Heritage Financial (HFWA) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The annualized loan growth excluding PPP was 9.5% for the quarter, supported by lower payoffs and higher line utilization [4] - Net interest income decreased by almost $1 million, primarily due to a$1.8 million decrease in income from PPP loans [12] - Total deposits grew by $97 million or 1.5$458 million or 7.6% [16] - Non-interest income decreased by $1.3 million from the prior quarter, mainly due to a$2.7 million gain on sale of property recognized in Q4 [19] - The overhead ratio improved to 1.95% compared to 2.06% in the prior quarter [19] Business Line Data and Key Metrics Changes - Commercial lending closed $225 million in new loan commitments, down from$329 million in the previous quarter [34] - Consumer loan production was $22 million during the quarter, down from$23 million in the previous quarter [38] - The mortgage department closed $37 million of new loans in Q1, compared to$45 million in Q4 [41] Market Data and Key Metrics Changes - The average interest rate for new commercial loans was 3.54%, down 17 basis points from the previous quarter [39] - The average interest rate for all new loans was 3.39%, down 11 basis points from the previous quarter [39] Company Strategy and Development Direction - The company is focused on maintaining a moderate risk profile and has not loosened underwriting standards despite competitive pressures [32] - There is an intention to pursue acquisitions in the three-state region when suitable opportunities arise [46] - The company continues to refine its technology strategy to support efficient operations and enhance customer experience [44] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about organic growth due to the economic vitality of the Pacific Northwest [8] - The company anticipates high single-digit loan growth for the year [43] - Management acknowledged inflationary pressures on compensation expenses and technology investments [20] Other Important Information - The allowance for credit losses (ACL) settled at 1.07% excluding PPP, compared to the pre-pandemic ACL of 1.01% [7] - Non-accrual loans declined by $7.2 million or 30$494,000 for the quarter [30] Q&A Session Summary Question: Is there a figure for net interest margin excluding PPP, interest recoveries, and accretion? - The margin would be about 260 basis points, unchanged from the prior quarter [51] Question: What is the buyback appetite compared to last quarter? - The company does not have a significant appetite for buybacks, maintaining a steady share count [52] Question: Is the expense outlook of $37 million to$38 million still appropriate? - Yes, that range is still appropriate, but expenses are expected to increase due to inflationary pressures [56][58] Question: Will the company continue to purchase residential mortgages? - The company may utilize this strategy as a lever to manage excess cash, depending on the environment [59][61] Question: What are the expectations for deposit rates with upcoming rate hikes? - The company expects a lag in deposit rate increases, with a potential need to raise rates later in the year [62] Question: What is the near-term margin outlook? - The company is optimistic about margin increases in the coming quarters, anticipating a bottoming out in Q1 [68][69] Question: What is the status of M&A discussions? - There has been no significant change in the M&A environment, and discussions are ongoing but not imminent [74] Question: Are there increased conversations regarding digitalization opportunities? - Opportunities are still expected to emerge later in the year as the market stabilizes [76]