Heritage Commerce Corporation

01/23/2025 | Press release | Distributed by Public on 01/23/2025 17:17

Heritage Commerce Corp Reports Robust Loan and Deposit Growth in 2024

SAN JOSE, Calif., Jan. 23, 2025 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (Nasdaq: HTBK), (the "Company"), the holding company for Heritage Bank of Commerce (the "Bank"), today announced that its fourth quarter 2024 net income was $10.6 million, or $0.17 per average diluted common share, compared to $10.5 million, or $0.17 per average diluted common share, for the third quarter of 2024, and $13.3 million, or $0.22 per average diluted common share, for the fourth quarter of 2023. For the year ended December 31, 2024, net income was $40.5 million, or $0.66 per average diluted common share, compared to $64.4 million, or $1.05 per average diluted common share, for the year ended December 31, 2023. All data are unaudited.

"Our earnings for both the fourth quarter of 2024 and the full year were fueled by excellent deposit growth and solid loan growth throughout our footprint," said Clay Jones, President and Chief Executive Officer. "Deposit balances grew 2% over the prior quarter and 10% year-over-year, driven by our team's success at cultivating local community commercial deposit relationships. Additionally, loan growth picked up during the fourth quarter, resulting in a 2% increase from the prior quarter and a 4% increase year-over-year."

"Our positive credit trends continued during the fourth quarter, with nonperforming assets and net charge-offs remaining low at December 31, 2024," said Mr. Jones. "During the fourth quarter, we continued to add to our loan reserves reflecting our solid loan growth while credit costs remained modest."

"Another highlight of the fourth quarter was the expansion of our net interest margin to 3.34% for the fourth quarter of 2024, compared to 3.17% for the third quarter of 2024. The quarterly net interest margin improvement was largely due to the reduction in our cost of funds following the recent rate reductions. With our solid capital ratios and strong balance sheet, we remain well positioned to benefit from stronger economic conditions. I want to thank our team members, clients, and the community for their efforts this year and for their unwavering support," said Mr. Jones.

Fourth Quarter Ended December 31, 2024
Operating Results, Liquidity Position, Financial Condition, Credit Quality, and Capital Management

(as of, or for the periods ended December 31, 2024, compared to September 30, 2024, and December 31, 2023, except as noted):

Operating Results:

  • The following table indicates the ratios for the annualized return on average equity, average tangible common equity, average assets and average tangible assets for the periods indicated:
For the Quarter Ended: For the Year Ended:
December 31, September 30, December 31, December 31, December 31,
(unaudited) 2024 2024 2023 2024 2023
Return on average equity 6.16 % 6.14 % 7.96 % 5.97 % 9.88 %
Return on average tangible common equity(1) 8.25 % 8.27 % 10.84 % 8.05 % 13.57 %
Return on average assets 0.75 % 0.78 % 1.00 % 0.76 % 1.22 %
Return on average tangible assets(1) 0.78 % 0.81 % 1.04 % 0.78 % 1.26 %
(1) This is a non-GAAP financial measure as defined and discussed under "Non-GAAP Financial Measures" below.

Net Interest Income:

  • Net interest income increased 11% to $44.2 million for the fourth quarter of 2024, compared to $39.9 million for the third quarter of 2024. The fully tax equivalent ("FTE") net interest margin increased 17 basis points to 3.34% for the fourth quarter of 2024 from 3.17% for the third quarter of 2024, primarily due to lower rates paid on customer deposits, an increase in the average balances of deposits resulting in an increase in the average balance of overnight funds, partially offset by a lower average yield on overnight funds.
  • Net interest income increased 4% to $44.2 million for the fourth quarter of 2024, compared to $42.3 million for the fourth quarter of 2023. The FTE net interest margin decreased (7) basis points to 3.34% for the fourth quarter of 2024, from 3.41% for the fourth quarter of 2023, primarily due to higher rates paid on customer deposits, and lower average yields on overnight funds and investment securities, partially offset by an increase in the average balances of loans and overnight funds.
  • For the year ended December 31, 2024, the net interest income decreased (11%) to $163.6 million, compared to $183.2 million for the year ended December 31, 2023. The FTE net interest margin decreased (42) basis points to 3.28% for the year ended December 31, 2024, from 3.70% for the year ended December 31, 2023, primarily due to higher rates paid on customer deposits, a decrease in the average balance of noninterest-bearing deposits, and a lower average yield on investment securities, partially offset by an increase in the average balances of loans and overnight funds.
  • The following tables set forth the estimated changes in the Company's annual net interest income and economic value of equity (a non-GAAP financial measure) that would result from the designated instantaneous parallel shift in interest rates noted, and assuming a flat balance sheet with consistent product mix, as of December 31, 2024:
Increase/(Decrease) in
Estimated Net
CHANGE IN INTEREST RATES (basis points) Interest Income (1)
(in $000's, unaudited) Amount Percent
+400 $ 27,272 14.0 %
+300 $ 20,340 10.5 %
+200 $ 13,451 6.9 %
+100 $ 6,590 3.4 %
0 - -
−100 $ (8,368 ) (4.3 ) %
−200 $ (19,659 ) (10.1 ) %
−300 $ (33,576 ) (17.3 ) %
−400 $ (54,794 ) (28.2 ) %
Increase/(Decrease) in
Estimated Economic
CHANGE IN INTEREST RATES (basis points) Value of Equity (1)
(in $000's, unaudited) Amount Percent
+400 $ 124,156 9.0 %
+300 $ 104,693 7.6 %
+200 $ 78,580 5.7 %
+100 $ 44,383 3.2 %
0 - -
−100 $ (71,172 ) (5.2 ) %
−200 $ (177,928 ) (13.0 ) %
−300 $ (314,451 ) (22.9 ) %
−400 $ (492,841 ) (35.9 ) %
(1) Computations of prospective effects of hypothetical interest rate changes are for illustrative purposes only, are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. These projections are forward-looking and should be considered in light of the Forward-Looking Statement Disclaimer below. Actual rates paid on deposits may differ from the hypothetical interest rates modeled due to competitive or market factors, which could affect any actual impact on net interest income.
  • The following tables present the average balance of loans outstanding, interest income, and the average yield for the periods indicated:
    • The average yield on the total loan portfolio increased to 5.53% for the fourth quarter of 2024, compared to 5.42% for the third quarter of 2024.
For the Quarter Ended For the Quarter Ended
December 31, 2024 September 30, 2024
Average Interest Average Average Interest Average
(in $000's, unaudited) Balance Income Yield Balance Income Yield
Loans, core bank $ 2,899,347 $ 39,852 5.47 % $ 2,867,076 $ 39,621 5.50 %
Prepayment fees - 35 0.00 % - 4 0.00 %
Bay View Funding factored receivables(1) 59,153 3,084 20.74 % 55,391 2,144 15.40 %
Purchased residential mortgages 434,846 3,732 3.41 % 441,294 3,779 3.41 %
Loan fair value mark / accretion (2,357 ) 429 0.06 % (2,621 ) 233 0.03 %
Total loans (includes loans held-for-sale) $ 3,390,989 $ 47,132 5.53 % $ 3,361,140 $ 45,781 5.42 %
• The average yield on the total loan portfolio increased to 5.53% for the fourth quarter of 2024, compared to 5.39% for the fourth quarter of 2023, primarily due to an increase in the yield on the core bank loan portfolio. The average yield on the total loan portfolio increased to 5.47% for the year ended December 31, 2024, compared to 5.45% for the year ended December 31, 2023, primarily due to an increase in the yield on the core bank loan portfolio.
For the Quarter Ended For the Quarter Ended
December 31, 2024 December 31, 2023
Average Interest Average Average Interest Average
(in $000's, unaudited) Balance Income Yield Balance Income Yield
Loans, core bank $ 2,899,347 $ 39,852 5.47 % $ 2,773,652 $ 37,674 5.39 %
Prepayment fees - 35 0.00 % - 91 0.01 %
Bay View Funding factored receivables 59,153 3,084 20.74 % 52,861 2,803 21.04 %
Purchased residential mortgages 434,846 3,732 3.41 % 459,268 3,812 3.29 %
Loan fair value mark / accretion (2,357 ) 429 0.06 % (3,352 ) 255 0.04 %
Total loans (includes loans held-for-sale) $ 3,390,989 $ 47,132 5.53 % $ 3,282,429 $ 44,635 5.39 %
For the Year Ended For the Year Ended
December 31, 2024 December 31, 2023
Average Interest Average Average Interest Average
(in $000's, unaudited) Balance Income Yield Balance Income Yield
Loans, core bank $ 2,848,206 $ 155,690 5.47 % $ 2,730,789 $ 147,028 5.38 %
Prepayment fees - 117 0.00 % - 484 0.02 %
Bay View Funding factored receivables(1) 55,717 10,980 19.71 % 62,642 13,426 21.43 %
Purchased residential mortgages 444,476 15,038 3.38 % 472,582 15,309 3.24 %
Loan fair value mark / accretion (2,737 ) 1,158 0.04 % (3,819 ) 1,381 0.05 %
Total loans (includes loans held-for-sale) $ 3,345,662 $ 182,983 5.47 % $ 3,262,194 $ 177,628 5.45 %
(1) Interest income for the third quarter of 2024 and the year ended December 31, 2024 was reduced by an immaterial out-of-period adjustment of ($804,000).
• In aggregate, the unamortized net purchase discount on total loans acquired was $2.1 million at December 31, 2024.
  • The following table presents the average balance of deposits and interest-bearing liabilities, interest expense, and the average rate for the periods indicated:
For the Quarter Ended For the Quarter Ended
December 31, 2024 September 30, 2024
Average Interest Average Average Interest Average
(in $000's, unaudited) Balance Expense Rate Balance Expense Rate
Deposits:
Demand, noninterest-bearing $ 1,222,393 $ 1,172,304
Demand, interest-bearing 906,581 $ 1,452 0.64 % 907,346 $ 1,714 0.75 %
Savings and money market 1,339,397 9,090 2.70 % 1,188,057 9,128 3.06 %
Time deposits - under $100 11,388 49 1.71 % 11,133 47 1.68 %
Time deposits - $100 and over 234,446 2,310 3.92 % 229,565 2,349 4.07 %
Insured Cash Sweep ("ICS")/Certificate of Deposit Registry
Service ("CDARS") - interest-bearing demand, money market and time deposits 1,057,286 7,009 2.64 % 1,017,541 7,747 3.03 %
Total interest-bearing deposits 3,549,098 19,910 2.23 % 3,353,642 20,985 2.49 %
Total deposits 4,771,491 19,910 1.66 % 4,525,946 20,985 1.84 %
Short-term borrowings 28 - 0.00 % 32 - 0.00 %
Subordinated debt, net of issuance costs 39,629 538 5.40 % 39,590 538 5.41 %
Total interest-bearing liabilities 3,588,755 20,448 2.27 % 3,393,264 21,523 2.52 %
Total interest-bearing liabilities and demand, noninterest-bearing / cost of funds $ 4,811,148 $ 20,448 1.69 % $ 4,565,568 $ 21,523 1.88 %
• The average cost of total deposits decreased to 1.66% for the fourth quarter of 2024, compared to 1.84% for the third quarter of 2024, reflecting our success in reducing the rates on client deposits following the recent interest rate reductions. The average cost of funds decreased to 1.69% for the fourth quarter of 2024, compared to 1.88% for the third quarter of 2024. The average cost of deposits was 1.43% and the average cost of funds was 1.46% for the fourth quarter of 2023.
• The average cost of total deposits increased to 1.70% for the year ended December 31, 2024, compared to 1.06% for the year ended December 31, 2023. The average cost of funds increased to 1.74% for the year ended December 31, 2024, compared to 1.13% for the year ended December 31, 2023.

Provision for Credit Losses on Loans:

  • During the fourth quarter of 2024, we recorded a provision for credit losses on loans of $1.3 million, compared to a $153,000 provision for credit losses on loans for the third quarter of 2024, and a provision for credit losses on loans of $289,000 for the fourth quarter of 2023. The addition to the allowance for credit on losses on loans reflects our loan growth, credit assessment, and economic factors.
  • There was a provision for credit losses on loans of $2.1 million for the year ended December 31, 2024, compared to a $749,000 provision for credit losses on loans for the year ended December 31, 2023, primarily due to the increase in the balance of total loans, and an increase in specific reserves for individually analyzed loans.

Noninterest Income:

  • Total noninterest income remained relatively flat at $2.2 million for both the fourth and third quarters of 2024. Total noninterest income increased 13% to $2.2 million for the fourth quarter of 2024, compared to $1.9 million for the fourth quarter of 2023, primarily due to a higher gain on sales of SBA loans.
  • Total noninterest income decreased (3%) to $8.7 million for the year ended December 31, of 2024, compared to $9.0 million for the year ended December 31, 2023, primarily due to lower service charges and fees on deposit accounts, partially offset by higher income in various other noninterest income categories.

Noninterest Expense:

  • Total noninterest expense for the fourth quarter of 2024 increased to $30.3 million, compared to $27.6 million for the third quarter of 2024, primarily due to one-time personnel related expenses and legal fees of approximately $1.1 million, higher professional fees, homeowner association vendor payments, and information technology related expenses. Total noninterest expense for the fourth quarter of 2024 increased to $30.3 million, compared to $25.5 million for the fourth quarter of 2023, primarily due to one-time personnel related expenses and legal fees, professional fees, and homeowner association vendor payments.
  • Total noninterest expense for the year ended December 31, 2024 increased to $113.6 million, compared to $101.1 million for the year ended December 31, 2023, primarily due to higher salaries and employee benefits, rent expense, professional fees, marketing related expenses, insurance expense, homeowner association vendor payments, and ICS/CDARS fee expense.
  • Full time equivalent employees were 355 at December 31, 2024 compared to 353 at September 30, 2024, and 349 at December 31, 2023.
  • The efficiency ratio was 65.35% for the fourth quarter of 2024, compared to 65.37% for the third quarter of 2024, and 57.62% for the fourth quarter of 2023. The increase in the efficiency ratio for the fourth quarter of 2024, compared to the fourth quarter of 2023 was primarily due to higher noninterest expense. The efficiency ratio increased to 65.88% for the year ended December 31, 2024 compared to 52.57% for the year ended December 31, 2023. The increase in the efficiency ratio for the year ended December 31, 2024, compared to the year ended December 31, 2023, was due to both higher noninterest expense and lower net revenue. The efficiency ratio is a non-GAAP financial measure as defined and discussed under "Non-GAAP Financial Measures" below.

Income Tax Expense:

  • Income tax expense was $4.1 million for the fourth quarter of 2024, compared to $3.9 million for the third quarter of 2024, and $5.1 million for the fourth quarter of 2023. The effective tax rate for the fourth quarter of 2024 was 27.9%, compared to 27.3% for the third quarter of 2024, and 27.8% for the fourth quarter of 2023.
  • Income tax expense for the year ended December 31, 2024 was $16.1 million, compared to $26.0 million for the year ended December 31, 2023. The effective tax rate for the year ended December 31, 2024 was 28.5%, compared to 28.7% for the year ended December 31, 2023.

Liquidity Position, Financial Condition, Credit Quality, and Capital Management:

Liquidity and Available Lines of Credit:

  • The following table shows our liquidity, available lines of credit and the amounts outstanding at December 31, 2024:
LIQUIDITY AND AVAILABLE LINES OF CREDIT Total Remaining
(in $000's, unaudited) Available Outstanding Available
Excess funds at the Federal Reserve Bank ("FRB") $ 935,400 $ - $ 935,400
FRB discount window collateralized line of credit 1,383,149 - 1,383,149
Federal Home Loan Bank collateralized borrowing capacity 815,760 - 815,760
Unpledged investment securities (at fair value) 94,088 - 94,088
Federal funds purchase arrangements 90,000 - 90,000
Holding company line of credit 25,000 - 25,000
Total $ 3,343,397 $ - $ 3,343,397
• The Company's total available liquidity and borrowing capacity was $3.3 billion at December 31, 2024, compared to $3.2 billion at September 30, 2024, and $2.9 billion at December 31, 2023.
• The available liquidity and borrowing capacity was 69% of the Company's total deposits and approximately 155% of the Bank's estimated uninsured deposits at December 31, 2024.
• The loan to deposit ratio was 72.45% at December 31, 2024, compared to 72.11% at September 30, 2024, and 76.52% at December 31, 2023.
  • Total assets increased 2% to $5.65 billion at December 31, 2024, compared to $5.55 billion at September 30, 2024, and increased 9% from $5.19 billion at December 31, 2023, primarily related to growth in client deposits.

Investment Securities:

  • Investment securities totaled $846.3 million at December 31, 2024, of which $256.3 million were in the securities available-for-sale portfolio (at fair value), and $590.0 million were in the securities held-to-maturity portfolio (at amortized cost, net of allowance for credit losses of $12,000). The fair value of the securities held-to-maturity portfolio was $497.0 million at December 31, 2024.
  • The following table shows the balances of securities available-for-sale, at fair value, and the related pre-tax unrealized (loss) at the dates indicated:
SECURITIES AVAILABLE-FOR-SALE December 31, September 30, December 31,
(in $000's, unaudited) 2024
2024
2023
Balance (at fair value):
U.S. Treasury $ 186,183 $ 184,162 $ 382,369
Agency mortgage-backed securities 70,091 53,450 60,267
Total $ 256,274 $ 237,612 $ 442,636
Pre-tax unrealized (loss):
U.S. Treasury $ (912 ) $ (1,440 ) $ (5,621 )
Agency mortgage-backed securities (4,148 ) (2,923 ) (4,313 )
Total $ (5,060 ) $ (4,363 ) $ (9,934 )
Weighted average life (years) 1.57 1.39 1.29
• The pre-tax unrealized (loss) on the securities available-for-sale portfolio was ($5.1) million, or ($3.7) million net of taxes, which equaled less than 1% of total shareholders' equity at December 31, 2024.
• During the fourth quarter of 2024, the Company purchased $20.5 million of agency mortgage-backed securities and $9.8 million of U.S. Treasury securities, for total purchases of $30.3 million in the available-for-sale portfolio. Securities purchased had a book yield of 4.79% and an average life of 4.80 years.
  • The following table shows the balances of securities held-to-maturity, at amortized cost, and the related pre-tax unrecognized (loss) and allowance for credit losses at the dates indicated:
SECURITIES HELD-TO-MATURITY December 31, September 30, December 31,
(in $000's, unaudited) 2024
2024
2023
Balance (at amortized cost):
Agency mortgage-backed securities $ 559,548 $ 573,621 $ 618,374
Municipals - exempt from Federal tax(1) 30,480 30,584 32,203
Total(1) $ 590,028 $ 604,205 $ 650,577
Pre-tax unrecognized (loss):
Agency mortgage-backed securities $ (91,585 ) $ (71,996 ) $ (85,729 )
Municipals - exempt from Federal tax (1,431 ) (676 ) (721 )
Total $ (93,016 ) $ (72,672 ) $ (86,450 )
Allowance for credit losses on municipal securities $ (12 ) $ (12 ) $ (12 )
Weighted average life (years) 6.35 5.94 6.57
(1) Gross of the allowance for credit losses of ($12,000) at December 31, 2024, and September 30, 2024, and December 31, 2023.
• The pre-tax unrecognized (loss) on the securities held-to-maturity portfolio was ($93.0) million, or ($65.5) million net of taxes, which equaled 9.5% of total shareholders' equity at December 31, 2024.
• The weighted average life of the securities held-to-maturity portfolio was 6.35 years at December 31, 2024, which includes Community Reinvestment Act mortgage-backed securities with longer maturities.
  • The unrealized and unrecognized losses in both the available-for-sale and held-to-maturity portfolios were due to higher interest rates at December 31, 2024 compared to when the securities were purchased. The issuers are of high credit quality and all principal amounts are expected to be repaid when the securities mature. The fair value is expected to recover as the securities approach their maturity date and/or market rates decline.
  • The following are the actual and/or projected cash flows from paydowns and maturities in the investment securities portfolio for the periods indicated based on the current interest rate environment:
Agency
Mortgage-
PROJECTED INVESTMENT SECURITIES U.S. backed and
PAYDOWNS & MATURITIES Treasury Municipal
(in $000's, unaudited) (Par Value) Securities Total
First quarter of 2025 $ 35,000 $ 20,986 $ 55,986
Second quarter of 2025 118,000 19,666 137,666
Third quarter of 2025 25,500 20,822 46,322
Fourth quarter of 2025 - 19,228 19,228
Total $ 178,500 $ 80,702 $ 259,202
• The weighted average life of the total investment securities portfolio was 4.88 years at December 31, 2024, compared to 4.62 years at September 30, 2024, and 4.40 years at December 31, 2023.

Loans:

  • The following table summarizes the distribution of loans, excluding loans held-for-sale, and the percentage of distribution in each category at the dates indicated:
LOANS December 31, 2024 September 30, 2024 December 31, 2023
(in $000's, unaudited) Balance % to Total Balance % to Total Balance % to Total
Commercial $ 531,350 15 % $ 481,266 14 % $ 463,778 14 %
Real estate:
CRE(1) - owner occupied 601,636 17 % 602,062 18 % 583,253 17 %
CRE(1) - non-owner occupied 1,341,266 38 % 1,310,578 38 % 1,256,590 37 %
Land and construction 127,848 4 % 125,761 4 % 140,513 4 %
Home equity 127,963 4 % 124,090 4 % 119,125 4 %
Multifamily 275,490 8 % 273,103 8 % 269,734 8 %
Residential mortgages 471,730 14 % 479,524 14 % 496,961 15 %
Consumer and other 14,837 < 1 % 14,179 < 1 % 20,919 1 %
Total Loans 3,492,120 100 % 3,410,563 100 % 3,350,873 100 %
Deferred loan costs (fees), net (183 ) - (327 ) - (495 ) -
Loans, net of deferred costs and fees $ 3,491,937 100 % $ 3,410,236 100 % $ 3,350,378 100 %
(1) Commercial Real Estate
• Loans, excluding loans held-for-sale, increased $81.7 million, or 2%, to $3.5 billion at December 31, 2024 from $3.4 billion at September 30, 2024, and increased $141.6 million, or 4%, from $3.4 billion at December 31, 2023. Loans, excluding residential mortgages, increased $89.5 million, or 3%, to $3.0 billion at December 31, 2024 from $2.9 billion at September 30, 2024, and increased $166.8 million, or 6%, from $2.9 billion at December 31, 2023.
• Commercial and industrial line utilization was 34% at December 31, 2024, compared to 31% at September 30, 2024, and 29% at December 31, 2023.
• CRE loans totaled $1.9 billion at December 31, 2024, of which 31% were owner occupied and 69% were investor CRE loans. Owner occupied CRE loans totaled 31% at September 30, 2024 and 32% at December 31, 2023.
• During the fourth quarter of 2024, there were 39 new owner occupied and non-owner occupied CRE loans originated totaling $72 million with a weighted average loan-to-value ("LTV") of 42%; the weighted average debt-service coverage ratio ("DSCR") for the non-owner occupied portfolio was 2.58 times.
• The average loan size for all CRE loans was $1.6 million, and the average loan size for office CRE loans was $1.7 million.
• The Company has personal guarantees on 92% of its CRE portfolio. A substantial portion of the unguaranteed CRE loans were made to credit-worthy non-profit organizations.
• Total office exposure (excluding medical/dental offices) in the CRE portfolio was $413 million, including 34 loans totaling approximately $74 million in San Jose, 18 loans totaling approximately $25 million in San Francisco, and eight loans totaling approximately $16 million in Oakland, at December 31, 2024. Non-owner occupied CRE with office exposure totaled $322 million at December 31, 2024. At December 31, 2024, the weighted average LTV and DSCR for the entire non-owner occupied office portfolio were 41.5% and 2.16 times, respectively. Total medical/dental office exposure in the non-owner occupied CRE portfolio consisted of 15 loans totaling $12.3 million, with a weighted average LTV and DSCR of 37.1% and 3.05 times, respectively, at December 31, 2024.
• The following table presents the weighted average LTV and DSCR by collateral type for CRE loans at December 31, 2024:
CRE - Non-owner Occupied CRE - Owner Occupied Total CRE
COLLATERAL TYPE Outstanding LTV DSCR Outstanding LTV Outstanding LTV
Retail 26 % 37.4 % 2.18 16 % 46.1 % 24 % 38.9 %
Industrial 18 % 38.7 % 2.98 33 % 42.9 % 22 % 40.3 %
Mixed-Use, Special Purpose and Other 19 % 41.6 % 1.99 35 % 40.6 % 22 % 41.2 %
Office 20 % 41.5 % 2.16 16 % 44.1 % 19 % 42.1 %
Multifamily 17 % 42.9 % 1.91 0 % 0.0 % 13 % 42.9 %
Hotel/Motel < 1 % 16.3 % 1.32 0 % 0.0 % < 1 % 16.3 %
Total 100 % 40.0 % 2.24 100 % 42.8 % 100 % 40.8 %
• The following table presents the weighted average LTV and DSCR by county for CRE loans at December 31, 2024:
CRE - Non-owner Occupied CRE - Owner Occupied Total CRE
COUNTY Outstanding LTV DSCR Outstanding LTV Outstanding LTV
Alameda 25 % 43.8 % 1.92 19 % 45.3 % 23 % 44.1 %
Contra Costa 7 % 41.6 % 1.77 8 % 46.9 % 7 % 43.1 %
Marin 6 % 45.9 % 2.02 1 % 51.7 % 5 % 46.3 %
Monterey 2 % 42.8 % 1.82 2 % 40.8 % 2 % 42.1 %
Napa < 1 % 29.1 % 2.40 1 % 51.6 % < 1 % 36.8 %
Out of Area 9 % 42.3 % 2.04 9 % 48.9 % 9 % 44.0 %
San Benito 1 % 38.3 % 1.84 3 % 39.3 % 2 % 38.7 %
San Francisco 9 % 37.3 % 2.19 4 % 39.5 % 8 % 37.6 %
San Mateo 11 % 38.1 % 2.33 15 % 40.0 % 12 % 38.7 %
Santa Clara 24 % 36.9 % 2.80 34 % 40.7 % 27 % 38.3 %
Santa Cruz 2 % 32.2 % 1.75 1 % 49.6 % 2 % 35.5 %
Solano 1 % 32.5 % 2.91 1 % 37.5 % 1 % 33.9 %
Sonoma 3 % 38.7 % 2.58 2 % 42.8 % 2 % 39.6 %
Total 100 % 40.0 % 2.24 100 % 42.8 % 100 % 40.8 %
  • The following table presents the maturity distribution of the Company's loans, excluding loans held-for-sale, as of December 31, 2024. The table shows the distribution of such loans between those loans with predetermined (fixed) interest rates and those with variable (floating) interest rates. Floating rates generally fluctuate with changes in the prime rate and contractual repricing dates.
Due in Over One Year But
LOAN MATURITIES One Year or Less Less than Five Years Over Five Years
(in $000's, unaudited) Balance % to Total Balance % to Total Balance % to Total Total
Loans with variable interest rates $ 469,400 52 % $ 188,849 21 % $ 236,771 26 % $ 895,020
Loans with fixed interest rates 163,977 6 % 815,903 31 % 1,617,220 62 % 2,597,100
Loans $ 633,377 18 % $ 1,004,752 29 % $ 1,853,991 53 % $ 3,492,120
• At December 31, 2024, approximately 26% of the Company's loan portfolio consisted of floating interest rate loans, compared to 25% at September 30, 2024 and 27% at December 31, 2023.

Credit Quality:

  • The following table summarizes the allowance for credit losses on loans ("ACLL") for the periods indicated:
At or For the Quarter Ended: At or For the Year Ended:
ALLOWANCE FOR CREDIT LOSSES ON LOANS December 31, September 30, December 31, December 31, December 31,
(in $000's, unaudited) 2024
2024
2023
2024
2023
Balance at beginning of period $ 47,819 $ 47,954 $ 47,702 $ 47,958 $ 47,512
Charge-offs during the period (262 ) (474 ) (160 ) (1,604 ) (1,011 )
Recoveries during the period 65 186 127 460 708
Net charge-offs during the period (197 ) (288 ) (33 ) (1,144 ) (303 )
Provision for credit losses on loans during the period 1,331 153 289 2,139 749
Balance at end of period $ 48,953 $ 47,819 $ 47,958 $ 48,953 $ 47,958
Total loans, net of deferred fees $ 3,491,937 $ 3,410,236 $ 3,350,378 $ 3,491,937 $ 3,350,378
Total nonperforming loans $ 7,667 $ 7,158 $ 7,707 $ 7,667 $ 7,707
ACLL to total loans 1.40 % 1.40 % 1.43 % 1.40 % 1.43 %
ACLL to total nonperforming loans 638.49 % 668.05 % 622.27 % 638.49 % 622.27 %
• The following table shows the drivers of change in ACLL for the four quarters of 2024:
DRIVERS OF CHANGE IN ACLL
(in $000's, unaudited)
ACLL at December 31, 2023 $ 47,958
Portfolio changes during the first quarter of 2024 (234 )
Qualitative and quantitative changes during the first quarter of 2024 including changes in economic forecasts 164
ACLL at March 31, 2024 47,888
Portfolio changes during the second quarter of 2024 616
Qualitative and quantitative changes during the second quarter of 2024 including changes in economic forecasts (550 )
ACLL at June 30, 2024 47,954
Portfolio changes during the third quarter of 2024 599
Qualitative and quantitative changes during the third quarter of 2024 including changes in economic forecasts (734 )
ACLL at September 30, 2024 47,819
Portfolio changes during the fourth quarter of 2024 1,912
Qualitative and quantitative changes during the fourth quarter of 2024 including changes in economic forecasts (778 )
ACLL at December 31, 2024 $ 48,953
  • The following is a breakout of nonperforming assets ("NPAs") at the dates indicated:
NONPERFORMING ASSETS December 31, 2024 September 30, 2024 December 31, 2023
(in $000's, unaudited) Balance % of Total Balance % of Total Balance % of Total
Land and construction loans $ 5,874 77 % $ 5,862 82 % $ 4,661 60 %
Commercial loans 1,014 13 % 752 11 % 1,236 16 %
Loans over 90 days past due and still accruing 489 6 % 460 6 % 889 12 %
Home equity and other loans 290 4 % 84 1 % 779 10 %
Residential mortgages - 0 % - 0 % 142 2 %
CRE loans - 0 % - 0 % - 0 %
Total nonperforming assets $ 7,667 100 % $ 7,158 100 % $ 7,707 100 %


There were 9 borrowers included in NPAs totaling $7.7 million, or 0.14% of total assets, at December 31, 2024, compared to 10 borrowers totaling $7.2 million, or 0.13% of total assets at September 30, 2024, and 12 borrowers totaling $7.7 million, or 0.15% of total assets, at December 31, 2023.

• There were no CRE loans in NPAs at December 31, 2024, September 30, 2024, or December 31, 2023.
• There were no foreclosed assets on the balance sheet at December 31, 2024, September 30, 2024, or December 31, 2023.
• There were no Shared National Credits ("SNCs") or material purchased participations included in NPAs or total loans at December 31, 2024, September 30, 2024, or December 31, 2023.
  • Classified assets totaled $41.7 million, or 0.74% of total assets, at December 31, 2024, compared to $32.6 million, or 0.59% of total assets, at September 30, 2024, and $31.8 million, or 0.61% of total assets, at December 31, 2023. The increase in classified assets at December 31, 2024 was primarily the result of one downgraded owner occupied CRE credit, and a number of residential related loans. The loans are well-collateralized and we do not anticipate to incur losses as a result of the downgrades of these loans.

Deposits:

  • The following table summarizes the distribution of deposits and the percentage of distribution in each category at the dates indicated:
DEPOSITS December 31, 2024 September 30, 2024 December 31, 2023
(in $000's, unaudited) Balance % to Total Balance % to Total Balance % to Total
Demand, noninterest-bearing $ 1,214,192 25 % $ 1,272,139 27 % $ 1,292,486 30 %
Demand, interest-bearing 936,587 19 % 913,910 19 % 914,066 21 %
Savings and money market 1,325,923 28 % 1,309,676 28 % 1,087,518 25 %
Time deposits - under $250 38,988 1 % 39,060 1 % 38,055 1 %
Time deposits - $250 and over 206,755 4 % 196,945 4 % 192,228 4 %
ICS/CDARS - interest-bearing demand,
money market and time deposits 1,097,586 23 % 997,803 21 % 854,105 19 %
Total deposits $ 4,820,031 100 % $ 4,729,533 100 % $ 4,378,458 100 %
• Total deposits increased $90.5 million, or 2%, to $4.8 billion at December 31, 2024, compared to $4.7 billion at September 30, 2024, and increased $441.6 million, or 10% from $4.4 billion at December 31, 2023.
• The Company had 25,427 deposit accounts at December 31, 2024, with an average balance of $190,000. At September 30, 2024, the Company had 25,373 deposit accounts, with an average balance of $186,000. At December 31, 2023, the Company had 24,737 deposit accounts, with an average balance of $177,000.
• Deposits from the Bank's top 100 client relationships, representing 22% of the total number of accounts, totaled $2.2 billion, representing 47% of total deposits, with an average account size of $400,000 at December 31, 2024. At September 30, 2024, deposits from the Bank's top 100 client relationships, representing 22% of the total number of accounts, totaled $2.2 billion, representing 47% of total deposits, with an average account size of $394,000. At December 31, 2023, deposits from the Bank's top 100 client relationships, representing 22% of the total number of accounts, totaled $2.0 billion, representing 45% of total deposits, with an average account size of $368,000.
• The Bank's uninsured deposits were approximately $2.2 billion, or 45% of the Company's total deposits, at December 31, 2024, compared to $2.2 billion, or 47% of the Company's total deposits, at September 30, 2024, and $2.0 billion, or 46% of the Company's total deposits, at December 31, 2023.

Capital Management:

  • In July 2024, the Company announced that its Board of Directors adopted a share repurchase program under which the Company is authorized to repurchase up to $15 million of the Company's shares of its issued and outstanding common stock. The Company did not repurchase any of its common stock during the third or fourth quarters of 2024.
  • The Company's consolidated capital ratios exceeded regulatory guidelines and the Bank's capital ratios exceeded regulatory guidelines under the prompt corrective action ("PCA") regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at December 31, 2024, as reflected in the following table:
Well-capitalized
Financial
Institution Basel III
Heritage Heritage PCA Minimum
Commerce Bank of Regulatory Regulatory
CAPITAL RATIOS (unaudited) Corp Commerce Guidelines Requirements (1)
Total Capital 15.6 % 15.1 % 10.0 % 10.5 %
Tier 1 Capital 13.4 % 13.9 % 8.0 % 8.5 %
Common Equity Tier 1 Capital 13.4 % 13.9 % 6.5 % 7.0 %
Tier 1 Leverage 9.6 % 10.0 % 5.0 % 4.0 %
Tangible common equity / tangible assets(2) 9.4 % 9.8 % N/A N/A
(1) Basel III minimum regulatory requirements for both the Company and the Bank include a 2.5% capital conservation buffer, except the Tier 1 Leverage ratio.
(2) This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets.
  • The following table reflects the components of accumulated other comprehensive loss, net of taxes, at the dates indicated:
ACCUMULATED OTHER COMPREHENSIVE LOSS December 31, September 30, December 31,
(in $000's, unaudited) 2024
2024
2023
Unrealized loss on securities available-for-sale $ (3,656 ) $ (3,161 ) $ (7,116 )
Split dollar insurance contracts liability (2,339 ) (2,965 ) (2,809 )
Supplemental executive retirement plan liability (2,173 ) (2,838 ) (2,892 )
Unrealized gain on interest-only strip from SBA loans 63 72 87
Total accumulated other comprehensive loss $ (8,105 ) $ (8,892 ) $ (12,730 )
  • Tangible common equity was $515.7 million at December 31, 2024, compared to $510.8 million at September 30, 2024, and $496.6 million at December 31, 2023. Tangible book value per share was $8.41 at December 31, 2024, compared to $8.33 at September 30, 2024, and $8.12 at December 31, 2023. Tangible common equity and tangible book value per share are non-GAAP financial measures.

Heritage Commerce Corp, a bank holding company established in October 1997, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose, CA with full-service branches in Danville, Fremont, Gilroy, Hollister, Livermore, Los Altos, Los Gatos, Morgan Hill, Oakland, Palo Alto, Pleasanton, Redwood City, San Francisco, San Jose, San Mateo, San Rafael, and Walnut Creek. Heritage Bank of Commerce is an SBA Preferred Lender. Bay View Funding, a subsidiary of Heritage Bank of Commerce, is based in San Jose, CA and provides business-essential working capital factoring financing to various industries throughout the United States. For more information, please visit www.heritagecommercecorp.com. The contents of our website are not incorporated into, and do not form a part of, this release or of our filings with the Securities and Exchange Commission.

Non-GAAP Financial Measures

Financial results are presented in accordance with accounting principles generally accepted in the United States of America ("GAAP") and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate and measure the Company's performance. Management believes these non-GAAP financial measures are common in the banking industry, and may enhance comparability for peer comparison purposes. These non-GAAP financial measures should be supplemental to primary GAAP financial measures and should not be read in isolation or relied upon as a substitute for primary GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is presented in the tables at the end of this earnings release under "Reconciliation of Non-GAAP Financial Measures."

Forward-Looking Statement Disclaimer

Certain matters discussed in this press release constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements may be deemed to include, among other things, statements relating to the Company's future financial performance, projected cash flows of our investment securities portfolio, the performance of our loan portfolio, estimated net interest income resulting from a shift in interest rates, expectation of high credit quality issuers ability to repay, as well as statements relating to the anticipated effects on the Company's financial condition and results of operations from expected developments or events. Any statements that reflect our belief about, confidence in, or expectations for future events, performance or condition should be considered forward-looking statements. Readers should not construe these statements as assurances of a given level of performance, nor as promises that we will take actions that we currently expect to take. All statements are subject to various risks and uncertainties, many of which are outside our control and some of which may fall outside our ability to predict or anticipate. Accordingly, our actual results may differ materially from our projected results, and we may take actions or experience events that we do not currently expect. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission, Item 1A of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, and the following: (1) the effects of recent and ongoing wildfires affecting Southern California, which have affected certain customers and certain loans secured by mortgages in Los Angeles County, and which are affecting or may, in the future, affect other customers in those and other markets throughout California; (2) risks of geographic concentration of our customer base, our loans, and the collateral securing our loans, as those customers and assets may be particularly subject to natural disasters and to events and conditions that directly or indirectly affect those regions, including the particular risks of natural disasters (including earthquakes, fires, and flooding) and other events that disproportionately affect that region; (3) cybersecurity risks that may affect us directly or may impact us indirectly by virtue of their effects on our clients, markets or vendors, including our ability to identify and address cybersecurity risks, including those posed by the increasing use of artificial intelligence, such as data security breaches, "denial of service" attacks, "hacking" and identity theft affecting us, our clients, and our third-party vendors and service providers; (4) political events that have accompanied or that may in the future accompany or result from recent political changes, particularly including sociopolitical events and conditions that result from political conflicts and law enforcement activities that may adversely affect our markets or our customers; (5) media items and consumer confidence as those factors affect our clients' confidence in the banking system generally and in our bank specifically; (6) adequacy of the our risk management framework, disclosure controls and procedures and internal control over financial reporting; (7) market, geographic and sociopolitical factors that arise by virtue of the fact that we operate primarily in the general San Francisco Bay Area of Northern California; (8) factors that affect our liquidity and our ability to meet client demands for withdrawals from deposit accounts and undrawn lines of credit, including our cash on hand and the availability of funds from our own lines of credit; (9) factors that affect the value and liquidity of our investment portfolios, particularly the values of securities available-for-sale; (10) our ability to estimate accurately, and to establish adequate reserves against, the risk of loss associated with our loan and lease portfolios and our factoring business; (11) inflationary pressures and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans to clients, whether held in the portfolio or in the secondary market; (12) 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) 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; (14) events that affect our ability to attract, recruit, and retain qualified officers and other personnel to implement our strategic plan, and that enable current and future personnel to protect and develop our relationships with clients, and to promote our business, results of operations and growth prospects; (15) the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise, particularly including but not limited to the effects of recent and ongoing developments in California labor and employment laws, regulations and court decisions; and (16) 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
[email protected]

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) 2024 2024 2023 2024 2023 2024 2023 Change
Interest income $ 64,633 $ 61,438 $ 58,892 5 % 10 % $ 242,699 $ 234,298 4 %
Interest expense 20,448 21,523 16,591 (5 ) % 23 % 79,051 51,074 55 %
Net interest income before provision for credit losses on loans 44,185 39,915 42,301 11 % 4 % 163,648 183,224 (11 ) %
Provision for credit losses on loans 1,331 153 289 770 % 361 % 2,139 749 186 %
Net interest income after provision for credit losses on loans 42,854 39,762 42,012 8 % 2 % 161,509 182,475 (11 ) %
Noninterest income:
Service charges and fees on deposit accounts 885 908 838 (3 ) % 6 % 3,561 4,341 (18 ) %
Increase in cash surrender value of life insurance 528 530 519 0 % 2 % 2,097 2,031 3 %
Gain on sales of SBA loans 125 94 - 33 % N/A 473 482 (2 ) %
Servicing income 77 108 103 (29 ) % (25 ) % 365 400 (9 ) %
Termination fees 18 46 25 (61 ) % (28 ) % 177 154 15 %
Gain on proceeds from company-owned life insurance - - 25 N/A (100 ) % 219 125 75 %
Other 552 554 432 0 % 28 % 1,856 1,465 27 %
Total noninterest income 2,185 2,240 1,942 (2 ) % 13 % 8,748 8,998 (3 ) %
Noninterest expense:
Salaries and employee benefits 16,976 15,673 13,919 8 % 22 % 63,952 56,862 12 %
Occupancy and equipment 2,495 2,599 2,367 (4 ) % 5 % 10,226 9,490 8 %
Professional fees 1,711 1,306 1,085 31 % 58 % 5,416 4,350 25 %
Other 9,122 7,977 8,120 14 % 12 % 33,989 30,352 12 %
Total noninterest expense 30,304 27,555 25,491 10 % 19 % 113,583 101,054 12 %
Income before income taxes 14,735 14,447 18,463 2 % (20 ) % 56,674 90,419 (37 ) %
Income tax expense 4,114 3,940 5,135 4 % (20 ) % 16,146 25,976 (38 ) %
Net income $ 10,621 $ 10,507 $ 13,328 1 % (20 ) % $ 40,528 $ 64,443 (37 ) %
PER COMMON SHARE DATA
(unaudited)
Basic earnings per share $ 0.17 $ 0.17 $ 0.22 0 % (23 ) % $ 0.66 $ 1.06 (38 ) %
Diluted earnings per share $ 0.17 $ 0.17 $ 0.22 0 % (23 ) % $ 0.66 $ 1.05 (37 ) %
Weighted average shares outstanding - basic 61,320,505 61,295,877 61,118,485 0 % 0 % 61,270,730 61,038,857 0 %
Weighted average shares outstanding - diluted 61,679,735 61,546,157 61,412,816 0 % 0 % 61,527,372 61,311,318 0 %
Common shares outstanding at period-end 61,348,095 61,297,344 61,146,835 0 % 0 % 61,348,095 61,146,835 0 %
Dividend per share $ 0.13 $ 0.13 $ 0.13 0 % 0 % $ 0.52 $ 0.52 0 %
Book value per share $ 11.24 $ 11.18 $ 11.00 1 % 2 % $ 11.24 $ 11.00 2 %
Tangible book value per share(1) $ 8.41 $ 8.33 $ 8.12 1 % 4 % $ 8.41 $ 8.12 4 %
KEY FINANCIAL RATIOS
(unaudited)
Annualized return on average equity 6.16 % 6.14 % 7.96 % 0 % (23 ) % 5.97 % 9.88 % (40 ) %
Annualized return on average tangible common equity(1) 8.25 % 8.27 % 10.84 % 0 % (24 ) % 8.05 % 13.57 % (41 ) %
Annualized return on average assets 0.75 % 0.78 % 1.00 % (4 ) % (25 ) % 0.76 % 1.22 % (38 ) %
Annualized return on average tangible assets(1) 0.78 % 0.81 % 1.04 % (4 ) % (25 ) % 0.78 % 1.26 % (38 ) %
Net interest margin (FTE)(1) 3.34 % 3.17 % 3.41 % 5 % (2 ) % 3.28 % 3.70 % (11 ) %
Efficiency ratio(1) 65.35 % 65.37 % 57.62 % 0 % 13 % 65.88 % 52.57 % 25 %
AVERAGE BALANCES
(in $000's, unaudited)
Average assets $ 5,607,840 $ 5,352,067 $ 5,264,905 5 % 7 % $ 5,338,705 $ 5,289,375 1 %
Average tangible assets(1) $ 5,433,439 $ 5,177,114 $ 5,088,264 5 % 7 % $ 5,163,485 $ 5,111,839 1 %
Average earning assets $ 5,267,773 $ 5,011,865 $ 4,923,582 5 % 7 % $ 4,999,363 $ 4,955,018 1 %
Average loans held-for-sale $ 2,260 $ 1,493 $ 1,612 51 % 40 % $ 2,001 $ 2,821 (29 ) %
Average total loans $ 3,388,729 $ 3,359,647 $ 3,280,817 1 % 3 % $ 3,343,661 $ 3,259,373 3 %
Average deposits $ 4,771,491 $ 4,525,946 $ 4,454,750 5 % 7 % $ 4,513,774 $ 4,467,489 1 %
Average demand deposits - noninterest-bearing $ 1,222,393 $ 1,172,304 $ 1,243,222 4 % (2 ) % $ 1,174,854 $ 1,393,949 (16 ) %
Average interest-bearing deposits $ 3,549,098 $ 3,353,642 $ 3,211,528 6 % 11 % $ 3,338,920 $ 3,073,540 9 %
Average interest-bearing liabilities $ 3,588,755 $ 3,393,264 $ 3,251,034 6 % 10 % $ 3,378,516 $ 3,140,105 8 %
Average equity $ 686,263 $ 680,404 $ 664,638 1 % 3 % $ 678,543 $ 652,449 4 %
Average tangible common equity(1) $ 511,862 $ 505,451 $ 487,997 1 % 5 % $ 503,323 $ 474,913 6 %

_________________________________
(1) This is a non-GAAP financial measure.

For the Quarter Ended:
CONSOLIDATED INCOME STATEMENTS December 31, September 30, June 30, March 31, December 31,
(in $000's, unaudited) 2024 2024 2024 2024 2023
Interest income $ 64,633 $ 61,438 $ 59,077 $ 57,551 $ 58,892
Interest expense 20,448 21,523 19,622 17,458 16,591
Net interest income before provision for credit losses on loans 44,185 39,915 39,455 40,093 42,301
Provision for credit losses on loans 1,331 153 471 184 289
Net interest income after provision for credit losses on loans 42,854 39,762 38,984 39,909 42,012
Noninterest income:
Service charges and fees on deposit accounts 885 908 891 877 838
Increase in cash surrender value of life insurance 528 530 521 518 519
Gain on sales of SBA loans 125 94 76 178 -
Servicing income 77 108 90 90 103
Termination fees 18 46 100 13 25
Gain on proceeds from company-owned life insurance - - 219 - 25
Other 552 554 379 371 432
Total noninterest income 2,185 2,240 2,276 2,047 1,942
Noninterest expense:
Salaries and employee benefits 16,976 15,673 15,794 15,509 13,919
Occupancy and equipment 2,495 2,599 2,689 2,443 2,367
Professional fees 1,711 1,306 1,072 1,327 1,085
Other 9,122 7,977 8,633 8,257 8,120
Total noninterest expense 30,304 27,555 28,188 27,536 25,491
Income before income taxes 14,735 14,447 13,072 14,420 18,463
Income tax expense 4,114 3,940 3,838 4,254 5,135
Net income $ 10,621 $ 10,507 $ 9,234 $ 10,166 $ 13,328
PER COMMON SHARE DATA
(unaudited)
Basic earnings per share $ 0.17 $ 0.17 $ 0.15 $ 0.17 $ 0.22
Diluted earnings per share $ 0.17 $ 0.17 $ 0.15 $ 0.17 $ 0.22
Weighted average shares outstanding - basic 61,320,505 61,295,877 61,279,914 61,186,623 61,118,485
Weighted average shares outstanding - diluted 61,679,735 61,546,157 61,438,088 61,470,552 61,412,816
Common shares outstanding at period-end 61,348,095 61,297,344 61,292,094 61,253,625 61,146,835
Dividend per share $ 0.13 $ 0.13 $ 0.13 $ 0.13 $ 0.13
Book value per share $ 11.24 $ 11.18 $ 11.08 $ 11.04 $ 11.00
Tangible book value per share(1) $ 8.41 $ 8.33 $ 8.22 $ 8.17 $ 8.12
KEY FINANCIAL RATIOS
(unaudited)
Annualized return on average equity 6.16 % 6.14 % 5.50 % 6.08 % 7.96 %
Annualized return on average tangible common equity(1) 8.25 % 8.27 % 7.43 % 8.24 % 10.84 %
Annualized return on average assets 0.75 % 0.78 % 0.71 % 0.79 % 1.00 %
Annualized return on average tangible assets(1) 0.78 % 0.81 % 0.74 % 0.82 % 1.04 %
Net interest margin (FTE)(1) 3.34 % 3.17 % 3.26 % 3.34 % 3.41 %
Efficiency ratio(1) 65.35 % 65.37 % 67.55 % 65.34 % 57.62 %
AVERAGE BALANCES
(in $000's, unaudited)
Average assets $ 5,607,840 $ 5,352,067 $ 5,213,171 $ 5,178,636 $ 5,264,905
Average tangible assets(1) $ 5,433,439 $ 5,177,114 $ 5,037,673 $ 5,002,597 $ 5,088,264
Average earning assets $ 5,267,773 $ 5,011,865 $ 4,872,449 $ 4,842,279 $ 4,923,582
Average loans held-for-sale $ 2,260 $ 1,493 $ 1,503 $ 2,749 $ 1,612
Average total loans $ 3,388,729 $ 3,359,647 $ 3,328,358 $ 3,297,240 $ 3,280,817
Average deposits $ 4,771,491 $ 4,525,946 $ 4,394,545 $ 4,360,150 $ 4,454,750
Average demand deposits - noninterest-bearing $ 1,222,393 $ 1,172,304 $ 1,127,145 $ 1,177,078 $ 1,243,222
Average interest-bearing deposits $ 3,549,098 $ 3,353,642 $ 3,267,400 $ 3,183,072 $ 3,211,528
Average interest-bearing liabilities $ 3,588,755 $ 3,393,264 $ 3,306,972 $ 3,222,603 $ 3,251,034
Average equity $ 686,263 $ 680,404 $ 675,108 $ 672,292 $ 664,638
Average tangible common equity(1) $ 511,862 $ 505,451 $ 499,610 $ 496,253 $ 487,997

_____________________________
(1) This is a non-GAAP financial measure.

End of Period: Percent Change From:
CONSOLIDATED BALANCE SHEETS December 31, September 30, December 31, September 30, December 31,
(in $000's, unaudited) 2024 2024 2023 2024 2023
ASSETS
Cash and due from banks $ 29,864 $ 49,722 $ 41,592 (40 ) % (28 ) %
Other investments and interest-bearing deposits in other financial institutions 938,259 906,588 366,537 3 % 156 %
Securities available-for-sale, at fair value 256,274 237,612 442,636 8 % (42 ) %
Securities held-to-maturity, at amortized cost 590,016 604,193 650,565 (2 ) % (9 ) %
Loans held-for-sale - SBA, including deferred costs 2,375 1,649 2,205 44 % 8 %
Loans:
Commercial 531,350 481,266 463,778 10 % 15 %
Real estate:
CRE - owner occupied 601,636 602,062 583,253 0 % 3 %
CRE - non-owner occupied 1,341,266 1,310,578 1,256,590 2 % 7 %
Land and construction 127,848 125,761 140,513 2 % (9 ) %
Home equity 127,963 124,090 119,125 3 % 7 %
Multifamily 275,490 273,103 269,734 1 % 2 %
Residential mortgages 471,730 479,524 496,961 (2 ) % (5 ) %
Consumer and other 14,837 14,179 20,919 5 % (29 ) %
Loans 3,492,120 3,410,563 3,350,873 2 % 4 %
Deferred loan fees, net (183 ) (327 ) (495 ) (44 ) % (63 ) %
Total loans, net of deferred costs and fees 3,491,937 3,410,236 3,350,378 2 % 4 %
Allowance for credit losses on loans (48,953 ) (47,819 ) (47,958 ) 2 % 2 %
Loans, net 3,442,984 3,362,417 3,302,420 2 % 4 %
Company-owned life insurance 81,211 80,682 79,489 1 % 2 %
Premises and equipment, net 10,140 10,398 9,857 (2 ) % 3 %
Goodwill 167,631 167,631 167,631 0 % 0 %
Other intangible assets 6,439 6,966 8,627 (8 ) % (25 ) %
Accrued interest receivable and other assets 119,813 123,738 122,536 (3 ) % (2 ) %
Total assets $ 5,645,006 $ 5,551,596 $ 5,194,095 2 % 9 %
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, noninterest-bearing $ 1,214,192 $ 1,272,139 $ 1,292,486 (5 ) % (6 ) %
Demand, interest-bearing 936,587 913,910 914,066 2 % 2 %
Savings and money market 1,325,923 1,309,676 1,087,518 1 % 22 %
Time deposits - under $250 38,988 39,060 38,055 0 % 2 %
Time deposits - $250 and over 206,755 196,945 192,228 5 % 8 %
ICS/CDARS - interest-bearing demand, money market and time deposits 1,097,586 997,803 854,105 10 % 29 %
Total deposits 4,820,031 4,729,533 4,378,458 2 % 10 %
Subordinated debt, net of issuance costs 39,653 39,615 39,502 0 % 0 %
Accrued interest payable and other liabilities 95,595 97,096 103,234 (2 ) % (7 ) %
Total liabilities 4,955,279 4,866,244 4,521,194 2 % 10 %
Shareholders' Equity:
Common stock 510,070 509,134 506,539 0 % 1 %
Retained earnings 187,762 185,110 179,092 1 % 5 %
Accumulated other comprehensive loss (8,105 ) (8,892 ) (12,730 ) (9 ) % (36 ) %
Total shareholders' equity 689,727 685,352 672,901 1 % 3 %
Total liabilities and shareholders' equity $ 5,645,006 $ 5,551,596 $ 5,194,095 2 % 9 %
End of Period:
CONSOLIDATED BALANCE SHEETS December 31, September 30, June 30, March 31, December 31,
(in $000's, unaudited) 2024 2024 2024 2024 2023
ASSETS
Cash and due from banks $ 29,864 $ 49,722 $ 37,497 $ 32,543 $ 41,592
Other investments and interest-bearing deposits in other financial institutions 938,259 906,588 610,763 508,816 366,537
Securities available-for-sale, at fair value 256,274 237,612 273,043 404,474 442,636
Securities held-to-maturity, at amortized cost 590,016 604,193 621,178 636,249 650,565
Loans held-for-sale - SBA, including deferred costs 2,375 1,649 1,899 1,946 2,205
Loans:
Commercial 531,350 481,266 477,929 452,231 463,778
Real estate:
CRE - owner occupied 601,636 602,062 594,504 585,031 583,253
CRE - non-owner occupied 1,341,266 1,310,578 1,283,323 1,271,184 1,256,590
Land and construction 127,848 125,761 125,374 129,712 140,513
Home equity 127,963 124,090 126,562 122,794 119,125
Multifamily 275,490 273,103 268,968 269,263 269,734
Residential mortgages 471,730 479,524 484,809 490,035 496,961
Consumer and other 14,837 14,179 18,758 16,439 20,919
Loans 3,492,120 3,410,563 3,380,227 3,336,689 3,350,873
Deferred loan fees, net (183 ) (327 ) (434 ) (587 ) (495 )
Total loans, net of deferred fees 3,491,937 3,410,236 3,379,793 3,336,102 3,350,378
Allowance for credit losses on loans (48,953 ) (47,819 ) (47,954 ) (47,888 ) (47,958 )
Loans, net 3,442,984 3,362,417 3,331,839 3,288,214 3,302,420
Company-owned life insurance 81,211 80,682 80,153 80,007 79,489
Premises and equipment, net 10,140 10,398 10,310 9,986 9,857
Goodwill 167,631 167,631 167,631 167,631 167,631
Other intangible assets 6,439 6,966 7,521 8,074 8,627
Accrued interest receivable and other assets 119,813 123,738 121,190 118,134 122,536
Total assets $ 5,645,006 $ 5,551,596 $ 5,263,024 $ 5,256,074 $ 5,194,095
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, noninterest-bearing $ 1,214,192 $ 1,272,139 $ 1,187,320 $ 1,242,059 $ 1,292,486
Demand, interest-bearing 936,587 913,910 928,246 925,100 914,066
Savings and money market 1,325,923 1,309,676 1,126,520 1,124,900 1,087,518
Time deposits - under $250 38,988 39,060 39,046 38,105 38,055
Time deposits - $250 and over 206,755 196,945 203,886 200,739 192,228
ICS/CDARS - interest-bearing demand, money market and time deposits 1,097,586 997,803 959,592 913,757 854,105
Total deposits 4,820,031 4,729,533 4,444,610 4,444,660 4,378,458
Other short-term borrowings - - - - -
Subordinated debt, net of issuance costs 39,653 39,615 39,577 39,539 39,502
Accrued interest payable and other liabilities 95,595 97,096 99,638 95,579 103,234
Total liabilities 4,955,279 4,866,244 4,583,825 4,579,778 4,521,194
Shareholders' Equity:
Common stock 510,070 509,134 508,343 507,578 506,539
Retained earnings 187,762 185,110 182,571 181,306 179,092
Accumulated other comprehensive loss (8,105 ) (8,892 ) (11,715 ) (12,588 ) (12,730 )
Total shareholders' equity 689,727 685,352 679,199 676,296 672,901
Total liabilities and shareholders' equity $ 5,645,006 $ 5,551,596 $ 5,263,024 $ 5,256,074 $ 5,194,095
At or For the Quarter Ended: Percent Change From:
CREDIT QUALITY DATA December 31, September 30, December 31, September 30, December 31,
(in $000's, unaudited) 2024 2024 2023 2024 2023
Nonaccrual loans - held-for-investment $ 7,178 $ 6,698 $ 6,818 7 % 5 %
Loans over 90 days past due and still accruing 489 460 889 6 % (45 ) %
Total nonperforming loans 7,667 7,158 7,707 7 % (1 ) %
Foreclosed assets - - - N/A N/A
Total nonperforming assets $ 7,667 $ 7,158 $ 7,707 7 % (1 ) %
Net charge-offs (recoveries) during the quarter $ 197 $ 288 $ 33 (32 ) % 497 %
Provision for credit losses on loans during the quarter $ 1,331 $ 153 $ 289 770 % 361 %
Allowance for credit losses on loans $ 48,953 $ 47,819 $ 47,958 2 % 2 %
Classified assets $ 41,661 $ 32,609 $ 31,763 28 % 31 %
Allowance for credit losses on loans to total loans 1.40 % 1.40 % 1.43 % 0 % (2 ) %
Allowance for credit losses on loans to total nonperforming loans 638.49 % 668.05 % 622.27 % (4 ) % 3 %
Nonperforming assets to total assets 0.14 % 0.13 % 0.15 % 8 % (7 ) %
Nonperforming loans to total loans 0.22 % 0.21 % 0.23 % 5 % (4 ) %
Classified assets to Heritage Commerce Corp
Tier 1 capital plus allowance for credit losses on loans 7 % 6 % 6 % 17 % 17 %
Classified assets to Heritage Bank of Commerce
Tier 1 capital plus allowance for credit losses on loans 7 % 6 % 5 % 17 % 40 %
OTHER PERIOD-END STATISTICS
(in $000's, unaudited)
Heritage Commerce Corp:
Tangible common equity(1) $ 515,657 $ 510,755 $ 496,643 1 % 4 %
Shareholders' equity / total assets 12.22 % 12.35 % 12.96 % (1 ) % (6 ) %
Tangible common equity / tangible assets(2) 9.43 % 9.50 % 9.90 % (1 ) % (5 ) %
Loan to deposit ratio 72.45 % 72.11 % 76.52 % 0 % (5 ) %
Noninterest-bearing deposits / total deposits 25.19 % 26.90 % 29.52 % (6 ) % (15 ) %
Total capital ratio 15.6 % 15.6 % 15.5 % 0 % 1 %
Tier 1 capital ratio 13.4 % 13.4 % 13.3 % 0 % 1 %
Common Equity Tier 1 capital ratio 13.4 % 13.4 % 13.3 % 0 % 1 %
Tier 1 leverage ratio 9.6 % 10.0 % 10.0 % (4 ) % (4 ) %
Heritage Bank of Commerce:
Tangible common equity / tangible assets(2) 9.79 % 9.86 % 10.26 % (1 ) % (5 ) %
Total capital ratio 15.1 % 15.1 % 14.9 % 0 % 1 %
Tier 1 capital ratio 13.9 % 13.9 % 13.8 % 0 % 1 %
Common Equity Tier 1 capital ratio 13.9 % 13.9 % 13.8 % 0 % 1 %
Tier 1 leverage ratio 10.0 % 10.4 % 10.4 % (4 ) % (4 ) %

________________
(1) This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets.
(2) This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets.

At or For the Quarter Ended:
CREDIT QUALITY DATA December 31, September 30, June 30, March 31, December 31,
(in $000's, unaudited) 2024 2024 2024 2024 2023
Nonaccrual loans - held-for-investment $ 7,178 $ 6,698 $ 5,782 $ 5,920 $ 6,818
Loans over 90 days past due
and still accruing 489 460 248 1,951 889
Total nonperforming loans 7,667 7,158 6,030 7,871 7,707
Foreclosed assets - - - - -
Total nonperforming assets $ 7,667 $ 7,158 $ 6,030 $ 7,871 $ 7,707
Net charge-offs (recoveries) during the quarter $ 197 $ 288 $ 405 $ 254 $ 33
Provision for credit losses on loans during the quarter $ 1,331 $ 153 $ 471 $ 184 $ 289
Allowance for credit losses on loans $ 48,953 $ 47,819 $ 47,954 $ 47,888 $ 47,958
Classified assets $ 41,661 $ 32,609 $ 33,605 $ 35,392 $ 31,763
Allowance for credit losses on loans to total loans 1.40 % 1.40 % 1.42 % 1.44 % 1.43 %
Allowance for credit losses on loans to total nonperforming loans 638.49 % 668.05 % 795.26 % 608.41 % 622.27 %
Nonperforming assets to total assets 0.14 % 0.13 % 0.11 % 0.15 % 0.15 %
Nonperforming loans to total loans 0.22 % 0.21 % 0.18 % 0.24 % 0.23 %
Classified assets to Heritage Commerce Corp
Tier 1 capital plus allowance for credit losses on loans 7 % 6 % 6 % 6 % 6 %
Classified assets to Heritage Bank of Commerce
Tier 1 capital plus allowance for credit losses on loans 7 % 6 % 6 % 6 % 5 %
OTHER PERIOD-END STATISTICS
(in $000's, unaudited)
Heritage Commerce Corp:
Tangible common equity(1) $ 515,657 $ 510,755 $ 504,047 $ 500,591 $ 496,643
Shareholders' equity / total assets 12.22 % 12.35 % 12.91 % 12.87 % 12.96 %
Tangible common equity / tangible assets(2) 9.43 % 9.50 % 9.91 % 9.85 % 9.90 %
Loan to deposit ratio 72.45 % 72.11 % 76.04 % 75.06 % 76.52 %
Noninterest-bearing deposits / total deposits 25.19 % 26.90 % 26.71 % 27.94 % 29.52 %
Total capital ratio 15.6 % 15.6 % 15.6 % 15.6 % 15.5 %
Tier 1 capital ratio 13.4 % 13.4 % 13.4 % 13.4 % 13.3 %
Common Equity Tier 1 capital ratio 13.4 % 13.4 % 13.4 % 13.4 % 13.3 %
Tier 1 leverage ratio 9.6 % 10.0 % 10.2 % 10.2 % 10.0 %
Heritage Bank of Commerce:
Tangible common equity / tangible assets(2) 9.79 % 9.86 % 10.28 % 10.22 % 10.26 %
Total capital ratio 15.1 % 15.1 % 15.1 % 15.1 % 14.9 %
Tier 1 capital ratio 13.9 % 13.9 % 13.9 % 13.9 % 13.8 %
Common Equity Tier 1 capital ratio 13.9 % 13.9 % 13.9 % 13.9 % 13.8 %
Tier 1 leverage ratio 10.0 % 10.4 % 10.6 % 10.6 % 10.4 %

__________________
(1) This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets.
(2) This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets.

For the Quarter Ended For the Quarter Ended
December 31, 2024 September 30, 2024
Interest Average Interest Average
NET INTEREST INCOME AND NET INTEREST MARGIN Average Income/ Yield/ Average Income/ Yield/
(in $000's, unaudited) Balance Expense Rate Balance Expense Rate
Assets:
Loans, gross(1)(2) $ 3,390,989 $ 47,132 5.53 % $ 3,361,140 $ 45,781 5.42 %
Securities - taxable 800,174 4,475 2.22 % 838,375 4,676 2.22 %
Securities - exempt from Federal tax(3) 30,570 274 3.57 % 31,311 282 3.58 %
Other investments and interest-bearing deposits in other financial institutions 1,046,040 12,810 4.87 % 781,039 10,758 5.48 %
Total interest earning assets(3) 5,267,773 64,691 4.89 % 5,011,865 61,497 4.88 %
Cash and due from banks 32,569 33,425
Premises and equipment, net 10,301 10,471
Goodwill and other intangible assets 174,401 174,953
Other assets 122,796 121,353
Total assets $ 5,607,840 $ 5,352,067
Liabilities and shareholders' equity:
Deposits:
Demand, noninterest-bearing $ 1,222,393 $ 1,172,304
Demand, interest-bearing 906,581 1,452 0.64 % 907,346 1,714 0.75 %
Savings and money market 1,339,397 9,090 2.70 % 1,188,057 9,128 3.06 %
Time deposits - under $100 11,388 49 1.71 % 11,133 47 1.68 %
Time deposits - $100 and over 234,446 2,310 3.92 % 229,565 2,349 4.07 %
ICS/CDARS - interest-bearing demand, money market and time deposits 1,057,286 7,009 2.64 % 1,017,541 7,747 3.03 %
Total interest-bearing deposits 3,549,098 19,910 2.23 % 3,353,642 20,985 2.49 %
Total deposits 4,771,491 19,910 1.66 % 4,525,946 20,985 1.84 %
Short-term borrowings 28 - 0.00 % 32 - 0.00 %
Subordinated debt, net of issuance costs 39,629 538 5.40 % 39,590 538 5.41 %
Total interest-bearing liabilities 3,588,755 20,448 2.27 % 3,393,264 21,523 2.52 %
Total interest-bearing liabilities and demand, noninterest-bearing / cost of funds 4,811,148 20,448 1.69 % 4,565,568 21,523 1.88 %
Other liabilities 110,429 106,095
Total liabilities 4,921,577 4,671,663
Shareholders' equity 686,263 680,404
Total liabilities and shareholders' equity $ 5,607,840 $ 5,352,067
Net interest income / margin(3) 44,243 3.34 % 39,974 3.17 %
Less tax equivalent adjustment(3) (58 ) (59 )
Net interest income $ 44,185 3.34 % $ 39,915 3.17 %

__________________
(1) Includes loans held-for-sale. Nonaccrual loans are included in average balances.
(2) Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $167,000 for the fourth quarter of 2024, compared to $184,000 for the third quarter of 2024. Prepayment fees totaled $35,000 for the fourth quarter of 2024, compared to $4,000 for the third quarter of 2024.
(3) Reflects the non-GAAP FTE adjustment for Federal tax-exempt income based on a 21% tax rate.

For the Quarter Ended For the Quarter Ended
December 31, 2024 December 31, 2023
Interest Average Interest Average
NET INTEREST INCOME AND NET INTEREST MARGIN Average Income/ Yield/ Average Income/ Yield/
(in $000's, unaudited) Balance Expense Rate Balance Expense Rate
Assets:
Loans, gross(1)(2) $ 3,390,989 $ 47,132 5.53 % $ 3,282,429 $ 44,635 5.39 %
Securities - taxable 800,174 4,475 2.22 % 1,074,638 6,516 2.41 %
Securities - exempt from Federal tax(3) 30,570 274 3.57 % 32,244 288 3.54 %
Other investments and interest-bearing deposits in other financial institutions 1,046,040 12,810 4.87 % 534,271 7,514 5.58 %
Total interest earning assets(3) 5,267,773 64,691 4.89 % 4,923,582 58,953 4.75 %
Cash and due from banks 32,569 35,214
Premises and equipment, net 10,301 9,843
Goodwill and other intangible assets 174,401 176,641
Other assets 122,796 119,625
Total assets $ 5,607,840 $ 5,264,905
Liabilities and shareholders' equity:
Deposits:
Demand, noninterest-bearing $ 1,222,393 $ 1,243,222
Demand, interest-bearing 906,581 1,452 0.64 % 948,061 1,661 0.70 %
Savings and money market 1,339,397 9,090 2.70 % 1,096,962 6,216 2.25 %
Time deposits - under $100 11,388 49 1.71 % 11,389 37 1.29 %
Time deposits - $100 and over 234,446 2,310 3.92 % 234,140 2,130 3.61 %
ICS/CDARS - interest-bearing demand, money market and time deposits 1,057,286 7,009 2.64 % 920,976 6,009 2.59 %
Total interest-bearing deposits 3,549,098 19,910 2.23 % 3,211,528 16,053 1.98 %
Total deposits 4,771,491 19,910 1.66 % 4,454,750 16,053 1.43 %
Short-term borrowings 28 - 0.00 % 29 - 0.00 %
Subordinated debt, net of issuance costs 39,629 538 5.40 % 39,477 538 5.41 %
Total interest-bearing liabilities 3,588,755 20,448 2.27 % 3,251,034 16,591 2.02 %
Total interest-bearing liabilities and demand, noninterest-bearing / cost of funds 4,811,148 20,448 1.69 % 4,494,256 16,591 1.46 %
Other liabilities 110,429 106,011
Total liabilities 4,921,577 4,600,267
Shareholders' equity 686,263 664,638
Total liabilities and shareholders' equity $ 5,607,840 $ 5,264,905
Net interest income / margin(3) 44,243 3.34 % 42,362 3.41 %
Less tax equivalent adjustment(3) (58 ) (61 )
Net interest income $ 44,185 3.34 % $ 42,301 3.41 %

_________________

(1) Includes loans held-for-sale. Nonaccrual loans are included in average balances.
(2) Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $167,000 for the fourth quarter of 2024, compared to $147,000 for the fourth quarter of 2023. Prepayment fees totaled $35,000 for the fourth quarter of 2024, compared to $91,000 for the fourth quarter of 2023.
(3) Reflects the non-GAAP FTE adjustment for Federal tax-exempt income based on a 21% tax rate.

For the Year Ended For the Year Ended
December 31, 2024 December 31, 2023
Interest Average Interest Average
NET INTEREST INCOME AND NET INTEREST MARGIN Average Income/ Yield/ Average Income/ Yield/
(in $000's, unaudited) Balance Expense Rate Balance Expense Rate
Assets:
Loans, gross(1)(2) $ 3,345,662 $ 182,983 5.47 % $ 3,262,194 $ 177,628 5.45 %
Securities - taxable 905,418 20,817 2.30 % 1,124,190 27,351 2.43 %
Securities - exempt from Federal tax(3) 31,403 1,127 3.59 % 33,806 1,196 3.54 %
Other investments, interest-bearing deposits in other financial institutions and Federal funds sold 716,880 38,009 5.30 % 534,828 28,374 5.31 %
Total interest earning assets(3) 4,999,363 242,936 4.86 % 4,955,018 234,549 4.73 %
Cash and due from banks 33,156 35,955
Premises and equipment, net 10,252 9,421
Goodwill and other intangible assets 175,220 177,536
Other assets 120,714 111,445
Total assets $ 5,338,705 $ 5,289,375
Liabilities and shareholders' equity:
Deposits:
Demand, noninterest-bearing $ 1,174,854 $ 1,393,949
Demand, interest-bearing 916,466 6,439 0.70 % 1,074,523 6,655 0.62 %
Savings and money market 1,175,391 32,734 2.78 % 1,144,032 19,857 1.74 %
Time deposits - under $100 11,112 184 1.66 % 11,809 97 0.82 %
Time deposits - $100 and over 228,388 8,968 3.93 % 218,131 6,874 3.15 %
ICS/CDARS - interest-bearing demand, money market and time deposits 1,007,563 28,574 2.84 % 625,045 14,074 2.25 %
Total interest-bearing deposits 3,338,920 76,899 2.30 % 3,073,540 47,557 1.55 %
Total deposits 4,513,774 76,899 1.70 % 4,467,489 47,557 1.06 %
Short-term borrowings 24 - 0.00 % 27,145 1,365 5.03 %
Subordinated debt, net of issuance costs 39,572 2,152 5.44 % 39,420 2,152 5.46 %
Total interest-bearing liabilities 3,378,516 79,051 2.34 % 3,140,105 51,074 1.63 %
Total interest-bearing liabilities and demand, noninterest-bearing / cost of funds 4,553,370 79,051 1.74 % 4,534,054 51,074 1.13 %
Other liabilities 106,792 102,872
Total liabilities 4,660,162 4,636,926
Shareholders' equity 678,543 652,449
Total liabilities and shareholders' equity $ 5,338,705 $ 5,289,375
Net interest income / margin(3) 163,885 3.28 % 183,475 3.70 %
Less tax equivalent adjustment(3) (237 ) (251 )
Net interest income $ 163,648 3.27 % $ 183,224 3.70 %

_________________
(1) Includes loans held-for-sale. Nonaccrual loans are included in average balances.
(2) Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $628,000 for the year ended December 31, 2024, compared to $742,000 for the year ended December 31, 2023. Prepayment fees totaled $117,000 for the year ended December 31, 2024, compared to $484,000 for the year ended December 31, 2023.
(3) Reflects the non-GAAP FTE adjustment for Federal tax-exempt income based on a 21% tax rate.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

  • Management considers tangible book value per share as a useful measurement of the Company's equity. The Company references the return on average tangible common equity and the return on average tangible assets as measurements of profitability.
  • The following table summarizes components of the tangible book value per share at the dates indicated:
TANGIBLE BOOK VALUE PER SHARE December 31, September 30, June 30, March 31, December 31,
(in $000's, unaudited) 2024
2024
2024
2024
2023
Capital components:
Total Equity (GAAP) $ 689,727 $ 685,352 $ 679,199 $ 676,296 $ 672,901
Less: Preferred Stock - - - - -
Total Common Equity 689,727 685,352 679,199 676,296 672,901
Less: Goodwill (167,631 ) (167,631 ) (167,631 ) (167,631 ) (167,631 )
Less: Other Intangible Assets (6,439 ) (6,966 ) (7,521 ) (8,074 ) (8,627 )
Total Tangible Common Equity (non-GAAP) $ 515,657 $ 510,755 $ 504,047 $ 500,591 $ 496,643
Common shares outstanding at period-end 61,348,095 61,297,344 61,292,094 61,253,625 61,146,835
Tangible book value per share (non-GAAP) $ 8.41 $ 8.33 $ 8.22 $ 8.17 $ 8.12
  • The following tables summarize components of the annualized return on average tangible common equity and the annualized return on average tangible assets for the periods indicated:
RETURN ON AVERAGE TANGIBLE COMMON For the Quarter Ended:
EQUITY AND AVERAGE TANGIBLE COMMON ASSETS December 31, September 30, June 30, March 31, December 31,
(in $000's, unaudited) 2024
2024
2024
2024
2023
Net income $ 10,621 $ 10,507 $ 9,234 $ 10,166 $ 13,328
Average tangible common equity components:
Average Equity (GAAP) $ 686,263 $ 680,404 $ 675,108 $ 672,292 $ 664,638
Less: Goodwill (167,631 ) (167,631 ) (167,631 ) (167,631 ) (167,631 )
Less: Other Intangible Assets (6,770 ) (7,322 ) (7,867 ) (8,408 ) (9,010 )
Total Average Tangible Common Equity (non-GAAP) $ 511,862 $ 505,451 $ 499,610 $ 496,253 $ 487,997
Annualized return on average tangible common equity (non-GAAP) 8.25 % 8.27 % 7.43 % 8.24 % 10.84 %
Average tangible assets components:
Average Assets (GAAP) $ 5,607,840 $ 5,352,067 $ 5,213,171 $ 5,178,636 $ 5,264,905
Less: Goodwill (167,631 ) (167,631 ) (167,631 ) (167,631 ) (167,631 )
Less: Other Intangible Assets (6,770 ) (7,322 ) (7,867 ) (8,408 ) (9,010 )
Total Average Tangible Assets (non-GAAP) $ 5,433,439 $ 5,177,114 $ 5,037,673 $ 5,002,597 $ 5,088,264
Annualized return on average tangible assets (non-GAAP) 0.78 % 0.81 % 0.74 % 0.82 % 1.04 %
RETURN ON AVERAGE TANGIBLE COMMON For the Year Ended:
EQUITY AND AVERAGE TANGIBLE COMMON ASSETS December 31, December 31,
(in $000's, unaudited) 2024
2023
Net income $ 40,528 $ 64,443
Average tangible common equity components:
Average Equity (GAAP) $ 678,543 $ 652,449
Less: Goodwill (167,631 ) (167,631 )
Less: Other Intangible Assets (7,589 ) (9,905 )
Total Average Tangible Common Equity (non-GAAP) $ 503,323 $ 474,913
Annualized return on average tangible common equity (non-GAAP) 8.05 % 13.57 %
Average tangible assets components:
Average Assets (GAAP) $ 5,338,705 $ 5,289,375
Less: Goodwill (167,631 ) (167,631 )
Less: Other Intangible Assets (7,589 ) (9,905 )
Total Average Tangible Assets (non-GAAP) $ 5,163,485 5,111,839
Annualized return on average tangible assets (non-GAAP) 0.78 % 1.26 %
  • Management reviews yields on certain asset categories and the net interest margin of the Company on an FTE basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis using tax rates effective as of the end of the period. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. The following tables summarize components of FTE net interest income of the Company for the periods indicated:
For the Quarter Ended:
December 31, September 30, June 30, March 31, December 31,
(in $000's, unaudited) 2024 2024 2024 2024 2023
Net interest income before credit losses on loans (GAAP) $ 44,185 $ 39,915 $ 39,455 $ 40,093 $ 42,301
Tax-equivalent adjustment on securities - exempt from Federal tax 58 59 60 60 61
Net interest income, FTE (non-GAAP) $ 44,243 $ 39,974 $ 39,515 $ 40,153 $ 42,362
Average balance of total interest earning assets $ 5,267,773 $ 5,011,865 $ 4,872,449 $ 4,842,279 $ 4,923,582
Net interest margin (annualized net interest income divided by the average balance of total interest earnings assets) (GAAP) 3.34 % 3.17 % 3.26 % 3.33 % 3.41 %
Net interest margin, FTE (annualized net interest income, FTE, divided by the average balance of total earnings assets) (non-GAAP) 3.34 % 3.17 % 3.26 % 3.34 % 3.41 %
For the Year Ended:
December 31, December 31,
(in $000's, unaudited) 2024 2023
Net interest income before credit losses on loans (GAAP) $ 163,648 $ 183,224
Tax-equivalent adjustment on securities - exempt from Federal tax 237 251
Net interest income, FTE (non-GAAP) $ 163,885 $ 183,475
Average balance of total interest earning assets $ 4,999,363 $ 4,955,018
Net interest margin (annualized net interest income divided by the average balance of total interest earnings assets) (GAAP) 3.27 % 3.70 %
Net interest margin, FTE (annualized net interest income, FTE, divided by the average balance of total interest earnings assets) (non-GAAP) 3.28 % 3.70 %
  • The efficiency ratio is a non-GAAP financial measure, which is calculated by dividing noninterest expense by total revenue (net interest income plus noninterest income), and measures how much it costs to produce one dollar of revenue. The following tables summarize components of the efficiency ratio of the Company for the periods indicated:
For the Quarter Ended:
December 31, September 30, June 30, March 31, December 31,
(in $000's, unaudited) 2024 2024 2024 2024 2023
Noninterest expense $ 30,304 $ 27,555 $ 28,188 $ 27,536 $ 25,491
Net interest income before credit losses on loans $ 44,185 $ 39,915 $ 39,455 $ 40,093 $ 42,301
Noninterest income 2,185 2,240 2,276 2,047 1,942
Total revenue $ 46,370 $ 42,155 $ 41,731 $ 42,140 $ 44,243
Efficiency ratio (noninterest expense divided by total revenue) (non-GAAP) 65.35 % 65.37 % 67.55 % 65.34 % 57.62 %
For the Year Ended:
December 31, December 31,
(in $000's, unaudited) 2024 2023
Noninterest expense $ 113,583 $ 101,054
Net interest income before credit losses on loans $ 163,648 $ 183,224
Noninterest income 8,748 8,998
Total revenue $ 172,396 $ 192,222
Efficiency ratio (noninterest expense divided
by total revenue) (non-GAAP) 65.88 % 52.57 %
  • Management considers the tangible common equity ratio as a useful measurement of the Company's and the Bank's equity. The following table summarizes components of the tangible common equity to tangible assets ratio of the Company at the dates indicated:
TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS December 31, September 30, June 30, March 31, December 31,
(in $000's, unaudited) 2024
2024
2024
2024
2023
Capital components:
Total Equity (GAAP) $ 689,727 $ 685,352 $ 679,199 $ 676,296 $ 672,901
Less: Preferred Stock - - - - -
Total Common Equity 689,727 685,352 679,199 676,296 672,901
Less: Goodwill (167,631 ) (167,631 ) (167,631 ) (167,631 ) (167,631 )
Less: Other Intangible Assets (6,439 ) (6,966 ) (7,521 ) (8,074 ) (8,627 )
Total Tangible Common Equity (non-GAAP) $ 515,657 $ 510,755 $ 504,047 $ 500,591 $ 496,643
Asset components:
Total Assets (GAAP) $ 5,645,006 $ 5,551,596 $ 5,263,024 $ 5,256,074 $ 5,194,095
Less: Goodwill (167,631 ) (167,631 ) (167,631 ) (167,631 ) (167,631 )
Less: Other Intangible Assets (6,439 ) (6,966 ) (7,521 ) (8,074 ) (8,627 )
Total Tangible Assets (non-GAAP) $ 5,470,936 $ 5,376,999 $ 5,087,872 $ 5,080,369 $ 5,017,837
Tangible common equity / tangible assets (non-GAAP) 9.43 % 9.50 % 9.91 % 9.85 % 9.90 %
  • The following table summarizes components of the tangible common equity to tangible assets ratio of the Bank at the dates indicated:
TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS December 31, September 30, June 30, March 31, December 31,
(in $000's, unaudited) 2024
2024
2024
2024
2023
Capital components:
Total Equity (GAAP) $ 709,379 $ 704,585 $ 697,964 $ 694,543 $ 690,918
Less: Preferred Stock - - - - -
Total Common Equity 709,379 704,585 697,964 694,543 690,918
Less: Goodwill (167,631 ) (167,631 ) (167,631 ) (167,631 ) (167,631 )
Less: Other Intangible Assets (6,439 ) (6,966 ) (7,521 ) (8,074 ) (8,627 )
Total Tangible Common Equity (non-GAAP) $ 535,309 $ 529,988 $ 522,812 $ 518,838 $ 514,660
Asset components:
Total Assets (GAAP) $ 5,641,646 $ 5,548,576 $ 5,260,500 $ 5,254,044 $ 5,190,829
Less: Goodwill (167,631 ) (167,631 ) (167,631 ) (167,631 ) (167,631 )
Less: Other Intangible Assets (6,439 ) (6,966 ) (7,521 ) (8,074 ) (8,627 )
Total Tangible Assets (non-GAAP) $ 5,467,576 $ 5,373,979 $ 5,085,348 $ 5,078,339 $ 5,014,571
Tangible common equity / tangible assets (non-GAAP) 9.79 % 9.86 % 10.28 % 10.22 % 10.26 %


Source: Heritage Commerce Corp