0001558370-24-005811.txt : 20240426 0001558370-24-005811.hdr.sgml : 20240426 20240425191247 ACCESSION NUMBER: 0001558370-24-005811 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 20240425 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20240426 DATE AS OF CHANGE: 20240425 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HERITAGE COMMERCE CORP CENTRAL INDEX KEY: 0001053352 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] ORGANIZATION NAME: 02 Finance 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: 24878117 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-20240425x8k.htm 8-K
0001053352false00010533522024-04-252024-04-25

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): April 25, 2024

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 April 25, 2024, Heritage Commerce Corp (the “Company”), the holding company for Heritage Bank of Commerce, issued a press release announcing preliminary unaudited results for the first quarter ended March 31, 2024. 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 April 25, 2024, 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 May 23, 2024, to shareholders of record at the close of the business day on May 9, 2024. 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: April 25, 2024

Heritage Commerce Corp

By: /s/ Lawrence D. McGovern

Lawrence D. McGovern

Executive Vice President and Chief Financial Officer

4

EX-99.1 2 htbk-20240425xex99d1.htm EX-99.1

Exhibit 99.1

Heritage Commerce Corp Earns $10.2 Million for the First Quarter of 2024

and Grows Client Deposits by 2%

San Jose, CA — April 25, 2024 — Heritage Commerce Corp (Nasdaq: HTBK), (the “Company”), the holding company for Heritage Bank of Commerce (the “Bank”), today announced that its first quarter 2024 net income was $10.2 million, or $0.17 per average diluted common share, compared to $18.9 million, or $0.31 per average diluted common share, for the first quarter of 2023, and $13.3 million, or $0.22 per average diluted common share, for the fourth quarter of 2023. All data are unaudited.

“Our first quarter 2024 earnings were solid, highlighted by total client deposits increasing over $66 million from the prior quarter and the loan portfolio increasing over $74 million, year-over-year,” said Clay Jones, President and Chief Executive Officer. “First quarter earnings typically reflect increased seasonal expenses such as payroll taxes and other employee benefits, and this first quarter was no exception. While we benefit from higher yields on assets, we continue to see a modest impact on the increase cost of our deposits causing a slight compression in our net interest margin. The Bank’s credit quality remains strong, supported by sound reserves for potential credit losses.”

“Heritage Bank of Commerce was honored to be recently recognized on Forbes’ List of World’s Best Banks and ranked 25th on S&P Global Market Intelligence's top 50 list of best-performing community banks. These prestigious recognitions underscore our commitment to excellence, sound financial management and our dedication to serving our client community” added Mr. Jones.

“This year we celebrate the Bank’s 30th anniversary, a milestone that speaks to the dedication of our team members, the trust of our loyal clients, and our unwavering commitment to supporting our communities,” said Mr. Jones. "With this support, we have created a vibrant franchise, and remain optimistic about the future of our Company.”

First Quarter Ended March 31, 2024

Operating Results, Current Liquidity Position, Financial Condition, Credit Quality, and Capital Management

(as of, or for the periods ended March 31, 2024, compared to March 31, 2023, and December 31, 2023, except as noted):

Operating Results:

Diluted earnings per share were $0.17 for the first quarter of 2024, compared to $0.31 for the first quarter of 2023, and $0.22 for the fourth quarter of 2023.
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:

 

    

March 31, 

    

December 31, 

    

March 31, 

 

(unaudited)

2024

2023

2023

 

Return on average assets

0.79

%

1.00

%

1.47

%

Return on average tangible assets(1)

0.82

%

1.04

%

1.52

%

Return on average equity

6.08

%

7.96

%

12.03

%

Return on average tangible common equity(1)

8.24

%

10.84

%

16.71

%


(1)Financial results are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with reference to certain non-GAAP financial measures. Management believes that the presentation of certain non-GAAP financial measures such as the Company’s return on tangible assets and return on tangible common equity ratios provide useful supplemental information to investors as a financial measure commonly used in the banking industry. A reconciliation of GAAP to non-GAAP financial measures are presented in the tables at the end of this earnings release.

1


Net Interest Income:

Net interest income decreased (19%) to $40.1 million for the first quarter of 2024, compared to $49.3 million for the first quarter of 2023. The fully tax equivalent (“FTE”) net interest margin contracted (75 basis points) to 3.34% for the first quarter of 2024, from 4.09% for the first quarter of 2023, primarily due to higher rates paid on customer deposits, a decrease in the average balances of noninterest-bearing demand deposits, a decrease in average interest earning assets, and decreases in average balances of higher yielding asset-based loans and Bay View Funding factored receivables, partially offset by an increase in the rate on overnight funds.
Net interest income decreased (5%) to $40.1 million for the first quarter of 2024, compared to $42.3 million for the fourth quarter of 2023. The FTE net interest margin contracted (7 basis points) to 3.34% for the first quarter of 2024 from 3.41% for the fourth quarter of 2023, primarily due to higher rates paid on customer deposits, and a decrease in the average balances of noninterest-bearing demand deposits resulting in a lower average balance of overnight funds, partially offset by higher average yields on loans and overnight funds, and an increase in the average balance of loans.
The following tables set forth the estimated changes in the Company’s annual net interest income and economic value of equity that would result from the designated instantaneous parallel shift in interest rates noted, and assuming a flat balance sheet with consistent product mix, as of March 31, 2024:

Increase/(Decrease) in

 

Estimated Net

 

CHANGE IN INTEREST RATES (basis points)

Interest Income(1)

 

(in $000's, unaudited)

    

Amount

    

Percent

 

+400

$

18,668

10.0

%

+300

$

13,966

7.5

%

+200

$

9,297

5.0

%

+100

$

4,659

2.5

%

0

 

−100

$

(6,272)

(3.4)

%

−200

$

(14,475)

(7.7)

%

−300

$

(24,805)

(13.3)

%

−400

$

(40,025)

(21.4)

%

Increase/(Decrease) in

 

Estimated Economic

 

CHANGE IN INTEREST RATES (basis points)

Value of Equity(1)

 

(in $000's, unaudited)

    

Amount

Percent

 

+400

$

104,038

8.6

%

+300

$

88,095

7.3

%

+200

$

66,340

5.5

%

+100

$

37,610

3.1

%

0

 

−100

$

(61,930)

(5.1)

%

−200

$

(151,250)

(12.5)

%

−300

$

(268,857)

(22.2)

%

−400

$

(418,343)

(34.5)

%


(1)Computations of prospective effects of hypothetical interest rate changes are for illustrative purposes only, 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.

2


The following tables present the average balance of loans outstanding, interest income, and the average yield for the periods indicated:

For the Quarter Ended

For the Quarter Ended

 

March 31, 2024

December 31, 2023

 

Average

Interest

Average

Average

Interest

Average

 

(in $000’s, unaudited)

Balance

Income

Yield

Balance

Income

Yield

 

Loans, core bank

$

2,779,487

$

37,339

 

5.40

%  

$

2,758,935

$

37,303

 

5.36

%  

Prepayment fees

 

24

 

0.00

%  

91

 

0.01

%  

Asset-based lending

15,864

 

382

 

9.68

%  

 

14,717

371

 

10.00

%  

Bay View Funding factored receivables

 

53,511

 

2,838

 

21.33

%  

 

52,861

2,803

 

21.04

%  

Purchased residential mortgages

 

454,240

 

3,788

 

3.35

%  

 

459,268

3,812

 

3.29

%  

Loan fair value mark / accretion

 

(3,113)

 

229

 

0.03

%  

 

(3,352)

255

 

0.04

%  

Total loans (includes loans held-for-sale)

$

3,299,989

$

44,600

 

5.44

%  

$

3,282,429

$

44,635

 

5.39

%  

The average yield on the total loan portfolio increased to 5.44% for the first quarter of 2024, compared to 5.39% for the fourth quarter of 2023, primarily due to higher loan yields on the core bank, and higher average balances of higher yielding asset-based lending loans and Bay View Funding factored receivables.
The average yield on the total loan portfolio decreased to 5.44% for the first quarter of 2024, compared to 5.46% for the first quarter of 2023, primarily due to lower average balances of higher yielding asset-based lending loans and Bay View Funding factored receivables, a decrease in the accretion of loan purchase discount into interest income from acquired loans, and lower prepayment fees, partially offset by increases in the prime rate.
In aggregate, the unamortized net purchase discount on total loans acquired was $3.0 million at March 31, 2024.

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

 

March 31, 2024

December 31, 2023

 

Average

Interest

Average

Average

Interest

Average

 

(in $000’s, unaudited)

Balance

Expense

Rate

Balance

Expense

Rate

 

Deposits:

 

 

 

  

 

 

 

  

Demand, noninterest-bearing

$

1,177,078

$

1,243,222

Demand, interest-bearing

 

920,048

$

1,554

 

0.68

%  

 

948,061

$

1,661

 

0.70

%  

Savings and money market

 

1,067,581

 

6,649

 

2.50

%  

 

1,096,962

 

6,216

 

2.25

%  

Time deposits - under $100

 

10,945

 

42

 

1.54

%  

 

11,389

 

37

 

1.29

%  

Time deposits - $100 and over

 

221,211

 

2,064

 

3.75

%  

 

234,140

 

2,130

 

3.61

%  

Insured Cash Sweep ("ICS")/Certificate of Deposit Registry

Service ("CDARS") - interest-bearing demand, money market

and time deposits

 

963,287

 

6,611

 

2.76

%  

 

920,976

 

6,009

 

2.59

%  

Total interest-bearing deposits

 

3,183,072

 

16,920

 

2.14

%  

 

3,211,528

 

16,053

 

1.98

%  

Total deposits

 

4,360,150

 

16,920

 

1.56

%  

 

4,454,750

 

16,053

 

1.43

%  

Short-term borrowings

 

15

 

 

0.00

%  

 

29

 

 

0.00

%  

Subordinated debt, net of issuance costs

39,516

 

538

 

5.48

%  

39,477

 

538

 

5.41

%  

Total interest-bearing liabilities

 

3,222,603

 

17,458

 

2.18

%  

 

3,251,034

 

16,591

 

2.02

%  

Total interest-bearing liabilities and demand,

noninterest-bearing / cost of funds

$

4,399,681

$

17,458

 

1.60

%  

$

4,494,256

$

16,591

 

1.46

%  

The average cost of total deposits increased to 1.56% for the first quarter of 2024, compared to 1.43% for the fourth quarter of 2023. The average cost of funds increased to 1.60% for the first quarter of 2024, compared to 1.46% for the fourth quarter of 2023. The average cost of deposits was 0.54% and the average cost of funds was 0.63% for the first quarter of 2023.
The increase in the average cost of total deposits and the average cost of funds for the first quarter of 2024 was primarily due to clients seeking higher yields and moving noninterest-bearing deposits to the Bank’s ICS/CDARS deposits and interest-bearing money market accounts.

3


Provision for Credit Losses on Loans:

During the first quarter of 2024, we recorded a provision for credit losses on loans of $184,000, compared to a $32,000 provision for credit losses on loans for the first quarter of 2023, and a provision for credit losses on loans of $289,000 for the fourth quarter of 2023.

Noninterest Income:

Total noninterest income decreased (26%) to $2.0 million for the first quarter of 2024, compared to $2.8 million for the first quarter of 2023, primarily due to lower service charges and fees on deposit accounts during the first quarter of 2024. Total noninterest income remained relatively flat for the first quarter of 2024, compared to the fourth quarter of 2023.

Noninterest Expense:

Total noninterest expense for the first quarter of 2024 increased to $27.5 million, compared to $25.4 million for the first quarter of 2023, primarily due to higher salaries and employee benefits which are seasonal in nature, and higher marketing related expenses, insurance costs, regulatory assessments, information technology related expenses, and ICS/CDARS fee expense included in other noninterest expense. Total noninterest expense for the first quarter of 2024 increased to $27.5 million, compared to $25.5 million for the fourth quarter of 2023, primarily due to higher employee benefits.
Full time equivalent employees were 351 at March 31, 2024, and 339 at March 31, 2023, and 349 at December 31, 2023.
The efficiency ratio increased to 65.34% for the first quarter of 2024, compared to 48.83% for the first quarter of 2023, and 57.62% for the fourth quarter of 2023, primarily due to lower total revenue and higher noninterest expense during the first quarter of 2024.

Income Tax Expense:

Income tax expense was $4.3 million for the first quarter of 2024, compared to $7.7 million for the first quarter of 2023, and $5.1 million for the fourth quarter of 2023. The effective tax rate for the first quarter of 2024 was 29.5%, compared to 28.9% for the first quarter of 2023, and 27.8% for the fourth quarter of 2023.

Current Liquidity Position, Financial Condition, Credit Quality, and Capital Management:

Liquidity and Available Lines of Credit:

The following table shows our liquidity, available lines of credit and the amounts outstanding at March 31, 2024:

LIQUIDITY AND AVAILABLE LINES OF CREDIT

Total

Remaining

(in $000’s, unaudited)

Available

Outstanding

Available

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

$

490,000

$

$

490,000

FRB discount window collateralized line of credit

1,245,362

1,245,362

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

1,097,518

1,097,518

Unpledged investment securities (at fair value)

55,358

55,358

Federal funds purchase arrangements

90,000

90,000

Holding company line of credit

20,000

20,000

Total

$

2,998,238

$

$

2,998,238

The Company’s total available liquidity and borrowing capacity was $3.00 billion at March 31, 2024. The Company’s total available liquidity and borrowing capacity was $2.64 billion at March 31, 2023, and $2.87 billion at December 31, 2023.
The available liquidity and borrowing capacity was 67% of the Company’s total deposits and approximately 149% of the Bank’s estimated uninsured deposits at March 31, 2024. The available liquidity and borrowing capacity was 59% of the Company’s total deposits and approximately 103% of the Bank’s estimated uninsured deposits at March 31, 2023. The

4


available liquidity and borrowing capacity was 66% of the Company’s total deposits and approximately 142% of the Bank’s estimated uninsured deposits at December 31, 2023.
The loan to deposit ratio was 75.06% at March 31, 2024, compared to 73.39% at March 31, 2023, and 76.52% at December 31, 2023.
Total assets declined (5%) to $5.26 billion at March 31, 2024, compared to $5.54 billion at March 31, 2023, and increased 1% from $5.19 billion at December 31, 2023.

Investment Securities:

Investment securities totaled $1.04 billion at March 31, 2024, of which $404.5 million were in the securities available-for-sale portfolio (at fair value), and $636.2 million were in the securities held-to-maturity portfolio (at amortized cost, net of allowance for credit losses of $12,000). The fair value of the securities held-to-maturity portfolio was $542.9 million at March 31, 2024.
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:

SECURITIES AVAILABLE-FOR-SALE

March 31, 

December 31, 

March 31, 

(in $000’s, unaudited)

    

2024

2023

2023

Balance (at fair value):

U.S. Treasury

$

347,453

$

382,369

$

422,903

Agency mortgage-backed securities

 

57,021

 

60,267

 

68,848

Total

$

404,474

$

442,636

$

491,751

Pre-tax unrealized (loss):

U.S. Treasury

$

(4,784)

$

(5,621)

$

(7,510)

Agency mortgage-backed securities

 

(4,895)

 

(4,313)

 

(4,969)

Total

$

(9,679)

$

(9,934)

$

(12,479)

Weighted average life

1.15

1.29

1.88

The pre-tax unrealized loss on the securities available-for-sale portfolio was ($9.7) million, or ($6.9) million net of taxes, which was 1.0% of total shareholders’ equity at March 31, 2024.
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

March 31, 

December 31, 

March 31, 

(in $000’s, unaudited)

    

2024

2023

2023

Balance (at amortized cost):

Agency mortgage-backed securities

$

604,458

$

618,374

$

663,481

Municipals — exempt from Federal tax (1)

 

31,803

 

32,203

 

34,764

Total (1)

$

636,261

$

650,577

$

698,245

Pre-tax unrecognized (loss):

Agency mortgage-backed securities

$

(92,332)

$

(85,729)

$

(89,962)

Municipals — exempt from Federal tax

 

(1,071)

 

(721)

 

(297)

Total

$

(93,403)

$

(86,450)

$

(90,259)

Allowance for credit losses on municipal securities

$

(12)

$

(12)

$

(14)

Weighted average life

6.59

6.57

6.95


(1)Gross of the allowance for credit losses of ($12,000) at both March 31, 2024 and December 31, 2023, and ($14,000) at March 31, 2023.

The pre-tax unrecognized loss on the securities held-to-maturity portfolio was ($93.4) million, or ($65.8) million net of taxes, which was 9.7% of total shareholders’ equity at March 31, 2024.
The unrealized and unrecognized losses in both the available-for-sale and held-to-maturity portfolios were due to higher interest rates at March 31, 2024 compared to when the securities were purchased. The issuers are of high credit quality and all principal

5


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.
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-

PROJECTED INVESTMENT SECURITIES

backed and

PAYDOWNS & MATURITIES

U.S.

Municipal

(in $000’s, unaudited)

    

Treasury

    

Securities

    

Total

Second quarter of 2024

$

131,000

$

22,245

$

153,245

Third quarter of 2024

 

37,500

 

21,031

 

58,531

Fourth quarter of 2024

 

9,000

 

19,442

 

28,442

First quarter of 2025

35,000

18,851

53,851

Second quarter of 2025

118,000

18,381

136,381

Third quarter of 2025

25,500

19,583

45,083

Fourth quarter of 2025

18,035

18,035

First quarter of 2026

17,136

17,136

Total

$

356,000

$

154,704

$

510,704

The weighted average life of the total investment securities portfolio was 4.44 years at March 31, 2024, compared to 4.82 years at March 31, 2023, and 4.40 years at December 31, 2023.

Loans:

The following table summarizes the distribution of loans, excluding loans held-for-sale, and the percentage of distribution in each category for the periods indicated:

LOANS

March 31, 2024

December 31, 2023

March 31, 2023

(in $000’s, unaudited)

    

Balance

    

% to Total

    

Balance

    

% to Total

    

Balance

    

% to Total

    

Commercial

$

452,231

14

%    

$

463,778

14

%    

$

506,602

16

%    

Real estate:

 

 

 

CRE - owner occupied

 

585,031

17

%    

 

583,253

17

%    

 

603,298

18

%    

CRE - non-owner occupied

1,271,184

38

%    

1,256,590

37

%    

1,083,852

33

%    

Land and construction

 

129,712

4

%    

 

140,513

4

%    

 

166,408

5

%    

Home equity

 

122,794

4

%    

 

119,125

4

%    

 

124,481

4

%    

Multifamily

269,263

8

%    

269,734

8

%    

231,242

7

%    

Residential mortgages

490,035

15

%    

496,961

15

%    

528,639

16

%    

Consumer and other

 

16,439

< 1

%    

 

20,919

1

%    

 

17,905

1

%    

Total Loans

 

3,336,689

 

100

%    

 

3,350,873

 

100

%    

 

3,262,427

 

100

%    

Deferred loan costs (fees), net

 

(587)

 

 

(495)

 

 

(512)

 

Loans, net of deferred costs and fees 

$

3,336,102

 

100

%    

$

3,350,378

 

100

%    

$

3,261,915

 

100

%    

Loans, excluding loans held-for-sale, increased $74.2 million, or 2%, to $3.34 billion at March 31, 2024, compared to $3.26 billion at March 31, 2023, and decreased ($14.3) million from $3.35 billion at December 31, 2023. Core loans, excluding residential mortgages, increased $112.8 million, or 4%, to $2.85 billion at March 31, 2024, compared to $2.73 billion at March 31, 2023, and remained relatively flat from $2.85 billion at December 31, 2023.
Commercial and industrial (“C&I”) line utilization was 28% at March 31, 2024, compared to 31% at March 31, 2023, and 29% at December 31, 2023.
Commercial real estate (“CRE”) loans totaled $1.86 billion at March 31, 2024, of which 32% were owner occupied and 68% were investor CRE loans. There was 36% of the CRE loan portfolio secured by owner occupied real estate at March 31, 2023, and 32% at December 31, 2023.
During the first quarter of 2024, there were 23 new CRE loans originated totaling $40 million with a weighted average loan-to-value (“LTV”) and debt-service coverage ratio (“DSCR”) for the non-owner occupied portfolio of 51% and 1.84 times, respectively.

6


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 92% of its CRE portfolio. A substantial portion of the unguaranteed CRE loans were made to credit-worthy non-profit organizations.
Total office exposure (excluding medical/dental offices) in the CRE portfolio was $398 million, including 29 loans totaling approximately $74 million in San Jose, 17 loans totaling approximately $26 million in San Francisco, and eight loans totaling approximately $16 million, in Oakland, at March 31, 2024. Non-owner occupied CRE with office exposure totaled $311 million at March 31, 2024.
At March 31, 2024, the weighted average LTV and DSCR for the entire non-owner occupied office portfolio were 42.6% and 1.83 times, respectively.
Total medical/dental office exposure in the non-owner occupied CRE portfolio consisted of 14 loans totaling $16.8 million, with a weighted average LTV and DSCR of 46.1% and 2.02 times, respectively, at March 31, 2024.
The following table presents the weighted average LTV and DSCR by collateral type for CRE loans at March 31, 2024:

CRE - Non-owner Occupied

CRE - Owner Occupied

Total CRE

Collateral Type

    

Outstanding

    

LTV

    

DSCR

    

Outstanding

    

LTV

    

Outstanding

    

LTV

Industrial

19

%  

40.7

%  

2.40

33

%  

43.7

%  

23

%  

41.8

%  

Retail

 

25

%  

38.8

%  

1.99

 

16

%  

47.3

%  

 

23

%  

40.3

%  

Mixed-Use, Special

Purpose and Other

 

18

%  

42.5

%  

1.98

 

35

%  

41.1

%  

 

22

%  

41.9

%  

Office

 

20

%  

42.6

%  

1.83

 

16

%  

41.9

%  

 

19

%  

42.4

%  

Multifamily

 

18

%  

42.8

%  

1.93

 

0

%  

0.0

%  

 

13

%  

42.8

%  

Hotel/Motel

< 1

%  

19.7

%  

1.88

0

%  

0.0

%  

< 1

%  

19.7

%  

Total

100

%  

41.2

%  

2.03

100

%  

43.0

%  

100

%  

41.7

%  

The following table presents the weighted average LTV and DSCR by county for CRE loans at March 31, 2024:

CRE - Non-owner Occupied

CRE - Owner Occupied

Total CRE

County

    

Outstanding

    

LTV

    

DSCR

    

Outstanding

    

LTV

    

Outstanding

    

LTV

Alameda

 

25

%  

45.1

%  

1.92

 

18

%  

45.0

%  

 

23

%  

45.1

%  

Contra Costa

 

7

%  

42.5

%  

1.76

 

8

%  

48.5

%  

 

7

%  

44.3

%  

Marin

7

%  

46.8

%  

1.95

 

2

%  

52.8

%  

 

5

%  

47.4

%  

Monterey

2

%  

44.4

%  

1.78

 

2

%  

45.9

%  

 

2

%  

44.8

%  

Napa

1

%  

29.6

%  

2.44

 

1

%  

52.7

%  

 

1

%  

37.6

%  

Out of Area

 

9

%  

43.0

%  

2.11

 

9

%  

51.6

%  

 

9

%  

45.4

%  

San Benito

1

%  

35.3

%  

2.13

 

2

%  

40.7

%  

 

1

%  

37.5

%  

San Francisco

9

%  

39.0

%  

1.75

 

4

%  

38.6

%  

 

8

%  

38.9

%  

San Mateo

 

10

%  

37.4

%  

2.14

 

15

%  

40.1

%  

 

12

%  

38.4

%  

Santa Clara

24

%  

38.2

%  

2.25

36

%  

40.2

%  

27

%  

38.9

%  

Santa Cruz

2

%  

35.7

%  

1.87

 

1

%  

46.1

%  

 

2

%  

37.5

%  

Solano

1

%  

32.8

%  

2.33

 

1

%  

35.9

%  

 

1

%  

33.5

%  

Sonoma

2

%  

41.3

%  

2.23

 

1

%  

38.5

%  

 

2

%  

40.8

%  

Total

100

%  

41.2

%  

2.03

100

%  

43.0

%  

100

%  

41.7

%  

7


8


The following table presents the maturity distribution of the Company’s loans, excluding loans held-for-sale, as of March 31, 2024. 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

$

328,683

37

%  

$

281,761

32

%  

$

272,620

31

%  

$

883,064

Loans with fixed interest rates

 

78,160

3

%  

631,435

26

%  

1,744,030

71

%  

 

2,453,625

Loans

$

406,843

12

%  

$

913,196

27

%  

$

2,016,650

61

%  

$

3,336,689

At March 31, 2024, approximately 26% of the Company’s loan portfolio consisted of floating interest rate loans, compared to 31% at March 31, 2023, and 27% at December 31, 2023.

Credit Quality:

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

At or For the Quarter Ended:

 

ALLOWANCE FOR CREDIT LOSSES ON LOANS

    

March 31, 

    

December 31, 

    

March 31, 

 

(in $000’s, unaudited)

2024

2023

2023

 

Balance at beginning of period

$

47,958

$

47,702

$

47,512

Charge-offs during the period

(358)

(160)

(380)

Recoveries during the period

104

127

109

Net recoveries (charge-offs) during the period

(254)

(33)

(271)

Provision for credit losses on loans during the period

 

184

 

289

 

32

Balance at end of period

$

47,888

$

47,958

$

47,273

Total loans, net of deferred fees

$

3,336,102

$

3,350,378

$

3,261,915

Total nonperforming loans

$

7,871

$

7,707

$

2,240

ACLL to total loans

 

1.44

%  

 

1.43

%  

 

1.45

%  

ACLL to total nonperforming loans

608.41

%  

622.27

%  

 

2,110.40

%  

The following table shows the drivers of change in ACLL for the first quarter of 2024:

DRIVERS OF CHANGE IN ACLL

    

(in $000’s, unaudited)

ACLL at December 31, 2023

$

47,958

Portfolio changes during the first quarter of 2024

(234)

Qualitative and quantitative changes during the first

quarter of 2024 including changes in economic forecasts

 

164

ACLL at March 31, 2024

$

47,888

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

NONPERFORMING ASSETS

March 31, 2024

December 31, 2023

March 31, 2023

 

(in $000’s, unaudited)

    

Balance

    

% of Total

    

Balance

    

% of Total

    

Balance

    

% of Total

 

Land and construction loans

$

4,673

59

%  

$

4,661

60

%  

$

0

%  

Loans over 90 days past due and still accruing

1,951

25

%  

889

12

%  

1,459

65

%  

Commercial loans

1,127

14

%  

1,236

16

%  

685

31

%  

Home equity and other loans

120

2

%  

142

2

%  

96

4

%  

Residential mortgages

0

%  

779

10

%  

0

%  

CRE loans

0

%  

0

%  

0

%  

Total nonperforming assets

$

7,871

 

100

%  

$

7,707

 

100

%  

$

2,240

 

100

%  

There were 13 borrowers included in NPAs totaling $7.9 million, or 0.15% of total assets, at March 31, 2024, compared to 8 borrowers totaling $2.2 million, or 0.04% of total assets, at March 31, 2023, and 12 borrowers totaling $7.7 million, or 0.15% of total assets at December 31, 2023.
There were no CRE loans included in NPAs at March 31, 2024, March 31, 2023, or December 31, 2023.
There were no foreclosed assets on the balance sheet at March 31, 2024, March 31, 2023, or December 31, 2023.
There were no Shared National Credits (“SNCs”) or material purchased participations included in NPAs or total loans at March 31, 2024, March 31, 2023, or December 31, 2023.

9


Classified assets totaled $35.4 million, or 0.67% of total assets, at March 31, 2024, compared to $26.8 million, or 0.48% of total assets, at March 31, 2023, and $31.8 million, or 0.61% of total assets, at December 31, 2023. The increase in classified assets during the first quarter of 2024 was primarily due to the downgrade of one CRE investor loan, which is well collateralized, fully leased, cash-flowing, and personally guaranteed by the principals.

Deposits:

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

DEPOSITS

March 31, 2024

December 31, 2023

March 31, 2023

 

(in $000’s, unaudited)

    

Balance

    

% to Total

  

Balance

    

% to Total

  

Balance

    

% to Total

 

Demand, noninterest-bearing

$

1,242,059

 

28

%  

$

1,292,486

 

30

%  

$

1,469,081

 

33

%  

Demand, interest-bearing

 

925,100

 

21

%  

 

914,066

 

21

%  

 

1,196,789

 

27

%  

Savings and money market

 

1,124,900

 

25

%  

 

1,087,518

 

25

%  

 

1,264,567

 

28

%  

Time deposits — under $250

 

38,105

 

1

%  

 

38,055

 

1

%  

 

37,884

 

1

%  

Time deposits — $250 and over

 

200,739

 

4

%  

 

192,228

 

4

%  

 

172,070

 

4

%  

ICS/CDARS — interest-bearing demand,

money market and time deposits

 

913,757

 

21

%  

 

854,105

 

19

%  

 

304,147

 

7

%  

Total deposits

$

4,444,660

 

100

%  

$

4,378,458

 

100

%  

$

4,444,538

 

100

%  

Total deposits were relatively flat at $4.44 billion at both March 31, 2024 and March 31, 2023. Total deposits increased $66.2 million, or 2% from $4.38 billion at December 31, 2023.
Migration of client deposits into interest-bearing accounts resulted in an increase in ICS/CDARS deposits to $913.8 million at March 31, 2024, compared to $304.1 million at March 31, 2023, and increased $59.7 million from $854.1 million at December 31, 2023.
Noninterest-bearing demand deposits decreased ($227.0) million, or (15%), to $1.24 billion at March 31, 2024 from $1.47 billion at March 31, 2023, largely in response to the increasing interest rate environment. Noninterest-bearing demand deposits decreased ($50.4) million, or (4%), from $1.29 billion at December 31, 2023.
The Bank had 24,730 deposit accounts at March 31, 2024, with an average balance of $180,000, compared to 24,103 deposit accounts at March 31, 2023, with an average balance of $184,000. At December 31, 2023, the Company had 24,737 deposit accounts, with an average balance of $177,000.
Deposits from the Bank’s top 100 client relationships, representing 22% of the total number of accounts, totaled $2.05 billion, representing 46% of total deposits, with an average account size of $384,000 at March 31, 2024. At March 31, 2023, deposits from the Bank’s top 100 client relationships, representing 21% of the total number of accounts, totaled $2.20 billion, representing 50% of total deposits, with an average account size of $445,000. At December 31, 2023, deposits from the Bank’s top 100 client relationships, representing 22% of the total number of accounts, totaled $1.96 billion, representing 45% of total deposits, with an average account size of $368,000.
The Bank’s uninsured deposits were approximately $2.02 billion, or 45% of the Company’s total deposits, at March 31, 2024, compared to $2.56 billion, or 58% of the Company’s total deposits, at March 31, 2023, and $2.01 billion, or 46% of the Company’s total deposits, at December 31, 2023.

10


Capital Management:

The Company’s consolidated capital ratios exceeded regulatory guidelines and the Bank’s capital ratios exceeded regulatory guidelines under the prompt corrective action (“PCA”) regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at March 31, 2024, as reflected in the following table:

    

    

    

    

    

Well-capitalized

Financial

Institution

Basel III

Heritage

Heritage

PCA

Minimum

Commerce

Bank of

Regulatory

Regulatory

CAPITAL RATIOS (unaudited)

Corp

Commerce

Guidelines

Requirements (1)

Total Capital

 

15.6

%  

15.1

%  

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

 

10.2

%  

10.6

%  

5.0

%  

4.0

%

Tangible common equity / tangible assets (2)

 

9.9

%  

10.2

%  

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 Tier 1 Leverage ratio.
(2)This is a non-GAAP financial measure that represents shareholders’ equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets. A reconciliation of GAAP to non-GAAP financial measures are presented in the tables at the end of this earnings release.

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

ACCUMULATED OTHER COMPREHENSIVE LOSS

March 31, 

December 31, 

March 31, 

(in $000’s, unaudited)

    

2024

2023

2023

Unrealized loss on securities available-for-sale

$

(6,936)

$

(7,116)

$

(8,924)

Split dollar insurance contracts liability

 

(2,861)

 

(2,809)

 

(3,139)

Supplemental executive retirement plan liability

 

(2,874)

 

(2,892)

 

(2,361)

Unrealized gain on interest-only strip from SBA loans

 

83

 

87

 

107

Total accumulated other comprehensive loss

$

(12,588)

$

(12,730)

$

(14,317)

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.

11


Forward-Looking Statement Disclaimer

Certain matters discussed in this press release constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. 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. Any statements that reflect our belief about, confidence in, or expectations for future events, performance or condition should be considered forward-looking statements. Readers should not construe these statements as assurances of a given level of performance, nor as promises that we will take actions that we currently expect to take. All statements are subject to various risks and uncertainties, many of which are outside our control and some of which may fall outside our ability to predict or anticipate. Accordingly, our actual results may differ materially from our projected results, and we may take actions or experience events that we do not currently expect. 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, 2023, 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; (2) media items and consumer confidence as those factors affect depositors’ confidence in the banking system generally and in our bank specifically; (3) factors that affect the value and liquidity of our investment portfolios, particularly the values of securities available-for-sale; (4) market fluctuations that affect the costs we pay for sources of funding, including the interest we pay on deposits and loans; (5) 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; (6) our ability to estimate accurately, and to establish adequate reserves against, the risk of loss associated with our loan and lease portfolio; (7) events and circumstances that affect our borrowers' financial condition, results of operations and cash flows, which may, during periods of economic uncertainty or decline, adversely affect those borrowers' ability to repay our loans timely and in full, or to comply with their other obligations under our loan agreements with those customers; (8) geopolitical and domestic political developments, including recent, current and potential future wars and international and multinational conflicts, acts of terrorism, insurrection, piracy and civil unrest, and events reflecting or resulting from social instability, any of which can increase levels of political and economic unpredictability, contribute to rising energy and commodity prices, can affect the physical security of our assets and the assets of our customers, and which may increase the volatility of financial markets; (9) 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; (10) 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 to customers, whether held in the portfolio or in the secondary market; (11) 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; (12) volatility in credit and equity markets and its effect on the global economy; (13) conditions relating to the impact of recent and potential future pandemics, epidemics 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; (14) 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; (15) our ability to achieve loan growth and attract deposits in our market area; (16) risks associated with concentrations in real estate related loans; (17) 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; (18) 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; (19) regulatory limits and practical factors that affect Heritage Bank of Commerce’s ability to pay dividends to the Company; (20) 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; (21) 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; (22) possible adjustment of the valuation of our deferred tax assets or of the goodwill associated with previous acquisitions; (23) our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks, including those posed by the increasing use of artificial intelligence, such as data security breaches, “denial of service” attacks, “hacking” and identity theft affecting us or third party vendors or service providers; (24) inability of our framework to manage risks associated with our business, including operational risk and credit risk; (25) risks of loss of funding of the Small Business Administration (“SBA”) or SBA loan programs, or changes in those programs; (26) compliance with applicable laws and governmental and regulatory

12


requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities, accounting and tax matters; (27) effect of changes in accounting policies 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; (28) the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise; (29) availability of and competition for acquisition opportunities; (30) geographic and sociopolitical factors that arise by virtue of the fact that substantially all of our operations are located in the San Francisco Bay Area of Northern California; (31) risks of natural disasters (including earthquakes, fires, and flooding) and other events beyond our control; (32) actions taken, planned, or announced by federal, state, regional and local governments in response to the occurrence or threat of any of the foregoing; and (33) 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

13


For the Quarter Ended:

Percent Change From:

 

CONSOLIDATED INCOME STATEMENTS

    

March 31, 

    

December 31, 

    

March 31, 

    

December 31, 

    

March 31, 

 

(in $000’s, unaudited)

2024

2023

2023

2023

2023

 

Interest income

$

57,551

$

58,892

$

56,274

 

(2)

%  

2

%

Interest expense

 

17,458

 

16,591

 

7,016

 

5

%  

149

%

Net interest income before provision

for credit losses on loans

 

40,093

 

42,301

 

49,258

 

(5)

%  

(19)

%

Provision for credit losses on loans

 

184

 

289

 

32

 

(36)

%  

475

%

Net interest income after provision

for credit losses on loans

 

39,909

 

42,012

 

49,226

 

(5)

%  

(19)

%

Noninterest income:

 

 

 

 

  

 

  

Service charges and fees on deposit

accounts

 

877

 

838

 

1,743

 

5

%  

(50)

%

Increase in cash surrender value of

life insurance

 

518

 

519

 

493

 

0

%  

5

%

Gain on sales of SBA loans

 

178

 

 

76

 

N/A

134

%

Servicing income

 

90

 

103

 

131

 

(13)

%  

(31)

%

Termination fees

13

 

25

 

11

 

(48)

%  

18

%

Gain on proceeds from company-owned

life insurance

25

(100)

%  

N/A

Other

 

371

 

432

 

312

 

(14)

%  

19

%

Total noninterest income

 

2,047

 

1,942

 

2,766

 

5

%  

(26)

%

Noninterest expense:

 

  

 

  

 

  

 

  

 

  

Salaries and employee benefits

 

15,509

 

13,919

 

14,809

 

11

%  

5

%

Occupancy and equipment

 

2,443

 

2,367

 

2,400

 

3

%  

2

%

Professional fees

 

1,327

 

1,085

 

1,399

 

22

%  

(5)

%

Other

 

8,257

 

8,120

 

6,793

 

2

%  

22

%

Total noninterest expense

 

27,536

 

25,491

 

25,401

 

8

%  

8

%

Income before income taxes

 

14,420

 

18,463

 

26,591

 

(22)

%  

(46)

%

Income tax expense

 

4,254

 

5,135

 

7,674

 

(17)

%  

(45)

%

Net income

$

10,166

$

13,328

$

18,917

 

(24)

%  

(46)

%

PER COMMON SHARE DATA

 

 

 

 

  

 

  

(unaudited)

 

 

  

 

 

  

 

  

Basic earnings per share

$

0.17

$

0.22

$

0.31

 

(23)

%  

(45)

%

Diluted earnings per share

$

0.17

$

0.22

$

0.31

 

(23)

%  

(45)

%

Weighted average shares outstanding - basic

 

61,186,623

 

61,118,485

 

60,908,221

 

0

%  

0

%

Weighted average shares outstanding - diluted

 

61,470,552

 

61,412,816

 

61,268,072

 

0

%  

0

%

Common shares outstanding at period-end

 

61,253,625

 

61,146,835

 

60,948,607

 

0

%  

1

%

Dividend per share

$

0.13

$

0.13

$

0.13

 

0

%  

0

%

Book value per share

$

11.04

$

11.00

$

10.62

 

0

%  

4

%

Tangible book value per share(1)

$

8.17

$

8.12

$

7.70

 

1

%  

6

%

KEY FINANCIAL RATIOS

 

  

 

  

  

 

  

 

  

(unaudited)

 

  

 

  

 

  

 

  

 

  

Annualized return on average equity

 

6.08

%  

 

7.96

%  

 

12.03

%  

(24)

%  

(49)

%

Annualized return on average tangible

common equity(1)

 

8.24

%  

 

10.84

%  

 

16.71

%  

(24)

%  

(51)

%

Annualized return on average assets

 

0.79

%  

 

1.00

%  

 

1.47

%  

(21)

%  

(46)

%

Annualized return on average tangible assets(1)

 

0.82

%  

 

1.04

%  

 

1.52

%  

(21)

%  

(46)

%

Net interest margin (FTE)

 

3.34

%  

 

3.41

%  

 

4.09

%  

(2)

%  

(18)

%

Efficiency ratio

 

65.34

%  

 

57.62

%  

 

48.83

%  

13

%  

34

%

AVERAGE BALANCES

 

  

 

  

 

  

 

 

  

(in $000’s, unaudited)

 

  

 

  

 

  

 

  

 

  

Average assets

$

5,178,636

$

5,264,905

$

5,235,506

 

(2)

%  

(1)

%

Average tangible assets(1)

$

5,002,597

$

5,088,264

$

5,057,063

 

(2)

%  

(1)

%

Average earning assets

$

4,842,279

$

4,923,582

$

4,895,009

 

(2)

%  

(1)

%

Average loans held-for-sale

$

2,749

$

1,612

$

2,755

 

71

%  

0

%

Average total loans

$

3,297,240

$

3,280,817

$

3,274,770

 

1

%  

1

%

Average deposits

$

4,360,150

$

4,454,750

$

4,415,952

 

(2)

%  

(1)

%

Average demand deposits - noninterest-bearing

$

1,177,078

$

1,243,222

$

1,667,260

 

(5)

%  

(29)

%

Average interest-bearing deposits

$

3,183,072

$

3,211,528

$

2,748,692

 

(1)

%  

16

%

Average interest-bearing liabilities

$

3,222,603

$

3,251,034

$

2,834,732

 

(1)

%  

14

%

Average equity

$

672,292

$

664,638

$

637,597

 

1

%  

5

%

Average tangible common equity(1)

$

496,253

$

487,997

$

459,154

 

2

%  

8

%


(1)This is a non-GAAP financial measure. A reconciliation of GAAP to non-GAAP financial measures are presented in the tables at the end of this earnings release.

14


For the Quarter Ended:

CONSOLIDATED INCOME STATEMENTS

    

March 31, 

    

December 31, 

    

September 30, 

    

June 30, 

    

March 31, 

(in $000’s, unaudited)

2024

2023

2023

2023

2023

Interest income

$

57,551

$

58,892

$

60,791

$

58,341

$

56,274

Interest expense

 

17,458

 

16,591

 

15,419

 

12,048

 

7,016

Net interest income before provision

for credit losses on loans

 

40,093

 

42,301

 

45,372

 

46,293

 

49,258

Provision for credit losses on loans

 

184

 

289

 

168

 

260

 

32

Net interest income after provision

for credit losses on loans

 

39,909

 

42,012

 

45,204

 

46,033

 

49,226

Noninterest income:

 

 

 

 

 

Service charges and fees on deposit

accounts

 

877

 

838

 

859

 

901

 

1,743

Increase in cash surrender value of

life insurance

 

518

 

519

 

517

 

502

493

Gain on sales of SBA loans

 

178

 

 

207

 

199

 

76

Servicing income

 

90

 

103

 

62

 

104

 

131

Termination fees

 

13

 

25

 

118

 

 

11

Gain on proceeds from company-owned

life insurance

 

 

25

 

100

 

 

Other

371

432

353

368

312

Total noninterest income

 

2,047

 

1,942

 

2,216

 

2,074

 

2,766

Noninterest expense:

 

  

 

  

 

  

 

  

 

  

Salaries and employee benefits

 

15,509

 

13,919

 

14,147

 

13,987

 

14,809

Occupancy and equipment

 

2,443

 

2,367

 

2,301

 

2,422

 

2,400

Professional fees

 

1,327

 

1,085

 

717

 

1,149

 

1,399

Other

 

8,257

 

8,120

 

8,006

 

7,433

 

6,793

Total noninterest expense

 

27,536

 

25,491

 

25,171

 

24,991

 

25,401

Income before income taxes

 

14,420

 

18,463

 

22,249

 

23,116

 

26,591

Income tax expense

 

4,254

 

5,135

 

6,454

 

6,713

 

7,674

Net income

$

10,166

$

13,328

$

15,795

$

16,403

$

18,917

PER COMMON SHARE DATA

 

 

 

 

 

(unaudited)

 

  

 

  

 

  

 

 

Basic earnings per share

$

0.17

$

0.22

$

0.26

$

0.27

$

0.31

Diluted earnings per share

$

0.17

$

0.22

$

0.26

$

0.27

$

0.31

Weighted average shares outstanding - basic

 

61,186,623

 

61,118,485

 

61,093,289

 

61,035,435

 

60,908,221

Weighted average shares outstanding - diluted

 

61,470,552

 

61,412,816

 

61,436,240

 

61,266,059

 

61,268,072

Common shares outstanding at period-end

 

61,253,625

 

61,146,835

 

61,099,155

 

61,091,155

 

60,948,607

Dividend per share

$

0.13

$

0.13

$

0.13

$

0.13

$

0.13

Book value per share

$

11.04

$

11.00

$

10.83

$

10.70

$

10.62

Tangible book value per share(1)

$

8.17

$

8.12

$

7.94

$

7.80

$

7.70

KEY FINANCIAL RATIOS

 

  

 

  

 

  

 

  

 

  

(unaudited)

 

  

 

  

 

  

 

  

 

  

Annualized return on average equity

 

6.08

%  

 

7.96

%  

 

9.54

%  

 

10.12

%  

 

12.03

%  

Annualized return on average tangible

common equity(1)

 

8.24

%  

 

10.84

%  

 

13.06

%  

 

13.93

%  

 

16.71

%  

Annualized return on average assets

 

0.79

%  

 

1.00

%  

 

1.16

%  

 

1.25

%  

 

1.47

%  

Annualized return on average tangible assets(1)

 

0.82

%  

 

1.04

%  

 

1.20

%  

 

1.29

%  

 

1.52

%  

Net interest margin (FTE)

 

3.34

%  

 

3.41

%  

 

3.57

%  

 

3.76

%  

 

4.09

%  

Efficiency ratio

 

65.34

%  

 

57.62

%  

 

52.89

%  

 

51.67

%  

 

48.83

%  

AVERAGE BALANCES

 

  

 

  

 

  

 

  

 

  

(in $000’s, unaudited)

 

  

 

  

 

  

 

  

 

  

Average assets

$

5,178,636

$

5,264,905

$

5,399,930

$

5,278,243

$

5,235,506

Average tangible assets(1)

$

5,002,597

$

5,088,264

$

5,222,692

$

5,100,399

$

5,057,063

Average earning assets

$

4,842,279

$

4,923,582

$

5,051,710

$

4,948,397

$

4,895,009

Average loans held-for-sale

$

2,749

$

1,612

$

2,765

$

4,166

$

2,755

Average total loans

$

3,297,240

$

3,280,817

$

3,254,715

$

3,227,175

$

3,274,770

Average deposits

$

4,360,150

$

4,454,750

$

4,573,621

$

4,424,041

$

4,415,952

Average demand deposits - noninterest-bearing

$

1,177,078

$

1,243,222

$

1,302,606

$

1,368,373

$

1,667,260

Average interest-bearing deposits

$

3,183,072

$

3,211,528

$

3,271,015

$

3,055,668

$

2,748,692

Average interest-bearing liabilities

$

3,222,603

$

3,251,034

$

3,310,485

$

3,157,722

$

2,834,732

Average equity

$

672,292

$

664,638

$

656,973

$

650,240

$

637,597

Average tangible common equity(1)

$

496,253

$

487,997

$

479,735

$

472,396

$

459,154


(1)This is a non-GAAP financial measure. A reconciliation of GAAP to non-GAAP financial measures are presented in the tables at the end of this earnings release.

15


End of Period:

Percent Change From:

 

CONSOLIDATED BALANCE SHEETS

    

March 31, 

    

December 31, 

    

March 31, 

    

December 31, 

    

March 31, 

 

(in $000’s, unaudited)

2024

2023

2023

2023

2023

 

ASSETS

 

  

 

  

 

  

 

  

 

  

Cash and due from banks

$

32,543

$

41,592

$

41,318

 

(22)

%  

(21)

%

Other investments and interest-bearing deposits

in other financial institutions

 

508,816

 

366,537

 

698,690

 

39

%  

(27)

%

Securities available-for-sale, at fair value

 

404,474

 

442,636

 

491,751

 

(9)

%  

(18)

%

Securities held-to-maturity, at amortized cost

 

636,249

 

650,565

 

698,231

 

(2)

%  

(9)

%

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

 

1,946

 

2,205

 

2,792

 

(12)

%  

(30)

%

Loans:

 

 

 

 

  

 

Commercial

 

452,231

 

463,778

 

506,602

 

(2)

%  

(11)

%

Real estate:

 

 

 

 

 

  

CRE - owner occupied

 

585,031

 

583,253

 

603,298

 

0

%  

(3)

%

CRE - non-owner occupied

1,271,184

1,256,590

1,083,852

1

%  

17

%

Land and construction

 

129,712

 

140,513

 

166,408

 

(8)

%  

(22)

%

Home equity

 

122,794

 

119,125

 

124,481

 

3

%  

(1)

%

Multifamily

269,263

269,734

231,242

0

%  

16

%

Residential mortgages

 

490,035

 

496,961

 

528,639

 

(1)

%  

(7)

%

Consumer and other

 

16,439

 

20,919

 

17,905

 

(21)

%  

(8)

%

Loans

 

3,336,689

 

3,350,873

 

3,262,427

 

0

%  

2

%

Deferred loan fees, net

 

(587)

 

(495)

 

(512)

 

19

%  

15

%

Total loans, net of deferred costs and fees

 

3,336,102

 

3,350,378

 

3,261,915

 

0

%  

2

%

Allowance for credit losses on loans

 

(47,888)

 

(47,958)

 

(47,273)

 

0

%  

1

%

Loans, net

 

3,288,214

 

3,302,420

 

3,214,642

 

0

%  

2

%

Company-owned life insurance

 

80,007

 

79,489

 

79,438

 

1

%  

1

%

Premises and equipment, net

 

9,986

 

9,857

 

9,142

 

1

%  

9

%

Goodwill

 

167,631

 

167,631

 

167,631

 

0

%  

0

%

Other intangible assets

 

8,074

 

8,627

 

10,431

 

(6)

%  

(23)

%

Accrued interest receivable and other assets

 

118,134

 

122,536

 

122,474

 

(4)

%  

(4)

%

Total assets

$

5,256,074

$

5,194,095

$

5,536,540

 

1

%  

(5)

%

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

  

 

  

Liabilities:

 

 

 

  

 

  

 

  

Deposits:

 

 

 

  

 

  

 

Demand, noninterest-bearing

$

1,242,059

$

1,292,486

$

1,469,081

 

(4)

%  

(15)

%

Demand, interest-bearing

 

925,100

 

914,066

 

1,196,789

 

1

%  

(23)

%

Savings and money market

 

1,124,900

 

1,087,518

 

1,264,567

 

3

%  

(11)

%

Time deposits - under $250

 

38,105

 

38,055

 

37,884

 

0

%  

1

%

Time deposits - $250 and over

 

200,739

 

192,228

 

172,070

 

4

%  

17

%

ICS/CDARS - interest-bearing demand, money market

and time deposits

 

913,757

 

854,105

 

304,147

 

7

%  

200

%

Total deposits

 

4,444,660

 

4,378,458

 

4,444,538

 

2

%  

0

%

Subordinated debt, net of issuance costs

39,539

39,502

39,387

0

%  

0

%

Accrued interest payable and other liabilities

 

95,579

 

103,234

 

105,407

 

(7)

%  

(9)

%

Total liabilities

 

4,579,778

 

4,521,194

 

4,889,332

 

1

%  

(6)

%

Shareholders’ Equity:

 

  

 

  

 

  

 

  

 

  

Common stock

 

507,578

 

506,539

 

504,135

 

0

%  

1

%

Retained earnings

 

181,306

 

179,092

 

157,390

 

1

%  

15

%

Accumulated other comprehensive loss

 

(12,588)

 

(12,730)

 

(14,317)

 

(1)

%  

(12)

%

Total shareholders' equity

 

676,296

 

672,901

 

647,208

 

1

%  

4

%

Total liabilities and shareholders’ equity

$

5,256,074

$

5,194,095

$

5,536,540

 

1

%  

(5)

%

16


End of Period:

CONSOLIDATED BALANCE SHEETS

    

March 31, 

    

December 31, 

    

September 30, 

    

June 30, 

    

March 31, 

(in $000’s, unaudited)

2024

2023

2023

2023

2023

ASSETS

 

  

 

  

 

  

 

  

 

  

Cash and due from banks

$

32,543

$

41,592

$

40,076

$

42,551

$

41,318

Other investments and interest-bearing deposits

in other financial institutions

 

508,816

 

366,537

 

605,476

 

468,951

 

698,690

Securities available-for-sale, at fair value

 

404,474

 

442,636

 

457,194

 

486,058

 

491,751

Securities held-to-maturity, at amortized cost

 

636,249

 

650,565

 

664,681

 

682,095

 

698,231

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

 

1,946

 

2,205

 

841

 

3,136

 

2,792

Loans:

 

 

 

 

 

Commercial

 

452,231

 

463,778

 

430,664

 

466,354

 

506,602

Real estate:

 

 

 

 

 

CRE - owner occupied

585,031

583,253

589,751

608,031

603,298

CRE - non-owner occupied

 

1,271,184

 

1,256,590

 

1,208,324

 

1,147,313

 

1,083,852

Land and construction

 

129,712

 

140,513

 

158,138

 

162,816

 

166,408

Home equity

 

122,794

 

119,125

 

124,477

 

128,009

 

124,481

Multifamily

 

269,263

 

269,734

 

253,129

 

244,959

 

231,242

Residential mortgages

490,035

496,961

503,006

514,064

528,639

Consumer and other

 

16,439

 

20,919

 

18,526

 

17,635

 

17,905

Loans

 

3,336,689

 

3,350,873

 

3,286,015

 

3,289,181

 

3,262,427

Deferred loan fees, net

 

(587)

 

(495)

 

(554)

 

(397)

 

(512)

Total loans, net of deferred fees

 

3,336,102

 

3,350,378

 

3,285,461

 

3,288,784

 

3,261,915

Allowance for credit losses on loans

 

(47,888)

 

(47,958)

 

(47,702)

 

(47,803)

 

(47,273)

Loans, net

 

3,288,214

 

3,302,420

 

3,237,759

 

3,240,981

 

3,214,642

Company-owned life insurance

 

80,007

 

79,489

 

79,607

 

79,940

 

79,438

Premises and equipment, net

 

9,986

 

9,857

 

9,707

 

9,197

 

9,142

Goodwill

 

167,631

 

167,631

 

167,631

 

167,631

 

167,631

Other intangible assets

 

8,074

 

8,627

 

9,229

 

9,830

 

10,431

Accrued interest receivable and other assets

 

118,134

 

122,536

 

131,106

 

121,467

 

122,474

Total assets

$

5,256,074

$

5,194,095

$

5,403,307

$

5,311,837

$

5,536,540

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Liabilities:

 

  

 

  

 

  

 

  

 

  

Deposits:

 

  

 

  

 

  

 

  

 

  

Demand, noninterest-bearing

$

1,242,059

$

1,292,486

$

1,243,501

$

1,319,844

$

1,469,081

Demand, interest-bearing

 

925,100

 

914,066

 

1,004,185

 

1,064,638

 

1,196,789

Savings and money market

 

1,124,900

 

1,087,518

 

1,110,640

 

1,075,835

 

1,264,567

Time deposits - under $250

 

38,105

 

38,055

 

43,906

 

44,520

 

37,884

Time deposits - $250 and over

 

200,739

 

192,228

 

252,001

 

171,852

 

172,070

ICS/CDARS - interest-bearing demand, money market

and time deposits

 

913,757

 

854,105

 

921,224

 

824,083

 

304,147

Total deposits

 

4,444,660

 

4,378,458

 

4,575,457

 

4,500,772

 

4,444,538

Other short-term borrowings

300,000

Subordinated debt, net of issuance costs

39,539

39,502

39,463

39,425

39,387

Accrued interest payable and other liabilities

 

95,579

 

103,234

 

126,457

 

117,970

 

105,407

Total liabilities

 

4,579,778

 

4,521,194

 

4,741,377

 

4,658,167

 

4,889,332

Shareholders’ Equity:

 

  

 

  

 

  

 

  

 

  

Common stock

 

507,578

 

506,539

 

505,692

 

505,075

 

504,135

Retained earnings

 

181,306

 

179,092

 

173,707

 

165,853

 

157,390

Accumulated other comprehensive loss

 

(12,588)

 

(12,730)

 

(17,469)

 

(17,258)

 

(14,317)

Total shareholders' equity

 

676,296

 

672,901

 

661,930

 

653,670

 

647,208

Total liabilities and shareholders’ equity

$

5,256,074

$

5,194,095

$

5,403,307

$

5,311,837

$

5,536,540

17


At or For the Quarter Ended:

Percent Change From:

 

CREDIT QUALITY DATA

    

March 31, 

    

December 31, 

    

March 31, 

    

December 31, 

    

March 31, 

 

(in $000’s, unaudited)

2024

2023

2023

2023

2023

 

Nonaccrual loans - held-for-investment

$

5,920

$

6,818

$

781

 

(13)

%  

658

%

Loans over 90 days past due

and still accruing

 

1,951

 

889

 

1,459

 

119

%  

34

%

Total nonperforming loans

 

7,871

 

7,707

 

2,240

 

2

%  

251

%

Foreclosed assets

 

 

 

 

N/A

N/A

Total nonperforming assets

$

7,871

$

7,707

$

2,240

 

2

%  

251

%

Net charge-offs (recoveries) during the quarter

$

254

$

33

$

271

 

670

%  

(6)

%

Provision for credit losses on loans during the quarter

$

184

$

289

$

32

 

(36)

%  

475

%

Allowance for credit losses on loans

$

47,888

$

47,958

$

47,273

 

0

%  

1

%

Classified assets

$

35,392

$

31,763

$

26,800

 

11

%  

32

%

Allowance for credit losses on loans to total loans

 

1.44

%  

 

1.43

%  

 

1.45

%  

1

%  

(1)

%

Allowance for credit losses on loans to total nonperforming loans

 

608.41

%  

 

622.27

%  

 

2,110.40

%  

(2)

%  

(71)

%

Nonperforming assets to total assets

 

0.15

%  

 

0.15

%  

 

0.04

%  

0

%  

275

%

Nonperforming loans to total loans

 

0.24

%  

 

0.23

%  

 

0.07

%  

4

%  

243

%

Classified assets to Heritage Commerce Corp

Tier 1 capital plus allowance for credit losses on loans

 

6

%  

 

6

%  

 

5

%  

0

%  

20

%

Classified assets to Heritage Bank of Commerce

Tier 1 capital plus allowance for credit losses on loans

 

6

%  

 

5

%  

 

5

%  

20

%  

20

%

OTHER PERIOD-END STATISTICS

 

  

 

  

 

  

 

  

 

  

(in $000’s, unaudited)

 

  

 

  

 

  

 

  

 

  

Heritage Commerce Corp:

 

  

 

  

 

  

 

  

 

  

Tangible common equity (1)

$

500,591

$

496,643

$

469,146

 

1

%  

7

%

Shareholders’ equity / total assets

 

12.87

%  

 

12.96

%  

 

11.69

%  

(1)

%  

10

%

Tangible common equity / tangible assets (2)

 

9.85

%  

 

9.90

%  

 

8.76

%  

(1)

%  

12

%

Loan to deposit ratio

 

75.06

%  

 

76.52

%  

 

73.39

%  

(2)

%  

2

%

Noninterest-bearing deposits / total deposits

 

27.94

%  

 

29.52

%  

 

33.05

%  

(5)

%  

(15)

%

Total capital ratio

 

15.6

%  

 

15.5

%  

 

15.3

%  

1

%  

2

%

Tier 1 capital ratio

13.4

%  

 

13.3

%  

 

13.1

%  

1

%  

2

%

Common Equity Tier 1 capital ratio

 

13.4

%  

 

13.3

%  

 

13.1

%  

1

%  

2

%

Tier 1 leverage ratio

 

10.2

%  

 

10.0

%  

 

9.6

%  

2

%  

6

%

Heritage Bank of Commerce:

Total capital ratio

 

15.1

%  

 

14.9

%  

 

14.7

%  

1

%  

3

%

Tier 1 capital ratio

 

13.9

%  

 

13.8

%  

 

13.5

%  

1

%  

3

%

Common Equity Tier 1 capital ratio

 

13.9

%  

 

13.8

%  

 

13.5

%  

1

%  

3

%

Tier 1 leverage ratio

 

10.6

%  

 

10.4

%  

 

9.9

%  

2

%  

7

%


(1)This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets. A reconciliation of GAAP to non-GAAP financial measures are presented in the tables at the end of this earnings release.
(2)This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets. A reconciliation of GAAP to non-GAAP financial measures are presented in the tables at the end of this earnings release.

18


At or For the Quarter Ended:

CREDIT QUALITY DATA

    

March 31, 

    

December 31, 

    

September 30, 

    

June 30, 

    

March 31, 

(in $000’s, unaudited)

2024

2023

2023

2023

2023

Nonaccrual loans - held-for-investment

$

5,920

$

6,818

$

3,518

$

3,275

$

781

 

Loans over 90 days past due

and still accruing

 

1,951

 

889

 

1,966

 

2,262

 

1,459

 

Total nonperforming loans

 

7,871

 

7,707

 

5,484

 

5,537

 

2,240

 

Foreclosed assets

 

 

 

 

 

 

Total nonperforming assets

$

7,871

$

7,707

$

5,484

$

5,537

$

2,240

 

Net charge-offs (recoveries) during the quarter

$

254

$

33

$

269

$

(270)

$

271

 

Provision for credit losses on loans during the quarter

$

184

$

289

$

168

$

260

$

32

 

Allowance for credit losses on loans

$

47,888

$

47,958

$

47,702

$

47,803

$

47,273

 

Classified assets

$

35,392

$

31,763

$

31,062

$

30,500

$

26,800

 

Allowance for credit losses on loans to total loans

 

1.44

%  

 

1.43

%  

 

1.45

%  

 

1.45

%  

 

1.45

%  

Allowance for credit losses on loans to total nonperforming loans

 

608.41

%  

 

622.27

%  

 

869.84

%  

 

863.34

%  

 

2,110.40

%  

Nonperforming assets to total assets

 

0.15

%  

 

0.15

%  

 

0.10

%  

 

0.10

%  

 

0.04

%  

Nonperforming loans to total loans

 

0.24

%  

 

0.23

%  

 

0.17

%  

 

0.17

%  

 

0.07

%  

Classified assets to Heritage Commerce Corp

Tier 1 capital plus allowance for credit losses on loans

 

6

%  

 

6

%  

 

6

%  

 

6

%  

 

5

%  

Classified assets to Heritage Bank of Commerce

Tier 1 capital plus allowance for credit losses on loans

 

6

%  

 

5

%  

 

5

%  

 

5

%  

 

5

%  

OTHER PERIOD-END STATISTICS

 

  

 

  

 

  

 

  

 

  

 

(in $000’s, unaudited)

 

  

 

  

 

  

 

  

 

  

 

Heritage Commerce Corp:

 

  

 

  

 

  

 

  

 

  

 

Tangible common equity (1)

$

500,591

$

496,643

$

485,070

$

476,209

$

469,146

 

Shareholders’ equity / total assets

 

12.87

%  

 

12.96

%  

 

12.25

%  

 

12.31

%  

 

11.69

%  

Tangible common equity / tangible assets (2)

 

9.85

%  

 

9.90

%  

 

9.28

%  

 

9.27

%  

 

8.76

%  

Loan to deposit ratio

 

75.06

%  

 

76.52

%  

 

71.81

%  

 

73.07

%  

 

73.39

%  

Noninterest-bearing deposits / total deposits

 

27.94

%  

 

29.52

%  

 

27.18

%  

 

29.32

%  

 

33.05

%  

Total capital ratio

 

15.6

%  

 

15.5

%  

 

15.6

%  

 

15.4

%  

 

15.3

%  

Tier 1 capital ratio

 

13.4

%  

 

13.3

%  

 

13.4

%  

 

13.2

%  

 

13.1

%  

Common Equity Tier 1 capital ratio

 

13.4

%  

 

13.3

%  

 

13.4

%  

 

13.2

%  

 

13.1

%  

Tier 1 leverage ratio

 

10.2

%  

 

10.0

%  

 

9.6

%  

 

9.7

%  

 

9.6

%  

Heritage Bank of Commerce:

Total capital ratio

 

15.1

%  

 

14.9

%  

 

15.0

%  

 

14.8

%  

 

14.7

%  

Tier 1 capital ratio

 

13.9

%  

 

13.8

%  

 

13.9

%  

 

13.7

%  

 

13.5

%  

Common Equity Tier 1 capital ratio

 

13.9

%  

 

13.8

%  

 

13.9

%  

 

13.7

%  

 

13.5

%  

Tier 1 leverage ratio

 

10.6

%  

 

10.4

%  

 

10.0

%  

 

10.0

%  

 

9.9

%  


(1)This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets. A reconciliation of GAAP to non-GAAP financial measures are presented in the tables at the end of this earnings release.
(2)This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets. A reconciliation of GAAP to non-GAAP financial measures are presented in the tables at the end of this earnings release.

19


For the Quarter Ended

For the Quarter Ended

 

March 31, 2024

March 31, 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)

$

3,299,989

$

44,600

 

5.44

%  

$

3,277,525

$

44,112

 

5.46

%  

Securities - taxable

 

1,042,484

6,183

 

2.39

%  

 

1,161,021

 

7,056

 

2.46

%  

Securities - exempt from Federal tax (3)

 

31,939

286

 

3.60

%  

 

36,012

 

313

 

3.52

%  

Other investments and interest-bearing deposits

in other financial institutions

 

467,867

6,542

 

5.62

%  

 

420,451

 

4,859

 

4.69

%  

Total interest earning assets (3)

 

4,842,279

 

57,611

 

4.79

%  

 

4,895,009

 

56,340

 

4.67

%  

Cash and due from banks

 

33,214

 

 

  

 

37,563

 

 

  

Premises and equipment, net

 

10,015

 

 

  

 

9,269

 

 

  

Goodwill and other intangible assets

 

176,039

 

 

  

 

178,443

 

 

  

Other assets

117,089

 

 

  

 

115,222

 

 

  

Total assets

$

5,178,636

 

 

  

$

5,235,506

 

 

  

Liabilities and shareholders’ equity:

 

 

 

  

 

 

 

  

Deposits:

 

 

 

  

 

 

 

  

Demand, noninterest-bearing

$

1,177,078

 

  

$

1,667,260

 

 

  

Demand, interest-bearing

 

920,048

1,554

 

0.68

%  

 

1,217,731

 

1,476

 

0.49

%  

Savings and money market

 

1,067,581

6,649

 

2.50

%  

 

1,285,173

 

3,489

 

1.10

%  

Time deposits - under $100

 

10,945

42

 

1.54

%  

 

12,280

 

10

 

0.33

%  

Time deposits - $100 and over

 

221,211

2,064

 

3.75

%  

 

163,047

 

845

 

2.10

%  

ICS/CDARS - interest-bearing demand, money market

and time deposits

 

963,287

6,611

 

2.76

%  

 

70,461

 

81

 

0.47

%  

Total interest-bearing deposits

 

3,183,072

 

16,920

 

2.14

%  

 

2,748,692

 

5,901

 

0.87

%  

Total deposits

 

4,360,150

 

16,920

 

1.56

%  

 

4,415,952

 

5,901

 

0.54

%  

Short-term borrowings

 

15

 

0.00

%  

 

46,677

578

 

5.02

%  

Subordinated debt, net of issuance costs

39,516

538

5.48

%  

39,363

537

5.53

%  

Total interest-bearing liabilities

 

3,222,603

 

17,458

 

2.18

%  

 

2,834,732

 

7,016

 

1.00

%  

Total interest-bearing liabilities and demand,

noninterest-bearing / cost of funds

 

4,399,681

 

17,458

 

1.60

%  

 

4,501,992

 

7,016

 

0.63

%  

Other liabilities

 

106,663

 

 

  

 

95,917

 

 

  

Total liabilities

 

4,506,344

 

 

  

 

4,597,909

 

 

  

Shareholders’ equity

 

672,292

 

 

  

 

637,597

 

 

  

Total liabilities and shareholders’ equity

$

5,178,636

 

 

  

$

5,235,506

 

 

  

Net interest income (3) / margin

 

  

 

40,153

 

3.34

%  

 

  

 

49,324

 

4.09

%  

Less tax equivalent adjustment (3)

 

  

 

(60)

 

  

 

  

 

(66)

 

  

Net interest income

 

  

$

40,093

 

  

 

  

$

49,258

 

  


(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 $160,000 for the first quarter of 2024, compared to $300,000 for the first quarter of 2023. Prepayment fees totaled $24,000 for the first quarter of 2024, compared to $138,000 for the first quarter of 2023.
(3)Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate.

20


For the Quarter Ended

For the Quarter Ended

 

March 31, 2024

December 31, 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)

$

3,299,989

$

44,600

 

5.44

%  

$

3,282,429

$

44,635

 

5.39

%  

Securities - taxable

 

1,042,484

 

6,183

 

2.39

%  

 

1,074,638

 

6,516

 

2.41

%  

Securities - exempt from Federal tax (3)

 

31,939

 

286

 

3.60

%  

 

32,244

 

288

 

3.54

%  

Other investments and interest-bearing deposits

in other financial institutions

 

467,867

 

6,542

 

5.62

%  

 

534,271

 

7,514

 

5.58

%  

Total interest earning assets (3)

 

4,842,279

 

57,611

 

4.79

%  

 

4,923,582

 

58,953

 

4.75

%  

Cash and due from banks

 

33,214

 

 

  

 

35,214

 

 

  

Premises and equipment, net

 

10,015

 

 

  

 

9,843

 

 

  

Goodwill and other intangible assets

 

176,039

 

 

  

 

176,641

 

 

  

Other assets

 

117,089

 

 

  

 

119,625

 

 

  

Total assets

$

5,178,636

 

 

  

$

5,264,905

 

 

  

Liabilities and shareholders’ equity:

 

 

 

  

 

 

 

  

Deposits:

 

 

 

  

 

 

 

  

Demand, noninterest-bearing

$

1,177,078

 

 

  

$

1,243,222

 

 

  

Demand, interest-bearing

 

920,048

 

1,554

 

0.68

%  

 

948,061

 

1,661

 

0.70

%  

Savings and money market

 

1,067,581

 

6,649

 

2.50

%  

 

1,096,962

 

6,216

 

2.25

%  

Time deposits - under $100

 

10,945

 

42

 

1.54

%  

 

11,389

 

37

 

1.29

%  

Time deposits - $100 and over

 

221,211

 

2,064

 

3.75

%  

 

234,140

 

2,130

 

3.61

%  

ICS/CDARS - interest-bearing demand, money market

and time deposits

 

963,287

 

6,611

 

2.76

%  

 

920,976

 

6,009

 

2.59

%  

Total interest-bearing deposits

 

3,183,072

 

16,920

 

2.14

%  

 

3,211,528

 

16,053

 

1.98

%  

Total deposits

 

4,360,150

 

16,920

 

1.56

%  

 

4,454,750

 

16,053

 

1.43

%  

Short-term borrowings

 

15

 

0.00

%  

 

29

 

0.00

%  

Subordinated debt, net of issuance costs

39,516

538

5.48

%  

39,477

538

5.41

%  

Total interest-bearing liabilities

 

3,222,603

 

17,458

 

2.18

%  

 

3,251,034

 

16,591

 

2.02

%  

Total interest-bearing liabilities and demand,

noninterest-bearing / cost of funds

 

4,399,681

 

17,458

 

1.60

%  

 

4,494,256

 

16,591

 

1.46

%  

Other liabilities

 

106,663

 

 

  

 

106,011

 

 

  

Total liabilities

 

4,506,344

 

 

  

 

4,600,267

 

 

  

Shareholders’ equity

 

672,292

 

 

  

 

664,638

 

 

  

Total liabilities and shareholders’ equity

$

5,178,636

 

 

  

$

5,264,905

 

 

  

Net interest income (3) / margin

 

  

 

40,153

 

3.34

%  

 

  

 

42,362

 

3.41

%  

Less tax equivalent adjustment (3)

 

  

 

(60)

 

  

 

  

 

(61)

 

  

Net interest income

 

  

$

40,093

 

  

 

  

$

42,301

 

  


(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 $160,000 for the first quarter of 2024, compared to $147,000 for the fourth quarter of 2023. Prepayment fees totaled $24,000 for the first quarter of 2024, compared to $91,000 for the fourth quarter of 2023.
(3)Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate.

21


The following tables summarize components of the non-GAAP financial measures for the periods indicated:

RETURN ON AVERAGE TANGIBLE ASSETS

AND AVERAGE TANGIBLE COMMON EQUITY

March 31, 

December 31, 

March 31, 

(in $000’s, unaudited)

    

2024

2023

    

2023

 

Net income

$

10,166

$

13,328

$

18,917

Average tangible assets components:

Average Assets

$

5,178,636

$

5,264,905

$

5,235,506

Less: Goodwill

(167,631)

(167,631)

(167,631)

Less: Other Intangible Assets

(8,408)

(9,010)

(10,812)

Total Average Tangible Assets

$

5,002,597

$

5,088,264

$

5,057,063

Annualized return on average tangible assets

0.82

%  

1.04

%  

1.52

%  

Average tangible common equity components:

Average Equity

$

672,292

$

664,638

$

637,597

Less: Goodwill

(167,631)

(167,631)

(167,631)

Less: Other Intangible Assets

(8,408)

(9,010)

(10,812)

Total Average Tangible Common Equity

$

496,253

$

487,997

$

459,154

Annualized return on average tangible common equity

8.24

%  

10.84

%  

16.71

%  

TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS

March 31, 

December 31, 

March 31, 

(in $000’s, unaudited)

    

2024

2023

    

2023

 

Heritage Commerce Corp:

Capital components:

Total Equity

$

676,296

$

672,901

$

647,208

Less: Preferred Stock

Total Common Equity

676,296

672,901

647,208

Less: Goodwill

(167,631)

(167,631)

(167,631)

Less: Other Intangible Assets

(8,074)

(8,627)

(10,431)

Total Tangible Common Equity

$

500,591

$

496,643

$

469,146

Asset components:

Total Assets

$

5,256,074

$

5,194,095

$

5,536,540

Less: Goodwill

(167,631)

(167,631)

(167,631)

Less: Other Intangible Assets

(8,074)

(8,627)

(10,431)

Total Tangible Assets

$

5,080,369

$

5,017,837

$

5,358,478

Tangible common equity / tangible assets

9.85

%  

9.90

%  

8.76

%  

22


TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS

March 31, 

December 31, 

March 31, 

(in $000’s, unaudited)

    

2024

2023

    

2023

 

Heritage Bank of Commerce:

Capital components:

Total Equity

$

694,543

$

690,918

$

664,163

Less: Preferred Stock

Total Common Equity

694,543

690,918

664,163

Less: Goodwill

(167,631)

(167,631)

(167,631)

Less: Other Intangible Assets

(8,074)

(8,627)

(10,431)

Total Tangible Common Equity

$

518,838

$

514,660

$

486,101

Asset components:

Total Assets

$

5,254,044

$

5,190,829

$

5,538,878

Less: Goodwill

(167,631)

(167,631)

(167,631)

Less: Other Intangible Assets

(8,074)

(8,627)

(10,431)

Total Tangible Assets

$

5,078,339

$

5,014,571

$

5,360,816

Tangible common equity / tangible assets

10.22

%  

10.26

%  

9.07

%  

TANGIBLE BOOK VALUE PER SHARE

March 31, 

December 31, 

March 31, 

(in $000’s, unaudited)

    

2024

2023

    

2023

 

Capital components:

Total Equity

$

676,296

$

672,901

$

647,208

Less: Preferred Stock

Total Common Equity

676,296

672,901

647,208

Less: Goodwill

(167,631)

(167,631)

(167,631)

Less: Other Intangible Assets

(8,074)

(8,627)

(10,431)

Total Tangible Common Equity

$

500,591

$

496,643

$

469,146

Common shares outstanding at period-end

61,253,625

61,146,835

60,948,607

Tangible book value per share

$

8.17

$

8.12

$

7.70

23


EX-99.2 3 htbk-20240425xex99d2.htm EX-99.2

Exhibit 99.2

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

Heritage Bank of Commerce Celebrates its 30th Anniversary

San Jose, CA — April 25, 2024 — Heritage Commerce Corp (Nasdaq: HTBK), the holding company for Heritage Bank of Commerce (the “Bank”), today announced that its Board of Directors had declared its regular quarterly cash dividend of $0.13 per share to holders of its common stock. The dividend will be payable on May 23, 2024, to shareholders of record at the close of the business day on May 9, 2024. Heritage Commerce Corp has paid a cash dividend each quarter since 2013.

“As a result of another solid quarter of operating performance, the Board of Directors of Heritage Commerce Corp announced a $0.13 per share quarterly cash dividend to holders of common stock,” said Mr. Clay Jones, President and Chief Executive Office. “We thank our loyal shareholders for their support and look forward to another profitable year.”

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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