Heritage Financial Corporation · NASDAQ:HFWA
Heritage Financial — Investor Presentation (May 2013)
34 slides from Heritage Financial's investor presentation, May 8, 2013
Slide 1: Q2 Investor Presentation
Brian L. Vance CEO & President Q2 Investor Presentation Exhibit 99.1 Heritage Financial Corporation
Slide 2: Forward Looking Statement
Forward Looking Statement This presentation contains forward-looking statements that are subject to risks and uncertainties, including, but not limited to: The credit and concentration risks of lending activities; Changes in general economic conditions, either nationally or in our market areas; Comp
Slide 3: Overview
Overview • Company Information • Financial Performance • Strategic Initiatives
Slide 4: Company Information
4 Company Information
Slide 5: Heritage Bank and Valley Bank franchise
wmacentral i PHERITAGEBANK = YalleyBank =.= Prope er mig Sag | Ea billion $178.9 million Branehi Branche: Financial Data as of March 31, 2013 © 9 Branches of Proposed Valley Bank acquisition Central Valley to merge into Heritage Bank — Q2 2013 5
Slide 6: Announcements
Announcements • January 9, 2013 – Completed Merger with Northwest Commercial Bank • Results in an Auburn location, consolidation of Lakewood branches and $65 million in total assets. Completed systems conversion March 9, 2013. • March 11, 2013 – Announced Definitive Agreement to Acquire Valley Commu
Slide 7: Valley Bank Transaction Overview
Valley Bank Transaction Overview Transaction Value: Approximately $44.2 million (including cash out of stock options) Offer Price Per Share: $39.00 Consideration Mix: 50% of Valley shares exchanged for $19.50 cash 50% of Valley shares exchanged for 1.3611 HFWA shares Stock Option Treatment: In-the-m
Slide 8: Valley Bank Transaction Overview
Valley Bank Transaction Overview Purchase Accounting Adjustments (pre-tax): • Estimated credit mark of 2.0% or ~$279 thousand • Estimated $1.5 million mark-up on real estate and other assets • Estimated core deposit intangible equaling 1.0% of Valley’s core deposits (1) Other Financial Impacts: • Es
Slide 9: Valley Bank Transaction Overview
Valley Bank Transaction Overview • Valley Bank has a history of strong and stable profitability with an average ROAA of 0.97% over the past 5 years • Strong asset quality has been maintained throughout the economic recession • Attractive low-cost funding mix (total cost of funds was 0.17% as of 12/3
Slide 10: Valley Bank Transaction Overview
Valley Bank Transaction Overview • Valley has maintained strong asset quality throughout the economic downturn, despite being located in a region that was not immune to the recession Valley Net Charge-Off History Cumulative net charge-offs since 2008 total $1.1 million
Slide 11: Valley Bank Transaction Overview
Valley Bank Transaction Overview Earnings Accretion & Return (1) : 2014 EPS Accretion: 2015 EPS Accretion: IRR: Tangible Book Value Earnback Period: > 19% > 24% > 16% <4.5 years, using incremental earnings (2) <1.5 years, on static basis (3) Capital Ratios (as of 03/31/13): TCE / TA: Leverage Ratio:
Slide 12: Benefits of the Central Valley Bank Merger
Benefits of the Central Valley Bank Merger • Leadership transition • Operational efficiencies • Improved financial performance • Regulatory risks reduced • Improved shareholder value through improved efficiencies
Slide 13: Financial Performance
13 Financial Performance
Slide 14: Loans, Deposits and Total Assets
i eR SS l@iLoans liDeposits MmiTotal Assets -lik% Loans to Deposits $1,600 + 98% 96% 94% 92% 90% 88% 86% 84% 82% 80% ) A BR i 3 ro) (in millions) 2008 2009 2010 2011 2012 Q1'13
Slide 15: Total Loan Portfolio
Total Loan Portfolio Financial data as of March 31, 2013
Slide 16: Loan Trends
2009 2010 2011 2012 Q1 2013 CAGR Loan Trends Net Loan Balance Originated Loans $746.1 $720.0 $815.6 $855.4 $869.2 3.89% Purchased Covered Loans - $128.7 $105.4 $84.0 $81.4 n/a Purchased Non-Covered Loans - $131.0 $83.5 $59.0 $104.9 n/a Total $746.1 $979.8 $1,004.5 $998.4 $1,055.5 9.06% Dollars in mi
Slide 17: Credit Quality
Credit Quality * HFWA ratios relate to originated loan portfolios only. Regional Peer data not available for Q1’13 Regional Peer Group (10): Ticker Symbols – BANR, CACB, COLB, FFNW, HOME, NRIM, PCBK, RVSB, TSBK, WBCO Source: SNL Financial
Slide 18: Deposit Base
Deposit Base Financial data as of and for the quarter ending March 31, 2013.
Slide 19: Non-Interest Demand Deposits to Total Deposits
25% ry + 20% = AS © 15% 10% 2008 2009 2010 2011 2012 Q1'13 l@INon-Interest Demand Deposits tel NOW/Savings/ MMA liCertificates of Deposit 4% of Non-Interest Demand Deposits to Total Deposits
Slide 20: Equity
Equity *After the anticipated acquisition of Valley Bank Tangible Common Equity/Tangible Assets is estimated to be 11.7%
Slide 21: Earnings
Earnings *Includes after-tax gain of $7.7 million for FDIC-assisted bank acquisitions.
Slide 22: Diluted Earnings Per Share
Diluted Earnings Per Share *Includes $0.69 earnings per share related to the after-tax gain on FDIC-assisted acquisitions.
Slide 23: Operating Expenses
Operating Expenses *Includes Northwest Commercial Bank acquisition expenses of $665,000 and the proposed Valley Bank acquisition expenses of $148,000
Slide 24: Strategic Initiatives
24 Strategic Initiatives
Slide 25: Strategic Initiatives
Strategic Initiatives • Acquisitions • Enhance Pacific Northwest footprint • Balance Sheet Growth • 2013 projected originated loan growth of 3-5% • Maintain loan to deposit ratio 85-90% • Efficiency Improvements • A disciplined approach to managing expenses • Merge Central Valley Bank into Heritage
Slide 26: Strategic Initiatives
Strategic Initiatives • Branching • De Novo branch - East Vancouver, WA • Re-locating branches – Tumwater and Kent, WA • Valley Bank branch consolidation • Wealth Management • Continue growth focus on Trust, Brokerage, Advisory Management Services • Grow Assets under Management
Slide 27: Strategic Efficiency Initiatives
Strategic Efficiency Initiatives • Emphasis on improving: • Assets per employee (ApE) • Deposits per branch (DpB) • Loan commitments per lender • Efficiency Ratio
Slide 28: Strategic Capital Management
2011 2012 2013 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Strategic Capital Management • Cash Dividends • Continued focus on • Regular dividends in the 35% to 40% payout range • Special dividend as appropriate but dependent on acquisition activities • Stock buybacks on an opportunistic basis Quarterly Dividend $0.0
Slide 29: Capital Return
Capital Return Total Capital Returned* Since Q1 (% of Tg. Common Equity in Q1 2011) Source: SNL Financial, as of 12/31/2012 unless noted otherwise *Total capital returned includes all cash dividends and stock buybacks since Q1 HFWA has returned more capital to shareholders than most peers since Q1 2
Slide 30: Capital Return
Capital Return Source: SNL Financial, as of 12/31/2012 unless noted otherwise *Total capital returned includes all cash dividends and stock buybacks since Q1 HFWA has returned more capital to shareholders than accumulated net income since Q1 Total Capital Returned* / Net Income (Since Q1 2011) 138.7
Slide 31: Capital Return
Capital Return Source: SNL Financial, as of 12/31/2012 *Total capital returned includes all cash dividends and stock buybacks since Q1 HFWA has returned capital through both dividends and stock buybacks 68.3% through dividends and 31.7% through buybacks vs. peer median 93.3% through dividends and 6.
Slide 32: Conclusion
32 Conclusion
Slide 33: Investment Value
Investment Value • Strong financial foundation performance trends • Positioned to take advantage of the right opportunities • Continued focus on building long-term franchise value • Disciplined approach to acquisitions
Slide 34: Thank You
Thank You Questions?
Heritage Financial — Investor Presentation (May 2013) on 6ix