Shareholder Announcements

Annual Shareholders Meeting

May 3, 2018

Heritage Bank Main Branch, 2330 S. Virginia St. Reno

Message to Shareholders

We are happy to report that Heritage Bank continues to be Northern Nevada’s premier and only community bank headquartered in our market. In addition, our bank is the largest community bank in Nevada. The Northern Nevada economy has experienced tremendous growth thanks in part to the expansion of the Tahoe Reno Industrial Center (TRIC).  Unemployment in our area has improved dramatically since the great recession 2008-2012. Many new businesses are moving into our area primarily from California, driven by Nevada’s tax advantages. As a result, there are approximately 12,000 local unfilled jobs.

There is tremendous growth in construction, both residential and commercial, in our market. You don’t have to look far to see the construction growth as our main office on Virginia Street is located in the center of one of the largest development projects in Reno.  The Park Lane project is a master planned development, which includes approximately 1,700 housing units and multiple retail establishments. It’s exciting to be part of this great project in the heart of our city.

Once again in 2017, Heritage Bank was recognized as the number one SBA 504 Lender in Northern Nevada as named by the Small Business Administration. This is the seventh straight year Heritage Bank has received the award, adding to our positive brand and reputation. While the big banks continue to have regulation missteps, Heritage Bank has a great reputation and relationship not only with the SBA, but with both state and federal regulators.

We’re proud to report, that Heritage Bank had another outstanding year in 2017. Pre-tax profitability was up 16% year over year, increasing from $17.8 million year ending 2016 to $20.6 million year ending 2017. As you are aware, the government reduced the maximum corporate tax rate from approximately 35% to 21% starting in 2018. Due to the fact that the new tax legislation was signed in December of 2017, we needed to recognize an adjustment to our deferred tax asset of $1.6 million dollars. Even with the substantial adjustment to our deferred tax asset, we were still able to produce an earnings per share of $10.03 which is a 3% increase over the $9.74 per share produced in 2016.

Our credit quality continues to improve along with Northern Nevada’s strengthening economy which enabled us to reverse $575,000 from our loan loss reserve. Even with the negative provision to loan reserve, our bank still maintains a 1.47% allowance for future loan losses, which is well above the peer level of 1.25%. In 2017, we had charge-offs net of recoveries of $105,000.

Total deposits grew by 12% from $652 million at year-end 2016, to $728 million at year-end 2017, with the growth continuing in core deposits. Net loan growth continues to be strong at 6%, increasing from $506 million at year-end 2016 to $536 million at year-end 2017.

Our strong profitability enabled us to continue our stock buy-back program. In 2017, the Board of Directors authorized $7 million for the program. The stock buy-back program has been in existence since 2006 and enables the bank to provide liquidity for our shareholders. During 2017, we were able to repurchase 53,195 shares, bringing the total repurchased to-date to 534,780 shares or approximately 31% of the shares issued. With our current capital levels exceeding regulatory requirements, we anticipate continuing the stock repurchase program in 2018.

As the largest state chartered bank in all of Nevada, we continue to grow and build on our excellent reputation. We provide our customers with the most up-to-date products and services available to us, and educate them on keeping their accounts safe and secure. Looking forward, we are very optimistic about what the future of Northern Nevada holds for Heritage Bank, our customers and our community. We are well positioned to take full advantage of the economic growth that is forecast to continue in our market area.

Heritage Bank assists our customers with the personalized service that only a locally-based community bank can provide. As a community bank, we remain involved in and supportive of the activities and organizations that support our community. And as always, we appreciate our team of employees, our customers, our stockholders, and our Board of Directors who continue to support the goals of Heritage Bancorp and our subsidiary Heritage Bank of Nevada.

Stanley Wilmoth                                              Robert Cashell, Jr.
President and CEO                                              Chairman of the Board