10-Q 1 htbk-20220930x10q.htm 10-Q
http://www.heritagecommercecorp.com/20220930#ServiceChargesAndFeesOnDepositAccountsMemberhttp://www.heritagecommercecorp.com/20220930#ServiceChargesAndFeesOnDepositAccountsMemberhttp://www.heritagecommercecorp.com/20220930#ServiceChargesAndFeesOnDepositAccountsMember00000001053352--12-312022Q3falsehttp://fasb.org/us-gaap/2022#InterestReceivableAndOtherAssetshttp://fasb.org/us-gaap/2022#InterestReceivableAndOtherAssetshttp://fasb.org/us-gaap/2022#InterestReceivableAndOtherAssetshttp://www.heritagecommercecorp.com/20220930#AccruedInterestPayableAndOtherLiabilitieshttp://www.heritagecommercecorp.com/20220930#AccruedInterestPayableAndOtherLiabilitieshttp://www.heritagecommercecorp.com/20220930#AccruedInterestPayableAndOtherLiabilitieshttp://www.heritagecommercecorp.com/20220930#ServiceChargesAndFeesOnDepositAccountsMemberhttp://www.heritagecommercecorp.com/20220930#ServiceChargesAndFeesOnDepositAccountsMemberHERITAGE COMMERCE CORPYesYes6071679460339837http://www.heritagecommercecorp.com/20220930#ServiceChargesAndFeesOnDepositAccountsMemberhttp://www.heritagecommercecorp.com/20220930#ServiceChargesAndFeesOnDepositAccountsMemberhttp://www.heritagecommercecorp.com/20220930#ServiceChargesAndFeesOnDepositAccountsMember32943000http://fasb.org/us-gaap/2022#InterestReceivableAndOtherAssetshttp://www.heritagecommercecorp.com/20220930#AccruedInterestPayableAndOtherLiabilities0001053352us-gaap:RetainedEarningsMember2022-09-300001053352us-gaap:RetainedEarningsMember2022-06-300001053352us-gaap:RetainedEarningsMember2022-03-310001053352us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-03-3100010533522022-03-310001053352us-gaap:RetainedEarningsMember2021-12-310001053352us-gaap:RetainedEarningsMember2021-09-300001053352us-gaap:RetainedEarningsMember2021-06-300001053352us-gaap:RetainedEarningsMember2021-03-310001053352us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-3100010533522021-03-310001053352us-gaap:RetainedEarningsMember2020-12-310001053352us-gaap:CommonStockMember2022-09-300001053352us-gaap:CommonStockMember2022-06-300001053352us-gaap:CommonStockMember2022-03-310001053352us-gaap:CommonStockMember2021-12-310001053352us-gaap:CommonStockMember2021-09-300001053352us-gaap:CommonStockMember2021-06-300001053352us-gaap:CommonStockMember2021-03-310001053352us-gaap:CommonStockMember2020-12-310001053352htbk:NonqualifiedStockOptionsMember2022-01-012022-09-300001053352us-gaap:EmployeeStockOptionMember2021-12-310001053352htbk:EquityIncentivePlan2013Member2022-09-300001053352htbk:EquityIncentivePlan2013Member2020-05-210001053352htbk:EquityIncentivePlan2013Member2020-05-200001053352us-gaap:RestrictedStockMember2021-12-310001053352htbk:ServiceChargesAndFeesOnDepositAccountsMember2022-07-012022-09-300001053352htbk:ServiceChargesAndFeesOnDepositAccountsMember2022-01-012022-09-300001053352htbk:ServiceChargesAndFeesOnDepositAccountsMember2021-07-012021-09-300001053352htbk:ServiceChargesAndFeesOnDepositAccountsMember2021-01-012021-09-300001053352us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedOtherComprehensiveIncomeMember2022-07-012022-09-300001053352us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-09-300001053352us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedOtherComprehensiveIncomeMember2021-07-012021-09-300001053352us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-09-300001053352us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetTransitionAssetObligationMember2022-07-012022-09-300001053352us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetPriorServiceCostCreditMember2022-07-012022-09-300001053352us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-07-012022-09-300001053352us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetTransitionAssetObligationMember2022-01-012022-09-300001053352us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetPriorServiceCostCreditMember2022-01-012022-09-300001053352us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-01-012022-09-300001053352us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetTransitionAssetObligationMember2021-07-012021-09-300001053352us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetPriorServiceCostCreditMember2021-07-012021-09-300001053352us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-07-012021-09-300001053352us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetTransitionAssetObligationMember2021-01-012021-09-300001053352us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetPriorServiceCostCreditMember2021-01-012021-09-300001053352us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-01-012021-09-300001053352us-gaap:ResidentialMortgageMember2022-07-012022-09-300001053352htbk:MultiFamilyResidentialLoanMember2022-07-012022-09-300001053352htbk:LandAndConstructionFinancingReceivableMember2022-07-012022-09-300001053352htbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMember2022-07-012022-09-300001053352us-gaap:ResidentialMortgageMember2022-01-012022-09-300001053352htbk:MultiFamilyResidentialLoanMember2022-01-012022-09-300001053352htbk:LandAndConstructionFinancingReceivableMember2022-01-012022-09-300001053352htbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMember2022-01-012022-09-300001053352us-gaap:ResidentialMortgageMember2021-07-012021-09-300001053352htbk:MultiFamilyResidentialLoanMember2021-07-012021-09-300001053352htbk:LandAndConstructionFinancingReceivableMember2021-07-012021-09-300001053352htbk:ConsumerLoansAndOtherMember2021-07-012021-09-300001053352htbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMember2021-07-012021-09-300001053352us-gaap:ResidentialMortgageMember2021-01-012021-09-300001053352htbk:MultiFamilyResidentialLoanMember2021-01-012021-09-300001053352htbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMember2021-01-012021-09-300001053352us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-04-012022-06-300001053352us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-03-310001053352htbk:AccumulatedNetUnamortizedUnrealizedGainLossOnSecuritiesAvailableForSaleReclassifiedToSecuritiesHeldToMaturityMember2021-07-012021-09-300001053352us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-04-012021-06-300001053352htbk:AccumulatedNetUnamortizedUnrealizedGainLossOnSecuritiesAvailableForSaleReclassifiedToSecuritiesHeldToMaturityMember2021-01-012021-09-300001053352us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-310001053352us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-07-012022-09-300001053352us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2022-07-012022-09-300001053352us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-07-012022-09-300001053352us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-09-300001053352us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2022-01-012022-09-300001053352us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-01-012022-09-300001053352us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-07-012021-09-300001053352us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2021-07-012021-09-300001053352us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-07-012021-09-300001053352us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-09-300001053352us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2021-01-012021-09-300001053352us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-01-012021-09-300001053352us-gaap:UnlikelyToBeCollectedFinancingReceivableMember2022-09-300001053352us-gaap:UnlikelyToBeCollectedFinancingReceivableMember2021-12-310001053352us-gaap:ConsumerPortfolioSegmentMemberhtbk:ConsumerLoansAndOtherMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2022-09-300001053352us-gaap:ConsumerPortfolioSegmentMemberhtbk:ConsumerLoansAndOtherMemberus-gaap:FinancialAssetPastDueMember2022-09-300001053352us-gaap:ConsumerPortfolioSegmentMemberhtbk:ConsumerLoansAndOtherMemberus-gaap:FinancialAssetNotPastDueMember2022-09-300001053352us-gaap:CommercialPortfolioSegmentMemberhtbk:CommercialFinancingReceivableMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2022-09-300001053352us-gaap:CommercialPortfolioSegmentMemberhtbk:CommercialFinancingReceivableMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2022-09-300001053352us-gaap:CommercialPortfolioSegmentMemberhtbk:CommercialFinancingReceivableMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2022-09-300001053352us-gaap:CommercialPortfolioSegmentMemberhtbk:CommercialFinancingReceivableMemberus-gaap:FinancialAssetPastDueMember2022-09-300001053352us-gaap:CommercialPortfolioSegmentMemberhtbk:CommercialFinancingReceivableMemberus-gaap:FinancialAssetNotPastDueMember2022-09-300001053352htbk:RealEstatePortfolioSegmentMemberus-gaap:ResidentialMortgageMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2022-09-300001053352htbk:RealEstatePortfolioSegmentMemberus-gaap:ResidentialMortgageMemberus-gaap:FinancialAssetPastDueMember2022-09-300001053352htbk:RealEstatePortfolioSegmentMemberus-gaap:ResidentialMortgageMemberus-gaap:FinancialAssetNotPastDueMember2022-09-300001053352htbk:RealEstatePortfolioSegmentMemberus-gaap:HomeEquityMemberus-gaap:FinancialAssetNotPastDueMember2022-09-300001053352htbk:RealEstatePortfolioSegmentMemberhtbk:MultiFamilyResidentialLoanMemberus-gaap:FinancialAssetNotPastDueMember2022-09-300001053352htbk:RealEstatePortfolioSegmentMemberhtbk:LandAndConstructionFinancingReceivableMemberus-gaap:FinancialAssetNotPastDueMember2022-09-300001053352htbk:RealEstatePortfolioSegmentMemberhtbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMemberus-gaap:FinancialAssetNotPastDueMember2022-09-300001053352htbk:RealEstatePortfolioSegmentMemberhtbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2022-09-300001053352htbk:RealEstatePortfolioSegmentMemberhtbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMemberus-gaap:FinancialAssetPastDueMember2022-09-300001053352htbk:RealEstatePortfolioSegmentMemberhtbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMemberus-gaap:FinancialAssetNotPastDueMember2022-09-300001053352us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2022-09-300001053352us-gaap:FinancingReceivables60To89DaysPastDueMember2022-09-300001053352us-gaap:FinancingReceivables30To59DaysPastDueMember2022-09-300001053352us-gaap:FinancialAssetPastDueMember2022-09-300001053352us-gaap:FinancialAssetNotPastDueMember2022-09-300001053352us-gaap:ConsumerPortfolioSegmentMemberhtbk:ConsumerLoansAndOtherMemberus-gaap:FinancialAssetNotPastDueMember2021-12-310001053352us-gaap:CommercialPortfolioSegmentMemberhtbk:CommercialFinancingReceivableMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-12-310001053352us-gaap:CommercialPortfolioSegmentMemberhtbk:CommercialFinancingReceivableMemberus-gaap:FinancingReceivables60To89DaysPastDueMember2021-12-310001053352us-gaap:CommercialPortfolioSegmentMemberhtbk:CommercialFinancingReceivableMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2021-12-310001053352us-gaap:CommercialPortfolioSegmentMemberhtbk:CommercialFinancingReceivableMemberus-gaap:FinancialAssetPastDueMember2021-12-310001053352us-gaap:CommercialPortfolioSegmentMemberhtbk:CommercialFinancingReceivableMemberus-gaap:FinancialAssetNotPastDueMember2021-12-310001053352htbk:RealEstatePortfolioSegmentMemberus-gaap:ResidentialMortgageMemberus-gaap:FinancingReceivables30To59DaysPastDueMember2021-12-310001053352htbk:RealEstatePortfolioSegmentMemberus-gaap:ResidentialMortgageMemberus-gaap:FinancialAssetPastDueMember2021-12-310001053352htbk:RealEstatePortfolioSegmentMemberus-gaap:ResidentialMortgageMemberus-gaap:FinancialAssetNotPastDueMember2021-12-310001053352htbk:RealEstatePortfolioSegmentMemberus-gaap:HomeEquityMemberus-gaap:FinancialAssetNotPastDueMember2021-12-310001053352htbk:RealEstatePortfolioSegmentMemberhtbk:MultiFamilyResidentialLoanMemberus-gaap:FinancialAssetNotPastDueMember2021-12-310001053352htbk:RealEstatePortfolioSegmentMemberhtbk:LandAndConstructionFinancingReceivableMemberus-gaap:FinancialAssetNotPastDueMember2021-12-310001053352htbk:RealEstatePortfolioSegmentMemberhtbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-12-310001053352htbk:RealEstatePortfolioSegmentMemberhtbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMemberus-gaap:FinancialAssetPastDueMember2021-12-310001053352htbk:RealEstatePortfolioSegmentMemberhtbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMemberus-gaap:FinancialAssetNotPastDueMember2021-12-310001053352htbk:RealEstatePortfolioSegmentMemberhtbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMemberus-gaap:FinancialAssetNotPastDueMember2021-12-310001053352us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2021-12-310001053352us-gaap:FinancingReceivables60To89DaysPastDueMember2021-12-310001053352us-gaap:FinancingReceivables30To59DaysPastDueMember2021-12-310001053352us-gaap:FinancialAssetPastDueMember2021-12-310001053352us-gaap:FinancialAssetNotPastDueMember2021-12-3100010533522021-10-262021-10-260001053352us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberhtbk:AccumulatedNetUnamortizedUnrealizedGainLossOnSecuritiesAvailableForSaleReclassifiedToSecuritiesHeldToMaturityMember2021-07-012021-09-300001053352us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberhtbk:AccumulatedNetUnamortizedUnrealizedGainLossOnSecuritiesAvailableForSaleReclassifiedToSecuritiesHeldToMaturityMember2021-01-012021-09-300001053352htbk:UnitedAmericanBankMember2022-01-012022-09-300001053352htbk:TriValleyBankMember2022-01-012022-09-300001053352htbk:PresidioBankMember2022-01-012022-09-300001053352htbk:FocusBusinessBankMember2022-01-012022-09-300001053352htbk:BvfCsnkAcquisitionCorpMember2022-01-012022-09-300001053352htbk:FactoringSegmentMember2021-12-310001053352htbk:BankingSegmentMember2021-12-310001053352us-gaap:LeasesAcquiredInPlaceMarketAdjustmentMember2022-09-300001053352us-gaap:CoreDepositsMember2022-09-300001053352htbk:CustomerRelationshipsAndBrokeredRelationshipsMember2022-09-300001053352us-gaap:LeasesAcquiredInPlaceMarketAdjustmentMember2021-12-310001053352us-gaap:CoreDepositsMember2021-12-310001053352htbk:CustomerRelationshipsAndBrokeredRelationshipsMember2021-12-310001053352us-gaap:FinancingReceivables1To29DaysPastDueMember2022-09-300001053352htbk:FinancingReceivablesEqualToGreaterThan30DaysPastDueMember2022-09-300001053352us-gaap:FinancingReceivables1To29DaysPastDueMember2021-12-310001053352htbk:FinancingReceivablesEqualToGreaterThan30DaysPastDueMember2021-12-310001053352us-gaap:ResidentialMortgageMemberus-gaap:SubstandardMember2022-09-300001053352us-gaap:ResidentialMortgageMemberus-gaap:SpecialMentionMember2022-09-300001053352us-gaap:ResidentialMortgageMemberus-gaap:PassMember2022-09-300001053352us-gaap:HomeEquityMemberus-gaap:SubstandardMember2022-09-300001053352us-gaap:HomeEquityMemberus-gaap:SpecialMentionMember2022-09-300001053352us-gaap:HomeEquityMemberus-gaap:PassMember2022-09-300001053352us-gaap:ConsumerPortfolioSegmentMemberhtbk:ConsumerLoansAndOtherMember2022-09-300001053352us-gaap:CommercialPortfolioSegmentMemberhtbk:CommercialLoansExcludingSbaPaycheckProtectionProgramMember2022-09-300001053352us-gaap:CommercialPortfolioSegmentMemberhtbk:CommercialFinancingReceivableMember2022-09-300001053352htbk:RiskGradesMemberus-gaap:SubstandardMember2022-09-300001053352htbk:RiskGradesMemberus-gaap:SpecialMentionMember2022-09-300001053352htbk:RiskGradesMemberus-gaap:PassMember2022-09-300001053352htbk:RiskGradesMemberhtbk:SubstandardNonaccrualMember2022-09-300001053352htbk:RealEstatePortfolioSegmentMemberus-gaap:ResidentialMortgageMember2022-09-300001053352htbk:RealEstatePortfolioSegmentMemberhtbk:MultiFamilyResidentialLoanMember2022-09-300001053352htbk:RealEstatePortfolioSegmentMemberhtbk:LandAndConstructionFinancingReceivableMember2022-09-300001053352htbk:RealEstatePortfolioSegmentMemberhtbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMember2022-09-300001053352htbk:RealEstatePortfolioSegmentMemberhtbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMember2022-09-300001053352htbk:MultiFamilyResidentialLoanMemberus-gaap:PassMember2022-09-300001053352htbk:LandAndConstructionFinancingReceivableMemberus-gaap:PassMember2022-09-300001053352htbk:ConsumerLoansAndOtherMemberus-gaap:SpecialMentionMember2022-09-300001053352htbk:ConsumerLoansAndOtherMemberus-gaap:PassMember2022-09-300001053352htbk:CommercialFinancingReceivableMemberus-gaap:SubstandardMember2022-09-300001053352htbk:CommercialFinancingReceivableMemberus-gaap:SpecialMentionMember2022-09-300001053352htbk:CommercialFinancingReceivableMemberus-gaap:PassMember2022-09-300001053352htbk:CommercialFinancingReceivableMemberhtbk:SubstandardNonaccrualMember2022-09-300001053352htbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMemberus-gaap:SubstandardMember2022-09-300001053352htbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMemberus-gaap:SpecialMentionMember2022-09-300001053352htbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMemberus-gaap:PassMember2022-09-300001053352htbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMemberus-gaap:SubstandardMember2022-09-300001053352htbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMemberus-gaap:PassMember2022-09-300001053352htbk:RiskGradesMember2022-09-300001053352us-gaap:ResidentialMortgageMemberus-gaap:SpecialMentionMember2021-12-310001053352us-gaap:ResidentialMortgageMemberus-gaap:PassMember2021-12-310001053352us-gaap:HomeEquityMemberus-gaap:SubstandardMember2021-12-310001053352us-gaap:HomeEquityMemberus-gaap:SpecialMentionMember2021-12-310001053352us-gaap:HomeEquityMemberus-gaap:PassMember2021-12-310001053352us-gaap:HomeEquityMemberhtbk:SubstandardNonaccrualMember2021-12-310001053352us-gaap:ConsumerPortfolioSegmentMemberhtbk:ConsumerLoansAndOtherMember2021-12-310001053352us-gaap:CommercialPortfolioSegmentMemberhtbk:CommercialLoansExcludingSbaPaycheckProtectionProgramMember2021-12-310001053352us-gaap:CommercialPortfolioSegmentMemberhtbk:CommercialFinancingReceivableMember2021-12-310001053352htbk:RiskGradesMemberus-gaap:SubstandardMember2021-12-310001053352htbk:RiskGradesMemberus-gaap:SpecialMentionMember2021-12-310001053352htbk:RiskGradesMemberus-gaap:PassMember2021-12-310001053352htbk:RiskGradesMemberhtbk:SubstandardNonaccrualMember2021-12-310001053352htbk:RealEstatePortfolioSegmentMemberus-gaap:ResidentialMortgageMember2021-12-310001053352htbk:RealEstatePortfolioSegmentMemberhtbk:LandAndConstructionFinancingReceivableMember2021-12-310001053352htbk:RealEstatePortfolioSegmentMemberhtbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMember2021-12-310001053352htbk:MultiFamilyResidentialLoanMemberus-gaap:SpecialMentionMember2021-12-310001053352htbk:MultiFamilyResidentialLoanMemberus-gaap:PassMember2021-12-310001053352htbk:MultiFamilyResidentialLoanMemberhtbk:SubstandardNonaccrualMember2021-12-310001053352htbk:LandAndConstructionFinancingReceivableMemberus-gaap:SpecialMentionMember2021-12-310001053352htbk:LandAndConstructionFinancingReceivableMemberus-gaap:PassMember2021-12-310001053352htbk:ConsumerLoansAndOtherMemberus-gaap:SubstandardMember2021-12-310001053352htbk:ConsumerLoansAndOtherMemberus-gaap:PassMember2021-12-310001053352htbk:CommercialFinancingReceivableMemberus-gaap:SubstandardMember2021-12-310001053352htbk:CommercialFinancingReceivableMemberus-gaap:SpecialMentionMember2021-12-310001053352htbk:CommercialFinancingReceivableMemberus-gaap:PassMember2021-12-310001053352htbk:CommercialFinancingReceivableMemberhtbk:SubstandardNonaccrualMember2021-12-310001053352htbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMemberus-gaap:SubstandardMember2021-12-310001053352htbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMemberus-gaap:SpecialMentionMember2021-12-310001053352htbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMemberus-gaap:PassMember2021-12-310001053352htbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMemberhtbk:SubstandardNonaccrualMember2021-12-310001053352htbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMemberus-gaap:SubstandardMember2021-12-310001053352htbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMemberus-gaap:SpecialMentionMember2021-12-310001053352htbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMemberus-gaap:PassMember2021-12-310001053352htbk:RiskGradesMember2021-12-310001053352us-gaap:HomeEquityMember2022-07-012022-09-300001053352htbk:ConsumerLoansAndOtherMember2022-07-012022-09-300001053352htbk:CommercialFinancingReceivableMember2022-07-012022-09-300001053352htbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMember2022-07-012022-09-300001053352us-gaap:HomeEquityMember2022-01-012022-09-300001053352htbk:ConsumerLoansAndOtherMember2022-01-012022-09-300001053352htbk:CommercialFinancingReceivableMember2022-01-012022-09-300001053352htbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMember2022-01-012022-09-300001053352us-gaap:HomeEquityMember2021-07-012021-09-300001053352htbk:CommercialFinancingReceivableMember2021-07-012021-09-300001053352htbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMember2021-07-012021-09-300001053352us-gaap:HomeEquityMember2021-01-012021-09-300001053352htbk:LandAndConstructionFinancingReceivableMember2021-01-012021-09-300001053352htbk:ConsumerLoansAndOtherMember2021-01-012021-09-300001053352htbk:CommercialFinancingReceivableMember2021-01-012021-09-300001053352htbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMember2021-01-012021-09-300001053352us-gaap:CommercialPortfolioSegmentMemberus-gaap:LoansInsuredOrGuaranteedByUsGovernmentAuthoritiesMember2022-09-300001053352us-gaap:ResidentialMortgageMember2022-09-300001053352us-gaap:HomeEquityMember2022-09-300001053352htbk:MultiFamilyResidentialLoanMember2022-09-300001053352htbk:LandAndConstructionFinancingReceivableMember2022-09-300001053352htbk:ConsumerLoansAndOtherMember2022-09-300001053352htbk:CommercialFinancingReceivableMember2022-09-300001053352htbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMember2022-09-300001053352htbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMember2022-09-300001053352us-gaap:ResidentialMortgageMember2022-06-300001053352us-gaap:HomeEquityMember2022-06-300001053352htbk:MultiFamilyResidentialLoanMember2022-06-300001053352htbk:LandAndConstructionFinancingReceivableMember2022-06-300001053352htbk:ConsumerLoansAndOtherMember2022-06-300001053352htbk:CommercialFinancingReceivableMember2022-06-300001053352htbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMember2022-06-300001053352htbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMember2022-06-3000010533522022-06-300001053352us-gaap:CommercialPortfolioSegmentMemberus-gaap:LoansInsuredOrGuaranteedByUsGovernmentAuthoritiesMember2021-12-310001053352us-gaap:ResidentialMortgageMember2021-12-310001053352us-gaap:HomeEquityMember2021-12-310001053352htbk:MultiFamilyResidentialLoanMember2021-12-310001053352htbk:LandAndConstructionFinancingReceivableMember2021-12-310001053352htbk:ConsumerLoansAndOtherMember2021-12-310001053352htbk:CommercialFinancingReceivableMember2021-12-310001053352htbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMember2021-12-310001053352htbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMember2021-12-310001053352us-gaap:ResidentialMortgageMember2021-09-300001053352us-gaap:HomeEquityMember2021-09-300001053352htbk:MultiFamilyResidentialLoanMember2021-09-300001053352htbk:LandAndConstructionFinancingReceivableMember2021-09-300001053352htbk:ConsumerLoansAndOtherMember2021-09-300001053352htbk:CommercialFinancingReceivableMember2021-09-300001053352htbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMember2021-09-300001053352htbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMember2021-09-300001053352us-gaap:ResidentialMortgageMember2021-06-300001053352us-gaap:HomeEquityMember2021-06-300001053352htbk:MultiFamilyResidentialLoanMember2021-06-300001053352htbk:LandAndConstructionFinancingReceivableMember2021-06-300001053352htbk:ConsumerLoansAndOtherMember2021-06-300001053352htbk:CommercialFinancingReceivableMember2021-06-300001053352htbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMember2021-06-300001053352htbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMember2021-06-3000010533522021-06-300001053352us-gaap:ResidentialMortgageMember2020-12-310001053352us-gaap:HomeEquityMember2020-12-310001053352htbk:MultiFamilyResidentialLoanMember2020-12-310001053352htbk:LandAndConstructionFinancingReceivableMember2020-12-310001053352htbk:ConsumerLoansAndOtherMember2020-12-310001053352htbk:CommercialFinancingReceivableMember2020-12-310001053352htbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMember2020-12-310001053352htbk:CommercialAndResidentialWithNonOwnerOccupiedFinancingReceivableMember2020-12-310001053352us-gaap:EmployeeStockOptionMember2021-01-012021-09-300001053352us-gaap:RestrictedStockMember2022-09-300001053352us-gaap:EmployeeStockOptionMember2022-09-300001053352us-gaap:RestrictedStockMember2022-01-012022-09-300001053352us-gaap:RetainedEarningsMember2022-07-012022-09-300001053352us-gaap:RetainedEarningsMember2022-04-012022-06-300001053352us-gaap:RetainedEarningsMember2022-01-012022-03-310001053352us-gaap:RetainedEarningsMember2021-07-012021-09-300001053352us-gaap:RetainedEarningsMember2021-04-012021-06-300001053352us-gaap:RetainedEarningsMember2021-01-012021-03-310001053352srt:SubsidiariesMember2022-07-012022-09-300001053352srt:SubsidiariesMember2022-04-012022-06-300001053352srt:SubsidiariesMember2022-01-012022-03-310001053352us-gaap:DefinedBenefitPostretirementLifeInsuranceMember2020-12-310001053352us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember2022-09-300001053352us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember2022-07-012022-09-300001053352us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember2022-01-012022-09-300001053352us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember2021-07-012021-09-300001053352us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember2021-01-012021-09-300001053352us-gaap:DefinedBenefitPostretirementLifeInsuranceMember2021-01-012021-12-310001053352htbk:SubordinatedDebtDueOn2032Member2022-09-300001053352us-gaap:NontaxableMunicipalBondsMember2021-12-310001053352htbk:SubOrdinatedDebtDueOn2027Member2017-05-262017-05-260001053352htbk:SubOrdinatedDebtDueOn2027Member2022-06-010001053352htbk:SubordinatedDebtDueOn2032Member2022-05-110001053352htbk:SubOrdinatedDebtDueOn2027Member2022-05-110001053352htbk:SubOrdinatedDebtDueOn2027Member2017-05-260001053352us-gaap:SubsequentEventMember2022-10-272022-10-2700010533522020-12-310001053352us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2021-12-310001053352us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2022-09-300001053352us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2022-09-300001053352us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember2022-09-300001053352us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2022-09-300001053352us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2021-12-310001053352us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2021-12-310001053352us-gaap:USTreasurySecuritiesMember2022-09-300001053352htbk:FactoringSegmentMember2022-09-300001053352htbk:BankingSegmentMember2022-09-300001053352htbk:FactoringSegmentMember2021-09-300001053352htbk:BankingSegmentMember2021-09-3000010533522021-09-300001053352us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-09-300001053352us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2022-09-300001053352us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-09-300001053352us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-06-300001053352us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2022-06-300001053352us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-06-300001053352us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-310001053352us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2021-12-310001053352us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-12-310001053352us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-09-300001053352us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2021-09-300001053352us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-09-300001053352htbk:AccumulatedNetUnamortizedUnrealizedGainLossOnSecuritiesAvailableForSaleReclassifiedToSecuritiesHeldToMaturityMember2021-09-300001053352us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-06-300001053352us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2021-06-300001053352us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-06-300001053352htbk:AccumulatedNetUnamortizedUnrealizedGainLossOnSecuritiesAvailableForSaleReclassifiedToSecuritiesHeldToMaturityMember2021-06-300001053352us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001053352us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2020-12-310001053352us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2020-12-310001053352htbk:AccumulatedNetUnamortizedUnrealizedGainLossOnSecuritiesAvailableForSaleReclassifiedToSecuritiesHeldToMaturityMember2020-12-310001053352us-gaap:DefinedBenefitPostretirementLifeInsuranceMember2022-09-300001053352us-gaap:DefinedBenefitPostretirementLifeInsuranceMember2021-12-310001053352us-gaap:EmployeeStockOptionMember2022-01-012022-09-300001053352htbk:Year2024Member2022-01-012022-09-300001053352htbk:Year2023Member2022-01-012022-09-300001053352htbk:Year2022Member2022-01-012022-09-3000010533522021-10-310001053352htbk:FactoringSegmentMember2022-07-012022-09-300001053352htbk:BankingSegmentMember2022-07-012022-09-300001053352htbk:FactoringSegmentMember2022-01-012022-09-300001053352htbk:BankingSegmentMember2022-01-012022-09-300001053352htbk:FactoringSegmentMember2021-07-012021-09-300001053352htbk:BankingSegmentMember2021-07-012021-09-300001053352htbk:FactoringSegmentMember2021-01-012021-09-300001053352htbk:BankingSegmentMember2021-01-012021-09-300001053352us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-09-300001053352us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2021-12-310001053352htbk:RealEstatePortfolioSegmentMemberus-gaap:HomeEquityMember2022-09-300001053352htbk:RealEstatePortfolioSegmentMemberus-gaap:HomeEquityMember2021-12-310001053352htbk:RealEstatePortfolioSegmentMemberhtbk:MultiFamilyResidentialLoanMember2021-12-310001053352htbk:RealEstatePortfolioSegmentMemberhtbk:CommercialAndResidentialWithOwnerOccupiedFinancingReceivableMember2021-12-310001053352us-gaap:CommercialPortfolioSegmentMember2022-09-300001053352us-gaap:CommercialPortfolioSegmentMember2021-12-310001053352us-gaap:FairValueMeasurementsRecurringMember2022-09-300001053352us-gaap:FairValueMeasurementsRecurringMember2021-12-310001053352us-gaap:StandbyLettersOfCreditMember2022-09-300001053352htbk:UnusedLinesOfCreditAndCommitmentsToExtendCreditMember2022-09-300001053352us-gaap:StandbyLettersOfCreditMember2021-12-310001053352htbk:UnusedLinesOfCreditAndCommitmentsToExtendCreditMember2021-12-310001053352us-gaap:NontaxableMunicipalBondsMember2022-09-300001053352us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2022-09-300001053352us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember2021-12-310001053352srt:SubsidiariesMember2021-12-310001053352htbk:LowIncomeHousingInvestmentsMember2022-09-300001053352htbk:BusinessAssetsMember2022-09-300001053352htbk:BusinessAssetsMember2021-12-310001053352srt:SubsidiariesMember2022-09-300001053352srt:SubsidiariesMember2022-01-012022-09-300001053352srt:SubsidiariesMember2021-01-012021-12-3100010533522021-01-012021-12-3100010533522021-01-012021-09-300001053352us-gaap:CommonStockMember2022-07-012022-09-3000010533522022-07-012022-09-300001053352us-gaap:CommonStockMember2022-04-012022-06-3000010533522022-04-012022-06-300001053352us-gaap:CommonStockMember2022-01-012022-03-3100010533522022-01-012022-03-310001053352us-gaap:CommonStockMember2021-07-012021-09-3000010533522021-07-012021-09-300001053352us-gaap:CommonStockMember2021-04-012021-06-3000010533522021-04-012021-06-300001053352us-gaap:CommonStockMember2021-01-012021-03-3100010533522021-01-012021-03-310001053352us-gaap:DefinedBenefitPostretirementLifeInsuranceMember2022-07-012022-09-300001053352us-gaap:DefinedBenefitPostretirementLifeInsuranceMember2022-01-012022-09-300001053352us-gaap:DefinedBenefitPostretirementLifeInsuranceMember2021-07-012021-09-300001053352us-gaap:DefinedBenefitPostretirementLifeInsuranceMember2021-01-012021-09-3000010533522020-03-272020-03-270001053352us-gaap:FairValueInputsLevel3Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2022-09-300001053352us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2022-09-300001053352us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2022-09-300001053352us-gaap:EstimateOfFairValueFairValueDisclosureMember2022-09-300001053352us-gaap:CarryingReportedAmountFairValueDisclosureMember2022-09-300001053352us-gaap:FairValueInputsLevel3Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2021-12-310001053352us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2021-12-310001053352us-gaap:EstimateOfFairValueFairValueDisclosureMember2021-12-310001053352us-gaap:CarryingReportedAmountFairValueDisclosureMember2021-12-3100010533522022-09-3000010533522021-12-3100010533522022-10-3100010533522022-01-012022-09-30xbrli:sharesiso4217:USDhtbk:itemxbrli:purehtbk:securityiso4217:USDxbrli:shareshtbk:loanhtbk:segment

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, 2022

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 Jurisdiction of
Incorporation or Organization)

77-0469558
(I.R.S. Employer Identification No.)

224 Airport Parkway, San Jose, California
(Address of Principal Executive Offices)

95110
(Zip Code)

(408947-6900

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbol:

    

Name of each exchange on which registered:

Common Stock, No Par Value

HTBK

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES  NO 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES  NO 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES   NO 

The Registrant had 60,718,994 shares of Common Stock outstanding on October 31, 2022.

HERITAGE COMMERCE CORP

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

    

Page No.

Cautionary Note on Forward-Looking Statements

3

Part I. FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements (unaudited)

5

Consolidated Balance Sheets

5

Consolidated Statements of Income

6

Consolidated Statements of Comprehensive Income

7

Consolidated Statements of Changes in Shareholders’ Equity

8

Consolidated Statements of Cash Flows

10

Notes to Unaudited Consolidated Financial Statements

11

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

43

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

74

Item 4.

Controls and Procedures

74

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

75

Item 1A.

Risk Factors

75

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

75

Item 3.

Defaults Upon Senior Securities

75

Item 4.

Mine Safety Disclosures

75

Item 5.

Other Information

75

Item 6.

Exhibits

76

SIGNATURES

77

2

Cautionary Note Regarding Forward-Looking Statements

This Report on Form 10-Q contains various statements that may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, Rule 3b-6 promulgated thereunder and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These forward-looking statements often can be, but are not always, identified by the use of words such as “assume,” “expect,” “intend,” “plan,” “project,” “believe,” “estimate,” “predict,” “anticipate,” “may,” “might,” “should,” “could,” “goal,” “potential” and similar expressions. We base these forward-looking statements on our current expectations and projections about future events, our assumptions regarding these events and our knowledge of facts at the time the statements are made. These statements include statements relating to our projected growth, anticipated future financial performance, and management’s long-term performance goals, as well as statements relating to the anticipated effects on results of operations and financial condition.

These forward-looking statements are subject to various risks and uncertainties that may be outside our control and our actual results could differ materially from our projected results. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission (“SEC”), Item 1A of the Heritage Commerce Corp’s (“the Company”) Annual Report on Form 10-K for the year ended December 31, 2021, and including, but not limited to the following:

geopolitical and domestic political developments that can increase levels of political and economic unpredictability, contribute to rising energy and commodity prices, and increase the volatility of financial markets;
current and future economic and market conditions in the United States generally or in the communities we serve, including the effects of declines in property values and overall slowdowns in economic growth should these events occur;
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;
inflationary pressures and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make;
changes in the level of nonperforming assets and charge offs and other credit quality measures, and their impact on the adequacy of our allowance for credit losses and our provision for credit losses;
volatility in credit and equity markets and its effect on the global economy;
conditions relating to the impact of the COVID-19 pandemic, and other infectious illness outbreaks that may arise in the future, our customers, employees, businesses, liquidity, financial results and overall condition including severity and duration of the associated uncertainties in U.S. and global markets;
our ability to effectively compete with other banks and financial services companies and the effects of competition in the financial services industry on our business;
our ability to achieve loan growth and attract deposits in our market area, the impact of the cost of deposits and our ability to retain deposits;
risks associated with concentrations in real estate related loans;
the relative strength or weakness of the commercial and real estate markets where our borrowers are located, including related asset and market prices;

3

credit related impairment charges to our securities portfolio;
increased capital requirements for our continual growth or as imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all;
regulatory limits on Heritage Bank of Commerce’s ability to pay dividends to the Company;
operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to industry changes in information technology systems, on which we are highly dependent;
our inability to attract, recruit, and retain qualified officers and other personnel could harm our ability to implement our strategic plan, impair our relationships with customers and adversely affect our business, results of operations and growth prospects;
possible adjustment of the valuation of our deferred tax assets;
our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks such as data security breaches, “denial of service” attacks, “hacking” and identity theft;
inability of our framework to manage risks associated with our business, including operational risk and credit risk;
risks of loss of funding of Small Business Administration (“SBA”) or SBA loan programs, or changes in those programs;
compliance with applicable laws and governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities, accounting and tax matters;
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;
the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise;
availability of and competition for acquisition opportunities;
risks resulting from domestic terrorism;
risks resulting from social unrest and protests;
risks of natural disasters (including earthquakes, fires, and flooding) and other events beyond our control;
our success in managing the risks involved in the foregoing factors.

Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events. You should consider any forward looking statements in light of this explanation, and we caution you about relying on forward-looking statements.

4

Part I—FINANCIAL INFORMATION

ITEM 1—CONSOLIDATED FINANCIAL STATEMENTS

HERITAGE COMMERCE CORP

CONSOLIDATED BALANCE SHEETS

(Unaudited)

September 30, 

December 31, 

    

2022

    

2021

(Dollars in thousands)

Assets

Cash and due from banks

$

40,500

$

15,703

Other investments and interest-bearing deposits in other financial institutions

 

641,251

 

1,290,513

Total cash and cash equivalents

 

681,751

 

1,306,216

Securities available-for-sale, at fair value

 

478,534

 

102,252

Securities held-to-maturity, at amortized cost, net of allowance for credit losses of $15 at September 30, 2022

and $43 at December 31, 2021 (fair value of $593,610 at September 30, 2022 and $657,649 at December 31, 2021)

703,794

 

658,397

Loans held-for-sale - SBA, at lower of cost or fair value, including deferred costs

 

2,081

 

2,367

Loans, net of deferred fees

 

3,216,473

 

3,087,326

Allowance for credit losses on loans

 

(46,921)

 

(43,290)

Loans, net

 

3,169,552

 

3,044,036

Federal Home Loan Bank, Federal Reserve Bank stock and other investments, at cost

 

32,517

 

32,504

Company-owned life insurance

 

78,456

 

77,589

Premises and equipment, net

 

9,428

 

9,639

Goodwill

167,631

167,631

Other intangible assets

 

11,692

 

13,668

Accrued interest receivable and other assets

 

95,826

 

85,110

Total assets

$

5,431,262

$

5,499,409

Liabilities and Shareholders' Equity

Liabilities:

Deposits:

Demand, noninterest-bearing

$

1,883,574

$

1,903,768

Demand, interest-bearing

 

1,154,403

 

1,308,114

Savings and money market

 

1,487,400

 

1,375,825

Time deposits - under $250

 

34,728

 

38,734

Time deposits - $250 and over

 

93,263

 

94,700

CDARS - interest-bearing demand, money market and time deposits

 

29,897

 

38,271

Total deposits

 

4,683,265

 

4,759,412

Subordinated debt, net of issuance costs

39,312

39,925

Accrued interest payable and other liabilities

 

99,168

 

102,044

Total liabilities

 

4,821,745

 

4,901,381

Shareholders' equity:

Preferred stock, no par value; 10,000,000 shares authorized; none issued and outstanding

at September 30, 2022 and December 31, 2021

Common stock, no par value; 100,000,000 shares authorized;

60,716,794 shares issued and outstanding at September 30, 2022 and

60,339,837 shares issued and outstanding at December 31, 2021

 

501,240

 

497,695

Retained earnings

 

133,489

 

111,329

Accumulated other comprehensive loss

 

(25,212)

 

(10,996)

Total shareholders' equity

 

609,517

 

598,028

Total liabilities and shareholders' equity

$

5,431,262

$

5,499,409

See notes to consolidated financial statements (unaudited).

5

HERITAGE COMMERCE CORP

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

2022

    

2021

(Dollars in thousands, except per share amounts)

Interest income:

Loans, including fees

$

38,870

$

36,207

$

110,509

$

103,482

Securities, taxable

 

5,874

 

2,320

 

13,725

 

5,992

Securities, exempt from Federal tax

 

260

 

382

 

828

 

1,215

Other investments, interest-bearing deposits

in other financial institutions and Federal funds sold

 

5,170

 

998

 

8,574

 

2,611

Total interest income

 

50,174

 

39,907

 

133,636

 

113,300

Interest expense:

Deposits

 

1,595

1,141

 

3,855

3,552

Subordinated debt

 

538

584

 

1,640

1,732

Total interest expense

 

2,133

 

1,725

 

5,495

 

5,284

Net interest income before provision for credit losses on loans

 

48,041

38,182

 

128,141

108,016

Provision for (recapture of) credit losses on loans

 

1,006

(514)

 

258

(2,519)

Net interest income after provision for credit losses on loans

 

47,035

 

38,696

 

127,883

 

110,535

Noninterest income:

Service charges and fees on deposit accounts

 

1,360

 

584

2,839

 

1,844

Increase in cash surrender value of life insurance

 

484

 

470

 

1,444

 

1,384

Gain on sales of SBA loans

 

308

 

594

 

491

 

1,227

Servicing income

 

125

 

129

 

370

 

415

Gain on warrants

32

13

669

11

Termination fees

 

16

32

61

179

Gain on proceeds from company-owned life insurance

109

27

571

Other

 

456

 

477

 

1,438

 

1,247

Total noninterest income

 

2,781

 

2,408

 

7,339

 

6,878

Noninterest expense:

Salaries and employee benefits

 

14,119

 

12,461

 

41,416

 

38,991

Occupancy and equipment

 

2,415

 

2,151

 

7,129

 

6,672

Professional fees

 

1,230

 

1,211

 

3,601

 

4,701

Other

 

6,135

 

6,008

 

18,195

 

20,486

Total noninterest expense

 

23,899

 

21,831

 

70,341

 

70,850

Income before income taxes

 

25,917

 

19,273

 

64,881

 

46,563

Income tax expense

 

7,848

 

5,555

 

19,125

 

12,828

Net income

$

18,069

$

13,718

$

45,756

$

33,735

Earnings per common share:

Basic

$

0.30

$

0.23

$

0.76

$

0.56

Diluted

$

0.30

$

0.23

$

0.75

$

0.56

See notes to consolidated financial statements (unaudited).

6

HERITAGE COMMERCE CORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

 

(Dollars in thousands)

Net income

$

18,069

$

13,718

$

45,756

$

33,735

Other comprehensive income (loss):

Change in net unrealized holding (losses) gains on available-for-sale

securities and I/O strips

 

(13,188)

 

(366)

 

(20,317)

 

(1,855)

Deferred income taxes

 

3,824

 

107

 

5,891

 

540

Change in net unamortized unrealized gain on securities available-for-

sale that were reclassified to securities held-to-maturity

 

 

(13)

 

 

(39)

Deferred income taxes

 

 

4

 

 

12

Change in unrealized (losses) gains on securities and I/O strips, net of

deferred income taxes

 

(9,364)

 

(268)

 

(14,426)

 

(1,342)

Change in net pension and other benefit plan liability adjustment

 

104

 

132

 

311

 

504

Deferred income taxes

 

(34)

 

(38)

 

(101)

 

(151)

Change in pension and other benefit plan liability, net of

deferred income taxes

 

70

 

94

 

210

 

353

Other comprehensive (loss)

 

(9,294)

 

(174)

 

(14,216)

 

(989)

Total comprehensive income

$

8,775

$

13,544

$

31,540

$

32,746

See notes to consolidated financial statements (unaudited).

7

HERITAGE COMMERCE CORP

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

Accumulated

Other

Total

Common Stock

Retained

Comprehensive

Shareholders’

Shares

    

Amount

    

Earnings

    

Loss

    

Equity

(Dollars in thousands, except per share amounts)

Balance, January 1, 2021

59,917,457

$

493,707

$

94,899

$

(10,717)

$

577,889

Net income

11,204

11,204

Other comprehensive loss

(551)

(551)

Issuance (forfeitures) of restricted stock awards, net

(34,358)

Amortization of restricted stock awards,

net of forfeitures and taxes

458

458

Cash dividend declared $0.13 per share

(7,789)

(7,789)

Stock option expense, net of forfeitures and taxes

132

132

Stock options exercised

49,235

320

320

Balance March 31, 2021

59,932,334

494,617

98,314

(11,268)

581,663

Net income

8,813

8,813

Other comprehensive loss

(264)

(264)

Issuance of restricted stock awards, net

187,325

Amortization of restricted stock awards,

net of forfeitures and taxes

438

438

Cash dividend declared $0.13 per share

(7,816)

(7,816)

Stock option expense, net of forfeitures and taxes

146

146

Stock options exercised

83,107

464

464

Balance, June 30, 2021

60,202,766

495,665

99,311

(11,532)

583,444

Net income

13,718

13,718

Other comprehensive loss

(174)

(174)

Amortization of restricted stock awards,

net of forfeitures and taxes

522

522

Cash dividend declared $0.13 per share

(7,827)

(7,827)

Stock option expense, net of forfeitures and taxes

150

150

Stock options exercised

63,550

285

285

Balance, September 30, 2021

60,266,316

$

496,622

$

91,484

$

(11,706)

$

590,118

8

Accumulated

Other

Total

Common Stock

Retained

Comprehensive

Shareholders’

Shares

    

Amount

    

Earnings

    

Loss

    

Equity

(Dollars in thousands, except per share amounts)

Balance, January 1, 2022

60,339,837

$

497,695

$

111,329

$

(10,996)

$

598,028

Net income

12,866

12,866

Other comprehensive loss

(3,058)

(3,058)

Amortization of restricted stock awards,

net of forfeitures and taxes

518

518

Cash dividend declared $0.13 per share

(7,848)

(7,848)

Stock option expense, net of forfeitures and taxes

149

149

Stock options exercised

68,009

401

401

Balance March 31, 2022

60,407,846

498,763

116,347

(14,054)

601,056

Net income

14,821

14,821

Other comprehensive loss

(1,864)

(1,864)

Issuance of restricted stock awards, net

189,305

Amortization of restricted stock awards,

net of forfeitures and taxes

477

477

Cash dividend declared $0.13 per share

(7,858)