Heritage Financial Corporation · NASDAQ:HFWA
Heritage Financial — Q2 2021 Earnings Presentation
36 slides from Heritage Financial's earnings presentation, Jul 22, 2021
Slide 1: Investor Presentation Q2 2021
INVESTOR PRESENTATION Q2 2021
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 fac
Slide 3: Company Overview
COMPANY OVERVIEW
Slide 4: Overview
OVERVIEW Overview NASDAQ symbol HFWA Stock price $23.90 Market capitalization $859.5 million Institutional ownership 81.0% Headquarters Olympia, WA # of branches 53 Year established 1927 Q2 2021 Financial Highlights Assets $7.11 billion Deposits $6.06 billion Loans receivable $4.21 billion Net incom
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 Keeping strategic systems current Upgraded ACH, wires, positive pay, and remote deposit cap
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. Have a Green Team Committee focused on sustainability Participating in an energy-
Slide 8: Strong and Diverse Economic Landscape
STRONG AND DIVERSE ECONOMIC LANDSCAPE Market Highlights Market Demographics $97,067 14.0% 13.8% Seattle MSA $83,746 $83,746 5.1% $424.8B 13.0% $67,761 9.0% Unemployment rate in 2019 GDP 2021-2026 proj. growth May 2021 in household income for 6.8% $97,067 (compared to 5.2% for Washington state 5.6% W
Slide 9: Seattle MSA Funds Under Management
SEATTLE MSA FUNDS UNDER MANAGEMENT Funds Under Management = Loans + Deposits $5,309 $5,269 $4,960 $3,845 $4,020 $2,897 $3,028 $2,650 $2,770 $2,941 $1,995 $2,111 $1,476 $1,526 $374 $467 $303 $1,850 $1,909 $1,936 $1,945 $1,938 $1,294 $1,415 2016 2017 2018 2019 2020 Q1 2021 Q2 2021 Non-SBA PPP loans SB
Slide 10: Portland MSA Funds Under Management
PORTLAND MSA FUNDS UNDER MANAGEMENT Funds Under Management = Loans + Deposits $1,345 $1,269 $1,223 $907 $722 $856 $676 $696 $477 $498 $161 $181 $97 $112 $379 $409 $432 $442 $430 $43 2016 2017 2018 2019 2020 Q1 2021 Q2 2021 Non-SBA PPP loans SBA PPP loans Deposits HFWA Branch – Map obtained from S&P
Slide 11: Future Growth Opportunities
FUTURE GROWTH OPPORTUNITIES • HFWA positioned to be the acquiror of choice in the Pacific Northwest. • Significant number of banks remaining in HFWA footprint; further consolidation is expected. – 8 banks between $150 and $500 million in assets – 9 banks between $500 million and $1.0 billion in asse
Slide 12: Historical Growth Organic and Acquisitive
HISTORICAL GROWTH ORGANIC AND ACQUISITIVE Acquired Merged with Puget Sound Bancorp $639MM in assets Washington Banking Company $1.7B in assets Premier Commercial Bancorp $440MM in assets $22.85 $22.99 $22.10 $23.77 Acquired Valley Community Bancshares $254MM in assets Northwest Commercial Bank $65MM
Slide 13: Deposit Market Share
DEPOSIT MARKET SHARE 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) (in
Slide 14: Financial Update
FINANCIAL UPDATE
Slide 15: Financial Update – Q2 2021
FINANCIAL UPDATE – Q2 2021 • Net income was $32.7 million, or $0.90 per diluted share, for the quarter ended June 30, 2021, compared to $25.3 million, or $0.70 per diluted share, for the linked-quarter ended March 31, 2021 and a net loss of $6.1 million, or $(0.17) per diluted share, for the quarter
Slide 16: Loan Portfolio
LOAN PORTFOLIO Loan Balances and Loan Yields 5.14% 5.17% $4,670 $4,675 $4,603 $4,474 $4,474 Loan Portfolio Composition $4,210 Owner- $3,773 $3,656 4.62% 4.63% 4.62% occupied CRE 20.6% 4.45% 4.48% 4.42% 4.47% 4.50% SBA PPP 4.44% 12.9% 4.38% 4.39% 4.12% 2018 2019 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q
Slide 17: Loan Production
LOAN PRODUCTION New Commitments Originated (in millions) $887 $353 $226 $212 $192 $164 $152 $23 $22 $27 $19 $20 $19 $18 $17 $16 $9 $8 $12 $0 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Consumer Residential Commercial, excl. SBA PPP SBA PPP – Q2 2020 SBA PPP bar not to scale. 17
Slide 18: Changes in Loans Receivable
CHANGES IN LOANS RECEIVABLE Change in Loans - Q2 2021 $26,689 $4,595,869 $110,517 $(375,649) $13,878 $4,207,530 $4,391 $(134,231) $(33,934) Loans PPP loans PPP Loans Prepayments Payoffs Net Change in Loans receivable at originated prepayments originated advances/ net deferred receivable at March 31,
Slide 19: Commercial Loan Exposure
COMMERCIAL LOAN EXPOSURE Commercial Business Loans by Industry Exposure CRE Loans only by Collateral Type Health care and social Accommodation and Other assistance food services 11.7% Recreational / school Office 9.7% 6.7% Retail trade 3.2% 21.5% 5.2% Construction 4.9% Mini-storage 5.3% Other Servic
Slide 20: SBA PPP Loans
SBA PPP LOANS Key statistics from inception of the SBA's PPP through June 30, 2021 As of June 30, 2021 PPP1 PPP2 Total PPP Total number of funded loans 4,642 2,542 7,184 Total amount funded $ 897,353 $ 380,014 $ 1,277,367 Average funded loan size $ 193 $ 149 $ 178 Total net fees deferred at funding
Slide 21: Higher Risk Industries with Enhanced Monitoring
HIGHER RISK INDUSTRIES WITH ENHANCED MONITORING Hotels and other Restaurants and Recreation and accomodation other food service fitness related activities Amortized cost 136,447 56,474 32,865 % of Loans receivable, excluding SBA PPP 3.7% 1.5% 0.9% Unfunded commitment 9,305 2,717 701 % Secured by rea
Slide 22: Nonperforming Assets
NONPERFORMING ASSETS 0.88% 0.82% 0.75% 0.50% $58,092 0.29% $52,868 $45,366 $841 $35,341 $44,525 $15,679 $1,983 $13,696 2018 2019 2020 Q1 2021 Q2 2021 Nonaccrual loans OREO Nonperforming assets to total assets 22
Slide 23: Allowance for Credit Losses ("ACL")
ALLOWANCE FOR CREDIT LOSSES ("ACL") 1.87% 1.73% 1.57% 1.40% 1.41% 0.96% 0.96% 1.23% $70,185 $64,225 $51,562 $35,042 $36,171 2018 2019 2020 Q1 2021 Q2 2021 ACL % ACL/Loans % ACL/Loans excl. SBA PPP (non-GAAP) – Refer to Appendix for calculation of non-GAAP financial measure. 23
Slide 24: Deposits
DEPOSITS Deposit Balances and Cost of Total Deposits $6,020 $6,062 $5,598 $5,568 $5,689 $5,598 $4,432 $4,583 Deposit Composition 0.37% Savings accounts 0.25% 0.26% Certificates 0.23% Money 9.8% of 0.19% market deposit 0.14% 0.12% accounts 0.10% 6.2% 17.0% 2018 2019 2020 Q2 2020 Q3 2020 Q4 2020 Q1 20
Slide 25: Investment Portfolio
INVESTMENT PORTFOLIO Investment Portfolio Composition Portfolio Duration & Yield 2.41% 2.23% US government 2.18% 2.17% Other and agencies asset-backed 9.9% 2.09% securities 2.7% Municipal 4.2 securities 21.8% 3.7 Corporate obligations 0.7% 2.7 2.6 2.7 Residential Commercial CMO and MBS CMO and MBS 2
Slide 26: Net Interest Margin
NET INTEREST MARGIN Net Interest Margin 4.29% 4.22% Change in Net Interest Margin - Q2 2021 3.63% 3.64% 3.53% 3.51% 4.11% 4.12% 3.44% 0.03% 3.38% 0.09% 3.57% 3.59% 3.48% 3.44% 3.41% 3.32% 2018 2019 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 3.51% Core NIM Accretion (0.15)% 0.00% 3.44% Average Inte
Slide 27: Profitability Trends
PROFITABILITY TRENDS Return on Average Assets Return on Average Tangible Common Equity 1.85% (non-GAAP) 22.94% 1.42% 1.51% 17.62% 18.37% 1.25% 1.07% 1.00% 12.28% 13.35% 12.66% 0.74% 8.98% (0.39)% (3.96)% 2018 2019 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 2018 2019 2020 Q2 2020 Q3 2020 Q4 2020 Q1
Slide 28: Capital and Sources of Liquidity
CAPITAL AND SOURCES OF LIQUIDITY Equity Ratios Tier 1 Leverage Ratio 12.4% 12.0% 10.5% 10.6% 14.3% 14.6% 11.8% 10.0% 9.0% 9.1% 9.1% 9.7% 9.6% 9.9% 10.4% 8.9% 8.5% 8.8% 5.5% 5.6% 4.0% 4.1% 4.1% 5.0% 5.0% 5.0% 5.0% 5.0% 2018 2019 2020 Q1 2021 Q2 2021 2018 2019 2020 Q1 2021 Q2 2021 Stockholders' equity
Slide 29: Shareholder Return
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Slide 30: Total Shareholder Return
TOTAL SHAREHOLDER RETURN Stock Summary Total Return – Last 12 Months Ticker HFWA Exchange NASDAQ Stock price $23.90 Market capitalization (in millions) $859.5 Dividend yield (regular dividend only) 3.35% Average Daily Volume (3 month) Average daily volume (shares) 129,906 Average daily volume ($000s
Slide 31: Appendix - Reconciliation of Non-GAAP Financial Measures
APPENDIX - RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Slide 32: Non-GAAP Financial Measures
NON-GAAP FINANCIAL MEASURES 2020 2021 2018 2019 2020 Q2 Q3 Q4 Q1 Q2 Pre-tax, pre-provision income: Net income (loss) (GAAP) $53,057 $67,557 $46,570 $(6,139) $16,636 $23,882 $25,344 $32,702 Exclude income tax (benefit) expense 11,238 13,488 6,610 (936) 2,477 4,429 5,102 7,451 Exclude provision for (r
Slide 33: Non-GAAP Financial Measures
NON-GAAP FINANCIAL MEASURES 2020 2021 2018 2019 2020 Q2 Q3 Q4 Q2 Q2 Return on average tangible common equity: Net income (loss) (GAAP) $53,057 $67,557 $46,570 $(6,139) $16,636 $23,882 $25,344 $32,702 Add amortization of intangible assets 3,819 4,001 3,525 903 860 859 797 797 Exclude tax effect of ad
Slide 34: Non-GAAP Financial Measures
NON-GAAP FINANCIAL MEASURES 2021 2018 2019 2020 Q1 Q2 Tangible common equity to tangible assets: Total stockholders' equity (GAAP) $760,723 $809,311 $820,439 $827,151 $855,984 Exclude intangible assets (261,553) (257,552) (254,027) (253,230) (252,433) Tangible common equity (non-GAAP) $499,170 $551,
Slide 35: Non-GAAP Financial Measures
NON-GAAP FINANCIAL MEASURES 2009 2010 2011 2012 2013 2014 2015 Tangible book value per share: Total stockholders' equity (GAAP) $158,498 $202,279 $202,520 $198,938 $215,762 $454,506 $469,970 Exclude intangible assets (13,358) (14,965) (14,525) (14,098) (30,980) (129,918) (127,818) Exclude preferred
Slide 36: Questions and Answers
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