Heritage Commerce Corp Earnings increase 35% to $4.1 Million for the First Quarter of 2015 from the First Quarter of 2014

SAN JOSE, Calif., April 23, 2015 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (Nasdaq:HTBK), the holding company (the "Company") for Heritage Bank of Commerce (the "Bank"), today reported that net income increased 35% to $4.1 million, or $0.13 per average diluted common share, for the first quarter of 2015, compared to $3.1 million, or $0.10 per average diluted common share for the first quarter of 2014, and increased 15% from $3.6 million, or $0.11 per average diluted common share for the fourth quarter of 2014. All results are unaudited.

"After delivering solid profitability in 2014, our first quarter earnings showed significant growth and were amongst the highest we have produced in more than six years," said Walter Kaczmarek, President and Chief Executive Officer. "Benefitting from a full quarter of revenues from the year-end acquisition of Bay View Funding, our net interest income increased 26% and net interest margin improved 53 basis points for the first quarter of 2015, compared to the first quarter of 2014." Bay View Funding operations have been included in the Company's results of operations beginning November 1, 2014.

"We continue to foster sound customer relationships, as the economic environment in the San Francisco Bay Area continues to perform well. Our customers look to us as a strong and stable banking partner to help them achieve their financial objectives," added Mr. Kaczmarek. "Total deposits increased 13% year-over-year, with noninterest-bearing deposits increasing 23% from the first quarter a year ago. We continue to improve upon our performance metrics, with a return on average tangible assets of 1.04%, a return on average tangible equity of 9.89%, and an improved efficiency ratio of 65.35% for the first quarter of 2015. This solid financial performance is a reflection of the hard work of our employees and their commitment to our customers."

First Quarter 2015 Highlights (as of, or for the period ended March 31, 2015, except as noted):

  • Diluted earnings per share increased 30% to $0.13 for the first quarter of 2015, compared to $0.10 for the first quarter of 2014, and increased 18% from $0.11 for the fourth quarter of 2014.
  • Net interest income increased 26% to $16.9 million for the first quarter of 2015, compared to $13.3 million for the first quarter of 2014, and increased 5% from $16.1 million for the fourth quarter of 2014.
  • Professional fees decreased to $95,000 at March 31, 2015, compared to $586,000 at March 31, 2014, and $562,000 at December 31, 2014, primarily due to the recovery of legal expenses on two problem loans that were paid off during the first quarter of 2015.
  • The fully tax equivalent ("FTE") net interest margin increased 53 basis point to 4.58% for the first quarter of 2015, from 4.05% for the first quarter of 2014 and increased 25 basis points from 4.33% for the fourth quarter of 2014.
  • Loans (excluding loans-held-for-sale) increased 17% to $1.10 billion at March 31, 2015, compared to $941.8 million at March 31, 2014, and increased 1% from $1.09 billion at December 31, 2014.
  • Nonperforming assets ("NPAs") at March 31, 2015 were $8.4 million, or 0.51% of total assets, compared to $11.4 million, or 0.77% of total assets, at March 31, 2014, and $6.6 million, or 0.41% of total assets, at December 31, 2014. The increase in NPAs at March 31, 2015 from December 31, 2014 was the result of a $3.6 million real estate secured loan that was a classified loan and placed on nonperforming loan status during the quarter due to lack of performance by the borrower.
  • Classified assets, net of Small Business Administration ("SBA") guarantees, decreased 18% to $16.6 million at March 31, 2015, from $20.2 million at March 31, 2014, and increased 4% from $16.0 million at December 31, 2014.
  • The Company had net recoveries of $235,000 for the first quarter of 2015, compared to net charge-offs of $337,000 for the first quarter of 2014, and net charge-offs of $56,000 for the fourth quarter of 2014.
  • There was a $60,000 credit provision for loan losses for the first quarter of 2015, compared to a $10,000 credit provision for loan losses for the first quarter of 2014, and a $106,000 credit provision for loan losses for the fourth quarter of 2014.
  • The allowance for loan losses ("ALLL") was 1.68% of total loans at March 31, 2015, compared to 2.00% at March 31, 2014, and 1.69% at December 31, 2014.
  • Deposits totaled $1.42 billion at March 31, 2015, compared to $1.26 billion at March 31, 2014, and $1.39 billion at December 31, 2014. Deposits (excluding all time deposits and CDARS deposits) increased $174.3 million, or 18%, to $1.17 billion at March 31, 2015, from $992.0 million at March 31, 2014, and increased $38.2 million, or 3%, from $1.13 billion at December 31, 2014.
  • As of January 1, 2015, we along with other community banking organizations became subject to new capital requirements, and certain provisions of the new rules will be phased in from 2015 through 2019. The Federal Banking regulators approved the new rules to implement the revised capital adequacy standards of the Basel Committee on Banking Supervision, commonly called Basel III, and address relevant provisions of The Dodd Frank Wall Street Reform and Consumer Protection Act of 2010, as amended. The Company's consolidated capital ratios and the Bank's capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at March 31, 2015.




Capital Ratios


Heritage Commerce
Corp


Heritage Bank of
Commerce
Well-Capitalized
Financial Institution
Basel III Regulatory
Guidelines
Total Risk-Based 13.0% 12.3% 10.0%
Tier 1 Risk-Based 11.7% 11.0% 8.0%
Common Equity Tier 1 Risk-based 10.4% 11.0% 6.5%
Leverage 10.5% 10.0% 5.0%

Operating Results

As a result of growth in the loan portfolio, contribution to revenue from a full quarter of operations from Bay View Funding, and increases in core deposits, net interest income increased 26% to $16.9 million for the first quarter of 2015, compared to $13.3 million for the first quarter of 2014, and increased 5% from $16.1 million for the fourth quarter of 2014.

The net interest margin (FTE) improved to 4.58% for the first quarter of 2015, compared to 4.05% for the first quarter of 2014, and 4.33% for the fourth quarter of 2014. The increase for the first quarter of 2015 was primarily due to a full quarter of revenue from the higher yielding Bay View Funding factored receivables portfolio.

There was a $60,000 credit provision for loan losses for the first quarter of 2015, compared to a $10,000 credit provision for loan losses for the first quarter of 2014, and a $106,000 credit provision for loan losses for the fourth quarter of 2014.

Noninterest income was $1.9 million for the first quarter of 2015, compared to $2.0 million for the first quarter of 2014, and $1.8 million for the fourth quarter of 2014. Noninterest income was lower for the first quarter ended March 31, 2015, compared to the same period in 2014, primarily due to a $50,000 gain on sales of securities and higher servicing income in the first quarter of 2014. Noninterest income was higher for the first quarter of 2015 compared to fourth quarter of 2014 due to a higher gain on sales of SBA loans.

Total noninterest expense for the first quarter of 2015 increased to $12.3 million, from $10.5 million for the first quarter of 2014, and decreased from $12.4 million for the fourth quarter of 2014. The increase in noninterest expense for the first quarter of 2015, compared to the first quarter of 2014, was primarily due to the operating costs of Bay View Funding. The increase was partially offset by the recovery of legal expenses on two problem loans that were paid off in the first quarter of 2015. The decrease in noninterest expense in the first quarter of 2015, compared to the fourth quarter of 2014, was primarily due to one-time costs related to the Bay View Funding acquisition incurred in the fourth quarter of 2014, and lower professional fees, partially offset by a full quarter of operating costs of Bay View Funding, and increased compensation expenses, consistent with cyclical salaries and employee benefits expense in prior years. Full time equivalent employees were 251, 195, and 242 at March 31, 2015, March 31, 2014, and December 31, 2014, respectively.

Primarily due to a higher net interest income, the efficiency ratio for the first quarter of 2015 improved to 65.35%, compared to 68.70% for the first quarter of 2014, and 69.34% for the fourth quarter of 2014.

Income tax expense for the first quarter of 2015 was $2.4 million, compared to $1.7 million for the first quarter of 2014, and $2.0 million for the fourth quarter of 2014. The effective tax rate for the first quarter of 2015 increased to 37.0%, compared to 36.1% for the first quarter of 2014 and 35.6% for the fourth quarter of 2014. 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 (net of low income housing investment losses), and tax-exempt interest income earned on municipal bonds. The increase in the effective tax rate for the first quarter of 2015, compared to the first and fourth quarters of 2014 was primarily due to higher pre-tax income, while the net credits related to investment in low income housing limited partnerships and tax-exempt interest income earned on municipal bonds remained relatively flat.

Balance Sheet Review, Capital Management and Credit Quality

Total assets were $1.65 billion at March 31, 2015, compared to $1.47 billion at March 31, 2014, and $1.62 billion at December 31, 2014.

The investment securities available-for-sale portfolio totaled $200.8 million at March 31, 2015, compared to $262.4 million at March 31, 2014, and $206.3 million at December 31, 2014. At March 31, 2015, the securities available-for-sale portfolio was comprised of $148.1 million agency mortgage-backed securities (all issued by U.S. Government sponsored entities), $37.2 million of corporate bonds, and $15.5 million of single entity issue trust preferred securities. The pre-tax unrealized gain on securities available-for-sale at March 31, 2015 was $5.7 million, compared to a pre-tax unrealized gain on securities available-for-sale of $294,000 at March 31, 2014, and a pre-tax unrealized gain on securities available-for-sale of $4.8 million at December 31, 2014.

At March 31, 2015, investment securities held-to-maturity totaled $94.6 million, compared to $95.5 million at March 31, 2014, and $95.4 million at December 31, 2014. At March 31, 2015, the securities held-to-maturity portfolio, at amortized cost, was comprised of $79.9 million tax-exempt municipal bonds and $14.7 million agency mortgage-backed securities.

Loans, excluding loans held-for-sale, increased 17% to $1.10 billion at March 31, 2015, from $941.8 million at March 31, 2014, and increased 1% from $1.09 billion at December 31, 2014. The loan portfolio remains well-diversified with commercial and industrial ("C&I") loans accounting for 42% of the loan portfolio at March 31, 2015, which included the $44.6 million of factored receivables at Bay View Funding. Commercial and residential real estate loans accounted for 44% of the total loan portfolio, of which 50% 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 7% of total loans at March 31, 2015. C&I line usage was 37% at March 31, 2015, compared to 36% at March 31, 2014, and 42% at December 31, 2014.

The yield on the loan portfolio was 5.71% for the first quarter of 2015, compared to 4.86% for the first quarter of 2014, and 5.39% for the fourth quarter of 2014. The increase in the yield on the loan portfolio for the first quarter of 2015, from the first and fourth quarters of 2014, primarily reflects the higher yielding Bay View Funding portfolio.

NPAs at March 31, 2015 were $8.4 million, or 0.51% of total assets, compared to $11.4 million, or 0.77% of total assets, at March 31, 2014, and $6.6 million, or 0.41% of total assets, at December 31, 2014. The increase in NPAs at March 31, 2015 from December 31, 2014 was the result of a $3.6 million real estate secured loan that was a classified loan and placed on nonperforming loan status during the quarter due to lack of performance by the borrower. At March 31, 2015, the NPAs also included $79,000 of loans guaranteed by the SBA. Foreclosed assets were $1.7 million at March 31, 2015, compared to $551,000 at March 31, 2014, and $696,000 at December 31, 2014. The following is a breakout of NPAs at the periods indicated:

End of Period:
NONPERFORMING ASSETS March 31, 2015 December 31, 2014 March 31, 2014
(in $000's, unaudited) Balance % of Total Balance % of Total Balance % of Total
Commercial real estate loans $ 4,151 49% $ 1,651 25% $ 3,227 29%
Land and construction loans 1,290 15% 1,320 20% 1,718 15%
SBA loans 799 10% 2,335 36% 3,064 27%
Home equity and consumer loans 342 4% 350 5% 722 6%
Commercial and industrial loans 151 2% 199 3% 815 7%
Foreclosed assets 1,716 20% 696 11% 551 5%
Restructured and loans over 90 days past due and accruing -- 0% -- 0% 1,278 11%
Total nonperforming assets $ 8,449 100% $ 6,551 100% $ 11,375 100%

Classified assets (net of SBA guarantees) were $16.6 million at March 31, 2015, compared to $20.2 million at March 31, 2014, and $16.0 million at December 31, 2014.

The following table summarizes the allowance for loan losses:

For the Quarter Ended
ALLOWANCE FOR LOAN LOSSES March 31, December 31, March 31,
(in $000's, unaudited) 2015 2014 2014
Balance at beginning of period $ 18,379 $ 18,541 $ 19,164
Provision (credit) for loan losses during the period (60) (106) (10)
Net (charge-offs) recoveries during the period 235 (56) (337)
Balance at end of period $ 18,554 $ 18,379 $ 18,817
Total loans $ 1,101,991 $ 1,088,643 $ 941,759
Total nonperforming loans $ 6,733 $ 5,855 $ 10,824
Allowance for loan losses to total loans 1.68% 1.69% 2.00%
Allowance for loan losses to total nonperforming loans 275.57% 313.90% 173.85%

The ALLL at March 31, 2015 was 1.68% of total loans, compared to 2.00% at March 31, 2014, and 1.69% at December 31, 2014. The decrease in the ALLL to total loans at March 31, 2015 from March 31, 2014 was primarily due to increasing loan balances. The ALLL to total nonperforming loans was 275.57% at March 31, 2015, compared to 173.85% at March 31, 2014, and 313.90% at December 31, 2014.

Total deposits increased $161.7 million to $1.42 billion at March 31, 2015, compared to $1.26 billion at March 31, 2014, and increased $35.3 million from $1.39 billion at December 31, 2014. Noninterest-bearing demand deposits increased $103.5 million at March 31, 2015 from March 31, 2014, and increased $26.7 million from December 31, 2014. Interest-bearing demand deposits increased $43.3 million at March 31, 2015 from March 31, 2014, and increased $15.7 million from December 31, 2014. Brokered deposits decreased $12.3 million at March 31, 2015 from March 31, 2014, and remained flat from December 31, 2014. Deposits (excluding all time deposits and CDARS deposits) increased $174.3 million, or 18%, to $1.17 billion at March 31, 2015, from $992.0 million at March 31, 2014, and increased $38.2 million, or 3%, from $1.13 billion at December 31, 2014.

The total cost of deposits decreased 2 basis points to 0.15% for the first quarter of 2015, from 0.17% for the first quarter of 2014, and remained the same from the fourth quarter of 2014.

Tangible equity was $170.6 million at March 31, 2015, compared to $175.4 million at March 31, 2014 and $168.0 million at December 31, 2014. The decrease in tangible equity at March 31, 2015 from March 31, 2014 was primarily due to the addition of goodwill in other intangible assets from the Bay View Funding acquisition, partially offset by an increase in retained earnings, and a decrease in accumulated other comprehensive loss. Tangible book value per common share was $5.70 at March 31, 2015, compared to $5.91 at March 31, 2014, and $5.60 at December 31, 2014. There were 21,004 shares of Series C Preferred Stock outstanding at March 31, 2015, March 31, 2014, and December 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 $5.31 at March 31, 2015, compared to $5.49 at March 31, 2014, and $5.23 at December 31, 2014.

Accumulated other comprehensive loss was ($1.3) million at March 31, 2015, compared to accumulated other comprehensive loss of ($2.5) million a year ago, and accumulated other comprehensive loss of ($1.9) million at December 31, 2014. The unrealized gain on securities available-for-sale included in accumulated other comprehensive loss was an unrealized gain of $3.3 million, net of taxes, at March 31, 2015, compared to an unrealized gain of $171,000 net of taxes, at March 31, 2014, and an unrealized gain of $2.8 million, net of taxes, at December 31, 2014. The components of accumulated other comprehensive loss, net of taxes, at March 31, 2015 include the following: an unrealized gain on available-for-sale securities of $3.3 million; the remaining unamortized unrealized gain on securities available-for-sale transferred to held-to-maturity of $426,000; a split dollar insurance contracts liability of ($2.1) million; a supplemental executive retirement plan liability of ($3.8) million; and an unrealized gain on interest-only strip from SBA loans of $866,000.

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. Bay View Funding, a subsidiary of Heritage Bank of Commerce, is based in Santa Clara 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. 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) 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 and could negatively affect our customers' ability to meet certain credit obligations; (3) volatility in credit and equity markets and its effect on the global economy; (4) changes in consumer spending, borrowings and saving habits; (5) competition for loans and deposits and failure to attract or retain deposits and loans; (6) our ability to increase market share and control expenses; (7) our ability to develop and promote customer acceptance of new products and services in a timely manner; (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 and charge‑offs and other credit quality measures, and their impact on the adequacy of the Company's allowance for loan losses and the Company's provision for loan losses; (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 and uncertain impact on the Company of the enactment of the Dodd‑Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations promulgated by supervisory and oversight agencies implementing the new legislation; (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, as well as 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; (25) the successful integration of the business, employees and operations of Bay View Funding with the Company and our ability to achieve the projected synergies of this acquisition; and (26) our success in managing the risks involved in the foregoing factors.

Member FDIC

For the Quarter Ended: Percent Change From:
CONSOLIDATED INCOME STATEMENTS March 31, December 31, March 31, December 31, March 31,
(in $000's, unaudited) 2015 2014 2014 2014 2014
Interest income $ 17,366 $ 16,717 $ 13,855 4% 25%
Interest expense 508 625 521 -19% -2%
Net interest income before provision for loan losses 16,858 16,092 13,334 5% 26%
Provision (credit) for loan losses (60) (106) (10) 43% -500%
Net interest income after provision for loan losses 16,918 16,198 13,344 4% 27%
Noninterest income:
Service charges and fees on deposit accounts 623 622 620 0% 0%
Increase in cash surrender value of life insurance 400 404 398 -1% 1%
Servicing income 306 319 348 -4% -12%
Gain on sales of SBA loans 207 113 157 83% 32%
Gain on sales of securities -- -- 50 N/A -100%
Other 390 354 444 10% -12%
Total noninterest income 1,926 1,812 2,017 6% -5%
Noninterest expense:
Salaries and employee benefits 8,042 6,960 6,243 16% 29%
Occupancy and equipment 1,045 1,072 945 -3% 11%
Professional fees 95 562 586 -83% -84%
Other 3,094 3,821 2,772 -19% 12%
Total noninterest expense 12,276 12,415 10,546 -1% 16%
Income before income taxes 6,568 5,595 4,815 17% 36%
Income tax expense 2,430 1,993 1,739 22% 40%
Net income 4,138 3,602 3,076 15% 35%
Dividends on preferred stock (448) (280) (224) 60% 100%
Net income available to common shareholders 3,690 3,322 2,852 11% 29%
Undistributed earnings allocated to Series C preferred stock (274) (349) (315) -21% -13%
Distributed and undistributed earnings allocated to common shareholders $ 3,416 $ 2,973 $ 2,537 15% 35%
PER COMMON SHARE DATA
(unaudited)
Basic earnings per share $ 0.13 $ 0.11 $ 0.10 18% 30%
Diluted earnings per share $ 0.13 $ 0.11 $ 0.10 18% 30%
Weighted average shares outstanding - basic 26,509,723 26,460,519 26,359,825 0% 1%
Weighted average shares outstanding - diluted 26,680,253 26,615,743 26,483,088 0% 1%
Common shares outstanding at period-end 26,522,739 26,503,505 26,370,510 0% 1%
Pro forma common shares outstanding at period-end, assuming Series C preferred stock was converted into common stock 32,123,739 32,104,505 31,971,510 0% 0%
Book value per share $ 6.31 $ 6.22 $ 5.96 1% 6%
Tangible book value per share $ 5.70 $ 5.60 $ 5.91 2% -4%
Pro forma tangible book value per share, assuming Series C preferred stock was converted into common stock $ 5.31 $ 5.23 $ 5.49 2% -3%
KEY FINANCIAL RATIOS
(unaudited)
Annualized return on average equity 9.04% 7.72% 7.10% 17% 27%
Annualized return on average tangible equity 9.89% 8.20% 7.16% 21% 38%
Annualized return on average assets 1.03% 0.88% 0.86% 17% 20%
Annualized return on average tangible assets 1.04% 0.89% 0.86% 17% 21%
Annualized return before income taxes and provision (credit) for loan losses to average assets 1.61% 1.37% 1.34% 18% 20%
Net interest margin 4.58% 4.33% 4.05% 6% 13%
Efficiency ratio 65.35% 69.34% 68.70% -6% -5%
AVERAGE BALANCES
(in $000's, unaudited)
Average assets $ 1,634,923 $ 1,619,881 $ 1,458,875 1% 12%
Average tangible assets $ 1,619,006 $ 1,609,068 $ 1,457,391 1% 11%
Average earning assets $ 1,516,284 $ 1,500,270 $ 1,361,923 1% 11%
Average loans held-for-sale $ 987 $ 813 $ 3,296 21% -70%
Average total loans $ 1,064,849 $ 1,057,866 $ 927,042 1% 15%
Average deposits $ 1,403,636 $ 1,376,503 $ 1,250,128 2% 12%
Average demand deposits - noninterest-bearing $ 530,552 $ 515,209 $ 428,944 3% 24%
Average interest-bearing deposits $ 873,084 $ 861,294 $ 821,184 1% 6%
Average interest-bearing liabilities $ 873,135 $ 875,525 $ 821,242 0% 6%
Average equity $ 185,620 $ 185,107 $ 175,773 0% 6%
Average tangible equity $ 169,703 $ 174,294 $ 174,289 -3% -3%
End of Period: Percent Change From:
CONSOLIDATED BALANCE SHEETS March 31, December 31, March 31, December 31, March 31,
(in $000's, unaudited) 2015 2014 2014 2014 2014
ASSETS
Cash and due from banks $ 27,388 $ 23,256 $ 30,666 18% -11%
Federal funds sold and interest-bearing deposits in other financial institutions 124,388 99,147 54,333 25% 129%
Securities available-for-sale, at fair value 200,768 206,335 262,375 -3% -23%
Securities held-to-maturity, at amortized cost 94,588 95,362 95,548 -1% -1%
Loans held-for-sale - SBA, including deferred costs 1,390 1,172 2,894 19% -52%
Loans:
Commercial 458,498 462,403 390,650 -1% 17%
Real estate:
Commercial and residential 487,475 478,335 436,562 2% 12%
Land and construction 74,972 67,980 42,889 10% 75%
Home equity 65,243 61,644 56,289 6% 16%
Consumer 16,200 18,867 15,829 -14% 2%
Loans 1,102,388 1,089,229 942,219 1% 17%
Deferred loan fees (397) (586) (460) -32% -14%
Total loans, net of deferred fees 1,101,991 1,088,643 941,759 1% 17%
Allowance for loan losses (18,554) (18,379) (18,817) 1% -1%
Loans, net 1,083,437 1,070,264 922,942 1% 17%
Company owned life insurance 51,657 51,257 50,055 1% 3%
Premises and equipment, net 7,340 7,451 7,186 -1% 2%
Goodwill 13,054 13,044 -- 0% N/A
Other intangible assets 3,087 3,276 1,412 -6% 119%
Accrued interest receivable and other assets 45,790 46,539 42,699 -2% 7%
Total assets $ 1,652,887 $ 1,617,103 $ 1,470,110 2% 12%
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, noninterest-bearing $ 544,339 $ 517,662 $ 440,864 5% 23%
Demand, interest-bearing 241,477 225,821 198,141 7% 22%
Savings and money market 380,486 384,644 352,977 -1% 8%
Time deposits - under $100 19,229 20,005 20,669 -4% -7%
Time deposits -- $100 and over 199,584 200,890 195,769 -1% 2%
Time deposits - brokered 28,126 28,116 40,440 0% -30%
CDARS - money market and time deposits 10,408 11,248 13,135 -7% -21%
Total deposits 1,423,649 1,388,386 1,261,995 3% 13%
Accrued interest payable and other liabilities 42,461 44,359 31,298 -4% 36%
Total liabilities 1,466,110 1,432,745 1,293,293 2% 13%
Shareholders' Equity:
Series C preferred stock, net 19,519 19,519 19,519 0% 0%
Common stock 133,992 133,676 132,631 0% 1%
Retained earnings 34,583 33,014 27,143 5% 27%
Accumulated other comprehensive loss (1,317) (1,851) (2,476) 29% 47%
Total shareholders' equity 186,777 184,358 176,817 1% 6%
Total liabilities and shareholders' equity $ 1,652,887 $ 1,617,103 $ 1,470,110 2% 12%
End of Period: Percent Change From:
March 31, December 31, March 31, December 31, March 31,
2015 2014 2014 2014 2014
CREDIT QUALITY DATA
(in $000's, unaudited)
Nonaccrual loans - held-for-investment $ 6,733 $ 5,855 $ 9,546 15% -29%
Restructured and loans over 90 days past due and still accruing -- -- 1,278 N/A -100%
Total nonperforming loans 6,733 5,855 10,824 15% -38%
Foreclosed assets 1,716 696 551 147% 211%
Total nonperforming assets $ 8,449 $ 6,551 $ 11,375 29% -26%
Other restructured loans still accruing $ 163 $ 167 $ -- -2% N/A
Net (recoveries) charge-offs during the quarter $ (235) $ 56 $ 337 -520% -170%
Provision (credit) for loan losses during the quarter $ (60) $ (106) $ (10) 43% -500%
Allowance for loan losses $ 18,554 $ 18,379 $ 18,817 1% -1%
Classified assets(1) $ 16,647 $ 15,978 $ 20,198 4% -18%
Allowance for loan losses to total loans 1.68% 1.69% 2.00% -1% -16%
Allowance for loan losses to total nonperforming loans 275.57% 313.90% 173.85% -12% 59%
Nonperforming assets to total assets 0.51% 0.41% 0.77% 24% -34%
Nonperforming loans to total loans 0.61% 0.54% 1.15% 13% -47%
Classified assets* to Heritage Commerce Corp Tier 1 capital plus allowance for loan losses 9% 9% 11% 0% -18%
Classified assets* to Heritage Bank of Commerce Tier 1 capital plus allowance for loan losses 9% 9% 11% 0% -18%
OTHER PERIOD-END STATISTICS
(in $000's, unaudited)
Heritage Commerce Corp:
Tangible equity $ 170,636 $ 168,038 $ 175,405 2% -3%
Tangible common equity $ 151,117 $ 148,519 $ 155,886 2% -3%
Shareholders' equity / total assets 11.30% 11.40% 12.03% -1% -6%
Tangible equity / tangible assets 10.43% 10.50% 11.94% -1% -13%
Tangible common equity / tangible assets 9.23% 9.28% 10.61% -1% -13%
Loan to deposit ratio 77.41% 78.41% 74.62% -1% 4%
Noninterest-bearing deposits / total deposits 38.24% 37.29% 34.93% 3% 9%
Total risk-based capital ratio(2) 13.0% 13.9% 15.4% -6% -16%
Tier 1 risk-based capital ratio(2) 11.7% 12.6% 14.2% -7% -18%
Common Equity Tier 1 risk-based capital ratio(2) 10.4% N/A N/A N/A N/A
Leverage ratio(2) 10.5% 10.6% 11.9% -1% -12%
Heritage Bank of Commerce:
Total risk-based capital ratio(2) 12.3% 13.1% 14.2% -6% -13%
Tier 1 risk-based capital ratio(2) 11.0% 11.9% 13.0% -8% -15%
Common Equity Tier 1 risk-based capital ratio(2) 11.0% N/A N/A N/A N/A
Leverage ratio(2) 10.0% 9.9% 10.9% 1% -8%
(1)Net of SBA guarantees
(2)March 31, 2015 capital ratios are based on the Basel III regulatory requirements;
December 31, 2014 and March 31, 2014 capital ratios are based on the pre-Basel III regulatory requirements
For the Quarter Ended For the Quarter Ended
March 31, 2015 March 31, 2014
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) $ 1,065,836 $ 15,004 5.71% $ 930,338 $ 11,139 4.86%
Securities - taxable 230,456 1,779 3.13% 288,054 2,170 3.06%
Securities - tax exempt(2) 79,872 779 3.96% 79,945 778 3.95%
Federal funds sold and interest-bearing deposits in other financial institutions 140,120 77 0.22% 63,586 40 0.26%
Total interest earning assets(2) 1,516,284 17,639 4.72% 1,361,923 14,127 4.21%
Cash and due from banks 27,338 24,731
Premises and equipment, net 7,403 7,236
Goodwill and other intangible assets 15,917 1,484
Other assets 67,981 63,501
Total assets $ 1,634,923 $ 1,458,875
Liabilities and shareholders' equity:
Deposits:
Demand, noninterest-bearing $ 530,552 $ 428,944
Demand, interest-bearing 231,453 100 0.18% 199,405 77 0.16%
Savings and money market 382,015 185 0.20% 337,582 151 0.18%
Time deposits - under $100 19,680 15 0.31% 21,167 17 0.33%
Time deposits - $100 and over 200,947 151 0.30% 194,807 159 0.33%
Time deposits - brokered 28,117 55 0.79% 49,065 116 0.96%
CDARS - money market and time deposits 10,872 2 0.07% 19,158 1 0.02%
Total interest-bearing deposits 873,084 508 0.24% 821,184 521 0.26%
Total deposits 1,403,636 508 0.15% 1,250,128 521 0.17%
Short-term borrowings 51 -- 0.00% 58 -- 0.00%
Total interest-bearing liabilities 873,135 508 0.24% 821,242 521 0.26%
Total interest-bearing liabilities and demand, noninterest-bearing / cost of funds 1,403,687 508 0.15% 1,250,186 521 0.17%
Other liabilities 45,616 32,916
Total liabilities 1,449,303 1,283,102
Shareholders' equity 185,620 175,773
Total liabilities and shareholders' equity $ 1,634,923 $ 1,458,875
Net interest income(2) / margin 17,131 4.58% 13,606 4.05%
Less tax equivalent adjustment(2) (273) (272)
Net interest income $ 16,858 $ 13,334
(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) 494-4542Source:Heritage Commerce Corp