Attached files
| file | filename |
|---|---|
| 8-K - PR04252014 - HERITAGE COMMERCE CORP | pr04252014.htm |
| 8-K - PR04252014 - HERITAGE COMMERCE CORP | pr04252014.pdf |
| EX-99.1 - EXHIBIT99-1 - HERITAGE COMMERCE CORP | exhibit99-1.pdf |
| EX-99.2 - EXHIBIT99-2 - HERITAGE COMMERCE CORP | exhibit99-2.htm |
| EX-99.2 - EXHIBIT99-2 - HERITAGE COMMERCE CORP | exhibit99-2.pdf |
Exhibit 99.1
Heritage Commerce Corp Earnings Increase 41% to $3.1 Million for the First Quarter of 2014 from the First Quarter of 2013
San Jose, CA – April 24, 2014 – Heritage Commerce Corp (Nasdaq: HTBK), the holding company (the “Company”) for Heritage Bank of Commerce (the “Bank”), today reported that net income increased 41% to $3.1 million, or $0.10 per average diluted common share, for the first quarter of 2014, compared to $2.2 million, or $0.07 per average diluted common share, for the first quarter of 2013, and decreased 8% compared to $3.4 million, or $0.10 per average diluted common share, for the fourth quarter of 2013. All results are unaudited.
“After delivering three consecutive years of profitability, this quarter’s results continue to demonstrate that our growth strategies are working,” said Walter Kaczmarek, President and Chief Executive Officer. “Anchored by continued strong credit quality performance, solid loan production, a steady inflow of core deposits, and an improved net interest margin, we are beginning to generate operating leverage, as well. The economy in the San Francisco Bay Area is also healthy, which has contributed to strong financial results and created new lending opportunities.”
“This year will mark our 20th anniversary, and we are very optimistic about the future of our Company. With the support of the many local businesses, communities, our shareholders, Board of Directors and employees, we have created a vibrant franchise,” added Mr. Kaczmarek. “As a result of another solid quarter of performance, the Board of Directors of Heritage Commerce Corp announced a $0.04 per share quarterly cash dividend to holders of common stock and Series C preferred stock (on an as converted basis). The dividend will be paid on May 28, 2014, to shareholders of record May 7, 2014.”
First Quarter 2014 Highlights (as of, or for the period ended March 31, 2014, except as noted):
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Diluted earnings per share increased 43% to $0.10 for the first quarter of 2014, compared to $0.07 per diluted share for the first quarter of 2013, and equal to the fourth quarter of 2013.
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Net interest income increased 10% to $13.3 million for the first quarter of 2014, compared to $12.2 million for the first quarter of 2013, and increased 2% from $13.0 million for the fourth quarter of 2013, driven primarily by loan growth and increases in core deposits.
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The fully tax equivalent (“FTE”) net interest margin increased 34 basis points to 4.05% for the first quarter of 2014, from 3.71% for the first quarter of 2013, and increased 25 basis points from 3.80% for the fourth quarter of 2013, reflecting a lower cost of funds, loan growth, and higher yields on securities.
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The yield on the loan portfolio was 4.86% for the first quarter of 2014, compared to 5.13% for the first quarter of 2013, and 4.79% for the fourth quarter of 2013. The yield on the loan portfolio for the first quarter of 2014 included approximately $270,000 of interest recovered on a loan that was previously placed on nonaccrual status. Excluding this past due interest recovered, the loan yield and net interest margin (FTE) for the first quarter of 2014 would have been 4.74% and 3.97%, respectively.
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Loans (excluding loans-held-for-sale) increased 17% to $941.8 million at March 31, 2014, compared to $801.9 million at March 31, 2013, and increased 3% from $914.9 million at December 31, 2013.
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Credit quality remained favorable as nonperforming assets declined to $11.4 million, or 0.77% of total assets, at March 31, 2014, compared to $17.4 million, or 1.26% of total assets, at March 31, 2013, and $12.4 million, or 0.83% of total assets, at December 31, 2013.
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Classified assets, net of Small Business Administration (“SBA”) guarantees, decreased 35% to $20.2 million at March 31, 2014, from $31.2 million at March 31, 2013, and decreased 15% from $23.6 million at December 31, 2013.
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Net charge-offs totaled $337,000 for the first quarter of 2014, compared to net recoveries of $315,000 for the first quarter of 2013, and net charge-offs of $166,000 for the fourth quarter of 2013.
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There was a $10,000 credit to the provision for loan losses for the first quarter of 2014, no provision for the first quarter of 2013, and a $12,000 credit to the provision for loan losses for the fourth quarter of 2013.
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The allowance for loan losses (“ALLL”) was 2.00% of total loans at March 31, 2014, compared to 2.41% at March 31, 2013, and 2.09% at December 31, 2013.
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Deposits totaled $1.26 billion at March 31, 2014, compared to $1.17 billion at March 31, 2013, and $1.29 billion at December 31, 2013. Deposits (excluding all time deposits and CDARS deposits) increased $138.3 million or 16% to $992.0 million at March 31, 2014 from $853.7 million at March 31, 2013 and increased $18.4 million or 2% from $973.6 million at December 31, 2013.
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Capital ratios exceeded regulatory requirements for a well-capitalized financial institution on a holding company and bank level at March 31, 2014:
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Capital Ratios
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Heritage Commerce Corp
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Heritage Bank of Commerce
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Well-Capitalized
Financial Institution
Regulatory Guidelines
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Total Risk-Based
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15.4% | 14.2% | 10.0% |
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Tier 1 Risk-Based
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14.2% | 13.0% | 6.0% |
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Leverage
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11.9% | 10.9% | 5.0% |
Operating Results
Net interest income increased 10% to $13.3 million for the first quarter of 2014, compared to $12.2 million for the first quarter of 2013, and increased 2% from $13.0 million for the fourth quarter of 2013, primarily due to higher average loan balances and a lower cost of funds.
The net interest margin (FTE) expanded 34 basis points to 4.05% for the first quarter of 2014, from 3.71% for the first quarter of 2013, and increased 25 basis points from 3.80% for the fourth quarter of 2013. Excluding approximately $270,000 of past due interest recovered from a loan previously placed on nonaccrual status, the net interest margin (FTE) for the first quarter of 2014 would have been 3.97%. The increase in the first quarter of 2014 from the comparable periods was primarily due to a lower cost of funds, higher yields on securities, and a higher mix of loans within earning assets.
Overall favorable credit quality led to a $10,000 credit to the provision for loan losses for the first quarter of 2014. There was no provision for loan losses in the first quarter of 2013, and the credit to the provision for loan losses was $12,000 for the fourth quarter of 2013. Net charge-offs totaled $337,000 for the first quarter of 2014, compared to net recoveries of $315,000 for the first quarter 2013, and net charge-offs of $166,000 for the fourth quarter of 2013.
Noninterest income increased 21% to $2.0 million for the first quarter of 2014, compared to $1.7 million for the first quarter of 2013, primarily due to a loan prepayment penalty of approximately $100,000 and higher service charges. As a result of higher gains on sales of SBA loans and sales of securities, and a loan prepayment penalty, noninterest income increased 6% for the first quarter of 2014, from $1.9 million for the fourth quarter of 2013.
Total noninterest expense for the first quarter of 2014 declined to $10.7 million, from $10.8 million for the first quarter of 2013, and increased from $10.2 million for the fourth quarter of 2013. The decrease in noninterest expense in the first quarter of 2014, compared to the first quarter of 2013, was primarily due to lower professional fees. The increase in noninterest expense in the first quarter of 2014, compared to the fourth quarter of 2013, was primarily due to increased compensation expenses, which is consistent with cyclical salary and employee benefits expense in prior years. Full-time equivalent employees were 195, 188, and 193 at March 31, 2014, March 31, 2013, and December 31, 2013, respectively.
Income tax expense for the first quarter of 2014 was $1.6 million, compared to $855,000 for the first quarter of 2013, and $1.4 million for the fourth quarter of 2013. The effective tax rate for the first quarter of 2014 increased to 34%, compared to 28% for the first quarter of 2013, and 30% for the fourth quarter of 2013, primarily as a result of reduced income tax credits. The difference in the effective tax rate for the periods reported, compared to the combined Federal and state statutory tax rate of 42%, is primarily the result of the Company’s investment in life insurance policies whose earnings are not subject to taxes, tax credits related to investments in low income housing limited partnerships, and tax-exempt interest income earned on municipal bonds. The Company has net investments of $1.0 million in low-income housing limited partnerships as of March 31, 2014, generating annualized tax credits of approximately $412,000 for the first quarter of 2014, compared to annualized tax credits of approximately $727,000 for the first quarter of 2013. The Company had California Enterprise Zone annualized tax savings of approximately $162,000 for the first quarter of 2013. The California state legislature eliminated the Enterprise Zone tax deductions beginning January 1, 2014.
The efficiency ratio for the first quarter of 2014 was 69.92%, compared to 78.03% for the first quarter of 2013, and 68.05% for the fourth quarter of 2013. The decrease in the efficiency ratio in the first quarter of 2014 compared to the first quarter of 2013 was primarily due to higher net interest income and noninterest income, while holding noninterest expense flat. The increase in the efficiency ratio in the first quarter of 2014 compared to the fourth quarter of 2013 was primarily due to higher compensation and benefits costs.
Balance Sheet Review, Capital Management and Credit Quality
Total assets were $1.47 billion at March 31, 2014, compared to $1.38 billion March 31, 2013, and $1.49 billion at December 31, 2013.
The investment securities available-for-sale portfolio totaled $262.4 million at March 31, 2014, compared to $346.8 million at March 31, 2013, and $280.1 million at December 31, 2013. At March 31, 2014, the securities available-for-sale portfolio was comprised of $161.2 million agency mortgage-backed securities (all issued by U.S. Government sponsored entities), $53.1 million of corporate bonds, $27.3 million of asset-backed securities, and $20.8 million of single entity issue trust preferred securities. The pre-tax unrealized gain on securities available-for-sale at March 31, 2014 was $294,000, compared to a pre-tax unrealized gain on securities available-for-sale at March 31, 2013 of $9.6 million, and a pre-tax unrealized loss on securities available-for-sale at December 31, 2013 of ($2.4) million.
At March 31, 2014, investment securities held-to-maturity totaled $95.5 million, compared to $68.3 million at March 31, 2013, and $95.9 million at December 31, 2013. At March 31, 2014, the securities held-to-maturity portfolio, at amortized cost, was comprised of $80.0 million tax-exempt municipal bonds and $15.5 million agency mortgage-backed securities.
Loans, excluding loans held-for-sale, increased 17% to $941.8 million at March 31, 2014, from $801.9 million at March 31, 2013, and increased 3% from $914.9 million at December 31, 2013. The loan portfolio remains well-diversified with commercial and industrial (“C&I”) loans accounting for 41% of the loan portfolio at March 31, 2014. Commercial and residential real estate loans accounted for 46% of the total loan portfolio, of which 48% were owner-occupied by businesses. Consumer and home equity loans accounted for 8% of total loans, and land and construction loans accounted for the remaining 5% of total loans at March 31, 2014. C&I line usage was 36% at March 31, 2014, compared to 36% at March 31, 2013, and 41% at December 31, 2013.
The yield on the loan portfolio was 4.86% for the first quarter of 2014, compared to 5.13% for the same period in 2013, and 4.79% for the fourth quarter of 2013. Excluding approximately $270,000 of past due interest recovered from a loan previously placed on nonaccrual status, the loan yield for the first quarter of 2014 would have been 4.74%.
“We remain focused on maintaining a moderate credit risk profile, evidenced by our nonperforming assets declining again year-over-over and on a linked quarter basis,” added Mr. Kaczmarek. Nonperforming assets (“NPAs”) decreased to $11.4 million, or 0.77% of total assets, at March 31, 2014, compared to $17.4 million, or 1.26% of total assets, at March 31, 2013, and $12.4 million, or 0.83% of total assets, at December 31, 2013. The following is a breakout of NPAs at March 31, 2014:
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Balance
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% of Total
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Commercial real estate loans
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$ | 3,227 | 29% | ||
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SBA loans
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3,064 | 27% | |||
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Land and construction loans
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1,718 | 15% | |||
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Commercial and industrial loans
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815 | 7% | |||
| Home equity and consumer loans | 722 | 6% | |||
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Foreclosed assets
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551 | 5% | |||
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Restructured and loans over 90 days past due and accruing
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1,278 | 11% | |||
| $ | 11,375 | 100% | |||
At March 31, 2014, the $11.4 million of NPAs included $599,000 of loans guaranteed by the SBA and $458,000 of restructured loans still accruing interest income. Foreclosed assets were $551,000 at March 31, 2014, compared to $738,000 at March 31, 2013, and $575,000 at December 31, 2013.
Classified assets (net of SBA guarantees) decreased 35% to $20.2 million at March 31, 2014, from $31.2 million at March 31, 2013, and decreased 15% from $23.6 million at December 31, 2013.
The following table summarizes the allowance for loan losses:
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For the Quarter Ended:
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ALLOWANCE FOR LOAN LOSSES
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March 31,
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December 31,
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March 31,
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(in $000's, unaudited)
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2014
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2013
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2013
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Balance at beginning of period
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$ | 19,164 | $ | 19,342 | $ | 19,027 | |||
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Provision (credit) for loan losses during the period
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(10) | (12) | - | ||||||
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Net (charge-offs) recoveries during the period
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(337) | (166) | 315 | ||||||
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Balance at end of period
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$ | 18,817 | $ | 19,164 | $ | 19,342 | |||
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Total loans
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$ | 941,759 | $ | 914,913 | $ | 801,925 | |||
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Total nonperforming loans
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$ | 10,824 | $ | 11,818 | $ | 16,664 | |||
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Allowance for loan losses to total loans
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2.00% | 2.09% | 2.41% | ||||||
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Allowance for loan losses to total nonperforming loans
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173.85% | 162.16% | 116.07% | ||||||
The allowance for loan losses was 2.00% of total loans at March 31, 2014, compared to 2.41% at March 31, 2013, and 2.09% at December 31, 2013. The decrease in the allowance for loan losses to total loans at March 31, 2014, was primarily due to improved risk grading and credit metrics.
Total deposits increased $95.1 million to $1.26 billion at March 31, 2014, from $1.17 billion at March 31, 2013, while brokered deposits decreased $43.3 million during this period. Total deposits decreased $24.2 million at March 31, 2014 from $1.29 billion at December 31, 2013, primarily due to a decrease in brokered deposits of $15.1 million and a decrease of $27.3 million in CDARS deposits, partially offset by an increase in customer deposits. During the fourth quarter of 2013, the Company received $27.5 million in deposits from a law firm which were placed in a CDARS money market account. All of the $27.5 million in deposits from the law firm were withdrawn in January, 2014. Deposits (excluding all time deposits and CDARS deposits) increased $138.3 million or 16% to $992.0 million at March 31, 2014 from $853.7 million at March 31, 2013 and increased $18.4 million or 2% from $973.6 million at December 31, 2013.
The total cost of deposits decreased 4 basis points to 0.17% for the first quarter of 2014, from 0.21% for the first quarter of 2013, and decreased 1 basis point from 0.18% for the fourth quarter of 2013.
Tangible equity was $175.4 million at March 31, 2014, compared to $169.0 million at March 31, 2013 and $171.9 million at December 31, 2013. Tangible book value per common share was $5.91 at March 31, 2014, compared to $5.67 a year ago, and $5.78 at December 31, 2013. There were 21,004 shares of Series C Preferred Stock outstanding at March 31, 2014, March 31, 2013, and December 31, 2013, and the Series C Preferred Stock is convertible into an aggregate of 5.6 million shares of common stock at a conversion price of $3.75, upon a transfer of the Series C Preferred Stock in a widely dispersed offering. Pro forma tangible book value per common share, assuming the Company’s outstanding Series C Preferred Stock was converted into common stock, was $5.49 at March 31, 2014, compared to $5.29 a year ago, and $5.38 at December 31, 2013.
Accumulated other comprehensive loss was ($2.5) million at March 31, 2014, compared to accumulated other comprehensive income of $1.4 million a year ago, and accumulated other comprehensive loss of ($4.0) million at December 31, 2013. The unrealized gain (loss) on securities available-for-sale included in other comprehensive income was an unrealized gain of $171,000, net of taxes, at March 31, 2014, compared to an unrealized gain of $5.6 million, net of taxes, at March 31, 2013, and an unrealized loss of ($1.4) million, net of taxes, at December 31, 2013. The components of other comprehensive loss, net of taxes, at March 31, 2014 include the following: an unrealized gain on available-for-sale securities of $171,000; the remaining unamortized unrealized gain on securities available-for-sale transferred to held-to-maturity of $457,000; a liability adjustment on split dollar insurance contracts of ($1.9) million; a liability adjustment on the supplemental executive retirement plan of ($2.2) million; and an unrealized gain on interest-only strip from SBA loans of $966,000.
Heritage Commerce Corp, a bank holding company established in February 1998, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose with full-service branches in Danville, Fremont, Gilroy, Los Altos, Los Gatos, Morgan Hill, Pleasanton, Sunnyvale, and Walnut Creek. Heritage Bank of Commerce is an SBA Preferred Lender with an additional Loan Production Office in Lincoln, California. For more information, please visit www.heritagecommercecorp.com.
Forward Looking Statement Disclaimer
Forward-looking statements are based on management’s knowledge and belief as of today and include information concerning the Company’s possible or assumed future financial condition, and its results of operations, business and earnings outlook. These forward-looking statements are subject to risks and uncertainties. A number of factors, some of which are beyond the Company’s ability to control or predict, could cause future results to differ materially from those contemplated by such forward-looking statements. The forward-looking statements could be affected by many factors, including but not limited to: (1) local, regional, and national economic conditions and events and the impact they may have on us and our customers, and our assessment of that impact on our estimates including, the allowance for loan losses; (2) continued delay in the pace of economic recovery and continued stagnant or decreasing employment levels; (3) changes in the financial performance or condition of the Company’s customers, or changes in the performance or creditworthiness of our customers’ suppliers or other counterparties, which could lead to decreased loan utilization rates, delinquencies, or defaults and could negatively affect our customers’ ability to meet certain credit obligations; (4) volatility in credit and equity markets and its effect on the global economy; (5) changes in consumer spending, borrowings and saving habits; (6) competition for loans and deposits and failure to attract or retain deposits and loans; (7)the ability to increase market share and control expenses; (8) risks associated with concentrations in real estate related loans; (9) other-than-temporary impairment charges to our securities portfolio; (10) an oversupply of inventory and deterioration in values of California commercial real estate; (11) a prolonged slowdown in construction activity; (12) changes in the level of nonperforming assets and charge-offs and other credit quality measures, and their impact on the adequacy of the Company’s allowance for loan losses and the Company’s provision for loan losses; (13) the effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Federal Open Market Committee of the Federal Reserve Board; (14) changes in inflation, interest rates, and market liquidity which may impact interest margins and impact funding sources; (15) our ability to raise capital or incur debt on reasonable terms; (16) regulatory limits on Heritage Bank of Commerce’s ability to pay dividends to the Company; (17) the impact of reputational risk on such matters as business generation and retention, funding and liquidity; (18) the impact of cyber security attacks or other disruptions to the Company’s information systems and any resulting compromise of data or disruptions in service; (19) the effect of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations to be promulgated by supervisory and oversight agencies implementing the new legislation, taking into account that the precise timing, extent and nature of such rules and regulations and the impact on the Company are uncertain; (20) the impact of revised capital requirements under Basel III; (21) significant changes in applicable laws and regulations, including those concerning taxes, banking and securities; (22) changes in the competitive environment among financial or bank holding companies and other financial service providers; (23) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; (24) the costs and effects of legal and regulatory developments, including resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews; and (25) our success in managing the risks involved in the foregoing items. For a discussion of factors which could cause results to differ, please see the Company’s reports on Forms 10-K and 10-Q as filed with the Securities and Exchange Commission and the Company’s press releases. Readers should not place undue reliance on the forward-looking statements, which reflect management's view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.
Member FDIC
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For the Quarter Ended:
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Percent Change From:
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CONSOLIDATED INCOME STATEMENTS
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March 31,
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December 31,
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March 31,
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December 31,
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March 31,
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(in $000's, unaudited)
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2014
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2013
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2013
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2013
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2013
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Interest income
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$ | 13,855 | $ | 13,623 | $ | 12,867 | 2% | 8% | |||||
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Interest expense
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521 | 574 | 714 | -9% | -27% | ||||||||
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Net interest income before provision for loan losses
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13,334 | 13,049 | 12,153 | 2% | 10% | ||||||||
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Provision (credit) for loan losses
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(10) | (12) | - | 17% | N/A | ||||||||
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Net interest income after provision for loan losses
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13,344 | 13,061 | 12,153 | 2% | 10% | ||||||||
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Noninterest income:
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Service charges and fees on deposit accounts
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620 | 617 | 577 | 0% | 7% | ||||||||
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Increase in cash surrender value of life insurance
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398 | 414 | 417 | -4% | -5% | ||||||||
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Servicing income
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348 | 365 | 365 | -5% | -5% | ||||||||
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Gain on sales of SBA loans
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157 | 76 | 136 | 107% | 15% | ||||||||
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Gain on sales of securities
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50 | - | 31 | N/A | 61% | ||||||||
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Other
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444 | 426 | 137 | 4% | 224% | ||||||||
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Total noninterest income
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2,017 | 1,898 | 1,663 | 6% | 21% | ||||||||
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Noninterest expense:
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Salaries and employee benefits
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6,243 | 5,803 | 6,011 | 8% | 4% | ||||||||
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Occupancy and equipment
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945 | 961 | 1,068 | -2% | -12% | ||||||||
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Professional fees
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586 | 604 | 982 | -3% | -40% | ||||||||
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Other
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2,960 | 2,804 | 2,720 | 6% | 9% | ||||||||
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Total noninterest expense
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10,734 | 10,172 | 10,781 | 6% | 0% | ||||||||
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Income before income taxes
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4,627 | 4,787 | 3,035 | -3% | 52% | ||||||||
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Income tax expense
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1,551 | 1,433 | 855 | 8% | 81% | ||||||||
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Net income
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3,076 | 3,354 | 2,180 | -8% | 41% | ||||||||
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Dividends on preferred stock
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(224) | (168) | - | 33% | N/A | ||||||||
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Net income available to common shareholders
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2,852 | 3,186 | 2,180 | -10% | 31% | ||||||||
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Undistributed earnings allocated to Series C Preferred Stock
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(315) | (420) | (382) | -25% | -18% | ||||||||
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Distributed and undistributed earnings allocated to common
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shareholders
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$ | 2,537 | $ | 2,766 | $ | 1,798 | -8% | 41% | |||||
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PER COMMON SHARE DATA
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(unaudited)
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Basic earnings per share
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$ | 0.10 | $ | 0.10 | $ | 0.07 | 0% | 43% | |||||
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Diluted earnings per share
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$ | 0.10 | $ | 0.10 | $ | 0.07 | 0% | 43% | |||||
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Weighted average shares shares outstanding - basic
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26,359,825 | 26,346,977 | 26,329,343 | 0% | 0% | ||||||||
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Weighted average shares shares outstanding - diluted
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26,483,088 | 26,407,574 | 26,378,457 | 0% | 0% | ||||||||
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Common shares outstanding at period-end
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26,370,510 | 26,350,938 | 26,333,368 | 0% | 0% | ||||||||
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Pro forma common shares outstanding at period-end, assuming
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Series C preferred stock was converted into common stock
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31,971,510 | 31,951,938 | 31,934,368 | 0% | 0% | ||||||||
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Book value per share
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$ | 5.96 | $ | 5.84 | $ | 5.75 | 2% | 4% | |||||
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Tangible book value per share
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$ | 5.91 | $ | 5.78 | $ | 5.67 | 2% | 4% | |||||
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Pro forma tangible book value per share, assuming Series C
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preferred stock was converted into common stock
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$ | 5.49 | $ | 5.38 | $ | 5.29 | 2% | 4% | |||||
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KEY FINANCIAL RATIOS
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(unaudited)
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Annualized return on average equity
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7.10% | 7.74% | 5.20% | -8% | 37% | ||||||||
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Annualized return on average tangible equity
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7.16% | 7.81% | 5.26% | -8% | 36% | ||||||||
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Annualized return on average assets
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0.86% | 0.89% | 0.61% | -3% | 41% | ||||||||
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Annualized return on average tangible assets
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0.86% | 0.89% | 0.61% | -3% | 41% | ||||||||
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Net interest margin
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4.05% | 3.80% | 3.71% | 7% | 9% | ||||||||
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Efficiency ratio
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69.92% | 68.05% | 78.03% | 3% | -10% | ||||||||
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AVERAGE BALANCES
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(in $000's, unaudited)
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Average assets
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$ | 1,458,875 | $ | 1,489,600 | $ | 1,442,928 | -2% | 1% | |||||
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Average tangible assets
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$ | 1,457,391 | $ | 1,488,001 | $ | 1,440,974 | -2% | 1% | |||||
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Average earning assets
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$ | 1,361,923 | $ | 1,388,239 | $ | 1,341,337 | -2% | 2% | |||||
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Average loans held-for-sale
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$ | 3,296 | $ | 4,942 | $ | 3,255 | -33% | 1% | |||||
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Average total loans
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$ | 927,042 | $ | 881,830 | $ | 794,876 | 5% | 17% | |||||
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Average deposits
|
$ | 1,250,128 | $ | 1,282,358 | $ | 1,227,146 | -3% | 2% | |||||
|
Average demand deposits - noninterest-bearing
|
$ | 428,944 | $ | 437,661 | $ | 461,108 | -2% | -7% | |||||
|
Average interest-bearing deposits
|
$ | 821,184 | $ | 844,697 | $ | 766,038 | -3% | 7% | |||||
|
Average interest-bearing liabilities
|
$ | 821,242 | $ | 844,771 | $ | 775,402 | -3% | 6% | |||||
|
Average equity
|
$ | 175,773 | $ | 171,952 | $ | 169,883 | 2% | 3% | |||||
|
Average tangible equity
|
$ | 174,289 | $ | 170,353 | $ | 167,929 | 2% | 4% | |||||
|
End of Period:
|
Percent Change From:
|
|||||||||||||
|
CONSOLIDATED BALANCE SHEETS
|
March 31,
|
December 31,
|
March 31,
|
December 31,
|
March 31,
|
|||||||||
|
(in $000's, unaudited)
|
2014
|
2013
|
2013
|
2013
|
2013
|
|||||||||
|
ASSETS
|
||||||||||||||
|
Cash and due from banks
|
$ | 30,666 | $ | 20,158 | $ | 19,779 | 52% | 55% | ||||||
|
Federal funds sold and interest-bearing
|
||||||||||||||
|
deposits in other financial institutions
|
54,333 | 92,447 | 57,090 | -41% | -5% | |||||||||
|
Securities available-for-sale, at fair value
|
262,375 | 280,100 | 346,800 | -6% | -24% | |||||||||
|
Securities held-to-maturity, at amortized cost
|
95,548 | 95,921 | 68,283 | 0% | 40% | |||||||||
|
Loans held-for-sale - SBA, including deferred costs
|
2,894 | 3,148 | 4,394 | -8% | -34% | |||||||||
|
Loans:
|
||||||||||||||
|
Commercial
|
390,650 | 393,074 | 356,688 | -1% | 10% | |||||||||
|
Real estate:
|
||||||||||||||
|
Commercial and residential
|
436,562 | 423,288 | 361,340 | 3% | 21% | |||||||||
|
Land and construction
|
42,889 | 31,443 | 24,611 | 36% | 74% | |||||||||
|
Home equity
|
56,289 | 51,815 | 45,347 | 9% | 24% | |||||||||
|
Consumer
|
15,829 | 15,677 | 14,036 | 1% | 13% | |||||||||
|
Loans
|
942,219 | 915,297 | 802,022 | 3% | 17% | |||||||||
|
Deferred loan fees
|
(460) | (384) | (97) | 20% | 374% | |||||||||
|
Total loans, net of deferred fees
|
941,759 | 914,913 | 801,925 | 3% | 17% | |||||||||
|
Allowance for loan losses
|
(18,817) | (19,164) | (19,342) | -2% | -3% | |||||||||
|
Loans, net
|
922,942 | 895,749 | 782,583 | 3% | 18% | |||||||||
|
Company owned life insurance
|
50,055 | 50,012 | 48,774 | 0% | 3% | |||||||||
|
Premises and equipment, net
|
7,186 | 7,240 | 7,632 | -1% | -6% | |||||||||
|
Intangible assets
|
1,412 | 1,527 | 1,882 | -8% | -25% | |||||||||
|
Accrued interest receivable and other assets
|
42,699 | 45,330 | 46,347 | -6% | -8% | |||||||||
|
Total assets
|
$ | 1,470,110 | $ | 1,491,632 | $ | 1,383,564 | -1% | 6% | ||||||
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
||||||||||||||
|
Liabilities:
|
||||||||||||||
|
Deposits:
|
||||||||||||||
|
Demand, noninterest-bearing
|
$ | 440,864 | $ | 431,085 | $ | 397,198 | 2% | 11% | ||||||
|
Demand, interest-bearing
|
198,141 | 195,451 | 169,681 | 1% | 17% | |||||||||
|
Savings and money market
|
352,977 | 347,052 | 286,784 | 2% | 23% | |||||||||
|
Time deposits - under $100
|
20,669 | 21,646 | 23,835 | -5% | -13% | |||||||||
|
Time deposits - $100 and over
|
195,769 | 195,005 | 189,779 | 0% | 3% | |||||||||
|
Time deposits - brokered
|
40,440 | 55,524 | 83,763 | -27% | -52% | |||||||||
|
CDARS - money market and time deposits
|
13,135 | 40,458 | 15,850 | -68% | -17% | |||||||||
|
Total deposits
|
1,261,995 | 1,286,221 | 1,166,890 | -2% | 8% | |||||||||
|
Subordinated debt
|
- | - | 9,279 | N/A | -100% | |||||||||
|
Accrued interest payable and other liabilities
|
31,298 | 32,015 | 36,560 | -2% | -14% | |||||||||
|
Total liabilities
|
1,293,293 | 1,318,236 | 1,212,729 | -2% | 7% | |||||||||
|
Shareholders' Equity:
|
||||||||||||||
|
Series C preferred stock, net
|
19,519 | 19,519 | 19,519 | 0% | 0% | |||||||||
|
Common stock
|
132,631 | 132,561 | 131,998 | 0% | 0% | |||||||||
|
Retained earnings
|
27,143 | 25,345 | 17,901 | 7% | 52% | |||||||||
|
Accumulated other comprehensive income (loss)
|
(2,476) | (4,029) | 1,417 | 39% | -275% | |||||||||
|
Total shareholders' equity
|
176,817 | 173,396 | 170,835 | 2% | 4% | |||||||||
|
Total liabilities and shareholders' equity
|
$ | 1,470,110 | $ | 1,491,632 | $ | 1,383,564 | -1% | 6% | ||||||
|
End of Period:
|
Percent Change From:
|
||||||||||||
|
March 31,
|
December 31,
|
March 31,
|
December 31,
|
March 31,
|
|||||||||
|
2014
|
2013
|
2013
|
2013
|
2013
|
|||||||||
|
CREDIT QUALITY DATA
|
|||||||||||||
|
(in $000's, unaudited)
|
|||||||||||||
|
Nonaccrual loans - held-for-investment
|
$ | 9,546 | $ | 11,326 | 16,115 | -16% | -41% | ||||||
|
Restructured and loans over 90 days past due and still accruing
|
1,278 | 492 | 549 | 160% | 133% | ||||||||
|
Total nonperforming loans
|
10,824 | 11,818 | 16,664 | -8% | -35% | ||||||||
|
Foreclosed assets
|
551 | 575 | 738 | -4% | -25% | ||||||||
|
Total nonperforming assets
|
$ | 11,375 | $ | 12,393 | $ | 17,402 | -8% | -35% | |||||
|
Other restructured loans still accruing
|
$ | - | $ | - | $ | 1,717 | N/A | -100% | |||||
|
Net charge-offs (recoveries) during the quarter
|
$ | 337 | $ | 166 | $ | (315) | 103% | 207% | |||||
|
Provision (credit) for loan losses during the quarter
|
$ | (10) | $ | (12) | $ | - | -17% | N/A | |||||
|
Allowance for loan losses
|
$ | 18,817 | $ | 19,164 | $ | 19,342 | -2% | -3% | |||||
|
Classified assets*
|
$ | 20,198 | $ | 23,631 | $ | 31,228 | -15% | -35% | |||||
|
Allowance for loan losses to total loans
|
2.00% | 2.09% | 2.41% | -4% | -17% | ||||||||
|
Allowance for loan losses to total nonperforming loans
|
173.85% | 162.16% | 116.07% | 7% | 50% | ||||||||
|
Nonperforming assets to total assets
|
0.77% | 0.83% | 1.26% | -7% | -39% | ||||||||
|
Nonperforming loans to total loans
|
1.15% | 1.29% | 2.08% | -11% | -45% | ||||||||
|
Classified assets* to Heritage Commerce Corp Tier 1
|
|||||||||||||
|
capital plus allowance for loan losses
|
11% | 13% | 17% | -15% | -35% | ||||||||
|
Classified assets* to Heritage Bank of Commerce Tier 1
|
|||||||||||||
|
capital plus allowance for loan losses
|
11% | 14% | 18% | -21% | -39% | ||||||||
|
OTHER PERIOD-END STATISTICS
|
|||||||||||||
|
(in $000's, unaudited)
|
|||||||||||||
|
Heritage Commerce Corp:
|
|||||||||||||
|
Tangible equity
|
$ | 175,405 | $ | 171,869 | $ | 168,953 | 2% | 4% | |||||
|
Tangible common equity
|
$ | 155,886 | $ | 152,350 | $ | 149,434 | 2% | 4% | |||||
|
Shareholders' equity / total assets
|
12.03% | 11.62% | 12.35% | 4% | -3% | ||||||||
|
Tangible equity / tangible assets
|
11.94% | 11.53% | 12.23% | 4% | -2% | ||||||||
|
Tangible common equity / tangible assets
|
10.61% | 10.22% | 10.82% | 4% | -2% | ||||||||
|
Loan to deposit ratio
|
74.62% | 71.13% | 68.72% | 5% | 9% | ||||||||
|
Noninterest-bearing deposits / total deposits
|
34.93% | 33.52% | 34.04% | 4% | 3% | ||||||||
|
Total risk-based capital ratio
|
15.4% | 15.3% | 16.7% | 1% | -8% | ||||||||
|
Tier 1 risk-based capital ratio
|
14.2% | 14.0% | 15.5% | 1% | -8% | ||||||||
|
Leverage ratio
|
11.9% | 11.2% | 11.5% | 6% | 3% | ||||||||
|
Heritage Bank of Commerce:
|
|||||||||||||
|
Total risk-based capital ratio
|
14.2% | 13.9% | 15.9% | 2% | -11% | ||||||||
|
Tier 1 risk-based capital ratio
|
13.0% | 12.6% | 14.6% | 3% | -11% | ||||||||
|
Leverage ratio
|
10.9% | 10.1% | 10.9% | 8% | 0% | ||||||||
|
*Net of SBA guarantees
|
|||||||||||||
|
For the Quarter Ended
|
For the Quarter Ended
|
|||||||||||||||
|
March 31, 2014
|
March 31, 2013
|
|||||||||||||||
|
Interest
|
Average
|
Interest
|
Average
|
|||||||||||||
|
NET INTEREST INCOME AND NET INTEREST MARGIN
|
Average
|
Income/
|
Yield/
|
Average
|
Income/
|
Yield/
|
||||||||||
|
(in $000's, unaudited)
|
Balance
|
Expense
|
Rate
|
Balance
|
Expense
|
Rate
|
||||||||||
|
Assets:
|
||||||||||||||||
|
Loans, gross(1)
|
$ | 930,338 | $ | 11,139 | 4.86% | $ | 798,131 | $ | 10,089 | 5.13% | ||||||
|
Securities - taxable
|
272,291 | 2,170 | 3.23% | 385,707 | 2,462 | 2.59% | ||||||||||
|
Securities - tax exempt(2)
|
95,708 | 778 | 3.30% | 40,552 | 382 | 3.82% | ||||||||||
|
Federal funds sold and interest-bearing
|
||||||||||||||||
|
deposits in other financial institutions
|
63,586 | 40 | 0.26% | 116,947 | 68 | 0.24% | ||||||||||
|
Total interest earning assets(2)
|
1,361,923 | 14,127 | 4.21% | 1,341,337 | 13,001 | 3.93% | ||||||||||
|
Cash and due from banks
|
24,731 | 23,555 | ||||||||||||||
|
Premises and equipment, net
|
7,236 | 7,521 | ||||||||||||||
|
Intangible assets
|
1,484 | 1,954 | ||||||||||||||
|
Other assets
|
63,501 | 68,561 | ||||||||||||||
|
Total assets
|
$ | 1,458,875 | $ | 1,442,928 | ||||||||||||
|
Liabilities and shareholders' equity:
|
||||||||||||||||
|
Deposits:
|
||||||||||||||||
|
Demand, noninterest-bearing
|
$ | 428,944 | $ | 461,108 | ||||||||||||
|
Demand, interest-bearing
|
199,405 | 77 | 0.16% | 164,402 | 59 | 0.15% | ||||||||||
|
Savings and money market
|
337,582 | 151 | 0.18% | 283,229 | 120 | 0.17% | ||||||||||
|
Time deposits - under $100
|
21,167 | 17 | 0.33% | 24,596 | 23 | 0.38% | ||||||||||
|
Time deposits - $100 and over
|
194,807 | 159 | 0.33% | 190,273 | 203 | 0.43% | ||||||||||
|
Time deposits - brokered
|
49,065 | 116 | 0.96% | 92,063 | 219 | 0.96% | ||||||||||
|
CDARS - money market and time deposits
|
19,158 | 1 | 0.02% | 11,475 | 1 | 0.04% | ||||||||||
|
Total interest-bearing deposits
|
821,184 | 521 | 0.26% | 766,038 | 625 | 0.33% | ||||||||||
|
Total deposits
|
1,250,128 | 521 | 0.17% | 1,227,146 | 625 | 0.21% | ||||||||||
|
Subordinated debt
|
- | - | N/A | 9,279 | 88 | 3.85% | ||||||||||
|
Short-term borrowings
|
58 | - | 0.00% | 85 | 1 | 4.77% | ||||||||||
|
Total interest-bearing liabilities
|
821,242 | 521 | 0.26% | 775,402 | 714 | 0.37% | ||||||||||
|
Total interest-bearing liabilities and demand,
|
||||||||||||||||
|
noninterest-bearing / cost of funds
|
1,250,186 | 521 | 0.17% | 1,236,510 | 714 | 0.23% | ||||||||||
|
Other liabilities
|
32,916 | 36,535 | ||||||||||||||
|
Total liabilities
|
1,283,102 | 1,273,045 | ||||||||||||||
|
Shareholders' equity
|
175,773 | 169,883 | ||||||||||||||
|
Total liabilities and shareholders' equity
|
$ | 1,458,875 | $ | 1,442,928 | ||||||||||||
|
|
||||||||||||||||
|
Net interest income(2) / margin
|
13,606 | 4.05% | 12,287 | 3.71% | ||||||||||||
|
Less tax equivalent adjustment(2)
|
(272) | (134) | ||||||||||||||
|
Net interest income
|
$ | 13,334 | $ | 12,153 | ||||||||||||
|
(1)Includes loans held-for-sale. Yield amounts earned on loans include loan fees and costs. Nonaccrual loans are included in average balance.
|
||||||||||||||||
|
(2)Reflects tax equivalent adjustment for tax exempt income based on a 35% tax rate.
|
||||||||||||||||