Heritage Commerce Corp Reports Third Quarter and First Nine Months of 2025 Financial Results
23-Oct-2025 17:23:38 EDT
Heritage Commerce Corp Reports Third Quarter and First Nine Months of 2025 Financial Results Core Business Momentum and Operating Leverage Drive Double-Digit EPS Growth in Third Quarter
GlobeNewswire October 23, 2025
SAN JOSE, Calif., Oct. 23, 2025 (GLOBE NEWSWIRE) — Heritage Commerce Corp(Nasdaq: HTBK), (the “Company”), the holding company for Heritage Bank of Commerce (the “Bank”) today announced its financial results for the third quarter and first nine months of 2025. All data are unaudited.
REPORTED THIRD QUARTER 2025 HIGHLIGHTS:
Net Income
Diluted Earnings Per Share (“EPS”)
Pre-Provision Net Revenue (“PPNR”)
Fully Tax Equivalent (“FTE”) Net Interest Margin(1)
Efficiency Ratio
Return on Average Tangible Common Equity(1)
$14.7 Million
$
0.24
$21.0 Million
3.60
%
58.05
%
11.14
%
CEO COMMENTARY:
“We executed well in the third quarter, generating double digit EPS growth and positive operating leverage,” said Clay Jones, President and Chief Executive Officer. “We had positive trends in loan and deposit growth, an expansion in our net interest margin, disciplined expense management, and an improvement in our asset quality. Loan and deposit growth was 1% and 3%, respectively, over the linked quarter, and we continue to add clients in key markets across our footprint, while maintaining our underwriting and pricing.”
“Our financial foundation is solid — marked by high capital reserves, strong liquidity, and sound asset quality. These fundamentals position us to continue to execute on our strategy, which is focused on increasing market share, growing our client franchise, and generating profitable growth, as we continue to support our community, colleagues, and shareholders. We are strengthening our platform to perform and position ourselves to deliver sustained, high-quality financial results for our shareholders.” said Mr. Jones.
LINKED-QUARTER BASIS
YEAR-OVER-YEAR
FINANCIAL HIGHLIGHTS:
Total revenue of $50.0 million, an increase of 5%, or $2.2 million
Cost of funds decreased to 1.54% from 1.57%
Reported net income of $14.7 million and reported EPS of $0.24, up 130% and 140%, from $6.4 million and $0.10, respectively
Adjusted net income(1) of $14.7 million and adjusted EPS(1) of $0.24, up 13% and 14%, from $13.0 million and $0.21, respectively
Total revenue of $50.0 million, an increase of 19%, or $7.9 million
Cost of funds decreased to 1.54% from 1.88%
PPNR of $21.0 million, an increase of 44% from $14.6 million
Net income of $14.7 million and EPS of $0.24, up 40% and 41%, respectively
BALANCE SHEET HIGHLIGHTS:
Loans held-for-investment (“HFI”) of $3.6 billion, up $47.3 million, or 1%
Total deposits of $4.8 billion, up $149.2 million, or 3%
Loan to deposit ratio of 74.99%, a decrease of 2% from 76.38%
Total shareholders' equity of $700.0 million, up $5.3 million
Increase in loans HFI of $171.4 million, or 5%
Increase in total deposits of $47.0 million, or 1%
Loan to deposit ratio of 74.99%, an increase of 4% from 72.11%
Total shareholders' equity of $700.0 million, up $14.7 million
ASSET QUALITY:
Nonperforming assets (“NPAs”) to total assets of 0.07%, compared to 0.11%
Classified assets to total assets of 0.62%, compared to 0.69%
NPAs to total assets of 0.07%, compared to 0.13%
Classified assets to total assets of 0.62%, compared to 0.59%
KEY PERFORMANCE METRICS:
FTE net interest margin(1) of 3.60%, an increase of 6 basis points from 3.54%
Efficiency ratio of 58.05%, a decrease of 5% from adjusted efficiency ratio(1) of 61.01%
Return on average assets of 1.05%, an increase of 11% over adjusted return on average assets(1)
Return on average tangible common equity(1) of 11.14%, an increase of 12% over adjusted return on average tangible common equity(1)
FTE net interest margin(1) of 3.60%, an increase of 45 basis points from 3.15%
Efficiency ratio of 58.05%, a decrease of 11% from 65.37%
Return on average assets of 1.05%, an increase of 35%
Return on average tangible common equity(1) of 11.14%, an increase of 35%
CAPITAL MANAGEMENT:
Common stock net repurchases of $2.2 million, compared to $1.9 million
Total capital ratio of 15.4%, compared to 15.5%
Common equity tier 1 capital ratio of 13.2%, compared to 13.3%
Tangible common equity ratio(1) of 9.67%, compared to 9.85%
Last twelve months (“LTM”) common dividend of $31.9 million and dividend payout ratio of 74%
LTM common stock net repurchases of $4.0 million
Total capital ratio of 15.4%, compared to 15.6%
Common equity tier 1 capital ratio of 13.2%, compared to 13.4%
Tangible common equity ratio(1) of 9.67%, compared to 9.50%
(1)This is a non-GAAP financial measure as defined and discussed under “Non-GAAP Financial Measures” in this press release. All references to “adjusted” operating metrics exclude the $9.2 million of pre-tax charges primarily related to a legal settlement in the second quarter and first nine months of 2025 as presented in the reconciliation of non-GAAP financial measures at the end of this press release.
Results of Operations:
Net income was $14.7 million, or $0.24 per average diluted common share, for the third quarter of 2025, compared to $6.4 million, or $0.10 for the second quarter of 2025, and $10.5 million, or $0.17 per average diluted common share for the third quarter of 2024. Adjusted net income(2) was $13.0 million, or $0.21 per average diluted common share, for the second quarter of 2025. The annualized return on average assets was 1.05%, the annualized return on average equity was 8.37%, and the annualized return on average tangible common equity(2) was 11.14% for the third quarter of 2025, compared to 0.47%, 3.68%, and 4.89%, respectively, for the second quarter of 2025, and 0.78%, 6.14%, and 8.27%, respectively, for the third quarter of 2024. The adjusted annualized return on average assets(2) was 0.95%, the adjusted annualized return on average equity(2) was 7.45%, and the adjusted annualized return on average tangible common equity(2) was 9.92%, for the second quarter of 2025.
Net income was $32.7 million, or $0.53 per average diluted common share, for the first nine months of 2025. Adjusted net income(2) was $39.3 million, or $0.64 per average diluted common share, for the first nine months of 2025, compared to $29.9 million, or $0.49 per average diluted common share, for the first nine months of 2024. EPS increased 8% and adjusted EPS(2) increased 31% for the first nine months of 2025, compared to the first nine months of 2024. The annualized return on average assets was 0.79%, the annualized return on average equity was 6.29%, and the annualized return on average tangible common equity(2) was 8.38% for the nine months ended September 30, 2025, compared to 0.76%, 5.91%, and 7.98%, respectively, for the nine months ended September 30, 2024. The adjusted annualized return on average assets(2) was 0.95%, the adjusted annualized return on average equity(2) was 7.55%, and the adjusted annualized return on average tangible common equity(2) was 10.06%, for the nine months ended September 30, 2025.
Total revenue, which is defined as net interest income before provision for credit losses on loans plus noninterest income, increased $2.2 million, or 5%, to $50.0 million for the third quarter of 2025, compared to $47.8 million for the second quarter of 2025, and increased $7.9 million, or 19%, from $42.2 million for the third quarter of 2024. Total revenue increased $17.8 million, or 14%, to $143.8 million for the first nine months of 2025, compared to $126.0 million for the first nine months of 2024.
Net interest income totaled $46.8 million for the third quarter of 2025, representing an increase of $2.0 million, or 4%, compared to $44.8 million for the second quarter of 2025. The FTE net interest margin(2) was 3.60% for the third quarter of 2025, compared to 3.54% for the second quarter of 2025. The increase in the net interest margin is primarily attributable to higher average balances of loans and overnight funds, a higher average yield on securities, and a decrease in the average cost of deposits. The cost of deposits was down 4 basis points, driven by proactive management of exception based deposit pricing and favorable noninterest-bearing deposit mix shift. These factors were partially offset by a decrease in the average balances of securities due to maturities and paydowns.
Net interest income increased $7.5 million, or 19%, to $46.8 million, compared to $39.3 million for the third quarter of 2024. The FTE net interest margin(2) increased from 3.15% for the third quarter of 2024 primarily due to lower rates paid on customer deposits, an increase in the average yields on loans and securities, a higher average balance of loans, and an increase in the average balance of deposits resulting in a higher average balance of overnight funds, partially offset by a lower average yield on overnight funds.
For the first nine months of 2025, net interest income increased $17.3 million, or 15% to $135.0 million, compared to $117.7 million for the first nine months of 2024. The FTE net interest margin(2) increased 28 basis points to 3.51% for the first nine months of 2025, from 3.23% for the first nine months of 2024, primarily due to decrease in rates paid on client deposits, an increase in the average balances of average interest earning assets, and an increase in the average yields on loans and securities, partially offset by a lower yield on overnight funds.
Total noninterest income increased 8% to $3.2 million for the third quarter of 2025, compared to $3.0 million for the second quarter of 2025, and increased 14% from $2.8 million for the third quarter of 2024. Total noninterest income increased 7% to $8.9 million for the first nine months of 2025, compared to $8.3 million for the first nine months of 2024. The increase in noninterest income for the third quarter and first nine months of 2025 was primarily driven by a $386,000 recovery on an acquired loan that had been previously charged off and by higher facility fees. For the first nine months of 2025, the increase was partially offset by a $219,000 gain on proceeds from company-owned life insurance recorded in the same period of 2024.
(2)This is a non-GAAP financial measure as defined and discussed under “Non-GAAP Financial Measures” in this press release.
Noninterest expense for the third quarter of 2025 totaled $29.0 million, compared to $38.3 million(3) for the second quarter of 2025, and $27.6 million for the third quarter of 2024. Adjusted noninterest expense(4) was $29.1 million for the second quarter of 2025. Noninterest expense totaled $96.8 million(3) for the first nine months of 2025, compared to $83.3 million for the first nine months of 2024. Adjusted noninterest expense(4) for the first nine months of 2025 increased to $87.6 million, compared to $83.3 million for the first nine months of 2024. The increase in adjusted noninterest expense(4) for the third quarter and first nine months of 2025 compared to the respective periods in 2024 was primarily due to higher salaries and employee benefits as a result of annual salary increases. The first nine months of 2025 was also impacted by higher professional fees and information technology related expenses as the Company invested in enhancing its infrastructure.
For the third quarter the Company's PPNR, which is defined as total revenue less adjusted noninterest expense was $21.0 million, compared to $9.4 million for the second quarter of 2025, and $14.6 million for the third quarter of 2024. For the third quarter the Company's adjusted PPNR(4) increased 13% to $21.0 million from $18.6 million for the second quarter of 2025, and increased 44% from $14.6 million for the third quarter of 2024. For the first nine months of 2025, the Company's PPNR was $47.0 million, compared to $42.7 million for the first nine months of 2024. For the first nine months of 2025, the Company's adjusted PPNR(4) increased 31% to $56.2 million from $42.7 million for the first nine months of 2024.
The provision for credit losses on loans totaled $416,000 for the third quarter of 2025, compared to a $516,000 provision for credit losses on loans for the second quarter of 2025 and a provision for credit losses on loans of $153,000 for the third quarter of 2024. Net recoveries totaled $378,000 for the third quarter of 2025, compared to net charge-offs of $145,000 for the second quarter of 2025, and net charge-offs of $288,000 for the third quarter of 2024.
The provision for credit losses on loans totaled $1.2 million for the first nine months of 2025, compared to a $808,000 provision for credit losses on loans for the first nine months of 2024. Net charge-offs totaled $732,000 for the first nine months of 2025, compared to $947,000 for the first nine months of 2024.
Income tax expense increased to $5.9 million for the third quarter of 2025, compared to $2.5 million for the second quarter of 2025, and $3.9 million for the third quarter of 2024, primarily due to higher pre-tax income. The effective tax rate for the third quarter of 2025 was 28.5% for both the third and second quarters of 2025, and 27.3% for the third quarter of 2024.
Income tax expense for the nine months ended September 30, 2025 was $13.1 million, compared to $12.0 million for the nine months ended September 30, 2024. The effective tax rate for nine months ended September 30, 2025 was 28.6%, compared to 28.7% for the nine months ended September 30, 2024.
The efficiency ratio was 58.05% for the third quarter of 2025, compared to 80.23% for the second quarter of 2025, and 65.37% for the third quarter of 2024. The adjusted efficiency ratio(4) improved to 58.05% for the third quarter of 2025, from 61.01% for the second quarter of 2025, and 65.37% for the third quarter of 2024, primarily due to higher total revenue. The reported efficiency ratio was 67.31% for the first nine months of 2025. The adjusted efficiency ratio(4) improved to 60.92% for the first nine months of 2025 from 66.08% for the first nine months of 2024, primarily due to higher total revenue, partially offset by higher noninterest expense.
Full time equivalent employees were 350 at both September 30, 2025 and June 30, 2025, and 353 at September 30, 2024.
(3)During the second quarter of 2025, the Company recorded expenses of $9.2 million, primarily due to pre-tax charges related to the settlement of certain litigation matters, including the anticipated settlement of a previously disclosed class action and California Private Attorneys General Act (“PAGA”) lawsuit that alleged the violation of certain California wage-and-hour and related laws and regulations, and charges related to the planned closure of a Bank branch.
(4)This is a non-GAAP financial measure as defined and discussed under “Non-GAAP Financial Measures” in this press release.
Balance Sheet, Liquidity and Capital Management:
Total assets increased 3% to $5.6 billion at September 30, 2025, compared to $5.5 billion at June 30, 2025, primarily due to an increase in deposits resulting in an increase in overnight funds, purchases of investment securities, and an increase in loans. Total assets were relatively flat from $5.6 billion at September 30, 2024.
Investment securities available-for-sale (at fair value) increased to $408.5 million at September 30, 2025, compared to $307.0 million at June 30, 2025, primarily due to purchases, partially offset by maturities and paydowns. At September 30, 2024, these securities totaled $237.6 million. The pre-tax unrealized loss on the securities available-for-sale portfolio was $652,000, or $540,000 net of taxes, which equaled less than 1% of total shareholders' equity at September 30, 2025.
During the first nine months of 2025, the Company purchased $174.2 million of agency mortgage-backed securities, $129.8 million of collateralized mortgage obligations, and $44.8 million of U.S. Treasury securities, for total purchases of $348.8 million in the available-for-sale portfolio. Securities purchased had a book yield of 4.92% and an average life of 5.42 years.
Investment securities held-to-maturity (at amortized cost, net of an $11,000 allowance for credit losses), totaled $544.8 million at September 30, 2025, compared to $561.2 million at June 30, 2025, and $604.2 million at September 30, 2024. The fair value of the securities held-to-maturity portfolio was $476.8 million at September 30, 2025. The pre-tax unrecognized loss on the securities held-to-maturity portfolio was $68.0 million, or $47.9 million net of taxes, which equaled 7% of total shareholders' equity at September 30, 2025.
The unrealized and unrecognized losses in both the available-for-sale and held-to-maturity portfolios resulted from higher interest rates at September 30, 2025, compared to when the securities were purchased. The issuers are of high credit quality, and all principal amounts are expected to be repaid at maturity. Fair values are expected to recover as the securities approach maturity and/or if market rates decline.
Loans HFI, net of deferred costs and fees, increased $47.3 million, or 1% to $3.6 billion at September 30, 2025, compared to $3.5 billion at June 30, 2025, and increased $171.4 million, or 5%, from $3.4 billion at September 30, 2024. Loans HFI, excluding residential mortgages, increased $58.6 million, or 2% to $3.14 billion at September 30, 2025, compared to $3.08 billion at June 30 2025, and increased $207.8 million, or 7%, from $2.93 billion at September 30, 2024.
Commercial and industrial line utilization was 35% at September 30, 2025, compared to 32% at June 30, 2025, and 31% at September 30, 2024. Commercial real estate (“CRE”) loans totaled $2.0 billion at September 30, 2025, of which 31% were owner occupied and 69% were investor CRE loans. Owner occupied CRE loans also totaled 31% at both June 30, 2025 and September 30, 2024. Approximately 23% of the Company's loan portfolio consisted of floating interest rate loans at September 30, 2025, compared to 24% at June 30, 2025, and 25% at September 30, 2024.
At September 30, 2025, paydowns and maturities of investment securities and fixed interest rate loans maturing within one year totaled $343.8 million.
Total deposits increased $149.2 million, or 3%, to $4.8 billion at September 30, 2025, compared to $4.6 billion at June 30, 2025, and increased $47.0 million, or 1% from $4.7 billion at September 30, 2024.
The following table shows the Company's deposit types as a percentage of total deposits at the dates indicated:
September 30,
June 30,
September 30,
DEPOSITS TYPE % TO TOTAL DEPOSITS
2025
2025
2024
Demand, noninterest-bearing
26
%
25
%
27
%
Demand, interest-bearing
19
%
21
%
19
%
Savings and money market
28
%
28
%
28
%
Time deposits — under $250
1
%
1
%
1
%
Time deposits — $250 and over
5
%
4
%
4
%
Insured Cash Sweep (“ICS”)/Certificate of Deposit Registry
Service (“CDARS”) – interest-bearing demand, money
market and time deposits
21
%
21
%
21
%
Total deposits
100
%
100
%
100
%
The loan to deposit ratio was 74.99% at September 30, 2025, compared to 76.38% at June 30, 2025, and 72.11% at September 30, 2024.
The Company's total available liquidity and borrowing capacity was $3.3 billion at September 30, 2025, compared to $3.1 billion at June 30, 2025, and $3.2 billion at September 30, 2024.
Total shareholders' equity was $700.0 million at September 30, 2025, compared to $694.7 million at June 30, 2025, and $685.4 million at September 30, 2024.
Total accumulated other comprehensive loss of $5.2 million at September 30, 2025 was comprised of $2.5 million in actuarial losses associated with split dollar insurance contracts, $2.1 million in actuarial losses associated with the supplemental executive retirement plan, unrealized losses on securities available-for-sale of $540,000, and a $40,000 unrealized gain on interest-only strip from SBA loans.
Capital at September 30, 2025 was above well capitalized regulatory thresholds.
The reported tangible book value per share(5) was $8.61 at September 30, 2025, compared to $8.49 at June 30, 2025, and $8.33 at September 30, 2024. The adjusted tangible book value per share(5) was $8.71, compared to $8.59 at June 30, 2025, and $8.33 at September 30, 2024.
Asset Quality:
The allowance for credit losses on loans (“ACLL”) at September 30, 2025 was $49.4 million, or 1.38% of total loans. The ACLL at June 30, 2025 was $48.6 million, or 1.38% of total loans. The ACLL at September 30, 2024 was $47.8 million, or 1.40% of total loans. The increase in the ACLL year-over-year is due to loan growth.
NPAs were $3.7 million at September 30, 2025, compared to $6.2 million at June 30, 2025, and $7.2 million at September 30, 2024. There were no Shared National Credits (“SNCs”) in NPAs or total loans at September 30, 2025, June 30, 2025, or September 30, 2024.
Classified assets totaled $34.6 million, or 0.62% of total assets, at September 30, 2025, compared to $37.5 million, or 0.69% of total assets, at June 30, 2025, and $32.6 million, or 0.59% of total assets, at September 30, 2024.
Announcing An Increase to the Company's Share Repurchase Program:
Today, the Board of Directors (the “Board”) of the Company approved an increase in the maximum total value of shares authorized for repurchase under the Company's share repurchase program, initially approved by the Board in July 2024 (the “Repurchase Program”), doubling the authorization from $15 million to $30 million. The term of the Repurchase Program was also extended by the Board to October 31, 2026. During the second and third quarters of 2025, the Company repurchased 439,187 shares of its common stock with a weighted average price of $9.22 per share for a total of $4.0 million. The remaining capacity under the Program after giving effect to the amendment as described above is $26 million at September 30, 2025.
(5)This is a non-GAAP financial measure as defined and discussed under “Non-GAAP Financial Measures” in this press release.
Heritage Commerce Corp, a bank holding company established in October 1997, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose, CA with full-service branches in Danville, Fremont, Hollister, Livermore, Los Altos, Los Gatos, Morgan Hill, Oakland, Palo Alto, Pleasanton, Redwood City, San Francisco, San Jose, San Mateo, San Rafael, and Walnut Creek. Heritage Bank of Commerce is an SBA Preferred Lender. Bay View Funding, a subsidiary of Heritage Bank of Commerce, is based in San Jose, CA and provides business-essential working capital factoring financing to various industries throughout the United States. For more information, please visit www.heritagecommercecorp.com. The contents of our website are not incorporated into, and do not form a part of, this release or of our filings with the Securities and Exchange Commission.
Reclassifications
During the first quarter of 2025, we reclassified Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock dividends from interest income to noninterest income and the related average asset balances were reclassified from interest earning assets to other assets on the “Net Interest Income and Net Interest Margin” tables. The amounts for the prior periods were reclassified to conform to the current presentation. These reclassifications did not affect previously reported net income or shareholders' equity.
Non-GAAP Financial Measures
Financial results are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate and measure the Company's performance. These measures include “adjusted” operating metrics that have been adjusted to exclude notable expenses incurred in the second quarter of 2025 as well as other performance measures and ratios adjusted for notable items. Management believes these non-GAAP financial measures enhance comparability between periods and in some instances are common in the banking industry. These non-GAAP financial measures should be supplemental to primary GAAP financial measures and should not be read in isolation or relied upon as a substitute for primary GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is presented in the tables at the end of this press release under “Reconciliation of Non-GAAP Financial Measures.”
Forward-Looking Statement Disclaimer
Certain matters discussed in this press release constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are inherently uncertain in that they reflect plans and expectations for future events. These statements may include, among other things, those relating to the Company's future financial performance, plans and objectives regarding future events, expectations regarding changes in interest rates and market conditions, projected cash flows of our investment securities portfolio, the performance of our loan portfolio, loan growth, expenses, net interest margin, estimated net interest income resulting from a shift in interest rates, expectation of high credit quality issuers ability to repay, as well as statements relating to the anticipated effects on the Company's financial condition and results of operations from expected developments or events. Any statements that reflect our belief about, confidence in, or expectations for future events, performance or condition should be considered forward-looking statements. Readers should not construe these statements as assurances of a given level of performance, nor as promises that we will take actions that we currently expect to take. All statements are subject to various risks and uncertainties, many of which are outside our control and some of which may fall outside our ability to predict or anticipate. Accordingly, our actual results may differ materially from our projected results, and we may take actions or experience events that we do not currently expect. 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, Item 1A of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,2025, and include: (i) cybersecurity risks that may affect us directly or may impact us indirectly by virtue of their effects on our clients, markets or vendors, including our ability to identify and address cybersecurity risks, including those posed by the increasing use of artificial intelligence (such as, but not limited to, ransomware, data security breaches, “denial of service” attacks, “hacking” and identity theft) affecting us, our clients, and our third-party vendors and service providers; (ii) events that affect our ability to attract, recruit, and retain qualified officers and other personnel to implement our strategic plan, and that enable current and future personnel to protect and develop our relationships with clients, and to promote our business, results of operations and growth prospects; (iii) media items and consumer confidence as those factors affect our clients' confidence in the banking system generally and in our bank specifically; (iv) adequacy of our risk management framework, disclosure controls and procedures and internal control over financial reporting; (v) market, geographic and sociopolitical factors that arise by virtue of the fact that we operate primarily in the general San Francisco Bay Area of Northern California; (vi) risks of geographic concentration of our client base, our loans, and the collateral securing our loans, as those clients and assets may be particularly subject to natural disasters and to events and conditions that directly or indirectly affect those regions, including the particular risks of natural disasters (including earthquakes, fires, and flooding) and other events that disproportionately affect that region; (vii) political events that have accompanied or that may in the future accompany or result from recent political changes, particularly including the imposition of tariffs, sociopolitical events and conditions that result from political conflicts and law enforcement activities that may adversely affect our markets or our clients; (viii) our ability to estimate accurately, and to establish adequate reserves against, the risk of loss associated with our loan and lease portfolios and our factoring business; (ix) 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 to clients, whether held in the portfolio or in the secondary market; (x) factors that affect the value and liquidity of our investment portfolios, particularly the values of securities available-for-sale; (xi) factors that affect our liquidity and our ability to meet client demands for withdrawals from deposit accounts and undrawn lines of credit, including our cash on hand and the availability of funds from our own lines of credit; (xii) 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; (xiii) the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise, particularly including but not limited to the effects of recent and ongoing developments in California labor and employment laws, regulations and court decisions; (xiv) 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; and (xv) our success in managing the risks involved in the foregoing factors.
(1)This is a non-GAAP financial measure as defined and discussed under “Non-GAAP Financial Measures” in this press release.
For the Quarter Ended:
CONSOLIDATED INCOME STATEMENTS
September 30,
June 30,
March 31,
December 31,
September 30,
(in $000's, unaudited)
2025
2025
2025
2024
2024
Interest income
$
65,094
$
63,025
$
61,832
$
64,043
$
60,852
Interest expense
18,306
18,220
18,472
20,448
21,523
Net interest income before provision
for credit losses on loans
46,788
44,805
43,360
43,595
39,329
Provision for credit losses on loans
416
516
274
1,331
153
Net interest income after provision
for credit losses on loans
46,372
44,289
43,086
42,264
39,176
Noninterest income:
Service charges and fees on deposit
accounts
898
929
892
885
908
FHLB and FRB stock dividends
587
584
590
590
586
Increase in cash surrender value of
life insurance
564
548
538
528
530
Servicing income
77
87
98
125
94
Gain on sales of SBA loans
—
61
82
77
108
Termination fees
—
227
87
18
46
Other
1,091
541
409
552
554
Total noninterest income
3,217
2,977
2,696
2,775
2,826
Noninterest expense:
Salaries and employee benefits
16,948
16,227
16,575
16,976
15,673
Occupancy and equipment
2,528
2,525
2,534
2,495
2,599
Professional fees
1,175
1,819
1,580
1,711
1,306
Other
8,375
17,764
8,767
9,122
7,977
Total noninterest expense
29,026
38,335
29,456
30,304
27,555
Income before income taxes
20,563
8,931
16,326
14,735
14,447
Income tax expense
5,865
2,542
4,700
4,114
3,940
Net income
$
14,698
$
6,389
$
11,626
$
10,621
$
10,507
PER COMMON SHARE DATA
(unaudited)
Basic earnings per share
$
0.24
$
0.10
$
0.19
$
0.17
$
0.17
Diluted earnings per share
$
0.24
$
0.10
$
0.19
$
0.17
$
0.17
Weighted average shares outstanding – basic
61,333,951
61,508,180
61,479,579
61,320,505
61,295,877
Weighted average shares outstanding – diluted
61,616,785
61,624,600
61,708,361
61,679,735
61,546,157
Common shares outstanding at period-end
61,277,541
61,446,763
61,611,121
61,348,095
61,297,344
Dividend per share
$
0.13
$
0.13
$
0.13
$
0.13
$
0.13
Book value per share
$
11.42
$
11.31
$
11.30
$
11.24
$
11.18
Tangible book value per share(1)
$
8.61
$
8.49
$
8.48
$
8.41
$
8.33
KEY PERFORMANCE METRICS
(in $000's, unaudited)
Annualized return on average equity
8.37
%
3.68
%
6.81
%
6.16
%
6.14
%
Annualized return on average tangible
common equity(1)
11.14
%
4.89
%
9.09
%
8.25
%
8.27
%
Annualized return on average assets
1.05
%
0.47
%
0.85
%
0.75
%
0.78
%
Annualized return on average tangible assets(1)
1.08
%
0.48
%
0.88
%
0.78
%
0.81
%
Net interest margin (FTE)(1)
3.60
%
3.54
%
3.39
%
3.32
%
3.15
%
Total revenue
$
50,005
$
47,782
$
46,056
$
46,370
$
42,155
Pre-provision net revenue
$
20,979
$
9,447
$
16,600
$
16,066
$
14,600
Efficiency ratio
58.05
%
80.23
%
63.96
%
65.35
%
65.37
%
AVERAGE BALANCES
(in $000's, unaudited)
Average assets
$
5,551,457
$
5,458,420
$
5,559,896
$
5,607,840
$
5,352,067
Average tangible assets(1)
$
5,378,468
$
5,284,972
$
5,386,001
$
5,433,439
$
5,177,114
Average earning assets
$
5,167,710
$
5,087,089
$
5,188,317
$
5,235,986
$
4,980,082
Average loans held-for-sale
$
1,230
$
2,250
$
2,290
$
2,260
$
1,493
Average loans held-for-investment
$
3,519,775
$
3,504,518
$
3,429,014
$
3,388,729
$
3,359,647
Average deposits
$
4,687,294
$
4,618,007
$
4,717,517
$
4,771,491
$
4,525,946
Average demand deposits – noninterest-bearing
$
1,187,357
$
1,146,494
$
1,167,330
$
1,222,393
$
1,172,304
Average interest-bearing deposits
$
3,499,937
$
3,471,513
$
3,550,187
$
3,549,098
$
3,353,642
Average interest-bearing liabilities
$
3,539,706
$
3,511,237
$
3,589,872
$
3,588,755
$
3,393,264
Average equity
$
696,385
$
697,016
$
692,733
$
686,263
$
680,404
Average tangible common equity(1)
$
523,396
$
523,568
$
518,838
$
511,862
$
505,451
(1)This is a non-GAAP financial measure as defined and discussed under “Non-GAAP Financial Measures” in this press release.
End of Period:
Percent Change From:
CONSOLIDATED BALANCE SHEETS
September 30,
June 30,
September 30,
June 30,
September 30,
(in $000's, unaudited)
2025
2025
2024
2025
2024
ASSETS
Cash and due from banks
$
42,442
$
55,360
$
49,722
(23
)
%
(15
)
%
Other investments and interest-bearing deposits
in other financial institutions
705,300
666,432
906,588
6
%
(22
)
%
Securities available-for-sale, at fair value
408,456
307,035
237,612
33
%
72
%
Securities held-to-maturity, at amortized cost
544,806
561,205
604,193
(3
)
%
(10
)
%
Loans – held-for-sale – SBA, including deferred costs
1,325
1,156
1,649
15
%
(20
)
%
Loans – held-for-investment:
Commercial
523,110
492,231
481,266
6
%
9
%
Real estate:
CRE – owner occupied
629,855
627,810
602,062
0
%
5
%
CRE – non-owner occupied
1,416,987
1,390,419
1,310,578
2
%
8
%
Land and construction
137,170
149,460
125,761
(8
)
%
9
%
Home equity
125,742
120,763
124,090
4
%
1
%
Multifamily
290,077
285,016
273,103
2
%
6
%
Residential mortgages
443,143
454,419
479,524
(2
)
%
(8
)
%
Consumer and other
15,938
14,661
14,179
9
%
12
%
Loans
3,582,022
3,534,779
3,410,563
1
%
5
%
Deferred loan fees, net
(344
)
(446
)
(327
)
(23
)
%
5
%
Total loans – held-for-investment, net of deferred fees
3,581,678
3,534,333
3,410,236
1
%
5
%
Allowance for credit losses on loans
(49,427
)
(48,633
)
(47,819
)
2
%
3
%
Loans, net
3,532,251
3,485,700
3,362,417
1
%
5
%
Company-owned life insurance
82,861
82,296
80,682
1
%
3
%
Premises and equipment, net
9,429
9,765
10,398
(3
)
%
(9
)
%
Goodwill
167,631
167,631
167,631
0
%
0
%
Other intangible assets
5,078
5,532
6,966
(8
)
%
(27
)
%
Accrued interest receivable and other assets
124,141
125,125
123,738
(1)
%
0
%
Total assets
$
5,623,720
$
5,467,237
$
5,551,596
3
%
1
%
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, noninterest-bearing
$
1,241,603
$
1,151,242
$
1,272,139
8
%
(2
)
%
Demand, interest-bearing
922,077
955,504
913,910
(3
)
%
1
%
Savings and money market
1,366,905
1,320,142
1,309,676
4
%
4
%
Time deposits – under $250
32,462
35,356
39,060
(8
)
%
(17
)
%
Time deposits – $250 and over
223,496
210,818
196,945
6
%
13
%
ICS/CDARS – interest-bearing demand, money market
and time deposits
990,003
954,272
997,803
4
%
(1
)
%
Total deposits
4,776,546
4,627,334
4,729,533
3
%
1
%
Subordinated debt, net of issuance costs
39,767
39,728
39,615
0
%
0
%
Accrued interest payable and other liabilities
107,397
105,471
97,096
2
%
11
%
Total liabilities
4,923,710
4,772,533
4,866,244
3
%
1
%
Shareholders' Equity:
Common stock
508,664
509,888
509,134
0
%
0
%
Retained earnings
196,526
189,794
185,110
4
%
6
%
Accumulated other comprehensive loss
(5,180
)
(4,978
)
(8,892
)
4
%
(42
)
%
Total shareholders' equity
700,010
694,704
685,352
1
%
2
%
Total liabilities and shareholders' equity
$
5,623,720
$
5,467,237
$
5,551,596
3
%
1
%
End of Period:
CONSOLIDATED BALANCE SHEETS
September 30,
June 30,
March 31,
December 31,
September 30,
(in $000's, unaudited)
2025
2025
2025
2024
2024
ASSETS
Cash and due from banks
$
42,442
$
55,360
$
44,281
$
29,864
$
49,722
Other investments and interest-bearing deposits
in other financial institutions
705,300
666,432
700,769
938,259
906,588
Securities available-for-sale, at fair value
408,456
307,035
370,976
256,274
237,612
Securities held-to-maturity, at amortized cost
544,806
561,205
576,718
590,016
604,193
Loans – held-for-sale – SBA, including deferred costs
1,325
1,156
1,884
2,375
1,649
Loans – held-for-investment:
Commercial
523,110
492,231
489,241
531,350
481,266
Real estate:
CRE – owner occupied
629,855
627,810
616,825
601,636
602,062
CRE – non-owner occupied
1,416,987
1,390,419
1,363,275
1,341,266
1,310,578
Land and construction
137,170
149,460
136,106
127,848
125,761
Home equity
125,742
120,763
119,138
127,963
124,090
Multifamily
290,077
285,016
284,510
275,490
273,103
Residential mortgages
443,143
454,419
465,330
471,730
479,524
Consumer and other
15,938
14,661
12,741
14,837
14,179
Loans
3,582,022
3,534,779
3,487,166
3,492,120
3,410,563
Deferred loan fees, net
(344
)
(446
)
(268
)
(183
)
(327
)
Total loans – held-for-investment, net of deferred fees
3,581,678
3,534,333
3,486,898
3,491,937
3,410,236
Allowance for credit losses on loans
(49,427
)
(48,633
)
(48,262
)
(48,953
)
(47,819
)
Loans, net
3,532,251
3,485,700
3,438,636
3,442,984
3,362,417
Company-owned life insurance
82,861
82,296
81,749
81,211
80,682
Premises and equipment, net
9,429
9,765
9,772
10,140
10,398
Goodwill
167,631
167,631
167,631
167,631
167,631
Other intangible assets
5,078
5,532
5,986
6,439
6,966
Accrued interest receivable and other assets
124,141
125,125
115,853
119,813
123,738
Total assets
$
5,623,720
$
5,467,237
$
5,514,255
$
5,645,006
$
5,551,596
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, noninterest-bearing
$
1,241,603
$
1,151,242
$
1,128,593
$
1,214,192
$
1,272,139
Demand, interest-bearing
922,077
955,504
949,068
936,587
913,910
Savings and money market
1,366,905
1,320,142
1,353,293
1,325,923
1,309,676
Time deposits – under $250
32,462
35,356
37,592
38,988
39,060
Time deposits – $250 and over
223,496
210,818
213,357
206,755
196,945
ICS/CDARS – interest-bearing demand, money market
and time deposits
990,003
954,272
1,001,365
1,097,586
997,803
Total deposits
4,776,546
4,627,334
4,683,268
4,820,031
4,729,533
Subordinated debt, net of issuance costs
39,767
39,728
39,691
39,653
39,615
Accrued interest payable and other liabilities
107,397
105,471
95,106
95,595
97,096
Total liabilities
4,923,710
4,772,533
4,818,065
4,955,279
4,866,244
Shareholders' Equity:
Common stock
508,664
509,888
511,596
510,070
509,134
Retained earnings
196,526
189,794
191,401
187,762
185,110
Accumulated other comprehensive loss
(5,180
)
(4,978
)
(6,807
)
(8,105
)
(8,892
)
Total shareholders' equity
700,010
694,704
696,190
689,727
685,352
Total liabilities and shareholders' equity
5,623,720
$
5,467,237
$
5,514,255
$
5,645,006
$
5,551,596
At or For the Quarter Ended:
Percent Change From:
ASSET QUALITY DATA
September 30,
June 30,
September 30,
June 30,
September 30,
(in $000's, unaudited)
2025
2025
2024
2025
2024
Nonaccrual loans – held-for-investment:
Land and construction loans
$
2,346
$
4,198
$
5,862
(44)
%
(60)
%
Home equity
655
728
84
(10)
%
680
%
Residential mortgages
—
607
—
(100)
%
N/A
Commercial loans
467
491
752
(5)
%
(38)
%
CRE loans
—
31
—
(100)
%
N/A
Total nonaccrual loans – held-for-investment:
3,468
6,055
6,698
(43)
%
(48)
%
Loans over 90 days past due
and still accruing
194
123
460
58
%
(58)
%
Total nonperforming loans
3,662
6,178
7,158
(41)
%
(49)
%
Foreclosed assets
—
—
—
N/A
N/A
Total nonperforming assets
$
3,662
$
6,178
$
7,158
(41)
%
(49)
%
Net (recoveries) charge-offs during the quarter
$
(378
)
$
145
$
288
(361)
%
(231)
%
Provision for credit losses on loans during the quarter
$
416
$
516
$
153
(19)
%
172
%
Allowance for credit losses on loans
$
49,427
$
48,633
$
47,819
2
%
3
%
Classified assets
$
34,633
$
37,525
$
32,609
(8)
%
6
%
Allowance for credit losses on loans to total loans
1.38
%
1.38
%
1.40
%
0
%
(1)
%
Allowance for credit losses on loans to total nonperforming loans
1,349.73
%
787.20
%
668.05
%
71
%
102
%
Nonperforming assets to total assets
0.07
%
0.11
%
0.13
%
(36)
%
(46)
%
Nonperforming loans to total loans
0.10
%
0.17
%
0.21
%
(41)
%
(52)
%
Classified assets to total assets
0.62
%
0.69
%
0.59
%
(10)
%
5
%
Classified assets to Heritage Commerce Corp
Tier 1 capital plus allowance for credit losses on loans
6
%
7
%
6
%
(14)
%
0
%
Classified assets to Heritage Bank of Commerce
Tier 1 capital plus allowance for credit losses on loans
6
%
6
%
6
%
0
%
0
%
OTHER PERIOD-END STATISTICS
(in $000's, unaudited)
Heritage Commerce Corp:
Tangible common equity(1)
$
527,301
$
521,541
$
510,755
1
%
3
%
Shareholders' equity / total assets
12.45
%
12.71
%
12.35
%
(2)
%
1
%
Tangible common equity / tangible assets(1)
9.67
%
9.85
%
9.50
%
(2)
%
2
%
Loan to deposit ratio
74.99
%
76.38
%
72.11
%
(2)
%
4
%
Noninterest-bearing deposits / total deposits
25.99
%
24.88
%
26.90
%
4
%
(3)
%
Total capital ratio
15.4
%
15.5
%
15.6
%
(1)
%
(1)
%
Tier 1 capital ratio
13.2
%
13.3
%
13.4
%
(1)
%
(1)
%
Common Equity Tier 1 capital ratio
13.2
%
13.3
%
13.4
%
(1)
%
(1)
%
Tier 1 leverage ratio
9.9
%
9.9
%
10.0
%
0
%
(1)
%
Heritage Bank of Commerce:
Tangible common equity / tangible assets(1)
10.13
%
10.28
%
9.86
%
(1)
%
3
%
Total capital ratio
15.1
%
15.1
%
15.1
%
0
%
0
%
Tier 1 capital ratio
13.8
%
13.8
%
13.9
%
0
%
(1)
%
Common Equity Tier 1 capital ratio
13.8
%
13.8
%
13.9
%
0
%
(1)
%
Tier 1 leverage ratio
10.3
%
10.4
%
10.4
%
(1)
%
(1)
%
(1)This is a non-GAAP financial measure as defined and discussed under “Non-GAAP Financial Measures” in this press release.
At or For the Quarter Ended:
ASSET QUALITY DATA
September 30,
June 30,
March 31,
December 31,
September 30,
(in $000's, unaudited)
2025
2025
2025
2024
2024
Nonaccrual loans – held-for-investment:
Land and construction loans
$
2,346
$
4,198
$
4,793
$
5,874
$
5,862
Home equity
655
728
927
290
84
Residential mortgages
—
607
—
—
—
Commercial loans
467
491
324
1,014
752
CRE loans
—
31
—
—
—
Total nonaccrual loans – held-for-investment:
3,468
6,055
6,044
7,178
6,698
Loans over 90 days past due
and still accruing
194
123
268
489
460
Total nonperforming loans
3,662
6,178
6,312
7,667
7,158
Foreclosed assets
—
—
—
—
—
Total nonperforming assets
$
3,662
$
6,178
$
6,312
$
7,667
$
7,158
Net (recoveries) charge-offs during the quarter
$
(378
)
$
145
$
965
$
197
$
288
Provision for credit losses on loans during the quarter
$
416
$
516
$
274
$
1,331
$
153
Allowance for credit losses on loans
$
49,427
$
48,633
$
48,262
$
48,953
$
47,819
Classified assets
$
34,633
$
37,525
$
40,034
$
41,661
$
32,609
Allowance for credit losses on loans to total loans
1.38
%
1.38
%
1.38
%
1.40
%
1.40
%
Allowance for credit losses on loans to total nonperforming loans
1,349.73
%
787.20
%
764.61
%
638.49
%
668.05
%
Nonperforming assets to total assets
0.07
%
0.11
%
0.11
%
0.14
%
0.13
%
Nonperforming loans to total loans
0.10
%
0.17
%
0.18
%
0.22
%
0.21
%
Classified assets to total assets
0.62
%
0.69
%
0.73
%
0.74
%
0.59
%
Classified assets to Heritage Commerce Corp
Tier 1 capital plus allowance for credit losses on loans
6
%
7
%
7
%
7
%
6
%
Classified assets to Heritage Bank of Commerce
Tier 1 capital plus allowance for credit losses on loans
6
%
6
%
7
%
7
%
6
%
OTHER PERIOD-END STATISTICS
(in $000's, unaudited)
Heritage Commerce Corp:
Tangible common equity(1)
$
527,301
$
521,541
$
522,573
$
515,657
$
510,755
Shareholders' equity / total assets
12.45
%
12.71
%
12.63
%
12.22
%
12.35
%
Tangible common equity / tangible assets(1)
9.67
%
9.85
%
9.78
%
9.43
%
9.50
%
Loan to deposit ratio
74.99
%
76.38
%
74.45
%
72.45
%
72.11
%
Noninterest-bearing deposits / total deposits
25.99
%
24.88
%
24.10
%
25.19
%
26.90
%
Total capital ratio
15.4
%
15.5
%
15.9
%
15.6
%
15.6
%
Tier 1 capital ratio
13.2
%
13.3
%
13.6
%
13.4
%
13.4
%
Common Equity Tier 1 capital ratio
13.2
%
13.3
%
13.6
%
13.4
%
13.4
%
Tier 1 leverage ratio
9.9
%
9.9
%
9.8
%
9.6
%
10.0
%
Heritage Bank of Commerce:
Tangible common equity / tangible assets(1)
10.13
%
10.28
%
10.15
%
9.79
%
9.86
%
Total capital ratio
15.1
%
15.1
%
15.4
%
15.1
%
15.1
%
Tier 1 capital ratio
13.8
%
13.8
%
14.1
%
13.9
%
13.9
%
Common Equity Tier 1 capital ratio
13.8
%
13.8
%
14.1
%
13.9
%
13.9
%
Tier 1 leverage ratio
10.3
%
10.4
%
10.2
%
10.0
%
10.4
%
(1)This is a non-GAAP financial measure as defined and discussed under “Non-GAAP Financial Measures” in this press release.
For the Quarter Ended
For the Quarter Ended
September 30, 2025
June 30, 2025
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, core bank
$
3,039,478
$
42,655
5.57
%
$
3,020,534
$
41,738
5.54
%
Prepayment fees
—
185
0.02
%
—
473
0.06
%
Bay View Funding factored receivables
74,353
3,654
19.50
%
67,756
3,347
19.81
%
Purchased residential mortgages
408,810
3,472
3.37
%
420,280
3,548
3.39
%
Loan fair value mark / accretion
(1,636
)
164
0.02
%
(1,802
)
172
0.02
%
Loans, gross(1)(2)
3,521,005
50,130
5.65
%
3,506,768
49,278
5.64
%
Securities – taxable
842,998
6,146
2.89
%
902,642
6,346
2.82
%
Securities – exempt from Federal tax(3)
28,683
256
3.54
%
30,259
272
3.61
%
Other investments and interest-bearing deposits
in other financial institutions
775,024
8,615
4.41
%
647,420
7,186
4.45
%
Total interest earning assets(3)
5,167,710
65,147
5.00
%
5,087,089
63,082
4.97
%
Cash and due from banks
30,764
31,044
Premises and equipment, net
9,651
9,958
Goodwill and other intangible assets
172,989
173,448
Other assets
170,343
156,881
Total assets
$
5,551,457
$
5,458,420
Liabilities and shareholders' equity:
Deposits:
Demand, noninterest-bearing
$
1,187,357
$
1,146,494
Demand, interest-bearing
932,996
1,463
0.62
%
949,867
1,484
0.63
%
Savings and money market
1,340,419
8,452
2.50
%
1,313,054
8,205
2.51
%
Time deposits – under $100
10,620
40
1.49
%
11,456
49
1.72
%
Time deposits – $100 and over
233,145
1,977
3.36
%
231,644
1,995
3.45
%
ICS/CDARS – interest-bearing demand, money market
and time deposits
982,757
5,837
2.36
%
965,492
5,949
2.47
%
Total interest-bearing deposits
3,499,937
17,769
2.01
%
3,471,513
17,682
2.04
%
Total deposits
4,687,294
17,769
1.50
%
4,618,007
17,682
1.54
%
Short-term borrowings
26
—
0.00
%
19
—
0.00
%
Subordinated debt, net of issuance costs
39,743
537
5.36
%
39,705
538
5.43
%
Total interest-bearing liabilities
3,539,706
18,306
2.05
%
3,511,237
18,220
2.08
%
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds
4,727,063
18,306
1.54
%
4,657,731
18,220
1.57
%
Other liabilities
128,009
103,673
Total liabilities
4,855,072
4,761,404
Shareholders' equity
696,385
697,016
Total liabilities and shareholders' equity
$
5,551,457
$
5,458,420
Net interest income / margin(3)
46,841
3.60
%
44,862
3.54
%
Less tax equivalent adjustment(3)
(53
)
(57
)
Net interest income
$
46,788
3.59
%
$
44,805
3.53
%
(1)Includes loans held-for-sale. Nonaccrual loans are included in average balances. (2)Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $246,000 for the third quarter of 2025, compared to $253,000 for the second quarter of 2025. Prepayment fees totaled $185,000 for the third quarter of 2025, compared to $473,000 for the second quarter of 2025. (3)Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate. This is a non-GAAP financial measure as defined and discussed under “Non-GAAP Financial Measures” in this press release.
For the Quarter Ended
For the Quarter Ended
September 30, 2025
September 30, 2024
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, core bank
$
3,039,478
$
42,655
5.57
%
$
2,867,076
$
39,621
5.50
%
Prepayment fees
—
185
0.02
%
—
4
0.00
%
Bay View Funding factored receivables
74,353
3,654
19.50
%
55,391
2,144
15.40
%
Purchased residential mortgages
408,810
3,472
3.37
%
441,294
3,779
3.41
%
Loan fair value mark / accretion
(1,636
)
164
0.02
%
(2,621
)
233
0.03
%
Loans, gross(1)(2)
3,521,005
50,130
5.65
%
3,361,140
45,781
5.42
%
Securities – taxable
842,998
6,146
2.89
%
838,375
4,676
2.22
%
Securities – exempt from Federal tax(3)
28,683
256
3.54
%
31,311
282
3.58
%
Other investments and interest-bearing deposits
in other financial institutions
775,024
8,615
4.41
%
749,256
10,172
5.40
%
Total interest earning assets(3)
5,167,710
65,147
5.00
%
4,980,082
60,911
4.87
%
Cash and due from banks
30,764
33,425
Premises and equipment, net
9,651
10,471
Goodwill and other intangible assets
172,989
174,953
Other assets
170,343
153,136
Total assets
$
5,551,457
$
5,352,067
Liabilities and shareholders' equity:
Deposits:
Demand, noninterest-bearing
$
1,187,357
$
1,172,304
Demand, interest-bearing
932,996
1,463
0.62
%
907,346
1,714
0.75
%
Savings and money market
1,340,419
8,452
2.50
%
1,188,057
9,128
3.06
%
Time deposits – under $100
10,620
40
1.49
%
11,133
47
1.68
%
Time deposits – $100 and over
233,145
1,977
3.36
%
229,565
2,349
4.07
%
ICS/CDARS – interest-bearing demand, money market
and time deposits
982,757
5,837
2.36
%
1,017,541
7,747
3.03
%
Total interest-bearing deposits
3,499,937
17,769
2.01
%
3,353,642
20,985
2.49
%
Total deposits
4,687,294
17,769
1.50
%
4,525,946
20,985
1.84
%
Short-term borrowings
26
—
0.00
%
32
—
0.00
%
Subordinated debt, net of issuance costs
39,743
537
5.36
%
39,590
538
5.41
%
Total interest-bearing liabilities
3,539,706
18,306
2.05
%
3,393,264
21,523
2.52
%
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds
4,727,063
18,306
1.54
%
4,565,568
21,523
1.88
%
Other liabilities
128,009
106,095
Total liabilities
4,855,072
4,671,663
Shareholders' equity
696,385
680,404
Total liabilities and shareholders' equity
$
5,551,457
$
5,352,067
Net interest income / margin(3)
46,841
3.60
%
39,388
3.15
%
Less tax equivalent adjustment(3)
(53
)
(59
)
Net interest income
$
46,788
3.59
%
$
39,329
3.14
%
(1)Includes loans held-for-sale. Nonaccrual loans are included in average balances. (2)Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $246,000 for the third quarter of 2025, compared to $184,000 for the third quarter of 2024. Prepayment fees totaled $185,000 for the third quarter of 2025, compared to $4,000 for the third quarter of 2024. (3)Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate. This is a non-GAAP financial measure as defined and discussed under “Non-GAAP Financial Measures” in this press release.
For the Nine Months Ended
For the Nine Months Ended
September 30, 2025
September 30, 2024
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, core bank
$
3,002,040
$
124,151
5.53
%
$
2,831,035
$
115,838
5.47
%
Prepayment fees
—
882
0.04
%
—
82
0.00
%
Bay View Funding factored receivables
67,505
9,943
19.69
%
54,563
7,896
19.33
%
Purchased residential mortgages
418,948
10,617
3.39
%
447,709
11,306
3.37
%
Loan fair value mark / accretion
(1,805
)
517
0.02
%
(2,865
)
729
0.03
%
Loans, gross(1)(2)
3,486,688
146,110
5.60
%
3,330,442
135,851
5.45
%
Securities – taxable
873,789
18,051
2.76
%
940,755
16,342
2.32
%
Securities – exempt from Federal tax(3)
29,801
803
3.60
%
31,683
853
3.60
%
Other investments, interest-bearing deposits in other
financial institutions and Federal funds sold
757,352
25,155
4.44
%
574,581
23,434
5.45
%
Total interest earning assets(3)
5,147,630
190,119
4.94
%
4,877,461
176,480
4.85
%
Cash and due from banks
31,222
33,353
Premises and equipment, net
9,870
10,235
Goodwill and other intangible assets
173,441
175,495
Other assets
161,064
151,794
Total assets
$
5,523,227
$
5,248,338
Liabilities and shareholders' equity:
Deposits:
Demand, noninterest-bearing
$
1,167,134
$
1,158,891
Demand, interest-bearing
942,371
4,385
0.62
%
919,786
4,987
0.72
%
Savings and money market
1,325,567
24,730
2.49
%
1,120,324
23,644
2.82
%
Time deposits – under $100
11,150
135
1.62
%
11,020
135
1.64
%
Time deposits – $100 and over
233,065
6,101
3.50
%
226,353
6,658
3.93
%
ICS/CDARS – interest-bearing demand, money market
and time deposits
994,875
18,034
2.42
%
990,868
21,565
2.91
%
Total interest-bearing deposits
3,507,028
53,385
2.04
%
3,268,351
56,989
2.33
%
Total deposits
4,674,162
53,385
1.53
%
4,427,242
56,989
1.72
%
Short-term borrowings
21
—
0.00
%
22
—
0.00
%
Subordinated debt, net of issuance costs
39,705
1,613
5.43
%
39,553
1,614
5.45
%
Total interest-bearing liabilities
3,546,754
54,998
2.07
%
3,307,926
58,603
2.37
%
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds
4,713,888
54,998
1.56
%
4,466,817
58,603
1.75
%
Other liabilities
113,948
105,570
Total liabilities
4,827,836
4,572,387
Shareholders' equity
695,391
675,951
Total liabilities and shareholders' equity
$
5,523,227
$
5,248,338
Net interest income / margin(3)
135,121
3.51
%
117,877
3.23
%
Less tax equivalent adjustment(3)
(168
)
(179
)
Net interest income
$
134,953
3.51
%
$
117,698
3.22
%
(1)Includes loans held-for-sale. Nonaccrual loans are included in average balances. (2)Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $713,000 for the first nine months of 2025, compared to $461,000 for the first nine months of 2024. Prepayment fees totaled $882,000 for the first nine months of 2025, compared to $82,000 for the first nine months of 2024. (3)Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate. This is a non-GAAP financial measure as defined and discussed under “Non-GAAP Financial Measures” in this press release.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Management considers adjusted net income and adjusted earnings per share, which excludes the $9.2 million of charges primarily related to a legal settlement in the second quarter of 2025 and first nine months of 2025 as a useful measurement of the Company's profitability compared to other periods presented.
The following table summarizes components of net income and diluted earnings per share for the periods indicated:
NET INCOME AND
For the Quarter Ended:
DILUTED EARNINGS PER SHARE
September 30,
June 30,
March 31,
December 31,
September 30,
(in $000's, unaudited)
2025
2025
2025
2024
2024
Reported net income (GAAP)
$
14,698
$
6,389
$
11,626
$
10,621
$
10,507
Add: pre-tax legal settlement and other charges
—
9,184
—
—
—
Less: related income taxes
—
(2,618
)
—
—
—
Adjusted net income (non-GAAP)
$
14,698
$
12,955
$
11,626
$
10,621
$
10,507
Weighted average shares outstanding – diluted
61,616,785
61,624,600
61,708,361
61,679,735
61,546,157
Reported diluted earnings per share (GAAP)
$
0.24
$
0.10
$
0.19
$
0.17
$
0.17
Adjusted diluted earnings per share (non-GAAP)
$
0.24
$
0.21
$
0.19
$
0.17
$
0.17
NET INCOME AND
For the Nine Months Ended:
DILUTED EARNINGS PER SHARE
September 30,
September 30,
(in $000's, except per share amounts, unaudited)
2025
2024
Reported net income (GAAP)
$
32,713
$
29,907
Add: pre-tax legal settlement and other charges
9,184
—
Less: related income taxes
(2,618
)
—
Adjusted net income (non-GAAP)
$
39,279
$
29,907
Weighted average shares outstanding – diluted
61,687,616
61,497,927
Reported diluted earnings per share (GAAP)
$
0.53
$
0.49
Adjusted diluted earnings per share (non-GAAP)
$
0.64
$
0.49
Management considers tangible book value per share as a useful measurement of the Company's equity. The Company references the return on average tangible common equity and the return on average tangible assets as measurements of profitability.
The following table summarizes components of the tangible book value per share at the dates indicated:
TANGIBLE BOOK VALUE PER SHARE
September 30,
June 30,
March 31,
December 31,
September 30,
(in $000's, unaudited)
2025
2025
2025
2024
2024
Capital components:
Total equity (GAAP)
$
700,010
$
694,704
$
696,190
$
689,727
$
685,352
Less: preferred stock
—
—
—
—
—
Total common equity
700,010
694,704
696,190
689,727
685,352
Less: goodwill
(167,631
)
(167,631
)
(167,631
)
(167,631
)
(167,631
)
Less: other intangible assets
(5,078
)
(5,532
)
(5,986
)
(6,439
)
(6,966
)
Reported tangible common equity (non-GAAP)
527,301
521,541
522,573
515,657
510,755
Add: pre-tax legal settlement and other charges
9,184
9,184
—
—
—
Less: related income taxes
(2,618
)
(2,618
)
—
—
—
Adjusted tangible common equity (non-GAAP)
$
533,867
$
528,107
$
522,573
$
515,657
$
510,755
Common shares outstanding at period-end
61,277,541
61,446,763
61,611,121
61,348,095
61,297,344
Reported tangible book value per share (non-GAAP)
$
8.61
$
8.49
$
8.48
$
8.41
$
8.33
Adjusted tangible book value per share (non-GAAP)
$
8.71
$
8.59
$
8.48
$
8.41
$
8.33
The following tables summarize components of the annualized return on average tangible common equity and the annualized return on average tangible assets for the periods indicated:
RETURN ON AVERAGE TANGIBLE COMMON
For the Quarter Ended:
EQUITY AND AVERAGE ASSETS
September 30,
June 30,
March 31,
December 31,
September 30,
(in $000's, unaudited)
2025
2025
2025
2024
2024
Reported net income (GAAP)
$
14,698
$
6,389
$
11,626
$
10,621
$
10,507
Add: pre-tax legal settlement and other charges
—
9,184
—
—
—
Less: related income taxes
—
(2,618
)
—
—
—
Adjusted net income (non-GAAP)
$
14,698
$
12,955
$
11,626
$
10,621
$
10,507
Average tangible common equity components:
Average equity (GAAP)
$
696,385
$
697,016
$
692,733
$
686,263
$
680,404
Less: goodwill
(167,631
)
(167,631
)
(167,631
)
(167,631
)
(167,631
)
Less: other intangible assets
(5,358
)
(5,817
)
(6,264
)
(6,770
)
(7,322
)
Total average tangible common equity (non-GAAP)
$
523,396
$
523,568
$
518,838
$
511,862
$
505,451
Reported annualized return on average equity (GAAP)
8.37
%
3.68
%
6.81
%
6.16
%
6.14
%
Adjusted annualized return on average equity (non-GAAP)
8.37
%
7.45
%
6.81
%
6.16
%
6.14
%
Reported annualized return on average
tangible common equity (non-GAAP)
11.14
%
4.89
%
9.09
%
8.25
%
8.27
%
Adjusted annualized return on average
tangible common equity (non-GAAP)
11.14
%
9.92
%
9.09
%
8.25
%
8.27
%
Average Assets (GAAP)
$
5,551,457
$
5,458,420
$
5,559,896
$
5,607,840
$
5,352,067
Reported annualized return on average assets (GAAP)
1.05
%
0.47
%
0.85
%
0.75
%
0.78
%
Adjusted annualized return on average assets (non-GAAP)
1.05
%
0.95
%
0.85
%
0.75
%
0.78
%
RETURN ON AVERAGE TANGIBLE COMMON
For the Nine Months Ended:
EQUITY AND AVERAGE ASSETS
September 30,
September 30,
(in $000's, unaudited)
2025
2024
Reported net income (GAAP)
$
32,713
$
29,907
Add: pre-tax legal settlement and other charges
9,184
—
Less: related income taxes
(2,618
)
—
Adjusted net income (non-GAAP)
$
39,279
$
29,907
Average tangible common equity components:
Average equity (GAAP)
$
695,391
$
675,951
Less: goodwill
(167,631
)
(167,631
)
Less: other intangible assets
(5,810
)
(7,864
)
Total average tangible common equity (non-GAAP)
$
521,950
$
500,456
Reported annualized return on average equity (GAAP)
6.29
%
5.91
%
Adjusted annualized return on average equity (non-GAAP)
7.55
%
5.91
%
Reported annualized return on average
tangible common equity (non-GAAP)
8.38
%
7.98
%
Adjusted annualized return on average
tangible common equity (non-GAAP)
10.06
%
7.98
%
Average Assets (GAAP)
$
5,523,227
$
5,248,338
Reported annualized return on average assets (GAAP)
0.79
%
0.76
%
Adjusted annualized return on average assets (non-GAAP)
0.95
%
0.76
%
Management reviews yields on certain asset categories and the net interest margin of the Company on an FTE basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis using tax rates effective as of the end of the period. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. The following tables summarize components of FTE net interest income of the Company for the periods indicated:
NET INTEREST INCOME
For the Quarter Ended:
AND NET INTEREST MARGIN
September 30,
June 30,
March 31,
December 31,
September 30,
(in $000's, unaudited)
2025
2025
2025
2024
2024
Net interest income before
credit losses on loans (GAAP)
$
46,788
$
44,805
$
43,360
$
43,595
$
39,329
Tax-equivalent adjustment on securities –
exempt from Federal tax
53
57
58
58
59
Net interest income, FTE (non-GAAP)
$
46,841
$
44,862
$
43,418
$
43,653
$
39,388
Average balance of total interest earning assets
$
5,167,710
$
5,087,089
$
5,188,317
$
5,235,986
$
4,980,082
Net interest margin (annualized net interest income divided by the
average balance of total interest earnings assets) (GAAP)
3.59
%
3.53
%
3.39
%
3.31
%
3.14
%
Net interest margin, FTE (annualized net interest income, FTE,
divided by the average balance of total
earnings assets) (non-GAAP)
3.60
%
3.54
%
3.39
%
3.32
%
3.15
%
NET INTEREST INCOME
For the Nine Months Ended:
AND NET INTEREST MARGIN
September 30,
September 30,
(in $000's, unaudited)
2025
2024
Net interest income before
credit losses on loans (GAAP)
$
134,953
$
117,698
Tax-equivalent adjustment on securities – exempt from Federal tax
168
179
Net interest income, FTE (non-GAAP)
$
135,121
$
117,877
Average balance of total interest earning assets
$
5,147,630
$
4,909,240
Net interest margin (annualized net interest income divided by the
average balance of total interest earnings assets) (GAAP)
3.51
%
3.22
%
Net interest margin, FTE (annualized net interest income, FTE, divided by the
average balance of total interest earnings assets) (non-GAAP)
3.51
%
3.23
%
Management views its PPNR as a key metric for assessing the Company's earnings power. The following table summarizes the components of PPNR for the periods indicated:
For the Quarter Ended:
PRE-PROVISION NET REVENUE
September 30,
June 30,
March 31,
December 31,
September 30,
(in $000's, unaudited)
2025
2025
2025
2024
2024
Net interest income before credit losses on loans
$
46,788
$
44,805
$
43,360
$
43,595
$
39,329
Noninterest income
3,217
2,977
2,696
2,775
2,826
Total revenue
50,005
47,782
46,056
46,370
42,155
Less: Noninterest expense
(29,026
)
(38,335
)
(29,456
)
(30,304
)
(27,555
)
Reported PPNR (GAAP)
20,979
9,447
16,600
16,066
14,600
Add: pre-tax legal settlement and other charges
—
9,184
—
—
—
Adjusted PPNR (non-GAAP)
$
20,979
$
18,631
$
16,600
$
16,066
$
14,600
For the Nine Months Ended:
PRE-PROVISION NET REVENUE
September 30,
September 30,
(in $000's, unaudited)
2025
2024
Net interest income before credit losses on loans
$
134,953
$
117,698
Noninterest income
8,890
8,328
Total revenue
143,843
126,026
Less: Noninterest expense
(96,817
)
(83,279
)
Reported PPNR (GAAP)
47,026
42,747
Add: pre-tax legal settlement and other charges
9,184
—
Adjusted PPNR (non-GAAP)
$
56,210
$
42,747
The efficiency ratio, which is calculated by dividing noninterest expense by total revenue (net interest income plus noninterest income), measures how much it costs to produce one dollar of revenue. The following tables summarize components of the efficiency ratio of the Company for the periods indicated:
NONINTEREST EXPENSE AND
For the Quarter Ended:
EFFICIENCY RATIO
September 30,
June 30,
March 31,
December 31,
September 30,
(in $000's, unaudited)
2025
2025
2025
2024
2024
Reported noninterest expense (GAAP)
$
29,026
$
38,335
$
29,456
$
30,304
$
27,555
Less: pre-tax legal settlement and other charges
—
(9,184
)
—
—
—
Adjusted noninterest expense (non-GAAP)
$
29,026
$
29,151
$
29,456
$
30,304
$
27,555
Net interest income before credit losses on loans
$
46,788
$
44,805
$
43,360
$
43,595
$
39,329
Noninterest income
3,217
2,977
2,696
2,775
2,826
Total revenue
$
50,005
$
47,782
$
46,056
$
46,370
$
42,155
Reported efficiency ratio (noninterest expense divided
by total revenue) (GAAP)
58.05
%
80.23
%
63.96
%
65.35
%
65.37
%
Adjusted efficiency ratio (adjusted noninterest expense
divided by total revenue) (non-GAAP)
58.05
%
61.01
%
63.96
%
65.35
%
65.37
%
NONINTEREST EXPENSE AND
For the Nine Months Ended:
EFFICIENCY RATIO
September 30,
September 30,
(in $000's, unaudited)
2025
2024
Reported noninterest expense (GAAP)
$
96,817
$
83,279
Less: pre-tax legal settlement and other charges
(9,184
)
—
Adjusted noninterest expense (non-GAAP)
$
87,633
$
83,279
Net interest income before credit losses on loans
$
134,953
$
117,698
Noninterest income
8,890
8,328
Total revenue
$
143,843
$
126,026
Reported efficiency ratio (noninterest expense divided
by total revenue) (GAAP)
67.31
%
66.08
%
Adjusted efficiency ratio (adjusted noninterest expense
divided by total revenue) (non-GAAP)
60.92
%
66.08
%
Management considers the tangible common equity ratio as a useful measurement of the Company's and the Bank's equity. The following table summarizes components of the tangible common equity to tangible assets ratio of the Company at the dates indicated:
TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS
September 30,
June 30,
March 31,
December 31,
September 30,
(in $000's, unaudited)
2025
2025
2025
2024
2024
Heritage Commerce Corp:
Capital components:
Total equity (GAAP)
$
700,010
$
694,704
$
696,190
$
689,727
$
685,352
Less: preferred stock
—
—
—
—
—
Total common equity
700,010
694,704
696,190
689,727
685,352
Less: goodwill
(167,631
)
(167,631
)
(167,631
)
(167,631
)
(167,631
)
Less: other intangible assets
(5,078
)
(5,532
)
(5,986
)
(6,439
)
(6,966
)
Total tangible common equity (non-GAAP)
$
527,301
$
521,541
$
522,573
$
515,657
$
510,755
Asset components:
Total assets (GAAP)
$
5,623,720
$
5,467,237
$
5,514,255
$
5,645,006
$
5,551,596
Less: goodwill
(167,631
)
(167,631
)
(167,631
)
(167,631
)
(167,631
)
Less: other intangible assets
(5,078
)
(5,532
)
(5,986
)
(6,439
)
(6,966
)
Total tangible assets (non-GAAP)
$
5,451,011
$
5,294,074
$
5,340,638
$
5,470,936
$
5,376,999
Tangible common equity / tangible assets (non-GAAP)
9.67
%
9.85
%
9.78
%
9.43
%
9.50
%
The following table summarizes components of the tangible common equity to tangible assets ratio of the Bank at the dates indicated:
TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS
September 30,
June 30,
March 31,
December 31,
September 30,
(in $000's, unaudited)
2025
2025
2025
2024
2024
Heritage Bank of Commerce:
Capital components:
Total Equity (GAAP)
$
724,780
$
717,103
$
715,605
$
709,379
$
704,585
Less: Preferred Stock
—
—
—
—
—
Total Common Equity
724,780
717,103
715,605
709,379
704,585
Less: Goodwill
(167,631
)
(167,631
)
(167,631
)
(167,631
)
(167,631
)
Less: Other Intangible Assets
(5,078
)
(5,532
)
(5,986
)
(6,439
)
(6,966
)
Total Tangible Common Equity (non-GAAP)
$
552,071
$
543,940
$
541,988
$
535,309
$
529,988
Asset components:
Total Assets (GAAP)
$
5,620,681
$
5,464,618
$
5,512,160
$
5,641,646
$
5,548,576
Less: Goodwill
(167,631
)
(167,631
)
(167,631
)
(167,631
)
(167,631
)
Less: Other Intangible Assets
(5,078
)
(5,532
)
(5,986
)
(6,439
)
(6,966
)
Total Tangible Assets (non-GAAP)
$
5,447,972
$
5,291,455
$
5,338,543
$
5,467,576
$
5,373,979
Tangible common equity / tangible assets (non-GAAP)
