• Heritage Commerce Corp Earns $10.2 Million for the First Quarter of 2024 and Grows Client Deposits by 2%

    Источник: Nasdaq GlobeNewswire / 25 апр 2024 17:43:13   America/Chicago

    SAN JOSE, Calif., April 25, 2024 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (Nasdaq: HTBK), (the “Company”), the holding company for Heritage Bank of Commerce (the “Bank”), today announced that its first quarter 2024 net income was $10.2 million, or $0.17 per average diluted common share, compared to $18.9 million, or $0.31 per average diluted common share, for the first quarter of 2023, and $13.3 million, or $0.22 per average diluted common share, for the fourth quarter of 2023. All data are unaudited.

    “Our first quarter 2024 earnings were solid, highlighted by total client deposits increasing over $66 million from the prior quarter and the loan portfolio increasing over $74 million, year-over-year,” said Clay Jones, President and Chief Executive Officer.  “First quarter earnings typically reflect increased seasonal expenses such as payroll taxes and other employee benefits, and this first quarter was no exception. While we benefit from higher yields on assets, we continue to see a modest impact on the increase cost of our deposits causing a slight compression in our net interest margin. The Bank’s credit quality remains strong, supported by sound reserves for potential credit losses.” 

    “Heritage Bank of Commerce was honored to be recently recognized on Forbes’ List of World’s Best Banks and ranked 25th on S&P Global Market Intelligence's top 50 list of best-performing community banks. These prestigious recognitions underscore our commitment to excellence, sound financial management and our dedication to serving our client community,” added Mr. Jones.

    “This year we celebrate the Bank’s 30th anniversary, a milestone that speaks to the dedication of our team members, the trust of our loyal clients, and our unwavering commitment to supporting our communities,” said Mr. Jones. "With this support, we have created a vibrant franchise, and remain optimistic about the future of our Company.”

    First Quarter Ended March 31, 2024
    Operating Results, Current Liquidity Position, Financial Condition, Credit Quality, and Capital Management

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

    Operating Results:

    • Diluted earnings per share were $0.17 for the first quarter of 2024, compared to $0.31 for the first quarter of 2023, and $0.22 for the fourth quarter of 2023.
    • The following table indicates the ratios for the return on average tangible assets and the return on average tangible common equity for the periods indicated:
               
      For the Quarter Ended: 
      March 31, December 31, March 31, 
    (unaudited) 2024 2023 2023 
    Return on average assets 0.79%  1.00%  1.47%  
    Return on average tangible assets(1) 0.82%  1.04%  1.52%  
    Return on average equity 6.08%  7.96%  12.03%  
    Return on average tangible common equity(1) 8.24%  10.84%  16.71%  
                  


    _____________________
    (1)Financial results are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with reference to certain non-GAAP financial measures. Management believes that the presentation of certain non-GAAP financial measures such as the Company’s return on tangible assets and return on tangible common equity ratios provide useful supplemental information to investors as a financial measure commonly used in the banking industry.  A reconciliation of GAAP to non-GAAP financial measures are presented in the tables at the end of this earnings release.
    ____________________
      

    Net Interest Income:

    • Net interest income decreased (19%) to $40.1 million for the first quarter of 2024, compared to $49.3 million for the first quarter of 2023. The fully tax equivalent (“FTE”) net interest margin contracted (75 basis points) to 3.34% for the first quarter of 2024, from 4.09% for the first quarter of 2023, primarily due to higher rates paid on customer deposits, a decrease in the average balances of noninterest-bearing demand deposits, a decrease in average interest earning assets, and decreases in average balances of higher yielding asset-based loans and Bay View Funding factored receivables, partially offset by an increase in the rate on overnight funds. 
    • Net interest income decreased (5%) to $40.1 million for the first quarter of 2024, compared to $42.3 million for the fourth quarter of 2023.  The FTE net interest margin contracted (7 basis points) to 3.34% for the first quarter of 2024 from 3.41% for the fourth quarter of 2023, primarily due to higher rates paid on customer deposits, and a decrease in the average balances of noninterest-bearing demand deposits resulting in a lower average balance of overnight funds, partially offset by higher average yields on loans and overnight funds, and an increase in the average balance of loans.
    • The following tables set forth the estimated changes in the Company’s annual net interest income and economic value of equity that would result from the designated instantaneous parallel shift in interest rates noted, and assuming a flat balance sheet with consistent product mix, as of March 31, 2024:
           
      Increase/(Decrease) in 
      Estimated Net 
    CHANGE IN INTEREST RATES (basis points) Interest Income(1) 
    (in $000's, unaudited) Amount Percent 
    +400 $18,668  10.0 %
    +300 $13,966  7.5 %
    +200 $9,297  5.0 %
    +100 $4,659  2.5 %
    0  —  —  
    −100 $(6,272) (3.4)%
    −200 $(14,475) (7.7)%
    −300 $(24,805) (13.3)%
    −400 $(40,025) (21.4)%


           
      Increase/(Decrease) in 
      Estimated Economic 
    CHANGE IN INTEREST RATES (basis points) Value of Equity(1) 
    (in $000's, unaudited) Amount Percent 
    +400 $104,038  8.6 %
    +300 $88,095  7.3 %
    +200 $66,340  5.5 %
    +100 $37,610  3.1 %
    0  —  —  
    −100 $(61,930) (5.1)%
    −200 $(151,250) (12.5)%
    −300 $(268,857) (22.2)%
    −400 $(418,343) (34.5)%


    _______________________
    (1)Computations of prospective effects of hypothetical interest rate changes are for illustrative purposes only, are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. These projections are forward-looking and should be considered in light of the Forward-Looking Statement Disclaimer below. Actual rates paid on deposits may differ from the hypothetical interest rates modeled due to competitive or market factors, which could reduce any actual impact on net interest income.
    _______________________
     
    • The following tables present the average balance of loans outstanding, interest income, and the average yield for the periods indicated:
      For the Quarter Ended For the Quarter Ended 
      March 31, 2024 December 31, 2023 
      Average Interest Average Average Interest Average 
    (in $000’s, unaudited) Balance Income Yield Balance Income Yield 
    Loans, core bank $2,779,487  $37,339 5.40%$2,758,935  $37,303 5.36%
    Prepayment fees  —   24 0.00% —   91 0.01%
    Asset-based lending  15,864   382 9.68% 14,717   371 10.00%
    Bay View Funding factored receivables  53,511   2,838 21.33% 52,861   2,803 21.04%
    Purchased residential mortgages  454,240   3,788 3.35% 459,268   3,812 3.29%
    Loan fair value mark / accretion  (3,113)  229 0.03% (3,352)  255 0.04%
    Total loans (includes loans held-for-sale) $3,299,989  $44,600 5.44%$3,282,429  $44,635 5.39%


     •The average yield on the total loan portfolio increased to 5.44% for the first quarter of 2024, compared to 5.39% for the fourth quarter of 2023, primarily due to higher loan yields on the core bank, and higher average balances of higher yielding asset-based lending loans and Bay View Funding factored receivables.
       
     •The average yield on the total loan portfolio decreased to 5.44% for the first quarter of 2024, compared to 5.46% for the first quarter of 2023, primarily due to lower average balances of higher yielding asset-based lending loans and Bay View Funding factored receivables, a decrease in the accretion of loan purchase discount into interest income from acquired loans, and lower prepayment fees, partially offset by increases in the prime rate.
       
     •In aggregate, the unamortized net purchase discount on total loans acquired was $3.0 million at March 31, 2024.
       
    • The following table presents the average balance of deposits and interest-bearing liabilities, interest expense, and the average rate for the periods indicated:
                      
      For the Quarter Ended For the Quarter Ended 
      March 31, 2024 December 31, 2023 
      Average Interest Average Average Interest Average 
    (in $000’s, unaudited) Balance Expense Rate Balance Expense Rate 
    Deposits:                 
    Demand, noninterest-bearing $1,177,078      $1,243,222      
                      
    Demand, interest-bearing  920,048 $1,554 0.68% 948,061 $1,661 0.70%
    Savings and money market  1,067,581  6,649 2.50% 1,096,962  6,216 2.25%
    Time deposits - under $100  10,945  42 1.54% 11,389  37 1.29%
    Time deposits - $100 and over  221,211  2,064 3.75% 234,140  2,130 3.61%
    Insured Cash Sweep ("ICS")/Certificate of Deposit Registry                 
    Service ("CDARS") - interest-bearing demand, money market                 
    and time deposits  963,287  6,611 2.76% 920,976  6,009 2.59%
    Total interest-bearing deposits  3,183,072  16,920 2.14% 3,211,528  16,053 1.98%
    Total deposits  4,360,150  16,920 1.56% 4,454,750  16,053 1.43%
                      
    Short-term borrowings  15  — 0.00% 29  — 0.00%
    Subordinated debt, net of issuance costs  39,516  538 5.48% 39,477  538 5.41%
    Total interest-bearing liabilities  3,222,603  17,458 2.18% 3,251,034  16,591 2.02%
    Total interest-bearing liabilities and demand,                 
    noninterest-bearing / cost of funds $4,399,681 $17,458 1.60%$4,494,256 $16,591 1.46%


     •The average cost of total deposits increased to 1.56% for the first quarter of 2024, compared to 1.43% for the fourth quarter of 2023.   The average cost of funds increased to 1.60% for the first quarter of 2024, compared to 1.46% for the fourth quarter of 2023. The average cost of deposits was 0.54% and the average cost of funds was 0.63% for the first quarter of 2023.
       
     •The increase in the average cost of total deposits and the average cost of funds for the first quarter of 2024 was primarily due to clients seeking higher yields and moving noninterest-bearing deposits to the Bank’s ICS/CDARS deposits and interest-bearing money market accounts.
       

    Provision for Credit Losses on Loans:

    • During the first quarter of 2024, we recorded a provision for credit losses on loans of $184,000, compared to a $32,000 provision for credit losses on loans for the first quarter of 2023, and a provision for credit losses on loans of $289,000 for the fourth quarter of 2023.

    Noninterest Income:

    • Total noninterest income decreased (26%) to $2.0 million for the first quarter of 2024, compared to $2.8 million for the first quarter of 2023, primarily due to lower service charges and fees on deposit accounts during the first quarter of 2024. Total noninterest income remained relatively flat for the first quarter of 2024, compared to the fourth quarter of 2023.

    Noninterest Expense:

    • Total noninterest expense for the first quarter of 2024 increased to $27.5 million, compared to $25.4 million for the first quarter of 2023,  primarily due to higher salaries and employee benefits which are seasonal in nature, and higher marketing related expenses, insurance costs, regulatory assessments, information technology related expenses, and ICS/CDARS fee expense included in other noninterest expense. Total noninterest expense for the first quarter of 2024 increased to $27.5 million, compared to $25.5 million for the fourth quarter of 2023, primarily due to higher employee benefits.   
    • Full time equivalent employees were 351 at March 31, 2024, and 339 at March 31, 2023, and 349 at December 31, 2023.  
    • The efficiency ratio increased to 65.34% for the first quarter of 2024, compared to 48.83% for the first quarter of 2023, and 57.62% for the fourth quarter of 2023, primarily due to lower total revenue and higher noninterest expense during the first quarter of 2024.

    Income Tax Expense:

    • Income tax expense was $4.3 million for the first quarter of 2024, compared to $7.7 million for the first quarter of 2023, and $5.1 million for the fourth quarter of 2023. The effective tax rate for the first quarter of 2024 was 29.5%, compared to 28.9% for the first quarter of 2023, and 27.8% for the fourth quarter of 2023.

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

    Liquidity and Available Lines of Credit:

    • The following table shows our liquidity, available lines of credit and the amounts outstanding at March 31, 2024:
              
    LIQUIDITY AND AVAILABLE LINES OF CREDIT Total   Remaining
    (in $000’s, unaudited) Available Outstanding Available
    Excess funds at the Federal Reserve Bank ("FRB") $490,000 $— $490,000
    FRB discount window collateralized line of credit  1,245,362  —  1,245,362
    Federal Home Loan Bank ("FHLB") collateralized borrowing capacity  1,097,518  —  1,097,518
    Unpledged investment securities (at fair value)  55,358  —  55,358
    Federal funds purchase arrangements  90,000  —  90,000
    Holding company line of credit  20,000  —  20,000
    Total $2,998,238 $— $2,998,238


     •The Company’s total available liquidity and borrowing capacity was $3.00 billion at March 31, 2024. The Company’s total available liquidity and borrowing capacity was $2.64 billion at March 31, 2023, and $2.87 billion at December 31, 2023.
       
     •The available liquidity and borrowing capacity was 67% of the Company’s total deposits and approximately 149% of the Bank’s estimated uninsured deposits at March 31, 2024. The available liquidity and borrowing capacity was 59% of the Company’s total deposits and approximately 103% of the Bank’s estimated uninsured deposits at March 31, 2023. The available liquidity and borrowing capacity was 66% of the Company’s total deposits and approximately 142% of the Bank’s estimated uninsured deposits at December 31, 2023.
       
     •The loan to deposit ratio was 75.06% at March 31, 2024, compared to 73.39% at March 31, 2023, and 76.52% at December 31, 2023.
       
    • Total assets declined (5%) to $5.26 billion at March 31, 2024, compared to $5.54 billion at March 31, 2023, and increased 1% from $5.19 billion at December 31, 2023.

    Investment Securities:

    • Investment securities totaled $1.04 billion at March 31, 2024, of which $404.5 million were in the securities available-for-sale portfolio (at fair value), and $636.2 million were in the securities held-to-maturity portfolio (at amortized cost, net of allowance for credit losses of $12,000). The fair value of the securities held-to-maturity portfolio was $542.9 million at March 31, 2024.
    • The following table shows the balances of securities available-for-sale, at fair value, and the related pre-tax unrealized (loss) for the periods indicated:
              
    SECURITIES AVAILABLE-FOR-SALE March 31, December 31, March 31,
    (in $000’s, unaudited) 2024  2023  2023 
    Balance (at fair value):         
    U.S. Treasury $347,453  $382,369  $422,903 
    Agency mortgage-backed securities  57,021   60,267   68,848 
    Total $404,474  $442,636  $491,751 
              
    Pre-tax unrealized (loss):         
    U.S. Treasury $(4,784) $(5,621) $(7,510)
    Agency mortgage-backed securities  (4,895)  (4,313)  (4,969)
    Total $(9,679) $(9,934) $(12,479)
                 
    Weighted average life  1.15   1.29   1.88 


     •The pre-tax unrealized loss on the securities available-for-sale portfolio was ($9.7) million, or ($6.9) million net of taxes, which was 1.0% of total shareholders’ equity at March 31, 2024.
       
    • The following table shows the balances of securities held-to-maturity, at amortized cost, and the related pre-tax unrecognized (loss) and allowance for credit losses for the periods indicated:
              
    SECURITIES HELD-TO-MATURITY March 31, December 31, March 31,
    (in $000’s, unaudited) 2024  2023  2023 
    Balance (at amortized cost):         
    Agency mortgage-backed securities $604,458  $618,374  $663,481 
    Municipals — exempt from Federal tax (1)  31,803   32,203   34,764 
    Total (1) $636,261  $650,577  $698,245 
              
    Pre-tax unrecognized (loss):         
    Agency mortgage-backed securities $(92,332) $(85,729) $(89,962)
    Municipals — exempt from Federal tax  (1,071)  (721)  (297)
    Total $(93,403) $(86,450) $(90,259)
              
    Allowance for credit losses on municipal securities $(12) $(12) $(14)
                 
    Weighted average life  6.59   6.57   6.95 


    ________________________________
    (1)  Gross of the allowance for credit losses of ($12,000) at both March 31, 2024 and December 31, 2023, and ($14,000) at March 31, 2023.
    ________________________________


     •The pre-tax unrecognized loss on the securities held-to-maturity portfolio was ($93.4) million, or ($65.8) million net of taxes, which was 9.7% of total shareholders’ equity at March 31, 2024.
       
    • The unrealized and unrecognized losses in both the available-for-sale and held-to-maturity portfolios were due to higher interest rates at March 31, 2024 compared to when the securities were purchased. The issuers are of high credit quality and all principal amounts are expected to be repaid when the securities mature. The fair value is expected to recover as the securities approach their maturity date and/or market rates decline.
    • The following are the projected cash flows from paydowns and maturities in the investment securities portfolio for the periods indicated based on the current interest rate environment:
              
         Agency   
         Mortgage-   
    PROJECTED INVESTMENT SECURITIES   backed and  
    PAYDOWNS & MATURITIES U.S. Municipal  
    (in $000’s, unaudited) Treasury Securities Total
    Second quarter of 2024 $131,000 $22,245 $153,245
    Third quarter of 2024  37,500  21,031  58,531
    Fourth quarter of 2024  9,000  19,442  28,442
    First quarter of 2025  35,000  18,851  53,851
    Second quarter of 2025  118,000  18,381  136,381
    Third quarter of 2025  25,500  19,583  45,083
    Fourth quarter of 2025  —  18,035  18,035
    First quarter of 2026  —  17,136  17,136
    Total $356,000 $154,704 $510,704


     •The weighted average life of the total investment securities portfolio was 4.44 years at March 31, 2024, compared to 4.82 years at March 31, 2023, and 4.40 years at December 31, 2023.
       

    Loans:

    • The following table 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, 2024 December 31, 2023 March 31, 2023 
    (in $000’s, unaudited) Balance % to Total Balance % to Total Balance % to Total 
    Commercial $452,231  14%$463,778  14%$506,602  16%
    Real estate:                
    CRE - owner occupied  585,031  17% 583,253  17% 603,298  18%
    CRE - non-owner occupied  1,271,184  38% 1,256,590  37% 1,083,852  33%
    Land and construction  129,712  4% 140,513  4% 166,408  5%
    Home equity  122,794  4% 119,125  4% 124,481  4%
    Multifamily  269,263  8% 269,734  8% 231,242  7%
    Residential mortgages  490,035  15% 496,961  15% 528,639  16%
    Consumer and other  16,439  < 1% 20,919  1% 17,905  1%
    Total Loans  3,336,689  100% 3,350,873  100% 3,262,427  100%
    Deferred loan costs (fees), net  (587) —  (495) —  (512) — 
    Loans, net of deferred costs and fees $3,336,102  100%$3,350,378  100%$3,261,915  100%
     


     •Loans, excluding loans held-for-sale, increased $74.2 million, or 2%, to $3.34 billion at March 31, 2024, compared to $3.26 billion at March 31, 2023, and decreased ($14.3) million from $3.35 billion at December 31, 2023.  Core loans, excluding residential mortgages, increased $112.8 million, or 4%, to $2.85 billion at March 31, 2024, compared to $2.73 billion at March 31, 2023, and remained relatively flat from $2.85 billion at December 31, 2023. 
       
     •Commercial and industrial (“C&I”) line utilization was 28% at March 31, 2024, compared to 31% at March 31, 2023, and 29% at December 31, 2023.
       
     •Commercial real estate (“CRE”) loans totaled $1.86 billion at March 31, 2024, of which 32% were owner occupied and 68% were investor CRE loans. There was 36% of the CRE loan portfolio secured by owner occupied real estate at March 31, 2023, and 32% at December 31, 2023. 


     •During the first quarter of 2024, there were 23 new CRE loans originated totaling $40 million with a weighted average loan-to-value (“LTV”) and debt-service coverage ratio (“DSCR”) for the non-owner occupied portfolio of 51% and 1.84 times, respectively.
       
     •The average loan size for all CRE loans was $1.6 million, and the average loan size for office CRE loans was also $1.6 million.
       
     •The Company has personal guarantees on 92% of its CRE portfolio. A substantial portion of the unguaranteed CRE loans were made to credit-worthy non-profit organizations.
       
     •Total office exposure (excluding medical/dental offices) in the CRE portfolio was $398 million, including 29 loans totaling approximately $74 million in San Jose, 17 loans totaling approximately $26 million in San Francisco, and eight loans totaling approximately $16 million, in Oakland, at March 31, 2024. Non-owner occupied CRE with office exposure totaled $311 million at March 31, 2024.
       
     •At March 31, 2024, the weighted average LTV and DSCR for the entire non-owner occupied office portfolio were 42.6% and 1.83 times, respectively.
       
     •Total medical/dental office exposure in the non-owner occupied CRE portfolio consisted of 14 loans totaling $16.8 million, with a weighted average LTV and DSCR of 46.1% and 2.02 times, respectively, at March 31, 2024.
       
     •The following table presents the weighted average LTV and DSCR by collateral type for CRE loans at March 31, 2024:

     

      CRE - Non-owner Occupied CRE - Owner Occupied Total CRE
    Collateral Type Outstanding LTV DSCR Outstanding LTV Outstanding LTV
    Industrial  19%  40.7%  2.40   33%  43.7%  23%  41.8%
    Retail  25%  38.8%  1.99   16%  47.3%  23%  40.3%
    Mixed-Use, Special                            
    Purpose and Other  18%  42.5%  1.98   35%  41.1%  22%  41.9%
    Office  20%  42.6%  1.83   16%  41.9%  19%  42.4%
    Multifamily  18%  42.8%  1.93   0%  0.0%  13%  42.8%
    Hotel/Motel  < 1%  19.7%  1.88   0%  0.0%  < 1%  19.7%
    Total  100%  41.2%  2.03   100%  43.0%  100%  41.7%


     •The following table presents the weighted average LTV and DSCR by county for CRE loans at March 31, 2024:


      CRE - Non-owner Occupied CRE - Owner Occupied Total CRE
    County Outstanding LTV DSCR Outstanding LTV Outstanding LTV
    Alameda  25%  45.1%  1.92   18%  45.0%  23%  45.1%
    Contra Costa  7%  42.5%  1.76   8%  48.5%  7%  44.3%
    Marin  7%  46.8%  1.95   2%  52.8%  5%  47.4%
    Monterey  2%  44.4%  1.78   2%  45.9%  2%  44.8%
    Napa  1%  29.6%  2.44   1%  52.7%  1%  37.6%
    Out of Area  9%  43.0%  2.11   9%  51.6%  9%  45.4%
    San Benito  1%  35.3%  2.13   2%  40.7%  1%  37.5%
    San Francisco  9%  39.0%  1.75   4%  38.6%  8%  38.9%
    San Mateo  10%  37.4%  2.14   15%  40.1%  12%  38.4%
    Santa Clara  24%  38.2%  2.25   36%  40.2%  27%  38.9%
    Santa Cruz  2%  35.7%  1.87   1%  46.1%  2%  37.5%
    Solano  1%  32.8%  2.33   1%  35.9%  1%  33.5%
    Sonoma  2%  41.3%  2.23   1%  38.5%  2%  40.8%
    Total  100%  41.2%  2.03   100%  43.0%  100%  41.7%
     
    • The following table presents the maturity distribution of the Company’s loans, excluding loans held-for-sale, as of March 31, 2024. The table shows the distribution of such loans between those loans with predetermined (fixed) interest rates and those with variable (floating) interest rates. Floating rates generally fluctuate with changes in the prime rate as reflected in the Western Edition of The Wall Street Journal, and contractual repricing dates.
                          
      Due in Over One Year But         
    LOAN MATURITIES One Year or Less Less than Five Years Over Five Years   
    (in $000’s, unaudited) Balance % to Total Balance % to Total Balance % to Total Total
    Loans with variable interest rates $328,683 37% $281,761 32% $272,620 31% $883,064
    Loans with fixed interest rates  78,160 3%  631,435 26%  1,744,030 71%  2,453,625
    Loans $406,843 12% $913,196 27% $2,016,650 61% $3,336,689


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

    Credit Quality: 

    • The following table summarizes the allowance for credit losses on loans (“ACLL”) for the periods indicated:
               
      At or For the Quarter Ended: 
    ALLOWANCE FOR CREDIT LOSSES ON LOANS March 31, December 31, March 31, 
    (in $000’s, unaudited) 2024  2023  2023  
    Balance at beginning of period $47,958  $47,702  $47,512  
    Charge-offs during the period  (358)  (160)  (380) 
    Recoveries during the period  104   127   109  
    Net recoveries (charge-offs) during the period  (254)  (33)  (271) 
    Provision for credit losses on loans during the period  184   289   32  
    Balance at end of period $47,888  $47,958  $47,273  
               
    Total loans, net of deferred fees $3,336,102  $3,350,378  $3,261,915  
    Total nonperforming loans $7,871  $7,707  $2,240  
    ACLL to total loans  1.44 % 1.43 % 1.45 %
    ACLL to total nonperforming loans  608.41 % 622.27 % 2,110.40 %


      • The following table shows the drivers of change in ACLL for the first quarter of 2024:


    DRIVERS OF CHANGE IN ACLL  
    (in $000’s, unaudited)  
    ACLL at December 31, 2023 $47,958 
    Portfolio changes during the first quarter of 2024  (234)
    Qualitative and quantitative changes during the first   
    quarter of 2024 including changes in economic forecasts  164 
    ACLL at March 31, 2024 $47,888 
     
    • The following is a breakout of nonperforming assets (“NPAs”) at the periods indicated:
                     
    NONPERFORMING ASSETS March 31, 2024 December 31, 2023 March 31, 2023 
    (in $000’s, unaudited) Balance % of Total Balance % of Total Balance % of Total 
    Land and construction loans $4,673 59%$4,661 60%$— 0%
    Loans over 90 days past due and still accruing  1,951 25% 889 12% 1,459 65%
    Commercial loans  1,127 14% 1,236 16% 685 31%
    Home equity and other loans  120 2% 142 2% 96 4%
    Residential mortgages  — 0% 779 10% — 0%
    CRE loans  — 0% — 0% — 0%
    Total nonperforming assets $7,871 100%$7,707 100%$2,240 100%


      • There were 13 borrowers included in NPAs totaling $7.9 million, or 0.15% of total assets, at March 31, 2024, compared to 8 borrowers totaling $2.2 million, or 0.04% of total assets, at March 31, 2023, and 12 borrowers totaling $7.7 million, or 0.15% of total assets at December 31, 2023.
       
      • There were no CRE loans included in NPAs at March 31, 2024, March 31, 2023, or December 31, 2023.
       
      • There were no foreclosed assets on the balance sheet at March 31, 2024, March 31, 2023, or December 31, 2023.
       
      • There were no Shared National Credits (“SNCs”) or material purchased participations included in NPAs or total loans at March 31, 2024, March 31, 2023, or December 31, 2023.
       
    • Classified assets totaled $35.4 million, or 0.67% of total assets, at March 31, 2024, compared to $26.8 million, or 0.48% of total assets, at March 31, 2023, and $31.8 million, or 0.61% of total assets, at December 31, 2023. The increase in classified assets during the first quarter of 2024 was primarily due to the downgrade of one CRE investor loan, which is well collateralized, fully leased, cash-flowing, and personally guaranteed by the principals.

    Deposits:

    • The following table summarizes the distribution of deposits and the percentage of distribution in each category for the periods indicated:
                     
    DEPOSITS March 31, 2024 December 31, 2023 March 31, 2023 
    (in $000’s, unaudited) Balance % to Total Balance % to Total Balance % to Total 
    Demand, noninterest-bearing $1,242,059 28%$1,292,486 30%$1,469,081 33%
    Demand, interest-bearing  925,100 21% 914,066 21% 1,196,789 27%
    Savings and money market  1,124,900 25% 1,087,518 25% 1,264,567 28%
    Time deposits — under $250  38,105 1% 38,055 1% 37,884 1%
    Time deposits — $250 and over  200,739 4% 192,228 4% 172,070 4%
    ICS/CDARS — interest-bearing demand,                
    money market and time deposits  913,757 21% 854,105 19% 304,147 7%
    Total deposits $4,444,660 100%$4,378,458 100%$4,444,538 100%


      •Total deposits were relatively flat at $4.44 billion at both March 31, 2024 and March 31, 2023. Total deposits increased $66.2 million, or 2% from $4.38 billion at December 31, 2023.
       
      •Migration of client deposits into interest-bearing accounts resulted in an increase in ICS/CDARS deposits to $913.8 million at March 31, 2024, compared to $304.1 million at March 31, 2023, and increased $59.7 million from $854.1 million at December 31, 2023.
       
      •Noninterest-bearing demand deposits decreased ($227.0) million, or (15%), to $1.24 billion at March 31, 2024 from $1.47 billion at March 31, 2023, largely in response to the increasing interest rate environment. Noninterest-bearing demand deposits decreased ($50.4) million, or (4%), from $1.29 billion at December 31, 2023. 
       
      •The Bank had 24,730 deposit accounts at March 31, 2024, with an average balance of $180,000, compared to 24,103 deposit accounts at March 31, 2023, with an average balance of $184,000. At December 31, 2023, the Company had 24,737 deposit accounts, with an average balance of $177,000. 
       
      •Deposits from the Bank’s top 100 client relationships, representing 22% of the total number of accounts, totaled $2.05 billion, representing 46% of total deposits, with an average account size of $384,000 at March 31, 2024. At March 31, 2023, deposits from the Bank’s top 100 client relationships, representing 21% of the total number of accounts, totaled $2.20 billion, representing 50% of total deposits, with an average account size of $445,000. At December 31, 2023, deposits from the Bank’s top 100 client relationships, representing 22% of the total number of accounts, totaled $1.96 billion, representing 45% of total deposits, with an average account size of $368,000. 
       
      •The Bank’s uninsured deposits were approximately $2.02 billion, or 45% of the Company's total deposits, at March 31, 2024, compared to $2.56 billion, or 58% of the Company's total deposits, at March 31, 2023, and $2.01 billion, or 46% of the Company's total deposits, at December 31, 2023. 
       

    Capital Management:

    • The Company’s consolidated capital ratios exceeded regulatory guidelines and the Bank’s capital ratios exceeded regulatory guidelines under the prompt corrective action (“PCA”) regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at March 31, 2024, as reflected in the following table:
                 
            Well-capitalized  
            Financial  
            Institution Basel III
      Heritage Heritage PCA Minimum
      Commerce Bank of Regulatory Regulatory
    CAPITAL RATIOS (unaudited) Corp Commerce Guidelines Requirements(1)
    Total Capital 15.6% 15.1% 10.0% 10.5%
    Tier 1 Capital 13.4% 13.9% 8.0% 8.5%
    Common Equity Tier 1 Capital 13.4% 13.9% 6.5% 7.0%
    Tier 1 Leverage 10.2% 10.6% 5.0% 4.0%
    Tangible common equity / tangible assets(2) 9.9% 10.2% N/A  N/A 


    _____________________________
    (1)Basel III minimum regulatory requirements for both the Company and the Bank include a 2.5% capital conservation buffer, except the Tier 1 Leverage ratio.
    (2)This is a non-GAAP financial measure that represents shareholders’ equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets. A reconciliation of GAAP to non-GAAP financial measures are presented in the tables at the end of this earnings release.
    _____________________________
     
    • 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) 2024  2023  2023 
    Unrealized loss on securities available-for-sale $(6,936) $(7,116) $(8,924)
    Split dollar insurance contracts liability  (2,861)  (2,809)  (3,139)
    Supplemental executive retirement plan liability  (2,874)  (2,892)  (2,361)
    Unrealized gain on interest-only strip from SBA loans  83   87   107 
    Total accumulated other comprehensive loss $(12,588) $(12,730) $(14,317)
              

    Heritage Commerce Corp, a bank holding company established in October 1997, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose, CA with full-service branches in Danville, Fremont, Gilroy, Hollister, Livermore, Los Altos, Los Gatos, Morgan Hill, Oakland, Palo Alto, Pleasanton, Redwood City, San Francisco, San Jose, San Mateo, San Rafael, and Walnut Creek. Heritage Bank of Commerce is an SBA Preferred Lender. Bay View Funding, a subsidiary of Heritage Bank of Commerce, is based in San Jose, CA and provides business-essential working capital factoring financing to various industries throughout the United States. For more information, please visit www.heritagecommercecorp.com. The contents of our website are not incorporated into, and do not perform a part of, this release or of our filings with the Securities and Exchange Commission.

    Forward-Looking Statement Disclaimer

    Certain matters discussed in this press release constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements may be deemed to include, among other things, statements relating to the Company’s future financial performance, projected cash flows of our investment securities portfolio, the performance of our loan portfolio, estimated net interest income resulting from a shift in interest rates, expectation of high credit quality issuers ability to repay, as well as statements relating to the anticipated effects on the Company’s financial condition and results of operations from expected developments or events. Any statements that reflect our belief about, confidence in, or expectations for future events, performance or condition should be considered forward-looking statements. Readers should not construe these statements as assurances of a given level of performance, nor as promises that we will take actions that we currently expect to take. All statements are subject to various risks and uncertainties, many of which are outside our control and some of which may fall outside our ability to predict or anticipate. Accordingly, our actual results may differ materially from our projected results, and we may take actions or experience events that we do not currently expect. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission (“SEC”), Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, and the following: (1) factors that affect our liquidity and our ability to meet customer demands for deposit withdrawals, including our cash on hand and the availability of funds from our lines of credit; (2) media items and consumer confidence as those factors affect depositors’ confidence in the banking system generally and in our bank specifically; (3) factors that affect the value and liquidity of our investment portfolios, particularly the values of securities available-for-sale; (4) market fluctuations that affect the costs we pay for sources of funding, including the interest we pay on deposits and loans; (5) effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Federal Open Market Committee of the Federal Reserve Board and other factors that affect market interest rates generally; (6) our ability to estimate accurately, and to establish adequate reserves against, the risk of loss associated with our loan and lease portfolio; (7) events and circumstances that affect our borrowers' financial condition, results of operations and cash flows, which may, during periods of economic uncertainty or decline, adversely affect those borrowers' ability to repay our loans timely and in full, or to comply with their other obligations under our loan agreements with those customers; (8) geopolitical and domestic political developments, including recent, current and potential future wars and international and multinational conflicts, acts of terrorism, insurrection, piracy and civil unrest, and events reflecting or resulting from social instability, any of which can increase levels of political and economic unpredictability, contribute to rising energy and commodity prices, can affect the physical security of our assets and the assets of our customers, and which may increase the volatility of financial markets; (9) 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; (10) inflationary pressures and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans to customers, whether held in the portfolio or in the secondary market; (11) changes in the level of nonperforming assets and charge offs and other credit quality measures, and their impact on the adequacy of our allowance for credit losses and our provision for credit losses; (12) volatility in credit and equity markets and its effect on the global economy; (13) conditions relating to the impact of recent and potential future pandemics, epidemics and other infectious illness outbreaks that may arise in the future, on our customers, employees, businesses, liquidity, financial results and overall condition including severity and duration of the associated uncertainties in U.S. and global markets; (14) our ability to compete effectively with other banks and financial services companies and the effects of competition in the financial services industry on our business; (15) our ability to achieve loan growth and attract deposits in our market area; (16) risks associated with concentrations in real estate related loans; (17) the relative strength or weakness of the commercial and real estate markets where our borrowers are located, including related vacancy rates, and asset and market prices; (18) 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; (19) regulatory limits and practical factors that affect Heritage Bank of Commerce’s ability to pay dividends to the Company; (20) 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; (21) 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; (22) possible adjustment of the valuation of our deferred tax assets or of the goodwill associated with previous acquisitions; (23) our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks, including those posed by the increasing use of artificial intelligence, such as data security breaches, “denial of service” attacks, “hacking” and identity theft affecting us or third party vendors or service providers; (24) inability of our framework to manage risks associated with our business, including operational risk and credit risk; (25) risks of loss of funding of the Small Business Administration (“SBA”) or SBA loan programs, or changes in those programs; (26) compliance with applicable laws and governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities, accounting and tax matters; (27) 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; (28) the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise; (29) availability of and competition for acquisition opportunities; (30) geographic and sociopolitical factors that arise by virtue of the fact that substantially all of our operations are located in the San Francisco Bay Area of Northern California; (31) risks of natural disasters (including earthquakes, fires, and flooding) and other events beyond our control; (32) actions taken, planned, or announced by federal, state, regional and local governments in response to the occurrence or threat of any of the foregoing; and (33) 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: 
    CONSOLIDATED INCOME STATEMENTS March 31, December 31, March 31, December 31, March 31, 
    (in $000’s, unaudited) 2024 2023 2023 2023  2023  
    Interest income $57,551 $58,892 $56,274 (2)%2 %
    Interest expense  17,458  16,591  7,016 5 %149 %
    Net interest income before provision              
    for credit losses on loans  40,093  42,301  49,258 (5)%(19)%
    Provision for credit losses on loans  184  289  32 (36)%475 %
    Net interest income after provision              
    for credit losses on loans  39,909  42,012  49,226 (5)%(19)%
    Noninterest income:              
    Service charges and fees on deposit              
    accounts  877  838  1,743 5 %(50)%
    Increase in cash surrender value of              
    life insurance  518  519  493 0 %5 %
    Gain on sales of SBA loans  178  —  76 N/A 134 %
    Servicing income  90  103  131 (13)%(31)%
    Termination fees  13  25  11 (48)%18 %
    Gain on proceeds from company-owned              
    life insurance  —  25  — (100)%N/A 
    Other  371  432  312 (14)%19 %
    Total noninterest income  2,047  1,942  2,766 5 %(26)%
    Noninterest expense:              
    Salaries and employee benefits  15,509  13,919  14,809 11 %5 %
    Occupancy and equipment  2,443  2,367  2,400 3 %2 %
    Professional fees  1,327  1,085  1,399 22 %(5)%
    Other  8,257  8,120  6,793 2 %22 %
    Total noninterest expense  27,536  25,491  25,401 8 %8 %
    Income before income taxes  14,420  18,463  26,591 (22)%(46)%
    Income tax expense  4,254  5,135  7,674 (17)%(45)%
    Net income $10,166 $13,328 $18,917 (24)%(46)%
                   
    PER COMMON SHARE DATA              
    (unaudited)              
    Basic earnings per share $0.17 $0.22 $0.31 (23)%(45)%
    Diluted earnings per share $0.17 $0.22 $0.31 (23)%(45)%
    Weighted average shares outstanding - basic  61,186,623  61,118,485  60,908,221 0 %0 %
    Weighted average shares outstanding - diluted  61,470,552  61,412,816  61,268,072 0 %0 %
    Common shares outstanding at period-end  61,253,625  61,146,835  60,948,607 0 %1 %
    Dividend per share $0.13 $0.13 $0.13 0 %0 %
    Book value per share $11.04 $11.00 $10.62 0 %4 %
    Tangible book value per share(1) $8.17 $8.12 $7.70 1 %6 %
                   
    KEY FINANCIAL RATIOS              
    (unaudited)              
    Annualized return on average equity  6.08% 7.96% 12.03%(24)%(49)%
    Annualized return on average tangible              
    common equity(1)  8.24% 10.84% 16.71%(24) %(51) %
    Annualized return on average assets  0.79% 1.00% 1.47%(21)%(46)%
    Annualized return on average tangible assets(1)  0.82% 1.04% 1.52%(21)%(46)%
    Net interest margin (FTE)  3.34% 3.41% 4.09%(2)%(18)%
    Efficiency ratio  65.34% 57.62% 48.83%13 %34 %
                   
    AVERAGE BALANCES              
    (in $000’s, unaudited)              
    Average assets $5,178,636 $5,264,905 $5,235,506 (2)%(1)%
    Average tangible assets(1) $5,002,597 $5,088,264 $5,057,063 (2)%(1)%
    Average earning assets $4,842,279 $4,923,582 $4,895,009 (2)%(1)%
    Average loans held-for-sale $2,749 $1,612 $2,755 71 %0 %
    Average total loans $3,297,240 $3,280,817 $3,274,770 1 %1 %
    Average deposits $4,360,150 $4,454,750 $4,415,952 (2)%(1)%
    Average demand deposits - noninterest-bearing $1,177,078 $1,243,222 $1,667,260 (5)%(29)%
    Average interest-bearing deposits $3,183,072 $3,211,528 $2,748,692 (1)%16 %
    Average interest-bearing liabilities $3,222,603 $3,251,034 $2,834,732 (1)%14 %
    Average equity $672,292 $664,638 $637,597 1 %5 %
    Average tangible common equity(1) $496,253 $487,997 $459,154 2 %8 %


    __________________
     (1) This is a non-GAAP financial measure. A reconciliation of GAAP to non-GAAP financial measures are presented in the tables at the end of this earnings release.
      


                     
      For the Quarter Ended: 
    CONSOLIDATED INCOME STATEMENTS March 31, December 31, September 30, June 30, March 31, 
    (in $000’s, unaudited) 2024 2023 2023 2023 2023 
    Interest income $57,551 $58,892 $60,791 $58,341 $56,274 
    Interest expense  17,458  16,591  15,419  12,048  7,016 
    Net interest income before provision                
    for credit losses on loans  40,093  42,301  45,372  46,293  49,258 
    Provision for credit losses on loans  184  289  168  260  32 
    Net interest income after provision                
    for credit losses on loans  39,909  42,012  45,204  46,033  49,226 
    Noninterest income:                
    Service charges and fees on deposit                
    accounts  877  838  859  901  1,743 
    Increase in cash surrender value of                
    life insurance  518  519  517  502  493 
    Gain on sales of SBA loans  178  —  207  199  76 
    Servicing income  90  103  62  104  131 
    Termination fees  13  25  118  —  11 
    Gain on proceeds from company-owned                
    life insurance  —  25  100  —  — 
    Other  371  432  353  368  312 
    Total noninterest income  2,047  1,942  2,216  2,074  2,766 
    Noninterest expense:                
    Salaries and employee benefits  15,509  13,919  14,147  13,987  14,809 
    Occupancy and equipment  2,443  2,367  2,301  2,422  2,400 
    Professional fees  1,327  1,085  717  1,149  1,399 
    Other  8,257  8,120  8,006  7,433  6,793 
    Total noninterest expense  27,536  25,491  25,171  24,991  25,401 
    Income before income taxes  14,420  18,463  22,249  23,116  26,591 
    Income tax expense  4,254  5,135  6,454  6,713  7,674 
    Net income $10,166 $13,328 $15,795 $16,403 $18,917 
                     
    PER COMMON SHARE DATA                
    (unaudited)                
    Basic earnings per share $0.17 $0.22 $0.26 $0.27 $0.31 
    Diluted earnings per share $0.17 $0.22 $0.26 $0.27 $0.31 
    Weighted average shares outstanding - basic  61,186,623  61,118,485  61,093,289  61,035,435  60,908,221 
    Weighted average shares outstanding - diluted  61,470,552  61,412,816  61,436,240  61,266,059  61,268,072 
    Common shares outstanding at period-end  61,253,625  61,146,835  61,099,155  61,091,155  60,948,607 
    Dividend per share $0.13 $0.13 $0.13 $0.13 $0.13 
    Book value per share $11.04 $11.00 $10.83 $10.70 $10.62 
    Tangible book value per share(1) $8.17 $8.12 $7.94 $7.80 $7.70 
                     
    KEY FINANCIAL RATIOS                
    (unaudited)                
    Annualized return on average equity  6.08% 7.96% 9.54% 10.12% 12.03%
    Annualized return on average tangible                
    common equity(1)  8.24% 10.84% 13.06% 13.93% 16.71%
    Annualized return on average assets  0.79% 1.00% 1.16% 1.25% 1.47%
    Annualized return on average tangible assets(1)  0.82% 1.04% 1.20% 1.29% 1.52%
    Net interest margin (FTE)  3.34% 3.41% 3.57% 3.76% 4.09%
    Efficiency ratio  65.34% 57.62% 52.89% 51.67% 48.83%
                     
    AVERAGE BALANCES                
    (in $000’s, unaudited)                
    Average assets $5,178,636 $5,264,905 $5,399,930 $5,278,243 $5,235,506 
    Average tangible assets(1) $5,002,597 $5,088,264 $5,222,692 $5,100,399 $5,057,063 
    Average earning assets $4,842,279 $4,923,582 $5,051,710 $4,948,397 $4,895,009 
    Average loans held-for-sale $2,749 $1,612 $2,765 $4,166 $2,755 
    Average total loans $3,297,240 $3,280,817 $3,254,715 $3,227,175 $3,274,770 
    Average deposits $4,360,150 $4,454,750 $4,573,621 $4,424,041 $4,415,952 
    Average demand deposits - noninterest-bearing $1,177,078 $1,243,222 $1,302,606 $1,368,373 $1,667,260 
    Average interest-bearing deposits $3,183,072 $3,211,528 $3,271,015 $3,055,668 $2,748,692 
    Average interest-bearing liabilities $3,222,603 $3,251,034 $3,310,485 $3,157,722 $2,834,732 
    Average equity $672,292 $664,638 $656,973 $650,240 $637,597 
    Average tangible common equity(1) $496,253 $487,997 $479,735 $472,396 $459,154 


    _______________________
    (1)This is a non-GAAP financial measure. A reconciliation of GAAP to non-GAAP financial measures are presented in the tables at the end of this earnings release.
      


                   
      End of Period: Percent Change From: 
    CONSOLIDATED BALANCE SHEETS March 31, December 31, March 31, December 31, March 31, 
    (in $000’s, unaudited) 2024  2023  2023  2023  2023  
    ASSETS              
    Cash and due from banks $32,543  $41,592  $41,318  (22)%(21)%
    Other investments and interest-bearing deposits              
    in other financial institutions  508,816   366,537   698,690  39 %(27)%
    Securities available-for-sale, at fair value  404,474   442,636   491,751  (9)%(18)%
    Securities held-to-maturity, at amortized cost  636,249   650,565   698,231  (2)%(9)%
    Loans held-for-sale - SBA, including deferred costs  1,946   2,205   2,792  (12)%(30)%
    Loans:              
    Commercial  452,231   463,778   506,602  (2)%(11)%
    Real estate:              
    CRE - owner occupied  585,031   583,253   603,298  0 %(3)%
    CRE - non-owner occupied  1,271,184   1,256,590   1,083,852  1 %17 %
    Land and construction  129,712   140,513   166,408  (8)%(22)%
    Home equity  122,794   119,125   124,481  3 %(1)%
    Multifamily  269,263   269,734   231,242  0 %16 %
    Residential mortgages  490,035   496,961   528,639  (1)%(7)%
    Consumer and other  16,439   20,919   17,905  (21)%(8)%
    Loans  3,336,689   3,350,873   3,262,427  0 %2 %
    Deferred loan fees, net  (587)  (495)  (512) 19 %15 %
    Total loans, net of deferred costs and fees  3,336,102   3,350,378   3,261,915  0 %2 %
    Allowance for credit losses on loans  (47,888)  (47,958)  (47,273) 0 %1 %
    Loans, net  3,288,214   3,302,420   3,214,642  0 %2 %
    Company-owned life insurance  80,007   79,489   79,438  1 %1 %
    Premises and equipment, net  9,986   9,857   9,142  1 %9 %
    Goodwill  167,631   167,631   167,631  0 %0 %
    Other intangible assets  8,074   8,627   10,431  (6)%(23)%
    Accrued interest receivable and other assets  118,134   122,536   122,474  (4)%(4)%
    Total assets $5,256,074  $5,194,095  $5,536,540  1 %(5)%
                   
    LIABILITIES AND SHAREHOLDERS’ EQUITY              
    Liabilities:              
    Deposits:              
    Demand, noninterest-bearing $1,242,059  $1,292,486  $1,469,081  (4)%(15)%
    Demand, interest-bearing  925,100   914,066   1,196,789  1 %(23)%
    Savings and money market  1,124,900   1,087,518   1,264,567  3 %(11)%
    Time deposits - under $250  38,105   38,055   37,884  0 %1 %
    Time deposits - $250 and over  200,739   192,228   172,070  4 %17 %
    ICS/CDARS - interest-bearing demand, money market              
    and time deposits  913,757   854,105   304,147  7 %200 %
    Total deposits  4,444,660   4,378,458   4,444,538  2 %0 %
    Subordinated debt, net of issuance costs  39,539   39,502   39,387  0 %0 %
    Accrued interest payable and other liabilities  95,579   103,234   105,407  (7)%(9)%
    Total liabilities  4,579,778   4,521,194   4,889,332  1 %(6)%
                   
    Shareholders’ Equity:              
    Common stock  507,578   506,539   504,135  0 %1 %
    Retained earnings  181,306   179,092   157,390  1 %15 %
    Accumulated other comprehensive loss  (12,588)  (12,730)  (14,317) (1)%(12)%
    Total shareholders' equity  676,296   672,901   647,208  1 %4 %
    Total liabilities and shareholders’ equity $5,256,074  $5,194,095  $5,536,540  1 %(5)%
                   


                    
      End of Period:
    CONSOLIDATED BALANCE SHEETS March 31, December 31, September 30, June 30, March 31,
    (in $000’s, unaudited) 2024  2023  2023  2023  2023 
    ASSETS               
    Cash and due from banks $32,543  $41,592  $40,076  $42,551  $41,318 
    Other investments and interest-bearing deposits               
    in other financial institutions  508,816   366,537   605,476   468,951   698,690 
    Securities available-for-sale, at fair value  404,474   442,636   457,194   486,058   491,751 
    Securities held-to-maturity, at amortized cost  636,249   650,565   664,681   682,095   698,231 
    Loans held-for-sale - SBA, including deferred costs  1,946   2,205   841   3,136   2,792 
    Loans:               
    Commercial  452,231   463,778   430,664   466,354   506,602 
    Real estate:               
    CRE - owner occupied  585,031   583,253   589,751   608,031   603,298 
    CRE - non-owner occupied  1,271,184   1,256,590   1,208,324   1,147,313   1,083,852 
    Land and construction  129,712   140,513   158,138   162,816   166,408 
    Home equity  122,794   119,125   124,477   128,009   124,481 
    Multifamily  269,263   269,734   253,129   244,959   231,242 
    Residential mortgages  490,035   496,961   503,006   514,064   528,639 
    Consumer and other  16,439   20,919   18,526   17,635   17,905 
    Loans  3,336,689   3,350,873   3,286,015   3,289,181   3,262,427 
    Deferred loan fees, net  (587)  (495)  (554)  (397)  (512)
    Total loans, net of deferred fees  3,336,102   3,350,378   3,285,461   3,288,784   3,261,915 
    Allowance for credit losses on loans  (47,888)  (47,958)  (47,702)  (47,803)  (47,273)
    Loans, net  3,288,214   3,302,420   3,237,759   3,240,981   3,214,642 
    Company-owned life insurance  80,007   79,489   79,607   79,940   79,438 
    Premises and equipment, net  9,986   9,857   9,707   9,197   9,142 
    Goodwill  167,631   167,631   167,631   167,631   167,631 
    Other intangible assets  8,074   8,627   9,229   9,830   10,431 
    Accrued interest receivable and other assets  118,134   122,536   131,106   121,467   122,474 
    Total assets $5,256,074  $5,194,095  $5,403,307  $5,311,837  $5,536,540 
                    
    LIABILITIES AND SHAREHOLDERS’ EQUITY               
    Liabilities:               
    Deposits:               
    Demand, noninterest-bearing $1,242,059  $1,292,486  $1,243,501  $1,319,844  $1,469,081 
    Demand, interest-bearing  925,100   914,066   1,004,185   1,064,638   1,196,789 
    Savings and money market  1,124,900   1,087,518   1,110,640   1,075,835   1,264,567 
    Time deposits - under $250  38,105   38,055   43,906   44,520   37,884 
    Time deposits - $250 and over  200,739   192,228   252,001   171,852   172,070 
    ICS/CDARS - interest-bearing demand, money market               
    and time deposits  913,757   854,105   921,224   824,083   304,147 
    Total deposits  4,444,660   4,378,458   4,575,457   4,500,772   4,444,538 
    Other short-term borrowings  —   —   —   —   300,000 
    Subordinated debt, net of issuance costs  39,539   39,502   39,463   39,425   39,387 
    Accrued interest payable and other liabilities  95,579   103,234   126,457   117,970   105,407 
    Total liabilities  4,579,778   4,521,194   4,741,377   4,658,167   4,889,332 
                    
    Shareholders’ Equity:               
    Common stock  507,578   506,539   505,692   505,075   504,135 
    Retained earnings  181,306   179,092   173,707   165,853   157,390 
    Accumulated other comprehensive loss  (12,588)  (12,730)  (17,469)  (17,258)  (14,317)
    Total shareholders' equity  676,296   672,901   661,930   653,670   647,208 
    Total liabilities and shareholders’ equity $5,256,074  $5,194,095  $5,403,307  $5,311,837  $5,536,540 
                    


                   
      At or For the Quarter Ended: Percent Change From: 
    CREDIT QUALITY DATA March 31, December 31, March 31, December 31, March 31, 
    (in $000’s, unaudited) 2024 2023 2023 2023  2023  
    Nonaccrual loans - held-for-investment $5,920 $6,818 $781 (13)%658 %
    Loans over 90 days past due              
    and still accruing  1,951  889  1,459 119 %34 %
    Total nonperforming loans  7,871  7,707  2,240 2 %251 %
    Foreclosed assets  —  —  — N/A N/A 
    Total nonperforming assets $7,871 $7,707 $2,240 2 %251 %
    Net charge-offs (recoveries) during the quarter $254 $33 $271 670 %(6)%
    Provision for credit losses on loans during the quarter $184 $289 $32 (36)%475 %
    Allowance for credit losses on loans $47,888 $47,958 $47,273 0 %1 %
    Classified assets $35,392 $31,763 $26,800 11 %32 %
    Allowance for credit losses on loans to total loans  1.44% 1.43% 1.45%1 %(1)%
    Allowance for credit losses on loans to total nonperforming loans  608.41% 622.27% 2,110.40%(2)%(71)%
    Nonperforming assets to total assets  0.15% 0.15% 0.04%0 %275 %
    Nonperforming loans to total loans  0.24% 0.23% 0.07%4 %243 %
    Classified assets to Heritage Commerce Corp              
    Tier 1 capital plus allowance for credit losses on loans  6% 6% 5%0 %20 %
    Classified assets to Heritage Bank of Commerce              
    Tier 1 capital plus allowance for credit losses on loans  6% 5% 5%20 %20 %
                   
    OTHER PERIOD-END STATISTICS              
    (in $000’s, unaudited)              
    Heritage Commerce Corp:              
    Tangible common equity(1) $500,591 $496,643 $469,146 1 %7 %
    Shareholders’ equity / total assets  12.87% 12.96% 11.69%(1)%10 %
    Tangible common equity / tangible assets(2)  9.85% 9.90% 8.76%(1)%12 %
    Loan to deposit ratio  75.06% 76.52% 73.39%(2)%2 %
    Noninterest-bearing deposits / total deposits  27.94% 29.52% 33.05%(5)%(15)%
    Total capital ratio  15.6% 15.5% 15.3%1 %2 %
    Tier 1 capital ratio  13.4% 13.3% 13.1%1 %2 %
    Common Equity Tier 1 capital ratio  13.4% 13.3% 13.1%1 %2 %
    Tier 1 leverage ratio  10.2% 10.0% 9.6%2 %6 %
    Heritage Bank of Commerce:              
    Total capital ratio  15.1% 14.9% 14.7%1 %3 %
    Tier 1 capital ratio  13.9% 13.8% 13.5%1 %3 %
    Common Equity Tier 1 capital ratio  13.9% 13.8% 13.5%1 %3 %
    Tier 1 leverage ratio  10.6% 10.4% 9.9%2 %7 %
                   

     

    ___________________________
    (1)This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets. A reconciliation of GAAP to non-GAAP financial measures are presented in the tables at the end of this earnings release.
    (2)This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets. A reconciliation of GAAP to non-GAAP financial measures are presented in the tables at the end of this earnings release.

                      

                     
      At or For the Quarter Ended: 
    CREDIT QUALITY DATA March 31, December 31, September 30, June 30, March 31, 
    (in $000’s, unaudited) 2024 2023 2023 2023  2023 
    Nonaccrual loans - held-for-investment $5,920 $6,818 $3,518 $3,275  $781 
    Loans over 90 days past due                
    and still accruing  1,951  889  1,966  2,262   1,459 
    Total nonperforming loans  7,871  7,707  5,484  5,537   2,240 
    Foreclosed assets  —  —  —  —   — 
    Total nonperforming assets $7,871 $7,707 $5,484 $5,537  $2,240 
    Net charge-offs (recoveries) during the quarter $254 $33 $269 $(270) $271 
    Provision for credit losses on loans during the quarter $184 $289 $168 $260  $32 
    Allowance for credit losses on loans $47,888 $47,958 $47,702 $47,803  $47,273 
    Classified assets $35,392 $31,763 $31,062 $30,500  $26,800 
    Allowance for credit losses on loans to total loans  1.44% 1.43% 1.45% 1.45 % 1.45%
    Allowance for credit losses on loans to total nonperforming loans  608.41% 622.27% 869.84% 863.34 % 2,110.40%
    Nonperforming assets to total assets  0.15% 0.15% 0.10% 0.10 % 0.04%
    Nonperforming loans to total loans  0.24% 0.23% 0.17% 0.17 % 0.07%
    Classified assets to Heritage Commerce Corp                
    Tier 1 capital plus allowance for credit losses on loans  6% 6% 6% 6 % 5%
    Classified assets to Heritage Bank of Commerce                
    Tier 1 capital plus allowance for credit losses on loans  6% 5% 5% 5 % 5%
                     
    OTHER PERIOD-END STATISTICS                
    (in $000’s, unaudited)                
    Heritage Commerce Corp:                
    Tangible common equity(1) $500,591 $496,643 $485,070 $476,209  $469,146 
    Shareholders’ equity / total assets  12.87% 12.96% 12.25% 12.31 % 11.69%
    Tangible common equity / tangible assets(2)  9.85% 9.90% 9.28% 9.27 % 8.76%
    Loan to deposit ratio  75.06% 76.52% 71.81% 73.07 % 73.39%
    Noninterest-bearing deposits / total deposits  27.94% 29.52% 27.18% 29.32 % 33.05%
    Total capital ratio  15.6% 15.5% 15.6% 15.4 % 15.3%
    Tier 1 capital ratio  13.4% 13.3% 13.4% 13.2 % 13.1%
    Common Equity Tier 1 capital ratio  13.4% 13.3% 13.4% 13.2 % 13.1%
    Tier 1 leverage ratio  10.2% 10.0% 9.6% 9.7 % 9.6%
    Heritage Bank of Commerce:                
    Total capital ratio  15.1% 14.9% 15.0% 14.8 % 14.7%
    Tier 1 capital ratio  13.9% 13.8% 13.9% 13.7 % 13.5%
    Common Equity Tier 1 capital ratio  13.9% 13.8% 13.9% 13.7 % 13.5%
    Tier 1 leverage ratio  10.6% 10.4% 10.0% 10.0 % 9.9%

     

    _____________________________
    (1)This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets. A reconciliation of GAAP to non-GAAP financial measures are presented in the tables at the end of this earnings release.
    (2)This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets. A reconciliation of GAAP to non-GAAP financial measures are presented in the tables at the end of this earnings release.


      For the Quarter Ended For the Quarter Ended 
      March 31, 2024 March 31, 2023 
         Interest Average    Interest Average 
    NET INTEREST INCOME AND NET INTEREST MARGIN Average Income/ Yield/ Average Income/ Yield/ 
    (in $000’s, unaudited) Balance Expense Rate Balance Expense Rate 
    Assets:                 
    Loans, gross(1)(2) $3,299,989 $44,600  5.44%$3,277,525 $44,112  5.46%
    Securities - taxable  1,042,484  6,183  2.39% 1,161,021  7,056  2.46%
    Securities - exempt from Federal tax(3)  31,939  286  3.60% 36,012  313  3.52%
    Other investments and interest-bearing deposits                 
    in other financial institutions  467,867  6,542  5.62% 420,451  4,859  4.69%
    Total interest earning assets(3)  4,842,279  57,611  4.79% 4,895,009  56,340  4.67%
    Cash and due from banks  33,214       37,563      
    Premises and equipment, net  10,015       9,269      
    Goodwill and other intangible assets  176,039       178,443      
    Other assets  117,089       115,222      
    Total assets $5,178,636      $5,235,506      
                      
    Liabilities and shareholders’ equity:                 
    Deposits:                 
    Demand, noninterest-bearing $1,177,078      $1,667,260      
                      
    Demand, interest-bearing  920,048  1,554  0.68% 1,217,731  1,476  0.49%
    Savings and money market  1,067,581  6,649  2.50% 1,285,173  3,489  1.10%
    Time deposits - under $100  10,945  42  1.54% 12,280  10  0.33%
    Time deposits - $100 and over  221,211  2,064  3.75% 163,047  845  2.10%
    ICS/CDARS - interest-bearing demand, money market                 
    and time deposits  963,287  6,611  2.76% 70,461  81  0.47%
    Total interest-bearing deposits  3,183,072  16,920  2.14% 2,748,692  5,901  0.87%
    Total deposits  4,360,150  16,920  1.56% 4,415,952  5,901  0.54%
                      
    Short-term borrowings  15  —  0.00% 46,677  578  5.02%
    Subordinated debt, net of issuance costs  39,516  538  5.48% 39,363  537  5.53%
    Total interest-bearing liabilities  3,222,603  17,458  2.18% 2,834,732  7,016  1.00%
    Total interest-bearing liabilities and demand,                 
    noninterest-bearing / cost of funds  4,399,681  17,458  1.60% 4,501,992  7,016  0.63%
    Other liabilities  106,663       95,917      
    Total liabilities  4,506,344       4,597,909      
    Shareholders’ equity  672,292       637,597      
    Total liabilities and shareholders’ equity $5,178,636      $5,235,506      
                      
    Net interest income(3)/ margin     40,153  3.34%    49,324  4.09%
    Less tax equivalent adjustment(3)     (60)       (66)   
    Net interest income    $40,093       $49,258    


    __________________________
    (1)Includes loans held-for-sale. Nonaccrual loans are included in average balances.
    (2)Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $160,000 for the first quarter of 2024, compared to $300,000 for the first quarter of 2023. Prepayment fees totaled $24,000 for the first quarter of 2024, compared to $138,000 for the first quarter of 2023.
    (3)Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate. 

       

      For the Quarter Ended For the Quarter Ended 
      March 31, 2024 December 31, 2023 
         Interest Average    Interest Average 
    NET INTEREST INCOME AND NET INTEREST MARGIN Average Income/ Yield/ Average Income/ Yield/ 
    (in $000’s, unaudited) Balance Expense Rate Balance Expense Rate 
    Assets:                 
    Loans, gross(1)(2) $3,299,989 $44,600  5.44%$3,282,429 $44,635  5.39%
    Securities - taxable  1,042,484  6,183  2.39% 1,074,638  6,516  2.41%
    Securities - exempt from Federal tax(3)  31,939  286  3.60% 32,244  288  3.54%
    Other investments and interest-bearing deposits                 
    in other financial institutions  467,867  6,542  5.62% 534,271  7,514  5.58%
    Total interest earning assets(3)  4,842,279  57,611  4.79% 4,923,582  58,953  4.75%
    Cash and due from banks  33,214       35,214      
    Premises and equipment, net  10,015       9,843      
    Goodwill and other intangible assets  176,039       176,641      
    Other assets  117,089       119,625      
    Total assets $5,178,636      $5,264,905      
                      
    Liabilities and shareholders’ equity:                 
    Deposits:                 
    Demand, noninterest-bearing $1,177,078      $1,243,222      
                      
    Demand, interest-bearing  920,048  1,554  0.68% 948,061  1,661  0.70%
    Savings and money market  1,067,581  6,649  2.50% 1,096,962  6,216  2.25%
    Time deposits - under $100  10,945  42  1.54% 11,389  37  1.29%
    Time deposits - $100 and over  221,211  2,064  3.75% 234,140  2,130  3.61%
    ICS/CDARS - interest-bearing demand, money market                 
    and time deposits  963,287  6,611  2.76% 920,976  6,009  2.59%
    Total interest-bearing deposits  3,183,072  16,920  2.14% 3,211,528  16,053  1.98%
    Total deposits  4,360,150  16,920  1.56% 4,454,750  16,053  1.43%
                      
    Short-term borrowings  15  —  0.00% 29  —  0.00%
    Subordinated debt, net of issuance costs  39,516  538  5.48% 39,477  538  5.41%
    Total interest-bearing liabilities  3,222,603  17,458  2.18% 3,251,034  16,591  2.02%
    Total interest-bearing liabilities and demand,                 
    noninterest-bearing / cost of funds  4,399,681  17,458  1.60% 4,494,256  16,591  1.46%
    Other liabilities  106,663       106,011      
    Total liabilities  4,506,344       4,600,267      
    Shareholders’ equity  672,292       664,638      
    Total liabilities and shareholders’ equity $5,178,636      $5,264,905      
                      
    Net interest income(3)/ margin     40,153  3.34%    42,362  3.41%
    Less tax equivalent adjustment(3)     (60)       (61)   
    Net interest income    $40,093       $42,301    


    ___________________________
    (1) Includes loans held-for-sale. Nonaccrual loans are included in average balances.
    (2) Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $160,000 for the first quarter of 2024, compared to $147,000 for the fourth quarter of 2023. Prepayment fees totaled $24,000 for the first quarter of 2024, compared to $91,000 for the fourth quarter of 2023.
    (3) Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate. 


    The following tables summarize components of the non-GAAP financial measures for the periods indicated:

               
    RETURN ON AVERAGE TANGIBLE ASSETS          
    AND AVERAGE TANGIBLE COMMON EQUITY March 31,  December 31,  March 31,  
    (in $000’s, unaudited) 2024
    		 2023
    		 2023
    		 
    Net income $10,166  $13,328  $18,917  
               
    Average tangible assets components:          
    Average Assets $5,178,636  $5,264,905  $5,235,506  
    Less: Goodwill  (167,631)  (167,631)  (167,631) 
    Less: Other Intangible Assets  (8,408)  (9,010)  (10,812) 
    Total Average Tangible Assets $5,002,597  $5,088,264  $5,057,063  
               
    Annualized return on average tangible assets
    		  0.82 % 1.04 % 1.52 %
               
    Average tangible common equity components:          
    Average Equity $672,292  $664,638  $637,597  
    Less: Goodwill  (167,631)  (167,631)  (167,631) 
    Less: Other Intangible Assets  (8,408)  (9,010)  (10,812) 
    Total Average Tangible Common Equity $496,253  $487,997  $459,154  
               
    Annualized return on average common equity  8.24 % 10.84 % 16.71 %


               
    TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS March 31,  December 31,  March 31,  
    (in $000’s, unaudited) 2024
    		 2023
    		 2023 
    Heritage Commerce Corp:          
    Capital components:          
    Total Equity $676,296  $672,901  $647,208  
    Less: Preferred Stock  —   —   —  
    Total Common Equity  676,296   672,901   647,208  
    Less: Goodwill  (167,631)  (167,631)  (167,631) 
    Less: Other Intangible Assets  (8,074)  (8,627)  (10,431) 
      Total Tangible Common Equity $500,591  $496,643  $469,146  
               
    Asset components:          
    Total Assets $5,256,074  $5,194,095  $5,536,540  
    Less: Goodwill  (167,631)  (167,631)  (167,631) 
    Less: Other Intangible Assets  (8,074)  (8,627)  (10,431) 
    Total Tangible Assets $5,080,369  $5,017,837  $5,358,478  
               
    Tangible common equity/tangible assets  9.85 % 9.90 % 8.76 %


               
    TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS March 31,  December 31,  March 31,  
    (in $000’s, unaudited) 2024
    		 2023
    		 2023 
    Heritage Bank of Commerce:          
    Capital components:          
    Total Equity $694,543  $690,918  $664,163  
    Less: Preferred Stock  —   —   —  
    Total Common Equity  694,543   690,918   664,163  
    Less: Goodwill  (167,631)  (167,631)  (167,631) 
    Less: Other Intangible Assets  (8,074)  (8,627)  (10,431) 
      Total Tangible Common Equity $518,838  $514,660  $486,101  
               
    Asset components:          
    Total Assets $5,254,044  $5,190,829  $5,538,878  
    Less: Goodwill  (167,631)  (167,631)  (167,631) 
    Less: Other Intangible Assets  (8,074)  (8,627)  (10,431) 
    Total Tangible Assets $5,078,339  $5,014,571  $5,360,816  
               
    Tangible common equity/tangible assets  10.22 % 10.26 % 9.07 %


               
    TANGIBLE BOOK VALUE PER SHARE March 31,  December 31,  March 31,  
    (in $000’s, unaudited) 2024
    		 2023
    		 2023 
    Capital components:          
    Total Equity $676,296  $672,901  $647,208  
    Less: Preferred Stock  —   —   —  
    Total Common Equity  676,296   672,901   647,208  
    Less: Goodwill  (167,631)  (167,631)  (167,631) 
    Less: Other Intangible Assets  (8,074)  (8,627)  (10,431) 
    Total Tangible Common Equity $500,591  $496,643  $469,146  
               
    Common shares outstanding at period-end  61,253,625   61,146,835   60,948,607  
               
    Tangible book value per share $8.17  $8.12  $7.70  

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