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Section 1: 8-K (COVER)

Document
false0001046025 0001046025 2019-10-24 2019-10-24


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
Date of Report (Dated of earliest event reported): October 24, 2019
 
HERITAGE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter) 
 
 
Commission File Number 000-29480
Washington
 
91-1857900
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
201 Fifth Avenue SW,
Olympia
WA
 
98501
(Address of principal executive offices)
 
(Zip Code)
(360) 943-1500
(Registrant’s telephone number, including area code) 

Not applicable
(Former name or former address, if changed since last report) 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12 (b) of the Act:
Title of each class
Trading symbol
Name of each exchange on which registered
Common stock, no par value
HFWA
NASDAQ

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1934 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 





Item 2.02    Results of Operations and Financial Condition
On October 24, 2019, Heritage Financial Corporation (“Heritage”) issued a press release announcing its financial results for the third quarter and year ended September 30, 2019. A copy of the release is furnished herewith as Exhibit 99.1, and is incorporated herein by reference.

Item 8.01    Other Events
On October 24, 2019, Heritage issued a press release announcing a regular quarterly cash dividend of $0.19 and a special cash dividend of $0.10 per common share. The dividends will be paid on November 21, 2019 to shareholders of record at the close of business on November 7, 2019. A copy of the release is furnished herewith as Exhibit 99.1, and is incorporated herein by reference.

Item 9.01     Financial Statements and Exhibits
(d) Exhibits
The following exhibit is being filed herewith and this list shall constitute the exhibit index:
Exhibit 99.1
 

 

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
HERITAGE FINANCIAL CORPORATION
 
 
 
Date:
 
 
October 24, 2019
 
/S/    JEFFREY J. DEUEL
 
 
Jeffrey J. Deuel
 
 
President and Chief Executive Officer
 
 
(Duly Authorized Officer)



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


400647806_hfwarevisedlogoa01a02.jpg


FOR IMMEDIATE RELEASE
DATE: October 24, 2019

HERITAGE FINANCIAL ANNOUNCES THIRD QUARTER 2019 RESULTS AND DECLARES REGULAR AND SPECIAL CASH DIVIDENDS

Diluted earnings per share were $0.48 for the quarter ended September 30, 2019 compared to $0.43 for the linked-quarter ended June 30, 2019 and $0.42 for the quarter ended September 30, 2018.
Heritage declared a regular cash dividend of $0.19 per share and declared a special dividend of $0.10 per common share on October 23, 2019.
Total deposits increased $214.5 million, or 4.9%, to $4.56 billion at September 30, 2019 from $4.35 billion at June 30, 2019.
Return on average assets was 1.31%, return on average equity was 8.86% and return on average tangible common equity was 13.66% for the quarter ended September 30, 2019 compared to 1.20%, 8.19% and 12.89% for the quarter ended June 30, 2019, respectively.
Efficiency ratio improved to 62.55% for the quarter ended September 30, 2019 compared to 64.62% for the linked-quarter ended June 30, 2019 and 66.68% for the quarter ended September 30, 2018.
Noninterest expense to average total assets, annualized, improved to 2.69% for the quarter ended September 30, 2019 from 2.81% for the linked-quarter ended June 30, 2019 and 2.97% for the quarter ended September 30, 2018.
Heritage repurchased 265 thousand shares, or approximately 0.7% of common stock outstanding at June 30, 2019, at a weighted average price of $26.23 during quarter ended September 30, 2019.

Olympia, WA - Heritage Financial Corporation (NASDAQ GS: HFWA) (the “Company” or “Heritage”), the parent company of Heritage Bank, today reported that the Company had net income of $17.9 million for the quarter ended September 30, 2019 compared to $16.0 million for the linked-quarter ended June 30, 2019 and $15.5 million for the quarter ended September 30, 2018. Diluted earnings per share for the quarter ended September 30, 2019 was $0.48 compared to $0.43 for the linked-quarter ended June 30, 2019 and $0.42 for the quarter ended September 30, 2018.
Jeffrey J. Deuel, President and Chief Executive Officer of Heritage commented, “We are pleased with our overall financial performance. Although loan growth was muted due to continued high loan prepayments, we saw strong deposit growth during the third quarter which helped us fund asset growth and cross the $5.5 billion asset level. We are particularly pleased with the growth in noninterest bearing demand deposits which helps mitigate the impacts of the rate environment on our net interest margin.
“We are also pleased with our efforts to make a difference in our local communities. We are proud to be a construction lender and tax credit investor to Bridge Housing’s Cornelius Place project. In partnership with the City of Cornelius, Bienestar and Bridge Housing, we financed this completed and occupied 45-unit senior affordable housing apartment building located in Cornelius, Oregon.
"In addition, Heritage continues to be a driving force behind small business lending in Washington and Oregon. In the SBA 504 loan program, Heritage Bank ranked #1 in production in the Seattle district during the twelve months ended September 30 and, in the 7(a) loan program for the Seattle and Portland districts combined, we increased production by 150% from the prior year."


1



Financial Highlights
The following table provides financial highlights for the dates indicated:
 
As of Period End or for the Three Months Ended
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
 
(Dollars in thousands, except per share amounts)
Net income
$
17,895

 
$
15,984

 
$
15,504

Diluted earnings per share
$
0.48

 
$
0.43

 
$
0.42

Return on average assets, annualized
1.31
%
 
1.20
%
 
1.17
%
Return on average equity, annualized
8.86
%
 
8.19
%
 
8.26
%
Return on average tangible common equity, annualized
13.66
%
 
12.89
%
 
13.49
%
Net interest margin
4.21
%
 
4.33
%
 
4.41
%
Cost of total deposits
0.38
%
 
0.37
%
 
0.27
%
Efficiency ratio
62.55
%
 
64.62
%
 
66.68
%
Noninterest expense to average total assets, annualized
2.69
%
 
2.81
%
 
2.97
%
Total assets
$
5,515,185

 
$
5,376,686

 
$
5,276,214

Total loans receivable, net
$
3,694,825

 
$
3,681,920

 
$
3,614,579

Total deposits
$
4,562,257

 
$
4,347,708

 
$
4,398,127

Loan to deposit ratio(1)
81.8
%
 
85.5
%
 
83.0
%
Book value per share
$
21.96

 
$
21.60

 
$
20.24

Tangible book value per share
$
14.90

 
$
14.56

 
$
13.11

(1) Loans receivable, net of deferred costs divided by deposits
Total loans receivable, net increased $12.9 million, or 0.4%, to $3.69 billion at September 30, 2019 from $3.68 billion at June 30, 2019 due primarily to an increase in consumer loans of $10.6 million, total commercial business loans of $8.0 million, and one-to-four family residential loans of $3.7 million, offset partially by a decrease in total real estate construction and land development loans of $8.9 million.
The following table summarizes the Company's loan portfolio by type of loan at the dates indicated:
 
September 30, 2019
 
June 30, 2019
 
December 31, 2018
 
Balance
 
% of Total
 
Balance
 
% of Total
 
Balance
 
% of Total
 
(Dollars in thousands)
Commercial business:
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
853,995

 
22.9
%
 
$
845,046

 
22.7
%
 
$
853,606

 
23.4
%
Owner-occupied commercial real estate
787,591

 
21.1

 
772,499

 
20.8

 
779,814

 
21.3
%
Non-owner occupied commercial real estate
1,316,992

 
35.3

 
1,333,047

 
35.8

 
1,304,463

 
35.7
%
Total commercial business
2,958,578

 
79.3

 
2,950,592

 
79.3

 
2,937,883

 
80.4

One-to-four family residential
121,174

 
3.2

 
117,425

 
3.2

 
101,763

 
2.8

Real estate construction and land development:
 
 
 
 
 
 
 
 
 
 
 
One-to-four family residential
98,034

 
2.6

 
111,319

 
3.0

 
102,730

 
2.8

Five or more family residential and commercial properties
147,686

 
4.0

 
143,341

 
3.8

 
112,730

 
3.1

Total real estate construction and land development
245,720

 
6.6

 
254,660

 
6.8

 
215,460

 
5.9

Consumer
403,485

 
10.8

 
392,926

 
10.6

 
395,545

 
10.8

Gross loans receivable
3,728,957

 
99.9

 
3,715,603

 
99.9

 
3,650,651

 
99.9


2



Deferred loan costs, net
2,386

 
0.1

 
2,680

 
0.1

 
3,509

 
0.1

Loans receivable, net
3,731,343

 
100.0
%
 
3,718,283

 
100.0
%
 
3,654,160

 
100.0
%
Allowance for loan losses
(36,518
)
 
 
 
(36,363
)
 
 
 
(35,042
)
 
 
Total Loans receivable, net
$
3,694,825

 
 
 
$
3,681,920

 
 
 
$
3,619,118

 
 
Total deposits increased $214.5 million, or 4.9%, to $4.56 billion at September 30, 2019 from $4.35 billion at June 30, 2019 due to an increase in total non-maturity deposits of $194.0 million, or 5.0%. Noninterest demand deposits increased $108.7 million, or 8.2%, to $1.43 billion, or 31.3% of total deposits, at September 30, 2019 from $1.32 billion, or 30.3% of total deposits, at June 30, 2019. Certificate of deposit accounts increased $20.5 million, or 4.1%, to $524.3 million at September 30, 2019 from $503.8 million at June 30, 2019. Non-maturity deposits as a percentage of total deposits increased slightly to 88.5% as of September 30, 2019 from 88.4% as of June 30, 2019. There were no Federal Home Loan Bank Advances outstanding at September 30, 2019 compared to $90.7 million outstanding at June 30, 2019 as the increase in total deposits funded the full repayment during the quarter ended September 30, 2019.
The following table summarizes the Company's deposits at the dates indicated:
 
September 30, 2019
 
June 30, 2019
 
December 31, 2018
 
Balance
 
% of Total
 
Balance
 
% of Total
 
Balance
 
% of Total
 
(Dollars in thousands)
Noninterest bearing demand deposits
$
1,429,435

 
31.3
%
 
$
1,320,743

 
30.3
%
 
$
1,362,268

 
30.7
%
Interest bearing demand deposits
1,324,177

 
29.0

 
1,263,843

 
29.1

 
1,317,513

 
29.7

Money market accounts
776,107

 
17.0

 
757,156

 
17.4

 
765,316

 
17.3

Savings accounts
508,228

 
11.2

 
502,198

 
11.6

 
520,413

 
11.8

Total non-maturity deposits
4,037,947

 
88.5

 
3,843,940

 
88.4

 
3,965,510

 
89.5

Certificates of deposit
524,310

 
11.5

 
503,768

 
11.6

 
466,892

 
10.5

Total deposits
$
4,562,257

 
100.0
%
 
$
4,347,708

 
100.0
%
 
$
4,432,402

 
100.0
%
During the quarter ended September 30, 2019, the Company repurchased 264,712 shares of its common stock at an weighted average price per share of $26.23, or $6.9 million in total under its current stock repurchase plan. As of September 30, 2019, there were 639,922 shares available for repurchase under the current stock repurchase plan.
The Company and Heritage Bank continue to maintain capital levels in excess of the applicable regulatory requirements for them to be categorized as “well-capitalized”. The Company had common equity Tier 1 risk-based, Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios of 11.6%, 10.8%, 12.1% and 12.9%, respectively, at September 30, 2019, compared to 11.8%, 10.8%, 12.2% and 13.0%, respectively, at June 30, 2019 and 11.7%, 10.5%, 12.1%, and 12.9%, respectively, at December 31, 2018.

Credit Quality
The allowance for loan losses increased $155,000, or 0.4%, to $36.5 million at September 30, 2019 from $36.4 million at June 30, 2019. The increase was due to provision for loan losses of $466,000, offset partially by net charge-offs of $311,000 recognized during the quarter ended September 30, 2019 due primarily to net charge-offs of $374,000 on a large volume of small dollar consumer loans and a commercial and industrial loan charge-off of $249,000, offset partially by a recovery of $292,000 from a previously charged off non-owner occupied commercial real estate loan. Net charge-offs were $1.2 million for the linked-quarter ended June 30, 2019 and $562,000 for the same quarter in 2018.
Nonperforming assets increased to 0.77% of total assets at September 30, 2019 compared to 0.38% of total assets at June 30, 2019. The increase was due primarily to an increase in nonaccrual loans as a result of the addition of two commercial lending relationships totaling $22.3 million which showed increased signs of cash flow deterioration during the quarter ended September 30, 2019. One of the relationships is an agricultural business relationship of $20.0 million, of which $6.8 million was previously classified as troubled debt restructured ("TDR") loans.

3



Changes in nonaccrual loans during the periods indicated were as follows:
 
Three Months Ended
 
September 30, 2019
 
June 30, 2019
 
September 30, 2018
 
(Dollars in thousands)
Balance, beginning of period
$
19,293

 
$
17,461

 
$
16,523

Addition of previously classified pass graded loans
275

 
3,583

 
1,177

Addition of previously classified potential problem loans
15,645

 
164

 
645

Addition of previously classified TDR loans
7,051

 

 

Net principal payments
(454
)
 
(1,554
)
 
(3,409
)
Acquired in Premier Merger

 

 
130

Charge-offs
(299
)
 
(361
)
 
(286
)
Balance, end of period
$
41,511

 
$
19,293

 
$
14,780

The increase to the ratio of nonperforming assets to total assets was partially offset by a decrease in other real estate owned of $383,000, or 31.3%, to $841,000 at September 30, 2019 from $1.2 million at June 30, 2019. This decrease was due primarily to the sale of a property which occurred during the quarter ended September 30, 2019.
Potential problem loans decreased $28.8 million, or 25.2%, to $85.3 million at September 30, 2019 compared to $114.1 million at June 30, 2019. The decrease was primarily attributed to the transfer of four commercial lending relationships totaling $17.7 million at June 30, 2019 to nonaccrual or TDR status including $11.3 million related to the one agricultural business relationship previously discussed. The activity for the quarter ended September 30, 2019 also includes payment in full of two commercial and industrial relationships totaling $3.3 million and the significant pay down of two commercial business lines of credit totaling $3.1 million.
Changes in potential problem loans during the periods indicated were as follows:
 
Three Months Ended
 
September 30, 2019
 
June 30, 2019
 
September 30, 2018
 
(Dollars in thousands)
Balance, beginning of period
$
114,095

 
$
94,116

 
$
101,491

Addition of previously classified pass graded loans
5,566

 
30,911

 
8,451

Acquired in Premier Merger

 

 
10,139

Upgrades to pass graded loan status
(5,958
)
 
(2,858
)
 
(6,230
)
Net principal payments
(8,962
)
 
(3,091
)
 
(7,065
)
Transfers of loans to nonaccrual and TDR status
(19,319
)
 
(4,743
)
 
(1,001
)
Charge-offs
(83
)
 
(240
)
 
(43
)
Balance, end of period
$
85,339

 
$
114,095

 
$
105,742

The allowance for loan losses to loans receivable, net, remained at 0.98% at both September 30, 2019 and June 30, 2019. Included in the carrying value of loans are net discounts on loans purchased in mergers and acquisitions which may reduce the need for an allowance for loan losses on these loans because they are carried at an amount below the outstanding principal balance. The remaining net discount on purchased loans was $9.1 million at September 30, 2019 compared to $10.0 million at June 30, 2019 and $13.4 million at September 30, 2018.
The allowance for loan losses to nonaccrual loans decreased to 87.97% at September 30, 2019 compared to 188.48% at June 30, 2019. The decrease was the result of the significant additions to nonaccrual loans during the quarter ended September 30, 2019 which did not require proportional increase in the specific reserve based on the specific impairment analysis. The Company believes that its allowance for loan losses is appropriate to provide for probable incurred credit losses based on an evaluation of known and inherent risks in the loan portfolio at September 30, 2019.


4



Operating Results
Net interest income decreased $293,000, or 0.6%, to $50.2 million for the quarter ended September 30, 2019 from $50.5 million for the linked-quarter ended June 30, 2019 due primarily to a decrease in the yield of interest earning assets substantially as a result of decreasing interest rates on adjustable rate commercial business loans from the decreases in short-term market rates during the quarter ended September 30, 2019. Net interest income decreased $883,000, or 1.7%, compared to $51.1 million for the same period in 2018 due to a decrease in the loan yield, primarily as a result of lower incremental accretion on purchased loans, and an increase in the cost of total interest bearing deposits, offset partially by a higher average balance and yield on taxable security investments.
Net interest margin decreased 12 basis points to 4.21% for the quarter ended September 30, 2019 from 4.33% for the linked-quarter ended June 30, 2019 and decreased 20 basis points from 4.41% for the quarter ended September 30, 2018 due primarily to decreases in loan yields and increases in the cost of total interest bearing deposits.
Loan yield decreased 12 basis points to 5.16% for the quarter ended September 30, 2019 from 5.28% for the linked-quarter ended June 30, 2019 due partly to decreases in the short-term market rates during the quarter ended September 30, 2019 and a decrease of five basis points due to the reversal of loan interest income related to the one agricultural business relationship of $20.0 million which was transferred to nonaccrual status during the quarter ended September 30, 2019. Additionally, loan yield decreased four basis points due to lower incremental accretion on purchased loans during the quarter ended September 30, 2019. Loan yield decreased 14 basis points from 5.30% for the quarter ended September 30, 2018 due primarily to lower incremental accretion on purchased loans of 17 basis points and the reversal of interest income from the transfer of the agricultural relationship to nonaccrual during the quarter ended September 30, 2019, offset partially by higher short-term market rates during the quarter ended September 30, 2019 compared to the same period in 2018.
The impact on loan yield from incremental accretion on purchased loans decreased four basis points to 0.12% for the quarter ended September 30, 2019 from 0.16% for the linked-quarter ended June 30, 2019 and decreased 17 basis points from 0.29% for the quarter end September 30, 2018. The decreases were primarily a result of the decrease in the balances of loans acquired in the mergers with Puget Sound Bancorp, Inc. and Premier Commercial Bancorp (the "Premier and Puget Mergers") both of which occurred in 2018. The incremental accretion and the impact to loan yield will change during any period based on the volume of prepayments, but it is expected to decrease over time as the balance of the purchased loans decreases.
The following table presents the net interest margin, loan yield and the effect of the incremental accretion on purchased loans on these ratios for the periods presented below:
 
Three Months Ended
 
September 30, 2019
 
June 30, 2019
 
September 30, 2018
 
(Dollars in thousands)
Yield non-GAAP reconciliations:(2)
Net interest margin (GAAP)
4.21
%
 
4.33
%
 
4.41
%
Exclude impact on net interest margin from incremental accretion on purchased loans(1)
0.09
%
 
0.12
%
 
0.23
%
Net interest margin, excluding incremental accretion on purchased loans (non- GAAP)(1)
4.12
%
 
4.21
%
 
4.18
%
 
 
 
 
 
 
Loan yield (GAAP)
5.16
%
 
5.28
%
 
5.30
%
Exclude impact on loan yield from incremental accretion on purchased loans(1)
0.12
%
 
0.16
%
 
0.29
%
Loan yield, excluding incremental accretion on purchased loans (non-GAAP)(1)
5.04
%
 
5.12
%
 
5.01
%
 
 
 
 
 
 
Incremental accretion on purchased loans(1)
$
1,090

 
$
1,416

 
$
2,637

(1) 
As of the date of completion of each merger and acquisition transaction, purchased loans were recorded at their estimated fair value, including our estimate of future expected cash flows until the ultimate resolution of these credits. The difference between the contractual loan balance and the fair value represents the purchased discount. The purchased discount is accreted into income over the estimated remaining life of the loan or pool of loans, based upon results of the quarterly cash flow re-estimation. The incremental accretion income represents the amount of income recorded on the purchased loans in excess of the contractual stated interest rate in the individual loan notes.
(2) 
See Non-GAAP Financial Measures section herein.

5



The yield on the aggregate investment portfolio decreased nine basis points to 2.71% for the quarter ended September 30, 2019 from 2.80% for the linked-quarter ended June 30, 2019 due to a decrease in market interest rates impacting adjustable rate securities. The yield on the aggregate investment portfolio increased 13 basis points from 2.58% for the quarter ended September 30, 2018 due primarily to the effect of higher yielding interest rates on new purchases of investment securities.
The cost of total deposits increased one basis point to 0.38% during the quarter ended September 30, 2019 from 0.37% during the linked-quarter ended June 30, 2019 due to competitive pressures. The cost of total deposits increased 11 basis points compared to 0.27% during the same quarter in 2018 due to an increase in interest rates and competitive pressures.
Donald J. Hinson, Executive Vice President and Chief Financial Officer, commented, “We are pleased with the stabilization of our cost of total deposits while at the same time growing deposits significantly during the quarter. The increase in noninterest bearing demand deposits played a significant role in maintaining our low cost of deposits and is evidence of our continued successful focus on relationship banking in the communities we serve."
The provision for loan losses decreased $901,000, or 65.9%, to $466,000 for the quarter ended September 30, 2019 from $1.4 million for the linked-quarter ended June 30, 2019 due primarily to a decrease in net-charge-offs to $311,000 during the quarter ended September 30, 2019 compared to net-charge-offs of $1.2 million during the linked-quarter ended June 30, 2019. The provision for loan losses decreased $599,000, or 56.2%, compared to $1.1 million for the quarter ended September 30, 2018 due primarily to the provision expense necessary during the quarter ended September 30, 2018 as a result of increases in total loan balances from the Premier and Puget Mergers. The amount of provision for loan losses during the quarter ended September 30, 2019 was necessary to increase the allowance for loan losses to an amount that management determined to be appropriate at September 30, 2019 based on the use of a consistent methodology.
Noninterest income increased $894,000, or 11.8%, to $8.5 million for the quarter ended September 30, 2019 from the linked-quarter ended June 30, 2019 primarily due to an increase in gain on sale of loans, net of $625,000 as gains on sales of mortgage loans increased and, based on a rate environment more favorable to sales, the Bank resumed sales of the guaranteed portion of Small Business Administration ("SBA") loans. In addition, the gain on sale of investment securities, net increased $199,000. Proceeds from the sale of mortgage loans and the guaranteed portion of SBA loans increased $16.8 million, or 147.6%, to $28.2 million during the quarter ended September 30, 2019 from $11.4 million for the linked quarter ended June 30, 2019. Noninterest income increased $408,000, or 5.1%, from $8.1 million for the same period in 2018 due primarily to increases in the gain on sale of loans, net and gain on sale of investment securities, net.
Noninterest expense decreased $828,000, or 2.2%, to $36.7 million for the quarter ended September 30, 2019 from $37.5 million for the linked-quarter ended June 30, 2019 due primarily to a decrease in federal deposit insurance premium expense as a result of a small bank credit awarded by the Federal Deposit Insurance Corporation ("FDIC") recognized during the quarter ended September 30, 2019. The Bank has $883,000 in small bank credits on future assessments remaining as of September 30, 2019, which may be recognized in future periods when allowed for by the FDIC upon insurance fund levels being met. The decrease in noninterest expense was also due to a decrease in other real estate owned, net expense due to the $279,000 loss on disposition of other real estate owned property recognized during the quarter ended June 30, 2019. The decrease in noninterest expense was partially offset by an increase in state/municipal business and use taxes expense as a result of an assessment in the amount of $537,000 from a Washington State Department of Revenue Business and Occupation audit and an increase in professional service expense of $171,000 due to consulting fees related to the implementation efforts for the pending Current Expected Credit Losses accounting standard.
Noninterest expense decreased $2.7 million, or 6.9%, compared to $39.5 million for the quarter ended September 30, 2018. Acquisition-related expenses incurred during the quarter ended September 30, 2018 were approximately $3.4 million, of which $1.9 million and $1.1 million were due to compensation and employee benefits expense and professional service expense, respectively. There were no acquisition-related expenses incurred during the quarter ended September 30, 2019.
Income tax expense was $3.6 million for the quarter ended September 30, 2019 compared to $3.2 million for the linked-quarter ended June 30, 2019 and $3.1 million for the comparable quarter ended September 30, 2018. The effective tax rate was 16.8% for the quarter ended September 30, 2019 compared to 16.7% for the linked-quarter ended June 30, 2019 and 16.9% for the quarter ended September 30, 2018.


6



Dividends
On October 23, 2019, the Company’s Board of Directors declared a quarterly cash dividend of $0.19 per share and a special cash dividend of $0.10 per common share. The dividends are payable on November 21, 2019 to shareholders of record as of the close of business on November 7, 2019.

Earnings Conference Call
The Company will hold a telephone conference call to discuss this earnings release on October 24, 2019 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 7, 2019, by dialing (800) 475-6701 -- access code 472935.

About Heritage Financial
Heritage Financial Corporation is an Olympia-based bank holding company with Heritage Bank, a full-service commercial bank, as its sole wholly-owned banking subsidiary. Heritage Bank has a branching network of 62 banking offices in Washington and Oregon. Heritage Bank does business under the Whidbey Island Bank name on Whidbey Island. Heritage’s stock is traded on the NASDAQ Global Select Market under the symbol “HFWA”. More information about Heritage Financial Corporation can be found on its website at www.hf-wa.com and more information about Heritage Bank can be found on its website at www.heritagebanknw.com.

Contact
Jeffrey J. Deuel, President and Chief Executive Officer, (360) 943-1500
Donald J. Hinson, Executive Vice President & Chief Financial Officer, (360) 943-1500

Non-GAAP Financial Measures
This news release contains certain non-GAAP (Generally Accepted Accounting Principles) financial measures in addition to results presented in accordance with GAAP. 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 and facilitate comparison of our performance with the performance of our peers. Where applicable, the Company has also presented comparable earnings information using GAAP financial measures. These non-GAAP measures have inherent limitations, are not required to be uniformly applied and are not audited. They should not be considered in isolation or as a substitute for total stockholders' equity or operating results determined in accordance with GAAP. These non-GAAP measures may not be comparable to similarly titled measures reported by other companies. Reconciliations of the GAAP and non-GAAP financial measures are presented below.

7



 
September 30, 2019
 
June 30, 2019
 
March 31, 2019
 
December 31, 2018
 
September 30, 2018
 
(Dollar amounts in thousands, except per share amounts)
Tangible common equity to tangible assets and tangible book value per share:
Total stockholders' equity (GAAP)
$
804,127

 
$
796,625

 
$
778,191

 
$
760,723

 
$
746,133

Exclude intangible assets
(258,527
)
 
(259,502
)
 
(260,528
)
 
(261,553
)
 
(262,565
)
Tangible common equity (non-GAAP)
$
545,600

 
$
537,123

 
$
517,663

 
$
499,170

 
$
483,568

 
 
 
 
 
 
 
 
 
 
Total assets (GAAP)
$
5,515,185

 
$
5,376,686

 
$
5,342,099

 
$
5,316,927

 
$
5,276,214

Exclude intangible assets
(258,527
)
 
(259,502
)
 
(260,528
)
 
(261,553
)
 
(262,565
)
Tangible assets (non-GAAP)
$
5,256,658

 
$
5,117,184

 
$
5,081,571

 
$
5,055,374

 
$
5,013,649

 
 
 
 
 
 
 
 
 
 
Stockholders' equity to total assets (GAAP)
14.6
%

14.8
%
 
14.6
%
 
14.3
%

14.1
%
Tangible common equity to tangible assets (non-GAAP)
10.4
%
 
10.5
%
 
10.2
%
 
9.9
%
 
9.6
%
 
 
 
 
 
 
 
 
 
 
Shares outstanding
36,618,381

 
36,882,771

 
36,899,138

 
36,874,055

 
36,873,123

Book value per share (GAAP)
$
21.96

 
$
21.60

 
$
21.09

 
$
20.63

 
$
20.24

Tangible book value per share (non-GAAP)
$
14.90

 
$
14.56

 
$
14.03

 
$
13.54

 
$
13.11

 
Three Months Ended
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
 
(Dollar amounts in thousands)
Return on average tangible common equity, annualized:
Net income (GAAP)
$
17,895

 
$
15,984

 
$
15,504

Exclude amortization of intangible assets
975

 
1,026

 
1,114

Exclude tax effect of adjustment
(205
)
 
(215
)
 
(234
)
Tangible net income (non-GAAP)
$
18,665

 
$
16,795

 
$
16,384

 
 
 
 
 
 
Average stockholders' equity (GAAP)
$
801,393

 
$
782,719

 
$
744,389

Exclude average intangible assets
(259,166
)
 
(260,167
)
 
(262,644
)
Average tangible common stockholders' equity (non-GAAP)
$
542,227

 
$
522,552

 
$
481,745

 
 
 
 
 
 
Return on average equity, annualized (GAAP)
8.86
%
 
8.19
%
 
8.26
%
Return on average tangible common equity, annualized (non-GAAP)
13.66
%
 
12.89
%
 
13.49
%

8



 
Three Months Ended
 
September 30, 2019
 
June 30, 2019
 
September 30, 2018
 
(Dollars in thousands)
Net interest margin, excluding incremental accretion on purchased loans, annualized and loan yield, excluding incremental accretion on purchased loans, annualized:
Net interest income (GAAP)
$
50,243

 
$
50,536

 
$
51,126

Exclude incremental accretion on purchased loans
(1,090
)
 
(1,416
)
 
(2,637
)
Adjusted net interest income (non-GAAP)
$
49,153

 
$
49,120

 
$
48,489

 
 
 
 
 
 
Average total interest earning assets, net
$
4,736,704

 
$
4,681,588

 
$
4,596,734

Net interest margin, annualized (GAAP)
4.21
%
 
4.33
%
 
4.41
%
Net interest margin, excluding incremental accretion on purchased loans, annualized (non-GAAP)
4.12
%
 
4.21
%
 
4.18
%
 
 
 
 
 
 
Interest and fees on loans (GAAP)
$
47,845

 
$
48,107

 
$
48,301

Exclude incremental accretion on purchased loans
(1,090
)
 
(1,416
)
 
(2,637
)
Adjusted interest and fees on loans (non-GAAP)
$
46,755

 
$
46,691

 
$
45,664

 
 
 
 
 
 
Average total loans receivable, net
$
3,677,405

 
$
3,654,475

 
$
3,618,031

Loan yield, annualized (GAAP)
5.16
%
 
5.28
%
 
5.30
%
Loan yield, excluding incremental accretion on purchased loans, annualized (non-GAAP)
5.04
%
 
5.12
%
 
5.01
%

Forward-Looking Statements
This press release includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements often include words such as "believe," "expect," "anticipate," "estimate," and "intend" or future or conditional verbs such as "will," "would," "should," "could," or "may." Forward-looking statements are not historical facts but instead represent management's current expectations and forecasts regarding future events, many of which are inherently uncertain and outside of our control. Actual results may differ, possibly materially, from those currently expected or projected in these forward-looking statements. Factors that could cause our actual results to differ materially from those described in the forward-looking statements, include changes in the interest rate environment; changes in general economic conditions and conditions within the securities markets; legislative and regulatory changes; and other factors described in Heritage's latest Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other documents filed with or furnished to the Securities and Exchange Commission-which are available on our website at www.heritagebanknw.com and on the SEC's website at www.sec.gov. The Company cautions readers not to place undue reliance on any forward-looking statements. Moreover, any of the forward-looking statements that we make in this press release or the documents we file with or furnish to the SEC are based only on information then actually known to the Company and upon management's beliefs and assumptions at the time they are made which may turn out to be wrong because of inaccurate assumptions we might make, because of the factors described above or because of other factors that we cannot foresee. 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 2019 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.

9



HERITAGE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(Dollar amounts in thousands, except shares)

 
September 30,
2019
 
June 30,
2019
 
December 31,
2018
Assets
 
 
 
 
 
Cash on hand and in banks
$
115,500

 
$
95,878

 
$
92,704

Interest earning deposits
121,468

 
43,412

 
69,206

Cash and cash equivalents
236,968

 
139,290

 
161,910

Investment securities available for sale
966,102

 
960,680

 
976,095

Loans held for sale
5,211

 
3,692

 
1,555

Loans receivable, net
3,731,343

 
3,718,283

 
3,654,160

Allowance for loan losses
(36,518
)
 
(36,363
)
 
(35,042
)
Total loans receivable, net
3,694,825

 
3,681,920

 
3,619,118

Other real estate owned
841

 
1,224

 
1,983

Premises and equipment, net
86,563

 
84,296

 
81,100

Federal Home Loan Bank stock, at cost
6,377

 
10,005

 
6,076

Bank owned life insurance
102,981

 
94,417

 
93,612

Accrued interest receivable
14,722

 
15,401

 
15,403

Prepaid expenses and other assets
142,068

 
126,259

 
98,522

Other intangible assets, net
17,588

 
18,563

 
20,614

Goodwill
240,939

 
240,939

 
240,939

Total assets
$
5,515,185

 
$
5,376,686

 
$
5,316,927

 
 
 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
 
 
Deposits
$
4,562,257

 
$
4,347,708

 
$
4,432,402

Federal Home Loan Bank advances

 
90,700

 

Junior subordinated debentures
20,522

 
20,448

 
20,302

Securities sold under agreement to repurchase
25,883

 
23,141

 
31,487

Accrued expenses and other liabilities
102,396

 
98,064

 
72,013

Total liabilities
4,711,058

 
4,580,061

 
4,556,204

 
 
 
 
 
 
Common stock
585,581

 
591,703

 
591,806

Retained earnings
206,021

 
195,168

 
176,372

Accumulated other comprehensive gain (loss), net
12,525

 
9,754

 
(7,455
)
Total stockholders' equity
804,127

 
796,625

 
760,723

Total liabilities and stockholders' equity
$
5,515,185

 
$
5,376,686

 
$
5,316,927

 
 
 
 
 
 
Shares outstanding
36,618,381

 
36,882,771

 
36,874,055


10



HERITAGE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts in thousands, except per share amounts)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Interest income:
 
 
 
 
 
 
 
 
 
Interest and fees on loans
$
47,845

 
$
48,107

 
$
48,301

 
$
142,651

 
$
127,601

Taxable interest on investment securities
5,704

 
5,933

 
4,662

 
17,460

 
12,259

Nontaxable interest on investment securities
798

 
893

 
1,085

 
2,641

 
3,646

Interest on other interest earning assets
537

 
283

 
558

 
1,155

 
1,016

Total interest income
54,884

 
55,216

 
54,606

 
163,907

 
144,522

Interest expense:
 
 
 
 
 
 
 
 
 
Deposits
4,250

 
4,017

 
3,014

 
11,870

 
7,169

Junior subordinated debentures
332

 
340

 
330

 
1,026

 
928

Other borrowings
59

 
323

 
136

 
444

 
721

Total interest expense
4,641

 
4,680

 
3,480

 
13,340

 
8,818

Net interest income
50,243

 
50,536

 
51,126

 
150,567

 
135,704

Provision for loan losses
466

 
1,367

 
1,065

 
2,753

 
3,967

Net interest income after provision for loan losses
49,777

 
49,169

 
50,061

 
147,814

 
131,737

Noninterest income:
 
 
 
 
 
 
 
 
 
Service charges and other fees
4,779

 
4,845

 
4,824

 
14,109

 
14,062

Gain on sale of investment securities, net
281

 
33

 
82

 
329

 
135

Gain on sale of loans, net
993

 
368

 
706

 
1,613

 
2,286

Interest rate swap fees
152

 
161

 

 
313

 
360

Other income
2,253

 
2,157

 
2,438

 
7,087

 
6,330

Total noninterest income
8,458

 
7,564

 
8,050

 
23,451

 
23,173

Noninterest expense:
 
 
 
 
 
 
 
 
 
Compensation and employee benefits
21,733

 
21,982

 
23,804

 
65,629

 
64,492

Occupancy and equipment
5,268

 
5,451

 
5,020

 
16,177

 
14,457

Data processing
2,333

 
2,109

 
2,343

 
6,615

 
7,455

Marketing
816

 
1,106

 
876

 
3,020

 
2,507

Professional services
1,434

 
1,305

 
2,119

 
3,912

 
8,485

State/municipal business and use taxes
1,370

 
809

 
795

 
2,977

 
2,199

Federal deposit insurance premium
9

 
426

 
375

 
720

 
1,105

Other real estate owned, net
(35
)
 
289

 
18

 
340

 
18

Amortization of intangible assets
975

 
1,026

 
1,114

 
3,026

 
2,705

Other expense
2,816

 
3,044

 
2,997

 
8,375

 
8,491

Total noninterest expense
36,719

 
37,547

 
39,461

 
110,791

 
111,914

Income before income taxes
21,516

 
19,186

 
18,650

 
60,474

 
42,996

Income tax expense
3,621

 
3,202

 
3,146

 
10,043

 
6,548

Net income
$
17,895

 
$
15,984

 
$
15,504

 
$
50,431

 
$
36,448

 
 
 
 
 
 
 
 
 
 
Basic earnings per share
$
0.49

 
$
0.43

 
$
0.42

 
$
1.37

 
$
1.04

Diluted earnings per share
$
0.48

 
$
0.43

 
$
0.42

 
$
1.36

 
$
1.04

Dividends declared per share
$
0.19

 
$
0.18

 
$
0.15

 
$
0.55

 
$
0.45

 
 
 
 
 
 
 
 
 
 
Average number of basic shares outstanding
36,742,862

 
36,870,159

 
36,771,946

 
36,812,548

 
34,650,448

Average number of diluted shares outstanding
36,876,548

 
37,014,873

 
36,963,244

 
36,973,024

 
34,820,602


11



HERITAGE FINANCIAL CORPORATION
FINANCIAL STATISTICS (Unaudited)
(Dollar amounts in thousands, except per share amounts)
 
As of Period End
 
September 30,
2019
 
June 30,
2019
 
December 31,
2018
Capital Ratios:
 
 
 
 
 
Stockholders' equity to total assets
14.6
%
 
14.8
%
 
14.3
%
Tangible common equity to tangible assets
10.4
%
 
10.5
%
 
9.9
%
Common equity Tier 1 capital to risk-weighted assets
11.6
%
 
11.8
%
 
11.7
%
Tier 1 leverage capital to average quarterly assets
10.8
%
 
10.8
%
 
10.5
%
Tier 1 capital to risk-weighted assets
12.1
%
 
12.2
%
 
12.1
%
Total capital to risk-weighted assets
12.9
%
 
13.0
%
 
12.9
%

 
Three Months Ended
 
Nine Months Ended
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Allowance for Loan Losses:
 
Balance, beginning of period
$
36,363

 
$
36,152

 
$
33,972

 
$
35,042

 
$
32,086

Provision for loan losses
466

 
1,367

 
1,065

 
2,753

 
3,967

Charge-offs:
 
 
 
 
 
 
 
 
 
Commercial business
(306
)
 
(774
)
 
(300
)
 
(1,183
)
 
(923
)
One-to-four family residential
(15
)
 
(15
)
 
(15
)
 
(45
)
 
(30
)
Consumer
(501
)
 
(566
)
 
(530
)
 
(1,653
)
 
(1,709
)
Total charge-offs
(822
)
 
(1,355
)
 
(845
)
 
(2,881
)
 
(2,662
)
Recoveries:
 
 
 
 
 
 
 
 
 
Commercial business
381

 
62

 
121

 
602

 
690

Real estate construction and land development
3

 
7

 
3

 
628

 
5

Consumer
127

 
130

 
159

 
374

 
389

Total recoveries
511

 
199

 
283

 
1,604

 
1,084

Net charge-offs
(311
)
 
(1,156
)
 
(562
)
 
(1,277
)
 
(1,578
)
Balance, end of period
$
36,518

 
$
36,363

 
$
34,475

 
$
36,518

 
$
34,475

Net charge-offs on loans to average loans, annualized
0.03
%
 
0.13
%
 
0.06
%
 
0.05
%
 
0.06
%

 
Three Months Ended
 
Nine Months Ended
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Other Real Estate Owned:
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
1,224

 
$
1,904

 
$
434

 
$
1,983

 
$

Additions from transfer of loan

 

 

 

 
434

Additions from acquisitions

 

 
1,796

 

 
1,796

Proceeds from dispositions
(435
)
 
(350
)
 
(198
)
 
(864
)
 
(198
)
Gain (loss) on sales, net
52

 
(279
)
 

 
(227
)
 

Valuation adjustments

 
(51
)
 

 
(51
)
 

Balance, end of period
$
841

 
$
1,224

 
$
2,032

 
$
841

 
$
2,032



12



 
Three Months Ended
 
Nine Months Ended
 
September 30,
2019
 
June 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Gain on Sale of Loans, net:
 
 
 
 
 
 
 
 
 
Mortgage loans
$
728

 
$
368

 
$
706

 
$
1,348

 
$
1,930

SBA loans
265

 

 

 
265

 
356

Total gain on sale of loans, net
$
993

 
$
368

 
$
706

 
$
1,613

 
$
2,286


 
As of Period End
 
September 30,
2019
 
June 30,
2019
 
December 31,
2018
Nonperforming Assets:
 
 
 
 
 
Nonaccrual loans by type:
 
 
 
 
 
Commercial business
$
40,742

 
$
18,287

 
$
12,564

One-to-four family residential
19

 
19

 
71

Real estate construction and land development
560

 
793

 
899

Consumer
190

 
194

 
169

Total nonaccrual loans(1)
41,511

 
19,293

 
13,703

Other real estate owned
841

 
1,224

 
1,983

Nonperforming assets
$
42,352

 
$
20,517

 
$
15,686

 
 
 
 
 
 
Restructured performing loans
$
19,416

 
$
25,925

 
$
22,736

Accruing loans past due 90 days or more

 

 

Potential problem loans(2)
85,339

 
114,095

 
101,349

Allowance for loan losses to:
 
 
 
 
 
Loans receivable, net
0.98
%
 
0.98
%
 
0.96
%
Nonaccrual loans
87.97
%
 
188.48
%
 
255.73
%
Nonperforming loans to loans receivable, net
1.11
%
 
0.52
%
 
0.37
%
Nonperforming assets to total assets
0.77
%
 
0.38
%
 
0.30
%
(1) 
At September 30, 2019, June 30, 2019 and December 31, 2018, $17.5 million, 8.1 million and $6.9 million of nonaccrual loans were also considered troubled debt restructured loans, respectively.
(2) 
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 the Company concern as to their ability to comply with their loan repayment terms.


13



 
Three Months Ended
 
September 30, 2019
 
June 30, 2019
 
September 30, 2018
 
Average
Balance
 
Interest
Earned/
Paid
 
Average
Yield/
Rate
(1)
 
Average
Balance
 
Interest
Earned/
Paid
 
Average
Yield/
Rate (1)
 
Average
Balance
 
Interest
Earned/
Paid
 
Average
Yield/
Rate
(1)
 
(Dollars in thousands)
Interest Earning Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loans receivable, net (2) (3)
$
3,677,405

 
$
47,845

 
5.16
%
 
$
3,654,475

 
$
48,107

 
5.28
%
 
$
3,618,031

 
$
48,301

 
5.30
%
Taxable securities
823,498

 
5,704

 
2.75

 
840,254

 
5,933

 
2.83

 
707,597

 
4,662

 
2.61

Nontaxable securities (3) 
129,061

 
798

 
2.45

 
139,278

 
893

 
2.57

 
176,322

 
1,085

 
2.44

Other interest earning assets
106,740

 
537

 
2.00

 
47,581

 
283

 
2.39

 
94,784

 
558

 
2.34

Total interest earning assets
4,736,704

 
54,884

 
4.60
%
 
4,681,588

 
55,216

 
4.73
%
 
4,596,734

 
54,606

 
4.71
%
Noninterest earning assets
679,687

 
 
 
 
 
669,217

 
 
 
 
 
681,831

 
 
 
 
Total assets
$
5,416,391

 
 
 
 
 
$
5,350,805

 
 
 
 
 
$
5,278,565

 
 
 
 
Interest Bearing Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit
$
508,092

 
$
1,861

 
1.45
%
 
$
514,220

 
$
1,694

 
1.32
%
 
$
512,547

 
$
1,184

 
0.92
%
Savings accounts
507,533

 
680

 
0.53

 
500,135

 
707

 
0.57

 
518,937

 
541

 
0.41

Interest bearing demand and money market accounts
2,040,926

 
1,709

 
0.33

 
2,016,901

 
1,616

 
0.32

 
2,044,236

 
1,289

 
0.25

Total interest bearing deposits
3,056,551

 
4,250

 
0.55

 
3,031,256

 
4,017

 
0.53

 
3,075,720

 
3,014

 
0.39

Junior subordinated debentures
20,474

 
332

 
6.43

 
20,400

 
340

 
6.68

 
20,181

 
330

 
6.49

Securities sold under agreement to repurchase
29,258

 
48

 
0.65

 
29,265

 
45

 
0.62

 
33,394

 
19

 
0.23

FHLB advances and other borrowings
3,755

 
11

 
1.16

 
42,101

 
278

 
2.65

 
20,892

 
117

 
2.22

Total interest bearing liabilities
3,110,038

 
4,641

 
0.59
%
 
3,123,022

 
4,680

 
0.60
%
 
3,150,187

 
3,480

 
0.44
%
Demand and other noninterest bearing deposits
1,416,336

 
 
 
 
 
1,345,917

 
 
 
 
 
1,314,203

 
 
 
 
Other noninterest bearing liabilities
88,624

 
 
 
 
 
99,147

 
 
 
 
 
69,786

 
 
 
 
Stockholders’ equity
801,393

 
 
 
 
 
782,719

 
 
 
 
 
744,389

 
 
 
 
Total liabilities and stockholders’ equity
$
5,416,391

 
 
 
 
 
$
5,350,805

 
 
 
 
 
$
5,278,565

 
 
 
 
Net interest income
 
 
$
50,243

 
 
 
 
 
$
50,536

 
 
 
 
 
$
51,126

 
 
Net interest spread
 
 
 
 
4.01
%
 
 
 
 
 
4.13
%
 
 
 
 
 
4.27
%
Net interest margin
 
 
 
 
4.21
%
 
 
 
 
 
4.33
%
 
 
 
 
 
4.41
%
Average interest earning assets to average interest bearing liabilities
 
 
 
 
152.30
%
 
 
 
 
 
149.91
%
 
 
 
 
 
145.92
%
(1) 
Annualized.
(2) 
The average loan balances presented in the table are net of allowances for loan losses and include loans held for sale. Nonaccrual loans have been included in the table as loans carrying a zero yield.
(3) 
Yields on tax-exempt securities and loans have not been stated on a tax-equivalent basis.

14



 
Nine Months Ended
 
September 30, 2019
 
September 30, 2018
 
Average
Balance
 
Interest
Earned/
Paid
 
Average
Yield/
Rate
(1) 
 
Average
Balance
 
Interest
Earned/
Paid
 
Average
Yield/
Rate
(1) 
Interest Earning Assets:
 
 
 
 
 
 
 
 
 
 
 
Total loans receivable, net (2) (3)
$
3,651,659

 
$
142,651

 
5.22
%
 
$
3,346,709

 
$
127,601

 
5.10
%
Taxable securities
828,254

 
17,460

 
2.82

 
645,866

 
12,259

 
2.54

Nontaxable securities (3)
139,312

 
2,641

 
2.53

 
200,179

 
3,646

 
2.44

Other interest earning assets
70,280

 
1,155

 
2.20

 
66,619

 
1,016

 
2.04

Total interest earning assets
4,689,505

 
163,907

 
4.67
%
 
4,259,373

 
144,522

 
4.54
%
Noninterest earning assets
672,365

 
 
 
 
 
596,239

 
 
 
 
Total assets
$
5,361,870

 
 
 
 
 
$
4,855,612

 
 
 
 
Interest Bearing Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit
$
508,177

 
$
4,994

 
1.31
%
 
$
451,741

 
$
2,741

 
0.81
%
Savings accounts
505,112

 
2,061

 
0.55

 
512,689