Heritage Commerce Corp (Nasdaq:HTBK), the holding
company (the “Company”) for Heritage Bank of Commerce (the “Bank”),
today reported net income increased 96% to $6.8 million, or $0.18
per average diluted common share, for the third quarter of 2016,
compared to $3.5 million, or $0.10 per average diluted common share
for the third quarter of 2015, and decreased 7% from $7.3 million,
or $0.19 per average diluted common share for the second quarter of
2016. The second quarter of 2016 included a $1.0 million
pre-tax gain from company-owned life insurance.
For the nine months ended September 30, 2016, net income was a
record $20.2 million, or $0.53 per average diluted common share, an
increase of 67% from $12.1 million, or $0.36 per average diluted
common share, for the nine months ended September 30, 2015. All
results are unaudited and the 2015 balances include the costs from
the acquisition of Focus Business Bank (“Focus”) which was
completed on August 20, 2015 (the “acquisition date”).
“We achieved record year-to-date earnings, along with strong
third quarter 2016 earnings of $6.8 million,” said Walter
Kaczmarek, President and Chief Executive Officer. “Deposits
grew by $256.6 million, or 13% year-over-year, and the increased
liquidity was invested in lower yielding funds at the Federal
Reserve Bank. Asset quality was sound with nonperforming
assets to total assets at 0.19%.”
“The strength of our Company continues to be driven by the
commitment of our employees. Their hard work and dedication
allow us to continue serving our clients and invest in the future
of our franchise,” continued Mr. Kaczmarek. “As demonstrated
by our financial results, we are building a significant and
well-diversified community business bank in Northern
California.”
Third Quarter 2016 Highlights (as of, or for
the period ended September 30, 2016, except as noted):
- Diluted earnings per share totaled $0.18 for the third quarter
of 2016, compared to $0.10 for the third quarter of 2015, and $0.19
for the second quarter of 2016. Diluted earnings per share
totaled $0.53 for the first nine months of 2016, compared to $0.36
per diluted share for the first nine months of 2015.
- The return on average tangible assets was 1.13%, and the return
on average tangible equity was 13.06%, for the third quarter of
2016, compared to 0.71% and 7.46%, respectively, for the third
quarter of 2015, and 1.28% and 14.68%, respectively, for the second
quarter of 2016. The return on average tangible assets
was 1.16%, and the return on average tangible equity was 13.45%,
for the first nine months of 2016, compared to 0.93% and 9.22%,
respectively, for the first nine months of 2015.
- The second quarter of 2016 included a $1.0 million pre-tax gain
from company-owned life insurance. The 2015 balances included
pre-tax acquisition, severance and retention costs incurred by the
Company related to the Focus transaction totaling $2.9 million for
the third quarter of 2015, and $3.4 million for the first nine
months of 2015.
- Net interest income increased 17% to $23.0 million for the
third quarter of 2016, compared to $19.7 million for the third
quarter of 2015, and increased 1% from $22.7 million for the second
quarter of 2016. For the first nine months of 2016, net
interest income increased 26% to $68.1 million, compared to $54.2
million for the first nine months of 2015.
- For the third quarter of 2016, the fully tax equivalent (“FTE”)
net interest margin contracted 29 basis points to 4.10% from 4.39%
for the third quarter of 2015, primarily due to lower yields
on loans and securities. The net interest margin
contracted 17 basis points for the third quarter of 2016, from
4.27% for the second quarter of 2016, primarily due to higher
average balances of lower yielding funds at the Federal Reserve
Bank, and a lower yield on securities. For the first nine
months of 2016, the net interest margin declined 35 basis points to
4.19%, compared to 4.54% for the first nine months of 2015,
primarily due to higher average balances of lower yielding funds at
the Federal Reserve Bank, and lower yields on loans and securities,
which was partially offset by an increase in the accretion of the
loan purchase discount income from the Focus transaction.
- The accretion of the loan purchase discount in loan interest
income from the Focus transaction was $299,000 for the third
quarter of 2016, compared to $262,000 for the third quarter of
2015, and $276,000 for the second quarter of
2016. The accretion of the loan purchase discount
in loan interest income from the Focus transaction was $1.1 million
for the first nine months of 2016, compared to $262,000 for the
first nine months of 2015. The total purchase discount
on non-impaired loans from the Focus loan portfolio was $4.6
million at the acquisition date, of which $2.5 million has been
accreted to loan interest income from the acquisition date through
September 30, 2016.
- Loans (excluding loans‑held‑for‑sale) increased
$117.8 million, or 9%, to $1.45 billion at September 30,
2016, compared to $1.33 billion at September 30, 2015, which
included an increase of $68.5 million, or 5% in the Company’s
legacy portfolio, and $49.3 million of purchased residential
mortgage loans at September 30, 2016. Loans decreased $13.9
million, or 1%, at September 30, 2016, compared to
$1.46 billion at June 30, 2016, primarily due to a net $15.3
million decrease in land and construction loans as a result of the
pay-off of $29.7 million in loans from the sale of projects at
completion, and a net $7.5 million decrease in commercial real
estate loans from $13.9 million in pay-offs, partially offset by an
increase of $16.4 million in purchased residential mortgage
loans.
- Nonperforming assets (“NPAs”) were $4.8 million, or 0.19% of
total assets, at September 30, 2016, compared to $5.9 million, or
0.26% of total assets, at September 30, 2015, and $4.7 million, or
0.20% of total assets, at June 30, 2016.
- Classified assets were $18.7 million, or 0.74% of total
assets, at September 30, 2016, compared to $18.0 million, or 0.79%
of total assets, at September 30, 2015, and $22.8 million, or 0.96%
of total assets, at June 30, 2016.
- Net charge-offs totaled $134,000 for the third quarter of 2016,
compared to net recoveries of $281,000 for the third quarter of
2015, and net recoveries of $112,000 for the second quarter of
2016.
- There was a $245,000 provision for loan losses for the third
quarter of 2016, compared to a $301,000 credit provision for loan
losses for the third quarter of 2015, and a $351,000 provision for
loan losses for the second quarter of 2016. There was a
$997,000 provision for loan losses for the nine months ended
September 30, 2016, compared to a $339,000 credit provision for
loan losses for the nine months ended September 30, 2015.
- The allowance for loan losses (“ALLL”) was 1.38% of total loans
at September 30, 2016, compared to 1.41% at September 30, 2015, and
1.36% at June 30, 2016. The ALLL to total nonperforming loans
was 445.55% at September 30, 2016, compared to 340.49% at September
30, 2015, and 456.90% at June 30, 2016.
- Total deposits increased $256.6 million, or 13%, to
$2.22 billion at September 30, 2016, compared to
$1.96 billion at September 30, 2015, and increased $144.9
million, or 7%, from $2.07 billion at June 30, 2016.
Deposits excluding all time deposits and CDARS deposits increased
$291.2 million, or 17%, to $1.98 billion at September 30, 2016,
from $1.69 billion at September 30, 2015, and increased $166.0
million, or 9%, from $1.81 billion at June 30, 2016.
- 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 September 30, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well-capitalized |
|
Fully Phased-in |
|
|
|
|
|
|
Financial |
|
Basel III |
|
|
|
|
|
|
Institution |
|
Minimal |
|
|
Heritage |
|
Heritage |
|
Basel III |
|
Requirement(1) |
|
|
Commerce |
|
Bank of |
|
Regulatory |
|
Effective |
CAPITAL RATIOS |
|
Corp |
|
Commerce |
|
Guidelines |
|
January 1, 2019 |
Total Risk-Based |
|
|
12.7 |
% |
|
|
12.6 |
% |
|
|
|
10.0 |
% |
|
|
|
|
10.5 |
% |
|
Tier 1 Risk-Based |
|
|
11.6 |
% |
|
|
11.4 |
% |
|
|
|
8.0 |
% |
|
|
|
|
8.5 |
% |
|
Common Equity Tier 1
Risk-Based |
|
|
11.6 |
% |
|
|
11.4 |
% |
|
|
|
6.5 |
% |
|
|
|
|
7.0 |
% |
|
Leverage |
|
|
8.9 |
% |
|
|
8.7 |
% |
|
|
|
5.0 |
% |
|
|
|
|
4.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Requirements for both the Company and the Bank include a 2.5%
capital conservation buffer, except the leverage ratio. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Results
Net interest income increased 17% to $23.0 million for the third
quarter of 2016, compared to $19.7 million for the third quarter of
2015, and increased 1% from $22.7 million for the second quarter of
2016. Net interest income increased 26% to $68.1
million for the nine months ended September 30, 2016, compared to
$54.2 million for the nine months ended September 30, 2015.
Net interest income increased for the third quarter and first nine
months of 2016, compared to the respective periods in 2015,
primarily due to organic growth in the loan portfolio, the
accretion of the loan purchase discount into interest income from
the Focus transaction, and an increase in the average balance of
investment securities.
For the third quarter of 2016, the net interest margin (FTE)
contracted 29 basis points to 4.10% from 4.39% for the third
quarter of 2015, primarily due to lower yields on loans and
securities. The net interest margin contracted 17 basis
points for the third quarter of 2016, from 4.27% for the second
quarter of 2016, primarily due to higher average balances of lower
yielding funds at the Federal Reserve Bank, and a lower yield on
securities. For the first nine months of 2016, the net interest
margin decreased 35 basis points to 4.19%, compared to 4.54% for
the first nine months of 2015, primarily due to higher average
balances of lower yielding funds at the Federal Reserve Bank, and
lower yields on loans and securities, which was partially offset by
an increase in the accretion of the loan purchase discount from the
Focus transaction.
There was a $245,000 provision for loan losses for the third
quarter of 2016, compared to a $301,000 credit provision for loan
losses for the third quarter of 2015, and a $351,000 provision for
loan losses for the second quarter of 2016. There was a $997,000
provision for loan losses for the nine months ended September 30,
2016, compared to a $339,000 credit provision for loan losses for
the nine months ended September 30, 2015.
Noninterest income increased to $2.3 million for the third
quarter of 2016, compared to $2.1 million for the third quarter of
2015, and decreased from $3.7 million for the second quarter of
2016. The decrease in noninterest income for the third
quarter of 2016, compared to the second quarter of 2016, was
primarily due to a $1.0 million gain from company owned life
insurance and a $347,000 gain on sales of securities in the second
quarter of 2016. For the nine months ended September 30,
2016, noninterest income was $8.6 million, compared to $6.2 million
at September 30, 2015. The increase in noninterest income for
the first nine months of 2016, compared to the first nine months of
2015, 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 third quarter of 2016 was
$14.3 million, compared to $16.4 million for the third quarter of
2015, and $14.4 million for the second quarter of 2016.
The decrease in noninterest expense in the third quarter of
2016, compared to the third quarter of 2015, was primarily due to
pre-tax acquisition, severance and retention costs incurred by the
Company related to the Focus transaction totaling $2.9 million for
the third quarter of 2015. Noninterest expense for the nine
months ended September 30, 2016 increased to $43.4 million,
compared to $41.3 million for the nine months ended September 30,
2015, 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,
newly hired employees and higher professional fees, partially
offset by $3.4 million of pre-tax acquisition, severance and
retention costs incurred by the Company for the first nine months
of 2015. Professional fees were significantly lower in the
first nine months of 2015 due to recoveries of legal fees on
problem loans that were paid off. Full time equivalent
employees were 264 at September 30, 2016, 272 at September 30,
2015, and 268 at June 30, 2016.
The efficiency ratio for the third quarter of 2016 was 56.37%,
compared to 75.49% for the third quarter of 2015, and 54.47% for
the second quarter of 2016. The efficiency ratio for the nine
months ended September 30, 2016 was 56.55%, compared to 68.47% for
the nine months ended September 30, 2015. The higher
efficiency ratio in the third quarter of 2015 and nine months ended
September 30, 2015 was primarily due to one-time Focus acquisition,
severance and retention costs. Excluding the one-time Focus
acquisition, severance and retention costs, the efficiency ratio
was 62.32% for the third quarter of 2015, and 62.76% for the nine
months ended September 30, 2015.
Income tax expense for the third quarter of 2016 was $4.1
million, compared to $2.2 million for the third quarter of 2015,
and $4.4 million for the second quarter of 2016. The effective tax
rate for the third quarter of 2016 was 37.5%, compared to 38.6% for
the third quarter of 2015, and 37.5% for the second quarter of
2016. The effective tax rate for the third quarter of 2015
was higher primarily due to the impact of non-deductible merger
related expenses. Income tax expense for the nine months
ended September 30, 2016 was $12.2 million, compared to $7.3
million for the nine months ended September 30, 2015. The effective
tax rate for the nine months ended September 30, 2016 was 37.6%,
compared to 37.7% for the nine months ended September 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 $2.53 billion at September 30, 2016, compared
to $2.26 billion at September 30, 2015, and $2.38 billion at June
30, 2016.
The investment securities available-for-sale portfolio totaled
$370.0 million at September 30, 2016, compared to $257.4 million at
September 30, 2015, and $390.4 million at June 30, 2016. At
September 30, 2016, the Company’s securities available-for-sale
portfolio was comprised of $352.6 million agency mortgage-backed
securities (all issued by U.S. Government sponsored entities),
$16.4 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 September 30, 2016 was $8.0
million, compared to a pre-tax unrealized gain on securities
available-for-sale of $4.5 million at September 30, 2015, and a
pre-tax unrealized gain on securities available-for-sale of $7.7
million at June 30, 2016.
At September 30, 2016, investment securities held-to-maturity
totaled $202.4 million, compared to $111.0 million at September 30,
2015, and $210.2 million at June 30, 2016. At September 30,
2016, the Company’s securities held-to-maturity portfolio, at
amortized cost, was comprised of $90.8 million tax-exempt municipal
bonds, and $111.6 million agency mortgage-backed securities.
Loans (excluding loans‑held‑for‑sale) increased
$117.8 million, or 9%, to $1.45 billion at September 30,
2016, compared to $1.33 billion at September 30, 2015, which
included an increase of $68.5 million, or 5% in the Company’s
legacy portfolio, and $49.3 million of purchased residential
mortgage loans at September 30, 2016. Loans decreased $13.9
million, or 1%, at September 30, 2016, compared to
$1.46 billion at June 30, 2016, primarily due to a net $15.3
million decrease in land and construction loans as a result of the
pay-off of $29.7 million in loans from the sale of projects at
completion, and a net $7.5 million decrease in commercial real
estate loans from $13.9 million in pay-offs, partially offset by an
increase of $16.4 million in 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 September 30, 2016, which included $47.8 million of
factored receivables at Bay View Funding. Commercial real estate
loans accounted for 42% of the total loan portfolio, of which 43%
were owner-occupied by businesses. Consumer and home equity
loans accounted for 7% of total loans, land and construction loans
accounted for 6% of total loans, and residential mortgage loans
accounted for the remaining 3% of total loans at September 30,
2016. C&I line usage was 41% at September 30, 2016,
compared to 42% at June 30, 2016.
During the second and third quarters of 2016, the Company
purchased jumbo single family residential mortgage loans totaling
$51.6 million, all of which are domiciled in
California. The average loan principal amount is
approximately $834,000, and the weighted average yield on the
portfolio is 3.00%, net of servicing fees to the servicer.
Residential mortgages outstanding at September 30, 2016 totaled
$49.3 million, compared to $32.9 million at June 30, 2016.
The yield on the loan portfolio was 5.60% for the third quarter
of 2016, compared to 5.70% for the third quarter of 2015, and 5.60%
for the second quarter of 2016. The yield on the loan portfolio was
5.61% for the nine months ended September 30, 2016, compared to
5.69% for the nine months ended September 30, 2015. The
decrease in the yield on the loan portfolio for the third quarter
of 2016 and nine months ended September 30, 2016, compared to the
respective periods in 2015, was primarily due to a decrease in the
proportion of loans in the higher yielding Bay View Funding
factored receivables portfolio relative to the addition of the
Focus loans and growth in the Company’s legacy portfolio, partially
offset by an increase in the accretion of the loan purchase
discount into loan interest income from the Focus transaction.
At September 30, 2016, NPAs were $4.8 million, or 0.19% of total
assets, compared to $5.9 million, or 0.26% of total assets, at
September 30, 2015, and $4.7 million, or 0.20% of total assets, at
June 30, 2016. At September 30, 2016, the NPAs included no
loans guaranteed by the SBA. Foreclosed assets were $292,000
at September 30, 2016, compared to $393,000 at September 30, 2015,
and $313,000 at June 30, 2016. The following is a breakout of
NPAs at the periods indicated:
|
|
End of Period: |
NONPERFORMING ASSETS |
September 30, 2016 |
|
June 30, 2016 |
|
September 30, 2015 |
(in $000's, unaudited) |
|
Balance |
|
% of Total |
|
Balance |
|
% of Total |
|
Balance |
|
% of Total |
Commercial and
industrial loans |
|
$ |
3,570 |
|
|
|
75 |
% |
|
$ |
504 |
|
|
|
11 |
% |
|
$ |
947 |
|
|
|
16 |
% |
Commercial real estate
loans |
|
|
440 |
|
|
|
9 |
% |
|
|
2,849 |
|
|
|
61 |
% |
|
|
3,075 |
|
|
|
52 |
% |
Foreclosed assets |
|
|
292 |
|
|
|
6 |
% |
|
|
313 |
|
|
|
7 |
% |
|
|
393 |
|
|
|
7 |
% |
Home equity
and consumer loans |
|
278 |
|
|
|
6 |
% |
|
|
760 |
|
|
|
16 |
% |
|
|
316 |
|
|
|
5 |
% |
Land and construction
loans |
|
|
201 |
|
|
|
4 |
% |
|
|
207 |
|
|
|
4 |
% |
|
|
492 |
|
|
|
8 |
% |
SBA loans |
|
|
7 |
|
|
|
0 |
% |
|
|
40 |
|
|
|
1 |
% |
|
|
673 |
|
|
|
12 |
% |
Total
nonperforming assets |
|
$ |
4,788 |
|
|
|
100 |
% |
|
$ |
4,673 |
|
|
|
100 |
% |
|
$ |
5,896 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Classified assets were $18.7 million at September 30, 2016,
compared to $18.0 million at September 30, 2015, and $22.8 million
at June 30, 2016. Classified assets include Small Business
Administration (“SBA”) guarantees of $10,000 at September 30, 2016,
$0 at September 30, 2015, and $14,000 at June 30, 2016.
The following table summarizes the allowance for loan
losses:
|
|
For the Quarter Ended |
|
For the Nine Months Ended |
ALLOWANCE FOR LOAN LOSSES |
September 30, |
|
June 30, |
|
September 30, |
|
September 30, |
|
September 30, |
(in $000's, unaudited) |
|
|
2016 |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
Balance at
beginning of period |
$ |
19,921 |
|
|
$ |
19,458 |
|
|
$ |
18,757 |
|
|
$ |
18,926 |
|
|
$ |
18,379 |
|
Provision
(credit) for loan losses during the period |
|
245 |
|
|
|
351 |
|
|
|
(301 |
) |
|
|
997 |
|
|
|
(339 |
) |
Net
recoveries (charge-offs) during the period |
|
(134 |
) |
|
|
112 |
|
|
|
281 |
|
|
|
109 |
|
|
|
697 |
|
Balance at end of period |
$ |
20,032 |
|
|
$ |
19,921 |
|
|
$ |
18,737 |
|
|
$ |
20,032 |
|
|
$ |
18,737 |
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
1,450,176 |
|
|
$ |
1,464,114 |
|
|
$ |
1,132,405 |
|
|
$ |
1,450,176 |
|
|
$ |
1,332,405 |
|
Total
nonperforming loans |
$ |
4,496 |
|
|
$ |
4,360 |
|
|
$ |
5,503 |
|
|
$ |
4,496 |
|
|
$ |
5,503 |
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan losses to total loans |
|
1.38 |
% |
|
|
1.36 |
% |
|
|
1.41 |
% |
|
|
1.38 |
% |
|
|
1.41 |
% |
Allowance
for loan losses to total nonperforming loans |
|
445.55 |
% |
|
|
456.90 |
% |
|
|
340.49 |
% |
|
|
445.55 |
% |
|
|
340.49 |
% |
|
|
|
|
|
|
|
|
|
|
|
The ALLL at September 30, 2016 was 1.38% of total loans,
compared to 1.41% at September 30, 2015, and 1.36% at June 30,
2016. The ALLL to total nonperforming loans was 445.55% at
September 30, 2016, compared to 340.49% at September 30, 2015, and
456.90% at June 30, 2016.
Total deposits increased $256.6 million, or 13%, to
$2.22 billion at September 30, 2016, compared to
$1.96 billion at September 30, 2015, and increased
$144.9 million, or 7%, at September 30, 2016, compared to
$2.07 billion at June 30, 2016. Deposits excluding all
time deposits and CDARS deposits increased $291.2 million, or 17%,
to $1.98 billion at September 30, 2016, from $1.69 billion at
September 30, 2015, and increased $166.0 million, or 9%, from $1.81
billion at June 30, 2016.
The total cost of deposits remained the same at 0.15 % for the
third quarter of 2016, the third quarter of 2015, and the second
quarter of 2016. The total cost of deposits was also at 0.15%
for the nine months ended September 30, 2016 and September 30,
2015.
Tangible equity was $208.3 million at September 30, 2016,
compared to $194.2 million at September 30, 2015, and $204.1
million at June 30, 2016. Tangible book value per common
share was $5.49 at September 30, 2016, compared to $5.44 at
September 30, 2015, and $5.72 at June 30, 2016. There was no
Series C Preferred Stock outstanding at September 30, 2016,
compared to 21,004 shares of Series C Preferred Stock outstanding
at September 30, 2015 and June 30, 2016. Pro forma tangible
book value per common share, assuming the outstanding Series C
Preferred Stock was converted into common stock, was $5.15 at
September 30, 2015, and $5.39 at June 30, 2016.
On September 12, 2016, the Company entered into Exchange
Agreements with Castle Creek Capital Partners IV, LP , Patriot
Financial Partners, L.P. and Patriot Financial Partners Parallel,
L.P. (collectively “Preferred Stockholders”) providing for the
exchange of 21,004 shares of the Series C Preferred Stock, for
5,601,000 shares of the Company’s common stock. The exchange ratio
was equal to the equivalent number of shares the Preferred
Stockholders would have received upon conversion of the Series C
Preferred Stock.
Accumulated other comprehensive loss was ($2.0) million at
September 30, 2016, compared to ($2.0) million at September 30,
2015, and ($2.1) million at June 30, 2016. The unrealized gain on
securities available-for-sale, net of taxes, included in
accumulated other comprehensive loss was an unrealized gain of $4.7
million September 30, 2016, compared to $2.6 million at September
30, 2015, and $4.5 million at June 30, 2016. The components
of accumulated other comprehensive loss, net of taxes, at September
30, 2016 include the following: an unrealized gain on
available-for-sale securities of $4.7 million; the remaining
unamortized unrealized gain on securities available-for-sale
transferred to held-to-maturity of $342,000; a split dollar
insurance contracts liability of ($3.6) million; a supplemental
executive retirement plan liability of ($4.0) million; and an
unrealized gain on interest-only strip from SBA loans of
$639,000.
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; (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 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) |
|
|
2016 |
|
|
|
2016 |
|
|
2015 |
|
|
|
2016 |
|
|
2015 |
|
|
|
|
2016 |
|
|
|
2015 |
|
|
Change |
Interest income |
$ |
|
23,874 |
|
|
$ |
23,504 |
|
$ |
20,306 |
|
|
|
2 |
% |
|
18 |
% |
|
$ |
|
70,440 |
|
|
$ |
55,847 |
|
|
|
26 |
% |
Interest expense |
|
|
826 |
|
|
|
760 |
|
|
623 |
|
|
|
9 |
% |
|
33 |
% |
|
|
|
2,344 |
|
|
|
1,664 |
|
|
|
41 |
% |
Net interest
income before provision for loan losses |
|
|
23,048 |
|
|
|
22,744 |
|
|
19,683 |
|
|
|
1 |
% |
|
17 |
% |
|
|
|
68,096 |
|
|
|
54,183 |
|
|
|
26 |
% |
Provision (credit) for
loan losses |
|
|
245 |
|
|
|
351 |
|
|
(301 |
) |
|
|
-30 |
% |
|
181 |
% |
|
|
|
997 |
|
|
|
(339 |
) |
|
|
394 |
% |
Net interest
income after provision for loan losses |
|
|
22,803 |
|
|
|
22,393 |
|
|
19,984 |
|
|
|
2 |
% |
|
14 |
% |
|
|
|
67,099 |
|
|
|
54,522 |
|
|
|
23 |
% |
Noninterest
income: |
|
|
|
|
|
|
|
|
|
|
|
Service charges
and fees on deposit accounts |
|
|
798 |
|
|
|
783 |
|
|
748 |
|
|
|
2 |
% |
|
7 |
% |
|
|
|
2,348 |
|
|
|
2,086 |
|
|
|
13 |
% |
Increase in cash
surrender value of life insurance |
|
|
428 |
|
|
|
440 |
|
|
429 |
|
|
|
-3 |
% |
|
0 |
% |
|
|
|
1,317 |
|
|
|
1,225 |
|
|
|
8 |
% |
Servicing
income |
|
|
364 |
|
|
|
371 |
|
|
214 |
|
|
|
-2 |
% |
|
70 |
% |
|
|
|
1,106 |
|
|
|
819 |
|
|
|
35 |
% |
Gain on sales of
SBA loans |
|
|
69 |
|
|
|
279 |
|
|
267 |
|
|
|
-75 |
% |
|
-74 |
% |
|
|
|
653 |
|
|
|
660 |
|
|
|
-1 |
% |
Gain on proceeds
from company owned life insurance |
|
|
- |
|
|
|
1,019 |
|
|
- |
|
|
|
-100 |
% |
|
N/A |
|
|
|
|
1,019 |
|
|
|
- |
|
|
|
N/A |
|
Gain on sales of
securities |
|
|
- |
|
|
|
347 |
|
|
- |
|
|
|
-100 |
% |
|
N/A |
|
|
|
|
527 |
|
|
|
- |
|
|
|
N/A |
|
Other |
|
|
653 |
|
|
|
421 |
|
|
408 |
|
|
|
55 |
% |
|
60 |
% |
|
|
|
1,616 |
|
|
|
1,366 |
|
|
|
18 |
% |
Total noninterest income |
|
|
2,312 |
|
|
|
3,660 |
|
|
2,066 |
|
|
|
-37 |
% |
|
12 |
% |
|
|
|
8,586 |
|
|
|
6,156 |
|
|
|
39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest
expense: |
|
|
|
|
|
|
|
|
|
|
|
Salaries and
employee benefits |
|
|
8,363 |
|
|
|
8,742 |
|
|
10,358 |
|
|
|
-4 |
% |
|
-19 |
% |
|
|
|
26,052 |
|
|
|
26,112 |
|
|
|
0 |
% |
Occupancy and
equipment |
|
|
1,120 |
|
|
|
1,081 |
|
|
1,063 |
|
|
|
4 |
% |
|
5 |
% |
|
|
|
3,277 |
|
|
|
3,135 |
|
|
|
5 |
% |
Professional
fees |
|
|
1,086 |
|
|
|
708 |
|
|
612 |
|
|
|
53 |
% |
|
77 |
% |
|
|
|
2,619 |
|
|
|
946 |
|
|
|
177 |
% |
Other |
|
|
3,727 |
|
|
|
3,850 |
|
|
4,386 |
|
|
|
-3 |
% |
|
-15 |
% |
|
|
|
11,414 |
|
|
|
11,119 |
|
|
|
3 |
% |
Total
noninterest expense |
|
|
14,296 |
|
|
|
14,381 |
|
|
16,419 |
|
|
|
-1 |
% |
|
-13 |
% |
|
|
|
43,362 |
|
|
|
41,312 |
|
|
|
5 |
% |
Income before income
taxes |
|
|
10,819 |
|
|
|
11,672 |
|
|
5,631 |
|
|
|
-7 |
% |
|
92 |
% |
|
|
|
32,323 |
|
|
|
19,366 |
|
|
|
67 |
% |
Income tax expense |
|
|
4,054 |
|
|
|
4,377 |
|
|
2,172 |
|
|
|
-7 |
% |
|
87 |
% |
|
|
|
12,157 |
|
|
|
7,292 |
|
|
|
67 |
% |
Net
income |
|
|
6,765 |
|
|
|
7,295 |
|
|
3,459 |
|
|
|
-7 |
% |
|
96 |
% |
|
|
|
20,166 |
|
|
|
12,074 |
|
|
|
67 |
% |
Dividends on preferred
stock |
|
|
(504 |
|
) |
|
(504 |
) |
|
(448 |
) |
|
|
0 |
% |
|
13 |
% |
|
|
|
(1,512 |
|
) |
|
(1,344 |
) |
|
|
13 |
% |
Net income available to
common shareholders |
|
|
6,261 |
|
|
|
6,791 |
|
|
3,011 |
|
|
|
-8 |
% |
|
108 |
% |
|
|
|
18,654 |
|
|
|
10,730 |
|
|
|
74 |
% |
Undistributed earnings
allocated to Series C preferred stock |
|
|
(300 |
) |
|
|
(576 |
) |
|
(111 |
) |
|
|
-48 |
% |
|
170 |
% |
|
|
|
(1,278 |
) |
|
|
(706 |
) |
|
|
81 |
% |
Distributed and
undistributed earnings allocated to common |
|
|
|
|
|
|
|
|
|
|
|
shareholders |
$ |
|
5,961 |
|
|
$ |
6,215 |
|
$ |
2,900 |
|
|
|
-4 |
% |
|
106 |
% |
|
$ |
|
17,376 |
|
|
$ |
10,024 |
|
|
|
73 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
PER COMMON
SHARE DATA |
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share |
$ |
|
0.18 |
|
|
$ |
0.19 |
|
$ |
0.10 |
|
|
|
-5 |
% |
|
80 |
% |
|
$ |
|
0.53 |
|
|
$ |
0.37 |
|
|
|
43 |
% |
Diluted earnings per
share |
$ |
|
0.18 |
|
|
$ |
0.19 |
|
$ |
0.10 |
|
|
|
-5 |
% |
|
80 |
% |
|
$ |
|
0.53 |
|
|
$ |
0.36 |
|
|
|
47 |
% |
Weighted average shares
outstanding - basic |
|
|
33,397,704 |
|
|
|
32,243,935 |
|
|
29,075,782 |
|
|
|
4 |
% |
|
15 |
% |
|
|
|
32,591,784 |
|
|
|
27,386,471 |
|
|
|
19 |
% |
Weighted average shares
outstanding - diluted |
|
|
33,693,328 |
|
|
|
32,512,611 |
|
|
29,332,452 |
|
|
|
4 |
% |
|
15 |
% |
|
|
|
32,863,855 |
|
|
|
27,589,464 |
|
|
|
19 |
% |
Common shares
outstanding at period-end |
|
|
37,915,736 |
|
|
|
32,294,063 |
|
|
32,076,505 |
|
|
|
17 |
% |
|
18 |
% |
|
|
|
37,915,736 |
|
|
|
32,076,505 |
|
|
|
18 |
% |
Pro forma common shares
outstanding at period-end, assuming |
|
|
|
|
|
|
|
|
|
|
|
Series C
preferred stock was converted into common stock |
|
N/A |
|
|
37,895,063 |
|
|
37,677,505 |
|
|
|
N/A |
|
|
N/A |
|
|
|
N/A |
|
|
37,677,505 |
|
|
|
N/A |
|
Book value per
share |
$ |
|
6.89 |
|
|
$ |
7.37 |
|
$ |
7.12 |
|
|
|
-7 |
% |
|
-3 |
% |
|
$ |
|
6.89 |
|
|
$ |
7.12 |
|
|
|
-3 |
% |
Tangible book value per
share |
$ |
|
5.49 |
|
|
$ |
5.72 |
|
$ |
5.44 |
|
|
|
-4 |
% |
|
1 |
% |
|
$ |
|
5.49 |
|
|
$ |
5.44 |
|
|
|
1 |
% |
Pro forma tangible book
value per share, assuming Series C |
|
|
|
|
|
|
|
|
|
|
|
preferred stock
was converted into common stock |
|
N/A |
|
$ |
5.39 |
|
$ |
5.15 |
|
|
|
N/A |
|
|
N/A |
|
|
|
N/A |
|
$ |
5.15 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
KEY FINANCIAL
RATIOS |
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
Annualized return on
average equity |
|
|
10.38 |
|
% |
|
11.58 |
% |
|
6.41 |
% |
|
|
-10 |
% |
|
62 |
% |
|
|
|
10.61 |
|
% |
|
8.25 |
% |
|
|
29 |
% |
Annualized return on
average tangible equity |
|
|
13.06 |
|
% |
|
14.68 |
% |
|
7.46 |
% |
|
|
-11 |
% |
|
75 |
% |
|
|
|
13.45 |
|
% |
|
9.22 |
% |
|
|
46 |
% |
Annualized return on
average assets |
|
|
1.11 |
|
% |
|
1.25 |
% |
|
0.70 |
% |
|
|
-11 |
% |
|
59 |
% |
|
|
|
1.13 |
|
% |
|
0.92 |
% |
|
|
23 |
% |
Annualized return on
average tangible assets |
|
|
1.13 |
|
% |
|
1.28 |
% |
|
0.71 |
% |
|
|
-12 |
% |
|
59 |
% |
|
|
|
1.16 |
|
% |
|
0.93 |
% |
|
|
25 |
% |
Net interest
margin |
|
|
4.10 |
|
% |
|
4.27 |
% |
|
4.39 |
% |
|
|
-4 |
% |
|
-7 |
% |
|
|
|
4.19 |
|
% |
|
4.54 |
% |
|
|
-8 |
% |
Efficiency ratio |
|
|
56.37 |
|
% |
|
54.47 |
% |
|
75.49 |
% |
|
|
3 |
% |
|
-25 |
% |
|
|
|
56.55 |
|
% |
|
68.47 |
% |
|
|
-17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE
BALANCES |
|
|
|
|
|
|
|
|
|
|
|
(in $000's,
unaudited) |
|
|
|
|
|
|
|
|
|
|
|
Average assets |
$ |
|
2,431,303 |
|
|
$ |
2,345,874 |
|
$ |
1,956,047 |
|
|
|
4 |
% |
|
24 |
% |
|
$ |
|
2,375,958 |
|
|
$ |
1,752,778 |
|
|
|
36 |
% |
Average tangible
assets |
$ |
|
2,378,045 |
|
|
$ |
2,292,248 |
|
$ |
1,925,912 |
|
|
|
4 |
% |
|
23 |
% |
|
$ |
|
2,322,317 |
|
|
$ |
1,732,057 |
|
|
|
34 |
% |
Average earning
assets |
$ |
|
2,263,997 |
|
|
$ |
2,172,349 |
|
$ |
1,805,801 |
|
|
|
4 |
% |
|
25 |
% |
|
$ |
|
2,198,178 |
|
|
$ |
1,622,605 |
|
|
|
35 |
% |
Average loans
held-for-sale |
$ |
|
5,992 |
|
|
$ |
2,951 |
|
$ |
3,197 |
|
|
|
103 |
% |
|
87 |
% |
|
$ |
|
4,568 |
|
|
$ |
1,985 |
|
|
|
130 |
% |
Average total
loans |
$ |
|
1,436,014 |
|
|
$ |
1,415,001 |
|
$ |
1,229,792 |
|
|
|
1 |
% |
|
17 |
% |
|
$ |
|
1,405,069 |
|
|
$ |
1,134,223 |
|
|
|
24 |
% |
Average deposits |
$ |
|
2,121,469 |
|
|
$ |
2,042,524 |
|
$ |
1,693,282 |
|
|
|
4 |
% |
|
25 |
% |
|
$ |
|
2,065,170 |
|
|
$ |
1,509,210 |
|
|
|
37 |
% |
Average demand deposits
- noninterest-bearing |
$ |
|
842,565 |
|
|
$ |
780,116 |
|
$ |
652,529 |
|
|
|
8 |
% |
|
29 |
% |
|
$ |
|
800,049 |
|
|
$ |
578,117 |
|
|
|
38 |
% |
Average
interest-bearing deposits |
$ |
|
1,278,904 |
|
|
$ |
1,262,408 |
|
$ |
1,040,753 |
|
|
|
1 |
% |
|
23 |
% |
|
$ |
|
1,265,121 |
|
|
$ |
931,093 |
|
|
|
36 |
% |
Average
interest-bearing liabilities |
$ |
|
1,278,959 |
|
|
$ |
1,262,415 |
|
$ |
1,040,919 |
|
|
|
1 |
% |
|
23 |
% |
|
$ |
|
1,265,722 |
|
|
$ |
931,173 |
|
|
|
36 |
% |
Average equity |
$ |
|
259,395 |
|
|
$ |
253,430 |
|
$ |
214,105 |
|
|
|
2 |
% |
|
21 |
% |
|
$ |
|
253,862 |
|
|
$ |
195,731 |
|
|
|
30 |
% |
Average tangible
equity |
$ |
|
206,137 |
|
|
$ |
199,804 |
|
$ |
183,970 |
|
|
|
3 |
% |
|
12 |
% |
|
$ |
|
200,221 |
|
|
$ |
175,010 |
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
End of Period: |
|
Percent Change From: |
CONSOLIDATED
BALANCE SHEETS |
September 30, |
June 30, |
September 30, |
|
June 30, |
September 30, |
(in $000's, unaudited) |
|
2016 |
|
|
2016 |
|
|
2015 |
|
|
|
2016 |
|
|
2015 |
|
ASSETS |
|
|
|
|
|
|
Cash and due from
banks |
$ |
39,838 |
|
$ |
30,820 |
|
$ |
28,691 |
|
|
|
29 |
% |
|
39 |
% |
Federal funds sold and
interest-bearing |
|
|
|
|
|
|
deposits in
other financial institutions |
|
304,554 |
|
|
128,024 |
|
|
364,247 |
|
|
|
138 |
% |
|
-16 |
% |
Securities
available-for-sale, at fair value |
|
369,999 |
|
|
390,435 |
|
|
257,410 |
|
|
|
-5 |
% |
|
44 |
% |
Securities
held-to-maturity, at amortized cost |
|
202,404 |
|
|
210,170 |
|
|
111,004 |
|
|
|
-4 |
% |
|
82 |
% |
Loans held-for-sale -
SBA, including deferred costs |
|
6,741 |
|
|
4,879 |
|
|
7,873 |
|
|
|
38 |
% |
|
-14 |
% |
Loans: |
|
|
|
|
|
|
Commercial |
|
606,281 |
|
|
610,385 |
|
|
554,169 |
|
|
|
-1 |
% |
|
9 |
% |
Real
estate: |
|
|
|
|
|
|
Commercial |
|
612,030 |
|
|
619,539 |
|
|
606,819 |
|
|
|
-1 |
% |
|
1 |
% |
Land and construction |
|
88,371 |
|
|
103,710 |
|
|
84,867 |
|
|
|
-15 |
% |
|
4 |
% |
Home equity |
|
76,536 |
|
|
78,332 |
|
|
74,624 |
|
|
|
-2 |
% |
|
3 |
% |
Residential mortgages |
|
49,255 |
|
|
32,852 |
|
|
- |
|
|
|
50 |
% |
|
N/A |
|
Consumer |
|
18,328 |
|
|
20,037 |
|
|
12,595 |
|
|
|
-9 |
% |
|
46 |
% |
Loans |
|
1,450,801 |
|
|
1,464,855 |
|
|
1,333,074 |
|
|
|
-1 |
% |
|
9 |
% |
Deferred loan
fees |
|
(625 |
) |
|
(741 |
) |
|
(669 |
) |
|
|
-16 |
% |
|
-7 |
% |
Total loans, net of deferred fees |
|
1,450,176 |
|
|
1,464,114 |
|
|
1,332,405 |
|
|
|
-1 |
% |
|
9 |
% |
Allowance for loan
losses |
|
(20,032 |
) |
|
(19,921 |
) |
|
(18,737 |
) |
|
|
1 |
% |
|
7 |
% |
Loans, net |
|
1,430,144 |
|
|
1,444,193 |
|
|
1,313,668 |
|
|
|
-1 |
% |
|
9 |
% |
Company owned life
insurance |
|
59,193 |
|
|
58,765 |
|
|
59,549 |
|
|
|
1 |
% |
|
-1 |
% |
Premises and equipment,
net |
|
7,552 |
|
|
7,542 |
|
|
7,513 |
|
|
|
0 |
% |
|
1 |
% |
Goodwill |
|
45,664 |
|
|
45,664 |
|
|
44,898 |
|
|
|
0 |
% |
|
2 |
% |
Other intangible
assets |
|
7,342 |
|
|
7,734 |
|
|
8,906 |
|
|
|
-5 |
% |
|
-18 |
% |
Accrued interest
receivable and other assets |
|
54,531 |
|
|
50,066 |
|
|
58,448 |
|
|
|
9 |
% |
|
-7 |
% |
Total assets |
$ |
2,527,962 |
|
$ |
2,378,292 |
|
$ |
2,262,207 |
|
|
|
6 |
% |
|
12 |
% |
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
Demand, noninterest-bearing |
$ |
889,075 |
|
$ |
834,590 |
|
$ |
758,440 |
|
|
|
7 |
% |
|
17 |
% |
Demand, interest-bearing |
|
536,541 |
|
|
499,512 |
|
|
440,517 |
|
|
|
7 |
% |
|
22 |
% |
Savings and money market |
|
555,156 |
|
|
480,677 |
|
|
490,572 |
|
|
|
15 |
% |
|
13 |
% |
Time deposits-under $250 |
|
57,718 |
|
|
60,761 |
|
|
65,626 |
|
|
|
-5 |
% |
|
-12 |
% |
Time deposits-$250 and over |
|
169,485 |
|
|
182,591 |
|
|
174,703 |
|
|
|
-7 |
% |
|
-3 |
% |
Time deposits - brokered |
|
3,000 |
|
|
6,079 |
|
|
24,150 |
|
|
|
-51 |
% |
|
-88 |
% |
CDARS - money market and time deposits |
|
7,659 |
|
|
9,574 |
|
|
8,015 |
|
|
|
-20 |
% |
|
-4 |
% |
Total deposits |
|
2,218,634 |
|
|
2,073,784 |
|
|
1,962,023 |
|
|
|
7 |
% |
|
13 |
% |
Borrowings |
|
- |
|
|
- |
|
|
1,000 |
|
|
|
N/A |
|
|
-100 |
% |
Accrued interest
payable and other liabilities |
|
48,009 |
|
|
46,995 |
|
|
51,208 |
|
|
|
2 |
% |
|
-6 |
% |
Total liabilities |
|
2,266,643 |
|
|
2,120,779 |
|
|
2,014,231 |
|
|
|
7 |
% |
|
13 |
% |
|
|
|
|
|
|
|
Shareholders'
Equity: |
|
|
|
|
|
|
Series C
preferred stock, net |
|
- |
|
|
19,519 |
|
|
19,519 |
|
|
|
-100 |
% |
|
-100 |
% |
Common
stock |
|
214,601 |
|
|
194,765 |
|
|
193,070 |
|
|
|
10 |
% |
|
11 |
% |
Retained
earnings |
|
48,726 |
|
|
45,371 |
|
|
37,366 |
|
|
|
7 |
% |
|
30 |
% |
Accumulated
other comprehensive loss |
|
(2,008 |
) |
|
(2,142 |
) |
|
(1,979 |
) |
|
|
6 |
% |
|
-1 |
% |
Total shareholders' equity |
|
261,319 |
|
|
257,513 |
|
|
247,976 |
|
|
|
1 |
% |
|
5 |
% |
Total liabilities and shareholders' equity |
$ |
2,527,962 |
|
$ |
2,378,292 |
|
$ |
2,262,207 |
|
|
|
6 |
% |
|
12 |
% |
|
|
|
|
|
|
|
|
End of Period: |
|
Percent Change From: |
CREDIT QUALITY
DATA |
September 30, |
June 30, |
September 30, |
|
June 30, |
September 30, |
(in $000's, unaudited) |
|
2016 |
|
|
2016 |
|
|
2015 |
|
|
|
2016 |
|
|
2015 |
|
Nonaccrual loans -
held-for-investment |
$ |
4,496 |
|
$ |
4,360 |
|
$ |
5,503 |
|
|
|
3 |
% |
|
-18 |
% |
Foreclosed assets |
|
292 |
|
|
313 |
|
|
393 |
|
|
|
-7 |
% |
|
-26 |
% |
Total
nonperforming assets |
$ |
4,788 |
|
$ |
4,673 |
|
$ |
5,896 |
|
|
|
2 |
% |
|
-19 |
% |
Other restructured
loans still accruing |
$ |
137 |
|
$ |
141 |
|
$ |
183 |
|
|
|
-3 |
% |
|
-25 |
% |
Net (recoveries)
charge-offs during the quarter |
$ |
134 |
|
$ |
(112 |
) |
$ |
(281 |
) |
|
|
220 |
% |
|
148 |
% |
Provision (credit) for
loan losses during the quarter |
$ |
245 |
|
$ |
351 |
|
$ |
(301 |
) |
|
|
-30 |
% |
|
181 |
% |
Allowance for loan
losses |
$ |
20,032 |
|
$ |
19,921 |
|
$ |
18,737 |
|
|
|
1 |
% |
|
7 |
% |
Classified assets |
$ |
18,693 |
|
$ |
22,811 |
|
$ |
17,976 |
|
|
|
-18 |
% |
|
4 |
% |
Allowance for loan
losses to total loans |
|
1.38 |
% |
|
1.36 |
% |
|
1.41 |
% |
|
|
1 |
% |
|
-2 |
% |
Allowance for loan
losses to total nonperforming loans |
|
445.55 |
% |
|
456.90 |
% |
|
340.49 |
% |
|
|
-2 |
% |
|
31 |
% |
Nonperforming assets to
total assets |
|
0.19 |
% |
|
0.20 |
% |
|
0.26 |
% |
|
|
-5 |
% |
|
-27 |
% |
Nonperforming loans to
total loans |
|
0.31 |
% |
|
0.30 |
% |
|
0.41 |
% |
|
|
3 |
% |
|
-24 |
% |
Classified assets to
Heritage Commerce Corp Tier 1 |
|
|
|
|
|
|
capital plus
allowance for loan losses |
|
8 |
% |
|
10 |
% |
|
8 |
% |
|
|
-20 |
% |
|
0 |
% |
Classified assets to
Heritage Bank of Commerce Tier 1 |
|
|
|
|
|
|
capital plus
allowance for loan losses |
|
8 |
% |
|
10 |
% |
|
8 |
% |
|
|
-20 |
% |
|
0 |
% |
|
|
|
|
|
|
|
OTHER
PERIOD-END STATISTICS |
|
|
|
|
|
|
(in $000's,
unaudited) |
|
|
|
|
|
|
Heritage Commerce
Corp: |
|
|
|
|
|
|
Tangible
equity |
$ |
208,313 |
|
$ |
204,115 |
|
$ |
194,172 |
|
|
|
2 |
% |
|
7 |
% |
Tangible common
equity |
$ |
208,313 |
|
$ |
184,596 |
|
$ |
174,653 |
|
|
|
13 |
% |
|
19 |
% |
Shareholders'
equity / total assets |
|
10.34 |
% |
|
10.83 |
% |
|
10.96 |
% |
|
|
-5 |
% |
|
-6 |
% |
Tangible equity
/ tangible assets |
|
8.42 |
% |
|
8.78 |
% |
|
8.79 |
% |
|
|
-4 |
% |
|
-4 |
% |
Tangible common
equity / tangible assets |
|
8.42 |
% |
|
7.94 |
% |
|
7.91 |
% |
|
|
6 |
% |
|
6 |
% |
Loan to deposit
ratio |
|
65.36 |
% |
|
70.60 |
% |
|
67.91 |
% |
|
|
-7 |
% |
|
-4 |
% |
Noninterest-bearing deposits / total deposits |
|
40.07 |
% |
|
40.24 |
% |
|
38.66 |
% |
|
|
0 |
% |
|
4 |
% |
Total risk-based
capital ratio |
|
12.7 |
% |
|
12.3 |
% |
|
12.3 |
% |
|
|
3 |
% |
|
3 |
% |
Tier 1
risk-based capital ratio |
|
11.6 |
% |
|
11.2 |
% |
|
11.2 |
% |
|
|
4 |
% |
|
4 |
% |
Common Equity
Tier 1 risk-based capital ratio |
|
11.6 |
% |
|
10.2 |
% |
|
10.2 |
% |
|
|
14 |
% |
|
14 |
% |
Leverage
ratio |
|
8.9 |
% |
|
9.0 |
% |
|
10.4 |
% |
|
|
-1 |
% |
|
-14 |
% |
|
|
|
|
|
|
|
Heritage Bank of
Commerce: |
|
|
|
|
|
|
Total risk-based
capital ratio |
|
12.6 |
% |
|
12.2 |
% |
|
12.1 |
% |
|
|
3 |
% |
|
4 |
% |
Tier 1
risk-based capital ratio |
|
11.4 |
% |
|
11.1 |
% |
|
11.0 |
% |
|
|
3 |
% |
|
4 |
% |
Common Equity
Tier 1 risk-based capital ratio |
|
11.4 |
% |
|
11.1 |
% |
|
11.0 |
% |
|
|
3 |
% |
|
4 |
% |
Leverage
ratio |
|
8.7 |
% |
|
8.9 |
% |
|
10.2 |
% |
|
|
-2 |
% |
|
-15 |
% |
|
|
|
|
|
|
|
|
|
For the Quarter
Ended |
|
For the Quarter
Ended |
|
|
September 30, 2016 |
|
September 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) |
|
$ |
1,442,006 |
|
|
$ |
20,312 |
|
|
|
5.60 |
% |
|
$ |
1,232,989 |
|
|
$ |
17,713 |
|
|
|
5.70 |
% |
Securities -
taxable |
|
|
497,821 |
|
|
|
2,401 |
|
|
|
1.92 |
% |
|
|
244,313 |
|
|
|
1,670 |
|
|
|
2.71 |
% |
Securities - tax
exempt(2) |
|
|
91,241 |
|
|
|
875 |
|
|
|
3.82 |
% |
|
|
91,127 |
|
|
|
874 |
|
|
|
3.80 |
% |
Other investments and
interest-bearing |
|
|
|
|
|
|
|
|
|
|
|
|
deposits in
other financial institutions |
|
|
232,929 |
|
|
|
592 |
|
|
|
1.01 |
% |
|
|
237,372 |
|
|
|
355 |
|
|
|
0.59 |
% |
Total interest earning assets(2) |
|
|
2,263,997 |
|
|
|
24,180 |
|
|
|
4.25 |
% |
|
|
1,805,801 |
|
|
|
20,612 |
|
|
|
4.53 |
% |
Cash and due from
banks |
|
|
32,628 |
|
|
|
|
|
|
|
34,921 |
|
|
|
|
|
Premises and equipment,
net |
|
|
7,595 |
|
|
|
|
|
|
|
7,374 |
|
|
|
|
|
Goodwill and other
intangible assets |
|
|
53,258 |
|
|
|
|
|
|
|
30,135 |
|
|
|
|
|
Other assets |
|
|
73,825 |
|
|
|
|
|
|
|
77,816 |
|
|
|
|
|
Total
assets |
|
$ |
2,431,303 |
|
|
|
|
|
|
$ |
1,956,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
Demand, noninterest-bearing |
|
$ |
842,565 |
|
|
|
|
|
|
$ |
652,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, interest-bearing |
|
|
515,296 |
|
|
|
259 |
|
|
|
0.20 |
% |
|
|
326,922 |
|
|
|
144 |
|
|
|
0.17 |
% |
Savings and money market |
|
|
516,570 |
|
|
|
289 |
|
|
|
0.22 |
% |
|
|
444,702 |
|
|
|
240 |
|
|
|
0.21 |
% |
Time deposits - under $100 |
|
|
21,707 |
|
|
|
16 |
|
|
|
0.29 |
% |
|
|
20,681 |
|
|
|
15 |
|
|
|
0.29 |
% |
Time deposits - $100 and over |
|
|
212,201 |
|
|
|
251 |
|
|
|
0.47 |
% |
|
|
206,909 |
|
|
|
173 |
|
|
|
0.33 |
% |
Time deposits - brokered |
|
|
4,874 |
|
|
|
10 |
|
|
|
0.82 |
% |
|
|
24,861 |
|
|
|
50 |
|
|
|
0.80 |
% |
CDARS - money market and time deposits |
|
|
8,256 |
|
|
|
1 |
|
|
|
0.05 |
% |
|
|
16,678 |
|
|
|
1 |
|
|
|
0.02 |
% |
Total interest-bearing deposits |
|
|
1,278,904 |
|
|
|
826 |
|
|
|
0.26 |
% |
|
|
1,040,753 |
|
|
|
623 |
|
|
|
0.24 |
% |
Total deposits |
|
|
2,121,469 |
|
|
|
826 |
|
|
|
0.15 |
% |
|
|
1,693,282 |
|
|
|
623 |
|
|
|
0.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings |
|
|
55 |
|
|
|
- |
|
|
|
0.00 |
% |
|
|
166 |
|
|
|
- |
|
|
|
0.00 |
% |
Total interest-bearing liabilities |
|
|
1,278,959 |
|
|
|
826 |
|
|
|
0.26 |
% |
|
|
1,040,919 |
|
|
|
623 |
|
|
|
0.24 |
% |
Total interest-bearing liabilities and demand, |
|
|
|
|
|
|
|
|
|
|
|
|
noninterest-bearing / cost
of funds |
|
|
2,121,524 |
|
|
|
826 |
|
|
|
0.15 |
% |
|
|
1,693,448 |
|
|
|
623 |
|
|
|
0.15 |
% |
Other liabilities |
|
|
50,384 |
|
|
|
|
|
|
|
48,494 |
|
|
|
|
|
Total liabilities |
|
|
2,171,908 |
|
|
|
|
|
|
|
1,741,942 |
|
|
|
|
|
Shareholders'
equity |
|
|
259,395 |
|
|
|
|
|
|
|
214,105 |
|
|
|
|
|
Total liabilities and shareholders' equity |
|
$ |
2,431,303 |
|
|
|
|
|
|
$ |
1,956,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income(2)
/ margin |
|
|
|
|
23,354 |
|
|
|
4.10 |
% |
|
|
|
|
19,989 |
|
|
|
4.39 |
% |
Less tax equivalent
adjustment(2) |
|
|
|
|
(306 |
) |
|
|
|
|
|
|
(306 |
) |
|
|
Net interest income |
|
|
|
$ |
23,048 |
|
|
|
|
|
|
$ |
19,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 2016 |
|
September 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) |
|
$ |
1,409,637 |
|
|
$ |
59,235 |
|
|
|
5.61 |
% |
|
$ |
1,136,208 |
|
|
$ |
48,360 |
|
|
|
5.69 |
% |
Securities -
taxable |
|
|
500,497 |
|
|
|
8,004 |
|
|
|
2.14 |
% |
|
|
230,608 |
|
|
|
4,828 |
|
|
|
2.80 |
% |
Securities - tax
exempt(2) |
|
|
92,194 |
|
|
|
2,651 |
|
|
|
3.84 |
% |
|
|
84,286 |
|
|
|
2,444 |
|
|
|
3.88 |
% |
Federal funds sold and
interest-bearing |
|
|
|
|
|
|
|
|
|
|
|
|
deposits in
other financial institutions |
|
|
195,850 |
|
|
|
1,478 |
|
|
|
1.01 |
% |
|
|
171,503 |
|
|
|
1,070 |
|
|
|
0.83 |
% |
Total interest earning assets(2) |
|
|
2,198,178 |
|
|
|
71,368 |
|
|
|
4.34 |
% |
|
|
1,622,605 |
|
|
|
56,702 |
|
|
|
4.67 |
% |
Cash and due from
banks |
|
|
32,927 |
|
|
|
|
|
|
|
28,647 |
|
|
|
|
|
Premises and equipment,
net |
|
|
7,638 |
|
|
|
|
|
|
|
7,388 |
|
|
|
|
|
Goodwill and other
intangible assets |
|
|
53,641 |
|
|
|
|
|
|
|
20,721 |
|
|
|
|
|
Other assets |
|
|
83,574 |
|
|
|
|
|
|
|
73,417 |
|
|
|
|
|
Total
assets |
|
$ |
2,375,958 |
|
|
|
|
|
|
$ |
1,752,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
Demand, noninterest-bearing |
|
$ |
800,049 |
|
|
|
|
|
|
$ |
578,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, interest-bearing |
|
|
505,442 |
|
|
|
731 |
|
|
|
0.19 |
% |
|
|
265,095 |
|
|
|
349 |
|
|
|
0.18 |
% |
Savings and money market |
|
|
506,998 |
|
|
|
829 |
|
|
|
0.22 |
% |
|
|
403,385 |
|
|
|
623 |
|
|
|
0.21 |
% |
Time deposits - under $100 |
|
|
22,534 |
|
|
|
48 |
|
|
|
0.28 |
% |
|
|
19,812 |
|
|
|
45 |
|
|
|
0.30 |
% |
Time deposits - $100 and over |
|
|
212,300 |
|
|
|
660 |
|
|
|
0.42 |
% |
|
|
202,512 |
|
|
|
485 |
|
|
|
0.32 |
% |
Time deposits - brokered |
|
|
9,503 |
|
|
|
59 |
|
|
|
0.83 |
% |
|
|
26,578 |
|
|
|
157 |
|
|
|
0.79 |
% |
CDARS - money market and time deposits |
|
|
8,344 |
|
|
|
5 |
|
|
|
0.08 |
% |
|
|
13,711 |
|
|
|
5 |
|
|
|
0.05 |
% |
Total interest-bearing
deposits |
|
|
1,265,121 |
|
|
|
2,332 |
|
|
|
0.25 |
% |
|
|
931,093 |
|
|
|
1,664 |
|
|
|
0.24 |
% |
Total deposits |
|
|
2,065,170 |
|
|
|
2,332 |
|
|
|
0.15 |
% |
|
|
1,509,210 |
|
|
|
1,664 |
|
|
|
0.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings |
|
|
601 |
|
|
|
12 |
|
|
|
2.67 |
% |
|
|
80 |
|
|
|
- |
|
|
|
0.00 |
% |
Total interest-bearing liabilities |
|
|
1,265,722 |
|
|
|
2,344 |
|
|
|
0.25 |
% |
|
|
931,173 |
|
|
|
1,664 |
|
|
|
0.24 |
% |
Total interest-bearing liabilities and demand, |
|
|
|
|
|
|
|
|
|
|
|
|
noninterest-bearing / cost of funds |
|
|
2,065,771 |
|
|
|
2,344 |
|
|
|
0.15 |
% |
|
|
1,509,290 |
|
|
|
1,664 |
|
|
|
0.15 |
% |
Other liabilities |
|
|
56,325 |
|
|
|
|
|
|
|
47,757 |
|
|
|
|
|
Total liabilities |
|
|
2,122,096 |
|
|
|
|
|
|
|
1,557,047 |
|
|
|
|
|
Shareholders'
equity |
|
|
253,862 |
|
|
|
|
|
|
|
195,731 |
|
|
|
|
|
Total liabilities and shareholders' equity |
|
$ |
2,375,958 |
|
|
|
|
|
|
$ |
1,752,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income(2)
/ margin |
|
|
|
|
69,024 |
|
|
|
4.19 |
% |
|
|
|
|
55,038 |
|
|
|
4.54 |
% |
Less tax equivalent
adjustment(2) |
|
|
|
|
(928 |
) |
|
|
|
|
|
|
(855 |
) |
|
|
Net interest income |
|
|
|
$ |
68,096 |
|
|
|
|
|
|
$ |
54,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
Heritage Commerce (NASDAQ:HTBK)
Historical Stock Chart
From Mar 2024 to Apr 2024
Heritage Commerce (NASDAQ:HTBK)
Historical Stock Chart
From Apr 2023 to Apr 2024