Heritage Financial ((HFWA)) has held its Q4 earnings call. Read on for the main highlights of the call.
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Heritage Financial’s latest earnings call presented a mixed sentiment, highlighting both strengths and challenges. The company reported strong loan growth and improvements in net interest margins, yet these positives were tempered by a decrease in deposits, investment losses, and an increase in criticized loans, which contributed to a cautious outlook.
Strong Loan Growth
During the fourth quarter, Heritage Financial saw loan balances increase by $123 million, marking a 10.8% growth for the full year 2024. This robust growth was attributed to new production across the company’s operational footprint, coupled with moderate levels of prepayment and payoff.
Net Interest Margin Improvement
The company’s net interest margin improved to 3.39% in the fourth quarter, up from 3.33% in the third quarter. This increase is expected to continue in the upcoming quarters, providing an optimistic view of future financial performance.
Stable Credit Quality
Heritage Financial maintained stability in credit quality, with nonaccrual loans totaling just over $4 million at year-end, representing a mere 0.08% of total loans. This demonstrates consistent credit management over recent years.
Successful Stock Buyback Program
In the fourth quarter, the company repurchased 165,000 shares at a total cost of $4.3 million. With 990,000 shares still available for repurchase, this move signals confidence in the company’s intrinsic value.
Decrease in Deposits
The earnings call revealed a decrease in total deposits by $24 million during the fourth quarter, primarily due to a $25 million reduction in brokered certificates of deposit (CDs).
Pretax Loss from Investment Sales
A pretax loss of $3.9 million was recognized from the sale of $36 million in securities, a strategic move aimed at repositioning the balance sheet.
Increase in Criticized Loans
The quarter saw a 4.7% rise in criticized loans, largely due to the downgrade of three commercial and industrial (C&I) relationships, indicating potential challenges in loan portfolio quality.
Forward-Looking Guidance
Looking ahead, Heritage Financial’s executives provided detailed guidance, underscoring strong loan growth but noting a slight decrease in yields due to a Fed funds rate reduction. Despite a decrease in deposits, the cost of interest-bearing deposits fell to 1.98%. Notably, investment balances decreased, leading to an estimated annualized pretax income improvement of $1.4 million. The net interest margin is expected to continue its upward trajectory, while noninterest expenses saw a slight increase.
In summary, Heritage Financial’s earnings call painted a picture of both opportunity and caution. The company achieved significant loan growth and improved net interest margins, yet faced challenges with deposit reductions and criticized loans. Forward-looking statements suggest a focus on strategic financial management to navigate these complexities.
