Heritage Commerce Corp (Nasdaq:HTBK), the holding
company (the “Company”) for Heritage Bank of Commerce (the “Bank”),
today reported net income increased 63% to $7.3 million, or $0.19
per average diluted common share, for the second quarter of 2016,
compared to $4.5 million, or $0.14 per average diluted common share
for the second quarter of 2015, and increased 19% from $6.1
million, or $0.16 per average diluted common share for the first
quarter of 2016. For the six months ended June 30, 2016, net
income increased 56% to $13.4 million, or $0.35 per average diluted
common share, from $8.6 million, or $0.27 per average diluted
common share, for the six months ended June 30, 2015. All results
are unaudited and include the acquisition of Focus Business Bank
(“Focus”) that was completed on August 20, 2015.
“Our first six months of 2016 reflect the effectiveness of our
business strategy, as we delivered solid financial results for the
second quarter and first half of 2016,” said Walter Kaczmarek,
President and Chief Executive Officer. "We achieved
excellent quarterly earnings, resulting in a sound return
on average tangible assets of 1.28% and return on average tangible
equity of 14.68% for the second quarter of 2016.”
Net income for the second quarter and first six months of 2016
included a $1.0 million gain on proceeds from company owned life
insurance.
“We continued to produce solid loan and core deposit growth
which highlights our ability to deepen and grow customer
relationships, as well as gain new customers and market share in
the San Francisco Bay area,” added Mr. Kaczmarek.
Second Quarter 2016 Highlights (as of, or for
the period ended June 30, 2016, except as noted):
- Diluted earnings per share totaled $0.19 for the second quarter
of 2016, compared to $0.14 for the second quarter of 2015, and
$0.16 for the first quarter of 2016. Diluted earnings per
share totaled $0.35 for the first six months of 2016, compared to
$0.27 per diluted share for the first six months of 2015.
- Net interest income increased 29% to $22.7 million for the
second quarter of 2016, compared to $17.6 million for the second
quarter of 2015, and increased 2% from $22.3 million for the first
quarter of 2016. For the first six months of 2016, net interest
income increased 31% to $45.0 million, compared to $34.5 million
for the first six months of 2015.
- For the second quarter of 2016, the fully tax equivalent
(“FTE”) net interest margin contracted 39 basis points to 4.27%
from 4.66% for the second quarter of 2015, primarily due to lower
yields on loans and securities. The net interest margin improved 5
basis points for the second quarter of 2016, from 4.22% for the
first quarter of 2016 primarily due to re-deploying excess
liquidity from lower yielding excess funds at the Federal Reserve
Bank into loans and securities. For the first six months of
2016, the net interest margin declined 38 basis points to 4.24%,
compared to 4.62% for the first six months of 2015, primarily due
to higher average balances of lower yielding excess funds at the
Federal Reserve Bank, and lower yields on loans and
securities.
- The accretion of the loan purchase discount in loan interest
income from the Focus transaction was $276,000 for the second
quarter of 2016, compared to $518,000 for the first quarter of
2016. The accretion of the loan purchase discount in loan interest
income from the Focus transaction was $1.4 million from the
acquisition date of August 20, 2015 through December 31, 2015. The
total purchase discount on non-impaired loans from the Focus loan
portfolio was $4.6 million at the acquisition date, of which $2.2
million has been accreted to loan interest income from the
acquisition date through June 30, 2016.
- The yield on the loan portfolio was 5.60% for the second
quarter of 2016 and the first six months of 2016, compared to 5.66%
for the second quarter of 2015 and 5.69% for the first six months
of 2015. The decrease in the yield on the loan portfolio for the
second quarter and first six months of 2016, compared to the
respective periods in 2015, primarily reflects the addition of the
lower yielding Focus loan portfolio, partially offset by the
accretion of the loan purchase discount into loan interest income
from the Focus transaction. The decrease in the yield on the
loan portfolio for the second quarter of 2016, compared to 5.64%
for the first quarter of 2016, primarily reflects a lower accretion
of the loan purchase discount into loan interest income from the
Focus transaction.
- Noninterest income for the second quarter and first six months
of 2016 increased compared to the respective periods in 2015, and
the first quarter of 2016, primarily due to a $1.0 million gain on
proceeds from company owned life insurance and higher gains on
sales of securities.
- The return on average tangible assets was 1.28%, and the return
on average tangible equity was 14.68%, for the second quarter of
2016, compared to 1.09% and 10.49%, respectively, for the second
quarter of 2015, and 1.07% and 12.62%, respectively, for the first
quarter of 2016. The return on average tangible assets was 1.17%,
and the return on average tangible equity was 13.66%, for the first
six months of 2016, compared to 1.06% and 10.20%, respectively, for
the first six months of 2015. The return on average tangible assets
and return on average tangible equity for the second quarter and
for the first six months on 2016 were favorably impacted by a $1.0
million gain on proceeds from company owned life insurance.
- Loans (excluding loans‑held‑for‑sale) increased
$330.5 million, or 29%, to $1.46 billion at June 30,
2016, compared to $1.13 billion at June 30, 2015, which
included an increase of $156.5 million, or 14%, in the
Company’s legacy loan portfolio, $141.1 million from the Focus
loan portfolio, and $32.9 million of purchased residential mortgage
loans. Loans increased $68.9 million, or 5%, at June 30,
2016, compared to $1.40 billion at March 31, 2016, which
included an increase of $36.0 million, or 3%, in the Company’s
legacy and Focus loan portfolios, and $32.9 million of purchased
residential mortgage loans.
- During the second quarter of 2016, the Company purchased $35.0
million of jumbo single family residential mortgage loans all of
which are domiciled in California. The average loan principal
amount is approximately $850,000, and the average yield on the
portfolio is 3.11%, net of servicing fees of 25 basis points.
Residential mortgages outstanding totaled $32.9 million at June 30,
2016.
- Nonperforming assets (“NPAs”) decreased to $4.7 million, or
0.20% of total assets, at June 30, 2016, compared to $5.3 million,
or 0.31% of total assets, at June 30, 2015, and increased from $4.6
million, or 0.20% of total assets, at March 31, 2016.
- Classified assets were $22.8 million, or 0.96% of total
assets, at June 30, 2016, compared to $11.2 million, or 0.66% of
total assets, at June 30, 2015, and $21.3 million, 0.92% of total
assets, at March 31, 2016.
- Net recoveries totaled $112,000 for the second quarter of 2016,
compared to net recoveries of $181,000 for the second quarter of
2015, and net recoveries of $131,000 for the first quarter of
2016.
- There was a $351,000 provision for loan losses for the second
quarter of 2016, compared to a $22,000 provision for loan losses
for the second quarter of 2015, and a $401,000 provision for loan
losses for the first quarter of 2016. There was a $752,000
provision for loan losses for the six months ended June 30, 2016,
compared to a $38,000 credit provision for loan losses for the six
months ended June 30, 2015.
- The allowance for loan losses (“ALLL”) was 1.36% of total loans
at June 30, 2016, compared to 1.65% at June 30, 2015, and 1.39% at
March 31, 2016. The ALLL to total nonperforming loans was
456.90% at June 30, 2016, compared to 388.18% at June 30, 2015, and
465.06% at March 31, 2016. The ALLL to total loans decreased at
June 30, 2016, compared to June 30, 2015, primarily due to the
Focus loan portfolio, which was marked to fair market value on the
acquisition date, and an increase in the Company’s legacy loan
balances with minimal default histories, improving the quality
of the loan portfolio overall.
- Total deposits increased $626.6 million, or 43%, to
$2.07 billion at June 30, 2016, compared to $1.45 billion
at June 30, 2015, which included an increase of
$263.0 million, or 18%, in the Company’s legacy deposit
portfolio, and $363.6 million from the Focus deposit
portfolio. Total deposits increased $45.0 million, or
2%, at June 30, 2016, compared to $2.03 billion at March 31,
2016, primarily due to an increase in noninterest-bearing demand
deposits.
- The Company’s consolidated capital ratios exceeded regulatory
guidelines and the Bank’s capital ratios exceeded the regulatory
guidelines for a well-capitalized financial institution under the
Basel III regulatory requirements at June 30, 2016.
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Well-capitalized |
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Fully Phased-in |
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Financial |
|
Basel III |
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Institution |
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Minimal |
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Heritage |
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Heritage |
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Basel III |
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Requirement(1) |
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Commerce |
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Bank of |
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Regulatory |
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Effective |
CAPITAL RATIOS |
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Corp |
|
Commerce |
|
Guidelines |
|
January 1, 2019 |
Total Risk-Based |
|
|
12.3 |
% |
|
|
12.2 |
% |
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|
10.0 |
% |
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10.5 |
% |
Tier 1 Risk-Based |
|
|
11.2 |
% |
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11.1 |
% |
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|
8.0 |
% |
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|
8.5 |
% |
Common Equity Tier 1
Risk-Based |
|
|
10.2 |
% |
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11.1 |
% |
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6.5 |
% |
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7.0 |
% |
Leverage |
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9.0 |
% |
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8.9 |
% |
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5.0 |
% |
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4.0 |
% |
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(1)
Includes a 2.5% capital conservation buffer, except the leverage
ratio |
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Operating Results
Net interest income increased 29% to $22.7 million for the
second quarter of 2016, compared to $17.6 million for the second
quarter of 2015, and increased 2% from $22.3 million for the first
quarter of 2016. Net interest income increased 31% to $45.0 million
for the six months ended June 30, 2016, compared to $34.5 million
for the six months ended June 30, 2015. Net interest income
increased for the second quarter and first six months of 2016,
compared to the respective periods in 2015, primarily due to loans
acquired in the Focus acquisition, organic growth in the loan
portfolio, the accretion of the loan purchase discount into loan
interest income from the Focus transaction, and an increase in the
average balance of investment securities.
For the second quarter of 2016, the net interest margin (FTE)
contracted 39 basis points to 4.27% from 4.66% for the second
quarter of 2015, primarily due to lower yields on loans and
securities. The net interest margin improved 5 basis points for the
second quarter of 2016, from 4.22% for the first quarter of 2016
primarily due to re-deploying excess liquidity from lower yielding
excess funds at the Federal Reserve Bank into yielding loans and
securities. For the first six months of 2016, net interest
margin decreased 38 basis points to 4.24%, compared to 4.62% for
the first six months of 2015, primarily due to higher average
balances of lower yielding excess funds at the Federal Reserve
Bank, and lower yields on loans and securities.
There was a $351,000 provision for loan losses for the second
quarter of 2016, compared to a $22,000 provision for loan losses
for the second quarter of 2015, and a $401,000 provision for loan
losses for the first quarter of 2016. There was a $752,000
provision for loan losses for the six months ended June 30, 2016,
compared to a $38,000 credit provision for loan losses for the six
months ended June 30, 2015.
Noninterest income increased to $3.7 million for the second
quarter of 2016, compared to $2.2 million for the second quarter of
2015, and $2.6 million for the first quarter of 2016. For the
six months ended June 30, 2016, noninterest income was $6.3
million, compared to $4.1 million at June 30, 2015. The
increase in noninterest income for the second quarter and first six
months of 2016, compared to the respective periods in 2015 and the
first quarter of 2016, was primarily due to a $1.0 million gain on
proceeds from company owned life insurance and higher gains on
sales of securities.
The Company maintains life insurance policies for some directors
and officers that are subject to split-dollar life insurance
agreements, which continue after the participant’s employment
termination or retirement. During the second quarter of 2016,
the Company received death benefit proceeds of $3.1 million from
the life insurance policy of a former officer of a bank acquired by
the Company. The cash surrender value of the policy was $2.1
million, which resulted in a gain on proceeds from company owned
life insurance of $1.0 million.
Total noninterest expense for the second quarter of 2016 was
$14.4 million, compared to $12.6 million for the second quarter of
2015, and $14.7 million for the first quarter of
2016. Noninterest expense for the six months ended June
30, 2016 was $29.1 million, compared to $24.9 million for the six
months ended June 30, 2015. The difference in noninterest expense
in the second quarter and first six months of 2016, compared to the
respective periods in 2015, was primarily due to additional
employees retained from Focus and an increase in amortization of
the core deposit intangible assets as a result of the Focus
acquisition, annual salary increases and additional newly hired
employees. There were also significantly lower than
normal professional fees for the second quarter and first six
months of 2015 due to recoveries of legal fees on problem loans
that were paid off. The lower professional fees were
partially offset by pre-tax acquisition costs incurred by the
Company in 2015 related to the Focus transaction totaling $423,000
for the second quarter of 2015, and $542,000 during the first six
months of 2015. Full time equivalent employees were 268 at
June 30, 2016, 243 at June 30, 2015, and 260 at March 31,
2016.
The efficiency ratio for the second quarter of 2016 improved to
54.47%, compared to 63.70% for the second quarter of 2015, and
58.93% for the first quarter of 2016, reflecting operating
efficiencies generated from our acquisitions and the strong revenue
growth during the year. The efficiency ratio for the six
months ended June 30, 2016 was 56.63%, compared to 64.51% for the
six months ended June 30, 2015. The efficiency ratio for the
second quarter of 2016 and for the first six months of 2016 was
favorably impacted by a $1.0 million gain on proceeds from company
owned life insurance.
Income tax expense for the second quarter of 2016 was $4.4
million, compared to $2.7 million for the second quarter of 2015,
and $3.7 million for the first quarter of 2016. The effective tax
rate for the second quarter of 2016 and 2015 was 37.5%, compared to
37.9% for the first quarter of 2016. Income tax expense for
the six months ended June 30, 2016 was $8.1 million, compared to
$5.1 million for the six months ended June 30, 2015. The effective
tax rate for the six months ended June 30, 2016 was 37.7%, compared
to 37.3% for the six months ended June 30, 2015. 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 (net of low income housing investment losses), and
tax-exempt interest income earned on municipal bonds.
Balance Sheet Review, Capital Management and Credit
Quality
Total assets were $2.38 billion at June 30, 2016, compared to
$1.68 billion at June 30, 2015, and $2.33 billion at March 31,
2016.
The investment securities available-for-sale portfolio totaled
$390.4 million at June 30, 2016, compared to $209.1 million at June
30, 2015, and $448.5 million at March 31, 2016. At June 30,
2016, the Company’s securities available-for-sale portfolio was
comprised of $373.5 million agency mortgage-backed securities (all
issued by U.S. Government sponsored entities), $15.9 million of
single entity issue trust preferred securities, and $1.0 million of
corporate bonds. The pre-tax unrealized gain on securities
available-for-sale at June 30, 2016 was $7.7 million, compared to a
pre-tax unrealized gain on securities available-for-sale of $2.4
million at June 30, 2015, and a pre-tax unrealized gain on
securities available-for-sale of $5.2 million at March 31,
2016.
The Company received gross proceeds of $43.6 million on
investment securities available-for-sale it sold during the second
quarter of 2016 with a book value totaling $43.2 million, resulting
in a gain on sale of securities of $347,000. The $43.2
million book value of investment securities sold included $30.1
million of U.S. Treasury securities, $9.0 million of U.S.
Government sponsored entities, and $4.1 million of agency
mortgage-backed securities.
At June 30, 2016, investment securities held-to-maturity totaled
$210.2 million, compared to $100.3 million at June 30, 2015, and
$185.2 million at March 31, 2016. At June 30, 2016, the
Company’s securities held-to-maturity portfolio, at amortized cost,
was comprised of $91.4 million tax-exempt municipal bonds, and
$118.8 million agency mortgage-backed securities.
During the second quarter of 2016, the Company
purchased $31.3 million of Government National Mortgage Association
("GNMA") securities held-to-maturity, with an average book yield of
1.49%.
Loans (excluding loans‑held‑for‑sale) increased
$330.5 million, or 29%, to $1.46 billion at June 30,
2016, compared to $1.13 billion at June 30, 2015, which
included an increase of $156.5 million, or 14%, in the
Company’s legacy loan portfolio, $141.1 million from the Focus
loan portfolio, and $32.9 million of purchased residential mortgage
loans. Loans increased $68.9 million, or 5%, at June 30,
2016, compared to $1.40 billion at March 31, 2016, which
included an increase of $36.0 million, or 3%, in the Company’s
legacy and Focus loan portfolios, and $32.9 million of purchased
residential mortgage loans.
The loan portfolio remains well-diversified with commercial and
industrial (“C&I”) loans accounting for 42% of the loan
portfolio at June 30, 2016, which included $51.8 million of
factored receivables at Bay View Funding. Commercial real estate
loans accounted for 42% of the total loan portfolio, of which 42%
were owner-occupied by businesses. Consumer and home equity
loans accounted for 7% of total loans, land and construction loans
accounted for 7% of total loans, and residential mortgage loans
accounted for the remaining 2% of total loans at June 30,
2016. C&I line usage was 42% at June 30, 2016,
compared to 40% at June 30, 2015, and 44% at March 31, 2016.
During the second quarter of 2016, the Company purchased $35.0
million of jumbo single family residential mortgage loans all of
which are domiciled in California. The average loan
principal amount is approximately $850,000, and the average yield
on the portfolio is 3.11%, net of servicing fees of 25 basis
points. Residential mortgages outstanding at June 30, 2016 totaled
$32.9 million.
The yield on the loan portfolio was 5.60% for the second quarter
of 2016 and the first six months of 2016, compared to 5.66% for the
second quarter of 2015 and 5.69% for the first six months of
2015. The decrease in the yield on the loan portfolio for the
second quarter and first six months of 2016, compared to the
respective periods in 2015, primarily reflects the addition of the
lower yielding Focus loan portfolio, partially offset by the
accretion of the loan purchase discount into loan interest income
from the Focus transaction. The decrease in the yield on the
loan portfolio for the second quarter of 2016, compared to 5.64%
for the first quarter of 2016, primarily reflects a lower accretion
of the loan purchase discount into loan interest income from the
Focus transaction.
At June 30, 2016, NPAs were $4.7 million, or 0.20% of total
assets, compared to $5.3 million, or 0.31% of total assets, at June
30, 2015, and $4.6 million, or 0.20% of total assets, at March 31,
2016. At June 30, 2016, the NPAs included no loans guaranteed
by the SBA. Foreclosed assets were $313,000 at June 30, 2016,
compared to $421,000 at June 30, 2015, and $386,000 at March 31,
2016. The following is a breakout of NPAs at the periods
indicated:
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End of Period: |
NONPERFORMING
ASSETS |
|
June 30, 2016 |
|
March 31, 2016 |
|
June 30, 2015 |
(in $000's, unaudited) |
|
Balance |
|
% of Total |
|
Balance |
|
% of Total |
|
Balance |
|
% of Total |
Commercial real estate
loans |
|
$ |
2,849 |
|
|
|
61 |
% |
|
$ |
2,910 |
|
|
|
64 |
% |
|
$ |
3,160 |
|
|
|
60 |
% |
Home equity and
consumer loans |
|
|
760 |
|
|
|
16 |
% |
|
|
771 |
|
|
|
17 |
% |
|
|
327 |
|
|
|
6 |
% |
Commercial and
industrial loans |
|
|
504 |
|
|
|
11 |
% |
|
|
290 |
|
|
|
6 |
% |
|
|
104 |
|
|
|
2 |
% |
Foreclosed assets |
|
|
313 |
|
|
|
7 |
% |
|
|
386 |
|
|
|
8 |
% |
|
|
421 |
|
|
|
8 |
% |
Land and construction
loans |
|
|
207 |
|
|
|
4 |
% |
|
|
213 |
|
|
|
5 |
% |
|
|
500 |
|
|
|
10 |
% |
SBA loans |
|
|
40 |
|
|
|
1 |
% |
|
|
- |
|
|
|
- |
|
|
|
741 |
|
|
|
14 |
% |
Total
nonperforming assets |
|
$ |
4,673 |
|
|
|
100 |
% |
|
$ |
4,570 |
|
|
|
100 |
% |
|
$ |
5,253 |
|
|
|
100 |
% |
|
|
|
|
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|
Classified assets were $22.8 million at June 30, 2016, compared
to $11.2 million at June 30, 2015, and $21.3 million at March 31,
2016. Classified assets include Small Business Administration
("SBA") guarantees of $14,000 at June 30, 2016, $0 at June 30,
2015, and $253,000 at March 31, 2016.
The following table summarizes the allowance for loan
losses:
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|
|
For the Quarter Ended |
|
For the Six Months Ended |
ALLOWANCE FOR
LOAN LOSSES |
|
June 30, |
|
March 31, |
|
June 30, |
|
June 30, |
|
June 30, |
(in $000's, unaudited) |
|
|
2016 |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
Balance at beginning of
period |
|
$ |
19,458 |
|
|
$ |
18,926 |
|
|
$ |
18,554 |
|
|
$ |
18,926 |
|
|
$ |
18,379 |
|
Provision (credit) for
loan losses during the period |
|
|
351 |
|
|
|
401 |
|
|
|
22 |
|
|
|
752 |
|
|
|
(38 |
) |
Net recoveries
(charge-offs) during the period |
|
|
112 |
|
|
|
131 |
|
|
|
181 |
|
|
|
243 |
|
|
|
416 |
|
Balance
at end of period |
|
$ |
19,921 |
|
|
$ |
19,458 |
|
|
$ |
18,757 |
|
|
$ |
19,921 |
|
|
$ |
18,757 |
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
1,464,114 |
|
|
$ |
1,395,264 |
|
|
$ |
1,133,603 |
|
|
$ |
1,464,114 |
|
|
$ |
1,133,603 |
|
Total nonperforming
loans |
|
$ |
4,360 |
|
|
$ |
4,184 |
|
|
$ |
4,832 |
|
|
$ |
4,360 |
|
|
$ |
4,832 |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan
losses to total loans |
|
|
1.36 |
% |
|
|
1.39 |
% |
|
|
1.65 |
% |
|
|
1.36 |
% |
|
|
1.65 |
% |
Allowance for loan
losses to total nonperforming loans |
|
|
456.90 |
% |
|
|
465.06 |
% |
|
|
388.18 |
% |
|
|
456.90 |
% |
|
|
388.18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The ALLL at June 30, 2016 was 1.36% of total loans, compared to
1.65% at June 30, 2015, and 1.39% at March 31, 2016. The ALLL
to total loans decreased at June 30, 2016, compared to June 30,
2015, primarily due to the Focus loan portfolio, which was marked
to fair market value on the acquisition date, and an increase in
the Company’s legacy loan balances with minimal default
histories, improving the quality of the loan portfolio
overall. The ALLL to total nonperforming loans was 456.90% at
June 30, 2016, compared to 388.18% at June 30, 2015, and 465.06% at
March 31, 2016.
Total deposits increased $626.6 million, or 43%, to
$2.07 billion at June 30, 2016, compared to $1.45 billion
at June 30, 2015, which included an increase of
$263.0 million, or 18%, in the Company’s legacy deposit
portfolio, and $363.6 million from the Focus deposit
portfolio. Total deposits increased $45.0 million, or
2%, at June 30, 2016, compared to $2.03 billion at March 31,
2016, primarily due to an increase in noninterest-bearing demand
deposits.
The total cost of deposits remained unchanged at 0.15% for the
second quarter of 2016, compared to the second quarter of 2015, and
the first quarter of 2016. The total cost of deposits was
also at 0.15% for the six months ended June 30, 2016, and the six
months ended June 30, 2015.
Tangible equity was $204.1 million at June 30, 2016, compared to
$171.1 million at June 30, 2015, and $197.9 million at March 31,
2016. The increase in tangible equity at June 30, 2016 from
June 30, 2015 was primarily due to the shares issued to the Focus
shareholders in connection with the Focus acquisition and an
increase in the Company’s retained earnings. Tangible book
value per common share was $5.72 at June 30, 2016, compared to
$5.70 at June 30, 2015, and $5.54 at March 31, 2016. There
were 21,004 shares of Series C Preferred Stock outstanding at June
30, 2016, June 30, 2015, and March 31, 2016, 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 outstanding Series C Preferred Stock was converted
into common stock, was $5.39 at June 30, 2016, compared to $5.31 at
June 30, 2015, and $5.24 at March 31, 2016.
The holders of the Series C Preferred Stock applied for and
received the approval of the Federal Reserve and California
Department of Business Oversight to exchange the 21,004 shares of
Series C Preferred Stock for 5,601,000 common stock (the as
converted equivalent). The Company has indicated to the
holders that if such approvals were obtained the Company would
agree to enter into an exchange agreement to effect the exchange.
The Company expects to enter into agreements and complete the
transactions during the third quarter of 2016.
Accumulated other comprehensive loss was ($2.1) million at June
30, 2016, compared to ($3.3) million at June 30, 2015, and ($3.5)
million at March 31, 2016. The unrealized gain on securities
available-for-sale, net of taxes, included in accumulated other
comprehensive loss was an unrealized gain of $4.5 million June 30,
2016, compared to $1.4 million at June 30, 2015, and $3.0 million
at March 31, 2016. The components of accumulated other
comprehensive loss, net of taxes, at June 30, 2016 include the
following: an unrealized gain on available-for-sale securities of
$4.5 million; the remaining unamortized unrealized gain on
securities available-for-sale transferred to held-to-maturity of
$350,000; a split dollar insurance contracts liability of ($3.6)
million; a supplemental executive retirement plan liability of
($4.1) million; and an unrealized gain on interest-only strip from
SBA loans of $670,000.
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. Bay View Funding, a subsidiary of Heritage Bank of
Commerce, is based in Santa Clara and provides business‑essential
working capital factoring financing to various industries
throughout the United States. For more information, please
visit www.heritagecommercecorp.com.
Forward Looking Statement
Disclaimer
These forward looking statements are subject to
various risks and uncertainties that may be outside our control and
our actual results could differ materially from our projected
results. 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 their impact on us and our customers; (2) changes in
the financial performance or condition of the Company’s customers;
(3) volatility in credit and equity markets and its effect on the
global economy; (4) competition for loans and deposits and failure
to attract or retain deposits and loans; (5) our ability to
increase market share and control expenses; (6) our ability to
develop and promote customer acceptance of new products and
services in a timely manner; (7) risks associated with
concentrations in real estate related loans; (8) other than
temporary impairment charges to our securities portfolio; (9) an
oversupply of inventory and deterioration in values of California
commercial real estate; (10) a prolonged slowdown in construction
activity; (11) changes in the level of nonperforming assets and
charge offs and other credit quality measures, and their impact on
the adequacy of the Company’s allowance for loan losses and the
Company’s provision for loan losses; (12) 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; (13) changes in inflation, interest
rates, and market liquidity which may impact interest margins and
impact funding sources; (14) our ability to raise capital or incur
debt on reasonable terms; (15) regulatory limits on Heritage Bank
of Commerce’s ability to pay dividends to the Company; (16) changes
in our capital management policies, including those regarding
business combinations, dividends, and share repurchases, among
others; (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) the ability to keep pace with, and implement on a
timely basis, technological changes; (19) 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; (20) changes in the competitive environment among
financial or bank holding companies and other financial service
providers; (21) the effect and uncertain impact on the Company of
the enactment of the Dodd Frank Wall Street Reform and Consumer
Protection Act of 2010 and the rules and regulations promulgated by
supervisory and oversight agencies implementing the new
legislation; (22) significant changes in applicable laws and
regulations, including those concerning taxes, banking and
securities; (23) the 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;
(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; and (25) the successful integration of the business,
employees and operations of Focus Business Bank with the Company
and our ability to achieve the projected synergies of this
acquisition within the expected time frame; and (26) our success in
managing the risks involved in the foregoing factors.
Member FDIC
|
|
|
|
|
|
|
|
|
For the Quarter Ended: |
|
Percent Change From: |
|
For the Six Months Ended: |
|
|
CONSOLIDATED
INCOME STATEMENTS |
June 30, |
March 31, |
June 30, |
|
March 31, |
June 30, |
|
June 30, |
June 30, |
|
Percent |
(in $000's, unaudited) |
|
2016 |
|
|
2016 |
|
|
2015 |
|
|
|
2016 |
|
|
2015 |
|
|
|
2016 |
|
|
2015 |
|
|
Change |
Interest income |
$ |
23,504 |
|
$ |
23,062 |
|
$ |
18,175 |
|
|
|
2 |
% |
|
29 |
% |
|
$ |
46,566 |
|
$ |
35,541 |
|
|
|
31 |
% |
Interest expense |
|
760 |
|
|
758 |
|
|
533 |
|
|
|
0 |
% |
|
43 |
% |
|
|
1,518 |
|
|
1,041 |
|
|
|
46 |
% |
Net
interest income before provision for loan losses |
|
22,744 |
|
|
22,304 |
|
|
17,642 |
|
|
|
2 |
% |
|
29 |
% |
|
|
45,048 |
|
|
34,500 |
|
|
|
31 |
% |
Provision (credit) for
loan losses |
|
351 |
|
|
401 |
|
|
22 |
|
|
|
-12 |
% |
|
1495 |
% |
|
|
752 |
|
|
(38 |
) |
|
|
2079 |
% |
Net
interest income after provision for loan losses |
|
22,393 |
|
|
21,903 |
|
|
17,620 |
|
|
|
2 |
% |
|
27 |
% |
|
|
44,296 |
|
|
34,538 |
|
|
|
28 |
% |
Noninterest
income: |
|
|
|
|
|
|
|
|
|
|
|
Gain on
proceeds from company owned life insurance |
|
1,019 |
|
|
- |
|
|
- |
|
|
N/A |
N/A |
|
|
1,019 |
|
|
- |
|
|
|
N/A |
Service
charges and fees on deposit accounts |
|
783 |
|
|
767 |
|
|
715 |
|
|
|
2 |
% |
|
10 |
% |
|
|
1,550 |
|
|
1,338 |
|
|
|
16 |
% |
Increase
in cash surrender value of life insurance |
|
440 |
|
|
449 |
|
|
396 |
|
|
|
-2 |
% |
|
11 |
% |
|
|
889 |
|
|
796 |
|
|
|
12 |
% |
Servicing
income |
|
371 |
|
|
371 |
|
|
299 |
|
|
|
0 |
% |
|
24 |
% |
|
|
742 |
|
|
605 |
|
|
|
23 |
% |
Gain on
sales of securities |
|
347 |
|
|
180 |
|
|
- |
|
|
|
93 |
% |
N/A |
|
|
527 |
|
|
- |
|
|
N/A |
Gain on
sales of SBA loans |
|
279 |
|
|
305 |
|
|
186 |
|
|
|
-9 |
% |
|
50 |
% |
|
|
584 |
|
|
393 |
|
|
|
49 |
% |
Other |
|
421 |
|
|
542 |
|
|
568 |
|
|
|
-22 |
% |
|
-26 |
% |
|
|
963 |
|
|
958 |
|
|
|
1 |
% |
Total
noninterest income |
|
3,660 |
|
|
2,614 |
|
|
2,164 |
|
|
|
40 |
% |
|
69 |
% |
|
|
6,274 |
|
|
4,090 |
|
|
|
53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
expense: |
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits |
|
8,742 |
|
|
8,947 |
|
|
7,712 |
|
|
|
-2 |
% |
|
13 |
% |
|
|
17,689 |
|
|
15,754 |
|
|
|
12 |
% |
Occupancy
and equipment |
|
1,081 |
|
|
1,076 |
|
|
1,036 |
|
|
|
0 |
% |
|
4 |
% |
|
|
2,157 |
|
|
2,072 |
|
|
|
4 |
% |
Professional fees |
|
708 |
|
|
825 |
|
|
239 |
|
|
|
-14 |
% |
|
196 |
% |
|
|
1,533 |
|
|
333 |
|
|
|
360 |
% |
Other |
|
3,850 |
|
|
3,837 |
|
|
3,630 |
|
|
|
0 |
% |
|
6 |
% |
|
|
7,687 |
|
|
6,734 |
|
|
|
14 |
% |
Total
noninterest expense |
|
14,381 |
|
|
14,685 |
|
|
12,617 |
|
|
|
-2 |
% |
|
14 |
% |
|
|
29,066 |
|
|
24,893 |
|
|
|
17 |
% |
Income before income
taxes |
|
11,672 |
|
|
9,832 |
|
|
7,167 |
|
|
|
19 |
% |
|
63 |
% |
|
|
21,504 |
|
|
13,735 |
|
|
|
57 |
% |
Income tax expense |
|
4,377 |
|
|
3,726 |
|
|
2,690 |
|
|
|
17 |
% |
|
63 |
% |
|
|
8,103 |
|
|
5,120 |
|
|
|
58 |
% |
Net
income |
|
7,295 |
|
|
6,106 |
|
|
4,477 |
|
|
|
19 |
% |
|
63 |
% |
|
|
13,401 |
|
|
8,615 |
|
|
|
56 |
% |
Dividends on preferred
stock |
|
(504 |
) |
|
(504 |
) |
|
(448 |
) |
|
|
0 |
% |
|
13 |
% |
|
|
(1,008 |
) |
|
(896 |
) |
|
|
13 |
% |
Net income available to
common shareholders |
|
6,791 |
|
|
5,602 |
|
|
4,029 |
|
|
|
21 |
% |
|
69 |
% |
|
|
12,393 |
|
|
7,719 |
|
|
|
61 |
% |
Undistributed earnings
allocated to Series C preferred stock |
|
(576 |
) |
|
(403 |
) |
|
(331 |
) |
|
|
43 |
% |
|
74 |
% |
|
|
(979 |
) |
|
(605 |
) |
|
|
62 |
% |
Distributed and
undistributed earnings allocated to common shareholders |
$ |
6,215 |
|
$ |
5,199 |
|
$ |
3,698 |
|
|
|
20 |
% |
|
68 |
% |
|
$ |
11,414 |
|
$ |
7,114 |
|
|
|
60 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
PER COMMON
SHARE DATA |
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share |
$ |
0.19 |
|
$ |
0.16 |
|
$ |
0.14 |
|
|
|
19 |
% |
|
36 |
% |
|
$ |
0.35 |
|
$ |
0.27 |
|
|
|
30 |
% |
Diluted earnings per
share |
$ |
0.19 |
|
$ |
0.16 |
|
$ |
0.14 |
|
|
|
19 |
% |
|
36 |
% |
|
$ |
0.35 |
|
$ |
0.27 |
|
|
|
30 |
% |
Weighted average shares
outstanding - basic |
|
32,243,935 |
|
|
32,125,716 |
|
|
26,573,909 |
|
|
|
0 |
% |
|
21 |
% |
|
|
32,184,825 |
|
|
26,541,816 |
|
|
|
21 |
% |
Weighted average shares
outstanding - diluted |
|
32,512,611 |
|
|
32,377,493 |
|
|
26,767,255 |
|
|
|
0 |
% |
|
21 |
% |
|
|
32,445,516 |
|
|
26,724,260 |
|
|
|
21 |
% |
Common shares
outstanding at period-end |
|
32,294,063 |
|
|
32,170,920 |
|
|
26,596,094 |
|
|
|
0 |
% |
|
21 |
% |
|
|
32,294,063 |
|
|
26,596,094 |
|
|
|
21 |
% |
Pro forma common shares
outstanding at period-end, assuming Series C preferred stock was
converted into common stock |
|
37,895,063 |
|
|
37,771,920 |
|
|
32,197,094 |
|
|
|
0 |
% |
|
18 |
% |
|
|
37,895,063 |
|
|
32,197,094 |
|
|
|
18 |
% |
Book value per
share |
$ |
7.37 |
|
$ |
7.22 |
|
$ |
6.30 |
|
|
|
2 |
% |
|
17 |
% |
|
$ |
7.37 |
|
$ |
6.30 |
|
|
|
17 |
% |
Tangible book value per
share |
$ |
5.72 |
|
$ |
5.54 |
|
$ |
5.70 |
|
|
|
3 |
% |
|
0 |
% |
|
$ |
5.72 |
|
$ |
5.70 |
|
|
|
0 |
% |
Pro forma tangible book
value per share, assuming Series C preferred stock was converted
into common stock |
$ |
5.39 |
|
$ |
5.24 |
|
$ |
5.31 |
|
|
|
3 |
% |
|
2 |
% |
|
$ |
5.39 |
|
$ |
5.31 |
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
KEY FINANCIAL
RATIOS |
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
Annualized return on
average equity |
|
11.58 |
% |
|
9.87 |
% |
|
9.59 |
% |
|
|
17 |
% |
|
21 |
% |
|
|
10.73 |
% |
|
9.32 |
% |
|
|
15 |
% |
Annualized return on
average tangible equity |
|
14.68 |
% |
|
12.62 |
% |
|
10.49 |
% |
|
|
16 |
% |
|
40 |
% |
|
|
13.66 |
% |
|
10.20 |
% |
|
|
34 |
% |
Annualized return on
average assets |
|
1.25 |
% |
|
1.05 |
% |
|
1.08 |
% |
|
|
19 |
% |
|
16 |
% |
|
|
1.15 |
% |
|
1.05 |
% |
|
|
10 |
% |
Annualized return on
average tangible assets |
|
1.28 |
% |
|
1.07 |
% |
|
1.09 |
% |
|
|
20 |
% |
|
17 |
% |
|
|
1.17 |
% |
|
1.06 |
% |
|
|
10 |
% |
Net interest
margin |
|
4.27 |
% |
|
4.22 |
% |
|
4.66 |
% |
|
|
1 |
% |
|
-8 |
% |
|
|
4.24 |
% |
|
4.62 |
% |
|
|
-8 |
% |
Efficiency ratio |
|
54.47 |
% |
|
58.93 |
% |
|
63.70 |
% |
|
|
-8 |
% |
|
-14 |
% |
|
|
56.63 |
% |
|
64.51 |
% |
|
|
-12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE
BALANCES |
|
|
|
|
|
|
|
|
|
|
|
(in $000's,
unaudited) |
|
|
|
|
|
|
|
|
|
|
|
Average assets |
$ |
2,345,874 |
|
$ |
2,349,224 |
|
$ |
1,664,568 |
|
|
|
0 |
% |
|
41 |
% |
|
$ |
2,347,549 |
|
$ |
1,649,839 |
|
|
|
42 |
% |
Average tangible
assets |
$ |
2,292,248 |
|
$ |
2,295,181 |
|
$ |
1,648,505 |
|
|
|
0 |
% |
|
39 |
% |
|
$ |
2,293,715 |
|
$ |
1,633,686 |
|
|
|
40 |
% |
Average earning
assets |
$ |
2,172,349 |
|
$ |
2,157,463 |
|
$ |
1,542,551 |
|
|
|
1 |
% |
|
41 |
% |
|
$ |
2,168,411 |
|
$ |
1,529,490 |
|
|
|
42 |
% |
Average loans
held-for-sale |
$ |
2,951 |
|
$ |
4,746 |
|
$ |
1,748 |
|
|
|
-38 |
% |
|
69 |
% |
|
$ |
3,848 |
|
$ |
1,370 |
|
|
|
181 |
% |
Average total
loans |
$ |
1,415,001 |
|
$ |
1,363,850 |
|
$ |
1,106,158 |
|
|
|
4 |
% |
|
28 |
% |
|
$ |
1,392,931 |
|
$ |
1,085,618 |
|
|
|
28 |
% |
Average deposits |
$ |
2,042,524 |
|
$ |
2,030,898 |
|
$ |
1,428,469 |
|
|
|
1 |
% |
|
43 |
% |
|
$ |
2,036,711 |
|
$ |
1,416,121 |
|
|
|
44 |
% |
Average demand deposits
- noninterest-bearing |
$ |
780,116 |
|
$ |
776,999 |
|
$ |
550,869 |
|
|
|
0 |
% |
|
42 |
% |
|
$ |
778,558 |
|
$ |
540,767 |
|
|
|
44 |
% |
Average
interest-bearing deposits |
$ |
1,262,408 |
|
$ |
1,253,899 |
|
$ |
877,600 |
|
|
|
1 |
% |
|
44 |
% |
|
$ |
1,258,153 |
|
$ |
875,354 |
|
|
|
44 |
% |
Average
interest-bearing liabilities |
$ |
1,262,415 |
|
$ |
1,255,647 |
|
$ |
877,613 |
|
|
|
1 |
% |
|
44 |
% |
|
$ |
1,259,030 |
|
$ |
875,392 |
|
|
|
44 |
% |
Average equity |
$ |
253,430 |
|
$ |
248,700 |
|
$ |
187,179 |
|
|
|
2 |
% |
|
35 |
% |
|
$ |
251,065 |
|
$ |
186,400 |
|
|
|
35 |
% |
Average tangible
equity |
$ |
199,804 |
|
$ |
194,657 |
|
$ |
171,116 |
|
|
|
3 |
% |
|
17 |
% |
|
$ |
197,231 |
|
$ |
170,247 |
|
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
End of Period: |
|
Percent Change From: |
CONSOLIDATED
BALANCE SHEETS |
June 30, |
March 31, |
June 30, |
|
March 31, |
June 30, |
(in $000's, unaudited) |
|
2016 |
|
|
2016 |
|
|
2015 |
|
|
|
2016 |
|
|
2015 |
|
ASSETS |
|
|
|
|
|
|
Cash and due from
banks |
$ |
30,820 |
|
$ |
25,573 |
|
$ |
36,960 |
|
|
|
21 |
% |
|
-17 |
% |
Federal funds sold and
interest-bearing deposits in other financial institutions |
|
128,024 |
|
|
117,562 |
|
|
94,308 |
|
|
|
9 |
% |
|
36 |
% |
Securities
available-for-sale, at fair value |
|
390,435 |
|
|
448,540 |
|
|
209,092 |
|
|
|
-13 |
% |
|
87 |
% |
Securities
held-to-maturity, at amortized cost |
|
210,170 |
|
|
185,165 |
|
|
100,321 |
|
|
|
14 |
% |
|
109 |
% |
Loans held-for-sale -
SBA, including deferred costs |
|
4,879 |
|
|
2,389 |
|
|
3,794 |
|
|
|
104 |
% |
|
29 |
% |
Loans: |
|
|
|
|
|
|
Commercial |
|
610,385 |
|
|
592,128 |
|
|
471,651 |
|
|
|
3 |
% |
|
29 |
% |
Real
estate: |
|
|
|
|
|
|
Commercial |
|
619,539 |
|
|
616,821 |
|
|
508,497 |
|
|
|
0 |
% |
|
22 |
% |
Land and
construction |
|
103,710 |
|
|
95,547 |
|
|
68,666 |
|
|
|
9 |
% |
|
51 |
% |
Home
equity |
|
78,332 |
|
|
74,993 |
|
|
71,579 |
|
|
|
4 |
% |
|
9 |
% |
Residential mortgages |
|
32,852 |
|
|
- |
|
|
- |
|
|
N/A |
N/A |
Consumer |
|
20,037 |
|
|
16,476 |
|
|
13,739 |
|
|
|
22 |
% |
|
46 |
% |
Loans |
|
1,464,855 |
|
|
1,395,965 |
|
|
1,134,132 |
|
|
|
5 |
% |
|
29 |
% |
Deferred
loan fees |
|
(741 |
) |
|
(701 |
) |
|
(529 |
) |
|
|
6 |
% |
|
40 |
% |
Total
loans, net of deferred fees |
|
1,464,114 |
|
|
1,395,264 |
|
|
1,133,603 |
|
|
|
5 |
% |
|
29 |
% |
Allowance for loan
losses |
|
(19,921 |
) |
|
(19,458 |
) |
|
(18,757 |
) |
|
|
2 |
% |
|
6 |
% |
Loans,
net |
|
1,444,193 |
|
|
1,375,806 |
|
|
1,114,846 |
|
|
|
5 |
% |
|
30 |
% |
Company owned life
insurance |
|
58,765 |
|
|
60,470 |
|
|
52,053 |
|
|
|
-3 |
% |
|
13 |
% |
Premises and equipment,
net |
|
7,542 |
|
|
7,625 |
|
|
7,249 |
|
|
|
-1 |
% |
|
4 |
% |
Goodwill |
|
45,664 |
|
|
45,664 |
|
|
13,055 |
|
|
|
0 |
% |
|
250 |
% |
Other intangible
assets |
|
7,734 |
|
|
8,126 |
|
|
2,898 |
|
|
|
-5 |
% |
|
167 |
% |
Accrued interest
receivable and other assets |
|
50,066 |
|
|
50,413 |
|
|
45,630 |
|
|
|
-1 |
% |
|
10 |
% |
Total assets |
$ |
2,378,292 |
|
$ |
2,327,333 |
|
$ |
1,680,206 |
|
|
|
2 |
% |
|
42 |
% |
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
Demand,
noninterest-bearing |
$ |
834,590 |
|
$ |
768,525 |
|
$ |
574,210 |
|
|
|
9 |
% |
|
45 |
% |
Demand,
interest-bearing |
|
499,512 |
|
|
506,272 |
|
|
235,922 |
|
|
|
-1 |
% |
|
112 |
% |
Savings
and money market |
|
480,677 |
|
|
493,275 |
|
|
380,398 |
|
|
|
-3 |
% |
|
26 |
% |
Time
deposits-under $250 |
|
60,761 |
|
|
61,595 |
|
|
54,071 |
|
|
|
-1 |
% |
|
12 |
% |
Time
deposits-$250 and over |
|
182,591 |
|
|
179,048 |
|
|
161,606 |
|
|
|
2 |
% |
|
13 |
% |
Time
deposits - brokered |
|
6,079 |
|
|
11,829 |
|
|
26,139 |
|
|
|
-49 |
% |
|
-77 |
% |
CDARS -
money market and time deposits |
|
9,574 |
|
|
8,192 |
|
|
14,791 |
|
|
|
17 |
% |
|
-35 |
% |
Total
deposits |
|
2,073,784 |
|
|
2,028,736 |
|
|
1,447,137 |
|
|
|
2 |
% |
|
43 |
% |
Accrued interest
payable and other liabilities |
|
46,995 |
|
|
46,938 |
|
|
46,030 |
|
|
|
0 |
% |
|
2 |
% |
Total
liabilities |
|
2,120,779 |
|
|
2,075,674 |
|
|
1,493,167 |
|
|
|
2 |
% |
|
42 |
% |
|
|
|
|
|
|
|
Shareholders'
Equity: |
|
|
|
|
|
|
Series C
preferred stock, net |
|
19,519 |
|
|
19,519 |
|
|
19,519 |
|
|
|
0 |
% |
|
0 |
% |
Common
stock |
|
194,765 |
|
|
194,153 |
|
|
134,307 |
|
|
|
0 |
% |
|
45 |
% |
Retained
earnings |
|
45,371 |
|
|
41,485 |
|
|
36,484 |
|
|
|
9 |
% |
|
24 |
% |
Accumulated other comprehensive loss |
|
(2,142 |
) |
|
(3,498 |
) |
|
(3,271 |
) |
|
|
39 |
% |
|
35 |
% |
Total
shareholders' equity |
|
257,513 |
|
|
251,659 |
|
|
187,039 |
|
|
|
2 |
% |
|
38 |
% |
Total liabilities and shareholders' equity |
$ |
2,378,292 |
|
$ |
2,327,333 |
|
$ |
1,680,206 |
|
|
|
2 |
% |
|
42 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of Period: |
|
Percent Change From: |
|
June 30, |
March 31, |
June 30, |
|
March 31, |
June 30, |
|
|
2016 |
|
|
2016 |
|
|
2015 |
|
|
|
2016 |
|
|
2015 |
|
CREDIT QUALITY
DATA |
|
|
|
|
|
|
(in $000's,
unaudited) |
|
|
|
|
|
|
Nonaccrual loans -
held-for-investment |
$ |
4,360 |
|
$ |
4,184 |
|
$ |
4,832 |
|
|
|
4 |
% |
|
-10 |
% |
Foreclosed assets |
|
313 |
|
|
386 |
|
|
421 |
|
|
|
-19 |
% |
|
-26 |
% |
Total
nonperforming assets |
$ |
4,673 |
|
$ |
4,570 |
|
$ |
5,253 |
|
|
|
2 |
% |
|
-11 |
% |
Other restructured
loans still accruing |
$ |
141 |
|
$ |
145 |
|
$ |
158 |
|
|
|
-3 |
% |
|
-11 |
% |
Net (recoveries)
charge-offs during the quarter |
$ |
(112 |
) |
$ |
(131 |
) |
$ |
(181 |
) |
|
|
15 |
% |
|
38 |
% |
Provision (credit) for
loan losses during the quarter |
$ |
351 |
|
$ |
401 |
|
$ |
22 |
|
|
|
-12 |
% |
|
1495 |
% |
Allowance for loan
losses |
$ |
19,921 |
|
$ |
19,458 |
|
$ |
18,757 |
|
|
|
2 |
% |
|
6 |
% |
Classified assets |
$ |
22,811 |
|
$ |
21,348 |
|
$ |
11,169 |
|
|
|
7 |
% |
|
104 |
% |
Allowance for loan
losses to total loans |
|
1.36 |
% |
|
1.39 |
% |
|
1.65 |
% |
|
|
-2 |
% |
|
-18 |
% |
Allowance for loan
losses to total nonperforming loans |
|
456.90 |
% |
|
465.06 |
% |
|
388.18 |
% |
|
|
-2 |
% |
|
18 |
% |
Nonperforming assets to
total assets |
|
0.20 |
% |
|
0.20 |
% |
|
0.31 |
% |
|
|
0 |
% |
|
-35 |
% |
Nonperforming loans to
total loans |
|
0.30 |
% |
|
0.30 |
% |
|
0.43 |
% |
|
|
0 |
% |
|
-30 |
% |
Classified assets to
Heritage Commerce Corp Tier 1 capital plus allowance for loan
losses |
|
10 |
% |
|
10 |
% |
|
6 |
% |
|
|
0 |
% |
|
67 |
% |
Classified assets to
Heritage Bank of Commerce Tier 1 capital plus allowance for loan
losses |
|
10 |
% |
|
10 |
% |
|
6 |
% |
|
|
0 |
% |
|
67 |
% |
|
|
|
|
|
|
|
OTHER
PERIOD-END STATISTICS |
|
|
|
|
|
|
(in $000's,
unaudited) |
|
|
|
|
|
|
Heritage Commerce
Corp: |
|
|
|
|
|
|
Tangible
equity |
$ |
204,115 |
|
$ |
197,869 |
|
$ |
171,086 |
|
|
|
3 |
% |
|
19 |
% |
Tangible
common equity |
$ |
184,596 |
|
$ |
178,350 |
|
$ |
151,567 |
|
|
|
4 |
% |
|
22 |
% |
Shareholders' equity / total assets |
|
10.83 |
% |
|
10.81 |
% |
|
11.13 |
% |
|
|
0 |
% |
|
-3 |
% |
Tangible
equity / tangible assets |
|
8.78 |
% |
|
8.70 |
% |
|
10.28 |
% |
|
|
1 |
% |
|
-15 |
% |
Tangible
common equity / tangible assets |
|
7.94 |
% |
|
7.84 |
% |
|
9.11 |
% |
|
|
1 |
% |
|
-13 |
% |
Loan to
deposit ratio |
|
70.60 |
% |
|
68.78 |
% |
|
78.33 |
% |
|
|
3 |
% |
|
-10 |
% |
Noninterest-bearing deposits / total deposits |
|
40.24 |
% |
|
37.88 |
% |
|
39.68 |
% |
|
|
6 |
% |
|
1 |
% |
Total
risk-based capital ratio |
|
12.3 |
% |
|
12.4 |
% |
|
13.0 |
% |
|
|
-1 |
% |
|
-5 |
% |
Tier 1
risk-based capital ratio |
|
11.2 |
% |
|
11.3 |
% |
|
11.8 |
% |
|
|
-1 |
% |
|
-5 |
% |
Common
Equity Tier 1 risk-based capital ratio |
|
10.2 |
% |
|
10.2 |
% |
|
10.5 |
% |
|
|
0 |
% |
|
-3 |
% |
Leverage
ratio |
|
9.0 |
% |
|
8.8 |
% |
|
10.6 |
% |
|
|
2 |
% |
|
-15 |
% |
|
|
|
|
|
|
|
Heritage Bank of
Commerce: |
|
|
|
|
|
|
Total
risk-based capital ratio |
|
12.2 |
% |
|
12.3 |
% |
|
12.6 |
% |
|
|
-1 |
% |
|
-3 |
% |
Tier 1
risk-based capital ratio |
|
11.1 |
% |
|
11.2 |
% |
|
11.3 |
% |
|
|
-1 |
% |
|
-2 |
% |
Common
Equity Tier 1 risk-based capital ratio |
|
11.1 |
% |
|
11.2 |
% |
|
11.3 |
% |
|
|
-1 |
% |
|
-2 |
% |
Leverage
ratio |
|
8.9 |
% |
|
8.7 |
% |
|
10.2 |
% |
|
|
2 |
% |
|
-13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter
Ended |
|
For the Quarter
Ended |
|
|
June 30, 2016 |
|
June 30, 2015 |
|
|
|
|
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) |
|
$ |
1,417,952 |
|
|
$ |
19,735 |
|
|
|
5.60 |
% |
|
$ |
1,107,906 |
|
|
$ |
15,643 |
|
|
|
5.66 |
% |
Securities -
taxable |
|
|
523,183 |
|
|
|
2,828 |
|
|
|
2.17 |
% |
|
|
228,180 |
|
|
|
1,554 |
|
|
|
2.73 |
% |
Securities - tax
exempt(2) |
|
|
92,230 |
|
|
|
885 |
|
|
|
3.86 |
% |
|
|
80,943 |
|
|
|
792 |
|
|
|
3.92 |
% |
Other investments and
interest-bearing deposits in other financial institutions |
|
|
138,984 |
|
|
|
366 |
|
|
|
1.06 |
% |
|
|
125,522 |
|
|
|
463 |
|
|
|
1.48 |
% |
Total
interest earning assets(2) |
|
|
2,172,349 |
|
|
|
23,814 |
|
|
|
4.41 |
% |
|
|
1,542,551 |
|
|
|
18,452 |
|
|
|
4.80 |
% |
Cash and due from
banks |
|
|
33,208 |
|
|
|
|
|
|
|
27,996 |
|
|
|
|
|
Premises and equipment,
net |
|
|
7,589 |
|
|
|
|
|
|
|
7,342 |
|
|
|
|
|
Goodwill and other
intangible assets |
|
|
53,626 |
|
|
|
|
|
|
|
16,063 |
|
|
|
|
|
Other assets |
|
|
79,102 |
|
|
|
|
|
|
|
70,616 |
|
|
|
|
|
Total
assets |
|
$ |
2,345,874 |
|
|
|
|
|
|
$ |
1,664,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
Demand,
noninterest-bearing |
|
$ |
780,116 |
|
|
|
|
|
|
$ |
550,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand,
interest-bearing |
|
|
498,970 |
|
|
|
236 |
|
|
|
0.19 |
% |
|
|
235,860 |
|
|
|
105 |
|
|
|
0.18 |
% |
Savings
and money market |
|
|
505,697 |
|
|
|
269 |
|
|
|
0.21 |
% |
|
|
382,751 |
|
|
|
198 |
|
|
|
0.21 |
% |
Time
deposits - under $100 |
|
|
22,618 |
|
|
|
16 |
|
|
|
0.28 |
% |
|
|
19,065 |
|
|
|
14 |
|
|
|
0.29 |
% |
Time
deposits - $100 and over |
|
|
217,586 |
|
|
|
219 |
|
|
|
0.40 |
% |
|
|
199,615 |
|
|
|
161 |
|
|
|
0.32 |
% |
Time
deposits - brokered |
|
|
8,861 |
|
|
|
19 |
|
|
|
0.86 |
% |
|
|
26,790 |
|
|
|
53 |
|
|
|
0.79 |
% |
CDARS -
money market and time deposits |
|
|
8,676 |
|
|
|
1 |
|
|
|
0.05 |
% |
|
|
13,519 |
|
|
|
2 |
|
|
|
0.06 |
% |
Total
interest-bearing deposits |
|
|
1,262,408 |
|
|
|
760 |
|
|
|
0.24 |
% |
|
|
877,600 |
|
|
|
533 |
|
|
|
0.24 |
% |
Total
deposits |
|
|
2,042,524 |
|
|
|
760 |
|
|
|
0.15 |
% |
|
|
1,428,469 |
|
|
|
533 |
|
|
|
0.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings |
|
|
7 |
|
|
|
- |
|
|
|
0.00 |
% |
|
|
13 |
|
|
|
- |
|
|
|
0.00 |
% |
Total
interest-bearing liabilities |
|
|
1,262,415 |
|
|
|
760 |
|
|
|
0.24 |
% |
|
|
877,613 |
|
|
|
533 |
|
|
|
0.24 |
% |
Total
interest-bearing liabilities and demand, noninterest-bearing / cost
of funds |
|
|
2,042,531 |
|
|
|
760 |
|
|
|
0.15 |
% |
|
|
1,428,482 |
|
|
|
533 |
|
|
|
0.15 |
% |
Other liabilities |
|
|
49,913 |
|
|
|
|
|
|
|
48,907 |
|
|
|
|
|
Total
liabilities |
|
|
2,092,444 |
|
|
|
|
|
|
|
1,477,389 |
|
|
|
|
|
Shareholders'
equity |
|
|
253,430 |
|
|
|
|
|
|
|
187,179 |
|
|
|
|
|
Total
liabilities and shareholders' equity |
|
$ |
2,345,874 |
|
|
|
|
|
|
$ |
1,664,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income(2)
/ margin |
|
|
|
|
23,054 |
|
|
|
4.27 |
% |
|
|
|
|
17,919 |
|
|
|
4.66 |
% |
Less tax equivalent
adjustment(2) |
|
|
|
|
(310 |
) |
|
|
|
|
|
|
(277 |
) |
|
|
Net
interest income |
|
|
|
$ |
22,744 |
|
|
|
|
|
|
$ |
17,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 Six Months Ended |
|
For the Six Months Ended |
|
|
June 30, 2016 |
|
June 30, 2015 |
|
|
|
|
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) |
|
$ |
1,396,779 |
|
|
|
38,923 |
|
|
|
5.60 |
% |
|
$ |
1,086,988 |
|
|
$ |
30,647 |
|
|
|
5.69 |
% |
Securities -
taxable |
|
|
501,850 |
|
|
|
5,603 |
|
|
|
2.25 |
% |
|
|
224,039 |
|
|
|
3,157 |
|
|
|
2.84 |
% |
Securities - tax
exempt(2) |
|
|
92,675 |
|
|
|
1,776 |
|
|
|
3.85 |
% |
|
|
80,410 |
|
|
|
1,571 |
|
|
|
3.94 |
% |
Federal funds sold and
interest-bearing deposits in other financial institutions |
|
|
177,107 |
|
|
|
886 |
|
|
|
1.01 |
% |
|
|
138,053 |
|
|
|
716 |
|
|
|
1.05 |
% |
Total
interest earning assets(2) |
|
|
2,168,411 |
|
|
|
47,188 |
|
|
|
4.38 |
% |
|
|
1,529,490 |
|
|
|
36,091 |
|
|
|
4.76 |
% |
Cash and due from
banks |
|
|
33,078 |
|
|
|
|
|
|
|
27,628 |
|
|
|
|
|
Premises and equipment,
net |
|
|
7,660 |
|
|
|
|
|
|
|
7,397 |
|
|
|
|
|
Goodwill and other
intangible assets |
|
|
53,834 |
|
|
|
|
|
|
|
16,153 |
|
|
|
|
|
Other assets |
|
|
84,566 |
|
|
|
|
|
|
|
69,171 |
|
|
|
|
|
Total
assets |
|
$ |
2,347,549 |
|
|
|
|
|
|
$ |
1,649,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
Demand,
noninterest-bearing |
|
$ |
778,558 |
|
|
|
|
|
|
$ |
540,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand,
interest-bearing |
|
|
500,461 |
|
|
|
472 |
|
|
|
0.19 |
% |
|
|
233,669 |
|
|
|
205 |
|
|
|
0.18 |
% |
Savings
and money market |
|
|
502,159 |
|
|
|
540 |
|
|
|
0.22 |
% |
|
|
382,385 |
|
|
|
383 |
|
|
|
0.20 |
% |
Time
deposits - under $100 |
|
|
22,953 |
|
|
|
32 |
|
|
|
0.28 |
% |
|
|
19,370 |
|
|
|
29 |
|
|
|
0.30 |
% |
Time
deposits - $100 and over |
|
|
212,349 |
|
|
|
410 |
|
|
|
0.39 |
% |
|
|
200,277 |
|
|
|
312 |
|
|
|
0.31 |
% |
Time
deposits - brokered |
|
|
11,843 |
|
|
|
49 |
|
|
|
0.83 |
% |
|
|
27,450 |
|
|
|
108 |
|
|
|
0.79 |
% |
CDARS -
money market and time deposits |
|
|
8,388 |
|
|
|
4 |
|
|
|
0.10 |
% |
|
|
12,203 |
|
|
|
4 |
|
|
|
0.07 |
% |
Total
interest-bearing deposits |
|
|
1,258,153 |
|
|
|
1,507 |
|
|
|
0.24 |
% |
|
|
875,354 |
|
|
|
1,041 |
|
|
|
0.24 |
% |
Total
deposits |
|
|
2,036,711 |
|
|
|
1,507 |
|
|
|
0.15 |
% |
|
|
1,416,121 |
|
|
|
1,041 |
|
|
|
0.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings |
|
|
877 |
|
|
|
11 |
|
|
|
2.52 |
% |
|
|
38 |
|
|
|
- |
|
|
|
0.00 |
% |
Total
interest-bearing liabilities |
|
|
1,259,030 |
|
|
|
1,518 |
|
|
|
0.24 |
% |
|
|
875,392 |
|
|
|
1,041 |
|
|
|
0.24 |
% |
Total
interest-bearing liabilities and demand, noninterest-bearing / cost
of funds |
|
|
2,037,588 |
|
|
|
1,518 |
|
|
|
0.15 |
% |
|
|
1,416,159 |
|
|
|
1,041 |
|
|
|
0.15 |
% |
Other liabilities |
|
|
58,896 |
|
|
|
|
|
|
|
47,280 |
|
|
|
|
|
Total
liabilities |
|
|
2,096,484 |
|
|
|
|
|
|
|
1,463,439 |
|
|
|
|
|
Shareholders'
equity |
|
|
251,065 |
|
|
|
|
|
|
|
186,400 |
|
|
|
|
|
Total
liabilities and shareholders' equity |
|
$ |
2,347,549 |
|
|
|
|
|
|
$ |
1,649,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income(2)
/ margin |
|
|
|
|
45,670 |
|
|
|
4.24 |
% |
|
|
|
|
35,050 |
|
|
|
4.62 |
% |
Less tax equivalent
adjustment(2) |
|
|
|
|
(622 |
) |
|
|
|
|
|
|
(550 |
) |
|
|
Net
interest income |
|
|
|
$ |
45,048 |
|
|
|
|
|
|
$ |
34,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
|
CONTACT:
Heritage Commerce Corp
Debbie Reuter, EVP, Corporate Secretary
(408) 494-4542
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