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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 27, 2023

HERITAGE COMMERCE CORP

(Exact name of registrant as specified in its charter)

California

000-23877

77-0469558

(State or other jurisdiction of
incorporation)

(Commission File Number)

(IRS Employer Identification No.)

224 Airport Parkway, San Jose, California

95110

(Address of principal executive offices)

(Zip Code)

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

Not Applicable

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

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

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

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

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

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

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

Title of each class

  

Trading Symbol(s)

  

Name of each exchange on which registered

Common Stock, No Par Value

  

HTBK

  

The Nasdaq Stock Market, LLC

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

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the

Exchange Act

ITEM 2.02RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On April 27, 2023, Heritage Commerce Corp, the holding company (the “Company”) of Heritage Bank of Commerce (the “Bank”) issued a press release announcing preliminary unaudited results for the first quarter of 2023. A copy of the press release is attached as Exhibit 99.1 to this Current Report and is incorporated herein by reference.

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

ITEM 8.01OTHER EVENTS

QUARTERLY DIVIDEND

On April 27, 2023, the Company announced that its Board of Directors declared a $0.13 per share quarterly cash dividend to holders of common stock. The dividend will be paid on May 25, 2023, to shareholders of record at the close of the business day on May 11, 2023. A copy of the press release is attached as Exhibit 99.2 to this Current Report and is incorporated herein by reference.

2

ITEM 9.01FINANCIAL STATEMENTS AND EXHIBITS

(D) Exhibits.

99.1

Press Release, dated April 27, 2023, entitled “Heritage Commerce Corp Earns $18.9 Million for the First Quarter of 2023; Total Deposits Stable”

99.2

Press Release, dated April 27, 2023, entitled “Heritage Commerce Corp Declares Regular Quarterly Cash Dividend of $0.13 Per Share”

104

Cover Page Interactive Data File (embedded within XBRL document)

3

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 27, 2023

Heritage Commerce Corp

By: /s/ Lawrence D. McGovern

Name: Lawrence D. McGovern

Executive Vice President and Chief Financial Officer

4

Exhibit 99.1

Heritage Commerce Corp Earns $18.9 Million for the First Quarter of 2023;

Total Deposits Stable

San Jose, CA — April 27, 2023 — Heritage Commerce Corp (Nasdaq: HTBK), the holding company (the “Company”) for Heritage Bank of Commerce (the “Bank”), today announced first quarter 2023 net income increased 47% to $18.9 million, or $0.31 per average diluted common share, compared to $12.9 million, or $0.21 per average diluted common share, for the first quarter of 2022, and decreased (9%) from $20.8 million, or $0.34 per average diluted common share, for the fourth quarter of 2022. All results are unaudited.

“We delivered record first quarter earnings and the second best quarterly results in the Company’s history,” said Clay Jones, President and Chief Executive Officer. “First quarter earnings have been typically impacted by higher payroll taxes and employee benefits, due to the seasonal peak of these expenses. Profits increased 47% over the first quarter a year ago supported by strong year-over-year growth in net interest income and noninterest income, higher net interest margin and improved efficiency ratio. Total deposits increased by $54.9 million from the linked quarter to $4.445 billion at March 31, 2023. Noninterest-bearing deposits shifted during the quarter to the Bank’s interest-bearing deposits, primarily due to the acceleration of recent rate hikes by the Federal Reserve Bank, prompting customers to seek higher yields.” As a result, there was a substantial increase in the Bank’s interest-bearing deposits and Insured Cash Sweep (“ICS”) deposits. “With a solid earnings performance, a large core deposit base and excellent credit quality, we believe we have a solid foundation to accommodate our clients lending and deposit needs,” stated Mr. Jones.

“Both the Company and the Bank remain in a strong financial position. Our capital levels and liquidity position are healthy, and the Bank has experienced stable deposit trends. Our prudent approach to risk management has enabled us to navigate recent market volatility in the financial industry,” Mr. Jones continued. Mr. Jones expressed gratitude to the Bank's clients for their continued support and emphasized that the banking team is dedicated to meeting their needs.

“Our credit quality remains strong. Over our nearly 30 year history, the Bank has consistently taken a prudent approach to real estate underwriting across all product types, through many economic cycles.  We believe our conservative credit standards, along with our continuous stress testing of each borrower for maturity dates, lease maturities, occupancy, interest rates and liquidity capacity will prove our loan portfolio is well positioned to successfully weather economic volatility.” The Company recorded a $32,000 provision for credit losses on loans for the first quarter of 2023. The allowance for credit losses on loans was $47.3 million, and increased to 1.45% of total loans, at March 31, 2023, compared to 1.41% of total loans from the year ago quarter, and 1.44% of total loans at December 31, 2022.

“Complementing our stellar performance this quarter, we are very proud to have recently ranked 21st nationally for the best performing Community Bank by S&P Market Intelligence,” said Mr. Jones. “Criteria for the ranking included a gross loans and leases-to-total assets ratio of at least 33% and a leverage ratio of at least 5%. Based on the selected criteria, 196 banks and thrifts were eligible for ranking.” [Source S&P Capital IQ]

1


Current Financial Condition and Liquidity Position

In light of current industry developments, the following are important factors in understanding our current financial condition and liquidity position:

Liquidity and Lines of Credit:

The following table shows our liquidity, available lines of credit and the amounts outstanding at March 31, 2023:

LIQUIDITY AND LINES OF CREDIT

Total

Outstanding

Remaining

(in $000’s, unaudited)

Available

Lines of Credit

Available

Unpledged investment securities (at fair value)

$

122,483

$

$

122,483

Off-balance sheet deposits

132,987

132,987

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

695,400

695,400

FRB discount window

1,231,874

150,000

(1)

1,081,874

Federal Home Loan Bank ("FHLB") Advances

789,909

150,000

(1)

639,909

Federal funds purchase arrangements

80,000

80,000

Holding company line of credit

20,000

20,000

Total

$

3,072,653

$

300,000

$

2,772,653


(1)Both the FRB and the FHLB lines of credit were repaid in full on April 20, 2023.

The Company’s total liquidity and borrowing capacity was $3.073 billion, of which $2.773 billion was remaining available at March 31, 2023.
The remaining available liquidity and borrowing capacity of $2.773 billion was 62% of total deposits and approximately 110% of estimated uninsured deposits at March 31, 2023.
During the first quarter of 2023, the Bank increased its credit line availability from the FRB and the FHLB by $839.5 million to $2.022 billion at March 31, 2023 from December 31, 2022.
The Company borrowed $150.0 million on its line of credit with the FRB, and another $150.0 million on its line of credit with the FHLB during the first quarter of 2023, and both lines of credit were repaid in full on April 20, 2023. These short-term borrowings provided instant liquidity during an uncertain time and allowed the Company to test the lines for future contingency planning purposes.
The loan to deposit ratio was 73.39% at March 31, 2023, compared to 75.14% at December 31, 2022.

Deposits:

Total deposits increased $54.9 million, or 1%, to $4.445 billion at March 31, 2023 from December 31, 2022.
ICS/Certificate of Deposit Account Registry Service (“CDARS”) deposits increased $273.7 million, or 901%, to $304.1 million at March 31, 2023 from $30.4 million at December 31, 2022, which included $128.0 million of off-balance sheet relationship-based client deposits brought onto the balance sheet, and an increase in client deposits of $145.8 million during the first quarter of 2023.
Noninterest-bearing demand deposits decreased ($267.6) million, or (15%), to $1.469 billion at March 31, 2023 from December 31, 2022, primarily due to clients moving noninterest-bearing deposits to the Bank’s interest-bearing and ICS deposits.
The Company had 24,103 deposits accounts at March 31, 2023, with an average balance of $184,000.
Deposits from the top 100 client relationships totaled $2.201 billion, representing 50% of total deposits, with an average account size of $445,000, representing 21% of the total number of accounts at March 31, 2023.

Investment Securities:

Investment securities totaled $1.190 billion at March 31, 2023, of which $491.8 million were in the securities available-for-sale portfolio (at fair value), and $698.2 million were in the securities held-to-maturity portfolio (at amortized cost, net of allowance for credit losses of $14,000).
The weighted average life of the investment securities portfolio was 4.82 years and the modified duration was 4.04 years at March 31, 2023.

2


Loans:

Loans, excluding loans held-for-sale, decreased ($36.6) million, or (1%) to $3.3 billion at March 31, 2023 from December 31, 2022.
Commercial real estate (“CRE”) loans totaled $1.687 billion at March 31, 2023, which included 36% of owner occupied loans and 64% of investor and other CRE loans.
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 guaranties on 90% of its CRE portfolio, while 10% are unguaranteed. A substantial portion of the unguaranteed CRE loans were made to credit-worthy non-profit organizations.
Office exposure in the CRE portfolio totaled $383 million, including 30 loans totaling approximately $70 million, in San Jose, 19 loans totaling approximately $28 million, in San Francisco, and 5 loans totaling approximately $10 million, in Oakland, at March 31, 2023.
Of the $383 million of CRE loans with office exposure, approximately $29 million, or 8%, are situated in the Bay Area downtown business districts of San Jose and San Francisco, with an average balance of $2.2 million.
At March 31, 2023, the weighted average loan-to-value and debt-service coverage for the entire non-owner occupied office portfolio were 43.2% and 2.09 times, respectively. For the ten non-owner occupied office loans in the City of San Francisco at March 31, 2023, the weighted average loan-to-value and debt-service coverage were 28.5% and 3.41 times, respectively.
The average vacancy level for the San Francisco CRE loans was 5.8%, of which the vast majority are single-tenant small spaces in office buildings situated outside of downtown.

First Quarter Ended March 31, 2023

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

(as of, or for the periods ended March 31, 2023, compared to March 31, 2022, and December 31, 2022, except as noted):

Operating Results:

Diluted earnings per share were $0.31 for the first quarter of 2023, compared to $0.21 for the first quarter of 2022, and $0.34 for the fourth quarter of 2022.
The following table indicates the ratios for the return on average tangible assets and the return on average tangible common equity for the periods indicated:

For the Quarter Ended:

 

    

March 31, 

    

December 31, 

    

March 31, 

 

(unaudited)

2023

2022

2022

 

Return on average tangible assets

1.52%

1.59%

0.99%

Return on average tangible common equity

16.71%

18.89%

12.47%

Net interest income, before provision for credit losses on loans, increased 29% to $49.3 million for the first quarter of 2023, compared to $38.2 million for the first quarter of 2022. The fully tax equivalent (“FTE”) net interest margin increased 104 basis points to 4.09% for the first quarter of 2023, from 3.05% for the first quarter of 2022, primarily due to increases in the prime rate and the rate on overnight funds, and a shift in the mix of earning assets into higher yielding loans and investment securities, partially offset by lower interest and fees on Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans, lower prepayment fees, a decrease in the accretion of the loan purchase discount into interest income from acquired loans, a higher cost of funds, and an increase in short-term borrowings.

Net interest income, before provision for credit losses on loans, decreased (5%) to $49.3 million for the first quarter of 2023, compared to $51.7 million for the fourth quarter of 2022. The FTE net interest margin decreased 1 basis point to 4.09% for the first quarter of 2023 from 4.10% for the fourth quarter of 2022, primarily due to a higher cost of funds, a decrease in the average balances of noninterest bearing demand deposits, and an increase in short-term borrowings, partially offset by increases in the prime rate and higher average yields on overnight funds, and an increase in the accretion of the loan purchase discount into interest income from acquired loans.

3


The Company reviewed beta assumptions for non-maturing interest-bearing deposit accounts as of March 31, 2023, and increased the beta assumptions for the upward shock scenarios. The following table, as of March 31, 2023, sets forth the estimated changes in the Company’s annual net interest income that would result from an instantaneous shift in interest rates from the base rate:

Increase/(Decrease) in

 

Estimated Net

 

Interest Income(1)

 

CHANGE IN INTEREST RATES (basis points)

    

Amount

    

Percent

 

(in $000's, unaudited)

+400

$

14,603

7.1

%

+300

$

10,917

5.3

%

+200

$

7,254

3.5

%

+100

$

3,618

1.8

%

0

 

−100

$

(6,667)

(3.2)

%

−200

$

(19,823)

(9.6)

%

−300

$

(35,220)

(17.1)

%

−400

$

(50,409)

(24.4)

%


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

The following tables present the average balance of loans outstanding, interest income, and the average yield for the periods indicated:
The average yield on the total loan portfolio increased to 5.46% for the first quarter of 2023, compared to 5.19% for the fourth quarter of 2022, primarily due to increases in the prime rate, and an increase in the accretion of the loan purchase discount into interest income from acquired loans.

For the Quarter Ended

For the Quarter Ended

 

March 31, 2023

December 31, 2022

 

Average

Interest

Average

Average

Interest

Average

 

(in $000’s, unaudited)

Balance

Income

Yield

Balance

Income

Yield

 

Loans, core bank

$

2,680,849

$

34,827

 

5.27

%  

$

2,654,311

$

33,594

 

5.02

%  

Prepayment fees

 

138

 

0.02

%  

123

 

0.02

%  

PPP loans

832

 

2

 

0.97

%  

1,255

3

 

0.95

%  

PPP fees, net

 

18

 

8.77

%  

25

 

7.90

%  

Asset-based lending

27,550

 

627

 

9.23

%  

 

35,519

756

 

8.44

%  

Bay View Funding factored receivables

 

77,755

 

4,001

 

20.87

%  

 

71,789

3,696

 

20.43

%  

Purchased residential mortgages

 

487,780

 

3,857

 

3.21

%  

 

485,149

3,842

 

3.14

%  

Purchased CRE loans

7,119

120

6.84

%  

7,307

80

4.34

%  

Loan fair value mark / accretion

 

(4,360)

 

522

 

0.08

%  

 

(4,774)

382

 

0.06

%  

Total loans (includes loans held-for-sale)

$

3,277,525

$

44,112

 

5.46

%  

$

3,250,556

$

42,501

 

5.19

%  

4


The average yield on the total loan portfolio increased to 5.46% for the first quarter of 2023, compared to 4.70% for the first quarter of 2022, primarily due to increases in the prime rate, partially offset by lower interest and fees on PPP loans, lower prepayment fees, a decrease in the accretion of the loan purchase discount into interest income from acquired loans, and higher average balances of lower yielding purchased residential mortgages.

For the Quarter Ended

For the Quarter Ended

 

March 31, 2023

March 31, 2022

 

Average

Interest

Average

Average

Interest

Average

 

(in $000’s, unaudited)

Balance

Income

Yield

Balance

Income

Yield

 

Loans, core bank

$

2,680,849

$

34,827

 

5.27

%  

$

2,483,708

$

26,097

 

4.26

%  

Prepayment fees

138

 

0.02

%  

 

510

 

0.08

%  

PPP loans

832

2

 

0.97

%  

 

60,264

146

 

0.98

%  

PPP fees, net

18

 

8.77

%  

 

1,346

 

9.06

%  

Asset-based lending

27,550

627

 

9.23

%  

 

69,617

950

 

5.53

%  

Bay View Funding factored receivables

 

77,755

4,001

 

20.87

%  

 

57,761

2,793

 

19.61

%  

Purchased residential mortgages

 

487,780

3,857

 

3.21

%  

 

355,626

2,428

 

2.77

%  

Purchased CRE loans

7,119

120

6.84

%  

8,514

77

3.67

%  

Loan fair value mark / accretion

 

(4,360)

522

 

0.08

%  

 

(6,901)

754

 

0.12

%  

Total loans (includes loans held-for-sale)

$

3,277,525

$

44,112

 

5.46

%  

$

3,028,589

$

35,101

 

4.70

%  

In aggregate, the remaining net purchase discount on total loans acquired was $4.1 million at March 31, 2023.

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

For the Quarter Ended

For the Quarter Ended

 

March 31, 2023

December 31, 2022

 

Average

Interest

Average

Average

Interest

Average

 

(in $000’s, unaudited)

Balance

Expense

Rate

Balance

Expense

Rate

 

Deposits:

 

 

 

  

 

 

 

  

Demand, noninterest-bearing

$

1,667,260

$

 

N/A

$

1,851,003

$

 

N/A

Demand, interest-bearing

 

1,217,731

1,476

 

0.49

%  

 

1,164,378

945

 

0.32

%  

Savings and money market

 

1,285,173

 

3,489

 

1.10

%  

 

1,424,964

 

1,694

 

0.47

%  

Time deposits - under $100

 

12,280

 

10

 

0.33

%  

 

12,157

 

7

 

0.23

%  

Time deposits - $100 and over

 

163,047

 

845

 

2.10

%  

 

120,246

 

268

 

0.88

%  

ICS/CDARS - interest-bearing demand, money market

and time deposits

 

70,461

 

81

 

0.47

%  

 

27,785

 

1

 

0.01

%  

Total interest-bearing deposits

 

2,748,692

 

5,901

 

0.87

%  

 

2,749,530

 

2,915

 

0.42

%  

Total deposits

 

4,415,952

 

5,901

 

0.54

%  

 

4,600,533

 

2,915

 

0.25

%  

Short-term borrowings

 

46,677

 

578

 

5.02

%  

 

24

 

 

%  

Subordinated debt, net of issuance costs

39,363

 

537

 

5.53

%  

39,326

 

538

 

5.43

%  

Total interest-bearing liabilities

 

2,834,732

 

7,016

 

1.00

%  

 

2,788,880

 

3,453

 

0.49

%  

Total interest-bearing liabilities and demand,

noninterest-bearing / cost of funds

$

4,501,992

$

7,016

 

0.63

%  

$

4,639,883

$

3,453

 

0.30

%  

The average cost of total deposits increased to 0.54% for the first quarter of 2023, compared to 0.25% for the fourth quarter of 2022. The average cost of funds increased to 0.63% for the first quarter of 2023, compared to 0.30% for the fourth quarter of 2022. The average cost of deposits was 0.10% and the average cost of funds was 0.14% for the first quarter of 2022.
During the first quarter of 2023, there was a provision for credit losses on loans of $32,000, compared to a ($567,000) recapture of provision for credit losses on loans for the first quarter of 2022, and a provision for credit losses on loans of $508,000 for the fourth quarter of 2022.
Total noninterest income increased 12% to $2.8 million for the first quarter of 2023, compared to $2.5 million for the first quarter of 2022, primarily due to higher service charges and fees on deposit accounts. Total noninterest income remained relatively flat at $2.8 million for both the first quarter of 2023 and the fourth quarter of 2022.

Total noninterest expense for the first quarter of 2023 increased to $25.4 million, compared to $23.3 million for the first quarter of 2022, primarily due to higher payroll taxes and employee benefits, higher professional fees, and higher insurance and information technology related expenses included in other noninterest expense during the first quarter of 2023. Total noninterest expense for

5


the first quarter of 2023 increased to $25.4 million, compared to $24.5 million for the fourth quarter of 2022, primarily due to an increase of $1.3 million for 401(k) employer contribution, vacation, and payroll taxes in the first quarter of 2023, consistent with the cyclical nature of those expenses.

Full time equivalent employees were 339 at March 31, 2023, and 325 at March 31, 2022, and 340 at December 31, 2022.

The efficiency ratio improved to 48.83% for the first quarter of 2023, compared to 57.16% for the first quarter of 2022, primarily due to an increase in net interest income. The efficiency ratio was 44.98% for the fourth quarter of 2022.

Income tax expense was $7.7 million for the first quarter of 2023, compared to $5.1 million for the first quarter of 2022, and $8.7 million for the fourth quarter of 2022. The effective tax rate for the first quarter of 2023 was 28.9%, compared to 28.5% for the first quarter of 2022, and 29.5% for the fourth quarter of 2022.

Balance Sheet Review, Capital Management and Credit Quality:

Total assets increased 2% to $5.537 billion at March 31, 2023, compared to $5.427 billion at March 31, 2022, and increased 7% from $5.158 billion at December 31, 2022.

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)

    

2023

2022

2022

Balance (at fair value):

U.S. Treasury

$

422,903

$

418,474

$

21,564

Agency mortgage-backed securities

 

68,848

 

71,122

 

89,653

Total

$

491,751

$

489,596

$

111,217

Pre-tax unrealized (loss):

U.S. Treasury

$

(7,510)

$

(10,323)

$

(93)

Agency mortgage-backed securities

 

(4,969)

 

(5,794)

 

(1,406)

Total

$

(12,479)

$

(16,117)

$

(1,499)

The pre-tax unrealized loss on the securities available-for-sale portfolio was $12.5 million, or $8.9 million net of taxes, which was 1% of total shareholders’ equity at March 31, 2023.

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

SECURITIES HELD-TO-MATURITY

March 31, 

December 31, 

March 31, 

(in $000’s, unaudited)

    

2023

2022

2022

Balance (at amortized cost):

Agency mortgage-backed securities

$

663,481

$

677,381

$

696,161

Municipals — exempt from Federal tax

 

34,764

 

37,623

 

40,701

Total

$

698,245

$

715,004

$

736,862

Pre-tax unrealized (loss) gain:

Agency mortgage-backed securities

$

(89,962)

$

(99,742)

$

(46,226)

Municipals — exempt from Federal tax

 

(297)

 

(810)

 

148

Total

$

(90,259)

$

(100,552)

$

(46,078)

Allowance for credit losses on municipal securities

$

(14)

$

(14)

$

(39)

The pre-tax unrealized loss on the securities held-to-maturity portfolio was $90.3 million at March 31, 2023, or $64.5 million net of taxes, which was 10% of total shareholders’ equity at March 31, 2023.

The unrealized losses in both the available-for-sale and held-to-maturity portfolios were due to higher interest rates at March 31, 2023 compared to when the securities were purchased. The issuers are of high credit quality and all principal amounts are expected to be repaid when the securities mature. The fair value is expected to recover as the securities approach their maturity date and/or market rates decline.

6


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

March 31, 2023

December 31, 2022

March 31, 2022

(in $000’s, unaudited)

    

Balance

    

% to Total

    

Balance

    

% to Total

    

Balance

    

% to Total

    

Commercial

$

506,037

16

%    

$

532,749

16

%    

$

568,053

19

%    

PPP Loans(1)

565

0

%    

1,166

0

%    

37,393

1

%    

Real estate:

 

 

 

CRE - owner occupied

 

603,298

18

%    

 

614,663

19

%    

 

597,542

20

%    

CRE - non-owner occupied

1,083,852

33

%    

1,066,368

32

%    

928,220

31

%    

Land and construction

 

166,408

5

%    

 

163,577

5

%    

 

153,323

5

%    

Home equity

 

124,481

4

%    

 

120,724

4

%    

 

111,609

3

%    

Multifamily

231,242

7

%    

244,882

7

%    

221,767

7

%    

Residential mortgages

528,639

16

%    

537,905

16

%    

391,171

13

%    

Consumer and other

 

17,905

1

%    

 

17,033

1

%    

 

17,110

1

%    

Total Loans

 

3,262,427

 

100

%    

 

3,299,067

 

100

%    

 

3,026,188

 

100

%    

Deferred loan costs (fees), net

 

(512)

 

 

(517)

 

 

(2,124)

 

Loans, net of deferred costs and fees 

$

3,261,915

 

100

%    

$

3,298,550

 

100

%    

$

3,024,064

 

100

%    


(1)Less than 1% at March 31, 2023 and December 31, 2022.

Loans, excluding loans held-for-sale, increased $237.9 million, or 8%, to $3.262 billion at March 31, 2023, compared to $3.024 billion at March 31, 2022, and decreased ($36.6) million, or (1%), from $3.299 billion at December 31, 2022. Loans, excluding loans held-for-sale, PPP loans and residential mortgages, increased $136.5 million, or 5%, to $2.733 billion at March 31, 2023, compared to $2.596 billion at March 31, 2022, and decreased ($26.8) million, or (1%), from $2.760 billion at December 31, 2022.

Commercial and industrial (“C&I”) line utilization was 31% at both March 31, 2023 and March 31, 2022, compared to 29% at December 31, 2022.

At March 31, 2023, there was 36% of the CRE loan portfolio secured by owner occupied real estate, compared to 39% at March 31, 2022, and 37% at December 31, 2022.
The following table presents the maturity distribution of the Company’s loans, excluding loans held-for-sale, as of March 31, 2023. The table shows the distribution of such loans between those loans with predetermined (fixed) interest rates and those with variable (floating) interest rates. Floating rates generally fluctuate with changes in the prime rate as reflected in the Western Edition of The Wall Street Journal.

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

$

409,059

41

%  

$

286,346

28

%  

$

312,341

31

%  

$

1,007,746

Loans with fixed interest rates

 

65,799

3

%  

500,734

22

%  

1,688,148

75

%  

 

2,254,681

Loans

$

474,858

15

%  

$

787,080

24

%  

$

2,000,489

61

%  

$

3,262,427

7


At March 31, 2023, approximately 31% of the Company’s loan portfolio consisted of floating interest rate loans, compared to 38% at March 31, 2022, and 33% at December 31, 2022.

8


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)

2023

2022

2022

 

Balance at beginning of period

$

47,512

$

46,921

$

43,290

Charge-offs during the period

(380)

(56)

(16)

Recoveries during the period

109

139

81

Net recoveries (charge-offs) during the period

(271)

83

65

Provision for (recapture of) credit losses on loans during the period

 

32

 

508

 

(567)

Balance at end of period

$

47,273

$

47,512

$

42,788

Total loans, net of deferred fees

$

3,261,915

$

3,298,550

$

3,024,064

Total nonperforming loans

$

2,240

$

2,425

$

3,830

ACLL to total loans

 

1.45

%  

 

1.44

%  

 

1.41

%  

ACLL to total nonperforming loans

2,110.40

%  

1,959.26

%  

 

1,117.18

%  

The following table shows the drivers of change in ACLL under the current expected credit losses (“CECL”) methodology for the first quarter of 2023:

DRIVERS OF CHANGE IN ACLL UNDER CECL

    

(in $000’s, unaudited)

ACLL at December 31, 2022

$

47,512

Portfolio changes during the first quarter of 2023

(160)

Qualitative and quantitative changes during the first

quarter of 2023 including changes in economic forecasts

 

(79)

ACLL at March 31, 2023

$

47,273

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

NONPERFORMING ASSETS

March 31, 2023

December 31, 2022

March 31, 2022

 

(in $000’s, unaudited)

    

Balance

    

% of Total

    

Balance

    

% of Total

    

Balance

    

% of Total

 

Restructured and loans over 90 days past due

and still accruing

$

1,459

65

%  

$

1,685

70

%  

$

527

14

%  

Commercial loans

685

31

%  

642

26

%  

997

26

%  

Home equity loans

 

96

4

%  

 

98

4

%  

 

73

2

%  

CRE loans

%  

%  

2,233

58

%  

Total nonperforming assets

$

2,240

 

100

%  

$

2,425

 

100

%  

$

3,830

 

100

%  

NPAs totaled $2.2 million, or 0.04% of total assets, at March 31, 2023, compared to $3.8 million, or 0.07% of total assets, at March 31, 2022, and $2.4 million, or 0.05% of total assets, at December 31, 2022.

There were no foreclosed assets on the balance sheet at March 31, 2023, March 31, 2022, or December 31, 2022.

Classified assets totaled $26.8 million, or 0.48% of total assets, at March 31, 2023, compared to $30.6 million, or 0.56% of total assets, at March 31, 2022, and $14.5 million, or 0.28% of total assets, at December 31, 2022.
The following table summarizes the distribution of deposits and the percentage of distribution in each category for the periods indicated:

DEPOSITS

March 31, 2023

December 31, 2022

March 31, 2022

 

(in $000’s, unaudited)

    

Balance

    

% to Total

  

Balance

    

% to Total

  

Balance

    

% to Total

 

Demand, noninterest-bearing

$

1,469,081

 

33

%  

$

1,736,722

 

40

%  

$

1,811,943

 

38

%  

Demand, interest-bearing

 

1,196,789

 

27

%  

 

1,196,427

 

27

%  

 

1,268,942

 

27

%  

Savings and money market

 

1,264,567

 

28

%  

 

1,285,444

 

29

%  

 

1,447,434

 

31

%  

Time deposits — under $250

 

37,884

 

1

%  

 

32,445

 

1

%  

 

38,417

 

1

%  

Time deposits — $250 and over

 

172,070

 

4

%  

 

108,192

 

2

%  

 

93,161

 

2

%  

ICS/CDARS — interest-bearing demand,

money market and time deposits

 

304,147

 

7

%  

 

30,374

 

1

%  

 

30,008

 

1

%  

Total deposits

$

4,444,538

 

100

%  

$

4,389,604

 

100

%  

$

4,689,905

 

100

%  

9


Total deposits increased $54.9 million, or 1%, to $4.445 billion at March 31, 2023, compared to $4.390 billion at December 31, 2022, and decreased ($245.4) million, or (5%), from $4.690 billion at March 31, 2022.

ICS/CDARS deposits increased $273.7 million, or 901%, to $304.1 million at March 31, 2023, compared to $30.4 million at December 31, 2022, and increased $274.1 million, or 914%, from $30.0 million at March 31, 2022.

Uninsured deposits represented approximately 57% of total deposits at March 31, 2023.
The Company’s consolidated capital ratios exceeded regulatory guidelines and the Bank’s capital ratios exceeded regulatory guidelines under the Basel III prompt corrective action (“PCA”) regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at March 31, 2023, as reflected in the following table:

    

    

    

    

    

Well-capitalized

Financial

Institution

Basel III

Heritage

Heritage

Basel III PCA

Minimum

Commerce

Bank of

Regulatory

Regulatory

CAPITAL RATIOS (unaudited)

Corp

Commerce

Guidelines

Requirement (1)

Total Capital

 

15.3

%  

14.7

%  

10.0

%  

10.5

%

Tier 1 Capital

 

13.1

%  

13.5

%  

8.0

%  

8.5

%

Common Equity Tier 1 Capital

 

13.1

%  

13.5

%  

6.5

%  

7.0

%

Tier 1 Leverage

 

9.6

%  

9.9

%  

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

March 31, 

December 31, 

March 31, 

(in $000’s, unaudited)

    

2023

2022

2022

Unrealized loss on securities available-for-sale

$

(8,924)

$

(11,506)

$

(1,127)

Split dollar insurance contracts liability

 

(3,139)

 

(3,091)

 

(5,491)

Supplemental executive retirement plan liability

 

(2,361)

 

(2,371)

 

(7,588)

Unrealized gain on interest-only strip from SBA loans

 

107

 

112

 

152

Total accumulated other comprehensive loss

$

(14,317)

$

(16,856)

$

(14,054)

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.

10


Forward-Looking Statement Disclaimer

Certain matters discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to various risks and uncertainties that may be outside our control and our actual results could differ materially from our projected results. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission (“SEC”), Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and the following: (1) geopolitical and domestic political developments that can increase levels of political and economic unpredictability, contribute to rising energy and commodity prices, and increase the volatility of financial markets; (2) 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; (3) 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; (4) inflationary pressures and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make, whether held in the portfolio or in the secondary market; (5) liquidity risks; (6) our ability to mitigate and manage deposit liabilities in a manner that balances the need to meet current and expected withdrawals while investing a sufficient portion of our assets to promote strong earning capacity; (7) 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; (8) volatility in credit and equity markets and its effect on the global economy; (9) conditions relating to the impact of the COVID-19 pandemic, and other infectious illness outbreaks that may arise in the future, our customers, employees, businesses, liquidity, financial results and overall condition including severity and duration of the associated uncertainties in U.S. and global markets; (10) 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; (11) our ability to achieve loan growth and attract deposits in our market area, the impact of the cost of deposits and our ability to retain deposits; (12) risks associated with concentrations in real estate related loans; (13) 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; (14) credit related impairment charges to our securities portfolio; (15) 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; (16) regulatory limits on Heritage Bank of Commerce’s ability to pay dividends to the Company; (17) 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; (18) 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; (19) possible adjustment of the valuation of our deferred tax assets; (20) 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; (21) inability of our framework to manage risks associated with our business, including operational risk and credit risk; (22) risks of loss of funding of Small Business Administration (“SBA”) or SBA loan programs, or changes in those programs; (23) compliance with applicable laws and governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities, accounting and tax matters; (24) 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; (25) the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise; (26) availability of and competition for acquisition opportunities; (27) risks resulting from domestic terrorism; (28) risks resulting from social unrest and protests; (29) risks of natural disasters (including earthquakes, fires, and flooding) and other events beyond our control; and (30) 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

11


For the Quarter Ended:

Percent Change From:

 

CONSOLIDATED INCOME STATEMENTS

    

March 31, 

    

December 31, 

    

March 31, 

    

December 31, 

    

March 31, 

 

(in $000’s, unaudited)

2023

2022

2022

2022

2022

 

Interest income

$

56,274

$

55,192

$

39,906

 

2

%  

41

%

Interest expense

 

7,016

 

3,453

 

1,685

 

103

%  

316

%

Net interest income before provision

for credit losses on loans

 

49,258

 

51,739

 

38,221

 

(5)

%  

29

%

Provision for (recapture of) credit losses on loans

 

32

 

508

 

(567)

 

(94)

%  

106

%

Net interest income after provision

for credit losses on loans

 

49,226

 

51,231

 

38,788

 

(4)

%  

27

%

Noninterest income:

 

 

 

 

  

 

  

Service charges and fees on deposit

accounts

 

1,743

 

1,801

 

612

 

(3)

%  

185

%

Increase in cash surrender value of

life insurance

 

493

 

481

 

480

 

2

%  

3

%

Servicing income

 

131

 

138

 

106

 

(5)

%  

24

%

Gain on sales of SBA loans

 

76

 

 

156

 

N/A

(51)

%

Termination fees

11

 

 

 

N/A

N/A

Gain on warrants

637

N/A

(100)

%

Other

 

312

 

352

 

469

 

(11)

%  

(33)

%

Total noninterest income

 

2,766

 

2,772

 

2,460

 

0

%  

12

%

Noninterest expense:

 

  

 

  

 

  

 

  

 

  

Salaries and employee benefits

 

14,809

 

13,915

 

13,821

 

6

%  

7

%

Occupancy and equipment

 

2,400

 

2,510

 

2,437

 

(4)

%  

(2)

%

Professional fees

 

1,399

 

1,414

 

1,080

 

(1)

%  

30

%

Other

 

6,793

 

6,679

 

5,914

 

2

%  

15

%

Total noninterest expense

 

25,401

 

24,518

 

23,252

 

4

%  

9

%

Income before income taxes

 

26,591

 

29,485

 

17,996

 

(10)

%  

48

%

Income tax expense

 

7,674

 

8,686

 

5,130

 

(12)

%  

50

%

Net income

$

18,917

$

20,799

$

12,866

 

(9)

%  

47

%

PER COMMON SHARE DATA

 

 

 

 

  

 

  

(unaudited)

 

 

  

 

  

 

  

 

  

Basic earnings per share

$

0.31

$

0.34

$

0.21

 

(9)

%  

48

%

Diluted earnings per share

$

0.31

$

0.34

$

0.21

 

(9)

%  

48

%

Weighted average shares outstanding - basic

 

60,908,221

 

60,788,803

 

60,393,883

 

0

%  

1

%

Weighted average shares outstanding - diluted

 

61,268,072

 

61,357,023

 

60,921,835

 

0

%  

1

%

Common shares outstanding at period-end

 

60,948,607

 

60,852,723

 

60,407,846

 

0

%  

1

%

Dividend per share

$

0.13

$

0.13

$

0.13

 

0

%  

0

%

Book value per share

$

10.62

$

10.39

$

9.95

 

2

%  

7

%

Tangible book value per share

$

7.70

$

7.46

$

6.96

 

3

%  

11

%

KEY FINANCIAL RATIOS

 

  

 

  

  

 

  

 

  

(unaudited)

 

  

 

  

 

  

 

  

 

  

Annualized return on average equity

 

12.03

%  

 

13.40

%  

 

8.71

%  

(10)

%  

38

%

Annualized return on average tangible

common equity

 

16.71

%  

 

18.89

%  

 

12.47

%  

(12)

%  

34

%

Annualized return on average assets

 

1.47

%  

 

1.54

%  

 

0.96

%  

(5)

%  

53

%

Annualized return on average tangible assets

 

1.52

%  

 

1.59

%  

 

0.99

%  

(4)

%  

54

%

Net interest margin (FTE)

 

4.09

%  

 

4.10

%  

 

3.05

%  

0

%  

34

%

Efficiency ratio

 

48.83

%  

 

44.98

%  

 

57.16

%  

9

%  

(15)

%

AVERAGE BALANCES

 

  

 

  

 

  

 

 

  

(in $000’s, unaudited)

 

  

 

  

 

  

 

  

 

  

Average assets

$

5,235,506

$

5,360,867

$

5,443,240

 

(2)

%  

(4)

%

Average tangible assets

$

5,057,063

$

5,181,793

$

5,262,175

 

(2)

%  

(4)

%

Average earning assets

$

4,895,009

$

5,009,578

$

5,093,851

 

(2)

%  

(4)

%

Average loans held-for-sale

$

2,755

$

2,346

$

1,478

 

17

%  

86

%

Average total loans

$

3,274,770

$

3,248,210

$

3,027,111

 

1

%  

8

%

Average deposits

$

4,415,952

$

4,600,533

$

4,697,136

 

(4)

%  

(6)

%

Average demand deposits - noninterest-bearing

$

1,667,260

$

1,851,003

$

1,857,164

 

(10)

%  

(10)

%

Average interest-bearing deposits

$

2,748,692

$

2,749,530

$

2,839,972

 

0

%  

(3)

%

Average interest-bearing liabilities

$

2,834,732

$

2,788,880

$

2,879,952

 

2

%  

(2)

%

Average equity

$

637,597

$

615,941

$

599,355

 

4

%  

6

%

Average tangible common equity

$

459,154

$

436,867

$

418,290

 

5

%  

10

%

12


For the Quarter Ended:

CONSOLIDATED INCOME STATEMENTS

    

March 31, 

    

December 31, 

    

September 30,

    

June 30,

    

March 31,

(in $000’s, unaudited)

2023

2022

2022

2022

2022

Interest income

$

56,274

$

55,192

$

50,174

$

43,556

$

39,906

Interest expense

 

7,016

 

3,453

 

2,133

 

1,677

 

1,685

Net interest income before provision

for credit losses on loans

 

49,258

 

51,739

 

48,041

 

41,879

 

38,221

Provision for (recapture of) credit losses on loans

 

32

 

508

 

1,006

 

(181)

 

(567)

Net interest income after provision

for credit losses on loans

 

49,226

 

51,231

 

47,035

 

42,060

 

38,788

Noninterest income:

 

 

 

 

 

Service charges and fees on deposit

accounts

 

1,743

 

1,801

 

1,360

 

867

 

612

Increase in cash surrender value of

life insurance

 

493

 

481

 

484

480

480

Servicing income

 

131

 

138

 

125

 

139

 

106

Gain on sales of SBA loans

 

76

 

 

308

 

27

 

156

Termination fees

 

11

 

 

16

 

45

 

Gain on warrants

 

 

 

32

 

 

637

Gain on proceeds from company-owned

life insurance

 

 

 

 

27

 

Other

312

352

456

513

469

Total noninterest income

 

2,766

 

2,772

 

2,781

 

2,098

 

2,460

Noninterest expense:

 

  

 

  

 

  

 

  

 

  

Salaries and employee benefits

 

14,809

 

13,915

 

14,119

 

13,476

 

13,821

Occupancy and equipment

 

2,400

 

2,510

 

2,415

 

2,277

 

2,437

Professional fees

 

1,399

 

1,414

 

1,230

 

1,291

 

1,080

Other

 

6,793

 

6,679

 

6,135

 

6,146

 

5,914

Total noninterest expense

 

25,401

 

24,518

 

23,899

 

23,190

 

23,252

Income before income taxes

 

26,591

 

29,485

 

25,917

 

20,968

 

17,996

Income tax expense

 

7,674

 

8,686

 

7,848

 

6,147

 

5,130

Net income

$

18,917

$

20,799

$

18,069

$

14,821

$

12,866

PER COMMON SHARE DATA

 

 

 

 

 

(unaudited)

 

  

 

  

 

 

 

  

Basic earnings per share

$

0.31

$

0.34

$

0.30

$

0.24

$

0.21

Diluted earnings per share

$

0.31

$

0.34

$

0.30

$

0.24

$

0.21

Weighted average shares outstanding - basic

 

60,908,221

 

60,788,803

 

60,686,992

 

60,542,170

 

60,393,883

Weighted average shares outstanding - diluted

 

61,268,072

 

61,357,023

 

61,123,801

 

60,969,154

 

60,921,835

Common shares outstanding at period-end

 

60,948,607

 

60,852,723

 

60,716,794

 

60,666,794

 

60,407,846

Dividend per share

$

0.13

$

0.13

$

0.13

$

0.13

$

0.13

Book value per share

$

10.62

$

10.39

$

10.04

$

10.01

$

9.95

Tangible book value per share

$

7.70

$

7.46

$

7.09

$

7.04

$

6.96

KEY FINANCIAL RATIOS

 

  

 

  

 

  

 

  

 

  

(unaudited)

 

  

 

  

 

  

 

  

 

  

Annualized return on average equity

 

12.03

%  

 

13.40

%  

 

11.72

%  

 

9.86

%  

 

8.71

%  

Annualized return on average tangible

common equity

 

16.71

%  

 

18.89

%  

 

16.60

%  

 

14.06

%  

 

12.47

%  

Annualized return on average assets

 

1.47

%  

 

1.54

%  

 

1.31

%  

 

1.11

%  

 

0.96

%  

Annualized return on average tangible assets

 

1.52

%  

 

1.59

%  

 

1.36

%  

 

1.15

%  

 

0.99

%  

Net interest margin (FTE)

 

4.09

%  

 

4.10

%  

 

3.73

%  

 

3.38

%  

 

3.05

%  

Efficiency ratio

 

48.83

%  

 

44.98

%  

 

47.02

%  

 

52.73

%  

 

57.16

%  

AVERAGE BALANCES

 

  

 

  

 

  

 

  

 

  

(in $000’s, unaudited)

 

  

 

  

 

  

 

  

 

  

Average assets

$

5,235,506

$

5,360,867

$

5,466,330

$

5,334,636

$

5,443,240

Average tangible assets

$

5,057,063

$

5,181,793

$

5,286,591

$

5,154,245

$

5,262,175

Average earning assets

$

4,895,009

$

5,009,578

$

5,117,373

$

4,985,611

$

5,093,851

Average loans held-for-sale

$

2,755

$

2,346

$

3,282

$

1,824

$

1,478

Average total loans

$

3,274,770

$

3,248,210

$

3,140,705

$

3,048,353

$

3,027,111

Average deposits

$

4,415,952

$

4,600,533

$

4,712,044

$

4,579,436

$

4,697,136

Average demand deposits - noninterest-bearing

$

1,667,260

$

1,851,003

$

1,910,748

$

1,836,350

$

1,857,164

Average interest-bearing deposits

$

2,748,692

$

2,749,530

$

2,801,296

$

2,743,086

$

2,839,972

Average interest-bearing liabilities

$

2,834,732

$

2,788,880

$

2,840,611

$

2,791,527

$

2,879,952

Average equity

$

637,597

$

615,941

$

611,707

$

603,182

$

599,355

Average tangible common equity

$

459,154

$

436,867

$

431,968

$

422,791

$

418,290

13


End of Period:

Percent Change From:

 

CONSOLIDATED BALANCE SHEETS

    

March 31, 

    

December 31, 

    

March 31, 

    

December 31, 

    

March 31, 

 

(in $000’s, unaudited)

2023

2022

2022

2022

2022

 

ASSETS

 

  

 

  

 

  

 

  

 

  

Cash and due from banks

$

41,318

$

27,595

$

29,729

 

50

%  

39

%

Other investments and interest-bearing deposits

in other financial institutions

 

698,690

 

279,008

 

1,187,436

 

150

%  

(41)

%

Securities available-for-sale, at fair value

 

491,751

 

489,596

 

111,217

 

0

%  

342

%

Securities held-to-maturity, at amortized cost

 

698,231

 

714,990

 

736,823

 

(2)

%  

(5)

%

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

 

2,792

 

2,456

 

831

 

14

%  

236

%

Loans:

 

 

 

 

  

 

Commercial

 

506,037

 

532,749

 

568,053

 

(5)

%  

(11)

%

PPP loans

565

1,166

37,393

(52)

%  

(98)

%

Real estate:

 

 

 

 

 

  

CRE - owner occupied

 

603,298

 

614,663

 

597,542

 

(2)

%  

1

%

CRE - non-owner occupied

1,083,852

1,066,368

928,220

2

%  

17

%

Land and construction

 

166,408

 

163,577

 

153,323

 

2

%  

9

%

Home equity

 

124,481

 

120,724

 

111,609

 

3

%  

12

%

Multifamily

231,242

244,882

221,767

(6)

%  

4

%

Residential mortgages

 

528,639

 

537,905

 

391,171

 

(2)

%  

35

%

Consumer and other

 

17,905

 

17,033

 

17,110

 

5

%  

5

%

Loans

 

3,262,427

 

3,299,067

 

3,026,188

 

(1)

%  

8

%

Deferred loan fees, net

 

(512)

 

(517)

 

(2,124)

 

(1)

%  

(76)

%

Total loans, net of deferred costs and fees

 

3,261,915

 

3,298,550

 

3,024,064

 

(1)

%  

8

%

Allowance for credit losses on loans

 

(47,273)

 

(47,512)

 

(42,788)

 

(1)

%  

10

%

Loans, net

 

3,214,642

 

3,251,038

 

2,981,276

 

(1)

%  

8

%

Company-owned life insurance

 

79,438

 

78,945

 

78,069

 

1

%  

2

%

Premises and equipment, net

 

9,142

 

9,301

 

9,580

 

(2)

%  

(5)

%

Goodwill

 

167,631

 

167,631

 

167,631

 

0

%  

0

%

Other intangible assets

 

10,431

 

11,033

 

13,009

 

(5)

%  

(20)

%

Accrued interest receivable and other assets

 

122,474

 

125,987

 

111,797

 

(3)

%  

10

%

Total assets

$

5,536,540

$

5,157,580

$

5,427,398

 

7

%  

2

%

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

  

 

  

Liabilities:

 

 

  

 

  

 

  

 

  

Deposits:

 

 

  

 

  

 

  

 

Demand, noninterest-bearing

$

1,469,081

$

1,736,722

$

1,811,943

 

(15)

%  

(19)

%

Demand, interest-bearing

 

1,196,789

 

1,196,427

 

1,268,942

 

0

%  

(6)

%

Savings and money market

 

1,264,567

 

1,285,444

 

1,447,434

 

(2)

%  

(13)

%

Time deposits - under $250

 

37,884

 

32,445

 

38,417

 

17

%  

(1)

%

Time deposits - $250 and over

 

172,070

 

108,192

 

93,161

 

59

%  

85

%

ICS/CDARS - interest-bearing demand, money market

and time deposits

 

304,147

 

30,374

 

30,008

 

901

%  

914

%

Total deposits

 

4,444,538

 

4,389,604

 

4,689,905

 

1

%  

(5)

%

Other short-term borrowings

300,000

N/A

N/A

Subordinated debt, net of issuance costs

39,387

39,350

39,987

0

%  

(2)

%

Accrued interest payable and other liabilities

 

105,407

 

96,170

 

96,450

 

10

%  

9

%

Total liabilities

 

4,889,332

 

4,525,124

 

4,826,342

 

8

%  

1

%

Shareholders’ Equity:

 

  

 

  

 

  

 

  

 

  

Common stock

 

504,135

 

502,923

 

498,763

 

0

%  

1

%

Retained earnings

 

157,390

 

146,389

 

116,347

 

8

%  

35

%

Accumulated other comprehensive loss

 

(14,317)

 

(16,856)

 

(14,054)

 

15

%  

(2)

%

Total shareholders' equity

 

647,208

 

632,456

 

601,056

 

2

%  

8

%

Total liabilities and shareholders’ equity

$

5,536,540

$

5,157,580

$

5,427,398

 

7

%  

2

%

14


End of Period:

CONSOLIDATED BALANCE SHEETS

    

March 31, 

    

December 31, 

    

September 30,

    

June 30,

    

March 31,

(in $000’s, unaudited)

2023

2022

2022

2022

2022

ASSETS

 

  

 

  

 

  

 

  

 

  

Cash and due from banks

$

41,318

$

27,595

$

40,500

$

35,764

$

29,729

Other investments and interest-bearing deposits

in other financial institutions

 

698,690

 

279,008

 

641,251

 

840,821

 

1,187,436

Securities available-for-sale, at fair value

 

491,751

 

489,596

 

478,534

 

332,129

 

111,217

Securities held-to-maturity, at amortized cost

 

698,231

 

714,990

 

703,794

 

723,716

 

736,823

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

 

2,792

 

2,456

 

2,081

 

2,281

 

831

Loans:

 

 

 

 

 

Commercial

 

506,037

 

532,749

 

541,215

 

523,268

 

568,053

PPP loans

565

1,166

1,614

8,153

37,393

Real estate:

 

 

 

 

 

CRE - owner occupied

603,298

614,663

612,241

597,521

597,542

CRE - non-owner occupied

 

1,083,852

 

1,066,368

 

1,023,405

 

993,621

 

928,220

Land and construction

 

166,408

 

163,577

 

167,439

 

155,389

 

153,323

Home equity

 

124,481

 

120,724

 

116,489

 

116,641

 

111,609

Multifamily

 

231,242

 

244,882

 

229,455

 

221,938

 

221,767

Residential mortgages

528,639

537,905

508,839

448,958

391,171

Consumer and other

 

17,905

 

17,033

 

16,620

 

18,354

 

17,110

Loans

 

3,262,427

 

3,299,067

 

3,217,317

 

3,083,843

 

3,026,188

Deferred loan fees, net

 

(512)

 

(517)

 

(844)

 

(1,391)

 

(2,124)

Total loans, net of deferred fees

 

3,261,915

 

3,298,550

 

3,216,473

 

3,082,452

 

3,024,064

Allowance for credit losses on loans

 

(47,273)

 

(47,512)

 

(46,921)

 

(45,490)

 

(42,788)

Loans, net

 

3,214,642

 

3,251,038

 

3,169,552

 

3,036,962

 

2,981,276

Company-owned life insurance

 

79,438

 

78,945

 

78,456

 

77,972

 

78,069

Premises and equipment, net

 

9,142

 

9,301

 

9,428

 

9,593

 

9,580

Goodwill

 

167,631

 

167,631

 

167,631

 

167,631

 

167,631

Other intangible assets

 

10,431

 

11,033

 

11,692

 

12,351

 

13,009

Accrued interest receivable and other assets

 

122,474

 

125,987

 

128,343

 

117,621

 

111,797

Total assets

$

5,536,540

$

5,157,580

$

5,431,262

$

5,356,841

$

5,427,398

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Liabilities:

 

  

 

  

 

  

 

 

  

Deposits:

 

  

 

  

 

  

 

 

  

Demand, noninterest-bearing

$

1,469,081

$

1,736,722

$

1,883,574

$

1,846,365

$

1,811,943

Demand, interest-bearing

 

1,196,789

 

1,196,427

 

1,154,403

 

1,218,538

 

1,268,942

Savings and money market

 

1,264,567

 

1,285,444

 

1,487,400

 

1,387,003

 

1,447,434

Time deposits - under $250

 

37,884

 

32,445

 

34,728

 

36,691

 

38,417

Time deposits - $250 and over

 

172,070

 

108,192

 

93,263

 

98,760

 

93,161

ICS/CDARS - interest-bearing demand, money market

and time deposits

 

304,147

 

30,374

 

29,897

 

26,287

 

30,008

Total deposits

 

4,444,538

 

4,389,604

 

4,683,265

 

4,613,644

 

4,689,905

Other short-term borrowings

300,000

Subordinated debt, net of issuance costs

39,387

39,350

39,312

39,274

39,987

Accrued interest payable and other liabilities

 

105,407

 

96,170

 

99,168

 

96,699

 

96,450

Total liabilities

 

4,889,332

 

4,525,124

 

4,821,745

 

4,749,617

 

4,826,342

Shareholders’ Equity:

 

  

 

  

 

  

 

  

 

  

Common stock

 

504,135

 

502,923

 

501,240

 

499,832

 

498,763

Retained earnings

 

157,390

 

146,389

 

133,489

 

123,310

 

116,347

Accumulated other comprehensive loss

 

(14,317)

 

(16,856)

 

(25,212)

 

(15,918)

 

(14,054)

Total shareholders' equity

 

647,208

 

632,456

 

609,517

 

607,224

 

601,056

Total liabilities and shareholders’ equity

$

5,536,540

$

5,157,580

$

5,431,262

$

5,356,841

$

5,427,398

15


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)

2023

2022

2022

2022

2022

 

Nonaccrual loans - held-for-investment

$

781

$

740

$

3,303

 

6

%  

(76)

%

Restructured and loans over 90 days past due

and still accruing

 

1,459

 

1,685

 

527

 

(13)

%  

177

%

Total nonperforming loans

 

2,240

 

2,425

 

3,830

 

(8)

%  

(42)

%

Foreclosed assets

 

 

 

 

N/A

N/A

Total nonperforming assets

$

2,240

$

2,425

$

3,830

 

(8)

%  

(42)

%

Other restructured loans still accruing

$

$

171

$

125

 

(100)

%  

(100)

%

Net charge-offs (recoveries) during the quarter

$

271

$

(83)

$

(65)

 

427

%  

517

%

Provision for (recapture of) credit losses on loans during the quarter

$

32

$

508

$

(567)

 

(94)

%  

106

%

Allowance for credit losses on loans

$

47,273

$

47,512

$

42,788

 

(1)

%  

10

%

Classified assets

$

26,800

$

14,544

$

30,579

 

84

%  

(12)

%

Allowance for credit losses on loans to total loans

 

1.45

%  

 

1.44

%  

 

1.41

%  

1

%  

3

%

Allowance for credit losses on loans to total nonperforming loans

 

2,110.40

%  

 

1,959.26

%  

 

1,117.18

%  

8

%  

89

%

Nonperforming assets to total assets

 

0.04

%  

 

0.05

%  

 

0.07

%  

(20)

%  

(43)

%

Nonperforming loans to total loans

 

0.07

%  

 

0.07

%  

 

0.13

%  

0

%  

(46)

%

Classified assets to Heritage Commerce Corp

Tier 1 capital plus allowance for credit losses on loans

 

5

%  

 

3

%  

 

6

%  

67

%  

(17)

%

Classified assets to Heritage Bank of Commerce

Tier 1 capital plus allowance for credit losses on loans

 

5

%  

 

3

%  

 

6

%  

67

%  

(17)

%

OTHER PERIOD-END STATISTICS

 

  

 

  

 

  

 

  

 

  

(in $000’s, unaudited)

 

  

 

  

 

  

 

  

 

  

Heritage Commerce Corp:

 

  

 

  

 

  

 

  

 

  

Tangible common equity (1)

$

469,146

$

453,792

$

420,416

 

3

%  

12

%

Shareholders’ equity / total assets

 

11.69

%  

 

12.26

%  

 

11.07

%  

(5)

%  

6

%

Tangible common equity / tangible assets (2)

 

8.76

%  

 

9.11

%  

 

8.01

%  

(4)

%  

9

%

Loan to deposit ratio

 

73.39

%  

 

75.14

%  

 

64.48

%  

(2)

%  

14

%

Noninterest-bearing deposits / total deposits

 

33.05

%  

 

39.56

%  

 

38.63

%  

(16)

%  

(14)

%

Total capital ratio

 

15.3

%  

 

14.8

%  

 

14.6

%  

3

%  

5

%

Tier 1 capital ratio

13.1

%  

 

12.7

%  

 

12.4

%  

3

%  

6

%

Common Equity Tier 1 capital ratio

 

13.1

%  

 

12.7

%  

 

12.4

%  

3

%  

6

%

Tier 1 leverage ratio

 

9.6

%  

 

9.2

%  

 

8.3

%  

4

%  

16

%

Heritage Bank of Commerce:

Total capital ratio

 

14.7

%  

 

14.2

%  

 

13.9

%  

4

%  

6

%

Tier 1 capital ratio

 

13.5

%  

 

13.2

%  

 

12.9

%  

2

%  

5

%

Common Equity Tier 1 capital ratio

 

13.5

%  

 

13.2

%  

 

12.9

%  

2

%  

5

%

Tier 1 leverage ratio

 

9.9

%  

 

9.5

%  

 

8.7

%  

4

%  

14

%


(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

16


At or For the Quarter Ended:

CREDIT QUALITY DATA

    

March 31, 

    

December 31, 

    

September 30,

    

June 30,

    

March 31, 

(in $000’s, unaudited)

2023

2022

2022

2022

2022

Nonaccrual loans - held-for-investment

$

781

$

740

$

491

$

1,734

$

3,303

 

Restructured and loans over 90 days past due

and still accruing

 

1,459

 

1,685

 

545

 

981

 

527

 

Total nonperforming loans

 

2,240

 

2,425

 

1,036

 

2,715

 

3,830

 

Foreclosed assets

 

 

 

 

 

 

Total nonperforming assets

$

2,240

$

2,425

$

1,036

$

2,715

$

3,830

 

Other restructured loans still accruing

$

$

171

$

93

$

113

$

125

 

Net charge-offs (recoveries) during the quarter

$

271

$

(83)

$

(425)

$

(2,883)

$

(65)

 

Provision for (recapture of) credit losses on loans during the quarter

$

32

$

508

$

1,006

$

(181)

$

(567)

 

Allowance for credit losses on loans

$

47,273

$

47,512

$

46,921

$

45,490

$

42,788

 

Classified assets

$

26,800

$

14,544

$

28,570

$

28,929

$

30,579

 

Allowance for credit losses on loans to total loans

 

1.45

%  

 

1.44

%  

 

1.46

%  

 

1.48

%  

 

1.41

%  

Allowance for credit losses on loans to total nonperforming loans

 

2,110.40

%  

 

1,959.26

%  

 

4,529.05

%  

 

1,675.51

%  

 

1,117.18

%  

Nonperforming assets to total assets

 

0.04

%  

 

0.05

%  

 

0.02

%  

 

0.05

%  

 

0.07

%  

Nonperforming loans to total loans

 

0.07

%  

 

0.07

%  

 

0.03

%  

 

0.09

%  

 

0.13

%  

Classified assets to Heritage Commerce Corp

Tier 1 capital plus allowance for credit losses on loans

 

5

%  

 

3

%  

 

6

%  

 

6

%  

 

6

%  

Classified assets to Heritage Bank of Commerce

Tier 1 capital plus allowance for credit losses on loans

 

5

%  

 

3

%  

 

5

%  

 

6

%  

 

6

%  

OTHER PERIOD-END STATISTICS

 

  

 

  

 

  

 

  

 

  

 

(in $000’s, unaudited)

 

  

 

  

 

  

 

  

 

  

 

Heritage Commerce Corp:

 

  

 

  

 

  

 

  

 

  

 

Tangible common equity (1)

$

469,146

$

453,792

$

430,194

$

427,242

$

420,416

 

Shareholders’ equity / total assets

 

11.69

%  

 

12.26

%  

 

11.22

%  

 

11.34

%  

 

11.07

%  

Tangible common equity / tangible assets (2)

 

8.76

%  

 

9.11

%  

 

8.19

%  

 

8.25

%  

 

8.01

%  

Loan to deposit ratio

 

73.39

%  

 

75.14

%  

 

68.68

%  

 

66.81

%  

 

64.48

%  

Noninterest-bearing deposits / total deposits

 

33.05

%  

 

39.56

%  

 

40.22

%  

 

40.02

%  

 

38.63

%  

Total capital ratio

 

15.3

%  

 

14.8

%  

 

14.5

%  

 

14.6

%  

 

14.6

%  

Tier 1 capital ratio

 

13.1

%  

 

12.7

%  

 

12.4

%  

 

12.5

%  

 

12.4

%  

Common Equity Tier 1 capital ratio

 

13.1

%  

 

12.7

%  

 

12.4

%  

 

12.5

%  

 

12.4

%  

Tier 1 leverage ratio

 

9.6

%  

 

9.2

%  

 

8.7

%  

 

8.7

%  

 

8.3

%  

Heritage Bank of Commerce:

Total capital ratio

 

14.7

%  

 

14.2

%  

 

14.0

%  

 

14.1

%  

 

13.9

%  

Tier 1 capital ratio

 

13.5

%  

 

13.2

%  

 

12.9

%  

 

13.0

%  

 

12.9

%  

Common Equity Tier 1 capital ratio

 

13.5

%  

 

13.2

%  

 

12.9

%  

 

13.0

%  

 

12.9

%  

Tier 1 leverage ratio

 

9.9

%  

 

9.5

%  

 

9.0

%  

 

9.0

%  

 

8.7

%  


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

17


For the Quarter Ended

For the Quarter Ended

 

March 31, 2023

March 31, 2022

 

    

    

Interest

    

Average

    

    

Interest

    

Average

 

NET INTEREST INCOME AND NET INTEREST MARGIN

Average

Income/

Yield/

Average

Income/

Yield/

 

(in $000’s, unaudited)

Balance

Expense

Rate

Balance

Expense

Rate

 

Assets:

 

  

 

  

 

  

 

  

 

  

 

  

Loans, gross (1)(2)

$

3,277,525

$

44,112

 

5.46

%  

$

3,028,589

35,101

 

4.70

%  

Securities - taxable

 

1,161,021

7,056

 

2.46

%  

 

781,689

3,444

 

1.79

%  

Securities - exempt from Federal tax (3)

 

36,012

313

 

3.52

%  

 

44,871

376

 

3.40

%  

Other investments and interest-bearing deposits

in other financial institutions

 

420,451

4,859

 

4.69

%  

 

1,238,702

1,064

 

0.35

%  

Total interest earning assets (3)

 

4,895,009

 

56,340

 

4.67

%  

 

5,093,851

 

39,985

 

3.18

%  

Cash and due from banks

 

37,563

 

 

  

 

37,630

 

 

  

Premises and equipment, net

 

9,269

 

 

  

 

9,605

 

 

  

Goodwill and other intangible assets

 

178,443

 

 

  

 

181,065

 

 

  

Other assets

 

115,222

 

 

  

 

121,089

 

 

  

Total assets

$

5,235,506

 

 

  

$

5,443,240

 

 

  

Liabilities and shareholders’ equity:

 

 

 

  

 

 

 

  

Deposits:

 

 

 

  

 

 

 

  

Demand, noninterest-bearing

$

1,667,260

 

  

$

1,857,164

 

  

Demand, interest-bearing

 

1,217,731

1,476

 

0.49

%  

 

1,279,989

459

 

0.15

%  

Savings and money market

 

1,285,173

3,489

 

1.10

%  

 

1,394,734

543

 

0.16

%  

Time deposits - under $100

 

12,280

10

 

0.33

%  

 

13,235

5

 

0.15

%  

Time deposits - $100 and over

 

163,047

845

 

2.10

%  

 

119,082

106

 

0.36

%  

ICS/CDARS - interest-bearing demand, money market

and time deposits

 

70,461

81

 

0.47

%  

 

32,932

1

 

0.01

%  

Total interest-bearing deposits

 

2,748,692

 

5,901

 

0.87

%  

 

2,839,972

 

1,114

 

0.16

%  

Total deposits

 

4,415,952

 

5,901

 

0.54

%  

 

4,697,136

 

1,114

 

0.10

%  

Short-term borrowings

 

46,677

578

 

5.02

%  

 

29

 

0.00

%  

Subordinated debt, net of issuance costs

39,363

537

5.53

%  

39,951

571

5.80

%  

Total interest-bearing liabilities

 

2,834,732

 

7,016

 

1.00

%  

 

2,879,952

 

1,685

 

0.24

%  

Total interest-bearing liabilities and demand,

noninterest-bearing / cost of funds

 

4,501,992

 

7,016

 

0.63

%  

 

4,737,116

 

1,685

 

0.14

%  

Other liabilities

 

95,917

 

 

  

 

106,769

 

 

  

Total liabilities

 

4,597,909

 

 

  

 

4,843,885

 

 

  

Shareholders’ equity

 

637,597

 

 

  

 

599,355

 

 

  

Total liabilities and shareholders’ equity

$

5,235,506

 

 

  

$

5,443,240

 

 

  

Net interest income (3) / margin

 

  

 

49,324

 

4.09

%  

 

  

 

38,300

 

3.05

%  

Less tax equivalent adjustment (3)

 

  

 

(66)

 

  

 

  

 

(79)

 

  

Net interest income

 

  

$

49,258

 

  

 

  

$

38,221

 

  


(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 $300,000 for the first quarter of 2023 (of which $18,000 was from PPP loans), compared to $1,788,000 for the first quarter of 2022 (of which $1,346,000 was from PPP loans). Prepayment fees totaled $138,000 for the first quarter of 2023, compared to $510,000 for the first quarter of 2022.
(3)Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate.

18


For the Quarter Ended

For the Quarter Ended

 

March 31, 2023

December 31, 2022

 

    

    

Interest

    

Average

    

    

Interest

    

Average

 

NET INTEREST INCOME AND NET INTEREST MARGIN

Average

Income/

Yield/

Average

Income/

Yield/

 

(in $000’s, unaudited)

Balance

Expense

Rate

Balance

Expense

Rate

 

Assets:

 

  

 

  

 

  

 

  

 

  

 

  

Loans, gross (1)(2)

$

3,277,525

$

44,112

 

5.46

%  

$

3,250,556

$

42,501

 

5.19

%  

Securities - taxable

 

1,161,021

 

7,056

 

2.46

%  

 

1,156,563

6,941

 

2.38

%  

Securities - exempt from Federal tax (3)

 

36,012

 

313

 

3.52

%  

 

37,958

324

 

3.39

%  

Other investments and interest-bearing deposits

in other financial institutions

 

420,451

 

4,859

 

4.69

%  

 

564,501

5,494

 

3.86

%  

Total interest earning assets (3)

 

4,895,009

 

56,340

 

4.67

%  

 

5,009,578

 

55,260

 

4.38

%  

Cash and due from banks

 

37,563

 

 

  

 

36,392

 

 

  

Premises and equipment, net

 

9,269

 

 

  

 

9,436

 

 

  

Goodwill and other intangible assets

 

178,443

 

 

  

 

179,074

 

 

  

Other assets

 

115,222

 

 

  

 

126,387

 

 

  

Total assets

$

5,235,506

 

 

  

$

5,360,867

 

 

  

Liabilities and shareholders’ equity:

 

 

 

  

 

 

 

  

Deposits:

 

 

 

  

 

 

 

  

Demand, noninterest-bearing

$

1,667,260

 

 

  

$

1,851,003

 

  

Demand, interest-bearing

 

1,217,731

 

1,476

 

0.49

%  

 

1,164,378

945

 

0.32

%  

Savings and money market

 

1,285,173

 

3,489

 

1.10

%  

 

1,424,964

1,694

 

0.47

%  

Time deposits - under $100

 

12,280

 

10

 

0.33

%  

 

12,157

7

 

0.23

%  

Time deposits - $100 and over

 

163,047

 

845

 

2.10

%  

 

120,246

268

 

0.88

%  

ICS/CDARS - interest-bearing demand, money market

and time deposits

 

70,461

 

81

 

0.47

%  

 

27,785

1

 

0.01

%  

Total interest-bearing deposits

 

2,748,692

 

5,901

 

0.87

%  

 

2,749,530

 

2,915

 

0.42

%  

Total deposits

 

4,415,952

 

5,901

 

0.54

%  

 

4,600,533

 

2,915

 

0.25

%  

Short-term borrowings

 

46,677

578

 

5.02

%  

 

24

 

0.00

%  

Subordinated debt, net of issuance costs

39,363

537

5.53

%  

39,326

538

5.43

%  

Total interest-bearing liabilities

 

2,834,732

 

7,016

 

1.00

%  

 

2,788,880

 

3,453

 

0.49

%  

Total interest-bearing liabilities and demand,

noninterest-bearing / cost of funds

 

4,501,992

 

7,016

 

0.63

%  

 

4,639,883

 

3,453

 

0.30

%  

Other liabilities

 

95,917

 

 

  

 

105,043

 

 

  

Total liabilities

 

4,597,909

 

 

  

 

4,744,926

 

 

  

Shareholders’ equity

 

637,597

 

 

  

 

615,941

 

 

  

Total liabilities and shareholders’ equity

$

5,235,506

 

 

  

$

5,360,867

 

 

  

Net interest income (3) / margin

 

  

 

49,324

 

4.09

%  

 

  

 

51,807

 

4.10

%  

Less tax equivalent adjustment (3)

 

  

 

(66)

 

  

 

  

 

(68)

 

  

Net interest income

 

  

$

49,258

 

  

 

  

$

51,739

 

  


(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 $300,000 for the first quarter of 2023 (of which $18,000 was from PPP loans), compared to $326,000 for the fourth quarter of 2022 (of which $25,000 was from PPP loans). Prepayment fees totaled $138,000 for the first quarter of 2023, compared to $123,000 for the fourth quarter of 2022.
(3)Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate.

19


Exhibit 99.2

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

San Jose, California — April 27, 2023 — Heritage Commerce Corp (Nasdaq: HTBK), the holding company for Heritage Bank of Commerce, today announced that its Board of Directors declared its regular quarterly cash dividend of $0.13 per share to holders of common stock. The dividend will be payable on May 25, 2023, to shareholders of record at the close of the business day on May 11, 2023. Heritage Commerce Corp has paid a regular quarterly cash dividend since 2013.

“We are pleased to again reward our shareholders’ with our regular quarterly cash dividend as a result of the Company generating consistent and solid profitability,” said Clay Jones, President & Chief Executive Officer. “This represents our 39th consecutive quarterly cash dividend.”

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.

Member FDIC

For additional information, contact:

Debbie Reuter

EVP, Corporate Secretary

Direct: (408) 494-4542

Debbie.Reuter@herbank.com

1