OLYMPIA, Wash., Jan. 24 /PRNewswire-FirstCall/ -- HERITAGE FINANCIAL CORPORATION Brian L. Vance, President and CEO of Heritage Financial Corporation ("Company") today reported net income for the year ended December 31, 2007 of $10,708,000 compared with $10,547,000 for the year ended December 31, 2006, an increase of 1.5%. Diluted earnings per share for year ended December 31, 2007 were $1.61 vs. $1.60 for the year ended December 31, 2006, an increase of 0.6%.
Net income for the fourth quarter ended December 31, 2007 was $2,775,000 compared to $2,558,000 for the fourth quarter in 2006, an increase of 8.5%. Diluted earnings per share for the quarter ended December 31, 2007 were $0.42 compared with $0.38 per diluted share for the quarter ended December 31, 2006, an increase of 10.5%.
For the year ended December 31, 2007, return on average equity decreased to 12.87% from last year's 14.18%. For the year ended December 31, 2007, average equity increased by $8.8 million to $83.2 million. Return on average equity for the quarter ended December 31, 2007 increased to 12.87% from 12.77% for the same period last year. Average equity increased by $6.1 million over the prior year's fourth quarter for a strong equity to assets ratio of 9.59%.
The net interest margin (net interest income divided by average earning assets) was 4.50% for the year ended December 31, 2007 compared to 4.83% for the year ended December 31, 2006. The net interest margin also was down for the quarter ended December 31, 2007 to 4.39% compared to 4.68% for the quarter ended December 31, 2006. Margin compression will continue to be a concern in 2008.
Total assets increased $33.2 million, or 3.9%, to $886.1 million at December 31, 2007 from the December 31, 2006 balance of $852.9 million and decreased $19.6 million, or 2.2%, from the September 30, 2007 balance of $905.7 million. Net loans (loans receivable less allowance for loan losses and excluding loans held for sale) increased $29.3 million, or 4.0%, to $768.9 million at December 31, 2007 from $739.6 million at December 31, 2006 and decreased $23.1 million, or 2.9%, from the September 30, 2007 balance of $792.1 million. Deposits increased $50.4 million, or 6.9%, to $776.3 million at December 31, 2007 from $725.9 million at December 31, 2006 and decreased $9.4 million, or 1.2%, from the September 30, 2007 balance of $785.7 million.
The decreases in loan and deposit totals from the third quarter to the fourth quarter of 2007 related to specific decisions of management to better position the Company's overall balance sheet. In the past several months, management has made conscious decisions to limit or reduce the construction loan portfolio, allowing the Company to exit, or choose not to originate, certain loans that had risk elements higher than considered prudent at this point in the credit cycle. Consequently, the decrease in loan totals enabled management to pursue less aggressive pricing of deposits resulting in some modest deposit runoff.
For the year ended December 31, 2007, net interest income before the provision for loan loss was $36,621,000 compared to $35,772,000 for the year ended December 31, 2006, an increase of 2.4%. For the quarter ended December 31, 2007 net interest income before the provision for loan loss was $9,144,000 versus $9,112,000 for the quarter ended December 31, 2006, an increase of 0.4%.
Noninterest income was $8,572,000 for the year ended December 31, 2007, compared to $7,954,000 for the same period in 2006, an increase of 7.8%. This increase was due substantially to growth in service charges on deposits and merchant visa income. Noninterest income was $2,119,000 for the quarter ended December 31, 2007 compared to $2,100,000 for the quarter ended December 31, 2006, an increase of 0.9%.
Noninterest expense for the year ended December 31, 2007 was $28,288,000 compared to $27,082,000 for 2006, an increase of 4.5%. Noninterest expense for the quarter ended December 31, 2007 was $6,898,000 compared to $7,001,000 for the quarter ended December 31, 2006, a decrease of 1.5%. The efficiency ratio increased to 62.59% for the year ended December 31, 2007 from 61.94% for the year ended December 31, 2006. The efficiency ratio decreased to 61.24% for the quarter ended December 31, 2007 from 62.44% for the quarter ended December 31, 2006. While linked quarter total non-interest expense declined as a result of management's focus on reducing overall expense, the efficiency ratio actually increased slightly. This is primarily a result of the net interest margin compressing at a faster rate than the improvement in non-interest expense.
Asset quality remains strong. Nonperforming assets at December 31, 2007 were $1,190,000, or 0.13% of total assets, a decrease from $3,032,000, or 0.36% of total assets at December 31, 2006 and an increase from the $586,000, or 0.06% of total assets as of September 30, 2007. Loan loss reserves as a percent of total loans declined to 1.33% at December 31, 2007 from 1.35% at December 31, 2006. The Company had net charge offs of $542,000 for the full year 2007 versus net recoveries of $139,000 for the full year 2006. For the fourth quarter of 2007 the Company had net charge offs of $90,000 up from $34,000 for the fourth quarter of 2006. Other real estate assets owned were $169,000 as of December 31, 2007 down from $225,000 as of December 31, 2006. The nonperforming assets to total assets ratio of 0.13% at December 31, 2007 is 51 basis points below the September 30, 2007 average ratio of 0.64% for West Coast publicly traded commercial banks, as monitored by D.A. Davidson and Company.
Mr. Vance stated, "We are pleased with our overall results for the 4th quarter and the year ending 2007. Specific areas of noteworthy performance would include quarter over quarter diluted earnings per share increase of 10.5%, continuing successes in reducing our non-interest expense levels and our strong credit quality."
"While we showed modest year over year loan growth of 4%, our linked quarter loan balances actually decreased 3%. This was due in part to a conscious effort to better position our balance sheet for a more difficult economic climate we see coming in 2008. We cannot predict with any certainty what lies ahead, but we believe it is probable there will be increasing weakness in our local housing industry, especially with residential construction loans. We also believe interest rates will continue to ease in 2008. While lower interest rates will be a positive development for many consumers and businesses, it will likely cause downward pressure to our net interest margin for at least the first 6 months of 2008."
Mr. Vance added, "The year 2008 is shaping up to be a very challenging year. However, we believe it is important to continue to focus on the fundamental community-banking concepts of meeting the needs of our customers and shareholders to the best of our ability without compromising our asset quality."
"Continuing to diligently manage credit quality in what we believe will be difficult economic conditions remains our primary focus. Consequently, we expect loan growth for 2008 to be modest. We will also continue to focus on managing our non-interest expense levels. However, with limited top line revenue growth, our efficiency ratio is not likely to improve as much as we would like."
On December 18, 2007, the Company's Board of Directors declared a regular quarterly dividend of 21.0 cents per share payable on January 30, 2008 to shareholders of record on January 15, 2008. This is the 40th consecutive quarterly dividend to be paid.
The Company has scheduled a telephone conference call on January 25, 2008 at 10:00 a.m. Pacific Time to discuss this earnings release. To access the call, please dial (877) 209-0397 a few minutes prior to 10:00 a.m. Pacific Time. The call will be available for replay for ten days by dialing (800) 475-6701 -- access code 906083.
Heritage Financial Corporation is a bank holding company headquartered in Olympia, Washington. The Company operates two community banks, Heritage Bank and Central Valley Bank. Heritage Bank serves Pierce, Thurston, south King and Mason 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) December 31, September 30, December 31, 2007 2007 2006 Loans held for sale 447 - - Loans receivable $ 779,319 $ 802,285 $ 749,701 Allowance for loan losses (10,374) (10,224) (10,105) Net loans 768,945 792,061 739,596 Investment securities and interest earning deposits 45,612 40,582 45,700 Goodwill 13,514 13,608 13,661 Other assets 57,537 59,441 53,936 Total assets $ 886,055 $ 905,692 $ 852,893 Deposits $ 776,280 $ 785,667 $ 725,921 Borrowings 16,941 27,942 40,538 Other liabilities 7,867 8,826 7,795 Stockholders' equity 84,967 83,257 78,639 Total liabilities and equity $ 886,055 $ 905,692 $ 852,893 Other Data At year end: Nonaccrual loan $ 1,021 $ 586 $ 2,807 Real estate and other assets owned 169 - 225 Nonperforming assets $ 1,190 $ 586 $ 3,032 Allowance for loan losses to: Loans 1.33 % 1.27 % 1.35 % Nonperforming loans 1016.06 % 1745.68 % 360.05 % Nonperforming assets to total assets 0.13 % 0.06 % 0.36 % Equity to assets ratio 9.59 % 9.19 % 9.22 % Book value per share $ 12.79 $ 12.54 $ 11.99 Tangible book value per share $ 10.76 $ 10.49 $ 9.91 AVERAGE BALANCES Quarter Ended December 31, September 30, December 31, 2007 2007 2006 Average assets $ 883,948 $ 893,165 $ 829,660 Average earning assets 825,720 834,821 772,099 Average total loans 791,685 799,934 732,183 Average deposits 779,087 770,878 732,043 Average equity 85,555 83,827 79,467 Average tangible equity 71,982 65,850 65,850 Year to Date Ended December 31, December 31, 2007 2006 Average assets $ 872,667 $ 795,219 Average earning assets 814,413 740,525 Average total loans 780,509 701,724 Average deposits 755,252 691,002 Average equity 83,175 74,395 Average tangible equity 69,553 63,620 HERITAGE FINANCIAL CORPORATION CONDENSED INCOME STATEMENTS
(Dollar amounts in thousands, except per share and share amounts; unaudited)
Quarter Quarter Quarter Year Ended Ended Three Ended Over December 31, September 30, Month % December 31, Year % 2007 2007 Change 2006 Change Interest income $15,572 $16,268 -4.3 % $14,773 5.4 % Interest expense 6,428 6,790 -5.3 % 5,661 13.6 % Net interest income 9,144 9,478 -3.5 % 9,112 0.4 % Provision for loan losses 240 210 14.3 % 240 0.0 % Noninterest income 2,119 2,191 -3.3 % 2,100 0.9 % Noninterest expense 6,898 7,028 -1.9 % 7,001 -1.5 % Income before income taxes 4,125 4,431 -6.9 % 3,971 3.9 % Federal income tax 1,350 1,498 -9.9 % 1,413 -4.5 % Net income $2,775 $2,933 -5.4 % $2,558 8.5 % Earnings per share: Basic $0.42 $0.45 -6.7 % $0.39 7.7 % Diluted $0.42 $0.44 -4.5 % $0.38 10.5 % Performance Ratios(1): Net interest margin 4.39 % 4.50 % 4.68 % Efficiency ratio(2) 61.24 % 60.23 % 62.44 % Return on average assets 1.25 % 1.30 % 1.22 % Return on average equity 12.87 % 13.88 % 12.77 % Weighted Average Common Shares Outstanding: Basic 6,575,116 6,576,399 6,489,787 Diluted 6,648,691 6,674,620 6,674,638 (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. HERITAGE FINANCIAL CORPORATION CONDENSED INCOME STATEMENTS
(Dollar amounts in thousands, except per share and share amounts; unaudited)
Income Statement Year Ended December 31, December 31, % 2007 2006 Change Interest income $62,391 $55,237 13.0 % Interest expense 25,770 19,465 32.4 % Net interest income 36,621 35,772 2.4 % Provision for loan losses 810 720 12.5 % Noninterest income 8,572 7,954 7.8 % Noninterest expense 28,288 27,082 4.5 % Income before income taxes 16,095 15,924 1.1 % Federal income tax $5,387 $5,377 0.2 % Net income 10,708 10,547 1.5 % Earnings per share: Basic $1.63 $1.65 -1.2 % Diluted $1.61 $1.60 0.6 % Performance Ratios: Net interest margin 4.50 % 4.83 % Efficiency ratio (1) 62.59 % 61.94 % Return on average assets 1.23 % 1.33 % Return on average equity 12.87 % 14.18 % Weighted Average Common Shares Outstanding: Basic 6,558,448 6,375,059 Diluted 6,670,422 6,589,381 (1) Noninterest expense divided by the sum of net interest income before provision for loan losses plus noninterest income.
