• Heritage Commerce Corp Earns Record $20.8 Million for the Fourth Quarter of 2022, and Record $66.6 Million for Full Year 2022

    المصدر: Nasdaq GlobeNewswire / 26 يناير 2023 17:12:59   America/New_York

    SAN JOSE, Calif., Jan. 26, 2023 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (Nasdaq: HTBK), the holding company (the “Company”) for Heritage Bank of Commerce (the “Bank”), today announced fourth quarter 2022 net income increased 49% to $20.8 million, or $0.34 per average diluted common share, compared to $14.0 million, or $0.23 per average diluted common share, for the fourth quarter of 2021, and increased 15% from $18.1 million, or $0.30 per average diluted common share, for the third quarter of 2022. For the year ended December 31, 2022, net income increased 40% to $66.6 million, or $1.09 per average diluted common share, compared to $47.7 million, or $0.79 per average diluted common share, for the year ended December 31, 2021. All results are unaudited.

    “Our quarterly results were a strong end to what was a record year on several measures,” said Clay Jones, President and Chief Executive Officer. “We achieved record net income for the fourth quarter and the year ended December 31, 2022 with a 23% increase in net interest income year-over-year, supported by solid loan growth both year-over-year and from the linked quarter. Performance metrics for the fourth quarter of 2022 were highlighted by a return on average tangible common equity of 18.89%, a return on average tangible assets of 1.59%, and net interest margin of 4.10%. Our efficiency ratio also improved to 44.98% for the fourth quarter and 49.93% for the year ended December 31, 2022.”

    “Total deposits declined (6%) from the linked quarter and (8%) from 2021,” Mr. Jones stated. “The year-over-year decline was primarily related to the decrease in balances (of approximately $170 million) from two large depositors who had temporary high balances at December 31, 2021. Additional declines in deposits were related to the decrease in balances from the distribution of proceeds from the sale of client businesses and real estate, and to a lesser extent, clients moving funds to seek higher rates. We continue to foster our loyal client relationships as we focus on growing our Company in the Greater San Francisco Bay Area.”  

    “Our credit metrics remained strong in the fourth quarter of 2022. Nonperforming assets declined ($1.3) million from the fourth quarter a year ago, and classified assets decreased (57%) year-over-year and declined (49%) over the preceding quarter,” said Mr. Jones. “We recorded a $508,000 provision for credit losses on loans during the current quarter to support our growing loan portfolio, which resulted in an allowance for credit losses on loans to total loans of 1.44% at December 31, 2022. We continue to focus on maintaining a healthy balance sheet with strong capital. I want to thank our employees for their efforts this and every year, and for their unwavering commitment to our clients, communities and shareholders.”

    Fourth Quarter Ended December 31, 2022
    Operating Results, Balance Sheet Review, Capital Management, and Credit Quality

    (as of, or for the periods ended December 31, 2022, compared to December 31, 2021, and September 30, 2022, except as noted):

    Operating Results:

    • Diluted earnings per share were $0.34 for the fourth quarter of 2022, compared to $0.23 for the fourth quarter of 2021, and $0.30 for the third quarter of 2022. Diluted earnings per share were $1.09 for the year ended December 31, 2022, compared to $0.79 for the year ended December 31, 2021.
    • The following table indicates the ratios for the return on average tangible common assets and the return on average tangible common equity for the periods indicated:
      For the Quarter Ended: For the Year Ended:
      December 31,  September 30,  December 31,  December 31,  December 31, 
    (unaudited) 2022 2022 2021 2022 2021
    Return on average tangible assets 1.59%  1.36%  1.00%  1.27%  0.96%
    Return on average tangible common equity 18.89%  16.60%  13.50%  15.57%  11.86%
                        
    • Net interest income, before provision for credit losses on loans, increased 36% to $51.7 million for the fourth quarter of 2022, compared to $38.1 million for the fourth quarter of 2021. The fully tax equivalent (“FTE”) net interest margin increased 126 basis points to 4.10% for the fourth quarter of 2022, from 2.84% for the fourth quarter of 2021, primarily due to increases in the prime rate and the rate on overnight funds, a shift in the mix of earning assets into higher yielding loans and investment securities, and higher average yield on overnight funds, partially offset by lower interest and fees on Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans, a decrease in the accretion of the loan purchase discount into interest income from acquired loans, lower prepayment fees, and a higher cost of funds.

      • Net interest income increased 8% to $51.7 million for the fourth quarter of 2022, compared to $48.0 million for the third quarter of 2022. The FTE net interest margin increased 37 basis points to 4.10% for the fourth quarter of 2022 from 3.73% for the third quarter of 2022, primarily due to a shift in the mix of earning assets as the Company invested its excess liquidity into higher yielding loans and investment securities, and higher average yields on overnight funds, partially offset by a higher cost of funds.

      • Net interest income increased 23% to $179.9 million for the year ended December 31, 2022, compared to $146.1 million for the year ended December 31, 2021. For the year ended December 31, 2022, the FTE net interest margin increased 52 basis points to 3.57%, compared to 3.05% for the year ended December 31, 2021, primarily due to higher average balances of loans and investment securities, higher average yields on investment securities and overnight funds, partially offset by lower interest and fees on PPP loans, a decrease in the accretion of the loan purchase discount into interest income from acquired loans, lower prepayment fees, a lower yield on the Bay View Funding factoring portfolio, and a higher cost of funds.
    • The following table, as of December 31, 2022, sets forth the estimated changes in the Company’s annual net interest income that would result from the designated instantaneous parallel shift in interest rates from the base rate:
      Increase/(Decrease) in 
      Estimated Net 
      Interest Income(1) 
      Amount Percent 
        
    Change in Interest Rates (basis points) (in $000's, unaudited)      
    +400 $20,274  9.4 %
    +300 $15,183  7.1 %
    +200 $10,119  4.7 %
    +100 $5,090  2.4 %
    0  —  —  
    −100 $(10,250) (4.8)%
    −200 $(24,753) (11.5)%
    −300 $(39,082) (18.2)%
    −400 $(52,586) (24.5)%
             
    • (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 5.19% for the fourth quarter of 2022, compared to 4.90% for the third quarter of 2022, primarily due to increases in the prime rate, partially offset by lower fees on PPP loans, and higher average balances of lower yielding purchased residential mortgage loans.
      For the Quarter Ended For the Quarter Ended 
      December 31, 2022 September 30, 2022 
      Average Interest Average Average Interest Average 
    (in $000’s, unaudited) Balance Income Yield Balance Income Yield 
    Loans, core bank $2,654,311  $33,594 5.02%$2,573,908  $30,490 4.70%
    Prepayment fees  —   123 0.02% —   96 0.01%
    PPP loans  1,255   3 0.95% 4,593   11 0.95%
    PPP fees, net  —   25 7.90% —   190 16.41%
    Asset-based lending  35,519   756 8.44% 53,514   1,032 7.65%
    Bay View Funding factored receivables  71,789   3,696 20.43% 62,623   3,201 20.28%
    Purchased residential mortgages  485,149   3,842 3.14% 446,190   3,414 3.04%
    Purchased commercial real estate ("CRE") loans  7,307   80 4.34% 8,337   83 3.95%
    Loan fair value mark / accretion  (4,774)  382 0.06% (5,178)  353 0.05%
    Total loans (includes loans held-for-sale) $3,250,556  $42,501 5.19%$3,143,987  $38,870 4.90%
                        
    • The average yield on the total loan portfolio increased to 5.19% for the fourth quarter of 2022, compared to 4.93% for the fourth quarter of 2021, primarily due to increases in the prime rate, partially offset by lower interest and fees on PPP loans, a decrease in the accretion of the loan purchase discount into interest income from acquired loans, lower prepayment fees, and higher average balances of lower yielding purchased residential mortgages.
      For the Quarter Ended For the Quarter Ended 
      December 31, 2022 December 31, 2021 
      Average Interest Average Average Interest Average 
    (in $000’s, unaudited) Balance Income Yield Balance Income Yield 
    Loans, core bank $2,654,311  $33,594 5.02%$2,432,700  $26,484 4.32%
    Prepayment fees  —   123 0.02% —   397 0.06%
    PPP loans  1,255   3 0.95% 127,592   318 0.99%
    PPP fees, net  —   25 7.90% —   2,211 6.87%
    Asset-based lending  35,519   756 8.44% 52,918   683 5.12%
    Bay View Funding factored receivables  71,789   3,696 20.43% 62,571   3,248 20.59%
    Purchased residential mortgages  485,149   3,842 3.14% 199,139   1,437 2.86%
    Purchased CRE loans  7,307   80 4.34% 8,929   69 3.07%
    Loan fair value mark / accretion  (4,774)  382 0.06% (7,728)  915 0.15%
    Total loans (includes loans held-for-sale) $3,250,556  $42,501 5.19%$2,876,121  $35,762 4.93%
                      
    • The average yield on the total loan portfolio decreased to 4.91% for the year ended December 31, 2022, compared to 5.03% for the year ended December 31, 2021, primarily due to a decrease in interest and fees on PPP loans, a decrease in the accretion of the loan purchase discount into interest income from acquired loans, lower prepayment fees, and an increase in the average balance of lower yielding purchased residential mortgages.
      For the Year Ended  For the Year Ended  
      December 31, 2022 December 31, 2021 
      Average Interest Average Average Interest Average 
    (in $000’s, unaudited) Balance Income Yield Balance Income Yield 
    Loans, core bank $2,561,195  $117,582 4.59%$2,299,367  $101,690 4.42%
    Prepayment fees  —   1,278 0.05% —   2,700 0.12%
    PPP loans  21,689   213 0.98% 249,253   2,481 1.00%
    PPP fees, net  —   2,054 9.47% —   9,995 4.01%
    Asset-based lending  51,990   3,613 6.95% 39,798   2,106 5.29%
    Bay View Funding factored receivables  64,099   12,819 20.00% 52,618   11,485 21.83%
    Purchased residential mortgages  417,672   12,395 2.97% 122,566   3,555 2.90%
    Purchased CRE loans  8,143   317 3.89% 12,436   441 3.55%
    Loan fair value mark / accretion  (5,782)  2,739 0.11% (9,717)  4,791 0.21%
    Total loans (includes loans held-for-sale) $3,119,006  $153,010 4.91%$2,766,321  $139,244 5.03%
                        
    • In aggregate, the remaining net purchase discount on total loans acquired from Focus Business Bank, Tri-Valley Bank, United American Bank, and Presidio Bank was $4.6 million at December 31, 2022.
    • The average cost of total deposits was 0.25% for the fourth quarter of 2022, compared to 0.10% for the fourth quarter of 2021, and 0.13% for the third quarter of 2022. The average cost of total deposits was 0.15% for the year ended December 31, 2022, compared to 0.11% for the year ended December 31, 2021.  
    • During the fourth quarter of 2022, there was a provision for credit losses on loans of $508,000, compared to a $615,000 negative provision for credit losses on loans for the fourth quarter of 2021, and a provision for credit losses on loans of $1.0 million for the third quarter of 2022. There was a provision for credit losses on loans of $766,000 for the year ended December 31, 2022, compared to a $3.1 million negative provision for credit losses on loans for the year ended December 31, 2021.
    • Total noninterest income remained relatively flat at $2.8 million for both the fourth quarter of 2022 and 2021. The fourth quarter of 2022 included higher income on off-balance sheet deposits. The fourth quarter of 2021 included termination fees, a gain on sales of SBA loans, and a gain on proceeds from company-owned life insurance. Total noninterest income remained relatively flat at $2.8 million for both the fourth and third quarters of 2022, as higher service charges and fees on deposit accounts was offset by a lower gain on sales of SBA loans during the fourth quarter of 2022.
    • For the year ended December 31, 2022, total noninterest income increased 4% to $10.1 million, compared to $9.7 million for the year ended December 31, 2021, primarily due to higher income on off-balance sheet deposits, and a $669,000 gain on warrants, partially offset by a lower gain on sales of SBA loans and a lower gain on proceeds from company-owned life insurance during the year ended December 31, 2022.
    • Total noninterest expense for the fourth quarter of 2022 increased to $24.5 million, compared to $22.2 million for the fourth quarter of 2021, primarily due to higher salaries and employee benefits, higher rent included in occupancy and equipment expense, higher professional fees, and higher insurance and information technology related expenses included in other noninterest expense during the fourth quarter of 2022.

      • Total noninterest expense for the fourth quarter of 2022 increased to $24.5 million, compared to $23.9 million for the third quarter of 2022, primarily due to approximately $900,000 in additional expense as a result of higher bonuses, professional fees, insurance and information technology related expenses incurred during the fourth quarter of 2022. The higher salaries and employee benefits during the third quarter of 2022 included $784,000 of restricted stock expense for vesting of restricted common stock held by the previous President and Chief Executive Officer of the Company, which was partially offset by a higher bonus accrual during the fourth quarter of 2022.

      • Noninterest expense for the year ended December 31, 2022 increased to $94.9 million, compared to $93.1 million for the year ended December 31, 2021, primarily due to higher salaries and employee benefits, higher rent included in occupancy and equipment expense, and higher insurance and information technology related expenses during the year ended December 31, 2022. These increases were partially offset by higher legal fees included in professional fees and a reserve for a legal settlement included in other noninterest expense during the year ended December 31, 2021.

      • Full time equivalent employees were 331 at December 31, 2022, and 326 at December 31, 2021, and 327 at September 30, 2022.
    • The efficiency ratio was 44.98% for the fourth quarter of 2022, compared to 54.32% for the fourth quarter of 2021, and 47.02% for the third quarter of 2022. The efficiency ratio for the year ended December 31, 2022 was 49.93%, compared to 59.74% for the year ended December 31, 2021. The improvement in the efficiency ratio for the fourth quarter of 2022 and the year ended December 31, 2022 was primarily due to an increase in net interest income from the rising interest rate environment.
    • Income tax expense was $8.7 million for the fourth quarter of 2022, compared to $5.3 million for the fourth quarter of 2021, and $7.8 million for the third quarter of 2022. The effective tax rate for the fourth quarter of 2022 was 29.5%, compared to 27.7% for the fourth quarter of 2021, and 30.3% for the third quarter of 2022. Income tax expense for the year ended December 31, 2022 was $27.8 million, compared to $18.2 million for the year ended December 31, 2021. The effective tax rate for the year ended December 31, 2022 was 29.5%, compared to 27.6% for the year ended December 31, 2021.

    Balance Sheet Review, Capital Management and Credit Quality:

    • Total assets decreased (6%) to $5.154 billion at December 31, 2022, compared to $5.499 billion at December 31, 2021, and decreased (5%) from $5.431 billion at September 30, 2022.  
    • Securities available-for-sale, at fair value, totaled $489.6 million at December 31, 2022, compared to $102.3 million at December 31, 2021, and $478.5 million at September 30, 2022. At December 31, 2022, the Company’s securities available-for-sale portfolio was comprised of $418.5 million of U.S. Treasury securities and $71.1 million of agency mortgage-backed securities (all issued by U.S. Government sponsored entities).

      • The pre-tax unrealized loss on U.S. Treasury securities available-for-sale at December 31, 2022 was ($10.3) million, compared to a pre-tax unrealized loss of ($10.1) million at September 30, 2022. There were no U.S. Treasury securities available-for-sale at December 31, 2021. The pre-tax unrealized loss on mortgage-backed securities available-for-sale at December 31, 2022 was ($5.8) million, compared to a pre-tax unrealized gain of $2.9 million at December 31, 2021, and a pre-tax unrealized loss of ($7.3) million at September 30, 2022. The pre-tax unrealized loss on total securities available-for-sale at December 31, 2022 was ($16.1) million, compared to a pre-tax unrealized gain of $2.9 million at December 31, 2021, and a pre-tax unrealized loss of ($17.4) million at September 30, 2022. All other factors remaining the same, when market interest rates are increasing, the Company will experience a higher unrealized loss in the securities portfolio.
      • During the fourth quarter of 2022, the Company purchased $11.7 million of U.S. Treasury securities available-for-sale, with a book yield of 4.53% and an average life of 1.28 years. During the year ended December 31, 2022, the Company purchased $425.7 million of U.S. Treasury securities available-for-sale, with a book yield of 3.08% and an average life of 2.25 years.
    • At December 31, 2022, securities held-to-maturity, at amortized cost, totaled $715.0 million, compared to $658.4 million at December 31, 2021, and $703.8 million at September 30, 2022. At December 31, 2022, the Company’s securities held-to-maturity portfolio was comprised of $677.4 million of agency mortgage-backed securities, and $37.6 million of tax-exempt municipal bonds.

      • The pre-tax unrealized loss on mortgage-backed securities held-to-maturity at December 31, 2022 was ($99.7) million, compared to a pre-tax unrealized loss of ($1.6) million at December 31, 2021, and a pre-tax unrealized loss of ($108.1) million at September 30, 2022. The pre-tax unrealized loss on municipal bonds held-to-maturity at December 31, 2022 was ($810,000), compared to a pre-tax unrealized gain of $805,000 at December 31, 2021, and a pre-tax unrealized loss of ($2.1) million at September 30, 2022. The pre-tax unrealized loss on total securities held-to-maturity at December 31, 2022 was ($100.6) million, compared to a pre-tax unrealized loss of ($790,000) at December 31, 2021, and a pre-tax unrealized loss of ($110.2) million at September 30, 2022.
      • During the fourth quarter of 2022, the Company purchased $27.1 million of agency mortgage-backed securities held-to-maturity, with a book yield of 5.13% and an average life of 8.56 years. During the year ended December 31, 2022, the Company purchased $146.6 million of agency mortgage-backed securities held-to-maturity, with a book yield of 2.75% and an average life of 6.92 years.
    • The average life of the total investment securities portfolio was 4.93 years at December 31, 2022.
    • 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  December 31, 2022 September 30, 2022 December 31, 2021 
    (in $000’s, unaudited) Balance  % to Total Balance  % to Total Balance  % to Total 
    Commercial $532,749  16%$541,215  17%$594,108  19%
    PPP Loans(1)  1,166  0% 1,614  0% 88,726  3%
    Real estate:                
    CRE - owner occupied  614,663  19% 612,241  19% 595,934  19%
    CRE - non-owner occupied  1,066,368  32% 1,023,405  32% 902,326  29%
    Land and construction  163,577  5% 167,439  5% 147,855  5%
    Home equity  120,724  4% 116,489  3% 109,579  4%
    Multifamily  244,882  7% 229,455  7% 218,856  7%
    Residential mortgages  537,905  16% 508,839  16% 416,660  13%
    Consumer and other  17,033  1% 16,620  1% 16,744  1%
    Total Loans  3,299,067  100% 3,217,317  100% 3,090,788  100%
    Deferred loan costs (fees), net  (517) —  (844) —  (3,462) — 
    Loans, net of deferred costs and fees $3,298,550  100%$3,216,473  100%$3,087,326  100%


    (1)   Less than 1% at December 31, 2022 and September 30, 2022.

    • Loans, excluding loans held-for-sale, increased $211.2 million, or 7%, to $3.299 billion at December 31, 2022, compared to $3.087 billion at December 31, 2021, and increased $82.1 million, or 3%, from $3.216 billion at September 30, 2022. Total loans at December 31, 2022 included $1.2 million of PPP loans, compared to $88.7 million at December 31, 2021 and $1.6 million at September 30, 2022. Total loans at December 31, 2022 included $537.9 million of residential mortgages, compared to $416.7 million at December 31, 2021, and $508.8 million at September 30, 2022. Loans, excluding loans held-for-sale, PPP loans and residential mortgages, increased $175.5 million, or 7%, to $2.760 billion at December 31, 2022, compared to $2.584 billion at December 31, 2021, and increased $53.4 million, or 2%, from $2.706 billion at September 30, 2022.  

      • Commercial and industrial (“C&I”) line utilization was 29% at both December 31, 2022 and September 30, 2022, compared to 31% at December 31, 2021.

      • At both December 31, 2022 and September 30, 2022, there was 37% of the CRE loan portfolio secured by owner-occupied real estate, compared to 40% at December 31, 2021.

      • At December 31, 2022, approximately 33% of the Company’s loan portfolio consisted of floating interest rate loans, compared to 38% at December 31, 2021, and 34% at September 30, 2022.

    • During the fourth quarter of 2022, the Company purchased single family residential mortgage loans totaling $37.4 million, tied to homes located in California, with average principal balances of approximately $1.0 million and a bond equivalent yield of approximately 5.22%, which uses the average life of the loan to recognize the discount into income. During the year ended December 31, 2022, the Company purchased single family residential mortgage loans totaling $185.4 million, tied to homes located in California, with average principal balances of approximately $934,000.
    • The following table summarizes the allowance for credit losses on loans (“ACLL”) for the periods indicated:
      At or For the Quarter Ended: For the Year Ended: 
    ALLOWANCE FOR CREDIT LOSSES ON LOANS December 31,  September 30,  December 31,  December 31,  December 31,  
    (in $000’s, unaudited) 2022
    		 2022
    		 2021
    		 2022
    		 2021
    		 
    Balance at beginning of period $46,921  $45,490  $43,680  $43,290  $44,400  
    Charge-offs during the period  (56)  (7)  (87)  (434)  (520) 
    Recoveries during the period  139   432   312   3,890   2,544  
    Net recoveries (charge-offs) during the period  83   425   225   3,456   2,024  
    Provision for (recapture of) credit losses on loans during the period  508   1,006   (615)  766   (3,134) 
    Balance at end of period $47,512  $46,921  $43,290  $47,512  $43,290  
                     
    Total loans, net of deferred fees $3,298,550  $3,216,473  $3,087,326  $3,298,550  $3,087,326  
    Total nonperforming loans $2,425  $1,036  $3,738  $2,425  $3,738  
    ACLL to total loans  1.44 % 1.46 % 1.40 % 1.44 % 1.40 %
    ACLL to total nonperforming loans  1,959.26 % 4,529.05 % 1,158.11 % 1,959.26 % 1,158.11 %
                          
    • The following table shows the drivers of change in ACLL under the current expected credit losses (“CECL”) methodology for the full year of 2022:
    DRIVERS OF CHANGE IN ACLL UNDER CECL  
    (in $000’s, unaudited)  
    ACLL at December 31, 2021 $43,290 
    Portfolio changes during the first quarter of 2022 including net recoveries  (33)
    Qualitative and quantitative changes during the first   
    quarter of 2022 including changes in economic forecasts  (469)
    ACLL at March 31, 2022  42,788 
    Portfolio changes during the second quarter of 2022 including net recoveries  1,383 
    Qualitative and quantitative changes during the second   
    quarter of 2022 including changes in economic forecasts  1,319 
    ACLL at June 30, 2022  45,490 
    Portfolio changes during the third quarter of 2022 including net recoveries  2,009 
    Qualitative and quantitative changes during the third   
    quarter of 2022 including changes in economic forecasts  (578)
    ACLL at September 30, 2022  46,921 
    Portfolio changes during the fourth quarter of 2022 including net recoveries  1,316 
    Qualitative and quantitative changes during the fourth   
    quarter of 2022 including changes in economic forecasts  (725)
    ACLL at December 31, 2022 $47,512 
         
    • The following is a breakout of nonperforming assets (“NPAs”) at the periods indicated:
                     
    NONPERFORMING ASSETS December 31, 2022 September 30, 2022 December 31, 2021 
    (in $000’s, unaudited)    Balance    % of Total    Balance    % of Total    Balance    % of Total 
    Restructured and loans over 90 days past due                
    and still accruing $1,685 70%$545 53%$278 8%
    Commercial loans  642 26% 491 47% 1,122 30%
    Home equity loans  98 4% — —% 84 2%
    CRE loans  — —% — —% 2,254 60%
    Total nonperforming assets $2,425 100%$1,036 100%$3,738 100%
                     


     •NPAs totaled $2.4 million, or 0.05% of total assets, at December 31, 2022, compared to $3.7 million, or 0.07% of total assets, at December 31, 2021, and $1.0 million, or 0.02% of total assets, at September 30, 2022.
       
     •There were no foreclosed assets on the balance sheet at December 31, 2022, December 31, 2021, or September 30, 2022.  
       
     • Classified assets decreased to $14.5 million, or 0.28% of total assets, at December 31, 2022, compared to $33.7 million, or 0.61% of total assets, at December 31, 2021, and $28.6 million, or 0.53% of total assets, at September 30, 2022.
       
    • The following table summarizes the distribution of deposits and the percentage of distribution in each category for the periods indicated:
    DEPOSITS December 31, 2022 September 30, 2022 December 31, 2021 
    (in $000’s, unaudited)    Balance    % to Total  Balance    % to Total  Balance    % to Total 
    Demand, noninterest-bearing $1,736,722 40%  $1,883,574 40%  $1,903,768 40%  
    Demand, interest-bearing  1,196,427 27%   1,154,403 24%   1,308,114 27%  
    Savings and money market  1,285,444 29%   1,487,400 32%   1,375,825 29%  
    Time deposits — under $250  32,445 1%   34,728 1%   38,734 1%  
    Time deposits — $250 and over  108,192 2%   93,263 2%   94,700 2%  
    CDARS — interest-bearing demand,                
    money market and time deposits  30,374 1%   29,897 1%   38,271 1%  
    Total deposits $4,389,604 100%  $4,683,265 100%  $4,759,412 100%  
                     


     •Total deposits decreased ($369.8) million, or (8%), to $4.390 billion at December 31, 2022, compared to $4.759 billion at December 31, 2021, and decreased ($293.7) million, or (6%), from $4.683 billion at September 30, 2022.
       
     •Deposits, excluding all time deposits and CDARS deposits, decreased ($369.2) million, or (8%), to $4.219 billion at December 31, 2022, compared to $4.588 billion at December 31, 2021, and decreased ($306.8) million, or (7%), compared to $4.525 billion at September 30, 2022.
       
     •Off-balance sheet deposits increased $9.4 million, or 4%, to $254.4 million at December 31, 2022, compared to $245.0 million at December 31, 2021, and increased $3.9 million, or 2%, from $250.5 million at September 30, 2022.
       
    • 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 December 31, 2022, as reflected in the following table:
                           Well-capitalized  
            Financial  
            Institution Basel III
      Heritage Heritage Basel III PCA Minimum
      Commerce Bank of Regulatory Regulatory
    CAPITAL RATIOS (unaudited) Corp Commerce Guidelines Requirement (1)
    Total Capital 14.8% 14.2% 10.0% 10.5%
    Tier 1 Capital 12.7% 13.2% 8.0% 8.5%
    Common Equity Tier 1 Capital 12.7% 13.2% 6.5% 7.0%
    Tier 1 Leverage 9.2% 9.5% 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 December 31,  September 30,  December 31, 
    (in $000’s, unaudited) 2022
    		 2022
    		 2021
    Unrealized (loss) gain on securities available-for-sale $(11,506) $(12,398) $1,991 
    Split dollar insurance contracts liability  (3,091)  (5,511)  (5,480)
    Supplemental executive retirement plan liability  (2,371)  (7,428)  (7,669)
    Unrealized gain on interest-only strip from SBA loans  112   125   162 
    Total accumulated other comprehensive loss $(16,856) $(25,212) $(10,996)
              

    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, 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 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, 2021, 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; (5) 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; (6) volatility in credit and equity markets and its effect on the global economy; (7) 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; (8) 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; (9) 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; (10) risks associated with concentrations in real estate related loans; (11) the relative strength or weakness of the commercial and real estate markets where our borrowers are located, including related asset and market prices; (12) credit related impairment charges to our securities portfolio; (13) 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; (14) regulatory limits on Heritage Bank of Commerce’s ability to pay dividends to the Company; (15) 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; (16) 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; (17) possible adjustment of the valuation of our deferred tax assets; (18) 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; (19) inability of our framework to manage risks associated with our business, including operational risk and credit risk; (20) risks of loss of funding of Small Business Administration (“SBA”) or SBA loan programs, or changes in those programs; (21) 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; (22) 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; (23) the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise; (24) availability of and competition for acquisition opportunities; (25) risks resulting from domestic terrorism; (26) risks resulting from social unrest and protests; (27) risks of natural disasters (including earthquakes, fires, and flooding) and other events beyond our control; and (28) our success in managing the risks involved in the foregoing factors.

    Member FDIC

    For additional information, contact:
    Debbie Reuter
    EVP, Corporate Secretary
    Direct: (408) 494-4542
    Debbie.Reuter@herbank.com


      For the Quarter Ended: Percent Change From:  For the Year Ended:
    CONSOLIDATED INCOME STATEMENTS    December 31,     September 30,     December 31,     September 30,     December 31,      December 31,     December 31,     Percent 
    (in $000’s, unaudited) 2022 2022 2021
    		 2022 2021  2022 2021
    		 Change 
    Interest income $55,192 $50,174 $39,956  10 %38 % $188,828 $153,256  23 %
    Interest expense  3,453  2,133  1,847  62 %87 %  8,948  7,131  25 %
    Net interest income before provision                       
    for credit losses on loans  51,739  48,041  38,109  8 %36 %  179,880  146,125  23 %
    Provision for (recapture of) credit losses on loans  508  1,006  (615) (50)%183 %  766  (3,134) 124 %
    Net interest income after provision                       
    for credit losses on loans  51,231  47,035  38,724  9 %32 %  179,114  149,259  20 %
    Noninterest income:                       
    Service charges and fees on deposit                       
    accounts  1,801  1,360  644  32 %180 %  4,640  2,488  86 %
    Increase in cash surrender value of                       
    life insurance  481  484  454  (1)%6 %  1,925  1,838  5 %
    Servicing income  138  125  138  10 %0 %  508  553  (8)%
    Gain on sales of SBA loans  —  308  491  (100)%(100)%  491  1,718  (71)%
    Gain on warrants  —  32  —  (100)%N/A   669  11  5982 %
    Termination fees  —  16  618  (100)%(100)%  61  797  (92)%
    Gain on proceeds from company-owned                       
    life insurance  —  —  104  N/A (100)%  27  675  (96)%
    Other  352  456  361  (23)%(2)%  1,790  1,608  11 %
    Total noninterest income  2,772  2,781  2,810  0 %(1)%  10,111  9,688  4 %
    Noninterest expense:                       
    Salaries and employee benefits  13,915  14,119  12,871  (1)%8 %  55,331  51,862  7 %
    Occupancy and equipment  2,510  2,415  2,366  4 %6 %  9,639  9,038  7 %
    Professional fees  1,414  1,230  1,200  15 %18 %  5,015  5,901  (15)%
    Other  6,679  6,135  5,790  9 %15 %  24,874  26,276  (5)%
    Total noninterest expense  24,518  23,899  22,227  3 %10 %  94,859  93,077  2 %
    Income before income taxes  29,485  25,917  19,307  14 %53 %  94,366  65,870  43 %
    Income tax expense  8,686  7,848  5,342  11 %63 %  27,811  18,170  53 %
    Net income $ 20,799 $ 18,069 $ 13,965  15 %49 % $ 66,555 $ 47,700  40 %
                            
    PER COMMON SHARE DATA                          
    (unaudited)                           
    Basic earnings per share $0.34 $0.30 $0.23  13 %48 % $1.10 $0.79  39 %
    Diluted earnings per share $0.34 $0.30 $0.23  13 %48 % $1.09 $0.79  38 %
    Weighted average shares outstanding - basic  60,788,803  60,686,992  60,298,424  0 %1 %  60,602,962  60,133,821  1 %
    Weighted average shares outstanding - diluted  61,357,023  61,123,801  60,844,221  0 %1 %  61,090,290  60,689,062  1 %
    Common shares outstanding at period-end  60,852,723  60,716,794  60,339,837  0 %1 %  60,852,723  60,339,837  1 %
    Dividend per share $0.13 $0.13 $0.13  0 %0 % $0.52 $0.52  0 %
    Book value per share $10.39 $10.04 $9.91  3 %5 % $10.39 $9.91  5 %
    Tangible book value per share $7.46 $7.09 $6.91  5 %8 % $7.46 $6.91  8 %
                            
    KEY FINANCIAL RATIOS                               
    (unaudited)                               
    Annualized return on average equity  13.40% 11.72% 9.35 %14 %43 %  10.95% 8.15 %34 %
    Annualized return on average tangible common equity  18.89% 16.60% 13.50 %14 %40 %  15.57% 11.86 %31 %
    Annualized return on average assets  1.54% 1.31% 0.97 %18 %59 %  1.23% 0.92 %34 %
    Annualized return on average tangible assets  1.59% 1.36% 1.00 %17 %59 %  1.27% 0.96 %32 %
    Net interest margin (FTE)  4.10% 3.73% 2.84 %10 %44 %  3.57% 3.05 %17 %
    Efficiency ratio  44.98% 47.02% 54.32 %(4)%(17)%  49.93% 59.74 %(16)%
                            
    AVERAGE BALANCES                              
    (in $000’s, unaudited)                               
    Average assets $5,360,867 $5,466,330 $5,695,136  (2)%(6)% $5,401,220 $5,166,294  5 %
    Average tangible assets $5,181,793 $5,286,591 $5,513,359  (2)%(6)% $5,221,159 $4,983,407  5 %
    Average earning assets $5,009,578 $5,117,373 $5,336,129  (2)%(6)% $5,051,552 $4,805,630  5 %
    Average loans held-for-sale $2,346 $3,282 $4,047  (29)%(42)% $2,238 $4,095  (45)%
    Average total loans $3,248,210 $3,140,705 $2,872,074  3 %13 % $3,116,768 $2,762,226  13 %
    Average deposits $4,600,533 $4,712,044 $4,945,204  (2)%(7)% $4,647,200 $4,426,885  5 %
    Average demand deposits - noninterest-bearing $1,851,003 $1,910,748 $1,979,940  (3)%(7)% $1,863,928 $1,834,909  2 %
    Average interest-bearing deposits $2,749,530 $2,801,296 $2,965,264  (2)%(7)% $2,783,272 $2,591,976  7 %
    Average interest-bearing liabilities $2,788,880 $2,840,611 $3,005,212  (2)%(7)% $2,825,035 $2,631,848  7 %
    Average equity $615,941 $611,707 $592,291  1 %4 % $607,603 $585,156  4 %
    Average tangible common equity $436,867 $431,968 $410,514  1 %6 % $427,542 $402,269  6 %


                     
      For the Quarter Ended: 
    CONSOLIDATED INCOME STATEMENTS    December 31,     September 30,     June 30,    March 31,    December 31, 
    (in $000’s, unaudited) 2022 2022 2022
    		 2022
    		 2021
    		 
    Interest income $55,192 $50,174 $43,556  $39,906  $39,956  
    Interest expense  3,453  2,133  1,677   1,685   1,847  
    Net interest income before provision                
    for credit losses on loans  51,739  48,041  41,879   38,221   38,109  
    Provision for (recapture of) credit losses on loans  508  1,006  (181)  (567)  (615) 
    Net interest income after provision                
    for credit losses on loans  51,231  47,035  42,060   38,788   38,724  
    Noninterest income:                
    Service charges and fees on deposit                
    accounts  1,801  1,360  867   612   644  
    Increase in cash surrender value of                
    life insurance  481  484  480   480   454  
    Servicing income  138  125  139   106   138  
    Gain on sales of SBA loans  —  308  27   156   491  
    Gain on warrants  —  32  —   637   —  
    Termination fees  —  16  45   —   618  
    Gain on proceeds from company-owned                
    life insurance  —  —  27   —   104  
    Other  352  456  513   469   361  
    Total noninterest income  2,772  2,781  2,098   2,460   2,810  
    Noninterest expense:                
    Salaries and employee benefits  13,915  14,119  13,476   13,821   12,871  
    Occupancy and equipment  2,510  2,415  2,277   2,437   2,366  
    Professional fees  1,414  1,230  1,291   1,080   1,200  
    Other  6,679  6,135  6,146   5,914   5,790  
    Total noninterest expense  24,518  23,899  23,190   23,252   22,227  
    Income before income taxes  29,485  25,917  20,968   17,996   19,307  
    Income tax expense  8,686  7,848  6,147   5,130   5,342  
    Net income $ 20,799 $ 18,069 $ 14,821  $ 12,866  $ 13,965  
                     
    PER COMMON SHARE DATA                
    (unaudited)                   
    Basic earnings per share $0.34 $0.30 $0.24  $0.21  $0.23  
    Diluted earnings per share $0.34 $0.30 $0.24  $0.21  $0.23  
    Weighted average shares outstanding - basic  60,788,803  60,686,992  60,542,170   60,393,883   60,298,424  
    Weighted average shares outstanding - diluted  61,357,023  61,123,801  60,969,154   60,921,835   60,844,221  
    Common shares outstanding at period-end  60,852,723  60,716,794  60,666,794   60,407,846   60,339,837  
    Dividend per share $0.13 $0.13 $0.13  $0.13  $0.13  
    Book value per share $10.39 $10.04 $10.01  $9.95  $9.91  
    Tangible book value per share $7.46 $7.09 $7.04  $6.96  $6.91  
                     
    KEY FINANCIAL RATIOS                 
    (unaudited)                     
    Annualized return on average equity  13.40% 11.72% 9.86 % 8.71 % 9.35 %
    Annualized return on average tangible common equity  18.89% 16.60% 14.06 % 12.47 % 13.50 %
    Annualized return on average assets  1.54% 1.31% 1.11 % 0.96 % 0.97 %
    Annualized return on average tangible assets  1.59% 1.36% 1.15 % 0.99 % 1.00 %
    Net interest margin (FTE)  4.10% 3.73% 3.38 % 3.05 % 2.84 %
    Efficiency ratio  44.98% 47.02% 52.73 % 57.16 % 54.32 %
                     
    AVERAGE BALANCES                     
    (in $000’s, unaudited)                     
    Average assets $5,360,867 $5,466,330 $5,334,636  $5,443,240  $5,695,136  
    Average tangible assets $5,181,793 $5,286,591 $5,154,245  $5,262,175  $5,513,359  
    Average earning assets $5,009,578 $5,117,373 $4,985,611  $5,093,851  $5,336,129  
    Average loans held-for-sale $2,346 $3,282 $1,824  $1,478  $4,047  
    Average total loans $3,248,210 $3,140,705 $3,048,353  $3,027,111  $2,872,074  
    Average deposits $4,600,533 $4,712,044 $4,579,436  $4,697,136  $4,945,204  
    Average demand deposits - noninterest-bearing $1,851,003 $1,910,748 $1,836,350  $1,857,164  $1,979,940  
    Average interest-bearing deposits $2,749,530 $2,801,296 $2,743,086  $2,839,972  $2,965,264  
    Average interest-bearing liabilities $2,788,880 $2,840,611 $2,791,527  $2,879,952  $3,005,212  
    Average equity $615,941 $611,707 $603,182  $599,355  $592,291  
    Average tangible common equity $436,867 $431,968 $422,791  $418,290  $410,514  


                   
      End of Period: Percent Change From: 
    CONSOLIDATED BALANCE SHEETS    December 31,     September 30,     December 31,     September 30,     December 31,  
    (in $000’s, unaudited) 2022
    		 2022
    		 2021
    		 2022 2021 
    ASSETS              
    Cash and due from banks $27,595  $40,500  $15,703  (32)%76 %
    Other investments and interest-bearing deposits              
    in other financial institutions  279,008   641,251   1,290,513  (56)%(78)%
    Securities available-for-sale, at fair value  489,596   478,534   102,252  2 %379 %
    Securities held-to-maturity, at amortized cost  714,990   703,794   658,397  2 %9 %
    Loans held-for-sale - SBA, including deferred costs  2,456   2,081   2,367  18 %4 %
    Loans:              
    Commercial  532,749   541,215   594,108  (2)%(10)%
    PPP loans  1,166   1,614   88,726  (28)%(99)%
    Real estate:              
    CRE - owner occupied  614,663   612,241   595,934  0 %3 %
    CRE - non-owner occupied  1,066,368   1,023,405   902,326  4 %18 %
    Land and construction  163,577   167,439   147,855  (2)%11 %
    Home equity  120,724   116,489   109,579  4 %10 %
    Multifamily  244,882   229,455   218,856  7 %12 %
    Residential mortgages  537,905   508,839   416,660  6 %29 %
    Consumer and other  17,033   16,620   16,744  2 %2 %
    Loans  3,299,067   3,217,317   3,090,788  3 %7 %
    Deferred loan fees, net  (517)  (844)  (3,462) (39)%(85)%
    Total loans, net of deferred costs and fees  3,298,550   3,216,473   3,087,326  3 %7 %
    Allowance for credit losses on loans  (47,512)  (46,921)  (43,290) 1 %10 %
    Loans, net  3,251,038   3,169,552   3,044,036  3 %7 %
    Company-owned life insurance  78,945   78,456   77,589  1 %2 %
    Premises and equipment, net  9,301   9,428   9,639  (1)%(4)%
    Goodwill  167,631   167,631   167,631  0 %0 %
    Other intangible assets  11,033   11,692   13,668  (6)%(19)%
    Accrued interest receivable and other assets  122,631   128,343   117,614  (4)%4 %
    Total assets $ 5,154,224  $ 5,431,262  $ 5,499,409  (5)%(6)%
                   
    LIABILITIES AND SHAREHOLDERS’ EQUITY              
    Liabilities:              
    Deposits:              
    Demand, noninterest-bearing $1,736,722  $1,883,574  $1,903,768  (8)%(9)%
    Demand, interest-bearing  1,196,427   1,154,403   1,308,114  4 %(9)%
    Savings and money market  1,285,444   1,487,400   1,375,825  (14)%(7)%
    Time deposits - under $250  32,445   34,728   38,734  (7)%(16)%
    Time deposits - $250 and over  108,192   93,263   94,700  16 %14 %
    CDARS - money market and time deposits  30,374   29,897   38,271  2 %(21)%
    Total deposits  4,389,604   4,683,265   4,759,412  (6)%(8)%
    Subordinated debt, net of issuance costs  39,350   39,312   39,925  0 %(1)%
    Accrued interest payable and other liabilities  92,814   99,168   102,044  (6)%(9)%
    Total liabilities  4,521,768   4,821,745   4,901,381  (6)%(8)%
                   
    Shareholders’ Equity:              
    Common stock  502,923   501,240   497,695  0 %1 %
    Retained earnings  146,389   133,489   111,329  10 %31 %
    Accumulated other comprehensive loss  (16,856)  (25,212)  (10,996) 33 %(53)%
    Total shareholders’ equity  632,456   609,517   598,028  4 %6 %
    Total liabilities and shareholders’ equity $ 5,154,224  $ 5,431,262  $ 5,499,409  (5)%(6)%


                    
      End of Period:
    CONSOLIDATED BALANCE SHEETS    December 31,     September 30,     June 30,    March 31,    December 31,
    (in $000’s, unaudited) 2022
    		 2022
    		 2022
    		 2022
    		 2021
    ASSETS               
    Cash and due from banks $27,595  $40,500  $35,764  $29,729  $15,703 
    Other investments and interest-bearing deposits               
    in other financial institutions  279,008   641,251   840,821   1,187,436   1,290,513 
    Securities available-for-sale, at fair value  489,596   478,534   332,129   111,217   102,252 
    Securities held-to-maturity, at amortized cost  714,990   703,794   723,716   736,823   658,397 
    Loans held-for-sale - SBA, including deferred costs  2,456   2,081   2,281   831   2,367 
    Loans:               
    Commercial  532,749   541,215   523,268   568,053   594,108 
    PPP loans  1,166   1,614   8,153   37,393   88,726 
    Real estate:               
    CRE - owner occupied  614,663   612,241   597,521   597,542   595,934 
    CRE - non-owner occupied  1,066,368   1,023,405   993,621   928,220   902,326 
    Land and construction  163,577   167,439   155,389   153,323   147,855 
    Home equity  120,724   116,489   116,641   111,609   109,579 
    Multifamily  244,882   229,455   221,938   221,767   218,856 
    Residential mortgages  537,905   508,839   448,958   391,171   416,660 
    Consumer and other  17,033   16,620   18,354   17,110   16,744 
    Loans  3,299,067   3,217,317   3,083,843   3,026,188   3,090,788 
    Deferred loan fees, net  (517)  (844)  (1,391)  (2,124)  (3,462)
    Total loans, net of deferred fees  3,298,550   3,216,473   3,082,452   3,024,064   3,087,326 
    Allowance for credit losses on loans  (47,512)  (46,921)  (45,490)  (42,788)  (43,290)
    Loans, net  3,251,038   3,169,552   3,036,962   2,981,276   3,044,036 
    Company-owned life insurance  78,945   78,456   77,972   78,069   77,589 
    Premises and equipment, net  9,301   9,428   9,593   9,580   9,639 
    Goodwill  167,631   167,631   167,631   167,631   167,631 
    Other intangible assets  11,033   11,692   12,351   13,009   13,668 
    Accrued interest receivable and other assets  122,631   128,343   117,621   111,797   117,614 
    Total assets $ 5,154,224  $ 5,431,262  $ 5,356,841  $ 5,427,398  $ 5,499,409 
                    
    LIABILITIES AND SHAREHOLDERS’ EQUITY               
    Liabilities:               
    Deposits:               
    Demand, noninterest-bearing $1,736,722  $1,883,574  $1,846,365  $1,811,943  $1,903,768 
    Demand, interest-bearing  1,196,427   1,154,403   1,218,538   1,268,942   1,308,114 
    Savings and money market  1,285,444   1,487,400   1,387,003   1,447,434   1,375,825 
    Time deposits - under $250  32,445   34,728   36,691   38,417   38,734 
    Time deposits - $250 and over  108,192   93,263   98,760   93,161   94,700 
    CDARS - money market and time deposits  30,374   29,897   26,287   30,008   38,271 
    Total deposits  4,389,604   4,683,265   4,613,644   4,689,905   4,759,412 
    Subordinated debt, net of issuance costs  39,350   39,312   39,274   39,987   39,925 
    Accrued interest payable and other liabilities  92,814   99,168   96,699   96,450   102,044 
    Total liabilities  4,521,768   4,821,745   4,749,617   4,826,342   4,901,381 
                    
    Shareholders’ Equity:               
    Common stock  502,923   501,240   499,832   498,763   497,695 
    Retained earnings  146,389   133,489   123,310   116,347   111,329 
    Accumulated other comprehensive loss  (16,856)  (25,212)  (15,918)  (14,054)  (10,996)
    Total shareholders’ equity  632,456   609,517   607,224   601,056   598,028 
    Total liabilities and shareholders’ equity $ 5,154,224  $ 5,431,262  $ 5,356,841  $ 5,427,398  $ 5,499,409 


                   
      At or For the Quarter Ended: Percent Change From: 
    CREDIT QUALITY DATA    December 31,     September 30,     December 31,     September 30,     December 31,  
    (in $000’s, unaudited) 2022
    		 2022
    		 2021
    		 2022 2021 
    Nonaccrual loans - held-for-investment $740  $491  $3,460  51 %(79)%
    Restructured and loans over 90 days past due              
    and still accruing  1,685   545   278  209 %506 %
    Total nonperforming loans  2,425   1,036   3,738  134 %(35)%
    Foreclosed assets  —   —   —  N/A N/A 
    Total nonperforming assets $2,425  $1,036  $3,738  134 %(35)%
    Other restructured loans still accruing $171  $93  $125  84 %37 %
    Net charge-offs (recoveries) during the quarter $(83) $(425) $(225) 80 %63 %
    Provision for (recapture of) credit losses on loans during the quarter $508  $1,006  $(615) (50)%183 %
    Allowance for credit losses on loans $47,512  $46,921  $43,290  1 %10 %
    Classified assets $14,544  $28,570  $33,719  (49)%(57)%
    Allowance for credit losses on loans to total loans  1.44 % 1.46 % 1.40 %(1)%3 %
    Allowance for credit losses on loans to total nonperforming loans  1,959.26 % 4,529.05 % 1,158.11 %(57)%69 %
    Nonperforming assets to total assets  0.05 % 0.02 % 0.07 %150 %(29)%
    Nonperforming loans to total loans  0.07 % 0.03 % 0.12 %133 %(42)%
    Classified assets to Heritage Commerce Corp              
    Tier 1 capital plus allowance for credit losses on loans  3 % 6 % 7 %(50)%(57)%
    Classified assets to Heritage Bank of Commerce              
    Tier 1 capital plus allowance for credit losses on loans  3 % 5 % 7 %(40)%(57)%
                   
    OTHER PERIOD-END STATISTICS                   
    (in $000’s, unaudited)                   
    Heritage Commerce Corp:              
    Tangible common equity (1) $453,792  $430,194  $416,729  5 %9 %
    Shareholders’ equity / total assets  12.27 % 11.22 % 10.87 %9 %13 %
    Tangible common equity / tangible assets (2)  9.12 % 8.19 % 7.84 %11 %16 %
    Loan to deposit ratio  75.14 % 68.68 % 64.87 %9 %16 %
    Noninterest-bearing deposits / total deposits  39.56 % 40.22 % 40.00 %(2)%(1)%
    Total capital ratio  14.8 % 14.5 % 14.4 %2 %3 %
    Tier 1 capital ratio  12.7 % 12.4 % 12.3 %2 %3 %
    Common Equity Tier 1 capital ratio  12.7 % 12.4 % 12.3 %2 %3 %
    Tier 1 leverage ratio  9.2 % 8.7 % 7.9 %6 %16 %
    Heritage Bank of Commerce:              
    Total capital ratio  14.2 % 14.0 % 13.8 %1 %3 %
    Tier 1 capital ratio  13.2 % 12.9 % 12.8 %2 %3 %
    Common Equity Tier 1 capital ratio  13.2 % 12.9 % 12.8 %2 %3 %
    Tier 1 leverage ratio  9.5 % 9.0 % 8.2 %6 %16 %


    (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    December 31,     September 30,     June 30,    March 31,    December 31,  
    (in $000’s, unaudited) 2022
    		 2022
    		 2022
    		 2022
    		 2021
    		 
    Nonaccrual loans - held-for-investment $740  $491  $1,734  $3,303  $3,460  
    Restructured and loans over 90 days past due                
    and still accruing  1,685   545   981   527   278  
    Total nonperforming loans  2,425   1,036   2,715   3,830   3,738  
    Foreclosed assets  —   —   —   —   —  
    Total nonperforming assets $2,425  $1,036  $2,715  $3,830  $3,738  
    Other restructured loans still accruing $171  $93  $113  $125  $125  
    Net charge-offs (recoveries) during the quarter $(83) $(425) $(2,883) $(65) $(225) 
    Provision for (recapture of) credit losses on loans during the quarter $508  $1,006  $(181) $(567) $(615) 
    Allowance for credit losses on loans $47,512  $46,921  $45,490  $42,788  $43,290  
    Classified assets $14,544  $28,570  $28,929  $30,579  $33,719  
    Allowance for credit losses on loans to total loans  1.44 % 1.46 % 1.48 % 1.41 % 1.40 %
    Allowance for credit losses on loans to total nonperforming loans  1,959.26 % 4,529.05 % 1,675.51 % 1,117.18 % 1,158.11 %
    Nonperforming assets to total assets  0.05 % 0.02 % 0.05 % 0.07 % 0.07 %
    Nonperforming loans to total loans  0.07 % 0.03 % 0.09 % 0.13 % 0.12 %
    Classified assets to Heritage Commerce Corp                
    Tier 1 capital plus allowance for credit losses on loans  3 % 6 % 6 % 6 % 7 %
    Classified assets to Heritage Bank of Commerce                
    Tier 1 capital plus allowance for credit losses on loans  3 % 5 % 6 % 6 % 7 %
                     
    OTHER PERIOD-END STATISTICS                     
    (in $000’s, unaudited)                     
    Heritage Commerce Corp:                
    Tangible common equity (1) $453,792  $430,194  $427,242  $420,416  $416,729  
    Shareholders’ equity / total assets  12.27 % 11.22 % 11.34 % 11.07 % 10.87 %
    Tangible common equity / tangible assets (2)  9.12 % 8.19 % 8.25 % 8.01 % 7.84 %
    Loan to deposit ratio  75.14 % 68.68 % 66.81 % 64.48 % 64.87 %
    Noninterest-bearing deposits / total deposits  39.56 % 40.22 % 40.02 % 38.63 % 40.00 %
    Total capital ratio  14.8 % 14.5 % 14.6 % 14.6 % 14.4 %
    Tier 1 capital ratio  12.7 % 12.4 % 12.5 % 12.4 % 12.3 %
    Common Equity Tier 1 capital ratio  12.7 % 12.4 % 12.5 % 12.4 % 12.3 %
    Tier 1 leverage ratio  9.2 % 8.7 % 8.7 % 8.3 % 7.9 %
    Heritage Bank of Commerce:                
    Total capital ratio  14.2 % 14.0 % 14.1 % 13.9 % 13.8 %
    Tier 1 capital ratio  13.2 % 12.9 % 13.0 % 12.9 % 12.8 %
    Common Equity Tier 1 capital ratio  13.2 % 12.9 % 13.0 % 12.9 % 12.8 %
    Tier 1 leverage ratio  9.5 % 9.0 % 9.0 % 8.7 % 8.2 %


    (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


      For the Quarter Ended For the Quarter Ended 
      December 31, 2022 December 31, 2021 
               Interest    Average          Interest    Average 
    NET INTEREST INCOME AND NET INTEREST MARGIN Average Income/ Yield/ Average Income/ Yield/ 
    (in $000’s, unaudited) Balance Expense Rate Balance Expense Rate 
    Assets:                 
    Loans, gross (1)(2) $3,250,556 $42,501  5.19%$2,876,121 $35,762  4.93%
    Securities - taxable  1,156,563  6,941  2.38% 660,663  2,686  1.61%
    Securities - exempt from Federal tax (3)  37,958  324  3.39% 54,965  457  3.30%
    Other investments and interest-bearing deposits                 
    in other financial institutions  564,501  5,494  3.86% 1,744,380  1,147  0.26%
    Total interest earning assets (3)  5,009,578  55,260  4.38% 5,336,129  40,052  2.98%
    Cash and due from banks  36,392       38,178      
    Premises and equipment, net  9,436       9,755      
    Goodwill and other intangible assets  179,074       181,777      
    Other assets  126,387       129,297      
    Total assets $5,360,867      $5,695,136      
                      
    Liabilities and shareholders’ equity:                 
    Deposits:                 
    Demand, noninterest-bearing $1,851,003      $1,979,940      
                      
    Demand, interest-bearing  1,164,378  945  0.32% 1,346,878  559  0.16%
    Savings and money market  1,424,964  1,694  0.47% 1,451,230  582  0.16%
    Time deposits - under $100  12,157  7  0.23% 13,766  5  0.14%
    Time deposits - $100 and over  120,246  268  0.88% 118,089  116  0.39%
    CDARS - money market and time deposits  27,785  1  0.01% 35,301  2  0.02%
    Total interest-bearing deposits  2,749,530  2,915  0.42% 2,965,264  1,264  0.17%
    Total deposits  4,600,533  2,915  0.25% 4,945,204  1,264  0.10%
                      
    Subordinated debt, net of issuance costs  39,326  538  5.43% 39,896  583  5.80%
    Short-term borrowings  24  —  0.00% 52  —  0.00%
    Total interest-bearing liabilities  2,788,880  3,453  0.49% 3,005,212  1,847  0.24%
    Total interest-bearing liabilities and demand,                 
    noninterest-bearing / cost of funds  4,639,883  3,453  0.30% 4,985,152  1,847  0.15%
    Other liabilities  105,043       117,693      
    Total liabilities  4,744,926       5,102,845      
    Shareholders’ equity  615,941       592,291      
    Total liabilities and shareholders’ equity $5,360,867      $5,695,136      
                      
    Net interest income (3) / margin     51,807  4.10%    38,205  2.84%
    Less tax equivalent adjustment (3)     (68)       (96)   
    Net interest income    $51,739       $38,109    


    (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 $326,000 for the fourth quarter of 2022 (of which $25,000 was from PPP loans), compared to $2,567,000 for the fourth quarter of 2021 (of which $2,211,000 was from PPP loans). Prepayment fees totaled $123,000 for the fourth quarter of 2022, compared to $397,000 for the fourth quarter of 2021.
    (3)   Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate.


      For the Quarter Ended For the Quarter Ended 
      December 31, 2022 September 30, 2022 
               Interest    Average          Interest    Average 
    NET INTEREST INCOME AND NET INTEREST MARGIN Average Income/ Yield/ Average Income/ Yield/ 
    (in $000’s, unaudited) Balance Expense Rate Balance Expense Rate 
    Assets:                 
    Loans, gross (1)(2) $3,250,556 $42,501  5.19%$3,143,987 $38,870  4.90%
    Securities - taxable  1,156,563  6,941  2.38% 1,076,742  5,874  2.16%
    Securities - exempt from Federal tax (3)  37,958  324  3.39% 38,733  329  3.37%
    Other investments and interest-bearing deposits                 
    in other financial institutions  564,501  5,494  3.86% 857,911  5,170  2.39%
    Total interest earning assets (3)  5,009,578  55,260  4.38% 5,117,373  50,243  3.90%
    Cash and due from banks  36,392       37,961      
    Premises and equipment, net  9,436       9,591      
    Goodwill and other intangible assets  179,074       179,739      
    Other assets  126,387       121,666      
    Total assets $5,360,867      $5,466,330      
                      
    Liabilities and shareholders’ equity:                 
    Deposits:                 
    Demand, noninterest-bearing $1,851,003      $1,910,748      
                      
    Demand, interest-bearing  1,164,378  945  0.32% 1,205,937  543  0.18%
    Savings and money market  1,424,964  1,694  0.47% 1,429,055  925  0.26%
    Time deposits - under $100  12,157  7  0.23% 12,329  5  0.16%
    Time deposits - $100 and over  120,246  268  0.88% 123,458  121  0.39%
    CDARS - money market and time deposits  27,785  1  0.01% 30,517  1  0.01%
    Total interest-bearing deposits  2,749,530  2,915  0.42% 2,801,296  1,595  0.23%
    Total deposits  4,600,533  2,915  0.25% 4,712,044  1,595  0.13%
                      
    Subordinated debt, net of issuance costs  39,326  538  5.43% 39,288  538  5.43%
    Short-term borrowings  24  —  0.00% 27  —  0.00%
    Total interest-bearing liabilities  2,788,880  3,453  0.49% 2,840,611  2,133  0.30%
    Total interest-bearing liabilities and demand,                 
    noninterest-bearing / cost of funds  4,639,883  3,453  0.30% 4,751,359  2,133  0.18%
    Other liabilities  105,043       103,264      
    Total liabilities  4,744,926       4,854,623      
    Shareholders’ equity  615,941       611,707      
    Total liabilities and shareholders’ equity $5,360,867      $5,466,330      
                      
    Net interest income (3) / margin     51,807  4.10%    48,110  3.73%
    Less tax equivalent adjustment (3)     (68)       (69)   
    Net interest income    $51,739       $48,041    


    (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 $326,000 for the fourth quarter of 2022 (of which $25,000 was from PPP loans), compared to $507,000 for the third quarter of 2022 (of which $190,000 was from PPP loans). Prepayment fees totaled $123,000 for the fourth quarter of 2022, compared to $96,000 for the third quarter of 2022.
    (3)   Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate.


                      
      For the Year Ended For the Year Ended 
      December 31, 2022 December 31, 2021 
               Interest    Average          Interest    Average 
    NET INTEREST INCOME AND NET INTEREST MARGIN Average Income/ Yield/ Average Income/ Yield/ 
    (in $000’s, unaudited) Balance Expense Rate Balance Expense Rate 
    Assets:                 
    Loans, gross (1)(2) $3,119,006 $153,010  4.91%$2,766,321 $139,244  5.03%
    Securities - taxable  983,137  20,666  2.10% 534,387  8,678  1.62%
    Securities - exempt from Federal tax (3)  40,478  1,372  3.39% 60,566  1,995  3.29%
    Other investments, interest-bearing deposits in other                 
    financial institutions and Federal funds sold  908,931  14,068  1.55% 1,444,356  3,758  0.26%
    Total interest earning assets (3)  5,051,552  189,116  3.74% 4,805,630  153,675  3.20%
    Cash and due from banks  37,287       39,841      
    Premises and equipment, net  9,574       10,056      
    Goodwill and other intangible assets  180,061       182,887      
    Other assets  122,746       127,880      
    Total assets $5,401,220      $5,166,294      
                      
    Liabilities and shareholders’ equity:                 
    Deposits:                 
    Demand, noninterest-bearing $1,863,928      $1,834,909      
                      
    Demand, interest-bearing  1,224,676  2,415  0.20% 1,164,556  1,988  0.17%
    Savings and money market  1,394,283  3,720  0.27% 1,251,438  2,195  0.18%
    Time deposits - under $100  12,587  21  0.17% 14,924  29  0.19%
    Time deposits - $100 and over  122,018  609  0.50% 128,753  598  0.46%
    CDARS - money market and time deposits  29,708  5  0.02% 32,305  6  0.02%
    Total interest-bearing deposits  2,783,272  6,770  0.24% 2,591,976  4,816  0.19%
    Total deposits  4,647,200  6,770  0.15% 4,426,885  4,816  0.11%
                      
    Subordinated debt, net of issuance costs  41,739  2,178  5.22% 39,827  2,314  5.81%
    Short-term borrowings  24  —  0.00% 45  1  2.22%
    Total interest-bearing liabilities  2,825,035  8,948  0.32% 2,631,848  7,131  0.27%
    Total interest-bearing liabilities and demand,                 
    noninterest-bearing / cost of funds  4,688,963  8,948  0.19% 4,466,757  7,131  0.16%
    Other liabilities  104,654       114,381      
    Total liabilities  4,793,617       4,581,138      
    Shareholders’ equity  607,603       585,156      
    Total liabilities and shareholders’ equity $5,401,220      $5,166,294      
                      
    Net interest income (3) / margin     180,168  3.57%    146,544  3.05%
    Less tax equivalent adjustment (3)     (288)       (419)   
    Net interest income    $179,880       $146,125    


    (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 $3,437,000 for the year ended December 31, 2022 (of which $2,054,000 was from PPP loans), compared to $11,257,000 for the year ended December 31, 2021 (of which $9,995,000 was from PPP loans). Prepayment fees totaled $1,278,000 for the year ended December 31, 2022, compared to $2,700,000 for the year ended December 31, 2021.
    (3)   Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate.

     


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