10-Q

Use these links to rapidly review the document
TABLE OF CONTENTS

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(MARK ONE)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Mach 31, 2016
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                        to

Commission file number 000-23877

Heritage Commerce Corp
(Exact name of Registrant as Specified in its Charter)

California (State or Other Jurisdiction of Incorporation or Organization)	77-0469558 (I.R.S. Employer Identification No.)
150 Almaden Boulevard, San Jose, California (Address of Principal Executive Offices)	95113 (Zip Code)

(408) 947-6900
(Registrant's Telephone Number, Including Area Code)

N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES ý    NO o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES ý    NO o

        Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer ý Non-accelerated filer o
(Do not check if a
smaller reporting company) Smaller reporting company o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES o    NO ý

        The Registrant had 32,170,920 shares of Common Stock outstanding on April 28, 2016.

HERITAGE COMMERCE CORP
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

		Page No.
Cautionary Note on Forward-Looking Statements		3
Part I. FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (unaudited)	5
	Consolidated Balance Sheets	5
	Consolidated Statements of Income	6
	Consolidated Statements of Comprehensive Income	7
	Consolidated Statements of Changes in Shareholders' Equity	8
	Consolidated Statements of Cash Flows	9
	Notes to Unaudited Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	50
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	85
Item 4.	Controls and Procedures	85
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	87
Item 1A.	Risk Factors	87
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	87
Item 3.	Defaults Upon Senior Securities	87
Item 4.	Mine Safety Disclosures	87
Item 5.	Other Information	87
Item 6.	Exhibits	88
SIGNATURES		89
EXHIBIT INDEX		90

2

Cautionary Note Regarding Forward-Looking Statements

        This Report on Form 10-Q contains various statements that may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, Rule 3b-6 promulgated thereunder and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward- looking. These forward-looking statements often can be, but are not always, identified by the use of words such as "assume," "expect," "intend," "plan," "project," "believe," "estimate," "predict," "anticipate," "may," "might," "should," "could," "goal," "potential" and similar expressions. We base these forward-looking statements on our current expectations and projections about future events, our assumptions regarding these events and our knowledge of facts at the time the statements are made. These statements include statements relating to our projected growth, anticipated future financial performance, and management's long-term performance goals, as well as statements relating to the anticipated effects on results of operations and financial condition.

        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. In addition, our past results of operations do not necessarily indicate our future results. The forward-looking statements could be affected by many factors, including but not limited to:

•

local, regional, and national economic conditions and events and their impact on us and our customers;

•

changes in the financial performance or condition of the Company's customers;

•

volatility in credit and equity markets and its effect on the global economy;

•

competition for loans and deposits and failure to attract or retain deposits and loans;

•

our ability to increase market share and control expenses;

•

our ability to develop and promote customer acceptance of new products and services in a timely manner;

•

risks associated with concentrations in real estate related loans;

•

other than temporary impairment charges to our securities portfolio;

•

an oversupply of inventory and deterioration in values of California commercial real estate;

•

a prolonged slowdown in construction activity;

•

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 loan losses and the Company's provision for loan losses;

•

the 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;

•

changes in inflation, interest rates, and market liquidity which may impact interest margins and impact funding sources;

•

our ability to raise capital or incur debt on reasonable terms;

•

regulatory limits on Heritage Bank of Commerce's ability to pay dividends to the Company;

•

changes in our capital management policies, including those regarding business combinations, dividends, and share repurchases, among others;

3

•

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;

•

the ability to keep pace with, and implement on a timely basis, technological changes;

•

the impact of cyber security attacks or other disruptions to the Company's information systems and any resulting compromise of data or disruptions in service;

•

changes in the competitive environment among financial or bank holding companies and other financial service providers;

•

the effect and uncertain impact on the Company of the enactment of the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations promulgated by supervisory and oversight agencies implementing the new legislation;

•

significant changes in applicable laws and regulations, including those concerning taxes, banking and securities;

•

the 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;

•

the costs and effects of legal and regulatory developments, including resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews;

•

the successful integration of the business, employees and operations of Focus Business Bank with the Company and our ability to achieve the projected synergies of this acquisition within expected time frame; and

•

our success in managing the risks involved in the foregoing factors.

        We are not able to predict all the factors that may affect future results. You should not place undue reliance on any forward looking statement, which speaks only as of the date of this Report on Form 10-Q. Except as required by applicable laws or regulations, we do not undertake any obligation to update or revise any forward looking statement, whether as a result of new information, future events or otherwise.

4

Part I—FINANCIAL INFORMATION

ITEM 1—CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

HERITAGE COMMERCE CORP

CONSOLIDATED BALANCE SHEETS (Unaudited)

	March 31, 2016			December 31, 2015
	(Dollars in thousands)
Assets
Cash and due from banks	$	25,573		$	24,112
Interest-bearing deposits in other financial institutions		117,562			319,980
Total cash and cash equivalents		143,135			344,092
Securities available-for-sale, at fair value		448,540			385,079
Securities held-to-maturity, at amortized cost (fair value of $187,047 at March 31, 2016 and $109,821 at December 31, 2015)		185,165			109,311
Loans held-for-sale—SBA, at lower of cost or fair value, including deferred costs		2,389			7,297
Loans, net of deferred fees		1,395,264			1,358,716
Allowance for loan losses		(19,458	)		(18,926	)
Loans, net		1,375,806			1,339,790
Federal Home Loan Bank and Federal Reserve Bank stock and other investments, at cost		12,702			12,694
Company owned life insurance		60,470			60,021
Premises and equipment, net		7,625			7,773
Goodwill		45,664			45,664
Other intangible assets		8,126			8,518
Accrued interest receivable and other assets		37,711			41,340
Total assets	$	2,327,333		$	2,361,579
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Demand, noninterest-bearing	$	768,525		$	821,405
Demand, interest-bearing		506,272			496,278
Savings and money market		493,275			496,843
Time deposits-under $250		61,595			62,026
Time deposits-$250 and over		179,048			160,815
Time deposits-brokered		11,829			17,825
CDARS—money market and time deposits		8,192			7,583
Total deposits		2,028,736			2,062,775
Short-term borrowings		—			3,000
Accrued interest payable and other liabilities		46,938			50,368
Total liabilities		2,075,674			2,116,143
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares authorized
Series C convertible perpetual preferred stock, 21,004 shares issued and outstanding at March 31, 2016 and December 31, 2015 (liquidation preference of $21,004 at March 31, 2016 and December 31, 2015)		19,519			19,519
Common stock, no par value; 60,000,000 shares authorized; 32,170,920 shares issued and outstanding at March 31, 2016 and 32,113,479 shares issued and outstanding at December 31, 2015		194,153			193,364
Retained earnings		41,485			38,773
Accumulated other comprehensive loss		(3,498	)		(6,220	)
Total shareholders' equity		251,659			245,436
Total liabilities and shareholders' equity	$	2,327,333		$	2,361,579

See notes to unaudited consolidated financial statements

5

HERITAGE COMMERCE CORP

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	Three Months Ended March 31,
	2016			2015
	(Dollars in thousands, except per share data)
Interest income:
Loans, including fees	$	19,188		$	15,004
Securities, taxable		2,774			1,604
Securities, exempt from Federal tax		579			506
Other investments and interest-bearing deposits in other financial institutions		521			252
Total interest income		23,062			17,366
Interest expense:
Deposits		747			508
Short-term borrowings		11			—
Total interest expense		758			508
Net interest income before provision for loan losses		22,304			16,858
Provision (credit) for loan losses		401			(60	)
Net interest income after provision for loan losses		21,903			16,918
Noninterest income:
Service charges and fees on deposit accounts		767			623
Increase in cash surrender value of life insurance		449			400
Servicing income		371			306
Gain on sales of SBA loans		305			207
Gain on sales of securities		180			—
Other		542			390
Total noninterest income		2,614			1,926
Noninterest expense:
Salaries and employee benefits		8,947			8,042
Occupancy and equipment		1,085			1,045
Professional fees		825			95
Other		3,828			3,094
Total noninterest expense		14,685			12,276
Income before income taxes		9,832			6,568
Income tax expense		3,726			2,430
Net income		6,106			4,138
Dividends on preferred stock		(504	)		(448	)
Net income available to common shareholders	$	5,602		$	3,690
Earnings per common share:
Basic	$	0.16		$	0.13
Diluted	$	0.16		$	0.13

See notes to unaudited consolidated financial statements

6

HERITAGE COMMERCE CORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

	For the Three Months Ended March 31,
	2016			2015
	(Dollars in thousands)
Net income	$	6,106		$	4,138
Other comprehensive income:
Change in net unrealized holding gains on available-for-sale securities and I/O strips		4,839			888
Deferred income taxes		(2,032	)		(374	)
Change in net unamortized unrealized gain on securities available-for-sale that were reclassified to securities held-to-maturity		(14	)		(14	)
Deferred income taxes		6			6
Reclassification adjustment for gains on sales of securities realized in income		(180	)		—
Deferred income taxes		75			—
Change in unrealized gains on securities and I/O strips, net of deferred income taxes		2,694			506
Change in net pension and other benefit plan liabilities adjustment		48			48
Deferred income taxes		(20	)		(20	)
Change in pension and other benefit plan liabilities net of deferred income taxes		28			28
Other comprehensive income		2,722			534
Total comprehensive income	$	8,828		$	4,672

See notes to unaudited consolidated financial statements

7

HERITAGE COMMERCE CORP

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)

	Three Months Ended March 31, 2016 and 2015
													Accumulated Other Comprehensive Income / (Loss)
	Preferred Stock				Common Stock
										Retained Earnings						Total Shareholders' Equity
	Shares		Amount		Shares		Amount
	(Dollars in thousands, except share data)
Balance, January 1, 2015		21,004	$	19,519		26,503,505	$	133,676		$	33,014		$	(1,851	)	$	184,358
Net income		—		—		—		—			4,138			—			4,138
Other comprehensive income		—		—		—		—			—			534			534
Amortization of restricted stock awards, net of forfeitures and taxes		—		—		—		(14	)		—			—			(14	)
Cash dividend declared $0.08 per share		—		—		—		—			(2,569	)		—			(2,569	)
Stock option expense, net of forfeitures and taxes		—		—		—		224			—			—			224
Stock options exercised		—		—		19,234		106			—			—			106
Balance, March 31, 2015		21,004	$	19,519		26,522,739	$	133,992		$	34,583		$	(1,317	)	$	186,777
Balance, January 1, 2016		21,004	$	19,519		32,113,479	$	193,364		$	38,773		$	(6,220	)	$	245,436
Net income		—		—		—		—			6,106			—			6,106
Other comprehensive income		—		—		—		—			—			2,722			2,722
Amortization of restricted stock awards, net of forfeitures and taxes		—		—		—		186			—			—			186
Cash dividend declared $0.09 per share		—		—		—		—			(3,394	)		—			(3,394	)
Stock option expense, net of forfeitures and taxes		—		—		—		245			—			—			245
Stock options exercised		—		—		57,441		358			—			—			358
Balance, March 31, 2016		21,004	$	19,519		32,170,920	$	194,153		$	41,485		$	(3,498	)	$	251,659

See notes to unaudited consolidated financial statements

8

HERITAGE COMMERCE CORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Three Months Ended March 31,
	2016			2015
	(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	6,106		$	4,138
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of discounts and premiums on securities		667			293
Gain on sale of securities available-for-sale		(180	)		—
Gain on sale of SBA loans		(305	)		(207	)
Proceeds from SBA loans originated for sale		4,927			2,345
SBA loans originated for sale		(2,505	)		(2,356	)
Provision (credit) for loan losses		401			(60	)
Increase in cash surrender value of life insurance		(449	)		(400	)
Depreciation and amortization		169			186
Amortization of intangible assets		392			189
Gain on sale of foreclosed assets, net		—			(124	)
Stock option expense, net		245			224
Amortization of restricted stock awards, net		186			(14	)
Effect of changes in:
Accrued interest receivable and other assets		1,700			(1,074	)
Accrued interest payable and other liabilities		(3,387	)		(1,841	)
Net cash provided by operating activities		7,967			1,299
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available-for-sale		(75,803	)		—
Purchase of securities held-to-maturity		(78,680	)		—
Maturities/paydowns/calls of securities available-for-sale		11,075			6,204
Maturities/paydowns/calls of securities held-to-maturity		2,665			720
Proceeds from sale of securities available-for-sale		5,598			—
Net change in loans		(33,675	)		(11,877	)
Change in Federal Home Loan Bank and Federal Reserve Bank stock and other investments		(8	)		(20	)
Purchase of premises and equipment		(21	)		(75	)
Proceeds from sale of foreclosed assets		—			322
Net cash used in investing activities		(168,849	)		(4,726	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits		(34,039	)		35,263
Exercise of stock options		358			106
Repayment of short-term borrowings		(3,000	)		—
Payment of cash dividends		(3,394	)		(2,569	)
Net cash (used in) provided by financing activities		(40,075	)		32,800
Net (decrease) increase in cash and cash equivalents		(200,957	)		29,373
Cash and cash equivalents, beginning of period		344,092			122,403
Cash and cash equivalents, end of period	$	143,135		$	151,776
Supplemental disclosures of cash flow information:
Interest paid	$	741		$	487
Income taxes paid		1,375			1,000
Supplemental schedule of non-cash investing activity:
Transfer of loans held for sale to loan portfolio		2,791			—
Loans transferred to foreclosed assets		49			1,236

See notes to unaudited consolidated financial statements

9

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2016

(Unaudited)

1) Basis of Presentation

        The unaudited consolidated financial statements of Heritage Commerce Corp (the "Company" or "HCC") and its wholly owned subsidiary, Heritage Bank of Commerce ("HBC"), have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and notes required by accounting principles generally accepted in the United States of America ("GAAP") for annual financial statements are not included herein. The interim statements should be read in conjunction with the consolidated financial statements and notes that were included in the Company's Form 10-K for the year ended December 31, 2015.

        The Company acquired BVF/CSNK Acquisition Corp., a Delaware corporation ("BVF/CSNK") on November 1, 2014, the parent company of CSNK Working Capital Finance Corp. dba Bay View Funding ("Bay View Funding"). BVF/CSNK was subsequently merged into Bay View Funding and Bay View Funding became a wholly owned subsidiary of HBC. Bay View Funding's results of operations have been included in the Company's results of operations beginning November 1, 2014.

        The Company acquired Focus Business Bank ("Focus") on August 20, 2015. Focus was merged with HBC, with HBC as the surviving bank. Focus's results of operations have been included in the Company's results of operations beginning August 21, 2015.

        HBC is a commercial bank serving customers located in Santa Clara, Alameda, Contra Costa, and San Benito counties of California. Bay View Funding provides business-essential working capital factoring financing to various industries throughout the United States. No customer accounts for more than 10 percent of revenue for HBC or the Company. With the acquisition of Bay View Funding, the Company now has two reportable segments consisting of Banking and Factoring. The Company's management uses segment results in its operating and strategic planning.

        In management's opinion, all adjustments necessary for a fair presentation of these consolidated financial statements have been included and are of a normal and recurring nature. All intercompany transactions and balances have been eliminated.

        The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ significantly from these estimates.

        The results for the three months ended March 31, 2016 are not necessarily indicative of the results expected for any subsequent period or for the entire year ending December 31, 2016.

Reclassifications

        Certain reclassifications of prior year balances have been made to conform to the current year presentation. These reclassifications had no impact on the Company's consolidated financial position, results of operations or net change in cash and cash equivalents.

10

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

1) Basis of Presentation (Continued)

Adoption of New Accounting Standards

        In September 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement Period Adjustment. This update applies to all entities that have reported provisional amounts for items in a business combination for which the accounting is incomplete by the end of the reporting period in which the combination occurs and during the measurement period have an adjustment to provisional amounts recognized. The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this update require that the acquirer's record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The Company has evaluated the adoption of the new guidance and has determined it did not have a material impact on the consolidated financial statements.

Newly Issued, but not yet Effective Accounting Standards

        In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Recognition and Measurement of Financial Assets and Liabilities. The new guidance is intended to improve the recognition and measurement of financial instruments by requiring: equity investments (other than equity method or consolidation) to be measured at fair value with changes in fair value recognized in net income; public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; separate presentation of financial assets and financial liabilities by measurement category and form of financial assets (i.e. securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities; eliminating the requirement for non-public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is to be required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from the change in the instrument-specific credit risk (also referred to as "own credit") when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The new guidance is effective for public business entities for fiscal years beginning after December 15, 2017. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material impact.

        In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard requires a lessee to recognize assets and liabilities on the balance sheet for leases with lease terms greater than 12 months.

11

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

1) Basis of Presentation (Continued)

A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. Reasonably certain is a high threshold that is consistent with and intended to be applied in the same way as the reasonably assured threshold in the previous leases guidance. In addition, also consistent with the previous leases guidance, a lessee (and a lessor) should exclude most variable lease payments in measuring lease assets and lease liabilities, other than those that depend on an index or a rate or are in substance fixed payments. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. We are currently evaluating the impact of adopting the new guidance on our consolidated financial statements.

        In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) should be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. An entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. The threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions. Cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity. A nonpublic entity can make an accounting policy election to apply a practical expedient to estimate the expected term for all awards with performance or service conditions that meet certain conditions. A nonpublic entity can make a one-time accounting policy election to switch from measuring all liability-classified awards at fair value to intrinsic value. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. We are currently evaluating the impact of adopting the new guidance on our consolidated financial statements.

2) Earnings Per Share

        Basic earnings per common share is computed by dividing net income, less dividends and discount accretion on preferred stock, by the weighted average common shares outstanding. The Series C

12

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

2) Earnings Per Share (Continued)

Preferred Stock participates in the earnings of the Company and, therefore, the shares issued on the conversion of the Series C Preferred Stock are considered outstanding under the two class method of computing basic earnings per common share during periods of earnings. Diluted earnings per share reflect potential dilution from outstanding stock options using the treasury stock method. A reconciliation of these factors used in computing basic and diluted earnings per common share is as follows:

	For the Three Months Ended March 31,
	2016			2015
	(Dollars in thousands, except per share amounts)
Net income available to common shareholders	$	5,602		$	3,690
Less: undistributed earnings allocated to Series C Preferred Stock		(403	)		(274	)
Distributed and undistributed earnings allocated to common shareholders	$	5,199		$	3,416
Weighted average common shares outstanding for basic earnings per common share		32,125,716			26,509,723
Dilutive effect of stock options oustanding, using the the treasury stock method		251,777			170,530
Shares used in computing diluted earnings per common share		32,377,493			26,680,253
Basic earnings per share	$	0.16		$	0.13
Diluted earnings per share	$	0.16		$	0.13

13

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

3) Accumulated Other Comprehensive Income (Loss) ("AOCI")

        The following table reflects the changes in AOCI by component for the periods indicated:

	For the Three Months Ended March 31, 2016 and 2015
	Unrealized Gains on Available- for-Sale Securities and I/O Strips(1)			Unamortized Unrealized Gain on Available- for-Sale Securities Reclassified to Held-to- Maturity(1)			Defined Benefit Pension Plan Items(1)			Total(1)
	(Dollars in thousands)
Beginning balance January 1, 2016, net of taxes	$	1,090		$	403		$	(7,713	)	$	(6,220	)
Other comprehensive income before reclassification, net of taxes		2,807			—			—			2,807
Amounts reclassified from other comprehensive income (loss), net of taxes		(105	)		(8	)		28			(85	)
Net current period other comprensive income, net of taxes		2,702			(8	)		28			2,722
Ending balance March 31, 2016, net of taxes	$	3,792		$	395		$	(7,685	)	$	(3,498	)
Beginning balance January 1, 2015, net of taxes	$	3,666		$	435		$	(5,952	)	$	(1,851	)
Other comprehensive income (loss) before reclassification, net of taxes		514			—			(21	)		493
Amounts reclassified from other comprehensive income (loss), net of taxes		—			(8	)		49			41
Net current period other comprehensive income (loss), net of taxes		514			(8	)		28			534
Ending balance March 31, 2015, net of taxes	$	4,180		$	427		$	(5,924	)	$	(1,317	)

14

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

3) Accumulated Other Comprehensive Income (Loss) ("AOCI") (Continued)

	Amounts Reclassified from AOCI(1) For the Three Months Ended March 31,
							Affected Line Item Where Net Income is Presented
Details About AOCI Components	2016			2015
	(Dollars in thousands)
Unrealized gains on available-for-sale securities and I/O strips	$	180		$	—		Realized gains on sale of securities
		(75	)		—		Income tax expense
		105			—		Net of tax
Amortization of unrealized gain on securities available-for-sale that were reclassified to securities held-to-maturity		14			14		Interest income on taxable securities
		(6	)		(6	)	Income tax expense
		8			8		Net of tax
Amortization of defined benefit pension plan items
Prior transition obligation		13			12
Actuarial losses		(60	)		(96	)
		(47	)		(84	)	Salaries and employee benefits
		19			35		Income tax expense
		(28	)		(49	)	Net of tax
Total reclassification for the period	$	85		$	(41	)

(1)

This AOCI component is included in the computation of net periodic benefit cost (see Note 9—Benefit Plans) and includes split-dollar life insurance benefit plan.

15

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

4) Securities

        The amortized cost and estimated fair value of securities at March 31, 2016 and December 31, 2015 were as follows:

March 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in thousands)
Securities available-for-sale:
Agency mortgage-backed securities	$	388,282	$	4,543	$	(72	)	$	392,753
U.S. Treasury		30,054		278		—			30,332
Trust preferred securities		15,000		225		—			15,225
U.S. Government sponsored entities		9,041		140		—			9,181
Corporate bonds		1,005		44					1,049
Total	$	443,382	$	5,230	$	(72	)	$	448,540
Securities held-to-maturity:
Municipals—tax exempt	$	92,589	$	2,091	$	(458	)	$	94,222
Agency mortgage-backed securities		92,576		296		(47	)		92,825
Total	$	185,165	$	2,387	$	(505	)	$	187,047

December 31, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in thousands)
Securities available-for-sale:
Agency mortgage-backed securities	$	324,077	$	2,457	$	(2,304	)	$	324,230
U.S. Treasury		30,047		—		(44	)		30,003
Trust preferred securities		15,000		132		—			15,132
U.S. Government sponsored entities		9,042		13		(14	)		9,041
Corporate bonds		6,412		261		—			6,673
Total	$	384,578	$	2,863	$	(2,362	)	$	385,079
Securities held-to-maturity:
Municipals—tax exempt	$	93,518	$	1,517	$	(863	)	$	94,172
Agency mortgage-backed securities		15,793		24		(168	)		15,649
Total	$	109,311	$	1,541	$	(1,031	)	$	109,821

16

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

4) Securities (Continued)

        Securities with unrealized losses at March 31, 2016 and December 31, 2015, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:

	Less Than 12 Months					12 Months or More					Total
March 31, 2016	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
Securities available-for-sale:
Agency mortgage-backed securities	$	57,940	$	(58	)	$	4,182	$	(14	)	$	62,122	$	(72	)
Total	$	57,940	$	(58	)	$	4,182	$	(14	)	$	62,122	$	(72	)
Securities held-to-maturity:
Municipals—Tax Exempt	$	2,051	$	(24	)	$	18,643	$	(434	)	$	20,694	$	(458	)
Agency mortgage-backed securities		7,297		(14	)		3,705		(33	)		11,002		(47	)
Total	$	9,348	$	(38	)	$	22,348	$	(467	)	$	31,696	$	(505	)

	Less Than 12 Months					12 Months or More					Total
December 31, 2015	Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)
	(Dollars in thousands)
Securities available-for-sale:
Agency mortgage-backed securities	$	241,067	$	(2,258	)	$	2,165	$	(46	)	$	243,232	$	(2,304	)
U.S. Treasury		30,003		(44	)		—		—			30,003		(44	)
U.S. Government sponsored entities		4,980		(14	)		—		—			4,980		(14	)
Total	$	276,050	$	(2,316	)	$	2,165	$	(46	)	$	278,215	$	(2,362	)
Securities held-to-maturity:
Municipals—Tax Exempt	$	9,920	$	(78	)	$	24,412	$	(785	)	$	34,332	$	(863	)
Agency mortgage-backed securities		7,152		(89	)		4,409		(79	)		11,561		(168	)
Total	$	17,072	$	(167	)	$	28,821	$	(864	)	$	45,893	$	(1,031	)

        There were no holdings of securities of any one issuer, other than the U.S. Government and its sponsored entities, in an amount greater than 10% of shareholders' equity. At March 31, 2016, the Company held 475 securities (199 available-for-sale and 276 held-to-maturity), of which 72 had fair values below amortized cost. At March 31, 2016, there were $4,182,000 of agency mortgage-backed securities available-for-sale, $18,643,000 of municipal bonds held-to-maturity, and $3,705,000 of agency mortgage-backed securities held-to-maturity carried with an unrealized loss for 12 months or more. The total unrealized loss for securities 12 months or more was $481,000 at March 31, 2016. The unrealized losses were due to higher interest rates. The issuers are of high credit quality and all principal amounts are expected to be paid when securities mature. The fair value is expected to recover as the securities approach their maturity date and/or market rates decline. The Company does not believe that it is

17

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

4) Securities (Continued)

more likely than not that the Company will be required to sell a security in an unrealized loss position prior to recovery in value. The Company does not consider these securities to be other than temporarily impaired at March 31, 2016.

        At December 31, 2015, the Company held 460 securities (193 available-for-sale and 267 held-to-maturity), of which 193 had fair values below amortized cost. At December 31, 2015, there were $2,165,000 of agency mortgage-backed securities available-for-sale, $4,409,000 of agency mortgage-backed securities held-to-maturity and $24,412,000 of municipals bonds held-to-maturity carried with an unrealized loss for 12 months or greater. The total unrealized loss for securities 12 months or greater was $910,000 at December 31, 2015. The unrealized losses were due to higher interest rates. The issuers are of high credit quality and all principal amounts are expected to be paid when securities mature. The fair value is expected to recover as the securities approach their maturity date and/or market rates decline. The Company does not believe that it is more likely than not that the Company will be required to sell a security in an unrealized loss position prior to recovery in value. The Company does not consider these securities to be other-than-temporarily impaired at December 31, 2015.

        The proceeds from sales of securities and the resulting gains and losses were as follows for the periods indicated:

	Three Months Ended March 31,
	2016		2015
	(Dollars in thousands)
Proceeds	$	5,598	$	—
Gross gains		180		—
Gross losses		—		—

        The amortized cost and estimated fair values of securities as of March 31, 2016, are shown by contractual maturity below. The expected maturities will differ from contractual maturities if borrowers have the right to call or pre-pay obligations with or without call or pre-payment penalties. Securities not due at a single maturity date are shown separately.

	Available-for-sale
	Amortized Cost		Estimated Fair Value
	(Dollars in thousands)
Due after 3 months through one year	$	6,290	$	6,297
Due after one through five years		33,810		34,265
Due after ten years		15,000		15,225
Agency mortgage-backed securities		388,282		392,753
Total	$	443,382	$	448,540

18

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

4) Securities (Continued)

	Held-to-maturity
	Amortized Cost		Estimated Fair Value
	(Dollars in thousands)
Due less than 3 months	$	612	$	614
Due after 3 months through one year		1,039		1,045
Due after one through five years		5,239		5,319
Due after five through ten years		14,726		15,533
Due after ten years		70,973		71,711
Agency mortgage-backed securities		92,576		92,825
Total	$	185,165	$	187,047

5) Loans

        Loans were as follows for the periods indicated:

	March 31, 2016			December 31, 2015
	(Dollars in thousands)
Loans held-for-investment:
Commercial	$	592,128		$	556,522
Real estate:
Commercial and residential		616,821			625,665
Land and construction		95,547			84,428
Home equity		74,993			76,833
Consumer		16,476			16,010
Loans		1,395,965			1,359,458
Deferred loan origination fees, net		(701	)		(742	)
Loans, net of deferred fees		1,395,264			1,358,716
Allowance for loan losses		(19,458	)		(18,926	)
Loans, net	$	1,375,806		$	1,339,790

        At March 31, 2016 and December 31, 2015, total net loans included in the table above include $130,860,000, and $141,343,000, respectively, of the loans acquired in the Focus transaction that were not purchased credit impaired loans.

19

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

5) Loans (Continued)

        Changes in the allowance for loan losses were as follows for the periods indicated:

	Three Months Ended March 31, 2016
	Commercial			Real Estate			Consumer		Total
	(Dollars in thousands)
Balance, beginning of period	$	10,748		$	8,076		$	102	$	18,926
Charge-offs		(117	)		—			—		(117	)
Recoveries		32			216			—		248
Net (charge-offs) recoveries		(85	)		216			—		131
Provision (credit) for loan losses		616			(224	)		9		401
Balance, end of period	$	11,279		$	8,068		$	111	$	19,458

	Three Months Ended March 31, 2015
	Commercial			Real Estate			Consumer		Total
	(Dollars in thousands)
Balance, beginning of period	$	11,187		$	7,070		$	122	$	18,379
Charge-offs		(212	)		(2	)		—		(214	)
Recoveries		436			13			—		449
Net recoveries		224			11			—		235
Provision (credit) for loan losses		(555	)		473			22		(60	)
Balance, end of period	$	10,856		$	7,554		$	144	$	18,554

        The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment, based on the impairment method at the following period-ends:

	March 31, 2016
	Commercial		Real Estate		Consumer		Total
	(Dollars in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2	$	111	$	—	$	113
Collectively evaluated for impairment		11,277		7,957		111		19,345
Acquired with deterioriated credit quality		—		—		—		—
Total allowance balance	$	11,279	$	8,068	$	111	$	19,458
Loans:
Individually evaluated for impairment	$	190	$	3,891	$	3	$	4,084
Collectively evaluated for impairment		591,693		783,470		16,473		1,391,636
Acquired with deterioriated credit quality		245		—		—		245
Total loan balance	$	592,128	$	787,361	$	16,476	$	1,395,965

20

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

5) Loans (Continued)

	December 31, 2015
	Commercial		Real Estate		Consumer		Total
	(Dollars in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	174	$	112	$	—	$	286
Collectively evaluated for impairment		10,574		7,964		102		18,640
Acquired with deterioriated credit quality		—		—		—		—
Total allowance balance	$	10,748	$	8,076	$	102	$	18,926
Loans:
Individually evaluated for impairment	$	2,014	$	4,272	$	4	$	6,290
Collectively evaluated for impairment		554,271		782,654		16,006		1,352,931
Acquired with deterioriated credit quality		237		—		—		237
Total loan balance	$	556,522	$	786,926	$	16,010	$	1,359,458

Purchased Credit Impaired Loans:

        The Company has purchased loans, for which there was, at acquisition, evidence of impaired credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of these loans is as follows:

	March 31, 2016		December 31, 2015
	(Dollars in thousands)
Commercial	$	820	$	876
Outstanding balance	$	820	$	876
Carrying amount, net of discount of $575,000 and $639,000 at March 31, 2016 and December 31, 2015, respectively	$	245	$	237

        The Company did not increase the allowance for loan losses for the purchased credit impaired loans listed above during the first three months of 2016 or during 2015. No allowance for loan losses were reversed during the first three months of 2016 or during 2015.

21

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

5) Loans (Continued)

        For these purchased credit impaired loans, the Company cannot reasonably estimate the cash flows expected to be collected on the loans and therefore has continued to account for those loans using the cost recovery method of income recognition. As such, no portion of a purchase discount adjustment has been determined to meet the definition of an accretable yield adjustment on those loans accounted for using the cost recovery method. If, in the future, cash flows from the borrowers can be reasonably estimated, a portion of the purchase discount would be allocated to an accretable yield adjustment based upon the present value of the future estimated cash flows versus the current carrying value of the loan and the accretable yield portion would be recognized as interest income over the remaining life of the loan. Until such accretable yield can be calculated, under the cost recovery method of income recognition, all payments will be used to reduce the carrying value of the loan and no income will be recognized on the loan until the carrying value is reduced to zero. Any loan accounted for under the cost recovery method is also still included as a nonaccrual loan.

        The following table presents loans held-for-investment individually evaluated for impairment by class of loans as of March 31, 2016 and December 31, 2015. The recorded investment included in the following table represents loan principal net of any partial charge-offs recognized on the loans. The unpaid principal balance represents the recorded balance prior to any partial charge-offs. The recorded investment in consumer loans collateralized by residential real estate property that are in process of foreclosure according to local requirements of the applicable jurisdiction are not material as of March 31, 2016 and December 31, 2015.

	March 31, 2016						December 31, 2015
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(Dollars in thousands)
With no related allowance recorded:
Commercial	$	290	$	290	$	—	$	745	$	745	$	—
Real estate:
Commercial and residential		3,769		2,910		—		3,851		2,992		—
Land and construction		231		213		—		237		219		—
Home Equity		296		296		—		302		302		—
Consumer		3		3		—		4		4		—
Total with no related allowance recorded		4,589		3,712		—		5,139		4,262		—
With an allowance recorded:
Commercial		145		145		2		1,506		1,506		174
Real estate:
Home Equity		472		472		111		759		759		112
Total with an allowance recorded		617		617		113		2,265		2,265		286
Total	$	5,206	$	4,329	$	113	$	7,404	$	6,527	$	286

22

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

5) Loans (Continued)

        The following tables present interest recognized and cash-basis interest earned on impaired loans for the periods indicated:

	Three Months Ended March 31, 2016
			Real Estate
	Commercial		Commercial and Residential		Land and Construction		Home Equity		Consumer		Total
	(Dollars in thousands)
Average of impaired loans during the period	$	1,343	$	2,951	$	216	$	914	$	4	$	5,428
Interest income during impairment	$	—	$	—	$	—	$	—	$	—	$	—
Cash-basis interest earned	$	—	$	—	$	—	$	—	$	—	$	—

	Three Months Ended March 31, 2015
			Real Estate
	Commercial		Commercial and Residential		Land and Construction		Home Equity		Consumer		Total
	(Dollars in thousands)
Average of impaired loans during the period	$	1,907	$	2,901	$	1,305	$	341	$	5	$	6,459
Interest income during impairment	$	—	$	—	$	—	$	—	$	—	$	—
Cash-basis interest earned	$	—	$	—	$	—	$	—	$	—	$	—

        Nonperforming loans include both smaller dollar balance homogenous loans that are collectively evaluated for impairment and individually classified loans. Nonperforming loans were as follows at period-end:

	March 31,
					December 31, 2015
	2016		2015
	(Dollars in thousands)
Nonaccrual loans—held-for-investment	$	4,184	$	6,733	$	4,716
Restructured and loans over 90 days past due and still accruing		—		—		1,662
Total nonperforming loans		4,184		6,733		6,378
Other restructured loans		145		163		149
Impaired loans, excluding loans held-for-sale	$	4,329	$	6,896	$	6,527

23

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

5) Loans (Continued)

        The following table presents the nonperforming loans by class for the periods indicated:

	March 31, 2016						December 31, 2015
	Nonaccrual		Restructured and Loans Over 90 Days Past Due and Still Accruing		Total		Nonaccrual		Restructured and Loans Over 90 Days Past Due and Still Accruing		Total
	(Dollars in thousands)
Commercial	$	290	$	—	$	290	$	724	$	1,378	$	2,102
Real estate:
Commercial and residential		2,910		—		2,910		2,992		—		2,992
Land and construction		213		—		213		219		—		219
Home equity		768		—		768		777		284		1,061
Consumer		3		—		3		4		—		4
Total	$	4,184	$	—	$	4,184	$	4,716	$	1,662	$	6,378

        The following tables present the aging of past due loans by class for the periods indicated:

	March 31, 2016
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans Not Past Due		Total
	(Dollars in thousands)
Commercial	$	2,906	$	796	$	—	$	3,702	$	588,426	$	592,128
Real estate:
Commercial and residential		—		889		—		889		615,932		616,821
Land and construction		—		—		213		213		95,334		95,547
Home equity		1		295		—		296		74,697		74,993
Consumer		—		—		—		—		16,476		16,476
Total	$	2,907	$	1,980	$	213	$	5,100	$	1,390,865	$	1,395,965

	December 31, 2015
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans Not Past Due		Total
	(Dollars in thousands)
Commercial	$	3,285	$	262	$	1,704	$	5,251	$	551,271	$	556,522
Real estate:
Commercial and residential		—		—		—		—		625,665		625,665
Land and construction		219		—		—		219		84,209		84,428
Home equity		—		—		284		284		76,549		76,833
Consumer		—		—		—		—		16,010		16,010
Total	$	3,504	$	262	$	1,988	$	5,754	$	1,353,704	$	1,359,458

24

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

5) Loans (Continued)

        Past due loans 30 days or greater totaled $5,100,000 and $5,754,000 at March 31, 2016 and December 31, 2015, respectively, of which $509,000 and $591,000 were on nonaccrual. At March 31, 2016, there were also $3,675,000 loans less than 30 days past due included in nonaccrual loans held for investment. At December 31, 2015, there were also $4,125,000 loans less than 30 days past due included in nonaccrual loans held for investment. Management's classification of a loan as "nonaccrual" is an indication that there is reasonable doubt as to the full recovery of principal or interest on the loan. At that point, the Company stops accruing interest income, and reverses any uncollected interest that had been accrued as income. The Company begins recognizing interest income only as cash interest payments are received and it has been determined the collection of all outstanding principal is not in doubt. The loans may or may not be collateralized, and collection efforts are pursued.

Credit Quality Indicators

        Concentrations of credit risk arise when a number of customers are engaged in similar business activities, or activities in the same geographic region, or have similar features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. The Company's loan portfolio is concentrated in commercial (primarily manufacturing, wholesale, and service) and real estate lending, with the balance in consumer loans. While no specific industry concentration is considered significant, the Company's lending operations are located in the Company's market areas that are dependent on the technology and real estate industries and their supporting companies. Thus, the Company's borrowers could be adversely impacted by a downturn in these sectors of the economy which could reduce the demand for loans and adversely impact the borrowers' ability to repay their loans.

        The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis. Nonclassified loans generally include those loans that are expected to be repaid in accordance with contractual loans terms. Classified loans are those loans that are assigned a substandard, substandard-nonaccrual, or doubtful risk rating using the following definitions:

        Substandard.    Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

        Substandard-Nonaccrual.    Loans classified as substandard-nonaccrual are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any, and it is probable that the Company will not receive payment of the full contractual principal and interest. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. In addition, the Company no longer accrues interest on the loan because of the underlying weaknesses.

25

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

5) Loans (Continued)

        Doubtful.    Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

        Loss.    Loans classified as loss are considered uncollectable or of so little value that their continuance as assets is not warranted. This classification does not necessarily mean that a loan has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery would occur. Loans classified as loss are immediately charged off against the allowance for loan losses. Therefore, there is no balance to report at March 31, 2016 and December 31, 2015.

        The following table provides a summary of the loan portfolio by loan type and credit quality classification at period end:

	March 31, 2016						December 31, 2015
	Nonclassified		Classified*		Total		Nonclassified		Classified*		Total
	(Dollars in thousands)
Commercial	$	580,826	$	11,302	$	592,128	$	547,536	$	8,986	$	556,522
Real estate:
Commercial and residential		608,771		8,050		616,821		617,865		7,800		625,665
Land and construction		95,334		213		95,547		84,209		219		84,428
Home equity		73,889		1,104		74,993		75,511		1,322		76,833
Consumer		16,183		293		16,476		15,705		305		16,010
Total	$	1,375,003	$	20,962	$	1,395,965	$	1,340,826	$	18,632	$	1,359,458

*

Classified loans in the table above include Small Business Administration ("SBA") guarantees.

        In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Company's underwriting policy.

        The book balance of troubled debt restructurings at March 31, 2016 was $148,000, which included $3,000 of nonaccrual loans and $145,000 of accruing loans. The book balance of troubled debt restructurings at December 31, 2015 was $153,000, which included $4,000 of nonaccrual loans and $149,000 of accruing loans. Approximately $2,000 and $3,000 in specific reserves were established with respect to these loans as of March 31, 2016 and December 31, 2015, respectively. As of March 31, 2016 and December 31, 2015, the Company had no additional amounts committed on any loan classified as a troubled debt restructuring.

26

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

5) Loans (Continued)

        There were no new loans modified as troubled debt restructurings during the three month periods ended March 31, 2016 and 2015.

        A loan is considered to be in payment default when it is 30 days contractually past due under the modified terms. There were no defaults on troubled debt restructurings, within twelve months following the modification, during the three month periods ended March 31, 2016 and 2015.

        A loan that is a troubled debt restructuring on nonaccrual status may return to accruing status after a period of at least six months of consecutive payments in accordance with the modified terms.

6) Business Combinations

Bay View Funding

        On November 1, 2014, HBC acquired all of the outstanding common stock from the stockholders of BVF/CSNK Acquisition Corp., a Delaware corporation for an aggregate purchase price of $22,520,000. CSNK Working Capital Finance Corp. dba Bay View Funding ("Bay View Funding") its wholly-owned subsidiary provides business essential working capital factoring financing to various industries throughout the United States. BVF/CSNK was subsequently merged into Bay View Funding and Bay View Funding became a wholly owned subsidiary of HBC. Bay View Funding's results of operations have been included in the Company's results beginning November 1, 2014.

        The fair values of assets acquired and liabilities assumed are subject to adjustment during the first twelve months after the acquisition date if additional information becomes available to indicate more accurate or appropriate values for the assets acquired and liabilities assumed, which may be reflective of conditions or events that existed at the acquisition date. As of December 31, 2015, adjustments to the fair value of assets acquired and liabilities assumed in the Bay View Funding transaction were complete.

Focus Business Bank

        On April 23, 2015, the Company and Focus entered into a definitive agreement and plan of merger and reorganization whereby Focus would merge into HBC. The Company completed the merger of its wholly-owned bank subsidiary HBC with Focus on August 20, 2015 for an aggregate transaction value of $66,558,000. Shareholders of Focus received a fixed exchange ratio at closing of 1.8235 shares of the Company's common stock for each share of Focus common stock. Upon closing of the transaction, the Company issued 5,456,713 shares of the Company's common stock to Focus shareholders for a total value of $58,278,000, based on the Company's closing stock price of $10.68 on August 20, 2015. In addition, the Company paid cash to the Focus holders of in-the-money stock options on August 20, 2015 totaling $8,280,000.

        Focus's results of operations have been included in the Company's results of operations beginning August 21, 2015. Pre-tax severance, retention, acquisition and integration costs totaled $119,000 for the first three months of 2015, and $6,398,000 for the year ended December 31, 2015.

27

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

6) Business Combinations (Continued)

        The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.

	(Dollars in thousands)
Assets acquired:
Cash and cash item	$	5,651
Federal funds sold and deposits in other financial institutions		168,415
Securities available-for-sale		53,940
Securities held-to-maturity		8,665
Loans held-for-sale		4,416
Net loans		170,353
Goodwill		32,620
Core deposit intangible asset		6,285
Corporate owned life insurance		7,067
Other assets, net		20,250
Total assets acquired		477,662
Liabilities asssumed:
Deposits		405,123
Other liabilities		5,981
Total liabilities		411,104
Net assets acquired	$	66,558

        The fair value of net assets acquired includes fair value adjustments to certain receivables of which some were considered impaired and some were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows, adjusted for expected losses and prepayments, where appropriate. The gross contractual amount of four purchased credit impaired loans as of the acquisition date totaled $1,124,000. As of that date, contractual cash flows not expected to be collected on the purchased credit impaired loans totaled $819,000, which represents 72.9% of their gross outstanding principal balances. The receivables that were not considered impaired at the acquisition date were not subject to the guidance relating to purchased credit impaired loans, which have shown evidence of credit deterioration since origination. Receivables acquired that were not subject to these requirements include nonimpaired loans with a fair value and gross contractual amounts receivable of $170,048,000 and $174,660,000 respectively, on the date of acquisition. As of the acquisition date, the purchase discount on these nonimpaired loans totaled $4,612,000, which represents 2.6% of their gross outstanding principal balances.

        Goodwill of $32,620,000 arising from the acquisition is largely attributable to synergies and cost savings resulting from combining the operations of the companies. As this transaction was structured as a taxfree exchange, the goodwill will not be deductible for tax purposes. The fair values of assets acquired and liabilities assumed are subject to adjustment during the first twelve months after the acquisition date if additional information becomes available to indicate a more accurate or appropriate

28

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

6) Business Combinations (Continued)

value for an asset or liability. The loans with a fair value of $170,353,000 and $1,758,000 of income tax attributes, on the acquisition date, related to the purchase accounting adjustments and Focus' legacy deferred tax assets are subject to change pending receipt of the final valuations and analyses. Loan valuations may be adjusted based on new information obtained by the Company in future periods that may reflect conditions or events that existed on the acquisition date. Deferred tax assets may be adjusted for purchase accounting adjustments on open areas such as loans or upon filing Focus' final August 20, 2015 "stub" period tax returns.

        The following table summarizes the consideration paid for Focus:

	August 20, 2015
	(Dollars in thousands)
Cash paid for Focus in-the-money stock options	$	8,280
Common stock issued to Focus shareholders at $10.68 per share		58,278
Total consideration	$	66,558

        The following table presents pro forma financial information as if the acquisition had occurred on January 1, 2015, which includes the pre-acquisition period for Focus. The historical unaudited pro forma financial information has been adjusted to reflect supportable items that are directly attributable to the acquisition and expected to have a continuing impact on consolidated results of operations, as such, one-time acquisition costs are not included. The unaudited pro forma financial information is provided for informational purposes only. The unaudited pro forma financial information is not necessarily, and should not be assumed to be, an indication of the results that would have been achieved had the acquisition been completed as of the dates indicated or that may be achieved in the future. The preparation of the unaudited pro forma combined consolidated financial statements and related adjustments required management to make certain assumptions and estimates.

UNAUDITED	For the Three Months Ended March 31, 2015
	(Dollars in thousands, except per share amounts)
Net interest income	$	20,092
Provision for loan losses		(10	)
Noninterest income		3,102
Noninterest expense		15,418
Income before income taxes		7,786
Income tax expense		2,923
Net income	$	4,863
Net income per share—basic	$	0.13
Net income per share—diluted	$	0.13

29

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

(7) Goodwill and Other Intangible Assets

Goodwill

        At March 31, 2016, the carrying value of goodwill was $45,664,000, which included $13,044,000 of goodwill related to its acquisition of Bay View Funding and $32,620,000 from its acquisition of Focus. During the fourth quarter of 2015, adjustments were made to the purchase price allocations for the Focus transaction that affected the amounts allocated to goodwill and other assets.

        Goodwill impairment exists when a reporting unit's carrying value exceeds its fair value, which is determined through a qualitative assessment whether it is more likely than not that the fair value of equity of the reporting unit exceeds the carrying value ("Step Zero"). If the qualitative assessment indicates it is more likely than not that the fair value of equity of a reporting unit is less than book value, than a quantitative two-step impairment test is required. Step 1 includes the determination of the carrying value of the Company's single reporting unit, including the existing goodwill and intangible assets, and estimating the fair value of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, the Company is required to perform a second step to the impairment test. Step 2 requires that the implied fair value of the reporting unit goodwill be compared to the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess.

        The Company completed its annual impairment analysis on the goodwill as of November 30, 2015 with the assistance of an independent valuation firm. Based on the Step Zero qualitative analysis performed, the Company determined that it is more likely than not that the fair value of the reporting unit exceeded its reported book value of equity at November 30, 2015. As such, no impairment was indicated and no further testing was required.

Other Intangible Assets

        Core deposit and customer relationship intangible assets acquired in the 2007 acquisition of Diablo Valley Bank were $5,049,000 and $276,000, respectively. These assets are amortized over their estimated useful lives of 10 years. The customer relationship intangible asset was fully amortized at December 31, 2014. Accumulated amortization of these intangible assets was $4,810,000 and $4,703,000 at March 31, 2016 and December 31, 2015, respectively.

        The core deposit intangible asset acquired in the acquisition of Focus in August 2015 was $6,285,000. This asset is amortized over its estimated useful lives of 10 years. Accumulated amortization of this intangible asset was $496,000 and $288,000 at March 31, 2016 and December 31, 2015, respectively.

        Other intangible assets acquired in the acquisition of Bay View Funding in November 2014 included: a below market value lease intangible asset of $109,000 (amortized over 3 years), customer relationship and brokered relationship intangible assets of $1,900,000, (amortized over the 10 year estimated useful lives), and a non compete agreement intangible asset of $250,000 (amortized over 3 years). Accumulated amortization of these intangible assets was $437,000 and $360,000 at March 31, 2016 and December 31, 2015, respectfully.

30

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

(7) Goodwill and Other Intangible Assets (Continued)

        Estimated amortization expense for 2016 and each of the next five years following 2016:

					Bay View Funding
Year	Diablo Valley Bank Core Deposit Intangible		Focus Core Deposit Intangible		Below Market Value Lease Intangible		Customer & Brokered Relationship Intangible		Non-Compete Agreement Intangible		Total Amortization Expense
	(Dollars in thousands)
2016	$	427	$	831	$	36	$	190	$	83	$	1,567
2017		195		875		31		190		70		1,361
2018		—		775		—		190		—		965
2019		—		734		—		190		—		924
2020		—		716		—		190		—		906
2021		—		596		—		190		—		786
	$	622	$	4,527	$	67	$	1,140	$	153	$	6,509

        Impairment testing of the intangible assets is performed at the individual asset level. Impairment exists if the carrying amount of the asset is not recoverable and exceeds its fair value at the date of the impairment test. For intangible assets, estimates of expected future cash flows (cash inflows less cash outflows) that are directly associated with an intangible asset are used to determine the fair value of that asset. Management makes certain estimates and assumptions in determining the expected future cash flows from core deposit and customer relationship intangibles including account attrition, expected lives, discount rates, interest rates, servicing costs and other factors. Significant changes in these estimates and assumptions could adversely impact the valuation of these intangible assets. If an impairment loss exists, the carrying amount of the intangible asset is adjusted to a new cost basis. The new cost basis is then amortized over the remaining useful life of the asset. Based on its assessment, management concluded that there was no impairment of intangible assets at March 31, 2016 and December 31, 2015.

8) Income Taxes

        Some items of income and expense are recognized in different years for tax purposes than when applying generally accepted accounting principles, leading to timing differences between the Company's actual current tax liability and the amount accrued for this liability based on book income. These temporary differences comprise the "deferred" portion of the Company's tax expense or benefit, which is accumulated on the Company's books as a deferred tax asset or deferred tax liability until such time as they reverse.

        Under generally accepted accounting principles, a valuation allowance is required if it is "more likely than not" that a deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning management's evaluation of both positive and negative evidence, including forecasts of future income, cumulative losses, applicable tax planning strategies, and assessments of current and future economic and business conditions. In accordance with Accounting Standards Codification (ASC) 740-10 Accounting for

31

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

8) Income Taxes (Continued)

Uncertainty in Income Taxes, the Company estimated the need for a reserve for income taxes of $270,000, net of Federal benefit, for uncertain state income tax positions of Bay View Funding as of March 31, 2016. The Company does not expect this amount to significantly increase or decrease in the next twelve months.

        The Company had net deferred tax assets of $18,690,000, and $22,218,000, at March 31, 2016, and December 31, 2015, respectively. After consideration of the matters in the preceding paragraph, the Company determined that it is more likely than not that the net deferred tax asset at March 31, 2016 and December 31, 2015 will be fully realized in future years.

        The Company adopted the proportional amortization method of accounting for its low income housing investments in the third quarter of 2014. The low income housing investment losses, net of the tax benefits received, are included in income tax expense for all periods reflected on the consolidated income statements.

        The following table reflects the carry amounts of the low income housing investments included in accrued interest receivable and other assets, and the future commitments as of March 31, 2016 and December 31, 2015:

	March 31, 2016		December 31, 2015
	(Dollars in thousands)
Low income housing investments	$	4,235	$	4,304
Future commitments	$	845	$	1,271

        The Company expects $123,000 of the future commitments to be paid in 2016, $14,000 in 2017, and $708,000 in 2018 through 2023.

        For tax purposes, the Company had low income housing tax credits of $111,000 and $172,000 for the three months ended March 31, 2016 and March 31, 2015, respectively, and low income housing investment losses of $117,000 and $229,000, respectively. The Company recognized low income housing investment expense as a component of income tax expense.

9) Benefit Plans

Supplemental Retirement Plan

        The Company has a supplemental retirement plan (the "Plan") covering some current and some former key employees and directors. The Plan is a nonqualified defined benefit plan. Benefits are

32

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

9) Benefit Plans (Continued)

unsecured as there are no Plan assets. The following table presents the amount of periodic cost recognized for the periods indicated:

	Three Months Ended March 31,
	2016		2015
	(Dollars in thousands)
Components of net periodic benefit cost:
Service cost	$	133	$	216
Interest cost		259		221
Amortization of net actuarial loss		60		96
Net periodic benefit cost	$	452	$	533

Split-Dollar Life Insurance Benefit Plan

        The Company maintains life insurance policies for some current and some former directors and officers that are subject to split-dollar life insurance agreements. The following table sets forth the funded status of the split-dollar life insurance benefits for the periods indicated:

	March 31, 2016		December 31, 2015
	(Dollars in thousands)
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	6,215	$	4,641
Interest cost		62		169
Amortization of net actuarial loss		—		1,405
Projected benefit obligation at end of period	$	6,277	$	6,215

	March 31, 2016		December 31, 2015
	(Dollars in thousands)
Net actuarial loss	$	2,183	$	2,147
Prior transition obligation		1,395		1,418
Accumulated other comprehensive loss	$	3,578	$	3,565

33

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

9) Benefit Plans (Continued)

	For the Three Months Ended March 31,
	2016			2015
	(Dollars in thousands)
Amortization of prior transition obligation	$	(13	)	$	(12	)
Interest cost		62			50
Net periodic benefit cost	$	49		$	38

10) Equity

Series C Preferred Stock

        On June 21, 2010, the Company issued to various institutional investors 21,004 shares of Series C Convertible Perpetual Preferred Stock ("Series C Preferred Stock"). The Series C Preferred Stock is mandatorily convertible into common stock at a conversion price of $3.75 per share upon a subsequent transfer of the Series C Preferred Stock to third parties not affiliated with the holder in a widely dispersed offering. The 21,004 shares of Series C Preferred Stock are convertible into 5,601,000 shares of common stock. The Series C Preferred Stock is non-voting except in the case of certain transactions that would affect the rights of the holders of the Series C Preferred Stock or applicable law. The holders of Series C Preferred Stock receive dividends on an as converted basis when dividends are also declared for holders of common stock. The Series C Preferred Stock is not redeemable by the Company or by the holders and has a liquidation preference of $1,000 per share. The Series C Preferred Stock ranks senior to the Company's common stock.

        The holders of the Series C Preferred Stock have applied or intend to apply to the Federal Reserve for approval to exchange the 21,004 shares of Series C Preferred Stock for 5,601,000 common stock (the as converted equivalent). The Company has indicated to the holders that if such approval is obtained the Company would agree to enter into an exchange agreement to effect the exchange. One of the holders has obtained approval from the Federal Reserve. There is no assurance the other holder will obtain approval from the Federal Reserve.

11) Fair Value

        Accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

        Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

        Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market

34

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

11) Fair Value (Continued)

data (for example, interest rates and yield curves observable at commonly quoted intervals, prepayment speeds, credit risks, and default rates).

        Level 3: Significant unobservable inputs that reflect a reporting entity's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Financial Assets and Liabilities Measured on a Recurring Basis

        The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs).

        The fair value of interest-only ("I/O") strip receivable assets is based on a valuation model used by a third party. The Company is able to compare the valuation model inputs and results to widely available published industry data for reasonableness (Level 2 inputs).

			Fair Value Measurements Using
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Assets at March 31, 2016:
Available-for-sale securities:
Agency mortgage-backed securities	$	392,753		—	$	392,753		—
U.S. Treasury	$	30,332	$	30,332	$	—		—
Trust preferred securities	$	15,225		—	$	15,225		—
U.S. Government sponsored entities	$	9,181		—	$	9,181		—
Corporate bonds	$	1,049		—	$	1,049		—
I/O strip receivables	$	1,369		—	$	1,369		—
Assets at December 31, 2015:
Available-for-sale securities:
Agency mortgage-backed securities	$	324,230		—	$	324,230		—
U.S. Treasury	$	30,003	$	30,003	$	—		—
Trust preferred securities	$	15,132		—	$	15,132		—
U.S. Government sponsored entities	$	9,041		—	$	9,041		—
Corporate bonds	$	6,673		—	$	6,673		—
I/O strip receivables	$	1,367		—	$	1,367		—

        There were no transfers between Level 1 and Level 2 during the period for assets measured at fair value on a recurring basis.

35

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

11) Fair Value (Continued)

Assets and Liabilities Measured on a Non-Recurring Basis

        The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. The appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

        Foreclosed assets are valued at the time the loan is foreclosed upon and the asset is transferred to foreclosed assets. The fair value is based primarily on third party appraisals, less costs to sell. The appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales and income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

			Fair Value Measurements Using
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Assets at March 31, 2016:
Impaired loans—held-for-investment:
Commercial	$	143		—		—	$	143
Real estate:
Commercial and residential		482		—		—		482
Land and construction		213		—		—		213
Home equity		361		—		—		361
	$	1,199		—		—	$	1,199
Assets at December 31, 2015:
Impaired loans—held-for-investment:
Commercial	$	1,333		—		—	$	1,333
Real estate:
Commercial and residential		503		—		—		503
Land and construction		219		—		—		219
Home equity		647		—		—		647
	$	2,702		—		—	$	2,702

36

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

11) Fair Value (Continued)

        The following table shows the detail of the impaired loans held-for-investment and the impaired loans held-for-investment carried at fair value for the periods indicated:

	March 31, 2016			December 31, 2015
	(Dollars in thousands)
Impaired loans held-for-investment:
Book value of impaired loans held-for-investment carried at fair value	$	1,312		$	2,988
Book value of impaired loans held-for-investment carried at cost		3,017			3,539
Total impaired loans held-for-investment	$	4,329		$	6,527
Impaired loans held-for-investment carried at fair value:
Book value of impaired loans held-for-investment carried at fair value	$	1,312		$	2,988
Specific valuation allowance		(113	)		(286	)
Impaired loans held-for-investment carried at fair value, net	$	1,199		$	2,702

        Impaired loans held-for-investment which are measured primarily for impairment using the fair value of the collateral were $4,329,000 at March 31, 2016. In addition, these loans had a specific valuation allowance of $113,000 at March 31, 2016. Impaired loans held-for-investment totaling $1,312,000 at March 31, 2016, were carried at fair value as a result of the aforementioned partial charge-offs and specific valuation allowances at period-end. The remaining $3,017,000 of impaired loans were carried at cost at March 31, 2016, as the fair value of the collateral exceeded the cost basis of each respective loan. Partial charge-offs and changes in specific valuation allowances during the first three months of 2016 on impaired loans held-for-investment carried at fair value at March 31, 2016 resulted in an additional provision for loan losses of $2,000.

        At March 31, 2016, foreclosed assets had a carrying amount of $386,000, with no valuation allowance at March 31, 2016.

        Impaired loans held-for-investment were $6,527,000 at December 31, 2015. There were no partial charge-offs at December 31, 2015. In addition, these loans had a specific valuation allowance of $286,000 at December 31, 2015. Impaired loans held-for-investment totaling $2,988,000 at December 31, 2015 were carried at fair value as a result of the aforementioned partial charge-offs and specific valuation allowances at year-end. The remaining $3,539,000 of impaired loans were carried at cost at December 31, 2015, as the fair value of the collateral exceeded the cost basis of each respective loan. Partial charge-offs and changes in specific valuation allowances during 2015 on impaired loans held-for-investment carried at fair value at December 31, 2015 resulted in an additional provision for loan losses of $156,000.

        At December 31, 2015, foreclosed assets had a carrying amount of $364,000, with no valuation allowance at December 31, 2015.

37

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

11) Fair Value (Continued)

        The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at the periods indicated:

	March 31, 2016
	Fair Value		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
	(Dollars in thousands)
Impaired loans—held-for-investment:
Commercial	$	143	Market Approach	Discount adjustment for differences between comparable sales	Less than 1%
Real estate:
Commercial and residential	$	482	Market Approach	Discount adjustment for differences between comparable sales	0% to 3% (3%)
Land and construction	$	213	Market Approach	Discount adjustment for differences between comparable sales	Less than 1%
Home equity	$	361	Market Approach	Discount adjustment for differences between comparable sales	0% to 3% (3%)

	December 31, 2015
	Fair Value		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
	(Dollars in thousands)
Impaired loans—held-for-investment:
Commercial	$	1,333	Market Approach	Discount adjustment for differences between comparable sales	0% to 5% (5%)
Real estate:
Commercial and residential	$	503	Market Approach	Discount adjustment for differences between comparable sales	0% to 3% (3%)
Land and construction	$	219	Market Approach	Discount adjustment for differences between comparable sales	Less than 1%
Home equity	$	647	Market Approach	Discount adjustment for differences between comparable sales	0% to 2% (2%)

38

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

11) Fair Value (Continued)

        The Company obtains third party appraisals on its impaired loans held-for-investment and foreclosed assets to determine fair value. Generally, the third party appraisals apply the "market approach," which is a valuation technique that uses prices and other relevant information generated by market transactions involving identical or comparable (that is, similar) assets, liabilities, or a group of assets and liabilities, such as a business. Adjustments are then made based on the type of property, age of appraisal, current status of property and other related factors to estimate the current value of collateral.

        The carrying amounts and estimated fair values of financial instruments at March 31, 2016 are as follows:

			Estimated Fair Value
	Carrying Amounts		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	143,135	$	143,135	$	—	$	—	$	143,135
Securities available-for-sale		448,540		30,332		418,208		—		448,540
Securities held-to-maturity		185,165		—		187,047		—		187,047
Loans (including loans held-for-sale), net		1,378,195		—		2,389		1,374,562		1,376,951
FHLB and FRB stock		12,702		—		—		—		N/A
Accrued interest receivable		6,681		83		2,216		4,382		6,681
I/O strips receivables		1,369		—		1,369		—		1,369
Liabilities:
Time deposits	$	256,538	$	—	$	256,842	$	—	$	256,842
Other deposits		1,772,198		—		1,772,198		—		1,772,198
Accrued interest payable		188		—		188		—		188

39

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

11) Fair Value (Continued)

        The carrying amounts and estimated fair values of the Company's financial instruments at December 31, 2015:

			Estimated Fair Value
	Carrying Amounts		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	344,092	$	344,092	$	—	$	—	$	344,092
Securities available-for-sale		385,079		30,003		355,076		—		385,079
Securities held-to-maturity		109,311		—		109,821		—		109,821
Loans (including loans held-for-sale), net		1,347,087		—		7,297		1,337,939		1,345,236
FHLB stock, FRB stock, and other investments		12,694		—		—		—		N/A
Accrued interest receivable		5,924		14		1,640		4,270		5,924
I/O strips receivables		1,367		—		1,367		—		1,367
Liabilities:
Time deposits	$	244,861	$	—	$	245,279	$	—	$	245,279
Other deposits		1,817,914		—		1,817,914		—		1,817,914
Short-term borrowings		3,000		—		3,000				3,000
Accrued interest payable		170		—		170		—		170

        The methods and assumptions, not previously discussed, used to estimate the fair value are described as follows:

Cash and Cash Equivalents

        The carrying amounts of cash on hand, noninterest and interest bearing due from bank accounts, and Fed funds sold approximate fair values and are classified as Level 1.

Loans

        The fair value of loans held-for-sale is estimated based upon binding contracts and quotes from third parties resulting in a Level 2 classification.

        Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of

40

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

11) Fair Value (Continued)

cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

FHLB and FRB Stock

        It was not practical to determine the fair value of FHLB and FRB stock due to restrictions placed on their transferability.

Accrued Interest Receivable/Payable

        The carrying amounts of accrued interest approximate fair value resulting in a Level 2 or Level 3 classification.

Deposits

        The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 2 classification. The carrying amounts of variable rate, fixed-term money market accounts approximate their fair values at the reporting date resulting in a Level 2 classification. The carrying amounts of variable rate, certificates of deposit approximate their fair values at the reporting date resulting in a Level 2 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

Short-term Borrowings

        The carrying amount approximates the fair value of short-term borrowings that reprice frequently and fully.

Off-balance Sheet Instruments

        Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. The fair value of commitments is not material.

Limitations

        Fair value estimates are made at a specific point in time, based on relevant market information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

41

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

12) Equity Plan

        The Company maintained an Amended and Restated 2004 Equity Plan (the "2004 Plan") for directors, officers, and key employees. The 2004 Plan was terminated on May 23, 2013. On May 23, 2013, the Company's shareholders approved the 2013 Equity Incentive Plan (the "2013 Plan"). The equity plans provide for the grant of incentive and nonqualified stock options and restricted stock. The equity plans provide that the option price for both incentive and nonqualified stock options will be determined by the Board of Directors at no less than the fair value at the date of grant. Options granted vest on a schedule determined by the Board of Directors at the time of grant. Generally options vest over four years. All options expire no later than ten years from the date of grant. Restricted stock is subject to time vesting. For the three months ended March 31, 2016, the Company did not grant shares of nonqualified stock options and restricted stock. There were 940,985 shares available for the issuance of equity awards under the 2013 Plan as of March 31, 2016.

        Stock option activity under the equity plans is as follows:

Total Stock Options	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2016		1,775,027		$	10.62
Exercised		(57,441	)	$	6.24
Forfeited or expired		(12,000	)	$	22.78
Outstanding at March 31, 2016		1,705,586		$	10.68		5.6	$	3,622,227
Vested or expected to vest		1,620,307					5.6	$	3,441,116
Exercisable at March 31, 2016		1,255,734					4.6	$	2,878,696

        As of March 31, 2016, there was $1,597,000 of total unrecognized compensation cost related to nonvested stock options granted under the equity plans. That cost is expected to be recognized over a weighted-average period of approximately 2.31 years.

        Restricted stock activity under the equity plans is as follows:

Total Restricted Stock Award	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested shares at January 1, 2016		167,605		$	9.28
Vested		(5,000	)	$	8.30
Nonvested shares at March 31, 2016		162,605		$	9.31

        As of March 31, 2016, there was $1,255,000 of total unrecognized compensation cost related to nonvested restricted stock awards granted under the equity plans. The cost is expected to be recognized over a weighted-average period of approximately 2.92 years.

42

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

13) Capital Requirements

        The Company and its subsidiary bank are subject to various regulatory capital requirements administered by the banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory—and possibly additional discretionary—actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements and operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and HBC must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

        As of January 1, 2015, HCC and HBC along with other community banking organizations became subject to new capital requirements. The implementation of the capital conservation buffer began on January 1, 2016 at 0.625% and will be phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019). The Federal Banking regulators approved the new rules to implement the revised capital adequacy standards of the Basel Committee on Banking Supervision, commonly called Basel III, and address relevant provisions of The Dodd Frank Wall Street Reform and Consumer Protection Act of 2010, as amended. The Company's consolidated capital ratios and the Bank's capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at March 31, 2016.

        Quantitative measures established by regulation to help ensure capital adequacy require the Company and HBC to maintain minimum amounts and ratios (set forth in the tables below) of total, Tier 1 capital, and common equity Tier 1 capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Management believes that, as of March 31, 2016 and December 31, 2015, the Company and HBC met all capital adequacy guidelines to which they were subject.

43

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

13) Capital Requirements (Continued)

        The Company's consolidated capital amounts and ratios are presented in the following table, together with capital adequacy requirements, under the Basel III regulatory requirements as of March 31, 2016, and December 31, 2015.

	Actual					Required For Capital Adequacy Purposes Under Basel III
	Amount		Ratio			Amount		Ratio(1)
	(Dollars in thousands)
As of March 31, 2016:
Total Capital	$	221,578		12.4	%	$	154,134		8.625	%
(to risk-weighted assets)
Tier 1 Capital	$	201,380		11.3	%	$	118,393		6.625	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	182,623		10.2	%	$	91,587		5.125	%
(to risk-weighted assets)
Tier 1 Capital	$	201,380		8.8	%	$	91,671		4.000	%
(to average assets)

(1)

Includes 0.625% capital conservation buffer, effective January 1, 2016, except the Tier 1 Capital to average assets ratio.

	Actual					Required For Capital Adequacy Purposes Under Basel III
	Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of December 31, 2015:
Total Capital	$	218,915		12.5	%	$	140,041		8.0	%
(to risk-weighted assets)
Tier 1 Capital	$	199,299		11.4	%	$	105,031		6.0	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	181,221		10.4	%	$	78,773		4.5	%
(to risk-weighted assets)
Tier 1 Capital	$	199,299		8.6	%	$	92,918		4.0	%
(to average assets)

44

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

13) Capital Requirements (Continued)

        HBC's actual capital amounts and ratios are presented in the following table, together with capital adequacy requirements, under the Basel III regulatory requirements as of March 31, 2016, and December 31, 2015.

	Actual					To Be Well-Capitalized Under Basel III Regulatory Requirements					Required For Capital Adequacy Purposes Under Basel III
	Amount		Ratio			Amount		Ratio			Amount		Ratio(1)
	(Dollars in thousands)
As of March 31, 2016:
Total Capital	$	220,150		12.3	%	$	178,717		10.0	%	$	154,143		8.625	%
(to risk-weighted assets)
Tier 1 Capital	$	199,952		11.2	%	$	142,973		8.0	%	$	118,400		6.625	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	199,952		11.2	%	$	116,166		6.5	%	$	91,592		5.125	%
(to risk-weighted assets)
Tier 1 Capital	$	199,952		8.7	%	$	114,574		5.0	%	$	91,659		4.000	%
(to average assets)

(1)

Includes 0.625% capital conservation buffer, effective January 1, 2016, except the Tier 1 Capital to average assets ratio.

	Actual					To Be Well-Capitalized Under Basel III Regulatory Requirements					Required For Capital Adequacy Purposes Under Basel III
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of December 31, 2015:
Total Capital	$	219,943		12.6	%	$	175,022		10.0	%	$	140,018		8.0	%
(to risk-weighted assets)
Tier 1 Capital	$	200,327		11.4	%	$	140,018		8.0	%	$	105,013		6.0	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	200,327		11.4	%	$	113,764		6.5	%	$	78,760		4.5	%
(to risk-weighted assets)
Tier 1 Capital	$	200,327		8.6	%	$	116,112		5.0	%	$	92,889		4.0	%
(to average assets)

        HCC is dependent upon dividends from HBC. Under California General Corporation Law, the holders of common stock are entitled to receive dividends when and as declared by the Board of Directors, out of funds legally available. The California Financial Code provides that a state licensed bank may not make a cash distribution to its shareholders in excess of the lesser of the following: (i) the bank's retained earnings; or (ii) the bank's net income for its last three fiscal years, less the amount of any distributions made by the bank to its shareholders during such period. However, a bank,

45

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

13) Capital Requirements (Continued)

with the prior approval of the Commissioner of the California Department of Business Oversight—Division of Financial Institutions ("DBO") may make a distribution to its shareholders of an amount not to exceed the greater of (i) a bank's retained earnings; (ii) its net income for its last fiscal year; or (iii) its net income for the current fiscal year. Also with the prior approval of the Commissioner of the DBO and the shareholders of the bank, the bank may make a distribution to its shareholders, as a reduction in capital of the bank. In the event that the Commissioner determines that the shareholders' equity of a bank is inadequate or that the making of a distribution by a bank would be unsafe or unsound, the Commissioner may order a bank to refrain from making such a proposed distribution. As of March 31, 2016 HBC would not be required to obtain regulatory approval, and the amount available for cash divideneds is $16,361,000. Similar restrictions applied to the amount and sum of loan advances and other transfers of funds from HBC to the parent company. During the first quarter of 2016, HBC upstreamed a $6.0 million dividend to HCC.

14) Loss Contingencies

        The Company's policy is to accrue for legal costs associated with both asserted and unasserted claims when it is probable that such costs will be incurred and such costs can be reasonably estimated. A number of parties have filed complaints in the Superior Court of California for the County of Santa Clara asserting certain claims against the Company arising from the transfer of funds. One complaint composed of numerous claims has been set for trial in late 2016. Three of the remaining complaints are in the pleading stage and in mid-discovery. One other complaint is in mid-discovery. As to all claims, it is not possible to determine the amount of the loss, if any, arising from the claim in excess of the legal expenses expected to be incurred in defense of the litigation. The Company intends to vigorously defend the litigation.

46

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

15) Noninterest Expense

        The following table sets forth the various components of the Company's noninterest expense for the periods indicated:

	For the Three Months Ended March 31,
	2016		2015
	(Dollars in thousands)
Salaries and employee benefits	$	8,947	$	8,042
Occupancy and equipment		1,085		1,045
Professional fees		825		95
Data processing		400		303
Software subscriptions		341		327
FDIC deposit insurance premiums		331		239
Insurance expense		299		291
Foreclosed assets		2		(170	)
Other		2,455		2,104
Total noninterest expense	$	14,685	$	12,276

16) Business Segment Information

        The following presents the Company's operating segments. The Company operates through two business segments: Banking segment and Factoring segment. Transactions between segments consist primarily of borrowed funds. Intersegment interest expense is allocated to the Factoring segment based on the Company's prime rate and funding costs. The provision for loan loss is allocated based on the segment's allowance for loan loss determination which considers the effects of charge-offs. Noninterest income and expense directly attributable to a segment are assigned to it. Taxes are paid on a consolidated basis and allocated for segment purposes. The Factoring segment includes only factoring

47

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

16) Business Segment Information (Continued)

originated by Bay View Funding, which has been included in the results of operations since the acquisition on November 1, 2014.

	For the Theee Months Ended March 31, 2016
	Banking(1)		Factoring			Consolidated
	(Dollars in thousands)
Interest income	$	20,208	$	2,854		$	23,062
Intersegment interest allocations		245		(245	)		—
Total interest expense		758		—			758
Net interest income		19,695		2,609			22,304
Provision for loan losses		387		14			401
Net interest income after provision		19,308		2,595			21,903
Noninterest income		2,412		202			2,614
Noninterest expense		13,052		1,633			14,685
Intersegment expense allocations		175		(175	)		—
Income before income taxes		8,843		989			9,832
Income tax expense		3,310		416			3,726
Net income	$	5,533	$	573		$	6,106
Total assets	$	2,271,411	$	55,922		$	2,327,333
Loans, net of deferred fees	$	1,353,315	$	41,949		$	1,395,264
Goodwill	$	32,620	$	13,044		$	45,664

(1)

Includes the holding company's results of operations

48

HERITAGE COMMERCE CORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

March 31, 2016

(Unaudited)

16) Business Segment Information (Continued)

	For the Three Months Ended March 31, 2015
	Banking(1)			Factoring			Consolidated
	(Dollars in thousands)
Interest income	$	14,304		$	3,062		$	17,366
Intersegment interest allocations		268			(268	)		—
Total interest expense		508			—			508
Net interest income		14,064			2,794			16,858
Provision (credit) for loan losses		(58	)		(2	)		(60	)
Net interest income after provision		14,122			2,796			16,918
Noninterest income		1,792			134			1,926
Noninterest expense		10,506			1,770			12,276
Intersegment expense allocations		75			(75	)		—
Income before income taxes		5,483			1,085			6,568
Income tax expense		1,974			456			2,430
Net income	$	3,509		$	629		$	4,138
Total assets	$	1,593,176		$	59,711		$	1,652,887
Loans, net of deferred fees	$	1,057,437		$	44,554		$	1,101,991
Goodwill	$	—		$	13,054		$	13,054

(1)

Includes the holding company's results of operations

17) Subsequent Events

        On April 28, 2016, the Company announced that its Board of Directors declared a $0.09 per share quarterly cash dividend to holders of common stock and Series C Preferred Stock (on an as converted basis). The dividend will be paid on May 25, 2016, to shareholders of record on May 10, 2016.

49

ITEM 2—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion provides information about the results of operations, financial condition, liquidity, and capital resources of Heritage Commerce Corp (the "Company" or "HCC"), its wholly-owned subsidiary, Heritage Bank of Commerce ("HBC"), and HBC's wholly-owned subsidiary, CSNK Working Capital Finance Corp, a California Corporation, dba Bay View Funding ("Bay View Funding"). This information is intended to facilitate the understanding and assessment of significant changes and trends related to our financial condition and the results of operations. This discussion and analysis should be read in conjunction with our consolidated financial statements and the accompanying notes presented elsewhere in this report. Unless we state otherwise or the context indicates otherwise, references to the "Company," "Heritage," "we," "us," and "our," in this Report on Form 10-Q refer to Heritage Commerce Corp and its subsidiaries.

CRITICAL ACCOUNTING POLICIES

        Critical accounting policies are discussed in our Form 10-K for the year ended December 31, 2015. There are no changes to these policies as of March 31, 2016.

EXECUTIVE SUMMARY

        This summary is intended to identify the most important matters on which management focuses when it evaluates the financial condition and performance of the Company. When evaluating financial condition and performance, management looks at certain key metrics and measures. The Company's evaluation includes comparisons with peer group financial institutions and its own performance objectives established in the internal planning process.

        The primary activity of the Company is commercial banking. The Company's operations are located entirely in the southern and eastern regions of the general San Francisco Bay Area of California in the counties of Santa Clara, Alameda, Contra Costa, and San Benito. The largest city in this area is San Jose and the Company's market includes the headquarters of a number of technology based companies in the region known commonly as Silicon Valley. The Company's customers are primarily closely held businesses and professionals.

Performance Overview

        For the three months ended March 31, 2016, net income was $6.1 million, or $0.16 per average diluted common share, compared to $4.1 million, or $0.13 per average diluted common share, for the three months ended March 31, 2015. The Company's annualized return on average tangible assets was 1.07% and annualized return on average tangible equity was 12.62% for the three months ended March 31, 2016, compared to 1.04% and 9.89%, respectively, for the three months ended March 31, 2015.

Bay View Funding Acquisition

        On November 1, 2014, the Company acquired Bay View Funding, by purchasing all of the outstanding common stock from the stockholders of Bay View Funding for an aggregate purchase price of $22.52 million. Bay View Funding became a wholly owned subsidiary of HBC. Based in Santa Clara, California, Bay View Funding, provides business essential working capital factoring financing to various industries throughout the United States. Bay View Funding's results of operations have been included

50

in the Company's results beginning November 1, 2014. The following table reflects selected financial information for Bay View Funding at or for the periods indicated:

	For the Three Months Ended
	March 31, 2016		March 31, 2015
	(Dollars in thousands)
Total factored receivables at period end	$	41,949	$	44,554
Average factored receivables during the period	$	39,794	$	40,889
Total full time equivalent employees at period end		39		35

Focus Business Bank Merger

        On August 20, 2015, the Company completed the merger of HBC with Focus for an aggregate transaction value of $66.6 million. Shareholders of Focus received a fixed exchange ratio at closing of 1.8235 shares of the Company's common stock for each share of Focus common stock. The Company issued 5,456,713 shares of the Company's common stock to Focus shareholders for a total value of $58.3 million based on the Company's closing stock price of $10.68 on August 20, 2015. In addition, the Company paid cash to the Focus holders of in-the-money stock options totaling $8.3 million.

        The Focus acquisition added total assets, at fair value, of approximately $438.8 million, $174.8 million in loans (including loans held-for-sale), at fair value, and $405.1 million in deposits, at fair value, at August 20, 2015. Focus's results of operations have been included in the Company's results of operations beginning August 21, 2015.

First Quarter 2016 Highlights

        The following are major factors that impacted the Company's results of operations:

•

The fully tax equivalent ("FTE") net interest margin contracted 36 basis points to 4.22% for the first quarter of 2016, from 4.58% for the first quarter of 2015, primarily due to higher average balances of lower yielding excess funds at the Federal Reserve Bank and interest-bearing deposits in other financial institutions, and lower yields on securities. This was partially offset by the accretion of the loan purchase discount into loan interest income from the Focus transaction for the first quarter of 2016.

•

The accretion of the loan purchase discount into loan interest income from the Focus transaction was $518,000 for the first quarter of 2016. The total purchase discount on non-impaired loans from the Focus loan portfolio was $4.6 million as of the acquisition date, of which $1.9 million has been accreted into loan interest income from August 21, 2015 through March 31, 2016.

•

The yield on the loan portfolio was 5.64% for the first quarter of 2016, compared to 5.71% for the first quarter of 2015. The decrease in the yield on the loan portfolio for the first quarter of 2016, compared to the first quarter of 2015, primarily reflects a decrease in the proportion of loans in the higher yielding Bay View Funding factored receivables portfolio relative to the addition of the Focus loans and growth in the Company's legacy portfolio, partially offset by the accretion of the loan purchase discount into loan interest income from the Focus transaction. Excluding the accretion of the loan purchase discount and the Bay View Funding factored receivables portfolio, the yield on the loan portfolio was 4.78% for the first quarter of 2016, compared to 4.73% for the first quarter of 2015.

•

Net interest income increased 32% to $22.3 million for the first quarter of 2016, compared to $16.9 million for the first quarter of 2015, primarily due to loans acquired in the Focus acquisition, organic growth in the loan portfolio, the accretion of the loan purchase discount into

51

loan interest income from the Focus transaction, and an increase in the average balance of investment securities.

•

There was a $401,000 provision for loan losses for the first quarter of 2016, compared to a $60,000 credit provision for loan losses for the first quarter of 2015.

•

Noninterest income increased to $2.6 million for the first quarter of 2016, compared to $1.9 million for the first quarter of 2015, primarily due to an $180,000 gain on sales of securities, a higher gain on sales of SBA loans, and higher service charges and fees on deposit accounts in the first quarter of 2016.

•

Total noninterest expense for the first quarter of 2016 was $14.7 million, compared to $12.3 million for the first quarter of 2015. The increase in noninterest expense in the first quarter of 2016, compared to the first quarter of 2015, was primarily due to additional operating costs from the acquisition of Focus.

•

The efficiency ratio for the first quarter of 2016 was 58.93%, compared to 65.35% for the first quarter of 2015, reflecting operating efficiencies generated from our acquisitions and the strong revenue growth during the year.

•

Income tax expense for the first quarter of 2016 was $3.7 million, compared to $2.4 million for the first quarter of 2015. The effective tax rate for the first quarter of 2016 was 38%, compared to 37% for the first quarter of 2015.

        The following are important factors in understanding our current financial condition and liquidity position:

•

Primarily due to the Focus transaction and internal growth, cash, interest-bearing deposits in other financial institutions and securities available-for-sale increased 68% to $591.7 million at March 31, 2016, from $352.5 million at March 31, 2015. Cash, interest-bearing deposits in other financial institutions and securities available for sale decreased 19% from $729.2 million at December 31, 2015.

•

At March 31, 2016, investment securities held-to-maturity totaled $185.2 million, compared to $94.6 million at March 31, 2015, and $109.3 million at December 31, 2015.

•

Loans (excluding loans-held-for-sale) increased $293.3 million, or 27%, to $1.40 billion at March 31, 2016, compared to $1.10 billion at March 31, 2015, which included an increase of $162.2 million, or 15%, in the Company's legacy loan portfolio, and $131.1 million from the Focus loan portfolio. Loans increased $36.5 million, or 3%, at March 31, 2016, compared to $1.36 billion at December 31, 2015.

•

Nonperforming assets were $4.6 million, or 0.20% of total assets, at March 31, 2016, compared to $8.4 million, or 0.51% of total assets, at March 31, 2015, and $6.7 million, or 0.29% of total assets, at December 31, 2015.

•

Classified assets, net of SBA guarantees, were $21.1 million at March 31, 2016, compared to $16.6 million at March 31, 2015, and $20.5 million at December 31, 2015. The increase in classified assets at March 31, 2016 from March 31, 2015, was primarily due to the Focus acquisition. At March 31, 2016, $12.2 million of the classified assets were in the the Company's legacy loan portfolio, and $8.9 million of the classified assets were in the Focus loan portfolio.

•

Net recoveries totaled $131,000 for the first quarter of 2016, compared to $235,000 for the first quarter 2015, and net charge-offs of $182,000 for the fourth quarter of 2015.

•

The allowance for loan losses at March 31, 2016 was $19.5 million, or 1.39% of total loans, representing 465.06% of nonperforming loans. The allowance for loan losses at March 31, 2015

52

was $18.6 million, or 1.68% of total loans, representing 275.57% of nonperforming loans. The allowance for loan losses at December 31, 2015 was $18.9 million, or 1.39% of total loans, representing 296.74% of nonperforming loans.

•

Deposits increased $605.1 million, or 43%, to $2.03 billion at March 31, 2016, compared to $1.42 billion at March 31, 2015, which included an increase of $244.9 million, or 17%, in the Company's legacy deposit portfolio, and $360.2 million from the Focus deposit portfolio. Deposits decreased $34.0 million, or 2%, at March 31, 2016, compared to $2.06 billion at December 31, 2015, primarily due to decreases in noninterest-bearing demand deposits and brokered deposits.

•

The ratio of noncore funding (which consists of time deposits of $250,000 and over, CDARS deposits, brokered deposits, securities under agreement to repurchase and short-term borrowings) to total assets was 8.55% at March 31, 2016, compared to 12.27% at March 31, 2015, and 7.93% at December 31, 2015.

•

The loan to deposit ratio was 68.78% at March 31, 2016, compared to 77.41% at March 31, 2015, and 65.87% at December 31, 2015.

•

The Company's consolidated capital ratios exceeded regulatory guidelines and the Bank's capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at March 31, 2016.

CAPITAL RATIOS	Heritage Commerce Corp			Heritage Bank of Commerce			Well-capitalized Financial Institution Basel III Regulatory Guidelines
Total Risk-Based		12.4	%		12.3	%		10.0	%
Tier 1 Risk-Based		11.3	%		11.2	%		8.0	%
Common Equity Tier 1 Risk-Based		10.2	%		11.2	%		6.5	%
Leverage		8.8	%		8.7	%		5.0	%

Deposits

        The composition and cost of the Company's deposit base are important in analyzing the Company's net interest margin and balance sheet liquidity characteristics. Except for brokered time deposits, the Company's depositors are generally located in its primary market area. Depending on loan demand and other funding requirements, the Company also obtains deposits from wholesale sources including deposit brokers. HBC is a member of the Certificate of Deposit Account Registry Service ("CDARS") program. The CDARS program allows customers with deposits in excess of FDIC insured limits to obtain coverage on time deposits through a network of banks within the CDARS program. Deposits gathered through this program are considered brokered deposits under regulatory guidelines. The Company has a policy to monitor all deposits that may be sensitive to interest rate changes to help assure that liquidity risk does not become excessive due to concentrations.

        Total deposits increased $605.1 million, or 43%, to $2.03 billion at March 31, 2016, compared to $1.42 billion at March 31, 2015, which included an increase of $244.9 million, or 17%, in the Company's legacy deposit portfolio, and $360.2 million from the Focus deposit portfolio. Total deposits decreased $34.0 million, or 2%, at March 31, 2016, compared to $2.06 billion at December 31, 2015, primarily due to decreases in noninterest-bearing demand deposits and brokered deposits.

        The Company had $11.8 million in brokered deposits at March 31, 2016, compared to $28.1 million at March 31, 2015 and and $17.8 million at December 31, 2015. Deposits from title insurance companies, escrow accounts and real estate exchange facilitators was $35.0 million at

53

March 31, 2016, compared to $15.1 million at March 31, 2015, and $49.1 million at December 31, 2015. Certificates of deposit from the State of California totaled $98.0 million at March 31, 2016, and March 31, 2015 and $78.0 million at December 31, 2015.

Liquidity

        Our liquidity position refers to our ability to maintain cash flows sufficient to fund operations and to meet obligations and other commitments in a timely fashion. At March 31, 2016, we had $143.1 million in cash and cash equivalents and approximately $499.7 million in available borrowing capacity from various sources including the Federal Home Loan Bank ("FHLB"), the Federal Reserve Bank of San Francisco ("FRB"), Federal funds facilities with several financial institutions, and line of credit with a correspondent bank. The Company also had $476.2 million at fair value in unpledged securities available at March 31, 2016. Our loan to deposit ratio was 68.78% at March 31, 2016, compared to 77.41% at March 31, 2015, and 65.87% at December 31, 2015.

Lending

        Our lending business originates principally through our branch offices located in our primary markets. In addition, Bay View Funding provides factoring financing throughout the United States. Total loans, excluding loans-held-for sale, increased $293.3 million, or 27%, to $1.40 billion at March 31, 2016, compared to $1.10 billion at March 31, 2015, which included an increase of $162.2 million, or 15%, in the Company's legacy loan portfolio, and $131.1 million from the Focus loan portfolio. Loans increased $36.5 million, or 3%, at March 31, 2016, compared to $1.36 billion at December 31, 2015. The loan portfolio remains well-diversified with C&I loans accounting for 42% of the loan portfolio at March 31, 2016, which included $41.9 million of factored receivables at Bay View Funding. Commercial and residential real estate loans accounted for 44% of the total loan portfolio. Consumer and home equity loans accounted for 7% of total loans, and land and construction loans accounted for the remaining 7% of total loans at March 31, 2016.

Net Interest Income

        The management of interest income and expense is fundamental to the performance of the Company. Net interest income, the difference between interest income and interest expense, is the largest component of the Company's total revenue. Management closely monitors both total net interest income and the net interest margin (net interest income divided by average earning assets). Net interest income increased 32% to $22.3 million for the first quarter of 2016, compared to $16.9 million for the first quarter of 2015. The increase in the net interest income for the first quarter ended March 31, 2016, compared to the same period in 2015, was primarily due to loans acquired in the Focus acquisition, organic growth in the loan portfolio, the accretion of the loan purchase discount into loan interest income from the Focus transaction, and an increase in the average balance of investment securities.

        The Company through its asset and liability policies and practices seeks to maximize net interest income without exposing the Company to an excessive level of interest rate risk. Interest rate risk is managed by monitoring the pricing, maturity and repricing options of all classes of interest bearing assets and liabilities. This is discussed in more detail under "Liquidity and Asset/Liability Management." In addition, we believe there are measures and initiatives we can take to improve the net interest margin, including increasing loan rates, adding floors on floating rate loans, reducing nonperforming assets, managing deposit interest rates, and reducing higher cost deposits.

        The net interest margin is also adversely impacted by the reversal of interest on nonaccrual loans and the reinvestment of loan payoffs into lower yielding investment securities and other short-term investments.

54

Management of Credit Risk

        We continue to proactively identify, quantify, and manage our problem loans. Early identification of problem loans and potential future losses helps enable us to resolve credit issues with potentially less risk and ultimate losses. We maintain an allowance for loan losses in an amount that we believe is adequate to absorb probable incurred losses in the portfolio. While we strive to carefully manage and monitor credit quality and to identify loans that may be deteriorating, circumstances can change at any time for loans included in the portfolio that may result in future losses, that as of the date of the financial statements have not yet been identified as potential problem loans. Through established credit practices, we adjust the allowance for loan losses accordingly. However, because future events are uncertain, there may be loans that will deteriorate, some of which could occur in an accelerated time-frame. As a result, future additions to the allowance for loan losses may be necessary. Because the loan portfolio contains a number of commercial loans, commercial real estate, construction and land development loans with relatively large balances, deterioration in the credit quality of one or more of these loans may require a significant increase to the allowance for loan losses. Future additions to the allowance may also be required based on changes in the financial condition of borrowers. Additionally, Federal and state banking regulators, as an integral part of their supervisory function, periodically review our allowance for loan losses. These regulatory agencies may require us to recognize further loan loss provisions or charge-offs based upon their judgments, which may be different from ours. Any increase in the allowance for loan losses would have an adverse effect, which may be material, on our financial condition and results of operation.

        Further discussion of the management of credit risk appears under "Provision for Loan Losses" and "Allowance for Loan Losses."

Noninterest Income

        While net interest income remains the largest single component of total revenues, noninterest income is an important component. A portion of the Company's noninterest income is associated with its SBA lending activity, consisting of gains on the sale of loans sold in the secondary market and servicing income from loans sold with servicing retained. Other sources of noninterest income include loan servicing fees, service charges and fees, cash surrender value from company owned life insurance policies, and gains on the sale of securities.

Noninterest Expense

        Management considers the control of operating expenses to be a critical element of the Company's performance. Noninterest expense for the first quarter of 2016 was $14.7 million, compared to $12.3 million for the first quarter of 2015. The increase in noninterest expense in the first quarter of 2016, compared to the first quarter of 2015, was primarily due to additional employees and amortization of core deposit intangibles from the Focus acquisition.

Capital Management

        As part of its asset and liability management process, the Company continually assesses its capital position to take into consideration growth, expected earnings, risk profile and potential corporate activities that it may choose to pursue.

RESULTS OF OPERATIONS

        The Company earns income from two primary sources. The first is net interest income, which is interest income generated by earning assets less interest expense on interest-bearing liabilities. The second is noninterest income, which primarily consists of gains on the sale of loans, loan servicing fees, customer service charges and fees, the increase in cash surrender value of life insurance, and gains on

55

the sale of securities. The majority of the Company's noninterest expenses are operating costs that relate to providing a full range of banking and lending services to our customers.

Net Interest Income and Net Interest Margin

        The level of net interest income depends on several factors in combination, including yields on earning assets, the cost of interest-bearing liabilities, the relative volumes of earning assets and interest-bearing liabilities, and the mix of products which comprise the Company's earning assets, deposits, and other interest-bearing liabilities. To maintain its net interest margin the Company must manage the relationship between interest earned and paid.

56

        The following Distribution, Rate and Yield table presents the average amounts outstanding for the major categories of the Company's balance sheet, the average interest rates earned or paid thereon, and the resulting net interest margin on average interest earning assets for the periods indicated. Average balances are based on daily averages.

Distribution, Rate and Yield

	For the Three Months Ended March 31, 2016								For the Three Months Ended March 31, 2015
NET INTEREST INCOME AND NET INTEREST MARGIN	Average Balance		Interest Income/ Expense			Average Yield/ Rate			Average Balance		Interest Income/ Expense			Average Yield/ Rate
	(Dollars in thousands)
Assets:
Loans, gross(1)	$	1,368,596	$	19,188			5.64	%	$	1,065,836	$	15,004			5.71	%
Securities—taxable		480,515		2,774			2.32	%		219,853		1,604			2.96	%
Securities—exempt from Fedral tax(2)		93,121		891			3.85	%		79,872		779			3.96	%
Federal funds sold and interest-bearing deposits in other financial institutions		215,231		521			0.97	%		150,723		252			0.68	%
Total interest earning assets(2)		2,157,463		23,374			4.36	%		1,516,284		17,639			4.72	%
Cash and due from banks		32,949								27,338
Premises and equipment, net		7,754								7,403
Intangible assets		54,043								15,917
Other assets		97,015								67,981
Total assets	$	2,349,224							$	1,634,923
Liabilities and shareholders' equity:
Deposits:
Demand, noninterest-bearing	$	776,999							$	530,552
Demand, interest-bearing		501,952		236			0.19	%		231,453		100			0.18	%
Savings and money market		498,622		272			0.22	%		382,015		185			0.20	%
Time deposits—under $100		23,287		17			0.29	%		19,680		15			0.31	%
Time deposits—$100 and over		207,113		190			0.37	%		200,947		151			0.30	%
Time deposits—brokered		14,825		30			0.81	%		28,117		55			0.79	%
CDARS—money market and time deposits		8,100		2			0.10	%		10,872		2			0.07	%
Total interest-bearing deposits		1,253,899		747			0.24	%		873,084		508			0.24	%
Total deposits		2,030,898		747			0.15	%		1,403,636		508			0.15	%
Short-term borrowings		1,748		11			2.53	%		51		—			0.00	%
Total interest-bearing liabilities		1,255,647		758			0.24	%		873,135		508			0.24	%
Total interest-bearing liabilities and demand, noninterest-bearing / cost of funds		2,032,646		758			0.15	%		1,403,687		508			0.15	%
Other liabilities		67,878								45,616
Total liabilities		2,100,524								1,449,303
Shareholders' equity		248,700								185,620
Total liabilities and shareholders' equity	$	2,349,224							$	1,634,923
Net interest income(2) / margin				22,616			4.22	%				17,131			4.58	%
Less tax equivalent adjustment(2)				(312	)							(273	)
Net interest income			$	22,304							$	16,858

(1)

Includes loans held for sale. Yield amounts earned on loans include loan fees and costs. Nonaccrual loans are included in average balance.

(2)

Reflects tax equivalent adjustment for tax exempt income based on a 35% tax rate.

57

Volume and Rate Variances

        The Volume and Rate Variances table below sets forth the dollar difference in interest earned and paid for each major category of interest-earning assets and interest-bearing liabilities for the noted periods, and the amount of such change attributable to changes in average balances (volume) or changes in average interest rates. Volume variances are equal to the increase or decrease in the average balance times the prior period rate, and rate variances are equal to the increase or decrease in the average rate times the prior period average balance. Variances attributable to both rate and volume changes are equal to the change in rate times the change in average balance and are included below in the average volume column.

	Three Months Ended March 31, 2016 vs. 2015 Increase (Decrease) Due to Change In:
	Average Volume			Average Rate			Net Change
	(Dollars in thousands)
Income from interest earning assets:
Loans, gross	$	4,242		$	(58	)	$	4,184
Securities—taxable		1,506			(336	)		1,170
Securities—tax exempt(1)		126			(14	)		112
Federal funds sold and interest-bearing deposits in other financial institutions		157			112			269
Total interest income from interest earnings assets(1)		6,031			(296	)		5,735
Expense on interest-bearing liabilities:
Demand, interest-bearing		127			9			136
Savings and money market		63			24			87
Time deposits—under $100		3			(1	)		2
Time deposits—$100 and over		5			34			39
Time deposits—brokered		(27	)		2			(25	)
CDARS—money market and time deposits		(1	)		1			—
Short-term borrowings		11			—			11
Total interest expense on interest-bearing liabilities		181			69			250
Net interest income(1)	$	5,850		$	(365	)		5,485
Less tax equivalent adjustment(1)								(39	)
Net interest income							$	5,446

(1)

Reflects tax equivalent adjustment for tax exempt income based on a 35% tax rate.

        The Company's net interest margin (FTE), expressed as a percentage of average earning assets, was 4.22% for the first quarter of 2016, compared to 4.58% for the first quarter of 2015. The decline in the net interest margin from the first quarter of 2015 was primarily due to higher average balances of lower yielding excess funds at the Federal Reserve Bank and interest-bearing deposits in other financial institutions, and lower yields on securities. This was partially offset by the accretion of the loan purchase discount into loan interest income from the Focus transaction for the first quarter of 2016. The accretion of the loan purchase discount into loan interest income from the Focus transaction was $518,000 for the first quarter of 2016. The total purchase discount on non-impaired loans from the Focus loan portfolio was $4.6 million as of the acquisition date, of which $1.9 million has been accreted into loan interest income from August 21, 2015 through March 31, 2016.

58

        The yield on the loan portfolio was 5.64% for the first quarter of 2016, compared to 5.71% for the first quarter of 2015. The decrease in the yield on the loan portfolio for the first quarter of 2016, compared to the first quarter of 2015, primarily reflects a decrease in the proportion of loans in the higher yielding Bay View Funding factored receivables portfolio relative to the addition of the Focus loans and growth in the Company's legacy portfolio, partially offset by the accretion of the loan purchase discount into loan interest income from the Focus transaction. Excluding the accretion of the loan purchase discount and the Bay View Funding factored receivables portfolio, the yield on the loan portfolio was 4.78% for the first quarter of 2016, compared to 4.73% for the first quarter of 2015.

        Net interest income increased 32% to $22.3 million for the first quarter of 2016, compared to $16.9 million for the first quarter of 2015, primarily due to loans acquired in the Focus acquisition, organic growth in the loan portfolio, the accretion of the loan purchase discount into loan interest income from the Focus transaction, and an increase in the average balance of investment securities.

        A majority of the Company's earning assets are variable-rate loans that re-price when the Company's prime lending rate is changed, compared to a large base of core deposits that are generally slower to re-price. This causes the Company's balance sheet to be asset-sensitive, which means that all else being equal, the Company's net interest margin will be lower during periods when short-term interest rates are falling and higher when rates are rising.

Provision for Loan Losses

        Credit risk is inherent in the business of making loans. The Company establishes an allowance for loan losses through charges to earnings, which are presented in the statements of income as the provision for loan losses. Specifically identifiable and quantifiable known losses are promptly charged off against the allowance. The provision for loan losses is determined by conducting a quarterly evaluation of the adequacy of the Company's allowance for loan losses and charging the shortfall or excess, if any, to the current quarter's expense. This has the effect of creating variability in the amount and frequency of charges to the Company's earnings. The provision for loan losses and level of allowance for each period are dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies, management's assessment of the quality of the loan portfolio, the valuation of problem loans and the general economic conditions in the Company's market area.

        There was a a $401,000 provision for loan losses for the first quarter of 2016, compared to a credit provision for loan losses of $60,000 for the first quarter of 2015. The allowance for loan losses related to the commercial loan portfolio increased $531,000 at March 31, 2016 from December 31, 2015, as a result of a provision for loan losses of $616,000, and net charge-offs of $85,000. The increase in the allowance for loan losses in the Company's commercial loan portfolio was primarily due to an increase in commercial loans outstanding. The allowance for loan losses related to the real estate portfolio remained relatively flat at $8.1 million at March 31, 2016, compared to December 31, 2015, as a result of a credit provision for loan losses of $224,000, and net recoveries of $216,000.

        The allowance for loan losses totaled $19.5 million, or 1.39% of total loans at March 31, 2016, compared to $18.6 million, or 1.68% of total loans at March 31, 2015, and $18.9 million, or 1.39% of total loans at December 31, 2015. The allowance for loan losses to total loans decreased at March 31, 2016, compared to March 31, 2015, primarily due to the impact of the Focus loan portfolio, which was marked to fair value on the acquisition date. Net recoveries totaled $131,000 for the first quarter of 2016, compared to $235,000 for the first quarter of 2015, and net charge-offs of $182,000 for the fourth quarter of 2015. The allowance for loan losses to total nonperforming loans was 465.06% at March 31, 2016, compared to 275.57% at March 31, 2015, and 296.74% at December 31, 2015. Provisions for loan losses are charged to operations to bring the allowance for loan losses to a level deemed appropriate by the Company based on the factors discussed under "Allowance for Loan Losses".

59

Noninterest Income

        The following table sets forth the various components of the Company's noninterest income for the periods indicated:

	For the Three Months Ended March 31,				Increase (decrease) 2016 versus 2015
	2016		2015		Amount		Percent
	(Dollars in thousands)
Service charges and fees on deposit accounts	$	767	$	623	$	144		23	%
Increase in cash surrender value of life insurance		449		400		49		12	%
Servicing income		371		306		65		21	%
Gain on sales of SBA loans		305		207		98		47	%
Gain on sales of securities		180		—		180		N/A
Other		542		390		152		39	%
Total noninterest income	$	2,614	$	1,926	$	688		36	%

        Noninterest income increased to $2.6 million for the first quarter of 2016, compared to $1.9 million for the first quarter of 2015, primarily due to an $180,000 gain on sales of securities,a higher gain on sales of SBA loans, and higher service charges and fees on deposit accounts in the first quarter of 2016.

        Historically, a significant percentage of the Company's noninterest income has been associated with its SBA lending activity, as gains on the sale of loans sold in the secondary market and servicing income from loans sold with servicing rights retained. For the three months ended March 31, 2016, SBA loan sales resulted in an $305,000 gain, compared to a $207,000 gain on sale of SBA loans for the three months ended March 31, 2015.

        The servicing assets that result from the sales of SBA loans with servicing retained are amortized over the expected term of the loans using a method approximating the interest method. Servicing income generally declines as the respective loans are repaid.

Noninterest Expense

        The following table sets forth the various components of the Company's noninterest expense for the periods indicated:

	For the Three Months Ended March 31,					Increase (decrease) 2016 versus 2015
	2016		2015			Amount		Percent
	(Dollars in thousands)
Salaries and employee benefits	$	8,947	$	8,042		$	905		11	%
Occupancy and equipment		1,085		1,045			40		4	%
Professional fees		825		95			730		768	%
Data processing		400		303			97		32	%
Software subscriptions		341		327			14		4	%
FDIC deposit insurance premiums		331		239			92		38	%
Insurance expense		299		291			8		3	%
Foreclosed assets		2		(170	)		172		101	%
Other		2,455		2,104			351		17	%
Total noninterest expense	$	14,685	$	12,276		$	2,409		20	%

60

        The following table indicates the percentage of noninterest expense in each category for the periods indicated:

Noninterest Expense by Category

	For the Three Months Ended March 31,
	2016		Percent of Total			2015			Percent of Total
	(Dollars in thousands)
Salaries and employee benefits	$	8,947		61	%	$	8,042			65	%
Occupancy and equipment		1,085		7	%		1,045			9	%
Professional fees		825		6	%		95			1	%
Data processing		400		3	%		303			2	%
Software subscriptions		341		2	%		327			3	%
FDIC deposit insurance premiums		331		2	%		239			2	%
Insurance expense		299		2	%		291			2	%
Foreclosed assets		2		0	%		(170	)		–1	%
Other		2,455		17	%		2,104			17	%
Total noninterest expense	$	14,685		100	%	$	12,276			100	%

        Total noninterest expense for the first quarter of 2016 increased to $14.7 million, from $12.3 million for the first quarter of 2015. The increase in noninterest expense for the three months ended March 31, 2016, was primarily due to additional employees and amortization of core deposit intangibles from the Focus acquisition in the first quarter of 2016, and the significant reduction of legal expenses, that are included in professional fees, on two problem loans that were paid off in the first quarter of 2015. Full time equivalent employees were 260, 251, and 260 at March 31, 2016, March 31, 2015, and December 31, 2015, respectively.

        In the normal course of business, the Company becomes a party to financial instruments with off-balance sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit in the form of loans, or through commercial or standby letters of credit, and financial guarantees. These instruments represent varying degrees of exposure to risk in excess of the amounts included in the accompanying condensed consolidated balance sheets. The Company calculates an off-balance sheet credit risk reserve for all unfunded commitments.

Income Tax Expense

        The Company computes its provision for income taxes on a monthly basis. The effective tax rate is determined by applying the Company's statutory income tax rates to pre-tax book income as adjusted for permanent differences between pre-tax book income and actual taxable income. These permanent differences include, but are not limited to, increases in the cash surrender value of life insurance policies, interest on tax-exempt securities, certain expenses that are not allowed as tax deductions, and tax credits.

        The Company's Federal and state income tax expense for the quarter ended March 31, 2016 was $3.7 million compared to $2.4 million for the quareter ended March 31, 2015. The following table shows the Company's effective income tax rates for the periods indicated:

	For the Three Months Ended March 31,
	2015			2015
Effective income tax rate		37.9	%		37.0	%

61

        The difference in the effective tax rate compared to the combined Federal and state statutory tax rate of 42% is primarily the result of tax exempt securities, 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, and Enterprise Zone hiring credits.

        The Company adopted the proportional amortization method of accounting for its low income housing investments in the third quarter of 2014. The low income housing investment losses, net of the tax benefits received, are included in income tax expense for all periods reflected on the consolidated income statements.

        Some items of income and expense are recognized in different years for tax purposes than when applying generally accepted accounting principles leading to timing differences between the Company's actual tax liability, and the amount accrued for this liability based on book income. These temporary differences comprise the "deferred" portion of the Company's tax expense or benefit, which is accumulated on the Company's books as a deferred tax asset or deferred tax liability until such time as they reverse.

        Realization of the Company's deferred tax assets is primarily dependent upon the Company generating sufficient future taxable income to obtain benefit from the reversal of net deductible temporary differences and utilization of tax credit carryforwards and the net operating loss carryforwards for Federal and California state income tax purposes. The amount of deferred tax assets considered realizable is subject to adjustment in future periods based on estimates of future taxable income. Under generally accepted accounting principles a valuation allowance is required to be recognized if it is "more likely than not" that the deferred tax assets will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning management's evaluation of both positive and negative evidence, including forecasts of future income, cumulative losses, applicable tax planning strategies, and assessments of current and future economic and business conditions.

        The Company had net deferred tax assets of $18.7 million at March 31, 2016, and $22.2 million at December 31, 2015. After consideration of the matters in the preceding paragraph, the Company determined that it is more likely than not that the net deferred tax asset at March 31, 2016 and December 31, 2015 will be fully realized in future years.

Business Segment Information

        The following presents the Company's operating segments. Transactions between segments consist primarily of borrowed funds. Intersegment interest expense is allocated to the Factoring segment based on the Company's prime rate and funding costs. The provision for loan loss is allocated based on the segment's allowance for loan loss determination which considers the effects of charge-offs. Noninterest income and expense directly attributable to a segment are assigned to it. Taxes are paid on a consolidated basis and allocated for segment purposes. The Factoring segment includes only factoring

62

originated by Bay View Funding, which has been included in the results of operations since the acquisition on November 1, 2014.

	For the Theee Months Ended March 31, 2016
	Banking(1)		Factoring			Consolidated
	(Dollars in thousands)
Interest income	$	20,208	$	2,854		$	23,062
Intersegment interest allocations		245		(245	)		—
Total interest expense		758		—			758
Net interest income		19,695		2,609			22,304
Provision for loan losses		387		14			401
Net interest income after provision		19,308		2,595			21,903
Noninterest income		2,412		202			2,614
Noninterest expense		13,052		1,633			14,685
Intersegment expense allocations		175		(175	)		—
Income before income taxes		8,843		989			9,832
Income tax expense		3,310		416			3,726
Net income	$	5,533	$	573		$	6,106
Total assets	$	2,271,411	$	55,922		$	2,327,333
Loans, net of deferred fees	$	1,353,315	$	41,949		$	1,395,264
Goodwill	$	32,620	$	13,044		$	45,664

(1)

Includes the holding company's results of operations

	For the Three Months Ended March 31, 2015
	Banking(1)			Factoring			Consolidated
	(Dollars in thousands)
Interest income	$	14,304		$	3,062		$	17,366
Intersegment interest allocations		268			(268	)		—
Total interest expense		508			—			508
Net interest income		14,064			2,794			16,858
Provision (credit) for loan losses		(58	)		(2	)		(60	)
Net interest income after provision		14,122			2,796			16,918
Noninterest income		1,792			134			1,926
Noninterest expense		10,506			1,770			12,276
Intersegment expense allocations		75			(75	)		—
Income before income taxes		5,483			1,085			6,568
Income tax expense		1,974			456			2,430
Net income	$	3,509		$	629		$	4,138
Total assets	$	1,593,176		$	59,711		$	1,652,887
Loans, net of deferred fees	$	1,057,437		$	44,554		$	1,101,991
Goodwill	$	—		$	13,054		$	13,054

(1)

Includes the holding company's results of operations

        Banking.    Our banking segment's net income increased to $5.5 million for the three months ended March 31, 2016 compared to net income of $3.5 million for the three months ended March 31, 2015.

63

Net interest income increased to $19.7 million for the three months ended March 31, 2016, compared to $14.1 million for the three months ended March 31, 2015. The increase in net interest income for the three months ended March 31, 2016, compared to the three months ended March 31, 2015, was primarily as a result of the Focus acquisition and organic growth in the loan portfolio and core deposits. The provision for loan losses was $387,000 for the three months ended March 31, 2016, compared to a credit provision for loan losses of $58,000 for the three months ended March 31, 2015. The increase in the provision for loan losses was primarily due to an increase in loan balances in the banking segment's commercial loan portfolio. Noninterest income increased to $2.4 million for the three months ended March 31, 2016, compared to $1.8 million for the three months ended March 31, 2015, mainly as result of higher gains on sales of securities, gains on sales of SBA loans, and service charges and fees on deposit accounts. Noninterest expense was $13.1 million for the three months ended March 31, 2016, compared to $10.5 million for the three months ended March 31, 2015. The increase in noninterest expense for the three months ended March 31, 2016, was primarily due to additional operating costs of Focus.

        Factoring.    Bay View Funding's primary business operation is purchasing and collecting factored receivables. Factored receivables are receivables that have been transferred by the originating organization and typically have not been subject to previous collection efforts. In a factoring transaction, Bay View Funding directly purchases the receivables generated by its clients at a discount to their face value. The transactions are structured to provide the clients with immediate working capital when there is a mismatch between payments to the client for a good or service and the incurrence of operating costs required to provide for such good or service. The average life of the factored receivables is 33 days. The balance of the purchased receivables as of March 31, 2016 and 2015 was $41.9 million and $44.6 million, respectively. Bay View Funding's net income remained relatively flat at $573,000 for the three months ended March 31, 2016, compared to $629,000 for the three months ended March 31, 2015. Net interest income was $2.6 million for the three months ended March 31, 2016, compared to $2.8 million for the three months ended March 31, 2015. The decrease in net interest income for the three months ended March 31, 2016, compared to the three months ended March 31, 2015, was primarily a result of a lower volume of orginations and lower yields on the factored receivables portfolio, partially offset by a lower cost of funds for the three months ended March 31, 2016. The provision for loan losses was $14,000, for the three months ended March 31, 2016, compared to a credit provision for loan losses of $2,000 for the three months ended March 31, 2015. Noninterest income increased to $202,000 for the three months ended March 31, 2016, compared to $134,000 for the three months ended March 31, 2015. Noninterest expense decreased to $1.6 million for the three months ended March 31, 2016, compared to $1.8 million at March 31, 2015, primarily due to lower brokered fees and credit report expense for the three months ended March 31, 2016.

FINANCIAL CONDITION

        As of March 31, 2016, total assets increased to $2.33 billion, compared to $1.65 billion at March 31, 2015, and $2.36 billion at December 31, 2015. Securities available-for-sale (at fair value) were $448.5 million March 31, 2016, an increase of 123% from $200.8 million at March 31, 2015, and an increase of 16% from $385.1 million at December 31, 2015. Securities held-to-maturity (at amortized cost) were $185.2 million at March 31, 2016, an increase of 96% from $94.6 million at March 31, 2015, and an increase of 69% from $109.3 million at December 31, 2015. Total loans, excluding loans held for sale, increased $293.3 million, or 27%, to $1.40 billion at March 31, 2016, compared to $1.10 billion at March 31, 2015, which included an increase of $162.2 million, or 15%, in the Company's legacy loan portfolio, and $131.1 million from the Focus loan portfolio. Loans increased $36.5 million, or 3%, at March 31, 2016, compared to $1.36 billion at December 31, 2015.

64

        Total deposits increased $605.1 million, or 43%, to $2.03 billion at March 31, 2016, compared to $1.42 billion at March 31, 2015, which included an increase of $244.9 million, or 17%, in the Company's legacy deposit portfolio, and $360.2 million from the Focus deposit portfolio. Total deposits decreased $34.0 million, or 2%, at March 31, 2016, compared to $2.06 billion at December 31, 2015, primarily due to decreases in noninterest-bearing demand deposits and brokered deposits. Deposits (excluding all time deposits and CDARS deposits) increased $601.8 million, or 52%, to $1.77 billion at March 31, 2016, from $1.17 billion at March 31, 2015, and decreased $46.5 million, or 3%, from $1.81 billion at December 31, 2015.

Securities Portfolio

        The following table reflects the balances for each category of securities at the dates indicated:

	March 31,
					December 31, 2015
	2016		2015
	(Dollars in thousands)
Securities available-for-sale (at fair value):
Agency mortgage-backed securities	$	392,753	$	148,047	$	324,230
U.S. Treasury		30,332		—		30,003
Trust preferred securities		15,225		15,544		15,132
U.S. Government sponsored entities		9,181		—		9,041
Corporate bonds		1,049		37,177		6,673
Total	$	448,540	$	200,768	$	385,079
Securities held-to-maturity (at amortized cost):
Municipals—Tax Exempt	$	92,589	$	79,855	$	93,518
Agency mortgage-backed securities		92,576		14,733		15,793
Total	$	185,165	$	94,588	$	109,311

65

        The following table summarizes the weighted average life and weighted average yields of securities at March 31, 2016:

	Within One Year or Less					After One and Within Five Years					After Five and Within Ten Years					After Ten Years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	(Dollars in thousands)
Securities available-for-sale (at fair value):
Agency mortgage-backed securities	$	—		—		$	124,801		2.51	%	$	267,952		2.29	%	$	—		—		$	392,753		2.36	%
U.S. Treasury		4,297		0.75	%		26,035		1.22	%		—		—			—		—			30,332		1.15	%
Trust preferred securities		—		—			—		—			—		—			15,225		5.95	%		15,225		5.95	%
U.S. Government sponsored entities		2,000		0.66	%		7,181		1.60	%		—		—			—		—			9,181		1.39	%
Corporate bonds		—		—			1,049		4.46	%		—		—			—		—			1,049		4.46	%
Total	$	6,297		0.72	%	$	159,066		2.27	%	$	267,952		2.29	%	$	15,225		5.95	%	$	448,540		2.39	%
Securities held-to-maturity (at amortized cost):
Municipals—Tax Exempt(1)	$	2,404		3.06	%	$	31,202		3.73	%	$	45,232		3.99	%	$	13,751		3.78	%	$	92,589		3.85	%
Agency mortgage-backed securities		—		—			26,444		1.58	%		54,611		2.12	%		11,521		3.26	%		92,576		2.11	%
Total	$	2,404		3.06	%	$	57,646		2.75	%	$	99,843		2.97	%	$	25,272		3.54	%	$	185,165		2.98	%

(1)

Reflects tax equivalent yield based on a 35% tax rate.

        The securities portfolio is the second largest component of the Company's interest-earning assets, and the structure and composition of this portfolio is important to an analysis of the financial condition of the Company. The portfolio serves the following purposes: (i) it provides a source of pledged assets for securing certain deposits and borrowed funds, as may be required by law or by specific agreement with a depositor or lender; (ii) it provides liquidity to even out cash flows from the loan and deposit activities of customers; (iii) it can be used as an interest rate risk management tool, since it provides a large base of assets, the maturity and interest rate characteristics of which can be changed more readily than the loan portfolio to better match changes in the deposit base and other funding sources of the Company; and (iv) it is an alternative interest-earning use of funds when loan demand is weak or when deposits grow more rapidly than loans.

        The Company's portfolio may include: (i) U.S. Treasury securities and U.S. Government sponsored entities' debt securities for liquidity and pledging; (ii) mortgage-backed securities, which in many instances can also be used for pledging, and which generally enhance the yield of the portfolio; (iii) municipal obligations, which provide tax free income and limited pledging potential; and (iv) single entity issue trust preferred securities, which generally enhance the yield on the portfolio.

        The Company classifies its securities as either available-for-sale or held-to-maturity at the time of purchase. Accounting guidance requires available-for-sale securities to be marked to fair value with an offset to accumulated other comprehensive income (loss), a component of shareholders' equity. Monthly adjustments are made to reflect changes in the fair value of the Company's available-for-sale securities.

        The investment securities available-for-sale portfolio totaled $448.5 million at March 31, 2016, an increase of 123% from $200.8 million at March 31, 2015, and an increase of 16% from $385.1 million at December 31, 2015. At March 31, 2016, the Company's securities available-for-sale portfolio was comprised of $392.8 million agency mortgage-backed securities (all issued by U.S. Government

66

sponsored entities), $30.3 million of U.S. Treasuries, $15.2 million of single entity issue trust preferred securities, $9.2 million of U.S. Government agency securities, and $1.0 million of corporate bonds. The pre-tax unrealized gain on securities available-for-sale at March 31, 2016 was $5.2 million, compared to a pre-tax unrealized gain on securities available-for-sale of $5.7 million at March 31, 2015, and a pre-tax unrealized gain on securities available-for-sale of $501,000 at December 31, 2015.

        The Company received gross proceeds of $5.6 million on corporate securities available-for-sale it sold during the first quarter of 2016 with a book value totaling $5.4 million, resulting in a gain on sale of securities of $180,000. During the first quarter of 2016, the Company purchased $75.8 million of investment securities available-for-sale, which consisted of $51.8 million of Federal Home Loan Mortgage Corporation ("FHLMC") securities, with an average book yield of 1.96%, and $24.0 million of Federal National Mortgage Association ("FNMA") securities, with an average book yield of 1.95%.

        At March 31, 2016, investment securities held-to-maturity totaled $185.2 million, compared to $94.6 million at March 31, 2015, and $109.3 million at December 31, 2015. At March 31, 2016, the Company's securities held-to-maturity portfolio, at amortized cost, was comprised of $92.6 million tax-exempt municipal bonds, and $92.6 million agency mortgage-backed securities.

        During the first quarter of 2016, the Company purchased $78.7 million Government National Mortgage Association ("GNMA") securities held-to-maturity, with an average book yield of 1.85%.

        The Company has not used interest rate swaps or other derivative instruments to hedge fixed rate loans or securities.

Loans

        The Company's loans represent the largest portion of invested assets, substantially greater than the securities portfolio or any other asset category, and the quality and diversification of the loan portfolio is an important consideration when reviewing the Company's financial condition.

        Gross loans, excluding loans held-for-sale, represented 60% of total assets at March 31, 2016, represented 67% at March 31, 2015, and represented 58% at December 31, 2015. The ratio of loans to deposits was 68.78% at March 31, 2016, compared to 77.41% at March 31, 2015, and increased from 65.87% at December 31, 2015.

67

Loan Distribution

        The Loan Distribution table that follows sets forth the Company's gross loans, excluding loans held-for-sale, outstanding and the percentage distribution in each category at the dates indicated:

	March 31, 2016						March 31, 2015						December 31, 2015
	Balance			% of Total			Balance			% of Total			Balance			% of Total
	(Dollars in thousands)
Commercial	$	592,128			42	%	$	458,498			42	%	$	556,522			41	%
Real estate:
Commercial and residential		616,821			44	%		487,475			44	%		625,665			46	%
Land and construction		95,547			7	%		74,972			7	%		84,428			6	%
Home equity		74,993			6	%		65,243			6	%		76,833			6	%
Consumer		16,476			1	%		16,200			1	%		16,010			1	%
Total loans		1,395,965			100	%		1,102,388			100	%		1,359,458			100	%
Deferred loan (fees) costs, net		(701	)		—			(397	)		—			(742	)		—
Loans, including deferred fees and costs		1,395,264			100	%		1,101,991			100	%		1,358,716			100	%
Allowance for loan losses		(19,458	)					(18,554	)					(18,926	)
Loans, net	$	1,375,806					$	1,083,437					$	1,339,790

        The Company's loan portfolio is concentrated in commercial loans, primarily manufacturing, wholesale, and services, and commercial real estate, with the remaining balance in land development and construction, home equity and consumer loans. The Company does not have any concentrations by industry or group of industries in its loan portfolio, however, 57% of its gross loans were secured by real property at March 31, 2016, compared to 57% at March 31, 2015, and 58% at December 31, 2015. While no specific industry concentration is considered significant, the Company's bank lending operations are substantially located in areas that are dependent on the technology and real estate industries and their supporting companies.

        The Company has established concentration limits in its loan portfolio for commercial real estate loans, commercial loans, construction loans and unsecured lending, among others. All loan types are within established limits. The Company uses underwriting guidelines to assess the borrowers' historical cash flow to determine debt service, and we further stress test the debt service under higher interest rate scenarios. Financial and performance covenants are used in commercial lending to allow the Company to react to a borrower's deteriorating financial condition should that occur.

        The Company's commercial loans are made for working capital, financing the purchase of equipment or for other business purposes. Commercial loans include loans with maturities ranging from thirty days to one year and "term loans" with maturities normally ranging from one to five years. Short-term business loans are generally intended to finance current transactions and typically provide for periodic principal payments, with interest payable monthly. Term loans normally provide for floating interest rates, with monthly payments of both principal and interest.

        The Company is an active participant in the SBA and U.S. Department of Agriculture guaranteed lending programs, and has been approved by the SBA as a lender under the Preferred Lender Program. The Company regularly makes such guaranteed loans (collectively referred to as "SBA loans"). The guaranteed portion of these loans is typically sold in the secondary market depending on market conditions. When the guaranteed portion of an SBA loan is sold the Company retains the servicing rights for the sold portion. During the three months ended March 31, 2016, loans were sold resulting in a gain on sales of SBA loans of $305,000, compared to a gain on sales of SBA loans of $207,000 for the three months ended March 31, 2015.

68

        The Company's factoring receivables are from the operations of Bay View Funding whose primary business is purchasing and collecting factored receivables. Factored receivables are receivables that have been transferred by the originating organization and typically have not been subject to previous collection efforts. These receivables are acquired from a variety of companies, including but not limited to service providers, transportation companies, manufacturers, distributors, wholesalers, apparel companies, advertisers, and temporary staffing companies. The portfolio of factored receivables is included in the Company's commercial loan portfolio.

        As of March 31, 2016, commercial and residential real estate mortgage loans of $616.8 million consist primarily of adjustable and fixed-rate loans secured by deeds of trust on commercial and residential property. The real estate mortgage loans at March 31, 2016, consist of $261.8 million, or 42%, of commercial owner occupied properties, $355.0 million, or 58%, of commercial investment properties. Properties securing the commercial real estate mortgage loans are generally located in the Greater San Francisco Bay Area, the Company's primary market.

        The Company's commercial real estate loans consist primarily of loans based on the borrower's cash flow and are secured by deeds of trust on commercial and residential property to provide a secondary source of repayment. The Company generally restricts real estate term loans to no more than 75% of the property's appraised value or the purchase price of the property during the initial underwriting of the credit, depending on the type of property and its utilization. The Company offers both fixed and floating rate loans. Maturities on real estate mortgage loans are generally between five and ten years (with amortization ranging from fifteen to twenty-five years and a balloon payment due at maturity); however, SBA and certain other real estate loans that can be sold in the secondary market may be granted for longer maturities.

        The Company's land and construction loans are primarily to finance the development/construction of commercial and single family residential properties. The Company utilizes underwriting guidelines to assess the likelihood of repayment from sources such as sale of the property or availability of permanent mortgage financing prior to making the construction loan. Construction loans are provided only in our market area, and the Company has extensive controls for the disbursement process. Land and construction loans increased $20.6 million to $95.6 million, at March 31, 2016, from $75.0 million, at March 31, 2015, primarily as a result of strong housing demand within the Company's lending area. Land and construction loans increased $11.2 million at March 31, 2016, from $84.4 million at December 31, 2015.

        The Company makes home equity lines of credit available to its existing customers. Home equity lines of credit are underwritten initially with a maximum 75% loan to value ratio. Home equity lines are reviewed semi-annually, with specific emphasis on loans with a loan to value ratio greater than 70%. The Company takes measures to work with customers to reduce line commitments and minimize potential losses.

        Additionally, the Company makes consumer loans for the purpose of financing automobiles, various types of consumer goods, and other personal purposes. Consumer loans generally provide for the monthly payment of principal and interest. Most of the Company's consumer loans are secured by the personal property being purchased or, in the instances of home equity loans or lines, real property.

        With certain exceptions, state chartered banks are permitted to make extensions of credit to any one borrowing entity up to 15% of the bank's capital and reserves for unsecured loans and up to 25% of the bank's capital and reserves for secured loans. For HBC, these lending limits were $40.4 million and $67.3 million at March 31, 2016, respectively.

69

Loan Maturities

        The following table presents the maturity distribution of the Company's loans (excluding loans held-for-sale) as of March 31, 2016. 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. As of March 31, 2016, approximately 56% of the Company's loan portfolio consisted of floating interest rate loans.

	Due in One Year or Less		Over One Year But Less than Five Years		Over Five Years		Total
	(Dollars in thousands)
Commercial	$	496,830	$	79,737	$	15,561	$	592,128
Real estate:
Commercial and residential		76,951		262,394		277,476		616,821
Land and construction		95,299		248		—		95,547
Home equity		70,023		1,355		3,615		74,993
Consumer		15,248		1,137		91		16,476
Loans	$	754,351	$	344,871	$	296,743	$	1,395,965
Loans with variable interest rates	$	688,021	$	76,984	$	9,920	$	774,925
Loans with fixed interest rates		66,330		267,887		286,823		621,040
Loans	$	754,351	$	344,871	$	296,743	$	1,395,965

Loan Servicing

        As of March 31, 2016 and 2015, $176.2 million and $120.4 million, respectively, in SBA loans were serviced by the Company for others. Activity for loan servicing rights was as follows:

	For the Three Months Ended March 31,
	2016			2015
	(Dollars in thousands)
Beginning of period balance	$	2,209		$	565
Additions		93			45
Amortization		(139	)		(76	)
End of period balance	$	2,163		$	534

        The increase in loan servicing rights for the three months ended March 31, 2016, compared to the same period in 2015, was primarily due to the Focus acquisition of $1.9 million in August, 2015. Loan servicing rights are included in accrued interest receivable and other assets on the unaudited consolidated balance sheets and reported net of amortization. There was no valuation allowance as of March 31, 2016 and 2015, as the fair value of the assets was greater than the carrying value.

70

        Activity for the I/O strip receivable was as follows:

	For the Three Months Ended March 31,
	2016		2015
	(Dollars in thousands)
Beginning of period balance	$	1,367	$	1,481
Unrealized holding gain		2		11
End of period balance	$	1,369	$	1,492

Credit Quality

        Financial institutions generally have a certain level of exposure to credit quality risk, and could potentially receive less than a full return of principal and interest if a debtor becomes unable or unwilling to repay. Since loans are the most significant assets of the Company and generate the largest portion of its revenues, the Company's management of credit quality risk is focused primarily on loan quality. Banks have generally suffered their most severe earnings declines as a result of customers' inability to generate sufficient cash flow to service their debts and/or downturns in national and regional economies and declines in overall asset values including real estate. In addition, certain debt securities that the Company may purchase have the potential of declining in value if the obligor's financial capacity to repay deteriorates.

        The Company's policies and procedures identify market segments, set goals for portfolio growth or contraction, and establish limits on industry and geographic credit concentrations. In addition, these policies establish the Company's underwriting standards and the methods of monitoring ongoing credit quality. The Company's internal credit risk controls are centered in underwriting practices, credit granting procedures, training, risk management techniques, and familiarity with loan customers as well as the relative diversity and geographic concentration of our loan portfolio.

        The Company's credit risk may also be affected by external factors such as the level of interest rates, employment, general economic conditions, real estate values, and trends in particular industries or geographic markets. As an independent community bank serving a specific geographic area, the Company must contend with the unpredictable changes in the general California market and, particularly, primary local markets. The Company's asset quality has suffered in the past from the impact of national and regional economic recessions, consumer bankruptcies, and depressed real estate values.

        Nonperforming assets are comprised of the following: loans for which the Company is no longer accruing interest; restructured loans which have been current under six months; loans 90 days or more past due and still accruing interest (although they are generally placed on nonaccrual when they become 90 days past due, unless they are both well-secured and in the process of collection); and foreclosed assets. Management's classification of a loan as "nonaccrual" is an indication that there is reasonable doubt as to the full recovery of principal or interest on the loan. At that point, the Company stops accruing interest income, and reverses any uncollected interest that had been accrued as income. The Company begins recognizing interest income only as cash interest payments are received and it has been determined the collection of all outstanding principal is not in doubt. The loans may or may not be collateralized, and collection efforts are pursued. Loans may be restructured by management when a borrower has experienced some change in financial status causing an inability to meet the original repayment terms and where the Company believes the borrower will eventually overcome those circumstances and make full restitution. Foreclosed assets consist of properties acquired by foreclosure or similar means that management is offering or will offer for sale.

71

        The following table summarizes the Company's nonperforming assets at the dates indicated:

	March 31,
							December 31, 2015
	2016			2015
	(Dollars in thousands)
Nonaccrual loans—held-for-investment	$	4,184		$	6,733		$	4,716
Restructured and loans over 90 days past due and still accruing		—			—			1,662
Total nonperforming loans		4,184			6,733			6,378
Foreclosed assets		386			1,716			364
Total nonperforming assets	$	4,570		$	8,449		$	6,742
Nonperforming assets as a percentage of loans plus foreclosed assets		0.33	%		0.77	%		0.50	%
Nonperforming assets as a percentage of total assets		0.20	%		0.51	%		0.29	%

        The following table presents nonperforming loans by class at the dates indicated:

	March 31, 2016						December 31, 2015
	Nonaccrual		Restructured and Loans Over 90 Days Past Due and Still Accruing		Total		Nonaccrual		Restructured and Loans Over 90 Days Past Due and Still Accruing		Total
	(Dollars in thousands)
Commercial	$	290	$	—	$	290	$	724	$	1,378	$	2,102
Real estate:
Commercial and residential		2,910		—		2,910		2,992		—		2,992
Land and construction		213		—		213		219		—		219
Home equity		768		—		768		777		284		1,061
Consumer		3		—		3		4		—		4
Total	$	4,184	$	—	$	4,184	$	4,716	$	1,662	$	6,378

        Nonperforming assets were $4.6 million, or 0.20% of total assets, at March 31, 2016, compared to $8.4 million, or 0.51% of total assets, at March 31, 2015, and $6.7 million, or 0.29% of total assets, at December 31, 2015. Included in total nonperforming assets were foreclosed assets of $386,000 at March 31, 2016, compared to $1.7 million at March 31, 2015, and $364,000 at December 31, 2015.

        Loans with a well-defined weakness, which are characterized by the distinct possibility that the Company will sustain a loss if the deficiencies are not corrected, are categorized as "classified." Classified loans include all loans considered as substandard, substandard-nonaccrual, and doubtful and may result from problems specific to a borrower's business or from economic downturns that affect the borrower's ability to repay or that cause a decline in the value of the underlying collateral (particularly real estate), and foreclosed assets. The principal balance of classified loans, was $21.0 million at March 31, 2016, $15.1 million at March 31, 2015, and $18.6 million at December 31, 2015. There were no loans held-for-sale included in classified loans at March 31, 2016, March 31, 2015, and December 31, 2015. Loans held-for-sale are carried at the lower of cost or estimated fair value, and are not allocated an allowance for loan losses.

72

        The following table provides a summary of the loan portfolio by loan type and credit quality classification at the dates indicated:

	March 31, 2016						March 31, 2015						December 31, 2015
	Nonclassified		Classified*		Total		Nonclassified		Classified*		Total		Nonclassified		Classified*		Total
	(Dollars in thousands)
Commercial	$	580,826	$	11,302	$	592,128	$	451,598	$	6,900	$	458,498	$	547,536	$	8,986	$	556,522
Real estate:
Commercial and residential		608,771		8,050		616,821		481,767		5,708		487,475		617,865		7,800		625,665
Land and construction		95,334		213		95,547		73,682		1,290		74,972		84,209		219		84,428
Home equity		73,889		1,104		74,993		64,347		896		65,243		75,511		1,322		76,833
Consumer		16,183		293		16,476		15,862		338		16,200		15,705		305		16,010
Total	$	1,375,003	$	20,962	$	1,395,965	$	1,087,256	$	15,132	$	1,102,388	$	1,340,826	$	18,632	$	1,359,458

*

Classified loans in the table above include SBA guarantees.

        The following provides a rollforward of troubled debt restructurings ("TDRs"):

	Three Months Ended March 31, 2016
	Performing TDRs			Nonperforming TDRs			Total
	(Dollars in thousands)
Balance at January 1, 2016	$	149		$	4		$	153
Principal repayments		(4	)		(1	)		(5	)
Balance at March 31, 2016	$	145		$	3		$	148

	Three Months Ended March 31, 2015
	Performing TDRs			Nonperforming TDRs			Total
	(Dollars in thousands)
Balance at January 1, 2015	$	167		$	916		$	1,083
Principal repayments		(4	)		(45	)		(49	)
Balance at March 31, 2015	$	163		$	871		$	1,034

Allowance for Loan Losses

        The allowance for loan losses is an estimate of probable incurred losses in the loan portfolio. Loans are charged-off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance for loan losses. Management's methodology for estimating the allowance balance consists of several key elements, which include specific allowances on individual impaired loans and the formula driven allowances on pools of loans with similar risk characteristics. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged-off.

        Specific allowances are established for impaired loans. Management considers a loan to be impaired when it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the loan agreement, including scheduled interest payments. Loans for which the terms have been modified with a concession granted, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired. When a loan is considered to be impaired, the amount of impairment is measured based on the fair value of the collateral less costs to sell if the loan is collateral dependent, or on the present value of

73

expected future cash flows or values that are observable in the secondary market. If the measure of the impaired loans is less than the investment in the loan, the deficiency will be charged off against the allowance for loan losses if the amount is a confirmed loss, or, alternatively, a specific allocation within the allowance will be established. Loans that are considered impaired are specifically excluded from the formula portion of the allowance for loan losses analysis.

        The estimated loss factors for pools of loans that are not impaired are based on determining the probability of default and loss given default for loans within each segment of the portfolio, adjusted for significant factors that, in management's judgment, affect collectability as of the evaluation date. The Company's historical delinquency experience and loss experience are utilized to determine the probability of default and loss given default for segments of the portfolio where the Company has experienced losses in the past. For segments of the portfolio where the Company has no significant prior loss experience, the Company uses quantifiable observable industry data to determine the probability of default and loss given default.

        It is the policy of management to maintain the allowance for loan losses at a level adequate for risks inherent in the loan portfolio. On an ongoing basis, we have engaged an outside firm to perform independent credit reviews of our loan portfolio. The Federal Reserve Board and the California Department of Business Oversight—Division of Financial Institutions also review the allowance for loan losses as an integral part of the examination process. Based on information currently available, management believes that the allowance for loan losses is adequate. However, the loan portfolio can be adversely affected if California economic conditions and the real estate market in the Company's market area were to weaken. Also, any weakness of a prolonged nature in the technology industry would have a negative impact on the local market. The effect of such events, although uncertain at this time, could result in an increase in the level of nonperforming loans and increased loan losses, which could adversely affect the Company's future growth and profitability. No assurance of the ultimate level of credit losses can be given with any certainty.

74

        The following tables summarize the Company's loan loss experience, as well as provisions and charges to the allowance for loan losses and certain pertinent ratios for the periods indicated:

	Three Months Ended March 31, 2016
	Commercial			Real Estate			Consumer			Total
	(Dollars in thousands)
Balance, beginning of period	$	10,748		$	8,076		$	102		$	18,926
Charge-offs		(117	)		—			—			(117	)
Recoveries		32			216			—			248
Net (charge-offs) recoveries		(85	)		216			—			131
Provision (credit) for loan losses		616			(224	)		9			401
Balance, end of period	$	11,279		$	8,068		$	111		$	19,458
RATIOS:
Annualized net charge-offs (recoveries) to average loans(1)		0.02	%		–0.06	%		0.00	%		–0.04	%
Allowance for loan losses to total loans(1)		0.80	%		0.58	%		0.01	%		1.39	%
Allowance for loan losses to nonperforming loans		269.58	%		192.83	%		2.65	%		465.06	%

(1)

Average loans and total loans exclude loans held-for-sale.

	Three Months Ended March 31, 2015
	Commercial			Real Estate			Consumer			Total
	(Dollars in thousands)
Balance, beginning of period	$	11,187		$	7,070		$	122		$	18,379
Charge-offs		(212	)		(2	)		—			(214	)
Recoveries		436			13			—			449
Net recoveries		224			11			—			235
Provision (credit) for loan losses		(555	)		473			22			(60	)
Balance, end of period	$	10,856		$	7,554		$	144		$	18,554
RATIOS:
Annualized net charge-offs (recoveries) to average loans(1)		–0.09	%		0.00	%		0.00	%		–0.09	%
Allowance for loan losses to total loans(1)		0.98	%		0.69	%		0.01	%		1.68	%
Allowance for loan losses to nonperforming loans		161.24	%		112.19	%		2.14	%		275.57	%

(1)

Average loans and total loans exclude loans held-for-sale.

        The following table provides a summary of the allocation of the allowance for loan losses by class at the dates indicated. The allocation presented should not be interpreted as an indication that charges to the allowance for loan losses will be incurred in these amounts or proportions, or that the portion of the allowance allocated to each category represents the total amount available for charge-offs that may occur within these classes.

75

Allocation of Allowance for Loan Losses

	March 31,
											December 31, 2015
	2016					2015
	Allowance		Percent of Loans in each category to total loans			Allowance		Percent of Loans in each category to total loans			Allowance		Percent of Loans in each category to total loans
	(Dollars in thousands)
Commercial	$	11,279		42	%	$	10,856		42	%	$	10,748		41	%
Real estate:
Commercial and residential		4,900		44	%		5,063		44	%		4,980		46	%
Land and construction		1,630		7	%		1,137		7	%		1,504		6	%
Home equity		1,538		6	%		1,354		6	%		1,592		6	%
Consumer		111		1	%		144		1	%		102		1	%
Total	$	19,458		100	%	$	18,554		100	%	$	18,926		100	%

        The allowance for loan losses totaled $19.5 million, or 1.39% of total loans at March 31, 2016, compared to $18.6 million, or 1.68% of total loans at March 31, 2015, and $18.9 million, or 1.39% of total loans at December 31, 2015. The allowance for loan losses to total loans decreased at March 31, 2016, compared to March 31, 2015, primarily due to the Focus acquisition, and an increase in the Company's legacy loan balances with no default histories, coupled with a decrease in the Company's legacy nonperforming assets, improving the quality of the loan portfolio overall. The Company had net recoveries of $131,000, or –0.04% of average loans, for the first quarter of 2016, compared to net recoveries of $235,000, or –0.09% of average loans, for the first quarter of 2015, and net recoveries of $515,000, or –0.04% of average loans, for the fourth quarter of 2015.

        The allowance for loan losses related to the commercial portfolio increased $531,000 at March 31, 2016 from December 31, 2015, as a result of a provision to the allowance for loan losses of $616,000, partially offset by net charge-offs of $85,000. The increase in the allowance for loan losses in the Company's commercial loan portfolio was primarily due to an increase in commercial loans outstanding. The allowance for loan losses related to the real estate portfolio decreased $8,000 at March 31, 2016 from December 31, 2015, as a result of a credit provision for loan losses of $224,000 and net recoveries of $216,000.

Goodwill and Other Intangible Assets

        On November 1, 2014, estimated goodwill of $13.0 million resulted from the acquisition Bay View Funding. On August 20, 2015, estimated goodwill of $32.6 million resulted from the merger of Focus. Goodwill represents the excess of the purchase price over the fair value of acquired tangible assets and liabilities and identifiable intangible assets. The fair values of assets acquired and liabilities assumed are subject to adjustment during the first twelve months after the acquisition date if additional information becomes available to indicate a more accurate or appropriate value for an asset or liability. Total goodwill at March 31, 2016 and December 31, 2015 was $45.6 million, which was consisted of $13.0 million related to the Bay View Funding acquisition, and $32.6 million related to the Focus acquisition.

        Goodwill impairment exists when a reporting unit's carrying value exceeds its fair value, which is determined through a qualitative assessment whether it is more likely than not that the fair value of equity of the reporting unit exceeds the carrying value ("Step Zero"). If the qualitative assessment indicates it is more likely than not that the fair value of equity of a reporting unit is less than book value, than a quantitative two step impairment test is required. Step 1 includes the determination of the

76

carrying value of the Company's single reporting unit, including the existing goodwill and intangible assets, and estimating the fair value of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, the Company is required to perform a second step to the impairment test. Step 2 requires that the implied fair value of the reporting unit goodwill be compared to the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess.

        The Company completed its annual impairment analysis on the goodwill as of November 30, 2015 with the assistance of an independent valuation firm. Based on the Step Zero qualitative analysis performed, the Company determined that it is more likely than not that the fair value of the Company's equity exceeded its reported book value of equity at November 30, 2015. As such, no impairment was indicated and no further testing was required.

        Other intangible assets were $8.1 million at March 31, 2016, compared to $8.5 million at December 31, 2015. Core deposit and customer relationship intangible assets arising from the acquisition of Diablo Valley Bank in June 2007 were $515,000 at March 31, 2016 and $621,000 at December 31, 2015, net of accumulated amortization. The core deposit intangible asset arising from the acquisition of Focus was $5.8 million at March 31, 2016 and $6.0 million at December 31, 2105, net of accumulated amortization. A below market lease, customer relationship and brokered relationship, and a non-compete agreement intangible assets arising from the acquisition of Bay View Funding in November 2014 were $1.8 million at March 31, 2016 and $1.9 million at December 31, 2015, net of accumulated amortization.

Deposits

        The composition and cost of the Company's deposit base are important components in analyzing the Company's net interest margin and balance sheet liquidity characteristics, both of which are discussed in greater detail in other sections herein. The Company's liquidity is impacted by the volatility of deposits from the propensity of that money to leave the institution for rate-related or other reasons. Deposits can be adversely affected if economic conditions weaken in California, and the Company's market area in particular. Potentially, the most volatile deposits in a financial institution are jumbo certificates of deposit, meaning time deposits with balances that equal or exceed $250,000, as customers with balances of that magnitude are typically more rate-sensitive than customers with smaller balances.

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

	March 31, 2016					March 31, 2015					December 31, 2015
	Balance		% to Total			Balance		% to Total			Balance		% to Total
	(Dollars in thousands)
Demand, noninterest-bearing	$	768,525		38	%	$	544,339		38	%	$	821,405		40	%
Demand, interest-bearing		506,272		25	%		241,477		17	%		496,278		24	%
Savings and money market		493,275		24	%		380,486		27	%		496,843		24	%
Time deposits—under $250		61,595		3	%		54,497		4	%		62,026		3	%
Time deposits—$250 and over		179,048		9	%		164,316		11	%		160,815		8	%
Time deposits—brokered		11,829		1	%		28,126		2	%		17,825		1	%
CDARS—money market and time deposits		8,192		0	%		10,408		1	%		7,583		0	%
Total deposits	$	2,028,736		100	%	$	1,423,649		100	%	$	2,062,775		100	%

        The Company obtains deposits from a cross-section of the communities it serves. The Company's business is not generally seasonal in nature. Public funds were 5% of deposits at March 31, 2016, and 7% at March 31, 2015, and 4% at December 31, 2015.

77

        Total deposits increased $605.1 million, or 43%, to $2.03 billion at March 31, 2016, compared to $1.42 billion at March 31, 2015, which included an increase of $244.9 million, or 17%, in the Company's legacy deposit portfolio, and $360.2 million from the Focus deposit portfolio. Total deposits decreased $34.0 million, or 2%, at March 31, 2016, compared to $2.06 billion at December 31, 2015, primarily due to decreases in noninterest-bearing demand deposits and brokered deposits. Noninterest-bearing demand deposits increased $224.2 million at March 31, 2016 from March 31, 2015, and decreased $52.9 million from December 31, 2015. Interest-bearing demand deposits increased $264.8 million at March 31, 2016 from March 31, 2015, and increased $10.0 million from December 31, 2015. Brokered deposits decreased $16.3 million at March 31, 2016 from March 31, 2015, and decreased $6.0 million from December 31, 2015. Deposits (excluding all time deposits and CDARS deposits) increased $601.8 million, or 52%, to $1.77 billion at March 31, 2016, from $1.17 billion at March 31, 2015 and decreased $46.5 million, or 3%, from $1.81 billion at December 31, 2015.

        At March 31, 2016, the Company had $115.2 million (at fair value) of securities pledged for $98.0 million in certificates of deposits from the State of California. At March 31, 2015, the Company had $108.6 million (at fair value) of securities pledged for $98.0 million in certificates of deposits from the State of California. At December 31, 2015, the Company had $93.0 million (at fair value) of securities pledged for $78.0 million in certificates of deposits from the State of California.

        CDARS deposits were comprised of $4.1 million of money market accounts and $4.1 million of time deposits at March 31, 2016. CDARS deposits were comprised of $3.9 million of money market accounts and $6.5 million of time deposits at March 31, 2015. CDARS deposits were comprised of $3.4 million of money market accounts and $4.2 million of time deposits at December 31, 2015.

        The following table indicates the contractual maturity schedule of the Company's time deposits of $250,000 and over, and all CDARS time deposits and brokered deposits as of March 31, 2016:

	Balance		% of Total
	(Dollars in thousands)
Three months or less	$	135,208		69	%
Over three months through six months		21,241		11	%
Over six months through twelve months		31,286		16	%
Over twelve months		7,208		4	%
Total	$	194,943		100	%

        The Company focuses primarily on providing and servicing business deposit accounts that are frequently over $250,000 in average balance per account. As a result, certain types of business clients that the Company serves typically carry average deposits in excess of $250,000. The account activity for some account types and client types necessitates appropriate liquidity management practices by the Company to help ensure its ability to fund deposit withdrawals.

78

Return on Equity and Assets

        The following table indicates the ratios for return on average assets and average equity, and average equity to average assets for the periods indicated:

	Three Months Ended March 31,
	2016			2015
Annualized return on average assets		1.05	%		1.03	%
Annualized return on average tangible assets		1.07	%		1.04	%
Annualized return on average equity		9.87	%		9.04	%
Annualized return on average tangible equity		12.62	%		9.89	%
Average equity to average assets ratio		10.59	%		11.35	%

Off-Balance Sheet Arrangements

        In the normal course of business, the Company makes commitments to extend credit to its customers as long as there are no violations of any conditions established in the contractual arrangements. These commitments are obligations that represent a potential credit risk to the Company, but are not reflected on the Company's consolidated balance sheets. Total unused commitments to extend credit were $567.0 million March 31, 2016, compared to $475.5 million March 31, 2015, and $573.7 million at December 31, 2015. Unused commitments represented 41% outstanding gross loans at March 31, 2016, and 43% of outstanding gross loans at March 31, 2015, and 42% at December 31, 2015.

        The effect on the Company's revenues, expenses, cash flows and liquidity from the unused portion of the commitments to provide credit cannot be reasonably predicted because there is no certainty that lines of credit and letters of credit will ever be fully utilized. The following table presents the Company's commitments to extend credit for the periods indicated:

	March 31,
									December 31, 2015
	2016				2015
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
	(Dollars in thousands)
Unused lines of credit and commitments to make loans	$	18,648	$	533,876	$	12,215	$	445,914	$	16,917	$	539,897
Standby letters of credit		3,377		11,112		3,235		14,088		3,402		13,458
	$	22,025	$	544,988	$	15,450	$	460,002	$	20,319	$	553,355

Liquidity and Asset/Liability Management

        Liquidity refers to the Company's ability to maintain cash flows sufficient to fund operations and to meet obligations and other commitments in a timely and cost effective fashion. At various times the Company requires funds to meet short-term cash requirements brought about by loan growth or deposit outflows, the purchase of assets, or liability repayments. An integral part of the Company's ability to manage its liquidity position appropriately is the Company's large base of core deposits, which are generated by offering traditional banking services in its service area and which have historically been a stable source of funds. To manage liquidity needs properly, cash inflows must be timed to coincide with anticipated outflows or sufficient liquidity resources must be available to meet varying demands. The Company manages liquidity to be able to meet unexpected sudden changes in levels of its assets or deposit liabilities without maintaining excessive amounts of balance sheet liquidity. Excess balance sheet liquidity can negatively impact the Company's interest margin. In order to meet

79

short-term liquidity needs the Company utilizes overnight Federal funds purchase arrangements and other borrowing arrangements with correspondent banks, solicits brokered deposits if cost effective deposits are not available from local sources and maintains collateralized lines of credit with the FHLB and FRB. In addition, the Company can raise cash for temporary needs by selling securities under agreements to repurchase and selling securities available-for-sale.

        One of the measures we analyze for liquidity is our loan to deposit ratio. Our loan to deposit ratio was 68.78% at March 31, 2016, compared to 77.41% at March 31, 2015, and 65.87% at December 31, 2015.

FHLB and FRB Borrowings and Available Lines of Credit

        The Company has off-balance sheet liquidity in the form of Federal funds purchase arrangements with correspondent banks, including the FHLB and FRB. The Company can borrow from the FHLB on a short-term (typically overnight) or long-term (over one year) basis. The Company had no overnight borrowings from the FHLB at March 31, 2016, March 31, 2015 and December 31, 2015. The Company had $242.3 million of loans pledged to the FHLB as collateral on an available line of credit of $198.9 million at March 31, 2016.

        The Company can also borrow from the FRB's discount window. The Company had $399.4 million of loans pledged to the FRB as collateral on an available line of credit of $240.8 million at March 31, 2016, none of which was outstanding.

        At March 31, 2016, the Company had Federal funds purchase arrangements available of $55.0 million. There were no Federal funds purchased outstanding at March 31, 2016, March 31, 2015, and December 31, 2015.

        The Company has a $5.0 million line of credit with a correspondent bank, of which none was outstanding at March 31, 2016.

        The Company may also utilize securities sold under repurchase agreements to manage our liquidity position. There were no securities sold under agreements to repurchase at March 31, 2016, March 31, 2015, and December 31, 2015.

        The following table summarizes the Company's borrowings under its Federal funds purchased, security repurchase arrangements and lines of credit for the periods indicated:

	March 31,
						December 31, 2015
	2016			2015
	(Dollars in thousands)
Average balance year-to-date	$	1,681		$	—	$	578
Average interest rate year-to-date		2.57	%		N/A		3.14	%
Maximum month-end balance during the quarter	$	3,000		$	—	$	3,000
Average rate at period-end		N/A			N/A		3.00	%

Capital Resources

        The Company uses a variety of measures to evaluate capital adequacy. Management reviews various capital The Company uses a variety of measures to evaluate capital adequacy. Management reviews various capital measurements on a regular basis and takes appropriate action to ensure that such measurements are within established internal and external guidelines. The external guidelines, which are issued by the Federal Reserve and the FDIC, establish a risk-adjusted ratio relating capital to different categories of assets and off-balance sheet exposures.

80

        The following table summarizes risk-based capital, risk-weighted assets, and risk-based capital ratios of the consolidated Company under the Basel III requirements as of March 31, 2016, March, 31, 2015 and December 31, 2015:

	March 31, 2016			March 31, 2015			December 31, 2015
	(Dollars in thousands)
Capital components:
Common equity Tier 1 capital	$	182,623		$	151,187		$	181,222
Additional Tier 1 capital		18,757			18,452			18,077
Tier 1 capital		201,380			169,639			199,299
Tier 2 capital		20,198			18,763			19,616
Total risk-based capital	$	221,578		$	188,402		$	218,915
Risk-weighted assets	$	1,787,065		$	1,453,457		$	1,750,515
Average assets for capital purposes	$	2,291,772		$	1,610,714		$	2,322,940
Capital ratios:
Total risk-based capital		12.4	%		13.0	%		12.5	%
Tier 1 risk-based capital		11.3	%		11.7	%		11.4	%
Common equity Tier 1 risk-based capital		10.2	%		10.4	%		10.4	%
Leverage(1)		8.8	%		10.5	%		8.6	%

(1)

Tier 1 capital divided by quarterly average assets (excluding intangible assets and disallowed deferred tax assets).

        The following table summarizes risk based capital, risk weighted assets, and risk based capital ratios of HBC under the Basel III requirements as of March 31, 2016, March, 31, 2015 and December 31, 2015:

	March 31, 2016			March 31, 2015			December 31, 2015
	(Dollars in thousands)
Capital components:
Common equity Tier 1 capital	$	199,952		$	160,165		$	200,327
Additional Tier 1 capital		—			—			—
Tier 1 capital		199,952			160,165			200,327
Tier 2 capital		20,198			18,745			19,616
Total risk-based capital	$	220,150		$	178,910		$	219,943
Risk-weighted assets	$	1,787,168		$	1,452,011		$	1,750,222
Average assets for capital purposes	$	2,291,486		$	1,609,047		$	2,322,232
Capital ratios:
Total risk-based capital		12.3	%		12.3	%		12.6	%
Tier 1 risk-based capital		11.2	%		11.0	%		11.4	%
Common equity Tier 1 risk-based capital		11.2	%		11.0	%		11.4	%
Leverage(1)		8.7	%		10.0	%		8.6	%

(1)

Tier 1 capital divided by quarterly average assets (excluding intangible assets and disallowed deferred tax assets).

81

        The following table presents the applicable well-capitalized regulatory guidelines and the standards for minimum capital adequacy requirements under the Basel III:

	Transitional Minimum Regulatory Requirement(1) Effective January 1, 2016			Minimum Regulatory Requirement(2) Effective January 1, 2019			Well-capitalized by Regulatory Definition Under FDICIA
Capital Ratios
Total Risk-Based		8.625	%		10.5	%		10.0	%
Tier 1 Risk-Based		6.625	%		8.5	%		8.0	%
Common Equity Tier 1 Risk-based		5.125	%		7.0	%		6.5	%
Leverage		4.000	%		4.0	%		5.0	%

(1)

Includes 0.625% capital conservation buffer, except the leverage capital ratio.

(2)

Includes 2.5% capital conservation buffer, except the leverage capital ratio.

        The Basel III capital rules introduce a new "capital conservation buffer," for banking organizations to maintain a common equity Tier 1 ratio more than 2.5% above these minimum risk-weighted asset ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. The implementation of the capital conservation buffer was phased in beginning on January 1, 2016 at 0.625% and will be phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019).

        At March 31, 2016, the Company's and HBC's regulatory capital increased, compared to March 31, 2015, concurrent with average assets for capital purposes and risk-weighted assets due to the common stock issued in the Focus transaction, net of normal fluctuations to regulatory capital from dividends, share based compensation, and net income. During the first quarter of 2016, HBC upstreamed a $6.0 million dividend to HCC.

        At March 31, 2016, the Company's consolidated capital ratio exceeded regulatory guidelines and HBC's capital ratios exceed the highest regulatory capital requirement of "well-capitalized" under Basel III prompt corrective action provisions. Quantitative measures established by regulation to help ensure capital adequacy require the Company and HBC to maintain minimum amounts and ratios of total risk-based capital, Tier 1 capital, and common equity Tier 1 (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Management believes that, as of March 31, 2016, March 31, 2015, and December 31, 2015, the Company and HBC met all capital adequacy guidelines to which they were subject. There are no conditions or events since March 31, 2016, that management believes have changed the categorization of the Company or HBC as well-capitalized.

        At March 31, 2016, the Company had total shareholders' equity of $251.7 million, compared to $186.8 million at March 31, 2015, and $245.4 million at December 31, 2015. The increase in total shareholders' equity at March 31, 2016 from March 31, 2015 was primarily due to the Focus acquisition and an increase in retained earnings. At March 31, 2016, total shareholders' equity included $19.5 million in preferred stock, $194.2 million in common stock, $41.5 million in retained earnings, and ($3.5) million of accumulated other comprehensive loss.

82

        The accumulated other comprehensive loss was ($3.5) million at March 31, 2016, compared to accumulated other comprehensive loss of ($1.3) million at March 31, 2015, and an accumulated other comprehensive loss of ($6.2) million at December 31, 2015. The unrealized gain on securities available-for-sale, net of taxes, included in accumulated other comprehensive loss was an unrealized gain of $3.0 million, at March 31, 2016, compared to an unrealized gain of $3.3 million, at March 31, 2015, and an unrealized gain of $296,000, at December 31, 2015. The components of accumulated other comprehensive loss, net of taxes, at March 31, 2016 include the following: an unrealized gain on available-for-sale securities of $3.0 million; the remaining unamortized unrealized gain on securities available-for-sale transferred to held-to-maturity of $394,000; a split dollar insurance contracts liability of ($3.6) million; a supplemental executive retirement plan liability of ($4.1) million; and an unrealized gain on interest-only strip from SBA loans of $795,000.

Series C Preferred Stock

        On June 21, 2010, the Company issued to various institutional investors 21,004 shares of newly issued Series C Preferred Stock. The Series C Preferred Stock is mandatorily convertible into 5,601,000 shares of common stock at a conversion price of $3.75 per share upon a subsequent transfer of the Series C Preferred stock to third parties not affiliates with the holder in a widely dispersed offering. The Series C Preferred Stock is non-voting except in the case of certain transactions that would affect the rights of the holders of the Series C Preferred Stock or applicable law. The holders of Series C Preferred Stock receive dividends on an as converted basis when dividends are also declared for holders of common stock. The Series C Preferred Stock is not redeemable by the Company or by the holders and has a liquidation preference of $1,000 per share. The Series C Preferred Stock ranks senior to the Company's common stock.

        The book value per common share was $7.22 at March 31, 2016, compared to $6.31 at March 31, 2015, and $7.03 at December 31, 2015. The tangible book value per common share was $5.54 at March 31, 2016, compared to $5.70 at March 31, 2015, and $5.35 at December 31, 2015. On a full conversion of the Series C Preferred stock into common stock at March 31, 2016, March 31, 2015, and December 31, 2015: (i) the book value per common share would have been reduced to $6.66, $5.81, $6.51, respectively; and (ii) the tangible book value per common share would have been reduced to $5.24, $5.31, $5.07, respectively. A reduction in the book value per share and tangible book value per share upon full conversion would result primarily because of the 5,601,000 additional shares of common stock issued for the conversion of the 21,004 shares of Series C Preferred stock.

        The holders of the Series C Preferred Stock have applied or intend to apply to the Federal Reserve for approval to exchange the 21,004 shares of Series C Preferred Stock for 5,601,000 common stock (the as converted equivalent). The Company has indicated to the holders that if such approval is obtained the Company would agree to enter into an exchange agreement to effect the exchange. One of the holders has obtained approval from the Federal Reserve. There is no assurance the other holder will obtain approval from the Federal Reserve.

Market Risk

        Market risk is the risk of loss of future earnings, fair values, or future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market risk sensitive instruments. Market risk is attributed to all market risk sensitive financial instruments, including securities, loans, deposits and borrowings, as well as the Company's role as a financial intermediary in customer-related transactions. The objective of market risk management is to avoid excessive exposure of the Company's earnings and equity to loss and to reduce the volatility inherent in certain financial instruments.

83

Interest Rate Management

        Market risk arises from changes in interest rates, exchange rates, commodity prices and equity prices. The Company's market risk exposure is primarily that of interest rate risk, and it has established policies and procedures to monitor and limit earnings and balance sheet exposure to changes in interest rates. The Company does not engage in the trading of financial instruments, nor does the Company have exposure to currency exchange rates.

        The principal objective of interest rate risk management (often referred to as "asset/liability management") is to manage the financial components of the Company in a manner that will optimize the risk/reward equation for earnings and capital in relation to changing interest rates. The Company's exposure to market risk is reviewed on a regular basis by the Asset/Liability Committee. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income. Management realizes certain risks are inherent, and that the goal is to identify and manage the risks. Management uses two methodologies to manage interest rate risk: (i) a standard GAP analysis; and (ii) an interest rate shock simulation model.

        The planning of asset and liability maturities is an integral part of the management of an institution's net interest margin. To the extent maturities of assets and liabilities do not match in a changing interest rate environment, the net interest margin may change over time. Even with perfectly matched repricing of assets and liabilities, risks remain in the form of prepayment of loans or securities or in the form of delays in the adjustment of rates of interest applying to either earning assets with floating rates or to interest bearing liabilities. The Company has generally been able to control its exposure to changing interest rates by maintaining primarily floating interest rate loans and a majority of its time certificates with relatively short maturities.

        Interest rate changes do not affect all categories of assets and liabilities equally or at the same time. Varying interest rate environments can create unexpected changes in prepayment levels of assets and liabilities, which may have a significant effect on the net interest margin and are not reflected in the interest sensitivity analysis table. Because of these factors, an interest sensitivity GAP report may not provide a complete assessment of the exposure to changes in interest rates.

        The Company uses modeling software for asset/liability management in order to simulate the effects of potential interest rate changes on the Company's net interest margin, and to calculate the estimated fair values of the Company's financial instruments under different interest rate scenarios. The program imports current balances, interest rates, maturity dates and repricing information for individual financial instruments, and incorporates assumptions on the characteristics of embedded options along with pricing and duration for new volumes to project the effects of a given interest rate change on the Company's interest income and interest expense. Rate scenarios consisting of key rate and yield curve projections are run against the Company's investment, loan, deposit and borrowed funds portfolios. These rate projections can be shocked (an immediate and parallel change in all base rates, up or down) and ramped (an incremental increase or decrease in rates over a specified time period), based on current trends and econometric models or stable economic conditions (unchanged from current actual levels).

        The following table sets forth the estimated changes in the Company's annual net interest income that would result from the designated instantaneous parallel shift in interest rates noted, as of March 31, 2016. Computations of prospective effects of hypothetical interest rate changes are based on

84

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.

	Increase/(Decrease) in Estimated Net Interest Income
	Amount			Percent
	(Dollars in thousands)
Change in Interest Rates (basis points)
+400	$	17,972			23.2	%
+300	$	13,713			17.7	%
+200	$	9,444			12.2	%
+100	$	4,933			6.4	%
0	$	—			0.0	%
–100	$	(8,556	)		–11.0	%
–200	$	(17,238	)		–22.2	%

        This data does not reflect any actions that we may undertake in response to changes in interest rates such as changes in rates paid on certain deposit accounts based on local competitive factors, which could reduce the actual impact on net interest income.

        As with any method of gauging interest rate risk, there are certain shortcomings inherent to the methodology noted above. The model assumes interest rate changes are instantaneous parallel shifts in the yield curve. In reality, rate changes are rarely instantaneous. The use of the simplifying assumption that short-term and long-term rates change by the same degree may also misstate historic rate patterns, which rarely show parallel yield curve shifts. Further, the model assumes that certain assets and liabilities of similar maturity or period to repricing will react in the same way to changes in rates. In reality, certain types of financial instruments may react in advance of changes in market rates, while the reaction of other types of financial instruments may lag behind the change in general market rates. Additionally, the methodology noted above does not reflect the full impact of annual and lifetime restrictions on changes in rates for certain assets, such as adjustable rate loans. When interest rates change, actual loan prepayments and actual early withdrawals from certificates may deviate significantly from the assumptions used in the model. Finally, this methodology does not measure or reflect the impact that higher rates may have on adjustable-rate loan clients' ability to service their debt. All of these factors are considered in monitoring the Company's exposure to interest rate risk.

ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The information concerning quantitative and qualitative disclosure or market risk called for by Item 305 of Regulation S-K is included as part of Item 2 above.

ITEM 4—CONTROLS AND PROCEDURES

Disclosure Control and Procedures

        The Company has carried out an evaluation, under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of March 31, 2016. As defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported on a timely basis. Disclosure controls are also designed to reasonably assure that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to

85

allow timely decisions regarding required disclosure. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded the Company's disclosure controls were effective as March 31, 2016, the period covered by this report on Form 10-Q.

        During the three months ended March 31, 2016, there were no changes in our internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

86

Part II—OTHER INFORMATION

ITEM 1—LEGAL PROCEEDINGS

        The Company is involved in certain legal actions arising from normal business activities. Management, based upon the advice of legal counsel, believes the ultimate resolution of all pending legal actions will not have a material effect on the financial statements of the Company.

ITEM 1A—RISK FACTORS

        In addition to the other information set forth in this Report, you should carefully consider the other factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2015, which could materially affect our business, financial condition and/or operating results. There were no material changes from risk factors previously disclosed in our 2015 Annual Report on Form 10-K. The risk factors identified are in addition to those contained in any other cautionary statements, written or oral, which may be or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the Securities and Exchange Commission.

ITEM 2—UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

        None

ITEM 3—DEFAULTS UPON SENIOR SECURITIES

        None

ITEM 4—MINE SAFETY DISCLOSURES

        None

ITEM 5—OTHER INFORMATION

        None

87

ITEM 6—EXHIBITS

Exhibit		Description
	3.1	Heritage Commerce Corp Restated Articles of Incorporation, (incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K filed on March 4, 2010)
	3.2	Certificate of Amendment of Articles of Incorporation of Heritage Commerce Corp as filed with the California Secretary of State on June 1, 2010 (incorporated by reference to Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 filed July 23, 2010).
	3.3	Heritage Commerce Corp Bylaws, as amended (incorporated by reference to the Registrant's Current Report on Form 8-K filed on June 28, 2013)
	4.1	Certificate of Determination for Series C Convertible Perpetual Preferred Stock (incorporated by reference to the Registrant's Current Report on Form 8-K filed on June 22, 2010)
	12.1	Calculation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
	31.1	Certification of Registrant's Chief Executive Officer Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification of Registrant's Chief Financial Officer Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	Certification of Registrant's Chief Executive Officer Pursuant To 18 U.S.C. Section 1350
	32.2	Certification of Registrant's Chief Financial Officer Pursuant To 18 U.S.C. Section 1350
	101.INS	XBRL Instance Document, furnished herewith
	101.SCH	XBRL Taxonomy Extension Schema Document, furnished herewith
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document, furnished herewith
	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document, furnished herewith
	101.LAB	XBRL Taxonomy Extension Label Linkbase Document, furnished herewith
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document, furnished herewith

88

SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Heritage Commerce Corp (Registrant)
Date: May 6, 2016	/s/ WALTER T. KACZMAREK Walter T. Kaczmarek Chief Executive Officer
Date: May 6, 2016	/s/ LAWRENCE D. MCGOVERN Lawrence D. McGovern Chief Financial Officer

89

EXHIBIT INDEX

Exhibit		Description
	3.1	Heritage Commerce Corp Restated Articles of Incorporation, (incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K filed on March 4, 2010)
	3.2	Certificate of Amendment of Articles of Incorporation of Heritage Commerce Corp as filed with the California Secretary of State on June 1, 2010 (incorporated by reference to Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 filed July 23, 2010).
	3.3	Heritage Commerce Corp Bylaws, as amended (incorporated by reference to the Registrant's Current Report on Form 8-K filed on June 28, 2013)
	4.1	Certificate of Determination for Series C Convertible Perpetual Preferred Stock (incorporated by reference to the Registrant's Current Report on Form 8-K filed on June 22, 2010)
	12.1	Calculation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
	31.1	Certification of Registrant's Chief Executive Officer Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification of Registrant's Chief Financial Officer Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	Certification of Registrant's Chief Executive Officer Pursuant To 18 U.S.C. Section 1350
	32.2	Certification of Registrant's Chief Financial Officer Pursuant To 18 U.S.C. Section 1350
	101.INS	XBRL Instance Document, herewith
	101.SCH	XBRL Taxonomy Extension Schema Document, herewith
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document, herewith
	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document, herewith
	101.LAB	XBRL Taxonomy Extension Label Linkbase Document, herewith
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document, herewith

90

EX-12.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 12.1

CALCULATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES

	Three Months Ended March 31,				Year Ended December 31,
	2016		2015		2015		2014		2013		2012
	(Dollars in thousands)
Earnings:
Income before income taxes	$	9,832	$	6,568	$	26,601	$	20,965	$	17,746	$	15,398
Fixed Charges:
Interest on deposits	$	747	$	508	$	2,403	$	2,032	$	2,369	$	2,800
Interest on notes payable to subsidiary grantor trusts, repurchase agreements, and other borrowings		11		—		19		121		231		1,387
Rent expense interest factor(1)		240		237		999		897		906		912
Total fixed charges:
Including interest on deposits	$	998	$	745	$	3,421	$	3,050	$	3,506	$	5,099
Excluding interest on deposits	$	251	$	237	$	1,018	$	1,018	$	1,137	$	2,299
Ratio of earnings (loss) to fixed charges:
Excluding interest on deposits		40.24		28.67		27.13		21.59		16.61		7.70
Including interest on deposits		10.86		9.81		8.78		7.87		6.06		4.02

(1)

This amount is the portion of rent expense (generally one-third) deemed representative of the interest factor.

        For purposes of calculating the ratios of earnings to fixed charges and preferred stock dividends, earnings consist of income before income taxes and fixed charges. Fixed charges consist of interest on subordinated debt, repurchase agreements and other borrowings, the proportion deemed representative of the interest factor within rent expense. These ratios are presented both including and excluding interest on deposits.

CALCULATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS

	Three Months Ended March 31,				Year Ended December 31,
	2016		2015		2015		2014		2013		2012
	(Dollars in thousands)
Earnings:
Income before income taxes	$	9,832	$	6,568	$	26,601	$	20,965	$	17,746	$	15,398
Fixed Charges:
Interest on deposits	$	747	$	508	$	2,403	$	2,032	$	2,369	$	2,800
Interest on notes payable to subsidiary grantor trusts, repurchase agreements, and other borrowings		11		—		19		121		231		1,387
Preferred stock dividends		504		448		1,792		1,008		336		373
Rent expense interest factor(1)		240		237		999		897		906		912
Total fixed charges:
Including interest on deposits	$	1,502	$	1,193	$	5,213	$	4,058	$	3,842	$	5,472
Excluding interest on deposits	$	755	$	685	$	2,810	$	2,026	$	1,473	$	2,672
Ratio of earnings (loss) to fixed charges and preferred stock dividends:
Excluding interest on deposits		14.03		10.58		10.47		11.35		13.05		6.76
Including interest on deposits		7.55		6.50		6.10		6.17		5.62		3.81

(1)

This amount is the portion of rent expense (generally one-third) deemed representative of the interest factor.

        For purposes of calculating the ratios of earnings to fixed charges and preferred stock dividends, earnings consist of income before income taxes and fixed charges. Fixed charges consist of interest on subordinated debt, repurchase agreements and other borrowings, the proportion deemed representative of the interest factor within rent expense, and preferred stock dividends. These ratios are presented both including and excluding interest on deposits.

QuickLinks

Exhibit 12.1

CALCULATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
CALCULATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS

EX-31.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 31.1

CERTIFICATION UNDER SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
REGARDING THE QUARTERLY REPORT ON FORM 10 Q
FOR THE QUARTER ENDED MARCH 31, 2016

I, Walter T. Kaczmarek, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2016 of Heritage Commerce Corp;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 6, 2016

/s/ WALTER T. KACZMAREK
Walter T. Kaczmarek
Chief Executive Officer

QuickLinks

Exhibit 31.1

CERTIFICATION UNDER SECTION 302 OF THE SARBANES OXLEY ACT OF 2002 REGARDING THE QUARTERLY REPORT ON FORM 10 Q FOR THE QUARTER ENDED MARCH 31, 2016

EX-31.2

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 31.2

CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
REGARDING THE QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2016

I, Lawrence D. McGovern, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2016 of Heritage Commerce Corp;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 6, 2016

/s/ LAWRENCE D. MCGOVERN
Lawrence D. McGovern
Chief Financial Officer

QuickLinks

Exhibit 31.2

CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 REGARDING THE QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2016

EX-32.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
REGARDING THE QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2016

        In connection with the Quarterly Report of Heritage Commerce Corp (the "Company") on Form 10-Q for the period ended March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Walter T. Kaczmarek, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 6, 2016

/s/ WALTER T. KACZMAREK
Walter T. Kaczmarek
Chief Executive Officer

QuickLinks

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 REGARDING THE QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2016

EX-32.2

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
REGARDING THE QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2016

        In connection with the Quarterly Report of Heritage Commerce Corp (the "Company") on Form 10-Q for the period ended March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Lawrence D. McGovern, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 6, 2016

/s/ LAWRENCE D. MCGOVERN
Lawrence D. McGovern
Chief Financial Officer

QuickLinks

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 REGARDING THE QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2016

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2016	Apr. 28, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	HERITAGE COMMERCE CORP
Entity Central Index Key	0001053352
Document Type	10-Q
Document Period End Date	Mar. 31, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		32,170,920
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q1

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Assets
Cash and due from banks	$ 25,573	$ 24,112
Interest-bearing deposits in other financial institutions	117,562	319,980
Total cash and cash equivalents	143,135	344,092
Securities available-for-sale, at fair value	448,540	385,079
Securities held-to-maturity, at amortized cost (fair value of $187,047 at March 31, 2016 and $109,821 at December 31, 2015)	185,165	109,311
Loans held-for-sale - SBA, at lower of cost or fair value, including deferred costs	2,389	7,297
Loans, net of deferred fees	1,395,264	1,358,716
Allowance for loan losses	(19,458)	(18,926)
Loans, net	1,375,806	1,339,790
Federal Home Loan Bank and Federal Reserve Bank stock and other investments, at cost	12,702	12,694
Company owned life insurance	60,470	60,021
Premises and equipment, net	7,625	7,773
Goodwill	45,664	45,664
Other intangible assets	8,126	8,518
Accrued interest receivable and other assets	37,711	41,340
Total assets	2,327,333	2,361,579
Deposits:
Demand, noninterest-bearing	768,525	821,405
Demand, interest-bearing	506,272	496,278
Savings and money market	493,275	496,843
Time deposits-under $250	61,595	62,026
Time deposits-$250 and over	179,048	160,815
Time deposits-brokered	11,829	17,825
CDARS - money market and time deposits	8,192	7,583
Total deposits	2,028,736	2,062,775
Short-term borrowings		3,000
Accrued interest payable and other liabilities	46,938	50,368
Total liabilities	2,075,674	2,116,143
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares authorized Series C convertible perpetual preferred stock, 21,004 shares issued and outstanding at March 31, 2016 and December 31, 2015 (liquidation preference of $21,004 at March 31, 2016 and December 31, 2015)	19,519	19,519
Common stock, no par value; 60,000,000 shares authorized; 32,170,920 shares issued and outstanding at March 31, 2016 and 32,113,479 shares issued and outstanding at December 31, 2015	194,153	193,364
Retained earnings	41,485	38,773
Accumulated other comprehensive loss	(3,498)	(6,220)
Total shareholders' equity	251,659	245,436
Total liabilities and shareholders' equity	$ 2,327,333	$ 2,361,579

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Securities held-to-maturity
Securities held-to-maturity, fair value (in dollars)	$ 187,047	$ 109,821
Preferred stock
Preferred stock, par value (in dollars per share)	$ 0	$ 0
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	21,004	21,004
Preferred stock, outstanding (in shares)	21,004	21,004
Preferred stock, liquidation preference (in dollars)	$ 21,004	$ 21,004
Common stock
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized	60,000,000	60,000,000
Common stock, shares issued	32,170,920	32,113,479
Common stock, shares outstanding	32,170,920	32,113,479

XML

CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Interest income:
Loans, including fees	$ 19,188	$ 15,004
Securities, taxable	2,774	1,604
Securities, exempt from Federal tax	579	506
Other investments and interest-bearing deposits in other financial institutions	521	252
Total interest income	23,062	17,366
Interest expense:
Deposits	747	508
Short-term borrowings	11
Total interest expense	758	508
Net interest income before provision for loan losses	22,304	16,858
Provision (credit) for loan losses	401	(60)
Net interest income after provision for loan losses	21,903	16,918
Noninterest income:
Service charges and fees on deposit accounts	767	623
Increase in cash surrender value of life insurance	449	400
Servicing income	371	306
Gain on sales of SBA loans	305	207
Gain on sales of securities	180
Other	542	390
Total noninterest income	2,614	1,926
Noninterest expense:
Salaries and employee benefits	8,947	8,042
Occupancy and equipment	1,085	1,045
Professional fees	825	95
Other	3,828	3,094
Total noninterest expense	14,685	12,276
Income before income taxes	9,832	6,568
Income tax expense	3,726	2,430
Net income	6,106	4,138
Dividends on preferred stock	(504)	(448)
Net income available to common shareholders	$ 5,602	$ 3,690
Earnings per common share:
Basic (in dollars per share)	$ 0.16	$ 0.13
Diluted (in dollars per share)	$ 0.16	$ 0.13

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$ 6,106	$ 4,138
Other comprehensive income:
Change in net unrealized holding gains on available-for-sale securities and I/O strips	4,839	888
Deferred income taxes	(2,032)	(374)
Change in net unamortized unrealized gain on securities available-for-sale that were reclassified to securities held-to-maturity	(14)	(14)
Deferred income taxes	6	6
Reclassification adjustment for gains on sale of securities realized in income	(180)
Deferred income taxes	75
Change in unrealized gains on securities and I/O strips, net of deferred income taxes	2,694	506
Change in net pension and other benefit plan liability adjustment	48	48
Deferred income taxes	(20)	(20)
Change in pension and other benefit plan liability net of deferred income taxes	28	28
Other comprehensive income	2,722	534
Total comprehensive income	$ 8,828	$ 4,672

XML

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - USD ($) $ in Thousands	Preferred Stock	Common Stock	Retained Earnings	Accumulated Other Comprehensive Income / (Loss)	Total
Balance at Dec. 31, 2014	$ 19,519	$ 133,676	$ 33,014	$ (1,851)	$ 184,358
Balance (in shares) at Dec. 31, 2014	21,004	26,503,505
Increase (Decrease) in Shareholders' Equity
Net income			4,138		4,138
Other comprehensive income				534	534
Amortization of restricted stock awards, net of forfeitures and taxes		$ (14)			(14)
Cash dividend declared per share			(2,569)		(2,569)
Stock option expense, net of forfeitures and taxes		224			224
Stock options exercised		$ 106			106
Stock options exercised (in shares)		19,234
Balance at Mar. 31, 2015	$ 19,519	$ 133,992	34,583	(1,317)	186,777
Balance (in shares) at Mar. 31, 2015	21,004	26,522,739
Balance at Dec. 31, 2015	$ 19,519	$ 193,364	38,773	(6,220)	245,436
Balance (in shares) at Dec. 31, 2015	21,004	32,113,479
Increase (Decrease) in Shareholders' Equity
Net income			6,106		6,106
Other comprehensive income				2,722	2,722
Amortization of restricted stock awards, net of forfeitures and taxes		$ 186			186
Cash dividend declared per share			(3,394)		(3,394)
Stock option expense, net of forfeitures and taxes		245			245
Stock options exercised		$ 358			358
Stock options exercised (in shares)		57,441
Balance at Mar. 31, 2016	$ 19,519	$ 194,153	$ 41,485	$ (3,498)	$ 251,659
Balance (in shares) at Mar. 31, 2016	21,004	32,170,920

XML

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Cash dividend declared per share (in dollars per share)	$ 0.09	$ 0.08

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 6,106	$ 4,138
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of discounts and premiums on securities	667	293
Gain on sale of securities available-for-sale	(180)
Gain on sale of SBA loans	(305)	(207)
Proceeds from SBA loans originated for sale	4,927	2,345
SBA loans originated for sale	(2,505)	(2,356)
Provision (credit) for loan losses	401	(60)
Increase in cash surrender value of life insurance	(449)	(400)
Depreciation and amortization	169	186
Amortization of other intangible assets	392	189
Gain on sale of foreclosed assets, net		(124)
Stock option expense, net	245	224
Amortization of restricted stock award, net	186	(14)
Effect of changes in:
Accrued interest receivable and other assets	1,700	(1,074)
Accrued interest payable and other liabilities	(3,387)	(1,841)
Net cash provided by operating activities	7,967	1,299
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available-for-sale	(75,803)
Purchase of securities held-to-maturity	(78,680)
Maturities/paydowns/calls of securities available-for-sale	11,075	6,204
Maturities/paydowns/calls of securities held-to-maturity	2,665	720
Proceeds from sale of securities available-for-sale	5,598
Net change in loans	(33,675)	(11,877)
Change in Federal Home Loan Bank and Federal Reserve Bank stock and other investments	(8)	(20)
Purchase of premises and equipment	(21)	(75)
Proceeds from sale of foreclosed assets		322
Net cash used in investing activities	(168,849)	(4,726)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits	(34,039)	35,263
Exercise of stock options	358	106
Repayment of short-term borrowings	(3,000)
Payment of cash dividends	(3,394)	(2,569)
Net cash (used in) provided by financing activities	(40,075)	32,800
Net (decrease) increase in cash and cash equivalents	(200,957)	29,373
Cash and cash equivalents, beginning of period	344,092	122,403
Cash and cash equivalents, end of period	143,135	151,776
Supplemental disclosures of cash flow information:
Interest paid	741	487
Income taxes paid	1,375	1,000
Supplemental schedule of non-cash investing activity:
Transfer of loans held-for-sale to loan portfolio	2,791
Loans transferred to foreclosed assets	$ 49	$ 1,236

XML

Basis of Presentation

3 Months Ended

Mar. 31, 2016

Basis of Presentation

Basis of Presentation

1) Basis of Presentation

        The unaudited consolidated financial statements of Heritage Commerce Corp (the "Company" or "HCC") and its wholly owned subsidiary, Heritage Bank of Commerce ("HBC"), have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and notes required by accounting principles generally accepted in the United States of America ("GAAP") for annual financial statements are not included herein. The interim statements should be read in conjunction with the consolidated financial statements and notes that were included in the Company's Form 10-K for the year ended December 31, 2015.

        The Company acquired BVF/CSNK Acquisition Corp., a Delaware corporation ("BVF/CSNK") on November 1, 2014, the parent company of CSNK Working Capital Finance Corp. dba Bay View Funding ("Bay View Funding"). BVF/CSNK was subsequently merged into Bay View Funding and Bay View Funding became a wholly owned subsidiary of HBC. Bay View Funding's results of operations have been included in the Company's results of operations beginning November 1, 2014.

        The Company acquired Focus Business Bank ("Focus") on August 20, 2015. Focus was merged with HBC, with HBC as the surviving bank. Focus's results of operations have been included in the Company's results of operations beginning August 21, 2015.

        HBC is a commercial bank serving customers located in Santa Clara, Alameda, Contra Costa, and San Benito counties of California. Bay View Funding provides business-essential working capital factoring financing to various industries throughout the United States. No customer accounts for more than 10 percent of revenue for HBC or the Company. With the acquisition of Bay View Funding, the Company now has two reportable segments consisting of Banking and Factoring. The Company's management uses segment results in its operating and strategic planning.

        In management's opinion, all adjustments necessary for a fair presentation of these consolidated financial statements have been included and are of a normal and recurring nature. All intercompany transactions and balances have been eliminated.

        The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ significantly from these estimates.

        The results for the three months ended March 31, 2016 are not necessarily indicative of the results expected for any subsequent period or for the entire year ending December 31, 2016.

Reclassifications

        Certain reclassifications of prior year balances have been made to conform to the current year presentation. These reclassifications had no impact on the Company's consolidated financial position, results of operations or net change in cash and cash equivalents.

Adoption of New Accounting Standards

        In September 2015, the FASB issued ASU No. 2015-16,Simplifying the Accounting for Measurement Period Adjustment.This update applies to all entities that have reported provisional amounts for items in a business combination for which the accounting is incomplete by the end of the reporting period in which the combination occurs and during the measurement period have an adjustment to provisional amounts recognized. The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this update require that the acquirer's record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The Company has evaluated the adoption of the new guidance and has determined it did not have a material impact on the consolidated financial statements.

Newly Issued, but not yet Effective Accounting Standards

        In January 2016, the FASB issued ASU No. 2016-01,Financial Instruments—Recognition and Measurement of Financial Assets and Liabilities. The new guidance is intended to improve the recognition and measurement of financial instruments by requiring: equity investments (other than equity method or consolidation) to be measured at fair value with changes in fair value recognized in net income; public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; separate presentation of financial assets and financial liabilities by measurement category and form of financial assets (i.e. securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities; eliminating the requirement for non-public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is to be required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from the change in the instrument-specific credit risk (also referred to as "own credit") when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The new guidance is effective for public business entities for fiscal years beginning after December 15, 2017. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material impact.

        In February 2016, the FASB issued ASU No. 2016-02,Leases. The standard requires a lessee to recognize assets and liabilities on the balance sheet for leases with lease terms greater than 12 months. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option.Reasonably certainis a high threshold that is consistent with and intended to be applied in the same way as thereasonably assuredthreshold in the previous leases guidance. In addition, also consistent with the previous leases guidance, a lessee (and a lessor) should exclude most variable lease payments in measuring lease assets and lease liabilities, other than those that depend on an index or a rate or are in substance fixed payments. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. We are currently evaluating the impact of adopting the new guidance on our consolidated financial statements.

        In March 2016, the FASB issued ASU No. 2016-09,Compensation—Stock Compensation:Improvements to Employee Share-Based Payment Accounting. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) should be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. An entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. The threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions. Cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity. A nonpublic entity can make an accounting policy election to apply a practical expedient to estimate the expected term for all awards with performance or service conditions that meet certain conditions. A nonpublic entity can make a one-time accounting policy election to switch from measuring all liability-classified awards at fair value to intrinsic value. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. We are currently evaluating the impact of adopting the new guidance on our consolidated financial statements.

XML

Earnings Per Share

3 Months Ended

Mar. 31, 2016

Earnings Per Share

Earnings Per Share

2) Earnings Per Share

        Basic earnings per common share is computed by dividing net income, less dividends and discount accretion on preferred stock, by the weighted average common shares outstanding. The Series C Preferred Stock participates in the earnings of the Company and, therefore, the shares issued on the conversion of the Series C Preferred Stock are considered outstanding under the two class method of computing basic earnings per common share during periods of earnings. Diluted earnings per share reflect potential dilution from outstanding stock options using the treasury stock method. A reconciliation of these factors used in computing basic and diluted earnings per common share is as follows:

	For the Three Months Ended March 31,
	2016			2015
	(Dollars in thousands, except per share amounts)
Net income available to common shareholders	$	5,602		$	3,690
Less: undistributed earnings allocated to Series C Preferred Stock		(403	)		(274	)
Distributed and undistributed earnings allocated to common shareholders	$	5,199		$	3,416
Weighted average common shares outstanding for basic earnings per common share		32,125,716			26,509,723
Dilutive effect of stock options oustanding, using the the treasury stock method		251,777			170,530
Shares used in computing diluted earnings per common share		32,377,493			26,680,253
Basic earnings per share	$	0.16		$	0.13
Diluted earnings per share	$	0.16		$	0.13

XML

Accumulated Other Comprehensive Income (Loss) (''AOCI'')

3 Months Ended

Mar. 31, 2016

Accumulated Other Comprehensive Income (Loss) ("AOCI")

Accumulated Other Comprehensive Income (Loss) ("AOCI")

3) Accumulated Other Comprehensive Income (Loss) ("AOCI")

        The following table reflects the changes in AOCI by component for the periods indicated:

	For the Three Months Ended March 31, 2016 and 2015
	Unrealized Gains on Available- for-Sale Securities and I/O Strips(1)			Unamortized Unrealized Gain on Available- for-Sale Securities Reclassified to Held-to- Maturity(1)			Defined Benefit Pension Plan Items(1)			Total(1)
	(Dollars in thousands)
Beginning balance January 1, 2016, net of taxes	$	1,090		$	403		$	(7,713	)	$	(6,220	)
Other comprehensive income before reclassification, net of taxes		2,807			—			—			2,807
Amounts reclassified from other comprehensive income (loss), net of taxes		(105	)		(8	)		28			(85	)
Net current period other comprensive income, net of taxes		2,702			(8	)		28			2,722
Ending balance March 31, 2016, net of taxes	$	3,792		$	395		$	(7,685	)	$	(3,498	)
Beginning balance January 1, 2015, net of taxes	$	3,666		$	435		$	(5,952	)	$	(1,851	)
Other comprehensive income (loss) before reclassification, net of taxes		514			—			(21	)		493
Amounts reclassified from other comprehensive income (loss), net of taxes		—			(8	)		49			41
Net current period other comprehensive income (loss), net of taxes		514			(8	)		28			534
Ending balance March 31, 2015, net of taxes	$	4,180		$	427		$	(5,924	)	$	(1,317	)

	Amounts Reclassified from AOCI(1) For the Three Months Ended March 31,
							Affected Line Item Where Net Income is Presented
Details About AOCI Components	2016			2015
	(Dollars in thousands)
Unrealized gains on available-for-sale securities and I/O strips	$	180		$	—		Realized gains on sale of securities
		(75	)		—		Income tax expense
		105			—		Net of tax
Amortization of unrealized gain on securities available-for-sale that were reclassified to securities held-to-maturity		14			14		Interest income on taxable securities
		(6	)		(6	)	Income tax expense
		8			8		Net of tax
Amortization of defined benefit pension plan items
Prior transition obligation		13			12
Actuarial losses		(60	)		(96	)
		(47	)		(84	)	Salaries and employee benefits
		19			35		Income tax expense
		(28	)		(49	)	Net of tax
Total reclassification for the period	$	85		$	(41	)

(1)           This AOCI component is included in the computation of net periodic benefit cost (see Note 9—Benefit Plans) and includes split-dollar life insurance benefit plan.

XML

Securities

3 Months Ended

Mar. 31, 2016

Securities

Securities

4) Securities

        The amortized cost and estimated fair value of securities at March 31, 2016 and December 31, 2015 were as follows:

March 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in thousands)
Securities available-for-sale:
Agency mortgage-backed securities	$	388,282	$	4,543	$	(72	)	$	392,753
U.S. Treasury		30,054		278		—			30,332
Trust preferred securities		15,000		225		—			15,225
U.S. Government sponsored entities		9,041		140		—			9,181
Corporate bonds		1,005		44					1,049
Total	$	443,382	$	5,230	$	(72	)	$	448,540
Securities held-to-maturity:
Municipals—tax exempt	$	92,589	$	2,091	$	(458	)	$	94,222
Agency mortgage-backed securities		92,576		296		(47	)		92,825
Total	$	185,165	$	2,387	$	(505	)	$	187,047

December 31, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in thousands)
Securities available-for-sale:
Agency mortgage-backed securities	$	324,077	$	2,457	$	(2,304	)	$	324,230
U.S. Treasury		30,047		—		(44	)		30,003
Trust preferred securities		15,000		132		—			15,132
U.S. Government sponsored entities		9,042		13		(14	)		9,041
Corporate bonds		6,412		261		—			6,673
Total	$	384,578	$	2,863	$	(2,362	)	$	385,079
Securities held-to-maturity:
Municipals—tax exempt	$	93,518	$	1,517	$	(863	)	$	94,172
Agency mortgage-backed securities		15,793		24		(168	)		15,649
Total	$	109,311	$	1,541	$	(1,031	)	$	109,821

        Securities with unrealized losses at March 31, 2016 and December 31, 2015, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:

	Less Than 12 Months					12 Months or More					Total
March 31, 2016	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
Securities available-for-sale:
Agency mortgage-backed securities	$	57,940	$	(58	)	$	4,182	$	(14	)	$	62,122	$	(72	)
Total	$	57,940	$	(58	)	$	4,182	$	(14	)	$	62,122	$	(72	)
Securities held-to-maturity:
Municipals—Tax Exempt	$	2,051	$	(24	)	$	18,643	$	(434	)	$	20,694	$	(458	)
Agency mortgage-backed securities		7,297		(14	)		3,705		(33	)		11,002		(47	)
Total	$	9,348	$	(38	)	$	22,348	$	(467	)	$	31,696	$	(505	)

	Less Than 12 Months					12 Months or More					Total
December 31, 2015	Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)
	(Dollars in thousands)
Securities available-for-sale:
Agency mortgage-backed securities	$	241,067	$	(2,258	)	$	2,165	$	(46	)	$	243,232	$	(2,304	)
U.S. Treasury		30,003		(44	)		—		—			30,003		(44	)
U.S. Government sponsored entities		4,980		(14	)		—		—			4,980		(14	)
Total	$	276,050	$	(2,316	)	$	2,165	$	(46	)	$	278,215	$	(2,362	)
Securities held-to-maturity:
Municipals—Tax Exempt	$	9,920	$	(78	)	$	24,412	$	(785	)	$	34,332	$	(863	)
Agency mortgage-backed securities		7,152		(89	)		4,409		(79	)		11,561		(168	)
Total	$	17,072	$	(167	)	$	28,821	$	(864	)	$	45,893	$	(1,031	)

        There were no holdings of securities of any one issuer, other than the U.S. Government and its sponsored entities, in an amount greater than 10% of shareholders' equity. At March 31, 2016, the Company held 475 securities (199 available-for-sale and 276 held-to-maturity), of which 72 had fair values below amortized cost. At March 31, 2016, there were $4,182,000 of agency mortgage-backed securities available-for-sale, $18,643,000 of municipal bonds held-to-maturity, and $3,705,000 of agency mortgage-backed securities held-to-maturity carried with an unrealized loss for 12 months or more. The total unrealized loss for securities 12 months or more was $481,000 at March 31, 2016. The unrealized losses were due to higher interest rates. The issuers are of high credit quality and all principal amounts are expected to be paid when securities mature. The fair value is expected to recover as the securities approach their maturity date and/or market rates decline. The Company does not believe that it is more likely than not that the Company will be required to sell a security in an unrealized loss position prior to recovery in value. The Company does not consider these securities to be other than temporarily impaired at March 31, 2016.

        At December 31, 2015, the Company held 460 securities (193 available-for-sale and 267 held-to-maturity), of which 193 had fair values below amortized cost. At December 31, 2015, there were $2,165,000 of agency mortgage-backed securities available-for-sale, $4,409,000 of agency mortgage-backed securities held-to-maturity and $24,412,000 of municipals bonds held-to-maturity carried with an unrealized loss for 12 months or greater. The total unrealized loss for securities 12 months or greater was $910,000 at December 31, 2015. The unrealized losses were due to higher interest rates. The issuers are of high credit quality and all principal amounts are expected to be paid when securities mature. The fair value is expected to recover as the securities approach their maturity date and/or market rates decline. The Company does not believe that it is more likely than not that the Company will be required to sell a security in an unrealized loss position prior to recovery in value. The Company does not consider these securities to be other-than-temporarily impaired at December 31, 2015.

        The proceeds from sales of securities and the resulting gains and losses were as follows for the periods indicated:

	Three Months Ended March 31,
	2016		2015
	(Dollars in thousands)
Proceeds	$	5,598	$	—
Gross gains		180		—
Gross losses		—		—

        The amortized cost and estimated fair values of securities as of March 31, 2016, are shown by contractual maturity below. The expected maturities will differ from contractual maturities if borrowers have the right to call or pre-pay obligations with or without call or pre-payment penalties. Securities not due at a single maturity date are shown separately.

	Available-for-sale
	Amortized Cost		Estimated Fair Value
	(Dollars in thousands)
Due after 3 months through one year	$	6,290	$	6,297
Due after one through five years		33,810		34,265
Due after ten years		15,000		15,225
Agency mortgage-backed securities		388,282		392,753
Total	$	443,382	$	448,540

	Held-to-maturity
	Amortized Cost		Estimated Fair Value
	(Dollars in thousands)
Due less than 3 months	$	612	$	614
Due after 3 months through one year		1,039		1,045
Due after one through five years		5,239		5,319
Due after five through ten years		14,726		15,533
Due after ten years		70,973		71,711
Agency mortgage-backed securities		92,576		92,825
Total	$	185,165	$	187,047

XML

Loans

3 Months Ended

Mar. 31, 2016

Loans

Loans

5) Loans

        Loans were as follows for the periods indicated:

	March 31, 2016			December 31, 2015
	(Dollars in thousands)
Loans held-for-investment:
Commercial	$	592,128		$	556,522
Real estate:
Commercial and residential		616,821			625,665
Land and construction		95,547			84,428
Home equity		74,993			76,833
Consumer		16,476			16,010
Loans		1,395,965			1,359,458
Deferred loan origination fees, net		(701	)		(742	)
Loans, net of deferred fees		1,395,264			1,358,716
Allowance for loan losses		(19,458	)		(18,926	)
Loans, net	$	1,375,806		$	1,339,790

        At March 31, 2016 and December 31, 2015, total net loans included in the table above include $130,860,000, and $141,343,000, respectively, of the loans acquired in the Focus transaction that were not purchased credit impaired loans.

        Changes in the allowance for loan losses were as follows for the periods indicated:

	Three Months Ended March 31, 2016
	Commercial			Real Estate			Consumer		Total
	(Dollars in thousands)
Balance, beginning of period	$	10,748		$	8,076		$	102	$	18,926
Charge-offs		(117	)		—			—		(117	)
Recoveries		32			216			—		248
Net (charge-offs) recoveries		(85	)		216			—		131
Provision (credit) for loan losses		616			(224	)		9		401
Balance, end of period	$	11,279		$	8,068		$	111	$	19,458

	Three Months Ended March 31, 2015
	Commercial			Real Estate			Consumer		Total
	(Dollars in thousands)
Balance, beginning of period	$	11,187		$	7,070		$	122	$	18,379
Charge-offs		(212	)		(2	)		—		(214	)
Recoveries		436			13			—		449
Net recoveries		224			11			—		235
Provision (credit) for loan losses		(555	)		473			22		(60	)
Balance, end of period	$	10,856		$	7,554		$	144	$	18,554

        The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment, based on the impairment method at the following period-ends:

	March 31, 2016
	Commercial		Real Estate		Consumer		Total
	(Dollars in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2	$	111	$	—	$	113
Collectively evaluated for impairment		11,277		7,957		111		19,345
Acquired with deterioriated credit quality		—		—		—		—
Total allowance balance	$	11,279	$	8,068	$	111	$	19,458
Loans:
Individually evaluated for impairment	$	190	$	3,891	$	3	$	4,084
Collectively evaluated for impairment		591,693		783,470		16,473		1,391,636
Acquired with deterioriated credit quality		245		—		—		245
Total loan balance	$	592,128	$	787,361	$	16,476	$	1,395,965

	December 31, 2015
	Commercial		Real Estate		Consumer		Total
	(Dollars in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	174	$	112	$	—	$	286
Collectively evaluated for impairment		10,574		7,964		102		18,640
Acquired with deterioriated credit quality		—		—		—		—
Total allowance balance	$	10,748	$	8,076	$	102	$	18,926
Loans:
Individually evaluated for impairment	$	2,014	$	4,272	$	4	$	6,290
Collectively evaluated for impairment		554,271		782,654		16,006		1,352,931
Acquired with deterioriated credit quality		237		—		—		237
Total loan balance	$	556,522	$	786,926	$	16,010	$	1,359,458

Purchased Credit Impaired Loans:

        The Company has purchased loans, for which there was, at acquisition, evidence of impaired credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of these loans is as follows:

	March 31, 2016		December 31, 2015
	(Dollars in thousands)
Commercial	$	820	$	876
Outstanding balance	$	820	$	876
Carrying amount, net of discount of $575,000 and $639,000 at March 31, 2016 and December 31, 2015, respectively	$	245	$	237

        The Company did not increase the allowance for loan losses for the purchased credit impaired loans listed above during the first three months of 2016 or during 2015. No allowance for loan losses were reversed during the first three months of 2016 or during 2015.

        For these purchased credit impaired loans, the Company cannot reasonably estimate the cash flows expected to be collected on the loans and therefore has continued to account for those loans using the cost recovery method of income recognition. As such, no portion of a purchase discount adjustment has been determined to meet the definition of an accretable yield adjustment on those loans accounted for using the cost recovery method. If, in the future, cash flows from the borrowers can be reasonably estimated, a portion of the purchase discount would be allocated to an accretable yield adjustment based upon the present value of the future estimated cash flows versus the current carrying value of the loan and the accretable yield portion would be recognized as interest income over the remaining life of the loan. Until such accretable yield can be calculated, under the cost recovery method of income recognition, all payments will be used to reduce the carrying value of the loan and no income will be recognized on the loan until the carrying value is reduced to zero. Any loan accounted for under the cost recovery method is also still included as a nonaccrual loan.

        The following table presents loans held-for-investment individually evaluated for impairment by class of loans as of March 31, 2016 and December 31, 2015. The recorded investment included in the following table represents loan principal net of any partial charge-offs recognized on the loans. The unpaid principal balance represents the recorded balance prior to any partial charge-offs. The recorded investment in consumer loans collateralized by residential real estate property that are in process of foreclosure according to local requirements of the applicable jurisdiction are not material as of March 31, 2016 and December 31, 2015.

	March 31, 2016						December 31, 2015
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(Dollars in thousands)
With no related allowance recorded:
Commercial	$	290	$	290	$	—	$	745	$	745	$	—
Real estate:
Commercial and residential		3,769		2,910		—		3,851		2,992		—
Land and construction		231		213		—		237		219		—
Home Equity		296		296		—		302		302		—
Consumer		3		3		—		4		4		—
Total with no related allowance recorded		4,589		3,712		—		5,139		4,262		—
With an allowance recorded:
Commercial		145		145		2		1,506		1,506		174
Real estate:
Home Equity		472		472		111		759		759		112
Total with an allowance recorded		617		617		113		2,265		2,265		286
Total	$	5,206	$	4,329	$	113	$	7,404	$	6,527	$	286

        The following tables present interest recognized and cash-basis interest earned on impaired loans for the periods indicated:

	Three Months Ended March 31, 2016
			Real Estate
	Commercial		Commercial and Residential		Land and Construction		Home Equity		Consumer		Total
	(Dollars in thousands)
Average of impaired loans during the period	$	1,343	$	2,951	$	216	$	914	$	4	$	5,428
Interest income during impairment	$	—	$	—	$	—	$	—	$	—	$	—
Cash-basis interest earned	$	—	$	—	$	—	$	—	$	—	$	—

	Three Months Ended March 31, 2015
			Real Estate
	Commercial		Commercial and Residential		Land and Construction		Home Equity		Consumer		Total
	(Dollars in thousands)
Average of impaired loans during the period	$	1,907	$	2,901	$	1,305	$	341	$	5	$	6,459
Interest income during impairment	$	—	$	—	$	—	$	—	$	—	$	—
Cash-basis interest earned	$	—	$	—	$	—	$	—	$	—	$	—

        Nonperforming loans include both smaller dollar balance homogenous loans that are collectively evaluated for impairment and individually classified loans. Nonperforming loans were as follows at period-end:

	March 31,
					December 31, 2015
	2016		2015
	(Dollars in thousands)
Nonaccrual loans—held-for-investment	$	4,184	$	6,733	$	4,716
Restructured and loans over 90 days past due and still accruing		—		—		1,662
Total nonperforming loans		4,184		6,733		6,378
Other restructured loans		145		163		149
Impaired loans, excluding loans held-for-sale	$	4,329	$	6,896	$	6,527

        The following table presents the nonperforming loans by class for the periods indicated:

	March 31, 2016						December 31, 2015
	Nonaccrual		Restructured and Loans Over 90 Days Past Due and Still Accruing		Total		Nonaccrual		Restructured and Loans Over 90 Days Past Due and Still Accruing		Total
	(Dollars in thousands)
Commercial	$	290	$	—	$	290	$	724	$	1,378	$	2,102
Real estate:
Commercial and residential		2,910		—		2,910		2,992		—		2,992
Land and construction		213		—		213		219		—		219
Home equity		768		—		768		777		284		1,061
Consumer		3		—		3		4		—		4
Total	$	4,184	$	—	$	4,184	$	4,716	$	1,662	$	6,378

        The following tables present the aging of past due loans by class for the periods indicated:

	March 31, 2016
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans Not Past Due		Total
	(Dollars in thousands)
Commercial	$	2,906	$	796	$	—	$	3,702	$	588,426	$	592,128
Real estate:
Commercial and residential		—		889		—		889		615,932		616,821
Land and construction		—		—		213		213		95,334		95,547
Home equity		1		295		—		296		74,697		74,993
Consumer		—		—		—		—		16,476		16,476
Total	$	2,907	$	1,980	$	213	$	5,100	$	1,390,865	$	1,395,965

	December 31, 2015
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans Not Past Due		Total
	(Dollars in thousands)
Commercial	$	3,285	$	262	$	1,704	$	5,251	$	551,271	$	556,522
Real estate:
Commercial and residential		—		—		—		—		625,665		625,665
Land and construction		219		—		—		219		84,209		84,428
Home equity		—		—		284		284		76,549		76,833
Consumer		—		—		—		—		16,010		16,010
Total	$	3,504	$	262	$	1,988	$	5,754	$	1,353,704	$	1,359,458

        Past due loans 30 days or greater totaled $5,100,000 and $5,754,000 at March 31, 2016 and December 31, 2015, respectively, of which $509,000 and $591,000 were on nonaccrual. At March 31, 2016, there were also $3,675,000 loans less than 30 days past due included in nonaccrual loans held for investment. At December 31, 2015, there were also $4,125,000 loans less than 30 days past due included in nonaccrual loans held for investment. Management's classification of a loan as "nonaccrual" is an indication that there is reasonable doubt as to the full recovery of principal or interest on the loan. At that point, the Company stops accruing interest income, and reverses any uncollected interest that had been accrued as income. The Company begins recognizing interest income only as cash interest payments are received and it has been determined the collection of all outstanding principal is not in doubt. The loans may or may not be collateralized, and collection efforts are pursued.

Credit Quality Indicators

        Concentrations of credit risk arise when a number of customers are engaged in similar business activities, or activities in the same geographic region, or have similar features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. The Company's loan portfolio is concentrated in commercial (primarily manufacturing, wholesale, and service) and real estate lending, with the balance in consumer loans. While no specific industry concentration is considered significant, the Company's lending operations are located in the Company's market areas that are dependent on the technology and real estate industries and their supporting companies. Thus, the Company's borrowers could be adversely impacted by a downturn in these sectors of the economy which could reduce the demand for loans and adversely impact the borrowers' ability to repay their loans.

        The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis. Nonclassified loans generally include those loans that are expected to be repaid in accordance with contractual loans terms. Classified loans are those loans that are assigned a substandard, substandard-nonaccrual, or doubtful risk rating using the following definitions:

        Substandard.    Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

        Substandard-Nonaccrual.    Loans classified as substandard-nonaccrual are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any, and it is probable that the Company will not receive payment of the full contractual principal and interest. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. In addition, the Company no longer accrues interest on the loan because of the underlying weaknesses.

        Doubtful.    Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

        Loss.    Loans classified as loss are considered uncollectable or of so little value that their continuance as assets is not warranted. This classification does not necessarily mean that a loan has no recovery or salvage value; but rather, there is much doubt about whether, how much, or when the recovery would occur. Loans classified as loss are immediately charged off against the allowance for loan losses. Therefore, there is no balance to report at March 31, 2016 and December 31, 2015.

        The following table provides a summary of the loan portfolio by loan type and credit quality classification at period end:

	March 31, 2016						December 31, 2015
	Nonclassified		Classified*		Total		Nonclassified		Classified*		Total
	(Dollars in thousands)
Commercial	$	580,826	$	11,302	$	592,128	$	547,536	$	8,986	$	556,522
Real estate:
Commercial and residential		608,771		8,050		616,821		617,865		7,800		625,665
Land and construction		95,334		213		95,547		84,209		219		84,428
Home equity		73,889		1,104		74,993		75,511		1,322		76,833
Consumer		16,183		293		16,476		15,705		305		16,010
Total	$	1,375,003	$	20,962	$	1,395,965	$	1,340,826	$	18,632	$	1,359,458

*           Classified loans in the table above include Small Business Administration ("SBA") guarantees.

        In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed in accordance with the Company's underwriting policy.

        The book balance of troubled debt restructurings at March 31, 2016 was $148,000, which included $3,000 of nonaccrual loans and $145,000 of accruing loans. The book balance of troubled debt restructurings at December 31, 2015 was $153,000, which included $4,000 of nonaccrual loans and $149,000 of accruing loans. Approximately $2,000 and $3,000 in specific reserves were established with respect to these loans as of March 31, 2016 and December 31, 2015, respectively. As of March 31, 2016 and December 31, 2015, the Company had no additional amounts committed on any loan classified as a troubled debt restructuring.

        There were no new loans modified as troubled debt restructurings during the three month periods ended March 31, 2016 and 2015.

        A loan is considered to be in payment default when it is 30 days contractually past due under the modified terms. There were no defaults on troubled debt restructurings, within twelve months following the modification, during the three month periods ended March 31, 2016 and 2015.

        A loan that is a troubled debt restructuring on nonaccrual status may return to accruing status after a period of at least six months of consecutive payments in accordance with the modified terms.

XML

Business Combinations

3 Months Ended

Mar. 31, 2016

Business Combinations

Business Combinations

6) Business Combinations

Bay View Funding

        On November 1, 2014, HBC acquired all of the outstanding common stock from the stockholders of BVF/CSNK Acquisition Corp., a Delaware corporation for an aggregate purchase price of $22,520,000. CSNK Working Capital Finance Corp. dba Bay View Funding ("Bay View Funding") its wholly-owned subsidiary provides business essential working capital factoring financing to various industries throughout the United States. BVF/CSNK was subsequently merged into Bay View Funding and Bay View Funding became a wholly owned subsidiary of HBC. Bay View Funding's results of operations have been included in the Company's results beginning November 1, 2014.

        The fair values of assets acquired and liabilities assumed are subject to adjustment during the first twelve months after the acquisition date if additional information becomes available to indicate more accurate or appropriate values for the assets acquired and liabilities assumed, which may be reflective of conditions or events that existed at the acquisition date. As of December 31, 2015, adjustments to the fair value of assets acquired and liabilities assumed in the Bay View Funding transaction were complete.

Focus Business Bank

        On April 23, 2015, the Company and Focus entered into a definitive agreement and plan of merger and reorganization whereby Focus would merge into HBC. The Company completed the merger of its wholly-owned bank subsidiary HBC with Focus on August 20, 2015 for an aggregate transaction value of $66,558,000. Shareholders of Focus received a fixed exchange ratio at closing of 1.8235 shares of the Company's common stock for each share of Focus common stock. Upon closing of the transaction, the Company issued 5,456,713 shares of the Company's common stock to Focus shareholders for a total value of $58,278,000, based on the Company's closing stock price of $10.68 on August 20, 2015. In addition, the Company paid cash to the Focus holders of in-the-money stock options on August 20, 2015 totaling $8,280,000.

        Focus's results of operations have been included in the Company's results of operations beginning August 21, 2015. Pre-tax severance, retention, acquisition and integration costs totaled $119,000 for the first three months of 2015, and $6,398,000 for the year ended December 31, 2015.

        The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.

	(Dollars in thousands)
Assets acquired:
Cash and cash item	$	5,651
Federal funds sold and deposits in other financial institutions		168,415
Securities available-for-sale		53,940
Securities held-to-maturity		8,665
Loans held-for-sale		4,416
Net loans		170,353
Goodwill		32,620
Core deposit intangible asset		6,285
Corporate owned life insurance		7,067
Other assets, net		20,250
Total assets acquired		477,662
Liabilities asssumed:
Deposits		405,123
Other liabilities		5,981
Total liabilities		411,104
Net assets acquired	$	66,558

        The fair value of net assets acquired includes fair value adjustments to certain receivables of which some were considered impaired and some were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows, adjusted for expected losses and prepayments, where appropriate. The gross contractual amount of four purchased credit impaired loans as of the acquisition date totaled $1,124,000. As of that date, contractual cash flows not expected to be collected on the purchased credit impaired loans totaled $819,000, which represents 72.9% of their gross outstanding principal balances. The receivables that were not considered impaired at the acquisition date were not subject to the guidance relating to purchased credit impaired loans, which have shown evidence of credit deterioration since origination. Receivables acquired that were not subject to these requirements include nonimpaired loans with a fair value and gross contractual amounts receivable of $170,048,000 and $174,660,000 respectively, on the date of acquisition. As of the acquisition date, the purchase discount on these nonimpaired loans totaled $4,612,000, which represents 2.6% of their gross outstanding principal balances.

        Goodwill of $32,620,000 arising from the acquisition is largely attributable to synergies and cost savings resulting from combining the operations of the companies. As this transaction was structured as a taxfree exchange, the goodwill will not be deductible for tax purposes. The fair values of assets acquired and liabilities assumed are subject to adjustment during the first twelve months after the acquisition date if additional information becomes available to indicate a more accurate or appropriate value for an asset or liability. The loans with a fair value of $170,353,000 and $1,758,000 of income tax attributes, on the acquisition date, related to the purchase accounting adjustments and Focus' legacy deferred tax assets are subject to change pending receipt of the final valuations and analyses. Loan valuations may be adjusted based on new information obtained by the Company in future periods that may reflect conditions or events that existed on the acquisition date. Deferred tax assets may be adjusted for purchase accounting adjustments on open areas such as loans or upon filing Focus' final August 20, 2015 "stub" period tax returns.

        The following table summarizes the consideration paid for Focus:

	August 20, 2015
	(Dollars in thousands)
Cash paid for Focus in-the-money stock options	$	8,280
Common stock issued to Focus shareholders at $10.68 per share		58,278
Total consideration	$	66,558

        The following table presents pro forma financial information as if the acquisition had occurred on January 1, 2015, which includes the pre-acquisition period for Focus. The historical unaudited pro forma financial information has been adjusted to reflect supportable items that are directly attributable to the acquisition and expected to have a continuing impact on consolidated results of operations, as such, one-time acquisition costs are not included. The unaudited pro forma financial information is provided for informational purposes only. The unaudited pro forma financial information is not necessarily, and should not be assumed to be, an indication of the results that would have been achieved had the acquisition been completed as of the dates indicated or that may be achieved in the future. The preparation of the unaudited pro forma combined consolidated financial statements and related adjustments required management to make certain assumptions and estimates.

UNAUDITED	For the Three Months Ended March 31, 2015
	(Dollars in thousands, except per share amounts)
Net interest income	$	20,092
Provision for loan losses		(10	)
Noninterest income		3,102
Noninterest expense		15,418
Income before income taxes		7,786
Income tax expense		2,923
Net income	$	4,863
Net income per share—basic	$	0.13
Net income per share—diluted	$	0.13

XML

Goodwill and Other Intangible Assets

3 Months Ended

Mar. 31, 2016

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

(7) Goodwill and Other Intangible Assets

Goodwill

        At March 31, 2016, the carrying value of goodwill was $45,664,000, which included $13,044,000 of goodwill related to its acquisition of Bay View Funding and $32,620,000 from its acquisition of Focus. During the fourth quarter of 2015, adjustments were made to the purchase price allocations for the Focus transaction that affected the amounts allocated to goodwill and other assets.

        Goodwill impairment exists when a reporting unit's carrying value exceeds its fair value, which is determined through a qualitative assessment whether it is more likely than not that the fair value of equity of the reporting unit exceeds the carrying value ("Step Zero"). If the qualitative assessment indicates it is more likely than not that the fair value of equity of a reporting unit is less than book value, than a quantitative two-step impairment test is required. Step 1 includes the determination of the carrying value of the Company's single reporting unit, including the existing goodwill and intangible assets, and estimating the fair value of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, the Company is required to perform a second step to the impairment test. Step 2 requires that the implied fair value of the reporting unit goodwill be compared to the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess.

        The Company completed its annual impairment analysis on the goodwill as of November 30, 2015 with the assistance of an independent valuation firm. Based on the Step Zero qualitative analysis performed, the Company determined that it is more likely than not that the fair value of the reporting unit exceeded its reported book value of equity at November 30, 2015. As such, no impairment was indicated and no further testing was required.

Other Intangible Assets

        Core deposit and customer relationship intangible assets acquired in the 2007 acquisition of Diablo Valley Bank were $5,049,000 and $276,000, respectively. These assets are amortized over their estimated useful lives of 10 years. The customer relationship intangible asset was fully amortized at December 31, 2014. Accumulated amortization of these intangible assets was $4,810,000 and $4,703,000 at March 31, 2016 and December 31, 2015, respectively.

        The core deposit intangible asset acquired in the acquisition of Focus in August 2015 was $6,285,000. This asset is amortized over its estimated useful lives of 10 years. Accumulated amortization of this intangible asset was $496,000 and $288,000 at March 31, 2016 and December 31, 2015, respectively.

        Other intangible assets acquired in the acquisition of Bay View Funding in November 2014 included: a below market value lease intangible asset of $109,000 (amortized over 3 years), customer relationship and brokered relationship intangible assets of $1,900,000, (amortized over the 10 year estimated useful lives), and a non compete agreement intangible asset of $250,000 (amortized over 3 years). Accumulated amortization of these intangible assets was $437,000 and $360,000 at March 31, 2016 and December 31, 2015, respectfully.

        Estimated amortization expense for 2016 and each of the next five years following 2016:

					Bay View Funding
Year	Diablo Valley Bank Core Deposit Intangible		Focus Core Deposit Intangible		Below Market Value Lease Intangible		Customer & Brokered Relationship Intangible		Non-Compete Agreement Intangible		Total Amortization Expense
	(Dollars in thousands)
2016	$	427	$	831	$	36	$	190	$	83	$	1,567
2017		195		875		31		190		70		1,361
2018		—		775		—		190		—		965
2019		—		734		—		190		—		924
2020		—		716		—		190		—		906
2021		—		596		—		190		—		786
	$	622	$	4,527	$	67	$	1,140	$	153	$	6,509

        Impairment testing of the intangible assets is performed at the individual asset level. Impairment exists if the carrying amount of the asset is not recoverable and exceeds its fair value at the date of the impairment test. For intangible assets, estimates of expected future cash flows (cash inflows less cash outflows) that are directly associated with an intangible asset are used to determine the fair value of that asset. Management makes certain estimates and assumptions in determining the expected future cash flows from core deposit and customer relationship intangibles including account attrition, expected lives, discount rates, interest rates, servicing costs and other factors. Significant changes in these estimates and assumptions could adversely impact the valuation of these intangible assets. If an impairment loss exists, the carrying amount of the intangible asset is adjusted to a new cost basis. The new cost basis is then amortized over the remaining useful life of the asset. Based on its assessment, management concluded that there was no impairment of intangible assets at March 31, 2016 and December 31, 2015.

XML

Income Taxes

3 Months Ended

Mar. 31, 2016

Income Taxes

Income Taxes

8) Income Taxes

        Some items of income and expense are recognized in different years for tax purposes than when applying generally accepted accounting principles, leading to timing differences between the Company's actual current tax liability and the amount accrued for this liability based on book income. These temporary differences comprise the "deferred" portion of the Company's tax expense or benefit, which is accumulated on the Company's books as a deferred tax asset or deferred tax liability until such time as they reverse.

        Under generally accepted accounting principles, a valuation allowance is required if it is "more likely than not" that a deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning management's evaluation of both positive and negative evidence, including forecasts of future income, cumulative losses, applicable tax planning strategies, and assessments of current and future economic and business conditions. In accordance with Accounting Standards Codification (ASC) 740-10 Accounting for Uncertainty in Income Taxes, the Company estimated the need for a reserve for income taxes of $270,000, net of Federal benefit, for uncertain state income tax positions of Bay View Funding as of March 31, 2016. The Company does not expect this amount to significantly increase or decrease in the next twelve months.

        The Company had net deferred tax assets of $18,690,000, and $22,218,000, at March 31, 2016, and December 31, 2015, respectively. After consideration of the matters in the preceding paragraph, the Company determined that it is more likely than not that the net deferred tax asset at March 31, 2016 and December 31, 2015 will be fully realized in future years.

        The Company adopted the proportional amortization method of accounting for its low income housing investments in the third quarter of 2014. The low income housing investment losses, net of the tax benefits received, are included in income tax expense for all periods reflected on the consolidated income statements.

        The following table reflects the carry amounts of the low income housing investments included in accrued interest receivable and other assets, and the future commitments as of March 31, 2016 and December 31, 2015:

	March 31, 2016		December 31, 2015
	(Dollars in thousands)
Low income housing investments	$	4,235	$	4,304
Future commitments	$	845	$	1,271

        The Company expects $123,000 of the future commitments to be paid in 2016, $14,000 in 2017, and $708,000 in 2018 through 2023.

        For tax purposes, the Company had low income housing tax credits of $111,000 and $172,000 for the three months ended March 31, 2016 and March 31, 2015, respectively, and low income housing investment losses of $117,000 and $229,000, respectively. The Company recognized low income housing investment expense as a component of income tax expense.

XML

Benefit Plans

3 Months Ended

Mar. 31, 2016

Benefit Plans

Benefit Plans

9) Benefit Plans

Supplemental Retirement Plan

        The Company has a supplemental retirement plan (the "Plan") covering some current and some former key employees and directors. The Plan is a nonqualified defined benefit plan. Benefits are unsecured as there are no Plan assets. The following table presents the amount of periodic cost recognized for the periods indicated:

	Three Months Ended March 31,
	2016		2015
	(Dollars in thousands)
Components of net periodic benefit cost:
Service cost	$	133	$	216
Interest cost		259		221
Amortization of net actuarial loss		60		96
Net periodic benefit cost	$	452	$	533

Split-Dollar Life Insurance Benefit Plan

        The Company maintains life insurance policies for some current and some former directors and officers that are subject to split-dollar life insurance agreements. The following table sets forth the funded status of the split-dollar life insurance benefits for the periods indicated:

	March 31, 2016		December 31, 2015
	(Dollars in thousands)
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	6,215	$	4,641
Interest cost		62		169
Amortization of net actuarial loss		—		1,405
Projected benefit obligation at end of period	$	6,277	$	6,215

	March 31, 2016		December 31, 2015
	(Dollars in thousands)
Net actuarial loss	$	2,183	$	2,147
Prior transition obligation		1,395		1,418
Accumulated other comprehensive loss	$	3,578	$	3,565

	For the Three Months Ended March 31,
	2016			2015
	(Dollars in thousands)
Amortization of prior transition obligation	$	(13	)	$	(12	)
Interest cost		62			50
Net periodic benefit cost	$	49		$	38

XML

Equity

3 Months Ended

Mar. 31, 2016

Equity

Equity

10) Equity

Series C Preferred Stock

        On June 21, 2010, the Company issued to various institutional investors 21,004 shares of Series C Convertible Perpetual Preferred Stock ("Series C Preferred Stock"). The Series C Preferred Stock is mandatorily convertible into common stock at a conversion price of $3.75 per share upon a subsequent transfer of the Series C Preferred Stock to third parties not affiliated with the holder in a widely dispersed offering. The 21,004 shares of Series C Preferred Stock are convertible into 5,601,000 shares of common stock. The Series C Preferred Stock is non-voting except in the case of certain transactions that would affect the rights of the holders of the Series C Preferred Stock or applicable law. The holders of Series C Preferred Stock receive dividends on an as converted basis when dividends are also declared for holders of common stock. The Series C Preferred Stock is not redeemable by the Company or by the holders and has a liquidation preference of $1,000 per share. The Series C Preferred Stock ranks senior to the Company's common stock.

        The holders of the Series C Preferred Stock have applied or intend to apply to the Federal Reserve for approval to exchange the 21,004 shares of Series C Preferred Stock for 5,601,000 common stock (the as converted equivalent). The Company has indicated to the holders that if such approval is obtained the Company would agree to enter into an exchange agreement to effect the exchange. One of the holders has obtained approval from the Federal Reserve. There is no assurance the other holder will obtain approval from the Federal Reserve.

XML

Fair Value

3 Months Ended

Mar. 31, 2016

Fair Value

Fair Value

11) Fair Value

        Accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

        Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

        Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data (for example, interest rates and yield curves observable at commonly quoted intervals, prepayment speeds, credit risks, and default rates).

        Level 3: Significant unobservable inputs that reflect a reporting entity's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Financial Assets and Liabilities Measured on a Recurring Basis

        The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs).

        The fair value of interest-only ("I/O") strip receivable assets is based on a valuation model used by a third party. The Company is able to compare the valuation model inputs and results to widely available published industry data for reasonableness (Level 2 inputs).

			Fair Value Measurements Using
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Assets at March 31, 2016:
Available-for-sale securities:
Agency mortgage-backed securities	$	392,753		—	$	392,753		—
U.S. Treasury	$	30,332	$	30,332	$	—		—
Trust preferred securities	$	15,225		—	$	15,225		—
U.S. Government sponsored entities	$	9,181		—	$	9,181		—
Corporate bonds	$	1,049		—	$	1,049		—
I/O strip receivables	$	1,369		—	$	1,369		—
Assets at December 31, 2015:
Available-for-sale securities:
Agency mortgage-backed securities	$	324,230		—	$	324,230		—
U.S. Treasury	$	30,003	$	30,003	$	—		—
Trust preferred securities	$	15,132		—	$	15,132		—
U.S. Government sponsored entities	$	9,041		—	$	9,041		—
Corporate bonds	$	6,673		—	$	6,673		—
I/O strip receivables	$	1,367		—	$	1,367		—

        There were no transfers between Level 1 and Level 2 during the period for assets measured at fair value on a recurring basis.

Assets and Liabilities Measured on a Non-Recurring Basis

        The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. The appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

        Foreclosed assets are valued at the time the loan is foreclosed upon and the asset is transferred to foreclosed assets. The fair value is based primarily on third party appraisals, less costs to sell. The appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales and income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

			Fair Value Measurements Using
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Assets at March 31, 2016:
Impaired loans—held-for-investment:
Commercial	$	143		—		—	$	143
Real estate:
Commercial and residential		482		—		—		482
Land and construction		213		—		—		213
Home equity		361		—		—		361
	$	1,199		—		—	$	1,199
Assets at December 31, 2015:
Impaired loans—held-for-investment:
Commercial	$	1,333		—		—	$	1,333
Real estate:
Commercial and residential		503		—		—		503
Land and construction		219		—		—		219
Home equity		647		—		—		647
	$	2,702		—		—	$	2,702

        The following table shows the detail of the impaired loans held-for-investment and the impaired loans held-for-investment carried at fair value for the periods indicated:

	March 31, 2016			December 31, 2015
	(Dollars in thousands)
Impaired loans held-for-investment:
Book value of impaired loans held-for-investment carried at fair value	$	1,312		$	2,988
Book value of impaired loans held-for-investment carried at cost		3,017			3,539
Total impaired loans held-for-investment	$	4,329		$	6,527
Impaired loans held-for-investment carried at fair value:
Book value of impaired loans held-for-investment carried at fair value	$	1,312		$	2,988
Specific valuation allowance		(113	)		(286	)
Impaired loans held-for-investment carried at fair value, net	$	1,199		$	2,702

        Impaired loans held-for-investment which are measured primarily for impairment using the fair value of the collateral were $4,329,000 at March 31, 2016. In addition, these loans had a specific valuation allowance of $113,000 at March 31, 2016. Impaired loans held-for-investment totaling $1,312,000 at March 31, 2016, were carried at fair value as a result of the aforementioned partial charge-offs and specific valuation allowances at period-end. The remaining $3,017,000 of impaired loans were carried at cost at March 31, 2016, as the fair value of the collateral exceeded the cost basis of each respective loan. Partial charge-offs and changes in specific valuation allowances during the first three months of 2016 on impaired loans held-for-investment carried at fair value at March 31, 2016 resulted in an additional provision for loan losses of $2,000.

        At March 31, 2016, foreclosed assets had a carrying amount of $386,000, with no valuation allowance at March 31, 2016.

        Impaired loans held-for-investment were $6,527,000 at December 31, 2015. There were no partial charge-offs at December 31, 2015. In addition, these loans had a specific valuation allowance of $286,000 at December 31, 2015. Impaired loans held-for-investment totaling $2,988,000 at December 31, 2015 were carried at fair value as a result of the aforementioned partial charge-offs and specific valuation allowances at year-end. The remaining $3,539,000 of impaired loans were carried at cost at December 31, 2015, as the fair value of the collateral exceeded the cost basis of each respective loan. Partial charge-offs and changes in specific valuation allowances during 2015 on impaired loans held-for-investment carried at fair value at December 31, 2015 resulted in an additional provision for loan losses of $156,000.

        At December 31, 2015, foreclosed assets had a carrying amount of $364,000, with no valuation allowance at December 31, 2015.

        The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at the periods indicated:

	March 31, 2016
	Fair Value		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
	(Dollars in thousands)
Impaired loans—held-for-investment:
Commercial	$	143	Market Approach	Discount adjustment for differences between comparable sales	Less than 1%
Real estate:
Commercial and residential	$	482	Market Approach	Discount adjustment for differences between comparable sales	0% to 3% (3%)
Land and construction	$	213	Market Approach	Discount adjustment for differences between comparable sales	Less than 1%
Home equity	$	361	Market Approach	Discount adjustment for differences between comparable sales	0% to 3% (3%)

	December 31, 2015
	Fair Value		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
	(Dollars in thousands)
Impaired loans—held-for-investment:
Commercial	$	1,333	Market Approach	Discount adjustment for differences between comparable sales	0% to 5% (5%)
Real estate:
Commercial and residential	$	503	Market Approach	Discount adjustment for differences between comparable sales	0% to 3% (3%)
Land and construction	$	219	Market Approach	Discount adjustment for differences between comparable sales	Less than 1%
Home equity	$	647	Market Approach	Discount adjustment for differences between comparable sales	0% to 2% (2%)

        The Company obtains third party appraisals on its impaired loans held-for-investment and foreclosed assets to determine fair value. Generally, the third party appraisals apply the "market approach," which is a valuation technique that uses prices and other relevant information generated by market transactions involving identical or comparable (that is, similar) assets, liabilities, or a group of assets and liabilities, such as a business. Adjustments are then made based on the type of property, age of appraisal, current status of property and other related factors to estimate the current value of collateral.

        The carrying amounts and estimated fair values of financial instruments at March 31, 2016 are as follows:

			Estimated Fair Value
	Carrying Amounts		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	143,135	$	143,135	$	—	$	—	$	143,135
Securities available-for-sale		448,540		30,332		418,208		—		448,540
Securities held-to-maturity		185,165		—		187,047		—		187,047
Loans (including loans held-for-sale), net		1,378,195		—		2,389		1,374,562		1,376,951
FHLB and FRB stock		12,702		—		—		—		N/A
Accrued interest receivable		6,681		83		2,216		4,382		6,681
I/O strips receivables		1,369		—		1,369		—		1,369
Liabilities:
Time deposits	$	256,538	$	—	$	256,842	$	—	$	256,842
Other deposits		1,772,198		—		1,772,198		—		1,772,198
Accrued interest payable		188		—		188		—		188

        The carrying amounts and estimated fair values of the Company's financial instruments at December 31, 2015:

			Estimated Fair Value
	Carrying Amounts		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	344,092	$	344,092	$	—	$	—	$	344,092
Securities available-for-sale		385,079		30,003		355,076		—		385,079
Securities held-to-maturity		109,311		—		109,821		—		109,821
Loans (including loans held-for-sale), net		1,347,087		—		7,297		1,337,939		1,345,236
FHLB stock, FRB stock, and other investments		12,694		—		—		—		N/A
Accrued interest receivable		5,924		14		1,640		4,270		5,924
I/O strips receivables		1,367		—		1,367		—		1,367
Liabilities:
Time deposits	$	244,861	$	—	$	245,279	$	—	$	245,279
Other deposits		1,817,914		—		1,817,914		—		1,817,914
Short-term borrowings		3,000		—		3,000				3,000
Accrued interest payable		170		—		170		—		170

        The methods and assumptions, not previously discussed, used to estimate the fair value are described as follows:

Cash and Cash Equivalents

        The carrying amounts of cash on hand, noninterest and interest bearing due from bank accounts, and Fed funds sold approximate fair values and are classified as Level 1.

Loans

        The fair value of loans held-for-sale is estimated based upon binding contracts and quotes from third parties resulting in a Level 2 classification.

        Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

FHLB and FRB Stock

        It was not practical to determine the fair value of FHLB and FRB stock due to restrictions placed on their transferability.

Accrued Interest Receivable/Payable

        The carrying amounts of accrued interest approximate fair value resulting in a Level 2 or Level 3 classification.

Deposits

        The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 2 classification. The carrying amounts of variable rate, fixed-term money market accounts approximate their fair values at the reporting date resulting in a Level 2 classification. The carrying amounts of variable rate, certificates of deposit approximate their fair values at the reporting date resulting in a Level 2 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

Short-term Borrowings

        The carrying amount approximates the fair value of short-term borrowings that reprice frequently and fully.

Off-balance Sheet Instruments

        Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. The fair value of commitments is not material.

Limitations

        Fair value estimates are made at a specific point in time, based on relevant market information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

XML

Equity Plan

3 Months Ended

Mar. 31, 2016

Equity Plan

Equity Plan

12) Equity Plan

        The Company maintained an Amended and Restated 2004 Equity Plan (the "2004 Plan") for directors, officers, and key employees. The 2004 Plan was terminated on May 23, 2013. On May 23, 2013, the Company's shareholders approved the 2013 Equity Incentive Plan (the "2013 Plan"). The equity plans provide for the grant of incentive and nonqualified stock options and restricted stock. The equity plans provide that the option price for both incentive and nonqualified stock options will be determined by the Board of Directors at no less than the fair value at the date of grant. Options granted vest on a schedule determined by the Board of Directors at the time of grant. Generally options vest over four years. All options expire no later than ten years from the date of grant. Restricted stock is subject to time vesting. For the three months ended March 31, 2016, the Company did not grant shares of nonqualified stock options and restricted stock. There were 940,985 shares available for the issuance of equity awards under the 2013 Plan as of March 31, 2016.

        Stock option activity under the equity plans is as follows:

Total Stock Options	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2016		1,775,027		$	10.62
Exercised		(57,441	)	$	6.24
Forfeited or expired		(12,000	)	$	22.78
Outstanding at March 31, 2016		1,705,586		$	10.68		5.6	$	3,622,227
Vested or expected to vest		1,620,307					5.6	$	3,441,116
Exercisable at March 31, 2016		1,255,734					4.6	$	2,878,696

        As of March 31, 2016, there was $1,597,000 of total unrecognized compensation cost related to nonvested stock options granted under the equity plans. That cost is expected to be recognized over a weighted-average period of approximately 2.31 years.

        Restricted stock activity under the equity plans is as follows:

Total Restricted Stock Award	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested shares at January 1, 2016		167,605		$	9.28
Vested		(5,000	)	$	8.30
Nonvested shares at March 31, 2016		162,605		$	9.31

        As of March 31, 2016, there was $1,255,000 of total unrecognized compensation cost related to nonvested restricted stock awards granted under the equity plans. The cost is expected to be recognized over a weighted-average period of approximately 2.92 years.

XML

Capital Requirements

3 Months Ended

Mar. 31, 2016

Capital Requirements

Capital Requirements

13) Capital Requirements

        The Company and its subsidiary bank are subject to various regulatory capital requirements administered by the banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory—and possibly additional discretionary—actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements and operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and HBC must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

        As of January 1, 2015, HCC and HBC along with other community banking organizations became subject to new capital requirements. The implementation of the capital conservation buffer began on January 1, 2016 at 0.625% and will be phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019). The Federal Banking regulators approved the new rules to implement the revised capital adequacy standards of the Basel Committee on Banking Supervision, commonly called Basel III, and address relevant provisions of The Dodd Frank Wall Street Reform and Consumer Protection Act of 2010, as amended. The Company's consolidated capital ratios and the Bank's capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at March 31, 2016.

        Quantitative measures established by regulation to help ensure capital adequacy require the Company and HBC to maintain minimum amounts and ratios (set forth in the tables below) of total, Tier 1 capital, and common equity Tier 1 capital (as defined in the regulations) to risk weighted assets (as defined), and of Tier 1 capital to average assets (as defined). Management believes that, as of March 31, 2016 and December 31, 2015, the Company and HBC met all capital adequacy guidelines to which they were subject.

        The Company's consolidated capital amounts and ratios are presented in the following table, together with capital adequacy requirements, under the Basel III regulatory requirements as of March 31, 2016, and December 31, 2015.

	Actual					Required For Capital Adequacy Purposes Under Basel III
	Amount		Ratio			Amount		Ratio(1)
	(Dollars in thousands)
As of March 31, 2016:
Total Capital	$	221,578		12.4	%	$	154,134		8.625	%
(to risk-weighted assets)
Tier 1 Capital	$	201,380		11.3	%	$	118,393		6.625	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	182,623		10.2	%	$	91,587		5.125	%
(to risk-weighted assets)
Tier 1 Capital	$	201,380		8.8	%	$	91,671		4.000	%
(to average assets)

(1)           Includes 0.625% capital conservation buffer, effective January 1, 2016, except the Tier 1 Capital to average assets ratio.

	Actual					Required For Capital Adequacy Purposes Under Basel III
	Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of December 31, 2015:
Total Capital	$	218,915		12.5	%	$	140,041		8.0	%
(to risk-weighted assets)
Tier 1 Capital	$	199,299		11.4	%	$	105,031		6.0	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	181,221		10.4	%	$	78,773		4.5	%
(to risk-weighted assets)
Tier 1 Capital	$	199,299		8.6	%	$	92,918		4.0	%
(to average assets)

        HBC's actual capital amounts and ratios are presented in the following table, together with capital adequacy requirements, under the Basel III regulatory requirements as of March 31, 2016, and December 31, 2015.

	Actual					To Be Well-Capitalized Under Basel III Regulatory Requirements					Required For Capital Adequacy Purposes Under Basel III
	Amount		Ratio			Amount		Ratio			Amount		Ratio(1)
	(Dollars in thousands)
As of March 31, 2016:
Total Capital	$	220,150		12.3	%	$	178,717		10.0	%	$	154,143		8.625	%
(to risk-weighted assets)
Tier 1 Capital	$	199,952		11.2	%	$	142,973		8.0	%	$	118,400		6.625	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	199,952		11.2	%	$	116,166		6.5	%	$	91,592		5.125	%
(to risk-weighted assets)
Tier 1 Capital	$	199,952		8.7	%	$	114,574		5.0	%	$	91,659		4.000	%
(to average assets)

(1)           Includes 0.625% capital conservation buffer, effective January 1, 2016, except the Tier 1 Capital to average assets ratio.

	Actual					To Be Well-Capitalized Under Basel III Regulatory Requirements					Required For Capital Adequacy Purposes Under Basel III
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of December 31, 2015:
Total Capital	$	219,943		12.6	%	$	175,022		10.0	%	$	140,018		8.0	%
(to risk-weighted assets)
Tier 1 Capital	$	200,327		11.4	%	$	140,018		8.0	%	$	105,013		6.0	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	200,327		11.4	%	$	113,764		6.5	%	$	78,760		4.5	%
(to risk-weighted assets)
Tier 1 Capital	$	200,327		8.6	%	$	116,112		5.0	%	$	92,889		4.0	%
(to average assets)

        HCC is dependent upon dividends from HBC. Under California General Corporation Law, the holders of common stock are entitled to receive dividends when and as declared by the Board of Directors, out of funds legally available. The California Financial Code provides that a state licensed bank may not make a cash distribution to its shareholders in excess of the lesser of the following: (i) the bank's retained earnings; or (ii) the bank's net income for its last three fiscal years, less the amount of any distributions made by the bank to its shareholders during such period. However, a bank, with the prior approval of the Commissioner of the California Department of Business Oversight—Division of Financial Institutions ("DBO") may make a distribution to its shareholders of an amount not to exceed the greater of (i) a bank's retained earnings; (ii) its net income for its last fiscal year; or (iii) its net income for the current fiscal year. Also with the prior approval of the Commissioner of the DBO and the shareholders of the bank, the bank may make a distribution to its shareholders, as a reduction in capital of the bank. In the event that the Commissioner determines that the shareholders' equity of a bank is inadequate or that the making of a distribution by a bank would be unsafe or unsound, the Commissioner may order a bank to refrain from making such a proposed distribution. As of March 31, 2016 HBC would not be required to obtain regulatory approval, and the amount available for cash divideneds is $16,361,000. Similar restrictions applied to the amount and sum of loan advances and other transfers of funds from HBC to the parent company. During the first quarter of 2016, HBC upstreamed a $6.0 million dividend to HCC.

XML

Loss Contingencies

3 Months Ended

Mar. 31, 2016

Loss Contingencies

Loss Contingencies

14) Loss Contingencies

        The Company's policy is to accrue for legal costs associated with both asserted and unasserted claims when it is probable that such costs will be incurred and such costs can be reasonably estimated. A number of parties have filed complaints in the Superior Court of California for the County of Santa Clara asserting certain claims against the Company arising from the transfer of funds. One complaint composed of numerous claims has been set for trial in late 2016. Three of the remaining complaints are in the pleading stage and in mid-discovery. One other complaint is in mid-discovery. As to all claims, it is not possible to determine the amount of the loss, if any, arising from the claim in excess of the legal expenses expected to be incurred in defense of the litigation. The Company intends to vigorously defend the litigation.

XML

Noninterest Expense

3 Months Ended

Mar. 31, 2016

Noninterest Expense

Noninterest Expense

15) Noninterest Expense

        The following table sets forth the various components of the Company's noninterest expense for the periods indicated:

	For the Three Months Ended March 31,
	2016		2015
	(Dollars in thousands)
Salaries and employee benefits	$	8,947	$	8,042
Occupancy and equipment		1,085		1,045
Professional fees		825		95
Data processing		400		303
Software subscriptions		341		327
FDIC deposit insurance premiums		331		239
Insurance expense		299		291
Foreclosed assets		2		(170	)
Other		2,455		2,104
Total noninterest expense	$	14,685	$	12,276

XML

Business Segment Information

3 Months Ended

Mar. 31, 2016

Business Segment Reporting

Business Segment Information

16) Business Segment Information

        The following presents the Company's operating segments. The Company operates through two business segments: Banking segment and Factoring segment. Transactions between segments consist primarily of borrowed funds. Intersegment interest expense is allocated to the Factoring segment based on the Company's prime rate and funding costs. The provision for loan loss is allocated based on the segment's allowance for loan loss determination which considers the effects of charge-offs. Noninterest income and expense directly attributable to a segment are assigned to it. Taxes are paid on a consolidated basis and allocated for segment purposes. The Factoring segment includes only factoring originated by Bay View Funding, which has been included in the results of operations since the acquisition on November 1, 2014.

	For the Theee Months Ended March 31, 2016
	Banking(1)		Factoring			Consolidated
	(Dollars in thousands)
Interest income	$	20,208	$	2,854		$	23,062
Intersegment interest allocations		245		(245	)		—
Total interest expense		758		—			758
Net interest income		19,695		2,609			22,304
Provision for loan losses		387		14			401
Net interest income after provision		19,308		2,595			21,903
Noninterest income		2,412		202			2,614
Noninterest expense		13,052		1,633			14,685
Intersegment expense allocations		175		(175	)		—
Income before income taxes		8,843		989			9,832
Income tax expense		3,310		416			3,726
Net income	$	5,533	$	573		$	6,106
Total assets	$	2,271,411	$	55,922		$	2,327,333
Loans, net of deferred fees	$	1,353,315	$	41,949		$	1,395,264
Goodwill	$	32,620	$	13,044		$	45,664

(1)           Includes the holding company's results of operations

	For the Three Months Ended March 31, 2015
	Banking(1)			Factoring			Consolidated
	(Dollars in thousands)
Interest income	$	14,304		$	3,062		$	17,366
Intersegment interest allocations		268			(268	)		—
Total interest expense		508			—			508
Net interest income		14,064			2,794			16,858
Provision (credit) for loan losses		(58	)		(2	)		(60	)
Net interest income after provision		14,122			2,796			16,918
Noninterest income		1,792			134			1,926
Noninterest expense		10,506			1,770			12,276
Intersegment expense allocations		75			(75	)		—
Income before income taxes		5,483			1,085			6,568
Income tax expense		1,974			456			2,430
Net income	$	3,509		$	629		$	4,138
Total assets	$	1,593,176		$	59,711		$	1,652,887
Loans, net of deferred fees	$	1,057,437		$	44,554		$	1,101,991
Goodwill	$	—		$	13,054		$	13,054

(1)           Includes the holding company's results of operations

XML

Subsequent Events

3 Months Ended

Mar. 31, 2016

Subsequent Events

Subsequent Events

17) Subsequent Events

        On April 28, 2016, the Company announced that its Board of Directors declared a $0.09 per share quarterly cash dividend to holders of common stock and Series C Preferred Stock (on an as converted basis). The dividend will be paid on May 25, 2016, to shareholders of record on May 10, 2016.

XML

Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2016

Basis of Presentation

Basis of Presentation

Basis of Presentation

        The unaudited consolidated financial statements of Heritage Commerce Corp (the "Company" or "HCC") and its wholly owned subsidiary, Heritage Bank of Commerce ("HBC"), have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and notes required by accounting principles generally accepted in the United States of America ("GAAP") for annual financial statements are not included herein. The interim statements should be read in conjunction with the consolidated financial statements and notes that were included in the Company's Form 10-K for the year ended December 31, 2015.

        The Company acquired BVF/CSNK Acquisition Corp., a Delaware corporation ("BVF/CSNK") on November 1, 2014, the parent company of CSNK Working Capital Finance Corp. dba Bay View Funding ("Bay View Funding"). BVF/CSNK was subsequently merged into Bay View Funding and Bay View Funding became a wholly owned subsidiary of HBC. Bay View Funding's results of operations have been included in the Company's results of operations beginning November 1, 2014.

        The Company acquired Focus Business Bank ("Focus") on August 20, 2015. Focus was merged with HBC, with HBC as the surviving bank. Focus's results of operations have been included in the Company's results of operations beginning August 21, 2015.

        HBC is a commercial bank serving customers located in Santa Clara, Alameda, Contra Costa, and San Benito counties of California. Bay View Funding provides business-essential working capital factoring financing to various industries throughout the United States. No customer accounts for more than 10 percent of revenue for HBC or the Company. With the acquisition of Bay View Funding, the Company now has two reportable segments consisting of Banking and Factoring. The Company's management uses segment results in its operating and strategic planning.

        In management's opinion, all adjustments necessary for a fair presentation of these consolidated financial statements have been included and are of a normal and recurring nature. All intercompany transactions and balances have been eliminated.

        The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ significantly from these estimates.

        The results for the three months ended March 31, 2016 are not necessarily indicative of the results expected for any subsequent period or for the entire year ending December 31, 2016.

Reclassifications

Reclassifications

        Certain reclassifications of prior year balances have been made to conform to the current year presentation. These reclassifications had no impact on the Company's consolidated financial position, results of operations or net change in cash and cash equivalents.

Adoption of New Accounting Standards

Adoption of New Accounting Standards

        In September 2015, the FASB issued ASU No. 2015-16,Simplifying the Accounting for Measurement Period Adjustment.This update applies to all entities that have reported provisional amounts for items in a business combination for which the accounting is incomplete by the end of the reporting period in which the combination occurs and during the measurement period have an adjustment to provisional amounts recognized. The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this update require that the acquirer's record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The Company has evaluated the adoption of the new guidance and has determined it did not have a material impact on the consolidated financial statements.

Newly Issued, but not yet Effective Accounting Standards

        In January 2016, the FASB issued ASU No. 2016-01,Financial Instruments—Recognition and Measurement of Financial Assets and Liabilities. The new guidance is intended to improve the recognition and measurement of financial instruments by requiring: equity investments (other than equity method or consolidation) to be measured at fair value with changes in fair value recognized in net income; public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; separate presentation of financial assets and financial liabilities by measurement category and form of financial assets (i.e. securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities; eliminating the requirement for non-public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is to be required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in fair value of a liability resulting from the change in the instrument-specific credit risk (also referred to as "own credit") when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The new guidance is effective for public business entities for fiscal years beginning after December 15, 2017. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material impact.

        In February 2016, the FASB issued ASU No. 2016-02,Leases. The standard requires a lessee to recognize assets and liabilities on the balance sheet for leases with lease terms greater than 12 months. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option.Reasonably certainis a high threshold that is consistent with and intended to be applied in the same way as thereasonably assuredthreshold in the previous leases guidance. In addition, also consistent with the previous leases guidance, a lessee (and a lessor) should exclude most variable lease payments in measuring lease assets and lease liabilities, other than those that depend on an index or a rate or are in substance fixed payments. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. We are currently evaluating the impact of adopting the new guidance on our consolidated financial statements.

        In March 2016, the FASB issued ASU No. 2016-09,Compensation—Stock Compensation:Improvements to Employee Share-Based Payment Accounting. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) should be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. An entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. The threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions. Cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity. A nonpublic entity can make an accounting policy election to apply a practical expedient to estimate the expected term for all awards with performance or service conditions that meet certain conditions. A nonpublic entity can make a one-time accounting policy election to switch from measuring all liability-classified awards at fair value to intrinsic value. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is permitted. We are currently evaluating the impact of adopting the new guidance on our consolidated financial statements.

XML

Earning Per Share (Tables)

3 Months Ended

Mar. 31, 2016

Earnings Per Share

Schedule of reconciliation of factors used in computing basic and diluted earnings per common share

	For the Three Months Ended March 31,
	2016			2015
	(Dollars in thousands, except per share amounts)
Net income available to common shareholders	$	5,602		$	3,690
Less: undistributed earnings allocated to Series C Preferred Stock		(403	)		(274	)
Distributed and undistributed earnings allocated to common shareholders	$	5,199		$	3,416
Weighted average common shares outstanding for basic earnings per common share		32,125,716			26,509,723
Dilutive effect of stock options oustanding, using the the treasury stock method		251,777			170,530
Shares used in computing diluted earnings per common share		32,377,493			26,680,253
Basic earnings per share	$	0.16		$	0.13
Diluted earnings per share	$	0.16		$	0.13

XML

Accumulated Other Comprehensive Income (Loss) (''AOCI'') (Tables)

3 Months Ended

Mar. 31, 2016

Accumulated Other Comprehensive Income (Loss) ("AOCI")

Schedule of changes in AOCI by component

	For the Three Months Ended March 31, 2016 and 2015
	Unrealized Gains on Available- for-Sale Securities and I/O Strips(1)			Unamortized Unrealized Gain on Available- for-Sale Securities Reclassified to Held-to- Maturity(1)			Defined Benefit Pension Plan Items(1)			Total(1)
	(Dollars in thousands)
Beginning balance January 1, 2016, net of taxes	$	1,090		$	403		$	(7,713	)	$	(6,220	)
Other comprehensive income before reclassification, net of taxes		2,807			—			—			2,807
Amounts reclassified from other comprehensive income (loss), net of taxes		(105	)		(8	)		28			(85	)
Net current period other comprensive income, net of taxes		2,702			(8	)		28			2,722
Ending balance March 31, 2016, net of taxes	$	3,792		$	395		$	(7,685	)	$	(3,498	)
Beginning balance January 1, 2015, net of taxes	$	3,666		$	435		$	(5,952	)	$	(1,851	)
Other comprehensive income (loss) before reclassification, net of taxes		514			—			(21	)		493
Amounts reclassified from other comprehensive income (loss), net of taxes		—			(8	)		49			41
Net current period other comprehensive income (loss), net of taxes		514			(8	)		28			534
Ending balance March 31, 2015, net of taxes	$	4,180		$	427		$	(5,924	)	$	(1,317	)

(1)           This AOCI component is included in the computation of net periodic benefit cost (see Note 9—Benefit Plans) and includes split-dollar life insurance benefit plan.

Schedule of reclassifications out of AOCI into net income

	Amounts Reclassified from AOCI(1) For the Three Months Ended March 31,
							Affected Line Item Where Net Income is Presented
Details About AOCI Components	2016			2015
	(Dollars in thousands)
Unrealized gains on available-for-sale securities and I/O strips	$	180		$	—		Realized gains on sale of securities
		(75	)		—		Income tax expense
		105			—		Net of tax
Amortization of unrealized gain on securities available-for-sale that were reclassified to securities held-to-maturity		14			14		Interest income on taxable securities
		(6	)		(6	)	Income tax expense
		8			8		Net of tax
Amortization of defined benefit pension plan items
Prior transition obligation		13			12
Actuarial losses		(60	)		(96	)
		(47	)		(84	)	Salaries and employee benefits
		19			35		Income tax expense
		(28	)		(49	)	Net of tax
Total reclassification for the period	$	85		$	(41	)

(1)           This AOCI component is included in the computation of net periodic benefit cost (see Note 9—Benefit Plans) and includes split-dollar life insurance benefit plan.

XML

Securities (Tables)

3 Months Ended

Mar. 31, 2016

Securities

Schedule of amortized cost and estimated fair value of securities

March 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in thousands)
Securities available-for-sale:
Agency mortgage-backed securities	$	388,282	$	4,543	$	(72	)	$	392,753
U.S. Treasury		30,054		278		—			30,332
Trust preferred securities		15,000		225		—			15,225
U.S. Government sponsored entities		9,041		140		—			9,181
Corporate bonds		1,005		44					1,049
Total	$	443,382	$	5,230	$	(72	)	$	448,540
Securities held-to-maturity:
Municipals—tax exempt	$	92,589	$	2,091	$	(458	)	$	94,222
Agency mortgage-backed securities		92,576		296		(47	)		92,825
Total	$	185,165	$	2,387	$	(505	)	$	187,047

December 31, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(Dollars in thousands)
Securities available-for-sale:
Agency mortgage-backed securities	$	324,077	$	2,457	$	(2,304	)	$	324,230
U.S. Treasury		30,047		—		(44	)		30,003
Trust preferred securities		15,000		132		—			15,132
U.S. Government sponsored entities		9,042		13		(14	)		9,041
Corporate bonds		6,412		261		—			6,673
Total	$	384,578	$	2,863	$	(2,362	)	$	385,079
Securities held-to-maturity:
Municipals—tax exempt	$	93,518	$	1,517	$	(863	)	$	94,172
Agency mortgage-backed securities		15,793		24		(168	)		15,649
Total	$	109,311	$	1,541	$	(1,031	)	$	109,821

Schedule of securities with unrealized losses

	Less Than 12 Months					12 Months or More					Total
March 31, 2016	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(Dollars in thousands)
Securities available-for-sale:
Agency mortgage-backed securities	$	57,940	$	(58	)	$	4,182	$	(14	)	$	62,122	$	(72	)
Total	$	57,940	$	(58	)	$	4,182	$	(14	)	$	62,122	$	(72	)
Securities held-to-maturity:
Municipals—Tax Exempt	$	2,051	$	(24	)	$	18,643	$	(434	)	$	20,694	$	(458	)
Agency mortgage-backed securities		7,297		(14	)		3,705		(33	)		11,002		(47	)
Total	$	9,348	$	(38	)	$	22,348	$	(467	)	$	31,696	$	(505	)

	Less Than 12 Months					12 Months or More					Total
December 31, 2015	Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)			Fair Value		Unrealized (Losses)
	(Dollars in thousands)
Securities available-for-sale:
Agency mortgage-backed securities	$	241,067	$	(2,258	)	$	2,165	$	(46	)	$	243,232	$	(2,304	)
U.S. Treasury		30,003		(44	)		—		—			30,003		(44	)
U.S. Government sponsored entities		4,980		(14	)		—		—			4,980		(14	)
Total	$	276,050	$	(2,316	)	$	2,165	$	(46	)	$	278,215	$	(2,362	)
Securities held-to-maturity:
Municipals—Tax Exempt	$	9,920	$	(78	)	$	24,412	$	(785	)	$	34,332	$	(863	)
Agency mortgage-backed securities		7,152		(89	)		4,409		(79	)		11,561		(168	)
Total	$	17,072	$	(167	)	$	28,821	$	(864	)	$	45,893	$	(1,031	)

Schedule of proceeds from sales of securities and the resulting gains and losses

	Three Months Ended March 31,
	2016		2015
	(Dollars in thousands)
Proceeds	$	5,598	$	—
Gross gains		180		—
Gross losses		—		—

Schedule of amortized cost and estimated fair values of securities, by contractual maturity

        The amortized cost and estimated fair values of securities as of March 31, 2016, are shown by contractual maturity below.

	Available-for-sale
	Amortized Cost		Estimated Fair Value
	(Dollars in thousands)
Due after 3 months through one year	$	6,290	$	6,297
Due after one through five years		33,810		34,265
Due after ten years		15,000		15,225
Agency mortgage-backed securities		388,282		392,753
Total	$	443,382	$	448,540

	Held-to-maturity
	Amortized Cost		Estimated Fair Value
	(Dollars in thousands)
Due less than 3 months	$	612	$	614
Due after 3 months through one year		1,039		1,045
Due after one through five years		5,239		5,319
Due after five through ten years		14,726		15,533
Due after ten years		70,973		71,711
Agency mortgage-backed securities		92,576		92,825
Total	$	185,165	$	187,047

XML

Loans (Tables)

3 Months Ended

Mar. 31, 2016

Loans

Schedule of loans

	March 31, 2016			December 31, 2015
	(Dollars in thousands)
Loans held-for-investment:
Commercial	$	592,128		$	556,522
Real estate:
Commercial and residential		616,821			625,665
Land and construction		95,547			84,428
Home equity		74,993			76,833
Consumer		16,476			16,010
Loans		1,395,965			1,359,458
Deferred loan origination fees, net		(701	)		(742	)
Loans, net of deferred fees		1,395,264			1,358,716
Allowance for loan losses		(19,458	)		(18,926	)
Loans, net	$	1,375,806		$	1,339,790

Schedule of changes in allowance for loan losses

	Three Months Ended March 31, 2016
	Commercial			Real Estate			Consumer		Total
	(Dollars in thousands)
Balance, beginning of period	$	10,748		$	8,076		$	102	$	18,926
Charge-offs		(117	)		—			—		(117	)
Recoveries		32			216			—		248
Net (charge-offs) recoveries		(85	)		216			—		131
Provision (credit) for loan losses		616			(224	)		9		401
Balance, end of period	$	11,279		$	8,068		$	111	$	19,458

	Three Months Ended March 31, 2015
	Commercial			Real Estate			Consumer		Total
	(Dollars in thousands)
Balance, beginning of period	$	11,187		$	7,070		$	122	$	18,379
Charge-offs		(212	)		(2	)		—		(214	)
Recoveries		436			13			—		449
Net recoveries		224			11			—		235
Provision (credit) for loan losses		(555	)		473			22		(60	)
Balance, end of period	$	10,856		$	7,554		$	144	$	18,554

Schedule of balance in allowance for loan losses and recorded investment in loans by portfolio segment, based on impairment method

	March 31, 2016
	Commercial		Real Estate		Consumer		Total
	(Dollars in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	2	$	111	$	—	$	113
Collectively evaluated for impairment		11,277		7,957		111		19,345
Acquired with deterioriated credit quality		—		—		—		—
Total allowance balance	$	11,279	$	8,068	$	111	$	19,458
Loans:
Individually evaluated for impairment	$	190	$	3,891	$	3	$	4,084
Collectively evaluated for impairment		591,693		783,470		16,473		1,391,636
Acquired with deterioriated credit quality		245		—		—		245
Total loan balance	$	592,128	$	787,361	$	16,476	$	1,395,965

	December 31, 2015
	Commercial		Real Estate		Consumer		Total
	(Dollars in thousands)
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	174	$	112	$	—	$	286
Collectively evaluated for impairment		10,574		7,964		102		18,640
Acquired with deterioriated credit quality		—		—		—		—
Total allowance balance	$	10,748	$	8,076	$	102	$	18,926
Loans:
Individually evaluated for impairment	$	2,014	$	4,272	$	4	$	6,290
Collectively evaluated for impairment		554,271		782,654		16,006		1,352,931
Acquired with deterioriated credit quality		237		—		—		237
Total loan balance	$	556,522	$	786,926	$	16,010	$	1,359,458

Schedule of carrying amount of purchased credit impaired loans

	March 31, 2016		December 31, 2015
	(Dollars in thousands)
Commercial	$	820	$	876
Outstanding balance	$	820	$	876
Carrying amount, net of discount of $575,000 and $639,000 at March 31, 2016 and December 31, 2015, respectively	$	245	$	237

Schedule of loans held-for-investment individually evaluated for impairment by class of loans

	March 31, 2016						December 31, 2015
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
	(Dollars in thousands)
With no related allowance recorded:
Commercial	$	290	$	290	$	—	$	745	$	745	$	—
Real estate:
Commercial and residential		3,769		2,910		—		3,851		2,992		—
Land and construction		231		213		—		237		219		—
Home Equity		296		296		—		302		302		—
Consumer		3		3		—		4		4		—
Total with no related allowance recorded		4,589		3,712		—		5,139		4,262		—
With an allowance recorded:
Commercial		145		145		2		1,506		1,506		174
Real estate:
Home Equity		472		472		111		759		759		112
Total with an allowance recorded		617		617		113		2,265		2,265		286
Total	$	5,206	$	4,329	$	113	$	7,404	$	6,527	$	286

Schedule of average impaired loans with interest recognized and cash-basis interest earned on impaired loans

	Three Months Ended March 31, 2016
			Real Estate
	Commercial		Commercial and Residential		Land and Construction		Home Equity		Consumer		Total
	(Dollars in thousands)
Average of impaired loans during the period	$	1,343	$	2,951	$	216	$	914	$	4	$	5,428
Interest income during impairment	$	—	$	—	$	—	$	—	$	—	$	—
Cash-basis interest earned	$	—	$	—	$	—	$	—	$	—	$	—

	Three Months Ended March 31, 2015
			Real Estate
	Commercial		Commercial and Residential		Land and Construction		Home Equity		Consumer		Total
	(Dollars in thousands)
Average of impaired loans during the period	$	1,907	$	2,901	$	1,305	$	341	$	5	$	6,459
Interest income during impairment	$	—	$	—	$	—	$	—	$	—	$	—
Cash-basis interest earned	$	—	$	—	$	—	$	—	$	—	$	—

Schedule of nonperforming loans

	March 31,
					December 31, 2015
	2016		2015
	(Dollars in thousands)
Nonaccrual loans—held-for-investment	$	4,184	$	6,733	$	4,716
Restructured and loans over 90 days past due and still accruing		—		—		1,662
Total nonperforming loans		4,184		6,733		6,378
Other restructured loans		145		163		149
Impaired loans, excluding loans held-for-sale	$	4,329	$	6,896	$	6,527

Schedule of nonperforming loans by class

	March 31, 2016						December 31, 2015
	Nonaccrual		Restructured and Loans Over 90 Days Past Due and Still Accruing		Total		Nonaccrual		Restructured and Loans Over 90 Days Past Due and Still Accruing		Total
	(Dollars in thousands)
Commercial	$	290	$	—	$	290	$	724	$	1,378	$	2,102
Real estate:
Commercial and residential		2,910		—		2,910		2,992		—		2,992
Land and construction		213		—		213		219		—		219
Home equity		768		—		768		777		284		1,061
Consumer		3		—		3		4		—		4
Total	$	4,184	$	—	$	4,184	$	4,716	$	1,662	$	6,378

Schedule of aging of past due loans by class of loans

	March 31, 2016
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans Not Past Due		Total
	(Dollars in thousands)
Commercial	$	2,906	$	796	$	—	$	3,702	$	588,426	$	592,128
Real estate:
Commercial and residential		—		889		—		889		615,932		616,821
Land and construction		—		—		213		213		95,334		95,547
Home equity		1		295		—		296		74,697		74,993
Consumer		—		—		—		—		16,476		16,476
Total	$	2,907	$	1,980	$	213	$	5,100	$	1,390,865	$	1,395,965

	December 31, 2015
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans Not Past Due		Total
	(Dollars in thousands)
Commercial	$	3,285	$	262	$	1,704	$	5,251	$	551,271	$	556,522
Real estate:
Commercial and residential		—		—		—		—		625,665		625,665
Land and construction		219		—		—		219		84,209		84,428
Home equity		—		—		284		284		76,549		76,833
Consumer		—		—		—		—		16,010		16,010
Total	$	3,504	$	262	$	1,988	$	5,754	$	1,353,704	$	1,359,458

Summary of loan portfolio by loan type and credit quality classification

	March 31, 2016						December 31, 2015
	Nonclassified		Classified*		Total		Nonclassified		Classified*		Total
	(Dollars in thousands)
Commercial	$	580,826	$	11,302	$	592,128	$	547,536	$	8,986	$	556,522
Real estate:
Commercial and residential		608,771		8,050		616,821		617,865		7,800		625,665
Land and construction		95,334		213		95,547		84,209		219		84,428
Home equity		73,889		1,104		74,993		75,511		1,322		76,833
Consumer		16,183		293		16,476		15,705		305		16,010
Total	$	1,375,003	$	20,962	$	1,395,965	$	1,340,826	$	18,632	$	1,359,458

*           Classified loans in the table above include Small Business Administration ("SBA") guarantees.

XML

Business Combinations (Tables) - Focus Business Bank

3 Months Ended

Mar. 31, 2016

Business Combinations

Summary of the estimated fair values of the assets acquired and liabilities assumed

	(Dollars in thousands)
Assets acquired:
Cash and cash item	$	5,651
Federal funds sold and deposits in other financial institutions		168,415
Securities available-for-sale		53,940
Securities held-to-maturity		8,665
Loans held-for-sale		4,416
Net loans		170,353
Goodwill		32,620
Core deposit intangible asset		6,285
Corporate owned life insurance		7,067
Other assets, net		20,250
Total assets acquired		477,662
Liabilities asssumed:
Deposits		405,123
Other liabilities		5,981
Total liabilities		411,104
Net assets acquired	$	66,558

Summary of consideration paid

	August 20, 2015
	(Dollars in thousands)
Cash paid for Focus in-the-money stock options	$	8,280
Common stock issued to Focus shareholders at $10.68 per share		58,278
Total consideration	$	66,558

Schedule of unaudited pro forma combined consolidated financial statements and related adjustments

UNAUDITED	For the Three Months Ended March 31, 2015
	(Dollars in thousands, except per share amounts)
Net interest income	$	20,092
Provision for loan losses		(10	)
Noninterest income		3,102
Noninterest expense		15,418
Income before income taxes		7,786
Income tax expense		2,923
Net income	$	4,863
Net income per share—basic	$	0.13
Net income per share—diluted	$	0.13

XML

Goodwill and Other Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2016

Goodwill and Other Intangible Assets

Schedule of estimated amortization expense

					Bay View Funding
Year	Diablo Valley Bank Core Deposit Intangible		Focus Core Deposit Intangible		Below Market Value Lease Intangible		Customer & Brokered Relationship Intangible		Non-Compete Agreement Intangible		Total Amortization Expense
	(Dollars in thousands)
2016	$	427	$	831	$	36	$	190	$	83	$	1,567
2017		195		875		31		190		70		1,361
2018		—		775		—		190		—		965
2019		—		734		—		190		—		924
2020		—		716		—		190		—		906
2021		—		596		—		190		—		786
	$	622	$	4,527	$	67	$	1,140	$	153	$	6,509

XML

Income Taxes (Tables)

3 Months Ended

Mar. 31, 2016

Income Taxes

Summary of carrying amount of income tax housing investment

	March 31, 2016		December 31, 2015
	(Dollars in thousands)
Low income housing investments	$	4,235	$	4,304
Future commitments	$	845	$	1,271

XML

Benefit Plans (Tables)

3 Months Ended

Mar. 31, 2016

Supplemental Retirement Plan

Benefit plans

Schedule of components of net periodic benefit cost

	Three Months Ended March 31,
	2016		2015
	(Dollars in thousands)
Components of net periodic benefit cost:
Service cost	$	133	$	216
Interest cost		259		221
Amortization of net actuarial loss		60		96
Net periodic benefit cost	$	452	$	533

Split-Dollar Life Insurance Benefit Plan

Benefit plans

Schedule of components of net periodic benefit cost

	For the Three Months Ended March 31,
	2016			2015
	(Dollars in thousands)
Amortization of prior transition obligation	$	(13	)	$	(12	)
Interest cost		62			50
Net periodic benefit cost	$	49		$	38

Schedule of change in projected benefit obligation

	March 31, 2016		December 31, 2015
	(Dollars in thousands)
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	6,215	$	4,641
Interest cost		62		169
Amortization of net actuarial loss		—		1,405
Projected benefit obligation at end of period	$	6,277	$	6,215

Schedule of amounts recognized in accumulated other comprehensive loss

	March 31, 2016		December 31, 2015
	(Dollars in thousands)
Net actuarial loss	$	2,183	$	2,147
Prior transition obligation		1,395		1,418
Accumulated other comprehensive loss	$	3,578	$	3,565

XML

Fair Value (Tables)

3 Months Ended

Mar. 31, 2016

Fair Value

Schedule of financial assets and liabilities measured on a recurring basis

			Fair Value Measurements Using
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Assets at March 31, 2016:
Available-for-sale securities:
Agency mortgage-backed securities	$	392,753		—	$	392,753		—
U.S. Treasury	$	30,332	$	30,332	$	—		—
Trust preferred securities	$	15,225		—	$	15,225		—
U.S. Government sponsored entities	$	9,181		—	$	9,181		—
Corporate bonds	$	1,049		—	$	1,049		—
I/O strip receivables	$	1,369		—	$	1,369		—
Assets at December 31, 2015:
Available-for-sale securities:
Agency mortgage-backed securities	$	324,230		—	$	324,230		—
U.S. Treasury	$	30,003	$	30,003	$	—		—
Trust preferred securities	$	15,132		—	$	15,132		—
U.S. Government sponsored entities	$	9,041		—	$	9,041		—
Corporate bonds	$	6,673		—	$	6,673		—
I/O strip receivables	$	1,367		—	$	1,367		—

Schedule of assets and liabilities measured on a non-recurring basis

			Fair Value Measurements Using
	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Assets at March 31, 2016:
Impaired loans—held-for-investment:
Commercial	$	143		—		—	$	143
Real estate:
Commercial and residential		482		—		—		482
Land and construction		213		—		—		213
Home equity		361		—		—		361
	$	1,199		—		—	$	1,199
Assets at December 31, 2015:
Impaired loans—held-for-investment:
Commercial	$	1,333		—		—	$	1,333
Real estate:
Commercial and residential		503		—		—		503
Land and construction		219		—		—		219
Home equity		647		—		—		647
	$	2,702		—		—	$	2,702

Schedule of impaired loans held-for-investment and impaired loans held-for-investment carried at fair value

	March 31, 2016			December 31, 2015
	(Dollars in thousands)
Impaired loans held-for-investment:
Book value of impaired loans held-for-investment carried at fair value	$	1,312		$	2,988
Book value of impaired loans held-for-investment carried at cost		3,017			3,539
Total impaired loans held-for-investment	$	4,329		$	6,527
Impaired loans held-for-investment carried at fair value:
Book value of impaired loans held-for-investment carried at fair value	$	1,312		$	2,988
Specific valuation allowance		(113	)		(286	)
Impaired loans held-for-investment carried at fair value, net	$	1,199		$	2,702

Schedule of quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis

	March 31, 2016
	Fair Value		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
	(Dollars in thousands)
Impaired loans—held-for-investment:
Commercial	$	143	Market Approach	Discount adjustment for differences between comparable sales	Less than 1%
Real estate:
Commercial and residential	$	482	Market Approach	Discount adjustment for differences between comparable sales	0% to 3% (3%)
Land and construction	$	213	Market Approach	Discount adjustment for differences between comparable sales	Less than 1%
Home equity	$	361	Market Approach	Discount adjustment for differences between comparable sales	0% to 3% (3%)

	December 31, 2015
	Fair Value		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
	(Dollars in thousands)
Impaired loans—held-for-investment:
Commercial	$	1,333	Market Approach	Discount adjustment for differences between comparable sales	0% to 5% (5%)
Real estate:
Commercial and residential	$	503	Market Approach	Discount adjustment for differences between comparable sales	0% to 3% (3%)
Land and construction	$	219	Market Approach	Discount adjustment for differences between comparable sales	Less than 1%
Home equity	$	647	Market Approach	Discount adjustment for differences between comparable sales	0% to 2% (2%)

Schedule of carrying amounts and estimated fair values of financial instruments

        The carrying amounts and estimated fair values of financial instruments at March 31, 2016 are as follows:

			Estimated Fair Value
	Carrying Amounts		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	143,135	$	143,135	$	—	$	—	$	143,135
Securities available-for-sale		448,540		30,332		418,208		—		448,540
Securities held-to-maturity		185,165		—		187,047		—		187,047
Loans (including loans held-for-sale), net		1,378,195		—		2,389		1,374,562		1,376,951
FHLB and FRB stock		12,702		—		—		—		N/A
Accrued interest receivable		6,681		83		2,216		4,382		6,681
I/O strips receivables		1,369		—		1,369		—		1,369
Liabilities:
Time deposits	$	256,538	$	—	$	256,842	$	—	$	256,842
Other deposits		1,772,198		—		1,772,198		—		1,772,198
Accrued interest payable		188		—		188		—		188

        The carrying amounts and estimated fair values of the Company's financial instruments at December 31, 2015:

			Estimated Fair Value
	Carrying Amounts		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	344,092	$	344,092	$	—	$	—	$	344,092
Securities available-for-sale		385,079		30,003		355,076		—		385,079
Securities held-to-maturity		109,311		—		109,821		—		109,821
Loans (including loans held-for-sale), net		1,347,087		—		7,297		1,337,939		1,345,236
FHLB stock, FRB stock, and other investments		12,694		—		—		—		N/A
Accrued interest receivable		5,924		14		1,640		4,270		5,924
I/O strips receivables		1,367		—		1,367		—		1,367
Liabilities:
Time deposits	$	244,861	$	—	$	245,279	$	—	$	245,279
Other deposits		1,817,914		—		1,817,914		—		1,817,914
Short-term borrowings		3,000		—		3,000				3,000
Accrued interest payable		170		—		170		—		170

XML

Equity Plan (Tables)

3 Months Ended

Mar. 31, 2016

Equity Plan

Schedule of stock option activity under the equity plans

Total Stock Options	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2016		1,775,027		$	10.62
Exercised		(57,441	)	$	6.24
Forfeited or expired		(12,000	)	$	22.78
Outstanding at March 31, 2016		1,705,586		$	10.68		5.6	$	3,622,227
Vested or expected to vest		1,620,307					5.6	$	3,441,116
Exercisable at March 31, 2016		1,255,734					4.6	$	2,878,696

Schedule of restricted stock activity under the equity plans

Total Restricted Stock Award	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested shares at January 1, 2016		167,605		$	9.28
Vested		(5,000	)	$	8.30
Nonvested shares at March 31, 2016		162,605		$	9.31

XML

Capital Requirements (Tables)

3 Months Ended

Mar. 31, 2016

Capital Requirements

Schedule of actual capital and required amounts and ratios

	Actual					Required For Capital Adequacy Purposes Under Basel III
	Amount		Ratio			Amount		Ratio(1)
	(Dollars in thousands)
As of March 31, 2016:
Total Capital	$	221,578		12.4	%	$	154,134		8.625	%
(to risk-weighted assets)
Tier 1 Capital	$	201,380		11.3	%	$	118,393		6.625	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	182,623		10.2	%	$	91,587		5.125	%
(to risk-weighted assets)
Tier 1 Capital	$	201,380		8.8	%	$	91,671		4.000	%
(to average assets)

(1)           Includes 0.625% capital conservation buffer, effective January 1, 2016, except the Tier 1 Capital to average assets ratio.

	Actual					Required For Capital Adequacy Purposes Under Basel III
	Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of December 31, 2015:
Total Capital	$	218,915		12.5	%	$	140,041		8.0	%
(to risk-weighted assets)
Tier 1 Capital	$	199,299		11.4	%	$	105,031		6.0	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	181,221		10.4	%	$	78,773		4.5	%
(to risk-weighted assets)
Tier 1 Capital	$	199,299		8.6	%	$	92,918		4.0	%
(to average assets)

HBC (Wholly-owned Subsidiary)

Capital Requirements

Schedule of actual capital and required amounts and ratios

	Actual					To Be Well-Capitalized Under Basel III Regulatory Requirements					Required For Capital Adequacy Purposes Under Basel III
	Amount		Ratio			Amount		Ratio			Amount		Ratio(1)
	(Dollars in thousands)
As of March 31, 2016:
Total Capital	$	220,150		12.3	%	$	178,717		10.0	%	$	154,143		8.625	%
(to risk-weighted assets)
Tier 1 Capital	$	199,952		11.2	%	$	142,973		8.0	%	$	118,400		6.625	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	199,952		11.2	%	$	116,166		6.5	%	$	91,592		5.125	%
(to risk-weighted assets)
Tier 1 Capital	$	199,952		8.7	%	$	114,574		5.0	%	$	91,659		4.000	%
(to average assets)

(1)           Includes 0.625% capital conservation buffer, effective January 1, 2016, except the Tier 1 Capital to average assets ratio.

	Actual					To Be Well-Capitalized Under Basel III Regulatory Requirements					Required For Capital Adequacy Purposes Under Basel III
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of December 31, 2015:
Total Capital	$	219,943		12.6	%	$	175,022		10.0	%	$	140,018		8.0	%
(to risk-weighted assets)
Tier 1 Capital	$	200,327		11.4	%	$	140,018		8.0	%	$	105,013		6.0	%
(to risk-weighted assets)
Common Equity Tier 1 Capital	$	200,327		11.4	%	$	113,764		6.5	%	$	78,760		4.5	%
(to risk-weighted assets)
Tier 1 Capital	$	200,327		8.6	%	$	116,112		5.0	%	$	92,889		4.0	%
(to average assets)

XML

Noninterest Expense (Tables)

3 Months Ended

Mar. 31, 2016

Noninterest Expense

Schedule of noninterest expense

	For the Three Months Ended March 31,
	2016		2015
	(Dollars in thousands)
Salaries and employee benefits	$	8,947	$	8,042
Occupancy and equipment		1,085		1,045
Professional fees		825		95
Data processing		400		303
Software subscriptions		341		327
FDIC deposit insurance premiums		331		239
Insurance expense		299		291
Foreclosed assets		2		(170	)
Other		2,455		2,104
Total noninterest expense	$	14,685	$	12,276

XML

Business Segment Information (Tables)

3 Months Ended

Mar. 31, 2016

Business Segment Reporting

Schedule of information by operating segment

	For the Theee Months Ended March 31, 2016
	Banking(1)		Factoring			Consolidated
	(Dollars in thousands)
Interest income	$	20,208	$	2,854		$	23,062
Intersegment interest allocations		245		(245	)		—
Total interest expense		758		—			758
Net interest income		19,695		2,609			22,304
Provision for loan losses		387		14			401
Net interest income after provision		19,308		2,595			21,903
Noninterest income		2,412		202			2,614
Noninterest expense		13,052		1,633			14,685
Intersegment expense allocations		175		(175	)		—
Income before income taxes		8,843		989			9,832
Income tax expense		3,310		416			3,726
Net income	$	5,533	$	573		$	6,106
Total assets	$	2,271,411	$	55,922		$	2,327,333
Loans, net of deferred fees	$	1,353,315	$	41,949		$	1,395,264
Goodwill	$	32,620	$	13,044		$	45,664

(1)           Includes the holding company's results of operations

	For the Three Months Ended March 31, 2015
	Banking(1)			Factoring			Consolidated
	(Dollars in thousands)
Interest income	$	14,304		$	3,062		$	17,366
Intersegment interest allocations		268			(268	)		—
Total interest expense		508			—			508
Net interest income		14,064			2,794			16,858
Provision (credit) for loan losses		(58	)		(2	)		(60	)
Net interest income after provision		14,122			2,796			16,918
Noninterest income		1,792			134			1,926
Noninterest expense		10,506			1,770			12,276
Intersegment expense allocations		75			(75	)		—
Income before income taxes		5,483			1,085			6,568
Income tax expense		1,974			456			2,430
Net income	$	3,509		$	629		$	4,138
Total assets	$	1,593,176		$	59,711		$	1,652,887
Loans, net of deferred fees	$	1,057,437		$	44,554		$	1,101,991
Goodwill	$	—		$	13,054		$	13,054

(1)           Includes the holding company's results of operations

XML

Basis of Presentation (Details)	3 Months Ended
	Mar. 31, 2016 segment customer
Segment Reporting
Number of customers accounting for more than 10 percent of revenue for HBC or the Company | customer	0
Number of operating segments | segment	2

XML

Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Reconciliation of factors used in computing basic and diluted earnings per common share
Net income available to common shareholders	$ 5,602	$ 3,690
Less: undistributed earnings allocated to Series C Preferred Stock	(403)	(274)
Distributed and undistributed earnings allocated to common shareholders	$ 5,199	$ 3,416
Weighted average common shares outstanding for basic earnings per common share (in shares)	32,125,716	26,509,723
Dilutive effect of stock options outstanding, using the treasury stock method (in shares)	251,777	170,530
Shares used in computing diluted earnings per common share (in shares)	32,377,493	26,680,253
Basic earnings per share (in dollars per share)	$ 0.16	$ 0.13
Diluted earnings per share (in dollars per share)	$ 0.16	$ 0.13

XML

Accumulated Other Comprehensive Income (Loss) (''AOCI'') - Changes in AOCI by Component (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Changes in AOCI by Component
Balance	$ 245,436	$ 184,358
Net current period other comprehensive income, net of taxes	2,722	534
Balance	251,659	186,777
Accumulated Other Comprehensive Income / (Loss)
Changes in AOCI by Component
Balance	(6,220)	(1,851)
Other comprehensive income before reclassification, net of taxes	2,807	493
Amounts reclassified from other comprehensive income (loss), net of taxes	(85)	41
Net current period other comprehensive income, net of taxes	2,722	534
Balance	(3,498)	(1,317)
Unrealized Gains on Available-for-Sale Securities and I/O Strips
Changes in AOCI by Component
Balance	1,090	3,666
Other comprehensive income before reclassification, net of taxes	2,807	514
Amounts reclassified from other comprehensive income (loss), net of taxes	(105)
Net current period other comprehensive income, net of taxes	2,702	514
Balance	3,792	4,180
Unamortized Unrealized Gain on Available-for-Sale Securities Reclassified to Held-to-Maturity
Changes in AOCI by Component
Balance	403	435
Amounts reclassified from other comprehensive income (loss), net of taxes	(8)	(8)
Net current period other comprehensive income, net of taxes	(8)	(8)
Balance	395	427
Defined Benefit Pension Plan Items
Changes in AOCI by Component
Balance	(7,713)	(5,952)
Other comprehensive income before reclassification, net of taxes		(21)
Amounts reclassified from other comprehensive income (loss), net of taxes	28	49
Net current period other comprehensive income, net of taxes	28	28
Balance	$ (7,685)	$ (5,924)

XML

Accumulated Other Comprehensive Income (Loss) (''AOCI'') - Amount Reclassified from AOCI (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Amount Reclassified from AOCI
Realized gains on sale of securities	$ 180
Interest income on taxable securities	2,774	$ 1,604
Income tax expense	(3,726)	(2,430)
Net income	6,106	4,138
Amount Reclassified from AOCI
Amount Reclassified from AOCI
Net of tax	85	(41)
Unrealized Gains on Available-for-Sale Securities and I/O Strips
Amount Reclassified from AOCI
Net of tax	105
Unrealized Gains on Available-for-Sale Securities and I/O Strips | Amount Reclassified from AOCI
Amount Reclassified from AOCI
Realized gains on sale of securities	180
Income tax expense	(75)
Net income	105
Unamortized Unrealized Gain on Available-for-Sale Securities Reclassified to Held-to-Maturity
Amount Reclassified from AOCI
Net of tax	8	8
Unamortized Unrealized Gain on Available-for-Sale Securities Reclassified to Held-to-Maturity | Amount Reclassified from AOCI
Amount Reclassified from AOCI
Interest income on taxable securities	14	14
Income tax expense	(6)	(6)
Net income	8	8
Defined Benefit Pension Plan Items
Amount Reclassified from AOCI
Net of tax	(28)	(49)
Defined Benefit Pension Plan Items | Amount Reclassified from AOCI
Amount Reclassified from AOCI
Income before income tax	(47)	(84)
Income tax benefit	19	35
Net of tax	(28)	(49)
Prior transition cost | Amount Reclassified from AOCI
Amount Reclassified from AOCI
Income before income tax	13	12
Actuarial losses | Amount Reclassified from AOCI
Amount Reclassified from AOCI
Income before income tax	$ (60)	$ (96)

XML

Securities - Amortized Cost and Estimated Fair Value of Securities - Securities Available-for-sale (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Securities available-for-sale:
Amortized Cost	$ 443,382	$ 384,578
Gross Unrealized Gains	5,230	2,863
Gross Unrealized Losses	(72)	(2,362)
Securities available-for-sale	448,540	385,079
Agency mortgage-backed securities
Securities available-for-sale:
Amortized Cost	388,282	324,077
Gross Unrealized Gains	4,543	2,457
Gross Unrealized Losses	(72)	(2,304)
Securities available-for-sale	392,753	324,230
U.S. Treasury
Securities available-for-sale:
Amortized Cost	30,054	30,047
Gross Unrealized Gains	278
Gross Unrealized Losses		(44)
Securities available-for-sale	30,332	30,003
Trust preferred securities
Securities available-for-sale:
Amortized Cost	15,000	15,000
Gross Unrealized Gains	225	132
Securities available-for-sale	15,225	15,132
U.S. Government sponsored entities
Securities available-for-sale:
Amortized Cost	9,041	9,042
Gross Unrealized Gains	140	13
Gross Unrealized Losses		(14)
Securities available-for-sale	9,181	9,041
Corporate bonds
Securities available-for-sale:
Amortized Cost	1,005	6,412
Gross Unrealized Gains	44	261
Securities available-for-sale	$ 1,049	$ 6,673

XML

Securities - Amortized Cost and Estimated Fair Value of Securities - Securities Held-to-maturity (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Securities held-to-maturity:
Amortized Cost	$ 185,165	$ 109,311
Gross Unrealized Gains	2,387	1,541
Gross Unrealized Losses	(505)	(1,031)
Securities held-to-maturity	187,047	109,821
Municipals - tax exempt
Securities held-to-maturity:
Amortized Cost	92,589	93,518
Gross Unrealized Gains	2,091	1,517
Gross Unrealized Losses	(458)	(863)
Securities held-to-maturity	94,222	94,172
Agency mortgage-backed securities
Securities held-to-maturity:
Amortized Cost	92,576	15,793
Gross Unrealized Gains	296	24
Gross Unrealized Losses	(47)	(168)
Securities held-to-maturity	$ 92,825	$ 15,649

XML

Securities - Securities with Unrealized Losses at Year End - Securities Available-for-sale (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Available-for-sale, Fair Value
Less Than 12 Months	$ 57,940	$ 276,050
12 Months or More	4,182	2,165
Total	62,122	278,215
Available-for-sale, Unrealized Losses
Less Than 12 Months	(58)	(2,316)
12 Months or More	(14)	(46)
Total	(72)	(2,362)
Agency mortgage-backed securities
Available-for-sale, Fair Value
Less Than 12 Months	57,940	241,067
12 Months or More	4,182	2,165
Total	62,122	243,232
Available-for-sale, Unrealized Losses
Less Than 12 Months	(58)	(2,258)
12 Months or More	(14)	(46)
Total	$ (72)	(2,304)
U.S. Treasury
Available-for-sale, Fair Value
Less Than 12 Months		30,003
Total		30,003
Available-for-sale, Unrealized Losses
Less Than 12 Months		(44)
Total		(44)
U.S. Government sponsored entities
Available-for-sale, Fair Value
Less Than 12 Months		4,980
Total		4,980
Available-for-sale, Unrealized Losses
Less Than 12 Months		(14)
Total		$ (14)

XML

Securities - Securities with Unrealized Losses at Year End - Securities Held-to-maturity (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Held-to-maturity, Fair Value
Less Than 12 Months	$ 9,348	$ 17,072
12 Months or More	22,348	28,821
Total	31,696	45,893
Held-to-maturity, Unrealized Losses
Less Than 12 Months	(38)	(167)
12 Months or More	(467)	(864)
Total	(505)	(1,031)
Municipals - tax exempt
Held-to-maturity, Fair Value
Less Than 12 Months	2,051	9,920
12 Months or More	18,643	24,412
Total	20,694	34,332
Held-to-maturity, Unrealized Losses
Less Than 12 Months	(24)	(78)
12 Months or More	(434)	(785)
Total	(458)	(863)
Agency mortgage-backed securities
Held-to-maturity, Fair Value
Less Than 12 Months	7,297	7,152
12 Months or More	3,705	4,409
Total	11,002	11,561
Held-to-maturity, Unrealized Losses
Less Than 12 Months	(14)	(89)
12 Months or More	(33)	(79)
Total	$ (47)	$ (168)

XML

Securities - Additional Information (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2016 USD ($) security	Dec. 31, 2015 USD ($) security
Additional Information
Holdings of securities as percentage of shareholders' equity, considered as threshold for disclosure purpose	10.00%
The number of holdings of securities of any one issuer other than the U.S. Government and its sponsored entities	0
Number of securities held	475	460
Number of available for sale securities held	199	193
Number of held to maturity securities held	276	267
Number of securities with fair values below amortized cost	72	193
Total unrealized loss for securities 12 months or more | $	$ 481	$ 910

XML

Securities - Proceeds from Sales of Securities and the Resulting Gains and Losses (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2016 USD ($)
Proceeds from Sales of Securities and the Resulting Gains and Losses
Proceeds	$ 5,598
Gross gains	$ 180

XML

Securities - Amortized Cost and Fair Value of Debt Securities by Contractual Maturity - Securities Available-for-sale (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Available-for-sale, Amortized Cost
Due after 3 months through one year	$ 6,290
Due after one through five years	33,810
Due after ten years	15,000
Agency mortgage-backed securities	388,282
Total	443,382
Available-for-sale, Estimated Fair Value
Due after 3 months through one year	6,297
Due after one through five years	34,265
Due after ten years	15,225
Agency mortgage-backed securities	392,753
Estimated Fair Value	$ 448,540	$ 385,079

XML

Securities - Amortized Cost and Fair Value of Debt Securities by Contractual Maturity - Securities Held-to-maturity (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Held-to-maturity, Amortized Cost
Due less than 3 months	$ 612
Due after 3 months through one year	1,039
Due after one through five years	5,239
Due after five through ten years	14,726
Due after ten years	70,973
Agency mortgage-backed securities	92,576
Total	185,165	$ 109,311
Held-to-maturity, Estimated Fair Value
Due less than 3 months	614
Due after 3 months through one year	1,045
Due after one through five years	5,319
Due after five through ten years	15,533
Due after ten years	71,711
Agency mortgage-backed securities	92,825
Estimated Fair Value	$ 187,047	$ 109,821

XML

Loans - Loan Balances (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015	Mar. 31, 2015	Dec. 31, 2014
Loans held-for-investment:
Loans	$ 1,395,965	$ 1,359,458
Deferred loan origination fees, net	(701)	(742)
Loans, net of deferred fees	1,395,264	1,358,716	$ 1,101,991
Allowance for loan losses	(19,458)	(18,926)	(18,554)	$ (18,379)
Loans, net	1,375,806	1,339,790
Commercial
Loans held-for-investment:
Loans	592,128	556,522
Allowance for loan losses	(11,279)	(10,748)	(10,856)	(11,187)
Real estate
Loans held-for-investment:
Loans	787,361	786,926
Allowance for loan losses	(8,068)	(8,076)	(7,554)	(7,070)
Real estate | Commercial and residential
Loans held-for-investment:
Loans	616,821	625,665
Real estate | Land and construction
Loans held-for-investment:
Loans	95,547	84,428
Real estate | Home equity
Loans held-for-investment:
Loans	74,993	76,833
Consumer
Loans held-for-investment:
Loans	16,476	16,010
Allowance for loan losses	(111)	(102)	$ (144)	$ (122)
Focus Business Bank
Loans held-for-investment:
Loans acquired in the focus transaction	$ 130,860	$ 141,343

XML

Loans - Changes in the Allowance for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Changes in the Allowance for Loan Losses
Balance, beginning of period	$ 18,926	$ 18,379
Charge-offs	(117)	(214)
Recoveries	248	449
Net (charge-offs) recoveries	131	235
Provision (credit) for loan losses	401	(60)
Balance, end of period	19,458	18,554
Commercial
Changes in the Allowance for Loan Losses
Balance, beginning of period	10,748	11,187
Charge-offs	(117)	(212)
Recoveries	32	436
Net (charge-offs) recoveries	(85)	224
Provision (credit) for loan losses	616	(555)
Balance, end of period	11,279	10,856
Real estate
Changes in the Allowance for Loan Losses
Balance, beginning of period	8,076	7,070
Charge-offs		(2)
Recoveries	216	13
Net (charge-offs) recoveries	216	11
Provision (credit) for loan losses	(224)	473
Balance, end of period	8,068	7,554
Consumer
Changes in the Allowance for Loan Losses
Balance, beginning of period	102	122
Provision (credit) for loan losses	9	22
Balance, end of period	$ 111	$ 144

XML

Loans - Balance in the Allowance for Loan Losses and the Recorded Investment in Loans by Portfolio Segment, Based on the Impairment Method (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015	Mar. 31, 2015	Dec. 31, 2014
Balance in the Allowance for Loan Losses and the Recorded Investment in Loans by Portfolio Segment, Based on the Impairment Method
Allowance for loan losses, Individually evaluated for impairment	$ 113	$ 286
Allowance for loan losses, Collectively evaluated for impairment	19,345	18,640
Total allowance balance	19,458	18,926	$ 18,554	$ 18,379
Loans, Individually evaluated for impairment	4,084	6,290
Loans, Collectively evaluated for impairment	1,391,636	1,352,931
Loans, Acquired with deteriorated credit quality	245	237
Total loan balance	1,395,965	1,359,458
Commercial
Balance in the Allowance for Loan Losses and the Recorded Investment in Loans by Portfolio Segment, Based on the Impairment Method
Allowance for loan losses, Individually evaluated for impairment	2	174
Allowance for loan losses, Collectively evaluated for impairment	11,277	10,574
Total allowance balance	11,279	10,748	10,856	11,187
Loans, Individually evaluated for impairment	190	2,014
Loans, Collectively evaluated for impairment	591,693	554,271
Loans, Acquired with deteriorated credit quality	245	237
Total loan balance	592,128	556,522
Real estate
Balance in the Allowance for Loan Losses and the Recorded Investment in Loans by Portfolio Segment, Based on the Impairment Method
Allowance for loan losses, Individually evaluated for impairment	111	112
Allowance for loan losses, Collectively evaluated for impairment	7,957	7,964
Total allowance balance	8,068	8,076	7,554	7,070
Loans, Individually evaluated for impairment	3,891	4,272
Loans, Collectively evaluated for impairment	783,470	782,654
Total loan balance	787,361	786,926
Consumer
Balance in the Allowance for Loan Losses and the Recorded Investment in Loans by Portfolio Segment, Based on the Impairment Method
Allowance for loan losses, Collectively evaluated for impairment	111	102
Total allowance balance	111	102	$ 144	$ 122
Loans, Individually evaluated for impairment	3	4
Loans, Collectively evaluated for impairment	16,473	16,006
Total loan balance	16,476	16,010
Commercial and residential | Real estate
Balance in the Allowance for Loan Losses and the Recorded Investment in Loans by Portfolio Segment, Based on the Impairment Method
Total loan balance	616,821	625,665
Land and construction | Real estate
Balance in the Allowance for Loan Losses and the Recorded Investment in Loans by Portfolio Segment, Based on the Impairment Method
Total loan balance	95,547	84,428
Home equity | Real estate
Balance in the Allowance for Loan Losses and the Recorded Investment in Loans by Portfolio Segment, Based on the Impairment Method
Total loan balance	$ 74,993	$ 76,833

XML

Loans - Purchased Credit Impaired Loans - Tabular Information (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Purchased Credit Impaired Loans
Carrying amount, net of discount of $575,000 and $639,000 at March 31, 2016 and December 31, 2015, respectively	$ 245	$ 237
Acquired with deteriorated impaired credit quality
Purchased Credit Impaired Loans
Commercial	820	876
Outstanding balance	820	876
Discount	575	639
Carrying amount, net of discount of $575,000 and $639,000 at March 31, 2016 and December 31, 2015, respectively	$ 245	$ 237

XML

Loans - Purchased Credit Impaired Loans - Allowance for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Acquired with deteriorated impaired credit quality
Purchased Credit Impaired Loans
Reversal of allowance for loan losses	$ 0	$ 0

XML

Loans - Loans Held for Investment Individually Evaluated for Impairment by Class of Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015	Mar. 31, 2015
Unpaid Principal Balance
Total with no related allowance recorded	$ 4,589	$ 5,139
Total with an allowance recorded	617	2,265
Total	5,206	7,404
Recorded Investment
Total with no related allowance recorded	3,712	4,262
Total with an allowance recorded	617	2,265
Total	4,329	6,527	$ 6,896
Total with an allowance recorded, Allowance for Loan Losses Allocated	113	286
Commercial
Unpaid Principal Balance
Total with no related allowance recorded	290	745
Total with an allowance recorded	145	1,506
Recorded Investment
Total with no related allowance recorded	290	745
Total with an allowance recorded	145	1,506
Total with an allowance recorded, Allowance for Loan Losses Allocated	2	174
Consumer
Unpaid Principal Balance
Total with no related allowance recorded	3	4
Recorded Investment
Total with no related allowance recorded	3	4
Commercial and residential | Real estate
Unpaid Principal Balance
Total with no related allowance recorded	3,769	3,851
Recorded Investment
Total with no related allowance recorded	2,910	2,992
Land and construction | Real estate
Unpaid Principal Balance
Total with no related allowance recorded	231	237
Recorded Investment
Total with no related allowance recorded	213	219
Home equity | Real estate
Unpaid Principal Balance
Total with no related allowance recorded	296	302
Recorded Investment
Total with no related allowance recorded	296	302
Total with an allowance recorded	472	759
Total with an allowance recorded, Allowance for Loan Losses Allocated	$ 111	$ 112

XML

Loans - Interest Recognized and Cash Basis Interest Earned on Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Interest Recognized and Cash Basis Interest Earned on Impaired Loans
Average of impaired loans during the period	$ 5,428	$ 6,459
Commercial
Interest Recognized and Cash Basis Interest Earned on Impaired Loans
Average of impaired loans during the period	1,343	1,907
Consumer
Interest Recognized and Cash Basis Interest Earned on Impaired Loans
Average of impaired loans during the period	4	5
Commercial and residential | Real estate
Interest Recognized and Cash Basis Interest Earned on Impaired Loans
Average of impaired loans during the period	2,951	2,901
Land and construction | Real estate
Interest Recognized and Cash Basis Interest Earned on Impaired Loans
Average of impaired loans during the period	216	1,305
Home equity | Real estate
Interest Recognized and Cash Basis Interest Earned on Impaired Loans
Average of impaired loans during the period	$ 914	$ 341

XML

Loans - Nonperforming Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015	Mar. 31, 2015
Loans
Nonaccrual loans - held-for-investment	$ 4,184	$ 4,716	$ 6,733
Restructured and loans over 90 days past due and still accruing		1,662
Total nonperforming loans	4,184	6,378	6,733
Other restructured loans	145	149	163
Total	$ 4,329	$ 6,527	$ 6,896

XML

Loans - Nonperforming Loans by Class (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015	Mar. 31, 2015
Nonperforming Loans by Class
Nonaccrual	$ 4,184	$ 4,716	$ 6,733
Restructured and Loans Over 90 Days Past Due and Still Accruing		1,662
Total	4,184	6,378	$ 6,733
Commercial
Nonperforming Loans by Class
Nonaccrual	290	724
Restructured and Loans Over 90 Days Past Due and Still Accruing		1,378
Total	290	2,102
Consumer
Nonperforming Loans by Class
Nonaccrual	3	4
Total	3	4
Commercial and residential | Real estate
Nonperforming Loans by Class
Nonaccrual	2,910	2,992
Total	2,910	2,992
Land and construction | Real estate
Nonperforming Loans by Class
Nonaccrual	213	219
Total	213	219
Home equity | Real estate
Nonperforming Loans by Class
Nonaccrual	768	777
Restructured and Loans Over 90 Days Past Due and Still Accruing		284
Total	$ 768	$ 1,061

XML

Loans - Aging of Past Due Loans by Class of Loans - Tabular Disclosure (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Aging of Past Due Loans by Class of Loans
Total Past Due	$ 5,100	$ 5,754
Loans Not Past Due	1,390,865	1,353,704
Total loan balance	1,395,965	1,359,458
30-59 Days Past Due
Aging of Past Due Loans by Class of Loans
Total Past Due	2,907	3,504
60-89 Days Past Due
Aging of Past Due Loans by Class of Loans
Total Past Due	1,980	262
90 Days or Greater Past Due
Aging of Past Due Loans by Class of Loans
Total Past Due	213	1,988
Commercial
Aging of Past Due Loans by Class of Loans
Total Past Due	3,702	5,251
Loans Not Past Due	588,426	551,271
Total loan balance	592,128	556,522
Commercial | 30-59 Days Past Due
Aging of Past Due Loans by Class of Loans
Total Past Due	2,906	3,285
Commercial | 60-89 Days Past Due
Aging of Past Due Loans by Class of Loans
Total Past Due	796	262
Commercial | 90 Days or Greater Past Due
Aging of Past Due Loans by Class of Loans
Total Past Due		1,704
Real estate
Aging of Past Due Loans by Class of Loans
Total loan balance	787,361	786,926
Consumer
Aging of Past Due Loans by Class of Loans
Loans Not Past Due	16,476	16,010
Total loan balance	16,476	16,010
Commercial and residential | Real estate
Aging of Past Due Loans by Class of Loans
Total Past Due	889
Loans Not Past Due	615,932	625,665
Total loan balance	616,821	625,665
Commercial and residential | Real estate | 60-89 Days Past Due
Aging of Past Due Loans by Class of Loans
Total Past Due	889
Land and construction | Real estate
Aging of Past Due Loans by Class of Loans
Total Past Due	213	219
Loans Not Past Due	95,334	84,209
Total loan balance	95,547	84,428
Land and construction | Real estate | 30-59 Days Past Due
Aging of Past Due Loans by Class of Loans
Total Past Due		219
Land and construction | Real estate | 90 Days or Greater Past Due
Aging of Past Due Loans by Class of Loans
Total Past Due	213
Home equity | Real estate
Aging of Past Due Loans by Class of Loans
Total Past Due	296	284
Loans Not Past Due	74,697	76,549
Total loan balance	74,993	76,833
Home equity | Real estate | 30-59 Days Past Due
Aging of Past Due Loans by Class of Loans
Total Past Due	1
Home equity | Real estate | 60-89 Days Past Due
Aging of Past Due Loans by Class of Loans
Total Past Due	$ 295
Home equity | Real estate | 90 Days or Greater Past Due
Aging of Past Due Loans by Class of Loans
Total Past Due		$ 284

XML

Loans - Aging of Past Due Loans by Class of Loans - Additional Information (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015	Mar. 31, 2015
Aging of Past Due Loans by Class of Loans
Past due loans 30 day or greater	$ 5,100	$ 5,754
Nonaccrual	4,184	4,716	$ 6,733
30 days or greater past due
Aging of Past Due Loans by Class of Loans
Past due loans 30 day or greater	509	591
Less than 30 days past due
Aging of Past Due Loans by Class of Loans
Nonaccrual	$ 3,675	$ 4,125

XML

Loans - Credit Quality Indicators (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Credit Quality Indicators
Balance to report	$ 1,375,806	$ 1,339,790
Loan classified as loss
Credit Quality Indicators
Recovery value	0
Balance to report	$ 0	$ 0

XML

Loans - Summary of the Loan Portfolio by Loan Type and Credit Quality Classification (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Summary of the Loan Portfolio by Loan Type and Credit Quality Classification
Total	$ 1,395,965	$ 1,359,458
Nonclassified
Summary of the Loan Portfolio by Loan Type and Credit Quality Classification
Total	1,375,003	1,340,826
Classified
Summary of the Loan Portfolio by Loan Type and Credit Quality Classification
Total	20,962	18,632
Commercial
Summary of the Loan Portfolio by Loan Type and Credit Quality Classification
Total	592,128	556,522
Commercial | Nonclassified
Summary of the Loan Portfolio by Loan Type and Credit Quality Classification
Total	580,826	547,536
Commercial | Classified
Summary of the Loan Portfolio by Loan Type and Credit Quality Classification
Total	11,302	8,986
Real estate
Summary of the Loan Portfolio by Loan Type and Credit Quality Classification
Total	787,361	786,926
Consumer
Summary of the Loan Portfolio by Loan Type and Credit Quality Classification
Total	16,476	16,010
Consumer | Nonclassified
Summary of the Loan Portfolio by Loan Type and Credit Quality Classification
Total	16,183	15,705
Consumer | Classified
Summary of the Loan Portfolio by Loan Type and Credit Quality Classification
Total	293	305
Commercial and residential | Real estate
Summary of the Loan Portfolio by Loan Type and Credit Quality Classification
Total	616,821	625,665
Commercial and residential | Real estate | Nonclassified
Summary of the Loan Portfolio by Loan Type and Credit Quality Classification
Total	608,771	617,865
Commercial and residential | Real estate | Classified
Summary of the Loan Portfolio by Loan Type and Credit Quality Classification
Total	8,050	7,800
Land and construction | Real estate
Summary of the Loan Portfolio by Loan Type and Credit Quality Classification
Total	95,547	84,428
Land and construction | Real estate | Nonclassified
Summary of the Loan Portfolio by Loan Type and Credit Quality Classification
Total	95,334	84,209
Land and construction | Real estate | Classified
Summary of the Loan Portfolio by Loan Type and Credit Quality Classification
Total	213	219
Home equity | Real estate
Summary of the Loan Portfolio by Loan Type and Credit Quality Classification
Total	74,993	76,833
Home equity | Real estate | Nonclassified
Summary of the Loan Portfolio by Loan Type and Credit Quality Classification
Total	73,889	75,511
Home equity | Real estate | Classified
Summary of the Loan Portfolio by Loan Type and Credit Quality Classification
Total	$ 1,104	$ 1,322

XML

Loans - Troubled Debt Restructurings (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Loans
Recorded investment of troubled debt restructurings	$ 148	$ 153
Troubled debt restructurings, nonaccrual loans	3	4
Troubled debt restructurings, accruing loans	145	149
Specific reserves	2	3
Additional amount of loan classified as a troubled debt restructurings	$ 0	$ 0

XML

Loans - Troubled Debt Restructurings by Class (Details) - contract	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Loans
Number of Contracts	0	0

XML

Loans - Defaults on Troubled Debt Restructurings (Details) - item	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Loans
Default period contractually past due under modified terms (in days)	30 days
Number of defaults on troubled debt restructurings	0	0
Period of consecutive payments (in months)	6 months

XML

Business Combinations - Bay View Funding and Focus Business Bank - Consideration Paid (Details) $ / shares in Units, $ in Thousands	Aug. 20, 2015 USD ($) $ / shares shares	Nov. 01, 2014 USD ($)
BVF/CSNK
Consideration Paid
Total consideration		$ 22,520
Focus Business Bank
Consideration Paid
Total consideration	$ 66,558
Fixed exchange ratio of company's common stock	1.8235
Shares issued in acquisition | shares	5,456,713
Common stock issued to acquire Focus Business Bank	$ 58,278
Stock price (in dollars per share) | $ / shares	$ 10.68
Purchase consideration paid in cash	$ 8,280

XML

Business Combinations - Focus Business Bank - Acquisition and Integration Costs (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2015	Dec. 31, 2015
Focus Business Bank
Acquisition and Integration Costs
Pre-tax severance, retention, acquisition and integration costs	$ 119	$ 6,398

XML

Business Combinations - Focus Business Bank - Estimated Fair Values of the Assets Acquired and Liabilities Assumed (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015	Aug. 20, 2015	Mar. 31, 2015
Assets acquired:
Goodwill	$ 45,664	$ 45,664		$ 13,054
Focus Business Bank
Assets acquired:
Cash and cash item			$ 5,651
Federal funds sold and deposits in other financial institutions			168,415
Securities available-for-sale			53,940
Securities held-to-maturity			8,665
Loans held-for-sale			4,416
Net loans			170,353
Goodwill			32,620
Core deposit intangible asset			6,285
Corporate owned life insurance			7,067
Other assets, net			20,250
Total assets acquired			477,662
Liabilities assumed:
Deposits			405,123
Other liabilities			5,981
Total liabilities			411,104
Net assets acquired			$ 66,558

XML

Business Combinations - Focus Business Bank - Acquired Receivables and Goodwill (Details) $ in Thousands	Aug. 20, 2015 USD ($) loan	Mar. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)	Mar. 31, 2015 USD ($)
Goodwill
Goodwill		$ 45,664	$ 45,664	$ 13,054
Focus Business Bank
Acquired Receivables
Fair value, nonimpaired loans		$ 130,860	$ 141,343
Goodwill
Goodwill	$ 32,620
Income tax attributes related to the purchase accounting adjustments	$ 1,758
Focus Business Bank | Loans receivable
Acquired Receivables
Purchased credit impaired loans acquired, number | loan	4
Gross contractual amount, impaired loans	$ 1,124
Contractual cash flows not expected to be collected on the purchased credit impaired loans	$ 819
Contractual cash flows not expected to be collected on the purchased credit impaired loans as a percentage of gross outstanding principal (as a percent)	72.90%
Fair value, nonimpaired loans	$ 170,048
Gross contractual amount, nonimpaired loans	174,660
Purchase discount	$ 4,612
Purchase discount (as a percentage)	2.60%
Fair value of loans	$ 170,353

XML

Business Combinations - Focus Business Bank - Consideration Paid Summary (Details) - Focus Business Bank $ / shares in Units, $ in Thousands	Aug. 20, 2015 USD ($) $ / shares
Consideration Paid
Cash paid for Focus in-the-money stock options	$ 8,280
Common stock issued to Focus shareholders at $10.68 per share	58,278
Total consideration	$ 66,558
Stock price (in dollars per share) | $ / shares	$ 10.68

XML

Business Combinations - Focus Business Bank - Pro Forma Information (Details) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2015 USD ($) $ / shares
Pro Forma Information
Net interest income	$ 20,092
Provision for loan losses	(10)
Noninterest income	3,102
Noninterest expense	15,418
Income before income taxes	7,786
Income tax expense	2,923
Net income	$ 4,863
Net income per share - basic (in dollars per share) | $ / shares	$ 0.13
Net income per share - diluted (in dollars per share) | $ / shares	$ 0.13

XML

Goodwill and Other Intangible Assets - Goodwill (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Dec. 31, 2015	Aug. 20, 2015	Mar. 31, 2015
Goodwill
Goodwill	$ 45,664	$ 45,664		$ 13,054
BVF/CSNK
Goodwill
Goodwill acquired	13,044
Focus Business Bank
Goodwill
Goodwill			$ 32,620
Goodwill acquired	$ 32,620

XML

Goodwill and Other Intangible Assets - Other Intangible Assets (Details) - USD ($) $ in Thousands			1 Months Ended
	Aug. 20, 2015	Nov. 01, 2014	Jun. 30, 2007	Mar. 31, 2016	Dec. 31, 2015
Diablo Valley Bank
Other Intangible Assets
Accumulated amortization				$ 4,810	$ 4,703
Diablo Valley Bank | Core deposit
Other Intangible Assets
Intangible assets acquired			$ 5,049
Useful life, amortization period			10 years
Diablo Valley Bank | Customer relationship
Other Intangible Assets
Intangible assets acquired			$ 276
Useful life, amortization period			7 years
Focus Business Bank | Core deposit
Other Intangible Assets
Intangible assets acquired	$ 6,285
Accumulated amortization				496	288
Useful life, amortization period	10 years
BVF/CSNK
Other Intangible Assets
Accumulated amortization				$ 437	$ 360
BVF/CSNK | Below market-value lease
Other Intangible Assets
Intangible assets acquired		$ 109
Useful life, amortization period		3 years
BVF/CSNK | Customer relationship and brokered relationship
Other Intangible Assets
Intangible assets acquired		$ 1,900
Useful life, amortization period		10 years
BVF/CSNK | Non-compete agreements
Other Intangible Assets
Intangible assets acquired		$ 250
Useful life, amortization period		3 years

XML

Goodwill and Other Intangible Assets - Estimated Amortization Expense (Details) $ in Thousands	Mar. 31, 2016 USD ($)
Estimated Amortization Expense
2016	$ 1,567
2017	1,361
2018	965
2019	924
2020	906
2021	786
Total	6,509
Diablo Valley Bank | Core deposit
Estimated Amortization Expense
2016	427
2017	195
Total	622
Focus Business Bank | Core deposit
Estimated Amortization Expense
2016	831
2017	875
2018	775
2019	734
2020	716
2021	596
Total	4,527
BVF/CSNK | Below market-value lease
Estimated Amortization Expense
2016	36
2017	31
Total	67
BVF/CSNK | Customer relationship and brokered relationship
Estimated Amortization Expense
2016	190
2017	190
2018	190
2019	190
2020	190
2021	190
Total	1,140
BVF/CSNK | Non-compete agreements
Estimated Amortization Expense
2016	83
2017	70
Total	$ 153

XML

Goodwill and Other Intangible Assets - Impairment of Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Impairment of Intangible Assets
Impairment of intangible assets	$ 0	$ 0

XML

Income Taxes - Liability for Uncertain Tax Positions (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2016 USD ($)
Income Taxes
Reserve for income taxes, net of Federal benefit for uncertain tax positions	$ 270

XML

Income Taxes - Net Deferred Tax Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Net deferred tax assets
Net deferred tax assets	$ 18,690	$ 22,218

XML

Income Taxes - Carry Amounts of the Low Income Housing Investments (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Income Taxes
Low income housing investments	$ 4,235	$ 4,304

XML

Income Taxes - Future Commitments of the Low Income Housing Investments (Details) - Low income housing investments - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Future Commitments
Future commitments	$ 845	$ 1,271
2016	123
2017	14
2018 through 2023	$ 708

XML

Income Taxes - Components of Low Income Housing Investment (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Income Taxes
Low income housing tax credits	$ 111	$ 172
Low income housing investment losses	$ 117	$ 229

XML

Benefit Plans - Defined Benefit Plans - Nonqualified Defined Benefit Pension Plan (Details) $ in Thousands	Mar. 31, 2016 USD ($)
Supplemental Retirement Plan
Supplemental Retirement Plan
Plan assets associated with the plan	$ 0

XML

Benefit Plans - Defined Benefit Plans - Components of Pension Cost (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Supplemental Retirement Plan
Components of Net Periodic Benefit Cost
Service cost	$ 133	$ 216
Interest cost	259	221
Amortization of net actuarial loss	60	96
Net periodic benefit cost	452	533
Split-Dollar Life Insurance Benefit Plan
Components of Net Periodic Benefit Cost
Amortization of prior transition obligation	(13)	(12)
Interest cost	62	50	$ 169
Net periodic benefit cost	$ 49	$ 38

XML

Benefit Plans - Defined Benefit Plans - Change in Projected Benefit Obligation (Details) - Split-Dollar Life Insurance Benefit Plan - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Change in Projected Benefit Obligation
Projected benefit obligation at beginning of year	$ 6,215	$ 4,641	$ 4,641
Interest cost	62	$ 50	169
Amortization of net actuarial loss			1,405
Projected benefit obligation at end of year	$ 6,277		$ 6,215

XML

Benefit Plans - Defined Benefit Plans - Amounts Recognized in Accumulated Other Comprehensive Loss (Details) - Split-Dollar Life Insurance Benefit Plan - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Amounts Recognized in Accumulated Other Comprehensive Loss
Net actuarial loss	$ 2,183	$ 2,147
Prior transition obligation	1,395	1,418
Accumulated other comprehensive loss	$ 3,578	$ 3,565

XML

Equity (Details) - Series C convertible perpetual preferred stock	Jun. 21, 2010 $ / shares shares	Mar. 31, 2016 stockholder
Series C Preferred Stock
Preferred stock, shares issued | shares	21,004
Conversion price (in dollars per share) | $ / shares	$ 3.75
Number of common stock into which preferred stock are convertible (in shares) | shares	5,601,000
Liquidation preference (in dollars per share) | $ / shares	$ 1,000
Number of holders who obtained approval from Federal Reserve | stockholder		1

XML

Fair Value - Financial Assets and Liabilities Measured on a Recurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Financial Assets and Liabilities Measured on a Recurring Basis
Securities available-for-sale	$ 448,540	$ 385,079
Agency mortgage-backed securities
Financial Assets and Liabilities Measured on a Recurring Basis
Securities available-for-sale	392,753	324,230
U.S. Treasury
Financial Assets and Liabilities Measured on a Recurring Basis
Securities available-for-sale	30,332	30,003
Corporate bonds
Financial Assets and Liabilities Measured on a Recurring Basis
Securities available-for-sale	1,049	6,673
Trust preferred securities
Financial Assets and Liabilities Measured on a Recurring Basis
Securities available-for-sale	15,225	15,132
U.S. Government sponsored entities
Financial Assets and Liabilities Measured on a Recurring Basis
Securities available-for-sale	9,181	9,041
Recurring basis
Financial Assets and Liabilities Measured on a Recurring Basis
I/O strip receivables	1,369	1,367
Transfers between Level 1 and Level 2
Transfers between Level 1 and Level 2	0	0
Transfers between Level 2 and Level 1	0	0
Recurring basis | Agency mortgage-backed securities
Financial Assets and Liabilities Measured on a Recurring Basis
Securities available-for-sale	392,753	324,230
Recurring basis | U.S. Treasury
Financial Assets and Liabilities Measured on a Recurring Basis
Securities available-for-sale	30,332	30,003
Recurring basis | Corporate bonds
Financial Assets and Liabilities Measured on a Recurring Basis
Securities available-for-sale	1,049	6,673
Recurring basis | Trust preferred securities
Financial Assets and Liabilities Measured on a Recurring Basis
Securities available-for-sale	15,225	15,132
Recurring basis | U.S. Government sponsored entities
Financial Assets and Liabilities Measured on a Recurring Basis
Securities available-for-sale	9,181	9,041
Recurring basis | Quoted Prices in Active Markets for Identical Assets (Level 1) | U.S. Treasury
Financial Assets and Liabilities Measured on a Recurring Basis
Securities available-for-sale	30,332	30,003
Recurring basis | Significant Other Observable Inputs (Level 2)
Financial Assets and Liabilities Measured on a Recurring Basis
I/O strip receivables	1,369	1,367
Recurring basis | Significant Other Observable Inputs (Level 2) | Agency mortgage-backed securities
Financial Assets and Liabilities Measured on a Recurring Basis
Securities available-for-sale	392,753	324,230
Recurring basis | Significant Other Observable Inputs (Level 2) | Corporate bonds
Financial Assets and Liabilities Measured on a Recurring Basis
Securities available-for-sale	1,049	6,673
Recurring basis | Significant Other Observable Inputs (Level 2) | Trust preferred securities
Financial Assets and Liabilities Measured on a Recurring Basis
Securities available-for-sale	15,225	15,132
Recurring basis | Significant Other Observable Inputs (Level 2) | U.S. Government sponsored entities
Financial Assets and Liabilities Measured on a Recurring Basis
Securities available-for-sale	$ 9,181	$ 9,041

XML

Fair Value - Financial Assets and Liabilities Measured on a Non-Recurring Basis (Details) - Non-recurring basis - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Financial Assets and Liabilities Measured on a Non-Recurring Basis
Impaired loans - held-for-investment:	$ 1,199	$ 2,702
Significant Unobservable Inputs (Level 3)
Financial Assets and Liabilities Measured on a Non-Recurring Basis
Impaired loans - held-for-investment:	1,199	2,702
Commercial
Financial Assets and Liabilities Measured on a Non-Recurring Basis
Impaired loans - held-for-investment:	143	1,333
Commercial | Significant Unobservable Inputs (Level 3)
Financial Assets and Liabilities Measured on a Non-Recurring Basis
Impaired loans - held-for-investment:	143	1,333
Commercial and residential | Real estate
Financial Assets and Liabilities Measured on a Non-Recurring Basis
Impaired loans - held-for-investment:	482	503
Commercial and residential | Real estate | Significant Unobservable Inputs (Level 3)
Financial Assets and Liabilities Measured on a Non-Recurring Basis
Impaired loans - held-for-investment:	482	503
Land and construction | Real estate
Financial Assets and Liabilities Measured on a Non-Recurring Basis
Impaired loans - held-for-investment:	213	219
Land and construction | Real estate | Significant Unobservable Inputs (Level 3)
Financial Assets and Liabilities Measured on a Non-Recurring Basis
Impaired loans - held-for-investment:	213	219
Home equity | Real estate
Financial Assets and Liabilities Measured on a Non-Recurring Basis
Impaired loans - held-for-investment:	361	647
Home equity | Real estate | Significant Unobservable Inputs (Level 3)
Financial Assets and Liabilities Measured on a Non-Recurring Basis
Impaired loans - held-for-investment:	$ 361	$ 647

XML

Fair Value - Impaired Loans Held-for-investment - Tabular Disclosure (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Impaired Loans Held-for-investment
Impaired loans held-for-investment	$ 4,329	$ 6,527
Portion carried at fair value
Impaired Loans Held-for-investment
Impaired loans held-for-investment	1,312	2,988
Specific valuation allowance	(113)	(286)
Impaired loans held-for-investment carried at fair value, net	1,199	2,702
Portion carried at cost
Impaired Loans Held-for-investment
Impaired loans held-for-investment	$ 3,017	$ 3,539

XML

Fair Value - Impaired Loans Held-for-investment - Additional Disclosures (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Impaired Loans Held-for-investment
Impaired loans held-for-investment	$ 4,329	$ 6,527
Additional provision (credit) for loan losses	2	156
Valuation allowance on foreclosed assets	0	0
Partial charge-offs		0
Portion carried at fair value
Impaired Loans Held-for-investment
Impaired loans held-for-investment	1,312	2,988
Specific valuation allowance	113	286
Portion carried at cost
Impaired Loans Held-for-investment
Impaired loans held-for-investment	3,017	3,539
Carrying amount
Impaired Loans Held-for-investment
Foreclosed assets	$ 386	$ 364

XML

Fair Value - Quantitative Information about Level 3 Fair Value Measurements (Details) - Non-recurring basis - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Impaired loans - held-for-investment, Fair Value	$ 1,199	$ 2,702
Significant Unobservable Inputs (Level 3)
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Impaired loans - held-for-investment, Fair Value	1,199	2,702
Commercial
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Impaired loans - held-for-investment, Fair Value	143	1,333
Commercial | Significant Unobservable Inputs (Level 3)
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Impaired loans - held-for-investment, Fair Value	143	1,333
Commercial | Significant Unobservable Inputs (Level 3) | Market Approach
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Impaired loans - held-for-investment, Fair Value	$ 143	$ 1,333
Commercial | Significant Unobservable Inputs (Level 3) | Market Approach | Minimum
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Discount adjustment for differences between comparable sales (as a percent)		0.00%
Commercial | Significant Unobservable Inputs (Level 3) | Market Approach | Maximum
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Discount adjustment for differences between comparable sales (as a percent)	1.00%	5.00%
Commercial | Significant Unobservable Inputs (Level 3) | Market Approach | Weighted average
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Discount adjustment for differences between comparable sales (as a percent)		5.00%
Commercial and residential | Real estate
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Impaired loans - held-for-investment, Fair Value	$ 482	$ 503
Commercial and residential | Real estate | Significant Unobservable Inputs (Level 3)
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Impaired loans - held-for-investment, Fair Value	482	503
Commercial and residential | Real estate | Significant Unobservable Inputs (Level 3) | Market Approach
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Impaired loans - held-for-investment, Fair Value	$ 482	$ 503
Commercial and residential | Real estate | Significant Unobservable Inputs (Level 3) | Market Approach | Minimum
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Discount adjustment for differences between comparable sales (as a percent)	0.00%	0.00%
Commercial and residential | Real estate | Significant Unobservable Inputs (Level 3) | Market Approach | Maximum
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Discount adjustment for differences between comparable sales (as a percent)	3.00%	3.00%
Commercial and residential | Real estate | Significant Unobservable Inputs (Level 3) | Market Approach | Weighted average
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Discount adjustment for differences between comparable sales (as a percent)	3.00%	3.00%
Land and construction | Real estate
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Impaired loans - held-for-investment, Fair Value	$ 213	$ 219
Land and construction | Real estate | Significant Unobservable Inputs (Level 3)
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Impaired loans - held-for-investment, Fair Value	213	219
Land and construction | Real estate | Significant Unobservable Inputs (Level 3) | Market Approach
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Impaired loans - held-for-investment, Fair Value	$ 213	$ 219
Land and construction | Real estate | Significant Unobservable Inputs (Level 3) | Market Approach | Maximum
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Discount adjustment for differences between comparable sales (as a percent)	1.00%	1.00%
Home equity | Real estate
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Impaired loans - held-for-investment, Fair Value	$ 361	$ 647
Home equity | Real estate | Significant Unobservable Inputs (Level 3)
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Impaired loans - held-for-investment, Fair Value	361	647
Home equity | Real estate | Significant Unobservable Inputs (Level 3) | Market Approach
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Impaired loans - held-for-investment, Fair Value	$ 361	$ 647
Home equity | Real estate | Significant Unobservable Inputs (Level 3) | Market Approach | Minimum
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Discount adjustment for differences between comparable sales (as a percent)	0.00%	0.00%
Home equity | Real estate | Significant Unobservable Inputs (Level 3) | Market Approach | Maximum
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Discount adjustment for differences between comparable sales (as a percent)	3.00%	2.00%
Home equity | Real estate | Significant Unobservable Inputs (Level 3) | Market Approach | Weighted average
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis
Discount adjustment for differences between comparable sales (as a percent)	3.00%	2.00%

XML

Fair Value - Carrying Amounts and Estimated Fair Values of Financial Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Assets
Securities available-for-sale	$ 448,540	$ 385,079
Securities held-to-maturity	187,047	109,821
Carrying amount
Assets
Cash and cash equivalents	143,135	344,092
Securities available-for-sale	448,540	385,079
Securities held-to-maturity	185,165	109,311
Loans (including loans held-for-sale), net	1,378,195	1,347,087
FHLB and FRB stock and other investments	12,702	12,694
Accrued interest receivable	6,681	5,924
I/O strips receivables	1,369	1,367
Liabilities
Time deposits	256,538	244,861
Other deposits	1,772,198	1,817,914
Short-term borrowings		3,000
Accrued interest payable	188	170
Carried at fair value
Assets
Cash and cash equivalents	143,135	344,092
Securities available-for-sale	448,540	385,079
Securities held-to-maturity	187,047	109,821
Loans (including loans held-for-sale), net	1,376,951	1,345,236
Accrued interest receivable	6,681	5,924
I/O strips receivables	1,369	1,367
Liabilities
Time deposits	256,842	245,279
Other deposits	1,772,198	1,817,914
Short-term borrowings		3,000
Accrued interest payable	188	170
Carried at fair value | Quoted Prices in Active Markets for Identical Assets (Level 1)
Assets
Cash and cash equivalents	143,135	344,092
Securities available-for-sale	30,332	30,003
Accrued interest receivable	83	14
Carried at fair value | Significant Other Observable Inputs (Level 2)
Assets
Securities available-for-sale	418,208	355,076
Securities held-to-maturity	187,047	109,821
Loans (including loans held-for-sale), net	2,389	7,297
Accrued interest receivable	2,216	1,640
I/O strips receivables	1,369	1,367
Liabilities
Time deposits	256,842	245,279
Other deposits	1,772,198	1,817,914
Short-term borrowings		3,000
Accrued interest payable	188	170
Carried at fair value | Significant Unobservable Inputs (Level 3)
Assets
Loans (including loans held-for-sale), net	1,374,562	1,337,939
Accrued interest receivable	$ 4,382	$ 4,270

XML

Equity Plan - General Disclosures (Details)	3 Months Ended
	Mar. 31, 2016 shares
2013 Plan
Equity Plan
Number of shares available for future grants	940,985
Options
Equity Plan
Vesting period	4 years
Options | Maximum
Equity Plan
Expiration term	10 years

XML

Equity Plan - Stock Option Activity (Details) - Options	3 Months Ended
	Mar. 31, 2016 USD ($) $ / shares shares
Number of Shares
Outstanding at the beginning of the period (in shares)	1,775,027
Exercised (in shares)	(57,441)
Forfeited or expired (in shares)	(12,000)
Outstanding at the end of the period (in shares)	1,705,586
Vested or expected to vest (in shares)	1,620,307
Exercisable at the end of the period (in shares)	1,255,734
Weighted Average Exercise Price
Outstanding at the beginning of the period (in dollars per share) | $ / shares	$ 10.62
Exercised (in dollars per share) | $ / shares	6.24
Forfeited or expired (in dollars per share) | $ / shares	22.78
Outstanding at the end of the period (in dollars per share) | $ / shares	$ 10.68
Additional Information
Weighted Average Remaining Contractual Life - Outstanding at the end of the period (in years)	5 years 7 months 6 days
Weighted Average Remaining Contractual Life - Vested or expected to vest (in years)	5 years 7 months 6 days
Weighted Average Remaining Contractual Life - Exercisable at the end of the period (in years)	4 years 7 months 6 days
Aggregate Intrinsic Value - Outstanding at the end of the period (in dollars) | $	$ 3,622,227
Aggregate Intrinsic Value - Vested or expected to vest (in dollars) | $	3,441,116
Aggregate Intrinsic Value - Exercisable at the end of the period (in dollars) | $	$ 2,878,696

XML

Equity Plan - Unrecognized Compensation Cost - Nonvested Stock Options (Details) - Options $ in Thousands	3 Months Ended
	Mar. 31, 2016 USD ($)
Unrecognized Compensation Cost
Total unrecognized compensation cost related to nonvested stock options granted	$ 1,597
Expected weighted-average period for recognition of compensation costs related to nonvested stock options	2 years 3 months 22 days

XML

Equity Plan - Restricted Stock Activity (Details) - Restricted stock	3 Months Ended
	Mar. 31, 2016 $ / shares shares
Number of Shares
Nonvested shares at the beginning of the period (in shares) | shares	167,605
Vested (in shares) | shares	(5,000)
Nonvested shares at the end of the period (in shares) | shares	162,605
Weighted Average Grant Date Fair Value
Nonvested shares at the beginning of the period (in dollars per share) | $ / shares	$ 9.28
Vested (in dollars per share) | $ / shares	8.30
Nonvested shares at the end of the period (in dollars per share) | $ / shares	$ 9.31

XML

Equity Plan - Unrecognized Compensation Cost - Nonvested Restricted Stock Awards (Details) - Restricted stock $ in Thousands	3 Months Ended
	Mar. 31, 2016 USD ($)
Unrecognized Compensation Cost
Total unrecognized compensation cost related to nonvested restricted stock awards	$ 1,255
Expected weighted-average period for recognition of compensation costs related to nonvested restricted stock awards	2 years 11 months 1 day

XML

Capital Requirements - General Information (Details)	3 Months Ended
	Mar. 31, 2016
Capital Requirements
Capital conservation buffer (as a percent)	0.625%
Phase-in period (in years)	4 years
Capital conservation buffer, end rate after annual increases (as a percent)	2.50%
HBC (Wholly-owned Subsidiary)
Capital Requirements
Capital conservation buffer (as a percent)	0.625%
Phase-in period (in years)	4 years
Capital conservation buffer, end rate after annual increases (as a percent)	2.50%

XML

Capital Requirements - Tabular Disclosure (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Total Capital (to risk-weighted assets)
Actual, Amount	$ 221,578	$ 218,915
Required For Capital Adequacy Purposes, Amount	$ 154,134	$ 140,041
Actual, Ratio (as a percent)	12.40%	12.50%
Required For Capital Adequacy Purposes, Ratio (as a percent)	8.625%	8.00%
Capital conservation buffer (as a percent)	0.625%
Tier 1 Capital (to risk-weighted assets)
Actual, Amount	$ 201,380	$ 199,299
Required For Capital Adequacy Purposes, Amount	$ 118,393	$ 105,031
Actual, Ratio (as a percent)	11.30%	11.40%
Required For Capital Adequacy Purposes, Ratio (as a percent)	6.625%	6.00%
Common Equity Tier 1 Capital (to risk-weighted assets)
Actual, Amount	$ 182,623	$ 181,221
Required For Capital Adequacy Purposes, Amount	$ 91,587	$ 78,773
Actual, Ratio (as a percent)	10.20%	10.40%
Required For Capital Adequacy Purposes, Ratio (as a percent)	5.125%	4.50%
Tier 1 Capital (to average assets)
Actual, Amount	$ 201,380	$ 199,299
Required For Capital Adequacy Purposes, Amount	$ 91,671	$ 92,918
Actual, Ratio (as a percent)	8.80%	8.60%
Required For Capital Adequacy Purposes, Ratio (as a percent)	4.00%	4.00%
HBC (Wholly-owned Subsidiary)
Total Capital (to risk-weighted assets)
Actual, Amount	$ 220,150	$ 219,943
To Be Well Capitalized Under Regulatory Requirements, Amount	178,717	175,022
Required For Capital Adequacy Purposes, Amount	$ 154,143	$ 140,018
Actual, Ratio (as a percent)	12.30%	12.60%
To Be Well Capitalized Under Regulatory Requirements, Ratio (as a percent)	10.00%	10.00%
Required For Capital Adequacy Purposes, Ratio (as a percent)	8.625%	8.00%
Capital conservation buffer (as a percent)	0.625%
Tier 1 Capital (to risk-weighted assets)
Actual, Amount	$ 199,952	$ 200,327
To Be Well Capitalized Under Regulatory Requirements, Amount	142,973	140,018
Required For Capital Adequacy Purposes, Amount	$ 118,400	$ 105,013
Actual, Ratio (as a percent)	11.20%	11.40%
To Be Well Capitalized Under Regulatory Requirements, Ratio (as a percent)	8.00%	8.00%
Required For Capital Adequacy Purposes, Ratio (as a percent)	6.625%	6.00%
Common Equity Tier 1 Capital (to risk-weighted assets)
Actual, Amount	$ 199,952	$ 200,327
To Be Well Capitalized Under Regulatory Requirements, Amount	116,166	113,764
Required For Capital Adequacy Purposes, Amount	$ 91,592	$ 78,760
Actual, Ratio (as a percent)	11.20%	11.40%
To Be Well Capitalized Under Regulatory Requirements, Ratio (as a percent)	6.50%	6.50%
Required For Capital Adequacy Purposes, Ratio (as a percent)	5.125%	4.50%
Tier 1 Capital (to average assets)
Actual, Amount	$ 199,952	$ 200,327
To Be Well Capitalized Under Regulatory Requirements, Amount	114,574	116,112
Required For Capital Adequacy Purposes, Amount	$ 91,659	$ 92,889
Actual, Ratio (as a percent)	8.70%	8.60%
To Be Well Capitalized Under Regulatory Requirements, Ratio (as a percent)	5.00%	5.00%
Required For Capital Adequacy Purposes, Ratio (as a percent)	4.00%	4.00%

XML

Capital Requirements - Dividends to Parent (Details) - HCC (Parent) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Jan. 01, 2016
Cash dividend
Cash dividend available		$ 16,361
Dividends paid to parent company	$ 6,000

XML

Loss Contingencies (Details)	3 Months Ended
	Mar. 31, 2016 complaint
Loss Contingencies
Number of complaints set for trial in the future	1
Number of complaints in pleading and in mid-discovery	3
Number of complaint in mid-discovery	1

XML

Noninterest Expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Noninterest Expense
Salaries and employee benefits	$ 8,947	$ 8,042
Occupancy and equipment	1,085	1,045
Professional fees	825	95
Data processing	400	303
Software subscriptions	341	327
FDIC deposit insurance premiums	331	239
Insurance expense	299	291
Foreclosed assets	2	(170)
Other	2,455	2,104
Total noninterest expense	$ 14,685	$ 12,276

XML

Business Segment Information - Business Segments (Details)	3 Months Ended
	Mar. 31, 2016 segment
Business Segment Information
Number of business segments	2

XML

Business Segment Information - Operating Statements (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Operating Income (Loss)
Interest income	$ 23,062	$ 17,366
Total interest expense	758	508
Net interest income	22,304	16,858
Provision (credit) for loan losses	401	(60)
Net interest income after provision	21,903	16,918
Noninterest income	2,614	1,926
Noninterest expense	14,685	12,276
Income before income taxes	9,832	6,568
Income tax expense	3,726	2,430
Net income	6,106	4,138
Total assets	2,327,333	1,652,887	$ 2,361,579
Loans, net of deferred fees	1,395,264	1,101,991	1,358,716
Goodwill	45,664	13,054	$ 45,664
Banking
Operating Income (Loss)
Interest income	20,208	14,304
Intersegment interest allocations	245	268
Total interest expense	758	508
Net interest income	19,695	14,064
Provision (credit) for loan losses	387	(58)
Net interest income after provision	19,308	14,122
Noninterest income	2,412	1,792
Noninterest expense	13,052	10,506
Intersegment expense allocation	175	75
Income before income taxes	8,843	5,483
Income tax expense	3,310	1,974
Net income	5,533	3,509
Total assets	2,271,411	1,593,176
Loans, net of deferred fees	1,353,315	1,057,437
Goodwill	32,620
Factoring
Operating Income (Loss)
Interest income	2,854	3,062
Intersegment interest allocations	(245)	(268)
Net interest income	2,609	2,794
Provision (credit) for loan losses	14	(2)
Net interest income after provision	2,595	2,796
Noninterest income	202	134
Noninterest expense	1,633	1,770
Intersegment expense allocation	(175)	(75)
Income before income taxes	989	1,085
Income tax expense	416	456
Net income	573	629
Total assets	55,922	59,711
Loans, net of deferred fees	41,949	44,554
Goodwill	$ 13,044	$ 13,054

XML

Subsequent Event (Details) - $ / shares		3 Months Ended
	Apr. 28, 2016	Mar. 31, 2016	Mar. 31, 2015
Subsequent event
Quarterly cash dividends declared to holders of common stock		$ 0.09	$ 0.08
Subsequent events
Subsequent event
Quarterly cash dividends declared to holders of common stock	$ 0.09
Subsequent events | Series C convertible perpetual preferred stock
Subsequent event
Quarterly cash dividends declared to holders of Series C preferred stock (on an as converted basis)	$ 0.09