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]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION 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 quarterly period ended June 30, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number ...

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]

For the quarter ended June 2025, Heritage Commerce (HTBK) reported revenue of $47.78 million, up 14.5% over the same period last year. EPS came in at $0.21, compared to $0.15 in the year-ago quarter.The reported revenue represents a surprise of +2.21% over the Zacks Consensus Estimate of $46.75 million. With the consensus EPS estimate being $0.19, the EPS surprise was +10.53%.While investors closely watch year-over-year changes in headline numbers -- revenue and earnings -- and how they compare to Wall Stre ...

Group 1: Earnings Performance - Heritage Commerce (HTBK) reported quarterly earnings of $0.21 per share, exceeding the Zacks Consensus Estimate of $0.19 per share, and up from $0.15 per share a year ago, representing an earnings surprise of +10.53% [1] - The company posted revenues of $47.78 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 2.21%, compared to year-ago revenues of $41.73 million [2] - Over the last four quarters, Heritage Commerce has surpassed consensus EPS estimates two times and topped consensus revenue estimates two times [2] Group 2: Stock Performance and Outlook - Heritage Commerce shares have increased approximately 8.2% since the beginning of the year, slightly outperforming the S&P 500's gain of 8.1% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the coming quarter is $0.20 on revenues of $48.35 million, and for the current fiscal year, it is $0.78 on revenues of $190.85 million [7] Group 3: Industry Context - The Zacks Industry Rank indicates that the Banks - West industry is currently in the top 29% of over 250 Zacks industries, suggesting a favorable environment for stock performance [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors or through tools like the Zacks Rank [5][6]

[Executive Summary & Second Quarter 2025 Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Second%20Quarter%202025%20Highlights) [Reported and Adjusted Financial Highlights](index=1&type=section&id=Reported%20and%20Adjusted%20Highlights) Heritage Commerce Corp reported Q2 2025 net income of $6.4 million ($0.10 EPS) and adjusted net income of $13.0 million ($0.21 EPS), excluding significant legal settlement charges. Key metrics include a 3.54% FTE Net Interest Margin and an adjusted efficiency ratio of 61.01% | Metric | Reported Q2 2025 | Adjusted Q2 2025 | | :--- | :--- | :--- | | Net Income | $6.4 million | $13.0 million | | Earnings Per Share | $0.10 | $0.21 | | Pre-Provision Net Revenue ("PPNR") | $9.4 million | $18.6 million | | Fully Tax Equivalent ("FTE") Net Interest Margin | 3.54% | 3.54% | | Efficiency Ratio | 80.23% | 61.01% | | Tangible Book Value Per Share | $8.49 | $8.59 | [CEO Commentary](index=1&type=section&id=CEO%20Commentary) CEO Clay Jones highlighted strong Q2 execution with higher net income (excluding charges), positive loan growth, expanded net interest margin, and stable asset quality, despite seasonal deposit declines. He emphasized a strong balance sheet, capital, and liquidity for economic volatility - Generated higher net income and earnings per share, excluding significant charges primarily related to a legal settlement[3](index=3&type=chunk) - Observed positive trends in loan growth, an expansion in net interest margin, and stable asset quality[3](index=3&type=chunk) - Maintained a strong balance sheet with high capital and liquidity, and healthy asset quality, positioning the company to navigate the current environment[3](index=3&type=chunk) [Key Financial Trends (Linked-Quarter & Year-Over-Year)](index=1&type=section&id=Key%20Financial%20Trends%20%28Linked-Quarter%20%26%20Year-Over-Year%29) The company experienced a 4% linked-quarter and 15% year-over-year increase in total revenue to $47.8 million. Reported net income decreased significantly due to a $9.2 million legal settlement charge, while adjusted net income rose 11% QoQ and 40% YoY. Loans HFI grew 1% QoQ and 5% YoY, and the FTE net interest margin increased to 3.54% | Metric | Linked-Quarter Basis (QoQ) | Year-Over-Year (YoY) | | :--- | :--- | :--- | | Total revenue | Up 4%, or $1.7 million | Up 15%, or $6.1 million | | Noninterest expense (includes $9.2M legal settlement) | $38.3 million | $38.3 million | | Reported net income | Down 45% to $6.4 million | Down 31% to $6.4 million | | Reported EPS | Down 47% to $0.10 | Down 33% to $0.10 | | Adjusted net income | Up 11% to $13.0 million | Up 40% to $13.0 million | | Adjusted EPS | Up 11% to $0.21 | Up 40% to $0.21 | | Loans held-for-investment ("HFI") | Up $47.4 million or 1% to $3.5 billion | Up $154.5 million or 5% | | Total deposits | Down $55.9 million or 1% to $4.6 billion | Up $182.7 million or 4% | | Loan to deposit ratio | 76.38% (up from 74.45%) | 76.38% (up from 76.04%) | | Nonperforming assets ("NPAs") to total assets | 0.11% (stable) | 0.11% (stable) | | Classified assets to total assets | 0.69% (down from 0.73%) | 0.69% (up from 0.64%) | | FTE net interest margin | 3.54% (up from 3.39%) | 3.54% (up from 3.26%) | | Common equity tier 1 capital ratio | 13.3% (down from 13.6%) | 13.3% (down from 13.4%) | | Total capital ratio | 15.5% (down from 15.9%) | 15.5% (down from 15.6%) | | Tangible common equity ratio | 9.85% (up 1% from 9.78%) | 9.85% (down 1% from 9.91%) | [Results of Operations](index=2&type=section&id=Results%20of%20Operations) [Net Income and Earnings Per Share](index=2&type=section&id=Net%20Income%20and%20Earnings%20Per%20Share) Reported net income for Q2 2025 was $6.4 million ($0.10 diluted EPS), while adjusted net income was $13.0 million ($0.21 diluted EPS), reflecting an 11% QoQ and 40% YoY increase in adjusted EPS. For the first six months, adjusted net income was $24.6 million ($0.40 diluted EPS), up from $19.4 million ($0.32 diluted EPS) in the prior year | Metric | Q2 2025 (Reported) | Q2 2025 (Adjusted) | Q1 2025 (Adjusted) | Q2 2024 (Adjusted) | | :--- | :--- | :--- | :--- | :--- | | Net Income | $6.4 million | $13.0 million | $11.6 million | $9.2 million | | Diluted EPS | $0.10 | $0.21 | $0.19 | $0.15 | | Annualized ROAA | 0.47% | 0.95% | 0.85% | 0.71% | | Annualized ROAE | 3.68% | N/A | 6.81% | 5.50% | | Annualized ROATCE | N/A | 9.92% | 9.09% | 7.43% | | Metric | 6 Months 2025 (Reported) | 6 Months 2025 (Adjusted) | 6 Months 2024 (Adjusted) | | :--- | :--- | :--- | :--- | | Net Income | $18.0 million | $24.6 million | $19.4 million | | Diluted EPS | $0.29 | $0.40 | $0.32 | | Annualized ROAA | 0.66% | 0.90% | 0.75% | | Annualized ROAE | 5.23% | N/A | 5.79% | | Annualized ROATCE | N/A | 9.51% | 7.84% | [Total Revenue](index=2&type=section&id=Total%20Revenue) Total revenue increased by $1.7 million (4%) QoQ to $47.8 million in Q2 2025 and by $6.1 million (15%) YoY. For the first six months, total revenue grew $9.9 million (12%) to $93.8 million compared to the prior year | Period | Total Revenue ($ millions) | Change QoQ | Change YoY | | :--- | :--- | :--- | :--- | | Q2 2025 | $47.8 | +$1.7 (4%) | +$6.1 (15%) | | Q1 2025 | $46.1 | N/A | N/A | | Q2 2024 | $41.7 | N/A | N/A | | 6 Months 2025 | $93.8 | N/A | +$9.9 (12%) | | 6 Months 2024 | $83.9 | N/A | N/A | [Pre-Provision Net Revenue (PPNR)](index=2&type=section&id=Pre-Provision%20Net%20Revenue%20%28PPNR%29) Reported PPNR for Q2 2025 was $9.4 million, with adjusted PPNR at $18.6 million, up from $16.6 million QoQ and $13.5 million YoY. For the first six months, adjusted PPNR was $35.2 million, an increase from $28.1 million in the prior year | Metric | Q2 2025 (Reported) | Q2 2025 (Adjusted) | Q1 2025 (Adjusted) | Q2 2024 (Adjusted) | | :--- | :--- | :--- | :--- | :--- | | PPNR | $9.4 million | $18.6 million | $16.6 million | $13.5 million | | Metric | 6 Months 2025 (Reported) | 6 Months 2025 (Adjusted) | 6 Months 2024 (Adjusted) | | :--- | :--- | :--- | :--- | | PPNR | $26.0 million | $35.2 million | $28.1 million | [Net Interest Income and Margin](index=2&type=section&id=Net%20Interest%20Income%20and%20Margin) Net interest income rose to $44.8 million in Q2 2025, a 3% QoQ increase and 15% YoY increase. The FTE net interest margin expanded to 3.54% in Q2 2025, up from 3.39% QoQ and 3.23% YoY, driven by higher loan and securities yields and lower deposit rates | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Net Interest Income | $44.8 million | $43.4 million | $38.9 million | | FTE Net Interest Margin | 3.54% | 3.39% | 3.23% | | Metric | 6 Months 2025 | 6 Months 2024 | | :--- | :--- | :--- | | Net Interest Income | $88.2 million | $78.4 million | | FTE Net Interest Margin | 3.47% | 3.27% | - QoQ increase in FTE net interest margin primarily due to an increase in average yields and average balances of loans and securities, partially offset by a decrease in average balances of deposits[9](index=9&type=chunk) - YoY increase in FTE net interest margin primarily due to lower rates paid on customer deposits, increased average yields and balances of loans and securities, and an increase in average deposit balances[10](index=10&type=chunk) [Provision for Credit Losses on Loans](index=2&type=section&id=Provision%20for%20Credit%20Losses%20on%20Loans) The provision for credit losses on loans increased to $516,000 in Q2 2025 from $274,000 QoQ and $471,000 YoY, primarily due to loan growth. For the first six months, the provision was $790,000, up from $655,000 in the prior year | Period | Provision for Credit Losses on Loans | | :--- | :--- | | Q2 2025 | $516,000 | | Q1 2025 | $274,000 | | Q2 2024 | $471,000 | | 6 Months 2025 | $790,000 | | 6 Months 2024 | $655,000 | - The increase in provision for credit losses was primarily due to loan growth[12](index=12&type=chunk) [Noninterest Income](index=2&type=section&id=Noninterest%20Income) Total noninterest income increased to $3.0 million in Q2 2025, up from $2.7 million QoQ and $2.9 million YoY, mainly due to higher termination and facility fees. For the first six months, noninterest income increased 3% to $5.7 million | Period | Total Noninterest Income | | :--- | :--- | | Q2 2025 | $3.0 million | | Q1 2025 | $2.7 million | | Q2 2024 | $2.9 million | | 6 Months 2025 | $5.7 million | | 6 Months 2024 | $5.5 million | - Increase primarily due to higher termination and facility fees, partially offset by a $219,000 gain on proceeds from company-owned life insurance in Q2 2024[13](index=13&type=chunk)[14](index=14&type=chunk) [Noninterest Expense](index=3&type=section&id=Noninterest%20Expense) Reported noninterest expense for Q2 2025 was $38.3 million, including a $9.2 million pre-tax charge for a legal settlement and branch closure. Adjusted noninterest expense was $29.1 million, a slight decrease QoQ but an increase YoY | Period | Reported Noninterest Expense | Adjusted Noninterest Expense | | :--- | :--- | :--- | | Q2 2025 | $38.3 million | $29.1 million | | Q1 2025 | N/A | $29.5 million | | Q2 2024 | N/A | $28.2 million | | 6 Months 2025 | $67.8 million | $58.6 million | | 6 Months 2024 | N/A | $55.7 million | - Q2 2025 reported noninterest expense includes **$9.2 million** in pre-tax charges primarily related to a legal settlement and planned branch closure[15](index=15&type=chunk) [Income Tax Expense and Effective Tax Rate](index=3&type=section&id=Income%20Tax%20Expense%20and%20Effective%20Tax%20Rate) Income tax expense decreased to $2.5 million in Q2 2025 due to lower pre-tax income, resulting in an effective tax rate of 28.5%, down from 28.8% QoQ and 29.4% YoY. For the first six months, the effective tax rate was 28.7% | Period | Income Tax Expense | Effective Tax Rate | | :--- | :--- | :--- | | Q2 2025 | $2.5 million | 28.5% | | Q1 2025 | $4.7 million | 28.8% | | Q2 2024 | $3.8 million | 29.4% | | 6 Months 2025 | $7.2 million | 28.7% | | 6 Months 2024 | $8.1 million | 29.4% | [Efficiency Ratio](index=3&type=section&id=Efficiency%20Ratio) The reported efficiency ratio for Q2 2025 was 80.23%, while the adjusted efficiency ratio improved to 61.01% from 63.96% QoQ and 67.55% YoY, driven by higher total revenue. For the first six months, the adjusted efficiency ratio improved to 62.45% | Period | Reported Efficiency Ratio | Adjusted Efficiency Ratio | | :--- | :--- | :--- | | Q2 2025 | 80.23% | 61.01% | | Q1 2025 | N/A | 63.96% | | Q2 2024 | N/A | 67.55% | | 6 Months 2025 | 72.24% | 62.45% | | 6 Months 2024 | N/A | 66.44% | [Employees](index=3&type=section&id=Employees) The number of full-time equivalent employees remained stable at 350 at June 30, 2025, compared to March 31, 2025, and slightly down from 353 at June 30, 2024 - Full-time equivalent employees: **350** at June 30, 2025 (stable QoQ, down from 353 YoY)[19](index=19&type=chunk) [Financial Condition and Capital Management](index=3&type=section&id=Financial%20Condition%20and%20Capital%20Management) [Total Assets](index=3&type=section&id=Total%20Assets) Total assets remained relatively flat at $5.5 billion QoQ but increased 4% YoY from $5.3 billion, primarily due to increases in deposits and loans | Period | Total Assets | | :--- | :--- | | June 30, 2025 | $5.5 billion | | March 31, 2025 | $5.5 billion | | June 30, 2024 | $5.3 billion | - Total assets increased **4% YoY** primarily due to an increase in deposits resulting in an increase in overnight funds, and an increase in loans[20](index=20&type=chunk) [Investment Securities](index=3&type=section&id=Investment%20Securities) Investment securities available-for-sale decreased to $307.0 million QoQ, while held-to-maturity securities decreased to $561.2 million. Unrealized and unrecognized losses in both portfolios, totaling $74.7 million pre-tax for HTM, are attributed to higher interest rates, with principal repayment expected at maturity | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Securities available-for-sale (fair value) | $307.0 million | $371.0 million | $273.0 million | | Pre-tax unrealized loss (AFS) | $448,000 | N/A | N/A | | Securities held-to-maturity (amortized cost) | $561.2 million | $576.7 million | $621.2 million | | Fair value (HTM) | $486.5 million | N/A | N/A | | Pre-tax unrecognized loss (HTM) | $74.7 million | N/A | N/A | - Unrealized and unrecognized losses in both portfolios were due to higher interest rates; issuers are of high credit quality, and principal amounts are expected to be repaid[24](index=24&type=chunk) - Purchased **$211.8 million** of securities in H1 2025 (agency mortgage-backed, collateralized mortgage obligations, U.S. Treasury) with a book yield of **4.82%** and average life of **4.55 years**[22](index=22&type=chunk) [Loans Held-for-Investment (HFI)](index=3&type=section&id=Loans%20Held-for-Investment%20%28HFI%29) Loans HFI increased 1% QoQ to $3.5 billion and 5% YoY. Excluding residential mortgages, loans HFI grew 2% QoQ and 6% YoY to $3.1 billion. Commercial and industrial line utilization was 32%, and 24% of the loan portfolio consisted of floating interest rate loans | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Loans HFI, net | $3.5 billion | $3.5 billion | $3.4 billion | | Loans HFI (excl. residential mortgages) | $3.1 billion | $3.0 billion | $2.9 billion | - Commercial and industrial line utilization was **32%** at June 30, 2025[26](index=26&type=chunk) - Commercial real estate (CRE) loans totaled **$2.0 billion**, with **31%** owner-occupied and **31%** investor CRE loans[26](index=26&type=chunk) - Approximately **24%** of the loan portfolio consisted of floating interest rate loans[26](index=26&type=chunk) [Deposits](index=4&type=section&id=Deposits) Total deposits decreased 1% QoQ to $4.6 billion due to seasonal outflows but increased 4% YoY. Noninterest-bearing demand deposits constituted 25% of total deposits, while savings and money market deposits were 28% | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Total Deposits | $4.6 billion | $4.7 billion | $4.4 billion | | Loan to Deposit Ratio | 76.38% | 74.45% | 76.04% | | Deposit Type | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Demand, noninterest-bearing | 25% | 24% | 27% | | Demand, interest-bearing | 21% | 20% | 21% | | Savings and money market | 28% | 29% | 25% | | Time deposits — under $250 | 1% | 1% | 1% | | Time deposits — $250 and over | 4% | 5% | 4% | | ICS/CDARS | 21% | 21% | 22% | | Total deposits | 100% | 100% | 100% | [Liquidity and Borrowing Capacity](index=4&type=section&id=Liquidity%20and%20Borrowing%20Capacity) Total available liquidity and borrowing capacity was $3.1 billion at June 30, 2025, a slight decrease from $3.2 billion QoQ but an increase from $3.0 billion YoY | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Total Available Liquidity and Borrowing Capacity | $3.1 billion | $3.2 billion | $3.0 billion | [Shareholders' Equity and Capital Ratios](index=4&type=section&id=Shareholders%27%20Equity%20and%20Capital%20Ratios) Total shareholders' equity was $694.7 million, relatively stable QoQ and up 2% YoY. The company's and the Bank's capital ratios exceeded all regulatory guidelines for a well-capitalized institution, with a Common Equity Tier 1 capital ratio of 13.3% | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Total Shareholders' Equity | $694.7 million | $696.2 million | $679.2 million | | Common Equity Tier 1 Capital Ratio | 13.3% | 13.6% | 13.4% | | Total Capital Ratio | 15.5% | 15.9% | 15.6% | - Consolidated capital ratios and Bank's capital ratios exceeded regulatory guidelines for a well-capitalized financial institution under PCA and Basel III minimum requirements[32](index=32&type=chunk) [Tangible Book Value Per Share](index=4&type=section&id=Tangible%20Book%20Value%20Per%20Share) Reported tangible book value per share was $8.49, and adjusted tangible book value per share was $8.59 at June 30, 2025, up from $8.48 QoQ and $8.22 YoY | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Reported Tangible Book Value Per Share | $8.49 | N/A | N/A | | Adjusted Tangible Book Value Per Share | $8.59 | $8.48 | $8.22 | [Share Repurchase Program](index=4&type=section&id=Share%20Repurchase%20Program) The company repurchased 207,989 shares for $1.9 million in Q2 2025, with $13.1 million remaining under the $15.0 million program, which was extended until July 31, 2026 - Repurchased **207,989** shares of common stock for **$1.9 million** in Q2 2025[34](index=34&type=chunk) - Remaining capacity under the share repurchase program was **$13.1 million** at June 30, 2025[34](index=34&type=chunk) - The share repurchase program was extended for one year, expiring on July 31, 2026[34](index=34&type=chunk) [Credit Quality](index=4&type=section&id=Credit%20Quality) [Provision for Credit Losses and Net Charge-offs](index=4&type=section&id=Provision%20for%20Credit%20Losses%20and%20Net%20Charge-offs) The provision for credit losses on loans was $516,000 in Q2 2025, while net charge-offs significantly decreased to $145,000 from $965,000 QoQ. For the first six months, net charge-offs totaled $1.1 million | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Provision for Credit Losses on Loans | $516,000 | $274,000 | $471,000 | | Net Charge-offs | $145,000 | $965,000 | $405,000 | | Metric | 6 Months 2025 | 6 Months 2024 | | :--- | :--- | :--- | | Provision for Credit Losses on Loans | $790,000 | $655,000 | | Net Charge-offs | $1.1 million | $659,000 | [Allowance for Credit Losses on Loans (ACLL)](index=4&type=section&id=Allowance%20for%20Credit%20Losses%20on%20Loans%20%28ACLL%29) The ACLL stood at $48.6 million, representing 1.38% of total loans and covering 787% of total nonperforming loans at June 30, 2025, indicating strong coverage | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | ACLL | $48.6 million | $48.3 million | $48.0 million | | ACLL to Total Loans | 1.38% | 1.38% | 1.42% | | ACLL to Total Nonperforming Loans | 787% | 765% | 795% | [Nonperforming Assets (NPAs) and Classified Assets](index=4&type=section&id=Nonperforming%20Assets%20%28NPAs%29%20and%20Classified%20Assets) Nonperforming assets remained stable at $6.2 million, representing 0.11% of total assets. Classified assets decreased to $37.5 million (0.69% of total assets) from $40.0 million QoQ | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Nonperforming Assets (NPAs) | $6.2 million | $6.3 million | $6.0 million | | NPAs to Total Assets | 0.11% | 0.11% | 0.11% | | Classified Assets | $37.5 million | $40.0 million | $33.6 million | | Classified Assets to Total Assets | 0.69% | 0.73% | 0.64% | - No foreclosed assets on the balance sheet at June 30, 2025, March 31, 2025, or June 30, 2024[38](index=38&type=chunk) [Company Overview](index=6&type=section&id=Company%20Overview) [About Heritage Commerce Corp](index=6&type=section&id=About%20Heritage%20Commerce%20Corp) Heritage Commerce Corp is a bank holding company headquartered in San Jose, CA, operating Heritage Bank of Commerce with full-service branches across Northern California. Its subsidiary, Bay View Funding, provides factoring financing nationwide - Heritage Commerce Corp is a bank holding company for Heritage Bank of Commerce, headquartered in San Jose, CA[40](index=40&type=chunk) - Heritage Bank of Commerce operates full-service branches in various Northern California locations and is an SBA Preferred Lender[40](index=40&type=chunk) - Bay View Funding, a subsidiary, provides business-essential working capital factoring financing throughout the United States[40](index=40&type=chunk) [Supplementary Information](index=6&type=section&id=Supplementary%20Information) [Reclassifications](index=6&type=section&id=Reclassifications) Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock dividends were reclassified from interest income to noninterest income, and related average asset balances from interest-earning assets to other assets, with no impact on net income or shareholders' equity - Reclassified FHLB and FRB stock dividends from interest income to noninterest income and related average asset balances from interest earning assets to other assets[42](index=42&type=chunk) - These reclassifications did not affect previously reported net income or shareholders' equity[42](index=42&type=chunk) [Non-GAAP Financial Measures](index=6&type=section&id=Non-GAAP%20Financial%20Measures) Management uses certain non-GAAP financial measures, such as 'adjusted' operating metrics, to evaluate performance and enhance comparability, noting these are supplemental to GAAP and not substitutes - Management uses non-GAAP financial measures, including 'adjusted' operating metrics, to evaluate and measure the Company's performance[44](index=44&type=chunk) - These measures enhance comparability between periods and are common in the banking industry, but should be supplemental to GAAP and not relied upon as a substitute[44](index=44&type=chunk) [Forward-Looking Statement Disclaimer](index=6&type=section&id=Forward-Looking%20Statement%20Disclaimer) The report contains forward-looking statements subject to various risks and uncertainties, including cybersecurity, personnel retention, market conditions, credit risk, and regulatory changes, which could cause actual results to differ materially from projections - Forward-looking statements reflect plans and expectations for future events and are inherently uncertain[46](index=46&type=chunk) - Actual results may differ materially due to various risks and uncertainties, many outside the company's control[46](index=46&type=chunk) - Key risks include cybersecurity, ability to attract and retain personnel, media and consumer confidence, adequacy of risk management, geographic concentration, inflationary pressures, interest rate changes, and litigation matters[46](index=46&type=chunk)[47](index=47&type=chunk) [Detailed Financial Statements and Reconciliations](index=9&type=section&id=Detailed%20Financial%20Statements%20and%20Reconciliations) [Consolidated Income Statements](index=9&type=section&id=Consolidated%20Income%20Statements) Provides detailed consolidated income statements for the second quarter and first six months of 2025, alongside comparative periods, showing interest income, interest expense, net interest income, noninterest income, noninterest expense, and net income | CONSOLIDATED INCOME STATEMENTS (in $000's, unaudited) | For the Quarter Ended: June 30, 2025 | For the Quarter Ended: March 31, 2025 | For the Quarter Ended: June 30, 2024 | For the Six Months Ended: June 30, 2025 | For the Six Months Ended: June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | :--- | | Interest income | $63,025 | $61,832 | $58,489 | $124,857 | $115,450 | | Interest expense | $18,220 | $18,472 | $19,622 | $36,692 | $37,080 | | Net interest income before provision for credit losses on loans | $44,805 | $43,360 | $38,867 | $88,165 | $78,370 | | Provision for credit losses on loans | $516 | $274 | $471 | $790 | $655 | | Total noninterest income | $2,977 | $2,696 | $2,864 | $5,673 | $5,501 | | Total noninterest expense | $38,335 | $29,456 | $28,188 | $67,791 | $55,724 | | Income tax expense | $2,542 | $4,700 | $3,838 | $7,242 | $8,092 | | Net income | $6,389 | $11,626 | $9,234 | $18,015 | $19,400 | | Basic earnings per share | $0.10 | $0.19 | $0.15 | $0.29 | $0.32 | | Diluted earnings per share | $0.10 | $0.19 | $0.15 | $0.29 | $0.32 | [Consolidated Balance Sheets](index=11&type=section&id=Consolidated%20Balance%20Sheets) Presents detailed consolidated balance sheets at June 30, 2025, and comparative periods, outlining assets (cash, securities, loans), liabilities (deposits, debt), and shareholders' equity | CONSOLIDATED BALANCE SHEETS (in $000's, unaudited) | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | ASSETS: | | | | | Cash and due from banks | $55,360 | $44,281 | $37,497 | | Securities available-for-sale, at fair value | $307,035 | $370,976 | $273,043 | | Securities held-to-maturity, at amortized cost | $561,205 | $576,718 | $621,178 | | Loans - held-for-investment, net of deferred fees | $3,534,333 | $3,486,898 | $3,379,793 | | Allowance for credit losses on loans | ($48,633) | ($48,262) | ($47,954) | | Total assets | $5,467,237 | $5,514,255 | $5,263,024 | | LIABILITIES AND SHAREHOLDERS' EQUITY: | | | | | Total deposits | $4,627,334 | $4,683,268 | $4,444,610 | | Subordinated debt, net of issuance costs | $39,728 | $39,691 | $39,577 | | Total liabilities | $4,772,533 | $4,818,065 | $4,583,825 | | Total shareholders' equity | $694,704 | $696,190 | $679,199 | | Total liabilities and shareholders' equity | $5,467,237 | $5,514,255 | $5,263,024 | [Credit Quality Data](index=13&type=section&id=Credit%20Quality%20Data) Includes comprehensive credit quality metrics such as nonaccrual loans, nonperforming loans and assets, net charge-offs, provision for credit losses, allowance for credit losses, and classified assets, with historical comparisons | CREDIT QUALITY DATA (in $000's, unaudited) | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Total nonaccrual loans - held-for-investment | $6,055 | $6,044 | $5,782 | | Loans over 90 days past due and still accruing | $123 | $268 | $248 | | Total nonperforming loans | $6,178 | $6,312 | $6,030 | | Total nonperforming assets | $6,178 | $6,312 | $6,030 | | Net charge-offs during the quarter | $145 | $965 | $405 | | Provision for credit losses on loans during the quarter | $516 | $274 | $471 | | Allowance for credit losses on loans | $48,633 | $48,262 | $47,954 | | Classified assets | $37,525 | $40,034 | $33,605 | | Allowance for credit losses on loans to total loans | 1.38% | 1.38% | 1.42% | | Allowance for credit losses on loans to total nonperforming loans | 787.20% | 764.61% | 795.26% | | Nonperforming assets to total assets | 0.11% | 0.11% | 0.11% | | Nonperforming loans to total loans | 0.17% | 0.18% | 0.18% | [Net Interest Income and Net Interest Margin](index=15&type=section&id=Net%20Interest%20Income%20and%20Net%20Interest%20Margin) Details the calculation of net interest income and net interest margin on a fully tax-equivalent (FTE) basis, presenting average balances, interest income/expense, and yields/rates for various asset and liability categories | NET INTEREST INCOME AND NET INTEREST MARGIN (in $000's, unaudited) | Q2 2025 Average Balance | Q2 2025 Interest Income/Expense | Q2 2025 Average Yield/Rate | Q1 2025 Average Balance | Q1 2025 Interest Income/Expense | Q1 2025 Average Yield/Rate | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total interest earning assets | $5,087,089 | $63,082 | 4.97% | $5,188,317 | $61,890 | 4.84% | | Total interest-bearing liabilities | $3,511,237 | $18,220 | 2.08% | $3,589,872 | $18,472 | 2.09% | | Net interest income / margin (FTE) | N/A | $44,862 | 3.54% | N/A | $43,418 | 3.39% | | NET INTEREST INCOME AND NET INTEREST MARGIN (in $000's, unaudited) | Q2 2025 Average Balance | Q2 2025 Interest Income/Expense | Q2 2025 Average Yield/Rate | Q2 2024 Average Balance | Q2 2024 Interest Income/Expense | Q2 2024 Average Yield/Rate | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total interest earning assets | $5,087,089 | $63,082 | 4.97% | $4,840,670 | $58,549 | 4.86% | | Total interest-bearing liabilities | $3,511,237 | $18,220 | 2.08% | $3,306,972 | $19,622 | 2.39% | | Net interest income / margin (FTE) | N/A | $44,862 | 3.54% | N/A | $38,927 | 3.23% | | NET INTEREST INCOME AND NET INTEREST MARGIN (in $000's, unaudited) | 6 Months 2025 Average Balance | 6 Months 2025 Interest Income/Expense | 6 Months 2025 Average Yield/Rate | 6 Months 2024 Average Balance | 6 Months 2024 Interest Income/Expense | 6 Months 2024 Average Yield/Rate | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total interest earning assets | $5,137,424 | $124,972 | 4.91% | $4,825,587 | $115,570 | 4.82% | | Total interest-bearing liabilities | $3,550,338 | $36,692 | 2.08% | $3,264,788 | $37,080 | 2.28% | | Net interest income / margin (FTE) | N/A | $88,280 | 3.47% | N/A | $78,490 | 3.27% | [Reconciliation of Non-GAAP Financial Measures](index=18&type=section&id=Reconciliation%20of%20Non-GAAP%20Financial%20Measures) Provides detailed reconciliations for non-GAAP financial measures, including adjusted net income, adjusted diluted earnings per share, tangible book value per share, return on average tangible common equity, return on average assets, pre-provision net revenue (PPNR), efficiency ratio, and tangible common equity to tangible assets ratio, adjusting for specific charges | NET INCOME AND DILUTED EARNINGS PER SHARE (in $000's, except per share amounts, unaudited) | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Reported net income (GAAP) | $6,389 | $11,626 | $9,234 | | Add: pre-tax legal settlement and other charges | $9,184 | — | — | | Less: related income taxes | ($2,618) | — | — | | Adjusted net income (non-GAAP) | $12,955 | $11,626 | $9,234 | | Reported diluted earnings per share | $0.10 | $0.19 | $0.15 | | Adjusted diluted earnings per share | $0.21 | $0.19 | $0.15 | | NET INCOME AND DILUTED EARNINGS PER SHARE (in $000's, except per share amounts, unaudited) | 6 Months 2025 | 6 Months 2024 | | :--- | :--- | :--- | | Reported net income (GAAP) | $18,015 | $19,400 | | Add: pre-tax legal settlement and other charges | $9,184 | — | | Less: related income taxes | ($2,618) | — | | Adjusted net income (non-GAAP) | $24,581 | $19,400 | | Reported diluted earnings per share | $0.29 | $0.32 | | Adjusted diluted earnings per share | $0.40 | $0.32 | | TANGIBLE BOOK VALUE PER SHARE (in $000's, unaudited) | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Total equity (GAAP) | $694,704 | $696,190 | $679,199 | | Less: goodwill | ($167,631) | ($167,631) | ($167,631) | | Less: other intangible assets | ($5,532) | ($5,986) | ($7,521) | | Reported tangible common equity (non-GAAP) | $521,541 | $522,573 | $504,047 | | Add: pre-tax legal settlement and other charges | $9,184 | — | — | | Less: related income taxes | ($2,618) | — | — | | Adjusted tangible common equity (non-GAAP) | $528,107 | $522,573 | $504,047 | | Reported tangible book value per share (non-GAAP) | $8.49 | $8.48 | $8.22 | | Adjusted tangible book value per share (non-GAAP) | $8.59 | $8.48 | $8.22 | | PRE-PROVISION NET REVENUE (in $000's, unaudited) | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Total revenue | $47,782 | $46,056 | $41,731 | | Less: Noninterest expense | ($38,335) | ($29,456) | ($28,188) | | Reported PPNR (non-GAAP) | $9,447 | $16,600 | $13,543 | | Add: pre-tax legal settlement and other charges | $9,184 | — | — | | Adjusted PPNR (non-GAAP) | $18,631 | $16,600 | $13,543 | | PRE-PROVISION NET REVENUE (in $000's, unaudited) | 6 Months 2025 | 6 Months 2024 | | :--- | :--- | :--- | | Total revenue | $93,838 | $83,871 | | Less: Noninterest expense | ($67,791) | ($55,724) | | Reported PPNR (non-GAAP) | $26,047 | $28,147 | | Add: pre-tax legal settlement and other charges | $9,184 | — | | Adjusted PPNR (non-GAAP) | $35,231 | $28,147 | | EFFICIENCY RATIO (in $000's, unaudited) | Q2 2025 | Q1 2025 | Q2 2024 | | :--- | :--- | :--- | :--- | | Reported noninterest expense (GAAP) | $38,335 | $29,456 | $28,188 | | Less: pre-tax legal settlement and other charges | ($9,184) | — | — | | Adjusted noninterest expense (non-GAAP) | $29,151 | $29,456 | $28,188 | | Total revenue | $47,782 | $46,056 | $41,731 | | Reported efficiency ratio (non-GAAP) | 80.23% | 63.96% | 67.55% | | Adjusted efficiency ratio (non-GAAP) | 61.01% | 63.96% | 67.55% | | EFFICIENCY RATIO (in $000's, unaudited) | 6 Months 2025 | 6 Months 2024 | | :--- | :--- | :--- | | Reported noninterest expense (GAAP) | $67,791 | $55,724 | | Less: pre-tax legal settlement and other charges | ($9,184) | — | | Adjusted noninterest expense (non-GAAP) | $58,607 | $55,724 | | Total revenue | $93,838 | $83,871 | | Reported efficiency ratio (non-GAAP) | 72.24% | 66.44% | | Adjusted efficiency ratio (non-GAAP) | 62.46% | 66.44% | | TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS (in $000's, unaudited) | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Total tangible common equity (non-GAAP) | $521,541 | $522,573 | $504,047 | | Total tangible assets (non-GAAP) | $5,294,074 | $5,340,638 | $5,087,872 | | Tangible common equity / tangible assets (non-GAAP) | 9.85% | 9.78% | 9.91% | | TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS (Bank, in $000's, unaudited) | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :--- | :--- | :--- | :--- | | Total tangible common equity (non-GAAP) | $543,940 | $541,988 | $522,812 | | Total tangible assets (non-GAAP) | $5,291,455 | $5,338,543 | $5,085,348 | | Tangible common equity / tangible assets (non-GAAP) | 10.28% | 10.15% | 10.28% |

Core Viewpoint - Heritage Commerce Corp reported its financial results for the second quarter and first six months of 2025, highlighting a mixed performance with adjusted net income growth despite reported net income decline due to legal settlement charges [1][4]. Financial Performance - Reported net income for Q2 2025 was $6.4 million, or $0.10 per share, down 45% from $11.6 million and $0.19 per share in Q1 2025 [7][8]. - Adjusted net income for Q2 2025 was $13.0 million, or $0.21 per share, up 11% from Q1 2025 [3][7]. - Total revenue for Q2 2025 was $47.8 million, a 4% increase from Q1 2025 and a 15% increase from Q2 2024 [11][9]. - The efficiency ratio improved to 61.01% in Q2 2025 from 63.96% in Q1 2025, indicating better cost management [22]. Loan and Deposit Trends - Loans held-for-investment (HFI) increased by $47.4 million, or 1%, to $3.5 billion at June 30, 2025 [30]. - Total deposits decreased by $55.9 million, or 1%, to $4.6 billion, primarily due to seasonal outflows [33]. - The loan-to-deposit ratio increased to 76.38% at June 30, 2025, compared to 74.45% at March 31, 2025 [33]. Credit Quality - Nonperforming assets (NPAs) remained stable at 0.11% of total assets for both quarters [6]. - The provision for credit losses on loans was $516,000 for Q2 2025, up from $274,000 in Q1 2025 [39]. Capital and Liquidity - Total shareholders' equity was $694.7 million at June 30, 2025, a slight decrease from $696.2 million at March 31, 2025 [35]. - The company's total available liquidity and borrowing capacity was $3.1 billion at June 30, 2025 [34]. Investment Securities - Investment securities available-for-sale decreased to $307.0 million at June 30, 2025, from $371.0 million at March 31, 2025 [25]. - The unrealized loss on the available-for-sale portfolio was $448,000, which is less than 1% of total shareholders' equity [25].

Core Viewpoint - Heritage Commerce Corp has appointed Seth Fonti as Executive Vice President and Chief Financial Officer, effective July 24, 2025, to enhance its financial leadership and strategic direction [2][3]. Company Overview - Heritage Commerce Corp is a bank holding company established in October 1997, and it is the parent company of Heritage Bank of Commerce, which was founded in 1994 and is headquartered in San Jose, California [5]. - Heritage Bank of Commerce operates full-service branches across various locations in California and is recognized as an SBA Preferred Lender [5]. Leadership Appointment - Seth Fonti brings over 20 years of financial and strategic leadership experience from global and domestic banking institutions, most recently serving as Managing Director at MUFG Americas [3]. - Fonti's previous role involved leading transformative initiatives in strategy, financial planning, risk management, and capital planning, which positions him to add immediate value to Heritage Commerce Corp [3][4]. - The CEO of Heritage Bank of Commerce, Clay Jones, highlighted Fonti's record of driving growth and efficiency, indicating a strong fit for the company's focus on sustainable growth and financial performance [4]. Experience and Qualifications - Fonti has a proven track record in enhancing financial performance through growth and efficiency initiatives and has been recognized as a top manager in MUFG Americas' Global Leaders Forum [4]. - His background includes experience as a financial institutions investment banker with firms such as Macquarie Capital, Fox-Pitt Kelton, and JP Morgan, where he advised on significant M&A and capital markets transactions [4]. - Fonti holds an M.B.A. in Finance from Georgetown University and a B.A. from Rollins College [4].

SAN JOSE, Calif., May 22, 2025 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (NASDAQ: HTBK) (“Heritage” or “Company”), parent company of Heritage Bank of Commerce (the “Bank”), a premier community business bank, today announces the appointment of Julianne Biagini-Komas as Chair of the Board of Directors (the “Board”), replacing Chairman Jack W. Conner who has assumed the role of Chair Emeritus and has indicated he intends to remain on the Board to provide a smooth and orderly transition through October 2025. M ...

[Cautionary Note on Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20on%20Forward-Looking%20Statements) [Forward-Looking Statements and Associated Risks](index=3&type=section&id=Forward-Looking%20Statements%20and%20Associated%20Risks) Forward-looking statements are subject to risks including cybersecurity, personnel, geographic concentration, and interest rate fluctuations - The Company identifies several key risks that could impact its future performance, including but not limited to:[8](index=8&type=chunk) - **Cybersecurity Risks:** Threats such as ransomware, data breaches, and hacking affecting the company, its clients, and vendors[8](index=8&type=chunk) - **Personnel Risks:** Ability to attract and retain qualified officers and staff to implement strategic plans[8](index=8&type=chunk) - **Geographic Concentration:** Operating primarily in the San Francisco Bay Area exposes the Company to regional economic conditions and natural disasters like earthquakes and fires[8](index=8&type=chunk) - **Interest Rate and Inflationary Risks:** Pressures that could reduce margins, affect the fair value of financial instruments, and increase loan defaults[10](index=10&type=chunk) - **Credit Risk:** The ability to accurately estimate and establish adequate reserves for potential losses in the loan, lease, and factoring portfolios[10](index=10&type=chunk) [Part I. FINANCIAL INFORMATION](index=5&type=section&id=Part%20I.%20FINANCIAL%20INFORMATION) [Item 1. Consolidated Financial Statements (unaudited)](index=5&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(unaudited)) Unaudited Q1 2025 statements show decreased assets from lower deposits, yet increased net income due to higher net interest income Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Total cash and cash equivalents | $745,050 | $968,123 | | Loans, net | $3,438,636 | $3,442,984 | | Total assets | $5,514,255 | $5,645,006 | | **Liabilities & Equity** | | | | Total deposits | $4,683,268 | $4,820,031 | | Total liabilities | $4,818,065 | $4,955,279 | | Total shareholders' equity | $696,190 | $689,727 | Income Statement Summary (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Total interest income | $61,832 | $56,960 | | Total interest expense | $18,472 | $17,458 | | Net interest income | $43,360 | $39,502 | | Provision for credit losses | $274 | $184 | | Noninterest income | $2,696 | $2,638 | | Noninterest expense | $29,456 | $27,536 | | Net income | $11,626 | $10,166 | | Diluted EPS | $0.19 | $0.17 | Notes to Unaudited Consolidated Financial Statements Notes detail accounting policies, portfolio composition, credit loss methodology, capital adequacy, and segment performance, confirming the company is well-capitalized - The Company reports its results for two segments: banking and factoring. The banking segment serves clients primarily in several counties of California, while the factoring subsidiary (Bay View Funding) provides working capital financing throughout the United States[24](index=24&type=chunk) - The Company's Board of Directors adopted a share repurchase program authorizing up to **$15.0 million** in share repurchases, expiring July 31, 2025. No shares were repurchased during 2024 or the first quarter of 2025[34](index=34&type=chunk) - On April 24, 2025, the Board of Directors declared a quarterly cash dividend of **$0.13 per share**, payable on May 22, 2025[131](index=131&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=40&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion highlights increased Q1 2025 profitability from improved net interest margin, expense control, and asset quality, maintaining strong capital and liquidity Q1 2025 Performance Highlights | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Income | $11.6 million | $10.2 million | | Diluted EPS | $0.19 | $0.17 | | Return on Average Assets (Annualized) | 0.85% | 0.79% | | Return on Average Equity (Annualized) | 6.81% | 6.08% | | FTE Net Interest Margin | 3.39% | 3.31% | - The company generated higher profitability due to positive trends in net interest margin, strong expense control, and an improvement in asset quality[137](index=137&type=chunk) - Excess liquidity was redeployed from cash to purchase new investment securities, which is expected to positively impact future net interest income and margin[137](index=137&type=chunk) Results of Operations Net interest income increased to $43.4 million in Q1 2025, driven by earning asset growth and margin expansion, while noninterest expenses also rose Volume and Rate Variances on Net Interest Income (Q1 2025 vs Q1 2024, in thousands) | Change Attributable to: | Amount | | :--- | :--- | | Increase in Average Volume | $3,104 | | Increase in Average Rate | $752 | | **Total Net Interest Income Change** | **$3,856** | - Total noninterest expense increased by **$1.9 million (7%) YoY**, primarily due to a **$1.1 million** increase in salaries and employee benefits, a **$253,000** increase in professional fees, and a **$169,000** increase in software subscriptions[164](index=164&type=chunk)[165](index=165&type=chunk) Financial Condition Total assets were $5.5 billion, with a growing loan portfolio and improved asset quality, while deposits also increased, maintaining a strong financial condition Loan Portfolio Distribution (March 31, 2025) | Loan Category | Balance (in thousands) | % of Total | | :--- | :--- | :--- | | Commercial | $489,241 | 14% | | CRE - non-owner occupied | $1,363,275 | 39% | | CRE - owner occupied | $616,825 | 18% | | Residential mortgages | $465,330 | 13% | | Multifamily | $284,510 | 8% | | Other | $267,985 | 8% | | **Total Loans** | **$3,487,166** | **100%** | Nonperforming Assets (in thousands) | Metric | Mar 31, 2025 | Dec 31, 2024 | Mar 31, 2024 | | :--- | :--- | :--- | :--- | | Total nonperforming assets | $6,312 | $7,667 | $7,871 | | as a % of total assets | 0.11% | 0.14% | 0.15% | - The allowance for credit losses on loans (ACLL) was **$48.3 million**, or **1.38%** of total loans, representing **765%** of total nonperforming loans at March 31, 2025[143](index=143&type=chunk) Liquidity and Capital Resources The company maintained strong liquidity and capital, with $3.2 billion in available capacity and all capital ratios exceeding 'well-capitalized' guidelines Available Liquidity and Borrowing Capacity (March 31, 2025, in thousands) | Source | Available Amount | | :--- | :--- | | FHLB collateralized borrowing capacity | $806,909 | | FRB discount window collateralized line | $1,347,908 | | Federal funds purchase arrangements | $90,000 | | Holding company line of credit | $25,000 | | **Total Lines of Credit** | **$2,269,817** | Consolidated Capital Ratios (March 31, 2025) | Ratio | Actual | Well-Capitalized Guideline | | :--- | :--- | :--- | | Common Equity Tier 1 | 13.6% | 6.5% | | Tier 1 Capital | 13.6% | 8.0% | | Total Capital | 15.9% | 10.0% | | Tier 1 Leverage | 9.8% | 5.0% | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=72&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company primarily manages interest rate risk through GAP analysis and simulation models, showing sensitivity of net interest income to rate changes Interest Rate Sensitivity Analysis (as of March 31, 2025) | Change in Interest Rates (bps) | Change in Estimated Net Interest Income | | :--- | :--- | | +200 | +4.5% | | +100 | +2.2% | | -100 | (3.4)% | | -200 | (8.3)% | [Item 4. Controls and Procedures](index=72&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal controls over financial reporting - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of March 31, 2025[280](index=280&type=chunk) - No material changes were made to internal controls over financial reporting during the quarter ended March 31, 2025[282](index=282&type=chunk) [Part II. OTHER INFORMATION](index=72&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=72&type=section&id=Item%201.%20Legal%20Proceedings) The company is not party to material litigation, though it is defending a wage-and-hour lawsuit it believes is without merit - The Company is a defendant in a lawsuit alleging violations of California wage-and-hour laws, seeking unspecified damages under PAGA. The Company believes the claims are without merit[110](index=110&type=chunk) - Management believes that the final disposition of pending legal matters will not have a material adverse effect on the company's financial position or results[112](index=112&type=chunk)[284](index=284&type=chunk) [Item 1A. Risk Factors](index=73&type=section&id=Item%201A.%20Risk%20Factors) Significant risks include operational (cybersecurity), business (geographic concentration, real estate loans), financial (interest rates), and legal/competitive factors - **Operational Risks:** Include interruptions from cyberattacks, fraud, reliance on third-party providers, and failure to attract and retain key personnel[290](index=290&type=chunk) - **Business & Loan Risks:** Highlighted by geographic concentration in the Greater San Francisco Bay Area, significant exposure to real estate loans (**85% of portfolio**), and risks associated with commercial and construction lending[288](index=288&type=chunk)[315](index=315&type=chunk)[318](index=318&type=chunk) - **Financial & Capital Risks:** Include fluctuations in interest rates impacting net income and securities values, liquidity risks from deposit outflows, and the need to meet stringent capital requirements[289](index=289&type=chunk)[291](index=291&type=chunk) - **Legal & Competitive Risks:** Stem from extensive and complex regulations, the cost of compliance, strong competition from larger financial institutions, and the need for technological advancement[292](index=292&type=chunk)[293](index=293&type=chunk)