Heritage Financial (US:HFWA)2022-08-09 20:32Financial Performance - Net income for the three months ended June 30, 2022, was $18.6 million, a decrease of 43.2% from $32.7 million in the same period in 2021[118] - For the six months ended June 30, 2022, net income was $38.3 million, down 33.9% from $58.0 million in the comparable period in 2021[119] - Income before income taxes for the three months ended June 30, 2022, was $22,561 thousand, a decrease of $17,592 thousand or 43.8% compared to $40,153 thousand in 2021[144] - The effective income tax rate for the three months ended June 30, 2022, was 17.6%, down from 18.6% in the prior year, reflecting a decrease in estimated annual pre-tax income[144] - Income tax expense for the six months ended June 30, 2022, was $7,559 thousand, a decrease of $4,994 thousand or 39.8% compared to $12,553 thousand in 2021[145] Interest Income and Assets - Total interest earning assets for the three months ended June 30, 2022, were $6.61 billion, with net interest income of $50.05 million, resulting in a net interest margin of 3.04%[120] - Net interest income for the six months ended June 30, 2022, decreased by $9,511 thousand, representing an 8.9% decline compared to the same period in 2021[128] - The average yield on loans receivable, net, was 4.30% for the three months ended June 30, 2022, down from 4.62% in the same period in 2021[120] - The average loan yield (GAAP) decreased to 4.36% for the six months ended June 30, 2022, down from 4.55% in the prior year[131] - Total interest earning assets increased to $6,653,543 thousand, with a net interest margin of 2.94% for the six months ended June 30, 2022, compared to 3.47% in 2021[127] Loans and Credit Losses - Loans receivable, net, decreased by $590.82 million to $3.81 billion, with interest earned on loans dropping by $9.86 million, a 19.4% decline[122] - The provision for credit losses on loans significantly impacted net income, reflecting management's assessment of the loan portfolio's collectability[113] - The reversal of provision for credit losses on loans for the three months ended June 30, 2022, was $(649) thousand, a decrease of $12,172 thousand or 94.9% compared to the prior year[133] - The reversal of provision for credit losses on loans for the six months ended June 30, 2022, was $(3,171) thousand, a decrease of $15,785 thousand or 83.3% compared to the prior year[136] - The Allowance for Credit Losses (ACL) on loans decreased to $39,696,000 as of June 30, 2022, down from $51,562,000 in 2021, representing a change of $(11,866,000) or (23.0)%[151] Noninterest Income and Expenses - Noninterest income primarily consists of service charges and fees, contributing to the overall financial performance[114] - Total noninterest income for the three months ended June 30, 2022, was $7,016 thousand, a decrease of $1,281 thousand or 15.4% from $8,297 thousand in the same period of 2021[138] - Service charges and other fees increased by $324 thousand or 15.7% to $2,391 thousand for the three months ended June 30, 2022, compared to $2,067 thousand in 2021[138] - Total noninterest expense for the three months ended June 30, 2022, was $35,707 thousand, a decrease of $689 thousand or 1.9% from $36,396 thousand in the prior year[141] Assets and Liabilities - The total assets increased to $7,410,066 thousand, up by $469,879 thousand from the previous year[127] - Total assets decreased by $115,945, or 1.6%, from December 31, 2021, to June 30, 2022, primarily due to a $729,237 decrease in cash and cash equivalents, reflecting a 42.3% decline[146] - Investment securities available for sale increased by $293,253, or 32.8%, from December 31, 2021, to June 30, 2022, totaling $1,187,588[148] - Total investment securities increased by $525,513, or 41.1%, from December 31, 2021, to June 30, 2022, reaching $1,803,241[148] - Deposits decreased by $64,100, or 1.0%, from December 31, 2021, to June 30, 2022, totaling $6,330,190[147] Capital and Equity - The Company declared a quarterly dividend of $0.21 per common share on July 20, 2022, payable on August 17, 2022[156] - Common equity Tier 1 capital to risk-weighted assets was 13.2% as of June 30, 2022, down from 13.5% at the end of 2021[159] - The Company's stockholders' equity to assets ratio was 11.0% as of June 30, 2022, down from 11.5% at the end of 2021, primarily due to a decrease in Accumulated Other Comprehensive Income (AOCI) of $71.2 million[155] Operational Changes - The company reduced its branch count from 61 to 49 during the year ended December 31, 2021, consolidating eight branches in the first quarter of 2021[117] - The company continues to focus on balancing physical locations with digital banking channels, driven by increased customer usage of online services[117] Risk Management - No material change in interest rate risk exposure since the 2021 Annual Form 10-K[168] - The company does not maintain a trading account for any class of financial instrument[168] - The company does not engage in hedging activities or purchase high-risk derivative instruments[168] - The company is not subject to foreign currency exchange rate risk[168] - The company is not subject to commodity price risk[168]