OLYMPIA, Wash., Oct. 24 /PRNewswire-FirstCall/ -- Heritage Financial Corporation -- Brian L. Vance, President and CEO of Heritage Financial Corporation ("Company") today reported net income for the third quarter ended September 30, 2007 of $0.44 per diluted share, up 2.3% from $0.43 per diluted share for the year ago quarter ended September 30, 2006 and up 12.8% from $0.39 per diluted share for the linked-quarter ended June 30, 2007. Net income of $2,933,000 for the third quarter ended September 30, 2007 was up 1.5% compared to $2,890,000 for the year ago third quarter, and up 11.7% compared to $2,627,000 for the linked-quarter ended June 30, 2007.
Diluted earnings per share for the nine months ended September 30, 2007 were $1.19 down 2.5% from the $1.22 per diluted share for the same period in 2006. Net income for the nine months ended September 30, 2007 was $7,933,000 compared to $7,989,000 for the nine months ended September 30, 2006, a decrease of 0.7%.
For the quarter ended September 30, 2007, return on average equity was 13.88% compared to 14.70% for the quarter ended September 30, 2006. The Company's capital position remains strong at 9.19% of total assets as of September 30, 2007, down slightly from 9.26% at September 30, 2006. Average equity for the quarter ended September 30, 2007 increased to $83.8 million from $77.6 million for the quarter ended September 30, 2006. For the nine months ended September 30, 2007, the Company's return on average equity was 12.88% compared to 14.70% for the nine months ended September 30, 2006.
The Company's total assets increased $70.2 million, or 8.4%, to $905.7 million at September 30, 2007 from $835.4 million at September 30, 2006. Net loans (loans receivable less allowance for loan losses and excluding loans held for sale) increased $68.7 million, or 9.5%, to $792.1 million at September 30, 2007 from $723.3 million at September 30, 2006. Since December 31, 2006 net loans have increased $52.5 million or 7.1%. Deposits increased $57.3 million, or 7.9%, to $785.7 million at September 30, 2007 from $728.3 million at September 30, 2006. Since December 31, 2006 deposits have increased $59.7 million, or 8.2%.
Net interest income before provision for loan loss was $9,478,000 for the quarter ended September 30, 2007 compared to $9,391,000 for the quarter ended September 30, 2006, an increase of 0.9%. For the nine months ended September 30, 2007, net interest income before provision for loan loss was $27,478,000 compared to $26,660,000 for the nine months ended September 30, 2006, an increase of 3.1%.
The net interest margin (net interest income divided by average earning assets) was 4.50% for the quarter ended September 30, 2007 compared to 4.50% for the linked-quarter ended June 30, 2007 and 4.87% for the prior year quarter ended September 30, 2006.
Asset quality remains strong. Nonperforming assets at September 30, 2007 were $586,000, or 0.06% of total assets, a decrease of $1,751,000 from $2,337,000, or 0.28% of total assets, at September 30, 2006 and a decrease of $2,446,000 from $3,032,000, or 0.36% of total assets, at December 31, 2006. The Company's nonperforming assets to total assets ratio of 0.06% at September 30, 2007 is 39 basis points lower than the June 30, 2007 average ratio of 0.45% for West Coast publicly traded commercial banks as monitored by D.A. Davidson and Company.
The loan loss provision in the third quarter of 2007 of $210,000 was down $30,000 from $240,000 in the third quarter of last year. The Company had net charge-offs in the third quarter of 2007 of $219,000 versus net charge-offs of $82,000 in the third quarter of 2006 and net charge-offs of $452,000 for the first nine months of this year versus net recoveries of $174,000 for the same period last year. Loan loss reserves as a percent of total loans decreased to 1.27% at September 30, 2007 from 1.35% at September 30, 2006. Based on our assessment of loan quality, the Company believes that its reserve for loan losses is at an appropriate level under current economic conditions.
Noninterest income was $2,191,000 for the quarter ended September 30, 2007 compared to $2,166,000 for the quarter ended September 30, 2006, an increase of 1.2%. For the nine months ended September 30, 2007, noninterest income was $6,453,000 compared to $5,854,000 for the same period in 2006, an increase of 10.2%. The increase for the nine month period is the result of increased service charges on deposits, merchant visa income and brokered mortgage income.
Noninterest expense was $7,028,000 for the quarter ended September 30, 2007 compared to $6,980,000 for the quarter ended September 30, 2006, an increase of 0.7% and down 2.1% from $7,176,000 for the linked-quarter ended June 30, 2007. For the nine months ended September 30, 2007, noninterest expense was $21,390,000 compared to $20,081,000 for the same period in 2006, an increase of 6.5%.
The Company's efficiency ratio decreased to 60.23% for the quarter ended September 30, 2007 from 63.33% for the linked-quarter ended June 30, 2007 and from 60.40% for the quarter ended September 30, 2006. The efficiency ratio increased to 63.04% for the nine months ended September 30, 2007 from 61.76% for the nine months ended September 30, 2006. The improvement in the efficiency ratio on a linked-quarter basis was due to growth in average earning assets while maintaining a net interest margin of 4.50% and reducing operating expenses.
Mr. Vance stated, "We are pleased with our results this quarter that occurred from an increased focus on net interest margin and operating efficiencies. Our net interest margin has stabilized at 4.50% for the last two sequential quarters after periods of decline due to the rate environment and competitive pressures. In addition, we improved our efficiency ratio over 300 basis points from the second quarter of this year." Mr. Vance added, "Our focus on both loan growth and credit quality is shown by an annualized loan growth of 9% year to date while achieving an excellent ratio of nonperforming assets to total assets of 0.06%."
On July 25, 2007, the Company announced that the Board of Directors had authorized an eighteen-month extension to its eighth share buyback program to purchase and retire an additional five percent (5%) of the Company's outstanding shares, or approximately 310,000 shares. At September 30, 2007, approximately 141,000 shares remain to be purchased under the eighth program. During the quarter ended September 30, 2007, the Company repurchased 14,031 shares at an average price of $22.32. Through September 30, 2007, Heritage has repurchased 6,016,304 shares, or approximately 52.8% of the total shares outstanding as of March 31, 1999, at an average price of $12.30.
On September 25, 2007, the Company's Board of Directors declared a dividend of 21.0 cents per share payable on October 30, 2007 to shareholders of record on October 15, 2007. This is the thirty-ninth consecutive quarterly dividend to be paid.
Heritage Financial Corporation is a $900 million bank holding company headquartered in Olympia, Washington. The Company operates two community banks, Heritage Bank and Central Valley Bank. Heritage Bank serves Pierce, Thurston, Mason and south King Counties in the South Puget Sound region of Washington through its fourteen full service banking offices and its Online Banking Website http://www.heritagebankwa.com/. Central Valley Bank serves Yakima and Kittitas Counties in central Washington through its six full service banking offices and its Online Banking Website http://www.cvbankwa.com/. Additional information about Heritage Financial Corporation is available on its Internet Website http://www.hf-wa.com/.
This release includes statements concerning future performance, developments, or events; expectations for growth and market forecasts; and other guidance on future periods. Forward-looking statements are subject to a number of risks and uncertainties that might cause actual results to differ materially from stated expectations. Specific factors include, but are not limited to, the effect of interest rate changes, risks associated with acquisition of other banks and opening new branches, the ability to control costs and expenses, and general economic conditions. These factors could affect the Company's financial results. Additional information on these and other factors are included in the Company's filings with the Securities and Exchange Commission.
HERITAGE FINANCIAL CORPORATION CONDENSED STATEMENTS OF FINANCIAL CONDITION (Dollar amounts in thousands, except per share amounts; unaudited) Sept. 30, December 31, Sept. 30, BALANCE SHEET 2007 2006 2006 Loans receivable 802,285 749,701 733,224 Allowance for loan losses (10,224) (10,105) (9,900) Net loans 792,061 739,596 723,324 Investments and interest earning deposits 40,582 45,700 46,570 Goodwill and other intangible assets 13,608 13,661 13,615 Other assets 59,441 53,936 51,934 Total assets $905,692 $852,893 $835,443 Deposits $785,667 $725,921 $728,344 Borrowings 27,942 40,538 23,136 Other liabilities 8,826 7,795 6,560 Stockholders' equity 83,257 78,639 77,403 Total liabilities and equity $905,692 $852,893 $835,443 OTHER DATA At period end: Nonaccrual loans $586 $2,807 $2,112 Real estate owned - 225 225 Nonperforming assets $586 $3,032 $2,337 Allowance for loan losses to: Loans 1.27% 1.35% 1.35% Nonperforming loans 1745.68% 359.99% 468.75% Nonperforming assets to total assets 0.06% 0.36% 0.28% Equity to assets ratio 9.19% 9.22% 9.26% Book value per share $12.54 $11.99 $11.79 Tangible book value per share $10.49 $9.91 $9.72 AVERAGE BALANCES Quarter Ended Sept. 30, December 31, Sept. 30, 2007 2006 2006 Average assets $893,165 $829,660 $823,368 Average earning assets 834,821 772,099 765,088 Average total loans 799,934 729,936 725,393 Average deposits 770,878 732,043 715,909 Average equity 83,827 79,467 77,569 Average tangible equity 70,207 65,850 65,706 HERITAGE FINANCIAL CORPORATION CONDENSED INCOME STATEMENTS
(Dollar amounts in thousands, except per share and share amounts; unaudited)
Quarter Ended Quarter Ended Three Quarter Ended Year September 30, June 30, Month % September 30, Over Year 2007 2007 Change 2006 % Change Interest income $16,268 $15,627 4.1% $14,682 10.8% Interest expense 6,790 6,525 4.1% 5,291 28.3% Net interest income 9,478 9,102 4.1% 9,391 0.9% Provision for loan losses 210 180 16.7% 240 -12.5% Noninterest income 2,191 2,229 -1.7% 2,166 1.2% Noninterest expense 7,028 7,176 -2.1% 6,980 0.7% Income before income taxes 4,431 3,975 11.5% 4,337 2.1% Federal income tax 1,498 1,348 11.1% 1,447 3.5% Net income $2,933 $2,627 11.7% $2,890 1.5% Earnings per share: Basic $0.45 $0.40 12.5% $0.45 0.0% Diluted $0.44 $0.39 12.8% $0.43 2.3% Performance Ratios (1): Net interest margin 4.50% 4.50% 4.87% Efficiency ratio (2) 60.23% 63.33% 60.40% Return on average assets 1.30% 1.21% 1.39% Return on average equity 13.88% 12.76% 14.70% Weighted Average Common Shares Outstanding: Basic 6,576,399 6,576,751 6,483,394 Diluted 6,674,620 6,681,694 6,703,730 HERITAGE FINANCIAL CORPORATION CONDENSED INCOME STATEMENTS
(Dollar amounts in thousands, except per share and share amounts; unaudited)
Income Statement Nine Months Ended September 30, September 30, % 2007 2006 Change Interest income $46,820 $40,464 15.7% Interest expense 19,342 13,804 40.1% Net interest income 27,478 26,660 3.1% Provision for loan losses 570 480 18.8% Noninterest income 6,453 5,854 10.2% Noninterest expense 21,390 20,081 6.5% Income before income taxes 11,971 11,953 0.2% Federal income tax 4,038 3,964 1.9% Net income $7,933 $7,989 -0.7% Earnings per share: Basic $1.21 $1.26 -4.0% Diluted $1.19 $1.22 -2.5% Performance Ratios (1): Net interest margin 4.53% 4.88% Efficiency ratio (2) 63.04% 61.76% Return on average assets 1.22% 1.36% Return on average equity 12.88% 14.70% Weighted Average Common Shares Outstanding: Basic 6,552,829 6,336,395 Diluted 6,677,714 6,558,060 (1) Ratios are calculated on an annualized basis. (2) Noninterest expense divided by the sum of net interest income before provision for loan losses plus noninterest income.
