Heritage Financial (HFWA) Q2 2024 earnings summary

Executive summary

• Net income for Q2 2024 was $14.2 million ($0.41 per diluted share), with total assets at $7.1 billion and deposits at $5.5 billion; results were down year-over-year due to higher funding costs and a $1.9 million loss on investment securities sales as part of balance sheet repositioning.

• Return on average tangible common equity (ROATCE) was 9.74% (adjusted 10.76%), and the efficiency ratio improved to 69.4% (adjusted 67.1%).

• Strong loan growth and ongoing expense management contributed to improved profitability, with a CEO succession plan underway and Bryan McDonald named President and CEO effective July 1, 2024.

• The company continues to focus on operational efficiencies, branch rationalization, and disciplined M&A.

• Strong capital ratios: leverage ratio at 10.1%, total capital ratio at 13.9%, and stockholders’ equity to total assets at 12.0%.

Financial highlights

• Loans receivable at June 30, 2024, were $4.53 billion, with a loan-to-deposit ratio of 82.2% and loan growth of 2.4% in Q2.

• Net interest margin was 3.29% in Q2 2024, down from 3.32% in Q1 and 3.56% in Q2 2023, mainly due to rising deposit and borrowing costs.

• Noninterest expense decreased, aided by lower compensation, data processing, and absence of prior quarter severance costs.

• Cost of interest-bearing deposits rose to 1.89% in Q2; spot rate at quarter-end was 1.96%.

• Investment balances fell due to securities sales, resulting in a $1.9 million loss in Q2.

Outlook and guidance

• Margin expected to stabilize in the low to mid-3.20s by year-end as deposit costs and balances level off.

• Loan growth anticipated to average low single digits for the remainder of 2024.

• Expense guidance for the remainder of 2024 is $40–$41 million per quarter, with minimal increase expected in 2025.

• EPS guidance for 2024 is $1.54 and for 2025 is $1.82, with a regular dividend yield of 4.42%.

• Management remains focused on organic growth, operational efficiency, and disciplined capital management.