SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 0-29480
HERITAGE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
| Washington | 91-1857900 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 201 Fifth Avenue SW, Olympia, WA | 98501 | |
| (Address of principal executive office) | (ZIP Code) |
(360) 943-1500
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date:
As of April 12, 2004 there were 6,055,964 common shares outstanding, with no par value, of the registrant.
HERITAGE FINANCIAL CORPORATION
FORM 10-Q
INDEX
Page 2
HERITAGE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except for per share data)
(Unaudited)
| Three Months Ended March 31, | ||||||
| 2004 |
2003 | |||||
| INTEREST INCOME: |
||||||
| Loans |
$ | 8,820 | $ | 8,647 | ||
| Investment securities and FHLB dividends |
512 | 545 | ||||
| Interest bearing deposits and fed funds sold |
43 | 85 | ||||
| Total interest income |
9,375 | 9,277 | ||||
| INTEREST EXPENSE: |
||||||
| Deposits |
1,569 | 1,988 | ||||
| Borrowed funds |
99 | 12 | ||||
| Total interest expense |
1,668 | 2,000 | ||||
| Net interest income |
7,707 | 7,277 | ||||
| Provision for loan losses |
180 | 495 | ||||
| Net interest income after provision for loan losses |
7,527 | 6,782 | ||||
| NONINTEREST INCOME: |
||||||
| Gains on sales of loans |
281 | 415 | ||||
| Service charges on deposits |
598 | 586 | ||||
| Rental income |
69 | 66 | ||||
| Merchant visa income |
391 | 325 | ||||
| Other income |
224 | 235 | ||||
| Total noninterest income |
1,563 | 1,627 | ||||
| NONINTEREST EXPENSE: |
||||||
| Salaries and employee benefits |
3,126 | 2,803 | ||||
| Building occupancy |
958 | 866 | ||||
| Data processing |
314 | 296 | ||||
| Marketing |
93 | 82 | ||||
| Office supplies and printing |
84 | 97 | ||||
| Merchant visa |
316 | 263 | ||||
| Other |
873 | 842 | ||||
| Total noninterest expense |
5,764 | 5,249 | ||||
| Income before federal income taxes |
3,326 | 3,160 | ||||
| Federal income taxes |
1,107 | 1,099 | ||||
| Net income |
$ | 2,219 | $ | 2,061 | ||
| Earnings per share: |
||||||
| Basic |
$ | 0.36 | $ | 0.31 | ||
| Diluted |
$ | 0.35 | $ | 0.30 | ||
| Dividends declared per share: |
$ | 0.155 | $ | 0.135 | ||
See Notes to Condensed Consolidated Financial Statements.
Page 3
HERITAGE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
(Unaudited)
| March 31, 2004 |
December 31, 2003 |
|||||||
| Assets | ||||||||
| Cash on hand and in banks |
$ | 15,538 | $ | 17,495 | ||||
| Interest earning deposits |
11,568 | 9,981 | ||||||
| Federal funds sold |
9,000 | 7,600 | ||||||
| Investment securities available for sale |
47,051 | 55,601 | ||||||
| Investment securities held to maturity |
2,131 | 2,151 | ||||||
| Loans held for sale |
4,356 | 1,018 | ||||||
| Loans receivable |
535,488 | 520,395 | ||||||
| Less: Allowance for loan losses |
(7,924 | ) | (7,748 | ) | ||||
| Loans receivable, net |
527,564 | 512,647 | ||||||
| Other real estate owned |
536 | 523 | ||||||
| Premises and equipment, net |
17,163 | 17,451 | ||||||
| Federal Home Loan Bank and Federal Reserve stock, at cost |
2,986 | 2,962 | ||||||
| Accrued interest receivable |
2,739 | 2,782 | ||||||
| Prepaid expenses and other assets |
3,016 | 3,205 | ||||||
| Deferred Federal income taxes, net |
287 | 414 | ||||||
| Goodwill |
6,640 | 6,640 | ||||||
| Total assets |
$ | 650,575 | $ | 640,920 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Deposits |
$ | 557,326 | $ | 541,832 | ||||
| Advances from Federal Home Loan Bank |
25,400 | 31,100 | ||||||
| Accrued expenses and other liabilities |
8,535 | 5,756 | ||||||
| Total liabilities |
591,261 | 578,688 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock, no par value per share, 15,000,000 shares authorized; 6,054,995 and 6,192,996 shares outstanding at March 31, 2004 and December 31, 2003, respectively |
14,528 | 18,430 | ||||||
| Unearned compensation - ESOP and other |
(1,614 | ) | (1,087 | ) | ||||
| Retained earnings, substantially restricted |
46,119 | 44,849 | ||||||
| Accumulated other comprehensive income, net |
281 | 40 | ||||||
| Total stockholders’ equity |
59,314 | 62,232 | ||||||
| Commitments and contingencies |
— | — | ||||||
| Total liabilities and stockholders’ equity |
$ | 650,575 | $ | 640,920 | ||||
See Notes to Condensed Consolidated Financial Statements.
Page 4
HERITAGE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY FOR THE THREE
MONTHS ENDED MARCH 31, 2004 AND COMPREHENSIVE INCOME FOR THE THREE MONTHS
ENDED MARCH 31, 2004 and 2003
(In Thousands)
(Unaudited)
| Number of common shares |
Common stock |
Unearned -ESOP and |
Retained earnings |
Accumulated other comprehensive income |
Total stockholders’ equity |
|||||||||||||||||
| Balance at December 31, 2003 |
6,193 | $ | 18,430 | $ | (1,087 | ) | $ | 44,849 | $ | 40 | $ | 62,232 | ||||||||||
| Earned ESOP shares, incentive stock options and restricted stock awards |
30 | 618 | (527 | ) | — | — | 91 | |||||||||||||||
| Stock repurchase |
(231 | ) | (4,994 | ) | — | — | — | (4,994 | ) | |||||||||||||
| Exercise of stock options |
63 | 474 | — | — | — | 474 | ||||||||||||||||
| Net income |
— | — | — | 2,219 | — | 2,219 | ||||||||||||||||
| Increase in unrealized gain on securities available for sale, net of tax |
— | — | — | — | 241 | 241 | ||||||||||||||||
| Cash dividends declared |
— | — | — | (949 | ) | — | (949 | ) | ||||||||||||||
| Balance at March 31, 2004 |
6,055 | $ | 14,528 | $ | (1,614 | ) | $ | 46,119 | $ | 281 | $ | 59,314 | ||||||||||
| Comprehensive Income |
Three months ended March 31, |
||||||
| 2004 |
2003 |
||||||
| Net income |
$ | 2,219 | $ | 2,061 | |||
| Change in unrealized gain (loss) on securities available for sale, net of tax of $124 and ($49) |
241 | (96 | ) | ||||
| Comprehensive income |
$ | 2,460 | $ | 1,965 | |||
See Notes to Condensed Consolidated Financial Statements.
Page 5
HERITAGE FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2004 and 2003
(Dollars in thousands)
(Unaudited)
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 2,219 | $ | 2,061 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
459 | 449 | ||||||
| Deferred loan fees, net of amortization |
119 | 14 | ||||||
| Provision for loan losses |
180 | 495 | ||||||
| Federal Home Loan Bank stock dividends and Federal Reserve Stock |
(24 | ) | 45 | |||||
| Net change in accrued interest receivable, prepaid expenses and other assets, accrued expenses and other liabilities |
3,464 | 1,108 | ||||||
| Recognition of compensation related to ESOP shares, incentive stock options and restricted stock awards |
91 | 37 | ||||||
| Gain on sale of premises and equipment |
(3 | ) | — | |||||
| Net increase in loans held for sale |
(3,338 | ) | (263 | ) | ||||
| Net cash used in operating activities |
3,167 | 3,946 | ||||||
| Cash flows from investing activities: |
||||||||
| Loans originated, net of principal payments |
(15,216 | ) | (7,551 | ) | ||||
| Proceeds from other real estate owned |
— | 418 | ||||||
| Proceeds from maturities/calls of investment securities available for sale |
10,448 | 20,376 | ||||||
| Proceeds from maturities/calls of investment securities held to maturity |
20 | 142 | ||||||
| Purchase of investment securities available for sale |
(1,530 | ) | (20,732 | ) | ||||
| Purchase of premises and equipment |
(172 | ) | (519 | ) | ||||
| Proceeds from sale of premises and equipment |
4 | 5 | ||||||
| Net cash used in investing activities |
(6,446 | ) | (7,861 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Net increase (decrease) in deposits |
15,494 | |||||||