Heritage Financial (HFWA) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Loan balances increased by $147 million in Q3 2024, with yields on the loan portfolio rising to 5.60$193 million, with noninterest-bearing deposits contributing approximately $83 million to this increase [5] - Net interest income rose by$1.8 million, representing a 3.6% increase or 14% on an annualized basis, driven by higher average earning assets and net interest margin, which increased to 3.33% from 3.29% in the prior quarter [8] - The cost of interest-bearing deposits was 2.02% for Q3, slightly down from 2.03% in September [7] - Regulatory capital ratios remained comfortably above the low capitalized threshold, with the TCE ratio increasing to 9.1% from 8.9% in the prior quarter [9] Business Line Data and Key Metrics Changes - Commercial lending closed $253 million in new loan commitments, up 16$217 million in Q3 2023 [17] - The commercial loan pipeline ended Q3 at $491 million, an increase from$480 million in the previous quarter and significantly up from $291 million at the end of Q3 2023 [18] - The average interest rate for new commercial loans was 6.53$420 million of CDs maturing in Q4 at an average cost of 4.56%, anticipating a repricing lower due to declining market rates [6] Company Strategy and Development Direction - The company is focused on core balance sheet growth and prudent risk management to enhance core profitability [3] - The hiring of a new Chief Operating Officer is part of the strategic initiatives to support the CEO succession plan and enhance operational efficiency [21] - The company aims to leverage its strong capital position and risk management practices to navigate future opportunities [22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about net interest margin expansion and loan growth, despite competitive pressures in the market [24] - The company anticipates mid- to high single-digit loan growth for 2025, supported by a strong pipeline and ongoing demand [27] - Management acknowledged the need to balance expenses with growth, indicating a cautious approach to future hiring and team expansions [30] Other Important Information - The company repurchased 347,000 shares, approximately 1% of outstanding shares, at a weighted average cost of $21.40 [9] - Nonaccrual loans totaled$4.3 million, representing 0.09% of total loans, with a slight increase from the previous quarter [11] Q&A Session Summary Question: Margin impact from repositioning and Fed moves - Management indicated that trades took place in August and September, with expectations for margin stability in Q4 and potential expansion in 2025 [24] Question: Expectations for loan growth in 2025 - Management expects mid- to high single-digit growth in 2025, driven by a strong pipeline and recent loan production [27] Question: Deposit costs and CD pricing - Management anticipates a potential repricing of CDs lower by 20 to 25 basis points, depending on market conditions [45] Question: Capital priorities and M&A strategy - Management remains open to M&A opportunities but emphasizes improving financial metrics before pursuing acquisitions [42]