Heritage merce p(HTBK) - 2019 Q3 - Quarterly Report

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].