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| 8-K - 8-K - HERITAGE FINANCIAL CORP /WA/ | form8-kxq32017investorpres.htm |
Q3 2017 Investor Presentation
FORWARD – LOOKING STATEMENT
2
This presentation contains forward-looking statements that are subject to risks and uncertainties, including, but not limited to:
• The expected revenues, cost savings, synergies and other benefits from our other merger and acquisition activities might not be realized within the anticipated 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;
• 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, loan) 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;
• The proposed merger with Puget Sound Bancorp, Inc. (“Puget Sound”) may not close when expected or at all because required regulatory, shareholder or other approvals and
conditions to closing are not received or satisfied on a timely basis or at all, which may have an effect on the trading prices of Heritage Financial Corporation’s (“Heritage”) stock;
• 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.
Heritage 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 Heritage. Heritage 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 the fourth quarter of 2017 and beyond to
differ materially from those expressed in any forward-looking statements by, or on behalf of, us, and could negatively affect Heritage’s operating and stock price performance.
Additional Information
Heritage has filed a registration statement on Form S-4 with the SEC in connection with the proposed transaction. The registration statement includes a proxy statement of Puget Sound that
also constitutes a prospectus of Heritage, which will be sent to the shareholders of Puget Sound. Puget Sound shareholders are advised to read the proxy statement/prospectus when it
becomes available because it will contain important information about Heritage, Puget Sound and the proposed transaction. When filed, this document and other documents relating to the
merger filed by Heritage can be obtained free of charge from the SEC’s website at www.sec.gov. These documents also can be obtained free of charge by accessing Heritage’s website at
www.hf-wa.com under the tab “Investor Relations” and then under “SEC Filings.” Alternatively, these documents, when available, can be obtained free of charge from Heritage upon written
request to Heritage Financial Corporation, Attn: Investor Relations, 201 Fifth Avenue S.W., Olympia, Washington 98501 or by calling (360) 943-1500 or from Puget Sound, upon written request
to Puget Sound Bancorp, Inc., Attn: Investor Relations, 10500 NE 8th Street, #1500, Bellevue, Washington 98004 or by calling Brad Ogura at Puget Sound at (425) 467-2037.
Participants In The Solicitation
Heritage, Puget Sound and certain of their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from Puget Sound shareholders in
connection with the proposed transaction under the rules of the SEC. Information about the directors and executive officers of Heritage may be found in the definitive proxy statement of
Heritage filed with the SEC by Heritage on March 23, 2017. This definitive proxy statement can be obtained free of charge from the sources indicated above. Information about the directors
and executive officers of Puget Sound will be included in the proxy statement/prospectus when filed with the SEC. Additional information regarding the interests of these participants will also be
included in the proxy statement/prospectus regarding the proposed transaction when it becomes available.
3
COMPANY OVERVIEW
COMPANY PROFILE
4
Corporate Overview
NASDAQ Symbol HFWA
Headquarters Olympia, WA
# of Branches 59
Year Established 1927
Note: Financial information as of 9/30/2017 and market
information as of 10/27/2017
Financial Snapshot
Market Capitalization $930.8 million
Institutional Ownership 77.2%
Total Assets $4.05 billion
Loan / Deposit Ratio 84.2%
ROAA 1.05%
ROATCE 11.10%
COMPANY STRATEGY
5
Disciplined approach to acquisition
opportunities
Pending acquisition for Puget Sound Bancorp, Inc. in Bellevue, WA
Allocate capital to organically grow our
core banking business
Successful hiring of individuals and teams of bankers in Seattle and
Portland markets
Improve operational efficiencies and
rationalize branch network
Achieving increased efficiencies with operational scale, internal focus on
improving processes and technology solutions
Closed/Consolidated 17 branches since beginning 2010
Generate strong profitability and risk
adjusted returns
1.05% return on average assets
11.10% return on average tangible common equity
Maintain underwriting standards and
credit quality
0.28% NPA/Assets
Long track record of strong underwriting
Focus on core deposits is key to
franchise value over the long term
28% non-interest bearing deposits, or 30% pro forma with Puget Sound
0.20% cost of deposits
Proactive capital management 54% dividend payout ratio over last twelve months, including regular and
special dividends
Retain strong pro forma capital ratios
Note: Financial information for the quarter-end period as of 9/30/2017
MERGER RATIONALE WITH
PUGET SOUND BANCORP, INC.
6
• “Pure play” on business banking in the Seattle metropolitan area – one of the strongest economic
regions in the United States, which presents attractive growth prospects
• Aligns with HFWA’s stated strategic goal of growing in the Seattle-Bellevue market
• HFWA will have pro forma total assets of $4.6 billion, and HFWA will have $870 million of loans
and $601 million of deposits in Seattle and Bellevue combined
• Puget Sound leadership joining HFWA
• Attractive financial impact for HFWA
Strategic
Rationale
Scarcity Value
of Puget Sound
Bancorp, Inc.
Source: HFWA and PUGB earnings release for the quarter ended 9/30/2017
• Puget Sound is a traditional business banking franchise with total assets of $557 million
– Highly attractive core deposit franchise with 48% of deposits being non-interest bearing
demand
– Business banking focus in loan portfolio with 66% of loans being commercial loans
– 55% increase in net income vs. Q3 2016
– Clean credit portfolio with 0% NPAs/Assets
• Relationship bankers with extensive experience in the Seattle-Bellevue market
• Announced definitive agreement to acquire Puget Sound Bancorp, Inc. on July 26, 2017
Note: Information for Seattle MSA, where available
(1) www.cnbc.com
(2) Bureau of Economic Analysis
(3) Nielsen U.S. Census data
(4) The Seattle Times
STRONG AND DIVERSE ECONOMIC LANDSCAPE
7
Thriving local economy with job growth in technology and
aerospace sectors
Washington named “America’s Top State for Business in 2017”
by CNBC(1)
Washington state has the country’s largest concentration of
STEM workers (science, technology, education and math) (1)
Seattle economy ranks 12th largest in the country by GDP, which
increased 5.2% since 2014(2)
Seattle’s population grew 12.1% from 2010 to 2017(3)
Median household income for Seattle and Bellevue is $74,688
and $101,036, respectively, which is 30% and 76% higher than
the national average of $57,462 (3)
Fortune 500 companies headquartered in Seattle-Bellevue MSA,
include: Amazon, Costco, Microsoft, PACCAR, Nordstrom,
Weyerhaeuser, Expeditors, Alaska Air, Expedia and Starbucks
King County home prices increased 18.2% from August 2016 to
August 2017(4)
Headquartered in Western Washington
Major Operations in Western Washington
$4
01
$4
50
$5
74
$6
10
$5
95
$6
41
$6
97
$7
51
$7
96
$8
86
$9
46
$1
,0
15
$8
12
$1
,3
69
$1
,3
46
$1
,3
40
$1
,7
12
$3
,6
51
$3
,8
79
$4
,0
50
$74 $61
$57 $556
$319
$1,747
$557
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q3
2017
Organic Acquired Assets
8
HISTORICAL GROWTH – ORGANIC AND ACQUISITIVE
Acquired North Pacific
Bancorporation
Acquired Washington
Independent
Bancshares Inc.
Acquired Western
Washington Bancorp
Completed 2 FDIC deals -
Pierce Commercial Bank and
Cowlitz Bank acquiring $211M
and $345M in assets,
respectively
Acquired Valley Community
Bancshares, Inc. with $254M in
assets and Northwest
Commercial Bank with $65M in
assets
Merger with Washington
Banking Company
Proven track record of executing on acquisitions and organic growth
HFWA has completed 6 whole bank acquisitions and 2 FDIC-assisted transactions since 1998 Pending acquisition of
Puget Sound Bancorp, Inc.
Source: Company financials, as of 9/30/2017
Note: All dollars in millions
$276
$440 $449 $473
$478
$870
$83
$99 $95 $103
$108
$601
$359
$538 $545 $576
$587
$1,471
$-
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
2015 2016 Q1 2017 Q2 2017 Q3 2017 Q3 2017
Pro Forma
Loans Deposits
9
KING COUNTY METRO
Funds Under Management = Loans + Deposits
Source: Company and Puget Sound Bancorp, Inc. financials, as of 9/30/2017
Note: All dollars in millions
King County
HFWA Branch
• $587 million in total funds under management in King County, or $1.5 billion on a pro forma basis with Puget Sound acquisition
10
KING COUNTY GROWTH
FUTURE GROWTH AND OPPORTUNITIES
11
Note: Financial information as of 9/30/2017
*Map includes banks headquartered along the I-5 corridor and does not include coastal
headquartered banks
• Significant number of banks remaining in HFWA
footprint, further consolidation is expected
- 15 banks with less than $500 million in assets
- 4 banks between $500 million and $1.0 billion in assets
- 2 banks between $1.0 billion and 3.0 billion in assets
• HFWA positioned to be the acquiror of choice in
the Pacific Northwest
Bank Headquarters
Expected Consolidation and Future OpportunitiesPacific Northwest Banking Landscape*
MANAGEMENT TEAM
12
Name Position
Banking
Experience
HFWA
Service Previous Experience
Brian Vance President and Chief Executive Officer of
Heritage Financial Corporation
45 years 21 years WestOne Bank/U.S. Bank
Jeff Deuel President and Chief Operating Officer of
Heritage Bank
35 years 7 years JPMChase/WAMU,
CoreStates Bank
Don Hinson EVP and Chief Financial Officer 23 years 12 years Banking Practice of National
Accounting Firm
Bryan McDonald EVP and Chief Lending Officer 23 years 11 years WBCO, WAMU, WestOne
Bank/U.S. Bank
Dave Spurling EVP and Chief Credit Officer 25 years 17 years Bank of America
Cindy Huntley EVP and Director of Retail Banking 29 years 29 years
Lisa Banner EVP and Director of Shared Services 23 years 2 years Zions Bank
Tom Henning EVP and Chief Risk Officer 31 years 2 years Bank United (FL), WAMU
Bill Glasby EVP and Chief Technology Officer 23 years 30 days JPMChase/WAMU
Sabrina Robison SVP and Human Resources Director 30 years 30 years
13
FINANCIAL UPDATE
FINANCIAL UPDATE – Q3 2017
14
• Diluted earnings per share were $0.35 and net income of $10.6 million
• Return on average assets was 1.05% and return on average tangible
common equity was 11.10%
• Declared a regular dividend of $0.13 per share and a special dividend of
$0.10 per share on October 25, 2017
• Total loans receivable, net, increased $49.4 million, or 1.8%, to $2.77
billion at September 30, 2017
• $289.2 million of loan originations in Q3 2017
• Deposit growth $78.4 million, an increase of 2.4% compared to Q3 2016
Source: Company financials, as of 9/30/2017
1-4 Family
2.9%
Owner-
Occupied
CRE
21.6%
Nonowner-
Occupied
CRE
33.3%
Commercial
& Industrial
23.8%
Construction
& Land
Development
6.2%
Consumer
12.2% Non-Interest
Bearing
Demand
27.6%
Interest
Bearing
Transaction
Accounts
31.0%
Money
Market
Accounts
14.5%
Savings
Accounts
15.0%
Certificates
of Deposits
11.9%
Cash and
Cash
Equivalents
2.7%
Securities
19.8%
Loans, net'*
68.4%
Other
9.1%
15
BALANCE SHEET MIX
Loan Portfolio
Source: Company financials, as of 9/30/2017
Note: All dollars in millions
*Includes loans held for sale and allowance for loan losses
• 4.72% loan yield in Q3 2017
• 45.4% of loans are commercial loans
(C&I and owner-occupied CRE)
• $2.8 billion in total loans
Deposit Base
• 0.20% cost of deposits in Q3 2017
• 27.6% of deposits are non-interest
bearing demand
• 88.1% of deposits are non-maturity
• $3.3 billion in total deposits
Total Asset Mix
• 84.2% loan / deposit ratio
• 22.5% of assets are cash and securities
• 68.4% of assets are loans*
$2,257
$2,410
$2,652 $2,674
$2,755 $2,803
5.90%
5.25% 4.91% 4.70% 4.75% 4.72%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2014 2015 2016 Q1 2017 Q2 2017 Q3 2017
Total Loans* Loan Yield
$2,906
$3,108 $3,230 $3,243 $3,291 $3,321
0.21%
0.18%
0.16% 0.16%
0.18%
0.20%
0.00%
0.05%
0.10%
0.15%
0.20%
0.25%
0.30%
0.35%
0.40%
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
2014 2015 2016 Q1 2017 Q2 2017 Q3 2017
Total Deposits Cost of Total Deposits
$779 $812 $795 $783 $791 $800
1.93% 1.83% 1.98%
2.22% 2.25% 2.24%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
$-
$200
$400
$600
$800
$1,000
2014 2015 2016 Q1 2017 Q2 2017 Q3 2017
Total Investment Securities Yield on Securities**
$- $-
$80
$67
$111 $117
0.00%
0.34%
0.55%
0.81% 0.89%
1.53%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
$-
$40
$80
$120
$160
$200
2014 2015 2016 Q1 2017 Q2 2017 Q3 2017
Total FHLB Advances Cost of FHLB Advances
16
BALANCE SHEET TRENDS
Source: Company financials, as of 9/30/2017
Note: End of period balance. All dollars in millions
*Loans include loans receivable, net and loans held for sale
**Includes taxable and tax-exempt securities without adjustment for tax-equivalent basis
Deposits
Investment Securities
Loans*
FHLB Advances
3.69% 3.82% 3.71% 3.77% 3.68% 3.75% 3.75% 3.74%
0.28% 0.22% 0.29% 0.18% 0.17% 0.14% 0.17% 0.11%
3.97% 4.04% 4.00% 3.95% 3.85% 3.89% 3.92% 3.85%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
Core NIM Accretion*
17
NET INTEREST MARGIN
Net Interest Margin (Core vs. Accretion)*
Source: Company financials, as of 9/30/2017
*Impact on net interest margin from incremental accretion on purchased loans
• Stable core net interest margin
0.21% 0.18% 0.16% 0.16% 0.18%
0.20%
0.50% 0.50%
0.75%
1.00%
1.25% 1.25%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
2014 2015 2016 Q1 2017 Q2 2017 Q3 2017
Cost of Total Deposits Fed Funds Rate
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
2014 2015 2016 Q1 2017 Q2 2017 Q3 2017
Non-Interest Bearing Demand Interest Bearing Demand
Money Market Accounts Savings Accounts
CDs
CORE DEPOSIT FRANCHISE
18Source: Company financials, as of 9/30/2017
Note: All dollars in thousands
Deposit Mix
• Low cost of deposits despite increases in Fed Funds Rate
• 10% annual growth in non-interest bearing demand deposits
• Non-Interest Bearing Demand: 10% CAGR
• Total Deposits: 5% CAGR
Cost of Deposits vs. Fed Funds Rate
61.7% 65.0%
67.2%
62.0% 64.4%
0.0%
25.0%
50.0%
75.0%
100.0%
Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
1.16%
1.03%
0.97%
1.21%
1.05%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
11.99%
10.84% 10.51%
12.78%
11.10%
0.00%
2.50%
5.00%
7.50%
10.00%
12.50%
15.00%
Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
$11,039
$9,893
$9,316
$11,828
$10,624
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
PROFITABILITY TRENDS
19
Source: Company financials, as of 9/30/2017
Note: All dollars in thousands
Note: Performance ratios are annualized
ROAA ROATCE
Net Income Efficiency Ratio
$27,903
$46,745 $48,074 $45,068
$31,612
$52,634
$58,134 $61,405
3.86%
3.49%
3.01%
2.84%
2.00%
2.50%
3.00%
3.50%
4.00%
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
2013 2014 2015 2016
Compensation & Benefits Expense Non-Compensation Expense
NIE/Avg. Assets
$11,185 $11,056 $11,199 $11,537
$12,132
$15,633 $15,753 $16,024
$16,272 $15,823
2.81% 2.78%
2.85% 2.85%
2.76%
2.00%
2.50%
3.00%
3.50%
4.00%
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
Compensation & Benefits Expense Non-Compensation Expense
NIE/Avg. Assets
NON-INTEREST EXPENSE
20
Source: Company financials, as of 9/30/2017
Note: All dollars in thousands, except per share
Note: Non-interest expense/avg. assets ratios are annualized
Non-Interest Expense – Annual
• Continue to manage non-interest expense and leverage our operational scale
• Non-interest expense/average assets of 2.76%, compared to 2.81% in Q3 2016
Non-Interest Expense – Quarters
CREDIT QUALITY TRENDS
21
Source: Company financials, as of 9/30/2017
Note: All dollars in thousands
*Merger with Washington Banking Company closed during Q2 2014
Non-Performing Assets and Allowance for Loan Losses
• Maintaining high standards for credit quality and a low ratio of NPAs / Assets
0.98%
0.65%
0.55%
0.43% 0.45%
0.39%
0.33% 0.32%
0.39% 0.41%
0.30% 0.30% 0.30% 0.29% 0.28%
2.38%
1.28% 1.29% 1.23% 1.22% 1.20% 1.21% 1.24% 1.21%
1.13% 1.17% 1.18% 1.19% 1.19% 1.12%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
Q1
2014
Q2
2014*
Q3
2014
Q4
2014
Q1
2015
Q2
2015
Q3
2015
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
Q1
2017
Q2
2017
Q3
2017
AL
LL
/
L
oa
ns
R
ec
ei
va
bl
e,
ne
t
N
P
As
/
As
se
ts
NPAs / Assets ALLL / Loans Receivable, net
0.57%
3.32%
2.19% 2.07%
1.41%
0.74%
0.43% 0.32% 0.30% 0.28%
2.62%
4.19%
2.83%
2.37%
1.24%
0.83%
0.60% 0.48%
0.35% 0.28%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
2008 2009 2010 2011 2012 2013 2014 2015 2016 Q3
2017
N
P
A
s
/ A
ss
et
s
HFWA Western U.S. Peers
CREDIT QUALITY VS. PEER GROUP
22
Source: Company financials, as of 9/30/2017
Note: All dollars in thousands
Note: Peer group consists of select banks headquartered in the Western U.S. with $1B-
$11B in assets: BANR, BMRC, BOCH, BSRR, COBZ, COLB, CVBF, CVCY, FFNW,
FFWM, FNBG, GBCI, GBNK, HMST, HTBK, NBHC, OPB, PMBC, PPBI, TCBK, WABC
Non-Performing Assets – Since 2008 vs. Western U.S. Peers
• Superior credit quality compared to HFWA’s Western U.S. peers
LOAN CHARGE-OFFS
23
Source: Company financials, as of 9/30/2017
Note: All dollars in thousands
*Increase in net charge-offs primarily related to the closure of PCI pool of loans
Net Charge Offs – Last 16 Quarters
• Net loan charge-offs $2.2 million during Q3 2017
• Net loan charge-offs of $3.6 million during 2016
10.5% 10.3% 10.3% 10.5% 10.4%
0.00%
4.00%
8.00%
12.00%
16.00%
Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
9.9% 9.5% 9.7% 9.7% 9.7%
0.00%
4.00%
8.00%
12.00%
16.00%
Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
12.0% 12.0% 12.2% 12.1% 12.0%
0.00%
4.00%
8.00%
12.00%
16.00%
20.00%
Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
13.0% 13.0% 13.2% 13.1% 13.0%
0.00%
4.00%
8.00%
12.00%
16.00%
20.00%
Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
CAPITAL RATIO TRENDS
24
Source: Company financials, as of 9/30/2017
Tangible Common Equity Ratio Leverage Ratio
Tier-1 Capital Ratio Risk Based Capital Ratio
25
SHAREHOLDER RETURN
TOTAL SHAREHOLDER RETURN
26
Total Return* – Last Twelve Months
Source: SNL Financial, as of 10/27/2017
Note: SNL U.S. Bank $1B-$5B index includes banks nationwide with total
assets of $1.0 billion to $5.0 billion
*Total return includes stock price appreciation and reinvested dividends
**Average Street EPS estimates, per FactSet Research Systems, Inc.
+23.9%
+45.1%
+77.0%
- -
Dividends Per Share***
+40.8%
• Track record of attractive returns for shareholders
• History of increasing dividends and stock price appreciation
Ticker HFWA
Exchange NASDAQ
Stock Price 31.10$
Market Cap. ($MM) 930.8$
Dividend Yield (Regular Div. Only) 1.67%
Average Daily Volume (3 Mo.)
Avg. Daily Volume (Shares) 158,668
Avg. Daily Volume ($000s) 4,935$
52-Week High / Low Price
52-Week High (10/26/2017) 31.25$
52-Week Low (11/04/2016) 17.75$
Per Share
Tg. Book Value Per Share 12.77$
EPS - 2017E** 1.44$
Number of Research Analysts 3
Valuation Ratios
Price / Tg. Book Value 243.6%
Price / 2017E EPS** 21.5x
$0.08 $0.08 $0.09 $0.09 $0.10
$0.11 $0.11 $0.11 $0.11 $0.12 $0.12 $0.12 $0.12 $0.13 $0.13 $0.13
$0.16 $0.10
$0.25
$0.10
$-
$0.05
$0.10
$0.15
$0.20
$0.25
$0.30
$0.35
$0.40
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Q1
2015
Q2
2015
Q3
2015
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Regular Dividends Special Dividends
Quarterly Cash Dividends
• Quarterly cash dividend increased 8.3% year-over-year to $0.13 per share in Q4 2017
– Increased quarterly dividend five times since 2013
– Paid a special dividend for seven consecutive years
• Dividend yield of 1.71% vs. 1.40% for the SNL U.S. Bank $1B-$5B Index
HISTORY OF GROWING DIVIDENDS
27
Source: SNL Financial, as of 10/26/2017
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INVESTMENT THESIS
28
• Significant scarcity value as a $4+ billion commercial bank in the Pacific Northwest
• Located in key markets in Western Washington – one of the strongest economic
regions in the country
• Proven track record of executing on M&A – Financially and strategically rewarding
for shareholders
• Long track record of profitability
• Disciplined capital management
• Conservative credit strategy and track record of strong underwriting
• Committed to increasing shareholder value
29
APPENDIX
Last 8 Quarters
Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
Balance Sheet
Total Assets 3,650,792$ 3,678,032$ 3,756,876$ 3,846,376$ 3,878,981$ 3,885,613$ 3,990,954$ 4,050,056$
Asset Growth (Anlzd. vs. Prior Period) 6.2% 3.0% 8.6% 9.5% 3.4% 0.7% 10.8% 5.9%
Gross Loans Receivable (Incl. HFS) 2,409,724$ 2,466,184$ 2,531,731$ 2,587,941$ 2,652,411$ 2,673,593$ 2,755,294$ 2,802,881$
Loan Growth (Anlzd. vs. Prior Period) -0.4% 9.4% 10.6% 8.9% 10.0% 3.2% 12.2% 6.9%
Total Deposits 3,108,287$ 3,130,929$ 3,158,906$ 3,242,421$ 3,229,648$ 3,243,415$ 3,291,250$ 3,320,818$
Deposit Growth (Anlzd. vs. Prior Period) 7.1% 2.9% 3.6% 10.6% -1.6% 1.7% 5.9% 3.6%
Loans / Deposits 77.3% 78.5% 79.9% 79.5% 81.8% 82.1% 83.5% 84.2%
Cash and Securities / Total Assets 25.9% 25.1% 24.5% 24.4% 23.2% 22.8% 22.9% 22.5%
Non-Interest Bearing Deposits (% of Total) 24.8% 25.4% 26.0% 26.7% 27.3% 27.2% 27.9% 27.6%
Non-Maturity Deposits (% of Total) 86.5% 87.0% 87.7% 88.6% 88.9% 89.4% 88.1% 88.1%
Capital Adequacy
Tangible Common Equity 342,152$ 352,698$ 362,938$ 369,251$ 355,360$ 363,117$ 374,292$ 382,171$
Tangible Common Equity Ratio 9.7% 9.9% 10.0% 9.9% 9.5% 9.7% 9.7% 9.7%
Leverage Ratio 10.4% 10.5% 10.5% 10.5% 10.3% 10.3% 10.5% 10.4%
Risk Based Capital Ratio 13.7% 13.6% 13.0% 13.0% 13.0% 13.2% 13.1% 13.0%
Credit Quality Ratios
NPAs / Total Assets 0.32% 0.39% 0.41% 0.30% 0.30% 0.30% 0.29% 0.28%
NCOs / Avg. Loans 0.06% 0.20% 0.38% -0.05% 0.05% 0.05% 0.00% 0.32%
Loan Loss Reserves / Gross Loans 1.23% 1.20% 1.12% 1.17% 1.17% 1.18% 1.19% 1.12%
Income Statement and Performance Ratios
Net Interest Income 32,535$ 32,760$ 33,085$ 33,606$ 33,055$ 33,146$ 34,180$ 34,991$
Net Income 9,493$ 9,091$ 8,895$ 11,039$ 9,893$ 9,316$ 11,828$ 10,624$
ROAA 1.04% 1.00% 0.96% 1.16% 1.03% 0.97% 1.21% 1.05%
Net Interest Margin 3.97% 4.04% 4.00% 3.95% 3.85% 3.89% 3.92% 3.85%
Non-Interest Expense / Avg. Assets 2.92% 2.91% 2.87% 2.81% 2.78% 2.85% 2.85% 2.76%
Average Assets Per Employee 4,837$ 4,934$ 4,993$ 5,141$ 5,094$ 5,095$ 5,190$ 5,382$
Efficiency Ratio 66.9% 66.3% 66.8% 61.7% 65.0% 67.2% 62.0% 64.4%
HISTORICAL FINANCIAL HIGHLIGHTS
30Source: Company financials, as of 9/30/2017
Note: All dollars in thousands