UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
(MARK ONE) | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended | |
OR | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
Commission file number
(Exact name of Registrant as Specified in its Charter)
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(
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: |
| Trading Symbol: |
| Name of each exchange on which registered: |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company | |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
The Registrant had
HERITAGE COMMERCE CORP
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 49 | ||
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Cautionary Note Regarding Forward-Looking Statements
This Report on Form 10-Q contains various statements that may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, Rule 3b-6 promulgated thereunder and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These forward-looking statements often can be, but are not always, identified by the use of words such as “assume,” “expect,” “intend,” “plan,” “project,” “believe,” “estimate,” “predict,” “anticipate,” “may,” “might,” “should,” “could,” “goal,” “potential” and similar expressions. We base these forward-looking statements on our current expectations and projections about future events, our assumptions regarding these events and our knowledge of facts at the time the statements are made. These statements include statements relating to our projected growth, anticipated future financial performance, and management’s long-term performance goals, as well as statements relating to the anticipated effects on results of operations and financial condition.
These forward-looking statements are subject to various risks and uncertainties that may be outside our control and our actual results could differ materially from our projected results. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission (“SEC”), Item 1A of the Heritage Commerce Corp’s (“the Company”) Annual Report on Form 10-K for the year ended December 31, 2019, and the following:
● | risks associated with concentrations in real estate related loans, including commercial real estate loans to borrowers associated with industries adversely impacted by the COVID-19 pandemic; |
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● | our success in managing the risks involved in the foregoing factors. |
Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events. You should consider any forward looking statements in light of this explanation, and we caution you about relying on forward-looking statements.
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Part I—FINANCIAL INFORMATION
ITEM 1—CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
HERITAGE COMMERCE CORP
CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, | December 31, | |||||
| 2020 |
| 2019 | |||
(Dollars in thousands) | ||||||
Assets | ||||||
Cash and due from banks | $ | | $ | | ||
Other investments and interest-bearing deposits in other financial institutions |
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Total cash and cash equivalents |
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Securities available-for-sale, at fair value |
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Securities held-to-maturity, at amortized cost, net of allowance for credit losses of $ | ||||||
(fair value of $ | |
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Loans held-for-sale - SBA, at lower of cost or fair value, including deferred costs |
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Loans, net of deferred fees |
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Allowance for credit losses on loans(1) |
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Loans, net |
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Federal Home Loan Bank, Federal Reserve Bank stock and other investments, at cost |
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Company-owned life insurance |
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Premises and equipment, net |
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Goodwill | | | ||||
Other intangible assets |
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Accrued interest receivable and other assets |
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Total assets | $ | | $ | | ||
Liabilities and Shareholders' Equity | ||||||
Liabilities: | ||||||
Deposits: | ||||||
Demand, noninterest-bearing | $ | | $ | | ||
Demand, interest-bearing |
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Savings and money market |
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Time deposits - under $250 |
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Time deposits - $250 and over |
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CDARS - interest-bearing demand, money market and time deposits |
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Total deposits |
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Subordinated debt, net of issuance costs | | | ||||
Other short-term borrowings | — | | ||||
Accrued interest payable and other liabilities |
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Total liabilities |
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Shareholders' equity: | ||||||
Preferred stock, | ||||||
at September 30, 2020 and December 31, 2019 | ||||||
Common stock, | ||||||
authorized at December 31, 2019; | ||||||
and at September 30, 2020 and | ||||||
at December 31, 2019 |
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Retained earnings |
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Accumulated other comprehensive loss |
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Total shareholders' equity |
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Total liabilities and shareholders' equity | $ | | $ | | ||
(1)Allowance for credit losses on loans at September 30, 2020, Allowance for loan losses at December 31, 2019 |
See notes to unaudited consolidated financial statements
6
HERITAGE COMMERCE CORP
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2020 |
| 2019 | 2020 |
| 2019 | ||||||
(Dollars in thousands, except per share amounts) | ||||||||||||
Interest income: | ||||||||||||
Loans, including fees | $ | | $ | | $ | | $ | | ||||
Securities, taxable |
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Securities, exempt from Federal tax |
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Other investments, interest-bearing deposits | ||||||||||||
in other financial institutions and Federal funds sold |
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Total interest income |
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Interest expense: | ||||||||||||
Deposits |
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Subordinated debt |
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Short-term borrowings | — | — | — | | ||||||||
Total interest expense |
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Net interest income before provision for credit losses on loans(1) |
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Provision (credit) for credit losses on loans(1) |
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Net interest income after provision for credit losses on loans(1) |
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Noninterest income: | ||||||||||||
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Increase in cash surrender value of life insurance |
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Gain on sales of SBA loans |
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Servicing income |
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Gain on sales of securities |
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— | — | | — | |||||||||
Other |
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Total noninterest income |
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Noninterest expense: | ||||||||||||
Salaries and employee benefits |
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Occupancy and equipment |
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Professional fees |
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Other |
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Total noninterest expense |
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Income before income taxes |
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Income tax expense |
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Net income | $ | | $ | | $ | | $ | | ||||
Earnings per common share: | ||||||||||||
Basic | $ | $ | $ | $ | ||||||||
Diluted | $ | $ | $ | $ | ||||||||
(1)Provision for credit losses on loans for the three and nine months ended September 30, 2020, Provision (credit) for loan losses for the | ||||||||||||
three and nine months ended September 30, 2019 |
See notes to unaudited consolidated financial statements
7
HERITAGE COMMERCE CORP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Three Months Ended | Nine Months Ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 |
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(Dollars in thousands) | |||||||||||||
Net income | $ | | $ | | $ | | $ | | |||||
Other comprehensive income: | |||||||||||||
Change in net unrealized holding (losses) gains on available-for-sale | |||||||||||||
securities and I/O strips |
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Deferred income taxes |
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Change in net unamortized unrealized gain on securities available-for- | |||||||||||||
sale that were reclassified to securities held-to-maturity |
| ( |
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Deferred income taxes |
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Reclassification adjustment for gains realized in income |
| — |
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Deferred income taxes |
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Change in unrealized (losses) gains on securities and I/O strips, net of | |||||||||||||
deferred income taxes |
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Change in net pension and other benefit plan liability adjustment |
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Deferred income taxes |
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Change in pension and other benefit plan liability, net of | |||||||||||||
deferred income taxes |
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Other comprehensive (losses) income |
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Total comprehensive income | $ | | $ | | $ | | $ | |
See notes to unaudited consolidated financial statements
8
HERITAGE COMMERCE CORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
Accumulated | ||||||||||||||
Other | Total | |||||||||||||
Common Stock | Retained | Comprehensive | Shareholders’ | |||||||||||
Shares |
| Amount |
| Earnings |
| Loss |
| Equity | ||||||
(Dollars in thousands) | ||||||||||||||
Balance, January 1, 2019 | | $ | | $ | | $ | ( | $ | | |||||
Net income | — | — | | — | | |||||||||
Other comprehensive income | — | — | — | | | |||||||||
Amortization of restricted stock awards, | ||||||||||||||
net of forfeitures and taxes | — | | — | — | | |||||||||
Cash dividend declared $ | — | — | ( | — | ( | |||||||||
Stock option expense, net of forfeitures and taxes | — | | — | — | | |||||||||
Stock options exercised | | | — | — | | |||||||||
Balance, March 31, 2019 | | | | ( | | |||||||||
Net income | — | — | | — | | |||||||||
Other comprehensive income | — | — | — | | | |||||||||
Issuance of restricted stock awards, net | | — | — | — | — | |||||||||
Amortization of restricted stock awards, | ||||||||||||||
net of forfeitures and taxes | — | | — | — | | |||||||||
Cash dividend declared $ | — | — | ( | — | ( | |||||||||
Stock option expense, net of forfeitures and taxes | — | | — | — | | |||||||||
Stock options exercised | | | — | — | | |||||||||
Balance, June 30, 2019 | | | | ( | | |||||||||
Net income | — | — | | — | | |||||||||
Other comprehensive income | — | — | — | | | |||||||||
Forfeiture of restricted stock awards, net | ( | — | — | — | — | |||||||||
Amortization of restricted stock awards, | ||||||||||||||
net of forfeitures and taxes | — | | — | — | | |||||||||
Cash dividend declared $ | — | — | ( | — | ( | |||||||||
Stock option expense, net of forfeitures and taxes | — | | — | — | | |||||||||
Stock options exercised | | | — | — | | |||||||||
Balance, September 30, 2019 | | $ | | $ | | $ | ( | $ | |
9
Accumulated | ||||||||||||||
Other | Total | |||||||||||||
Common Stock | Retained | Comprehensive | Shareholders’ | |||||||||||
Shares |
| Amount |
| Earnings |
| Loss |
| Equity | ||||||
(Dollars in thousands) | ||||||||||||||
Balance, December 31, 2019 | | $ | | $ | | $ | ( | $ | | |||||
Cumulative effect of change in accounting principles (Note 1) | — | — | ( | — | ( | |||||||||
Balance, January 1, 2020 | | | | ( | | |||||||||
Net income | — | — | | — | | |||||||||
Other comprehensive income | — | — | — | | | |||||||||
Amortization of restricted stock awards, | ||||||||||||||
net of forfeitures and taxes | — | | — | — | | |||||||||
Cash dividend declared $ | — | — | ( | — | ( | |||||||||
Stock option expense, net of forfeitures and taxes | — | | — | — | | |||||||||
Stock options exercised | | | — | — | | |||||||||
Balance, March 31, 2020 | | | | ( | | |||||||||