Heritage Financial Corporation · NASDAQ:HFWA
Heritage Financial — Q4 2020 Earnings Presentation
34 slides from Heritage Financial's earnings presentation, Mar 2, 2021
Slide 1: Investor Presentation Q4 2020
1 Investor Presentation Q4 2020
Slide 2: Forward-Looking Statement
2 Forward – Looking Statement The COVID-19 pandemic is adversely affecting us, our customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Other
Slide 3: Company Overview
3 Company Overview - All dollars in thousands unless otherwise noted, except per share amounts.
Slide 4: Overview
4 Overview Overview NASDAQ Symbol HFWA Stock Price(1) $26.00 Market Capitalization(1) $933.2 million Institutional Ownership(1) 80.7% Headquarters Olympia, WA # of Branches(2) 53 Year Established 1927 Q4 2020 Financial Highlights Assets $6.62 billion Deposits $5.60 billion Loans receivable $4.47 bil
Slide 5: COVID-19 Response
5(1) Evaluated on a case-by-case basis. COVID-19 Response Employees Activated our Business Continuity Plan Approximately 60% of employees have remote capabilities; 37% are fully remote Facilities Nearly all branch lobbies remain closed; operate by drive-thru or by appointment Practice recomm
Slide 6: Company Strategy
6 Company Strategy Active and disciplined in M&A Be the "acquirer of choice" in the Pacific Northwest Most acquisitive bank in Oregon and Washington since 2012 with 5 acquisitions Target Metrics = IRR of >15% with earnbacks < 3 years Allocate capital to organically grow our core banking busine
Slide 7: Technology Strategy
7 Technology Strategy Objective: Invest in technology to enable Community Banking at Scale Transform Products Robust, integrated and application programming interface- (“API”) driven digital solutions Implemented “Heritage Direct,” a full suite of upgraded treasury management tools for commercial
Slide 8: Strong and Diverse Economic Landscape
8 Map obtained from S&P Global Market Intelligence. (1) Bureau of Economic Analysis; 2020 Gross Domestic Product by County Report; rank among metros with GDP greater than $30 billion as of December 9, 2020. (2) www.cnbc.com as of January 27, 2020. (3) www.wallethub.com as of January 22, 2020. (4) Pe
Slide 9: Seattle-Portland Metro Markets
9 Seattle-Portland Metro Markets • The Seattle-Tacoma-Bellevue and Portland-Vancouver-Hillsboro MSAs are among the fastest growing metro markets nationwide. • Annual population growth for both Seattle and Portland MSAs have exceeded the average growth rate for the top 15 largest MSAs since 2015 and
Slide 10: Seattle MSA Funds Under Management
10 Seattle MSA Funds Under Management Funds Under Management(1) = Loans(2) + Deposits • 23 branches in the Seattle MSA market; five branches consolidated into existing branches during October 2020 and January 2021. • SBA PPP loans also had a significant impact on deposit growth. Map obtained from S&
Slide 11: Portland MSA Funds Under Management
11 Portland MSA Funds Under Management Funds Under Management(1) = Loans(2) + Deposits Map obtained from S&P Global Market Intelligence. (1) Prior period information includes branches that were closed or consolidated prior to February 25, 2021. (2) Loan information is provided gross of deferred fees
Slide 12: Future Growth and Opportunities
12 Future Growth and Opportunities Pacific Northwest Banking Landscape(1) Map obtained from S&P Global Market Intelligence. (1) Certain locations of bank headquarters overlap on the map; one target in Alaska not shown. (2) Target financial information as of the most recent quarter publicly available
Slide 13: Historical Growth – Organic and Acquisitive
13 Historical Growth – Organic and Acquisitive • In addition to organic growth, HFWA has completed 5 whole bank mergers and 2 FDIC-assisted transactions since 2008. Completed 2 FDIC deals - Pierce Commercial Bank and Cowlitz Bank, acquiring $211M and $345M in assets, including goodwill, respectively
Slide 14: Deposit Market Share
14 Deposit Market Share(1) Washington & Oregon - 2008 Washington & Oregon - 2013 Washington & Oregon - 2020 Rank Institution (State) Deposits in Market (in thousands) Market Share Rank Institution (State) Deposits in Market (in thousands) Market Share Rank Institution (State) Deposits in Market (in
Slide 15: Financial Update
15 Financial Update - All dollars in thousands unless otherwise noted, except per share amounts.
Slide 16: Financial Update – Q4 2020
16 Financial Update – Q4 2020 • Net income was $23.9 million, or $0.66 per diluted share, for the quarter ended December 31, 2020, compared to $16.6 million, or $0.46 per diluted share, for the linked-quarter ended September 30, 2020 and $17.1 million, or $0.47 per diluted share, for the quarter end
Slide 17: Loan Balances and Loan Yields
17 Loan Balances and Loan Yields Loan Portfolio Loan Portfolio Composition • $957.2 million (25% of portfolio, excluding SBA PPP loans) of floating and adjustable loans were at their respective interest rate floor as of December 31, 2020. • Consumer loans decreased to 7.3% of the loan portfolio from
Slide 18: Commercial Business Loan Exposure
18 Commercial Business Loan Exposure Commercial Business Loans by Industry(1) Exposure Industry Amount WARR at 12/31/19 WARR at 9/30/20 WARR at 12/31/20 Real Estate and Rental and Leasing $1,393,140 4.39 4.48 4.52 Health Care and Social Assistance 303,138 4.26 4.51 4.56 Accommodation and Food Servic
Slide 19: SBA PPP Loans by Size at December 31, 2020
19 SBA PPP Loans by Size at December 31, 2020 Funded SBA PPP Loans(1) by Industry(2)Management Commentary SBA PPP Loans Balance % of SBA PPP Count Remaining Deferred Fee Less than $50,000 $37,391 5.2 % 1,787 $1,075 $50,000 to $100,000 52,555 7.3 769 1,679 $100,000 to $350,000 169,475 23.7 988 5,611
Slide 20: COVID-19 Related Modifications
20 COVID-19 Related Modifications Management Commentary (1) Categorized by NAICS code. Active Payment Deferral Modifications(1) Balance Count Real Estate and Rental and Leasing $31,998 12 Hotels (except Casino Hotels) and Motels 26,768 5 Restaurants 10,696 22 Parking Lots and Garages 6,569 1 Arts, E
Slide 21: Higher Risk Industries at December 31, 2020
21 Higher Risk Industries(1) at December 31, 2020 (1) Categorized by NAICS code and excluding SBA PPP loans. Real Estate and Rental and Leasing • Balance of $125.3 million, or 3.3% of loan portfolio • Unfunded commitment $8.3 million • $85.3 million were granted a COVID-19 modification and $26.8 mil
Slide 22: Credit Quality
22 Credit Quality Management Commentary (1) Potential problem loans ("PPL") are risk rated Special Mention or worse, not classified as a TDR or nonaccrual loan and are not individually evaluated for credit loss, but which management is closely monitoring because the financial information of the borr
Slide 23: Allowance for Credit Losses
23 Allowance for Credit Losses Management Commentary • Overall, the decrease in ACL is due to decrease in loan balances and slight improvement in economic outlook in the Q4 2020 Macroeconomic forecast. • Q4 2020 net charge-off includes one partial charge-off of a commercial and multifamily real esta
Slide 24: Deposit Composition
24 Deposit Composition Deposits Deposit Composition • 92.9% of deposits are non-maturity. • Decrease in total deposits primarily relating to a decrease in a public depositor relationship during the quarter Q4. • No significant outflow of deposits from borrowers that received SBA PPP loans. Deposit B
Slide 25: Net Interest Margin
25 Net Interest Margin Total Asset Composition • 79.8% Loan to deposit ratio. • 23.3% of assets are cash and cash equivalents and investment securities. • Increase in margin due primarily to recognition of the remaining net deferred fees on SBA forgiven SBA PPP loans for Q4 2020. (1) Non-GAAP financ
Slide 26: Profitability Trends
26 Profitability Trends ROATCE(1) Noninterest Expense/Avg. Assets ROAA Net Income and Pre-tax, Pre-provision Income (1) Non-GAAP financial measure. Refer to Appendix for calculation.
Slide 27: Strong Capital and Sources of Liquidity
27 (1) Non-GAAP financial measure. Refer to Appendix for calculation. (2) Represents FDIC minimum and well-capitalized ratio thresholds for banks. The minimum capital ratio requirement for Tier 1 Leverage and Total Risk Based Capital is 4.0% and 8.0%, respectively. (3) Limited to 15% of total deposi
Slide 28: Shareholder Return
28 Shareholder Return - All dollars in thousands unless otherwise noted, except per share amounts.
Slide 29: Total Shareholder Return
29 Total Shareholder Return Stock Summary(1) Ticker HFWA Exchange NASDAQ Stock Price $26.00 Market Cap. (in millions) $933.2 Dividend Yield (Regular Div. Only) 3.08% Average Daily Volume (3 month) Avg. Daily Volume (Shares) 147,702 Avg. Daily Volume ($000s) $3,840 52-Week High and Low Price 52-Week
Slide 30: Appendix - Reconciliations of Non-GAAP Financial Measures
30 Appendix - Reconciliations of Non-GAAP Financial Measures - All dollars in thousands unless otherwise noted, except per share amounts.
Slide 31: Non-GAAP Financial Measures
31 Non-GAAP Financial Measures 2017 YTD 2018 YTD 2019 YTD 2020 YTD 2020 Q1 Q2 Q3 Q4 Pre-tax, Pre-provision Income: Net income (loss) (GAAP) $41,791 $53,057 $67,557 $46,570 $12,191 $(6,139) $16,636 $23,882 Exclude income tax (benefit) expense 18,356 11,238 13,488 6,610 640 (936) 2,477 4,429 Exclude p
Slide 32: Non-GAAP Financial Measures
32 Non-GAAP Financial Measures 2017 YTD 2018 YTD 2019 YTD 2020 YTD 2020 Q1 Q2 Q3 Q4 Net Interest Margin, excluding Incremental Accretion on Purchased Loans, Annualized: Net interest income (GAAP) $139,363 $186,993 $199,682 $200,997 $48,551 $50,313 $49,678 $52,455 Exclude incremental accretion on pur
Slide 33: Non-GAAP Financial Measures
33 Non-GAAP Financial Measures 2017 2018 2019 2020 Q1 Q2 Q3 Q4 Potential Problem Loans to Loans Receivable, excluding SBA PPP Loans: Potential problem loans $83,543 $101,320 $87,888 $102,167 $100,554 $159,764 $182,342 Loans receivable (GAAP) $2,849,071 $3,654,160 $3,767,879 $3,852,376 $4,666,333 $4,
Slide 34: Heritage Financial Corporation
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