Heritage Financial Corporation · NASDAQ:HFWA
Heritage Financial — Q1 2024 Earnings Presentation
38 slides from Heritage Financial's earnings presentation, Apr 26, 2024
Slide 1: Investor Presentation Q1 2024
INVESTOR PRESENTATION Q1 2024
Slide 2: Forward-looking statements
2 This presentation contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, are based on certain assumptions and often include the words “believes,” “expects,” “anticipates,” “
Slide 3: Company Overview
COMPANY OVERVIEW “pF
Slide 4: Overview
4 OVERVIEW Overview NASDAQ symbol HFWA Stock price $18.12 Market capitalization $628 million Institutional ownership 78.5% Headquarters Olympia, WA # of branches 50 Year established 1927 Q1 2024 Financial Highlights Assets $7.1 billion Deposits $5.5 billion Loans receivable $4.4 billion Net income (
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 as well as other key markets in and adjacent to our current footprint including our recent branch openings
Slide 6: Profitability Improvement Measures
6 PROFITABILITY IMPROVEMENT MEASURES Q4 2023 Investment Activity Q1 2024 Investment Activity Loss on sale Estimated Profitability Improvement (Annualized) Loss on sale Estimated Profitability Improvement (Annualized) Investment sales $(10.0) $(3.9) $(10.0) $(3.4) Investment purchases 8.6 2.0 Investm
Slide 7: Strong and Diverse Economic Landscape
7 $106,526 $88,444 $75,384 $73,503 Median household income 4.8% 4.0% 16.2% 4.7% 3.9% 12.9% 3.7% 7.2% 18.9% 3.9% 2.1% 13.4% Seattle MSA Portland MSA Boise MSA USA Unemployment rate 2023-2028 Projected Population Growth 2023-2028 Projected Median Household Income Growth STRONG AND DIVERSE ECONOMIC LAN
Slide 8: Loans and Deposits by Location
8 LOANS AND DEPOSITS BY LOCATION – MSA - Metropolitan or Micropolitan Statistical Area. Location is based upon branch or office location. – Loan information is provided gross of deferred fees and/or costs and acquired discount and/or premium. Loans by MSA Seattle WA $2,201 49.7% Portland OR-WA $641
Slide 9: Potential Growth Opportunities
9 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 op
Slide 10: Historical Growth Organic and Acquisitive
10 $1,712 $3,651 $3,879 $4,113 $4,238 $5,553 $6,615 $7,432 $6,980 $7,175 $7,091 $1,747 $1,079 $15.02 $15.68 $16.08 $16.88 $20.63 $22.10 $22.85 $24.34 $22.73 $24.44 $24.43 $10.73 $11.41 $11.86 $12.70 $13.54 $15.07 $15.77 $17.19 $15.66 $17.40 $17.36 Organic Assets Acquired Assets Book value per share
Slide 11: Growth Strategy
11 GROWTH STRATEGY YEAR ACTIVITY 2013 • Acquired Valley Community Bancshares - $254MM in assets • Acquired Northwest Commercial Bank - $65MM in assets 2014 • Merged with Washington Banking Company - $1.7B in assets 2015 • Added a commercial banking team in Seattle, Washington • Formed our Capital Ma
Slide 12: Financial Update
FINANCIAL UPDATE
Slide 13: Loan Portfolio
13 LOAN PORTFOLIO Loan Portfolio Composition $232 $196 $171 $171$165 $344 $375 $386 $227 $294 $414 $457 $768 $693 $718 $760 $2,424 $2,524 $2,657 $2,655 Consumer Residential real estate Construction & land development Commercial and Industrial (C&I) Commercial real estate (CRE) 2021 2022 2023 Q1 2024
Slide 14: Line of Credit Utilization
14 Construction Commitments $488 $686 $769 $762 $227 $294 $414 $457 $261 $392 $355 $305 Outstanding Balance Available Credit 2021 2022 2023 Q1 2024 LOC Utilization Rates 25.2% 29.8% 28.2% 31.9% 46.5% 42.9% 53.8% 60.0% 31.4% 31.1% 31.1% 31.7% Utilization Rate - Consumer LOCs Utilization Rate - Constr
Slide 15: Commercial Loan Exposure
15 COMMERCIAL LOAN EXPOSURE Commercial Business Loans by Industry Exposure Industry Amount WARR at 03/31/24 Real estate, rental and leasing $1,850 4.4 Health care and social assistance 334 4.5 Accommodation and food services 180 5.1 Retail trade 149 4.5 Construction 126 4.7 Other services (except Pu
Slide 16: Changes in Loans Receivable
16 CHANGES IN LOANS RECEIVABLE $4,336 $102 $(39) $(33) $62 $4,428 Loans receivable at December 31, 2023 Loans originated Prepayments Maturities / Payoffs Net advances/ payments Loans receivable at March 31, 2024 $4,051 $484 $(197) $(122) $120 $4,336 Loans receivable at December 31, 2022 Loans origin
Slide 17: CRE Office
17 CRE OFFICE CRE Office Loans by Size Size WARR # of Loans Balance Average Balance >$10 Million 3.4 4 $ 66,304 $ 16,576 $5-$10 Million 4.3 16 101,409 6,338 $2-$5 Million 4.4 43 129,476 3,011 <$2 Million 4.6 475 253,648 534 TOTAL 4.3 538 $ 550,837 $ 1,024 Quality of CRE Office Portfolio: • 82.4% of
Slide 18: Nonaccrual Loans and Net Charge-offs
18 Net charge-offs (recoveries) on loans to average loans, annualized 0.01% (0.03)% (0.01)% 0.02% 0.00% (0.11)% 0.06% 0.00% 2021 2022 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 Nonaccrual Loans $24 $6 $4 $5 Nonaccrual loans Nonaccrual loans to loans receivable 2021 2022 2023 Q1 2024 0.62% 0.15% 0.
Slide 19: Criticized Loans
19 CRITICIZED LOANS $183 $135 $150 $172 $24 $89 $60 $65 $65 $71 $69 $80 $102 Substandard - nonaccrual Substandard - accrual Special mention 2021 2022 2023 Q1 2024 Criticized Loans by Loan Segment Commercial & industrial 30.8% Owner- occupied CRE 20.6% Non-owner occupied CRE 28.9% Residential real es
Slide 20: Allowance for Credit Losses on Loans
20 ACL on Loans $42,361 $42,986 $47,999 $49,736 1.11% 1.06% 1.11% 1.12% ACL on loans ($) ACL on loans / Loans (%) 2021 2022 2023 Q1 2024 ALLOWANCE FOR CREDIT LOSSES ("ACL") ON LOANS $47,999 $1,780 $(183) $158 $(18) $49,736 December 31, 2023 Change in loan balance Change in collective rate Change in
Slide 21: Criticized Loans and Net Charge-off History
21 CRITICIZED LOANS AND NET CHARGE-OFF HISTORY Criticized Loans to Total Loans 3.63% 3.79% 6.50% 4.81% 3.34% 3.45% 2.61% 2.72% 3.71% 2.79% 2.28% 2.14% Heritage Peer Median 2018 2019 2020 2021 2022 2023 NCOs to Average Loans 0.06% 0.09% 0.07% 0.01% (0.03)% (0.01)% 0.12% 0.12% 0.09% 0.13% 0.03% 0.10%
Slide 22: Deposits
22 Average Deposit Balances and Cost of Total Deposits $6,090 $6,322 $5,706 $5,849 $5,656 $5,701 $5,621 $5,526 0.10% 0.11% 0.69% 0.31% 0.61% 0.83% 1.01% 1.19% 0.49% 0.92% 1.23% 1.48% 1.70% 0.16% 0.17% 1.03% Average deposits Cost of total deposits Cost of int-bearing deposits 2021 2022 2023 Q1 2023 Q
Slide 23: Deposit Composition
23 DEPOSIT COMPOSITION Customer Deposits by Relationship Size $632 $281 $1,301 $1,466 $1,852 Over $10MM $5MM-$10MM $1MM-5MM $250K-$1MM Less than $250K Consumer Accounts vs. Business Accounts 27% 59% 14% Consumer Commercial CDs Insured vs. Uninsured 37% 63% Insured Uninsured Estimated balances as of
Slide 24: Investment Portfolio
24 Investment Balances and Investment Yield $1,278 $2,098 $1,874 $2,078 $2,031 $1,894 $1,874 $1,731 $757 $1,203 $178 $141 2.13% 2.48% 3.02% 2.96% 2.98% 2.99% 3.15% 3.30% Portfolio yield New purchases 2021 2022 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 INVESTMENT PORTFOLIO Portfolio Duration 4.85
Slide 25: Investment Cashflows
25 $40 $43 $40 $48 $45 $42 $43 $58 $72 $57 $48 $59 $26 $29 $26 $35 $32 $29 $30 $46 $60 $45 $36 $48 $14 $14 $14 $13 $13 $13 $13 $12 $12 $12 $12 $11 Interest Principal Q2 2024 Q3 2024 Q4 2024 Q1 2025 Q2 2025 Q3 2025 Q4 2025 Q1 2026 Q2 2026 Q3 2026 Q4 2026 Q1 2027 INVESTMENT CASHFLOWS Investment cashfl
Slide 26: Investment Portfolio
26 INVESTMENT PORTFOLIO HTM Investment by Type US government and agencies 18.7% Residential CMO and MBS 37.7% Commercial CMO and MBS 43.6% – Available for sale ("AFS") and held to maturity ("HTM") investment securities balances and percentages are presented at fair value as of March 31, 2024 unless
Slide 27: Net Interest Margin
27 Net Interest Margin 3.23% 3.35% 3.58% 3.91% 3.56% 3.47% 3.41% 3.32% NIM 2021 2022 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 NET INTEREST MARGIN Change in Net Interest Margin QTD Q4 2023 vs. QTD Q1 2024 3.41% 0.12% 0.02% (0.05)% (0.15)% (0.03)% 3.32% QTD Q4 2023 Loans Investments Interest earni
Slide 28: Loan Maturity and Repricing
28 Adjustable Rate Loans - Repricing Schedule $923 $139 $210 $221 $186 $215 $135 8.03% 4.53% 3.93% 3.89% 5.41% 6.12% 4.49% 8.09% 6.98% 6.85% 6.80% 6.74% 6.75% 6.96% Floating and Adjustable Rate Loans Wtd Avg Rate Wtd Avg Rate if Repriced 3/31/24 < 3 Months 3 - 12 Months 1 - 2 Years 2 - 3 Years 3 - 4
Slide 29: Profitability Trends
29 $98.0 $81.9 $61.8 $91.1 $98.0 $77.2 Net income (GAAP) PTPP income (non-GAAP) 2021 2022 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 $20.5 $16.8 $18.2 $6.2 $5.7 $26.5 $21.8 $20.9 $8.0 $8.3 PROFITABILITY TRENDS ROAE (GAAP) and ROATCE (non-GAAP) Noninterest Expense/Avg. Assets ROAA (GAAP) and PTPP R
Slide 30: Capital Ratios
30 Total Risk Based Capital 14.8% 14.0% 14.1% 13.9% 10.0% 10.0% 10.0% 10.0% 4.8% 4.0% 4.1% 3.9% Well-capitalized Excess capital 2021 2022 2023 Q1 2024 – Current quarter ratios are estimates pending completion and filing of the Company's regulatory reports. – Refer to Appendix for calculation of non-
Slide 31: Liquidity Position
31 LIQUIDITY POSITION – At fair value – Includes FHLB borrowing availability of $1.38 billion at March 31, 2024 based on pledged assets, however, maximum credit capacity is 45% of the Bank's total assets one quarter in arrears or $3.23 billion Liquidity position at March 31, 2024: • Sufficient liqui
Slide 32: Shareholder Return
SHAREHOLDER RETURN
Slide 33: Total Shareholder Return
33 TOTAL SHAREHOLDER RETURN Stock Summary Ticker HFWA Exchange NASDAQ Stock price $18.12 Market capitalization (in millions) $628.0 Dividend yield (regular dividend only) 5.08% Average Daily Volume (3 month) Average daily volume (shares) 210,595 Average daily volume ($000s) $3,816 52-Week High and L
Slide 34: Appendix - Reconciliation of Non-GAAP Financial Measures and Quarterly Financial Statistics
APPENDIX - RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND QUARTERLY FINANCIAL STATISTICS
Slide 35: Non-GAAP Financial Measures
35 NON-GAAP FINANCIAL MEASURES 2021 2022 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 PTPP Income and PTPP ROAA: Net income (GAAP) $ 98,035 $ 81,875 $ 61,755 $ 20,457 $ 16,846 $ 18,219 $ 6,233 $ 5,748 Exclude income tax expense 22,472 17,561 11,160 4,213 3,025 3,578 344 1,120 Exclude provision for (
Slide 36: Non-GAAP Financial Measures
36 NON-GAAP FINANCIAL MEASURES 2021 2022 2023 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Q1 2024 Efficiency Ratio and Adjusted Efficiency Ratio Total noninterest expense (GAAP) $ 149,269 $ 150,966 $ 166,623 $ 41,605 $ 41,325 $ 40,970 $ 42,723 $ 40,370 Net interest income (GAAP) $ 205,789 $ 219,385 $ 225,155 $
Slide 37: Tangible Book Value Per Share
37 2014 2015 2016 2017 2018 2019 2020 2022 2023 Tangible Book Value Per Share: Total stockholders' equity (GAAP) $ 454,506 $ 469,970 $ 481,763 $ 505,305 $ 760,723 $ 809,311 $ 820,439 $ 797,893 $ 853,261 Exclude intangible assets (129,918) (127,818) (126,403) (125,117) (261,553) (257,552) (254,027) (
Slide 38: Quarterly Financial Statistics
38 As of Period End or for the Three Months Ended March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023 March 31, 2024 Profitability: Net income (GAAP) $ 20,457 $ 16,846 $ 18,219 $ 6,233 $ 5,748 Pre-tax, pre-provision net income (non-GAAP) $ 26,495 $ 21,780 $ 20,919 $ 8,001 $ 8,260 Dilut