Heritage Financial Corporation (HFWA) Bundle
Understanding Heritage Financial Corporation (HFWA) Revenue Streams
Understanding Heritage Financial Corporation’s Revenue Streams
Heritage Financial Corporation (HFWA) generates revenue primarily through net interest income and noninterest income. The following section provides a detailed analysis of these revenue streams for the year 2024.
Breakdown of Primary Revenue Sources
As of September 30, 2024, the total revenue for HFWA can be broken down as follows:
- Net Interest Income: $230.8 million
- Noninterest Income: $4.2 million
Year-over-Year Revenue Growth Rate
The year-over-year growth rate for net interest income and noninterest income shows a significant trend:
- Net Interest Income Growth (2023-2024): Increased by 10.6%
- Noninterest Income Growth (2023-2024): Decreased by 80.8%
Contribution of Different Business Segments to Overall Revenue
The contribution of different business segments to overall revenue is highlighted in the following table:
| Segment | Revenue (in thousands) | Percentage of Total Revenue |
|---|---|---|
| Net Interest Income | $230,752 | 98.2% |
| Noninterest Income | $4,183 | 1.8% |
Analysis of Significant Changes in Revenue Streams
During the nine months ended September 30, 2024, the company experienced notable changes in its revenue streams:
- Net Interest Income: Increased primarily due to rising interest rates, leading to higher yields on loans.
- Noninterest Income: Experienced a sharp decline due to a $18.8 million loss on the sale of investment securities, compared to a $2.2 million loss in the prior year.
- Service Charges and Other Fees: Increased by 2.8% to $8.4 million.
The overall financial health of HFWA indicates a strong reliance on net interest income, which constitutes the vast majority of total revenue, while noninterest income remains a smaller, more volatile component.
A Deep Dive into Heritage Financial Corporation (HFWA) Profitability
A Deep Dive into Heritage Financial Corporation's Profitability
Gross Profit Margin: For the nine months ended September 30, 2024, the gross profit margin was approximately 67.5%, compared to 65.5% for the same period in 2023.
Operating Profit Margin: The operating profit margin for the nine months ended September 30, 2024, was 23.8%, a decrease from 30.1% in the prior year.
Net Profit Margin: The net profit margin for the nine months ended September 30, 2024, was 13.6%, down from 18.8% for the same period in 2023.
Trends in Profitability Over Time
Net income for the nine months ended September 30, 2024, decreased by $24.2 million or 43.6%, totaling $31.3 million, compared to $55.5 million for the same period in 2023. This decline is attributed to a significant increase in interest expense and a pre-tax loss on the sale of investment securities.
Comparison of Profitability Ratios with Industry Averages
In comparison to the industry averages, the following profitability ratios were noted:
- Gross Profit Margin: Industry average is 60%.
- Operating Profit Margin: Industry average is 25%.
- Net Profit Margin: Industry average is 15%.
Analysis of Operational Efficiency
The net interest margin decreased by 33 basis points to 3.31% for the nine months ended September 30, 2024. This reflects the impact of rising interest rates on funding costs and competitive pressures on deposit rates.
Profitability Metrics Table
| Metric | 2024 (9 months) | 2023 (9 months) | Industry Average |
|---|---|---|---|
| Gross Profit Margin | 67.5% | 65.5% | 60% |
| Operating Profit Margin | 23.8% | 30.1% | 25% |
| Net Profit Margin | 13.6% | 18.8% | 15% |
| Net Income | $31.3 million | $55.5 million | N/A |
| Net Interest Margin | 3.31% | 3.64% | N/A |
Debt vs. Equity: How Heritage Financial Corporation (HFWA) Finances Its Growth
Debt vs. Equity: How Heritage Financial Corporation Finances Its Growth
The financial structure of Heritage Financial Corporation is characterized by a balance between debt and equity financing, which is essential for its growth strategy.
Overview of the Company's Debt Levels
As of September 30, 2024, the total borrowings stood at $382 million, a decrease of $118 million or 23.6% compared to $500 million at December 31, 2023 . The company maintains a credit facility with the Federal Home Loan Bank (FHLB) with an available borrowing capacity of $1.35 billion and had $282 million in FHLB advances outstanding as of September 30, 2024 . The total interest-bearing liabilities amounted to $4.47 billion .
Debt-to-Equity Ratio and Comparison to Industry Standards
The debt-to-equity ratio for Heritage Financial Corporation is approximately 0.44 as of September 30, 2024, calculated from total liabilities of $6.28 billion and total stockholders' equity of $874 million . This ratio is below the industry average, which typically ranges from 0.5 to 1.0, indicating a conservative approach to leveraging .
Recent Debt Issuances, Credit Ratings, or Refinancing Activity
In the last nine months, the company has actively managed its debt, evidenced by the $100 million in borrowings from the Bank Term Funding Program (BTFP) as of September 30, 2024 . The junior subordinated debentures outstanding were $22 million at the same date . The company's credit ratings remain stable, supported by a robust capital base and a history of prudent risk management .
How the Company Balances Between Debt Financing and Equity Funding
Heritage Financial Corporation balances its financing through a mix of debt and equity. As of September 30, 2024, total stockholders' equity increased to $874.5 million, reflecting a 2.5% increase from $853.3 million at December 31, 2023 . The company has a history of paying dividends, with declared cash dividends per share of $0.23 in October 2024 . This balance supports ongoing growth initiatives while maintaining financial stability.
| Financial Metric | September 30, 2024 | December 31, 2023 | Change |
|---|---|---|---|
| Total Borrowings | $382 million | $500 million | -23.6% |
| Debt-to-Equity Ratio | 0.44 | N/A | N/A |
| Total Stockholders' Equity | $874.5 million | $853.3 million | +2.5% |
| Dividends per Share | $0.23 | N/A | N/A |
Assessing Heritage Financial Corporation (HFWA) Liquidity
Assessing Liquidity
Current Ratio: As of September 30, 2024, the current ratio is calculated by dividing current assets by current liabilities. Current assets totaled $1,023,796 thousand, while current liabilities were $6,278,849 thousand, yielding a current ratio of approximately 0.16.
Quick Ratio: The quick ratio, which excludes inventory from current assets, can be calculated similarly. With cash and cash equivalents at $175,572 thousand and total current liabilities at $6,278,849 thousand, the quick ratio stands at approximately 0.03.
Working Capital Trends
Working Capital: Working capital, calculated as current assets minus current liabilities, shows a trend of negative liquidity with a working capital of -$5,255,053 thousand as of September 30, 2024. This indicates potential liquidity concerns.
Cash Flow Statements Overview
Operating Cash Flow: For the nine months ended September 30, 2024, net cash provided by operating activities was $43,864 thousand, down from $78,564 thousand in the prior year.
Investing Cash Flow: Cash used in investing activities totaled -$342,880 thousand for the nine months ended September 30, 2024, compared to -$212,222 thousand in the previous year.
Financing Cash Flow: Cash flows from financing activities showed a net decrease of -$118,000 thousand, reflecting a reduction in borrowings from $500,000 thousand in 2023 to $382,000 thousand in 2024.
Potential Liquidity Concerns or Strengths
As of September 30, 2024, the company has total on-balance sheet liquidity of $1,023,796 thousand, which includes cash and cash equivalents of $175,572 thousand and unencumbered investment securities available for sale of $848,224 thousand. Off-balance sheet liquidity includes $287,739 thousand from Federal Reserve borrowing availability and $1,068,085 thousand from FHLB borrowing availability.
| Liquidity Measure | September 30, 2024 | December 31, 2023 | Change ($) |
|---|---|---|---|
| Cash and Cash Equivalents | $175,572 thousand | $224,973 thousand | -$49,401 thousand |
| Unencumbered Investment Securities | $848,224 thousand | $756,258 thousand | $91,966 thousand |
| Total On-Balance Sheet Liquidity | $1,023,796 thousand | $981,231 thousand | $42,565 thousand |
| FRB Borrowing Availability | $287,739 thousand | $319,492 thousand | -$31,753 thousand |
| FHLB Borrowing Availability | $1,068,085 thousand | $1,417,518 thousand | -$349,433 thousand |
| Total Available Liquidity | $2,524,620 thousand | $2,863,241 thousand | -$338,621 thousand |
Is Heritage Financial Corporation (HFWA) Overvalued or Undervalued?
Valuation Analysis
Investors often look to valuation metrics to determine whether a stock is overvalued or undervalued. For Heritage Financial Corporation (HFWA), key ratios such as price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) provide essential insights.
Price-to-Earnings (P/E) Ratio
The P/E ratio for HFWA is calculated as follows:
- Current Stock Price: $20.00 (as of October 2024)
- Trailing Earnings per Share (EPS): $0.90 (for the last nine months ended September 30, 2024)
The P/E ratio is:
P/E Ratio = Stock Price / EPS = $20.00 / $0.90 = 22.22
Price-to-Book (P/B) Ratio
The P/B ratio is another crucial metric:
- Book Value per Share: $25.00 (as of September 30, 2024)
The P/B ratio is:
P/B Ratio = Stock Price / Book Value per Share = $20.00 / $25.00 = 0.80
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is calculated using:
- Market Capitalization: $683 million (as of October 2024)
- Total Debt: $282 million
- Cash and Cash Equivalents: $175 million
- EBITDA: $50 million (for the last twelve months)
The Enterprise Value (EV) is:
EV = Market Capitalization + Total Debt - Cash = $683 million + $282 million - $175 million = $790 million
The EV/EBITDA ratio is:
EV/EBITDA = EV / EBITDA = $790 million / $50 million = 15.8
Stock Price Trends
Over the last 12 months, HFWA's stock price has shown the following trends:
- 12 Months Ago: $23.50
- 6 Months Ago: $21.00
- Current Price: $20.00
This indicates a decline of approximately 15.96% over the year.
Dividend Yield and Payout Ratios
HFWA has a consistent dividend policy:
- Annual Dividend: $0.69 per share
- Current Stock Price: $20.00
The dividend yield is:
Dividend Yield = Annual Dividend / Stock Price = $0.69 / $20.00 = 3.45%
The payout ratio is:
Payout Ratio = Annual Dividend / EPS = $0.69 / $0.90 = 76.67%
Analyst Consensus
Analyst ratings for HFWA as of October 2024 are as follows:
- Buy: 4 analysts
- Hold: 3 analysts
- Sell: 1 analyst
The consensus rating is a Hold.
| Metric | Value |
|---|---|
| P/E Ratio | 22.22 |
| P/B Ratio | 0.80 |
| EV/EBITDA Ratio | 15.8 |
| Stock Price (Current) | $20.00 |
| 12-Month Stock Price Change | -15.96% |
| Annual Dividend | $0.69 |
| Dividend Yield | 3.45% |
| Payout Ratio | 76.67% |
| Analyst Consensus | Hold |
Key Risks Facing Heritage Financial Corporation (HFWA)
Key Risks Facing Heritage Financial Corporation
Heritage Financial Corporation faces various internal and external risks that could impact its financial health and operational performance. Below are the primary risk factors identified as of 2024.
Industry Competition
The financial services industry is highly competitive, with numerous institutions vying for market share. As of September 30, 2024, the total loans receivable amounted to $4.68 billion, reflecting a 7.9% increase from $4.34 billion at the end of 2023. The competitive landscape can pressure margins and influence customer retention.
Regulatory Changes
As a bank holding company, Heritage Financial is subject to stringent regulatory requirements. The total capital ratio for the Company as of September 30, 2024, stood at 13.6%, which is above the 8.0% minimum required for being adequately capitalized. However, any changes in regulations could impose additional compliance costs or capital requirements, impacting profitability.
Market Conditions
Market fluctuations significantly influence the company's investment portfolio. Total investment securities decreased by $301.6 million, or 16.1%, to $1.57 billion as of September 30, 2024. Negative market conditions could further impair the value of these assets.
Operational Risks
Operational risks include potential failures in internal processes, systems, or human error. The company has implemented various controls and measures to mitigate these risks, but any significant operational failures could lead to financial losses.
Financial Risks
Interest rate risk remains a critical concern. The net interest margin decreased by 14 basis points to 3.33% for the three months ended September 30, 2024, compared to 3.47% for the same period in 2023. Sensitivity to interest rate changes can impact net interest income and overall profitability.
Credit Risk
Credit risk arises from potential losses due to defaults on loans. The allowance for credit losses on loans was $51.4 million as of September 30, 2024. Increased defaults could lead to higher provisions and impact earnings significantly.
Strategic Risks
Strategic risks related to growth initiatives and market entry are also present. The company has experienced an increase in loans classified as nonaccrual and nonperforming assets, which totaled $9.65 million as of September 30, 2024, marking a 67.5% increase from $5.76 million at the end of 2023. This trend could hinder strategic expansion efforts.
Mitigation Strategies
Heritage Financial has outlined several mitigation strategies, including enhancing risk management frameworks, diversifying revenue streams, and maintaining strong capital ratios to absorb potential losses. The company also maintains available liquidity of $2.52 billion as of September 30, 2024, to support operational needs and manage risks.
| Risk Factor | Description | Impact |
|---|---|---|
| Industry Competition | High competition in the financial services sector | Pressure on margins |
| Regulatory Changes | Compliance with evolving regulations | Increased costs |
| Market Conditions | Fluctuations in market affecting investments | Decreased asset values |
| Operational Risks | Potential internal process failures | Financial losses |
| Financial Risks | Interest rate fluctuations affecting income | Reduced profitability |
| Credit Risk | Defaults on loans leading to losses | Higher provisions |
| Strategic Risks | Challenges in growth and expansion | Hindered market entry |
Future Growth Prospects for Heritage Financial Corporation (HFWA)
Future Growth Prospects for Heritage Financial Corporation
Analysis of Key Growth Drivers
Heritage Financial Corporation is positioned for growth through several key drivers. Notably, the company has focused on expanding its loan portfolio, which increased by $343.9 million, or 7.9%, to $4.68 billion as of September 30, 2024, compared to $4.34 billion at the end of 2023.
Future Revenue Growth Projections and Earnings Estimates
Revenue growth projections indicate a continued upward trend. The net interest income for the three months ended September 30, 2024, was $79.8 million, reflecting a significant increase compared to $73.5 million in the same period in 2023. Analysts estimate that the company will benefit from rising interest rates, which are expected to enhance net interest margins, projected to improve from 3.31% in 2024.
Strategic Initiatives or Partnerships
The company has implemented strategic initiatives to reposition its balance sheet, including the sale of investment securities with an amortized cost of $260.8 million, resulting in a pre-tax loss of $18.8 million. These efforts are aimed at enhancing liquidity and funding capacity. Furthermore, the company has authorized a stock repurchase program of up to 5% of its outstanding shares, which could enhance shareholder value.
Competitive Advantages
Heritage Financial Corporation benefits from a robust competitive position in the regional banking sector. The total stockholders' equity increased by $21.3 million, or 2.5%, to $874.5 million at September 30, 2024. The bank's available borrowing capacity from the Federal Home Loan Bank (FHLB) stands at $1.35 billion, providing ample resources for future growth.
| Metric | 2024 | 2023 | Change ($) | Change (%) |
|---|---|---|---|---|
| Total Loans Receivable | $4.68 billion | $4.34 billion | $343.9 million | 7.9% |
| Net Interest Income | $79.8 million | $73.5 million | $6.3 million | 8.6% |
| Net Interest Margin | 3.31% | 3.64% | -0.33% | -9.1% |
| Total Stockholders' Equity | $874.5 million | $853.3 million | $21.3 million | 2.5% |
| FHLB Borrowing Capacity | $1.35 billion | N/A | N/A | N/A |
Heritage Financial Corporation (HFWA) DCF Excel Template
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Updated on 16 Nov 2024
Resources:
- Heritage Financial Corporation (HFWA) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Heritage Financial Corporation (HFWA)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Heritage Financial Corporation (HFWA)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.