0001558370-23-016890.txt : 20231027 0001558370-23-016890.hdr.sgml : 20231027 20231026180759 ACCESSION NUMBER: 0001558370-23-016890 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20231026 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20231027 DATE AS OF CHANGE: 20231026 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERITAGE COMMERCE CORP CENTRAL INDEX KEY: 0001053352 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 770469558 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-23877 FILM NUMBER: 231351482 BUSINESS ADDRESS: STREET 1: 224 AIRPORT PARKWAY CITY: SAN JOSE STATE: CA ZIP: 95110 BUSINESS PHONE: 4089476900 MAIL ADDRESS: STREET 1: 224 AIRPORT PARKWAY CITY: SAN JOSE STATE: CA ZIP: 95110 8-K 1 htbk-20231026x8k.htm 8-K
0001053352false00010533522023-10-262023-10-26

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 26, 2023

HERITAGE COMMERCE CORP

(Exact name of registrant as specified in its charter)

California

000-23877

77-0469558

(State or other jurisdiction of
incorporation)

(Commission File Number)

(IRS Employer Identification No.)

224 Airport Parkway, San Jose, California

95110

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (408) 947-6900

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (See General Instruction A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

  

Trading Symbol(s)

  

Name of each exchange on which registered

Common Stock, No Par Value

  

HTBK

  

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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.

ITEM 2.02RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On October 26, 2023, Heritage Commerce Corp (the “Company”), the holding company for Heritage Bank of Commerce, issued a press release announcing preliminary unaudited results for the third quarter and nine months ended September 30, 2023. A copy of the press release is attached as Exhibit 99.1 to this Current Report and is incorporated herein by reference.

The information in this report set forth under this Item 2.02 shall not be treated as “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall it be deemed incorporated by reference into any registration statement or other filing pursuant to the Securities Act of 1933, as amended, or the Exchange Act, except as expressly stated by specific reference in such filing.

ITEM 8.01OTHER EVENTS

QUARTERLY DIVIDEND

On October 26, 2023, the Company announced that its Board of Directors declared a $0.13 per share quarterly cash dividend to holders of common stock. The dividend will be paid on November 21, 2023, to shareholders of record at the close of the business day on November 7, 2023. A copy of the press release is attached as Exhibit 99.2 to this Current Report and is incorporated herein by reference.

2

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: October 26, 2023

Heritage Commerce Corp

By: /s/ Lawrence D. McGovern

Lawrence D. McGovern

Executive Vice President and Chief Financial Officer

4

EX-99.1 2 htbk-20231026xex99d1.htm EX-99.1

Exhibit 99.1

Heritage Commerce Corp Earns $15.8 Million for the Third Quarter of 2023, and

$51.1 Million for the First Nine Months of 2023;

Supported by Continued Deposit Growth and Strong Credit Quality

San Jose, CA — October 26, 2023 — Heritage Commerce Corp (Nasdaq: HTBK), (the “Company”), the holding company for Heritage Bank of Commerce (the “Bank”), today announced that its third quarter 2023 net income was $15.8 million, or $0.26 per average diluted common share, compared to $18.1 million, or $0.30 per average diluted common share, for the third quarter of 2022, and $16.4 million, or $0.27 per average diluted common share, for the second quarter of 2023. For the nine months ended September 30, 2023, net income increased 12% to $51.1 million, or $0.83 per average diluted common share, compared to $45.8 million, or $0.75 per average diluted common share, for the nine months ended September 30, 2022. All results are unaudited.

“We delivered strong third quarter of 2023 operating results allowing us to achieve record earnings for the first nine months of 2023,” said Clay Jones, President & Chief Executive Officer. “While our third quarter profits were impacted by the expected increased cost of deposits, our year-to-date net income increased 12% compared to the first nine months of 2022. These profits were fueled by a steady growth in deposits, moderate loan demand, and higher net interest income. The net interest margin contraction we experienced during the third quarter was primarily related to deposit pricing.”

“Our credits metrics remained strong during the third quarter,” said Mr. Jones. “We continued to maintain the strength on our balance sheet along with a solid allowance for credit losses on loans, reflecting our prudent credit risk management. Further, our strong liquidity position is enhanced by a well-diversified deposit profile and access to ample alternative funding sources. We are well positioned to navigate these challenging economic headwinds and continue to grow the franchise.”

"Our commitment to delivering exceptional client service and meeting performance targets remains the driving force behind our success. I would like to express my appreciation to our committed Board of Directors and team members for their continued dedication to serving our clients, communities, and shareholders," stated Mr. Jones.

Current Financial Condition and Liquidity Position

The following are important factors in understanding our current financial condition and liquidity position:

Liquidity and Available Lines of Credit:

The following table shows our liquidity and available lines of credit at September 30, 2023:

LIQUIDITY AND AVAILABLE LINES OF CREDIT

Total

(in $000’s, unaudited)

Available

Excess funds at the Federal Reserve Bank ("FRB")

$

599,000

FRB discount window collateralized line of credit

1,214,537

Federal Home Loan Bank ("FHLB") collateralized borrowing capacity

1,151,769

Unpledged investment securities (at fair value)

76,712

Off-balance sheet deposits

47,094

Federal funds purchase arrangements

80,000

Holding company line of credit

20,000

Total

$

3,189,112

The Company’s total liquidity and borrowing capacity was $3.189 billion, all of which remained available at September 30, 2023.
The available liquidity and borrowing capacity was 70% of total deposits and approximately 150% of the Bank’s estimated uninsured deposits at September 30, 2023.
The Bank increased its credit line availability from the FRB and the FHLB by $1.527 billion to $2.366 billion at September 30, 2023, from $839.5 million at December 31, 2022.

1


The loan to deposit ratio was 71.81% at September 30, 2023, compared to 75.14% at December 31, 2022, and 73.07% at June 30, 2023, providing us with ample liquidity and capacity to provide future credit to the community.

Deposits:

Total deposits increased $185.9 million, or 4%, to $4.575 billion at September 30, 2023 from $4.390 billion at December 31, 2022, and increased $74.7 million, or 2% from June 30, 2023.
Migration of customer deposits resulted in an increase in Insured Cash Sweep (“ICS”)/Certificate of Deposit Account Registry Service (“CDARS”) deposits of $890.8 million to $921.2 million at September 30, 2023, compared to $30.4 million at December 31, 2022, and increased $97.1 million from $824.1 million at June 30, 2023.
Noninterest-bearing demand deposits decreased ($493.2) million, or (28%), to $1.244 billion at September 30, 2023 from December 31, 2022, and decreased ($76.3) million, or (6%) from June 30, 2023, largely in response to the interest rate environment.
The Bank had 24,769 deposit accounts at September 30, 2023, with an average balance of $185,000, compared to 24,404 deposit accounts at June 30, 2023, with an average balance of $187,000. At December 31, 2022, the Company had 23,833 deposit accounts, with an average balance of $184,000.
Deposits from the Bank’s top 100 client relationships totaled $2.185 billion, representing 48% of total deposits, with an average account size of $408,000, representing 22% of the total number of accounts at September 30, 2023.

Investment Securities:

Investment securities totaled $1.122 billion at September 30, 2023, of which $457.2 million were in the securities available-for-sale portfolio (at fair value), and $664.7 million were in the securities held-to-maturity portfolio (at amortized cost, net of allowance for credit losses of $13,000).
The weighted average life of the total investment securities portfolio was 4.72 years at September 30, 2023.
The following are the projected cash flows from paydowns and maturities in the investment securities portfolio for the periods indicated based on the current interest rate environment:

Agency

Mortgage-

backed and

PROJECTED INVESTMENT SECURITIES CASH FLOWS

U.S.

Municipal

(in $000’s, unaudited)

    

Treasury

    

Securities

    

Total

Fourth quarter of 2023

$

20,000

$

20,314

$

40,314

First quarter of 2024

37,000

19,578

56,578

Second quarter of 2024

 

131,000

 

18,752

 

149,752

Third quarter of 2024

 

37,500

 

19,522

 

57,022

Fourth quarter of 2024

9,000

18,028

27,028

First quarter of 2025

35,000

17,528

52,528

Second quarter of 2025

118,000

17,145

135,145

Third quarter of 2025

25,500

18,430

43,930

Fourth quarter of 2025

16,961

16,961

Total

$

413,000

$

166,258

$

579,258

Loans:

Loans, excluding loans held-for-sale, decreased ($13.1) million to $3.285 billion at September 30, 2023 from $3.299 billion at December 31, 2022, and decreased ($3.3) million from $3.289 billion at June 30, 2023. Loans, excluding residential mortgages, increased $21.8 million, or 1%, to $2.782 billion at September 30, 2023, compared to $2.761 billion at December 31, 2022, and increased $7.7 million from $2.775 billion at June 30, 2023.
Commercial real estate (“CRE”) loans totaled $1.798 billion at September 30, 2023, of which 33% were owner occupied and 67% were investor CRE loans.
During the third quarter of 2023, 42 new CRE loans were originated totaling $86 million with a weighted average loan-to-value and debt-service coverage for the non-owner occupied portfolio of 43% and 2.37 times, respectively.
The average loan size for all CRE loans was $1.6 million, and the average loan size for office CRE loans was also $1.6 million.
The Company has personal guarantees on 91% of its CRE portfolio. A substantial portion of the unguaranteed CRE loans were made to credit-worthy non-profit organizations.
Total office exposure in the CRE portfolio was $401 million, including 30 loans totaling approximately $76 million, in San Jose, 17 loans totaling approximately $26 million in San Francisco, and eight loans totaling approximately $16 million, in Oakland, at September 30, 2023. Non-owner occupied CRE with office exposure totaled $316 million at September 30, 2023.

2


Of the $401 million of CRE loans with office exposure, approximately $37 million, or 9%, are situated in the Bay Area downtown business districts of San Jose and San Francisco, with an average balance of $2.2 million.
At September 30, 2023, the weighted average loan-to-value and debt-service coverage for the entire non-owner occupied office portfolio were 43.1% and 1.82 times, respectively. For the nine non-owner occupied office loans in San Francisco at September 30, 2023, the weighted average loan-to-value and debt-service coverage were 36% and 1.49 times, respectively.

Third Quarter Ended September 30, 2023

Operating Results, Balance Sheet Review, Capital Management, and Credit Quality

(as of, or for the periods ended September 30, 2023, compared to September 30, 2022, and June 30, 2023, except as noted):

Operating Results:

Diluted earnings per share were $0.26 for the third quarter of 2023, compared to $0.30 for the third quarter of 2022, and $0.27 for the second quarter of 2023. Diluted earnings per share were $0.83 for the first nine months of 2023, compared to $0.75 for the first nine months of 2022.

The following table indicates the ratios for the return on average tangible assets and the return on average tangible common equity for the periods indicated:

For the Quarter Ended:

 

For the Nine Months Ended:

    

September 30, 

    

June 30, 

    

September 30, 

 

September 30, 

    

September 30, 

(unaudited)

2023

2023

2022

 

2023

2022

Return on average tangible assets

1.20%

1.29%

1.36%

1.33%

1.17%

Return on average tangible common equity

13.06%

13.93%

16.60%

14.52%

14.41%

Net interest income decreased (6%) to $45.4 million for the third quarter of 2023, compared to $48.0 million for the third quarter of 2022. The fully tax equivalent (“FTE”) net interest margin decreased (16) basis points to 3.57% for the third quarter of 2023, from 3.73% for the third quarter of 2022, primarily due to a higher cost of funds, and a decrease in the average balances of noninterest-bearing demand deposits, partially offset by increases in the prime rate and the rate on overnight funds, and a shift in the mix of earning assets as the Company invested its excess liquidity into higher yielding loans and investment securities.

Net interest income decreased (2%) to $45.4 million for the third quarter of 2023, compared to $46.3 million for the second quarter of 2023. The FTE net interest margin decreased (19) basis points to 3.57% for the third quarter of 2023 from 3.76% for the second quarter of 2023, primarily due to a higher cost of funds, and a decrease in the average balances of noninterest bearing demand deposits, partially offset by increases in the prime rate and higher average yields on overnight funds, an increase in the average balance of loans, and an decrease in the average balances of short-term borrowings.

For the first nine months of 2023, the net interest income increased 10% to $140.9 million, compared to $128.1 million for the first nine months of 2022. The FTE net interest margin increased 41 basis points to 3.80% for the first nine months of 2023, from 3.39% for the first nine months of 2022, primarily due to increases in the prime rate and the rate on overnight funds, and a shift in the mix of earning assets as the Company invested its excess liquidity into higher yielding loans and investment securities, partially offset by a higher cost of funds, a decrease in the average balances of noninterest-bearing demand deposits, and an increase in the average balances of short-term borrowings.

3


The following table, as of September 30, 2023, sets forth the estimated changes in the Company’s annual net interest income that would result from an instantaneous shift in interest rates from the base rate:

Increase/(Decrease) in

 

Estimated Net

 

Interest Income(1)

 

CHANGE IN INTEREST RATES (basis points)

    

Amount

    

Percent

 

(in $000's, unaudited)

+400

$

15,507

7.7

%

+300

$

11,594

5.8

%

+200

$

7,702

3.8

%

+100

$

3,844

1.9

%

0

 

−100

$

(4,725)

(2.3)

%

−200

$

(13,249)

(6.6)

%

−300

$

(26,427)

(13.1)

%

−400

$

(43,348)

(21.6)

%


(1)Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. These projections are forward-looking and should be considered in light of the Forward-Looking Statement Disclaimer below. Actual rates paid on deposits may differ from the hypothetical interest rates modeled due to competitive or market factors, which could reduce any actual impact on net interest income.

The following tables present the average balance of loans outstanding, interest income, and the average yield for the periods indicated:
The average yield on the total loan portfolio was relatively flat at 5.46% for the third quarter of 2023, compared to 5.47% for the second quarter of 2023, as lower average balances of Bay View Funding factored receivables were mostly offset by increases in the prime rate.

For the Quarter Ended

For the Quarter Ended

 

September 30, 2023

June 30, 2023

 

Average

Interest

Average

Average

Interest

Average

 

(in $000’s, unaudited)

Balance

Income

Yield

Balance

Income

Yield

 

Loans, core bank

$

2,720,010

$

37,171

 

5.42

%  

$

2,660,119

$

35,310

 

5.32

%  

Prepayment fees

 

182

 

0.03

%  

73

 

0.01

%  

Asset-based lending

23,983

 

593

 

9.81

%  

 

28,251

686

 

9.74

%  

Bay View Funding factored receivables

 

51,664

 

2,775

 

21.31

%  

 

68,680

3,847

 

22.47

%  

Purchased residential mortgages

 

465,471

 

3,811

 

3.25

%  

 

478,220

3,829

 

3.21

%  

Loan fair value mark / accretion

 

(3,648)

 

321

 

0.05

%  

 

(3,929)

283

 

0.04

%  

Total loans (includes loans held-for-sale)

$

3,257,480

$

44,853

 

5.46

%  

$

3,231,341

$

44,028

 

5.47

%  

The average yield on the total loan portfolio increased to 5.46% for the third quarter of 2023, compared to 4.90% for the third quarter of 2022, primarily due to increases in the prime rate.

For the Quarter Ended

For the Quarter Ended

 

September 30, 2023

September 30, 2022

 

Average

Interest

Average

Average

Interest

Average

 

(in $000’s, unaudited)

Balance

Income

Yield

Balance

Income

Yield

 

Loans, core bank

$

2,720,010

$

37,171

 

5.42

%  

$

2,587,772

$

30,774

 

4.72

%  

Prepayment fees

182

 

0.03

%  

 

96

 

0.01

%  

Asset-based lending

23,983

593

 

9.81

%  

 

53,514

1,032

 

7.65

%  

Bay View Funding factored receivables

 

51,664

2,775

 

21.31

%  

 

62,623

3,201

 

20.28

%  

Purchased residential mortgages

 

465,471

3,811

 

3.25

%  

 

445,256

3,414

 

3.04

%  

Loan fair value mark / accretion

 

(3,648)

321

 

0.05

%  

 

(5,178)

353

 

0.05

%  

Total loans (includes loans held-for-sale)

$

3,257,480

$

44,853

 

5.46

%  

$

3,143,987

$

38,870

 

4.90

%  

4


The average yield on the total loan portfolio increased to 5.46% for the first nine months of 2023, compared to 4.81% for the first nine months of 2022, primarily due to increases in the prime rate, partially offset by a decrease in the accretion of the loan purchase discount into interest income from acquired loans, lower prepayment fees, and higher average balances of lower yielding purchased residential mortgages.

For the Nine Months Ended

For the Nine Months Ended

 

September 30, 2023

September 30, 2022

 

Average

Interest

Average

Average

Interest

Average

 

(in $000’s, unaudited)

Balance

Income

Yield

Balance

Income

Yield

 

Loans, core bank

$

2,689,763

$

107,448

 

5.34

%  

$

2,567,129

$

86,464

 

4.50

%  

Prepayment fees

 

393

 

0.02

%  

1,155

0.06

%  

Asset-based lending

26,582

 

1,906

 

9.59

%  

 

57,540

2,857

 

6.64

%  

Bay View Funding factored receivables

 

65,938

 

10,623

 

21.54

%  

 

61,508

9,123

 

19.83

%  

Purchased residential mortgages

 

477,068

 

11,497

 

3.22

%  

 

394,618

8,553

 

2.90

%  

Loan fair value mark / accretion

 

(3,976)

 

1,126

 

0.06

%  

 

(6,121)

2,357

 

0.12

%  

Total loans (includes loans held-for-sale)

$

3,255,375

$

132,993

 

5.46

%  

$

3,074,674

$

110,509

 

4.81

%  

In aggregate, the remaining net purchase discount on total loans acquired was $3.5 million at September 30, 2023.

The following table presents the average balance of deposits and interest-bearing liabilities, interest expense, and the average rate for the periods indicated:

For the Quarter Ended

For the Quarter Ended

 

September 30, 2023

June 30, 2023

 

Average

Interest

Average

Average

Interest

Average

 

(in $000’s, unaudited)

Balance

Expense

Rate

Balance

Expense

Rate

 

Deposits:

 

 

 

  

 

 

 

  

Demand, noninterest-bearing

$

1,302,606

$

1,368,373

Demand, interest-bearing

 

1,017,686

$

1,730

 

0.67

%  

 

1,118,200

$

1,788

 

0.64

%  

Savings and money market

 

1,087,336

 

5,514

 

2.01

%  

 

1,109,347

 

4,638

 

1.68

%  

Time deposits - under $100

 

11,966

 

30

 

0.99

%  

 

11,610

 

20

 

0.69

%  

Time deposits - $100 and over

 

272,362

 

2,489

 

3.63

%  

 

201,600

 

1,410

 

2.81

%  

ICS/CDARS - interest-bearing demand, money market

and time deposits

 

881,665

 

5,117

 

2.30

%  

 

614,911

 

2,867

 

1.87

%  

Total interest-bearing deposits

 

3,271,015

 

14,880

 

1.80

%  

 

3,055,668

 

10,723

 

1.41

%  

Total deposits

 

4,573,621

 

14,880

 

1.29

%  

 

4,424,041

 

10,723

 

0.97

%  

Short-term borrowings

 

31

 

 

0.00

%  

 

62,653

 

787

 

5.04

%  

Subordinated debt, net of issuance costs

39,439

 

539

 

5.42

%  

39,401

 

538

 

5.48

%  

Total interest-bearing liabilities

 

3,310,485

 

15,419

 

1.85

%  

 

3,157,722

 

12,048

 

1.53

%  

Total interest-bearing liabilities and demand,

noninterest-bearing / cost of funds

$

4,613,091

$

15,419

 

1.33

%  

$

4,526,095

$

12,048

 

1.07

%  

The average cost of total deposits increased to 1.29% for the third quarter of 2023, compared to 0.97% for the second quarter of 2023. The average cost of funds increased to 1.33% for the third quarter of 2023, compared to 1.07% for the second quarter of 2023. The average cost of deposits was 0.13% and the average cost of funds was 0.18% for the third quarter of 2022.
The average cost of total deposits increased to 0.94% for the first nine months of 2023, compared to 0.11% for the first nine months of 2022. The average cost of funds increased to 1.01% for the first nine months of 2023, compared to 0.16% for the first nine months of 2022.
The increase in the average cost of total deposits and the average cost of funds for the third quarter of 2023 and first nine months of 2023 was primarily due to clients seeking higher yields and moving noninterest-bearing deposits to the Bank’s interest-bearing and ICS deposits and an increase in market interest rates.
During the third quarter of 2023, we recorded a provision for credit losses on loans of $168,000, compared to a $1.0 million provision for credit losses on loans for the third quarter of 2022, and a provision for credit losses on loans of $260,000 for the

5


second quarter of 2023. There was a provision for credit losses on loans of $460,000 for the nine months ended September 30, 2023, compared to a $258,000 provision for credit losses on loans for the nine months ended September 30, 2022.
Total noninterest income decreased (20%) to $2.2 million for the third quarter of 2023, compared to $2.8 million for the third quarter of 2022, primarily due to lower service charges and fees on deposit accounts, a lower gain on sales of SBA loans and lower servicing income, partially offset by higher termination fees at Bay View Funding, and a gain on proceeds from company-owned life insurance during the third quarter of 2023. Total noninterest income increased 7% to $2.2 million for the third quarter of 2023, compared to $2.1 million for the second quarter of 2023, primarily due to higher termination fees at Bay View Funding, and a gain on proceeds from company-owned life insurance during the third quarter of 2023.
For the nine months ended September 30, 2023, total noninterest income decreased (4%) to $7.1 million, compared to $7.4 million for the nine months ended September 30, 2022, primarily due to a $669,000 gain on warrants during the first nine months of 2022, and lower interchange fee income on credit cards during the first nine months of 2023, partially offset by higher service charges and fees on deposit accounts during the first nine months of 2023.
Total noninterest expense for the third quarter of 2023 increased to $25.2 million, compared to $23.9 million for the third quarter of 2022, primarily due to higher insurance, regulatory assessments, and information technology related expenses included in other noninterest expense, partially offset by lower professional fees and occupancy and equipment expense during the third quarter of 2023. Total noninterest expense for the third quarter of 2023 remained relatively flat at $25.2 million, compared to $25.0 million for the second quarter of 2023, as higher regulatory assessments, shareholders relations and insurance expense were mostly offset by lower professional fees.
Total noninterest expense for the nine months ended September 30, 2023 increased to $75.6 million, compared to $70.3 million for the nine months ended September 30, 2022, primarily due to higher salaries and employee benefits, and higher insurance, regulatory assessments, improvements in information technology, and ICS/CDARS fee expenses included in other noninterest expense, partially offset by lower professional fees during the nine months ended September 30, 2023.

Full time equivalent employees were 348 at September 30, 2023, and 327 at September 30, 2022, and 347 at June 30, 2023.

The efficiency ratio was 52.89% for the third quarter of 2023, compared to 47.02% for the third quarter of 2022, and 51.67% for the second quarter of 2023. The efficiency ratio was 51.06% for the nine months ended September 30, 2023, compared to 51.92% for the nine months ended September 30, 2022, primarily due to higher net interest income.

Income tax expense was $6.5 million for the third quarter of 2023, compared to $7.8 million for the third quarter of 2022, and $6.7 million for the second quarter of 2023. The effective tax rate for both the third quarter of 2023 and second quarter of 2023 was 29.0%, compared to 30.3% for the third quarter of 2022. Income tax expense for the nine months ended September 30, 2023 was $20.8 million, compared to $19.1 million for the nine months ended September 30, 2022. The effective tax rate for the nine months ended September 30, 2023 was 29.0%, compared to 29.5% for the nine months ended September 30, 2022.

Balance Sheet Review, Capital Management and Credit Quality:

Total assets decreased (1%) to $5.403 billion at September 30, 2023, compared to $5.431 billion at September 30, 2022, and increased 2% from $5.312 billion at June 30, 2023.

The following table shows the balances of securities available-for-sale, at fair value, and the related pre-tax unrealized (loss) for the periods indicated:

6


SECURITIES AVAILABLE-FOR-SALE

September 30, 

June 30, 

September 30, 

(in $000’s, unaudited)

    

2023

2023

2022

Balance (at fair value):

U.S. Treasury

$

396,996

$

421,146

$

405,389

Agency mortgage-backed securities

 

60,198

 

64,912

 

73,145

Total

$

457,194

$

486,058

$

478,534

Pre-tax unrealized (loss):

U.S. Treasury

$

(9,606)

$

(10,903)

$

(10,070)

Agency mortgage-backed securities

 

(7,185)

 

(5,659)

 

(7,304)

Total

$

(16,791)

$

(16,562)

$

(17,374)

The pre-tax unrealized loss on the securities available-for-sale portfolio was ($16.8) million, or ($12.0) million net of taxes, which was 1.8% of total shareholders’ equity at September 30, 2023.

The weighted average life of the securities available-for-sale portfolio was 1.49 years at September 30, 2023.

The following table shows the balances of securities held-to-maturity, at amortized cost, and the related pre-tax unrecognized (loss) and allowance for credit losses for the periods indicated:

SECURITIES HELD-TO-MATURITY

September 30, 

June 30, 

September 30, 

(in $000’s, unaudited)

    

2023

2023

2022

Balance (at amortized cost):

Agency mortgage-backed securities

$

632,241

$

648,337

$

665,679

Municipals — exempt from Federal tax

 

32,453

 

33,771

 

38,130

Total

$

664,694

$

682,108

$

703,809

Pre-tax unrecognized (loss):

Agency mortgage-backed securities

$

(119,932)

$

(95,285)

$

(108,074)

Municipals — exempt from Federal tax

 

(2,753)

 

(1,052)

 

(2,125)

Total

$

(122,685)

$

(96,337)

$

(110,199)

Allowance for credit losses on municipal securities

$

(13)

$

(13)

$

(15)

The pre-tax unrecognized loss on the securities held-to-maturity portfolio was ($122.7) million, or ($86.4) million net of taxes, which was 13.1% of total shareholders’ equity at September 30, 2023.

The weighted average life of the securities held-to-maturity portfolio was 7.03 years at September 30, 2023.

The unrealized and unrecognized losses in both the available-for-sale and held-to-maturity portfolios were due to higher interest rates at September 30, 2023 compared to when the securities were purchased. The issuers are of high credit quality and all principal amounts are expected to be repaid when the securities mature. The fair value is expected to recover as the securities approach their maturity date and/or market rates decline.

7


The loan portfolio remains well-diversified as reflected in the following table which summarizes the distribution of loans, excluding loans held-for-sale, and the percentage of distribution in each category for the periods indicated:

LOANS

September 30, 2023

June 30, 2023

September 30, 2022

(in $000’s, unaudited)

    

Balance

    

% to Total

    

Balance

    

% to Total

    

Balance

    

% to Total

    

Commercial

$

430,664

13

%    

$

466,354

14

%    

$

542,829

17

%    

Real estate:

 

 

 

CRE - owner occupied

 

589,751

18

%    

 

608,031

18

%    

 

612,241

19

%    

CRE - non-owner occupied

1,208,324

37

%    

1,147,313

35

%    

1,023,405

32

%    

Land and construction

 

158,138

5

%    

 

162,816

5

%    

 

167,439

5

%    

Home equity

 

124,477

4

%    

 

128,009

4

%    

 

116,489

3

%    

Multifamily

253,129

7

%    

244,959

7

%    

229,455

7

%    

Residential mortgages

503,006

15

%    

514,064

16

%    

508,839

16

%    

Consumer and other

 

18,526

1

%    

 

17,635

1

%    

 

16,620

1

%    

Total Loans

 

3,286,015

 

100

%    

 

3,289,181

 

100

%    

 

3,217,317

 

100

%    

Deferred loan costs (fees), net

 

(554)

 

 

(397)

 

 

(844)

 

Loans, net of deferred costs and fees 

$

3,285,461

 

100

%    

$

3,288,784

 

100

%    

$

3,216,473

 

100

%    

Loans, excluding loans held-for-sale, increased $69.0 million, or 2%, to $3.285 billion at September 30, 2023, compared to $3.216 billion at September 30, 2022, and decreased ($3.3) million from $3.289 billion at June 30, 2023. Loans, excluding residential mortgages, increased $74.8 million, or 3%, to $2.782 billion at September 30, 2023, compared to $2.708 billion at September 30, 2022, and increased $7.7 million from $2.775 billion at June 30, 2023.

Commercial and industrial (“C&I”) line utilization was 27% at September 30, 2023, compared to 29% at both September 30, 2022 and June 30, 2023.

At September 30, 2023, there was 33% of the CRE loan portfolio secured by owner occupied real estate, compared to 37% at September 30, 2022, and 35% at June 30, 2023.
The following table presents the maturity distribution of the Company’s loans, excluding loans held-for-sale, as of September 30, 2023. The table shows the distribution of such loans between those loans with predetermined (fixed) interest rates and those with variable (floating) interest rates. Floating rates generally fluctuate with changes in the prime rate as reflected in the Western Edition of The Wall Street Journal, and contractual repricing dates.

Due in

Over One Year But

LOAN MATURITIES

One Year or Less

Less than Five Years

Over Five Years

(in $000’s, unaudited)

    

Balance

    

% to Total

    

Balance

    

% to Total

    

Balance

    

% to Total

    

Total

Loans with variable interest rates

$

348,293

39

%  

$

253,687

28

%  

$

295,647

33

%  

$

897,627

Loans with fixed interest rates

 

65,092

3

%  

590,351

25

%  

1,732,945

72

%  

 

2,388,388

Loans

$

413,385

12

%  

$

844,038

26

%  

$

2,028,592

62

%  

$

3,286,015

At September 30, 2023, approximately 27% of the Company’s loan portfolio consisted of floating interest rate loans, compared to 34% at September 30, 2022, and 29% at June 30, 2023.

8


The following table summarizes the allowance for credit losses on loans (“ACLL”) for the periods indicated:

At or For the Quarter Ended:

 

At or For the Nine Months Ended:

 

ALLOWANCE FOR CREDIT LOSSES ON LOANS

    

September 30, 

    

June 30, 

    

September 30, 

 

September 30, 

    

September 30, 

 

(in $000’s, unaudited)

2023

2023

2022

 

2023

2022

 

Balance at beginning of period

$

47,803

$

47,273

$

45,490

$

47,512

$

43,290

Charge-offs during the period

(447)

(24)

(7)

(851)

(378)

Recoveries during the period

178

294

432

581

3,751

Net recoveries (charge-offs) during the period

(269)

270

425

(270)

3,373

Provision for credit losses on loans during the period

 

168

 

260

 

1,006

 

460

 

258

Balance at end of period

$

47,702

$

47,803

$

46,921

$

47,702

$

46,921

Total loans, net of deferred fees

$

3,285,461

$

3,288,784

$

3,216,473

$

3,285,461

$

3,216,473

Total nonperforming loans

$

5,484

$

5,537

$

1,036

$

5,484

$

1,036

ACLL to total loans

 

1.45

%  

 

1.45

%  

 

1.46

%  

 

1.45

%  

 

1.46

%  

ACLL to total nonperforming loans

869.84

%  

863.34

%  

 

4,529.05

%  

869.84

%  

4,529.05

%  

The following table shows the drivers of change in ACLL for the first, second, and third quarters of 2023:

DRIVERS OF CHANGE IN ACLL

    

(in $000’s, unaudited)

ACLL at December 31, 2022

$

47,512

Portfolio changes during the first quarter of 2023

(160)

Qualitative and quantitative changes during the first

quarter of 2023 including changes in economic forecasts

 

(79)

ACLL at March 31, 2023

47,273

Portfolio changes during the second quarter of 2023

1,652

Qualitative and quantitative changes during the second

quarter of 2023 including changes in economic forecasts

(1,122)

ACLL at June 30, 2023

47,803

Portfolio changes during the third quarter of 2023

(117)

Qualitative and quantitative changes during the third

quarter of 2023 including changes in economic forecasts

 

16

ACLL at September 30, 2023

$

47,702

The following is a breakout of nonperforming assets (“NPAs”) at the periods indicated:

NONPERFORMING ASSETS

September 30, 2023

June 30, 2023

September 30, 2022

 

(in $000’s, unaudited)

    

Balance

    

% of Total

    

Balance

    

% of Total

    

Balance

    

% of Total

 

Restructured and loans over 90 days past due

and still accruing

$

1,966

36

%  

$

2,262

41

%  

$

545

53

%  

Residential mortgages

1,716

31

%  

1,873

34

%  

%  

Commercial loans

1,712

31

%  

1,306

23

%  

491

47

%  

Home equity loans

90

2

%  

96

2

%  

%  

CRE

%  

%  

%  

Total nonperforming assets

$

5,484

 

100

%  

$

5,537

 

100

%  

$

1,036

 

100

%  

NPAs totaled $5.5 million, or 0.10% of total assets, at both September 30, 2023 and June 30, 2023, compared to $1.0 million, or 0.02% of total assets, at September 30, 2022.

There were no foreclosed assets on the balance sheet at September 30, 2023, September 30, 2022, or June 30, 2023.

There were no CRE loans, Shared National Credits (“SNCs”) or material purchased participations included in NPAs or total loans at September 30, 2023, September 30, 2022, or June 30, 2023.

Classified assets totaled $31.1 million, or 0.57% of total assets, at September 30, 2023, compared to $28.6 million, or 0.53% of total assets, at September 30, 2022, and $30.5 million, or 0.57% of total assets, at June 30, 2023.

9


The following table summarizes the distribution of deposits and the percentage of distribution in each category for the periods indicated:

DEPOSITS

September 30, 2023

June 30, 2023

September 30, 2022

 

(in $000’s, unaudited)

    

Balance

    

% to Total

  

Balance

    

% to Total

  

Balance

    

% to Total

 

Demand, noninterest-bearing

$

1,243,501

 

27

%  

$

1,319,844

 

29

%  

$

1,883,574

 

40

%  

Demand, interest-bearing

 

1,004,185

 

22

%  

 

1,064,638

 

24

%  

 

1,154,403

 

24

%  

Savings and money market

 

1,110,640

 

24

%  

 

1,075,835

 

24

%  

 

1,487,400

 

32

%  

Time deposits — under $250

 

43,906

 

1

%  

 

44,520

 

1

%  

 

34,728

 

1

%  

Time deposits — $250 and over

 

252,001

 

6

%  

 

171,852

 

4

%  

 

93,263

 

2

%  

ICS/CDARS — interest-bearing demand,

money market and time deposits

 

921,224

 

20

%  

 

824,083

 

18

%  

 

29,897

 

1

%  

Total deposits

$

4,575,457

 

100

%  

$

4,500,772

 

100

%  

$

4,683,265

 

100

%  

Total deposits increased $74.7 million, or 2%, to $4.575 billion at September 30, 2023, compared to $4.501 billion at June 30, 2023, and decreased ($107.8) million, or (2%), from $4.683 billion at September 30, 2022.

ICS/CDARS deposits increased $97.1 million to $921.2 million at September 30, 2023, compared to $824.1 million at June 30, 2023, and increased $891.3 million from $29.9 million at September 30, 2022.

The Bank’s uninsured deposits were approximately $2.123 billion, or 46% of total deposits, at September 30, 2023, compared to $2.148 billion, or 48% of total deposits, at June 30, 2023, and $2.556 billion, or 58% of total deposits, at March 31, 2023, and $2.788 billion, or 64% of total deposits, at December 31, 2022.
The Company’s consolidated capital ratios exceeded regulatory guidelines and the Bank’s capital ratios exceeded regulatory guidelines under the Basel III prompt corrective action (“PCA”) regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at September 30, 2023, as reflected in the following table:

    

    

    

    

    

Well-capitalized

Financial

Institution

Basel III

Heritage

Heritage

Basel III PCA

Minimum

Commerce

Bank of

Regulatory

Regulatory

CAPITAL RATIOS (unaudited)

Corp

Commerce

Guidelines

Requirement (1)

Total Capital

 

15.6

%  

15.0

%  

10.0

%  

10.5

%

Tier 1 Capital

 

13.4

%  

13.9

%  

8.0

%  

8.5

%

Common Equity Tier 1 Capital

 

13.4

%  

13.9

%  

6.5

%  

7.0

%

Tier 1 Leverage

 

9.6

%  

10.0

%  

5.0

%  

4.0

%

Tangible common equity / tangible assets (2)

 

9.3

%  

9.6

%  

N/A

N/A


(1)Basel III minimum regulatory requirements for both the Company and the Bank include a 2.5% capital conservation buffer, except the leverage ratio.
(2)Represents shareholders’ equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets.

The following table reflects the components of accumulated other comprehensive loss, net of taxes, for the periods indicated:

ACCUMULATED OTHER COMPREHENSIVE LOSS

September 30, 

June 30, 

September 30, 

(in $000’s, unaudited)

    

2023

2023

2022

Unrealized loss on securities available-for-sale

$

(11,985)

$

(11,822)

$

(12,398)

Split dollar insurance contracts liability

 

(3,234)

 

(3,187)

 

(5,511)

Supplemental executive retirement plan liability

 

(2,343)

 

(2,352)

 

(7,428)

Unrealized gain on interest-only strip from SBA loans

 

93

 

103

 

125

Total accumulated other comprehensive loss

$

(17,469)

$

(17,258)

$

(25,212)

10


Heritage Commerce Corp, a bank holding company established in October 1997, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose, CA with full-service branches in Danville, Fremont, Gilroy, Hollister, Livermore, Los Altos, Los Gatos, Morgan Hill, Oakland, Palo Alto, Pleasanton, Redwood City, San Francisco, San Jose, San Mateo, San Rafael, and Walnut Creek. Heritage Bank of Commerce is an SBA Preferred Lender. Bay View Funding, a subsidiary of Heritage Bank of Commerce, is based in San Jose, CA and provides business-essential working capital factoring financing to various industries throughout the United States. For more information, please visit www.heritagecommercecorp.com. The contents of our website are not incorporated into, and do not perform a part of, this release or of our filings with the Securities and Exchange Commission.

Forward-Looking Statement Disclaimer

Certain matters discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be deemed to include, among other things, statements relating to the Company’s future financial performance, projected cash flows of our investment securities portfolio, the performance of our loan portfolio, estimated net interest income resulting from a shift in interest rates, expectation of high credit quality issuers ability to repay, as well as statements relating to the anticipated effects on the Company’s financial condition and results of operations from expected developments or events. 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and the following: (1) factors that affect our liquidity and our ability to meet customer demands for deposit withdrawals, including our cash on hand and the availability of funds from our lines of credit, and media items and consumer confidence as those factors affect depositors’ confidence in the banking system generally and our bank in particular; (2) factors that affect the value and liquidity of our investment portfolios, particularly the values of securities available-for-sale; (3) the effect of our measures to assure adequate liquidity of deposits as those measures affect profitability, including increasing interest rates on deposits as a component of our interest expense; (4) our ability to estimate accurately, and to establish adequate reserves against, the risk of loss associated with our loan and lease portfolio; (5) the ability of issuers to repay the full principal amounts of securities, in both the available-for-sale and held-to-maturity portfolios, at maturity; (6) geopolitical and domestic political developments that can increase levels of political and economic unpredictability, contribute to rising energy and commodity prices, and increase the volatility of financial markets; (7) current and future economic and market conditions in the United States generally or in the communities we serve, including the effects of declines in property values and overall slowdowns in economic growth should these events occur; (8) effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Federal Open Market Committee of the Federal Reserve Board and other factors that affect market interest rates generally; (9) inflationary pressures and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make, whether held in the portfolio or in the secondary market; (10) changes in the level of nonperforming assets and charge offs and other credit quality measures, and their impact on the adequacy of our allowance for credit losses and our provision for credit losses; (11) volatility in credit and equity markets and its effect on the global economy; (12) conditions relating to the impact of the COVID-19 pandemic, and other infectious illness outbreaks that may arise in the future, on our customers, employees, businesses, liquidity, financial results and overall condition including severity and duration of the associated uncertainties in U.S. and global markets; (13) our ability to compete effectively with other banks and financial services companies and the effects of competition in the financial services industry on our business; (14) our ability to achieve loan growth and attract deposits in our market area; (15) risks associated with concentrations in real estate related loans; (16) the relative strength or weakness of the commercial and real estate markets where our borrowers are located, including related vacancy rates, and asset and market prices; (17) increased capital requirements for our continual growth or as imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all; (18) regulatory limits on Heritage Bank of Commerce’s ability to pay dividends to the Company; (19) operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to industry changes in information technology systems, on which we are highly dependent; (20) our inability to attract, recruit, and retain qualified officers and other personnel could harm our ability to implement our strategic plan, impair our relationships with customers and adversely affect our business, results of operations and growth prospects; (21) possible adjustment of the valuation of our deferred tax assets; (22) our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks such as data security breaches, “denial of service” attacks, “hacking” and identity theft; (23) inability of our framework to manage risks associated with our business, including operational risk and credit risk; (24) risks of loss of funding of the Small Business Administration (“SBA”) or SBA loan programs, or changes in those programs; (25) compliance with applicable laws and governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities, accounting and tax matters; (26) effect of changes in accounting policies

11


and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; (27) the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise; (28) availability of and competition for acquisition opportunities; (29) risks resulting from domestic terrorism; (30) risks resulting from social unrest and protests; (31) risks of natural disasters (including earthquakes, fires, and flooding) and other events beyond our control; and (32) our success in managing the risks involved in the foregoing factors.

Member FDIC

For additional information, contact:

Debbie Reuter

EVP, Corporate Secretary

Direct: (408) 494-4542

Debbie.Reuter@herbank.com

12


For the Quarter Ended:

Percent Change From:

 

For the Nine Months Ended:

CONSOLIDATED INCOME STATEMENTS

    

September 30, 

    

June 30, 

    

September 30, 

    

June 30, 

    

September 30, 

 

    

September 30, 

    

September 30, 

    

Percent

 

(in $000’s, unaudited)

2023

2023

2022

2023

2022

 

2023

2022

Change

 

Interest income

$

60,791

$

58,341

$

50,174

 

4

%  

21

%

$

175,406

$

133,636

31

%

Interest expense

 

15,419

 

12,048

 

2,133

 

28

%  

623

%

 

34,483

 

5,495

528

%

Net interest income before provision

for credit losses on loans

 

45,372

 

46,293

 

48,041

 

(2)

%  

(6)

%

 

140,923

 

128,141

10

%

Provision for (recapture of) credit losses on loans

 

168

 

260

 

1,006

 

(35)

%  

(83)

%

 

460

 

258

78

%

Net interest income after provision

for credit losses on loans

 

45,204

 

46,033

 

47,035

 

(2)

%  

(4)

%

 

140,463

 

127,883

10

%

Noninterest income:

 

 

 

 

  

 

  

 

  

 

  

  

Service charges and fees on deposit

accounts

 

859

 

901

 

1,360

 

(5)

%  

(37)

%

 

3,503

 

2,839

23

%

Increase in cash surrender value of

life insurance

 

517

 

502

 

484

 

3

%  

7

%

 

1,512

 

1,444

5

%

Gain on sales of SBA loans

 

207

 

199

 

308

 

4

%  

(33)

%

 

482

 

491

(2)

%

Termination fees

118

 

 

16

 

N/A

638

%

 

129

 

61

111

%

Gain on proceeds from company-owned

life insurance

100

N/A

N/A

 

100

 

27

270

%

Servicing income

 

62

 

104

 

125

 

(40)

%  

(50)

%

 

297

 

370

(20)

%

Gain on warrants

32

N/A

(100)

%

 

 

669

(100)

%

Other

 

353

 

368

 

456

 

(4)

%  

(23)

%

 

1,033

 

1,438

(28)

%

Total noninterest income

 

2,216

 

2,074

 

2,781

 

7

%  

(20)

%

 

7,056

 

7,339

(4)

%

Noninterest expense:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Salaries and employee benefits

 

14,147

 

13,987

 

14,119

 

1

%  

0

%

 

42,943

 

41,416

4

%

Occupancy and equipment

 

2,301

 

2,422

 

2,415

 

(5)

%  

(5)

%

 

7,123

 

7,129

0

%

Professional fees

 

717

 

1,149

 

1,230

 

(38)

%  

(42)

%

 

3,265

 

3,601

(9)

%

Other

 

8,006

 

7,433

 

6,135

 

8

%  

30

%

 

22,232

 

18,195

22

%

Total noninterest expense

 

25,171

 

24,991

 

23,899

 

1

%  

5

%

 

75,563

 

70,341

7

%

Income before income taxes

 

22,249

 

23,116

 

25,917

 

(4)

%  

(14)

%

 

71,956

 

64,881

11

%

Income tax expense

 

6,454

 

6,713

 

7,848

 

(4)

%  

(18)

%

 

20,841

 

19,125

9

%

Net income

$

15,795

$

16,403

$

18,069

 

(4)

%  

(13)

%

$

51,115

$

45,756

12

%

PER COMMON SHARE DATA

 

 

 

 

  

 

  

 

 

  

(unaudited)

 

 

 

 

  

 

  

 

 

  

Basic earnings per share

$

0.26

$

0.27

$

0.30

 

(4)

%  

(13)

%

$

0.84

$

0.76

11

%

Diluted earnings per share

$

0.26

$

0.27

$

0.30

 

(4)

%  

(13)

%

$

0.83

$

0.75

11

%

Weighted average shares outstanding - basic

 

61,093,289

 

61,035,435

 

60,686,992

 

0

%  

1

%

 

61,012,315

 

60,541,015

1

%

Weighted average shares outstanding - diluted

 

61,436,240

 

61,266,059

 

61,123,801

 

0

%  

1

%

 

61,284,590

 

61,004,840

0

%

Common shares outstanding at period-end

 

61,099,155

 

61,091,155

 

60,716,794

 

0

%  

1

%

 

61,099,155

 

60,716,794

1

%

Dividend per share

$

0.13

$

0.13

$

0.13

 

0

%  

0

%

$

0.39

$

0.39

0

%

Book value per share

$

10.83

$

10.70

$

10.04

 

1

%  

8

%

$

10.83

$

10.04

8

%

Tangible book value per share

$

7.94

$

7.80

$

7.09

 

2

%  

12

%

$

7.94

$

7.09

12

%

KEY FINANCIAL RATIOS

 

  

 

  

  

 

  

 

  

 

  

 

  

  

(unaudited)

 

  

 

  

 

  

 

  

 

  

 

  

 

  

  

Annualized return on average equity

 

9.54

%  

 

10.12

%  

 

11.72

%  

(6)

%  

(19)

%

 

10.54

%  

 

10.12

%  

4

%

Annualized return on average tangible

common equity

 

13.06

%  

 

13.93

%  

 

16.60

%  

(6)

%  

(21)

%

 

14.52

%  

 

14.41

%  

1

%

Annualized return on average assets

 

1.16

%  

 

1.25

%  

 

1.31

%  

(7)

%  

(11)

%

 

1.29

%  

 

1.13

%  

14

%

Annualized return on average tangible assets

 

1.20

%  

 

1.29

%  

 

1.36

%  

(7)

%  

(12)

%

 

1.33

%  

 

1.17

%  

14

%

Net interest margin (FTE)

 

3.57

%  

 

3.76

%  

 

3.73

%  

(5)

%  

(4)

%

 

3.80

%  

 

3.39

%  

12

%

Efficiency ratio

 

52.89

%  

 

51.67

%  

 

47.02

%  

2

%  

12

%

 

51.06

%  

 

51.92

%  

(2)

%

AVERAGE BALANCES

 

  

 

  

 

  

 

 

  

 

  

 

  

  

(in $000’s, unaudited)

 

  

 

  

 

  

 

  

 

  

 

  

 

  

  

Average assets

$

5,399,930

$

5,278,243

$

5,466,330

 

2

%  

(1)

%

$

5,316,447

$

5,414,820

(2)

%

Average tangible assets

$

5,222,692

$

5,100,399

$

5,286,591

 

2

%  

(1)

%

$

5,138,610

$

5,234,427

(2)

%

Average earning assets

$

5,051,710

$

4,948,397

$

5,117,373

 

2

%  

(1)

%

$

4,965,613

$

5,065,698

(2)

%

Average loans held-for-sale

$

2,765

$

4,166

$

3,282

 

(34)

%  

(16)

%

$

3,229

$

2,201

47

%

Average total loans

$

3,254,715

$

3,227,175

$

3,140,705

 

1

%  

4

%

$

3,252,146

$

3,072,473

6

%

Average deposits

$

4,573,621

$

4,424,041

$

4,712,044

 

3

%  

(3)

%

$

4,471,783

$

4,662,926

(4)

%

Average demand deposits - noninterest-bearing

$

1,302,606

$

1,368,373

$

1,910,748

 

(5)

%  

(32)

%

$

1,444,744

$

1,868,283

(23)

%

Average interest-bearing deposits

$

3,271,015

$

3,055,668

$

2,801,296

 

7

%  

17

%

$

3,027,039

$

2,794,643

8

%

Average interest-bearing liabilities

$

3,310,485

$

3,157,722

$

2,840,611

 

5

%  

17

%

$

3,102,723

$

2,837,219

9

%

Average equity

$

656,973

$

650,240

$

611,707

 

1

%  

7

%

$

648,341

$

604,794

7

%

Average tangible common equity

$

479,735

$

472,396

$

431,968

 

2

%  

11

%

$

470,504

$

424,401

11

%

13


For the Quarter Ended:

CONSOLIDATED INCOME STATEMENTS

    

September 30, 

    

June 30, 

    

March 31, 

    

December 31, 

    

September 30,

(in $000’s, unaudited)

2023

2023

2023

2022

2022

Interest income

$

60,791

$

58,341

$

56,274

$

55,192

$

50,174

Interest expense

 

15,419

 

12,048

 

7,016

 

3,453

 

2,133

Net interest income before provision

for credit losses on loans

 

45,372

 

46,293

 

49,258

 

51,739

 

48,041

Provision for (recapture of) credit losses on loans

 

168

 

260

 

32

 

508

 

1,006

Net interest income after provision

for credit losses on loans

 

45,204

 

46,033

 

49,226

 

51,231

 

47,035

Noninterest income:

 

 

 

 

 

Service charges and fees on deposit

accounts

 

859

 

901

 

1,743

 

1,801

 

1,360

Increase in cash surrender value of

life insurance

 

517

 

502

 

493

 

481

484

Gain on sales of SBA loans

 

207

 

199

 

76

 

 

308

Termination fees

 

118

 

 

11

 

 

16

Gain on proceeds from company-owned

life insurance

 

100

 

 

 

 

Servicing income

 

62

 

104

 

131

 

138

 

125

Gain on warrants

 

 

 

 

 

32

Other

353

368

312

352

456

Total noninterest income

 

2,216

 

2,074

 

2,766

 

2,772

 

2,781

Noninterest expense:

 

  

 

  

 

  

 

  

 

  

Salaries and employee benefits

 

14,147

 

13,987

 

14,809

 

13,915

 

14,119

Occupancy and equipment

 

2,301

 

2,422

 

2,400

 

2,510

 

2,415

Professional fees

 

717

 

1,149

 

1,399

 

1,414

 

1,230

Other

 

8,006

 

7,433

 

6,793

 

6,679

 

6,135

Total noninterest expense

 

25,171

 

24,991

 

25,401

 

24,518

 

23,899

Income before income taxes

 

22,249

 

23,116

 

26,591

 

29,485

 

25,917

Income tax expense

 

6,454

 

6,713

 

7,674

 

8,686

 

7,848

Net income

$

15,795

$

16,403

$

18,917

$

20,799

$

18,069

PER COMMON SHARE DATA

 

 

 

 

 

(unaudited)

 

  

 

  

 

 

  

 

Basic earnings per share

$

0.26

$

0.27

$

0.31

$

0.34

$

0.30

Diluted earnings per share

$

0.26

$

0.27

$

0.31

$

0.34

$

0.30

Weighted average shares outstanding - basic

 

61,093,289

 

61,035,435

 

60,908,221

 

60,788,803

 

60,686,992

Weighted average shares outstanding - diluted

 

61,436,240

 

61,266,059

 

61,268,072

 

61,357,023

 

61,123,801

Common shares outstanding at period-end

 

61,099,155

 

61,091,155

 

60,948,607

 

60,852,723

 

60,716,794

Dividend per share

$

0.13

$

0.13

$

0.13

$

0.13

$

0.13

Book value per share

$

10.83

$

10.70

$

10.62

$

10.39

$

10.04

Tangible book value per share

$

7.94

$

7.80

$

7.70

$

7.46

$

7.09

KEY FINANCIAL RATIOS

 

  

 

  

 

  

 

  

 

  

(unaudited)

 

  

 

  

 

  

 

  

 

  

Annualized return on average equity

 

9.54

%  

 

10.12

%  

 

12.03

%  

 

13.40

%  

 

11.72

%  

Annualized return on average tangible

common equity

 

13.06

%  

 

13.93

%  

 

16.71

%  

 

18.89

%  

 

16.60

%  

Annualized return on average assets

 

1.16

%  

 

1.25

%  

 

1.47

%  

 

1.54

%  

 

1.31

%  

Annualized return on average tangible assets

 

1.20

%  

 

1.29

%  

 

1.52

%  

 

1.59

%  

 

1.36

%  

Net interest margin (FTE)

 

3.57

%  

 

3.76

%  

 

4.09

%  

 

4.10

%  

 

3.73

%  

Efficiency ratio

 

52.89

%  

 

51.67

%  

 

48.83

%  

 

44.98

%  

 

47.02

%  

AVERAGE BALANCES

 

  

 

  

 

  

 

  

 

  

(in $000’s, unaudited)

 

  

 

  

 

  

 

  

 

  

Average assets

$

5,399,930

$

5,278,243

$

5,235,506

$

5,360,867

$

5,466,330

Average tangible assets

$

5,222,692

$

5,100,399

$

5,057,063

$

5,181,793

$

5,286,591

Average earning assets

$

5,051,710

$

4,948,397

$

4,895,009

$

5,009,578

$

5,117,373

Average loans held-for-sale

$

2,765

$

4,166

$

2,755

$

2,346

$

3,282

Average total loans

$

3,254,715

$

3,227,175

$

3,274,770

$

3,248,210

$

3,140,705

Average deposits

$

4,573,621

$

4,424,041

$

4,415,952

$

4,600,533

$

4,712,044

Average demand deposits - noninterest-bearing

$

1,302,606

$

1,368,373

$

1,667,260

$

1,851,003

$

1,910,748

Average interest-bearing deposits

$

3,271,015

$

3,055,668

$

2,748,692

$

2,749,530

$

2,801,296

Average interest-bearing liabilities

$

3,310,485

$

3,157,722

$

2,834,732

$

2,788,880

$

2,840,611

Average equity

$

656,973

$

650,240

$

637,597

$

615,941

$

611,707

Average tangible common equity

$

479,735

$

472,396

$

459,154

$

436,867

$

431,968

14


End of Period:

Percent Change From:

 

CONSOLIDATED BALANCE SHEETS

    

September 30, 

    

June 30, 

    

September 30, 

    

June 30, 

    

September 30, 

 

(in $000’s, unaudited)

2023

2023

2022

2023

2022

 

ASSETS

 

  

 

  

 

  

 

  

 

  

Cash and due from banks

$

40,076

$

42,551

$

40,500

 

(6)

%  

(1)

%

Other investments and interest-bearing deposits

in other financial institutions

 

605,476

 

468,951

 

641,251

 

29

%  

(6)

%

Securities available-for-sale, at fair value

 

457,194

 

486,058

 

478,534

 

(6)

%  

(4)

%

Securities held-to-maturity, at amortized cost

 

664,681

 

682,095

 

703,794

 

(3)

%  

(6)

%

Loans held-for-sale - SBA, including deferred costs

 

841

 

3,136

 

2,081

 

(73)

%  

(60)

%

Loans:

 

 

 

 

  

 

Commercial

 

430,664

 

466,354

 

542,829

 

(8)

%  

(21)

%

Real estate:

 

 

 

 

 

  

CRE - owner occupied

 

589,751

 

608,031

 

612,241

 

(3)

%  

(4)

%

CRE - non-owner occupied

1,208,324

1,147,313

1,023,405

5

%  

18

%

Land and construction

 

158,138

 

162,816

 

167,439

 

(3)

%  

(6)

%

Home equity

 

124,477

 

128,009

 

116,489

 

(3)

%  

7

%

Multifamily

253,129

244,959

229,455

3

%  

10

%

Residential mortgages

 

503,006

 

514,064

 

508,839

 

(2)

%  

(1)

%

Consumer and other

 

18,526

 

17,635

 

16,620

 

5

%  

11

%

Loans

 

3,286,015

 

3,289,181

 

3,217,317

 

0

%  

2

%

Deferred loan fees, net

 

(554)

 

(397)

 

(844)

 

40

%  

(34)

%

Total loans, net of deferred costs and fees

 

3,285,461

 

3,288,784

 

3,216,473

 

0

%  

2

%

Allowance for credit losses on loans

 

(47,702)

 

(47,803)

 

(46,921)

 

0

%  

2

%

Loans, net

 

3,237,759

 

3,240,981

 

3,169,552

 

0

%  

2

%

Company-owned life insurance

 

79,607

 

79,940

 

78,456

 

0

%  

1

%

Premises and equipment, net

 

9,707

 

9,197

 

9,428

 

6

%  

3

%

Goodwill

 

167,631

 

167,631

 

167,631

 

0

%  

0

%

Other intangible assets

 

9,229

 

9,830

 

11,692

 

(6)

%  

(21)

%

Accrued interest receivable and other assets

 

131,106

 

121,467

 

128,343

 

8

%  

2

%

Total assets

$

5,403,307

$

5,311,837

$

5,431,262

 

2

%  

(1)

%

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

  

 

  

Liabilities:

 

 

 

  

 

  

 

  

Deposits:

 

 

 

  

 

  

 

Demand, noninterest-bearing

$

1,243,501

$

1,319,844

$

1,883,574

 

(6)

%  

(34)

%

Demand, interest-bearing

 

1,004,185

 

1,064,638

 

1,154,403

 

(6)

%  

(13)

%

Savings and money market

 

1,110,640

 

1,075,835

 

1,487,400

 

3

%  

(25)

%

Time deposits - under $250

 

43,906

 

44,520

 

34,728

 

(1)

%  

26

%

Time deposits - $250 and over

 

252,001

 

171,852

 

93,263

 

47

%  

170

%

ICS/CDARS - interest-bearing demand, money market

and time deposits

 

921,224

 

824,083

 

29,897

 

12

%  

2981

%

Total deposits

 

4,575,457

 

4,500,772

 

4,683,265

 

2

%  

(2)

%

Subordinated debt, net of issuance costs

39,463

39,425

39,312

0

%  

0

%

Accrued interest payable and other liabilities

 

126,457

 

117,970

 

99,168

 

7

%  

28

%

Total liabilities

 

4,741,377

 

4,658,167

 

4,821,745

 

2

%  

(2)

%

Shareholders’ Equity:

 

  

 

  

 

  

 

  

 

  

Common stock

 

505,692

 

505,075

 

501,240

 

0

%  

1

%

Retained earnings

 

173,707

 

165,853

 

133,489

 

5

%  

30

%

Accumulated other comprehensive loss

 

(17,469)

 

(17,258)

 

(25,212)

 

1

%  

(31)

%

Total shareholders' equity

 

661,930

 

653,670

 

609,517

 

1

%  

9

%

Total liabilities and shareholders’ equity

$

5,403,307

$

5,311,837

$

5,431,262

 

2

%  

(1)

%

15


End of Period:

CONSOLIDATED BALANCE SHEETS

    

September 30, 

    

June 30, 

    

March 31, 

    

December 31, 

    

September 30,

(in $000’s, unaudited)

2023

2023

2023

2022

2022

ASSETS

 

  

 

  

 

  

 

  

 

  

Cash and due from banks

$

40,076

$

42,551

$

41,318

$

27,595

$

40,500

Other investments and interest-bearing deposits

in other financial institutions

 

605,476

 

468,951

 

698,690

 

279,008

 

641,251

Securities available-for-sale, at fair value

 

457,194

 

486,058

 

491,751

 

489,596

 

478,534

Securities held-to-maturity, at amortized cost

 

664,681

 

682,095

 

698,231

 

714,990

 

703,794

Loans held-for-sale - SBA, including deferred costs

 

841

 

3,136

 

2,792

 

2,456

 

2,081

Loans:

 

 

 

 

 

Commercial

 

430,664

 

466,354

 

506,602

 

533,915

 

542,829

Real estate:

 

 

 

 

 

CRE - owner occupied

589,751

608,031

603,298

614,663

612,241

CRE - non-owner occupied

 

1,208,324

 

1,147,313

 

1,083,852

 

1,066,368

 

1,023,405

Land and construction

 

158,138

 

162,816

 

166,408

 

163,577

 

167,439

Home equity

 

124,477

 

128,009

 

124,481

 

120,724

 

116,489

Multifamily

 

253,129

 

244,959

 

231,242

 

244,882

 

229,455

Residential mortgages

503,006

514,064

528,639

537,905

508,839

Consumer and other

 

18,526

 

17,635

 

17,905

 

17,033

 

16,620

Loans

 

3,286,015

 

3,289,181

 

3,262,427

 

3,299,067

 

3,217,317

Deferred loan fees, net

 

(554)

 

(397)

 

(512)

 

(517)

 

(844)

Total loans, net of deferred fees

 

3,285,461

 

3,288,784

 

3,261,915

 

3,298,550

 

3,216,473

Allowance for credit losses on loans

 

(47,702)

 

(47,803)

 

(47,273)

 

(47,512)

 

(46,921)

Loans, net

 

3,237,759

 

3,240,981

 

3,214,642

 

3,251,038

 

3,169,552

Company-owned life insurance

 

79,607

 

79,940

 

79,438

 

78,945

 

78,456

Premises and equipment, net

 

9,707

 

9,197

 

9,142

 

9,301

 

9,428

Goodwill

 

167,631

 

167,631

 

167,631

 

167,631

 

167,631

Other intangible assets

 

9,229

 

9,830

 

10,431

 

11,033

 

11,692

Accrued interest receivable and other assets

 

131,106

 

121,467

 

122,474

 

125,987

 

128,343

Total assets

$

5,403,307

$

5,311,837

$

5,536,540

$

5,157,580

$

5,431,262

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Liabilities:

 

  

 

  

 

  

 

  

 

  

Deposits:

 

  

 

  

 

  

 

  

 

  

Demand, noninterest-bearing

$

1,243,501

$

1,319,844

$

1,469,081

$

1,736,722

$

1,883,574

Demand, interest-bearing

 

1,004,185

 

1,064,638

 

1,196,789

 

1,196,427

 

1,154,403

Savings and money market

 

1,110,640

 

1,075,835

 

1,264,567

 

1,285,444

 

1,487,400

Time deposits - under $250

 

43,906

 

44,520

 

37,884

 

32,445

 

34,728

Time deposits - $250 and over

 

252,001

 

171,852

 

172,070

 

108,192

 

93,263

ICS/CDARS - interest-bearing demand, money market

and time deposits

 

921,224

 

824,083

 

304,147

 

30,374

 

29,897

Total deposits

 

4,575,457

 

4,500,772

 

4,444,538

 

4,389,604

 

4,683,265

Other short-term borrowings

300,000

Subordinated debt, net of issuance costs

39,463

39,425

39,387

39,350

39,312

Accrued interest payable and other liabilities

 

126,457

 

117,970

 

105,407

 

96,170

 

99,168

Total liabilities

 

4,741,377

 

4,658,167

 

4,889,332

 

4,525,124

 

4,821,745

Shareholders’ Equity:

 

  

 

  

 

  

 

  

 

  

Common stock

 

505,692

 

505,075

 

504,135

 

502,923

 

501,240

Retained earnings

 

173,707

 

165,853

 

157,390

 

146,389

 

133,489

Accumulated other comprehensive loss

 

(17,469)

 

(17,258)

 

(14,317)

 

(16,856)

 

(25,212)

Total shareholders' equity

 

661,930

 

653,670

 

647,208

 

632,456

 

609,517

Total liabilities and shareholders’ equity

$

5,403,307

$

5,311,837

$

5,536,540

$

5,157,580

$

5,431,262

16


At or For the Quarter Ended:

Percent Change From:

 

CREDIT QUALITY DATA

    

September 30, 

    

June 30, 

    

September 30, 

    

June 30, 

    

September 30, 

 

(in $000’s, unaudited)

2023

2023

2022

2023

2022

 

Nonaccrual loans - held-for-investment

$

3,518

$

3,275

$

491

 

7

%  

616

%

Restructured and loans over 90 days past due

and still accruing

 

1,966

 

2,262

 

545

 

(13)

%  

261

%

Total nonperforming loans

 

5,484

 

5,537

 

1,036

 

(1)

%  

429

%

Foreclosed assets

 

 

 

 

N/A

N/A

Total nonperforming assets

$

5,484

$

5,537

$

1,036

 

(1)

%  

429

%

Other restructured loans still accruing

$

$

$

93

 

N/A

(100)

%

Net charge-offs (recoveries) during the quarter

$

269

$

(270)

$

(425)

 

200

%  

163

%

Provision for credit losses on loans during the quarter

$

168

$

260

$

1,006

 

(35)

%  

(83)

%

Allowance for credit losses on loans

$

47,702

$

47,803

$

46,921

 

0

%  

2

%

Classified assets

$

31,062

$

30,500

$

28,570

 

2

%  

9

%

Allowance for credit losses on loans to total loans

 

1.45

%  

 

1.45

%  

 

1.46

%  

0

%  

(1)

%

Allowance for credit losses on loans to total nonperforming loans

 

869.84

%  

 

863.34

%  

 

4,529.05

%  

1

%  

(81)

%

Nonperforming assets to total assets

 

0.10

%  

 

0.10

%  

 

0.02

%  

0

%  

400

%

Nonperforming loans to total loans

 

0.17

%  

 

0.17

%  

 

0.03

%  

0

%  

467

%

Classified assets to Heritage Commerce Corp

Tier 1 capital plus allowance for credit losses on loans

 

6

%  

 

6

%  

 

6

%  

0

%  

0

%

Classified assets to Heritage Bank of Commerce

Tier 1 capital plus allowance for credit losses on loans

 

5

%  

 

5

%  

 

5

%  

0

%  

0

%

OTHER PERIOD-END STATISTICS

 

  

 

  

 

  

 

  

 

  

(in $000’s, unaudited)

 

  

 

  

 

  

 

  

 

  

Heritage Commerce Corp:

 

  

 

  

 

  

 

  

 

  

Tangible common equity (1)

$

485,070

$

476,209

$

430,194

 

2

%  

13

%

Shareholders’ equity / total assets

 

12.25

%  

 

12.31

%  

 

11.22

%  

0

%  

9

%

Tangible common equity / tangible assets (2)

 

9.28

%  

 

9.27

%  

 

8.19

%  

0

%  

13

%

Loan to deposit ratio

 

71.81

%  

 

73.07

%  

 

68.68

%  

(2)

%  

5

%

Noninterest-bearing deposits / total deposits

 

27.18

%  

 

29.32

%  

 

40.22

%  

(7)

%  

(32)

%

Total capital ratio

 

15.6

%  

 

15.4

%  

 

14.5

%  

1

%  

8

%

Tier 1 capital ratio

13.4

%  

 

13.2

%  

 

12.4

%  

2

%  

8

%

Common Equity Tier 1 capital ratio

 

13.4

%  

 

13.2

%  

 

12.4

%  

2

%  

8

%

Tier 1 leverage ratio

 

9.6

%  

 

9.7

%  

 

8.7

%  

(1)

%  

10

%

Heritage Bank of Commerce:

Total capital ratio

 

15.0

%  

 

14.8

%  

 

14.0

%  

1

%  

7

%

Tier 1 capital ratio

 

13.9

%  

 

13.7

%  

 

12.9

%  

1

%  

8

%

Common Equity Tier 1 capital ratio

 

13.9

%  

 

13.7

%  

 

12.9

%  

1

%  

8

%

Tier 1 leverage ratio

 

10.0

%  

 

10.0

%  

 

9.0

%  

0

%  

11

%


(1)Represents shareholders' equity minus goodwill and other intangible assets.
(2)Represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets.

17


At or For the Quarter Ended:

CREDIT QUALITY DATA

    

September 30, 

    

June 30, 

    

March 31, 

    

December 31, 

    

September 30, 

(in $000’s, unaudited)

2023

2023

2023

2022

2022

Nonaccrual loans - held-for-investment

$

3,518

$

3,275

$

781

$

740

$

491

 

Restructured and loans over 90 days past due

and still accruing

 

1,966

 

2,262

 

1,459

 

1,685

 

545

 

Total nonperforming loans

 

5,484

 

5,537

 

2,240

 

2,425

 

1,036

 

Foreclosed assets

 

 

 

 

 

 

Total nonperforming assets

$

5,484

$

5,537

$

2,240

$

2,425

$

1,036

 

Other restructured loans still accruing

$

$

$

$

171

$

93

 

Net charge-offs (recoveries) during the quarter

$

269

$

(270)

$

271

$

(83)

$

(425)

 

Provision for credit losses on loans during the quarter

$

168

$

260

$

32

$

508

$

1,006

 

Allowance for credit losses on loans

$

47,702

$

47,803

$

47,273

$

47,512

$

46,921

 

Classified assets

$

31,062

$

30,500

$

26,800

$

14,544

$

28,570

 

Allowance for credit losses on loans to total loans

 

1.45

%  

 

1.45

%  

 

1.45

%  

 

1.44

%  

 

1.46

%  

Allowance for credit losses on loans to total nonperforming loans

 

869.84

%  

 

863.34

%  

 

2,110.40

%  

 

1,959.26

%  

 

4,529.05

%  

Nonperforming assets to total assets

 

0.10

%  

 

0.10

%  

 

0.04

%  

 

0.05

%  

 

0.02

%  

Nonperforming loans to total loans

 

0.17

%  

 

0.17

%  

 

0.07

%  

 

0.07

%  

 

0.03

%  

Classified assets to Heritage Commerce Corp

Tier 1 capital plus allowance for credit losses on loans

 

6

%  

 

6

%  

 

5

%  

 

3

%  

 

6

%  

Classified assets to Heritage Bank of Commerce

Tier 1 capital plus allowance for credit losses on loans

 

5

%  

 

5

%  

 

5

%  

 

3

%  

 

5

%  

OTHER PERIOD-END STATISTICS

 

  

 

  

 

  

 

  

 

  

 

(in $000’s, unaudited)

 

  

 

  

 

  

 

  

 

  

 

Heritage Commerce Corp:

 

  

 

  

 

  

 

  

 

  

 

Tangible common equity (1)

$

485,070

$

476,209

$

469,146

$

453,792

$

430,194

 

Shareholders’ equity / total assets

 

12.25

%  

 

12.31

%  

 

11.69

%  

 

12.26

%  

 

11.22

%  

Tangible common equity / tangible assets (2)

 

9.28

%  

 

9.27

%  

 

8.76

%  

 

9.11

%  

 

8.19

%  

Loan to deposit ratio

 

71.81

%  

 

73.07

%  

 

73.39

%  

 

75.14

%  

 

68.68

%  

Noninterest-bearing deposits / total deposits

 

27.18

%  

 

29.32

%  

 

33.05

%  

 

39.56

%  

 

40.22

%  

Total capital ratio

 

15.6

%  

 

15.4

%  

 

15.3

%  

 

14.8

%  

 

14.5

%  

Tier 1 capital ratio

 

13.4

%  

 

13.2

%  

 

13.1

%  

 

12.7

%  

 

12.4

%  

Common Equity Tier 1 capital ratio

 

13.4

%  

 

13.2

%  

 

13.1

%  

 

12.7

%  

 

12.4

%  

Tier 1 leverage ratio

 

9.6

%  

 

9.7

%  

 

9.6

%  

 

9.2

%  

 

8.7

%  

Heritage Bank of Commerce:

Total capital ratio

 

15.0

%  

 

14.8

%  

 

14.7

%  

 

14.2

%  

 

14.0

%  

Tier 1 capital ratio

 

13.9

%  

 

13.7

%  

 

13.5

%  

 

13.2

%  

 

12.9

%  

Common Equity Tier 1 capital ratio

 

13.9

%  

 

13.7

%  

 

13.5

%  

 

13.2

%  

 

12.9

%  

Tier 1 leverage ratio

 

10.0

%  

 

10.0

%  

 

9.9

%  

 

9.5

%  

 

9.0

%  


(1)Represents shareholders' equity minus goodwill and other intangible assets.
(2)Represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets.

18


For the Quarter Ended

For the Quarter Ended

 

September 30, 2023

September 30, 2022

 

    

    

Interest

    

Average

    

    

Interest

    

Average

 

NET INTEREST INCOME AND NET INTEREST MARGIN

Average

Income/

Yield/

Average

Income/

Yield/

 

(in $000’s, unaudited)

Balance

Expense

Rate

Balance

Expense

Rate

 

Assets:

 

  

 

  

 

  

 

  

 

  

 

  

Loans, gross (1)(2)

$

3,257,480

$

44,853

 

5.46

%  

$

3,143,987

$

38,870

 

4.90

%  

Securities - taxable

 

1,114,782

6,797

 

2.42

%  

 

1,076,742

5,874

 

2.16

%  

Securities - exempt from Federal tax (3)

 

32,947

293

 

3.53

%  

 

38,733

329

 

3.37

%  

Other investments and interest-bearing deposits

in other financial institutions

 

646,501

8,909

 

5.47

%  

 

857,911

5,170

 

2.39

%  

Total interest earning assets (3)

 

5,051,710

 

60,852

 

4.78

%  

 

5,117,373

 

50,243

 

3.90

%  

Cash and due from banks

 

35,911

 

 

  

 

37,961

 

 

  

Premises and equipment, net

 

9,374

 

 

  

 

9,591

 

 

  

Goodwill and other intangible assets

 

177,238

 

 

  

 

179,739

 

 

  

Other assets

 

125,697

 

 

  

 

121,666

 

 

  

Total assets

$

5,399,930

 

 

  

$

5,466,330

 

 

  

Liabilities and shareholders’ equity:

 

 

 

  

 

 

 

  

Deposits:

 

 

 

  

 

 

 

  

Demand, noninterest-bearing

$

1,302,606

 

  

$

1,910,748

 

  

Demand, interest-bearing

 

1,017,686

1,730

 

0.67

%  

 

1,205,937

543

 

0.18

%  

Savings and money market

 

1,087,336

5,514

 

2.01

%  

 

1,429,055

925

 

0.26

%  

Time deposits - under $100

 

11,966

30

 

0.99

%  

 

12,329

5

 

0.16

%  

Time deposits - $100 and over

 

272,362

2,489

 

3.63

%  

 

123,458

121

 

0.39

%  

ICS/CDARS - interest-bearing demand, money market

and time deposits

 

881,665

5,117

 

2.30

%  

 

30,517

1

 

0.01

%  

Total interest-bearing deposits

 

3,271,015

 

14,880

 

1.80

%  

 

2,801,296

 

1,595

 

0.23

%  

Total deposits

 

4,573,621

 

14,880

 

1.29

%  

 

4,712,044

 

1,595

 

0.13

%  

Short-term borrowings

 

31

 

0.00

%  

 

27

0.00

%  

Subordinated debt, net of issuance costs

39,439

539

5.42

%  

39,288

538

 

5.43

%  

Total interest-bearing liabilities

 

3,310,485

 

15,419

 

1.85

%  

 

2,840,611

 

2,133

 

0.30

%  

Total interest-bearing liabilities and demand,

noninterest-bearing / cost of funds

 

4,613,091

 

15,419

 

1.33

%  

 

4,751,359

 

2,133

 

0.18

%  

Other liabilities

 

129,866

 

 

  

 

103,264

 

 

  

Total liabilities

 

4,742,957

 

 

  

 

4,854,623

 

 

  

Shareholders’ equity

 

656,973

 

 

  

 

611,707

 

 

  

Total liabilities and shareholders’ equity

$

5,399,930

 

 

  

$

5,466,330

 

 

  

Net interest income (3) / margin

 

  

 

45,433

 

3.57

%  

 

  

 

48,110

 

3.73

%  

Less tax equivalent adjustment (3)

 

  

 

(61)

 

  

 

  

 

(69)

 

  

Net interest income

 

  

$

45,372

 

  

 

  

$

48,041

 

  


(1)Includes loans held-for-sale. Nonaccrual loans are included in average balances.
(2)Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $201,000 for the third quarter of 2023, compared to $507,000 for the third quarter of 2022. Prepayment fees totaled $182,000 for the third quarter of 2023, compared to $96,000 for the third quarter of 2022.
(3)Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate.

19


For the Quarter Ended

For the Quarter Ended

 

September 30, 2023

June 30, 2023

 

    

    

Interest

    

Average

    

    

Interest

    

Average

 

NET INTEREST INCOME AND NET INTEREST MARGIN

Average

Income/

Yield/

Average

Income/

Yield/

 

(in $000’s, unaudited)

Balance

Expense

Rate

Balance

Expense

Rate

 

Assets:

 

  

 

  

 

  

 

  

 

  

 

  

Loans, gross (1)(2)

$

3,257,480

$

44,853

 

5.46

%  

$

3,231,341

$

44,028

 

5.47

%  

Securities - taxable

 

1,114,782

 

6,797

 

2.42

%  

 

1,147,375

6,982

 

2.44

%  

Securities - exempt from Federal tax (3)

 

32,947

 

293

 

3.53

%  

 

34,070

302

 

3.56

%  

Other investments and interest-bearing deposits

in other financial institutions

 

646,501

 

8,909

 

5.47

%  

 

535,611

7,092

 

5.31

%  

Total interest earning assets (3)

 

5,051,710

 

60,852

 

4.78

%  

 

4,948,397

 

58,404

 

4.73

%  

Cash and due from banks

 

35,911

 

 

  

 

35,159

 

 

  

Premises and equipment, net

 

9,374

 

 

  

 

9,190

 

 

  

Goodwill and other intangible assets

 

177,238

 

 

  

 

177,844

 

 

  

Other assets

 

125,697

 

 

  

 

107,653

 

 

  

Total assets

$

5,399,930

 

 

  

$

5,278,243

 

 

  

Liabilities and shareholders’ equity:

 

 

 

  

 

 

 

  

Deposits:

 

 

 

  

 

 

 

  

Demand, noninterest-bearing

$

1,302,606

 

 

  

$

1,368,373

 

  

Demand, interest-bearing

 

1,017,686

 

1,730

 

0.67

%  

 

1,118,200

1,788

 

0.64

%  

Savings and money market

 

1,087,336

 

5,514

 

2.01

%  

 

1,109,347

4,638

 

1.68

%  

Time deposits - under $100

 

11,966

 

30

 

0.99

%  

 

11,610

20

 

0.69

%  

Time deposits - $100 and over

 

272,362

 

2,489

 

3.63

%  

 

201,600

1,410

 

2.81

%  

ICS/CDARS - interest-bearing demand, money market

and time deposits

 

881,665

 

5,117

 

2.30

%  

 

614,911

2,867

 

1.87

%  

Total interest-bearing deposits

 

3,271,015

 

14,880

 

1.80

%  

 

3,055,668

 

10,723

 

1.41

%  

Total deposits

 

4,573,621

 

14,880

 

1.29

%  

 

4,424,041

 

10,723

 

0.97

%  

Short-term borrowings

 

31

 

0.00

%  

 

62,653

787

 

5.04

%  

Subordinated debt, net of issuance costs

39,439

539

5.42

%  

39,401

538

5.48

%  

Total interest-bearing liabilities

 

3,310,485

 

15,419

 

1.85

%  

 

3,157,722

 

12,048

 

1.53

%  

Total interest-bearing liabilities and demand,

noninterest-bearing / cost of funds

 

4,613,091

 

15,419

 

1.33

%  

 

4,526,095

 

12,048

 

1.07

%  

Other liabilities

 

129,866

 

 

  

 

101,908

 

 

  

Total liabilities

 

4,742,957

 

 

  

 

4,628,003

 

 

  

Shareholders’ equity

 

656,973

 

 

  

 

650,240

 

 

  

Total liabilities and shareholders’ equity

$

5,399,930

 

 

  

$

5,278,243

 

 

  

Net interest income (3) / margin

 

  

 

45,433

 

3.57

%  

 

  

 

46,356

 

3.76

%  

Less tax equivalent adjustment (3)

 

  

 

(61)

 

  

 

  

 

(63)

 

  

Net interest income

 

  

$

45,372

 

  

 

  

$

46,293

 

  


(1)Includes loans held-for-sale. Nonaccrual loans are included in average balances.
(2)Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $201,000 for the third quarter of 2023, compared to $94,000 for the second quarter of 2023. Prepayment fees totaled $182,000 for the third quarter of 2023, compared to $73,000 for the second quarter of 2023.
(3)Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate.

20


For the Nine Months Ended

For the Nine Months Ended

 

September 30, 2023

September 30, 2022

 

    

    

Interest

    

Average

    

    

Interest

    

Average

 

NET INTEREST INCOME AND NET INTEREST MARGIN

Average

Income/

Yield/

Average

Income/

Yield/

 

(in $000’s, unaudited)

Balance

Expense

Rate

Balance

Expense

Rate

 

Assets:

 

  

 

  

 

  

 

  

 

  

 

  

Loans, gross (1)(2)

$

3,255,375

$

132,993

5.46

%  

$

3,074,674

$

110,509

4.81

%  

Securities - taxable

 

1,140,890

20,835

2.44

%  

 

924,694

13,725

1.98

%  

Securities - exempt from Federal tax (3)

 

34,332

908

3.54

%  

 

41,328

1,048

3.39

%  

Other investments, interest-bearing deposits in other

financial institutions and Federal funds sold

 

535,016

20,860

5.21

%  

 

1,025,002

8,574

1.12

%  

Total interest earning assets (3)

 

4,965,613

 

175,596

 

4.73

%  

 

5,065,698

 

133,856

 

3.53

%  

Cash and due from banks

 

36,205

 

 

  

 

37,589

 

 

  

Premises and equipment, net

 

9,278

 

 

  

 

9,621

 

 

  

Goodwill and other intangible assets

 

177,837

 

 

  

 

180,393

 

 

  

Other assets

 

127,514

 

 

  

 

121,519

 

 

  

Total assets

$

5,316,447

 

 

  

$

5,414,820

 

 

  

Liabilities and shareholders’ equity:

 

  

 

 

  

 

  

 

 

  

Deposits:

 

  

 

 

  

 

  

 

 

  

Demand, noninterest-bearing

$

1,444,744

  

$

1,868,283

  

Demand, interest-bearing

 

1,117,140

4,994

0.60

%  

 

1,244,996

1,470

0.16

%  

Savings and money market

 

1,159,894

13,641

1.57

%  

 

1,383,944

2,026

0.20

%  

Time deposits - under $100

 

11,951

60

0.67

%  

 

12,732

14

0.15

%  

Time deposits - $100 and over

 

212,736

4,744

2.98

%  

 

122,615

341

0.37

%  

ICS/CDARS - interest-bearing demand, money market

and time deposits

 

525,318

8,065

2.05

%  

 

30,356

4

0.02

%  

Total interest-bearing deposits

 

3,027,039

 

31,504

 

1.39

%  

 

2,794,643

 

3,855

 

0.18

%  

Total deposits

 

4,471,783

 

31,504

 

0.94

%  

 

4,662,926

 

3,855

 

0.11

%  

Short-term borrowings

 

36,283

1,365

5.03

%  

 

24

0.00

%  

Subordinated debt, net of issuance costs

39,401

1,614

5.48

%  

42,552

1,640

5.15

%  

Total interest-bearing liabilities

 

3,102,723

 

34,483

 

1.49

%  

 

2,837,219

 

5,495

 

0.26

%  

Total interest-bearing liabilities and demand,

noninterest-bearing / cost of funds

 

4,547,467

 

34,483

 

1.01

%  

 

4,705,502

 

5,495

 

0.16

%  

Other liabilities

 

120,639

 

 

 

104,524

 

 

Total liabilities

 

4,668,106

 

 

  

 

4,810,026

 

 

  

Shareholders’ equity

 

648,341

 

 

  

 

604,794

 

 

  

Total liabilities and shareholders’ equity

$

5,316,447

 

 

  

$

5,414,820

 

 

  

  

  

Net interest income (3) / margin

 

  

 

141,113

 

3.80

%  

 

  

 

128,361

 

3.39

%  

Less tax equivalent adjustment (3)

 

  

 

(190)

 

 

  

 

(220)

 

Net interest income

 

  

$

140,923

 

  

 

  

$

128,141

 

  


(1)Includes loans held-for-sale. Nonaccrual loans are included in average balances.
(2)Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $595,000 for the first nine months of 2023, compared to $3,111,000 for the first nine months of 2022. Prepayment fees totaled $393,000 for the first nine months of 2023, compared to $1,155,000 for the first nine months of 2022.
(3)Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate.

21


EX-99.2 3 htbk-20231026xex99d2.htm EX-99.2

Exhibit 99.2

Heritage Commerce Corp Declares Regular Quarterly Cash Dividend of $0.13 Per Share

San Jose, CA — October 26, 2023 — Heritage Commerce Corp (Nasdaq: HTBK), the holding company for Heritage Bank of Commerce, today announced that its Board of Directors declared its regular quarterly cash dividend of $0.13 per share to holders of common stock. The dividend will be payable on November 21, 2023, to shareholders of record at the close of the business day on November 7, 2023. Heritage Commerce Corp has paid a quarterly cash dividend since 2013.

"With our robust financial position, we continue to maintain a consistent cash dividend, while executing our strategic plan," remarked Clay Jones, President and Chief Executive Officer.

Heritage Commerce Corp, a bank holding company established in October 1997, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose, CA with full-service branches in Danville, Fremont, Gilroy, Hollister, Livermore, Los Altos, Los Gatos, Morgan Hill, Oakland, Palo Alto, Pleasanton, Redwood City, San Francisco, San Jose, San Mateo, San Rafael, and Walnut Creek. Heritage Bank of Commerce is an SBA Preferred Lender. Bay View Funding, a subsidiary of Heritage Bank of Commerce, is based in San Jose, CA and provides business-essential working capital factoring financing to various industries throughout the United States. For more information, please visit www.heritagecommercecorp.com. The contents of our website are not incorporated into, and do not perform a part of, this release or of our filings with the Securities and Exchange Commission.

Member FDIC

For additional information, contact:

Debbie Reuter

EVP, Corporate Secretary

Direct: (408) 494-4542

Debbie.Reuter@herbank.com

1


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