Business Combinations (Tables)

12 Months Ended

Dec. 31, 2019

Preliminary fair value estimates of assets acquired and liabilities assumed and adjustments

The fair value estimates of the assets acquired and liabilities assumed in the Premier and Puget Mergers were as follows:



	Premier Merger		Puget Sound Merger
	(In thousands)
Assets
Cash and cash equivalents	$	22,534	$	25,889
Interest earning deposits	3,309		54,247
Investment securities available for sale	4,493		80,353
Loans receivable ⁽¹⁾	330,158		388,462
Other real estate owned	1,796		—
Premises and equipment, net	3,053		732
Federal Home Loan Bank stock, at cost	1,120		623
Bank owned life insurance	10,852		6,264
Accrued interest receivable	1,006		1,448
Prepaid expenses and other assets	1,603		1,354
Other intangible assets	7,075		11,270
Total assets acquired	$	386,999	$	570,642
Liabilities
Deposits	$	318,717	$	505,885
Federal Home Loan Bank advances	16,000		—
Securities sold under agreement to repurchase	462		—
Accrued expenses and other liabilities	5,935		2,504
Total liabilities acquired	$	341,114	$	508,389

Fair value of net assets acquired	$	45,885	$	62,253

⁽¹⁾The outstanding loan balance acquired in the Premier Merger and Puget Sound Merger was $335.4 million and $392.7 million, respectively, at the acquisition date.

A summary of the net assets purchased and the estimated fair value adjustments and resulting goodwill recognized from the Premier and Puget Sound Mergers are presented in the following tables. Goodwill represents the excess of the consideration transferred over the estimated fair value of the net assets acquired and liabilities assumed.



	Premier Merger			Puget Sound Merger
	(In thousands)
Consideration transferred	$	99,275		$	130,773

Cost basis of net assets on merger date	$	40,629		$	54,405
Fair value adjustments:
Investment securities	(135		)	(348		)
Total loans receivable, net	(111		)	1,400
Other real estate owned	(1,017		)	—
Premises and equipment	1,312			(121		)
Other intangible assets	7,075			9,207
Prepaid expenses and other assets	(1,912		)	(2,282		)
Deposits	(310		)	(62		)
Accrued expenses and other liabilities	354			54
Fair value of net assets on merger date	$	45,885		$	62,253

Goodwill recognized from the mergers	$	53,390		$	68,520

Unaudited pro forma information

The following table presents certain pro forma information, for illustrative purposes only, for the years ended December 31, 2018 and 2017 as if the Premier and Puget Mergers had occurred on January 1, 2017. The estimated pro forma information combines the historical results of Premier Commercial and Puget Sound with the Company's consolidated historical results and includes certain adjustments reflecting the estimated impact of certain fair value adjustments for the respective periods. The pro forma information is not indicative of what would have occurred had the Premier and Puget Mergers occurred on January 1, 2017. In particular, the pro forma information does not consider any changes to the provision for loan losses resulting from recorded loans at fair value. Additionally, Heritage expects to achieve further operating savings and other business synergies, including interest income growth, as a result of the Premier and Puget Mergers which are not reflected in the pro forma amounts in the following table. As a result, actual amounts will differ from the pro forma information presented.



	Pro Forma for the Year Ended December 31,
	2018		2017
	(Dollars in thousands, except per share amounts)
Net interest income	$	194,989	$	174,190
Net income	69,515		41,551
Basic earnings per common share	$	1.88	$	1.12
Dilutive Earnings per common share	$	1.87	$	1.12

The Company believes that the historical Premier Commercial and Puget Sound operating results, individually or collectively, are not considered of enough significance to be meaningful to the Company’s results of operations.