Heritage Financial (US:HFWA)2025-10-23 18:02Financial Data and Key Metrics Changes - Adjusted earnings per share increased by 5.7% quarter-over-quarter and 24.4% year-over-year [3] - Return on assets (ROA) improved to 1.11% from 0.87% in the same quarter last year [3] - Net interest income rose by $2.4 million, or 4.3%, from the prior quarter [6] - Net interest margin increased to 3.64% from 3.51% in the previous quarter [7] - Total capital ratios remain above well-capitalized thresholds, with the tangible common equity (TCE) ratio rising to 9.8% from 9.4% [8] Business Line Data and Key Metrics Changes - Total loan balances decreased by $5.7 million, despite an increase in loan originations [4] - Loan yields in the portfolio were 5.53%, up three basis points from the previous quarter [4] - Total deposits increased by $73 million, with non-interest-bearing deposits rising by $33.7 million [5] - Investment balances decreased by $33 million due to expected principal cash flows [5] Market Data and Key Metrics Changes - The average interest rate for new commercial loans was 6.67%, up 12 basis points from the previous quarter [16] - The deposit pipeline ended the quarter at $149 million, compared to $132 million in the second quarter [16] Company Strategy and Development Direction - The pending merger with Olympic Bank Corp is expected to enhance profitability and growth in the Puget Sound market [3] - The company aims to return to traditional loan growth rates of mid to high single digits in 2026 [25] - The focus remains on managing loan-to-deposit ratios, with a target of reaching 85% [64] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in credit quality despite economic volatility, noting no material impact on credit metrics [12] - The company anticipates continued deposit growth and a positive outlook for loan production in the upcoming quarters [17] - Management is closely monitoring the economic environment but sees no immediate threats to loan demand [27] Other Important Information - Non-accrual loans totaled $17.6 million, representing 0.37% of total loans, an increase from 0.21% in the previous quarter [9] - The company halted lost trade activity and did not purchase any securities in Q3 to preserve capital for the acquisition [6] Q&A Session Summary Question: What is the spot cost of deposits and NIM for September? - The spot rate on interest-bearing deposits was 1.87%, and the NIM for September was 3.66% [23] Question: How much opportunity is there to reduce rates on non-maturity deposits? - There is potential to reduce rates on approximately $1 billion in exception-priced deposits currently costing close to 3% [24] Question: What is the outlook for organic loan growth in 2026? - The company expects to return to mid to high single-digit growth rates in 2026, with positive net advances anticipated [25][26] Question: How has competition been trending in the markets? - Competition remains strong, with pricing competition on deposits varying by geography [42] Question: What are the capital priorities post-deal approval and integration? - The focus will be on preserving capital during the transaction costs associated with the merger, with potential for future buybacks to be evaluated later [62]