HTBK
Heritage Commerce Corp Reports Client Deposit Growth of 6% in the Third Quarter of 2024
San Jose, CA - October 24, 2024 - Heritage Commerce Corp (Nasdaq: HTBK), (the "Company"), the holding company for Heritage Bank of Commerce (the "Bank"), today announced that its third quarter 2024 net income was $10.5 million, or $0.17 per average diluted common share, compared to $9.2 million, or $0.15 per average diluted common share, for the second quarter of 2024, and $15.8 million, or $0.26 per average diluted common share, for the third quarter of 2023. For the nine months ended September 30, 2024, net income was $29.9 million, or $0.49 per average diluted common share, compared to $51.1 million, or $0.83 per average diluted common share, for the nine months ended September 30, 2023. All data are unaudited.
"The highlight of the third quarter of 2024 was significant deposit growth from our clients throughout our markets," said Clay Jones, President and Chief Executive Officer. "Total deposit balances grew 6% at the end of the third quarter of 2024, compared to the prior quarter and notably, noninterest-bearing demand deposits grew 7% over the same period. Growth in deposits was a result of the successful conversion of new relationships that were impacted by the banking disruptions in our market. The loan portfolio had orderly growth during the third quarter 2024, with core loans increasing $148.3 million, or 5% over the last 12 months, while growing $35.7 million, or 1%, from the prior quarter. We remain optimistic about the growth opportunities in our markets, as loan and deposit pipelines and overall business activity remains healthy."
"The credit portfolio continues to perform very well, with nonperforming assets and net charge-offs remaining low at September 30, 2024," said Mr. Jones. "Additionally, our liquidity position remains strong, supported by access to diverse alternative funding sources."
"Our commitment to achieving our growth and client service goals while meeting performance targets remains the driving force behind our success. I would like to express my appreciation for our bank team members for their continued commitment to serving our clients, communities and shareholders," said Mr. Jones.
Third Quarter Ended September 30, 2024
Operating Results, Liquidity Position, Financial Condition, Credit Quality, Capital Management and Recent Events
(as of, or for the periods ended September 30, 2024, compared to June 30, 2024, and September 30, 2023, except as noted):
Operating Results:
For the Quarter Ended:
For the Nine Months Ended:
September 30,
June 30,
September 30,
September 30,
September 30,
(unaudited)
2024
2024
2023
2024
2023
Return on average equity
6.14 %
5.50 %
9.54 %
5.91 %
10.54 %
Return on average tangible common equity(1)
8.27 %
7.43 %
13.06 %
7.98 %
14.52 %
Return on average assets
0.78 %
0.71 %
1.16 %
0.76 %
1.29 %
Return on average tangible assets(1)
0.81 %
0.74 %
1.20 %
0.79 %
1.33 %
(1)This is a non-GAAP financial measure as defined and discussed under "Non-GAAPFinancial Measures" below.
1
Net Interest Income:
Increase/(Decrease) in
Estimated Net
CHANGE IN INTEREST RATES (basis points)
Interest Income(1)
(in $000's, unaudited)
Amount
Percent
+400
$
24,681
13.6 %
+300
$
18,438
10.2 %
+200
$
12,241
6.8 %
+100
$
6,082
3.4 %
0
-
-
−100
$
(8,242)
(4.5)%
−200
$
(18,720)
(10.3)%
−300
$
(31,428)
(17.3)%
−400
$
(47,015)
(25.9)%
Increase/(Decrease) in
Estimated Economic
CHANGE IN INTEREST RATES (basis points)
Value of Equity(1)
(in $000's, unaudited)
Amount
Percent
+400
$
161,338
14.0 %
+300
$
133,760
11.6 %
+200
$
98,755
8.6 %
+100
$
55,024
4.8 %
0
-
-
−100
$
(86,037)
(7.5)%
−200
$
(204,813)
(17.8)%
−300
$
(345,418)
(30.1)%
−400
$
(452,503)
(39.4)%
2
For the Quarter Ended
For the Quarter Ended
September 30, 2024
June 30, 2024
Average
Interest
Average
Average
Interest
Average
(in $000's, unaudited)
Balance
Income
Yield
Balance
Income
Yield
Loans, core bank
$
2,867,076
$
39,621
5.50 %
$
2,830,260
$
38,496
5.47 %
Prepayment fees
-
4
0.00 %
-
54
0.01 %
Bay View Funding factored receivables(1)
55,391
2,144
15.40 %
54,777
2,914
21.40 %
Purchased residential mortgages
441,294
3,779
3.41 %
447,687
3,739
3.36 %
Loan fair value mark / accretion
(2,621)
233
0.03 %
(2,863)
267
0.04 %
Total loans (includes loans held-for-sale)
$
3,361,140
$
45,781
5.42 %
$
3,329,861
$
45,470
5.49 %
(1)Interest income for the third quarter and first nine months of 2024 was reduced by an immaterial out-of-period adjustment of ($804,000).
For the Quarter Ended
For the Quarter Ended
September 30, 2024
September 30, 2023
Average
Interest
Average
Average
Interest
Average
(in $000's, unaudited)
Balance
Income
Yield
Balance
Income
Yield
Loans, core bank
$
2,867,076
$
39,621
5.50 %
$
2,743,993
$
37,764
5.46 %
Prepayment fees
-
4
0.00 %
-
182
0.03 %
Bay View Funding factored receivables(1)
55,391
2,144
15.40 %
51,664
2,775
21.31 %
Purchased residential mortgages
441,294
3,779
3.41 %
465,471
3,811
3.25 %
Loan fair value mark / accretion
(2,621)
233
0.03 %
(3,648)
321
0.05 %
Total loans (includes loans held-for-sale)
$
3,361,140
$
45,781
5.42 %
$
3,257,480
$
44,853
5.46 %
(1)Interest income for the third quarter and first nine months of 2024 was reduced by an immaterial out-of-period adjustment of ($804,000).
For the Nine Months Ended
For the Nine Months Ended
September 30, 2024
September 30, 2023
Average
Interest
Average
Average
Interest
Average
(in $000's, unaudited)
Balance
Income
Yield
Balance
Income
Yield
Loans, core bank
$
2,831,035
$
115,838
5.47 %
$
2,716,345
$
109,354
5.38 %
Prepayment fees
-
82
0.00 %
-
393
0.02 %
Bay View Funding factored receivables(1)
54,563
7,896
19.33 %
65,938
10,623
21.54 %
Purchased residential mortgages
447,709
11,306
3.37 %
477,068
11,497
3.22 %
Loan fair value mark / accretion
(2,865)
729
0.03 %
(3,976)
1,126
0.06 %
Total loans (includes loans held-for-sale)
$
3,330,442
$
135,851
5.45 %
$
3,255,375
$
132,993
5.46 %
(1)Interest income for the third quarter and first nine months of 2024 was reduced by an immaterial out-of-period adjustment of ($804,000).
3
For the Quarter Ended
For the Quarter Ended
September 30, 2024
June 30, 2024
Average
Interest
Average
Average
Interest
Average
(in $000's, unaudited)
Balance
Expense
Rate
Balance
Expense
Rate
Deposits:
Demand, noninterest-bearing
$
1,172,304
$
1,127,145
Demand, interest-bearing
907,346
$
1,714
0.75 %
932,100
$
1,719
0.74 %
Savings and money market
1,188,057
9,128
3.06 %
1,104,589
7,867
2.86 %
Time deposits - under $100
11,133
47
1.68 %
10,980
46
1.68 %
Time deposits - $100 and over
229,565
2,349
4.07 %
228,248
2,245
3.96 %
Insured Cash Sweep ("ICS")/Certificate of Deposit Registry
Service ("CDARS") - interest-bearing demand, money market
and time deposits
1,017,541
7,747
3.03 %
991,483
7,207
2.92 %
Total interest-bearing deposits
3,353,642
20,985
2.49 %
3,267,400
19,084
2.35 %
Total deposits
4,525,946
20,985
1.84 %
4,394,545
19,084
1.75 %
Short-term borrowings
32
-
0.00 %
19
-
0.00 %
Subordinated debt, net of issuance costs
39,590
538
5.41 %
39,553
538
5.47 %
Total interest-bearing liabilities
3,393,264
21,523
2.52 %
3,306,972
19,622
2.39 %
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds
$
4,565,568
$
21,523
1.88 % $
4,434,117
$
19,622
1.78 %
Provision for Credit Losses on Loans:
Noninterest Income:
Noninterest Expense:
4
expenses, marketing related expenses, homeowner association vendor payments, regulatory assessments, and ICS/CDARS fee expense.
Income Tax Expense:
Liquidity Position, Financial Condition, Credit Quality, and Capital Management:
Liquidity and Available Lines of Credit:
LIQUIDITY AND AVAILABLE LINES OF CREDIT
Total
Remaining
(in $000's, unaudited)
Available
Outstanding
Available
Excess funds at the Federal Reserve Bank ("FRB")
$
903,900
$
- $
903,900
FRB discount window collateralized line of credit
1,397,326
-
1,397,326
Federal Home Loan Bank collateralized borrowing capacity
765,134
-
765,134
Unpledged investment securities (at fair value)
66,158
-
66,158
Federal funds purchase arrangements
90,000
-
90,000
Holding company line of credit
25,000
-
25,000
Total
$
3,247,518
$
- $
3,247,518
Investment Securities:
SECURITIES AVAILABLE-FOR-SALE
September 30, June 30, September 30,
5
(in $000's, unaudited)
2024
2024
2023
Balance (at fair value):
U.S. Treasury
$
184,162
$
218,682
$
396,996
Agency mortgage-backed securities
53,450
54,361
60,198
Total
$
237,612
$
273,043
$
457,194
Pre-tax unrealized (loss):
U.S. Treasury
$
(1,440)
$
(3,578)
$
(9,606)
Agency mortgage-backed securities
(2,923)
(4,815)
(7,185)
Total
$
(4,363)
$
(8,393)
$
(16,791)
Weighted average life (years)
1.32
1.39
1.49
SECURITIES HELD-TO-MATURITY
September 30,
June 30,
September 30,
(in $000's, unaudited)
2024
2024
2023
Balance (at amortized cost):
Agency mortgage-backed securities
$
573,621
$
589,386
$
632,241
Municipals - exempt from Federal tax(1)
30,584
31,804
32,453
Total(1)
$
604,205
$
621,190
$
664,694
Pre-tax unrecognized (loss):
Agency mortgage-backed securities
$
(71,996)
$
(92,058)
$
(119,932)
Municipals - exempt from Federal tax
(676)
(1,694)
(2,753)
Total
$
(72,672)
$
(93,752)
$
(122,685)
Allowance for credit losses on municipal
securities
$
(12)
$
(12)
$
(13)
Weighted average life (years)
5.94
6.57
7.03
Agency
Mortgage-
PROJECTED INVESTMENT SECURITIES
backed and
PAYDOWNS & MATURITIES
U.S.
Municipal
6
(in $000's, unaudited)
Treasury
Securities
Total
Fourth quarter of 2024
$
9,000
$
26,727
$
35,727
First quarter of 2025
35,000
21,336
56,336
Second quarter of 2025
118,000
20,700
138,700
Third quarter of 2025
25,200
21,885
47,085
Fourth quarter of 2025
-
19,486
19,486
First quarter of 2026
-
19,001
19,001
Second quarter of 2026
-
18,349
18,349
Third quarter of 2026
-
18,645
18,645
Total
$
187,200
$
166,129
$
353,329
Loans:
LOANS
September 30, 2024
June 30, 2024
September 30, 2023
(in $000's, unaudited)
Balance
% to Total
Balance
% to Total
Balance
% to Total
Commercial
$
481,266
14 %
$
477,929
14 %
$
430,664
13 %
Real estate:
CRE(1) - owner occupied
602,062
18 %
594,504
18 %
589,751
18 %
CRE(1) - non-owner occupied
1,310,578
38 %
1,283,323
38 %
1,208,324
37 %
Land and construction
125,761
4 %
125,374
4 %
158,138
5 %
Home equity
124,090
4 %
126,562
4 %
124,477
4 %
Multifamily
273,103
8 %
268,968
8 %
253,129
7 %
Residential mortgages
479,524
14 %
484,809
14 %
503,006
15 %
Consumer and other
14,179
< 1 %
18,758
< 1 %
18,526
1 %
Total Loans
3,410,563
100 %
3,380,227
100 %
3,286,015
100 %
Deferred loan costs (fees), net
(327)
-
(434)
-
(554)
-
Loans, net of deferred costs and fees
$
3,410,236
100 %
$
3,379,793
100 %
$
3,285,461
100 %
(1) Commercial Real Estate
7
CRE - Non-owner Occupied
CRE - Owner Occupied
Total CRE
COLLATERAL TYPE
Outstanding
LTV
DSCR
Outstanding
LTV
Outstanding
LTV
Retail
26 %
38.0 %
1.89
16 %
46.3 %
23 %
39.6 %
Industrial
19 %
39.1 %
2.46
34 %
43.7 %
23 %
40.9 %
Mixed-Use, Special
Purpose and Other
18 %
41.6 %
1.91
34 %
40.7 %
22 %
41.2 %
Office
20 %
41.8 %
1.82
16 %
44.3 %
19 %
42.5 %
Multifamily
17 %
42.6 %
1.95
0 %
0.0 %
13 %
42.6 %
Hotel/Motel
< 1 %
16.4 %
1.32
0 %
0.0 %
< 1 %
16.4 %
Total
100 %
40.3 %
1.99
100 %
43.2 %
100 %
41.1 %
CRE - Non-owner Occupied
CRE - Owner Occupied
Total CRE
COUNTY
Outstanding
LTV
DSCR
Outstanding
LTV
Outstanding
LTV
Alameda
25 %
44.3 %
1.93
18 %
45.6 %
23 %
44.6 %
Contra Costa
7 %
41.8 %
1.79
8 %
47.8 %
7 %
43.5 %
Marin
7 %
46.3 %
2.02
1 %
52.4 %
5 %
46.8 %
Monterey
2 %
43.8 %
1.85
2 %
41.1 %
2 %
43.0 %
Napa
< 1 %
30.0 %
1.73
1 %
52.0 %
1 %
36.3 %
Out of Area
8 %
42.3 %
2.06
9 %
49.0 %
9 %
44.3 %
San Benito
1 %
35.1 %
2.00
3 %
39.7 %
2 %
37.5 %
San Francisco
9 %
37.5 %
1.48
4 %
39.8 %
8 %
37.8 %
San Mateo
11 %
37.5 %
2.20
15 %
40.0 %
12 %
38.3 %
Santa Clara
24 %
37.4 %
2.25
34 %
41.1 %
26 %
38.8 %
Santa Cruz
2 %
33.1 %
1.74
1 %
49.2 %
2 %
36.2 %
Solano
1 %
32.1 %
1.95
2 %
37.8 %
1 %
33.8 %
Sonoma
3 %
39.7 %
2.22
2 %
43.1 %
2 %
40.5 %
Total
100 %
40.3 %
1.99
100 %
43.2 %
100 %
41.1 %
8
Due in
Over One Year But
LOAN MATURITIES
One Year or Less
Less than Five Years
Over Five Years
(in $000's, unaudited)
Balance
% to Total
Balance
% to Total
Balance
% to Total
Total
Loans with variable interest rates
$
375,424
44 %
$
227,201
27 %
$
247,622
29 %
$
850,247
Loans with fixed interest rates
141,906
6 %
767,930
30 %
1,650,480
64 %
2,560,316
Loans
$
517,330
15 %
$
995,131
29 %
$
1,898,102
56 %
$
3,410,563
Credit Quality:
At or For the Quarter Ended:
At or For the Nine Months Ended:
ALLOWANCE FOR CREDIT LOSSES ON LOANS
September 30,
June 30,
September 30,
September 30,
September 30,
(in $000's, unaudited)
2024
2024
2023
2024
2023
Balance at beginning of period
$
47,954
$
47,888
$
47,803
$
47,958
$
47,512
Charge-offs during the period
(474)
(510)
(447)
(1,342)
(851)
Recoveries during the period
186
105
178
395
581
Net (charge-offs) recoveries during the period
(288)
(405)
(269)
(947)
(270)
Provision for credit losses on loans during the period
153
471
168
808
460
Balance at end of period
$
47,819
$
47,954
$
47,702
$
47,819
$
47,702
Total loans, net of deferred fees
$
3,410,236
$
3,379,793
$
3,285,461
$
3,410,236
$
3,285,461
Total nonperforming loans
$
7,158
$
6,030
$
5,484
$
7,158
$
5,484
ACLL to total loans
1.40 %
1.42 %
1.45 %
1.40 %
1.45 %
ACLL to total nonperforming loans
668.05 %
795.26 %
869.84 %
668.05 %
869.84 %
DRIVERS OF CHANGE IN ACLL
(in $000's, unaudited)
ACLL at December 31, 2023
$
47,958
Portfolio changes during the first quarter of 2024
(234)
Qualitative and quantitative changes during the first
quarter of 2024 including changes in economic forecasts
164
ACLL at March 31, 2024
47,888
Portfolio changes during the second quarter of 2024
616
Qualitative and quantitative changes during the second
quarter of 2024 including changes in economic forecasts
(550)
ACLL at June 30, 2024
47,954
Portfolio changes during the third quarter of 2024
599
Qualitative and quantitative changes during the third
quarter of 2024 including changes in economic forecasts
(734)
ACLL at September 30, 2024
$
47,819
NONPERFORMING ASSETS
September 30, 2024
June 30, 2024
September 30, 2023
(in $000's, unaudited)
Balance
% of Total
Balance
% of Total
Balance
% of Total
Land and construction loans
$
5,862
82 %
$
4,774
79 %
$
-
0 %
Commercial loans
752
11 %
900
15 %
1,712
31 %
Loans over 90 days past due and still accruing
460
6 %
248
4 %
1,966
36 %
Home equity and other loans
84
1 %
108
2 %
90
2 %
Residential mortgages
-
0 %
-
0 %
1,716
31 %
CRE loans
-
0 %
-
0 %
-
0 %
Total nonperforming assets
$
7,158
100 %
$
6,030
100 %
$
5,484
100 %
There were 10 borrowers included in NPAs totaling $7.2 million, or 0.13% of total assets, at September 30, 2024, compared to 10 borrowers totaling $6.0 million, or 0.11% of total assets at June 30, 2024, and 11 borrowers totaling $5.5 million, or 0.10% of total assets, at September 30, 2023. The increase in NPAs at September 30, 2024, was primarily due to the downgrade of a loan to one
9
customer totaling $1.1 million, which is well collateralized and there were no specific reserves for the loan. This increase in NPAs was partially offset by pay-offs of loan previously included in NPAs.
Deposits:
DEPOSITS
September 30, 2024
June 30, 2024
September 30, 2023
(in $000's, unaudited)
Balance
% to Total
Balance
% to Total
Balance
% to Total
Demand, noninterest-bearing
$
1,272,139
27 % $
1,187,320
27 % $
1,243,501
27 %
Demand, interest-bearing
913,910
19 %
928,246
21 %
1,004,185
22 %
Savings and money market
1,309,676
28 %
1,126,520
25 %
1,110,640
24 %
Time deposits - under $250
39,060
1 %
39,046
1 %
43,906
1 %
Time deposits - $250 and over
196,945
4 %
203,886
4 %
252,001
6 %
ICS/CDARS - interest-bearing demand,
money market and time deposits
997,803
21 %
959,592
22 %
921,224
20 %
Total deposits
$
4,729,533
100 % $
4,444,610
100 % $
4,575,457
100 %
Capital Management:
10
Disclaimer
Heritage Commerce Corporation published this content on October 26, 2024, and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on October 26, 2024 at 08:47:03.008.