Heritage Commerce Corp Earns $11.3 Million for the Third Quarter of 2019 and $34.8 Million for the Nine Months Ended September 30, 2019

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SAN JOSE, Calif., Oct. 24, 2019 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (HTBK), the holding company (the “Company”) for Heritage Bank of Commerce (the “Bank”), today announced net income was $11.3 million, or $0.26 per average diluted common share, for the third quarter of 2019, compared to $12.4 million, or $0.28 per average diluted common share, for the third quarter of 2018, and $11.4 million, or $0.26 per average diluted common share, for the second quarter of 2019. For the nine months ended September 30, 2019, net income was $34.8 million, or $0.80 per average diluted common share, compared to $22.1 million, or $0.53 per average diluted common share, for the nine months ended September 30, 2018. All results are unaudited.

Earnings for the second quarter of 2019, the third quarter of 2019, and the first nine months of 2019 were reduced by merger-related costs of $540,000, $661,000, and $1.2 million, respectively, related to the merger with Presidio Bank (“Presidio”) which was completed on October 11, 2019. Earnings for the third quarter of 2018 and for the first nine months of 2018 were reduced by merger-related costs of $199,000 and $9.0 million, respectively, for the acquisitions of Tri-Valley Bank (“Tri-Valley”) and United American Bank (“United American”) which were completed on April 6, 2018 and May 4, 2018, respectively.

“Our solid third quarter of 2019 financial results continue to demonstrate the strength of our franchise, generating record earnings for the first nine months of 2019,” said Keith A. Wilton, President and Chief Executive Officer. “We delivered improved credit quality metrics, with noteworthy reductions in nonperforming loans and classified assets. Despite a very challenging interest rate environment, our loan and deposit trends were stable with noninterest-bearing deposits increasing 10% on a linked quarter basis and representing 41% of total deposits as of September 30, 2019.

“We completed the acquisition of Presidio Bank on October 11, 2019, and are pleased to welcome their employees, customers and shareholders to the Heritage Bank of Commerce family,” added Mr. Wilton. “This continuation of our strategic growth offers our new customers a broad array of new product offerings, increased lending limits and an expanded branch delivery system that stretches throughout the Greater San Francisco Bay Area. We remain focused on creating value for all of our customers – new and old – our communities, shareholders, and our many employees who support our customers each and every day.”

Third Quarter 2019 Highlights (as of, or for the periods ended September 30, 2019, compared to September 30, 2018, and June 30, 2019, except as noted):

Operating Results:

♦ Diluted earnings per share were $0.26 for the third quarter of 2019, compared to $0.28 for the third quarter of 2018, and $0.26 for the second quarter of 2019. Diluted earnings per share were $0.80 for the first nine months of 2019, compared to $0.53 for the first nine months of 2018.

  • Earnings for the third quarter of 2019, second quarter of 2019, and first nine months of 2019 were reduced by merger-related costs for the merger with Presidio, and earnings for the third quarter of 2018, and first nine months of 2018 were reduced by merger-related costs for the acquisitions of Tri-Valley and United American, as follows:

For the Quarter Ended

For the Nine Months Ended

MERGER-RELATED COSTS

September 30,

June 30,

September 30,

September 30,

September 30,

(in $000’s, unaudited)

2019

2019

2018

2019

2018

Salaries and employee benefits

$

$

$

183

$

$

3,576

Other

661

540

16

1,201

5,452

Total merger-related costs

$

661

$

540

$

199

$

1,201

$

9,028

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

For the Quarter Ended

For the Nine Months Ended

September 30,

June 30,

September 30,

September 30,

September 30,

2019

2019

2018

2019

2018

Return on average tangible assets

1.49

%

1.53

%

1.59

%

1.55

%

1.01

%

Return on average tangible equity

15.08

%

15.94

%

19.36

%

16.26

%

12.33

%

♦ Net interest income, before provision for loan losses, decreased 6% to $30.6 million for the third quarter of 2019, compared to $32.5 million for the third quarter of 2018, and decreased 1% from $30.9 million for the second quarter of 2019. Net interest income increased 4% to $92.6 million for the first nine months of 2019, compared to $89.0 million for the first nine months of 2018.

  • The fully tax equivalent (“FTE”) net interest margin contracted 12 basis points to 4.24% for the third quarter of 2019, from 4.36% for the third quarter of 2018, primarily due to a decline in the average balance of loans and a higher cost of deposits. The net interest margin contracted 14 basis points for the third quarter of 2019 from 4.38% for the second quarter of 2019, primarily due to a decrease in the average yield on loans, securities and overnight funds, partially offset by a higher average balance of loans.

  • For the first nine months of 2019, the net interest margin expanded 6 basis points to 4.33%, compared to 4.27% for the first nine months of 2018, primarily due to a higher average balance of loans and securities, the impact of increases in the yields on loans, investment securities, and overnight funds, and an increase in the accretion of the loan purchase discount into loan interest income from the acquisitions, partially offset by an increase in the cost of deposits, and a decrease in the average balance of Bay View Funding’s factored receivables.

♦ 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

September 30, 2019

September 30, 2018

Average

Interest

Average

Average

Interest

Average

(in $000’s, unaudited)

Balance

Income

Yield

Balance

Income

Yield

Loans, core bank and asset-based lending

$

1,748,379

$

23,401

5.31

%

$

1,780,025

$

23,374

5.21

%

Bay View Funding factored receivables

47,614

2,879

23.99

%

69,740

4,185

23.81

%

Residential mortgages

34,639

229

2.62

%

40,277

272

2.68

%

Purchased commercial real estate ("CRE") loans

30,567

284

3.69

%

36,167

295

3.24

%

Loan credit mark / accretion

(5,359

)

471

0.11

%

(7,418

)

506

0.11

%

Total loans

$

1,855,840

$

27,264

5.83

%

$

1,918,791

$

28,632

5.92

%

  • The average yield on the total loan portfolio decreased to 5.83% for the third quarter of 2019, compared to 5.92% for the third quarter of 2018, primarily due to a decrease in the average balance of Bay View Funding’s factored receivables.

For the Quarter Ended

For the Quarter Ended

September 30, 2019

June 30, 2019

Average

Interest

Average

Average

Interest

Average

(in $000’s, unaudited)

Balance

Income

Yield

Balance

Income

Yield

Loans, core bank and asset-based lending

$

1,748,379

$

23,401

5.31

%

$

1,727,988

$

23,342

5.42

%

Bay View Funding factored receivables

47,614

2,879

23.99

%

45,708

2,967

26.04

%

Residential mortgages

34,639

229

2.62

%

36,136

234

2.60

%

Purchased CRE loans

30,567

284

3.69

%

31,484

290

3.69

%

Loan credit mark / accretion

(5,359

)

471

0.11

%

(5,842

)

418

0.10

%

Total loans

$

1,855,840

$

27,264

5.83

%

$

1,835,474

$

27,251

5.96

%

  • The average yield on the total loan portfolio decreased to 5.83% for the third quarter of 2019, compared to 5.96% for the second quarter of 2019, primarily due to decreases in the prime rate on loans.

For the Nine Months Ended

For the Nine Months Ended

September 30, 2019

September 30, 2018

Average

Interest

Average

Average

Interest

Average

(in $000’s, unaudited)

Balance

Income

Yield

Balance

Income

Yield

Loans, core bank and asset-based lending

$

1,733,784

$

69,594

5.37

%

$

1,645,615

$

63,556

5.16

%

Bay View Funding factored receivables

47,271

8,800

24.89

%

57,096

10,687

25.03

%

Residential mortgages

35,840

714

2.66

%

41,959

850

2.71

%

Purchased CRE loans

31,788

869

3.65

%

36,740

947

3.45

%

Loan credit mark / accretion

(5,813

)

1,344

0.10

%

(4,864

)

1,232

0.10

%

Total loans

$

1,842,870

$

81,321

5.90

%

$

1,776,546

$

77,272

5.82

%

  • The average yield on the total loan portfolio increased to 5.90% for the nine months ended September 30, 2019, compared to 5.82% for the nine months ended September 30, 2018, primarily due to increases in the prime rate, and an increase in the accretion of the loan purchase discount into loan interest income from the acquisitions.

  • The total purchase discount on loans from Focus Business Bank (“Focus”) loan portfolio was $5.4 million on the acquisition date of August 20, 2015, of which $437,000 remains outstanding as of September 30, 2019. The total purchase discount on loans from Tri-Valley loan portfolio was $2.6 million on the acquisition date of April 6, 2018, of which $1.8 million remains outstanding as of September 30, 2019. The total purchase discount on loans from United American loan portfolio was $4.7 million on the acquisition date of May 4, 2018, of which $2.9 million remains outstanding as of September 30, 2019.

♦ The cost of total deposits was 0.31% for the third quarter of 2019, compared to 0.23% for the third quarter of 2018 and 0.31% for the second quarter of 2019. The cost of total deposits was 0.30% for the nine months ended September 30, 2019, compared to 0.19% for the nine months ended September 30, 2018.

♦ There was a $576,000 credit to the provision for loan losses for the third quarter of 2019, compared to a $425,000 credit to the provision for loan losses for the third quarter of 2018, and a $740,000 credit to the provision for loan losses for the second quarter of 2019. There was a $2.4 million credit to the provision for loan losses for the nine months ended September 30, 2019, compared to a $7.3 million provision for loan losses for the nine months ended September 30, 2018. The higher provision for loan losses for the nine months ended September 30, 2018 included a $7.0 million specific reserve for a lending relationship that was placed on nonaccrual during the second quarter of 2018.

♦ Total noninterest income increased to $2.6 million for the third quarter of 2019, compared to $2.2 million the third quarter of 2018, primarily due to a $330,000 gain on sales of securities for the third quarter of 2019. Noninterest income declined to $2.6 million for the third quarter of 2019 from $2.8 million for the second quarter of 2019, primarily due to a higher gain on the sales of securities for the second quarter of 2019.

  • For the nine months ended September 30, 2019, noninterest income increased to $7.9 million, compared to $7.2 million for the nine months ended September 30, 2018. The increase in noninterest income for the first nine months of 2019, was primarily due to higher service charges and fees on deposit accounts, and a higher gain on sales of securities for the first nine months of 2019, partially offset by lower gain on sales of Small Business Administration (“SBA”) loans for the first nine months of 2019, and proceeds from a legal settlement in the first nine months of 2018.

  • The Company received $1.3 million in proceeds from a legal settlement during the second quarter of 2018, of which $377,000 was recorded in other noninterest income, and $922,000 was credited to professional fees for recaptured legal fees previously paid by the Company.

♦ Total noninterest expense for the third quarter of 2019 increased to $17.9 million, compared to $17.7 million for the third quarter of 2018, primarily due to higher merger-related costs for the third quarter of 2019. Noninterest expense for the third quarter of 2019 included total merger-related costs of $661,000 for the Presidio acquisition (all included in other noninterest expense), compared to total merger-related costs of $199,000 for the third quarter of 2018 for the Tri-Valley and United American acquisitions. The merger-related costs of $199,000 for the third quarter of 2018 consisted of $183,000 included in salaries and employee benefits expense and $16,000 included in other noninterest expense. Total noninterest expense for the third quarter of 2019 decreased to $17.9 million, compared to $18.4 million for the second quarter of 2019, primarily due to lower salaries and employee benefits and lower other noninterest expense.

  • Total noninterest expense for the nine months ended September 30, 2019 decreased to $54.3 million, compared to $58.6 million for the nine months ended September 30, 2018, primarily due to lower merger-related costs, partially offset by higher professional fees. Noninterest expense for the nine months ended September 30, 2019 included total merger-related costs of $1.2 million for the Presidio acquisition (all included in other noninterest expense), compared to total merger-related costs of $9.0 million for the nine months ended September 30, 2018 for the Tri-Valley and United American acquisitions. The merger-related costs of $9.0 million for the nine months ended September 30, 2018 consisted of $3.6 million included in salaries and employee benefits and $5.4 million in other noninterest expense. Professional fees for the nine months ended September 30, 2018 included a recovery of $922,000 from a legal settlement.

  • Full time equivalent employees were 308 at September 30, 2019, 296 at September 30, 2018, and 309 at June 30, 2019.

♦ The efficiency ratio was 53.87% for the third quarter of 2019, compared to 51.15% for the third quarter of 2018, and 54.76% for the second quarter of 2019. The efficiency ratio for the nine months ended September 30, 2019 was 54.04%, compared to 60.93% for the nine months ended September 30, 2018.

♦ Income tax expense was $4.6 million for the third quarter of 2019, compared to $5.0 million for the third quarter of 2018, and $4.6 million for the second quarter of 2019. Income tax expense for the nine months ended September 30, 2019 was $13.8 million, compared to $8.2 million for the nine months ended September 30, 2018. The effective tax rate for the third quarter of 2019 was 29.1%, compared to 28.7% for the third quarter of 2018, and 28.9% for the second quarter of 2019. The effective tax rate for the nine months ended September 30, 2019 was 28.4%, compared to 27.0% for the nine months ended September 30, 2018.

  • The difference in the effective tax rate for the periods reported compared to the combined Federal and state statutory tax rate of 29.6% is primarily the result of the Company’s investment in life insurance policies whose earnings are not subject to taxes, tax credits related to investments in low income housing limited partnerships (net of low income housing investment losses), and tax-exempt interest income earned on municipal bonds.

Balance Sheet Review, Capital Management and Credit Quality:

♦ Total assets remained relatively flat at $3.18 billion at September 30, 2019, compared to $3.19 billion at September 30, 2018 and increased 2% from $3.11 billion at June 30, 2019.

♦ Securities available-for-sale, at fair value, totaled $333.1 million at September 30, 2019, compared to $319.1 million at September 30, 2018, and $383.1 million at June 30, 2019. At September 30, 2019, the Company’s securities available-for-sale portfolio comprised $212.7 million of agency mortgage-backed securities (all issued by U.S. Government sponsored entities), and $120.4 million of U.S. Treasury. The pre-tax unrealized gain on securities available-for-sale at September 30, 2019 was $1.7 million, compared to a pre-tax unrealized loss on securities available-for-sale of ($12.7) million at September 30, 2018, and a pre-tax unrealized gain on securities available-for-sale of $915,000 at June 30, 2019. All other factors remaining the same, when market interest rates are rising, the Company will experience a lower unrealized gain (or a higher unrealized loss) on the securities portfolio.

  • During the third quarter of 2019, the Company sold $38.9 million of securities available-for-sale for a net gain of $330,000. The securities sold consisted of $18.6 million of agency mortgage-backed securities and $20.3 million of U.S. Treasury securities.

♦ At September 30, 2019, securities held-to-maturity, at amortized cost, totaled $342.0 million, compared to $375.7 million at September 30, 2018, and $351.4 million at June 30, 2019. At September 30, 2019, the Company’s securities held-to-maturity portfolio was comprised of $259.3 million of agency mortgage-backed securities, and $82.7 million of tax-exempt municipal bonds.

♦ 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, 2019

June 30, 2019

September 30, 2018

(in $000’s, unaudited)

Balance

% to Total

Balance

% to Total

Balance

% to Total

Commercial

$

528,060

28

%

$

567,529

30

%

$

600,594

32

%

Real estate:

CRE

1,080,235

58

%

1,037,885

55

%

988,491

52

%

Land and construction

96,610

5

%

97,297

5

%

131,548

7

%

Home equity

111,610

6

%

116,057

6

%

116,657

6

%

Residential mortgages

47,276

2

%

48,944

3

%

52,441

2

%

Consumer

11,701

1

%

10,279

1

%

9,932

1

%

Total Loans

1,875,492

100

%

1,877,991

100

%

1,899,663

100

%

Deferred loan fees, net

(105

)

-

(224

)

(276

)

Loans, net of deferred fees

$

1,875,387

100

%

$

1,877,767

100

%

$

1,899,387

100

%

  • Loans, excluding loans held-for-sale, decreased $24.0 million or (1%), to $1.88 billion at September 30, 2019, compared to $1.90 billion at September 30, 2018, primarily due to a decline of $72.5 million in commercial loans (“C&I”), $34.9 million in land and construction loans, $5.0 million in home equity loans, $4.8 million in purchased residential mortgages, and $3.8 million in purchased CRE loans, partially offset by an increase of $95.5 million in CRE loans. Loans, excluding loans held-for-sale, remained flat at $1.88 billion at September 30, 2019, compared to $1.88 billion June 30, 2019.

  • C&I line usage was 35% at September 30, 2019, compared to 40% at June 30, 2019, and 36% at September 30, 2018.

  • At September 30, 2019, 38% of the CRE loan portfolio was secured by owner-occupied real estate.

♦ The following table summarizes the allowance for loan losses (“ALLL”) for the periods indicated:

For the Quarter Ended

For the Nine Months Ended

ALLOWANCE FOR LOAN LOSSES

September 30,

June 30,

September 30,

September 30,

September 30,

(in $000’s, unaudited)

2019

2019

2018

2019

2018

Balance at beginning of period

$

26,631

$

27,318

$

26,664

$

27,848

$

19,658

Charge-offs during the period

(318

)

(76

)

(744

)

(620

)

(1,860

)

Recoveries during the period

158

129

1,931

1,044

2,349

Net recoveries (charge-offs) during the period

(160

)

53

1,187

424

489

Provision (credit) for loan losses during the period

(576

)

(740

)

(425

)

(2,377

)

7,279

Balance at end of period

$

25,895

$

26,631

$

27,426

$

25,895

$

27,426

Total loans, net of deferred fees

$

1,875,387

$

1,877,767

$

1,899,387

$

1,875,387

$

1,899,387

Total nonperforming loans

$

14,247

$

17,018

$

24,715

$

14,247

$

24,715

Allowance for loan losses to total loans

1.38

%

1.42

%

1.44

%

1.38

%

1.44

%

Allowance for loan losses to total nonperforming loans

181.76

%

156.49

%

110.97

%

181.76

%

110.97

%

  • The ALLL was 1.38% of total loans at September 30, 2019, compared to 1.44% at September 30, 2018, and 1.42% at June 30, 2019. The ALLL to total nonperforming loans was 181.76% at September 30, 2019, compared to 110.97% at September 30, 2018, and 156.49% at June 30, 2019.

  • Net charge-offs totaled $160,000 for the third quarter of 2019, compared to net recoveries of $1.2 million for the third quarter of 2018, and net recoveries of $53,000 for the second quarter of 2019.

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

End of Period:

NONPERFORMING ASSETS

September 30, 2019

June 30, 2019

September 30, 2018

(in $000’s, unaudited)

Balance

% of Total

Balance

% of Total

Balance

% of Total

Commercial loans

$

7,390

52

%

$

6,583

39

%

$

17,134

69

%

CRE loans

5,094

36

%

8,442

49

%

5,639

23

%

SBA loans

1,007

7

%

513

3

%

227

1

%

Restructured and loans over 90 days past due and still accruing

609

4

%

1,323

8

%

1,373

6

%

Home equity and consumer loans

147

1

%

157

1

%

342

1

%

Total nonperforming assets

$

14,247

100

%

$

17,018

100

%

$

24,715

100

%

  • NPAs totaled $14.2 million, or 0.45% of total assets, at September 30, 2019, compared to $24.7 million, or 0.77% of total assets, at September 30, 2018, and $17.0 million, or 0.55% of total assets, at June 30, 2019.

    • A large lending relationship was placed on nonaccrual during the second quarter of 2018. At September 30, 2019, the recorded investment of this lending relationship was $10.8 million, and the Company had a $6.0 million specific loan loss reserve allocated for this lending relationship, compared to a recorded investment of $21.8 million, and a $7.0 million specific loan loss reserve allocated for this lending relationship at September 30, 2018, and a recorded investment of $10.8 million, and a $5.9 million specific loan loss reserve allocated for this lending relationship at June 30, 2019.

    • The decrease in nonperforming assets at September 30, 2019 from June 30, 2019 was primarily due to the payoff of two secured CRE loans to entities affiliated with DC Solar Solutions, Inc. (“DC Solar”), which were placed on nonaccrual during the first quarter of 2019.

    • There were no foreclosed assets at September 30, 2019, September 30, 2018, or June 30, 2019.

  • Classified assets decreased to $20.2 million, or 0.64% of total assets, at September 30, 2019, compared to $30.5 million, or 0.95% of total assets, at September 30, 2018, and $31.2 million, or 1.00% of total assets, at June 30, 2019, primarily due to the payoff of classified loans.

♦ On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). Under the new guidance, the Company recognizes the following for all leases, at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. While the new standard impacts lessors, the Company is impacted as a lessee of the offices and real estate used for operations. The Company's lease agreements include options to renew at the Company's discretion. The extensions are not reasonably certain to be exercised, therefore they are not considered in the calculation of the ROU asset and lease liability. Total assets and total liabilities were $7.1 million on its consolidated statement of financial condition at September 30, 2019, as a result of recognizing right-of-use assets, included in other assets, and lease liabilities, included in other liabilities, related to non-cancelable operating lease agreements for office space.

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

DEPOSITS

September 30, 2019

June 30, 2019

September 30, 2018

(in $000’s, unaudited)

Balance

% to Total

Balance

% to Total

Balance

% to Total

Demand, noninterest-bearing

$

1,094,953

41

%

$

994,082

38

%

$

1,081,846

39

%

Demand, interest-bearing

666,054

25

%

682,114

26

%

670,624

24

%

Savings and money market

761,471

28

%

788,832

30

%

828,297

30

%

Time deposits — under $250

53,560

2

%

53,351

2

%

68,194

3

%

Time deposits — $250 and over

95,543

3

%

88,519

3

%

84,763

3

%

CDARS — interest-bearing demand,

money market and time deposits

17,409

1

%

15,575

1

%

11,575

1

%

Total deposits

$

2,688,990

100

%

$

2,622,473

100

%

$

2,745,299

100

%

  • Total deposits decreased $56.3 million, or (2)%, to $2.69 billion at September 30, 2019, compared to $2.75 billion at September 30, 2018, and increased $66.5 million or 3% from $2.62 billion at June 30, 2019.

  • Deposits, excluding all time deposits and CDARS deposits, decreased $58.3 million, or (2%), to $2.52 billion at September 30, 2019, compared to $2.58 billion at September 30, 2018, and increased $57.5 million or 2% at June 30, 2019, compared to $2.47 billion at June 30, 2019.

♦ The Company’s consolidated capital ratios exceeded regulatory guidelines and the Bank’s capital ratios exceeded the 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, 2019, 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

Corp

Commerce

Guidelines

Requirement (1)

Total Risk-Based

16.2

%

15.2

%

10.0

%

10.5

%

Tier 1 Risk-Based

13.3

%

14.1

%

8.0

%

8.5

%

Common Equity Tier 1 Risk-Based

13.3

%

14.1

%

6.5

%

7.0

%

Leverage

10.0

%

10.6

%

5.0

%

4.0

%

(1) Basel III minimum regulatory requirements for both the Company and the Bank include a 2.5% capital conservation buffer, except the leverage ratio.


♦ 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)

2019

2019

2018

Unrealized gain (loss) on securities available-for-sale

$

1,202

$

675

$

(8,980

)

Remaining unamortized unrealized gain on securities

available-for-sale transferred to held-to-maturity

306

316

350

Split dollar insurance contracts liability

(3,794

)

(3,770

)

(3,740

)

Supplemental executive retirement plan liability

(3,898

)

(3,931

)

(5,417

)

Unrealized gain on interest-only strip from SBA loans

386

408

614

Total accumulated other comprehensive loss

$

(5,798

)

$

(6,302

)

$

(17,173

)

♦ Tangible equity increased to $301.2 million at September 30, 2019, compared to $257.2 million at September 30, 2018, and $293.5 million at June 30, 2019. Tangible book value per share was $6.92 at September 30, 2019, compared to $5.94 at September 30, 2018, and $6.75 at June 30, 2019.

Heritage Commerce Corp, a bank holding company established in February 1998, 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, Palo Alto, Pleasanton, Redwood City, San Francisco, San Jose, San Mateo, San Rafael, Sunnyvale, 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 Santa Clara, CA and provides business-essential working capital factoring financing to various industries throughout the United States. For more information, please visit www.heritagecommercecorp.com.

Forward-Looking Statement Disclaimer

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, 2018, and the following: (1) 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; (2) 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; (3) our ability to anticipate interest rate changes and manage interest rate risk; (4) changes in inflation, interest rates, and market liquidity which may impact interest margins and impact funding sources; (5) volatility in credit and equity markets and its effect on the global economy; (6) our ability to effectively compete with other banks and financial services companies and the effects of competition in the financial services industry on our business; (7) our ability to achieve loan growth and attract deposits; (8) risks associated with concentrations in real estate related loans; (9) the relative strength or weakness of the commercial and real estate markets where are borrowers are located, including related asset and market prices; (10) other than temporary impairment charges to our securities portfolio; (11) changes in the level of nonperforming assets and charge offs and other credit quality measures, and their impact on the adequacy of the Company’s allowance for loan losses and the Company’s provision for loan losses; (12) 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; (13) regulatory limits on Heritage Bank of Commerce’s ability to pay dividends to the Company; (14) changes in our capital management policies, including those regarding business combinations, dividends, and share repurchases; (15) 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; (16) 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; (17) the potential increase in reserves and allowance for loan loss as a result of the transition to the current expected credit loss standard (“CECL”) established by the Financial Accounting Standards Board to account for expected credit losses; (18) possible impairment of our goodwill and other intangible assets; (19) possible adjustment of the valuation of our deferred tax assets; (20) expected cost savings in connection with the consolidation of recent acquisitions may not be fully realized or realized within the expected time frames, deposit attrition, customer loss; (21) 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; (22) inability of our framework to manage risks associated with our business, including operational risk and credit risk; (23) risks of loss of funding of Small Business Administration or SBA loan programs, or changes in those programs; (24) compliance with governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities , accounting and tax matters; (25) significant changes in applicable laws and regulations, including those concerning taxes, banking and securities; (26) 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; (27) costs and effects of legal and regulatory developments, including resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews; (28) availability of and competition for acquisition opportunities; (29) risks resulting from domestic terrorism; (30) risks of natural disasters (including earthquakes) and other events beyond our control; (31) the expected cost savings, synergies and other financial benefits from the Presidio Bank acquisition might not be realized within the expected time frames or at all; 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

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)

2019

2019

2018

2019

2018

2019

2018

Change

Interest income

$

33,250

$

33,489

$

34,610

(1

)

%

(4

)

%

$

100,188

$

94,467

6

%

Interest expense

2,625

2,573

2,159

2

%

22

%

7,605

5,504

38

%

Net interest income before provision

for loan losses

30,625

30,916

32,451

(1

)

%

(6

)

%

92,583

88,963

4

%

Provision (credit) for loan losses

(576

)

(740

)

(425

)

22

%

(36

)

%

(2,377

)

7,279

(133

)

%

Net interest income after provision

for loan losses

31,201

31,656

32,876

(1

)

%

(5

)

%

94,960

81,684

16

%

Noninterest income:

Service charges and fees on deposit accounts

1,032

1,177

1,107

(12

)

%

(7

)

%

3,370

2,981

13

%

Increase in cash surrender value of

life insurance

336

333

216

1

%

56

%

999

816

22

%

Gain on sales of securities

330

548

(40

)

%

N/A

878

266

230

%

Gain on sales of SBA loans

156

36

236

333

%

(34

)

%

331

551

(40

)

%

Servicing income

139

150

163

(7

)

%

(15

)

%

480

533

(10

)

%

Other

625

521

484

20

%

29

%

1,793

2,034

(12

)

%

Total noninterest income

2,618

2,765

2,206

(5

)

%

19

%

7,851

7,181

9

%

Noninterest expense:

Salaries and employee benefits

10,467

10,698

10,719

(2

)

%

(2

)

%

31,935

35,302

(10

)

%

Occupancy and equipment

1,550

1,578

1,559

(2

)

%

(1

)

%

4,634

3,927

18

%

Professional fees

789

753

721

5

%

(9

)

%

2,360

1,116

111

%

Other

5,103

5,416

4,729

(6

)

%

8

%

15,343

18,235

(16

)

%

Total noninterest expense

17,909

18,445

17,728

(3

)

%

1

%

54,272

58,580

(7

)

%

Income before income taxes

15,910

15,976

17,354

0

%

(8

)

%

48,539

30,285

60

%

Income tax expense

4,633

4,623

4,979

0

%

7

%

13,763

8,186

68

%

Net income

$

11,277

$

11,353

$

12,375

(1

)

%

(9

)

%

$

34,776

$

22,099

57

%

PER COMMON SHARE DATA

(unaudited)

Basic earnings per share

$

0.26

$

0.26

$

0.29

0

%

(10

)

%

$

0.81

$

0.54

50

%

Diluted earnings per share

$

0.26

$

0.26

$

0.28

(1

)

%

(8

)

%

$

0.80

$

0.53

51

%

Weighted average shares outstanding - basic

43,258,983

43,202,562

43,230,016

0

%

0

%

43,189,710

41,132,043

5

%

Weighted average shares outstanding - diluted

43,796,904

43,721,451

43,731,370

0

%

0

%

43,728,085

41,683,044

5

%

Common shares outstanding at period-end

43,509,406

43,498,406

43,271,676

0

%

1

%

43,509,406

43,271,676

1

%

Dividend per share

$

0.12

$

0.12

$

0.11

0

%

9

%

$

0.36

$

0.33

9

%

Book value per share

$

9.09

$

8.92

$

8.17

2

%

11

%

$

9.09

$

8.17

11

%

Tangible book value per share

$

6.92

$

6.75

$

5.94

3

%

16

%

$

6.92

$

5.94

16

%

KEY FINANCIAL RATIOS

(unaudited)

Annualized return on average equity

11.44

%

11.96

%

14.03

%

(4

)

%

(18

)

%

12.21

%

9.31

%

31

%

Annualized return on average tangible equity

15.08

%

15.94

%

19.36

%

(5

)

%

(22

)

%

16.26

%

12.33

%

32

%

Annualized return on average assets

1.44

%

1.48

%

1.54

%

(3

)

%

(6

)

%

1.50

%

0.98

%

53

%

Annualized return on average tangible assets

1.49

%

1.53

%

1.59

%

(3

)

%

(6

)

%

1.55

%

1.01

%

53

%

Net interest margin (fully tax equivalent)

4.24

%

4.38

%

4.36

%

(3

)

%

(3

)

%

4.33

%

4.27

%

1

%

Efficiency ratio

53.87

%

54.76

%

51.15

%

(2

)

%

5

%

54.04

%

60.93

%

(11

)

%

AVERAGE BALANCES

(in $000’s, unaudited)

Average assets

$

3,103,043

$

3,070,043

$

3,193,139

1

%

(3

)

%

$

3,094,199

$

3,004,230

3

%

Average tangible assets

$

3,008,602

$

2,975,096

$

3,096,703

1

%

(3

)

%

$

2,999,223

$

2,926,453

2

%

Average earning assets

$

2,878,590

$

2,844,677

$

2,965,926

1

%

(3

)

%

$

2,869,594

$

2,798,567

3

%

Average loans held-for-sale

$

4,171

$

4,256

$

7,076

(2

)

%

(41

)

%

$

3,854

$

4,591

(16

)

%

Average total loans

$

1,851,669

$

1,831,218

$

1,911,715

1

%

(3

)

%

$

1,839,016

$

1,771,955

4

%

Average deposits

$

2,612,252

$

2,590,933

$

2,749,026

1

%

(5

)

%

$

2,613,406

$

2,593,240

1

%

Average demand deposits - noninterest-bearing

$

1,041,712

$

1,001,914

$

1,071,638

4

%

(3

)

%

$

1,022,654

$

1,003,590

2

%

Average interest-bearing deposits

$

1,570,540

$

1,589,019

$

1,677,388

(1

)

%

(6

)

%

$

1,590,752

$

1,589,650

0

%

Average interest-bearing liabilities

$

1,610,168

$

1,628,554

$

1,716,813

(1

)

%

(6

)

%

$

1,630,286

$

1,628,972

0

%

Average equity

$

391,086

$

380,605

$

349,971

3

%

12

%

$

380,919

$

317,464

20

%

Average tangible equity

$

296,645

$

285,658

$

253,535

4

%

17

%

$

285,943

$

239,687

19

%


For the Quarter Ended:

CONSOLIDATED INCOME STATEMENTS

September 30,

June 30,

March 31,

December 31,

September 30,

(in $000’s, unaudited)

2019

2019

2019

2018

2018

Interest income

$

33,250

$

33,489

$

33,449

$

35,378

$

34,610

Interest expense

2,625

2,573

2,407

2,318

2,159

Net interest income before provision

for loan losses

30,625

30,916

31,042

33,060

32,451

Provision (credit) for loan losses

(576

)

(740

)

(1,061

)

142

(425

)

Net interest income after provision

for loan losses

31,201

31,656

32,103

32,918

32,876

Noninterest income:

Service charges and fees on deposit accounts

1,032

1,177

1,161

1,132

1,107

Increase in cash surrender value of

life insurance

336

333

330

229

216

Gain on sales of securities

330

548

Gain on sales of SBA loans

156

36

139

147

236

Servicing income

139

150

191

176

163

Other

625

521

647

709

484

Total noninterest income

2,618

2,765

2,468

2,393

2,206

Noninterest expense:

Salaries and employee benefits

10,467

10,698

10,770

9,699

10,719

Occupancy and equipment

1,550

1,578

1,506

1,484

1,559

Professional fees

789

753

818

853

721

Other

5,103

5,416

4,824

4,905

4,729

Total noninterest expense

17,909

18,445

17,918

16,941

17,728

Income before income taxes

15,910

15,976

16,653

18,370

17,354

Income tax expense

4,633

4,623

4,507

5,138

4,979

Net income

$

11,277

$

11,353

$

12,146

$

13,232

$

12,375

PER COMMON SHARE DATA

(unaudited)

Basic earnings per share

$

0.26

$

0.26

$

0.28

$

0.31

$

0.29

Diluted earnings per share

$

0.26

$

0.26

$

0.28

$

0.30

$

0.28

Weighted average shares outstanding - basic

43,258,983

43,202,562

43,108,208

43,079,470

43,230,016

Weighted average shares outstanding - diluted

43,796,904

43,721,451

43,670,341

43,691,222

43,731,370

Common shares outstanding at period-end

43,509,406

43,498,406

43,323,753

43,288,750

43,271,676

Dividend per share

$

0.12

$

0.12

$

0.12

$

0.11

$

0.11

Book value per share

$

9.09

$

8.92

$

8.74

$

8.49

$

8.17

Tangible book value per share

$

6.92

$

6.75

$

6.54

$

6.28

$

5.94

KEY FINANCIAL RATIOS

(unaudited)

Annualized return on average equity

11.44

%

11.96

%

13.28

%

14.68

%

14.03

%

Annualized return on average tangible equity

15.08

%

15.94

%

17.90

%

20.08

%

19.36

%

Annualized return on average assets

1.44

%

1.48

%

1.58

%

1.64

%

1.54

%

Annualized return on average tangible assets

1.49

%

1.53

%

1.63

%

1.69

%

1.59

%

Net interest margin (fully tax equivalent)

4.24

%

4.38

%

4.38

%

4.42

%

4.36

%

Efficiency ratio

53.87

%

54.76

%

53.47

%

47.78

%

51.15

%

AVERAGE BALANCES

(in $000’s, unaudited)

Average assets

$

3,103,043

$

3,070,043

$

3,109,583

$

3,208,177

$

3,193,139

Average tangible assets

$

3,008,602

$

2,975,096

$

3,014,029

$

3,112,065

$

3,096,703

Average earning assets

$

2,878,590

$

2,844,677

$

2,885,591

$

2,980,207

$

2,965,926

Average loans held-for-sale

$

4,171

$

4,256

$

3,125

$

5,435

$

7,076

Average total loans

$

1,851,669

$

1,831,218

$

1,833,965

$

1,868,186

$

1,911,715

Average deposits

$

2,612,252

$

2,590,933

$

2,637,308

$

2,752,120

$

2,749,026

Average demand deposits - noninterest-bearing

$

1,041,712

$

1,001,914

$

1,024,142

$

1,107,813

$

1,071,638

Average interest-bearing deposits

$

1,570,540

$

1,589,019

$

1,613,166

$

1,644,307

$

1,677,388

Average interest-bearing liabilities

$

1,610,168

$

1,628,554

$

1,652,658

$

1,683,790

$

1,716,813

Average equity

$

391,086

$

380,605

$

370,792

$

357,505

$

349,971

Average tangible equity

$

296,645

$

285,658

$

275,238

$

261,393

$

253,535


End of Period:

Percent Change From:

CONSOLIDATED BALANCE SHEETS

September 30,

June 30,

September 30,

June 30,

September 30,

(in $000’s, unaudited)

2019

2019

2018

2019

2018

ASSETS

Cash and due from banks

$

48,121

$

36,302

$

40,831

33

%

18

%

Other investments and interest-bearing deposits

in other financial institutions

367,662

239,710

340,198

53

%

8

%

Securities available-for-sale, at fair value

333,101

383,156

319,071

(13

)

%

4

%

Securities held-to-maturity, at amortized cost

342,033

351,399

375,732

(3

)

%

(9

)

%

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

3,571

5,202

6,344

(31

)

%

(44

)

%

Loans:

Commercial

528,060

567,529

600,594

(7

)

%

(12

)

%

Real estate:

CRE

1,080,235

1,037,885

988,491

4

%

9

%

Land and construction

96,610

97,297

131,548

(1

)

%

(27

)

%

Home equity

111,610

116,057

116,657

(4

)

%

(4

)

%

Residential mortgages

47,276

48,944

52,441

(3

)

%

(10

)

%

Consumer

11,701

10,279

9,932

14

%

18

%

Loans

1,875,492

1,877,991

1,899,663

0

%

(1

)

%

Deferred loan fees, net

(105

)

(224

)

(276

)

(53

)

%

(62

)

%

Total loans, net of deferred fees

1,875,387

1,877,767

1,899,387

0

%

(1

)

%

Allowance for loan losses

(25,895

)

(26,631

)

(27,426

)

(3

)

%

(6

)

%

Loans, net

1,849,492

1,851,136

1,871,961

0

%

(1

)

%

Company-owned life insurance

62,858

62,522

61,630

1

%

2

%

Premises and equipment, net

6,849

6,975

7,246

(2

)

%

(5

)

%

Goodwill

83,753

83,753

83,752

0

%

0

%

Other intangible assets

10,346

10,900

12,614

(5

)

%

(18

)

%

Accrued interest receivable and other assets

74,685

76,976

73,531

(3

)

%

2

%

Total assets

$

3,182,471

$

3,108,031

$

3,192,910

2

%

0

%

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:

Deposits:

Demand, noninterest-bearing

$

1,094,953

$

994,082

$

1,081,846

10

%

1

%

Demand, interest-bearing

666,054

682,114

670,624

(2

)

%

(1

)

%

Savings and money market

761,471

788,832

828,297

(3

)

%

(8

)

%

Time deposits-under $250

53,560

53,351

68,194

0

%

(21

)

%

Time deposits-$250 and over

95,543

88,519

84,763

8

%

13

%

CDARS - money market and time deposits

17,409

15,575

11,575

12

%

50

%

Total deposits

2,688,990

2,622,473

2,745,299

3

%

(2

)

%

Subordinated debt, net of issuance costs

39,507

39,461

39,322

0

%

0

%

Accrued interest payable and other liabilities

58,628

57,989

54,723

1

%

7

%

Total liabilities

2,787,125

2,719,923

2,839,344

2

%

(2

)

%

Shareholders’ Equity:

Common stock

302,983

302,305

300,208

0

%

1

%

Retained earnings

98,161

92,105

70,531

7

%

39

%

Accumulated other comprehensive loss

(5,798

)

(6,302

)

(17,173

)

8

%

66

%

Total Shareholders' Equity

395,346

388,108

353,566

2

%

12

%

Total liabilities and shareholders’ equity

$

3,182,471

$

3,108,031

$

3,192,910

2

%

0

%




End of Period:

CONSOLIDATED BALANCE SHEETS

September 30,

June 30,

March 31,

December 31,

September 30,

(in $000’s, unaudited)

2019

2019

2019

2018

2018

ASSETS

Cash and due from banks

$

48,121

$

36,302

$

38,699

$

30,273

$

40,831

Other investments and interest-bearing deposits

in other financial institutions

367,662

239,710

196,278

134,295

340,198

Securities available-for-sale, at fair value

333,101

383,156

452,521

459,043

319,071

Securities held-to-maturity, at amortized cost

342,033

351,399

367,023

377,198

375,732

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

3,571

5,202

3,216

2,649

6,344

Loans:

Commercial

528,060

567,529

559,718

597,763

600,594

Real estate:

CRE

1,080,235

1,037,885

1,012,641

994,067

988,491

Land and construction

96,610

97,297

98,222

122,358

131,548

Home equity

111,610

116,057

118,448

109,112

116,657

Residential mortgages

47,276

48,944

49,786

50,979

52,441

Consumer

11,701

10,279

9,690

12,453

9,932

Loans

1,875,492

1,877,991

1,848,505

1,886,732

1,899,663

Deferred loan fees, net

(105

)

(224

)

(187

)

(327

)

(276

)

Total loans, net of deferred fees

1,875,387

1,877,767

1,848,318

1,886,405

1,899,387

Allowance for loan losses

(25,895

)

(26,631

)

(27,318

)

(27,848

)

(27,426

)

Loans, net

1,849,492

1,851,136

1,821,000

1,858,557

1,871,961

Company-owned life insurance

62,858

62,522

62,189

61,859

61,630

Premises and equipment, net

6,849

6,975

6,998

7,137

7,246

Goodwill

83,753

83,753

83,753

83,753

83,752

Other intangible assets

10,346

10,900

11,454

12,007

12,614

Accrued interest receivable and other assets

74,685

76,976

72,746

69,791

73,531

Total assets

$

3,182,471

$

3,108,031

$

3,115,877

$

3,096,562

$

3,192,910

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:

Deposits:

Demand, noninterest-bearing

$

1,094,953

$

994,082

$

1,016,770

$

1,021,582

$

1,081,846

Demand, interest-bearing

666,054

682,114

704,996

702,000

670,624

Savings and money market

761,471

788,832

759,306

754,277

828,297

Time deposits-under $250

53,560

53,351

56,385

58,661

68,194

Time deposits-$250 and over

95,543

88,519

90,042

86,114

84,763

CDARS - money market and time deposits

17,409

15,575

12,745

14,898

11,575

Total deposits

2,688,990

2,622,473

2,640,244

2,637,532

2,745,299

Subordinated debt, net of issuance costs

39,507

39,461

39,414

39,369

39,322

Accrued interest payable and other liabilities

58,628

57,989

57,703

52,195

54,723

Total liabilities

2,787,125

2,719,923

2,737,361

2,729,096

2,839,344

Shareholders’ Equity:

Common stock

302,983

302,305

301,550

300,844

300,208

Retained earnings

98,161

92,105

85,953

79,003

70,531

Accumulated other comprehensive loss

(5,798

)

(6,302

)

(8,987

)

(12,381

)

(17,173

)

Total Shareholders' Equity

395,346

388,108

378,516

367,466

353,566

Total liabilities and shareholders’ equity

$

3,182,471

$

3,108,031

$

3,115,877

$

3,096,562

$

3,192,910



End of Period:

Percent Change From:

CREDIT QUALITY DATA

September 30,

June 30,

September 30,

June 30,

September 30,

(in $000’s, unaudited)

2019

2019

2018

2019

2018

Nonaccrual loans - held-for-investment

$

13,638

$

15,695

$

23,342

(13

)

%

(42

)

%

Restructured and loans over 90 days past due

and still accruing

609

1,323

1,373

(54

)

%

(56

)

%

Total nonperforming loans

14,247

17,018

24,715

(16

)

%

(42

)

%

Foreclosed assets

N/A

N/A

Total nonperforming assets

$

14,247

$

17,018

$

24,715

(16

)

%

(42

)

%

Other restructured loans still accruing

$

247

$

175

$

334

41

%

(26

)

%

Net charge-offs (recoveries) during the quarter

$

160

$

(53

)

$

(1,187

)

402

%

113

%

Provision (credit) for loan losses during the quarter

$

(576

)

$

(740

)

$

(425

)

22

%

(36

)

%

Allowance for loan losses

$

25,895

$

26,631

$

27,426

(3

)

%

(6

)

%

Classified assets

$

20,225

$

31,176

$

30,456

(35

)

%

(34

)

%

Allowance for loan losses to total loans

1.38

%

1.42

%

1.44

%

(3

)

%

(4

)

%

Allowance for loan losses to total nonperforming loans

181.76

%

156.49

%

110.97

%

16

%

64

%

Nonperforming assets to total assets

0.45

%

0.55

%

0.77

%

(18

)

%

(42

)

%

Nonperforming loans to total loans

0.76

%

0.91

%

1.30

%

(16

)

%

(42

)

%

Classified assets to Heritage Commerce Corp

Tier 1 capital plus allowance for loan losses

6

%

10

%

10

%

(40

)

%

(40

)

%

Classified assets to Heritage Bank of Commerce

Tier 1capital plus allowance for loan losses

6

%

9

%

10

%

(33

)

%

(40

)

%

OTHER PERIOD-END STATISTICS

(in $000’s, unaudited)

Heritage Commerce Corp:

Tangible common equity (1)

$

301,247

$

293,455

$

257,200

3

%

17

%

Shareholders’ equity / total assets

12.42

%

12.49

%

11.07

%

(1

)

%

12

%

Tangible common equity / tangible assets (2)

9.75

%

9.74

%

8.31

%

0

%

17

%

Loan to deposit ratio

69.74

%

71.60

%

69.19

%

(3

)

%

1

%

Noninterest-bearing deposits / total deposits

40.72

%

37.91

%

39.41

%

7

%

3

%

Total risk-based capital ratio

16.2

%

15.9

%

14.4

%

2

%

13

%

Tier 1 risk-based capital ratio

13.3

%

13.0

%

11.5

%

2

%

16

%

Common Equity Tier 1 risk-based capital ratio

13.3

%

13.0

%

11.5

%

2

%

16

%

Leverage ratio

10.0

%

9.9

%

8.6

%

1

%

16

%

Heritage Bank of Commerce:

Total risk-based capital ratio

15.2

%

14.9

%

13.4

%

2

%

13

%

Tier 1 risk-based capital ratio

14.1

%

13.7

%

12.2

%

3

%

16

%

Common Equity Tier 1 risk-based capital ratio

14.1

%

13.7

%

12.2

%

3

%

16

%

Leverage ratio

10.6

%

10.5

%

9.1

%

1

%

16

%

(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

End of Period:

CREDIT QUALITY DATA

September 30,

June 30,

March 31,

December 31,

September 30,

(in $000’s, unaudited)

2019

2019

2019

2018

2018

Nonaccrual loans - held-for-investment

$

13,638

$

15,695

$

15,958

$

13,699

$

23,342

Restructured and loans over 90 days past due

and still accruing

609

1,323

1,357

1,188

1,373

Total nonperforming loans

14,247

17,018

17,315

14,887

24,715

Foreclosed assets