[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)

Core Insights - Heritage Commerce (HTBK) reported revenue of $46.06 million for the quarter ended March 2025, reflecting a year-over-year increase of 9.3% [1] - The earnings per share (EPS) for the quarter was $0.19, up from $0.17 in the same quarter last year, with an EPS surprise of +5.56% compared to the consensus estimate of $0.18 [1] - The reported revenue was slightly below the Zacks Consensus Estimate of $46.2 million, resulting in a revenue surprise of -0.31% [1] Financial Performance Metrics - Efficiency Ratio was reported at 64%, slightly better than the estimated 64.3% [4] - Net Interest Margin remained stable at 3.4%, matching the average estimate [4] - Total Non-Performing Loans were $6.31 million, significantly lower than the estimated $8.39 million [4] - Average Balances of Interest Earning Assets were $5.19 billion, below the estimated $5.34 billion [4] - Total Non-Performing Assets were also reported at $6.31 million, compared to the estimated $8.39 million [4] - Net Interest Income was $43.36 million, slightly below the average estimate of $43.93 million [4] - Total Non-Interest Income was reported at $2.70 million, exceeding the estimated $2.27 million [4] - Gain on Sale of SBA Loans was $0.10 million, below the estimated $0.14 million [4] - Net Interest Income (FTE) was $43.42 million, compared to the average estimate of $44.02 million [4] Stock Performance - Shares of Heritage Commerce have returned -6% over the past month, compared to a -5.1% change in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [3]

Group 1 - Heritage Commerce (HTBK) reported quarterly earnings of $0.19 per share, exceeding the Zacks Consensus Estimate of $0.18 per share, and showing an increase from $0.17 per share a year ago, resulting in an earnings surprise of 5.56% [1] - The company posted revenues of $46.06 million for the quarter ended March 2025, which was below the Zacks Consensus Estimate by 0.31%, and an increase from $42.14 million year-over-year [2] - Over the last four quarters, Heritage Commerce has surpassed consensus EPS estimates only once and has topped consensus revenue estimates just once [2] Group 2 - The stock's immediate price movement will largely depend on management's commentary during the earnings call, with shares down approximately 3.3% year-to-date compared to the S&P 500's decline of 8.6% [3] - The current consensus EPS estimate for the upcoming quarter is $0.20 on revenues of $47.13 million, and for the current fiscal year, it is $0.80 on revenues of $191.47 million [7] - The Zacks Industry Rank for Banks - West is in the bottom 42% of over 250 Zacks industries, indicating potential challenges for stock performance [8]

Financial Performance - Net income for Q1 2025 was $11.6 million, representing a 9% increase from $10.6 million in Q4 2024 and a 14% increase from $10.2 million in Q1 2024[4] - Earnings per share for Q1 2025 was $0.19, up 12% from $0.17 in both Q4 2024 and Q1 2024[4] - Total revenue for Q1 2025 was $46.1 million, a decrease of 1% from $46.4 million in Q4 2024, but an increase of 9% from $42.1 million in Q1 2024[8] - Income before income taxes rose by 11% to $16,326,000 compared to Q4 2024 and by 13% compared to Q1 2024[41] - Net income for Q1 2025 was $11,626,000, reflecting a 9% increase from Q4 2024 and a 14% increase from Q1 2024[41] - Basic and diluted earnings per share both increased by 12% to $0.19 compared to Q4 2024[41] - Annualized return on average equity increased to 6.81%, up 11% from Q4 2024[41] - Net income for the quarter ended March 31, 2025, was $11,626,000, an increase from $10,166,000 in the same quarter of 2024, marking a growth of 14.3%[54] Revenue and Income Sources - Interest income for Q1 2025 was $61,832,000, a decrease of 3% from Q4 2024 and an increase of 9% from Q1 2024[41] - Net interest income after provision for credit losses increased by 2% to $43,086,000 compared to Q4 2024 and by 10% compared to Q1 2024[41] - Total noninterest income decreased by 3% to $2,696,000 from Q4 2024, but increased by 2% from Q1 2024[41] - Total noninterest income for the quarter ended March 31, 2025, was $2,696,000, compared to $2,638,000 in the same quarter of 2024, reflecting a growth of 2.2%[55] Asset and Liability Management - Total deposits decreased by $136.8 million, or 3%, to $4.7 billion in Q1 2025 compared to Q4 2024, but increased by $238.6 million, or 5%, from $4.4 billion in Q1 2024[22] - Loans held-for-investment (HFI) remained flat at $3.5 billion compared to Q4 2024, but increased by $150.8 million, or 5%, from $3.3 billion in Q1 2024[20] - Total available liquidity and borrowing capacity was $3.2 billion at March 31, 2025, down from $3.3 billion at December 31, 2024[24] - Total assets decreased by 2% to $5,514,255,000 compared to $5,645,006,000 in the previous quarter[44] - Total liabilities decreased by 3% to $4,818,065,000 from $4,955,279,000 in the previous quarter[45] Credit Quality and Losses - The provision for credit losses on loans was $274,000 in Q1 2025, significantly lower than $1.3 million in Q4 2024[7] - Net charge-offs totaled $965,000 for the first quarter of 2025, significantly higher than $197,000 in the fourth quarter of 2024[29] - Nonperforming assets (NPAs) decreased to $6.3 million at March 31, 2025, from $7.7 million at December 31, 2024[31] - The allowance for credit losses on loans was $48.3 million, or 1.38% of total loans, at March 31, 2025, representing 765% of total nonperforming loans[30] Efficiency and Management Ratios - The efficiency ratio improved to 63.96% in Q1 2025 from 65.35% in Q4 2024, indicating better expense management[13] - The FTE net interest margin for Q1 2025 was 3.39%, an increase from 3.32% in Q4 2024 and 3.31% in Q1 2024[6] - Annualized return on average tangible common equity improved to 9.09% for the quarter ended March 31, 2025, compared to 8.24% a year earlier[54] Shareholder Equity and Capital - Total shareholders' equity increased by $6.5 million to $696 million in Q1 2025 compared to Q4 2024[4] - Total shareholders' equity rose to $696.2 million at March 31, 2025, from $689.7 million at December 31, 2024, primarily due to net income[25] - Tangible common equity increased to $522,573,000, a 1% increase from $515,657,000 in the previous quarter[46] - Total Common Equity (GAAP) increased to $696,190,000 as of March 31, 2025, up from $676,296,000 on March 31, 2024, reflecting a growth of approximately 2.5%[56] Deposits Composition - Total deposits as of March 31, 2025, were composed of 24% demand, noninterest-bearing; 20% demand, interest-bearing; 29% savings and money market; and 21% ICS/CDARS[23] - The loan to deposit ratio increased to 74.45% at March 31, 2025, compared to 72.45% at December 31, 2024[23] - Average deposits decreased by 1% to $4,717,517,000 compared to Q4 2024[41]

Core Viewpoint - Heritage Commerce Corp reported a solid financial performance for Q1 2025, with a 9% increase in profitability compared to the previous quarter, driven by improved net interest margins and strong expense control [3][4]. Financial Highlights - Net income for Q1 2025 was $11.6 million, or $0.19 per share, representing a 9% increase from $10.6 million and $0.17 per share in Q4 2024, and a 14% increase from $10.2 million and $0.17 per share in Q1 2024 [2][4][16]. - Total revenue was $46.1 million, a decrease of 1% from the previous quarter but an increase of 9% year-over-year [4][11]. - Pre-Provision Net Revenue (PPNR) was $16.6 million, up from $16.1 million in Q4 2024 and $14.6 million in Q1 2024 [4][17]. - The efficiency ratio improved to 63.96% from 65.35% in Q4 2024, indicating better cost management [4][18]. Financial Condition - Total assets decreased by 2% to $5.5 billion compared to $5.6 billion at the end of Q4 2024, but increased by 5% from $5.3 billion year-over-year [20]. - Loans held-for-investment remained flat at $3.5 billion, with a year-over-year increase of 5% [25]. - Total deposits decreased by 3% to $4.7 billion from $4.8 billion at the end of Q4 2024, but increased by 5% from $4.4 billion year-over-year [28]. - Total shareholders' equity increased to $696 million, up from $689.7 million at the end of Q4 2024 [30]. Credit Quality - The provision for credit losses on loans was $274,000, significantly lower than $1.3 million in Q4 2024 [10][34]. - Nonperforming assets (NPAs) decreased to $6.3 million, down from $7.7 million at the end of Q4 2024 [37]. - The allowance for credit losses on loans was $48.3 million, representing 1.38% of total loans [35]. Investment Activities - The company purchased $151.8 million in investment securities during Q1 2025, with a book yield of 4.86% [22]. - Investment securities available-for-sale totaled $371 million, compared to $256.3 million at the end of Q4 2024 [21]. Key Performance Metrics - The FTE net interest margin was 3.39%, an increase from 3.32% in Q4 2024 [9][13]. - Return on average tangible assets and on tangible common equity were 0.88% and 9.09%, respectively, compared to 0.78% and 8.25% in the previous quarter [13][14].

Financial Performance - For the year ended December 31, 2024, net income was $40.5 million, or $0.66 per average diluted common share, a decrease from $64.4 million, or $1.05 per average diluted common share in 2023[283]. - Net interest income decreased by 11% to $163.6 million for the year ended December 31, 2024, compared to $183.2 million in 2023[284]. - Total noninterest income decreased by 3% to $8.7 million for the year ended December 31, 2024, from $9.0 million in 2023[284]. - Total noninterest expense increased to $113.6 million for the year ended December 31, 2024, compared to $101.1 million in 2023[284]. - The efficiency ratio increased to 65.88% for the year ended December 31, 2024, compared to 52.57% in 2023[284]. - The effective income tax rate for 2024 was 28.5%, a slight decrease from 28.7% in 2023[318]. - Annualized return on average tangible common equity for 2024 was 8.05%, a decrease from 13.57% in 2023[441]. Deposits and Loans - Deposit balances grew by 10% year-over-year, while loan growth was steady at 4%[281]. - Total deposits increased by $441.6 million, or 10%, to $4.8 billion at December 31, 2024, compared to $4.4 billion at December 31, 2023[288]. - Loans increased by $141.6 million, or 4%, to $3.5 billion at December 31, 2024, compared to $3.4 billion at December 31, 2023[288]. - The loan to deposit ratio was 72.45% at December 31, 2024, compared to 76.52% at December 31, 2023[288]. - Noninterest-bearing demand deposits decreased by $78.3 million, or 6%, to $1.2 billion at December 31, 2024[288]. - The average balance of deposit accounts increased to $190,000 at December 31, 2024, from $177,000 at December 31, 2023[396]. Credit Quality - Provision for credit losses on loans was $2.1 million for the year ended December 31, 2024, compared to $749,000 in 2023[284]. - Nonperforming assets totaled $7.7 million, or 0.14% of total assets, at December 31, 2024, down from 0.15% at December 31, 2023[288]. - The allowance for credit losses (ACLL) was $49.0 million, or 1.40% of total loans, representing 638.49% of nonperforming loans at December 31, 2024[288]. - Total nonaccrual loans increased to $7,178,000 at December 31, 2024, from $6,818,000 at December 31, 2023[370]. - Loans 90 days past due and still accruing decreased to $489,000 at December 31, 2024, from $889,000 at December 31, 2023[370]. - The allowance for credit losses on loans increased by $995,000 for the year ended December 31, 2024, primarily due to a net increase of $632,000 in specific reserves for individually evaluated loans and a $363,000 increase in the reserve for pooled loans compared to December 31, 2023[386]. Capital and Liquidity - Liquidity totaled $3.3 billion, representing 69% of total deposits and approximately 155% of estimated uninsured deposits at December 31, 2024[286]. - The total capital ratio was 15.6% at December 31, 2024, exceeding the well-capitalized regulatory guideline of 10.0%[290]. - Common Equity Tier 1 capital increased to $524.2 million at December 31, 2024, from $511.8 million at December 31, 2023[414]. - Total shareholders' equity increased to $689.7 million in 2024, compared to $672.9 million in 2023, representing a growth of 2.5%[419]. - The Company announced a share repurchase program authorized for up to $15.0 million, expiring on July 31, 2025[411]. - The Company’s total liquidity and borrowing capacity at December 31, 2024, was $3.3 billion, representing 69% of total deposits[406]. Asset Management - Total assets increased by 9% to $5.6 billion at December 31, 2024, compared to $5.2 billion at December 31, 2023, primarily related to growth in client deposits[322]. - Securities available-for-sale decreased by 42% to $256.3 million at December 31, 2024, from $442.6 million at December 31, 2023[322]. - The net pre-tax unrealized loss on the available-for-sale securities portfolio was $5.1 million, which is less than 1% of total shareholders' equity at December 31, 2024[332]. - The net pre-tax unrecognized loss on the held-to-maturity securities portfolio was $93.0 million, representing 9.5% of total shareholders' equity at December 31, 2024[332]. Operational Efficiency - Noninterest expense for the year ended December 31, 2024 increased 12% to $113.6 million, compared to $101.1 million for 2023, primarily due to higher salaries and employee benefits, rent expense, and professional fees[314]. - Full-time equivalent employees increased to 355 at December 31, 2024, from 349 at December 31, 2023[316]. - Client services expenses rose by 56% to $3.9 million in 2024, compared to $2.5 million in 2023[314]. - Professional fees increased by 25% to $5.4 million in 2024, compared to $4.4 million in 2023[314]. Interest Rates and Projections - The estimated increase in annual net interest income for a +400 basis points change in interest rates is projected to be $27,272 thousand, a 14.0% increase[428]. - The estimated economic value of equity would increase by $124,156 thousand, or 9.0%, with a +400 basis points change in interest rates[430]. - The company did not use interest rate derivatives to hedge its interest rate risk as of December 31, 2024[443].

Core Viewpoint - Heritage Commerce Corp has appointed Janisha Sabnani as Executive Vice President and General Counsel, bringing over fifteen years of experience in financial services and private practice to the company [1][2]. 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 [3]. - Heritage Bank of Commerce operates full-service branches in various locations including Danville, Fremont, Gilroy, and San Francisco, among others [3]. - The bank is recognized as an SBA Preferred Lender, and its subsidiary, Bay View Funding, provides working capital financing to various industries across the United States [3]. Leadership Appointment - Janisha Sabnani will report directly to CEO Robertson "Clay" Jones and will be responsible for advising on legal and regulatory matters [1]. - CEO Clay Jones expressed confidence in Sabnani's diverse experience, which includes public company reporting, capital markets, corporate governance, and compliance [2]. - Prior to her role at Heritage Bank of Commerce, Sabnani served as Senior Vice President, Deputy General Counsel & Assistant Secretary at First Republic Bank and worked as a corporate attorney at Skadden, Arps, Slate, Meagher & Flom, LLP [2].

Core Insights - Heritage Commerce (HTBK) reported revenue of $46.37 million for the quarter ended December 2024, reflecting a year-over-year increase of 4.8% and exceeding the Zacks Consensus Estimate of $43.56 million by 6.46% [1] - The company's EPS was $0.17, down from $0.22 in the same quarter last year, resulting in an EPS surprise of -5.56% compared to the consensus estimate of $0.18 [1] Financial Performance Metrics - Net Interest Margin was reported at 3.3%, surpassing the average estimate of 3.2% from three analysts [4] - The Efficiency Ratio stood at 65.4%, higher than the estimated 63.3% by three analysts [4] - Total Non-Performing Loans were $7.67 million, slightly above the estimated $7.40 million from two analysts [4] - Total Non-Performing Assets were also $7.67 million, in line with the average estimate of $7.65 million from two analysts [4] - Average Balances of Interest-Earning Assets were $5.27 billion, exceeding the estimate of $5.17 billion from two analysts [4] - Total Non-Interest Income was $2.19 million, below the estimated $2.24 million from three analysts [4] - Net Interest Income was reported at $44.19 million, above the estimated $41.32 million from three analysts [4] - Net Interest Income (FTE) was $44.24 million, compared to the average estimate of $42.11 million from two analysts [4] - Gain on Sale of SBA Loans was $0.13 million, exceeding the estimated $0.10 million from two analysts [4] Stock Performance - Heritage Commerce shares have returned -4.6% over the past month, contrasting with the Zacks S&P 500 composite's increase of +2.7% [3] - The stock currently holds a Zacks Rank 2 (Buy), indicating potential for outperformance in the near term [3]

Group 1 - Heritage Commerce (HTBK) reported quarterly earnings of $0.17 per share, missing the Zacks Consensus Estimate of $0.18 per share, and down from $0.22 per share a year ago, representing an earnings surprise of -5.56% [1] - The company posted revenues of $46.37 million for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 6.46%, compared to year-ago revenues of $44.24 million [2] - Heritage Commerce shares have underperformed the market, losing about 2.8% since the beginning of the year, while the S&P 500 gained 3.5% [3] Group 2 - The current consensus EPS estimate for the coming quarter is $0.16 on revenues of $43.16 million, and for the current fiscal year, it is $0.72 on revenues of $180.02 million [7] - The Zacks Industry Rank for Banks - West is currently in the top 32% of over 250 Zacks industries, indicating that the industry outlook can significantly impact stock performance [8]

Financial Performance - Fourth quarter 2024 net income was $10.6 million, compared to $13.3 million in Q4 2023, reflecting a decrease of 20.3% year-over-year[1] - For the year ended December 31, 2024, net interest income decreased by 11% to $163.6 million from $183.2 million in 2023[9] - Net income for the quarter was $10,621,000, a decrease of 37% compared to $40,528,000 for the previous year[49] - Net income for the year ended December 31, 2024, was $40,528,000, a significant decrease from $64,443,000 for the year ended December 31, 2023, representing a decline of approximately 37.1%[73] Deposits and Loans - Deposit balances grew 2% quarter-over-quarter and 10% year-over-year, driven by local community commercial deposit relationships[2] - Total deposits increased by $90.5 million, or 2%, to $4.8 billion at December 31, 2024, compared to $4.7 billion at September 30, 2024, and increased by $441.6 million, or 10% from $4.4 billion at December 31, 2023[40] - Loan growth increased by 2% from the prior quarter and 4% year-over-year, indicating solid demand for loans[2] - Total loans increased by $81.7 million, or 2%, to $3.5 billion at December 31, 2024, compared to $3.4 billion at September 30, 2024[30] Interest Income and Margin - The net interest margin expanded to 3.34% in Q4 2024, up from 3.17% in Q3 2024, primarily due to reduced funding costs[2] - Net interest income rose 11% to $44.2 million in Q4 2024 compared to $39.9 million in Q3 2024[9] - Interest income for the quarter was $64,633,000, reflecting a 5% increase from $61,438,000 in the previous quarter[49] - The average yield on the total loan portfolio increased to 5.53% in Q4 2024, compared to 5.39% in Q4 2023[10] Noninterest Income and Expenses - Total noninterest income for Q4 2024 remained flat at $2.2 million compared to Q3 2024, but increased 13% from $1.9 million in Q4 2023 due to higher gains on SBA loan sales[18] - Total noninterest expense for Q4 2024 increased to $30.3 million, compared to $27.6 million in Q3 2024, primarily due to one-time personnel-related expenses and legal fees[16] - Total noninterest income decreased by 3% to $2,185,000 compared to $2,240,000 in the previous quarter[49] - Total noninterest expense rose by 10% to $30,304,000 compared to $27,555,000 in the previous quarter[49] Asset Quality - Nonperforming assets and net charge-offs remained low, indicating positive credit trends[2] - Total nonperforming loans were $7.667 million at December 31, 2024, compared to $7.158 million at September 30, 2024[35] - The allowance for credit losses on loans (ACLL) increased to $48.953 million at December 31, 2024, from $47.819 million at September 30, 2024[35] - The provision for credit losses on loans during the fourth quarter of 2024 was $1.331 million[35] Capital and Equity - Tangible common equity was $515.7 million at December 31, 2024, compared to $510.8 million at September 30, 2024, and $496.6 million at December 31, 2023[42] - The Company’s total capital ratio was 15.6% at December 31, 2024, exceeding the well-capitalized regulatory guideline of 10.0%[41] - Tangible book value per share increased to $8.41 at December 31, 2024, from $8.33 at September 30, 2024, and $8.12 at December 31, 2023[42] Efficiency and Ratios - The efficiency ratio for Q4 2024 was 65.35%, slightly improved from 65.37% in Q3 2024, but increased from 57.62% in Q4 2023 due to higher noninterest expenses[23] - The annualized return on average tangible common equity was 65.35%, up 25% from 52.57% in the previous year[49] - The loan to deposit ratio was 72.45% at December 31, 2024, compared to 72.11% at September 30, 2024, and 76.52% at December 31, 2023[24] Securities and Investments - The weighted average life of the securities held-to-maturity portfolio was 6.35 years at December 31, 2024, reflecting longer maturities of certain mortgage-backed securities[27] - The pre-tax unrealized loss on the securities available-for-sale portfolio was ($5.1) million at December 31, 2024, which was less than 1% of total shareholders' equity[26] - Total investment securities projected paydowns and maturities for 2025 are expected to be $259.202 million[28]