Q4 2024 Earnings Release

Heritage Commerce Corp Reports Robust Loan and Deposit Growth in 2024

San Jose, CA — January 23, 2025 — Heritage Commerce Corp (Nasdaq: HTBK), (the “Company”), the holding company for Heritage Bank of Commerce (the “Bank”), today announced that its fourth quarter 2024 net income was $10.6 million, or $0.17 per average diluted common share, compared to $10.5 million, or $0.17 per average diluted common share, for the third quarter of 2024, and $13.3 million, or $0.22 per average diluted common share, for the fourth quarter of 2023. For the year ended December 31, 2024, net income was $40.5 million, or $0.66 per average diluted common share, compared to $64.4 million, or $1.05 per average diluted common share, for the year ended December 31, 2023. All data are unaudited.

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

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

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

Fourth Quarter Ended December 31, 2024

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

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

Operating Results

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

  Ratios for the Quarter and Year Ended

  Ratio	December 31, 2024	September 30, 2024	December 31, 2023	Year Ended December 31, 2024	Year Ended December 31, 2023
  Return on average equity	6.16%	6.14%	7.96%	5.97%	9.88%
  Return on average tangible common equity	8.25%	8.27%	10.84%	8.05%	13.57%
  Return on average assets	0.75%	0.78%	1.00%	0.76%	1.22%
  Return on average tangible assets	0.78%	0.81%	1.04%	0.78%	1.26%

Net Interest Income

• Net interest income increased 11% to $44.2 million for the fourth quarter of 2024, compared to $39.9 million for the third quarter of 2024. The fully tax equivalent (FTE) net interest margin increased 17 basis points to 3.34% for the fourth quarter of 2024, from 3.17% for the third quarter of 2024, primarily due to lower rates paid on customer deposits, an increase in the average balances of deposits resulting in an increase in the average balance of overnight funds, partially offset by a lower average yield on overnight funds.
• Net interest income increased 4% to $44.2 million for the fourth quarter of 2024, compared to $42.3 million for the fourth quarter of 2023. The FTE net interest margin decreased 7 basis points to 3.34% for the fourth quarter of 2024, from 3.41% for the fourth quarter of 2023.
• For the year ended December 31, 2024, net interest income decreased 11% to $163.6 million, compared to $183.2 million for the year ended December 31, 2023. The FTE net interest margin decreased 42 basis points to 3.28% for the year ended December 31, 2024, from 3.70% for the year ended December 31, 2023.