% 0.85% 0.62% 0.47% 0.35% 0.21% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 NP As / A sse ts HFWA Median CREDIT QUALITY VS. PEER GROUP 22 So
Slide 23: Loan Charge-Offs
$(105) $1,595 $735 $3,464 $1,121 $727 $125 $382 $1,218 $2,361* $(290) $305 $356 $(26) $2,235* $652 -0.20% -0.10% 0.00% 0.10% 0.20% 0.30% 0.40% 0.50% 0.60% 0.70% 0.80% $(1,000) $(500) $- $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2
Slide 24: Capital Ratio Trends
CAPITAL RATIO TRENDS 24 Source: Company financials, as of 12/31/2017 Tangible Common Equity Ratio Leverage Ratio Tier-1 Capital Ratio Risk Based Capital Ratio 10.5% 10.3% 10.3% 10.5% 10.4% 10.2% 0.00% 4.00% 8.00% 12.00% 16.00% Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 9.9% 9.5% 9.7% 9.7% 9.7%
Slide 25: Shareholder Return
25 SHAREHOLDER RETURN
Slide 26: Total Shareholder Return
TOTAL SHAREHOLDER RETURN 26 Total Return* – Last Twelve Months Source: SNL Financial, as of 2/27/2018 Note: SNL U.S. Bank $1B-$5B index includes banks nationwide with total assets of $1.0 billion to $5.0 billion *Total return includes stock price appreciation and reinvested dividends **Average Stree
Slide 27: History of Growing Dividends
$0.08 $0.08 $0.09 $0.09 $0.10 $0.11 $0.11 $0.11 $0.11 $0.12 $0.12 $0.12 $0.12 $0.13 $0.13 $0.13 $0.15 $0.16 $0.10 $0.25 $0.10 $- $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 $0.40 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4
Slide 28: Investment Thesis
INVESTMENT THESIS 28 • Significant scarcity value as a $4+ billion commercial bank in the Pacific Northwest • Located in key markets in Western Washington – one of the strongest economic regions in the country • Proven track record of executing on M&A – Financially and strategically rewarding for sh
Slide 29: Appendix
29 APPENDIX
Slide 30: Historical Financial Highlights
HISTORICAL FINANCIAL HIGHLIGHTS 30Source: Company financials, as of 12/31/2017 Note: All dollars in thousands Last 8 Quarters Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Balance Sheet Total Assets 3,678,032$ 3,756,876$ 3,846,376$ 3,878,981$ 3,885,613$ 3,990,954$ 4,050,056$ 4,113,
Heritage Financial — Sandler O'Neill + Partners conference (March 2018) on 6ix