Heritage Commerce Corp Reports Robust Loan and Deposit Growth in 2024

SAN JOSE, Calif., Jan. 23, 2025 (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 2024 net income was $10.6 million, or $0.17 per average diluted common share, compared to $10.5 million, or $0.17 per average diluted common share, for the third quarter of 2024, and $13.3 million, or $0.22 per average diluted common share, for the fourth quarter of 2023. For the year ended December 31, 2024, net income was $40.5 million, or $0.66 per average diluted common share, compared to $64.4 million, or $1.05 per average diluted common share, for the year ended December 31, 2023. All data are unaudited.

"Our earnings for both the fourth quarter of 2024 and the full year were fueled by excellent deposit growth and solid loan growth throughout our footprint," said Clay Jones, President and Chief Executive Officer. "Deposit balances grew 2% over the prior quarter and 10% year-over-year, driven by our team's success at cultivating local community commercial deposit relationships. Additionally, loan growth picked up during the fourth quarter, resulting in a 2% increase from the prior quarter and a 4% increase year-over-year."

"Our positive credit trends continued during the fourth quarter, with nonperforming assets and net charge-offs remaining low at December 31, 2024," said Mr. Jones. "During the fourth quarter, we continued to add to our loan reserves reflecting our solid loan growth while credit costs remained modest."

"Another highlight of the fourth quarter was the expansion of our net interest margin to 3.34% for the fourth quarter of 2024, compared to 3.17% for the third quarter of 2024. The quarterly net interest margin improvement was largely due to the reduction in our cost of funds following the recent rate reductions. With our solid capital ratios and strong balance sheet, we remain well positioned to benefit from stronger economic conditions. I want to thank our team members, clients, and the community for their efforts this year and for their unwavering support," said Mr. Jones.

Fourth Quarter Ended December 31, 2024  

Operating Results, Liquidity Position, Financial Condition, Credit Quality, and Capital Management

(as of, or for the periods ended December 31, 2024, compared to September 30, 2024, and December 31, 2023, except as noted):

Operating Results:

• The following table indicates the ratios for the annualized return on average equity, average tangible common equity, average assets and average tangible assets for the periods indicated:
  
  

		For the Quarter Ended:									For the Year Ended:
		December 31,			September 30,			December 31,			December 31,			December 31,
(unaudited)		2024			2024			2023			2024			2023
Return on average equity		6.16	%		6.14	%		7.96	%		5.97	%		9.88	%
Return on average tangible common equity(1)		8.25	%		8.27	%		10.84	%		8.05	%		13.57	%
Return on average assets		0.75	%		0.78	%		1.00	%		0.76	%		1.22	%
Return on average tangible assets(1)		0.78	%		0.81	%		1.04	%		0.78	%		1.26	%

(1) This is a non-GAAP financial measure as defined and discussed under "Non-GAAP Financial Measures" below.

Net Interest Income:

• Net interest income increased 11% to $44.2 million for the fourth quarter of 2024, compared to $39.9 million for the third quarter of 2024. The fully tax equivalent ("FTE") net interest margin increased 17 basis points to 3.34% for the fourth quarter of 2024 from 3.17% for the third quarter of 2024, primarily due to lower rates paid on customer deposits, an increase in the average balances of deposits resulting in an increase in the average balance of overnight funds, partially offset by a lower average yield on overnight funds.  
• Net interest income increased 4% to $44.2 million for the fourth quarter of 2024, compared to $42.3 million for the fourth quarter of 2023. The FTE net interest margin decreased (7) basis points to 3.34% for the fourth quarter of 2024, from 3.41% for the fourth quarter of 2023, primarily due to higher rates paid on customer deposits, and lower average yields on overnight funds and investment securities, partially offset by an increase in the average balances of loans and overnight funds.
• For the year ended December 31, 2024, the net interest income decreased (11%) to $163.6 million, compared to $183.2 million for the year ended December 31, 2023. The FTE net interest margin decreased (42) basis points to 3.28% for the year ended December 31, 2024, from 3.70% for the year ended December 31, 2023, primarily due to higher rates paid on customer deposits, a decrease in the average balance of noninterest-bearing deposits, and a lower average yield on investment securities, partially offset by an increase in the average balances of loans and overnight funds.
• The following tables set forth the estimated changes in the Company's annual net interest income and economic value of equity (a non-GAAP financial measure) that would result from the designated instantaneous parallel shift in interest rates noted, and assuming a flat balance sheet with consistent product mix, as of December 31, 2024:

		Increase/(Decrease) in
		Estimated Net
CHANGE IN INTEREST RATES (basis points)		Interest Income(1)
(in $000's, unaudited)		Amount				Percent
+400		$	27,272			14.0		%
+300		$	20,340			10.5		%
+200		$	13,451			6.9		%
+100		$	6,590			3.4		%
0			—			—
−100		$	(8,368	)		(4.3	)	%
−200		$	(19,659	)		(10.1	)	%
−300		$	(33,576	)		(17.3	)	%
−400		$	(54,794	)		(28.2	)	%

		Increase/(Decrease) in
		Estimated Economic
CHANGE IN INTEREST RATES (basis points)		Value of Equity(1)
(in $000's, unaudited)		Amount				Percent
+400		$	124,156			9.0		%
+300		$	104,693			7.6		%
+200		$	78,580			5.7		%
+100		$	44,383			3.2		%
0			—			—
−100		$	(71,172	)		(5.2	)	%
−200		$	(177,928	)		(13.0	)	%
−300		$	(314,451	)		(22.9	)	%
−400		$	(492,841	)		(35.9	)	%

(1)	Computations of prospective effects of hypothetical interest rate changes are for illustrative purposes only, 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 affect 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 increased to 5.53% for the fourth quarter of 2024, compared to 5.42% for the third quarter of 2024.

		For the Quarter Ended											For the Quarter Ended
		December 31, 2024											September 30, 2024
		Average				Interest				Average			Average				Interest				Average
(in $000's, unaudited)		Balance				Income				Yield			Balance				Income				Yield
Loans, core bank		$	2,899,347			$	39,852			5.47		%	$	2,867,076			$	39,621			5.50		%
Prepayment fees			—				35			0.00		%		—				4			0.00		%
Bay View Funding factored receivables(1)			59,153				3,084			20.74		%		55,391				2,144			15.40		%
Purchased residential mortgages			434,846				3,732			3.41		%		441,294				3,779			3.41		%
Loan fair value mark / accretion			(2,357	)			429			0.06		%		(2,621	)			233			0.03		%
Total loans (includes loans held-for-sale)		$	3,390,989			$	47,132			5.53		%	$	3,361,140			$	45,781			5.42		%

•

The average yield on the total loan portfolio increased to 5.53% for the fourth quarter of 2024, compared to 5.39% for the fourth quarter of 2023, primarily due to an increase in the yield on the core bank loan portfolio. The average yield on the total loan portfolio increased to 5.47% for the year ended December 31, 2024, compared to 5.45% for the year ended December 31, 2023, primarily due to an increase in the yield on the core bank loan portfolio.

		For the Quarter Ended											For the Quarter Ended
		December 31, 2024											December 31, 2023
		Average				Interest				Average			Average				Interest				Average
(in $000's, unaudited)		Balance				Income				Yield			Balance				Income				Yield
Loans, core bank		$	2,899,347			$	39,852			5.47		%	$	2,773,652			$	37,674			5.39		%
Prepayment fees			—				35			0.00		%		—				91			0.01		%
Bay View Funding factored receivables			59,153				3,084			20.74		%		52,861				2,803			21.04		%
Purchased residential mortgages			434,846				3,732			3.41		%		459,268				3,812			3.29		%
Loan fair value mark / accretion			(2,357	)			429			0.06		%		(3,352	)			255			0.04		%
Total loans (includes loans held-for-sale)		$	3,390,989			$	47,132			5.53		%	$	3,282,429			$	44,635			5.39		%

		For the Year Ended											For the Year Ended
		December 31, 2024											December 31, 2023
		Average				Interest				Average			Average				Interest				Average
(in $000's, unaudited)		Balance				Income				Yield			Balance				Income				Yield
Loans, core bank		$	2,848,206			$	155,690			5.47		%	$	2,730,789			$	147,028			5.38		%
Prepayment fees			—				117			0.00		%		—				484			0.02		%
Bay View Funding factored receivables(1)			55,717				10,980			19.71		%		62,642				13,426			21.43		%
Purchased residential mortgages			444,476				15,038			3.38		%		472,582				15,309			3.24		%
Loan fair value mark / accretion			(2,737	)			1,158			0.04		%		(3,819	)			1,381			0.05		%
Total loans (includes loans held-for-sale)		$	3,345,662			$	182,983			5.47		%	$	3,262,194			$	177,628			5.45		%

(1)	Interest income for the third quarter of 2024 and the year ended December 31, 2024 was reduced by an immaterial out-of-period adjustment of ($804,000).

	•	In aggregate, the unamortized net purchase discount on total loans acquired was $2.1 million at December 31, 2024.

• 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, 2024											September 30, 2024
		Average				Interest				Average			Average				Interest				Average
(in $000's, unaudited)		Balance				Expense				Rate			Balance				Expense				Rate
Deposits:
Demand, noninterest-bearing		$	1,222,393										$	1,172,304
Demand, interest-bearing			906,581			$	1,452			0.64		%		907,346			$	1,714			0.75		%
Savings and money market			1,339,397				9,090			2.70		%		1,188,057				9,128			3.06		%
Time deposits - under $100			11,388				49			1.71		%		11,133				47			1.68		%
Time deposits - $100 and over			234,446				2,310			3.92		%		229,565				2,349			4.07		%
Insured Cash Sweep ("ICS")/Certificate of Deposit Registry
Service ("CDARS") - interest-bearing demand, money market and time deposits			1,057,286				7,009			2.64		%		1,017,541				7,747			3.03		%
Total interest-bearing deposits			3,549,098				19,910			2.23		%		3,353,642				20,985			2.49		%
Total deposits			4,771,491				19,910			1.66		%		4,525,946				20,985			1.84		%
Short-term borrowings			28				—			0.00		%		32				—			0.00		%
Subordinated debt, net of issuance costs			39,629				538			5.40		%		39,590				538			5.41		%
Total interest-bearing liabilities			3,588,755				20,448			2.27		%		3,393,264				21,523			2.52		%
Total interest-bearing liabilities and demand, noninterest-bearing / cost of funds		$	4,811,148			$	20,448			1.69		%	$	4,565,568			$	21,523			1.88		%

	•	The average cost of total deposits decreased to 1.66% for the fourth quarter of 2024, compared to 1.84% for the third quarter of 2024, reflecting our success in reducing the rates on client deposits following the recent interest rate reductions. The average cost of funds decreased to 1.69% for the fourth quarter of 2024, compared to 1.88% for the third quarter of 2024. The average cost of deposits was 1.43% and the average cost of funds was 1.46% for the fourth quarter of 2023.
	•	The average cost of total deposits increased to 1.70% for the year ended December 31, 2024, compared to 1.06% for the year ended December 31, 2023. The average cost of funds increased to 1.74% for the year ended December 31, 2024, compared to 1.13% for the year ended December 31, 2023.

Provision for Credit Losses on Loans:

• During the fourth quarter of 2024, we recorded a provision for credit losses on loans of $1.3 million, compared to a $153,000 provision for credit losses on loans for the third quarter of 2024, and a provision for credit losses on loans of $289,000 for the fourth quarter of 2023. The addition to the allowance for credit on losses on loans reflects our loan growth, credit assessment, and economic factors.
  
  
• There was a provision for credit losses on loans of $2.1 million for the year ended December 31, 2024, compared to a $749,000 provision for credit losses on loans for the year ended December 31, 2023, primarily due to the increase in the balance of total loans, and an increase in specific reserves for individually analyzed loans.
  
  

Noninterest Income:

• Total noninterest income remained relatively flat at $2.2 million for both the fourth and third quarters of 2024. Total noninterest income increased 13% to $2.2 million for the fourth quarter of 2024, compared to $1.9 million for the fourth quarter of 2023, primarily due to a higher gain on sales of SBA loans.
• Total noninterest income decreased (3%) to $8.7 million for the year ended December 31, of 2024, compared to $9.0 million for the year ended December 31, 2023, primarily due to lower service charges and fees on deposit accounts, partially offset by higher income in various other noninterest income categories.

Noninterest Expense:

• Total noninterest expense for the fourth quarter of 2024 increased to $30.3 million, compared to $27.6 million for the third quarter of 2024, primarily due to one-time personnel related expenses and legal fees of approximately $1.1 million, higher professional fees, homeowner association vendor payments, and information technology related expenses. Total noninterest expense for the fourth quarter of 2024 increased to $30.3 million, compared to $25.5 million for the fourth quarter of 2023, primarily due to one-time personnel related expenses and legal fees, professional fees, and homeowner association vendor payments.
• Total noninterest expense for the year ended December 31, 2024 increased to $113.6 million, compared to $101.1 million for the year ended December 31, 2023, primarily due to higher salaries and employee benefits, rent expense, professional fees, marketing related expenses, insurance expense, homeowner association vendor payments, and ICS/CDARS fee expense.   
• Full time equivalent employees were 355 at December 31, 2024 compared to 353 at September 30, 2024, and 349 at December 31, 2023.  
• The efficiency ratio was 65.35% for the fourth quarter of 2024, compared to 65.37% for the third quarter of 2024, and 57.62% for the fourth quarter of 2023. The increase in the efficiency ratio for the fourth quarter of 2024, compared to the fourth quarter of 2023 was primarily due to higher noninterest expense. The efficiency ratio increased to 65.88% for the year ended December 31, 2024 compared to 52.57% for the year ended December 31, 2023. The increase in the efficiency ratio for the year ended December 31, 2024, compared to the year ended December 31, 2023, was due to both higher noninterest expense and lower net revenue. The efficiency ratio is a non-GAAP financial measure as defined and discussed under "Non-GAAP Financial Measures" below.

Income Tax Expense:

• Income tax expense was $4.1 million for the fourth quarter of 2024, compared to $3.9 million for the third quarter of 2024, and $5.1 million for the fourth quarter of 2023. The effective tax rate for the fourth quarter of 2024 was 27.9%, compared to 27.3% for the third quarter of 2024, and 27.8% for the fourth quarter of 2023.
• Income tax expense for the year ended December 31, 2024 was $16.1 million, compared to $26.0 million for the year ended December 31, 2023. The effective tax rate for the year ended December 31, 2024 was 28.5%, compared to 28.7% for the year ended December 31, 2023.

Liquidity Position, Financial Condition, Credit Quality, and Capital Management:

Liquidity and Available Lines of Credit:

• The following table shows our liquidity, available lines of credit and the amounts outstanding at December 31, 2024:
  
  

LIQUIDITY AND AVAILABLE LINES OF CREDIT		Total								Remaining
(in $000's, unaudited)		Available				Outstanding				Available
Excess funds at the Federal Reserve Bank ("FRB")		$	935,400			$	—			$	935,400
FRB discount window collateralized line of credit			1,383,149				—				1,383,149
Federal Home Loan Bank collateralized borrowing capacity			815,760				—				815,760
Unpledged investment securities (at fair value)			94,088				—				94,088
Federal funds purchase arrangements			90,000				—				90,000
Holding company line of credit			25,000				—				25,000
Total		$	3,343,397			$	—			$	3,343,397

	•	The Company's total available liquidity and borrowing capacity was $3.3 billion at December 31, 2024, compared to $3.2 billion at September 30, 2024, and $2.9 billion at December 31, 2023.
	•	The available liquidity and borrowing capacity was 69% of the Company's total deposits and approximately 155% of the Bank's estimated uninsured deposits at December 31, 2024.
	•	The loan to deposit ratio was 72.45% at December 31, 2024, compared to 72.11% at September 30, 2024, and 76.52% at December 31, 2023.

• Total assets increased 2% to $5.65 billion at December 31, 2024, compared to $5.55 billion at September 30, 2024, and increased 9% from $5.19 billion at December 31, 2023, primarily related to growth in client deposits.

Investment Securities:

• Investment securities totaled $846.3 million at December 31, 2024, of which $256.3 million were in the securities available-for-sale portfolio (at fair value), and $590.0 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 $497.0 million at December 31, 2024.
• The following table shows the balances of securities available-for-sale, at fair value, and the related pre-tax unrealized (loss) at the dates indicated:

SECURITIES AVAILABLE-FOR-SALE		December 31,				September 30,				December 31,
(in $000's, unaudited)		2024				2024				2023
Balance (at fair value):
U.S. Treasury		$	186,183			$	184,162			$	382,369
Agency mortgage-backed securities			70,091				53,450				60,267
Total		$	256,274			$	237,612			$	442,636
Pre-tax unrealized (loss):
U.S. Treasury		$	(912	)		$	(1,440	)		$	(5,621	)
Agency mortgage-backed securities			(4,148	)			(2,923	)			(4,313	)
Total		$	(5,060	)		$	(4,363	)		$	(9,934	)
Weighted average life (years)			1.57				1.39				1.29

	•	The pre-tax unrealized (loss) on the securities available-for-sale portfolio was ($5.1) million, or ($3.7) million net of taxes, which equaled less than 1% of total shareholders' equity at December 31, 2024.
	•	During the fourth quarter of 2024, the Company purchased $20.5 million of agency mortgage-backed securities and $9.8 million of U.S. Treasury securities, for total purchases of $30.3 million in the available-for-sale portfolio. Securities purchased had a book yield of 4.79% and an average life of 4.80 years.

• 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 at the dates indicated:
  
  
  
  

SECURITIES HELD-TO-MATURITY		December 31,				September 30,				December 31,
(in $000's, unaudited)		2024				2024				2023
Balance (at amortized cost):
Agency mortgage-backed securities		$	559,548			$	573,621			$	618,374
Municipals — exempt from Federal tax(1)			30,480				30,584				32,203
Total(1)		$	590,028			$	604,205			$	650,577
Pre-tax unrecognized (loss):
Agency mortgage-backed securities		$	(91,585	)		$	(71,996	)		$	(85,729	)
Municipals — exempt from Federal tax			(1,431	)			(676	)			(721	)
Total		$	(93,016	)		$	(72,672	)		$	(86,450	)
Allowance for credit losses on municipal securities		$	(12	)		$	(12	)		$	(12	)
Weighted average life (years)			6.35				5.94				6.57

(1)	Gross of the allowance for credit losses of ($12,000) at December 31, 2024, and September 30, 2024, and December 31, 2023.

	•	The pre-tax unrecognized (loss) on the securities held-to-maturity portfolio was ($93.0) million, or ($65.5) million net of taxes, which equaled 9.5% of total shareholders' equity at December 31, 2024.
	•	The weighted average life of the securities held-to-maturity portfolio was 6.35 years at December 31, 2024, which includes Community Reinvestment Act 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, 2024 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 are the actual and/or 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-
PROJECTED INVESTMENT SECURITIES		U.S.				backed and
PAYDOWNS & MATURITIES		Treasury				Municipal
(in $000's, unaudited)		(Par Value)				Securities				Total
First quarter of 2025		$	35,000			$	20,986			$	55,986
Second quarter of 2025			118,000				19,666				137,666
Third quarter of 2025			25,500				20,822				46,322
Fourth quarter of 2025			—				19,228				19,228
Total		$	178,500			$	80,702			$	259,202

	•	The weighted average life of the total investment securities portfolio was 4.88 years at December 31, 2024, compared to 4.62 years at September 30, 2024, and 4.40 years at December 31, 2023.

Loans:

• The following table summarizes the distribution of loans, excluding loans held-for-sale, and the percentage of distribution in each category at the dates indicated:
  
  
  
  

LOANS		December 31, 2024							September 30, 2024							December 31, 2023
(in $000's, unaudited)		Balance				% to Total			Balance				% to Total			Balance				% to Total
Commercial		$	531,350			15		%	$	481,266			14		%	$	463,778			14		%
Real estate:
CRE(1) - owner occupied			601,636			17		%		602,062			18		%		583,253			17		%
CRE(1) - non-owner occupied			1,341,266			38		%		1,310,578			38		%		1,256,590			37		%
Land and construction			127,848			4		%		125,761			4		%		140,513			4		%
Home equity			127,963			4		%		124,090			4		%		119,125			4		%
Multifamily			275,490			8		%		273,103			8		%		269,734			8		%
Residential mortgages			471,730			14		%		479,524			14		%		496,961			15		%
Consumer and other			14,837			< 1		%		14,179			< 1		%		20,919			1		%
Total Loans			3,492,120			100		%		3,410,563			100		%		3,350,873			100		%
Deferred loan costs (fees), net			(183	)		—				(327	)		—				(495	)		—
Loans, net of deferred costs and fees		$	3,491,937			100		%	$	3,410,236			100		%	$	3,350,378			100		%

(1)	Commercial Real Estate

	•	Loans, excluding loans held-for-sale, increased $81.7 million, or 2%, to $3.5 billion at December 31, 2024 from $3.4 billion at September 30, 2024, and increased $141.6 million, or 4%, from $3.4 billion at December 31, 2023.   Loans, excluding residential mortgages, increased $89.5 million, or 3%, to $3.0 billion at December 31, 2024 from $2.9 billion at September 30, 2024, and increased $166.8 million, or 6%, from $2.9 billion at December 31, 2023.
	•	Commercial and industrial line utilization was 34% at December 31, 2024, compared to 31% at September 30, 2024, and 29% at December 31, 2023.
	•	CRE loans totaled $1.9 billion at December 31, 2024, of which 31% were owner occupied and 69% were investor CRE loans. Owner occupied CRE loans totaled 31% at September 30, 2024 and 32% at December 31, 2023.
		•	During the fourth quarter of 2024, there were 39 new owner occupied and non-owner occupied CRE loans originated totaling $72 million with a weighted average loan-to-value ("LTV") of 42%; the weighted average debt-service coverage ratio ("DSCR") for the non-owner occupied portfolio was 2.58 times.
		•	The average loan size for all CRE loans was $1.6 million, and the average loan size for office CRE loans was $1.7 million.
		•	The Company has personal guarantees on 92% of its CRE portfolio. A substantial portion of the unguaranteed CRE loans were made to credit-worthy non-profit organizations.
		•	Total office exposure (excluding medical/dental offices) in the CRE portfolio was $413 million, including 34 loans totaling approximately $74 million in San Jose, 18 loans totaling approximately $25 million in San Francisco, and eight loans totaling approximately $16 million in Oakland, at December 31, 2024. Non-owner occupied CRE with office exposure totaled $322 million at December 31, 2024. At December 31, 2024, the weighted average LTV and DSCR for the entire non-owner occupied office portfolio were 41.5% and 2.16 times, respectively. Total medical/dental office exposure in the non-owner occupied CRE portfolio consisted of 15 loans totaling $12.3 million, with a weighted average LTV and DSCR of 37.1% and 3.05 times, respectively, at December 31, 2024.
		•	The following table presents the weighted average LTV and DSCR by collateral type for CRE loans at December 31, 2024:

		CRE - Non-owner Occupied														CRE - Owner Occupied										Total CRE
COLLATERAL TYPE		Outstanding					LTV					DSCR				Outstanding					LTV					Outstanding					LTV
Retail			26		%			37.4		%			2.18				16		%			46.1		%			24		%			38.9		%
Industrial			18		%			38.7		%			2.98				33		%			42.9		%			22		%			40.3		%
Mixed-Use, Special Purpose and Other			19		%			41.6		%			1.99				35		%			40.6		%			22		%			41.2		%
Office			20		%			41.5		%			2.16				16		%			44.1		%			19		%			42.1		%
Multifamily			17		%			42.9		%			1.91				0		%			0.0		%			13		%			42.9		%
Hotel/Motel			< 1		%			16.3		%			1.32				0		%			0.0		%			< 1		%			16.3		%
Total			100		%			40.0		%			2.24				100		%			42.8		%			100		%			40.8		%

•

The following table presents the weighted average LTV and DSCR by county for CRE loans at December 31, 2024:

		CRE - Non-owner Occupied														CRE - Owner Occupied										Total CRE
COUNTY		Outstanding					LTV					DSCR				Outstanding					LTV					Outstanding					LTV
Alameda			25		%			43.8		%			1.92				19		%			45.3		%			23		%			44.1		%
Contra Costa			7		%			41.6		%			1.77				8		%			46.9		%			7		%			43.1		%
Marin			6		%			45.9		%			2.02				1		%			51.7		%			5		%			46.3		%
Monterey			2		%			42.8		%			1.82				2		%			40.8		%			2		%			42.1		%
Napa			< 1		%			29.1		%			2.40				1		%			51.6		%			< 1		%			36.8		%
Out of Area			9		%			42.3		%			2.04				9		%			48.9		%			9		%			44.0		%
San Benito			1		%			38.3		%			1.84				3		%			39.3		%			2		%			38.7		%
San Francisco			9		%			37.3		%			2.19				4		%			39.5		%			8		%			37.6		%
San Mateo			11		%			38.1		%			2.33				15		%			40.0		%			12		%			38.7		%
Santa Clara			24		%			36.9		%			2.80				34		%			40.7		%			27		%			38.3		%
Santa Cruz			2		%			32.2		%			1.75				1		%			49.6		%			2		%			35.5		%
Solano			1		%			32.5		%			2.91				1		%			37.5		%			1		%			33.9		%
Sonoma			3		%			38.7		%			2.58				2		%			42.8		%			2		%			39.6		%
Total			100		%			40.0		%			2.24				100		%			42.8		%			100		%			40.8		%

• The following table presents the maturity distribution of the Company's loans, excluding loans held-for-sale, as of December 31, 2024. 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 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		$	469,400			52		%		$	188,849			21		%		$	236,771			26		%		$	895,020
Loans with fixed interest rates			163,977			6		%			815,903			31		%			1,617,220			62		%			2,597,100
Loans		$	633,377			18		%		$	1,004,752			29		%		$	1,853,991			53		%		$	3,492,120

	•	At December 31, 2024, approximately 26% of the Company's loan portfolio consisted of floating interest rate loans, compared to 25% at September 30, 2024 and 27% at December 31, 2023.

Credit Quality:

• 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)		2024				2024				2023				2024				2023
Balance at beginning of period		$	47,819			$	47,954			$	47,702			$	47,958			$	47,512
Charge-offs during the period			(262	)			(474	)			(160	)			(1,604	)			(1,011	)
Recoveries during the period			65				186				127				460				708
Net charge-offs during the period			(197	)			(288	)			(33	)			(1,144	)			(303	)
Provision for credit losses on loans during the period			1,331				153				289				2,139				749
Balance at end of period		$	48,953			$	47,819			$	47,958			$	48,953			$	47,958
Total loans, net of deferred fees		$	3,491,937			$	3,410,236			$	3,350,378			$	3,491,937			$	3,350,378
Total nonperforming loans		$	7,667			$	7,158			$	7,707			$	7,667			$	7,707
ACLL to total loans			1.40		%		1.40		%		1.43		%		1.40		%		1.43		%
ACLL to total nonperforming loans			638.49		%		668.05		%		622.27		%		638.49		%		622.27		%

•

The following table shows the drivers of change in ACLL for the four quarters of 2024:

DRIVERS OF CHANGE IN ACLL
(in $000's, unaudited)
ACLL at December 31, 2023		$	47,958
Portfolio changes during the first quarter of 2024			(234	)
Qualitative and quantitative changes during the first quarter of 2024 including changes in economic forecasts			164
ACLL at March 31, 2024			47,888
Portfolio changes during the second quarter of 2024			616
Qualitative and quantitative changes during the second quarter of 2024 including changes in economic forecasts			(550	)
ACLL at June 30, 2024			47,954
Portfolio changes during the third quarter of 2024			599
Qualitative and quantitative changes during the third quarter of 2024 including changes in economic forecasts			(734	)
ACLL at September 30, 2024			47,819
Portfolio changes during the fourth quarter of 2024			1,912
Qualitative and quantitative changes during the fourth quarter of 2024 including changes in economic forecasts			(778	)
ACLL at December 31, 2024		$	48,953

• The following is a breakout of nonperforming assets ("NPAs") at the dates indicated:
  
  
  
  

NONPERFORMING ASSETS		December 31, 2024							September 30, 2024							December 31, 2023
(in $000's, unaudited)		Balance				% of Total			Balance				% of Total			Balance				% of Total
Land and construction loans		$	5,874			77		%	$	5,862			82		%	$	4,661			60		%
Commercial loans			1,014			13		%		752			11		%		1,236			16		%
Loans over 90 days past due and still accruing			489			6		%		460			6		%		889			12		%
Home equity and other loans			290			4		%		84			1		%		779			10		%
Residential mortgages			—			0		%		—			0		%		142			2		%
CRE loans			—			0		%		—			0		%		—			0		%
Total nonperforming assets		$	7,667			100		%	$	7,158			100		%	$	7,707			100		%

There were 9 borrowers included in NPAs totaling $7.7 million, or 0.14% of total assets, at December 31, 2024, compared to 10 borrowers totaling $7.2 million, or 0.13% of total assets at September 30, 2024, and 12 borrowers totaling $7.7 million, or 0.15% of total assets, at December 31, 2023.

	•	There were no CRE loans in NPAs at December 31, 2024, September 30, 2024, or December 31, 2023.
	•	There were no foreclosed assets on the balance sheet at December 31, 2024, September 30, 2024, or December 31, 2023.
	•	There were no Shared National Credits ("SNCs") or material purchased participations included in NPAs or total loans at December 31, 2024, September 30, 2024, or December 31, 2023.

• Classified assets totaled $41.7 million, or 0.74% of total assets, at December 31, 2024, compared to $32.6 million, or 0.59% of total assets, at September 30, 2024, and $31.8 million, or 0.61% of total assets, at December 31, 2023. The increase in classified assets at December 31, 2024 was primarily the result of one downgraded owner occupied CRE credit, and a number of residential related loans. The loans are well-collateralized and we do not anticipate to incur losses as a result of the downgrades of these loans.

Deposits:

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

DEPOSITS		December 31, 2024							September 30, 2024							December 31, 2023
(in $000's, unaudited)		Balance				% to Total			Balance				% to Total			Balance				% to Total
Demand, noninterest-bearing		$	1,214,192			25		%	$	1,272,139			27		%	$	1,292,486			30		%
Demand, interest-bearing			936,587			19		%		913,910			19		%		914,066			21		%
Savings and money market			1,325,923			28		%		1,309,676			28		%		1,087,518			25		%
Time deposits — under $250			38,988			1		%		39,060			1		%		38,055			1		%
Time deposits — $250 and over			206,755			4		%		196,945			4		%		192,228			4		%
ICS/CDARS — interest-bearing demand,
money market and time deposits			1,097,586			23		%		997,803			21		%		854,105			19		%
Total deposits		$	4,820,031			100		%	$	4,729,533			100		%	$	4,378,458			100		%

 

	•	Total deposits increased $90.5 million, or 2%, to $4.8 billion at December 31, 2024, compared to $4.7 billion at September 30, 2024, and increased $441.6 million, or 10% from $4.4 billion at December 31, 2023.
	•	The Company had 25,427 deposit accounts at December 31, 2024, with an average balance of $190,000. At September 30, 2024, the Company had 25,373 deposit accounts, with an average balance of $186,000. At December 31, 2023, the Company had 24,737 deposit accounts, with an average balance of $177,000.
	•	Deposits from the Bank's top 100 client relationships, representing 22% of the total number of accounts, totaled $2.2 billion, representing 47% of total deposits, with an average account size of $400,000 at December 31, 2024. At September 30, 2024, deposits from the Bank's top 100 client relationships, representing 22% of the total number of accounts, totaled $2.2 billion, representing 47% of total deposits, with an average account size of $394,000. At December 31, 2023, deposits from the Bank's top 100 client relationships, representing 22% of the total number of accounts, totaled $2.0 billion, representing 45% of total deposits, with an average account size of $368,000.
	•	The Bank's uninsured deposits were approximately $2.2 billion, or 45% of the Company's total deposits, at December 31, 2024, compared to $2.2 billion, or 47% of the Company's total deposits, at September 30, 2024, and $2.0 billion, or 46% of the Company's total deposits, at December 31, 2023.

Capital Management:

• In July 2024, the Company announced that its Board of Directors adopted a share repurchase program under which the Company is authorized to repurchase up to $15 million of the Company's shares of its issued and outstanding common stock. The Company did not repurchase any of its common stock during the third or fourth quarters of 2024.
• The Company's consolidated capital ratios exceeded regulatory guidelines and the Bank's capital ratios exceeded regulatory guidelines under the prompt corrective action ("PCA") regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at December 31, 2024, as reflected in the following table:
  
  

										Well-capitalized
										Financial
										Institution				Basel III
		Heritage				Heritage				PCA				Minimum
		Commerce				Bank of				Regulatory				Regulatory
CAPITAL RATIOS (unaudited)		Corp				Commerce				Guidelines				Requirements (1)
Total Capital		15.6		%		15.1		%		10.0		%		10.5		%
Tier 1 Capital		13.4		%		13.9		%		8.0		%		8.5		%
Common Equity Tier 1 Capital		13.4		%		13.9		%		6.5		%		7.0		%
Tier 1 Leverage		9.6		%		10.0		%		5.0		%		4.0		%
Tangible common equity / tangible assets (2)		9.4		%		9.8		%		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 Tier 1 Leverage ratio.
(2)	This is a non-GAAP financial measure that 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, at the dates indicated:
  
  
  
  

ACCUMULATED OTHER COMPREHENSIVE LOSS		December 31,				September 30,				December 31,
(in $000's, unaudited)		2024				2024				2023
Unrealized loss on securities available-for-sale		$	(3,656	)		$	(3,161	)		$	(7,116	)
Split dollar insurance contracts liability			(2,339	)			(2,965	)			(2,809	)
Supplemental executive retirement plan liability			(2,173	)			(2,838	)			(2,892	)
Unrealized gain on interest-only strip from SBA loans			63				72				87
Total accumulated other comprehensive loss		$	(8,105	)		$	(8,892	)		$	(12,730	)

• Tangible common equity was $515.7 million at December 31, 2024, compared to $510.8 million at September 30, 2024, and $496.6 million at December 31, 2023. Tangible book value per share was $8.41 at December 31, 2024, compared to $8.33 at September 30, 2024, and $8.12 at December 31, 2023. Tangible common equity and tangible book value per share are non-GAAP financial measures.

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

Non-GAAP Financial Measures

Financial results are presented in accordance with accounting principles generally accepted in the United States of America ("GAAP") and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate and measure the Company's performance. Management believes these non-GAAP financial measures are common in the banking industry, and may enhance comparability for peer comparison purposes. These non-GAAP financial measures should be supplemental to primary GAAP financial measures and should not be read in isolation or relied upon as a substitute for primary GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is presented in the tables at the end of this earnings release under "Reconciliation of Non-GAAP Financial Measures."

Forward-Looking Statement Disclaimer

Certain matters discussed in this press release constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements 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. Any statements that reflect our belief about, confidence in, or expectations for future events, performance or condition should be considered forward-looking statements. Readers should not construe these statements as assurances of a given level of performance, nor as promises that we will take actions that we currently expect to take. All statements are subject to various risks and uncertainties, many of which are outside our control and some of which may fall outside our ability to predict or anticipate. Accordingly, our actual results may differ materially from our projected results, and we may take actions or experience events that we do not currently expect. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission, Item 1A of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, and the following: (1) the effects of recent and ongoing wildfires affecting Southern California, which have affected certain customers and certain loans secured by mortgages in Los Angeles County, and which are affecting or may, in the future, affect other customers in those and other markets throughout California; (2) risks of geographic concentration of our customer base, our loans, and the collateral securing our loans, as those customers and assets may be particularly subject to natural disasters and to events and conditions that directly or indirectly affect those regions, including the particular risks of natural disasters (including earthquakes, fires, and flooding) and other events that disproportionately affect that region; (3) cybersecurity risks that may affect us directly or may impact us indirectly by virtue of their effects on our clients, markets or vendors, including our ability to identify and address cybersecurity risks, including those posed by the increasing use of artificial intelligence, such as data security breaches, "denial of service" attacks, "hacking" and identity theft affecting us, our clients, and our third-party vendors and service providers; (4) political events that have accompanied or that may in the future accompany or result from recent political changes, particularly including sociopolitical events and conditions that result from political conflicts and law enforcement activities that may adversely affect our markets or our customers; (5) media items and consumer confidence as those factors affect our clients' confidence in the banking system generally and in our bank specifically; (6) adequacy of the our risk management framework, disclosure controls and procedures and internal control over financial reporting; (7) market, geographic and sociopolitical factors that arise by virtue of the fact that we operate primarily in the general San Francisco Bay Area of Northern California; (8) factors that affect our liquidity and our ability to meet client demands for withdrawals from deposit accounts and undrawn lines of credit, including our cash on hand and the availability of funds from our own lines of credit; (9) factors that affect the value and liquidity of our investment portfolios, particularly the values of securities available-for-sale; (10) our ability to estimate accurately, and to establish adequate reserves against, the risk of loss associated with our loan and lease portfolios and our factoring business; (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 clients, whether held in the portfolio or in the secondary market; (12) increased capital requirements for our continual growth or as imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all; (13) 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; (14) events that affect our ability to attract, recruit, and retain qualified officers and other personnel to implement our strategic plan, and that enable current and future personnel to protect and develop our relationships with clients, and to promote our business, results of operations and growth prospects; (15) the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise, particularly including but not limited to the effects of recent and ongoing developments in California labor and employment laws, regulations and court decisions; and (16) 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

[email protected]

		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)		2024				2024				2023				2024			2023				2024				2023				Change
Interest income		$	64,633			$	61,438			$	58,892			5		%	10		%		$	242,699			$	234,298			4		%
Interest expense			20,448				21,523				16,591			(5	)	%	23		%			79,051				51,074			55		%
Net interest income before provision for credit losses on loans			44,185				39,915				42,301			11		%	4		%			163,648				183,224			(11	)	%
Provision for credit losses on loans			1,331				153				289			770		%	361		%			2,139				749			186		%
Net interest income after provision for credit losses on loans			42,854				39,762				42,012			8		%	2		%			161,509				182,475			(11	)	%
Noninterest income:
Service charges and fees on deposit accounts			885				908				838			(3	)	%	6		%			3,561				4,341			(18	)	%
Increase in cash surrender value of life insurance			528				530				519			0		%	2		%			2,097				2,031			3		%
Gain on sales of SBA loans			125				94				—			33		%	N/A					473				482			(2	)	%
Servicing income			77				108				103			(29	)	%	(25	)	%			365				400			(9	)	%
Termination fees			18				46				25			(61	)	%	(28	)	%			177				154			15		%
Gain on proceeds from company-owned life insurance			—				—				25			N/A			(100	)	%			219				125			75		%
Other			552				554				432			0		%	28		%			1,856				1,465			27		%
Total noninterest income			2,185				2,240				1,942			(2	)	%	13		%			8,748				8,998			(3	)	%
Noninterest expense:
Salaries and employee benefits			16,976				15,673				13,919			8		%	22		%			63,952				56,862			12		%
Occupancy and equipment			2,495				2,599				2,367			(4	)	%	5		%			10,226				9,490			8		%
Professional fees			1,711				1,306				1,085			31		%	58		%			5,416				4,350			25		%
Other			9,122				7,977				8,120			14		%	12		%			33,989				30,352			12		%
Total noninterest expense			30,304				27,555				25,491			10		%	19		%			113,583				101,054			12		%
Income before income taxes			14,735				14,447				18,463			2		%	(20	)	%			56,674				90,419			(37	)	%
Income tax expense			4,114				3,940				5,135			4		%	(20	)	%			16,146				25,976			(38	)	%
Net income		$	10,621			$	10,507			$	13,328			1		%	(20	)	%		$	40,528			$	64,443			(37	)	%
PER COMMON SHARE DATA
(unaudited)
Basic earnings per share		$	0.17			$	0.17			$	0.22			0		%	(23	)	%		$	0.66			$	1.06			(38	)	%
Diluted earnings per share		$	0.17			$	0.17			$	0.22			0		%	(23	)	%		$	0.66			$	1.05			(37	)	%
Weighted average shares outstanding - basic			61,320,505				61,295,877				61,118,485			0		%	0		%			61,270,730				61,038,857			0		%
Weighted average shares outstanding - diluted			61,679,735				61,546,157				61,412,816			0		%	0		%			61,527,372				61,311,318			0		%
Common shares outstanding at period-end			61,348,095				61,297,344				61,146,835			0		%	0		%			61,348,095				61,146,835			0		%
Dividend per share		$	0.13			$	0.13			$	0.13			0		%	0		%		$	0.52			$	0.52			0		%
Book value per share		$	11.24			$	11.18			$	11.00			1		%	2		%		$	11.24			$	11.00			2		%
Tangible book value per share(1)		$	8.41			$	8.33			$	8.12			1		%	4		%		$	8.41			$	8.12			4		%
KEY FINANCIAL RATIOS
(unaudited)
Annualized return on average equity			6.16		%		6.14		%		7.96		%	0		%	(23	)	%			5.97		%		9.88		%	(40	)	%
Annualized return on average tangible common equity(1)			8.25		%		8.27		%		10.84		%	0		%	(24	)	%			8.05		%		13.57		%	(41	)	%
Annualized return on average assets			0.75		%		0.78		%		1.00		%	(4	)	%	(25	)	%			0.76		%		1.22		%	(38	)	%
Annualized return on average tangible assets(1)			0.78		%		0.81		%		1.04		%	(4	)	%	(25	)	%			0.78		%		1.26		%	(38	)	%
Net interest margin (FTE)(1)			3.34		%		3.17		%		3.41		%	5		%	(2	)	%			3.28		%		3.70		%	(11	)	%
Efficiency ratio(1)			65.35		%		65.37		%		57.62		%	0		%	13		%			65.88		%		52.57		%	25		%
AVERAGE BALANCES
(in $000's, unaudited)
Average assets		$	5,607,840			$	5,352,067			$	5,264,905			5		%	7		%		$	5,338,705			$	5,289,375			1		%
Average tangible assets(1)		$	5,433,439			$	5,177,114			$	5,088,264			5		%	7		%		$	5,163,485			$	5,111,839			1		%
Average earning assets		$	5,267,773			$	5,011,865			$	4,923,582			5		%	7		%		$	4,999,363			$	4,955,018			1		%
Average loans held-for-sale		$	2,260			$	1,493			$	1,612			51		%	40		%		$	2,001			$	2,821			(29	)	%
Average total loans		$	3,388,729			$	3,359,647			$	3,280,817			1		%	3		%		$	3,343,661			$	3,259,373			3		%
Average deposits		$	4,771,491			$	4,525,946			$	4,454,750			5		%	7		%		$	4,513,774			$	4,467,489			1		%
Average demand deposits - noninterest-bearing		$	1,222,393			$	1,172,304			$	1,243,222			4		%	(2	)	%		$	1,174,854			$	1,393,949			(16	)	%
Average interest-bearing deposits		$	3,549,098			$	3,353,642			$	3,211,528			6		%	11		%		$	3,338,920			$	3,073,540			9		%
Average interest-bearing liabilities		$	3,588,755			$	3,393,264			$	3,251,034			6		%	10		%		$	3,378,516			$	3,140,105			8		%
Average equity		$	686,263			$	680,404			$	664,638			1		%	3		%		$	678,543			$	652,449			4		%
Average tangible common equity(1)		$	511,862			$	505,451			$	487,997			1		%	5		%		$	503,323			$	474,913			6		%

_________________________________

     (1)   This is a non-GAAP financial measure.

		For the Quarter Ended:
CONSOLIDATED INCOME STATEMENTS		December 31,				September 30,				June 30,				March 31,				December 31,
(in $000's, unaudited)		2024				2024				2024				2024				2023
Interest income		$	64,633			$	61,438			$	59,077			$	57,551			$	58,892
Interest expense			20,448				21,523				19,622				17,458				16,591
Net interest income before provision for credit losses on loans			44,185				39,915				39,455				40,093				42,301
Provision for credit losses on loans			1,331				153				471				184				289
Net interest income after provision for credit losses on loans			42,854				39,762				38,984				39,909				42,012
Noninterest income:
Service charges and fees on deposit accounts			885				908				891				877				838
Increase in cash surrender value of life insurance			528				530				521				518				519
Gain on sales of SBA loans			125				94				76				178				—
Servicing income			77				108				90				90				103
Termination fees			18				46				100				13				25
Gain on proceeds from company-owned life insurance			—				—				219				—				25
Other			552				554				379				371				432
Total noninterest income			2,185				2,240				2,276				2,047				1,942
Noninterest expense:
Salaries and employee benefits			16,976				15,673				15,794				15,509				13,919
Occupancy and equipment			2,495				2,599				2,689				2,443				2,367
Professional fees			1,711				1,306				1,072				1,327				1,085
Other			9,122				7,977				8,633				8,257				8,120
Total noninterest expense			30,304				27,555				28,188				27,536				25,491
Income before income taxes			14,735				14,447				13,072				14,420				18,463
Income tax expense			4,114				3,940				3,838				4,254				5,135
Net income		$	10,621			$	10,507			$	9,234			$	10,166			$	13,328
PER COMMON SHARE DATA
(unaudited)
Basic earnings per share		$	0.17			$	0.17			$	0.15			$	0.17			$	0.22
Diluted earnings per share		$	0.17			$	0.17			$	0.15			$	0.17			$	0.22
Weighted average shares outstanding - basic			61,320,505				61,295,877				61,279,914				61,186,623				61,118,485
Weighted average shares outstanding - diluted			61,679,735				61,546,157				61,438,088				61,470,552				61,412,816
Common shares outstanding at period-end			61,348,095				61,297,344				61,292,094				61,253,625				61,146,835
Dividend per share		$	0.13			$	0.13			$	0.13			$	0.13			$	0.13
Book value per share		$	11.24			$	11.18			$	11.08			$	11.04			$	11.00
Tangible book value per share(1)		$	8.41			$	8.33			$	8.22			$	8.17			$	8.12
KEY FINANCIAL RATIOS
(unaudited)
Annualized return on average equity			6.16		%		6.14		%		5.50		%		6.08		%		7.96		%
Annualized return on average tangible common equity(1)			8.25		%		8.27		%		7.43		%		8.24		%		10.84		%
Annualized return on average assets			0.75		%		0.78		%		0.71		%		0.79		%		1.00		%
Annualized return on average tangible assets(1)			0.78		%		0.81		%		0.74		%		0.82		%		1.04		%
Net interest margin (FTE)(1)			3.34		%		3.17		%		3.26		%		3.34		%		3.41		%
Efficiency ratio(1)			65.35		%		65.37		%		67.55		%		65.34		%		57.62		%
AVERAGE BALANCES
(in $000's, unaudited)
Average assets		$	5,607,840			$	5,352,067			$	5,213,171			$	5,178,636			$	5,264,905
Average tangible assets(1)		$	5,433,439			$	5,177,114			$	5,037,673			$	5,002,597			$	5,088,264
Average earning assets		$	5,267,773			$	5,011,865			$	4,872,449			$	4,842,279			$	4,923,582
Average loans held-for-sale		$	2,260			$	1,493			$	1,503			$	2,749			$	1,612
Average total loans		$	3,388,729			$	3,359,647			$	3,328,358			$	3,297,240			$	3,280,817
Average deposits		$	4,771,491			$	4,525,946			$	4,394,545			$	4,360,150			$	4,454,750
Average demand deposits - noninterest-bearing		$	1,222,393			$	1,172,304			$	1,127,145			$	1,177,078			$	1,243,222
Average interest-bearing deposits		$	3,549,098			$	3,353,642			$	3,267,400			$	3,183,072			$	3,211,528
Average interest-bearing liabilities		$	3,588,755			$	3,393,264			$	3,306,972			$	3,222,603			$	3,251,034
Average equity		$	686,263			$	680,404			$	675,108			$	672,292			$	664,638
Average tangible common equity(1)		$	511,862			$	505,451			$	499,610			$	496,253			$	487,997

_____________________________

(1)   This is a non-GAAP financial measure.

		End of Period:												Percent Change From:
CONSOLIDATED BALANCE SHEETS		December 31,				September 30,				December 31,				September 30,			December 31,
(in $000's, unaudited)		2024				2024				2023				2024			2023
ASSETS
Cash and due from banks		$	29,864			$	49,722			$	41,592			(40	)	%	(28	)	%
Other investments and interest-bearing deposits in other financial institutions			938,259				906,588				366,537			3		%	156		%
Securities available-for-sale, at fair value			256,274				237,612				442,636			8		%	(42	)	%
Securities held-to-maturity, at amortized cost			590,016				604,193				650,565			(2	)	%	(9	)	%
Loans held-for-sale - SBA, including deferred costs			2,375				1,649				2,205			44		%	8		%
Loans:
Commercial			531,350				481,266				463,778			10		%	15		%
Real estate:
CRE - owner occupied			601,636				602,062				583,253			0		%	3		%
CRE - non-owner occupied			1,341,266				1,310,578				1,256,590			2		%	7		%
Land and construction			127,848				125,761				140,513			2		%	(9	)	%
Home equity			127,963				124,090				119,125			3		%	7		%
Multifamily			275,490				273,103				269,734			1		%	2		%
Residential mortgages			471,730				479,524				496,961			(2	)	%	(5	)	%
Consumer and other			14,837				14,179				20,919			5		%	(29	)	%
Loans			3,492,120				3,410,563				3,350,873			2		%	4		%
Deferred loan fees, net			(183	)			(327	)			(495	)		(44	)	%	(63	)	%
Total loans, net of deferred costs and fees			3,491,937				3,410,236				3,350,378			2		%	4		%
Allowance for credit losses on loans			(48,953	)			(47,819	)			(47,958	)		2		%	2		%
Loans, net			3,442,984				3,362,417				3,302,420			2		%	4		%
Company-owned life insurance			81,211				80,682				79,489			1		%	2		%
Premises and equipment, net			10,140				10,398				9,857			(2	)	%	3		%
Goodwill			167,631				167,631				167,631			0		%	0		%
Other intangible assets			6,439				6,966				8,627			(8	)	%	(25	)	%
Accrued interest receivable and other assets			119,813				123,738				122,536			(3	)	%	(2	)	%
Total assets		$	5,645,006			$	5,551,596			$	5,194,095			2		%	9		%
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, noninterest-bearing		$	1,214,192			$	1,272,139			$	1,292,486			(5	)	%	(6	)	%
Demand, interest-bearing			936,587				913,910				914,066			2		%	2		%
Savings and money market			1,325,923				1,309,676				1,087,518			1		%	22		%
Time deposits - under $250			38,988				39,060				38,055			0		%	2		%
Time deposits - $250 and over			206,755				196,945				192,228			5		%	8		%
ICS/CDARS - interest-bearing demand, money market and time deposits			1,097,586				997,803				854,105			10		%	29		%
Total deposits			4,820,031				4,729,533				4,378,458			2		%	10		%
Subordinated debt, net of issuance costs			39,653				39,615				39,502			0		%	0		%
Accrued interest payable and other liabilities			95,595				97,096				103,234			(2	)	%	(7	)	%
Total liabilities			4,955,279				4,866,244				4,521,194			2		%	10		%
Shareholders' Equity:
Common stock			510,070				509,134				506,539			0		%	1		%
Retained earnings			187,762				185,110				179,092			1		%	5		%
Accumulated other comprehensive loss			(8,105	)			(8,892	)			(12,730	)		(9	)	%	(36	)	%
Total shareholders' equity			689,727				685,352				672,901			1		%	3		%
Total liabilities and shareholders' equity		$	5,645,006			$	5,551,596			$	5,194,095			2		%	9		%

		End of Period:
CONSOLIDATED BALANCE SHEETS		December 31,				September 30,				June 30,				March 31,				December 31,
(in $000's, unaudited)		2024				2024				2024				2024				2023
ASSETS
Cash and due from banks		$	29,864			$	49,722			$	37,497			$	32,543			$	41,592
Other investments and interest-bearing deposits in other financial institutions			938,259				906,588				610,763				508,816				366,537
Securities available-for-sale, at fair value			256,274				237,612				273,043				404,474				442,636
Securities held-to-maturity, at amortized cost			590,016				604,193				621,178				636,249				650,565
Loans held-for-sale - SBA, including deferred costs			2,375				1,649				1,899				1,946				2,205
Loans:
Commercial			531,350				481,266				477,929				452,231				463,778
Real estate:
CRE - owner occupied			601,636				602,062				594,504				585,031				583,253
CRE - non-owner occupied			1,341,266				1,310,578				1,283,323				1,271,184				1,256,590
Land and construction			127,848				125,761				125,374				129,712				140,513
Home equity			127,963				124,090				126,562				122,794				119,125
Multifamily			275,490				273,103				268,968				269,263				269,734
Residential mortgages			471,730				479,524				484,809				490,035				496,961
Consumer and other			14,837				14,179				18,758				16,439				20,919
Loans			3,492,120				3,410,563				3,380,227				3,336,689				3,350,873
Deferred loan fees, net			(183	)			(327	)			(434	)			(587	)			(495	)
Total loans, net of deferred fees			3,491,937				3,410,236				3,379,793				3,336,102				3,350,378
Allowance for credit losses on loans			(48,953	)			(47,819	)			(47,954	)			(47,888	)			(47,958	)
Loans, net			3,442,984				3,362,417				3,331,839				3,288,214				3,302,420
Company-owned life insurance			81,211				80,682				80,153				80,007				79,489
Premises and equipment, net			10,140				10,398				10,310				9,986				9,857
Goodwill			167,631				167,631				167,631				167,631				167,631
Other intangible assets			6,439				6,966				7,521				8,074				8,627
Accrued interest receivable and other assets			119,813				123,738				121,190				118,134				122,536
Total assets		$	5,645,006			$	5,551,596			$	5,263,024			$	5,256,074			$	5,194,095
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, noninterest-bearing		$	1,214,192			$	1,272,139			$	1,187,320			$	1,242,059			$	1,292,486
Demand, interest-bearing			936,587				913,910				928,246				925,100				914,066
Savings and money market			1,325,923				1,309,676				1,126,520				1,124,900				1,087,518
Time deposits - under $250			38,988				39,060				39,046				38,105				38,055
Time deposits - $250 and over			206,755				196,945				203,886				200,739				192,228
ICS/CDARS - interest-bearing demand, money market and time deposits			1,097,586				997,803				959,592				913,757				854,105
Total deposits			4,820,031				4,729,533				4,444,610				4,444,660				4,378,458
Other short-term borrowings			—				—				—				—				—
Subordinated debt, net of issuance costs			39,653				39,615				39,577				39,539				39,502
Accrued interest payable and other liabilities			95,595				97,096				99,638				95,579				103,234
Total liabilities			4,955,279				4,866,244				4,583,825				4,579,778				4,521,194
Shareholders' Equity:
Common stock			510,070				509,134				508,343				507,578				506,539
Retained earnings			187,762				185,110				182,571				181,306				179,092
Accumulated other comprehensive loss			(8,105	)			(8,892	)			(11,715	)			(12,588	)			(12,730	)
Total shareholders' equity			689,727				685,352				679,199				676,296				672,901
Total liabilities and shareholders' equity		$	5,645,006			$	5,551,596			$	5,263,024			$	5,256,074			$	5,194,095

		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)		2024				2024				2023				2024			2023
Nonaccrual loans - held-for-investment		$	7,178			$	6,698			$	6,818			7		%	5		%
Loans over 90 days past due and still accruing			489				460				889			6		%	(45	)	%
Total nonperforming loans			7,667				7,158				7,707			7		%	(1	)	%
Foreclosed assets			—				—				—			N/A			N/A
Total nonperforming assets		$	7,667			$	7,158			$	7,707			7		%	(1	)	%
Net charge-offs (recoveries) during the quarter		$	197			$	288			$	33			(32	)	%	497		%
Provision for credit losses on loans during the quarter		$	1,331			$	153			$	289			770		%	361		%
Allowance for credit losses on loans		$	48,953			$	47,819			$	47,958			2		%	2		%
Classified assets		$	41,661			$	32,609			$	31,763			28		%	31		%
Allowance for credit losses on loans to total loans			1.40		%		1.40		%		1.43		%	0		%	(2	)	%
Allowance for credit losses on loans to total nonperforming loans			638.49		%		668.05		%		622.27		%	(4	)	%	3		%
Nonperforming assets to total assets			0.14		%		0.13		%		0.15		%	8		%	(7	)	%
Nonperforming loans to total loans			0.22		%		0.21		%		0.23		%	5		%	(4	)	%
Classified assets to Heritage Commerce Corp
Tier 1 capital plus allowance for credit losses on loans			7		%		6		%		6		%	17		%	17		%
Classified assets to Heritage Bank of Commerce
Tier 1 capital plus allowance for credit losses on loans			7		%		6		%		5		%	17		%	40		%
OTHER PERIOD-END STATISTICS
(in $000's, unaudited)
Heritage Commerce Corp:
Tangible common equity(1)		$	515,657			$	510,755			$	496,643			1		%	4		%
Shareholders' equity / total assets			12.22		%		12.35		%		12.96		%	(1	)	%	(6	)	%
Tangible common equity / tangible assets(2)			9.43		%		9.50		%		9.90		%	(1	)	%	(5	)	%
Loan to deposit ratio			72.45		%		72.11		%		76.52		%	0		%	(5	)	%
Noninterest-bearing deposits / total deposits			25.19		%		26.90		%		29.52		%	(6	)	%	(15	)	%
Total capital ratio			15.6		%		15.6		%		15.5		%	0		%	1		%
Tier 1 capital ratio			13.4		%		13.4		%		13.3		%	0		%	1		%
Common Equity Tier 1 capital ratio			13.4		%		13.4		%		13.3		%	0		%	1		%
Tier 1 leverage ratio			9.6		%		10.0		%		10.0		%	(4	)	%	(4	)	%
Heritage Bank of Commerce:
Tangible common equity / tangible assets(2)			9.79		%		9.86		%		10.26		%	(1	)	%	(5	)	%
Total capital ratio			15.1		%		15.1		%		14.9		%	0		%	1		%
Tier 1 capital ratio			13.9		%		13.9		%		13.8		%	0		%	1		%
Common Equity Tier 1 capital ratio			13.9		%		13.9		%		13.8		%	0		%	1		%
Tier 1 leverage ratio			10.0		%		10.4		%		10.4		%	(4	)	%	(4	)	%

________________

(1)   This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets.

(2)   This is a non-GAAP financial measure that 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)		2024				2024				2024				2024				2023
Nonaccrual loans - held-for-investment		$	7,178			$	6,698			$	5,782			$	5,920			$	6,818
Loans over 90 days past due
and still accruing			489				460				248				1,951				889
Total nonperforming loans			7,667				7,158				6,030				7,871				7,707
Foreclosed assets			—				—				—				—				—
Total nonperforming assets		$	7,667			$	7,158			$	6,030			$	7,871			$	7,707
Net charge-offs (recoveries) during the quarter		$	197			$	288			$	405			$	254			$	33
Provision for credit losses on loans during the quarter		$	1,331			$	153			$	471			$	184			$	289
Allowance for credit losses on loans		$	48,953			$	47,819			$	47,954			$	47,888			$	47,958
Classified assets		$	41,661			$	32,609			$	33,605			$	35,392			$	31,763
Allowance for credit losses on loans to total loans			1.40		%		1.40		%		1.42		%		1.44		%		1.43		%
Allowance for credit losses on loans to total nonperforming loans			638.49		%		668.05		%		795.26		%		608.41		%		622.27		%
Nonperforming assets to total assets			0.14		%		0.13		%		0.11		%		0.15		%		0.15		%
Nonperforming loans to total loans			0.22		%		0.21		%		0.18		%		0.24		%		0.23		%
Classified assets to Heritage Commerce Corp
Tier 1 capital plus allowance for credit losses on loans			7		%		6		%		6		%		6		%		6		%
Classified assets to Heritage Bank of Commerce
Tier 1 capital plus allowance for credit losses on loans			7		%		6		%		6		%		6		%		5		%
OTHER PERIOD-END STATISTICS
(in $000's, unaudited)
Heritage Commerce Corp:
Tangible common equity(1)		$	515,657			$	510,755			$	504,047			$	500,591			$	496,643
Shareholders' equity / total assets			12.22		%		12.35		%		12.91		%		12.87		%		12.96		%
Tangible common equity / tangible assets(2)			9.43		%		9.50		%		9.91		%		9.85		%		9.90		%
Loan to deposit ratio			72.45		%		72.11		%		76.04		%		75.06		%		76.52		%
Noninterest-bearing deposits / total deposits			25.19		%		26.90		%		26.71		%		27.94		%		29.52		%
Total capital ratio			15.6		%		15.6		%		15.6		%		15.6		%		15.5		%
Tier 1 capital ratio			13.4		%		13.4		%		13.4		%		13.4		%		13.3		%
Common Equity Tier 1 capital ratio			13.4		%		13.4		%		13.4		%		13.4		%		13.3		%
Tier 1 leverage ratio			9.6		%		10.0		%		10.2		%		10.2		%		10.0		%
Heritage Bank of Commerce:
Tangible common equity / tangible assets(2)			9.79		%		9.86		%		10.28		%		10.22		%		10.26		%
Total capital ratio			15.1		%		15.1		%		15.1		%		15.1		%		14.9		%
Tier 1 capital ratio			13.9		%		13.9		%		13.9		%		13.9		%		13.8		%
Common Equity Tier 1 capital ratio			13.9		%		13.9		%		13.9		%		13.9		%		13.8		%
Tier 1 leverage ratio			10.0		%		10.4		%		10.6		%		10.6		%		10.4		%

__________________

(1)   This is a non-GAAP financial measure that represents shareholders' equity minus goodwill and other intangible assets.

(2)   This is a non-GAAP financial measure that 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, 2024											September 30, 2024
						Interest				Average							Interest				Average
NET INTEREST INCOME AND NET INTEREST MARGIN		Average				Income/				Yield/			Average				Income/				Yield/
(in $000's, unaudited)		Balance				Expense				Rate			Balance				Expense				Rate
Assets:
Loans, gross(1)(2)		$	3,390,989			$	47,132			5.53		%	$	3,361,140			$	45,781			5.42		%
Securities - taxable			800,174				4,475			2.22		%		838,375				4,676			2.22		%
Securities - exempt from Federal tax(3)			30,570				274			3.57		%		31,311				282			3.58		%
Other investments and interest-bearing deposits in other financial institutions			1,046,040				12,810			4.87		%		781,039				10,758			5.48		%
Total interest earning assets(3)			5,267,773				64,691			4.89		%		5,011,865				61,497			4.88		%
Cash and due from banks			32,569											33,425
Premises and equipment, net			10,301											10,471
Goodwill and other intangible assets			174,401											174,953
Other assets			122,796											121,353
Total assets		$	5,607,840										$	5,352,067
Liabilities and shareholders' equity:
Deposits:
Demand, noninterest-bearing		$	1,222,393										$	1,172,304
Demand, interest-bearing			906,581				1,452			0.64		%		907,346				1,714			0.75		%
Savings and money market			1,339,397				9,090			2.70		%		1,188,057				9,128			3.06		%
Time deposits - under $100			11,388				49			1.71		%		11,133				47			1.68		%
Time deposits - $100 and over			234,446				2,310			3.92		%		229,565				2,349			4.07		%
ICS/CDARS - interest-bearing demand, money market and time deposits			1,057,286				7,009			2.64		%		1,017,541				7,747			3.03		%
Total interest-bearing deposits			3,549,098				19,910			2.23		%		3,353,642				20,985			2.49		%
Total deposits			4,771,491				19,910			1.66		%		4,525,946				20,985			1.84		%
Short-term borrowings			28				—			0.00		%		32				—			0.00		%
Subordinated debt, net of issuance costs			39,629				538			5.40		%		39,590				538			5.41		%
Total interest-bearing liabilities			3,588,755				20,448			2.27		%		3,393,264				21,523			2.52		%
Total interest-bearing liabilities and demand, noninterest-bearing / cost of funds			4,811,148				20,448			1.69		%		4,565,568				21,523			1.88		%
Other liabilities			110,429											106,095
Total liabilities			4,921,577											4,671,663
Shareholders' equity			686,263											680,404
Total liabilities and shareholders' equity		$	5,607,840										$	5,352,067
Net interest income / margin(3)							44,243			3.34		%						39,974			3.17		%
Less tax equivalent adjustment(3)							(58	)										(59	)
Net interest income						$	44,185			3.34		%					$	39,915			3.17		%

__________________

(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 $167,000 for the fourth quarter of 2024, compared to $184,000 for the third quarter of 2024. Prepayment fees totaled $35,000 for the fourth quarter of 2024, compared to $4,000 for the third quarter of 2024.

(3)   Reflects the non-GAAP FTE adjustment for Federal tax-exempt income based on a 21% tax rate.

		For the Quarter Ended											For the Quarter Ended
		December 31, 2024											December 31, 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)		$	3,390,989			$	47,132			5.53		%	$	3,282,429			$	44,635			5.39		%
Securities - taxable			800,174				4,475			2.22		%		1,074,638				6,516			2.41		%
Securities - exempt from Federal tax(3)			30,570				274			3.57		%		32,244				288			3.54		%
Other investments and interest-bearing deposits in other financial institutions			1,046,040				12,810			4.87		%		534,271				7,514			5.58		%
Total interest earning assets(3)			5,267,773				64,691			4.89		%		4,923,582				58,953			4.75		%
Cash and due from banks			32,569											35,214
Premises and equipment, net			10,301											9,843
Goodwill and other intangible assets			174,401											176,641
Other assets			122,796											119,625
Total assets		$	5,607,840										$	5,264,905
Liabilities and shareholders' equity:
Deposits:
Demand, noninterest-bearing		$	1,222,393										$	1,243,222
Demand, interest-bearing			906,581				1,452			0.64		%		948,061				1,661			0.70		%
Savings and money market			1,339,397				9,090			2.70		%		1,096,962				6,216			2.25		%
Time deposits - under $100			11,388				49			1.71		%		11,389				37			1.29		%
Time deposits - $100 and over			234,446				2,310			3.92		%		234,140				2,130			3.61		%
ICS/CDARS - interest-bearing demand, money market and time deposits			1,057,286				7,009			2.64		%		920,976				6,009			2.59		%
Total interest-bearing deposits			3,549,098				19,910			2.23		%		3,211,528				16,053			1.98		%
Total deposits			4,771,491				19,910			1.66		%		4,454,750				16,053			1.43		%
Short-term borrowings			28				—			0.00		%		29				—			0.00		%
Subordinated debt, net of issuance costs			39,629				538			5.40		%		39,477				538			5.41		%
Total interest-bearing liabilities			3,588,755				20,448			2.27		%		3,251,034				16,591			2.02		%
Total interest-bearing liabilities and demand, noninterest-bearing / cost of funds			4,811,148				20,448			1.69		%		4,494,256				16,591			1.46		%
Other liabilities			110,429											106,011
Total liabilities			4,921,577											4,600,267
Shareholders' equity			686,263											664,638
Total liabilities and shareholders' equity		$	5,607,840										$	5,264,905
Net interest income / margin(3)							44,243			3.34		%						42,362			3.41		%
Less tax equivalent adjustment(3)							(58	)										(61	)
Net interest income						$	44,185			3.34		%					$	42,301			3.41		%

_________________

(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 $167,000 for the fourth quarter of 2024, compared to $147,000 for the fourth quarter of 2023. Prepayment fees totaled $35,000 for the fourth quarter of 2024, compared to $91,000 for the fourth quarter of 2023.

(3)   Reflects the non-GAAP FTE adjustment for Federal tax-exempt income based on a 21% tax rate.

		For the Year Ended											For the Year Ended
		December 31, 2024											December 31, 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)		$	3,345,662			$	182,983			5.47		%	$	3,262,194			$	177,628			5.45		%
Securities - taxable			905,418				20,817			2.30		%		1,124,190				27,351			2.43		%
Securities - exempt from Federal tax(3)			31,403				1,127			3.59		%		33,806				1,196			3.54		%
Other investments, interest-bearing deposits in other financial institutions and Federal funds sold			716,880				38,009			5.30		%		534,828				28,374			5.31		%
Total interest earning assets(3)			4,999,363				242,936			4.86		%		4,955,018				234,549			4.73		%
Cash and due from banks			33,156											35,955
Premises and equipment, net			10,252											9,421
Goodwill and other intangible assets			175,220											177,536
Other assets			120,714											111,445
Total assets		$	5,338,705										$	5,289,375
Liabilities and shareholders' equity:
Deposits:
Demand, noninterest-bearing		$	1,174,854										$	1,393,949
Demand, interest-bearing			916,466				6,439			0.70		%		1,074,523				6,655			0.62		%
Savings and money market			1,175,391				32,734			2.78		%		1,144,032				19,857			1.74		%
Time deposits - under $100			11,112				184			1.66		%		11,809				97			0.82		%
Time deposits - $100 and over			228,388				8,968			3.93		%		218,131				6,874			3.15		%
ICS/CDARS - interest-bearing demand, money market and time deposits			1,007,563				28,574			2.84		%		625,045				14,074			2.25		%
Total interest-bearing deposits			3,338,920				76,899			2.30		%		3,073,540				47,557			1.55		%
Total deposits			4,513,774				76,899			1.70		%		4,467,489				47,557			1.06		%
Short-term borrowings			24				—			0.00		%		27,145				1,365			5.03		%
Subordinated debt, net of issuance costs			39,572				2,152			5.44		%		39,420				2,152			5.46		%
Total interest-bearing liabilities			3,378,516				79,051			2.34		%		3,140,105				51,074			1.63		%
Total interest-bearing liabilities and demand, noninterest-bearing / cost of funds			4,553,370				79,051			1.74		%		4,534,054				51,074			1.13		%
Other liabilities			106,792											102,872
Total liabilities			4,660,162											4,636,926
Shareholders' equity			678,543											652,449
Total liabilities and shareholders' equity		$	5,338,705										$	5,289,375
Net interest income / margin(3)							163,885			3.28		%						183,475			3.70		%
Less tax equivalent adjustment(3)							(237	)										(251	)
Net interest income						$	163,648			3.27		%					$	183,224			3.70		%

_________________

(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 $628,000 for the year ended December 31, 2024, compared to $742,000 for the year ended December 31, 2023. Prepayment fees totaled $117,000 for the year ended December 31, 2024, compared to $484,000 for the year ended December 31, 2023.

(3)   Reflects the non-GAAP FTE adjustment for Federal tax-exempt income based on a 21% tax rate.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

• Management considers tangible book value per share as a useful measurement of the Company's equity. The Company references the return on average tangible common equity and the return on average tangible assets as measurements of profitability.
• The following table summarizes components of the tangible book value per share at the dates indicated:

TANGIBLE BOOK VALUE PER SHARE		December 31,				September 30,				June 30,				March 31,				December 31,
(in $000's, unaudited)		2024				2024				2024				2024				2023
Capital components:
Total Equity (GAAP)		$	689,727			$	685,352			$	679,199			$	676,296			$	672,901
Less: Preferred Stock			—				—				—				—				—
Total Common Equity			689,727				685,352				679,199				676,296				672,901
Less: Goodwill			(167,631	)			(167,631	)			(167,631	)			(167,631	)			(167,631	)
Less: Other Intangible Assets			(6,439	)			(6,966	)			(7,521	)			(8,074	)			(8,627	)
Total Tangible Common Equity (non-GAAP)		$	515,657			$	510,755			$	504,047			$	500,591			$	496,643
Common shares outstanding at period-end			61,348,095				61,297,344				61,292,094				61,253,625				61,146,835
Tangible book value per share (non-GAAP)		$	8.41			$	8.33			$	8.22			$	8.17			$	8.12

• The following tables summarize components of the annualized return on average tangible common equity and the annualized return on average tangible assets for the periods indicated:
  
  

RETURN ON AVERAGE TANGIBLE COMMON		For the Quarter Ended:
EQUITY AND AVERAGE TANGIBLE COMMON ASSETS		December 31,				September 30,				June 30,				March 31,				December 31,
(in $000's, unaudited)		2024				2024				2024				2024				2023
Net income		$	10,621			$	10,507			$	9,234			$	10,166			$	13,328
Average tangible common equity components:
Average Equity (GAAP)		$	686,263			$	680,404			$	675,108			$	672,292			$	664,638
Less: Goodwill			(167,631	)			(167,631	)			(167,631	)			(167,631	)			(167,631	)
Less: Other Intangible Assets			(6,770	)			(7,322	)			(7,867	)			(8,408	)			(9,010	)
Total Average Tangible Common Equity (non-GAAP)		$	511,862			$	505,451			$	499,610			$	496,253			$	487,997
Annualized return on average tangible common equity (non-GAAP)			8.25		%		8.27		%		7.43		%		8.24		%		10.84		%
Average tangible assets components:
Average Assets (GAAP)		$	5,607,840			$	5,352,067			$	5,213,171			$	5,178,636			$	5,264,905
Less: Goodwill			(167,631	)			(167,631	)			(167,631	)			(167,631	)			(167,631	)
Less: Other Intangible Assets			(6,770	)			(7,322	)			(7,867	)			(8,408	)			(9,010	)
Total Average Tangible Assets (non-GAAP)		$	5,433,439			$	5,177,114			$	5,037,673			$	5,002,597			$	5,088,264
Annualized return on average tangible assets (non-GAAP)			0.78		%		0.81		%		0.74		%		0.82		%		1.04		%

	RETURN ON AVERAGE TANGIBLE COMMON		For the Year Ended:
	EQUITY AND AVERAGE TANGIBLE COMMON ASSETS		December 31,				December 31,
	(in $000's, unaudited)		2024				2023
	Net income		$	40,528			$	64,443
	Average tangible common equity components:
	Average Equity (GAAP)		$	678,543			$	652,449
	Less: Goodwill			(167,631	)			(167,631	)
	Less: Other Intangible Assets			(7,589	)			(9,905	)
	Total Average Tangible Common Equity (non-GAAP)		$	503,323			$	474,913
	Annualized return on average tangible common equity (non-GAAP)			8.05		%		13.57		%
	Average tangible assets components:
	Average Assets (GAAP)		$	5,338,705			$	5,289,375
	Less: Goodwill			(167,631	)			(167,631	)
	Less: Other Intangible Assets			(7,589	)			(9,905	)
	Total Average Tangible Assets (non-GAAP)		$	5,163,485				5,111,839
	Annualized return on average tangible assets (non-GAAP)			0.78		%		1.26		%

• Management reviews yields on certain asset categories and the net interest margin of the Company on an FTE basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis using tax rates effective as of the end of the period. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. The following tables summarize components of FTE net interest income of the Company for the periods indicated:
  
  
  
  

		For the Quarter Ended:
		December 31,				September 30,				June 30,				March 31,				December 31,
(in $000's, unaudited)		2024				2024				2024				2024				2023
Net interest income before credit losses on loans (GAAP)		$	44,185			$	39,915			$	39,455			$	40,093			$	42,301
Tax-equivalent adjustment on securities - exempt from Federal tax			58				59				60				60				61
Net interest income, FTE (non-GAAP)		$	44,243			$	39,974			$	39,515			$	40,153			$	42,362
Average balance of total interest earning assets		$	5,267,773			$	5,011,865			$	4,872,449			$	4,842,279			$	4,923,582
Net interest margin (annualized net interest income divided by the average balance of total interest earnings assets) (GAAP)			3.34		%		3.17		%		3.26		%		3.33		%		3.41		%
Net interest margin, FTE (annualized net interest income, FTE, divided by the average balance of total earnings assets) (non-GAAP)			3.34		%		3.17		%		3.26		%		3.34		%		3.41		%

			For the Year Ended:
			December 31,				December 31,
	(in $000's, unaudited)		2024				2023
	Net interest income before credit losses on loans (GAAP)		$	163,648			$	183,224
	Tax-equivalent adjustment on securities - exempt from Federal tax			237				251
	Net interest income, FTE (non-GAAP)		$	163,885			$	183,475
	Average balance of total interest earning assets		$	4,999,363			$	4,955,018
	Net interest margin (annualized net interest income divided by the average balance of total interest earnings assets) (GAAP)			3.27		%		3.70		%
	Net interest margin, FTE (annualized net interest income, FTE, divided by the average balance of total interest earnings assets) (non-GAAP)			3.28		%		3.70		%

• The efficiency ratio is a non-GAAP financial measure, which is calculated by dividing noninterest expense by total revenue (net interest income plus noninterest income), and measures how much it costs to produce one dollar of revenue. The following tables summarize components of the efficiency ratio of the Company for the periods indicated:
  
  
  
  

		For the Quarter Ended:
		December 31,				September 30,				June 30,				March 31,				December 31,
(in $000's, unaudited)		2024				2024				2024				2024				2023
Noninterest expense		$	30,304			$	27,555			$	28,188			$	27,536			$	25,491
Net interest income before credit losses on loans		$	44,185			$	39,915			$	39,455			$	40,093			$	42,301
Noninterest income			2,185				2,240				2,276				2,047				1,942
Total revenue		$	46,370			$	42,155			$	41,731			$	42,140			$	44,243
Efficiency ratio (noninterest expense divided by total revenue) (non-GAAP)			65.35		%		65.37		%		67.55		%		65.34		%		57.62		%

			For the Year Ended:
			December 31,				December 31,
	(in $000's, unaudited)		2024				2023
	Noninterest expense		$	113,583			$	101,054
	Net interest income before credit losses on loans		$	163,648			$	183,224
	Noninterest income			8,748				8,998
	Total revenue		$	172,396			$	192,222
	Efficiency ratio (noninterest expense divided
	by total revenue) (non-GAAP)			65.88		%		52.57		%

• Management considers the tangible common equity ratio as a useful measurement of the Company's and the Bank's equity. The following table summarizes components of the tangible common equity to tangible assets ratio of the Company at the dates indicated:
  
  
  
  

TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS		December 31,				September 30,				June 30,				March 31,				December 31,
(in $000's, unaudited)		2024				2024				2024				2024				2023
Capital components:
Total Equity (GAAP)		$	689,727			$	685,352			$	679,199			$	676,296			$	672,901
Less: Preferred Stock			—				—				—				—				—
Total Common Equity			689,727				685,352				679,199				676,296				672,901
Less: Goodwill			(167,631	)			(167,631	)			(167,631	)			(167,631	)			(167,631	)
Less: Other Intangible Assets			(6,439	)			(6,966	)			(7,521	)			(8,074	)			(8,627	)
Total Tangible Common Equity (non-GAAP)		$	515,657			$	510,755			$	504,047			$	500,591			$	496,643
Asset components:
Total Assets (GAAP)		$	5,645,006			$	5,551,596			$	5,263,024			$	5,256,074			$	5,194,095
Less: Goodwill			(167,631	)			(167,631	)			(167,631	)			(167,631	)			(167,631	)
Less: Other Intangible Assets			(6,439	)			(6,966	)			(7,521	)			(8,074	)			(8,627	)
Total Tangible Assets (non-GAAP)		$	5,470,936			$	5,376,999			$	5,087,872			$	5,080,369			$	5,017,837
Tangible common equity / tangible assets (non-GAAP)			9.43		%		9.50		%		9.91		%		9.85		%		9.90		%

• The following table summarizes components of the tangible common equity to tangible assets ratio of the Bank at the dates indicated:
  
  
  
  

TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS		December 31,				September 30,				June 30,				March 31,				December 31,
(in $000's, unaudited)		2024				2024				2024				2024				2023
Capital components:
Total Equity (GAAP)		$	709,379			$	704,585			$	697,964			$	694,543			$	690,918
Less: Preferred Stock			—				—				—				—				—
Total Common Equity			709,379				704,585				697,964				694,543				690,918
Less: Goodwill			(167,631	)			(167,631	)			(167,631	)			(167,631	)			(167,631	)
Less: Other Intangible Assets			(6,439	)			(6,966	)			(7,521	)			(8,074	)			(8,627	)
Total Tangible Common Equity (non-GAAP)		$	535,309			$	529,988			$	522,812			$	518,838			$	514,660
Asset components:
Total Assets (GAAP)		$	5,641,646			$	5,548,576			$	5,260,500			$	5,254,044			$	5,190,829
Less: Goodwill			(167,631	)			(167,631	)			(167,631	)			(167,631	)			(167,631	)
Less: Other Intangible Assets			(6,439	)			(6,966	)			(7,521	)			(8,074	)			(8,627	)
Total Tangible Assets (non-GAAP)		$	5,467,576			$	5,373,979			$	5,085,348			$	5,078,339			$	5,014,571
Tangible common equity / tangible assets (non-GAAP)			9.79		%		9.86		%		10.28		%		10.22		%		10.26		%