Release Date: July 25, 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 in Q2, with a 9.5% annualized increase, driven by a mortgage loan pool purchase and construction loan advances.
- Credit quality remains stable, with non-accrual loans decreasing and no OREO held, reflecting the company's conservative credit approach.
- The company has ample liquidity, a relatively low loan-to-deposit ratio, and a solid capital base, positioning it well for future growth.
- Heritage Financial Corp (HFWA) successfully repurchased 236,000 shares as part of its stock repurchase program, indicating strong capital management.
- The new commercial teams hired in 2022 and 2023 are performing ahead of projections, contributing positively to the company's growth strategy.
Negative Points
- Heritage Financial Corp (HFWA) experienced margin pressure, with the net interest margin decreasing to 3.29% in Q2 from 3.32% in the prior quarter.
- Deposit balances showed some volatility, with focal date deposits decreasing by $17 million during the quarter.
- The cost of interest-bearing deposits increased to 1.89% for Q2, driven by market pressures, impacting overall profitability.
- The company recognized a loss of $1.9 million from the sale of $39 million in securities, affecting the investment portfolio.
- Criticized loans increased modestly, with a notable downgrade of a multifamily construction loan, indicating potential credit risk concerns.
Q & A Highlights
Q: Can you discuss the trends in non-interest-bearing deposits and your expectations for core deposit growth?
A: Jeffrey Deuel, CEO, noted that deposits have started to stabilize, with operating accounts remaining stable despite some seeking higher rates for excess cash. Bryan McDonald, President and CEO, added that deposit retention and expansion are strategic focuses, with efforts to win new relationships and manage existing ones effectively.
Q: What are your growth expectations for the next few years, and where do you see the most opportunities?
A: Bryan McDonald highlighted that the focus is on commercial and industrial (C&I) lending, which has been the highest production segment. This focus provides granularity, diversity, and strong relationship core deposits, which are crucial in the current environment.
Q: Can you provide an update on your hiring strategy and any new market expansions?
A: Bryan McDonald mentioned the addition of a senior leader to expand the builder banking business and plans to add more team members in the Seattle and Boise markets. The company is open to hiring opportunities, especially amid market disruptions, and has a good track record with past integrations.
Q: What is your strategy regarding balance sheet repositioning and potential securities trades?
A: Donald Hinson, CFO, stated that the company will continue to evaluate balance sheet repositioning opportunities each quarter. While the size of trades may not match previous quarters, they will continue if they make sense for right-sizing the balance sheet and improving margins.
Q: What is your outlook on expenses for the remainder of the year and into next year?
A: Donald Hinson indicated that expenses were lower in Q2 due to open positions and some non-recurring savings. Looking ahead, expenses are expected to be in the $40 million to $41 million range, with minimal increases anticipated next year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
