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 For the quarterly period ended September 30, 2021 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 000-23877 Heritage Commerce Corp (Exact name of Registrant as Specified in its Charter) California (State or O ...

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 For the quarterly period ended June 30, 2021 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 000-23877 Heritage Commerce Corp (Exact name of Registrant as Specified in its Charter) California (State or Other ...

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 For the quarterly period ended March 31, 2021 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 000-23877 Heritage Commerce Corp (Exact name of Registrant as Specified in its Charter) California (State or Other ...

Part I [Business](index=8&type=section&id=Item%201.%20Business) Heritage Commerce Corp provides commercial banking services in the San Francisco Bay Area, with **$4.63 billion** in consolidated assets as of December 31, 2020, expanding through strategic mergers - Heritage Commerce Corp is a bank holding company providing commercial banking services through its subsidiary, Heritage Bank of Commerce, primarily serving the San Francisco Bay Area[20](index=20&type=chunk)[21](index=21&type=chunk) Key Financial Metrics (as of December 31, 2020) | Metric | Value (in billions) | | :--- | :--- | | Consolidated Assets | $4.63 | | Deposits | $3.91 | | Shareholders' Equity | $0.578 | - The company has expanded through strategic mergers, including **Presidio Bank in 2019**, and **Tri-Valley Bank** and **United American Bank in 2018**[26](index=26&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) [Lending and Deposit Activities](index=11&type=section&id=Item%201.%20Business%20-%20Lending%20and%20Deposit%20Activities) The company's diversified loan portfolio is heavily weighted towards real estate, with **48%** in CRE and **32%** in C&I loans, while deposit generation focuses on relationship-based accounts Loan Portfolio Composition (as of December 31, 2020) | Loan Category | Percentage of Total Loans | | :--- | :--- | | Commercial and Industrial (C&I) | 32% | | Commercial Real Estate (CRE) | 48% | | Land and Construction | 6% | | Residential Mortgage | 3% | | Consumer and Other | 11% | - The C&I loan portfolio includes operating loans, term loans, and **$290.7 million** in Paycheck Protection Program (PPP) loans at year-end 2020[35](index=35&type=chunk) - The company offers the Certificate of Deposit Account Registry Service (CDARS) to provide customers with FDIC insurance on deposits exceeding the standard **$250,000** limit[49](index=49&type=chunk) [Competition and Human Capital](index=19&type=section&id=Item%201.%20Business%20-%20Competition%20and%20Human%20Capital) Operating in a highly competitive market, the company focuses on personalized service and local relationships, holding a **0.57%** deposit market share as of June 30, 2020 - The company faces intense competition in the San Francisco Bay Area, where the top three institutions control nearly **60%** of the deposit market share[61](index=61&type=chunk) - Heritage Bank of Commerce held the **16th position** in deposit market share in its operating region at **0.57%** as of June 30, 2020[61](index=61&type=chunk) - The company's employee count decreased from **357** full-time equivalent employees at the end of 2019 to **331** at the end of 2020[67](index=67&type=chunk) [Supervision and Regulation](index=22&type=section&id=Item%201.%20Business%20-%20Supervision%20and%20Regulation) Extensively regulated by federal and state agencies, the company and its bank subsidiary exceeded 'well capitalized' requirements as of December 31, 2020, with CRE loan concentration at **245%** of total risk-based capital - The company and its bank subsidiary are subject to the Basel III Capital Rules and must maintain minimum capital ratios, including a **CET1 ratio of at least 7.0%** (including the capital conservation buffer)[82](index=82&type=chunk)[84](index=84&type=chunk) - As of December 31, 2020, the company and its bank subsidiary met the requirements to be considered 'well-capitalized' under Prompt Corrective Action (PCA) regulations[92](index=92&type=chunk) - The company's Commercial Real Estate (CRE) loan concentration was **245%** of total risk-based capital as of December 31, 2020, a decrease from **282%** in the prior year and below the **300%** regulatory guidance threshold[146](index=146&type=chunk) - The company is subject to numerous consumer protection laws, including the Community Reinvestment Act (CRA), under which it holds a 'satisfactory' rating from its most recent examination[141](index=141&type=chunk)[148](index=148&type=chunk) [Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from the COVID-19 pandemic, credit concentration in real estate loans (**67%**), operational vulnerabilities, interest rate fluctuations, and an evolving regulatory landscape - The COVID-19 pandemic poses a material risk, potentially leading to decreased loan demand, increased delinquencies, and declines in collateral value[189](index=189&type=chunk)[193](index=193&type=chunk) - Participation in the SBA Paycheck Protection Program (PPP) exposes the company to litigation risk and the risk that the SBA may not honor its loan guarantees if origination deficiencies are found[197](index=197&type=chunk)[199](index=199&type=chunk) - A significant portion of the loan portfolio (**67%** at year-end 2020) consists of real estate loans, concentrating risk in the California real estate market[218](index=218&type=chunk) - The company is exposed to risks from its SBA lending program, which is dependent on the federal government. The non-guaranteed portion of these loans, which the company retains, carries higher credit risk[228](index=228&type=chunk)[234](index=234&type=chunk) - The company faces extensive government regulation, and changes to laws (like the Dodd-Frank Act) or capital requirements (Basel III) could increase costs and restrict activities[303](index=303&type=chunk)[304](index=304&type=chunk) [Unresolved Staff Comments](index=106&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[342](index=342&type=chunk) [Properties](index=106&type=section&id=Item%202.%20Properties) The company's main executive offices are leased in San Jose, California, with most branch offices also leased, and one owned commercial building in Danville - The main office is located at **224 Airport Parkway, San Jose, CA**, in a leased space of approximately **54,910 square feet** with a lease expiring **July 31, 2030**[343](index=343&type=chunk)[346](index=346&type=chunk) - The company owns one property, an **8,285 square foot** office building in Danville, CA, acquired through the Diablo Valley Bank merger[347](index=347&type=chunk) - The company leases all other branch and administrative offices, with lease agreements detailed for locations across the Bay Area, including Fremont, Morgan Hill, Los Altos, and San Francisco[348](index=348&type=chunk)[349](index=349&type=chunk)[350](index=350&type=chunk)[359](index=359&type=chunk) [Legal Proceedings](index=112&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various legal claims and lawsuits arising in the ordinary course of business, with details referenced in Note 16 of the financial statements - The company is subject to various legal proceedings. For detailed information, refer to Note 16, "Commitments and Contingencies"[368](index=368&type=chunk)[369](index=369&type=chunk) [Mine Safety Disclosures](index=112&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not Applicable[370](index=370&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=112&type=section&id=Item%205.%20Market%20for%20the%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ under 'HTBK', with a **$0.13** quarterly dividend per share in 2020, subject to board and regulatory discretion 2020 Quarterly Stock Price and Dividends (USD) | Quarter | High Price | Low Price | Dividend Per Share | | :--- | :--- | :--- | :--- | | Q1 2020 | $12.80 | $6.45 | $0.13 | | Q2 2020 | $9.36 | $6.74 | $0.13 | | Q3 2020 | $7.69 | $6.20 | $0.13 | | Q4 2020 | $9.33 | $6.67 | $0.13 | - As of February 10, 2021, there were approximately **839** holders of record of the company's common stock[374](index=374&type=chunk) - Future dividend payments are determined by the board of directors and are subject to the company's earnings, financial condition, and regulatory policies, including those from the Federal Reserve[375](index=375&type=chunk) [Selected Financial Data](index=116&type=section&id=Item%206.%20Selected%20Financial%20Data) This section summarizes five-year key financial data, showing **$35.3 million** net income, **$4.63 billion** total assets, and a **3.50%** net interest margin for 2020 Selected Financial Data (2018-2020) | (In thousands, except per share data) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | **Income Statement Data** | | | | | Net interest income | $141,890 | $131,812 | $122,023 | | Provision for credit losses on loans | $13,233 | $846 | $7,421 | | Net income | $35,299 | $40,461 | $35,331 | | **Per Common Share Data** | | | | | Diluted net income | $0.59 | $0.84 | $0.84 | | Book value per common share | $9.64 | $9.71 | $8.49 | | **Balance Sheet Data** | | | | | Total assets | $4,634,114 | $4,109,463 | $3,096,562 | | Net loans | $2,574,861 | $2,510,559 | $1,858,557 | | Total deposits | $3,914,486 | $3,414,768 | $2,637,532 | | **Performance Ratios** | | | | | Return on average assets | 0.80% | 1.21% | 1.16% | | Net interest margin (FTE) | 3.50% | 4.28% | 4.31% | | Efficiency ratio | 58.96% | 59.76% | 57.39% | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=118&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Net income decreased to **$35.3 million** in 2020 due to a **$13.2 million** provision for credit losses, despite asset growth to **$4.63 billion** and strong capital levels - Net income for 2020 was **$35.3 million**, or **$0.59** per diluted share, compared to **$40.5 million**, or **$0.84** per diluted share, in 2019[400](index=400&type=chunk) - The decrease in earnings was primarily driven by a **$13.3 million** pre-tax provision for credit losses related to the adoption of CECL and the economic effects of the COVID-19 pandemic[401](index=401&type=chunk)[408](index=408&type=chunk) - The company adopted the Current Expected Credit Loss (CECL) accounting standard on **January 1, 2020**, which requires estimating credit losses over the life of a loan[394](index=394&type=chunk) - The bank funded **1,105 PPP loans** totaling **$333.4 million**, with an outstanding balance of **$290.7 million** at year-end[402](index=402&type=chunk) [Results of Operations](index=129&type=section&id=Item%207.%20MD%26A%20-%20Results%20of%20Operations) Net interest income increased **8%** to **$141.9 million** in 2020, despite a **78 basis point** drop in net interest margin, while provision for credit losses surged to **$13.2 million** Net Interest Income and Margin (in millions) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $141.9M | $131.8M | +8% | | Net Interest Margin (FTE) | 3.50% | 4.28% | -78 bps | - The provision for credit losses was **$13.2 million** in 2020, a significant increase from **$846,000** in 2019, primarily due to a deteriorated economic outlook from the COVID-19 pandemic[439](index=439&type=chunk) - Noninterest income was **$9.9 million** in 2020, a slight decrease from **$10.2 million** in 2019, due to lower service charges on deposits[443](index=443&type=chunk) - Noninterest expense increased **5%** to **$89.5 million** in 2020, reflecting higher operating costs from the Presidio merger, although specific merger-related costs decreased from **$11.1 million** in 2019 to **$2.6 million** in 2020[410](index=410&type=chunk)[452](index=452&type=chunk) [Financial Condition](index=142&type=section&id=Item%207.%20MD%26A%20-%20Financial%20Condition) Total assets grew **13%** to **$4.63 billion** and deposits increased **15%** to **$3.91 billion** in 2020, while asset quality improved with NPAs declining to **$7.9 million** Balance Sheet Highlights (Year-End, in billions) | Metric | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Total Assets | $4.63B | $4.11B | +13% | | Total Loans (net) | $2.57B | $2.51B | +3% | | Total Deposits | $3.91B | $3.41B | +15% | Asset Quality Metrics (Year-End) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Nonperforming Assets (NPAs) (in millions) | $7.9M | $9.8M | | NPAs / Total Assets | 0.17% | 0.24% | | ACLL / Total Loans | 1.70% | 0.92% | | ACLL / Nonperforming Loans | 564.24% | 236.93% | - The loan portfolio's largest segments are **CRE non-owner occupied (27%)**, **CRE owner-occupied (21%)**, and **commercial (21%, excluding PPP loans)**[473](index=473&type=chunk) - The adoption of CECL on **Jan 1, 2020** resulted in an **$8.6 million** increase to the allowance for credit losses on loans[505](index=505&type=chunk) [Liquidity and Capital Resources](index=165&type=section&id=Item%207.%20MD%26A%20-%20Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with a **66.91%** loan-to-deposit ratio and robust capital resources, exceeding 'well-capitalized' standards with a **16.5%** total risk-based capital ratio - The loan-to-deposit ratio improved to **66.91%** at year-end 2020 from **74.20%** at year-end 2019, indicating a strong liquidity position[544](index=544&type=chunk) - The company has significant off-balance sheet liquidity, including a **$160.5 million** line of credit from the FHLB and a **$528.1 million** line from the FRB[545](index=545&type=chunk)[546](index=546&type=chunk) Consolidated Capital Ratios (as of December 31, 2020) | Capital Ratio | Actual | Minimum Requirement (w/ buffer) | | :--- | :--- | :--- | | Total Risk-Based | 16.5% | 10.5% | | Tier 1 Risk-Based | 14.0% | 8.5% | | Common Equity Tier 1 | 14.0% | 7.0% | | Leverage | 9.1% | 4.0% | - The company elected the option to delay the regulatory capital impact of CECL adoption, phasing it in over a **five-year period** ending **December 31, 2024**[839](index=839&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=172&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate volatility, managed through asset/liability strategies, with a **100 basis point** rate increase projected to boost net interest income by **12.8%** - The company's principal market risk is interest rate risk, which it manages through its Asset/Liability Committee without the use of derivatives[563](index=563&type=chunk)[564](index=564&type=chunk) Net Interest Income Sensitivity Analysis (as of December 31, 2020) | Change in Interest Rates (bps) | Estimated Change in NII ($ thousands) | Estimated Change in NII (%) | | :--- | :--- | :--- | | +400 | $59,450 | 50.0% | | +300 | $44,796 | 37.7% | | +200 | $30,037 | 25.3% | | +100 | $15,231 | 12.8% | | -100 | $(11,927) | (10.0)% | | -200 | $(22,135) | (18.6)% | [Financial Statements and Supplementary Data](index=174&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the consolidated financial statements for 2020 and Crowe LLP's unqualified audit report, highlighting CECL adoption as a critical audit matter - The financial statements were audited by Crowe LLP, which issued an unqualified opinion on the financial statements and internal control over financial reporting as of **December 31, 2020**[611](index=611&type=chunk)[612](index=612&type=chunk) - The auditor identified the adoption of the CECL standard (ASC 326) and the related modeling techniques and qualitative factors for the Allowance for Credit Losses on Loans (ACLL) as a critical audit matter[613](index=613&type=chunk)[623](index=623&type=chunk) [Note 4: Loans and Allowance for Credit Losses on Loans](index=219&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data%20-%20Note%204%3A%20Loans%20and%20Allowance%20for%20Credit%20Losses%20on%20Loans) This note details the **$2.62 billion** loan portfolio and **$44.4 million** ACLL, which increased due to CECL adoption and pandemic-related economic forecasts, with past due loans decreasing Allowance for Credit Losses on Loans Roll-Forward (2020, in thousands) | Description | Amount | | :--- | :--- | | Beginning Balance (ALLL at 12/31/2019) | $23,285 | | Adoption of Topic 326 (CECL) | $8,570 | | Balance at Adoption (ACLL at 1/1/2020) | $31,855 | | Net Charge-offs | ($688) | | Provision for Credit Losses | $13,233 | | **Ending Balance (ACLL at 12/31/2020)** | **$44,400** | - The increase in the ACLL during 2020 was primarily attributable to the change in projected economic conditions resulting from the COVID-19 pandemic, with elevated unemployment being a significant factor[730](index=730&type=chunk) - As of December 31, 2020, the company had **$2.6 million** in loans under short-term payment deferrals granted in response to the COVID-19 pandemic, which are not classified as TDRs under regulatory relief guidance[753](index=753&type=chunk) [Note 8: Business Combinations](index=233&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data%20-%20Note%208%3A%20Business%20Combinations) This note details recent acquisitions, including the **$185.6 million Presidio Bank** merger in 2019, which resulted in **$83.9 million** in goodwill - The merger with Presidio Bank was completed on **October 11, 2019**, for a total consideration of **$185.6 million**, resulting in **$83.9 million** of goodwill[768](index=768&type=chunk)[769](index=769&type=chunk) Merger-Related Costs (Pre-tax, in thousands) | Year | Presidio Merger | Tri-Valley & United American Mergers | | :--- | :--- | :--- | | 2020 | $2,601 | N/A | | 2019 | $11,080 | N/A | | 2018 | N/A | $9,167 | [Note 16: Commitments and Contingencies](index=256&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data%20-%20Note%2016%3A%20Commitments%20and%20Contingencies) The company discloses outstanding legal matters, including lawsuits related to D.C. Solar and a class-action, and **$1.11 billion** in off-balance sheet commitments to extend credit - The company is defending lawsuits related to its former deposit relationship with D.C. Solar, a former customer that allegedly perpetrated a Ponzi scheme[830](index=830&type=chunk) - A class-action lawsuit has been filed by employees alleging violations of the California Labor Code, with the company intending to defend the action vigorously[830](index=830&type=chunk)[831](index=831&type=chunk) - As of December 31, 2020, the company had **$1.11 billion** in off-balance sheet commitments to extend credit, including unused lines of credit and standby letters of credit[834](index=834&type=chunk)[835](index=835&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosures](index=174&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosures) The company reports no disagreements with its accountants on accounting principles, financial disclosure, or auditing scope - None[576](index=576&type=chunk) [Controls and Procedures](index=174&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with no material changes reported - Management concluded that the company's disclosure controls and procedures were effective as of **December 31, 2020**[577](index=577&type=chunk) - Management's assessment, based on the **2013 COSO framework**, concluded that internal control over financial reporting was effective as of **December 31, 2020**[582](index=582&type=chunk)[583](index=583&type=chunk) - There were no changes in internal control over financial reporting during the year that materially affected, or are reasonably likely to materially affect, these controls[586](index=586&type=chunk) [Other Information](index=176&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[587](index=587&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=176&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 proxy statement, with a code of ethics available online - Required information is incorporated by reference from the definitive proxy statement for the **2021 Annual Meeting of Shareholders**[589](index=589&type=chunk) - The company has adopted a code of ethics for its principal financial officers, available on its website[590](index=590&type=chunk) [Executive Compensation](index=178&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the 2021 Annual Meeting of Shareholders proxy statement - Required information is incorporated by reference from the definitive proxy statement for the **2021 Annual Meeting of Shareholders**[592](index=592&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=178&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership and related stockholder matters is incorporated by reference from the 2021 Annual Meeting of Shareholders proxy statement - Required information is incorporated by reference from the definitive proxy statement for the **2021 Annual Meeting of Shareholders**[593](index=593&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=178&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2021 Annual Meeting of Shareholders proxy statement - Required information is incorporated by reference from the definitive proxy statement for the **2021 Annual Meeting of Shareholders**[594](index=594&type=chunk) [Principal Accountant Fees and Services](index=178&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from the 2021 Annual Meeting of Shareholders proxy statement - Required information is incorporated by reference from the definitive proxy statement for the **2021 Annual Meeting of Shareholders**[595](index=595&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=178&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists exhibits filed with the Form 10-K, including financial statements and the independent auditor's report, with all schedules either omitted or included elsewhere - The financial statements of the company and the Report of Independent Registered Public Accounting Firm are included starting on **page 104** of the original document[597](index=597&type=chunk) - All financial statement schedules are omitted as they are not required or the information is included elsewhere[598](index=598&type=chunk) - A comprehensive list of exhibits filed with the report is provided, including governance documents, material contracts, and certifications[599](index=599&type=chunk)[600](index=600&type=chunk)[602](index=602&type=chunk) [Form 10-K Summary](index=182&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable to the company's filing - Not applicable[605](index=605&type=chunk)

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 For the quarterly period ended September 30, 2020 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 000-23877 Heritage Commerce Corp (Exact name of Registrant as Specified in its Charter) California (State or O ...

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 For the quarterly period ended June 30, 2020 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 000-23877 Heritage Commerce Corp (Exact name of Registrant as Specified in its Charter) California (State or Other ...

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 For the quarterly period ended March 31, 2020 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 000‑23877 Heritage Commerce Corp (Exact name of Registrant as Specified in its Charter) California 77‑0469558 (I.R ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (MARK ONE) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 or the fiscal year ended December 31, 2019 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 000‑23877 Heritage Commerce Corp (Exact name of Registrant as Specified in its Charter) California (State or Other Juris ...

Financial Performance - For the three months ended September 30, 2019, net income was $11.3 million, or $0.26 per average diluted common share, a decrease from $12.4 million, or $0.28 per share, for the same period in 2018[145]. - For the nine months ended September 30, 2019, net income increased to $34.8 million, or $0.80 per average diluted common share, compared to $22.1 million, or $0.53 per share, for the same period in 2018[146]. - The banking segment's net income for Q3 2019 was $11.0 million, a slight decrease from $11.2 million in Q3 2018[222]. - For the nine months ended September 30, 2019, net income increased to $32.9 million from $19.1 million in the same period of 2018[222]. Net Interest Income - Net interest income for the third quarter of 2019 decreased by 6% to $30.6 million, while for the first nine months of 2019, it increased by 4% to $92.6 million compared to the same periods in 2018[156]. - Net interest income before provision for loan losses decreased 6% to $30.6 million for Q3 2019, compared to $32.5 million for Q3 2018[197]. - Net interest income for Q3 2019 was $30.6 million, down from $32.5 million in Q3 2018, primarily due to a decrease in the average balance of loans and an increase in the cost of deposits[222]. Interest Margin - The fully tax equivalent net interest margin contracted by 12 basis points to 4.24% for the third quarter of 2019, but expanded by 6 basis points to 4.33% for the first nine months of 2019[156]. - The net interest margin (FTE) contracted 12 basis points to 4.24% for Q3 2019, from 4.36% for Q3 2018[192]. - For the nine months ended September 30, 2019, net interest margin expanded 6 basis points to 4.33% compared to the same period in 2018[193]. Noninterest Income and Expenses - Total noninterest income increased to $2.6 million for the third quarter of 2019, compared to $2.2 million for the same period in 2018, primarily due to a $330,000 net gain on sales of securities[156]. - Total noninterest income for the nine months ended September 30, 2019, increased to $7.9 million, compared to $7.2 million for the same period in 2018[201]. - Total noninterest expense for the third quarter of 2019 increased to $17.9 million, primarily due to higher merger-related costs[156]. - Noninterest expense for the nine months ended September 30, 2019 decreased to $54.3 million, down from $58.6 million for the same period in 2018, primarily due to lower merger-related costs[160]. Merger Activity - The Company completed the merger with Presidio Bank on October 11, 2019, with Presidio having approximately $877.4 million in assets at the time of the merger[148][150]. - Merger-related costs for the third quarter of 2019 amounted to $661,000, compared to $199,000 for the third quarter of 2018[147][156]. - The banking segment incurred merger-related costs of $661,000 in Q3 2019 and $1.2 million for the first nine months of 2019 due to the merger with Presidio[222]. Asset Quality - Nonperforming assets were $14.2 million, or 0.45% of total assets, at September 30, 2019, down from $24.7 million, or 0.77% of total assets, at September 30, 2018[160]. - Classified assets decreased to $20.2 million, or 0.64% of total assets, at September 30, 2019, compared to $30.5 million, or 0.95% of total assets, at September 30, 2018[160]. - The allowance for loan losses at September 30, 2019 was $25.9 million, or 1.38% of total loans, representing 181.76% of total nonperforming loans[171]. Loans and Deposits - Total loans, excluding loans held-for-sale, decreased $24.0 million, or 1%, to $1.88 billion at September 30, 2019, compared to $1.90 billion at September 30, 2018[167]. - Total deposits decreased $56.3 million, or 2%, to $2.69 billion at September 30, 2019, compared to $2.75 billion at September 30, 2018[165]. - The loan to deposit ratio was 69.74% at September 30, 2019, compared to 69.19% at September 30, 2018[165]. Capital and Equity - As of September 30, 2019, the Company had total shareholders' equity of $395.3 million, an increase from $353.6 million at September 30, 2018, and $367.5 million at December 31, 2018[312]. - Common equity Tier 1 capital was $301,444 thousand at September 30, 2019, up from $266,654 thousand at September 30, 2018[307]. - Total risk-based capital ratio was 16.2% at September 30, 2019, compared to 14.4% at September 30, 2018[307]. Interest Rate Risk Management - The Company has established policies to monitor and limit earnings and balance sheet exposure to interest rate changes, primarily focusing on interest rate risk management[316]. - As of September 30, 2019, a 400 basis point increase in interest rates would result in an estimated net interest income increase of $28,723 thousand, representing a 24.3% rise[323]. - A 200 basis point decrease in interest rates would lead to an estimated net interest income decrease of $23,573 thousand, equating to a 19.9% decline[323]. Tax and Regulatory Compliance - The effective income tax rate for Q3 2019 was 29.1%, compared to 28.7% for Q3 2018[213]. - Income tax expense for Q3 2019 was $4.6 million, a decrease from $5.0 million in Q3 2018[213]. - The Company maintained a capital ratio exceeding regulatory guidelines as of September 30, 2019[311].

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 For the quarterly period ended June 30, 2019 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 000‑23877 Heritage Commerce Corp (Exact name of Registrant as Specified in its Charter) (State or Other Jurisdictio ...