Featured Earnings Report: Heritage Financial Corporation (NASDAQ: HFWA)

OLYMPIA, Wash., June 22, 2019 – Shares of Heritage Financial Corporation (NASDAQ: HFWA) lost -0.94% to $29.40. The stock grabbed the investor’s attention and traded 280.105K shares as compared to its average daily volume of 120.76K shares. The stock’s institutional ownership stands at 83.30%.

Heritage Financial Corporation (NASDAQ GS: HFWA), the parent company of Heritage Bank, recently stated that the Company had net income of $16.60M for the quarter ended March 31, 2019 contrast to $9.10M for the quarter ended March 31, 2018 and $16.60M for the linked-quarter ended December 31, 2018. Diluted earnings per common share for the quarter ended March 31, 2019 was $0.45 contrast to $0.27 for the quarter ended March 31, 2018 and $0.45 for the linked-quarter ended December 31, 2018.

Balance Sheet

The Company’s total assets increased $25.20M, or 0.5%, to $5.34B at March 31, 2019 from $5.32B at December 31, 2018.

Investment securities available for sale increased $8.90M, or 0.9% to $985.00M at March 31, 2019 from $976.10M at December 31, 2018 mainly as a result of a decrease in net unrealized losses of $10.20M because of a decrease in interest rates during the first quarter that positively influenced the fair value of our bond portfolio.

Total loans receivable, net increased $41.20M, or 1.1%, to $3.66B at March 31, 2019 from $3.62B at December 31, 2018. Total loans receivable, net, continued to be influenced by slightly elevated prepayments during the first quarter 2019 in addition to the seasonably low loan originations practiced during the first quarter.

Prepaid expenses and other assets increased $24.50M, or 24.9%, to $123.00M at March 31, 2019 from $98.50M at December 31, 2018 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 expenses and other liabilities. As of March 31, 2019, the right of use asset was $28.40M and the related liability was $29.50M.

Total deposits reduced $38.70M, or 0.9%, to $4.390B at March 31, 2019 from $4.430B at December 31, 2018. The decrease was due mainly to non-maturity deposits declining $92.90M, or 2.3%, offset partially by a boost in certificates of deposit of $54.20M, or 11.6%. The increase in certificates of deposit was due mainly to a boost in brokered certificates of deposit of $50.10M during the quarter ended March 31, 2019 in response to the decrease in non-maturity deposits. Non-maturity deposits as a percentage of total deposits reduced to 88.1% as of March 31, 2019 from 89.5% as of December 31, 2018.

Federal Home Loan Bank advances were $25.00M as of March 31, 2019 as contrast to none at December 31, 2018.

Total stockholders’ equity increased $17.50M, or 2.3%, to $778.20M at March 31, 2019 from $760.70M at December 31, 2018.

Credit Quality

The allowance for loan losses increased $1.10M, or 3.2%, to $36.20M at March 31, 2019 from $35.00M at December 31, 2018. The increase was because of provision for loan losses of $920.0K recorded during the quarter ended March 31, 2019 and net recoveries of $190.0K recognized during the same period.

Potential problem loans reduced $7.20M, or 7.1%, to $94.10M at March 31, 2019 contrast to $101.30M at December 31, 2018. The activity for the quarter ended March 31, 2019 includes loans paid in full of $4.90M, and the noteworthy pay down of two commercial lines of credit totaling $3.20M, offset partially by the addition of a non-owner occupied commercial loan of $3.00M.

Operating Results

Net interest income increased $9.00M, or 22.0%, to $49.80M for the quarter ended March 31, 2019 contrast to $40.80M for the same period in 2018 mainly because of a boost in the yield and average balance of total loans receivable, net as a result of our mergers with Premier Commercial Bancorp and Puget Sound Bancorp, Inc. on July 2, 2018 and January 16, 2018, respectively (“Premier and Puget Mergers”). Net interest income reduced $1.50M, or 2.8%, from $51.30M for the linked-quarter ended December 31, 2018 due mostly to a slight decrease in loan yield, mainly as a result of lower incremental accretion on purchased loans, and a boost in the cost of interest bearing deposits.

The provision for loan losses reduced $232.0K, or 20.1%, to $920.0K for the quarter ended March 31, 2019 contrast to $1.20M for the quarter ended March 31, 2018 and reduced $242.0K, or 20.8%, from the linked-quarter ended December 31, 2018. The amount of provision for loan losses was necessary to increase the allowance for loan losses to an amount that management determined to be appropriate at March 31, 2019 based on the use of a consistent methodology. The decrease in the provision for loan losses was mainly as a result of net recoveries recognized during the quarter.

Noninterest income reduced $140.0K, or 1.9%, to $7.40M for the quarter ended March 31, 2019 contrast to $7.50M for the same period in 2018 mainly because of a decrease in gain on sale of loans because of lower mortgage origination volume and the Company’s decision to continue to portfolio originated Small Business Administration (“SBA”) loans amidst a lower gain environment. Noninterest income reduced $1.10M, or 12.5% from the linked-quarter ended December 31, 2018 mainly because of a gain on sale of building of $413.0K recognized during the fourth quarter of 2018 in addition to lower service charges recognized during the first quarter 2019 mainly related to seasonal decreases.

Noninterest expense reduced $222.0K, or 0.6%, to $36.50M for the quarters ended March 31, 2019 contrast to $36.70M for the same period in 2018. Acquisition-related expenses incurred as a result of the Premier and Puget Mergers were about $4.80M during the quarter ended March 31, 2018, of which $2.80M were because of compensation and employee benefits. Acquisition-related costs of $132.0K were incurred during the quarter ended March 31, 2019 mainly related to compensation and employee benefits. Without the effects of the acquisition-related expenses the Company incurred a boost in compensation and employee benefits because of additional employees, and a boost in occupancy and equipment expense mainly because of additional rent expense.

Noninterest expense reduced $749.0K, or 2.0%, from $37.30M for the linked-quarter ended December 31, 2018. Acquisition-related expenses incurred as a result of the Premier and Puget Mergers were about $1.30M during the quarter ended December 31, 2018. The decrease in acquisition-related expenses was partially offset by higher marketing expense because of the timing of contributions to community sponsorships.

Income tax expense was $3.20M for the quarter ended March 31, 2019 contrast to $1.40M for the quarter ended March 31, 2018 and $4.70M for the linked-quarter ended December 31, 2018. The effective tax rate increased to 16.3% for the quarter ended March 31, 2019 contrast to 13.3% for the comparable quarter in 2018 mainly because of a decrease in tax exempt securities, impacts of stock-based compensation activity, and an increased Oregon presence. The effective tax rate reduced from 22.0% for the linked-quarter ended December 31, 2018 because of a change in the estimated current tax benefits from certain low income housing tax credit projects in the amount of $898.0K recorded during the quarter ended December 31, 2018. Although long-term tax benefits from the projects are still expected to occur, the timing of some of the benefits was extended to future periods.

HFWA has a market value of $1.09B while its EPS was booked as $1.62 in the last 12 months. The stock has 37.05M shares outstanding. Beta value of the company was 0.73; beta is used to measure riskiness of the security. Analyst recommendation for this stock stands at 2.30.

Nurul Atikah

Finance and Tech Contributor

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