Heritage Financial Corporation · NASDAQ:HFWA
Heritage Financial — Q4 2021 Earnings Presentation
41 slides from Heritage Financial's earnings presentation, Jan 27, 2022
Slide 1: Investor Presentation Q4 2021
INVESTOR PRESENTATION Q4 2021
Slide 2: Forward-looking statements
2 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 factors that could cause or
Slide 3: Company Overview
COMPANY OVERVIEW
Slide 4: Overview
4 OVERVIEW Overview NASDAQ symbol HFWA Stock price $27.18 Market capitalization $955.8 million Institutional ownership 81.7% Headquarters Olympia, WA # of branches 49 Year established 1927 Q4 2021 Financial Highlights Assets $7.43 billion Deposits $6.38 billion Loans receivable $3.82 billion Net inc
Slide 5: Company Strategy
5 COMPANY STRATEGY Active and disciplined in M&A Ÿ Be the "acquirer of choice" in the Pacific Northwest Ÿ Most acquisitive bank in Oregon and Washington since 2013 with 5 acquisitions Ÿ Target Metrics = IRR of >15% with earnbacks < 3 years Allocate capital to organically grow our core banking busine
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: Technology Strategy: HeritageONE
wime| Heritage Financial TECHNOLOGY STRATEGY CORPORATION HeritageONE — Technology Innovation Proprietary technology ecosystem for converging product and service solutions to enable Community Banking @ Scale Call Center HeritageONE . HeritageONE - Technology Ecosystem Proprietary middleware and appli
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 $5,309 $5,269 $5,243 $5,286 $1,476 $1,526 $1,995 $2,111 $2,650 $2,897 $3,028 $3,109 $3,231 $1,294 $1,415 $1,850 $1,909 $1,936 $1,945 $1,938 $1,992 $1,981 Deposits Non-SBA PPP
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. • HFWA positioned to be the acquiror of choice in the Pacific Northwest. • Long
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 $7,028 $7,106 $7,259 $7,432 $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
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 – Q4 2021
15 FINANCIAL UPDATE – Q4 2021 • Net income was $19.4 million, or $0.55 per diluted share, for the fourth quarter of 2021 compared to $20.6 million, or $0.58 per diluted share, for the third quarter of 2021 and $23.9 million, or $0.66 per diluted share, for the fourth quarter of 2020. • Net income wa
Slide 16: Loan Portfolio
16 $3,768 $4,469 $3,816 $4,469 $4,596 $4,208 $3,954 $3,816 5.17% 4.44% 4.54% 4.34% 4.39% 4.47% 4.62% 4.64% 4.42%4.42% 4.48% 4.50% 4.26% 4.13% Total loans Loan yield Loan yield, excl. SBA PPP (non-GAAP) 2019 2020 2021 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Loan Balances and Loan Yields Commercial &
Slide 17: Loan Portfolio Composition
17 LOAN PORTFOLIO COMPOSITION $3,768 $4,469 $4,596 $4,208 $3,954 $3,816 $852 $733 $694 $652 $653 $622 $805 $857 $881 $866 $908 $931 $1,289 $1,410 $1,428 $1,425 $1,460 $1,493 $132 $123 $115 $120 $126 $165$275 $306 $298 $329 $296 $227 $415 $325 $294 $272 $246 $232 $715 $887 $544 $267 $146 Commercial &
Slide 18: Loan Production
18 New Commitments Originated $18 $16 $23 $30 $23$17 $12 $22 $27 $45 $164 $226 $152 $271 $329 $353 $27 Consumer Residential Commercial, excl. SBA PPP SBA PPP Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 LOAN PRODUCTION – Dollars in millions. Brandi: My thought is Shouldn't include master products. would
Slide 19: Line of Credit Utilization
19 LINE OF CREDIT ("LOC") UTILIZATION 35.78% 25.29% 22.60% 23.90% 24.74% 23.71% 37.24% 33.62% 32.56% 33.03% 30.71% 31.86% 41.50% 58.22% 51.65% 57.50% 56.73% 41.75% Utilization Rate - Construction LOCs Utilization Rate - Consumer LOCs Utilization Rate - Commercial and Industrial Loan LOCs 2019 2020 Q
Slide 20: Changes in Loans Receivable
20 Change in Loans - Q4 2021 $3,953,884 $(125,455) $222,218 $(168,681) $(35,754) $(38,421) $7,871 $3,815,662 Loans receivable at September 30, 2021 PPP prepayments and payoffs Loans originated Prepayments Payoffs Net advances/ payments Change in net deferred fee and acquired discount Loans receivabl
Slide 21: Commercial Loan Exposure
21 COMMERCIAL LOAN EXPOSURE Commercial Business Loans by Industry Exposure Industry Amount WARR at 12/31/20 WARR at 9/30/21 WARR at 12/31/21 Real estate and rental and leasing $1,563,255 4.52 4.48 4.42 Health care and social assistance 294,410 4.56 4.48 4.52 Accommodation and food services 185,225 6
Slide 22: SBA PPP Loans
22 Key statistics from inception of the SBA's PPP through December 31, 2021 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 Net deferred fees unrecognized as of period end $ 4,936 Change in SB
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 $131,657 $51,001 $29,819 % of Loans receivable, excluding SBA PPP 3.6%
Slide 24: Nonperforming Assets
24 $45,366 $58,092 $52,868 $35,341 $25,894 $23,754 $44,525 Nonaccrual loans OREO Nonperforming assets to total assets 2019 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 0.82% 0.88% 0.75% 0.50% 0.36% 0.32% NONPERFORMING ASSETS $841
Slide 25: Criticized Loans
25 CRITICIZED LOANS $142,796 $290,551 $269,436 $235,691 $217,248 $183,470 $44,525 $58,092 $52,868 $35,341 $25,894 $23,754 $49,412 $100,423 $107,593 $100,033 $100,800 $88,696 $48,859 $132,036 $108,975 $100,317 $90,554 $71,020 Substandard - nonaccrual Substandard - accrual Special mention 2019 2020 Q1
Slide 26: Allowance for Credit Losses (ACL) on Loans
26– Refer to Appendix for calculation of non-GAAP financial measure. $36,171 $70,185 $64,225 $51,562 $48,317 $42,361 ACL on loans ($) ACL on loans / Loans (%) ACL on loans / Loans excl. SBA PPP (non-GAAP) (%) 2019 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 0.96% 1.57% 1.40% 1.23% 1.22% 1.11% 1.87% 1.73% 1
Slide 27: Deposits
27 $4,583 $5,598 $6,381 $5,598 $6,020 $6,062 $6,216 $6,381 0.37% 0.23% 0.10% 0.14% 0.12% 0.10% 0.09% 0.09% Total deposits Cost of total deposits 2019 2020 2021 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Deposit Composition DEPOSITS Deposit Balances and Cost of Total Deposits 31.6% 35.4% 36.6% 37.2% 37.
Slide 28: Investment Portfolio
28 $952 $802 $1,278 $802 $894 $1,050 $1,073 $1,278 $243 $153 $757 $35 $166 $223 $100 $268 2.75% 2.40% 2.13% 2.17% 2.17% 2.09% 2.13% 2.12% Portfolio yield New purchases 2019 2020 2021 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Investment Balances and Investment Yield INVESTMENT PORTFOLIO Investment Port
Slide 29: Net Interest Margin
29 Change in Net Interest Margin YTD Q4 2020 vs. YTD Q4 2021 3.63% 0.15% (0.65)% (0.05)% 0.15% 3.23% YTD Q4 2020 PPP loans Loan yields Investments Other YTD Q4 2021 Net Interest Margin (GAAP) 4.22% 3.63% 3.23% 3.53% 3.51% 3.44% 3.15% 2.85%4.12% 3.57% 3.18% 3.48% 3.44% 3.41% 3.11% 2.83% NIM, excludin
Slide 30: Interest Earning Assets
30 Asset Repricing Composition at December 31, 2021 Floating rate (<3 month repricing) Adjustable rate (>3 month repricing) Fixed rate Total Interest earning deposits $ 1,661,915 $ — $ — $ 1,661,915 Total investment securities 103,382 73,748 1,100,598 1,277,728 Loans receivable (excluding SBA PPP) 7
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 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 $23.9 $25.3 $32.7 $20.6 $19.4 $25.2 $23.2 $26.2 $22.4 $19.3 PROFITABILITY TRENDS Return on Average Equity (GAAP) and Return on Average Tangible Common Equity (non-GA
Slide 32: Capital and Sources of Liquidity
32 12.8% 14.0% 14.5% 15.1% 14.8% 14.8% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 2.8% 4.0% 4.5% 5.1% 4.8% 4.8% Well-capitalized Excess capital 2019 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 – Current quarter ratios are estimates pending completion and filing of the Company's regulatory reports. – Refer to Appe
Slide 33: Shareholder Return
SHAREHOLDER RETURN
Slide 34: Total Shareholder Return
34 TOTAL SHAREHOLDER RETURN Stock Summary Ticker HFWA Exchange NASDAQ Stock price $27.18 Market capitalization (in millions) $955.8 Dividend yield (regular dividend only) 3.09% Average Daily Volume (3 month) Average daily volume (shares) 151,104 Average daily volume ($000s) $4,107 52-Week High and L
Slide 35: Appendix - Reconciliation of Non-GAAP Financial Measures
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 2020 2021 Q4 Q1 Q2 Q3 Q4 Pre-tax, Pre-provision Income and Pre-tax, Pre- provision Return on Average Assets: Net income (GAAP) $67,557 $46,570 $98,035 $23,882 $25,344 $32,702 $20,592 $19,397 Exclude income tax expense 13,488 6,610 22,472 4,429 5,102 7,45
Slide 37: Return on Average Tangible Common Equity
37 2019 2020 2021 2020 2021 Q4 Q1 Q2 Q3 Q4 Return on Average Tangible Common Equity: Net income (GAAP) $67,557 $46,570 $98,035 $23,882 $25,344 $32,702 $20,592 $19,397 Add amortization of intangible assets 4,001 3,525 3,111 859 797 797 758 759 Exclude tax effect of adjustment (840) (740) (653) (180)
Slide 38: Tangible Common Equity to Tangible Assets
38 2019 2020 2021 Q1 Q2 Q3 Q4 Tangible Common Equity to Tangible Assets: Total stockholders' equity (GAAP) $809,311 $820,439 $827,151 $855,984 $848,404 $854,432 Exclude intangible assets (257,552) (254,027) (253,230) (252,433) (251,675) (250,916) Tangible common equity (non-GAAP) $551,759 $566,412 $
Slide 39: Tangible Book Value Per Share
39 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 40: Quarterly Financial Statistics
40 As of Period End or for the Three Months Ended December 31, 2020 March 31, 2021 June 30, 2021 September 30, 2021 December 31, 2021 Profitability: Net income (GAAP) $ 19,397 $ 20,592 $ 32,702 $ 25,344 $ 23,882 Pre-tax, pre-provision net income (non-GAAP) 19,282 22,440 26,166 23,247 25,178 Diluted
Slide 41: Meritase
Meritase ee Financial CORPORATION eee.