UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):  October 23, 2014
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.)
 
150 Almaden Boulevard, San Jose, California
 
95113
(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))
 

ITEM 2.02   RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On October 23, 2014, 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 third quarter and the nine months ended September 30, 2014.  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 8.01   OTHER EVENTS

QUARTERLY DIVIDEND

On October 23, 2014, the Company announced that its Board of Directors declared a $0.05 per share quarterly cash dividend to holders of common stock and Series C preferred stock (on an as converted basis).  The dividend will be paid on November 24, 2014, to shareholders of record on November 6, 2014.  A copy of the press release is attached as Exhibit 99.2 to this Current Report and is incorporated herein by reference.

ITEM 9.01   FINANCIAL STATEMENTS AND EXHIBITS

(D) Exhibits.

99.1 Press Release, dated October 23, 2014, entitled “Heritage Commerce Corp Earns $3.4 Million for the Third Quarter of 2014; Loans Increased 15% and Deposits Increased 12% Year-Over-Year”

99.2 Press Release, dated October 23, 2014, entitled “Heritage Commerce Corp Declares Quarterly Cash Dividend of $0.05 Per Share”

 
 
SIGNATURES

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

Date: October 23, 2014                                                                                    

Heritage Commerce Corp


By:  /s/ Lawrence D. McGovern
Name: Lawrence D. McGovern
Executive Vice President and Chief Financial Officer








 

INDEX TO EXHIBITS

EXHIBIT NO.                                        DESCRIPTION

99.1
Press Release, dated October 23, 2014, entitled “Heritage Commerce Corp Earns $3.4 Million for the Third Quarter of 2014; Loans Increased 15% and Deposits Increased 12% Year-Over-Year”

99.2
Press Release, dated October 23, 2014, entitled “Heritage Commerce Corp Declares Quarterly Cash Dividend of $0.05 Per Share”
 


Exhibit 99.1

Heritage Commerce Corp Earns $3.4 Million for the Third Quarter of 2014;
Loans Increased 15% and Deposits Increased 12% Year-Over-Year

San Jose, CA – October 23, 2014 — Heritage Commerce Corp (Nasdaq: HTBK), the holding company (the “Company”) for Heritage Bank of Commerce (the “Bank”), today reported that net income was $3.4 million, or $0.11 per average diluted common share, for the third quarter of 2014, compared to $3.2 million, or $0.10 per average diluted common share for the third quarter of 2013, and $3.3 million, or $0.10 per average diluted common share for the second quarter of 2014.  For the nine months ended September 30, 2014, net income increased 20% to $9.8 million, or $0.31 per average diluted common share, from $8.2 million, or $0.26 per average diluted common share, for the nine months ended September 30, 2013.  All results are unaudited.

“We reported another quarter of solid profitability, generating growth in loans and deposits, and further enhancing credit quality,” said Walter Kaczmarek, President and Chief Executive Officer. “Our diversified loan portfolio increased 15% from a year ago and our total deposits increased 12% year-over-year, with noninterest-bearing deposits increasing 19% from the third quarter of 2013.  Additionally, we announced that we are acquiring Bay View Funding, a nationally recognized leader in the factoring industry, which we expect to complement our commercial banking franchise.”

On October 9, 2014, the Company announced that Heritage Bank of Commerce signed a definitive agreement to acquire BVF/CSNK Acquisition Corp. ("BVF") for $22.5 million in cash. Based in Santa Clara, California, BVF is the parent company of CSNK Working Capital Finance Corp. dba Bay View Funding, which provides business-essential working capital factoring financing to various industries throughout the United States.  BVF had total assets of $40.6 million as of September 30, 2014. This transaction is expected to close in the fourth quarter of 2014.  BVF will become a subsidiary of Heritage Bank of Commerce, reporting to Keith Wilton, the Chief Operating Officer.  “Keith Wilton has a strong background in factoring, so this acquisition fits well with his expertise,” Mr. Kaczmarek noted.  Heritage Bank of Commerce expects to incur pre-tax acquisition and integration costs of approximately $1.0 million to $1.3 million in the third and fourth quarters of 2014.  The pre-tax acquisition costs incurred by the Bank for the BVF transaction totaled $234,000 during the third quarter of 2014.

“We are excited about this acquisition and look forward to welcoming Bay View Funding clients to the Heritage Bank of Commerce family,” commented Mr. Kaczmarek.  “We view this acquisition as an opportunity to strategically deploy excess capital and improve profitability, as we eventually combine these higher-yielding assets with our low cost deposits.  In addition, the acquisition will enhance our product offering and thus, our commercial banking franchise.”

“With the continued profitability of our franchise, and the pending acquisition of BVF, we are again declaring a quarterly cash dividend of $0.05 per share,” added Mr. Kaczmarek.  The dividend will be payable to holders of common stock and Series C preferred stock (on an as converted basis) on November 24, 2014, to shareholders of record on November 6, 2014.

Third Quarter 2014 Highlights (as of, or for the period ended September 30, 2014, except as noted):
¨
Diluted earnings per share increased to $0.11 for the third quarter of 2014, compared to $0.10 for the third quarter of 2013 and the second quarter of 2014.  Diluted earnings per share increased 19% to $0.31 for the nine months ended September 30, 2014, compared to $0.26 per diluted share for the nine months ended September 30, 2013.
¨
Driven primarily by loan growth and increases in core deposits, net interest income increased 9% to $14.0 million for the third quarter of 2014, compared to $12.8 million for the third quarter of 2013, and increased 2% from $13.7 million for the second quarter of 2014.  Net interest income increased 10% to $41.0 million for the nine months ended September 30, 2014, compared to $37.1 million for the nine months ended September 30, 2013.
¨
The fully tax equivalent (“FTE”) net interest margin decreased one basis point to 3.93% for the third quarter of 2014, from 3.94% for the third quarter of 2013 and decreased 14 basis points from 4.07% for the second quarter of 2014.  The decrease for the third quarter of 2014 was primarily due to a higher average balance of low interest earning short-term deposits at the Federal Reserve Bank in anticipation of the BVF acquisition.  For the nine months ended September 30, 2014, the net interest margin increased 17 basis points to 4.02%, from 3.85% for the nine months ended September 30, 2013, reflecting loan growth, higher yields on securities, and a lower cost of funds.
¨
Loans (excluding loans-held-for-sale) increased 15% to $1.03 billion at September 30, 2014, compared to $893.1 million at September 30, 2013, and increased 4% from $990.3 million at June 30, 2014.
¨
Nonperforming assets (“NPAs”) declined to $7.7 million, or 0.50% of total assets, at September 30, 2014, compared to $15.7 million, or 1.12% of total assets, at September 30, 2013, and $8.7 million, or 0.59% of total assets, at June 30, 2014.
¨
Classified assets, net of Small Business Administration (“SBA”) guarantees, decreased 24% to $17.7 million at September 30, 2014, from $23.3 million at September 30, 2013, and decreased 23% from $23.1 million at June 30, 2014.
¨
Net charge-offs totaled $27,000 for the third quarter of 2014, compared to net recoveries of $534,000 for the third quarter of 2013, and net charge-offs of $27,000 for the second quarter of 2014.
¨
There was a $24,000 credit to the provision for loan losses for the third quarter of 2014, compared to a $534,000 credit to the provision for loan losses for the third quarter of 2013, and a $198,000 credit to the provision for loan losses for the second quarter of 2014.
¨
The allowance for loan losses (“ALLL”) decreased to 1.80% of total loans at September 30, 2014, compared to 2.17% at September 30, 2013, and 1.88% at June 30, 2014.
¨
Deposits totaled $1.34 billion at September 30, 2014, compared to $1.20 billion at September 30, 2013, and $1.27 billion at June 30, 2014Deposits (excluding all time deposits and CDARS deposits) increased $180.4 million, or 20%, to $1.1 billion at September 30, 2014, from $901.0 million at September 30, 2013, and increased $78.0 million, or 8%, from $1.0 billion at June 30, 2014.
¨
Capital ratios exceeded regulatory requirements for a well-capitalized financial institution on a holding company and bank level at September 30, 2014:
 
Capital Ratios
 
Heritage Commerce Corp
 
Heritage Bank of Commerce
Well-Capitalized Financial Institution Regulatory Guidelines
 
 
 
 
 
 
Total Risk-Based
15.3%
14.3%
 
10.0%
 
Tier 1 Risk-Based
14.0%
13.1%
 
6.0%
 
Leverage
11.7%
10.9%
 
5.0%
 
 
 
Operating Results
Net interest income increased 9% to $14.0 million for the third quarter of 2014, compared to $12.8 million for the third quarter of 2013, and increased 2% from $13.7 million for the second quarter of 2014, as a result of growth in the loan portfolio and increases in core deposits.  Net interest income increased 10% to $41.0 million for the nine months ended September 30, 2014, compared to $37.1 million for the nine months ended September 30, 2013.
The net interest margin (FTE) was 3.93% for the third quarter of 2014, compared to 3.94% for the third quarter of 2013, and 4.07% for the second quarter of 2014.  The decrease for the third quarter of 2014 was primarily due to a higher average balance of low interest earning deposits at the Federal Reserve Bank in anticipation of the BVF acquisition.  For the nine months ended September 30, 2014, the net interest margin increased 17 basis points to 4.02%, from 3.85% for the nine months ended September 30, 2013, reflecting loan growth, higher yields on securities, and a lower cost of funds.
Solid credit quality metrics led to a $24,000 credit to the provision for loan losses for the third quarter of 2014, compared to a $534,000 credit to the provision for loan losses for the third quarter of 2013, and a $198,000 credit to the provision for loan losses for the second quarter of 2014. There was a $232,000 credit to the provision for loan losses for the nine months ended September 30, 2014, compared to an $804,000 credit to the provision for loan losses for the nine months ended September 30, 2013.
Noninterest income was $1.9 million for the third quarter of 2014, compared to $1.7 million for the third quarter of 2013, and $2.0 million for the second quarter of 2014.  For the nine months ended September 30, 2014, noninterest income was $5.9 million, compared to $5.3 million for the nine months ended September 30, 2013.  Largely due to a higher gain on sales of SBA loans and gain on sales of securities, noninterest income was higher for the third quarter and for the nine months ended September 30, 2014, compared to the same periods in 2013.
Noninterest expense for the third quarter of 2014 was $10.1 million, a decrease of 2% from $10.4 million for the third quarter of 2013, and decreased 7% from $10.9 million for the second quarter of 2014.  The decrease in noninterest expense for the third quarter of 2014, compared to the third quarter of 2013 and second quarter of 2014, was primarily due to the reclassification of $353,000 of low income housing investment losses, partially offset by $234,000 in costs related to the BVF acquisition during the third quarter of 2014.  Noninterest expense in the second quarter of 2014 also reflected costs associated with the reorganization of administrative responsibilities included in salaries and employee benefits expense, and net recoveries in legal fees as a result of the resolution or payoff of certain problem loans included in professional fees.  Noninterest expense for the nine months ended September 30, 2014 increased 1% to $31.8 million, compared to $31.6 million for the nine months ended September 30, 2013.  The increase in noninterest expense for nine months ended September 30, 2014 was primarily due to increased salaries and employee benefits expense and costs related to the BVF acquisition, partially offset by the reclassification of low income housing investment losses and lower professional fees.  Higher salaries and employee benefits expense reflected the growth in staffing for business initiatives, and costs associated with the reorganization of administrative responsibilities in the second quarter of 2014.  Full‑time equivalent employees were 200, 192, and 203 at September 30, 2014, September 30, 2013, and June 30, 2014, respectively.
The Company adopted the proportional amortization method of accounting for its low income housing investments in the third quarter of 2014.  The Company quantified the impact of adopting the proportional amortization method compared to the equity method to its current year and prior period financial statements.  The Company determined that the adoption of the proportional amortization method did not have a material impact to its financial statements; therefore, the Company did not adjust its prior period financial statements.  During the third quarter of 2014, the Company reclassified $353,000 of low income housing investment losses that was previously reported as noninterest expense for the first six months of 2014. The low income housing investment losses, net of the tax benefits received, are included in income tax expense on the consolidated statements of income for the three months and nine months ended September 30, 2014.  The change in accounting method also resulted in an increase in the effective tax rate from 33.5% for the three months and six months ended June 30, 2014 to 40.4% and 36.1% for the three months and nine months ended September 30, 2014, respectively.  Low income housing investment losses of $320,000 and $930,000 are reported in noninterest expense for the three months and nine months ended September 30, 2013, respectively.  The effective tax rate was 32.0% and 30.1% for the three months and nine months ended September 30, 2013, respectively.
The efficiency ratio for the third quarter of 2014 improved to 63.92%, compared to 71.25% for the third quarter of 2013, and 69.50% for the second quarter of 2014.  The efficiency ratio for the nine months ended September 30, 2014 was 67.75%, compared to 74.32% for the nine months ended September 30, 2013. The decrease in the efficiency ratio in the third quarter and nine months ended September 30, 2014, compared to the same periods in 2013, was primarily due to the reclassification of low income housing investment losses, and higher net interest income and noninterest income.
Income tax expense for the third quarter of 2014 was $2.3 million, compared to $1.5 million for the third quarter of 2013, and $1.7 million for the second quarter of 2014. The effective tax rate for the third quarter of 2014 increased to 40.4%, compared to 32.0% for the third quarter of 2013 and 33.5% for the second quarter of 2014.  Income tax expense for the nine months ended September 30, 2014 was $5.5 million, compared to $3.5 million for the nine months ended September 30, 2013. The effective tax rate for the nine months ended September 30, 2014 was 36.1%, compared to 30.1% for the nine months ended September 30, 2013.  The increase in the effective tax rate for the third quarter of 2014 and nine months ended September 30, 2014, compared to the comparable periods in 2013, was primarily due to the adoption of the proportional amortization method of accounting for its low income housing investments in the third quarter of 2014.  The difference in the effective tax rate for the periods reported, compared to the combined Federal and state statutory tax rate of 42%, 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, the adoption of the proportional amortization method of accounting for its low income housing investments in the third quarter of 2014, and tax-exempt interest income earned on municipal bonds.  The Company had California Enterprise Zone tax savings of approximately $162,000 for 2013.  The California state legislature eliminated the Enterprise Zone tax deductions beginning January 1, 2014.
Balance Sheet Review, Capital Management and Credit Quality
Total assets were $1.56 billion at September 30, 2014, compared to $1.40 billion at September 30, 2013, and $1.48 billion at June 30, 2014.
The investment securities available-for-sale portfolio totaled $191.7 million at September 30, 2014, compared to $280.5 million at September 30, 2013, and $261.5 million at June 30, 2014.  At September 30, 2014, the securities available-for-sale portfolio was comprised of $139.8 million agency mortgage-backed securities (all issued by U.S. Government sponsored entities), $36.4 million of corporate bonds, and $15.5 million of single entity issue trust preferred securities.  The pre-tax unrealized gain on securities available-for-sale at September 30, 2014 was $3.3 million, compared to a pre-tax unrealized loss on securities available-for-sale of ($125,000) at September 30, 2013, and a pre-tax unrealized gain on securities available-for-sale of $4.5 million at June 30, 2014.
During the third quarter of 2014, the Company received proceeds of $63.2 million from the sales and calls of securities available-for-sale, for a net gain on sales of securities of $47,000.  The sale of securities consisted of $27.3 million of asset-backed securities, $22.8 million of corporate bonds, and $8.4 million of agency mortgage-backed securities.  Additionally, a $4.5 million agency mortgage-backed security was called during the third quarter of 2014.
At September 30, 2014, investment securities held-to-maturity totaled $94.8 million, compared to $89.7 million at September 30, 2013, and $96.0 million at June 30, 2014.  At September 30, 2014, the securities held-to-maturity portfolio, at amortized cost, was comprised of $79.9 million tax-exempt municipal bonds and $14.9 million agency mortgage-backed securities.
Loans, excluding loans held-for-sale, increased 15% to $1.03 billion at September 30, 2014, from $893.1 million at September 30, 2013, and increased 4% from $990.3 million at June 30, 2014.  The loan portfolio remains well-diversified with commercial and industrial (“C&I”) loans accounting for 42% of the loan portfolio at September 30, 2014.  Commercial and residential real estate loans accounted for 45% of the total loan portfolio, of which 46% were owner-occupied by businesses.  Consumer and home equity loans accounted for 8% of total loans, and land and construction loans accounted for the remaining 5% of total loans at September 30, 2014.  C&I line usage was 43% at September 30, 2014, compared to 45% at September 30, 2013, and 42% at June 30, 2014.
The yield on the loan portfolio was 4.77% for the third quarter of 2014, compared to 4.85% for the third quarter of 2013.  For the nine months ended September 30, 2014, the yield on the loan portfolio was 4.80%, compared to 4.97% for the nine months ended September 30, 2013.  The decrease in the yield on the loan portfolio for the third quarter and nine months ended September 30, 2014, compared to the same periods in 2013, reflects increasing competitive market conditions for new loan production.
NPAs decreased to $7.7 million, or 0.50% of total assets, at September 30, 2014, compared to $15.7 million, or 1.12% of total assets, at September 30, 2013, and $8.7 million, or 0.59% of total assets, at June 30, 2014.  The following is a breakout of NPAs at September 30, 2014:
 
NONPERFORMING ASSETS
 
 
(in $000's, unaudited)
 
Balance
 
% of Total
SBA loans
 
$
2,875
 
37%
Commercial real estate loans
   
1,672
 
22%
Land and construction loans
   
1,655
 
21%
Commercial and industrial loans
   
323
 
4%
Home equity and consumer loans
   
485
 
6%
Foreclosed assets
   
532
 
7%
Restructured and loans over 90 days past due and accruing
   
200
 
3%
   Total nonperforming assets
 
$
7,742
 
100%
 
At September 30, 2014, the $7.7 million of NPAs included $382,000 of loans guaranteed by the SBA and $200,000 of restructured loans still accruing interest income.  Foreclosed assets were $532,000 at September 30, 2014, compared to $631,000 at September 30, 2013, and $525,000 at June 30, 2014.
Classified assets (net of SBA guarantees) were $17.7 million at September 30, 2014, compared to $23.3 million at September 30, 2013, and $23.1 million at June 30, 2014.
The following table summarizes the allowance for loan losses:
 
 
For the Quarter Ended
ALLOWANCE FOR LOAN LOSSES
 
September 30,
 
June 30,
 
September 30,
(in $000's, unaudited)
 
2014
 
2014
 
2013
Balance at beginning of period
 
$
18,592
 
$
18,817
 
$
19,342
Provision (credit) for loan losses during the period
   
(24)
   
(198)
   
(534)
Net (charge-offs) recoveries during the period
   
(27)
   
(27)
   
534
   Balance at end of period
 
$
18,541
 
$
18,592
 
$
19,342
 
                 
Total loans
 
$
1,029,596
 
$
990,341
 
$
893,052
Total nonperforming loans
 
$
7,210
 
$
8,142
 
$
15,117
 
                 
Allowance for loan losses to total loans
   
1.80%
   
1.88%
   
2.17%
Allowance for loan losses to total nonperforming loans
   
257.16%
   
228.35%
   
127.95%
The ALLL decreased to 1.80% of total loans at September 30, 2014, compared to 2.17% at September 30, 2013, and 1.88% at June 30, 2014.  The decrease in the ALLL to total loans at September 30, 2014 was primarily due to increasing loan balances while the allowance for loan losses declined slightly.
Total deposits increased $146.3 million to $1.34 billion at September 30, 2014, compared to $1.20 billion at September 30, 2013, and increased $74.0 million from $1.27 billion at June 30, 2014.  Noninterest-bearing demand deposits increased $79.7 million at September 30, 2014 from September 30, 2013, and increased $32.8 million from June 30, 2014.  Interest-bearing demand deposits increased $44.3 million at September 30, 2014 from September 30, 2013, and increased $30.1 million from June 30, 2014.  Brokered deposits decreased $34.7 million at September 30, 2014 from September 30, 2013, and decreased $5.5 million from June 30, 2014.   Deposits (excluding all time deposits and CDARS deposits) increased $180.4 million, or 20%, to $1.1 billion at September 30, 2014, from $901.0 million at September 30, 2013, and increased $78.0 million, or 8%, from $1.0 billion at June 30, 2014.
The total cost of deposits decreased four basis points to 0.15% for the third quarter of 2014, from 0.19% for the third quarter of 2013, and decreased one basis point from 0.16% for the second quarter of 2014.  The total cost of deposits decreased four basis points to 0.16% for the nine months ended September 30, 2014, from 0.20% for the nine months ended September 30, 2013.
Tangible equity was $181.7 million at September 30, 2014, compared to $168.8 million at September 30, 2013 and $180.2 million at June 30, 2014.  Tangible book value per common share was $6.15 at September 30, 2014, compared to $5.67 at September 30, 2013, and $6.09 at June 30, 2014.  There were 21,004 shares of Series C Preferred Stock outstanding at September 30, 2014, September 30, 2013, and June 30, 2014, and the Series C Preferred Stock is convertible into an aggregate of 5.6 million shares of common stock at a conversion price of $3.75, upon a transfer of the Series C Preferred Stock in a widely dispersed offering.  Pro forma tangible book value per common share, assuming the Company’s outstanding Series C Preferred Stock was converted into common stock, was $5.68 at September 30, 2014, compared to $5.29 at September 30, 2013, and $5.64 at June 30, 2014.
Accumulated other comprehensive loss was ($812,000) at September 30, 2014, compared to accumulated other comprehensive loss of ($4.3) million a year ago, and accumulated other comprehensive loss of ($92,000) at June 30, 2014. The unrealized gain (loss) on securities available-for-sale included in accumulated other comprehensive loss was an unrealized gain of $1.9 million, net of taxes, at September 30, 2014, compared to an unrealized loss of ($69,000), net of taxes, at September 30, 2013, and an unrealized gain of $2.6 million, net of taxes, at June 30, 2014.  The components of accumulated other comprehensive loss, net of taxes, at September 30, 2014 include the following: an unrealized gain on available-for-sale securities of $1.9 million; the remaining unamortized unrealized gain on securities available-for-sale transferred to held-to-maturity of $442,000; a liability adjustment on split dollar insurance contracts of ($1.9) million; a liability adjustment on the supplemental executive retirement plan of ($2.2) million; and an unrealized gain on interest-only strip from SBA loans of $932,000.

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 with full-service branches in Danville, Fremont, Gilroy, Hollister, Los Altos, Los Gatos, Morgan Hill, Pleasanton, Sunnyvale, and Walnut Creek.  Heritage Bank of Commerce is an SBA Preferred Lender with an additional Loan Production Office in Lincoln, California.  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. In addition, our past results of operations do not necessarily indicate our future results. The forward looking statements could be affected by many factors, including but not limited to: (1) Local, regional, and national economic conditions and events and the impact they may have on us and our customers, and our assessment of that impact on our estimates including, the allowance for loan losses; (2) Delay in the pace of economic recovery and stagnant or decreasing employment levels; (3) Changes in the financial performance or condition of the Company’s customers, or changes in the performance or creditworthiness of our customers’ suppliers or other counterparties, which could lead to decreased loan utilization rates, delinquencies, or defaults, which could negatively affect our customers’ ability to meet certain credit obligations; (4) Volatility in credit or equity markets and its effect on the global economy; (5) Changes in consumer spending, borrowing or saving habits; (6) Competition for loans and deposits and failure to attract or retain deposits or loans; (7) The ability to increase market share and control expenses; (8) Risks associated with concentrations in real estate related loans; (9) Other than temporary impairment charges to our securities portfolio; (10) An oversupply of inventory and deterioration in values of California commercial real estate; (11) A prolonged slowdown in construction activity; (12) Changes in the level of nonperforming assets, charge offs, or 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; (13) The 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; (14) Changes in inflation, interest rates, and market liquidity which may impact interest margins and impact funding sources; (15) Our ability to raise capital or incur debt on reasonable terms; (16) Regulatory limits on Heritage Bank of Commerce’s ability to pay dividends to the Company; (17) The impact of reputational risk on such matters as business generation and retention, funding and liquidity; (18) The impact of cyber security attacks or other disruptions to the Company’s information systems and any resulting compromise of data or disruptions in service; (19) The effect of the enactment of the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations to be promulgated by supervisory and oversight agencies implementing the legislation taking into account that the precise timing, extent and nature of such rules and regulations and the impact on the Company are uncertain; (20) The impact of revised capital requirements under Basel III; (21) Significant changes in applicable laws and regulations, including those concerning taxes, banking and securities; (22) Changes in the competitive environment among financial or bank holding companies and other financial service providers; (23) The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; (24) The 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; (25) Successful integration of the business, employees and operations of Bay View Funding with the Company; and (26) Our success in managing the risks involved in the foregoing factors.  For a discussion of factors which could cause results to differ, please see the Company’s reports on Forms 10-K and10-Q as filed with the Securities and Exchange Commission and the Company’s press releases. Readers should not place undue reliance on the forward-looking statements, which reflect management's view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.
Member FDIC
 

 
 
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)
 
2014
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
Change
Interest income
 
$
14,492
 
$
14,192
 
$
13,458
 
2%
 
8%
 
$
42,539
 
$
39,163
 
9%
Interest expense
   
500
   
507
   
627
 
-1%
 
-20%
   
1,528
   
2,026
 
-25%
    Net interest income before provision for loan losses
   
13,992
   
13,685
   
12,831
 
2%
 
9%
   
41,011
   
37,137
 
10%
Provision (credit) for loan losses
   
(24)
   
(198)
   
(534)
 
88%
 
96%
   
(232)
   
(804)
 
71%
    Net interest income after provision for loan losses
   
14,016
   
13,883
   
13,365
 
1%
 
5%
   
41,243
   
37,941
 
9%
Noninterest income:
                                         
   Service charges and fees on deposit accounts
   
631
   
646
   
645
 
-2%
 
-2%
   
1,897
   
1,840
 
3%
   Increase in cash surrender value of life insurance
   
401
   
397
   
414
 
1%
 
-3%
   
1,196
   
1,240
 
-4%
   Servicing income
   
316
   
313
   
331
 
1%
 
-5%
   
977
   
1,081
 
-10%
   Gain on sales of SBA loans
   
259
   
442
   
103
 
-41%
 
151%
   
858
   
373
 
130%
   Gain on sales of securities
   
47
   
-
   
-
 
N/A
 
N/A
   
97
   
38
 
155%
   Other
   
216
   
249
   
245
 
-13%
 
-12%
   
909
   
744
 
22%
      Total noninterest income
   
1,870
   
2,047
   
1,738
 
-9%
 
8%
   
5,934
   
5,316
 
12%
 
                                         
Noninterest expense:
                                         
   Salaries and employee benefits
   
6,228
   
6,819
   
5,772
 
-9%
 
8%
   
19,290
   
17,647
 
9%
   Occupancy and equipment
   
1,055
   
987
   
986
 
7%
 
7%
   
2,987
   
3,082
 
-3%
   Professional fees
   
617
   
126
   
602
 
390%
 
2%
   
1,329
   
1,984
 
-33%
   Other
   
2,239
   
3,002
   
3,020
 
-25%
 
-26%
   
8,201
   
8,837
 
-7%
      Total noninterest expense
   
10,139
   
10,934
   
10,380
 
-7%
 
-2%
   
31,807
   
31,550
 
1%
Income before income taxes
   
5,747
   
4,996
   
4,723
 
15%
 
22%
   
15,370
   
11,707
 
31%
Income tax expense
   
2,322
   
1,672
   
1,510
 
39%
 
54%
   
5,545
   
3,521
 
57%
Net income
   
3,425
   
3,324
   
3,213
 
3%
 
7%
   
9,825
   
8,186
 
20%
Dividends on preferred stock
   
(280)
   
(224)
   
(168)
 
25%
 
67%
   
(728)
   
(168)
 
333%
Net income available to common shareholders
   
3,145
   
3,100
   
3,045
 
1%
 
3%
   
9,097
   
8,018
 
13%
Undistributed earnings allocated to Series C Preferred Stock
   
(320)
   
(358)
   
(395)
 
-11%
 
-19%
   
(993)
   
(1,268)
 
-22%
Distributed and undistributed earnings allocated to common
                                         
    shareholders
 
$
2,825
 
$
2,742
 
$
2,650
 
3%
 
7%
 
$
8,104
 
$
6,750
 
20%
 
                                         
PER COMMON SHARE DATA
                                         
(unaudited)
                                         
Basic earnings per share
 
$
0.11
 
$
0.10
 
$
0.10
 
10%
 
10%
 
$
0.31
 
$
0.26
 
19%
Diluted earnings per share
 
$
0.11
 
$
0.10
 
$
0.10
 
10%
 
10%
 
$
0.31
 
$
0.26
 
19%
Weighted average shares outstanding - basic
   
26,371,413
   
26,370,510
   
26,340,080
 
0%
 
0%
   
26,367,314
   
26,335,222
 
0%
Weighted average shares outstanding - diluted
   
26,516,863
   
26,503,401
   
26,387,049
 
0%
 
0%
   
26,501,960
   
26,381,965
 
0%
Common shares outstanding at period-end
   
26,374,980
   
26,370,510
   
26,341,021
 
0%
 
0%
   
26,374,980
   
26,341,021
 
0%
Pro forma common shares outstanding at period-end, assuming
                                     
   Series C preferred stock was converted into common stock
   
31,975,980
   
31,971,510
   
31,941,021
 
0%
 
0%
   
31,975,980
   
31,942,021
 
0%
Book value per share
 
$
6.20
 
$
6.14
 
$
5.73
 
1%
 
8%
 
$
6.20
 
$
5.73
 
8%
Tangible book value per share
 
$
6.15
 
$
6.09
 
$
5.67
 
1%
 
8%
 
$
6.15
 
$
5.67
 
8%
Pro forma tangible book value per share, assuming Series C
                                       
    preferred stock was converted into common stock
 
$
5.68
 
$
5.64
 
$
5.29
 
1%
 
7%
 
$
5.68
 
$
5.29
 
7%
 
                                       
KEY FINANCIAL RATIOS
                                         
(unaudited)
                                       
Annualized return on average equity
   
7.46%
   
7.45%
   
7.58%
 
0%
 
-2%
   
7.34%
   
6.44%
 
14%
Annualized return on average tangible equity
   
7.51%
   
7.51%
   
7.65%
 
0%
 
-2%
   
7.40%
   
6.51%
 
14%
Annualized return on average assets
   
0.88%
   
0.91%
   
0.90%
 
-3%
 
-2%
   
0.88%
   
0.78%
 
13%
Annualized return on average tangible assets
   
0.88%
   
0.91%
   
0.90%
 
-3%
 
-2%
   
0.88%
   
0.78%
 
13%
Net interest margin
   
3.93%
   
4.07%
   
3.94%
 
-3%
 
0%
   
4.02%
   
3.85%
 
4%
Efficiency ratio
   
63.92%
   
69.50%
   
71.25%
 
-8%
 
-10%
   
67.75%
   
74.32%
 
-9%
 
                                         
AVERAGE BALANCES
                                         
(in $000's, unaudited)
                                         
Average assets
 
$
1,543,254
 
$
1,469,085
 
$
1,419,481
 
5%
 
9%
 
$
1,490,714
 
$
1,411,784
 
6%
Average tangible assets
 
$
1,542,007
 
$
1,467,718
 
$
1,417,765
 
5%
 
9%
 
$
1,489,349
 
$
1,409,952
 
6%
Average earning assets
 
$
1,441,792
 
$
1,373,957
 
$
1,316,037
 
5%
 
10%
 
$
1,392,850
 
$
1,310,288
 
6%
Average loans held-for-sale
 
$
1,485
 
$
4,135
 
$
6,780
 
-64%
 
-78%
 
$
3,073
 
$
5,088
 
-40%
Average total loans
 
$
1,002,786
 
$
970,538
 
$
870,637
 
3%
 
15%
 
$
966,959
 
$
826,240
 
17%
Average deposits
 
$
1,325,734
 
$
1,257,121
 
$
1,211,678
 
5%
 
9%
 
$
1,277,938
 
$
1,199,044
 
7%
Average demand deposits - noninterest-bearing
 
$
471,326
 
$
436,018
 
$
418,657
 
8%
 
13%
 
$
445,585
 
$
423,807
 
5%
Average interest-bearing deposits
 
$
854,408
 
$
821,103
 
$
793,021
 
4%
 
8%
 
$
832,353
 
$
775,237
 
7%
Average interest-bearing liabilities
 
$
854,460
 
$
822,660
 
$
797,931
 
4%
 
7%
 
$
832,909
 
$
783,161
 
6%
Average equity
 
$
182,095
 
$
178,963
 
$
168,254
 
2%
 
8%
 
$
178,967
 
$
169,865
 
5%
Average tangible equity
 
$
180,848
 
$
177,596
 
$
166,538
 
2%
 
9%
 
$
177,602
 
$
168,033
 
6%
 

 
 
End of Period: 
 
Percent Change From:
CONSOLIDATED BALANCE SHEETS
 
September 30,
 
June 30,
 
September 30,
 
June 30,
 
September 30,
(in $000's, unaudited)
 
2014
 
2014
 
2013
 
2014
 
2013
ASSETS
 
 
 
 
 
Cash and due from banks
 
$
23,905
 
$
32,162
 
$
32,571
 
-26%
 
-27%
Federal funds sold and interest-bearing
                         
   deposits in other financial institutions
   
130,170
   
17,256
   
9,327
 
654%
 
1296%
Securities available-for-sale, at fair value
   
191,680
   
261,489
   
280,471
 
-27%
 
-32%
Securities held-to-maturity, at amortized cost
   
94,759
   
95,972
   
89,732
 
-1%
 
6%
Loans held-for-sale - SBA, including deferred costs
   
673
   
2,269
   
6,975
 
-70%
 
-90%
Loans:
                         
   Commercial
   
436,481
   
415,557
   
410,933
 
5%
 
6%
   Real estate:
                         
      Commercial and residential
   
464,991
   
454,676
   
387,777
 
2%
 
20%
      Land and construction
   
53,064
   
47,758
   
30,780
 
11%
 
72%
      Home equity
   
61,079
   
56,743
   
50,100
 
8%
 
22%
   Consumer
   
14,609
   
16,112
   
13,712
 
-9%
 
7%
        Loans
   
1,030,224
   
990,846
   
893,302
 
4%
 
15%
   Deferred loan fees
   
(628)
   
(505)
   
(250)
 
24%
 
151%
       Total loans, net of deferred fees
   
1,029,596
   
990,341
   
893,052
 
4%
 
15%
Allowance for loan losses
   
(18,541)
   
(18,592)
   
(19,342)
 
0%
 
-4%
    Loans, net
   
1,011,055
   
971,749
   
873,710
 
4%
 
16%
Company owned life insurance
   
50,853
   
50,452
   
49,598
 
1%
 
3%
Premises and equipment, net
   
7,377
   
7,237
   
7,390
 
2%
 
0%
Intangible assets
   
1,182
   
1,297
   
1,645
 
-9%
 
-28%
Accrued interest receivable and other assets
   
46,660
   
40,736
   
49,216
 
15%
 
-5%
     Total assets
 
$
1,558,314
 
$
1,480,619
 
$
1,400,635
 
5%
 
11%
 
                         
LIABILITIES AND SHAREHOLDERS' EQUITY
                         
Liabilities:
                         
  Deposits:
                         
    Demand, noninterest-bearing
 
$
488,987
 
$
456,235
 
$
409,269
 
7%
 
19%
    Demand, interest-bearing
   
223,121
   
193,041
   
178,783
 
16%
 
25%
    Savings and money market
   
369,378
   
354,175
   
312,991
 
4%
 
18%
    Time deposits - under $100
   
20,067
   
20,379
   
22,029
 
-2%
 
-9%
    Time deposits - $100 and over
   
197,562
   
195,619
   
195,321
 
1%
 
1%
    Time deposits - brokered
   
28,099
   
33,614
   
62,833
 
-16%
 
-55%
    CDARS - money market and time deposits
   
14,608
   
14,785
   
14,311
 
-1%
 
2%
         Total deposits
   
1,341,822
   
1,267,848
   
1,195,537
 
6%
 
12%
Accrued interest payable and other liabilities
   
33,576
   
31,246
   
34,613
 
7%
 
-3%
     Total liabilities
   
1,375,398
   
1,299,094
   
1,230,150
 
6%
 
12%
 
                         
Shareholders' Equity:
                         
   Series C preferred stock, net
   
19,519
   
19,519
   
19,519
 
0%
 
0%
   Common stock
   
133,195
   
132,911
   
132,298
 
0%
 
1%
   Retained earnings
   
31,014
   
29,187
   
22,949
 
6%
 
35%
   Accumulated other comprehensive loss
   
(812)
   
(92)
   
(4,281)
 
-783%
 
81%
        Total shareholders' equity
   
182,916
   
181,525
   
170,485
 
1%
 
7%
    Total liabilities and shareholders' equity
 
$
1,558,314
 
$
1,480,619
 
$
1,400,635
 
5%
 
11%
 

 
 
End of Period:
 
Percent Change From:
 
 
September 30,
 
June 30,
 
September 30,
 
June 30,
 
September 30,
 
 
2014
 
2014
 
2013
 
2014
 
2013
CREDIT QUALITY DATA
 
 
 
 
 
(in $000's, unaudited)
 
 
 
 
 
Nonaccrual loans - held-for-investment
 
$
7,010
 
$
7,688
 
$
14,615
 
-9%
 
-52%
Restructured and loans over 90 days past due and still accruing
   
200
   
454
   
502
 
-56%
 
-60%
    Total nonperforming loans
   
7,210
   
8,142
   
15,117
 
-11%
 
-52%
Foreclosed assets
   
532
   
525
   
631
 
1%
 
-16%
    Total nonperforming assets
 
$
7,742
 
$
8,667
 
$
15,748
 
-11%
 
-51%
Other restructured loans still accruing
 
$
-
 
$
1,180
 
$
10
 
-100%
 
-100%
Net charge-offs (recoveries) during the quarter
 
$
27
 
$
27
 
$
(534)
 
0%
 
105%
Provision (credit) for loan losses during the quarter
 
$
(24)
 
$
(198)
 
$
(534)
 
88%
 
96%
Allowance for loan losses
 
$
18,541
 
$
18,592
 
$
19,342
 
0%
 
-4%
Classified assets*
 
$
17,725
 
$
23,092
 
$
23,342
 
-23%
 
-24%
Allowance for loan losses to total loans
   
1.80%
 
1.88%
 
2.17%
 
-4%
 
-17%
Allowance for loan losses to total nonperforming loans
   
257.16%
 
228.35%
   
127.95%
 
13%
 
101%
Nonperforming assets to total assets
   
0.50%
 
0.59%
   
1.12%
 
-15%
 
-55%
Nonperforming loans to total loans
   
0.70%
 
0.82%
   
1.69%
 
-15%
 
-59%
Classified assets* to Heritage Commerce Corp Tier 1
                       
   capital plus allowance for loan losses
   
9%
 
12%
   
13%
 
-25%
 
-31%
Classified assets* to Heritage Bank of Commerce Tier 1
                       
   capital plus allowance for loan losses
   
10%
 
13%
   
14%
 
-23%
 
-29%
 
                         
OTHER PERIOD-END STATISTICS
                         
(in $000's, unaudited)
                         
Heritage Commerce Corp:
                         
   Tangible equity
 
$
181,734
 
$
180,228
 
$
168,840
 
1%
 
8%
   Tangible common equity
 
$
162,215
 
$
160,709
 
$
149,321
 
1%
 
9%
   Shareholders' equity / total assets
   
11.74%
   
12.26%
   
12.17%
 
-4%
 
-4%
   Tangible equity / tangible assets
   
11.67%
 
12.18%
   
12.07%
 
-4%
 
-3%
   Tangible common equity / tangible assets
   
10.42%
 
10.86%
   
10.67%
 
-4%
 
-2%
   Loan to deposit ratio
   
76.73%
 
78.11%
   
74.70%
 
-2%
 
3%
   Noninterest-bearing deposits / total deposits
   
36.44%
   
35.98%
   
34.23%
 
1%
 
6%
   Total risk-based capital ratio
   
15.3%
   
15.1%
   
15.2%
 
1%
 
1%
   Tier 1 risk-based capital ratio
   
14.0%
   
13.9%
   
14.0%
 
1%
 
0%
   Leverage ratio
   
11.7%
   
12.0%
   
11.5%
 
-2%
 
2%
 
                       
Heritage Bank of Commerce:
                         
   Total risk-based capital ratio
   
14.3%
   
14.1%
 
13.7%
 
1%
 
4%
   Tier 1 risk-based capital ratio
   
13.1%
   
12.9%
   
12.5%
 
2%
 
5%
   Leverage ratio
   
10.9%
   
11.2%
   
10.2%
 
-3%
 
7%
 
                         
*Net of SBA guarantees
                         
 

 
 
For the Quarter Ended
 
For the Quarter Ended
 
 
September 30, 2014
 
September 30, 2013
 
 
 
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)
 
$
1,004,271
 
$
12,077
 
4.77%
 
$
877,417
 
$
10,733
 
4.85%
Securities - taxable
   
249,105
   
1,851
 
2.95%
   
310,460
   
2,247
 
2.87%
Securities - tax exempt(2)
   
79,926
   
779
 
3.87%
   
69,866
   
671
 
3.81%
Federal funds sold and interest-bearing
                               
  deposits in other financial institutions
   
108,490
   
58
 
0.21%
   
58,294
   
42
 
0.29%
    Total interest earning assets(2)
   
1,441,792
   
14,765
 
4.06%
   
1,316,037
   
13,693
 
4.13%
Cash and due from banks
   
26,535
             
23,724
         
Premises and equipment, net
   
7,435
             
7,513
         
Intangible assets
   
1,247
             
1,716
         
Other assets
   
66,245
             
70,491
         
  Total assets
 
$
1,543,254
           
$
1,419,481
         
 
                               
Liabilities and shareholders' equity:
                               
Deposits:
                               
    Demand, noninterest-bearing
 
$
471,326
           
$
418,657
         
 
                               
    Demand, interest-bearing
   
212,579
   
89
 
0.17%
   
169,233
   
57
 
0.13%
    Savings and money market
   
379,733
   
171
 
0.18%
   
316,247
   
140
 
0.18%
    Time deposits - under $100
   
20,163
   
16
 
0.31%
   
22,600
   
19
 
0.33%
    Time deposits - $100 and over
   
196,062
   
158
 
0.32%
   
197,464
   
179
 
0.36%
    Time deposits - brokered
   
31,116
   
63
 
0.80%
   
71,105
   
178
 
0.99%
    CDARS - money market and time deposits
   
14,755
   
3
 
0.08%
   
16,372
   
2
 
0.05%
        Total interest-bearing deposits
   
854,408
   
500
 
0.23%
   
793,021
   
575
 
0.29%
                Total deposits
   
1,325,734
   
500
 
0.15%
   
1,211,678
   
575
 
0.19%
 
                               
Subordinated debt
   
-
   
-
 
-
   
4,819
   
51
 
4.20%
Short-term borrowings
   
52
   
-
 
0.00%
   
91
   
1
 
4.36%
  Total interest-bearing liabilities
   
854,460
   
500
 
0.23%
   
797,931
   
627
 
0.31%
      Total interest-bearing liabilities and demand,
                               
         noninterest-bearing / cost of funds
   
1,325,786
   
500
 
0.15%
   
1,216,588
   
627
 
0.20%
Other liabilities
   
35,373
             
34,639
         
  Total liabilities
   
1,361,159
             
1,251,227
         
Shareholders' equity
   
182,095
             
168,254
         
  Total liabilities and shareholders' equity
 
$
1,543,254
           
$
1,419,481
         
 
                               
Net interest income(2) / margin
         
14,265
 
3.93%
         
13,066
 
3.94%
Less tax equivalent adjustment(2)
         
(273)
             
(235)
   
   Net interest income
       
$
13,992
           
$
12,831
   
 
                               
(1)Includes loans held-for-sale. Yield amounts earned on loans include loan fees and costs. Nonaccrual loans are included in average balance.
         
(2)Reflects tax equivalent adjustment for tax exempt income based on a 35% tax rate.
                         
 

 
 
For the Nine Months Ended 
 
For the Nine Months Ended 
 
 
September 30, 2014
 
September 30, 2013 
 
 
 
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)
 
$
970,032
 
$
34,832
 
4.80%
 
$
831,328
 
$
30,874
 
4.97%
Securities - taxable
   
274,857
   
6,069
 
2.95%
   
351,290
   
7,107
 
2.70%
Securities - tax exempt(2)
   
79,905
   
2,336
 
3.91%
   
56,405
   
1,603
 
3.80%
Federal funds sold and interest-bearing
                               
  deposits in other financial institutions
   
68,056
   
120
 
0.24%
   
71,265
   
140
 
0.26%
    Total interest earning assets(2)
   
1,392,850
   
43,357
 
4.16%
   
1,310,288
   
39,724
 
4.05%
Cash and due from banks
   
25,068
             
23,313
         
Premises and equipment, net
   
7,295
             
7,548
         
Intangible assets
   
1,365
             
1,832
         
Other assets
   
64,136
             
68,803
         
  Total assets
 
$
1,490,714
           
$
1,411,784
         
 
                               
Liabilities and shareholders' equity:
                               
Deposits:
                               
    Demand, noninterest-bearing
 
$
445,585
           
$
423,807
         
 
                               
    Demand, interest-bearing
   
203,713
   
248
 
0.16%
   
167,138
   
174
 
0.14%
    Savings and money market
   
357,535
   
489
 
0.18%
   
293,801
   
384
 
0.17%
    Time deposits - under $100
   
20,643
   
49
 
0.32%
   
23,488
   
62
 
0.35%
    Time deposits - $100 and over
   
195,122
   
473
 
0.32%
   
194,185
   
577
 
0.40%
    Time deposits - brokered
   
39,249
   
262
 
0.89%
   
81,352
   
594
 
0.98%
    CDARS - money market and time deposits
   
16,091
   
6
 
0.05%
   
15,273
   
5
 
0.04%
       Total interest-bearing deposits
   
832,353
   
1,527
 
0.25%
   
775,237
   
1,796
 
0.31%
           Total deposits
   
1,277,938
   
1,527
 
0.16%
   
1,199,044
   
1,796
 
0.20%
 
                               
Subordinated debt
   
-
   
-
 
-
   
7,776
   
229
 
3.94%
Short-term borrowings
   
556
   
1
 
0.24%
   
148
   
1
 
0.90%
  Total interest-bearing liabilities
   
832,909
   
1,528
 
0.25%
   
783,161
   
2,026
 
0.35%
  Total interest-bearing liabilities and demand,
                               
     noninterest-bearing / cost of funds
   
1,278,494
   
1,528
 
0.16%
   
1,206,968
   
2,026
 
0.22%
Other liabilities
   
33,253
             
34,951
         
  Total liabilities
   
1,311,747
             
1,241,919
         
Shareholders' equity
   
178,967
             
169,865
         
  Total liabilities and shareholders' equity
 
$
1,490,714
           
$
1,411,784
         
 
                               
Net interest income(2) / margin
         
41,829
 
4.02%
         
37,698
 
3.85%
Less tax equivalent adjustment(2)
         
(818)
             
(561)
   
   Net interest income
       
$
41,011
           
$
37,137
   
 
                               
(1)Includes loans held-for-sale. Yield amounts earned on loans include loan fees and costs. Nonaccrual loans are included in average balance.
         
(2)Reflects tax equivalent adjustment for tax exempt income based on a 35% tax rate.
                         
 


 



 








 


 



 



 





Exhibit 99.2

Heritage Commerce Corp Declares Quarterly Cash Dividend of $0.05 Per Share

San Jose, California – October 23, 2014 – Heritage Commerce Corp (Nasdaq:HTBK), today announced that its Board of Directors declared a quarterly cash dividend of $0.05 per share to holders of common stock and Series C Preferred Stock (on an as converted basis).  The dividend will be payable on November 24, 2014, to shareholders of record on November 6, 2014.

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 with full-service branches in Danville, Fremont, Gilroy, Hollister, Los Altos, Los Gatos, Morgan Hill, Pleasanton, Sunnyvale, and Walnut Creek.  Heritage Bank of Commerce is an SBA Preferred Lender with an additional Loan Production Office in Lincoln, California.  For more information, please visit www.heritagecommercecorp.com.

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