Exhibit 99.1
Heritage Commerce Corp Reports Financial Results
For the Three Months Ended March 31, 2005
San Jose, CA - May 9, 2005 -Heritage Commerce Corp (Nasdaq: HTBK), parent company of Heritage Bank of Commerce, today reported consolidated operating results for the three months ended March 31, 2005. Consolidated net income was $2,654,000, or $0.22 per diluted share, compared to $1,971,000, or $0.16 per diluted share, for the three months ended March 31, 2004, a 35% increase. The annualized returns on average assets and average equity for the three months ended March 31, 2005 were 0.96% and 10.67%, respectively, compared to returns of 0.81% and 8.71%, respectively, for the three months ended March 31, 2004.
Financial Highlights (first quarter 2005 versus first quarter 2004):
- Total loans increased 9% to $729.9 million.
- Net interest income increased 20% to $11.7 million.
- Net interest margin increased 21 basis points to 4.58%.
- Diluted earnings per share of $0.22 were up 38% from $0.16.
- Return on average assets was 0.96% compared to 0.81%, an 18% increase.
Operating Results
Net interest income increased $1,953,000, or 20%, to $11,671,000 for the three months ended March 31, 2005 from $9,718,000 for the three months ended March 31, 2004. The improvement in net interest income was the result of increases in the volume of average earning assets and increases in key market interest rates. The Company's net interest margin was 4.58% for the three months ended March 31, 2005, compared with 4.37% for the three months ended March 31, 2004.
For the three months ended March 31, 2005, noninterest income was $2,320,000, compared to $2,719,000 for the three months ended March 31, 2004, a decrease of $399,000, or 15%. In the first quarter of 2005, there were no mortgage brokerage fees compared to mortgage brokerage fees of $119,000 for the first quarter of 2004. The Company closed its residential mortgage department in June 2004. In the first quarter of 2005, lease income was $79,000 and there were no securities gains compared to $245,000 in lease income and $212,000 in securities gains in the first quarter of 2004. Deposit related activity charges were down $80,000 in the first quarter of 2005 compared to the first quarter of 2004.
Partially offsetting the decline in noninterest income from the elimination of mortgage brokerage fees and no gains on sales of securities in the first quarter of 2005, the gain on sale of Small Business Administration (SBA) loans increased 5% to $760,000 and loan-servicing income increased 32% to $668,000 compared to the first quarter of 2004. The Company has an ongoing program of originating SBA loans and selling the government guaranteed portion in the secondary market, while retaining the servicing of the whole loans.
Operating expenses were $9,739,000 for the three months ended March 31, 2005, an increase of $769,000, or 9%, compared to $8,970,000 for the three months ended March 31, 2004. The increase in noninterest expenses for the first quarter of 2005 compared to the first quarter of 2004 was primarily due to severance expenses of $320,000 and increases in other categories of expense related to growth in volumes and activity. The efficiency ratio was 69.61% in the first quarter of 2005, compared to 72.12% in the first quarter of 2004. "Despite some unexpected expenses, we had a solid first quarter. We are clearly benefiting from recent interest rate increases and the cost controls implemented over the past year," said Walter Kaczmarek, CEO.
Balance Sheet, Capital Management and Credit Quality
At March 31, 2005, total assets increased 9% to $1.16 billion from $1.06 billion at March 31, 2004. Total deposits grew 9% to $963 million at March 31, 2005 from $885 million at March 31, 2004. Core deposits, the lowest-cost funding source for the Company, increased 4% to $804 million from March 31, 2004 to March 31, 2005.
Total loans were $730 million at March 31, 2005, a 9% increase over the three months ended March 31, 2004. Real estate mortgage loans, primarily loans secured by first mortgages on commercial property, were $304 million at March 31, 2005, a 5% increase over the same period in 2004. Commercial loans grew to $293 million at March 31, 2005, a 7% increase over the same period in 2004. At March 31, 2005, real estate mortgage loans and commercial loans represented 42% and 40%, respectively, of total loans, compared to 43% and 41%, respectively, at March 31, 2004. Real estate construction loans at March 31, 2005 were $130 million, up 28% from the same period a year ago. Real estate construction loans represented 18% of total loans at March 31, 2005, compared to 15% at March 31, 2004. "Loan and deposit growth along with solid loan quality will be important ingredients for continued long term profitability improvement," noted Mr. Kaczmarek.
Nonperforming assets (NPA) at March 31, 2005 were $3.74 million, or 0.32% of total assets, compared to $4.80 million, or 0.45% of total assets, at March 31, 2004. The allowance for loan losses at March 31, 2005 was $11.25 million, or 1.54% of total loans, and represents 301% of nonperforming loans. The allowance for loan and lease losses at March 31, 2004 was $12.11 million, or 1.82% of loans, and represented 252% of nonperforming loans. Net charge-offs in the first quarter of 2005 were $1,661,000, or 0.93% of average loans, compared to $1,901,000, or 1.16% of average loans, in the first quarter of 2004.
During the quarter, the Company charged-off $1.98 million of a loan to a customer in the building trades. The remaining carrying value of the loan is $2.82 million and is included in NPA at March 31, 2005. The carrying value of the loan is secured by real and personal property of the borrower and guarantors.
Shareholders' equity increased 10% to $101.82 million, or $8.60 per share, at March 31, 2005, compared to $92.98 million, or $8.09 per share, a year earlier. Capital ratios continue to be above the well-capitalized guidelines established by regulatory agencies. The Company's leverage ratio at March 31, 2005, was 11.18%, compared to 11.47% at March 31, 2004.
Heritage Commerce Corp, a bank holding company established in February 1998, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose with offices in Los Gatos, Fremont, Danville, Morgan Hill, Gilroy, Mountain View and two offices in Los Altos. Additionally, Heritage Capital Group, the bank's asset based lending division, has offices in San Jose and Los Angeles. Heritage Bank of Commerce is also an SBA Preferred Lender with offices in San Jose, Fresno, Santa Cruz, Elk Grove, Watsonville, Chico, Los Angeles, Irvine and Pittsburg, California.
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 and monetary policy established by the Federal Reserve, inflation, government regulations, general economic conditions, competition within the business areas in which the Company is conducting its operations, including the real estate market in California, the ability to recognize identified cost savings, 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 onForms 10-K and10-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.
For the Three Months Ended: Percent Change From:
CONSOLIDATED INCOME STATEMENT --------------------------------------- -----------------------
(in $000's, unaudited) 03/31/2005 12/31/2004 03/31/2004(1) 12/31/2004 03/31/2004
----------- ----------- ------------- ----------- -----------
Interest Income $ 14,867 $ 14,330 $ 11,907 4% 25%
Interest Expense 3,196 2,677 2,189 19% 46%
----------- ----------- -------------
Net Interest Income 11,671 11,653 9,718 0% 20%
(Reversal of) Provision for Loan Losses 413 (726) 563 157% -27%
----------- ----------- -------------
Net Interest Income after (Reversal of) Loan Loss Provision 11,258 12,379 9,155 -9% 23%
Noninterest Income:
Gain on Sale of Loans 760 766 727 -1% 5%
Servicing Income 668 643 505 4% 32%
Service Charges and Other Fees on Deposit Accounts 393 414 473 -5% -17%
Appreciation of Corporate Owned Life Insurance 266 232 329 15% -19%
Equipment Leasing 79 136 245 -42% -68%
Gain on Sale of Securities Available-For-Sale 0 0 212 N/A -100%
Mortgage Brokerage Fees 0 0 119 N/A -100%
Other 154 167 109 -8% 41%
----------- ----------- -------------
Total Noninterest Income 2,320 2,358 2,719 -2% -15%
Noninterest Expense:
Salaries & Employee Benefits 4,905 4,277 4,720 15% 4%
Occupancy & Equipment 1,050 1,104 1,279 -5% -18%
Other 3,784 6,020 2,971 -37% 27%
----------- ----------- -------------
Total Noninterest Expense 9,739 11,401 8,970 -15% 9%
Income Before Taxes 3,839 3,336 2,904 15% 32%
Provision for Income Taxes 1,185 690 933 72% 27%
----------- ----------- -------------
Net Income $ 2,654 $ 2,646 $ 1,971 0% 35%
=========== =========== =============
For the Three Months Ended: Percent Change From:
PER SHARE DATA --------------------------------------- -----------------------
(unaudited) 03/31/2005 12/31/2004 03/31/2004(1) 12/31/2004 03/31/2004
----------- ----------- ------------- ----------- -----------
Basic Earnings Per Share $0.23 $0.23 $0.17 0% 35%
Diluted Earnings Per Share $0.22 $0.23 $0.16 -4% 38%
Weighted Average Basic Shares Outstanding 11,753,371 11,645,202 11,375,388 1% 3%
Weighted Average Diluted Shares Outstanding 12,162,746 12,106,197 11,798,329 0% 3%
Common Shares Outstanding 11,839,426 11,669,837 11,495,008 1% 3%
Book Value Per Share $8.60 $8.45 $8.09 2% 6%
Tangible Book Value Per Share $8.60 $8.45 $8.09 2% 6%
For the Three Months Ended: Percent Change From:
--------------------------------------- -----------------------
KEY FINANCIAL RATIOS 03/31/2005 12/31/2004 03/31/2004(1) 12/31/2004 03/31/2004
(unaudited) ----------- ----------- ------------- ----------- -----------
Return on Average Equity 10.67% 10.76% 8.71% -1% 22%
Return on Average Assets 0.96% 0.95% 0.81% 1% 18%
Net Interest Margin 4.58% 4.56% 4.37% 0% 5%
Efficiency Ratio 69.61% 81.37% 72.12% -14% -3%
For the Three Months Ended: Percent Change From:
--------------------------------------- -----------------------
AVERAGE BALANCES 03/31/2005 12/31/2004 03/31/2004(1) 12/31/2004 03/31/2004
(in $000's, unaudited) ----------- ----------- ------------- ----------- -----------
Average Assets $ 1,121,712 $ 1,110,207 $ 982,156 1% 14%
Average Earning Assets $ 1,033,170 $ 1,016,980 $ 895,149 2% 15%
Average Gross Loans & Leases $ 727,522 $ 725,367 $ 656,603 0% 11%
Average Deposits $ 925,993 $ 920,870 $ 824,714 1% 12%
Average Demand Deposits - Noninterest Bearing $ 261,471 $ 294,109 $ 234,693 -11% 11%
Average Demand Deposits - Interest Bearing $ 664,522 $ 626,761 $ 590,021 6% 13%
Average Interest Bearing Liabilities $ 738,391 $ 698,372 $ 642,212 6% 15%
Average Equity $ 100,922 $ 97,841 $ 91,025 3% 11%
(1) As restated, see Note 2 in the Company's Form 10-Q for the quarter ended March 31, 2005.
End of Period: Percent Change From:
--------------------------------------- -----------------------
CONSOLIDATED BALANCE SHEET 03/31/2005 12/31/2004 03/31/2004(1) 12/31/2004 03/31/2004
(in $000's, unaudited) ----------- ----------- ------------- ----------- -----------
ASSETS
Cash and Due from Banks $ 33,163 $ 33,646 $ 51,725 -1% -36%
Fed Funds Sold 76,200 24,100 67,700 216% 13%
Investment Securities 225,082 232,809 204,705 -3% 10%
Loans Held For Sale 33,610 37,178 25,512 -10% 32%
Loans:
Real Estate-Mortgage 303,600 303,154 287,833 0% 5%
Real Estate-Land and Construction 129,881 118,290 101,389 10% 28%
Commercial Loans 293,488 300,452 275,536 -2% 7%
Consumer Loans 2,147 2,908 1,715 -26% 25%
----------- ----------- -------------
Gross Loans 729,116 724,804 666,473 1% 9%
Deferred Loan Costs 754 726 517 4% 46%
----------- ----------- -------------
Loans, Net of Deferred Costs 729,870 725,530 666,990 1% 9%
Allowance for Loan Losses (11,249) (12,497) (12,114) -10% -7%
----------- ----------- -------------
Net Loans 718,621 713,033 654,876 1% 10%
Premises & Equipment, Net 2,993 3,183 3,711 -6% -19%
Accrued Interest Receivable and Other Assets 65,646 64,224 53,897 2% 22%
----------- ----------- -------------
Total Assets $ 1,155,315 $ 1,108,173 $ 1,062,126 4% 9%
=========== =========== =============
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Demand Deposits-Noninterest Bearing $ 274,736 $ 277,451 $ 287,633 -1% -4%
Demand Deposits-Interest Bearing 130,039 120,890 108,764 8% 20%
Savings/Money Market 361,060 357,318 340,212 1% 6%
Time Deposits, Under $100 37,829 38,295 39,724 -1% -5%
Time Deposits, $100 and Over 158,859 124,581 108,652 28% 46%
----------- ----------- -------------
Total Deposits 962,523 918,535 884,985 5% 9%
Other Borrowings 47,800 47,800 48,600 0% -2%
Notes Payable To Subsidiary Grantor Trusts 23,702 23,702 23,702 0% 0%
Accrued Interest Payable and Other Liabilities 19,468 19,557 11,857 0% 64%
----------- ----------- -------------
Total Liabilities 1,053,493 1,009,594 969,144 4% 9%
Shareholders' Equity:
Common Stock 68,919 67,216 65,396 3% 5%
Accumlated Other Comprehensive Income (Loss), Net of Taxes (2,844) (1,730) 1,000 64% -384%
Retained Earnings 35,747 33,093 26,586 8% 34%
----------- ----------- -------------
Total Shareholders' Equity 101,822 98,579 92,982 3% 10%
----------- ----------- -------------
Total Liabilities & Shareholders' Equity $ 1,155,315 $ 1,108,173 $ 1,062,126 4% 9%
=========== =========== =============
End of Period: Percent Change From:
--------------------------------------- -----------------------
CREDIT QUALITY DATA 03/31/2005 12/31/2004 03/31/2004(1) 12/31/2004 03/31/2004
(in $000's, unaudited) ----------- ----------- ------------- ----------- -----------
Nonaccrual Loans $ 3,450 $ 1,028 $ 4,171 236% -17%
Over 90 Days Past Due and Still Accruing 287 302 630 -5% -54%
----------- ----------- -------------
Total Nonperforming Loans 3,737 1,330 4,801 181% -22%
Other Real Estate Owned 0 0 0 N/A N/A
----------- ----------- -------------
Total Nonperforming Assets $ 3,737 $ 1,330 $ 4,801 181% -22%
=========== =========== =============
Net Charge-offs/(Recoveries) 1,661 (531) 1,901 413% -13%
Net Charge-offs/(Recoveries) as Percent of Average Loans 0.93% -0.29% 1.16% -421% -20%
Allowance for Loan Losses to Total Loans 1.54% 1.72% 1.82% -10% -15%
Allowance for Loan Losses to Nonperforming Loans 301.02% 939.62% 252.32% -68% 19%
Nonperforming Assets to Total Assets 0.32% 0.12% 0.45% 167% 29%
Nonperforming Loans to Total Loans 0.51% 0.18% 0.72% 183% -29%
End of Period: Percent Change From:
--------------------------------------- -----------------------
OTHER PERIOD-END STATISTICS 03/31/2005 12/31/2004 03/31/2004(1) 12/31/2004 03/31/2004
(unaudited) ----------- ----------- ------------- ----------- -----------
Shareholders Equity / Total Assets 8.81% 8.90% 8.75% -1% 1%
Loan to Deposit Ratio 75.83% 78.99% 75.37% -4% 1%
Non-Interest Bearing Deposits / Total Deposits 28.54% 30.21% 32.50% -6% -12%
Leverage Ratio 11.18% 10.87% 11.47% 3% -3%
(1) As restated, see Note 2 in the Company's Form 10-K for the year ended December 31, 2004.
