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| 8-K - FORM 8-K - HERITAGE FINANCIAL CORP /WA/ | d575507d8k.htm |
 Q2
2013 Investor Presentation
Heritage Financial Corporation
Brian L. Vance
CEO & President
Exhibit 99.1 |
 Forward Looking Statement
2
This presentation contains forward-looking statements that are subject to
risks and uncertainties, including, but not limited to: The credit and
concentration risks of lending activities; Changes in general economic
conditions, either nationally or in our market areas; Competitive market
pricing factors and interest rate risks; Market interest rate
volatility; Balance sheet (for example, loans) concentrations;
Fluctuations in demand for loans and other financial services in our market
areas; Changes in legislative or regulatory requirements or the results
of regulatory examinations; The ability to recruit and retain key
management and staff; Risks associated with our ability to implement our
expansion strategy and merger integration; Stability of funding sources
and continued availability of borrowings; Adverse changes in the
securities markets; The inability of key third-party providers to
perform their obligations to us; Changes in accounting policies and
practices and 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 These and other risks as may be detailed from
time to time in our filings with the Securities and Exchange
Commission.
The Company cautions readers not to place undue reliance on any
forward-looking statements. Moreover, you should treat these
statements as speaking only as of the date they are made and based only on information then actually known to the
Company. 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 2013 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. |
 Overview
•
Company Information
•
Financial Performance
•
Strategic Initiatives
3 |
 Company Information
4 |
 Our
Company 5
Financial Data as of and for the period ending June 30, 2013
•
Effective July 15, 2013, acquired 8 Valley Bank branches and Valley
Community Bancshares, Inc. pro-forma total assets of $234 million.
Financial Highlights
Total Assets
$1.43 billion
Net Loans
$1.09 billion
Total Deposits
$1.20 billion
Tangible Common Equity
$187 million
Loan/Deposit Ratio
90.8%
Return on Average Assets
0.79% (YTD)
Net Interest Margin
5.00% (YTD)
Branches
34 |
 2013
Announcements 6
January
9,
2013
–
Completed
Merger
with
Northwest
Commercial
Bank
•
Results in an Auburn location, consolidation of Lakewood branches and $65
million in total assets. Completed systems conversion March 9,
2013. June
19,
2013
–
Completed
Bank
Subsidiary
Consolidation
•
Central Valley Bank has been a wholly-owned subsidiary of Heritage
Financial Corporation for 14 years
•
6 Branches and $179 million total assets were added to Heritage Bank
July
15,
2013
–
Completed
Merger
with
Valley
Community
Bancshares,
Inc.
•
8 branches in Pierce & King Counties and $234 million in total
assets |
 2013
Merger Activity Review 7
•
CVB Charter Merger
•
Anticipated to reduce annualized expense by
approximately $465,000
•
Valley Bank Merger
•
Estimated cost saves between 45-50%
•
Will consolidate 4 of 8 branches by end of Q4
•
Q3 & Q4 estimated expenses of $1.75 million
•
2014 EPS accretion estimated at 19%
•
Pro-forma TCE estimated at 11.8% down from 13.0% at
year end 2012 |
 Financial Performance
8 |
 Balance Sheet
9
80%
82%
84%
86%
88%
90%
92%
94%
96%
98%
$-
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
2008
2009
2010
2011
2012
Q1 '13
Q2 '13
% Loans to Deposits
Deposits
Total Assets
Loans |
 Total Loan Portfolio
10
Financial data as of June 30, 2013
CRE Owner
Occupied
22%
Commercial &
Industrial
30%
CRE Non-Owner
Occupied
34%
Residential
Construction
2%
Commercial
Construction
4%
Estate
4%
Consumer
4%
Residential Real |
 Net
Loan Trends 11
2009
2010
2011
2012
Q1 2013
Q2 2013
CAGR
Originated
Loans
$746.1
$720.0
$815.6
$855.4
$869.2
$914.7
5.23%
Purchased
Covered
Loans
-
$128.7
$105.4
$84.0
$81.4
$75.0
n/a
Purchased
Non-
Covered
Loans
-
$131.0
$83.5
$59.0
$104.9
$96.8
n/a
Total
$746.1
$979.8
$1,004.5
$998.4
$1,055.5
$1,086.5
9.06%
Dollars in millions |
 Credit Quality
12
Regional Peer Group (10): Ticker Symbols –
BANR, CACB, COLB, FFNW, HOME, NRIM, PCBK, RVSB, TSBK, WBCO
Source: SNL Financial
0%
2%
3%
5%
6%
Q2'11
Q3'11
Q4'11
Q1'12
Q2'12
Q3'12
Q4'12
Q1'13
NPAs/Assets (%)
HFWA
Regional Peers
40%
80%
120%
160%
Q2'11
Q3'11
Q4'11
Q1'12
Q2'12
Q3'12
Q4'12
Q1'13
Reserves/NPLs (%)
HFWA
Regional Peers |
 Deposit Base
13
Financial data as of and for the quarter ending June 30, 2013.
CDs
24%
Non-Interest
Demand
23%
Interest
Checking
(NOW)
25%
Money Market
17%
Savings
11%
Total
Deposits
Non-Maturity
Deposits
/
Total
Deposits
$1.2
billion
76%
Cost
of
Deposits
Cost
of
Interest
Bearing
Deposits
0.30%
0.39% |
 Deposits
14
10%
15%
20%
25%
$-
$200
$400
$600
$800
$1,000
$1,200
$1,400
2008
2009
2010
2011
2012
Q1 '13
Q2 '13
Non-Interest Demand Deposits
NOW/Savings/MMA
Certificates of Deposit
% of Non-Interest Interest Demand Deposits to Total Deposits
|
 Equity
15
*After the acquisition of Valley Bank, Tangible Common Equity/Tangible Assets
is estimated to be 11.8% $113.1
$158.5
$202.3
$202.5
$198.9
$200.5
$200.5
5%
10%
15%
$-
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
$220
2008
2009
2010
2011
2012
Q1'13
Q2'13
Total Equity
Tangible Common Equity/Tangible Assets |
 Earnings
Annual Net Income
Quarterly Net Income
16
*Includes after-tax gain of $7.7 million for FDIC-assisted bank
acquisitions. Net Income
Net Interest Margin
$16
$14
$12
$10
$8
$6
$4
$2
$-
2008
2009
2010*
2011
2012
3%
4%
5%
6%
$6.4
$0.6
$13.4
$6.5
$13.3
$5
$4
$3
$2
$1
$-
Q1'12
Q2'12
Q3'12
Q4'12
Q1'13
Q2'13
$4.2
$3.2
$2.9
$3.0
$2.9
$2.7 |
 Diluted Earnings Per Share
Annual Earnings/(Loss) Per Share
Quarterly Earnings Per Share
17
*Includes $0.69 earnings per share related to the after-tax gain on
FDIC-assisted acquisitions. $1.50
$1.30
$1.10
$0.90
$0.70
$0.50
$0.30
$0.10
-$0.10
2008
2009
2010*
2011
2012
$0.93
($0.09)
$1.05
$0.42
$0.87
$0.40
$0.35
$0.30
$0.25
$0.20
$0.15
$0.10
$0.05
$0.00
Q1'12
Q2'12
Q3'12
Q4'12
Q1'13
Q2'13
$0.27
$0.21
$0.19
$0.20
$0.19
$0.18 |
 Operating Expenses
18
*Includes acquisition/conversion expenses of $788,000 for Q1’13 and
$455,000 for Q2’13, respectively.
Salaries & Benefits
Occupancy
Other
Efficiency Ratio
$16
$14
$12
$10
$8
$6
$4
$2
$-
Q1 '12
Q2 '12
Q3 '12
Q4 '12
Q1 '13*
Q2 '13*
75%
70%
65% |
 19
19
Strategic Initiatives |
 •
Acquisitions
•
Enhance Pacific Northwest footprint
•
Completed Northwest Commercial Bank and Valley Bank acquisitions
•
Balance Sheet Growth
•
2013 projected originated loan growth of 3-5%
•
Actual YTD originated loan growth of 6.9%
•
Maintain loan to deposit ratio 85-90%
•
06/30/13 loan to deposit ratio was 90.8%
•
Efficiency Improvements
•
Merged Central Valley Bank into Heritage Bank in Q2 2013
•
Resulting in a projected annualized expense reduction of $465,000
•
Core System Conversion in Q4 2013
20
2013 Strategic Initiatives |
 •
Branching
•
De Novo branch -
East Vancouver, WA
•
Groundbreaking was 07/16/13
•
Re-locating branches –
Tumwater and Kent, WA
•
Valley Bank branch consolidation
•
4 branch consolidations scheduled for Q4
•
Wealth Management
•
Continue growth focus on Trust, Brokerage,
Advisory Management Services
21
2013 Strategic Initiatives |
 Strategic Efficiency Initiatives
•
Emphasis on improving:
•
Assets per employee (ApE) (in thousands)
•
HB 12/31/12 Actual: $3,707 ApE
•
NCB at conversion: 10 FTE + $65MM total assets = $6,500 ApE
•
Valley estimates: 33 FTE + $234MM total assets = $7,091 ApE
•
Deposits per branch (DpB)
(in thousands)
•
HB 12/31/12 Actual: $33,878 DpB
•
NCB at conversion: 1 Branch + $60MM total deposits =
$60,000 DpB
•
Valley estimates: 4 Branches + $203MM total deposits =
$50,750 DpB
•
Loan commitments per lender
22 |
 •
Cash Dividends
•
Regular dividends in the 35% to 40% payout range
•
Special dividends as appropriate but dependent on
acquisition activities
•
Stock buybacks on an opportunistic basis
23
2011
2012
2013
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Quarterly
Dividend
$0.03
$0.05
$0.05
$0.06
$0.08
$0.08
$0.08
$0.08
$0.08
Special
Dividend
-
-
$0.25
-
$0.20
-
$0.30
-
$0.10
Strategic Capital Management |
 Capital Return
24
Total
Capital
Returned*
Since
Q1
2011
(%
of
Tg.
Common
Equity
in
Q1
2011)
Source: SNL Financial, as of 12/31/2012 unless noted otherwise
*Total capital returned includes all cash dividends and stock buybacks since Q1
2011 HFWA has returned
more capital to
shareholders than
most peers since Q1
2011 based on
beginning balance of
tangible common
equity
14.0%
5.1%
8.2%
12.7%
7.3%
9.7%
8.1%
9.4%
6.9%
9.9%
6.6%
12.1%
8.2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
HFWA
BMRC
COLB
CVBF
FIBK
GBCI
PCBK
PACW
TCBK
UMPQ
WBCO
WAFD
Median |
 Capital Return
25
Source: SNL Financial, as of 12/31/2012
*Total capital returned includes all cash dividends and stock buybacks since Q1
2011 HFWA has returned capital through both dividends and stock
buybacks 68.3% through dividends and 31.7% through buybacks
vs. peer median 93.3% through dividends and 6.7% through buybacks
More advantageous for shareholders from a tax perspective for stock buybacks
vs. dividends None of the selected companies had a buyback program in
place without a dividend program as well Mix
of
Capital
Returned*
(Since
Q1
2011)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
HFWA
BMRC
COLB
CVBF
FIBK
GBCI
PCBK
PACW
TCBK
UMPQ
WBCO
WAFD
Median
Buyback
Dividends |
 26
Conclusion
26 |
 Investment Value
•
Strong financial foundation
•
Positioned to take advantage of the right
opportunities
•
Continued focus on building long-term
franchise value
•
Disciplined approach to acquisitions
27 |
 Thank You
Questions? |