Heritage Financial: Announced Wbco Merger


The following excerpt is from the company's SEC filing.

* Excludes expenses related to implementing 2013/2014 strategic initiatives. These expenses are identifiable costs paid to third-party providers as well as any retention bonuses or severance payments made in conjunction with these initiatives.

$3.4 billion(1) in total assets with 67 branches from Bellingham, WA to Portland, OR A strategic partnership between two culturally similar Washington community banks Significant franchise value

Effective use of capital will enhance returns and shareholder value for both HFWA and WBCO Achieve operational scale and realize efficiencies as a larger combined fra nchise Well-positioned for continued growth and fill-in opportunities Increased market visibility

Conservative approach to pro forma assumptions supported by significant, mutual due diligence Experienced management teams working together Both companies are experienced integrators Similar customer base, markets and business strategy Shared credit quality discipline Strong pro forma capital position

(2) Mean EPS estimate for 2014 per SNL FactSet research. EPS estimate in 2015 based on 7.50% long-term growth rate, as of 10/23/2013 announcement (3) EPS accretion excludes non-recurring merger related costs 8

Combination creates $3.4 billion (1) asset franchise with 67 branch locations across Washington and Oregon from Bellingham, WA to Portland, OR

(1) Pro forma includes preliminary assumptions on purchase accounting and merger adjustments (2) Combined footprint of all counties in Washington with either a HFWA branch or WBCO branch.

Fixed exchange ratio of 0.8900x HFWA shares and $2.75 in cash per WBCO share Transaction value of $270.9 million / $17.38 per share(1)

EPS accretion of approximately 13% in 2014 and approximately 24% in 2015(1)(2) Tangible book value per share dilution of approximately 12.8% at closing Payback period of approximately 2.0 years based on incremental earnings method(3) Payback period of approximately 4.9 years based on traditional EPS method(4) IRR of ~18.0% Pro forma ROAA above 1.00% and ROATCE above 10.0%(2) Strong pro forma capital position – TCE ratio and leverage ratio of approximately 9.0% and 10.0% respectively

(1) Mean EPS estimate for 2014 per SNL FactSet research. EPS estimate in 2015 based on 7.50% long-term growth rate (2) EPS accretion in 2014 and 2015 excludes non-recurring merger related costs (3) Payback period based on the number of years its takes to eliminate the tangible book value per share dilution with the estimated incremental after-tax earnings per share provided by WBCO divided by pro forma fully diluted HFWA shares outstanding (4) Payback period based on the number of years its takes to eliminate the tangible book value per share dilution with the estimated pro forma HFWA EPS accretion

(1) Pro forma includes preliminary assumptions on purchase accounting and merger Source: SNL Financial and public filings, as of 12/31/2013 adjustments Note: All quarterly ratios on an annualized basis (2) Includes gross loans purchased in whole bank and FDIC-assisted acquisitions *Following merger, with cost savings fully phased-in since 2010 (3) 36 HFWA branches as of 2/3/2014 (4) Consolidated holding company

(1) Total loan portfolio, including originated and purchased loans, prior to loan loss reserve 13 (2) Pro forma does not include purchase accounting or merger related adjustments

Pro forma company ranked 11th in deposit market share in Washington with 2.40% of total deposits in the state Ranked 3rd in deposit market share among Washington-based institutions in combined footprint(2)

Source: SNL Financial and FDIC deposit reports, as of 6/30/2013 Note: All dollars in millions, unless otherwise noted (1) 35 HFWA branches in Washington as of 2/3/2014

(2) Combined footprint of all counties in Washington with either a HFWA branch or WBCO 14 branch. Includes all institutions with corporate headquarters in the state of Washington

(1) Source: SBA Lender rankings for SBA 504 loans between 10/1/2012 and 8/31/2013 15 based on number of loans in Seattle/Spokane market

Broader product offering for customer base - cross-sell opportunities in certain segments, such as consumer, auto lending, mortgages, SBA, wealth management, etc.

* The dividends for Q1 2014 consist of a regular quarterly dividend declared on January 29 and another dividend declared on March 27. The March 27 dividend is the dividend regularly declared in April for Q2, but was declared one month in advance as a result of the anticipated merger with Washington Banking Company.

•   We provided 2014 loan growth guidance of 5 - 7%. Revised to 7 - 10% for 2014 Focus on SBA Lending Non-interest income growth for 2014/2015

•   An expanded product offering and formidable I-5 delivery structure that has more branches from Bellingham WA to Vancouver WA than any other community bank

The above information was disclosed in a filing to the SEC. To see this filing in its entirety, click here.

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Other recent filings from the company include the following:

Heritage Financial Corporation Just Filed Its Quarterly Report: The amortized cost, ... - Nov. 5, 2014
Heritage Financial Corporation's Chief Credit Officer just picked up 256 shares - Oct. 30, 2014

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