Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Commission file number 000-23877 Heritage Commerce Corp Washington, D.C. 20549 _____________________________________________________________ FORM 10-Q _____________________________________________________________ (MARK ONE) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ...

Here are five stocks added to the Zacks Rank #1 (Strong Buy) List today:Heritage Commerce Corp (HTBK) : This bank holding company which, offers a range of loans, primarily commercial, including real estate, construction, Small Business Administration), inventory, accounts receivable, equipment loans and other deposit and non-deposit banking services, has seen the Zacks Consensus Estimate for its current year earnings increasing 4.9% over the last 60 days.HCA HEALTHCARE (HCA) : This company which, is the lar ...

Core Insights - Heritage Commerce (HTBK) reported revenue of $50.01 million for the quarter ended September 2025, reflecting an 18.6% increase year-over-year [1] - Earnings per share (EPS) for the quarter was $0.24, up from $0.17 in the same quarter last year, exceeding the consensus estimate of $0.21 by 14.29% [1] Financial Performance - The reported revenue surpassed the Zacks Consensus Estimate of $48.61 million, resulting in a surprise of +2.86% [1] - The efficiency ratio improved to 58.1%, better than the estimated 60.6% [4] - Net interest margin was reported at 3.6%, slightly above the average estimate of 3.5% [4] - Total non-performing loans were $3.66 million, significantly lower than the estimated $7.29 million [4] - Average balances of interest-earning assets were $5.17 billion, close to the estimated $5.18 billion [4] - Total non-performing assets also stood at $3.66 million, compared to the estimated $6.59 million [4] - Net interest income reached $46.79 million, exceeding the average estimate of $46.03 million [4] - Total non-interest income was reported at $3.22 million, higher than the average estimate of $2.62 million [4] - Net interest income (FTE) was $46.84 million, above the average estimate of $46.29 million [4] Stock Performance - Shares of Heritage Commerce have returned -2% over the past month, while the Zacks S&P 500 composite increased by +0.2% [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating potential underperformance relative to the broader market in the near term [3]

Core Viewpoint - Heritage Commerce (HTBK) reported quarterly earnings of $0.24 per share, exceeding the Zacks Consensus Estimate of $0.21 per share, and showing an increase from $0.17 per share a year ago [1][2] Financial Performance - The earnings surprise for the quarter was +14.29%, with the company previously expected to post earnings of $0.19 per share but actually delivering $0.21, resulting in a surprise of +10.53% [2] - Heritage Commerce generated revenues of $50.01 million for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 2.86%, compared to $42.15 million in the same quarter last year [3] - The company has exceeded consensus revenue estimates three times in the last four quarters [3] Stock Performance and Outlook - Heritage Commerce shares have increased approximately 5.4% since the beginning of the year, while the S&P 500 has gained 13.9% [4] - The future performance of the stock will largely depend on management's commentary during the earnings call and the earnings outlook [4][5] Earnings Estimates and Revisions - The current consensus EPS estimate for the upcoming quarter is $0.21 on revenues of $49.51 million, and for the current fiscal year, it is $0.81 on revenues of $191.87 million [8] - Prior to the earnings release, the estimate revisions trend for Heritage Commerce was unfavorable, resulting in a Zacks Rank 4 (Sell) for the stock, indicating expected underperformance in the near future [7] Industry Context - The Zacks Industry Rank for Banks - West is currently in the top 37% of over 250 Zacks industries, suggesting that the industry outlook can significantly impact stock performance [9] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [6]

Core Insights - Heritage Commerce Corp reported strong financial results for Q3 2025, with net income of $14.7 million and diluted EPS of $0.24, reflecting significant growth compared to previous quarters and the same period last year [2][6][7]. Financial Performance - Net income for Q3 2025 was $14.7 million, a 130% increase from $6.4 million in Q2 2025 and a 40% increase from $10.5 million in Q3 2024 [6][7][8]. - Total revenue reached $50.0 million, up 5% from $47.8 million in Q2 2025 and up 19% from $42.2 million in Q3 2024 [11][8]. - Pre-Provision Net Revenue (PPNR) was $21.0 million, a 44% increase from $14.6 million in Q3 2024 [8][18]. Balance Sheet Highlights - Total assets increased by 3% to $5.6 billion at September 30, 2025, compared to $5.5 billion at June 30, 2025 [28]. - Loans held-for-investment (HFI) rose to $3.6 billion, an increase of 1% from the previous quarter and 5% year-over-year [33]. - Total deposits increased by 3% to $4.8 billion, with a loan-to-deposit ratio of 74.99% [35]. Asset Quality - Nonperforming assets (NPAs) decreased to $3.7 million, down from $6.2 million in Q2 2025 and $7.2 million in Q3 2024 [40]. - The allowance for credit losses on loans was $49.4 million, representing 1.38% of total loans, consistent with the previous quarter [39]. Capital Management - Total shareholders' equity was $700.0 million, an increase from $694.7 million at June 30, 2025 [36]. - The Company announced an increase in its share repurchase program, doubling the authorization from $15 million to $30 million [42]. CEO Commentary - The CEO highlighted the solid financial foundation of the Company, emphasizing high capital reserves, strong liquidity, and improved asset quality, which positions the Company for continued growth and market share expansion [3].

Financial Performance - Net income for Q3 2025 was $14.7 million, or $0.24 per diluted share, representing a 130% increase from $6.4 million and a 140% increase from $0.10 in Q2 2025[2][5] - Total revenue for Q3 2025 was $50.0 million, a 5% increase from $47.8 million in Q2 2025 and a 19% increase from $42.2 million in Q3 2024[4][8] - Noninterest income for Q3 2025 increased by 8% to $3.2 million compared to $3.0 million in Q2 2025, and by 14% from $2.8 million in Q3 2024[12] - Net income for Q3 2025 reached $14,698,000, a 130% increase from Q2 2025 and a 40% increase from Q3 2024[54] - Basic earnings per share for Q3 2025 was $0.24, a 140% increase from Q2 2025 and a 41% increase from Q3 2024[54] - Total revenue for the nine months ended September 30, 2025, was $143,843,000, a 14% increase compared to the same period in 2024[54] - Reported net income (GAAP) for Q3 2025 was $14,698,000, up from $10,507,000 in Q3 2024, representing a 39.5% increase[81] - Adjusted net income (non-GAAP) for Q3 2025 was $14,698,000, compared to $10,507,000 in Q3 2024, reflecting a 39.5% year-over-year growth[81] Asset and Deposit Growth - Total assets increased by 3% to $5.6 billion at September 30, 2025, compared to $5.5 billion at June 30, 2025, driven by an increase in deposits and loans[25] - Total deposits rose by $149.2 million, or 3%, to $4.8 billion at September 30, 2025, compared to $4.6 billion at June 30, 2025[33] - Total assets as of September 30, 2025, were $5,623,720,000, compared to $5,467,237,000 in the previous quarter[58] - Total deposits increased to $4,687,294,000, with an average interest rate of 1.50%, compared to $4,618,007,000 and 1.54% in the previous quarter[67] - Total deposits reached $4.674 billion as of September 30, 2025, compared to $4.427 billion as of September 30, 2024, representing an increase of 5.6%[75] Loan and Credit Quality - Loans held-for-investment increased by $47.3 million, or 1%, to $3.6 billion in Q3 2025, while total deposits rose by $149.2 million, or 3%, to $4.8 billion[4][3] - The provision for credit losses on loans was $416,000 in Q3 2025, down from $516,000 in Q2 2025 and up from $153,000 in Q3 2024[17] - The allowance for credit losses on loans was $49.4 million, or 1.38% of total loans, at September 30, 2025, consistent with the previous quarter[38] - Nonperforming loans decreased by 41% year-over-year to $3,662,000 from $6,178,000[63] - The allowance for credit losses on loans to total loans ratio remained stable at 1.38%[64] Efficiency and Profitability Metrics - The efficiency ratio improved to 58.05%, a decrease of 5% from 61.01% in Q2 2025 and an 11% decrease from 65.37% in Q3 2024[4] - The annualized return on average tangible common equity was 11.14% for Q3 2025, an increase of 12% from the previous quarter[6][4] - The annualized return on average equity improved to 8.37%, a 127% increase from Q2 2025 and a 36% increase from Q3 2024[54] - The reported efficiency ratio (noninterest expense divided by total revenue) for the nine months ended September 30, 2025, was 67.31%, compared to 66.08% in 2024[85] - The adjusted efficiency ratio for the nine months ended September 30, 2025, was 60.92%, compared to 66.08% in 2024, showing improved operational efficiency[85] Shareholder Equity and Capital - Total shareholders' equity was $700.0 million, reflecting an increase of $5.3 million from the previous quarter[4] - Total common equity as of September 30, 2025, was $700,010,000, up from $685,352,000 as of September 30, 2024, an increase of 2.1%[79] - Tangible common equity increased by 1% to $527,301,000 from $521,541,000[64] - Total capital ratio slightly decreased to 15.4% from 15.5%[64] - The Company approved an increase in its share repurchase program from $15 million to $30 million, with a remaining capacity of $26 million as of September 30, 2025[40][42]

Core Insights - First Hawaiian (FHB) is anticipated to report a year-over-year increase in earnings due to higher revenues for the quarter ended September 2025, with a consensus outlook suggesting a positive earnings picture [1][3] - The upcoming earnings report is expected to be released on October 24, and the stock price may react significantly based on whether the actual results meet or exceed expectations [2] Earnings Estimates - The consensus EPS estimate for First Hawaiian is $0.52 per share, reflecting an 8.3% increase year-over-year [3] - Expected revenues for the quarter are projected at $218.28 million, which is a 4% increase from the previous year [3] Estimate Revisions - The consensus EPS estimate has remained unchanged over the last 30 days, indicating stability in analyst expectations [4] - The Most Accurate Estimate for First Hawaiian matches the Zacks Consensus Estimate, resulting in an Earnings ESP of 0% [11] Earnings Surprise Prediction - The Zacks Earnings ESP model suggests that a positive or negative reading indicates the likely deviation of actual earnings from the consensus estimate, with a positive ESP being a strong predictor of an earnings beat [8][9] - First Hawaiian's current Zacks Rank is 3, which complicates the prediction of an earnings beat [11] Historical Performance - In the last reported quarter, First Hawaiian exceeded the expected earnings of $0.49 per share by delivering $0.58, resulting in a surprise of +18.37% [12] - Over the past four quarters, the company has consistently beaten consensus EPS estimates [13] Industry Context - In the Zacks Banks - West industry, Heritage Commerce (HTBK) is expected to report earnings of $0.21 per share for the same quarter, indicating a year-over-year change of +23.5% [17] - Heritage Commerce's revenue is projected at $48.61 million, up 15.3% from the previous year, with a recent EPS estimate revision of 1.6% [18]

Group 1 - Heritage Commerce Corp announced the appointment of Christopher J. Abate to its Board of Directors, expanding the Board from eight to nine members [1] - Julie Biagini-Komas, Chair of the Board, expressed confidence in Mr. Abate's experience in real estate and finance, highlighting his leadership skills as a valuable addition to the Board [2] - Clay Jones, President & CEO, praised Mr. Abate's extensive experience in complex markets and product innovation, indicating that his collaborative approach will benefit both the Board and shareholders [2] Group 2 - Mr. Abate has over 20 years of experience in the financial services industry, including his role as CEO of Redwood Trust, Inc. since May 2018 [2] - Prior to his current position, Mr. Abate held various roles at Redwood Trust, including President, Chief Financial Officer, and Controller, showcasing a strong background in finance and accounting [2] - Heritage Commerce Corp, established in October 1997, is the parent company of Heritage Bank of Commerce, which has full-service branches across multiple locations in California [3]

[Cautionary Note on Forward-Looking Statements](index=4&type=section&id=Cautionary%20Note%20on%20Forward-Looking%20Statements) [Cautionary Note Regarding Forward-Looking Statements](index=4&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section highlights forward-looking statements, subject to risks and uncertainties that may cause actual results to differ materially - The report contains forward-looking statements, which are not historical facts and are based on current expectations and projections about future events[8](index=8&type=chunk) - Actual results could differ materially from projected results due to various risks and uncertainties, including cybersecurity, personnel retention, market/sociopolitical factors, and operational issues[9](index=9&type=chunk)[11](index=11&type=chunk) [Part I. FINANCIAL INFORMATION](index=6&type=section&id=Part%20I.%20FINANCIAL%20INFORMATION) [Item 1. Consolidated Financial Statements (unaudited)](index=6&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(unaudited)) This section presents unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and detailed notes on accounting policies and financial components [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Data | Metric | June 30, 2025 (Thousands) | December 31, 2024 (Thousands) | |:---|:---|:---| | **Assets** ||| | Total cash and cash equivalents | $721,792 | $968,123 | | Securities available-for-sale, at fair value | $307,035 | $256,274 | | Securities held-to-maturity, at amortized cost | $561,205 | $590,016 | | Loans, net | $3,485,700 | $3,442,984 | | Total assets | $5,467,237 | $5,645,006 | | **Liabilities** ||| | Total deposits | $4,627,334 | $4,820,031 | | Total liabilities | $4,772,533 | $4,955,279 | | **Shareholders' Equity** ||| | Total shareholders' equity | $694,704 | $689,727 | | Total liabilities and shareholders' equity | $5,467,237 | $5,645,006 | - Total assets decreased by **$177.769 million (-3.15%)** from December 31, 2024, to June 30, 2025[13](index=13&type=chunk) - Total deposits decreased by **$192.697 million (-3.99%)** from December 31, 2024, to June 30, 2025[13](index=13&type=chunk) [Consolidated Statements of Income](index=7&type=section&id=Consolidated%20Statements%20of%20Income) Consolidated Income Statement Data | Metric | Three Months Ended June 30, 2025 (Thousands) | Three Months Ended June 30, 2024 (Thousands) | Six Months Ended June 30, 2025 (Thousands) | Six Months Ended June 30, 2024 (Thousands) | |:---|:---|:---|:---|:---|\ | Total interest income | $63,025 | $58,489 | $124,857 | $115,450 | | Total interest expense | $18,220 | $19,622 | $36,692 | $37,080 | | Net interest income before provision for credit losses on loans | $44,805 | $38,867 | $88,165 | $78,370 | | Provision for credit losses on loans | $516 | $471 | $790 | $655 | | Total noninterest income | $2,977 | $2,864 | $5,673 | $5,501 | | Total noninterest expense | $38,335 | $28,188 | $67,791 | $55,724 | | Net income | $6,389 | $9,234 | $18,015 | $19,400 | | Basic earnings per common share | $0.10 | $0.15 | $0.29 | $0.32 | | Diluted earnings per common share | $0.10 | $0.15 | $0.29 | $0.32 | - Net income for the three months ended June 30, 2025, decreased by **$2.845 million (-30.81%)** compared to the same period in 2024[15](index=15&type=chunk) - Diluted EPS for the three months ended June 30, 2025, decreased by **$0.05 (-33.33%)** compared to the same period in 2024[15](index=15&type=chunk) [Consolidated Statements of Comprehensive Income](index=8&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Consolidated Comprehensive Income Data | Metric | Three Months Ended June 30, 2025 (Thousands) | Three Months Ended June 30, 2024 (Thousands) | Six Months Ended June 30, 2025 (Thousands) | Six Months Ended June 30, 2024 (Thousands) | |:---|:---|:---|:---|:---|\ | Net income | $6,389 | $9,234 | $18,015 | $19,400 | | Change in unrealized gains on securities and I/O strips, net of deferred income taxes | $1,885 | $907 | $3,239 | $1,083 | | Change in pension and other benefit plan liability, net of deferred income taxes | $(56) | $(34) | $(112) | $(68) | | Other comprehensive income | $1,829 | $873 | $3,127 | $1,015 | | Total comprehensive income | $8,218 | $10,107 | $21,142 | $20,415 | - Total comprehensive income for the three months ended June 30, 2025, decreased by **$1.889 million (-18.69%)** compared to the same period in 2024[17](index=17&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Consolidated Shareholders' Equity Data | Metric | January 1, 2025 (Thousands) | June 30, 2025 (Thousands) | January 1, 2024 (Thousands) | June 30, 2024 (Thousands) | |:---|:---|:---|:---|:---|\ | Common Stock | $510,070 | $509,888 | $506,539 | $508,343 | | Retained Earnings | $187,762 | $189,794 | $179,092 | $182,571 | | Accumulated Other Comprehensive Income (Loss) | $(8,105) | $(4,978) | $(12,730) | $(11,715) | | Total Shareholders' Equity | $689,727 | $694,704 | $672,901 | $679,199 | - Total shareholders' equity increased by **$4.977 million (0.72%)** from January 1, 2025, to June 30, 2025[20](index=20&type=chunk) - Cash dividends declared were **$0.13 per share** for both the first and second quarters of 2025, totaling **$7.987 million** and **$7.996 million** respectively[20](index=20&type=chunk) [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Cash Flow Data | Metric | Six Months Ended June 30, 2025 (Thousands) | Six Months Ended June 30, 2024 (Thousands) | |:---|:---|:---|\ | Net cash provided by operating activities | $22,836 | $17,847 | | Net cash (used in) provided by investing activities | $(59,589) | $171,610 | | Net cash (used in) provided by financing activities | $(209,578) | $50,674 | | Net (decrease) increase in cash and cash equivalents | $(246,331) | $240,131 | | Cash and cash equivalents, end of period | $721,792 | $648,260 | - Net cash used in investing activities significantly increased to **$(59.589) million** for the six months ended June 30, 2025, compared to **$171.610 million** provided in the same period of 2024, primarily due to purchases of available-for-sale securities[22](index=22&type=chunk) - Net cash used in financing activities was **$(209.578) million** for the six months ended June 30, 2025, a substantial change from **$50.674 million** provided in the same period of 2024, driven by a net decrease in deposits and common stock repurchases[22](index=22&type=chunk) [Notes to Unaudited Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Unaudited%20Consolidated%

Core Insights - Heritage Commerce reported adjusted earnings per share of $0.21 for Q2 2025, exceeding analyst estimates of $0.19, while GAAP revenue reached $47.8 million, surpassing expectations of $47.3 million [1][2] - Despite solid operating momentum, net income fell to $6.4 million, a 31% decline from the same quarter last year, primarily due to a significant legal settlement charge [1][2] Financial Performance - Adjusted EPS increased by 40% year-over-year from $0.15 in Q2 2024 [2] - Total revenue grew by 15% compared to Q2 2024, up from $41.7 million [2] - Pre-Provision Net Revenue decreased by 30.4% year-over-year to $9.4 million [2] - Efficiency Ratio improved to 61.0%, down from 67.6% in Q2 2024 [2] Business Overview - Heritage Commerce operates 17 full-service branches in California, focusing on small and medium-sized businesses [3] - The bank emphasizes a community approach to tailor services and maintain close customer relationships [3] Strategic Focus - Recent initiatives include leadership changes, technology investments, and enhanced risk management [4] - Key focus areas are deposit growth, loan quality, regulatory compliance, and digital banking capabilities [4] Quarter Highlights - Net interest margin improved to 3.54% in Q2 2025, contributing to revenue growth [5] - Loans held for investment increased by $47.4 million quarter-over-quarter [5] - Deposits declined by $55.9 million, attributed to seasonal outflows, but grew 4% year-over-year [6] Asset Quality - Provisions for loan losses rose to $516,000 due to loan growth, while net charge-offs decreased significantly [7] - Nonperforming assets remained stable at 0.11% of total assets, with a strong allowance for credit losses [7] Shareholder Returns - The company executed $1.9 million in share repurchases and maintained a quarterly cash dividend of $0.13 per share [8] Risk Considerations - A high concentration of commercial real estate loans, amounting to $2.0 billion, poses potential risks [9][10] - The common equity tier 1 capital ratio stood at 13.3%, indicating a robust capital position [10] Technology Investments - Continued investments in digital platforms and cybersecurity are crucial for competing with larger banks and fintech [11] Future Outlook - Management described the outlook as constructive, focusing on loan growth and maintaining a healthy net interest margin [12] - Deposit stability and the high proportion of CRE loans are key areas to monitor moving forward [13]