Heritage Financial Corporation · NASDAQ:HFWA
Heritage Financial — Q1 2020 Earnings Presentation
28 slides from Heritage Financial's earnings presentation, Apr 30, 2020
Slide 1: Investor Presentation Q1 2020
Investor Presentation Q1 2020 Jeff Deuel, Chief Executive Officer Bryan McDonald, Chief Operating Officer Don Hinson, Chief Financial Officer 1
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 effect of the COVID-19 pandemic, including on Heritage’s credit quality and business operations, as well as its impact on general econom
Slide 3: Company Overview
Laittite| Heritage La a ‘* ry Financial CORPORATION Company Overview
Slide 4: Overview
Overview Overview NASDAQ Symbol HFWA Market Capitalization $720.5 million Institutional Ownership 82.8% Total Assets $5.59 billion Headquarters Olympia, WA # of Branches 62 Year Established 1927 HFWA Branch Note: Totals assets as of March 31, 2020. Market capitalization provided by SNL Financial and
Slide 5: COVID-19 Response
COVID-19 Response Activated our Business Continuity Plan Employees Approximately 60% have remote capabilities; 350 are fully remote Revised policies on paid-leave and additional pay for front-line employees Lobbies closed; operate drive-thru or by appointment Facilities Practice recommende
Slide 6: COVID-19 Response: PPP Loans and Modifications
COVID-19 Response PPP Loans COVID-19 Modifications % of Funded Loan Balances % of Type of Modification • 3,356 PPP loans funded totaling $778.7 million • Commercial loans ◦ 561 loans totaling $348.1 million • 55% of the loan count represents loans less than $100,000; 83% less than $350,000 ◦ 10.6% o
Slide 7: Historical Growth – Organic and Acquisitive
Historical Growth – Organic and Acquisitive • In addition to organic growth, HFWA has completed 5 whole bank mergers and 2 FDIC-assisted transactions since 2008. Completed acquisition of Puget Sound Bancorp and Premier Commercial Bancorp with $639M and $440M in assets, respectively Merger with Washi
Slide 8: Deposit Market Share
Deposit Market Share Source: S&P Global Market Intelligence, deposit data as of June 30 of each year Note: All dollars in thousands 8
Slide 9: Company Strategy
Company Strategy Be the "acquirer of choice" in the Pacific Northwest Active and disciplined in M&A Most acquisitive bank in Oregon and Washington since 2012 with 5 acquisitions Target Metrics = IRR of >15% with earnbacks < 3 years Successful hiring of individuals and teams of bankers in high-
Slide 10: Strong and Diverse Economic Landscape
Strong and Diverse Economic Landscape • The Seattle and Portland MSAs are thriving local economies with Companies Headquartered in Pacific Northwest major Fortune 500 companies which include Alaska Air, Amazon, Costco, Expedia, Microsoft, Nike, Nordstrom, Starbucks and Weyerhaeuser • Washington and
Slide 11: Seattle-Portland Metro Markets
Seattle-Portland Metro Markets • The Seattle-Tacoma-Bellevue and Portland-Vancouver-Hillsboro MSAs among the fastest growing metro markets nationwide • Annual population growth for both Seattle and Portland MSAs have exceeded the average growth rate for the top 15 largest MSAs since 2015, and both a
Slide 12: Seattle MSA Funds Under Management
Seattle MSA Funds Under Management • $4.1 billion in total funds under management in the Seattle MSA market at 28 branches Funds Under Management = Loans + Deposits* HFWA Branch Source: Company financials as of quarter end or for the quarter ended indicated. *Prior period loan and deposit informatio
Slide 13: Portland MSA Funds Under Management
Portland MSA Funds Under Management • $912 million in total funds under management in the Portland MSA market at 9 branches Funds Under Management = Loans + Deposits HFWA Branch Source: Company financials as of quarter end or for the quarter ended indicated. Note: Maps provided by © 2019 S&P Global
Slide 14: Future Growth and Opportunities
Future Growth and Opportunities Pacific Northwest Banking Landscape Expected Consolidation and Future Opportunities • Significant number of banks remaining in HFWA footprint, further consolidation is expected – 9 banks between $150 and $500 million in assets – 6 banks between $500 million and $1.0 b
Slide 15: Financial Update
Laittite| Heritage La a ‘* ry Financial CORPORATION Financial Update 15
Slide 16: Financial Update – Q1 2020
Financial Update – Q1 2020 • Diluted earnings per share were $0.33 for the quarter ended March 31, 2020 compared to $0.47 for the linked-quarter ended December 31, 2019 and $0.45 for the quarter ended March 31, 2019. • Heritage declared a regular cash dividend of $0.20 per common share on April 29,
Slide 17: Loans
Loans Loan Portfolio (1) Loan balances and loan yields* Non-Performing Assets and Allowance for Credit Losses • 4.97% loan yield in Q1 2020 • 44.0% of loans are C&I and owner- occupied CRE • $3.8 billion in total loans* Source: Company financials as of quarter end or for the quarter ended indicated.
Slide 18: COVID-19 Impacted Industries
COVID-19 Impacted Industries Concentration of Industries Higher Risk of COVID-19 Impact • Higher risk industries includes restaurant, hotels and recreation and entertainment • Total loans with higher risk is $245.8 million • Downgraded $16.3 million in higher risk industry to Special Mention due to
Slide 19: CECL Adoption
CECL Adoption Overall CECL Impact Allowance for Credit Losses on Loans • Day 1 Impacts ◦ $3.4 million increase in reserves, reduced by $1.6 million due to PCI to PCD transition, netting $1.8 million increase in Allowance for Credit Losses on Loans ◦ $3.7 million increase in Allowance for Credit Loss
Slide 20: Deposits
Deposits Deposit Base Deposit balances and cost to total deposits Deposit Mix • 0.37% cost of total deposits in Q1 2020 • 88.6% of deposits are non-maturity • $4.6 billion in total deposits Source: Company financials as of quarter end or for the quarter ended indicated. Note: All dollars in millions
Slide 21: Net Interest Margin
Net Interest Margin Total Asset Mix Net Interest Margin (Core vs. Accretion)* • 83.4% loan / deposit ratio • 20.1% of assets are cash and securities Source: Company financials as of quarter end or for the quarter ended indicated. Note: All dollars in millions (1) As a percentage of loans receivable
Slide 22: Profitability Trends
Profitability Trends ROAA ROATCE* Noninterest Expense/Avg. Assets Diluted Earnings per Share Source: Company financials as of quarter end or for the quarter ended indicated. *Refer to the Appendix for non-GAAP measures. 22
Slide 23: Shareholder Return
[aitiie| Heritage La i. “s ry Financial CORPORATION Shareholder Return 23
Slide 24: Total Shareholder Return
Total Shareholder Return Stock Summary Total Return* – Last 36 Months Ticker HFWA Exchange NASDAQ Stock Price $19.89 Market Cap. (in millions) $720.5 Dividend Yield (Regular Div. Only) 4.02% Average Daily Volume (3 Mo.) Avg. Daily Volume (Shares) 184,388 Avg. Daily Volume ($000s) $3,667 52-Week High
Slide 25: Appendix - Reconciliations of non-GAAP Financial Measures
Appendix - Reconciliations of non-GAAP Financial Measures 25
Slide 26: Non-GAAP Financial Measures
Non-GAAP Financial Measures 2018 2019 2020 Q4 Q1 Q2 Q3 Q4 Q1 (Dollars in thousands) Return on Average Tangible Common Equity: Net Income (GAAP) $ 16,609 $ 16,552 $ 15,984 $ 17,895 $ 17,126 $ 12,191 Exclude amortization of intangible assets 1,114 1,025 1,026 975 975 903 Exclude tax effect of adjustme
Slide 27: Non-GAAP Financial Measures
Non-GAAP Financial Measures 2018 2019 2020 Q4 Q1 Q2 Q3 Q4 Q1 (Dollars in thousands) Net Interest Margin: Net interest income (GAAP) $ 51,289 $ 49,788 $ 50,536 $ 50,243 $ 49,115 $ 48,557 Exclude incremental accretion on purchased loans (1,703) (1,373) (1,416) (1,090) (997) (1,012) Adjusted net intere
Slide 28: Questions and Answers
; wie.| Heritage Questions and Answers ca Financial CORPORATION 28