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Heritage Commerce Corp Earns $18.9 Million for the First Quarter of 2023; Total Deposits Stable
المصدر: Nasdaq GlobeNewswire / 27 أبريل 2023 16:59:17 America/New_York
SAN JOSE, Calif., April 27, 2023 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (Nasdaq: HTBK), the holding company (the “Company”) for Heritage Bank of Commerce (the “Bank”), today announced first quarter 2023 net income increased 47% to $18.9 million, or $0.31 per average diluted common share, compared to $12.9 million, or $0.21 per average diluted common share, for the first quarter of 2022, and decreased (9%) from $20.8 million, or $0.34 per average diluted common share, for the fourth quarter of 2022. All results are unaudited.
“We delivered record first quarter earnings and the second best quarterly results in the Company’s history,” said Clay Jones, President and Chief Executive Officer. “First quarter earnings have been typically impacted by higher payroll taxes and employee benefits, due to the seasonal peak of these expenses. Profits increased 47% over the first quarter a year ago supported by strong year-over-year growth in net interest income and noninterest income, higher net interest margin and improved efficiency ratio. Total deposits increased by $54.9 million from the linked quarter to $4.445 billion at March 31, 2023. Noninterest-bearing deposits shifted during the quarter to the Bank's interest-bearing deposits, primarily due to the acceleration of recent rate hikes by the Federal Reserve Bank, prompting customers to seek higher yields.” As a result, there was a substantial increase in the Bank’s interest-bearing deposits and Insured Cash Sweep (“ICS”) deposits. “With a solid earnings performance, a large core deposit base and excellent credit quality, we believe we have a solid foundation to accommodate our clients lending and deposit needs,” stated Mr. Jones.
“Both the Company and the Bank remain in a strong financial position. Our capital levels and liquidity position are healthy, and the Bank has experienced stable deposit trends. Our prudent approach to risk management has enabled us to navigate recent market volatility in the financial industry,” Mr. Jones continued. Mr. Jones expressed gratitude to the Bank's clients for their continued support and emphasized that the banking team is dedicated to meeting their needs.
“Our credit quality remains strong. Over our nearly 30 year history, the Bank has consistently taken a prudent approach to real estate underwriting across all product types, through many economic cycles. We believe our conservative credit standards, along with our continuous stress testing of each borrower for maturity dates, lease maturities, occupancy, interest rates and liquidity capacity will prove our loan portfolio is well positioned to successfully weather economic volatility.” The Company recorded a $32,000 provision for credit losses on loans for the first quarter of 2023. The allowance for credit losses on loans was $47.3 million, and increased to 1.45% of total loans, at March 31, 2023, compared to 1.41% of total loans from the year ago quarter, and 1.44% of total loans at December 31, 2022.
“Complementing our stellar performance this quarter, we are very proud to have recently ranked 21st nationally for the best performing Community Bank by S&P Market Intelligence,” said Mr. Jones. “Criteria for the ranking included a gross loans and leases-to-total assets ratio of at least 33% and a leverage ratio of at least 5%. Based on the selected criteria, 196 banks and thrifts were eligible for ranking.” [Source S&P Capital IQ]
Current Financial Condition and Liquidity Position
In light of current industry developments, the following are important factors in understanding our current financial condition and liquidity position:
Liquidity and Lines of Credit:
- The following table shows our liquidity, available lines of credit and the amounts outstanding at March 31, 2023:
LIQUIDITY AND LINES OF CREDIT Total
AvailableOutstanding
Lines of CreditRemaining
Available(in $000’s, unaudited) Unpledged investment securities (at fair value) $ 122,483 $ — $ 122,483 Off-balance sheet deposits 132,987 — 132,987 Excess funds at the Federal Reserve Bank ("FRB") 695,400 — 695,400 FRB discount window 1,231,874 150,000 (1) 1,081,874 Federal Home Loan Bank ("FHLB") Advances 789,909 150,000 (1) 639,909 Federal funds purchase arrangements 80,000 — 80,000 Holding company line of credit 20,000 — 20,000 Total $ 3,072,653 $ 300,000 $ 2,772,653 ______________________ (1) Both the FRB and the FHLB lines of credit were repaid in full on April 20, 2023. ______________________ - The Company’s total liquidity and borrowing capacity was $3.073 billion, of which $2.773 billion was remaining available at March 31, 2023.
- The remaining available liquidity and borrowing capacity of $2.773 billion was 62% of total deposits and approximately 110% of estimated uninsured deposits at March 31, 2023.
- During the first quarter of 2023, the Bank increased its credit line availability from the FRB and the FHLB by $839.5 million to $2.022 billion at March 31, 2023 from December 31, 2022.
- The Company borrowed $150.0 million on its line of credit with the FRB, and another $150.0 million on its line of credit with the FHLB during the first quarter of 2023, and both lines of credit were repaid in full on April 20, 2023. These short-term borrowings provided instant liquidity during an uncertain time and allowed the Company to test the lines for future contingency planning purposes.
- The loan to deposit ratio was 73.39% at March 31, 2023, compared to 75.14% at December 31, 2022.
Deposits:
- Total deposits increased $54.9 million, or 1%, to $4.445 billion at March 31, 2023 from December 31, 2022.
- ICS/Certificate of Deposit Account Registry Service (“CDARS”) deposits increased $273.7 million, or 901%, to $304.1 million at March 31, 2023 from $30.4 million at December 31, 2022, which included $128.0 million of off-balance sheet relationship-based client deposits brought onto the balance sheet, and an increase in client deposits of $145.8 million during the first quarter of 2023.
- Noninterest-bearing demand deposits decreased ($267.6) million, or (15%), to $1.469 billion at March 31, 2023 from December 31, 2022, primarily due to clients moving noninterest-bearing deposits to the Bank’s interest-bearing and ICS deposits.
- The Company had 24,103 deposits accounts at March 31, 2023, with an average balance of $184,000.
- Deposits from the top 100 client relationships totaled $2.201 billion, representing 50% of total deposits, with an average account size of $445,000, representing 21% of the total number of accounts at March 31, 2023.
Investment Securities:
- Investment securities totaled $1.190 billion at March 31, 2023, of which $491.8 million were in the securities available-for-sale portfolio (at fair value), and $698.2 million were in the securities held-to-maturity portfolio (at amortized cost, net of allowance for credit losses of $14,000).
- The weighted average life of the investment securities portfolio was 4.82 years and the modified duration was 4.04 years at March 31, 2023.
Loans:
- Loans, excluding loans held-for-sale, decreased ($36.6) million, or (1%) to $3.3 billion at March 31, 2023 from December 31, 2022.
- Commercial real estate (“CRE”) loans totaled $1.687 billion at March 31, 2023, which included 36% of owner occupied loans and 64% of investor and other CRE loans.
- The average loan size for all CRE loans was $1.6 million, and the average loan size for office CRE loans was also $1.6 million.
- The Company has personal guaranties on 90% of its CRE portfolio, while 10% are unguaranteed. A substantial portion of the unguaranteed CRE loans were made to credit-worthy non-profit organizations.
- Office exposure in the CRE portfolio totaled $383 million, including 30 loans totaling approximately $70 million, in San Jose, 19 loans totaling approximately $28 million, in San Francisco, and 5 loans totaling approximately $10 million, in Oakland, at March 31, 2023.
- Of the $383 million of CRE loans with office exposure, approximately $29 million, or 8%, are situated in the Bay Area downtown business districts of San Jose and San Francisco, with an average balance of $2.2 million.
- At March 31, 2023, the weighted average loan-to-value and debt-service coverage for the entire non-owner occupied office portfolio were 43.2% and 2.09 times, respectively. For the ten non-owner occupied office loans in the City of San Francisco at March 31, 2023, the weighted average loan-to-value and debt-service coverage were 28.5% and 3.41 times, respectively.
- The average vacancy level for the San Francisco CRE loans was 5.8%, of which the vast majority are single-tenant small spaces in office buildings situated outside of downtown.
First Quarter Ended March 31, 2023
Operating Results, Balance Sheet Review, Capital Management, and Credit Quality(as of, or for the periods ended March 31, 2023, compared to March 31, 2022, and December 31, 2022, except as noted):
Operating Results:
- Diluted earnings per share were $0.31 for the first quarter of 2023, compared to $0.21 for the first quarter of 2022, and $0.34 for the fourth quarter of 2022.
- The following table indicates the ratios for the return on average tangible assets and the return on average tangible common equity for the periods indicated:
For the Quarter Ended: March 31, December 31, March 31, (unaudited) 2023 2022 2022 Return on average tangible assets 1.52 % 1.59 % 0.99 % Return on average tangible common equity 16.71 % 18.89 % 12.47 % - Net interest income, before provision for credit losses on loans, increased 29% to $49.3 million for the first quarter of 2023, compared to $38.2 million for the first quarter of 2022. The fully tax equivalent (“FTE”) net interest margin increased 104 basis points to 4.09% for the first quarter of 2023, from 3.05% for the first quarter of 2022, primarily due to increases in the prime rate and the rate on overnight funds, and a shift in the mix of earning assets into higher yielding loans and investment securities, partially offset by lower interest and fees on Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans, lower prepayment fees, a decrease in the accretion of the loan purchase discount into interest income from acquired loans, a higher cost of funds, and an increase in short-term borrowings.
- Net interest income, before provision for credit losses on loans, decreased (5%) to $49.3 million for the first quarter of 2023, compared to $51.7 million for the fourth quarter of 2022. The FTE net interest margin decreased 1 basis point to 4.09% for the first quarter of 2023 from 4.10% for the fourth quarter of 2022, primarily due to a higher cost of funds, a decrease in the average balances of noninterest bearing demand deposits, and an increase in short-term borrowings, partially offset by increases in the prime rate and higher average yields on overnight funds, and an increase in the accretion of the loan purchase discount into interest income from acquired loans.
- Net interest income, before provision for credit losses on loans, decreased (5%) to $49.3 million for the first quarter of 2023, compared to $51.7 million for the fourth quarter of 2022. The FTE net interest margin decreased 1 basis point to 4.09% for the first quarter of 2023 from 4.10% for the fourth quarter of 2022, primarily due to a higher cost of funds, a decrease in the average balances of noninterest bearing demand deposits, and an increase in short-term borrowings, partially offset by increases in the prime rate and higher average yields on overnight funds, and an increase in the accretion of the loan purchase discount into interest income from acquired loans.
- The Company reviewed beta assumptions for non-maturing interest-bearing deposit accounts as of March 31, 2023, and increased the beta assumptions for the upward shock scenarios. The following table, as of March 31, 2023, sets forth the estimated changes in the Company’s annual net interest income that would result from an instantaneous shift in interest rates from the base rate:
Increase/(Decrease) in Estimated Net Interest Income(1) CHANGE IN INTEREST RATES (basis points) Amount Percent (in $000's, unaudited) +400 $ 14,603 7.1 % +300 $ 10,917 5.3 % +200 $ 7,254 3.5 % +100 $ 3,618 1.8 % 0 — — −100 $ (6,667 ) (3.2 ) % −200 $ (19,823 ) (9.6 ) % −300 $ (35,220 ) (17.1 ) % −400 $ (50,409 ) (24.4 ) % __________________
(1) Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. Actual rates paid on deposits may differ from the hypothetical interest rates modeled due to competitive or market factors, which could reduce any actual impact on net interest income. ______________________ - The following tables present the average balance of loans outstanding, interest income, and the average yield for the periods indicated:
- The average yield on the total loan portfolio increased to 5.46% for the first quarter of 2023, compared to 5.19% for the fourth quarter of 2022, primarily due to increases in the prime rate, and an increase in the accretion of the loan purchase discount into interest income from acquired loans.
For the Quarter Ended For the Quarter Ended March 31, 2023 December 31, 2022 Average Interest Average Average Interest Average (in $000’s, unaudited) Balance Income Yield Balance Income Yield Loans, core bank $ 2,680,849 $ 34,827 5.27 % $ 2,654,311 $ 33,594 5.02 % Prepayment fees — 138 0.02 % — 123 0.02 % PPP loans 832 2 0.97 % 1,255 3 0.95 % PPP fees, net — 18 8.77 % — 25 7.90 % Asset-based lending 27,550 627 9.23 % 35,519 756 8.44 % Bay View Funding factored receivables 77,755 4,001 20.87 % 71,789 3,696 20.43 % Purchased residential mortgages 487,780 3,857 3.21 % 485,149 3,842 3.14 % Purchased CRE loans 7,119 120 6.84 % 7,307 80 4.34 % Loan fair value mark / accretion (4,360 ) 522 0.08 % (4,774 ) 382 0.06 % Total loans (includes loans held-for-sale) $ 3,277,525 $ 44,112 5.46 % $ 3,250,556 $ 42,501 5.19 % • The average yield on the total loan portfolio increased to 5.46% for the first quarter of 2023, compared to 4.70% for the first quarter of 2022, primarily due to increases in the prime rate, partially offset by lower interest and fees on PPP loans, lower prepayment fees, a decrease in the accretion of the loan purchase discount into interest income from acquired loans, and higher average balances of lower yielding purchased residential mortgages. For the Quarter Ended For the Quarter Ended March 31, 2023 March 31, 2022 Average Interest Average Average Interest Average (in $000’s, unaudited) Balance Income Yield Balance Income Yield Loans, core bank $ 2,680,849 $ 34,827 5.27 % $ 2,483,708 $ 26,097 4.26 % Prepayment fees — 138 0.02 % — 510 0.08 % PPP loans 832 2 0.97 % 60,264 146 0.98 % PPP fees, net — 18 8.77 % — 1,346 9.06 % Asset-based lending 27,550 627 9.23 % 69,617 950 5.53 % Bay View Funding factored receivables 77,755 4,001 20.87 % 57,761 2,793 19.61 % Purchased residential mortgages 487,780 3,857 3.21 % 355,626 2,428 2.77 % Purchased CRE loans 7,119 120 6.84 % 8,514 77 3.67 % Loan fair value mark / accretion (4,360 ) 522 0.08 % (6,901 ) 754 0.12 % Total loans (includes loans held-for-sale) $ 3,277,525 $ 44,112 5.46 % $ 3,028,589 $ 35,101 4.70 % • In aggregate, the remaining net purchase discount on total loans acquired was $4.1 million at March 31, 2023. - The following table presents the average balance of deposits and interest-bearing liabilities, interest expense, and the average rate for the periods indicated:
For the Quarter Ended For the Quarter Ended March 31, 2023 December 31, 2022 Average Interest Average Average Interest Average (in $000’s, unaudited) Balance Expense Rate Balance Expense Rate Deposits: Demand, noninterest-bearing $ 1,667,260 $ — N/A $ 1,851,003 $ — N/A Demand, interest-bearing 1,217,731 1,476 0.49 % 1,164,378 945 0.32 % Savings and money market 1,285,173 3,489 1.10 % 1,424,964 1,694 0.47 % Time deposits - under $100 12,280 10 0.33 % 12,157 7 0.23 % Time deposits - $100 and over 163,047 845 2.10 % 120,246 268 0.88 % ICS/CDARS - interest-bearing demand, money market and time deposits 70,461 81 0.47 % 27,785 1 0.01 % Total interest-bearing deposits 2,748,692 5,901 0.87 % 2,749,530 2,915 0.42 % Total deposits 4,415,952 5,901 0.54 % 4,600,533 2,915 0.25 % Short-term borrowings 46,677 578 5.02 % 24 — — % Subordinated debt, net of issuance costs 39,363 537 5.53 % 39,326 538 5.43 % Total interest-bearing liabilities 2,834,732 7,016 1.00 % 2,788,880 3,453 0.49 % Total interest-bearing liabilities and demand, noninterest-bearing / cost of funds $ 4,501,992 $ 7,016 0.63 % $ 4,639,883 $ 3,453 0.30 % • The average cost of total deposits increased to 0.54% for the first quarter of 2023, compared to 0.25% for the fourth quarter of 2022. The average cost of funds increased to 0.63% for the first quarter of 2023, compared to 0.30% for the fourth quarter of 2022. The average cost of deposits was 0.10% and the average cost of funds was 0.14% for the first quarter of 2022. - During the first quarter of 2023, there was a provision for credit losses on loans of $32,000, compared to a ($567,000) recapture of provision for credit losses on loans for the first quarter of 2022, and a provision for credit losses on loans of $508,000 for the fourth quarter of 2022.
- Total noninterest income increased 12% to $2.8 million for the first quarter of 2023, compared to $2.5 million for the first quarter of 2022, primarily due to higher service charges and fees on deposit accounts. Total noninterest income remained relatively flat at $2.8 million for both the first quarter of 2023 and the fourth quarter of 2022.
- Total noninterest expense for the first quarter of 2023 increased to $25.4 million, compared to $23.3 million for the first quarter of 2022, primarily due to higher payroll taxes and employee benefits, higher professional fees, and higher insurance and information technology related expenses included in other noninterest expense during the first quarter of 2023. Total noninterest expense for the first quarter of 2023 increased to $25.4 million, compared to $24.5 million for the fourth quarter of 2022, primarily due to an increase of $1.3 million for 401(k) employer contribution, vacation, and payroll taxes in the first quarter of 2023, consistent with the cyclical nature of those expenses.
- Full time equivalent employees were 339 at March 31, 2023, and 325 at March 31, 2022, and 340 at December 31, 2022.
- Full time equivalent employees were 339 at March 31, 2023, and 325 at March 31, 2022, and 340 at December 31, 2022.
- The efficiency ratio improved to 48.83% for the first quarter of 2023, compared to 57.16% for the first quarter of 2022, primarily due to an increase in net interest income. The efficiency ratio was 44.98% for the fourth quarter of 2022.
- Income tax expense was $7.7 million for the first quarter of 2023, compared to $5.1 million for the first quarter of 2022, and $8.7 million for the fourth quarter of 2022. The effective tax rate for the first quarter of 2023 was 28.9%, compared to 28.5% for the first quarter of 2022, and 29.5% for the fourth quarter of 2022.
Balance Sheet Review, Capital Management and Credit Quality:
- Total assets increased 2% to $5.537 billion at March 31, 2023, compared to $5.427 billion at March 31, 2022, and increased 7% from $5.158 billion at December 31, 2022.
- The following table shows the balances of securities available-for-sale, at fair value, and the related pre-tax unrealized (loss) for the periods indicated:
SECURITIES AVAILABLE-FOR-SALE March 31, December 31, March 31, (in $000’s, unaudited) 2023 2022 2022 Balance (at fair value): U.S. Treasury $ 422,903 $ 418,474 $ 21,564 Agency mortgage-backed securities 68,848 71,122 89,653 Total $ 491,751 $ 489,596 $ 111,217 Pre-tax unrealized (loss): U.S. Treasury $ (7,510 ) $ (10,323 ) $ (93 ) Agency mortgage-backed securities (4,969 ) (5,794 ) (1,406 ) Total $ (12,479 ) $ (16,117 ) $ (1,499 ) • The pre-tax unrealized loss on the securities available-for-sale portfolio was $12.5 million, or $8.9 million net of taxes, which was 1% of total shareholders’ equity at March 31, 2023. - The following table shows the balances of securities held-to-maturity, at amortized cost, and the related pre-tax unrealized (loss) gain and allowance for credit losses for the periods indicated:
SECURITIES HELD-TO-MATURITY March 31, December 31, March 31, (in $000’s, unaudited) 2023 2022 2022 Balance (at amortized cost): Agency mortgage-backed securities $ 663,481 $ 677,381 $ 696,161 Municipals — exempt from Federal tax 34,764 37,623 40,701 Total $ 698,245 $ 715,004 $ 736,862 Pre-tax unrealized (loss) gain: Agency mortgage-backed securities $ (89,962 ) $ (99,742 ) $ (46,226 ) Municipals — exempt from Federal tax (297 ) (810 ) 148 Total $ (90,259 ) $ (100,552 ) $ (46,078 ) Allowance for credit losses on municipal securities $ (14 ) $ (14 ) $ (39 ) • The pre-tax unrealized loss on the securities held-to-maturity portfolio was $90.3 million at March 31, 2023, or $64.5 million net of taxes, which was 10% of total shareholders’ equity at March 31, 2023. - The unrealized losses in both the available-for-sale and held-to-maturity portfolios were due to higher interest rates at March 31, 2023 compared to when the securities were purchased. The issuers are of high credit quality and all principal amounts are expected to be repaid when the securities mature. The fair value is expected to recover as the securities approach their maturity date and/or market rates decline.
- The loan portfolio remains well-diversified as reflected in the following table which summarizes the distribution of loans, excluding loans held-for-sale, and the percentage of distribution in each category for the periods indicated:
LOANS March 31, 2023 December 31, 2022 March 31, 2022 (in $000’s, unaudited) Balance % to Total Balance % to Total Balance % to Total Commercial $ 506,037 16 % $ 532,749 16 % $ 568,053 19 % PPP Loans(1) 565 0 % 1,166 0 % 37,393 1 % Real estate: CRE - owner occupied 603,298 18 % 614,663 19 % 597,542 20 % CRE - non-owner occupied 1,083,852 33 % 1,066,368 32 % 928,220 31 % Land and construction 166,408 5 % 163,577 5 % 153,323 5 % Home equity 124,481 4 % 120,724 4 % 111,609 3 % Multifamily 231,242 7 % 244,882 7 % 221,767 7 % Residential mortgages 528,639 16 % 537,905 16 % 391,171 13 % Consumer and other 17,905 1 % 17,033 1 % 17,110 1 % Total Loans 3,262,427 100 % 3,299,067 100 % 3,026,188 100 % Deferred loan costs (fees), net (512 ) — (517 ) — (2,124 ) — Loans, net of deferred costs and fees $ 3,261,915 100 % $ 3,298,550 100 % $ 3,024,064 100 % __________________
(1) Less than 1% at March 31, 2023 and December 31, 2022. • Loans, excluding loans held-for-sale, increased $237.9 million, or 8%, to $3.262 billion at March 31, 2023, compared to $3.024 billion at March 31, 2022, and decreased ($36.6) million, or (1%), from $3.299 billion at December 31, 2022. Loans, excluding loans held-for-sale, PPP loans and residential mortgages, increased $136.5 million, or 5%, to $2.733 billion at March 31, 2023, compared to $2.596 billion at March 31, 2022, and decreased ($26.8) million, or (1%), from $2.760 billion at December 31, 2022. • Commercial and industrial (“C&I”) line utilization was 31% at both March 31, 2023 and March 31, 2022, compared to 29% at December 31, 2022. • At March 31, 2023, there was 36% of the CRE loan portfolio secured by owner occupied real estate, compared to 39% at March 31, 2022, and 37% at December 31, 2022. - The following table presents the maturity distribution of the Company’s loans, excluding loans held-for-sale, as of March 31, 2023. The table shows the distribution of such loans between those loans with predetermined (fixed) interest rates and those with variable (floating) interest rates. Floating rates generally fluctuate with changes in the prime rate as reflected in the Western Edition of The Wall Street Journal.
Due in Over One Year But LOAN MATURITIES One Year or Less Less than Five Years Over Five Years (in $000’s, unaudited) Balance % to Total Balance % to Total Balance % to Total Total Loans with variable interest rates $ 409,059 41 % $ 286,346 28 % $ 312,341 31 % $ 1,007,746 Loans with fixed interest rates 65,799 3 % 500,734 22 % 1,688,148 75 % 2,254,681 Loans $ 474,858 15 % $ 787,080 24 % $ 2,000,489 61 % $ 3,262,427 • At March 31, 2023, approximately 31% of the Company’s loan portfolio consisted of floating interest rate loans, compared to 38% at March 31, 2022, and 33% at December 31, 2022. - The following table summarizes the allowance for credit losses on loans (“ACLL”) for the periods indicated:
At or For the Quarter Ended: ALLOWANCE FOR CREDIT LOSSES ON LOANS March 31, December 31, March 31, (in $000’s, unaudited) 2023 2022 2022 Balance at beginning of period $ 47,512 $ 46,921 $ 43,290 Charge-offs during the period (380 ) (56 ) (16 ) Recoveries during the period 109 139 81 Net recoveries (charge-offs) during the period (271 ) 83 65 Provision for (recapture of) credit losses on loans during the period 32 508 (567 ) Balance at end of period $ 47,273 $ 47,512 $ 42,788 Total loans, net of deferred fees $ 3,261,915 $ 3,298,550 $ 3,024,064 Total nonperforming loans $ 2,240 $ 2,425 $ 3,830 ACLL to total loans 1.45 % 1.44 % 1.41 % ACLL to total nonperforming loans 2,110.40 % 1,959.26 % 1,117.18 % • The following table shows the drivers of change in ACLL under the current expected credit losses (“CECL”) methodology for the first quarter of 2023: DRIVERS OF CHANGE IN ACLL UNDER CECL (in $000’s, unaudited) ACLL at December 31, 2022 $ 47,512 Portfolio changes during the first quarter of 2023 (160 ) Qualitative and quantitative changes during the first quarter of 2023 including changes in economic forecasts (79 ) ACLL at March 31, 2023 $ 47,273 - The following is a breakout of nonperforming assets (“NPAs”) at the periods indicated:
NONPERFORMING ASSETS March 31, 2023 December 31, 2022 March 31, 2022 (in $000’s, unaudited) Balance % of Total Balance % of Total Balance % of Total Restructured and loans over 90 days past due and still accruing $ 1,459 65 % $ 1,685 70 % $ 527 14 % Commercial loans 685 31 % 642 26 % 997 26 % Home equity loans 96 4 % 98 4 % 73 2 % CRE loans — — % — — % 2,233 58 % Total nonperforming assets $ 2,240 100 % $ 2,425 100 % $ 3,830 100 % • NPAs totaled $2.2 million, or 0.04% of total assets, at March 31, 2023, compared to $3.8 million, or 0.07% of total assets, at March 31, 2022, and $2.4 million, or 0.05% of total assets, at December 31, 2022. • There were no foreclosed assets on the balance sheet at March 31, 2023, March 31, 2022, or December 31, 2022. • Classified assets totaled $26.8 million, or 0.48% of total assets, at March 31, 2023, compared to $30.6 million, or 0.56% of total assets, at March 31, 2022, and $14.5 million, or 0.28% of total assets, at December 31, 2022. - The following table summarizes the distribution of deposits and the percentage of distribution in each category for the periods indicated:
DEPOSITS March 31, 2023 December 31, 2022 March 31, 2022 (in $000’s, unaudited) Balance % to Total Balance % to Total Balance % to Total Demand, noninterest-bearing $ 1,469,081 33 % $ 1,736,722 40 % $ 1,811,943 38 % Demand, interest-bearing 1,196,789 27 % 1,196,427 27 % 1,268,942 27 % Savings and money market 1,264,567 28 % 1,285,444 29 % 1,447,434 31 % Time deposits — under $250 37,884 1 % 32,445 1 % 38,417 1 % Time deposits — $250 and over 172,070 4 % 108,192 2 % 93,161 2 % ICS/CDARS — interest-bearing demand, money market and time deposits 304,147 7 % 30,374 1 % 30,008 1 % Total deposits $ 4,444,538 100 % $ 4,389,604 100 % $ 4,689,905 100 % • Total deposits increased $54.9 million, or 1%, to $4.445 billion at March 31, 2023, compared to $4.390 billion at December 31, 2022, and decreased ($245.4) million, or (5%), from $4.690 billion at March 31, 2022. • ICS/CDARS deposits increased $273.7 million, or 901%, to $304.1 million at March 31, 2023, compared to $30.4 million at December 31, 2022, and increased $274.1 million, or 914%, from $30.0 million at March 31, 2022. • Uninsured deposits represented approximately 57% of total deposits at March 31, 2023. - The Company’s consolidated capital ratios exceeded regulatory guidelines and the Bank’s capital ratios exceeded regulatory guidelines under the Basel III prompt corrective action (“PCA”) regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at March 31, 2023, as reflected in the following table:
Heritage
Commerce
CorpHeritage
Bank of
CommerceWell-capitalized
Financial
Institution
Basel III PCA
Regulatory
GuidelinesBasel III
Minimum
Regulatory
Requirement (1)CAPITAL RATIOS (unaudited) Total Capital 15.3 % 14.7 % 10.0 % 10.5 % Tier 1 Capital 13.1 % 13.5 % 8.0 % 8.5 % Common Equity Tier 1 Capital 13.1 % 13.5 % 6.5 % 7.0 % Tier 1 Leverage 9.6 % 9.9 % 5.0 % 4.0 % __________________
(1) Basel III minimum regulatory requirements for both the Company and the Bank include a 2.5% capital conservation buffer, except the leverage ratio. - The following table reflects the components of accumulated other comprehensive loss, net of taxes, for the periods indicated:
ACCUMULATED OTHER COMPREHENSIVE LOSS March 31, December 31, March 31, (in $000’s, unaudited) 2023 2022 2022 Unrealized loss on securities available-for-sale $ (8,924 ) $ (11,506 ) $ (1,127 ) Split dollar insurance contracts liability (3,139 ) (3,091 ) (5,491 ) Supplemental executive retirement plan liability (2,361 ) (2,371 ) (7,588 ) Unrealized gain on interest-only strip from SBA loans 107 112 152 Total accumulated other comprehensive loss $ (14,317 ) $ (16,856 ) $ (14,054 ) Heritage Commerce Corp, a bank holding company established in October 1997, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose, CA with full-service branches in Danville, Fremont, Gilroy, Hollister, Livermore, Los Altos, Los Gatos, Morgan Hill, Oakland, Palo Alto, Pleasanton, Redwood City, San Francisco, San Jose, San Mateo, San Rafael, and Walnut Creek. Heritage Bank of Commerce is an SBA Preferred Lender. Bay View Funding, a subsidiary of Heritage Bank of Commerce, is based in San Jose, CA and provides business-essential working capital factoring financing to various industries throughout the United States. For more information, please visit www.heritagecommercecorp.com.
Forward-Looking Statement Disclaimer
Certain matters discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to various risks and uncertainties that may be outside our control and our actual results could differ materially from our projected results. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission (“SEC”), Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and the following: (1) geopolitical and domestic political developments that can increase levels of political and economic unpredictability, contribute to rising energy and commodity prices, and increase the volatility of financial markets; (2) current and future economic and market conditions in the United States generally or in the communities we serve, including the effects of declines in property values and overall slowdowns in economic growth should these events occur; (3) effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Federal Open Market Committee of the Federal Reserve Board; (4) inflationary pressures and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make, whether held in the portfolio or in the secondary market; (5) liquidity risks; (6) our ability to mitigate and manage deposit liabilities in a manner that balances the need to meet current and expected withdrawals while investing a sufficient portion of our assets to promote strong earning capacity; (7) changes in the level of nonperforming assets and charge offs and other credit quality measures, and their impact on the adequacy of our allowance for credit losses and our provision for credit losses; (8) volatility in credit and equity markets and its effect on the global economy; (9) conditions relating to the impact of the COVID-19 pandemic, and other infectious illness outbreaks that may arise in the future, our customers, employees, businesses, liquidity, financial results and overall condition including severity and duration of the associated uncertainties in U.S. and global markets; (10) our ability to effectively compete with other banks and financial services companies and the effects of competition in the financial services industry on our business; (11) our ability to achieve loan growth and attract deposits in our market area, the impact of the cost of deposits and our ability to retain deposits; (12) risks associated with concentrations in real estate related loans; (13) the relative strength or weakness of the commercial and real estate markets where our borrowers are located, including related vacancy rates, and asset and market prices; (14) credit related impairment charges to our securities portfolio; (15) increased capital requirements for our continual growth or as imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all; (16) regulatory limits on Heritage Bank of Commerce’s ability to pay dividends to the Company; (17) operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to industry changes in information technology systems, on which we are highly dependent; (18) our inability to attract, recruit, and retain qualified officers and other personnel could harm our ability to implement our strategic plan, impair our relationships with customers and adversely affect our business, results of operations and growth prospects; (19) possible adjustment of the valuation of our deferred tax assets; (20) our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks such as data security breaches, “denial of service” attacks, “hacking” and identity theft; (21) inability of our framework to manage risks associated with our business, including operational risk and credit risk; (22) risks of loss of funding of Small Business Administration (“SBA”) or SBA loan programs, or changes in those programs; (23) compliance with applicable laws and governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities, accounting and tax matters; (24) effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; (25) the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise; (26) availability of and competition for acquisition opportunities; (27) risks resulting from domestic terrorism; (28) risks resulting from social unrest and protests; (29) risks of natural disasters (including earthquakes, fires, and flooding) and other events beyond our control; and (30) our success in managing the risks involved in the foregoing factors.
Member FDIC
For additional information, contact:
Debbie Reuter
EVP, Corporate Secretary
Direct: (408) 494-4542
Debbie.Reuter@herbank.comCONSOLIDATED INCOME STATEMENTS For the Quarter Ended: Percent Change From: March 31, December 31, March 31, December 31, March 31, (in $000’s, unaudited) 2023 2022 2022 2022 2022 Interest income $ 56,274 $ 55,192 $ 39,906 2 % 41 % Interest expense 7,016 3,453 1,685 103 % 316 % Net interest income before provision for credit losses on loans 49,258 51,739 38,221 (5 ) % 29 % Provision for (recapture of) credit losses on loans 32 508 (567 ) (94 ) % 106 % Net interest income after provision for credit losses on loans 49,226 51,231 38,788 (4 ) % 27 % Noninterest income: Service charges and fees on deposit accounts 1,743 1,801 612 (3 ) % 185 % Increase in cash surrender value of life insurance 493 481 480 2 % 3 % Servicing income 131 138 106 (5 ) % 24 % Gain on sales of SBA loans 76 — 156 N/A (51 ) % Termination fees 11 — — N/A N/A Gain on warrants — — 637 N/A (100 ) % Other 312 352 469 (11 ) % (33 ) % Total noninterest income 2,766 2,772 2,460 0 % 12 % Noninterest expense: Salaries and employee benefits 14,809 13,915 13,821 6 % 7 % Occupancy and equipment 2,400 2,510 2,437 (4 ) % (2 ) % Professional fees 1,399 1,414 1,080 (1 ) % 30 % Other 6,793 6,679 5,914 2 % 15 % Total noninterest expense 25,401 24,518 23,252 4 % 9 % Income before income taxes 26,591 29,485 17,996 (10 ) % 48 % Income tax expense 7,674 8,686 5,130 (12 ) % 50 % Net income $ 18,917 $ 20,799 $ 12,866 (9 ) % 47 % PER COMMON SHARE DATA (unaudited) Basic earnings per share $ 0.31 $ 0.34 $ 0.21 (9 ) % 48 % Diluted earnings per share $ 0.31 $ 0.34 $ 0.21 (9 ) % 48 % Weighted average shares outstanding - basic 60,908,221 60,788,803 60,393,883 0 % 1 % Weighted average shares outstanding - diluted 61,268,072 61,357,023 60,921,835 0 % 1 % Common shares outstanding at period-end 60,948,607 60,852,723 60,407,846 0 % 1 % Dividend per share $ 0.13 $ 0.13 $ 0.13 0 % 0 % Book value per share $ 10.62 $ 10.39 $ 9.95 2 % 7 % Tangible book value per share $ 7.70 $ 7.46 $ 6.96 3 % 11 % KEY FINANCIAL RATIOS (unaudited) Annualized return on average equity 12.03 % 13.40 % 8.71 % (10 ) % 38 % Annualized return on average tangible common equity 16.71 % 18.89 % 12.47 % (12 ) % 34 % Annualized return on average assets 1.47 % 1.54 % 0.96 % (5 ) % 53 % Annualized return on average tangible assets 1.52 % 1.59 % 0.99 % (4 ) % 54 % Net interest margin (FTE) 4.09 % 4.10 % 3.05 % 0 % 34 % Efficiency ratio 48.83 % 44.98 % 57.16 % 9 % (15 ) % AVERAGE BALANCES (in $000’s, unaudited) Average assets $ 5,235,506 $ 5,360,867 $ 5,443,240 (2 ) % (4 ) % Average tangible assets $ 5,057,063 $ 5,181,793 $ 5,262,175 (2 ) % (4 ) % Average earning assets $ 4,895,009 $ 5,009,578 $ 5,093,851 (2 ) % (4 ) % Average loans held-for-sale $ 2,755 $ 2,346 $ 1,478 17 % 86 % Average total loans $ 3,274,770 $ 3,248,210 $ 3,027,111 1 % 8 % Average deposits $ 4,415,952 $ 4,600,533 $ 4,697,136 (4 ) % (6 ) % Average demand deposits - noninterest-bearing $ 1,667,260 $ 1,851,003 $ 1,857,164 (10 ) % (10 ) % Average interest-bearing deposits $ 2,748,692 $ 2,749,530 $ 2,839,972 0 % (3 ) % Average interest-bearing liabilities $ 2,834,732 $ 2,788,880 $ 2,879,952 2 % (2 ) % Average equity $ 637,597 $ 615,941 $ 599,355 4 % 6 % Average tangible common equity $ 459,154 $ 436,867 $ 418,290 5 % 10 % For the Quarter Ended: CONSOLIDATED INCOME STATEMENTS March 31, December 31, September 30, June 30, March 31, (in $000’s, unaudited) 2023 2022 2022 2022 2022 Interest income $ 56,274 $ 55,192 $ 50,174 $ 43,556 $ 39,906 Interest expense 7,016 3,453 2,133 1,677 1,685 Net interest income before provision for credit losses on loans 49,258 51,739 48,041 41,879 38,221 Provision for (recapture of) credit losses on loans 32 508 1,006 (181 ) (567 ) Net interest income after provision for credit losses on loans 49,226 51,231 47,035 42,060 38,788 Noninterest income: Service charges and fees on deposit accounts 1,743 1,801 1,360 867 612 Increase in cash surrender value of life insurance 493 481 484 480 480 Servicing income 131 138 125 139 106 Gain on sales of SBA loans 76 — 308 27 156 Termination fees 11 — 16 45 — Gain on warrants — — 32 — 637 Gain on proceeds from company-owned life insurance — — — 27 — Other 312 352 456 513 469 Total noninterest income 2,766 2,772 2,781 2,098 2,460 Noninterest expense: Salaries and employee benefits 14,809 13,915 14,119 13,476 13,821 Occupancy and equipment 2,400 2,510 2,415 2,277 2,437 Professional fees 1,399 1,414 1,230 1,291 1,080 Other 6,793 6,679 6,135 6,146 5,914 Total noninterest expense 25,401 24,518 23,899 23,190 23,252 Income before income taxes 26,591 29,485 25,917 20,968 17,996 Income tax expense 7,674 8,686 7,848 6,147 5,130 Net income $ 18,917 $ 20,799 $ 18,069 $ 14,821 $ 12,866 PER COMMON SHARE DATA (unaudited) Basic earnings per share $ 0.31 $ 0.34 $ 0.30 $ 0.24 $ 0.21 Diluted earnings per share $ 0.31 $ 0.34 $ 0.30 $ 0.24 $ 0.21 Weighted average shares outstanding - basic 60,908,221 60,788,803 60,686,992 60,542,170 60,393,883 Weighted average shares outstanding - diluted 61,268,072 61,357,023 61,123,801 60,969,154 60,921,835 Common shares outstanding at period-end 60,948,607 60,852,723 60,716,794 60,666,794 60,407,846 Dividend per share $ 0.13 $ 0.13 $ 0.13 $ 0.13 $ 0.13 Book value per share $ 10.62 $ 10.39 $ 10.04 $ 10.01 $ 9.95 Tangible book value per share $ 7.70 $ 7.46 $ 7.09 $ 7.04 $ 6.96 KEY FINANCIAL RATIOS (unaudited) Annualized return on average equity 12.03 % 13.40 % 11.72 % 9.86 % 8.71 % Annualized return on average tangible common equity 16.71 % 18.89 % 16.60 % 14.06 % 12.47 % Annualized return on average assets 1.47 % 1.54 % 1.31 % 1.11 % 0.96 % Annualized return on average tangible assets 1.52 % 1.59 % 1.36 % 1.15 % 0.99 % Net interest margin (FTE) 4.09 % 4.10 % 3.73 % 3.38 % 3.05 % Efficiency ratio 48.83 % 44.98 % 47.02 % 52.73 % 57.16 % AVERAGE BALANCES (in $000’s, unaudited) Average assets $ 5,235,506 $ 5,360,867 $ 5,466,330 $ 5,334,636 $ 5,443,240 Average tangible assets $ 5,057,063 $ 5,181,793 $ 5,286,591 $ 5,154,245 $ 5,262,175 Average earning assets $ 4,895,009 $ 5,009,578 $ 5,117,373 $ 4,985,611 $ 5,093,851 Average loans held-for-sale $ 2,755 $ 2,346 $ 3,282 $ 1,824 $ 1,478 Average total loans $ 3,274,770 $ 3,248,210 $ 3,140,705 $ 3,048,353 $ 3,027,111 Average deposits $ 4,415,952 $ 4,600,533 $ 4,712,044 $ 4,579,436 $ 4,697,136 Average demand deposits - noninterest-bearing $ 1,667,260 $ 1,851,003 $ 1,910,748 $ 1,836,350 $ 1,857,164 Average interest-bearing deposits $ 2,748,692 $ 2,749,530 $ 2,801,296 $ 2,743,086 $ 2,839,972 Average interest-bearing liabilities $ 2,834,732 $ 2,788,880 $ 2,840,611 $ 2,791,527 $ 2,879,952 Average equity $ 637,597 $ 615,941 $ 611,707 $ 603,182 $ 599,355 Average tangible common equity $ 459,154 $ 436,867 $ 431,968 $ 422,791 $ 418,290 End of Period: Percent Change From: CONSOLIDATED BALANCE SHEETS March 31, December 31, March 31, December 31, March 31, (in $000’s, unaudited) 2023 2022 2022 2022 2022 ASSETS Cash and due from banks $ 41,318 $ 27,595 $ 29,729 50 % 39 % Other investments and interest-bearing deposits in other financial institutions 698,690 279,008 1,187,436 150 % (41 ) % Securities available-for-sale, at fair value 491,751 489,596 111,217 0 % 342 % Securities held-to-maturity, at amortized cost 698,231 714,990 736,823 (2 ) % (5 ) % Loans held-for-sale - SBA, including deferred costs 2,792 2,456 831 14 % 236 % Loans: Commercial 506,037 532,749 568,053 (5 ) % (11 ) % PPP loans 565 1,166 37,393 (52 ) % (98 ) % Real estate: CRE - owner occupied 603,298 614,663 597,542 (2 ) % 1 % CRE - non-owner occupied 1,083,852 1,066,368 928,220 2 % 17 % Land and construction 166,408 163,577 153,323 2 % 9 % Home equity 124,481 120,724 111,609 3 % 12 % Multifamily 231,242 244,882 221,767 (6 ) % 4 % Residential mortgages 528,639 537,905 391,171 (2 ) % 35 % Consumer and other 17,905 17,033 17,110 5 % 5 % Loans 3,262,427 3,299,067 3,026,188 (1 ) % 8 % Deferred loan fees, net (512 ) (517 ) (2,124 ) (1 ) % (76 ) % Total loans, net of deferred costs and fees 3,261,915 3,298,550 3,024,064 (1 ) % 8 % Allowance for credit losses on loans (47,273 ) (47,512 ) (42,788 ) (1 ) % 10 % Loans, net 3,214,642 3,251,038 2,981,276 (1 ) % 8 % Company-owned life insurance 79,438 78,945 78,069 1 % 2 % Premises and equipment, net 9,142 9,301 9,580 (2 ) % (5 ) % Goodwill 167,631 167,631 167,631 0 % 0 % Other intangible assets 10,431 11,033 13,009 (5 ) % (20 ) % Accrued interest receivable and other assets 122,474 125,987 111,797 (3 ) % 10 % Total assets $ 5,536,540 $ 5,157,580 $ 5,427,398 7 % 2 % LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities: Deposits: Demand, noninterest-bearing $ 1,469,081 $ 1,736,722 $ 1,811,943 (15 ) % (19 ) % Demand, interest-bearing 1,196,789 1,196,427 1,268,942 0 % (6 ) % Savings and money market 1,264,567 1,285,444 1,447,434 (2 ) % (13 ) % Time deposits - under $250 37,884 32,445 38,417 17 % (1 ) % Time deposits - $250 and over 172,070 108,192 93,161 59 % 85 % ICS/CDARS - interest-bearing demand, money market and time deposits 304,147 30,374 30,008 901 % 914 % Total deposits 4,444,538 4,389,604 4,689,905 1 % (5 ) % Other short-term borrowings 300,000 — — N/A N/A Subordinated debt, net of issuance costs 39,387 39,350 39,987 0 % (2 ) % Accrued interest payable and other liabilities 105,407 96,170 96,450 10 % 9 % Total liabilities 4,889,332 4,525,124 4,826,342 8 % 1 % Shareholders’ Equity: Common stock 504,135 502,923 498,763 0 % 1 % Retained earnings 157,390 146,389 116,347 8 % 35 % Accumulated other comprehensive loss (14,317 ) (16,856 ) (14,054 ) 15 % (2 ) % Total shareholders' equity 647,208 632,456 601,056 2 % 8 % Total liabilities and shareholders’ equity $ 5,536,540 $ 5,157,580 $ 5,427,398 7 % 2 % End of Period: CONSOLIDATED BALANCE SHEETS March 31, December 31, September 30, June 30, March 31, (in $000’s, unaudited) 2023 2022 2022 2022 2022 ASSETS Cash and due from banks $ 41,318 $ 27,595 $ 40,500 $ 35,764 $ 29,729 Other investments and interest-bearing deposits in other financial institutions 698,690 279,008 641,251 840,821 1,187,436 Securities available-for-sale, at fair value 491,751 489,596 478,534 332,129 111,217 Securities held-to-maturity, at amortized cost 698,231 714,990 703,794 723,716 736,823 Loans held-for-sale - SBA, including deferred costs 2,792 2,456 2,081 2,281 831 Loans: Commercial 506,037 532,749 541,215 523,268 568,053 PPP loans 565 1,166 1,614 8,153 37,393 Real estate: CRE - owner occupied 603,298 614,663 612,241 597,521 597,542 CRE - non-owner occupied 1,083,852 1,066,368 1,023,405 993,621 928,220 Land and construction 166,408 163,577 167,439 155,389 153,323 Home equity 124,481 120,724 116,489 116,641 111,609 Multifamily 231,242 244,882 229,455 221,938 221,767 Residential mortgages 528,639 537,905 508,839 448,958 391,171 Consumer and other 17,905 17,033 16,620 18,354 17,110 Loans 3,262,427 3,299,067 3,217,317 3,083,843 3,026,188 Deferred loan fees, net (512 ) (517 ) (844 ) (1,391 ) (2,124 ) Total loans, net of deferred fees 3,261,915 3,298,550 3,216,473 3,082,452 3,024,064 Allowance for credit losses on loans (47,273 ) (47,512 ) (46,921 ) (45,490 ) (42,788 ) Loans, net 3,214,642 3,251,038 3,169,552 3,036,962 2,981,276 Company-owned life insurance 79,438 78,945 78,456 77,972 78,069 Premises and equipment, net 9,142 9,301 9,428 9,593 9,580 Goodwill 167,631 167,631 167,631 167,631 167,631 Other intangible assets 10,431 11,033 11,692 12,351 13,009 Accrued interest receivable and other assets 122,474 125,987 128,343 117,621 111,797 Total assets $ 5,536,540 $ 5,157,580 $ 5,431,262 $ 5,356,841 $ 5,427,398 LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities: Deposits: Demand, noninterest-bearing $ 1,469,081 $ 1,736,722 $ 1,883,574 $ 1,846,365 $ 1,811,943 Demand, interest-bearing 1,196,789 1,196,427 1,154,403 1,218,538 1,268,942 Savings and money market 1,264,567 1,285,444 1,487,400 1,387,003 1,447,434 Time deposits - under $250 37,884 32,445 34,728 36,691 38,417 Time deposits - $250 and over 172,070 108,192 93,263 98,760 93,161 ICS/CDARS - interest-bearing demand, money market and time deposits 304,147 30,374 29,897 26,287 30,008 Total deposits 4,444,538 4,389,604 4,683,265 4,613,644 4,689,905 Other short-term borrowings 300,000 — — — — Subordinated debt, net of issuance costs 39,387 39,350 39,312 39,274 39,987 Accrued interest payable and other liabilities 105,407 96,170 99,168 96,699 96,450 Total liabilities 4,889,332 4,525,124 4,821,745 4,749,617 4,826,342 Shareholders’ Equity: Common stock 504,135 502,923 501,240 499,832 498,763 Retained earnings 157,390 146,389 133,489 123,310 116,347 Accumulated other comprehensive loss (14,317 ) (16,856 ) (25,212 ) (15,918 ) (14,054 ) Total shareholders' equity 647,208 632,456 609,517 607,224 601,056 Total liabilities and shareholders’ equity $ 5,536,540 $ 5,157,580 $ 5,431,262 $ 5,356,841 $ 5,427,398 At or For the Quarter Ended: Percent Change From: CREDIT QUALITY DATA March 31, December 31, March 31, December 31, March 31, (in $000’s, unaudited) 2023 2022 2022 2022 2022 Nonaccrual loans - held-for-investment $ 781 $ 740 $ 3,303 6 % (76 ) % Restructured and loans over 90 days past due and still accruing 1,459 1,685 527 (13 ) % 177 % Total nonperforming loans 2,240 2,425 3,830 (8 ) % (42 ) % Foreclosed assets — — — N/A N/A Total nonperforming assets $ 2,240 $ 2,425 $ 3,830 (8 ) % (42 ) % Other restructured loans still accruing $ — $ 171 $ 125 (100 ) % (100 ) % Net charge-offs (recoveries) during the quarter $ 271 $ (83 ) $ (65 ) 427 % 517 % Provision for (recapture of) credit losses on loans during the quarter $ 32 $ 508 $ (567 ) (94 ) % 106 % Allowance for credit losses on loans $ 47,273 $ 47,512 $ 42,788 (1 ) % 10 % Classified assets $ 26,800 $ 14,544 $ 30,579 84 % (12 ) % Allowance for credit losses on loans to total loans 1.45 % 1.44 % 1.41 % 1 % 3 % Allowance for credit losses on loans to total nonperforming loans 2,110.40 % 1,959.26 % 1,117.18 % 8 % 89 % Nonperforming assets to total assets 0.04 % 0.05 % 0.07 % (20 ) % (43 ) % Nonperforming loans to total loans 0.07 % 0.07 % 0.13 % 0 % (46 ) % Classified assets to Heritage Commerce Corp Tier 1 capital plus allowance for credit losses on loans 5 % 3 % 6 % 67 % (17 ) % Classified assets to Heritage Bank of Commerce Tier 1 capital plus allowance for credit losses on loans 5 % 3 % 6 % 67 % (17 ) % OTHER PERIOD-END STATISTICS (in $000’s, unaudited) Heritage Commerce Corp: Tangible common equity (1) $ 469,146 $ 453,792 $ 420,416 3 % 12 % Shareholders’ equity / total assets 11.69 % 12.26 % 11.07 % (5 ) % 6 % Tangible common equity / tangible assets (2) 8.76 % 9.11 % 8.01 % (4 ) % 9 % Loan to deposit ratio 73.39 % 75.14 % 64.48 % (2 ) % 14 % Noninterest-bearing deposits / total deposits 33.05 % 39.56 % 38.63 % (16 ) % (14 ) % Total capital ratio 15.3 % 14.8 % 14.6 % 3 % 5 % Tier 1 capital ratio 13.1 % 12.7 % 12.4 % 3 % 6 % Common Equity Tier 1 capital ratio 13.1 % 12.7 % 12.4 % 3 % 6 % Tier 1 leverage ratio 9.6 % 9.2 % 8.3 % 4 % 16 % Heritage Bank of Commerce: Total capital ratio 14.7 % 14.2 % 13.9 % 4 % 6 % Tier 1 capital ratio 13.5 % 13.2 % 12.9 % 2 % 5 % Common Equity Tier 1 capital ratio 13.5 % 13.2 % 12.9 % 2 % 5 % Tier 1 leverage ratio 9.9 % 9.5 % 8.7 % 4 % 14 % __________________
(1) Represents shareholders' equity minus goodwill and other intangible assets (2) Represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets At or For the Quarter Ended: CREDIT QUALITY DATA March 31, December 31, September 30, June 30, March 31, (in $000’s, unaudited) 2023 2022 2022 2022 2022 Nonaccrual loans - held-for-investment $ 781 $ 740 $ 491 $ 1,734 $ 3,303 Restructured and loans over 90 days past due and still accruing 1,459 1,685 545 981 527 Total nonperforming loans 2,240 2,425 1,036 2,715 3,830 Foreclosed assets — — — — — Total nonperforming assets $ 2,240 $ 2,425 $ 1,036 $ 2,715 $ 3,830 Other restructured loans still accruing $ — $ 171 $ 93 $ 113 $ 125 Net charge-offs (recoveries) during the quarter $ 271 $ (83 ) $ (425 ) $ (2,883 ) $ (65 ) Provision for (recapture of) credit losses on loans during the quarter $ 32 $ 508 $ 1,006 $ (181 ) $ (567 ) Allowance for credit losses on loans $ 47,273 $ 47,512 $ 46,921 $ 45,490 $ 42,788 Classified assets $ 26,800 $ 14,544 $ 28,570 $ 28,929 $ 30,579 Allowance for credit losses on loans to total loans 1.45 % 1.44 % 1.46 % 1.48 % 1.41 % Allowance for credit losses on loans to total nonperforming loans 2,110.40 % 1,959.26 % 4,529.05 % 1,675.51 % 1,117.18 % Nonperforming assets to total assets 0.04 % 0.05 % 0.02 % 0.05 % 0.07 % Nonperforming loans to total loans 0.07 % 0.07 % 0.03 % 0.09 % 0.13 % Classified assets to Heritage Commerce Corp Tier 1 capital plus allowance for credit losses on loans 5 % 3 % 6 % 6 % 6 % Classified assets to Heritage Bank of Commerce Tier 1 capital plus allowance for credit losses on loans 5 % 3 % 5 % 6 % 6 % OTHER PERIOD-END STATISTICS (in $000’s, unaudited) Heritage Commerce Corp: Tangible common equity (1) $ 469,146 $ 453,792 $ 430,194 $ 427,242 $ 420,416 Shareholders’ equity / total assets 11.69 % 12.26 % 11.22 % 11.34 % 11.07 % Tangible common equity / tangible assets (2) 8.76 % 9.11 % 8.19 % 8.25 % 8.01 % Loan to deposit ratio 73.39 % 75.14 % 68.68 % 66.81 % 64.48 % Noninterest-bearing deposits / total deposits 33.05 % 39.56 % 40.22 % 40.02 % 38.63 % Total capital ratio 15.3 % 14.8 % 14.5 % 14.6 % 14.6 % Tier 1 capital ratio 13.1 % 12.7 % 12.4 % 12.5 % 12.4 % Common Equity Tier 1 capital ratio 13.1 % 12.7 % 12.4 % 12.5 % 12.4 % Tier 1 leverage ratio 9.6 % 9.2 % 8.7 % 8.7 % 8.3 % Heritage Bank of Commerce: Total capital ratio 14.7 % 14.2 % 14.0 % 14.1 % 13.9 % Tier 1 capital ratio 13.5 % 13.2 % 12.9 % 13.0 % 12.9 % Common Equity Tier 1 capital ratio 13.5 % 13.2 % 12.9 % 13.0 % 12.9 % Tier 1 leverage ratio 9.9 % 9.5 % 9.0 % 9.0 % 8.7 % __________________
(1) Represents shareholders' equity minus goodwill and other intangible assets (2) Represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets NET INTEREST INCOME AND NET INTEREST MARGIN For the Quarter Ended For the Quarter Ended March 31, 2023 March 31, 2022 Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ (in $000’s, unaudited) Balance Expense Rate Balance Expense Rate Assets: Loans, gross (1)(2) $ 3,277,525 $ 44,112 5.46 % $ 3,028,589 35,101 4.70 % Securities - taxable 1,161,021 7,056 2.46 % 781,689 3,444 1.79 % Securities - exempt from Federal tax (3) 36,012 313 3.52 % 44,871 376 3.40 % Other investments and interest-bearing deposits in other financial institutions 420,451 4,859 4.69 % 1,238,702 1,064 0.35 % Total interest earning assets (3) 4,895,009 56,340 4.67 % 5,093,851 39,985 3.18 % Cash and due from banks 37,563 37,630 Premises and equipment, net 9,269 9,605 Goodwill and other intangible assets 178,443 181,065 Other assets 115,222 121,089 Total assets $ 5,235,506 $ 5,443,240 Liabilities and shareholders’ equity: Deposits: Demand, noninterest-bearing $ 1,667,260 $ 1,857,164 Demand, interest-bearing 1,217,731 1,476 0.49 % 1,279,989 459 0.15 % Savings and money market 1,285,173 3,489 1.10 % 1,394,734 543 0.16 % Time deposits - under $100 12,280 10 0.33 % 13,235 5 0.15 % Time deposits - $100 and over 163,047 845 2.10 % 119,082 106 0.36 % ICS/CDARS - interest-bearing demand, money market and time deposits 70,461 81 0.47 % 32,932 1 0.01 % Total interest-bearing deposits 2,748,692 5,901 0.87 % 2,839,972 1,114 0.16 % Total deposits 4,415,952 5,901 0.54 % 4,697,136 1,114 0.10 % Short-term borrowings 46,677 578 5.02 % 29 — 0.00 % Subordinated debt, net of issuance costs 39,363 537 5.53 % 39,951 571 5.80 % Total interest-bearing liabilities 2,834,732 7,016 1.00 % 2,879,952 1,685 0.24 % Total interest-bearing liabilities and demand, noninterest-bearing / cost of funds 4,501,992 7,016 0.63 % 4,737,116 1,685 0.14 % Other liabilities 95,917 106,769 Total liabilities 4,597,909 4,843,885 Shareholders’ equity 637,597 599,355 Total liabilities and shareholders’ equity $ 5,235,506 $ 5,443,240 Net interest income (3) / margin 49,324 4.09 % 38,300 3.05 % Less tax equivalent adjustment (3) (66 ) (79 ) Net interest income $ 49,258 $ 38,221 __________________
(1) Includes loans held-for-sale. Nonaccrual loans are included in average balances. (2) Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $300,000 for the first quarter of 2023 (of which $18,000 was from PPP loans), compared to $1,788,000 for the first quarter of 2022 (of which $1,346,000 was from PPP loans). Prepayment fees totaled $138,000 for the first quarter of 2023, compared to $510,000 for the first quarter of 2022. (3) Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate. NET INTEREST INCOME AND NET INTEREST MARGIN For the Quarter Ended For the Quarter Ended March 31, 2023 December 31, 2022 Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ (in $000’s, unaudited) Balance Expense Rate Balance Expense Rate Assets: Loans, gross (1)(2) $ 3,277,525 $ 44,112 5.46 % $ 3,250,556 $ 42,501 5.19 % Securities - taxable 1,161,021 7,056 2.46 % 1,156,563 6,941 2.38 % Securities - exempt from Federal tax (3) 36,012 313 3.52 % 37,958 324 3.39 % Other investments and interest-bearing deposits in other financial institutions 420,451 4,859 4.69 % 564,501 5,494 3.86 % Total interest earning assets (3) 4,895,009 56,340 4.67 % 5,009,578 55,260 4.38 % Cash and due from banks 37,563 36,392 Premises and equipment, net 9,269 9,436 Goodwill and other intangible assets 178,443 179,074 Other assets 115,222 126,387 Total assets $ 5,235,506 $ 5,360,867 Liabilities and shareholders’ equity: Deposits: Demand, noninterest-bearing $ 1,667,260 $ 1,851,003 Demand, interest-bearing 1,217,731 1,476 0.49 % 1,164,378 945 0.32 % Savings and money market 1,285,173 3,489 1.10 % 1,424,964 1,694 0.47 % Time deposits - under $100 12,280 10 0.33 % 12,157 7 0.23 % Time deposits - $100 and over 163,047 845 2.10 % 120,246 268 0.88 % ICS/CDARS - interest-bearing demand, money market and time deposits 70,461 81 0.47 % 27,785 1 0.01 % Total interest-bearing deposits 2,748,692 5,901 0.87 % 2,749,530 2,915 0.42 % Total deposits 4,415,952 5,901 0.54 % 4,600,533 2,915 0.25 % Short-term borrowings 46,677 578 5.02 % 24 — 0.00 % Subordinated debt, net of issuance costs 39,363 537 5.53 % 39,326 538 5.43 % Total interest-bearing liabilities 2,834,732 7,016 1.00 % 2,788,880 3,453 0.49 % Total interest-bearing liabilities and demand, noninterest-bearing / cost of funds 4,501,992 7,016 0.63 % 4,639,883 3,453 0.30 % Other liabilities 95,917 105,043 Total liabilities 4,597,909 4,744,926 Shareholders’ equity 637,597 615,941 Total liabilities and shareholders’ equity $ 5,235,506 $ 5,360,867 Net interest income (3) / margin 49,324 4.09 % 51,807 4.10 % Less tax equivalent adjustment (3) (66 ) (68 ) Net interest income $ 49,258 $ 51,739 __________________
(1) Includes loans held-for-sale. Nonaccrual loans are included in average balances. (2) Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $300,000 for the first quarter of 2023 (of which $18,000 was from PPP loans), compared to $326,000 for the fourth quarter of 2022 (of which $25,000 was from PPP loans). Prepayment fees totaled $138,000 for the first quarter of 2023, compared to $123,000 for the fourth quarter of 2022. (3) Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate.
- The following table shows our liquidity, available lines of credit and the amounts outstanding at March 31, 2023: