2014

Heritage Financial Announces Third Quarter Results And Declares Cash Dividend - Diluted earnings per common share were $0.19 for the quarter ended September 30, 2012, $0.12 in the prior year quarter ended September 30, 2011 and $0.21 per common share for the quarter ended June 30, 2012

- Nonperforming originated loans decreased to 1.57% of total originated loans at September 30, 2012 from 1.69% at June 30, 2012 and from 2.94% at September 30, 2011

- Originated loans receivable increased $18.3 million, or 2.1%, during the quarter ended September 30, 2012 and increased $69.0 million, or 8.6%, during the 12 months ended September 30, 2012

- Company announced definitive agreement to acquire Northwest Commercial Bank

OLYMPIA, Wash., Oct. 30, 2012 /PRNewswire/ -- HERITAGE FINANCIAL CORPORATION (NASDAQ GS: HFWA) Brian L. Vance, President and CEO of Heritage Financial Corporation ("Company" or "Heritage"), today reported that the Company had net income of $2.9 million for the quarter ended September 30, 2012 compared to net income of $1.8 million for the quarter ended September 30, 2011 and $3.2 million for the linked-quarter ended June 30, 2012.

  Net income for the quarter ended September 30, 2012 was $0.19 per diluted common share, compared to $0.12 per diluted common share for the quarter ended September 30, 2011 and $0.21 per diluted common share for the linked-quarter ended June 30, 2012. 

(Logo: http://photos.prnewswire.com/prnh/20110127/SF37289LOGO)

Net income for the nine months ended September 30, 2012 was $10.2 million, or $0.67 per diluted common share, compared to $4.3 million, or $0.27 per diluted common share, for the nine months ended September 30, 2011.

Mr. Vance commented, "Our results this year continue to improve over last year's results with the current quarter net income up 56% over last year's third quarter and up 139% year to date over the same period last year.  Our earnings were down two cents per share on a linked quarter basis primarily due to a lower margin, an increased provision on our purchased loans and the change in our FDIC indemnification asset.  As we have stated before, the extended period of extraordinarily low interest rates is going to continue to put pressure on our margin.  A bright spot in this quarter versus this year's second quarter is our lower noninterest expense in spite of incurring approximately $180,000 in merger-related expenses associated with our pending acquisition of Northwest Commercial Bank."

Balance Sheet

The Company's total assets increased to $1.37 billion at September 30, 2012 from $1.34 billion at June 30, 2012.  During the quarter ended September 30, 2012, cash and cash equivalents increased by $33.6 million to $116.9 million, which was a result of increases in total deposits and securities sold under agreement to repurchase. 

Total originated loans (not including loans held for sale) increased $18.3 million to $872.0 million at September 30, 2012 from $853.6 million at June 30, 2012.  The increase was due significantly to a $12.5 million increase in commercial business loans and a $4.9 million increase in real estate construction and land development loans during the quarter.

Total deposits increased to $1.13 billion at September 30, 2012 from $1.11 billion at June 30, 2012.  Total non-maturity deposits increased $32.2 million to $838.6 million at September 30, 2012 from $806.4 million at June 30, 2012 while certificates of deposit decreased $11.9 million to $295.1 million at September 30, 2012 from $307.0 million at June 30, 2012.  Non-maturity deposits to total deposits increased to 74.0% at September 30, 2012 from 72.4% at June 30, 2012.  In addition, noninterest demand deposits to total deposits increased to 22.0% at September 30, 2012 from 20.5% at June 30, 2012. 

Total equity increased $2.1 million to $202.2 million at September 30, 2012 from $200.1 million at June 30, 2012.  The increase was due to $2.9 million in net income partially offset by $1.2 million in cash dividends declared.  During the quarter ended September 30, 2012, the Company did not repurchase any shares.  For the nine months ended September 30, 2012, the Company has repurchased 392,000 shares at a weighted average price of $13.44.  The Company and its subsidiary banks continue to maintain capital levels significantly in excess of the applicable regulatory requirements for them to be categorized as "well-capitalized". The Company had Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios at September 30, 2012 of 14.0%, 19.1% and 20.4%, respectively, as compared to 13.8%, 18.9% and 20.2% at June 30, 2012, respectively. 

Mr. Vance continued, "We are pleased to again see loan growth in our originated portfolio following loan growth in the second quarter.  The loan growth this quarter more than offset the reductions in the purchased loan portfolio.  In spite of increased new business we remain cautious about our loan growth continuing at its current pace."

Credit Quality

The allowance for loan losses on originated loans at September 30, 2012 decreased $310,000 to $20.5 million from $20.8 million at June 30, 2012 as a result of $525,000 of net charge-offs recognized during the quarter.  Nonperforming originated loans to total originated loans was 1.57% at September 30, 2012, a decrease from 1.69% at June 30, 2012.  Nonaccrual originated loans decreased $1.0 million to $15.7 million ($13.7 million net of government agency guarantees) at September 30, 2012 from $16.7 million at June 30, 2012.  The decrease in nonaccrual loans was due to a combination of principal reductions, charge-offs and transfers to other real estate owned. 

The allowance for loan losses to nonperforming originated loans was 149.9% at September 30, 2012 compared to 144.7% at June 30, 2012.  Potential problem originated loans were $29.4 million at September 30, 2012 compared to $28.3 million at June 30, 2012. Restructured originated performing loans were $15.3 million at September 30, 2012 compared to $14.1 million at June 30, 2012.  The Company believes that its allowance for loan losses is appropriate to provide for probable incurred losses based on an evaluation of known and inherent risks in the loan portfolio at September 30, 2012.

Nonperforming originated assets were $22.7 million ($20.7 million net of government agency guarantees), or 1.72% of total originated assets, at September 30, 2012, compared to $24.8 million ($22.5 million net of government agency guarantees), or 1.92% of total originated assets, at June 30, 2012.  Other real estate owned decreased to $7.3 million at September 30, 2012 (of which $260,000 was covered by Federal Deposit Insurance Corporation ("FDIC") loss sharing agreements) from $8.6 million at June 30, 2012 (of which $563,000 was covered by FDIC loss sharing agreements).  The decrease in other real estate owned was due to the disposition of 11 properties totaling $1.8 million partially offset by the addition of two properties totaling $453,000.  During the quarter ended September 30, 2012, the Company recognized a net gain of $2,000 on the disposition of the 11 properties.

Mr. Vance added, "We are especially pleased to report overall credit metrics on our originated loan portfolio continue to improve.  Nonperforming originated loans are down to 1.57% of originated loans and the allowance for loan losses to nonperforming originated loans increased to 149.9%.  Nonperforming originated assets decreased 8.3% during the quarter ended September 30, 2012 and are down to 1.72% of total originated assets. In addition, other real estate owned decreased $1.3 million, or 15.6%, during the quarter ended September 30, 2012.  We are optimistic that we will continue to see improving credit metrics trends."

Operating Results

Net interest income decreased $1.3 million, or 7.8%, to $16.0 million for the quarter ended September 30, 2012 compared to $17.3 million for the same period in 2011.  Net interest income decreased $2.2 million, or 4.3%, to $48.9 million for the nine months ended September 30, 2012 compared to $51.1 million during the same period in the prior year.  The decrease in net interest income is due to the decline in net interest margins during the respective periods.

Heritage's net interest margin for the quarter ended September 30, 2012 decreased to 5.10% from 5.47% for the same period in 2011 and from 5.25% in the linked-quarter ended June 30, 2012.  The net interest margin for the nine months ended September 30, 2012 decreased to 5.23% from 5.49% in the same period in 2011.  The decline in net interest margin is due to a combination of lower contractual note rates and the lessening impact of discount accretion on the acquired loan portfolios.

The effect on the net interest margin of discount accretion on the acquired loan portfolios for the quarter ended September 30, 2012 was approximately 49 basis points compared to 72 basis points in the same quarter of the prior year and 55 basis points for the linked quarter ended June 30, 2012.  Interest reversals on nonaccrual originated loans impacting the net interest margin for the quarter ended September 30, 2012 were approximately six basis points compared to 11 basis points for the same quarter in the prior year and eight basis points for the linked quarter ended June 30, 2012.

The provision for loan losses on originated loans decreased to $215,000 for the quarter ended September 30, 2012 compared to $395,000 for the quarter ended September 30, 2011.  For the nine months ended September 30, 2012, the provision for loan losses on originated loans decreased to $415,000 from $5.0 million for the nine months ended September 30, 2011.  The decrease in provision expense was substantially due to improving credit quality metrics, such as the decrease in ratio of nonperforming originated loans to total originated loans as noted above. The Company had net charge-offs of $525,000 for the quarter ended September 30, 2012 compared to net charge-offs of $1.9 million for the quarter ended June 30, 2012 and net charge-offs of $19,000 for the quarter ended September 30, 2011.  For the nine months ended September 30, 2012, the Company had net charge-offs of $2.2 million compared to $3.3 million for the nine months ended September 30, 2011.

The provision for loan losses on purchased loans totaled $592,000 for the quarter ended September 30, 2012 compared to $2.8 million for the comparable period in the prior year and $419,000 for the linked quarter ended June 30, 2012.  For the nine months ended September 30, 2012, the provision for loan losses on purchased loans was $902,000 compared to $6.1 million for the nine months ended September 30, 2011. As of the acquisition dates, purchased loans were recorded at their estimated fair value, incorporating our estimate of future expected cash flows until the ultimate resolution of these credits.  To the extent actual or projected cash flows are less than previously estimated, additional provisions for loan losses on the purchased loan portfolios will be recognized immediately into earnings.  To the extent actual or projected cash flows are more than previously estimated, the increase in cash flows is recognized immediately as a recapture of provision for loan losses up to the amount of any provision previously recognized for that pool of loans, if any, then prospectively recognized in interest income as a yield adjustment.

Cash flows on pools of acquired loans are re-estimated on a quarterly basis. As reflected in the table below, incremental accretion income was $1.6 million for the quarter ended September 30, 2012 compared to $1.7 million for the quarter ended June 30, 2012 and $2.3 million for the quarter ended September 30, 2011.  For the nine months ended September 30, 2012, incremental accretion income was $4.8 million compared to $6.5 million for the nine months ended September 30, 2011.

For the quarter ended September 30, 2012, the Company recognized $(492,000) of change in the FDIC indemnification asset compared to $(19,000) and $(1.7) million for the quarters ended June 30, 2012 and September 30, 2011, respectively.  For the nine months ended September 30, 2012, the Company recognized $(687,000) of change in the FDIC indemnification asset compared to $(2.6) million for the nine months ended September 30, 2011.

The following table illustrates the significant accounting entries associated with the Company's acquired loan portfolios:


Three Months Ended


Nine Months Ended


September 30,
2012


June 30,
2012


September 30,

2011


September 30,
2012


September 30,
2011

(in thousands)










Incremental accretion income over stated
              note rate(1)

$       1,550


$       1,709


$    2,298


$      4,784


$        6,475

Change in FDIC indemnification asset

(492)


(19)


(1,666)


(687)


(2,578)

Provision for loan losses

(592)


(419)


(2,821)


(902)


(6,128)

Pre-tax earnings impact

$    466


$      1,271


$       (2,189)


$      3,195


$       (2,231)











(1)

The incremental accretion income represents the amount of income recorded on the acquired loans above the contractual stated interest rate in the individual loan notes.  This income stems from the discount established at the time these loan portfolios were acquired and modified as a result of quarterly cash flow re-estimation. 

Donald J. Hinson, Executive Vice President and Chief Financial Officer, commented, "As we have expected, we are continuing to experience a declining net interest margin.  The effects of the discount accretion on the net interest margin are lessening as acquired loan balances decline.  In addition, contractual note rates on the loan portfolio and yields on the investment portfolio are decreasing more rapidly than our cost of funds. This trend is expected to continue while we are in a low rate environment."

Noninterest income was $1.5 million for the quarter ended September 30, 2012 compared to $239,000 for the same period in 2011 and $2.1 million for the linked-quarter ended June 30, 2012. For the nine months ended September 30, 2012, noninterest income increased $2.1 million to $5.5 million from $3.4 million for the nine months ended September 30, 2011.

The increases in noninterest income are primarily due to the change in the FDIC indemnification asset.  Merchant Visa income and merchant Visa expense are now reported net in noninterest income (merchant Visa expense was previously reported as noninterest expense).  For comparability purposes, prior year amounts have also been netted.

Noninterest expense was $12.5 million for the quarter ended September 30, 2012 compared to $11.8 million for the quarter ended September 30, 2011 and $12.9 million for the linked-quarter ended June 30, 2012. The increase for the three months ended September 30, 2012 compared to the same period in the prior year was due to increased salaries and employee benefits expense of $729,000 and increased professional services expense of $225,000.  The increase in salaries and benefits expense was due primarily to increased incentive compensation as well as new deferred compensation arrangements. The increase in professional services is substantially due to costs incurred during the quarter ended September 30, 2012 relating to the proposed acquisition of Northwest Commercial Bank.  The acquisition is expected to close during the quarter ending December 31, 2012 subject to regulatory approval and the approval of Northwest Commercial Bank's shareholders. Noninterest expense increased $530,000, or 1.4%, to $38.0 million for the nine months ended September 30, 2012 compared to $37.4 million for the nine months ended September 30, 2011.

Dividend

On October 30, 2012, the Company's Board of Directors declared a quarterly cash dividend of $0.08 per common share payable on November 21, 2012 to shareholders of record on November 9, 2012. 

Earnings Conference Call

The Company will hold a telephone conference call to discuss this earnings release on October 31, 2012, at 11:00 a.m. Pacific time.  To access the call, please dial (800) 230-1059 a few minutes prior to 11:00 a.m. Pacific time.  The call will be available for replay through November 14, 2012, by dialing (800) 475-6701 -- access code 266044.

About Heritage Financial

Heritage Financial Corporation is a bank holding company headquartered in Olympia, Washington.  The Company operates two community banks, Heritage Bank and Central Valley Bank.  Heritage Bank serves western Washington and the greater Portland, Oregon area through its twenty-seven full-service banking offices and its Online Banking Website www.HeritageBankNW.com.  Central Valley Bank serves Yakima and Kittitas counties in central Washington through its six full-service banking offices and its Online Banking Website www.CVBankWA.com.  Additional information about Heritage Financial Corporation is available on its Internet Website www.HF-WA.com.

Non-GAAP Financial Measures

This news release contains certain non-GAAP financial measures in addition to results presented in accordance with Generally Accepted Accounting Principles (GAAP).  These measures include tangible common equity, tangible book value per share and tangible common equity to tangible assets.  Tangible common 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.  Where applicable, the Company has also presented comparable capital information using GAAP financial measures. Reconciliations of the GAAP and non-GAAP financial measures are presented below.

(in thousands)

September 30,
2012


June 30,
2012


September 30,
2011

Stockholders' equity

$     202,244


$     200,135


$     206,115

Less: goodwill and other






intangible assets

14,205


14,311


14,632

Tangible common equity

$     188,039


$     185,824


$     191,483







Total assets

$  1,366,582


$  1,338,139


$  1,369,090

Less: goodwill and other






intangible assets

14,205


14,311


14,632

Tangible assets

$  1,352,377


$  1,323,828


$  1,354,458







Forward-Looking Statements

"Safe Harbor" statement under the Private Securities Litigation Reform Act of 1995: This release contains forward-looking statements that are subject to risks and uncertainties, including, but not limited to: the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets; changes in general economic conditions, either nationally or in our market areas; changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources; fluctuations in the demand for loans, the number of unsold homes and other properties and fluctuations in real estate values in our market areas; results of examinations of us by the Board of Governors of the Federal Reserve System and of our bank subsidiaries by the Federal Deposit Insurance Corporation, the Washington State Department of Financial Institutions, Division of Banks or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our allowance for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, or impose additional requirements and restrictions on us, any of which could adversely affect our liquidity and earnings; legislative or regulatory changes that adversely affect our business including changes in regulatory policies and principles, including the interpretation of regulatory capital or other rules including changes related to Basel III; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the implementing regulations ; our ability to control operating costs and expenses; 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; difficulties in reducing risk associated with the loans on our balance sheet; staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges; computer systems on which we depend could fail or experience a security breach; our ability to retain key members of our senior management team; costs and effects of litigation, including settlements and judgments; our ability to implement our expansion strategy; our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we have acquired including the Cowlitz Bank and Pierce Commercial Bank transactions, or may in the future acquire into our operations, including the proposed acquisition of Northwest Commercial Bank and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto; risks relating to acquiring assets or entering markets in which we have not previously operated and may not be familiar; changes in consumer spending, borrowing and savings habits; the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions; adverse changes in the securities markets; inability of key third-party providers to perform their obligations to us; changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods; other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services; and other risks 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 future periods 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

(Dollar amounts in thousands; unaudited)








September 30,


June 30,


September 30,


2012


2012


2011

Assets






Cash on hand and in banks

$           34,257


$           31,245


$            30,081

Interest earning deposits

82,648


52,011


121,921

Cash and cash equivalents

116,905


83,256


152,002

Investment securities available for sale

147,682


149,778


141,747

Investment securities held to maturity

10,833


11,190


12,446

Loans held for sale

1,411


1,174

922

Originated loans receivable

871,959


853,633


802,941

Less:  Allowance for loan losses

(20,533)


(20,843)


(22,387)

Originated loans receivable, net

851,426


832,790


780,554

Purchased covered loans receivable, net of allowance for loan
       losses of $4,137, $3,973 and $3,682

89,005


97,357


111,392

Purchased non-covered loans receivable, net of allowance
       for loan losses of $4,937, $4,667 and $2,366

65,592


72,273


92,364

Total loans receivable, net

1,006,023


1,002,420


984,310

FDIC indemnification asset

7,480


8,212


12,079

Other real estate owned ($260, $563 and $588 covered by FDIC
       loss share, respectively)

7,285


8,634


2,590

Premises and equipment, net

22,886


23,166


22,788

Federal Home Loan Bank ("FHLB") stock, at cost

5,545


5,594


5,594

Accrued interest receivable

5,178


4,683


5,137

Prepaid expenses and other assets

21,149


25,721


14,843

Goodwill and other intangible assets

14,205


14,311


14,632

Total assets

$      1,366,582


$      1,338,139


$       1,369,090







Liabilities and Stockholders' Equity






Deposits

$      1,133,700


$      1,113,346


$        1,137,445

Securities sold under agreement to repurchase

22,889


13,656


18,770

Accrued expenses and other liabilities

7,749


11,002


6,760

Total liabilities

1,164,338


1,138,004


1,162,975







Common stock

122,275


121,955


127,780

Unearned compensation – ESOP

(28)


(50)


(116)

Retained earnings

78,086


76,434


76,681

Accumulated other comprehensive income, net

1,911


1,796


1,770

Total stockholders' equity

202,244


200,135


206,115

Total liabilities and stockholders' equity

$      1,366,582


$      1,338,139


$       1,369,090







Common stock, shares outstanding

15,162,879


15,143,189


15,583,141








 

 

HERITAGE FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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



 Three Months Ended


Nine Months Ended


September 30,

 2012


June 30,
2012


September 30,
2011


September 30, 
2012


September 30,
2011

Interest income:










Interest and fees on loans

$       16,181


$       16,465


$       17,850


$       49,664


$       53,252

Taxable interest on investment securities

525


604


792


1,781


2,223

Nontaxable interest on investment securities

274


267


214


797


592

Interest on interest earning deposits

51


53


65


167


206

Total interest income

17,031


17,389


18,921


52,409


56,273

Interest expense:










Deposits

1,061


1,163


1,604


3,501


5,161

Other borrowings

15


16


18


49


61

Total interest expense

1,076


1,179


1,622


3,550


5,222

Net interest income

15,955


16,210


17,299


48,859


51,051

Provision for loan losses on originated loans

215


200


395


415


4,985

Provision for loan losses on purchased loans

592


419


2,821


902


6,128

Net interest income after provision for loan losses

15,148


15,591


14,083


47,542


39,938

Noninterest income:










Gains on sales of loans, net

92


53


58


208


245

Service charges on deposits

933


929


892


2,748


2,723

Merchant Visa income, net

182


182


132


534


391

Change in FDIC indemnification asset

(492)


(19)


(1,666)


(687)


(2,578)

Other income

812


919


823


2,696


2,619

Total noninterest income

1,527


2,064


239


5,499


3,400

Noninterest expense:










Salaries and employee benefits

7,224


7,287


6,495


21,709


20,207

Occupancy and equipment

1,880


1,832


1,749


5,497


5,314

Data processing

643


668


553


1,902


2,011

Marketing

435


369


390


1,207


1,084

Professional services

742


628


517


1,924


1,564

State and local taxes

295


320


290


925


1,015

Impairment loss on investment securities, net

-


24


28


60


73

Federal deposit insurance premium

245


263


384


783


1,272

Other real estate owned, net

35


196


31


487


596

Other expense

1,004


1,283


1,348


3,477


4,305

Total noninterest expense

12,503


12,870


11,785


37,971


37,441

Income before income taxes

4,172


4,785


2,537


15,070


5,897

Income tax expense

1,309


1,591


701


4,843


1,611

Net income

$         2,863


$         3,194


$         1,836


$       10,227


$          4,286











Basic earnings per common share

$           0.19


$           0.21


$           0.12


$            0.67


$            0.27

Diluted earnings per common share

$           0.19


$           0.21


$           0.12


$            0.67


$            0.27











Average number of common shares outstanding

14,954,887


15,124,151


15,458,795


15,123,957


15,456,760

Average number of diluted common shares outstanding

14,968,671


15,197,425


15,461,824


15,138,223


15,467,246

 

 

HERITAGE FINANCIAL CORPORATION

FINANCIAL STATISTICS

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












Three Months Ended


Nine Months Ended


September 30,
2012


June 30,
2012


September 30,
2011


September 30,
2012


September 30,
2011

Performance Ratios:










Efficiency ratio

71.52%


70.43%


67.20%


69.85%


68.76%

Return on average assets

0.84%


0.95%


0.54%


1.01%


0.43%

Return on average equity

5.64%


6.26%


3.52%


6.70%


2.79%











Average Balances:










Loans, including purchased loans

$      999,915


$      993,880


$      988,783


$      996,712


$      978,011

Taxable investment securities

122,325


126,745


134,213


123,389


129,579

Nontaxable investment securities

38,695


36,809


25,784


36,768


23,624

Interest earning deposits

77,077


79,872


99,559


84,397


105,621

Total interest earning assets

1,243,602


1,242,900


1,253,933


1,246,859


1,242,429

Total assets

1,351,005


1,347,749


1,356,353


1,351,519


1,346,300

Interest bearing deposits

881,873


889,184


915,646


889,472


914,024

Securities sold under agreement to repurchase

15,999


18,301


19,015


17,992


19,166

Total interest bearing liabilities

897,872


907,487


934,661


907,464


933,190

Noninterest bearing deposits

242,478


226,344


208,666


232,301


199,853

Total equity

202,050


205,172


206,856


204,025


205,588

Tangible common equity

187,783


190,800


192,159


190,651


190,779











Net Interest Spread:










Yield on loans, net

6.44%


6.66%


7.16%


6.66%


7.28%

Yield on taxable investment securities

1.71%


1.92%


2.34%


1.93%


2.29%

Yield on nontaxable investment securities

2.81%


2.92%


3.30%


2.90%


3.35%

Yield on interest earning deposits

0.26%


0.27%


0.26%


0.26%


0.26%

Yield on interest earning assets

5.45%


5.63%


5.99%


5.61%


6.06%











Cost of interest bearing deposits

0.48%


0.53%


0.70%


0.53%


0.75%

Cost of securities sold under agreement to repurchase

0.36%


0.36%


0.39%


0.36%


0.42%

Cost of interest bearing liabilities

0.48%


0.52%


0.69%


0.52%


0.75%











Net interest spread

4.97%


5.10%


5.30%


5.09%


5.31%

Net interest margin

5.10%


5.25%


5.47%


5.23%


5.49%











 

 

HERITAGE FINANCIAL CORPORATION

FINANCIAL STATISTICS

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



Three Months Ended


Nine Months Ended


September 30,
2012


June 30,
2012


September 30,
2011


September 30,
2012


September 30,
2011

Allowance for Originated Loan Losses:










Allowance balance, beginning of period

$        20,843


$        22,563


$        22,011


$        22,317


$        22,062

Provision for loan losses

215


200


395


415


4,985

Net recoveries (charge-offs):










Commercial business

(306)


(1,666)


16


(1,022)


(1,659)

One-to-four family residential

(94)


(76)


-


(170)


(15)

Real estate construction

-


(104)


-


(795)


(2,845)

Consumer

(125)


(74)


(35)


(212)


(141)

Total net recoveries (charge-offs)

(525)


(1,920)


(19)


(2,199)


(4,660)

Allowance balance, end of period

$        20,533


$        20,843


$        22,387


$        20,533


$       22,387



 


Three Months Ended


Nine Months Ended


September 30, 
2012


June 30,
2012


September 30,
2011


September 30,
2012


September 30,
2011

Allowance for Purchased Covered Loan Losses:










Allowance balance, beginning of period

$        3,973


$        4,111


$        2,516


$               3,963


$              -

Net charge-offs

-


-


(80)


(33)


(80)

Provision for (recovery of) loan losses

164


(138)


1,246


207


3,762

Allowance balance, end of period

$        4,137


$        3,973


$        3,682


$               4,137


$       3,682












Three Months Ended


Nine Months Ended


September 30,
2012


June 30,
2012


September 30,
2011


September 30,
2012


September 30,
2011

Allowance for Purchased Non-Covered Loan Losses:










Allowance balance, beginning of period

$         4,667


$         4,121


$         791


$               4,635


$             -

Net charge-offs

(158)


(11)


-


(393)


-

Provision for (recovery of) loan losses

428


557


1,575


695


2,366

Allowance balance, end of period

$         4,937


$         4,667


$      2,366


$               4,937


$       2,366

 


Three Months Ended


Nine Months Ended


September 30,
2012


June 30,
2012


September 30,
2011


September 30,
2012


September 30,
2011

Other Real Estate Owned:










Balance, beginning of period

$          8,634


$          8,349


$          1,911


$          4,484


$          3,030

Additions

453


1,217


1,759


5,979


3,096

Proceeds from dispositions

(1,804)


(790)


(1,058)


(2,695)


(2,866)

Gain (loss) on sale

2


10


(22)


-


(75)

Valuation adjustments

-


(152)


-


(483)


(595)

Balance, end of period

$           7,285


$           8,634


$           2,590


$           7,285


$           2,590











 

 

HERITAGE FINANCIAL CORPORATION

FINANCIAL STATISTICS

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



As of Period End


September 30,

2012


June 30,

2012


September 30,

 2011

Financial Measures:






Book value per common share

$           13.34


$           13.22


$            13.23

Tangible book value per common share

$           12.40


$           12.27


$            12.29

Stockholders' equity to total assets

14.8%


15.0%


15.1%

Tangible common equity to tangible assets

13.9%


14.0%


14.1%

Tier 1 leverage capital to average assets

14.0%


13.8%


14.1%

Tier 1 capital to risk-weighted assets

19.1%


18.9%


20.4%

Total capital to risk-weighted assets

20.4%


20.2%


21.7%

Net loans to deposits ratio

88.9%


90.1%


86.6%


























As of Period End


September 30,

2012


June 30,

2012


September 30,

 2011

Nonperforming Originated Assets:






Nonaccrual originated loans by type:






Commercial business

$          7,162


$          7,507


$          9,269

One-to-four family residential

425


753


1

Real estate construction and land development

8,008


8,289


16,292

Consumer

87


148


211

Total nonaccrual originated loans(1)(2)

15,682


16,697


25,773

Other noncovered real estate owned

7,025


8,071


2,002

Nonperforming originated assets

$        22,707


$        24,768


$         27,775







Restructured originated performing loans(3)

$        15,278


$        14,145


$            7,244

Accruing originated loans past due 90 days or more(4)

500


564


1,136

Potential problem originated loans(5)

29,374


28,298


39,025

Allowance for loan losses to:






Total originated loans

2.35%


2.44%


2.79%

Nonperforming originated loans(6)

149.94%


144.73%


94.70%

Nonperforming originated loans to total originated loans(6)

1.57%


1.69%


2.94%

Nonperforming originated assets to total originated assets(6)

1.72%


1.92%


2.20%














(1)

$10.0 million, $10.3 million and $12.7 million of nonaccrual loans were considered troubled debt restructurings at September 30, 2012, June 30, 2012 and September 30, 2011, respectively.

(2)

$2.0 million, $2.3 million and $2.1 million of nonaccrual loans were guaranteed by government agencies at September 30, 2012, June 30, 2012 and September 30, 2011, respectively.

(3)

$461,000 of restructured originated performing loans were guaranteed by government agencies at September 30, 2012 and June 30, 2012. There were $592,000 of restructured originated performing loans guaranteed by government agencies at September 30, 2011.

(4)

There were no accruing originated loans past due 90 days or more guaranteed by government agencies at September 30, 2012 or June 30, 2012 and there were $187,000 accruing originated loans past due 90 days or more that were guaranteed by government agencies at September 30, 2011. 

(5)

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 concern as to their ability to comply with their loan repayment terms. $3.1 million, $3.2 million and $4.3 million of potential problem originated loans were guaranteed by government agencies at September 30, 2012, June 30, 2012 and September 30, 2011, respectively.

(6)

Excludes portions guaranteed by government agencies.

 

HERITAGE FINANCIAL CORPORATION

FINANCIAL STATISTICS

(Dollar amounts in thousands; unaudited)








September 30, 2012


June 30, 2012


September 30, 2011


Balance


% of Total


Balance


% of Total


Balance


% of Total

Loan Composition












Originated loans:












Commercial business:












    Commercial and industrial

$    280,513


32.2%


$    278,194


32.6%


$    280,692


35.0%

Owner-occupied commercial real estate

191,798


22.0%


180,982


21.2%


162,088


20.2%

Non-owner occupied commercial real estate

256,670


29.4%


257,263


30.1%


221,822


27.6%

Total commercial business

728,981


83.6%


716,439


83.9%


664,602


82.8%

One-to-four family residential

39,431


4.5%


37,752


4.4%


37,783


4.7%

Real estate construction and land development:












One-to-four family residential

25,045


2.9%


24,132


2.8%


23,327


2.9%

Five or more family residential and commercial properties

50,442


5.8%


46,457


5.5%


47,256


5.9%

Total real estate construction and land development

75,487


8.7%


70,589


8.3%


70,583


8.8%

Consumer

29,976


3.4%


30,749


3.6%


31,545


3.9%

Gross originated loans

873,875


100.2%


855,529


100.2%


804,513


100.2%

Deferred loan fees, net

(1,916)


(0.2)%


(1,896)


(0.2)%


(1,572)


(0.2)%

Total originated loans

871,959


100.0%


853,633


100.0%


802,941


100.0%

Purchased covered loans

93,142




101,330




115,074



Purchased non-covered loans

70,529




76,940




94,730



Total loans, net of net deferred loan fees

$  1,035,630




$  1,031,903




$  1,012,745


































September 30, 2012


June 30, 2012


September 30, 2011


Balance


% of Total


Balance


% of Total


Balance


% of Total

Deposit Composition












Noninterest demand deposits

$    248,937


22.0%


$    227,766


20.5%


$    215,689


18.9%

NOW accounts

295,715


26.1%


297,746


26.7%


310,270


27.3%

Money market accounts

173,362


15.3%


170,909


15.3%


158,046


13.9%

Savings accounts

120,561


10.6%


109,931


9.9%


104,751


9.2%

Total non-maturity deposits

838,575


74.0%


806,352


72.4%


788,756


69.3%

Certificates of deposit

295,125


26.0%


306,994


27.6%


348,689


30.7%

Total deposits

$ 1,133,700


100.0%


$ 1,113,346


100.0%


$ 1,137,445


100.0%













 

 

 

SOURCE HERITAGE FINANCIAL CORPORATION



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