SAN JOSE, Calif., April 30, 2009 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (Nasdaq:HTBK), parent company of Heritage Bank of Commerce, today reported a first quarter 2009 net loss of $4.0 million. The net loss available to common shareholders was $4.5 million, or $(0.38) per diluted common share, in the first quarter ended March 31, 2009, which included a $10.4 million provision for loan losses and $585,000 in dividends and discount accretion on preferred stock. In the quarter ended March 31, 2008, Heritage Commerce Corp earned $1.7 million, or $0.14 per diluted common share, including a provision for loan losses of $1.7 million and no dividends or discount accretion on preferred stock.
First Quarter Developments
* Since the November 2008 sale of $40 million in preferred shares to the U.S. Department of the Treasury through its Capital Purchase Program, the Company has made $66.0 million in new loan commitments and $126.4 million in renewed loan commitments through March 31, 2009. Of those, $34.4 million in new loan commitments and $80.4 million in renewed loan commitments were made during the first quarter of 2009. * Capital ratios exceed regulatory well-capitalized standards, including a leverage ratio of 10.4%. * Total assets were $1.46 billion, an increase of 3% from March 31, 2008, and a decrease of 3% from December 31, 2008. * Loans increased 7% to $1.21 billion from $1.13 billion a year ago, but decreased from $1.25 billion at December 31, 2008. * Reflecting the difficult economic environment, nonperforming assets increased to $56.9 million, or 3.89% of total assets. Consequently, the provision for loan losses was $10.4 million in the first quarter of 2009. * Heritage Bank of Commerce signed an agreement to purchase the deposits of two branches of Wachovia Bank, N.A., a subsidiary of Wells Fargo & Company, in Santa Cruz, CA and Monterey, CA. At December 31, 2008, the deposits at the two branches were approximately $463 million. No loans will be purchased as part of the transaction, which is subject to bank regulatory approval and customary closing conditions and is expected to close during the third quarter of 2009. * The Board of Directors approved a suspension of the payment of cash dividends to common shareholders.
"While asset quality declined in the quarter, we remain in a strong capital position and continue to focus on providing a high level of personal service to our customers," said Walter Kaczmarek, President and Chief Executive Officer. "We also believe the current economic environment is offering exceptional opportunities, as demonstrated by our purchase agreement for the Wachovia branches in Santa Cruz and Monterey. Both of these markets are attractive for our relationship banking franchise, and we believe the terms of the acquisition contribute to our franchise value."
"According to the real estate service MDA Data Quick, the number of homes sold in the Bay area rose for the seventh month in a row in March, the result of continued bargain hunting and the availability of foreclosure-discounted properties," said Mr. Kaczmarek. "It's a little early to say whether the Silicon Valley housing market has reached a bottom, but it is encouraging news to see improvements in the housing sales in the region. Home buying remained slow in pricier coastal markets but was robust in many inland areas where steep price declines have boosted affordability. At the same time, Silicon Valley's unemployment rate climbed to 11% in March from 10.2% in February and above the year ago level of 5.3%, according to recent figures released by the California Employment Development Department."
Balance Sheet, Capital Management and Credit Quality
At March 31, 2009, Heritage's total assets were $1.46 billion, compared to $1.41 billion a year ago and $1.50 billion at December 31, 2008. Total loans increased to $1.21 billion at March 31, 2009, compared to $1.13 billion at March 31, 2008, but decreased from $1.25 billion at December 31, 2008. Total deposits remained the same at $1.17 billion at March 31, 2009, compared to March 31, 2008, and increased from $1.15 billion at December 31, 2008.
The securities portfolio of $97.3 million at March 31, 2009 consisted primarily of U.S. government sponsored entities' debt securities, short term U.S. Treasury securities, mortgage-backed securities, collateralized mortgage obligations, and municipal bonds.
Nonperforming assets totaled $56.9 million, or 3.89% of total assets at March 31, 2009, compared to $5.4 million, or 0.38% of total assets a year ago, and $41.1 million, or 2.74% of total assets at December 31, 2008. Three large loan relationships significantly increased nonperforming loans during the first quarter of 2009: 1) an $8.2 million participation in a syndicated real estate loan for a retail center, 2) two construction loans to one borrower totaling $4.2 million, and 3) a $3.8 million land development loan.
The allowance for loan losses at March 31, 2009, was $23.9 million, or 1.97% of total loans, up from $13.4 million, or 1.19% of total loans a year ago. The $10.4 million provision for loan losses was primarily due to a $15.6 million increase in nonperforming loans and an increase in net charge-offs in the first quarter, compared to the fourth quarter of 2008. Net charge-offs in the first quarter of 2009 were $11.5 million, compared to net charge-offs of $434,000 in the first quarter of 2008. Of the net charge-offs in the first quarter, $3.3 million was for the remaining loans to William J. ("Boots") Del Biaggio III, and $4.1 million was for two construction loans and two commercial loans. The provision for loan losses in the first quarter of 2009 included loss allocations for a commercial loan, a construction loan and a real estate development loan. The total loss allocation for these three loans was $4.5 million.
Shareholders' equity increased 18% to $180.3 million, or $12.04 book value per common share, at March 31, 2009, compared to $152.8 million, or $12.55 per common share, at March 31, 2008. The increase in shareholders' equity at March 31, 2009, compared to March 31, 2008, was due to the issuance of $40 million in preferred stock to the U.S. Treasury as a participant in its Capital Purchase Program during the fourth quarter of 2008. Shareholders' equity was $184.3 million, or $12.38 book value per common share, at December 31, 2008. Capital ratios continue to be above the well-capitalized guidelines established by regulatory agencies. The Company's consolidated leverage ratio at March 31, 2009, was 10.41%, compared to 9.63% at March 31, 2008, and 11.03% at December 31, 2008.
Operating Results
First quarter net interest income decreased 15% to $11.2 million, compared to $13.1 million for the first quarter a year ago, and fell 10% from $12.4 million in the fourth quarter of 2008. First quarter net interest margin was 3.35%, compared with 4.32% for the first quarter a year ago, and 3.64% for the fourth quarter of 2008. Reversals of accrued interest on loans placed on nonaccrual status totaled $428,000 in the first quarter, reducing net interest margin by 13 basis points.
First quarter noninterest income increased to $1.6 million, compared to $1.5 million for the first quarter of 2008, but decreased from $1.8 million in the fourth quarter of 2008.
First quarter noninterest expense was $11.4 million, up 7% compared to $10.6 million in the first quarter a year ago, and up 9% from $10.4 million in the fourth quarter of 2008. When comparing the first quarter of 2009 to the first quarter of 2008, the increase was due to higher regulatory assessments (primarily FDIC insurance premiums), professional fees, and salaries and employee benefits due to increased severance expenses.
The income tax benefit for the quarter ended March 31, 2009 was $5.1 million, as compared to income tax expense of $684,000 in the first quarter of 2008, and an income tax benefit of $1.4 million in the fourth quarter of 2008. The negative effective income tax rates for the quarters ended March 31, 2009 and December 31, 2008, were due to reduced pre-tax earnings. The negative tax rates correspond to a tax benefit, rather than expense for the first quarter of 2009 and the fourth quarter of 2008. The effective income tax rate for the first quarter of 2008 was 28.6%. The difference in the effective tax rate 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 investments in tax-free municipal securities.
The efficiency ratio was 88.94% in the first quarter of 2009, compared to 73.40% in the previous quarter and 72.38% in the first quarter of 2008. The efficiency ratio increased in the first quarter of 2009 primarily due to compression of the net interest margin and an increase in expenses, as discussed above.
Cash Dividends to Common Stock Shareholders
In the first quarter of 2006, Heritage Commerce Corp commenced the payment of cash dividends to common stock shareholders. Although the Company remains "well-capitalized" as of March 31, 2009, the Board of Directors has approved a suspension of the payment of cash dividends in view of its desire to preserve the capital of the Company to support its banking activities in the markets it serves during this challenging economy. The Board of Directors will periodically review its position throughout 2009 and into 2010.
Investor Conference and Annual Meeting
Heritage Commerce Corp is scheduled to present at the D.A. Davidson 11th Annual Financial Services Conference at the Bell Harbor Conference Center in Seattle. Lawrence D. McGovern, Chief Financial Officer, and Michael R. Ong, Chief Credit Officer, are scheduled to present on Thursday, May 7th at 10:45 a.m. in the Marina Room. The presentation will be archived for 90 days after the conference, and can be viewed at http://www.wsw.com/webcast/dadco15/htbk/. D.A. Davidson & Co. is a full-service investment firm with offices in 16 states.
Heritage Commerce Corp will hold its Annual Meeting of Shareholders at its Company Headquarters in San Jose, California, on May 28, 2009 at 1:00 p.m. (PDT).
Heritage Commerce Corp, a bank holding company established in February 1998, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose with full-service branches in Los Gatos, Fremont, Danville, Pleasanton, Walnut Creek, Morgan Hill, Gilroy, Mountain View, and Los Altos. Heritage Bank of Commerce is an SBA Preferred Lender with Loan Production Offices in Sacramento, Oakland and Santa Rosa, California. For more information, please visit www.heritagecommercecorp.com.
Forward Looking Statement Disclaimer
Forward-looking statements are based on management's knowledge and belief as of today and include information concerning the Company's possible or assumed future financial condition, and its results of operations, business and earnings outlook. These forward-looking statements are subject to risks and uncertainties. A number of factors, some of which are beyond the Company's ability to control or predict, could cause future results to differ materially from those contemplated by such forward-looking statements. These factors include (1) difficult and adverse conditions in the global and domestic capital and credit markets, (2) continued volatility and further deterioration of the capital and credit markets, (3) significant changes in banking laws or regulations, including, without limitation, as a result of the Emergency Economic Stabilization Act, the American Reinvestment and Recovery Act, and possible amendments to the Troubled Asset Relief Program (TARP), including the Capital Purchase Program and related executive compensation requirements, (4) continued uncertainty about the impact of TARP and other recent federal programs on the financial markets including levels of volatility and credit availability, (5) a more adverse than expected decline or continued weakness in general business and economic conditions, either nationally, regionally or locally in areas where the Company conducts its business, which may affect, among other things, the level of nonperforming assets, charge-offs and provision expense, (6) changes in interest rates, reducing interest rate margins or increasing interest rate risks, (7) changes in market liquidity which may reduce interest margins and impact funding sources, (8) increased competition in the Company's markets, (9) changes in the financial performance and/or condition of the Company's borrowers, (10) current and further deterioration in the housing and commercial real estate markets particularly in California, and (11) increases in Federal Deposit Insurance Corporation premiums due to market developments and regulatory changes. For a discussion of factors which could cause results to differ, please see the Company's reports on Forms 10-K and 10-Q as filed with the Securities and Exchange Commission and the Company's press releases. Readers should not place undue reliance on the forward-looking statements, which reflect management's view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.
Percent
For the Three Months Ended: Change From:
------------------------------------- ------------------
CONSOLIDATED
INCOME
STATEMENTS
(in $000's, March 31, Dec. 31, March 31, Dec. 31, March 31,
unaudited) 2009 2008 2008 2008 2008
------------------------------------------------ ------------------
Interest
Income $ 16,033 $ 18,166 $ 19,895 -12% -19%
Interest
Expense 4,881 5,771 6,791 -15% -28%
-------------------------------------
Net
Interest
Income 11,152 12,395 13,104 -10% -15%
Provision
for Loan
Losses 10,420 4,500 1,650 132% 532%
-------------------------------------
Net
Interest
Income
after
Provision
for Loan
Losses 732 7,895 11,454 -91% -94%
Noninterest
Income:
Servicing
Income 420 443 479 -5% -12%
Increase in
Cash
Surrender
Value of
Life
Insurance 412 413 398 0% 4%
Service
Charges
and
Other
Fees on
Deposit
Accounts 571 550 415 4% 38%
Other 220 391 222 -44% -1%
-------------------------------------
Total
Non-
interest
Income 1,623 1,797 1,514 -10% 7%
-------------------------------------
Noninterest
Expense:
Salaries
and
Employee
Benefits 6,458 4,930 6,059 31% 7%
Occupancy
and
Equipment 916 1,112 1,119 -18% -18%
Other 3,988 4,375 3,402 -9% 17%
-------------------------------------
Total
Noninterest
Expense 11,362 10,417 10,580 9% 7%
-------------------------------------
Income
(Loss)
Before
Income
Taxes (9,007) (725) 2,388 1142% -477%
Income Tax
Expense
(Benefit) (5,052) (1,425) 684 255% -839%
-------------------------------------
Net Income
(Loss) (3,955) 700 1,704 -665% -332%
Dividends
and
Discount
Accretion
on Pre-
ferred
Stock (585) (255) -- 129% N/A
-------------------------------------
Net Income
(Loss)
Available
to
Common
Share-
holders $ (4,540) $ 445 $ 1,704 -1120% -366%
=====================================
PER COMMON
SHARE DATA
(unaudited)
Basic
Earnings
(Loss) Per
Share $ (0.38) $ 0.04 $ 0.14 -1050% -371%
Diluted
Earnings
(Loss) Per
Share $ (0.38) $ 0.04 $ 0.14 -1050% -371%
Common
Shares
Out-
standing
at
Period-End 11,820,509 11,820,509 12,170,346 0% -3%
Book Value
Per Share $ 12.04 $ 12.38 $ 12.55 -3% -4%
Tangible
Book
Value Per
Share $ 8.04 $ 8.37 $ 8.61 -4% -7%
KEY FINANCIAL
RATIOS
(unaudited)
Annualized
Return on
Average
Equity -8.65% 1.71% 4.33% -606% -300%
Annualized
Return on
Average
Tangible
Equity -11.62% 2.42% 6.21% -580% -287%
Annualized
Return on
Average
Assets -1.08% 0.19% 0.50% -668% -316%
Annualized
Return on
Average
Tangible
Assets -1.12% 0.19% 0.52% -689% -315%
Net Interest
Margin 3.35% 3.64% 4.32% -8% -23%
Efficiency
Ratio 88.94% 73.40% 72.38% 21% 23%
AVERAGE
BALANCES
(in $000's,
unaudited)
Average
Assets $ 1,484,544 $ 1,494,245 $ 1,376,217 -1% 8%
Average
Tangible
Assets $ 1,437,195 $ 1,446,732 $ 1,328,133 -1% 8%
Average
Earning
Assets $ 1,351,921 $ 1,354,829 $ 1,218,888 0% 11%
Average
Total
Loans $ 1,236,361 $ 1,233,763 $ 1,075,605 0% 15%
Average
Deposits $ 1,163,552 $ 1,179,456 $ 1,102,706 -1% 6%
Average
Demand
Deposits -
Non-
interest
Bearing $ 253,481 $ 263,301 $ 249,173 -4% 2%
Average
Interest
Bearing
Deposits $ 910,071 $ 916,155 $ 853,533 -1% 7%
Average
Interest
Bearing
Lia-
bilities $ 1,016,395 $ 1,039,814 $ 940,498 -2% 8%
Average
Equity $ 185,424 $ 162,465 $ 158,428 14% 17%
Average
Tangible
Equity $ 138,075 $ 114,952 $ 110,344 20% 25%
Percent
End of Period: Change From:
---------------------------------- ------------------
CONSOLIDATED
BALANCE SHEETS
(in $000's, March 31, Dec. 31, March 31, Dec. 31, March 31,
unaudited) 2009 2008 2008 2008 2008
------------ ---------------------------------- ------------------
ASSETS
Cash and Due
from Banks $ 30,720 $ 29,996 $ 28,356 2% 8%
Federal Funds
Sold 100 100 100 0% 0%
Securities
Available-for-
Sale, at Fair
Value 97,340 104,475 130,784 -7% -26%
Loans:
Commercial
Loans 500,616 525,080 468,540 -5% 7%
Real Estate-
Mortgage 406,182 405,530 384,060 0% 6%
Real Estate-
Land and
Construction 244,181 256,567 233,073 -5% 5%
Home Equity 54,011 55,490 42,194 -3% 28%
Consumer
Loans 4,025 4,310 2,848 -7% 41%
----------------------------------
Loans 1,209,015 1,246,977 1,130,715 -3% 7%
Deferred Loan
Costs, Net 1,556 1,654 1,090 -6% 43%
----------------------------------
Total Loans,
Net of
Deferred
Costs 1,210,571 1,248,631 1,131,805 -3% 7%
Allowance for
Loan Losses (23,900) (25,007) (13,434) -4% 78%
----------------------------------
Net Loans 1,186,671 1,223,624 1,118,371 -3% 6%
Company Owned
Life Insurance 41,061 40,649 39,402 1% 4%
Premises &
Equipment, Net 9,383 9,517 9,193 -1% 2%
Goodwill 43,181 43,181 43,181 0% 0%
Intangible
Assets 4,071 4,231 4,760 -4% -14%
Accrued
Interest
Receivable
and
Other Assets 48,216 43,454 40,580 11% 19%
----------------------------------
Total Assets $1,460,743 $1,499,227 $1,414,727 -3% 3%
==================================
LIABILITIES &
SHAREHOLDERS'
EQUITY
Liabilities:
Deposits
Demand
Deposits-
Noninterest
Bearing $ 254,823 $ 261,337 $ 254,938 -2% 0%
Demand
Deposits-
Interest
Bearing 133,183 134,814 159,046 -1% -16%
Savings and
Money
Market 358,848 344,767 494,912 4% -27%
Time
Deposits,
Under $100 46,078 45,615 35,095 1% 31%
Time
Deposits,
$100 and
Over 177,308 171,269 161,840 4% 10%
Brokered
Deposits 195,763 196,248 65,873 0% 197%
----------------------------------
Total
Deposits 1,166,003 1,154,050 1,171,704 1% 0%
Securities
Sold Under
Agreement
to Repurchase 30,000 35,000 35,900 -14% -16%
Note Payable -- 15,000 5,000 -100% -100%
Other Short-
term
Borrowings 32,000 55,000 -- -42% N/A
Notes Payable
To
Subsidiary
Grantor Trusts 23,702 23,702 23,702 0% 0%
Accrued
Interest
Payable and
Other
Liabilities 28,757 32,208 25,649 -11% 12%
----------------------------------
Total
Liabilities 1,280,462 1,314,960 1,261,955 -3% 1%
Shareholders'
Equity:
Preferred
Stock, Net 37,985 37,900 -- 0% N/A
Common Stock 79,153 78,854 82,120 0% -4%
Accumulated
Other
Comprehensive
Income (Loss) 115 (291) (145) 140% 179%
Retained
Earnings 63,028 67,804 70,797 -7% -11%
----------------------------------
Total
Shareholders'
Equity 180,281 184,267 152,772 -2% 18%
----------------------------------
Total
Liabilities
& Share-
holders'
Equity $1,460,743 $1,499,227 $1,414,727 -3% 3%
==================================
CREDIT
QUALITY
DATA
(in $000's,
unaudited)
Nonaccrual
Loans $ 54,291 $ 39,981 $ 4,580 36% 1085%
Loans Over 90
Days Past Due
and Still
Accruing 1,774 460 -- 286% N/A
----------------------------------
Total
Nonperforming
Loans 56,065 40,441 4,580 39% 1124%
Other Real
Estate Owned 802 660 792 22% 1%
----------------------------------
Total
Nonper-
forming
Assets $ 56,867 $ 41,101 $ 5,372 38% 959%
==================================
Net Charge-
offs
(Recoveries) $ 11,527 $ 1,816 $ 434 535% 2556%
Allowance for
Loan Losses
to
Total Loans 1.97% 2.00% 1.19% -2% 66%
Allowance for
Loan Losses
to
Nonperforming
Loans 42.63% 61.84% 293.32% -31% -85%
Nonperforming
Assets to
Total
Assets 3.89% 2.74% 0.38% 42% 924%
Nonperforming
Loans to
Total Loans 4.63% 3.24% 0.40% 43% 1058%
OTHER PERIOD-
END
STATISTICS
(unaudited)
Shareholders'
Equity / Total
Assets 12.34% 12.29% 10.80% 0% 14%
Loan to Deposit
Ratio 103.82% 108.20% 96.59% -4% 7%
Noninterest
Bearing
Deposits /
Total Deposits 21.85% 22.65% 21.76% -4% 0%
Leverage Ratio 10.41% 11.03% 9.63% -6% 8%
NET INTEREST
INCOME AND For the Three Months Ended For the Three Months Ended
NET INTEREST March 31, 2009 March 31, 2008
MARGIN --------------------------- ----------------------------
Interest Average Interest Average
(in $000's, Average Income/ Yield/ Average Income/ Yield/
unaudited) Balance Expense Rate Balance Expense Rate
------------ ---------- ---------- ----- ---------- ---------- ------
Assets:
Loans, gross $1,236,361 $ 15,030 4.93% $1,075,605 $ 18,355 6.86%
Securities 110,169 999 3.68% 137,810 1,501 4.38%
Interest
bearing
deposits in
other
financial
instit-
utions 5,215 4 0.31% 1,065 7 2.64%
Federal
funds sold 176 -- 0.00% 4,408 32 2.92%
---------- ---------- ---------- ----------
Total
interest
earning
assets 1,351,921 16,033 4.81% 1,218,888 19,895 6.56%
---------- ----------
Cash and due
from banks 24,481 38,559
Premises and
equipment,
net 9,468 9,272
Goodwill and
other
intangible
assets 47,349 48,084
Other assets 51,325 61,414
---------- ----------
Total
assets $1,484,544 $1,376,217
========== ==========
Liabilities
and
share-
holders'
equity:
Deposits:
Demand,
interest
bearing $ 136,317 99 0.29% $ 148,469 601 1.63%
Savings and
money
market 346,857 792 0.93% 476,592 2,889 2.44%
Time
deposits,
under $100 46,108 296 2.60% 34,625 320 3.72%
Time
deposits,
$100 and
over 176,837 874 2.00% 146,732 1,389 3.81%
Brokered
time
deposits 203,952 1,969 3.92% 47,115 518 4.42%
Notes
payable to
subsidiary
grantor
trusts 23,702 500 8.56% 23,702 557 9.45%
Securities
sold under
agreement
to
repurchase 32,722 243 3.01% 22,164 156 2.83%
Note payable 10,278 82 3.24% 1,154 9 3.14%
Other short-
term
borrowings 39,622 26 0.27% 39,945 352 3.54%
---------- ---------- ---------- ----------
Total
interest
bearing
lia-
bilities 1,016,395 4,881 1.95% 940,498 6,791 2.90%
---------- ----------
Demand,
noninterest
bearing 253,481 249,173
Other
liabilities 29,244 28,118
---------- ----------
Total
lia-
bilities 1,299,120 1,217,789
Share-
holders'
equity 185,424 158,428
---------- ----------
Total
lia-
bilities
and share-
holders'
equity $1,484,544 $1,376,217
========== ==========
Net interest
income /
margin $ 11,152 3.35% $ 13,104 4.32%
========== ==========