- Net income was $19.4 million, or $0.55 per diluted share, for the fourth quarter of 2021 compared to $20.6 million, or $0.58 per diluted share, for the third quarter of 2021 and $23.9 million, or $0.66 per diluted share, for the fourth quarter of 2020.
- Net income was $98.0 million, or $2.73 per diluted share, for the year ended 2021 compared to $46.6 million, or $1.29 per diluted share, for the year ended 2020.
- Reversal of provision for credit losses was $5.0 million for the fourth quarter of 2021 compared to $3.1 million for both the third quarter of 2021 and the fourth quarter of 2020. Reversal of provision for credit losses was $29.4 million for the year ended 2021 compared to a provision for credit losses of $36.1 million for the year ended 2020.
- The ratio of nonperforming assets to total assets decreased to 0.32% at December 31, 2021 compared to 0.36% at September 30, 2021 and 0.88%% at December 31, 2020.
- Noninterest expense to average total assets, annualized, was 2.06% for the fourth quarter of 2021 compared to 2.04% for third quarter of 2021 and 2.30% for the fourth quarter of 2020.
- New commercial loan commitments originated totaled $329.2 million for the fourth quarter of 2021 compared to $270.8 million in the third quarter of 2021 and $164.5 million in the fourth quarter of 2020.
- Capital remains strong with a Tier 1 leverage ratio of 8.7% and a total risk-based capital ratio of 14.8% at December 31, 2021.
- Declared a regular cash dividend of $0.21 per common share on January 26, 2022.
OLYMPIA, Wash., Jan. 27, 2022 /PRNewswire/ -- Heritage Financial Corporation (NASDAQ GS: HFWA) (the "Company" or "Heritage"), the parent company of Heritage Bank ("Bank"), today reported net income of $19.4 million for the fourth quarter of 2021 compared to $20.6 million for the third quarter of 2021 and $23.9 million for the fourth quarter of 2020. Diluted earnings per share for the fourth quarter of 2021 were $0.55 compared to $0.58 for the third quarter of 2021 and $0.66 for the fourth quarter of 2020. Net income for the year ended 2021 totaled $98.0 million, or $2.73 per diluted share, compared to $46.6 million, or $1.29 per diluted share for 2020.
Jeffrey J. Deuel, President and Chief Executive Officer of Heritage, commented, "While we continue to be challenged by the COVID-environment and the related uncertainty, we begin 2022 on solid ground. We are well-positioned to take advantage of a rising rate environment and we continue to benefit from the strong economic climate in the region.
Further, we are pleased with the success of our ongoing efforts to positively impact housing in the communities we serve. In the fourth quarter, we partnered with Sabin Community Development Corporation, providing $13.4 million of construction financing and $11.7 million of permanent funding through our Low Income Housing Tax Credit investment to build affordable housing units for both families and seniors allowing people of color who are at risk of gentrification to live in the heart of Portland's historically African-American community in North / Northeast Portland."
Financial Higlights
The following table provides financial highlights at the dates and for the periods indicated: | |||||
As of or for the Quarter Ended | |||||
December 31,2021 | September 30,2021 | December 31,2020 | |||
(Dollars in thousands, except per share amounts) | |||||
Net income | $ 19,397 | $ 20,592 | $ 23,882 | ||
Pre-tax, pre-provision income (1) | $ 19,282 | $ 22,440 | $ 25,178 | ||
Diluted earnings per share | $ 0.55 | $ 0.58 | $ 0.66 | ||
Return on average assets (2) | 1.04 % | 1.13 % | 1.42 % | ||
Pre-tax, pre-provision return on average assets (1) (2) | 1.03 % | 1.23 % | 1.50 % | ||
Return on average common equity (2) | 9.06 % | 9.55 % | 11.74 % | ||
Return on average tangible common equity (1) (2) | 13.27 % | 13.93 % | 17.62 % | ||
Net interest margin (2) | 2.85 % | 3.15 % | 3.53 % | ||
Cost of total deposits (2) | 0.09 % | 0.09 % | 0.14 % | ||
Efficiency ratio | 66.61 % | 62.35 % | 60.50 % | ||
Noninterest expense to average total assets (2) | 2.06 % | 2.04 % | 2.30 % | ||
Total assets | $ 7,432,412 | $ 7,259,038 | $ 6,615,318 | ||
Loans receivable, net | $ 3,773,301 | $ 3,905,567 | $ 4,398,462 | ||
Total deposits | $ 6,381,337 | $ 6,215,558 | $ 5,597,990 | ||
Loan to deposit ratio (3) | 59.8 % | 63.6 % | 79.8 % | ||
Book value per share | $ 24.34 | $ 24.13 | $ 22.85 | ||
Tangible book value per share (1) | $ 17.19 | $ 16.97 | $ 15.77 | ||
(1) See Non-GAAP Financial Measures section herein. |
(2) Annualized. |
(3) Loans receivable divided by total deposits. |
SBA PPP Loans
The Company has supported its community and customers during the COVID-19 pandemic through its participation in the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP"). The SBA PPP ended on May 31, 2021.
The following table summarizes the SBA PPP activity as of and for the period indicated: | |||||
As of or for the Quarter Ended | |||||
December 31, 2021 | September 30, 2021 | December 31, 2020 | |||
(In thousands) | |||||
Net deferred fees recognized during the period | $ 4,399 | $ 7,030 | $ 6,623 | ||
Net deferred fees unrecognized as of period end | 4,936 | 9,335 | 15,392 | ||
Principal payments received during the period, including forgiveness payments from the SBA | 125,455 | 284,385 | 159,284 | ||
Amortized cost as of period end | 145,840 | 266,896 | 715,121 | ||
Balance Sheet
Total investment securities increased $205.1 million, or 19.1%, to $1.28 billion at December 31, 2021 from $1.07 billion at September 30, 2021 due primarily to purchases to deploy excess liquidity into higher yielding assets.
The following table summarizes the Company's loans receivable, net at the dates indicated: | |||||||||||
December 31, 2021 | September 30, 2021 | Change | |||||||||
Balance | % of Total | Balance | % of Total | Amount | % | ||||||
(Dollars in thousands) | |||||||||||
Commercial business: | |||||||||||
Commercial and industrial | $ 621,567 | 16.3 % | $ 652,776 | 16.5 % | $ (31,209) | (4.8) % | |||||
SBA PPP | 145,840 | 3.8 | 266,896 | 6.8 | (121,056) | (45.4) | |||||
Owner-occupied CRE | 931,150 | 24.4 | 907,568 | 23.0 | 23,582 | 2.6 | |||||
Non-owner occupied CRE | 1,493,099 | 39.2 | 1,459,795 | 36.8 | 33,304 | 2.3 | |||||
Total commercial business | 3,191,656 | 83.7 | 3,287,035 | 83.1 | (95,379) | (2.9) | |||||
Residential real estate | 164,582 | 4.3 | 125,697 | 3.2 | 38,885 | 30.9 | |||||
Real estate construction and land development: | |||||||||||
Residential | 85,547 | 2.2 | 90,081 | 2.3 | (4,534) | (5.0) | |||||
Commercial and multifamily | 141,336 | 3.7 | 205,516 | 5.2 | (64,180) | (31.2) | |||||
Total real estate construction and land development | 226,883 | 5.9 | 295,597 | 7.5 | (68,714) | (23.2) | |||||
Consumer | 232,541 | 6.1 | 245,555 | 6.2 | (13,014) | (5.3) | |||||
Loans receivable | 3,815,662 | 100.0 % | 3,953,884 | 100.0 % | (138,222) | (3.5) | |||||
Allowance for credit losses on loans | (42,361) | (48,317) | 5,956 | (12.3) | |||||||
Loans receivable, net | $ 3,773,301 | $ 3,905,567 | $ (132,266) | (3.4) % | |||||||
The Company generated strong loan production with outstanding balances of $222.2 million during the fourth quarter of 2021 as compared to $195.5 million in the third quarter of 2021. Loan repayments for the fourth and third quarters of 2021, exclusive of SBA PPP loans, were $242.9 million and $164.5 million, respectively, with an overall decline in outstanding balances of $138.2 million in the fourth quarter of 2021. The increase in commercial real estate ("CRE") loans included the transfer of several completed projects from real estate construction and land development loans.
Total deposits increased at an annualized rate of 10.6% from September 30, 2021. The following table summarizes the Company's total deposits at the dates indicated:
December 31, 2021 | September 30, 2021 | Change | |||||||||
Balance | % of Total | Balance | % of Total | Amount | % | ||||||
(Dollars in thousands) | |||||||||||
Noninterest demand deposits | $ 2,330,956 | 36.5 % | $ 2,299,248 | 37.0 % | $ 31,708 | 1.4 % | |||||
Interest bearing demand deposits | 1,946,605 | 30.5 | 1,870,618 | 30.1 | 75,987 | 4.1 | |||||
Money market accounts | 1,120,174 | 17.6 | 1,072,427 | 17.3 | 47,747 | 4.5 | |||||
Savings accounts | 640,763 | 10.0 | 617,469 | 9.9 | 23,294 | 3.8 | |||||
Total non-maturity deposits | 6,038,498 | 94.6 | 5,859,762 | 94.3 | 178,736 | 3.1 | |||||
Certificates of deposit | 342,839 | 5.4 | 355,796 | 5.7 | (12,957) | (3.6) | |||||
Total deposits | $ 6,381,337 | 100.0 % | $ 6,215,558 | 100.0 % | $ 165,779 | 2.7 % | |||||
During the fourth quarter of 2021, the Company repurchased $1.5 million, or 63,884 shares of its common stock, under the current repurchase plan, at a weighted average price per share of $23.02, as compared to the repurchase of $20.6 million, or 841,088 shares of its common stock, at a weighted average price per share of $24.54 during the third quarter of 2021. Repurchases under the current repurchase plan for the year ended 2021 totaled $22.1 million, or 904,972 shares of common stock, at a weighted average price per share of $24.43 and represented approximately 2.5% of common stock outstanding at December 31, 2020. As of December 31, 2021, there were 738,304 shares available for repurchase under the current repurchase plan.
The Company and Heritage Bank continue to maintain capital levels in excess of the applicable regulatory requirements for them both to be categorized as "well-capitalized". The following table summarizes capital ratios for the Company at the dates indicated:
December 31,2021 | September 30,2021 | Change | |||||||
Capital Ratios: | |||||||||
Stockholders' equity to total assets | 11.5% | 11.7% | (0.2)% | ||||||
Tangible common equity to tangible assets (1) | 8.4 | 8.5 | (0.1) | ||||||
Common equity Tier 1 capital to risk-weighted assets (2) | 13.5 | 13.3 | 0.2 | ||||||
Tier 1 leverage capital to average quarterly assets (2) | 8.7 | 8.8 | (0.1) | ||||||
Tier 1 capital to risk-weighted assets (2) | 13.9 | 13.8 | 0.1 | ||||||
Total capital to risk-weighted assets (2) | 14.8 | 14.8 | — | ||||||
(1) See Non-GAAP Financial Measures section herein. |
(2) Current quarter ratios are estimates pending completion and filing of the Company's regulatory reports. |
Allowance for Credit Losses and Provision for Credit Losses
The following table provides detail on the changes in the allowance for credit losses ("ACL") on loans and the ACL on unfunded commitments ("Unfunded") and the related (reversal of) provision for credit losses for the periods indicated:
As of or for the Quarter Ended | |||||||||||||||||
December 31, 2021 | September 30, 2021 | December 31, 2020 | |||||||||||||||
ACL on Loans | ACL on Unfunded | Total | ACL on Loans | ACL on Unfunded | Total | ACL on Loans | ACL on Unfunded | Total | |||||||||
(Dollars in thousands) | |||||||||||||||||
Balance, beginning of period | $ 48,317 | $ 2,154 | $ 50,471 | $ 51,562 | $ 2,451 | $ 54,013 | $ 73,340 | $ 5,022 | $ 78,362 | ||||||||
(Reversal of) provision for credit losses | (5,490) | 453 | (5,037) | (2,852) | (297) | (3,149) | (2,792) | (341) | (3,133) | ||||||||
Net charge-offs | (466) | — | (466) | (393) | — | (393) | (363) | — | (363) | ||||||||
Balance, end of period | $ 42,361 | $ 2,607 | $ 44,968 | $ 48,317 | $ 2,154 | $ 50,471 | $ 70,185 | $ 4,681 | $ 74,866 | ||||||||
The ACL on loans decreased compared to September 30, 2021 due primarily to continued improvement in forecasted economic indicators used to calculate credit losses as well as changes in the loan mix.
Credit Quality
Nonperforming assets decreased to 0.32% of total assets at December 31, 2021 compared to 0.36% of total assets at September 30, 2021. Nonperforming assets at both December 31, 2021 and September 30, 2021 consisted only of nonaccrual loans. Changes in nonaccrual loans during the periods indicated were as follows:
Quarter Ended | |||||
December 31,2021 | September 30,2021 | December 31,2020 | |||
(In thousands) | |||||
Balance, beginning of period | $ 25,894 | $ 35,341 | $ 52,604 | ||
Additions to nonaccrual loan classification | 333 | 293 | 8,345 | ||
Net principal payments and transfers to accruing status | (1,435) | (8,139) | (2,186) | ||
Payoffs | (540) | (911) | (82) | ||
Charge-offs | (498) | (690) | (589) | ||
Balance, end of period | $ 23,754 | $ 25,894 | $ 58,092 | ||
Net Interest Income and Net Interest Margin
Net interest income decreased $3.5 million, or 6.8%, for the fourth quarter of 2021 compared to the third quarter of 2021 due primarily to a decrease in deferred SBA PPP loan fees recognized due to a decrease in the volume of forgiven SBA PPP loans.
Net interest income decreased $4.5 million, or 8.7%, compared to the fourth quarter of 2020 also due to the decrease in deferred SBA PPP loan fees recognized as well as lower loan yield. The decrease in net interest income was offset partially by a higher average balance of taxable securities and other interest earning deposits in addition to a lower cost of deposits reflecting a continued decrease in rates on deposit accounts due to the ongoing low-rate environment.
The following table presents the loan yield and the impact of SBA PPP loans and the incremental accretion on purchased loans on this financial measure for the periods presented below:
Quarter Ended | ||||||||
December 31,2021 | September 30,2021 | December 31,2020 | ||||||
Loan yield (GAAP) | 4.42 | % | 4.64 | % | 4.39 | % | ||
Exclude impact from SBA PPP loans | (0.29) | (0.38) | 0.02 | |||||
Exclude impact from incremental accretion on purchased loans | (0.05) | (0.07) | (0.07) | |||||
Loan yield, excluding SBA PPP loans and incremental accretion on purchased loans (non-GAAP) (1) | 4.08 | % | 4.19 | % | 4.34 | % | ||
(1) See Non-GAAP Financial Measures section. |
Net interest margin decreased to 2.85% for the fourth quarter of 2021 as compared to 3.15% for the third quarter of 2021 due primarily to lower loan yield and an increase in the balance of lower yielding average interest earning deposits.
Net interest margin decreased from 3.53% for the fourth quarter of 2020 due primarily to the change in the mix of total interest earning assets, including an increase in the balance of lower yielding average interest earning deposits.
Noninterest Income
The following table presents the key components of noninterest income and the change for the periods indicated:
Quarter Ended | Quarter Over Quarter Change | Prior Year Quarter Change | |||||||||||
December 31,2021 | September 30,2021 | December 31,2020 | Change | % Change | Change | % Change | |||||||
(Dollar amounts in thousands) | |||||||||||||
Service charges and other fees | $ 4,609 | $ 4,566 | $ 4,213 | $ 43 | 0.9 % | $ 396 | 9.4 % | ||||||
Gain on sale of investment securities, net | — | — | 55 | — | — | (55) | (100.0) | ||||||
Gain on sale of loans, net | 506 | 765 | 1,919 | (259) | (33.9) | (1,413) | (73.6) | ||||||
Interest rate swap fees | 174 | 126 | 230 | 48 | 38.1 | (56) | (24.3) | ||||||
Bank owned life insurance income | 500 | 647 | 1,880 | (147) | (22.7) | (1,380) | (73.4) | ||||||
Gain on sale of other assets, net | 2,717 | 942 | 921 | 1,775 | 188.4 | 1,796 | 195.0 | ||||||
Other income | 1,333 | 1,182 | 2,067 | 151 | 12.8 | (734) | (35.5) | ||||||
Total noninterest income | $ 9,839 | $ 8,228 | $ 11,285 | $ 1,611 | 19.6 % | $ (1,446) | (12.8) % | ||||||
Noninterest income increased during the fourth quarter of 2021 compared to the third quarter of 2021 due primarily to a gain of $2.7 million related to the sale and leaseback of the Company's headquarters in Olympia, WA included in gain on sale of other assets.
Noninterest income decreased from the same period in 2020 due primarily to reduced gain on sale of loans, net as sales volume of secondary market mortgage loans declined and less bank owned life insurance income and other income as the fourth quarter of 2020 included the recognition of a death benefit of $1.2 million and a termination fee of $651,000 from the divestiture of our trust department. The decrease in noninterest income was offset partially by an increase in gain on sale of other assets due to the gain on sale of the Company's headquarters discussed above.
Noninterest Expense
The following table presents the key components of noninterest expense and the change for the periods indicated:
Quarter Ended | Quarter Over Quarter Change | Prior Year Quarter Change | |||||||||||
December 31,2021 | September 30,2021 | December 31,2020 | Change | % Change | Change | % Change | |||||||
(Dollar amounts in thousands) | |||||||||||||
Compensation and employee benefits | $ 23,155 | $ 22,176 | $ 22,257 | $ 979 | 4.4 % | $ 898 | 4.0 % | ||||||
Occupancy and equipment | 4,325 | 4,373 | 4,364 | (48) | (1.1) | (39) | (0.9) | ||||||
Data processing | 4,694 | 4,029 | 3,714 | 665 | 16.5 | 980 | 26.4 | ||||||
Marketing | 703 | 775 | 783 | (72) | (9.3) | (80) | (10.2) | ||||||
Professional services | 816 | 816 | 1,289 | — | — | (473) | (36.7) | ||||||
State/municipal business and use tax | 850 | 1,071 | 1,128 | (221) | (20.6) | (278) | (24.6) | ||||||
Federal deposit insurance premium | 628 | 550 | 703 | 78 | 14.2 | (75) | (10.7) | ||||||
Amortization of intangible assets | 759 | 758 | 859 | 1 | 0.1 | (100) | (11.6) | ||||||
Other expense | 2,535 | 2,618 | 3,465 | (83) | (3.2) | (930) | (26.8) | ||||||
Total noninterest expense | $ 38,465 | $ 37,166 | $ 38,562 | $ 1,299 | 3.5 % | $ (97) | (0.3) % | ||||||
Noninterest expense increased from the third quarter of 2021 due primarily to an increase in compensation and employee benefits as a result of severance payments following a strategic reduction in force and an increase in accrual for incentive payments. Additionally, data processing increased as the Bank continues to invest in technology.
Noninterest expense remained relatively constant compared to the fourth quarter of 2020. However, there was a decrease in expenses related to branch consolidations recognized during the fourth quarter of 2020, predominately within other expense, offset partially by increases in compensation and employee benefits and data processing for the same reasons discussed above.
Income Tax Expense
The following table presents the income tax expense and related metrics and the change for the periods indicated:
Quarter Ended | Quarter Over Quarter Change | Prior Year Quarter Change | |||||||||||
December 31,2021 | September 30,2021 | December 31,2020 | Change | % Change | Change | % Change | |||||||
(Dollar amounts in thousands) | |||||||||||||
Income before income taxes | $ 24,319 | $ 25,589 | $ 28,311 | $ (1,270) | (5.0) % | $ (3,992) | (14.1) % | ||||||
Income tax expense | $ 4,922 | $ 4,997 | $ 4,429 | $ (75) | (1.5) % | $ 493 | 11.1 % | ||||||
Effective income tax rate | 20.2 % | 19.5 % | 15.6 % | 0.7 % | 3.6 % | 4.6 % | 29.5 % | ||||||
Income tax expense decreased for the fourth quarter of 2021 compared to the third quarter of 2021 and increased compared to the same period in 2020 primarily reflecting the change in income before income taxes earned between the periods. Additionally, the effective income tax rate increased between the same periods due primarily to an increase in annual pre-tax income for the year ended 2021, which decreased the impact of favorable permanent tax items such as tax-exempt investments, investments in bank owned life insurance and low-income housing tax credits.
Dividend
On January 26, 2022, the Company's Board of Directors declared a quarterly cash dividend of $0.21 per share. The dividend is payable on February 23, 2022 to shareholders of record as of the close of business on February 9, 2022.
Earnings Conference Call
The Company will hold a telephone conference call to discuss this earnings release on January 27, 2022 at 11:00 a.m. Pacific time. To access the call, please dial (844) 200-6205 -- access code 09084 a few minutes prior to 11:00 a.m. Pacific time. The call will be available for replay through February 3, 2022 by dialing (866) 813-9403 -- access code 668648.
About Heritage Financial
Heritage Financial Corporation is an Olympia-based bank holding company with Heritage Bank, a full-service commercial bank, as its sole wholly-owned banking subsidiary. Heritage Bank has a branch network of 49 banking offices in Washington and Oregon. Heritage Bank does business under the Whidbey Island Bank name on Whidbey Island. Heritage's stock is traded on the NASDAQ Global Select Market under the symbol "HFWA". More information about Heritage Financial Corporation can be found on its website at www.hf-wa.com and more information about Heritage Bank can be found on its website at www.heritagebanknw.com.
Forward-Looking Statements
This press release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements often include words such as "believe," "expect," "anticipate," "estimate," and "intend" or future or conditional verbs such as "will," "would," "should," "could," or "may." Forward-looking statements are not historical facts but instead represent management's current expectations and forecasts regarding future events, many of which are inherently uncertain and outside of our control. Actual results may differ, possibly materially, from those currently expected or projected in these forward-looking statements. 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. Continued deterioration in general business and economic conditions, including increases in unemployment rates, or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding, lead to a tightening of credit, and further increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices as a result of, or in response to COVID-19, could affect us in substantial and unpredictable ways. Other factors that could cause or contribute to such differences include, but are not limited to: changes in the interest rate environment; changes in general economic conditions and conditions within the securities markets; legislative and regulatory changes; and other factors described in Heritage's latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other documents filed with or furnished to the Securities and Exchange Commission-which are available on our website at www.heritagebanknw.com and on the SEC's website at www.sec.gov. The Company cautions readers not to place undue reliance on any forward-looking statements. Moreover, any of the forward-looking statements that we make in this press release or the documents we file with or furnish to the SEC are based only on information then actually known to the Company and upon management's beliefs and assumptions at the time they are made which may turn out to be wrong because of inaccurate assumptions we might make, because of the factors described above or because of other factors that we cannot foresee. The Company does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for 2022 and beyond to differ materially from those expressed in any forward-looking statements by, or on behalf of, us, and could negatively affect the Company's operating and stock price performance.
HERITAGE FINANCIAL CORPORATION | |||||
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) | |||||
(Dollar amounts in thousands, except shares) | |||||
December 31,2021 | September 30,2021 | December 31,2020 | |||
Assets | |||||
Cash on hand and in banks | $ 61,377 | $ 86,954 | $ 91,918 | ||
Interest earning deposits | 1,661,915 | 1,547,785 | 651,404 | ||
Cash and cash equivalents | 1,723,292 | 1,634,739 | 743,322 | ||
Investment securities available for sale, at fair value (amortized cost of $883,832, $744,336 and $770,195, respectively) | 894,335 | 761,526 | 802,163 | ||
Investment securities held to maturity, at amortized cost (fair value of $376,330, $307,330 and $0, respectively) | 383,393 | 311,074 | — | ||
Total investment securities | 1,277,728 | 1,072,600 | 802,163 | ||
Loans held for sale | 1,476 | 2,636 | 4,932 | ||
Loans receivable | 3,815,662 | 3,953,884 | 4,468,647 | ||
Allowance for credit losses on loans | (42,361) | (48,317) | (70,185) | ||
Loans receivable, net | 3,773,301 | 3,905,567 | 4,398,462 | ||
Other real estate owned | — | — | — | ||
Premises and equipment, net | 79,370 | 79,958 | 85,452 | ||
Federal Home Loan Bank ("FHLB") stock, at cost | 7,933 | 7,933 | 6,661 | ||
Bank owned life insurance | 120,196 | 109,634 | 107,580 | ||
Accrued interest receivable | 14,657 | 14,802 | 19,418 | ||
Prepaid expenses and other assets | 183,543 | 179,494 | 193,301 | ||
Other intangible assets, net | 9,977 | 10,736 | 13,088 | ||
Goodwill | 240,939 | 240,939 | 240,939 | ||
Total assets | $ 7,432,412 | $ 7,259,038 | $ 6,615,318 | ||
Liabilities and Stockholders' Equity | |||||
Deposits | $ 6,381,337 | $ 6,215,558 | $ 5,597,990 | ||
Junior subordinated debentures | 21,180 | 21,107 | 20,887 | ||
Securities sold under agreement to repurchase | 50,839 | 44,096 | 35,683 | ||
Accrued expenses and other liabilities | 124,624 | 129,873 | 140,319 | ||
Total liabilities | 6,577,980 | 6,410,634 | 5,794,879 | ||
Common stock | 551,798 | 552,385 | 571,021 | ||
Retained earnings | 293,238 | 281,285 | 224,400 | ||
Accumulated other comprehensive income, net | 9,396 | 14,734 | 25,018 | ||
Total stockholders' equity | 854,432 | 848,404 | 820,439 | ||
Total liabilities and stockholders' equity | $ 7,432,412 | $ 7,259,038 | $ 6,615,318 | ||
Shares outstanding | 35,105,779 | 35,166,599 | 35,912,243 | ||
HERITAGE FINANCIAL CORPORATION | |||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) | |||||||||
(Dollar amounts in thousands, except per share amounts) | |||||||||
Quarter Ended | Year Ended | ||||||||
December 31,2021 | September 30,2021 | December 31,2020 | December 31,2021 | December 31,2020 | |||||
Interest Income | |||||||||
Interest and fees on loans | $ 42,695 | $ 46,863 | $ 50,089 | $ 189,832 | $ 192,417 | ||||
Taxable interest on investment securities | 5,197 | 4,711 | 3,473 | 17,492 | 17,541 | ||||
Nontaxable interest on investment securities | 1,063 | 931 | 973 | 3,899 | 3,659 | ||||
Interest on interest earning deposits | 633 | 537 | 142 | 1,608 | 703 | ||||
Total interest income | 49,588 | 53,042 | 54,677 | 212,831 | 214,320 | ||||
Interest Expense | |||||||||
Deposits | 1,464 | 1,444 | 1,993 | 6,160 | 12,265 | ||||
Junior subordinated debentures | 185 | 184 | 191 | 742 | 890 | ||||
Other borrowings | 31 | 36 | 38 | 140 | 168 | ||||
Total interest expense | 1,680 | 1,664 | 2,222 | 7,042 | 13,323 | ||||
Net interest income | 47,908 | 51,378 | 52,455 | 205,789 | 200,997 | ||||
(Reversal of) provision for credit losses | (5,037) | (3,149) | (3,133) | (29,372) | 36,106 | ||||
Net interest income after (reversal of) provision for credit losses | 52,945 | 54,527 | 55,588 | 235,161 | 164,891 | ||||
Noninterest Income | |||||||||
Service charges and other fees | 4,609 | 4,566 | 4,213 | 17,597 | 16,228 | ||||
Gain on sale of investment securities, net | — | — | 55 | 29 | 1,518 | ||||
Gain on sale of loans, net | 506 | 765 | 1,919 | 3,644 | 5,044 | ||||
Interest rate swap fees | 174 | 126 | 230 | 661 | 1,691 | ||||
Bank owned life insurance income | 500 | 647 | 1,880 | 2,520 | 4,319 | ||||
Gain on sale of other assets, net | 2,717 | 942 | 921 | 4,405 | 955 | ||||
Other income | 1,333 | 1,182 | 2,067 | 5,759 | 7,474 | ||||
Total noninterest income | 9,839 | 8,228 | 11,285 | 34,615 | 37,229 | ||||
Noninterest Expense | |||||||||
Compensation and employee benefits | 23,155 | 22,176 | 22,257 | 89,880 | 88,106 | ||||
Occupancy and equipment | 4,325 | 4,373 | 4,364 | 17,243 | 17,611 | ||||
Data processing | 4,694 | 4,029 | 3,714 | 16,533 | 14,449 | ||||
Marketing | 703 | 775 | 783 | 3,039 | 3,100 | ||||
Professional services | 816 | 816 | 1,289 | 4,065 | 5,921 | ||||
State/municipal business and use taxes | 850 | 1,071 | 1,128 | 3,884 | 3,754 | ||||
Federal deposit insurance premium | 628 | 550 | 703 | 2,106 | 1,789 | ||||
Other real estate owned, net | — | — | — | — | (145) | ||||
Amortization of intangible assets | 759 | 758 | 859 | 3,111 | 3,525 | ||||
Other expense | 2,535 | 2,618 | 3,465 | 9,408 | 10,830 | ||||
Total noninterest expense | 38,465 | 37,166 | 38,562 | 149,269 | 148,940 | ||||
Income before income taxes | 24,319 | 25,589 | 28,311 | 120,507 | 53,180 | ||||
Income tax expense | 4,922 | 4,997 | 4,429 | 22,472 | 6,610 | ||||
Net income | $ 19,397 | $ 20,592 | $ 23,882 | $ 98,035 | $ 46,570 | ||||
Basic earnings per share | $ 0.56 | $ 0.58 | $ 0.66 | $ 2.75 | $ 1.29 | ||||
Diluted earnings per share | $ 0.55 | $ 0.58 | $ 0.66 | $ 2.73 | $ 1.29 | ||||
Dividends declared per share | $ 0.21 | $ 0.20 | $ 0.20 | $ 0.81 | $ 0.80 | ||||
Average shares outstanding - basic | 35,154,382 | 35,644,192 | 35,910,430 | 35,677,851 | 36,014,445 | ||||
Average shares outstanding - diluted | 35,439,998 | 35,929,518 | 36,188,579 | 35,973,386 | 36,170,066 | ||||
HERITAGE FINANCIAL CORPORATION | ||||||||||||||
FINANCIAL STATISTICS (Unaudited) | ||||||||||||||
(Dollar amounts in thousands, except per share amounts) | ||||||||||||||
Nonperforming Assets and Credit Quality Metrics: | ||||||||||||||
Quarter Ended | Year Ended | |||||||||||||
December 31,2021 | September 30,2021 | December 31,2020 | December 31,2021 | December 31,2020 | ||||||||||
Allowance for Credit Losses on Loans: | ||||||||||||||
Balance, beginning of period | $ 48,317 | $ 51,562 | $ 73,340 | $ 70,185 | $ 36,171 | |||||||||
Impact of CECL adoption | — | — | — | — | 1,822 | |||||||||
Adjusted balance, beginning of period | 48,317 | 51,562 | 73,340 | 70,185 | 37,993 | |||||||||
(Reversal of) provision for credit losses on loans | (5,490) | (2,852) | (2,792) | (27,298) | 35,433 | |||||||||
Charge-offs: | ||||||||||||||
Commercial business | (519) | (743) | (198) | (1,276) | (3,751) | |||||||||
Real estate construction and land development | — | — | (417) | (1) | (417) | |||||||||
Consumer | (160) | (204) | (313) | (669) | (1,454) | |||||||||
Total charge-offs | (679) | (947) | (928) | (1,946) | (5,622) | |||||||||
Recoveries: | ||||||||||||||
Commercial business | 81 | 385 | 310 | 816 | 1,530 | |||||||||
Residential real estate | — | — | — | — | 3 | |||||||||
Real estate construction and land development | 4 | 8 | 118 | 32 | 278 | |||||||||
Consumer | 128 | 161 | 137 | 572 | 570 | |||||||||
Total recoveries | 213 | 554 | 565 | 1,420 | 2,381 | |||||||||
Net charge-offs | (466) | (393) | (363) | (526) | (3,241) | |||||||||
Balance, end of period | $ 42,361 | $ 48,317 | $ 70,185 | $ 42,361 | $ 70,185 | |||||||||
Net charge-offs on loans to average loans, annualized | 0.05 | % | 0.04% | 0.03% | 0.01% | 0.07% | ||||||||
December 31,2021 | September 30,2021 | December 31,2020 | ||||||
Nonperforming Assets: | ||||||||
Nonaccrual loans: | ||||||||
Commercial business | $ 23,107 | $ 25,243 | $ 56,786 | |||||
Residential real estate | 47 | 51 | 184 | |||||
Real estate construction and land development | 571 | 571 | 1,022 | |||||
Consumer | 29 | 29 | 100 | |||||
Total nonaccrual loans | 23,754 | 25,894 | 58,092 | |||||
Other real estate owned | — | — | — | |||||
Nonperforming assets | $ 23,754 | $ 25,894 | $ 58,092 | |||||
Restructured performing loans | $ 59,110 | $ 60,684 | $ 52,872 | |||||
Accruing loans past due 90 days or more | 293 | — | — | |||||
ACL on loans to: | ||||||||
Loans receivable | 1.11% | 1.22% | 1.57% | |||||
Loans receivable, excluding SBA PPP loans (1) | 1.15% | 1.31% | 1.87% | |||||
Nonaccrual loans | 178.33% | 186.60% | 120.82% | |||||
Nonperforming loans to loans receivable | 0.62% | 0.65% | 1.30% | |||||
Nonperforming assets to total assets | 0.32% | 0.36% | 0.88% | |||||
(1) See Non-GAAP Financial Measures section herein. |
Average Balances, Yields, and Rates Paid: | ||||||||||||||||||||
Quarter Ended | ||||||||||||||||||||
December 31, 2021 | September 30, 2021 | December 31, 2020 | ||||||||||||||||||
Average Balance | Interest Earned/ Paid | AverageYield/Rate (1) | Average Balance | Interest Earned/ Paid | AverageYield/Rate (1) | Average Balance | Interest Earned/ Paid | AverageYield/Rate (1) | ||||||||||||
Interest Earning Assets: | ||||||||||||||||||||
Loans receivable, net (2)(3) | $ 3,836,029 | $ 42,695 | 4.42 | % | $ 4,005,585 | $ 46,863 | 4.64 % | $ 4,540,962 | $ 50,089 | 4.39 % | ||||||||||
Taxable securities | 1,016,629 | 5,197 | 2.03 | 893,374 | 4,711 | 2.09 | 649,287 | 3,473 | 2.13 | |||||||||||
Nontaxable securities (3) | 153,686 | 1,063 | 2.74 | 157,907 | 931 | 2.34 | 164,025 | 973 | 2.36 | |||||||||||
Interest earning deposits | 1,665,640 | 633 | 0.15 | 1,417,661 | 537 | 0.15 | 559,491 | 142 | 0.10 | |||||||||||
Total interest earning assets | 6,671,984 | 49,588 | 2.95 % | 6,474,527 | 53,042 | 3.25 % | 5,913,765 | 54,677 | 3.68 % | |||||||||||
Noninterest earning assets | 731,613 | 740,433 | 761,712 | |||||||||||||||||
Total assets | $ 7,403,597 | $ 7,214,960 | 6,675,477 | |||||||||||||||||
Interest Bearing Liabilities: | ||||||||||||||||||||
Certificates of deposit | $ 349,708 | $ 364 | 0.41 % | $ 365,278 | $ 407 | 0.44 % | $ 421,633 | $ 720 | 0.68 % | |||||||||||
Savings accounts | 631,531 | 93 | 0.06 | 609,818 | 90 | 0.06 | 532,301 | 106 | 0.08 | |||||||||||
Interest bearing demand and money market accounts | 2,996,482 | 1,007 | 0.13 | 2,881,567 | 947 | 0.13 | 2,680,084 | 1,167 | 0.17 | |||||||||||
Total interest bearing deposits | 3,977,721 | 1,464 | 0.15 | 3,856,663 | 1,444 | 0.15 | 3,634,018 | 1,993 | 0.22 | |||||||||||
Junior subordinated debentures | 21,140 | 185 | 3.47 | 21,060 | 184 | 3.47 | 20,840 | 191 | 3.65 | |||||||||||
Securities sold under agreement to repurchase | 46,942 | 31 | 0.26 | 52,197 | 36 | 0.27 | 35,278 | 38 | 0.43 | |||||||||||
Total interest bearing liabilities | 4,045,803 | 1,680 | 0.16 % | 3,929,920 | 1,664 | 0.17 % | 3,690,136 | 2,222 | 0.24 % | |||||||||||
Noninterest demand deposits | 2,383,651 | 2,300,795 | 2,034,425 | |||||||||||||||||
Other noninterest bearing liabilities | 124,760 | 128,537 | 141,917 | |||||||||||||||||
Stockholders' equity | 849,383 | 855,708 | 808,999 | |||||||||||||||||
Total liabilities and stockholders' equity | $ 7,403,597 | $ 7,214,960 | $ 6,675,477 | |||||||||||||||||
Net interest and spread | $ 47,908 | 2.79 % | $ 51,378 | 3.08 % | $ 52,455 | 3.44 % | ||||||||||||||
Net interest margin | 2.85 % | 3.15 % | 3.53 % | |||||||||||||||||
(1) Annualized; average balances are calculated using daily balances. | |
(2) Average loan receivable, net includes loans held for sale and loans classified as nonaccrual, which carry a zero yield. Interest earned on loans receivable, net includes the amortization of net deferred loan fees of $5.2 million, $7.8 million and $6.9 million for the fourth quarter of 2021, third quarter of 2021 and fourth quarter of 2020, respectively. | |
(3) Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis. |
Year Ended | |||||||||||||
December 31, 2021 | December 31, 2020 | ||||||||||||
Average Balance | Interest Earned/ Paid | AverageYield/Rate (1) | Average Balance | Interest Earned/ Paid | AverageYield/Rate (1) | ||||||||
Interest Earning Assets: | |||||||||||||
Loans receivable, net (2) (3) | $ 4,181,464 | $ 189,832 | 4.54 | % | $ 4,335,564 | $ 192,417 | 4.44 | % | |||||
Taxable securities | 846,892 | 17,492 | 2.07 | 731,378 | 17,541 | 2.40 | |||||||
Nontaxable securities (3) | 158,968 | 3,899 | 2.45 | 152,447 | 3,659 | 2.40 | |||||||
Interest earning deposits | 1,193,724 | 1,608 | 0.13 | 315,847 | 703 | 0.22 | |||||||
Total interest earning assets | 6,381,048 | 212,831 | 3.34 | % | 5,535,236 | 214,320 | 3.87 | % | |||||
Noninterest earning assets | 745,202 | 758,386 | |||||||||||
Total assets | $ 7,126,250 | $ 6,293,622 | |||||||||||
Interest Bearing Liabilities: | |||||||||||||
Certificates of deposit | $ 372,279 | $ 1,811 | 0.49 | % | $ 482,316 | $ 5,675 | 1.18 | % | |||||
Savings accounts | 598,492 | 367 | 0.06 | 489,471 | 526 | 0.11 | |||||||
Interest bearing demand and money market accounts | 2,862,504 | 3,982 | 0.14 | 2,491,477 | 6,064 | 0.24 | |||||||
Total interest bearing deposits | 3,833,275 | 6,160 | 0.16 | 3,463,264 | 12,265 | 0.35 | |||||||
Junior subordinated debentures | 21,025 | 742 | 3.53 | 20,730 | 890 | 4.29 | |||||||
Securities sold under agreement to repurchase | 45,655 | 140 | 0.31 | 27,805 | 160 | 0.58 | |||||||
FHLB advances and other borrowings | — | — | — | 1,466 | 8 | 0.55 | |||||||
Total interest bearing liabilities | 3,899,955 | 7,042 | 0.18 | % | 3,513,265 | 13,323 | 0.38 | % | |||||
Noninterest demand deposits | 2,256,608 | 1,835,165 | |||||||||||
Other noninterest bearing liabilities | 127,620 | 139,612 | |||||||||||
Stockholders' equity | 842,067 | 805,580 | |||||||||||
Total liabilities and stockholders' equity | $ 7,126,250 | $ 6,293,622 | |||||||||||
Net interest income and spread | $ 205,789 | 3.16 | % | $ 200,997 | 3.49 | % | |||||||
Net interest margin | 3.23 | % | 3.63 | % | |||||||||
(1) Average balances are calculated using daily balances. | |
(2) Average loan receivable, net includes loans held for sale and loans classified as nonaccrual, which carry a zero yield. Interest | |
earned on loans receivable, net includes the amortization of net deferred loan fees of $28.4 million and $14.4 million for the years ended 2021 and 2020, respectively. | |
(3) Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis. | |
HERITAGE FINANCIAL CORPORATION | |||||||||||||||
QUARTERLY FINANCIAL STATISTICS (Unaudited) | |||||||||||||||
(Dollar amounts in thousands, except per share amounts) | |||||||||||||||
Quarter Ended | |||||||||||||||
December 31,2021 | September 30,2021 | June 30,2021 | March 31,2021 | December 31,2020 | |||||||||||
Earnings: | |||||||||||||||
Net interest income | $ 47,908 | $ 51,378 | $ 54,265 | $ 52,238 | $ 52,455 | ||||||||||
(Reversal of) provision for credit losses | (5,037) | (3,149) | (13,987) | (7,199) | (3,133) | ||||||||||
Noninterest income | 9,839 | 8,228 | 8,297 | 8,251 | 11,285 | ||||||||||
Noninterest expense | 38,465 | 37,166 | 36,396 | 37,242 | 38,562 | ||||||||||
Net income | 19,397 | 20,592 | 32,702 | 25,344 | 23,882 | ||||||||||
Pre-tax, pre-provision net income (3) | 19,282 | 22,440 | 26,166 | 23,247 | 25,178 | ||||||||||
Basic earnings per share | $ 0.56 | $ 0.58 | $ 0.91 | $ 0.70 | $ 0.66 | ||||||||||
Diluted earnings per share | $ 0.55 | $ 0.58 | $ 0.90 | $ 0.70 | $ 0.66 | ||||||||||
Average Balances: | |||||||||||||||
Loans receivable, net (1) | $ 3,836,029 | $ 4,005,585 | $ 4,402,868 | $ 4,490,499 | $ 4,540,962 | ||||||||||
Total investment securities | 1,170,315 | 1,051,281 | 959,512 | 838,182 | 813,312 | ||||||||||
Total interest earning assets | 6,671,984 | 6,474,527 | 6,327,171 | 6,042,566 | 5,913,765 | ||||||||||
Total assets | 7,403,597 | 7,214,960 | 7,079,205 | 6,799,625 | 6,675,477 | ||||||||||
Total interest bearing deposits | 3,977,721 | 3,856,663 | 3,809,750 | 3,685,496 | 3,634,018 | ||||||||||
Total noninterest demand deposits | 2,383,651 | 2,300,795 | 2,246,929 | 2,091,359 | 2,034,425 | ||||||||||
Stockholders' equity | 849,383 | 855,708 | 835,761 | 827,021 | 808,999 | ||||||||||
Financial Ratios: | |||||||||||||||
Return on average assets (2) | 1.04 | % | 1.13 | % | 1.85 | % | 1.51 | % | 1.42 | % | |||||
Pre-tax, pre-provision return on average assets (2)(3) | 1.03 | 1.23 | 1.48 | 1.39 | 1.50 | ||||||||||
Return on average common equity (2) | 9.06 | 9.55 | 15.69 | 12.43 | 11.74 | ||||||||||
Return on average tangible common equity (2) (3) | 13.27 | 13.93 | 22.94 | 18.37 | 17.62 | ||||||||||
Efficiency ratio | 66.61 | 62.35 | 58.18 | 61.57 | 60.50 | ||||||||||
Noninterest expense to average total assets (2) | 2.06 | 2.04 | 2.06 | 2.22 | 2.30 | ||||||||||
Net interest margin (2) | 2.85 | 3.15 | 3.44 | 3.51 | 3.53 | ||||||||||
Net interest spread (2) | 2.79 | 3.08 | 3.37 | 3.43 | 3.44 | ||||||||||
(1) Average loan receivable, net includes loans held for sale and loans classified as nonaccrual, which carry a zero yield. | |
(2) Annualized. | |
(3) See Non-GAAP Financial Measures section herein. |
As of or for the Quarter Ended | ||||||||||
December 31,2021 | September 30,2021 | June 30,2021 | March 31,2021 | December 31,2020 | ||||||
Select Balance Sheet: | ||||||||||
Total assets | $ 7,432,412 | $ 7,259,038 | $ 7,105,672 | $ 7,028,392 | $ 6,615,318 | |||||
Loans receivable, net | 3,773,301 | 3,905,567 | 4,155,968 | 4,531,644 | 4,398,462 | |||||
Total investment securities | 1,277,728 | 1,072,600 | 1,049,524 | 893,558 | 802,163 | |||||
Deposits | 6,381,337 | 6,215,558 | 6,061,706 | 6,019,698 | 5,597,990 | |||||
Noninterest demand deposits | 2,330,956 | 2,299,248 | 2,256,341 | 2,205,562 | 1,980,531 | |||||
Stockholders' equity | 854,432 | 848,404 | 855,984 | 827,151 | 820,439 | |||||
Financial Measures: | ||||||||||
Book value per share | $ 24.34 | $ 24.13 | $ 23.77 | $ 22.99 | $ 22.85 | |||||
Tangible book value per share (1) | 17.19 | 16.97 | 16.76 | 15.95 | 15.77 | |||||
Stockholders' equity to total assets | 11.5 % | 11.7 % | 12.0 % | 11.8 % | 12.4 % | |||||
Tangible common equity to tangible assets (1) | 8.4 | 8.5 | 8.8 | 8.5 | 8.9 | |||||
Loans to deposits ratio | 59.8 | 63.6 | 69.4 | 76.3 | 79.8 | |||||
Regulatory Capital Ratios: | ||||||||||
Common equity Tier 1 capital to risk- weighted assets(2) | 13.5 % | 13.3 % | 13.6 % | 12.8 % | 12.3 % | |||||
Tier 1 leverage capital to average assets(2) | 8.7 % | 8.8 % | 9.1 % | 9.1 % | 9.0 % | |||||
Tier 1 capital to risk-weighted assets(2) | 13.9 % | 13.8 % | 14.0 % | 13.2 % | 12.8 % | |||||
Total capital to risk-weighted assets(2) | 14.8 % | 14.8 % | 15.1 % | 14.5 % | 14.0 % | |||||
Credit Quality Metrics: | ||||||||||
ACL on loans to: | ||||||||||
Loans receivable | 1.11 % | 1.22 % | 1.23 % | 1.40 % | 1.57 % | |||||
Loans receivable, excluding SBA PPP loans (1) | 1.15 | 1.31 | 1.41 | 1.73 | 1.87 | |||||
Nonperforming loans | 178.33 | 186.60 | 145.90 | 121.48 | 120.82 | |||||
Nonperforming loans to loans receivable | 0.62 | 0.65 | 0.84 | 1.15 | 1.30 | |||||
Nonperforming assets to total assets | 0.32 | 0.36 | 0.50 | 0.75 | 0.88 | |||||
Net charge-offs (recoveries) on loans to average loans receivable | 0.05 | 0.04 | (0.01) | (0.02) | 0.03 | |||||
Criticized Loans by Credit Quality Rating: | ||||||||||
Special mention | $ 71,020 | $ 90,554 | $ 100,317 | $ 108,975 | $ 132,036 | |||||
Substandard | 112,450 | 126,964 | 135,374 | 160,461 | 158,515 | |||||
Other Metrics: | ||||||||||
Number of banking offices | 49 | 53 | 53 | 53 | 61 | |||||
Average number of full-time equivalent employees | 782 | 813 | 822 | 840 | 848 | |||||
Deposits per branch | $ 130,231 | $ 117,275 | $ 114,372 | $ 113,579 | $ 91,770 | |||||
Average assets per full-time equivalent employee | 9,469 | 8,877 | 8,607 | 8,098 | 7,873 | |||||
(1) See Non-GAAP Financial Measures section herein. | |
(2) Current quarter ratios are estimates pending completion and filing of the Company's regulatory reports. | |
HERITAGE FINANCIAL CORPORATION | |||||||||
NON-GAAP FINANCIAL MEASURES (Unaudited) | |||||||||
(Dollar amounts in thousands, except per share amounts) | |||||||||
This earnings release contains certain financial measures not presented in accordance with Generally Accepted Accounting Principles ("GAAP") in addition to financial measures presented in accordance with GAAP. The Company has presented these non-GAAP financial measures in this earnings release because it believes that they provide useful and comparative information to assess trends in the Company's capital, performance and asset quality reflected in the current quarter and comparable period results and to facilitate comparison of its performance with the performance of its peers. These non-GAAP measures have inherent limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for financial measures presented in accordance with GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies. Reconciliations of the GAAP and non-GAAP financial measures are presented below. | |||||||||
The Company considers the tangible common equity to tangible assets ratio and tangible book value per share to be useful measurements of the adequacy of the Company's capital levels. | |||||||||
December 31,2021 | September 30,2021 | June 30,2021 | March 31,2021 | December 31,2020 | |||||
Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share: | |||||||||
Total stockholders' equity (GAAP) | $ 854,432 | $ 848,404 | $ 855,984 | $ 827,151 | $ 820,439 | ||||
Exclude intangible assets | (250,916) | (251,675) | (252,433) | (253,230) | (254,027) | ||||
Tangible common equity (non-GAAP) | $ 603,516 | $ 596,729 | $ 603,551 | $ 573,921 | $ 566,412 | ||||
Total assets (GAAP) | $ 7,432,412 | $ 7,259,038 | $ 7,105,672 | $ 7,028,392 | $ 6,615,318 | ||||
Exclude intangible assets | (250,916) | (251,675) | (252,433) | (253,230) | (254,027) | ||||
Tangible assets (non-GAAP) | $ 7,181,496 | $ 7,007,363 | $ 6,853,239 | $ 6,775,162 | $ 6,361,291 | ||||
Stockholders' equity to total assets (GAAP) | 11.5 % | 11.7 % | 12.0 % | 11.8 % | 12.4 % | ||||
Tangible common equity to tangible assets (non-GAAP) | 8.4 % | 8.5 % | 8.8 % | 8.5 % | 8.9 % | ||||
Shares outstanding | 35,105,779 | 35,166,599 | 36,006,560 | 35,981,317 | 35,912,243 | ||||
Book value per share (GAAP) | $ 24.34 | $ 24.13 | $ 23.77 | $ 22.99 | $ 22.85 | ||||
Tangible book value per share (non- GAAP) | $ 17.19 | $ 16.97 | $ 16.76 | $ 15.95 | $ 15.77 | ||||
The Company considers presenting the ratio of ACL on loans to loans receivable, excluding SBA PPP loans, to be a useful measurement in evaluating the adequacy of the Company's ACL on loans as the balance of SBA PPP loans was significant to the loan portfolio; however, since SBA PPP loans are guaranteed by the SBA, the Company has not provided an ACL on loans for these loans.
December 31,2021 | September 30,2021 | June 30,2021 | March 31,2021 | December 31,2020 | |||||
ACL on Loans to Loans Receivable, excluding SBA PPP Loans: | |||||||||
Allowance for credit losses on loans | $ 42,361 | $ 48,317 | $ 51,562 | $ 64,225 | $ 70,185 | ||||
Loans receivable (GAAP) | $ 3,815,662 | $ 3,953,884 | $ 4,207,530 | $ 4,595,869 | $ 4,468,647 | ||||
Exclude SBA PPP loans | (145,840) | (266,896) | (544,250) | (886,761) | (715,121) | ||||
Loans receivable, excluding SBA PPP loans (non-GAAP) | $ 3,669,822 | $ 3,686,988 | $ 3,663,280 | $ 3,709,108 | $ 3,753,526 | ||||
ACL on loans to loans receivable (GAAP) | 1.11 % | 1.22 % | 1.23 % | 1.40 % | 1.57 % | ||||
ACL on loans to loans receivable, excluding SBA PPP loans (non- GAAP) | 1.15 % | 1.31 % | 1.41 % | 1.73 % | 1.87 % | ||||
The Company considers the return on average tangible common equity ratio to be a useful measurement of the Company's ability to generate returns for its common shareholders. By removing the impact of intangible assets and their related amortization and tax effects, the performance of the Company's ongoing business operations can be evaluated.
Quarter Ended | |||||||||
December 31,2021 | September 30,2021 | June 30,2021 | March 31,2021 | December 31,2020 | |||||
Return on Average Tangible Common Equity, annualized: | |||||||||
Net income (GAAP) | $ 19,397 | $ 20,592 | $ 32,702 | $ 25,344 | $ 23,882 | ||||
Add amortization of intangible assets | 759 | 758 | 797 | 797 | 859 | ||||
Exclude tax effect of adjustment | (159) | (159) | (167) | (167) | (180) | ||||
Tangible net income (non-GAAP) | $ 19,997 | $ 21,191 | $ 33,332 | $ 25,974 | $ 24,561 | ||||
Average stockholders' equity (GAAP) | $ 849,383 | $ 855,708 | $ 835,761 | $ 827,021 | $ 808,999 | ||||
Exclude average intangible assets | (251,331) | (252,159) | (252,956) | (253,747) | (254,587) | ||||
Average tangible common stockholders' equity (non-GAAP) | $ 598,052 | $ 603,549 | $ 582,805 | $ 573,274 | $ 554,412 | ||||
Return on average common equity, annualized (GAAP) | 9.06 % | 9.55 % | 15.69 % | 12.43 % | 11.74 % | ||||
Return on average tangible common equity, annualized (non-GAAP) | 13.27 % | 13.93 % | 22.94 % | 18.37 % | 17.62 % | ||||
The Company believes that presenting pre-tax pre-provision income, which reflects its profitability before income taxes and provision for credit losses, and the pre-tax, pre-provision return on average assets, are useful measurements in assessing its operating income and expenses by removing the volatility that may be associated with credit loss provisions. The Company also believes that during a crisis such as the COVID-19 pandemic, this information is useful as the impact of the pandemic on credit loss provisions of various institutions has varied based on the geography of the communities served by a particular institution and the decision to adopt or defer the current expected credit losses ("CECL") methodology required by ASU 2016-13.
Quarter Ended | |||||||||
December 31,2021 | September 30,2021 | June 30,2021 | March 31,2021 | December 31,2020 | |||||
Pre-tax, Pre-provision Income and Pre-tax, Pre-provision Return on Average Equity, annualized: | |||||||||
Net income (GAAP) | $ 19,397 | $ 20,592 | $ 32,702 | $ 25,344 | $ 23,882 | ||||
Add income tax expense | 4,922 | 4,997 | 7,451 | 5,102 | 4,429 | ||||
Add (reversal of) provision for credit losses | (5,037) | (3,149) | (13,987) | (7,199) | (3,133) | ||||
Pre-tax, pre-provision income (non- GAAP) | $ 19,282 | $ 22,440 | $ 26,166 | $ 23,247 | $ 25,178 | ||||
Average total assets (GAAP) | $ 7,403,597 | $ 7,214,960 | $ 7,079,205 | $ 6,799,625 | $ 6,675,477 | ||||
Return on average assets, annualized (GAAP) | 1.04 % | 1.13 % | 1.85 % | 1.51 % | 1.42 % | ||||
Pre-tax, pre-provision return on average assets (non-GAAP) | 1.03 % | 1.23 % | 1.48 % | 1.39 % | 1.50 % | ||||
The Company believes presenting loan yield excluding the effect of discount accretion on purchased loans is useful in assessing the impact of acquisition accounting on loan yield as the effect of loan discount accretion is expected to decrease as the acquired loans mature or roll off its balance sheet. Incremental accretion on purchased loans represents the amount of interest income recorded on purchased loans in excess of the contractual stated interest rate in the individual loan notes due to incremental accretion of purchased discount or premium. Purchased discount or premium is the difference between the contractual loan balance and the fair value of acquired loans at the acquisition date, or as modified by the adoption of Accounting Standards Update ("ASU") 2016-13. The purchased discount is accreted into income over the remaining life of the loan. The impact of incremental accretion on loan yield will change during any period based on the volume of prepayments, but it is expected to decrease over time as the balance of the purchased loans decreases.
Similarly, presenting loan yield excluding the effect of SBA PPP loans is useful in assessing the impact of these special program loans that are anticipated to substantially decrease within a short time frame.
Quarter Ended | ||||||||
December 31,2021 | September 30,2021 | December 31,2020 | ||||||
Loan Yield, excluding SBA PPP Loans and Incremental Accretion on Purchased Loans, annualized: | ||||||||
Interest and fees on loans (GAAP) | $ 42,695 | $ 46,863 | $ 50,089 | |||||
Exclude interest and fees on SBA PPP loans | (4,928) | (8,042) | (8,739) | |||||
Exclude incremental accretion on purchased loans | (387) | (681) | (795) | |||||
Adjusted interest and fees on loans (non-GAAP) | $ 37,380 | $ 38,140 | $ 40,555 | |||||
Average loans receivable, net (GAAP) | $ 3,836,029 | $ 4,005,585 | $ 4,540,962 | |||||
Exclude average SBA PPP loans | (204,436) | (392,570) | (822,460) | |||||
Adjusted average loans receivable, net (non-GAAP) | $ 3,631,593 | $ 3,613,015 | $ 3,718,502 | |||||
Loan yield, annualized (GAAP) | 4.42 | % | 4.64 | % | 4.39 | % | ||
Loan yield, excluding SBA PPP loans and incremental accretion on purchased loans, annualized (non-GAAP) | 4.08 | % | 4.19 | % | 4.34 | % | ||
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SOURCE Heritage Financial Corporation