Heritage Commerce Corp Reports Earnings of $11.6 Million for the Fourth Quarter of 2020 and $35.3 Million for 2020

SAN JOSE, Calif., Jan. 28, 2021 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (Nasdaq: HTBK), the holding company (the “Company”) for Heritage Bank of Commerce (the “Bank”), today announced fourth quarter 2020 net income of $11.6 million, or $0.19 per average diluted common share, compared to $5.7 million, or $0.10 per average diluted common share, for the fourth quarter of 2019, and $11.2 million, or $0.19 per average diluted common share, for the third quarter of 2020. For the year ended December 31, 2020, net income was $35.3 million, or $0.59 per average diluted common share, compared to $40.5 million, or $0.84 per average diluted common share, for the year ended December 31, 2019. All results are unaudited.

“We generated solid earnings, for the full year of 2020, fueled by a year-over-year increase in net interest income, total deposits, and gains on sales of SBA loans,” said Mr. Keith Wilton, President and Chief Executive Officer. “Our results in the midst of this challenging economic environment are a testament to our resilient bankers, our customers and our communities. Our participation in the initial rounds of the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”), helped meet the financial needs of our customers who were significantly impacted by the pandemic and we are actively participating in this newest round of PPP funding.”

“Credit quality improved with nonperforming assets (“NPAs”) declining (20%) year-over-year and (23%) on a linked quarter basis, to $7.9 million at year end,” said Mr. Wilton. “In fact, we released $1.3 million of our provision for credit losses on loans largely due to recoveries of previously charged off accounts and the successful resolution of a nonperforming credit resulting in the release of specific reserves. This brings our allowance for credits losses on loans (“ACLL”) to total loans to 1.70%, and the ACLL to total loans, excluding PPP loans, to 1.91% at December 31, 2020. Further, capital and liquidity positions remain strong with a total risk-based capital ratio and leverage for the Company (consolidated) at 16.5% and 9.1% respectively, and 15.8% and 9.5% respectively, for the Bank, at December 31, 2020,” added Mr. Wilton.

“During the fourth quarter of 2020, we completed the final touches to our new San Jose corporate headquarters at 224 Airport Parkway and finalized the move of our San Mateo branch and administrative offices to newly renovated facilities,” commented Mr. Wilton. “These combined facilities represent over 50% of the Company’s office footprint and include modifications and upgrades to meet enhanced energy saving requirements, further representing our Company’s commitment to lowering our carbon footprint.”

“The past year presented many challenges to members of the communities we serve. During 2020, we were proud of our employees who volunteered their time to many local organizations that assist minority, disenfranchised and underrepresented groups in our community, and we congratulate them for their service. In addition, we are proud of our Company’s continued ability to provide grants and sponsorships to support these community groups,” said Mr. Wilton.

In response to two economic stimulus laws passed by Congress in the first half of the 2020, Heritage Bank of Commerce funded 1,105 PPP loans, with total principal balances of $333.4 million. Through 2020, PPP loan payoffs totaled $9.1 million while SBA loan forgiveness totaled $33.7 million and the Bank ended the fourth quarter of 2020 with $290.7 million in outstanding PPP loan balances. These loans generated $2.2 million in interest income and $3.9 million in net deferred fee revenue during 2020. At December 31, 2020, total loans included remaining deferred fees on PPP loans of ($6.8) million and deferred costs of $783,000.

On April 7, 2020, the U.S. banking agencies issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus. The statement describes accounting for COVID-19-related loan modifications, including clarifying the interaction between current accounting rules and the temporary relief provided by the Coronavirus Aid, Relief, and Economic Security (“CARES Act”). The Bank made accommodations for initial payment deferrals for a number of customers of up to 90 days, generally, with the potential, upon application, of an additional 90 days of payment deferral (180 days maximum). The Bank also waived all normal applicable fees. As well, most of the deferrals we originally granted have returned to regular payments. The following table shows the deferments at December 31, 2020 by category:

			Underlying Collateral
NON-SBA LOANS			Business			Real
(in $000’s, unaudited)			Assets			Estate			Total
Initial Deferments(1)		$	-		$	1,573		$	1,573
2nd Deferments(2)			295			684			979
Total		$	295		$	2,257		$	2,552
(1) Initial deferments were generally for 3 months
(2) 2nd deferments were for an additional 3 months

In addition to its portfolio of SBA PPP loans, the Bank also has a portfolio of SBA 7(a) loans totaling $48.9 million as of January 15, 2021. As part of the SBA’s Coronavirus debt relief efforts, beginning in April of 2020, the SBA commenced a six-month program to cover payments of principal, interest and any associated fees for these borrowers, which largely ended with the September payment. The following table reflects the status of these SBA 7(a) loans as of January 15, 2021:

SBA 7(a) LOANS					Number
(in $000’s, unaudited)			Balance		of Loans
SBA 7(a) loans that borrowers made payments
by January 15, 2021		$	41,994		234
Payments Not Made / NSF / Returned			1,032		12
Due dates later in January			85		2
New loans / No payment due			3,267		4
CARES Payments			2,062		9
Request for Deferral			448		5
Total Portfolio		$	48,888		266

The CARES Act was recently amended to include $3.5 billion of extended debt relief payments for SBA borrowers. The program will initially provide for 3 payments of principal and interest to a maximum of $9,000 per month under various criteria and then an additional 5 payments for borrowers considered “underserved” as defined in the amended legislation.

Credit Quality and Performance

At December 31, 2020, NPAs declined by $1.9 million, or (20%), to $7.9 million, compared to $9.8 million at December 31, 2019, and decreased by $2.4 million, or (23%) from $10.3 million at September 30, 2020. Classified assets increased to $34.0 million, or 0.73% of total assets, at December 31, 2020, compared to $32.6 million, or 0.79% of total assets, at December 31, 2019, and $33.0 million, or 0.72% of total assets, at September 30, 2020.

The Company continues to monitor portfolio loans made to commercial customers with businesses in higher risk sectors due to the COVID-19 pandemic. During the fourth quarter of 2020, the percentage of loans identified as higher risk to total loans increased slightly compared to the third quarter of 2020. The following table provides a breakdown of such loans as a percentage of total loans for the periods indicated:

		% of Total		% of Total			% of Total			% of Total
		Loans at		Loans at			Loans at			Loans at
HIGHER RISK SECTORS (unaudited)		December 31, 2020		September 30, 2020			June 30, 2020			March 31, 2020
Health care and social assistance:
Offices of dentists		2.01	%	1.86	%		1.79	%		1.63	%
Offices of physicians (except mental health specialists)		0.81	%	0.74	%		0.76	%		0.70	%
Other community housing services		0.28	%	0.27	%		0.27	%		0.11	%
All others		2.15	%	2.15	%		2.21	%		1.84	%
Total health care and social assistance		5.25	%	5.02	%		5.03	%		4.28	%
Retail trade:
Gasoline stations with convenience stores		2.16	%	1.97	%		1.90	%		1.98	%
All others		2.34	%	2.44	%		2.44	%		2.18	%
Total retail trade		4.50	%	4.41	%		4.34	%		4.16	%
Accommodation and food services:
Full-service restaurants		1.30	%	1.40	%		1.38	%		0.86	%
Limited-service restaurants		0.57	%	0.74	%		0.79	%		0.63	%
Hotels (except casino hotels) and motels		0.95	%	0.92	%		0.89	%		0.94	%
All others		0.68	%	0.68	%		0.70	%		0.52	%
Total accommodation and food services		3.50	%	3.74	%		3.76	%		2.95	%
Educational services:
Elementary and secondary schools		0.58	%	0.57	%		0.65	%		0.15	%
Education support services		0.45	%	0.43	%		0.40	%		0.15	%
All others		0.19	%	0.17	%		0.24	%		0.17	%
Total educational services		1.22	%	1.17	%		1.29	%		0.47	%
Arts, entertainment, and recreation		1.34	%	1.27	%		1.26	%		1.09	%
Purchased participations in micro loan portfolio		0.60	%	0.68	%		0.80	%		0.95	%
Total higher risk sectors		16.41	%	16.29	%		16.48	%		13.90	%

The increase in higher risk sector loans in the last three quarters of 2020, compared to the first quarter of 2020, was primarily due to the addition of PPP loans during the second quarter of 2020.

Capital and Liquidity

The Company’s and the Bank’s consolidated capital ratios exceeded regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at December 31, 2020.

Our liquidity position refers to our ability to maintain cash flows sufficient to fund operations, meet all of our obligations and commitments, and accommodate unexpected sudden changes in balances of loans and deposits in a timely manner. At various times the Company requires funds to meet short term cash requirements brought about by loan growth or deposit outflows, the purchase of assets, or liability repayments. An integral part of the Company’s ability to manage its liquidity position appropriately is the Company’s large base of core deposits, which are generated by offering traditional banking services in its service area and which have historically been a stable source of funds. To manage liquidity needs properly, cash inflows must be timed to coincide with anticipated outflows or sufficient liquidity resources must be available to meet varying demands. At December 31, 2020, the Company had a strong liquidity position with $1.13 billion in cash and cash equivalents, and $781.6 million in available borrowing capacity from sources including the Federal Home Loan Bank (“FHLB”), the Federal Reserve Bank of San Francisco (“FRB”), Federal funds facilities with several financial institutions, and a line of credit with a correspondent bank. The Company also had $498.5 million (at fair market value) in unpledged securities available at December 31, 2020. The loan to deposit ratio was 66.91% at December 31, 2020, compared to 74.20% at December 31, 2019, and decreased from 69.32% at September 30, 2020.

Fourth Quarter and Year Ended December 31, 2020

Operating Results, Balance Sheet Review, Capital Management, and Credit Quality

(as of, or for the periods ended December 31, 2020, compared to December 31, 2019, and September 30, 2020, except as noted):

Operating Results:

• Diluted earnings per share were $0.19 for the fourth quarter of 2020, compared to $0.10 for the fourth quarter of 2019, and $0.19 for the third quarter of 2020. Diluted earnings per share were $0.59 for the year ended December 31, 2020, compared to $0.84 for the year ended December 31, 2019.
  
  
• The following table indicates the ratios for the return on average tangible assets and the return on average tangible equity for the periods indicated:
  
  

		For the Quarter Ended									For the Year Ended
		December 31,			September 30,			December 31,			December 31,			December 31,
(unaudited)		2020			2020			2019			2020			2019
Return on average tangible assets		1.02	%		1.02	%		0.57	%		0.83	%		1.25	%
Return on average tangible equity		11.75	%		11.41	%		5.96	%		9.04	%		13.09	%

• Net interest income, before provision for credit losses on loans, decreased (13%) to $34.2 million for the fourth quarter of 2020, compared to $39.2 million for the fourth quarter of 2019, primarily due to decreases in the prime rate, and yield on investment securities and overnight funds. Net interest income remained flat for the fourth quarter of 2020, compared to $34.2 million for the third quarter of 2020. Net interest income increased 8% to $141.9 million for the year ended December 31, 2020, compared to $131.8 million for the year ended December 31, 2019, primarily due to an increase in the average balance of loans resulting from the Presidio Bank (“Presidio”) merger, additional interest and fee income from PPP loans, and an increase in the accretion of the loan discount into loan interest income from our merger with Presidio, partially offset by decreases in the prime rate, and decreases in the yield on investment securities and overnight funds.
  
  
  
  
  • The fully tax equivalent (“FTE”) net interest margin contracted 100 basis points to 3.15% for the fourth quarter of 2020, from 4.15% for the fourth quarter of 2019, primarily due to a decline in the average yield on loans, investment securities, and overnight funds, partially offset by a decline in the cost of interest-bearing liabilities. The FTE net interest margin contracted 9 basis points for the fourth quarter of 2020 from 3.24% for the third quarter of 2020, primarily due to a decline in the average yield on investment securities, and overnight funds, partially offset by an increase in the average yield on loans and a decline in the cost of interest-bearing liabilities.
    
    
    
    
  • For the year ended December 31, 2020, the FTE net interest margin contracted 78 basis points to 3.50%, compared to 4.28% for the year ended December 31, 2019, primarily due to a decline in the average yield on loans, investment securities, and overnight funds, partially offset by a decline in the cost of interest-bearing liabilities.
    
    
    
    
• The following tables present the average balance of loans outstanding, interest income, and the average yield for the periods indicated:
  
  
  
  
  • The average yield on the total loan portfolio decreased to 4.93% for the fourth quarter of 2020, compared to 5.76% for the fourth quarter of 2019, primarily due to a decline in the average yield in the prime rate, new average balances of lower yielding PPP loans, and a decrease in the accretion of the loan purchase discount into loan interest income from the acquisitions.
    
    

		For the Quarter Ended									For the Quarter Ended
		December 31, 2020									December 31, 2019
		Average				Interest			Average		Average				Interest			Average
(in $000’s, unaudited)		Balance				Income			Yield		Balance				Income			Yield
Loans, core bank and asset-based lending		$	2,256,944			$	26,348		4.64	%	$	2,353,871			$	30,786		5.19	%
SBA PPP loans			313,335				787		1.00	%		—				—		N/A
PPP fees, net			—				1,935		2.46	%		—				—		N/A
Bay View Funding factored receivables			50,720				2,856		22.40	%		45,045				2,888		25.44	%
Purchased residential mortgages			24,955				118		1.88	%		33,867				237		2.78	%
Purchased commercial real estate ("CRE") loans			20,854				176		3.36	%		28,407				238		3.32	%
Loan fair value mark / accretion			(12,017	)			687		0.12	%		(15,089	)			1,338		0.23	%
Total loans (includes loans held-for-sale)		$	2,654,791			$	32,907		4.93	%	$	2,446,101			$	35,487		5.76	%

•

The average yield on the total loan portfolio increased to 4.93% for the fourth quarter of 2020 compared to 4.86% for the third quarter of 2020, primarily due to higher fees from PPP loans and a higher average balance of Bay View Funding factored receivables, partially offset by a decrease in the accretion of the loan purchase discount into loan interest income from the acquisitions.

		For the Quarter Ended									For the Quarter Ended
		December 31, 2020									September 30, 2020
		Average				Interest			Average		Average				Interest			Average
(in $000’s, unaudited)		Balance				Income			Yield		Balance				Income			Yield
Loans, core bank and asset-based lending		$	2,256,944			$	26,348		4.64	%	$	2,266,227			$	26,508		4.65	%
SBA PPP loans			313,335				787		1.00	%		324,518				816		1.00	%
PPP fees, net			—				1,935		2.46	%		—				1,305		1.60	%
Bay View Funding factored receivables			50,720				2,856		22.40	%		40,300				2,431		24.00	%
Purchased residential mortgages			24,955				118		1.88	%		29,399				180		2.44	%
Purchased CRE loans			20,854				176		3.36	%		22,603				195		3.43	%
Loan fair value mark / accretion			(12,017	)			687		0.12	%		(13,353	)			1,200		0.21	%
Total loans (includes loans held-for-sale)		$	2,654,791			$	32,907		4.93	%	$	2,669,694			$	32,635		4.86	%

•

The average yield on the total loan portfolio decreased to 5.06% for the year ended December 31, 2020 compared to 5.86% for the year ended December 31, 2019, primarily due to decreases in the prime rate on loans and new average balances of lower yielding PPP loans, partially offset by higher PPP loan fees and an increase in the accretion of the loan purchase discount into loan interest income from the acquisitions.

		For the Year Ended									For the Year Ended
		December 31, 2020									December 31, 2019
		Average				Interest			Average		Average				Interest			Average
(in $000’s, unaudited)		Balance				Income			Yield		Balance				Income			Yield
Loans, core bank and asset-based lending		$	2,327,624			$	110,652		4.75	%	$	1,890,079			$	100,380		5.31	%
SBA PPP loans			218,391				2,185		1.00	%		—				—		N/A
PPP fees, net			—				3,877		1.78	%		—				—		N/A
Bay View Funding factored receivables			45,765				10,727		23.44	%		46,710				11,688		25.02	%
Purchased residential mortgages			29,648				725		2.45	%		35,343				951		2.69	%
Purchased CRE loans			24,072				831		3.45	%		30,936				1,107		3.58	%
Loan fair value mark / accretion			(14,005	)			4,172		0.18	%		(8,151	)			2,682		0.14	%
Total loans (includes loans held-for-sale)		$	2,631,495			$	133,169		5.06	%	$	1,994,917			$	116,808		5.86	%

	•	In aggregate, the original total net purchase discount on loans from the Focus Business Bank, Tri-Valley Bank, United American Bank, and Presidio loan portfolio was $25.2 million. In aggregate, the remaining net purchase discount on total loans acquired was $12.1 million at December 31, 2020.
•	The average cost of total deposits was 0.14% for the fourth quarter of 2020, compared to 0.26% for the fourth quarter of 2019 and 0.16% for the third quarter of 2020. The average cost of total deposits was 0.17% for the year ended December 31, 2020, compared to 0.29% for the year ended December 31, 2019.
•	There was a credit of $1.3 million to the provision for credit losses on loans for the fourth quarter of 2020, compared to a $3.2 million provision for loan losses for the fourth quarter of 2019, and a $197,000 provision for credit losses on loans for the third quarter of 2020. There was a $13.2 million provision for credit losses on loans for the year ended December 31, 2020, compared to an $846,000 provision for loan losses for the year ended December 31, 2019.
	•	The increase in the provision for credit losses on loans for the year ended December 31, 2020, compared to the year ended December 31, 2019, was driven primarily by a significantly deteriorated economic outlook resulting from the Coronavirus pandemic. The three loan classes where the largest increases in reserves were recorded under the Current Expected Credit Loss ("CECL") loss rate methodology were investor-owned CRE, land and construction, and commercial and industrial (“C&I”). Ongoing impacts of the CECL methodology will be dependent upon changes in economic conditions and forecasts, originated and acquired loan portfolio composition, portfolio duration, and other factors.
•	Total noninterest income was $2.1 million for the fourth quarter of 2020, compared to $2.4 million for the fourth quarter of 2019, primarily due to lower service charges and fees on deposit accounts. Total noninterest income decreased to $2.1 million for the fourth quarter of 2020 from $2.6 million for the third quarter of 2020, primarily due to a realized gain on warrants exercised during the third quarter of 2020.
	•	For the year ended December 31, 2020, total noninterest income was $9.9 million, compared to $10.2 million for the year ended December 31, 2019, primarily due to lower service charges and fees on deposit accounts, partially offset by an increase in the cash surrender value of life insurance, a gain realized on a warrant exercised, and a gain on the disposition of foreclosed assets during the first quarter of 2020.
•	Total noninterest expense for the fourth quarter of 2020 decreased to $21.6 million, compared to $30.6 million for the fourth quarter of 2019, primarily due to lower merger-related costs. Total noninterest expense for the fourth quarter of 2020 modestly increased compared to $21.2 million for the third quarter of 2020.
	•	Noninterest expense for the year ended December 31, 2020 increased to $89.5 million, compared to $84.9 million for the year ended December 31, 2019, primarily due to higher salaries and employee benefits as a result of annual salary increases, and additional employees and operating costs added as a result of the Presidio merger, partially offset by lower merger-related costs.
	•	The following table reflects pre-tax merger-related costs resulting from the merger with Presidio for the periods indicated:

		For the Quarter Ended										For the Year Ended
MERGER-RELATED COSTS		December 31,			September 30,				December 31,			December 31,			December 31,
(in $000’s, unaudited)		2020			2020				2019			2020			2019
Salaries and employee benefits		$	—		$	—			$	6,580		$	356		$	6,580
Other			101			17				3,299			2,245			4,500
Total merger-related costs		$	101		$	17			$	9,879		$	2,601		$	11,080

•

Full time equivalent employees were 330 at December 31, 2020, 357 at December 31, 2019, and 342 at September 30, 2020.

• The efficiency ratio was 59.45% for the fourth quarter of 2020, compared to 73.58% for the fourth quarter of 2019, and 57.58% for the third quarter of 2020. The efficiency ratio for the year ended December 31, 2020 was 58.96%, compared to 59.76% for the year ended December 31, 2019.
  
  
  
  
• Income tax expense was $4.4 million for the fourth quarter of 2020, compared to $2.1 million for the fourth quarter of 2019, and $4.2 million for the third quarter of 2020. The effective tax rate for the fourth quarter of 2020 was 27.6%, compared to 26.9% for the fourth quarter of 2019, and 27.3% for the third quarter of 2020. Income tax expense for the year ended December 31, 2020 was $13.8 million, compared to $15.9 million for the year ended December 31, 2019. The effective tax rate was 28.1% for the years ended December 31, 2020 and December 31, 2019.
  
  
  
  
  • The difference in the effective tax rate for the periods reported compared to the combined Federal and state statutory tax rate of 29.6% is primarily the result of the Company’s investment in life insurance policies whose earnings are not subject to taxes, tax credits related to investments in low income housing limited partnerships (net of low income housing investment losses), and tax-exempt interest income earned on municipal bonds.
    
    

Balance Sheet Review, Capital Management and Credit Quality:

• Total assets increased 13% to $4.63 billion at December 31, 2020, compared to $4.11 billion at December 31, 2019. Total assets increased 1% from $4.61 billion at September 30, 2020.
  
  
  
  
• Securities available-for-sale, at fair value, totaled $235.8 million at December 31, 2020, compared to $404.8 million at December 31, 2019, and $294.4 million at September 30, 2020. At December 31, 2020, the Company’s securities available-for-sale portfolio was comprised of $175.3 million of agency mortgage-backed securities (all issued by U.S. Government sponsored entities), and $60.5 million of U.S. Treasury securities. The pre-tax unrealized gain on securities available-for-sale at December 31, 2020 was $5.8 million, compared to a pre-tax unrealized gain on securities available-for-sale of $2.3 million at December 31, 2019, and a pre-tax unrealized gain on securities available-for-sale of $6.9 million at September 30, 2020. All other factors remaining the same, when market interest rates are decreasing, the Company will experience a higher unrealized gain (or a lower unrealized loss) on the securities portfolio.
  
  
  
  
• At December 31, 2020, securities held-to-maturity, at amortized cost, totaled $297.4 million, compared to $366.6 million at December 31, 2019, and $295.6 million at September 30, 2020. At December 31, 2020, the Company’s securities held-to-maturity portfolio was comprised of $228.7 million of agency mortgage-backed securities, and $68.7 million of tax-exempt municipal bonds. During the fourth quarter of 2020, the Company purchased $30.9 million of agency mortgage-backed securities (securities held-to-maturity), with a book yield of 1.15% and an average life of 6.18 years.
  
  
  
  
  • With the CECL methodology implementation date of January 1, 2020, there was a $58,000 allowance for credit losses recorded on the Company’s held-to-maturity municipal investment securities portfolio. For the year ended December 31, 2020, there was a reduction of $4,000 to the allowance for credit losses on the Company’s held-to-maturity municipal investment securities portfolio, for an allowance for credit losses of $54,000 at December 31, 2020.
    
    
    
    
• The loan portfolio remains well-diversified as reflected in the following table which summarizes the distribution of loans, excluding loans held-for-sale, and the percentage of distribution in each category for the periods indicated:
  
  

LOANS		December 31, 2020						September 30, 2020						December 31, 2019
(in $000’s, unaudited)		Balance				% to Total		Balance				% to Total		Balance				% to Total
Commercial		$	555,707			21	%	$	574,359			21	%	$	603,345			24	%
Paycheck Protection Program Loans			290,679			11	%		323,550			12	%		—			0	%
Real estate:
CRE - owner occupied			560,362			21	%		561,528			21	%		548,907			22	%
CRE - non-owner occupied			693,103			27	%		713,563			27	%		767,821			30	%
Land and construction			144,594			6	%		142,632			5	%		147,189			6	%
Home equity			111,885			4	%		111,468			4	%		151,775			6	%
Multifamily			166,425			6	%		169,791			6	%		180,623			7	%
Residential mortgages			85,116			3	%		91,077			3	%		100,759			4	%
Consumer and other			18,116			1	%		17,511			1	%		33,744			1	%
Total Loans			2,625,987			100	%		2,705,479			100	%		2,534,163			100	%
Deferred loan costs (fees), net			(6,726	)		—			(8,463	)		—			(319	)		—
Loans, net of deferred costs and fees		$	2,619,261			100	%	$	2,697,016			100	%	$	2,533,844			100	%

	•	Loans, excluding loans held-for-sale, increased $85.4 million, or 3%, to $2.62 billion at December 31, 2020, compared to $2.53 billion at December 31, 2019, and decreased (3%) from $2.70 billion at September 30, 2020. Total loans at December 31, 2020 included $290.7 million of PPP loans.
	•	C&I line usage was 28% at December 31, 2020, compared to 35% at December 31, 2019, and 28% at September 30, 2020.
	•	At December 31, 2020, 45% of the CRE loan portfolio was secured by owner-occupied real estate.

• The following table summarizes the allowance for credit losses on loans⁽¹⁾ for the periods indicated:
  
  

			For the Quarter Ended												For the Year Ended
ALLOWANCE FOR CREDIT LOSSES ON LOANS			December 31,				September 30,				December 31,				December 31,				December 31,
(in $000’s, unaudited)			2020				2020				2019				2020				2019
Balance at beginning of period			$	45,422			$	45,444			$	25,895			$	23,285			$	27,848
Charge-offs during the period				(144	)			(598	)			(6,003	)			(1,880	)			(6,623	)
Recoveries during the period				470				379				170				1,192				1,214
Net recoveries (charge-offs) during the period				326				(219	)			(5,833	)			(688	)			(5,409	)
Impact of adopting Topic 326				—				—				—				8,570				—
Provision (recapture) for credit losses on loans during the period(1)				(1,348	)			197				3,223				13,233				846
Balance at end of period			$	44,400			$	45,422			$	23,285			$	44,400			$	23,285
Total loans, net of deferred fees			$	2,619,261			$	2,697,016			$	2,533,844			$	2,619,261			$	2,533,844
Total nonperforming loans			$	7,869			$	10,262			$	9,828			$	7,869			$	9,828
Allowance for credit losses on loans to total loans(2)				1.70		%		1.68		%		0.92		%		1.70		%		0.92		%
Allowance for credit losses on loans to total nonperforming loans(2)				564.24		%		442.62		%		236.93		%		564.24		%		236.93		%

(1)	Provision (recapture) for credit losses on loans for the quarters ended December 31, 2020 and September 30, 2020, and the year ended December 31, 2020,
	Provision for loan losses for the quarter and the year ended December 31, 2019
(2)	ACLL at December 31, 2020 and September 30, 2020, Allowance for loan losses ("ALLL") at December 31, 2019

• The ACLL was 1.70% of total loans at December 31, 2020 and the ACLL to total nonperforming loans was 564.24% at December 31, 2020. The ALLL was 0.92% of total loans and the ALLL to nonperforming loans was 236.93% at December 31, 2019. The ACLL was 1.68% of total loans at September 30, 2020 and the ACLL to total nonperforming loans was 442.62% at September 30, 2020. The ACLL was 1.91% of total loans, excluding PPP loans, at December 31, 2020, and September 30, 2020.
  
  
  
  
• The following table shows the results of adopting CECL for the year ended December 31, 2020:
  
  

DRIVERS OF CHANGE IN ACLL UNDER CECL
(in $000’s, unaudited)
ALLL at December 31, 2019		$	23,285
Day 1 adjustment impact of adopting Topic 326			8,570
ACLL at January 1, 2020			31,855
Net (charge-offs) during the first quarter of 2020			(422	)
Portfolio changes during the first quarter of 2020			1,216
Economic factors during the first quarter of 2020			12,054
ACLL at March 31, 2020			44,703
Net (charge-offs) during the second quarter of 2020			(373	)
Portfolio changes during the second quarter of 2020			(4,282	)
Qualitative and quantitative changes during the second
quarter of 2020 including changes in economic forecasts			5,396
ACLL at June 30, 2020			45,444
Net (charge-offs) during the third quarter of 2020			(219	)
Portfolio changes during the third quarter of 2020			488
Qualitative and quantitative changes during the third
quarter of 2020 including changes in economic forecasts			(291	)
ACLL at September 30, 2020			45,422
Net (charge-offs) during the fourth quarter of 2020			326
Portfolio changes during the fourth quarter of 2020			(1,622	)
Qualitative and quantitative changes during the fourth
quarter of 2020 including changes in economic forecasts			274
ACLL at December 31, 2020		$	44,400

• Net recoveries totaled $326,000 for the fourth quarter of 2020, compared to net charge-offs of $5.8 million for the fourth quarter of 2019, and net charge-offs of $219,000 for the third quarter of 2020.
  
  

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

		End of Period:
NONPERFORMING ASSETS		December 31, 2020					September 30, 2020					December 31, 2019
(in $000’s, unaudited)		Balance			% of Total		Balance			% of Total		Balance			% of Total
CRE loans		$	3,706		47	%	$	4,328		42	%	$	5,094		52	%
Commercial loans			2,726		35	%		2,908		28	%		3,444		35	%
Consumer and other loans			407		5	%		1,464		14	%		—		0	%
Home equity loans			949		12	%		961		10	%		137		1	%
Restructured and loans over 90 days past due and still accruing			81		1	%		601		6	%		1,153		12	%
Total nonperforming assets		$	7,869		100	%	$	10,262		100	%	$	9,828		100	%

	•	NPAs totaled $7.9 million, or 0.17% of total assets, at December 31, 2020, compared to $9.8 million, or 0.24% of total assets, at December 31, 2019, and $10.3 million, or 0.22% of total assets, at September 30, 2020.
	•	There were no foreclosed assets on the balance sheet at December 31, 2020, December 31, 2019, or September 30, 2020.
	•	Classified assets increased to $34.0 million, or 0.73% of total assets, at December 31, 2020, compared to $32.6 million, or 0.79% of total assets, at December 31, 2019, and increased from $33.0 million, or 0.72% of total assets, at September 30, 2020.

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

DEPOSITS		December 31, 2020					September 30, 2020					December 31, 2019
(in $000’s, unaudited)		Balance			% to Total		Balance			% to Total		Balance			% to Total
Demand, noninterest-bearing		$	1,661,655		42	%	$	1,698,027		44	%	$	1,450,873		42	%
Demand, interest-bearing			960,179		24	%		926,041		24	%		798,375		23	%
Savings and money market			1,119,968		29	%		1,108,252		28	%		982,430		29	%
Time deposits — under $250			45,027		1	%		46,684		1	%		54,361		2	%
Time deposits — $250 and over			103,746		3	%		92,276		2	%		99,882		3	%
CDARS — interest-bearing demand,
money market and time deposits			23,911		1	%		19,121		1	%		28,847		1	%
Total deposits		$	3,914,486		100	%	$	3,890,401		100	%	$	3,414,768		100	%

	•	Total deposits increased $499.7 million, or 15%, to $3.91 billion at December 31, 2020, compared to $3.41 billion at December 31, 2019. Total deposits increased $24.1 million, or 1%, from $3.89 billion at September 30, 2020.
	•	Deposits, excluding all time deposits and CDARS deposits, increased $510.1 million, or 16%, to $3.74 billion at December 31, 2020, compared to $3.23 billion at December 31, 2019. Deposits, excluding all time deposits and CDARS deposits remained relatively flat from $3.73 billion at September 30, 2020.

• The Company’s consolidated capital ratios exceeded regulatory guidelines and the Bank’s capital ratios exceeded the regulatory guidelines under the Basel III prompt corrective action (“PCA”) regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at December 31, 2020, as reflected in the following table:
  
  

								Well-capitalized
								Financial
								Institution			Basel III
		Heritage			Heritage			Basel III PCA			Minimum
		Commerce			Bank of			Regulatory			Regulatory
CAPITAL RATIOS (unaudited)		Corp			Commerce			Guidelines			Requirement (1)
Total Risk-Based		16.5	%		15.8	%		10.0	%		10.5	%
Tier 1 Risk-Based		14.0	%		14.6	%		8.0	%		8.5	%
Common Equity Tier 1 Risk-Based		14.0	%		14.6	%		6.5	%		7.0	%
Leverage		9.1	%		9.5	%		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.

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

ACCUMULATED OTHER COMPREHENSIVE LOSS		December 31,				September 30,				December 31,
(in $000’s, unaudited)		2020				2020				2019
Unrealized gain on securities available-for-sale		$	3,709			$	4,495			$	1,242
Remaining unamortized unrealized gain on securities
available-for-sale transferred to held-to-maturity			261				271				297
Split dollar insurance contracts liability			(6,140	)			(4,839	)			(4,835	)
Supplemental executive retirement plan liability			(8,767	)			(6,662	)			(6,842	)
Unrealized gain on interest-only strip from SBA loans			220				351				360
Total accumulated other comprehensive loss		$	(10,717	)		$	(6,384	)		$	(9,778	)

• Tangible equity was $393.6 million at December 31, 2020, compared to $388.9 million at December 31, 2019, and $392.5 million at September 30, 2020. Tangible book value per share was $6.57 at December 31, 2020, compared to $6.55 at December 31, 2019, and September 30, 2020.
  
  

D.C. Solar Litigation

	•	In December 2020, Solar Eclipse Investment Fund III, et al v. Heritage Bank of Commerce, et al., was filed against Heritage, and others, in the Solano County Superior Court (“Solar Eclipse”). Also in December 2020, Solarmore Management Services, Inc. v. Jeff Carpoff et al., (“Solarmore”) filed an amended complaint in the United States District Court for the Eastern District of California against Heritage and others. Both of these cases relate to our former deposit relationships with D.C. Solar and their affiliates (collectively “D.C. Solar”) and its sponsored investment funds. These actions seek unspecified damages and are in an early phase. We believe these actions are without merit and we intend to vigorously defend them.
	•	In re Double Jump, Inc. is pending in the United States Bankruptcy Court of Nevada and was filed by D.C. Solar and some of its affiliated entities. One of the chapter 7 trustees has indicated that it may bring an adversary action against Heritage related to our former deposit relationships with D.C. Solar and its sponsored investment funds. The parties have agreed to attend a pre-filing mediation.

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, 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

Forward-Looking Statement Disclaimer

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, 2019, and the following: (1) 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; (2) 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; (3) our ability to anticipate interest rate changes and manage interest rate risk; (4) changes in inflation, interest rates, and market liquidity which may impact interest margins and impact funding sources; (5) volatility in credit and equity markets and its effect on the global economy; (6) 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; (7) our ability to achieve loan growth and attract deposits; (8) risks associated with concentrations in real estate related loans; (9) the relative strength or weakness of the commercial and real estate markets where our borrowers are located, including related asset and market prices; (10) other than temporary impairment charges to our securities portfolio; (11) changes in the level of NPAs and charge offs and other credit quality measures, and their impact on the adequacy of the Company’s allowance for credit losses and the Company’s provision for credit losses; (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) regulatory limits on Heritage Bank of Commerce’s ability to pay dividends to the Company; (14) changes in our capital management policies, including those regarding business combinations, dividends, and share repurchases; (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 governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities, accounting and tax matters; (22) significant changes in applicable laws and regulations, including those concerning taxes, banking and securities; (23) 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; (24) costs and effects of legal and regulatory developments, including resolution of regulatory or other governmental inquiries, and the results of regulatory examinations or reviews; (25) the expense and uncertain resolution of litigation matters whether occurring in the ordinary course of business or otherwise; (26) availability of and competition for acquisition opportunities; (27) risks resulting from domestic terrorism; (28) risks of natural disasters (including earthquakes) and other events beyond our control; (29) the effect of the COVID-19 pandemic, and other infectious illness outbreaks that may arise in the future, on the Bank’s customers, employees, businesses, liquidity, financial results and overall condition and which has created significant uncertainties in U.S. and global markets, including our customers' ability to make timely payments on obligations, and operating expense due to alternative approaches to doing business; (30) changes in governmental policy and regulation, including measures taken in response to economic, business, political and social conditions, such as the SBA Paycheck Protection Program (“PPP”), the Federal Reserve Board's efforts to provide liquidity to the financial system and provide credit to private commercial and municipal borrowers, and other programs designed to address the effects of the COVID-19 pandemic; (31) the Bank's participation as a lender in the PPP and similar programs and its effect on the Bank's liquidity, financial results, businesses and customers, including the availability of program funds and the ability of customers to comply with requirements and otherwise perform with respect to loans obtained under such programs; (32) our success in managing the risks involved in the foregoing factors.

Member FDIC

For additional information, contact:

Debbie Reuter

EVP, Corporate Secretary

Direct: (408) 494-4542

		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)		2020				2020			2019				2020			2019				2020			2019			Change
Interest income		$	36,145			$	36,252		$	42,471			0		%	(15	)	%		$	150,471		$	142,659		5		%
Interest expense			1,940				2,087			3,242			(7	)	%	(40	)	%			8,581			10,847		(21	)	%
Net interest income before provision
for credit losses on loans(1)			34,205				34,165			39,229			0		%	(13	)	%			141,890			131,812		8		%
Provision (recapture) for credit losses on loans(1)			(1,348	)			197			3,223			(784	)	%	(142	)	%			13,233			846		1464		%
Net interest income after provision
for credit losses on loans(1)			35,553				33,968			36,006			5		%	(1	)	%			128,657			130,966		(2	)	%
Noninterest income:
Service charges and fees on deposit accounts			608				632			1,140			(4	)	%	(47	)	%			2,859			4,510		(37	)	%
Increase in cash surrender value of
life insurance			465				464			405			0		%	15		%			1,845			1,404		31		%
Gain on sales of SBA loans			372				400			358			(7	)	%	4		%			839			689		22		%
Servicing income			98				187			156			(48	)	%	(37	)	%			673			636		6		%
Gain (loss) on sales of securities			7				—			(217	)		N/A			(103	)	%			277			661		(58	)	%
Gain on the disposition of foreclosed assets			—				—			—			N/A			N/A					791			—		N/A
Other			506				912			551			(45	)	%	(8	)	%			2,638			2,344		13		%
Total noninterest income			2,056				2,595			2,393			(21	)	%	(14	)	%			9,922			10,244		(3	)	%
Noninterest expense:
Salaries and employee benefits			12,457				11,967			18,819			4		%	(34	)	%			50,927			50,754		0		%
Occupancy and equipment			2,197				2,283			2,013			(4	)	%	9		%			8,018			6,647		21		%
Professional fees			1,396				1,352			899			3		%	55		%			5,338			3,259		64		%
Other			5,507				5,566			8,895			(1	)	%	(38	)	%			25,228			24,238		4		%
Total noninterest expense			21,557				21,168			30,626			2		%	(30	)	%			89,511			84,898		5		%
Income before income taxes			16,052				15,395			7,773			4		%	107		%			49,068			56,312		(13	)	%
Income tax expense			4,429				4,198			2,088			6		%	112		%			13,769			15,851		(13	)	%
Net income		$	11,623			$	11,197		$	5,685			4		%	104		%		$	35,299		$	40,461		(13	)	%
PER COMMON SHARE DATA
(unaudited)
Basic earnings per share		$	0.19			$	0.19		$	0.10			0		%	90		%		$	0.59		$	0.87		(32	)	%
Diluted earnings per share		$	0.19			$	0.19		$	0.10			0		%	90		%		$	0.59		$	0.84		(30	)	%
Weighted average shares outstanding - basic			59,616,951				59,589,243			57,168,605			0		%	4		%			59,478,343			46,684,384		27		%
Weighted average shares outstanding - diluted			60,247,296				60,141,412			58,361,976			0		%	3		%			60,169,139			47,906,229		26		%
Common shares outstanding at period-end			59,917,457				59,914,987			59,368,156			0		%	1		%			59,917,457			59,368,156		1		%
Dividend per share		$	0.13			$	0.13		$	0.12			0		%	8		%		$	0.52		$	0.48		8		%
Book value per share		$	9.64			$	9.64		$	9.71			0		%	(1	)	%		$	9.64		$	9.71		(1	)	%
Tangible book value per share		$	6.57			$	6.55		$	6.55			0		%	0		%		$	6.57		$	6.55		0		%
KEY FINANCIAL RATIOS
(unaudited)
Annualized return on average equity			7.99		%		7.73	%		4.04		%	3		%	98		%			6.12	%		9.51	%	(36	)	%
Annualized return on average tangible equity			11.75		%		11.41	%		5.96		%	3		%	97		%			9.04	%		13.09	%	(31	)	%
Annualized return on average assets			0.98		%		0.98	%		0.55		%	0		%	78		%			0.80	%		1.21	%	(34	)	%
Annualized return on average tangible assets			1.02		%		1.02	%		0.57		%	0		%	79		%			0.83	%		1.25	%	(34	)	%
Net interest margin (FTE)			3.15		%		3.24	%		4.15		%	(3	)	%	(24	)	%			3.50	%		4.28	%	(18	)	%
Efficiency ratio			59.45		%		57.58	%		73.58		%	3		%	(19	)	%			58.96	%		59.76	%	(1	)	%
AVERAGE BALANCES
(in $000’s, unaudited)
Average assets		$	4,703,154			$	4,562,412		$	4,124,018			3		%	14		%		$	4,434,329		$	3,353,770		32		%
Average tangible assets		$	4,518,279			$	4,376,533		$	3,943,725			3		%	15		%		$	4,248,090		$	3,237,289		31		%
Average earning assets		$	4,338,117			$	4,203,902		$	3,762,239			3		%	15		%		$	4,071,805		$	3,094,589		32		%
Average loans held-for-sale		$	2,772			$	5,169		$	3,299			(46	)	%	(16	)	%		$	3,459		$	3,714		(7	)	%
Average total loans		$	2,652,019			$	2,664,525		$	2,442,802			0		%	9		%		$	2,628,036		$	1,991,203		32		%
Average deposits		$	3,980,017			$	3,846,652		$	3,432,771			3		%	16		%		$	3,719,896		$	2,819,932		32		%
Average demand deposits - noninterest-bearing		$	1,749,837			$	1,700,972		$	1,452,893			3		%	20		%		$	1,638,055		$	1,131,098		45		%
Average interest-bearing deposits		$	2,230,180			$	2,145,680		$	1,979,878			4		%	13		%		$	2,081,841		$	1,688,834		23		%
Average interest-bearing liabilities		$	2,269,960			$	2,185,439		$	2,027,106			4		%	12		%		$	2,121,621		$	1,730,320		23		%
Average equity		$	578,560			$	576,135		$	558,478			0		%	4		%		$	576,675		$	425,674		35		%
Average tangible equity		$	393,685			$	390,256		$	378,185			1		%	4		%		$	390,436		$	309,193		26		%

(1)	Provision (recapture) for credit losses on loans for the quarters ended December 31, 2020, September 30, 2020 and the year ended December 31, 2020, Provision for loan losses for quarter and year ended December 31, 2019

		For the Quarter Ended:
CONSOLIDATED INCOME STATEMENTS		December 31,				September 30,			June 30,			March 31,			December 31,
(in $000’s, unaudited)		2020				2020			2020			2020			2019
Interest income		$	36,145			$	36,252		$	37,132		$	40,942		$	42,471
Interest expense			1,940				2,087			2,192			2,362			3,242
Net interest income before provision
for credit losses on loans(1)			34,205				34,165			34,940			38,580			39,229
Provision (recapture) for credit losses on loans(1)			(1,348	)			197			1,114			13,270			3,223
Net interest income after provision
for credit losses on loans(1)			35,553				33,968			33,826			25,310			36,006
Noninterest income:
Service charges and fees on deposit accounts			608				632			650			969			1,140
Increase in cash surrender value of
life insurance			465				464			458			458			405
Gain on sales of SBA loans			372				400			—			67			358
Servicing income			98				187			205			183			156
Gain (loss) on sales of securities			7				—			170			100			(217	)
Gain on the disposition of foreclosed assets			—				—			—			791			—
Other			506				912			595			625			551
Total noninterest income			2,056				2,595			2,078			3,193			2,393
Noninterest expense:
Salaries and employee benefits			12,457				11,967			12,300			14,203			18,819
Occupancy and equipment			2,197				2,283			1,766			1,772			2,013
Professional fees			1,396				1,352			1,155			1,435			899
Other			5,507				5,566			5,791			8,364			8,895
Total noninterest expense			21,557				21,168			21,012			25,774			30,626
Income before income taxes			16,052				15,395			14,892			2,729			7,773
Income tax expense			4,429				4,198			4,274			868			2,088
Net income		$	11,623			$	11,197		$	10,618		$	1,861		$	5,685
PER COMMON SHARE DATA
(unaudited)
Basic earnings per share		$	0.19			$	0.19		$	0.18		$	0.03		$	0.10
Diluted earnings per share		$	0.19			$	0.19		$	0.18		$	0.03		$	0.10
Weighted average shares outstanding - basic			59,616,951				59,589,243			59,420,592			59,286,927			57,168,605
Weighted average shares outstanding - diluted			60,247,296				60,141,412			60,112,423			60,194,025			58,361,976
Common shares outstanding at period-end			59,917,457				59,914,987			59,856,767			59,568,219			59,368,156
Dividend per share		$	0.13			$	0.13		$	0.13		$	0.13		$	0.12
Book value per share		$	9.64			$	9.64		$	9.60		$	9.59		$	9.71
Tangible book value per share		$	6.57			$	6.55		$	6.49		$	6.46		$	6.55
KEY FINANCIAL RATIOS
(unaudited)
Annualized return on average equity			7.99		%		7.73	%		7.45	%		1.29	%		4.04		%
Annualized return on average tangible equity			11.75		%		11.41	%		11.06	%		1.91	%		5.96		%
Annualized return on average assets			0.98		%		0.98	%		0.96	%		0.19	%		0.55		%
Annualized return on average tangible assets			1.02		%		1.02	%		1.01	%		0.19	%		0.57		%
Net interest margin (FTE)			3.15		%		3.24	%		3.46	%		4.25	%		4.15		%
Efficiency ratio			59.45		%		57.58	%		56.76	%		61.70	%		73.58		%
AVERAGE BALANCES
(in $000’s, unaudited)
Average assets		$	4,703,154			$	4,562,412		$	4,434,238		$	4,033,151		$	4,124,018
Average tangible assets		$	4,518,279			$	4,376,533		$	4,247,522		$	3,845,646		$	3,943,725
Average earning assets		$	4,338,117			$	4,203,902		$	4,075,673		$	3,665,151		$	3,762,239
Average loans held-for-sale		$	2,772			$	5,169		$	3,617		$	2,265		$	3,299
Average total loans		$	2,652,019			$	2,664,525		$	2,683,476		$	2,511,460		$	2,442,802
Average deposits		$	3,980,017			$	3,846,652		$	3,720,850		$	3,327,812		$	3,432,771
Average demand deposits - noninterest-bearing		$	1,749,837			$	1,700,972		$	1,660,547		$	1,438,944		$	1,452,893
Average interest-bearing deposits		$	2,230,180			$	2,145,680		$	2,060,303		$	1,888,868		$	1,979,878
Average interest-bearing liabilities		$	2,269,960			$	2,185,439		$	2,099,982		$	1,928,770		$	2,027,106
Average equity		$	578,560			$	576,135		$	572,939		$	579,051		$	558,478
Average tangible equity		$	393,685			$	390,256		$	386,223		$	391,546		$	378,185

(1)	Provision (recapture) for credit losses on loans for the quarters ended December 31, 2020, September 30, June 30, 2020 and March 31, 2020, Provision for loan losses for the quarter ended December 31, 2019

		End of Period:												Percent Change From:
CONSOLIDATED BALANCE SHEETS		December 31,				September 30,				December 31,				September 30,			December 31,
(in $000’s, unaudited)		2020				2020				2019				2020			2019
ASSETS
Cash and due from banks		$	30,598			$	33,353			$	49,447			(8	)	%	(38	)	%
Other investments and interest-bearing deposits
in other financial institutions			1,100,475				926,915				407,923			19		%	170		%
Securities available-for-sale, at fair value			235,774				294,438				404,825			(20	)	%	(42	)	%
Securities held-to-maturity, at amortized cost			297,389				295,609				366,560			1		%	(19	)	%
Loans held-for-sale - SBA, including deferred costs			1,699				3,565				1,052			(52	)	%	62		%
Loans:
Commercial			555,707				574,359				603,345			(3	)	%	(8	)	%
SBA PPP loans			290,679				323,550				—			(10	)	%	N/A
Real estate:
CRE - owner occupied			560,362				561,528				548,907			0		%	2		%
CRE - non-owner occupied			693,103				713,563				767,821			(3	)	%	(10	)	%
Land and construction			144,594				142,632				147,189			1		%	(2	)	%
Home equity			111,885				111,468				151,775			0		%	(26	)	%
Multifamily			166,425				169,791				180,623			(2	)	%	(8	)	%
Residential mortgages			85,116				91,077				100,759			(7	)	%	(16	)	%
Consumer and other			18,116				17,511				33,744			3		%	(46	)	%
Loans			2,625,987				2,705,479				2,534,163			(3	)	%	4		%
Deferred loan fees, net			(6,726	)			(8,463	)			(319	)		(21	)	%	2008		%
Total loans, net of deferred costs and fees			2,619,261				2,697,016				2,533,844			(3	)	%	3		%
Allowance for credit losses on loans(1)			(44,400	)			(45,422	)			(23,285	)		(2	)	%	91		%
Loans, net			2,574,861				2,651,594				2,510,559			(3	)	%	3		%
Company-owned life insurance			77,523				77,059				76,027			1		%	2		%
Premises and equipment, net			10,459				10,412				8,250			0		%	27		%
Goodwill			167,631				167,631				167,420			0		%	0		%
Other intangible assets			16,664				17,628				20,415			(5	)	%	(18	)	%
Accrued interest receivable and other assets			121,041				128,581				96,985			(6	)	%	25		%
Total assets		$	4,634,114			$	4,606,785			$	4,109,463			1		%	13		%
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, noninterest-bearing		$	1,661,655			$	1,698,027			$	1,450,873			(2	)	%	15		%
Demand, interest-bearing			960,179				926,041				798,375			4		%	20		%
Savings and money market			1,119,968				1,108,252				982,430			1		%	14		%
Time deposits-under $250			45,027				46,684				54,361			(4	)	%	(17	)	%
Time deposits-$250 and over			103,746				92,276				99,882			12		%	4		%
CDARS - money market and time deposits			23,911				19,121				28,847			25		%	(17	)	%
Total deposits			3,914,486				3,890,401				3,414,768			1		%	15		%
Subordinated debt, net of issuance costs			39,740				39,693				39,554			0		%	0		%
Other short-term borrowings			—				—				328			N/A			(100	)	%
Accrued interest payable and other liabilities			101,999				98,884				78,105			3		%	31		%
Total liabilities			4,056,225				4,028,978				3,532,755			1		%	15		%
Shareholders’ Equity:
Common stock			493,707				493,126				489,745			0		%	1		%
Retained earnings			94,899				91,065				96,741			4		%	(2	)	%
Accumulated other comprehensive loss			(10,717	)			(6,384	)			(9,778	)		(68	)	%	(10	)	%
Total shareholders' equity			577,889				577,807				576,708			0		%	0		%
Total liabilities and shareholders’ equity		$	4,634,114			$	4,606,785			$	4,109,463			1		%	13		%
(1)Allowance for credit losses on loans at December 31, 2020 and September 30, 2020, Allowance for loan losses at December 31, 2019

		End of Period:
CONSOLIDATED BALANCE SHEETS		December 31,				September 30,				June 30,				March 31,				December 31,
(in $000’s, unaudited)		2020				2020				2020				2020				2019
ASSETS
Cash and due from banks		$	30,598			$	33,353			$	40,108			$	36,998			$	49,447
Other investments and interest-bearing deposits
in other financial institutions			1,100,475				926,915				885,792				406,399				407,923
Securities available-for-sale, at fair value			235,774				294,438				323,565				373,570				404,825
Securities held-to-maturity, at amortized cost			297,389				295,609				322,677				348,044				366,560
Loans held-for-sale - SBA, including deferred costs			1,699				3,565				4,324				2,415				1,052
Loans:
Commercial			555,707				574,359				553,843				696,168				603,345
SBA PPP loans			290,679				323,550				324,550				—				—
Real estate:
CRE - owner occupied			560,362				561,528				553,463				539,465				548,907
CRE - non-owner occupied			693,103				713,563				725,776				748,245				767,821
Land and construction			144,594				142,632				138,284				153,321				147,189
Home equity			111,885				111,468				112,679				117,544				151,775
Multifamily			166,425				169,791				169,637				170,292				180,623
Residential mortgages			85,116				91,077				95,033				95,808				100,759
Consumer and other			18,116				17,511				22,759				33,326				33,744
Loans			2,625,987				2,705,479				2,696,024				2,554,169				2,534,163
Deferred loan fees, net			(6,726	)			(8,463	)			(9,635	)			(258	)			(319	)
Total loans, net of deferred fees			2,619,261				2,697,016				2,686,389				2,553,911				2,533,844
Allowance for credit losses on loans(1)			(44,400	)			(45,422	)			(45,444	)			(44,703	)			(23,285	)
Loans, net			2,574,861				2,651,594				2,640,945				2,509,208				2,510,559
Company-owned life insurance			77,523				77,059				76,944				76,485				76,027
Premises and equipment, net			10,459				10,412				9,500				9,025				8,250
Goodwill			167,631				167,631				167,631				167,371				167,420
Other intangible assets			16,664				17,628				18,593				19,557				20,415
Accrued interest receivable and other assets			121,041				128,581				124,322				129,090				96,985
Total assets		$	4,634,114			$	4,606,785			$	4,614,401			$	4,078,162			$	4,109,463
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, noninterest-bearing		$	1,661,655			$	1,698,027			$	1,714,058			$	1,444,534			$	1,450,873
Demand, interest-bearing			960,179				926,041				934,780				810,425				798,375
Savings and money market			1,119,968				1,108,252				1,091,740				949,076				982,430
Time deposits-under $250			45,027				46,684				49,493				51,009				54,361
Time deposits-$250 and over			103,746				92,276				93,822				96,540				99,882
CDARS - money market and time deposits			23,911				19,121				16,333				15,055				28,847
Total deposits			3,914,486				3,890,401				3,900,226				3,366,639				3,414,768
Subordinated debt, net of issuance costs			39,740				39,693				39,646				39,600				39,554
Other short-term borrowings			—				—				—				—				328
Accrued interest payable and other liabilities			101,999				98,884				99,722				100,482				78,105
Total liabilities			4,056,225				4,028,978				4,039,594				3,506,721				3,532,755
Shareholders’ Equity:
Common stock			493,707				493,126				492,333				491,347				489,745
Retained earnings			94,899				91,065				87,654				84,803				96,741
Accumulated other comprehensive loss			(10,717	)			(6,384	)			(5,180	)			(4,709	)			(9,778	)
Total shareholders' equity			577,889				577,807				574,807				571,441				576,708
Total liabilities and shareholders’ equity		$	4,634,114			$	4,606,785			$	4,614,401			$	4,078,162			$	4,109,463
(1)Allowance for credit losses on loans at September 30, 2020, June 30, 2020 and March 31, 2020, Allowance for loan losses at December 31, 2019

		End of Period:										Percent Change From:
CREDIT QUALITY DATA		December 31,				September 30,			December 31,			September 30,			December 31,
(in $000’s, unaudited)		2020				2020			2019			2020			2019
Nonaccrual loans - held-for-investment		$	7,788			$	9,661		$	8,675		(19	)	%	(10	)	%
Restructured and loans over 90 days past due
and still accruing			81				601			1,153		(87	)	%	(93	)	%
Total nonperforming loans			7,869				10,262			9,828		(23	)	%	(20	)	%
Foreclosed assets			—				—			—		N/A			N/A
Total nonperforming assets		$	7,869			$	10,262		$	9,828		(23	)	%	(20	)	%
Other restructured loans still accruing		$	169			$	98		$	436		72		%	(61	)	%
Net charge-offs (recoveries) during the quarter		$	(326	)		$	219		$	5,833		(249	)	%	(106	)	%
Provision (recapture) for credit losses on loans during the quarter(1)		$	(1,348	)		$	197		$	3,223		(784	)	%	(142	)	%
Allowance for credit losses on loans(2)		$	44,400			$	45,422		$	23,285		(2	)	%	91		%
Classified assets		$	34,028			$	33,024		$	32,579		3		%	4		%
Allowance for credit losses on loans to total loans(2)			1.70		%		1.68	%		0.92	%	1		%	85		%
Allowance for credit losses on loans to total nonperforming loans(2)			564.24		%		442.62	%		236.93	%	27		%	138		%
Nonperforming assets to total assets			0.17		%		0.22	%		0.24	%	(23	)	%	(29	)	%
Nonperforming loans to total loans			0.30		%		0.38	%		0.39	%	(21	)	%	(23	)	%
Classified assets to Heritage Commerce Corp
Tier 1 capital plus allowance for credit losses on loans(2)			7		%		7	%		8	%	0		%	(13	)	%
Classified assets to Heritage Bank of Commerce
Tier 1 capital plus allowance for credit losses on loans(2)			7		%		7	%		7	%	0		%	0		%
OTHER PERIOD-END STATISTICS
(in $000’s, unaudited)
Heritage Commerce Corp:
Tangible common equity (3)		$	393,594			$	392,548		$	388,873		0		%	1		%
Shareholders’ equity / total assets			12.47		%		12.54	%		14.03	%	(1	)	%	(11	)	%
Tangible common equity / tangible assets (4)			8.85		%		8.88	%		9.92	%	0		%	(11	)	%
Loan to deposit ratio			66.91		%		69.32	%		74.20	%	(3	)	%	(10	)	%
Noninterest-bearing deposits / total deposits			42.45		%		43.65	%		42.49	%	(3	)	%	0		%
Total risk-based capital ratio			16.5		%		16.0	%		14.6	%	3		%	13		%
Tier 1 risk-based capital ratio			14.0		%		13.5	%		12.5	%	4		%	12		%
Common Equity Tier 1 risk-based capital ratio			14.0		%		13.5	%		12.5	%	4		%	12		%
Leverage ratio			9.1		%		9.3	%		9.8	%	(2	)	%	(7	)	%
Heritage Bank of Commerce:
Total risk-based capital ratio			15.8		%		15.2	%		13.9	%	4		%	14		%
Tier 1 risk-based capital ratio			14.6		%		14.1	%		13.1	%	4		%	11		%
Common Equity Tier 1 risk-based capital ratio			14.6		%		14.1	%		13.1	%	4		%	11		%
Leverage ratio			9.5		%		9.7	%		10.2	%	(2	)	%	(7	)	%

(1)	Provision (recapture) for credit losses on loans for the quarters ended December 31, 2020 and September 30, 2020, Provision for loan losses for the quarter ended December 31, 2019
(2)	ACLL at December 31, 2020 and September 30, 2020, ALLL at December 31, 2019
(3)	Represents shareholders' equity minus goodwill and other intangible assets
(4)	Represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets

		End of Period:
CREDIT QUALITY DATA		December 31,				September 30,			June 30,			March 31,			December 31,
(in $000’s, unaudited)		2020				2020			2020			2020			2019
Nonaccrual loans - held-for-investment		$	7,788			$	9,661		$	8,457		$	11,646			8,675
Restructured and loans over 90 days past due
and still accruing			81				601			668			442			1,153
Total nonperforming loans			7,869				10,262			9,125			12,088			9,828
Foreclosed assets			—				—			—			—			—
Total nonperforming assets		$	7,869			$	10,262		$	9,125		$	12,088		$	9,828
Other restructured loans still accruing		$	169			$	98		$	64		$	103		$	436
Net charge-offs (recoveries) during the quarter		$	(326	)		$	219		$	373		$	422		$	5,833
Provision (recapture) for credit losses on loans during the quarter(1)		$	(1,348	)		$	197		$	1,114		$	13,270		$	3,223
Adoption of Topic 326		$	—			$	—		$	—		$	8,570		$	—
Allowance for credit losses on loans(2)		$	44,400			$	45,422		$	45,444		$	44,703		$	23,285
Classified assets		$	34,028			$	33,024		$	31,452		$	39,603		$	32,579
Allowance for credit losses on loans to total loans(2)			1.70		%		1.68	%		1.69	%		1.75	%		0.92	%
Allowance for credit losses on loans to total nonperforming loans(2)			564.24		%		442.62	%		498.02	%		369.81	%		236.93	%
Nonperforming assets to total assets			0.17		%		0.22	%		0.20	%		0.30	%		0.24	%
Nonperforming loans to total loans			0.30		%		0.38	%		0.34	%		0.47	%		0.39	%
Classified assets to Heritage Commerce Corp
Tier 1 capital plus allowance for credit losses on loans(2)			7		%		7	%		7	%		9	%		8	%
Classified assets to Heritage Bank of Commerce
Tier 1 capital plus allowance for credit losses on loans(2)			7		%		7	%		7	%		9	%		7	%
OTHER PERIOD-END STATISTICS
(in $000’s, unaudited)
Heritage Commerce Corp:
Tangible common equity (3)		$	393,594			$	392,548		$	388,583		$	384,513		$	388,873
Shareholders’ equity / total assets			12.47		%		12.54	%		12.46	%		14.01	%		14.03	%
Tangible common equity / tangible assets (4)			8.85		%		8.88	%		8.78	%		9.88	%		9.92	%
Loan to deposit ratio			66.91		%		69.32	%		68.88	%		75.86	%		74.20	%
Noninterest-bearing deposits / total deposits			42.45		%		43.65	%		43.95	%		42.91	%		42.49	%
Total risk-based capital ratio			16.5		%		16.0	%		15.9	%		14.8	%		14.6	%
Tier 1 risk-based capital ratio			14.0		%		13.5	%		13.4	%		12.5	%		12.5	%
Common Equity Tier 1 risk-based capital ratio			14.0		%		13.5	%		13.4	%		12.5	%		12.5	%
Leverage ratio			9.1		%		9.3	%		9.4	%		10.3	%		9.8	%
Heritage Bank of Commerce:
Total risk-based capital ratio			15.8		%		15.2	%		15.1	%		14.1	%		13.9	%
Tier 1 risk-based capital ratio			14.6		%		14.1	%		14.0	%		13.0	%		13.1	%
Common Equity Tier 1 risk-based capital ratio			14.6		%		14.1	%		14.0	%		13.0	%		13.1	%
Leverage ratio			9.5		%		9.7	%		9.9	%		10.7	%		10.2	%

(1)	Provision (recapture) for credit losses on loans for the quarters ended December 31, 2020, September 30, 2020, June 30, 2020 and March 31, 2020, Provision for loan losses for the quarter ended December 31, 2019
(2)	ACLL at December 31, 2020, September 30, 2020, June 30, 2020 and March 31, 2020, ALLL at December 31, 2019
(3)	Represents shareholders' equity minus goodwill and other intangible assets
(4)	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, 2020									December 31, 2019
NET INTEREST INCOME AND					Interest				Average					Interest				Average
NET INTEREST MARGIN		Average			Income/				Yield/		Average			Income/				Yield/
(in $000’s, unaudited)		Balance			Expense				Rate		Balance			Expense				Rate
Assets:
Loans, gross (1)(2)		$	2,654,791		$	32,907			4.93	%	$	2,446,101		$	35,487			5.76	%
Securities - taxable			482,951			2,053			1.69	%		653,623			3,687			2.24	%
Securities - exempt from Federal tax (3)			70,318			570			3.22	%		82,034			663			3.21	%
Other investments and interest-bearing deposits
in other financial institutions			1,130,057			735			0.26	%		580,481			2,773			1.90	%
Total interest earning assets (3)			4,338,117			36,265			3.33	%		3,762,239			42,610			4.49	%
Cash and due from banks			42,861									48,313
Premises and equipment, net			10,387									8,497
Goodwill and other intangible assets			184,875									180,293
Other assets			126,914									124,676
Total assets		$	4,703,154								$	4,124,018
Liabilities and shareholders’ equity:
Deposits:
Demand, noninterest-bearing		$	1,749,837								$	1,452,893
Demand, interest-bearing			939,203			462			0.20	%		789,465			600			0.30	%
Savings and money market			1,121,636			674			0.24	%		1,009,880			1,283			0.50	%
Time deposits - under $100			16,748			11			0.26	%		19,613			28			0.57	%
Time deposits - $100 and over			131,740			208			0.63	%		143,095			373			1.03	%
CDARS - money market and time deposits			20,853			1			0.02	%		17,825			2			0.04	%
Total interest-bearing deposits			2,230,180			1,356			0.24	%		1,979,878			2,286			0.46	%
Total deposits			3,980,017			1,356			0.14	%		3,432,771			2,286			0.26	%
Subordinated debt, net of issuance costs			39,710			583			5.84	%		46,758			955			8.10	%
Short-term borrowings			70			1			5.68	%		470			1			0.84	%
Total interest-bearing liabilities			2,269,960			1,940			0.34	%		2,027,106			3,242			0.63	%
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds			4,019,797			1,940			0.19	%		3,479,999			3,242			0.37	%
Other liabilities			104,797									85,541
Total liabilities			4,124,594									3,565,540
Shareholders’ equity			578,560									558,478
Total liabilities and shareholders’ equity		$	4,703,154								$	4,124,018
Net interest income (3) / margin						34,325			3.15	%					39,368			4.15	%
Less tax equivalent adjustment (3)						(120	)								(139	)
Net interest income					$	34,205								$	39,229

(1)	Includes loans held-for-sale. Nonaccrual loans are included in average balance.
(2)	Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $2,120,000 for the fourth quarter of 2020 (of which $1,935,000 was from PPP loans), compared to $90,000 for the fourth quarter of 2019.
(3)	Reflects the FTE adjustment for Federal tax-exempt income based on a 21%.

		For the Quarter Ended									For the Quarter Ended
		December 31, 2020									September 30, 2020
NET INTEREST INCOME AND					Interest				Average					Interest				Average
NET INTEREST MARGIN		Average			Income/				Yield/		Average			Income/				Yield/
(in $000’s, unaudited)		Balance			Expense				Rate		Balance			Expense				Rate
Assets:
Loans, gross (1)(2)		$	2,654,791		$	32,907			4.93	%	$	2,669,694		$	32,635			4.86	%
Securities - taxable			482,951			2,053			1.69	%		550,423			2,481			1.79	%
Securities - exempt from Federal tax (3)			70,318			570			3.22	%		72,625			586			3.21	%
Other investments and interest-bearing deposits
in other financial institutions			1,130,057			735			0.26	%		911,160			673			0.29	%
Total interest earning assets (3)			4,338,117			36,265			3.33	%		4,203,902			36,375			3.44	%
Cash and due from banks			42,861									36,505
Premises and equipment, net			10,387									9,884
Goodwill and other intangible assets			184,875									185,879
Other assets			126,914									126,242
Total assets		$	4,703,154								$	4,562,412
Liabilities and shareholders’ equity:
Deposits:
Demand, noninterest-bearing		$	1,749,837								$	1,700,972
Demand, interest-bearing			939,203			462			0.20	%		934,892			506			0.22	%
Savings and money market			1,121,636			674			0.24	%		1,052,800			762			0.29	%
Time deposits - under $100			16,748			11			0.26	%		17,298			16			0.37	%
Time deposits - $100 and over			131,740			208			0.63	%		121,949			219			0.71	%
CDARS - money market and time deposits			20,853			1			0.02	%		18,741			1			0.02	%
Total interest-bearing deposits			2,230,180			1,356			0.24	%		2,145,680			1,504			0.28	%
Total deposits			3,980,017			1,356			0.14	%		3,846,652			1,504			0.16	%
Subordinated debt, net of issuance costs			39,710			583			5.84	%		39,663			583			5.85	%
Short-term borrowings			70			1			5.68	%		96			—			0.00	%
Total interest-bearing liabilities			2,269,960			1,940			0.34	%		2,185,439			2,087			0.38	%
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds			4,019,797			1,940			0.19	%		3,886,411			2,087			0.21	%
Other liabilities			104,797									99,866
Total liabilities			4,124,594									3,986,277
Shareholders’ equity			578,560									576,135
Total liabilities and shareholders’ equity		$	4,703,154								$	4,562,412
Net interest income (3) / margin						34,325			3.15	%					34,288			3.24	%
Less tax equivalent adjustment (3)						(120	)								(123	)
Net interest income					$	34,205								$	34,165

(1)	Includes loans held-for-sale. Nonaccrual loans are included in average balance.
(2)	Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $2,120,000 for the fourth quarter of 2020 (of which $1,935,000 was from PPP loans), compared to $1,441,000 for the third quarter of 2020 (of which $1,305,000 was from PPP loans).
(3)	Reflects the FTE adjustment for Federal tax-exempt income based on a 21%.

		For the Year Ended									For the Year Ended
		December 31, 2020									December 31, 2019
NET INTEREST INCOME AND					Interest				Average					Interest				Average
NET INTEREST MARGIN		Average			Income/				Yield/		Average			Income/				Yield/
(in $000’s, unaudited)		Balance			Expense				Rate		Balance			Expense				Rate
Assets:
Loans, gross (1)(2)		$	2,631,495		$	133,169			5.06	%	$	1,994,917		$	116,808			5.86	%
Securities - taxable			578,506			11,637			2.01	%		682,602			15,836			2.32	%
Securities - exempt from Federal tax (3)			74,849			2,415			3.23	%		84,165			2,720			3.23	%
Other investments, interest-bearing deposits in other
financial institutions and Federal funds sold			786,955			3,757			0.48	%		332,905			7,867			2.36	%
Total interest earning assets (3)			4,071,805			150,978			3.71	%		3,094,589			143,231			4.63	%
Cash and due from banks			40,401									40,070
Premises and equipment, net			9,497									7,395
Goodwill and other intangible assets			186,239									116,481
Other assets			126,387									95,235
Total assets		$	4,434,329								$	3,353,770
Liabilities and shareholders’ equity:
Deposits:
Demand, noninterest-bearing		$	1,638,055								$	1,131,098
Demand, interest-bearing			891,513			2,035			0.23	%		712,186			2,401			0.34	%
Savings and money market			1,026,319			3,144			0.31	%		811,266			4,298			0.53	%
Time deposits - under $100			17,659			67			0.38	%		19,448			94			0.48	%
Time deposits - $100 and over			128,461			1,009			0.79	%		130,856			1,359			1.04	%
CDARS - money market and time deposits			17,889			5			0.03	%		15,078			7			0.05	%
Total interest-bearing deposits			2,081,841			6,260			0.30	%		1,688,834			8,159			0.48	%
Total deposits			3,719,896			6,260			0.17	%		2,819,932			8,159			0.29	%
Subordinated debt, net of issuance costs			39,641			2,320			5.85	%		41,278			2,686			6.51	%
Short-term borrowings			139			1			0.72	%		208			2			0.96	%
Total interest-bearing liabilities			2,121,621			8,581			0.40	%		1,730,320			10,847			0.63	%
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds			3,759,676			8,581			0.23	%		2,861,418			10,847			0.38	%
Other liabilities			97,978									66,678
Total liabilities			3,857,654									2,928,096
Shareholders’ equity			576,675									425,674
Total liabilities and shareholders’ equity		$	4,434,329								$	3,353,770
Net interest income (3) / margin						142,397			3.50	%					132,384			4.28	%
Less tax equivalent adjustment (3)						(507	)								(572	)
Net interest income					$	141,890								$	131,812

(1)	Includes loans held-for-sale. Nonaccrual loans are included in average balance.
(2)	Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $4,473,000 for the year ended December 31, 2020 (of which $3,877,000 was from PPP loans), compared to $580,000 for the year ended December 31, 2019.
(3)	Reflects the FTE adjustment for Federal tax-exempt income based on a 21%.