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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.
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.