Heritage Commerce Corp Earns $11.2 Million for the First Quarter of 2021

Rhea-AI Summary

Heritage Commerce Corp (HTBK) reported first quarter 2021 net income of $11.2 million ($0.19/share), a significant rise from $1.9 million in Q1 2020. The bank recaptured $1.5 million in credit loss provisions, improving profitability amid ongoing COVID-19 challenges. Deposits surged by 27% year-over-year, reaching over $900 million. Nonperforming assets dropped 54% to $5.6 million. The company’s total assets surpassed $5 billion, reflecting 23% growth from the previous year. Key metrics, like return on assets, improved notably, indicating robust operational strength.

Positive

• Net income increased to $11.2 million, up from $1.9 million year-over-year.
• Deposits grew 27% to over $900 million.
• Nonperforming assets decreased 54% to $5.6 million.
• Total assets surpassed $5 billion, a 23% increase from the previous year.
• Return on assets improved to 0.99% from 0.19% year-over-year.

Negative

• Net interest income decreased by 9% to $35 million due to lower yields.
• The efficiency ratio increased to 62.38%, higher than in the previous year.

SAN JOSE, Calif., April 22, 2021 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (Nasdaq: HTBK), the holding company (the “Company”) for Heritage Bank of Commerce (the “Bank”), today announced first quarter 2021 net income of $11.2 million, or $0.19 per average diluted common share, compared to $1.9 million, or $0.03 per average diluted common share, for the first quarter of 2020, and $11.6 million, or $0.19 per average diluted common share, for the fourth quarter of 2020. First quarter 2021 results included the recapture of $1.5 million of provision for credit losses on loans, compared to a provision for credit losses on loans of $13.3 million for the first quarter of 2020. All results are unaudited.

“While facing prolonged challenges posed by the COVID-19 crisis, and the related economic uncertainty, the Company has continued to generate solid financial results, and the first quarter 2021 earnings were no exception,” said Walter Kaczmarek, President and Chief Executive Officer. “Total deposits grew by 27%, year-over-year, fueled by successful deposit gathering efforts that attracted over $900 million. Gross loans also increased 6%, year-over-year, and by 3% on a linked quarter basis. Our return on assets improved to 0.99% in the first quarter compared to 0.19% a year ago. Our year-over-year improvement in first quarter results benefited from our higher than usual provision for credit losses in the first quarter of 2020 taken in light of a downturn in the economy caused by the COVID-19 pandemic, and from our decision to adopt the Current Expected Credit Loss (“CECL”) rate methodology early in 2020,” said Mr. Kaczmarek.

Mr. Kaczmarek continued, “Our positive credit trends continue with nonperforming assets (“NPAs”) decreasing (54%) to $5.6 million at March 31, 2021, versus $12.1 million a year earlier, and declining (29%) from $7.9 million on a linked quarter basis. We had net loan recoveries of $1.4 million from previously charged-off accounts, compared to net charge-offs of $422,000 for the first quarter a year ago.” The allowance for credit losses on loans (“ACLL”) to total loans declined slightly to 1.64%, and the ratio of ACLL to total loans, excluding PPP loans, was 1.88%, at March 31, 2021, compared to 1.70% and 1.91%, respectively, at December 31, 2020.

“Our local markets and customers have been negatively impacted by government actions necessary to contain the health crisis, and we are closely tracking our loan portfolio and responding to the needs of our customers,” said Mr. Kaczmarek. “In the meantime, our capital, ACLL, and excess liquidity positions all remain strong. The total capital ratio was 16.5% and leverage ratio was 9.1% for the Company, and 15.8% and 9.5%, respectively, for the Bank, at March 31, 2021. Notably, despite the adverse impact to the economy brought on by the pandemic, the Company’s total assets increased 23% from a year ago and surpassed the milestone of $5 billion at quarter-end. With a solid earnings performance, a large core deposit base, and excellent credit quality, we believe we have a solid foundation on which to grow as the economy recovers from the COVID-19 pandemic.”

In response to economic stimulus laws passed by Congress in 2020 and 2021, Heritage Bank of Commerce has now funded two rounds of Small Business Administration (“SBA”) Payment Protection Program (“PPP”) loans. At March 31, 2021, after accounting for loan payoffs and SBA loan forgiveness, Round 1 PPP loans were $170.4 million and Round 2 PPP loans were $179.3 million. In total the Bank had $349.7 million in outstanding PPP loan balances at quarter-end. These loans generated $784,000 in interest income, $3.4 million in net deferred fee revenue ($2.4 million from loans forgiven or paid off and $969,000 from net deferred fees), and $766,000 in deferred origination costs on Round 2 PPP loans during the first quarter of 2021. At March 31, 2021, the PPP loan portfolio had remaining deferred fees of ($8.8) million and deferred costs of $1.1 million.

On April 7, 2020, the U.S. banking agencies issued the 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 Act (“CARES Act”). The Bank made accommodations for initial payment deferrals for a number of customers with a window of up to 90 days, with the potential of an additional 90 days of payment deferral (180 days maximum) upon application. The Bank also waived all customary applicable fees. Of the loans for which deferrals were originally granted, nearly all have returned to regular payment status.

The following table shows the remaining deferments at March 31, 2021 by category:

			Underlying Collateral
NON-SBA LOANS			Business			Real
(in $000’s, unaudited)			Assets			Estate			Total
Initial Deferments(1)		$	-		$	4,102		$	4,102
2nd Deferments(2)			3,146			724			3,870
Total		$	3,146		$	4,826		$	7,972
(1) Initial deferments were generally for 3 months
(2) 2nd deferments were for an additional 3 months

On December 27, 2020, the President signed into law the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Act”) which revised rules regarding PPP loans, provided supplemental PPP loan funding for new and existing borrowers and expanded the types of business expenses that are forgivable under the PPP program. On January 6, 2021, Treasury issued new Interim Final Rules (“IFRs”) to address the Act’s creation of PPP Second Draw Loans as well as other changes to the PPP program requirements. The IFRs codified aspects of the PPP program not specifically addressed in the Act:

• Extending the application deadline to submit a PPP loan application to May 31, 2021, and the SBA approval deadline to June 30, 2021.
• Allowing new PPP borrowers to use either 2019 or 2020 for business records in determining maximum loan amount.
• Maintaining a $2 million loan amount necessity certification safe harbor.
• Allowing borrowers who returned or did not originally accept PPP loan proceeds to reapply for receipt of those funds.

In addition to its portfolio of SBA PPP loans, the Bank also has a portfolio of SBA 7(a) loans totaling $45.9 million as of April 12, 2021 (the most recent available data). The following table reflects the status of these SBA 7(a) loans as of April 12, 2021:

SBA 7(a) LOANS					Number
(in $000’s, unaudited)			Balance		of Loans
SBA 7(a) loans (monthly payments are made
through the Economic Aid Act )		$	25,265		150
Payments Not Made / NSF / Returned			1,547		17
Due dates later in the month			12		2
New loans / No payment due			330		3
CARES			18,774		85
Total Portfolio		$	45,928		257

The CARES Act was amended in December 2020 to include $3.5 billion of extended debt relief payments for SBA borrowers. The program was subsequently modified by the SBA to provide two additional monthly payments of principal and interest totaling a maximum of $9,000 per month and an additional three payments to borrowers considered “underserved” as defined in the amended legislation.

Credit Quality and Performance

At March 31, 2021, NPAs declined by ($6.5) million, or (54%), to $5.6 million, compared to $12.1 million at March 31, 2020, and decreased by ($2.3) million, or (29%) from $7.9 million at December 31, 2020. The decrease in NPAs at March 31, 2021, compared to March 31, 2020 and December 31, 2020, was primarily from the sale of properties that resulted in the payoff of loans and other paid down loans, which were partially offset by additional loans that went on NPA status during the first quarter of 2021. Classified assets decreased to $33.4 million, or 0.67% of total assets, at March 31, 2021, compared to $39.6 million, or 0.97% of total assets, at March 31, 2020, and $34.0 million, or 0.73% of total assets, at December 31, 2020.

The Company continues to monitor portfolio loans made to commercial customers with businesses in higher risk sectors due to the COVID-19 pandemic. 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
		Loans at			Loans at			Loans at
HIGHER RISK SECTORS (unaudited)		March 31, 2021			December 31, 2020			March 31, 2020
Health care and social assistance:
Offices of dentists		2.06	%		2.01	%		1.63	%
Offices of physicians (except mental health specialists)		0.89	%		0.81	%		0.70	%
Other community housing services		0.24	%		0.28	%		0.11	%
All others		1.99	%		2.15	%		1.84	%
Total health care and social assistance		5.18	%		5.25	%		4.28	%
Retail trade:
Gasoline stations with convenience stores		2.54	%		2.16	%		1.98	%
All others		2.16	%		2.34	%		2.18	%
Total retail trade		4.70	%		4.50	%		4.16	%
Accommodation and food services:
Full-service restaurants		1.56	%		1.30	%		0.86	%
Limited-service restaurants		0.64	%		0.57	%		0.63	%
Hotels (except casino hotels) and motels		0.86	%		0.95	%		0.94	%
All others		0.75	%		0.68	%		0.52	%
Total accommodation and food services		3.81	%		3.50	%		2.95	%
Educational services:
Elementary and secondary schools		0.58	%		0.58	%		0.15	%
Education support services		0.46	%		0.45	%		0.15	%
All others		0.24	%		0.19	%		0.17	%
Total educational services		1.28	%		1.22	%		0.47	%
Arts, entertainment, and recreation		1.40	%		1.34	%		1.09	%
Purchased participations in micro loan portfolio		0.50	%		0.60	%		0.95	%
Total higher risk sectors		16.87	%		16.41	%		13.90	%

The increase in higher risk sector loans at March 31, 2021 and December 31, 2020, compared to March 31, 2020, was primarily due to the addition of PPP loans after the first 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 March 31, 2021.

Our liquidity position supports our ability to maintain cash flows sufficient to fund operations, meet all of our financial 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 repayment of liabilities. An integral part of the Company’s ability to manage its liquidity position appropriately is derived from its 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.

At March 31, 2021, the Company had a strong liquidity position with $1.44 billion in cash and cash equivalents, and $783.7 million in available borrowing capacity from sources including the Federal Home Loan Bank, the Federal Reserve Bank of San Francisco, Federal funds facilities with several financial institutions, and a line of credit with a correspondent bank. The Company also had $465.6 million (at fair market value) in unpledged securities available at March 31, 2021.

The loan to deposit ratio was 63.21% at March 31, 2021, compared to 75.86% at March 31, 2020, and 66.91% at December 31, 2020.

First Quarter Ended March 31, 2021
Operating Results, Balance Sheet Review, Capital Management, and Credit Quality
(as of, or for the periods ended March 31, 2021, compared to March 31, 2020, and December 31, 2020, except as noted):

Operating Results:

• Diluted earnings per share were $0.19 for the first quarter of 2021, compared to $0.03 for the first quarter of 2020, and $0.19 for the fourth quarter of 2020.
  
• 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
		March 31,				December 31,				March 31,
(unaudited)		2021				2020				2020
Return on average tangible assets		0.99	%			1.02	%			0.19	%
Return on average tangible equity		11.50	%			11.75	%			1.91	%

• Net interest income, before provision for credit losses on loans, decreased (9%) to $35.0 million for the first quarter of 2021, compared to $38.6 million for the first quarter of 2020, primarily due to decreases in the prime rate and decreases in yields on investment securities and overnight funds, which were partially offset by interest income and fees on PPP loans. Net interest income increased 2% to $35.0 million for the first quarter of 2021, compared to $34.2 million for the fourth quarter of 2020, primarily due to higher fees on PPP loans and an increase in the accretion of the loan purchase discount into interest income from acquired loans.
  
  
  • The fully tax equivalent (“FTE”) net interest margin contracted 103 basis points to 3.22% for the first quarter of 2021, from 4.25% for the first quarter of 2020, primarily due to declines in the average yields on loans, investment securities, and overnight funds, partially offset by a decline in the cost of interest-bearing liabilities and higher interest income and fees on PPP loans. The FTE net interest margin increased seven basis points for the first quarter of 2021 from 3.15% for the fourth quarter of 2020.
    

• The following tables present the average balance of loans outstanding, interest income, and the average yield for the periods indicated:
  
  
  • The average yield on the total loan portfolio decreased to 5.24% for the first quarter of 2021, compared to 5.57% for the first quarter of 2020, primarily due to a decline in the prime rate and new average balances of lower yielding PPP loans, partially offset by interest income and fees on PPP loans.

		For the Quarter Ended										For the Quarter Ended
		March 31, 2021										March 31, 2020
		Average				Interest				Average		Average				Interest				Average
(in $000’s, unaudited)		Balance				Income				Yield		Balance				Income				Yield
Loans, core bank and asset-based lending		$	2,225,342			$	25,581			4.66	%	$	2,422,020			$	30,104			5.00	%
SBA PPP loans			319,168				784			1.00	%		—				—			N/A
PPP fees, net			—				3,401			4.32	%		—				—			N/A
Bay View Funding factored receivables			48,094				2,650			22.35	%		47,470				2,877			24.38	%
Purchased residential mortgages			22,194				119			2.17	%		33,075				230			2.80	%
Purchased commercial real estate ("CRE") loans			17,162				172			4.06	%		27,340				249			3.66	%
Loan fair value mark / accretion			(11,626	)			1,129			0.21	%		(16,180	)			1,322			0.22	%
Total loans (includes loans held-for-sale)		$	2,620,334			$	33,836			5.24	%	$	2,513,725			$	34,782			5.57	%

•

The average yield on the total loan portfolio increased to 5.24% for the first quarter of 2021 compared to 4.93% for the fourth quarter of 2020, primarily due to higher fees from PPP loans and an increase in the accretion of the loan purchase discount into interest income from acquired loans.

		For the Quarter Ended										For the Quarter Ended
		March 31, 2021										December 31, 2020
		Average				Interest				Average		Average				Interest				Average
(in $000’s, unaudited)		Balance				Income				Yield		Balance				Income				Yield
Loans, core bank and asset-based lending		$	2,225,342			$	25,581			4.66	%	$	2,256,944			$	26,348			4.64	%
SBA PPP loans			319,168				784			1.00	%		313,335				787			1.00	%
PPP fees, net			—				3,401			4.32	%		—				1,935			2.46	%
Bay View Funding factored receivables			48,094				2,650			22.35	%		50,720				2,856			22.40	%
Purchased residential mortgages			22,194				119			2.17	%		24,955				118			1.88	%
Purchased CRE loans			17,162				172			4.06	%		20,854				176			3.36	%
Loan fair value mark / accretion			(11,626	)			1,129			0.21	%		(12,017	)			687			0.12	%
Total loans (includes loans held-for-sale)		$	2,620,334			$	33,836			5.24	%	$	2,654,791			$	32,907			4.93	%

•

In aggregate, the original total net purchase discount on loans from the Focus Business Bank, Tri-Valley Bank, United American Bank, and Presidio Bank loan portfolio was $25.2 million. In aggregate, the remaining net purchase discount on total loans acquired was $11.0 million at March 31, 2021.

• The average cost of total deposits was 0.12% for the first quarter of 2021, compared to 0.22% for the first quarter of 2020 and 0.14% for the fourth quarter of 2020.
  

• During the first quarter of 2021, there was a recapture of ($1.5) million in provision for credit losses on loans, primarily due to recoveries on previously charged-off loans, compared to a $13.3 provision for credit losses on loans taken in the first quarter of 2020, and the recapture of ($1.3) million to the provision for credit losses on loans taken in the fourth quarter of 2020.
  
  
  • The higher provision for credit losses on loans for the first quarter of 2020 was driven primarily by a significantly deteriorated economic outlook resulting from the Coronavirus pandemic. 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 $2.3 million for the first quarter of 2021, compared to $3.2 million for the first quarter of 2020, primarily due to a gain on the disposition of foreclosed assets and from higher service charges and fees on deposit accounts for the first quarter of 2020. Total noninterest income increased to $2.3 million for the first quarter of 2021 from $2.1 million for the fourth quarter of 2020, primarily due to an increase in gains on the sale of SBA loans and servicing income.

• Total noninterest expense for the first quarter of 2021 decreased to $23.2 million, compared to $25.8 million for the first quarter of 2020, primarily due to lower merger-related costs, partially offset by higher severance expense during the first quarter of 2021. For the fourth quarter of 2020, total noninterest expense was $21.6 million.
  
  
  • The following table reflects pre-tax merger-related costs resulting from the merger with Presidio for the periods indicated:

		For the Quarter Ended
MERGER-RELATED COSTS		March 31,			December 31,			March 31,
(in $000’s, unaudited)		2021			2020			2020
Salaries and employee benefits		$	—		$	—		$	356
Other			58			101			2,068
Total merger-related costs		$	58		$	101		$	2,424

	•	Noninterest expense for the first quarter of 2021 included approximately $1.5 million in severance expense, partially offset by $766,000 in deferred origination costs on Round 2 PPP loans.
	•	Full time equivalent employees were 325 at March 31, 2021, and 337 at March 31, 2020, and 331 at December 31, 2020.

• The efficiency ratio was 62.38% for the first quarter of 2021, compared to 61.70% for the first quarter of 2020, and 59.45% for the fourth quarter of 2020.

• Income tax expense was $4.3 million for the first quarter of 2021, compared to $868,000 for the first quarter of 2020, and $4.4 million for the fourth quarter of 2020. The effective tax rate for the first quarter of 2021 was 27.8%, compared to 31.8% for the first quarter of 2020, and 27.6% for the fourth quarter of 2020. The higher effective tax rate for the first quarter of 2020 was primarily due to an increase in tax expense for forfeited stock options and merger-related stock options. The effective tax rate for the first quarter of 2020 would have been 26.8% without these items.
  
  
  • 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 reached $5.00 billion at March 31, 2021, an increase of 23% from $4.08 billion at March 31, 2020, and increased 8% from $4.63 billion at December 31, 2020.
  

• Securities available-for-sale, at fair value, totaled $196.7 million at March 31, 2021, compared to $373.6 million at March 31, 2020, and $235.8 million at December 31, 2020. At March 31, 2021, the Company’s securities available-for-sale portfolio was comprised of $151.5 million of agency mortgage-backed securities (all issued by U.S. Government sponsored entities), and $45.2 million of U.S. Treasury securities. The pre-tax unrealized gain on securities available-for-sale at March 31, 2021 was $4.9 million, compared to a pre-tax unrealized gain on securities available-for-sale of $9.4 million at March 31, 2020, and a pre-tax unrealized gain on securities available-for-sale of $5.8 million at December 31, 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 March 31, 2021, securities held-to-maturity, at amortized cost, totaled $306.5 million, compared to $348.0 million at March 31, 2020, and $297.4 million at December 31, 2020. At March 31, 2021, the Company’s securities held-to-maturity portfolio was comprised of $242.7 million of agency mortgage-backed securities, and $63.8 million of tax-exempt municipal bonds. During the first quarter of 2021, the Company purchased $40.4 million of agency mortgage-backed securities (securities held-to-maturity), with a book yield of 1.54% and an average life of 5.6 years.

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

LOANS		March 31, 2021						December 31, 2020						March 31, 2020
(in $000’s, unaudited)		Balance				% to Total		Balance				% to Total		Balance				% to Total
Commercial		$	559,698			20	%	$	555,707			21	%	$	696,168			27	%
Paycheck Protection Program Loans			349,744			13	%		290,679			11	%		—			0	%
Real estate:
CRE - owner occupied			568,637			21	%		560,362			21	%		539,465			21	%
CRE - non-owner occupied			700,117			26	%		693,103			27	%		748,245			29	%
Land and construction			159,504			6	%		144,594			6	%		153,321			6	%
Home equity			104,303			4	%		111,885			4	%		117,544			5	%
Multifamily			168,917			6	%		166,425			6	%		170,292			7	%
Residential mortgages			82,181			3	%		85,116			3	%		95,808			4	%
Consumer and other			19,872			1	%		18,116			1	%		33,326			1	%
Total Loans			2,712,973			100	%		2,625,987			100	%		2,554,169			100	%
Deferred loan costs (fees), net			(8,266	)		—			(6,726	)		—			(258	)		—
Loans, net of deferred costs and fees		$	2,704,707			100	%	$	2,619,261			100	%	$	2,553,911			100	%

	•	Loans, excluding loans held-for-sale, increased $150.8 million, or 6%, to $2.70 billion at March 31, 2021, compared to $2.55 billion at March 31, 2020, and increased $85.4 million, or 3% from $2.62 billion at December 31, 2020.   Total loans at March 31, 2021 included $349.7 million of PPP loans, compared to $290.7 million at December 31, 2020. Total loans at March 31, 2021, excluding PPP loans, increased $26.4 million from December 31, 2020.
	•	Commercial and industrial line usage was 28% at March 31, 2021, compared to 36% at March 31, 2020, and 28% at December 31, 2020.
	•	At March 31, 2021, 45% of the CRE loan portfolio was secured by owner-occupied real estate.
	•	At March 31, 2021, approximately 40% of the Company’s loan portfolio consisted of floating rate interest loans.
	•	The following table summarizes the allowance for credit losses on loans for the periods indicated:

		For the Quarter Ended
ALLOWANCE FOR CREDIT LOSSES ON LOANS		March 31,				December 31,				March 31,
(in $000’s, unaudited)		2021				2020				2020
Balance at beginning of period		$	44,400			$	45,422			$	23,285
Charge-offs during the period			(263	)			(144	)			(673	)
Recoveries during the period			1,671				470				251
Net recoveries (charge-offs) during the period			1,408				326				(422	)
Impact of adopting Topic 326			—				—				8,570
Provision (recapture) for credit losses on loans during the period			(1,512	)			(1,348	)			13,270
Balance at end of period		$	44,296			$	44,400			$	44,703
Total loans, net of deferred fees		$	2,704,707			$	2,619,261			$	2,553,911
Total nonperforming loans		$	5,593			$	7,869			$	12,088
Allowance for credit losses on loans to total loans			1.64		%		1.70		%		1.75		%
Allowance for credit losses on loans to total nonperforming loans			791.99		%		564.24		%		369.81		%

	•	The ACLL was 1.64% of total loans at March 31, 2021 and the ACLL to total nonperforming loans was 791.99% at March 31, 2021. The ACLL was 1.75% of total loans and the ACLL to nonperforming loans was 369.81% at March 31, 2020. The ACLL was 1.70% of total loans and the ACLL to total nonperforming loans was 564.24% at December 31, 2020. The ACLL to total loans, excluding PPP loans, was 1.88% at March 31, 2021, and 1.91% at December 31, 2020. There were no PPP loans at March 31, 2020.
	•	The following table shows the drivers of change in ACLL under CECL for the quarter ended March 31, 2021:

DRIVERS OF CHANGE IN ACLL UNDER CECL
(in $000’s, unaudited)
ALLL at December 31, 2020		$	44,400
Net recoveries during the first quarter of 2021			1,408
Portfolio changes during the first quarter of 2021			313
Economic factors during the first quarter of 2021			(1,825	)
ACLL at March 31, 2021		$	44,296

	•	Net recoveries totaled $1.4 million for the first quarter of 2021, compared to net charge-offs of $422,000 for the first quarter of 2020, and net recoveries of $326,000 for the fourth quarter of 2020.
	•	The following is a breakout of NPAs at the periods indicated:

		End of Period:
NONPERFORMING ASSETS		March 31, 2021					December 31, 2020					March 31, 2020
(in $000’s, unaudited)		Balance			% of Total		Balance			% of Total		Balance			% of Total
CRE loans		$	2,973		53	%	$	3,706		47	%	$	7,346		61	%
Commercial loans			1,985		36	%		2,726		35	%		3,403		28	%
Consumer and other loans			407		7	%		407		5	%		771		6	%
Home equity loans			177		3	%		949		12	%		442		4	%
Restructured and loans over 90 days past due and still accruing			51		1	%		81		1	%		126		1	%
Total nonperforming assets		$	5,593		100	%	$	7,869		100	%	$	12,088		100	%

	•	NPAs totaled $5.6 million, or 0.11% of total assets, at March 31, 2021, compared to $12.1 million, or 0.30% of total assets, at March 31, 2020, and $7.9 million, or 0.17% of total assets, at December 31, 2020.
	•	There were no foreclosed assets on the balance sheet at March 31, 2021, March 31, 2020, or December 31, 2020.
	•	Classified assets decreased to $33.4 million, or 0.67% of total assets, at March 31, 2021, compared to $39.6 million, or 0.97% of total assets, at March 31, 2020, and decreased from $34.0 million, or 0.73% of total assets, at December 31, 2020.

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

DEPOSITS		March 31, 2021					December 31, 2020					March 31, 2020
(in $000’s, unaudited)		Balance			% to Total		Balance			% to Total		Balance			% to Total
Demand, noninterest-bearing		$	1,813,962		42	%	$	1,661,655		42	%	$	1,444,534		42	%
Demand, interest-bearing			1,101,807		26	%		960,179		24	%		810,425		24	%
Savings and money market			1,189,566		28	%		1,119,968		29	%		949,076		28	%
Time deposits — under $250			42,596		1	%		45,027		1	%		51,009		2	%
Time deposits — $250 and over			102,508		2	%		103,746		3	%		96,540		3	%
CDARS — interest-bearing demand,
money market and time deposits			28,663		1	%		23,911		1	%		15,055		1	%
Total deposits		$	4,279,102		100	%	$	3,914,486		100	%	$	3,366,639		100	%

	•	Total deposits increased $912.5 million, or 27%, to $4.28 billion at March 31, 2021, compared to $3.37 billion at March 31, 2020. Total deposits increased $364.6 million, or 9%, from $3.91 billion at December 31, 2020.
	•	Deposits, excluding all time deposits and CDARS deposits, increased $901.3 million, or 28%, to $4.11 billion at March 31, 2021, compared to $3.20 billion at March 31, 2020. Deposits, excluding all time deposits and CDARS increased $363.5 million, or 10%, to $4.11 billion at March 31, 2021, compared to $3.74 billion at December 31, 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 March 31, 2021, 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 Capital		16.5	%		15.8	%		10.0	%		10.5	%
Tier 1 Capital		14.0	%		14.7	%		8.0	%		8.5	%
Common Equity Tier 1 Capital		14.0	%		14.7	%		6.5	%		7.0	%
Tier 1 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		March 31,				December 31,				March 31,
(in $000’s, unaudited)		2021				2020				2020
Unrealized gain on securities available-for-sale		$	3,113			$	3,709			$	6,299
Remaining unamortized unrealized gain on securities
available-for-sale transferred to held-to-maturity			252				261				288
Split dollar insurance contracts liability			(6,148	)			(6,140	)			(4,850	)
Supplemental executive retirement plan liability			(8,698	)			(8,767	)			(6,774	)
Unrealized gain on interest-only strip from SBA loans			213				220				328
Total accumulated other comprehensive loss		$	(11,268	)		$	(10,717	)		$	(4,709	)

• Tangible equity was $398.1 million at March 31, 2021, compared to $384.5 million at March 31, 2020, and $393.6 million at December 31, 2020. Tangible book value per share was $6.64 at March 31, 2021, compared to $6.46 at March 31, 2020, and $6.57 at December 31, 2020.
  

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:
CONSOLIDATED INCOME STATEMENTS		March 31,				December 31,				March 31,				December 31,			March 31,
(in $000’s, unaudited)		2021				2020				2020				2020			2020
Interest income		$	36,761			$	36,145			$	40,942			2		%	(10	)	%
Interest expense			1,803				1,940				2,362			(7	)	%	(24	)	%
Net interest income before provision
for credit losses on loans			34,958				34,205				38,580			2		%	(9	)	%
Provision (recapture) for credit losses on loans			(1,512	)			(1,348	)			13,270			(12	)	%	(111	)	%
Net interest income after provision
for credit losses on loans			36,470				35,553				25,310			3		%	44		%
Noninterest income:
Service charges and fees on deposit accounts			601				608				969			(1	)	%	(38	)	%
Gain on sales of SBA loans			550				372				67			48		%	721		%
Increase in cash surrender value of
life insurance			456				465				458			(2	)	%	0		%
Servicing income			182				98				183			86		%	(1	)	%
Gain on sales of securities			11				7				100			57		%	(89	)	%
Gain on the disposition of foreclosed assets			—				—				791			N/A			(100	)	%
Other			501				506				625			(1	)	%	(20	)	%
Total noninterest income			2,301				2,056				3,193			12		%	(28	)	%
Noninterest expense:
Salaries and employee benefits			13,958				12,457				14,203			12		%	(2	)	%
Occupancy and equipment			2,274				2,197				1,772			4		%	28		%
Professional fees			1,719				1,396				1,435			23		%	20		%
Other			5,293				5,507				8,364			(4	)	%	(37	)	%
Total noninterest expense			23,244				21,557				25,774			8		%	(10	)	%
Income before income taxes			15,527				16,052				2,729			(3	)	%	469		%
Income tax expense			4,323				4,429				868			(2	)	%	398		%
Net income		$	11,204			$	11,623			$	1,861			(4	)	%	502		%
PER COMMON SHARE DATA
(unaudited)
Basic earnings per share		$	0.19			$	0.19			$	0.03			0		%	533		%
Diluted earnings per share		$	0.19			$	0.19			$	0.03			0		%	533		%
Weighted average shares outstanding - basic			59,641,309				59,616,951				59,286,927			0		%	1		%
Weighted average shares outstanding - diluted			60,404,213				60,247,296				60,194,025			0		%	0		%
Common shares outstanding at period-end			59,932,334				59,917,457				59,568,219			0		%	1		%
Dividend per share		$	0.13			$	0.13			$	0.13			0		%	0		%
Book value per share		$	9.71			$	9.64			$	9.59			1		%	1		%
Tangible book value per share		$	6.64			$	6.57			$	6.46			1		%	3		%
KEY FINANCIAL RATIOS
(unaudited)
Annualized return on average equity			7.85		%		7.99		%		1.29		%	(2	)	%	509		%
Annualized return on average tangible equity			11.50		%		11.75		%		1.91		%	(2	)	%	502		%
Annualized return on average assets			0.95		%		0.98		%		0.19		%	(3	)	%	400		%
Annualized return on average tangible assets			0.99		%		1.02		%		0.19		%	(3	)	%	421		%
Net interest margin (FTE)			3.22		%		3.15		%		4.25		%	2		%	(24	)	%
Efficiency ratio			62.38		%		59.45		%		61.70		%	5		%	1		%
AVERAGE BALANCES
(in $000’s, unaudited)
Average assets		$	4,773,878			$	4,703,154			$	4,033,151			2		%	18		%
Average tangible assets		$	4,589,861			$	4,518,279			$	3,845,646			2		%	19		%
Average earning assets		$	4,419,963			$	4,338,117			$	3,665,151			2		%	21		%
Average loans held-for-sale		$	3,458			$	2,772			$	2,265			25		%	53		%
Average total loans		$	2,616,876			$	2,652,019			$	2,511,460			(1	)	%	4		%
Average deposits		$	4,048,953			$	3,980,017			$	3,327,812			2		%	22		%
Average demand deposits - noninterest-bearing		$	1,712,903			$	1,749,837			$	1,438,944			(2	)	%	19		%
Average interest-bearing deposits		$	2,336,050			$	2,230,180			$	1,888,868			5		%	24		%
Average interest-bearing liabilities		$	2,375,851			$	2,269,960			$	1,928,770			5		%	23		%
Average equity		$	579,157			$	578,560			$	579,051			0		%	0		%
Average tangible equity		$	395,140			$	393,685			$	391,546			0		%	1		%

		For the Quarter Ended:
CONSOLIDATED INCOME STATEMENTS		March 31,				December 31,				September 30,				June 30,				March 31,
(in $000’s, unaudited)		2021				2020				2020				2020				2020
Interest income		$	36,761			$	36,145			$	36,252			$	37,132			$	40,942
Interest expense			1,803				1,940				2,087				2,192				2,362
Net interest income before provision for credit losses on loans			34,958				34,205				34,165				34,940				38,580
Provision (recapture) for credit losses on loans			(1,512	)			(1,348	)			197				1,114				13,270
Net interest income after provision for credit losses on loans			36,470				35,553				33,968				33,826				25,310
Noninterest income:
Service charges and fees on deposit accounts			601				608				632				650				969
Gain on sales of SBA loans			550				372				400				—				67
Increase in cash surrender value of life insurance			456				465				464				458				458
Servicing income			182				98				187				205				183
Gain on sales of securities			11				7				—				170				100
Gain on the disposition of foreclosed assets			—				—				—				—				791
Other			501				506				912				595				625
Total noninterest income			2,301				2,056				2,595				2,078				3,193
Noninterest expense:
Salaries and employee benefits			13,958				12,457				11,967				12,300				14,203
Occupancy and equipment			2,274				2,197				2,283				1,766				1,772
Professional fees			1,719				1,396				1,352				1,155				1,435
Other			5,293				5,507				5,566				5,791				8,364
Total noninterest expense			23,244				21,557				21,168				21,012				25,774
Income before income taxes			15,527				16,052				15,395				14,892				2,729
Income tax expense			4,323				4,429				4,198				4,274				868
Net income		$	11,204			$	11,623			$	11,197			$	10,618			$	1,861
PER COMMON SHARE DATA
(unaudited)
Basic earnings per share		$	0.19			$	0.19			$	0.19			$	0.18			$	0.03
Diluted earnings per share		$	0.19			$	0.19			$	0.19			$	0.18			$	0.03
Weighted average shares outstanding - basic			59,641,309				59,616,951				59,589,243				59,420,592				59,286,927
Weighted average shares outstanding - diluted			60,404,213				60,247,296				60,141,412				60,112,423				60,194,025
Common shares outstanding at period-end			59,932,334				59,917,457				59,914,987				59,856,767				59,568,219
Dividend per share		$	0.13			$	0.13			$	0.13			$	0.13			$	0.13
Book value per share		$	9.71			$	9.64			$	9.64			$	9.60			$	9.59
Tangible book value per share		$	6.64			$	6.57			$	6.55			$	6.49			$	6.46
KEY FINANCIAL RATIOS
(unaudited)
Annualized return on average equity			7.85		%		7.99		%		7.73		%		7.45		%		1.29		%
Annualized return on average tangible equity			11.50		%		11.75		%		11.41		%		11.06		%		1.91		%
Annualized return on average assets			0.95		%		0.98		%		0.98		%		0.96		%		0.19		%
Annualized return on average tangible assets			0.99		%		1.02		%		1.02		%		1.01		%		0.19		%
Net interest margin (FTE)			3.22		%		3.15		%		3.24		%		3.46		%		4.25		%
Efficiency ratio			62.38		%		59.45		%		57.58		%		56.76		%		61.70		%
AVERAGE BALANCES
(in $000’s, unaudited)
Average assets		$	4,773,878			$	4,703,154			$	4,562,412			$	4,434,238			$	4,033,151
Average tangible assets		$	4,589,861			$	4,518,279			$	4,376,533			$	4,247,522			$	3,845,646
Average earning assets		$	4,419,963			$	4,338,117			$	4,203,902			$	4,075,673			$	3,665,151
Average loans held-for-sale		$	3,458			$	2,772			$	5,169			$	3,617			$	2,265
Average total loans		$	2,616,876			$	2,652,019			$	2,664,525			$	2,683,476			$	2,511,460
Average deposits		$	4,048,953			$	3,980,017			$	3,846,652			$	3,720,850			$	3,327,812
Average demand deposits - noninterest-bearing		$	1,712,903			$	1,749,837			$	1,700,972			$	1,660,547			$	1,438,944
Average interest-bearing deposits		$	2,336,050			$	2,230,180			$	2,145,680			$	2,060,303			$	1,888,868
Average interest-bearing liabilities		$	2,375,851			$	2,269,960			$	2,185,439			$	2,099,982			$	1,928,770
Average equity		$	579,157			$	578,560			$	576,135			$	572,939			$	579,051
Average tangible equity		$	395,140			$	393,685			$	390,256			$	386,223			$	391,546

		End of Period:												Percent Change From:
CONSOLIDATED BALANCE SHEETS		March 31,				December 31,				March 31,				December 31,			March 31,
(in $000’s, unaudited)		2021				2020				2020				2020			2020
ASSETS
Cash and due from banks		$	36,534			$	30,598			$	36,998			19		%	(1	)	%
Other investments and interest-bearing deposits in other financial institutions			1,406,520				1,100,475				406,399			28		%	246		%
Securities available-for-sale, at fair value			196,718				235,774				373,570			(17	)	%	(47	)	%
Securities held-to-maturity, at amortized cost			306,535				297,389				348,044			3		%	(12	)	%
Loans held-for-sale - SBA, including deferred costs			2,834				1,699				2,415			67		%	17		%
Loans:
Commercial			559,698				555,707				696,168			1		%	(20	)	%
SBA PPP loans			349,744				290,679				—			20		%	N/A
Real estate:
CRE - owner occupied			568,637				560,362				539,465			1		%	5		%
CRE - non-owner occupied			700,117				693,103				748,245			1		%	(6	)	%
Land and construction			159,504				144,594				153,321			10		%	4		%
Home equity			104,303				111,885				117,544			(7	)	%	(11	)	%
Multifamily			168,917				166,425				170,292			1		%	(1	)	%
Residential mortgages			82,181				85,116				95,808			(3	)	%	(14	)	%
Consumer and other			19,872				18,116				33,326			10		%	(40	)	%
Loans			2,712,973				2,625,987				2,554,169			3		%	6		%
Deferred loan fees, net			(8,266	)			(6,726	)			(258	)		23		%	3104		%
Total loans, net of deferred costs and fees			2,704,707				2,619,261				2,553,911			3		%	6		%
Allowance for credit losses on loans			(44,296	)			(44,400	)			(44,703	)		0		%	(1	)	%
Loans, net			2,660,411				2,574,861				2,509,208			3		%	6		%
Company-owned life insurance			77,421				77,523				76,485			0		%	1		%
Premises and equipment, net			10,220				10,459				9,025			(2	)	%	13		%
Goodwill			167,631				167,631				167,371			0		%	0		%
Other intangible assets			15,931				16,664				19,557			(4	)	%	(19	)	%
Accrued interest receivable and other assets			120,635				121,041				129,090			0		%	(7	)	%
Total assets		$	5,001,390			$	4,634,114			$	4,078,162			8		%	23		%
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, noninterest-bearing		$	1,813,962			$	1,661,655			$	1,444,534			9		%	26		%
Demand, interest-bearing			1,101,807				960,179				810,425			15		%	36		%
Savings and money market			1,189,566				1,119,968				949,076			6		%	25		%
Time deposits-under $250			42,596				45,027				51,009			(5	)	%	(16	)	%
Time deposits-$250 and over			102,508				103,746				96,540			(1	)	%	6		%
CDARS - money market and time deposits			28,663				23,911				15,055			20		%	90		%
Total deposits			4,279,102				3,914,486				3,366,639			9		%	27		%
Subordinated debt, net of issuance costs			39,786				39,740				39,600			0		%	0		%
Accrued interest payable and other liabilities			100,839				101,999				100,482			(1	)	%	0		%
Total liabilities			4,419,727				4,056,225				3,506,721			9		%	26		%
Shareholders’ Equity:
Common stock			494,617				493,707				491,347			0		%	1		%
Retained earnings			98,314				94,899				84,803			4		%	16		%
Accumulated other comprehensive loss			(11,268	)			(10,717	)			(4,709	)		(5	)	%	(139	)	%
Total shareholders' equity			581,663				577,889				571,441			1		%	2		%
Total liabilities and shareholders’ equity		$	5,001,390			$	4,634,114			$	4,078,162			8		%	23		%

		End of Period:
CONSOLIDATED BALANCE SHEETS		March 31,				December 31,				September 30,				June 30,				March 31,
(in $000’s, unaudited)		2021				2020				2020				2020				2020
ASSETS
Cash and due from banks		$	36,534			$	30,598			$	33,353			$	40,108			$	36,998
Other investments and interest-bearing deposits
in other financial institutions			1,406,520				1,100,475				926,915				885,792				406,399
Securities available-for-sale, at fair value			196,718				235,774				294,438				323,565				373,570
Securities held-to-maturity, at amortized cost			306,535				297,389				295,609				322,677				348,044
Loans held-for-sale - SBA, including deferred costs			2,834				1,699				3,565				4,324				2,415
Loans:
Commercial			559,698				555,707				574,359				553,843				696,168
SBA PPP loans			349,744				290,679				323,550				324,550				—
Real estate:
CRE - owner occupied			568,637				560,362				561,528				553,463				539,465
CRE - non-owner occupied			700,117				693,103				713,563				725,776				748,245
Land and construction			159,504				144,594				142,632				138,284				153,321
Home equity			104,303				111,885				111,468				112,679				117,544
Multifamily			168,917				166,425				169,791				169,637				170,292
Residential mortgages			82,181				85,116				91,077				95,033				95,808
Consumer and other			19,872				18,116				17,511				22,759				33,326
Loans			2,712,973				2,625,987				2,705,479				2,696,024				2,554,169
Deferred loan fees, net			(8,266	)			(6,726	)			(8,463	)			(9,635	)			(258	)
Total loans, net of deferred fees			2,704,707				2,619,261				2,697,016				2,686,389				2,553,911
Allowance for credit losses on loans			(44,296	)			(44,400	)			(45,422	)			(45,444	)			(44,703	)
Loans, net			2,660,411				2,574,861				2,651,594				2,640,945				2,509,208
Company-owned life insurance			77,421				77,523				77,059				76,944				76,485
Premises and equipment, net			10,220				10,459				10,412				9,500				9,025
Goodwill			167,631				167,631				167,631				167,631				167,371
Other intangible assets			15,931				16,664				17,628				18,593				19,557
Accrued interest receivable and other assets			120,635				121,041				128,581				124,322				129,090
Total assets		$	5,001,390			$	4,634,114			$	4,606,785			$	4,614,401			$	4,078,162
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, noninterest-bearing		$	1,813,962			$	1,661,655			$	1,698,027			$	1,714,058			$	1,444,534
Demand, interest-bearing			1,101,807				960,179				926,041				934,780				810,425
Savings and money market			1,189,566				1,119,968				1,108,252				1,091,740				949,076
Time deposits-under $250			42,596				45,027				46,684				49,493				51,009
Time deposits-$250 and over			102,508				103,746				92,276				93,822				96,540
CDARS - money market and time deposits			28,663				23,911				19,121				16,333				15,055
Total deposits			4,279,102				3,914,486				3,890,401				3,900,226				3,366,639
Subordinated debt, net of issuance costs			39,786				39,740				39,693				39,646				39,600
Other short-term borrowings			—				—				—				—				—
Accrued interest payable and other liabilities			100,839				101,999				98,884				99,722				100,482
Total liabilities			4,419,727				4,056,225				4,028,978				4,039,594				3,506,721
Shareholders’ Equity:
Common stock			494,617				493,707				493,126				492,333				491,347
Retained earnings			98,314				94,899				91,065				87,654				84,803
Accumulated other comprehensive loss			(11,268	)			(10,717	)			(6,384	)			(5,180	)			(4,709	)
Total shareholders' equity			581,663				577,889				577,807				574,807				571,441
Total liabilities and shareholders’ equity		$	5,001,390			$	4,634,114			$	4,606,785			$	4,614,401			$	4,078,162

		End of Period:												Percent Change From:
CREDIT QUALITY DATA		March 31,				December 31,				March 31,				December 31,			March 31,
(in $000’s, unaudited)		2021				2020				2020				2020			2020
Nonaccrual loans - held-for-investment		$	5,542			$	7,788			$	11,646			(29	)	%	(52	)	%
Restructured and loans over 90 days past due and still accruing			51				81				442			(37	)	%	(88	)	%
Total nonperforming loans			5,593				7,869				12,088			(29	)	%	(54	)	%
Foreclosed assets			—				—				—			N/A			N/A
Total nonperforming assets		$	5,593			$	7,869			$	12,088			(29	)	%	(54	)	%
Other restructured loans still accruing		$	152			$	169			$	103			(10	)	%	48		%
Net charge-offs (recoveries) during the quarter		$	(1,408	)		$	(326	)		$	422			(332	)	%	(434	)	%
Provision (recapture) for credit losses on loans during the quarter		$	(1,512	)		$	(1,348	)		$	13,270			(12	)	%	(111	)	%
Allowance for credit losses on loans		$	44,296			$	44,400			$	44,703			0		%	(1	)	%
Classified assets		$	33,420			$	34,028			$	39,603			(2	)	%	(16	)	%
Allowance for credit losses on loans to total loans			1.64		%		1.70		%		1.75		%	(4	)	%	(6	)	%
Allowance for credit losses on loans to total nonperforming loans			791.99		%		564.24		%		369.81		%	40		%	114		%
Nonperforming assets to total assets			0.11		%		0.17		%		0.30		%	(35	)	%	(63	)	%
Nonperforming loans to total loans			0.21		%		0.30		%		0.47		%	(30	)	%	(55	)	%
Classified assets to Heritage Commerce Corp
Tier 1 capital plus allowance for credit losses on loans			7		%		7		%		9		%	0		%	(22	)	%
Classified assets to Heritage Bank of Commerce
Tier 1 capital plus allowance for credit losses on loans			7		%		7		%		9		%	0		%	(22	)	%
OTHER PERIOD-END STATISTICS
(in $000’s, unaudited)
Heritage Commerce Corp:
Tangible common equity (1)		$	398,101			$	393,594			$	384,513			1		%	4		%
Shareholders’ equity / total assets			11.63		%		12.47		%		14.01		%	(7	)	%	(17	)	%
Tangible common equity / tangible assets (2)			8.26		%		8.85		%		9.88		%	(7	)	%	(16	)	%
Loan to deposit ratio			63.21		%		66.91		%		75.86		%	(6	)	%	(17	)	%
Noninterest-bearing deposits / total deposits			42.39		%		42.45		%		42.91		%	0		%	(1	)	%
Total capital ratio			16.5		%		16.5		%		14.8		%	0		%	11		%
Tier 1 capital ratio			14.0		%		14.0		%		12.5		%	0		%	12		%
Common Equity Tier 1 capital ratio			14.0		%		14.0		%		12.5		%	0		%	12		%
Tier 1 leverage ratio			9.1		%		9.1		%		10.3		%	0		%	(12	)	%
Heritage Bank of Commerce:
Total capital ratio			15.8		%		15.8		%		14.1		%	0		%	12		%
Tier 1 capital ratio			14.7		%		14.6		%		13.0		%	1		%	13		%
Common Equity Tier 1 capital ratio			14.7		%		14.6		%		13.0		%	1		%	13		%
Tier 1 leverage ratio			9.5		%		9.5		%		10.7		%	0		%	(11	)	%

 

________________________
(1)		Represents shareholders' equity minus goodwill and other intangible assets
(2)		Represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets

		End of Period:
CREDIT QUALITY DATA		March 31,				December 31,				September 30,				June 30,				March 31,
(in $000’s, unaudited)		2021				2020				2020				2020				2020
Nonaccrual loans - held-for-investment		$	5,542			$	7,788			$	9,661			$	8,457			$	11,646
Restructured and loans over 90 days past due
and still accruing			51				81				601				668				442
Total nonperforming loans			5,593				7,869				10,262				9,125				12,088
Foreclosed assets			—				—				—				—				—
Total nonperforming assets		$	5,593			$	7,869			$	10,262			$	9,125			$	12,088
Other restructured loans still accruing		$	152			$	169			$	98			$	64			$	103
Net charge-offs (recoveries) during the quarter		$	(1,408	)		$	(326	)		$	219			$	373			$	422
Provision (recapture) for credit losses on loans during the quarter		$	(1,512	)		$	(1,348	)		$	197			$	1,114			$	13,270
Adoption of Topic 326		$	—			$	—			$	—			$	—			$	8,570
Allowance for credit losses on loans		$	44,296			$	44,400			$	45,422			$	45,444			$	44,703
Classified assets		$	33,420			$	34,028			$	33,024			$	31,452			$	39,603
Allowance for credit losses on loans to total loans			1.64		%		1.70		%		1.68		%		1.69		%		1.75		%
Allowance for credit losses on loans to total nonperforming loans			791.99		%		564.24		%		442.62		%		498.02		%		369.81		%
Nonperforming assets to total assets			0.11		%		0.17		%		0.22		%		0.20		%		0.30		%
Nonperforming loans to total loans			0.21		%		0.30		%		0.38		%		0.34		%		0.47		%
Classified assets to Heritage Commerce Corp
Tier 1 capital plus allowance for credit losses on loans			7		%		7		%		7		%		7		%		9		%
Classified assets to Heritage Bank of Commerce
Tier 1 capital plus allowance for credit losses on loans			7		%		7		%		7		%		7		%		9		%
OTHER PERIOD-END STATISTICS
(in $000’s, unaudited)
Heritage Commerce Corp:
Tangible common equity (1)		$	398,101			$	393,594			$	392,548			$	388,583			$	384,513
Shareholders’ equity / total assets			11.63		%		12.47		%		12.54		%		12.46		%		14.01		%
Tangible common equity / tangible assets (2)			8.26		%		8.85		%		8.88		%		8.78		%		9.88		%
Loan to deposit ratio			63.21		%		66.91		%		69.32		%		68.88		%		75.86		%
Noninterest-bearing deposits / total deposits			42.39		%		42.45		%		43.65		%		43.95		%		42.91		%
Total capital ratio			16.5		%		16.5		%		16.0		%		15.9		%		14.8		%
Tier 1 capital ratio			14.0		%		14.0		%		13.5		%		13.4		%		12.5		%
Common Equity Tier 1 capital ratio			14.0		%		14.0		%		13.5		%		13.4		%		12.5		%
Tier 1 leverage ratio			9.1		%		9.1		%		9.3		%		9.4		%		10.3		%
Heritage Bank of Commerce:
Total capital ratio			15.8		%		15.8		%		15.2		%		15.1		%		14.1		%
Tier 1 capital ratio			14.7		%		14.6		%		14.1		%		14.0		%		13.0		%
Common Equity Tier 1 capital ratio			14.7		%		14.6		%		14.1		%		14.0		%		13.0		%
Tier 1 leverage ratio			9.5		%		9.5		%		9.7		%		9.9		%		10.7		%

 

________________________
(1)		Represents shareholders' equity minus goodwill and other intangible assets
(2)		Represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets

		For the Quarter Ended										For the Quarter Ended
		March 31, 2021										March 31, 2020
NET INTEREST INCOME AND NET INTEREST MARGIN		Average				Interest Income/				Average Yield/		Average				Interest Income/				Average Yield/
(in $000’s, unaudited)		Balance				Expense				Rate		Balance				Expense				Rate
Assets:
Loans, gross (1)(2)		$	2,620,334			$	33,836			5.24	%	$	2,513,725			$	34,782			5.57	%
Securities - taxable			436,858				1,728			1.60	%		670,299				3,948			2.37	%
Securities - exempt from Federal tax (3)			66,513				542			3.30	%		80,369				647			3.24	%
Other investments and interest-bearing deposits in other financial institutions			1,296,258				768			0.24	%		400,758				1,701			1.71	%
Total interest earning assets (3)			4,419,963				36,874			3.38	%		3,665,151				41,078			4.51	%
Cash and due from banks			40,823										44,539
Premises and equipment, net			10,369										8,607
Goodwill and other intangible assets			184,017										187,505
Other assets			118,706										127,349
Total assets		$	4,773,878									$	4,033,151
Liabilities and shareholders’ equity:
Deposits:
Demand, noninterest-bearing		$	1,712,903									$	1,438,944
Demand, interest-bearing			1,026,210				479			0.19	%		800,800				542			0.27	%
Savings and money market			1,137,837				572			0.20	%		920,422				914			0.40	%
Time deposits - under $100			15,900				9			0.23	%		18,777				22			0.47	%
Time deposits - $100 and over			130,843				171			0.53	%		132,314				305			0.93	%
CDARS - money market and time deposits			25,260				1			0.02	%		16,555				2			0.05	%
Total interest-bearing deposits			2,336,050				1,232			0.21	%		1,888,868				1,785			0.38	%
Total deposits			4,048,953				1,232			0.12	%		3,327,812				1,785			0.22	%
Subordinated debt, net of issuance costs			39,757				571			5.82	%		39,571				577			5.86	%
Short-term borrowings			44				—			0.00	%		331				—			0.00	%
Total interest-bearing liabilities			2,375,851				1,803			0.31	%		1,928,770				2,362			0.49	%
Total interest-bearing liabilities and demand, noninterest-bearing / cost of funds			4,088,754				1,803			0.18	%		3,367,714				2,362			0.28	%
Other liabilities			105,967										86,386
Total liabilities			4,194,721										3,454,100
Shareholders’ equity			579,157										579,051
Total liabilities and shareholders’ equity		$	4,773,878									$	4,033,151
Net interest income (3) / margin							35,071			3.22	%						38,716			4.25	%
Less tax equivalent adjustment (3)							(113	)									(136	)
Net interest income						$	34,958									$	38,580

 

________________________
(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 $3,689,000 for the first quarter of 2021 (of which $3,401,000 was from PPP loans), compared to $139,000 for the first quarter of 2020.
(3)		Reflects the FTE adjustment for Federal tax-exempt income based on a 21%.

		For the Quarter Ended										For the Quarter Ended
		March 31, 2021										December 31, 2020
NET INTEREST INCOME AND NET INTEREST MARGIN		Average				Interest Income/				Average Yield/		Average				Interest Income/				Average Yield/
(in $000’s, unaudited)		Balance				Expense				Rate		Balance				Expense				Rate
Assets:
Loans, gross (1)(2)		$	2,620,334			$	33,836			5.24	%	$	2,654,791			$	32,907			4.93	%
Securities - taxable			436,858				1,728			1.60	%		482,951				2,053			1.69	%
Securities - exempt from Federal tax (3)			66,513				542			3.30	%		70,318				570			3.22	%
Other investments and interest-bearing deposits in other financial institutions			1,296,258				768			0.24	%		1,130,057				735			0.26	%
Total interest earning assets (3)			4,419,963				36,874			3.38	%		4,338,117				36,265			3.33	%
Cash and due from banks			40,823										42,861
Premises and equipment, net			10,369										10,387
Goodwill and other intangible assets			184,017										184,875
Other assets			118,706										126,914
Total assets		$	4,773,878									$	4,703,154
Liabilities and shareholders’ equity:
Deposits:
Demand, noninterest-bearing		$	1,712,903									$	1,749,837
Demand, interest-bearing			1,026,210				479			0.19	%		939,203				462			0.20	%
Savings and money market			1,137,837				572			0.20	%		1,121,636				674			0.24	%
Time deposits - under $100			15,900				9			0.23	%		16,748				11			0.26	%
Time deposits - $100 and over			130,843				171			0.53	%		131,740				208			0.63	%
CDARS - money market and time deposits			25,260				1			0.02	%		20,853				1			0.02	%
Total interest-bearing deposits			2,336,050				1,232			0.21	%		2,230,180				1,356			0.24	%
Total deposits			4,048,953				1,232			0.12	%		3,980,017				1,356			0.14	%
Subordinated debt, net of issuance costs			39,757				571			5.82	%		39,710				583			5.84	%
Short-term borrowings			44				—			0.00	%		70				1			5.68	%
Total interest-bearing liabilities			2,375,851				1,803			0.31	%		2,269,960				1,940			0.34	%
Total interest-bearing liabilities and demand, noninterest-bearing / cost of funds			4,088,754				1,803			0.18	%		4,019,797				1,940			0.19	%
Other liabilities			105,967										104,797
Total liabilities			4,194,721										4,124,594
Shareholders’ equity			579,157										578,560
Total liabilities and shareholders’ equity		$	4,773,878									$	4,703,154
Net interest income (3) / margin							35,071			3.22	%						34,325			3.15	%
Less tax equivalent adjustment (3)							(113	)									(120	)
Net interest income						$	34,958									$	34,205

 

________________________
(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 $3,689,000 for the first quarter of 2021 (of which $3,401,000 was from PPP loans), compared to $2,120,000 for the fourth quarter of 2020 (of which $1,935,000 was from PPP loans).
(3)		Reflects the FTE adjustment for Federal tax-exempt income based on a 21%.

 

FAQ

What was Heritage Commerce Corp's net income for Q1 2021?

Heritage Commerce Corp reported a net income of $11.2 million for the first quarter of 2021.

How did Heritage Commerce Corp's deposits change in Q1 2021?

Deposits increased by 27% year-over-year in Q1 2021.

What are the nonperforming assets of Heritage Commerce Corp as of March 31, 2021?

Nonperforming assets decreased to $5.6 million as of March 31, 2021.

How much did Heritage Commerce Corp earn per share in Q1 2021?

The earnings per share for Heritage Commerce Corp in Q1 2021 were $0.19.

What was the total asset figure for Heritage Commerce Corp at the end of March 2021?

Total assets for Heritage Commerce Corp surpassed $5 billion at the end of March 2021.