Heritage merce p(HTBK) - 2024 Q4 - Annual Report

Financial Performance - For the year ended December 31, 2024, net income was $40.5 million, or $0.66 per average diluted common share, a decrease from $64.4 million, or $1.05 per average diluted common share in 2023[283]. - Net interest income decreased by 11% to $163.6 million for the year ended December 31, 2024, compared to $183.2 million in 2023[284]. - Total noninterest income decreased by 3% to $8.7 million for the year ended December 31, 2024, from $9.0 million in 2023[284]. - Total noninterest expense increased to $113.6 million for the year ended December 31, 2024, compared to $101.1 million in 2023[284]. - The efficiency ratio increased to 65.88% for the year ended December 31, 2024, compared to 52.57% in 2023[284]. - The effective income tax rate for 2024 was 28.5%, a slight decrease from 28.7% in 2023[318]. - Annualized return on average tangible common equity for 2024 was 8.05%, a decrease from 13.57% in 2023[441]. Deposits and Loans - Deposit balances grew by 10% year-over-year, while loan growth was steady at 4%[281]. - Total deposits increased by $441.6 million, or 10%, to $4.8 billion at December 31, 2024, compared to $4.4 billion at December 31, 2023[288]. - Loans increased by $141.6 million, or 4%, to $3.5 billion at December 31, 2024, compared to $3.4 billion at December 31, 2023[288]. - The loan to deposit ratio was 72.45% at December 31, 2024, compared to 76.52% at December 31, 2023[288]. - Noninterest-bearing demand deposits decreased by $78.3 million, or 6%, to $1.2 billion at December 31, 2024[288]. - The average balance of deposit accounts increased to $190,000 at December 31, 2024, from $177,000 at December 31, 2023[396]. Credit Quality - Provision for credit losses on loans was $2.1 million for the year ended December 31, 2024, compared to $749,000 in 2023[284]. - Nonperforming assets totaled $7.7 million, or 0.14% of total assets, at December 31, 2024, down from 0.15% at December 31, 2023[288]. - The allowance for credit losses (ACLL) was $49.0 million, or 1.40% of total loans, representing 638.49% of nonperforming loans at December 31, 2024[288]. - Total nonaccrual loans increased to $7,178,000 at December 31, 2024, from $6,818,000 at December 31, 2023[370]. - Loans 90 days past due and still accruing decreased to $489,000 at December 31, 2024, from $889,000 at December 31, 2023[370]. - The allowance for credit losses on loans increased by $995,000 for the year ended December 31, 2024, primarily due to a net increase of $632,000 in specific reserves for individually evaluated loans and a $363,000 increase in the reserve for pooled loans compared to December 31, 2023[386]. Capital and Liquidity - Liquidity totaled $3.3 billion, representing 69% of total deposits and approximately 155% of estimated uninsured deposits at December 31, 2024[286]. - The total capital ratio was 15.6% at December 31, 2024, exceeding the well-capitalized regulatory guideline of 10.0%[290]. - Common Equity Tier 1 capital increased to $524.2 million at December 31, 2024, from $511.8 million at December 31, 2023[414]. - Total shareholders' equity increased to $689.7 million in 2024, compared to $672.9 million in 2023, representing a growth of 2.5%[419]. - The Company announced a share repurchase program authorized for up to $15.0 million, expiring on July 31, 2025[411]. - The Company’s total liquidity and borrowing capacity at December 31, 2024, was $3.3 billion, representing 69% of total deposits[406]. Asset Management - Total assets increased by 9% to $5.6 billion at December 31, 2024, compared to $5.2 billion at December 31, 2023, primarily related to growth in client deposits[322]. - Securities available-for-sale decreased by 42% to $256.3 million at December 31, 2024, from $442.6 million at December 31, 2023[322]. - The net pre-tax unrealized loss on the available-for-sale securities portfolio was $5.1 million, which is less than 1% of total shareholders' equity at December 31, 2024[332]. - The net pre-tax unrecognized loss on the held-to-maturity securities portfolio was $93.0 million, representing 9.5% of total shareholders' equity at December 31, 2024[332]. Operational Efficiency - Noninterest expense for the year ended December 31, 2024 increased 12% to $113.6 million, compared to $101.1 million for 2023, primarily due to higher salaries and employee benefits, rent expense, and professional fees[314]. - Full-time equivalent employees increased to 355 at December 31, 2024, from 349 at December 31, 2023[316]. - Client services expenses rose by 56% to $3.9 million in 2024, compared to $2.5 million in 2023[314]. - Professional fees increased by 25% to $5.4 million in 2024, compared to $4.4 million in 2023[314]. Interest Rates and Projections - The estimated increase in annual net interest income for a +400 basis points change in interest rates is projected to be $27,272 thousand, a 14.0% increase[428]. - The estimated economic value of equity would increase by $124,156 thousand, or 9.0%, with a +400 basis points change in interest rates[430]. - The company did not use interest rate derivatives to hedge its interest rate risk as of December 31, 2024[443].