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CST: 24/08/2019 15:51:28   

Heritage Commerce Corp Earns $12.1 Million for the First Quarter of 2019, an Increase of 38% from the First Quarter of 2018

120 Days ago

SAN JOSE, Calif., April 25, 2019 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (Nasdaq: HTBK), the holding company (the “Company”) for Heritage Bank of Commerce (the “Bank” or “HBC”), today announced net income was $12.1 million, or $0.28 per average diluted common share, for the first quarter of 2019, compared to $8.8 million, or $0.23 per average diluted common share, for the first quarter of 2018. Net income was $13.2 million, or $0.30 per average diluted common share, for the fourth quarter of 2018.  All results are unaudited.

“First quarter 2019 earnings were solid, supported by an average net interest margin of 4.38%, sound credit quality, and efficient cost control, resulting in a 17.90% return on average tangible equity and a 1.63% return on average tangible assets,” said Walter Kaczmarek, President and Chief Executive Officer.  “Although total loans are down slightly on a linked quarter basis, reflecting pay offs and maturities, total loans are up 16% from a year ago.  Total deposits grew 9% year-over-year and are up by $2.7 million from the preceding quarter with noninterest-bearing accounts representing 38% of total deposits.”

First Quarter 2019 Highlights (as of, or for the periods ended March 31, 2019, compared to March 31, 2018, and December 31, 2018, except as noted):

Operating Results:

  • Diluted earnings per share were $0.28 for the first quarter of 2019, compared to $0.23 for the first quarter of 2018, and $0.30 for the fourth quarter of 2018.   
      
  • The return on average tangible assets was 1.63%, and the return on average tangible equity was 17.90% for the first quarter of 2019, compared to 1.31% and 16.30%, respectively, for the first quarter of 2018, and 1.69% and 20.08%, respectively, for the fourth quarter of 2018.

  • Total noninterest expense for the first quarter of 2019 increased to $17.9 million from $16.9 million for the fourth quarter of 2018, primarily due to higher salaries and employee benefits, consistent with the cyclical nature of these expenses.

  • Net interest income, before provision for loan losses, increased 18% to $31.0 million for the first quarter of 2019, compared to $26.3 million for the first quarter of 2018, and decreased 6% from $33.1 million for the fourth quarter of 2018. 

    • The fully tax equivalent (“FTE”) net interest margin improved by 25 basis points to 4.38% for the first quarter of 2019, from 4.13% for the first quarter of 2018 , primarily due to a higher average balance of loans, the accretion of the loan purchase discount into loan interest income from the Tri-Valley Bank (“Tri-Valley”) and United American Bank (“United American”) acquisitions, and the impact of increases in the prime rate and the rate on overnight funds.  The net interest margin contracted 4 basis points for the first quarter of 2019 from 4.42% for the fourth quarter of 2018, primarily due to lower average balances of Bay View Funding factored receivables and fewer days in the first quarter of 2019.

  • The following tables present the average balance of loans outstanding, interest income, and the average yield for the periods indicated:
                                   
    For the Quarter Ended   For the Quarter Ended  
    March 31, 2019   March 31, 2018  
    Average   Interest   Average   Average   Interest   Average  
(in $000’s, unaudited)   Balance   Income   Yield   Balance   Income   Yield  
Loans, core bank and asset-based lending   $  1,724,723     $  22,854    5.37 $  1,439,962     $  18,465    5.20 %
Bay View Funding factored receivables      48,502        2,953    24.69    49,071        3,146    26.00 %
Residential mortgages      36,770        251    2.77    43,517        293    2.73 %
Purchased CRE loans      33,344        294    3.58    37,181        323    3.52
Loan credit mark / accretion      (6,249 )      455    0.11    (1,142 )      57    0.02 %
Total loans   $  1,837,090     $  26,807    5.92 $  1,568,589     $  22,284    5.76 %
                                   
  • The average yield on the total loan portfolio increased to 5.92% for the first quarter of 2019, compared to 5.76% for the first quarter of 2018, primarily due to increases in the prime rate, and an increase in the accretion of the loan purchase discount into loan interest income from the acquisitions.
                                   
    For the Quarter Ended   For the Quarter Ended  
    March 31, 2019   December 31, 2018  
    Average   Interest   Average   Average   Interest   Average  
(in $000’s, unaudited)   Balance   Income   Yield   Balance   Income   Yield  
Loans, core bank and asset-based lending   $  1,724,723     $  22,854    5.37 $  1,742,614     $  23,053    5.25 %
Bay View Funding factored receivables      48,502        2,953    24.69    65,521        4,012    24.29 %
Residential mortgages      36,770        251    2.77    38,148        268    2.79 %
Purchased CRE loans      33,344        294    3.58    34,121        311    3.62 %
Loan credit mark / accretion      (6,249 )      455    0.11    (6,783 )      720    0.16 %
Total loans   $  1,837,090     $  26,807    5.92 $  1,873,621     $  28,364    6.01 %
                                   

• The average yield on the total loan portfolio decreased to 5.92% for the first quarter of 2019, compared to 6.01% for the fourth quarter of 2018, primarily due to a lower average balance of factored receivables at Bay View Funding, a decrease in the accretion of the loan purchase discount into loan interest income from the acquisitions and fewer days in the first quarter of 2019, partially offset by an increase in the prime rate.

• The total purchase discount on loans from Focus Business Bank (“Focus”) loan portfolio was $5.4 million on the acquisition date of August 20, 2015, of which $623,000 remains outstanding as of March 31, 2019.  The total purchase discount on loans from Tri-Valley loan portfolio was $2.6 million on the acquisition date of April 6, 2018, of which $2.1 million remains outstanding as of March 31, 2019.  The total purchase discount on loans from United American loan portfolio was $4.7 million on the acquisition date of May 4, 2018, of which $3.3 million remains outstanding as of March 31, 2019.

  • The cost of total deposits was 0.28% for the first quarter of 2019, compared to 0.16% for the first quarter of 2018 and 0.25% for the fourth quarter of 2018. The increase in the cost of total deposits for the first quarter of 2019 was consistent with the increase in market interest rates. 

  • There was a $1.1 million credit to the provision for loan losses for the first quarter of 2019, compared to a $506,000 provision for loan losses for the first quarter of 2018, and a $142,000 provision for loan losses for the fourth quarter of 2018.  

  • Total noninterest income increased 12% to $2.5 million for the first quarter of 2019, compared to $2.2 million for the first quarter of 2018, primarily due to higher service charges and fees on deposit accounts and higher termination fees at Bay View Funding included in other noninterest income, partially offset by lower gain on sales of Small Business Administration (“SBA”) loans and no gain on sales of securities in the first quarter of 2019.  Noninterest income increased to $2.5 million at March 31, 2019  from $2.4 million for the fourth quarter of 2018. 

  • Total noninterest expense for the first quarter of 2019 increased to $17.9 million, compared to $16.0 million for the first quarter of 2018, primarily due to higher salaries and employee benefits as a result of annual salary increases, and additional employees and operating costs of the Tri-Valley and United American acquisitions, partially offset by costs related to the merger transactions of $615,000 incurred in the first quarter of 2018.  Total noninterest expense for the first quarter of 2019 increased from $16.9 million for the fourth quarter of 2018, primarily due to higher salaries and employee benefits, consistent with the cyclical nature of these expenses. 

    • Full time equivalent employees were 309 at March 31, 2019, 271 at March 31, 2018, and 302 at December 31, 2018. 

  • The efficiency ratio for the first quarter of 2019 was 53.47%, compared to 56.02% for the first quarter of 2018, and 47.78% for the fourth quarter of 2018.

  • Income tax expense for the first quarter of 2019 was $4.5 million, compared to income tax expense of $3.2 million for the first quarter of 2018, and an income tax expense of $5.1 million for the fourth quarter of 2018.  The effective tax rate for the first quarter of 2019 was 27.1%, compared to 26.9% for the first quarter of 2018, and 28.0% for the fourth quarter of 2018.

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

Balance Sheet Review, Capital Management and Credit Quality:

  • Total assets increased 12% to $3.12 billion at March 31, 2019, compared to $2.79 billion at March 31, 2018, primarily due to the Tri-Valley and United American acquisitions.  As of March 31, 2019, Tri-Valley added $103.5 million in loans and $74.5 million in deposits.  As of March 31, 2019, United American added $174.3 million in loans and $219.1 million in deposits.  Total assets increased 1% from $3.10 billion at December 31, 2018.

  • Securities available-for-sale, at fair value, totaled $452.5 million at March 31, 2019, compared to $344.8 million at March 31, 2018, and $459.0 million at December 31, 2018.  At March 31, 2019, the Company’s securities available-for-sale portfolio comprised $295.6 million of agency mortgage-backed securities (all issued by U.S. Government sponsored entities), $149.5 million of U.S. Treasury, and $7.4 million of U.S. Government sponsored entities debt securities. The pre-tax unrealized loss on securities available-for-sale at March 31, 2019 was ($2.9) million, compared to a pre-tax unrealized loss on securities available-for-sale of ($9.5) million at March 31, 2018, and a pre-tax unrealized loss on securities available-for-sale of ($7.7) million at December 31, 2018.  All other factors remaining the same, when market interest rates are rising, the Company will experience a lower unrealized gain (or a higher unrealized loss) on the securities portfolio.

  • At March 31, 2019, securities held-to-maturity, at amortized cost, totaled $367.0 million, compared to $395.3 million at March 31, 2018, and $377.2 million at December 31, 2018.  At March 31, 2019, the Company’s securities held-to-maturity portfolio comprised $281.1 million of agency mortgage-backed securities, and $85.9 million of tax-exempt municipal bonds.

  • The loan portfolio remains well-diversified as reflected in the following table which summarizes the distribution of loans, excluding loans held-for-sale, and the percentage of distribution in each category for the periods indicated:      
                                 
LOANS   March 31, 2019   December 31, 2018   March 31, 2018  
(in $000’s, unaudited)   Balance   % to Total   Balance   % to Total   Balance   % to Total  
Commercial   $  559,718      30 $  597,763      32 $  572,790      36
Real estate:                                
CRE      1,012,641      55    994,067      52    775,547      49
Land and construction      98,222      5    122,358      6    113,470      7
Home equity      118,448      6    109,112      6    76,087      4
Residential mortgages      49,786      3    50,979      3    42,868      3
Consumer      9,690      1    12,453      1    10,958      1
Total Loans      1,848,505      100    1,886,732      100    1,591,720      100
Deferred loan fees, net      (187 )    —      (327 )    —      (519 )    —  
Loans, net of deferred fees    $  1,848,318      100 $  1,886,405      100 $  1,591,201      100

• Loans, excluding loans held-for-sale, increased $257.1 million, or 16%, to $1.85 billion at March 31, 2019, compared to $1.59 billion at March 31, 2018, which included $174.3 million in loans from United American and $103.5 million in loans from Tri-Valley, partially offset by a decrease of $6.4 million in purchased residential mortgage loans, a decrease of $4.7 million of purchased commercial real estate (“CRE”) loans, and a decrease of $9.6 million in the Company’s legacy portfolio. Loans, excluding loans held-for-sale, decreased (2%) to $1.85 billion at March 31, 2019, compared to $1.89 billion December 31, 2018, primarily due to payoffs in the commercial land and construction loan portfolios.

• The commercial loan portfolio decreased $13.1 million to $559.7 million at March 31, 2019 from $572.8 million at March 31, 2018, primarily due to a decrease of $23.4 million, or (4%), in the Company’s legacy portfolio, partially offset by $7.9 million of loans added from United American and $2.4 million of loans added from Tri-Valley.  The commercial loan portfolio decreased $38.1 million, or (6%), from $597.8 million at December 31, 2018.  C&I line usage was 37% at March 31, 2019, compared to 36% at both March 31, 2018 and December 31, 2018.

• The CRE loan portfolio increased $237.1 million, or 31%, to $1.01 billion at March 31, 2019, compared to $775.5 million at March 31, 2018, which included $123.6 million of loans added from United American and $89.7 million of loans added from Tri-Valley, and an increase of $28.5 million, or 4%, in the Company’s legacy portfolio, partially offset by a decrease of $4.7 million in purchased CRE loans.  The CRE loan portfolio increased $18.6 million, or 2%, from $994.1 million at December 31, 2018.  At March 31, 2019, 39% of the CRE loan portfolio was secured by owner-occupied real estate.

• Land and construction loans decreased $15.3 million, or (13%), to $98.2 million at March 31, 2019 from to $113.5 million at March 31, 2018. Land and construction loans decreased $24.1 million, or (20%), from $122.3 million at December 31, 2018.

• Home equity lines of credit increased $42.3 million, or 56%, to $118.4 million at March 31, 2019, compared to $76.1 million at March 31, 2018, which included $27.5 million of loans added from United American and $11.4 million of loans added from Tri-Valley, and an increase of $3.4 million, or 5%, in the Company’s legacy portfolio.  Home equity lines of credit increased $9.3 million, or 9%, from $109.1 million at December 31, 2018.

• Residential mortgage loans increased $6.9 million, or 16%, to $49.8 million at March 31, 2019, compared to $42.9 million at March 31, 2018, primarily due to $13.3 million of loans added from United American, partially offset by a $6.4 million decrease in purchased residential mortgage loans.  Residential mortgage loans decreased to $49.8 million from $51.0 million at December 31, 2018.

  • The following table summarizes the allowance for loan losses (“ALLL”) for the periods indicated:
                     
    For the Quarter Ended  
ALLOWANCE FOR LOAN LOSSES   March 31,    December 31,    March 31,   
(in $000’s, unaudited)   2019   2018   2018  
Balance at beginning of period   $  27,848     $  27,426     $  19,658    
Charge-offs during the period      (226 )      (166 )      (245 )  
Recoveries during the period      757        446        220    
Net recoveries (charge-offs) during the period      531        280        (25 )  
Provision (credit) for loan losses during the period      (1,061 )      142        506    
Balance at end of period   $  27,318     $  27,848     $  20,139    
                     
Total loans, net of deferred fees   $  1,848,318     $  1,886,405     $  1,591,201    
Total nonperforming loans   $  17,315     $  14,887     $  3,795    
Allowance for loan losses to total loans      1.48      1.48      1.27   %
Allowance for loan losses to total nonperforming loans      157.77      187.06      530.67   %

       
• The ALLL was 1.48% of total loans at March 31, 2019, compared to 1.27% at March 31, 2018, and 1.48% at December 31, 2018.  The ALLL to total nonperforming loans decreased to 157.77% at March 31, 2019, compared to 530.67% at March 31, 2018, and 187.06% at December 31, 2018.

• Net recoveries totaled $531,000 for the first quarter of 2019, compared to net charge-offs of $25,000 for the first quarter of 2018, and net recoveries of $280,000 for the fourth quarter of 2018.   

  • The following is a breakout of nonperforming assets (“NPAs”) at the periods indicated:       
                                 
    End of Period:  
NONPERFORMING ASSETS   March 31, 2019   December 31, 2018   March 31, 2018  
(in $000’s, unaudited)   Balance   % of Total   Balance   % of Total   Balance   % of Total  
Commercial and industrial loans   $  6,633    38 $  8,062    54 $  2,291    60 %
CRE loans      8,442    49    5,094    34    501    13 %
Restructured and loans over 90 days past due and still accruing      1,357    8    1,188    8    158    4 %
SBA loans      570    3    217    2    481    13 %
Home equity and consumer loans      313    2    326    2    364    10 %
Total nonperforming assets   $  17,315    100 $  14,887    100 $  3,795    100 %

• NPAs totaled $17.3 million, or 0.56% of total assets, at March 31, 2019, compared to $3.8 million, or 0.14% of total assets, at March 31, 2018, and $14.9 million, or 0.48% of total assets, at December 31, 2018.  The increase in NPAs at March 31, 2019 from March 31, 2018, was primarily due to two lending relationships.

• A large lending relationship was placed on nonaccrual during the second quarter of 2018.  At March 31, 2019, the recorded investment of this lending relationship was $10.8 million, and the Company had a $5.9 million specific loan loss reserve allocated for this lending relationship, compared to a recorded investment of $12.0 million, and a $6.7 million specific loan loss reserve allocated for this lending relationship at December 31, 2018.

• In addition, the Company has two secured CRE loans outstanding to entities affiliated with DC Solar Solutions, Inc. (“DC Solar”), which were placed on nonaccrual during the first quarter of 2019.  In February, 2019, DC Solar and a number of its affiliates, including each of the borrowers of the loans, filed a Chapter 11 petition under the Bankruptcy Code, which was subsequently converted to a Chapter 7 proceeding on March 22, 2019.  At March 31, 2019, the recorded investment of these two CRE loans totaled $3.3 million. 

• There were no foreclosed assets at March 31, 2019, March 31, 2018, or December 31, 2018.

• Classified assets were $25.2 million, or 0.81% of total assets, at March 31, 2019, compared to $30.8 million, or 1.10% of total assets, at March 31, 2018, and $23.4 million, 0.76% of total assets, at December 31, 2018. 

  • The following table summarizes the distribution of deposits and the percentage of distribution in each category for the periods indicated:       
                                 
DEPOSITS   March 31, 2019   December 31, 2018   March 31, 2018  
(in $000’s, unaudited)   Balance   % to Total   Balance   % to Total   Balance   % to Total  
Demand, noninterest-bearing   $  1,016,770    38 $  1,021,582    39 $  975,846    40 %
Demand, interest-bearing      704,996    27    702,000    27    621,402    26 %
Savings and money market      759,306    29    754,277    28    688,217    28 %
Time deposits — under $250      56,385    2    58,661    2    49,861    2 %
Time deposits — $250 and over      90,042    3    86,114    3    71,446    3 %
CDARS — interest-bearing demand,                                
  money market and time deposits      12,745    1    14,898    1    15,420    1
Total deposits   $  2,640,244    100 $  2,637,532    100 $  2,422,192    100 %
                                 

• Total deposits increased $218.1 million, or 9%, to $2.64 billion at March 31, 2019, compared to $2.42 billion at March 31, 2018, which included $219.1 million in deposits from United American, $74.5 million in deposits from Tri-Valley, partially offset by a decrease of $75.5 million, or (3%) in the Company’s legacy deposits.  Total deposits remained relatively flat from $2.64 billion at December 31, 2018.

• Deposits, excluding all time deposits and CDARS deposits, increased $195.6 million, or 9%, to $2.48 billion at March 31, 2019, compared to $2.29 billion at March 31, 2018, which included $199.5 million of deposits added from United American, $68.1 million of deposits added from Tri-Valley, partially offset by a decrease of $72.0 million, or (3%), in the Company’s legacy deposits.  Deposits, excluding all time deposits and CDARS deposits, at March 31, 2019 remained relatively flat compared to $2.48 billion at December 31, 2018.

• Time deposits of $250,000 and over increased $18.6 million, or 26% to $90.0 million at March 31, 2019, compared to $71.4 million at March 31, 2018, which included $9.1 million of deposits added from United American and $2.5 million of deposits added from Tri-Valley, and an increase of $7.0 million, or 10%, in the Company’s legacy deposits.  Time deposits of $250,000 and over at March 31, 2019 increased $3.9 million, or 5%, compared to $86.1 million at December 31, 2018.

  • The Company’s consolidated capital ratios exceeded regulatory guidelines and the Bank’s capital ratios exceeded the regulatory guidelines under the Basel III prompt corrective action (“PCA”) regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at March 31, 2019, as reflected in the following table:
                         
                Well-capitalized    
                Financial    
                Institution   Basel III
    Heritage   Heritage   Basel III PCA   Minimum
    Commerce   Bank of   Regulatory   Regulatory
CAPITAL RATIOS   Corp   Commerce   Guidelines   Requirement (1)
Total Risk-Based    15.6    14.6    10.0    10.5 %
Tier 1 Risk-Based    12.6    13.4    8.0    8.5 %
Common Equity Tier 1 Risk-Based    12.6    13.4    6.5    7.0 %
Leverage    9.5    10.1    5.0    4.0 %

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

  • The following table reflects the components of accumulated other comprehensive loss, net of taxes, for the periods indicated:
           
                   
ACCUMULATED OTHER COMPREHENSIVE LOSS   March 31,    December 31,    March 31, 
(in $000’s, unaudited)   2019   2018   2018
Unrealized loss on securities available-for-sale   $  (2,010 )   $  (5,412 )   $  (6,764 )
Remaining unamortized unrealized gain on securities                  
  available-for-sale transferred to held-to-maturity      325        343        365  
Split dollar insurance contracts liability      (3,746 )      (3,722 )      (3,707 )
Supplemental executive retirement plan liability      (3,963 )      (3,995 )      (5,521 )
Unrealized gain on interest-only strip from SBA loans      407        405        671  
  Total accumulated other comprehensive loss   $  (8,987 )   $  (12,381 )   $  (14,956 )
                   
  • Tangible equity increased to $283.3 million at March 31, 2019, compared to $220.0 million at March 31, 2018, primarily due to the Tri-Valley and United American acquisitions.  Tangible equity was $271.7 million at December 31, 2018.  Tangible book value per share was $6.54 at March 31, 2019, compared to $5.75 at March 31, 2018, and $6.28 at December 31, 2018.              

Heritage Commerce Corp , a bank holding company established in February 1998, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose, CA with full-service branches in Danville, Fremont, Gilroy, Hollister, Livermore, Los Altos, Los Gatos, Morgan Hill, Pleasanton, Redwood City, San Jose, San Mateo, Sunnyvale, and Walnut Creek.  Heritage Bank of Commerce is an SBA Preferred Lender.  Bay View Funding, a subsidiary of Heritage Bank of Commerce, is based in Santa Clara, CA and provides business-essential working capital factoring financing to various industries throughout the United States.  For more information, please visit www.heritagecommercecorp.com.

Forward-Looking Statement Disclaimer

These forward-looking statements are subject to various risks and uncertainties that may be outside our control and our actual results could differ materially from our projected results.  Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, and the following: (1) current and future economic and market conditions in the United States generally or in the communities we serve, including the effects of declines in property values and overall slowdowns in economic growth should these events occur; (2) effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Federal Open Market Committee of the Federal Reserve Board; (3) our ability to anticipate interest rate changes and manage interest rate risk; (4) changes in inflation, interest rates, and market liquidity which may impact interest margins and impact funding sources; (5) volatility in credit and equity markets and its effect on the global economy; (6) our ability to effectively compete with other banks and financial services companies and the effects of competition in the financial services industry on our business; (7) our ability to achieve loan growth and attract deposits; (8) risks associated with concentrations in real estate related loans; (9) the relative strength or weakness of the commercial and real estate markets where are borrowers are located, including related asset and market prices; (10) other than temporary impairment charges to our securities portfolio; (11) changes in the level of nonperforming assets and charge offs and other credit quality measures, and their impact on the adequacy of the Company’s allowance for loan losses and the Company’s provision for loan losses; (12) increased capital requirements  for our continual growth or as imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all; (13) regulatory limits on Heritage Bank of Commerce’s ability to pay dividends to the Company; (14) changes in our capital management policies, including those regarding business combinations, dividends, and share repurchases; (15) operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to industry changes in information technology systems, on which we are highly dependent; (16) our inability to attract, recruit,  and retain qualified officers and other personnel could harm our ability to implement our strategic plan, impair our relationships with customers and adversely affect our business, results of operations and growth prospects; (17) the potential increase in reserves and allowance for loan loss as a result of the transition to the current expected credit loss standard (“CECL”) established by the Financial Accounting Standards Board to account for expected credit losses; (18) possible impairment of our goodwill and other intangible assets; (19) possible  adjustment of the valuation of our deferred tax assets; (20) expected cost savings in connection with the consolidation of recent acquisitions may not be fully realized or realized within the expected time frames, deposit attrition, customer loss; (21) our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks such as data security breaches, “denial of service” attacks, “hacking” and identity theft; (22) inability of our framework to manage risks associated with our business, including operational risk and credit risk; (23) risks of loss of funding of Small Business Administration or SBA loan programs, or changes in those programs; (24) compliance with governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities , accounting and tax matters; (25) significant changes in applicable laws and regulations, including those concerning taxes, banking and securities; (26) 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; (27) costs and effects of legal and regulatory developments, including resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews; (28) availability of and competition for acquisition opportunities; (29) risks resulting from domestic terrorism; (30) risks of natural disasters (including earthquakes) and other events beyond our control; and (31) our success in managing the risks involved in the foregoing factors.

Member FDIC

                             
    For the Quarter Ended:   Percent Change From:  
CONSOLIDATED INCOME STATEMENTS   March 31,    December 31,    March 31,    December 31,    March 31,   
(in $000’s, unaudited)   2019     2018   2018   2018   2018  
Interest income   $  33,449     $  35,378   $  27,877   (5 ) 20   %
Interest expense      2,407        2,318      1,529   4   57   %
  Net interest income before provision                            
  for loan losses      31,042        33,060      26,348   (6 ) 18   %
Provision (credit) for loan losses      (1,061 )      142      506   847   310   %
Net interest income after provision                            
  for loan losses      32,103        32,918      25,842   (2 ) 24   %
Noninterest income:                            
Service charges and fees on deposit accounts      1,161        1,132      902   3   29   %
Increase in cash surrender value of                            
  life insurance      330        229      363   44   (9 ) %
Servicing income      191        176      181   9   6   %
Gain on sales of SBA loans      139        147      235   (5 ) (41 ) %
Gain on sales of securities      —        —      87   N/A   (100 ) %
Other      647        709      427   (9 ) 52   %
Total noninterest income      2,468        2,393      2,195   3   12   %
Noninterest expense:                            
Salaries and employee benefits      10,770        9,699      9,777   11   10   %
Occupancy and equipment      1,506        1,484      1,106   1   36   %
Professional fees      818        853      684   (4 ) 20   %
Other      4,824        4,905      4,423   (2 ) 9   %
Total noninterest expense      17,918        16,941      15,990   6   12   %
Income before income taxes      16,653        18,370      12,047   (9 ) 38   %
Income tax expense      4,507        5,138      3,238   (12 ) 39   %
  Net income   $  12,146     $  13,232   $  8,809   (8 ) 38   %
                             
PER COMMON SHARE DATA                            
(unaudited)                            
Basic earnings per share   $  0.28     $  0.31   $  0.23   (10 ) 22   %
Diluted earnings per share   $  0.28     $  0.30   $  0.23   (7 ) 22   %
Weighted average shares outstanding - basic      43,108,208        43,079,470      38,240,495   0   13   %
Weighted average shares outstanding - diluted      43,670,341        43,691,222      38,814,722   0   13   %
Common shares outstanding at period-end      43,323,753        43,288,750      38,269,789   0   13   %
Dividend per share   $  0.12     $  0.11   $  0.11   9   9   %
Book value per share   $  8.74     $  8.49   $  7.08   3   23   %
Tangible book value per share   $  6.54     $  6.28   $  5.75   4   14   %
                             
KEY FINANCIAL RATIOS                            
(unaudited)                            
Annualized return on average equity      13.28      14.68    13.22 (10 ) 0   %
Annualized return on average tangible equity      17.90      20.08    16.30 (11 ) 10   %
Annualized return on average assets      1.58      1.64    1.29 (4 ) 22   %
Annualized return on average tangible assets      1.63      1.69    1.31 (4 ) 24   %
Net interest margin (fully tax equivalent)      4.38      4.42    4.13 (1 ) 6   %
Efficiency ratio      53.47      47.78    56.02 12   (5 ) %
                             
AVERAGE BALANCES                            
(in $000’s, unaudited)                            
Average assets   $  3,109,583     $  3,208,177   $  2,768,318   (3 ) 12   %
Average tangible assets   $  3,014,029     $  3,112,065   $  2,717,152   (3 ) 11   %
Average earning assets   $  2,885,591     $  2,980,207   $  2,598,954   (3 ) 11   %
Average loans held-for-sale   $  3,125     $  5,435   $  3,246   (43 ) (4 ) %
Average total loans   $  1,833,965     $  1,868,186   $  1,565,343   (2 ) 17   %
Average deposits   $  2,637,308     $  2,752,120   $  2,404,327   (4 ) 10   %
Average demand deposits - noninterest-bearing   $  1,024,142     $  1,107,813   $  945,848   (8 ) 8   %
Average interest-bearing deposits   $  1,613,166     $  1,644,307   $  1,458,479   (2 ) 11   %
Average interest-bearing liabilities   $  1,652,658     $  1,683,790   $  1,497,717   (2 ) 10   %
Average equity   $  370,792     $  357,505   $  270,339   4   37   %
Average tangible equity   $  275,238     $  261,393   $  219,173   5   26   %


                                 
    For the Quarter Ended:  
CONSOLIDATED INCOME STATEMENTS   March 31,    December 31,    September 30,   June 30,   March 31,   
(in $000’s, unaudited)   2019     2018   2018     2018     2018  
Interest income   $  33,449     $  35,378   $  34,610     $  31,980     $  27,877  
Interest expense      2,407        2,318      2,159        1,816        1,529  
  Net interest income before provision                                
  for loan losses      31,042        33,060      32,451        30,164        26,348  
Provision (credit) for loan losses      (1,061 )      142      (425 )      7,198        506  
Net interest income after provision                                
  for loan losses      32,103        32,918      32,876        22,966        25,842  
Noninterest income:                                
Service charges and fees on deposit accounts      1,161        1,132      1,107        972        902  
Increase in cash surrender value of                                
  life insurance      330        229      216        237        363  
Servicing income      191        176      163        189        181  
Gain on sales of SBA loans      139        147      236        80        235  
Gain on sales of securities      —        —      —        179        87  
Other      647        709      484        1,123        427  
Total noninterest income      2,468        2,393      2,206        2,780        2,195  
Noninterest expense:                                
Salaries and employee benefits      10,770        9,699      10,719        14,806        9,777  
Occupancy and equipment      1,506        1,484      1,559        1,262        1,106  
Professional fees      818        853      721        (289 )      684  
Other      4,824        4,905      4,729        9,083        4,423  
Total noninterest expense      17,918        16,941      17,728        24,862        15,990  
Income before income taxes      16,653        18,370      17,354        884        12,047  
Income tax expense (benefit)      4,507        5,138      4,979        (31 )      3,238  
  Net income   $  12,146     $  13,232   $  12,375     $  915     $  8,809  
                                 
PER COMMON SHARE DATA                                
(unaudited)                                
Basic earnings per share   $  0.28     $  0.31   $  0.29     $  0.02     $  0.23  
Diluted earnings per share   $  0.28     $  0.30   $  0.28     $  0.02     $  0.23  
Weighted average shares outstanding - basic      43,108,208        43,079,470      43,230,016        41,925,616        38,240,495  
Weighted average shares outstanding - diluted      43,670,341        43,691,222      43,731,370        42,508,674        38,814,722  
Common shares outstanding at period-end      43,323,753        43,288,750      43,271,676        43,222,184        38,269,789  
Dividend per share   $  0.12     $  0.11   $  0.11     $  0.11     $  0.11  
Book value per share   $  8.74     $  8.49   $  8.17     $  8.01     $  7.08  
Tangible book value per share   $  6.54     $  6.28   $  5.94     $  5.77     $  5.75  
                                 
KEY FINANCIAL RATIOS                                
(unaudited)                                
Annualized return on average equity      13.28      14.68    14.03      1.11      13.22
Annualized return on average tangible equity      17.90      20.08    19.36      1.49      16.30
Annualized return on average assets      1.58      1.64    1.54      0.12      1.29
Annualized return on average tangible assets      1.63      1.69    1.59      0.12      1.31
Net interest margin (fully tax equivalent)      4.38      4.42    4.36      4.30      4.13
Efficiency ratio      53.47      47.78    51.15      75.47      56.02
                                 
AVERAGE BALANCES                                
(in $000’s, unaudited)                                
Average assets   $  3,109,583     $  3,208,177   $  3,193,139     $  3,046,566     $  2,768,318  
Average tangible assets   $  3,014,029     $  3,112,065   $  3,096,703     $  2,961,335     $  2,717,152  
Average earning assets   $  2,885,591     $  2,980,207   $  2,965,926     $  2,826,786     $  2,598,954  
Average loans held-for-sale   $  3,125     $  5,435   $  7,076     $  3,410     $  3,246  
Average total loans   $  1,833,965     $  1,868,186   $  1,911,715     $  1,835,001     $  1,565,343  
Average deposits   $  2,637,308     $  2,752,120   $  2,749,026     $  2,622,580     $  2,404,327  
Average demand deposits - noninterest-bearing   $  1,024,142     $  1,107,813   $  1,071,638     $  991,902     $  945,848  
Average interest-bearing deposits   $  1,613,166     $  1,644,307   $  1,677,388     $  1,630,678     $  1,458,479  
Average interest-bearing liabilities   $  1,652,658     $  1,683,790   $  1,716,813     $  1,670,033     $  1,497,717  
Average equity   $  370,792     $  357,505   $  349,971     $  331,210     $  270,339  
Average tangible equity   $  275,238     $  261,393   $  253,535     $  245,979     $  219,173  


                             
    End of Period:   Percent Change From:  
CONSOLIDATED BALANCE SHEETS   March 31,    December 31,    March 31,    December 31,    March 31,   
(in $000’s, unaudited)   2019     2018   2018   2018   2018  
ASSETS                            
Cash and due from banks   $  38,699     $  30,273     $  30,454     28   27   %
Other investments and interest-bearing deposits                            
  in other financial institutions      196,278        134,295        271,535     46   (28 ) %
Securities available-for-sale, at fair value      452,521        459,043        344,766     (1 ) 31   %
Securities held-to-maturity, at amortized cost      367,023        377,198        395,274     (3 ) (7 ) %
Loans held-for-sale - SBA, including deferred costs      3,216        2,649        2,859     21   12   %
Loans:                            
Commercial      559,718        597,763        572,790     (6 ) (2 ) %
Real estate:                            
CRE      1,012,641        994,067        775,547     2   31   %
Land and construction      98,222        122,358        113,470     (20 ) (13 ) %
Home equity      118,448        109,112        76,087     9   56   %
Residential mortgages      49,786        50,979        42,868     (2 ) 16   %
Consumer      9,690        12,453        10,958     (22 ) (12 ) %
Loans      1,848,505        1,886,732        1,591,720     (2 ) 16   %
Deferred loan fees, net      (187 )      (327 )      (519 )   (43 ) (64 ) %
Total loans, net of deferred fees      1,848,318        1,886,405        1,591,201     (2 ) 16   %
Allowance for loan losses      (27,318 )      (27,848 )      (20,139 )   (2 ) 36   %
Loans, net      1,821,000        1,858,557        1,571,062     (2 ) 16   %
Company-owned life insurance      62,189        61,859        61,177     1   2   %
Premises and equipment, net      6,998        7,137        7,203     (2 ) (3 ) %
Goodwill      83,753        83,753        45,664     0   83   %
Other intangible assets      11,454        12,007        5,348     (5 ) 114   %
Accrued interest receivable and other assets      72,746        69,791        50,206     4   45   %
Total assets   $  3,115,877     $  3,096,562     $  2,785,548     1   12   %
                             
LIABILITIES AND SHAREHOLDERS’ EQUITY                            
Liabilities:                            
Deposits:                            
Demand, noninterest-bearing   $  1,016,770     $  1,021,582     $  975,846     0   4   %
Demand, interest-bearing      704,996        702,000        621,402     0   13   %
Savings and money market      759,306        754,277        688,217     1   10   %
Time deposits-under $250      56,385        58,661        49,861     (4 ) 13   %
Time deposits-$250 and over      90,042        86,114        71,446     5   26   %
CDARS - money market and time deposits      12,745        14,898        15,420     (14 ) (17 ) %
Total deposits      2,640,244        2,637,532        2,422,192     0   9   %
Subordinated debt, net of issuance costs      39,414        39,369        39,229     0   0   %
Accrued interest payable and other liabilities      57,703        52,195        53,136     11   9   %
Total liabilities      2,737,361        2,729,096        2,514,557     0   9   %
                             
Shareholders’ Equity:                            
Common stock      301,550        300,844        219,208     0   38   %
Retained earnings      85,953        79,003        66,739     9   29   %
Accumulated other comprehensive loss      (8,987 )      (12,381 )      (14,956 )   27   40   %
  Total Shareholders' Equity      378,516        367,466        270,991     3   40   %
  Total liabilities and shareholders’ equity   $  3,115,877     $  3,096,562     $  2,785,548     1   12   %


                               
    End of Period:
CONSOLIDATED BALANCE SHEETS   March 31,    December 31,    September 30,   June 30,   March 31, 
(in $000’s, unaudited)   2019   2018   2018   2018   2018
ASSETS                              
Cash and due from banks   $  38,699     $  30,273     $  40,831     $  46,340     $  30,454  
Other investments and interest-bearing deposits                              
  in other financial institutions      196,278        134,295        340,198        177,448        271,535  
Securities available-for-sale, at fair value      452,521        459,043        319,071        335,923        344,766  
Securities held-to-maturity, at amortized cost      367,023        377,198        375,732        388,603        395,274  
Loans held-for-sale - SBA, including deferred costs      3,216        2,649        6,344        5,745        2,859  
Loans:                              
Commercial      559,718        597,763        600,594        609,468        572,790  
Real estate:                              
CRE      1,012,641        994,067        988,491        1,030,884        775,547  
Land and construction      98,222        122,358        131,548        128,891        113,470  
Home equity      118,448        109,112        116,657        121,278        76,087  
Residential mortgages      49,786        50,979        52,441        54,367        42,868  
Consumer      9,690        12,453        9,932        12,060        10,958  
Loans      1,848,505        1,886,732        1,899,663        1,956,948        1,591,720  
Deferred loan fees, net      (187 )      (327 )      (276 )      (315 )      (519 )
Total loans, net of deferred fees      1,848,318        1,886,405        1,899,387        1,956,633        1,591,201  
Allowance for loan losses      (27,318 )      (27,848 )      (27,426 )      (26,664 )      (20,139 )
Loans, net      1,821,000        1,858,557        1,871,961        1,929,969        1,571,062  
Company-owned life insurance      62,189        61,859        61,630        61,414        61,177  
Premises and equipment, net      6,998        7,137        7,246        7,355        7,203  
Goodwill      83,753        83,753        83,752        84,417        45,664  
Other intangible assets      11,454        12,007        12,614        12,293        5,348  
Accrued interest receivable and other assets      72,746        69,791        73,531        73,700        50,206  
Total assets   $  3,115,877     $  3,096,562     $  3,192,910     $  3,123,207     $  2,785,548  
                               
LIABILITIES AND SHAREHOLDERS’ EQUITY                              
Liabilities:                              
Deposits:                              
Demand, noninterest-bearing   $  1,016,770     $  1,021,582     $  1,081,846     $  1,002,053     $  975,846  
Demand, interest-bearing      704,996        702,000        670,624        683,805        621,402  
Savings and money market      759,306        754,277        828,297        827,304        688,217  
Time deposits-under $250      56,385        58,661        68,194        72,030        49,861  
Time deposits-$250 and over      90,042        86,114        84,763        81,379        71,446  
CDARS - money market and time deposits      12,745        14,898        11,575        17,048        15,420  
Total deposits      2,640,244        2,637,532        2,745,299        2,683,619        2,422,192  
Subordinated debt, net of issuance costs      39,414        39,369        39,322        39,275        39,229  
Accrued interest payable and other liabilities      57,703        52,195        54,723        54,044        53,136  
Total liabilities      2,737,361        2,729,096        2,839,344        2,776,938        2,514,557  
                               
Shareholders’ Equity:                              
Common stock      301,550        300,844        300,208        299,224        219,208  
Retained earnings      85,953        79,003        70,531        62,911        66,739  
Accumulated other comprehensive loss      (8,987 )      (12,381 )      (17,173 )      (15,866 )      (14,956 )
  Total Shareholders' Equity      378,516        367,466        353,566        346,269        270,991  
  Total liabilities and shareholders’ equity   $  3,115,877     $  3,096,562     $  3,192,910     $  3,123,207     $  2,785,548  
                               



                             
    End of Period:   Percent Change From:  
CREDIT QUALITY DATA   March 31,    December 31,    March 31,    December 31,    March 31,   
(in $000’s, unaudited)   2019   2018   2018   2018   2018  
Nonaccrual loans - held-for-investment   $  15,958     $  13,699     $  3,637   16   339   %
Restructured and loans over 90 days past due                            
  and still accruing      1,357        1,188        158   14   759   %
  Total nonperforming loans      17,315        14,887        3,795   16   356   %
Foreclosed assets      —        —        —   N/A   N/A  
Total nonperforming assets   $  17,315     $  14,887     $  3,795   16   356   %
Other restructured loans still accruing   $  201     $  253     $  241   (21 ) (17 ) %
Net charge-offs (recoveries) during the quarter   $  (531 )   $  (280 )   $  25   (90 ) (2224 ) %
Provision (credit) for loan losses during the quarter   $  (1,061 )   $  142     $  506   (847 ) (310 ) %
Allowance for loan losses   $  27,318     $  27,848     $  20,139   (2 ) 36   %
Classified assets   $  25,176     $  23,409     $  30,763   8   (18 ) %
Allowance for loan losses to total loans      1.48      1.48      1.27 0   17   %
Allowance for loan losses to total nonperforming loans      157.77      187.06      530.67 (16 ) (70 ) %
Nonperforming assets to total assets      0.56      0.48      0.14 17   300   %
Nonperforming loans to total loans      0.94      0.79      0.24 19   292   %
Classified assets to Heritage Commerce Corp                            
  Tier 1 capital plus allowance for loan losses      8      8      12 0   (33 ) %
Classified assets to Heritage Bank of Commerce                            
  Tier 1capital plus allowance for loan losses      8      7      11 14   (27 ) %
                             
OTHER PERIOD-END STATISTICS                            
(in $000’s, unaudited)                            
Heritage Commerce Corp:                            
Tangible common equity (1)   $  283,309     $  271,706     $  219,979   4   29   %
Shareholders’ equity / total assets      12.15      11.87      9.73 2   25   %
Tangible common equity / tangible assets (2)      9.38      9.05      8.04 4   17   %
Loan to deposit ratio      70.01      71.52      65.69 (2 ) 7   %
Noninterest-bearing deposits / total deposits      38.51      38.73      40.29 (1 ) (4 ) %
Total risk-based capital ratio      15.6      15.0      14.7 4   6   %
Tier 1 risk-based capital ratio      12.6      12.0      11.7 5   8   %
Common Equity Tier 1 risk-based capital ratio      12.6      12.0      11.7 5   8   %
Leverage ratio      9.5      8.9      8.6 7   10   %
Heritage Bank of Commerce:                            
Total risk-based capital ratio      14.6      14.0      13.5 4   8   %
Tier 1 risk-based capital ratio      13.4      12.8      12.5 5   7   %
Common Equity Tier 1 risk-based capital ratio      13.4      12.8      12.5 5   7   %
Leverage ratio      10.1      9.4      9.1 7   11   %

(1) Represents shareholders’ equity minus goodwill and other intangible assets

(2) Represents shareholders’ equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets           
              

                                 
    End of Period:  
CREDIT QUALITY DATA   March 31,    December 31,    September 30,   June 30,   March 31,   
(in $000’s, unaudited)   2019     2018   2018   2018   2018  
Nonaccrual loans - held-for-investment   $  15,958     $  13,699     $  23,342     $  26,034   $  3,637  
Restructured and loans over 90 days past due                                
  and still accruing      1,357        1,188        1,373        511      158  
  Total nonperforming loans      17,315        14,887        24,715        26,545      3,795  
Foreclosed assets      —        —        —        —      —  
Total nonperforming assets   $  17,315     $  14,887     $  24,715     $  26,545   $  3,795  
Other restructured loans still accruing   $  201     $  253     $  334     $  265   $  241  
Net charge-offs (recoveries) during the quarter   $  (531 )   $  (280 )   $  (1,187 )   $  673   $  25  
Provision (credit) for loan losses during the quarter   $  (1,061 )   $  142     $  (425 )   $  7,198   $  506  
Allowance for loan losses   $  27,318     $  27,848     $  27,426     $  26,664   $  20,139  
Classified assets   $  25,176     $  23,409     $  30,546     $  32,264   $  30,763  
Allowance for loan losses to total loans      1.48      1.48      1.44      1.36    1.27
Allowance for loan losses to total nonperforming loans      157.77      187.06      110.97      100.45    530.67
Nonperforming assets to total assets      0.56      0.48      0.77      0.85    0.14
Nonperforming loans to total loans      0.94      0.79      1.30      1.36    0.24
Classified assets to Heritage Commerce Corp                                
  Tier 1 capital plus allowance for loan losses      8      8      10      11    12
Classified assets to Heritage Bank of Commerce                                
  Tier 1capital plus allowance for loan losses      8      7      10      11    11
                                 
OTHER PERIOD-END STATISTICS                                
(in $000’s, unaudited)                                
Heritage Commerce Corp:                                
Tangible common equity (1)   $  283,309     $  271,706     $  257,200     $  249,559   $  219,979  
Shareholders’ equity / total assets      12.15      11.87      11.07      11.09    9.73
Tangible common equity / tangible assets (2)      9.38      9.05      8.31      8.25    8.04
Loan to deposit ratio      70.01      71.52      69.19      72.91    65.69
Noninterest-bearing deposits / total deposits      38.51      38.73      39.41      37.34    40.29
Total risk-based capital ratio      15.6      15.0      14.4      13.5    14.7
Tier 1 risk-based capital ratio      12.6      12.0      11.5      10.7    11.7
Common Equity Tier 1 risk-based capital ratio      12.6      12.0      11.5      10.7    11.7
Leverage ratio      9.5      8.9      8.6      8.7    8.6
Heritage Bank of Commerce:                                
Total risk-based capital ratio      14.6      14.0      13.4      12.5    13.5
Tier 1 risk-based capital ratio      13.4      12.8      12.2      11.4    12.5
Common Equity Tier 1 risk-based capital ratio      13.4      12.8      12.2      11.4    12.5
Leverage ratio      10.1      9.4      9.1      9.3    9.1

(1)  Represents shareholders’ equity minus goodwill and other intangible assets
       
(2) 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  
    March 31, 2019   March 31, 2018  
          Interest   Average         Interest   Average  
NET INTEREST INCOME AND NET INTEREST MARGIN   Average   Income/   Yield/   Average   Income/   Yield/  
(in $000’s, unaudited)   Balance   Expense   Rate   Balance   Expense   Rate  
Assets:                                  
Loans, gross (1)(2)   $  1,837,090   $  26,807      5.92 $  1,568,589   $  22,284      5.76 %
Securities - taxable     741,288     4,509      2.47    695,003      3,862      2.25 %
Securities - exempt from Federal tax (3)      85,943     694      3.27    88,470      709      3.25 %
Other investments and interest-bearing deposits                                  
  in other financial institutions     221,270     1,585      2.91    246,892      1,171      1.92 %
Total interest earning assets (3)      2,885,591      33,595      4.72    2,598,954      28,026      4.37 %
Cash and due from banks      37,207                33,943            
Premises and equipment, net      7,090                7,303            
Goodwill and other intangible assets      95,554                51,166            
Other assets      84,141                76,952            
Total assets   $  3,109,583             $  2,768,318            
                                   
Liabilities and shareholders’ equity:                                  
Deposits:                                  
Demand, noninterest-bearing   $  1,024,142             $  945,848            
                                   
Demand, interest-bearing      701,702      618      0.36    608,523      302      0.20 %
Savings and money market      751,191      907      0.49    689,257      444      0.26 %
Time deposits - under $100      20,380      21      0.42    17,288      12      0.28 %
Time deposits - $100 and over      126,571      288      0.92    126,951      198      0.63 %
CDARS - money market and time deposits      13,322      2      0.06    16,460      2      0.05 %
Total interest-bearing deposits      1,613,166      1,836      0.46    1,458,479      958      0.27 %
Total deposits      2,637,308      1,836      0.28    2,404,327      958      0.16 %
                                   
Subordinated debt, net of issuance costs      39,386      571      5.88    39,199      571     5.91 %
Short-term borrowings      106      —     0.00    39      —     0.00 %
Total interest-bearing liabilities      1,652,658      2,407      0.59    1,497,717      1,529      0.41 %
Total interest-bearing liabilities and demand,                                   
  noninterest-bearing / cost of funds      2,676,800      2,407      0.36    2,443,565      1,529      0.25 %
Other liabilities      61,991                54,414            
Total liabilities      2,738,791                2,497,979            
Shareholders’ equity      370,792                270,339            
Total liabilities and shareholders’ equity   $  3,109,583             $  2,768,318            
                                   
Net interest income (3) / margin            31,188      4.38          26,497      4.13 %
Less tax equivalent adjustment (3)            (146 )                (149 )      
Net interest income         $  31,042               $  26,348        

 

(1) Includes loans held-for-sale.  Nonaccrual loans are included in average balance.
       
(2) Yield amounts earned on loans include fees and costs. The accretion (amortization) of deferred loan fees (costs) into loan interest income was $91,000 for the first quarter of 2019, compared to $217,000 for the first quarter of 2018.

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

                                   
    For the Quarter Ended   For the Quarter Ended  
    March 31, 2019   December 31, 2018  
          Interest   Average         Interest   Average  
NET INTEREST INCOME AND NET INTEREST MARGIN   Average   Income/   Yield/   Average   Income/   Yield/  
(in $000’s, unaudited)   Balance   Expense   Rate   Balance   Expense   Rate  
Assets:                                  
Loans, gross (1)(2)   $  1,837,090   $  26,807      5.92 $  1,873,621   $  28,364      6.01
Securities - taxable      741,288      4,509      2.47    692,903      4,099      2.35
Securities - exempt from Federal tax (3)      85,943      694      3.27    86,597      697      3.19
Other investments and interest-bearing deposits                                  
  in other financial institutions      221,270      1,585      2.91    327,086      2,365      2.87
Total interest earning assets (3)      2,885,591      33,595      4.72    2,980,207      35,525      4.73
Cash and due from banks      37,207                40,963            
Premises and equipment, net      7,090                7,201            
Goodwill and other intangible assets      95,554                96,112            
Other assets      84,141                83,694            
Total assets   $  3,109,583             $  3,208,177            
                                   
Liabilities and shareholders’ equity:                                  
Deposits:                                  
Demand, noninterest-bearing   $  1,024,142             $  1,107,813            
                                   
Demand, interest-bearing      701,702      618      0.36    678,983      566      0.33
Savings and money market      751,191      907      0.49    802,384      878      0.43
Time deposits - under $100      20,380      21      0.42    21,787      22      0.40
Time deposits - $100 and over      126,571      288      0.92    127,911      266      0.83
CDARS - money market and time deposits      13,322      2      0.06    13,242      2      0.06
Total interest-bearing deposits      1,613,166      1,836      0.46    1,644,307      1,734      0.42
Total deposits      2,637,308      1,836      0.28    2,752,120      1,734      0.25
                                   
Subordinated debt, net of issuance costs      39,386      571      5.88    39,341      583     5.88
Short-term borrowings      106      —     0.00    142      1     2.79
Total interest-bearing liabilities      1,652,658      2,407      0.59    1,683,790      2,318      0.55
Total interest-bearing liabilities and demand,                                   
  noninterest-bearing / cost of funds      2,676,800      2,407      0.36    2,791,603      2,318      0.33
Other liabilities      61,991                59,069            
Total liabilities      2,738,791                2,850,672            
Shareholders’ equity      370,792                357,505            
Total liabilities and shareholders’ equity   $  3,109,583             $  3,208,177            
                                   
Net interest income (3) / margin            31,188      4.38          33,207      4.42
Less tax equivalent adjustment (3)            (146 )                (147 )      
Net interest income         $  31,042               $  33,060        
                                   

(1)  Includes loans held-for-sale.  Nonaccrual loans are included in average balance.
       
(2) Yield amounts earned on loans include fees and costs. The accretion (amortization) of deferred loan fees (costs) into loan interest income was $91,000 for the first quarter of 2019, compared to $53,000 for the fourth quarter of 2018.

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

CONTACT:
Debbie Reuter
EVP, Corporate Secretary
Heritage Commerce Corp
Direct: (408) 494-4542