HERITAGE FINANCIAL CORP WA
For the period ended Mar 31, 2024. Filed May 7, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Mar 31, 2024 · Filed May 7, 2024
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LOAN PORTFOLIO OVERVIEW
Changes by loan type
The Company originates a wide variety of loans with a focus on commercial business loans. In addition to originating loans, the Company may also acquire loans through pool purchases, participation purchases and syndicated loan purchases. The following table provides information about our loan portfolio by type of loan at the dates indicated:
| March 31, 2024 · December 31, 2023 · Change | ||||||
|---|---|---|---|---|---|---|
| Amortized Cost | % of Loans Receivable | Amortized Cost | % of Loans Receivable | $ | % | |
| (Dollars in thousands) | ||||||
| Commercial business: | ||||||
| Commercial and industrial | $760,391 | 17.2% | $718,291 | 16.6% | $42,100 | 5.9% |
| Owner-occupied CRE | 951,583 | 21.5 | 958,620 | 22.1 | (7,037) | (0.7) |
| Non-owner occupied CRE | 1,702,665 | 38.4 | 1,697,574 | 39.1 | 5,091 | 0.3 |
| Total commercial business | 3,414,639 | 77.1 | 3,374,485 | 77.8 | 40,154 | 1.2 |
| Residential real estate | 386,357 | 8.7 | 375,342 | 8.7 | 11,015 | 2.9 |
| Real estate construction and land development: | ||||||
| Residential | 84,081 | 1.9 | 78,610 | 1.8 | 5,471 | 7.0 |
| Commercial and multifamily | 372,532 | 8.4 | 335,819 | 7.7 | 36,713 | 10.9 |
| Total real estate construction and land development | 456,613 | 10.3 | 414,429 | 9.5 | 42,184 | 10.2 |
| Consumer | 170,556 | 3.9 | 171,371 | 4.0 | (815) | (0.5) |
| Total | $4,428,165 | 100.0% | $4,335,627 | 100.0% | $92,538 | 2.1% |
Loans receivable increased $92.5 million, or 2.1%, to $4.43 billion at March 31, 2024 from $4.34 billion at December 31, 2023. New loans funded in the three months ended March 31, 2024 totaled $101.7 million and loan prepayments were $39.1 million.
Commercial and industrial loans increased $42.1 million, or 5.9%, due primarily to new loan production of $37.4 million during the three months ended March 31, 2024 and advances on outstanding commitments. Commercial and multifamily construction loans increased $36.7 million, or 10.9%, due primarily to advances on outstanding commitments.
The following table provides information about owner occupied CRE and non-owner occupied CRE loans by collateral type at the dates indicated:
| March 31, 2024 · December 31, 2023 · Change | ||||||
|---|---|---|---|---|---|---|
| Amortized Cost | % of CRE Loans | Amortized Cost | % of CRE Loans | $ | % | |
| (Dollars in thousands) | ||||||
| Owner occupied and non-owner occupied CRE loans by collateral type: | ||||||
| Office | $550,837 | 20.8% | $555,822 | 20.9% | $(4,985) | (0.9)% |
| Industrial | 417,719 | 15.7 | 418,651 | 15.8 | (932) | (0.2) |
| Retail store / shopping center | 283,654 | 10.7 | 285,926 | 10.8 | (2,272) | (0.8) |
| Multi-family | 308,633 | 11.6 | 305,499 | 11.5 | 3,134 | 1.0 |
| Mixed use property | 152,536 | 5.7 | 154,674 | 5.8 | (2,138) | (1.4) |
| Motel / hotel | 145,236 | 5.5 | 142,172 | 5.4 | 3,064 | 2.2 |
| Single purpose | 118,342 | 4.5 | 123,344 | 4.6 | (5,002) | (4.1) |
| Warehouse | 147,217 | 5.5 | 149,176 | 5.6 | (1,959) | (1.3) |
| Mini-storage | 170,928 | 6.4 | 171,778 | 6.5 | (850) | (0.5) |
| Recreational / school | 72,923 | 2.7 | 67,791 | 2.6 | 5,132 | 7.6 |
| Other | 286,223 | 10.9 | 281,361 | 10.5 | 4,862 | 1.7 |
| Total | $2,654,248 | 100.0% | $2,656,194 | 100.0% | $(1,946) | (0.1)% |
Office loans represented the largest segment of owner-occupied and non-owner occupied CRE loans totaling $550.8 million, or 20.8% of total CRE loans, at March 31, 2024. Of this total, $276.7 million, or 50.2%, were owner-occupied CRE loans. Owner-occupied CRE loans have a lower risk profile than non-owner occupied CRE loans as there is less tenant rollover risk and generally have guarantees from the company occupying the space as well as the owners of the company. The average loan balance of CRE loans was $1.2 million at March 31, 2024.
Loans classified as nonaccrual and performing modified loans and nonperforming assets
The following table provides information about our nonaccrual loans, performing modified loans and nonperforming assets for the dates indicated:
| March 31, 2024 · December 31, 2023 · Change | ||||
|---|---|---|---|---|
| $ · % | ||||
| (Dollars in thousands) | ||||
| Nonaccrual loans: (1) | ||||
| Commercial business | $4,792 | $4,468 | $324 | 7.3% |
| Total nonaccrual loans | 4,792 | 4,468 | 324 | 7.3 |
| Accruing loans past due 90 days or more | $2,628 | $1,293 | $1,335 | 103.2% |
| Total nonperforming loans | 7,420 | 5,761 | 1,659 | 28.8 |
| Other real estate owned | — | — | — | — |
| Total nonperforming assets | $7,420 | $5,761 | $1,659 | 28.8% |
| Credit quality ratios: | ||||
| Nonaccrual loans to loans receivable | 0.11% | 0.10% | 0.01% | 10.0% |
| Nonperforming loans to loans receivable | 0.17 | 0.13 | 0.04 | 30.8 |
| Nonperforming assets to total assets | 0.10 | 0.08 | 0.02 | 25.0 |
(1) At March 31, 2024 and December 31, 2023, $3.5 million and $3.2 million, respectively, of nonaccrual loans, were guaranteed by government agencies.
The following table provides the changes in nonaccrual loans during the three months ended March 31, 2024:
| (Dollars in thousands) | |
|---|---|
| Balance, beginning of period | $4,468 |
| Additions | 593 |
| Net principal payments, sales and transfers to accruing status | (269) |
| Balance, end of period | $4,792 |
Allowance for Credit Losses on Loans Overview
The following table provides information regarding our ACL on loans for the periods indicated:
| At or For the Three Months Ended March 31, · Change | ||||
|---|---|---|---|---|
| 2024 | 2023 | $ | % | |
| (Dollars in thousands) | ||||
| ACL on loans at the end of period | $49,736 | $44,469 | $5,267 | 11.8% |
| Credit quality ratios: | ||||
| ACL on loans to loans receivable | 1.12% | 1.08% | 0.04 | 3.7 |
| ACL on loans to nonaccrual loans | 1,037.90 | 923.55 | 114.35 | 12.4 |
| Net recoveries (charge-offs) | $33 | $(230) | $263 | (114.3) |
| Average balance of loans receivable, net during the period(1) | 4,303,394 | 4,039,395 | 263,999 | 6.5 |
| Net (recoveries) charge-offs on loans to average loans receivable, net(2) | —% | 0.02% | (0.02)% | 100.0% |
(1) Average balance of loans receivable, net includes loans held for sale.
(2) Annualized.
The ACL on loans increased $1.7 million, or 3.6%, to $49.7 million at March 31, 2024 from$48.0 million at December 31, 2023 due primarilytoan increase in loans receivable, net.
The following table presents the ACL on loans by loan portfolio segment at the dates indicated:
| March 31, 2024 | December 31, 2023 | |||||
|---|---|---|---|---|---|---|
| ACL on Loans | ACL as a % of Loans in Loan Category | % of Loans in Loan Category toTotal Loans | ACL on Loans | ACL as a % of Loans in Loan Category | % of Loans in Loan Category toTotal Loans | |
| (Dollars in thousands) | ||||||
| Commercial business | $33,913 | 0.99% | 77.1% | $31,303 | 0.93% | 77.8% |
| Residential real estate | 3,478 | 0.90 | 8.7 | 3,473 | 0.93 | 8.7 |
| Real estate construction and land development | 10,075 | 2.21 | 10.3 | 10,876 | 2.62 | 9.5 |
| Consumer | 2,270 | 1.33 | 3.9 | 2,347 | 1.37 | 4.0 |
| Total ACL on loans | $49,736 | 1.12% | 100.0% | $47,999 | 1.11% | 100.0% |
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