Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Heritage Financial Corp (HFWA, Financial) reported strong loan growth with loan balances increasing by $147 million in Q3 2024.
- The company experienced significant deposit growth, with total deposits increasing by $193 million during the quarter.
- Net interest income improved by $1.8 million, driven by increases in average earning assets and net interest margin.
- The company successfully reduced borrowings by $118 million in Q3, enhancing its financial flexibility.
- Heritage Financial Corp (HFWA) maintained strong capital ratios, allowing for active stock repurchases and strategic balance sheet repositioning.
Negative Points
- The company recognized a $6.9 million loss on the sale of $71 million in securities as part of a strategic repositioning.
- Provision for credit losses increased to $2.4 million in Q3, up from $1.3 million in the previous quarter.
- Total charge-offs amounted to $2.7 million, primarily due to one owner-occupied CRE loan.
- Nonaccrual loans increased to $4.3 million, representing 0.09% of total loans, up from 0.08% in the previous quarter.
- The cost of interest-bearing deposits remained high at 2.02% for Q3, with strong competition for deposit dollars expected to persist.
Q & A Highlights
Q: Can you explain the margin impact from the recent repositioning and how it might affect the fourth quarter?
A: The repositioning took place in August and September, providing less than a half-quarter benefit. We expect the net interest margin (NIM) to remain steady in Q4, with potential expansion in 2025. Approximately 22% of our loans are floating, and we anticipate repricing down 50 basis points following the September rate cut. We are also working on lowering deposit rates, despite strong competition for deposits. β Donald Hinson, CFO
Q: How does the construction delay payoff affect your 2025 loan growth expectations?
A: We expect mid- to high single-digit loan growth in the fourth quarter and into 2025. The pipeline is strong, ending Q3 at $491 million, up significantly from last year. While construction commitments are lower, the strong pipeline and recent activity suggest continued growth momentum. β Bryan McDonald, President and CEO of Heritage Bank
Q: What are your plans regarding staffing and expenses for 2025?
A: We will be judicious about adding new teams in 2025, focusing on strategic hires that can quickly contribute to the bottom line. We expect some increase in expenses due to recent hires and vendor costs, with quarterly expenses potentially reaching $41 million to $42 million. β Jeffrey Deuel, CEO and Donald Hinson, CFO
Q: What is your strategy for managing borrowings due this quarter?
A: The $148 million in borrowings have a weighted average rate of 5.40%. We haven't finalized plans but may either refinance or pay them off, depending on deposit growth and other funding needs. The cost will decrease significantly regardless of the decision. β Donald Hinson, CFO
Q: How do you view capital priorities, including stock repurchases and M&A?
A: We continue to monitor our capital needs and may engage in stock buybacks if the price is attractive. M&A remains a possibility, with ongoing conversations to stay connected with potential targets. We aim to improve our financial position to be ready for strategic opportunities. β Jeffrey Deuel, CEO and Donald Hinson, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
