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

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

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

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

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

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

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

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

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

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

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

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

Credit Quality and Performance

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

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

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

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

Capital and Liquidity

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

Our liquidity position refers to our ability to maintain cash flows sufficient to fund operations, meet all of our obligations and commitments, and accommodate unexpected sudden changes in balances of loans and deposits in a timely manner. At various times the Company requires funds to meet short term cash requirements brought about by loan growth or deposit outflows, the purchase of assets, or liability repayments. An integral part of the Company’s ability to manage its liquidity position appropriately is the Company’s large base of core deposits, which are generated by offering traditional banking services in its service area and which have historically been a stable source of funds. To manage liquidity needs properly, cash inflows must be timed to coincide with anticipated outflows or sufficient liquidity resources must be available to meet varying demands. At December 31, 2020, the Company had a strong liquidity position with $1.13 billion in cash and cash equivalents, and $781.6 million in available borrowing capacity from sources including the Federal Home Loan Bank (“FHLB”), the Federal Reserve Bank of San Francisco (“FRB”), Federal funds facilities with several financial institutions, and a line of credit with a correspondent bank. The Company also had $498.5 million (at fair market value) in unpledged securities available at December 31, 2020. The loan to deposit ratio was 66.91% at December 31, 2020, compared to 74.20% at December 31, 2019, and decreased from 69.32% at September 30, 2020.

Fourth Quarter and Year Ended December 31, 2020
Operating Results, Balance Sheet Review, Capital Management, and Credit Quality
(as of, or for the periods ended December 31, 2020, compared to December 31, 2019, and September 30, 2020, except as noted):

Operating Results:

  • Diluted earnings per share were $0.19 for the fourth quarter of 2020, compared to $0.10 for the fourth quarter of 2019, and $0.19 for the third quarter of 2020. Diluted earnings per share were $0.59 for the year ended December 31, 2020, compared to $0.84 for the year ended December 31, 2019.
  • The following table indicates the ratios for the return on average tangible assets and the return on average tangible equity for the periods indicated:
    For the Quarter Ended   For the Year Ended
    December 31,    September 30,    December 31,    December 31,    December 31, 
(unaudited)   2020   2020   2019   2020   2019
Return on average tangible assets   1.02 %   1.02 %   0.57 %   0.83 %   1.25 %
Return on average tangible equity   11.75 %   11.41 %   5.96 %   9.04 %   13.09 %
  • Net interest income, before provision for credit losses on loans, decreased (13%) to $34.2 million for the fourth quarter of 2020, compared to $39.2 million for the fourth quarter of 2019, primarily due to decreases in the prime rate, and yield on investment securities and overnight funds. Net interest income remained flat for the fourth quarter of 2020, compared to $34.2 million for the third quarter of 2020. Net interest income increased 8% to $141.9 million for the year ended December 31, 2020, compared to $131.8 million for the year ended December 31, 2019, primarily due to an increase in the average balance of loans resulting from the Presidio Bank (“Presidio”) merger, additional interest and fee income from PPP loans, and an increase in the accretion of the loan discount into loan interest income from our merger with Presidio, partially offset by decreases in the prime rate, and decreases in the yield on investment securities and overnight funds.

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

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

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

    • The average yield on the total loan portfolio decreased to 4.93% for the fourth quarter of 2020, compared to 5.76% for the fourth quarter of 2019, primarily due to a decline in the average yield in the prime rate, new average balances of lower yielding PPP loans, and a decrease in the accretion of the loan purchase discount into loan interest income from the acquisitions.
    For the Quarter Ended   For the Quarter Ended  
    December 31, 2020   December 31, 2019  
    Average   Interest   Average   Average   Interest   Average  
(in $000’s, unaudited)   Balance   Income   Yield   Balance   Income   Yield  
Loans, core bank and asset-based lending   $ 2,256,944     $ 26,348   4.64 % $ 2,353,871     $ 30,786   5.19 %
SBA PPP loans     313,335       787   1.00 %           N/A  
PPP fees, net           1,935   2.46 %           N/A  
Bay View Funding factored receivables     50,720       2,856   22.40 %   45,045       2,888   25.44 %
Purchased residential mortgages     24,955       118   1.88 %   33,867       237   2.78 %
Purchased commercial real estate ("CRE") loans     20,854       176   3.36 %   28,407       238   3.32 %
Loan fair value mark / accretion     (12,017 )     687   0.12 %   (15,089 )     1,338   0.23 %
Total loans (includes loans held-for-sale)   $ 2,654,791     $ 32,907   4.93 % $ 2,446,101     $ 35,487   5.76 %


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


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


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


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


  In aggregate, the original total net purchase discount on loans from the Focus Business Bank, Tri-Valley Bank, United American Bank, and Presidio loan portfolio was $25.2 million. In aggregate, the remaining net purchase discount on total loans acquired was $12.1 million at December 31, 2020.
     
The average cost of total deposits was 0.14% for the fourth quarter of 2020, compared to 0.26% for the fourth quarter of 2019 and 0.16% for the third quarter of 2020. The average cost of total deposits was 0.17% for the year ended December 31, 2020, compared to 0.29% for the year ended December 31, 2019.
   
There was a credit of $1.3 million to the provision for credit losses on loans for the fourth quarter of 2020, compared to a $3.2 million provision for loan losses for the fourth quarter of 2019, and a $197,000 provision for credit losses on loans for the third quarter of 2020. There was a $13.2 million provision for credit losses on loans for the year ended December 31, 2020, compared to an $846,000 provision for loan losses for the year ended December 31, 2019. 
   
  The increase in the provision for credit losses on loans for the year ended December 31, 2020, compared to the year ended December 31, 2019, was driven primarily by a significantly deteriorated economic outlook resulting from the Coronavirus pandemic. The three loan classes where the largest increases in reserves were recorded under the Current Expected Credit Loss ("CECL") loss rate methodology were investor-owned CRE, land and construction, and commercial and industrial (“C&I”). Ongoing impacts of the CECL methodology will be dependent upon changes in economic conditions and forecasts, originated and acquired loan portfolio composition, portfolio duration, and other factors.
     
Total noninterest income was $2.1 million for the fourth quarter of 2020, compared to $2.4 million for the fourth quarter of 2019, primarily due to lower service charges and fees on deposit accounts. Total noninterest income decreased to $2.1 million for the fourth quarter of 2020 from $2.6 million for the third quarter of 2020, primarily due to a realized gain on warrants exercised during the third quarter of 2020.
   
  For the year ended December 31, 2020, total noninterest income was $9.9 million, compared to $10.2 million for the year ended December 31, 2019, primarily due to lower service charges and fees on deposit accounts, partially offset by an increase in the cash surrender value of life insurance, a gain realized on a warrant exercised, and a gain on the disposition of foreclosed assets during the first quarter of 2020.
     
Total noninterest expense for the fourth quarter of 2020 decreased to $21.6 million, compared to $30.6 million for the fourth quarter of 2019, primarily due to lower merger-related costs. Total noninterest expense for the fourth quarter of 2020 modestly increased compared to $21.2 million for the third quarter of 2020.
   
  Noninterest expense for the year ended December 31, 2020 increased to $89.5 million, compared to $84.9 million for the year ended December 31, 2019, primarily due to higher salaries and employee benefits as a result of annual salary increases, and additional employees and operating costs added as a result of the Presidio merger, partially offset by lower merger-related costs.
     
  The following table reflects pre-tax merger-related costs resulting from the merger with Presidio for the periods indicated:


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


  Full time equivalent employees were 330 at December 31, 2020, 357 at December 31, 2019, and 342 at September 30, 2020.
  • The efficiency ratio was 59.45% for the fourth quarter of 2020, compared to 73.58% for the fourth quarter of 2019, and 57.58% for the third quarter of 2020. The efficiency ratio for the year ended December 31, 2020 was 58.96%, compared to 59.76% for the year ended December 31, 2019.

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

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

Balance Sheet Review, Capital Management and Credit Quality:

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

  • Securities available-for-sale, at fair value, totaled $235.8 million at December 31, 2020, compared to $404.8 million at December 31, 2019, and $294.4 million at September 30, 2020. At December 31, 2020, the Company’s securities available-for-sale portfolio was comprised of $175.3 million of agency mortgage-backed securities (all issued by U.S. Government sponsored entities), and $60.5 million of U.S. Treasury securities. The pre-tax unrealized gain on securities available-for-sale at December 31, 2020 was $5.8 million, compared to a pre-tax unrealized gain on securities available-for-sale of $2.3 million at December 31, 2019, and a pre-tax unrealized gain on securities available-for-sale of $6.9 million at September 30, 2020. All other factors remaining the same, when market interest rates are decreasing, the Company will experience a higher unrealized gain (or a lower unrealized loss) on the securities portfolio.

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

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

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


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

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

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


(1) Provision (recapture) for credit losses on loans for the quarters ended December 31, 2020 and September 30, 2020, and the year ended December 31, 2020, 
  Provision for loan losses for the quarter and the year ended December 31, 2019 
(2) ACLL at December 31, 2020 and September 30, 2020, Allowance for loan losses ("ALLL") at December 31, 2019 
  • The ACLL was 1.70% of total loans at December 31, 2020 and the ACLL to total nonperforming loans was 564.24% at December 31, 2020. The ALLL was 0.92% of total loans and the ALLL to nonperforming loans was 236.93% at December 31, 2019. The ACLL was 1.68% of total loans at September 30, 2020 and the ACLL to total nonperforming loans was 442.62% at September 30, 2020. The ACLL was 1.91% of total loans, excluding PPP loans, at December 31, 2020, and September 30, 2020.

  • The following table shows the results of adopting CECL for the year ended December 31, 2020:
DRIVERS OF CHANGE IN ACLL UNDER CECL    
(in $000’s, unaudited)    
ALLL at December 31, 2019   $ 23,285  
Day 1 adjustment impact of adopting Topic 326     8,570  
ACLL at January 1, 2020     31,855  
Net (charge-offs) during the first quarter of 2020     (422 )
Portfolio changes during the first quarter of 2020     1,216  
Economic factors during the first quarter of 2020     12,054  
ACLL at March 31, 2020     44,703  
Net (charge-offs) during the second quarter of 2020     (373 )
Portfolio changes during the second quarter of 2020     (4,282 )
Qualitative and quantitative changes during the second      
quarter of 2020 including changes in economic forecasts     5,396  
ACLL at June 30, 2020     45,444  
Net (charge-offs) during the third quarter of 2020     (219 )
Portfolio changes during the third quarter of 2020     488  
Qualitative and quantitative changes during the third      
quarter of 2020 including changes in economic forecasts     (291 )
ACLL at September 30, 2020     45,422  
Net (charge-offs) during the fourth quarter of 2020     326  
Portfolio changes during the fourth quarter of 2020     (1,622 )
Qualitative and quantitative changes during the fourth      
quarter of 2020 including changes in economic forecasts     274  
ACLL at December 31, 2020   $ 44,400  
  • Net recoveries totaled $326,000 for the fourth quarter of 2020, compared to net charge-offs of $5.8 million for the fourth quarter of 2019, and net charge-offs of $219,000 for the third quarter of 2020.
  • The following is a breakout of NPAs at the periods indicated:
    End of Period:  
NONPERFORMING ASSETS   December 31, 2020   September 30, 2020   December 31, 2019  
(in $000’s, unaudited)   Balance   % of Total   Balance   % of Total   Balance   % of Total  
CRE loans   $ 3,706   47 % $ 4,328   42 % $ 5,094   52 %
Commercial loans     2,726   35 %   2,908   28 %   3,444   35 %
Consumer and other loans     407   5 %   1,464   14 %     0
%
Home equity loans     949   12 %   961   10 %   137   1 %
Restructured and loans over 90 days past due and still accruing     81   1 %   601   6 %   1,153   12 %
Total nonperforming assets   $ 7,869   100 % $ 10,262   100 % $ 9,828   100 %


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

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

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

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


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

  Deposits, excluding all time deposits and CDARS deposits, increased $510.1 million, or 16%, to $3.74 billion at December 31, 2020, compared to $3.23 billion at December 31, 2019. Deposits, excluding all time deposits and CDARS deposits remained relatively flat from $3.73 billion at September 30, 2020.
  • The Company’s consolidated capital ratios exceeded regulatory guidelines and the Bank’s capital ratios exceeded the regulatory guidelines under the Basel III prompt corrective action (“PCA”) regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at December 31, 2020, as reflected in the following table:
                Well-capitalized    
                Financial    
                Institution   Basel III
    Heritage   Heritage   Basel III PCA   Minimum
    Commerce   Bank of   Regulatory   Regulatory
CAPITAL RATIOS (unaudited)   Corp   Commerce   Guidelines   Requirement (1)
Total Risk-Based   16.5 %   15.8 %   10.0 %   10.5 %
Tier 1 Risk-Based   14.0 %   14.6 %   8.0 %   8.5 %
Common Equity Tier 1 Risk-Based   14.0 %   14.6 %   6.5 %   7.0 %
Leverage   9.1 %   9.5 %   5.0 %   4.0 %


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


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

                   
ACCUMULATED OTHER COMPREHENSIVE LOSS   December 31,    September 30,    December 31, 
(in $000’s, unaudited)   2020     2020     2019  
Unrealized gain on securities available-for-sale   $ 3,709     $ 4,495     $ 1,242  
Remaining unamortized unrealized gain on securities                  
available-for-sale transferred to held-to-maturity     261       271       297  
Split dollar insurance contracts liability     (6,140 )     (4,839 )     (4,835 )
Supplemental executive retirement plan liability     (8,767 )     (6,662 )     (6,842 )
Unrealized gain on interest-only strip from SBA loans     220       351       360  
Total accumulated other comprehensive loss   $ (10,717 )   $ (6,384 )   $ (9,778 )
  • Tangible equity was $393.6 million at December 31, 2020, compared to $388.9 million at December 31, 2019, and $392.5 million at September 30, 2020. Tangible book value per share was $6.57 at December 31, 2020, compared to $6.55 at December 31, 2019, and September 30, 2020.

D.C. Solar Litigation

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

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

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

Forward-Looking Statement Disclaimer

These forward-looking statements are subject to various risks and uncertainties that may be outside our control and our actual results could differ materially from our projected results. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission (“SEC”), Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and the following: (1) current and future economic and market conditions in the United States generally or in the communities we serve, including the effects of declines in property values and overall slowdowns in economic growth should these events occur; (2) effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Federal Open Market Committee of the Federal Reserve Board; (3) our ability to anticipate interest rate changes and manage interest rate risk; (4) changes in inflation, interest rates, and market liquidity which may impact interest margins and impact funding sources; (5) volatility in credit and equity markets and its effect on the global economy; (6) our ability to effectively compete with other banks and financial services companies and the effects of competition in the financial services industry on our business; (7) our ability to achieve loan growth and attract deposits; (8) risks associated with concentrations in real estate related loans; (9) the relative strength or weakness of the commercial and real estate markets where our borrowers are located, including related asset and market prices; (10) other than temporary impairment charges to our securities portfolio; (11) changes in the level of NPAs and charge offs and other credit quality measures, and their impact on the adequacy of the Company’s allowance for credit losses and the Company’s provision for credit losses; (12) increased capital requirements for our continual growth or as imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all; (13) regulatory limits on Heritage Bank of Commerce’s ability to pay dividends to the Company; (14) changes in our capital management policies, including those regarding business combinations, dividends, and share repurchases; (15) operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to industry changes in information technology systems, on which we are highly dependent; (16) our inability to attract, recruit, and retain qualified officers and other personnel could harm our ability to implement our strategic plan, impair our relationships with customers and adversely affect our business, results of operations and growth prospects; (17) possible adjustment of the valuation of our deferred tax assets; (18) our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks such as data security breaches, “denial of service” attacks, “hacking” and identity theft; (19) inability of our framework to manage risks associated with our business, including operational risk and credit risk; (20) risks of loss of funding of SBA or SBA loan programs, or changes in those programs; (21) compliance with governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities, accounting and tax matters; (22) significant changes in applicable laws and regulations, including those concerning taxes, banking and securities; (23) effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; (24) costs and effects of legal and regulatory developments, including resolution of regulatory or other governmental inquiries, and the results of regulatory examinations or reviews; (25) the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise; (26) availability of and competition for acquisition opportunities; (27) risks resulting from domestic terrorism; (28) risks of natural disasters (including earthquakes) and other events beyond our control; (29) the effect of the COVID-19 pandemic, and other infectious illness outbreaks that may arise in the future, on the Bank’s customers, employees, businesses, liquidity, financial results and overall condition and which has created significant uncertainties in U.S. and global markets, including our customers' ability to make timely payments on obligations, and operating expense due to alternative approaches to doing business; (30) changes in governmental policy and regulation, including measures taken in response to economic, business, political and social conditions, such as the SBA Paycheck Protection Program (“PPP”), the Federal Reserve Board's efforts to provide liquidity to the financial system and provide credit to private commercial and municipal borrowers, and other programs designed to address the effects of the COVID-19 pandemic; (31) the Bank's participation as a lender in the PPP and similar programs and its effect on the Bank's liquidity, financial results, businesses and customers, including the availability of program funds and the ability of customers to comply with requirements and otherwise perform with respect to loans obtained under such programs; (32) our success in managing the risks involved in the foregoing factors.

Member FDIC


For additional information, contact:
Debbie Reuter
EVP, Corporate Secretary
Direct: (408) 494-4542
Debbie.Reuter@herbank.com


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


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


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


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


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


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


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


(1) Provision (recapture) for credit losses on loans for the quarters ended December 31, 2020 and September 30, 2020, Provision for loan losses for the quarter ended December 31, 2019
(2) ACLL at December 31, 2020 and September 30, 2020, ALLL at December 31, 2019
(3) Represents shareholders' equity minus goodwill and other intangible assets
(4) Represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets


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


(1) Provision (recapture) for credit losses on loans for the quarters ended December 31, 2020, September 30, 2020, June 30, 2020 and March 31, 2020, Provision for loan losses for the quarter ended December 31, 2019
(2) ACLL at December 31, 2020, September 30, 2020, June 30, 2020 and March 31, 2020, ALLL at December 31, 2019
(3) Represents shareholders' equity minus goodwill and other intangible assets
(4) Represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets


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


(1) Includes loans held-for-sale. Nonaccrual loans are included in average balance.
(2) Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $2,120,000 for the fourth quarter of 2020 (of which $1,935,000 was from PPP loans), compared to $90,000 for the fourth quarter of 2019.
(3) Reflects the FTE adjustment for Federal tax-exempt income based on a 21%.


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


(1) Includes loans held-for-sale. Nonaccrual loans are included in average balance.
(2) Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $2,120,000 for the fourth quarter of 2020 (of which $1,935,000 was from PPP loans), compared to $1,441,000 for the third quarter of 2020 (of which $1,305,000 was from PPP loans).
(3) Reflects the FTE adjustment for Federal tax-exempt income based on a 21%.


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


 (1) Includes loans held-for-sale. Nonaccrual loans are included in average balance.
 (2) Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $4,473,000 for the year ended December 31, 2020 (of which $3,877,000 was from PPP loans), compared to $580,000 for the year ended December 31, 2019.
 (3) Reflects the FTE adjustment for Federal tax-exempt income based on a 21%.

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