Heritage Financial Corporation · NASDAQ:HFWA
Heritage Financial — Q1 2022 Earnings Presentation
42 slides from Heritage Financial's earnings presentation, Apr 21, 2022
Slide 1: Investor Presentation Q1 2022
INVESTOR PRESENTATION Q1 2022
Slide 2: Forward-looking statements risk factors
2 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: • the effect of the COVID-19 pandemic, including on the Company’s credit quality and business operations, as well as it
Slide 3: Company Overview
COMPANY OVERVIEW
Slide 4: Overview
4 OVERVIEW Overview NASDAQ symbol HFWA Stock price $25.09 Market capitalization $879.3 million Institutional ownership 79.6% Headquarters Olympia, WA # of branches 49 Year established 1927 Q1 2022 Financial Highlights Assets $7.48 billion Deposits $6.49 billion Loans receivable $3.82 billion Net inc
Slide 5: Company Strategy
5 COMPANY STRATEGY Allocate capital to organically grow our core banking business Ÿ Successful hiring of individuals and teams of bankers in high-growth and dynamic Seattle and Portland markets Ÿ Disciplined approach to concentration risk and active portfolio management Improve operational efficienc
Slide 6: Technology Investment
6 TECHNOLOGY INVESTMENT Objective: Invest in technologies that enable Community Banking @ Scale HeritageONE Technology convergence & omni- channel experiences Ÿ Cutting-edge, proprietary ecosystem for integrating processes and technologies to create highly converged, omni-channel customer experience
Slide 7: HeritageONE – Technology Ecosystem
7 HeritageONE – Technology Ecosystem Proprietary middleware and application ecosystem. Foundation for all internal software development, integration & open- banking capabilities. 2020 Notify – Alerts & Reminders Event- & schedule-driven alerts & reminders. 2022 Data360 – Data Glossary Repository use
Slide 8: Environmental, Social and Governance ("ESG") Practices
8 ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG") PRACTICES We are committed to environmental and sustainability efforts, our human capital, our customers and strengthening the communities and markets in which we operate. Environment and Sustainability Ÿ Have a Green Team Committee focused on sustainab
Slide 9: Strong and Diverse Economic Landscape
9 6.5% 15.2% 4.8% 12.6% $87,753 3.2% 12.1% $72,465 Seattle MSA Portland MSA USA 2022-2027 Proj, population growth 2022-2027 Proj. median household income growth Median household income $105,233 $87,753 $72,465 STRONG AND DIVERSE ECONOMIC LANDSCAPE Market Highlights Major Employers in the Pacific Nor
Slide 10: Major MSA Funds Under Management
10 MAJOR MSA FUNDS UNDER MANAGEMENT Seattle MSA Funds Under Management = Loans + Deposits $2,770 $2,941 $3,845 $4,020 $4,960 $5,286 $5,322 $1,476 $1,526 $1,995 $2,111 $2,650 $3,231 $3,274 $1,294 $1,415 $1,850 $1,909 $1,936 $1,981 $2,009 Deposits Total loans, excluding SBA PPP loans SBA PPP loans 201
Slide 11: Potential Growth Opportunities
11 POTENTIAL GROWTH OPPORTUNITIES – Map obtained from S&P Global Market Intelligence. – Certain locations of bank headquarters overlap on the map. – Financial information as of the most recent quarter publicly available. • Long-term goal to build a PNW regional commercial community bank; potential o
Slide 12: Historical Growth Organic and Acquisitive
12 Acquired Puget Sound Bancorp $639MM in assets Premier Commercial Bancorp $440MM in assets $1,015 $812 $1,369 $1,346 $1,340 $1,712 $3,651 $3,879 $4,113 $4,238 $5,553 $6,615 $7,432 $7,484 $556 $319 $1,747 $1,079 $12.21 $12.99 $13.10 $13.16 $13.31 $15.02 $15.68 $16.08 $20.63 $22.10 $22.85 $24.34 $23
Slide 13: Deposit Market Share
13 DEPOSIT MARKET SHARE Washington & Oregon - 2008 Washington & Oregon - 2013 Washington & Oregon - 2021 Rank Institution (State) Deposits in Market Market Share Rank Institution (State) Deposits in Market Market Share Rank Institution (State) Deposits in Market Market Share 1 Bank of America Corpor
Slide 14: Financial Update
FINANCIAL UPDATE
Slide 15: Financial Update – Q1 2022
15 FINANCIAL UPDATE – Q1 2022 • Net income was $19.8 million, or $0.56 per diluted share, for the first quarter of 2022 compared to $19.4 million, or $0.55 per diluted share, for the fourth quarter of 2021 and $25.3 million, or $0.70 per diluted share, for the first quarter of 2021. • Reversal of pr
Slide 16: Loan Portfolio
16 $3,768 $4,469 $3,816 $4,596 $4,208 $3,954 $3,816 $3,821 5.17% 4.44% 4.54% 4.34% 4.47% 4.62% 4.64% 4.42% 4.41% 4.48% 4.50% 4.26% 4.13% 4.20% Total loans Loan yield Loan yield, excl. SBA PPP (non-GAAP) 2019 2020 2021 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Loan Balances and Loan Yields Commercial &
Slide 17: Loan Portfolio Composition
17 LOAN PORTFOLIO COMPOSITION $3,768 $4,469 $3,816 $3,821 $852 $733 $622 $652 $805 $857 $931 $936 $1,289 $1,410 $1,493 $1,505 $132 $123 $165 $223$275 $306 $227 $222 $415 $325 $232 $218 $715 $146 Commercial & industrial Owner-occupied CRE Non-owner occupied CRE Residential real estate Construction &
Slide 18: Loan Production
18 New Commitments Originated $16 $23 $30 $23 $22 $12 $22 $27 $45 $76 $226 $152 $271 $329 $225 $353 $27 Consumer Residential Commercial, excl. SBA PPP SBA PPP Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 LOAN PRODUCTION – Dollars in millions. – Q1 2022 residential commitments originated includes $42 mill
Slide 19: Line of Credit ("LOC") Utilization
19 LINE OF CREDIT ("LOC") UTILIZATION 35.78% 25.29% 23.71% 27.27% 37.24% 33.62% 31.86% 31.82% 41.50% 58.22% 41.75% 42.46% Utilization Rate - Construction LOCs Utilization Rate - Consumer LOCs Utilization Rate - Commercial and Industrial Loan LOCs 2019 2020 2021 Q1 2022
Slide 20: Changes in Loans Receivable
20 CHANGES IN LOANS RECEIVABLE Change in Loans - Q1 2022 $3,815,662 $(83,685) $235,915 $(144,790) $(19,814) $17,890 $3,821,178 Loans receivable at December 31, 2021 PPP prepayments and payoffs Loans originated Prepayments Payoffs Net advances/ payments Loans receivable at March 31, 2022 Change in Lo
Slide 21: Commercial Loan Exposure
21 COMMERCIAL LOAN EXPOSURE Commercial Business Loans by Industry Exposure Industry Amount WARR at 12/31/20 WARR at 12/31/21 WARR at 03/31/22 Real estate, rental and leasing $1,565,568 4.52 4.42 4.41 Health care and social assistance 310,774 4.56 4.52 4.53 Accommodation and food services 191,349 6.2
Slide 22: SBA PPP Loans
22 Key statistics from inception of the SBA's PPP through March 31, 2022 SBA PPP LOANS Total number of funded loans 7,184 Total amount funded $ 1,277,367 Average funded loan size $ 178 Total net fees deferred at funding $ 44,846 Total net fees recognized since funding $ 42,716 Total interest recogni
Slide 23: Higher Risk Industries with Enhanced Monitoring
23 HIGHER RISK INDUSTRIES WITH ENHANCED MONITORING – Categorized by NAICS code and excluding SBA PPP loans. Hotels and other accomodation Restaurants and other food service Recreation and fitness related activities Amortized cost $137,192 $53,304 $29,967 % of Loans receivable, excluding SBA PPP 3.7%
Slide 24: Nonperforming Assets
24 $45,366 $58,092 $23,754 $16,527 Nonaccrual loans OREO Nonperforming assets to total assets 2019 2020 2021 Q1 2022 0.82% 0.88% 0.32% 0.22% NONPERFORMING ASSETS $841
Slide 25: Criticized Loans
25 CRITICIZED LOANS $142,796 $290,551 $183,470 $174,569 $44,525 $58,092 $23,754 $16,527 $49,412 $100,423 $88,696 $94,773 $48,859 $132,036 $71,020 $63,269 Substandard - nonaccrual Substandard - accrual Special mention 2019 2020 2021 Q1 2022
Slide 26: Allowance for Credit Losses ("ACL") on Loans
26– Refer to Appendix for calculation of non-GAAP financial measure. $36,171 $70,185 $42,361 $40,333 ACL on loans ($) ACL on loans / Loans (%) ACL on loans / Loans excl. SBA PPP (non-GAAP) (%) 2019 2020 2021 Q1 2022 0.96% 1.57% 1.11% 1.06% 1.87% 1.15% 1.07% ALLOWANCE FOR CREDIT LOSSES ("ACL") ON LOA
Slide 27: Deposits
27 $4,597 $5,612 $6,394 $6,033 $6,074 $6,229 $6,394 $6,492 0.37% 0.23% 0.10% 0.12% 0.10% 0.09% 0.09% 0.09% Total deposits Cost of total deposits 2019 2020 2021 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Deposit Composition DEPOSITS Deposit Balances and Cost of Total Deposits 31.8% 35.5% 36.7% 36.9% 29.
Slide 28: Investment Portfolio
28 $952 $802 $1,278 $894 $1,050 $1,073 $1,278 $1,462 $243 $153 $757 $166 $223 $100 $268 $290 2.75% 2.40% 2.13% 2.17% 2.09% 2.13% 2.12% 1.96% Portfolio yield New purchases 2019 2020 2021 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Investment Balances and Investment Yield INVESTMENT PORTFOLIO Investment P
Slide 29: Net Interest Margin
29 Change in QTD Net Interest Margin Q1 2021 vs. Q1 2022 3.51% (0.43)% (0.41)% 0.11% 0.06% 2.84% QTD Q1 2021 PPP loans Loan yield Investments Other QTD Q1 2022 Net Interest Margin (GAAP) 4.22% 3.63% 3.23% 3.51% 3.44% 3.15% 2.85% 2.84%4.12% 3.57% 3.18% 3.44% 3.41% 3.11% 2.83% 2.80% NIM, excluding acc
Slide 30: Interest Earning Assets
30 Asset Repricing Composition at March 31, 2022 Floating rate (<3 month repricing) Adjustable rate (>3 month repricing) Fixed rate Total Interest earning deposits $ 1,488,815 $ — $ — $ 1,488,815 Total investment securities 127,811 10,639 1,286,296 1,424,746 Loans receivable (excluding SBA PPP) 842,
Slide 31: Profitability Trends
31 $67.6 $46.6 $98.0 $85.4 $89.3 $91.1 Net income (GAAP) PTPP income (non-GAAP) 2019 2020 2021 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 $25.3 $32.7 $20.6 $19.4 $19.8 $23.2 $26.2 $22.4 $19.3 $19.8 PROFITABILITY TRENDS Return on Average Equity (GAAP) and Return on Average Tangible Common Equity (non-GA
Slide 32: Capital
32 10.9% 11.6% 11.4% 10.2%10.4% 8.9% 8.4% 7.9% 14.6% 12.4% 11.5% 11.0% Stockholders' equity to total assets (GAAP) Tangible common equity ("TCE") to total tangible assets (non-GAAP) TCE, excluding cash and cash equivalents and SBA PPP loans (non-GAAP) 2019 2020 2021 Q1 2022 12.8% 14.0% 14.8% 14.7% 1
Slide 33: Shareholder Return
SHAREHOLDER RETURN
Slide 34: Total Shareholder Return
34 TOTAL SHAREHOLDER RETURN Stock Summary Ticker HFWA Exchange NASDAQ Stock price $25.09 Market capitalization (in millions) $879.3 Dividend yield (regular dividend only) 3.35% Average Daily Volume (3 month) Average daily volume (shares) 162,158 Average daily volume ($000s) $4,069 52-Week High and L
Slide 35: Appendix - Reconciliation of Non-GAAP Financial Measures and Quarterly Financial Statistics
APPENDIX - RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND QUARTERLY FINANCIAL STATISTICS
Slide 36: Non-GAAP Financial Measures
36 NON-GAAP FINANCIAL MEASURES 2019 2020 2021 2021 2022 Q1 Q2 Q3 Q4 Q1 Pre-tax, Pre-provision Income and Pre-tax, Pre- provision Return on Average Assets: Net income (GAAP) $67,557 $46,570 $98,035 $25,344 $32,702 $20,592 $19,397 $19,757 Exclude income tax expense 13,488 6,610 22,472 5,102 7,451 4,99
Slide 37: Return on Average Tangible Common Equity
37 2019 2020 2021 2021 2022 Q1 Q2 Q3 Q4 Q1 Return on Average Tangible Common Equity: Net income (GAAP) $67,557 $46,570 $98,035 $25,344 $32,702 $20,592 $19,397 $19,757 Add amortization of intangible assets 4,001 3,525 3,111 797 797 758 759 704 Exclude tax effect of adjustment (840) (740) (653) (167)
Slide 38: Tangible Common Equity to Tangible Assets
38 2019 2020 2021 2022 Q1 Tangible Common Equity to Tangible Assets: Total stockholders' equity (GAAP) $809,311 $820,439 $854,432 $821,449 Exclude intangible assets (257,552) (254,027) (250,916) (250,212) Tangible common equity (non-GAAP) $551,759 $566,412 $603,516 $571,237 Total assets (GAAP) $5,55
Slide 39: Change in Loans Receivable, excluding SBA PPP Loans
39 December 31, 2021 March 31, 2022 Change in Loans Receivable, excluding SBA PPP Loans: Loans receivable (GAAP) $3,815,662 $3,821,178 Exclude SBA PPP loans (145,840) (64,962) Loans receivable, excluding SBA PPP loans (non-GAAP) $3,669,822 $3,756,216 Change from prior quarter (amount) Change in loan
Slide 40: Tangible Book Value Per Share
40 2009 2010 2011 2012 2013 2014 2015 2016 Tangible Book Value Per Share: Total stockholders' equity (GAAP) $158,498 $202,279 $202,520 $198,938 $215,762 $454,506 $469,970 $481,763 Exclude intangible assets (13,358) (14,965) (14,525) (14,098) (30,980) (129,918) (127,818) (126,403) Exclude preferred s
Slide 41: Quarterly Financial Statistics
41 As of Period End or for the Three Months Ended March 31, 2021 June 30, 2021 September 30, 2021 December 31, 2021 March 31, 2022 Profitability: Net income (GAAP) $ 25,344 $ 32,702 $ 20,592 $ 19,397 $ 19,757 Pre-tax, pre-provision net income (non-GAAP) 23,247 26,166 22,440 19,282 19,762 Diluted ear
Slide 42: Meritase
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