Heritage Commerce Corp (Nasdaq:HTBK), the holding
company (the "Company") for Heritage Bank of Commerce (the "Bank"),
today reported that net income increased 19% to $3.3 million, or
$0.10 per average diluted common share, for the second quarter of
2014, compared to $2.8 million, or $0.09 per average diluted common
share for the second quarter of 2013, and increased 8% from $3.1
million, or $0.10 per average diluted common share for the first
quarter of 2014. For the six months ended June 30, 2014, net income
increased 29% to $6.4 million, or $0.20 per average diluted common
share, from $5.0 million, or $0.16 per average diluted common
share, for the six months ended June 30, 2013. All results are
unaudited.
"We continue to achieve important strategic and operational
progress, demonstrated by our ability to consistently generate
solid results," said Walter Kaczmarek, President and Chief
Executive Officer. "With 18% year-over-year loan growth, our net
interest income grew 11% and net interest margin improved 26 basis
points in the first half of 2014, compared to the first half of
2013. Loan growth continues to be an area of strength for us,
reflecting our ability to gain market share. The additions to our
loan teams have also contributed to our strong loan growth. At the
same time, we maintain solid asset quality metrics with
nonperforming assets declining 42%, compared with the prior year,
and declining 24% on a linked quarter basis."
"Our Board of Directors voted to increase the quarterly common
stock dividend to $0.05 per share, from $0.04 per share in the
first quarter of 2014, due to continued improved performance. This
is a 25% increase from the preceding quarter and up 67% from $0.03
per share paid in November, 2013," commented Mr. Kaczmarek. "We are
delighted to be able to increase our dividend again and share our
success with our shareholders. Our strong business fundamentals and
ongoing ability to leverage our brand in the Bay area continues to
be the foundation of our strength. The dividend will be paid to
holders of common stock and Series C preferred stock (on an as
converted basis) on August 27, 2014, to shareholders of record on
August 7, 2014."
Second Quarter 2014 Highlights (as of, or for
the period ended June 30, 2014, except as noted):
- Diluted earnings per share increased 11% to $0.10 for the
second quarter of 2014, compared to $0.09 per diluted share for the
second quarter of 2013, and remained the same from the first
quarter of 2014. Diluted earnings per share increased 25% to $0.20
for the six months ended June 30, 2014, compared to $0.16 per
diluted share for the six months ended June 30, 2013.
- Net interest income increased 13% to $13.7 million for the
second quarter of 2014, compared to $12.2 million for the second
quarter of 2013, and increased 3% from $13.3 million for the first
quarter of 2014, driven primarily by loan growth and increases in
core deposits. Net interest income increased 11% to $27.0
million for the six months ended June 30, 2014, compared to $24.3
million for the six months ended June 30, 2013.
- The fully tax equivalent ("FTE") net interest margin increased
18 basis points to 4.07% for the second quarter of 2014, from 3.89%
for the second quarter of 2013, primarily due to loan growth,
higher yields on securities, and a lower cost of funds. The net
interest margin increased 2 basis points to 4.07% for the second
quarter of 2014 from 4.05% for the first quarter of 2014 mainly due
to loan growth. For the six months ended June 30, 2014, net
interest margin increased 26 basis points to 4.06%, from 3.80% for
the six months ended June 30, 2013, reflecting loan growth, higher
yields on securities, and a lower cost of funds.
- Loans (excluding loans-held-for-sale) increased 18% to $990.3
million at June 30, 2014, compared to $842.0 million at June 30,
2013, and increased 5% from $941.8 million at March 31, 2014.
- Nonperforming assets ("NPAs") declined to $8.7 million, or
0.59% of total assets, at June 30, 2014, compared to $15.0 million,
or 1.07% of total assets, at June 30, 2013, and $11.4 million, or
0.77% of total assets, at March 31, 2014.
- Net charge-offs totaled $27,000 for the second quarter of 2014,
compared to net recoveries of $270,000 for the second quarter of
2013, and net charge-offs of $337,000 for the first quarter of
2014.
- There was a $198,000 credit to the provision for loan losses
for the second quarter of 2014, compared to a $270,000 credit to
the provision for loan losses for the second quarter of 2013, and a
$10,000 credit to the provision for loan losses for the first
quarter of 2014.
- The allowance for loan losses ("ALLL") decreased to 1.88% of
total loans at June 30, 2014, compared to 2.30% at June 30, 2013,
and 2.00% at March 31, 2014.
- Deposits totaled $1.27 billion at June 30, 2014, compared to
$1.19 billion at June 30, 2013, and $1.26 billion at March 31,
2014. Noninterest-bearing demand deposits increased $48.7
million at June 30, 2014 from June 30, 2013, and increased $15.4
million from March 31, 2014, while brokered deposits decreased
$43.2 million and $6.8 million, respectively. Deposits (excluding
all time deposits and CDARS deposits) increased $129.6 million, or
15%, to $1.0 billion at June 30, 2014, from $873.9 million at June
30, 2013, and increased $11.5 million, or 1%, from $992.0 million
at March 31, 2014.
- Capital ratios exceeded regulatory requirements for a
well-capitalized financial institution on a holding company and
bank level at June 30, 2014:
|
Capital Ratios |
Heritage Commerce
Corp |
Heritage Bank of
Commerce |
Well-Capitalized Financial
Institution Regulatory Guidelines |
|
|
|
|
|
|
Total Risk-Based |
15.1% |
14.1% |
10.0% |
|
Tier 1 Risk-Based |
13.9% |
12.9% |
6.0% |
|
Leverage |
12.0% |
11.2% |
5.0% |
Operating Results
Net interest income increased 13% to $13.7 million for the
second quarter of 2014, compared to $12.2 million for the second
quarter of 2013, and increased 3% from $13.3 million for the first
quarter of 2014, driven primarily by loan growth and increases in
core deposits. Net interest income increased 11% to $27.0
million for the six months ended June 30, 2014, compared to $24.3
million for the six months ended June 30, 2013.
The net interest margin (FTE) increased 18 basis points to 4.07%
for the second quarter of 2014, from 3.89% for the second quarter
of 2013, primarily due to loan growth, higher yields on securities,
and a lower cost of funds. The net interest margin increased 2
basis points to 4.07% for the second quarter of 2014 from 4.05% for
the first quarter of 2014 mainly due to loan growth. For the
six months ended June 30, 2014, net interest margin increased 26
basis points to 4.06%, from 3.80% for the six months ended June 30,
2013.
Favorable credit quality led to a $198,000 credit to the
provision for loan losses for the second quarter of 2014, compared
to a $270,000 credit to the provision for loan losses for the
second quarter of 2013, and a $10,000 credit to the provision for
loan losses for the first quarter of 2014. There was a $208,000
credit to the provision for loan losses for the six months ended
June 30, 2014 compared to a $270,000 credit to the provision for
loan losses for the six months ended June 30, 2013.
Noninterest income was $2.0 million for the second quarter of
2014, compared to $1.9 million for the second quarter of 2013, and
$2.0 million for the first quarter of 2014. For the six months
ended June 30, 2014, noninterest income was $4.1 million, compared
to $3.6 million for the six months ended June 30,
2013. Largely due to a higher gain on sales of Small Business
Administration ("SBA") loans, noninterest income was higher for the
second quarter and for the six months ended June 30, 2014, compared
to the same periods in 2013. "Our SBA team is showing progress
as reflected with a gain on sales of SBA loans of $442,000 for the
second quarter of 2014, compared to $134,000 for the second quarter
of 2013, and $157,000 for the first quarter of 2014. For the
six months ended June 30, 2014, there was a gain on sales of SBA
loans of $599,000, compared to $270,000 for the six months ended
June 30, 2013," added Mr. Kaczmarek.
Noninterest expense for the second quarter of 2014 was $10.9
million, an increase of 5% from $10.4 million for the second
quarter of 2013, and an increase of 2% from $10.7 million for the
first quarter of 2014. Noninterest expense for the six months
ended June 30, 2014 increased 2% to $21.7 million, compared to
$21.2 million for the six months ended June 30, 2013. The
increase in noninterest expense for the second quarter and six
months ended June 30, 2014 was primarily due to increased salaries
and employee benefits expense, partially offset by lower
professional fees. Higher salaries and employee benefits
expense reflected the growth in staffing for business initiatives,
the impact of merit increases, and one-time reorganizational costs
in the second quarter of 2014. Professional fees were lower
due to net recoveries in legal fees as a result of the resolution
or payoff of certain problem loans in the second quarter of
2014. Full‑time equivalent employees were 203, 191, and 195 at
June 30, 2014, June 30, 2013, and March 31, 2014,
respectively.
The efficiency ratio for the second quarter of 2014 improved to
69.50%, compared to 73.85% for the second quarter of 2013, and
69.92% for the first quarter of 2014. The efficiency ratio for
the six months ended June 30, 2014 was 69.71%, compared to 75.92%
for the six months ended June 30, 2013. The decrease in the
efficiency ratio in the second quarter and six months ended June
30, 2014 compared to the same periods in 2013 was primarily due to
higher net interest income and noninterest income, partially offset
by higher noninterest expense.
Income tax expense for the second quarter of 2014 was $1.7
million, compared to $1.2 million for the second quarter of 2013,
and $1.6 million for the first quarter of 2014. The effective tax
rate for the second quarter of 2014 increased to 33%, compared to
29% for the second quarter of 2013, primarily as a result of
reduced income tax credits. The effective tax rate for the
first quarter of 2014 was 34%. Income tax expense for the six
months ended June 30, 2014 was $3.2 million, compared to $2.0
million for the six months ended June 30, 2013. The effective tax
rate for the six months ended June 30, 2014 was 33%, compared to
29% for the six months ended June 30, 2013. The difference in
the effective tax rate for the periods reported, compared to the
combined Federal and state statutory tax rate of 42%, 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, and
tax-exempt interest income earned on municipal bonds. The
Company has net investments of $1.0 million in low-income housing
limited partnerships as of June 30, 2014, generating tax credits of
approximately $412,000 for 2014, compared to tax credits of
approximately $727,000 for 2013. The Company had California
Enterprise Zone tax savings of approximately $162,000 for
2013. The California state legislature eliminated the
Enterprise Zone tax deductions beginning January 1, 2014.
Balance Sheet Review, Capital Management and Credit
Quality
Total assets were $1.48 billion at June 30, 2014, compared to
$1.40 billion at June 30, 2013, and $1.47 billion at March 31,
2014.
The investment securities available-for-sale portfolio totaled
$261.5 million at June 30, 2014, compared to $293.8 million at June
30, 2013, and $262.4 million at March 31, 2014. At June 30,
2014, the securities available-for-sale portfolio was comprised of
$159.0 million agency mortgage-backed securities (all issued by
U.S. Government sponsored entities), $53.9 million of corporate
bonds, $27.3 million of asset-backed securities, and $21.3 million
of single entity issue trust preferred securities. The pre-tax
unrealized gain on securities available-for-sale at June 30, 2014
was $4.5 million, compared to a pre-tax unrealized loss on
securities available-for-sale of ($880,000), at June 30, 2013, and
a pre-tax unrealized gain on securities available-for-sale of
$294,000 at March 31, 2014.
At June 30, 2014, investment securities held-to-maturity totaled
$96.0 million, compared to $81.7 million at June 30, 2013, and
$95.5 million at March 31, 2014. At June 30, 2014, the
securities held-to-maturity portfolio, at amortized cost, was
comprised of $80.0 million tax-exempt municipal bonds and $16.0
million agency mortgage-backed securities.
Loans, excluding loans held-for-sale, increased 18% to $990.3
million at June 30, 2014, from $842.0 million at June 30, 2013, and
increased 5% from $941.8 million at March 31, 2014. The loan
portfolio remains well-diversified with commercial and industrial
("C&I") loans accounting for 42% of the loan portfolio at June
30, 2014. Commercial and residential real estate loans
accounted for 46% of the total loan portfolio, of which 49% were
owner-occupied by businesses. Consumer and home equity loans
accounted for 7% of total loans, and land and construction loans
accounted for the remaining 5% of total loans at June 30,
2014. C&I line usage was 42% at June 30, 2014, compared to
40% at June 30, 2013, and 36% at March 31, 2014.
The yield on the loan portfolio was 4.78% for the second quarter
of 2014, compared to 4.93% for the second quarter of 2013. The
yield on the loan portfolio was 4.82% for the six months ended June
30, 2014, compared to 5.03% for the six months ended June 30,
2013. The decrease in the yield on the loan portfolio for the
second quarter and six months ended June 30, 2014 compared to the
same periods in 2013 was a result of competitive market
conditions. The yield on the loan portfolio was 4.78% for the
second quarter of 2014, compared to 4.86% for the first quarter of
2014. The yield on the loan portfolio for the first quarter of
2014 included approximately $270,000 of interest recovered on a
loan that was previously on nonaccrual status. Excluding this
past due interest recovered, the loan yield for the first quarter
of 2014 would have been 4.74%.
NPAs decreased to $8.7 million, or 0.59% of total assets, at
June 30, 2014, compared to $15.0 million, or 1.07% of total assets,
at June 30, 2013, and $11.4 million, or 0.77% of total assets, at
March 31, 2014. The following is a breakout of NPAs at June
30, 2014:
NONPERFORMING ASSETS |
|
|
(in $000's,
unaudited) |
Balance |
% of Total |
SBA loans |
$ 2,963 |
34% |
Commercial real estate loans |
1,693 |
20% |
Land and construction loans |
1,688 |
19% |
Commercial and industrial loans |
766 |
9% |
Home equity and consumer loans |
578 |
7% |
Foreclosed assets |
525 |
6% |
Restructured and loans over 90 days past due
and accruing |
454 |
5% |
Total nonperforming assets |
$ 8,667 |
100% |
At June 30, 2014, the $8.7 million of NPAs included $590,000 of
loans guaranteed by the SBA and $454,000 of restructured loans
still accruing interest income. Foreclosed assets were
$525,000 at June 30, 2014, compared to $659,000 at June 30, 2013,
and $551,000 at March 31, 2014.
Classified assets (net of SBA guarantees) were $23.1 million at
June 30, 2014, compared to $23.8 million at June 30, 2013, and
$20.2 million at March 31, 2014.
The following table summarizes the allowance for loan
losses:
|
For the Quarter
Ended |
ALLOWANCE FOR LOAN
LOSSES |
June 30, |
March 31, |
June 30, |
(in $000's,
unaudited) |
2014 |
2014 |
2013 |
Balance at beginning of period |
$ 18,817 |
$ 19,164 |
$ 19,342 |
Provision (credit) for loan losses during the
period |
(198) |
(10) |
(270) |
Net (charge-offs) recoveries during the
period |
(27) |
(337) |
270 |
Balance at end of period |
$ 18,592 |
$ 18,817 |
$ 19,342 |
|
|
|
|
Total loans |
$ 990,341 |
$ 941,759 |
$ 841,950 |
Total nonperforming loans |
$ 8,142 |
$ 10,824 |
$ 14,378 |
|
|
|
|
Allowance for loan losses to total loans |
1.88% |
2.00% |
2.30% |
Allowance for loan losses to total
nonperforming loans |
228.35% |
173.85% |
134.52% |
The ALLL decreased to 1.88% of total loans at June 30, 2014,
compared to 2.30% at June 30, 2013, and 2.00% at March 31,
2014. The decrease in the ALLL to total loans at June 30, 2014
was primarily due to increasing loan balances while the allowance
for loan losses declined slightly.
Total deposits increased $78.8 million to $1.27 billion at June
30, 2014, compared to $1.19 billion at June 30, 2013, and increased
$5.9 million from $1.26 billion at March 31,
2014. Noninterest-bearing demand deposits increased $48.7
million at June 30, 2014 from June 30, 2013, and increased $15.4
million from March 31, 2014, while brokered deposits decreased
$43.2 million and $6.8 million, respectively. Deposits
(excluding all time deposits and CDARS deposits) increased $129.6
million, or 15%, to $1.0 billion at June 30, 2014, from $873.9
million at June 30, 2013, and increased $11.5 million, or 1%, from
$992.0 million at March 31, 2014.
The total cost of deposits decreased five basis points to 0.16%
for the second quarter of 2014, from 0.21% for the second quarter
of 2013, and decreased one basis point from 0.17% for the first
quarter of 2014. The total cost of deposits decreased 4 basis
points to 0.17% for the six months ended June 30, 2014, from 0.21%
for the six months ended June 30, 2013.
Tangible equity was $180.2 million at June 30, 2014, compared to
$165.9 million at June 30, 2013 and $175.4 million at March 31,
2014. Tangible book value per common share was $6.09 at June
30, 2014, compared to $5.56 at June 30, 2013, and $5.91 at March
31, 2014. There were 21,004 shares of Series C Preferred Stock
outstanding at June 30, 2014, June 30, 2013, and March 31, 2014,
and the Series C Preferred Stock is convertible into an aggregate
of 5.6 million shares of common stock at a conversion price of
$3.75, upon a transfer of the Series C Preferred Stock in a widely
dispersed offering. Pro forma tangible book value per common
share, assuming the Company's outstanding Series C Preferred Stock
was converted into common stock, was $5.64 at June 30, 2014,
compared to $5.19 at June 30, 2013, and $5.49 at March 31,
2014.
Accumulated other comprehensive loss was ($92,000) at June 30,
2014, compared to accumulated other comprehensive loss of ($4.7)
million a year ago, and accumulated other comprehensive loss of
($2.5) million at March 31, 2014. The unrealized gain (loss) on
securities available-for-sale included in other comprehensive loss
was an unrealized gain of $2.6 million, net of taxes, at June 30,
2014, compared to an unrealized loss of ($507,000), net of taxes,
at June 30, 2013, and an unrealized gain of $171, 000, net of
taxes, at March 31, 2014. The components of other
comprehensive loss, net of taxes, at June 30, 2014 include the
following: an unrealized gain on available-for-sale securities of
$2.6 million; the remaining unamortized unrealized gain on
securities available-for-sale transferred to held-to-maturity of
$449,000; a liability adjustment on split dollar insurance
contracts of ($1.9) million; a liability adjustment on the
supplemental executive retirement plan of ($2.2) million; and an
unrealized gain on interest-only strip from SBA loans of
$948,000.
Heritage Commerce Corp, a bank holding company
established in February 1998, is the parent company of Heritage
Bank of Commerce, established in 1994 and headquartered in San Jose
with full-service branches in Danville, Fremont, Gilroy, Hollister,
Los Altos, Los Gatos, Morgan Hill, Pleasanton, Sunnyvale, and
Walnut Creek. Heritage Bank of Commerce is an SBA Preferred
Lender with an additional Loan Production Office in Lincoln,
California. 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. In
addition, our past results of operations do not necessarily
indicate our future results. The forward looking statements could
be affected by many factors, including but not limited to: (1)
Local, regional, and national economic conditions and events and
the impact they may have on us and our customers, and our
assessment of that impact on our estimates including, the allowance
for loan losses; (2) Delay in the pace of economic recovery and
stagnant or decreasing employment levels; (3) Changes in the
financial performance or condition of the Company's customers, or
changes in the performance or creditworthiness of our customers'
suppliers or other counterparties, which could lead to decreased
loan utilization rates, delinquencies, or defaults, which could
negatively affect our customers' ability to meet certain credit
obligations; (4) Volatility in credit or equity markets and its
effect on the global economy; (5) Changes in consumer spending,
borrowing or saving habits; (6) Competition for loans and deposits
and failure to attract or retain deposits or loans; (7) The ability
to increase market share and control expenses; (8) Risks associated
with concentrations in real estate related loans; (9) Other than
temporary impairment charges to our securities portfolio; (10) An
oversupply of inventory and deterioration in values of California
commercial real estate; (11) A prolonged slowdown in construction
activity; (12) Changes in the level of nonperforming assets, charge
offs, or other credit quality measures, and their impact on the
adequacy of the Company's allowance for loan losses and the
Company's provision for loan losses; (13) The 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; (14) Changes in inflation, interest
rates, and market liquidity which may impact interest margins and
impact funding sources; (15) Our ability to raise capital or incur
debt on reasonable terms; (16) Regulatory limits on Heritage Bank
of Commerce's ability to pay dividends to the Company; (17) The
impact of reputational risk on such matters as business generation
and retention, funding and liquidity; (18) The impact of cyber
security attacks or other disruptions to the Company's information
systems and any resulting compromise of data or disruptions in
service; (19) The effect of the enactment of the Dodd Frank Wall
Street Reform and Consumer Protection Act of 2010 and the rules and
regulations to be promulgated by supervisory and oversight agencies
implementing the legislation taking into account that the precise
timing, extent and nature of such rules and regulations and the
impact on the Company are uncertain; (20) The impact of revised
capital requirements under Basel III; (21) Significant changes in
applicable laws and regulations, including those concerning taxes,
banking and securities; (22) Changes in the competitive environment
among financial or bank holding companies and other financial
service providers; (23) The effect of changes in accounting
policies and practices, as may be adopted by the regulatory
agencies, the Public Company Accounting Oversight Board, the
Financial Accounting Standards Board and other accounting standard
setters; (24) The costs and effects of legal and regulatory
developments, including resolution of legal proceedings or
regulatory or other governmental inquiries, and the results of
regulatory examinations or reviews; and (25) Our success in
managing the risks involved in the foregoing factors. For a
discussion of factors which could cause results to differ, please
see the Company's reports on Forms 10-K and10-Q as filed with the
Securities and Exchange Commission and the Company's press
releases. Readers should not place undue reliance on the
forward-looking statements, which reflect management's view only as
of the date hereof. The Company undertakes no obligation to
publicly revise these forward-looking statements to reflect
subsequent events or circumstances.
Member FDIC
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For the Quarter
Ended: |
Percent Change
From: |
For the Six
Months Ended: |
|
CONSOLIDATED INCOME
STATEMENTS |
June 30, |
March 31, |
June 30, |
March 31, |
June 30, |
June 30, |
June 30, |
Percent |
(in $000's,
unaudited) |
2014 |
2014 |
2013 |
2014 |
2013 |
2014 |
2013 |
Change |
Interest income |
$ 14,192 |
$ 13,855 |
$ 12,838 |
2% |
11% |
$ 28,047 |
$ 25,705 |
9% |
Interest expense |
507 |
521 |
685 |
-3% |
-26% |
1,028 |
1,399 |
-27% |
Net interest income before provision for
loan losses |
13,685 |
13,334 |
12,153 |
3% |
13% |
27,019 |
24,306 |
11% |
Provision (credit) for loan losses |
(198) |
(10) |
(270) |
-1880% |
27% |
(208) |
(270) |
23% |
Net interest income after provision for
loan losses |
13,883 |
13,344 |
12,423 |
4% |
12% |
27,227 |
24,576 |
11% |
Noninterest income: |
|
|
|
|
|
|
|
|
Service charges and fees on deposit
accounts |
646 |
620 |
618 |
4% |
5% |
1,266 |
1,195 |
6% |
Gain on sales of SBA loans |
442 |
157 |
134 |
182% |
230% |
599 |
270 |
122% |
Increase in cash surrender value of life
insurance |
397 |
398 |
410 |
0% |
-3% |
795 |
826 |
-4% |
Servicing income |
313 |
348 |
385 |
-10% |
-19% |
661 |
750 |
-12% |
Gain on sales of securities |
-- |
50 |
7 |
-100% |
-100% |
50 |
38 |
32% |
Other |
249 |
444 |
361 |
-44% |
-31% |
693 |
499 |
39% |
Total noninterest income |
2,047 |
2,017 |
1,915 |
1% |
7% |
4,064 |
3,578 |
14% |
|
|
|
|
|
|
|
|
|
Noninterest expense: |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
6,819 |
6,243 |
5,864 |
9% |
16% |
13,062 |
11,875 |
10% |
Occupancy and equipment |
987 |
945 |
1,028 |
4% |
-4% |
1,932 |
2,096 |
-8% |
Professional fees |
126 |
586 |
400 |
-78% |
-69% |
712 |
1,382 |
-48% |
Other |
3,002 |
2,960 |
3,097 |
1% |
-3% |
5,962 |
5,817 |
2% |
Total noninterest expense |
10,934 |
10,734 |
10,389 |
2% |
5% |
21,668 |
21,170 |
2% |
Income before income taxes |
4,996 |
4,627 |
3,949 |
8% |
27% |
9,623 |
6,984 |
38% |
Income tax expense |
1,672 |
1,551 |
1,156 |
8% |
45% |
3,223 |
2,011 |
60% |
Net income |
3,324 |
3,076 |
2,793 |
8% |
19% |
6,400 |
4,973 |
29% |
Dividends on preferred stock |
(224) |
(224) |
-- |
0% |
N/A |
(448) |
-- |
N/A |
Net income available to common
shareholders |
3,100 |
2,852 |
2,793 |
9% |
11% |
5,952 |
4,973 |
20% |
Undistributed earnings allocated to Series C
Preferred Stock |
(358) |
(315) |
(489) |
14% |
-27% |
(673) |
(871) |
-23% |
Distributed and undistributed earnings
allocated to common shareholders |
$ 2,742 |
$ 2,537 |
$ 2,304 |
8% |
19% |
$ 5,279 |
$ 4,102 |
29% |
|
|
|
|
|
|
|
|
|
PER COMMON SHARE DATA |
|
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
Basic earnings per share |
$ 0.10 |
$ 0.10 |
$ 0.09 |
0% |
11% |
$ 0.20 |
$ 0.16 |
25% |
Diluted earnings per share |
$ 0.10 |
$ 0.10 |
$ 0.09 |
0% |
11% |
$ 0.20 |
$ 0.16 |
25% |
Weighted average shares outstanding -
basic |
26,370,510 |
26,359,825 |
26,336,244 |
0% |
0% |
26,365,167 |
26,332,793 |
0% |
Weighted average shares outstanding -
diluted |
26,503,401 |
26,483,088 |
26,371,892 |
0% |
0% |
26,493,466 |
26,378,916 |
0% |
Common shares outstanding at period-end |
26,370,510 |
26,370,510 |
26,338,521 |
0% |
0% |
26,370,510 |
26,338,521 |
0% |
Pro forma common shares outstanding at
period-end, assuming Series C preferred stock was converted into
common stock |
31,971,510 |
31,971,510 |
31,939,521 |
0% |
0% |
31,971,510 |
31,939,521 |
0% |
Book value per share |
$ 6.14 |
$ 5.96 |
$ 5.62 |
3% |
9% |
$ 6.14 |
$ 5.62 |
9% |
Tangible book value per share |
$ 6.09 |
$ 5.91 |
$ 5.56 |
3% |
10% |
$ 6.09 |
$ 5.56 |
10% |
Pro forma tangible book value per share,
assuming Series C preferred stock was converted into common
stock |
$ 5.64 |
$ 5.49 |
$ 5.19 |
3% |
9% |
$ 5.64 |
$ 5.19 |
9% |
|
|
|
|
|
|
|
|
|
KEY FINANCIAL RATIOS |
|
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
Annualized return on average equity |
7.45% |
7.10% |
6.53% |
5% |
14% |
7.28% |
5.88% |
24% |
Annualized return on average tangible
equity |
7.51% |
7.16% |
6.60% |
5% |
14% |
7.33% |
5.94% |
23% |
Annualized return on average assets |
0.91% |
0.86% |
0.82% |
6% |
11% |
0.88% |
0.71% |
24% |
Annualized return on average tangible
assets |
0.91% |
0.86% |
0.82% |
6% |
11% |
0.88% |
0.71% |
24% |
Net interest margin |
4.07% |
4.05% |
3.89% |
0% |
5% |
4.06% |
3.80% |
7% |
Efficiency ratio |
69.50% |
69.92% |
73.85% |
-1% |
-6% |
69.71% |
75.92% |
-8% |
|
|
|
|
|
|
|
|
|
AVERAGE BALANCES |
|
|
|
|
|
|
|
|
(in $000's, unaudited) |
|
|
|
|
|
|
|
|
Average assets |
$ 1,469,085 |
$ 1,458,875 |
$ 1,373,202 |
1% |
7% |
$ 1,464,008 |
$ 1,407,872 |
4% |
Average tangible assets |
$ 1,467,718 |
$ 1,457,391 |
$ 1,371,372 |
1% |
7% |
$ 1,462,583 |
$ 1,405,980 |
4% |
Average earning assets |
$ 1,373,957 |
$ 1,361,923 |
$ 1,273,769 |
1% |
8% |
$ 1,367,973 |
$ 1,307,366 |
5% |
Average loans held-for-sale |
$ 4,135 |
$ 3,296 |
$ 5,189 |
25% |
-20% |
$ 3,717 |
$ 4,227 |
-12% |
Average total loans |
$ 970,538 |
$ 927,042 |
$ 812,376 |
5% |
19% |
$ 948,911 |
$ 803,674 |
18% |
Average deposits |
$ 1,257,121 |
$ 1,250,128 |
$ 1,158,479 |
1% |
9% |
$ 1,253,644 |
$ 1,192,622 |
5% |
Average demand deposits -
noninterest-bearing |
$ 436,018 |
$ 428,944 |
$ 392,122 |
2% |
11% |
$ 432,501 |
$ 426,424 |
1% |
Average interest-bearing deposits |
$ 821,103 |
$ 821,184 |
$ 766,357 |
0% |
7% |
$ 821,143 |
$ 766,198 |
7% |
Average interest-bearing liabilities |
$ 822,660 |
$ 821,242 |
$ 775,924 |
0% |
6% |
$ 821,955 |
$ 775,684 |
6% |
Average equity |
$ 178,963 |
$ 175,773 |
$ 171,475 |
2% |
4% |
$ 177,377 |
$ 170,684 |
4% |
Average tangible equity |
$ 177,596 |
$ 174,289 |
$ 169,645 |
2% |
5% |
$ 175,952 |
$ 168,792 |
4% |
|
|
|
|
|
|
|
End of
Period: |
Percent Change
From: |
CONSOLIDATED BALANCE
SHEETS |
June 30, |
March 31, |
June 30, |
March 31, |
June 30, |
(in $000's,
unaudited) |
2014 |
2014 |
2013 |
2014 |
2013 |
ASSETS |
|
|
|
|
|
Cash and due from banks |
$ 32,162 |
$ 30,666 |
$ 33,890 |
5% |
-5% |
Federal funds sold and interest-bearing
deposits in other financial institutions |
17,256 |
54,333 |
51,872 |
-68% |
-67% |
Securities available-for-sale, at fair
value |
261,489 |
262,375 |
293,778 |
0% |
-11% |
Securities held-to-maturity, at amortized
cost |
95,972 |
95,548 |
81,731 |
0% |
17% |
Loans held-for-sale - SBA, including deferred
costs |
2,269 |
2,894 |
6,321 |
-22% |
-64% |
Loans: |
|
|
|
|
|
Commercial |
415,557 |
390,650 |
383,068 |
6% |
8% |
Real estate: |
|
|
|
|
|
Commercial and residential |
454,676 |
436,562 |
370,620 |
4% |
23% |
Land and construction |
47,758 |
42,889 |
26,705 |
11% |
79% |
Home equity |
56,743 |
56,289 |
48,667 |
1% |
17% |
Consumer |
16,112 |
15,829 |
13,097 |
2% |
23% |
Loans |
990,846 |
942,219 |
842,157 |
5% |
18% |
Deferred loan fees |
(505) |
(460) |
(207) |
10% |
144% |
Total loans, net of deferred fees |
990,341 |
941,759 |
841,950 |
5% |
18% |
Allowance for loan losses |
(18,592) |
(18,817) |
(19,342) |
-1% |
-4% |
Loans, net |
971,749 |
922,942 |
822,608 |
5% |
18% |
Company owned life insurance |
50,452 |
50,055 |
49,184 |
1% |
3% |
Premises and equipment, net |
7,237 |
7,186 |
7,541 |
1% |
-4% |
Intangible assets |
1,297 |
1,412 |
1,763 |
-8% |
-26% |
Accrued interest receivable and other
assets |
40,736 |
42,699 |
50,818 |
-5% |
-20% |
Total assets |
$ 1,480,619 |
$ 1,470,110 |
$ 1,399,506 |
1% |
6% |
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY |
|
|
|
|
|
Liabilities: |
|
|
|
|
|
Deposits: |
|
|
|
|
|
Demand, noninterest-bearing |
$ 456,235 |
$ 440,864 |
$ 407,516 |
3% |
12% |
Demand, interest-bearing |
193,041 |
198,141 |
171,027 |
-3% |
13% |
Savings and money market |
354,175 |
352,977 |
295,336 |
0% |
20% |
Time deposits - under $100 |
20,379 |
20,669 |
23,062 |
-1% |
-12% |
Time deposits -- $100 and over |
195,619 |
195,769 |
197,718 |
0% |
-1% |
Time deposits - brokered |
33,614 |
40,440 |
76,800 |
-17% |
-56% |
CDARS - money market and time
deposits |
14,785 |
13,135 |
17,580 |
13% |
-16% |
Total deposits |
1,267,848 |
1,261,995 |
1,189,039 |
0% |
7% |
Subordinated debt |
-- |
-- |
9,279 |
N/A |
-100% |
Accrued interest payable and other
liabilities |
31,246 |
31,298 |
33,568 |
0% |
-7% |
Total liabilities |
1,299,094 |
1,293,293 |
1,231,886 |
0% |
5% |
|
|
|
|
|
|
Shareholders' Equity: |
|
|
|
|
|
Series C preferred stock, net |
19,519 |
19,519 |
19,519 |
0% |
0% |
Common stock |
132,911 |
132,631 |
132,097 |
0% |
1% |
Retained earnings |
29,187 |
27,143 |
20,694 |
8% |
41% |
Accumulated other comprehensive loss |
(92) |
(2,476) |
(4,690) |
96% |
98% |
Total shareholders' equity |
181,525 |
176,817 |
167,620 |
3% |
8% |
Total liabilities and
shareholders' equity |
$ 1,480,619 |
$ 1,470,110 |
$ 1,399,506 |
1% |
6% |
|
|
|
|
|
|
|
End of
Period: |
Percent Change
From: |
|
June 30, |
March 31, |
June 30, |
March 31, |
June 30, |
|
2014 |
2014 |
2013 |
2014 |
2013 |
CREDIT QUALITY DATA |
|
|
|
|
|
(in $000's, unaudited) |
|
|
|
|
|
Nonaccrual loans - held-for-investment |
$ 7,688 |
$ 9,546 |
13,868 |
-19% |
-45% |
Restructured and loans over 90 days past due
and still accruing |
454 |
1,278 |
510 |
-64% |
-11% |
Total nonperforming loans |
8,142 |
10,824 |
14,378 |
-25% |
-43% |
Foreclosed assets |
525 |
551 |
659 |
-5% |
-20% |
Total nonperforming assets |
$ 8,667 |
$ 11,375 |
$ 15,037 |
-24% |
-42% |
Other restructured loans still accruing |
$ 1,180 |
$ -- |
$ 668 |
N/A |
77% |
Net charge-offs (recoveries) during the
quarter |
$ 27 |
$ 337 |
$ (270) |
-92% |
110% |
Provision (credit) for loan losses during the
quarter |
$ (198) |
$ (10) |
$ (270) |
-1880% |
27% |
Allowance for loan losses |
$ 18,592 |
$ 18,817 |
$ 19,342 |
-1% |
-4% |
Classified assets* |
$ 23,092 |
$ 20,198 |
$ 23,780 |
14% |
-3% |
Allowance for loan losses to total loans |
1.88% |
2.00% |
2.30% |
-6% |
-18% |
Allowance for loan losses to total
nonperforming loans |
228.35% |
173.85% |
134.52% |
31% |
70% |
Nonperforming assets to total assets |
0.59% |
0.77% |
1.07% |
-23% |
-45% |
Nonperforming loans to total loans |
0.82% |
1.15% |
1.71% |
-29% |
-52% |
Classified assets* to Heritage Commerce Corp
Tier 1 capital plus allowance for loan losses |
12% |
11% |
13% |
9% |
-8% |
Classified assets* to Heritage Bank of
Commerce Tier 1 capital plus allowance for loan losses |
13% |
11% |
13% |
18% |
0% |
|
|
|
|
|
|
OTHER PERIOD-END
STATISTICS |
|
|
|
|
|
(in $000's, unaudited) |
|
|
|
|
|
Heritage Commerce Corp: |
|
|
|
|
|
Tangible equity |
$ 180,228 |
$ 175,405 |
$ 165,857 |
3% |
9% |
Tangible common equity |
$ 160,709 |
$ 155,886 |
$ 146,338 |
3% |
10% |
Shareholders' equity / total assets |
12.26% |
12.03% |
11.98% |
2% |
2% |
Tangible equity / tangible assets |
12.18% |
11.94% |
11.87% |
2% |
3% |
Tangible common equity / tangible
assets |
10.86% |
10.61% |
10.47% |
2% |
4% |
Loan to deposit ratio |
78.11% |
74.62% |
70.81% |
5% |
10% |
Noninterest-bearing deposits / total
deposits |
35.98% |
34.93% |
34.27% |
3% |
5% |
Total risk-based capital ratio |
15.1% |
15.4% |
16.4% |
-2% |
-8% |
Tier 1 risk-based capital ratio |
13.9% |
14.2% |
15.1% |
-2% |
-8% |
Leverage ratio |
12.0% |
11.9% |
12.4% |
1% |
-3% |
|
|
|
|
|
|
Heritage Bank of Commerce: |
|
|
|
|
|
Total risk-based capital ratio |
14.1% |
14.2% |
15.6% |
-1% |
-10% |
Tier 1 risk-based capital ratio |
12.9% |
13.0% |
14.3% |
-1% |
-10% |
Leverage ratio |
11.2% |
10.9% |
11.7% |
3% |
-4% |
|
|
|
|
|
|
*Net of SBA guarantees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter
Ended |
For the Quarter
Ended |
|
June 30,
2014 |
June 30,
2013 |
|
|
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) |
$ 974,673 |
$ 11,617 |
4.78% |
$ 817,565 |
$ 10,051 |
4.93% |
Securities - taxable |
287,841 |
2,047 |
2.85% |
358,532 |
2,399 |
2.68% |
Securities - tax exempt(2) |
79,845 |
779 |
3.91% |
58,474 |
550 |
3.77% |
Federal funds sold and interest-bearing
deposits in other financial institutions |
31,598 |
22 |
0.28% |
39,198 |
30 |
0.31% |
Total interest earning assets(2) |
1,373,957 |
14,465 |
4.22% |
1,273,769 |
13,030 |
4.10% |
Cash and due from banks |
23,919 |
|
|
22,658 |
|
|
Premises and equipment, net |
7,212 |
|
|
7,611 |
|
|
Intangible assets |
1,367 |
|
|
1,830 |
|
|
Other assets |
62,630 |
|
|
67,334 |
|
|
Total assets |
$ 1,469,085 |
|
|
$ 1,373,202 |
|
|
|
|
|
|
|
|
|
Liabilities and shareholders'
equity: |
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
Demand, noninterest-bearing |
$ 436,018 |
|
|
$ 392,122 |
|
|
|
|
|
|
|
|
|
Demand, interest-bearing |
199,010 |
82 |
0.17% |
167,726 |
57 |
0.14% |
Savings and money market |
354,826 |
166 |
0.19% |
281,565 |
124 |
0.18% |
Time deposits - under $100 |
20,610 |
16 |
0.31% |
23,292 |
21 |
0.36% |
Time deposits -- $100 and over |
194,483 |
157 |
0.32% |
194,738 |
194 |
0.40% |
Time deposits - brokered |
37,766 |
83 |
0.88% |
81,118 |
197 |
0.97% |
CDARS - money market and time
deposits |
14,408 |
2 |
0.06% |
17,918 |
2 |
0.04% |
Total interest-bearing deposits |
821,103 |
506 |
0.25% |
766,357 |
595 |
0.31% |
Total deposits |
1,257,121 |
506 |
0.16% |
1,158,479 |
595 |
0.21% |
|
|
|
|
|
|
|
Subordinated debt |
-- |
-- |
-- |
9,279 |
90 |
3.89% |
Short-term borrowings |
1,557 |
1 |
0.26% |
288 |
-- |
0.00% |
Total interest-bearing liabilities |
822,660 |
507 |
0.25% |
775,924 |
685 |
0.35% |
Total interest-bearing liabilities and
demand, noninterest-bearing / cost of funds |
1,258,678 |
507 |
0.16% |
1,168,046 |
685 |
0.24% |
Other liabilities |
31,444 |
|
|
33,681 |
|
|
Total liabilities |
1,290,122 |
|
|
1,201,727 |
|
|
Shareholders' equity |
178,963 |
|
|
171,475 |
|
|
Total liabilities and shareholders'
equity |
$ 1,469,085 |
|
|
$ 1,373,202 |
|
|
|
|
|
|
|
|
|
Net interest income(2) / margin |
|
13,958 |
4.07% |
|
12,345 |
3.89% |
Less tax equivalent adjustment(2) |
|
(273) |
|
|
(192) |
|
Net interest income |
|
$ 13,685 |
|
|
$ 12,153 |
|
|
|
|
|
|
|
|
(1)Includes loans
held-for-sale. Yield amounts earned on loans include loan fees
and costs. Nonaccrual loans are included in average
balance. |
(2)Reflects tax equivalent
adjustment for tax exempt income based on a 35% tax rate. |
|
|
|
For the Six Months
Ended |
For the Six Months
Ended |
|
June 30,
2014 |
June 30,
2013 |
|
|
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) |
$ 952,628 |
$ 22,756 |
4.82% |
$ 807,901 |
$ 20,140 |
5.03% |
Securities - taxable |
287,946 |
4,217 |
2.95% |
372,044 |
4,860 |
2.63% |
Securities - tax exempt(2) |
79,895 |
1,557 |
3.93% |
49,563 |
932 |
3.79% |
Federal funds sold and interest-bearing
deposits in other financial institutions |
47,504 |
62 |
0.26% |
77,858 |
99 |
0.26% |
Total interest earning assets(2) |
1,367,973 |
28,592 |
4.21% |
1,307,366 |
26,031 |
4.02% |
Cash and due from banks |
24,323 |
|
|
23,104 |
|
|
Premises and equipment, net |
7,224 |
|
|
7,566 |
|
|
Intangible assets |
1,425 |
|
|
1,892 |
|
|
Other assets |
63,063 |
|
|
67,944 |
|
|
Total assets |
$ 1,464,008 |
|
|
$ 1,407,872 |
|
|
|
|
|
|
|
|
|
Liabilities and shareholders'
equity: |
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
Demand, noninterest-bearing |
$ 432,501 |
|
|
$ 426,424 |
|
|
|
|
|
|
|
|
|
Demand, interest-bearing |
199,207 |
159 |
0.16% |
166,073 |
116 |
0.14% |
Savings and money market |
346,251 |
317 |
0.18% |
282,392 |
244 |
0.17% |
Time deposits - under $100 |
20,887 |
33 |
0.32% |
23,940 |
43 |
0.36% |
Time deposits -- $100 and over |
194,644 |
316 |
0.33% |
192,518 |
398 |
0.42% |
Time deposits - brokered |
43,384 |
199 |
0.92% |
86,561 |
416 |
0.97% |
CDARS - money market and time
deposits |
16,770 |
3 |
0.04% |
14,714 |
3 |
0.04% |
Total interest-bearing deposits |
821,143 |
1,027 |
0.25% |
766,198 |
1,220 |
0.32% |
Total deposits |
1,253,644 |
1,027 |
0.17% |
1,192,622 |
1,220 |
0.21% |
|
|
|
|
|
|
|
Subordinated debt |
-- |
-- |
-- |
9,279 |
178 |
3.87% |
Short-term borrowings |
812 |
1 |
0.25% |
207 |
1 |
0.97% |
Total interest-bearing liabilities |
821,955 |
1,028 |
0.25% |
775,684 |
1,399 |
0.36% |
Total interest-bearing liabilities and
demand, noninterest-bearing / cost of funds |
1,254,456 |
1,028 |
0.17% |
1,202,108 |
1,399 |
0.23% |
Other liabilities |
32,175 |
|
|
35,080 |
|
|
Total liabilities |
1,286,631 |
|
|
1,237,188 |
|
|
Shareholders' equity |
177,377 |
|
|
170,684 |
|
|
Total liabilities and shareholders'
equity |
$ 1,464,008 |
|
|
$ 1,407,872 |
|
|
|
|
|
|
|
|
|
Net interest income(2) / margin |
|
27,564 |
4.06% |
|
24,632 |
3.80% |
Less tax equivalent adjustment(2) |
|
(545) |
|
|
(326) |
|
Net interest income |
|
$ 27,019 |
|
|
$ 24,306 |
|
|
|
|
|
|
|
|
(1)Includes loans
held-for-sale. Yield amounts earned on loans include loan fees
and costs. Nonaccrual loans are included in average
balance. |
(2)Reflects tax equivalent
adjustment for tax exempt income based on a 35% tax rate. |
CONTACT: Heritage Commerce Corp
Debbie Reuter, EVP, Corporate Secretary
(408) 494-4542
Heritage Commerce (NASDAQ:HTBK)
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