Attached files
| file | filename |
|---|---|
| 8-K - 8-K - HERITAGE FINANCIAL CORP /WA/ | form8-kxq42016investorpres.htm |
| EX-99.7 - EXHIBIT 99.7 - HERITAGE FINANCIAL CORP /WA/ | exhibit997-restrictedstock.htm |
| EX-99.2 - EXHIBIT 99.2 - HERITAGE FINANCIAL CORP /WA/ | exhibit992-firstamendmentt.htm |
| EX-99.4 - EXHIBIT 99.4 - HERITAGE FINANCIAL CORP /WA/ | exhibit994-rsuawardagreeme.htm |
| EX-99.3 - EXHIBIT 99.3 - HERITAGE FINANCIAL CORP /WA/ | exhibit993-restrictedstock.htm |
| EX-99.8 - EXHIBIT 99.8 - HERITAGE FINANCIAL CORP /WA/ | exhibit998-cashincentiveaw.htm |
| EX-99.6 - EXHIBIT 99.6 - HERITAGE FINANCIAL CORP /WA/ | exhibit996-nonqualifiedsto.htm |
| EX-99.5 - EXHIBIT 99.5 - HERITAGE FINANCIAL CORP /WA/ | exhibit995-incentivestocko.htm |
FIG Partners
West Coast Bank CEO Forum
February 2017
Brian Vance Chief Executive Officer
Don Hinson Chief Financial Officer
Bryan McDonald Chief Lending Officer
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, 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 the first 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 the Company’s operating and stock price performance.
3
COMPANY OVERVIEW
OVERVIEW
4
Overview
NASDAQ Symbol HFWA
Market Capitalization $777.3 million
Institutional Ownership 73.8%
Total Assets $3.88 billion
Headquarters Olympia, WA
# of Branches 63
Year Established 1927
Note: Financial information as of 12/31/2016 and market information as
of 01/27/2017
Three banks, one charter
5
HISTORICAL GROWTH – ORGANIC AND ACQUISITIVE
Source: Company financials, as of 12/31/2016
Note: All dollars in millions
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
In addition to organic growth, HFWA has completed 6 whole bank mergers and 2 FDIC-assisted transactions since 1998
6
STRONG AND DIVERSE ECONOMIC LANDSCAPE
• Thriving local economy with job growth in technology
and aerospace sectors
• Seattle economy ranks 11th largest in the country by
GDP, which increased 4.1% since 2013
• Seattle’s population grew 5.2% from 2010 to 2014
• Washington per capita income ranked 13th in the
United States at $51,146, 7.3% higher than the national
average*
• Fortune 500 companies headquartered in Washington,
include Amazon, Costco, Microsoft, PACCAR,
Nordstrom, Weyerhaeuser, Expeditors, Alaska Air,
Expedia and Starbucks
• Seattle home prices increased 10.7% from October
2015 to October 2016**
Headquartered in Western Washington
Major Operations in Western Washington
Note: Information for Seattle MSA, where available
Sources: U.S. Department of Commerce, Federal Reserve Bank of St. Louis, Office of
Financial Management, U.S. Census Bureau, City of Seattle, Puget Sound Economic
Forecaster, National Association of Home Builders, S&P Case-Shiller
* Per Office of Financial Management Information as of 7/13/2016
** Per the Case-Shiller Home Price Index as of October 2016
Joint Base Lewis-McChord
7
FINANCIAL UPDATE
FINANCIAL UPDATE – Q4 & YTD 2016
8
• Diluted earnings per share were $0.33 for the quarter
and $1.30 for the year
• Return on average assets was 1.03% and return on
average tangible common equity was 10.84% for the
quarter
• Declared a regular cash dividend of $0.12 per share on
January 25, 2017
• Total loans receivable, net of allowance for loan losses,
increased $60.9 million, or 2.4%, to $2.61 billion for the
quarter and increased $237.4 million, or 10.0%, for the
year
Source: Company financials, as of 12/31/2016
9
LOAN PORTFOLIO
Loan Portfolio TrendsLoan Portfolio Mix - % of Total
Source: Company financials, as of 12/31/2016
Note: All dollars in millions
*Excludes impact from incremental accretion on purchased loans
• Total CRE of 54.5% of total loans
• Total C&I and owner-occupied CRE of 45.3% of total
loans
• Core yield on loans of 4.62% YTD 2016*
• Total loans, net of deferred costs of $2.64 billion
• Loan originations of $206.2 million in Q4 2016 and $879.7
million YTD
1-4 Family
2.9%
Owner-
Occupied
CRE
21.2%
Nonowner-
Occupied
CRE
33.4%
Commercial
& Industrial
24.2%
Construction &
Land
Development
6.0%
Consumer
12.3%
$1,029
$1,232
$2,257
$2,410
$2,652
89.4%
86.0%
76.7% 76.6%
81.2%
70.0%
75.0%
80.0%
85.0%
90.0%
95.0%
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2012 2013 2014 2015 2016
Loans Receivable, net Net Loans / Deposits Ratio
10
KING COUNTY METRO
Source: Company financials, as of 12/31/2016
Note: All dollars in millions
Funds Under Management = Loans + Deposits
$276 $284
$365
$400
$440
$83 $75
$105
$101
$99
$-
$100
$200
$300
$400
$500
$600
Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016
Loans Deposits
$359$359
$470
$501
$538
11
DEPOSIT PROFILE
Deposit TrendsDeposit Mix - % of Total
Source: Company financials, as of 12/31/2016
Note: All dollars in millions
• Noninterest bearing demand of 27.3% of total
deposits
• Non-maturity deposits of 88.9% of total deposits
• Cost of total deposits of 0.16% for the year
$1,118
$1,399
$2,906
$3,108
$3,230
22.1%
25.0%
24.4%
24.8%
27.3%
20.0%
21.0%
22.0%
23.0%
24.0%
25.0%
26.0%
27.0%
28.0%
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
2012 2013 2014 2015 2016
Total Deposits Noninterest Bearing Demand % of Total Deposits
Noninterest
Bearing
Demand
27.3%
NOW
Accounts
29.8%
Money
Market
Accounts
16.2%
Savings
Accounts
15.6%
Certificates
of Deposits
11.1%
12
NET INTEREST MARGIN TRENDS
Net Interest Margin (Core vs. Accretion)*
Source: Company financials, as of 12/31/2016
*Impact on net interest margin from incremental accretion on purchased loans
3.86% 3.87% 3.84% 3.76% 3.69%
3.82% 3.71% 3.77% 3.68%
0.88%
0.44%
0.35%
0.24% 0.28%
0.22%
0.29% 0.18%
0.17%
4.74%
4.31%
4.19%
4.00% 3.97%
4.04%
4.00% 3.95%
3.85%
2.00%
2.25%
2.50%
2.75%
3.00%
3.25%
3.50%
3.75%
4.00%
4.25%
4.50%
4.75%
5.00%
Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016
Core NIM Accretion* Net Interest Margin
13
CASH, INTEREST EARNING DEPOSITS & INVESTMENT SECURITIES
Cash, Interest Earning Deposits & Investment SecuritiesInvestment Portfolio Mix
Source: Company financials, as of 12/31/2016
Note: All dollars in millions
• Total cash, interest earning deposits and investment
securities of $898.4 million, or 23.2% of total assets
• Average yield on taxable investment securities of
1.86% in Q4 2016
• Average yield on non-taxable investment securities of
2.23% in Q4 2016 (tax equivalent yield of 3.35%)
$154
$199
$779 $812 $795
$107
$146
$132
$133
$104
$-
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
2012 2013 2014 2015 2016
Total Investment Securities Cash & Interest Earning Deposits
MBS &
CMOs U.S.
Gov't
Agency
65.1%Municipal
Securities
29.9%
US Treasury
& U.S. Gov't
Agency
0.2%
Corporate &
CLOs
3.4%
Other
1.4%
14
NON-INTEREST EXPENSE
Source: Company financials, as of 12/31/2016
Note: All dollars in thousands
Overhead Ratio = Ratio of non-interest expense (annualized) to average total assets
Non-Interest Expense Detail and Overhead Ratio
$21,372
$27,903
$46,745 $48,074 $45,068
$29,020
$31,612
$52,634
$58,134 $61,405
3.72% 3.86%
3.49%
3.01%
2.78%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
$-
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
2012 2013 2014 2015 2016
Non-Compensation Expense Compensation & Benefits Expense Overhead Ratio
CREDIT QUALITY TRENDS
15
Source: Company financials, as of 12/31/2016
Note: All dollars in thousands
- -
- -
$29,746 $29,667 $28,426 $30,211 $31,083
1.24%
1.21% 1.13% 1.17%
1.18%
1.05%
1.10%
1.15%
1.20%
1.25%
1.30%
1.35%
1.40%
1.45%
1.50%
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016
A
LL
L/
L
o
a
n
s,
n
et
A
LL
L
ALLL ALLL / Loans Receivable, net
ALLL/Loans Receivable, net
$29,746 $29,667 $28,426
$30,211 $31,083
1.24% 1.21%
1.13%
1.17%
1.18%
1.05%
1.10%
1.15%
1.20%
1.25%
1.30%
1.35%
1.40%
1.45%
1.50%
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016
A
LL
/
Lo
a
n
s
R
ec
ei
va
bl
e,
n
et
A
LL
L
ALLL ALLL / Loans Receivable, net
$382
$1,218
$2,361
$(290)
$305
0.06%
0.20%
0.38%
-0.05% 0.05%
-0.10%
-0.05%
0.00%
0.05%
0.10%
0.15%
0.20%
0.25%
0.30%
0.35%
0.40%
0.45%
$(500)
$-
$500
$1,000
$1,500
$2,000
$2,500
Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016
N
CO
s
/
A
vg
. L
o
a
n
s
N
e
t C
h
a
rg
e
-O
ff
s/
(R
ec
o
ve
ri
es
)
Net Charge Offs /(Recoveries)
Net Charge-Offs and NCOs Annualized/Avg. Loans NPAs / Assets
$1,124 $1,139 $1,120
$1,495
$1,177
$-
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016
Pr
o
vi
si
o
n
Ex
p
en
se
Provision Expense
0.32%
0.39%
0.41%
0.30% 0.30%
0.00%
0.05%
0.10%
0.15%
0.20%
0.25%
0.30%
0.35%
0.40%
0.45%
Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016
N
PA
s
/
A
ss
et
s
CAPITAL RATIO TRENDS
16Source: Company financials, as of 12/31/2016
- -
- -
Tier-1 Capital Ratio
11.3%
10.2% 10.4% 10.3%
0.00%
4.00%
8.00%
12.00%
2013 2014 2015 2016
11.4%
9.8% 9.7% 9.5%
0.00%
4.00%
8.00%
12.00%
2013 2014 2015 2016
15.5%
13.9%
12.7% 12.1%
0.00%
4.00%
8.00%
12.00%
16.00%
20.00%
2013 2014 2015 2016
16.8%
15.1%
13.7% 13.1%
0.00%
4.00%
8.00%
12.00%
16.00%
20.00%
2013 2014 2015 2016
Tangible Common Equity Ratio
Risk Based Capital Ratio
Leverage Ratio
PROFITABILITY TRENDS
17
Source: Company financials, as of 12/31/2016
Note: All dollars in thousands, except per share
- -
- -
Diluted Earnings Per Share
$0.32
$0.30 $0.30
$0.37
$0.33
$-
$0.05
$0.10
$0.15
$0.20
$0.25
$0.30
$0.35
$0.40
Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016
ROAA
$9,493 $9,091 $8,895
$11,039
$9,893
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016
Dividends Per Share*
1.04% 1.00% 0.96%
1.16%
1.03%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016
11.04%
10.48%
10.03%
11.99%
10.84%
9.00%
9.50%
10.00%
10.50%
11.00%
11.50%
12.00%
12.50%
Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016
ROATCE
Net Income
TOTAL SHAREHOLDER RETURN
18
Total Return* – Last Twelve Months
Source: SNL Financial, as of 01/27/2017
Note: SNL U.S. Bank $1B-$5B index includes banks nationwide with total
assets of $1.0 billion to $5.0 billion
*Total return includes stock price appreciation and reinvested dividends
**Average Street EPS estimates, per FactSet Research Systems, Inc.
***Dividends based on date declared
+24.7%
+58.7%
+59.1%
- -
Dividends Per Share***
+50.5%
Dividends Per Share***
Ticker HFWA
Exchange NASDAQ
Stock Price 25.95$
Market Cap. ($MM) 777.3$
Dividend Yield (Regular Div. Only) 1.85%
Average Daily Volume (3 Mo.)
Avg. Daily Volume (Shares) 131,831
Avg. Daily Volume ($000s) 3,421$
52-Week High / Low Price
52-Week High (1/26/2017) 26.98$
52-Week Low (6/27/2016) 16.40$
Per Share
Tg. Book Value Per Share 11.86$
EPS - 2017E** 1.33$
Number of Research Analysts 6
Valuation Ratios
Price / Tg. Book Value 218.7%
Price / 2017E EPS** 19.6x
HFWA INVESTMENT THESIS
19
• Western Washington geographic footprint with vibrant
economy and attractive long-term demographics
• Continued focus on growth trends and capital
management
– Grow organically and continue to evaluate M&A opportunities
– Continue to focus on improving shareholder value
• Attractive valuation
20
APPENDIX
HISTORICAL FINANCIAL HIGHLIGHTS
21Source: Company financials, as of 12/31/2016
Note: All dollars in thousands
Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016
Balance Sheet
Total Assets 3,480,324$ 3,595,378$ 3,650,792$ 3,678,032$ 3,756,876$ 3,846,376$ 3,875,077$
Asset Growth (Anlzd. vs. Prior Period) 2.6% 13.2% 6.2% 3.0% 8.6% 9.5% 3.0%
Total Loans, net of deferred costs (Incl. HFS) 2,354,241$ 2,412,025$ 2,409,724$ 2,466,184$ 2,531,731$ 2,587,941$ 2,652,411$
Loan Growth (Anlzd. vs. Prior Period) 17.3% 9.8% -0.4% 9.4% 10.6% 8.9% 9.9%
Total Deposits 2,946,487$ 3,054,198$ 3,108,287$ 3,130,929$ 3,158,906$ 3,242,421$ 3,229,648$
Deposit Growth (Anlzd. vs. Prior Period) 5.5% 14.6% 7.1% 2.9% 3.6% 10.6% -1.6%
Net Loans / Deposits Ratio 78.9% 78.0% 76.6% 77.8% 79.2% 78.9% 81.2%
Cash and Securities / Total Assets 23.7% 24.6% 25.9% 25.1% 24.5% 24.4% 23.2%
Noninterest Bearing Deposits (% of Total) 24.7% 25.0% 24.8% 25.4% 26.0% 26.7% 27.3%
Non-maturity deposits (% of Total) 84.3% 85.7% 86.5% 87.0% 87.7% 88.6% 88.9%
Capital Adequacy
Tangible Common Equity 330,264$ 340,355$ 342,152$ 352,698$ 362,938$ 369,251$ 355,360$
Tangible Common Equity Ratio 9.9% 9.8% 9.7% 9.9% 10.0% 9.9% 9.5%
Leverage Ratio 10.6% 10.5% 10.4% 10.5% 10.5% 10.5% 10.3%
Risk Based Capital Ratio 14.1% 13.4% 13.7% 13.6% 13.0% 13.0% 13.1%
Credit Quality Ratios
NPAs / Total Assets 0.39% 0.33% 0.32% 0.39% 0.41% 0.30% 0.30%
NCOs (Anlzd.)/ Avg. Loans 0.13% 0.02% 0.06% 0.20% 0.38% -0.05% 0.05%
ALLL / Gross Loans 1.20% 1.21% 1.24% 1.21% 1.13% 1.17% 1.18%
Income Statement and Performance Ratios
Net Interest Income 32,470$ 31,940$ 32,535$ 32,760$ 33,085$ 33,606$ 33,055$
Net Income 8,725$ 9,492$ 9,493$ 9,091$ 8,895$ 11,039$ 9,893$
ROAA 1.01% 1.06% 1.04% 1.00% 0.96% 1.16% 1.03%
Net Interest Margin 4.19% 4.00% 3.97% 4.04% 4.00% 3.95% 3.85%
Noninterest Expense / Avg. Assets 3.01% 3.05% 2.92% 2.91% 2.87% 2.81% 2.78%
Avg Assets Per Employee 4,552$ 4,634$ 4,837$ 4,934$ 4,993$ 5,141$ 5,094$
Efficiency Ratio 66.3% 65.9% 66.9% 66.3% 66.8% 61.7% 65.0%
(1) Operating revenue = net interest income + non-interest income
DISCOUNTS ON ACQUIRED LOANS
22
• $13.5 million remaining loan discount on acquired loans
Source: Company information, as of 12/31/2016
Note: All dollars in thousands
$21,639
$20,350
$18,563
$17,494
$14,747
$13,525
2.48%
2.41%
2.31% 2.35%
2.12% 2.09%
2.00%
2.25%
2.50%
2.75%
3.00%
3.25%
3.50%
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
09/30/15 12/31/15 03/31/16 06/30/16 09/30/16 12/31/16
Remaining Loan Mark Discount %
Acquired
Loans
9/30/2015
Loan Balance 871,827$
Remaining Loan Mark 21,639$
Recorded Investment 850,188$
Discount % 2.48%
12/31/2015
Loan Balance 844,549$
Remaining Loan Mark 20,350$
Recorded Investment 824,199$
Discount % 2.41%
3/31/2016
Loan Balance 801,913$
Remaining Loan Mark 18,563$
Recorded Investment 783,350$
Discount % 2.31%
6/30/2016
Loan Balance 745,480$
Remaining Loan Mark 17,494$
Recorded Investment 727,986$
Discount % 2.35%
9/30/2016
Loan Balance 696,577$
Remaining Loan Mark 14,747$
Recorded Investment 681,830$
Discount % 2.12%
12/31/2016
Loan Balance 648,549$
Remaining Loan Mark 13,525$
Recorded Investment 635,024$
Discount % 2.09%