Heritage Financial Corporation · NASDAQ:HFWA
Heritage Financial — Q2 2017 Earnings Presentation
33 slides from Heritage Financial's earnings presentation, Aug 1, 2017
Slide 1: Q2 2017 Investor Presentation
Q2 2017 Investor Presentation
Slide 2: Forward-Looking Statement
FORWARD – LOOKING STATEMENT 2 This presentation contains forward-looking statements that are subject to risks and uncertainties, including, but not limited to: • The expected revenues, cost savings, synergies and other benefits from our other merger and acquisition activities might not be realized w
Slide 3: Company Overview
3 COMPANY OVERVIEW
Slide 4: Overview
OVERVIEW 4 Overview NASDAQ Symbol HFWA Market Capitalization $806.6 million Institutional Ownership 76.9% Total Assets $3.99 billion Headquarters Olympia, WA # of Branches 59 Year Established 1927 Note: Financial information as of 06/30/2017 and market information as of 07/27/2017 Three banks, one c
Slide 5: Historical Growth – Organic and Acquisitive
$4 01 $4 50 $5 74 $6 10 $5 95 $6 41 $6 97 $7 51 $7 96 $8 86 $9 46 $1 ,0 15 $8 12 $1 ,3 69 $1 ,3 46 $1 ,3 40 $1 ,7 12 $3 ,6 51 $3 ,8 79 $3 ,9 91 $74 $61 $57 $556 $319 $1,747 $567 $- $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2
Slide 6: Financial Update
6 FINANCIAL UPDATE
Slide 7: Financial Update – Q2 2017
FINANCIAL UPDATE – Q2 2017 7 • Diluted earnings per share were $0.39 for the quarter and $0.31 for the linked-quarter ended March 31, 2017 • Return on average assets was 1.21%, return on average equity was 9.54% and return on average tangible common equity was 12.78% • Dividend declared on July 25,
Slide 8: Loan Portfolio
8 LOAN PORTFOLIO Loan Portfolio TrendsLoan Portfolio Mix - % of Total Source: Company financials, as of 6/30/2017 Note: All dollars in millions *Excludes impact from incremental accretion on purchased loans **Includes loans held for sale • Total CRE of 54.3% of total loans • Total C&I and owner-occu
Slide 9: Deposit Profile
9 DEPOSIT PROFILE Deposit TrendsDeposit Mix - % of Total Source: Company financials, as of 6/30/2017 Note: All dollars in millions • Noninterest bearing demand of 27.9% of total deposits • Non-maturity deposits of 88.1% of total deposits • Cost of total deposits of 0.18% in Q2 2017 Noninterest Beari
Slide 10: Net Interest Margin Trends
10 NET INTEREST MARGIN TRENDS Net Interest Margin (Core vs. Accretion)* Source: Company financials, as of 6/30/2017 *Impact on net interest margin from incremental accretion on purchased loans 3.84% 3.76% 3.69% 3.82% 3.71% 3.77% 3.68% 3.75% 3.75% 0.35% 0.24% 0.28% 0.22% 0.29% 0.18% 0.17% 0.14% 0.17%
Slide 11: Cash, Interest Earning Deposits & Investment Securities
11 CASH, INTEREST EARNING DEPOSITS & INVESTMENT SECURITIES Cash, Interest Earning Deposits & Investment SecuritiesInvestment Portfolio Mix Source: Company financials, as of 6/30/2017 Note: All dollars in millions • Total cash, interest earning deposits and investment securities of $914.8 million, or
Slide 12: Non-Interest Expense
12 NON-INTEREST EXPENSE Source: Company financials, as of 6/30/2017 Note: All dollars in thousands Overhead Ratio = Ratio of non-interest expense (annualized) to average total assets Non-Interest Expense Detail and Overhead Ratio $27,903 $46,745 $48,074 $45,068 $22,736 $31,612 $52,634 $58,134 $61,40
Slide 13: Credit Quality Trends
CREDIT QUALITY TRENDS 13 Source: Company financials, as of 6/30/2017 Note: All dollars in thousands - - - - $28,426 $30,211 $31,083 $31,594 $32,751 1.13% 1.17% 1.18% 1.19% 1.19% 1.05% 1.10% 1.15% 1.20% 1.25% 1.30% 1.35% 1.40% 1.45% 1.50% $- $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 Q2 2
Slide 14: Capital Ratio Trends
CAPITAL RATIO TRENDS 14Source: Company financials, as of 6/30/2017 - - - - Tier-1 Capital Ratio 10.5% 10.5% 10.3% 10.3% 10.5% 0.00% 4.00% 8.00% 12.00% Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 10.0% 9.9% 9.5% 9.7% 9.7% 0.00% 4.00% 8.00% 12.00% Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 12.1% 12.0% 12.0%
Slide 15: Profitability Trends
PROFITABILITY TRENDS 15 Source: Company financials, as of 6/30/2017 Note: All dollars in thousands, except per share Return on Average Assets and Return on Average Tangible Common Equity Ratios are annualized - - - - - - Diluted Earnings Per Share $0.30 $0.37 $0.33 $0.31 $0.39 $- $0.05 $0.10 $0.15 $
Slide 16: King County Metro
16 KING COUNTY METRO Source: Company financials, as of 06/30/17 Note: All dollars in millions Funds Under Management = Loans + Deposits $284 $365 $400 $440 $449 $473 $75 $105 $101 $99 $95 $103 $- $100 $200 $300 $400 $500 $600 $700 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Loans Deposits $359 $
Slide 17: Total Shareholder Return
TOTAL SHAREHOLDER RETURN 17 Total Return* – Last Twelve Months Source: SNL Financial, as of 07/27/2017 Note: SNL U.S. Bank $1B-$5B index includes banks nationwide with total assets of $1.0 billion to $5.0 billion *Total return includes stock price appreciation and reinvested dividends **Average Stre
Slide 18: Heritage Financial Corporation to Acquire Puget Sound Bancorp, Inc.
Heritage Financial Corporation to Acquire Puget Sound Bancorp, Inc. NASDAQ: HFWA OTCQB: PUGB “Pure Play” Business Banking Franchise in Desirable Seattle-Bellevue Market 18
Slide 19: Merger Rationale
19 This is a “pure play” on business banking in the Seattle metropolitan area – one of the strongest economic regions in the United States, which presents attractive growth prospects Aligns with HFWA’s stated strategic goal of growing in the Seattle-Bellevue market and adds to HFWA’s momentum
Slide 20: Overview of Puget Sound Bancorp, Inc.
OVERVIEW OF PUGET SOUND BANCORP, INC. 20 1 office location in downtown Bellevue, Washington Founded in 2005 to meet the specialized needs of small and medium-sized businesses, select commercial real estate projects, professional service providers and high net worth individuals and provide a full
Slide 21: Transaction Overview
TRANSACTION OVERVIEW 21 Transaction Value Aggregate consideration of $126.1 million or $35.84 per share of PUGB common stock(1) Timing and Approvals Expected completion in early Q1 2018 Customary regulatory approvals and Puget Sound shareholder approval Ancillary Agreements Entered into non-
Slide 22: Key Assumptions and Pro Forma Impact
2019 Estimated EPS Accretion(2) 3.95% or $0.06 per share Internal Rate of Return 16% Tangible Book Value Dilution (at Closing) 3.34% or $0.43 per share Tangible Book Value Per Share Earnback(3) ~4.5 Years 5/22/2017 7/26/2017 Price / EPS (Most Recent Quarter) 22.4x 25.3x Price / EPS (2017E) 22.0x 24.
Slide 23: Pro Forma Branch Footprint
PRO FORMA BRANCH FOOTPRINT 23 Heritage Branch Puget Sound Branch Strengthens HFWA’s presence in the Seattle metropolitan area Puget Sound operates 1 branch which is on the 15th floor of an office building in downtown Bellevue HFWA Bellevue branch will be consolidated into Puget Sound’s branch
Slide 24: Larger Platform in Seattle and Bellevue
$475 $371 $846 $- $100 $200 $300 $400 $500 $600 $700 $800 $900 HFWA Puget Sound Pro Forma $84 $505 $589 $- $100 $200 $300 $400 $500 $600 $700 HFWA Puget Sound Pro Forma LARGER PLATFORM IN SEATTLE AND BELLEVUE 24 Loans in Seattle and Bellevue, WA $846 million of loans and $589 million of deposits,
Slide 25: Seattle-Bellevue Deposit Market Share
Seattle, WA and Bellevue, WA (Combined Cities) Rank Total In-Market HQ Institution (State) Number of Branches Deposits in Market Market Share 1 Bank of America Corp. (NC) 46 16,529,180$ 28.9% 2 Wells Fargo & Co. (CA) 35 7,845,087$ 13.7% 3 U.S. Bancorp (MN) 31 7,084,457$ 12.4% 4 JPMorgan Chase & Co.
Slide 26: Strong and Diverse Economic Landscape
Note: Information for Seattle MSA, where available (1) www.cnbc.com (2) Bureau of Economic Analysis (3) Nielsen U.S. Census data (4) www.zillow.com STRONG AND DIVERSE ECONOMIC LANDSCAPE 26 Thriving local economy with job growth in technology and aerospace sectors Washington named “America’s Top
Slide 27: HFWA Investment Thesis
HFWA INVESTMENT THESIS 27 • Western Washington geographic footprint with vibrant economy and attractive long-term demographics • Management team with proven skills in both organic growth as well as the acquisition and integration of whole banks and commercial banking teams • Disciplined credit and c
Slide 28: Appendix
28 APPENDIX
Slide 29: Historical Financial Highlights
HISTORICAL FINANCIAL HIGHLIGHTS 29Source: Company financials, as of 06/30/2017 Note: All dollars in thousands Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Balance Sheet Total Assets 3,650,792$ 3,678,032$ 3,756,876$ 3,846,376$ 3,878,981$ 3,885,613$ 3,990,954$ Asset Growth (Anlzd. vs. Prior
Slide 30: Discounts on Acquired Loans
DISCOUNTS ON ACQUIRED LOANS 30 • $11.2 million remaining loan discount on acquired loans Source: Company information, as of 06/30/2017 Note: All dollars in thousands Acquired Loans 6/30/2016 Loan Balance 745,480$ Remaining Loan Mark 17,494$ Recorded Investment 727,986$ Discount % 2.35% 9/30/2016 Loa
Slide 31: Seattle Development Map
eLuorroay ‘Amazon - Option to Buy (right of first offer) @ Completed Proj ction LAKE UNION Planned Projects
Slide 32: Development Pipeline
LLEVUE DEVELOPMENT PIPELINE PROJECT TYPE Office Residential Residential Mixed-Use Performance Hall, Convention Center Transportation PROJECT STATUS, Under Construction. @ Planned Projects Completed
Slide 33: Market Comparison: Seattle vs. San Francisco vs. Portland
MARKET COMPARISON (CROSS-MARKET TENANTS a SEATTLE VS. SAN FRANCISCO VS. PORTLAND OFFICE MARKET COMPARISON pcebook oracie | TAY | pon “ae ® Diewp amazon | aivanize| eb Buetoot BE Microsoft | YAHOO! fo suvesener]