Heritage Commerce Corp Reports Earnings of $1.9 Million for the First Quarter of 2020 as Merger Integration and Coronavirus Response Weigh on Results

Nachrichtenquelle: globenewswire
23.04.2020, 23:35  |  113   |   |   

SAN JOSE, Calif., April 23, 2020 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (Nasdaq: HTBK), the holding company (the “Company”) for Heritage Bank of Commerce (the “Bank”), today announced first quarter 2020 net income of $1.9 million, or $0.03 per average diluted common share, compared to $12.1 million, or $0.28 per average diluted common share, for the first quarter of 2019, and $5.7 million, or $0.10 per average diluted common share, for the fourth quarter of 2019.  Earnings for the first quarter of 2020 were impacted by the effect of our first quarter $13.3 million pre-tax current expected credit losses (“CECL”) related provision for credit losses on loans, driven by forecasted effects on economic activity from the Coronavirus pandemic, and $2.4 million of pre-tax merger-related costs, as discussed in more detail below.  All results are unaudited.

“The underlying results of our first quarter 2020 were solid, although overshadowed by the initial impact of the Coronavirus pandemic and economic outlook. Earnings for the quarter were supported by loan growth of 38% and total deposit growth of 28% from a year ago due to the Presidio Bank (“Presidio”) merger, along with a stable net interest margin of 4.25%.  However, going forward, we expect interest income and our net interest margin will come under pressure as the full effect of the lower interest rate environment is realized,” said Keith A. Wilton, President and Chief Executive Officer.  “Further, our first quarter of 2020 results were impacted by our CECL provision for credit losses on loans, as we proactively prepare for the economic effects of the pandemic.”  See “Coronavirus (COVID-19),” “Adoption of CECL,” and “Liquidity” below. 

“The Presidio systems and integration conversion was successfully completed in the first quarter of 2020, making this the largest merger in our Company’s history,” added Mr. Wilton.  “Merger-related costs reduced pre-tax earnings by $2.4 million in the first quarter of 2020, compared to $9.9 million in the fourth quarter of 2019.  We gained traction in the new markets we entered last year and are building strength in our traditional footprint in the greater San Francisco Bay market.”  The majority of the cost savings were implemented by the end of the first quarter of 2020.

Coronavirus (COVID-19)

On March 16, 2020, six counties in the San Francisco Bay Area, which account for most of the Bank’s market footprint, announced “Shelter-in-Place” orders for all of their residents.  At that time, these were the strictest measures of their kind in the United States and were followed on March 19, 2020 by a similar statewide order.  On March 31, 2020, the six counties extended and tightened their Shelter-in-Place restrictions which will now be kept in place until at least May 3, 2020.  On April 14, 2020, California’s governor announced that the state had no timeline for lifting its stay at home order but indicated that it would need to see a decline in the rate of spread of the virus before large-scale reopening can occur.  State and local health measures have immediately weighed on the economy, with California statewide initial jobless claims jumping to 660,996 for the week ending April 11, 2020 from 57,606 for the week ending March 14, 2020. In total, statewide initial jobless claims aggregated over 2.8 million for the four weeks ending April 11, 2020.

To provide financial relief and support to the economy, at the end of March, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The new law included the $349 billion Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) to fund short-term loans for small businesses.  The Company, which began taking loan applications from its small business clients immediately after the program began, received an overwhelming response.  As of April 16, 2020, when the SBA suspended the program, the Company had processed 597 PPP loan applications with potential outstanding balances of $225.3 million. The Company intends to continue to participate in the PPP loan program should additional funding become available.

In addition, with the March 13, 2020 declaration of a National State of Emergency and passage of the CARES Act, federal bank regulators announced guidance that offers temporary relief from troubled debt restructuring (“TDR”) accounting for loan payment deferrals for certain customers whose businesses are experiencing economic hardship due to Coronavirus. In response to these customer’s needs, we have made accommodations for initial payment deferrals of up to 90 days with the potential for up to an additional 90 days, if requested and depending on the circumstances. All applicable fees have been waived. As of April 16, 2020, we had received 301 requests for payment deferrals, with balances totaling approximately $158 million, or 6.3%, of our loan portfolio ranging across many different industries but primarily for dentists and physicians ($27 million) and commercial real estate ($107 million).  Requests involving commercial real estate had an average loan-to-value (“LTV”) of 37% and substantially all loans to borrowers requesting deferrals were supported by personal guarantees.

The Company’s loan portfolio consists of the following higher risk sectors, as defined by the Company, as of March 31, 2020:

       
    % of Total  
HIGHER RISK SECTORS   Loans  
Health care and social assistance:      
Offices of dentists    1.61
Other community housing services    1.05
Offices of physicians (except mental health specialists)    0.69
All others    1.81
Total health care and social assistance    5.16
Retail trade    4.10
Accommodation and food services      
Hotels (except casino hotels) and motels    0.92
Full-service restaurants    0.84
Limited-service restaurants    0.63
All others    0.51
Total accommodation and food services    2.90
Arts, entertainment, and recreation    1.08
Total higher risk sectors    13.24


Finally, we note that in June of 2019, the Company entered into a lease agreement for 54,910 square feet of office space in San Jose, California, commencing on February 1, 2020.  The Company was able to complete the move of its Bay View Funding office during the first quarter of 2020, and we had intended to move the main office of the Company during the second quarter of 2020 to this new location. However, due to delays and restrictions created by California’s and Santa Clara County’s Shelter-in-Place declarations because of the Coronavirus, we must delay the move to later in the year.

“We are closely monitoring the Coronavirus pandemic and have taken a number of steps to help protect the safety and well-being of our customers, employees and communities.  By March 15, 2020, we had enabled approximately 75% of our staff to work remotely, established social distancing protocols within our bank premises and branches for both employees and customers. All branches remain open to serve our customers and communities and we have provided increased compensation for personnel whose roles require that they serve customers in a branch,” said Mr. Wilton. “Through the duration of this pandemic, we will continue to adhere closely to the Coronavirus safety guidance provided by the Centers for Disease Control and Prevention (“CDC”) and the California Department of Public Health (“CDPH”), while maintaining the high level of service our clients are used to enjoying.  The Company had in place extensive business resumption plans, procedures and redundant systems which provided those employees working remotely with the resources needed to fully assist our clients with their banking needs. In addition, the recent passage of federal health and economic stimulus laws will help us support the many communities we serve.”

“We believe both the Company’s and the Bank’s strong capital base with a common equity Tier 1 risk-based capital ratio of 12.2% and 12.7%, respectively, substantial liquidity position, loan portfolio diversification and conservative underwriting practices will enable us to proactively address the challenges related to the Coronavirus that we are likely to face in the coming quarters,” added Mr. Wilton. “I would also add that from all members of the Board of Directors and myself, we couldn’t ask for a stronger and more resilient team of dedicated employees as we look ahead and move forward.”

Adoption of CECL

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this update replace the incurred loss impairment methodology in prior Generally Accepted Accounting Principles (“GAAP”) with a methodology that reflects expected life-of-loan credit losses and requires consideration of a broader range of reasonable and supportable information to estimate future credit loss estimates. As CECL encompasses all financial assets carried at amortized cost, the requirement that reserves be established based on an organization’s reasonable and supportable estimate of expected credit losses extends to held-to-maturity debt securities.  This update became effective for the Company on January 1, 2020. As of the implementation date of January 1, 2020, the Company recognized an increase of $8.6 million to its allowance for credit losses for loans. The majority of this increase is related to loan portfolios acquired in our recent acquisitions that under the previous methodology were covered by the purchase discount on acquired loans. The cumulative-effect adjustment as a result of the adoption of this guidance was recorded, net of tax of $2.4 million, as a $6.2 million reduction to retained earnings effective January 1, 2020.

While the CARES Act allows banks to delay implementation, Securities and Exchange Commission (“SEC”) guidance indicates that a delay in implementation will operationally require running both methodologies simultaneously with restatements required when CECL is implemented for those that delay.  Additionally, bank regulations have provided capital relief to banks that do implement CECL at January 1, 2020.

For CECL modeling purposes, the Company uses forecast data for the state of California including Gross Domestic Product (“GDP”) and unemployment projections provided by the California Economic Forecast (“CEF”, www.CaliforniaForecast.com). At January 1, 2020, the forecast for California GDP for 2020 was an annual increase in the low single digits and the forecasted California unemployment rate for 2020 was in the mid-single digits.  In March 2020, the CEF forecast was revised for GDP in the negative low single digits and peak unemployment in the low double digits.

The provision for credit losses on loans was $13.3 million for the first quarter of 2020.  There was a credit to the provision for loan losses of ($1.1) million for the first quarter of 2019, and a provision for loan losses of $3.2 million for the fourth quarter of 2019. At March 31, 2020, the allowance for credit losses on loans was $44.7 million, representing 1.75% of total loans, and 369.81% of nonperforming loans. The increase in the provision in the first quarter of 2020 was driven primarily by a significantly deteriorated economic outlook resulting from the Coronavirus pandemic. Most major economic forecasts, including CEF as noted above, now show a significant decline in California GDP and a substantial rise in unemployment for 2020. The three loan classes where the largest increases in reserves were recorded under the CECL loss rate methodology were investor-owned commercial real estate (“CRE”), construction & land, and commercial and industrial (“C&I”).  Ongoing impacts of the CECL methodology will be dependent upon changes in economic conditions and forecasts, originated and acquired loan portfolio composition, portfolio duration, and other factors.

As of the implementation date, there was a $58,000 allowance for losses recorded on the Company’s held-to-maturity municipal investment securities portfolio.  For the first quarter of 2020, there was a reduction of $3,000 to the allowance for losses on the Company’s held-to-maturity municipal investment securities portfolio.

We refer you to the “DRIVERS OF CHANGE IN ACLL UNDER CECL” table below for detail.

Liquidity

Our liquidity position refers to our ability to maintain cash flows sufficient to fund operations and to meet obligations and other commitments in a timely fashion. The Company manages liquidity to be able to meet unexpected sudden changes in levels of its assets or deposit liabilities without maintaining excessive amounts of balance sheet liquidity. At March 31, 2020, the Company had a strong liquidity position with $443.4 million in cash and cash equivalents and approximately $477.5 million in available borrowing capacity from various sources including the Federal Home Loan Bank (“FHLB”), the Federal Reserve Bank of San Francisco (“FRB”), Federal funds facilities with several financial institutions, and a line of credit with a correspondent bank. The Company also had $686.4 million (at fair value) in unpledged securities available at March 31, 2020. Our loan to deposit ratio increased to 75.86% at March 31, 2020, compared to 70.01% at March 31, 2019, and 74.20% at December 31, 2019.

First Quarter 2020 Highlights (as of, or for the periods ended March 31, 2020, compared to March 31, 2019, and December 31, 2019, except as noted):

Operating Results:

  • Diluted earnings per share were $0.03 for the first quarter of 2020, compared to $0.28 for the first quarter of 2019, and $0.10 for the fourth quarter of 2019.  

  • The following table indicates the ratios for the return on average tangible assets and the return on average tangible equity for the periods indicated:
                     
    For the Quarter Ended  
    March 31,    December 31,    March 31,   
    2020   2019   2019  
Return on average tangible assets   0.19 %     0.57 %     1.63 %    
Return on average tangible equity   1.91 %     5.96 %     17.90 %    
                           
  • Net interest income, before provision for credit losses on loans, increased 24% to $38.6 million for the first quarter of 2020, compared to net interest income, before loan losses of $31.0 million for the first quarter of 2019, and decreased (2%) from $39.2 million for the fourth quarter of 2019.

    • The fully tax equivalent (“FTE”) net interest margin contracted 13 basis points to 4.25% for the first quarter of 2020, from 4.38% for the first quarter of 2019, primarily due to a decline in the average yield of loans, investment securities, and overnight funds, partially offset by an increase in the average balance of loans, and an increase in the accretion of the loan discount into loan interest income from our merger with Presidio during the fourth quarter of 2019.  The FTE net interest margin expanded 10 basis points for the first quarter of 2020 from 4.15% for the fourth quarter of 2019, primarily due to a higher average loan balance, an increase in the yield on investment securities, and a lower average rate on the subordinated debt as a result of the redemption of $10.0 million of Presidio subordinated debt assumed during the merger with Presidio in the fourth quarter of 2019.

  • The following tables present the average balance of loans outstanding, interest income, and the average yield for the periods indicated:
                                   
    For the Quarter Ended   For the Quarter Ended  
    March 31, 2020   March 31, 2019  
    Average   Interest   Average   Average   Interest   Average  
(in $000’s, unaudited)   Balance   Income   Yield   Balance   Income   Yield  
Loans, core bank and asset-based lending   $  2,422,020     $  30,104    5.00 $  1,724,723     $  22,854    5.37
Bay View Funding factored receivables      47,470        2,877    24.38    48,502        2,953    24.69
Residential mortgages      33,075        230    2.80    36,770        251    2.77
Purchased CRE loans      27,340        249    3.66    33,344        294    3.58
Loan fair value mark / accretion      (16,180 )      1,322    0.22    (6,249 )      455    0.11
Total loans   $  2,513,725     $  34,782    5.57 $  1,837,090     $  26,807    5.92
                                   
  • The average yield on the total loan portfolio decreased to 5.57% for the first quarter of 2020, compared to 5.92% for the first quarter of 2019, primarily due to a decrease in the average yield on loans (core bank and asset-based lending), partially offset by an increase in the accretion of the loan purchase discount into loan interest income from the acquisitions, and an increase in the average balance loans (core bank and asset-based lending) primarily from the merger with Presidio.
                                   
    For the Quarter Ended   For the Quarter Ended  
    March 31, 2020   December 31, 2019  
    Average   Interest   Average   Average   Interest   Average  
(in $000’s, unaudited)   Balance   Income   Yield   Balance   Income   Yield  
Loans, core bank and asset-based lending   $  2,422,020     $  30,104    5.00 $  2,353,871     $  30,786    5.19
Bay View Funding factored receivables      47,470        2,877    24.38    45,045        2,888    25.44
Residential mortgages      33,075        230    2.80    33,867        237    2.78
Purchased CRE loans      27,340        249    3.66    28,407        238    3.32
Loan fair value mark / accretion      (16,180 )      1,322    0.22    (15,089 )      1,338    0.23
Total loans   $  2,513,725     $  34,782    5.57 $  2,446,101     $  35,487    5.76
                                   
  • The average yield on the total loan portfolio decreased to 5.57% for the first quarter of 2020 compared to 5.76% for the fourth quarter of 2019, primarily due to decreases in the prime rate on loans.
  • The total net purchase discount on loans from the Focus Business Bank (“Focus”) loan portfolio was $5.4 million on the acquisition date of August 20, 2015, of which $399,000 remains outstanding as of March 31, 2020.  The total net purchase discount on loans from the Tri-Valley loan portfolio was $2.6 million on the acquisition date of April 6, 2018, of which $1.5 million remains outstanding as of March 31, 2020.  The total net purchase discount on loans from the United American loan portfolio was $4.7 million on the acquisition date of May 4, 2018, of which $2.5 million remains outstanding as of March 31, 2020.  The total net purchase discount on loans from Presidio loan portfolio was $12.5 million on the Presidio merger date of October 11, 2019 (the “merger date”), of which $10.6 million remains outstanding as of March 31, 2020.  In aggregate, the remaining net purchase discount on total loans acquired was $15.0 million at March 31, 2020.

  • The average cost of total deposits was 0.22% for the first quarter of 2020, compared to 0.28% for the first quarter of 2019 and 0.26% for the fourth quarter of 2019.
  • There was a $13.3 million provision for credit losses on loans for the first quarter of 2020, as discussed in “Adoption of CECL” above.  There was a credit to the provision for loan losses of ($1.1) million for the first quarter of 2019, and a $3.2 million provision for loan losses for the fourth quarter of 2019.  The provision for loan losses for the fourth quarter of 2019 included $2.0 million related to certain non-impaired loans acquired at a premium from Presidio.  This premium was due to higher interest rates on the loans versus market interest rates at the time of the merger.  Due to the net premium on these loans, a provision for loan losses was required and it was not due to credit deterioration since the Presidio merger date.

  • Total noninterest income was $3.2 million for the first quarter of 2019 compared to $2.5 million for the first quarter of 2019, and $2.4 million for the fourth quarter of 2019, primarily due to a $791,000 gain on disposition of a foreclosed asset, partially offset by lower gains on sales of SBA loans.

  • Total noninterest expense for the first quarter of 2020 increased to $25.8 million, compared to $17.9 million for the first quarter of 2019, primarily due to higher salaries and employee benefits as a result of annual salary increases, and additional employees and operating costs added as a result of the Presidio merger.  Total noninterest expense for the first quarter of 2020 decreased to $25.8 million from $30.6 million for the fourth quarter of 2019, due to reduced merger-related costs for the Presidio merger compared to the fourth quarter of 2019. 

    • Earnings for the first quarter of 2020 and fourth quarter of 2019 were reduced by pre-tax merger-related costs, related to the merger with Presidio which was completed on the merger date, as follows: 
                   
    For the Quarter Ended
MERGER-RELATED COSTS   March 31,    December 31,    March 31, 
(in $000’s, unaudited)   2020   2019   2019
Salaries and employee benefits   $  356   $  6,580   $  —
Other      2,068      3,299      —
Total merger-related costs   $  2,424   $  9,879   $  —
                   
  • Full time equivalent employees were 337 at March 31, 2020, 309 at March 31, 2019, and 357 at December 31, 2019.  The decrease in full time equivalent employees at March 31, 2020, compared to December 31, 2019, was due to the completion of the Presidio systems conversions during the first quarter of 2020.

  • The efficiency ratio was 61.70% for the first quarter of 2020, compared to 53.47% for the first quarter of 2019, and 73.58% for the fourth quarter of 2019.
  • Income tax expense was $868,000 for the first quarter of 2020, compared to $4.5 million for the first quarter of 2019, and $2.1 million for the fourth quarter of 2019. The effective tax rate for the first quarter of 2020 increased to 31.8%, compared to 27.1% for the first quarter of 2019, and 26.9% for the fourth quarter of 2019, primarily due to an increase in tax expense for forfeited stock options and merger-related stock options.  The effective tax rate for the first quarter of 2020 would have been 26.8% without these items.

    • The difference in the effective tax rate for the periods reported compared to the combined Federal and state statutory tax rate of 29.6% is primarily the result of the Company’s investment in life insurance policies whose earnings are not subject to taxes, tax credits related to investments in low income housing limited partnerships (net of low income housing investment losses), and tax-exempt interest income earned on municipal bonds.

Balance Sheet Review, Capital Management and Credit Quality:

  • Total assets increased 31% to $4.08 billion at March 31, 2020, compared to $3.12 billion at March 31, 2019, primarily due to the Presidio merger. Total assets decreased (1%) from $4.11 billion at December 31, 2019.

  • Securities available-for-sale, at fair value, totaled $373.6 million at March 31, 2020, compared to $452.5 million at March 31, 2019, and $404.8 million at December 31, 2019.  At March 31, 2020, the Company’s securities available-for-sale portfolio was comprised of $251.8 million of agency mortgage-backed securities (all issued by U.S. Government sponsored entities), and $121.8 million of U.S. Treasury securities. The pre-tax unrealized gain on securities available-for-sale at March 31, 2020 was $9.4 million, compared to a pre-tax unrealized loss on securities available-for-sale of ($2.9) million at March 31, 2019, and a pre-tax unrealized gain on securities available-for-sale of $2.3 million at December 31, 2019.  All other factors remaining the same, when market interest rates are rising, the Company will experience a lower unrealized gain (or a higher unrealized loss) on the securities portfolio. Investment securities available-for-sale from Presidio totaled $45.1 million, at fair value, at the Presidio merger date.

    • During the first quarter of 2020, the Company sold $26.4 million of agency mortgage-backed securities available-for-sale, with a gain on sale of securities of $100,000. 

  • At March 31, 2020, securities held-to-maturity, at amortized cost, totaled $348.0 million, compared to $367.0 million at March 31, 2019, and $366.6 million at December 31, 2019.  At March 31, 2020, the Company’s securities held-to-maturity portfolio was comprised of $270.2 million of agency mortgage-backed securities, and $77.8 million of tax-exempt municipal bonds.

  • The loan portfolio remains well-diversified as reflected in the following table which summarizes the distribution of loans, excluding loans held-for-sale, and the percentage of distribution in each category for the periods indicated:
                                 
LOANS   March 31, 2020   December 31, 2019   March 31, 2019  
(in $000’s, unaudited)   Balance   % to Total   Balance   % to Total   Balance   % to Total  
Commercial   $  657,549      26 $  631,547      25 $  559,718      30
Real estate:                                
CRE      1,505,563      59    1,510,592      59    1,012,641      55
Land and construction      151,923      6    150,634      6    98,222      5
Home equity      165,159      6    175,252      7    118,448      6
Residential mortgages      45,474      2    46,256      2    49,786      3
Consumer      28,501      1    19,882      1    9,690      1
Total Loans      2,554,169      100    2,534,163      100    1,848,505      100
Deferred loan fees, net      (258 )    -      (319 )    —      (187 )    —  
Loans, net of deferred fees    $  2,553,911      100 $  2,533,844      100 $  1,848,318      100
                                       
  • Loans, excluding loans held-for-sale, increased $705.6 million or 38%, to $2.55 billion at March 31, 2020, compared to $1.85 billion at March 31, 2019, and increased $20.1 million or 1%, to $2.55 billion at March 31, 2020, compared to $2.53 billion at December 31, 2019.

  • C&I line usage was 36% at March 31, 2020, compared to 37% at March 31, 2019, and 35% at December 31, 2019.

  • At March 31, 2020, 35% of the CRE loan portfolio was secured by owner-occupied real estate.

  • The following table summarizes the allowance for credit losses on loans(1) for the periods indicated:
                     
    For the Quarter Ended  
ALLOWANCE FOR CREDIT LOSSES ON LOANS(1)   March 31,    December 31,    March 31,   
(in $000’s, unaudited)   2020     2019     2019    
Balance at beginning of period   $  23,285     $  25,895     $  27,848    
Charge-offs during the period      (673 )      (6,003 )      (226 )  
Recoveries during the period      251        170        757    
Net recoveries (charge-offs) during the period      (422 )      (5,833 )      531    
Impact of adopting Topic 326      8,570        —        —    
Provision for credit losses on loans during the period(2)      13,270        3,223        (1,061 )  
Balance at end of period   $  44,703     $  23,285     $  27,318    
                     
Total loans, net of deferred fees   $  2,553,911     $  2,533,844     $  1,848,318    
Total nonperforming loans   $  12,088     $  9,828     $  17,315    
Allowance for credit losses on loans to total loans(1)      1.75      0.92      1.48   %
Allowance for credit losses on loans to total nonperforming loans(1)      369.81      236.93      157.77   %
                     
(1)Allowance for credit losses on loans ("ACLL") at March 31, 2020, Allowance for loan losses ("ALLL") for the prior periods
(2)Provision for credit losses on loans for the quarter ended March 31, 2020, Provision (credit) for loan losses for the prior periods
 
  • The ACLL was 1.75% of total loans at March 31, 2020 and the ACLL to total nonperforming loans was 369.81% at March 31, 2020. The ALLL was 1.48% of total loans and the ALLL to nonperforming loans was 157.77% at March 31, 2019, and 0.92% and 236.93%, respectively at December 31, 2019.  See “Adoption of CECL” above.  The loans acquired from Presidio are included in total loans at March 31, 2020 and December 31, 2019.  Due to the addition of the Presidio loans at fair value with no allowance, the ALLL to total loans decreased at December 31, 2019, compared to March 31, 2019.  However, the Company provided an additional $2.0 million in provision for loan losses to increase the ALLL at December 31, 2019 for certain non-impaired loans acquired at a premium from Presidio.

  • The following table shows the results of adopting CECL for the first quarter of 2020:
       
DRIVERS OF CHANGE IN ACLL UNDER CECL    
(in $000’s, unaudited)    
ALLL at December 31, 2019   $  23,285  
Day 1 adjustment impact of adopting Topic 326      8,570  
Net (charge-offs) during the period      (422 )
Portfolio changes during the period      1,216  
Economic factors      12,054  
ACLL at March 31, 2020   $  44,703  
         
  • Net charge-offs totaled $422,000 for the first quarter of 2020, compared to net recoveries of $531,000 for the first quarter of 2019, and net charge-offs of $5.8 million for the fourth quarter of 2019.  Net charge-offs of $5.8 million for the fourth quarter of 2019 primarily consisted of three lending relationships totaling $5.5 million, including one large relationship which was previously disclosed and specifically reserved for during the second and third quarters of 2018.  The three lending relationships totaling $5.5 million in net charge-offs had a total of $4.7 million in specific reserves. 

  • The following is a breakout of nonperforming assets (“NPAs”) at the periods indicated:
                                 
    End of Period:  
NONPERFORMING ASSETS   March 31, 2020   December 31, 2019   March 31, 2019  
(in $000’s, unaudited)   Balance   % of Total   Balance   % of Total   Balance   % of Total  
CRE loans   $  7,346    61 $  5,094    52 $  6,633    38 %
Commercial loans      3,403    28    2,657    27    8,442    49 %
SBA loans      771    6    787    8    570    3 %
Restructured and loans over 90 days past due and still accruing      442    4    1,153    12    1,357    8 %
Home equity and consumer loans      126    1    137    1    313    2 %
Total nonperforming assets   $  12,088    100 $  9,828    100 $  17,315    100 %
                                 
  • NPAs totaled $12.1 million, or 0.30% of total assets, at March 31, 2020, compared to $17.3 million, or 0.56% of total assets, at March 31, 2019, and $9.8 million, or 0.24% of total assets, at December 31, 2019.

    • There were no foreclosed assets on the balance sheet at March 31, 2020, March 31, 2019, or December 31, 2019. 
  • Classified assets increased to $39.6 million, or 0.97% of total assets, at March 31, 2020, compared to $25.2 million, or 0.81% of total assets, at March 31, 2019, and $32.6 million, or 0.79% of total assets, at December 31, 2019.  The increase in classified assets for the first quarter of 2020, compared to the fourth quarter of 2019 was primarily due to two CRE secured and one commercial lending relationships that were moved to classified assets during the first quarter of 2020.
  • The following table summarizes the distribution of deposits and the percentage of distribution in each category for the periods indicated:       
                                 
DEPOSITS   March 31, 2020   December 31, 2019   March 31, 2019  
(in $000’s, unaudited)   Balance   % to Total   Balance   % to Total   Balance   % to Total  
Demand, noninterest-bearing   $  1,444,534    42 $  1,450,873    42 $  1,016,770    38 %
Demand, interest-bearing      810,425    24    798,375    23    704,996    27 %
Savings and money market      949,076    28    982,430    29    759,306    29 %
Time deposits — under $250      51,009    2    54,361    2    56,385    2 %
Time deposits — $250 and over      96,540    3    99,882    3    90,042    3 %
CDARS — interest-bearing demand,                                
money market and time deposits      15,055    1    28,847    1    12,745    1
Total deposits   $  3,366,639    100 $  3,414,768    100 $  2,640,244    100 %
                                 
  • Total deposits increased $726.4 million, or 28%, to $3.37 billion at March 31, 2020, compared to $2.64 billion at March 31, 2019, which included $673.1 million in deposits from Presidio, at fair value, and an increase of $53.3 million in the Company’s legacy deposits.  Total deposits decreased ($48.1) million or (1%) from $3.41 billion at December 31, 2019. 
      
  • Deposits, excluding all time deposits and CDARS deposits, increased $723.0 million, or 29%, to $3.20 billion at March 31, 2020, compared to $2.48 billion at March 31, 2019, which included $650.6 million in deposits from Presidio, at fair value, and an increase of $72.4 million in the Company’s legacy deposits.  Deposits, excluding all time deposits and CDARS deposits decreased ($27.6) million or (1%), compared to $3.23 billion at December 31, 2019.
  • The Company’s consolidated capital ratios exceeded regulatory guidelines and the Bank’s capital ratios exceeded the regulatory guidelines under the Basel III prompt corrective action (“PCA”) regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at March 31, 2020, as reflected in the following table:
                         
                Well-capitalized    
                Financial    
                Institution   Basel III
    Heritage   Heritage   Basel III PCA   Minimum
    Commerce   Bank of   Regulatory   Regulatory
CAPITAL RATIOS (unaudited)   Corp   Commerce   Guidelines   Requirement (1)
Total Risk-Based    14.7    14.0    10.0    10.5 %
Tier 1 Risk-Based    12.2    12.7    8.0    8.5 %
Common Equity Tier 1 Risk-Based    12.2    12.7    6.5    7.0 %
Leverage    10.0    10.5    5.0    4.0 %
                         

(1) Basel III minimum regulatory requirements for both the Company and the Bank include a 2.5% capital conservation buffer, except the leverage ratio.

  • The following table reflects the components of accumulated other comprehensive loss, net of taxes, for the periods indicated:
                   
ACCUMULATED OTHER COMPREHENSIVE LOSS   March 31,   December 31,   March 31,
(in $000’s, unaudited)   2020     2019     2019  
Unrealized gain (loss) on securities available-for-sale   $  6,299     $  1,242     $  (2,010 )
Remaining unamortized unrealized gain on securities                  
available-for-sale transferred to held-to-maturity      288        297        325  
Split dollar insurance contracts liability      (4,850 )      (4,835 )      (3,746 )
Supplemental executive retirement plan liability      (6,774 )      (6,842 )      (3,963 )
Unrealized gain on interest-only strip from SBA loans      328        360        407  
Total accumulated other comprehensive loss   $  (4,709 )   $  (9,778 )   $  (8,987 )
                   
  • Tangible equity was $384.5 million at March 31, 2020, compared to $283.3 million at March 31, 2019, and $388.9 million at December 31, 2019.  Tangible book value per share was $6.46 at March 31, 2020, compared to $6.54 at March 31, 2019, and $6.55 at December 31, 2019.

Heritage Commerce Corp, a bank holding company established in February 1998, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose, CA with full-service branches in Danville, Fremont, Gilroy, Hollister, Livermore, Los Altos, Los Gatos, Morgan Hill, Palo Alto, Pleasanton, Redwood City, San Francisco, San Jose, San Mateo, San Rafael, Sunnyvale, and Walnut Creek.  Heritage Bank of Commerce is an SBA Preferred Lender.  Bay View Funding, a subsidiary of Heritage Bank of Commerce, is based in San Jose, CA and provides business-essential working capital factoring financing to various industries throughout the United States.  For more information, please visit.

Forward-Looking Statement Disclaimer

These forward-looking statements are subject to various risks and uncertainties that may be outside our control and our actual results could differ materially from our projected results.  Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission (“SEC”), Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and the following: (1) 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; (2) 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; (3) our ability to anticipate interest rate changes and manage interest rate risk; (4) changes in inflation, interest rates, and market liquidity which may impact interest margins and impact funding sources; (5) volatility in credit and equity markets and its effect on the global economy; (6) our ability to effectively compete with other banks and financial services companies and the effects of competition in the financial services industry on our business; (7) our ability to achieve loan growth and attract deposits; (8) risks associated with concentrations in real estate related loans; (9) the relative strength or weakness of the commercial and real estate markets where our borrowers are located, including related asset and market prices; (10) other than temporary impairment charges to our securities portfolio; (11) changes in the level of nonperforming assets and charge offs and other credit quality measures, and their impact on the adequacy of the Company’s allowance for credit losses and the Company’s provision for credit losses; (12) 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; (13) regulatory limits on Heritage Bank of Commerce’s ability to pay dividends to the Company; (14) changes in our capital management policies, including those regarding business combinations, dividends, and share repurchases; (15) operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to industry changes in information technology systems, on which we are highly dependent; (16) our inability to attract, recruit, and retain qualified officers and other personnel could harm our ability to implement our strategic plan, impair our relationships with customers and adversely affect our business, results of operations and growth prospects; (17) the potential increase in reserves and allowance for loan loss as a result of the transition to the current expected credit loss standard (“CECL”) established by the Financial Accounting Standards Board to account for expected credit losses; (18) possible adjustment of the valuation of our deferred tax assets; (19) our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks such as data security breaches, “denial of service” attacks, “hacking” and identity theft; (20) inability of our framework to manage risks associated with our business, including operational risk and credit risk; (21) risks of loss of funding of Small Business Administration or SBA loan programs, or changes in those programs; (22) compliance with governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities , accounting and tax matters; (23) significant changes in applicable laws and regulations, including those concerning taxes, banking and securities; (24) effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; (25) costs and effects of legal and regulatory developments, including resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews; (26) availability of and competition for acquisition opportunities; (27) risks resulting from domestic terrorism; (28) risks of natural disasters (including earthquakes) and other events beyond our control; (29) the expected cost savings, synergies and other financial benefits from the Presidio Bank merger might not be realized within the expected time frames or at all; (30) the rapidly changing uncertainties related to the Coronavirus pandemic including, but not limited to, the potential adverse effect of the pandemic on the economy, our employees and customers, and our financial performance; and (31) 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

                             
    For the Quarter Ended:   Percent Change From:  
CONSOLIDATED INCOME STATEMENTS   March 31,   December 31,   March 31,   December 31,   March 31,  
(in $000’s, unaudited)   2020   2019     2019     2019     2019    
Interest income   $  40,942   $  42,471     $  33,449     (4 ) 22   %
Interest expense      2,362      3,242        2,407     (27 ) (2 ) %
Net interest income before provision                            
  for credit losses on loans(1)      38,580      39,229        31,042     (2 ) 24   %
Provision (credit) for credit losses on loans(1)      13,270      3,223        (1,061 )   312   1351   %
Net interest income after provision                            
  for credit losses on loans(1)      25,310      36,006        32,103     (30 ) (21 ) %
Noninterest income:                            
Service charges and fees on deposit accounts      969      1,140        1,161     (15 ) (17 ) %
Gain on the disposition of foreclosed assets      791      —        —     N/A     N/A    
Increase in cash surrender value of                            
  life insurance      458      405        330     13   39   %
Servicing income      183     156        191     17   % (4 ) %
Gain (loss) on sales of securities      100      (217 )      —     146   N/A  
Gain on sales of SBA loans      67      358        139     (81 ) (52 ) %
Other      625      551        647     13   (3 ) %
Total noninterest income      3,193      2,393        2,468     33   29   %
Noninterest expense:                            
Salaries and employee benefits      14,203      18,819        10,770     (25 ) 32   %
Occupancy and equipment      1,772      2,013        1,506     (12 ) 18   %
Professional fees      1,435      899        818     60   75   %
Other      8,364      8,895        4,824     (6 ) 73   %
Total noninterest expense      25,774      30,626        17,918     (16 ) 44   %
Income before income taxes      2,729      7,773        16,653     (65 ) (84 ) %
Income tax expense      868      2,088        4,507     (58 ) (81 ) %
Net income   $  1,861   $  5,685     $  12,146     (67 ) (85 ) %
                             
PER COMMON SHARE DATA                            
(unaudited)                            
Basic earnings per share   $  0.03   $  0.10     $  0.28     (70 ) (89 ) %
Diluted earnings per share   $  0.03   $  0.10     $  0.28     (70 ) (88 ) %
Weighted average shares outstanding - basic      59,286,927      57,168,605        43,108,208     4   38   %
Weighted average shares outstanding - diluted      60,194,025      58,361,976        43,670,341     3   38   %
Common shares outstanding at period-end      59,568,219      59,368,156        43,323,753     0   37   %
Dividend per share   $  0.13   $  0.12     $  0.12     8   8   %
Book value per share   $  9.59   $  9.71     $  8.74     (1 ) 10   %
Tangible book value per share   $  6.46   $  6.55     $  6.54     (1 ) (1 ) %
                             
KEY FINANCIAL RATIOS                            
(unaudited)                            
Annualized return on average equity      1.29    4.04      13.28   (68 ) (90 ) %
Annualized return on average tangible equity      1.91    5.96      17.90   (68 ) (89 ) %
Annualized return on average assets      0.19    0.55      1.58   (65 ) (88 ) %
Annualized return on average tangible assets      0.19    0.57      1.63   (67 ) (88 ) %
Net interest margin (fully tax equivalent)      4.25    4.15      4.38   2   (3 ) %
Efficiency ratio      61.70    73.58      53.47   (16 ) 15   %
                             
AVERAGE BALANCES                            
(in $000’s, unaudited)                            
Average assets   $  4,033,151   $  4,124,018     $  3,109,583     (2 ) 30   %
Average tangible assets   $  3,845,646   $  3,943,725     $  3,014,029     (2 ) 28   %
Average earning assets   $  3,665,151   $  3,762,239     $  2,885,591     (3 ) 27   %
Average loans held-for-sale   $  2,265   $  3,299     $  3,125     (31 ) (28 ) %
Average total loans   $  2,511,460   $  2,442,802     $  1,833,965     3   37   %
Average deposits   $  3,327,812   $  3,432,771     $  2,637,308     (3 ) 26   %
Average demand deposits - noninterest-bearing   $  1,438,944   $  1,452,893     $  1,024,142     (1 ) 41   %
Average interest-bearing deposits   $  1,888,868   $  1,979,878     $  1,613,166     (5 ) 17   %
Average interest-bearing liabilities   $  1,928,770   $  2,027,106     $  1,652,658     (5 ) 17   %
Average equity   $  579,051   $  558,478     $  370,792     4   56   %
Average tangible equity   $  391,546   $  378,185     $  275,238     4   42   %
                                     

(1)Provision for credit losses on loans for the quarter ended March 31, 2020, Provision for loan losses for the prior periods

                                 
    For the Quarter Ended:  
CONSOLIDATED INCOME STATEMENTS   March 31,   December 31,   September 30,   June 30,   March 31,  
(in $000’s, unaudited)   2020   2019     2019     2019     2019    
Interest income   $  40,942   $  42,471     $  33,250     $  33,489     $  33,449    
Interest expense      2,362      3,242        2,625        2,573        2,407    
Net interest income before provision                                
  for credit losses on loans(1)      38,580      39,229        30,625        30,916        31,042    
Provision (credit) for credit losses on loans(1)      13,270      3,223        (576 )      (740 )      (1,061 )  
Net interest income after provision                                
  for credit losses on loans(1)      25,310      36,006        31,201        31,656        32,103    
Noninterest income:                                
Service charges and fees on deposit accounts      969      1,140        1,032        1,177        1,161    
Gain on the disposition of foreclosed assets      791      —        —        —        —    
Increase in cash surrender value of                                
  life insurance      458      405        336        333        330    
Servicing income     183     156        139       150       191    
Gain (loss) on sales of securities      100      (217 )      330        548        —    
Gain on sales of SBA loans      67      358        156        36        139    
Other      625      551        625        521        647    
Total noninterest income      3,193      2,393        2,618        2,765        2,468    
Noninterest expense:                                
Salaries and employee benefits      14,203      18,819        10,467        10,698        10,770    
Occupancy and equipment      1,772      2,013        1,550        1,578        1,506    
Professional fees      1,435      899        789        753        818    
Other      8,364      8,895        5,103        5,416        4,824    
Total noninterest expense      25,774      30,626        17,909        18,445        17,918    
Income before income taxes      2,729      7,773        15,910        15,976        16,653    
Income tax expense      868      2,088        4,633        4,623        4,507    
Net income   $  1,861   $  5,685     $  11,277     $  11,353     $  12,146    
                                 
PER COMMON SHARE DATA                                
(unaudited)                                
Basic earnings per share   $  0.03   $  0.10     $  0.26     $  0.26     $  0.28    
Diluted earnings per share   $  0.03   $  0.10     $  0.26     $  0.26     $  0.28    
Weighted average shares outstanding - basic      59,286,927      57,168,605        43,258,983        43,202,562        43,108,208    
Weighted average shares outstanding - diluted      60,194,025      58,361,976        43,796,904        43,721,451        43,670,341    
Common shares outstanding at period-end      59,568,219      59,368,156        43,509,406        43,498,406        43,323,753    
Dividend per share   $  0.13   $  0.12     $  0.12     $  0.12     $  0.12    
Book value per share   $  9.59   $  9.71     $  9.09     $  8.92     $  8.74    
Tangible book value per share   $  6.46   $  6.55     $  6.92     $  6.75     $  6.54    
                                 
KEY FINANCIAL RATIOS                                
(unaudited)                                
Annualized return on average equity      1.29    4.04      11.44      11.96      13.28  
Annualized return on average tangible equity      1.91    5.96      15.08      15.94      17.90  
Annualized return on average assets      0.19    0.55      1.44      1.48      1.58  
Annualized return on average tangible assets      0.19    0.57      1.49      1.53      1.63  
Net interest margin (fully tax equivalent)      4.25    4.15      4.24      4.38      4.38  
Efficiency ratio      61.70    73.58      53.87      54.76      53.47  
                                 
AVERAGE BALANCES                                
(in $000’s, unaudited)                                
Average assets   $  4,033,151   $  4,124,018     $  3,103,043     $  3,070,043     $  3,109,583    
Average tangible assets   $  3,845,646   $  3,943,725     $  3,008,602     $  2,975,096     $  3,014,029    
Average earning assets   $  3,665,151   $  3,762,239     $  2,878,590     $  2,844,677     $  2,885,591    
Average loans held-for-sale   $  2,265   $  3,299     $  4,171     $  4,256     $  3,125    
Average total loans   $  2,511,460   $  2,442,802     $  1,851,669     $  1,831,218     $  1,833,965    
Average deposits   $  3,327,812   $  3,432,771     $  2,612,252     $  2,590,933     $  2,637,308    
Average demand deposits - noninterest-bearing   $  1,438,944   $  1,452,893     $  1,041,712     $  1,001,914     $  1,024,142    
Average interest-bearing deposits   $  1,888,868   $  1,979,878     $  1,570,540     $  1,589,019     $  1,613,166    
Average interest-bearing liabilities   $  1,928,770   $  2,027,106     $  1,610,168     $  1,628,554     $  1,652,658    
Average equity   $  579,051   $  558,478     $  391,086     $  380,605     $  370,792    
Average tangible equity   $  391,546   $  378,185     $  296,645     $  285,658     $  275,238    
                                         

(1)Provision for credit losses on loans for the quarter ended March 31, 2020, Provision for loan losses for the prior periods

                             
    End of Period:   Percent Change From:  
CONSOLIDATED BALANCE SHEETS   March 31,    December 31,   March 31,    December 31,   March 31,   
(in $000’s, unaudited)   2020     2019     2019     2019     2019    
ASSETS                            
Cash and due from banks   $  36,998     $  49,447     $  38,699     (25 ) (4 ) %
Other investments and interest-bearing deposits                            
  in other financial institutions      406,399        407,923        196,278     0   107   %
Securities available-for-sale, at fair value      373,570        404,825        452,521     (8 ) (17 ) %
Securities held-to-maturity, at amortized cost      348,044        366,560        367,023     (5 ) (5 ) %
Loans held-for-sale - SBA, including deferred costs      2,415        1,052        3,216     130   (25 ) %
Loans:                            
Commercial      657,549        631,547        559,718     4   17   %
Real estate:                            
CRE      1,505,563        1,510,592        1,012,641     0   49   %
Land and construction      151,923        150,634        98,222     1   55   %
Home equity      165,159        175,252        118,448     (6 ) 39   %
Residential mortgages      45,474        46,256        49,786     (2 ) (9 ) %
Consumer      28,501        19,882        9,690     43   194   %
Loans      2,554,169        2,534,163        1,848,505     1   38   %
Deferred loan fees, net      (258 )      (319 )      (187 )   (19 ) 38   %
Total loans, net of deferred fees      2,553,911        2,533,844        1,848,318     1   38   %
Allowance for credit losses on loans(1)      (44,703 )      (23,285 )      (27,318 )   92   64   %
Loans, net      2,509,208        2,510,559        1,821,000     0   38   %
Company-owned life insurance      76,485        76,027        62,189     1   23   %
Premises and equipment, net      9,025        8,250        6,998     9   29   %
Goodwill      167,371        167,420        83,753     0   100   %
Other intangible assets      19,557        20,415        11,454     (4 ) 71   %
Accrued interest receivable and other assets      129,090        96,985        72,746     33   77   %
Total assets   $  4,078,162     $  4,109,463     $  3,115,877     (1 ) 31   %
                             
LIABILITIES AND SHAREHOLDERS’ EQUITY                            
Liabilities:                            
Deposits:                            
Demand, noninterest-bearing   $  1,444,534     $  1,450,873     $  1,016,770     0   42   %
Demand, interest-bearing      810,425        798,375        704,996     2   15   %
Savings and money market      949,076        982,430        759,306     (3 ) 25   %
Time deposits-under $250      51,009        54,361        56,385     (6 ) (10 ) %
Time deposits-$250 and over      96,540        99,882        90,042     (3 ) 7   %
CDARS - money market and time deposits      15,055        28,847        12,745     (48 ) 18   %
Total deposits      3,366,639        3,414,768        2,640,244     (1 ) 28   %
Subordinated debt, net of issuance costs      39,600        39,554        39,414     0   0   %
Other short-term borrowings      —        328        —     (100 )   N/A    
Accrued interest payable and other liabilities      100,482        78,105        57,703     29   74   %
Total liabilities      3,506,721        3,532,755        2,737,361     (1 ) 28   %
                             
Shareholders’ Equity:                            
Common stock      491,347        489,745        301,550     0   63   %
Retained earnings      84,803        96,741        85,953     (12 ) (1 ) %
Accumulated other comprehensive loss      (4,709 )      (9,778 )      (8,987 )   (52 ) 48   %
Total Shareholders' Equity      571,441        576,708        378,516     (1 ) 51   %
  Total liabilities and shareholders’ equity   $  4,078,162     $  4,109,463     $  3,115,877     (1 ) 31   %
                                       

(1)Allowance for credit losses on loans at March 31, 2020, Allowance for loan losses for the prior periods

                               
    End of Period:
CONSOLIDATED BALANCE SHEETS   March 31,    December 31,   September 30,   June 30,   March 31, 
(in $000’s, unaudited)   2020     2019     2019     2019     2019  
ASSETS                              
Cash and due from banks   $  36,998     $  49,447     $  48,121     $  36,302     $  38,699  
Other investments and interest-bearing deposits                              
  in other financial institutions      406,399        407,923        367,662        239,710        196,278  
Securities available-for-sale, at fair value      373,570        404,825        333,101        383,156        452,521  
Securities held-to-maturity, at amortized cost      348,044        366,560        342,033        351,399        367,023  
Loans held-for-sale - SBA, including deferred costs      2,415        1,052        3,571        5,202        3,216  
Loans:                              
Commercial      657,549        631,547        528,060        567,529        559,718  
Real estate:                              
CRE      1,505,563        1,510,592        1,080,235        1,037,885        1,012,641  
Land and construction      151,923        150,634        96,610        97,297        98,222  
Home equity      165,159        175,252        111,610        116,057        118,448  
Residential mortgages      45,474        46,256        47,276        48,944        49,786  
Consumer      28,501        19,882        11,701        10,279        9,690  
Loans      2,554,169        2,534,163        1,875,492        1,877,991        1,848,505  
Deferred loan fees, net      (258 )      (319 )      (105 )      (224 )      (187 )
Total loans, net of deferred fees      2,553,911        2,533,844        1,875,387        1,877,767        1,848,318  
Allowance for credit losses on loans(1)      (44,703 )      (23,285 )      (25,895 )      (26,631 )      (27,318 )
Loans, net      2,509,208        2,510,559        1,849,492        1,851,136        1,821,000  
Company-owned life insurance      76,485        76,027        62,858        62,522        62,189  
Premises and equipment, net      9,025        8,250        6,849        6,975        6,998  
Goodwill      167,371        167,420        83,753        83,753        83,753  
Other intangible assets      19,557        20,415        10,346        10,900        11,454  
Accrued interest receivable and other assets      129,090        96,985        74,685        76,976        72,746  
Total assets   $  4,078,162     $  4,109,463     $  3,182,471     $  3,108,031     $  3,115,877  
                               
LIABILITIES AND SHAREHOLDERS’ EQUITY                              
Liabilities:                              
Deposits:                              
Demand, noninterest-bearing   $  1,444,534     $  1,450,873     $  1,094,953     $  994,082     $  1,016,770  
Demand, interest-bearing      810,425        798,375        666,054        682,114        704,996  
Savings and money market      949,076        982,430        761,471        788,832        759,306  
Time deposits-under $250      51,009        54,361        53,560        53,351        56,385  
Time deposits-$250 and over      96,540        99,882        95,543        88,519        90,042  
CDARS - money market and time deposits      15,055        28,847        17,409        15,575        12,745  
Total deposits      3,366,639        3,414,768        2,688,990        2,622,473        2,640,244  
Subordinated debt, net of issuance costs      39,600        39,554        39,507        39,461        39,414  
Other short-term borrowings      —        328        —        —        —  
Accrued interest payable and other liabilities      100,482        78,105        58,628        57,989        57,703  
Total liabilities      3,506,721        3,532,755        2,787,125        2,719,923        2,737,361  
                               
Shareholders’ Equity:                              
Common stock      491,347        489,745        302,983        302,305        301,550  
Retained earnings      84,803        96,741        98,161        92,105        85,953  
Accumulated other comprehensive loss      (4,709 )      (9,778 )      (5,798 )      (6,302 )      (8,987 )
  Total Shareholders' Equity      571,441        576,708        395,346        388,108        378,516  
  Total liabilities and shareholders’ equity   $  4,078,162     $  4,109,463     $  3,182,471     $  3,108,031     $  3,115,877  
                               

(1)Allowance for credit losses on loans at March 31, 2020, Allowance for loan losses for the prior periods

                             
    End of Period:   Percent Change From:  
CREDIT QUALITY DATA   March 31,    December 31,   March 31,    December 31,   March 31,   
(in $000’s, unaudited)   2020   2019   2019     2019     2019    
Nonaccrual loans - held-for-investment   $  11,646   $  8,675   $  15,958     34   (27 ) %
Restructured and loans over 90 days past due                            
  and still accruing      442      1,153      1,357     (62 ) (67 ) %
  Total nonperforming loans      12,088      9,828      17,315     23   (30 ) %
Foreclosed assets      —      —      —     N/A     N/A    
Total nonperforming assets   $  12,088   $  9,828   $  17,315     23   (30 ) %
Other restructured loans still accruing   $  103   $  436   $  201     (76 ) (49 ) %
Net charge-offs (recoveries) during the quarter   $  422   $  5,833   $  (531 )   (93 ) 179   %
Provision for credit losses on loans during the quarter(1)   $  13,270   $  3,223   $  (1,061 )   312   1351   %
Adoption of Topic 326   $  8,570   $  —   $  —     N/A     N/A   %
Allowance for credit losses on loans(2)   $  44,703   $  23,285   $  27,318     92   64   %
Classified assets   $  39,603   $  32,579   $  25,176     22   57   %
Allowance for credit losses on loans to total loans(2)      1.75    0.92    1.48   90   18   %
Allowance for credit losses on loans to total nonperforming loans(2)      369.81    236.93    157.77   56   134   %
Nonperforming assets to total assets      0.30    0.24    0.56   25   (46 ) %
Nonperforming loans to total loans      0.47    0.39    0.94   21   (50 ) %
Classified assets to Heritage Commerce Corp                            
  Tier 1 capital plus allowance for credit losses on loans(2)      9    8    8   13   13   %
Classified assets to Heritage Bank of Commerce                            
  Tier 1 capital plus allowance for credit losses on loans(2)      9    7    8   29   13   %
                             
OTHER PERIOD-END STATISTICS                            
(in $000’s, unaudited)                            
Heritage Commerce Corp:                            
Tangible common equity (3)   $  384,513   $  388,873   $  283,309     (1 ) 36   %
Shareholders’ equity / total assets      14.01    14.03    12.15   0   15   %
Tangible common equity / tangible assets (4)      9.88    9.92    9.38   0   5   %
Loan to deposit ratio      75.86    74.20    70.01   2   8   %
Noninterest-bearing deposits / total deposits      42.91    42.49    38.51   1   11   %
Total risk-based capital ratio      14.7    14.6    15.6   1   (6 ) %
Tier 1 risk-based capital ratio      12.2    12.5    12.6   (2 ) (3 ) %
Common Equity Tier 1 risk-based capital ratio      12.2    12.5    12.6   (2 ) (3 ) %
Leverage ratio      10.0    9.8    9.5   2   5   %
Heritage Bank of Commerce:                            
Total risk-based capital ratio      14.0    13.9    14.6   1   (4 ) %
Tier 1 risk-based capital ratio      12.7    13.1    13.4   (3 ) (5 ) %
Common Equity Tier 1 risk-based capital ratio      12.7    13.1    13.4   (3 ) (5 ) %
Leverage ratio      10.5    10.2    10.1   3   4   %
                             

      (1) Provision (credit) for credit losses on loans for the quarter ended March 31, 2020, Provision (credit) for loan losses for the prior periods
      (2) Allowance for credit losses on loans at March 31, 2020, Allowance for loan losses for the prior periods
      (3) Represents shareholders' equity minus goodwill and other intangible assets
      (4) Represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets    

                                 
    End of Period:  
CREDIT QUALITY DATA   March 31,    December 31,   September 30,   June 30,   March 31,   
(in $000’s, unaudited)   2020   2019   2019     2019     2019    
Nonaccrual loans - held-for-investment   $  11,646   $  8,675   $  13,638     $  15,695     $  15,958    
Restructured and loans over 90 days past due                                
  and still accruing      442      1,153      609        1,323        1,357    
  Total nonperforming loans      12,088      9,828      14,247        17,018        17,315    
Foreclosed assets      —      —      —        —        —    
Total nonperforming assets   $  12,088   $  9,828   $  14,247     $  17,018     $  17,315    
Other restructured loans still accruing   $  103   $  436   $  247     $  175     $  201    
Net charge-offs (recoveries) during the quarter   $  422   $  5,833   $  160     $  (53 )   $  (531 )  
Provision for credit losses on loans during the quarter(1)   $  13,270   $  3,223   $  (576 )   $  (740 )   $  (1,061 )  
Adoption of Topic 326   $  8,570   $  —   $  —     $  —     $  —    
Allowance for credit losses on loans(2)   $  44,703   $  23,285   $  25,895     $  26,631     $  27,318    
Classified assets   $  39,603   $  32,579   $  20,225     $  31,176     $  25,176    
Allowance for credit losses on loans to total loans(2)      1.75    0.92    1.38      1.42      1.48  
Allowance for credit losses on loans to total nonperforming loans(2)      369.81    236.93    181.76      156.49      157.77  
Nonperforming assets to total assets      0.30    0.24    0.45      0.55      0.56  
Nonperforming loans to total loans      0.47    0.39    0.76      0.91      0.94  
Classified assets to Heritage Commerce Corp                                
  Tier 1 capital plus allowance for credit losses on loans(2)      9    8    6      10      8  
Classified assets to Heritage Bank of Commerce                                
  Tier 1 capital plus allowance for credit losses on loans(2)      9    7    6      9      8  
                                 
OTHER PERIOD-END STATISTICS                                
(in $000’s, unaudited)                                
Heritage Commerce Corp:                                
Tangible common equity (3)   $  384,513   $  388,873   $  301,247     $  293,455     $  283,309    
Shareholders’ equity / total assets      14.01    14.03    12.42      12.49      12.15  
Tangible common equity / tangible assets (4)      9.88    9.92    9.75      9.74      9.38  
Loan to deposit ratio      75.86    74.20    69.74      71.60      70.01  
Noninterest-bearing deposits / total deposits      42.91    42.49    40.72      37.91      38.51  
Total risk-based capital ratio      14.7    14.6    16.2      15.9      15.6  
Tier 1 risk-based capital ratio      12.2    12.5    13.3      13.0      12.6  
Common Equity Tier 1 risk-based capital ratio      12.2    12.5    13.3      13.0      12.6  
Leverage ratio      10.0    9.8    10.0      9.9      9.5  
Heritage Bank of Commerce:                                
Total risk-based capital ratio      14.0    13.9    15.2      14.9      14.6  
Tier 1 risk-based capital ratio      12.7    13.1    14.1      13.7      13.4  
Common Equity Tier 1 risk-based capital ratio      12.7    13.1    14.1      13.7      13.4  
Leverage ratio      10.5    10.2    10.6      10.5      10.1  

      (1) Provision for credit losses on loans for the quarter ended March 31, 2020, Provision (credit) for loan losses for the prior periods
      (2) Allowance for credit losses on loans at March 31, 2020, Allowance for loan losses for the prior periods
      (3) Represents shareholders' equity minus goodwill and other intangible assets
      (4) 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  
    March 31, 2020   March 31, 2019  
          Interest   Average         Interest   Average  
NET INTEREST INCOME AND NET INTEREST MARGIN   Average   Income/   Yield/   Average   Income/   Yield/  
(in $000’s, unaudited)   Balance   Expense   Rate   Balance   Expense   Rate  
Assets:                                  
Loans, gross (1)(2)   $  2,513,725   $  34,782      5.57 $  1,837,090   $  26,807      5.92 %
Securities - taxable     670,299     3,948      2.37    741,288      4,509      2.47 %
Securities - exempt from Federal tax (3)      80,369     647      3.24    85,943      694      3.27 %
Other investments and interest-bearing deposits                                  
  in other financial institutions     400,758     1,701      1.71    221,270      1,585      2.91 %
Total interest earning assets (3)      3,665,151      41,078      4.51    2,885,591      33,595      4.72 %
Cash and due from banks      44,539                37,207            
Premises and equipment, net      8,607                7,090            
Goodwill and other intangible assets      187,505                95,554            
Other assets      127,349                84,141            
Total assets   $  4,033,151             $  3,109,583            
                                   
Liabilities and shareholders’ equity:                                  
Deposits:                                  
Demand, noninterest-bearing   $  1,438,944             $  1,024,142            
                                   
Demand, interest-bearing      800,800      542      0.27    701,702      618      0.36 %
Savings and money market      920,422      914      0.40    751,191      907      0.49 %
Time deposits - under $100      18,777      22      0.47    20,380      21      0.42 %
Time deposits - $100 and over      132,314      305      0.93    126,571      288      0.92 %
CDARS - money market and time deposits      16,555      2      0.05    13,322      2      0.06 %
Total interest-bearing deposits      1,888,868      1,785      0.38    1,613,166      1,836      0.46 %
Total deposits      3,327,812      1,785      0.22    2,637,308      1,836      0.28 %
                                   
Subordinated debt, net of issuance costs      39,571      577      5.86    39,386      571     5.88 %
Short-term borrowings      331      —     0.00    106      —     0.00 %
Total interest-bearing liabilities      1,928,770      2,362      0.49    1,652,658      2,407      0.59 %
Total interest-bearing liabilities and demand,                                   
  noninterest-bearing / cost of funds      3,367,714      2,362      0.28    2,676,800      2,407      0.36 %
Other liabilities      86,386                61,991            
Total liabilities      3,454,100                2,738,791            
Shareholders’ equity      579,051                370,792            
Total liabilities and shareholders’ equity   $  4,033,151             $  3,109,583            
                                   
Net interest income (3) / margin            38,716      4.25          31,188      4.38 %
Less tax equivalent adjustment (3)            (136 )                (146 )      
Net interest income         $  38,580               $  31,042        
                                       

 

(1) Includes loans held-for-sale.  Nonaccrual loans are included in average balance.
(2) Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $139,000 for the first quarter of 2020, compared to $91,000 for the first quarter of 2019.
(3) Reflects the fully tax equivalent adjustment for Federal tax-exempt income based on a 21%.

                                   
    For the Quarter Ended   For the Quarter Ended  
    March 31, 2020   December 31, 2019  
          Interest   Average         Interest   Average  
NET INTEREST INCOME AND NET INTEREST MARGIN   Average   Income/   Yield/   Average   Income/   Yield/  
(in $000’s, unaudited)   Balance   Expense   Rate   Balance   Expense   Rate  
Assets:                                  
Loans, gross (1)(2)   $  2,513,725   $  34,782      5.57 $  2,446,101   $  35,487      5.76
Securities - taxable      670,299      3,948      2.37    653,623      3,687      2.24
Securities - exempt from Federal tax (3)      80,369      647      3.24    82,034      663      3.21
Other investments and interest-bearing deposits                                  
  in other financial institutions      400,758      1,701      1.71    580,481      2,773      1.90
Total interest earning assets (3)      3,665,151      41,078      4.51    3,762,239      42,610      4.49
Cash and due from banks      44,539                48,313            
Premises and equipment, net      8,607                8,497            
Goodwill and other intangible assets      187,505                180,293            
Other assets      127,349                124,676            
Total assets   $  4,033,151             $  4,124,018            
                                   
Liabilities and shareholders’ equity:                                  
Deposits:                                  
Demand, noninterest-bearing   $  1,438,944             $  1,452,893            
                                   
Demand, interest-bearing      800,800      542      0.27    789,465      600      0.30
Savings and money market      920,422      914      0.40    1,009,880      1,283      0.50
Time deposits - under $100      18,777      22      0.47    19,613      28      0.57
Time deposits - $100 and over      132,314      305      0.93    143,095      373      1.03
CDARS - money market and time deposits      16,555      2      0.05    17,825      2      0.04
Total interest-bearing deposits      1,888,868      1,785      0.38    1,979,878      2,286      0.46
Total deposits      3,327,812      1,785      0.22    3,432,771      2,286      0.26
                                   
Subordinated debt, net of issuance costs      39,571      577      5.86    46,758      955     8.10
Short-term borrowings      331      —     0.00    470      1     0.84
Total interest-bearing liabilities      1,928,770      2,362      0.49    2,027,106      3,242      0.63
Total interest-bearing liabilities and demand,                                   
  noninterest-bearing / cost of funds      3,367,714      2,362      0.28    3,479,999      3,242      0.37
Other liabilities      86,386                85,541            
Total liabilities      3,454,100                3,565,540            
Shareholders’ equity      579,051                558,478            
Total liabilities and shareholders’ equity   $  4,033,151             $  4,124,018            
                                   
Net interest income (3) / margin            38,716      4.25          39,368      4.15
Less tax equivalent adjustment (3)            (136 )                (139 )      
Net interest income         $  38,580               $  39,229        
                                   

(1) Includes loans held-for-sale.  Nonaccrual loans are included in average balance.
(2) Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $139,000 for the first quarter of 2020, compared to $90,000 for the fourth quarter of 2019.
(3) Reflects the fully tax equivalent adjustment for Federal tax-exempt income based on a 21%.

Heritage Commerce Aktie jetzt ab 0€ handeln - auf Smartbroker.de



Diesen Artikel teilen

0 Kommentare

Schreibe Deinen Kommentar

Bitte melden Sie sich an, um zu kommentieren. Anmelden | Registrieren

 

Disclaimer

Meistgelesene Nachrichten des Autors

Titel
Titel
Titel
Titel