SAN JOSE, Calif., Oct. 27, 2022 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (Nasdaq: HTBK), the holding company (the “Company”) for Heritage Bank of Commerce (the “Bank”), today announced third quarter 2022 net income of $18.1 million, or $0.30 per average diluted common share, compared to $13.7 million, or $0.23 per average diluted common share, for the third quarter of 2021, and $14.8 million, or $0.24 per average diluted common share, for the second quarter of 2022. For the nine months ended September 30, 2022, net income was $45.8 million, or $0.75 per average diluted common share, compared to $33.7 million, or $0.56 per average diluted common share, for the nine months ended September 30, 2021. All results are unaudited.

“Our outstanding operating results reflect the continued successful implementation of our growth plan.   We delivered record third quarter and year-to-date 2022 earnings, fueled by higher net interest income and solid loan growth. Our net interest margin improved to 3.73% for the third quarter of 2022, compared to 3.38% from the preceding quarter, driven primarily by a shift in the mix of earning assets as the Company invested its excess liquidity into higher yielding loans and investment securities. Loans, excluding Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans and residential mortgages, increased 10% from a year earlier, and 3% from the preceding quarter. Total deposits increased $69.6 million from the linked quarter with noninterest-bearing deposits increasing 4% from a year ago,” said Clay Jones, President and Chief Executive Officer. “Net income increased 22% from the preceding quarter and 32% from the third quarter a year ago. The return on average tangible equity was 16.60%, the return on average tangible assets was 1.36% and our efficiency ratio improved to 47.02%, for the third quarter of 2022.”

“Our credit quality remains healthy as a result of our credit management, while we continue to be vigilant to the potential impact an uncertain economic future could have on our portfolio. Nonperforming assets (“NPAs”) declined $3.7 million at September 30, 2022 from September 30, 2021, and declined $1.7 million from June 30, 2022, with continued net recoveries throughout the first nine months of 2022,” said Mr. Jones. “Reflecting our strong loan growth, we recorded a $1.0 million provision for credit losses on loans during the third quarter of 2022.”

“Our noninterest income was also higher in the third quarter of 2022, compared to the preceding quarter, primarily due to the substantial increase in gain on sale of SBA loans and higher income on off-balance sheet deposits,” said Mr. Jones. Third quarter 2022 noninterest expense was elevated compared to the third quarter a year ago and to the preceding quarter, due to non-cash expenses related to the retirement of the previous President and Chief Executive Officer of the Company from the vesting of shares of restricted common stock. This one-time contractual event added $784,000 to salaries and employee benefits for the third quarter of 2022, which increased 13% from the third quarter of 2021, and 5% from the second quarter of 2022.

“These solid results are a direct result of our dedicated employees and their commitment and effort in supporting our clients, communities and shareholders,” said Mr. Jones. “Our strong liquidity continues to provide us with the opportunity for investment strategies that positively impact our net interest income.”

Third Quarter Ended September 30, 2022
Operating Results, Balance Sheet Review, Capital Management, and Credit Quality

(as of, or for the periods ended September 30, 2022, compared to September 30, 2021, and June 30, 2022, except as noted):

Operating Results:

  For the Quarter Ended: For the Nine Months Ended
     September 30,     June 30,     September 30,  September 30,     September 30, 
(unaudited) 2022 2022 2021 2022 2021
Return on average tangible assets  1.36 %  1.15 %  1.10 %  1.17 %  0.94 %
Return on average tangible equity  16.60 %  14.06 %  13.49 %  14.41 %  11.29 %
  Increase/(Decrease) in
 
  Estimated Net
 
  Interest Income(1)
 
  Amount
 Percent
 
  (Dollars in thousands)
 
Change in Interest Rates (basis points)      
+400 $33,788   16.2 %
+300 $25,318   12.1 %
+200 $16,899   8.1 %
+100 $8,479   4.1 %
0  —   —  
−100 $(16,828)  (8.1)%
−200 $(35,111)  (16.8)%
−300 $(53,144)  (25.5)%

____________________

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

____________________

  For the Quarter Ended For the Quarter Ended 
  September 30, 2022 June 30, 2022 
  Average Interest Average
 Average Interest Average
 
(in $000’s, unaudited) Balance Income Yield
 Balance Income Yield
 
Loans, core bank $2,574,842  $30,490  4.70 %  $2,530,836  $27,402  4.34 %  
Prepayment fees  —   96  0.01 %   —   549  0.09 %  
PPP loans  4,593   11  0.95 %   21,479   53  0.99 %  
PPP fees, net  —   190  16.41 %   —   493  9.21 %  
Asset-based lending  53,514   1,032  7.65 %   49,667   874  7.06 %  
Bay View Funding factored receivables  62,623   3,201  20.28 %   64,085   3,129  19.58 %  
Purchased residential mortgages  445,256   3,414  3.04 %   381,988   2,711  2.85 %  
Purchased commercial real estate ("CRE") loans  8,337   83  3.95 %   8,425   77  3.67 %  
Loan fair value mark / accretion  (5,178)  353  0.05 %   (6,303)  1,250  0.20 %  
Total loans (includes loans held-for-sale) $3,143,987  $38,870  4.90 %  $3,050,177  $36,538  4.80 %  


 •The average yield on the total loan portfolio decreased to 4.90% for the third quarter of 2022, compared to 5.18% for the third quarter of 2021, primarily due to lower interest and fees on PPP loans, a decrease in the accretion of the loan purchase discount into interest income from acquired loans, lower prepayment fees, and higher average balances of lower yielding purchased residential mortgages, partially offset by increases in the prime rate.


  For the Quarter Ended For the Quarter Ended 
  September 30, 2022 September 30, 2021 
  Average Interest Average
 Average Interest Average
 
(in $000’s, unaudited) Balance Income Yield
 Balance Income Yield
 
Loans, core bank $2,574,842  $30,490  4.70 %  $2,317,985  $25,476  4.36 %  
Prepayment fees  —   96  0.01 %   —   1,282  0.22 %  
PPP loans  4,593   11  0.95 %   218,098   548  1.00 %  
PPP fees, net  —   190  16.41 %   —   2,508  4.56 %  
Asset-based lending  53,514   1,032  7.65 %   43,457   586  5.35 %  
Bay View Funding factored receivables  62,623   3,201  20.28 %   50,674   2,815  22.04 %  
Purchased residential mortgages  445,256   3,414  3.04 %   141,073   1,019  2.87 %  
Purchased CRE loans  8,337   83  3.95 %   9,177   91  3.93 %  
Loan fair value mark / accretion  (5,178)  353  0.05 %   (8,923)  1,882  0.32 %  
Total loans (includes loans held-for-sale) $3,143,987  $38,870  4.90 %  $2,771,541  $36,207  5.18 %  


 •The average yield on the total loan portfolio decreased to 4.81% for the nine months ended September 30, 2022, compared to 5.07% for the nine months ended September 30, 2021, primarily due to a decrease in interest and fees on PPP loans, a decrease in the accretion of the loan purchase discount into interest income from acquired loans, lower prepayment fees, and an increase in the average balance of lower yielding purchased residential mortgages.


  For the Nine Months Ended  For the Nine Months Ended  
  September 30, 2022 September 30, 2021 
  Average Interest Average
 Average Interest Average
 
(in $000’s, unaudited) Balance Income Yield
 Balance Income Yield
 
Loans, core bank $2,530,130  $83,988  4.44 %  $2,254,435  $75,205  4.46 %  
Prepayment fees  —   1,155  0.06 %   —   2,303  0.14 %  
PPP loans  28,575   210  0.98 %   290,253   2,163  1.00 %  
PPP fees, net  —   2,029  9.49 %   —   7,784  3.59 %  
Asset-based lending  57,540   2,857  6.64 %   35,376   1,424  5.38 %  
Bay View Funding factored receivables  61,508   9,123  19.83 %   49,263   8,237  22.36 %  
Purchased residential mortgages  394,618   8,553  2.90 %   96,761   2,118  2.93 %  
Purchased CRE loans  8,424   237  3.76 %   13,618   372  3.65 %  
Loan fair value mark / accretion  (6,121)  2,357  0.12 %   (10,387)  3,876  0.23 %  
Total loans (includes loans held-for-sale) $3,074,674  $110,509  4.81 %  $2,729,319  $103,482  5.07 %  


 •In aggregate, the remaining net purchase discount on total loans acquired from Focus Business Bank, Tri-Valley Bank, United American Bank, and Presidio Bank was $5.0 million at September 30, 2022.
 •For the nine months ended September 30, 2022, total noninterest income increased 7% to $7.3 million, compared to $6.9 million for the nine months ended September 30, 2021, primarily due to higher income on off-balance sheet deposits, and a $669,000 gain on warrants, partially offset by a lower gain on sale of SBA loans and a lower gain on proceeds from company-owned life insurance during the first nine months of 2022.

Balance Sheet Review, Capital Management and Credit Quality:

LOANS  September 30, 2022 June 30, 2022 September 30, 2021 
(in $000’s, unaudited) Balance     % to Total
 Balance     % to Total
    Balance     % to Total
 
Commercial $541,215  17 %$523,268  17 %    $578,944  20 %
PPP Loans(1)  1,614  0 % 8,153  0 %     164,506  6 %
Real estate:                   
CRE - owner occupied  612,241  19 % 597,521  19 %     580,624  20 % 
CRE - non-owner occupied  1,023,405  32 % 993,621  32 %     829,022  29 %
Land and construction  167,439  5 % 155,389  5 %     141,277  5 % 
Home equity  116,489  3 % 116,641  4 %     106,690  4 % 
Multifamily  229,455  7 % 221,938  7 %     205,952  7 % 
Residential mortgages  508,839  16 % 448,958  15 %     211,467  8 % 
Consumer and other  16,620  1 % 18,354  1 %     20,106  1 %
Total Loans  3,217,317  100 % 3,083,843  100 %     2,838,588  100 %
Deferred loan costs (fees), net  (844) —   (1,391) —   (5,729) —  
Loans, net of deferred costs and fees  $3,216,473  100 %$3,082,452  100 %    $2,832,859  100 % 

 

____________________

(1)Less than 1% at September 30, 2022 and June 30, 2022.

____________________

  At or For the Quarter Ended: At or For the Nine Months Ended:
PPP LOANS September 30, June 30, September 30, September 30, September 30,
(in $000’s, unaudited) 2022 2022 2021 2022 2021
Interest income $11  $53  $548  $210  $2,163 
Fee income, net  190   493   2,508   2,029   7,784 
Total $201  $546  $3,056  $2,239  $9,947 
                
PPP loans outstanding at period end:               
Round 1 $—  $43  $5,795  $—  $5,795 
Round 2  1,614   8,110   158,711   1,614   158,711 
Total $1,614  $8,153  $164,506  $1,614  $164,506 
                
Deferred fees outstanding at period end $(132) $(337) $(4,831) $(132) $(4,831)
Deferred costs outstanding at period end  8   24   461   8   461 
Total $(124) $(313) $(4,370) $(124) $(4,370)


 •During the third quarter of 2022, the Company purchased single family residential mortgage loans totaling $73.5 million, tied to homes located in California, with average principal balances of approximately $1.0 million and a bond equivalent yield of approximately 5.24%, which uses the average life of the loan to recognize the discount into income. During the first nine months of 2022, the Company purchased single family residential mortgage loans totaling $148.0 million, tied to homes located in California, with average principal balances of approximately $915,000.

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

  At or For the Quarter Ended: For the Nine Months Ended  
ALLOWANCE FOR CREDIT LOSSES ON LOANS    September 30,     June 30,     September 30,  September 30,     September 30,  
(in $000’s, unaudited) 2022 2022 2021 2022 2021 
Balance at beginning of period $45,490  $42,788  $43,956  $43,290  $44,400  
Charge-offs during the period  (7)  (355)  (65)  (378)  (433) 
Recoveries during the period  432   3,238   303   3,751   2,232  
Net recoveries (charge-offs) during the period  425   2,883   238   3,373   1,799  
Provision for (recapture of) credit losses on loans during the period  1,006   (181)  (514)  258   (2,519) 
Balance at end of period $46,921  $45,490  $43,680  $46,921  $43,680  
                 
Total loans, net of deferred fees $3,216,473  $3,082,452  $2,832,859  $3,216,473  $2,832,859  
Total nonperforming loans $1,036  $2,715  $4,733  $1,036  $4,733  
ACLL to total loans  1.46 %   1.48 %   1.54 %   1.46 %   1.54 %  
ACLL to total nonperforming loans  4,529.05 %   1,675.51 %   922.88 %   4,529.05 %   922.88 %  


 •The ACLL was 1.46% of total loans at September 30, 2022 while the ACLL to total nonperforming loans was 4,529.05%. The ACLL was 1.54% of total loans and the ACLL to nonperforming loans was 922.88% at September 30, 2021. The ACLL was 1.48% of total loans and the ACLL to total nonperforming loans was 1,675.51% at June 30, 2022.

• The following table shows the drivers of change in ACLL under the current expected credit losses (“CECL”) methodology for the first nine months of 2022:

DRIVERS OF CHANGE IN ACLL UNDER CECL     
(in $000’s, unaudited)  
ACLL at December 31, 2021 $43,290 
Portfolio changes during the first quarter of 2022 including net recoveries  (33)
Qualitative and quantitative changes during the first   
quarter of 2022 including changes in economic forecasts  (469)
ACLL at March 31, 2022  42,788 
Portfolio changes during the second quarter of 2022 including net recoveries  1,383 
Qualitative and quantitative changes during the second   
quarter of 2022 including changes in economic forecasts  1,319 
ACLL at June 30, 2022  45,490 
Portfolio changes during the third quarter of 2022 including net recoveries  2,009 
Qualitative and quantitative changes during the third   
quarter of 2022 including changes in economic forecasts  (578)
ACLL at September 30, 2022 $46,921 


 •Net recoveries totaled $425,000 for the third quarter of 2022, compared to net recoveries of $238,000 for the third quarter of 2021, and net recoveries of $2.9 million for the second quarter of 2022.   Net recoveries totaled $3.4 million during the first nine months of 2022, compared to net recoveries of $1.8 million for the first nine months of 2021.

• The following is a breakout of NPAs at the periods indicated:

NONPERFORMING ASSETS September 30, 2022 June 30, 2022 September 30, 2021 
(in $000’s, unaudited)    Balance    % of Total
    Balance    % of Total
    Balance    % of Total
 
Restructured and loans over 90 days past due and still accruing $545  53 %  $981  36 %  $642  13 %  
Commercial loans  491  47 %   640  24 %   1,330  28 %  
CRE loans  —  — %   1,094  40 %   2,260  48 %  
Home equity loans  —  — %   —  — %   94  2 %  
Consumer and other loans  —  — %   —  — %   407  9 %  
Total nonperforming assets $1,036  100 %  $2,715  100 %  $4,733  100 %  


 •NPAs totaled $1.0 million, or 0.02% of total assets, at September 30, 2022, compared to $4.7 million, or 0.09% of total assets, at September 30, 2021, $2.7 million, or 0.05% of total assets, at June 30, 2022.
   
 •
There were no foreclosed assets on the balance sheet at September 30, 2022, September 30, 2021, or June 30, 2022.
   
 •
Classified assets decreased to $28.6 million, or 0.53% of total assets, at September 30, 2022, compared to $31.9 million, or 0.58% of total assets, at September 30, 2021, and $28.9 million, or 0.54% of total assets, at June 30, 2022.

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

DEPOSITS September 30, 2022 June 30, 2022 September 30, 2021 
(in $000’s, unaudited)    Balance    % to Total
  Balance    % to Total
  Balance    % to Total
 
Demand, noninterest-bearing $1,883,574  40 %  $1,846,365  40 %  $1,804,965  38 %  
Demand, interest-bearing  1,154,403  24 %   1,218,538  26 %   1,141,944  24 %  
Savings and money market  1,487,400  32 %   1,387,003  30 %   1,600,754  34 %  
Time deposits — under $250  34,728  1 %   36,691  1 %   39,628  1 %  
Time deposits — $250 and over  93,263  2 %   98,760  2 %   103,046  2 %  
CDARS — interest-bearing demand, money market and time deposits  29,897  1 %   26,287  1 %   36,044  1 %  
Total deposits $4,683,265  100 %  $4,613,644  100 %  $4,726,381  100 %  


 •Total deposits decreased ($43.1) million, or (1%), to $4.683 billion at September 30, 2022, compared to $4.726 billion at September 30, 2021, and increased $69.6 million, or 2%, from $4.614 billion at June 30, 2022.
   
 •
Deposits, excluding all time deposits and CDARS deposits, decreased ($22.3) million to $4.525 billion at September 30, 2022, compared to $4.548 billion at September 30, 2021, and increased $73.5 million, or 2%, compared to $4.452 billion at June 30, 2022.
   
                         Well-capitalized  
          Financial  
          Institution Basel III
  Heritage Heritage Basel III PCA Minimum
  Commerce Bank of Regulatory Regulatory
CAPITAL RATIOS (unaudited) Corp Commerce Guidelines Requirement (1)
Total Capital 14.5 % 14.0 % 10.0 % 10.5 %
Tier 1 Capital 12.4 % 12.9 % 8.0 % 8.5 %
Common Equity Tier 1 Capital 12.4 % 12.9 % 6.5 % 7.0 %
Tier 1 Leverage 8.7 % 9.0 % 5.0 % 4.0 %

____________________

(1)Basel III minimum regulatory requirements for both the Company and the Bank include a 2.5% capital conservation buffer, except the leverage ratio.

____________________

ACCUMULATED OTHER COMPREHENSIVE LOSS September 30,  June 30,  September 30, 
(in $000’s, unaudited)    2022 2022 2021
Unrealized (loss) gain on securities available-for-sale $(12,398) $(3,036) $2,435 
Remaining unamortized unrealized gain on securities available-for-sale transferred to held-to-maturity  —   —   234 
Split dollar insurance contracts liability  (5,511)  (5,501)  (6,143)
Supplemental executive retirement plan liability  (7,428)  (7,508)  (8,411)
Unrealized gain on interest-only strip from SBA loans  125   127   179 
Total accumulated other comprehensive loss $(25,212) $(15,918) $(11,706)

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, Sunnyvale, 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.

Forward-Looking Statement Disclaimer

Certain matters discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to various risks and uncertainties that may be outside our control and our actual results could differ materially from our projected results. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission (“SEC”), Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, and the following: (1) geopolitical and domestic political developments that can increase levels of political and economic unpredictability, contribute to rising energy prices and commodity prices, and increase the volatility of financial markets; (2) conditions related to the impact of the COVID-19 pandemic, and other infectious illness outbreaks that may arise in the future, our customers, employees, businesses, liquidity, and financial results and overall condition including severity and duration of the associated uncertainties in U.S. and global markets; (3) current and future economic and market conditions in the United States generally or in the communities we serve, including the effects of declines in property values and overall slowdowns in economic growth should these events occur; (4) effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Federal Open Market Committee of the Federal Reserve Board; (5) inflationary pressures and changes in the interest rate environment that reduce our margin and yields, the fair value of financial instruments or our level of loan originations, or increase in the level of defaults, losses and prepayments on loans we have made and make; (6) changes in the level of nonperforming assets and charge-offs and other credit quality measures, and their impact on the adequacy of our allowance for credit losses and our provision for credit losses; (7) volatility in credit and equity markets and its effect on the global economy; (8) our ability to effectively compete with other banks and financial services companies and the effects of competition in the financial services industry on our business; (9) our ability to achieve loan growth and attract deposits in our market area; (10) risks associated with concentrations in real estate related loans; (11) the relative strength or weakness of the commercial and real estate markets where our borrowers are located, including related asset and market prices; (12) credit related impairment charges to our securities portfolio; (13) 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; (14) regulatory limits on Heritage Bank of Commerce’s ability to pay dividends to the Company; (15) 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; (16) our inability to attract, recruit, and retain qualified officers and other personnel could harm our ability to implement our strategic plan, impair our relationships with customers and adversely affect our business, results of operations and growth prospects; (17) possible adjustment of the valuation of our deferred tax assets; (18) our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks such as data security breaches, “denial of service” attacks, “hacking” and identity theft; (19) inability of our framework to manage risks associated with our business, including operational risk and credit risk; (20) risks of loss of funding of SBA or SBA loan programs, or changes in those programs; (21) compliance with applicable laws and governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities, accounting and tax matters; (22) effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; (23) the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise; (24) availability of and competition for acquisition opportunities; (25) risks resulting from domestic terrorism; (26) risks resulting from social unrest and protests; (27) risks of natural disasters (including earthquakes, fires, and flooding) and other events beyond our control; (28) our success in managing the risks involved in the foregoing factors.

Member FDIC

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


  For the Quarter Ended: Percent Change From:  For the Nine Months Ended:
CONSOLIDATED INCOME STATEMENTS    September 30,     June 30,     September 30,     June 30,     September 30,      September 30,     September 30,     Percent 
(in $000’s, unaudited) 2022 2022 2021 2022 2021  2022 2021 Change 
Interest income $50,174  $43,556  $39,907  15 %  26 % $133,636  $113,300  18 %
Interest expense  2,133   1,677   1,725  27 %  24 %  5,495   5,284  4 %
Net interest income before provision for credit losses on loans  48,041   41,879   38,182  15 %  26 %  128,141   108,016  19 %
Provision for (recapture of) credit losses on loans  1,006   (181)  (514) 656 %  296 %  258   (2,519) 110 %
Net interest income after provision for credit losses on loans  47,035   42,060   38,696  12 %  22 %  127,883   110,535  16 %
Noninterest income:                             
Service charges and fees on deposit accounts  1,360   867   584  57 %  133 %  2,839   1,844  54 %
Increase in cash surrender value of life insurance  484   480   470  1 %  3 %  1,444   1,384  4 %
Gain on sales of SBA loans  308   27   594  1041 %  (48)%  491   1,227  (60)%
Servicing income  125   139   129  (10)%  (3)%  370   415  (11)%
Gain on warrants  32   —   —  N/A  N/A    669   —  N/A  
Termination fees  16   45   32  (64)%  (50)%  61   179  (66)%
Gain on proceeds from company-owned life insurance  —   27   109  (100)%  (100)%  27   571  (95)%
Other  456   513   490  (11)%  (7)%  1,438   1,258  14 %
Total noninterest income  2,781   2,098   2,408  33 %  15 %  7,339   6,878  7 %
Noninterest expense:                               
Salaries and employee benefits  14,119   13,476   12,461  5 %  13 %  41,416   38,991  6 %
Occupancy and equipment  2,415   2,277   2,151  6 %  12 %  7,129   6,672  7 %
Professional fees  1,230   1,291   1,211  (5)%  2 %  3,601   4,701  (23)%
Other  6,135   6,146   6,008  0 %  2 %  18,195   20,486  (11)%
Total noninterest expense  23,899   23,190   21,831  3 %  9 %  70,341   70,850  (1)%
Income before income taxes  25,917   20,968   19,273  24 %  34 %  64,881   46,563  39 %
Income tax expense  7,848   6,147   5,555  28 %  41 %  19,125   12,828  49 %
Net income $ 18,069  $ 14,821  $ 13,718  22 %  32 % $ 45,756  $ 33,735  36 %
                          
PER COMMON SHARE DATA                            
(unaudited)                             
Basic earnings per share $0.30  $0.24  $0.23  25 %  30 % $0.76  $0.56  36 %
Diluted earnings per share $0.30  $0.24  $0.23  25 %  30 % $0.75  $0.56  34 %
Weighted average shares outstanding - basic  60,686,992   60,542,170   60,220,717  0 %  1 %  60,541,015   60,078,953  1 %
Weighted average shares outstanding - diluted  61,123,801   60,969,154   60,760,189  0 %  1 %  61,004,840   60,635,304  1 %
Common shares outstanding at period-end  60,716,794   60,666,794   60,266,316  0 %  1 %  60,716,794   60,266,316  1 %
Dividend per share $0.13  $0.13  $0.13  0 %  0 % $0.39  $0.39  0 %
Book value per share $10.04  $10.01  $9.79  0 %  3 % $10.04  $9.79  3 %
Tangible book value per share $7.09  $7.04  $6.77  1 %  5 % $7.09  $6.77  5 %
                          
KEY FINANCIAL RATIOS                                 
(unaudited)                                 
Annualized return on average equity  11.72 %   9.86 %   9.29 %  19 %  26 %  10.12 %   7.74 %  31 %
Annualized return on average tangible equity  16.60 %   14.06 %   13.49 %  18 %  23 %  14.41 %   11.29 %  28 %
Annualized return on average assets  1.31 %   1.11 %   1.06 %  18 %  24 %  1.13 %   0.90 %  26 %
Annualized return on average tangible assets  1.36 %   1.15 %   1.10 %  18 %  24 %  1.17 %   0.94 %  24 %
Net interest margin (FTE)  3.73 %   3.38 %   3.18 %  10 %  17 %  3.39 %   3.13 %  8 %
Efficiency ratio  47.02 %   52.73 %   53.78 %  (11)%  (13)%  51.92 %   61.67 %  (16)%
                          
AVERAGE BALANCES                                
(in $000’s, unaudited)                                 
Average assets $5,466,330  $5,334,636  $5,139,239  2 %  6 % $5,414,820  $4,988,076  9 %
Average tangible assets $5,286,591  $5,154,245  $4,956,738  3 %  7 % $5,234,427  $4,804,814  9 %
Average earning assets $5,117,373  $4,985,611  $4,778,574  3 %  7 % $5,065,698  $4,626,853  9 %
Average loans held-for-sale $3,282  $1,824  $4,810  80 %  (32)% $2,201  $4,112  (46)%
Average total loans $3,140,705  $3,048,353  $2,766,731  3 %  14 % $3,072,473  $2,725,207  13 %
Average deposits $4,712,044  $4,579,436  $4,396,315  3 %  7 % $4,662,926  $4,252,214  10 %
Average demand deposits - noninterest-bearing $1,910,748  $1,836,350  $1,835,219  4 %  4 % $1,868,283  $1,786,035  5 %
Average interest-bearing deposits $2,801,296  $2,743,086  $2,561,096  2 %  9 % $2,794,643  $2,466,179  13 %
Average interest-bearing liabilities $2,840,611  $2,791,527  $2,601,002  2 %  9 % $2,837,219  $2,506,025  13 %
Average equity $611,707  $603,182  $586,012  1 %  4 % $604,794  $582,751  4 %
Average tangible equity $431,968  $422,791  $403,511  2 %  7 % $424,401  $399,489  6 %


  For the Quarter Ended: 
CONSOLIDATED INCOME STATEMENTS    September 30,     June 30,     March 31,    December 31,    September 30, 
(in $000’s, unaudited) 2022 2022 2022 2021 2021 
Interest income $50,174  $43,556  $39,906  $39,956  $39,907  
Interest expense  2,133   1,677   1,685   1,847   1,725  
Net interest income before provision for credit losses on loans  48,041   41,879   38,221   38,109   38,182  
Provision for (recapture of) credit losses on loans  1,006   (181)  (567)  (615)  (514) 
Net interest income after provision for credit losses on loans  47,035   42,060   38,788   38,724   38,696  
Noninterest income:                 
Service charges and fees on deposit accounts  1,360   867   612   644   584  
Increase in cash surrender value of life insurance  484   480   480   454   470  
Gain on sales of SBA loans  308   27   156   491   594  
Servicing income  125   139   106   138   129  
Gain on warrants  32   —   637   —   —  
Termination fees  16   45   —   618   32  
Gain on proceeds from company-owned life insurance  —   27   —   104   109  
Other  456   513   469   361   490  
Total noninterest income  2,781   2,098   2,460   2,810   2,408  
Noninterest expense:                      
Salaries and employee benefits  14,119   13,476   13,821   12,871   12,461  
Occupancy and equipment  2,415   2,277   2,437   2,366   2,151  
Professional fees  1,230   1,291   1,080   1,200   1,211  
Other  6,135   6,146   5,914   5,790   6,008  
Total noninterest expense  23,899   23,190   23,252   22,227   21,831  
Income before income taxes  25,917   20,968   17,996   19,307   19,273  
Income tax expense  7,848   6,147   5,130   5,342   5,555  
Net income $ 18,069  $ 14,821  $ 12,866  $ 13,965  $ 13,718  
                  
PER COMMON SHARE DATA                 
(unaudited)                     
Basic earnings per share $0.30  $0.24  $0.21  $0.23  $0.23  
Diluted earnings per share $0.30  $0.24  $0.21  $0.23  $0.23  
Weighted average shares outstanding - basic  60,686,992   60,542,170   60,393,883   60,298,424   60,220,717  
Weighted average shares outstanding - diluted  61,123,801   60,969,154   60,921,835   60,844,221   60,760,189  
Common shares outstanding at period-end  60,716,794   60,666,794   60,407,846   60,339,837   60,266,316  
Dividend per share $0.13  $0.13  $0.13  $0.13  $0.13  
Book value per share $10.04  $10.01  $9.95  $9.91  $9.79  
Tangible book value per share $7.09  $7.04  $6.96  $6.91  $6.77  
                  
KEY FINANCIAL RATIOS                      
(unaudited)                      
Annualized return on average equity  11.72 %   9.86 %   8.71 %   9.35 %   9.29 %  
Annualized return on average tangible equity  16.60 %   14.06 %   12.47 %   13.50 %   13.49 %  
Annualized return on average assets  1.31 %   1.11 %   0.96 %   0.97 %   1.06 %  
Annualized return on average tangible assets  1.36 %   1.15 %   0.99 %   1.00 %   1.10 %  
Net interest margin (FTE)  3.73 %   3.38 %   3.05 %   2.84 %   3.18 %  
Efficiency ratio  47.02 %   52.73 %   57.16 %   54.32 %   53.78 %  
                  
AVERAGE BALANCES                      
(in $000’s, unaudited)                      
Average assets $5,466,330  $5,334,636  $5,443,240  $5,695,136  $5,139,239  
Average tangible assets $5,286,591  $5,154,245  $5,262,175  $5,513,359  $4,956,738  
Average earning assets $5,117,373  $4,985,611  $5,093,851  $5,336,129  $4,778,574  
Average loans held-for-sale $3,282  $1,824  $1,478  $4,047  $4,810  
Average total loans $3,140,705  $3,048,353  $3,027,111  $2,872,074  $2,766,731  
Average deposits $4,712,044  $4,579,436  $4,697,136  $4,945,204  $4,396,315  
Average demand deposits - noninterest-bearing $1,910,748  $1,836,350  $1,857,164  $1,979,940  $1,835,219  
Average interest-bearing deposits $2,801,296  $2,743,086  $2,839,972  $2,965,264  $2,561,096  
Average interest-bearing liabilities $2,840,611  $2,791,527  $2,879,952  $3,005,212  $2,601,002  
Average equity $611,707  $603,182  $599,355  $592,291  $586,012  
Average tangible equity $431,968  $422,791  $418,290  $410,514  $403,511  


  End of Period: Percent Change From: 
CONSOLIDATED BALANCE SHEETS   September 30,     June 30,     September 30,     June 30,     September 30,  
(in $000’s, unaudited) 2022 2022 2021 2022 2021 
ASSETS                   
Cash and due from banks $40,500  $35,764  $33,013  13 %  23 %
Other investments and interest-bearing deposits in other financial institutions  641,251   840,821   1,588,334  (24)%  (60)%
Securities available-for-sale, at fair value  478,534   332,129   121,000  44 %  295 %
Securities held-to-maturity, at amortized cost  703,794   723,716   537,285  (3)%  31 %
Loans held-for-sale - SBA, including deferred costs  2,081   2,281   3,678  (9)%  (43)%
Loans:               
Commercial  541,215   523,268   578,944  3 %  (7)%
PPP loans  1,614   8,153   164,506  (80)%  (99)%
Real estate:               
CRE - owner occupied  612,241   597,521   580,624  2 %  5 %
CRE - non-owner occupied  1,023,405   993,621   829,022  3 %  23 %
Land and construction  167,439   155,389   141,277  8 %  19 %
Home equity  116,489   116,641   106,690  0 %  9 %
Multifamily  229,455   221,938   205,952  3 %  11 %
Residential mortgages  508,839   448,958   211,467  13 %  141 %
Consumer and other  16,620   18,354   20,106  (9)%  (17)%
Loans  3,217,317   3,083,843   2,838,588  4 %  13 %
Deferred loan fees, net  (844)  (1,391)  (5,729) (39)%  (85)%
Total loans, net of deferred costs and fees  3,216,473   3,082,452   2,832,859  4 %  14 %
Allowance for credit losses on loans  (46,921)  (45,490)  (43,680) 3 %  7 %
Loans, net  3,169,552   3,036,962   2,789,179  4 %  14 %
Company-owned life insurance  78,456   77,972   77,509  1 %  1 %
Premises and equipment, net  9,428   9,593   9,821  (2