{"id":424307,"date":"2021-01-28T18:21:39","date_gmt":"2021-01-28T23:21:39","guid":{"rendered":"http:\/\/www.marketnewsdesk.com\/?p=424307"},"modified":"2021-01-28T18:21:39","modified_gmt":"2021-01-28T23:21:39","slug":"heritage-commerce-corp-reports-earnings-of-11-6-million-for-the-fourth-quarter-of-2020-and-35-3-million-for-2020","status":"publish","type":"post","link":"https:\/\/www.marketnewsdesk.com\/index.php\/heritage-commerce-corp-reports-earnings-of-11-6-million-for-the-fourth-quarter-of-2020-and-35-3-million-for-2020\/","title":{"rendered":"Heritage Commerce Corp Reports Earnings of $11.6 Million for the Fourth Quarter of 2020 and $35.3 Million for 2020"},"content":{"rendered":"
\n

SAN JOSE, Calif., Jan. 28, 2021 (GLOBE NEWSWIRE) — Heritage Commerce Corp (Nasdaq: HTBK)<\/strong>, the holding company (the \u201cCompany\u201d) for Heritage Bank of Commerce (the \u201cBank\u201d), today announced fourth quarter 2020 net income of $11.6 million, or $0.19 per average diluted common share, compared to $5.7 million, or $0.10 per average diluted common share, for the fourth quarter of 2019, and $11.2 million, or $0.19 per average diluted common share, for the third quarter of 2020. For the year ended December 31, 2020, net income was $35.3 million, or $0.59 per average diluted common share, compared to $40.5 million, or $0.84 per average diluted common share, for the year ended December 31, 2019. All results are unaudited.<\/p>\n

\u201cWe generated solid earnings, for the full year of 2020, fueled by a year-over-year increase in net interest income, total deposits, and gains on sales of SBA loans,\u201d said Mr. Keith Wilton, President and Chief Executive Officer. \u201cOur results in the midst of this challenging economic environment are a testament to our resilient bankers, our customers and our communities. Our participation in the initial rounds of the Small Business Administration (\u201cSBA\u201d) Paycheck Protection Program (\u201cPPP\u201d), helped meet the financial needs of our customers who were significantly impacted by the pandemic and we are actively participating in this newest round of PPP funding.\u201d<\/p>\n

\u201cCredit quality improved with nonperforming assets (\u201cNPAs\u201d) declining (20%) year-over-year and (23%) on a linked quarter basis, to $7.9 million at year end,\u201d said Mr. Wilton. \u201cIn fact, we released $1.3 million of our provision for credit losses on loans largely due to recoveries of previously charged off accounts and the successful resolution of a nonperforming credit resulting in the release of specific reserves. This brings our allowance for credits losses on loans (\u201cACLL\u201d) to total loans to 1.70%, and the ACLL to total loans, excluding PPP loans, to 1.91% at December 31, 2020. Further, capital and liquidity positions remain strong with a total risk-based capital ratio and leverage for the Company (consolidated) at 16.5% and 9.1% respectively, and 15.8% and 9.5% respectively, for the Bank, at December 31, 2020,\u201d added Mr. Wilton.<\/p>\n

\u201cDuring the fourth quarter of 2020, we completed the final touches to our new San Jose corporate headquarters at 224 Airport Parkway and finalized the move of our San Mateo branch and administrative offices to newly renovated facilities,\u201d commented Mr. Wilton. \u201cThese combined facilities represent over 50% of the Company\u2019s office footprint and include modifications and upgrades to meet enhanced energy saving requirements, further representing our Company\u2019s commitment to lowering our carbon footprint.\u201d<\/p>\n

\u201cThe past year presented many challenges to members of the communities we serve. During 2020, we were proud of our employees who volunteered their time to many local organizations that assist minority, disenfranchised and underrepresented groups in our community, and we congratulate them for their service. In addition, we are proud of our Company\u2019s continued ability to provide grants and sponsorships to support these community groups,\u201d said Mr. Wilton.<\/p>\n

In response to two economic stimulus laws passed by Congress in the first half of the 2020, Heritage Bank of Commerce funded 1,105 PPP loans, with total principal balances of $333.4 million. Through 2020, PPP loan payoffs totaled $9.1 million while SBA loan forgiveness totaled $33.7 million and the Bank ended the fourth quarter of 2020 with $290.7 million in outstanding PPP loan balances. These loans generated $2.2 million in interest income and $3.9 million in net deferred fee revenue during 2020. At December 31, 2020, total loans included remaining deferred fees on PPP loans of ($6.8) million and deferred costs of $783,000.<\/p>\n

On April 7, 2020, the U.S. banking agencies issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus. The statement describes accounting for COVID-19-related loan modifications, including clarifying the interaction between current accounting rules and the temporary relief provided by the Coronavirus Aid, Relief, and Economic Security (\u201cCARES Act\u201d). The Bank made accommodations for initial payment deferrals for a number of customers of up to 90 days, generally, with the potential, upon application, of an additional 90 days of payment deferral (180 days maximum). The Bank also waived all normal applicable fees. As well, most of the deferrals we originally granted have returned to regular payments. The following table shows the deferments at December 31, 2020 by category:<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n
\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\n Underlying Collateral<\/strong>\n <\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n<\/tr>\n
\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n<\/tr>\n
\n NON-SBA LOANS<\/strong>\n <\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\n Business<\/strong>\n <\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\n Real <\/strong>\n <\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n<\/tr>\n
\n (in $000\u2019s, unaudited)<\/strong>\n <\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\n Assets<\/strong>\n <\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\n Estate<\/strong>\n <\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\n Total<\/strong>\n <\/td>\n<\/tr>\n
\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n<\/tr>\n
Initial Deferments(1)<\/sup><\/td>\n\u00a0<\/td>\n$<\/td>\n–<\/td>\n\u00a0<\/td>\n$<\/td>\n1,573<\/td>\n\u00a0<\/td>\n$<\/td>\n1,573<\/td>\n<\/tr>\n
2nd Deferments(2)<\/sup><\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n295<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n684<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n979<\/td>\n<\/tr>\n
Total<\/td>\n\u00a0<\/td>\n$<\/td>\n295<\/td>\n\u00a0<\/td>\n$<\/td>\n2,257<\/td>\n\u00a0<\/td>\n$<\/td>\n2,552<\/td>\n<\/tr>\n
\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n<\/tr>\n
\n (1) <\/sup>Initial deferments were generally for 3 months<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n<\/tr>\n
\n (2)<\/sup> 2nd deferments were for an additional 3 months<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n<\/tr>\n<\/table>\n

In addition to its portfolio of SBA PPP loans, the Bank also has a portfolio of SBA 7(a) loans totaling $48.9 million as of January 15, 2021. As part of the SBA\u2019s Coronavirus debt relief efforts, beginning in April of 2020, the SBA commenced a six-month program to cover payments of principal, interest and any associated fees for these borrowers, which largely ended with the September payment. The following table reflects the status of these SBA 7(a) loans as of January 15, 2021:<\/p>\n\n\n\n\n\n\n\n\n\n\n\n
\n SBA 7(a) LOANS<\/strong>\n <\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\n Number <\/strong>\n <\/td>\n<\/tr>\n
\n (in $000\u2019s, unaudited)<\/strong>\n <\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\n Balance<\/strong>\n <\/td>\n\u00a0<\/td>\n\n of Loans<\/strong>\n <\/td>\n<\/tr>\n
SBA 7(a) loans that borrowers made payments<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n<\/tr>\n
by January 15, 2021<\/td>\n\u00a0<\/td>\n$<\/td>\n41,994<\/td>\n\u00a0<\/td>\n234<\/td>\n<\/tr>\n
Payments Not Made \/ NSF \/ Returned<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n1,032<\/td>\n\u00a0<\/td>\n12<\/td>\n<\/tr>\n
Due dates later in January<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n85<\/td>\n\u00a0<\/td>\n2<\/td>\n<\/tr>\n
New loans \/ No payment due<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n3,267<\/td>\n\u00a0<\/td>\n4<\/td>\n<\/tr>\n
CARES Payments<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n2,062<\/td>\n\u00a0<\/td>\n9<\/td>\n<\/tr>\n
Request for Deferral<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n448<\/td>\n\u00a0<\/td>\n5<\/td>\n<\/tr>\n
Total Portfolio<\/td>\n\u00a0<\/td>\n$<\/td>\n48,888<\/td>\n\u00a0<\/td>\n266<\/td>\n<\/tr>\n<\/table>\n

The CARES Act was recently amended to include $3.5 billion of extended debt relief payments for SBA borrowers. The program will initially provide for 3 payments of principal and interest to a maximum of $9,000 per month under various criteria and then an additional 5 payments for borrowers considered \u201cunderserved\u201d as defined in the amended legislation.<\/p>\n

\n Credit Quality and Performance<\/strong>\n <\/p>\n

At December 31, 2020,\u00a0NPAs\u00a0declined by $1.9 million, or (20%), to $7.9 million, compared to $9.8 million at December 31, 2019, and decreased by $2.4 million, or (23%) from $10.3 million at September 30, 2020. Classified assets increased to $34.0 million, or 0.73% of total assets, at December 31, 2020, compared to $32.6 million, or 0.79% of total assets, at December 31, 2019, and $33.0 million, or 0.72% of total assets, at September 30, 2020.<\/p>\n

The Company continues to monitor portfolio loans made to commercial customers with businesses in higher risk sectors due to the COVID-19 pandemic. During the fourth quarter of 2020, the percentage of loans identified as higher risk to total loans increased slightly compared to the third quarter of 2020. The following table provides a breakdown of such loans as a percentage of total loans for the periods indicated:<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
\u00a0<\/td>\n\u00a0<\/td>\n\n %\u00a0of\u00a0Total<\/strong>\n <\/td>\n\u00a0<\/td>\n\n %\u00a0of\u00a0Total<\/strong>\n <\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\n %\u00a0of\u00a0Total<\/strong>\n <\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\n %\u00a0of\u00a0Total<\/strong>\n <\/td>\n\u00a0<\/td>\n<\/tr>\n
\u00a0<\/td>\n\u00a0<\/td>\n\n Loans at<\/strong>\n <\/td>\n\u00a0<\/td>\n\n Loans at<\/strong>\n <\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\n Loans at<\/strong>\n <\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\n Loans at<\/strong>\n <\/td>\n\u00a0<\/td>\n<\/tr>\n
\n HIGHER RISK SECTORS (unaudited)<\/strong>\n <\/td>\n\u00a0<\/td>\n\n December 31, 2020<\/strong>\n <\/td>\n\u00a0<\/td>\n\n September 30, 2020<\/strong>\n <\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\n June 30, 2020<\/strong>\n <\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\n March 31, 2020<\/strong>\n <\/td>\n\u00a0<\/td>\n<\/tr>\n
Health care and social assistance:<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n<\/tr>\n
Offices of dentists<\/td>\n\u00a0<\/td>\n2.01<\/td>\n%<\/td>\n1.86<\/td>\n%<\/td>\n\u00a0<\/td>\n1.79<\/td>\n%<\/td>\n\u00a0<\/td>\n1.63<\/td>\n%<\/td>\n<\/tr>\n
Offices of physicians (except mental health specialists)<\/td>\n\u00a0<\/td>\n0.81<\/td>\n%<\/td>\n0.74<\/td>\n%<\/td>\n\u00a0<\/td>\n0.76<\/td>\n%<\/td>\n\u00a0<\/td>\n0.70<\/td>\n%<\/td>\n<\/tr>\n
Other community housing services<\/td>\n\u00a0<\/td>\n0.28<\/td>\n%<\/td>\n0.27<\/td>\n%<\/td>\n\u00a0<\/td>\n0.27<\/td>\n%<\/td>\n\u00a0<\/td>\n0.11<\/td>\n%<\/td>\n<\/tr>\n
All others<\/td>\n\u00a0<\/td>\n2.15<\/td>\n%<\/td>\n2.15<\/td>\n%<\/td>\n\u00a0<\/td>\n2.21<\/td>\n%<\/td>\n\u00a0<\/td>\n1.84<\/td>\n%<\/td>\n<\/tr>\n
Total health care and social assistance<\/td>\n\u00a0<\/td>\n5.25<\/td>\n%<\/td>\n5.02<\/td>\n%<\/td>\n\u00a0<\/td>\n5.03<\/td>\n%<\/td>\n\u00a0<\/td>\n4.28<\/td>\n%<\/td>\n<\/tr>\n
Retail trade:<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n<\/tr>\n
Gasoline stations with convenience stores<\/td>\n\u00a0<\/td>\n2.16<\/td>\n%<\/td>\n1.97<\/td>\n%<\/td>\n\u00a0<\/td>\n1.90<\/td>\n%<\/td>\n\u00a0<\/td>\n1.98<\/td>\n%<\/td>\n<\/tr>\n
All others<\/td>\n\u00a0<\/td>\n2.34<\/td>\n%<\/td>\n2.44<\/td>\n%<\/td>\n\u00a0<\/td>\n2.44<\/td>\n%<\/td>\n\u00a0<\/td>\n2.18<\/td>\n%<\/td>\n<\/tr>\n
Total retail trade<\/td>\n\u00a0<\/td>\n4.50<\/td>\n%<\/td>\n4.41<\/td>\n%<\/td>\n\u00a0<\/td>\n4.34<\/td>\n%<\/td>\n\u00a0<\/td>\n4.16<\/td>\n%<\/td>\n<\/tr>\n
Accommodation and food services:<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n<\/tr>\n
Full-service restaurants<\/td>\n\u00a0<\/td>\n1.30<\/td>\n%<\/td>\n1.40<\/td>\n%<\/td>\n\u00a0<\/td>\n1.38<\/td>\n%<\/td>\n\u00a0<\/td>\n0.86<\/td>\n%<\/td>\n<\/tr>\n
Limited-service restaurants<\/td>\n\u00a0<\/td>\n0.57<\/td>\n%<\/td>\n0.74<\/td>\n%<\/td>\n\u00a0<\/td>\n0.79<\/td>\n%<\/td>\n\u00a0<\/td>\n0.63<\/td>\n%<\/td>\n<\/tr>\n
Hotels (except casino hotels) and motels<\/td>\n\u00a0<\/td>\n0.95<\/td>\n%<\/td>\n0.92<\/td>\n%<\/td>\n\u00a0<\/td>\n0.89<\/td>\n%<\/td>\n\u00a0<\/td>\n0.94<\/td>\n%<\/td>\n<\/tr>\n
All others<\/td>\n\u00a0<\/td>\n0.68<\/td>\n%<\/td>\n0.68<\/td>\n%<\/td>\n\u00a0<\/td>\n0.70<\/td>\n%<\/td>\n\u00a0<\/td>\n0.52<\/td>\n%<\/td>\n<\/tr>\n
Total accommodation and food services<\/td>\n\u00a0<\/td>\n3.50<\/td>\n%<\/td>\n3.74<\/td>\n%<\/td>\n\u00a0<\/td>\n3.76<\/td>\n%<\/td>\n\u00a0<\/td>\n2.95<\/td>\n%<\/td>\n<\/tr>\n
Educational services:<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n\u00a0<\/td>\n<\/tr>\n
Elementary and secondary schools<\/td>\n\u00a0<\/td>\n0.58<\/td>\n%<\/td>\n0.57<\/td>\n%<\/td>\n\u00a0<\/td>\n0.65<\/td>\n%<\/td>\n\u00a0<\/td>\n0.15<\/td>\n%<\/td>\n<\/tr>\n
Education support services<\/td>\n\u00a0<\/td>\n0.45<\/td>\n%<\/td>\n0.43<\/td>\n%<\/td>\n\u00a0<\/td>\n0.40<\/td>\n%<\/td>\n\u00a0<\/td>\n0.15<\/td>\n%<\/td>\n<\/tr>\n
All others<\/td>\n\u00a0<\/td>\n0.19<\/td>\n%<\/td>\n0.17<\/td>\n%<\/td>\n\u00a0<\/td>\n0.24<\/td>\n%<\/td>\n\u00a0<\/td>\n0.17<\/td>\n%<\/td>\n<\/tr>\n
Total educational services<\/td>\n\u00a0<\/td>\n1.22<\/td>\n%<\/td>\n1.17<\/td>\n%<\/td>\n\u00a0<\/td>\n1.29<\/td>\n%<\/td>\n\u00a0<\/td>\n0.47<\/td>\n%<\/td>\n<\/tr>\n
Arts, entertainment, and recreation<\/td>\n\u00a0<\/td>\n1.34<\/td>\n%<\/td>\n1.27<\/td>\n%<\/td>\n\u00a0<\/td>\n1.26<\/td>\n%<\/td>\n\u00a0<\/td>\n1.09<\/td>\n%<\/td>\n<\/tr>\n
Purchased participations in micro loan portfolio<\/td>\n\u00a0<\/td>\n0.60<\/td>\n%<\/td>\n0.68<\/td>\n%<\/td>\n\u00a0<\/td>\n0.80<\/td>\n%<\/td>\n\u00a0<\/td>\n0.95<\/td>\n%<\/td>\n<\/tr>\n
Total higher risk sectors<\/td>\n\u00a0<\/td>\n16.41<\/td>\n%<\/td>\n16.29<\/td>\n%<\/td>\n\u00a0<\/td>\n16.48<\/td>\n%<\/td>\n\u00a0<\/td>\n13.90<\/td>\n%<\/td>\n<\/tr>\n<\/table>\n

The increase in higher risk sector loans in the last three quarters of 2020, compared to the first quarter of 2020, was primarily due to the addition of PPP loans during the second quarter of 2020.<\/p>\n

\n Capital and Liquidity<\/strong>\n <\/p>\n

The Company\u2019s and the Bank\u2019s consolidated capital ratios exceeded regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at December 31, 2020.<\/p>\n

Our liquidity position refers to our ability to maintain cash flows sufficient to fund operations, meet all of our obligations and commitments, and accommodate unexpected sudden changes in balances of loans and deposits in a timely manner.\u00a0At various times the Company requires funds to meet short term cash requirements brought about by loan growth or deposit outflows, the purchase of assets, or liability repayments. An integral part of the Company\u2019s ability to manage its liquidity position appropriately is the Company\u2019s large base of core deposits, which are generated by offering traditional banking services in its service area and which have historically been a stable source of funds. To manage liquidity needs properly, cash inflows must be timed to coincide with anticipated outflows or sufficient liquidity resources must be available to meet varying demands. At December 31, 2020, the Company had a strong liquidity position with $1.13 billion in cash and cash equivalents, and $781.6 million in available borrowing capacity from sources including the Federal Home Loan Bank (\u201cFHLB\u201d), the Federal Reserve Bank of San Francisco (\u201cFRB\u201d), Federal funds facilities with several financial institutions, and a line of credit with a correspondent bank. The Company also had $498.5 million (at fair market value) in unpledged securities available at December 31, 2020. The loan to deposit ratio was 66.91% at December 31, 2020, compared to 74.20% at December 31, 2019, and decreased from 69.32% at September 30, 2020.<\/p>\n

\n Fourth Quarter and Year Ended December 31, 2020 <\/strong>
\n
\n Operating Results, Balance Sheet Review, Capital Management, and Credit Quality<\/strong>
\n
(as of, or for the periods ended December 31, 2020, compared to December 31, 2019, and September 30, 2020, except as noted):<\/p>\n

\n Operating Results:<\/strong>\n <\/p>\n