Heritage Financial Announces Third Quarter 2018 Results And Declares Regular And Special Cash Dividends

Heritage Financial Announces Third Quarter 2018 Results And Declares Regular And Special Cash Dividends

- Diluted earnings per common share were $0.42 for the quarter ended September 30, 2018 compared to $0.35 for both the quarter ended September 30, 2017 and the linked-quarter ended June 30, 2018.

- Heritage declared a regular cash dividend of $0.17 per common share, an increase of 13.3% from $0.15 per common share declared in July 2018, and declared a special cash dividend of $0.10 per common share on October 24, 2018.

- Net interest margin increased to 4.41% for the quarter ended September 30, 2018 from 3.86% for the quarter ended September 30, 2017 and 4.22% for the linked-quarter ended June 30, 2018.

- Completed acquisition of Premier Commercial Bancorp on July 2, 2018.

- Excluding the impact of $318.7 million of deposits obtained in the acquisition of Premier Commercial Bancorp, total deposits increased $110.5 million, or 11.1% on an annualized basis, during the quarter ended September 30, 2018.

PR Newswire

OLYMPIA, Wash., Oct. 25, 2018 /PRNewswire/ -- Heritage Financial Corporation (NASDAQ GS: HFWA) (the "Company" or "Heritage"), the parent company of Heritage Bank, today reported that the Company had net income of $15.5 million for the quarter ended September 30, 2018 compared to $10.6 million for the quarter ended September 30, 2017 and $11.9 million for the linked-quarter ended June 30, 2018. Diluted earnings per common share for the quarter ended September 30, 2018 was $0.42 compared to $0.35 for both the quarter ended September 30, 2017 and the linked-quarter ended June 30, 2018. The impact of acquisition-related expenses was $0.07 per share for the quarter ended September 30, 2018 compared to $0.01 and $0.02 for the quarters ended September 30, 2017 and June 30, 2018, respectively.

The Company had net income of $36.4 million for the nine months ended September 30, 2018, or $1.04 per diluted common share, compared to $31.8 million, or $1.06 per diluted common share, for the nine months ended September 30, 2017. The impact of acquisition-related expenses was $0.21 per share for the nine months ended September 30, 2018 compared to $0.01 for the nine months ended September 30, 2017.

Brian L. Vance, CEO of Heritage, commented, "We are pleased with our overall financial performance for the third quarter of 2018. Excluding the impacts of acquisition-related expenses, we showed very positive earnings improvement.  In addition, due to the combination of our merger with Premier Commercial Bancorp and strong deposit growth in the third quarter, our total assets grew to over $5.28 billion as of September 30, 2018.

We are also pleased to announce that we are increasing our regular quarterly cash dividend to $0.17 per common share and declaring a special dividend of $0.10 payable to our shareholders in November."

Jeffrey J. Deuel, President and Chief Executive Officer of Heritage Bank commented, "It is good to see the positive impact from both the Puget Sound Bancorp, Inc. and Premier Community Bancorp acquisitions which we expect will continue to enhance our performance in future quarters. The additional scale and our continued focus on expense management in the midst of these two transactions is also contributing to our positive performance. Additionally, our ongoing discipline around loan concentration management also positions us well for the future."

Acquisition of Premier Commercial Bancorp

On July 2, 2018, the Company completed the acquisition of Premier Commercial Bancorp ("Premier Commercial"), the holding company for Premier Community Bank, both of Hillsboro, Oregon ("Premier Merger").  As of the acquisition date, Premier Commercial was merged with and into Heritage and Premier Community Bank was merged with and into Heritage Bank.

Pursuant to the terms of the merger agreement, Premier Commercial shareholders received 0.4863 shares of Heritage common stock in exchange for each share of Premier Commercial common stock based on the Heritage closing date per share price on June 29, 2018 of $34.85. Heritage issued an aggregate of 2,848,579 shares of its common stock and paid cash of $2,000 for fractional shares in the transaction for total consideration paid of $99.3 million.

Acquisition of Puget Sound Bancorp, Inc.

On January 16, 2018, the Company completed the acquisition of Puget Sound Bancorp, Inc. ("Puget Sound"), the holding company for Puget Sound Bank, both of Bellevue, Washington ("Puget Sound Merger"). As of the acquisition date, Puget Sound merged into Heritage and Puget Sound Bank merged into Heritage Bank.

Pursuant to the terms of the merger agreement, Puget Sound shareholders received 1.1688 shares of Heritage common stock in exchange for each share of Puget Sound stock. Heritage issued an aggregate of 4,112,258 shares of its common stock at the closing date per share price on January 12, 2018 of $31.80 and paid cash of $3,000 for fractional shares in the transaction for total consideration paid of $130.8 million.

Acquisition Accounting

The Premier Merger and Puget Sound Merger (collectively the "Premier and Puget Mergers") were accounted for using the acquisition method of accounting. Accordingly, Heritage's cost to acquire Premier Commercial and Puget Sound were allocated to the assets (including identifiable intangible assets) and the liabilities at their respective estimated fair values as of the acquisition dates. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill. Fair values on the acquisition date are preliminary and represent management's best estimates based on available information and facts and circumstances in existence on the acquisition date. Fair values are subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available.

The following table provides the estimated fair value of the assets acquired and liabilities assumed at the merger dates for each merger (in thousands):





Premier Merger



Puget Sound Merger

Effective Dates



7/2/2018



1/16/2018











Total merger consideration



99,275





130,773













Assets









Cash on hand and in banks



$

22,534





$

25,889



Interest earning deposits



3,309





54,247



Investment securities available for sale



4,493





80,353



Loans receivable



330,085





388,462



Other real estate owned



1,796







Premises and equipment, net



3,053





732



Federal Home Loan Bank stock, at cost



1,120





623



Bank owned life insurance



10,852





6,264



Accrued interest receivable



1,006





1,448



Prepaid expenses and other assets



1,828





1,354



Other intangible assets



7,075





11,270



Total assets



$

387,151





$

570,642













Liabilities and Stockholders' Equity









Deposits



$

318,717





$

505,885



Federal Home Loan Bank advances



16,000







Securities sold under agreement to repurchase



462







Accrued expenses and other liabilities



5,985





2,504



Total liabilities



$

341,164





$

508,389













Fair value of net assets acquired



$

45,987





$

62,253



Goodwill acquired



53,288





68,520



Balance Sheet

The Company's total assets increased $486.7 million, or 10.2%, to $5.28 billion at September 30, 2018 from $4.79 billion at June 30, 2018 primarily as a result of the Premier Merger.  Assets acquired, including goodwill, from the Premier Merger totaled $440.4 million at the closing date of July 2, 2018.

Investment securities increased $47.1 million, or 5.4%, to $920.7 million at September 30, 2018 from $873.7 million at June 30, 2018 primarily as a result of investment purchases of $120.5 million, of which $4.5 million were acquired in the Premier Merger. The increase in investment securities was partially offset by sales of $44.9 million, maturities, calls and payments of investment securities of $23.2 million and an increase in unrealized losses of $4.3 million due to rising interest rates that negatively impacted the fair value of our bond portfolio.

Total loans receivable, net of allowance for loan losses, increased $320.3 million, or 9.7%, to $3.61 billion at September 30, 2018 from $3.29 billion at June 30, 2018.  Total loans receivable, net, excluding the $330.1 million of loans acquired in the Premier Merger, decreased $9.8 million during the three months ended September 30, 2018 due to a significant amount of prepayments during the quarter.

Total deposits increased $429.2 million, or 10.8%, to $4.40 billion at September 30, 2018 from $3.97 billion at June 30, 2018 primarily as a result of the deposits acquired in the Premier Merger totaling $318.7 million. Total deposits, excluding those acquired in the Premier Merger, increased $110.5 million, or 2.8%.The acquired deposits had the following composition at the merger date of July 2, 2018 (in thousands):



7/2/18 Balance



% of Total

Premier Merger - Deposit Composition







Noninterest bearing demand deposits

$

101,250





31.8

%

Interest bearing demand deposits

29,628





9.3



Money market accounts

127,305





39.9



Savings accounts

5,170





1.6



Total non-maturity deposits

263,353





82.6



Certificates of deposit

55,364





17.4



Total deposits acquired in Premier Merger

$

318,717





100.0

%

The increase in deposits, excluding the deposits acquired in the Premier Merger, included increases in noninterest bearing demand deposit accounts of $52.9 million, or 4.6%, and money market accounts of $44.0 million, or 7.4%, offset partially by decreases in certificates of deposit accounts of $12.4 million, or 2.7%. Non-maturity deposits as a percentage of total deposits increased slightly to 88.5% as of September 30, 2018 from 88.4% as of June 30, 2018.

The Company had no Federal Home Loan Bank advances at September 30, 2018 compared to $75.5 million at June 30, 2018. The Company was able to pay down the advances, including the $16.0 million acquired in the Premier Merger, due to the increase in deposits during the quarter.

Total stockholders' equity increased $106.6 million, or 16.7%, to $746.1 million at September 30, 2018 from $639.5 million at June 30, 2018. Changes in stockholders' equity during the three and nine months ended September 30, 2018 were as follows (in thousands):



Three Months Ended



Nine Months Ended



September 30, 2018

Balance, beginning of period

$

639,523





$

508,305



   Common stock issued in the Premier and Puget Mergers

99,272





230,042



   Net income

15,504





36,448



   Dividends paid

(5,549)





(15,796)



   Accumulated other comprehensive loss

(3,384)





(13,299)



   Other

767





433



Balance, end of period

$

746,133





$

746,133



The Company and Heritage Bank continue to maintain capital levels in excess of the applicable regulatory requirements for them to be categorized as "well-capitalized". The Company had common equity Tier 1 risk-based, Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios of 11.4%, 10.4%, 11.8% and 12.6%, respectively, at September 30, 2018, compared to 11.2%, 10.4%, 11.7% and 12.6%, respectively, at June 30, 2018 and 11.4%, 10.4%, 12.0% and 13.0%, respectively, at September 30, 2017.

Credit Quality

The allowance for loan losses increased $503,000, or 1.5%, to $34.5 million at September 30, 2018 from $34.0 million at June 30, 2018. The increase was due to provision for loan losses of $1.1 million recorded during the quarter ended September 30, 2018, offset partially by net charge-offs of $562,000 recognized during the same period.

Nonperforming loans to loans receivable, net, decreased to 0.41% at September 30, 2018 from 0.50% at June 30, 2018 due primarily to a decrease in nonaccrual loans of $1.7 million, or 10.5%, to $14.8 million at September 30, 2018 from $16.5 million at June 30, 2018. The decrease was due substantially to one agricultural loan relationship in the amount of $2.7 million that paid in full during the quarter ended September 30, 2018, offset partially by one new commercial lending relationship totaling $1.0 million.

Changes in nonaccrual loans during the quarter ended September 30, 2018 were as follows (in thousands):



Three Months Ended



September 30, 2018

Nonaccrual loans



Balance, beginning of period

$

16,523



   Addition of previously classified pass graded loans

1,177



   Addition of previously classified potential problem loans

645



   Acquired in Premier Merger

130



   Charge-offs

(286)



   Net principal payments

(3,409)



Balance, end of period

$

14,780



The allowance for loan losses to nonperforming loans was 233.25% at September 30, 2018 compared to 205.60% at the linked-quarter ended June 30, 2018. Nonperforming assets decreased to 0.32% of total assets at September 30, 2018 compared to 0.35% of total assets at June 30, 2018 based on the decrease in nonaccrual loans discussed above, partially offset by the $1.8 million increase in other real estate owned during the quarter ended September 30, 2018 primarily as a result of the Premier Merger.

Potential problem loans increased $4.3 million, or 4.2%, to $105.7 million at September 30, 2018 compared to $101.5 million at June 30, 2018 due primarily to potential problems loans acquired in the Premier Merger.  Changes in potential problem loans during the quarter ended September 30, 2018 were as follows (in thousands):



Three Months Ended



September 30, 2018

Potential problem loans



Balance, beginning of period

$

101,491



   Addition of previously classified pass graded loans

8,451



   Acquired in Premier Merger

10,139



   Upgrades to pass graded loan status

(6,230)



   Transfers of loans to nonaccrual and troubled debt restructured status

(1,001)



   Charge-offs

(43)



   Net principal payments

(7,065)



Balance, end of period

$

105,742



The allowance for loan losses to loans receivable, net, decreased to 0.94% at September 30, 2018 from 1.02% at June 30, 2018 primarily as a result of the Premier Merger. Included in the carrying value of loans are net discounts on loans purchased in mergers and acquisitions which may reduce the need for an allowance for loan losses on these loans because they are carried at an amount below the outstanding principal balance.  The carrying value of the loans acquired in the Premier Merger was $330.1 million and the related fair value discount was $5.3 million, or 1.60% of the acquired balance. The Company believes that its allowance for loan losses is appropriate to provide for probable incurred credit losses based on an evaluation of known and inherent risks in the loan portfolio at September 30, 2018. The remaining net discount on purchased loans, including the related fair value discount acquired in the Premier Merger, was $13.4 million at September 30, 2018 compared to $10.6 million at June 30, 2018.

Net charge-offs were $562,000 for the quarter ended September 30, 2018 compared to net charge-offs of $2.2 million for the same quarter in 2017 and net charge-offs of $1.0 million for the linked-quarter ended June 30, 2018. The decrease in net charge-offs compared to the linked-quarter was due primarily to lower commercial and industrial loan charge-offs. The majority of the charge-offs recorded during the quarter ended September 30, 2018 relate to smaller charge-off balances on a large volume of consumer loans.

Operating Results

Net interest income increased $16.2 million, or 46.2%, to $51.1 million for the quarter ended September 30, 2018 compared to $34.9 million for the same period in 2017 and increased $7.4 million, or 16.8%, from $43.7 million for the linked-quarter ended June 30, 2018. Net interest income increased $33.5 million, or 32.7%, to $135.7 million for the nine months ended September 30, 2018 compared to $102.2 million for the nine months ended September 30, 2017. The increases in net interest income for all periods noted were primarily due to increases in average interest earning assets, which increased substantially as a result of the Premier and Puget Mergers. In addition, the yield on total interest earning assets increased 59 basis points to 4.71% for the quarter ended September 30, 2018 compared to 4.12% for the comparable period in 2017 and increased 21 basis points from 4.50% for the linked quarter ended June 30, 2018. Yield on total interest earning assets increased 42 basis points to 4.54% for the nine months ended September 30, 2018 compared to 4.12% for the nine months ended September 30, 2017. Yields on total interest earning assets increased primarily due to higher market interest rates reflecting increases in the target federal funds rate. The increases in net interest income for all periods were offset partially by increases in the cost of total interest bearing liabilities primarily as a result of rising interest rates. The cost of total interest bearing liabilities increased eight basis points to 0.44% during the quarter ended September 30, 2018 compared to 0.36% for the quarter ended September 30, 2017 and increased three basis points from 0.41% for the linked-quarter ended June 30, 2018. The cost of total interest bearing liabilities increased eight basis points to 0.40% for the nine months ended September 30, 2018 compared to 0.32% for the same period in 2017.

Net interest margin increased 55 basis points to 4.41% for the quarter ended September 30, 2018 from 3.86% for the same period in 2017 and increased 19 basis points from 4.22% for the linked-quarter ended June 30, 2018.  The net interest margin increased 37 basis points for the nine months ended September 30, 2018 to 4.26% from 3.89% for the same period in 2017.  Increases in net interest margin were due primarily to the increases in net interest income as discussed above with the primary contributor being the increases in both the average loan balance and loan yield.

The loan yield, excluding incremental accretion on purchased loans, increased 44 basis points to 5.01% for the quarter ended September 30, 2018 compared to 4.57% for the quarter ended September 30, 2017 and increased 20 basis points from 4.81% for the linked-quarter ended June 30, 2018. Loan yield, excluding incremental accretion on purchased loans, increased 30 basis points to 4.85% for the nine months ended September 30, 2018 compared to 4.55% for same period in 2017. The increases in loan yields, excluding incremental accretion of purchased loans, from prior periods was due to a combination of higher contractual loan rates as a result of the increasing interest rate environment as well as an increase in loan yields from the loans acquired in the Premier and Puget Mergers as compared to legacy Heritage loans.

The impact on loan yield from incremental accretion on purchased loans increased 14 basis points to 0.29% for the quarter ended September 30, 2018 compared to 0.15% for the quarter ended September 30, 2017 and increased five basis points from 0.24% for the linked-quarter ended June 30, 2018. The impact on loan yield from incremental accretion on purchased loans increased seven basis points to 0.25% for the nine months ended September 30, 2018 from 0.18% for the same period in 2017. The increases from all prior periods was primarily a result of the loans acquired in the Premier and Puget Mergers. The incremental accretion and the impact to 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.

The following table presents the net interest margin, loan yield and the effect of the incremental accretion on purchased loans on these ratios for the periods presented below:



Three Months Ended



Nine Months Ended



September

30, 2018



June 30,

2018



September

30, 2017



September

30, 2018



September

30, 2017



(Dollars in thousands)

Net interest margin, excluding incremental accretion on purchased loans (1)

4.18

%



4.03

%



3.75

%



4.06

%



3.75

%

Impact on net interest margin from incremental accretion on purchased loans (1)

0.23

%



0.19

%



0.11

%



0.20

%



0.14

%

Net interest margin

4.41

%



4.22

%



3.86

%



4.26

%



3.89

%





















Loan yield, excluding incremental accretion on purchased loans (1)

5.01

%



4.81

%



4.57

%



4.85

%



4.55

%

Impact on loan yield from incremental accretion on purchased loans (1)

0.29

%



0.24

%



0.15

%



0.25

%



0.18

%

Loan yield

5.30

%



5.05

%



4.72

%



5.10

%



4.73

%





















Incremental accretion on purchased loans (1)

$

2,637





$

1,992





$

1,036





$

6,261





$

3,687







(1)

As of the dates of the completion of each of the merger and acquisition transactions, purchased loans were recorded at their estimated fair value, including our estimate of future expected cash flows until the ultimate resolution of these credits. The difference between the contractual loan balance and the fair value represents the purchased discount. The purchased discount is accreted into income over the estimated remaining life of the loan or pool of loans, based upon results of the quarterly cash flow re-estimation. The incremental accretion income represents the amount of income recorded on the purchased loans in excess of the contractual stated interest rate in the individual loan notes.

In addition to loan yields, also impacting net interest margin were increases in the yields on investment securities. The yields on the aggregate investment portfolio increased 34 basis points to 2.58% for the quarter ended September 30, 2018 compared to 2.24% for the quarter ended September 30, 2017 and increased five basis points from 2.53% for the linked-quarter ended June 30, 2018. The yields on the aggregate investment portfolio increased 27 basis points to 2.51% for the nine months ended September 30, 2018 compared to 2.24% for the nine months ended September 30, 2017. The increases compared to the prior periods primarily reflect the effect of the rise in interest rates on our adjustable rate investment securities as well as higher rates on new purchases of investments.

The total cost of deposits increased seven basis points to 0.27% during the quarter ended September 30, 2018 compared to 0.20% during the same quarter in 2017 and increased four basis points from 0.23% during the linked-quarter ended June 30, 2018. The total cost of deposits increased six basis points to 0.24% during the nine months ended September 30, 2018 compared to 0.18% during the same period in 2017.

The interest expense from FHLB advances and other borrowings decreased to $117,000 for the quarter ended September 30, 2018 as the Company paid off all the FHLB advances during the quarter. The average balance of FHLB advances decreased to $20.9 million during the quarter ended September 30, 2018 compared to $111.3 million during the same period in 2017 and decreased from an average balance of $79.1 million during the linked-quarter ended June 30, 2018. The cost of FHLB advances increased 69 basis points to 2.22% during the quarter ended September 30, 2018 compared to 1.53% during the same quarter in 2017 and increased 18 basis points from 2.04% during the linked-quarter ended June 30, 2018.

Donald J. Hinson, Executive Vice President and Chief Financial Officer, commented, "We are pleased with the continued improvement in our net interest margin. This has been accomplished primarily through increases in pre-accretion loan yield while experiencing only marginal increases in costs of total deposits. The weighted average note rate on new loans originated during quarter ended September 30, 2018 increased to 5.49% from 5.18% for the quarter ended June 30, 2018 and from 4.45% for the quarter ended September 30, 2017. These increases in rates on new loans, as well as the repricing of adjustable rate loans, has resulted in significant increases in pre-accretion loan yield."

The provision for loan losses increased $181,000, or 20.5%, to $1.1 million for the quarter ended September 30, 2018 compared to $884,000 for the quarter ended September 30, 2017 and decreased $685,000, or 39.1%, from the linked-quarter ended June 30, 2018. The provision for loan losses increased $1.1 million, or 37.6%, to $4.0 million for the nine months ended September 30, 2018 compared to $2.9 million for the nine months ended September 30, 2017. The amount of provision for loan losses was necessary to increase the allowance for loan losses to an amount that management determined to be appropriate at September 30, 2018 based on the use of a consistent methodology. The increase in the provision for loan losses compared to the 2017 periods was primarily as a result of increases in total loan balances as a result of mergers. The decrease in the provision for loan losses compared to the linked-quarter end was due primarily to a lower organic loan growth rate.

Noninterest income decreased $363,000, or 4.3%, to $8.1 million for the three months ended September 30, 2018 compared to $8.4 million for the three months ended September 30, 2017 and decreased $3.3 million, or 12.5%, to $23.2 million for the nine months ended September 30, 2018 compared to $26.5 million for the same period in 2017. These decreases from the prior periods were due primarily to a decrease in gain on sale of loans, including a $3.0 million gain on the sale of a previously classified purchased credit impaired loan during the quarter ended June 30, 2017. The decrease in noninterest income was offset partially by increases in service charges and other fees due primarily to changes in fee structures on business deposit accounts completed during the quarter ended June 30, 2017 in addition to increases in deposit balances. Noninterest income increased $507,000, or 6.7%, compared to linked-quarter ended June 30, 2018 primarily due to a gain on sale of a branch held for sale recognized in other income of $382,000 during the three months ended September 30, 2018.

Noninterest expense increased $11.6 million, or 41.6%, to $39.6 million for the quarter ended September 30, 2018 compared to $28.0 million for the same period in 2017. Noninterest expense increased $29.1 million, or 35.0%, to $112.1 million for the nine months ended September 30, 2018 compared to $83.0 million for the same period in 2017. The increases were primarily due to expenses from the Premier and Puget Mergers, including increases related to compensation and employee benefits due to additional employees, occupancy and equipment expense primarily due to additional rent expense, and additional data processing expense due to an increase in transactional accounts and balances. Noninterest expense also increased during the three and nine months ended September 30, 2018 compared to both periods in 2017 due to increases in the amortization of intangible assets of $836,000 and $1.9 million recorded during the quarter and nine months ended September 30, 2018, respectively, relating to the Premier and Puget Mergers.   Noninterest expenses increased compared to the linked-quarter ended June 30, 2018 due substantially to the Premier Merger.

Professional services increased during the three and nine months ended September 30, 2018 compared to the same periods in 2017 primarily due to acquisition-related expenses. Professional services decreased compared to the linked-quarter ended June 30, 2018, due substantially to the buy-out of a third party contract in the amount $1.7 million during the quarter ended June 30, 2018. The third party assisted the Company in its deposit product realignment and was compensated based on success factors over three years subsequent to implementation. The Company assessed the contract and determined that it was advantageous to buy-out the contract prior to the system conversions relating to the Premier and Puget Mergers. The Company expects the accumulated savings in future professional services expenses to fully offset the cost of the buy-out by the end of 2019.

Noninterest expense increased $3.9 million, or 10.9%, from $35.7 million for the linked-quarter ended June 30, 2018 primarily due to non-recurring compensation and employee benefits expense related to the Premier Merger paid during the third quarter 2018, offset partially by the non-recurring contract buy-out in second quarter 2018 described above.

Acquisition-related expenses incurred as a result of the Premier and Puget Sound Mergers were approximately $3.4 million during the quarter ended September 30, 2018 compared to $880,000 during the linked-quarter ended June 30, 2018. For the nine months ended September 30, 2018, acquisition-related expenses totaled $9.1 million. For the three and nine months ended September 30, 2017, acquisition-related expenses totaled $387,000. Acquisition costs are primarily included in compensation and employee benefits, professional services and data processing expenses.

The ratio of noninterest expense to average assets (annualized) was 2.98% for the quarter ended September 30, 2018 compared to 2.76% for the same period in 2017 and was 3.09% for nine months ended September 30, 2018 compared to 2.82% for the same period in 2017. The increase from the prior periods was due primarily to acquisition-related expenses and the increase in the amortization of intangible assets. The ratio of noninterest expense to average assets (annualized) decreased from 3.03% for the linked-quarter ended June 30, 2018 primarily based on the proportional increase in average assets to the increase in noninterest expense discussed above.

Income tax expense was $3.0 million for the quarter ended September 30, 2018 compared to $3.9 million for the quarter ended September 30, 2017 and $2.0 million for the linked-quarter ended June 30, 2018. The effective tax rate was 16.3% for the quarter ended September 30, 2018 compared to 27.0% for the comparable quarter in 2017 and 14.5% for the linked-quarter ended June 30, 2018. Income tax expense was $6.4 million for the nine months ended September 30, 2018 compared to $11.1 million for the nine months ended September 30, 2017. The effective tax rate was 15.0% for the nine months ended September 30, 2018 compared to 25.9% for the nine months ended September 30, 2017. The decrease in the income tax expense and the effective tax rate compared to the same periods in 2017 was due primarily to the impact of the Tax Cuts and Jobs Act enacted in December 2017 which lowered the corporate income tax rate from 35% to 21%.  The increase in income tax expense compared to the linked-quarter was primarily due to an increase in pre-tax income without a corresponding increase in tax-exempt income.

Dividends

On October 24, 2018, the Company's Board of Directors declared a quarterly cash dividend of $0.17 per common share and a special cash dividend in the amount of $0.10 per common share. The dividends are payable on November 21, 2018 to shareholders of record as of the close of business on November 7, 2018.

Earnings Conference Call

The Company will hold a telephone conference call to discuss this earnings release on October 25, 2018 at 11:00 a.m. Pacific time. To access the call, please dial (877) 209-9921 a few minutes prior to 11:00 a.m. Pacific time. The call will be available for replay through November 9, 2018, by dialing (800) 475-6701 -- access code 455201.

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 branching network of 64 banking offices in Washington and Oregon. Heritage Bank does business under the Whidbey Island Bank name on Whidbey Island. Heritage's stock is traded on the NASDAQ Global Select Market under the symbol "HFWA". More information about Heritage Financial Corporation can be found on its website at www.hf-wa.com and more information about Heritage Bank can be found on its website at www.heritagebanknw.com.

Non-GAAP Financial Measures

This news release contains certain non-GAAP (Generally Accepted Accounting Principles) financial measures in addition to results presented in accordance with GAAP. These measures include tangible common stockholders' equity, tangible book value per share and tangible common stockholders' equity to tangible assets. Tangible common stockholders' equity (tangible book value) excludes goodwill and other intangible assets. Tangible assets exclude goodwill and other intangible assets. Management 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 reflected in the current quarter and year-to-date results and facilitate comparison of our performance with the performance of our peers. Where applicable, the Company has also presented comparable earnings information using GAAP financial measures. Reconciliations of the GAAP and non-GAAP financial measures are presented below.



September

30, 2018



June 30, 2018



December 31,

2017



(In thousands)

Stockholders' equity

$

746,133





$

639,523





$

508,305



Less: goodwill and other intangible assets

262,565





203,316





125,117



Tangible common stockholders' equity

$

483,568





$

436,207





$

383,188















Total assets

$

5,276,214





$

4,789,488





$

4,113,270



Less: goodwill and other intangible assets

262,565





203,316





125,117



Tangible assets

$

5,013,649





$

4,586,172





$

3,988,153



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 our actual results to differ materially from those described in the forward-looking statements, include the expected revenues, cost savings, synergies and other benefits from the Premier and Puget Mergers might not be realized within the expected time frames or at all, and costs or difficulties relating to integration matters, including but not limited to, customer and employee retention might be greater than expected; increased competitive pressures; changes in the interest rate environment; changes in general economic conditions and conditions within the securities markets; legislative and regulatory changes; and other factors described in Heritage's latest annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other documents filed with or furnished to the Securities and Exchange Commission-which are available on our website at www.heritagebanknw.com and on the SEC's website at www.sec.gov. The Company cautions readers not to place undue reliance on any forward-looking statements. Moreover, any of the forward-looking statements that we make in this press release or the documents we file with or furnish to the SEC are based only on information then actually known to the Company and upon management's beliefs and assumptions at the time they are made which may turn out to be wrong because of inaccurate assumptions we might make, because of the factors described above or because of other factors that we cannot foresee. The Company does not undertake and specifically disclaims any obligation to revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. These risks could cause our actual results for 2018 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)

(In thousands, except shares)





September 30,

2018



June 30,

2018



December 31,

2017

Assets











Cash on hand and in banks

$

120,833





$

94,210





$

78,293



Interest earning deposits

49,310





35,733





24,722



Cash and cash equivalents

170,143





129,943





103,015



Investment securities available for sale

920,737





873,670





810,530



Loans held for sale

1,882





3,598





2,288



Loans receivable, net

3,649,054





3,328,288





2,849,071



Allowance for loan losses

(34,475)





(33,972)





(32,086)



Total loans receivable, net

3,614,579





3,294,316





2,816,985



Other real estate owned

2,032





434







Premises and equipment, net

80,439





75,364





60,325



Federal Home Loan Bank stock, at cost

6,076





8,616





8,347



Bank owned life insurance

93,296





82,031





75,091



Accrued interest receivable

15,735





13,482





12,244



Prepaid expenses and other assets

108,730





104,718





99,328



Other intangible assets, net

21,728





15,767





6,088



Goodwill

240,837





187,549





119,029



Total assets

$

5,276,214





$

4,789,488





$

4,113,270















Liabilities and Stockholders' Equity











Deposits

$

4,398,127





$

3,968,935





$

3,393,060



Federal Home Loan Bank advances





75,500





92,500



Junior subordinated debentures

20,229





20,156





20,009



Securities sold under agreement to repurchase

32,233





22,168





31,821



Accrued expenses and other liabilities

79,492





63,206





67,575



Total liabilities

4,530,081





4,149,965





3,604,965















Common stock

591,065





491,026





360,590



Retained earnings

169,758





159,803





149,013



Accumulated other comprehensive loss, net

(14,690)





(11,306)





(1,298)



Total stockholders' equity

746,133





639,523





508,305



Total liabilities and stockholders' equity

$

5,276,214





$

4,789,488





$

4,113,270















Common stock shares outstanding

36,873,123





34,021,094





29,927,746



 

HERITAGE FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollar amounts in thousands, except per share amounts)





Three Months Ended



Nine Months Ended



September 30,

2018



June 30,

2018



September 30,

2017



September 30,

2018



September 30,

2017

Interest income:



















Interest and fees on loans

$

48,301





$

41,141





$

32,595





$

127,601





$

94,580



Taxable interest on investment securities

4,662





4,068





3,117





12,259





9,307



Nontaxable interest on investment securities

1,085





1,220





1,354





3,646





3,926



Interest on other interest earning assets

528





242





209





988





352



Total interest income

54,576





46,671





37,275





144,494





108,165



Interest expense:



















Deposits

3,014





2,195





1,628





7,169





4,301



Junior subordinated debentures

330





315





261





928





748



Other borrowings

136





418





444





721





908



Total interest expense

3,480





2,928





2,333





8,818





5,957



Net interest income

51,096





43,743





34,942





135,676





102,208



Provision for loan losses

1,065





1,750





884





3,967





2,882



Net interest income after provision for loan losses

50,031





41,993





34,058





131,709





99,326



Noninterest income:



















Service charges and other fees

4,824





4,695





4,769





14,062





13,408



Gain on sale of investment securities, net

82





18





44





135





161



Gain on sale of loans, net

706





706





1,229





2,286





6,562



Interest rate swap fees





309





328





360





743



Other income

2,468





1,845





2,073





6,358





5,641



Total noninterest income

8,080





7,573





8,443





23,201





26,515



Noninterest expense:



















Compensation and employee benefits

23,804





19,321





15,823





64,492





48,119



Occupancy and equipment

5,020





4,810





3,979





14,457





11,607



Data processing

2,343





2,507





2,090





7,455





6,007



Marketing

876





823





933





2,507





2,545



Professional services

2,119





3,529





1,453





8,485





3,515



State and local taxes

931





716





640





2,335





1,828



Federal deposit insurance premium

375





375





433





1,105





1,090



Other real estate owned, net

18









(88)





18





(36)



Amortization of intangible assets

1,114





796





319





2,705





966



Other expense

2,997





2,829





2,373





8,491





7,346



Total noninterest expense

39,597





35,706





27,955





112,050





82,987



Income before income taxes

18,514





13,860





14,546





42,860





42,854



Income tax expense

3,010





2,003





3,922





6,412





11,086



Net income

$

15,504





$

11,857





$

10,624





$

36,448





$

31,768























Basic earnings per common share

$

0.42





$

0.35





$

0.35





$

1.04





$

1.06



Diluted earnings per common share

$

0.42





$

0.35





$

0.35





$

1.04





$

1.06



Dividends declared per common share

$

0.15





$

0.15





$

0.13





$

0.45





$

0.38























Average number of basic common shares outstanding

36,771,946





33,934,661





29,783,296





34,650,448





29,748,090



Average number of diluted common shares outstanding

36,963,244





34,107,292





29,890,710





34,820,602





29,834,094



 

HERITAGE FINANCIAL CORPORATION

FINANCIAL STATISTICS

(Dollars in thousands, except per share amounts; unaudited)





Three Months Ended



Nine Months Ended



September 30,

2018



June 30,

2018



September 30,

2017



September 30,

2018



September 30,

2017

Performance Ratios:



















Efficiency ratio

66.91

%



69.58

%



64.43

%



70.53

%



64.47

%

Noninterest expense to average assets, annualized

2.98

%



3.03

%



2.76

%



3.09

%



2.82

%

Return on average assets, annualized

1.17

%



1.01

%



1.05

%



1.00

%



1.08

%

Return on average equity, annualized

8.26

%



7.47

%



8.34

%



7.32

%



8.56

%

Return on average tangible common equity, annualized

12.77

%



10.99

%



11.10

%



10.92

%



11.47

%

Net charge-offs on loans to average loans, annualized

0.06

%



0.13

%



0.32

%



0.06

%



0.13

%

 



As of Period End



September 30,

2018



June 30,

2018



December 31,

2017

Financial Measures:











Book value per common share

$

20.24





$

18.80





$

16.98



Tangible book value per common share

$

13.11





$

12.82





$

12.80



Stockholders' equity to total assets

14.1

%



13.4

%



12.4

%

Tangible common equity to tangible assets

9.6

%



9.5

%



9.6

%

Common equity Tier 1 capital to risk-weighted assets

11.4

%



11.2

%



11.3

%

Tier 1 leverage capital to average quarterly assets

10.4

%



10.4

%



10.2

%

Tier 1 capital to risk-weighted assets

11.8

%



11.7

%



11.8

%

Total capital to risk-weighted assets

12.6

%



12.6

%



12.8

%

Loans to deposits ratio (1)

83.0

%



83.9

%



84.0

%

Deposits per branch

$

68,721





$

67,270





$

57,509







(1)

Loans receivable, net of deferred costs divided by deposits

 



Three Months Ended



Nine Months Ended



September 30,

2018



June 30,

2018



September 30,

2017



September 30,

2018



September 30,

2017

Allowance for Loan Losses:



















Balance, beginning of period

$

33,972





$

33,261





$

32,751





$

32,086





$

31,083



Provision for loan losses

1,065





1,750





884





3,967





2,882



Net (charge-offs) recoveries:



















Commercial business

(179)





(474)





(1,489)





(233)





(1,106)



One-to-four family residential

(15)





(15)





(15)





(30)





(14)



Real estate construction and land development

3





2





(365)





5





(355)



Consumer

(371)





(552)





(366)





(1,320)





(1,090)



Total net (charge-offs) recoveries

(562)





(1,039)





(2,235)





(1,578)





(2,565)



Balance, end of period

$

34,475





$

33,972





$

31,400





$

34,475





$

31,400



 



Three Months Ended



Nine Months Ended



September 30,

2018



June 30,

2018



September 30,

2017



September 30,

2018



September 30,

2017

Other Real Estate Owned:



















Balance, beginning of period

$

434





$





$

786





$





$

754



Additions





434









434





32



Additions from acquisitions

1,796













1,796







Proceeds from dispositions

(198)









(374)





(198)





(374)



Gain on sales, net









111









111



Balance, end of period

$

2,032





$

434





$

523





$

2,032





$

523



 



Three Months Ended



Nine Months Ended



September 30,

2018



June 30,

2018



September 30,

2017



September 30,

2018



September 30,

2017

Gain on Sale of Loans, net:



















Mortgage loans

$

706





$

572





$

875





$

1,930





$

2,515



SBA loans





134





354





356





1,049



Other loans

















2,998



Total gain on sale of loans, net

$

706





$

706





$

1,229





$

2,286





$

6,562



 



As of Period End



September 30,

2018



June 30,

2018



December 31,

2017

Nonperforming Assets:











Nonaccrual loans by type:











Commercial business

$

13,487





$

15,235





$

9,098



One-to-four family residential

74





77





81



Real estate construction and land development

1,076





1,084





1,247



Consumer

143





127





277



Total nonaccrual loans(1)

14,780





16,523





10,703



Other real estate owned

2,032





434







Nonperforming assets

$

16,812





$

16,957





$

10,703















Restructured performing loans

$

24,449





$

25,957





$

26,757



Accruing loans past due 90 days or more











Potential problem loans(2)

105,742





101,491





83,543



Allowance for loan losses to:











Loans receivable, net

0.94

%



1.02

%



1.13

%

Nonperforming loans

233.25

%



205.60

%



299.79

%

Nonperforming loans to loans receivable, net

0.41

%



0.50

%



0.38

%

Nonperforming assets to total assets

0.32

%



0.35

%



0.26

%





(1)

At September 30, 2018, June 30, 2018 and December 31, 2017, $6.5 million, $6.8 million and $5.2 million of nonaccrual loans were also considered troubled debt restructured loans, respectively.

(2)

Potential problem loans are those loans that are currently accruing interest and are not considered impaired, but which are being monitored because the financial information of the borrower causes the Company concern as to their ability to comply with their loan repayment terms.

 



As of Period End



September 30, 2018



June 30, 2018



December 31, 2017



Balance



% of

Total



Balance



% of

Total



Balance



% of

Total

Loan Composition























Commercial business:























Commercial and industrial

$

863,875





23.7

%



$

800,043





24.0

%



$

645,396





22.7

%

Owner-occupied commercial real estate

785,389





21.5





693,330





20.8





622,150





21.8



Non-owner occupied commercial real estate

1,283,839





35.2





1,187,548





35.7





986,594





34.6



Total commercial business

2,933,103





80.4





2,680,921





80.5





2,254,140





79.1



One-to-four family residential

96,162





2.6





92,518





2.8





86,997





3.1



Real estate construction and land development:























One-to-four family residential

106,704





2.9





71,934





2.2





51,985





1.8



Five or more family residential and commercial properties

120,417





3.3





93,315





2.8





97,499





3.4



Total real estate construction and land development

227,121





6.2





165,249





5.0





149,484





5.2



Consumer

389,271





10.7





385,987





11.6





355,091





12.5



Gross loans receivable

3,645,657





99.9





3,324,675





99.9





2,845,712





99.9



Deferred loan costs, net

3,397





0.1





3,613





0.1





3,359





0.1



Loans receivable, net

$

3,649,054





100.0

%



$

3,328,288





100.0

%



$

2,849,071





100.0

%

 



As of Period End



September 30, 2018



June 30, 2018



December 31, 2017



Balance



% of

Total



Balance



% of

Total



Balance



% of

Total

Deposit Composition























Noninterest bearing demand deposits

$

1,311,825





29.8

%



$

1,157,630





29.2

%



$

944,791





27.8

%

Interest bearing demand deposits

1,294,105





29.4





1,242,622





31.3





1,051,752





31.1



Money market accounts

768,998





17.5





597,673





15.1





499,618





14.7



Savings accounts

519,596





11.8





510,375





12.8





498,501





14.7



Total non-maturity deposits

3,894,524





88.5





3,508,300





88.4





2,994,662





88.3



Certificates of deposit

503,603





11.5





460,635





11.6





398,398





11.7



Total deposits

$

4,398,127





100.0

%



$

3,968,935





100.0

%



$

3,393,060





100.0

%

 



Three Months Ended



September 30, 2018



June 30, 2018



September 30, 2017



Average

Balance



Interest

Earned/

Paid



Average

Yield/

Rate (1)



Average

Balance



Interest

Earned/

Paid



Average

Yield/

Rate (1)



Average

Balance



Interest

Earned/

Paid



Average

Yield/

Rate (1)

Interest Earning Assets:



































Total loans receivable, net (2) (3)

$

3,618,031





$

48,301





5.30

%



$

3,266,092





$

41,141





5.05

%



$

2,737,535





$

32,595





4.72

%

Taxable securities

707,597





4,662





2.61





638,092





4,068





2.56





562,256





3,117





2.20



Nontaxable securities (3)

176,322





1,085





2.44





201,104





1,220





2.43





229,683





1,354





2.34



Other interest earning assets

94,784





528





2.21





51,022





242





1.90





63,544





209





1.30



Total interest earning assets

4,596,734





54,576





4.71

%



4,156,310





46,671





4.50

%



3,593,018





37,275





4.12

%

Noninterest earning assets

681,831













570,409













427,199











Total assets

$

5,278,565













$

4,726,719













$

4,020,217











Interest Bearing Liabilities:



































Certificates of deposit

$

512,547





$

1,184





0.92

%



$

418,129





$

797





0.76

%



$

394,345





$

633





0.64

%

Savings accounts

518,937





541





0.41





512,832





487





0.38





494,990





360





0.29



Interest bearing demand and money market accounts

2,044,236





1,289





0.25





1,796,095





911





0.20





1,499,335





635





0.17



Total interest bearing deposits

3,075,720





3,014





0.39





2,727,056





2,195





0.32





2,388,670





1,628





0.27



Junior subordinated debentures

20,181





330





6.49





20,108





315





6.28





19,897





261





5.20



Securities sold under agreement to repurchase

33,394





19





0.23





27,935





16





0.23





28,999





16





0.22



Federal Home Loan Bank advances and other borrowings

20,892





117





2.22





79,120





402





2.04





111,293





428





1.53



Total interest bearing liabilities

3,150,187





3,480





0.44

%



2,854,219





2,928





0.41

%



2,548,859





2,333





0.36

%

Demand and other noninterest bearing deposits

1,314,203













1,175,331













916,074











Other noninterest bearing liabilities

69,786













60,434













50,022











Stockholders' equity

744,389













636,735













505,262











Total liabilities and stockholders' equity

$

5,278,565













$

4,726,719













$

4,020,217











Net interest income





$

51,096













$

43,743













$

34,942







Net interest spread









4.27

%











4.09

%











3.76

%

Net interest margin









4.41

%











4.22

%











3.86

%





(1)

Annualized.

(2)

The average loan balances presented in the table are net of allowances for loan losses. Nonaccrual loans have been included in the table as loans carrying a zero yield.

(3)

Yields on tax-exempt securities and loans have not been stated on a tax-equivalent basis.

 



Nine Months Ended



September 30, 2018



September 30, 2017



Average

Balance



Interest

Earned/

Paid



Average

Yield/

Rate (1)



Average

Balance



Interest

Earned/

Paid



Average

Yield/

Rate (1)

Interest Earning Assets:























Total loans receivable, net (2) (3)

$

3,346,709





$

127,601





5.10

%



$

2,676,153





$

94,580





4.73

%

Taxable securities

645,866





12,259





2.54





565,528





9,307





2.20



Nontaxable securities (3)

200,179





3,646





2.44





225,583





3,926





2.33



Other interest earning assets

66,619





988





1.98





42,225





352





1.11



Total interest earning assets

4,259,373





144,494





4.54

%



3,509,489





108,165





4.12

%

Noninterest earning assets

596,239













427,661











Total assets

$

4,855,612













$

3,937,150











Interest Bearing Liabilities:























Certificates of deposit

$

451,741





$

2,741





0.81

%



$

369,724





$

1,527





0.55

%

Savings accounts

512,689





1,443





0.38





499,353





940





0.25



Interest bearing demand and money market accounts

1,863,135





2,985





0.21





1,489,149





1,834





0.16



Total interest bearing deposits

2,827,565





7,169





0.34





2,358,226





4,301





0.24



Junior subordinated debentures

20,108





928





6.17





19,823





748





5.05



Securities sold under agreement to repurchase

30,543





52





0.23





23,660





38





0.21



Federal Home Loan Bank advances and other borrowings

45,194





669





1.98





106,556





870





1.09



Total interest bearing liabilities

2,923,410





8,818





0.40

%



2,508,265





5,957





0.32

%

Demand and other noninterest bearing deposits

1,201,676













885,467











Other noninterest bearing liabilities

64,686













47,283











Stockholders' equity

665,840













496,135











Total liabilities and stockholders' equity

$

4,855,612













$

3,937,150











Net interest income





$

135,676













$

102,208







Net interest spread









4.14

%











3.80

%

Net interest margin









4.26

%











3.89

%





(1)

Annualized.

(2)

The average loan balances presented in the table are net of allowances for loan losses. Nonaccrual loans have been included in the table as loans carrying a zero yield.

(3)

Yields on tax-exempt securities and loans have not been stated on a tax-equivalent basis.

 

HERITAGE FINANCIAL CORPORATION

QUARTERLY FINANCIAL STATISTICS (Unaudited)

(In thousands, except per share amounts)





Three Months Ended



September 30,

2018



June 30,

2018



March 31,

2018



December 31,

2017



September 30,

2017

Earnings:



















Net interest income

$

51,096





$

43,743





$

40,837





$

37,155





$

34,942



Provision for loan losses

1,065





1,750





1,152





1,338





884



Noninterest income

8,080





7,573





7,548





9,064





8,443



Noninterest expense

39,597





35,706





36,747





27,588





27,955



Net income

15,504





11,857





9,087





10,023





10,624



Basic earnings per common share

$

0.42





$

0.35





$

0.27





$

0.33





$

0.35



Diluted earnings per common share

$

0.42





$

0.35





$

0.27





$

0.33





$

0.35



Average Balances:



















Total loans receivable, net

$

3,618,031





$

3,266,092





$

3,150,869





$

2,786,370





$

2,737,535



Investment securities

883,919





839,196





814,254





818,058





791,939



Total interest earning assets

4,596,734





4,156,310





4,018,720





3,661,425





3,593,018



Total assets

5,278,565





4,726,719





4,553,585





4,112,516





4,020,217



Total interest bearing deposits

3,075,720





2,727,056





2,675,522





2,429,129





2,388,670



Demand and other noninterest bearing deposits

1,314,203





1,175,331





1,113,286





953,902





916,074



Stockholders' equity

744,389





636,735





614,974





510,581





505,262



Financial Ratios:



















Return on average assets, annualized

1.17

%



1.01

%



0.81

%



0.97

%



1.05

%

Return on average equity, annualized

8.26

%



7.47

%



5.99

%



7.79

%



8.34

%

Return on average tangible common equity, annualized

12.77

%



10.99

%



8.70

%



10.32

%



11.10

%

Efficiency ratio

66.91

%



69.58

%



75.95

%



59.69

%



64.43

%

Noninterest expense to average total assets, annualized

2.98

%



3.03

%



3.27

%



2.66

%



2.76

%

Net interest margin

4.41

%



4.22

%



4.12

%



4.03

%



3.86

%

Net interest spread

4.27

%



4.09

%



4.01

%



3.91

%



3.76

%

 



As of Period End or for the Three Month Periods Ended



September 30,

2018



June 30,

2018



March 31,

2018



December 31,

2017



September 30,

2017

Select Balance Sheet:



















Total assets

$

5,276,214





$

4,789,488





$

4,676,250





$

4,113,270





$

4,050,056



Total loans receivable, net

3,614,579





3,294,316





3,248,654





2,816,985





2,766,113



Investment securities

920,737





873,670





821,567





810,530





800,060



Deposits

4,398,127





3,968,935





3,904,741





3,393,060





3,320,818



Noninterest bearing demand deposits

1,311,825





1,157,630





1,178,202





944,791





916,265



Stockholders' equity

746,133





639,523





634,708





508,305





507,608



Financial Measures:



















Book value per common share

$

20.24





$

18.80





$

18.66





$

16.98





$

16.96



Tangible book value per common share

13.11





12.82





12.66





12.80





12.77



Stockholders' equity to assets

14.1

%



13.4

%



13.6

%



12.4

%



12.5

%

Tangible common equity to tangible assets

9.6





9.5





9.6





9.6





9.7



Loans to deposits ratio

83.0





83.9





84.0





84.0





84.2



Credit Quality Metrics:



















Allowance for loan losses to:



















Loans receivable, net

0.94

%



1.02

%



1.01

%



1.13

%



1.12

%

Nonperforming loans

233.25





205.60





211.48





299.79





286.71



Nonperforming loans to loans receivable, net

0.41





0.50





48.00





0.38





0.39



Nonperforming assets to total assets

0.32





0.35





34.00





0.26





0.28



Net charge-offs on loans to average loans receivable, net

0.06





0.13









0.09





0.32



Other Metrics:



















Number of banking offices

64





59





60





59





59



Average number of full-time equivalent employees

878





819





796





736





747



Deposits per branch

$

68,721





$

67,270





$

65,079





$

57,509





$

56,285



Average assets per full-time equivalent employee

$

6,014





$

5,770





$

5,720





$

5,587





$

5,382



 

Cision View original content:http://www.prnewswire.com/news-releases/heritage-financial-announces-third-quarter-2018-results-and-declares-regular-and-special-cash-dividends-300737637.html

SOURCE Heritage Financial Corporation

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