UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 26, 2017
HERITAGE COMMERCE CORP
(Exact name of registrant as specified in its charter)
California |
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000-23877 |
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77-0469558 |
(State or other jurisdiction of |
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(Commission File Number) |
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(IRS Employer Identification No.) |
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150 Almaden Boulevard, San Jose, California |
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95113 |
(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code: (408) 947-6900
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (See General Instruction A.2. below):
☐Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
ITEM 2.02RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On October 26, 2017, Heritage Commerce Corp, the holding company (the “Company”) of Heritage Bank of Commerce (the “Bank”) issued a press release announcing preliminary unaudited results for the three and nine months ended September 30, 2017. A copy of the press release is attached as Exhibit 99.1 to this Current Report and is incorporated herein by reference.
The information in this report set forth under this Item 2.02 shall not be treated as “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933 or the Securities Act of 1934, except as expressly stated by specific reference in such filing.
ITEM 8.01OTHER EVENTS
QUARTERLY DIVIDEND
On October 26, 2017, the Company announced that its Board of Directors declared a $0.10 per share quarterly cash dividend to holders of common stock. The dividend will be paid on November 21, 2017, to shareholders of record on November 7, 2017. A copy of the press release is attached as Exhibit 99.2 to this Current Report and is incorporated herein by reference.
ITEM 9.01FINANCIAL STATEMENTS AND EXHIBITS
(D) Exhibits.
99.1Press Release, dated October 26, 2017, entitled “Heritage Commerce Corp Reports Record Earnings of $8.6 Million for the Third Quarter of 2017; an Increase of 27% Over the Third Quarter of 2016”
99.2Press Release, dated October 26, 2017, entitled “Heritage Commerce Corp Declares Quarterly Cash Dividend of $0.10 Per Share”
2
INDEX TO EXHIBITS
EXHIBIT NO. |
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DESCRIPTION |
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99.1 |
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99.2 |
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3
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.
Date: October 27, 2017
Heritage Commerce Corp
By: /s/ Lawrence D. McGovern |
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Name: Lawrence D. McGovern |
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Executive Vice President and Chief Financial Officer |
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4
Exhibit 99.1
Heritage Commerce Corp Reports Record Earnings of $8.6 Million for the Third Quarter of 2017;
an Increase of 27% Over the Third Quarter of 2016
San Jose, CA — October 26, 2017 — Heritage Commerce Corp (Nasdaq: HTBK), the holding company (the “Company”) for Heritage Bank of Commerce (the “Bank”), today reported net income increased 27% to $8.6 million, or $0.22 per average diluted common share for the third quarter of 2017, compared to $6.8 million, or $0.18 per average diluted common share for the third quarter of 2016, and increased 15% from $7.4 million, or $0.19 per average diluted common share for the second quarter of 2017. For the nine months ended September 30, 2017, net income increased 12% to $22.6 million, or $0.59 per average diluted common share, from $20.2 million, or $0.53 per average diluted common share, for the nine months ended September 30, 2016.
“We continued to deliver strong financial results and achieved record profits for the second consecutive quarter,” said Walter Kaczmarek, President and Chief Executive Officer. “Solid earning assets and deposit growth resulted in higher net interest income. That along with sound credit quality and cost controls resulted in record net income for the third quarter of 2017. Credit quality continued to improve across the board with total nonperforming assets (“NPAs”) declining 27% from the third quarter a year ago.” The ratio of NPAs to total assets was 0.12% and the allowance for loan losses to total loans was 1.26%, at September 30, 2017.
“We have maintained our momentum from the second quarter producing excellent performance metrics, including return on average tangible assets of 1.22%, return on average tangible equity of 15.41%, and an efficiency ratio of 51.54% for the third quarter of 2017,” added Mr. Kaczmarek. “We are well positioned to continue growing, as we focus on building a steady, well-diversified business bank in the vibrant San Francisco Bay Area. At the same time, we maintain high levels of liquidity to fund internal growth or to provide capital for opportunities in our market."
Third Quarter 2017 Highlights (as of, or for the periods ended September 30, 2017, compared to June 30, 2017, and September 30, 2016, except as noted):
¨ |
Diluted earnings per share totaled $0.22 for the third quarter of 2017, compared to $0.18 for the third quarter of 2016, and $0.19 for the second quarter of 2017. Diluted earnings per share totaled $0.59 for the first nine months of 2017, compared to $0.53 per diluted share for the first nine months of 2016. |
¨ |
For the third quarter of 2017, the return on average tangible assets was 1.22%, and the return on average tangible equity was 15.41%, compared to 1.13% and 13.06%, respectively, for the third quarter of 2016, and 1.14% and 14.00%, respectively, for the second quarter of 2017. The return on average tangible assets was 1.14%, and the return on average tangible equity was 14.11%, for the first nine months of 2017, compared to 1.16% and 13.45%, respectively, for the first nine months of 2016. |
¨ |
Net interest income before provision for loan losses increased 14% to $26.3 million for the third quarter of 2017, compared to $23.0 million for the third quarter of 2016, and increased 6% from $24.9 million for the second quarter of 2017. For the first nine months of 2017, net interest income increased 10% to $75.1 million, compared to $68.1 million for the first nine months of 2016. |
· |
For the third quarter of 2017, the fully tax equivalent (“FTE”) net interest margin contracted 12 basis points to 3.98% from 4.10% for the third quarter of 2016, and contracted 9 basis points from 4.07% for the second quarter of 2017. The contraction was primarily due to a higher average balance of lower yielding excess funds at the Federal Reserve Bank, and the full quarter impact from the issuance of subordinated debt during the second quarter of 2017. This was partially offset by an increase in the average balances of loans and securities, and the impact of increases in the prime rate on loan yields and overnight funds. The average balance of other investments and interest-bearing deposits in other financial institutions increased $102.8 million to $335.7 million for the third quarter of 2017, compared to $232.9 million for the third quarter of 2016, and increased $73.5 million from $262.2 million for the second quarter of 2016. |
· |
For the first nine months of 2017, the net interest margin (FTE) contracted 16 basis points to 4.03%, compared to 4.19% for the first nine months of 2016. The contraction was primarily due to a higher average balance of lower yielding excess funds at the Federal Reserve Bank, the issuance of the subordinated debt, and a decrease in the accretion of the loan purchase discount into loan interest income from the Focus Business Bank (“Focus”) acquisition. This was partially offset by an increase in the average balances of loans and securities, and the impact of increases in the prime rate on loan yields and overnight funds. The average balance of other investments and interest-bearing deposits in other financial institutions increased $95.3 million to $291.2 million for the first nine months of 2017, compared to $195.9 million for the first nine months of 2016. |
1
¨ |
The total purchase discount on non-impaired loans from the Focus loan portfolio was $4.6 million at August 20, 2015 (“the acquisition date”), of which $3.7 million has been accreted into loan interest income from the acquisition date through September 30, 2017. |
· |
The accretion of the loan purchase discount into loan interest income from the Focus transaction was $270,000 for the third quarter of 2017, compared to $299,000 for the third quarter of 2016, and $257,000 for the second quarter of 2017. |
· |
The accretion of the loan purchase discount into loan interest income from the Focus transaction was $741,000 for the first nine months of 2017, compared to $1.1 million for the first nine months of 2016. |
¨ |
Loans, excluding loans held-for-sale, increased $115.8 million, or 8%, to $1.57 billion at September 30, 2017, compared to $1.45 billion at September 30, 2016, which included an increase of $80.0 million, or 6% in the Company’s legacy portfolio, $37.6 million of purchased commercial real estate (“CRE”) loans, and an increase of $918,000 in the factored receivables portfolio, partially offset by a decrease of $2.8 million in purchased residential mortgage loans. Loans remained relatively unchanged at September 30, 2017, compared June 30, 2017. |
¨ |
The allowance for loan losses (“ALLL”) was 1.26% of total loans at September 30, 2017, compared to 1.38% at September 30, 2016, and 1.24% at June 30, 2017. The ALLL to total nonperforming loans was 565.68% at September 30, 2017, compared to 445.55% at September 30, 2016, and 614.22% at June 30, 2017. |
NPAs were $3.5 million, or 0.12% of total assets, at September 30, 2017, compared to $4.8 million, or 0.19% of total assets, at September 30, 2016, and $3.3 million, or 0.12% of total assets, at June 30, 2017.
Classified assets were $10.9 million, or 0.38% of total assets, at September 30, 2017, compared to $18.7 million, or 0.74% of total assets, at September 30, 2016, and $7.5 million, or 0.27% of total assets, at June 30, 2017.
Net recoveries totaled $236,000 for the third quarter of 2017, compared to net charge-offs of $134,000 for the third quarter of 2016, and net recoveries of $308,000 for the second quarter of 2017.
There was a $115,000 provision for loan losses for the third quarter of 2017, compared to a $245,000 provision for loan losses for the third quarter of 2016, and a ($46,000) credit to the provision for loan losses for the second quarter of 2017. There was a $390,000 provision for loan losses for the first nine months of 2017, compared to a $997,000 provision for loan losses for the first nine months of 2016.
¨ |
Total deposits increased $262.0 million, or 12%, to $2.48 billion at September 30, 2017, compared to $2.22 billion at September 30, 2016, and increased $105.9 million, or 4%, from $2.37 billion at June 30, 2017. |
¨ |
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 September 30, 2017. |
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Well-capitalized |
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Fully Phased-in |
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Financial |
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Basel III |
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Institution |
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Minimal |
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Heritage |
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Heritage |
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Basel III |
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Requirement (1) |
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Commerce |
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Bank of |
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Regulatory |
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Effective |
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CAPITAL RATIOS |
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Corp |
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Commerce |
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Guidelines |
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January 1, 2019 |
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Total Risk-Based |
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14.6 |
% |
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13.4 |
% |
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10.0 |
% |
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10.5 |
% |
Tier 1 Risk-Based |
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11.6 |
% |
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12.3 |
% |
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8.0 |
% |
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8.5 |
% |
Common Equity Tier 1 Risk-Based |
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11.6 |
% |
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12.3 |
% |
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6.5 |
% |
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7.0 |
% |
Leverage |
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8.3 |
% |
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8.8 |
% |
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5.0 |
% |
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4.0 |
% |
(1) |
Requirements for both the Company and the Bank include a 2.5% capital conservation buffer, except the leverage ratio. |
Operating Results
Net interest income increased 14% to $26.3 million for the third quarter of 2017, compared to $23.0 million for the third quarter of 2016, and increased 6% from $24.9 million for the second quarter of 2017. Net interest income increased 10% to $75.1 million for the
2
nine months ended September 30, 2017, compared to $68.1 million for the nine months ended September 30, 2016. The increase in net interest income for the third quarter of 2017 and the first nine months of 2017, compared to the respective periods in 2016, was primarily due to an increase in the average balance of loans and investment securities.
For the third quarter of 2017, the net interest margin (FTE) contracted 12 basis points to 3.98% from 4.10% for the third quarter of 2016, and contracted 9 basis point for the third quarter of 2017 from 4.07% for the second quarter of 2017. The contraction was primarily due to a higher average balance of lower yielding excess funds at the Federal Reserve Bank, and the full quarter impact from the issuance of subordinated debt during the second quarter of 2017. This was partially offset by an increase in the average balances of loans and securities, and the impact of increases in the prime rate on loan yields and overnight funds. The average balance of other investments and interest-bearing deposits in other financial institutions increased $102.8 million to $335.7 million for the third quarter of 2017, compared to $232.9 million for the third quarter of 2016, and increased $73.5 million from $262.2 million for the second quarter of 2016.
For the first nine months of 2017, the net interest margin (FTE) contracted 16 basis points to 4.03%, compared to 4.19% for the first nine months of 2016. The contraction was primarily due to a higher average balance of lower yielding excess funds at the Federal Reserve Bank, the issuance of subordinated debt, and a decrease in the accretion of the loan purchase discount into loan interest income from the Focus acquisition. This was partially offset by an increase in the average balances of loans and securities, and the impact of increases in the prime rate on loan yields and overnight funds. The average balance of other investments and interest-bearing deposits in other financial institutions increased $95.3 million to $291.2 million for the first nine months of 2017, compared to $195.9 million for the first nine months of 2016.
There was a $115,000 provision for loan losses for the third quarter of 2017, compared to a provision for loan losses of $245,000 for the third quarter of 2016, and a ($46,000) credit to the provision for loan losses for the second quarter of 2017. There was a $390,000 provision for loan losses for the nine months ended September 30, 2017, compared to a $997,000 provision for loan losses for the nine months ended September 30, 2016.
Total noninterest income was $2.5 million for the third quarter of 2017, compared to $2.3 million for the third quarter of 2016 and for the second quarter of 2017. For the nine months ended September 30, 2017, total noninterest income was $7.0 million, compared to $8.6 million for the nine months ended September 30, 2016. The decrease in total noninterest income for the first nine months of 2017, compared to the first nine months of 2016, was primarily due to a $1.0 million gain on proceeds from company-owned life insurance in the second quarter of 2016, and lower servicing income and gain on sales of securities in the first nine months of 2017. The decrease was partially offset by increases in fee income from Bay View Funding during the first nine months of 2017, which is included in other noninterest income within the consolidated income statements.
Total noninterest expense for the third quarter of 2017 was $14.8 million, compared to $14.3 million for the third quarter of 2016, and $15.3 million for the second quarter of 2017. Total noninterest expense for the nine months ended September 30, 2017 was $45.4 million, compared to $43.4 million for the nine months ended September 30, 2016. The increase in total noninterest expense in the third quarter of 2017 and the first nine months of 2017, compared to the respective periods in 2016, was primarily due to higher salaries and employee benefits as a result of annual salary increases and hiring additional employees. Full time equivalent employees were 282, 264, and 269, at September 30, 2017, September 30, 2016, and June 30, 2017, respectively.
The efficiency ratio for the third quarter of 2017 was 51.54%, compared to 56.37% for the third quarter of 2016, and 56.03% for the second quarter of 2017. The efficiency ratio for the nine months ended September 30, 2017 was 55.30%, compared to 56.55% for the nine months ended September 30, 2016.
Income tax expense for the third quarter of 2017 was $5.2 million, compared to $4.1 million for the third quarter of 2016, and $4.6 million for the second quarter of 2017. The effective tax rate for the third quarter of 2017 was 37.9%, compared to 37.5% for the third quarter of 2016, and 38.0% for the second quarter of 2017. Income tax expense for the nine months ended September 30, 2017 was $13.8 million, compared to $12.2 million for the nine months ended September 30, 2016. The effective tax rate for the nine months ended September 30, 2017 was 37.9%, compared to 37.6% for the nine months ended September 30, 2016. The difference in the effective tax rate for the periods reported, compared to the combined Federal and state statutory tax rate of 42%, is primarily the result of the Company’s investment in life insurance policies whose earnings are not subject to taxes, tax credits related to investments in low income housing limited partnerships (net of low income housing investment losses), and tax-exempt interest income earned on municipal bonds.
Balance Sheet Review, Capital Management and Credit Quality
Total assets increased 12% to $2.84 billion at September 30, 2017, compared to $2.53 billion at September 30, 2016, and increased 4% from $2.73 billion at June 30, 2017.
3
Securities available-for-sale, at fair value, totaled $390.1 million at September 30, 2017, compared to $370.0 million at September 30, 2016, and $369.9 million at June 30, 2017. At September 30, 2017, the Company’s securities available-for-sale portfolio was comprised of $373.2 million agency mortgage-backed securities (all issued by U.S. Government sponsored entities), and $16.9 million of single entity issue trust preferred securities. The pre-tax unrealized gain on securities available-for-sale at September 30, 2017 was $1.0 million, compared to a pre-tax unrealized gain on securities available-for-sale of $8.0 million at September 30, 2016, and a pre-tax unrealized gain on securities available-for-sale of $472,000 at June 30, 2017. All other factors remaining the same, when market interest rates are rising, the Company will experience a lower unrealized gain (or a higher unrealized loss) on the securities portfolio. During the third quarter of 2017, the Company purchased $35.9 million of agency mortgage-backed investment securities available-for-sale, with a weighted average book yield of 2.30%, and a weighted average duration of 4.60 years.
At September 30, 2017, securities held-to-maturity, at amortized cost, totaled $379.5 million, compared to $202.4 million at September 30, 2016, and $368.3 million at June 30, 2017. At September 30, 2017, the Company’s securities held-to-maturity portfolio was comprised of $89.1 million tax-exempt municipal bonds, and $290.4 million agency mortgage-backed securities. During the third quarter of 2017, the Company purchased $24.6 million of agency mortgage-backed securities held-to-maturity, with a weighted average book yield of 2.39%, and a weighted average duration of 4.79 years.
Loans, excluding loans held-for-sale, increased $115.8 million, or 8%, to $1.57 billion at September 30, 2017, compared to $1.45 billion at September 30, 2016, which included an increase of $80.0 million, or 6% in the Company’s legacy portfolio, $37.6 million of purchased CRE loans, and an increase of $918,000 in the factored receivables portfolio, partially offset by a decrease of $2.8 million in the purchased residential mortgage loans. Loans remained relatively unchanged at September 30, 2017, compared to June 30, 2017.
The loan portfolio remains well-diversified with commercial and industrial (“C&I”) loans accounting for 38% of the loan portfolio at September 30, 2017, which included $48.8 million of factored receivables. CRE loans accounted for 48% of the total loan portfolio, of which 42% were occupied by businesses that own them. Land and construction loans accounted for 6%, consumer and home equity loans accounted for 5% of total loans of total loans, and residential mortgage loans accounted for the remaining 3% of total loans at September 30, 2017.
The commercial loan portfolio of $587.3 million at September 30, 2017 decreased $19.0 million from $606.3 million at September 30, 2016, and decreased $23.4 million from $610.7 million at June 30, 2017. C&I line usage was 37% at September 30, 2017, compared to 41% at September 30, 2016, and 40% at June 30, 2017.
The CRE loan portfolio increased $142.8 million, or 23%, to $754.8 million at September 30, 2017, compared to $612.0 million at September 30, 2016, which included an increase of $105.2 million, or 17%, in the Company’s legacy portfolio, and $37.6 million of purchased CRE loans. There were no purchased CRE loans at September 30, 2016. The CRE loan portfolio increased $23.3 million, or 3%, from $731.5 million at June 30, 2017, primarily due to an increase in the Company’s legacy portfolio.
The average yield on the loan portfolio increased to 5.72% for the third quarter of 2017, compared to 5.60% for the third quarter of 2016, primarily due to increases in the prime rate, partially offset by the impact of lower yielding purchased residential mortgage loans and purchased CRE loans. The average yield on the loan portfolio also increased from 5.64% for the second quarter of 2017. The average yield on the Company’s legacy loan portfolio (excluding the purchased residential loans, purchased CRE loans, factored receivables portfolio, and accretion of the loan purchase discount from the Focus transaction) increased 25 basis points for the third quarter of 2017, compared to the third quarter of 2016, and increased 1 basis point from the second quarter of 2017. The average yield on the purchased residential loans was 2.67% for the third quarter of 2017, compared to 2.93% for the third quarter of 2016, and 2.82% for the second quarter of 2017. The average yield on the purchased CRE loans was 3.52% for the third quarter of 2017, compared to 3.51% for the second quarter of 2017.
The average yield on the loan portfolio increased to 5.63% for the first nine months of 2017, compared to 5.61% for the first nine months of 2016, primarily due to increases in the prime rate, partially offset by the the impact of the lower yielding purchased residential mortgage loans and purchased CRE loans, a lower yield on the factored receivables portfolio, and a decrease in the accretion of the loan purchase discount into loan interest income from the Focus transaction. The average yield on the Company’s legacy loan portfolio (excluding the purchased residential loans, purchased CRE loans, factored receivables portfolio, and accretion of the loan purchase discount from the Focus transaction) increased 27 basis points for the first nine months of 2017, compared to the first nine months of 2016. The average yield on the purchased residential loans was 2.67% for the first nine months of 2017, compared to 3.07% for the first nine months of 2016. The yield on the purchased CRE loans was 3.51% for the first nine months of 2017.
The accretion of the loan purchase discount in loan interest income from the Focus transaction was $270,000 for the third quarter of 2017, compared to $299,000 for the third quarter of 2016, and $257,000 for the second quarter of 2017. The accretion of the loan
4
purchase discount into loan interest income from the Focus transaction was $741,000 for the first nine months of 2017, compared to $1.1 million for the first nine months of 2016. The total purchase discount on non-impaired loans from the Focus loan portfolio was $4.6 million at the acquisition date, of which $3.7 million has been accreted to loan interest income from the acquisition date through September 30, 2017.
At September 30, 2017, NPAs were $3.5 million, or 0.12% of total assets, compared to $4.8 million, or 0.19% of total assets, at September 30, 2016, and $3.3 million, or 0.12% of total assets, at June 30, 2017. There were no foreclosed assets at September 30, 2017, compared to foreclosed assets of $292,000 at September 30, 2016, and $183,000 at June 30, 2017. The following is a breakout of NPAs at the periods indicated:
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End of Period: |
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NONPERFORMING ASSETS |
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September 30, 2017 |
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June 30, 2017 |
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September 30, 2016 |
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(in $000’s, unaudited) |
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Balance |
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% of Total |
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Balance |
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% of Total |
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Balance |
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% of Total |
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|||
Commercial and industrial loans |
|
$ |
1,206 |
|
35 |
% |
$ |
1,512 |
|
45 |
% |
$ |
3,570 |
|
75 |
% |
Restructured and loans over 90 days past due and still accruing |
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|
931 |
|
27 |
% |
|
171 |
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5 |
% |
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— |
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0 |
% |
CRE loans |
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|
501 |
|
14 |
% |
|
501 |
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15 |
% |
|
440 |
|
9 |
% |
Home equity and consumer loans |
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|
389 |
|
11 |
% |
|
401 |
|
12 |
% |
|
278 |
|
6 |
% |
SBA loans |
|
|
281 |
|
8 |
% |
|
384 |
|
11 |
% |
|
7 |
|
0 |
% |
Land and construction loans |
|
|
183 |
|
5 |
% |
|
189 |
|
6 |
% |
|
201 |
|
4 |
% |
Foreclosed assets |
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|
— |
|
0 |
% |
|
183 |
|
6 |
% |
|
292 |
|
6 |
% |
Total nonperforming assets |
|
$ |
3,491 |
|
100 |
% |
$ |
3,341 |
|
100 |
% |
$ |
4,788 |
|
100 |
% |
Classified assets were $10.9 million at September 30, 2017, compared to $18.7 million at September 30, 2016, and $7.5 million at June 30, 2017.
The following table summarizes the allowance for loan losses:
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For the Quarter Ended |
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For the Nine Months Ended |
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ALLOWANCE FOR LOAN LOSSES |
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September 30, |
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June 30, |
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September 30, |
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September 30, |
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September 30, |
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|||||
(in $000’s, unaudited) |
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2017 |
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2017 |
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2016 |
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2017 |
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2016 |
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Balance at beginning of period |
|
$ |
19,397 |
|
$ |
19,135 |
|
$ |
19,921 |
|
$ |
19,089 |
|
$ |
18,926 |
|
Provision (credit) for loan losses during the period |
|
|
115 |
|
|
(46) |
|
|
245 |
|
|
390 |
|
|
997 |
|
Net recoveries (charge-offs) during the period |
|
|
236 |
|
|
308 |
|
|
(134) |
|
|
269 |
|
|
109 |
|
Balance at end of period |
|
$ |
19,748 |
|
$ |
19,397 |
|
$ |
20,032 |
|
$ |
19,748 |
|
$ |
20,032 |
|
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|
|
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|
|
|
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|
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|
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Total loans, net of deferred fees |
|
$ |
1,565,950 |
|
$ |
1,566,324 |
|
$ |
1,450,176 |
|
$ |
1,565,950 |
|
$ |
1,450,176 |
|
Total nonperforming loans |
|
$ |
3,491 |
|
$ |
3,158 |
|
$ |
4,496 |
|
$ |
3,491 |
|
$ |
4,496 |
|
Allowance for loan losses to total loans |
|
|
1.26 |
% |
|
1.24 |
% |
|
1.38 |
% |
|
1.26 |
% |
|
1.38 |
% |
Allowance for loan losses to total nonperforming loans |
|
|
565.68 |
% |
|
614.22 |
% |
|
445.55 |
% |
|
565.68 |
% |
|
445.55 |
% |
The ALLL at September 30, 2017 was 1.26% of total loans, compared to 1.38% at September 30, 2016, and 1.24% at June 30, 2017. The ALLL to total nonperforming loans was 565.68% at September 30, 2017, compared to 445.55% at September 30, 2016, and 614.22% at June 30, 2017.
Total deposits increased $262.0 million, or 12%, to $2.48 billion at September 30, 2017, compared to $2.22 billion at September 30, 2016, and increased $105.9 million, or 4%, from $2.37 billion at June 30, 2017. Deposits, excluding all time deposits and CDARS deposits, increased $281.9 million, or 14%, to $2.26 billion at September 30, 2017, from $1.98 billion at September 30, 2016, and increased $105.4 million, or 5%, from $2.16 billion at June 30, 2017.
The cost of total deposits increased two basis points to 0.17% for the third quarter of 2017, compared to 0.15% for the third quarter of 2016, and increased one basis point from 0.16% for the second quarter of 2017. The cost of total deposits was 0.16% for the nine months ended September 30, 2017, and 0.15% for the nine months ended September 30, 2016.
Subordinated debt, net of unamortized issuance costs, totaled $39.1 million at September 30, 2017, and qualifies as Tier 2 capital for the Company under the guidelines established by the Federal Reserve Bank. The issuance of subordinated debt during the second quarter of 2017 resulted in an increase in the Company’s total risk‑based capital ratio at September 30, 2017, compared to September 30, 2016, but had no effect on the other regulatory capital ratios of the Company. All of the Bank’s regulatory capital ratios increased at September 30, 2017, compared to September 30, 2016, primarily due to the downstream of $20.0 million of the proceeds of the subordinated debt from the Company to the Bank, partially offset by distributed dividends totaling $12.0 million from the Bank to the Company during the first nine months of 2017.
5
Tangible equity was $223.9 million at September 30, 2017, compared to $208.3 million at September 30, 2016, and $217.4 million at June 30, 2017. Tangible book value per share was $5.86 at September 30, 2017, compared to $5.49 at September 30, 2016, and $5.70 at June 30, 2017.
Accumulated other comprehensive loss was ($6.1) million at September 30, 2017, compared to ($2.0) million at September 30, 2016, and ($6.5) million at June 30, 2017. The unrealized gain (loss) on securities available-for-sale, net of taxes, included in accumulated other comprehensive loss was an unrealized gain of $614,000 at September 30, 2017, compared to an unrealized gain of $4.7 million September 30, 2016, and an unrealized gain of $280,000 at June 30, 2017. The components of accumulated other comprehensive loss, net of taxes, at September 30, 2017 include the following: an unrealized gain on securities available-for-sale of $614,000; the remaining unamortized unrealized gain on securities available-for-sale transferred to held-to-maturity of $312,000; a split dollar insurance contracts liability of ($3.5) million; a supplemental executive retirement plan liability of ($4.1) million; and an unrealized gain on interest-only strip from SBA loans of $574,000.
Heritage Commerce Corp, a bank holding company established in February 1998, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose, CA with full-service branches in Danville, Fremont, Gilroy, Hollister, Los Altos, Los Gatos, Morgan Hill, Pleasanton, San Jose, Sunnyvale, and Walnut Creek. Heritage Bank of Commerce is an SBA Preferred Lender. Bay View Funding, a subsidiary of Heritage Bank of Commerce, is based in Santa Clara, CA and provides business-essential working capital factoring financing to various industries throughout the United States. For more information, please visit www.heritagecommercecorp.com.
Forward-Looking Statement Disclaimer
These forward-looking statements are subject to various risks and uncertainties that may be outside our control and our actual results could differ materially from our projected results. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission, Item 1A of the Company’s Annual Report on Form 10-K, and the following: (1) current and future economic and market conditions in the United States generally or in the communities we serve, including the effects of declines in property values, high unemployment rates and overall slowdowns in economic growth should these events occur; (2) effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Federal Open Market Committee of the Federal Reserve Board; (3) changes in inflation, interest rates, and market liquidity which may impact interest margins and impact funding sources; (4) volatility in credit and equity markets and its effect on the global economy; (5) changes in the competitive environment among financial or bank holding companies and other financial service providers; (6) changes in consumer and business spending and saving habits and the related effect on our ability to increase assets and to attract deposits; (7) our ability to develop and promote customer acceptance of new products and services in a timely manner; (8) risks associated with concentrations in real estate related loans; (9) an oversupply of inventory and deterioration in values of California commercial real estate; (10) a prolonged slowdown in construction activity; (11) other than temporary impairment charges to our securities portfolio; (12) 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; (13) our ability to raise capital or incur debt on reasonable terms; (14) regulatory limits on Heritage Bank of Commerce’s ability to pay dividends to the Company; (15) changes in our capital management policies, including those regarding business combinations, dividends, and share repurchases, among others; (16) 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; (17) our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks such as data security breaches, “denial of service” attacks, “hacking” and identity theft; (18) inability of our framework to manage risks associated with our business, including operational risk and credit risk; (19) risks of loss of funding of Small Business Administration or SBA loan programs, or changes in those programs; (20) 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; (21) effect of lower corporate tax rates if enacted on the Company’s deferred tax asset; (22) significant changes in applicable laws and regulations, including those concerning taxes, banking and securities; (23) effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; (24) costs and effects of legal and regulatory developments, including resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews; (25) availability of and competition for acquisition opportunities; (26) risks associated with merger and acquisition integration; (27) risks resulting from domestic terrorism; (28) risks of natural disasters and other events beyond our control; and (29) our success in managing the risks involved in the foregoing factors.
Member FDIC
6
|
|
For the Quarter Ended: |
|
Percent Change From: |
|
|
For the Nine Months Ended: |
||||||||||||||||
CONSOLIDATED INCOME STATEMENTS |
|
September 30, |
|
June 30, |
|
September 30, |
|
June 30, |
|
September 30, |
|
|
September 30, |
|
September 30, |
|
Percent |
|
|||||
(in $000’s, unaudited) |
|
2017 |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
2017 |
|
2016 |
|
Change |
|
|||||
Interest income |
|
$ |
27,955 |
|
$ |
26,107 |
|
$ |
23,874 |
|
7 |
% |
17 |
% |
|
$ |
78,759 |
|
$ |
70,440 |
|
12 |
% |
Interest expense |
|
|
1,634 |
|
|
1,174 |
|
|
826 |
|
39 |
% |
98 |
% |
|
|
3,679 |
|
|
2,344 |
|
57 |
% |
Net interest income before provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for loan losses |
|
|
26,321 |
|
|
24,933 |
|
|
23,048 |
|
6 |
% |
14 |
% |
|
|
75,080 |
|
|
68,096 |
|
10 |
% |
Provision (credit) for loan losses |
|
|
115 |
|
|
(46) |
|
|
245 |
|
350 |
% |
(53) |
% |
|
|
390 |
|
|
997 |
|
(61) |
% |
Net interest income after provision |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for loan losses |
|
|
26,206 |
|
|
24,979 |
|
|
22,803 |
|
5 |
% |
15 |
% |
|
|
74,690 |
|
|
67,099 |
|
11 |
% |
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges and fees on deposit accounts |
|
|
869 |
|
|
801 |
|
|
798 |
|
8 |
% |
9 |
% |
|
|
2,410 |
|
|
2,348 |
|
3 |
% |
Increase in cash surrender value of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
life insurance |
|
|
417 |
|
|
420 |
|
|
428 |
|
(1) |
% |
(3) |
% |
|
|
1,259 |
|
|
1,317 |
|
(4) |
% |
Servicing income |
|
|
246 |
|
|
205 |
|
|
364 |
|
20 |
% |
(32) |
% |
|
|
736 |
|
|
1,106 |
|
(33) |
% |
Gain on sales of SBA loans |
|
|
147 |
|
|
164 |
|
|
69 |
|
(10) |
% |
113 |
% |
|
|
635 |
|
|
653 |
|
(3) |
% |
Gain on proceeds from company- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
owned life insurance |
|
|
— |
|
|
— |
|
|
— |
|
N/A |
|
N/A |
|
|
|
— |
|
|
1,019 |
|
(100) |
% |
Gain (loss) on sales of securities |
|
|
— |
|
|
— |
|
|
— |
|
N/A |
|
N/A |
|
|
|
(6) |
|
|
527 |
|
(101) |
% |
Other |
|
|
781 |
|
|
703 |
|
|
653 |
|
11 |
% |
20 |
% |
|
|
2,014 |
|
|
1,616 |
|
25 |
% |
Total noninterest income |
|
|
2,460 |
|
|
2,293 |
|
|
2,312 |
|
7 |
% |
6 |
% |
|
|
7,048 |
|
|
8,586 |
|
(18) |
% |
Noninterest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
9,071 |
|
|
9,209 |
|
|
8,363 |
|
(1) |
% |
8 |
% |
|
|
27,766 |
|
|
26,052 |
|
7 |
% |
Occupancy and equipment |
|
|
1,142 |
|
|
1,216 |
|
|
1,120 |
|
(6) |
% |
2 |
% |
|
|
3,426 |
|
|
3,277 |
|
5 |
% |
Professional fees |
|
|
695 |
|
|
673 |
|
|
1,086 |
|
3 |
% |
(36) |
% |
|
|
2,439 |
|
|
2,619 |
|
(7) |
% |
Other |
|
|
3,926 |
|
|
4,156 |
|
|
3,727 |
|
(6) |
% |
5 |
% |
|
|
11,785 |
|
|
11,414 |
|
3 |
% |
Total noninterest expense |
|
|
14,834 |
|
|
15,254 |
|
|
14,296 |
|
(3) |
% |
4 |
% |
|
|
45,416 |
|
|
43,362 |
|
5 |
% |
Income before income taxes |
|
|
13,832 |
|
|
12,018 |
|
|
10,819 |
|
15 |
% |
28 |
% |
|
|
36,322 |
|
|
32,323 |
|
12 |
% |
Income tax expense |
|
|
5,249 |
|
|
4,569 |
|
|
4,054 |
|
15 |
% |
29 |
% |
|
|
13,752 |
|
|
12,157 |
|
13 |
% |
Net income |
|
|
8,583 |
|
|
7,449 |
|
|
6,765 |
|
15 |
% |
27 |
% |
|
|
22,570 |
|
|
20,166 |
|
12 |
% |
Dividends on preferred stock |
|
|
— |
|
|
— |
|
|
(504) |
|
N/A |
|
(100) |
% |
|
|
— |
|
|
(1,512) |
|
(100) |
% |
Net income available to common shareholders |
|
|
8,583 |
|
|
7,449 |
|
|
6,261 |
|
15 |
% |
37 |
% |
|
|
22,570 |
|
|
18,654 |
|
21 |
% |
Undistributed earnings allocated to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C preferred stock |
|
|
— |
|
|
— |
|
|
(300) |
|
N/A |
|
(100) |
% |
|
|
— |
|
|
(1,278) |
|
(100) |
% |
Distributed and undistributed earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
allocated to common shareholders |
|
$ |
8,583 |
|
$ |
7,449 |
|
$ |
5,961 |
|
15 |
% |
44 |
% |
|
$ |
22,570 |
|
$ |
17,376 |
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER COMMON SHARE DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.22 |
|
$ |
0.20 |
|
$ |
0.18 |
|
10 |
% |
22 |
% |
|
$ |
0.59 |
|
$ |
0.53 |
|
11 |
% |
Diluted earnings per share |
|
$ |
0.22 |
|
$ |
0.19 |
|
$ |
0.18 |
|
16 |
% |
22 |
% |
|
$ |
0.59 |
|
$ |
0.53 |
|
11 |
% |
Weighted average shares outstanding - basic |
|
|
38,152,633 |
|
|
38,070,042 |
|
|
33,397,704 |
|
0 |
% |
14 |
% |
|
|
38,060,224 |
|
|
32,591,784 |
|
17 |
% |
Weighted average shares outstanding - diluted |
|
|
38,581,298 |
|
|
38,579,134 |
|
|
33,693,328 |
|
0 |
% |
15 |
% |
|
|
38,565,134 |
|
|
32,863,855 |
|
17 |
% |
Common shares outstanding at period-end |
|
|
38,199,006 |
|
|
38,120,263 |
|
|
37,915,736 |
|
0 |
% |
1 |
% |
|
|
38,199,006 |
|
|
37,915,736 |
|
1 |
% |
Dividend per share |
|
$ |
0.10 |
|
$ |
0.10 |
|
$ |
0.09 |
|
0 |
% |
11 |
% |
|
$ |
0.30 |
|
$ |
0.27 |
|
11 |
% |
Book value per share |
|
$ |
7.21 |
|
$ |
7.06 |
|
$ |
6.89 |
|
2 |
% |
5 |
% |
|
$ |
7.21 |
|
$ |
6.89 |
|
5 |
% |
Tangible book value per share |
|
$ |
5.86 |
|
$ |
5.70 |
|
$ |
5.49 |
|
3 |
% |
7 |
% |
|
$ |
5.86 |
|
$ |
5.49 |
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KEY FINANCIAL RATIOS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized return on average equity |
|
|
12.49 |
% |
|
11.25 |
% |
|
10.38 |
% |
11 |
% |
20 |
% |
|
|
11.35 |
% |
|
10.61 |
% |
7 |
% |
Annualized return on average tangible equity |
|
|
15.41 |
% |
|
14.00 |
% |
|
13.06 |
% |
10 |
% |
18 |
% |
|
|
14.11 |
% |
|
13.45 |
% |
5 |
% |
Annualized return on average assets |
|
|
1.20 |
% |
|
1.12 |
% |
|
1.11 |
% |
7 |
% |
8 |
% |
|
|
1.12 |
% |
|
1.13 |
% |
(1) |
% |
Annualized return on average tangible assets |
|
|
1.22 |
% |
|
1.14 |
% |
|
1.13 |
% |
7 |
% |
8 |
% |
|
|
1.14 |
% |
|
1.16 |
% |
(2) |
% |
Net interest margin (fully tax equivalent) |
|
|
3.98 |
% |
|
4.07 |
% |
|
4.10 |
% |
(2) |
% |
(3) |
% |
|
|
4.03 |
% |
|
4.19 |
% |
(4) |
% |
Efficiency ratio |
|
|
51.54 |
% |
|
56.03 |
% |
|
56.37 |
% |
(8) |
% |
(9) |
% |
|
|
55.30 |
% |
|
56.55 |
% |
(2) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE BALANCES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in $000’s, unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets |
|
$ |
2,836,807 |
|
$ |
2,671,476 |
|
$ |
2,431,303 |
|
6 |
% |
17 |
% |
|
$ |
2,698,549 |
|
$ |
2,375,958 |
|
14 |
% |
Average tangible assets |
|
$ |
2,785,092 |
|
$ |
2,619,351 |
|
$ |
2,378,045 |
|
6 |
% |
17 |
% |
|
$ |
2,646,446 |
|
$ |
2,322,317 |
|
14 |
% |
Average earning assets |
|
$ |
2,657,081 |
|
$ |
2,489,074 |
|
$ |
2,263,997 |
|
7 |
% |
17 |
% |
|
$ |
2,519,308 |
|
$ |
2,198,178 |
|
15 |
% |
Average loans held-for-sale |
|
$ |
3,737 |
|
$ |
4,238 |
|
$ |
5,992 |
|
(12) |
% |
(38) |
% |
|
$ |
4,837 |
|
$ |
4,568 |
|
6 |
% |
Average total loans |
|
$ |
1,556,684 |
|
$ |
1,503,149 |
|
$ |
1,436,014 |
|
4 |
% |
8 |
% |
|
$ |
1,516,610 |
|
$ |
1,405,069 |
|
8 |
% |
Average deposits |
|
$ |
2,470,015 |
|
$ |
2,330,517 |
|
$ |
2,121,469 |
|
6 |
% |
16 |
% |
|
$ |
2,357,217 |
|
$ |
2,065,170 |
|
14 |
% |
Average demand deposits - noninterest-bearing |
|
$ |
980,554 |
|
$ |
906,570 |
|
$ |
842,565 |
|
8 |
% |
16 |
% |
|
$ |
924,841 |
|
$ |
800,049 |
|
16 |
% |
Average interest-bearing deposits |
|
$ |
1,489,461 |
|
$ |
1,423,947 |
|
$ |
1,278,904 |
|
5 |
% |
16 |
% |
|
$ |
1,432,376 |
|
$ |
1,265,121 |
|
13 |
% |
Average interest-bearing liabilities |
|
$ |
1,528,665 |
|
$ |
1,438,178 |
|
$ |
1,278,959 |
|
6 |
% |
20 |
% |
|
$ |
1,450,356 |
|
$ |
1,265,722 |
|
15 |
% |
Average equity |
|
$ |
272,666 |
|
$ |
265,566 |
|
$ |
259,395 |
|
3 |
% |
5 |
% |
|
$ |
265,975 |
|
$ |
253,862 |
|
5 |
% |
Average tangible equity |
|
$ |
220,951 |
|
$ |
213,441 |
|
$ |
206,137 |
|
4 |
% |
7 |
% |
|
$ |
213,872 |
|
$ |
200,221 |
|
7 |
% |
7
|
|
End of Period: |
|
Percent Change From: |
|
|||||||||
CONSOLIDATED BALANCE SHEETS |
|
September 30, |
|
June 30, |
|
September 30, |
|
June 30, |
|
September 30, |
|
|||
(in $000’s, unaudited) |
|
2017 |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
37,133 |
|
$ |
36,223 |
|
$ |
39,838 |
|
3 |
% |
(7) |
% |
Other investments and interest-bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in other financial institutions |
|
|
308,987 |
|
|
229,790 |
|
|
304,554 |
|
34 |
% |
1 |
% |
Securities available-for-sale, at fair value |
|
|
390,107 |
|
|
369,901 |
|
|
369,999 |
|
5 |
% |
5 |
% |
Securities held-to-maturity, at amortized cost |
|
|
379,550 |
|
|
368,266 |
|
|
202,404 |
|
3 |
% |
88 |
% |
Loans held-for-sale - SBA, including deferred costs |
|
|
4,602 |
|
|
3,720 |
|
|
6,741 |
|
24 |
% |
(32) |
% |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
587,276 |
|
|
610,658 |
|
|
606,281 |
|
(4) |
% |
(3) |
% |
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRE |
|
|
754,856 |
|
|
731,537 |
|
|
612,030 |
|
3 |
% |
23 |
% |
Land and construction |
|
|
92,310 |
|
|
82,873 |
|
|
88,371 |
|
11 |
% |
4 |
% |
Home equity |
|
|
74,171 |
|
|
79,930 |
|
|
76,536 |
|
(7) |
% |
(3) |
% |
Residential mortgages |
|
|
46,489 |
|
|
48,732 |
|
|
49,255 |
|
(5) |
% |
(6) |
% |
Consumer |
|
|
11,749 |
|
|
13,360 |
|
|
18,328 |
|
(12) |
% |
(36) |
% |
Loans |
|
|
1,566,851 |
|
|
1,567,090 |
|
|
1,450,801 |
|
0 |
% |
8 |
% |
Deferred loan fees, net |
|
|
(901) |
|
|
(766) |
|
|
(625) |
|
18 |
% |
44 |
% |
Total loans, net of deferred fees |
|
|
1,565,950 |
|
|
1,566,324 |
|
|
1,450,176 |
|
0 |
% |
8 |
% |
Allowance for loan losses |
|
|
(19,748) |
|
|
(19,397) |
|
|
(20,032) |
|
2 |
% |
(1) |
% |
Loans, net |
|
|
1,546,202 |
|
|
1,546,927 |
|
|
1,430,144 |
|
0 |
% |
8 |
% |
Company-owned life insurance |
|
|
60,407 |
|
|
59,990 |
|
|
59,193 |
|
1 |
% |
2 |
% |
Premises and equipment, net |
|
|
7,539 |
|
|
7,595 |
|
|
7,552 |
|
(1) |
% |
0 |
% |
Goodwill |
|
|
45,664 |
|
|
45,664 |
|
|
45,664 |
|
0 |
% |
0 |
% |
Other intangible assets |
|
|
5,867 |
|
|
6,163 |
|
|
7,342 |
|
(5) |
% |
(20) |
% |
Accrued interest receivable and other assets |
|
|
57,890 |
|
|
58,661 |
|
|
54,531 |
|
(1) |
% |
6 |
% |
Total assets |
|
$ |
2,843,948 |
|
$ |
2,732,900 |
|
$ |
2,527,962 |
|
4 |
% |
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, noninterest-bearing |
|
$ |
943,723 |
|
$ |
948,774 |
|
$ |
889,075 |
|
(1) |
% |
6 |
% |
Demand, interest-bearing |
|
|
605,301 |
|
|
573,699 |
|
|
536,541 |
|
6 |
% |
13 |
% |
Savings and money market |
|
|
713,693 |
|
|
634,802 |
|
|
555,156 |
|
12 |
% |
29 |
% |
Time deposits-under $250 |
|
|
53,479 |
|
|
54,129 |
|
|
57,718 |
|
(1) |
% |
(7) |
% |
Time deposits-$250 and over |
|
|
147,422 |
|
|
147,242 |
|
|
169,485 |
|
0 |
% |
(13) |
% |
Time deposits - brokered |
|
|
— |
|
|
— |
|
|
3,000 |
|
N/A |
|
(100) |
% |
CDARS - money market and time deposits |
|
|
16,986 |
|
|
16,085 |
|
|
7,659 |
|
6 |
% |
122 |
% |
Total deposits |
|
|
2,480,604 |
|
|
2,374,731 |
|
|
2,218,634 |
|
4 |
% |
12 |
% |
Subordinated debt, net of issuance costs |
|
|
39,137 |
|
|
39,119 |
|
|
— |
|
0 |
% |
N/A |
|
Accrued interest payable and other liabilities |
|
|
48,762 |
|
|
49,819 |
|
|
48,009 |
|
(2) |
% |
2 |
% |
Total liabilities |
|
|
2,568,503 |
|
|
2,463,669 |
|
|
2,266,643 |
|
4 |
% |
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
217,906 |
|
|
216,788 |
|
|
214,601 |
|
1 |
% |
2 |
% |
Retained earnings |
|
|
63,679 |
|
|
58,910 |
|
|
48,726 |
|
8 |
% |
31 |
% |
Accumulated other comprehensive loss |
|
|
(6,140) |
|
|
(6,467) |
|
|
(2,008) |
|
5 |
% |
(206) |
% |
Total shareholders’ equity |
|
|
275,445 |
|
|
269,231 |
|
|
261,319 |
|
2 |
% |
5 |
% |
Total liabilities and shareholders’ equity |
|
$ |
2,843,948 |
|
$ |
2,732,900 |
|
$ |
2,527,962 |
|
4 |
% |
12 |
% |
8
|
|
End of Period: |
|
Percent Change From: |
|
|||||||||
CREDIT QUALITY DATA |
|
September 30, |
|
June 30, |
|
September 30, |
|
June 30, |
|
September 30, |
|
|||
(in $000’s, unaudited) |
|
2017 |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|||
Nonaccrual loans - held-for-investment |
|
$ |
2,560 |
|
$ |
2,987 |
|
$ |
4,496 |
|
(14) |
% |
(43) |
% |
Restructured and loans over 90 days past due and still accruing |
|
|
931 |
|
|
171 |
|
|
— |
|
444 |
% |
N/A |
|
Total nonperforming loans |
|
|
3,491 |
|
|
3,158 |
|
|
4,496 |
|
11 |
% |
(22) |
% |
Foreclosed assets |
|
|
— |
|
|
183 |
|
|
292 |
|
(100) |
% |
(100) |
% |
Total nonperforming assets |
|
$ |
3,491 |
|
$ |
3,341 |
|
$ |
4,788 |
|
4 |
% |
(27) |
% |
Other restructured loans still accruing |
|
$ |
325 |
|
$ |
121 |
|
$ |
137 |
|
169 |
% |
137 |
% |
Net charge-offs (recoveries) during the quarter |
|
$ |
(236) |
|
$ |
(308) |
|
$ |
134 |
|
23 |
% |
(276) |
% |
Provision (credit) for loan losses during the quarter |
|
$ |
115 |
|
$ |
(46) |
|
$ |
245 |
|
350 |
% |
(53) |
% |
Allowance for loan losses |
|
$ |
19,748 |
|
$ |
19,397 |
|
$ |
20,032 |
|
2 |
% |
(1) |
% |
Classified assets |
|
$ |
10,909 |
|
$ |
7,485 |
|
$ |
18,693 |
|
46 |
% |
(42) |
% |
Allowance for loan losses to total loans |
|
|
1.26 |
% |
|
1.24 |
% |
|
1.38 |
% |
2 |
% |
(9) |
% |
Allowance for loan losses to total nonperforming loans |
|
|
565.68 |
% |
|
614.22 |
% |
|
445.55 |
% |
(8) |
% |
27 |
% |
Nonperforming assets to total assets |
|
|
0.12 |
% |
|
0.12 |
% |
|
0.19 |
% |
0 |
% |
(37) |
% |
Nonperforming loans to total loans |
|
|
0.22 |
% |
|
0.20 |
% |
|
0.31 |
% |
10 |
% |
(29) |
% |
Classified assets to Heritage Commerce Corp Tier 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
capital plus allowance for loan losses |
|
|
4 |
% |
|
3 |
% |
|
8 |
% |
33 |
% |
(50) |
% |
Classified assets to Heritage Bank of Commerce Tier 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
capital plus allowance for loan losses |
|
|
4 |
% |
|
3 |
% |
|
8 |
% |
33 |
% |
(50) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER PERIOD-END STATISTICS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in $000’s, unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heritage Commerce Corp: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible equity (1) |
|
$ |
223,914 |
|
$ |
217,404 |
|
$ |
208,313 |
|
3 |
% |
7 |
% |
Tangible common equity (2) |
|
$ |
223,914 |
|
$ |
217,404 |
|
$ |
208,313 |
|
3 |
% |
7 |
% |
Shareholders’ equity / total assets |
|
|
9.69 |
% |
|
9.85 |
% |
|
10.34 |
% |
(2) |
% |
(6) |
% |
Tangible equity / tangible assets (3) |
|
|
8.02 |
% |
|
8.11 |
% |
|
8.42 |
% |
(1) |
% |
(5) |
% |
Tangible common equity / tangible assets (4) |
|
|
8.02 |
% |
|
8.11 |
% |
|
8.42 |
% |
(1) |
% |
(5) |
% |
Loan to deposit ratio |
|
|
63.13 |
% |
|
65.96 |
% |
|
65.36 |
% |
(4) |
% |
(3) |
% |
Noninterest-bearing deposits / total deposits |
|
|
38.04 |
% |
|
39.95 |
% |
|
40.07 |
% |
(5) |
% |
(5) |
% |
Total risk-based capital ratio |
|
|
14.6 |
% |
|
14.4 |
% |
|
12.7 |
% |
1 |
% |
15 |
% |
Tier 1 risk-based capital ratio |
|
|
11.6 |
% |
|
11.4 |
% |
|
11.6 |
% |
2 |
% |
0 |
% |
Common Equity Tier 1 risk-based capital ratio |
|
|
11.6 |
% |
|
11.4 |
% |
|
11.6 |
% |
2 |
% |
0 |
% |
Leverage ratio |
|
|
8.3 |
% |
|
8.5 |
% |
|
8.9 |
% |
(2) |
% |
(7) |
% |
Heritage Bank of Commerce: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-based capital ratio |
|
|
13.4 |
% |
|
13.2 |
% |
|
12.6 |
% |
2 |
% |
6 |
% |
Tier 1 risk-based capital ratio |
|
|
12.3 |
% |
|
12.2 |
% |
|
11.4 |
% |
1 |
% |
8 |
% |
Common Equity Tier 1 risk-based capital ratio |
|
|
12.3 |
% |
|
12.2 |
% |
|
11.4 |
% |
1 |
% |
8 |
% |
Leverage ratio |
|
|
8.8 |
% |
|
9.1 |
% |
|
8.7 |
% |
(3) |
% |
1 |
% |
(1) |
Represents shareholders’ equity minus goodwill and other intangible assets |
(2) |
Represents shareholders’ equity minus goodwill and other intangible assets |
(3) |
Represents shareholders’ equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets |
(4) |
Represents shareholders’ equity minus preferred stock, minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets |
9
|
|
For the Quarter Ended |
|
For the Quarter Ended |
|
||||||||||||
|
|
September 30, 2017 |
|
September 30, 2016 |
|
||||||||||||
|
|
|
|
|
Interest |
|
Average |
|
|
|
|
Interest |
|
Average |
|
||
NET INTEREST INCOME AND NET INTEREST MARGIN |
|
Average |
|
Income/ |
|
Yield/ |
|
Average |
|
Income/ |
|
Yield/ |
|
||||
(in $000’s, unaudited) |
|
Balance |
|
Expense |
|
Rate |
|
Balance |
|
Expense |
|
Rate |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, gross (1)(2) |
|
$ |
1,560,421 |
|
$ |
22,507 |
|
5.72 |
% |
$ |
1,442,006 |
|
$ |
20,312 |
|
5.60 |
% |
Securities - taxable |
|
|
671,528 |
|
|
3,596 |
|
2.12 |
% |
|
497,821 |
|
|
2,401 |
|
1.92 |
% |
Securities - exempt from Federal tax (3) |
|
|
89,426 |
|
|
866 |
|
3.84 |
% |
|
91,241 |
|
|
875 |
|
3.82 |
% |
Other investments and interest-bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in other financial institutions |
|
|
335,706 |
|
|
1,289 |
|
1.52 |
% |
|
232,929 |
|
|
592 |
|
1.01 |
% |
Total interest earning assets (3) |
|
|
2,657,081 |
|
|
28,258 |
|
4.22 |
% |
|
2,263,997 |
|
|
24,180 |
|
4.25 |
% |
Cash and due from banks |
|
|
35,173 |
|
|
|
|
|
|
|
32,628 |
|
|
|
|
|
|
Premises and equipment, net |
|
|
7,609 |
|
|
|
|
|
|
|
7,595 |
|
|
|
|
|
|
Goodwill and other intangible assets |
|
|
51,715 |
|
|
|
|
|
|
|
53,258 |
|
|
|
|
|
|
Other assets |
|
|
85,229 |
|
|
|
|
|
|
|
73,825 |
|
|
|
|
|
|
Total assets |
|
$ |
2,836,807 |
|
|
|
|
|
|
$ |
2,431,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, noninterest-bearing |
|
$ |
980,554 |
|
|
|
|
|
|
$ |
842,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, interest-bearing |
|
|
583,363 |
|
|
290 |
|
0.20 |
% |
|
515,296 |
|
|
259 |
|
0.20 |
% |
Savings and money market |
|
|
686,511 |
|
|
429 |
|
0.25 |
% |
|
516,570 |
|
|
289 |
|
0.22 |
% |
Time deposits - under $100 |
|
|
19,770 |
|
|
14 |
|
0.28 |
% |
|
21,707 |
|
|
16 |
|
0.29 |
% |
Time deposits - $100 and over |
|
|
181,167 |
|
|
317 |
|
0.69 |
% |
|
212,201 |
|
|
251 |
|
0.47 |
% |
Time deposits - brokered |
|
|
— |
|
|
— |
|
N/A |
|
|
4,874 |
|
|
10 |
|
0.82 |
% |
CDARS - money market and time deposits |
|
|
18,650 |
|
|
1 |
|
0.02 |
% |
|
8,256 |
|
|
1 |
|
0.05 |
% |
Total interest-bearing deposits |
|
|
1,489,461 |
|
|
1,051 |
|
0.28 |
% |
|
1,278,904 |
|
|
826 |
|
0.26 |
% |
Total deposits |
|
|
2,470,015 |
|
|
1,051 |
|
0.17 |
% |
|
2,121,469 |
|
|
826 |
|
0.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt, net of issuance costs |
|
|
39,120 |
|
|
583 |
|
5.91 |
% |
|
— |
|
|
— |
|
N/A |
|
Short-term borrowings |
|
|
84 |
|
|
— |
|
0.00 |
% |
|
55 |
|
|
— |
|
0.00 |
% |
Total interest-bearing liabilities |
|
|
1,528,665 |
|
|
1,634 |
|
0.42 |
% |
|
1,278,959 |
|
|
826 |
|
0.26 |
% |
Total interest-bearing liabilities and demand, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noninterest-bearing / cost of funds |
|
|
2,509,219 |
|
|
1,634 |
|
0.26 |
% |
|
2,121,524 |
|
|
826 |
|
0.15 |
% |
Other liabilities |
|
|
54,922 |
|
|
|
|
|
|
|
50,384 |
|
|
|
|
|
|
Total liabilities |
|
|
2,564,141 |
|
|
|
|
|
|
|
2,171,908 |
|
|
|
|
|
|
Shareholders’ equity |
|
|
272,666 |
|
|
|
|
|
|
|
259,395 |
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
2,836,807 |
|
|
|
|
|
|
$ |
2,431,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (3) / margin |
|
|
|
|
|
26,624 |
|
3.98 |
% |
|
|
|
|
23,354 |
|
4.10 |
% |
Less tax equivalent adjustment (3) |
|
|
|
|
|
(303) |
|
|
|
|
|
|
|
(306) |
|
|
|
Net interest income |
|
|
|
|
$ |
26,321 |
|
|
|
|
|
|
$ |
23,048 |
|
|
|
(1) |
Includes loans held-for-sale. Nonaccrual loans are included in average balance. |
(2) |
Yield amounts earned on loans include fees and costs. The accretion (amortization) of deferred loan fees (costs) into loan interest income was $200,000 for the third quarter of 2017, compared to $62,000 for the third quarter of 2016 |
(3) |
Reflects the fully tax equivalent adjustment for Federal tax-exempt income based on a 35% tax rate. |
10
|
|
For the Nine Months Ended |
|
For the Nine Months Ended |
|
||||||||||||
|
|
September 30, 2017 |
|
September 30, 2016 |
|
||||||||||||
|
|
|
|
|
Interest |
|
Average |
|
|
|
|
Interest |
|
Average |
|
||
NET INTEREST INCOME AND NET INTEREST MARGIN |
|
Average |
|
Income/ |
|
Yield/ |
|
Average |
|
Income/ |
|
Yield/ |
|
||||
(in $000’s, unaudited) |
|
Balance |
|
Expense |
|
Rate |
|
Balance |
|
Expense |
|
Rate |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, gross (1)(2) |
|
$ |
1,521,447 |
|
$ |
64,112 |
|
5.63 |
% |
$ |
1,409,637 |
|
$ |
59,235 |
|
5.61 |
% |
Securities - taxable |
|
|
616,648 |
|
|
9,916 |
|
2.15 |
% |
|
500,497 |
|
|
8,004 |
|
2.14 |
% |
Securities - exempt from Federal tax (3) |
|
|
89,991 |
|
|
2,606 |
|
3.87 |
% |
|
92,194 |
|
|
2,651 |
|
3.84 |
% |
Other investments and interest-bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in other financial institutions |
|
|
291,222 |
|
|
3,037 |
|
1.39 |
% |
|
195,850 |
|
|
1,478 |
|
1.01 |
% |
Total interest earning assets (3) |
|
|
2,519,308 |
|
|
79,671 |
|
4.23 |
% |
|
2,198,178 |
|
|
71,368 |
|
4.34 |
% |
Cash and due from banks |
|
|
33,656 |
|
|
|
|
|
|
|
32,927 |
|
|
|
|
|
|
Premises and equipment, net |
|
|
7,581 |
|
|
|
|
|
|
|
7,638 |
|
|
|
|
|
|
Goodwill and other intangible assets |
|
|
52,103 |
|
|
|
|
|
|
|
53,641 |
|
|
|
|
|
|
Other assets |
|
|
85,901 |
|
|
|
|
|
|
|
83,574 |
|
|
|
|
|
|
Total assets |
|
$ |
2,698,549 |
|
|
|
|
|
|
$ |
2,375,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, noninterest-bearing |
|
$ |
924,841 |
|
|
|
|
|
|
$ |
800,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, interest-bearing |
|
|
574,966 |
|
|
880 |
|
0.20 |
% |
|
505,442 |
|
|
731 |
|
0.19 |
% |
Savings and money market |
|
|
632,907 |
|
|
1,081 |
|
0.23 |
% |
|
506,998 |
|
|
829 |
|
0.22 |
% |
Time deposits - under $100 |
|
|
20,141 |
|
|
44 |
|
0.29 |
% |
|
22,534 |
|
|
48 |
|
0.28 |
% |
Time deposits - $100 and over |
|
|
191,301 |
|
|
859 |
|
0.60 |
% |
|
212,300 |
|
|
660 |
|
0.42 |
% |
Time deposits - brokered |
|
|
— |
|
|
— |
|
N/A |
|
|
9,503 |
|
|
59 |
|
0.83 |
% |
CDARS - money market and time deposits |
|
|
13,061 |
|
|
3 |
|
0.03 |
% |
|
8,344 |
|
|
5 |
|
0.08 |
% |
Total interest-bearing deposits |
|
|
1,432,376 |
|
|
2,867 |
|
0.27 |
% |
|
1,265,121 |
|
|
2,332 |
|
0.25 |
% |
Total deposits |
|
|
2,357,217 |
|
|
2,867 |
|
0.16 |
% |
|
2,065,170 |
|
|
2,332 |
|
0.15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt |
|
|
17,912 |
|
|
811 |
|
6.05 |
% |
|
— |
|
|
— |
|
N/A |
|
Short-term borrowings, net of issuance costs |
|
|
68 |
|
|
1 |
|
1.97 |
% |
|
601 |
|
|
12 |
|
2.67 |
% |
Total interest-bearing liabilities |
|
|
1,450,356 |
|
|
3,679 |
|
0.34 |
% |
|
1,265,722 |
|
|
2,344 |
|
0.25 |
% |
Total interest-bearing liabilities and demand, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noninterest-bearing / cost of funds |
|
|
2,375,197 |
|
|
3,679 |
|
0.21 |
% |
|
2,065,771 |
|
|
2,344 |
|
0.15 |
% |
Other liabilities |
|
|
57,377 |
|
|
|
|
|
|
|
56,325 |
|
|
|
|
|
|
Total liabilities |
|
|
2,432,574 |
|
|
|
|
|
|
|
2,122,096 |
|
|
|
|
|
|
Shareholders’ equity |
|
|
265,975 |
|
|
|
|
|
|
|
253,862 |
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
2,698,549 |
|
|
|
|
|
|
$ |
2,375,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (3) / margin |
|
|
|
|
|
75,992 |
|
4.03 |
% |
|
|
|
|
69,024 |
|
4.19 |
% |
Less tax equivalent adjustment (3) |
|
|
|
|
|
(912) |
|
|
|
|
|
|
|
(928) |
|
|
|
Net interest income |
|
|
|
|
$ |
75,080 |
|
|
|
|
|
|
$ |
68,096 |
|
|
|
(1) |
Includes loans held-for-sale. Nonaccrual loans are included in average balance. |
(2) |
Yield amounts earned on loans include fees and costs. The accretion (amortization) of deferred loan fees (costs) into loan interest income was $370,000 for the nine months ended September 30, 2017, compared to $170,000 for the nine months ended September 30, 2016 |
(3) |
Reflects the fully tax equivalent adjustment for Federal tax-exempt income based on a 35% tax rate. |
11
Exhibit 99.2
Heritage Commerce Corp Declares Quarterly Cash Dividend of $0.10 Per Share
San Jose, California — October 26, 2017 — Heritage Commerce Corp (Nasdaq: HTBK), today announced that its Board of Directors declared a quarterly cash dividend of $0.10 per share to holders of common stock. The dividend will be payable on November 21, 2017, to shareholders of record at close of business day on November 7, 2017.
Heritage Commerce Corp, a bank holding company established in February 1998, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose, CA with full-service branches in Danville, Fremont, Gilroy, Hollister, Los Altos, Los Gatos, Morgan Hill, Pleasanton, San Jose, Sunnyvale, and Walnut Creek. Heritage Bank of Commerce is an SBA Preferred Lender. Bay View Funding, a subsidiary of Heritage Bank of Commerce, is based in Santa Clara, CA and provides business-essential working capital factoring financing to various industries throughout the United States. For more information, please visit www.heritagecommercecorp.com.
Member FDIC
1