Heritage Financial Corporation · NASDAQ:HFWA
Heritage Financial — Q1 2021 Earnings Presentation
33 slides from Heritage Financial's earnings presentation, Apr 22, 2021
Slide 1: Investor Presentation Q1 2021
Investor Presentation Q1 2021 1
Slide 2: Forward-Looking Statements
Forward – Looking Statements 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 f
Slide 3: Company Overview
Company Overview - All dollars in thousands unless otherwise noted, except per share amounts. 3
Slide 4: Overview
Overview Overview NASDAQ symbol HFWA Stock price(1) $28.21 Market capitalization(1) $1.01 billion Institutional ownership(1) 80.3% Headquarters Olympia, WA # of branches 53 Year established 1927 Q1 2021 Financial Highlights Assets $7.03 billion Deposits $6.02 billion Loans receivable $4.60 billion N
Slide 5: Company Strategy
Company Strategy Be the "acquirer of choice" in the Pacific Northwest Active and disciplined in M&A Most acquisitive bank in Oregon and Washington since 2012 with 5 acquisitions Target Metrics = IRR of >15% with earnbacks < 3 years Successful hiring of individuals and teams of bankers in high-
Slide 6: Technology Investment
Technology Investment Objective: Invest in technology to enable Community Banking at Scale Implemented “Heritage Direct,” a state of the art online/mobile treasury management platform 2020 Accomplishments Upgraded ACH, wires, positive pay, and remote deposit capture platforms Keeping strategic s
Slide 7: Environmental, Social and Governance ("ESG") Practices
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. Created a Green Team Committee focused on sustainability. Participating in an ene
Slide 8: Strong and Diverse Economic Landscape
Strong and Diverse Economic Landscape Companies Headquartered in the Pacific Northwest • The Seattle and Portland MSAs are thriving local economies with major Fortune(1) 500 companies • Seattle MSA became ranked the 10th largest regional economy in the U.S. by Gross Domestic Product and grew 5.1% du
Slide 9: Seattle and Portland Metro Markets
Seattle and 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 exceed the average growth rate; expecting continued above average growth. • Med
Slide 10: Seattle MSA Funds Under Management
Seattle MSA Funds Under Management MSA Market Map Funds Under Management(1) = Loans(2) + Deposits 23 branches in the Seattle MSA market as of March 31, 2021. Four branches consolidated into existing branches during January 2021. HFWA Branch Map obtained from S&P Global Market Intelligence. (1) Prior
Slide 11: Portland MSA Funds Under Management
Portland MSA Funds Under Management MSA Market Map Funds Under Management(1) = Loans(2) + Deposits HFWA Branch 7 branches in the Portland MSA market as of March 31, 2021. Two branches consolidated into existing branches during January 2021. Map obtained from S&P Global Market Intelligence. (1) Prior
Slide 12: Future Growth and Opportunities
Future Growth and Opportunities Pacific Northwest Banking Landscape(1) Expected Consolidation and Future Opportunities • HFWA positioned to be the acquiror of choice in the Pacific Northwest. • Significant number of banks(2) remaining in HFWA footprint, further consolidation is expected. – 8 banks b
Slide 13: Historical Growth – Organic and Acquisitive
Historical Growth – Organic and Acquisitive Acquired Puget Sound Bancorp $639MM in assets Premier Commercial Bancorp $440MM in assets Merged with Washington Banking Company $1.7B in assets Acquired Valley Community Bancshares $254MM in assets Northwest Commercial Bank $65MM in assets Completed 2 FDI
Slide 14: Deposit Market Share
Deposit Market Share(1) Washington & Oregon - 2008 Washington & Oregon - 2013 Washington & Oregon - 2020 Deposits in Deposits in Deposits in Market Market Market Market Market Market Rank Institution (State) (in thousands) Share Rank Institution (State) (in thousands) Share Rank Institution (State)
Slide 15: Financial Update
Financial Update - All dollars in thousands unless otherwise noted, except per share amounts. 15
Slide 16: Financial Update – Q1 2021
Financial Update – Q1 2021 • Net income was $25.3 million, or $0.70 per diluted share, for the quarter ended March 31, 2021, compared to $23.9 million, or $0.66 per diluted share, for the linked-quarter ended December 31, 2020 and $12.2 million, or $0.34 per diluted share, for the quarter ended Marc
Slide 17: Loan Portfolio
Loan Portfolio Loan Portfolio Composition Loan Balances and Loan Yields Loan Portfolio Repricing Schedule (excluding SBA PPP loans) • Consumer loans decreased from 7.3% at December 31, 2020 due primarily to the cessation of the indirect auto loan business line during the quarter ended March 31, 2020
Slide 18: Commercial Business Loan Exposure
Commercial Business Loan Exposure Commercial Business Loans by Industry(1) Exposure CRE Loans only by Collateral Type Industry Amount WARR at WARR at WARR at Collateral Type Amount WARR at WARR at WARR at 12/31/19 12/31/20 3/31/21 12/31/19 12/31/20 3/31/21 Real estate and rental and leasing $1,430,0
Slide 19: SBA PPP Loans
SBA PPP Loans Management Commentary PPP Activity for Q1 2021 As of or for the Three Months Ended • "PPP1" loans are SBA PPP March 31, 2021 loans originated in accordance PPP1 PPP2 Total PPP with the Coronavirus Aid, Relief, and Economic Security Act Net deferred fees recognized during the period $ 6
Slide 20: Higher Risk Industries at March 31, 2021
Higher Risk Industries(1) at March 31, 2021 Hotels and other Restaurants and other Recreation and fitness accomodation food service related activities Amortized cost 134,973 69,965 34,181 % of Loans receivable, excluding SBA PPP 3.6% 1.9% 0.9% Unfunded commitment 7,726 5,691 727 % Secured by real es
Slide 21: Credit Quality
Credit Quality Management Commentary Potential Problem Loans(1) • Decrease in nonaccrual and potential problem loans during Q1 2021. • Nonperforming assets at Q1 2021 include only nonaccrual loans. • At March 31, 2021, 67 loans totaling $46.7 million were in payment deferral modification status comp
Slide 22: Allowance for Credit Losses
Allowance for Credit Losses Management Commentary Allowance for Credit Losses on Loans • The decrease in ACL on loans is due primarily to improvements in the economic forecast at March 31, 2021. • Net recoveries of $175,000 in Q1 2021. • The decrease in ACL on unfunded commitments also due to improv
Slide 23: Deposits
Deposits Deposit Composition Deposit Balances and Cost of Total Deposits Deposit Composition • 93.6% of deposits are non-maturity. Continued increase in noninterest demand deposits. • Increase in total deposits in Q1 2021 due primarily to proceeds from SBA PPP loans originated. • Continued improveme
Slide 24: Net Interest Margin
Net Interest Margin Total Asset Composition Net Interest Margin Average Interest Earning Assets Composition • 76.3% loan to deposit ratio. • 26.0% of assets are cash and cash equivalents and investment securities. • Decrease in margin in Q1 2021 due primarily to a change in the mix of total interest
Slide 25: Profitability Trends
Profitability Trends ROAA ROATCE(1) Noninterest Expense/Avg. Assets Net Income and Pre-tax, Pre-provision Income (1) Non-GAAP financial measure. Refer to Appendix for calculation. 25
Slide 26: Strong Capital and Sources of Liquidity
Strong Capital and Sources of Liquidity Tangible Common Equity/Tangible Assets Tier 1 Leverage Ratio (1) Total Risk Based Capital (1) Primary and Secondary Sources of Liquidity Source March 31, 2021 Cash and cash equivalents $934,316 Unencumbered securities 694,282 FHLB and FRB borrowing availabilit
Slide 27: Shareholder Return
Shareholder Return - All dollars in thousands unless otherwise noted, except per share amounts. 27
Slide 28: Total Shareholder Return
Total Shareholder Return Stock Summary(1) Total Return – Last 12 Months(1) Ticker HFWA Exchange NASDAQ Stock price $28.21 Market capitalization (in billions) $1.01 Dividend yield (regular dividend only) 2.84% Average Daily Volume (3 month) Average daily volume (shares) 150,518 Average daily volume (
Slide 29: Appendix - Reconciliations of Non-GAAP Financial Measures
Appendix - Reconciliations of Non-GAAP Financial Measures - All dollars in thousands unless otherwise noted, except per share amounts. 29
Slide 30: Non-GAAP Financial Measures
Non-GAAP Financial Measures 2020 2021 2018 YTD 2019 YTD 2020 YTD Q1 Q2 Q3 Q4 Q1 Pre-tax, pre-provision income: Net income (loss) (GAAP) $53,057 $67,557 $46,570 $12,191 $(6,139) $16,636 $23,882 $25,344 Exclude income tax (benefit) expense 11,238 13,488 6,610 640 (936) 2,477 4,429 5,102 Exclude provis
Slide 31: Non-GAAP Financial Measures
Non-GAAP Financial Measures 2020 2021 2018 YTD 2019 YTD 2020 YTD Q1 Q2 Q3 Q4 Q1 Net interest margin, excluding incremental accretion on purchased loans, annualized: Net interest income (GAAP) $186,993 $199,682 $200,997 $48,551 $50,313 $49,678 $52,455 $52,238 Exclude incremental accretion on purchase
Slide 32: Non-GAAP Financial Measures
Non-GAAP Financial Measures 2020 2021 2018 2019 2020 Q1 Q2 Q3 Q4 Q1 Potential problem loans to loans receivable, excluding SBA PPP loans: Potential problem loans $101,320 $87,888 $182,342 $102,167 $100,554 $159,764 $182,342 $163,813 Loans receivable (GAAP) $3,654,160 $3,767,879 $4,468,647 $3,852,376
Slide 33: Questions and Answers
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