Heritage Commerce (HTBK) Q4 2023 earnings summary

Executive summary

• 2023 net income was $64.4 million, the second-highest annual result; stable deposits, 9% YoY tangible book value growth, and 2% YoY loan growth supported performance.

• Q4 net income was $13.3 million as rising deposit costs pressured net interest income and margin; management expects cost-of-funds stabilization after recent Fed guidance on 2024 rate reductions.

Financial highlights

• Q4 2023 net income was $13.3 million, or $0.22 diluted EPS, versus $20.8 million and $0.34 in Q4 2022, and $15.8 million and $0.26 in Q3 2023.

• FY 2023 net income was $64.4 million, or $1.05 diluted EPS, versus $66.6 million and $1.09 in FY 2022.

• Q4 net interest income fell 18% YoY to $42.3 million and 7% QoQ; FY net interest income rose 2% to $183.2 million.

• Q4 noninterest income declined 30% YoY to $1.9 million; FY noninterest income fell 11% to $9.0 million, including a $669,000 warrant gain in FY 2022.

• FY noninterest expense increased to $101.1 million from $94.9 million; efficiency ratio was 52.57% versus 49.93% in FY 2022.

Outlook and guidance

• Management expects cost-of-funds stabilization following Fed guidance on expected 2024 rate reductions; Q4 net interest income and margin remained pressured by deposit pricing and mix.

• Focus remains on orderly organic loan growth, supported by local retail and commercial deposit relationships, while avoiding borrowed funds and brokered deposits.