Heritage Commerce (HTBK) Q2 2024 earnings summary

Executive summary

• Net income for Q2 2024 was $9.2M ($0.15 per diluted share), down from $16.4M ($0.27) in Q2 2023; six-month net income was $19.4M ($0.32), down from $35.3M ($0.58) year-over-year.

• Annualized ROAA was 0.71% and ROAE was 5.50% for Q2 2024, compared to 1.25% and 10.12% in Q2 2023.

• Return on average tangible common equity was 7.43% for Q2 2024, down from 13.93% in Q2 2023.

Financial highlights

• Net interest income fell 15% to $39.5M in Q2 2024; net interest margin contracted 50 bps to 3.26% due to higher deposit costs and lower noninterest-bearing deposits.

• Noninterest income rose 10% to $2.3M in Q2 2024, mainly from higher gains on company-owned life insurance and termination fees, offset by lower SBA loan sales.

• Noninterest expense increased 13% to $28.2M in Q2 2024, driven by higher salaries, benefits, and IT expenses.

• Efficiency ratio rose to 67.55% in Q2 2024 from 51.67% in Q2 2023.

• Provision for credit losses on loans was $471K in Q2 2024, up from $260K in Q2 2023.

• Net charge-offs were $405K in Q2 2024, compared to net recoveries of $270K in Q2 2023.

• Total assets were $5.3B at June 30, 2024, flat year-over-year and up 1% from December 31, 2023.

• Loans (excluding held-for-sale) grew 3% year-over-year to $3.38B; total deposits decreased 1% to $4.44B.

• Allowance for credit losses on loans was $48.0M (1.42% of total loans), covering 795% of nonperforming loans.

Outlook and guidance

• Board declared a $0.13 per share quarterly dividend, payable August 22, 2024.

• Announced a $15M share repurchase program.

• Management expects continued pressure on net interest margin due to deposit mix and rate environment.