Heritage Financial Corporation (NASDAQ:HFWA) Q1 2019 Earnings Conference Call Transcript

Apr 25, 2019 • 02:00 pm ET


Heritage Financial Corporation (NASDAQ:HFWA) Q1 2019 Earnings Conference Call Transcript


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Ladies and gentlemen, thank you for standing by. Welcome to the Heritage Financial Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Jeff Deuel, CEO. Please go ahead.

Jeff Deuel

Thank you, Moses. Welcome to all who have called in and those who might listen later. This is Jeff Deuel, President of Heritage financial, and CEO of Heritage Bank. Attending with me are Brian Vann, CEO of Heritage Financial; Hinson, CFO; and Bryan McDonald, COO. Our earnings release -- our earnings press release went out this morning pre-market and hopefully you have had the opportunity to review it prior to this call. Please review to the -- please refer to the forward-looking statements in the press release.

It has been a solid quarter for us as we continued to integrate the combined origination teams of three banks and a new team in Portland earlier this year. It's also good to see the expanded production team working well together, and an increase in the loan origination pipeline of 33% since the first of the year. We are pleased to see the back office team refocused on several important customer focused projects, following the two conversions, as well as the implementation of several automated processes by our expanded technology team. We are also pleased to announce that our regular quarterly dividend of $0.18.

Don Hinson will now take a few minutes to cover our financial statement results, including color on our core operating metrics.

Don Hinson

Thank you, Jeff. Well, I just start with the earnings overview. As we've stated in the earnings release, reported earnings per share for Q1 was $0.45, which is unchanged from Q4, 2018, and up from $0.27 in Q1, 2018.

Moving onto the balance sheet. Total asset growth was muted in Q1, due mostly to a $39 million decrease in total deposits. Deposits decreased in all maturity deposit categories. Historically the first quarter usually starts slow for deposit growth and 2019 follow that trend. To offset decreases in non-maturity deposits, we increased brokered CD balances by $50 million to a total of $78 million as of the end of Q1. The CDs purchased in Q1 will mature by the first part of Q3 and were at rates lower than current borrowing rates.

We will proactively use brokered CDs as a short-term supplement to other funding sources and as a cost of funds management tool. However, it's not our plan to use them as significant long-term funding source. Loans grew at an annualized rate of 4.6% in Q1 and Bryan McDonald will further discuss loan production in a few minutes.

Moving on to credit quality. Our non-performing asset ratio increased to 36 basis points at March 31 from 30 basis points at December 31. The increase was driven primarily by the further downgrade of