Heritage Financial Corp. (Washington) :HFWA-US: Earnings Analysis: Q2, 2017 By the Numbers : September 22, 2017

Heritage Financial Corp. (Washington) reports financial results for the quarter ended June 30, 2017.

We analyze the earnings along side the following peers of Heritage Financial Corp. (Washington) – Columbia Banking System, Inc. and Banner Corporation (COLB-US and BANR-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 44.84 million, Net Earnings of USD 11.75 million.
  • Net interest income margins narrowed from 83.35% to 76.22% compared to the same period last year.
  • Net loan assets changed 8.84% compared to same period last year and 3.22% from previous period, total deposits changed 4.19% compared to same period last year and 1.47% from previous period.
  • Year-on-year change in operating cash flow of 41.04% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as from one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 44.84 40.5 41.24 43.6 39.69
Revenue Growth (%YOY) 12.97 1.85 3.02 9.72 0.94
Earnings (mil) 11.75 9.24 9.82 10.94 8.8
Earnings Growth (%YOY) 33.41 2.72 4.28 16.25 1.79
Net Margin (%) 26.19 22.81 23.8 25.08 22.18
EPS 0.39 0.31 0.33 0.37 0.3
Return on Equity (%) 2.37 1.9 2.01 2.22 1.81
Return on Assets (%) 1.19 0.95 1.01 1.15 0.95

Access our Ratings and Scores for Heritage Financial Corp. (Washington)

Market Share Versus Profits

Revenues History
Earnings History

HFWA-US’s change in revenue this period compared to the same period last year of 12.97% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that HFWA-US is holding onto its market share. Also, for comparison purposes, revenues changed by 10.74% and earnings by 27.14% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

HFWA-US’s earnings rose year-on-year. But this growth has not come as a result of improvement in net interest income margins or any loan loss improvement activities in its operations. Net interest income margins were 76.22% compared to 81.85% in the immediate last period. Net interest income after provisions margins were 73.70% this period compared to 79.71% in the previous period. In addition, loan loss provisions as a percentage of net interest income were 3.31% this period and 3.39% a year ago.

Net Interest Income Margin Versus Loan Loss Provisions Margin

Quadrant label definitions. Hover to know more

High Risk; High Reward Loans, Risky Loan Portfolio, Conservative Loan Portfolio, Safer Loan Portfolio
Net Interest Income Margin History
Loan Loss Provisions Margin History

Net Loans and Total Deposits

A financial institution’s core operations represented by Net Interest Income and Net Interest Income after Provisions are dependent on both the growth and quality of its deposits as well as the growth and quality of its loans. A firm could boost its interest income in the short-term by just increasing its loan assets with less concern about their quality – but this would eventually lead to greater loan loss provisions. Similarly a drive to increase deposits could result in higher interest expenses and eventually effect the firm’s equity. It is thus important to understand net interest income performance in context to loan loss provisions, loan assets and deposits.

Loan Assets Growth Rate History (Qtr YOY)
Total Deposits Growth Rate History (Qtr YOY)

The firm’s decline in net interest income margins came despite the relative increase in the levels of net loan assets. In addition, total deposits as a percentage of equity went from 6.45% to 6.58%. On an absolute basis, net loan assets changed 8.84% compared to the same period last year and 3.22% from the previous period. Total deposits changed 4.19% compared to the same period last year and 1.47% from the previous period.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

HFWA-US’s change in operating cash flow of 41.04% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings


The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating margins from 30.39% to 35.46% and (2) one-time items. The company’s pretax margins are now 35.46%, compared to 30.39% for the same period last year.

EBIT Margin History
PreTax Margin History
EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables

Access our Ratings and Scores for Heritage Financial Corp. (Washington)

Company Profile

Heritage Financial Corp. is bank holding company that engages in the business of planning, directing, and coordinating the business activities of wholly owned subsidiary Heritage Bank. The company’s business consists primarily of lending and deposit relationships with small businesses and their owners in market areas, and attracting deposits from the general public. It also engages in real estate construction and land development loans, one-to-four family residential loans, and consumer loans. The company was founded in August 1997 and is headquartered in Olympia, WA.

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