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