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Heritage Commerce Corp Reports Increased Average Loans and Average Deposits and Enhanced Credit Quality

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Heritage Commerce Corp (HTBK) reported Q2 2024 net income of $9.2 million, or $0.15 per diluted share, down from $10.2 million in Q1 2024 and $16.4 million in Q2 2023. For the first half of 2024, net income was $19.4 million, compared to $35.3 million in the same period of 2023. Key highlights include:

- Improved credit quality with reduced nonperforming and classified assets
- Loan portfolio grew by $43.7 million from Q1 2024 and $91.0 million year-over-year
- Total deposits remained steady at $4.4 billion
- Net interest income decreased 2% quarter-over-quarter and 15% year-over-year
- Net interest margin contracted to 3.26% in Q2 2024 from 3.34% in Q1 2024 and 3.76% in Q2 2023

Heritage Commerce Corp (HTBK) ha riportato un reddito netto di 9,2 milioni di dollari per il secondo trimestre del 2024, ovvero 0,15 dollari per azione diluita, in calo rispetto ai 10,2 milioni di dollari del primo trimestre 2024 e ai 16,4 milioni di dollari del secondo trimestre 2023. Per il primo semestre del 2024, il reddito netto è stato di 19,4 milioni di dollari, rispetto ai 35,3 milioni di dollari nello stesso periodo del 2023. Punti salienti includono:

- Miglioramento della qualità del credito con riduzione degli attivi non performanti e classificati
- Crescita del portafoglio prestiti di 43,7 milioni di dollari rispetto al primo trimestre 2024 e di 91,0 milioni di dollari rispetto all'anno precedente
- Depositi totali rimasti stabili a 4,4 miliardi di dollari
- Il reddito da interessi netti è diminuito del 2% rispetto al trimestre precedente e del 15% rispetto all'anno scorso
- Il margine di interesse netto si è contratto al 3,26% nel secondo trimestre 2024 rispetto al 3,34% del primo trimestre 2024 e al 3,76% del secondo trimestre 2023

Heritage Commerce Corp (HTBK) reportó un ingreso neto de 9.2 millones de dólares para el segundo trimestre de 2024, o 0.15 dólares por acción diluida, en comparación con 10.2 millones de dólares en el primer trimestre de 2024 y 16.4 millones de dólares en el segundo trimestre de 2023. Para la primera mitad de 2024, el ingreso neto fue de 19.4 millones de dólares, en comparación con 35.3 millones de dólares en el mismo período de 2023. Puntos clave incluyen:

- Mejora en la calidad crediticia con reducción de activos no rentables y clasificados
- El portafolio de préstamos creció en 43.7 millones de dólares desde el primer trimestre de 2024 y 91 millones de dólares en comparación con el año anterior
- Los depósitos totales se mantuvieron estables en 4.4 mil millones de dólares
- Los ingresos netos por intereses disminuyeron un 2% trimestre a trimestre y un 15% en comparación con el año anterior
- El margen de interés neto se contrajo al 3.26% en el segundo trimestre de 2024 desde el 3.34% en el primer trimestre de 2024 y el 3.76% en el segundo trimestre de 2023

헤리티지 커머스 코퍼레이션 (HTBK)는 2024년 2분기에 920만 달러의 순이익, 즉 희석주당 0.15달러를 보고했으며, 이는 2024년 1분기 1,020만 달러 및 2023년 2분기 1,640만 달러보다 감소한 수치입니다. 2024년 상반기 순이익은 1940만 달러로, 2023년 같은 기간의 3530만 달러와 비교됩니다. 주요 하이라이트는 다음과 같습니다:

- 비수익 및 분류 자산 감소에 따른 신용 품질 개선
- 대출 포트폴리오는 2024년 1분기 대비 4370만 달러, 전년 대비 9100만 달러 성장
- 총 예치금은 44억 달러로 안정세 유지
- 순이자 수익은 전분기 대비 2%, 전년 대비 15% 감소
- 순이자 마진은 2024년 2분기 3.26%로 축소되었으며, 2024년 1분기 3.34% 및 2023년 2분기 3.76%에서 감소했습니다

Heritage Commerce Corp (HTBK) a annoncé un revenu net de 9,2 millions de dollars pour le deuxième trimestre 2024, soit 0,15 dollar par action diluée, en baisse par rapport à 10,2 millions de dollars au premier trimestre 2024 et 16,4 millions de dollars au deuxième trimestre 2023. Pour le premier semestre de 2024, le revenu net s'élevait à 19,4 millions de dollars, contre 35,3 millions de dollars au même période en 2023. Les points clés incluent:

- Amélioration de la qualité du crédit avec réduction des actifs non performants et classifiés
- Portefeuille de prêts en hausse de 43,7 millions de dollars par rapport au premier trimestre 2024 et de 91,0 millions de dollars d'une année sur l'autre
- Les dépôts totaux sont restés stables à 4,4 milliards de dollars
- Les revenus d'intérêts nets ont diminué de 2 % d'un trimestre à l'autre et de 15 % par rapport à l'année précédente
- La marge d'intérêt nette a été contractée à 3,26 % au deuxième trimestre 2024 par rapport à 3,34 % au premier trimestre 2024 et 3,76 % au deuxième trimestre 2023

Heritage Commerce Corp (HTBK) meldete im 2. Quartal 2024 einen Nettogewinn von 9,2 Millionen Dollar bzw. 0,15 Dollar pro verwässerter Aktie, was einem Rückgang von 10,2 Millionen Dollar im 1. Quartal 2024 und 16,4 Millionen Dollar im 2. Quartal 2023 entspricht. Für die erste Hälfte von 2024 betrug der Nettogewinn 19,4 Millionen Dollar, verglichen mit 35,3 Millionen Dollar im gleichen Zeitraum 2023. Wichtige Höhepunkte sind:

- Verbesserte Kreditqualität mit reduzierten notleidenden und klassifizierten Vermögenswerten
- Das Kreditportfolio wuchs um 43,7 Millionen Dollar seit Q1 2024 und um 91,0 Millionen Dollar im Jahresvergleich
- Gesamtanlagen blieben stabil bei 4,4 Milliarden Dollar
- Die Nettozinsvergütung sank im Quartalsvergleich um 2% und im Jahresvergleich um 15%
- Die Nettozinsspanne verkleinerte sich im 2. Quartal 2024 auf 3,26% von 3,34% im 1. Quartal 2024 und 3,76% im 2. Quartal 2023

Positive
  • Loan portfolio grew by $43.7 million quarter-over-quarter and $91.0 million year-over-year
  • Improved credit quality with reduced nonperforming and classified assets
  • Total deposits remained steady at $4.4 billion
  • Average deposits increased during Q2 2024 compared to Q1 2024
Negative
  • Q2 2024 net income decreased to $9.2 million from $10.2 million in Q1 2024 and $16.4 million in Q2 2023
  • Net interest income decreased 2% quarter-over-quarter and 15% year-over-year
  • Net interest margin contracted to 3.26% in Q2 2024 from 3.34% in Q1 2024 and 3.76% in Q2 2023
  • Return on average equity decreased to 5.50% in Q2 2024 from 6.08% in Q1 2024 and 10.12% in Q2 2023

Insights

Heritage Commerce Corp's Q2 2024 results reveal a mixed financial picture. Net income decreased to $9.2 million ($0.15 per diluted share), down from $10.2 million in Q1 2024 and $16.4 million in Q2 2023. This decline is concerning, potentially indicating challenges in maintaining profitability.

However, there are some positive indicators. The loan portfolio grew by $43.7 million quarter-over-quarter and $91.0 million year-over-year. This growth suggests the bank is successfully expanding its lending activities, which could drive future revenue. Additionally, average deposits increased during Q2 2024, indicating customer trust and a stable funding base.

The bank's focus on credit quality is commendable. Nonperforming assets and classified assets both decreased, reflecting prudent risk management. The strengthening of the allowance for credit losses, while impacting short-term profitability, is a conservative approach that may protect against future loan losses.

However, the net interest margin contracted by 8 basis points to 3.26% quarter-over-quarter, primarily due to higher deposit costs. This compression is a key factor in the reduced profitability and warrants close monitoring.

The bank's interest rate sensitivity analysis suggests it's well-positioned for rising rates, with a potential 8.5% increase in net interest income for a 400 basis point rate hike. However, it's vulnerable to falling rates, projecting a 19.6% decrease in the same scenario.

Overall, while Heritage Commerce Corp faces profitability headwinds, its loan growth, deposit stability and strong credit quality provide a foundation for potential future improvement.

Heritage Commerce Corp's Q2 2024 results reflect broader trends in the banking sector. The decrease in net income and contraction of net interest margin are consistent with challenges faced by many banks in the current economic environment, characterized by rising deposit costs and competitive pressures.

The bank's focus on technology and personnel investments is strategically sound, potentially positioning it for long-term growth and improved operational efficiency. However, these investments may pressure short-term profitability, as evidenced by the earnings decline.

The growth in the loan portfolio is a positive sign, especially given the challenging economic conditions. This suggests the bank is successfully competing for borrowers and may be gaining market share. However, investors should monitor the quality of this loan growth, ensuring it's not coming at the expense of prudent underwriting standards.

The stability in total deposits ($4.4 billion) is reassuring, particularly given recent industry concerns about deposit flight. The increase in average deposits further indicates customer confidence in the bank.

The bank's interest rate sensitivity is notable. While well-positioned for rising rates, the potential downside in a falling rate environment is significant. This asymmetric risk profile may be a concern for some investors, especially given uncertain economic conditions.

In the context of the regional banking sector, Heritage Commerce Corp's performance appears relatively stable. While facing profitability challenges, its focus on credit quality, deposit stability and strategic investments could position it well for when economic conditions improve.

SAN JOSE, Calif., July 25, 2024 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (Nasdaq: HTBK), (the “Company”), the holding company for Heritage Bank of Commerce (the “Bank”), today announced that its second quarter 2024 net income was $9.2 million, or $0.15 per average diluted common share, compared to $10.2 million, or $0.17 per average diluted common share, for the first quarter of 2024, and $16.4 million, or $0.27 per average diluted common share, for the second quarter of 2023. For the six months ended June 30, 2024, net income was $19.4 million, or $0.32 per average diluted common share, compared to $35.3 million, or $0.58 per average diluted common share, for the six months ended June 30, 2023. All data are unaudited.

"In the first six months of 2024, we continued to invest in people and technology to achieve our Company’s growth, security and client service goals,” said Clay Jones, President and Chief Executive Officer. “Our strong credit quality metrics further improved, as nonperforming assets and classified assets were both down at the end of the second quarter of 2024 from the linked quarter. We continued to strengthen our allowance for credit losses on loans during the second quarter of 2024, which was driven by prudent credit risk management and the increase in loan balances.”

“Our loan portfolio, excluding loans held-for-sale, increased by $43.7 million at June 30, 2024, from the preceding quarter and increased by $91.0 million year-over-year,” said Mr. Jones. “Our total deposits remained steady at $4.4 billion at June 30, 2024, while average deposits increased during the second quarter of 2024 from the linked quarter.”

“On behalf of the Board of Directors, I would like to thank our dedicated bank team members for all they do to support our loyal clients, communities and dedicated shareholders, and we look forward to continued success in the second half of the year,” Mr. Jones said. “It is because of them that we remain well-positioned to execute on our growth objectives.”

Second Quarter Ended June 30, 2024
Operating Results, Liquidity Position, Financial Condition, Credit Quality, and Capital Management

(as of, or for the periods ended June 30, 2024, compared to March 31, 2024, and June 30, 2023, except as noted):

Operating Results:

  • The following table indicates the ratios for the annualized return on average equity, average tangible common equity, average assets and average tangible assets for the periods indicated:
  For the Quarter Ended: For the Six Months Ended:
  June 30,  March 31,  June 30,  June 30,  June 30, 
(unaudited) 2024 2024 2023 2024 2023
Return on average equity 5.50% 6.08% 10.12% 5.79% 11.06%
Return on average tangible common equity(1) 7.43% 8.24% 13.93% 7.84% 15.29%
Return on average assets 0.71% 0.79% 1.25% 0.75% 1.35%
Return on average tangible assets(1) 0.74% 0.82% 1.29% 0.78% 1.40%


  
(1) This is a non-GAAP financial measure as defined and discussed under “Non-GAAP Financial Measures” below.
  
    

Net Interest Income:

  • Net interest income decreased (2%) to $39.5 million for the second quarter of 2024, compared to $40.1 million for the first quarter of 2024. The non-GAAP fully tax equivalent (“FTE”) net interest margin contracted 8 basis points to 3.26% for the second quarter of 2024 from 3.34% for the first quarter of 2024, primarily due to higher rates paid on client deposits, partially offset by maturing securities invested in higher yielding overnight funds and higher average yields on loans.
  • Net interest income decreased (15%) to $39.5 million for the second quarter of 2024, compared to $46.3 million for the second quarter of 2023. The non-GAAP FTE net interest margin contracted 50 basis points to 3.26% for the second quarter of 2024, from 3.76% for the second quarter of 2023, primarily due to higher rates paid on client deposits, a decrease in the average balance of noninterest-bearing demand deposits, a decrease in average interest earning assets, and a decrease in the average balance of higher yielding Bay View Funding factored receivables, partially offset by an increase in the rate on core loans and overnight funds.
  • For the first six months of 2024, net interest income decreased (17%) to $79.5 million, compared to $95.6 million for the first six months of 2023. The non-GAAP FTE net interest margin decreased 62 basis points to 3.30% for the first six months of 2024, from 3.92% for the first six months of 2023, primarily due to higher rates paid on client deposits, a decrease in the average balance of noninterest-bearing demand deposits, a decrease in average interest earning assets, and a decrease in the average balances of higher yielding Bay View Funding factored receivables, partially offset by an increase in the rate on core loans and overnight funds.
  • The following tables set forth the estimated changes in the Company’s annual net interest income and economic value of equity (a non-GAAP financial measure) that would result from the designated instantaneous parallel shift in interest rates noted, and assuming a flat balance sheet with consistent product mix, as of June 30, 2024:
  Increase/(Decrease) in 
  Estimated Net 
CHANGE IN INTEREST RATES (basis points) Interest Income(1) 
(in $000's, unaudited) Amount Percent 
+400 $15,815  8.5 %
+300 $11,832  6.4 %
+200 $7,879  4.2 %
+100 $3,953  2.1 %
0      
−100 $(5,545) (3.0)%
−200 $(12,865) (6.9)%
−300 $(22,246) (12.0)%
−400 $(36,316) (19.6)%


  Increase/(Decrease) in 
  Estimated Economic 
CHANGE IN INTEREST RATES (basis points) Value of Equity(1) 
(in $000's, unaudited) Amount Percent 
+400 $108,119  9.1 %
+300 $91,506  7.7 %
+200 $68,864  5.8 %
+100 $38,972  3.3 %
0      
−100 $(63,527) (5.4)%
−200 $(154,537) (13.0)%
−300 $(272,094) (22.9)%
−400 $(410,354) (34.6)%


  
(1) Computations of prospective effects of hypothetical interest rate changes are for illustrative purposes only, 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. These projections are forward-looking and should be considered in light of the Forward-Looking Statement Disclaimer below. Actual rates paid on deposits may differ from the hypothetical interest rates modeled due to competitive or market factors, which could affect 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 5.49% for the second quarter of 2024, compared to 5.44% for the first quarter of 2024, primarily due to higher loan yields on the core bank.


  For the Quarter Ended For the Quarter Ended 
  June 30, 2024 March 31, 2024 
  Average Interest Average Average Interest Average 
(in $000’s, unaudited) Balance Income Yield Balance Income Yield 
Loans, core bank $2,830,260  $38,496 5.47%$2,795,351  $37,721 5.43%
Prepayment fees     54 0.01%    24 0.00%
Bay View Funding factored receivables  54,777   2,914 21.40% 53,511   2,838 21.33%
Purchased residential mortgages  447,687   3,739 3.36% 454,240   3,788 3.35%
Loan fair value mark / accretion  (2,863)  267 0.04% (3,113)  229 0.03%
Total loans (includes loans held-for-sale) $3,329,861  $45,470 5.49%$3,299,989  $44,600 5.44%


 The average yield on the total loan portfolio increased to 5.49% for the second quarter of 2024, compared to 5.47% for the second quarter of 2023, primarily due to increases in the prime rate, partially offset by a lower average balance of higher yielding Bay View Funding factored receivables for the second quarter of 2024.


  For the Quarter Ended For the Quarter Ended 
  June 30, 2024 June 30, 2023 
  Average Interest Average Average Interest Average 
(in $000’s, unaudited) Balance Income Yield Balance Income Yield 
Loans, core bank $2,830,260  $38,496 5.47%$2,688,370  $35,996 5.37%
Prepayment fees     54 0.01%    73 0.01%
Bay View Funding factored receivables  54,777   2,914 21.40% 68,680   3,847 22.47%
Purchased residential mortgages  447,687   3,739 3.36% 478,220   3,829 3.21%
Loan fair value mark / accretion  (2,863)  267 0.04% (3,929)  283 0.04%
Total loans (includes loans held-for-sale) $3,329,861  $45,470 5.49%$3,231,341  $44,028 5.47%


 The average yield on the total loan portfolio remained flat at 5.46% for both the first six months of 2024 and 2023, as a lower average balance of higher yielding Bay View Funding factored receivables, a decrease in the accretion of loan purchase discount into interest income from acquired loans, and lower prepayment fees, were offset by increases in the prime rate for the first six months of 2024.


  For the Six Months Ended  For the Six Months Ended  
  June 30, 2024 June 30, 2023 
  Average Interest Average Average Interest Average 
(in $000’s, unaudited) Balance Income Yield Balance Income Yield 
Loans, core bank $2,812,805  $76,217 5.45%$2,702,291  $71,590 5.34%
Prepayment fees     78 0.01%    211 0.02%
Bay View Funding factored receivables  54,144   5,752 21.36% 73,193   7,848 21.62%
Purchased residential mortgages  450,964   7,527 3.36% 482,964   7,686 3.21%
Loan fair value mark / accretion  (2,988)  496 0.04% (4,143)  805 0.06%
Total loans (includes loans held-for-sale) $3,314,925  $90,070 5.46%$3,254,305  $88,140 5.46%


 During the second quarter of 2024, the Asset-based Lending division was reorganized into the core bank.
   
 In aggregate, the unamortized net purchase discount on total loans acquired was $2.7 million at June 30, 2024.
   
  • 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 
  June 30, 2024 March 31, 2024 
  Average Interest Average Average Interest Average 
(in $000’s, unaudited) Balance Expense Rate Balance Expense Rate 
Deposits:                 
Demand, noninterest-bearing $1,127,145      $1,177,078      
                  
Demand, interest-bearing  932,100 $1,719 0.74% 920,048 $1,554 0.68%
Savings and money market  1,104,589  7,867 2.86% 1,067,581  6,649 2.50%
Time deposits - under $100  10,980  46 1.68% 10,945  42 1.54%
Time deposits - $100 and over  228,248  2,245 3.96% 221,211  2,064 3.75%
Insured Cash Sweep ("ICS")/Certificate of Deposit Registry                 
Service ("CDARS") - interest-bearing demand, money market                 
and time deposits  991,483  7,207 2.92% 963,287  6,611 2.76%
Total interest-bearing deposits  3,267,400  19,084 2.35% 3,183,072  16,920 2.14%
Total deposits  4,394,545  19,084 1.75% 4,360,150  16,920 1.56%
                  
Short-term borrowings  19   0.00% 15   0.00%
Subordinated debt, net of issuance costs  39,553  538 5.47% 39,516  538 5.48%
Total interest-bearing liabilities  3,306,972  19,622 2.39% 3,222,603  17,458 2.18%
Total interest-bearing liabilities and demand,                 
noninterest-bearing / cost of funds $4,434,117 $19,622 1.78%$4,399,681 $17,458 1.60%


 The average cost of total deposits increased to 1.75% for the second quarter of 2024, compared to 1.56% for the first quarter of 2024. The average cost of funds increased to 1.78% for the second quarter of 2024, compared to 1.60% for the first quarter of 2024. The average cost of deposits was 0.97% and the average cost of funds was 1.07% for the second quarter of 2023.
     
   While the cost of deposits increased for the second quarter of 2024, the cost of deposits remained relatively flat during the quarter.
     
 The average cost of total deposits increased to 1.65% for the first six months of 2024, compared to 0.76% for the first six months of 2023. The average cost of funds increased to 1.69% for the first six months of 2024, compared to 0.85% for the first six months of 2023.
     
 The increase in the average cost of total deposits and the average cost of funds for the second quarter and first six months of 2024 was primarily due to clients seeking higher yields and moving noninterest-bearing deposits to the Bank’s interest-bearing ICS/CDARS deposits and interest-bearing money market accounts and increases in market rates.
     

Provision for Credit Losses on Loans:

  • During the second quarter of 2024, we recorded a provision for credit losses on loans of $471,000, compared to a $184,000 provision for credit losses on loans for the first quarter of 2024, and a provision for credit losses on loans of $260,000 for the second quarter of 2023.
  • There was a provision for credit losses on loans of $655,000 for the six months ended June 30, 2024, compared to a $292,000 provision for credit losses on loans for the six months ended June 30, 2023.

Noninterest Income:

  • Total noninterest income increased 11% to $2.3 million for the second quarter of 2024, compared to $2.0 million for the first quarter of 2024, and increased 10% from $2.1 million for the second quarter of 2023, primarily due to a higher gain on proceeds from company-owned life insurance and higher termination fees, partially offset by a lower gain on sales of SBA loans during the second quarter of 2024.
  • Total noninterest income decreased (11%) to $4.3 million for the first six months of 2024, compared to $4.8 million for the first six months of 2023, primarily due to lower service charges and fees on deposit accounts, partially offset by a higher gain on proceeds from company-owned life insurance and higher termination fees for the first six months of 2024.

Noninterest Expense:

  • Total noninterest expense for the second quarter of 2024 increased to $28.2 million, compared to $27.5 million for the first quarter of 2024, primarily due to higher salaries and employee benefits as a result of annual merit increases and staff additions, and higher information technology related expenses, partially offset by lower professional fees and marketing related expenses for the second quarter of 2024. Total noninterest expense for the second quarter of 2024 increased to $28.2 million, compared to $25.0 million for the second quarter of 2023, primarily due to higher salaries and employee benefits, rent expense included in occupancy and equipment, and information technology related expenses included in other noninterest expense.
  • Total noninterest expense for the first six months of 2024 increased to $55.7 million, compared to $50.4 million for the first six months of 2023, primarily due to higher salaries and employee benefits, and information technology related expenses, homeowner association vendor payments, regulatory assessments, and ICS/CDARS fee expense included in other noninterest expense.   
  • Full time equivalent employees were 353 at June 30, 2024, compared to 351 at March 31, 2024, and 347 at June 30, 2023.  
  • The efficiency ratio increased to 67.55% for the second quarter of 2024, compared to 65.34% for the first quarter of 2024, and 51.67% for the second quarter of 2023. The efficiency ratio increased to 66.44% for the six months ended June 30, 2024 compared to 50.20% for the six months ended June 30, 2023. The increase in the efficiency ratio for the second quarter of 2024 and six months ended June 30, 2024 was due to both higher noninterest expense and lower net revenue. The efficiency ratio is a non-GAAP financial measure.

Income Tax Expense:

  • Income tax expense was $3.8 million for the second quarter of 2024, compared to $4.3 million for the first quarter of 2024, and $6.7 million for the second quarter of 2023. The effective tax rate for the second quarter of 2024 was 29.4%, compared to 29.5% for the first quarter of 2024, and 29.0% for the second quarter of 2023.
  • Income tax expense for the six months ended June 30, 2024 was $8.1 million, compared to $14.4 million for the six months ended June 30, 2023. The effective tax rate for six months ended June 30, 2024 was 29.4%, compared to 28.9% for the six months ended June 30, 2023.

Liquidity Position, Financial Condition, Credit Quality, and Capital Management:

Liquidity and Available Lines of Credit:

  • The following table shows our liquidity, available lines of credit and the amounts outstanding at June 30, 2024:
LIQUIDITY AND AVAILABLE LINES OF CREDIT Total   Remaining
(in $000’s, unaudited) Available Outstanding Available
Excess funds at the Federal Reserve Bank ("FRB") $589,600 $ $589,600
FRB discount window collateralized line of credit  1,404,998    1,404,998
Federal Home Loan Bank collateralized borrowing capacity  792,027    792,027
Unpledged investment securities (at fair value)  52,319    52,319
Federal funds purchase arrangements  90,000    90,000
Holding company line of credit  20,000    20,000
Total $2,948,944 $ $2,948,944


 The Company’s total available liquidity and borrowing capacity was $3.0 billion at both June 30, 2024 and March 31, 2024, and $3.1 billion at June 30, 2023.
   
 The available liquidity and borrowing capacity was 66% of the Company’s total deposits and approximately 148% of the Bank’s estimated uninsured deposits at June 30, 2024. The available liquidity and borrowing capacity was 67% of the Company’s total deposits and approximately 149% of the Bank’s estimated uninsured deposits at March 31, 2024. The available liquidity and borrowing capacity was 69% of the Company’s total deposits and approximately 145% of the Bank’s estimated uninsured deposits at June 30, 2023.
   
 The loan to deposit ratio was 76.04% at June 30, 2024, compared to 75.06% at March 31, 2024, and 73.07% at June 30, 2023.
   
  • Total assets remained flat at $5.3 billion at June 30, 2024, March 31, 2024, and June 30, 2023.

Investment Securities:

  • Investment securities totaled $894.2 million at June 30, 2024, of which $273.0 million were in the securities available-for-sale portfolio (at fair value), and $621.2 million were in the securities held-to-maturity portfolio (at amortized cost, net of allowance for credit losses of $12,000). The fair value of the securities held-to-maturity portfolio was $527.4 million at June 30, 2024.
  • The following table shows the balances of securities available-for-sale, at fair value, and the related pre-tax unrealized (loss) at the dates indicated:
SECURITIES AVAILABLE-FOR-SALE  June 30,  March 31,  June 30, 
(in $000’s, unaudited) 2024
 2024
 2023
Balance (at fair value):         
U.S. Treasury $218,682  $347,453  $421,146 
Agency mortgage-backed securities  54,361   57,021   64,912 
Total $273,043  $404,474  $486,058 
          
Pre-tax unrealized (loss):         
U.S. Treasury $(3,578) $(4,784) $(10,903)
Agency mortgage-backed securities  (4,815)  (4,895)  (5,659)
Total $(8,393) $(9,679) $(16,562)
          
Weighted average life (years)  1.39   1.15   1.64 


 The pre-tax unrealized loss on the securities available-for-sale portfolio was ($8.4) million, or ($6.0) million net of taxes, which equaled 1% of total shareholders’ equity at June 30, 2024.
   
 The reduction in the securities available-for-sale portfolios was due to maturities and not due to any securities sold since June 30, 2023.
   
  • The following table shows the balances of securities held-to-maturity, at amortized cost, and the related pre-tax unrecognized (loss) and allowance for credit losses at the dates indicated:
SECURITIES HELD-TO-MATURITY  June 30,  March 31,  June 30, 
(in $000’s, unaudited) 2024
 2024
 2023
Balance (at amortized cost):         
Agency mortgage-backed securities $589,386  $604,458  $648,337 
Municipals — exempt from Federal tax(1)  31,804   31,803   33,771 
Total(1) $621,190  $636,261  $682,108 
          
Pre-tax unrecognized (loss):         
Agency mortgage-backed securities $(92,058) $(92,332) $(95,285)
Municipals — exempt from Federal tax  (1,694)  (1,071)  (1,052)
Total $(93,752) $(93,403) $(96,337)
          
Allowance for credit losses on municipal securities $(12) $(12) $(13)
          
Weighted average life (years)  6.57   6.59   7.12 


    
(1) Gross of the allowance for credit losses of ($12,000) at both June 30, 2024, and March 31, 2024, and ($13,000) at June 30, 2023.
    


 The pre-tax unrecognized loss on the securities held-to-maturity portfolio was ($93.8) million, or ($66.0) million net of taxes, which equaled 10% of total shareholders’ equity at June 30, 2024.
   
 The weighted average life of the securities held-to-maturity portfolio was 6.57 years at June 30, 2024, which includes Community Reinvestment Act mortgage-backed securities with longer maturities.
   
  • The unrealized and unrecognized losses in both the available-for-sale and held-to-maturity portfolios were due to higher interest rates at June 30, 2024 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 following are the projected cash flows from paydowns and maturities in the investment securities portfolio for the periods indicated based on the current interest rate environment:
     Agency   
     Mortgage-   
PROJECTED INVESTMENT SECURITIES   backed and  
PAYDOWNS & MATURITIES U.S. Municipal  
(in $000’s, unaudited) Treasury Securities Total
Third quarter of 2024 $37,500 $21,455 $58,955
Fourth quarter of 2024  9,000  19,436  28,436
First quarter of 2025  35,000  18,847  53,847
Second quarter of 2025  118,000  18,379  136,379
Third quarter of 2025  25,500  19,585  45,085
Fourth quarter of 2025    18,039  18,039
First quarter of 2026    17,341  17,341
Second quarter of 2026    16,630  16,630
Total $225,000 $149,712 $374,712
          


 The weighted average life of the total investment securities portfolio was 4.95 years at June 30, 2024, compared to 4.44 years at March 31, 2024, and 4.79 years at June 30, 2023.
   
 The increase in the weighted average life of the total investment securities portfolio at June 30, 2024 was due to short-term securities maturing.
   

Loans:

  • The following table summarizes the distribution of loans, excluding loans held-for-sale, and the percentage of distribution in each category at the dates indicated:
LOANS  June 30, 2024 March 31, 2024 June 30, 2023 
(in $000’s, unaudited) Balance  % to Total Balance  % to Total Balance  % to Total 
Commercial $477,929  14%$452,231  14%$466,354  14%
Real estate:                
CRE(1) - owner occupied  594,504  18% 585,031  17% 608,031  18%
CRE(1) - non-owner occupied  1,283,323  38% 1,271,184  38% 1,147,313  35%
Land and construction  125,374  4% 129,712  4% 162,816  5%
Home equity  126,562  4% 122,794  4% 128,009  4%
Multifamily  268,968  8% 269,263  8% 244,959  7%
Residential mortgages  484,809  14% 490,035  15% 514,064  16%
Consumer and other  18,758  < 1% 16,439  < 1% 17,635  1%
Total Loans  3,380,227  100% 3,336,689  100% 3,289,181  100%
Deferred loan costs (fees), net  (434)   (587)   (397)  
Loans, net of deferred costs and fees $3,379,793  100%$3,336,102  100%$3,288,784  100%


 (1) Commercial Real Estate 


 Loans, excluding loans held-for-sale, increased $43.7 million, or 1%, to $3.4 billion at June 30, 2024, compared to $3.3 billion at March 31, 2024, and increased $91.0 million, or 3%, from $3.3 billion at June 30, 2023. Loans, excluding residential mortgages, increased $48.9 million, or 2%, to $2.89 billion at June 30, 2024, compared to $2.85 billion at March 31, 2024, and increased $120.3 million, or 4%, from $2.77 billion at June 30, 2023.
     
 Commercial and industrial line utilization was 31% at June 30, 2024, compared to 28% at March 31, 2024, and 29% at June 30, 2023.
     
 CRE loans totaled $1.9 billion at June 30, 2024, of which 32% were owner occupied and 68% were investor CRE loans. There was also 32% of the CRE loan portfolio secured by owner occupied real estate at March 31, 2024, and 35% at June 30, 2023.
     
   During the second quarter of 2024, there were 32 new owner occupied and non-owner occupied CRE loans originated totaling $47 million with a weighted average loan-to-value (“LTV”) of 39%; the weighted average debt-service coverage ratio (“DSCR”) for the non-owner occupied portfolio was 2.61 times.
     
   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 guarantees on 92% of its CRE portfolio. A substantial portion of the unguaranteed CRE loans were made to credit-worthy non-profit organizations.
     
   Total office exposure (excluding medical/dental offices) in the CRE portfolio was $403 million, including 32 loans totaling approximately $74 million in San Jose, 21 loans totaling approximately $27 million in San Francisco, and eight loans totaling approximately $16 million, in Oakland, at June 30, 2024. Non-owner occupied CRE with office exposure totaled $312 million at June 30, 2024.
     
   At June 30, 2024, the weighted average LTV and DSCR for the entire non-owner occupied office portfolio were 41.8% and 1.78 times, respectively.
     
   Total medical/dental office exposure in the non-owner occupied CRE portfolio consisted of 15 loans totaling $12.6 million, with a weighted average LTV and DSCR of 37.8% and 2.39 times, respectively, at June 30, 2024.
     
   The following table presents the weighted average LTV and DSCR by collateral type for CRE loans at June 30, 2024:


 

  CRE - Non-owner Occupied CRE - Owner Occupied Total CRE
Collateral Type Outstanding LTV DSCR Outstanding LTV Outstanding LTV
Retail  25%  38.3%  1.93   16%  46.3%  23%  39.8%
Industrial  19%  40.0%  2.39   32%  42.7%  23%  41.0%
Mixed-Use, Special                            
Purpose and Other  18%  41.7%  1.91   35%  40.6%  22%  41.2%
Office  20%  41.8%  1.78   17%  43.7%  19%  42.3%
Multifamily  17%  42.4%  1.94   0%  0.0%  13%  42.4%
Hotel/Motel  1%  16.5%  1.44   0%  0.0%  < 1%  16.5%
Total  100%  40.5%  1.99   100%  42.7%  100%  41.1%


 The following table presents the weighted average LTV and DSCR by county for CRE loans at June 30, 2024:


  CRE - Non-owner Occupied CRE - Owner Occupied Total CRE
County Outstanding LTV DSCR Outstanding LTV Outstanding LTV
Santa Clara  24%  38.1%  2.24   34%  40.4%  27%  38.9%
Alameda  25%  44.4%  1.92   18%  44.0%  23%  44.3%
San Mateo  10%  36.9%  2.20   15%  39.8%  12%  38.0%
Out of Area  9%  42.6%  2.16   9%  50.6%  9%  44.9%
San Francisco  9%  37.4%  1.44   4%  38.8%  8%  37.6%
Contra Costa  7%  42.0%  1.73   8%  48.1%  7%  43.8%
Marin  7%  46.6%  1.94   2%  53.1%  5%  47.1%
Sonoma  2%  41.0%  2.22   2%  43.3%  2%  41.5%
Santa Cruz  2%  33.3%  1.74   1%  45.7%  2%  35.2%
Monterey  2%  44.2%  1.85   2%  39.9%  2%  42.8%
San Benito  1%  35.1%  2.14   3%  39.4%  2%  37.3%
Solano  1%  32.2%  1.98   1%  35.5%  1%  33.0%
Napa  1%  29.4%  2.24   1%  52.3%  < 1%  37.3%
Total  100%  40.5%  1.99   100%  42.7%  100%  41.1%
 
  • The following table presents the maturity distribution of the Company’s loans, excluding loans held-for-sale, as of June 30, 2024. 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, and contractual repricing dates.
  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 $365,849 40% $270,487 30% $267,524 30% $903,860
Loans with fixed interest rates  89,027 4%  693,576 28%  1,693,764 68%  2,476,367
Loans $454,876 13% $964,063 29% $1,961,288 58% $3,380,227


 At June 30, 2024, approximately 27% of the Company’s loan portfolio consisted of floating interest rate loans, compared to 26% at March 31, 2024, and 29% at June 30, 2023.
   

Credit Quality:

  • The following table summarizes the allowance for credit losses on loans (“ACLL”) for the periods indicated:
  At or For the Quarter Ended: At or For the Six Months Ended: 
ALLOWANCE FOR CREDIT LOSSES ON LOANS June 30,  March 31,  June 30,  June 30,  June 30,  
(in $000’s, unaudited) 2024
 2024
 2023
 2024
 2023
 
Balance at beginning of period $47,888  $47,958  $47,273  $47,958  $47,512  
Charge-offs during the period  (510)  (358)  (24)  (868)  (404) 
Recoveries during the period  105   104   294   209   403  
Net (charge-offs) recoveries during the period  (405)  (254)  270   (659)  (1) 
Provision for credit losses on loans during the period  471   184   260   655   292  
Balance at end of period $47,954  $47,888  $47,803  $47,954  $47,803  
                 
Total loans, net of deferred fees $3,379,793  $3,336,102  $3,288,784  $3,379,793  $3,288,784  
Total nonperforming loans $6,030  $7,871  $5,537  $6,030  $5,537  
ACLL to total loans  1.42 % 1.44 % 1.45 % 1.42 % 1.45 %
ACLL to total nonperforming loans  795.26 % 608.41 % 863.34 % 795.26 % 863.34 %


 Net charge-offs of $405,000 for the second quarter of 2024 primarily consisted of $412,000 in advances associated with past due factored receivables at Bay View Funding due from a municipality.
   
 The following table shows the drivers of change in ACLL for the first and second quarters of 2024:


DRIVERS OF CHANGE IN ACLL  
(in $000’s, unaudited)  
ACLL at December 31, 2023 $47,958 
Portfolio changes during the first quarter of 2024  (234)
Qualitative and quantitative changes during the first   
quarter of 2024 including changes in economic forecasts  164 
ACLL at March 31, 2024  47,888 
Portfolio changes during the second quarter of 2024  616 
Qualitative and quantitative changes during the second   
quarter of 2024 including changes in economic forecasts  (550)
ACLL at June 30, 2024 $47,954 
 
  • The following is a breakout of nonperforming assets (“NPAs”) at the dates indicated:

NONPERFORMING ASSETS June 30, 2024 March 31, 2024 June 30, 2023 
(in $000’s, unaudited)    Balance    % of Total    Balance    % of Total    Balance    % of Total 
Land and construction loans $4,774 79%$4,673 59%$ 0%
Commercial loans  900 15% 1,127 14% 1,306 23%
Loans over 90 days past due and still accruing  248 4% 1,951 25% 2,262 41%
Home equity and other loans  108 2% 120 2% 96 2%
Residential mortgages   0%  0% 1,873 34%
CRE loans   0%  0%  0%
Total nonperforming assets $6,030 100%$7,871 100%$5,537 100%


 There were 10 borrowers included in NPAs totaling $6.0 million, or 0.11% of total assets, at June 30, 2024, compared to 13 borrowers totaling $7.9 million, or 0.15% of total assets at March 31, 2024, and 13 borrowers totaling $5.5 million, or 0.10% of total assets, at June 30, 2023.
   
 There were no CRE loans included in NPAs at June 30, 2024, March 31, 2024, or June 30, 2023.
   
 There were no foreclosed assets on the balance sheet at June 30, 2024, March 31, 2024, or June 30, 2023.
   
 There were no Shared National Credits (“SNCs”) or material purchased participations included in NPAs or total loans at June 30, 2024, March 31, 2024, or June 30, 2023.
   
  • Classified assets totaled $33.6 million, or 0.64% of total assets, at June 30, 2024, compared to $35.4 million, or 0.67% of total assets, at March 31, 2024, and $30.5 million, or 0.57% of total assets, at June 30, 2023.

Deposits:

  • The following table summarizes the distribution of deposits and the percentage of distribution in each category at the dates indicated:
DEPOSITS June 30, 2024 March 31, 2024 June 30, 2023 
(in $000’s, unaudited) Balance % to Total Balance % to Total Balance % to Total 
Demand, noninterest-bearing $1,187,320 27%$1,242,059 28%$1,319,844 29%
Demand, interest-bearing  928,246 21% 925,100 21% 1,064,638 24%
Savings and money market  1,126,520 25% 1,124,900 25% 1,075,835 24%
Time deposits — under $250  39,046 1% 38,105 1% 44,520 1%
Time deposits — $250 and over  203,886 4% 200,739 4% 171,852 4%
ICS/CDARS — interest-bearing demand,                
money market and time deposits  959,592 22% 913,757 21% 824,083 18%
Total deposits $4,444,610 100%$4,444,660 100%$4,500,772 100%


 Total deposits remained flat at $4.4 billion at both June 30, 2024 and March 31, 2024, and decreased ($56.2) million, or (1%) from $4.5 billion at June 30, 2023.
   
 
Average deposits increased to $4.39 billion for the second quarter of 2024, compared to $4.36 billion for the first quarter of 2024, and remained relatively flat compared to $4.42 billion for the second quarter of 2023.
   
 Migration of client deposits into interest-bearing accounts resulted in an increase in ICS/CDARS deposits to $959.6 million at June 30, 2024, compared to $913.8 million at March 31, 2024, and $824.1 million at June 30, 2023.
   
 Noninterest-bearing demand deposits decreased ($54.7) million, or (4%), to $1.19 billion at June 30, 2024 from $1.24 billion at March 31, 2024, and decreased ($132.5) million, or (10%), from $1.32 billion at June 30, 2023, largely in response to the increasing interest rate environment.
   
 The Company had 25,033 deposit accounts at June 30, 2024, with an average balance of $178,000. At March 31, 2024, the Company had 24,730 deposit accounts, with an average balance of $180,000. At June 30, 2023, the Company had 24,404 deposit accounts, with an average balance of $187,000.
   
 Deposits from the Bank’s top 100 client relationships, representing 21% of the total number of accounts, totaled $2.1 billion, representing 47% of total deposits, with an average account size of $388,000 at June 30, 2024. At March 31, 2024, deposits from the Bank’s top 100 client relationships, representing 22% of the total number of accounts, totaled $2.1 billion, representing 46% of total deposits, with an average account size of $384,000. At June 30, 2023, deposits from the Bank’s top 100 client relationships, representing 22% of the total number of accounts, totaled $2.1 billion, representing 47% of total deposits, with an average account size of $401,000.
   
 The Bank’s uninsured deposits were approximately $1.99 billion, or 45% of the Company’s total deposits, at June 30, 2024, compared to $2.02 billion, or 45% of the Company’s total deposits, at March 31, 2024, and $2.15 billion, or 48% of the Company’s total deposits, at June 30, 2023.
   

Capital Management:

  • The Company’s consolidated capital ratios exceeded regulatory guidelines and the Bank’s capital ratios exceeded regulatory guidelines under the prompt corrective action (“PCA”) regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at June 30, 2024, as reflected in the following table:
                       Well-capitalized  
        Financial  
        Institution Basel III
  Heritage Heritage PCA Minimum
  Commerce Bank of Regulatory Regulatory
CAPITAL RATIOS (unaudited) Corp Commerce Guidelines Requirements (1)
Total Capital 15.6% 15.1% 10.0% 10.5%
Tier 1 Capital 13.4% 13.9% 8.0% 8.5%
Common Equity Tier 1 Capital 13.4% 13.9% 6.5% 7.0%
Tier 1 Leverage 10.2% 10.6% 5.0% 4.0%
Tangible common equity / tangible assets (2) 9.9% 10.3% N/A  N/A 


    
(1) Basel III minimum regulatory requirements for both the Company and the Bank include a 2.5% capital conservation buffer, except the Tier 1 Leverage ratio.
    
(2) This is a non-GAAP financial measure that represents shareholders’ equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets.
    
 
  • The following table reflects the components of accumulated other comprehensive loss, net of taxes, at the dates indicated:
ACCUMULATED OTHER COMPREHENSIVE LOSS June 30,  March 31,  June 30, 
(in $000’s, unaudited) 2024
 2024
 2023
Unrealized loss on securities available-for-sale $(6,022) $(6,936) $(11,822)
Split dollar insurance contracts liability  (2,913)  (2,861)  (3,187)
Supplemental executive retirement plan liability  (2,856)  (2,874)  (2,352)
Unrealized gain on interest-only strip from SBA loans  76   83   103 
Total accumulated other comprehensive loss $(11,715) $(12,588) $(17,258)
          
  • Tangible common equity was $504.0 million at June 30, 2024, compared to $500.6 million at March 31, 2024, and $476.2 million at June 30, 2023. Tangible book value per share was $8.22 at June 30, 2024, compared to $8.17 at March 31, 2024, and $7.80 at June 30, 2023. Tangible common equity and tangible book value per share are non-GAAP financial measures.

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. The contents of our website are not incorporated into, and do not perform a part of, this release or of our filings with the Securities and Exchange Commission.

Non-GAAP Financial Measures

Financial results are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate and measure the Company’s performance. Management believes these non-GAAP financial measures are common in the banking industry, and may enhance comparability for peer comparison purposes. These non-GAAP financial measures should be supplemental to primary GAAP financial measures and should not be read in isolation or relied upon as a substitute for primary GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures are presented in the tables at the end of this earnings release under “Reconciliation of Non-GAAP Financial Measures.”

Forward-Looking Statement Disclaimer

Certain matters discussed in this press release constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements may be deemed to include, among other things, statements relating to the Company’s future financial performance, projected cash flows of our investment securities portfolio, the performance of our loan portfolio, estimated net interest income resulting from a shift in interest rates, expectation of high credit quality issuers ability to repay, as well as statements relating to the anticipated effects on the Company’s financial condition and results of operations from expected developments or events. Any statements that reflect our belief about, confidence in, or expectations for future events, performance or condition should be considered forward-looking statements. Readers should not construe these statements as assurances of a given level of performance, nor as promises that we will take actions that we currently expect to take. All statements are subject to various risks and uncertainties, many of which are outside our control and some of which may fall outside our ability to predict or anticipate. Accordingly, our actual results may differ materially from our projected results, and we may take actions or experience events that we do not currently expect. 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, Item 1A of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, and the following: (1) factors that affect our liquidity and our ability to meet client demands for deposit withdrawals, including our cash on hand and the availability of funds from our lines of credit; (2) media items and consumer confidence as those factors affect depositors’ confidence in the banking system generally and in our bank specifically; (3) factors that affect the value and liquidity of our investment portfolios, particularly the values of securities available-for-sale; (4) market fluctuations that affect the costs we pay for sources of funding, including the interest we pay on deposits and loans; (5) 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 and other factors that affect market interest rates generally; (6) our ability to estimate accurately, and to establish adequate reserves against, the risk of loss associated with our loan and lease portfolio; (7) events and circumstances that affect our borrowers' financial condition, results of operations and cash flows, which may, during periods of economic uncertainty or decline, adversely affect those borrowers' ability to repay our loans timely and in full, or to comply with their other obligations under our loan agreements with those clients; (8) factors that affect the relative strength or weakness of loan guarantees and the ability of the guarantors to fulfill the obligations of their guaranty agreements; (9) geopolitical and domestic political developments, including recent, current and potential future wars and international and multinational conflicts, acts of terrorism, insurrection, piracy and civil unrest, and events reflecting or resulting from social instability, any of which can increase levels of political and economic unpredictability, contribute to rising energy and commodity prices, can affect the physical security of our assets and the assets of our Clients, and which may increase the volatility of financial markets; (10) 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; (11) 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 to Clients, whether held in the portfolio or in the secondary market; (12) 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; (13) volatility in credit and equity markets and its effect on the global economy; (14) conditions relating to the impact of recent and potential future pandemics, epidemics and other infectious illness outbreaks that may arise in the future, on our Clients, employees, businesses, liquidity, financial results and overall condition including severity and duration of the associated uncertainties in U.S. and global markets; (15) our ability to compete effectively with other banks and financial services companies and the effects of competition in the financial services industry on our business; (16) our ability to achieve loan growth and attract deposits in our market area; (17) risks associated with concentrations in real estate related loans; (18) 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; (19) 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; (20) regulatory limits and practical factors that affect Heritage Bank of Commerce’s ability to pay dividends to the Company; (21) 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; (22) 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 Clients and adversely affect our business, results of operations and growth prospects; (23) possible adjustment of the valuation of our deferred tax assets or of the goodwill associated with previous acquisitions; (24) our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks, including those posed by the increasing use of artificial intelligence, such as data security breaches, “denial of service” attacks, “hacking” and identity theft affecting us or third party vendors or service providers; (25) inability of our framework to manage risks associated with our business, including operational risk and credit risk; (26) risks of loss of funding of the Small Business Administration (“SBA”) or SBA loan programs, or changes in those programs; (27) 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; (28) 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; (29) the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise; (30) availability of and competition for acquisition opportunities; (31) geographic and sociopolitical factors that arise by virtue of the fact that we operate primarily in the general San Francisco Bay Area of Northern California; (32) risks of natural disasters (including earthquakes, fires, and flooding) and other events beyond our control; (33) actions taken, planned, or announced by federal, state, regional and local governments in response to the occurrence or threat of any of the foregoing; and (34) 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 Six Months Ended:
CONSOLIDATED INCOME STATEMENTS    June 30,      March 31,      June 30,      March 31,     June 30,      June 30,      June 30,      Percent 
(in $000’s, unaudited) 2024  2024  2023  2024 2023  2024  2023  Change 
Interest income $59,077  $57,551  $58,341  3 %1 % $116,628  $114,615  2 %
Interest expense  19,622   17,458   12,048  12 %63 %  37,080   19,064  95 %
Net interest income before provision                            
for credit losses on loans  39,455   40,093   46,293  (2)%(15)%  79,548   95,551  (17)%
Provision for credit losses on loans  471   184   260  156 %81 %  655   292  124 %
Net interest income after provision                            
for credit losses on loans  38,984   39,909   46,033  (2)%(15)%  78,893   95,259  (17)%
Noninterest income:                            
Service charges and fees on deposit                            
accounts  891   877   901  2 %(1)%  1,768   2,644  (33)%
Increase in cash surrender value of                            
life insurance  521   518   502  1 %4 %  1,039   995  4 %
Gain on proceeds from company-owned                            
life insurance  219        N/A  N/A    219     N/A  
Termination fees  100   13     669 %N/A    113   11  927 %
Servicing income  90   90   104  0 %(13)%  180   235  (23)%
Gain on sales of SBA loans  76   178   199  N/A  (62)%  254   275  (8)%
Other  379   371   368  2 %3 %  750   680  10 %
Total noninterest income  2,276   2,047   2,074  11 %10 %  4,323   4,840  (11)%
Noninterest expense:                            
Salaries and employee benefits  15,794   15,509   13,987  2 %13 %  31,303   28,796  9 %
Occupancy and equipment  2,689   2,443   2,422  10 %11 %  5,132   4,822  6 %
Professional fees  1,072   1,327   1,149  (19)%(7)%  2,399   2,548  (6)%
Other  8,633   8,257   7,433  5 %16 %  16,890   14,226  19 %
Total noninterest expense  28,188   27,536   24,991  2 %13 %  55,724   50,392  11 %
Income before income taxes  13,072   14,420   23,116  (9)%(43)%  27,492   49,707  (45)%
Income tax expense  3,838   4,254   6,713  (10)%(43)%  8,092   14,387  (44)%
Net income $ 9,234  $ 10,166  $ 16,403  (9)%(44)% $ 19,400  $ 35,320  (45)%
                             
PER COMMON SHARE DATA                               
(unaudited)                               
Basic earnings per share $0.15  $0.17  $0.27  (12)%(44)% $0.32  $0.58  (45)%
Diluted earnings per share $0.15  $0.17  $0.27  (12)%(44)% $0.32  $0.58  (45)%
Weighted average shares outstanding - basic  61,279,914   61,186,623   61,035,435  0 %0 %  61,233,269   60,971,828  0 %
Weighted average shares outstanding - diluted  61,438,088   61,470,552   61,266,059  0 %0 %  61,446,484   61,242,177  0 %
Common shares outstanding at period-end  61,292,094   61,253,625   61,091,155  0 %0 %  61,292,094   61,091,155  0 %
Dividend per share $0.13  $0.13  $0.13  0 %0 % $0.26  $0.26  0 %
Book value per share $11.08  $11.04  $10.70  0 %4 % $11.08  $10.70  4 %
Tangible book value per share(1) $8.22  $8.17  $7.80  1 %5 % $8.22  $7.80  5 %
                             
KEY FINANCIAL RATIOS                                    
(unaudited)                                    
Annualized return on average equity  5.50 % 6.08 % 10.12 %(10)%(46)%  5.79 % 11.06 %(48)%
Annualized return on average tangible                            
common equity(1)  7.43 % 8.24 % 13.93 %(10)%(47)%  7.84 % 15.29 %(49)%
Annualized return on average assets  0.71 % 0.79 % 1.25 %(10)%(43)%  0.75 % 1.35 %(44)%
Annualized return on average tangible assets(1)  0.74 % 0.82 % 1.29 %(10)%(43)%  0.78 % 1.40 %(44)%
Net interest margin (FTE)(1)  3.26 % 3.34 % 3.76 %(2)%(13)%  3.30 % 3.92 %(16)%
Efficiency ratio(1)  67.55 % 65.34 % 51.67 %3 %31 %  66.44 % 50.20 %32 %
                             
AVERAGE BALANCES                                   
(in $000’s, unaudited)                                    
Average assets $5,213,171  $5,178,636  $5,278,243  1 %(1)% $5,195,903  $5,256,993  (1)%
Average tangible assets(1) $5,037,673  $5,002,597  $5,100,399  1 %(1)% $5,020,134  $5,078,851  (1)%
Average earning assets $4,872,449  $4,842,279  $4,948,397  1 %(2)% $4,857,364  $4,921,850  (1)%
Average loans held-for-sale $1,503  $2,749  $4,166  (45)%(64)% $2,126  $3,764  (44)%
Average total loans $3,328,358  $3,297,240  $3,227,175  1 %3 % $3,312,799  $3,250,541  2 %
Average deposits $4,394,545  $4,360,150  $4,424,041  1 %(1)% $4,377,347  $4,420,019  (1)%
Average demand deposits - noninterest-bearing $1,127,145  $1,177,078  $1,368,373  (4)%(18)% $1,152,111  $1,516,991  (24)%
Average interest-bearing deposits $3,267,400  $3,183,072  $3,055,668  3 %7 % $3,225,236  $2,903,028  11 %
Average interest-bearing liabilities $3,306,972  $3,222,603  $3,157,722  3 %5 % $3,264,788  $2,997,119  9 %
Average equity $675,108  $672,292  $650,240  0 %4 % $673,700  $643,954  5 %
Average tangible common equity(1) $499,610  $496,253  $472,396  1 %6 % $497,931  $465,812  7 %


  
(1) This is a non-GAAP financial measure.
    


  For the Quarter Ended: 
CONSOLIDATED INCOME STATEMENTS    June 30,     March 31,     December 31,     September 30,     June 30,  
(in $000’s, unaudited) 2024 2024 2023 2023 2023 
Interest income $59,077 $57,551 $58,892 $60,791 $58,341 
Interest expense  19,622  17,458  16,591  15,419  12,048 
Net interest income before provision                
for credit losses on loans  39,455  40,093  42,301  45,372  46,293 
Provision for credit losses on loans  471  184  289  168  260 
Net interest income after provision                
for credit losses on loans  38,984  39,909  42,012  45,204  46,033 
Noninterest income:                
Service charges and fees on deposit                
accounts  891  877  838  859  901 
Increase in cash surrender value of                
life insurance  521  518  519  517  502 
Gain on proceeds from company-owned                
life insurance  219    25  100   
Termination fees  100  13  25  118   
Servicing income  90  90  103  62  104 
Gain on sales of SBA loans  76  178    207  199 
Other  379  371  432  353  368 
Total noninterest income  2,276  2,047  1,942  2,216  2,074 
Noninterest expense:                
Salaries and employee benefits  15,794  15,509  13,919  14,147  13,987 
Occupancy and equipment  2,689  2,443  2,367  2,301  2,422 
Professional fees  1,072  1,327  1,085  717  1,149 
Other  8,633  8,257  8,120  8,006  7,433 
Total noninterest expense  28,188  27,536  25,491  25,171  24,991 
Income before income taxes  13,072  14,420  18,463  22,249  23,116 
Income tax expense  3,838  4,254  5,135  6,454  6,713 
Net income $ 9,234 $ 10,166 $ 13,328 $ 15,795 $ 16,403 
                 
PER COMMON SHARE DATA                
(unaudited)                    
Basic earnings per share $0.15 $0.17 $0.22 $0.26 $0.27 
Diluted earnings per share $0.15 $0.17 $0.22 $0.26 $0.27 
Weighted average shares outstanding - basic  61,279,914  61,186,623  61,118,485  61,093,289  61,035,435 
Weighted average shares outstanding - diluted  61,438,088  61,470,552  61,412,816  61,436,240  61,266,059 
Common shares outstanding at period-end  61,292,094  61,253,625  61,146,835  61,099,155  61,091,155 
Dividend per share $0.13 $0.13 $0.13 $0.13 $0.13 
Book value per share $11.08 $11.04 $11.00 $10.83 $10.70 
Tangible book value per share(1) $8.22 $8.17 $8.12 $7.94 $7.80 
                 
KEY FINANCIAL RATIOS                    
(unaudited)                     
Annualized return on average equity  5.50% 6.08% 7.96% 9.54% 10.12%
Annualized return on average tangible                
common equity(1)  7.43% 8.24% 10.84% 13.06% 13.93%
Annualized return on average assets  0.71% 0.79% 1.00% 1.16% 1.25%
Annualized return on average tangible assets(1)  0.74% 0.82% 1.04% 1.20% 1.29%
Net interest margin (FTE)(1)  3.26% 3.34% 3.41% 3.57% 3.76%
Efficiency ratio(1)  67.55% 65.34% 57.62% 52.89% 51.67%
                 
AVERAGE BALANCES                     
(in $000’s, unaudited)                     
Average assets $5,213,171 $5,178,636 $5,264,905 $5,399,930 $5,278,243 
Average tangible assets(1) $5,037,673 $5,002,597 $5,088,264 $5,222,692 $5,100,399 
Average earning assets $4,872,449 $4,842,279 $4,923,582 $5,051,710 $4,948,397 
Average loans held-for-sale $1,503 $2,749 $1,612 $2,765 $4,166 
Average total loans $3,328,358 $3,297,240 $3,280,817 $3,254,715 $3,227,175 
Average deposits $4,394,545 $4,360,150 $4,454,750 $4,573,621 $4,424,041 
Average demand deposits - noninterest-bearing $1,127,145 $1,177,078 $1,243,222 $1,302,606 $1,368,373 
Average interest-bearing deposits $3,267,400 $3,183,072 $3,211,528 $3,271,015 $3,055,668 
Average interest-bearing liabilities $3,306,972 $3,222,603 $3,251,034 $3,310,485 $3,157,722 
Average equity $675,108 $672,292 $664,638 $656,973 $650,240 
Average tangible common equity(1) $499,610 $496,253 $487,997 $479,735 $472,396 


  
(1) This is a non-GAAP financial measure.
    


  End of Period: Percent Change From: 
CONSOLIDATED BALANCE SHEETS    June 30,     March 31,     June 30,     March 31,     June 30,  
(in $000’s, unaudited) 2024
 2024
 2023
 2024 2023 
ASSETS              
Cash and due from banks $37,497  $32,543  $42,551  15 %(12)%
Other investments and interest-bearing deposits              
in other financial institutions  610,763   508,816   468,951  20 %30 %
Securities available-for-sale, at fair value  273,043   404,474   486,058  (32)%(44)%
Securities held-to-maturity, at amortized cost  621,178   636,249   682,095  (2)%(9)%
Loans held-for-sale - SBA, including deferred costs  1,899   1,946   3,136  (2)%(39)%
Loans:              
Commercial  477,929   452,231   466,354  6 %2 %
Real estate:              
CRE - owner occupied  594,504   585,031   608,031  2 %(2)%
CRE - non-owner occupied  1,283,323   1,271,184   1,147,313  1 %12 %
Land and construction  125,374   129,712   162,816  (3)%(23)%
Home equity  126,562   122,794   128,009  3 %(1)%
Multifamily  268,968   269,263   244,959  0 %10 %
Residential mortgages  484,809   490,035   514,064  (1)%(6)%
Consumer and other  18,758   16,439   17,635  14 %6 %
Loans  3,380,227   3,336,689   3,289,181  1 %3 %
Deferred loan fees, net  (434)  (587)  (397) (26)%9 %
Total loans, net of deferred costs and fees  3,379,793   3,336,102   3,288,784  1 %3 %
Allowance for credit losses on loans  (47,954)  (47,888)  (47,803) 0 %0 %
Loans, net  3,331,839   3,288,214   3,240,981  1 %3 %
Company-owned life insurance  80,153   80,007   79,940  0 %0 %
Premises and equipment, net  10,310   9,986   9,197  3 %12 %
Goodwill  167,631   167,631   167,631  0 %0 %
Other intangible assets  7,521   8,074   9,830  (7)%(23)%
Accrued interest receivable and other assets  121,190   118,134   121,467  3 %0 %
Total assets $ 5,263,024  $ 5,256,074  $ 5,311,837  0 %(1)%
               
LIABILITIES AND SHAREHOLDERS’ EQUITY              
Liabilities:              
Deposits:              
Demand, noninterest-bearing $1,187,320  $1,242,059  $1,319,844  (4)%(10)%
Demand, interest-bearing  928,246   925,100   1,064,638  0 %(13)%
Savings and money market  1,126,520   1,124,900   1,075,835  0 %5 %
Time deposits - under $250  39,046   38,105   44,520  2 %(12)%
Time deposits - $250 and over  203,886   200,739   171,852  2 %19 %
ICS/CDARS - interest-bearing demand, money market              
and time deposits  959,592   913,757   824,083  5 %16 %
Total deposits  4,444,610   4,444,660   4,500,772  0 %(1)%
Subordinated debt, net of issuance costs  39,577   39,539   39,425  0 %0 %
Accrued interest payable and other liabilities  99,638   95,579   117,970  4 %(16)%
Total liabilities  4,583,825   4,579,778   4,658,167  0 %(2)%
               
Shareholders’ Equity:              
Common stock  508,343   507,578   505,075  0 %1 %
Retained earnings  182,571   181,306   165,853  1 %10 %
Accumulated other comprehensive loss  (11,715)  (12,588)  (17,258) (7)%(32)%
Total shareholders' equity  679,199   676,296   653,670  0 %4 %
Total liabilities and shareholders’ equity $ 5,263,024  $ 5,256,074  $ 5,311,837  0 %(1)%
 


  End of Period:
CONSOLIDATED BALANCE SHEETS    June 30,     March 31,     December 31,     September 30,     June 30, 
(in $000’s, unaudited) 2024 2024
 2023
 2023
 2023
ASSETS               
Cash and due from banks $37,497  $32,543  $41,592  $40,076  $42,551 
Other investments and interest-bearing deposits               
in other financial institutions  610,763   508,816   366,537   605,476   468,951 
Securities available-for-sale, at fair value  273,043   404,474   442,636   457,194   486,058 
Securities held-to-maturity, at amortized cost  621,178   636,249   650,565   664,681   682,095 
Loans held-for-sale - SBA, including deferred costs  1,899   1,946   2,205   841   3,136 
Loans:               
Commercial  477,929   452,231   463,778   430,664   466,354 
Real estate:               
CRE - owner occupied  594,504   585,031   583,253   589,751   608,031 
CRE - non-owner occupied  1,283,323   1,271,184   1,256,590   1,208,324   1,147,313 
Land and construction  125,374   129,712   140,513   158,138   162,816 
Home equity  126,562   122,794   119,125   124,477   128,009 
Multifamily  268,968   269,263   269,734   253,129   244,959 
Residential mortgages  484,809   490,035   496,961   503,006   514,064 
Consumer and other  18,758   16,439   20,919   18,526   17,635 
Loans  3,380,227   3,336,689   3,350,873   3,286,015   3,289,181 
Deferred loan fees, net  (434)  (587)  (495)  (554)  (397)
Total loans, net of deferred fees  3,379,793   3,336,102   3,350,378   3,285,461   3,288,784 
Allowance for credit losses on loans  (47,954)  (47,888)  (47,958)  (47,702)  (47,803)
Loans, net  3,331,839   3,288,214   3,302,420   3,237,759   3,240,981 
Company-owned life insurance  80,153   80,007   79,489   79,607   79,940 
Premises and equipment, net  10,310   9,986   9,857   9,707   9,197 
Goodwill  167,631   167,631   167,631   167,631   167,631 
Other intangible assets  7,521   8,074   8,627   9,229   9,830 
Accrued interest receivable and other assets  121,190   118,134   122,536   131,106   121,467 
Total assets $ 5,263,024  $ 5,256,074  $ 5,194,095  $ 5,403,307  $ 5,311,837 
                
LIABILITIES AND SHAREHOLDERS’ EQUITY               
Liabilities:               
Deposits:               
Demand, noninterest-bearing $1,187,320  $1,242,059  $1,292,486  $1,243,501  $1,319,844 
Demand, interest-bearing  928,246   925,100   914,066   1,004,185   1,064,638 
Savings and money market  1,126,520   1,124,900   1,087,518   1,110,640   1,075,835 
Time deposits - under $250  39,046   38,105   38,055   43,906   44,520 
Time deposits - $250 and over  203,886   200,739   192,228   252,001   171,852 
ICS/CDARS - interest-bearing demand, money market               
and time deposits  959,592   913,757   854,105   921,224   824,083 
Total deposits  4,444,610   4,444,660   4,378,458   4,575,457   4,500,772 
Other short-term borrowings               
Subordinated debt, net of issuance costs  39,577   39,539   39,502   39,463   39,425 
Accrued interest payable and other liabilities  99,638   95,579   103,234   126,457   117,970 
Total liabilities  4,583,825   4,579,778   4,521,194   4,741,377   4,658,167 
                
Shareholders’ Equity:               
Common stock  508,343   507,578   506,539   505,692   505,075 
Retained earnings  182,571   181,306   179,092   173,707   165,853 
Accumulated other comprehensive loss  (11,715)  (12,588)  (12,730)  (17,469)  (17,258)
Total shareholders' equity  679,199   676,296   672,901   661,930   653,670 
Total liabilities and shareholders’ equity $ 5,263,024  $ 5,256,074  $ 5,194,095  $ 5,403,307  $ 5,311,837 
                


                 
  At or For the Quarter Ended: Percent Change From: 
CREDIT QUALITY DATA    June 30,      March 31,      June 30,     March 31,     June 30,  
(in $000’s, unaudited) 2024  2024  2023
 2024 2023 
Nonaccrual loans - held-for-investment $5,782  $5,920  $3,275  (2)%77 %
Loans over 90 days past due                
and still accruing  248   1,951   2,262  (87)%(89)%
Total nonperforming loans  6,030   7,871   5,537  (23)%9 %
Foreclosed assets          N/A  N/A  
Total nonperforming assets $6,030  $7,871  $5,537  (23)%9 %
Net charge-offs (recoveries) during the quarter $405  $254  $(270) 59 %250 %
Provision for credit losses on loans during the quarter $471  $184  $260  156 %81 %
Allowance for credit losses on loans $47,954  $47,888  $47,803  0 %0 %
Classified assets $33,605  $35,392  $30,500  (5)%10 %
Allowance for credit losses on loans to total loans  1.42 % 1.44 % 1.45 %(1)%(2)%
Allowance for credit losses on loans to total nonperforming loans  795.26 % 608.41 % 863.34 %31 %(8)%
Nonperforming assets to total assets  0.11 % 0.15 % 0.10 %(27)%10 %
Nonperforming loans to total loans  0.18 % 0.24 % 0.17 %(25)%6 %
Classified assets to Heritage Commerce Corp                
Tier 1 capital plus allowance for credit losses on loans  6 % 6 % 6 %0 %0 %
Classified assets to Heritage Bank of Commerce                
Tier 1 capital plus allowance for credit losses on loans  6 % 6 % 5 %0 %20 %
                 
OTHER PERIOD-END STATISTICS                     
(in $000’s, unaudited)                     
Heritage Commerce Corp:                
Tangible common equity (1) $504,047  $500,591  $476,209  1 %6 %
Shareholders’ equity / total assets  12.91 % 12.87 % 12.31 %0 %5 %
Tangible common equity / tangible assets (2)  9.91 % 9.85 % 9.27 %1 %7 %
Loan to deposit ratio  76.04 % 75.06 % 73.07 %1 %4 %
Noninterest-bearing deposits / total deposits  26.71 % 27.94 % 29.32 %(4)%(9)%
Total capital ratio  15.6 % 15.6 % 15.4 %0 %1 %
Tier 1 capital ratio  13.4 % 13.4 % 13.2 %0 %2 %
Common Equity Tier 1 capital ratio  13.4 % 13.4 % 13.2 %0 %2 %
Tier 1 leverage ratio  10.2 % 10.2 % 9.7 %0 %5 %
Heritage Bank of Commerce:                
Tangible common equity / tangible assets (2)  10.28 % 10.22 % 9.60 %1 %7 %
Total capital ratio  15.1 % 15.1 % 14.8 %0 %2 %
Tier 1 capital ratio  13.9 % 13.9 % 13.7 %0 %1 %
Common Equity Tier 1 capital ratio  13.9 % 13.9 % 13.7 %0 %1 %
Tier 1 leverage ratio  10.6 % 10.6 % 10.0 %0 %6 %


  
(1) This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets.
(2) This is a non-GAAP financial measure that 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    June 30,      March 31,      December 31,      September 30,      June 30,  
(in $000’s, unaudited) 2024  2024  2023  2023  2023
 
Nonaccrual loans - held-for-investment $5,782  $5,920  $6,818  $3,518  $3,275  
Loans over 90 days past due                    
and still accruing  248   1,951   889   1,966   2,262  
Total nonperforming loans  6,030   7,871   7,707   5,484   5,537  
Foreclosed assets                
Total nonperforming assets $6,030  $7,871  $7,707  $5,484  $5,537  
Net charge-offs (recoveries) during the quarter $405  $254  $33  $269  $(270) 
Provision for credit losses on loans during the quarter $471  $184  $289  $168  $260  
Allowance for credit losses on loans $47,954  $47,888  $47,958  $47,702  $47,803  
Classified assets $33,605  $35,392  $31,763  $31,062  $30,500  
Allowance for credit losses on loans to total loans  1.42 % 1.44 % 1.43 % 1.45 % 1.45 %
Allowance for credit losses on loans to total nonperforming loans  795.26 % 608.41 % 622.27 % 869.84 % 863.34 %
Nonperforming assets to total assets  0.11 % 0.15 % 0.15 % 0.10 % 0.10 %
Nonperforming loans to total loans  0.18 % 0.24 % 0.23 % 0.17 % 0.17 %
Classified assets to Heritage Commerce Corp                    
Tier 1 capital plus allowance for credit losses on loans  6 % 6 % 6 % 6 % 6 %
Classified assets to Heritage Bank of Commerce                    
Tier 1 capital plus allowance for credit losses on loans  6 % 6 % 5 % 5 % 5 %
                     
OTHER PERIOD-END STATISTICS                         
(in $000’s, unaudited)                         
Heritage Commerce Corp:                    
Tangible common equity (1) $504,047  $500,591  $496,643  $485,070  $476,209  
Shareholders’ equity / total assets  12.91 % 12.87 % 12.96 % 12.25 % 12.31 %
Tangible common equity / tangible assets (2)  9.91 % 9.85 % 9.90 % 9.28 % 9.27 %
Loan to deposit ratio  76.04 % 75.06 % 76.52 % 71.81 % 73.07 %
Noninterest-bearing deposits / total deposits  26.71 % 27.94 % 29.52 % 27.18 % 29.32 %
Total capital ratio  15.6 % 15.6 % 15.5 % 15.6 % 15.4 %
Tier 1 capital ratio  13.4 % 13.4 % 13.3 % 13.4 % 13.2 %
Common Equity Tier 1 capital ratio  13.4 % 13.4 % 13.3 % 13.4 % 13.2 %
Tier 1 leverage ratio  10.2 % 10.2 % 10.0 % 9.6 % 9.7 %
Heritage Bank of Commerce:                    
Tangible common equity / tangible assets (2)  10.28 % 10.22 % 10.26 % 9.62 % 9.60 %
Total capital ratio  15.1 % 15.1 % 14.9 % 15.0 % 14.8 %
Tier 1 capital ratio  13.9 % 13.9 % 13.8 % 13.9 % 13.7 %
Common Equity Tier 1 capital ratio  13.9 % 13.9 % 13.8 % 13.9 % 13.7 %
Tier 1 leverage ratio  10.6 % 10.6 % 10.4 % 10.0 % 10.0 %


  
(1) This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets.
(2) This is a non-GAAP financial measure that 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 
  June 30, 2024 March 31, 2024