Heritage Financial Corporation of Olympia, Washington Announces First Quarter 2001 Earnings

Apr 26, 2001, 01:00 ET from Heritage Financial Corporation

    OLYMPIA, Wash., April 26 /PRNewswire/ -- Donald V. Rhodes, Chairman,
 President and CEO of Heritage Financial Corporation (Nasdaq: HFWA)
 ("the Company") today reported net income of $0.166 per diluted share for the
 first quarter ended March 31, 2001 compared to $0.146 for the quarter ended
 March 31, 2000, an increase of 13.7%.
     Actual earnings for the quarter ended March 31, 2001 were
 $1,389,000 compared to $1,460,000 for the quarter ended March 31, 2000, a
 decrease of 4.9%.  The difference in performance on a per share basis versus
 actual dollar basis is the result of the Company's ongoing stock repurchase
 program that continues to be accretive to earnings per share.  The decline in
 actual earnings is a result of lower capital levels, sharply lower interest
 rates and a higher effective tax rate in 2001 vs. 2000.  The Company's quarter
 over quarter capital levels were reduced by approximately $14 million through
 the repurchase of the company's stock.  Heritage replaced that interest free
 capital with borrowed money and deposits, thus squeezing the Company's margin.
 In addition, approximately 20% of the Company's loans are now tied to prime,
 and with the Federal Reserve Bank aggressively reducing interest rates by
 150 basis points in the 1st quarter of this year, the margin was further
 compressed.  Heritage Financial's effective tax rate in 2000 benefited from
 one time income tax deferrals and as a result the Company's effective tax rate
 will be higher in 2001.
     Cash earnings, which exclude the amortization of goodwill recorded on the
 acquisition of North Pacific Bank in 1998, for the quarter ended
 March 31, 2001 were $0.178 per diluted share compared to $0.156 per diluted
 share for the quarter ended March 31, 2000, an increase of 14.1%.  Actual cash
 earnings for the quarter ended March 31, 2001 were $1,484,000 compared to
 $1,555,000 for the quarter ended March 31, 2000, a decrease of 4.6%.
     In addition to 100,000 shares purchased in April 1999, the company started
 the first of three 10% stock repurchase programs in October 1999.  As of
 March 31, 2001 the Company has repurchased a total of 3,000,552 shares, or
 27.6% of the total outstanding at March 1999 at an average price of
 $8.74 per share.  During the quarter ended March 31, 2001, 227,474 shares were
 repurchased at an average price of $10.17.  The Company began its third, and
 current 10% repurchase program in August 2000 with a target to repurchase
 approximately 890,000 shares.  Through March 31, 2001, 838,706 shares were
 repurchased or 94.2% of the third program at an average price of
 $9.91 per share.
     For the quarter ended March 31, 2001 return on average equity (ROAE)
 improved 7.4% to 6.65% from 6.19% for the quarter ended March 31, 2000
 primarily driven by share repurchases.  The Company's capital position remains
 high at 13.84% of total assets but down from 17.29% at March 31, 2000 and down
 from 25.78% at March 31, 1998 following the January 8, 1998 public offering of
 the company's stock.  Management believes that as long as share repurchases
 continue to be accretive to earnings per share and ROAE they continue to be
 the best use of the Company's excess capital.
     Total assets increased $57.5 million (10.8%) to $588.5 million at
 March 31, 2001 from the March 31, 2000 total of $531.0 million, and
 $14.9 million (2.6%) from the December 31, 2000 total of $573.5 million.
 Net loans increased $63.5 million (14.6%) to $499.0 million at March 31, 2001
 from $435.5 million at March 31, 2000, and $21.7 million (4.5%) over the
 December 31, 2000 balance of $477.4 million.  Deposits increased $67.4 million
 (16.3%) to $481.4 million at March 31, 2001 from $414.0 million at
 March 31, 2000, and $21.2 million (4.6%) over the December 31, 2000 balance of
 $460.2 million.
     Mr. Rhodes stated, "The first quarter of 2001 has been significant in
 several respects.  The Federal Reserve Bank aggressively reduced short-term
 interest rates a total of 150 basis points during the quarter contributing to
 a compression in our margin that was somewhat offset by a significant increase
 in our mortgage banking activity, particularly refinance activity.  While I am
 disappointed our actual earnings were less than the same quarter last year and
 I anticipate a further tightening of our margin during the second quarter, I
 am optimistic about our future earnings growth.  During the quarter, we
 launched our previously announced Vision 2001 initiative, an initiative that
 we expect will result in a more efficient operation, improved customer service
 and improved company earnings in the future."
     Net interest income before the provision for loan loss was $6,197,000 for
 the quarter ended March 31, 2001, compared to $6,292,000 for the quarter ended
 March 31, 2000, and $6,205,000 for the quarter ended December 31, 2000.
 Average equity declined $10.7 million (11.3%) to $83.6 million for the quarter
 ended March 31, 2001 from $94.3 million for the quarter ended March 31, 2000.
 Average earning assets increased $58.6 million (12.5%) to $527.3 million for
 the quarter ended March 31, 2001 from $468.7 million for the quarter ended
 March 31, 2000.  Average costing liabilities increased $69.6 million
 (18.7%) to $441.4 million for the quarter ended March 31, 2001 from
 $371.7 million for the quarter ended March 31, 2000.
     The Company's margin (net interest income divided by average earning
 assets) was 4.70% for the quarter ended March 31, 2001, compared to 5.37% for
 the quarter ended March 31, 2000.  The lower margin resulted from increased
 use of higher costing funds to support the Company's loan growth, a sharply
 reduced prime rate and the reduction of capital through the stock repurchase
 program.  Certificates of Deposit averaged $247.9 million costing 6.20% for
 the quarter ended March 31, 2001, compared to $208.8 million costing 5.33% for
 the same period in 2000.  During the quarter ending June 30, 2001 certificates
 of deposit totaling $125 million at a cost of 6.03% will reprice.  Borrowings
 averaged $24.7 million costing 5.85% for the quarter ended March 31, 2001,
 compared to $2.1 million costing 6.30% for the same period in 2000. The
 Company's overall cost of funds increased to 4.99% for the quarter ended
 March 31, 2001, from 4.30% for the quarter ended March 31, 2000.
     Asset quality remains strong.  Non-performing assets at March 31, 2001
 were $2,581,000 (0.44% of total assets), a $779,000 increase from
 $1,803,000 (0.34% of total assets) at March 31, 2000.  This increase resulted
 from one credit of $977,000 that was foreclosed during the first quarter.
 This credit was classified as performing at December 31, 2000, and no loss is
 currently expected, due to the strength of the underlying collateral.  The
 non-performing loans for March 2001 represent 6 credits which management
 believes present minimal exposure to loss.   The non-performing assets to
 total assets ratio of 0.44% at March 31, 2001 is comparable to the December
 31, 2000 average ratio of 0.45% for West Coast publicly traded thrifts as
 monitored by D.A. Davidson and Company, and compares favorably to the 0.78%
 for West Coast publicly traded commercial banks as monitored by D.A. Davidson
 and Company.
     Noninterest income was $1,425,000 for the quarter ended March 31, 2001,
 compared to $880,000 for the quarter ended March 31, 2000, an increase of
 62.1%.  The growth was due to increased loan sale gains, the gain on sale of
 an investment in a partnership, and the sale of excess land.  Loan Sale gains
 increased 283% to $364,000 for the quarter ended March 31, 2001 from
 $95,000 for the same period last year.  This resulted from increased activity,
 particularly mortgage refinances driven by lower mortgage rates.
     Brian Vance, President and Chief Operating Officer of Heritage Bank,
 noted, "This is a significant year for Heritage Bank.  We officially kicked
 off our Vision 2001 initiative on March 1, 2001.  Our expectations for this
 project are high, in that we intend to achieve efficiencies in the way we
 operate as well as improve and improve overall profitability.  At the same
 time we will continue to focus on our objective of loan growth and loan
 quality."
     Noninterest expense was $5,179,000 for the quarter ended March 31, 2001,
 compared to $4,813,000 for the same period in 2000, an increase of
 $366,000 (7.6%).  The increase resulted from expenses incurred as a result of
 the Company's Vision 2001 initiative, increased personnel costs
 (primarily commissions in mortgage banking), and other operating costs
 including the addition of Central Valley Bank's Ellensburg branch in the
 second quarter of 2000.    The Company's efficiency ratio increased to 67.95%
 in the quarter ended March 31, 2001 from 67.11% for the same period in 2000.
 Because of the addition of Vision 2001 expenses management expects the
 efficiency ratio will continue to increase through the second quarter of 2001
 with significant improvement in the ratio occurring in 2002.
     As publicly reported, Western Washington experienced a magnitude
 6.8 earthquake on February 28, 2001 at approximately 10:55 am.  The Company
 suffered minimal damage to its facilities and all of Heritage Bank's branches
 were open for business by early afternoon on the 28th with the exception of
 the Tumwater branch and that because the branch's power had not been restored
 until late in the day.  The next day, March 1st, it was business as usual.
 The Company has a disaster recovery plan in place and the staff executed it
 well.
     Heritage Financial Corporation is a bank holding company headquartered in
 Olympia, Washington.  The Company operates two community banks, Heritage Bank
 and Central Valley Bank, NA.  Heritage Bank serves Pierce, Thurston and
 Mason Counties in the South Puget Sound region of Washington through its
 twelve full service banking offices and Central Valley Bank serves Yakima and
 Kittitas Counties in central Washington through its six full service banking
 offices.
     Statements concerning future performance, developments or events,
 concerning expectations for growth and market forecasts, and any other
 guidance on future periods, constitute forward-looking statements that are
 subject to a number of risks and uncertainties that might cause actual results
 to differ materially from stated expectations.  Specific factors include, but
 are not limited to the effect of interest rate changes, risks associated with
 acquisition of other banks and opening new branches, the ability to control
 costs and expenses, and general economic conditions.  Additional information
 on these and other factors, which could affect the Company's financial
 results, are included in filings by the Company with the Securities and
 Exchange Commission.
 
     HERITAGE FINANCIAL CORPORATION
     CONDENSED STATEMENTS OF CONDITION
     (Dollar amounts in thousands, except per share amounts; unaudited)
 
 
                                    March 31,        Dec. 31,      March 31,
                                      2000             2000          2001
 
     Loans                          $439,978        $482,435      $504,355
     Allowance for loan losses       (4,475)         (5,063)       (5,332)
       Net loans                     435,503         477,372       499,023
     Fed funds sold                      900              --           300
     Investments and interest
      earning deposits                44,678          42,772        37,061
     Noninterest earning assets       49,876          53,386        52,075
       Total assets                 $530,957        $573,530      $588,459
 
     Deposits                       $414,010        $460,234      $481,420
     Borrowings                       18,165          24,125        17,000
     Other liabilities                 6,982           6,166         8,623
     Stockholders' equity             91,800          83,005        81,416
       Total liabilities
        and equity                  $530,957        $573,530      $588,459
 
     Other Data
     At quarter end:
      Nonaccrual loans                $1,803          $1,607        $1,524
      Real estate owned                   --              --         1,058
       Nonperforming assets           $1,803          $1,607        $2,582
     Allowance for loan losses to:
      Loans                            1.02%           1.05%         1.06%
      Nonperforming loans            248.25%         315.02%       350.00%
     Nonperforming assets to
      total assets                     0.34%           0.28%         0.44%
     Equity to assets ratio           17.29%          14.47%        13.84%
     Book value per share              $9.65          $10.09        $10.15
     Tangible book value per share     $8.84           $9.22         $9.27
 
 
     HERITAGE FINANCIAL CORPORATION
     CONDENSED INCOME STATEMENTS
     (Dollar amounts in thousands, except per share amounts; unaudited)
 
 
                                                        Three Months Ended
                                                              March 31,
                                                         2000           2001
 
     Interest income                                  $10,289        $11,706
     Interest expense                                   3,997          5,509
       Net interest income                              6,292          6,197
     Provision for loan losses                            195            278
     Noninterest income                                   880          1,425
     Noninterest expense                                4,813          5,179
      Income before income taxes                        2,164          2,165
     Federal income tax                                   704            776
       Net income                                      $1,460         $1,389
     Earnings per share (A):
      Basic                                            $0.148         $0.170
      Diluted                                          $0.146         $0.166
     Performance Ratios (B):
      Net interest margin                               5.37%          4.70%
      Efficiency ratio (C)                             67.11%         67.95%
      Return on average assets                          1.14%          0.96%
      Return on average equity                          6.19%          6.65%
 
     (A) For the three months ended March 31, 2000 and 2001, the number of
 weighted average common and common equivalent shares outstanding for basic
 earnings per share calculations were 9,836,723 and 8,176,911, respectively,
 and for diluted earnings per share calculations were 9,973,546 and 8,345,580,
 respectively.
     (B) These ratios are calculated on an annualized basis.
     (C) Recurring noninterest expense divided by the sum of net interest
 income and noninterest income representing the amount of expense required to
 produce one dollar of revenue.
 
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SOURCE Heritage Financial Corporation
    OLYMPIA, Wash., April 26 /PRNewswire/ -- Donald V. Rhodes, Chairman,
 President and CEO of Heritage Financial Corporation (Nasdaq: HFWA)
 ("the Company") today reported net income of $0.166 per diluted share for the
 first quarter ended March 31, 2001 compared to $0.146 for the quarter ended
 March 31, 2000, an increase of 13.7%.
     Actual earnings for the quarter ended March 31, 2001 were
 $1,389,000 compared to $1,460,000 for the quarter ended March 31, 2000, a
 decrease of 4.9%.  The difference in performance on a per share basis versus
 actual dollar basis is the result of the Company's ongoing stock repurchase
 program that continues to be accretive to earnings per share.  The decline in
 actual earnings is a result of lower capital levels, sharply lower interest
 rates and a higher effective tax rate in 2001 vs. 2000.  The Company's quarter
 over quarter capital levels were reduced by approximately $14 million through
 the repurchase of the company's stock.  Heritage replaced that interest free
 capital with borrowed money and deposits, thus squeezing the Company's margin.
 In addition, approximately 20% of the Company's loans are now tied to prime,
 and with the Federal Reserve Bank aggressively reducing interest rates by
 150 basis points in the 1st quarter of this year, the margin was further
 compressed.  Heritage Financial's effective tax rate in 2000 benefited from
 one time income tax deferrals and as a result the Company's effective tax rate
 will be higher in 2001.
     Cash earnings, which exclude the amortization of goodwill recorded on the
 acquisition of North Pacific Bank in 1998, for the quarter ended
 March 31, 2001 were $0.178 per diluted share compared to $0.156 per diluted
 share for the quarter ended March 31, 2000, an increase of 14.1%.  Actual cash
 earnings for the quarter ended March 31, 2001 were $1,484,000 compared to
 $1,555,000 for the quarter ended March 31, 2000, a decrease of 4.6%.
     In addition to 100,000 shares purchased in April 1999, the company started
 the first of three 10% stock repurchase programs in October 1999.  As of
 March 31, 2001 the Company has repurchased a total of 3,000,552 shares, or
 27.6% of the total outstanding at March 1999 at an average price of
 $8.74 per share.  During the quarter ended March 31, 2001, 227,474 shares were
 repurchased at an average price of $10.17.  The Company began its third, and
 current 10% repurchase program in August 2000 with a target to repurchase
 approximately 890,000 shares.  Through March 31, 2001, 838,706 shares were
 repurchased or 94.2% of the third program at an average price of
 $9.91 per share.
     For the quarter ended March 31, 2001 return on average equity (ROAE)
 improved 7.4% to 6.65% from 6.19% for the quarter ended March 31, 2000
 primarily driven by share repurchases.  The Company's capital position remains
 high at 13.84% of total assets but down from 17.29% at March 31, 2000 and down
 from 25.78% at March 31, 1998 following the January 8, 1998 public offering of
 the company's stock.  Management believes that as long as share repurchases
 continue to be accretive to earnings per share and ROAE they continue to be
 the best use of the Company's excess capital.
     Total assets increased $57.5 million (10.8%) to $588.5 million at
 March 31, 2001 from the March 31, 2000 total of $531.0 million, and
 $14.9 million (2.6%) from the December 31, 2000 total of $573.5 million.
 Net loans increased $63.5 million (14.6%) to $499.0 million at March 31, 2001
 from $435.5 million at March 31, 2000, and $21.7 million (4.5%) over the
 December 31, 2000 balance of $477.4 million.  Deposits increased $67.4 million
 (16.3%) to $481.4 million at March 31, 2001 from $414.0 million at
 March 31, 2000, and $21.2 million (4.6%) over the December 31, 2000 balance of
 $460.2 million.
     Mr. Rhodes stated, "The first quarter of 2001 has been significant in
 several respects.  The Federal Reserve Bank aggressively reduced short-term
 interest rates a total of 150 basis points during the quarter contributing to
 a compression in our margin that was somewhat offset by a significant increase
 in our mortgage banking activity, particularly refinance activity.  While I am
 disappointed our actual earnings were less than the same quarter last year and
 I anticipate a further tightening of our margin during the second quarter, I
 am optimistic about our future earnings growth.  During the quarter, we
 launched our previously announced Vision 2001 initiative, an initiative that
 we expect will result in a more efficient operation, improved customer service
 and improved company earnings in the future."
     Net interest income before the provision for loan loss was $6,197,000 for
 the quarter ended March 31, 2001, compared to $6,292,000 for the quarter ended
 March 31, 2000, and $6,205,000 for the quarter ended December 31, 2000.
 Average equity declined $10.7 million (11.3%) to $83.6 million for the quarter
 ended March 31, 2001 from $94.3 million for the quarter ended March 31, 2000.
 Average earning assets increased $58.6 million (12.5%) to $527.3 million for
 the quarter ended March 31, 2001 from $468.7 million for the quarter ended
 March 31, 2000.  Average costing liabilities increased $69.6 million
 (18.7%) to $441.4 million for the quarter ended March 31, 2001 from
 $371.7 million for the quarter ended March 31, 2000.
     The Company's margin (net interest income divided by average earning
 assets) was 4.70% for the quarter ended March 31, 2001, compared to 5.37% for
 the quarter ended March 31, 2000.  The lower margin resulted from increased
 use of higher costing funds to support the Company's loan growth, a sharply
 reduced prime rate and the reduction of capital through the stock repurchase
 program.  Certificates of Deposit averaged $247.9 million costing 6.20% for
 the quarter ended March 31, 2001, compared to $208.8 million costing 5.33% for
 the same period in 2000.  During the quarter ending June 30, 2001 certificates
 of deposit totaling $125 million at a cost of 6.03% will reprice.  Borrowings
 averaged $24.7 million costing 5.85% for the quarter ended March 31, 2001,
 compared to $2.1 million costing 6.30% for the same period in 2000. The
 Company's overall cost of funds increased to 4.99% for the quarter ended
 March 31, 2001, from 4.30% for the quarter ended March 31, 2000.
     Asset quality remains strong.  Non-performing assets at March 31, 2001
 were $2,581,000 (0.44% of total assets), a $779,000 increase from
 $1,803,000 (0.34% of total assets) at March 31, 2000.  This increase resulted
 from one credit of $977,000 that was foreclosed during the first quarter.
 This credit was classified as performing at December 31, 2000, and no loss is
 currently expected, due to the strength of the underlying collateral.  The
 non-performing loans for March 2001 represent 6 credits which management
 believes present minimal exposure to loss.   The non-performing assets to
 total assets ratio of 0.44% at March 31, 2001 is comparable to the December
 31, 2000 average ratio of 0.45% for West Coast publicly traded thrifts as
 monitored by D.A. Davidson and Company, and compares favorably to the 0.78%
 for West Coast publicly traded commercial banks as monitored by D.A. Davidson
 and Company.
     Noninterest income was $1,425,000 for the quarter ended March 31, 2001,
 compared to $880,000 for the quarter ended March 31, 2000, an increase of
 62.1%.  The growth was due to increased loan sale gains, the gain on sale of
 an investment in a partnership, and the sale of excess land.  Loan Sale gains
 increased 283% to $364,000 for the quarter ended March 31, 2001 from
 $95,000 for the same period last year.  This resulted from increased activity,
 particularly mortgage refinances driven by lower mortgage rates.
     Brian Vance, President and Chief Operating Officer of Heritage Bank,
 noted, "This is a significant year for Heritage Bank.  We officially kicked
 off our Vision 2001 initiative on March 1, 2001.  Our expectations for this
 project are high, in that we intend to achieve efficiencies in the way we
 operate as well as improve and improve overall profitability.  At the same
 time we will continue to focus on our objective of loan growth and loan
 quality."
     Noninterest expense was $5,179,000 for the quarter ended March 31, 2001,
 compared to $4,813,000 for the same period in 2000, an increase of
 $366,000 (7.6%).  The increase resulted from expenses incurred as a result of
 the Company's Vision 2001 initiative, increased personnel costs
 (primarily commissions in mortgage banking), and other operating costs
 including the addition of Central Valley Bank's Ellensburg branch in the
 second quarter of 2000.    The Company's efficiency ratio increased to 67.95%
 in the quarter ended March 31, 2001 from 67.11% for the same period in 2000.
 Because of the addition of Vision 2001 expenses management expects the
 efficiency ratio will continue to increase through the second quarter of 2001
 with significant improvement in the ratio occurring in 2002.
     As publicly reported, Western Washington experienced a magnitude
 6.8 earthquake on February 28, 2001 at approximately 10:55 am.  The Company
 suffered minimal damage to its facilities and all of Heritage Bank's branches
 were open for business by early afternoon on the 28th with the exception of
 the Tumwater branch and that because the branch's power had not been restored
 until late in the day.  The next day, March 1st, it was business as usual.
 The Company has a disaster recovery plan in place and the staff executed it
 well.
     Heritage Financial Corporation is a bank holding company headquartered in
 Olympia, Washington.  The Company operates two community banks, Heritage Bank
 and Central Valley Bank, NA.  Heritage Bank serves Pierce, Thurston and
 Mason Counties in the South Puget Sound region of Washington through its
 twelve full service banking offices and Central Valley Bank serves Yakima and
 Kittitas Counties in central Washington through its six full service banking
 offices.
     Statements concerning future performance, developments or events,
 concerning expectations for growth and market forecasts, and any other
 guidance on future periods, constitute forward-looking statements that are
 subject to a number of risks and uncertainties that might cause actual results
 to differ materially from stated expectations.  Specific factors include, but
 are not limited to the effect of interest rate changes, risks associated with
 acquisition of other banks and opening new branches, the ability to control
 costs and expenses, and general economic conditions.  Additional information
 on these and other factors, which could affect the Company's financial
 results, are included in filings by the Company with the Securities and
 Exchange Commission.
 
     HERITAGE FINANCIAL CORPORATION
     CONDENSED STATEMENTS OF CONDITION
     (Dollar amounts in thousands, except per share amounts; unaudited)
 
 
                                    March 31,        Dec. 31,      March 31,
                                      2000             2000          2001
 
     Loans                          $439,978        $482,435      $504,355
     Allowance for loan losses       (4,475)         (5,063)       (5,332)
       Net loans                     435,503         477,372       499,023
     Fed funds sold                      900              --           300
     Investments and interest
      earning deposits                44,678          42,772        37,061
     Noninterest earning assets       49,876          53,386        52,075
       Total assets                 $530,957        $573,530      $588,459
 
     Deposits                       $414,010        $460,234      $481,420
     Borrowings                       18,165          24,125        17,000
     Other liabilities                 6,982           6,166         8,623
     Stockholders' equity             91,800          83,005        81,416
       Total liabilities
        and equity                  $530,957        $573,530      $588,459
 
     Other Data
     At quarter end:
      Nonaccrual loans                $1,803          $1,607        $1,524
      Real estate owned                   --              --         1,058
       Nonperforming assets           $1,803          $1,607        $2,582
     Allowance for loan losses to:
      Loans                            1.02%           1.05%         1.06%
      Nonperforming loans            248.25%         315.02%       350.00%
     Nonperforming assets to
      total assets                     0.34%           0.28%         0.44%
     Equity to assets ratio           17.29%          14.47%        13.84%
     Book value per share              $9.65          $10.09        $10.15
     Tangible book value per share     $8.84           $9.22         $9.27
 
 
     HERITAGE FINANCIAL CORPORATION
     CONDENSED INCOME STATEMENTS
     (Dollar amounts in thousands, except per share amounts; unaudited)
 
 
                                                        Three Months Ended
                                                              March 31,
                                                         2000           2001
 
     Interest income                                  $10,289        $11,706
     Interest expense                                   3,997          5,509
       Net interest income                              6,292          6,197
     Provision for loan losses                            195            278
     Noninterest income                                   880          1,425
     Noninterest expense                                4,813          5,179
      Income before income taxes                        2,164          2,165
     Federal income tax                                   704            776
       Net income                                      $1,460         $1,389
     Earnings per share (A):
      Basic                                            $0.148         $0.170
      Diluted                                          $0.146         $0.166
     Performance Ratios (B):
      Net interest margin                               5.37%          4.70%
      Efficiency ratio (C)                             67.11%         67.95%
      Return on average assets                          1.14%          0.96%
      Return on average equity                          6.19%          6.65%
 
     (A) For the three months ended March 31, 2000 and 2001, the number of
 weighted average common and common equivalent shares outstanding for basic
 earnings per share calculations were 9,836,723 and 8,176,911, respectively,
 and for diluted earnings per share calculations were 9,973,546 and 8,345,580,
 respectively.
     (B) These ratios are calculated on an annualized basis.
     (C) Recurring noninterest expense divided by the sum of net interest
 income and noninterest income representing the amount of expense required to
 produce one dollar of revenue.
 
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 SOURCE  Heritage Financial Corporation