8-K

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): January 28, 2021

HERITAGE COMMERCE CORP

(Exact name of registrant as specified in its charter)

California	000-23877	77-0469558
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

224 Airport Parkway, San Jose, California	95110
(Address of principal executive offices)	(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))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, No Par Value	HTBK	The Nasdaq Stock Market, LLC

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 January 28, 2021, 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 fourth quarter and the year ended December 31, 2020. 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 January 28, 2021, the Company announced that its Board of Directors declared a $0.13 per share quarterly cash dividend to holders of common stock. The dividend will be paid on February 26, 2021, to shareholders of record on February 12, 2021. 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.

99.1	Press Release, dated January 28, 2021, entitled “Heritage Commerce Corp Reports Earnings of $11.6 Million for the Fourth Quarter of 2020 and $35.3 Million for 2020”
99.2	Press Release, dated January 28, 2021, entitled “Heritage Commerce Corp Declares Regular Quarterly Cash Dividend of $0.13 Per Share”
104	Cover Page Interactive Data File (embedded within XBRL document)

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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: January 28, 2021

Heritage Commerce Corp

By: /s/ Lawrence D. McGovern

Name: Lawrence D. McGovern

Executive Vice President and Chief Financial Officer

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EX-99.1

Exhibit 99.1

Heritage Commerce Corp Reports Earnings of $11.6 Million for the Fourth Quarter of 2020 and $35.3 Million for 2020

San Jose, CA — January 28, 2021 — Heritage Commerce Corp (Nasdaq: HTBK), the holding company (the “Company”) for Heritage Bank of Commerce (the “Bank”), today announced fourth quarter 2020 net income of $11.6 million, or $0.19 per average diluted common share, compared to $5.7 million, or $0.10 per average diluted common share, for the fourth quarter of 2019, and $11.2 million, or $0.19 per average diluted common share, for the third quarter of 2020. For the year ended December 31, 2020, net income was $35.3 million, or $0.59 per average diluted common share, compared to $40.5 million, or $0.84 per average diluted common share, for the year ended December 31, 2019. All results are unaudited.

“We generated solid earnings, for the full year of 2020, fueled by a year-over-year increase in net interest income, total deposits, and gains on sales of SBA loans,” said Mr. Keith Wilton, President and Chief Executive Officer. “Our results in the midst of this challenging economic environment are a testament to our resilient bankers, our customers and our communities. Our participation in the initial rounds of the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”), helped meet the financial needs of our customers who were significantly impacted by the pandemic and we are actively participating in this newest round of PPP funding.”

“Credit quality improved with nonperforming assets (“NPAs”) declining (20%) year-over-year and (23%) on a linked quarter basis, to $7.9 million at year end,” said Mr. Wilton. “In fact, we released $1.3 million of our provision for credit losses on loans largely due to recoveries of previously charged off accounts and the successful resolution of a nonperforming credit resulting in the release of specific reserves. This brings our allowance for credits losses on loans (“ACLL”) to total loans to 1.70%, and the ACLL to total loans, excluding PPP loans, to 1.91% at December 31, 2020. Further, capital and liquidity positions remain strong with a total risk-based capital ratio and leverage for the Company (consolidated) at 16.5% and 9.1% respectively, and 15.8% and 9.5% respectively, for the Bank, at December 31, 2020,” added Mr. Wilton.

“During the fourth quarter of 2020, we completed the final touches to our new San Jose corporate headquarters at 224 Airport Parkway and finalized the move of our San Mateo branch and administrative offices to newly renovated facilities,” commented Mr. Wilton. “These combined facilities represent over 50% of the Company’s office footprint and include modifications and upgrades to meet enhanced energy saving requirements, further representing our Company’s commitment to lowering our carbon footprint.”

“The past year presented many challenges to members of the communities we serve. During 2020, we were proud of our employees who volunteered their time to many local organizations that assist minority, disenfranchised and underrepresented groups in our community, and we congratulate them for their service. In addition, we are proud of our Company’s continued ability to provide grants and sponsorships to support these community groups,” said Mr. Wilton.

In response to two economic stimulus laws passed by Congress in the first half of the 2020, Heritage Bank of Commerce funded 1,105 PPP loans, with total principal balances of $333.4 million. Through 2020, PPP loan payoffs totaled $9.1 million while SBA loan forgiveness totaled $33.7 million and the Bank ended the fourth quarter of 2020 with $290.7 million in outstanding PPP loan balances. These loans generated $2.2 million in interest income and $3.9 million in net deferred fee revenue during 2020. At December 31, 2020, total loans included remaining deferred fees on PPP loans of ($6.8) million and deferred costs of $783,000.

On April 7, 2020, the U.S. banking agencies issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus. The statement describes accounting for COVID-19-related loan modifications, including clarifying the interaction between current accounting rules and the temporary relief provided by the Coronavirus Aid, Relief, and Economic Security (“CARES Act”). The Bank made accommodations for initial payment deferrals for a number of customers of up to 90 days, generally, with the potential, upon application, of an additional 90 days of payment deferral (180 days maximum). The Bank also waived all normal applicable fees. As well, most of the deferrals we originally granted have returned to regular payments. The following table shows the deferments at December 31, 2020 by category:

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		Underlying Collateral
NON-SBA LOANS		Business		Real
(in $000’s, unaudited)		Assets		Estate		Total
Initial Deferments(1)	$	-	$	1,573	$	1,573
2nd Deferments(2)		295		684		979
Total	$	295	$	2,257	$	2,552
(1) Initial deferments were generally for 3 months
(2) 2nd deferments were for an additional 3 months

In addition to its portfolio of SBA PPP loans, the Bank also has a portfolio of SBA 7(a) loans totaling $48.9 million as of January 15, 2021. As part of the SBA’s Coronavirus debt relief efforts, beginning in April of 2020, the SBA commenced a six-month program to cover payments of principal, interest and any associated fees for these borrowers, which largely ended with the September payment. The following table reflects the status of these SBA 7(a) loans as of January 15, 2021:

SBA 7(a) LOANS			Number
(in $000’s, unaudited)		Balance	of Loans
SBA 7(a) loans that borrowers made payments
by January 15, 2021	$	41,994	234
Payments Not Made / NSF / Returned		1,032	12
Due dates later in January		85	2
New loans / No payment due		3,267	4
CARES Payments		2,062	9
Request for Deferral		448	5
Total Portfolio	$	48,888	266

The CARES Act was recently amended to include $3.5 billion of extended debt relief payments for SBA borrowers. The program will initially provide for 3 payments of principal and interest to a maximum of $9,000 per month under various criteria and then an additional 5 payments for borrowers considered “underserved” as defined in the amended legislation.

Credit Quality and Performance

At December 31, 2020, NPAs declined by $1.9 million, or (20%), to $7.9 million, compared to $9.8 million at December 31, 2019, and decreased by $2.4 million, or (23%) from $10.3 million at September 30, 2020. Classified assets increased to $34.0 million, or 0.73% of total assets, at December 31, 2020, compared to $32.6 million, or 0.79% of total assets, at December 31, 2019, and $33.0 million, or 0.72% of total assets, at September 30, 2020.

The Company continues to monitor portfolio loans made to commercial customers with businesses in higher risk sectors due to the COVID-19 pandemic. During the fourth quarter of 2020, the percentage of loans identified as higher risk to total loans increased slightly compared to the third quarter of 2020. The following table provides a breakdown of such loans as a percentage of total loans for the periods indicated:

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	% of Total		% of Total		% of Total		% of Total
	Loans at		Loans at		Loans at		Loans at
HIGHER RISK SECTORS (unaudited)	December 31, 2020		September 30, 2020		June 30, 2020		March 31, 2020
Health care and social assistance:
Offices of dentists	2.01	%	1.86	%	1.79	%	1.63	%
Offices of physicians (except mental health specialists)	0.81	%	0.74	%	0.76	%	0.70	%
Other community housing services	0.28	%	0.27	%	0.27	%	0.11	%
All others	2.15	%	2.15	%	2.21	%	1.84	%
Total health care and social assistance	5.25	%	5.02	%	5.03	%	4.28	%
Retail trade:
Gasoline stations with convenience stores	2.16	%	1.97	%	1.90	%	1.98	%
All others	2.34	%	2.44	%	2.44	%	2.18	%
Total retail trade	4.50	%	4.41	%	4.34	%	4.16	%
Accommodation and food services:
Full-service restaurants	1.30	%	1.40	%	1.38	%	0.86	%
Limited-service restaurants	0.57	%	0.74	%	0.79	%	0.63	%
Hotels (except casino hotels) and motels	0.95	%	0.92	%	0.89	%	0.94	%
All others	0.68	%	0.68	%	0.70	%	0.52	%
Total accommodation and food services	3.50	%	3.74	%	3.76	%	2.95	%
Educational services:
Elementary and secondary schools	0.58	%	0.57	%	0.65	%	0.15	%
Education support services	0.45	%	0.43	%	0.40	%	0.15	%
All others	0.19	%	0.17	%	0.24	%	0.17	%
Total educational services	1.22	%	1.17	%	1.29	%	0.47	%
Arts, entertainment, and recreation	1.34	%	1.27	%	1.26	%	1.09	%
Purchased participations in micro loan portfolio	0.60	%	0.68	%	0.80	%	0.95	%
Total higher risk sectors	16.41	%	16.29	%	16.48	%	13.90	%

The increase in higher risk sector loans in the last three quarters of 2020, compared to the first quarter of 2020, was primarily due to the addition of PPP loans during the second quarter of 2020.

Capital and Liquidity

The Company’s and the Bank’s consolidated capital ratios exceeded regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at December 31, 2020.

Our liquidity position refers to our ability to maintain cash flows sufficient to fund operations, meet all of our obligations and commitments, and accommodate unexpected sudden changes in balances of loans and deposits in a timely manner. At 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. At December 31, 2020, the Company had a strong liquidity position with $1.13 billion in cash and cash equivalents, and $781.6 million in available borrowing capacity from sources including the Federal Home Loan Bank (“FHLB”), the Federal Reserve Bank of San Francisco (“FRB”), Federal funds facilities with several financial institutions, and a line of credit with a correspondent bank. The Company also had $498.5 million (at fair market value) in unpledged securities available at December 31, 2020. The loan to deposit ratio was 66.91% at December 31, 2020, compared to 74.20% at December 31, 2019, and decreased from 69.32% at September 30, 2020.

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Fourth Quarter and Year Ended December 31, 2020

Operating Results, Balance Sheet Review, Capital Management, and Credit Quality

(as of, or for the periods ended December 31, 2020, compared to December 31, 2019, and September 30, 2020, except as noted):

Operating Results:

♦ Diluted earnings per share were $0.19 for the fourth quarter of 2020, compared to $0.10 for the fourth quarter of 2019, and $0.19 for the third quarter of 2020. Diluted earnings per share were $0.59 for the year ended December 31, 2020, compared to $0.84 for the year ended December 31, 2019.

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

	For the Quarter Ended			For the Year Ended
	December 31,	September 30,	December 31,	December 31,	December 31,
(unaudited)	2020	2020	2019	2020	2019
Return on average tangible assets	1.02%	1.02%	0.57%	0.83%	1.25%
Return on average tangible equity	11.75%	11.41%	5.96%	9.04%	13.09%

♦ Net interest income, before provision for credit losses on loans, decreased (13%) to $34.2 million for the fourth quarter of 2020, compared to $39.2 million for the fourth quarter of 2019, primarily due to decreases in the prime rate, and yield on investment securities and overnight funds. Net interest income remained flat for the fourth quarter of 2020, compared to $34.2 million for the third quarter of 2020. Net interest income increased 8% to $141.9 million for the year ended December 31, 2020, compared to $131.8 million for the year ended December 31, 2019, primarily due to an increase in the average balance of loans resulting from the Presidio Bank (“Presidio”) merger, additional interest and fee income from PPP loans, and an increase in the accretion of the loan discount into loan interest income from our merger with Presidio, partially offset by decreases in the prime rate, and decreases in the yield on investment securities and overnight funds.

● The fully tax equivalent (“FTE”) net interest margin contracted 100 basis points to 3.15% for the fourth quarter of 2020, from 4.15% for the fourth quarter of 2019, primarily due to a decline in the average yield on loans, investment securities, and overnight funds, partially offset by a decline in the cost of interest-bearing liabilities. The FTE net interest margin contracted 9 basis points for the fourth quarter of 2020 from 3.24% for the third quarter of 2020, primarily due to a decline in the average yield on investment securities, and overnight funds, partially offset by an increase in the average yield on loans and a decline in the cost of interest-bearing liabilities.

● For the year ended December 31, 2020, the FTE net interest margin contracted 78 basis points to 3.50%, compared to 4.28% for the year ended December 31, 2019, primarily due to a decline in the average yield on loans, investment securities, and overnight funds, partially offset by a decline in the cost of interest-bearing liabilities.

♦ The following tables present the average balance of loans outstanding, interest income, and the average yield for the periods indicated:

● The average yield on the total loan portfolio decreased to 4.93% for the fourth quarter of 2020, compared to 5.76% for the fourth quarter of 2019, primarily due to a decline in the average yield in the prime rate, new average balances of lower yielding PPP loans, and a decrease in the accretion of the loan purchase discount into loan interest income from the acquisitions.

	For the Quarter Ended						For the Quarter Ended
	December 31, 2020						December 31, 2019
	Average		Interest		Average		Average		Interest		Average
(in $000’s, unaudited)	Balance		Income		Yield		Balance		Income		Yield
Loans, core bank and asset-based lending	$	2,256,944	$	26,348	4.64	%	$	2,353,871	$	30,786	5.19	%
SBA PPP loans		313,335		787	1.00	%		—		—	N/A
PPP fees, net		—		1,935	2.46	%		—		—	N/A
Bay View Funding factored receivables		50,720		2,856	22.40	%		45,045		2,888	25.44	%
Purchased residential mortgages		24,955		118	1.88	%		33,867		237	2.78	%
Purchased commercial real estate ("CRE") loans		20,854		176	3.36	%		28,407		238	3.32	%
Loan fair value mark / accretion		(12,017)		687	0.12	%		(15,089)		1,338	0.23	%
Total loans (includes loans held-for-sale)	$	2,654,791	$	32,907	4.93	%	$	2,446,101	$	35,487	5.76	%

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● The average yield on the total loan portfolio increased to 4.93% for the fourth quarter of 2020 compared to 4.86% for the third quarter of 2020, primarily due to higher fees from PPP loans and a higher average balance of Bay View Funding factored receivables, partially offset by a decrease in the accretion of the loan purchase discount into loan interest income from the acquisitions.

	For the Quarter Ended						For the Quarter Ended
	December 31, 2020						September 30, 2020
	Average		Interest		Average		Average		Interest		Average
(in $000’s, unaudited)	Balance		Income		Yield		Balance		Income		Yield
Loans, core bank and asset-based lending	$	2,256,944	$	26,348	4.64	%	$	2,266,227	$	26,508	4.65	%
SBA PPP loans		313,335		787	1.00	%		324,518		816	1.00	%
PPP fees, net		—		1,935	2.46	%		—		1,305	1.60	%
Bay View Funding factored receivables		50,720		2,856	22.40	%		40,300		2,431	24.00	%
Purchased residential mortgages		24,955		118	1.88	%		29,399		180	2.44	%
Purchased CRE loans		20,854		176	3.36	%		22,603		195	3.43	%
Loan fair value mark / accretion		(12,017)		687	0.12	%		(13,353)		1,200	0.21	%
Total loans (includes loans held-for-sale)	$	2,654,791	$	32,907	4.93	%	$	2,669,694	$	32,635	4.86	%

● The average yield on the total loan portfolio decreased to 5.06% for the year ended December 31, 2020 compared to 5.86% for the year ended December 31, 2019, primarily due to decreases in the prime rate on loans and new average balances of lower yielding PPP loans, partially offset by higher PPP loan fees and an increase in the accretion of the loan purchase discount into loan interest income from the acquisitions.

	For the Year Ended						For the Year Ended
	December 31, 2020						December 31, 2019
	Average		Interest		Average		Average		Interest		Average
(in $000’s, unaudited)	Balance		Income		Yield		Balance		Income		Yield
Loans, core bank and asset-based lending	$	2,327,624	$	110,652	4.75	%	$	1,890,079	$	100,380	5.31	%
SBA PPP loans		218,391		2,185	1.00	%		—		—	N/A
PPP fees, net		—		3,877	1.78	%		—		—	N/A
Bay View Funding factored receivables		45,765		10,727	23.44	%		46,710		11,688	25.02	%
Purchased residential mortgages		29,648		725	2.45	%		35,343		951	2.69	%
Purchased CRE loans		24,072		831	3.45	%		30,936		1,107	3.58	%
Loan fair value mark / accretion		(14,005)		4,172	0.18	%		(8,151)		2,682	0.14	%
Total loans (includes loans held-for-sale)	$	2,631,495	$	133,169	5.06	%	$	1,994,917	$	116,808	5.86	%

● In aggregate, the original total net purchase discount on loans from the Focus Business Bank, Tri-Valley Bank, United American Bank, and Presidio loan portfolio was $25.2 million. In aggregate, the remaining net purchase discount on total loans acquired was $12.1 million at December 31, 2020.

♦ The average cost of total deposits was 0.14% for the fourth quarter of 2020, compared to 0.26% for the fourth quarter of 2019 and 0.16% for the third quarter of 2020. The average cost of total deposits was 0.17% for the year ended December 31, 2020, compared to 0.29% for the year ended December 31, 2019.

♦ There was a credit of $1.3 million to the provision for credit losses on loans for the fourth quarter of 2020, compared to a $3.2 million provision for loan losses for the fourth quarter of 2019, and a $197,000 provision for credit losses on loans for the third quarter of 2020. There was a $13.2 million provision for credit losses on loans for the year ended December 31, 2020, compared to an $846,000 provision for loan losses for the year ended December 31, 2019.

● The increase in the provision for credit losses on loans for the year ended December 31, 2020, compared to the year ended December 31, 2019, was driven primarily by a significantly deteriorated economic outlook resulting from the Coronavirus pandemic. The three loan classes where the largest increases in reserves were recorded under the Current Expected Credit Loss (“CECL”) loss rate methodology were investor-owned CRE, land and construction, and commercial and industrial

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(“C&I”). Ongoing impacts of the CECL methodology will be dependent upon changes in economic conditions and forecasts, originated and acquired loan portfolio composition, portfolio duration, and other factors.

♦ Total noninterest income was $2.1 million for the fourth quarter of 2020, compared to $2.4 million for the fourth quarter of 2019, primarily due to lower service charges and fees on deposit accounts. Total noninterest income decreased to $2.1 million for the fourth quarter of 2020 from $2.6 million for the third quarter of 2020, primarily due to a realized gain on warrants exercised during the third quarter of 2020.

● For the year ended December 31, 2020, total noninterest income was $9.9 million, compared to $10.2 million for the year ended December 31, 2019, primarily due to lower service charges and fees on deposit accounts, partially offset by an increase in the cash surrender value of life insurance, a gain realized on a warrant exercised, and a gain on the disposition of foreclosed assets during the first quarter of 2020.

♦ Total noninterest expense for the fourth quarter of 2020 decreased to $21.6 million, compared to $30.6 million for the fourth quarter of 2019, primarily due to lower merger-related costs. Total noninterest expense for the fourth quarter of 2020 modestly increased compared to $21.2 million for the third quarter of 2020.

● Noninterest expense for the year ended December 31, 2020 increased to $89.5 million, compared to $84.9 million for the year ended December 31, 2019, primarily due to higher salaries and employee benefits as a result of annual salary increases, and additional employees and operating costs added as a result of the Presidio merger, partially offset by lower merger-related costs.

● The following table reflects pre-tax merger-related costs resulting from the merger with Presidio for the periods indicated:

	For the Quarter Ended						For the Year Ended
MERGER-RELATED COSTS	December 31,		September 30,		December 31,		December 31,		December 31,
(in $000’s, unaudited)	2020		2020		2019		2020		2019
Salaries and employee benefits	$	—	$	—	$	6,580	$	356	$	6,580
Other		101		17		3,299		2,245		4,500
Total merger-related costs	$	101	$	17	$	9,879	$	2,601	$	11,080

● Full time equivalent employees were 330 at December 31, 2020, 357 at December 31, 2019, and 342 at September 30, 2020.

♦ The efficiency ratio was 59.45% for the fourth quarter of 2020, compared to 73.58% for the fourth quarter of 2019, and 57.58% for the third quarter of 2020. The efficiency ratio for the year ended December 31, 2020 was 58.96%, compared to 59.76% for the year ended December 31, 2019.

♦ Income tax expense was $4.4 million for the fourth quarter of 2020, compared to $2.1 million for the fourth quarter of 2019, and $4.2 million for the third quarter of 2020. The effective tax rate for the fourth quarter of 2020 was 27.6%, compared to 26.9% for the fourth quarter of 2019, and 27.3% for the third quarter of 2020. Income tax expense for the year ended December 31, 2020 was $13.8 million, compared to $15.9 million for the year ended December 31, 2019. The effective tax rate was 28.1% for the years ended December 31, 2020 and December 31, 2019.

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

Balance Sheet Review, Capital Management and Credit Quality:

♦Total assets increased 13% to $4.63 billion at December 31, 2020, compared to $4.11 billion at December 31, 2019. Total assets increased 1% from $4.61 billion at September 30, 2020.

♦ Securities available-for-sale, at fair value, totaled $235.8 million at December 31, 2020, compared to $404.8 million at December 31, 2019, and $294.4 million at September 30, 2020. At December 31, 2020, the Company’s securities available-for-sale portfolio was comprised of $175.3 million of agency mortgage-backed securities (all issued by U.S. Government sponsored entities), and $60.5 million of U.S. Treasury securities. The pre-tax unrealized gain on securities available-for-sale at December 31, 2020 was $5.8 million, compared to a pre-tax unrealized gain on securities available-for-sale of $2.3 million at December 31,

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2019, and a pre-tax unrealized gain on securities available-for-sale of $6.9 million at September 30, 2020. All other factors remaining the same, when market interest rates are decreasing, the Company will experience a higher unrealized gain (or a lower unrealized loss) on the securities portfolio.

♦ At December 31, 2020, securities held-to-maturity, at amortized cost, totaled $297.4 million, compared to $366.6 million at December 31, 2019, and $295.6 million at September 30, 2020. At December 31, 2020, the Company’s securities held-to-maturity portfolio was comprised of $228.7 million of agency mortgage-backed securities, and $68.7 million of tax-exempt municipal bonds. During the fourth quarter of 2020, the Company purchased $30.9 million of agency mortgage-backed securities (securities held-to-maturity), with a book yield of 1.15% and an average life of 6.18 years.

● With the CECL methodology implementation date of January 1, 2020, there was a $58,000 allowance for credit losses recorded on the Company’s held-to-maturity municipal investment securities portfolio. For the year ended December 31, 2020, there was a reduction of $4,000 to the allowance for credit losses on the Company’s held-to-maturity municipal investment securities portfolio, for an allowance for credit losses of $54,000 at December 31, 2020.

♦ The loan portfolio remains well-diversified as reflected in the following table which summarizes the distribution of loans, excluding loans held-for-sale, and the percentage of distribution in each category for the periods indicated:

LOANS	December 31, 2020				September 30, 2020				December 31, 2019
(in $000’s, unaudited)	Balance		% to Total		Balance		% to Total		Balance		% to Total
Commercial	$	555,707	21	%	$	574,359	21	%	$	603,345	24	%
Paycheck Protection Program Loans		290,679	11	%		323,550	12	%		—	0	%
Real estate:
CRE - owner occupied		560,362	21	%		561,528	21	%		548,907	22	%
CRE - non-owner occupied		693,103	27	%		713,563	27	%		767,821	30	%
Land and construction		144,594	6	%		142,632	5	%		147,189	6	%
Home equity		111,885	4	%		111,468	4	%		151,775	6	%
Multifamily		166,425	6	%		169,791	6	%		180,623	7	%
Residential mortgages		85,116	3	%		91,077	3	%		100,759	4	%
Consumer and other		18,116	1	%		17,511	1	%		33,744	1	%
Total Loans		2,625,987	100	%		2,705,479	100	%		2,534,163	100	%
Deferred loan costs (fees), net		(6,726)	—			(8,463)	—			(319)	—
Loans, net of deferred costs and fees	$	2,619,261	100	%	$	2,697,016	100	%	$	2,533,844	100	%

● Loans, excluding loans held-for-sale, increased $85.4 million, or 3%, to $2.62 billion at December 31, 2020, compared to $2.53 billion at December 31, 2019, and decreased (3%) from $2.70 billion at September 30, 2020. Total loans at December 31, 2020 included $290.7 million of PPP loans.

● C&I line usage was 28% at December 31, 2020, compared to 35% at December 31, 2019, and 28% at September 30, 2020.

● At December 31, 2020, 45% of the CRE loan portfolio was secured by owner-occupied real estate.

7

♦ The following table summarizes the allowance for credit losses on loans⁽¹⁾ for the periods indicated:

	For the Quarter Ended									For the Year Ended
ALLOWANCE FOR CREDIT LOSSES ON LOANS	December 31,			September 30,			December 31,			December 31,			December 31,
(in $000’s, unaudited)	2020			2020			2019			2020			2019
Balance at beginning of period	$	45,422		$	45,444		$	25,895		$	23,285		$	27,848
Charge-offs during the period		(144)			(598)			(6,003)			(1,880)			(6,623)
Recoveries during the period		470			379			170			1,192			1,214
Net recoveries (charge-offs) during the period		326			(219)			(5,833)			(688)			(5,409)
Impact of adopting Topic 326		—			—			—			8,570			—
Provision (recapture) for credit losses on loans during the period(1)		(1,348)			197			3,223			13,233			846
Balance at end of period	$	44,400		$	45,422		$	23,285		$	44,400		$	23,285
Total loans, net of deferred fees	$	2,619,261		$	2,697,016		$	2,533,844		$	2,619,261		$	2,533,844
Total nonperforming loans	$	7,869		$	10,262		$	9,828		$	7,869		$	9,828
Allowance for credit losses on loans to total loans(2)		1.70	%		1.68	%		0.92	%		1.70	%		0.92	%
Allowance for credit losses on loans to total nonperforming loans(2)		564.24	%		442.62	%		236.93	%		564.24	%		236.93	%
(1)Provision (recapture) for credit losses on loans for the quarters ended December 31, 2020 and September 30, 2020, and the year ended December 31, 2020,
Provision for loan losses for the quarter and the year ended December 31, 2019
(2)ACLL at December 31, 2020 and September 30, 2020, Allowance for loan losses ("ALLL") at December 31, 2019

● The ACLL was 1.70% of total loans at December 31, 2020 and the ACLL to total nonperforming loans was 564.24% at December 31, 2020. The ALLL was 0.92% of total loans and the ALLL to nonperforming loans was 236.93% at December 31, 2019. The ACLL was 1.68% of total loans at September 30, 2020 and the ACLL to total nonperforming loans was 442.62% at September 30, 2020. The ACLL was 1.91% of total loans, excluding PPP loans, at December 31, 2020, and September 30, 2020.

● The following table shows the results of adopting CECL for the year ended December 31, 2020:

DRIVERS OF CHANGE IN ACLL UNDER CECL
(in $000’s, unaudited)
ALLL at December 31, 2019	$	23,285
Day 1 adjustment impact of adopting Topic 326		8,570
ACLL at January 1, 2020		31,855
Net (charge-offs) during the first quarter of 2020		(422)
Portfolio changes during the first quarter of 2020		1,216
Economic factors during the first quarter of 2020		12,054
ACLL at March 31, 2020		44,703
Net (charge-offs) during the second quarter of 2020		(373)
Portfolio changes during the second quarter of 2020		(4,282)
Qualitative and quantitative changes during the second
quarter of 2020 including changes in economic forecasts		5,396
ACLL at June 30, 2020		45,444
Net (charge-offs) during the third quarter of 2020		(219)
Portfolio changes during the third quarter of 2020		488
Qualitative and quantitative changes during the third
quarter of 2020 including changes in economic forecasts		(291)
ACLL at September 30, 2020		45,422
Net (charge-offs) during the fourth quarter of 2020		326
Portfolio changes during the fourth quarter of 2020		(1,622)
Qualitative and quantitative changes during the fourth
quarter of 2020 including changes in economic forecasts		274
ACLL at December 31, 2020	$	44,400

● Net recoveries totaled $326,000 for the fourth quarter of 2020, compared to net charge-offs of $5.8 million for the fourth quarter of 2019, and net charge-offs of $219,000 for the third quarter of 2020.

8

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

	End of Period:
NONPERFORMING ASSETS	December 31, 2020				September 30, 2020				December 31, 2019
(in $000’s, unaudited)	Balance		% of Total		Balance		% of Total		Balance		% of Total
CRE loans	$	3,706	47	%	$	4,328	42	%	$	5,094	52	%
Commercial loans		2,726	35	%		2,908	28	%		3,444	35	%
Consumer and other loans		407	5	%		1,464	14	%		—	0	%
Home equity loans		949	12	%		961	10	%		137	1	%
Restructured and loans over 90 days past due and still accruing		81	1	%		601	6	%		1,153	12	%
Total nonperforming assets	$	7,869	100	%	$	10,262	100	%	$	9,828	100	%

● NPAs totaled $7.9 million, or 0.17% of total assets, at December 31, 2020, compared to $9.8 million, or 0.24% of total assets, at December 31, 2019, and $10.3 million, or 0.22% of total assets, at September 30, 2020.

● There were no foreclosed assets on the balance sheet at December 31, 2020, December 31, 2019, or September 30, 2020.

● Classified assets increased to $34.0 million, or 0.73% of total assets, at December 31, 2020, compared to $32.6 million, or 0.79% of total assets, at December 31, 2019, and increased from $33.0 million, or 0.72% of total assets, at September 30, 2020.

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

DEPOSITS	December 31, 2020				September 30, 2020				December 31, 2019
(in $000’s, unaudited)	Balance		% to Total		Balance		% to Total		Balance		% to Total
Demand, noninterest-bearing	$	1,661,655	42	%	$	1,698,027	44	%	$	1,450,873	42	%
Demand, interest-bearing		960,179	24	%		926,041	24	%		798,375	23	%
Savings and money market		1,119,968	29	%		1,108,252	28	%		982,430	29	%
Time deposits — under $250		45,027	1	%		46,684	1	%		54,361	2	%
Time deposits — $250 and over		103,746	3	%		92,276	2	%		99,882	3	%
CDARS — interest-bearing demand,
money market and time deposits		23,911	1	%		19,121	1	%		28,847	1	%
Total deposits	$	3,914,486	100	%	$	3,890,401	100	%	$	3,414,768	100	%

● Total deposits increased $499.7 million, or 15%, to $3.91 billion at December 31, 2020, compared to $3.41 billion at December 31, 2019. Total deposits increased $24.1 million, or 1%, from $3.89 billion at September 30, 2020.

● Deposits, excluding all time deposits and CDARS deposits, increased $510.1 million, or 16%, to $3.74 billion at December 31, 2020, compared to $3.23 billion at December 31, 2019. Deposits, excluding all time deposits and CDARS deposits remained relatively flat from $3.73 billion at September 30, 2020.

♦ The Company’s consolidated capital ratios exceeded regulatory guidelines and the Bank’s capital ratios exceeded the regulatory guidelines under the Basel III prompt corrective action (“PCA”) regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at December 31, 2020, as reflected in the following table:

					Well-capitalized
					Financial
					Institution		Basel III
	Heritage		Heritage		Basel III PCA		Minimum
	Commerce		Bank of		Regulatory		Regulatory
CAPITAL RATIOS (unaudited)	Corp		Commerce		Guidelines		Requirement (1)
Total Risk-Based	16.5	%	15.8	%	10.0	%	10.5	%
Tier 1 Risk-Based	14.0	%	14.6	%	8.0	%	8.5	%
Common Equity Tier 1 Risk-Based	14.0	%	14.6	%	6.5	%	7.0	%
Leverage	9.1	%	9.5	%	5.0	%	4.0	%

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

9

The following table reflects the components of accumulated other comprehensive loss, net of taxes, for the periods indicated:

ACCUMULATED OTHER COMPREHENSIVE LOSS	December 31,		September 30,		December 31,
(in $000’s, unaudited)	2020		2020		2019
Unrealized gain on securities available-for-sale	$	3,709	$	4,495	$	1,242
Remaining unamortized unrealized gain on securities
available-for-sale transferred to held-to-maturity		261		271		297
Split dollar insurance contracts liability		(6,140)		(4,839)		(4,835)
Supplemental executive retirement plan liability		(8,767)		(6,662)		(6,842)
Unrealized gain on interest-only strip from SBA loans		220		351		360
Total accumulated other comprehensive loss	$	(10,717)	$	(6,384)	$	(9,778)

♦ Tangible equity was $393.6 million at December 31, 2020, compared to $388.9 million at December 31, 2019, and $392.5 million at September 30, 2020. Tangible book value per share was $6.57 at December 31, 2020, compared to $6.55 at December 31, 2019, and September 30, 2020.

D.C. Solar Litigation

● In December 2020, Solar Eclipse Investment Fund III, et al v. Heritage Bank of Commerce, et al., was filed against Heritage, and others, in the Solano County Superior Court (“Solar Eclipse”). Also in December 2020, Solarmore Management Services, Inc. v. Jeff Carpoff et al., (“Solarmore”) filed an amended complaint in the United States District Court for the Eastern District of California against Heritage and others. Both of these cases relate to our former deposit relationships with D.C. Solar and their affiliates (collectively “D.C. Solar”) and its sponsored investment funds. These actions seek unspecified damages and are in an early phase. We believe these actions are without merit and we intend to vigorously defend them.

● In re Double Jump, Inc. is pending in the United States Bankruptcy Court of Nevada and was filed by D.C. Solar and some of its affiliated entities. One of the chapter 7 trustees has indicated that it may bring an adversary action against Heritage related to our former deposit relationships with D.C. Solar and its sponsored investment funds. The parties have agreed to attend a pre-filing mediation.

Heritage Commerce Corp, a bank holding company established in October 1997, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose, CA with full-service branches in Danville, Fremont, Gilroy, Hollister, Livermore, Los Altos, Los Gatos, Morgan Hill, Palo Alto, Pleasanton, Redwood City, San Francisco, San Jose, San Mateo, San Rafael, Sunnyvale, and Walnut Creek. Heritage Bank of Commerce is an SBA Preferred Lender. Bay View Funding, a subsidiary of Heritage Bank of Commerce, is based in San Jose, CA and provides business-essential working capital factoring financing to various industries throughout the United States. For more information, please visit www.heritagecommercecorp.com.

Forward-Looking Statement Disclaimer

These forward-looking statements are subject to various risks and uncertainties that may be outside our control and our actual results could differ materially from our projected results. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission (“SEC”), Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and the following: (1) current and future economic and market conditions in the United States generally or in the communities we serve, including the effects of declines in property values and overall slowdowns in economic growth should these events occur; (2) effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Federal Open Market Committee of the Federal Reserve Board; (3) our ability to anticipate interest rate changes and manage interest rate risk; (4) changes in inflation, interest rates, and market liquidity which may impact interest margins and impact funding sources; (5) volatility in credit and equity markets and its effect on the global economy; (6) our ability to effectively compete with other banks and financial services companies and the effects of competition in the financial services industry on our business; (7) our ability to achieve loan growth and attract deposits; (8) risks associated with concentrations in real estate related loans; (9) the relative strength or weakness of the commercial and real estate markets where our borrowers are located, including related asset and market prices; (10) other than temporary impairment charges to our securities portfolio; (11) changes in the level of NPAs and charge offs and other credit quality measures, and their impact on the adequacy of the Company’s allowance for credit losses and the Company’s provision for credit losses; (12) increased capital requirements for our continual growth or as imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all; (13) regulatory limits on Heritage Bank of Commerce’s ability to pay dividends to the Company; (14) changes in our capital management policies, including those regarding business combinations, dividends, and share repurchases; (15) operational issues stemming from, and/or capital spending necessitated

10

by, the potential need to adapt to industry changes in information technology systems, on which we are highly dependent; (16) our inability to attract, recruit, and retain qualified officers and other personnel could harm our ability to implement our strategic plan, impair our relationships with customers and adversely affect our business, results of operations and growth prospects; (17) possible adjustment of the valuation of our deferred tax assets; (18) our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks such as data security breaches, “denial of service” attacks, “hacking” and identity theft; (19) inability of our framework to manage risks associated with our business, including operational risk and credit risk; (20) risks of loss of funding of SBA or SBA loan programs, or changes in those programs; (21) compliance with governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities, accounting and tax matters; (22) significant changes in applicable laws and regulations, including those concerning taxes, banking and securities; (23) effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; (24) costs and effects of legal and regulatory developments, including resolution of regulatory or other governmental inquiries, and the results of regulatory examinations or reviews; (25) the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise; (26) availability of and competition for acquisition opportunities; (27) risks resulting from domestic terrorism; (28) risks of natural disasters (including earthquakes) and other events beyond our control; (29) the effect of the COVID-19 pandemic, and other infectious illness outbreaks that may arise in the future, on the Bank’s customers, employees, businesses, liquidity, financial results and overall condition and which has created significant uncertainties in U.S. and global markets, including our customers' ability to make timely payments on obligations, and operating expense due to alternative approaches to doing business; (30) changes in governmental policy and regulation, including measures taken in response to economic, business, political and social conditions, such as the SBA Paycheck Protection Program (“PPP”), the Federal Reserve Board's efforts to provide liquidity to the financial system and provide credit to private commercial and municipal borrowers, and other programs designed to address the effects of the COVID-19 pandemic; (31) the Bank's participation as a lender in the PPP and similar programs and its effect on the Bank's liquidity, financial results, businesses and customers, including the availability of program funds and the ability of customers to comply with requirements and otherwise perform with respect to loans obtained under such programs; (32) our success in managing the risks involved in the foregoing factors.

Member FDIC

For additional information, contact:

Debbie Reuter

EVP, Corporate Secretary

Direct: (408) 494-4542

Debbie.Reuter@herbank.com

11

	For the Quarter Ended:									Percent Change From:				For the Year Ended:
CONSOLIDATED INCOME STATEMENTS	December 31,			September 30,			December 31,			September 30,		December 31,		December 31,			December 31,			Percent
(in $000’s, unaudited)	2020			2020			2019			2020		2019		2020			2019			Change
Interest income	$	36,145		$	36,252		$	42,471		0	%	(15)	%	$	150,471		$	142,659		5	%
Interest expense		1,940			2,087			3,242		(7)	%	(40)	%		8,581			10,847		(21)	%
Net interest income before provision
for credit losses on loans(1)		34,205			34,165			39,229		0	%	(13)	%		141,890			131,812		8	%
Provision (recapture) for credit losses on loans(1)		(1,348)			197			3,223		(784)	%	(142)	%		13,233			846		1464	%
Net interest income after provision
for credit losses on loans(1)		35,553			33,968			36,006		5	%	(1)	%		128,657			130,966		(2)	%
Noninterest income:
Service charges and fees on deposit accounts		608			632			1,140		(4)	%	(47)	%		2,859			4,510		(37)	%
Increase in cash surrender value of
life insurance		465			464			405		0	%	15	%		1,845			1,404		31	%
Gain on sales of SBA loans		372			400			358		(7)	%	4	%		839			689		22	%
Servicing income		98			187			156		(48)	%	(37)	%		673			636		6	%
Gain (loss) on sales of securities		7			—			(217)		N/A		(103)	%		277			661		(58)	%
Gain on the disposition of foreclosed assets		—			—			—		N/A		N/A			791			—		N/A
Other		506			912			551		(45)	%	(8)	%		2,638			2,344		13	%
Total noninterest income		2,056			2,595			2,393		(21)	%	(14)	%		9,922			10,244		(3)	%
Noninterest expense:
Salaries and employee benefits		12,457			11,967			18,819		4	%	(34)	%		50,927			50,754		0	%
Occupancy and equipment		2,197			2,283			2,013		(4)	%	9	%		8,018			6,647		21	%
Professional fees		1,396			1,352			899		3	%	55	%		5,338			3,259		64	%
Other		5,507			5,566			8,895		(1)	%	(38)	%		25,228			24,238		4	%
Total noninterest expense		21,557			21,168			30,626		2	%	(30)	%		89,511			84,898		5	%
Income before income taxes		16,052			15,395			7,773		4	%	107	%		49,068			56,312		(13)	%
Income tax expense		4,429			4,198			2,088		6	%	112	%		13,769			15,851		(13)	%
Net income	$	11,623		$	11,197		$	5,685		4	%	104	%	$	35,299		$	40,461		(13)	%
PER COMMON SHARE DATA
(unaudited)
Basic earnings per share	$	0.19		$	0.19		$	0.10		0	%	90	%	$	0.59		$	0.87		(32)	%
Diluted earnings per share	$	0.19		$	0.19		$	0.10		0	%	90	%	$	0.59		$	0.84		(30)	%
Weighted average shares outstanding - basic		59,616,951			59,589,243			57,168,605		0	%	4	%		59,478,343			46,684,384		27	%
Weighted average shares outstanding - diluted		60,247,296			60,141,412			58,361,976		0	%	3	%		60,169,139			47,906,229		26	%
Common shares outstanding at period-end		59,917,457			59,914,987			59,368,156		0	%	1	%		59,917,457			59,368,156		1	%
Dividend per share	$	0.13		$	0.13		$	0.12		0	%	8	%	$	0.52		$	0.48		8	%
Book value per share	$	9.64		$	9.64		$	9.71		0	%	(1)	%	$	9.64		$	9.71		(1)	%
Tangible book value per share	$	6.57		$	6.55		$	6.55		0	%	0	%	$	6.57		$	6.55		0	%
KEY FINANCIAL RATIOS
(unaudited)
Annualized return on average equity		7.99	%		7.73	%		4.04	%	3	%	98	%		6.12	%		9.51	%	(36)	%
Annualized return on average tangible equity		11.75	%		11.41	%		5.96	%	3	%	97	%		9.04	%		13.09	%	(31)	%
Annualized return on average assets		0.98	%		0.98	%		0.55	%	0	%	78	%		0.80	%		1.21	%	(34)	%
Annualized return on average tangible assets		1.02	%		1.02	%		0.57	%	0	%	79	%		0.83	%		1.25	%	(34)	%
Net interest margin (FTE)		3.15	%		3.24	%		4.15	%	(3)	%	(24)	%		3.50	%		4.28	%	(18)	%
Efficiency ratio		59.45	%		57.58	%		73.58	%	3	%	(19)	%		58.96	%		59.76	%	(1)	%
AVERAGE BALANCES
(in $000’s, unaudited)
Average assets	$	4,703,154		$	4,562,412		$	4,124,018		3	%	14	%	$	4,434,329		$	3,353,770		32	%
Average tangible assets	$	4,518,279		$	4,376,533		$	3,943,725		3	%	15	%	$	4,248,090		$	3,237,289		31	%
Average earning assets	$	4,338,117		$	4,203,902		$	3,762,239		3	%	15	%	$	4,071,805		$	3,094,589		32	%
Average loans held-for-sale	$	2,772		$	5,169		$	3,299		(46)	%	(16)	%	$	3,459		$	3,714		(7)	%
Average total loans	$	2,652,019		$	2,664,525		$	2,442,802		0	%	9	%	$	2,628,036		$	1,991,203		32	%
Average deposits	$	3,980,017		$	3,846,652		$	3,432,771		3	%	16	%	$	3,719,896		$	2,819,932		32	%
Average demand deposits - noninterest-bearing	$	1,749,837		$	1,700,972		$	1,452,893		3	%	20	%	$	1,638,055		$	1,131,098		45	%
Average interest-bearing deposits	$	2,230,180		$	2,145,680		$	1,979,878		4	%	13	%	$	2,081,841		$	1,688,834		23	%
Average interest-bearing liabilities	$	2,269,960		$	2,185,439		$	2,027,106		4	%	12	%	$	2,121,621		$	1,730,320		23	%
Average equity	$	578,560		$	576,135		$	558,478		0	%	4	%	$	576,675		$	425,674		35	%
Average tangible equity	$	393,685		$	390,256		$	378,185		1	%	4	%	$	390,436		$	309,193		26	%

⁽¹⁾Provision (recapture) for credit losses on loans for the quarters ended December 31, 2020, September 30, 2020 and the year ended December 31, 2020, Provision for loan losses for quarter and year ended December 31, 2019

12

	For the Quarter Ended:
CONSOLIDATED INCOME STATEMENTS	December 31,			September 30,			June 30,			March 31,			December 31,
(in $000’s, unaudited)	2020			2020			2020			2020			2019
Interest income	$	36,145		$	36,252		$	37,132		$	40,942		$	42,471
Interest expense		1,940			2,087			2,192			2,362			3,242
Net interest income before provision
for credit losses on loans(1)		34,205			34,165			34,940			38,580			39,229
Provision (recapture) for credit losses on loans(1)		(1,348)			197			1,114			13,270			3,223
Net interest income after provision
for credit losses on loans(1)		35,553			33,968			33,826			25,310			36,006
Noninterest income:
Service charges and fees on deposit accounts		608			632			650			969			1,140
Increase in cash surrender value of
life insurance		465			464			458			458			405
Gain on sales of SBA loans		372			400			—			67			358
Servicing income		98			187			205			183			156
Gain (loss) on sales of securities		7			—			170			100			(217)
Gain on the disposition of foreclosed assets		—			—			—			791			—
Other		506			912			595			625			551
Total noninterest income		2,056			2,595			2,078			3,193			2,393
Noninterest expense:
Salaries and employee benefits		12,457			11,967			12,300			14,203			18,819
Occupancy and equipment		2,197			2,283			1,766			1,772			2,013
Professional fees		1,396			1,352			1,155			1,435			899
Other		5,507			5,566			5,791			8,364			8,895
Total noninterest expense		21,557			21,168			21,012			25,774			30,626
Income before income taxes		16,052			15,395			14,892			2,729			7,773
Income tax expense		4,429			4,198			4,274			868			2,088
Net income	$	11,623		$	11,197		$	10,618		$	1,861		$	5,685
PER COMMON SHARE DATA
(unaudited)
Basic earnings per share	$	0.19		$	0.19		$	0.18		$	0.03		$	0.10
Diluted earnings per share	$	0.19		$	0.19		$	0.18		$	0.03		$	0.10
Weighted average shares outstanding - basic		59,616,951			59,589,243			59,420,592			59,286,927			57,168,605
Weighted average shares outstanding - diluted		60,247,296			60,141,412			60,112,423			60,194,025			58,361,976
Common shares outstanding at period-end		59,917,457			59,914,987			59,856,767			59,568,219			59,368,156
Dividend per share	$	0.13		$	0.13		$	0.13		$	0.13		$	0.12
Book value per share	$	9.64		$	9.64		$	9.60		$	9.59		$	9.71
Tangible book value per share	$	6.57		$	6.55		$	6.49		$	6.46		$	6.55
KEY FINANCIAL RATIOS
(unaudited)
Annualized return on average equity		7.99	%		7.73	%		7.45	%		1.29	%		4.04	%
Annualized return on average tangible equity		11.75	%		11.41	%		11.06	%		1.91	%		5.96	%
Annualized return on average assets		0.98	%		0.98	%		0.96	%		0.19	%		0.55	%
Annualized return on average tangible assets		1.02	%		1.02	%		1.01	%		0.19	%		0.57	%
Net interest margin (FTE)		3.15	%		3.24	%		3.46	%		4.25	%		4.15	%
Efficiency ratio		59.45	%		57.58	%		56.76	%		61.70	%		73.58	%
AVERAGE BALANCES
(in $000’s, unaudited)
Average assets	$	4,703,154		$	4,562,412		$	4,434,238		$	4,033,151		$	4,124,018
Average tangible assets	$	4,518,279		$	4,376,533		$	4,247,522		$	3,845,646		$	3,943,725
Average earning assets	$	4,338,117		$	4,203,902		$	4,075,673		$	3,665,151		$	3,762,239
Average loans held-for-sale	$	2,772		$	5,169		$	3,617		$	2,265		$	3,299
Average total loans	$	2,652,019		$	2,664,525		$	2,683,476		$	2,511,460		$	2,442,802
Average deposits	$	3,980,017		$	3,846,652		$	3,720,850		$	3,327,812		$	3,432,771
Average demand deposits - noninterest-bearing	$	1,749,837		$	1,700,972		$	1,660,547		$	1,438,944		$	1,452,893
Average interest-bearing deposits	$	2,230,180		$	2,145,680		$	2,060,303		$	1,888,868		$	1,979,878
Average interest-bearing liabilities	$	2,269,960		$	2,185,439		$	2,099,982		$	1,928,770		$	2,027,106
Average equity	$	578,560		$	576,135		$	572,939		$	579,051		$	558,478
Average tangible equity	$	393,685		$	390,256		$	386,223		$	391,546		$	378,185

⁽¹⁾Provision (recapture) for credit losses on loans for the quarters ended December 31, 2020, September 30, June 30, 2020 and March 31, 2020, Provision for loan losses for the quarter ended December 31, 2019

13

	End of Period:						Percent Change From:
CONSOLIDATED BALANCE SHEETS	December 31,		September 30,		December 31,		September 30,		December 31,
(in $000’s, unaudited)	2020		2020		2019		2020		2019
ASSETS
Cash and due from banks	$	30,598	$	33,353	$	49,447	(8)	%	(38)	%
Other investments and interest-bearing deposits
in other financial institutions		1,100,475		926,915		407,923	19	%	170	%
Securities available-for-sale, at fair value		235,774		294,438		404,825	(20)	%	(42)	%
Securities held-to-maturity, at amortized cost		297,389		295,609		366,560	1	%	(19)	%
Loans held-for-sale - SBA, including deferred costs		1,699		3,565		1,052	(52)	%	62	%
Loans:
Commercial		555,707		574,359		603,345	(3)	%	(8)	%
SBA PPP loans		290,679		323,550		—	(10)	%	N/A
Real estate:
CRE - owner occupied		560,362		561,528		548,907	0	%	2	%
CRE - non-owner occupied		693,103		713,563		767,821	(3)	%	(10)	%
Land and construction		144,594		142,632		147,189	1	%	(2)	%
Home equity		111,885		111,468		151,775	0	%	(26)	%
Multifamily		166,425		169,791		180,623	(2)	%	(8)	%
Residential mortgages		85,116		91,077		100,759	(7)	%	(16)	%
Consumer and other		18,116		17,511		33,744	3	%	(46)	%
Loans		2,625,987		2,705,479		2,534,163	(3)	%	4	%
Deferred loan fees, net		(6,726)		(8,463)		(319)	(21)	%	2008	%
Total loans, net of deferred costs and fees		2,619,261		2,697,016		2,533,844	(3)	%	3	%
Allowance for credit losses on loans(1)		(44,400)		(45,422)		(23,285)	(2)	%	91	%
Loans, net		2,574,861		2,651,594		2,510,559	(3)	%	3	%
Company-owned life insurance		77,523		77,059		76,027	1	%	2	%
Premises and equipment, net		10,459		10,412		8,250	0	%	27	%
Goodwill		167,631		167,631		167,420	0	%	0	%
Other intangible assets		16,664		17,628		20,415	(5)	%	(18)	%
Accrued interest receivable and other assets		121,041		128,581		96,985	(6)	%	25	%
Total assets	$	4,634,114	$	4,606,785	$	4,109,463	1	%	13	%
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, noninterest-bearing	$	1,661,655	$	1,698,027	$	1,450,873	(2)	%	15	%
Demand, interest-bearing		960,179		926,041		798,375	4	%	20	%
Savings and money market		1,119,968		1,108,252		982,430	1	%	14	%
Time deposits-under $250		45,027		46,684		54,361	(4)	%	(17)	%
Time deposits-$250 and over		103,746		92,276		99,882	12	%	4	%
CDARS - money market and time deposits		23,911		19,121		28,847	25	%	(17)	%
Total deposits		3,914,486		3,890,401		3,414,768	1	%	15	%
Subordinated debt, net of issuance costs		39,740		39,693		39,554	0	%	0	%
Other short-term borrowings		—		—		328	N/A		(100)	%
Accrued interest payable and other liabilities		101,999		98,884		78,105	3	%	31	%
Total liabilities		4,056,225		4,028,978		3,532,755	1	%	15	%
Shareholders’ Equity:
Common stock		493,707		493,126		489,745	0	%	1	%
Retained earnings		94,899		91,065		96,741	4	%	(2)	%
Accumulated other comprehensive loss		(10,717)		(6,384)		(9,778)	(68)	%	(10)	%
Total shareholders' equity		577,889		577,807		576,708	0	%	0	%
Total liabilities and shareholders’ equity	$	4,634,114	$	4,606,785	$	4,109,463	1	%	13	%
(1)Allowance for credit losses on loans at December 31, 2020 and September 30, 2020, Allowance for loan losses at December 31, 2019

14

	End of Period:
CONSOLIDATED BALANCE SHEETS	December 31,		September 30,		June 30,		March 31,		December 31,
(in $000’s, unaudited)	2020		2020		2020		2020		2019
ASSETS
Cash and due from banks	$	30,598	$	33,353	$	40,108	$	36,998	$	49,447
Other investments and interest-bearing deposits
in other financial institutions		1,100,475		926,915		885,792		406,399		407,923
Securities available-for-sale, at fair value		235,774		294,438		323,565		373,570		404,825
Securities held-to-maturity, at amortized cost		297,389		295,609		322,677		348,044		366,560
Loans held-for-sale - SBA, including deferred costs		1,699		3,565		4,324		2,415		1,052
Loans:
Commercial		555,707		574,359		553,843		696,168		603,345
SBA PPP loans		290,679		323,550		324,550		—		—
Real estate:
CRE - owner occupied		560,362		561,528		553,463		539,465		548,907
CRE - non-owner occupied		693,103		713,563		725,776		748,245		767,821
Land and construction		144,594		142,632		138,284		153,321		147,189
Home equity		111,885		111,468		112,679		117,544		151,775
Multifamily		166,425		169,791		169,637		170,292		180,623
Residential mortgages		85,116		91,077		95,033		95,808		100,759
Consumer and other		18,116		17,511		22,759		33,326		33,744
Loans		2,625,987		2,705,479		2,696,024		2,554,169		2,534,163
Deferred loan fees, net		(6,726)		(8,463)		(9,635)		(258)		(319)
Total loans, net of deferred fees		2,619,261		2,697,016		2,686,389		2,553,911		2,533,844
Allowance for credit losses on loans(1)		(44,400)		(45,422)		(45,444)		(44,703)		(23,285)
Loans, net		2,574,861		2,651,594		2,640,945		2,509,208		2,510,559
Company-owned life insurance		77,523		77,059		76,944		76,485		76,027
Premises and equipment, net		10,459		10,412		9,500		9,025		8,250
Goodwill		167,631		167,631		167,631		167,371		167,420
Other intangible assets		16,664		17,628		18,593		19,557		20,415
Accrued interest receivable and other assets		121,041		128,581		124,322		129,090		96,985
Total assets	$	4,634,114	$	4,606,785	$	4,614,401	$	4,078,162	$	4,109,463
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, noninterest-bearing	$	1,661,655	$	1,698,027	$	1,714,058	$	1,444,534	$	1,450,873
Demand, interest-bearing		960,179		926,041		934,780		810,425		798,375
Savings and money market		1,119,968		1,108,252		1,091,740		949,076		982,430
Time deposits-under $250		45,027		46,684		49,493		51,009		54,361
Time deposits-$250 and over		103,746		92,276		93,822		96,540		99,882
CDARS - money market and time deposits		23,911		19,121		16,333		15,055		28,847
Total deposits		3,914,486		3,890,401		3,900,226		3,366,639		3,414,768
Subordinated debt, net of issuance costs		39,740		39,693		39,646		39,600		39,554
Other short-term borrowings		—		—		—		—		328
Accrued interest payable and other liabilities		101,999		98,884		99,722		100,482		78,105
Total liabilities		4,056,225		4,028,978		4,039,594		3,506,721		3,532,755
Shareholders’ Equity:
Common stock		493,707		493,126		492,333		491,347		489,745
Retained earnings		94,899		91,065		87,654		84,803		96,741
Accumulated other comprehensive loss		(10,717)		(6,384)		(5,180)		(4,709)		(9,778)
Total shareholders' equity		577,889		577,807		574,807		571,441		576,708
Total liabilities and shareholders’ equity	$	4,634,114	$	4,606,785	$	4,614,401	$	4,078,162	$	4,109,463
(1)Allowance for credit losses on loans at September 30, 2020, June 30, 2020 and March 31, 2020, Allowance for loan losses at December 31, 2019

15

	End of Period:									Percent Change From:
CREDIT QUALITY DATA	December 31,			September 30,			December 31,			September 30,		December 31,
(in $000’s, unaudited)	2020			2020			2019			2020		2019
Nonaccrual loans - held-for-investment	$	7,788		$	9,661		$	8,675		(19)	%	(10)	%
Restructured and loans over 90 days past due
and still accruing		81			601			1,153		(87)	%	(93)	%
Total nonperforming loans		7,869			10,262			9,828		(23)	%	(20)	%
Foreclosed assets		—			—			—		N/A		N/A
Total nonperforming assets	$	7,869		$	10,262		$	9,828		(23)	%	(20)	%
Other restructured loans still accruing	$	169		$	98		$	436		72	%	(61)	%
Net charge-offs (recoveries) during the quarter	$	(326)		$	219		$	5,833		(249)	%	(106)	%
Provision (recapture) for credit losses on loans during the quarter(1)	$	(1,348)		$	197		$	3,223		(784)	%	(142)	%
Allowance for credit losses on loans(2)	$	44,400		$	45,422		$	23,285		(2)	%	91	%
Classified assets	$	34,028		$	33,024		$	32,579		3	%	4	%
Allowance for credit losses on loans to total loans(2)		1.70	%		1.68	%		0.92	%	1	%	85	%
Allowance for credit losses on loans to total nonperforming loans(2)		564.24	%		442.62	%		236.93	%	27	%	138	%
Nonperforming assets to total assets		0.17	%		0.22	%		0.24	%	(23)	%	(29)	%
Nonperforming loans to total loans		0.30	%		0.38	%		0.39	%	(21)	%	(23)	%
Classified assets to Heritage Commerce Corp
Tier 1 capital plus allowance for credit losses on loans(2)		7	%		7	%		8	%	0	%	(13)	%
Classified assets to Heritage Bank of Commerce
Tier 1 capital plus allowance for credit losses on loans(2)		7	%		7	%		7	%	0	%	0	%
OTHER PERIOD-END STATISTICS
(in $000’s, unaudited)
Heritage Commerce Corp:
Tangible common equity (3)	$	393,594		$	392,548		$	388,873		0	%	1	%
Shareholders’ equity / total assets		12.47	%		12.54	%		14.03	%	(1)	%	(11)	%
Tangible common equity / tangible assets (4)		8.85	%		8.88	%		9.92	%	0	%	(11)	%
Loan to deposit ratio		66.91	%		69.32	%		74.20	%	(3)	%	(10)	%
Noninterest-bearing deposits / total deposits		42.45	%		43.65	%		42.49	%	(3)	%	0	%
Total risk-based capital ratio		16.5	%		16.0	%		14.6	%	3	%	13	%
Tier 1 risk-based capital ratio		14.0	%		13.5	%		12.5	%	4	%	12	%
Common Equity Tier 1 risk-based capital ratio		14.0	%		13.5	%		12.5	%	4	%	12	%
Leverage ratio		9.1	%		9.3	%		9.8	%	(2)	%	(7)	%
Heritage Bank of Commerce:
Total risk-based capital ratio		15.8	%		15.2	%		13.9	%	4	%	14	%
Tier 1 risk-based capital ratio		14.6	%		14.1	%		13.1	%	4	%	11	%
Common Equity Tier 1 risk-based capital ratio		14.6	%		14.1	%		13.1	%	4	%	11	%
Leverage ratio		9.5	%		9.7	%		10.2	%	(2)	%	(7)	%

(1) Provision (recapture) for credit losses on loans for the quarters ended December 31, 2020 and September 30, 2020, Provision for loan losses for the quarter ended December 31, 2019

(2) ACLL at December 31, 2020 and September 30, 2020, ALLL at December 31, 2019

(3) Represents shareholders' equity minus goodwill and other intangible assets

(4) Represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets

16

	End of Period:
CREDIT QUALITY DATA	December 31,			September 30,			June 30,			March 31,			December 31,
(in $000’s, unaudited)	2020			2020			2020			2020			2019
Nonaccrual loans - held-for-investment	$	7,788		$	9,661		$	8,457		$	11,646			8,675
Restructured and loans over 90 days past due
and still accruing		81			601			668			442			1,153
Total nonperforming loans		7,869			10,262			9,125			12,088			9,828
Foreclosed assets		—			—			—			—			—
Total nonperforming assets	$	7,869		$	10,262		$	9,125		$	12,088		$	9,828
Other restructured loans still accruing	$	169		$	98		$	64		$	103		$	436
Net charge-offs (recoveries) during the quarter	$	(326)		$	219		$	373		$	422		$	5,833
Provision (recapture) for credit losses on loans during the quarter(1)	$	(1,348)		$	197		$	1,114		$	13,270		$	3,223
Adoption of Topic 326	$	—		$	—		$	—		$	8,570		$	—
Allowance for credit losses on loans(2)	$	44,400		$	45,422		$	45,444		$	44,703		$	23,285
Classified assets	$	34,028		$	33,024		$	31,452		$	39,603		$	32,579
Allowance for credit losses on loans to total loans(2)		1.70	%		1.68	%		1.69	%		1.75	%		0.92	%
Allowance for credit losses on loans to total nonperforming loans(2)		564.24	%		442.62	%		498.02	%		369.81	%		236.93	%
Nonperforming assets to total assets		0.17	%		0.22	%		0.20	%		0.30	%		0.24	%
Nonperforming loans to total loans		0.30	%		0.38	%		0.34	%		0.47	%		0.39	%
Classified assets to Heritage Commerce Corp
Tier 1 capital plus allowance for credit losses on loans(2)		7	%		7	%		7	%		9	%		8	%
Classified assets to Heritage Bank of Commerce
Tier 1 capital plus allowance for credit losses on loans(2)		7	%		7	%		7	%		9	%		7	%
OTHER PERIOD-END STATISTICS
(in $000’s, unaudited)
Heritage Commerce Corp:
Tangible common equity (3)	$	393,594		$	392,548		$	388,583		$	384,513		$	388,873
Shareholders’ equity / total assets		12.47	%		12.54	%		12.46	%		14.01	%		14.03	%
Tangible common equity / tangible assets (4)		8.85	%		8.88	%		8.78	%		9.88	%		9.92	%
Loan to deposit ratio		66.91	%		69.32	%		68.88	%		75.86	%		74.20	%
Noninterest-bearing deposits / total deposits		42.45	%		43.65	%		43.95	%		42.91	%		42.49	%
Total risk-based capital ratio		16.5	%		16.0	%		15.9	%		14.8	%		14.6	%
Tier 1 risk-based capital ratio		14.0	%		13.5	%		13.4	%		12.5	%		12.5	%
Common Equity Tier 1 risk-based capital ratio		14.0	%		13.5	%		13.4	%		12.5	%		12.5	%
Leverage ratio		9.1	%		9.3	%		9.4	%		10.3	%		9.8	%
Heritage Bank of Commerce:
Total risk-based capital ratio		15.8	%		15.2	%		15.1	%		14.1	%		13.9	%
Tier 1 risk-based capital ratio		14.6	%		14.1	%		14.0	%		13.0	%		13.1	%
Common Equity Tier 1 risk-based capital ratio		14.6	%		14.1	%		14.0	%		13.0	%		13.1	%
Leverage ratio		9.5	%		9.7	%		9.9	%		10.7	%		10.2	%

(1) Provision (recapture) for credit losses on loans for the quarters ended December 31, 2020, September 30, 2020, June 30, 2020 and March 31, 2020, Provision for loan losses for the quarter ended December 31, 2019

(2) ACLL at December 31, 2020, September 30, 2020, June 30, 2020 and March 31, 2020, ALLL at December 31, 2019

(3) Represents shareholders' equity minus goodwill and other intangible assets

(4) Represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets

17

	For the Quarter Ended						For the Quarter Ended
	December 31, 2020						December 31, 2019
			Interest		Average				Interest		Average
NET INTEREST INCOME AND NET INTEREST MARGIN	Average		Income/		Yield/		Average		Income/		Yield/
(in $000’s, unaudited)	Balance		Expense		Rate		Balance		Expense		Rate
Assets:
Loans, gross (1)(2)	$	2,654,791	$	32,907	4.93	%	$	2,446,101	$	35,487	5.76	%
Securities - taxable		482,951		2,053	1.69	%		653,623		3,687	2.24	%
Securities - exempt from Federal tax (3)		70,318		570	3.22	%		82,034		663	3.21	%
Other investments and interest-bearing deposits
in other financial institutions		1,130,057		735	0.26	%		580,481		2,773	1.90	%
Total interest earning assets (3)		4,338,117		36,265	3.33	%		3,762,239		42,610	4.49	%
Cash and due from banks		42,861						48,313
Premises and equipment, net		10,387						8,497
Goodwill and other intangible assets		184,875						180,293
Other assets		126,914						124,676
Total assets	$	4,703,154					$	4,124,018
Liabilities and shareholders’ equity:
Deposits:
Demand, noninterest-bearing	$	1,749,837					$	1,452,893
Demand, interest-bearing		939,203		462	0.20	%		789,465		600	0.30	%
Savings and money market		1,121,636		674	0.24	%		1,009,880		1,283	0.50	%
Time deposits - under $100		16,748		11	0.26	%		19,613		28	0.57	%
Time deposits - $100 and over		131,740		208	0.63	%		143,095		373	1.03	%
CDARS - money market and time deposits		20,853		1	0.02	%		17,825		2	0.04	%
Total interest-bearing deposits		2,230,180		1,356	0.24	%		1,979,878		2,286	0.46	%
Total deposits		3,980,017		1,356	0.14	%		3,432,771		2,286	0.26	%
Subordinated debt, net of issuance costs		39,710		583	5.84	%		46,758		955	8.10	%
Short-term borrowings		70		1	5.68	%		470		1	0.84	%
Total interest-bearing liabilities		2,269,960		1,940	0.34	%		2,027,106		3,242	0.63	%
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds		4,019,797		1,940	0.19	%		3,479,999		3,242	0.37	%
Other liabilities		104,797						85,541
Total liabilities		4,124,594						3,565,540
Shareholders’ equity		578,560						558,478
Total liabilities and shareholders’ equity	$	4,703,154					$	4,124,018
Net interest income (3) / margin				34,325	3.15	%				39,368	4.15	%
Less tax equivalent adjustment (3)				(120)						(139)
Net interest income			$	34,205					$	39,229

(1) Includes loans held-for-sale. Nonaccrual loans are included in average balance.

(2) Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $2,120,000 for the fourth quarter of 2020 (of which $1,935,000 was from PPP loans), compared to $90,000 for the fourth quarter of 2019.

(3) Reflects the FTE adjustment for Federal tax-exempt income based on a 21%.

18

	For the Quarter Ended						For the Quarter Ended
	December 31, 2020						September 30, 2020
			Interest		Average				Interest		Average
NET INTEREST INCOME AND NET INTEREST MARGIN	Average		Income/		Yield/		Average		Income/		Yield/
(in $000’s, unaudited)	Balance		Expense		Rate		Balance		Expense		Rate
Assets:
Loans, gross (1)(2)	$	2,654,791	$	32,907	4.93	%	$	2,669,694	$	32,635	4.86	%
Securities - taxable		482,951		2,053	1.69	%		550,423		2,481	1.79	%
Securities - exempt from Federal tax (3)		70,318		570	3.22	%		72,625		586	3.21	%
Other investments and interest-bearing deposits
in other financial institutions		1,130,057		735	0.26	%		911,160		673	0.29	%
Total interest earning assets (3)		4,338,117		36,265	3.33	%		4,203,902		36,375	3.44	%
Cash and due from banks		42,861						36,505
Premises and equipment, net		10,387						9,884
Goodwill and other intangible assets		184,875						185,879
Other assets		126,914						126,242
Total assets	$	4,703,154					$	4,562,412
Liabilities and shareholders’ equity:
Deposits:
Demand, noninterest-bearing	$	1,749,837					$	1,700,972
Demand, interest-bearing		939,203		462	0.20	%		934,892		506	0.22	%
Savings and money market		1,121,636		674	0.24	%		1,052,800		762	0.29	%
Time deposits - under $100		16,748		11	0.26	%		17,298		16	0.37	%
Time deposits - $100 and over		131,740		208	0.63	%		121,949		219	0.71	%
CDARS - money market and time deposits		20,853		1	0.02	%		18,741		1	0.02	%
Total interest-bearing deposits		2,230,180		1,356	0.24	%		2,145,680		1,504	0.28	%
Total deposits		3,980,017		1,356	0.14	%		3,846,652		1,504	0.16	%
Subordinated debt, net of issuance costs		39,710		583	5.84	%		39,663		583	5.85	%
Short-term borrowings		70		1	5.68	%		96		—	0.00	%
Total interest-bearing liabilities		2,269,960		1,940	0.34	%		2,185,439		2,087	0.38	%
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds		4,019,797		1,940	0.19	%		3,886,411		2,087	0.21	%
Other liabilities		104,797						99,866
Total liabilities		4,124,594						3,986,277
Shareholders’ equity		578,560						576,135
Total liabilities and shareholders’ equity	$	4,703,154					$	4,562,412
Net interest income (3) / margin				34,325	3.15	%				34,288	3.24	%
Less tax equivalent adjustment (3)				(120)						(123)
Net interest income			$	34,205					$	34,165

(1) Includes loans held-for-sale. Nonaccrual loans are included in average balance.

(2) Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $2,120,000 for the fourth quarter of 2020 (of which $1,935,000 was from PPP loans), compared to $1,441,000 for the third quarter of 2020 (of which $1,305,000 was from PPP loans).

(3) Reflects the FTE adjustment for Federal tax-exempt income based on a 21%.

19

	For the Year Ended						For the Year Ended
	December 31, 2020						December 31, 2019
			Interest		Average				Interest		Average
NET INTEREST INCOME AND NET INTEREST MARGIN	Average		Income/		Yield/		Average		Income/		Yield/
(in $000’s, unaudited)	Balance		Expense		Rate		Balance		Expense		Rate
Assets:
Loans, gross (1)(2)	$	2,631,495	$	133,169	5.06	%	$	1,994,917	$	116,808	5.86	%
Securities - taxable		578,506		11,637	2.01	%		682,602		15,836	2.32	%
Securities - exempt from Federal tax (3)		74,849		2,415	3.23	%		84,165		2,720	3.23	%
Other investments, interest-bearing deposits in other
financial institutions and Federal funds sold		786,955		3,757	0.48	%		332,905		7,867	2.36	%
Total interest earning assets (3)		4,071,805		150,978	3.71	%		3,094,589		143,231	4.63	%
Cash and due from banks		40,401						40,070
Premises and equipment, net		9,497						7,395
Goodwill and other intangible assets		186,239						116,481
Other assets		126,387						95,235
Total assets	$	4,434,329					$	3,353,770
Liabilities and shareholders’ equity:
Deposits:
Demand, noninterest-bearing	$	1,638,055					$	1,131,098
Demand, interest-bearing		891,513		2,035	0.23	%		712,186		2,401	0.34	%
Savings and money market		1,026,319		3,144	0.31	%		811,266		4,298	0.53	%
Time deposits - under $100		17,659		67	0.38	%		19,448		94	0.48	%
Time deposits - $100 and over		128,461		1,009	0.79	%		130,856		1,359	1.04	%
CDARS - money market and time deposits		17,889		5	0.03	%		15,078		7	0.05	%
Total interest-bearing deposits		2,081,841		6,260	0.30	%		1,688,834		8,159	0.48	%
Total deposits		3,719,896		6,260	0.17	%		2,819,932		8,159	0.29	%
Subordinated debt, net of issuance costs		39,641		2,320	5.85	%		41,278		2,686	6.51	%
Short-term borrowings		139		1	0.72	%		208		2	0.96	%
Total interest-bearing liabilities		2,121,621		8,581	0.40	%		1,730,320		10,847	0.63	%
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds		3,759,676		8,581	0.23	%		2,861,418		10,847	0.38	%
Other liabilities		97,978						66,678
Total liabilities		3,857,654						2,928,096
Shareholders’ equity		576,675						425,674
Total liabilities and shareholders’ equity	$	4,434,329					$	3,353,770
Net interest income (3) / margin				142,397	3.50	%				132,384	4.28	%
Less tax equivalent adjustment (3)				(507)						(572)
Net interest income			$	141,890					$	131,812

(1) Includes loans held-for-sale. Nonaccrual loans are included in average balance.

(2) Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $4,473,000 for the year ended December 31, 2020 (of which $3,877,000 was from PPP loans), compared to $580,000 for the year ended December 31, 2019.

(3) Reflects the FTE adjustment for Federal tax-exempt income based on a 21%.

20

EX-99.2

Exhibit 99.2

Heritage Commerce Corp Declares Regular Quarterly Cash Dividend of $0.13 Per Share

San Jose, California — January 28, 2021 — Heritage Commerce Corp (Nasdaq: HTBK), the holding company for Heritage Bank of Commerce, today announced that its Board of Directors declared its regular quarterly cash dividend of $0.13 per share to holders of common stock. The dividend will be payable on February 26, 2021, to shareholders of record at close of business day on February 12, 2021.

Heritage Commerce Corp, a bank holding company established in October 1997, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose, CA with full-service branches in Danville, Fremont, Gilroy, Hollister, Livermore, Los Altos, Los Gatos, Morgan Hill, Palo Alto, Pleasanton, Redwood City, San Francisco, San Jose, San Mateo, San Rafael, Sunnyvale, and Walnut Creek. Heritage Bank of Commerce is an SBA Preferred Lender. Bay View Funding, a subsidiary of Heritage Bank of Commerce, is based in San Jose, CA and provides business-essential working capital factoring financing to various industries throughout the United States. For more information, please visit www.heritagecommercecorp.com.

Member FDIC

For additional information, contact:

Debbie Reuter

EVP, Corporate Secretary

Direct: (408) 494-4542

Debbie.Reuter@herbank.com

1

XML

Document and Entity Information	Jan. 28, 2021
Cover [Abstract]
Document Type	8-K
Document Period End Date	Jan. 28, 2021
Entity Registrant Name	HERITAGE COMMERCE CORP
Entity Central Index Key	0001053352
Entity File Number	000-23877
Entity Tax Identification Number	77-0469558
Entity Incorporation, State or Country Code	CA
Entity Address, Address Line One	224 Airport Parkway
Entity Address, City or Town	San Jose
Entity Address, Postal Zip Code	95110
Entity Address, State or Province	CA
City Area Code	408
Local Phone Number	947-6900
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Title of 12(b) Security	Common Stock, No Par Value
Trading Symbol	HTBK
Security Exchange Name	NASDAQ
Entity Emerging Growth Company	false
Amendment Flag	false