Heritage Financial Corporation · NASDAQ:HFWA
Heritage Financial — Q3 2017 Earnings Presentation
30 slides from Heritage Financial's earnings presentation, Nov 1, 2017
Slide 1: Q3 2017 Investor Presentation
Q3 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: Company Profile
COMPANY PROFILE 4 Corporate Overview NASDAQ Symbol HFWA Headquarters Olympia, WA # of Branches 59 Year Established 1927 Note: Financial information as of 9/30/2017 and market information as of 10/27/2017 Financial Snapshot Market Capitalization $930.8 million Institutional Ownership 77.2% Total Asse
Slide 5: Company Strategy
COMPANY STRATEGY 5 Disciplined approach to acquisition opportunities Pending acquisition for Puget Sound Bancorp, Inc. in Bellevue, WA Allocate capital to organically grow our core banking business Successful hiring of individuals and teams of bankers in Seattle and Portland markets Improv
Slide 6: Merger Rationale with Puget Sound Bancorp, Inc.
MERGER RATIONALE WITH PUGET SOUND BANCORP, INC. 6 • “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
Slide 7: 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) The Seattle Times STRONG AND DIVERSE ECONOMIC LANDSCAPE 7 Thriving local economy with job growth in technology and aerospace sectors Washington named “America’s To
Slide 8: 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 $4 ,0 50 $74 $61 $57 $556 $319 $1,747 $557 $- $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 9: King County Metro
$276 $440 $449 $473 $478 $870 $83 $99 $95 $103 $108 $601 $359 $538 $545 $576 $587 $1,471 $- $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 2015 2016 Q1 2017 Q2 2017 Q3 2017 Q3 2017 Pro Forma Loans Deposits 9 KING COUNTY METRO Funds Under Management = Loans + Deposits Source: Company and Puget Sound
Slide 10: King County Growth
KING COUNTY GROWTH Record number of newcomers, again 2016 marks the third consecutive year that a record number of people moved to King County from out of state, based on driver’s license data. The old record, set in 1990, held for 24 years before it was broken in 2014. Consecutive record- breaking
Slide 11: Future Growth and Opportunities
FUTURE GROWTH AND OPPORTUNITIES 11 Note: Financial information as of 9/30/2017 *Map includes banks headquartered along the I-5 corridor and does not include coastal headquartered banks • Significant number of banks remaining in HFWA footprint, further consolidation is expected - 15 banks with less t
Slide 12: Management Team
MANAGEMENT TEAM 12 Name Position Banking Experience HFWA Service Previous Experience Brian Vance President and Chief Executive Officer of Heritage Financial Corporation 45 years 21 years WestOne Bank/U.S. Bank Jeff Deuel President and Chief Operating Officer of Heritage Bank 35 years 7 years JPMChas
Slide 13: Financial Update
13 FINANCIAL UPDATE
Slide 14: Financial Update – Q3 2017
FINANCIAL UPDATE – Q3 2017 14 • Diluted earnings per share were $0.35 and net income of $10.6 million • Return on average assets was 1.05% and return on average tangible common equity was 11.10% • Declared a regular dividend of $0.13 per share and a special dividend of $0.10 per share on October 25,
Slide 15: Balance Sheet Mix
1-4 Family 2.9% Owner- Occupied CRE 21.6% Nonowner- Occupied CRE 33.3% Commercial & Industrial 23.8% Construction & Land Development 6.2% Consumer 12.2% Non-Interest Bearing Demand 27.6% Interest Bearing Transaction Accounts 31.0% Money Market Accounts 14.5% Savings Accounts 15.0% Certificates of De
Slide 16: Loans, Deposits and Securities Trends
$2,257 $2,410 $2,652 $2,674 $2,755 $2,803 5.90% 5.25% 4.91% 4.70% 4.75% 4.72% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00% $- $500 $1,000 $1,500 $2,000 $2,500 $3,000 2014 2015 2016 Q1 2017 Q2 2017 Q3 2017 Total Loans* Loan Yield $2,906 $3,108 $3,230 $3,243 $3,291 $3,321 0.21% 0
Slide 17: Net Interest Margin
3.69% 3.82% 3.71% 3.77% 3.68% 3.75% 3.75% 3.74% 0.28% 0.22% 0.29% 0.18% 0.17% 0.14% 0.17% 0.11% 3.97% 4.04% 4.00% 3.95% 3.85% 3.89% 3.92% 3.85% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Core NIM Accretion* 17 NET INTEREST MARGIN Net Interest
Slide 18: Core Deposit Franchise
0.21% 0.18% 0.16% 0.16% 0.18% 0.20% 0.50% 0.50% 0.75% 1.00% 1.25% 1.25% 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 2014 2015 2016 Q1 2017 Q2 2017 Q3 2017 Cost of Total Deposits Fed Funds Rate $- $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 2014 2015 2016 Q1 2017 Q2 2017 Q3 2017 Non-Int
Slide 19: Profitability Trends
61.7% 65.0% 67.2% 62.0% 64.4% 0.0% 25.0% 50.0% 75.0% 100.0% Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 1.16% 1.03% 0.97% 1.21% 1.05% 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 11.99% 10.84% 10.51% 12.78% 11.10% 0.00% 2.50% 5.00% 7.50% 10.00% 12.50% 15.00% Q3
Slide 20: Non-Interest Expense
$27,903 $46,745 $48,074 $45,068 $31,612 $52,634 $58,134 $61,405 3.86% 3.49% 3.01% 2.84% 2.00% 2.50% 3.00% 3.50% 4.00% $- $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 2013 2014 2015 2016 Compensation & Benefits Expense Non-Compensation Expense NIE/Avg. Assets $11,185 $11,056 $11,199 $11,537 $12,
Slide 21: Credit Quality Trends
CREDIT QUALITY TRENDS 21 Source: Company financials, as of 9/30/2017 Note: All dollars in thousands *Merger with Washington Banking Company closed during Q2 2014 Non-Performing Assets and Allowance for Loan Losses • Maintaining high standards for credit quality and a low ratio of NPAs / Assets 0.98%
Slide 22: Credit Quality vs. Peer Group
0.57% 3.32% 2.19% 2.07% 1.41% 0.74% 0.43% 0.32% 0.30% 0.28% 2.62% 4.19% 2.83% 2.37% 1.24% 0.83% 0.60% 0.48% 0.35% 0.28% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q3 2017 N P A s / A ss et s HFWA Western U.S. Peers CREDIT QUALITY VS
Slide 23: Loan Charge-Offs
LOAN CHARGE-OFFS 23 Source: Company financials, as of 9/30/2017 Note: All dollars in thousands *Increase in net charge-offs primarily related to the closure of PCI pool of loans Net Charge Offs – Last 16 Quarters • Net loan charge-offs $2.2 million during Q3 2017 • Net loan charge-offs of $3.6 milli
Slide 24: Capital Ratio Trends
10.5% 10.3% 10.3% 10.5% 10.4% 0.00% 4.00% 8.00% 12.00% 16.00% Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 9.9% 9.5% 9.7% 9.7% 9.7% 0.00% 4.00% 8.00% 12.00% 16.00% Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 12.0% 12.0% 12.2% 12.1% 12.0% 0.00% 4.00% 8.00% 12.00% 16.00% 20.00% Q3 2016 Q4 2016 Q1 2017 Q2 2017
Slide 25: Shareholder Return
25 SHAREHOLDER RETURN
Slide 26: Total Shareholder Return
TOTAL SHAREHOLDER RETURN 26 Total Return* – Last Twelve Months Source: SNL Financial, as of 10/27/2017 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 27: History of Growing Dividends
$0.08 $0.08 $0.09 $0.09 $0.10 $0.11 $0.11 $0.11 $0.11 $0.12 $0.12 $0.12 $0.12 $0.13 $0.13 $0.13 $0.16 $0.10 $0.25 $0.10 $- $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 $0.40 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 R
Slide 28: Investment Thesis
INVESTMENT THESIS 28 • Significant scarcity value as a $4+ billion commercial bank in the Pacific Northwest • Located in key markets in Western Washington – one of the strongest economic regions in the country • Proven track record of executing on M&A – Financially and strategically rewarding for sh
Slide 29: Appendix
29 APPENDIX
Slide 30: Last Quarters Financial Summary
Last 8 Quarters Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Balance Sheet Total Assets 3,650,792$ 3,678,032$ 3,756,876$ 3,846,376$ 3,878,981$ 3,885,613$ 3,990,954$ 4,050,056$ Asset Growth (Anlzd. vs. Prior Period) 6.2% 3.0% 8.6% 9.5% 3.4% 0.7% 10.8% 5.9% Gross Loans Receivable (I