Heritage Financial Corporation · NASDAQ:HFWA
Heritage Financial — Q3 2021 Earnings Presentation
37 slides from Heritage Financial's earnings presentation, Oct 22, 2021
Slide 1: Investor Presentation Q3 2021
INVESTOR PRESENTATION Q3 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 $25.64 Market capitalization $921.8 million Institutional ownership 79.5% Headquarters Olympia, WA # of branches 53 Year established 1927 Q3 2021 Financial Highlights Assets $7.26 billion Deposits $6.22 billion Loans receivable $3.95 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 technology to enable Community Banking at Scale 2020 Accomplishments Keeping strategic systems current Ÿ Implemented “Heritage Direct,” a state of the art online/mobile treasury management platform Ÿ Upgraded ACH, wires, positive pay, and remote deposit c
Slide 7: Environmental, Social and Governance (ESG) Practices
7 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 8: Strong and Diverse Economic Landscape
8 6.8% 14.0% $97,067 5.6% 13.8% $83,746 2.9% 9.0% $67,761 Seattle MSA Portland MSA USA 2021-2026 proj, population growth 2021-2026 Proj. median household income growth Median household income $97,067 $83,746 $67,761 STRONG AND DIVERSE ECONOMIC LANDSCAPE Market Highlights Major Employers in the Pacif
Slide 9: Major MSA Funds Under Management
9 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 $1,294 $1,415 $1,850 $1,909 $1,936 $1,945 $1,938 $1,992 $1,476 $1,526 $1,995 $2,111 $2,650 $2,897 $3,028 $3,109 Non-SBA PPP loans SBA PPP loans Deposits 20
Slide 10: Future Growth Opportunities
10 FUTURE GROWTH OPPORTUNITIES – Map obtained from S&P Global Market Intelligence. – Certain locations of bank headquarters overlap on the map. – Target financial information as of the most recent quarter publicly available. • HFWA positioned to be the acquiror of choice in the Pacific Northwest. •
Slide 11: Historical Growth Organic and Acquisitive
11 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 $556 $319 $1,747 $1,079 $12.21 $12.99 $13.10 $13.16 $13.31 $15.02 $15.68 $16.08 $16.88 $20.63 $22.10 $22
Slide 12: Deposit Market Share
12 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 13: Financial Update
FINANCIAL UPDATE
Slide 14: Financial Update – Q3 2021
14 FINANCIAL UPDATE – Q3 2021 • Net income was $20.6 million, or $0.58 per diluted share, for the quarter ended September 30, 2021, compared to $32.7 million, or $0.90 per diluted share, for the linked-quarter ended June 30, 2021 and $16.6 million, or $0.46 per diluted share, for the quarter ended S
Slide 15: Loan Portfolio
15 $3,656 $3,773 $4,474 $4,675 $4,474 $4,603 $4,210 $3,957 5.14% 5.17% 4.44% 4.12% 4.39% 4.47% 4.62% 4.64% 4.45% 4.42% 4.48% 4.50% 4.26% Total loans Loan yield Loan yield, excl. SBA PPP (non-GAAP) 2018 2019 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Loan Balances and Loan Yields Commercial & indus
Slide 16: Loan Portfolio Composition
16 LOAN PORTFOLIO COMPOSITION $3,654 $3,768 $4,469 $4,596 $4,208 $3,954 $854 $852 $733 $694 $652 $653 $779 $805 $857 $881 $866 $908 $1,302 $1,289 $1,410 $1,428 $1,425 $1,460 $101 $132 $123 $115 $120 $126$214 $275 $306 $298 $329 $296 $404 $415 $325 $294 $272 $246 $715 $887 $544 $267 Commercial & indu
Slide 17: Loan Production
17 New Commitments Originated $19 $18 $16 $23 $30 $9 $17 $12 $22 $27 $192 $164 $226 $152 $271 $8 $353 $27 Consumer Residential Commercial, excl. SBA PPP SBA PPP Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 LOAN PRODUCTION – Dollars in millions.
Slide 18: Line of Credit Utilization
18 LINE OF CREDIT ("LOC") UTILIZATION 39.14% 35.78% 25.29% 22.68% 23.92% 24.76% 39.38% 37.24% 33.62% 32.56% 33.03% 30.71% 53.66% 41.50% 58.22% 51.65% 57.50% 55.13% Utilization Rate - Construction LOCs Utilization Rate - Consumer LOCs Utilization Rate - C&I LOCs 2018 2019 2020 Q1 2021 Q2 2021 Q3 2021
Slide 19: Changes in Loans Receivable
19 CHANGES IN LOANS RECEIVABLE Change in Loans - Q3 2021 $4,207,530 $(284,385) $195,470 $(167,135) $(18,498) $21,087 $(184) $3,953,885 Loans receivable at June 30, 2021 PPP prepayments and payoffs Loans originated Prepayments Payoffs Net advances/ payments Change in net deferred fee and acquired dis
Slide 20: Commercial Loan Exposure
20 COMMERCIAL LOAN EXPOSURE Commercial Business Loans by Industry Exposure Industry Amount WARR at 12/31/20 WARR at 6/30/21 WARR at 9/30/21 Real estate and rental and leasing $1,509,367 4.52 4.46 4.48 Health care and social assistance 285,936 4.56 4.56 4.48 Accommodation and food services 177,946 6.
Slide 21: SBA PPP Loans
21 No data to display PPP2 PPP1 Key statistics from inception of the SBA's PPP through September 30, 2021 SBA PPP LOANS As of September 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
Slide 22: Higher Risk Industries with Enhanced Monitoring
22 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 $131,756 $52,407 $30,816 % of Loans receivable, excluding SBA PPP 3.6%
Slide 23: Nonperforming Assets
23 $15,679 $45,366 $58,092 $52,868 $35,341 $25,894 $13,696 $44,525 Nonaccrual loans OREO Nonperforming assets to total assets 2018 2019 2020 Q1 2021 Q2 2021 Q3 2021 0.29% 0.82% 0.88% 0.75% 0.50% 0.36% NONPERFORMING ASSETS $841 $1,983
Slide 24: Allowance for Credit Losses (ACL)
24– Refer to Appendix for calculation of non-GAAP financial measure. $35,042 $36,171 $70,185 $64,225 $51,562 $48,317 ACL % ACL / Loans % ACL / Loans excl. SBA PPP (non-GAAP) 2018 2019 2020 Q1 2021 Q2 2021 Q3 2021 0.96% 0.96% 1.57% 1.40% 1.23% 1.22% 1.87% 1.73% 1.41% 1.31% ALLOWANCE FOR CREDIT LOSSES
Slide 25: Deposits
25 $4,432 $4,583 $5,598 $5,689 $5,598 $6,020 $6,062 $6,216 0.25% 0.37% 0.23% 0.19% 0.14% 0.12% 0.10% 0.09% Total deposits Cost of total deposits 2018 2019 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Deposit Composition DEPOSITS Deposit Composition Noninterest demand deposits 37.0% Interest bearing
Slide 26: Investment Portfolio
26 $976 $952 $802 $834 $802 $894 $1,050 $1,073 $342 $243 $153 $14 $35 $166 $223 $100 2.56% 2.75% 2.40% 2.23% 2.17% 2.17% 2.09% 2.13% Portfolio yield New purchases during the period 2018 2019 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Investment Balances and Investment Yield INVESTMENT PORTFOLIO In
Slide 27: Net Interest Margin
27 Change in Net Interest Margin YTD Q3 2020 vs. YTD Q3 2021 3.67% (0.69)% 0.31% (0.10)% 0.01% 0.16% 3.36% YTD Q3 2020 Loan yields PPP loans Investments Interest earning deposits Interest bearing liabilities YTD Q3 2021 4.29% 4.22% 3.63% 3.38% 3.53% 3.51% 3.44% 3.15% 4.11% 4.12% 3.57% 3.32% 3.48% 3.
Slide 28: Profitability Trends
28 $53.1 $67.6 $46.6 $69.4 $85.4 $89.3 Net income (GAAP) PTPP income (non-GAAP) 2018 2019 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 $16.6 $23.9 $25.3 $32.7 $20.6 $21.8 $25.2 $23.2 $26.2 $22.4 PROFITABILITY TRENDS Return on Average Equity (GAAP) and Tangible Common Equity (non-GAAP) Noninterest Ex
Slide 29: Capital and Sources of Liquidity
29 12.9% 12.8% 14.0% 14.5% 15.1% 14.8% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% 2.9% 2.8% 4.0% 4.5% 5.1% 4.8% Well-capitalized Excess capital 2018 2019 2020 Q1 2021 Q2 2021 Q3 2021 – Current quarter ratios are estimates pending completion and filing of the Company's regulatory reports. – Refer to Appendi
Slide 30: Shareholder Return
SHAREHOLDER RETURN
Slide 31: Total Shareholder Return
31 TOTAL SHAREHOLDER RETURN Stock Summary Ticker HFWA Exchange NASDAQ Stock price $25.64 Market capitalization (in millions) $921.8 Dividend yield (regular dividend only) 3.12% Average Daily Volume (3 month) Average daily volume (shares) 136,759 Average daily volume ($000s) $3,507 52-Week High and L
Slide 32: Appendix - Reconciliation of Non-GAAP Financial Measures
APPENDIX - RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Slide 33: Non-GAAP Financial Measures
33 NON-GAAP FINANCIAL MEASURES 2018 2019 2020 2020 2021 Q3 Q4 Q1 Q2 Q3 Pre-tax, pre-provision income: Net income (GAAP) $53,057 $67,557 $46,570 $16,636 $23,882 $25,344 $32,702 $20,592 Exclude income tax expense 11,238 13,488 6,610 2,477 4,429 5,102 7,451 4,997 Exclude provision for (reversal of prov
Slide 34: Return on Average Tangible Common Equity
34 2018 2019 2020 2020 2021 Q3 Q4 Q1 Q2 Q3 Return on average tangible common equity: Net income (GAAP) $53,057 $67,557 $46,570 $16,636 $23,882 $25,344 $32,702 $20,592 Add amortization of intangible assets 3,819 4,001 3,525 860 859 797 797 758 Exclude tax effect of adjustment (802) (840) (740) (181)
Slide 35: Tangible Common Equity to Tangible Assets
35 2018 2019 2020 2021 Q1 Q2 Q3 Tangible common equity to tangible assets: Total stockholders' equity (GAAP) $760,723 $809,311 $820,439 $827,151 $855,984 $848,404 Exclude intangible assets (261,553) (257,552) (254,027) (253,230) (252,433) (251,675) Tangible common equity (non-GAAP) $499,170 $551,759
Slide 36: Tangible Book Value Per Share
36 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 37: Meritase
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