Heritage Financial ((HFWA)) has held its Q3 earnings call. Read on for the main highlights of the call.
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The recent earnings call for Heritage Financial showcased a positive sentiment, highlighting strong earnings growth, an improved net interest margin, and robust deposit growth. Despite facing challenges such as flat loan balances and increased nonaccrual loans, the company remains optimistic about its future, particularly with the upcoming merger with Olympic Bancorp, which is expected to bolster growth prospects.
Improved Earnings and Net Interest Margin
Heritage Financial reported a significant increase in earnings per share, which rose by 5.7% quarter-over-quarter and 24.4% year-over-year. The net interest margin also saw an improvement, climbing to 3.64% from 3.51% in the previous quarter and 3.30% in the same quarter last year. This growth underscores the company’s ability to enhance profitability through effective interest rate management.
Deposit Growth
The company experienced a notable increase in total deposits, which grew by $73 million in the third quarter. This growth was driven by a $33.7 million rise in noninterest-bearing deposits, even as certificates of deposit accounts saw a decline. This shift in deposit composition reflects a strategic focus on more stable funding sources.
Stable Credit Quality
Credit quality at Heritage Financial remained strong, with nonperforming loans at low levels and net charge-offs continuing to be minimal. The company also reported a decrease in substandard and special mention loans by 5% and 12%, respectively, indicating a well-managed credit portfolio.
Pending Merger with Olympic Bancorp
The anticipated merger with Olympic Bancorp is a key strategic move for Heritage Financial, expected to enhance profitability and growth potential in the Puget Sound market. This merger is seen as a positive development, likely to strengthen the company’s market position and financial performance.
Flat Loan Balances
Total loan balances remained relatively flat during the third quarter, decreasing by $5.7 million. While loan originations increased, the rise in payoffs and prepayments offset this growth, leading to stagnant loan balances.
Increased Nonaccrual Loans
Nonaccrual loans saw an increase, reaching $17.6 million by the end of the quarter. This represented a rise from 0.21% at the end of the second quarter to 0.37% of total loans, highlighting an area of concern that the company will need to address.
Higher Noninterest Expenses
The company reported an increase in noninterest expenses by $530,000, attributed to higher compensation and benefits, as well as professional services expenses. Additionally, merger-related expenses amounted to $635,000, reflecting the costs associated with the upcoming merger.
Forward-Looking Guidance
Looking ahead, Heritage Financial remains optimistic about its financial trajectory. The company reported a 5.7% increase in adjusted earnings per share from the previous quarter and a 24.4% increase year-over-year. The return on average assets improved to 1.11%, and net interest income grew by $2.4 million. The anticipated merger with Olympic Bancorp is expected to further enhance profitability and market presence, positioning the company for continued success.
In summary, Heritage Financial’s earnings call conveyed a generally positive outlook, with strong earnings growth and improved net interest margins. While challenges such as flat loan balances and increased nonaccrual loans persist, the company’s strategic initiatives, including the merger with Olympic Bancorp, are expected to drive future growth and profitability.