SAN JOSE, Calif., Oct. 24, 2024 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (Nasdaq: HTBK), (the "Company"), the holding company for Heritage Bank of Commerce (the "Bank"), today announced that its third quarter 2024 net income was $10.5 million, or $0.17 per average diluted common share, compared to $9.2 million, or $0.15 per average diluted common share, for the second quarter of 2024, and $15.8 million, or $0.26 per average diluted common share, for the third quarter of 2023. For the nine months ended September 30, 2024, net income was $29.9 million, or $0.49 per average diluted common share, compared to $51.1 million, or $0.83 per average diluted common share, for the nine months ended September 30, 2023. All data are unaudited.
"The highlight of the third quarter of 2024 was significant deposit growth from our clients throughout our markets," said Clay Jones, President and Chief Executive Officer. "Total deposit balances grew 6% at the end of the third quarter of 2024, compared to the prior quarter and notably, noninterest-bearing demand deposits grew 7% over the same period. Growth in deposits was a result of the successful conversion of new relationships that were impacted by the banking disruptions in our market. The loan portfolio had orderly growth during the third quarter 2024, with core loans increasing $148.3 million, or 5% over the last 12 months, while growing $35.7 million, or 1%, from the prior quarter. We remain optimistic about the growth opportunities in our markets, as loan and deposit pipelines and overall business activity remains healthy."
"The credit portfolio continues to perform very well, with nonperforming assets and net charge-offs remaining low at September 30, 2024," said Mr. Jones. "Additionally, our liquidity position remains strong, supported by access to diverse alternative funding sources."
"Our commitment to achieving our growth and client service goals while meeting performance targets remains the driving force behind our success. I would like to express my appreciation for our bank team members for their continued commitment to serving our clients, communities and shareholders," said Mr. Jones.
Third Quarter Ended September 30, 2024
Operating Results, Liquidity Position, Financial Condition, Credit Quality, Capital Management and Recent Events
(as of, or for the periods ended September 30, 2024, compared to June 30, 2024, and September 30, 2023, except as noted):
Operating Results:
- The following table indicates the ratios for the annualized return on average equity, average tangible common equity, average assets and average tangible assets for the periods indicated:
| For the Quarter Ended: | For the Nine Months Ended: | ||||||||||||||
| September 30, | June 30, | September 30, | September 30, | September 30, | |||||||||||
| (unaudited) | 2024 | 2024 | 2023 | 2024 | 2023 | ||||||||||
| Return on average equity | 6.14 | % | 5.50 | % | 9.54 | % | 5.91 | % | 10.54 | % | |||||
| Return on average tangible common equity(1) | 8.27 | % | 7.43 | % | 13.06 | % | 7.98 | % | 14.52 | % | |||||
| Return on average assets | 0.78 | % | 0.71 | % | 1.16 | % | 0.76 | % | 1.29 | % | |||||
| Return on average tangible assets(1) | 0.81 | % | 0.74 | % | 1.20 | % | 0.79 | % | 1.33 | % | |||||
| (1) | This is a non-GAAP financial measure as defined and discussed under "Non-GAAP Financial Measures" below. | |
Net Interest Income:
- Net interest income increased 1% to $39.9 million for the third quarter of 2024, compared to $39.5 million for the second quarter of 2024. The non-GAAP fully tax equivalent ("FTE") net interest margin contracted 9 basis points to 3.17% for the third quarter of 2024 from 3.26% for the second quarter of 2024, primarily due to higher rates paid on client deposits, partially offset by maturing securities invested in higher yielding overnight funds, one additional day during the third quarter of 2024, and a higher average yield on core loans.
- Net interest income decreased (12%) to $39.9 million for the third quarter of 2024, compared to $45.4 million for the third quarter of 2023. The non-GAAP FTE net interest margin contracted 40 basis points to 3.17% for the third quarter of 2024, from 3.57% for the third quarter of 2023, primarily due to higher rates paid on client deposits, a decrease in the average balance of noninterest-bearing demand deposits, and a decrease in average interest earning assets, partially offset by a higher average yield on core loans and a higher average balance of loans.
- For the first nine months of 2024, net interest income decreased (15%) to $119.5 million, compared to $140.9 million for the first nine months of 2023. The non-GAAP FTE net interest margin contracted 54 basis points to 3.26% for the first nine months of 2024, from 3.80% for the first nine months of 2023, primarily due to higher rates paid on client deposits, a decrease in the average balance of noninterest-bearing demand deposits, and a decrease in average interest earning assets, partially offset by an increase in the yield on core loans and overnight funds and a higher average balance of loans.
- The following tables set forth the estimated changes in the Company's annual net interest income and economic value of equity (a non-GAAP financial measure) that would result from the designated instantaneous parallel shift in interest rates noted, and assuming a flat balance sheet with consistent product mix, as of September 30, 2024:
| Increase/(Decrease) in | ||||||||
| Estimated Net | ||||||||
| CHANGE IN INTEREST RATES (basis points) | Interest Income(1) | |||||||
| (in $000's, unaudited) | Amount | Percent | ||||||
| +400 | $ | 24,681 | 13.6 | % | ||||
| +300 | $ | 18,438 | 10.2 | % | ||||
| +200 | $ | 12,241 | 6.8 | % | ||||
| +100 | $ | 6,082 | 3.4 | % | ||||
| 0 | - | - | ||||||
| -100 | $ | (8,242 | ) | (4.5 | ) | % | ||
| -200 | $ | (18,720 | ) | (10.3 | ) | % | ||
| -300 | $ | (31,428 | ) | (17.3 | ) | % | ||
| -400 | $ | (47,015 | ) | (25.9 | ) | % | ||
| Increase/(Decrease) in | ||||||||
| Estimated Economic | ||||||||
| CHANGE IN INTEREST RATES (basis points) | Value of Equity(1) | |||||||
| (in $000's, unaudited) | Amount | Percent | ||||||
| +400 | $ | 161,338 | 14.0 | % | ||||
| +300 | $ | 133,760 | 11.6 | % | ||||
| +200 | $ | 98,755 | 8.6 | % | ||||
| +100 | $ | 55,024 | 4.8 | % | ||||
| 0 | - | - | ||||||
| -100 | $ | (86,037 | ) | (7.5 | ) | % | ||
| -200 | $ | (204,813 | ) | (17.8 | ) | % | ||
| -300 | $ | (345,418 | ) | (30.1 | ) | % | ||
| -400 | $ | (452,503 | ) | (39.4 | ) | % | ||
| (1) | Computations of prospective effects of hypothetical interest rate changes are for illustrative purposes only, are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. These projections are forward-looking and should be considered in light of the Forward-Looking Statement Disclaimer below. Actual rates paid on deposits may differ from the hypothetical interest rates modeled due to competitive or market factors, which could affect any actual impact on net interest income. | |
- The following tables present the average balance of loans outstanding, interest income, and the average yield for the periods indicated:
- The average yield on the total loan portfolio decreased to 5.42% for the third quarter of 2024, compared to 5.49% for the second quarter of 2024.
| For the Quarter Ended | For the Quarter Ended | ||||||||||||||||||||
| September 30, 2024 | June 30, 2024 | ||||||||||||||||||||
| Average | Interest | Average | Average | Interest | Average | ||||||||||||||||
| (in $000's, unaudited) | Balance | Income | Yield | Balance | Income | Yield | |||||||||||||||
| Loans, core bank | $ | 2,867,076 | $ | 39,621 | 5.50 | % | $ | 2,830,260 | $ | 38,496 | 5.47 | % | |||||||||
| Prepayment fees | - | 4 | 0.00 | % | - | 54 | 0.01 | % | |||||||||||||
| Bay View Funding factored receivables(1) | 55,391 | 2,144 | 15.40 | % | 54,777 | 2,914 | 21.40 | % | |||||||||||||
| Purchased residential mortgages | 441,294 | 3,779 | 3.41 | % | 447,687 | 3,739 | 3.36 | % | |||||||||||||
| Loan fair value mark / accretion | (2,621 | ) | 233 | 0.03 | % | (2,863 | ) | 267 | 0.04 | % | |||||||||||
| Total loans (includes loans held-for-sale) | $ | 3,361,140 | $ | 45,781 | 5.42 | % | $ | 3,329,861 | $ | 45,470 | 5.49 | % | |||||||||
| (1) | Interest income for the third quarter and first nine months of 2024 was reduced by an immaterial out-of-period adjustment of ($804,000). | |
| • | The average yield on the total loan portfolio decreased to 5.42% for the third quarter of 2024, compared to 5.46% for the third quarter of 2023. |
| For the Quarter Ended | For the Quarter Ended | ||||||||||||||||||||
| September 30, 2024 | September 30, 2023 | ||||||||||||||||||||
| Average | Interest | Average | Average | Interest | Average | ||||||||||||||||
| (in $000's, unaudited) | Balance | Income | Yield | Balance | Income | Yield | |||||||||||||||
| Loans, core bank | $ | 2,867,076 | $ | 39,621 | 5.50 | % | $ | 2,743,993 | $ | 37,764 | 5.46 | % | |||||||||
| Prepayment fees | - | 4 | 0.00 | % | - | 182 | 0.03 | % | |||||||||||||
| Bay View Funding factored receivables(1) | 55,391 | 2,144 | 15.40 | % | 51,664 | 2,775 | 21.31 | % | |||||||||||||
| Purchased residential mortgages | 441,294 | 3,779 | 3.41 | % | 465,471 | 3,811 | 3.25 | % | |||||||||||||
| Loan fair value mark / accretion | (2,621 | ) | 233 | 0.03 | % | (3,648 | ) | 321 | 0.05 | % | |||||||||||
| Total loans (includes loans held-for-sale) | $ | 3,361,140 | $ | 45,781 | 5.42 | % | $ | 3,257,480 | $ | 44,853 | 5.46 | % | |||||||||
| (1) | Interest income for the third quarter and first nine months of 2024 was reduced by an immaterial out-of-period adjustment of ($804,000). | |
| • | The average yield on the total loan portfolio decreased to 5.45% for the first nine months of 2024, compared to 5.46% for the first nine months of 2023, primarily due to a lower average balance of Bay View Funding factored receivables, a decrease in the accretion of loan purchase discount into interest income from acquired loans, and lower prepayment fees, mostly offset by a higher yield on core loans for the first nine months of 2024. |
| For the Nine Months Ended | For the Nine Months Ended | ||||||||||||||||||||
| September 30, 2024 | September 30, 2023 | ||||||||||||||||||||
| Average | Interest | Average | Average | Interest | Average | ||||||||||||||||
| (in $000's, unaudited) | Balance | Income | Yield | Balance | Income | Yield | |||||||||||||||
| Loans, core bank | $ | 2,831,035 | $ | 115,838 | 5.47 | % | $ | 2,716,345 | $ | 109,354 | 5.38 | % | |||||||||
| Prepayment fees | - | 82 | 0.00 | % | - | 393 | 0.02 | % | |||||||||||||
| Bay View Funding factored receivables(1) | 54,563 | 7,896 | 19.33 | % | 65,938 | 10,623 | 21.54 | % | |||||||||||||
| Purchased residential mortgages | 447,709 | 11,306 | 3.37 | % | 477,068 | 11,497 | 3.22 | % | |||||||||||||
| Loan fair value mark / accretion | (2,865 | ) | 729 | 0.03 | % | (3,976 | ) | 1,126 | 0.06 | % | |||||||||||
| Total loans (includes loans held-for-sale) | $ | 3,330,442 | $ | 135,851 | 5.45 | % | $ | 3,255,375 | $ | 132,993 | 5.46 | % | |||||||||
| (1) | Interest income for the third quarter and first nine months of 2024 was reduced by an immaterial out-of-period adjustment of ($804,000). | |
| • | In aggregate, the unamortized net purchase discount on total loans acquired was $2.5 million at September 30, 2024. |
- The following table presents the average balance of deposits and interest-bearing liabilities, interest expense, and the average rate for the periods indicated:
| For the Quarter Ended | For the Quarter Ended | ||||||||||||||||||||
| September 30, 2024 | June 30, 2024 | ||||||||||||||||||||
| Average | Interest | Average | Average | Interest | Average | ||||||||||||||||
| (in $000's, unaudited) | Balance | Expense | Rate | Balance | Expense | Rate | |||||||||||||||
| Deposits: | |||||||||||||||||||||
| Demand, noninterest-bearing | $ | 1,172,304 | $ | 1,127,145 | |||||||||||||||||
| Demand, interest-bearing | 907,346 | $ | 1,714 | 0.75 | % | 932,100 | $ | 1,719 | 0.74 | % | |||||||||||
| Savings and money market | 1,188,057 | 9,128 | 3.06 | % | 1,104,589 | 7,867 | 2.86 | % | |||||||||||||
| Time deposits - under $100 | 11,133 | 47 | 1.68 | % | 10,980 | 46 | 1.68 | % | |||||||||||||
| Time deposits - $100 and over | 229,565 | 2,349 | 4.07 | % | 228,248 | 2,245 | 3.96 | % | |||||||||||||
| Insured Cash Sweep ("ICS")/Certificate of Deposit Registry | |||||||||||||||||||||
| Service ("CDARS") - interest-bearing demand, money market and time deposits | 1,017,541 | 7,747 | 3.03 | % | 991,483 | 7,207 | 2.92 | % | |||||||||||||
| Total interest-bearing deposits | 3,353,642 | 20,985 | 2.49 | % | 3,267,400 | 19,084 | 2.35 | % | |||||||||||||
| Total deposits | 4,525,946 | 20,985 | 1.84 | % | 4,394,545 | 19,084 | 1.75 | % | |||||||||||||
| Short-term borrowings | 32 | - | 0.00 | % | 19 | - | 0.00 | % | |||||||||||||
| Subordinated debt, net of issuance costs | 39,590 | 538 | 5.41 | % | 39,553 | 538 | 5.47 | % | |||||||||||||
| Total interest-bearing liabilities | 3,393,264 | 21,523 | 2.52 | % | 3,306,972 | 19,622 | 2.39 | % | |||||||||||||
| Total interest-bearing liabilities and demand, noninterest-bearing / cost of funds | $ | 4,565,568 | $ | 21,523 | 1.88 | % | $ | 4,434,117 | $ | 19,622 | 1.78 | % | |||||||||
| • | The average cost of total deposits increased to 1.72% for the first nine months of 2024, compared to 0.94% for the first nine months of 2023. The average cost of funds increased to 1.75% for the first nine months of 2024, compared to 1.01% for the first nine months of 2023. | |
| • | The Bank continues to carefully manage deposit costs and implemented cost adjustments following the Federal Reserve Bank's interest rate reduction in September 2024, to align with the changing interest rate environment. | |
| • | The increase in the average cost of total deposits and the average cost of funds for the third quarter and first nine months of 2024 was primarily due to clients seeking higher yields and moving noninterest-bearing deposits to the Bank's interest-bearing ICS/CDARS deposits and interest-bearing money market accounts and increases in market rates. |
Provision for Credit Losses on Loans:
- During the third quarter of 2024, we recorded a provision for credit losses on loans of $153,000, compared to a $471,000 provision for credit losses on loans for the second quarter of 2024, and a provision for credit losses on loans of $168,000 for the third quarter of 2023.
- There was a provision for credit losses on loans of $808,000 for the nine months ended September 30, 2024, compared to a $460,000 provision for credit losses on loans for the nine months ended September 30, 2023, primarily due to the increase in the balance of total loans.
Noninterest Income:
- Total noninterest income decreased (2%) to $2.2 million for the third quarter of 2024, compared to $2.3 million for the second quarter of 2024, primarily due to a gain on proceeds from company-owned life insurance and higher termination fees during the second quarter of 2024. Total noninterest income was relatively flat at $2.2 million for both the third quarter of 2024 and the third quarter of 2023.
- Total noninterest income decreased (7%) to $6.6 million for the first nine months of 2024, compared to $7.1 million for the first nine months of 2023, primarily due to lower service charges and fees on deposit accounts, partially offset by a higher gain on proceeds from company-owned life insurance for the first nine months of 2024.
Noninterest Expense:
- Total noninterest expense for the third quarter of 2024 decreased to $27.6 million, compared to $28.2 million for the second quarter of 2024, primarily due to lower salaries and employee benefits and lower information technology related expenses, partially offset by higher professional fees. Total noninterest expense for the third quarter of 2024 increased to $27.6 million, compared to $25.2 million for the third quarter of 2023, primarily due to higher salaries and employee benefits, rent expense included in occupancy and equipment, and professional fees.
- Total noninterest expense for the first nine months of 2024 increased to $83.3 million, compared to $75.6 million for the first nine months of 2023, primarily due to higher salaries and employee benefits, rent expense, and information technology related expenses, marketing related expenses, homeowner association vendor payments, regulatory assessments, and ICS/CDARS fee expense.
- Full time equivalent employees were 353 at both September 30, 2024 and June 30, 2024, compared to 348 at September 30, 2023.
- The efficiency ratio was 65.37% for the third quarter of 2024, compared to 67.55% for the second quarter of 2024, and 52.89% for the third quarter of 2023. The efficiency ratio increased to 66.08% for the nine months ended September 30, 2024 compared to 51.06% for the nine months ended September 30, 2023. The increase in the efficiency ratio for the third quarter of 2024 and nine months ended September 30, 2024, compared to the respective periods in 2023, was due to both higher noninterest expense and lower net revenue. The efficiency ratio is a non-GAAP financial measure.
Income Tax Expense:
- Income tax expense was $3.9 million for the third quarter of 2024, compared to $3.8 million for the second quarter of 2024, and $6.5 million for the third quarter of 2023. The effective tax rate for the third quarter of 2024 was 27.3%, compared to 29.4% for the second quarter of 2024, and 29.0% for the third quarter of 2023.
- Income tax expense for the nine months ended September 30, 2024 was $12.0 million, compared to $20.8 million for the nine months ended September 30, 2023. The effective tax rate for nine months ended September 30, 2024 was 28.7%, compared to 29.0% for the nine months ended September 30, 2023.
Liquidity Position, Financial Condition, Credit Quality, and Capital Management:
Liquidity and Available Lines of Credit:
- The following table shows our liquidity, available lines of credit and the amounts outstanding at September 30, 2024:
| LIQUIDITY AND AVAILABLE LINES OF CREDIT | Total | Remaining | ||||||||||
| (in $000's, unaudited) | Available | Outstanding | Available | |||||||||
| Excess funds at the Federal Reserve Bank ("FRB") | $ | 903,900 | $ | - | $ | 903,900 | ||||||
| FRB discount window collateralized line of credit | 1,397,326 | - | 1,397,326 | |||||||||
| Federal Home Loan Bank collateralized borrowing capacity | 765,134 | - | 765,134 | |||||||||
| Unpledged investment securities (at fair value) | 66,158 | - | 66,158 | |||||||||
| Federal funds purchase arrangements | 90,000 | - | 90,000 | |||||||||
| Holding company line of credit | 25,000 | - | 25,000 | |||||||||
| Total | $ | 3,247,518 | $ | - | $ | 3,247,518 | ||||||
| • | The Company's total available liquidity and borrowing capacity was $3.2 billion at September 30, 2024, compared to $3.0 billion at June 30, 2024, and $3.1 billion at September 30, 2023. | |
| • | The available liquidity and borrowing capacity was 69% of the Company's total deposits and approximately 147% of the Bank's estimated uninsured deposits at September 30, 2024. The available liquidity and borrowing capacity was 66% of the Company's total deposits and approximately 148% of the Bank's estimated uninsured deposits at June 30, 2024. The available liquidity and borrowing capacity was 70% of the Company's total deposits and approximately 150% of the Bank's estimated uninsured deposits at September 30, 2023. | |
| • | The loan to deposit ratio was 72.11% at September 30, 2024, compared to 76.04% at June 30, 2024, and 71.81% at September 30, 2023. |
- Total assets increased 5% to $5.6 billion at September 30, 2024, compared to $5.3 billion at June 30, 2024, and increased 3% from $5.4 billion at September 30, 2023, primarily related to growth in client deposits and liquidity.
Investment Securities:
- Investment securities totaled $841.8 million at September 30, 2024, of which $237.6 million were in the securities available-for-sale portfolio (at fair value), and $604.2 million were in the securities held-to-maturity portfolio (at amortized cost, net of allowance for credit losses of $12,000). The fair value of the securities held-to-maturity portfolio was $531.5 million at September 30, 2024.
- The following table shows the balances of securities available-for-sale, at fair value, and the related pre-tax unrealized (loss) at the dates indicated:
| SECURITIES AVAILABLE-FOR-SALE | September 30, | June 30, | September 30, | |||||||||
| (in $000's, unaudited) | 2024 | 2024 | 2023 | |||||||||
| Balance (at fair value): | ||||||||||||
| U.S. Treasury | $ | 184,162 | $ | 218,682 | $ | 396,996 | ||||||
| Agency mortgage-backed securities | 53,450 | 54,361 | 60,198 | |||||||||
| Total | $ | 237,612 | $ | 273,043 | $ | 457,194 | ||||||
| Pre-tax unrealized (loss): | ||||||||||||
| U.S. Treasury | $ | (1,440 | ) | $ | (3,578 | ) | $ | (9,606 | ) | |||
| Agency mortgage-backed securities | (2,923 | ) | (4,815 | ) | (7,185 | ) | ||||||
| Total | $ | (4,363 | ) | $ | (8,393 | ) | $ | (16,791 | ) | |||
| Weighted average life (years) | 1.32 | 1.39 | 1.49 | |||||||||
| • | The pre-tax unrealized loss on the securities available-for-sale portfolio was ($4.4) million, or ($3.2) million net of taxes, which equaled less than 1% of total shareholders' equity at September 30, 2024. | |
| • | The reduction in the securities available-for-sale portfolios was due to maturities and not due to any securities sold since June 30, 2023. |
- The following table shows the balances of securities held-to-maturity, at amortized cost, and the related pre-tax unrecognized (loss) and allowance for credit losses at the dates indicated:
| SECURITIES HELD-TO-MATURITY | September 30, | June 30, | September 30, | |||||||||
| (in $000's, unaudited) | 2024 | 2024 | 2023 | |||||||||
| Balance (at amortized cost): | ||||||||||||
| Agency mortgage-backed securities | $ | 573,621 | $ | 589,386 | $ | 632,241 | ||||||
| Municipals - exempt from Federal tax(1) | 30,584 | 31,804 | 32,453 | |||||||||
| Total(1) | $ | 604,205 | $ | 621,190 | $ | 664,694 | ||||||
| Pre-tax unrecognized (loss): | ||||||||||||
| Agency mortgage-backed securities | $ | (71,996 | ) | $ | (92,058 | ) | $ | (119,932 | ) | |||
| Municipals - exempt from Federal tax | (676 | ) | (1,694 | ) | (2,753 | ) | ||||||
| Total | $ | (72,672 | ) | $ | (93,752 | ) | $ | (122,685 | ) | |||
| Allowance for credit losses on municipal securities | $ | (12 | ) | $ | (12 | ) | $ | (13 | ) | |||
| Weighted average life (years) | 5.94 | 6.57 | 7.03 | |||||||||
| (1) | Gross of the allowance for credit losses of ($12,000) at both September 30, 2024, and June 30, 2024, and ($13,000) at September 30, 2023. | |
| • | The pre-tax unrecognized loss on the securities held-to-maturity portfolio was ($72.7) million, or ($51.2) million net of taxes, which equaled 7.5% of total shareholders' equity at September 30, 2024. | |
| • | The weighted average life of the securities held-to-maturity portfolio was 5.94 years at September 30, 2024, which includes Community Reinvestment Act mortgage-backed securities with longer maturities. | |
| • | The unrealized and unrecognized losses in both the available-for-sale and held-to-maturity portfolios were due to higher interest rates at September 30, 2024 compared to when the securities were purchased. The issuers are of high credit quality and all principal amounts are expected to be repaid when the securities mature. The fair value is expected to recover as the securities approach their maturity date and/or market rates decline. |
- The following are the actual and/or projected cash flows from paydowns and maturities in the investment securities portfolio for the periods indicated based on the current interest rate environment:
| Agency | ||||||||||||
| Mortgage- | ||||||||||||
| PROJECTED INVESTMENT SECURITIES | backed and | |||||||||||
| PAYDOWNS & MATURITIES | U.S. | Municipal | ||||||||||
| (in $000's, unaudited) | Treasury | Securities | Total | |||||||||
| Fourth quarter of 2024 | $ | 9,000 | $ | 26,727 | $ | 35,727 | ||||||
| First quarter of 2025 | 35,000 | 21,336 | 56,336 | |||||||||
| Second quarter of 2025 | 118,000 | 20,700 | 138,700 | |||||||||
| Third quarter of 2025 | 25,200 | 21,885 | 47,085 | |||||||||
| Fourth quarter of 2025 | - | 19,486 | 19,486 | |||||||||
| First quarter of 2026 | - | 19,001 | 19,001 | |||||||||
| Second quarter of 2026 | - | 18,349 | 18,349 | |||||||||
| Third quarter of 2026 | - | 18,645 | 18,645 | |||||||||
| Total | $ | 187,200 | $ | 166,129 | $ | 353,329 | ||||||
| • | The weighted average life of the total investment securities portfolio was 4.62 years at September 30, 2024, compared to 4.95 years at June 30, 2024, and 4.72 years at September 30, 2023. |
Loans:
- The following table summarizes the distribution of loans, excluding loans held-for-sale, and the percentage of distribution in each category at the dates indicated:
| LOANS | September 30, 2024 | June 30, 2024 | September 30, 2023 | ||||||||||||||||
| (in $000's, unaudited) | Balance | % to Total | Balance | % to Total | Balance | % to Total | |||||||||||||
| Commercial | $ | 481,266 | 14 | % | $ | 477,929 | 14 | % | $ | 430,664 | 13 | % | |||||||
| Real estate: | |||||||||||||||||||
| CRE(1) - owner occupied | 602,062 | 18 | % | 594,504 | 18 | % | 589,751 | 18 | % | ||||||||||
| CRE(1) - non-owner occupied | 1,310,578 | 38 | % | 1,283,323 | 38 | % | 1,208,324 | 37 | % | ||||||||||
| Land and construction | 125,761 | 4 | % | 125,374 | 4 | % | 158,138 | 5 | % | ||||||||||
| Home equity | 124,090 | 4 | % | 126,562 | 4 | % | 124,477 | 4 | % | ||||||||||
| Multifamily | 273,103 | 8 | % | 268,968 | 8 | % | 253,129 | 7 | % | ||||||||||
| Residential mortgages | 479,524 | 14 | % | 484,809 | 14 | % | 503,006 | 15 | % | ||||||||||
| Consumer and other | 14,179 | < 1 | % | 18,758 | < 1 | % | 18,526 | 1 | % | ||||||||||
| Total Loans | 3,410,563 | 100 | % | 3,380,227 | 100 | % | 3,286,015 | 100 | % | ||||||||||
| Deferred loan costs (fees), net | (327 | ) | - | (434 | ) | - | (554 | ) | - | ||||||||||
| Loans, net of deferred costs and fees | $ | 3,410,236 | 100 | % | $ | 3,379,793 | 100 | % | $ | 3,285,461 | 100 | % | |||||||
| (1) | Commercial Real Estate | |
| • | Loans, excluding loans held-for-sale, increased $30.4 million, or 1%, to $3.4 billion at September 30, 2024, from the prior quarter, and increased $124.8 million, or 4%, from $3.3 billion at September 30, 2023. Loans, excluding residential mortgages, increased $35.7 million, or 1%, to $2.9 billion at September 30, 2024 from June 30, 2024, and increased $148.3 million, or 5%, from $2.8 billion at September 30, 2023. | ||
| • | Commercial and industrial line utilization was 31% at both September 30, 2024 and June 30, 2024, compared to 27% at September 30, 2023. | ||
| • | CRE loans totaled $1.9 billion at September 30, 2024, of which 31% were owner occupied and 69% were investor CRE loans. There was 32% of the CRE loan portfolio secured by owner occupied real estate at June 30, 2024, and 33% at September 30, 2023. | ||
| • | During the third quarter of 2024, there were 41 new owner occupied and non-owner occupied CRE loans originated totaling $67 million with a weighted average loan-to-value ("LTV") of 49%; the weighted average debt-service coverage ratio ("DSCR") for the non-owner occupied portfolio was 1.92 times. | ||
| • | Loan Growth continued at an orderly organic rate as the Bank continues to serve our clients in the community. | ||
| • | The average loan size for all CRE loans was $1.6 million, and the average loan size for office CRE loans was $1.7 million. | ||
| • | The Company has personal guarantees on 92% of its CRE portfolio. A substantial portion of the unguaranteed CRE loans were made to credit-worthy non-profit organizations. | ||
| • | Total office exposure (excluding medical/dental offices) in the CRE portfolio was $419 million, including 32 loans totaling approximately $73 million in San Jose, 19 loans totaling approximately $26 million in San Francisco, and eight loans totaling approximately $16 million, in Oakland, at September 30, 2024. Non-owner occupied CRE with office exposure totaled $329 million at September 30, 2024. | ||
| • | At September 30, 2024, the weighted average LTV and DSCR for the entire non-owner occupied office portfolio were 41.8% and 1.82 times, respectively. | ||
| • | Total medical/dental office exposure in the non-owner occupied CRE portfolio consisted of 15 loans totaling $12 million, with a weighted average LTV and DSCR of 37.4% and 2.41 times, respectively, at September 30, 2024. | ||
| • | The following table presents the weighted average LTV and DSCR by collateral type for CRE loans at September 30, 2024: | ||
| CRE - Non-owner Occupied | CRE - Owner Occupied | Total CRE | ||||||||||||||||||||||||||
| COLLATERAL TYPE | Outstanding | LTV | DSCR | Outstanding | LTV | Outstanding | LTV | |||||||||||||||||||||
| Retail | 26 | % | 38.0 | % | 1.89 | 16 | % | 46.3 | % | 23 | % | 39.6 | % | |||||||||||||||
| Industrial | 19 | % | 39.1 | % | 2.46 | 34 | % | 43.7 | % | 23 | % | 40.9 | % | |||||||||||||||
| Mixed-Use, Special | ||||||||||||||||||||||||||||
| Purpose and Other | 18 | % | 41.6 | % | 1.91 | 34 | % | 40.7 | % | 22 | % | 41.2 | % | |||||||||||||||
| Office | 20 | % | 41.8 | % | 1.82 | 16 | % | 44.3 | % | 19 | % | 42.5 | % | |||||||||||||||
| Multifamily | 17 | % | 42.6 | % | 1.95 | 0 | % | 0.0 | % | 13 | % | 42.6 | % | |||||||||||||||
| Hotel/Motel | < 1 | % | 16.4 | % | 1.32 | 0 | % | 0.0 | % | < 1 | % | 16.4 | % | |||||||||||||||
| Total | 100 | % | 40.3 | % | 1.99 | 100 | % | 43.2 | % | 100 | % | 41.1 | % | |||||||||||||||
| • | The following table presents the weighted average LTV and DSCR by county for CRE loans at September 30, 2024: |
| CRE - Non-owner Occupied | CRE - Owner Occupied | Total CRE | ||||||||||||||||||||||||||
| COUNTY | Outstanding | LTV | DSCR | Outstanding | LTV | Outstanding | LTV | |||||||||||||||||||||
| Alameda | 25 | % | 44.3 | % | 1.93 | 18 | % | 45.6 | % | 23 | % | 44.6 | % | |||||||||||||||
| Contra Costa | 7 | % | 41.8 | % | 1.79 | 8 | % | 47.8 | % | 7 | % | 43.5 | % | |||||||||||||||
| Marin | 7 | % | 46.3 | % | 2.02 | 1 | % | 52.4 | % | 5 | % | 46.8 | % | |||||||||||||||
| Monterey | 2 | % | 43.8 | % | 1.85 | 2 | % | 41.1 | % | 2 | % | 43.0 | % | |||||||||||||||
| Napa | < 1 | % | 30.0 | % | 1.73 | 1 | % | 52.0 | % | 1 | % | 36.3 | % | |||||||||||||||
| Out of Area | 8 | % | 42.3 | % | 2.06 | 9 | % | 49.0 | % | 9 | % | 44.3 | % | |||||||||||||||
| San Benito | 1 | % | 35.1 | % | 2.00 | 3 | % | 39.7 | % | 2 | % | 37.5 | % | |||||||||||||||
| San Francisco | 9 | % | 37.5 | % | 1.48 | 4 | % | 39.8 | % | 8 | % | 37.8 | % | |||||||||||||||
| San Mateo | 11 | % | 37.5 | % | 2.20 | 15 | % | 40.0 | % | 12 | % | 38.3 | % | |||||||||||||||
| Santa Clara | 24 | % | 37.4 | % | 2.25 | 34 | % | 41.1 | % | 26 | % | 38.8 | % | |||||||||||||||
| Santa Cruz | 2 | % | 33.1 | % | 1.74 | 1 | % | 49.2 | % | 2 | % | 36.2 | % | |||||||||||||||
| Solano | 1 | % | 32.1 | % | 1.95 | 2 | % | 37.8 | % | 1 | % | 33.8 | % | |||||||||||||||
| Sonoma | 3 | % | 39.7 | % | 2.22 | 2 | % | 43.1 | % | 2 | % | 40.5 | % | |||||||||||||||
| Total | 100 | % | 40.3 | % | 1.99 | 100 | % | 43.2 | % | 100 | % | 41.1 | % | |||||||||||||||
- The following table presents the maturity distribution of the Company's loans, excluding loans held-for-sale, as of September 30, 2024. The table shows the distribution of such loans between those loans with predetermined (fixed) interest rates and those with variable (floating) interest rates. Floating rates generally fluctuate with changes in the prime rate as reflected in the Western Edition of The Wall Street Journal, and contractual repricing dates.
| Due in | Over One Year But | ||||||||||||||||||||||||
| LOAN MATURITIES | One Year or Less | Less than Five Years | Over Five Years | ||||||||||||||||||||||
| (in $000's, unaudited) | Balance | % to Total | Balance | % to Total | Balance | % to Total | Total | ||||||||||||||||||
| Loans with variable interest rates | $ | 375,424 | 44 | % | $ | 227,201 | 27 | % | $ | 247,622 | 29 | % | $ | 850,247 | |||||||||||
| Loans with fixed interest rates | 141,906 | 6 | % | 767,930 | 30 | % | 1,650,480 | 64 | % | 2,560,316 | |||||||||||||||
| Loans | $ | 517,330 | 15 | % | $ | 995,131 | 29 | % | $ | 1,898,102 | 56 | % | $ | 3,410,563 | |||||||||||
| • | At September 30, 2024, approximately 25% of the Company's loan portfolio consisted of floating interest rate loans, compared to 27% at both June 30, 2024 and September 30, 2023. |
Credit Quality:
- The following table summarizes the allowance for credit losses on loans ("ACLL") for the periods indicated:
| At or For the Quarter Ended: | At or For the Nine Months Ended: | ||||||||||||||||||||
| ALLOWANCE FOR CREDIT LOSSES ON LOANS | September 30, | June 30, | September 30, | September 30, | September 30, | ||||||||||||||||
| (in $000's, unaudited) | 2024 | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||
| Balance at beginning of period | $ | 47,954 | $ | 47,888 | $ | 47,803 | $ | 47,958 | $ | 47,512 | |||||||||||
| Charge-offs during the period | (474 | ) | (510 | ) | (447 | ) | (1,342 | ) | (851 | ) | |||||||||||
| Recoveries during the period | 186 | 105 | 178 | 395 | 581 | ||||||||||||||||
| Net (charge-offs) recoveries during the period | (288 | ) | (405 | ) | (269 | ) | (947 | ) | (270 | ) | |||||||||||
| Provision for credit losses on loans during the period | 153 | 471 | 168 | 808 | 460 | ||||||||||||||||
| Balance at end of period | $ | 47,819 | $ | 47,954 | $ | 47,702 | $ | 47,819 | $ | 47,702 | |||||||||||
| Total loans, net of deferred fees | $ | 3,410,236 | $ | 3,379,793 | $ | 3,285,461 | $ | 3,410,236 | $ | 3,285,461 | |||||||||||
| Total nonperforming loans | $ | 7,158 | $ | 6,030 | $ | 5,484 | $ | 7,158 | $ | 5,484 | |||||||||||
| ACLL to total loans | 1.40 | % | 1.42 | % | 1.45 | % | 1.40 | % | 1.45 | % | |||||||||||
| ACLL to total nonperforming loans | 668.05 | % | 795.26 | % | 869.84 | % | 668.05 | % | 869.84 | % | |||||||||||
| • | The following table shows the drivers of change in ACLL for the first, second, and third quarters of 2024: |
| DRIVERS OF CHANGE IN ACLL | ||||
| (in $000's, unaudited) | ||||
| ACLL at December 31, 2023 | $ | 47,958 | ||
| Portfolio changes during the first quarter of 2024 | (234 | ) | ||
| Qualitative and quantitative changes during the first quarter of 2024 including changes in economic forecasts | 164 | |||
| ACLL at March 31, 2024 | 47,888 | |||
| Portfolio changes during the second quarter of 2024 | 616 | |||
| Qualitative and quantitative changes during the second quarter of 2024 including changes in economic forecasts | (550 | ) | ||
| ACLL at June 30, 2024 | 47,954 | |||
| Portfolio changes during the third quarter of 2024 | 599 | |||
| Qualitative and quantitative changes during the third quarter of 2024 including changes in economic forecasts | (734 | ) | ||
| ACLL at September 30, 2024 | $ | 47,819 | ||
- The following is a breakout of nonperforming assets ("NPAs") at the dates indicated:
| NONPERFORMING ASSETS | September 30, 2024 | June 30, 2024 | September 30, 2023 | ||||||||||||||||
| (in $000's, unaudited) | Balance | % of Total | Balance | % of Total | Balance | % of Total | |||||||||||||
| Land and construction loans | $ | 5,862 | 82 | % | $ | 4,774 | 79 | % | $ | - | 0 | % | |||||||
| Commercial loans | 752 | 11 | % | 900 | 15 | % | 1,712 | 31 | % | ||||||||||
| Loans over 90 days past due and still accruing | 460 | 6 | % | 248 | 4 | % | 1,966 | 36 | % | ||||||||||
| Home equity and other loans | 84 | 1 | % | 108 | 2 | % | 90 | 2 | % | ||||||||||
| Residential mortgages | - | 0 | % | - | 0 | % | 1,716 | 31 | % | ||||||||||
| CRE loans | - | 0 | % | - | 0 | % | - | 0 | % | ||||||||||
| Total nonperforming assets | $ | 7,158 | 100 | % | $ | 6,030 | 100 | % | $ | 5,484 | 100 | % | |||||||
There were 10 borrowers included in NPAs totaling $7.2 million, or 0.13% of total assets, at September 30, 2024, compared to 10 borrowers totaling $6.0 million, or 0.11% of total assets at June 30, 2024, and 11 borrowers totaling $5.5 million, or 0.10% of total assets, at September 30, 2023. The increase in NPAs at September 30, 2024, was primarily due to the downgrade of a loan to one customer totaling $1.1 million, which is well collateralized and there were no specific reserves for the loan. This increase in NPAs was partially offset by pay-offs of loan previously included in NPAs.
| • | There were no CRE loans included in NPAs at September 30, 2024, June 30, 2024, or September 30, 2023. | |
| • | There were no foreclosed assets on the balance sheet at September 30, 2024, June 30, 2024, or September 30, 2023. | |
| • | There were no Shared National Credits ("SNCs") or material purchased participations included in NPAs or total loans at September 30, 2024, June 30, 2024, or September 30, 2023. |
- Classified assets totaled $32.6 million, or 0.59% of total assets, at September 30, 2024, compared to $33.6 million, or 0.64% of total assets, at June 30, 2024, and $31.1 million, or 0.57% of total assets, at September 30, 2023.
Deposits:
- The following table summarizes the distribution of deposits and the percentage of distribution in each category at the dates indicated:
| DEPOSITS | September 30, 2024 | June 30, 2024 | September 30, 2023 | ||||||||||||||||
| (in $000's, unaudited) | Balance | % to Total | Balance | % to Total | Balance | % to Total | |||||||||||||
| Demand, noninterest-bearing | $ | 1,272,139 | 27 | % | $ | 1,187,320 | 27 | % | $ | 1,243,501 | 27 | % | |||||||
| Demand, interest-bearing | 913,910 | 19 | % | 928,246 | 21 | % | 1,004,185 | 22 | % | ||||||||||
| Savings and money market | 1,309,676 | 28 | % | 1,126,520 | 25 | % | 1,110,640 | 24 | % | ||||||||||
| Time deposits - under $250 | 39,060 | 1 | % | 39,046 | 1 | % | 43,906 | 1 | % | ||||||||||
| Time deposits - $250 and over | 196,945 | 4 | % | 203,886 | 4 | % | 252,001 | 6 | % | ||||||||||
| ICS/CDARS - interest-bearing demand, money market and time deposits | 997,803 | 21 | % | 959,592 | 22 | % | 921,224 | 20 | % | ||||||||||
| Total deposits | $ | 4,729,533 | 100 | % | $ | 4,444,610 | 100 | % | $ | 4,575,457 | 100 | % | |||||||
| • | Total deposits increased $284.9 million, or 6%, to $4.7 billion at September 30, 2024 compared to $4.4 billion at June 30, 2024, and increased $154.1 million, or 3% from $4.6 billion at September 30, 2023. | |
| • | Migration of client deposits into interest-bearing accounts resulted in an increase in ICS/CDARS deposits to $997.8 million at September 30, 2024, compared to $959.6 million at June 30, 2024, and $921.2 million at September 30, 2023. | |
| • | The Company had 25,373 deposit accounts at September 30, 2024, with an average balance of $186,000. At June 30, 2024, the Company had 25,033 deposit accounts, with an average balance of $178,000. At September 30, 2023, the Company had 24,769 deposit accounts, with an average balance of $186,000. | |
| • | Deposits from the Bank's top 100 client relationships, representing 22% of the total number of accounts, totaled $2.2 billion, representing 47% of total deposits, with an average account size of $394,000 at September 30, 2024. At June 30, 2024, deposits from the Bank's top 100 client relationships, representing 21% of the total number of accounts, totaled $2.1 billion, representing 47% of total deposits, with an average account size of $388,000. At September 30, 2023, deposits from the Bank's top 100 client relationships, representing 22% of the total number of accounts, totaled $2.2 billion, representing 48% of total deposits, with an average account size of $408,000. | |
| • | The Bank's uninsured deposits were approximately $2.2 billion, or 47% of the Company's total deposits, at September 30, 2024, compared to $2.0 billion, or 45% of the Company's total deposits, at June 30, 2024, and $2.1 billion, or 46% of the Company's total deposits, at September 30, 2023. |
Capital Management:
- In July 2024, the Company announced that its Board of Directors adopted a share repurchase program under which the Company is authorized to repurchase up to $15 million of the Company's shares of its issued and outstanding common stock. The Company did not repurchase any of its common stock during the third quarter of 2024.
- The Company's consolidated capital ratios exceeded regulatory guidelines and the Bank's capital ratios exceeded regulatory guidelines under the prompt corrective action ("PCA") regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at September 30, 2024, as reflected in the following table:
| Well-capitalized | ||||||||||||
| Financial | ||||||||||||
| Institution | Basel III | |||||||||||
| Heritage | Heritage | PCA | Minimum | |||||||||
| Commerce | Bank of | Regulatory | Regulatory | |||||||||
| CAPITAL RATIOS (unaudited) | Corp | Commerce | Guidelines | Requirements (1) | ||||||||
| Total Capital | 15.6 | % | 15.1 | % | 10.0 | % | 10.5 | % | ||||
| Tier 1 Capital | 13.4 | % | 13.9 | % | 8.0 | % | 8.5 | % | ||||
| Common Equity Tier 1 Capital | 13.4 | % | 13.9 | % | 6.5 | % | 7.0 | % | ||||
| Tier 1 Leverage | 10.0 | % | 10.4 | % | 5.0 | % | 4.0 | % | ||||
| Tangible common equity / tangible assets (2) | 9.5 | % | 9.9 | % | N/A | N/A | ||||||
| (1) | Basel III minimum regulatory requirements for both the Company and the Bank include a 2.5% capital conservation buffer, except the Tier 1 Leverage ratio. | |
| (2) | This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets. | |
- The following table reflects the components of accumulated other comprehensive loss, net of taxes, at the dates indicated:
| ACCUMULATED OTHER COMPREHENSIVE LOSS | September 30, | June 30, | September 30, | |||||||||
| (in $000's, unaudited) | 2024 | 2024 | 2023 | |||||||||
| Unrealized loss on securities available-for-sale | $ | (3,161 | ) | $ | (6,022 | ) | $ | (11,985 | ) | |||
| Split dollar insurance contracts liability | (2,965 | ) | (2,913 | ) | (3,234 | ) | ||||||
| Supplemental executive retirement plan liability | (2,838 | ) | (2,856 | ) | (2,343 | ) | ||||||
| Unrealized gain on interest-only strip from SBA loans | 72 | 76 | 93 | |||||||||
| Total accumulated other comprehensive loss | $ | (8,892 | ) | $ | (11,715 | ) | $ | (17,469 | ) | |||
- Tangible common equity was $510.8 million at September 30, 2024, compared to $504.0 million at June 30, 2024, and $485.1 million at September 30, 2023. Tangible book value per share was $8.33 at September 30, 2024, compared to $8.22 at June 30, 2024, and $7.94 at September 30, 2023. Tangible common equity and tangible book value per share are non-GAAP financial measures.
Recent Events:
- On October 2, 2024, the Company announced the appointment of Thomas A. Sa as the Chief Operating Officer ("COO") of the Company and the Bank. As COO, Mr. Sa will have primary responsibility for banking operations, risk management, information technology systems, audit administration, and will help shape strategic decisioning of the Company. Mr. Sa has more than thirty years' experience in a variety of increasingly responsible positions in California-based community and regional banks, most recently serving as President, Chief Operating Officer and Chief Financial Officer of California BanCorp and its subsidiary, California Bank of Commerce, which merged with Southern California Bancorp in July 2024.
Heritage Commerce Corp, a bank holding company established in October 1997, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose, CA with full-service branches in Danville, Fremont, Gilroy, Hollister, Livermore, Los Altos, Los Gatos, Morgan Hill, Oakland, Palo Alto, Pleasanton, Redwood City, San Francisco, San Jose, San Mateo, San Rafael, and Walnut Creek. Heritage Bank of Commerce is an SBA Preferred Lender. Bay View Funding, a subsidiary of Heritage Bank of Commerce, is based in San Jose, CA and provides business-essential working capital factoring financing to various industries throughout the United States. For more information, please visit www.heritagecommercecorp.com. The contents of our website are not incorporated into, and do not form a part of, this release or of our filings with the Securities and Exchange Commission.
Non-GAAP Financial Measures
Financial results are presented in accordance with accounting principles generally accepted in the United States of America ("GAAP") and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate and measure the Company's performance. Management believes these non-GAAP financial measures are common in the banking industry, and may enhance comparability for peer comparison purposes. These non-GAAP financial measures should be supplemental to primary GAAP financial measures and should not be read in isolation or relied upon as a substitute for primary GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is presented in the tables at the end of this earnings release under "Reconciliation of Non-GAAP Financial Measures."
Forward-Looking Statement Disclaimer
Certain matters discussed in this press release constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements may be deemed to include, among other things, statements relating to the Company's future financial performance, projected cash flows of our investment securities portfolio, the performance of our loan portfolio, estimated net interest income resulting from a shift in interest rates, expectation of high credit quality issuers ability to repay, as well as statements relating to the anticipated effects on the Company's financial condition and results of operations from expected developments or events. Any statements that reflect our belief about, confidence in, or expectations for future events, performance or condition should be considered forward-looking statements. Readers should not construe these statements as assurances of a given level of performance, nor as promises that we will take actions that we currently expect to take. All statements are subject to various risks and uncertainties, many of which are outside our control and some of which may fall outside our ability to predict or anticipate. Accordingly, our actual results may differ materially from our projected results, and we may take actions or experience events that we do not currently expect. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission, Item 1A of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, and the following: (1) cybersecurity risks that may affect us directly or may impact us indirectly by virtue of their effects on our clients, markets or vendors, including our ability to identify and address cybersecurity risks, including those posed by the increasing use of artificial intelligence, such as data security breaches, "denial of service" attacks, "hacking" and identity theft affecting us, our clients, and our third party vendors and service providers; (2) geopolitical and domestic political developments, including recent, current and potential future wars and international and multinational conflicts, acts of terrorism, insurrection, piracy and civil unrest, and events reflecting or resulting from social instability, any of which can increase levels of political and economic unpredictability, contribute to rising energy and commodity prices, can affect the physical security of our assets and the assets of our clients, and which may increase the volatility of financial markets; (3) factors that affect our liquidity and our ability to meet client demands for withdrawals from deposit accounts and undrawn lines of credit, including our cash on hand and the availability of funds from our own lines of credit; (4) market fluctuations that affect the costs we pay for sources of funding, including the interest we pay on deposits and on our borrowings; (5) media items and consumer confidence as those factors affect our clients' confidence in the banking system generally and in our bank specifically; (6) factors that affect the value and liquidity of our investment portfolios, particularly the values of securities available-for-sale; (7) effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Federal Open Market Committee of the Federal Reserve Board and other factors that affect market interest rates generally; (8) our ability to estimate accurately, and to establish adequate reserves against, the risk of loss associated with our loan and lease portfolio and our factoring business; (9) events and circumstances that affect our borrowers' and guarantors' financial condition, results of operations and cash flows, which may, during periods of economic uncertainty or decline, adversely affect those borrowers' ability to repay our loans timely and in full, or to comply with their other obligations under our loan agreements with those clients; (10) 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 fluctuations in economic growth; (11) inflationary pressures and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans to clients, whether held in the portfolio or in the secondary market; (12) changes in the level of nonperforming assets and charge offs and other credit quality measures, and their impact on the adequacy of our allowance for credit losses and our provision for credit losses; (13) conditions relating to the impact of recent and potential future pandemics, epidemics and other infectious illness outbreaks that may arise in the future, on our clients, employees, businesses, liquidity, financial results and overall condition including severity and duration of the associated uncertainties in U.S. and global markets; (14) the relative strength or weakness of the commercial and real estate markets where our borrowers are located, including related vacancy rates, and asset and market prices; (15) 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; (16) regulatory limits and practical factors that affect Heritage Bank of Commerce's ability to pay dividends to the Company; (17) 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; (18) events that affect our ability to attract, recruit, and retain qualified officers and other personnel to implement our strategic plan, and that enable current and future personnel to protect and develop our relationships with clients, and to promote our business, results of operations and growth prospects; (19) factors that affect the carrying value of the goodwill associated with our previous acquisitions; (20) 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; (21) the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise, particularly including but not limited to the effects of recent and ongoing developments in California labor and employment laws, regulations and court decisions; (22) geographic and sociopolitical factors that arise by virtue of the fact that we operate primarily in the general San Francisco Bay Area of Northern California, including the particular risks of natural disasters (including earthquakes, fires, and flooding) and other events that disproportionately affect that region; (23) actions taken, planned, or announced by federal, state, regional and local governments in response to the occurrence or threat of any of the foregoing; and (24) our success in managing the risks involved in the foregoing factors.
Member FDIC
For additional information, contact:
Debbie Reuter
EVP, Corporate Secretary
Direct: (408) 494-4542
Debbie.Reuter@herbank.com
| For the Quarter Ended: | Percent Change From: | For the Nine Months Ended: | |||||||||||||||||||||||||||||
| CONSOLIDATED INCOME STATEMENTS | September 30, | June 30, | September 30, | June 30, | September 30, | September 30, | September 30, | Percent | |||||||||||||||||||||||
| (in $000's, unaudited) | 2024 | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | Change | |||||||||||||||||||||||
| Interest income | $ | 61,438 | $ | 59,077 | $ | 60,791 | 4 | % | 1 | % | $ | 178,066 | $ | 175,406 | 2 | % | |||||||||||||||
| Interest expense | 21,523 | 19,622 | 15,419 | 10 | % | 40 | % | 58,603 | 34,483 | 70 | % | ||||||||||||||||||||
| Net interest income before provision for credit losses on loans | 39,915 | 39,455 | 45,372 | 1 | % | (12 | ) | % | 119,463 | 140,923 | (15 | ) | % | ||||||||||||||||||
| Provision for credit losses on loans | 153 | 471 | 168 | (68 | ) | % | (9 | ) | % | 808 | 460 | 76 | % | ||||||||||||||||||
| Net interest income after provision for credit losses on loans | 39,762 | 38,984 | 45,204 | 2 | % | (12 | ) | % | 118,655 | 140,463 | (16 | ) | % | ||||||||||||||||||
| Noninterest income: | |||||||||||||||||||||||||||||||
| Service charges and fees on deposit accounts | 908 | 891 | 859 | 2 | % | 6 | % | 2,676 | 3,503 | (24 | ) | % | |||||||||||||||||||
| Increase in cash surrender value of life insurance | 530 | 521 | 517 | 2 | % | 3 | % | 1,569 | 1,512 | 4 | % | ||||||||||||||||||||
| Servicing income | 108 | 90 | 62 | 20 | % | 74 | % | 288 | 297 | (3 | ) | % | |||||||||||||||||||
| Gain on sales of SBA loans | 94 | 76 | 207 | 24 | % | (55 | ) | % | 348 | 482 | (28 | ) | % | ||||||||||||||||||
| Termination fees | 46 | 100 | 118 | (54 | ) | % | (61 | ) | % | 159 | 129 | 23 | % | ||||||||||||||||||
| Gain on proceeds from company-owned life insurance | - | 219 | 100 | (100 | ) | % | (100 | ) | % | 219 | 100 | 119 | % | ||||||||||||||||||
| Other | 554 | 379 | 353 | 46 | % | 57 | % | 1,304 | 1,033 | 26 | % | ||||||||||||||||||||
| Total noninterest income | 2,240 | 2,276 | 2,216 | (2 | ) | % | 1 | % | 6,563 | 7,056 | (7 | ) | % | ||||||||||||||||||
| Noninterest expense: | |||||||||||||||||||||||||||||||
| Salaries and employee benefits | 15,673 | 15,794 | 14,147 | (1 | ) | % | 11 | % | 46,976 | 42,943 | 9 | % | |||||||||||||||||||
| Occupancy and equipment | 2,599 | 2,689 | 2,301 | (3 | ) | % | 13 | % | 7,731 | 7,123 | 9 | % | |||||||||||||||||||
| Professional fees | 1,306 | 1,072 | 717 | 22 | % | 82 | % | 3,705 | 3,265 | 13 | % | ||||||||||||||||||||
| Other | 7,977 | 8,633 | 8,006 | (8 | ) | % | 0 | % | 24,867 | 22,232 | 12 | % | |||||||||||||||||||
| Total noninterest expense | 27,555 | 28,188 | 25,171 | (2 | ) | % | 9 | % | 83,279 | 75,563 | 10 | % | |||||||||||||||||||
| Income before income taxes | 14,447 | 13,072 | 22,249 | 11 | % | (35 | ) | % | 41,939 | 71,956 | (42 | ) | % | ||||||||||||||||||
| Income tax expense | 3,940 | 3,838 | 6,454 | 3 | % | (39 | ) | % | 12,032 | 20,841 | (42 | ) | % | ||||||||||||||||||
| Net income | $ | 10,507 | $ | 9,234 | $ | 15,795 | 14 | % | (33 | ) | % | $ | 29,907 | $ | 51,115 | (41 | ) | % | |||||||||||||
| PER COMMON SHARE DATA | |||||||||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||||
| Basic earnings per share | $ | 0.17 | $ | 0.15 | $ | 0.26 | 13 | % | (35 | ) | % | $ | 0.49 | $ | 0.84 | (42 | ) | % | |||||||||||||
| Diluted earnings per share | $ | 0.17 | $ | 0.15 | $ | 0.26 | 13 | % | (35 | ) | % | $ | 0.49 | $ | 0.83 | (41 | ) | % | |||||||||||||
| Weighted average shares outstanding - basic | 61,295,877 | 61,279,914 | 61,093,289 | 0 | % | 0 | % | 61,254,138 | 61,012,315 | 0 | % | ||||||||||||||||||||
| Weighted average shares outstanding - diluted | 61,546,157 | 61,438,088 | 61,436,240 | 0 | % | 0 | % | 61,497,927 | 61,284,590 | 0 | % | ||||||||||||||||||||
| Common shares outstanding at period-end | 61,297,344 | 61,292,094 | 61,099,155 | 0 | % | 0 | % | 61,297,344 | 61,099,155 | 0 | % | ||||||||||||||||||||
| Dividend per share | $ | 0.13 | $ | 0.13 | $ | 0.13 | 0 | % | 0 | % | $ | 0.39 | $ | 0.39 | 0 | % | |||||||||||||||
| Book value per share | $ | 11.18 | $ | 11.08 | $ | 10.83 | 1 | % | 3 | % | $ | 11.18 | $ | 10.83 | 3 | % | |||||||||||||||
| Tangible book value per share(1) | $ | 8.33 | $ | 8.22 | $ | 7.94 | 1 | % | 5 | % | $ | 8.33 | $ | 7.94 | 5 | % | |||||||||||||||
| KEY FINANCIAL RATIOS | |||||||||||||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||||||||||||
| Annualized return on average equity | 6.14 | % | 5.50 | % | 9.54 | % | 12 | % | (36 | ) | % | 5.91 | % | 10.54 | % | (44 | ) | % | |||||||||||||
| Annualized return on average tangible common equity(1) | 8.27 | % | 7.43 | % | 13.06 | % | 11 | % | (37 | ) | % | 7.98 | % | 14.52 | % | (45 | ) | % | |||||||||||||
| Annualized return on average assets | 0.78 | % | 0.71 | % | 1.16 | % | 10 | % | (33 | ) | % | 0.76 | % | 1.29 | % | (41 | ) | % | |||||||||||||
| Annualized return on average tangible assets(1) | 0.81 | % | 0.74 | % | 1.20 | % | 9 | % | (33 | ) | % | 0.79 | % | 1.33 | % | (41 | ) | % | |||||||||||||
| Net interest margin (FTE)(1) | 3.17 | % | 3.26 | % | 3.57 | % | (3 | ) | % | (11 | ) | % | 3.26 | % | 3.80 | % | (14 | ) | % | ||||||||||||
| Efficiency ratio(1) | 65.37 | % | 67.55 | % | 52.89 | % | (3 | ) | % | 24 | % | 66.08 | % | 51.06 | % | 29 | % | ||||||||||||||
| AVERAGE BALANCES | |||||||||||||||||||||||||||||||
| (in $000's, unaudited) | |||||||||||||||||||||||||||||||
| Average assets | $ | 5,352,067 | $ | 5,213,171 | $ | 5,399,930 | 3 | % | (1 | ) | % | $ | 5,248,338 | $ | 5,316,447 | (1 | ) | % | |||||||||||||
| Average tangible assets(1) | $ | 5,177,114 | $ | 5,037,673 | $ | 5,222,692 | 3 | % | (1 | ) | % | $ | 5,072,843 | $ | 5,138,610 | (1 | ) | % | |||||||||||||
| Average earning assets | $ | 5,011,865 | $ | 4,872,449 | $ | 5,051,710 | 3 | % | (1 | ) | % | $ | 4,909,240 | $ | 4,965,613 | (1 | ) | % | |||||||||||||
| Average loans held-for-sale | $ | 1,493 | $ | 1,503 | $ | 2,765 | (1 | ) | % | (46 | ) | % | $ | 1,913 | $ | 3,229 | (41 | ) | % | ||||||||||||
| Average total loans | $ | 3,359,647 | $ | 3,328,358 | $ | 3,254,715 | 1 | % | 3 | % | $ | 3,328,529 | $ | 3,252,146 | 2 | % | |||||||||||||||
| Average deposits | $ | 4,525,946 | $ | 4,394,545 | $ | 4,573,621 | 3 | % | (1 | ) | % | $ | 4,427,242 | $ | 4,471,783 | (1 | ) | % | |||||||||||||
| Average demand deposits - noninterest-bearing | $ | 1,172,304 | $ | 1,127,145 | $ | 1,302,606 | 4 | % | (10 | ) | % | $ | 1,158,891 | $ | 1,444,744 | (20 | ) | % | |||||||||||||
| Average interest-bearing deposits | $ | 3,353,642 | $ | 3,267,400 | $ | 3,271,015 | 3 | % | 3 | % | $ | 3,268,351 | $ | 3,027,039 | 8 | % | |||||||||||||||
| Average interest-bearing liabilities | $ | 3,393,264 | $ | 3,306,972 | $ | 3,310,485 | 3 | % | 3 | % | $ | 3,307,926 | $ | 3,102,723 | 7 | % | |||||||||||||||
| Average equity | $ | 680,404 | $ | 675,108 | $ | 656,973 | 1 | % | 4 | % | $ | 675,951 | $ | 648,341 | 4 | % | |||||||||||||||
| Average tangible common equity(1) | $ | 505,451 | $ | 499,610 | $ | 479,735 | 1 | % | 5 | % | $ | 500,456 | $ | 470,504 | 6 | % | |||||||||||||||
| (1) | This is a non-GAAP financial measure. | |
| For the Quarter Ended: | |||||||||||||||||||||
| CONSOLIDATED INCOME STATEMENTS | September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||
| (in $000's, unaudited) | 2024 | 2024 | 2024 | 2023 | 2023 | ||||||||||||||||
| Interest income | $ | 61,438 | $ | 59,077 | $ | 57,551 | $ | 58,892 | $ | 60,791 | |||||||||||
| Interest expense | 21,523 | 19,622 | 17,458 | 16,591 | 15,419 | ||||||||||||||||
| Net interest income before provision for credit losses on loans | 39,915 | 39,455 | 40,093 | 42,301 | 45,372 | ||||||||||||||||
| Provision for credit losses on loans | 153 | 471 | 184 | 289 | 168 | ||||||||||||||||
| Net interest income after provision for credit losses on loans | 39,762 | 38,984 | 39,909 | 42,012 | 45,204 | ||||||||||||||||
| Noninterest income: | |||||||||||||||||||||
| Service charges and fees on deposit accounts | 908 | 891 | 877 | 838 | 859 | ||||||||||||||||
| Increase in cash surrender value of life insurance | 530 | 521 | 518 | 519 | 517 | ||||||||||||||||
| Servicing income | 108 | 90 | 90 | 103 | 62 | ||||||||||||||||
| Gain on sales of SBA loans | 94 | 76 | 178 | - | 207 | ||||||||||||||||
| Termination fees | 46 | 100 | 13 | 25 | 118 | ||||||||||||||||
| Gain on proceeds from company-owned life insurance | - | 219 | - | 25 | 100 | ||||||||||||||||
| Other | 554 | 379 | 371 | 432 | 353 | ||||||||||||||||
| Total noninterest income | 2,240 | 2,276 | 2,047 | 1,942 | 2,216 | ||||||||||||||||
| Noninterest expense: | |||||||||||||||||||||
| Salaries and employee benefits | 15,673 | 15,794 | 15,509 | 13,919 | 14,147 | ||||||||||||||||
| Occupancy and equipment | 2,599 | 2,689 | 2,443 | 2,367 | 2,301 | ||||||||||||||||
| Professional fees | 1,306 | 1,072 | 1,327 | 1,085 | 717 | ||||||||||||||||
| Other | 7,977 | 8,633 | 8,257 | 8,120 | 8,006 | ||||||||||||||||
| Total noninterest expense | 27,555 | 28,188 | 27,536 | 25,491 | 25,171 | ||||||||||||||||
| Income before income taxes | 14,447 | 13,072 | 14,420 | 18,463 | 22,249 | ||||||||||||||||
| Income tax expense | 3,940 | 3,838 | 4,254 | 5,135 | 6,454 | ||||||||||||||||
| Net income | $ | 10,507 | $ | 9,234 | $ | 10,166 | $ | 13,328 | $ | 15,795 | |||||||||||
| PER COMMON SHARE DATA | |||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||
| Basic earnings per share | $ | 0.17 | $ | 0.15 | $ | 0.17 | $ | 0.22 | $ | 0.26 | |||||||||||
| Diluted earnings per share | $ | 0.17 | $ | 0.15 | $ | 0.17 | $ | 0.22 | $ | 0.26 | |||||||||||
| Weighted average shares outstanding - basic | 61,295,877 | 61,279,914 | 61,186,623 | 61,118,485 | 61,093,289 | ||||||||||||||||
| Weighted average shares outstanding - diluted | 61,546,157 | 61,438,088 | 61,470,552 | 61,412,816 | 61,436,240 | ||||||||||||||||
| Common shares outstanding at period-end | 61,297,344 | 61,292,094 | 61,253,625 | 61,146,835 | 61,099,155 | ||||||||||||||||
| Dividend per share | $ | 0.13 | $ | 0.13 | $ | 0.13 | $ | 0.13 | $ | 0.13 | |||||||||||
| Book value per share | $ | 11.18 | $ | 11.08 | $ | 11.04 | $ | 11.00 | $ | 10.83 | |||||||||||
| Tangible book value per share(1) | $ | 8.33 | $ | 8.22 | $ | 8.17 | $ | 8.12 | $ | 7.94 | |||||||||||
| KEY FINANCIAL RATIOS | |||||||||||||||||||||
| (unaudited) | |||||||||||||||||||||
| Annualized return on average equity | 6.14 | % | 5.50 | % | 6.08 | % | 7.96 | % | 9.54 | % | |||||||||||
| Annualized return on average tangible common equity(1) | 8.27 | % | 7.43 | % | 8.24 | % | 10.84 | % | 13.06 | % | |||||||||||
| Annualized return on average assets | 0.78 | % | 0.71 | % | 0.79 | % | 1.00 | % | 1.16 | % | |||||||||||
| Annualized return on average tangible assets(1) | 0.81 | % | 0.74 | % | 0.82 | % | 1.04 | % | 1.20 | % | |||||||||||
| Net interest margin (FTE)(1) | 3.17 | % | 3.26 | % | 3.34 | % | 3.41 | % | 3.57 | % | |||||||||||
| Efficiency ratio(1) | 65.37 | % | 67.55 | % | 65.34 | % | 57.62 | % | 52.89 | % | |||||||||||
| AVERAGE BALANCES | |||||||||||||||||||||
| (in $000's, unaudited) | |||||||||||||||||||||
| Average assets | $ | 5,352,067 | $ | 5,213,171 | $ | 5,178,636 | $ | 5,264,905 | $ | 5,399,930 | |||||||||||
| Average tangible assets(1) | $ | 5,177,114 | $ | 5,037,673 | $ | 5,002,597 | $ | 5,088,264 | $ | 5,222,692 | |||||||||||
| Average earning assets | $ | 5,011,865 | $ | 4,872,449 | $ | 4,842,279 | $ | 4,923,582 | $ | 5,051,710 | |||||||||||
| Average loans held-for-sale | $ | 1,493 | $ | 1,503 | $ | 2,749 | $ | 1,612 | $ | 2,765 | |||||||||||
| Average total loans | $ | 3,359,647 | $ | 3,328,358 | $ | 3,297,240 | $ | 3,280,817 | $ | 3,254,715 | |||||||||||
| Average deposits | $ | 4,525,946 | $ | 4,394,545 | $ | 4,360,150 | $ | 4,454,750 | $ | 4,573,621 | |||||||||||
| Average demand deposits - noninterest-bearing | $ | 1,172,304 | $ | 1,127,145 | $ | 1,177,078 | $ | 1,243,222 | $ | 1,302,606 | |||||||||||
| Average interest-bearing deposits | $ | 3,353,642 | $ | 3,267,400 | $ | 3,183,072 | $ | 3,211,528 | $ | 3,271,015 | |||||||||||
| Average interest-bearing liabilities | $ | 3,393,264 | $ | 3,306,972 | $ | 3,222,603 | $ | 3,251,034 | $ | 3,310,485 | |||||||||||
| Average equity | $ | 680,404 | $ | 675,108 | $ | 672,292 | $ | 664,638 | $ | 656,973 | |||||||||||
| Average tangible common equity(1) | $ | 505,451 | $ | 499,610 | $ | 496,253 | $ | 487,997 | $ | 479,735 | |||||||||||
| (1) | This is a non-GAAP financial measure. | |
| End of Period: | Percent Change From: | ||||||||||||||||||
| CONSOLIDATED BALANCE SHEETS | September 30, | June 30, | September 30, | June 30, | September 30, | ||||||||||||||
| (in $000's, unaudited) | 2024 | 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| ASSETS | |||||||||||||||||||
| Cash and due from banks | $ | 49,722 | $ | 37,497 | $ | 40,076 | 33 | % | 24 | % | |||||||||
| Other investments and interest-bearing deposits in other financial institutions | 906,588 | 610,763 | 605,476 | 48 | % | 50 | % | ||||||||||||
| Securities available-for-sale, at fair value | 237,612 | 273,043 | 457,194 | (13 | ) | % | (48 | ) | % | ||||||||||
| Securities held-to-maturity, at amortized cost | 604,193 | 621,178 | 664,681 | (3 | ) | % | (9 | ) | % | ||||||||||
| Loans held-for-sale - SBA, including deferred costs | 1,649 | 1,899 | 841 | (13 | ) | % | 96 | % | |||||||||||
| Loans: | |||||||||||||||||||
| Commercial | 481,266 | 477,929 | 430,664 | 1 | % | 12 | % | ||||||||||||
| Real estate: | |||||||||||||||||||
| CRE - owner occupied | 602,062 | 594,504 | 589,751 | 1 | % | 2 | % | ||||||||||||
| CRE - non-owner occupied | 1,310,578 | 1,283,323 | 1,208,324 | 2 | % | 8 | % | ||||||||||||
| Land and construction | 125,761 | 125,374 | 158,138 | 0 | % | (20 | ) | % | |||||||||||
| Home equity | 124,090 | 126,562 | 124,477 | (2 | ) | % | 0 | % | |||||||||||
| Multifamily | 273,103 | 268,968 | 253,129 | 2 | % | 8 | % | ||||||||||||
| Residential mortgages | 479,524 | 484,809 | 503,006 | (1 | ) | % | (5 | ) | % | ||||||||||
| Consumer and other | 14,179 | 18,758 | 18,526 | (24 | ) | % | (23 | ) | % | ||||||||||
| Loans | 3,410,563 | 3,380,227 | 3,286,015 | 1 | % | 4 | % | ||||||||||||
| Deferred loan fees, net | (327 | ) | (434 | ) | (554 | ) | (25 | ) | % | (41 | ) | % | |||||||
| Total loans, net of deferred costs and fees | 3,410,236 | 3,379,793 | 3,285,461 | 1 | % | 4 | % | ||||||||||||
| Allowance for credit losses on loans | (47,819 | ) | (47,954 | ) | (47,702 | ) | 0 | % | 0 | % | |||||||||
| Loans, net | 3,362,417 | 3,331,839 | 3,237,759 | 1 | % | 4 | % | ||||||||||||
| Company-owned life insurance | 80,682 | 80,153 | 79,607 | 1 | % | 1 | % | ||||||||||||
| Premises and equipment, net | 10,398 | 10,310 | 9,707 | 1 | % | 7 | % | ||||||||||||
| Goodwill | 167,631 | 167,631 | 167,631 | 0 | % | 0 | % | ||||||||||||
| Other intangible assets | 6,966 | 7,521 | 9,229 | (7 | ) | % | (25 | ) | % | ||||||||||
| Accrued interest receivable and other assets | 123,738 | 121,190 | 131,106 | 2 | % | (6 | ) | % | |||||||||||
| Total assets | $ | 5,551,596 | $ | 5,263,024 | $ | 5,403,307 | 5 | % | 3 | % | |||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||||||||||
| Liabilities: | |||||||||||||||||||
| Deposits: | |||||||||||||||||||
| Demand, noninterest-bearing | $ | 1,272,139 | $ | 1,187,320 | $ | 1,243,501 | 7 | % | 2 | % | |||||||||
| Demand, interest-bearing | 913,910 | 928,246 | 1,004,185 | (2 | ) | % | (9 | ) | % | ||||||||||
| Savings and money market | 1,309,676 | 1,126,520 | 1,110,640 | 16 | % | 18 | % | ||||||||||||
| Time deposits - under $250 | 39,060 | 39,046 | 43,906 | 0 | % | (11 | ) | % | |||||||||||
| Time deposits - $250 and over | 196,945 | 203,886 | 252,001 | (3 | ) | % | (22 | ) | % | ||||||||||
| ICS/CDARS - interest-bearing demand, money market and time deposits | 997,803 | 959,592 | 921,224 | 4 | % | 8 | % | ||||||||||||
| Total deposits | 4,729,533 | 4,444,610 | 4,575,457 | 6 | % | 3 | % | ||||||||||||
| Subordinated debt, net of issuance costs | 39,615 | 39,577 | 39,463 | 0 | % | 0 | % | ||||||||||||
| Accrued interest payable and other liabilities | 97,096 | 99,638 | 126,457 | (3 | ) | % | (23 | ) | % | ||||||||||
| Total liabilities | 4,866,244 | 4,583,825 | 4,741,377 | 6 | % | 3 | % | ||||||||||||
| Shareholders' Equity: | |||||||||||||||||||
| Common stock | 509,134 | 508,343 | 505,692 | 0 | % | 1 | % | ||||||||||||
| Retained earnings | 185,110 | 182,571 | 173,707 | 1 | % | 7 | % | ||||||||||||
| Accumulated other comprehensive loss | (8,892 | ) | (11,715 | ) | (17,469 | ) | (24 | ) | % | (49 | ) | % | |||||||
| Total shareholders' equity | 685,352 | 679,199 | 661,930 | 1 | % | 4 | % | ||||||||||||
| Total liabilities and shareholders' equity | $ | 5,551,596 | $ | 5,263,024 | $ | 5,403,307 | 5 | % | 3 | % | |||||||||
| End of Period: | ||||||||||||||||||||
| CONSOLIDATED BALANCE SHEETS | September 30, | June 30, | March 31, | December 31, | September 30, | |||||||||||||||
| (in $000's, unaudited) | 2024 | 2024 | 2024 | 2023 | 2023 | |||||||||||||||
| ASSETS | ||||||||||||||||||||
| Cash and due from banks | $ | 49,722 | $ | 37,497 | $ | 32,543 | $ | 41,592 | $ | 40,076 | ||||||||||
| Other investments and interest-bearing deposits in other financial institutions | 906,588 | 610,763 | 508,816 | 366,537 | 605,476 | |||||||||||||||
| Securities available-for-sale, at fair value | 237,612 | 273,043 | 404,474 | 442,636 | 457,194 | |||||||||||||||
| Securities held-to-maturity, at amortized cost | 604,193 | 621,178 | 636,249 | 650,565 | 664,681 | |||||||||||||||
| Loans held-for-sale - SBA, including deferred costs | 1,649 | 1,899 | 1,946 | 2,205 | 841 | |||||||||||||||
| Loans: | ||||||||||||||||||||
| Commercial | 481,266 | 477,929 | 452,231 | 463,778 | 430,664 | |||||||||||||||
| Real estate: | ||||||||||||||||||||
| CRE - owner occupied | 602,062 | 594,504 | 585,031 | 583,253 | 589,751 | |||||||||||||||
| CRE - non-owner occupied | 1,310,578 | 1,283,323 | 1,271,184 | 1,256,590 | 1,208,324 | |||||||||||||||
| Land and construction | 125,761 | 125,374 | 129,712 | 140,513 | 158,138 | |||||||||||||||
| Home equity | 124,090 | 126,562 | 122,794 | 119,125 | 124,477 | |||||||||||||||
| Multifamily | 273,103 | 268,968 | 269,263 | 269,734 | 253,129 | |||||||||||||||
| Residential mortgages | 479,524 | 484,809 | 490,035 | 496,961 | 503,006 | |||||||||||||||
| Consumer and other | 14,179 | 18,758 | 16,439 | 20,919 | 18,526 | |||||||||||||||
| Loans | 3,410,563 | 3,380,227 | 3,336,689 | 3,350,873 | 3,286,015 | |||||||||||||||
| Deferred loan fees, net | (327 | ) | (434 | ) | (587 | ) | (495 | ) | (554 | ) | ||||||||||
| Total loans, net of deferred fees | 3,410,236 | 3,379,793 | 3,336,102 | 3,350,378 | 3,285,461 | |||||||||||||||
| Allowance for credit losses on loans | (47,819 | ) | (47,954 | ) | (47,888 | ) | (47,958 | ) | (47,702 | ) | ||||||||||
| Loans, net | 3,362,417 | 3,331,839 | 3,288,214 | 3,302,420 | 3,237,759 | |||||||||||||||
| Company-owned life insurance | 80,682 | 80,153 | 80,007 | 79,489 | 79,607 | |||||||||||||||
| Premises and equipment, net | 10,398 | 10,310 | 9,986 | 9,857 | 9,707 | |||||||||||||||
| Goodwill | 167,631 | 167,631 | 167,631 | 167,631 | 167,631 | |||||||||||||||
| Other intangible assets | 6,966 | 7,521 | 8,074 | 8,627 | 9,229 | |||||||||||||||
| Accrued interest receivable and other assets | 123,738 | 121,190 | 118,134 | 122,536 | 131,106 | |||||||||||||||
| Total assets | $ | 5,551,596 | $ | 5,263,024 | $ | 5,256,074 | $ | 5,194,095 | $ | 5,403,307 | ||||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Deposits: | ||||||||||||||||||||
| Demand, noninterest-bearing | $ | 1,272,139 | $ | 1,187,320 | $ | 1,242,059 | $ | 1,292,486 | $ | 1,243,501 | ||||||||||
| Demand, interest-bearing | 913,910 | 928,246 | 925,100 | 914,066 | 1,004,185 | |||||||||||||||
| Savings and money market | 1,309,676 | 1,126,520 | 1,124,900 | 1,087,518 | 1,110,640 | |||||||||||||||
| Time deposits - under $250 | 39,060 | 39,046 | 38,105 | 38,055 | 43,906 | |||||||||||||||
| Time deposits - $250 and over | 196,945 | 203,886 | 200,739 | 192,228 | 252,001 | |||||||||||||||
| ICS/CDARS - interest-bearing demand, money market and time deposits | 997,803 | 959,592 | 913,757 | 854,105 | 921,224 | |||||||||||||||
| Total deposits | 4,729,533 | 4,444,610 | 4,444,660 | 4,378,458 | 4,575,457 | |||||||||||||||
| Other short-term borrowings | - | - | - | - | - | |||||||||||||||
| Subordinated debt, net of issuance costs | 39,615 | 39,577 | 39,539 | 39,502 | 39,463 | |||||||||||||||
| Accrued interest payable and other liabilities | 97,096 | 99,638 | 95,579 | 103,234 | 126,457 | |||||||||||||||
| Total liabilities | 4,866,244 | 4,583,825 | 4,579,778 | 4,521,194 | 4,741,377 | |||||||||||||||
| Shareholders' Equity: | ||||||||||||||||||||
| Common stock | 509,134 | 508,343 | 507,578 | 506,539 | 505,692 | |||||||||||||||
| Retained earnings | 185,110 | 182,571 | 181,306 | 179,092 | 173,707 | |||||||||||||||
| Accumulated other comprehensive loss | (8,892 | ) | (11,715 | ) | (12,588 | ) | (12,730 | ) | (17,469 | ) | ||||||||||
| Total shareholders' equity | 685,352 | 679,199 | 676,296 | 672,901 | 661,930 | |||||||||||||||
| Total liabilities and shareholders' equity | $ | 5,551,596 | $ | 5,263,024 | $ | 5,256,074 | $ | 5,194,095 | $ | 5,403,307 | ||||||||||
| At or For the Quarter Ended: | Percent Change From: | ||||||||||||||||||
| CREDIT QUALITY DATA | September 30, | June 30, | September 30, | June 30, | September 30, | ||||||||||||||
| (in $000's, unaudited) | 2024 | 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| Nonaccrual loans - held-for-investment | $ | 6,698 | $ | 5,782 | $ | 3,518 | 16 | % | 90 | % | |||||||||
| Loans over 90 days past due and still accruing | 460 | 248 | 1,966 | 85 | % | (77 | ) | % | |||||||||||
| Total nonperforming loans | 7,158 | 6,030 | 5,484 | 19 | % | 31 | % | ||||||||||||
| Foreclosed assets | - | - | - | N/A | N/A | ||||||||||||||
| Total nonperforming assets | $ | 7,158 | $ | 6,030 | $ | 5,484 | 19 | % | 31 | % | |||||||||
| Net charge-offs (recoveries) during the quarter | $ | 288 | $ | 405 | $ | 269 | (29 | ) | % | 7 | % | ||||||||
| Provision for credit losses on loans during the quarter | $ | 153 | $ | 471 | $ | 168 | (68 | ) | % | (9 | ) | % | |||||||
| Allowance for credit losses on loans | $ | 47,819 | $ | 47,954 | $ | 47,702 | 0 | % | 0 | % | |||||||||
| Classified assets | $ | 32,609 | $ | 33,605 | $ | 31,062 | (3 | ) | % | 5 | % | ||||||||
| Allowance for credit losses on loans to total loans | 1.40 | % | 1.42 | % | 1.45 | % | (1 | ) | % | (3 | ) | % | |||||||
| Allowance for credit losses on loans to total nonperforming loans | 668.05 | % | 795.26 | % | 869.84 | % | (16 | ) | % | (23 | ) | % | |||||||
| Nonperforming assets to total assets | 0.13 | % | 0.11 | % | 0.10 | % | 18 | % | 30 | % | |||||||||
| Nonperforming loans to total loans | 0.21 | % | 0.18 | % | 0.17 | % | 17 | % | 24 | % | |||||||||
| Classified assets to Heritage Commerce Corp | |||||||||||||||||||
| Tier 1 capital plus allowance for credit losses on loans | 6 | % | 6 | % | 6 | % | 0 | % | 0 | % | |||||||||
| Classified assets to Heritage Bank of Commerce | |||||||||||||||||||
| Tier 1 capital plus allowance for credit losses on loans | 6 | % | 6 | % | 5 | % | 0 | % | 20 | % | |||||||||
| OTHER PERIOD-END STATISTICS | |||||||||||||||||||
| (in $000's, unaudited) | |||||||||||||||||||
| Heritage Commerce Corp: | |||||||||||||||||||
| Tangible common equity (1) | $ | 510,755 | $ | 504,047 | $ | 485,070 | 1 | % | 5 | % | |||||||||
| Shareholders' equity / total assets | 12.35 | % | 12.91 | % | 12.25 | % | (4 | ) | % | 1 | % | ||||||||
| Tangible common equity / tangible assets (2) | 9.50 | % | 9.91 | % | 9.28 | % | (4 | ) | % | 2 | % | ||||||||
| Loan to deposit ratio | 72.11 | % | 76.04 | % | 71.81 | % | (5 | ) | % | 0 | % | ||||||||
| Noninterest-bearing deposits / total deposits | 26.90 | % | 26.71 | % | 27.18 | % | 1 | % | (1 | ) | % | ||||||||
| Total capital ratio | 15.6 | % | 15.6 | % | 15.6 | % | 0 | % | 0 | % | |||||||||
| Tier 1 capital ratio | 13.4 | % | 13.4 | % | 13.4 | % | 0 | % | 0 | % | |||||||||
| Common Equity Tier 1 capital ratio | 13.4 | % | 13.4 | % | 13.4 | % | 0 | % | 0 | % | |||||||||
| Tier 1 leverage ratio | 10.0 | % | 10.2 | % | 9.6 | % | (2 | ) | % | 4 | % | ||||||||
| Heritage Bank of Commerce: | |||||||||||||||||||
| Tangible common equity / tangible assets (2) | 9.86 | % | 10.28 | % | 9.62 | % | (4 | ) | % | 2 | % | ||||||||
| Total capital ratio | 15.1 | % | 15.1 | % | 15.0 | % | 0 | % | 1 | % | |||||||||
| Tier 1 capital ratio | 13.9 | % | 13.9 | % | 13.9 | % | 0 | % | 0 | % | |||||||||
| Common Equity Tier 1 capital ratio | 13.9 | % | 13.9 | % | 13.9 | % | 0 | % | 0 | % | |||||||||
| Tier 1 leverage ratio | 10.4 | % | 10.6 | % | 10.0 | % | (2 | ) | % | 4 | % | ||||||||
| (1) | This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets. | |
| (2) | This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets. | |
| At or For the Quarter Ended: | |||||||||||||||||||||
| CREDIT QUALITY DATA | September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||
| (in $000's, unaudited) | 2024 | 2024 | 2024 | 2023 | 2023 | ||||||||||||||||
| Nonaccrual loans - held-for-investment | $ | 6,698 | $ | 5,782 | $ | 5,920 | $ | 6,818 | $ | 3,518 | |||||||||||
| Loans over 90 days past due and still accruing | 460 | 248 | 1,951 | 889 | 1,966 | ||||||||||||||||
| Total nonperforming loans | 7,158 | 6,030 | 7,871 | 7,707 | 5,484 | ||||||||||||||||
| Foreclosed assets | - | - | - | - | - | ||||||||||||||||
| Total nonperforming assets | $ | 7,158 | $ | 6,030 | $ | 7,871 | $ | 7,707 | $ | 5,484 | |||||||||||
| Net charge-offs (recoveries) during the quarter | $ | 288 | $ | 405 | $ | 254 | $ | 33 | $ | 269 | |||||||||||
| Provision for credit losses on loans during the quarter | $ | 153 | $ | 471 | $ | 184 | $ | 289 | $ | 168 | |||||||||||
| Allowance for credit losses on loans | $ | 47,819 | $ | 47,954 | $ | 47,888 | $ | 47,958 | $ | 47,702 | |||||||||||
| Classified assets | $ | 32,609 | $ | 33,605 | $ | 35,392 | $ | 31,763 | $ | 31,062 | |||||||||||
| Allowance for credit losses on loans to total loans | 1.40 | % | 1.42 | % | 1.44 | % | 1.43 | % | 1.45 | % | |||||||||||
| Allowance for credit losses on loans to total nonperforming loans | 668.05 | % | 795.26 | % | 608.41 | % | 622.27 | % | 869.84 | % | |||||||||||
| Nonperforming assets to total assets | 0.13 | % | 0.11 | % | 0.15 | % | 0.15 | % | 0.10 | % | |||||||||||
| Nonperforming loans to total loans | 0.21 | % | 0.18 | % | 0.24 | % | 0.23 | % | 0.17 | % | |||||||||||
| Classified assets to Heritage Commerce Corp | |||||||||||||||||||||
| Tier 1 capital plus allowance for credit losses on loans | 6 | % | 6 | % | 6 | % | 6 | % | 6 | % | |||||||||||
| Classified assets to Heritage Bank of Commerce | |||||||||||||||||||||
| Tier 1 capital plus allowance for credit losses on loans | 6 | % | 6 | % | 6 | % | 5 | % | 5 | % | |||||||||||
| OTHER PERIOD-END STATISTICS | |||||||||||||||||||||
| (in $000's, unaudited) | |||||||||||||||||||||
| Heritage Commerce Corp: | |||||||||||||||||||||
| Tangible common equity (1) | $ | 510,755 | $ | 504,047 | $ | 500,591 | $ | 496,643 | $ | 485,070 | |||||||||||
| Shareholders' equity / total assets | 12.35 | % | 12.91 | % | 12.87 | % | 12.96 | % | 12.25 | % | |||||||||||
| Tangible common equity / tangible assets (2) | 9.50 | % | 9.91 | % | 9.85 | % | 9.90 | % | 9.28 | % | |||||||||||
| Loan to deposit ratio | 72.11 | % | 76.04 | % | 75.06 | % | 76.52 | % | 71.81 | % | |||||||||||
| Noninterest-bearing deposits / total deposits | 26.90 | % | 26.71 | % | 27.94 | % | 29.52 | % | 27.18 | % | |||||||||||
| Total capital ratio | 15.6 | % | 15.6 | % | 15.6 | % | 15.5 | % | 15.6 | % | |||||||||||
| Tier 1 capital ratio | 13.4 | % | 13.4 | % | 13.4 | % | 13.3 | % | 13.4 | % | |||||||||||
| Common Equity Tier 1 capital ratio | 13.4 | % | 13.4 | % | 13.4 | % | 13.3 | % | 13.4 | % | |||||||||||
| Tier 1 leverage ratio | 10.0 | % | 10.2 | % | 10.2 | % | 10.0 | % | 9.6 | % | |||||||||||
| Heritage Bank of Commerce: | |||||||||||||||||||||
| Tangible common equity / tangible assets (2) | 9.86 | % | 10.28 | % | 10.22 | % | 10.26 | % | 9.62 | % | |||||||||||
| Total capital ratio | 15.1 | % | 15.1 | % | 15.1 | % | 14.9 | % | 15.0 | % | |||||||||||
| Tier 1 capital ratio | 13.9 | % | 13.9 | % | 13.9 | % | 13.8 | % | 13.9 | % | |||||||||||
| Common Equity Tier 1 capital ratio | 13.9 | % | 13.9 | % | 13.9 | % | 13.8 | % | 13.9 | % | |||||||||||
| Tier 1 leverage ratio | 10.4 | % | 10.6 | % | 10.6 | % | 10.4 | % | 10.0 | % | |||||||||||
| (1) | This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets. | |
| (2) | This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets. | |
| For the Quarter Ended | For the Quarter Ended | ||||||||||||||||||||
| September 30, 2024 | June 30, 2024 | ||||||||||||||||||||
| Interest | Average | Interest | Average | ||||||||||||||||||
| NET INTEREST INCOME AND NET INTEREST MARGIN | Average | Income/ | Yield/ | Average | Income/ | Yield/ | |||||||||||||||
| (in $000's, unaudited) | Balance | Expense | Rate | Balance | Expense | Rate | |||||||||||||||
| Assets: | |||||||||||||||||||||
| Loans, gross (1)(2) | $ | 3,361,140 | $ | 45,781 | 5.42 | % | $ | 3,329,861 | $ | 45,470 | 5.49 | % | |||||||||
| Securities - taxable | 838,375 | 4,676 | 2.22 | % | 942,532 | 5,483 | 2.34 | % | |||||||||||||
| Securities - exempt from Federal tax (3) | 31,311 | 282 | 3.58 | % | 31,803 | 285 | 3.60 | % | |||||||||||||
| Other investments and interest-bearing deposits in other financial institutions | 781,039 | 10,758 | 5.48 | % | 568,253 | 7,899 | 5.59 | % | |||||||||||||
| Total interest earning assets (3) | 5,011,865 | 61,497 | 4.88 | % | 4,872,449 | 59,137 | 4.88 | % | |||||||||||||
| Cash and due from banks | 33,425 | 33,419 | |||||||||||||||||||
| Premises and equipment, net | 10,471 | 10,216 | |||||||||||||||||||
| Goodwill and other intangible assets | 174,953 | 175,498 | |||||||||||||||||||
| Other assets | 121,353 | 121,589 | |||||||||||||||||||
| Total assets | $ | 5,352,067 | $ | 5,213,171 | |||||||||||||||||
| Liabilities and shareholders' equity: | |||||||||||||||||||||
| Deposits: | |||||||||||||||||||||
| Demand, noninterest-bearing | $ | 1,172,304 | $ | 1,127,145 | |||||||||||||||||
| Demand, interest-bearing | 907,346 | 1,714 | 0.75 | % | 932,100 | 1,719 | 0.74 | % | |||||||||||||
| Savings and money market | 1,188,057 | 9,128 | 3.06 | % | 1,104,589 | 7,867 | 2.86 | % | |||||||||||||
| Time deposits - under $100 | 11,133 | 47 | 1.68 | % | 10,980 | 46 | 1.68 | % | |||||||||||||
| Time deposits - $100 and over | 229,565 | 2,349 | 4.07 | % | 228,248 | 2,245 | 3.96 | % | |||||||||||||
| ICS/CDARS - interest-bearing demand, money market and time deposits | 1,017,541 | 7,747 | 3.03 | % | 991,483 | 7,207 | 2.92 | % | |||||||||||||
| Total interest-bearing deposits | 3,353,642 | 20,985 | 2.49 | % | 3,267,400 | 19,084 | 2.35 | % | |||||||||||||
| Total deposits | 4,525,946 | 20,985 | 1.84 | % | 4,394,545 | 19,084 | 1.75 | % | |||||||||||||
| Short-term borrowings | 32 | - | 0.00 | % | 19 | - | 0.00 | % | |||||||||||||
| Subordinated debt, net of issuance costs | 39,590 | 538 | 5.41 | % | 39,553 | 538 | 5.47 | % | |||||||||||||
| Total interest-bearing liabilities | 3,393,264 | 21,523 | 2.52 | % | 3,306,972 | 19,622 | 2.39 | % | |||||||||||||
| Total interest-bearing liabilities and demand, noninterest-bearing / cost of funds | 4,565,568 | 21,523 | 1.88 | % | 4,434,117 | 19,622 | 1.78 | % | |||||||||||||
| Other liabilities | 106,095 | 103,946 | |||||||||||||||||||
| Total liabilities | 4,671,663 | 4,538,063 | |||||||||||||||||||
| Shareholders' equity | 680,404 | 675,108 | |||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 5,352,067 | $ | 5,213,171 | |||||||||||||||||
| Net interest income / margin (3) | 39,974 | 3.17 | % | 39,515 | 3.26 | % | |||||||||||||||
| Less tax equivalent adjustment (3) | (59 | ) | (60 | ) | |||||||||||||||||
| Net interest income | $ | 39,915 | 3.17 | % | $ | 39,455 | 3.26 | % | |||||||||||||
| (1) | Includes loans held-for-sale. Nonaccrual loans are included in average balances. | |
| (2) | Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $184,000 for the third quarter of 2024, compared to $117,000 for the second quarter of 2024. Prepayment fees totaled $4,000 for the third quarter of 2024, compared to $54,000 for the second quarter of 2024. | |
| (3) | Reflects the non-GAAP FTE adjustment for Federal tax-exempt income based on a 21% tax rate. | |
| For the Quarter Ended | For the Quarter Ended | ||||||||||||||||||||
| September 30, 2024 | September 30, 2023 | ||||||||||||||||||||
| Interest | Average | Interest | Average | ||||||||||||||||||
| NET INTEREST INCOME AND NET INTEREST MARGIN | Average | Income/ | Yield/ | Average | Income/ | Yield/ | |||||||||||||||
| (in $000's, unaudited) | Balance | Expense | Rate | Balance | Expense | Rate | |||||||||||||||
| Assets: | |||||||||||||||||||||
| Loans, gross (1)(2) | $ | 3,361,140 | $ | 45,781 | 5.42 | % | $ | 3,257,480 | $ | 44,853 | 5.46 | % | |||||||||
| Securities - taxable | 838,375 | 4,676 | 2.22 | % | 1,114,782 | 6,797 | 2.42 | % | |||||||||||||
| Securities - exempt from Federal tax (3) | 31,311 | 282 | 3.58 | % | 32,947 | 293 | 3.53 | % | |||||||||||||
| Other investments and interest-bearing deposits in other financial institutions | 781,039 | 10,758 | 5.48 | % | 646,501 | 8,909 | 5.47 | % | |||||||||||||
| Total interest earning assets (3) | 5,011,865 | 61,497 | 4.88 | % | 5,051,710 | 60,852 | 4.78 | % | |||||||||||||
| Cash and due from banks | 33,425 | 35,911 | |||||||||||||||||||
| Premises and equipment, net | 10,471 | 9,374 | |||||||||||||||||||
| Goodwill and other intangible assets | 174,953 | 177,238 | |||||||||||||||||||
| Other assets | 121,353 | 125,697 | |||||||||||||||||||
| Total assets | $ | 5,352,067 | $ | 5,399,930 | |||||||||||||||||
| Liabilities and shareholders' equity: | |||||||||||||||||||||
| Deposits: | |||||||||||||||||||||
| Demand, noninterest-bearing | $ | 1,172,304 | $ | 1,302,606 | |||||||||||||||||
| Demand, interest-bearing | 907,346 | 1,714 | 0.75 | % | 1,017,686 | 1,730 | 0.67 | % | |||||||||||||
| Savings and money market | 1,188,057 | 9,128 | 3.06 | % | 1,087,336 | 5,514 | 2.01 | % | |||||||||||||
| Time deposits - under $100 | 11,133 | 47 | 1.68 | % | 11,966 | 30 | 0.99 | % | |||||||||||||
| Time deposits - $100 and over | 229,565 | 2,349 | 4.07 | % | 272,362 | 2,489 | 3.63 | % | |||||||||||||
| ICS/CDARS - interest-bearing demand, money market and time deposits | 1,017,541 | 7,747 | 3.03 | % | 881,665 | 5,117 | 2.30 | % | |||||||||||||
| Total interest-bearing deposits | 3,353,642 | 20,985 | 2.49 | % | 3,271,015 | 14,880 | 1.80 | % | |||||||||||||
| Total deposits | 4,525,946 | 20,985 | 1.84 | % | 4,573,621 | 14,880 | 1.29 | % | |||||||||||||
| Short-term borrowings | 32 | - | 0.00 | % | 31 | - | 0.00 | % | |||||||||||||
| Subordinated debt, net of issuance costs | 39,590 | 538 | 5.41 | % | 39,439 | 539 | 5.42 | % | |||||||||||||
| Total interest-bearing liabilities | 3,393,264 | 21,523 | 2.52 | % | 3,310,485 | 15,419 | 1.85 | % | |||||||||||||
| Total interest-bearing liabilities and demand, noninterest-bearing / cost of funds | 4,565,568 | 21,523 | 1.88 | % | 4,613,091 | 15,419 | 1.33 | % | |||||||||||||
| Other liabilities | 106,095 | 129,866 | |||||||||||||||||||
| Total liabilities | 4,671,663 | 4,742,957 | |||||||||||||||||||
| Shareholders' equity | 680,404 | 656,973 | |||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 5,352,067 | $ | 5,399,930 | |||||||||||||||||
| Net interest income / margin (3) | 39,974 | 3.17 | % | 45,433 | 3.57 | % | |||||||||||||||
| Less tax equivalent adjustment (3) | (59 | ) | (61 | ) | |||||||||||||||||
| Net interest income | $ | 39,915 | 3.17 | % | $ | 45,372 | 3.56 | % | |||||||||||||
| (1) | Includes loans held-for-sale. Nonaccrual loans are included in average balances. | |
| (2) | Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $184,000 for the third quarter of 2024, compared to $201,000 for the third quarter of 2023. Prepayment fees totaled $4,000 for the third quarter of 2024, compared to $182,000 for the third quarter of 2023. | |
| (3) | Reflects the non-GAAP FTE adjustment for Federal tax-exempt income based on a 21% tax rate. | |
| For the Nine Months Ended | For the Nine Months Ended | ||||||||||||||||||||
| September 30, 2024 | September 30, 2023 | ||||||||||||||||||||
| Interest | Average | Interest | Average | ||||||||||||||||||
| NET INTEREST INCOME AND NET INTEREST MARGIN | Average | Income/ | Yield/ | Average | Income/ | Yield/ | |||||||||||||||
| (in $000's, unaudited) | Balance | Expense | Rate | Balance | Expense | Rate | |||||||||||||||
| Assets: | |||||||||||||||||||||
| Loans, gross (1)(2) | $ | 3,330,442 | $ | 135,851 | 5.45 | % | $ | 3,255,375 | $ | 132,993 | 5.46 | % | |||||||||
| Securities - taxable | 940,755 | 16,342 | 2.32 | % | 1,140,890 | 20,835 | 2.44 | % | |||||||||||||
| Securities - exempt from Federal tax (3) | 31,683 | 853 | 3.60 | % | 34,332 | 908 | 3.54 | % | |||||||||||||
| Other investments, interest-bearing deposits in other financial institutions and Federal funds sold | 606,360 | 25,199 | 5.55 | % | 535,016 | 20,860 | 5.21 | % | |||||||||||||
| Total interest earning assets (3) | 4,909,240 | 178,245 | 4.85 | % | 4,965,613 | 175,596 | 4.73 | % | |||||||||||||
| Cash and due from banks | 33,353 | 36,205 | |||||||||||||||||||
| Premises and equipment, net | 10,235 | 9,278 | |||||||||||||||||||
| Goodwill and other intangible assets | 175,495 | 177,837 | |||||||||||||||||||
| Other assets | 120,015 | 127,514 | |||||||||||||||||||
| Total assets | $ | 5,248,338 | $ | 5,316,447 | |||||||||||||||||
| Liabilities and shareholders' equity: | |||||||||||||||||||||
| Deposits: | |||||||||||||||||||||
| Demand, noninterest-bearing | $ | 1,158,891 | $ | 1,444,744 | |||||||||||||||||
| Demand, interest-bearing | 919,786 | 4,987 | 0.72 | % | 1,117,140 | 4,994 | 0.60 | % | |||||||||||||
| Savings and money market | 1,120,324 | 23,644 | 2.82 | % | 1,159,894 | 13,641 | 1.57 | % | |||||||||||||
| Time deposits - under $100 | 11,020 | 135 | 1.64 | % | 11,951 | 60 | 0.67 | % | |||||||||||||
| Time deposits - $100 and over | 226,353 | 6,658 | 3.93 | % | 212,736 | 4,744 | 2.98 | % | |||||||||||||
| ICS/CDARS - interest-bearing demand, money market and time deposits | 990,868 | 21,565 | 2.91 | % | 525,318 | 8,065 | 2.05 | % | |||||||||||||
| Total interest-bearing deposits | 3,268,351 | 56,989 | 2.33 | % | 3,027,039 | 31,504 | 1.39 | % | |||||||||||||
| Total deposits | 4,427,242 | 56,989 | 1.72 | % | 4,471,783 | 31,504 | 0.94 | % | |||||||||||||
| Short-term borrowings | 22 | - | 0.00 | % | 36,283 | 1,365 | 5.03 | % | |||||||||||||
| Subordinated debt, net of issuance costs | 39,553 | 1,614 | 5.45 | % | 39,401 | 1,614 | 5.48 | % | |||||||||||||
| Total interest-bearing liabilities | 3,307,926 | 58,603 | 2.37 | % | 3,102,723 | 34,483 | 1.49 | % | |||||||||||||
| Total interest-bearing liabilities and demand, noninterest-bearing / cost of funds | 4,466,817 | 58,603 | 1.75 | % | 4,547,467 | 34,483 | 1.01 | % | |||||||||||||
| Other liabilities | 105,570 | 120,639 | |||||||||||||||||||
| Total liabilities | 4,572,387 | 4,668,106 | |||||||||||||||||||
| Shareholders' equity | 675,951 | 648,341 | |||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 5,248,338 | $ | 5,316,447 | |||||||||||||||||
| Net interest income / margin (3) | 119,642 | 3.26 | % | 141,113 | 3.80 | % | |||||||||||||||
| Less tax equivalent adjustment (3) | (179 | ) | (190 | ) | |||||||||||||||||
| Net interest income | $ | 119,463 | 3.25 | % | $ | 140,923 | 3.79 | % | |||||||||||||
| (1) | Includes loans held-for-sale. Nonaccrual loans are included in average balances. | |
| (2) | Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $461,000 for the first nine months of 2024, compared to $595,000 for the first nine months of 2023. Prepayment fees totaled $82,000 for the first nine months of 2024, compared to $393,000 for the first nine months of 2023. | |
| (3) | Reflects the non-GAAP FTE adjustment for Federal tax-exempt income based on a 21% tax rate. | |
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
- Management considers tangible book value per share as a useful measurement of the Company's equity. The Company references the return on average tangible common equity and the return on average tangible assets as measurements of profitability.
- The following table summarizes components of the tangible book value per share at the dates indicated:
| TANGIBLE BOOK VALUE PER SHARE | September 30, | June 30, | March 31, | December 31, | September 30, | |||||||||||||||
| (in $000's, unaudited) | 2024 | 2024 | 2024 | 2023 | 2023 | |||||||||||||||
| Capital components: | ||||||||||||||||||||
| Total Equity (GAAP) | $ | 685,352 | $ | 679,199 | $ | 676,296 | $ | 672,901 | $ | 661,930 | ||||||||||
| Less: Preferred Stock | - | - | - | - | - | |||||||||||||||
| Total Common Equity | 685,352 | 679,199 | 676,296 | 672,901 | 661,930 | |||||||||||||||
| Less: Goodwill | (167,631 | ) | (167,631 | ) | (167,631 | ) | (167,631 | ) | (167,631 | ) | ||||||||||
| Less: Other Intangible Assets | (6,966 | ) | (7,521 | ) | (8,074 | ) | (8,627 | ) | (9,229 | ) | ||||||||||
| Total Tangible Common Equity (non-GAAP) | $ | 510,755 | $ | 504,047 | $ | 500,591 | $ | 496,643 | $ | 485,070 | ||||||||||
| Common shares outstanding at period-end | 61,297,344 | 61,292,094 | 61,253,625 | 61,146,835 | 61,099,155 | |||||||||||||||
| Tangible book value per share (non-GAAP) | $ | 8.33 | $ | 8.22 | $ | 8.17 | $ | 8.12 | $ | 7.94 | ||||||||||
- The following tables summarize components of the annualized return on average tangible common equity and the annualized return on average tangible assets for the periods indicated:
| RETURN ON AVERAGE TANGIBLE COMMON | For the Quarter Ended: | ||||||||||||||||||||
| EQUITY AND AVERAGE TANGIBLE COMMON ASSETS | September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||
| (in $000's, unaudited) | 2024 | 2024 | 2024 | 2023 | 2023 | ||||||||||||||||
| Net income | $ | 10,507 | $ | 9,234 | $ | 10,166 | $ | 13,328 | $ | 15,795 | |||||||||||
| Average tangible common equity components: | |||||||||||||||||||||
| Average Equity (GAAP) | $ | 680,404 | $ | 675,108 | $ | 672,292 | $ | 664,638 | $ | 656,973 | |||||||||||
| Less: Goodwill | (167,631 | ) | (167,631 | ) | (167,631 | ) | (167,631 | ) | (167,631 | ) | |||||||||||
| Less: Other Intangible Assets | (7,322 | ) | (7,867 | ) | (8,408 | ) | (9,010 | ) | (9,607 | ) | |||||||||||
| Total Average Tangible Common Equity (non-GAAP) | $ | 505,451 | $ | 499,610 | $ | 496,253 | $ | 487,997 | $ | 479,735 | |||||||||||
| Annualized return on average tangible common equity (non-GAAP) | 8.27 | % | 7.43 | % | 8.24 | % | 10.84 | % | 13.06 | % | |||||||||||
| Average tangible assets components: | |||||||||||||||||||||
| Average Assets (GAAP) | $ | 5,352,067 | $ | 5,213,171 | $ | 5,178,636 | $ | 5,264,905 | $ | 5,399,930 | |||||||||||
| Less: Goodwill | (167,631 | ) | (167,631 | ) | (167,631 | ) | (167,631 | ) | (167,631 | ) | |||||||||||
| Less: Other Intangible Assets | (7,322 | ) | (7,867 | ) | (8,408 | ) | (9,010 | ) | (9,607 | ) | |||||||||||
| Total Average Tangible Assets (non-GAAP) | $ | 5,177,114 | $ | 5,037,673 | $ | 5,002,597 | $ | 5,088,264 | $ | 5,222,692 | |||||||||||
| Annualized return on average tangible assets (non-GAAP) | 0.81 | % | 0.74 | % | 0.82 | % | 1.04 | % | 1.20 | % | |||||||||||
| RETURN ON AVERAGE TANGIBLE COMMON | For the Nine Months Ended: | ||||||||
| EQUITY AND AVERAGE TANGIBLE COMMON ASSETS | September 30, | September 30, | |||||||
| (in $000's, unaudited) | 2024 | 2023 | |||||||
| Net income | $ | 29,907 | $ | 51,115 | |||||
| Average tangible common equity components: | |||||||||
| Average Equity (GAAP) | $ | 675,951 | $ | 648,341 | |||||
| Less: Goodwill | (167,631 | ) | (167,631 | ) | |||||
| Less: Other Intangible Assets | (7,864 | ) | (10,206 | ) | |||||
| Total Average Tangible Common Equity (non-GAAP) | $ | 500,456 | $ | 470,504 | |||||
| Annualized return on average tangible common equity (non-GAAP) | 7.98 | % | 14.52 | % | |||||
| Average tangible assets components: | |||||||||
| Average Assets (GAAP) | $ | 5,248,338 | $ | 5,316,447 | |||||
| Less: Goodwill | (167,631 | ) | (167,631 | ) | |||||
| Less: Other Intangible Assets | (7,864 | ) | (10,206 | ) | |||||
| Total Average Tangible Assets (non-GAAP) | $ | 5,072,843 | 5,138,610 | ||||||
| Annualized return on average tangible assets (non-GAAP) | 0.79 | % | 1.33 | % | |||||
- Management reviews yields on certain asset categories and the net interest margin of the Company on an FTE basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis using tax rates effective as of the end of the period. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. The following tables summarize components of FTE net interest income of the Company for the periods indicated:
| For the Quarter Ended: | |||||||||||||||||||||
| September 30, | June 30, | March 31, | December 31, | September 30, | |||||||||||||||||
| (in $000's, unaudited) | 2024 | 2024 | 2024 | 2023 | 2023 | ||||||||||||||||
| Net interest income before credit losses on loans (GAAP) | $ | 39,915 | $ | 39,455 | $ | 40,093 | $ | 42,301 | $ | 45,372 | |||||||||||
| Tax-equivalent adjustment on securities - exempt from Federal tax | 59 | 60 | 60 | 61 | 61 | ||||||||||||||||
| Net interest income, FTE (non-GAAP) | $ | 39,974 | $ | 39,515 | $ | 40,153 | $ | 42,362 | $ | 45,433 | |||||||||||
| Average balance of total interest earning assets | $ | 5,011,865 | $ | 4,872,449 | $ | 4,842,279 | $ | 4,923,582 | $ | 5,051,710 | |||||||||||
| Net interest margin (annualized net interest income divided by the average balance of total interest earnings assets) (GAAP) | 3.17 | % | 3.26 | % | 3.33 | % | 3.41 | % | 3.56 | % | |||||||||||
| Net interest margin, FTE (annualized net interest income, FTE, divided by the average balance of total earnings assets) (non-GAAP) | 3.17 | % | 3.26 | % | 3.34 | % | 3.41 | % | 3.57 | % | |||||||||||
| For the Nine Months Ended: | |||||||||
| September 30, | September 30, | ||||||||
| (in $000's, unaudited) | 2024 | 2023 | |||||||
| Net interest income before credit losses on loans (GAAP) | $ | 119,463 | $ | 140,923 | |||||
| Tax-equivalent adjustment on securities - exempt from Federal tax | 179 | 190 | |||||||
| Net interest income, FTE (non-GAAP) | $ | 119,642 | $ | 141,113 | |||||
| Average balance of total interest earning assets | $ | 4,909,240 | $ | 4,965,613 | |||||
| Net interest margin (annualized net interest income divided by the average balance of total interest earnings assets) (GAAP) | 3.25 | % | 3.79 | % | |||||
| Net interest margin, FTE (annualized net interest income, FTE, divided by the average balance of total interest earnings assets) (non-GAAP) | 3.26 | % | 3.80 | % | |||||
- The efficiency ratio is a non-GAAP financial measure, which is calculated by dividing noninterest expense by total revenue (net interest income plus noninterest income), and measures how much it costs to produce one dollar of revenue. The following tables summarize components of the efficiency ratio of the Company for the periods indicated:
| For the Quarter Ended: | |||||||||||||||||||||
| September 30, | June 30, | March 31, | December 31, | September 30, | |||||||||||||||||
| (in $000's, unaudited) | 2024 | 2024 | 2023 | 2023 | 2023 | ||||||||||||||||
| Noninterest expense | $ | 27,555 | $ | 28,188 | $ | 27,536 | $ | 25,491 | $ | 25,171 | |||||||||||
| Net interest income before credit losses on loans | $ | 39,915 | $ | 39,455 | $ | 40,093 | $ | 42,301 | $ | 45,372 | |||||||||||
| Noninterest income | 2,240 | 2,276 | 2,047 | 1,942 | 2,216 | ||||||||||||||||
| Total revenue | $ | 42,155 | $ | 41,731 | $ | 42,140 | $ | 44,243 | $ | 47,588 | |||||||||||
| Efficiency ratio (noninterest expense divided by total revenue) (non-GAAP) | 65.37 | % | 67.55 | % | 65.34 | % | 57.62 | % | 52.89 | % | |||||||||||
| For the Nine Months Ended: | |||||||||
| September 30, | September 30, | ||||||||
| (in $000's, unaudited) | 2024 | 2023 | |||||||
| Noninterest expense | $ | 83,279 | $ | 75,563 | |||||
| Net interest income before credit losses on loans | $ | 119,463 | $ | 140,923 | |||||
| Noninterest income | 6,563 | 7,056 | |||||||
| Total revenue | $ | 126,026 | $ | 147,979 | |||||
| Efficiency ratio (noninterest expense divided by total revenue) (non-GAAP) | 66.08 | % | 51.06 | % | |||||
- Management considers the tangible common equity ratio as a useful measurement of the Company's and the Bank's equity. The following table summarizes components of the tangible common equity to tangible assets ratio of the Company at the dates indicated:
| TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS | September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||
| (in $000's, unaudited) | 2024 | 2024 | 2024 | 2023 | 2023 | ||||||||||||||||
| Capital components: | |||||||||||||||||||||
| Total Equity (GAAP) | $ | 685,352 | $ | 679,199 | $ | 676,296 | $ | 672,901 | $ | 661,930 | |||||||||||
| Less: Preferred Stock | - | - | - | - | - | ||||||||||||||||
| Total Common Equity | 685,352 | 679,199 | 676,296 | 672,901 | 661,930 | ||||||||||||||||
| Less: Goodwill | (167,631 | ) | (167,631 | ) | (167,631 | ) | (167,631 | ) | (167,631 | ) | |||||||||||
| Less: Other Intangible Assets | (6,966 | ) | (7,521 | ) | (8,074 | ) | (8,627 | ) | (9,229 | ) | |||||||||||
| Total Tangible Common Equity (non-GAAP) | $ | 510,755 | $ | 504,047 | $ | 500,591 | $ | 496,643 | $ | 485,070 | |||||||||||
| Asset components: | |||||||||||||||||||||
| Total Assets (GAAP) | $ | 5,551,596 | $ | 5,263,024 | $ | 5,256,074 | $ | 5,194,095 | $ | 5,403,307 | |||||||||||
| Less: Goodwill | (167,631 | ) | (167,631 | ) | (167,631 | ) | (167,631 | ) | (167,631 | ) | |||||||||||
| Less: Other Intangible Assets | (6,966 | ) | (7,521 | ) | (8,074 | ) | (8,627 | ) | (9,229 | ) | |||||||||||
| Total Tangible Assets (non-GAAP) | $ | 5,376,999 | $ | 5,087,872 | $ | 5,080,369 | $ | 5,017,837 | $ | 5,226,447 | |||||||||||
| Tangible common equity / tangible assets (non-GAAP) | 9.50 | % | 9.91 | % | 9.85 | % | 9.90 | % | 9.28 | % | |||||||||||
- The following table summarizes components of the tangible common equity to tangible assets ratio of the Bank at the dates indicated:
| TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS | September 30, | June 30, | March 31, | December 31, | September 30, | ||||||||||||||||
| (in $000's, unaudited) | 2024 | 2024 | 2024 | 2023 | 2023 | ||||||||||||||||
| Capital components: | |||||||||||||||||||||
| Total Equity (GAAP) | $ | 704,585 | $ | 697,964 | $ | 694,543 | $ | 690,918 | $ | 679,644 | |||||||||||
| Less: Preferred Stock | - | - | - | - | - | ||||||||||||||||
| Total Common Equity | 704,585 | 697,964 | 694,543 | 690,918 | 679,644 | ||||||||||||||||
| Less: Goodwill | (167,631 | ) | (167,631 | ) | (167,631 | ) | (167,631 | ) | (167,631 | ) | |||||||||||
| Less: Other Intangible Assets | (6,966 | ) | (7,521 | ) | (8,074 | ) | (8,627 | ) | (9,229 | ) | |||||||||||
| Total Tangible Common Equity (non-GAAP) | $ | 529,988 | $ | 522,812 | $ | 518,838 | $ | 514,660 | $ | 502,784 | |||||||||||
| Asset components: | |||||||||||||||||||||
| Total Assets (GAAP) | $ | 5,548,576 | $ | 5,260,500 | $ | 5,254,044 | $ | 5,190,829 | $ | 5,402,838 | |||||||||||
| Less: Goodwill | (167,631 | ) | (167,631 | ) | (167,631 | ) | (167,631 | ) | (167,631 | ) | |||||||||||
| Less: Other Intangible Assets | (6,966 | ) | (7,521 | ) | (8,074 | ) | (8,627 | ) | (9,229 | ) | |||||||||||
| Total Tangible Assets (non-GAAP) | $ | 5,373,979 | $ | 5,085,348 | $ | 5,078,339 | $ | 5,014,571 | $ | 5,225,978 | |||||||||||
| Tangible common equity / tangible assets (non-GAAP) | 9.86 | % | 10.28 | % | 10.22 | % | 10.26 | % | 9.62 | % | |||||||||||
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