UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): January 25, 2002
Heritage Commerce Corp
(Exact name of registrant as specified in its charter)
150 Almaden Boulevard
San Jose, California 95113
(Address of principal executive offices including zip code)
(408) 947-6900
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former Address, if changed since last report)
Item 5. Other Events.
Heritage Commerce Corp Reports Financial Results
for the Year Ended December 31, 2001
Heritage Commerce Corp (the "Company") (Nasdaq: HTBK) today reported consolidated operating results for the year ended December 31, 2001. Consolidated net income was $7,268,000, or $0.64 per diluted share, up 34% from $5,429,000, or $0.49 per diluted share, for the year ended December 31, 2000. Consolidated net income for the year ended December 31, 2000 included nonrecurring merger-related costs for the acquisition of Western Holdings Bancorp of $2,026,000, after tax. Excluding these merger-related cost results in net income of $7,455,000, or $0.67 per diluted share, for the year ended December 31, 2000. There were no merger-related costs for the year ended December 31, 2001. Return on average assets and return on average equity for the year ended December 31, 2001 were 0.84% and 10.23%, respectively, compared with returns of 0.70% and 9.07%, respectively, for the year ended December 31, 2000. Return on average assets and return on average equity excluding the merger-related costs for the year ended December 31, 2000 were 0.96% and 12.45%, respectively. The Company's net interest margin was 5.04% for the year ended December 31, 2001, compared with 5.95% for the year ended December 31, 2000, reflecting the significant reduction in interest rates that took place in 2001 and the Company's slightly asset sensitive position.
For the fourth quarter ended December 31, 2001, the Company reported net income of $1,374,000, or $0.12 per diluted share. For the fourth quarter ended December 31, 2000, net income, including merger-related costs, was $249,000, or $0.02 per diluted share. Excluding merger-related costs, net income was $2,275,000, or $0.20 per diluted share.
The Company's operating results are heavily dependent upon market rates of interest. In a series of reductions during 2001, the Board of Governors of the Federal Reserve System reduced short-term interest rates by an aggregate total of 475 basis points. This decrease in short-term interest rates immediately affected the rates applicable to the majority of the Company's loans. While the decrease in interest rates also lowered the cost of interest bearing deposits, which represent one of the Company's primary funding sources, these deposits tend to reprice more slowly than floating rate loans. The reduction in market rates of interest which took place during 2001, as well as any further reductions that may take place in the future, will continue to have a negative effect on the Company's net interest margin and net interest income.
Noninterest income was $5,932,000 for the year ended December 31, 2001, compared with $2,877,000 for the previous year. The increase in 2001 was primarily due to gains on sales of SBA loans in the amount of $1,758,000 and to an increase in gains on sale of securities in the amount of $688,000, compared to the same period in 2000. The other increases in noninterest income, including service charges and fees of $251,000, were primarily the result of an increase in activity resulting from the growth of the Company.
Noninterest expense for the year ended December 31, 2001 was $33,348,000, representing a decrease of $712,000, or 2%, as compared to noninterest expense for the year ended December 31, 2000 of $34,060,000. The decrease in pretax merger-related expenses of $3,164,000 in 2001 as compared to 2000 was offset by increases in salaries and benefits of $643,000, increases in occupancy and equipment expenses of $667,000 and increases in other expenses of $1,142,000, primarily in advertising and promotion expenses, loan origination costs, and stationery and supplies.
As of December 31, 2001, the Company's total assets were $912,730,000, an increase of $66,506,000, or 8%, from $846,224,000 at December 31, 2000. Total loans were $632,917,000 at December 31, 2001, up 4% from $610,781,000 at December 31, 2000. The Company's allowance for loan losses was $11,154,000, or 1.76% of total loans, as of December 31, 2001, compared to $9,651,000, or 1.58% of total loans, as of December 31, 2000. The Company had no nonperforming assets as of December 31, 2001 and 2000. Total deposits were $807,908,000 at December 31, 2001, up 9% from $738,186,000 at December 31, 2000.
Shareholders' equity as of December 31, 2001 was $74,574,000 compared with $65,733,000 as of December 31, 2000. Book value per share increased to $6.71 as of December 31, 2001, from $6.01 as of December 31, 2000. The Company's leverage capital ratio was 10.20% as of December 31, 2001, up from to 9.32% as of December 31, 2000. The Company's capital ratios continue to be above the well-capitalized guidelines established by the bank regulatory agencies.
All of the Company's operations and the vast majority of its customers are located in California. During the past year, the availability of a sufficient supply of electrical power in California has been unreliable at times. In addition, recent events, including those of September 11, 2001, have increased the uncertainty related to the national and California economic outlook and could have an effect on the future operations of the Company or its customers, including borrowers.
Heritage Commerce Corp, a bank holding company, is the parent company of four financial institutions: Heritage Bank of Commerce, a commercial bank headquartered in the city of San Jose, with Loan Production offices in San Jose, Pittsburg, Santa Cruz, Elk Grove, Watsonville and Chico; Heritage Bank East Bay, a commercial bank headquartered in the city of Fremont, with an office in Danville; Heritage Bank South Valley, a commercial bank headquartered in the city of Morgan Hill, with an office in Gilroy; and Bank of Los Altos, with two offices in Los Altos and an office in Mountain View.
The Company's common stock is listed on the Nasdaq National Market under the symbol "HTBK".
Readers should carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission, including the Annual Report on Form 10-K for the year ended December 31, 2000 and the Quarterly Reports on Form 10-Q filed by the Company in fiscal 2001.
For further information about the Company's financial performance, contact Brad L. Smith, Chief Executive Officer, at (408) 947-6900 or visit the Company's website at http://www.heritage-bank.com
Forward Looking Statement Disclaimer
This release may contain forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties may include but are not necessarily limited to fluctuations in interest rates, inflation, government regulations and general economic conditions, and competition within the business areas in which the Company is conducting its operations, including the real estate market in California and other factors beyond the Company's control. Such risks and uncertainties could cause results for subsequent interim periods or for the entire year to differ materially from those indicated. For a discussion of factors which could cause results to differ, please see the Company's reports on Forms 10-K and 10-Q as filed with the Securities and Exchange Commission and the Company's press releases. Readers should not place undue reliance on the forward-looking statements, which reflect management's view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.
HERITAGE COMMERCE CORP Condensed Consolidated Financial Information (Unaudited)
At and For the Three Months Ended Percent Change From At and For the Year Ended
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(Dollars in thousands, Dec. 31, Sept. 30, Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31, Percent
except Per Share amounts) 2001 2001 2000 2001 2000 2001 2000 Change
- ------------------------------------------- ----------- ----------- ----------- ------------ ----------- ----------- ----------- -------
Per Share Data
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Earnings Per Share (EPS):
Basic EPS $ 0.12 $ 0.16 $ 0.02 (25)% 500 % $ 0.66 $ 0.51 29 %
Diluted EPS $ 0.12 $ 0.16 $ 0.02 (25)% 500 % $ 0.64 $ 0.49 31 %
End of Period(EOP) Book Value $ 6.71 $ 6.62 $ 6.01 1 % 12 % $ 6.71 $ 6.01 12 %
EOP Shares Outstanding 11,114,967 11,111,719 10,939,124 0 % 2 % 11,114,967 10,939,124 2 %
Weighted Avg. Basic Shares Outstanding 11,113,884 11,106,956 10,887,878 0 % 2 % 11,082,157 10,607,584 4 %
Weighted Avg. Diluted Shares Outstanding 11,381,959 11,395,562 11,322,856 0 % 1 % 11,379,721 11,108,329 2 %
Income Statement Data
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Interest Income $ 14,414 $ 15,943 $ 19,089 (10)% (24)% $ 65,370 $ 67,921 (4)%
Interest Expense 5,250 5,803 7,108 (10)% (26)% 24,366 25,101 (3)%
Net Interest Income 9,164 10,140 11,981 (10)% (24)% 41,004 42,820 (4)%
Loan Loss Provision 576 279 1,290 106 % (55)% 1,910 3,159 (40)%
Noninterest Income:
Service Charges and Other Fees 282 254 186 11 % 52 % 967 716 35 %
Gain on Sale of Loans 453 753 0 (40)% N/A 1,758 0 N/A
Gain on Sales of Securities Available-For-Sale 0 181 0 (100)% N/A 732 44 1,564 %
Servicing Income 20 105 106 (81)% (81)% 356 294 21 %
Other Noninterest Income 572 444 451 29 % 27 % 2119 1,823 16 %
Total Noninterest Income 1,327 1,737 743 (24)% 79 % 5,932 2,877 106 %
Noninterest Expense:
Merger-Related Expenses 0 0 3,164 N/A (100)% 0 3,164 (100)%
Salaries & Employee Benefits 3,931 4,734 4,130 (17)% (5)% 18,120 17,477 4 %
Occupancy & Equipment 1,171 1,159 1,167 1 % 0 % 4,594 3,927 17 %
Other Noninterest Expense 2,623 2,794 2,541 (6)% 3 % 10,634 9,492 12 %
Total Noninterest Expense 7,725 8,687 11,002 (11)% (30)% 33,348 34,060 (2)%
Income Before Taxes 2,190 2,911 432 (25)% 407 % 11,678 8,478 38 %
Income Taxes 816 1,088 183 (25)% 346 % 4,410 3,049 45 %
Net Income $ 1,374 $ 1,823 $ 249 (25)% 452 % $ 7,268 $ 5,429 34 %
Average Balances
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Average Loans $ 667,838 $ 653,914 $ 608,082 2 % 10 % $ 645,632 $ 537,317 20 %
Average Other Earning Assets $ 183,099 $ 164,005 $ 171,775 12 % 7 % $ 167,924 $ 182,614 (8)%
Average Earning Assets $ 850,937 $ 817,919 $ 779,857 4 % 9 % $ 813,556 $ 719,931 13 %
Average Assets $ 909,385 $ 883,733 $ 850,310 3 % 7 % $ 868,624 $ 779,189 11 %
Average Equity $ 74,624 $ 72,085 $ 62,590 4 % 19 % $ 71,056 $ 59,888 19 %
Average Deposits $ 812,525 $ 776,537 $ 760,029 5 % 7 % $ 777,113 $ 702,251 11 %
End of Period Balances
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EOP Loans:
Real Estate - Land and Contruction $ 174,077 $ 164,602 $ 171,325 6 % 2 % $ 174,077 $ 171,325 2 %
Real Estate - Mortgage 246,119 239,772 230,468 3 % 7 % 246,119 230,468 7 %
Commercial 208,888 203,806 200,816 2 % 4 % 208,888 200,816 4 %
Consumer 3,833 7,593 8,172 (50)% (53)% 3,833 8,172 (53)%
Total EOP Loans $ 632,917 $ 615,773 $ 610,781 3 % 4 % $ 632,917 $ 610,781 4 %
EOP Assets $ 912,730 $ 909,500 $ 846,224 0 % 8 % $ 912,730 $ 846,224 8 %
EOP Deopsits:
Demand Deposits - Noninterest Bearing $ 206,637 $ 215,884 $ 207,885 (4)% (1)% $ 206,637 $ 207,885 (1)%
Demand Deposits - Interest Bearing 80,529 72,234 68,587 11 % 17 % 80,529 68,587 17 %
Savings/Money Market 229,995 225,110 219,299 2 % 5 % 229,995 219,299 5 %
Time Deposits 290,747 288,610 242,415 1 % 20 % 290,747 242,415 20 %
Total EOP Deposits $ 807,908 $ 801,838 $ 738,186 1 % 9 % $ 807,908 $ 738,186 9 %
EOP Equity $ 74,574 $ 73,527 $ 65,733 1 % 13 % $ 74,574 $ 65,733 13 %
Credit Quality Data
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EOP Non-Accrual Loans $ 0 $ 66 $ 0 (100)% N/A $ 0 $ 0 N/A
EOP Total Non-Performing Assets $ 0 $ 66 $ 0 (100)% N/A $ 0 $ 0 N/A
EOP 90-day Past Due Loans $ 0 $ 66 $ 0 (100)% N/A $ 0 $ 0 N/A
EOP Net Charge-Offs / (Recoveries) $ 95 $ (48) $ 32 (298)% 197 % $ 406 $ 19 2,037 %
EOP Loan Loss Reserves $ 11,154 $ 10,673 $ 9,651 5 % 16 % $ 11,154 $ 9,651 16 %
Ratios
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Annualized ROA 0.60 % 0.82 % 0.12 % (27)% 400 % 0.84 % 0.70 % 20 %
Annualized ROE 7.30 % 10.03 % 1.58 % (27)% 362 % 10.23 % 9.07 % 13 %
Efficiency Ratio 73.63 % 73.14 % 86.47 % 1 % (15)% 71.05 % 74.53 % (5)%
Net Interest Margin 4.27 % 4.92 % 6.11 % (13)% (30)% 5.04 % 5.95 % (15)%
Allowance for Loan Losses:
to Total Loans 1.76 % 1.73 % 1.58 % 2 % 11 % 1.76 % 1.58 % 11 %
to Non-Performing Loans ---% 16,171 % ---% (100)% N/A ---% ---% N/A
Leverage Ratio 10.20 % 10.25 % 9.32 % 0 % 9 % 10.20 % 9.32 % 9 %
SIGNATURES
Pursuant to the requirement of the Security Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: JANUARY 25, 2002
Heritage Commerce Corp
By: /s/ Lawrence D. McGovern
Name: Lawrence D. McGovern
Executive Vice President and Chief Financial Officer