Heritage Financial Corp: Q3 2024 Earnings Call Highlights Strong Loan and Deposit Growth

Heritage Financial Corp (HFWA) reported robust financial performance in Q3 2024, with significant loan and deposit growth, margin expansion, and continued benefits from expense management efforts. The company's strategic repositioning of its balance sheet contributed to these positive results, as it focused on funding higher-yielding loans and reducing borrowings.

The company's loan portfolio experienced strong growth, with loan balances increasing by $147 million in Q3 2024. This growth was driven by a combination of increased loan yields and strategic repositioning. The yield on the loan portfolio was 5.60%, which was 8 basis points higher than the previous quarter. This increase in loan yields, coupled with the company's efforts to reduce the cost of deposits, resulted in an improvement in net interest margin.

Heritage Financial Corp also reported significant deposit growth, with total deposits increasing by $193 million during the quarter. This growth was primarily driven by an increase in noninterest-bearing deposits, which accounted for about $83 million of the total deposit growth. The company's strategic repositioning of its balance sheet, which involved selling investment securities and using the proceeds to fund higher-yielding loans, also contributed to deposit growth.

The company's strategic repositioning also allowed it to reduce borrowings by $118 million in Q3 2024, enhancing its financial flexibility. This reduction in borrowings, along with the increase in average earning assets and net interest margin, resulted in an improvement in net interest income of $1.8 million, or 3.6%, from the prior quarter.

Despite the positive results, the company recognized a $6.9 million loss on the sale of $71 million in securities as part of its strategic repositioning. Additionally, the provision for credit losses increased to $2.4 million in Q3 2024, up from $1.3 million in the previous quarter. Total charge-offs amounted to $2.7 million, primarily due to one owner-occupied CRE loan.

In conclusion, Heritage Financial Corp's Q3 2024 earnings call highlights strong loan and deposit growth, margin expansion, and continued benefits from expense management efforts. The company's strategic repositioning of its balance sheet contributed to these positive results, although it also resulted in a loss on the sale of securities and an increase in provision for credit losses. As the company continues to focus on core balance sheet growth and prudent risk management, investors can expect to see ongoing benefits to its core profitability.