Heritage Financial (HFWA)2023-05-04 20:09Financial Performance - Net income for the three months ended March 31, 2023, increased by 20.5 million, compared to 1.3 million, or 5.7%, to 12.7 million, or 3.7%, to 28.2 million, or 3.5%, to 20.5 million in net income[153] Interest Income and Expenses - Net interest income rose by 59.8 million for the three months ended March 31, 2023, primarily due to increased interest earned on interest-earning assets following market interest rate hikes[121] - Total interest income rose by 66.7 million for the three months ended March 31, 2023, driven primarily by increased yields on interest-earning assets[125] - Total interest expense surged by 6.8 million during the three months ended March 31, 2023, due to competitive rate pressures and increased borrowing costs[127] - The net interest margin for the three months ended March 31, 2023, was 3.91%, compared to 2.84% for the same period in 2022[122] - Net interest margin improved by 107 basis points to 3.91% for the three months ended March 31, 2023, compared to 2.84% for the same period in 2022[128] Credit Losses and Provisions - The provision for credit losses for the three months ended March 31, 2023, was 3.6 million reversal of provision for credit losses in the same period of 2022[121] - Provision for credit losses on loans increased by 1.7 million for the three months ended March 31, 2023, reflecting an increase in loans receivable[130] - The company may need to record additional provisions for credit losses if future economic conditions deteriorate, as required by the CECL model under ASC 326[120] - Allowance for Credit Losses (ACL) on loans increased by 44.469 million compared to the previous year[143] - The ACL on loans to nonaccrual loans ratio improved significantly from 244.04% to 923.55%, an increase of 278.4%[143] Loans and Receivables - Average loans receivable increased to 50,450 thousand, yielding 5.07% for the three months ended March 31, 2023[122] - Loans receivable increased by 4.08 billion, with new loans funded amounting to 2.5 billion, with office loans representing 22.8% of this segment[140] - The largest increase in the loan portfolio was in commercial and multifamily construction loans, which rose by 256.7 million, or 3.7%, to 197.9 million, or 191.0%, to 135.8 million, or 2.3%, to 135.8 million, or 2.3%, to 92.316 million, or 8.7%, reflecting an increase in public deposits[146] Market Conditions and Economic Outlook - The Federal Open Market Committee increased the federal funds rate by a cumulative 475 basis points from March 2022 through March 2023 to combat inflation[119] - The company anticipates potential impacts on loan growth and credit quality due to ongoing economic pressures and inflationary conditions[120] - Management believes capital sources are adequate to meet all reasonably foreseeable cash requirements, with no material changes since the 2022 Annual Form 10-K[160] - Interest rate risk is the primary market risk, with management regularly reviewing exposure to changes in interest rates[166] - The company does not engage in trading activities or high-risk derivative instruments, minimizing exposure to market risks[167] Liquidity and Capital - Total available liquidity as of March 31, 2023, is 3,087,993,000[160] - Cash and cash equivalents amount to 1,116,013,000[160] - The Company maintained a common equity Tier 1 capital ratio of 12.9% as of March 31, 2023, up from 12.8% at the end of 2022[157] - The Bank's available borrowing capacity with the Federal Home Loan Bank was 383.1 million in advances outstanding[148] - The Company has a credit facility with the Federal Reserve Bank with available borrowing capacity of $640.6 million, with no borrowings outstanding[149]