HERITAGE FINANCIAL CORP WA
For the period ended Dec 31, 2023. Filed Feb 27, 2024.
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FY2023 · Filed Feb 27, 2024
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INVESTMENT ACTIVITIES OVERVIEW
Our investment policy is established by the Company's Board of Directors and monitored by the Risk Committee of the Board of Directors. It is designed primarily to provide and maintain liquidity, generate a favorable return on investments without incurring undue interest rate and credit risk, and complements the Company's lending activities. The policy permits investment in various types of liquid assets permissible under applicable regulations. Investment in non-investment grade bonds and stripped mortgage-backed securities is not permitted under the policy.
The following table provides information regarding our investment securities at the dates indicated:
| December 31, 2023 · December 31, 2022 · Change | ||||||
|---|---|---|---|---|---|---|
| Balance | % ofTotal | Balance | % ofTotal | $ | % | |
| (Dollars in thousands) | ||||||
| Investment securities available for sale, at fair value: | ||||||
| U.S. government and agency securities | $13,750 | 0.7% | $63,859 | 3.0% | $(50,109) | (78.5)% |
| Municipal securities | 79,525 | 4.2 | 153,026 | 7.3 | (73,501) | (48.0) |
| Residential CMO and MBS(1) | 512,049 | 27.3 | 424,386 | 20.2 | 87,663 | 20.7 |
| Commercial CMO and MBS(1) | 504,258 | 27.0 | 664,421 | 31.8 | (160,163) | (24.1) |
| Corporate obligations | 7,613 | 0.4 | 3,834 | 0.2 | 3,779 | 98.6 |
| Other asset-backed securities | 17,158 | 0.9 | 21,917 | 1.0 | (4,759) | (21.7) |
| Total | 1,134,353 | 60.5 | 1,331,443 | 63.5 | (197,090) | (14.8) |
| Investment securities held to maturity, at amortized cost: | ||||||
| U.S. government and agency securities | $151,075 | 8.1% | $150,936 | 7.2% | $139 | 0.1 |
| Residential CMO and MBS(1) | 267,204 | 14.3 | 290,318 | 13.8 | (23,114) | (8.0) |
| Commercial CMO and MBS(1) | 321,163 | 17.1 | 325,142 | 15.5 | (3,979) | (1.2) |
| Total | 739,442 | 39.5 | 766,396 | 36.5 | (26,954) | (3.5) |
| Total investment securities | $1,873,795 | 100.0% | $2,097,839 | 100.0% | $(224,044) | (10.7)% |
(1)U.S. government agency and government-sponsored enterprise CMO and MBS obligations.
Total investment securities decreased due to sales of investment securities available for sale and maturities and repayments, offset partially by purchases of investment securities available for sale. Total losses on sale of $12.2 million were recognized during the year ended December 31, 2023
During the year ended December 31, 2023, the Company incurred a pre-tax loss of $12.2 million on the sale of investment securities available for sale due to the strategic repositioning of its investment portfolio. The Company sold $219.7 million in investment securities with an estimated weighted average book yield of 2.42% and purchased $178.4 million of investment securities with an estimated weighted average book yield of 5.77%.
The following table provides the weighted average yield at December 31, 2023 calculated based upon the fair values of our investment securities available for sale and held to maturity, and excluding any income tax benefits of tax-exempt bonds:
| In one year or less | After one year through five years | After five years through ten years | After ten years | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Fair Value | Yield | Fair Value | Yield | Fair Value | Yield | Fair Value | Yield | Fair Value | Yield | |
| (Dollars in thousands) | ||||||||||
| Investment securities available for sale: | ||||||||||
| U.S. government and agency securities | $— | —% | $1,067 | 3.01% | $6,107 | 2.67% | $6,576 | 2.32% | $13,750 | 2.51% |
| Municipal securities | 3,744 | 2.85 | 1,490 | 4.37 | 22,611 | 3.20 | 51,680 | 2.75 | 79,525 | 2.90 |
| Residential CMO and MBS(1) | 9 | 2.97 | 1,200 | 2.96 | 61,017 | 3.44 | 449,823 | 3.46 | 512,049 | 3.45 |
| Commercial CMO and MBS(1) | 31,829 | 2.19 | 324,439 | 3.07 | 133,046 | 2.73 | 14,944 | 5.49 | 504,258 | 3.00 |
| Corporate obligations | — | — | — | — | 7,613 | 7.60 | — | — | 7,613 | 7.60 |
| Other asset-backed securities | 263 | 2.78 | 2,126 | 2.54 | 3,090 | 6.99 | 11,679 | 6.62 | 17,158 | 6.11 |
| Total | $35,845 | 2.26% | $330,322 | 3.07% | $233,484 | 3.16% | $534,702 | 3.49% | $1,134,353 | 3.27% |
| In one year or less | After one year through five years | After five years through ten years | After ten years | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Fair Value | Yield | Fair Value | Yield | Fair Value | Yield | Fair Value | Yield | Fair Value | Yield | |
| (Dollars in thousands) | ||||||||||
| Investment securities held to maturity: | ||||||||||
| U.S. government and agency securities | $— | —% | $— | —% | $78,570 | 2.08% | $44,804 | 2.13% | $123,374 | 2.09% |
| Residential CMO and MBS(1) | — | — | — | — | 41,753 | 3.30 | 211,350 | 4.02 | 253,103 | 3.90 |
| Commercial CMO and MBS(1) | — | — | 123,169 | 3.16 | 145,206 | 1.76 | 17,598 | 3.47 | 285,973 | 2.44 |
| Total | $— | —% | $123,169 | 3.16% | $265,529 | 2.08% | $273,752 | 3.62% | $662,450 | 2.90% |
(1)U.S. government agency and government-sponsored enterprise CMO and MBS obligations.
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