Heritage Commerce Corp Reports Earnings of $11.2 Million for the Third Quarter of 2020

Nachrichtenquelle: globenewswire
22.10.2020, 23:53  |  120   |   |   

SAN JOSE, Calif., Oct. 22, 2020 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (Nasdaq: HTBK), the holding company (the “Company”) for Heritage Bank of Commerce (the “Bank”), today announced third quarter 2020 net income of $11.2 million, or $0.19 per average diluted common share, compared to $11.3 million, or $0.26 per average diluted common share, for the third quarter of 2019, and $10.6 million, or $0.18 per average diluted common share, for the second quarter of 2020.  For the nine months ended September 30, 2020, net income was $23.7 million, or $0.39 per average diluted common share, compared to $34.8 million, or $0.80 per average diluted common share, for the nine months ended September 30, 2019. All results are unaudited.

“We delivered solid earnings in the third quarter of 2020 against the backdrop of an economy affected by the Coronavirus pandemic,” said Keith A. Wilton, President and Chief Executive Officer.  “In the face of these challenges, we continued to work diligently to support our customers, communities and employees while prudently managing risk.  Our participation in the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) in the prior quarters helped us in this capacity.  Loan and deposit trends remained steady and our noninterest income increased by 25% from the preceding quarter, primarily due to a $400,000 gain on sale of SBA loans and a $310,000 gain realized on a warrant that we exercised.  As anticipated, our net interest margin contracted during the quarter following the 150 basis point rate reduction by the Federal Reserve Bank earlier in the year and the low interest rates on recently funded SBA PPP loans.”

“Credit quality metrics remained stable, and we are particularly encouraged by the fact that of the $186.6 million of initial COVID-19 related loan deferrals, $145.3 million have resumed payments as of September 30, 2020,” said Mr. Wilton. “Of the loans remaining in deferment, most are backed by some form of real estate or personal guarantees.  As well, the provision for credit losses was a modest $197,000 for the third quarter of 2020. The allowance for credit losses on loans (“ACLL”) to total loans was 1.68%, and the ACLL to total loans, excluding PPP loans, was 1.91% at September 30, 2020.”

“Our regulatory capital position held relatively steady and remained healthy at the end of the third quarter of 2020. Our capital base serves as the foundation of the Bank’s financial condition and the basis of security for our banking customers,” stated Mr. Wilton.  “Total risk-based capital ratio and leverage ratio for the Company (consolidated) was 16.0% and 9.3%, respectively, and 15.2% and 9.7%, respectively, for the Bank, at September 30, 2020.”

“As previously announced, in the third quarter of 2020, we relocated our corporate headquarters, San Jose Branch and factoring subsidiary, Bay View Funding, to 224 Airport Parkway, San Jose, CA,” commented Mr. Wilton.  “This new facility allows us to cost effectively consolidate many of the Bank’s dispersed operating units into a single location to better support our customers, community partners and the entire Heritage organization.”

Coronavirus (COVID-19) Weighs on Local Communities and Our Economy

The overall impact of the pandemic on our local economy and communities continues to be felt.  In our seven county Bay Area market, 331,000 jobs (9.2%) have been lost since the end of February 2020. The unemployment rate in the seven Bay Area counties we serve fell to 8.1% in September, down from 12.8% in April, but still higher than the 2.7% in February 2020. 

“We continue to monitor all state and local developments and have taken a number of steps to protect our employees and support our customers impacted by COVID-19,” added Mr. Wilton. “Based on our strong capital position, diversified loan portfolio, conservative underwriting standards, liquidity position, and our dedicated team of outstanding employees, we believe we will be able to continue to successfully navigate through these uncertain times and emerge stronger from the current crisis.”

In response to two economic stimulus laws passed by Congress in the first half of the year, Heritage Bank of Commerce funded 1,105 PPP loans, with total principal balances of $333.4 million.  During the second and third quarters of 2020, PPP loan pay offs totaled $9.8 million and the Bank ended the third quarter of 2020 with $323.6 million in outstanding PPP loan balances.  These loans generated $1.4 million in interest income and $2.2 million in deferred fee income, which were partially offset by ($245,000) in deferred costs expensed during the second and third quarters of 2020.  At September 30, 2020, total loans included deferred fees on PPP loans of $9.0 million and deferred costs of $995,000. 

In accordance with new accounting guidance issued earlier this year by federal bank regulators, the Bank made accommodations for initial payment deferrals for a number of customers of up to 90 days, generally, with the potential, upon application, of an additional 90 days of payment deferral (180 days maximum). The Bank also waived all normal applicable fees. The following table shows the deferments at September 30, 2020 by category:

                            % of
      Underlying Collateral       Total
                            Non-PPP
NON-SBA LOANS           Business     Real         Related
(in $000’s, unaudited)     Unsecured     Assets     Estate     Total   Loans(3)
                             
Regular Payments Resumed   $  55   $  35,694   $  109,557   $  145,306   6%
Initial Deferments(1)      -      962      17,334      18,296   1%
2nd Deferments(2)      -      3,503      19,553      23,056   1%
Total   $  55   $  40,159   $  146,444   $  186,658   8%
                             
(1) Initial deferments were generally for 3 months                            
(2) 2nd deferments were for an additional 3 months                            
(3) Total Non-PPP Loans as of September 30, 2020                            

The Bank had elected to initially downgrade the risk grades of these loans to “Special Mention” status and upon return to regular monthly payment status, most have now been upgraded back to “Pass.”  At the end of the third quarter of 2020, the pool of deferred loans in our portfolio were mostly tied to business borrowers from a broad range of industries and included $2.0 million in loan deferments to the healthcare industry and $7.8 million in loan deferments to the accommodation and food services industries (mostly hotels and restaurants).   Of the $41.4 million of loans remaining in deferral, 89% are supported by some form of commercial or residential real estate. Commercial real estate (“CRE”) deferments of $24.2 million included $19.6 million of investor CRE and $4.6 million of owner-occupied CRE. Deferred loans secured by CRE had an average loan-to-value (“LTV”) ratio of 44.5% at the end of the third quarter of 2020.  There was also $12.6 million of deferments on residential real estate, primarily home equity lines, as of September 30, 2020.  The majority of deferred loans are also supported by personal guarantees.   

In addition to its portfolio of SBA PPP loans, the Bank also has a portfolio of SBA 7(a) loans totaling $49.6 million as of October 16, 2020.  As part of the SBA’s Coronavirus debt relief efforts, beginning in April of 2020, the SBA commenced a six-month program to cover payments of principal, interest and any associated fees for these borrowers, which largely ended with the September payment. The following table reflects the status of these SBA 7(a) loans as of October 16, 2020:

SBA 7(a) LOANS          Number  
(in $000's, unaudited)     Balance   of Loans  
         
SBA 7(a) loans that borrowers made payments            
   by October 16, 2020   $  40,506   238  
Payments Not Made / NSF / Returned      2,360   16  
Due dates later in October      88   2  
New loans / No payment due      435   1  
C.A.R.E.S Payments      4,746   11  
Request for Deferral      1,444   13 (1)
    Total Portfolio   $  49,579    281  
             
(1) Of the 13 loan requests for deferral, 5 have made their October 2020 payments.            

Credit Quality and Performance

At September 30, 2020, nonperforming assets (“NPAs”) declined by $3.9 million, or (28%), to $10.3 million, compared to $14.2 million at September 30, 2019, and increased by $1.2 million, or 12% from $9.1 million at June 30, 2020.  Classified assets increased to $33.0 million, or 0.72% of total assets, at September 30, 2020, compared to $20.2 million, or 0.64% of total assets, at September 30, 2019, and $31.5 million, or 0.68% of total assets, at June 30, 2020.

The Company continues to monitor portfolio loans made to commercial customers with businesses in higher risk sectors due to the COVID-19 pandemic. During the third quarter of 2020, the percentage of loans identified as higher risk to total loans declined slightly compared to the second quarter of 2020. The following table provides a breakdown of such loans as a percentage of total loans at September 30, 2020, June 30, 2020, and March 31, 2020:

    % of Total     % of Total     % of Total  
    Loans at     Loans at     Loans at  
HIGHER RISK SECTORS (unaudited)      September 30, 2020           June 30, 2020        March 31, 2020  
Health care and social assistance:                  
Offices of dentists    1.86 %      1.79 %      1.63 %  
Offices of physicians (except mental health specialists)    0.74 %      0.76 %      0.70 %  
Other community housing services    0.27 %      0.27 %      0.11 %  
All others    2.15 %      2.21 %      1.84 %  
Total health care and social assistance    5.02 %      5.03 %      4.28 %  
Retail trade:                  
      Gasoline stations with convenience stores    1.97 %      1.90 %      1.98 %  
      All others    2.44 %      2.44 %      2.18 %  
          Total retail trade    4.41 %      4.34 %      4.16 %  
Accommodation and food services:                  
Full-service restaurants    1.40 %      1.38 %      0.86 %  
Limited-service restaurants    0.74 %      0.79 %      0.63 %  
Hotels (except casino hotels) and motels    0.92 %      0.89 %      0.94 %  
All others    0.68 %      0.70 %      0.52 %  
Total accommodation and food services    3.74 %      3.76 %      2.95 %  
Educational services:                  
Elementary and secondary schools    0.57 %      0.65 %      0.15 %  
Education support services    0.43 %      0.40 %      0.15 %  
All others    0.17 %      0.24 %      0.17 %  
Total educational services    1.17 %      1.29 %      0.47 %  
Arts, entertainment, and recreation    1.27 %      1.26 %      1.09 %  
Purchased participations in micro loan portfolio    0.68 %      0.80 %      0.95 %  
Total higher risk sectors    16.29 %      16.48 %      13.90 %  

The increase in higher risk sectors in the second and third quarters, compared to the first quarter of 2020, was primarily due to the addition of PPP loans during the second quarter of 2020. 

Capital and Liquidity

The Company’s and the Bank’s consolidated capital ratios exceeded regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at September 30, 2020.

Our liquidity position refers to our ability to maintain cash flows sufficient to fund operations, meet all of our obligations and commitments, and accommodate unexpected sudden changes in balances of loans and deposits in a timely manner. At September 30, 2020, the Company had a strong liquidity position with $960.3 million in cash and cash equivalents, and approximately $734.8 million in available borrowing capacity from 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 $557.8 million (at fair market value) in unpledged securities available at September 30, 2020. The loan to deposit ratio remained relatively flat at 69.32 % at September 30, 2020, compared to 69.74% at September 30, 2019, and increased from 68.88% at June 30, 2020. 


Third Quarter and First Nine Months of 2020  
Operating Results, Balance Sheet Review, Capital Management, and Credit Quality
(as of, or for the periods ended September 30, 2020, compared to September 30, 2019, and June 30, 2020, except as noted):

Operating Results:

  • Diluted earnings per share were $0.19 for the third quarter of 2020, compared to $0.26 for the third quarter of 2019, and $0.18 for the second quarter of 2020. Diluted earnings per share were $0.39 for the first nine months of 2020, compared to $0.80 for the first nine months 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   For the Nine Months Ended
       September 30,       June 30,       September 30,    September 30,       September 30, 
(unaudited)   2020   2020   2019   2020   2019
Return on average tangible assets   1.02%    1.01%    1.49%   0.76%    1.55% 
Return on average tangible equity   11.41%    11.06%    15.08%   8.12%    16.26% 
  • Net interest income, before provision for credit losses on loans, increased 12% to $34.2 million for the third quarter of 2020, compared to $30.6 million for the third quarter of 2019, primarily due to an increase in the average balance of loans resulting from the Presidio Bank (“Presidio”) merger, additional interest and fee income from PPP 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, partially offset by decreases in the prime interest rate and decreases in the yield on investment securities and overnight funds.  Net interest income for the third quarter of 2020 decreased (2%) from $34.9 million for the second quarter of 2020, primarily due to decreases in the yields on loans, investment securities and overnight funds, partially offset by additional interest and fee income from PPP loans. Net interest income increased 16% to $107.7 million for the first nine months of 2020, compared to $92.6 million for the first nine months of 2019, primarily due to an increase in the average balance of loans resulting from the Presidio merger, additional interest and fee income from PPP loans, and an increase in the accretion of the loan discount into loan interest income from our merger with Presidio, partially offset by decreases in the prime rate, and decreases in the yield on investment securities and overnight funds.

    • The fully tax equivalent (“FTE”) net interest margin contracted 100 basis points to 3.24% for the third quarter of 2020, from 4.24% for the third quarter of 2019, primarily due to a decline in the average yield of loans, investment securities, and overnight funds, partially offset by a decline in the cost of interest-bearing liabilities.  The FTE net interest margin contracted 22 basis points for the third quarter of 2020 from 3.46% for the second quarter of 2020, primarily due to a decline in the average yield on loans, investment securities, and overnight funds, partially offset by a decline in the cost of interest-bearing liabilities.

    • For the first nine months of 2020, the FTE net interest margin contracted 71 basis points to 3.62%, compared to 4.33% for the first nine months of 2019, primarily due to the impact of decreases in the yields on loans, investment securities, and overnight funds, partially offset by a decline in the cost of interest-bearing liabilities.
  • 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 decreased to 4.86% for the third quarter of 2020, compared to 5.83% for the third quarter of 2019, primarily due to a decline in the average yield on loans and new average balances of lower yielding PPP loans, partially offset by an increase in the accretion of the loan purchase discount into loan interest income from the acquisitions.
    For the Quarter Ended   For the Quarter Ended  
    September 30, 2020   September 30, 2019  
    Average   Interest   Average   Average   Interest   Average  
(in $000’s, unaudited)   Balance   Income   Yield   Balance   Income   Yield  
Loans, core bank and asset-based lending   $  2,266,227   $  26,508    4.65 %   $  1,748,379   $  23,401    5.31 %  
SBA PPP loans      324,518      816    1.00 %      —      —    —  
PPP fees, net      —      1,305    1.60 %      —      —    —  
Bay View Funding factored receivables      40,300      2,431    24.00 %      47,614      2,879    23.99 %  
Residential mortgages      29,399      180    2.44 %      34,639      229    2.62 %  
Purchased CRE loans      22,603      195    3.43 %      30,567      284    3.69 %  
Loan fair value mark / accretion      (13,353    1,200    0.21 %      (5,359    471    0.11 %  
Total loans (includes loans held-for-sale)   $  2,669,694   $  32,635    4.86 %   $  1,855,840   $  27,264    5.83 %  
                                   
  • The average yield on the total loan portfolio decreased to 4.86% for the third quarter of 2020 compared to 4.92% for the second quarter of 2020, primarily due to higher average balances of lower yielding PPP loans, partially offset by an increase in the accretion of the loan purchase discount into loan interest income from the acquisitions.
    For the Quarter Ended   For the Quarter Ended  
    September 30, 2020   June 30, 2020  
    Average   Interest   Average   Average   Interest   Average  
(in $000’s, unaudited)   Balance   Income   Yield   Balance   Income   Yield  
Loans, core bank and asset-based lending   $  2,266,227   $  26,508    4.65 %   $  2,369,004   $  27,694    4.70 %  
SBA PPP loans      324,518      816    1.00 %      231,251      582    1.01 %  
PPP fees, net      —      1,305    1.60 %      —      637    1.11 %  
Bay View Funding factored receivables      40,300      2,431    24.00 %      44,574      2,562    23.12 %  
Residential mortgages      29,399      180    2.44 %      31,219      197    2.54 %  
Purchased CRE loans      22,603      195    3.43 %      25,542      210    3.31 %  
Loan fair value mark / accretion      (13,353    1,200    0.21 %      (14,497    963    0.16 %  
Total loans (includes loans held-for-sale)   $  2,669,694   $  32,635    4.86 %   $  2,687,093   $  32,845    4.92 %  
                                   
  • The average yield on the total loan portfolio decreased to 5.10% for the nine months ended September 30, 2020 compared to 5.90% for the nine months ended September 30, 2019, primarily due to decreases in the prime rate on loans and new average balances of lower yielding PPP loans, partially offset an increase in the accretion of the loan purchase discount into loan interest income from the acquisitions.
    For the Nine Months Ended   For the Nine Months Ended  
    September 30, 2020   September 30, 2019  
    Average   Interest   Average   Average   Interest   Average  
(in $000’s, unaudited)   Balance   Income   Yield   Balance   Income   Yield  
Loans, core bank and asset-based lending   $  2,351,369   $  84,304    4.79 %   $  1,733,784   $  69,594    5.37 %
SBA PPP loans      186,497      1,398    1.00 %      —      —    —  
PPP fees, net      —      1,942    1.39 %      —      —    —  
Bay View Funding factored receivables      44,102      7,871    23.84 %      47,271      8,800    24.89 %
Residential mortgages      31,224      607    2.60 %      35,840      714    2.66 %
Purchased CRE loans      25,152      655    3.48 %      31,788      869    3.65 %  
Loan fair value mark / accretion      (14,672    3,485    0.20 %      (5,813    1,344    0.10 %
Total loans (includes loans held-for-sale)   $  2,623,672   $  100,262    5.10 %   $  1,842,870   $  81,321    5.90 %

  • The total net purchase discount on loans from the Focus Business Bank loan portfolio was $5.4 million on the acquisition date of August 20, 2015, of which $339,000 remains outstanding as of September 30, 2020.  The total net purchase discount on loans from the Tri-Valley Bank loan portfolio was $2.6 million on the acquisition date of April 6, 2018, of which $1.1 million remains outstanding as of September 30, 2020.  The total net purchase discount on loans from the United American Bank loan portfolio was $4.7 million on the acquisition date of May 4, 2018, of which $1.8 million remains outstanding as of September 30, 2020.  The total net purchase discount on loans from the Presidio loan portfolio was $12.5 million on the Presidio merger date of October 11, 2019, of which $9.5 million remains outstanding as of September 30, 2020.  In aggregate, the remaining net purchase discount on total loans acquired was $12.8 million at September 30, 2020.

• The average cost of total deposits was 0.16% for the third quarter of 2020, compared to 0.31% for the third quarter of 2019 and 0.17% for the second quarter of 2020. The average cost of total deposits was 0.18% for the nine months ended September 30, 2020, compared to 0.30% for the nine months ended September 30, 2019.  

• There was a $197,000 provision for credit losses on loans for the third quarter of 2020, compared to a credit to the provision for loan losses of ($576,000) for the third quarter of 2019, and a $1.1 million provision for credit losses on loans for the second quarter of 2020.  There was a $14.6 million provision for credit losses on loans for the nine months ended September 30, 2020, compared to a ($2.4) million credit to the provision for loan losses for the nine months ended September 30, 2019. 

• The increase in the provision for credit losses on loans for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019, was driven primarily by a significantly deteriorated economic outlook resulting from the Coronavirus pandemic.  Most major economic forecasts, including the California Economic Forecast (“CEF”) used by the Bank in its current expected credit losses (“CECL”) Model, show a significant decline in California GDP and a substantial rise in unemployment for 2020.  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 September 2020, the CEF forecast was revised for GDP in the negative low single digits and peak unemployment in the low double digits.  The three loan classes where the largest increases in reserves were recorded under the CECL loss rate methodology were investor-owned 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.

• Total noninterest income remained relatively flat at $2.6 million for the third quarter of 2020, compared to the third quarter of 2019, as lower services charges and fees on deposit accounts were mostly offset by a higher gain on sales of SBA loans and a realized gain on warrants exercised during the third quarter of 2020.  Total noninterest income increased for the third quarter of 2020 from $2.1 million for the second quarter of 2020, primarily due to a $400,000 gain on sales of SBA loans, and a $310,000 realized gain on warrants exercised.

  • For the nine months ended September 30, 2020, total noninterest income remained relatively flat from $7.9 million for the nine months ended September 30, 2019, as lower services charges and fees on deposit accounts were mostly offset by a higher increase in the cash surrender value of life insurance, a gain realized on a warrant exercised, and a gain on the disposition of foreclosed assets during the first nine months of 2020.

• Total noninterest expense for the third quarter of 2020 increased to $21.2 million, compared to $17.9 million for the third quarter of 2019, primarily due to additional employees and operating costs as a result of the Presidio merger, and higher salaries and employee benefits as a result of annual salary increases. Total noninterest expense for the third quarter of 2020 modestly increased to $21.2 million compared to $21.0 million for the second quarter of 2020.

  • Noninterest expense for the nine months ended September 30, 2020 increased to $68.0 million, compared to $54.3 million for the nine months ended September 30, 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.

  • The following table reflects pre-tax merger-related costs related to the merger with Presidio for the periods indicated: 
    For the Quarter Ended   For the Nine Months Ended
MERGER-RELATED COSTS      September 30,       June 30,       September 30,    September 30,       September 30, 
(in $000’s, unaudited)   2020   2020   2019   2020   2019
Salaries and employee benefits   $  —   $  —   $  —   $  356   $  —
Other      17      59      661      2,144      1,201
   Total merger-related costs   $  17   $  59   $  661   $  2,500   $  1,201
  • Full time equivalent employees were 342 at September 30, 2020, 308 at September 30, 2019, and 340 at June 30, 2020.

• The efficiency ratio was 57.58% for the third quarter of 2020, compared to 53.87% for the third quarter of 2019, and 56.76% for the second quarter of 2020. The efficiency ratio for the nine months ended September 30, 2020 was 58.81%, compared to 54.04% for the nine months ended September 30, 2019. 

• Income tax expense was $4.2 million for the third quarter of 2020, compared to $4.6 million for the third quarter of 2019, and $4.3 million for the second quarter of 2020. The effective tax rate for the third quarter of 2020 was 27.3%, compared to 29.1% for the third quarter of 2019, and 28.7% for the second quarter of 2020.  Income tax expense for the nine months ended September 30, 2020 was $9.3 million, compared to $13.8 million for the nine months ended September 30, 2019. The effective tax rate for the nine months ended September 30, 2020 was 28.3%, compared to 28.4% for the nine months ended September 30, 2019.

  • 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 45% to $4.61 billion at September 30, 2020, compared to $3.18 billion at September 30, 2019, primarily due to the Presidio merger and the addition of PPP program. Total assets remained relatively flat from $4.61 billion at June 30, 2020.
  • Securities available-for-sale, at fair value, totaled $294.4 million at September 30, 2020, compared to $333.1 million at September 30, 2019, and $323.6 million at June 30, 2020.  At September 30, 2020, the Company’s securities available-for-sale portfolio was comprised of $203.6 million of agency mortgage-backed securities (all issued by U.S. Government sponsored entities), and $90.8 million of U.S. Treasury securities. The pre-tax unrealized gain on securities available-for-sale at September 30, 2020 was $6.9 million, compared to a pre-tax unrealized gain on securities available-for-sale of $1.7 million at September 30, 2019, and a pre-tax unrealized gain on securities available-for-sale of $8.7 million at June 30, 2020.  All other factors remaining the same, when market interest rates are decreasing, the Company will experience a higher unrealized gain (or a lower unrealized loss) on the securities portfolio.
  • At September 30, 2020, securities held-to-maturity, at amortized cost, totaled $295.6 million, compared to $342.0 million at September 30, 2019, and $322.7 million at June 30, 2020.  At September 30, 2020, the Company’s securities held-to-maturity portfolio was comprised of $223.4 million of agency mortgage-backed securities, and $72.2 million of tax-exempt municipal bonds.

    • With the CECL methodology implementation date of January 1, 2020, there was a $58,000 allowance for losses recorded on the Company’s held-to-maturity municipal investment securities portfolio. For the nine months ended September 30, 2020, there was a reduction of $3,000 to the allowance for losses on the Company’s held-to-maturity municipal investment securities portfolio, for an allowance for losses of $55,000 at September 30, 2020.
  • 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   September 30, 2020   June 30, 2020   September 30, 2019  
(in $000’s, unaudited)      Balance      % to Total      Balance      % to Total      Balance      % to Total     
Commercial   $  574,359      21 %     $  553,843      21 %     $  507,879      27 %    
SBA Payroll Protection Program Loans      323,550      12 %        324,550      12 %        —     0 %    
Real estate:                                
CRE - owner occupied      561,528      21 %        553,463      21 %        436,262      24 %    
CRE - non-owner occupied      713,563      27 %        725,776      27 %        540,367      29 %    
Land and construction      142,632      5 %        138,284      5 %        96,679      5 %    
Home equity      111,468      4 %        112,679      4 %        85,840      5 %    
Multifamily      169,791      6 %        169,637      6 %        94,258      5 %    
Residential mortgages      91,077      3 %        95,033      3 %        92,611      5 %    
Consumer and other      17,511      1 %        22,759      1 %        21,596      1 %    
Total Loans      2,705,479      100 %        2,696,024      100 %        1,875,492      100 %    
Deferred loan costs (fees), net      (8,463 )    —      (9,635 )    —      (105 )    —  
Loans, net of deferred costs and fees    $  2,697,016      100 %     $  2,686,389      100 %     $  1,875,387      100 %    
  • Loans, excluding loans held-for-sale, increased $821.6 million, or 44%, to $2.70 billion at September 30, 2020, compared to $1.88 billion at September 30, 2019, and remained relatively flat from $2.69 billion at June 30, 2020.  Total loans at September 30, 2020 included $323.6 million of PPP loans.

  • Commercial and Industrial (“C&I”) line usage was 28% at September 30, 2020, compared to 35% at September 30, 2019, and 27% at June 30, 2020.

  • At September 30, 2020, 44% 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   For the Nine Months Ended  
ALLOWANCE FOR CREDIT LOSSES ON LOANS      September 30,     June 30,     September 30,    September 30,    September 30,   
(in $000’s, unaudited)   2020     2020     2019     2020     2019    
Balance at beginning of period   $  45,444     $  44,703     $  26,631     $  23,285     $  27,848    
Charge-offs during the period      (598 )      (465 )      (318 )      (1,736 )      (620 )  
Recoveries during the period      379        92        158        722        1,044    
Net recoveries (charge-offs) during the period      (219 )      (373 )      (160 )      (1,014 )      424    
Impact of adopting Topic 326      —        —        —        8,570        —    
Provision for credit losses on loans during the period(1)      197        1,114        (576 )      14,581        (2,377 )  
Balance at end of period   $  45,422     $  45,444     $  25,895     $  45,422     $  25,895    
                                 
Total loans, net of deferred fees   $  2,697,016     $  2,686,389     $  1,875,387     $  2,697,016     $  1,875,387    
Total nonperforming loans   $  10,262     $  9,125     $  14,247     $  10,262     $  14,247    
Allowance for credit losses on loans to total loans(2)      1.68   %      1.69   %      1.38   %    1.68   %      1.38   %
Allowance for credit losses on loans to total nonperforming loans(2)      442.62   %      498.02   %      181.76   %    442.62   %      181.76   %  
                                 
(1)Provision for credit losses on loans for the quarters ended September 30, 2020 and June 30, 2020, and the nine months ended September 30, 2020,  
   Provision (credit) for loan losses for the quarter and nine months ended September 30, 2019  
(2)ACLL at  September 30, 2020 and June 30, 2020, Allowance for loan losses ("ALLL") at September 30, 2019  
  • The ACLL was 1.68% of total loans at September 30, 2020 and the ACLL to total nonperforming loans was 442.62% at September 30, 2020. The ALLL was 1.38% of total loans and the ALLL to nonperforming loans was 181.76% at September 30, 2019. The ACLL was 1.69% of total loans at June 30, 2020 and the ACLL to total nonperforming loans was 498.02% at June 30, 2020.   The ACLL was 1.91% of total loans, excluding PPP loans, at September 30, 2020, compared to 1.92% at June 30, 2020.
  • The following table shows the results of adopting CECL for the first nine months 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  
ACLL at January 1, 2020      31,855  
Net (charge-offs) during the first quarter of 2020      (422 )
Portfolio changes during the first quarter of 2020      1,216  
Economic factors during the first quarter of 2020      12,054  
ACLL at March 31, 2020      44,703  
Net (charge-offs) during the second quarter of 2020      (373 )
Portfolio changes during the second quarter of 2020      (4,282 )
Qualitative and quantitative changes during the second      
quarter of 2020 including changes in economic forecasts      5,396  
    ACLL at June 30, 2020      45,444  
Net (charge-offs) during the third quarter of 2020      (219 )
Portfolio changes during the third quarter of 2020      488  
Qualitative and quantitative changes during the third      
quarter of 2020 including changes in economic forecasts      (291 )
    ACLL at September 30, 2020   $  45,422  
  • Net charge-offs totaled $219,000 for the third quarter of 2020, compared to net charge-offs of $160,000 for the third quarter of 2019, and net charge-offs of $373,000 for the second quarter of 2020.

•  The following is a breakout of NPAs at the periods indicated:

    End of Period:  
NONPERFORMING ASSETS   September 30, 2020   June 30, 2020   September 30, 2019  
(in $000’s, unaudited)      Balance      % of Total      Balance      % of Total      Balance      % of Total  
CRE loans   $  4,328    42 %   $  3,679    40 %   $  5,094    36 %
Commercial loans      2,908    28 %      2,416    27 %      2,660    19 %
Consumer and other loans      1,464    14 %      1,464    16 %      5,737    40 %
Home equity loans      961    10 %      898    10 %      147    1 %
Restructured and loans over 90 days past due and still accruing      601    6 %      668    7 %      609    4 %
Total nonperforming assets   $  10,262    100 %   $  9,125    100 %   $  14,247    100 %
  • NPAs totaled $10.3 million, or 0.22% of total assets, at September 30, 2020, compared to $14.2 million, or 0.45% of total assets, at September 30, 2019, and $9.1 million, or 0.20% of total assets, at June 30, 2020.

  • There were no foreclosed assets on the balance sheet at September 30, 2020, September 30, 2019, or June 30, 2020.

  • Classified assets increased to $33.0 million, or 0.72% of total assets, at September 30, 2020, compared to $20.2 million, or 0.64% of total assets, at September 30, 2019, and decreased from $31.5 million, or 0.68% of total assets, at June 30, 2020.

•  The following table summarizes the distribution of deposits and the percentage of distribution in each category for the periods indicated:

DEPOSITS   September 30, 2020   June 30, 2020   September 30, 2019  
(in $000’s, unaudited)      Balance      % to Total   Balance      % to Total   Balance      % to Total  
Demand, noninterest-bearing   $  1,698,027    44 %   $  1,714,058    44 %   $  1,094,953    41 %
Demand, interest-bearing      926,041    24 %      934,780    24 %      666,054    25 %
Savings and money market      1,108,252    28 %      1,091,740    28 %      761,471    28 %
Time deposits — under $250      46,684    1 %      49,493    1 %      53,560    2 %
Time deposits — $250 and over      92,276    2 %      93,822    2 %      95,543    3 %
CDARS — interest-bearing demand,                                
   money market and time deposits      19,121    1 %      16,333    1 %      17,409    1 %  
Total deposits   $  3,890,401    100 %   $  3,900,226    100 %   $  2,688,990    100 %
                                 
  • Total deposits increased $1.2 billion, or 48%, to $3.89 billion at September 30, 2020, compared to $2.69 billion at September 30, 2019.  The large increase in the Company’s deposits in the third quarter of 2020 was primarily tied to deposits by customers who had taken out PPP loans and deposits from the Presidio merger.  Total deposits remained relatively flat from $3.90 billion at June 30, 2020.

  • Deposits, excluding all time deposits and CDARS deposits, increased $1.2 billion, or 48%, to $3.73 billion at September 30, 2020, compared to $2.52 billion at September 30, 2019.  The large increase in the Company’s legacy deposits in the third quarter of 2020 was primarily tied to deposits by customers who had taken out PPP loans and deposits from the Presidio merger. Deposits, excluding all time deposits and CDARS deposits remained relatively flat from $3.74 billion at June 30, 2020.

•  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 September 30, 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    16.0%      15.2%      10.0%      10.5%
Tier 1 Risk-Based    13.5%      14.1%      8.0%      8.5%
Common Equity Tier 1 Risk-Based    13.5%      14.1%      6.5%      7.0%
Leverage    9.3%      9.7%      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   September 30,    June 30,    September 30, 
(in $000’s, unaudited)      2020     2020     2019  
Unrealized gain on securities available-for-sale   $  4,494     $  5,767     $  1,202  
Remaining unamortized unrealized gain on securities                  
      available-for-sale transferred to held-to-maturity      270        279        306  
Split dollar insurance contracts liability      (4,838 )      (4,865 )      (3,794 )
Supplemental executive retirement plan liability      (6,661 )      (6,706 )      (3,898 )
Unrealized gain on interest-only strip from SBA loans      351        345        386  
      Total accumulated other comprehensive loss   $  (6,384 )   $  (5,180 )   $  (5,798 )
                   
  • Tangible equity was $392.5 million at September 30, 2020, compared to $301.2 million at September 30, 2019, and $388.6 million at June 30, 2020.  Tangible book value per share was $6.55 at September 30, 2020, compared to $6.92 at September 30, 2019, and $6.49 at June 30, 2020.

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, Palo Alto, Pleasanton, Redwood City, San Francisco, San Jose, San Mateo, San Rafael, Sunnyvale, and Walnut Creek.  Heritage Bank of Commerce is an SBA Preferred Lender.  Bay View Funding, a subsidiary of Heritage Bank of Commerce, is based in San Jose, CA and provides business-essential working capital factoring financing to various industries throughout the United States.  For more information, please visit www.heritagecommercecorp.com.

Forward-Looking Statement Disclaimer

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) possible adjustment of the valuation of our deferred tax assets; (18) our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks such as data security breaches, “denial of service” attacks, “hacking” and identity theft; (19) inability of our framework to manage risks associated with our business, including operational risk and credit risk; (20) risks of loss of funding of Small Business Administration or SBA loan programs, or changes in those programs; (21) compliance with governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities, accounting and tax matters; (22) significant changes in applicable laws and regulations, including those concerning taxes, banking and securities; (23) 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; (24) costs and effects of legal and regulatory developments, including resolution of regulatory or other governmental inquiries, and the results of regulatory examinations or reviews; (25) the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise; (26) availability of and competition for acquisition opportunities; (27) risks resulting from domestic terrorism; (28) risks 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; (31) the impact of the federal CARES Act and the significant additional lending activities undertaken by the Company in connection with the Small Business Administration’s Paycheck Protection Program (“PPP”) enacted thereunder, and the risks that borrowers may not have used funds appropriately or satisfied staffing or payment requirements to qualify for forgiveness of their loans in whole or part under PPP; and (32) our success in managing the risks involved in the foregoing factors.

Member FDIC

For additional information, contact:

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


    For the Quarter Ended:   Percent Change From:     For the Nine Months Ended:
CONSOLIDATED INCOME STATEMENTS      September 30,       June 30,       September 30,       June 30,       September 30,         September 30,       September 30,       Percent  
(in $000’s, unaudited)   2020   2020   2019
  2020    2019      2020   2019
  Change  
Interest income   $ 36,252   $ 37,132   $ 33,250   (2) % 9 %   $ 114,326   $ 100,188   14 %
Interest expense     2,087     2,192     2,625   (5) % (20) %     6,641     7,605   (13) %
Net interest income before provision                                              
for credit losses on loans(1)     34,165     34,940     30,625   (2) % 12 %     107,685     92,583   16 %
Provision (credit) for credit losses on loans(1)     197     1,114     (576)   (82) % 134 %     14,581     (2,377)   713 %
Net interest income after provision                                              
for credit losses on loans(1)     33,968     33,826     31,201   0
% 9 %     93,104     94,960   (2) %
Noninterest income:                                              
Service charges and fees on deposit accounts     632     650     1,032   (3) % (39) %     2,251     3,370   (33) %
Increase in cash surrender value of                                              
  life insurance     464     458     336   1
% 38 %     1,380     999   38 %
Gain on sales of SBA loans     400         156   N/A   156 %     467     331   41 %
Servicing income     187     205     139   (9) % 35 %     575     480   20 %
Gain on sales of securities         170     330   (100) % (100) %     270     878   (69) %
Gain on the disposition of foreclosed assets               N/A   N/A       791       N/A  
Other     912     595     625   53 % 46 %     2,132     1,793   19 %
Total noninterest income     2,595     2,078     2,618   25 % (1) %     7,866     7,851   0 %
Noninterest expense:                                              
Salaries and employee benefits     11,967     12,300     10,467   (3) % 14 %     38,470     31,935   20 %
Occupancy and equipment     2,283     1,766     1,550   29 % 47 %     5,821     4,634   26 %
Professional fees     1,352     1,155     789   17 % 71 %     3,942     2,360   67 %
Other     5,566     5,791     5,103   (4) % 9 %     19,721     15,343   29 %
Total noninterest expense     21,168     21,012     17,909   1 % 18 %     67,954     54,272   25 %
Income before income taxes     15,395     14,892     15,910   3 % (3) %     33,016     48,539   (32) %
Income tax expense     4,198     4,274     4,633   (2) % (9) %     9,340     13,763   (32) %
Net income   $  11,197   $  10,618   $  11,277   5 % (1) %   $  23,676   $  34,776   (32) %
                                               
PER COMMON SHARE DATA                                                  
(unaudited)                                                     
Basic earnings per share   $ 0.19   $ 0.18   $ 0.26   6 % (27) %   $ 0.40   $ 0.81   (51) %
Diluted earnings per share   $ 0.19   $ 0.18   $ 0.26   6 % (26) %   $ 0.39   $ 0.80   (51) %
Weighted average shares outstanding - basic     59,589,243     59,420,592     43,258,983   0 % 38 %     59,432,178     43,189,710   38 %
Weighted average shares outstanding - diluted     60,141,412     60,112,423     43,796,904   0 % 37 %     60,143,763     43,728,085   38 %
Common shares outstanding at period-end     59,914,987     59,856,767     43,509,406   0 % 38 %     59,914,987     43,509,406   38 %
Dividend per share   $ 0.13   $ 0.13   $ 0.12   0 % 8 %   $ 0.39   $ 0.36   8 %
Book value per share   $ 9.64   $ 9.60   $ 9.09   0 % 6 %   $ 9.64   $ 9.09   6 %
Tangible book value per share   $ 6.55   $ 6.49   $ 6.92   1 % (5) %   $ 6.55   $ 6.92   (5) %
                                               
KEY FINANCIAL RATIOS                                                     
(unaudited)                                                      
Annualized return on average equity     7.73 %   7.45 %   11.44 % 4 % (32) %     5.49 %   12.21 % (55) %
Annualized return on average tangible equity     11.41 %   11.06 %   15.08 % 3 % (24) %     8.12 %   16.26 % (50) %
Annualized return on average assets     0.98 %   0.96 %   1.44 % 2 % (32) %     0.73 %   1.50 % (51) %
Annualized return on average tangible assets     1.02 %   1.01 %   1.49 % 1 % (32) %     0.76 %   1.55 % (51) %
Net interest margin (fully tax equivalent)     3.24 %   3.46 %   4.24 % (6) % (24) %     3.62 %   4.33 % (16) %
Efficiency ratio     57.58 %   56.76 %   53.87 % 1 % 7 %     58.81 %   54.04 % 9 %
                                               
AVERAGE BALANCES                                                     
(in $000’s, unaudited)                                                      
Average assets   $ 4,562,412   $ 4,434,238   $ 3,103,043   3 % 47 %   $ 4,344,067   $ 3,094,199   40 %
Average tangible assets   $ 4,376,533   $ 4,247,522   $ 3,008,602   3 % 45 %   $ 4,157,370   $ 2,999,223   39 %
Average earning assets   $ 4,203,902   $ 4,075,673   $ 2,878,590   3 % 46 %   $ 3,982,386   $ 2,869,594   39 %
Average loans held-for-sale   $ 5,169   $ 3,617   $ 4,171   43 % 24 %   $ 3,689   $ 3,854   (4) %
Average total loans   $ 2,664,525   $ 2,683,476   $ 1,851,669   (1) % 44 %   $ 2,619,983   $ 1,839,016   42 %
Average deposits   $ 3,846,652   $ 3,720,850   $ 2,612,252   3 % 47 %   $ 3,632,556   $ 2,613,406   39 %
Average demand deposits - noninterest-bearing   $ 1,700,972   $ 1,660,547   $ 1,041,712   2 % 63 %   $ 1,600,522   $ 1,022,654   57 %
Average interest-bearing deposits   $ 2,145,680   $ 2,060,303   $ 1,570,540   4 % 37 %   $ 2,032,034   $ 1,590,752   28 %
Average interest-bearing liabilities   $ 2,185,439   $ 2,099,982   $ 1,610,168   4 % 36 %   $ 2,071,813   $ 1,630,286   27 %
Average equity   $ 576,135   $ 572,939   $ 391,086   1 % 47 %   $ 576,042   $ 380,919   51 %
Average tangible equity   $ 390,256   $ 386,223   $ 296,645   1 % 32 %   $ 389,345   $ 285,943   36 %

(1)Provision for credit losses on loans for the quarters ended September 30, 2020 and June 30, 2020 and the nine months ended September 30, 2020, Provision (credit) for loan losses for quarter and nine months ended September 30, 2019


    For the Quarter Ended:  
CONSOLIDATED INCOME STATEMENTS      September 30,       June 30,       March 31,      December 31,      September 30,   
(in $000’s, unaudited)   2020   2020   2020   2019   2019  
Interest income   $ 36,252   $ 37,132   $ 40,942   $ 42,471   $ 33,250  
Interest expense     2,087     2,192     2,362     3,242     2,625  
Net interest income before provision                                
for credit losses on loans(1)     34,165     34,940     38,580     39,229     30,625  
Provision (credit) for credit losses on loans(1)     197     1,114     13,270     3,223     (576)  
Net interest income after provision                                
for credit losses on loans(1)     33,968     33,826     25,310     36,006     31,201  
Noninterest income:                                
Service charges and fees on deposit accounts     632     650     969     1,140     1,032  
Increase in cash surrender value of                                
life insurance     464     458     458     405     336  
Gain on sales of SBA loans     400         67     358     156  
Servicing income     187     205     183     156     139  
Gain (loss) on sales of securities         170     100     (217)     330  
Gain on the disposition of foreclosed assets             791          
Other     912     595     625     551     625  
Total noninterest income     2,595     2,078     3,193     2,393     2,618  
Noninterest expense:                                
Salaries and employee benefits     11,967     12,300     14,203     18,819     10,467  
Occupancy and equipment     2,283     1,766     1,772     2,013     1,550  
Professional fees     1,352     1,155     1,435     899     789  
Other     5,566     5,791     8,364     8,895     5,103  
Total noninterest expense     21,168     21,012     25,774     30,626     17,909  
Income before income taxes     15,395     14,892     2,729     7,773     15,910  
Income tax expense     4,198     4,274     868     2,088     4,633  
   Net income   $  11,197   $  10,618   $  1,861   $  5,685   $  11,277  
                                 
PER COMMON SHARE DATA                                
(unaudited)                                     
Basic earnings per share   $ 0.19   $ 0.18   $ 0.03   $ 0.10   $ 0.26  
Diluted earnings per share   $ 0.19   $ 0.18   $ 0.03   $ 0.10   $ 0.26  
Weighted average shares outstanding - basic     59,589,243     59,420,592     59,286,927     57,168,605     43,258,983  
Weighted average shares outstanding - diluted     60,141,412     60,112,423     60,194,025     58,361,976     43,796,904  
Common shares outstanding at period-end     59,914,987     59,856,767     59,568,219     59,368,156     43,509,406  
Dividend per share   $ 0.13   $ 0.13   $ 0.13   $ 0.12   $ 0.12  
Book value per share   $ 9.64   $ 9.60   $ 9.59   $ 9.71   $ 9.09  
Tangible book value per share   $ 6.55   $ 6.49   $ 6.46   $ 6.55   $ 6.92  
                                 
KEY FINANCIAL RATIOS                                
(unaudited)                                     
Annualized return on average equity     7.73 %   7.45 %   1.29 %   4.04 %   11.44 %
Annualized return on average tangible equity     11.41 %   11.06 %   1.91 %   5.96 %   15.08 %
Annualized return on average assets     0.98 %   0.96 %   0.19 %   0.55 %   1.44 %
Annualized return on average tangible assets     1.02 %   1.01 %   0.19 %   0.57 %   1.49 %
Net interest margin (fully tax equivalent)     3.24 %   3.46 %   4.25 %   4.15 %   4.24 %
Efficiency ratio     57.58 %   56.76 %   61.70 %   73.58 %   53.87 %
                                 
AVERAGE BALANCES                                     
(in $000’s, unaudited)                                     
Average assets   $ 4,562,412   $ 4,434,238   $ 4,033,151   $ 4,124,018   $ 3,103,043  
Average tangible assets   $ 4,376,533   $ 4,247,522   $ 3,845,646   $ 3,943,725   $ 3,008,602  
Average earning assets   $ 4,203,902   $ 4,075,673   $ 3,665,151   $ 3,762,239   $ 2,878,590  
Average loans held-for-sale   $ 5,169   $ 3,617   $ 2,265   $ 3,299   $ 4,171  
Average total loans   $ 2,664,525   $ 2,683,476   $ 2,511,460   $ 2,442,802   $ 1,851,669  
Average deposits   $ 3,846,652   $ 3,720,850   $ 3,327,812   $ 3,432,771   $ 2,612,252  
Average demand deposits - noninterest-bearing   $ 1,700,972   $ 1,660,547   $ 1,438,944   $ 1,452,893   $ 1,041,712  
Average interest-bearing deposits   $ 2,145,680   $ 2,060,303   $ 1,888,868   $ 1,979,878   $ 1,570,540  
Average interest-bearing liabilities   $ 2,185,439   $ 2,099,982   $ 1,928,770   $ 2,027,106   $ 1,610,168  
Average equity   $ 576,135   $ 572,939   $ 579,051   $ 558,478   $ 391,086  
Average tangible equity   $ 390,256   $ 386,223   $ 391,546   $ 378,185   $ 296,645  

(1)Provision for credit losses on loans for the quarters ended September 30, June 30, 2020 and March 31, 2020, Provision (credit) for loan losses for the prior periods


    End of Period:   Percent Change From:  
CONSOLIDATED BALANCE SHEETS      September 30,       June 30,       September 30,       June 30,       September 30,   
(in $000’s, unaudited)   2020   2020   2019   2020   2019  
ASSETS                            
Cash and due from banks   $ 33,353   $ 40,108   $ 48,121   (17) % (31) %
Other investments and interest-bearing deposits                            
   in other financial institutions     926,915     885,792     367,662   5 % 152 %
Securities available-for-sale, at fair value     294,438     323,565     333,101   (9) % (12) %
Securities held-to-maturity, at amortized cost     295,609     322,677     342,033   (8) % (14) %
Loans held-for-sale - SBA, including deferred costs     3,565     4,324     3,571   (18) % 0 %
Loans:                            
Commercial     574,359     553,843     507,879   4 % 13 %
SBA PPP loans     323,550     324,550       0 % N/A  
Real estate:                            
CRE - owner occupied     561,528     553,463     436,262   1 % 29 %
CRE - non-owner occupied     713,563     725,776     540,367   (2) % 32 %
Land and construction     142,632     138,284     96,679   3 % 48 %
Home equity     111,468     112,679     85,840   (1) % 30 %
Multifamily     169,791     169,637     94,258   0 % 80 %
Residential mortgages     91,077     95,033     92,611   (4) % (2) %
Consumer and other     17,511     22,759     21,596   (23) % (19) %
Loans     2,705,479     2,696,024     1,875,492   0 % 44 %
Deferred loan fees, net     (8,463)     (9,635)     (105)   (12) % 7960 %
Total loans, net of deferred costs and fees     2,697,016     2,686,389     1,875,387   0 % 44 %
Allowance for credit losses on loans(1)     (45,422)     (45,444)     (25,895)   0 % 75 %
Loans, net     2,651,594     2,640,945     1,849,492   0 % 43 %
Company-owned life insurance     77,059     76,944     62,858   0 % 23 %
Premises and equipment, net     10,412     9,500     6,849   10 % 52 %
Goodwill     167,631     167,631     83,753   0 % 100 %
Other intangible assets     17,628     18,593     10,346   (5) % 70 %
Accrued interest receivable and other assets     128,581     124,322     74,685   3 % 72 %
Total assets   $  4,606,785   $  4,614,401   $  3,182,471   0 % 45 %
                             
LIABILITIES AND SHAREHOLDERS’ EQUITY                            
Liabilities:                            
Deposits:                            
Demand, noninterest-bearing   $ 1,698,027   $ 1,714,058   $ 1,094,953   (1) % 55 %
Demand, interest-bearing     926,041     934,780     666,054   (1) % 39 %
Savings and money market     1,108,252     1,091,740     761,471   2 % 46 %
Time deposits-under $250     46,684     49,493     53,560   (6) % (13) %
Time deposits-$250 and over     92,276     93,822     95,543   (2) % (3) %
CDARS - money market and time deposits     19,121     16,333     17,409   17 % 10 %
Total deposits     3,890,401     3,900,226     2,688,990   0 % 45 %
Subordinated debt, net of issuance costs     39,693     39,646     39,507   0 % 0 %
Accrued interest payable and other liabilities     98,884     99,722     58,628   (1) % 69 %
Total liabilities     4,028,978     4,039,594     2,787,125   0 % 45 %
                             
Shareholders’ Equity:                            
Common stock     493,126     492,333     302,983   0 % 63 %
Retained earnings     91,065     87,654     98,161   4 % (7) %
Accumulated other comprehensive loss     (6,384)     (5,180)     (5,798)   (23) % (10) %
Total shareholders' equity     577,807     574,807     395,346   1 % 46 %
      Total liabilities and shareholders’ equity   $  4,606,785   $  4,614,401   $  3,182,471   0 % 45 %

(1)Allowance for credit losses on loans at September 30, 2020 and June 30, 2020, Allowance for loan losses at September 30, 2019


    End of Period:
CONSOLIDATED BALANCE SHEETS      September 30,       June 30,       March 31,       December 31,       September 30, 
(in $000’s, unaudited)   2020   2020   2020   2019   2019
ASSETS                              
Cash and due from banks   $ 33,353   $ 40,108   $ 36,998   $ 49,447   $ 48,121
Other investments and interest-bearing deposits                              
   in other financial institutions     926,915     885,792     406,399     407,923     367,662
Securities available-for-sale, at fair value     294,438     323,565     373,570     404,825     333,101
Securities held-to-maturity, at amortized cost     295,609     322,677     348,044     366,560     342,033
Loans held-for-sale - SBA, including deferred costs     3,565     4,324     2,415     1,052     3,571
Loans:                              
Commercial     574,359     553,843     696,168     603,345     507,879
SBA PPP loans     323,550     324,550            
Real estate:                              
CRE - owner occupied     561,528     553,463     539,465     548,907     436,262
CRE - non-owner occupied     713,563     725,776     748,245     767,821     540,367
Land and construction     142,632     138,284     153,321     147,189     96,679
Home equity     111,468     112,679     117,544     151,775     85,840
Multifamily     169,791     169,637     170,292     180,623     94,258
Residential mortgages     91,077     95,033     95,808     100,759     92,611
Consumer and other     17,511     22,759     33,326     33,744     21,596
Loans     2,705,479     2,696,024     2,554,169     2,534,163     1,875,492
Deferred loan fees, net     (8,463)     (9,635)     (258)     (319)     (105)
Total loans, net of deferred fees     2,697,016     2,686,389     2,553,911     2,533,844     1,875,387
Allowance for credit losses on loans(1)     (45,422)     (45,444)     (44,703)     (23,285)     (25,895)
Loans, net     2,651,594     2,640,945     2,509,208     2,510,559     1,849,492
Company-owned life insurance     77,059     76,944     76,485     76,027     62,858
Premises and equipment, net     10,412     9,500     9,025     8,250     6,849
Goodwill     167,631     167,631     167,371     167,420     83,753
Other intangible assets     17,628     18,593     19,557     20,415     10,346
Accrued interest receivable and other assets     128,581     124,322     129,090     96,985     74,685
Total assets   $  4,606,785   $  4,614,401   $  4,078,162   $  4,109,463   $  3,182,471
                               
LIABILITIES AND SHAREHOLDERS’ EQUITY                              
Liabilities:                              
Deposits:                              
Demand, noninterest-bearing   $ 1,698,027   $ 1,714,058   $ 1,444,534   $ 1,450,873   $ 1,094,953
Demand, interest-bearing     926,041     934,780     810,425     798,375     666,054
Savings and money market     1,108,252     1,091,740     949,076     982,430     761,471
Time deposits-under $250     46,684     49,493     51,009     54,361     53,560
Time deposits-$250 and over     92,276     93,822     96,540     99,882     95,543
CDARS - money market and time deposits     19,121     16,333     15,055     28,847     17,409
Total deposits     3,890,401     3,900,226     3,366,639     3,414,768     2,688,990
Subordinated debt, net of issuance costs     39,693     39,646     39,600     39,554     39,507
Other short-term borrowings                 328    
Accrued interest payable and other liabilities     98,884     99,722     100,482     78,105     58,628
Total liabilities     4,028,978     4,039,594     3,506,721     3,532,755     2,787,125
                               
Shareholders’ Equity:                              
Common stock     493,126     492,333     491,347     489,745     302,983
Retained earnings     91,065     87,654     84,803     96,741     98,161
Accumulated other comprehensive loss     (6,384)     (5,180)     (4,709)     (9,778)     (5,798)
Total shareholders’ equity     577,807     574,807     571,441     576,708     395,346
      Total liabilities and shareholders’ equity   $  4,606,785   $  4,614,401   $  4,078,162   $  4,109,463   $  3,182,471
                               

(1)Allowance for credit losses on loans at September 30, 2020, June 30, 2020 and March 31, 2020, Allowance for loan losses for the prior periods


    End of Period:   Percent Change From:  
CREDIT QUALITY DATA      September 30,       June 30,       September 30,         June 30,         September 30,   
(in $000’s, unaudited)   2020   2020   2019
    2020     2019  
Nonaccrual loans - held-for-investment   $ 9,661   $ 8,457   $ 13,638     14 %   (29) %
Restructured and loans over 90 days past due                                
and still accruing     601     668     609     (10) %   (1) %
Total nonperforming loans     10,262     9,125     14,247     12 %   (28) %
Foreclosed assets                 N/A     N/A  
Total nonperforming assets   $ 10,262   $ 9,125   $ 14,247     12 %   (28) %
Other restructured loans still accruing   $ 98   $ 64   $ 247     53 %   (60) %
Net charge-offs (recoveries) during the quarter   $ 219   $ 373   $ 160     (41) %   37 %
Provision for credit losses on loans during the quarter(1)   $ 197   $ 1,114   $ (576)     (82) %   134 %
Allowance for credit losses on loans(2)   $ 45,422   $ 45,444   $ 25,895     0 %   75 %
Classified assets   $ 33,024   $ 31,452   $ 20,225     5 %   63 %
Allowance for credit losses on loans to total loans(2)     1.68 %   1.69 %   1.38 %   (1) %   22 %
Allowance for credit losses on loans to total nonperforming loans(2)     442.62 %   498.02 %   181.76 %   (11) %   144 %
Nonperforming assets to total assets     0.22 %   0.20 %   0.45 %   10 %   (51) %
Nonperforming loans to total loans     0.38 %   0.34 %   0.76 %   12 %   (50) %
Classified assets to Heritage Commerce Corp                                
Tier 1 capital plus allowance for credit losses on loans(2)     7 %   7 %   6 %   0 %   17 %
Classified assets to Heritage Bank of Commerce                                
Tier 1 capital plus allowance for credit losses on loans(2)     7 %   7 %   6 %   0 %   17 %
                                 
OTHER PERIOD-END STATISTICS                                     
(in $000’s, unaudited)                                     
Heritage Commerce Corp:                                
Tangible common equity (3)   $ 392,548   $ 388,583   $ 301,247     1 %   30 %
Shareholders’ equity / total assets     12.54 %   12.46 %   12.42 %   1 %   1 %
Tangible common equity / tangible assets (4)     8.88 %   8.78 %   9.75 %   1 %   (9) %
Loan to deposit ratio     69.32 %   68.88 %   69.74 %   1 %   (1) %
Noninterest-bearing deposits / total deposits     43.65 %   43.95 %   40.72 %   (1) %   7 %
Total risk-based capital ratio     16.0 %   15.9 %   16.2 %   1 %   (1) %
Tier 1 risk-based capital ratio     13.5 %   13.4 %   13.3 %   1 %   2 %
Common Equity Tier 1 risk-based capital ratio     13.5 %   13.4 %   13.3 %   1 %   2 %
Leverage ratio     9.3 %   9.4 %   10.0 %   (1) %   (7) %
Heritage Bank of Commerce:                                
Total risk-based capital ratio     15.2 %   15.1 %   15.2 %   1 %   0 %
Tier 1 risk-based capital ratio     14.1 %   14.0 %   14.1 %   1 %   0 %
Common Equity Tier 1 risk-based capital ratio     14.1 %   14.0 %   14.1 %   1 %   0 %
Leverage ratio     9.7 %   9.9 %   10.6 %   (2) %   (8) %
                                 

_____________________________

(1) Provision for credit losses on loans for the quarters ended September 30, 2020 and June 30, 2020, Provision (credit) for loan losses for the quarter ended September 30, 2019
(2) Allowance for credit losses on loans at September 30, 2020, and June 30, 2020, Allowance for loan losses for the quarter ended September 30, 2019
(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      September 30,       June 30,       March 31,       December 31,       September 30,   
(in $000’s, unaudited)   2020   2020   2020   2019   2019  
Nonaccrual loans - held-for-investment   $ 9,661   $ 8,457   $ 11,646   $ 8,675   $ 13,638  
Restructured and loans over 90 days past due                                
and still accruing     601     668     442     1,153     609  
Total nonperforming loans     10,262     9,125     12,088     9,828     14,247  
Foreclosed assets                      
Total nonperforming assets   $ 10,262   $ 9,125   $ 12,088   $ 9,828   $ 14,247  
Other restructured loans still accruing   $ 98   $ 64   $ 103   $ 436   $ 247  
Net charge-offs (recoveries) during the quarter   $ 219   $ 373   $ 422   $ 5,833   $ 160  
Provision for credit losses on loans during the quarter(1)   $ 197   $ 1,114   $ 13,270   $ 3,223   $ (576)  
Adoption of Topic 326   $   $   $ 8,570   $   $  
Allowance for credit losses on loans(2)   $ 45,422   $ 45,444   $ 44,703   $ 23,285   $ 25,895  
Classified assets   $ 33,024   $ 31,452   $ 39,603   $ 32,579   $ 20,225  
Allowance for credit losses on loans to total loans(2)     1.68 %   1.69 %   1.75 %   0.92 %   1.38 %
Allowance for credit losses on loans to total nonperforming loans(2)     442.62 %   498.02 %   369.81 %   236.93 %   181.76 %
Nonperforming assets to total assets     0.22 %   0.20 %   0.30 %   0.24 %   0.45 %
Nonperforming loans to total loans     0.38 %   0.34 %   0.47 %   0.39 %   0.76 %
Classified assets to Heritage Commerce Corp                                
Tier 1 capital plus allowance for credit losses on loans(2)     7 %   7 %   9 %   8 %   6 %
Classified assets to Heritage Bank of Commerce                                
Tier 1 capital plus allowance for credit losses on loans(2)     7 %   7 %   9 %   7 %   6 %
                                 
OTHER PERIOD-END STATISTICS                                     
(in $000’s, unaudited)                                     
Heritage Commerce Corp:                                
Tangible common equity (3)   $ 392,548   $ 388,583   $ 384,513   $ 388,873   $ 301,247  
Shareholders’ equity / total assets     12.54 %   12.46 %   14.01 %   14.03 %   12.42 %
Tangible common equity / tangible assets (4)     8.88 %   8.78 %   9.88 %   9.92 %   9.75 %
Loan to deposit ratio     69.32 %   68.88 %   75.86 %   74.20 %   69.74 %
Noninterest-bearing deposits / total deposits     43.65 %   43.95 %   42.91 %   42.49 %   40.72 %
Total risk-based capital ratio     16.0 %   15.9 %   14.8 %   14.6 %   16.2 %
Tier 1 risk-based capital ratio     13.5 %   13.4 %   12.5 %   12.5 %   13.3 %
Common Equity Tier 1 risk-based capital ratio     13.5 %   13.4 %   12.5 %   12.5 %   13.3 %
Leverage ratio     9.3 %   9.4 %   10.3 %   9.8 %   10.0 %
Heritage Bank of Commerce:                                
Total risk-based capital ratio     15.2 %   15.1 %   14.1 %   13.9 %   15.2 %
Tier 1 risk-based capital ratio     14.1 %   14.0 %   13.0 %   13.1 %   14.1 %
Common Equity Tier 1 risk-based capital ratio     14.1 %   14.0 %   13.0 %   13.1 %   14.1 %
Leverage ratio     9.7 %   9.9 %   10.7 %   10.2 %   10.6 %

______________________

(1) Provision for credit losses on loans for the quarters ended September 30, 2020, June 30, 2020 and March 31, 2020, Provision (credit) for loan losses for the prior periods
(2) Allowance for credit losses on loans at September 30, 2020, June 30, 2020 and 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  
    September 30, 2020   September 30, 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)   $ 2,669,694   $ 32,635     4.86 % $ 1,855,840     27,264     5.83 %
Securities - taxable     550,423     2,481     1.79 %   629,339     3,504     2.21 %
Securities - exempt from Federal tax (3)     72,625     586     3.21 %   83,403     671     3.19 %
Other investments and interest-bearing deposits                                      
in other financial institutions     911,160     673     0.29 %   310,008     1,952     2.50 %
Total interest earning assets (3)     4,203,902     36,375     3.44 %   2,878,590     33,391     4.60 %
Cash and due from banks     36,505                 37,615              
Premises and equipment, net     9,884                 6,933              
Goodwill and other intangible assets     185,879                 94,441              
Other assets     126,242                 85,464              
Total assets   $ 4,562,412               $ 3,103,043              
                                       
Liabilities and shareholders’ equity:                                      
Deposits:                                      
Demand, noninterest-bearing   $ 1,700,972               $ 1,041,712              
                                       
Demand, interest-bearing     934,892     506     0.22 %   670,203     571     0.34 %
Savings and money market     1,052,800     762     0.29 %   737,484     1,073     0.58 %
Time deposits - under $100     17,298     16     0.37 %   18,549     23     0.49 %
Time deposits - $100 and over     121,949     219     0.71 %   127,314     373     1.16 %
CDARS - money market and time deposits     18,741     1     0.02 %   16,990     2     0.05 %
Total interest-bearing deposits     2,145,680     1,504     0.28 %   1,570,540     2,042     0.52 %
Total deposits     3,846,652     1,504     0.16 %   2,612,252     2,042     0.31 %
                                       
Subordinated debt, net of issuance costs     39,663     583     5.85 %   39,477     583     5.86 %
Short-term borrowings     96         0.00 %   151         0.00 %
Total interest-bearing liabilities     2,185,439     2,087     0.38 %   1,610,168     2,625     0.65 %
Total interest-bearing liabilities and demand,                                      
noninterest-bearing / cost of funds     3,886,411     2,087     0.21 %   2,651,880     2,625     0.39 %
Other liabilities     99,866                 60,077              
Total liabilities     3,986,277                 2,711,957              
Shareholders’ equity     576,135                 391,086              
Total liabilities and shareholders’ equity   $ 4,562,412               $ 3,103,043              
                                       
Net interest income (3) / margin           34,288     3.24 %         30,766     4.24 %
Less tax equivalent adjustment (3)           (123)                 (141)        
Net interest income         $ 34,165               $ 30,625        

__________________________

(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 $1,441,000 for the third quarter of 2020 (of which $1,305,000 was from PPP loans), compared to $189,000 for the third 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  
    September 30, 2020   June 30, 2020  
                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)   $ 2,669,694   $ 32,635   4.86 % $ 2,687,093   $ 32,845   4.92 %
Securities - taxable     550,423     2,481   1.79 %   611,709     3,155   2.07 %
Securities - exempt from Federal tax (3)     72,625     586   3.21 %   76,160     612   3.23 %
Other investments and interest-bearing deposits                                  
   in other financial institutions     911,160     673   0.29 %   700,711     648   0.37 %
Total interest earning assets (3)     4,203,902     36,375   3.44 %   4,075,673     37,260   3.68 %
Cash and due from banks     36,505               37,716            
Premises and equipment, net     9,884               9,096            
Goodwill and other intangible assets     185,879               186,716            
Other assets     126,242               125,037            
Total assets   $ 4,562,412             $ 4,434,238            
                                   
Liabilities and shareholders’ equity:                                  
Deposits:                                  
Demand, noninterest-bearing   $ 1,700,972             $ 1,660,547            
                                   
Demand, interest-bearing     934,892     506   0.22 %   890,158     525   0.24 %
Savings and money market     1,052,800     762   0.29 %   1,009,078     794   0.32 %
Time deposits - under $100     17,298     16   0.37 %   17,825     18   0.41 %
Time deposits - $100 and over     121,949     219   0.71 %   127,877     277   0.87 %
CDARS - money market and time deposits     18,741     1   0.02 %   15,365     1   0.03 %
Total interest-bearing deposits     2,145,680     1,504   0.28 %   2,060,303     1,615   0.32 %
Total deposits     3,846,652     1,504   0.16 %   3,720,850     1,615   0.17 %
                                   
Subordinated debt, net of issuance costs     39,663     583   5.85 %   39,617     577   5.86 %
Short-term borrowings     96       0.00 %   62       0.00 %
Total interest-bearing liabilities     2,185,439     2,087   0.38 %   2,099,982     2,192   0.42 %
Total interest-bearing liabilities and demand,                                  
noninterest-bearing / cost of funds     3,886,411     2,087   0.21 %   3,760,529     2,192   0.23 %
Other liabilities     99,866               100,770            
Total liabilities     3,986,277               3,861,299            
Shareholders’ equity     576,135               572,939            
Total liabilities and shareholders’ equity   $ 4,562,412             $ 4,434,238            
                                   
Net interest income (3) / margin           34,288   3.24 %         35,068   3.46 %
Less tax equivalent adjustment (3)           (123)               (128)      
Net interest income         $ 34,165             $ 34,940      
                                   

__________________________

(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 1,441,000 for the third quarter of 2020 (of which $1,305,000 was from PPP loans), compared to $773,000 for the second quarter of 2020 (of which $637,000 was from PPP loans).
(3) Reflects the fully tax equivalent adjustment for Federal tax-exempt income based on a 21%.


                                   
    For the Nine Months Ended   For the Nine Months Ended  
    September 30, 2020   September 30, 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)   $ 2,623,672   $ 100,262     5.10 % $ 1,842,870   $ 81,321     5.90 %
Securities - taxable     610,590     9,584     2.10 %   692,369     12,149     2.35 %
Securities - exempt from Federal tax (3)     76,371     1,845     3.23 %   84,882     2,057     3.24 %
Other investments, interest-bearing deposits in other                                  
   financial institutions and Federal funds sold     671,753     3,022     0.60 %   249,473     5,094     2.73 %
Total interest earning assets (3)     3,982,386     114,713     3.85 %   2,869,594     100,621     4.69 %
Cash and due from banks     39,575               37,293            
Premises and equipment, net     9,198               7,024            
Goodwill and other intangible assets     186,697               94,976            
Other assets     126,211               85,312            
Total assets   $ 4,344,067             $ 3,094,199            
                                   
Liabilities and shareholders’ equity:                                  
Deposits:                                  
Demand, noninterest-bearing