What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2022-02-25 compared with 2021-02-26 · 21 added, 127 removed, 13 unchanged (92% of the section changed)

MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is traded on the NASDAQ Global Select Market under the symbol HFWA.

At December 31, 2020, we had approximately 1,249 shareholders of record (not including the number of persons or entities holding stock in nominee or street name through various brokerage firms) and 35,912,243 outstanding shares of common stock.

Stock Repurchases

The Company has had various stock repurchase programs since March 1999.

On March 12, 2020 the Company's Board of Directors authorized the additional repurchase of up to 5% of the Company's outstanding common shares, or 1,799,054 shares, under the twelfth stock repurchase plan.

During the year ended December 31, 2020, the Company repurchased the remaining 639,922 shares available under the eleventh stock repurchase plan at a weighted average price per share of $23.95 and repurchased 155,778 shares at a weighted average share price of $20.34 under the twelfth stock repurchase plan, which is a total of 795,700 shares under both plans at a weighted average share price of $23.25.

During the year ended December 31, 2019, the Company repurchased 292,712 shares under the eleventh stock repurchase plan at a weighted average price per share of $26.50.

No shares were repurchased under this plan during the year ended December 31, 2018.

The number, timing and price of shares repurchased will depend on business and market conditions and other factors, including opportunities to deploy the Company's capital.

In addition to the stock repurchases under a plan, the Company repurchases shares to pay withholding taxes on the vesting of restricted stock awards and units.

The following table provides total repurchased shares for the periods indicated:

Year Ended December 31,

2020 2019 2018

Repurchased shares to pay withholding taxes (1)

28,887 28,479 53,256

Stock repurchase to pay withholding taxes average share price $ 21.57 $ 30.83 $ 31.99

(1) During the year ended December 31, 2018, the Company repurchased 26,741 shares related to the withholding taxes due on the accelerated vesting of the restricted stock units of Puget Sound which were converted to Heritage common stock shares with a share price of $31.80 under the terms of the Puget Sound Merger.

At December 31, 2021, we had approximately 1,183 shareholders of record (not including the number of persons or entities holding stock in nominee or street name through various brokerage firms) and 35,105,779 outstanding shares of

common stock.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table sets forth information about the Company’s purchases of its outstanding common stock during the quarter ended December 31, 2021:

Period Total Number of

Purchased (1)

Average Price

Cumulative Total Number of Shares Purchased as Part of

Publicly Announced

Plans or Programs Maximum

Number of Shares that May Yet Be Purchased Under the Plans or Programs

Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs

October 1, 2021— October 31, 2021 — $ — 9,822,889 802,188

2 unchanged sentences

Total 64,730 $ 23.03

(1) Of the common shares repurchased by the Company between October 1, 2020 and December 31, 2020, all of the shares represented the cancellation of stock to pay withholding taxes on vested restricted stock awards or units.

Stock Performance Graph

The following graph depicts total return to shareholders during the five-year period beginning December 31, 2015 and ending December 31, 2020.

Of the common shares repurchased by the Company between October 1, 2021 and December 31, 2021, 846 shares represented the cancellation of stock to pay withholding taxes on vested restricted stock units.

See Note (15) Stockholders' Equity of the Notes to Consolidated Financial Statements included in Item 8.

Financial Statements And Supplementary Data for additional information on publicly announced repurchase plans or programs.

Performance Graph

The following graph shows the five-year comparison of the total return to shareholders of the Company’s common stock as compared to the NASDAQ Composite Index, the KBW NASDAQ Bank Index and the S&P U.S.

SmallCap Banks Index during the five-year period beginning December 31, 2016 and ending December 31, 2021.

The graph assumes the value of the investment in Company’s common stock and each index was $100 on December 31, 2016, and all dividends were reinvested.

Total return includes appreciation or depreciation in market value of the Company’s common stock as well as actual cash and stock dividends paid to common shareholders.

The graph additionally shows the five-year comparison of the total return to shareholders of the Company’s common stock as compared to the NASDAQ Composite Index and the SNL U.S.

Bank NASDAQ Index.

The NASDAQ Composite Index is a comparative broad market index comprised of all domestic and international common stocks listed on the Nasdaq Stock Market.

Bank NASDAQ Index is a comparative peer index comprised of banks and related holding companies listed on the NASDAQ Stock Market.

The graph assumes that the value of the investment in Heritage’s common stock and each of the three indices was $100 on December 31, 2015, and that all dividends were reinvested.

The NASDAQ Composite Index is a broad equity market index comprised of all domestic and international common stocks listed on the Nasdaq Stock Market.

During the year ended December 31, 2021, the previously used SNL U.S.

Bank NASDAQ Index was replaced by the KBW NASDAQ Bank Index on the S&P Global Market Intelligence platform.

The KBW NASDAQ Bank Index is and the previously used SNL U.S.

Bank NASDAQ Index was a published industry index comprised of banks and related holding companies listed on the NASDAQ Stock Market.

SmallCap Banks Index is also a published industry index, however, the index constituents are aligned within the same market capitalization range as the Company and we will include the S&P U.S.

SmallCap Banks Index in the future since it is more closely aligned with holding companies and banks of our size.

Years Ended December 31,

2 unchanged sentences

NASDAQ Composite Index 100.00 129.64 125.96 172.18 249.51 304.85

Bank NASDAQ Index 100.00 138.65 145.97 123.04 154.47 132.59

KBW NASDAQ Bank Index 100.00 118.59 97.58 132.84 119.14 164.80

SmallCap Banks Index 100.00 104.33 87.06 109.22 99.19 138.09

*Information for the graph was provided by S&P Global Market Intelligence.

SELECTED FINANCIAL DATA

The following tables set forth certain information concerning our consolidated financial position and results of operations at and for the dates indicated and have been derived from our audited Consolidated Financial Statements.

The information below is qualified in its entirety by the detailed information included elsewhere herein and should be read along with Item 7.

Management’s Discussion And Analysis Of Financial Condition And Results Of Operations and Item 8.

Financial Statements And Supplementary Data.

Matters affecting comparability in the five-year summary detailed below include the Premier and Puget Mergers completed in 2018 and the COVID-19 pandemic during 2020.

Year Ended December 31,

2020 2019 2018 2017 2016

(Dollars in thousands, except per share amounts)

Operations Data:

Interest income $ 214,320 $ 217,850 $ 199,406 $ 147,709 $ 138,512

Interest expense 13,323 18,168 12,413 8,346 6,006

Net interest income 200,997 199,682 186,993 139,363 132,506

Provision for credit losses (1)

36,106 4,311 5,129 4,220 4,931

Noninterest income 37,229 32,462 31,618 35,579 31,619

Noninterest expense 148,940 146,788 149,187 110,575 106,473

Income tax expense (2)

6,610 13,488 11,238 18,356 13,803

Net income $ 46,570 $ 67,557 $ 53,057 $ 41,791 $ 38,918

Earnings per common share:

Basic $ 1.29 $ 1.84 $ 1.49 $ 1.39 $ 1.30

Diluted $ 1.29 $ 1.83 $ 1.49 $ 1.39 $ 1.30

Dividend payout ratio to common shareholders (3)

62.0 % 45.9 % 48.3 % 43.9 % 55.4 %

Performance Ratios:

Net interest spread (4)

3.49 % 4.03 % 4.15 % 3.83 % 3.89 %

Net interest margin (5)

3.63 4.22 4.29 3.93 3.96

Efficiency ratio (6)

62.52 63.23 68.24 63.21 64.87

Noninterest expense to average assets 2.37 2.71 3.00 2.78 2.84

Return on average assets 0.74 1.25 1.07 1.05 1.04

Return on average common equity 5.78 % 8.56 % 7.72 % 8.36 % 8.01 %

(1) Effective January 1, 2020, Company adopted ASU 2016-13, Financial Instruments - Credit Losses .

(2) The Tax Cuts and Jobs Act enacted on December 22, 2017 decreased the federal corporate income tax rate from 35% to 21% beginning January 1, 2018 and impacted the comparability of our results.

The results for the year ended December 31, 2017 included a $2.6 million increase to the income tax expense as a result of the revaluation of our deferred tax assets and liabilities to account for the tax rate change.

(3) Dividend payout ratio is declared dividends per common share divided by diluted earnings per common share.

(4) Net interest spread is the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities.

(5) Net interest margin is net interest income divided by average interest earning assets.

(6) The efficiency ratio is noninterest expense divided by the sum of net interest income and noninterest income.

2020 2019 2018 2017 2016

(Dollars in thousands)

Balance Sheet Data:

Total assets $ 6,615,318 $ 5,552,970 $ 5,316,927 $ 4,113,270 $ 3,878,981

Loans receivable, net 4,398,462 3,731,708 3,619,118 2,816,985 2,609,666

Investment securities 802,163 952,312 976,095 810,530 794,645

Goodwill and other intangible assets 254,027 257,552 261,553 125,117 126,403

Deposits 5,597,990 4,582,676 4,432,402 3,393,060 3,229,648

Federal Home Loan Bank advances — — — 92,500 79,600

2020 2019 2018 2017 2016

(Dollars in thousands)

Junior subordinated debentures 20,887 20,595 20,302 20,009 19,717

Securities sold under agreement to repurchase 35,683 20,169 31,487 31,821 22,104

Stockholders’ equity $ 820,439 $ 809,311 $ 760,723 $ 508,305 $ 481,763

Financial Measures:

Book value per common share $ 22.85 $ 22.10 $ 20.63 $ 16.98 $ 16.08

Stockholders' equity to assets ratio 12.4 % 14.6 % 14.3 % 12.4 % 12.4 %

Net loans to deposits (1)

79.8 % 82.2 % 82.4 % 84.0 % 81.8 %

Capital Ratios:

Total risk-based capital ratio 14.0 % 12.8 % 12.9 % 12.8 % 13.0 %

Tier 1 risk-based capital ratio 12.8 12.0 12.1 11.8 12.0

Leverage ratio 9.0 10.6 10.5 10.2 10.3

Common equity Tier 1 capital to risk-weighted assets 12.3 % 11.5 % 11.7 % 11.3 % 11.4 %

Asset Quality Ratios:

Nonperforming loans to loans receivable, net 1.30 % 1.18 % 0.37 % 0.38 % 0.41 %

Allowance for credit losses to loans receivable, net 1.57 0.96 0.96 1.13 1.18

Allowance for credit losses to nonperforming loans 120.82 81.24 255.73 299.79 284.93

Nonperforming assets to total assets 0.88 0.82 0.30 0.26 0.30

Net charge-off on loans to average loans receivable, net 0.07 % 0.09 % 0.06 % 0.12 % 0.14 %

Number of banking offices 61 62 64 59 63

Number of full-time equivalent employees 852 884 859 735 760

Deposits per branch 91,770 73,914 69,256 57,509 51,264

Assets per full-time equivalent 7,764 6,282 6,190 5,596 5,104

(1) Loans receivable divided by deposits.

During the period from December 31, 2016 through December 31, 2020 total assets increased $2.74 billion, or 70.5%, to $6.62 billion as of December 31, 2020 from $3.88 billion at December 31, 2016 due primarily to loans receivable, net of allowance for credit losses on loans which increased $1.79 billion, or 68.5%, to $4.40 billion as of December 31, 2020 from $2.61 billion at December 31, 2016.

Loans receivable, net increased during 2018 due primarily to the Premier and Puget Mergers with a combined fair value of loans acquired of $718.6 million as of the merger dates and during 2020 due primarily to our participation in the SBA's PPP.

SBA PPP loans totaled $715.1 million at December 31, 2020.

The remaining increase in loans of $355.1 million, or 3.2% annualized, was due to organic growth.

Deposits increased $2.37 billion, or 73.3%, to $5.60 billion at December 31, 2020 from $3.23 billion at December 31, 2016 due primarily to the Premier and Puget Mergers with a combined fair value of deposits acquired of $824.6 million as of the merger dates during 2018, the impact of the COVID-19 pandemic during 2020, including the impact of proceeds of SBA PPP loans deposited directly into the customers' deposit accounts at the Bank and an increase in customer deposit accounts based on changes in spending habits during the COVID-19 pandemic, and an increase in new deposit accounts.

From December 31, 2016 to December 31, 2020, non-maturity or core deposits (which we define to include all deposits except certificates of deposit), including acquired deposits, increased $2.33 billion, or 81.0%, to $5.20 billion at December 31, 2020.

The percentage of certificate of deposit accounts to total deposits decreased to 7.1% at December 31, 2020 from 11.1% at December 31, 2016.

Stockholders’ equity increased by $338.7 million, or 70.3%, to $820.4 million at December 31, 2020 from $481.8 million at December 31, 2016 due primarily to a combination of earnings and issuances of common stock for the Premier and Puget Mergers, partially offset by repurchases of common stock and cash dividends paid.

Net income increased $7.7 million, or 19.7%, to $46.6 million for the year ended December 31, 2020 from $38.9 million for the year ended December 31, 2016 as a result of the growth in the Company described above.

Our results for the year ended December 31, 2020 were materially impacted by the COVID-19 pandemic, which caused a significant increase in our ACL on

loans through provision for credit losses expense.

Pre-tax, pre-provision net income, a non-GAAP measure, reflects net income adjusted to remove the impacts of provision for credit loss expense caused primarily by the COVID-19 pandemic and lower income tax expense caused primarily by the Tax Act.

Pre-tax pre-provision income increased $31.6 million, or 54.9%, to $89.3 million for the year ended December 31, 2020 from $57.7 million for the year ended December 31, 2016.

For a reconciliation of net income to pre-tax, pre-provision income, see Reconciliations of Non-GAAP Measures in Item 7.

Management’s Discussion And Analysis Of Financial Condition And Results Of Operations.

Net interest income increased $68.5 million, or 51.7%, to $201.0 million for the year ended December 31, 2020 from $132.5 million during the year ended December 31, 2016 primarily as a result of organic growth of the Company in addition to acquisitions and participation in the SBA PPP.

The increase in net interest income was primarily a result of an increase in interest income of $75.8 million, or 54.7%, to $214.3 million for the year ended December 31, 2020 from $138.5 million for the year ended December 31, 2016.

The increase in net income was partially offset by an increase in noninterest expense of $42.5 million, or 39.9%, to $148.9 million for the year ended December 31, 2020 from $106.5 million for the year ended December 31, 2016.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity