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Heritage Commerce Corp Earns $2.2 Million for the First Quarter of 2013, Posting Its Eleventh Consecutive Quarter of Profitability

SAN JOSE, Calif., April 25, 2013 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (Nasdaq:HTBK), the holding company (the "Company") for Heritage Bank of Commerce (the "Bank"), today reported net income of $2.2 million for the first quarter of 2013, or $0.07 per average diluted common share, driven by lower credit costs and net recoveries from prior period loan losses. There were no dividends or discount accretion on preferred stock in the first quarter of 2013. By comparison, net income available to common shareholders for the first quarter of 2012 was $869,000, or $0.03 per average diluted common share, after deducting dividends and discount accretion on preferred stock of $1.2 million. All results are unaudited.

"The Company's first quarter financial results demonstrate that the momentum we established over the past several years continued to drive performance into 2013," said Walter Kaczmarek, President and Chief Executive Officer. "The steady economic recovery in Northern California contributed to strong improvements in credit quality, with net recoveries totaling $315,000 in the first quarter of 2013. As a result of the decline in nonperforming assets and classified assets from the fourth quarter of 2012, a provision for loan losses was not needed for the first quarter of 2013. In addition, we posted our eleventh consecutive quarter of profitability. We look forward to the future with confidence, as we continue to create value for our shareholders by developing strong relationships with our customers, communities and employees."

First Quarter 2013 Highlights (as of, or for the period ended March 31, 2013, except as noted):

  • Net income available to common shareholders increased 151% to $2.2 million for the first quarter of 2013, from $869,000 at March 31, 2012 (after deducting dividends and discount accretion on preferred stock of $1.2 million).
  • Pre-tax income was $3.0 million for the first quarter of 2013, the same as the first quarter a year ago. Pre-tax income for the fourth quarter of 2012 was $3.8 million.
  • Deposits increased 6% (excluding the $24.3 million of short-term demand deposits from one customer) at March 31, 2013, compared to March 31, 2012, and decreased 5% (excluding the $271.9 million of short-term demand deposits from one customer) from December 31, 2012.
  • As previously reported, the Company received significantly large demand deposits totaling $467.5 million from one customer for specific transactions late in the fourth quarter of 2012. Of this amount, $195.6 million was withdrawn prior to year end, for a net outstanding balance of $271.9 million at December 31, 2012. The outstanding balance of these deposits was $24.3 million at March 31, 2013. Because of the short-term nature of these funds, the excess liquidity was placed in low-interest earning deposits at the Federal Reserve Bank.
  • Noninterest-bearing deposits increased 5% to $372.9 million (excluding the $24.3 million of short-term demand deposits from one customer) at March 31, 2013, from $356.6 million at March 31, 2012, and decreased 18% from $455.8 million (excluding the $271.9 million of short-term demand deposits from one customer) at December 31, 2012.
  • Interest-bearing demand deposits increased 18% to $169.7 million at March 31, 2013, from $144.0 million at March 31, 2012, and increased 9% from $156.0 million at December 31, 2012.
  • The cost of deposits declined 6 basis points to 0.21% for the first quarter of 2013, compared to 0.27% for the first quarter of 2012, and declined 1 basis point from 0.22% for the fourth quarter of 2012.
  • Loans (excluding loans-held-for-sale) increased 6% to $801.9 million at March 31, 2013, compared to $756.9 million at March 31, 2012, and decreased 1% from $812.3 million at December 31, 2012.
  • Nonperforming assets decreased 11% to $17.4 million at March 31, 2013, compared to $19.5 million at March 31, 2012 and December 31, 2012.
  • Classified assets, net of Small Business Administration ("SBA") guarantees, decreased 42% to $31.2 million at March 31, 2013, from $54.2 million at the same period a year ago, and decreased 15% from $36.8 million at December 31, 2012.
  • Net recoveries totaled $315,000 for the first quarter of 2013, compared to net charge-offs of $494,000 for the first quarter of 2012, and net charge-offs of $766,000 for the fourth quarter of 2012.
  • There was no provision for loan losses for the first quarter of 2013, compared to a $100,000 provision for loan losses for the first quarter of 2012, and a $669,000 provision for loan losses for the fourth quarter of 2012.
  • The allowance for loan losses ("ALLL") declined 5% to $19.3 million at March 31, 2013, from $20.3 million at March 31, 2012, and increased 2% from $19.0 million at December 31, 2012. The ALLL was 2.41% of total loans at March 31, 2013, compared to 2.68% at March 31, 2012, and 2.34% at December 31, 2012.
  • Capital ratios exceeded regulatory requirements for a well-capitalized financial institution on a holding company and bank level at March 31, 2013:



Capital Ratios

Heritage Commerce
Corp

Heritage Bank of
Commerce
Well-Capitalized
Financial Institution
Regulatory Guidelines
Total Risk-Based 16.7% 15.9% 10.0%
Tier 1 Risk-Based 15.5% 14.6% 6.0%
Leverage 11.5% 10.9% 5.0%

Operating Results

Net interest income declined slightly to $12.2 million in the first quarter of 2013, compared to $12.3 million in the first quarter a year ago, primarily due to a lower net interest margin. Net interest income for the fourth quarter of 2012 was $12.2 million.

The net interest margin was 3.71% for the first quarter of 2013, compared to 4.06% for the first quarter of 2012, and 3.74% for the fourth quarter of 2012. The decline in the net interest margin in the first quarter of 2013 was primarily due to the increased short term deposits at the Federal Reserve Bank as a result of the aforementioned short-term demand deposits of one customer. Excluding the impact to the net interest margin as a result of the large short-term demand deposits from one customer, and favorable benefit on the repayment of interest income from paid-off nonaccrual loans, the net interest margin was 3.78% for the first quarter of 2013, and 3.85% for the fourth quarter of 2012. The net interest margin in the first quarter of 2013, compared to the first quarter of 2012, was also impacted by a decline in loan and security yields, partially offset by a lower cost of funds.

The Company did not record a provision for loan losses in the first quarter of 2013 because of the net loan recoveries during the period and the reduction in nonperforming assets and classified assets. The provision for loan losses for the first quarter a year ago was $100,000, compared to $669,000 for the fourth quarter of 2012.

Noninterest income was $1.7 million for the first quarter of 2013, and for the first quarter a year ago, compared to $2.1 million for the fourth quarter of 2012. Noninterest income declined on a linked quarter basis primarily due to a lower gain on sales of securities, partially offset by a higher gain on sales of SBA loans.

Total noninterest expense for the first quarter of 2013 was $10.8 million, a decrease from $10.9 million for the first quarter of 2012, and an increase from $9.8 million for the fourth quarter of 2012. The increase in noninterest expense from the preceding quarter was primarily due to increased compensation expenses, which is consistent with cyclical salary and employee benefits expense in prior years.

Income tax expense for the first quarter of 2013 was $855,000, compared to $951,000 for the first quarter of 2012, and $1.2 million for the fourth quarter of 2012. The effective tax rate for the first quarter of 2013 decreased to 28%, compared to 31% for the first quarter of 2012 and the fourth quarter of 2012, due to the impact of tax-exempt interest income earned on municipal bonds. The difference in the effective tax rate compared to the combined Federal and state statutory tax rate of 42% in this and past quarters is primarily the result of the Company's investment in life insurance policies whose earnings are not subject to taxes, and tax credits related to investments in low income housing limited partnerships.

The efficiency ratio for the first quarter of 2013 was 78.03%, compared to 77.64% for the first quarter of 2012, and 68.45% for the fourth quarter of 2012. The increase in the efficiency ratio in the first quarter of 2013 compared to the fourth quarter of 2012 was primarily due to higher salary and benefits expense and professional fees, and lower gains on sales of securities.

Balance Sheet Review, Capital Management and Credit Quality

The Company's total assets increased 6% to $1.38 billion at March 31, 2013, from $1.31 billion a year ago, and decreased 18% from $1.69 billion at December 31, 2012. Total assets decreased 4% at March 31, 2013, compared to December 31, 2012, excluding the short-term deposits of $24.3 million and $271.9 million, respectively, at the Federal Reserve Bank offsetting the short-term demand deposits from one customer.

The investment securities available-for-sale portfolio totaled $346.8 million at March 31, 2013, compared to $385.8 million at March 31, 2012, and $367.9 million at December 31, 2012. At March 31, 2013, the securities available-for-sale portfolio was comprised of $271.1 million agency mortgage-backed securities (all issued by U.S. Government sponsored entities), $54.9 million of corporate bonds, and $20.8 million of single entity issue trust preferred securities.

At March 31, 2013, investment securities held-to-maturity totaled $68.3 million, compared to no investment securities held-to-maturity at March 31, 2012, and $51.5 million at December 31, 2012. At March 31, 2013, the securities held-to-maturity portfolio, at amortized cost, was comprised of $53.1 million tax-exempt municipal bonds and $15.2 million agency mortgage-backed securities.

Loans, excluding loans held-for-sale, totaled $801.9 million at March 31, 2013, an increase of 6% from $756.9 million at March 31, 2012, and a decrease of 1% from $812.3 million at December 31, 2012. The loan portfolio remains well-diversified with commercial and industrial ("C&I") loans accounting for 44% of the portfolio at March 31, 2013. Commercial and residential real estate loans accounted for 45% of the total loan portfolio, of which 51% were owner-occupied by businesses. Consumer and home equity loans accounted for 8% of total loans, and land and construction loans accounted for the remaining 3% of total loans at March 31, 2013.

The yield on the loan portfolio was 5.13% for the first quarter of 2013, compared to 5.41% for the same period in 2012, and 5.00% for the fourth quarter of 2012.

Nonperforming assets ("NPAs") were $17.4 million, or 1.26% of total assets, at March 31, 2013, compared to $19.5 million, or 1.49% of total assets, a year ago. NPAs were $19.5 million, or 1.15% of total assets at December 31, 2012. The following is a detail of NPAs at March 31, 2013 and December 31, 2012:

March 31, 2013 December 31, 2012
Balance % of Total Balance % of Total
Commercial and industrial loans $ 3,252 19% $ 4,870 25%
Commercial real estate loans 5,503 32% 4,676 24%
SBA loans 2,611 15% 2,982 15%
Home equity and consumer loans 2,572 15% 2,584 13%
Land and construction loans 2,177 12% 2,223 12%
Foreclosed assets 738 4% 1,270 7%
Restructured and loans over 90 days past due and accruing 549 3% 859 4%
$ 17,402 100% $ 19,464 100%

At March 31, 2013, the $17.4 million of NPAs included $569,000 of loans guaranteed by the SBA and $549,000 of restructured loans still accruing interest income. Foreclosed assets were $738,000 at March 31, 2013, compared to $3.2 million at March 31, 2012, and $1.3 million at December 31, 2012.

Classified assets (net of SBA guarantees) decreased to $31.2 million at March 31, 2013, from $54.2 million at March 31, 2012, and $36.8 million at December 31, 2012.

The following table summarizes the allowance for loan losses:

For the Quarter Ended:
March 31, December 31, March 31,
2013 2012 2012
ALLOWANCE FOR LOAN LOSSES
(in $000's, unaudited)
Balance at beginning of quarter $ 19,027 $ 19,124 $ 20,700
Provision for loan losses during the quarter -- 669 100
Net recoveries (charge-offs) during the quarter 315 (766) (494)
Balance at end of quarter $ 19,342 $ 19,027 $ 20,306
Total loans $ 801,925 $ 812,213 $ 756,894
Total nonperforming loans $ 16,664 $ 18,194 $ 16,344
Allowance for loan losses to total loans 2.41% 2.34% 2.68%
Allowance for loan losses to total nonperforming loans, excluding nonaccrual loans - held-for-sale 116.07% 104.58% 125.66%

The decrease in the allowance for loan losses at March 31, 2013, compared to March 31, 2012, was primarily due to improved risk grading and credit metrics on non-impaired real estate loans, as well as a decline in historical charge-off levels. Net recoveries totaled $315,000 for the first quarter of 2013, compared to net charge-offs of $494,000 for the first quarter of 2012, and net charge-offs of $766,000 for the fourth quarter of 2012.

Deposits totaled $1.17 billion at March 31, 2013, compared to $1.08 billion at March 31, 2012, and $1.48 billion at December 31, 2012, which included the aforementioned short-term demand deposits from one customer of $24.3 million at March 31, 2013 and $271.9 million at December 31, 2012. Total deposits, excluding brokered deposits and the short-term demand deposits from one customer, were $1.06 billion at March 31, 2013, compared to $995.5 million at March 31, 2012, and $1.11 billion at December 31, 2012. At March 31, 2013, brokered deposits decreased 1% to $83.8 million, from $84.7 million at March 31, 2012, and decreased 14% from $97.8 million at December 31, 2012.

The total cost of deposits decreased 6 basis points to 0.21% during the first quarter of 2013, from 0.27% during the first quarter of 2012, and decreased 1 basis point from 0.22% during the fourth quarter of 2012.

Subordinated debt decreased to $9.3 million at March 31, 2013, compared to $23.7 million at March 31, 2012, as a result of the redemption of $14 million fixed-rate subordinated debt during the third quarter of 2012. Subordinated debt was also $9.3 million at December 31, 2012.

Tangible equity was $169.0 million at March 31, 2013, compared to $157.5 million at March 31, 2012 and $167.7 million at December 31, 2012. Tangible book value per common share was $5.67 at March 31, 2013, compared to $5.25 a year ago, and $5.63 at December 31, 2012. There were 21,004 shares of Series C Preferred Stock outstanding at March 31, 2013, March 31, 2012, and December 31, 2012, 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 $5.29 at March 31, 2013, compared to $4.94 a year ago, and $5.25 at December 31, 2012.

Accumulated other comprehensive income was $1.4 million at March 31, 2013, compared to $1.2 million a year ago, and $2.7 million at December 31, 2012. The components of other comprehensive income, net of taxes, at March 31, 2013 include the following: an unrealized gain on available-for-sale securities of $6.1 million; a liability adjustment on split dollar insurance contracts of ($2.3) million; a liability adjustment on the supplemental executive retirement plan of ($3.4) million; and an unrealized gain on interest-only strip from SBA loans of $1.0 million.

Annual Meeting of Shareholders

Heritage Commerce Corp will hold its Annual Meeting of Shareholders at its Company Headquarters in San Jose, California, on May 23, 2013, at 1:00 p.m. (PDT).

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 Los Gatos, Fremont, Danville, Pleasanton, Walnut Creek, Morgan Hill, Gilroy, Mountain View, and Los Altos. Heritage Bank of Commerce is an SBA Preferred Lender with an additional Loan Production Office in Santa Rosa, California. For more information, please visit www.heritagecommercecorp.com.

Forward Looking Statement Disclaimer

Forward-looking statements are based on management's knowledge and belief as of today and include information concerning the Company's possible or assumed future financial condition, and its results of operations, business and earnings outlook. These forward-looking statements are subject to risks and uncertainties. A number of factors, some of which are beyond the Company's ability to control or predict, could cause future results to differ materially from those contemplated by such forward-looking statements. The forward-looking statements could be affected by many factors, including but not limited to: (1) competition for loans and deposits and failure to attract or retain deposits and loans; (2) 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; (3) risks associated with concentrations in real estate related loans; (4) 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; (5) 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; (6) stability of funding sources and continued availability of borrowings; (7) our ability to raise capital or incur debt on reasonable terms; (8) regulatory limits on Heritage Bank of Commerce's ability to pay dividends to the Company; (9) continued volatility in credit and equity markets and its effect on the global economy; (10) the impact of reputational risk on such matters as business generation and retention, funding and liquidity; (11) oversupply of inventory and continued deterioration in values of California commercial real estate; (12) a prolonged slowdown in construction activity; (13) the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and executive compensation) which we must comply, including but not limited to, the Dodd-Frank Act of 2010; (14) the effects of security breaches and computer viruses that may affect our computer systems; (15) changes in consumer spending, borrowings and saving habits; (16) changes in the competitive environment among financial or bank holding companies and other financial service providers; (17) 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; (18) 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; (19) the ability to increase market share and control expenses; and (20) our success in managing the risks involved in the foregoing items. For a discussion of factors which could cause results to differ, please see the Company's reports on Forms 10-K and 10-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

For the Quarter Ended: Percent Change From:
CONSOLIDATED INCOME STATEMENTS March
31,
December 31, March
31,
December 31, March 31,
(in $000's, unaudited) 2013 2012 2012 2012 2012
Interest income $ 12,867 $ 12,958 $ 13,449 -1% -4%
Interest expense 714 747 1,190 -4% -40%
Net interest income before provision for loan losses 12,153 12,211 12,259 0% -1%
Provision for loan losses -- 669 100 -100% -100%
Net interest income after provision for loan losses 12,153 11,542 12,159 5% 0%
Noninterest income:
Service charges and fees on deposit accounts 577 567 590 2% -2%
Increase in cash surrender value of life insurance 417 428 429 -3% -3%
Servicing income 365 407 460 -10% -21%
Gain on sales of SBA loans 136 69 36 97% 278%
Gain on sales of securities 31 396 27 -92% 15%
Other 137 237 181 -42% -24%
Total noninterest income 1,663 2,104 1,723 -21% -3%
Noninterest expense:
Salaries and employee benefits 6,011 5,342 5,667 13% 6%
Occupancy and equipment 1,068 993 996 8% 7%
Professional fees 982 608 1,211 62% -19%
Other 2,720 2,856 2,982 -5% -9%
Total noninterest expense 10,781 9,799 10,856 10% -1%
Income before income taxes 3,035 3,847 3,026 -21% 0%
Income tax expense 855 1,178 951 -27% -10%
Net income 2,180 2,669 2,075 -18% 5%
Dividends and discount accretion on preferred stock -- -- (1,206) N/A -100%
Net income available to common shareholders $ 2,180 $ 2,669 $ 869 -18% 151%
PER COMMON SHARE DATA
(unaudited)
Basic earnings per share $ 0.07 $ 0.08 $ 0.03 -13% 133%
Diluted earnings per share $ 0.07 $ 0.08 $ 0.03 -13% 133%
Common shares outstanding at period-end 26,333,368 26,322,147 26,286,501 0% 0%
Pro forma common shares outstanding at period-end, assuming Series C preferred stock was converted into common stock 31,934,368 31,923,147 31,887,501 0% 0%
Book value per share $ 5.75 $ 5.71 $ 5.34 1% 8%
Tangible book value per share $ 5.67 $ 5.63 $ 5.25 1% 8%
Pro forma tangible book value per share, assuming Series C preferred stock was converted into common stock $ 5.29 $ 5.25 $ 4.94 1% 7%
KEY FINANCIAL RATIOS
(unaudited)
Annualized return on average equity 5.20% 6.25% 4.43% -17% 17%
Annualized return on average tangible equity 5.26% 6.32% 4.48% -17% 17%
Annualized return on average assets 0.61% 0.75% 0.64% -19% -5%
Annualized return on average tangible assets 0.61% 0.75% 0.64% -19% -5%
Net interest margin 3.71% 3.74% 4.06% -1% -9%
Efficiency ratio 78.03% 68.45% 77.64% 14% 1%
AVERAGE BALANCES
(in $000's, unaudited)
Average assets $ 1,442,928 $ 1,409,298 $ 1,311,985 2% 10%
Average tangible assets $ 1,440,974 $ 1,407,222 $ 1,309,544 2% 10%
Average earning assets $ 1,341,337 $ 1,305,332 $ 1,213,198 3% 11%
Average loans held-for-sale $ 3,255 $ 1,793 $ 1,356 82% 140%
Average total loans $ 794,876 $ 797,288 $ 764,264 0% 4%
Average deposits $ 1,227,146 $ 1,191,895 $ 1,067,052 3% 15%
Average demand deposits - noninterest-bearing $ 461,108 $ 457,214 $ 347,291 1% 33%
Average interest-bearing deposits $ 766,038 $ 734,681 $ 719,761 4% 6%
Average interest-bearing liabilities $ 775,402 $ 745,067 $ 743,502 4% 4%
Average equity $ 169,883 $ 170,004 $ 188,521 0% -10%
Average tangible equity $ 167,929 $ 167,928 $ 186,080 0% -10%
End of Period: Percent Change From:
CONSOLIDATED BALANCE SHEETS March 31, December 31, March 31, December 31, March 31,
(in $000's, unaudited) 2013 2012 2012 2012 2012
ASSETS
Cash and due from banks $ 19,779 $ 16,520 $ 20,450 20% -3%
Federal funds sold and interest-bearing deposits in other financial institutions 57,090 357,045 48,215 -84% 18%
Securities available-for-sale, at fair value 346,800 367,912 385,826 -6% -10%
Securities held-to-maturity, at amortized cost 68,283 51,472 -- 33% N/A
Loans held-for-sale - SBA, including deferred costs 4,394 3,409 4,778 29% -8%
Loans held-for-sale - other, including deferred costs -- -- 184 N/A -100%
Loans:
Commercial 356,688 375,469 357,906 -5% 0%
Real estate:
Commercial and residential 361,340 354,934 319,914 2% 13%
Land and construction 24,611 22,352 18,583 10% 32%
Home equity 45,347 43,865 48,444 3% -6%
Consumer 14,036 15,714 11,810 -11% 19%
Loans 802,022 812,334 756,657 -1% 6%
Deferred loan (fees) costs, net (97) (21) 237 -362% -141%
Total loans, including deferred fees and costs 801,925 812,313 756,894 -1% 6%
Allowance for loan losses (19,342) (19,027) (20,306) 2% -5%
Loans, net 782,583 793,286 736,588 -1% 6%
Company owned life insurance 48,774 48,358 47,067 1% 4%
Premises and equipment, net 7,632 7,469 7,883 2% -3%
Intangible assets 1,882 2,000 2,368 -6% -21%
Accrued interest receivable and other assets 46,347 45,841 51,939 1% -11%
Total assets $ 1,383,564 $ 1,693,312 $ 1,305,298 -18% 6%
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, noninterest-bearing $ 397,198 $ 727,684 $ 356,618 -45% 11%
Demand, interest-bearing 169,681 155,951 144,022 9% 18%
Savings and money market 286,784 272,047 292,009 5% -2%
Time deposits - under $100 23,835 25,157 27,949 -5% -15%
Time deposits - $100 and over 189,779 190,502 168,726 0% 12%
Time deposits - brokered 83,763 97,807 84,728 -14% -1%
CDARS - money market and time deposits 15,850 10,220 6,198 55% 156%
Total deposits 1,166,890 1,479,368 1,080,250 -21% 8%
Subordinated debt 9,279 9,279 23,702 0% -61%
Accrued interest payable and other liabilities 36,560 34,924 41,450 5% -12%
Total liabilities 1,212,729 1,523,571 1,145,402 -20% 6%
Shareholders' Equity:
Series C preferred stock, net 19,519 19,519 19,519 0% 0%
Common stock 131,998 131,820 131,302 0% 1%
Retained earnings 17,901 15,721 7,887 14% 127%
Accumulated other comprehensive income 1,417 2,681 1,188 -47% 19%
Total shareholders' equity 170,835 169,741 159,896 1% 7%
Total liabilities and shareholders' equity $ 1,383,564 $ 1,693,312 $ 1,305,298 -18% 6%
End of Period: Percent Change From:
March 31, December 31, March 31, December 31, March 31,
2013 2012 2012 2012 2012
CREDIT QUALITY DATA
(in $000's, unaudited)
Nonaccrual loans - held-for-sale $ -- $ -- $ 184 N/A -100%
Nonaccrual loans - held-for-investment 16,115 17,335 14,005 -7% 15%
Restructured and loans over 90 days past due and still accruing 549 859 2,155 -36% -75%
Total nonperforming loans 16,664 18,194 16,344 -8% 2%
Foreclosed assets 738 1,270 3,167 -42% -77%
Total nonperforming assets $ 17,402 $ 19,464 $ 19,511 -11% -11%
Other restructured loans still accruing $ 1,717 $ 1,450 $ 431 18% 298%
Net (recoveries) charge-offs during the quarter $ (315) $ 766 $ 494 -141% -164%
Provision for loan losses during the quarter $ -- $ 669 $ 100 -100% -100%
Allowance for loan losses $ 19,342 $ 19,027 $ 20,306 2% -5%
Classified assets* $ 31,228 $ 36,810 $ 54,196 -15% -42%
Allowance for loan losses to total loans 2.41% 2.34% 2.68% 3% -10%
Allowance for loan losses to total nonperforming loans 116.07% 104.58% 124.24% 11% -7%
Allowance for loan losses to total nonperforming loans, excluding nonaccrual loans - held-for-sale 116.07% 104.58% 125.66% 11% -8%
Nonperforming assets to total assets 1.26% 1.15% 1.49% 10% -15%
Nonperforming loans to total loans plus nonaccrual loans - held-for-sale 2.08% 2.24% 2.16% -7% -4%
Classified assets* to Heritage Commerce Corp Tier 1 capital plus allowance for loan losses 17% 21% 30% -19% -43%
Classified assets* to Heritage Bank of Commerce Tier 1 capital plus allowance for loan losses 18% 22% 31% -18% -42%
OTHER PERIOD-END STATISTICS
(in $000's, unaudited)
Heritage Commerce Corp:
Tangible equity $ 168,953 $ 167,741 $ 157,528 1% 7%
Tangible common equity $ 149,434 $ 148,222 $ 138,009 1% 8%
Shareholders' equity / total assets 12.35% 10.02% 12.25% 23% 1%
Tangible equity / tangible assets 12.23% 9.92% 12.09% 23% 1%
Tangible common equity / tangible assets 10.82% 8.76% 10.59% 24% 2%
Loan to deposit ratio 68.72% 54.91% 70.07% 25% -2%
Noninterest-bearing deposits / total deposits 34.04% 49.19% 33.01% -31% 3%
Total risk-based capital ratio 16.7% 16.2% 17.9% 3% -7%
Tier 1 risk-based capital ratio 15.5% 15.0% 16.6% 3% -7%
Leverage ratio 11.5% 11.5% 12.7% 0% -9%
Heritage Bank of Commerce:
Total risk-based capital ratio 15.9% 15.3% 16.9% 4% -6%
Tier 1 risk-based capital ratio 14.6% 14.0% 15.6% 4% -6%
Leverage ratio 10.9% 10.7% 11.9% 2% -8%
*Net of SBA guarantees
For the Quarter Ended For the Quarter Ended
March 31, 2013 March 31, 2012
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) $ 798,131 $ 10,089 5.13% $ 767,288 $ 10,316 5.41%
Securities - taxable 385,707 2,462 2.59% 389,919 3,097 3.19%
Securities - tax exempt(2) 40,552 382 3.82% -- -- --
Federal funds sold and interest-bearing deposits in other financial institutions 116,947 68 0.24% 55,991 36 0.26%
Total interest earning assets(2) 1,341,337 13,001 3.93% 1,213,198 13,449 4.46%
Cash and due from banks 23,555 20,987
Premises and equipment, net 7,521 7,978
Intangible assets 1,954 2,441
Other assets 68,561 67,381
Total assets $ 1,442,928 $ 1,311,985
Liabilities and shareholders' equity:
Deposits:
Demand, noninterest-bearing $ 461,108 $ 347,291
Demand, interest-bearing 164,402 59 0.15% 142,650 52 0.15%
Savings and money market 283,229 120 0.17% 288,202 166 0.23%
Time deposits - under $100 24,596 23 0.38% 28,223 38 0.54%
Time deposits - $100 and over 190,273 203 0.43% 169,694 256 0.61%
Time deposits - brokered 92,063 219 0.96% 6,262 3 0.19%
CDARS - money market and time deposits 11,475 1 0.04% 84,730 201 0.95%
Total interest-bearing deposits 766,038 625 0.33% 719,761 716 0.40%
Total deposits 1,227,146 625 0.21% 1,067,052 716 0.27%
Subordinated debt 9,279 88 3.85% 23,702 474 8.04%
Short-term borrowings 85 1 4.77% 39 -- N/A
Total interest-bearing liabilities 775,402 714 0.37% 743,502 1,190 0.64%
Total interest-bearing liabilities and demand, noninterest-bearing / cost of funds 1,236,510 714 0.23% 1,090,793 1,190 0.44%
Other liabilities 36,535 32,671
Total liabilities 1,273,045 1,123,464
Shareholders' equity 169,883 188,521
Total liabilities and shareholders' equity $ 1,442,928 $ 1,311,985
Net interest income(2) / margin 12,287 3.71% $ 12,259 4.06%
Less tax equivalent adjustment(2) (134) --
Net interest income $ 12,153 $ 12,259
(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, SVP, Corporate Secretary (408) 494-4542Source:Heritage Bank of Commerce