HERITAGE FINANCIAL ANNOUNCES FIRST QUARTER 2024 RESULTS AND DECLARES REGULAR CASH DIVIDEND
- Net income was $5.7 million, or $0.16 per diluted share, for the first quarter of 2024 compared to $6.2 million, or $0.18 per diluted share, for the fourth quarter of 2023.
- Significant items in the first quarter of 2024 results include a loss on sale of securities of $10.0 million, or $0.22 per diluted share, and costs relating to expense management measures of $1.1 million, or $0.02 per diluted share.
- Loans receivable increased $92.5 million, or 2.1% (8.4% annualized), during the first quarter of 2024.
- Net interest margin was 3.32% for the first quarter of 2024 compared to 3.41% for the fourth quarter of 2023.
- Cost of total deposits was 1.19% for the first quarter of 2024 compared to 1.01% for the fourth quarter of 2023.
- Declared a regular cash dividend of $0.23 per share on April 24, 2024.
- Approved a new stock repurchase program authorizing the repurchase of up to 5% of the Company's outstanding shares, or approximately 1.7 million shares.
OLYMPIA, Wash., April 25, 2024 /PRNewswire/ -- Heritage Financial Corporation (NASDAQ GS: HFWA) (the "Company" or "Heritage"), the parent company of Heritage Bank (the "Bank"), today reported net income of $5.7 million for the first quarter of 2024 compared to $6.2 million for the fourth quarter of 2023 and $20.5 million for the first quarter of 2023. Diluted earnings per share for the first quarter of 2024 were $0.16 compared to $0.18 for the fourth quarter of 2023 and $0.58 for the first quarter of 2023.
In the first quarter of 2024, the Company incurred a pre-tax loss of $10.0 million on the sale of investment securities due to the strategic repositioning of its balance sheet, which affected diluted earnings per share by $0.22 for the quarter. The Company sold $144.0 million in investment securities with an estimated weighted average book yield of 2.37% and purchased $33.1 million of investment securities with an estimated weighted average book yield of 6.05%. The remaining proceeds from sales were invested in interest earning deposits with a current yield of 5.40%. As a result of these actions, we anticipate an estimated annualized improvement of $4.6 million in interest income. Similar actions were taken during the fourth quarter of 2023 for which we incurred a pre-tax loss of $10.0 million and estimated annualized improvement of $5.3 million in interest income. Further, approximately $1.1 million of severance costs were incurred in the first quarter of 2024 as part of expense management initiatives, which affected diluted earnings per share by $0.02 for the quarter.
Jeffrey J. Deuel, President and Chief Executive Officer of Heritage, commented, "We are pleased with our continued accomplishments in the first quarter including strong loan growth, repositioning of our balance sheet and expense management measures, which will strengthen our earnings in future periods. Although negatively impacting current earnings, we believe these actions will enhance our sustainable long-term returns for our shareholders."
Financial Highlights
The following table provides financial highlights at the dates and for the periods indicated:
As of or for the Quarter Ended | |||||
March 31, 2024 | December 31, | March 31, | |||
(Dollars in thousands, except per share amounts) | |||||
Net income | $ 5,748 | $ 6,233 | $ 20,457 | ||
Pre-tax, pre-provision income(1) | $ 8,260 | $ 8,001 | $ 26,495 | ||
Diluted earnings per share | $ 0.16 | $ 0.18 | $ 0.58 | ||
Return on average assets(2) | 0.33 % | 0.35 % | 1.17 % | ||
Pre-tax, pre-provision return on average assets(1)(2) | 0.47 % | 0.44 % | 1.52 % | ||
Return on average common equity(2) | 2.73 % | 3.04 % | 10.21 % | ||
Return on average tangible common equity(1)(2) | 4.07 % | 4.69 % | 15.05 % | ||
Net interest margin(2) | 3.32 % | 3.41 % | 3.91 % | ||
Cost of total deposits(2) | 1.19 % | 1.01 % | 0.31 % | ||
Efficiency ratio | 83.0 % | 84.2 % | 61.1 % | ||
Noninterest expense to average total assets(2) | 2.29 % | 2.37 % | 2.39 % | ||
Total assets | $ 7,091,283 | $ 7,174,957 | $ 7,236,806 | ||
Loans receivable, net | $ 4,378,429 | $ 4,287,628 | $ 4,083,003 | ||
Total deposits | $ 5,532,327 | $ 5,599,872 | $ 5,789,022 | ||
Loan to deposit ratio(3) | 80.0 % | 77.4 % | 71.3 % | ||
Book value per share | $ 24.43 | $ 24.44 | $ 23.53 | ||
Tangible book value per share(1) | $ 17.36 | $ 17.40 | $ 16.48 |
(1) | See Non-GAAP Financial Measures section herein. |
(2) | Annualized. |
(3) | Loans receivable divided by total deposits. |
Balance Sheet
Total investment securities decreased $143.3 million, or 7.6%, to $1.73 billion at March 31, 2024 from $1.87 billion at December 31, 2023. As previously discussed, the Company sold $144.0 million in investment securities at a loss of $10.0 million during the first quarter of 2024. These funds were redeployed in investment purchases of $33.1 million, loans and interest earning deposits. The following table summarizes the Company's investment securities at the dates indicated:
March 31, 2024 | December 31, 2023 | $ Change in Carrying Value | |||||||||||
Amortized Cost | Net Unrealized Gain (Loss) | Fair Value | Amortized Cost | Net Unrealized Loss | Fair Value | ||||||||
(Dollars in thousands) | |||||||||||||
Investment securities available for sale: | |||||||||||||
U.S. government and agency securities | $ 16,001 | $ (2,584) | $ 13,417 | $ 16,047 | $ (2,297) | $ 13,750 | $ (333) | ||||||
Municipal securities | 83,788 | (11,833) | 71,955 | 92,231 | (12,706) | 79,525 | (7,570) | ||||||
Residential CMO and MBS(1) | 519,152 | (42,410) | 476,742 | 555,518 | (43,469) | 512,049 | (35,307) | ||||||
Commercial CMO and MBS(1) | 443,537 | (34,069) | 409,468 | 538,910 | (34,652) | 504,258 | (94,790) | ||||||
Corporate obligations | 11,658 | (467) | 11,191 | 7,745 | (132) | 7,613 | 3,578 | ||||||
Other asset-backed securities | 13,653 | 84 | 13,737 | 17,336 | (178) | 17,158 | (3,421) | ||||||
Total | $ 1,087,789 | $ (91,279) | $ 996,510 | $ 1,227,787 | $ (93,434) | $ 1,134,353 | $ (137,843) | ||||||
March 31, 2024 | December 31, 2023 | $ Change in Carrying Value | |||||||||||
Amortized Cost | Net Unrecognized Loss | Fair Value | Amortized Cost | Net Unrecognized Loss | Fair Value | ||||||||
(Dollars in thousands) | |||||||||||||
Investment securities held to maturity: | |||||||||||||
U.S. government and agency securities | $ 151,110 | $ (29,980) | $ 121,130 | $ 151,075 | $ (27,701) | $ 123,374 | $ 35 | ||||||
Residential CMO and MBS(1) | 262,359 | (17,439) | 244,920 | 267,204 | (14,101) | 253,103 | (4,845) | ||||||
Commercial CMO and MBS(1) | 320,537 | (37,586) | 282,951 | 321,163 | (35,190) | 285,973 | (626) | ||||||
Total | $ 734,006 | $ (85,005) | $ 649,001 | $ 739,442 | $ (76,992) | $ 662,450 | $ (5,436) | ||||||
Total investment securities | $ 1,821,795 | $ (176,284) | $ 1,645,511 | $ 1,967,229 | $ (170,426) | $ 1,796,803 |
(1) | U.S. government agency and government-sponsored enterprise mortgage-backed securities and collateralized mortgage obligations. |
Loans receivable increased $92.5 million, or 2.1%, to $4.43 billion at March 31, 2024 from $4.34 billion at December 31, 2023. New loans funded in the first quarter of 2024 and fourth quarter of 2023 totaled $101.7 million and $113.4 million, respectively. Loan prepayments decreased slightly during the first quarter of 2024 to $39.1 million, compared to $42.8 million during the fourth quarter of 2023.
Commercial and industrial loans increased $42.1 million, or 5.9%, due primarily to new loan production of $37.4 million during the first quarter of 2024 and advances on outstanding commitments. Commercial and multifamily construction loans increased $36.7 million, or 10.9%, due primarily to advances on outstanding commitments. The following table summarizes the Company's loans receivable, net at the dates indicated:
March 31, 2024 | December 31, 2023 | Change | |||||||||
Balance | % of Total | Balance | % of Total | $ | % | ||||||
(Dollars in thousands) | |||||||||||
Commercial business: | |||||||||||
Commercial and industrial | $ 760,391 | 17.2 % | $ 718,291 | 16.6 % | $ 42,100 | 5.9 % | |||||
Owner-occupied commercial real estate ("CRE") | 951,583 | 21.5 | 958,620 | 22.1 | (7,037) | (0.7) | |||||
Non-owner occupied CRE | 1,702,665 | 38.4 | 1,697,574 | 39.1 | 5,091 | 0.3 | |||||
Total commercial business | 3,414,639 | 77.1 | 3,374,485 | 77.8 | 40,154 | 1.2 | |||||
Residential real estate | 386,357 | 8.7 | 375,342 | 8.7 | 11,015 | 2.9 | |||||
Real estate construction and land development: | |||||||||||
Residential | 84,081 | 1.9 | 78,610 | 1.8 | 5,471 | 7.0 | |||||
Commercial and multifamily | 372,532 | 8.4 | 335,819 | 7.7 | 36,713 | 10.9 | |||||
Total real estate construction and land development | 456,613 | 10.3 | 414,429 | 9.5 | 42,184 | 10.2 | |||||
Consumer | 170,556 | 3.9 | 171,371 | 4.0 | (815) | (0.5) | |||||
Loans receivable | 4,428,165 | 100.0 % | 4,335,627 | 100.0 % | 92,538 | 2.1 | |||||
Allowance for credit losses on loans | (49,736) | (47,999) | (1,737) | 3.6 | |||||||
Loans receivable, net | $ 4,378,429 | $ 4,287,628 | $ 90,801 | 2.1 % |
Total deposits decreased $67.5 million, or 1.2%, to $5.53 billion at March 31, 2024 from $5.60 billion at December 31, 2023. Certificates of deposit increased $86.7 million, or 12.5%, to $779.7 million at March 31, 2024 from $693.0 million at December 31, 2023 primarily due to transfers from non-maturity deposit accounts as customers moved balances to higher yielding accounts.
The following table summarizes the Company's total deposits at the dates indicated:
March 31, 2024 | December 31, 2023 | Change | |||||||||
Balance | % of Total | Balance | % of Total | $ | % | ||||||
(Dollars in thousands) | |||||||||||
Noninterest demand deposits | $ 1,637,111 | 29.5 % | $ 1,715,847 | 30.7 % | $ (78,736) | (4.6) % | |||||
Interest bearing demand deposits | 1,552,584 | 28.1 | 1,608,745 | 28.7 | (56,161) | (3.5) | |||||
Money market accounts | 1,099,983 | 19.9 | 1,094,351 | 19.5 | 5,632 | 0.5 | |||||
Savings accounts | 462,974 | 8.4 | 487,956 | 8.7 | (24,982) | (5.1) | |||||
Total non-maturity deposits | 4,752,652 | 85.9 | 4,906,899 | 87.6 | (154,247) | (3.1) | |||||
Certificates of deposit | 779,675 | 14.1 | 692,973 | 12.4 | 86,702 | 12.5 | |||||
Total deposits | $ 5,532,327 | 100.0 % | $ 5,599,872 | 100.0 % | $ (67,545) | (1.2) % |
Total borrowings were $500 million at March 31, 2024 and December 31, 2023. All borrowings were from the Federal Reserve Bank ("FRB") Bank Term Funding Program. Borrowings totaling $400 million mature in May 2024 while the remaining $100 million mature in January 2025.
Total stockholders' equity decreased $5.7 million, or 0.7%, to $847.6 million at March 31, 2024 compared to $853.3 million at December 31, 2023 due primarily to $8.1 million in dividends paid to common shareholders and $6.1 million in common stock repurchases offset partially by $5.7 million of net income recognized for the quarter and a $1.8 million decrease in accumulated other comprehensive loss, net.
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:
March 31, | December 31, | Change | |||
Stockholders' equity to total assets | 12.0 % | 11.9 % | 0.1 % | ||
Tangible common equity to tangible assets (1) | 8.8 | 8.8 | — | ||
Common equity tier 1 capital ratio (2) | 12.6 | 12.9 | (0.3) | ||
Leverage ratio (2) | 10.0 | 10.0 | — | ||
Tier 1 capital ratio (2) | 13.0 | 13.3 | (0.3) | ||
Total capital ratio (2) | 13.9 | 14.1 | (0.2) |
(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 allowance for credit losses ("ACL") on loans as a percentage of loans receivable was 1.12% at March 31, 2024 compared to 1.11% at December 31, 2023. During both the first quarter of 2024 and the fourth quarter of 2023, the Company recorded a $1.7 million provision for credit losses on loans. The provision for credit losses on loans during the first quarter of 2024 was primarily driven by loan growth during the quarter.
During the first quarter of 2024, the Company recorded a $312,000 reversal of provision for credit losses on unfunded commitments compared to a $246,000 reversal of provision for credit losses on unfunded commitments during the fourth quarter of 2023. The reversal of provision for credit losses on unfunded commitments during the first quarter of 2024 was due primarily to a $50.0 million decrease in the unfunded exposure on construction loans.
The following table provides detail on the changes in the ACL on loans and the ACL on unfunded, and the related provision for (reversal of) credit losses for the periods indicated:
As of or for the Quarter Ended | |||||||||||||||||
March 31, 2024 | December 31, 2023 | March 31, 2023 | |||||||||||||||
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 | $ 47,999 | $ 1,288 | $ 49,287 | $ 46,947 | $ 1,534 | $ 48,481 | $ 42,986 | $ 1,744 | $ 44,730 | ||||||||
Provision for (reversal of) credit losses | 1,704 | (312) | 1,392 | 1,670 | (246) | 1,424 | 1,713 | 112 | 1,825 | ||||||||
Net recoveries (net charge-offs) | 33 | — | 33 | (618) | — | — | (618) | (230) | — | (230) | |||||||
Balance, end of period | $ 49,736 | $ 976 | $ 50,712 | $ 47,999 | $ 1,288 | $ 49,287 | $ 44,469 | $ 1,856 | $ 46,325 |
Credit Quality
The percentage of classified loans to loans receivable was unchanged at March 31, 2024 and December 31, 2023. Classified loans include loans rated substandard or worse. Total loans designated as special mention increased by $22.2 million to $102.2 million at March 31, 2024, compared to $80.0 million at December 31, 2023. This increase was primarily due to the downgrade of a $15.1 million commercial and multifamily construction loan and a $5.5 million commercial and industrial loan from pass to special mention. The following table illustrates total loans by risk rating and their respective percentage of total loans at the dates indicated:
March 31, 2024 | December 31, 2023 | ||||||
Balance | % of Total | Balance | % of Total | ||||
(Dollars in thousands) | |||||||
Risk Rating: | |||||||
Pass | $ 4,255,750 | 96.1 % | $ 4,185,893 | 96.6 % | |||
Special Mention | 102,232 | 2.3 | 79,977 | 1.8 | |||
Substandard | 70,183 | 1.6 | 69,757 | 1.6 | |||
Total | $ 4,428,165 | 100.0 % | $ 4,335,627 | 100.0 % |
Nonaccrual loans to loans receivable was 0.11% and 0.10% at March 31, 2024 and December 31, 2023, respectively. Changes in nonaccrual loans during the periods indicated were as follows:
Quarter Ended | |||||
March 31, 2024 | December 31, | March 31, | |||
(In thousands) | |||||
Balance, beginning of period | $ 4,468 | $ 3,065 | $ 5,906 | ||
Additions | 593 | 2,149 | 468 | ||
Net principal payments and transfers to accruing status | (269) | (333) | (909) | ||
Payoffs | — | (413) | (650) | ||
Balance, end of period | $ 4,792 | $ 4,468 | $ 4,815 |
Liquidity
Total liquidity sources available at March 31, 2024 were $2.50 billion. This includes internal as well as external sources of liquidity. The Company has access to FHLB advances and the FRB Discount Window. The Company's available liquidity sources at March 31, 2024 represented a coverage ratio of 45.2% of total deposits and 122.3% of estimated uninsured deposits.
The following table summarizes the Company's available liquidity:
Quarter Ended | |||
March 31, 2024 | December 31, | ||
(Dollars in thousands) | |||
FRB borrowing availability | $ 71,300 | $ 319,492 | |
FHLB borrowing availability(1) | 1,384,631 | 1,417,518 | |
Unencumbered investment securities available for sale(2) | 708,378 | 756,258 | |
Cash and cash equivalents | 189,647 | 224,973 | |
Fed funds line borrowing availability with correspondent banks | 145,000 | 145,000 | |
Total available liquidity | $ 2,498,956 | $ 2,863,241 |
(1) | Includes FHLB total borrowing availability of $1.38 billion at March 31, 2024 based on pledged assets, however, maximum credit capacity is 45% of the Bank's total assets one quarter in arrears or $3.23 billion. |
(2) | Investment securities available for sale at fair value. |
Net Interest Income and Net Interest Margin
Net interest income decreased $2.3 million, or 4.3%, during the first quarter of 2024 compared to the fourth quarter of 2023 due primarily to an increase of $2.4 million in interest expense. Net interest margin decreased nine basis points to 3.32% during the first quarter of 2024 from 3.41% during the fourth quarter of 2023.
The cost of interest bearing deposits increased 22 basis points to 1.70% for the first quarter of 2024 from 1.48% for the fourth quarter of 2023. This increase was primarily due to customers transferring balances from non-maturity deposits to higher rate certificates of deposit.
The yield on interest earning assets increased nine basis points to 4.79% for the first quarter of 2024 compared to 4.70% for the fourth quarter of 2023. The yield on loans receivable, net increased six basis points to 5.41% during the first quarter of 2024 compared to 5.35% during the fourth quarter of 2023 due to higher rates on new and renewed loans. The yield on taxable securities increased 14 basis points to 3.29% during the first quarter of 2024 compared to 3.15% during the fourth quarter of 2023 due to sales in the fourth quarter of 2023 and first quarter of 2024 of lower yielding investments offset by purchases of higher yielding investments.
Net interest income decreased $8.3 million, or 13.9%, during the first quarter of 2024 compared to the first quarter of 2023 and the net interest margin decreased 59 basis points to 3.32% from 3.91% during this same period. The decrease was due primarily to an increase in interest expense resulting from increased deposit rates and borrowing expense partially offset by an increase in yields earned on interest earning assets following increases in market interest rates.
The following table provides relevant net interest income information for the periods indicated:
Quarter Ended | |||||||||||||||||
March 31, 2024 | December 31, 2023 | March 31, 2023 | |||||||||||||||
Average Balance | Interest Earned/ Paid | Average | Average Balance | Interest Earned/ Paid | Average | Average Balance | Interest Earned/ Paid | Average | |||||||||
(Dollars in thousands) | |||||||||||||||||
Interest Earning Assets: | |||||||||||||||||
Loans receivable, net (2)(3) | $ 4,303,394 | $ 57,862 | 5.41 % | $ 4,233,743 | $ 57,092 | 5.35 % | $ 4,039,395 | $ 50,450 | 5.07 % | ||||||||
Taxable securities | 1,810,709 | 14,834 | 3.29 | 1,824,205 | 14,488 | 3.15 | 2,007,339 | 14,657 | 2.96 | ||||||||
Nontaxable securities (3) | 21,302 | 181 | 3.42 | 37,382 | 300 | 3.18 | 82,893 | 586 | 2.87 | ||||||||
Interest earning deposits | 108,733 | 1,476 | 5.46 | 174,475 | 2,382 | 5.42 | 83,376 | 972 | 4.73 | ||||||||
Total interest earning assets | 6,244,138 | 74,353 | 4.79 % | 6,269,805 | 74,262 | 4.70 % | 6,213,003 | 66,665 | 4.35 % | ||||||||
Noninterest earning assets | 848,314 | 871,071 | 848,956 | ||||||||||||||
Total assets | $ 7,092,452 | $ 7,140,876 | $ 7,061,959 | ||||||||||||||
Interest Bearing Liabilities: | |||||||||||||||||
Certificates of deposit | $ 733,816 | $ 7,671 | 4.20 % | $ 638,101 | $ 6,261 | 3.89 % | $ 350,206 | $ 1,224 | 1.42 % | ||||||||
Savings accounts | 475,075 | 230 | 0.19 | 497,484 | 231 | 0.18 | 601,166 | 142 | 0.10 | ||||||||
Interest bearing demand and money market accounts | 2,659,999 | 8,487 | 1.28 | 2,713,482 | 7,846 | 1.15 | 2,829,198 | 3,162 | 0.45 | ||||||||
Total interest bearing deposits | 3,868,890 | 16,388 | 1.70 | 3,849,067 | 14,338 | 1.48 | 3,780,570 | 4,528 | 0.49 | ||||||||
Junior subordinated debentures | 21,800 | 547 | 10.09 | 21,729 | 553 | 10.10 | 21,501 | 482 | 9.09 | ||||||||
Securities sold under agreement to repurchase | — | — | — | 17,511 | 5 | 0.11 | 43,202 | 47 | 0.44 | ||||||||
Borrowings | 500,660 | 5,888 | 4.73 | 459,784 | 5,495 | 4.74 | 145,605 | 1,766 | 4.92 | ||||||||
Total interest bearing liabilities | 4,391,350 | 22,823 | 2.09 % | 4,348,091 | 20,391 | 1.86 % | 3,990,878 | 6,823 | 0.69 % | ||||||||
Noninterest demand deposits | 1,657,132 | 1,772,261 | 2,068,688 | ||||||||||||||
Other noninterest bearing liabilities | 197,023 | 207,141 | 189,893 | ||||||||||||||
Stockholders' equity | 846,947 | 813,383 | 812,500 | ||||||||||||||
Total liabilities and stockholders' equity | $ 7,092,452 | $ 7,140,876 | $ 7,061,959 | ||||||||||||||
Net interest income and spread | $ 51,530 | 2.70 % | $ 53,871 | 2.84 % | $ 59,842 | 3.66 % | |||||||||||
Net interest margin | 3.32 % | 3.41 % | 3.91 % |
(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 $809,000, $832,000 and $752,000 for the first quarter of 2024, fourth quarter of 2023 and first quarter of 2023, respectively. |
(3) | Yields on tax-exempt loans and securities have not been stated on a tax-equivalent basis. |
Noninterest Income
Noninterest income increased $247,000 to a loss of $2.9 million during the first quarter of 2024 from a loss of $3.1 million during the fourth quarter of 2023. The losses for both the first quarter of 2024 and the fourth quarter of 2023 were due to strategic repositioning of the investment portfolio which resulted in a $10.0 million loss on the sale of investment securities during both periods. Card revenue decreased $105,000 during the first quarter of 2024 compared to the fourth quarter of 2023 due to annual incentives of $250,000 recognized in the fourth quarter of 2023. Bank owned life insurance income increased $266,000 due to the recognition of death benefits during the first quarter of 2024.
Noninterest income decreased $11.2 million from the same period in 2023 due primarily to a $10.0 million pre-tax loss on the sale of investment securities available for sale. The decline in other income was due to the gain on sale of Visa Inc. Class B common stock of $1.6 million recognized in the first quarter of 2023.
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 | |||||||||||
March 31, 2024 | December 31, | March 31, | $ | % | $ | % | |||||||
(Dollars in thousands) | |||||||||||||
Service charges and other fees | $ 2,788 | $ 2,804 | $ 2,624 | $ (16) | (0.6) % | $ 164 | 6.3 % | ||||||
Card revenue | 1,839 | 1,944 | 2,000 | (105) | (5.4) | (161) | (8.1) | ||||||
Loss on sale of investment securities | (9,973) | (10,005) | (286) | 32 | (0.3) | (9,687) | 3387.1 | ||||||
Gain on sale of loans, net | 26 | 36 | 49 | (10) | (27.8) | (23) | (46.9) | ||||||
Interest rate swap fees | — | — | 53 | — | — | (53) | (100.0) | ||||||
Bank owned life insurance income | 920 | 654 | 709 | 266 | 40.7 | 211 | 29.8 | ||||||
Gain on sale of other assets, net | — | — | 2 | — | — | (2) | (100.0) | ||||||
Other income | 1,500 | 1,420 | 3,107 | 80 | 5.6 | (1,607) | (51.7) | ||||||
Total noninterest income (loss) | $ (2,900) | $ (3,147) | $ 8,258 | $ 247 | (7.8) % | $ (11,158) | (135.1) % |
Noninterest Expense
Noninterest expense decreased $2.4 million, or 5.5%, during the first quarter of 2024 from the fourth quarter of 2023. The decline was primarily due to decreases in data processing, professional services and marketing expenses, partially offset by an increase in compensation and employee benefits. Data processing expenses decreased due primarily to reduced ongoing expenses following technology-related contract renewals and terminations occurring in the fourth quarter of 2023, as well as a $320,000 accrual for the early termination of a technology-related contract expensed during the same period. Marketing expenses decreased due to expense management efforts during the first quarter of 2024. Professional services decreased primarily because of a $1.5 million expense for negotiation fees related to renewal of the core vendor contract during the fourth quarter of 2023. Compensation and employee benefits expenses increased during the first quarter of 2024 compared to the prior quarter, primarily due to $1.1 million in severance costs resulting from staff reductions.
Noninterest expense decreased $1.2 million, or 3.0%, during the first quarter of 2024 compared to the same period in 2023, primarily due to a decrease in data processing expense. Data processing expenses decreased primarily due to a decline in ongoing costs resulting from prior technology-related contract renewals and terminations. Amortization of intangible assets decreased due to a reduction in core deposit intangible expense. Marketing expenses decreased due to expense management efforts during the first quarter of 2024. The decrease was partially offset by an increase in state/municipal business and use tax due to an increase in gross revenue.
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 | |||||||||||
March 31, 2024 | December 31, | March 31, | $ | % | $ | % | |||||||
(Dollars in thousands) | |||||||||||||
Compensation and employee benefits | $ 25,476 | $ 24,758 | $ 25,536 | $ 718 | 2.9 % | $ (60) | (0.2) % | ||||||
Occupancy and equipment | 4,932 | 4,784 | 4,892 | 148 | 3.1 | 40 | 0.8 | ||||||
Data processing | 3,537 | 4,863 | 4,342 | (1,326) | (27.3) | (805) | (18.5) | ||||||
Marketing | 211 | 698 | 402 | (487) | (69.8) | (191) | (47.5) | ||||||
Professional services | 567 | 2,266 | 628 | (1,699) | (75.0) | (61) | (9.7) | ||||||
State/municipal business and use taxes | 1,300 | 909 | 1,008 | 391 | 43.0 | 292 | 29.0 | ||||||
Federal deposit insurance premium | 795 | 847 | 850 | (52) | (6.1) | (55) | (6.5) | ||||||
Amortization of intangible assets | 421 | 593 | 623 | (172) | (29.0) | (202) | (32.4) | ||||||
Other expense | 3,131 | 3,005 | 3,324 | 126 | 4.2 | (193) | (5.8) | ||||||
Total noninterest expense | $ 40,370 | $ 42,723 | $ 41,605 | $ (2,353) | (5.5) % | $ (1,235) | (3.0) % |
Income Tax Expense
Income tax expense increased during the first quarter of 2024 compared to the fourth quarter of 2023, and decreased compared to the first quarter of 2023. The increase in income tax expense during the current quarter compared to the prior quarter was primarily due to an increase in the effective income tax rate during the first quarter of 2024. The effective income tax rate was lower during the fourth quarter of 2023 due to a downward adjustment to the annualized effective tax rate as a result of lower pre-tax income in the fourth quarter of 2023. The decrease in pre-tax income increased the impact of favorable permanent tax items such as tax-exempt investments, investments in bank owned life insurance and tax credits. The effective income tax rate for the year ended December 31, 2023 was 15.3%. The decrease in income tax expense during the first quarter of 2024 compared to the same quarter in 2023 was due to lower pre-tax income.
The following table presents the income tax expense and related metrics and the change for the periods indicated:
Quarter Ended | Change | ||||||||
March 31, 2024 | December 31, | March 31, | Quarter Over Quarter | Prior Year Quarter | |||||
(Dollars in thousands) | |||||||||
Income before income taxes | $ 6,868 | $ 6,577 | $ 24,670 | $ 291 | $ (17,802) | ||||
Income tax expense | $ 1,120 | $ 344 | $ 4,213 | $ 776 | $ (3,093) | ||||
Effective income tax rate | 16.3 % | 5.2 % | 17.1 % | 11.1 % | (0.8) % |
Dividends
On April 24, 2024, the Company's Board of Directors declared a quarterly cash dividend of $0.23 per share. The dividend is payable on May 22, 2024 to shareholders of record as of the close of business on May 8, 2024.
Stock Repurchase Program
On April 24, 2024, the Company's Board of Directors authorized the repurchase of up to 5% of the Company's outstanding common shares or approximately 1.7 million shares. The number, timing and price of shares repurchased will depend on business and market conditions, and other factors, including opportunities to deploy the Company's capital.
The new stock repurchase program supersedes the previous stock repurchase program, which was authorized in March 2020 and allowed for the buyback of approximately 1.8 million shares. The previous program was substantially completed during the quarter ended March 31, 2024.
Earnings Conference Call
The Company will hold a telephone conference call to discuss this earnings release on Thursday, April 25, 2024 at 10:00 a.m. Pacific time. To access the call, please dial (833) 470-1428 -- access code 070217 a few minutes prior to 10:00 a.m. Pacific time. The call will be available for replay through May 2, 2024 by dialing (866) 813-9403 -- access code 294191.
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 50 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 nationally or in our local market areas, other markets where the Company has lending relationships, or other aspects of the Company's business operations or financial markets including, without limitation, as a result of employment levels, labor shortages and the effects of inflation, a potential recession or slowed economic growth, or increased political instability due to acts of war; changes in the interest rate environment, including prior increases in the Board of Governors of the Federal Reserve System (the "Federal Reserve") benchmark rate and duration at which such increased interest rate levels are maintained, which could adversely affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital and liquidity; the impact of continuing elevated inflation and the current and future monetary policies of the Federal Reserve in response thereto; the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor and depositor sentiment; the effects of any federal government shutdown; 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 changes in banking, securities and tax law, in regulatory policies and principles, or the interpretation of regulatory capital or other rules; credit and interest rate risks associated with the Company's businesses, customers, borrowings, repayment, investment, and deposit practices; fluctuations in deposits; liquidity issues, including our ability to borrow funds or raise additional capital, if necessary; disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems or on the third-party vendors who perform several of our critical processing functions; effects of critical accounting policies and judgments, including the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation; 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 (the "SEC") 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.
HERITAGE FINANCIAL CORPORATION | |||
March 31, | December 31, | ||
Assets | |||
Cash on hand and in banks | $ 52,947 | $ 55,851 | |
Interest earning deposits | 136,700 | 169,122 | |
Cash and cash equivalents | 189,647 | 224,973 | |
Investment securities available for sale, at fair value (amortized cost of $1,087,789 and $1,227,787, respectively) | 996,510 | 1,134,353 | |
Investment securities held to maturity, at amortized cost (fair value of $649,001 and $662,450, respectively) | 734,006 | 739,442 | |
Total investment securities | 1,730,516 | 1,873,795 | |
Loans receivable | 4,428,165 | 4,335,627 | |
Allowance for credit losses on loans | (49,736) | (47,999) | |
Loans receivable, net | 4,378,429 | 4,287,628 | |
Premises and equipment, net | 74,092 | 74,899 | |
Federal Home Loan Bank stock, at cost | 4,303 | 4,186 | |
Bank owned life insurance | 125,615 | 125,655 | |
Accrued interest receivable | 19,898 | 19,518 | |
Prepaid expenses and other assets | 323,472 | 318,571 | |
Other intangible assets, net | 4,372 | 4,793 | |
Goodwill | 240,939 | 240,939 | |
Total assets | $ 7,091,283 | $ 7,174,957 | |
Liabilities and Stockholders' Equity | |||
Non-interest bearing deposits | 1,637,111 | 1,715,847 | |
Interest bearing deposits | 3,895,216 | 3,884,025 | |
Total deposits | 5,532,327 | 5,599,872 | |
Borrowings | 500,000 | 500,000 | |
Junior subordinated debentures | 21,838 | 21,765 | |
Accrued expenses and other liabilities | 189,538 | 200,059 | |
Total liabilities | 6,243,703 | 6,321,696 | |
Common stock | 544,636 | 549,748 | |
Retained earnings | 373,629 | 375,989 | |
Accumulated other comprehensive loss, net | (70,685) | (72,476) | |
Total stockholders' equity | 847,580 | 853,261 | |
Total liabilities and stockholders' equity | $ 7,091,283 | $ 7,174,957 | |
Shares outstanding | 34,689,843 | 34,906,233 |
HERITAGE FINANCIAL CORPORATION | |||||
Quarter Ended | |||||
March 31, | December 31, | March 31, | |||
Interest Income | |||||
Interest and fees on loans | $ 57,862 | $ 57,092 | $ 50,450 | ||
Taxable interest on investment securities | 14,834 | 14,488 | 14,657 | ||
Nontaxable interest on investment securities | 181 | 300 | 586 | ||
Interest on interest earning deposits | 1,476 | 2,382 | 972 | ||
Total interest income | 74,353 | 74,262 | 66,665 | ||
Interest Expense | |||||
Deposits | 16,388 | 14,338 | 4,528 | ||
Junior subordinated debentures | 547 | 553 | 482 | ||
Securities sold under agreement to repurchase | — | 5 | 47 | ||
Borrowings | 5,888 | 5,495 | 1,766 | ||
Total interest expense | 22,823 | 20,391 | 6,823 | ||
Net interest income | 51,530 | 53,871 | 59,842 | ||
Provision for credit losses | 1,392 | 1,424 | 1,825 | ||
Net interest income after provision for credit losses | 50,138 | 52,447 | 58,017 | ||
Noninterest Income | |||||
Service charges and other fees | 2,788 | 2,804 | 2,624 | ||
Card revenue | 1,839 | 1,944 | 2,000 | ||
Loss on sale of investment securities, net | (9,973) | (10,005) | (286) | ||
Gain on sale of loans, net | 26 | 36 | 49 | ||
Interest rate swap fees | — | — | 53 | ||
Bank owned life insurance income | 920 | 654 | 709 | ||
Gain on sale of other assets, net | — | — | 2 | ||
Other income | 1,500 | 1,420 | 3,107 | ||
Total noninterest income (loss) | (2,900) | (3,147) | 8,258 | ||
Noninterest Expense | |||||
Compensation and employee benefits | 25,476 | 24,758 | 25,536 | ||
Occupancy and equipment | 4,932 | 4,784 | 4,892 | ||
Data processing | 3,537 | 4,863 | 4,342 | ||
Marketing | 211 | 698 | 402 | ||
Professional services | 567 | 2,266 | 628 | ||
State/municipal business and use taxes | 1,300 | 909 | 1,008 | ||
Federal deposit insurance premium | 795 | 847 | 850 | ||
Amortization of intangible assets | 421 | 593 | 623 | ||
Other expense | 3,131 | 3,005 | 3,324 | ||
Total noninterest expense | 40,370 | 42,723 | 41,605 | ||
Income before income taxes | 6,868 | 6,577 | 24,670 | ||
Income tax expense | 1,120 | 344 | 4,213 | ||
Net income | $ 5,748 | $ 6,233 | $ 20,457 | ||
Basic earnings per share | $ 0.17 | $ 0.18 | $ 0.58 | ||
Diluted earnings per share | $ 0.16 | $ 0.18 | $ 0.58 | ||
Dividends declared per share | $ 0.23 | $ 0.22 | $ 0.22 | ||
Average shares outstanding - basic | 34,825,471 | 34,902,029 | 35,108,390 | ||
Average shares outstanding - diluted | 35,227,138 | 35,084,635 | 35,445,340 |
HERITAGE FINANCIAL CORPORATION | |||||
Nonperforming Assets and Credit Quality Metrics: | |||||
Quarter Ended | |||||
March 31, | December 31, | March 31, | |||
Allowance for Credit Losses on Loans: | |||||
Balance, beginning of period | $ 47,999 | $ 46,947 | $ 42,986 | ||
Provision for credit losses on loans | 1,704 | 1,670 | 1,713 | ||
Charge-offs: | |||||
Commercial business | (77) | (543) | (161) | ||
Consumer | (123) | (166) | (153) | ||
Total charge-offs | (200) | (709) | (314) | ||
Recoveries: | |||||
Commercial business | 217 | 30 | 51 | ||
Consumer | 16 | 61 | 33 | ||
Total recoveries | 233 | 91 | 84 | ||
Net recoveries (charge-offs) | 33 | (618) | (230) | ||
Balance, end of period | $ 49,736 | $ 47,999 | $ 44,469 | ||
Net charge-offs on loans to average loans receivable, net(1) | — % | 0.06 % | 0.02 % |
(1)Annualized. |
March 31, | December 31, | ||
Nonperforming Assets: | |||
Nonaccrual loans: | |||
Commercial business | $ 4,792 | $ 4,468 | |
Total nonaccrual loans | 4,792 | 4,468 | |
Accruing loans past due 90 days or more | 2,628 | 1,293 | |
Total nonperforming loans | 7,420 | 5,761 | |
Other real estate owned | — | — | |
Nonperforming assets | $ 7,420 | $ 5,761 | |
ACL on loans to: | |||
Loans receivable | 1.12 % | 1.11 % | |
Nonaccrual loans | 1,037.90 % | 1,074.28 % | |
Nonaccrual loans to loans receivable | 0.11 % | 0.10 % | |
Nonperforming loans to loans receivable | 0.17 % | 0.13 % | |
Nonperforming assets to total assets | 0.10 % | 0.08 % |
HERITAGE FINANCIAL CORPORATION | |||||||||
Quarter Ended | |||||||||
March 31, | December 31, | September 30, | June 30, | March 31, | |||||
Earnings: | |||||||||
Net interest income | $ 51,530 | $ 53,871 | $ 55,618 | $ 55,824 | $ 59,842 | ||||
Provision for credit losses | 1,392 | 1,424 | (878) | 1,909 | 1,825 | ||||
Noninterest income (loss) | (2,900) | (3,147) | 6,271 | 7,281 | 8,258 | ||||
Noninterest expense | 40,370 | 42,723 | 40,970 | 41,325 | 41,605 | ||||
Net income | 5,748 | 6,233 | 18,219 | 16,846 | 20,457 | ||||
Pre-tax, pre-provision net income (3) | 8,260 | 8,001 | 20,919 | 21,780 | 26,495 | ||||
Basic earnings per share | $ 0.17 | $ 0.18 | $ 0.52 | $ 0.48 | $ 0.58 | ||||
Diluted earnings per share | $ 0.16 | $ 0.18 | $ 0.51 | $ 0.48 | $ 0.58 | ||||
Average Balances: | |||||||||
Loans receivable, net (1) | $ 4,303,394 | $ 4,233,743 | $ 4,201,554 | $ 4,145,556 | $ 4,039,395 | ||||
Total investment securities | 1,832,011 | 1,861,587 | 1,992,303 | 2,061,100 | 2,090,232 | ||||
Total interest earning assets | 6,244,138 | 6,269,805 | 6,363,043 | 6,297,410 | 6,213,003 | ||||
Total assets | 7,092,452 | 7,140,876 | 7,212,732 | 7,142,865 | 7,061,959 | ||||
Total interest bearing deposits | 3,868,890 | 3,849,067 | 3,841,148 | 3,755,005 | 3,780,570 | ||||
Total noninterest demand deposits | 1,657,132 | 1,772,261 | 1,859,374 | 1,900,640 | 2,068,688 | ||||
Stockholders' equity | 846,947 | 813,383 | 821,494 | 824,742 | 812,500 | ||||
Financial Ratios: | |||||||||
Return on average assets (2) | 0.33 % | 0.35 % | 1.00 % | 0.95 % | 1.17 % | ||||
Pre-tax, pre-provision return on average assets (2)(3) | 0.47 | 0.44 | 1.15 | 1.22 | 1.52 | ||||
Return on average common equity (2) | 2.73 | 3.04 | 8.80 | 8.19 | 10.21 | ||||
Return on average tangible common equity (2) (3) | 4.07 | 4.69 | 12.90 | 12.04 | 15.05 | ||||
Efficiency ratio | 83.0 | 84.2 | 66.2 | 65.5 | 61.1 | ||||
Noninterest expense to average total assets (2) | 2.29 | 2.37 | 2.25 | 2.32 | 2.39 | ||||
Net interest spread (2) | 2.70 | 2.84 | 2.95 | 3.11 | 3.66 | ||||
Net interest margin (2) | 3.32 | 3.41 | 3.47 | 3.56 | 3.91 |
(1) | Average loans receivable, net includes loans held for sale. |
(2) | Annualized. |
(3) | See Non-GAAP Financial Measures section herein. |
HERITAGE FINANCIAL CORPORATION | |||||||||
As of or for the Quarter Ended | |||||||||
March 31, | December 31, | September 30, | June 30, | March 31, | |||||
Select Balance Sheet: | |||||||||
Total assets | $ 7,091,283 | $ 7,174,957 | $ 7,150,588 | $ 7,115,410 | $ 7,236,806 | ||||
Loans receivable, net | 4,378,429 | 4,287,628 | 4,219,911 | 4,204,936 | 4,083,003 | ||||
Total investment securities | 1,730,516 | 1,873,795 | 1,894,392 | 2,030,826 | 2,078,235 | ||||
Deposits | 5,532,327 | 5,599,872 | 5,635,187 | 5,595,543 | 5,789,022 | ||||
Noninterest demand deposits | 1,637,111 | 1,715,847 | 1,789,293 | 1,857,492 | 1,982,909 | ||||
Stockholders' equity | 847,580 | 853,261 | 813,546 | 819,733 | 826,082 | ||||
Financial Measures: | |||||||||
Book value per share | $ 24.43 | $ 24.44 | $ 23.31 | $ 23.39 | $ 23.53 | ||||
Tangible book value per share (1) | 17.36 | 17.40 | 16.25 | 16.34 | 16.48 | ||||
Stockholders' equity to total assets | 12.0 % | 11.9 % | 11.4 % | 11.5 % | 11.4 % | ||||
Tangible common equity to tangible assets (1) | 8.8 | 8.8 | 8.2 | 8.3 | 8.3 | ||||
Loans to deposits ratio | 80.0 | 77.4 | 75.7 | 76.0 | 71.3 | ||||
Regulatory Capital Ratios:(2) | |||||||||
Common equity tier 1 capital ratio | 12.6 % | 12.9 % | 12.9 % | 12.8 % | 12.9 % | ||||
Leverage ratio | 10.0 | 10.0 | 9.9 | 9.9 | 9.9 | ||||
Tier 1 capital ratio | 13.0 | 13.3 | 13.3 | 13.2 | 13.3 | ||||
Total capital ratio | 13.9 | 14.1 | 14.1 | 14.1 | 14.1 | ||||
Credit Quality Metrics: | |||||||||
ACL on loans to: | |||||||||
Loans receivable | 1.12 % | 1.11 % | 1.10 % | 1.09 % | 1.08 % | ||||
Nonperforming loans | 1,037.9 | 1,074.3 | 1,531.7 | 1,002.3 | 923.6 | ||||
Nonaccrual loans to loans receivable | 0.11 | 0.10 | 0.07 | 0.11 | 0.12 | ||||
Nonperforming loans to loans receivable | 0.17 | 0.13 | 0.12 | 0.16 | 0.17 | ||||
Nonperforming assets to total assets | 0.10 | 0.08 | 0.07 | 0.10 | 0.10 | ||||
Net charge-offs (recoveries) on loans to average loans receivable, net(3) | — | 0.06 | (0.11) | — | 0.02 | ||||
Criticized Loans by Credit Quality Rating: | |||||||||
Special mention | $ 102,232 | $ 79,977 | $ 72,152 | $ 84,623 | $ 96,832 | ||||
Substandard | 70,183 | 69,757 | 62,653 | 58,653 | 48,824 | ||||
Other Metrics: | |||||||||
Number of banking offices | 50 | 50 | 50 | 51 | 51 | ||||
Deposits per branch | $ 110,647 | $ 111,997 | $ 112,704 | $ 109,717 | $ 113,510 | ||||
Average number of full-time equivalent employees | 765 | 803 | 821 | 813 | 809 | ||||
Average assets per full-time equivalent employee | 9,271 | 8,893 | 8,785 | 8,786 | 8,729 |
(1) | See Non-GAAP Financial Measures section herein. |
(2) | Current quarter ratios are estimates pending completion and filing of the Company's regulatory reports. |
(3) | Annualized. |
HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars 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.
March 31, | December 31, | September 30, | June 30, | March 31, | |||||
Tangible Common Equity to Tangible Assets and Tangible Book Value Per Share: | |||||||||
Total stockholders' equity (GAAP) | $ 847,580 | $ 853,261 | $ 813,546 | $ 819,733 | $ 826,082 | ||||
Exclude intangible assets | (245,311) | (245,732) | (246,325) | (246,920) | (247,543) | ||||
Tangible common equity (non-GAAP) | $ 602,269 | $ 607,529 | $ 567,221 | $ 572,813 | $ 578,539 | ||||
Total assets (GAAP) | $ 7,091,283 | $ 7,174,957 | $ 7,150,588 | $ 7,115,410 | $ 7,236,806 | ||||
Exclude intangible assets | (245,311) | (245,732) | (246,325) | (246,920) | (247,543) | ||||
Tangible assets (non-GAAP) | $ 6,845,972 | $ 6,929,225 | $ 6,904,263 | $ 6,868,490 | $ 6,989,263 | ||||
Stockholders' equity to total assets (GAAP) | 12.0 % | 11.9 % | 11.4 % | 11.5 % | 11.4 % | ||||
Tangible common equity to tangible assets (non-GAAP) | 8.8 % | 8.8 % | 8.2 % | 8.3 % | 8.3 % | ||||
Shares outstanding | 34,689,843 | 34,906,233 | 34,901,076 | 35,047,800 | 35,108,120 | ||||
Book value per share (GAAP) | $ 24.43 | $ 24.44 | $ 23.31 | $ 23.39 | $ 23.53 | ||||
Tangible book value per share (non-GAAP) | $ 17.36 | $ 17.40 | $ 16.25 | $ 16.34 | $ 16.48 |
HERITAGE FINANCIAL CORPORATION
NON-GAAP FINANCIAL MEASURES (Unaudited)
(Dollars in thousands, except per share amounts)
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 | |||||||||
March 31, | December 31, | September 30, | June 30, | March 31, | |||||
Return on Average Tangible Common Equity, annualized: | |||||||||
Net income (GAAP) | $ 5,748 | $ 6,233 | $ 18,219 | $ 16,846 | $ 20,457 | ||||
Add amortization of intangible assets | 421 | 593 | 595 | 623 | 623 | ||||
Exclude tax effect of adjustment | (88) | (125) | (125) | (131) | (131) | ||||
Tangible net income (non-GAAP) | $ 6,081 | $ 6,701 | $ 18,689 | $ 17,338 | $ 20,949 | ||||
Average stockholders' equity (GAAP) | $ 846,947 | $ 813,383 | $ 821,494 | $ 824,742 | $ 812,500 | ||||
Exclude average intangible assets | (245,536) | (246,022) | (246,663) | (247,278) | (247,922) | ||||
Average tangible common stockholders' equity (non-GAAP) | $ 601,411 | $ 567,361 | $ 574,831 | $ 577,464 | $ 564,578 | ||||
Return on average common equity, annualized (GAAP) | 2.73 % | 3.04 % | 8.80 % | 8.19 % | 10.21 % | ||||
Return on average tangible common equity, annualized (non-GAAP) | 4.07 % | 4.69 % | 12.90 % | 12.04 % | 15.05 % |
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.
Quarter Ended | |||||||||
March 31, | December 31, | September 30, | June 30, | March 31, | |||||
Pre-tax, Pre-provision Income and Pre-tax, Pre-provision Return on Average Assets, annualized: | |||||||||
Net income (GAAP) | $ 5,748 | $ 6,233 | $ 18,219 | $ 16,846 | $ 20,457 | ||||
Add income tax expense | 1,120 | 344 | 3,578 | 3,025 | 4,213 | ||||
Add (subtract) provision for (reversal of) credit losses | 1,392 | 1,424 | (878) | 1,909 | 1,825 | ||||
Pre-tax, pre-provision income (non-GAAP) | $ 8,260 | $ 8,001 | $ 20,919 | $ 21,780 | $ 26,495 | ||||
Average total assets (GAAP) | $ 7,092,452 | $ 7,140,876 | $ 7,212,732 | $ 7,142,865 | $ 7,061,959 | ||||
Return on average assets, annualized (GAAP) | 0.33 % | 0.35 % | 1.00 % | 0.95 % | 1.17 % | ||||
Pre-tax, pre-provision return on average assets (non-GAAP) | 0.47 % | 0.44 % | 1.15 % | 1.22 % | 1.52 % |
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SOURCE Heritage Financial Corporation