Heritage Financial's Q2 2025 Earnings Call: Key Contradictions in Loan Growth, Deposit Costs, and Credit Quality

Loan growth opportunities and strategy, deposit yield and cost, credit quality and risk management, loan yield expectations, and deposit cost trends are the key contradictions discussed in Heritage Financial Corporation's latest 2025Q2 earnings call.



Improving Financial Performance:
- Heritage Financial reported adjusted earnings per share up 8.2% versus the previous quarter and 17.8% versus the second quarter of 2024.
- This improvement was driven by an increase in net interest margin and tight control on noninterest expenses.

Growth in Loan Portfolio:
- Total loan balances increased by $10 million in Q2, with yields on the loan portfolio reaching 5.50%.
- The growth was attributed to new loans originated at higher rates and adjustable rate loans repricing higher.

Investment and Balance Sheet Repositioning:
- Investment balances decreased by $67.6 million, with a pretax loss of $6.9 million recognized.
- The repositioning was part of a strategic move to reinvest in higher-yielding securities and fund new loans.

Credit Quality and Risk Management:
- Nonaccrual loans totaled just under $9.9 million at quarter end, representing 0.21% of total loans.
- The credit quality remains strong, with the bank maintaining a disciplined approach to credit underwriting.

Loan Production and Pipeline:
- The commercial lending group closed $248 million in new loan commitments, with an estimated $300 million for the third quarter.
- The production levels were supported by a strong pipeline, despite some tariff-related uncertainties affecting customer capital plans.