SAN JOSE, Calif., April 23, 2020 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (Nasdaq: HTBK), the holding company (the “Company”) for Heritage Bank of Commerce (the “Bank”), today announced first quarter 2020 net income of $1.9 million, or $0.03 per average diluted common share, compared to $12.1 million, or $0.28 per average diluted common share, for the first quarter of 2019, and $5.7 million, or $0.10 per average diluted common share, for the fourth quarter of 2019. Earnings for the first quarter of 2020 were impacted by the effect of our first quarter $13.3 million pre-tax current expected credit losses (“CECL”) related provision for credit losses on loans, driven by forecasted effects on economic activity from the Coronavirus pandemic, and $2.4 million of pre-tax merger-related costs, as discussed in more detail below. All results are unaudited.
“The underlying results of our first quarter 2020 were solid, although overshadowed by the initial impact of the Coronavirus pandemic and economic outlook. Earnings for the quarter were supported by loan growth of 38% and total deposit growth of 28% from a year ago due to the Presidio Bank (“Presidio”) merger, along with a stable net interest margin of 4.25%. However, going forward, we expect interest income and our net interest margin will come under pressure as the full effect of the lower interest rate environment is realized,” said Keith A. Wilton, President and Chief Executive Officer. “Further, our first quarter of 2020 results were impacted by our CECL provision for credit losses on loans, as we proactively prepare for the economic effects of the pandemic.” See “Coronavirus (COVID-19),” “Adoption of CECL,” and “Liquidity” below.
“The Presidio systems and integration conversion was successfully completed in the first quarter of 2020, making this the largest merger in our Company’s history,” added Mr. Wilton. “Merger-related costs reduced pre-tax earnings by $2.4 million in the first quarter of 2020, compared to $9.9 million in the fourth quarter of 2019. We gained traction in the new markets we entered last year and are building strength in our traditional footprint in the greater San Francisco Bay market.” The majority of the cost savings were implemented by the end of the first quarter of 2020.
Coronavirus (COVID-19)
On March 16, 2020, six counties in the San Francisco Bay Area, which account for most of the Bank’s market footprint, announced “Shelter-in-Place” orders for all of their residents. At that time, these were the strictest measures of their kind in the United States and were followed on March 19, 2020 by a similar statewide order. On March 31, 2020, the six counties extended and tightened their Shelter-in-Place restrictions which will now be kept in place until at least May 3, 2020. On April 14, 2020, California’s governor announced that the state had no timeline for lifting its stay at home order but indicated that it would need to see a decline in the rate of spread of the virus before large-scale reopening can occur. State and local health measures have immediately weighed on the economy, with California statewide initial jobless claims jumping to 660,996 for the week ending April 11, 2020 from 57,606 for the week ending March 14, 2020. In total, statewide initial jobless claims aggregated over 2.8 million for the four weeks ending April 11, 2020.
To provide financial relief and support to the economy, at the end of March, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The new law included the $349 billion Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) to fund short-term loans for small businesses. The Company, which began taking loan applications from its small business clients immediately after the program began, received an overwhelming response. As of April 16, 2020, when the SBA suspended the program, the Company had processed 597 PPP loan applications with potential outstanding balances of $225.3 million. The Company intends to continue to participate in the PPP loan program should additional funding become available.
In addition, with the March 13, 2020 declaration of a National State of Emergency and passage of the CARES Act, federal bank regulators announced guidance that offers temporary relief from troubled debt restructuring (“TDR”) accounting for loan payment deferrals for certain customers whose businesses are experiencing economic hardship due to Coronavirus. In response to these customer’s needs, we have made accommodations for initial payment deferrals of up to 90 days with the potential for up to an additional 90 days, if requested and depending on the circumstances. All applicable fees have been waived. As of April 16, 2020, we had received 301 requests for payment deferrals, with balances totaling approximately $158 million, or 6.3%, of our loan portfolio ranging across many different industries but primarily for dentists and physicians ($27 million) and commercial real estate ($107 million). Requests involving commercial real estate had an average loan-to-value (“LTV”) of 37% and substantially all loans to borrowers requesting deferrals were supported by personal guarantees.
The Company’s loan portfolio consists of the following higher risk sectors, as defined by the Company, as of March 31, 2020:
% of Total | |||
HIGHER RISK SECTORS | Loans | ||
Health care and social assistance: | |||
Offices of dentists | 1.61 | % | |
Other community housing services | 1.05 | % | |
Offices of physicians (except mental health specialists) | 0.69 | % | |
All others | 1.81 | % | |
Total health care and social assistance | 5.16 | % | |
Retail trade | 4.10 | % | |
Accommodation and food services | |||
Hotels (except casino hotels) and motels | 0.92 | % | |
Full-service restaurants | 0.84 | % | |
Limited-service restaurants | 0.63 | % | |
All others | 0.51 | % | |
Total accommodation and food services | 2.90 | % | |
Arts, entertainment, and recreation | 1.08 | % | |
Total higher risk sectors | 13.24 | % |
Finally, we note that in June of 2019, the Company entered into a lease agreement for 54,910 square feet of office space in San Jose, California, commencing on February 1, 2020. The Company was able to complete the move of its Bay View Funding office during the first quarter of 2020, and we had intended to move the main office of the Company during the second quarter of 2020 to this new location. However, due to delays and restrictions created by California’s and Santa Clara County’s Shelter-in-Place declarations because of the Coronavirus, we must delay the move to later in the year.
“We are closely monitoring the Coronavirus pandemic and have taken a number of steps to help protect the safety and well-being of our customers, employees and communities. By March 15, 2020, we had enabled approximately 75% of our staff to work remotely, established social distancing protocols within our bank premises and branches for both employees and customers. All branches remain open to serve our customers and communities and we have provided increased compensation for personnel whose roles require that they serve customers in a branch,” said Mr. Wilton. “Through the duration of this pandemic, we will continue to adhere closely to the Coronavirus safety guidance provided by the Centers for Disease Control and Prevention (“CDC”) and the California Department of Public Health (“CDPH”), while maintaining the high level of service our clients are used to enjoying. The Company had in place extensive business resumption plans, procedures and redundant systems which provided those employees working remotely with the resources needed to fully assist our clients with their banking needs. In addition, the recent passage of federal health and economic stimulus laws will help us support the many communities we serve.”
“We believe both the Company’s and the Bank’s strong capital base with a common equity Tier 1 risk-based capital ratio of 12.2% and 12.7%, respectively, substantial liquidity position, loan portfolio diversification and conservative underwriting practices will enable us to proactively address the challenges related to the Coronavirus that we are likely to face in the coming quarters,” added Mr. Wilton. “I would also add that from all members of the Board of Directors and myself, we couldn’t ask for a stronger and more resilient team of dedicated employees as we look ahead and move forward.”
Adoption of CECL
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this update replace the incurred loss impairment methodology in prior Generally Accepted Accounting Principles (“GAAP”) with a methodology that reflects expected life-of-loan credit losses and requires consideration of a broader range of reasonable and supportable information to estimate future credit loss estimates. As CECL encompasses all financial assets carried at amortized cost, the requirement that reserves be established based on an organization’s reasonable and supportable estimate of expected credit losses extends to held-to-maturity debt securities. This update became effective for the Company on January 1, 2020. As of the implementation date of January 1, 2020, the Company recognized an increase of $8.6 million to its allowance for credit losses for loans. The majority of this increase is related to loan portfolios acquired in our recent acquisitions that under the previous methodology were covered by the purchase discount on acquired loans. The cumulative-effect adjustment as a result of the adoption of this guidance was recorded, net of tax of $2.4 million, as a $6.2 million reduction to retained earnings effective January 1, 2020.
While the CARES Act allows banks to delay implementation, Securities and Exchange Commission (“SEC”) guidance indicates that a delay in implementation will operationally require running both methodologies simultaneously with restatements required when CECL is implemented for those that delay. Additionally, bank regulations have provided capital relief to banks that do implement CECL at January 1, 2020.
For CECL modeling purposes, the Company uses forecast data for the state of California including Gross Domestic Product (“GDP”) and unemployment projections provided by the California Economic Forecast (“CEF”, www.CaliforniaForecast.com). At January 1, 2020, the forecast for California GDP for 2020 was an annual increase in the low single digits and the forecasted California unemployment rate for 2020 was in the mid-single digits. In March 2020, the CEF forecast was revised for GDP in the negative low single digits and peak unemployment in the low double digits.
The provision for credit losses on loans was $13.3 million for the first quarter of 2020. There was a credit to the provision for loan losses of ($1.1) million for the first quarter of 2019, and a provision for loan losses of $3.2 million for the fourth quarter of 2019. At March 31, 2020, the allowance for credit losses on loans was $44.7 million, representing 1.75% of total loans, and 369.81% of nonperforming loans. The increase in the provision in the first quarter of 2020 was driven primarily by a significantly deteriorated economic outlook resulting from the Coronavirus pandemic. Most major economic forecasts, including CEF as noted above, now show a significant decline in California GDP and a substantial rise in unemployment for 2020. The three loan classes where the largest increases in reserves were recorded under the CECL loss rate methodology were investor-owned commercial real estate (“CRE”), construction & land, and commercial and industrial (“C&I”). Ongoing impacts of the CECL methodology will be dependent upon changes in economic conditions and forecasts, originated and acquired loan portfolio composition, portfolio duration, and other factors.
As of the implementation date, there was a $58,000 allowance for losses recorded on the Company’s held-to-maturity municipal investment securities portfolio. For the first quarter of 2020, there was a reduction of $3,000 to the allowance for losses on the Company’s held-to-maturity municipal investment securities portfolio.
We refer you to the “DRIVERS OF CHANGE IN ACLL UNDER CECL” table below for detail.
Liquidity
Our liquidity position refers to our ability to maintain cash flows sufficient to fund operations and to meet obligations and other commitments in a timely fashion. The Company manages liquidity to be able to meet unexpected sudden changes in levels of its assets or deposit liabilities without maintaining excessive amounts of balance sheet liquidity. At March 31, 2020, the Company had a strong liquidity position with $443.4 million in cash and cash equivalents and approximately $477.5 million in available borrowing capacity from various sources including the Federal Home Loan Bank (“FHLB”), the Federal Reserve Bank of San Francisco (“FRB”), Federal funds facilities with several financial institutions, and a line of credit with a correspondent bank. The Company also had $686.4 million (at fair value) in unpledged securities available at March 31, 2020. Our loan to deposit ratio increased to 75.86% at March 31, 2020, compared to 70.01% at March 31, 2019, and 74.20% at December 31, 2019.
First Quarter 2020 Highlights (as of, or for the periods ended March 31, 2020, compared to March 31, 2019, and December 31, 2019, except as noted):
Operating Results:
For the Quarter Ended | |||||||||||||
March 31, | December 31, | March 31, | |||||||||||
2020 | 2019 | 2019 | |||||||||||
Return on average tangible assets | 0.19 | % | 0.57 | % | 1.63 | % | |||||||
Return on average tangible equity | 1.91 | % | 5.96 | % | 17.90 | % | |||||||
For the Quarter Ended | For the Quarter Ended | ||||||||||||||||||
March 31, 2020 | March 31, 2019 | ||||||||||||||||||
Average | Interest | Average | Average | Interest | Average | ||||||||||||||
(in $000’s, unaudited) | Balance | Income | Yield | Balance | Income | Yield | |||||||||||||
Loans, core bank and asset-based lending | $ | 2,422,020 | $ | 30,104 | 5.00 | % | $ | 1,724,723 | $ | 22,854 | 5.37 | % | |||||||
Bay View Funding factored receivables | 47,470 | 2,877 | 24.38 | % | 48,502 | 2,953 | 24.69 | % | |||||||||||
Residential mortgages | 33,075 | 230 | 2.80 | % | 36,770 | 251 | 2.77 | % | |||||||||||
Purchased CRE loans | 27,340 | 249 | 3.66 | % | 33,344 | 294 | 3.58 | % | |||||||||||
Loan fair value mark / accretion | (16,180 | ) | 1,322 | 0.22 | % | (6,249 | ) | 455 | 0.11 | % | |||||||||
Total loans | $ | 2,513,725 | $ | 34,782 | 5.57 | % | $ | 1,837,090 | $ | 26,807 | 5.92 | % | |||||||
For the Quarter Ended | For the Quarter Ended | ||||||||||||||||||
March 31, 2020 | December 31, 2019 | ||||||||||||||||||
Average | Interest | Average | Average | Interest | Average | ||||||||||||||
(in $000’s, unaudited) | Balance | Income | Yield | Balance | Income | Yield | |||||||||||||
Loans, core bank and asset-based lending | $ | 2,422,020 | $ | 30,104 | 5.00 | % | $ | 2,353,871 | $ | 30,786 | 5.19 | % | |||||||
Bay View Funding factored receivables | 47,470 | 2,877 | 24.38 | % | 45,045 | 2,888 | 25.44 | % | |||||||||||
Residential mortgages | 33,075 | 230 | 2.80 | % | 33,867 | 237 | 2.78 | % | |||||||||||
Purchased CRE loans | 27,340 | 249 | 3.66 | % | 28,407 | 238 | 3.32 | % | |||||||||||
Loan fair value mark / accretion | (16,180 | ) | 1,322 | 0.22 | % | (15,089 | ) | 1,338 | 0.23 | % | |||||||||
Total loans | $ | 2,513,725 | $ | 34,782 | 5.57 | % | $ | 2,446,101 | $ | 35,487 | 5.76 | % | |||||||
For the Quarter Ended | |||||||||
MERGER-RELATED COSTS | March 31, | December 31, | March 31, | ||||||
(in $000’s, unaudited) | 2020 | 2019 | 2019 | ||||||
Salaries and employee benefits | $ | 356 | $ | 6,580 | $ | — | |||
Other | 2,068 | 3,299 | — | ||||||
Total merger-related costs | $ | 2,424 | $ | 9,879 | $ | — | |||
Balance Sheet Review, Capital Management and Credit Quality:
LOANS | March 31, 2020 | December 31, 2019 | March 31, 2019 | ||||||||||||||||
(in $000’s, unaudited) | Balance | % to Total | Balance | % to Total | Balance | % to Total | |||||||||||||
Commercial | $ | 657,549 | 26 | % | $ | 631,547 | 25 | % | $ | 559,718 | 30 | % | |||||||
Real estate: | |||||||||||||||||||
CRE | 1,505,563 | 59 | % | 1,510,592 | 59 | % | 1,012,641 | 55 | % | ||||||||||
Land and construction | 151,923 | 6 | % | 150,634 | 6 | % | 98,222 | 5 | % | ||||||||||
Home equity | 165,159 | 6 | % | 175,252 | 7 | % | 118,448 | 6 | % | ||||||||||
Residential mortgages | 45,474 | 2 | % | 46,256 | 2 | % | 49,786 | 3 | % | ||||||||||
Consumer | 28,501 | 1 | % | 19,882 | 1 | % | 9,690 | 1 | % | ||||||||||
Total Loans | 2,554,169 | 100 | % | 2,534,163 | 100 | % | 1,848,505 | 100 | % | ||||||||||
Deferred loan fees, net | (258 | ) | - | (319 | ) | — | (187 | ) | — | ||||||||||
Loans, net of deferred fees | $ | 2,553,911 | 100 | % | $ | 2,533,844 | 100 | % | $ | 1,848,318 | 100 | % | |||||||
For the Quarter Ended | |||||||||||||
ALLOWANCE FOR CREDIT LOSSES ON LOANS(1) | March 31, | December 31, | March 31, | ||||||||||
(in $000’s, unaudited) | 2020 | 2019 | 2019 | ||||||||||
Balance at beginning of period | $ | 23,285 | $ | 25,895 | $ | 27,848 | |||||||
Charge-offs during the period | (673 | ) | (6,003 | ) | (226 | ) | |||||||
Recoveries during the period | 251 | 170 | 757 | ||||||||||
Net recoveries (charge-offs) during the period | (422 | ) | (5,833 | ) | 531 | ||||||||
Impact of adopting Topic 326 | 8,570 | — | — | ||||||||||
Provision for credit losses on loans during the period(2) | 13,270 | 3,223 | (1,061 | ) | |||||||||
Balance at end of period | $ | 44,703 | $ | 23,285 | $ | 27,318 | |||||||
Total loans, net of deferred fees | $ | 2,553,911 | $ | 2,533,844 | $ | 1,848,318 | |||||||
Total nonperforming loans | $ | 12,088 | $ | 9,828 | $ | 17,315 | |||||||
Allowance for credit losses on loans to total loans(1) | 1.75 | % | 0.92 | % | 1.48 | % | |||||||
Allowance for credit losses on loans to total nonperforming loans(1) | 369.81 | % | 236.93 | % | 157.77 | % | |||||||
(1)Allowance for credit losses on loans ("ACLL") at March 31, 2020, Allowance for loan losses ("ALLL") for the prior periods | |||||||||||||
(2)Provision for credit losses on loans for the quarter ended March 31, 2020, Provision (credit) for loan losses for the prior periods | |||||||||||||
DRIVERS OF CHANGE IN ACLL UNDER CECL | ||||
(in $000’s, unaudited) | ||||
ALLL at December 31, 2019 | $ | 23,285 | ||
Day 1 adjustment impact of adopting Topic 326 | 8,570 | |||
Net (charge-offs) during the period | (422 | ) | ||
Portfolio changes during the period | 1,216 | |||
Economic factors | 12,054 | |||
ACLL at March 31, 2020 | $ | 44,703 | ||
End of Period: | ||||||||||||||||
NONPERFORMING ASSETS | March 31, 2020 | December 31, 2019 | March 31, 2019 | |||||||||||||
(in $000’s, unaudited) | Balance | % of Total | Balance | % of Total | Balance | % of Total | ||||||||||
CRE loans | $ | 7,346 | 61 | % | $ | 5,094 | 52 | % | $ | 6,633 | 38 | % | ||||
Commercial loans | 3,403 | 28 | % | 2,657 | 27 | % | 8,442 | 49 | % | |||||||
SBA loans | 771 | 6 | % | 787 | 8 | % | 570 | 3 | % | |||||||
Restructured and loans over 90 days past due and still accruing | 442 | 4 | % | 1,153 | 12 | % | 1,357 | 8 | % | |||||||
Home equity and consumer loans | 126 | 1 | % | 137 | 1 | % | 313 | 2 | % | |||||||
Total nonperforming assets | $ | 12,088 | 100 | % | $ | 9,828 | 100 | % | $ | 17,315 | 100 | % | ||||
DEPOSITS | March 31, 2020 | December 31, 2019 | March 31, 2019 | |||||||||||||
(in $000’s, unaudited) | Balance | % to Total | Balance | % to Total | Balance | % to Total | ||||||||||
Demand, noninterest-bearing | $ | 1,444,534 | 42 | % | $ | 1,450,873 | 42 | % | $ | 1,016,770 | 38 | % | ||||
Demand, interest-bearing | 810,425 | 24 | % | 798,375 | 23 | % | 704,996 | 27 | % | |||||||
Savings and money market | 949,076 | 28 | % | 982,430 | 29 | % | 759,306 | 29 | % | |||||||
Time deposits — under $250 | 51,009 | 2 | % | 54,361 | 2 | % | 56,385 | 2 | % | |||||||
Time deposits — $250 and over | 96,540 | 3 | % | 99,882 | 3 | % | 90,042 | 3 | % | |||||||
CDARS — interest-bearing demand, | ||||||||||||||||
money market and time deposits | 15,055 | 1 | % | 28,847 | 1 | % | 12,745 | 1 | % | |||||||
Total deposits | $ | 3,366,639 | 100 | % | $ | 3,414,768 | 100 | % | $ | 2,640,244 | 100 | % | ||||
Well-capitalized | ||||||||||||
Financial | ||||||||||||
Institution | Basel III | |||||||||||
Heritage | Heritage | Basel III PCA | Minimum | |||||||||
Commerce | Bank of | Regulatory | Regulatory | |||||||||
CAPITAL RATIOS (unaudited) | Corp | Commerce | Guidelines | Requirement (1) | ||||||||
Total Risk-Based | 14.7 | % | 14.0 | % | 10.0 | % | 10.5 | % | ||||
Tier 1 Risk-Based | 12.2 | % | 12.7 | % | 8.0 | % | 8.5 | % | ||||
Common Equity Tier 1 Risk-Based | 12.2 | % | 12.7 | % | 6.5 | % | 7.0 | % | ||||
Leverage | 10.0 | % | 10.5 | % | 5.0 | % | 4.0 | % | ||||
(1) Basel III minimum regulatory requirements for both the Company and the Bank include a 2.5% capital conservation buffer, except the leverage ratio.
ACCUMULATED OTHER COMPREHENSIVE LOSS | March 31, | December 31, | March 31, | |||||||||
(in $000’s, unaudited) | 2020 | 2019 | 2019 | |||||||||
Unrealized gain (loss) on securities available-for-sale | $ | 6,299 | $ | 1,242 | $ | (2,010 | ) | |||||
Remaining unamortized unrealized gain on securities | ||||||||||||
available-for-sale transferred to held-to-maturity | 288 | 297 | 325 | |||||||||
Split dollar insurance contracts liability | (4,850 | ) | (4,835 | ) | (3,746 | ) | ||||||
Supplemental executive retirement plan liability | (6,774 | ) | (6,842 | ) | (3,963 | ) | ||||||
Unrealized gain on interest-only strip from SBA loans | 328 | 360 | 407 | |||||||||
Total accumulated other comprehensive loss | $ | (4,709 | ) | $ | (9,778 | ) | $ | (8,987 | ) | |||
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, CA with full-service branches in Danville, Fremont, Gilroy, Hollister, Livermore, Los Altos, Los Gatos, Morgan Hill, Palo Alto, Pleasanton, Redwood City, San Francisco, San Jose, San Mateo, San Rafael, Sunnyvale, and Walnut Creek. Heritage Bank of Commerce is an SBA Preferred Lender. Bay View Funding, a subsidiary of Heritage Bank of Commerce, is based in San Jose, CA and provides business-essential working capital factoring financing to various industries throughout the United States. For more information, please visit.
Forward-Looking Statement Disclaimer
These forward-looking statements are subject to various risks and uncertainties that may be outside our control and our actual results could differ materially from our projected results. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission (“SEC”), Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and the following: (1) current and future economic and market conditions in the United States generally or in the communities we serve, including the effects of declines in property values and overall slowdowns in economic growth should these events occur; (2) effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Federal Open Market Committee of the Federal Reserve Board; (3) our ability to anticipate interest rate changes and manage interest rate risk; (4) changes in inflation, interest rates, and market liquidity which may impact interest margins and impact funding sources; (5) volatility in credit and equity markets and its effect on the global economy; (6) our ability to effectively compete with other banks and financial services companies and the effects of competition in the financial services industry on our business; (7) our ability to achieve loan growth and attract deposits; (8) risks associated with concentrations in real estate related loans; (9) the relative strength or weakness of the commercial and real estate markets where our borrowers are located, including related asset and market prices; (10) other than temporary impairment charges to our securities portfolio; (11) changes in the level of nonperforming assets and charge offs and other credit quality measures, and their impact on the adequacy of the Company’s allowance for credit losses and the Company’s provision for credit losses; (12) increased capital requirements for our continual growth or as imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all; (13) regulatory limits on Heritage Bank of Commerce’s ability to pay dividends to the Company; (14) changes in our capital management policies, including those regarding business combinations, dividends, and share repurchases; (15) operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to industry changes in information technology systems, on which we are highly dependent; (16) our inability to attract, recruit, and retain qualified officers and other personnel could harm our ability to implement our strategic plan, impair our relationships with customers and adversely affect our business, results of operations and growth prospects; (17) the potential increase in reserves and allowance for loan loss as a result of the transition to the current expected credit loss standard (“CECL”) established by the Financial Accounting Standards Board to account for expected credit losses; (18) possible adjustment of the valuation of our deferred tax assets; (19) our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks such as data security breaches, “denial of service” attacks, “hacking” and identity theft; (20) inability of our framework to manage risks associated with our business, including operational risk and credit risk; (21) risks of loss of funding of Small Business Administration or SBA loan programs, or changes in those programs; (22) compliance with governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities , accounting and tax matters; (23) significant changes in applicable laws and regulations, including those concerning taxes, banking and securities; (24) 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; (25) 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; (26) availability of and competition for acquisition opportunities; (27) risks resulting from domestic terrorism; (28) risks of natural disasters (including earthquakes) and other events beyond our control; (29) the expected cost savings, synergies and other financial benefits from the Presidio Bank merger might not be realized within the expected time frames or at all; (30) the rapidly changing uncertainties related to the Coronavirus pandemic including, but not limited to, the potential adverse effect of the pandemic on the economy, our employees and customers, and our financial performance; and (31) our success in managing the risks involved in the foregoing factors.
Member FDIC
For additional information, contact:
Debbie Reuter
EVP, Corporate Secretary
Direct: (408) 494-4542
For the Quarter Ended: | Percent Change From: | |||||||||||||||||
CONSOLIDATED INCOME STATEMENTS | March 31, | December 31, | March 31, | December 31, | March 31, | |||||||||||||
(in $000’s, unaudited) | 2020 | 2019 | 2019 | 2019 | 2019 | |||||||||||||
Interest income | $ | 40,942 | $ | 42,471 | $ | 33,449 | (4 | ) | % | 22 | % | |||||||
Interest expense | 2,362 | 3,242 | 2,407 | (27 | ) | % | (2 | ) | % | |||||||||
Net interest income before provision | ||||||||||||||||||
for credit losses on loans(1) | 38,580 | 39,229 | 31,042 | (2 | ) | % | 24 | % | ||||||||||
Provision (credit) for credit losses on loans(1) | 13,270 | 3,223 | (1,061 | ) | 312 | % | 1351 | % | ||||||||||
Net interest income after provision | ||||||||||||||||||
for credit losses on loans(1) | 25,310 | 36,006 | 32,103 | (30 | ) | % | (21 | ) | % | |||||||||
Noninterest income: | ||||||||||||||||||
Service charges and fees on deposit accounts | 969 | 1,140 | 1,161 | (15 | ) | % | (17 | ) | % | |||||||||
Gain on the disposition of foreclosed assets | 791 | — | — | N/A | N/A | |||||||||||||
Increase in cash surrender value of | ||||||||||||||||||
life insurance | 458 | 405 | 330 | 13 | % | 39 | % | |||||||||||
Servicing income | 183 | 156 | 191 | 17 | % | (4 | ) | % | ||||||||||
Gain (loss) on sales of securities | 100 | (217 | ) | — | 146 | % | N/A | |||||||||||
Gain on sales of SBA loans | 67 | 358 | 139 | (81 | ) | % | (52 | ) | % | |||||||||
Other | 625 | 551 | 647 | 13 | % | (3 | ) | % | ||||||||||
Total noninterest income | 3,193 | 2,393 | 2,468 | 33 | % | 29 | % | |||||||||||
Noninterest expense: | ||||||||||||||||||
Salaries and employee benefits | 14,203 | 18,819 | 10,770 | (25 | ) | % | 32 | % | ||||||||||
Occupancy and equipment | 1,772 | 2,013 | 1,506 | (12 | ) | % | 18 | % | ||||||||||
Professional fees | 1,435 | 899 | 818 | 60 | % | 75 | % | |||||||||||
Other | 8,364 | 8,895 | 4,824 | (6 | ) | % | 73 | % | ||||||||||
Total noninterest expense | 25,774 | 30,626 | 17,918 | (16 | ) | % | 44 | % | ||||||||||
Income before income taxes | 2,729 | 7,773 | 16,653 | (65 | ) | % | (84 | ) | % | |||||||||
Income tax expense | 868 | 2,088 | 4,507 | (58 | ) | % | (81 | ) | % | |||||||||
Net income | $ | 1,861 | $ | 5,685 | $ | 12,146 | (67 | ) | % | (85 | ) | % | ||||||
PER COMMON SHARE DATA | ||||||||||||||||||
(unaudited) | ||||||||||||||||||
Basic earnings per share | $ | 0.03 | $ | 0.10 | $ | 0.28 | (70 | ) | % | (89 | ) | % | ||||||
Diluted earnings per share | $ | 0.03 | $ | 0.10 | $ | 0.28 | (70 | ) | % | (88 | ) | % | ||||||
Weighted average shares outstanding - basic | 59,286,927 | 57,168,605 | 43,108,208 | 4 | % | 38 | % | |||||||||||
Weighted average shares outstanding - diluted | 60,194,025 | 58,361,976 | 43,670,341 | 3 | % | 38 | % | |||||||||||
Common shares outstanding at period-end | 59,568,219 | 59,368,156 | 43,323,753 | 0 | % | 37 | % | |||||||||||
Dividend per share | $ | 0.13 | $ | 0.12 | $ | 0.12 | 8 | % | 8 | % | ||||||||
Book value per share | $ | 9.59 | $ | 9.71 | $ | 8.74 | (1 | ) | % | 10 | % | |||||||
Tangible book value per share | $ | 6.46 | $ | 6.55 | $ | 6.54 | (1 | ) | % | (1 | ) | % | ||||||
KEY FINANCIAL RATIOS | ||||||||||||||||||
(unaudited) | ||||||||||||||||||
Annualized return on average equity | 1.29 | % | 4.04 | % | 13.28 | % | (68 | ) | % | (90 | ) | % | ||||||
Annualized return on average tangible equity | 1.91 | % | 5.96 | % | 17.90 | % | (68 | ) | % | (89 | ) | % | ||||||
Annualized return on average assets | 0.19 | % | 0.55 | % | 1.58 | % | (65 | ) | % | (88 | ) | % | ||||||
Annualized return on average tangible assets | 0.19 | % | 0.57 | % | 1.63 | % | (67 | ) | % | (88 | ) | % | ||||||
Net interest margin (fully tax equivalent) | 4.25 | % | 4.15 | % | 4.38 | % | 2 | % | (3 | ) | % | |||||||
Efficiency ratio | 61.70 | % | 73.58 | % | 53.47 | % | (16 | ) | % | 15 | % | |||||||
AVERAGE BALANCES | ||||||||||||||||||
(in $000’s, unaudited) | ||||||||||||||||||
Average assets | $ | 4,033,151 | $ | 4,124,018 | $ | 3,109,583 | (2 | ) | % | 30 | % | |||||||
Average tangible assets | $ | 3,845,646 | $ | 3,943,725 | $ | 3,014,029 | (2 | ) | % | 28 | % | |||||||
Average earning assets | $ | 3,665,151 | $ | 3,762,239 | $ | 2,885,591 | (3 | ) | % | 27 | % | |||||||
Average loans held-for-sale | $ | 2,265 | $ | 3,299 | $ | 3,125 | (31 | ) | % | (28 | ) | % | ||||||
Average total loans | $ | 2,511,460 | $ | 2,442,802 | $ | 1,833,965 | 3 | % | 37 | % | ||||||||
Average deposits | $ | 3,327,812 | $ | 3,432,771 | $ | 2,637,308 | (3 | ) | % | 26 | % | |||||||
Average demand deposits - noninterest-bearing | $ | 1,438,944 | $ | 1,452,893 | $ | 1,024,142 | (1 | ) | % | 41 | % | |||||||
Average interest-bearing deposits | $ | 1,888,868 | $ | 1,979,878 | $ | 1,613,166 | (5 | ) | % | 17 | % | |||||||
Average interest-bearing liabilities | $ | 1,928,770 | $ | 2,027,106 | $ | 1,652,658 | (5 | ) | % | 17 | % | |||||||
Average equity | $ | 579,051 | $ | 558,478 | $ | 370,792 | 4 | % | 56 | % | ||||||||
Average tangible equity | $ | 391,546 | $ | 378,185 | $ | 275,238 | 4 | % | 42 | % | ||||||||
(1)Provision for credit losses on loans for the quarter ended March 31, 2020, Provision for loan losses for the prior periods
For the Quarter Ended: | ||||||||||||||||||||
CONSOLIDATED INCOME STATEMENTS | March 31, | December 31, | September 30, | June 30, | March 31, | |||||||||||||||
(in $000’s, unaudited) | 2020 | 2019 | 2019 | 2019 | 2019 | |||||||||||||||
Interest income | $ | 40,942 | $ | 42,471 | $ | 33,250 | $ | 33,489 | $ | 33,449 | ||||||||||
Interest expense | 2,362 | 3,242 | 2,625 | 2,573 | 2,407 | |||||||||||||||
Net interest income before provision | ||||||||||||||||||||
for credit losses on loans(1) | 38,580 | 39,229 | 30,625 | 30,916 | 31,042 | |||||||||||||||
Provision (credit) for credit losses on loans(1) | 13,270 | 3,223 | (576 | ) | (740 | ) | (1,061 | ) | ||||||||||||
Net interest income after provision | ||||||||||||||||||||
for credit losses on loans(1) | 25,310 | 36,006 | 31,201 | 31,656 | 32,103 | |||||||||||||||
Noninterest income: | ||||||||||||||||||||
Service charges and fees on deposit accounts | 969 | 1,140 | 1,032 | 1,177 | 1,161 | |||||||||||||||
Gain on the disposition of foreclosed assets | 791 | — | — | — | — | |||||||||||||||
Increase in cash surrender value of | ||||||||||||||||||||
life insurance | 458 | 405 | 336 | 333 | 330 | |||||||||||||||
Servicing income | 183 | 156 | 139 | 150 | 191 | |||||||||||||||
Gain (loss) on sales of securities | 100 | (217 | ) | 330 | 548 | — | ||||||||||||||
Gain on sales of SBA loans | 67 | 358 | 156 | 36 | 139 | |||||||||||||||
Other | 625 | 551 | 625 | 521 | 647 | |||||||||||||||
Total noninterest income | 3,193 | 2,393 | 2,618 | 2,765 | 2,468 | |||||||||||||||
Noninterest expense: | ||||||||||||||||||||
Salaries and employee benefits | 14,203 | 18,819 | 10,467 | 10,698 | 10,770 | |||||||||||||||
Occupancy and equipment | 1,772 | 2,013 | 1,550 | 1,578 | 1,506 | |||||||||||||||
Professional fees | 1,435 | 899 | 789 | 753 | 818 | |||||||||||||||
Other | 8,364 | 8,895 | 5,103 | 5,416 | 4,824 | |||||||||||||||
Total noninterest expense | 25,774 | 30,626 | 17,909 | 18,445 | 17,918 | |||||||||||||||
Income before income taxes | 2,729 | 7,773 | 15,910 | 15,976 | 16,653 | |||||||||||||||
Income tax expense | 868 | 2,088 | 4,633 | 4,623 | 4,507 | |||||||||||||||
Net income | $ | 1,861 | $ | 5,685 | $ | 11,277 | $ | 11,353 | $ | 12,146 | ||||||||||
PER COMMON SHARE DATA | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||
Basic earnings per share | $ | 0.03 | $ | 0.10 | $ | 0.26 | $ | 0.26 | $ | 0.28 | ||||||||||
Diluted earnings per share | $ | 0.03 | $ | 0.10 | $ | 0.26 | $ | 0.26 | $ | 0.28 | ||||||||||
Weighted average shares outstanding - basic | 59,286,927 | 57,168,605 | 43,258,983 | 43,202,562 | 43,108,208 | |||||||||||||||
Weighted average shares outstanding - diluted | 60,194,025 | 58,361,976 | 43,796,904 | 43,721,451 | 43,670,341 | |||||||||||||||
Common shares outstanding at period-end | 59,568,219 | 59,368,156 | 43,509,406 | 43,498,406 | 43,323,753 | |||||||||||||||
Dividend per share | $ | 0.13 | $ | 0.12 | $ | 0.12 | $ | 0.12 | $ | 0.12 | ||||||||||
Book value per share | $ | 9.59 | $ | 9.71 | $ | 9.09 | $ | 8.92 | $ | 8.74 | ||||||||||
Tangible book value per share | $ | 6.46 | $ | 6.55 | $ | 6.92 | $ | 6.75 | $ | 6.54 | ||||||||||
KEY FINANCIAL RATIOS | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||
Annualized return on average equity | 1.29 | % | 4.04 | % | 11.44 | % | 11.96 | % | 13.28 | % | ||||||||||
Annualized return on average tangible equity | 1.91 | % | 5.96 | % | 15.08 | % | 15.94 | % | 17.90 | % | ||||||||||
Annualized return on average assets | 0.19 | % | 0.55 | % | 1.44 | % | 1.48 | % | 1.58 | % | ||||||||||
Annualized return on average tangible assets | 0.19 | % | 0.57 | % | 1.49 | % | 1.53 | % | 1.63 | % | ||||||||||
Net interest margin (fully tax equivalent) | 4.25 | % | 4.15 | % | 4.24 | % | 4.38 | % | 4.38 | % | ||||||||||
Efficiency ratio | 61.70 | % | 73.58 | % | 53.87 | % | 54.76 | % | 53.47 | % | ||||||||||
AVERAGE BALANCES | ||||||||||||||||||||
(in $000’s, unaudited) | ||||||||||||||||||||
Average assets | $ | 4,033,151 | $ | 4,124,018 | $ | 3,103,043 | $ | 3,070,043 | $ | 3,109,583 | ||||||||||
Average tangible assets | $ | 3,845,646 | $ | 3,943,725 | $ | 3,008,602 | $ | 2,975,096 | $ | 3,014,029 | ||||||||||
Average earning assets | $ | 3,665,151 | $ | 3,762,239 | $ | 2,878,590 | $ | 2,844,677 | $ | 2,885,591 | ||||||||||
Average loans held-for-sale | $ | 2,265 | $ | 3,299 | $ | 4,171 | $ | 4,256 | $ | 3,125 | ||||||||||
Average total loans | $ | 2,511,460 | $ | 2,442,802 | $ | 1,851,669 | $ | 1,831,218 | $ | 1,833,965 | ||||||||||
Average deposits | $ | 3,327,812 | $ | 3,432,771 | $ | 2,612,252 | $ | 2,590,933 | $ | 2,637,308 | ||||||||||
Average demand deposits - noninterest-bearing | $ | 1,438,944 | $ | 1,452,893 | $ | 1,041,712 | $ | 1,001,914 | $ | 1,024,142 | ||||||||||
Average interest-bearing deposits | $ | 1,888,868 | $ | 1,979,878 | $ | 1,570,540 | $ | 1,589,019 | $ | 1,613,166 | ||||||||||
Average interest-bearing liabilities | $ | 1,928,770 | $ | 2,027,106 | $ | 1,610,168 | $ | 1,628,554 | $ | 1,652,658 | ||||||||||
Average equity | $ | 579,051 | $ | 558,478 | $ | 391,086 | $ | 380,605 | $ | 370,792 | ||||||||||
Average tangible equity | $ | 391,546 | $ | 378,185 | $ | 296,645 | $ | 285,658 | $ | 275,238 | ||||||||||
(1)Provision for credit losses on loans for the quarter ended March 31, 2020, Provision for loan losses for the prior periods
End of Period: | Percent Change From: | ||||||||||||||||||
CONSOLIDATED BALANCE SHEETS | March 31, | December 31, | March 31, | December 31, | March 31, | ||||||||||||||
(in $000’s, unaudited) | 2020 | 2019 | 2019 | 2019 | 2019 | ||||||||||||||
ASSETS | |||||||||||||||||||
Cash and due from banks | $ | 36,998 | $ | 49,447 | $ | 38,699 | (25 | ) | % | (4 | ) | % | |||||||
Other investments and interest-bearing deposits | |||||||||||||||||||
in other financial institutions | 406,399 | 407,923 | 196,278 | 0 | % | 107 | % | ||||||||||||
Securities available-for-sale, at fair value | 373,570 | 404,825 | 452,521 | (8 | ) | % | (17 | ) | % | ||||||||||
Securities held-to-maturity, at amortized cost | 348,044 | 366,560 | 367,023 | (5 | ) | % | (5 | ) | % | ||||||||||
Loans held-for-sale - SBA, including deferred costs | 2,415 | 1,052 | 3,216 | 130 | % | (25 | ) | % | |||||||||||
Loans: | |||||||||||||||||||
Commercial | 657,549 | 631,547 | 559,718 | 4 | % | 17 | % | ||||||||||||
Real estate: | |||||||||||||||||||
CRE | 1,505,563 | 1,510,592 | 1,012,641 | 0 | % | 49 | % | ||||||||||||
Land and construction | 151,923 | 150,634 | 98,222 | 1 | % | 55 | % | ||||||||||||
Home equity | 165,159 | 175,252 | 118,448 | (6 | ) | % | 39 | % | |||||||||||
Residential mortgages | 45,474 | 46,256 | 49,786 | (2 | ) | % | (9 | ) | % | ||||||||||
Consumer | 28,501 | 19,882 | 9,690 | 43 | % | 194 | % | ||||||||||||
Loans | 2,554,169 | 2,534,163 | 1,848,505 | 1 | % | 38 | % | ||||||||||||
Deferred loan fees, net | (258 | ) | (319 | ) | (187 | ) | (19 | ) | % | 38 | % | ||||||||
Total loans, net of deferred fees | 2,553,911 | 2,533,844 | 1,848,318 | 1 | % | 38 | % | ||||||||||||
Allowance for credit losses on loans(1) | (44,703 | ) | (23,285 | ) | (27,318 | ) | 92 | % | 64 | % | |||||||||
Loans, net | 2,509,208 | 2,510,559 | 1,821,000 | 0 | % | 38 | % | ||||||||||||
Company-owned life insurance | 76,485 | 76,027 | 62,189 | 1 | % | 23 | % | ||||||||||||
Premises and equipment, net | 9,025 | 8,250 | 6,998 | 9 | % | 29 | % | ||||||||||||
Goodwill | 167,371 | 167,420 | 83,753 | 0 | % | 100 | % | ||||||||||||
Other intangible assets | 19,557 | 20,415 | 11,454 | (4 | ) | % | 71 | % | |||||||||||
Accrued interest receivable and other assets | 129,090 | 96,985 | 72,746 | 33 | % | 77 | % | ||||||||||||
Total assets | $ | 4,078,162 | $ | 4,109,463 | $ | 3,115,877 | (1 | ) | % | 31 | % | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||||||
Liabilities: | |||||||||||||||||||
Deposits: | |||||||||||||||||||
Demand, noninterest-bearing | $ | 1,444,534 | $ | 1,450,873 | $ | 1,016,770 | 0 | % | 42 | % | |||||||||
Demand, interest-bearing | 810,425 | 798,375 | 704,996 | 2 | % | 15 | % | ||||||||||||
Savings and money market | 949,076 | 982,430 | 759,306 | (3 | ) | % | 25 | % | |||||||||||
Time deposits-under $250 | 51,009 | 54,361 | 56,385 | (6 | ) | % | (10 | ) | % | ||||||||||
Time deposits-$250 and over | 96,540 | 99,882 | 90,042 | (3 | ) | % | 7 | % | |||||||||||
CDARS - money market and time deposits | 15,055 | 28,847 | 12,745 | (48 | ) | % | 18 | % | |||||||||||
Total deposits | 3,366,639 | 3,414,768 | 2,640,244 | (1 | ) | % | 28 | % | |||||||||||
Subordinated debt, net of issuance costs | 39,600 | 39,554 | 39,414 | 0 | % | 0 | % | ||||||||||||
Other short-term borrowings | — | 328 | — | (100 | ) | N/A | |||||||||||||
Accrued interest payable and other liabilities | 100,482 | 78,105 | 57,703 | 29 | % | 74 | % | ||||||||||||
Total liabilities | 3,506,721 | 3,532,755 | 2,737,361 | (1 | ) | % | 28 | % | |||||||||||
Shareholders’ Equity: | |||||||||||||||||||
Common stock | 491,347 | 489,745 | 301,550 | 0 | % | 63 | % | ||||||||||||
Retained earnings | 84,803 | 96,741 | 85,953 | (12 | ) | % | (1 | ) | % | ||||||||||
Accumulated other comprehensive loss | (4,709 | ) | (9,778 | ) | (8,987 | ) | (52 | ) | % | 48 | % | ||||||||
Total Shareholders' Equity | 571,441 | 576,708 | 378,516 | (1 | ) | % | 51 | % | |||||||||||
Total liabilities and shareholders’ equity | $ | 4,078,162 | $ | 4,109,463 | $ | 3,115,877 | (1 | ) | % | 31 | % | ||||||||
(1)Allowance for credit losses on loans at March 31, 2020, Allowance for loan losses for the prior periods
End of Period: | ||||||||||||||||||||
CONSOLIDATED BALANCE SHEETS | March 31, | December 31, | September 30, | June 30, | March 31, | |||||||||||||||
(in $000’s, unaudited) | 2020 | 2019 | 2019 | 2019 | 2019 | |||||||||||||||
ASSETS | ||||||||||||||||||||
Cash and due from banks | $ | 36,998 | $ | 49,447 | $ | 48,121 | $ | 36,302 | $ | 38,699 | ||||||||||
Other investments and interest-bearing deposits | ||||||||||||||||||||
in other financial institutions | 406,399 | 407,923 | 367,662 | 239,710 | 196,278 | |||||||||||||||
Securities available-for-sale, at fair value | 373,570 | 404,825 | 333,101 | 383,156 | 452,521 | |||||||||||||||
Securities held-to-maturity, at amortized cost | 348,044 | 366,560 | 342,033 | 351,399 | 367,023 | |||||||||||||||
Loans held-for-sale - SBA, including deferred costs | 2,415 | 1,052 | 3,571 | 5,202 | 3,216 | |||||||||||||||
Loans: | ||||||||||||||||||||
Commercial | 657,549 | 631,547 | 528,060 | 567,529 | 559,718 | |||||||||||||||
Real estate: | ||||||||||||||||||||
CRE | 1,505,563 | 1,510,592 | 1,080,235 | 1,037,885 | 1,012,641 | |||||||||||||||
Land and construction | 151,923 | 150,634 | 96,610 | 97,297 | 98,222 | |||||||||||||||
Home equity | 165,159 | 175,252 | 111,610 | 116,057 | 118,448 | |||||||||||||||
Residential mortgages | 45,474 | 46,256 | 47,276 | 48,944 | 49,786 | |||||||||||||||
Consumer | 28,501 | 19,882 | 11,701 | 10,279 | 9,690 | |||||||||||||||
Loans | 2,554,169 | 2,534,163 | 1,875,492 | 1,877,991 | 1,848,505 | |||||||||||||||
Deferred loan fees, net | (258 | ) | (319 | ) | (105 | ) | (224 | ) | (187 | ) | ||||||||||
Total loans, net of deferred fees | 2,553,911 | 2,533,844 | 1,875,387 | 1,877,767 | 1,848,318 | |||||||||||||||
Allowance for credit losses on loans(1) | (44,703 | ) | (23,285 | ) | (25,895 | ) | (26,631 | ) | (27,318 | ) | ||||||||||
Loans, net | 2,509,208 | 2,510,559 | 1,849,492 | 1,851,136 | 1,821,000 | |||||||||||||||
Company-owned life insurance | 76,485 | 76,027 | 62,858 | 62,522 | 62,189 | |||||||||||||||
Premises and equipment, net | 9,025 | 8,250 | 6,849 | 6,975 | 6,998 | |||||||||||||||
Goodwill | 167,371 | 167,420 | 83,753 | 83,753 | 83,753 | |||||||||||||||
Other intangible assets | 19,557 | 20,415 | 10,346 | 10,900 | 11,454 | |||||||||||||||
Accrued interest receivable and other assets | 129,090 | 96,985 | 74,685 | 76,976 | 72,746 | |||||||||||||||
Total assets | $ | 4,078,162 | $ | 4,109,463 | $ | 3,182,471 | $ | 3,108,031 | $ | 3,115,877 | ||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
Liabilities: | ||||||||||||||||||||
Deposits: | ||||||||||||||||||||
Demand, noninterest-bearing | $ | 1,444,534 | $ | 1,450,873 | $ | 1,094,953 | $ | 994,082 | $ | 1,016,770 | ||||||||||
Demand, interest-bearing | 810,425 | 798,375 | 666,054 | 682,114 | 704,996 | |||||||||||||||
Savings and money market | 949,076 | 982,430 | 761,471 | 788,832 | 759,306 | |||||||||||||||
Time deposits-under $250 | 51,009 | 54,361 | 53,560 | 53,351 | 56,385 | |||||||||||||||
Time deposits-$250 and over | 96,540 | 99,882 | 95,543 | 88,519 | 90,042 | |||||||||||||||
CDARS - money market and time deposits | 15,055 | 28,847 | 17,409 | 15,575 | 12,745 | |||||||||||||||
Total deposits | 3,366,639 | 3,414,768 | 2,688,990 | 2,622,473 | 2,640,244 | |||||||||||||||
Subordinated debt, net of issuance costs | 39,600 | 39,554 | 39,507 | 39,461 | 39,414 | |||||||||||||||
Other short-term borrowings | — | 328 | — | — | — | |||||||||||||||
Accrued interest payable and other liabilities | 100,482 | 78,105 | 58,628 | 57,989 | 57,703 | |||||||||||||||
Total liabilities | 3,506,721 | 3,532,755 | 2,787,125 | 2,719,923 | 2,737,361 | |||||||||||||||
Shareholders’ Equity: | ||||||||||||||||||||
Common stock | 491,347 | 489,745 | 302,983 | 302,305 | 301,550 | |||||||||||||||
Retained earnings | 84,803 | 96,741 | 98,161 | 92,105 | 85,953 | |||||||||||||||
Accumulated other comprehensive loss | (4,709 | ) | (9,778 | ) | (5,798 | ) | (6,302 | ) | (8,987 | ) | ||||||||||
Total Shareholders' Equity | 571,441 | 576,708 | 395,346 | 388,108 | 378,516 | |||||||||||||||
Total liabilities and shareholders’ equity | $ | 4,078,162 | $ | 4,109,463 | $ | 3,182,471 | $ | 3,108,031 | $ | 3,115,877 | ||||||||||
(1)Allowance for credit losses on loans at March 31, 2020, Allowance for loan losses for the prior periods
End of Period: | Percent Change From: | ||||||||||||||||
CREDIT QUALITY DATA | March 31, | December 31, | March 31, | December 31, | March 31, | ||||||||||||
(in $000’s, unaudited) | 2020 | 2019 | 2019 | 2019 | 2019 | ||||||||||||
Nonaccrual loans - held-for-investment | $ | 11,646 | $ | 8,675 | $ | 15,958 | 34 | % | (27 | ) | % | ||||||
Restructured and loans over 90 days past due | |||||||||||||||||
and still accruing | 442 | 1,153 | 1,357 | (62 | ) | % | (67 | ) | % | ||||||||
Total nonperforming loans | 12,088 | 9,828 | 17,315 | 23 | % | (30 | ) | % | |||||||||
Foreclosed assets | — | — | — | N/A | N/A | ||||||||||||
Total nonperforming assets | $ | 12,088 | $ | 9,828 | $ | 17,315 | 23 | % | (30 | ) | % | ||||||
Other restructured loans still accruing | $ | 103 | $ | 436 | $ | 201 | (76 | ) | % | (49 | ) | % | |||||
Net charge-offs (recoveries) during the quarter | $ | 422 | $ | 5,833 | $ | (531 | ) | (93 | ) | % | 179 | % | |||||
Provision for credit losses on loans during the quarter(1) | $ | 13,270 | $ | 3,223 | $ | (1,061 | ) | 312 | % | 1351 | % | ||||||
Adoption of Topic 326 | $ | 8,570 | $ | — | $ | — | N/A | N/A | % | ||||||||
Allowance for credit losses on loans(2) | $ | 44,703 | $ | 23,285 | $ | 27,318 | 92 | % | 64 | % | |||||||
Classified assets | $ | 39,603 | $ | 32,579 | $ | 25,176 | 22 | % | 57 | % | |||||||
Allowance for credit losses on loans to total loans(2) | 1.75 | % | 0.92 | % | 1.48 | % | 90 | % | 18 | % | |||||||
Allowance for credit losses on loans to total nonperforming loans(2) | 369.81 | % | 236.93 | % | 157.77 | % | 56 | % | 134 | % | |||||||
Nonperforming assets to total assets | 0.30 | % | 0.24 | % | 0.56 | % | 25 | % | (46 | ) | % | ||||||
Nonperforming loans to total loans | 0.47 | % | 0.39 | % | 0.94 | % | 21 | % | (50 | ) | % | ||||||
Classified assets to Heritage Commerce Corp | |||||||||||||||||
Tier 1 capital plus allowance for credit losses on loans(2) | 9 | % | 8 | % | 8 | % | 13 | % | 13 | % | |||||||
Classified assets to Heritage Bank of Commerce | |||||||||||||||||
Tier 1 capital plus allowance for credit losses on loans(2) | 9 | % | 7 | % | 8 | % | 29 | % | 13 | % | |||||||
OTHER PERIOD-END STATISTICS | |||||||||||||||||
(in $000’s, unaudited) | |||||||||||||||||
Heritage Commerce Corp: | |||||||||||||||||
Tangible common equity (3) | $ | 384,513 | $ | 388,873 | $ | 283,309 | (1 | ) | % | 36 | % | ||||||
Shareholders’ equity / total assets | 14.01 | % | 14.03 | % | 12.15 | % | 0 | % | 15 | % | |||||||
Tangible common equity / tangible assets (4) | 9.88 | % | 9.92 | % | 9.38 | % | 0 | % | 5 | % | |||||||
Loan to deposit ratio | 75.86 | % | 74.20 | % | 70.01 | % | 2 | % | 8 | % | |||||||
Noninterest-bearing deposits / total deposits | 42.91 | % | 42.49 | % | 38.51 | % | 1 | % | 11 | % | |||||||
Total risk-based capital ratio | 14.7 | % | 14.6 | % | 15.6 | % | 1 | % | (6 | ) | % | ||||||
Tier 1 risk-based capital ratio | 12.2 | % | 12.5 | % | 12.6 | % | (2 | ) | % | (3 | ) | % | |||||
Common Equity Tier 1 risk-based capital ratio | 12.2 | % | 12.5 | % | 12.6 | % | (2 | ) | % | (3 | ) | % | |||||
Leverage ratio | 10.0 | % | 9.8 | % | 9.5 | % | 2 | % | 5 | % | |||||||
Heritage Bank of Commerce: | |||||||||||||||||
Total risk-based capital ratio | 14.0 | % | 13.9 | % | 14.6 | % | 1 | % | (4 | ) | % | ||||||
Tier 1 risk-based capital ratio | 12.7 | % | 13.1 | % | 13.4 | % | (3 | ) | % | (5 | ) | % | |||||
Common Equity Tier 1 risk-based capital ratio | 12.7 | % | 13.1 | % | 13.4 | % | (3 | ) | % | (5 | ) | % | |||||
Leverage ratio | 10.5 | % | 10.2 | % | 10.1 | % | 3 | % | 4 | % | |||||||
(1) Provision (credit) for credit losses on loans for the quarter ended March 31, 2020, Provision (credit) for loan losses for the prior periods
(2) Allowance for credit losses on loans at March 31, 2020, Allowance for loan losses for the prior periods
(3) Represents shareholders' equity minus goodwill and other intangible assets
(4) Represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets
End of Period: | |||||||||||||||||||
CREDIT QUALITY DATA | March 31, | December 31, | September 30, | June 30, | March 31, | ||||||||||||||
(in $000’s, unaudited) | 2020 | 2019 | 2019 | 2019 | 2019 | ||||||||||||||
Nonaccrual loans - held-for-investment | $ | 11,646 | $ | 8,675 | $ | 13,638 | $ | 15,695 | $ | 15,958 | |||||||||
Restructured and loans over 90 days past due | |||||||||||||||||||
and still accruing | 442 | 1,153 | 609 | 1,323 | 1,357 | ||||||||||||||
Total nonperforming loans | 12,088 | 9,828 | 14,247 | 17,018 | 17,315 | ||||||||||||||
Foreclosed assets | — | — | — | — | — | ||||||||||||||
Total nonperforming assets | $ | 12,088 | $ | 9,828 | $ | 14,247 | $ | 17,018 | $ | 17,315 | |||||||||
Other restructured loans still accruing | $ | 103 | $ | 436 | $ | 247 | $ | 175 | $ | 201 | |||||||||
Net charge-offs (recoveries) during the quarter | $ | 422 | $ | 5,833 | $ | 160 | $ | (53 | ) | $ | (531 | ) | |||||||
Provision for credit losses on loans during the quarter(1) | $ | 13,270 | $ | 3,223 | $ | (576 | ) | $ | (740 | ) | $ | (1,061 | ) | ||||||
Adoption of Topic 326 | $ | 8,570 | $ | — | $ | — | $ | — | $ | — | |||||||||
Allowance for credit losses on loans(2) | $ | 44,703 | $ | 23,285 | $ | 25,895 | $ | 26,631 | $ | 27,318 | |||||||||
Classified assets | $ | 39,603 | $ | 32,579 | $ | 20,225 | $ | 31,176 | $ | 25,176 | |||||||||
Allowance for credit losses on loans to total loans(2) | 1.75 | % | 0.92 | % | 1.38 | % | 1.42 | % | 1.48 | % | |||||||||
Allowance for credit losses on loans to total nonperforming loans(2) | 369.81 | % | 236.93 | % | 181.76 | % | 156.49 | % | 157.77 | % | |||||||||
Nonperforming assets to total assets | 0.30 | % | 0.24 | % | 0.45 | % | 0.55 | % | 0.56 | % | |||||||||
Nonperforming loans to total loans | 0.47 | % | 0.39 | % | 0.76 | % | 0.91 | % | 0.94 | % | |||||||||
Classified assets to Heritage Commerce Corp | |||||||||||||||||||
Tier 1 capital plus allowance for credit losses on loans(2) | 9 | % | 8 | % | 6 | % | 10 | % | 8 | % | |||||||||
Classified assets to Heritage Bank of Commerce | |||||||||||||||||||
Tier 1 capital plus allowance for credit losses on loans(2) | 9 | % | 7 | % | 6 | % | 9 | % | 8 | % | |||||||||
OTHER PERIOD-END STATISTICS | |||||||||||||||||||
(in $000’s, unaudited) | |||||||||||||||||||
Heritage Commerce Corp: | |||||||||||||||||||
Tangible common equity (3) | $ | 384,513 | $ | 388,873 | $ | 301,247 | $ | 293,455 | $ | 283,309 | |||||||||
Shareholders’ equity / total assets | 14.01 | % | 14.03 | % | 12.42 | % | 12.49 | % | 12.15 | % | |||||||||
Tangible common equity / tangible assets (4) | 9.88 | % | 9.92 | % | 9.75 | % | 9.74 | % | 9.38 | % | |||||||||
Loan to deposit ratio | 75.86 | % | 74.20 | % | 69.74 | % | 71.60 | % | 70.01 | % | |||||||||
Noninterest-bearing deposits / total deposits | 42.91 | % | 42.49 | % | 40.72 | % | 37.91 | % | 38.51 | % | |||||||||
Total risk-based capital ratio | 14.7 | % | 14.6 | % | 16.2 | % | 15.9 | % | 15.6 | % | |||||||||
Tier 1 risk-based capital ratio | 12.2 | % | 12.5 | % | 13.3 | % | 13.0 | % | 12.6 | % | |||||||||
Common Equity Tier 1 risk-based capital ratio | 12.2 | % | 12.5 | % | 13.3 | % | 13.0 | % | 12.6 | % | |||||||||
Leverage ratio | 10.0 | % | 9.8 | % | 10.0 | % | 9.9 | % | 9.5 | % | |||||||||
Heritage Bank of Commerce: | |||||||||||||||||||
Total risk-based capital ratio | 14.0 | % | 13.9 | % | 15.2 | % | 14.9 | % | 14.6 | % | |||||||||
Tier 1 risk-based capital ratio | 12.7 | % | 13.1 | % | 14.1 | % | 13.7 | % | 13.4 | % | |||||||||
Common Equity Tier 1 risk-based capital ratio | 12.7 | % | 13.1 | % | 14.1 | % | 13.7 | % | 13.4 | % | |||||||||
Leverage ratio | 10.5 | % | 10.2 | % | 10.6 | % | 10.5 | % | 10.1 | % |
(1) Provision for credit losses on loans for the quarter ended March 31, 2020, Provision (credit) for loan losses for the prior periods
(2) Allowance for credit losses on loans at March 31, 2020, Allowance for loan losses for the prior periods
(3) Represents shareholders' equity minus goodwill and other intangible assets
(4) Represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets
For the Quarter Ended | For the Quarter Ended | ||||||||||||||||||
March 31, 2020 | March 31, 2019 | ||||||||||||||||||
Interest | Average | Interest | Average | ||||||||||||||||
NET INTEREST INCOME AND NET INTEREST MARGIN | Average | Income/ | Yield/ | Average | Income/ | Yield/ | |||||||||||||
(in $000’s, unaudited) | Balance | Expense | Rate | Balance | Expense | Rate | |||||||||||||
Assets: | |||||||||||||||||||
Loans, gross (1)(2) | $ | 2,513,725 | $ | 34,782 | 5.57 | % | $ | 1,837,090 | $ | 26,807 | 5.92 | % | |||||||
Securities - taxable | 670,299 | 3,948 | 2.37 | % | 741,288 | 4,509 | 2.47 | % | |||||||||||
Securities - exempt from Federal tax (3) | 80,369 | 647 | 3.24 | % | 85,943 | 694 | 3.27 | % | |||||||||||
Other investments and interest-bearing deposits | |||||||||||||||||||
in other financial institutions | 400,758 | 1,701 | 1.71 | % | 221,270 | 1,585 | 2.91 | % | |||||||||||
Total interest earning assets (3) | 3,665,151 | 41,078 | 4.51 | % | 2,885,591 | 33,595 | 4.72 | % | |||||||||||
Cash and due from banks | 44,539 | 37,207 | |||||||||||||||||
Premises and equipment, net | 8,607 | 7,090 | |||||||||||||||||
Goodwill and other intangible assets | 187,505 | 95,554 | |||||||||||||||||
Other assets | 127,349 | 84,141 | |||||||||||||||||
Total assets | $ | 4,033,151 | $ | 3,109,583 | |||||||||||||||
Liabilities and shareholders’ equity: | |||||||||||||||||||
Deposits: | |||||||||||||||||||
Demand, noninterest-bearing | $ | 1,438,944 | $ | 1,024,142 | |||||||||||||||
Demand, interest-bearing | 800,800 | 542 | 0.27 | % | 701,702 | 618 | 0.36 | % | |||||||||||
Savings and money market | 920,422 | 914 | 0.40 | % | 751,191 | 907 | 0.49 | % | |||||||||||
Time deposits - under $100 | 18,777 | 22 | 0.47 | % | 20,380 | 21 | 0.42 | % | |||||||||||
Time deposits - $100 and over | 132,314 | 305 | 0.93 | % | 126,571 | 288 | 0.92 | % | |||||||||||
CDARS - money market and time deposits | 16,555 | 2 | 0.05 | % | 13,322 | 2 | 0.06 | % | |||||||||||
Total interest-bearing deposits | 1,888,868 | 1,785 | 0.38 | % | 1,613,166 | 1,836 | 0.46 | % | |||||||||||
Total deposits | 3,327,812 | 1,785 | 0.22 | % | 2,637,308 | 1,836 | 0.28 | % | |||||||||||
Subordinated debt, net of issuance costs | 39,571 | 577 | 5.86 | % | 39,386 | 571 | 5.88 | % | |||||||||||
Short-term borrowings | 331 | — | 0.00 | % | 106 | — | 0.00 | % | |||||||||||
Total interest-bearing liabilities | 1,928,770 | 2,362 | 0.49 | % | 1,652,658 | 2,407 | 0.59 | % | |||||||||||
Total interest-bearing liabilities and demand, | |||||||||||||||||||
noninterest-bearing / cost of funds | 3,367,714 | 2,362 | 0.28 | % | 2,676,800 | 2,407 | 0.36 | % | |||||||||||
Other liabilities | 86,386 | 61,991 | |||||||||||||||||
Total liabilities | 3,454,100 | 2,738,791 | |||||||||||||||||
Shareholders’ equity | 579,051 | 370,792 | |||||||||||||||||
Total liabilities and shareholders’ equity | $ | 4,033,151 | $ | 3,109,583 | |||||||||||||||
Net interest income (3) / margin | 38,716 | 4.25 | % | 31,188 | 4.38 | % | |||||||||||||
Less tax equivalent adjustment (3) | (136 | ) | (146 | ) | |||||||||||||||
Net interest income | $ | 38,580 | $ | 31,042 | |||||||||||||||
(1) Includes loans held-for-sale. Nonaccrual loans are included in average balance.
(2) Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $139,000 for the first quarter of 2020, compared to $91,000 for the first quarter of 2019.
(3) Reflects the fully tax equivalent adjustment for Federal tax-exempt income based on a 21%.
For the Quarter Ended | For the Quarter Ended | ||||||||||||||||||
March 31, 2020 | December 31, 2019 | ||||||||||||||||||
Interest | Average | Interest | Average | ||||||||||||||||
NET INTEREST INCOME AND NET INTEREST MARGIN | Average | Income/ | Yield/ | Average | Income/ | Yield/ | |||||||||||||
(in $000’s, unaudited) | Balance | Expense | Rate | Balance | Expense | Rate | |||||||||||||
Assets: | |||||||||||||||||||
Loans, gross (1)(2) | $ | 2,513,725 | $ | 34,782 | 5.57 | % | $ | 2,446,101 | $ | 35,487 | 5.76 | % | |||||||
Securities - taxable | 670,299 | 3,948 | 2.37 | % | 653,623 | 3,687 | 2.24 | % | |||||||||||
Securities - exempt from Federal tax (3) | 80,369 | 647 | 3.24 | % | 82,034 | 663 | 3.21 | % | |||||||||||
Other investments and interest-bearing deposits | |||||||||||||||||||
in other financial institutions | 400,758 | 1,701 | 1.71 | % | 580,481 | 2,773 | 1.90 | % | |||||||||||
Total interest earning assets (3) | 3,665,151 | 41,078 | 4.51 | % | 3,762,239 | 42,610 | 4.49 | % | |||||||||||
Cash and due from banks | 44,539 | 48,313 | |||||||||||||||||
Premises and equipment, net | 8,607 | 8,497 | |||||||||||||||||
Goodwill and other intangible assets | 187,505 | 180,293 | |||||||||||||||||
Other assets | 127,349 | 124,676 | |||||||||||||||||
Total assets | $ | 4,033,151 | $ | 4,124,018 | |||||||||||||||
Liabilities and shareholders’ equity: | |||||||||||||||||||
Deposits: | |||||||||||||||||||
Demand, noninterest-bearing | $ | 1,438,944 | $ | 1,452,893 | |||||||||||||||
Demand, interest-bearing | 800,800 | 542 | 0.27 | % | 789,465 | 600 | 0.30 | % | |||||||||||
Savings and money market | 920,422 | 914 | 0.40 | % | 1,009,880 | 1,283 | 0.50 | % | |||||||||||
Time deposits - under $100 | 18,777 | 22 | 0.47 | % | 19,613 | 28 | 0.57 | % | |||||||||||
Time deposits - $100 and over | 132,314 | 305 | 0.93 | % | 143,095 | 373 | 1.03 | % | |||||||||||
CDARS - money market and time deposits | 16,555 | 2 | 0.05 | % | 17,825 | 2 | 0.04 | % | |||||||||||
Total interest-bearing deposits | 1,888,868 | 1,785 | 0.38 | % | 1,979,878 | 2,286 | 0.46 | % | |||||||||||
Total deposits | 3,327,812 | 1,785 | 0.22 | % | 3,432,771 | 2,286 | 0.26 | % | |||||||||||
Subordinated debt, net of issuance costs | 39,571 | 577 | 5.86 | % | 46,758 | 955 | 8.10 | % | |||||||||||
Short-term borrowings | 331 | — | 0.00 | % | 470 | 1 | 0.84 | % | |||||||||||
Total interest-bearing liabilities | 1,928,770 | 2,362 | 0.49 | % | 2,027,106 | 3,242 | 0.63 | % | |||||||||||
Total interest-bearing liabilities and demand, | |||||||||||||||||||
noninterest-bearing / cost of funds | 3,367,714 | 2,362 | 0.28 | % | 3,479,999 | 3,242 | 0.37 | % | |||||||||||
Other liabilities | 86,386 | 85,541 | |||||||||||||||||
Total liabilities | 3,454,100 | 3,565,540 | |||||||||||||||||
Shareholders’ equity | 579,051 | 558,478 | |||||||||||||||||
Total liabilities and shareholders’ equity | $ | 4,033,151 | $ | 4,124,018 | |||||||||||||||
Net interest income (3) / margin | 38,716 | 4.25 | % | 39,368 | 4.15 | % | |||||||||||||
Less tax equivalent adjustment (3) | (136 | ) | (139 | ) | |||||||||||||||
Net interest income | $ | 38,580 | $ | 39,229 | |||||||||||||||
(1) Includes loans held-for-sale. Nonaccrual loans are included in average balance.
(2) Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $139,000 for the first quarter of 2020, compared to $90,000 for the fourth quarter of 2019.
(3) Reflects the fully tax equivalent adjustment for Federal tax-exempt income based on a 21%.