Heritage Financial Corporation (NASDAQ GS: HFWA) (the “Company” or “Heritage”), the parent company of Heritage Bank, recently stated that the Company had net income of $16.6M for the quarter finished March 31, 2K19 difference to $9.1M for the quarter finished March 31, 2K18 and $16.6M for the linked-quarter finished December 31, 2K18.
Diluted earnings per common share for the quarter finished March 31, 2K19 was $0.45 difference to $0.27 for the quarter finished March 31, 2K18 and $0.45 for the linked-quarter finished December 31, 2K18.
Brian L. Vance, CEO of Heritage, commented, “The past 15 months have been very busy with the integration and conversion of 2 acquisitions, and a second-team lift-out in Portland in addition to selective additions to our overall production platform.
In addition, we have begun to build out our technology platform to create better efficiencies in the back office which will eventually improve our processes and contribute to our improving overhead ratio. We suppose the combined organization is well-positioned to continue to gain market share in the communities we serve while at the similar time improving the customer experience.”
Jeffrey J. Deuel, President, and CEO of Heritage Bank commented, “We are happy with our overall financial performance. We saw middle single-digit annualized loan growth throughout the 1st quarter and our loan pipelines remain strong.
While we practiced a decline in overall deposits in the quarter, it is not unusual to see seasonal deposit run-off in the 1st quarter. Our relatively low 84.1 percent loan to deposit ratio provides us with the flexibility necessary to successfully manage through the current competitive rate environment.”
The Company’s whole assets raised $25.2M, or 0.5 percent, to $5.34B at March 31, 2K19 from $5.32B at December 31, 2K18.
Investment securities available for sale raised $8.9M, or 0.9 percent, to $985.0M at March 31, 2K19 from $976.1M at December 31, 2K18 mainly as a result of a decline in net unrealized losses of $10.2M because of a decline in interest rates throughout the 1st quarter that positively influenced the fair value of our bond portfolio.
Whole loans receivable, net raised $41.2M, or 1.1 percent, to $3.66B at March 31, 2K19 from $3.62B at December 31, 2K18. Whole loans receivable, net, continued to be influenced by slightly elevated prepayments throughout the 1st quarter 2K19 in addition to the seasonably low loan originations practiced throughout the 1st quarter.
Prepaid costs and other assets raised $24.5M, or 24.9 percent, to $123.0M at March 31, 2K19 from $98.5Mat December 31, 2K18 mainly because of the adoption of Accounting Standards Update 2016-02, Leases, and the recognition of an operating lease right of use asset. An offsetting operating lease right of use liability was recorded in accrued costs and other liabilities. As of March 31, 2K19, the right of use asset was $28.4M and the related liability was $29.5M.
Whole deposits reduced $38.7M, or 0.9 percent, to $4.39B at March 31, 2K19 from $4.43B at December 31, 2K18. The decline was due mainly to non-maturity deposits declining $92.9M, or 2.3 percent, offset partially by a boost in certificates of deposit of $54.2M, or 11.6 percent.
The increase in certificates of deposit was due mainly to a boost in brokered certificates of deposit of $50.1M throughout the quarter finished March 31, 2K19 in response to the decline in non-maturity deposits. Non-maturity deposits as a percentage of whole deposits reduced to 88.1 percent as of March 31, 2K19 from 89.5 percent as of December 31, 2K18.
The allowance for loan losses raised $1.1M, or 3.2 percent, to $36.2M at March 31, 2K19 from $35.0M at December 31, 2K18. The increase was because of provision for loan losses of $920,000 recorded throughout the quarter finished March 31, 2K19 and net recoveries of $190,000 recognized throughout the similar period.
Nonperforming loans to loans receivable, net, raised to 0.47 percent at March 31, 2K19 from 0.37 percent at December 31, 2K18 due mainly to a boost in nonaccrual loans of $3.8M, or 27.4 percent, to $17.5M at March 31, 2K19 from $13.7M at December 31, 2K18. The increase was mainly related to the addition of two commercial lending relationships totaling $5.1M which showed raised signs of cash flow deterioration. The administration has allocated a specific reserve totaling $781,000 for these two credit relationships.
Net interest income raised $9.0M, or 22.0 percent, to $49.8M for the quarter finished March 31, 2K19 difference to $40.8M for the similar period in 2K18 mainly because of a boost in the yield and average balance of whole loans receivable, net as a result of our mergers with Premier Commercial Bancorp and Puget Sound Bancorp, Inc. on July 2, 2K18 and January 16, 2K18, respectively (“Premier and Puget Mergers”).
Net interest income reduced $1.5M, or 2.8 percent, from $51.3M for the linked-quarter finished December 31, 2K18 due mostly to a slight decline in loan yield, mainly as a result of lower incremental accretion on purchased loans, and a boost in the cost of interest-bearing deposits.
Net interest margin raised 22 basis points to 4.34 percent for the quarter finished March 31, 2K19 from 4.12 percent for the similar period in 2K18 and reduced three basis points from 4.37 percent for the linked-quarter finished December 31, 2K18 because of the similar reasons as described above for net interest income.
The loan yield, apart from incremental accretion on purchased loans, raised 38 basis points to 5.08 percent for the quarter finished March 31, 2K19 difference to 4.70 percent for the quarter finished March 31, 2K18 and raised two basis points from 5.06 percent for the linked-quarter finished December 31, 2K18.
The increases in loan yield, apart from incremental accretion of purchased loans, from all prior periods was because of a combination of higher contractual loan rates as a result of the increasing interest rate environment in addition to a boost in loan yields from the loans attained in the Premier and Puget Mergers as difference to legacy Heritage loans throughout 2K18.
The incremental accretion and the impact to loan yield will change throughout any period based on the volume of prepayments, but it is expected to decline over time as the balance of the purchased loans declines.