Heritage Financial Corporation · NASDAQ:HFWA
Heritage Financial — Q2 2020 Earnings Presentation
33 slides from Heritage Financial's earnings presentation, Jul 23, 2020
Slide 1: Investor Presentation Q2 2020
Investor Presentation Q2 2020 1
Slide 2: Forward-Looking Statement
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 f
Slide 3: Company Overview
Laitite.| Heritage gon. ° “e ry Financial CORPORATION Company Overview
Slide 4: Overview
Overview Overview NASDAQ Symbol HFWA Stock Price (as of 7/21/2020) $20.82 Market Capitalization $746.8 million Institutional Ownership 82.87% Headquarters Olympia, WA # of Branches 62 Year Established 1927 Q2 2020 Financial Highlights Assets $6.55 billion Deposits $5.57 billion Loans $4.67 billion N
Slide 5: COVID-19 Response
COVID-19 Response Activated our Business Continuity Plan Employees Approximately 60% have remote capabilities; 325 (37%) are fully remote Revised policies on paid-leave and additional pay for front-line employees Nearly all branch lobbies remain closed; operate by drive-thru or by appointmen
Slide 6: COVID-19 Response - PPP Loans
COVID-19 Response - PPP Loans Funded PPP Loans* PPP Loans* by Industry Less than Greater than $100,000 Construction $191,680 $2,000,000 11.6% 18.0% Health Care and Social Assistance $124,376 $100,000 Manufacturing $81,799 to $350,000 Professional, Scientific, and Technical Services $80,483 23.7% Ret
Slide 7: COVID-19 Response - Modifications
COVID-19 Response - Modifications % of Modifications to Total Portfolio Commercial Type Loans* COVID-19 Modifications by Industry Modified 12.7% Real Estate and Rental and Leasing $180,938 Accommodation and Food Services $122,767 Health Care and Social Assistance $92,459 Remaining Portfolio Retail T
Slide 8: 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 9: Technology Strategy
Technology Strategy Objective: Invest in technology to enable Community Banking at Scale Implement “Heritage Direct,” a full suite of upgraded treasury management tools for commercial customers, including online banking, ACH, wires, positive pay, remote deposit Transform Products capture and merch
Slide 10: Strong and Diverse Economic Landscape
Strong and Diverse Economic Landscape • The Seattle and Portland MSAs are thriving local economies with Companies Headquartered in Pacific Northwest major Fortune 500 companies which include Alaska Air, Amazon, Costco, Expedia, Microsoft, Nike, Nordstrom, Starbucks and Weyerhaeuser • Washington and
Slide 11: Seattle-Portland Metro Markets
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 bo
Slide 12: Seattle MSA Funds Under Management
Seattle MSA Funds Under Management Funds Under Management = Loans + Deposits $6,000 $4,948 $5,000 $4,020 $4,097 $4,000 $3,845 $ (Millions) $2,597 $2,770 $2,941 $3,000 $1,995 $2,111 $2,130 $2,544 $2,000 $1,476 $1,526 $1,366 $1,000 $2,351 $1,850 $1,909 $1,967 $1,178 $1,294 $1,415 $0 2015 2016 2017 201
Slide 13: Portland MSA Funds Under Management
Portland MSA Funds Under Management Funds Under Management = Loans + Deposits $1,400 $1,279 $1,200 $1,000 $907 $912 $856 $663 $ (Millions) $800 $498 $498 $600 $477 $400 $616 $200 $112 $379 $409 $414 $53 $43 $0 2015 2016 2017 2018 2019 Q1 2020 Q2 2020 HFWA Branch Loans* Deposits • $1.3 billion in tot
Slide 14: Future Growth and Opportunities
Future Growth and Opportunities Pacific Northwest Banking Landscape* Expected Consolidation and Future Opportunities • Significant number of banks remaining in HFWA footprint, further consolidation is expected – 9 banks between $150 and $500 million in assets – 7 banks between $500 million and $1.0
Slide 15: Historical Growth – Organic and Acquisitive
Historical Growth – Organic and Acquisitive • In addition to organic growth, HFWA has completed 5 whole bank mergers and 2 FDIC-assisted transactions since 2008. SBA PPP loans Completed acquisition of Puget outstanding of $856M Sound Bancorp and Premier Commercial Bancorp with $639M and $440M in ass
Slide 16: Deposit Market Share
Deposit Market Share Source: S&P Global Market Intelligence, deposit data as of June 30 of year indicated Note: All dollars in thousands 16
Slide 17: Financial Update
Laitite.| Heritage gon. ° “e ry Financial CORPORATION Financial Update 17
Slide 18: Financial Update – Q2 2020
Financial Update – Q2 2020 • Net loss was $6.1 million, or $0.17 per diluted share, compared to net income of $12.2 million, or $0.33 per diluted share, for the linked-quarter ended March 31, 2020 and $16.0 million, or $0.43 per diluted share, for the quarter ended June 30, 2019. • Pre-tax, pre-prov
Slide 19: Commercial Loan Exposure
Commercial Loan Exposure Commercial Loans by Industry* Exposure CRE Loans by Collateral Type Mixed Use Property 7.4% Multi-Family 7.1% Health Care and Social Assistance 10.2% Retail Store/Shopping Motel/Hotel 6.8% Accommodation and Center 12.4% Food Services 6.7% Single Purpose 5.8% Construction 5.5
Slide 20: Loan Portfolio and Credit Quality
Loan Portfolio and Credit Quality Loan Portfolio (1) Loan Balances and Loan Yields* $5,000 6.00% $4,500 $4,670 5.50% SBA PPP Owner-occupied Total Loans* 5.17% Loan Yields $4,000 5.14% 18.4% CRE 18.0% 4.97% $3,500 4.78% 5.00% 4.63% $3,000 $3,773 $3,856 Commercial $3,656 4.50% & Industrial $2,500 $2,8
Slide 21: At-risk Industries in Loan Portfolio
At-risk Industries in Loan Portfolio Higher Risk of COVID-19 Impact Concentration of Industries in Higher Risk of COVID-19 Impact Offices of health Healthcare $286,888 practitioners and health facilities Remaining Portfolio 85.2% Hotels $135,640 Early Impacted Restaurants $88,780 Industries Higher R
Slide 22: Allowance for Credit Losses
Allowance for Credit Losses Q2 Impacts Allowance for Credit Losses on Loans $80,000 $71,501 • ACL on loans provision reflects additional estimated credit losses as the $60,000 $47,540 forecasted impacts of the COVID-19 $36,171 $37,993 pandemic worsened since the linked- $40,000 $25,941 quarter end $
Slide 23: Deposits
Deposits Deposit Base (1) Deposit Balances and Cost of Total Deposits Savings Money market $6,000 $5,568 0.50% accounts Cost of Total Deposits accounts 9.1% $4,583 $4,618 17.6% $5,000 $4,432 0.40% Total Deposits Certificates $4,000 $3,393 0.37% 0.37% 0.30% of deposit $3,000 8.8% 0.26% 0.20% 0.25% $2
Slide 24: Net Interest Margin
Net Interest Margin Total Asset Mix (1) Net Interest Margin (Core vs. Accretion)** Other Cash and cash equivalents 5.00% 10.1% 6.3% Investment securities 13.4% 4.29% 4.22% 0.18% 0.10% 4.06% 4.00% 3.93% 0.08% 0.18% 3.64% 0.05% Loans, net* 70.2% 4.11% 4.12% 3.00% 3.98% • 83.8% Loan to deposit ratio 3.
Slide 25: Profitability Trends
Profitability Trends ROAA ROATCE* 1.50% 15% 13.35% 1.25% 12.28% 1.07% 11.40% 1.05% 0.88% 9.46% 1.00% 10% 0.50% 5% 0.00% 0% -0.50% -5% (0.39)% (3.96)% -1.00% -10% 2017 2018 2019 Q1 '20 Q2 '20 2017 2018 2019 Q1 '20 Q2 '20 Noninterest Expense/Avg. Assets Net Income, Pre-tax Pre-provision Income*, and D
Slide 26: Strong Capital and Sources of Liquidity
Strong Capital and Sources of Liquidity Tangible Common Equity/Tangible Assets Tier 1 Leverage Ratio 12% 14% 9.9% 10% 12% 9.9% 10.4% 10.2% 10.5% 10.6% 10.4% 9.6% 10.2% 10.2% 8% 8.5% 10% 6% 8% 4% 2% 6% 0% 4% 2017 2018 2019 Q1 '20 Q2 '20 2% 0% TCE TCE, excl. SBA PPP* 2017 2018 2019 Q1 '20 Q2 '20 Basel
Slide 27: Shareholder Return
Laitite.| Heritage gon. ° “e ry Financial CORPORATION Shareholder Return 27
Slide 28: Total Shareholder Return
Total Shareholder Return Stock Summary Total Return* – Last 36 Months Ticker HFWA Exchange NASDAQ Stock Price $20.82 Market Cap. (in millions) $746.8 Dividend Yield (Regular Div. Only) 3.84% Average Daily Volume (3 Mo.) Avg. Daily Volume (Shares) 211,883 Avg. Daily Volume ($000s) $4,411 52-Week High
Slide 29: Appendix - Reconciliations of Non-GAAP Financial Measures
Appendix - Reconciliations of Non-GAAP Financial Measures 29
Slide 30: Non-GAAP Financial Measures
Non-GAAP Financial Measures 2020 2017 2018 2019 Q1 Q2 (Dollars in thousands) Pre-tax, pre-provision Income: Net income (loss) (GAAP) $ 41,791 $ 53,057 $ 67,557 $ 12,191 $ (6,139) Exclude income tax (benefit) expense 18,356 11,238 13,488 640 (936) Exclude provision for credit losses 4,220 5,129 4,311
Slide 31: Non-GAAP Financial Measures
Non-GAAP Financial Measures 2020 2017 2018 2019 Q1 Q2 (Dollars in thousands) Net interest margin, excluding incremental accretion on purchased loans, annualized: Net interest income (GAAP) $ 139,363 $ 186,993 $ 199,682 $ 48,551 $ 50,313 Exclude incremental accretion on purchased loans (6,320) (7,964
Slide 32: Non-GAAP Financial Measures
Non-GAAP Financial Measures 2020 2017 2018 2019 Q1 Q2 (Dollars in thousands) Tangible common equity to tangible assets: Total stockholders' equity (GAAP) $ 508,305 $ 760,723 $ 809,311 $ 798,438 $ 793,652 Exclude intangible assets (125,117) (261,553) (257,552) (256,649) (255,746) Tangible common equi
Slide 33: Questions and Answers
Questions and Answers Heritage Financial CORPORATION 33