- Net income was $22.5 million, or $0.64 per diluted share, for the fourth quarter of 2022 compared to $21.0 million, or $0.59 per diluted share, for the third quarter of 2022 and $19.4 million, or $0.55 per diluted share, for the fourth quarter of 2021.
- Loans receivable increased $49.6 million, or 1.2% (4.9% annualized), in the fourth quarter of 2022.
- Loans receivable increased $235.2 million, or 6.2% for the year ended December 31, 2022. Excluding SBA PPP loan repayments of $144.4 million, loans receivable increased $379.6 million for the year ended December 31, 2022.
- Net interest income increased $3.8 million, or 6.4%, to $63.1 million for the fourth quarter of 2022 compared to $59.3 million for the third quarter of 2022, and increased $15.2 million, or 31.7% compared to $47.9 million for the fourth quarter of 2021.
- Net interest margin increased to 3.98% for the fourth quarter of 2022 from 3.57% for the third quarter of 2022 and 2.85% for the fourth quarter of 2021.
- Cost of total deposits was 0.16% for the fourth quarter of 2022 compared to 0.09% for both the third quarter of 2022 and the fourth quarter of 2021.
- Expanded geographic footprint into Idaho with the opening of a branch in Boise on January 10, 2023.
- Declared a regular cash dividend of $0.22 per share on January 25, 2023, an increase of 4.8% from the $0.21 regular cash dividend per share declared in the third quarter of 2022.
OLYMPIA, Wash., Jan. 26, 2023 /PRNewswire/ -- Heritage Financial Corporation (NASDAQ GS: HFWA) (the "Company" or "Heritage"), the parent company of Heritage Bank (the "Bank"), today reported net income of $22.5 million for the fourth quarter of 2022 compared to $21.0 million for the third quarter of 2022 and $19.4 million for the fourth quarter of 2021. Diluted earnings per share for the fourth quarter of 2022 were $0.64 compared to $0.59 for the third quarter of 2022 and $0.55 for the fourth quarter of 2021. Net income for the year ended 2022 totaled $81.9 million, or $2.31 per diluted share as compared to $98.0 million, or $2.73 per diluted share for 2021.
Jeffrey J. Deuel, President and Chief Executive Officer of Heritage, commented, "We are very pleased with our profitability over the past year due to higher net interest margin, low-cost deposits and strong loan growth, along with our prudent expense management. Our net interest margin in the fourth quarter increased by 113 basis points from the fourth quarter of 2021, while our cost of total deposits only increased by 7 basis points. In addition, excluding the impacts of SBA PPP loan repayments, total loan balances increased by 10.3% from year end 2021. These achievements were made possible by our foundation of a strong balance sheet and a talented team of bankers.
We successfully expanded our teams in the Portland and Eugene MSAs in 2022, and we are excited to start 2023 by announcing our entry into the Boise MSA, which is our first branch in Idaho. We believe this will be an attractive market for Heritage to expand and continue to grow.
Further, we are proud that Heritage Bank is partnering with College Housing Northwest ("CHNW") in financing 79 affordable student housing rental units located on the Eastside of Portland. CHNW works to provide innovative housing support to college students, especially to those aging out of the foster care system. Heritage Bank is providing $7.4 million of term loan financing for the project as well as assisting CHNW to acquire additional buildings with access to innovative funding from government and foundation sources."
Financial Highlights
The following table provides financial highlights at the dates and for the periods indicated:
As of or for the Quarter Ended | |||||
December 31,2022 | September 30,2022 | December 31,2021 | |||
(Dollars in thousands, except per share amounts) | |||||
Net income | $ 22,544 | $ 20,990 | $ 19,397 | ||
Pre-tax, pre-provision income (1) | $ 29,299 | $ 27,592 | $ 19,282 | ||
Diluted earnings per share | $ 0.64 | $ 0.59 | $ 0.55 | ||
Return on average assets (2) | 1.26 % | 1.13 % | 1.04 % | ||
Pre-tax, pre-provision return on average assets (1) (2) | 1.64 % | 1.49 % | 1.03 % | ||
Return on average common equity (2) | 11.46 % | 10.27 % | 9.06 % | ||
Return on average tangible common equity (1) (2) | 17.21 % | 15.20 % | 13.27 % | ||
Net interest margin (2) | 3.98 % | 3.57 % | 2.85 % | ||
Cost of total deposits (2) | 0.16 % | 0.09 % | 0.09 % | ||
Efficiency ratio | 58.0 % | 58.7 % | 66.6 % | ||
Noninterest expense to average total assets (2) | 2.26 % | 2.11 % | 2.06 % | ||
Total assets | $ 6,980,100 | $ 7,200,312 | $ 7,432,412 | ||
Loans receivable, net | $ 4,007,872 | $ 3,959,206 | $ 3,773,301 | ||
Total deposits | $ 5,924,840 | $ 6,237,735 | $ 6,394,290 | ||
Loan to deposit ratio (3) | 68.4 % | 64.1 % | 59.7 % | ||
Book value per share | $ 22.73 | $ 22.13 | $ 24.34 | ||
Tangible book value per share (1) | $ 15.66 | $ 15.04 | $ 17.19 | ||
Tangible book value per share, excluding AOCI (1) (4) | $ 18.50 | $ 18.03 | $ 16.92 | ||
(1) | See Non-GAAP Financial Measures section herein. | ||
(2) | Annualized. | ||
(3) | Loans receivable divided by total deposits. | ||
(4) | Accumulated other comprehensive income or loss ("AOCI"). | ||
Balance Sheet
Cash and cash equivalents decreased $303.7 million, or 74.6%, to $103.6 million at December 31, 2022 from $407.3 million at September 30, 2022 due primarily to an increase in loans receivable and a decrease in deposits.
Total investment securities decreased $31.6 million, or 1.5%, to $2.10 billion at December 31, 2022 from $2.13 billion at September 30, 2022 due primarily to maturities and prepayments of $55.3 million and sales of $30.4 million, partially offset by purchases of $48.1 million.
The following table summarizes the Company's loans receivable, net at the dates indicated:
December 31, 2022 | September 30, 2022 | Change | |||||||||
Balance | % of Total | Balance | % of Total | $ | % | ||||||
(Dollars in thousands) | |||||||||||
Commercial business: | |||||||||||
Commercial and industrial | $ 692,100 | 17.1 % | $ 735,028 | 18.4 % | $ (42,928) | (5.8) % | |||||
SBA PPP | 1,468 | — | 3,593 | 0.1 | (2,125) | (59.1) | |||||
Owner-occupied commercial real estate ("CRE") | 937,040 | 23.1 | 959,486 | 24.0 | (22,446) | (2.3) | |||||
Non-owner occupied CRE | 1,586,632 | 39.2 | 1,547,114 | 38.6 | 39,518 | 2.6 | |||||
Total commercial business | 3,217,240 | 79.4 | 3,245,221 | 81.1 | (27,981) | (0.9) | |||||
Residential real estate | 343,631 | 8.5 | 296,019 | 7.4 | 47,612 | 16.1 | |||||
Real estate construction and land development: | |||||||||||
Residential | 80,074 | 2.0 | 92,297 | 2.3 | (12,223) | (13.2) | |||||
Commercial and multifamily | 214,038 | 5.3 | 160,723 | 4.0 | 53,315 | 33.2 | |||||
Total real estate construction and land development | 294,112 | 7.3 | 253,020 | 6.3 | 41,092 | 16.2 | |||||
Consumer | 195,875 | 4.8 | 207,035 | 5.2 | (11,160) | (5.4) | |||||
Loans receivable | 4,050,858 | 100.0 % | 4,001,295 | 100.0 % | 49,563 | 1.2 | |||||
Allowance for credit losses on loans | (42,986) | (42,089) | (897) | 2.1 | |||||||
Loans receivable, net | $ 4,007,872 | $ 3,959,206 | $ 48,666 | 1.2 % | |||||||
Loans receivable grew $49.6 million, or 1.2% (4.9% annualized), in the fourth quarter of 2022. New loans funded in the fourth and third quarter of 2022 were $203.1 million and $206.7 million, respectively. This includes purchased residential real estate loans of $40.5 million and $29.0 million, respectively, during the fourth and third quarter of 2022. Loan repayments also increased during the fourth quarter of 2022 to $147.0 million, as compared to $71.6 million during the third quarter of 2022, exclusive of SBA PPP loan repayments, net deferred fees, and net acquired discounts.
Commercial and industrial loans decreased primarily due to declines in line of credit utilization rates during the fourth quarter of 2022 compared to the third quarter of 2022. Commercial and multifamily construction loans increased by $53.3 million or 33.2% due to new loan originations and advances on outstanding loans during the fourth quarter of 2022. Total new commitments for commercial and multifamily construction loans increased to $173.4 million in the fourth quarter of 2022 as compared to $91.7 million in the third quarter of 2022.
Prepaid expenses and other assets increased $65.5 million or 28.4% to $296.2 million at December 31, 2022 from $230.7 million at September 30, 2022 due primarily to an increase in commitments for low income housing tax credits. Accrued expenses and other liabilities increased $65.3 million or 52.6% to $189.3 million at December 31, 2022 from $124.0 million at September 30, 2022 due to an increase in the unfunded portion of the commitment for these low income housing tax credits.
The following table summarizes the Company's total deposits at the dates indicated:
December 31, 2022 | September 30, 2022 | Change | |||||||||
Balance | % of Total | Balance | % of Total | $ | % | ||||||
(Dollars in thousands) | |||||||||||
Noninterest demand deposits | $ 2,099,464 | 35.5 % | $ 2,308,583 | 37.0 % | $ (209,119) | (9.1) % | |||||
Interest bearing demand deposits | 1,830,727 | 30.9 | 1,997,989 | 32.0 | (167,262) | (8.4) | |||||
Money market accounts | 1,063,243 | 17.9 | 996,214 | 16.0 | 67,029 | 6.7 | |||||
Savings accounts | 623,833 | 10.5 | 647,526 | 10.4 | (23,693) | (3.7) | |||||
Total non-maturity deposits | 5,617,267 | 94.8 | 5,950,312 | 95.4 | (333,045) | (5.6) | |||||
Certificates of deposit | 307,573 | 5.2 | 287,423 | 4.6 | 20,150 | 7.0 | |||||
Total deposits | $ 5,924,840 | 100.0 % | $ 6,237,735 | 100.0 % | $ (312,895) | (5.0) % | |||||
Total deposits decreased $312.9 million, or 5.0%, from September 30, 2022. The decrease was due to competitive pricing pressures and customers moving excess funds to alternative higher yielding investments as well as general declines in individual customer balances. Money market account and certificate of deposit balances increased from the prior quarter due to marketing efforts to retain deposit accounts.
Total stockholders' equity increased $21.2 million during the fourth quarter of 2022 due primarily to net income recognized for the quarter. The Company and 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 31,2022 | September 30,2022 | Change | |||
Stockholders' equity to total assets | 11.4 % | 10.8 % | 0.6 % | ||
Tangible common equity to tangible assets (1) | 8.2 | 7.6 | 0.6 | ||
Tangible common equity, excluding AOCI, to tangible assets, excluding UGL (1) | 9.5 | 9.0 | 0.5 | ||
Common equity tier 1 capital ratio (2) | 12.8 | 12.8 | — | ||
Leverage ratio (2) | 9.7 | 9.2 | 0.5 | ||
Tier 1 capital ratio (2) | 13.2 | 13.3 | (0.1) | ||
Total capital ratio (2) | 14.0 | 14.0 | — |
(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 provision for (reversal of) credit losses for the periods indicated:
As of or for the Quarter Ended | |||||||||||||||||
December 31, 2022 | September 30, 2022 | December 31, 2021 | |||||||||||||||
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 | $ 42,089 | $ 1,023 | $ 43,112 | $ 39,696 | $ 997 | $ 40,693 | $ 48,317 | $ 2,154 | $ 50,471 | ||||||||
Provision for (reversal of) credit losses | 689 | 721 | 1,410 | 1,919 | 26 | 1,945 | (5,490) | 453 | (5,037) | ||||||||
Net recoveries (charge-offs) | 208 | — | 208 | 474 | — | 474 | (466) | — | (466) | ||||||||
Balance, end of period | $ 42,986 | $ 1,744 | $ 44,730 | $ 42,089 | $ 1,023 | $ 43,112 | $ 42,361 | $ 2,607 | $ 44,968 | ||||||||
The ACL on loans increased compared to September 30, 2022 due primarily to an increase related to the growth in loans receivable. The ACL on unfunded increased compared to September 30, 2022 due primarily to an increase in unfunded commitment balances.
Credit Quality
Nonperforming assets decreased to 0.08% of total assets at December 31, 2022 compared to 0.09% of total assets at September 30, 2022. Nonperforming assets at both December 31, 2022 and September 30, 2022 consisted only of nonaccrual loans. Changes in nonaccrual loans during the periods indicated were as follows:
Quarter Ended | |||||
December 31,2022 | September 30,2022 | December 31,2021 | |||
(In thousands) | |||||
Balance, beginning of period | $ 6,234 | $ 10,475 | $ 25,894 | ||
Additions | 605 | — | 333 | ||
Net principal payments and transfers to accruing status | (828) | (4,016) | (1,435) | ||
Payoffs | (105) | (225) | (540) | ||
Charge-offs | — | — | (498) | ||
Balance, end of period | $ 5,906 | $ 6,234 | $ 23,754 | ||
Net Interest Income and Net Interest Margin
Net interest income increased $3.8 million, or 6.4%, compared to the third quarter of 2022 and increased $15.2 million, or 31.7%, compared to the fourth quarter of 2021 due primarily to an increase in yields earned on interest earning assets following increases in market interest rates. The yield on interest earning assets increased to 4.16% as compared to 3.68% in the third quarter of 2022 and 2.95% in the fourth quarter of 2021.
The cost of interest bearing liabilities increased to 0.29%, compared to 0.18% in the third quarter of 2022 and 0.16% in the fourth quarter of 2021 primarily due to increased costs of interest bearing deposits due to competitive rate pressures on deposit accounts.
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 31,2022 | September 30,2022 | December 31,2021 | |||
Loan yield (GAAP) | 4.86 % | 4.51 % | 4.42 % | ||
Exclude impact from SBA PPP loans | (0.01) | (0.02) | (0.29) | ||
Exclude impact from incremental accretion on purchased loans | (0.02) | (0.05) | (0.05) | ||
Loan yield, excluding SBA PPP loans and incremental accretion on purchased loans (non-GAAP) (1) | 4.83 % | 4.44 % | 4.08 % | ||
(1) | See Non-GAAP Financial Measures section. | ||
Net interest margin increased to 3.98% for the fourth quarter of 2022 as compared to 3.57% for the third quarter of 2022 and 2.85% for the fourth quarter of 2021 due to a shift into higher yielding interest earning assets as well as higher average yields on all interest earning assets following increases in market interest rates while maintaining a low cost of 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 31,2022 | September 30,2022 | December 31,2021 | $ | % | $ | % | |||||||
(Dollar amounts in thousands) | |||||||||||||
Service charges and other fees | $ 2,651 | $ 2,688 | $ 2,479 | $ (37) | (1.4) % | $ 172 | 6.9 % | ||||||
Card revenue | 2,111 | 2,365 | 2,108 | (254) | (10.7) | 3 | 0.1 | ||||||
Loss on sale of investment securities, net | (256) | — | — | (256) | — | (256) | (100.0) | ||||||
Gain on sale of loans, net | 40 | 133 | 506 | (93) | (69.9) | (466) | (92.1) | ||||||
Interest rate swap fees | 19 | 78 | 174 | (59) | (75.6) | (155) | (89.1) | ||||||
Bank owned life insurance income | 565 | 723 | 500 | (158) | (21.9) | 65 | 13.0 | ||||||
Gain on sale of other assets, net | — | 265 | 2,717 | (265) | — | (2,717) | (100.0) | ||||||
Other income | 1,454 | 1,201 | 1,355 | 253 | 21.1 | 99 | 7.3 | ||||||
Total noninterest income | $ 6,584 | $ 7,453 | $ 9,839 | $ (869) | (11.7) % | $ (3,255) | (33.1) % | ||||||
Noninterest income decreased from the third quarter of 2022 due primarily to decreased card revenue, a loss on the sale of investment securities recognized during the fourth quarter of 2022 and a gain on sale of branches held for sale recognized during the third quarter of 2022.
Noninterest income decreased from the same period in 2021 due primarily to reduced gain on sale of loans, net as sales volume of secondary market mortgage loans declined, a loss on the sale of investment securities recognized during the fourth quarter of 2022 and a gain on sale of branches held for sale recognized during the fourth quarter of 2021.
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 31,2022 | September 30,2022 | December 31,2021 | $ | % | $ | % | |||||||
(Dollar amounts in thousands) | |||||||||||||
Compensation and employee benefits | $ 24,856 | $ 24,206 | $ 22,798 | $ 650 | 2.7 % | $ 2,058 | 9.0 % | ||||||
Occupancy and equipment | 4,541 | 4,422 | 4,325 | 119 | 2.7 | 216 | 5.0 | ||||||
Data processing | 4,369 | 4,185 | 4,694 | 184 | 4.4 | (325) | (6.9) | ||||||
Marketing | 675 | 358 | 577 | 317 | 88.5 | 98 | 17.0 | ||||||
Professional services | 630 | 639 | 763 | (9) | (1.4) | (133) | (17.4) | ||||||
State/municipal business and use tax | 1,008 | 963 | 850 | 45 | 4.7 | 158 | 18.6 | ||||||
Federal deposit insurance premium | 490 | 500 | 628 | (10) | (2.0) | (138) | (22.0) | ||||||
Amortization of intangible assets | 671 | 671 | 759 | — | — | (88) | (11.6) | ||||||
Other expense | 3,152 | 3,203 | 3,071 | (51) | (1.6) | 81 | 2.6 | ||||||
Total noninterest expense | $ 40,392 | $ 39,147 | $ 38,465 | $ 1,245 | 3.2 % | $ 1,927 | 5.0 % | ||||||
Noninterest expense increased from the third quarter of 2022 and the same period in 2021 due primarily to an increase in compensation and employee benefits due to an increase in the number of full-time equivalent employees including the addition of commercial and relationship banking teams in the second quarter of 2022 and an increase in salaries and wages due to upward market pressure. Marketing expenses increased from the third quarter of 2022 due to timing of marketing efforts.
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 31,2022 | September 30,2022 | December 31,2021 | $ | % | $ | % | |||||||
(Dollar amounts in thousands) | |||||||||||||
Income before income taxes | $ 27,889 | $ 25,647 | $ 24,319 | $ 2,242 | 8.7 % | $ 3,570 | 14.7 % | ||||||
Income tax expense | $ 5,345 | $ 4,657 | $ 4,922 | $ 688 | 14.8 % | $ 423 | 8.6 % | ||||||
Effective income tax rate | 19.2 % | 18.2 % | 20.2 % | 1.0 % | 5.5 % | (1.0) % | (5.0) % | ||||||
Income tax expense increased compared to the third quarter of 2022 due primarily to a higher effective income tax rate during the fourth quarter of 2022 following an increase in annual pre-tax income for the year ended 2022, 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 as well as an increase in the effective state income tax rate.
Income tax expense increased compared to the same period in 2021 primarily due to higher estimated pre-tax income in the fourth quarter of 2022 as compared to the fourth quarter of 2021.
Dividends
On January 25, 2023, the Company's Board of Directors declared a quarterly cash dividend of $0.22 per share, a 4.8% increase from the $0.21 dividend per share declared in the third quarter of 2022. The dividend is payable on February 22, 2023 to shareholders of record as of the close of business on February 8, 2023.
Earnings Conference Call
The Company will hold a telephone conference call to discuss this earnings release on Thursday, January 26, 2023 at 10:00 a.m. Pacific time. To access the call, please dial (844) 200-6205 -- access code 603267 a few minutes prior to 10:00 a.m. Pacific time. The call will be available for replay through February 2, 2023 by dialing (866) 813-9403 -- access code 855414.
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 51 banking offices in Washington, Oregon and Idaho. 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. Factors that could cause the Company's actual results to differ materially from those described in the forward-looking statements, include but are not limited to, the following: changes in general economic conditions, either nationally or in our market areas, including as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth caused by increasing political instability from acts of war including Russia's invasion of Ukraine, as well as increasing oil prices and supply chain disruptions; changes in the interest rate environment; the quality and composition of our securities portfolio and the impact of any adverse changes including market liquidity within the securities markets; legislative and regulatory changes, including as a result of new COVID-19 variants; 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 2023 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 31,2022 | September 30,2022 | December 31,2021 | |||
Assets | |||||
Cash on hand and in banks | $ 74,295 | $ 100,428 | $ 61,377 | ||
Interest earning deposits | 29,295 | 306,896 | 1,661,915 | ||
Cash and cash equivalents | 103,590 | 407,324 | 1,723,292 | ||
Investment securities available for sale, at fair value (amortized cost of $1,460,033, $1,491,440 and $883,832, respectively) | 1,331,443 | 1,356,142 | 894,335 | ||
Investment securities held to maturity, at amortized cost (fair value of $673,434, $677,335 and $376,331, respectively) | 766,396 | 773,319 | 383,393 | ||
Total investment securities | 2,097,839 | 2,129,461 | 1,277,728 | ||
Loans held for sale | — | — | 1,476 | ||
Loans receivable | 4,050,858 | 4,001,295 | 3,815,662 | ||
Allowance for credit losses on loans | (42,986) | (42,089) | (42,361) | ||
Loans receivable, net | 4,007,872 | 3,959,206 | 3,773,301 | ||
Other real estate owned | — | — | — | ||
Premises and equipment, net | 76,930 | 76,683 | 79,370 | ||
Federal Home Loan Bank stock, at cost | 8,916 | 8,916 | 7,933 | ||
Bank owned life insurance | 122,059 | 121,369 | 120,196 | ||
Accrued interest receivable | 18,547 | 17,812 | 14,657 | ||
Prepaid expenses and other assets | 296,181 | 230,704 | 183,543 | ||
Other intangible assets, net | 7,227 | 7,898 | 9,977 | ||
Goodwill | 240,939 | 240,939 | 240,939 | ||
Total assets | $ 6,980,100 | $ 7,200,312 | $ 7,432,412 | ||
Liabilities and Stockholders' Equity | |||||
Deposits | $ 5,907,420 | $ 6,214,964 | $ 6,394,290 | ||
Deposits held for sale | 17,420 | 22,771 | — | ||
Total deposits | 5,924,840 | 6,237,735 | 6,394,290 | ||
Junior subordinated debentures | 21,473 | 21,399 | 21,180 | ||
Securities sold under agreement to repurchase | 46,597 | 40,449 | 50,839 | ||
Accrued expenses and other liabilities | 189,297 | 124,027 | 111,671 | ||
Total liabilities | 6,182,207 | 6,423,610 | 6,577,980 | ||
Common stock | 552,397 | 551,419 | 551,798 | ||
Retained earnings | 345,346 | 330,284 | 293,238 | ||
Accumulated other comprehensive (loss) income, net | (99,850) | (105,001) | 9,396 | ||
Total stockholders' equity | 797,893 | 776,702 | 854,432 | ||
Total liabilities and stockholders' equity | $ 6,980,100 | $ 7,200,312 | $ 7,432,412 | ||
Shares outstanding | 35,106,697 | 35,104,248 | 35,105,779 | ||
HERITAGE FINANCIAL CORPORATION | |||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) | |||||||||
(Dollar amounts in thousands, except per share amounts) | |||||||||
Quarter Ended | Year Ended | ||||||||
December 31,2022 | September 30,2022 | December 31,2021 | December 31,2022 | December 31,2021 | |||||
Interest Income | |||||||||
Interest and fees on loans | $ 48,513 | $ 43,847 | $ 42,695 | $ 174,275 | $ 189,832 | ||||
Taxable interest on investment securities | 14,655 | 12,362 | 5,197 | 40,627 | 17,492 | ||||
Nontaxable interest on investment securities | 843 | 892 | 1,063 | 3,488 | 3,899 | ||||
Interest on interest earning deposits | 2,010 | 4,009 | 633 | 9,067 | 1,608 | ||||
Total interest income | 66,021 | 61,110 | 49,588 | 227,457 | 212,831 | ||||
Interest Expense | |||||||||
Deposits | 2,457 | 1,478 | 1,464 | 6,772 | 6,160 | ||||
Junior subordinated debentures | 410 | 312 | 185 | 1,156 | 742 | ||||
Other borrowings | 47 | 34 | 31 | 144 | 140 | ||||
Total interest expense | 2,914 | 1,824 | 1,680 | 8,072 | 7,042 | ||||
Net interest income | 63,107 | 59,286 | 47,908 | 219,385 | 205,789 | ||||
Provision for (reversal of) credit losses | 1,410 | 1,945 | (5,037) | (1,426) | (29,372) | ||||
Net interest income after provision for (reversal of) credit losses | 61,697 | 57,341 | 52,945 | 220,811 | 235,161 | ||||
Noninterest Income | |||||||||
Service charges and other fees | 2,651 | 2,688 | 2,479 | 10,390 | 9,207 | ||||
Card revenue | 2,111 | 2,365 | 2,108 | 8,885 | 8,325 | ||||
(Loss) gain on sale of investment securities, net | (256) | — | — | (256) | 29 | ||||
Gain on sale of loans, net | 40 | 133 | 506 | 633 | 3,644 | ||||
Interest rate swap fees | 19 | 78 | 174 | 402 | 661 | ||||
Bank owned life insurance income | 565 | 723 | 500 | 3,747 | 2,520 | ||||
Gain on sale of other assets, net | — | 265 | 2,717 | 469 | 4,405 | ||||
Other income | 1,454 | 1,201 | 1,355 | 5,321 | 5,824 | ||||
Total noninterest income | 6,584 | 7,453 | 9,839 | 29,591 | 34,615 | ||||
Noninterest Expense | |||||||||
Compensation and employee benefits | 24,856 | 24,206 | 22,798 | 92,092 | 88,765 | ||||
Occupancy and equipment | 4,541 | 4,422 | 4,325 | 17,465 | 17,243 | ||||
Data processing | 4,369 | 4,185 | 4,694 | 16,800 | 16,533 | ||||
Marketing | 675 | 358 | 577 | 1,643 | 2,143 | ||||
Professional services | 630 | 639 | 763 | 2,497 | 3,846 | ||||
State/municipal business and use taxes | 1,008 | 963 | 850 | 3,634 | 3,884 | ||||
Federal deposit insurance premium | 490 | 500 | 628 | 2,015 | 2,106 | ||||
Amortization of intangible assets | 671 | 671 | 759 | 2,750 | 3,111 | ||||
Other expense | 3,152 | 3,203 | 3,071 | 12,070 | 11,638 | ||||
Total noninterest expense | 40,392 | 39,147 | 38,465 | 150,966 | 149,269 | ||||
Income before income taxes | 27,889 | 25,647 | 24,319 | 99,436 | 120,507 | ||||
Income tax expense | 5,345 | 4,657 | 4,922 | 17,561 | 22,472 | ||||
Net income | $ 22,544 | $ 20,990 | $ 19,397 | $ 81,875 | $ 98,035 | ||||
Basic earnings per share | $ 0.64 | $ 0.60 | $ 0.56 | $ 2.33 | $ 2.75 | ||||
Diluted earnings per share | $ 0.64 | $ 0.59 | $ 0.55 | $ 2.31 | $ 2.73 | ||||
Dividends declared per share | $ 0.21 | $ 0.21 | $ 0.21 | $ 0.84 | $ 0.81 | ||||
Average shares outstanding - basic | 35,104,701 | 35,103,984 | 35,154,382 | 35,103,465 | 35,677,851 | ||||
Average shares outstanding - diluted | 35,480,848 | 35,468,890 | 35,439,998 | 35,463,896 | 35,973,386 | ||||
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 31,2022 | September 30,2022 | December 31,2021 | December 31,2022 | December 31,2021 | |||||
Allowance for Credit Losses on Loans: | |||||||||
Balance, beginning of period | $ 42,089 | $ 39,696 | $ 48,317 | $ 42,361 | $ 70,185 | ||||
Provision for (reversal of) credit losses on loans | 689 | 1,919 | (5,490) | (563) | (27,298) | ||||
Charge-offs: | |||||||||
Commercial business | — | — | (519) | (316) | (1,276) | ||||
Residential real estate | — | — | — | (30) | — | ||||
Real estate construction and land development | — | — | — | — | (1) | ||||
Consumer | (151) | (138) | (160) | (547) | (669) | ||||
Total charge-offs | (151) | (138) | (679) | (893) | (1,946) | ||||
Recoveries: | |||||||||
Commercial business | 53 | 455 | 81 | 929 | 816 | ||||
Residential real estate | — | — | — | 3 | — | ||||
Real estate construction and land development | 210 | 107 | 4 | 384 | 32 | ||||
Consumer | 96 | 50 | 128 | 765 | 572 | ||||
Total recoveries | 359 | 612 | 213 | 2,081 | 1,420 | ||||
Net recoveries (charge-offs) | 208 | 474 | (466) | 1,188 | (526) | ||||
Balance, end of period | $ 42,986 | $ 42,089 | $ 42,361 | $ 42,986 | $ 42,361 | ||||
Net (recoveries) charge-offs on loans to average loans, annualized | (0.02) % | (0.05) % | 0.05 % | (0.03) % | 0.01 % | ||||
December 31,2022 | September 30,2022 | December 31,2021 | |||
Nonperforming Assets: | |||||
Nonaccrual loans: | |||||
Commercial business | $ 5,869 | $ 6,234 | $ 23,107 | ||
Residential real estate | — | — | 47 | ||
Real estate construction and land development | 37 | — | 571 | ||
Consumer | — | — | 29 | ||
Total nonaccrual loans | 5,906 | 6,234 | 23,754 | ||
Other real estate owned | — | — | — | ||
Nonperforming assets | $ 5,906 | $ 6,234 | $ 23,754 | ||
Restructured performing loans | $ 50,441 | $ 71,863 | $ 59,110 | ||
Accruing loans past due 90 days or more | 1,615 | 20 | 293 | ||
ACL on loans to: | |||||
Loans receivable | 1.06 % | 1.05 % | 1.11 % | ||
Loans receivable, excluding SBA PPP loans (1) | 1.06 % | 1.05 % | 1.15 % | ||
Nonaccrual loans | 727.84 % | 675.15 % | 178.33 % | ||
Nonperforming loans to loans receivable | 0.15 % | 0.16 % | 0.62 % | ||
Nonperforming assets to total assets | 0.08 % | 0.09 % | 0.32 % |
(1) | See Non-GAAP Financial Measures section herein. |
Average Balances, Yields, and Rates Paid: |
Quarter Ended | |||||||||||||||||
December 31, 2022 | September 30, 2022 | December 31, 2021 | |||||||||||||||
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) | $ 3,963,042 | $ 48,513 | 4.86 % | $ 3,859,839 | $ 43,847 | 4.51 % | $ 3,836,029 | $ 42,695 | 4.42 % | ||||||||
Taxable securities | 1,983,178 | 14,655 | 2.93 | 1,868,900 | 12,362 | 2.62 | 1,016,629 | 5,197 | 2.03 | ||||||||
Nontaxable securities (3) | 123,430 | 843 | 2.71 | 133,022 | 892 | 2.66 | 153,686 | 1,063 | 2.74 | ||||||||
Interest earning deposits | 222,538 | 2,010 | 3.58 | 730,600 | 4,009 | 2.18 | 1,665,640 | 633 | 0.15 | ||||||||
Total interest earning assets | 6,292,188 | 66,021 | 4.16 % | 6,592,361 | 61,110 | 3.68 % | 6,671,984 | 49,588 | 2.95 % | ||||||||
Noninterest earning assets | 808,656 | 775,375 | 731,613 | ||||||||||||||
Total assets | $ 7,100,844 | $ 7,367,736 | 7,403,597 | ||||||||||||||
Interest Bearing Liabilities: | |||||||||||||||||
Certificates of deposit | $ 299,364 | $ 455 | 0.60 % | $ 297,786 | $ 290 | 0.39 % | $ 349,708 | $ 364 | 0.41 % | ||||||||
Savings accounts | 632,536 | 107 | 0.07 | 654,697 | 99 | 0.06 | 631,531 | 93 | 0.06 | ||||||||
Interest bearing demand and money market accounts | 2,946,425 | 1,895 | 0.26 | 3,065,007 | 1,089 | 0.14 | 2,996,482 | 1,007 | 0.13 | ||||||||
Total interest bearing deposits | 3,878,325 | 2,457 | 0.25 | 4,017,490 | 1,478 | 0.15 | 3,977,721 | 1,464 | 0.15 | ||||||||
Junior subordinated debentures | 21,430 | 410 | 7.59 | 21,356 | 312 | 5.80 | 21,140 | 185 | 3.47 | ||||||||
Securities sold under agreement to repurchase | 43,694 | 41 | 0.37 | 42,959 | 34 | 0.31 | 46,942 | 31 | 0.26 | ||||||||
FHLB advances and other borrowings | 543 | 6 | 4.38 | — | — | — | — | — | — | ||||||||
Total interest bearing liabilities | 3,943,992 | 2,914 | 0.29 % | 4,081,805 | 1,824 | 0.18 % | 4,045,803 | 1,680 | 0.16 % | ||||||||
Noninterest demand deposits | 2,239,806 | 2,356,688 | 2,396,452 | ||||||||||||||
Other noninterest bearing liabilities | 136,645 | 118,191 | 111,959 | ||||||||||||||
Stockholders' equity | 780,401 | 811,052 | 849,383 | ||||||||||||||
Total liabilities and stockholders' equity | $ 7,100,844 | $ 7,367,736 | $ 7,403,597 | ||||||||||||||
Net interest income and spread | $ 63,107 | 3.87 % | $ 59,286 | 3.50 % | $ 47,908 | 2.79 % | |||||||||||
Net interest margin | 3.98 % | 3.57 % | 2.85 % | ||||||||||||||
(1) | Annualized; average balances are calculated using daily balances. | |
(2) | Average loans 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 $723,000, $856,000 and $5.2 million for the fourth quarter of 2022, third quarter of 2022 and fourth quarter of 2021, respectively. | |
(3) | Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis. |
Year Ended | |||||||||||
December 31, 2022 | December 31, 2021 | ||||||||||
Average Balance | Interest Earned/ Paid | AverageYield/Rate (1) | Average Balance | Interest Earned/ Paid | AverageYield/Rate (1) | ||||||
Interest Earning Assets: | |||||||||||
Loans receivable, net (2) (3) | $ 3,852,604 | $ 174,275 | 4.52 % | $ 4,181,464 | $ 189,832 | 4.54 % | |||||
Taxable securities | 1,646,058 | 40,627 | 2.47 | 846,892 | 17,492 | 2.07 | |||||
Nontaxable securities (3) | 135,004 | 3,488 | 2.58 | 158,968 | 3,899 | 2.45 | |||||
Interest earning deposits | 913,374 | 9,067 | 0.99 | 1,193,724 | 1,608 | 0.13 | |||||
Total interest earning assets | 6,547,040 | 227,457 | 3.47 % | 6,381,048 | 212,831 | 3.34 % | |||||
Noninterest earning assets | 774,415 | 745,202 | |||||||||
Total assets | $ 7,321,455 | $ 7,126,250 | |||||||||
Interest Bearing Liabilities: | |||||||||||
Certificates of deposit | $ 313,712 | $ 1,407 | 0.45 % | $ 372,279 | $ 1,811 | 0.49 % | |||||
Savings accounts | 646,565 | 381 | 0.06 | 598,492 | 367 | 0.06 | |||||
Interest bearing demand and money market accounts | 3,036,031 | 4,984 | 0.16 | 2,862,504 | 3,982 | 0.14 | |||||
Total interest bearing deposits | 3,996,308 | 6,772 | 0.17 | 3,833,275 | 6,160 | 0.16 | |||||
Junior subordinated debentures | 21,322 | 1,156 | 5.42 | 21,025 | 742 | 3.53 | |||||
Securities sold under agreement to repurchase | 46,209 | 138 | 0.30 | 45,655 | 140 | 0.31 | |||||
FHLB advances and other borrowings | 137 | 6 | 4.38 | — | — | — | |||||
Total interest bearing liabilities | 4,063,976 | 8,072 | 0.20 % | 3,899,955 | 7,042 | 0.18 % | |||||
Noninterest demand deposits | 2,326,178 | 2,269,921 | |||||||||
Other noninterest bearing liabilities | 119,359 | 114,307 | |||||||||
Stockholders' equity | 811,942 | 842,067 | |||||||||
Total liabilities and stockholders' equity | $ 7,321,455 | $ 7,126,250 | |||||||||
Net interest income and spread | $ 219,385 | 3.27 % | $ 205,789 | 3.16 % | |||||||
Net interest margin | 3.35 % | 3.23 % | |||||||||
(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 $7.4 million and $28.4 million for the years ended December 31, 2022 and 2021, 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 31,2022 | September 30,2022 | June 30,2022 | March 31,2022 | December 31,2021 | |||||
Earnings: | |||||||||
Net interest income | $ 63,107 | $ 59,286 | $ 50,048 | $ 46,944 | $ 47,908 | ||||
Provision for (reversal of) credit losses | 1,410 | 1,945 | (1,204) | (3,577) | (5,037) | ||||
Noninterest income | 6,584 | 7,453 | 7,016 | 8,538 | 9,839 | ||||
Noninterest expense | 40,392 | 39,147 | 35,707 | 35,720 | 38,465 | ||||
Net income | 22,544 | 20,990 | 18,584 | 19,757 | 19,397 | ||||
Pre-tax, pre-provision net income (3) | 29,299 | 27,592 | 21,357 | 19,762 | 19,282 | ||||
Basic earnings per share | $ 0.64 | $ 0.60 | $ 0.53 | $ 0.56 | $ 0.56 | ||||
Diluted earnings per share | $ 0.64 | $ 0.59 | $ 0.52 | $ 0.56 | $ 0.55 | ||||
Average Balances: | |||||||||
Loans receivable, net (1) | $ 3,963,042 | $ 3,859,839 | $ 3,812,045 | $ 3,773,325 | $ 3,836,029 | ||||
Total investment securities | 2,106,608 | 2,001,922 | 1,587,757 | 1,417,966 | 1,170,315 | ||||
Total interest earning assets | 6,292,188 | 6,592,361 | 6,612,958 | 6,694,578 | 6,671,984 | ||||
Total assets | 7,100,844 | 7,367,736 | 7,385,616 | 7,434,787 | 7,403,597 | ||||
Total interest bearing deposits | 3,878,325 | 4,017,490 | 4,041,706 | 4,049,357 | 3,977,721 | ||||
Total noninterest demand deposits | 2,239,806 | 2,356,688 | 2,349,746 | 2,359,451 | 2,396,452 | ||||
Stockholders' equity | 780,401 | 811,052 | 810,961 | 846,085 | 849,383 | ||||
Financial Ratios: | |||||||||
Return on average assets (2) | 1.26 % | 1.13 % | 1.01 % | 1.08 % | 1.04 % | ||||
Pre-tax, pre-provision return on average assets (2)(3) | 1.64 | 1.49 | 1.16 | 1.08 | 1.03 | ||||
Return on average common equity (2) | 11.46 | 10.27 | 9.19 | 9.47 | 9.06 | ||||
Return on average tangible common equity (2) (3) | 17.21 | 15.20 | 13.68 | 13.83 | 13.27 | ||||
Efficiency ratio | 58.0 | 58.7 | 62.6 | 64.4 | 66.6 | ||||
Noninterest expense to average total assets (2) | 2.26 | 2.11 | 1.94 | 1.95 | 2.06 | ||||
Net interest spread (2) | 3.87 | 3.50 | 2.98 | 2.78 | 2.79 | ||||
Net interest margin (2) | 3.98 | 3.57 | 3.04 | 2.84 | 2.85 | ||||
(1) | Average loan receivable, net includes loans held for sale. | |
(2) | Annualized. | |
(3) | See Non-GAAP Financial Measures section herein. |
As of or for the Quarter Ended | |||||||||
December 31,2022 | September 30,2022 | June 30,2022 | March 31,2022 | December 31,2021 | |||||
Select Balance Sheet: | |||||||||
Total assets | $ 6,980,100 | $ 7,200,312 | $ 7,316,467 | $ 7,483,814 | $ 7,432,412 | ||||
Loans receivable, net | 4,007,872 | 3,959,206 | 3,834,368 | 3,780,845 | 3,773,301 | ||||
Total investment securities | 2,097,839 | 2,129,461 | 1,803,241 | 1,462,137 | 1,277,728 | ||||
Deposits | 5,924,840 | 6,237,735 | 6,330,190 | 6,491,500 | 6,394,290 | ||||
Noninterest demand deposits | 2,099,464 | 2,308,583 | 2,325,139 | 2,393,972 | 2,343,909 | ||||
Stockholders' equity | 797,893 | 776,702 | 805,366 | 821,449 | 854,432 | ||||
Financial Measures: | |||||||||
Book value per share | $ 22.73 | $ 22.13 | $ 22.94 | $ 23.40 | $ 24.34 | ||||
Tangible book value per share (1) | 15.66 | 15.04 | 15.83 | 16.27 | 17.19 | ||||
Tangible book value per share, excluding AOCI (1) | 18.50 | 18.03 | 17.59 | 17.25 | 16.92 | ||||
Stockholders' equity to total assets | 11.4 % | 10.8 % | 11.0 % | 11.0 % | 11.5 % | ||||
Tangible common equity to tangible assets (1) | 8.2 | 7.6 | 7.9 | 7.9 | 8.4 | ||||
Tangible common equity, excluding AOCI, to tangible assets, excluding UGL (1) | 9.5 | 9.0 | 8.7 | 8.3 | 8.3 | ||||
Loans to deposits ratio | 68.4 | 64.1 | 61.2 | 58.9 | 59.7 | ||||
Regulatory Capital Ratios: | |||||||||
Common equity tier 1 capital ratio(2) | 12.8 % | 12.8 % | 13.2 % | 13.4 % | 13.5 % | ||||
Leverage ratio(2) | 9.7 | 9.2 | 8.9 | 8.8 | 8.7 | ||||
Tier 1 capital ratio(2) | 13.2 | 13.3 | 13.6 | 13.9 | 13.9 | ||||
Total capital ratio(2) | 14.0 | 14.0 | 14.4 | 14.7 | 14.8 | ||||
Credit Quality Metrics: | |||||||||
ACL on loans to: | |||||||||
Loans receivable | 1.06 % | 1.05 % | 1.02 % | 1.06 % | 1.11 % | ||||
Loans receivable, excluding SBA PPP loans (1) | 1.06 | 1.05 | 1.03 | 1.07 | 1.15 | ||||
Nonperforming loans | 727.84 | 675.15 | 378.96 | 244.04 | 178.33 | ||||
Nonperforming loans to loans receivable | 0.15 | 0.16 | 0.27 | 0.43 | 0.62 | ||||
Nonperforming assets to total assets | 0.08 | 0.09 | 0.14 | 0.22 | 0.32 | ||||
Net (recoveries) charge-offs on loans to average loans receivable | (0.02) | (0.05) | — | (0.05) | 0.05 | ||||
Criticized Loans by Credit Quality Rating: | |||||||||
Special mention | $ 69,449 | $ 84,439 | $ 72,062 | $ 63,269 | $ 71,020 | ||||
Substandard | 65,765 | 66,376 | 94,419 | 111,300 | 112,450 | ||||
Other Metrics: | |||||||||
Number of banking offices | 50 | 50 | 49 | 49 | 49 | ||||
Deposits per branch | $ 118,497 | $ 124,755 | $ 129,188 | $ 132,480 | $ 130,496 | ||||
Average number of full-time equivalent employees | 813 | 790 | 765 | 751 | 782 | ||||
Average assets per full-time equivalent employee | 8,734 | 9,326 | 9,654 | 9,900 | 9,468 | ||||
(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 CORPORATIONNON-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. Additionally, recent changes in market interest rates introduced significant volatility in the unrealized gain or loss of investment securities available for sale ("UGL") and the related AOCI. Management excluded AOCI and UGL from tangible common equity and tangible assets, respectively, to improve comparability of capital levels as AOCI and UGL are excluded from the calculation of regulatory capital ratios.
December 31,2022 | September 30,2022 | June 30,2022 | March 31,2022 | December 31,2021 | |||||
Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share: | |||||||||
Total stockholders' equity (GAAP) | $ 797,893 | $ 776,702 | $ 805,366 | $ 821,449 | $ 854,432 | ||||
Exclude intangible assets | (248,166) | (248,837) | (249,508) | (250,212) | (250,916) | ||||
Tangible common equity (non-GAAP) | 549,727 | 527,865 | 555,858 | 571,237 | 603,516 | ||||
Exclude AOCI | 99,850 | 105,001 | 61,783 | 34,228 | (9,396) | ||||
Tangible common equity, excluding AOCI (non-GAAP) | $ 649,577 | $ 632,866 | $ 617,641 | $ 605,465 | $ 594,120 | ||||
Total assets (GAAP) | $ 6,980,100 | $ 7,200,312 | $ 7,316,467 | $ 7,483,814 | $ 7,432,412 | ||||
Exclude intangible assets | (248,166) | (248,837) | (249,508) | (250,212) | (250,916) | ||||
Tangible assets (non-GAAP) | 6,731,934 | 6,951,475 | 7,066,959 | 7,233,602 | 7,181,496 | ||||
Exclude UGL, net of tax | 99,850 | 105,001 | 61,783 | 34,228 | (9,396) | ||||
Tangible assets, excluding UGL, net of tax (non-GAAP) | $ 6,831,784 | $ 7,056,476 | $ 7,128,742 | $ 7,267,830 | $ 7,172,100 | ||||
Stockholders' equity to total assets (GAAP) | 11.4 % | 10.8 % | 11.0 % | 11.0 % | 11.5 % | ||||
Tangible common equity to tangible assets (non-GAAP) | 8.2 % | 7.6 % | 7.9 % | 7.9 % | 8.4 % | ||||
Tangible common equity, excluding AOCI, to tangible assets, excluding UGL | 9.5 % | 9.0 % | 8.7 % | 8.3 % | 8.3 % | ||||
Shares outstanding | 35,106,697 | 35,104,248 | 35,103,929 | 35,102,372 | 35,105,779 | ||||
Book value per share (GAAP) | $ 22.73 | $ 22.13 | $ 22.94 | $ 23.40 | $ 24.34 | ||||
Tangible book value per share (non-GAAP) | $ 15.66 | $ 15.04 | $ 15.83 | $ 16.27 | $ 17.19 | ||||
Tangible book value per share, excluding AOCI (non-GAAP) | $ 18.50 | $ 18.03 | $ 17.59 | $ 17.25 | $ 16.92 | ||||
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 for these loans.
December 31,2022 | September 30,2022 | June 30,2022 | March 31,2022 | December 31,2021 | |||||
ACL on Loans to Loans Receivable, excluding SBA PPP Loans: | |||||||||
Allowance for credit losses on loans | $ 42,986 | $ 42,089 | $ 39,696 | $ 40,333 | $ 42,361 | ||||
Loans receivable (GAAP) | $ 4,050,858 | $ 4,001,295 | $ 3,874,064 | $ 3,821,178 | $ 3,815,662 | ||||
Exclude SBA PPP loans | (1,468) | (3,593) | (11,334) | (64,962) | (145,840) | ||||
Loans receivable, excluding SBA PPP loans (non-GAAP) | $ 4,049,390 | $ 3,997,702 | $ 3,862,730 | $ 3,756,216 | $ 3,669,822 | ||||
ACL on loans to loans receivable (GAAP) | 1.06 % | 1.05 % | 1.02 % | 1.06 % | 1.11 % | ||||
ACL on loans to loans receivable, excluding SBA PPP loans (non-GAAP) | 1.06 % | 1.05 % | 1.03 % | 1.07 % | 1.15 % | ||||
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 31,2022 | September 30,2022 | June 30,2022 | March 31,2022 | December 31,2021 | |||||
Return on Average Tangible Common Equity, annualized: | |||||||||
Net income (GAAP) | $ 22,544 | $ 20,990 | $ 18,584 | $ 19,757 | $ 19,397 | ||||
Add amortization of intangible assets | 671 | 671 | 704 | 704 | 759 | ||||
Exclude tax effect of adjustment | (141) | (141) | (148) | (148) | (159) | ||||
Tangible net income (non-GAAP) | $ 23,074 | $ 21,520 | $ 19,140 | $ 20,313 | $ 19,997 | ||||
Average stockholders' equity (GAAP) | $ 780,401 | $ 811,052 | $ 810,961 | $ 846,085 | $ 849,383 | ||||
Exclude average intangible assets | (248,560) | (249,245) | (249,890) | (250,593) | (251,331) | ||||
Average tangible common stockholders' equity (non-GAAP) | $ 531,841 | $ 561,807 | $ 561,071 | $ 595,492 | $ 598,052 | ||||
Return on average common equity, annualized (GAAP) | 11.46 % | 10.27 % | 9.19 % | 9.47 % | 9.06 % | ||||
Return on average tangible common equity, annualized (non-GAAP) | 17.21 % | 15.20 % | 13.68 % | 13.83 % | 13.27 % | ||||
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 has been 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 Accounting Standards Update 2016-13.
Quarter Ended | |||||||||
December 31,2022 | September 30,2022 | June 30,2022 | March 31,2022 | December 31,2021 | |||||
Pre-tax, Pre-provision Income and Pre-tax, Pre-provision Return on Average Assets, annualized: | |||||||||
Net income (GAAP) | $ 22,544 | $ 20,990 | $ 18,584 | $ 19,757 | $ 19,397 | ||||
Add income tax expense | 5,345 | 4,657 | 3,977 | 3,582 | 4,922 | ||||
Add provision for (reversal of) credit losses | 1,410 | 1,945 | (1,204) | (3,577) | (5,037) | ||||
Pre-tax, pre-provision income (non-GAAP) | $ 29,299 | $ 27,592 | $ 21,357 | $ 19,762 | $ 19,282 | ||||
Average total assets (GAAP) | $ 7,100,844 | $ 7,367,736 | $ 7,385,616 | $ 7,434,787 | $ 7,403,597 | ||||
Return on average assets, annualized (GAAP) | 1.26 % | 1.13 % | 1.01 % | 1.08 % | 1.04 % | ||||
Pre-tax, pre-provision return on average assets (non-GAAP) | 1.64 % | 1.49 % | 1.16 % | 1.08 % | 1.03 % | ||||
The Company believes presenting loan yield excluding the effect of discount accretion on acquired 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 acquired loans represents the amount of interest income recorded on acquired 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 CECL. 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 have substantially decreased within a short time frame.
Quarter Ended | |||||
December 31,2022 | September 30,2022 | December 31,2021 | |||
Loan Yield, excluding SBA PPP Loans and Incremental Accretion on Purchased Loans, annualized: | |||||
Interest and fees on loans (GAAP) | $ 48,513 | $ 43,847 | $ 42,695 | ||
Exclude interest and fees on SBA PPP loans | (77) | (275) | (4,928) | ||
Exclude incremental accretion on purchased loans | (184) | (398) | (387) | ||
Adjusted interest and fees on loans (non-GAAP) | $ 48,252 | $ 43,174 | $ 37,380 | ||
Average loans receivable, net (GAAP) | $ 3,963,042 | $ 3,859,839 | $ 3,836,029 | ||
Exclude average SBA PPP loans | (2,250) | (5,726) | (204,436) | ||
Adjusted average loans receivable, net (non-GAAP) | $ 3,960,792 | $ 3,854,113 | $ 3,631,593 | ||
Loan yield, annualized (GAAP) | 4.86 % | 4.51 % | 4.42 % | ||
Loan yield, excluding SBA PPP loans and acquired accretion on purchased loans, annualized (non-GAAP) | 4.83 % | 4.44 % | 4.08 % | ||
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SOURCE Heritage Financial Corporation