Heritage Commerce Corp Earns $13.3 Million for the Fourth Quarter of 2023, and $64.4 Million for the Full Year 2023

SAN JOSE, Calif., Jan. 25, 2024 (GLOBE NEWSWIRE) — Heritage Commerce Corp (Nasdaq: HTBK), (the “Company”), the holding company for Heritage Bank of Commerce (the “Bank”), today announced that its fourth quarter 2023 net income was $13.3 million, or $0.22 per average diluted common share, compared to $20.8 million, or $0.34 per average diluted common share, for the fourth quarter of 2022, and $15.8 million, or $0.26 per average diluted common share, for the third quarter of 2023. For the year ended December 31, 2023, net income was $64.4 million, or $1.05 per average diluted common share, compared to $66.6 million, or $1.09 per average diluted common share, for the year ended December 31, 2022. All results are unaudited.

"In 2023, despite challenges faced by many banks, the Company had a successful year with stable client deposits and 9% growth in year-over-year tangible book value. The fourth quarter showed solid performance, contributing to our second-best year in net income, surpassed only by the record profits of 2022," said Clay Jones, President and Chief Executive Officer. "Our loan growth resulted in an increase of 2% for both year-over-year and from the prior quarter. This loan growth, coupled with stable client deposits, showcases our resilience in an increasing interest rate environment. Although net interest income was impacted, as expected, we anticipate stabilization in our cost of funds following the recent Fed guidance on expected rate reductions in 2024."

Mr. Jones added, "Our focus remains on orderly organic growth, while avoiding borrowed funds and brokered deposits. Our local community retail and commercial deposit relationships serve as a stable and lower-cost funding source, reflecting our disciplined management approach. We have a strong balance sheet, evidenced by robust capital, ample liquidity, and a diversified loan portfolio.  We continue to add to loan reserves reflecting our solid loan growth while credit costs are modest.  I extend my gratitude to our dedicated team members for their talent and commitment in serving our community and clients, and driving our company forward."

Current Financial Condition and Liquidity Position

The following are important factors in understanding our current financial condition and liquidity position:

Liquidity and Available Lines of Credit:

• The following table shows our liquidity and available lines of credit at December 31, 2023:

LIQUIDITY AND AVAILABLE LINES OF CREDIT		Total
(in $000’s, unaudited)		Available
Excess funds at the Federal Reserve Bank ("FRB")		$	365,500
FRB discount window collateralized line of credit			1,235,573
Federal Home Loan Bank ("FHLB") collateralized borrowing capacity			1,100,931
Unpledged investment securities (at fair value)			58,120
Federal funds purchase arrangements			90,000
Holding company line of credit			20,000
Total		$	2,870,124

• The Company’s total liquidity and borrowing capacity was $2.87 billion, all of which remained available at December 31, 2023.
• The available liquidity and borrowing capacity was 66% of the Company’s total deposits and approximately 142% of the Bank’s estimated uninsured deposits at December 31, 2023.
• The Bank increased its credit line availability from the FRB and the FHLB by $1.50 billion to $2.34 billion at December 31, 2023, from $839.5 million at December 31, 2022.
• The loan to deposit ratio was 76.52% at December 31, 2023, compared to 75.14% at December 31, 2022, and 71.81% at September 30, 2023, providing the Bank with ample liquidity and capacity to provide future credit to the community.

Deposits:

• Total deposits were relatively flat at $4.38 billion at December 31, 2023, compared to $4.39 billion at December 31, 2022. Total deposits decreased ($197.0) million, or (4%) from $4.58 billion at September 30, 2023, as a result of deposit outflows from clients operating expenses, tax payments, one-time capital events, profit distributions, and to a lesser extent clients moving deposits to outside investment alternatives.
• Migration of client deposits into interest-bearing accounts resulted in an increase in Insured Cash Sweep (“ICS”)/Certificate of Deposit Account Registry Service (“CDARS”) deposits to $854.1 million at December 31, 2023, compared to $30.4 million at December 31, 2022, and decreased ($67.1) million from $921.2 million at September 30, 2023.   
• Noninterest-bearing demand deposits decreased ($444.2) million, or (26%), to $1.29 billion at December 31, 2023 from $1.74 billion at December 31, 2022, largely in response to the increasing interest rate environment. Noninterest-bearing demand deposits increased $49.0 million, or 4%, from $1.24 billion at September 30, 2023, evidencing stabilization in deposit mix and partially helped by a single customer temporarily moving significant deposits into this category at year-end.
• The Bank had 24,737 deposit accounts at December 31, 2023, with an average balance of $177,000, compared to 24,769 deposit accounts at September 30, 2023, with an average balance of $185,000. At December 31, 2022, the Company had 23,833 deposit accounts, with an average balance of $184,000.
• Deposits from the Bank’s top 100 client relationships, representing 22% of the total number of accounts, totaled $1.96 billion, representing 45% of total deposits, with an average account size of $368,000, at December 31, 2023. At December 31, 2022, deposits from the Bank’s top 100 client relationships, representing 18% of the total number of accounts, totaled $2.03 billion, representing 46% of total deposits, with an average account size of $469,000. At September 30, 2023, deposits from the Bank’s top 100 client relationships, representing 22% of the total number of accounts, totaled $2.19 billion, representing 48% of total deposits, with an average account size of $408,000.

Investment Securities:

• Investment securities totaled $1.09 billion at December 31, 2023, of which $442.6 million were in the securities available-for-sale portfolio (at fair value), and $650.6 million were in the securities held-to-maturity portfolio (at amortized cost, net of allowance for credit losses of $12,000). The fair value of the securities held-to-maturity portfolio was $564.1 million at December 31, 2023.
• The weighted average life of the total investment securities portfolio was 4.40 years at December 31, 2023.
• The following are the projected cash flows from paydowns and maturities in the investment securities portfolio for the periods indicated based on the current interest rate environment:

					Agency
					Mortgage-
					backed and
PROJECTED INVESTMENT SECURITIES PAYDOWNS & MATURITIES		U.S.			Municipal
(in $000’s, unaudited)		Treasury			Securities			Total
First quarter of 2024		$	37,000		$	28,977		$	65,977
Second quarter of 2024			131,000			20,338			151,338
Third quarter of 2024			37,500			20,441			57,941
Fourth quarter of 2024			9,000			19,320			28,320
First quarter of 2025			35,000			18,835			53,835
Second quarter of 2025			118,000			18,366			136,366
Third quarter of 2025			25,500			19,209			44,709
Fourth quarter of 2025			—			17,460			17,460
Total		$	393,000		$	162,946		$	555,946

Loans:

• Loans, excluding loans held-for-sale, increased $51.8 million, or 2%, to $3.35 billion at December 31, 2023 from $3.30 billion at December 31, 2022, and increased $64.9 million, or 2%, from $3.29 billion at September 30, 2023. Core loans, excluding residential mortgages, increased $92.8 million, or 3%, to $2.85 billion at December 31, 2023, compared to $2.76 billion at December 31, 2022, and increased $71.0 million, or 3%, from $2.78 billion at September 30, 2023.  
• Commercial real estate (“CRE”) loans totaled $1.84 billion at December 31, 2023, of which 32% were owner occupied and 68% were investor CRE loans.
• During the fourth quarter of 2023, there were 28 new CRE loans originated totaling $57 million with a weighted average loan-to-value and debt-service coverage for the non-owner occupied portfolio of 35% and 2.31 times, respectively.
• The average loan size for all CRE loans was $1.6 million, and the average loan size for office CRE loans was also $1.6 million.
• The Company has personal guarantees on 91% of its CRE portfolio. A substantial portion of the unguaranteed CRE loans were made to credit-worthy non-profit organizations.
• Total office exposure in the CRE portfolio was $399 million, including 29 loans totaling approximately $75 million in San Jose, 17 loans totaling approximately $26 million in San Francisco, and eight loans totaling approximately $16 million in Oakland, at December 31, 2023.   Non-owner occupied CRE with office exposure totaled $312 million at December 31, 2023.
• Of the $399 million of CRE loans with office exposure, approximately $36 million, or 9%, are situated in the Bay Area downtown business districts of San Jose and San Francisco, with an average loan balance of $2.1 million.
• At December 31, 2023, the weighted average loan-to-value and debt-service coverage ratio for the entire non-owner occupied office portfolio were 42.9% and 1.82 times, respectively. For the nine non-owner occupied office loans in San Francisco at December 31, 2023, the weighted average loan-to-value and debt-service coverage ratio were 35% and 1.48 times, respectively.

Fourth Quarter Ended December 31, 2023
Operating Results, Balance Sheet Review, Capital Management, and Credit Quality

(as of, or for the periods ended December 31, 2023, compared to December 31, 2022, and September 30, 2023, except as noted):

Operating Results:

• Diluted earnings per share were $0.22 for the fourth quarter of 2023, compared to $0.34 for the fourth quarter of 2022, and $0.26 for the third quarter of 2023. Diluted earnings per share were $1.05 for the year ended December 31, 2023, compared to $1.09 for the year ended December 31, 2022.
• The following table indicates the ratios for the return on average tangible assets and the return on average tangible common equity for the periods indicated:

		For the Quarter Ended:												For the Year Ended:
		December 31,				September 30,				December 31,				December 31,				December 31,
(unaudited)		2023				2023				2022				2023				2022
Return on average tangible assets		1.03	%			1.20	%			1.59	%			1.26	%			1.27	%
Return on average tangible common equity		10.84	%			13.06	%			18.89	%			13.57	%			15.57	%

• Net interest income decreased (18%) to $42.3 million for the fourth quarter of 2023, compared to $51.7 million for the fourth quarter of 2022. The fully tax equivalent (“FTE”) net interest margin decreased (69) basis points to 3.41% for the fourth quarter of 2023, from 4.10% for the fourth quarter of 2022, primarily due to higher rates paid on customer deposits, and a decrease in the average balances of noninterest-bearing demand deposits, partially offset by increases in the prime rate and the rate on overnight funds.
  • Net interest income decreased (7%) to $42.3 million for the fourth quarter of 2023, compared to $45.4 million for the third quarter of 2023. The FTE net interest margin decreased (16) basis points to 3.41% for the fourth quarter of 2023 from 3.57% for the third quarter of 2023, primarily due to higher rates paid on customer deposits, and a decrease in the average balances of noninterest bearing demand deposits, partially offset by higher average yields on overnight funds, and an increase in the average balance of loans.
  • For the year ended December 31, 2023, the net interest income increased 2% to $183.2 million, compared to $179.9 million for the year ended December 31, 2022. The FTE net interest margin increased 13 basis points to 3.70% for the year ended December 31, 2023, from 3.57% for the year ended December 31, 2022, primarily due to increases in the prime rate and the rate on overnight funds, and a shift in the mix of earning assets as the Company invested its excess liquidity into higher yielding loans, partially offset by a higher rates paid on customer deposits, a decrease in the average balances of noninterest-bearing demand deposits, and an increase in the average balances of short-term borrowings.
• The following table, as of December 31, 2023, sets forth the estimated changes in the Company’s annual net interest income that would result from an instantaneous shift in interest rates from the base rate:

			Increase/(Decrease) in
			Estimated Net
			Interest Income(1)
	CHANGE IN INTEREST RATES (basis points)		Amount				Percent
	(in $000’s, unaudited)
	+400		$	10,703			5.6	%
	+300		$	7,997			4.2	%
	+200		$	5,311			2.8	%
	+100		$	2,648			1.4	%
	0			—			—
	−100		$	(3,197	)		(1.7	)%
	−200		$	(10,513	)		(5.5	)%
	−300		$	(22,609	)		(11.8	)%
	−400		$	(37,896	)		(19.8	)%

(1	)	Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. These projections are forward-looking and should be considered in light of the Forward-Looking Statement Disclaimer below. Actual rates paid on deposits may differ from the hypothetical interest rates modeled due to competitive or market factors, which could reduce any actual impact on net interest income.

• The following tables present the average balance of loans outstanding, interest income, and the average yield for the periods indicated:
  • The average yield on the total loan portfolio decreased to 5.39% for the fourth quarter of 2023, compared to 5.46% for the third quarter of 2023, primarily due to lower loan yields on the core bank, lower average balances of asset-based lending loans, a decrease in the accretion of loan purchase discount into interest income from acquired loans, and lower prepayment fees.

		For the Quarter Ended									For the Quarter Ended
		December 31, 2023									September 30, 2023
		Average				Interest			Average		Average				Interest			Average
(in $000’s, unaudited)		Balance				Income			Yield		Balance				Income			Yield
Loans, core bank		$	2,758,935			$	37,303		5.36	%	$	2,720,010			$	37,171		5.42	%
Prepayment fees			—				91		0.01	%		—				182		0.03	%
Asset-based lending			14,717				371		10.00	%		23,983				593		9.81	%
Bay View Funding factored receivables			52,861				2,803		21.04	%		51,664				2,775		21.31	%
Purchased residential mortgages			459,268				3,812		3.29	%		465,471				3,811		3.25	%
Loan fair value mark / accretion			(3,352	)			255		0.04	%		(3,648	)			321		0.05	%
Total loans (includes loans held-for-sale)		$	3,282,429			$	44,635		5.39	%	$	3,257,480			$	44,853		5.46	%

• The average yield on the total loan portfolio increased to 5.39% for the fourth quarter of 2023, compared to 5.19% for the fourth quarter of 2022, primarily due to increases in the prime rate.

		For the Quarter Ended									For the Quarter Ended
		December 31, 2023									December 31, 2022
		Average				Interest			Average		Average				Interest			Average
(in $000’s, unaudited)		Balance				Income			Yield		Balance				Income			Yield
Loans, core bank		$	2,758,935			$	37,303		5.36	%	$	2,662,873			$	33,702		5.02	%
Prepayment fees			—				91		0.01	%		—				123		0.02	%
Asset-based lending			14,717				371		10.00	%		35,519				756		8.44	%
Bay View Funding factored receivables			52,861				2,803		21.04	%		71,789				3,696		20.43	%
Purchased residential mortgages			459,268				3,812		3.29	%		485,149				3,842		3.14	%
Loan fair value mark / accretion			(3,352	)			255		0.04	%		(4,774	)			382		0.06	%
Total loans (includes loans held-for-sale)		$	3,282,429			$	44,635		5.39	%	$	3,250,556			$	42,501		5.19	%

•

The average yield on the total loan portfolio increased to 5.45% for the year ended December 31, 2023, compared to 4.91% for the year ended December 31, 2022, primarily due to increases in the prime rate, partially offset by a decrease in the accretion of the loan purchase discount into interest income from acquired loans, lower prepayment fees, and higher average balances of lower yielding purchased residential mortgages.

		For the Year Ended									For the Year Ended
		December 31, 2023									December 31, 2022
		Average				Interest			Average		Average				Interest			Average
(in $000’s, unaudited)		Balance				Income			Yield		Balance				Income			Yield
Loans, core bank		$	2,707,198			$	144,751		5.35	%	$	2,591,027			$	120,166		4.64	%
Prepayment fees			—				484		0.02	%		—				1,278		0.05	%
Asset-based lending			23,591				2,277		9.65	%		51,990				3,613		6.95	%
Bay View Funding factored receivables			62,642				13,426		21.43	%		64,099				12,819		20.00	%
Purchased residential mortgages			472,582				15,309		3.24	%		417,672				12,395		2.97	%
Loan fair value mark / accretion			(3,819	)			1,381		0.05	%		(5,782	)			2,739		0.11	%
Total loans (includes loans held-for-sale)		$	3,262,194			$	177,628		5.45	%	$	3,119,006			$	153,010		4.91	%

•

In aggregate, the remaining net purchase discount on total loans acquired was $3.2 million at December 31, 2023.

• The following table presents the average balance of deposits and interest-bearing liabilities, interest expense, and the average rate for the periods indicated:

		For the Quarter Ended								For the Quarter Ended
		December 31, 2023								September 30, 2023
		Average			Interest			Average		Average			Interest			Average
(in $000’s, unaudited)		Balance			Expense			Rate		Balance			Expense			Rate
Deposits:
Demand, noninterest-bearing		$	1,243,222							$	1,302,606
Demand, interest-bearing			948,061		$	1,661		0.70	%		1,017,686		$	1,730		0.67	%
Savings and money market			1,096,962			6,216		2.25	%		1,087,336			5,514		2.01	%
Time deposits – under $100			11,389			37		1.29	%		11,966			30		0.99	%
Time deposits – $100 and over			234,140			2,130		3.61	%		272,362			2,489		3.63	%
ICS/CDARS – interest-bearing demand, money market
and time deposits			920,976			6,009		2.59	%		881,665			5,117		2.30	%
Total interest-bearing deposits			3,211,528			16,053		1.98	%		3,271,015			14,880		1.80	%
Total deposits			4,454,750			16,053		1.43	%		4,573,621			14,880		1.29	%
Short-term borrowings			29			—		0.00	%		31			—		0.00	%
Subordinated debt, net of issuance costs			39,477			538		5.41	%		39,439			539		5.42	%
Total interest-bearing liabilities			3,251,034			16,591		2.02	%		3,310,485			15,419		1.85	%
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds		$	4,494,256		$	16,591		1.46	%	$	4,613,091		$	15,419		1.33	%

	•	The average cost of total deposits increased to 1.43% for the fourth quarter of 2023, compared to 1.29% for the third quarter of 2023. The average cost of funds increased to 1.46% for the fourth quarter of 2023, compared to 1.33% for the third quarter of 2023. The average cost of deposits was 0.25% and the average cost of funds was 0.30% for the fourth quarter of 2022.
	•	The average cost of total deposits increased to 1.06% for the year ended December 31, 2023, compared to 0.15% for the year ended December 31, 2022. The average cost of funds increased to 1.13% for the year ended December 31, 2023, compared to 0.19% for the year ended December 31, 2022.
	•	The increase in the average cost of total deposits and the average cost of funds for the fourth quarter of 2023 and the year ended December 31, 2023 was primarily due to clients seeking higher yields and moving noninterest-bearing deposits to the Bank’s interest-bearing and ICS deposits and an increase in market interest rates.

• During the fourth quarter of 2023, we recorded a provision for credit losses on loans of $289,000, compared to a $508,000 provision for credit losses on loans for the fourth quarter of 2022, and a provision for credit losses on loans of $168,000 for the third quarter of 2023. There was a provision for credit losses on loans of $749,000 for the year ended December 31, 2023, compared to a $766,000 provision for credit losses on loans for the year ended December 31, 2022.
• Total noninterest income decreased (30%) to $1.9 million for the fourth quarter of 2023, compared to $2.8 million for the fourth quarter of 2022, primarily due to lower service charges and fees on deposit accounts during the fourth quarter of 2023. Total noninterest income decreased (12%) to $1.9 million for the fourth quarter of 2023, compared to $2.2 million for the third quarter of 2023, primarily due to no gain on sales of SBA loans, lower termination fees at Bay View Funding, and a lower gain on proceeds from company-owned life insurance during the fourth quarter of 2023.
  • For the year ended December 31, 2023, total noninterest income decreased (11%) to $9.0 million, compared to $10.1 million for the year ended December 31, 2022, primarily due to a $669,000 gain on warrants during the year ended December 31, 2022, and lower service charges and fees on deposit accounts, servicing income, and interchange fee income on credit cards, during the year ended December 31, 2023.
• Total noninterest expense for the fourth quarter of 2023 increased to $25.5 million, compared to $24.5 million for the fourth quarter of 2022, primarily due to higher insurance costs, regulatory assessments, and information technology related expenses included in other noninterest expense, partially offset by lower professional fees and occupancy and equipment expense during the fourth quarter of 2023. Total noninterest expense for the fourth quarter of 2023 increased to $25.5 million, compared to $25.2 million for the third quarter of 2023, primarily due to higher professional fees.
  • Total noninterest expense for the year ended December 31, 2023 increased to $101.1 million, compared to $94.9 million for the year ended December 31, 2022, primarily due to higher salaries and employee benefits, and higher insurance costs, regulatory assessments, improvements in information technology, and ICS/CDARS fee expenses included in other noninterest expense, partially offset by lower professional fees and occupancy and equipment expense during the year ended December 31, 2023.
  • Full time equivalent employees were 349 at December 31, 2023, and 340 at December 31, 2022, and 348 at September 30, 2023.  
• The efficiency ratio was 57.62% for the fourth quarter of 2023, compared to 44.98% for the fourth quarter of 2022, and 52.89% for the third quarter of 2023. The efficiency ratio was 52.57% for the year ended December 31, 2023, compared to 49.93% for the year ended December 31, 2022.
• Income tax expense was $5.1 million for the fourth quarter of 2023, compared to $8.7 million for the fourth quarter of 2022, and $6.5 million for the third quarter of 2023. The effective tax rate for the fourth quarter of 2023 was 27.8%, compared to 29.5% for the fourth quarter of 2022, and 29.0% for the third quarter of 2023. Income tax expense for the year ended December 31, 2023 was $26.0 million, compared to $27.8 million for the year ended December 31, 2022. The effective tax rate for the year ended December 31, 2023 was 28.7%, compared to 29.5% for the year ended December 31, 2022.

Balance Sheet Review, Capital Management and Credit Quality:

• Total assets increased 1% to $5.19 billion at December 31, 2023, compared to $5.16 billion at December 31, 2022, and decreased (4%) from $5.40 billion at September 30, 2023.  
• The following table shows the balances of securities available-for-sale, at fair value, and the related pre-tax unrealized (loss) for the periods indicated:

SECURITIES AVAILABLE-FOR-SALE		December 31,				September 30,				December 31,
(in $000’s, unaudited)		2023				2023				2022
Balance (at fair value):
U.S. Treasury		$	382,369			$	396,996			$	418,474
Agency mortgage-backed securities			60,267				60,198				71,122
Total		$	442,636			$	457,194			$	489,596
Pre-tax unrealized (loss):
U.S. Treasury		$	(5,621	)		$	(9,606	)		$	(10,323	)
Agency mortgage-backed securities			(4,313	)			(7,185	)			(5,794	)
Total		$	(9,934	)		$	(16,791	)		$	(16,117	)

	•	The pre-tax unrealized loss on the securities available-for-sale portfolio was ($9.9) million, or ($7.1) million net of taxes, which was 1.1% of total shareholders’ equity at December 31, 2023, down from ($16.8) million, or ($12.0) million net of taxes, at September 30, 2023, due to lower interest rates.
	•	The weighted average life of the securities available-for-sale portfolio was 1.29 years at December 31, 2023.

• The following table shows the balances of securities held-to-maturity, at amortized cost, and the related pre-tax unrecognized (loss) and allowance for credit losses for the periods indicated:

SECURITIES HELD-TO-MATURITY		December 31,				September 30,				December 31,
(in $000’s, unaudited)		2023				2023				2022
Balance (at amortized cost):
Agency mortgage-backed securities		$	618,374			$	632,241			$	677,381
Municipals — exempt from Federal tax (1)			32,203				32,453				37,623
Total (1)		$	650,577			$	664,694			$	715,004
Pre-tax unrecognized (loss):
Agency mortgage-backed securities		$	(85,729	)		$	(119,932	)		$	(99,742	)
Municipals — exempt from Federal tax			(721	)			(2,753	)			(810	)
Total		$	(86,450	)		$	(122,685	)		$	(100,552	)
Allowance for credit losses on municipal securities		$	(12	)		$	(13	)		$	(14	)

(1	)	Gross of the allowance for credit losses of $12,000 at December, 2023, $13,000 at September 30, 2023, and $14,000 at December 31, 2022.

	•	The pre-tax unrecognized loss on the securities held-to-maturity portfolio was ($86.5) million, or ($60.9) million net of taxes, which was 9.0% of total shareholders’ equity at December 31, 2023, down from ($122.7) million, or ($86.4) million net of taxes, at September 30, 2023, due to lower interest rates.
	•	The weighted average life of the securities held-to-maturity portfolio was 6.57 years at December 31, 2023, which includes Community Reinvestment Act ("CRA") mortgage-backed securities with longer maturities.

• The unrealized and unrecognized losses in both the available-for-sale and held-to-maturity portfolios were due to higher interest rates at December 31, 2023 compared to when the securities were purchased. The issuers are of high credit quality and all principal amounts are expected to be repaid when the securities mature. The fair value is expected to recover as the securities approach their maturity date and/or market rates decline.
• The following table summarizes the distribution of loans, excluding loans held-for-sale, and the percentage of distribution in each category for the periods indicated:

LOANS		December 31, 2023						September 30, 2023						December 31, 2022
(in $000’s, unaudited)		Balance				% to Total		Balance				% to Total		Balance				% to Total
Commercial		$	463,778			14	%	$	430,664			13	%	$	533,915			16	%
Real estate:
CRE – owner occupied			583,253			17	%		589,751			18	%		614,663			19	%
CRE – non-owner occupied			1,256,590			37	%		1,208,324			37	%		1,066,368			32	%
Land and construction			140,513			4	%		158,138			5	%		163,577			5	%
Home equity			119,125			4	%		124,477			4	%		120,724			4	%
Multifamily			269,734			8	%		253,129			7	%		244,882			7	%
Residential mortgages			496,961			15	%		503,006			15	%		537,905			16	%
Consumer and other			20,919			1	%		18,526			1	%		17,033			1	%
Total Loans			3,350,873			100	%		3,286,015			100	%		3,299,067			100	%
Deferred loan costs (fees), net			(495	)		—			(554	)		—			(517	)		—
Loans, net of deferred costs and fees		$	3,350,378			100	%	$	3,285,461			100	%	$	3,298,550			100	%

	•	Loans, excluding loans held-for-sale, increased $51.8 million, or 2%, to $3.35 billion at December 31, 2023, compared to $3.30 billion at December 31, 2022, and increased $64.9 million, or 2%, from $3.29 billion at September 30, 2023.   Core loans, excluding residential mortgages, increased $92.8 million, or 3%, to $2.85 billion at December, 2023, compared to $2.76 billion at December 31, 2022, and increased $71.0 million from $2.78 billion at September 30, 2023.
	•	Commercial and industrial (“C&I”) line utilization was 29% at both December 31, 2023 and December 31, 2022, compared to 27% at September 30, 2023.
	•	At December 31, 2023, there was 32% of the CRE loan portfolio secured by owner occupied real estate, compared to 37% at December 31, 2022, and 33% at September 30, 2023.

• The following table presents the maturity distribution of the Company’s loans, excluding loans held-for-sale, as of December 31, 2023. The table shows the distribution of such loans between those loans with predetermined (fixed) interest rates and those with variable (floating) interest rates. Floating rates generally fluctuate with changes in the prime rate as reflected in the Western Edition of The Wall Street Journal, and contractual repricing dates.

		Due in						Over One Year But
LOAN MATURITIES		One Year or Less						Less than Five Years						Over Five Years
(in $000’s, unaudited)		Balance			% to Total			Balance			% to Total			Balance			% to Total			Total
Loans with variable interest rates		$	359,013		40	%		$	269,586		30	%		$	274,829		30	%		$	903,428
Loans with fixed interest rates			74,940		3	%			621,480		25	%			1,751,025		72	%			2,447,445
Loans		$	433,953		13	%		$	891,066		27	%		$	2,025,854		60	%		$	3,350,873

	•	At December 31, 2023, approximately 27% of the Company’s loan portfolio consisted of floating interest rate loans, compared to 33% at December 31, 2022, and 27% at September 30, 2023.

• The following table summarizes the allowance for credit losses on loans (“ACLL”) for the periods indicated:

		At or For the Quarter Ended:												At or For the Year Ended:
ALLOWANCE FOR CREDIT LOSSES ON LOANS		December 31,				September 30,				December 31,				December 31,				December 31,
(in $000’s, unaudited)		2023				2023				2022				2023				2022
Balance at beginning of period		$	47,702			$	47,803			$	46,921			$	47,512			$	43,290
Charge-offs during the period			(160	)			(447	)			(56	)			(1,011	)			(434	)
Recoveries during the period			127				178				139				708				3,890
Net recoveries (charge-offs) during the period			(33	)			(269	)			83				(303	)			3,456
Provision for credit losses on loans during the period			289				168				508				749				766
Balance at end of period		$	47,958			$	47,702			$	47,512			$	47,958			$	47,512
Total loans, net of deferred fees		$	3,350,378			$	3,285,461			$	3,298,550			$	3,350,378			$	3,298,550
Total nonperforming loans		$	7,707			$	5,484			$	2,425			$	7,707			$	2,425
ACLL to total loans			1.43	%			1.45	%			1.44	%			1.43	%			1.44	%
ACLL to total nonperforming loans			622.27	%			869.84	%			1,959.26	%			622.27	%			1,959.26	%

•

The following table shows the drivers of change in ACLL for each of the four quarters of 2023:

DRIVERS OF CHANGE IN ACLL
(in $000’s, unaudited)
ACLL at December 31, 2022		$	47,512
Portfolio changes during the first quarter of 2023			(160	)
Qualitative and quantitative changes during the first
quarter of 2023 including changes in economic forecasts			(79	)
ACLL at March 31, 2023			47,273
Portfolio changes during the second quarter of 2023			1,652
Qualitative and quantitative changes during the second
quarter of 2023 including changes in economic forecasts			(1,122	)
ACLL at June 30, 2023			47,803
Portfolio changes during the third quarter of 2023			(117	)
Qualitative and quantitative changes during the third
quarter of 2023 including changes in economic forecasts			16
ACLL at September 30, 2023			47,702
Portfolio changes during the fourth quarter of 2023			1,216
Qualitative and quantitative changes during the fourth
quarter of 2023 including changes in economic forecasts			(960	)
ACLL at December 31, 2023		$	47,958

• The following is a breakout of nonperforming assets (“NPAs”) at the periods indicated:

NONPERFORMING ASSETS		December 31, 2023					September 30, 2023					December 31, 2022
(in $000’s, unaudited)		Balance			% of Total		Balance			% of Total		Balance			% of Total
Land and construction loans		$	4,661		60	%	$	—		0	%	$	—		0	%
Commercial loans			1,236		16	%		1,712		31	%		642		26	%
Restructured and loans over 90 days past due
and still accruing			889		12	%		1,966		36	%		1,685		70	%
Residential mortgages			779		10	%		1,716		31	%		—		0	%
Home equity loans			142		2	%		90		2	%		98		4	%
CRE loans			—		0	%		—		0	%		—		0	%
Total nonperforming assets		$	7,707		100	%	$	5,484		100	%	$	2,425		100	%

	•	There were 12 borrowers included in NPAs totaling $7.7 million, or 0.15% of total assets, at December 31, 2023, compared to 9 borrowers totaling $2.4 million, or 0.05% of total assets, at December 31, 2022, and 11 borrowers totaling $5.5 million, or 0.10% of total assets at September 30, 2023. The increase in NPAs at December 31, 2023, was primarily due to the downgrade of loans to one customer totaling $4.6 million, which are well collateralized and there are no specific reserves for these loans. This increase in NPAs was partially offset by pay-offs of loans previously included in NPAs.
	•	There were no CRE loans included in NPAs at December 31, 2023, December 31, 2022, or September 30, 2023.
	•	There were no foreclosed assets on the balance sheet at December 31, 2023, December 31, 2022, or September 30, 2023.
	•	There were no Shared National Credits (“SNCs”) or material purchased participations included in NPAs or total loans at December 31, 2023, December 31, 2022, or September 30, 2023.
	•	Classified assets totaled $31.8 million, or 0.61% of total assets, at December 31, 2023, compared to $14.5 million, or 0.28% of total assets, at December 31, 2022, and $31.1 million, or 0.57% of total assets, at September 30, 2023.

• The following table summarizes the distribution of deposits and the percentage of distribution in each category for the periods indicated:

DEPOSITS		December 31, 2023					September 30, 2023					December 31, 2022
(in $000’s, unaudited)		Balance			% to Total		Balance			% to Total		Balance			% to Total
Demand, noninterest-bearing		$	1,292,486		30	%	$	1,243,501		27	%	$	1,736,722		40	%
Demand, interest-bearing			914,066		21	%		1,004,185		22	%		1,196,427		27	%
Savings and money market			1,087,518		25	%		1,110,640		24	%		1,285,444		29	%
Time deposits — under $250			38,055		1	%		43,906		1	%		32,445		1	%
Time deposits — $250 and over			192,228		4	%		252,001		6	%		108,192		2	%
ICS/CDARS — interest-bearing demand,
money market and time deposits			854,105		19	%		921,224		20	%		30,374		1	%
Total deposits		$	4,378,458		100	%	$	4,575,457		100	%	$	4,389,604		100	%

	•	The Bank’s uninsured deposits were approximately $2.01 billion, or 46% of total deposits, at December 31, 2023, compared to $2.12 billion, or 46% of total deposits, at September 30, 2023, and $2.15 billion, or 48% of total deposits, at June 30, 2023, and $2.56 billion, or 58% of total deposits, at March 31, 2023, and $2.79 billion, or 64% of total deposits, at December 31, 2022.

• The Company’s consolidated capital ratios exceeded regulatory guidelines and the Bank’s capital ratios exceeded regulatory guidelines under the Basel III prompt corrective action (“PCA”) regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at December 31, 2023, as reflected in the following table:

								Well-capitalized
								Financial
								Institution			Basel III
		Heritage			Heritage			Basel III PCA			Minimum
		Commerce			Bank of			Regulatory			Regulatory
CAPITAL RATIOS (unaudited)		Corp			Commerce			Guidelines			Requirement (1)
Total Capital		15.4	%		14.8	%		10.0	%		10.5	%
Tier 1 Capital		13.2	%		13.7	%		8.0	%		8.5	%
Common Equity Tier 1 Capital		13.2	%		13.7	%		6.5	%		7.0	%
Tier 1 Leverage		10.0	%		10.3	%		5.0	%		4.0	%
Tangible common equity / tangible assets (2)		9.8	%		10.2	%		N/A			N/A

(1	)	Basel III minimum regulatory requirements for both the Company and the Bank include a 2.5% capital conservation buffer, except the leverage ratio.
(2	)	Represents shareholders’ equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets.

• The following table reflects the components of accumulated other comprehensive loss, net of taxes, for the periods indicated:

ACCUMULATED OTHER COMPREHENSIVE LOSS		December 31,				September 30,				December 31,
(in $000’s, unaudited)		2023				2023				2022
Unrealized loss on securities available-for-sale		$	(7,116	)		$	(11,985	)		$	(11,506	)
Split dollar insurance contracts liability			(2,809	)			(3,234	)			(3,091	)
Supplemental executive retirement plan liability			(2,892	)			(2,343	)			(2,371	)
Unrealized gain on interest-only strip from SBA loans			87				93				112
Total accumulated other comprehensive loss		$	(12,730	)		$	(17,469	)		$	(16,856	)

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, Gilroy, 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 perform a part of, this release or of our filings with the Securities and Exchange Commission.

Forward-Looking Statement Disclaimer

Certain matters discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be deemed to include, among other things, statements relating to the Company’s future financial performance, projected cash flows of our investment securities portfolio, the performance of our loan portfolio, 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. 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2022, and the following: (1) factors that affect our liquidity and our ability to meet customer demands for deposit withdrawals, including our cash on hand and the availability of funds from our lines of credit; (2) factors that affect the collectability of our loans, including fluctuations in interest rates as those changes affect our borrowers’ ability to pay and perform on all other terms of our loans; (3) media items and consumer confidence as those factors affect depositors’ confidence in the banking system generally and our bank in particular; (4) factors that affect the value and liquidity of our investment portfolios, particularly the values of securities available-for-sale; (5) the effect of our measures to assure adequate liquidity of deposits as those measures affect profitability, including increasing interest rates on deposits as a component of our interest expense; (6) our ability to estimate accurately, and to establish adequate reserves against, the risk of loss associated with our loan and lease portfolio; (7) events and circumstances that affect our borrowers’ financial condition, results of operations and cash flows, which may, during periods of economic uncertainty or decline, adversely affect those borrowers’ ability to repay our loans timely and in full, or to comply with their other obligations under our loan agreements with those customers; (8) geopolitical and domestic political developments, including ongoing conflicts in Ukraine and the Middle East, as well as other regions that are experiencing or that may in the future experience political or economic upheaval, that can increase levels of political and economic unpredictability, contribute to rising energy and commodity prices, and increase the volatility of financial markets; (9) 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; (10) 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 and other factors that affect market interest rates generally; (11) 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 customers, whether held in the portfolio or in the secondary market; (12) 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; (13) volatility in credit and equity markets and its effect on the global economy; (14) conditions relating to the impact of recent and potential future pandemic response measures on our customers, employees, businesses, liquidity, financial results and overall condition including severity and duration of the associated uncertainties in U.S. and global markets; (15) our ability to compete effectively with other banks and financial services companies and the effects of competition in the financial services industry on our business; (16) our ability to achieve loan growth and attract deposits in our market area; (17) risks associated with concentrations in real estate related loans; (18) the relative strength or weakness of the commercial and real estate markets where our borrowers are located, including related vacancy rates, and asset and market prices; (19) regulatory limits on the Bank’s ability to pay dividends to the Company; (20) 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; (21) 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; (22) possible adjustment of the valuation of our deferred tax assets or of the goodwill associated with previous acquisitions; (23) 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; (24) inability of our framework to manage risks associated with our business, including operational risk and credit risk; (25) risks of loss of funding of the Small Business Administration (“SBA”) or SBA loan programs, or changes in those programs; (26) 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; (27) 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; (28) the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise; (29) availability of and competition for acquisition opportunities; (30) risks resulting from domestic or international terrorism, riots, widespread mayhem, and similar events or circumstances; (31) risks of natural disasters (including earthquakes, fires, and flooding) and other events beyond our control; and (32) our success in managing the risks involved in the foregoing factors.

Member FDIC

For additional information, contact:

Debbie Reuter
EVP, Corporate Secretary
Direct: (408) 494-4542
Debbie.Reuter@herbank.com

		For the Quarter Ended:									Percent Change From:							For the Year Ended:
CONSOLIDATED INCOME STATEMENTS		December 31,			September 30,			December 31,			September 30,			December 31,				December 31,			December 31,			Percent
(in $000’s, unaudited)		2023			2023			2022			2023			2022				2023			2022			Change
Interest income		$	58,892		$	60,791		$	55,192		(3	)	%	7		%		$	234,298		$	188,828		24		%
Interest expense			16,591			15,419			3,453		8		%	380		%			51,074			8,948		471		%
Net interest income before provision
for credit losses on loans			42,301			45,372			51,739		(7	)	%	(18	)	%			183,224			179,880		2		%
Provision for credit losses on loans			289			168			508		72		%	(43	)	%			749			766		(2	)	%
Net interest income after provision
for credit losses on loans			42,012			45,204			51,231		(7	)	%	(18	)	%			182,475			179,114		2		%
Noninterest income:
Service charges and fees on deposit
accounts			838			859			1,801		(2	)	%	(53	)	%			4,341			4,640		(6	)	%
Increase in cash surrender value of
life insurance			519			517			481		0		%	8		%			2,031			1,925		6		%
Servicing income			103			62			138		66		%	(25	)	%			400			508		(21	)	%
Termination fees			25			118			—		(79	)	%	N/A					154			61		152		%
Gain on proceeds from company-owned
life insurance			25			100			—		(75	)	%	N/A					125			27		363		%
Gain on sales of SBA loans			—			207			—		(100	)	%	N/A					482			491		(2	)	%
Gain on warrants			—			—			—		N/A			N/A					—			669		(100	)	%
Other			432			353			352		22		%	23		%			1,465			1,790		(18	)	%
Total noninterest income			1,942			2,216			2,772		(12	)	%	(30	)	%			8,998			10,111		(11	)	%
Noninterest expense:
Salaries and employee benefits			13,919			14,147			13,915		(2	)	%	0		%			56,862			55,331		3		%
Occupancy and equipment			2,367			2,301			2,510		3		%	(6	)	%			9,490			9,639		(2	)	%
Professional fees			1,085			717			1,414		51		%	(23	)	%			4,350			5,015		(13	)	%
Other			8,120			8,006			6,679		1		%	22		%			30,352			24,874		22		%
Total noninterest expense			25,491			25,171			24,518		1		%	4		%			101,054			94,859		7		%
Income before income taxes			18,463			22,249			29,485		(17	)	%	(37	)	%			90,419			94,366		(4	)	%
Income tax expense			5,135			6,454			8,686		(20	)	%	(41	)	%			25,976			27,811		(7	)	%
Net income		$	13,328		$	15,795		$	20,799		(16	)	%	(36	)	%		$	64,443		$	66,555		(3	)	%
PER COMMON SHARE DATA
(unaudited)
Basic earnings per share		$	0.22		$	0.26		$	0.34		(15	)	%	(35	)	%		$	1.06		$	1.10		(4	)	%
Diluted earnings per share		$	0.22		$	0.26		$	0.34		(15	)	%	(35	)	%		$	1.05		$	1.09		(4	)	%
Weighted average shares outstanding – basic			61,118,485			61,093,289			60,788,803		0		%	1		%			61,038,857			60,602,962		1		%
Weighted average shares outstanding – diluted			61,412,816			61,436,240			61,357,023		0		%	0		%			61,311,318			61,090,290		0		%
Common shares outstanding at period-end			61,146,835			61,099,155			60,852,723		0		%	0		%			61,146,835			60,852,723		0		%
Dividend per share		$	0.13		$	0.13		$	0.13		0		%	0		%		$	0.52		$	0.52		0		%
Book value per share		$	11.00		$	10.83		$	10.39		2		%	6		%		$	11.00		$	10.39		6		%
Tangible book value per share		$	8.12		$	7.94		$	7.46		2		%	9		%		$	8.12		$	7.46		9		%
KEY FINANCIAL RATIOS
(unaudited)
Annualized return on average equity			7.96	%		9.54	%		13.40	%	(17	)	%	(41	)	%			9.88	%		10.95	%	(10	)	%
Annualized return on average tangible
common equity			10.84	%		13.06	%		18.89	%	(17	)	%	(43	)	%			13.57	%		15.57	%	(13	)	%
Annualized return on average assets			1.00	%		1.16	%		1.54	%	(14	)	%	(35	)	%			1.21	%		1.23	%	(2	)	%
Annualized return on average tangible assets			1.03	%		1.20	%		1.59	%	(14	)	%	(35	)	%			1.26	%		1.27	%	(1	)	%
Net interest margin (FTE)			3.41	%		3.57	%		4.10	%	(4	)	%	(17	)	%			3.70	%		3.57	%	4		%
Efficiency ratio			57.62	%		52.89	%		44.98	%	9		%	28		%			52.57	%		49.93	%	5		%
AVERAGE BALANCES
(in $000’s, unaudited)
Average assets		$	5,291,962		$	5,399,930		$	5,360,867		(2	)	%	(1	)	%		$	5,310,277		$	5,401,220		(2	)	%
Average tangible assets		$	5,115,321		$	5,222,692		$	5,181,793		(2	)	%	(1	)	%		$	5,132,741		$	5,221,159		(2	)	%
Average earning assets		$	4,923,582		$	5,051,710		$	5,009,578		(3	)	%	(2	)	%		$	4,955,018		$	5,051,552		(2	)	%
Average loans held-for-sale		$	1,612		$	2,765		$	2,346		(42	)	%	(31	)	%		$	2,821		$	2,238		26		%
Average total loans		$	3,280,817		$	3,254,715		$	3,248,210		1		%	1		%		$	3,259,373		$	3,116,768		5		%
Average deposits		$	4,454,750		$	4,573,621		$	4,600,533		(3	)	%	(3	)	%		$	4,467,489		$	4,647,200		(4	)	%
Average demand deposits – noninterest-bearing		$	1,243,222		$	1,302,606		$	1,851,003		(5	)	%	(33	)	%		$	1,393,949		$	1,863,928		(25	)	%
Average interest-bearing deposits		$	3,211,528		$	3,271,015		$	2,749,530		(2	)	%	17		%		$	3,073,540		$	2,783,272		10		%
Average interest-bearing liabilities		$	3,251,034		$	3,310,485		$	2,788,880		(2	)	%	17		%		$	3,140,105		$	2,825,035		11		%
Average equity		$	664,638		$	656,973		$	615,941		1		%	8		%		$	652,449		$	607,603		7		%
Average tangible common equity		$	487,997		$	479,735		$	436,867		2		%	12		%		$	474,913		$	427,542		11		%

		For the Quarter Ended:
CONSOLIDATED INCOME STATEMENTS		December 31,			September 30,			June 30,			March 31,			December 31,
(in $000’s, unaudited)		2023			2023			2023			2023			2022
Interest income		$	58,892		$	60,791		$	58,341		$	56,274		$	55,192
Interest expense			16,591			15,419			12,048			7,016			3,453
Net interest income before provision
for credit losses on loans			42,301			45,372			46,293			49,258			51,739
Provision for credit losses on loans			289			168			260			32			508
Net interest income after provision
for credit losses on loans			42,012			45,204			46,033			49,226			51,231
Noninterest income:
Service charges and fees on deposit
accounts			838			859			901			1,743			1,801
Increase in cash surrender value of
life insurance			519			517			502			493			481
Servicing income			103			62			104			131			138
Termination fees			25			118			—			11			—
Gain on proceeds from company-owned
life insurance			25			100			—			—			—
Gain on sales of SBA loans			—			207			199			76			—
Gain on warrants			—			—			—			—			—
Other			432			353			368			312			352
Total noninterest income			1,942			2,216			2,074			2,766			2,772
Noninterest expense:
Salaries and employee benefits			13,919			14,147			13,987			14,809			13,915
Occupancy and equipment			2,367			2,301			2,422			2,400			2,510
Professional fees			1,085			717			1,149			1,399			1,414
Other			8,120			8,006			7,433			6,793			6,679
Total noninterest expense			25,491			25,171			24,991			25,401			24,518
Income before income taxes			18,463			22,249			23,116			26,591			29,485
Income tax expense			5,135			6,454			6,713			7,674			8,686
Net income		$	13,328		$	15,795		$	16,403		$	18,917		$	20,799
PER COMMON SHARE DATA
(unaudited)
Basic earnings per share		$	0.22		$	0.26		$	0.27		$	0.31		$	0.34
Diluted earnings per share		$	0.22		$	0.26		$	0.27		$	0.31		$	0.34
Weighted average shares outstanding – basic			61,118,485			61,093,289			61,035,435			60,908,221			60,788,803
Weighted average shares outstanding – diluted			61,412,816			61,436,240			61,266,059			61,268,072			61,357,023
Common shares outstanding at period-end			61,146,835			61,099,155			61,091,155			60,948,607			60,852,723
Dividend per share		$	0.13		$	0.13		$	0.13		$	0.13		$	0.13
Book value per share		$	11.00		$	10.83		$	10.70		$	10.62		$	10.39
Tangible book value per share		$	8.12		$	7.94		$	7.80		$	7.70		$	7.46
KEY FINANCIAL RATIOS
(unaudited)
Annualized return on average equity			7.96	%		9.54	%		10.12	%		12.03	%		13.40	%
Annualized return on average tangible
common equity			10.84	%		13.06	%		13.93	%		16.71	%		18.89	%
Annualized return on average assets			1.00	%		1.16	%		1.25	%		1.47	%		1.54	%
Annualized return on average tangible assets			1.03	%		1.20	%		1.29	%		1.52	%		1.59	%
Net interest margin (FTE)			3.41	%		3.57	%		3.76	%		4.09	%		4.10	%
Efficiency ratio			57.62	%		52.89	%		51.67	%		48.83	%		44.98	%
AVERAGE BALANCES
(in $000’s, unaudited)
Average assets		$	5,291,962		$	5,399,930		$	5,278,243		$	5,235,506		$	5,360,867
Average tangible assets		$	5,115,321		$	5,222,692		$	5,100,399		$	5,057,063		$	5,181,793
Average earning assets		$	4,923,582		$	5,051,710		$	4,948,397		$	4,895,009		$	5,009,578
Average loans held-for-sale		$	1,612		$	2,765		$	4,166		$	2,755		$	2,346
Average total loans		$	3,280,817		$	3,254,715		$	3,227,175		$	3,274,770		$	3,248,210
Average deposits		$	4,454,750		$	4,573,621		$	4,424,041		$	4,415,952		$	4,600,533
Average demand deposits – noninterest-bearing		$	1,243,222		$	1,302,606		$	1,368,373		$	1,667,260		$	1,851,003
Average interest-bearing deposits		$	3,211,528		$	3,271,015		$	3,055,668		$	2,748,692		$	2,749,530
Average interest-bearing liabilities		$	3,251,034		$	3,310,485		$	3,157,722		$	2,834,732		$	2,788,880
Average equity		$	664,638		$	656,973		$	650,240		$	637,597		$	615,941
Average tangible common equity		$	487,997		$	479,735		$	472,396		$	459,154		$	436,867

		End of Period:												Percent Change From:
CONSOLIDATED BALANCE SHEETS		December 31,				September 30,				December 31,				September 30,			December 31,
(in $000’s, unaudited)		2023				2023				2022				2023			2022
ASSETS
Cash and due from banks		$	41,592			$	40,076			$	27,595			4		%	51		%
Other investments and interest-bearing deposits
in other financial institutions			366,537				605,476				279,008			(39	)	%	31		%
Securities available-for-sale, at fair value			442,636				457,194				489,596			(3	)	%	(10	)	%
Securities held-to-maturity, at amortized cost			650,565				664,681				714,990			(2	)	%	(9	)	%
Loans held-for-sale – SBA, including deferred costs			2,205				841				2,456			162		%	(10	)	%
Loans:
Commercial			463,778				430,664				533,915			8		%	(13	)	%
Real estate:
CRE – owner occupied			583,253				589,751				614,663			(1	)	%	(5	)	%
CRE – non-owner occupied			1,256,590				1,208,324				1,066,368			4		%	18		%
Land and construction			140,513				158,138				163,577			(11	)	%	(14	)	%
Home equity			119,125				124,477				120,724			(4	)	%	(1	)	%
Multifamily			269,734				253,129				244,882			7		%	10		%
Residential mortgages			496,961				503,006				537,905			(1	)	%	(8	)	%
Consumer and other			20,919				18,526				17,033			13		%	23		%
Loans			3,350,873				3,286,015				3,299,067			2		%	2		%
Deferred loan fees, net			(495	)			(554	)			(517	)		(11	)	%	(4	)	%
Total loans, net of deferred costs and fees			3,350,378				3,285,461				3,298,550			2		%	2		%
Allowance for credit losses on loans			(47,958	)			(47,702	)			(47,512	)		1		%	1		%
Loans, net			3,302,420				3,237,759				3,251,038			2		%	2		%
Company-owned life insurance			79,489				79,607				78,945			0		%	1		%
Premises and equipment, net			9,857				9,707				9,301			2		%	6		%
Goodwill			167,631				167,631				167,631			0		%	0		%
Other intangible assets			8,627				9,229				11,033			(7	)	%	(22	)	%
Accrued interest receivable and other assets			122,536				131,106				125,987			(7	)	%	3		%
Total assets		$	5,194,095			$	5,403,307			$	5,157,580			(4	)	%	1		%
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, noninterest-bearing		$	1,292,486			$	1,243,501			$	1,736,722			4		%	(26	)	%
Demand, interest-bearing			914,066				1,004,185				1,196,427			(9	)	%	(24	)	%
Savings and money market			1,087,518				1,110,640				1,285,444			(2	)	%	(15	)	%
Time deposits – under $250			38,055				43,906				32,445			(13	)	%	17		%
Time deposits – $250 and over			192,228				252,001				108,192			(24	)	%	78		%
ICS/CDARS – interest-bearing demand, money market
and time deposits			854,105				921,224				30,374			(7	)	%	2712		%
Total deposits			4,378,458				4,575,457				4,389,604			(4	)	%	0		%
Subordinated debt, net of issuance costs			39,502				39,463				39,350			0		%	0		%
Accrued interest payable and other liabilities			103,234				126,457				96,170			(18	)	%	7		%
Total liabilities			4,521,194				4,741,377				4,525,124			(5	)	%	0		%
Shareholders’ Equity:
Common stock			506,539				505,692				502,923			0		%	1		%
Retained earnings			179,092				173,707				146,389			3		%	22		%
Accumulated other comprehensive loss			(12,730	)			(17,469	)			(16,856	)		(27	)	%	(24	)	%
Total shareholders’ equity			672,901				661,930				632,456			2		%	6		%
Total liabilities and shareholders’ equity		$	5,194,095			$	5,403,307			$	5,157,580			(4	)	%	1		%

		End of Period:
CONSOLIDATED BALANCE SHEETS		December 31,				September 30,				June 30,				March 31,				December 31,
(in $000’s, unaudited)		2023				2023				2023				2023				2022
ASSETS
Cash and due from banks		$	41,592			$	40,076			$	42,551			$	41,318			$	27,595
Other investments and interest-bearing deposits
in other financial institutions			366,537				605,476				468,951				698,690				279,008
Securities available-for-sale, at fair value			442,636				457,194				486,058				491,751				489,596
Securities held-to-maturity, at amortized cost			650,565				664,681				682,095				698,231				714,990
Loans held-for-sale – SBA, including deferred costs			2,205				841				3,136				2,792				2,456
Loans:
Commercial			463,778				430,664				466,354				506,602				533,915
Real estate:
CRE – owner occupied			583,253				589,751				608,031				603,298				614,663
CRE – non-owner occupied			1,256,590				1,208,324				1,147,313				1,083,852				1,066,368
Land and construction			140,513				158,138				162,816				166,408				163,577
Home equity			119,125				124,477				128,009				124,481				120,724
Multifamily			269,734				253,129				244,959				231,242				244,882
Residential mortgages			496,961				503,006				514,064				528,639				537,905
Consumer and other			20,919				18,526				17,635				17,905				17,033
Loans			3,350,873				3,286,015				3,289,181				3,262,427				3,299,067
Deferred loan fees, net			(495	)			(554	)			(397	)			(512	)			(517	)
Total loans, net of deferred fees			3,350,378				3,285,461				3,288,784				3,261,915				3,298,550
Allowance for credit losses on loans			(47,958	)			(47,702	)			(47,803	)			(47,273	)			(47,512	)
Loans, net			3,302,420				3,237,759				3,240,981				3,214,642				3,251,038
Company-owned life insurance			79,489				79,607				79,940				79,438				78,945
Premises and equipment, net			9,857				9,707				9,197				9,142				9,301
Goodwill			167,631				167,631				167,631				167,631				167,631
Other intangible assets			8,627				9,229				9,830				10,431				11,033
Accrued interest receivable and other assets			122,536				131,106				121,467				122,474				125,987
Total assets		$	5,194,095			$	5,403,307			$	5,311,837			$	5,536,540			$	5,157,580
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, noninterest-bearing		$	1,292,486			$	1,243,501			$	1,319,844			$	1,469,081			$	1,736,722
Demand, interest-bearing			914,066				1,004,185				1,064,638				1,196,789				1,196,427
Savings and money market			1,087,518				1,110,640				1,075,835				1,264,567				1,285,444
Time deposits – under $250			38,055				43,906				44,520				37,884				32,445
Time deposits – $250 and over			192,228				252,001				171,852				172,070				108,192
ICS/CDARS – interest-bearing demand, money market
and time deposits			854,105				921,224				824,083				304,147				30,374
Total deposits			4,378,458				4,575,457				4,500,772				4,444,538				4,389,604
Other short-term borrowings			—				—				—				300,000				—
Subordinated debt, net of issuance costs			39,502				39,463				39,425				39,387				39,350
Accrued interest payable and other liabilities			103,234				126,457				117,970				105,407				96,170
Total liabilities			4,521,194				4,741,377				4,658,167				4,889,332				4,525,124
Shareholders’ Equity:
Common stock			506,539				505,692				505,075				504,135				502,923
Retained earnings			179,092				173,707				165,853				157,390				146,389
Accumulated other comprehensive loss			(12,730	)			(17,469	)			(17,258	)			(14,317	)			(16,856	)
Total shareholders’ equity			672,901				661,930				653,670				647,208				632,456
Total liabilities and shareholders’ equity		$	5,194,095			$	5,403,307			$	5,311,837			$	5,536,540			$	5,157,580

		At or For the Quarter Ended:										Percent Change From:
CREDIT QUALITY DATA		December 31,			September 30,			December 31,				September 30,			December 31,
(in $000’s, unaudited)		2023			2023			2022				2023			2022
Nonaccrual loans – held-for-investment		$	6,818		$	3,518		$	740			94		%	821		%
Restructured and loans over 90 days past due
and still accruing			889			1,966			1,685			(55	)	%	(47	)	%
Total nonperforming loans			7,707			5,484			2,425			41		%	218		%
Foreclosed assets			—			—			—			N/A			N/A
Total nonperforming assets		$	7,707		$	5,484		$	2,425			41		%	218		%
Other restructured loans still accruing		$	—		$	—		$	171			N/A			(100	)	%
Net charge-offs (recoveries) during the quarter		$	33		$	269		$	(83	)		(88	)	%	140		%
Provision for credit losses on loans during the quarter		$	289		$	168		$	508			72		%	(43	)	%
Allowance for credit losses on loans		$	47,958		$	47,702		$	47,512			1		%	1		%
Classified assets		$	31,763		$	31,062		$	14,544			2		%	118		%
Allowance for credit losses on loans to total loans			1.43	%		1.45	%		1.44		%	(1	)	%	(1	)	%
Allowance for credit losses on loans to total nonperforming loans			622.27	%		869.84	%		1,959.26		%	(28	)	%	(68	)	%
Nonperforming assets to total assets			0.15	%		0.10	%		0.05		%	50		%	200		%
Nonperforming loans to total loans			0.23	%		0.17	%		0.07		%	35		%	229		%
Classified assets to Heritage Commerce Corp
Tier 1 capital plus allowance for credit losses on loans			6	%		6	%		3		%	0		%	100		%
Classified assets to Heritage Bank of Commerce
Tier 1 capital plus allowance for credit losses on loans			5	%		5	%		3		%	0		%	67		%
OTHER PERIOD-END STATISTICS
(in $000’s, unaudited)
Heritage Commerce Corp:
Tangible common equity (1)		$	496,643		$	485,070		$	453,792			2		%	9		%
Shareholders’ equity / total assets			12.88	%		12.25	%		12.26		%	5		%	5		%
Tangible common equity / tangible assets (2)			9.84	%		9.28	%		9.11		%	6		%	8		%
Loan to deposit ratio			76.52	%		71.81	%		75.14		%	7		%	2		%
Noninterest-bearing deposits / total deposits			29.52	%		27.18	%		39.56		%	9		%	(25	)	%
Total capital ratio			15.4	%		15.6	%		14.8		%	(1	)	%	4		%
Tier 1 capital ratio			13.2	%		13.4	%		12.7		%	(1	)	%	4		%
Common Equity Tier 1 capital ratio			13.2	%		13.4	%		12.7		%	(1	)	%	4		%
Tier 1 leverage ratio			10.0	%		9.6	%		9.2		%	4		%	9		%
Heritage Bank of Commerce:
Total capital ratio			14.8	%		15.0	%		14.2		%	(1	)	%	4		%
Tier 1 capital ratio			13.7	%		13.9	%		13.2		%	(1	)	%	4		%
Common Equity Tier 1 capital ratio			13.7	%		13.9	%		13.2		%	(1	)	%	4		%
Tier 1 leverage ratio			10.3	%		10.0	%		9.5		%	3		%	8		%

 

(1	)	Represents shareholders’ equity minus goodwill and other intangible assets.
(2	)	Represents shareholders’ equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets.

		At or For the Quarter Ended:
CREDIT QUALITY DATA		December 31,			September 30,			June 30,				March 31,			December 31,
(in $000’s, unaudited)		2023			2023			2023				2023			2022
Nonaccrual loans – held-for-investment		$	6,818		$	3,518		$	3,275			$	781		$	740
Restructured and loans over 90 days past due
and still accruing			889			1,966			2,262				1,459			1,685
Total nonperforming loans			7,707			5,484			5,537				2,240			2,425
Foreclosed assets			—			—			—				—			—
Total nonperforming assets		$	7,707		$	5,484		$	5,537			$	2,240		$	2,425
Other restructured loans still accruing		$	—		$	—		$	—			$	—		$	171
Net charge-offs (recoveries) during the quarter		$	33		$	269		$	(270	)		$	271		$	(83	)
Provision for credit losses on loans during the quarter		$	289		$	168		$	260			$	32		$	508
Allowance for credit losses on loans		$	47,958		$	47,702		$	47,803			$	47,273		$	47,512
Classified assets		$	31,763		$	31,062		$	30,500			$	26,800		$	14,544
Allowance for credit losses on loans to total loans			1.43	%		1.45	%		1.45		%		1.45	%		1.44		%
Allowance for credit losses on loans to total nonperforming loans			622.27	%		869.84	%		863.34		%		2,110.40	%		1,959.26		%
Nonperforming assets to total assets			0.15	%		0.10	%		0.10		%		0.04	%		0.05		%
Nonperforming loans to total loans			0.23	%		0.17	%		0.17		%		0.07	%		0.07		%
Classified assets to Heritage Commerce Corp
Tier 1 capital plus allowance for credit losses on loans			6	%		6	%		6		%		5	%		3		%
Classified assets to Heritage Bank of Commerce
Tier 1 capital plus allowance for credit losses on loans			5	%		5	%		5		%		5	%		3		%
OTHER PERIOD-END STATISTICS
(in $000’s, unaudited)
Heritage Commerce Corp:
Tangible common equity (1)		$	496,643		$	485,070		$	476,209			$	469,146		$	453,792
Shareholders’ equity / total assets			12.88	%		12.25	%		12.31		%		11.69	%		12.26		%
Tangible common equity / tangible assets (2)			9.84	%		9.28	%		9.27		%		8.76	%		9.11		%
Loan to deposit ratio			76.52	%		71.81	%		73.07		%		73.39	%		75.14		%
Noninterest-bearing deposits / total deposits			29.52	%		27.18	%		29.32		%		33.05	%		39.56		%
Total capital ratio			15.4	%		15.6	%		15.4		%		15.3	%		14.8		%
Tier 1 capital ratio			13.2	%		13.4	%		13.2		%		13.1	%		12.7		%
Common Equity Tier 1 capital ratio			13.2	%		13.4	%		13.2		%		13.1	%		12.7		%
Tier 1 leverage ratio			10.0	%		9.6	%		9.7		%		9.6	%		9.2		%
Heritage Bank of Commerce:
Total capital ratio			14.8	%		15.0	%		14.8		%		14.7	%		14.2		%
Tier 1 capital ratio			13.7	%		13.9	%		13.7		%		13.5	%		13.2		%
Common Equity Tier 1 capital ratio			13.7	%		13.9	%		13.7		%		13.5	%		13.2		%
Tier 1 leverage ratio			10.3	%		10.0	%		10.0		%		9.9	%		9.5		%

 

(1	)	Represents shareholders’ equity minus goodwill and other intangible assets.
(2	)	Represents shareholders’ equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets.

		For the Quarter Ended									For the Quarter Ended
		December 31, 2023									December 31, 2022
					Interest				Average					Interest				Average
NET INTEREST INCOME AND NET INTEREST MARGIN		Average			Income/				Yield/		Average			Income/				Yield/
(in $000’s, unaudited)		Balance			Expense				Rate		Balance			Expense				Rate
Assets:
Loans, gross (1)(2)		$	3,282,429		$	44,635			5.39	%	$	3,250,556		$	42,501			5.19	%
Securities – taxable			1,074,638			6,516			2.41	%		1,156,563			6,941			2.38	%
Securities – exempt from Federal tax (3)			32,244			288			3.54	%		37,958			324			3.39	%
Other investments and interest-bearing deposits
in other financial institutions			534,271			7,514			5.58	%		564,501			5,494			3.86	%
Total interest earning assets (3)			4,923,582			58,953			4.75	%		5,009,578			55,260			4.38	%
Cash and due from banks			35,214									36,392
Premises and equipment, net			9,843									9,436
Goodwill and other intangible assets			176,641									179,074
Other assets			146,682									126,387
Total assets		$	5,291,962								$	5,360,867
Liabilities and shareholders’ equity:
Deposits:
Demand, noninterest-bearing		$	1,243,222								$	1,851,003
Demand, interest-bearing			948,061			1,661			0.70	%		1,164,378			945			0.32	%
Savings and money market			1,096,962			6,216			2.25	%		1,424,964			1,694			0.47	%
Time deposits – under $100			11,389			37			1.29	%		12,157			7			0.23	%
Time deposits – $100 and over			234,140			2,130			3.61	%		120,246			268			0.88	%
ICS/CDARS – interest-bearing demand, money market
and time deposits			920,976			6,009			2.59	%		27,785			1			0.01	%
Total interest-bearing deposits			3,211,528			16,053			1.98	%		2,749,530			2,915			0.42	%
Total deposits			4,454,750			16,053			1.43	%		4,600,533			2,915			0.25	%
Short-term borrowings			29			—			0.00	%		24			—			0.00	%
Subordinated debt, net of issuance costs			39,477			538			5.41	%		39,326			538			5.43	%
Total interest-bearing liabilities			3,251,034			16,591			2.02	%		2,788,880			3,453			0.49	%
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds			4,494,256			16,591			1.46	%		4,639,883			3,453			0.30	%
Other liabilities			133,068									105,043
Total liabilities			4,627,324									4,744,926
Shareholders’ equity			664,638									615,941
Total liabilities and shareholders’ equity		$	5,291,962								$	5,360,867
Net interest income (3) / margin						42,362			3.41	%					51,807			4.10	%
Less tax equivalent adjustment (3)						(61	)								(68	)
Net interest income					$	42,301								$	51,739

(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 $147,000 for the fourth quarter of 2023, compared to $326,000 for the fourth quarter of 2022. Prepayment fees totaled $91,000 for the fourth quarter of 2023, compared to $123,000 for the fourth quarter of 2022.
(3	)	Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate.

		For the Quarter Ended									For the Quarter Ended
		December 31, 2023									September 30, 2023
					Interest				Average					Interest				Average
NET INTEREST INCOME AND NET INTEREST MARGIN		Average			Income/				Yield/		Average			Income/				Yield/
(in $000’s, unaudited)		Balance			Expense				Rate		Balance			Expense				Rate
Assets:
Loans, gross (1)(2)		$	3,282,429		$	44,635			5.39	%	$	3,257,480		$	44,853			5.46	%
Securities – taxable			1,074,638			6,516			2.41	%		1,114,782			6,797			2.42	%
Securities – exempt from Federal tax (3)			32,244			288			3.54	%		32,947			293			3.53	%
Other investments and interest-bearing deposits
in other financial institutions			534,271			7,514			5.58	%		646,501			8,909			5.47	%
Total interest earning assets (3)			4,923,582			58,953			4.75	%		5,051,710			60,852			4.78	%
Cash and due from banks			35,214									35,911
Premises and equipment, net			9,843									9,374
Goodwill and other intangible assets			176,641									177,238
Other assets			146,682									125,697
Total assets		$	5,291,962								$	5,399,930
Liabilities and shareholders’ equity:
Deposits:
Demand, noninterest-bearing		$	1,243,222								$	1,302,606
Demand, interest-bearing			948,061			1,661			0.70	%		1,017,686			1,730			0.67	%
Savings and money market			1,096,962			6,216			2.25	%		1,087,336			5,514			2.01	%
Time deposits – under $100			11,389			37			1.29	%		11,966			30			0.99	%
Time deposits – $100 and over			234,140			2,130			3.61	%		272,362			2,489			3.63	%
ICS/CDARS – interest-bearing demand, money market
and time deposits			920,976			6,009			2.59	%		881,665			5,117			2.30	%
Total interest-bearing deposits			3,211,528			16,053			1.98	%		3,271,015			14,880			1.80	%
Total deposits			4,454,750			16,053			1.43	%		4,573,621			14,880			1.29	%
Short-term borrowings			29			—			0.00	%		31			—			0.00	%
Subordinated debt, net of issuance costs			39,477			538			5.41	%		39,439			539			5.42	%
Total interest-bearing liabilities			3,251,034			16,591			2.02	%		3,310,485			15,419			1.85	%
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds			4,494,256			16,591			1.46	%		4,613,091			15,419			1.33	%
Other liabilities			133,068									129,866
Total liabilities			4,627,324									4,742,957
Shareholders’ equity			664,638									656,973
Total liabilities and shareholders’ equity		$	5,291,962								$	5,399,930
Net interest income (3) / margin						42,362			3.41	%					45,433			3.57	%
Less tax equivalent adjustment (3)						(61	)								(61	)
Net interest income					$	42,301								$	45,372

(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 $147,000 for the fourth quarter of 2023, compared to $201,000 for the third quarter of 2023. Prepayment fees totaled $91,000 for the fourth quarter of 2023, compared to $182,000 for the third quarter of 2023.
(3	)	Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate.

		For the Year Ended									For the Year Ended
		December 31, 2023									December 31, 2022
					Interest				Average					Interest				Average
NET INTEREST INCOME AND NET INTEREST MARGIN		Average			Income/				Yield/		Average			Income/				Yield/
(in $000’s, unaudited)		Balance			Expense				Rate		Balance			Expense				Rate
Assets:
Loans, gross (1)(2)		$	3,262,194		$	177,628			5.45	%	$	3,119,006		$	153,010			4.91	%
Securities – taxable			1,124,190			27,351			2.43	%		983,137			20,666			2.10	%
Securities – exempt from Federal tax (3)			33,806			1,196			3.54	%		40,478			1,372			3.39	%
Other investments, interest-bearing deposits in other
financial institutions and Federal funds sold			534,828			28,374			5.31	%		908,931			14,068			1.55	%
Total interest earning assets (3)			4,955,018			234,549			4.73	%		5,051,552			189,116			3.74	%
Cash and due from banks			35,955									37,287
Premises and equipment, net			9,421									9,574
Goodwill and other intangible assets			177,536									180,061
Other assets			132,347									122,746
Total assets		$	5,310,277								$	5,401,220
Liabilities and shareholders’ equity:
Deposits:
Demand, noninterest-bearing		$	1,393,949								$	1,863,928
Demand, interest-bearing			1,074,523			6,655			0.62	%		1,224,676			2,415			0.20	%
Savings and money market			1,144,032			19,857			1.74	%		1,394,283			3,720			0.27	%
Time deposits – under $100			11,809			97			0.82	%		12,587			21			0.17	%
Time deposits – $100 and over			218,131			6,874			3.15	%		122,018			609			0.50	%
ICS/CDARS – interest-bearing demand, money market
and time deposits			625,045			14,074			2.25	%		29,708			5			0.02	%
Total interest-bearing deposits			3,073,540			47,557			1.55	%		2,783,272			6,770			0.24	%
Total deposits			4,467,489			47,557			1.06	%		4,647,200			6,770			0.15	%
Short-term borrowings			27,145			1,365			5.03	%		24			—			0.00	%
Subordinated debt, net of issuance costs			39,420			2,152			5.46	%		41,739			2,178			5.22	%
Total interest-bearing liabilities			3,140,105			51,074			1.63	%		2,825,035			8,948			0.32	%
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds			4,534,054			51,074			1.13	%		4,688,963			8,948			0.19	%
Other liabilities			123,774									104,654
Total liabilities			4,657,828									4,793,617
Shareholders’ equity			652,449									607,603
Total liabilities and shareholders’ equity		$	5,310,277								$	5,401,220
Net interest income (3) / margin						183,475			3.70	%					180,168			3.57	%
Less tax equivalent adjustment (3)						(251	)								(288	)
Net interest income					$	183,224								$	179,880

(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 $742,000 for the year ended December 31 2023, compared to $3,437,000 for the year ended December 31, 2022. Prepayment fees totaled $484,000 for the year ended December 31, 2023, compared to $1,278,000 for the year ended December 31, 2022.
(3	)	Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate.