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HERITAGE COMMERCE CORP

HERITAGE COMMERCE CORPHTBKEarnings & Financial Report

Nasdaq · Financials · State Commercial Banks

The United States Chamber of Commerce (USCC) is a business association advocacy group and is the largest lobbying group in the United States. The group was founded in April 23, 1912, out of local chambers of commerce at the urging of President William Howard Taft and his secretary of commerce and labor Charles Nagel. President Taft's belief was that the "government needed to deal with a group that could speak with authority for the interests of business."

What changed in HERITAGE COMMERCE CORP's 10-K — 2024 vs 2025

Top changes in HERITAGE COMMERCE CORP's 2025 10-K

487 paragraphs added · 396 removed · 335 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

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HBC ranks fourteenth with 0.74% share of total deposits based on June 30, 2024 market share data. Larger institutions have, among other advantages, the ability to finance wide-ranging advertising campaigns and to allocate their resources to regions of highest yield and demand. Larger banks are seeking to expand lending to small businesses, which are traditionally community bank clients.
HBC ranks fourteenth with 0.74% share of total deposits based on June 30, 2025 market share data. Larger institutions have, among other advantages, the ability to finance wide-ranging advertising campaigns and to allocate their resources to regions of highest yield and demand. Larger banks are seeking to expand lending to small businesses, which are traditionally community bank clients.
We continued to expand on existing communication efforts such as our anonymous “Ask CEO” portal with our Chief Executive Officer providing answers and updates during regularly scheduled all-hands meetings throughout the year. In 2024, we continued our CEO welcome luncheon so all new team members can establish a direct connection to the CEO.
We continued to expand on existing communication efforts such as our anonymous “Ask CEO” portal with our Chief Executive Officer providing answers and updates during regularly scheduled all-hands meetings throughout the year. In 2025, we continued our CEO welcome luncheon so all new team members can establish a direct connection to the CEO.
We have an extensive suite of online banking services, but our business is based largely on our network of seventeen full-service branches around the San Francisco Bay and Silicon Valley areas of coastal Central California, including locations in Alameda, Contra Costa, Marin, San Benito, San Francisco, San Mateo and Santa Clara counties.
We have an extensive suite of online banking services, but our business is based largely on our network of sixteen full-service branches around the San Francisco Bay and Silicon Valley areas of coastal Central California, including locations in Alameda, Contra Costa, Marin, San Benito, San Francisco, San Mateo and Santa Clara counties.
In order to maintain the DIF, member institutions are assessed insurance premiums based on an insured institution’s average consolidated total assets less its average tangible equity capital. Each institution is provided an assessment rate, which is generally based on the risk that the institution presents to the DIF.
In order to maintain the DIF, insured depository institutions are assessed insurance premiums based on an insured institution’s average consolidated total assets less its average tangible equity capital. Each institution is provided an assessment rate, which is generally based on the risk that the institution presents to the DIF.
El Camino Real ​ Livermore, CA 94550 ​ ​ Suite 150 ​ ​ ​ ​ San Mateo, CA 94402 ​ ​ ​ ​ ​ Los Altos: Branch Office ​ San Rafael: Branch Office ​ 419 South San Antonio Road ​ ​ 999 5th Avenue ​ Los Altos, CA 94022 ​ ​ Suite 100 ​ ​ ​ ​ San Rafael, CA 94901 ​ ​ ​ ​ ​ Los Gatos: Branch Office ​ Walnut Creek: Branch Office ​ 15575 Los Gatos Boulevard ​ ​ 1990 N.
El Camino Real Livermore, CA 94550 Suite 150 San Mateo, CA 94402 Los Altos: Branch Office San Rafael: Branch Office 419 South San Antonio Road 999 5th Avenue Los Altos, CA 94022 Suite 100 San Rafael, CA 94901 Los Gatos: Branch Office Walnut Creek: Branch Office 15575 Los Gatos Boulevard 1990 N. California Boulevard Bldg.
HBC also receives reciprocal deposits from other participating financial institutions. ​ 6 ​ Table of Contents Electronic Banking While personalized, service-oriented banking is the cornerstone of our business plan, we use technology and the Internet as a secondary means for servicing clients, to compete with larger banks and to provide a convenient platform for clients to review and transact business.
HBC also receives reciprocal deposits from other participating financial institutions. Electronic Banking While personalized, service-oriented banking is the cornerstone of our business plan, we use technology and the Internet as a secondary means for servicing clients, to compete with larger banks and to provide a convenient platform for clients to review and transact business.
The BHCA generally prohibits HCC from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank or whose business is not “closely related to banking.” The Federal Reserve has the power to order any bank holding company or its subsidiaries to terminate any activity or to terminate its ownership or control of any subsidiary when the Federal Reserve has reasonable grounds to believe that continuing such activity, ownership or control constitutes a serious risk to a subsidiary’s financial soundness, safety or stability.
The BHCA generally prohibits HCC from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank or whose business is not “closely related to 14 Table of Content s banking.” The Federal Reserve has the power to order any bank holding company or its subsidiaries to terminate any activity or to terminate its ownership or control of any subsidiary when the Federal Reserve has reasonable grounds to believe that continuing such activity, ownership or control constitutes a serious risk to a subsidiary’s financial soundness, safety or stability.
An institution’s federal regulator also may require the institution to hold more capital than would otherwise be required under the Capital Rules if the regulator determines that the institution’s capital requirements under the Capital Rules are not commensurate with the institution’s credit, market, operational or other risks. ​ 13 ​ Table of Contents Supervision and Regulation of Heritage Commerce Corp General .
An institution’s federal regulator also may require the institution to hold more capital than would otherwise be required under the Capital Rules if the regulator determines that the institution’s capital requirements under the Capital Rules are not commensurate with the institution’s credit, market, operational or other risks. Supervision and Regulation of Heritage Commerce Corp General .
This section offers a brief summary of the most significant aspects of applicable banking laws and regulations, but the implications and effects of these laws and regulations upon our business is far too extensive to be described completely, and readers should refer to the section of this Report entitled “Item 1A, Risk Factors,” for certain effects of these laws and regulations that may have a particular effect on our assets, results of operations and financial condition.
This section offers a brief summary of the most significant aspects of applicable banking laws and regulations, but the implications and effects of these laws and 13 Table of Content s regulations upon our business is far too extensive to be described completely, and readers should refer to the section of this Report entitled “Item 1A, Risk Factors,” for certain effects of these laws and regulations that may have a particular effect on our assets, results of operations and financial condition.
For example, HBC may not extend credit, lease or sell property, furnish any services, fix or vary the consideration for any of the foregoing on the condition that: (i) the client must obtain or provide some additional credit, property or services from or to HBC other than a loan, discount, deposit or trust services; (ii) the client must obtain or provide some additional credit, property or service from or to HCC or HBC; or (iii) the client must not obtain some other credit, property or services from competitors, except reasonable requirements to assure soundness of credit extended.
For example, HBC may not extend credit, lease or 15 Table of Content s sell property, furnish any services, fix or vary the consideration for any of the foregoing on the condition that: (i) the client must obtain or provide some additional credit, property or services from or to HBC other than a loan, discount, deposit or trust services; (ii) the client must obtain or provide some additional credit, property or service from or to HCC or HBC; or (iii) the client must not obtain some other credit, property or services from competitors, except reasonable requirements to assure soundness of credit extended.
Regulatory guidance provides supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant CRE loan concentrations that may warrant greater supervisory scrutiny: (i) CRE loans exceeding 300% of capital and increasing 50% or more in the preceding three years; or (ii) construction and land development loans exceeding 100% of capital.
Regulatory guidance provides supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant CRE loan concentrations that may warrant greater supervisory scrutiny: (i) CRE loans exceeding 300% of capital and increasing 50% or more in the preceding three years; or (ii) construction and 16 Table of Content s land development loans exceeding 100% of capital.
See Item 1 — “Business — Correspondent Banks.” HBC is a California state-chartered bank headquartered in San Jose, California. It was incorporated in November 1993 and opened for business in June 1994. HBC operates through seventeen full-service branch offices.
See Item 1 — “ Business — Correspondent Banks. ” HBC is a California state-chartered bank headquartered in San Jose, California. It was incorporated in November 1993 and opened for business in June 1994. HBC operates through sixteen full-service branch offices.
Well capitalized institutions are not subject to limitations on brokered deposits, while an adequately capitalized institution is able to accept, renew or roll over brokered deposits only with a waiver from the FDIC and subject to certain restrictions on the yield paid on such deposits. Undercapitalized institutions are generally not permitted to accept, renew, or roll over brokered deposits.
Brokered Deposit Restrictions . Well capitalized institutions are not subject to limitations on brokered deposits, while an adequately capitalized institution is able to accept, renew or roll over brokered deposits only with a waiver from the FDIC and subject to certain restrictions on the yield paid on such deposits.
Additionally, we offer a generous tuition reimbursement to support 11 ​ Table of Contents team members’ desire to pursue higher education degrees. Team members also have the opportunity to earn industry related and/or role related professional certifications, and our Company reimburses for classes, materials, test fees, and ongoing required education costs.
Additionally, we offer a generous tuition reimbursement to support team members’ desire to pursue higher education degrees. Team members also have the opportunity to earn industry related and/or role related professional certifications, and our Company reimburses for classes, materials, test fees, and 12 Table of Content s ongoing required education costs.
In order to compete with the other financial service providers, the Company principally relies upon community-oriented, personalized service, local promotional activities, personal relationships established by officers, directors, and team members with its clients, and specialized services tailored to meet its clients’ needs.
In order to compete with the other financial service providers, the Company principally relies upon community-oriented, personalized service, local promotional activities, personal relationships established by officers, directors, and 9 Table of Content s team members with its clients, and specialized services tailored to meet its clients’ needs.
The locations of HBC’s current offices and the administrative office of CSNK Working Capital Finance Corp. d/b/a Bay View Funding (“Bay View Funding”) are: ​ ​ ​ ​ ​ ​ San Jose: Administrative Office ​ Oakland: Branch Office ​ Main Branch ​ ​ 1111 Broadway ​ 224 Airport Parkway ​ ​ Suite 1650 ​ Suite 100 ​ ​ Oakland, CA 94607 ​ San Jose, CA 95110 ​ ​ ​ ​ ​ ​ ​ ​ Danville: Branch Office ​ Palo Alto: Branch Office ​ 387 Diablo Road ​ ​ 325 Lytton Avenue ​ Danville, CA 94526 ​ ​ Suite 100 ​ ​ ​ ​ Palo Alto, CA 94301 ​ ​ ​ ​ ​ Fremont: Branch Office ​ Pleasanton: Branch Office ​ 3137 Stevenson Boulevard ​ ​ 300 Main Street ​ Fremont, CA 94538 ​ ​ Pleasanton, CA 94566 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 8 ​ Table of Contents Gilroy: Branch Office ​ Redwood City: Branch Office ​ 7598 Monterey Street ​ ​ 2400 Broadway ​ Suite 110 ​ ​ Suite 100 ​ Gilroy, CA 95020 ​ ​ Redwood City, CA 94063 ​ ​ ​ ​ ​ Hollister: Branch Office ​ San Francisco: Branch Office ​ 351 Tres Pinos Road ​ ​ 120 Kearny Street ​ Suite 102A ​ ​ Suite 2300 ​ Hollister, CA 95023 ​ ​ San Francisco, CA 94108 ​ ​ ​ ​ ​ Livermore: Branch Office ​ San Mateo: Branch Office ​ 1987 First Street ​ ​ 400 S.
The locations of HBC’s current offices and the administrative office of CSNK Working Capital Finance Corp. d/b/a Bay View Funding (“Bay View Funding”) are: San Jose: Administrative Office Oakland: Branch Office Main Branch 1111 Broadway 224 Airport Parkway Suite 1650 Suite 100 Oakland, CA 94607 San Jose, CA 95110 Danville: Branch Office Palo Alto: Branch Office 387 Diablo Road 325 Lytton Avenue Danville, CA 94526 Suite 100 Palo Alto, CA 94301 Fremont: Branch Office Pleasanton: Branch Office 3137 Stevenson Boulevard 300 Main Street Fremont, CA 94538 Pleasanton, CA 94566 Hollister: Branch Office San Francisco: Branch Office 351 Tres Pinos Road 120 Kearny Street Suite 102A Suite 2300 Hollister, CA 95023 San Francisco, CA 94108 Livermore: Branch Office San Mateo: Branch Office 1987 First Street 400 S.
In 2024, we contributed more than 2,100 hours to strengthen our relationship with local nonprofit organizations. More than 40 team members serve on over 55 boards. Our broad outreach efforts cover a variety of focus areas like economic development, education, financial literacy, health and human services, housing and homelessness, small business and entrepreneurship support, animal services, environmental, arts and culture.
In 2025, we contributed more than 2,175 hours to strengthen our relationship with local nonprofit organizations. More than 50 team members serve on over 60 boards. Our broad outreach efforts cover a variety of focus areas like economic development, education, financial literacy, health and human services, housing and homelessness, small business and entrepreneurship support, animal services, environmental, arts and culture.
As of December 31, 2024, using regulatory definitions in the CRE Concentration Guidance, our CRE loans represented 311% of HBC total risk-based capital, as compared to 306% as of December 31, 2023.
As of December 31, 2025, using regulatory definitions in the CRE Concentration Guidance, our CRE loans represented 319% of HBC total risk-based capital, as compared to 311% as of December 31, 2024.
B ​ ​ Suite 100 ​ Los Gatos, CA 95032 ​ ​ Walnut Creek, CA 94596 ​ ​ ​ ​ ​ Morgan Hill: Branch Office ​ Bay View Funding: Administrative Office ​ 18625 Sutter Boulevard ​ ​ 224 Airport Parkway ​ Suite 100 ​ ​ Suite 200 ​ Morgan Hill, CA 95037 ​ ​ San Jose, CA 95110 ​ ​ ​ ​ 9 ​ Table of Contents HUMAN CAPITAL ​ We strive to be the employer of choice among banks in our markets, by building a reputation as a place where every team member can thrive.
B Suite 100 Los Gatos, CA 95032 Walnut Creek, CA 94596 10 Table of Content s Morgan Hill: Branch Office Bay View Funding: Administrative Office 18625 Sutter Boulevard 224 Airport Parkway Suite 100 Suite 200 Morgan Hill, CA 95037 San Jose, CA 95110 Redwood City: Branch Office 2400 Broadway Suite 100 Redwood City, CA 94063 HUMAN CAPITAL We strive to be the employer of choice among banks in our markets, by building a reputation as a place where every team member can thrive.
For the combined Alameda, Contra Costa, Marin, San Benito, San Francisco, San Mateo, and Santa Clara county region, the seven counties within which the Company operates, the top three institutions are all multi-billion dollar entities with an aggregate of 520 offices that control 7 ​ Table of Contents a combined 69.45% of deposit market share based on June 30, 2024 FDIC market share data.
For the combined Alameda, Contra Costa, Marin, San Benito, San Francisco, San Mateo, and Santa Clara county region, the seven counties within which the Company operates, the top three institutions are all multi-billion dollar entities with an aggregate of 506 offices that control a combined 69.58% of deposit market share based on June 30, 2025 FDIC market share data.
HBC is a California state-chartered commercial bank that is a member of the Federal Reserve System and whose deposits are insured by the FDIC. HBC is thus subject to regulation, supervision, and regular examination by the DFPI and the Federal Reserve as HBC’s primary federal regulator.
HBC is a California state-chartered commercial bank that is a member of the Federal Reserve System and whose deposits are insured by the FDIC. HBC is thus subject to regulation, supervision, and regular examination by the DFPI and the Federal Reserve as HBC’s primary federal regulator. The regulations of these agencies govern most aspects of a bank’s business.
We expect team members always to treat clients and stakeholders with courtesy and respect. Our Company’s Code of Ethics and Conduct continues to offer specificity to directors and team members across different sections, embodying such principles as workplace safety, protection of client and team member information, conflict of interest guidelines, anti-retaliation policy, and procedures for reporting concerns.
Our Company’s Code of Ethics and Conduct continues to offer specificity to directors and team members across different sections, embodying such principles as workplace safety, protection of client and team member information, conflict of interest guidelines, anti-retaliation policy, and procedures for reporting concerns.
The Company makes available free of charge through the Company’s website, the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports. The Company makes these reports available on its website on the same day they appear on the SEC’s website.
The Company makes available free of charge through the Company’s website, the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports.
Deposit Insurance . HBC is a member of the Deposit Insurance Fund (“DIF”) administered by the FDIC, which insures client deposit accounts. The amount of federal deposit insurance coverage is $250,000 per depositor, for each account ownership category at each depository institution. The $250,000 amount is subject to periodic adjustments.
Deposit Insurance . Deposit accounts at HBC are insured through the Deposit Insurance Fund (“DIF”) administered by the FDIC. The amount of federal deposit insurance coverage is $250,000 per depositor, for each account ownership category at each depository institution. The $250,000 amount is subject to periodic adjustments.
When we refer to “HCC” or the “holding company”, we are referring to Heritage Commerce Corp on a standalone basis. When we use the “Bank” or “HBC”, we mean Heritage Bank of Commerce on a standalone basis.
When we use “we”, “us”, “our” or the “Company”, we mean the Company on a consolidated basis with Heritage Bank of Commerce. When we refer to “HCC” or the “holding company”, we are referring to Heritage Commerce Corp on a standalone basis. When we use the “Bank” or “HBC”, we mean Heritage Bank of Commerce on a standalone basis.
HBC continues to investigate products and services that it believes address the growing needs of its clients and to analyze other markets for potential expansion opportunities. Investments Our investment policy is established by the Board of Directors (the “Board”). The general investment strategies are developed and authorized by our Finance and Investment Committee of the Board.
HBC continues to investigate products and services that it believes address the growing needs of its clients and to analyze other markets for potential expansion opportunities. 8 Table of Content s Investments Our investment policy is established by the Board of Directors (the “Board”).
The investment policy is reviewed annually by the Finance and Investment Committee, and any changes to the policy are subject to approval by the full Board.
The general investment strategies are developed and authorized by our Finance and Investment Committee of the Board. The investment policy is reviewed annually by the Finance and Investment Committee, and any changes to the policy are subject to approval by the full Board.
Progress on these human capital efforts and programming are shared regularly with the Board’s Personnel and Compensation Committee throughout the year because we believe their perspective and feedback are invaluable to our continuous improvement.
Progress on these human capital efforts and programming are shared regularly with the Board’s Personnel and Compensation Committee throughout the year because we believe their perspective and feedback are invaluable to our continuous improvement. Our ultimate goal is to deepen client and community relationships and to deliver exceptional experience to all whom we serve.
We believe our loan portfolio is well-diversified among the commercial, real estate, construction and land development, consumer and Small Business Administration (“SBA”) sectors. Both our loan and deposit bases are originated primarily on the basis of our physical presence through our branch offices. We offer a wide range of deposit products and loans for business banking and retail markets.
We are proud and confident in our more routine accomplishments, as well. We believe our loan portfolio is well-diversified among the commercial, real estate, construction and land development, consumer and Small Business Administration (“SBA”) sectors. Both our loan and deposit bases are originated primarily on the basis of our physical presence through our branch offices.
The federal bank regulatory agencies have broad enforcement powers, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties, and appoint a conservator or receiver for financial institutions.
The federal bank regulatory agencies have broad enforcement powers, including the power to terminate deposit insurance, impose substantial fines and other civil and criminal penalties, and appoint a conservator or receiver for financial institutions. Failure to comply with applicable laws and regulations could subject us and our officers and directors to administrative sanctions and potentially substantial civil money penalties.
These laws and regulations impose strict reporting and compliance obligations on financial institutions, and violations can carry substantial fines, civil money penalties and other sanctions, as well as restrictions on an institution’s business.
These laws and regulations are intended to detect, identify, track and prevent money-laundering, money transfers to prohibited nations and entities, and certain types of financial crimes. These laws and regulations impose strict reporting and compliance obligations on financial institutions, and violations can carry substantial fines, civil money penalties and other sanctions, as well as restrictions on an institution’s business.
Heritage Bank of Commerce HBC is a California state-chartered bank headquartered in San Jose, California. It was incorporated in November 1993 and opened for business in June 1994. HBC operates through seventeen full-service branch offices.
The Company makes these reports available on its website on the same day they appear on the SEC’s website. 7 Table of Content s Heritage Bank of Commerce HBC is a California state-chartered bank headquartered in San Jose, California. It was incorporated in November 1993 and opened for business in June 1994. HBC operates through sixteen full-service branch offices.
The combined application of these laws and regulations applies to virtually every aspect of our business, and to a substantial degree affects our relationships with clients, vendors, and affiliates as well.
The combined application of these laws and regulations applies to virtually every aspect of our business, and to a substantial degree affects our relationships with clients, vendors, and affiliates as well. Further, the cost of complying with these laws and regulations, and the potential penalties, liabilities or other consequences of failure to comply, has risen dramatically in recent years.
Heritage Bank of Commerce files reports with and is examined by the FDIC, the DFPI, and the Consumer Financial Protection Bureau (“CFPB”).
With respect to the Company, we are regulated and examined by the California Department of Financial Protection and Innovation (“DFPI”), and the Federal Reserve Bank of San Francisco. Heritage Bank of Commerce files reports with and is examined by the Federal Reserve Bank of San Francisco, the FDIC, the DFPI, and the Consumer Financial Protection Bureau (“CFPB”).
As of December 31, 2024, HBC was eligible to accept brokered deposits without limitations. Loans to One Borrower .
Undercapitalized institutions are generally not permitted to accept, renew, or roll over brokered deposits. As of December 31, 2025, HBC was eligible to accept brokered deposits without limitations. Loans to One Borrower .
We offer a multitude of other products and services to complement those lending and deposit services. Through the Bank’s Bay View Funding subsidiary, we also provide factoring financing to small businesses located throughout the United States. When we use “we”, “us”, “our” or the “Company”, we mean the Company on a consolidated basis with Heritage Bank of Commerce.
We offer a wide range of deposit products and loans for business banking and retail markets. We offer a multitude of other products and services to complement those lending and deposit services. Through the Bank’s Bay View Funding subsidiary, we also provide factoring financing to small businesses located throughout the United States.
In 2024, we continued offering employee assistance program (EAP) private counseling sessions, monthly fitness stipend for all team members and hosted in-person and virtual meditation sessions to promote the importance of self-care. ​ Supervision and Regulation ​ General ​ Like all depositary institutions, both Heritage Commerce Corp and Heritage Bank of Commerce, as well as their operating subsidiaries and affiliates, are regulated extensively under federal and state law.
In 2025, we continued offering employee assistance program (EAP) private counseling sessions, monthly fitness stipend for all team members and hosted in-person and virtual meditation sessions to promote the importance of self-care.
Throughout the year, team members are encouraged to nominate colleagues who go above and beyond their regular duties in showcasing one or more of our core values. The CEO highlights and publicly applauds Core Value Champions’ stories, celebrating their exemplary accomplishments and contributions. We continually promote a speak-up culture, so our workplace feels welcoming and safe.
The CEO highlights and publicly applauds Core Value Champions’ stories, celebrating their exemplary accomplishments and contributions. We continually promote a speak-up culture, so our workplace feels welcoming and safe. We expect team members always to treat clients and stakeholders with courtesy and respect.
Additionally, career mobility continues to be an important part of team member engagement and development. ​ Culture and Conduct Teamwork is not only promoted but celebrated through various recognition programs. Our “Core Values Champions” continues to recognize individuals who demonstrate our Company’s Core Values through their work and interactions.
Culture and Conduct Teamwork is not only promoted but celebrated through various recognition programs. Our “Core Values Champions” continues to recognize individuals who demonstrate our Company’s Core Values through their work and interactions. Throughout the year, team members are encouraged to nominate colleagues who go above and beyond their regular duties in showcasing one or more of our core values.
Failure to comply with applicable laws and regulations could subject us and our officers and directors to administrative sanctions and potentially substantial civil 16 ​ Table of Contents money penalties. The DFPI also has broad enforcement powers over us, including the power to impose orders, remove officers and directors, impose fines and appoint supervisors and conservators.
The DFPI also has broad enforcement powers over us, including the power to impose orders, remove officers and directors, impose fines and appoint supervisors and conservators.
Culture Ambassadors serve an important role to help shape enterprise initiatives such as creation of corporate values. ​ 10 ​ Table of Contents In 2024, our Core Values focus continued: ​ Continuing in our core value of serving with purpose and passion, our Heritage Hearts Committee continued with a mission to source nonprofit volunteer and board opportunities for Company team members across the Bay Area.
Additionally, this content was harmonized with sales coaching training underway in our commercial bank. 11 Table of Content s In 2025, our Core Values focus continued: Continuing in our core value of serving with purpose and passion, our Heritage Hearts Committee continued with a mission to source nonprofit volunteer and board opportunities for Company team members across the Bay Area.
Each year, we also offer certain identified leaders an opportunity to attend Pacific Coast Banking School as part of their career development plan.
Each year, we also offer certain identified leaders an opportunity to attend Pacific Coast Banking School as part of their career development plan. In 2025, aside from the coaching series mentioned earlier, we enhanced our succession planning efforts to identify those roles most critical to achieving our strategy.
Risk Management . Bank regulatory agencies have increasingly emphasized the importance of sound risk management processes and strong internal controls when evaluating the activities of the financial institutions they supervise.
Federal Reserve and shareholder approval is also required for HBC to pay a dividend that (i) would exceed its undivided profits or (ii) would result in a withdrawal of permanent capital. Risk Management . Bank regulatory agencies have emphasized the importance of sound risk management processes and strong internal controls when evaluating the activities of the financial institutions they supervise.
New products and services, third-party risk management and cybersecurity are critical sources of operational risk that financial institutions are expected to address in the current environment. HBC is expected to have active board and senior management oversight; adequate policies, procedures, and limits; adequate risk measurement, monitoring, and management information systems; and comprehensive internal controls.
The agencies have identified a spectrum of risks facing a banking institution including, but not limited to, credit, market, liquidity, operational, and legal risk. HBC is expected to have active board and senior management oversight; adequate policies, procedures, and limits; adequate risk measurement, monitoring, and management information systems; and comprehensive internal controls.
While diversity efforts will continue – we will be administering a team member engagement survey in 2025 that assesses all of the diversity metrics and concerns we deeply care about. We believe our initiatives will continue to provide a strong foundation that correlates our client-facing net promoter scores to our internal engagement results.
The Culture We Are Building: Engagement In 2025 we administered our first-ever employee engagement survey, with overall engagement measured at 70%. We believe our engagement initiative will continue to provide a strong foundation that correlates our client-facing net promoter scores to overall business success.
We expect that this shift will occur seamlessly, and we are optimistic that this evolution will continue to foster our team members’ interests and capabilities to serve our clients. Management continued to provide Company-wide listening sessions to solicit feedback, enhance engagement, and cultivate positive culture.
We will focus on correlating employee and client engagement, and we are optimistic that this evolution will continue to foster our team members’ interests and capabilities in serving our clients. Management continued to provide development opportunities as evidenced in the roll out of a foundational coaching series.
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We made progress in 2024 that we believe is quite substantial, positioning the Company for even more significant progress in 2025 and beyond. Among these critical steps, during 2024 and the first two months of 2025, we: • Grew deposit balances 10% during 2024, driven by our team’s success at cultivating local community commercial deposit relationships.
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The year 2025 was a consequential time for the Company and we are proud of the way our team worked to deliver solid growth and results, driven by steady performance across the business, sustained client momentum and strong credit quality.
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Additionally, total loans increased 4% during 2024. • Continued our positive credit trends during 2024, with nonperforming assets and net charge-offs remaining low at December 31, 2024. ​ • Hired a new Chief Operating Officer, Thomas A. Sa, who has extensive experience in banking operations, finance and personnel.
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The recently announced proposed merger with CVBF represents an exciting next step in the Company’s journey, building on the strength of our franchise and the consistent performance we delivered throughout 2025. As we work toward the completion of the transaction, we remain fully focused on executing our strategy and continuing to support our clients, colleagues, and communities.
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We believe this key initiative will allow us to place greater focus on streamlining our branch operations and back-office functions, and will allow our Chief Executive Officer to concentrate his primary attention to growth and strategy, including business development and organic and potential strategic expansion. • Hired a new Chief People and Culture Officer, Chris Edmonds-Waters, to replace our departing Chief People and Diversity Officer, who relocated outside our market area. • Hired a new General Counsel, Janisha Sabnani, who has more than 15 years’ experience with increasing levels of responsibility for corporate, securities and regulatory matters within publicly traded financial institutions.
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Among these critical steps, during 2025 we: • Delivered meaningful balance‑sheet growth and expanded operating leverage through disciplined expense management. • Continued our positive credit trends during 2025, with nonperforming assets and net charge-offs remaining low at December 31, 2025. • Hired a new Chief Accounting Officer, Jeannie Tam, who brings more than 15 years of financial leadership experience in accounting operations, financial close, and finance transformation within financial services. • Hired a new Chief Financial Officer, Seth Fonti, who brings more than two decades of financial and strategic leadership experience across global and domestic banking institutions. • The Company successfully advanced its long-term succession strategy across the enterprise and the Board of Directors, highlighted by the planned elevation of the Vice Chair to Chair of the Board of Directors in May 2025 and the appointment of a new independent director in August 2025, ensuring both leadership continuity and refreshment.
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We believe Ms. Sabnani’s accession will allow us to provide more hands-on responses to internal legal demands across all our departments and operations and will afford significant efficiencies in our employment of outside counsel. • Began a search for a new Chief Financial Officer following the departure of our long-time CFO, Larry McGovern.
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This workshop grounded leaders in effective coaching context and practices, serving as the entry point for related future management development learning experiences.
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Our search is centered on executives with proven experience with accounting and finance technology and modernization efforts, and we believe this will provide more efficient, accurate and prompt reporting and will enhance our responsiveness to investors and regulators. • Began a refreshment process that led to the retirement of one long-time director and plans for bringing in talented, experienced individuals with a breadth of talent and experience to facilitate the anticipated retirements of highly talented, experienced and capable, but longer-tenured, directors.
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Once those roles were identified we then ensured employees in those roles had customized development plans in place. While a new approach for us—it nonetheless strengthened our overall market positioning. Moreover, we shared our results with our Board to highlight our progress made in this important initiative.
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In addition to these personnel and strategy initiatives, we continued to enhance our information technology and cybersecurity infrastructure and capabilities, adapting to keep pace with a rapidly growing and evolving threat environment.
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Supervision and Regulation General Like all depositary institutions, both Heritage Commerce Corp and Heritage Bank of Commerce, as well as their operating subsidiaries and affiliates, are regulated extensively under federal and state law.
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We also were able to resolve [two] litigation matters whose uncertainty and ongoing cost had plagued the Company and the Bank and had created distractions for our management team for several years. These successes, of course, were accompanied by significant costs, including additional compensation, legal and severance, which together with other one-time operating costs, amounted to $1.5 million.
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Unless the Federal Reserve approves, HBC is not permitted to pay a dividend if the total of all dividends declared during the calendar year, including the proposed dividend, exceeds its net income during the current calendar year and the retained net income of the prior two calendar years.
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However, we view these costs as an investment in preserving and growing our talent pool in the face of transitions involving several highly experienced 5 ​ Table of Contents personnel, and in significantly reducing our overall risk profile.
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We are enthusiastic in our belief that these initiatives have positioned HCC and HBC for years of continuing growth and success both strategically and financially. As we look forward to the benefits we expect to reap from these investments, we are proud and confident in our more routine accomplishments, as well.
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Our ultimate goal is to deepen client and community relationships and to deliver exceptional experience to all whom we serve. ​ In 2024, we had: ​ ​ The Culture We Are Building: Engagement In the fourth quarter of 2024 we shifted our framework from one of diversity to a business-focused team member engagement effort.
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Based on feedback from listening sessions, we also created a Culture Ambassador Group (akin to employee resource groups for larger organizations) comprised of non-executive team members from various departments and locations. Through self-identification, the Culture Ambassadors represent 77% female and 62% ethnic/racial diversity.
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In 2024, we continued our Leadership Essentials Workshop series with modules consisting of (1) Recruiting and Hiring and Retaining Top Talent; (2) Leveraging Individual and Team Strengths; (3) Talent Development, Performance Management and Effective Coaching; (4) Handling Employee Relations Matters, Decision Making and Accountability; and (5) Communicating Effectively and Inspiring Positive Change.
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We further refined our Talent Management and Succession Planning framework, and progress updates are provided to the Board throughout the year. We created a robust Succession Planning roadmap that clearly outlines a plan for executive ranks and critical roles.
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Further, the cost of complying with these laws and regulations, and the potential penalties, liabilities or other consequences of failure to comply, has risen dramatically in recent years, and we do not expect that these costs or associated risks will be ameliorated in the foreseeable future. 12 ​ Table of Contents With respect to the Company, we are regulated and examined by the California Department of Financial Protection and Innovation (“DFPI”), the Federal Reserve Bank of San Francisco.
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The regulations of these agencies govern most aspects of a bank’s business. 14 ​ Table of Contents Brokered Deposit Restrictions .
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The agencies have identified a spectrum of risks facing a banking institution including, but not limited to, credit, market, liquidity, operational, legal, and reputational risk. In particular, recent regulatory pronouncements have focused on operational risk, which arises from the potential that inadequate information systems, operational problems, breaches in internal controls, fraud, or unforeseen catastrophes will result in unexpected losses.
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These laws and regulations are intended to detect, identify, track and prevent 15 ​ Table of Contents money-laundering, money transfers to prohibited nations and entities, and certain types of financial crimes.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Further, when we place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. Subsequently, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense.
Further, when we place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. Subsequently, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense.
The holders of our debt obligations will have priority over our common stock with respect to payment in the event of liquidation, dissolution or winding up and with respect to the payment of interest and dividends.
The holders of our debt obligations will have priority over our common stock with respect to payment in the event of liquidation, dissolution or winding up and with respect to the payment of interest and dividends.
There can be no assurance that our future evaluations of goodwill will not result in findings of impairment and related write-downs, which may have a material adverse effect on our financial condition and results of operations. We must effectively manage our branch growth strategy. We seek to expand our franchise safely and consistently.
There can be no assurance that our future evaluations of goodwill will not result in findings of impairment and related write-downs, which may have a material adverse effect on our financial condition and results of operations. We must effectively manage our franchise growth strategy. We seek to expand our franchise safely and consistently.
As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions, as well as impact the trading prices of our common stock.
As a result, defaults by, or even rumors or questions about the financial soundness of one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions, as well as impact the trading prices of our common stock.
Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, team member misconduct, cybersecurity failures or disruptions, failure to deliver minimum standards of service or quality, compliance deficiencies, and questionable or fraudulent activities of our clients or third parties.
Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, team member misconduct, cybersecurity failures or disruptions, failure to deliver minimum standards of service or quality, compliance deficiencies, and fraudulent activities of our clients or third parties.
These state-specific regulations include heightened data privacy, employment law and consumer protection regulations, and the cost of complying with state rules that differ from federal rules can significantly increase compliance costs.
These state-specific regulations include heightened data privacy, labor and employment law and consumer protection regulations, and the cost of complying with state rules that differ from federal rules can significantly increase compliance costs.
Among the factors that could affect our stock price are: ● changes in business and economic condition; ● actual or anticipated quarterly fluctuations in our operating results and financial condition; ● actual occurrence of one or more of the risk factors outlined above; ● recommendations by securities analysts or failure to meet, securities analysts’ estimates of our financial and operating performance, or lack of research reports by industry analysts or ceasing of coverage; ● speculation in the press or investment community generally or relating to our reputation, our operations, our market area, our competitors or the financial services industry in general; ● strategic actions by us or our competitors, such as acquisitions, restructurings, dispositions or financings; ● actions by institutional investors; ● fluctuations in the stock price and operating results of our competitors; ● future sales of our equity, equity related or debt securities; ● proposed or adopted regulatory changes or developments; ● anticipated or pending investigations, proceedings, or litigation that involve or affect us; ● the level and extent to which we do or are allowed to pay dividends; ● trading activities in our common stock, including short selling; ● deletion from well-known index or indices; ● domestic and international economic factors unrelated to our performance; and ● general market conditions and, in particular, developments related to market conditions for the financial services industry.
Among the factors that could affect our stock price are: • changes in business and economic condition; • actual or anticipated quarterly fluctuations in our operating results and financial condition; 39 Table of Content s • actual occurrence of one or more of the risk factors outlined above; • recommendations by securities analysts or failure to meet, securities analysts’ estimates of our financial and operating performance, or lack of research reports by industry analysts or ceasing of coverage; • speculation in the press or investment community generally or relating to our reputation, our operations, our market area, our competitors or the financial services industry in general; • strategic actions by us or our competitors, such as acquisitions, restructurings, dispositions or financings; • actions by institutional investors; • fluctuations in the stock price and operating results of our competitors; • future sales of our equity, equity related or debt securities; • proposed or adopted regulatory changes or developments; • anticipated or pending investigations, proceedings, or litigation that involve or affect us; • the level and extent to which we do or are allowed to pay dividends; • trading activities in our common stock, including short selling; • deletion from well-known index or indices; • domestic and international economic factors unrelated to our performance; and • general market conditions and, in particular, developments related to market conditions for the financial services industry.
Severe weather, natural disasters (including fires, earthquakes, and floods), wide spread disease or pandemics, such as the COVID-19 pandemic, acts of war or terrorism, social unrest and other adverse external events have had in the past and could have in the future a significant impact on our ability to conduct business and create significant volatility and disruption in global and U.S. economies.
S evere weather, natural disasters (including fires, earthquakes, and floods), wide spread disease or pandemics, such as the COVID-19 pandemic, acts of war or terrorism, social unrest and other adverse external events have had in the past and could have in the future a significant impact on our ability to conduct business and create significant volatility and disruption in global and U.S. economies.
Failure to adapt to or comply with evolving regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, access to capital, and our stock price. Severe weather, natural disasters, pandemics, acts of war or terrorism, social unrest and other external events could significantly impact our operations.
Failure to adapt to or comply with evolving regulatory requirements or investor or stakeholder expectations and standards could negatively impact our brand, ability to do business with certain partners, access to capital, and our stock price. Severe weather, natural disasters, pandemics, acts of war or terrorism, social unrest and other external events could significantly impact our operations.
However, our insurance coverage does not cover any civil monetary penalties, punitive damages or fines imposed by government authorities and may not cover all other claims that might be brought against us, including certain wage and hour class, collective and representative actions brought by clients, team members or former team members, and ponzi schemes.
However, our insurance coverage does not cover any civil monetary penalties, punitive damages or fines imposed by government authorities and may not cover all other claims that might be brought against us, including certain wage and hour class, collective and representative actions brought by clients, team members or former team members.
The weakening of these standards for any reason, a lack of 25 ​ Table of Contents discipline or diligence by our team members in underwriting and monitoring loans, the inability of our team members to adequately adapt policies and procedures to changes in economic or any other conditions affecting borrowers and the quality of our loan portfolio, may result in loan defaults, foreclosures and additional charge-offs and may necessitate that we significantly increase our allowance for credit losses on loans, each of which could adversely affect our net income.
The weakening of these standards for any reason, a lack of discipline or diligence by our team members in underwriting and monitoring loans, the inability of our team members to adequately adapt policies and procedures to changes in economic or any other conditions affecting borrowers and the quality of our loan portfolio, may result in loan defaults, foreclosures and additional charge-offs and may necessitate that we significantly increase our allowance for credit losses on loans, each of which could adversely affect our net income.
In any liquidation, dissolution or winding up of the Company, our common stock would rank below all claims of the holders of outstanding debt issued by the Company. As of December 31, 2024, we had $40.0 million principal amount of subordinated notes outstanding due May 15, 2032.
In any liquidation, dissolution or winding up of the Company, our common stock would rank below all claims of the holders of outstanding debt issued by the Company. As of December 31, 2025, we had $40.0 million principal amount of subordinated notes outstanding due May 15, 2032.
We devote significant financial and management resources to ensure the integrity of our systems against cybercriminals and similar actors, as well as against threats from fires and other natural disasters; power or telecommunications failures; acts of terrorism or wars or other catastrophic events; breaches, physical break-ins or errors 18 ​ Table of Contents resulting in interruptions and unauthorized disclosure of confidential information, through information security and business continuity programs.
We devote significant financial and management resources to ensure the integrity of our systems against cybercriminals and similar actors, as well as against threats from fires and other natural disasters; power or telecommunications failures; acts of terrorism or wars or other catastrophic events; breaches, physical break-ins or errors resulting in interruptions and unauthorized disclosure of confidential information, through information security and business continuity programs.
Real estate values and real estate markets are generally affected by changes in national, regional or local economic conditions, the rate of unemployment, fluctuations in interest rates and the availability of loans to potential purchasers, fluctuations in vacancy 22 ​ Table of Contents rates, changes in tax laws and other governmental statutes, regulations and policies, access to insurance coverage, and acts of nature, such as wildfires, earthquakes and other natural disasters or adverse events.
Real estate values and real estate markets are generally affected by changes in national, regional or local economic conditions, the rate of unemployment, fluctuations in interest rates and the availability of loans to potential purchasers, fluctuations in vacancy rates, changes in tax laws and other governmental statutes, regulations and policies, access to insurance coverage, and acts of nature, such as wildfires, earthquakes and other natural disasters or adverse events.
At December 31, 2024, our acquisition-related goodwill as reflected on our balance sheet was $167.6 million. Management assesses whether it is necessary to perform a quantitative impairment test of goodwill on a quarterly basis.
At December 31, 2025, our acquisition-related goodwill as reflected on our balance sheet was $167.6 million. Management assesses whether it is necessary to perform a quantitative impairment test of goodwill on a quarterly basis.
In addition, the Company hires a third-party vendor to test goodwill for impairment annually as of November 30, or on an interim basis if an event triggering impairment assessment may have occurred. We 27 ​ Table of Contents determine impairment by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill.
In addition, the Company hires a third-party vendor to test goodwill for impairment annually as of November 30, or on an interim basis if an event triggering impairment assessment may have occurred. We determine impairment by comparing the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill.
Furthermore, with certain limited exceptions, federal regulations prohibit a person or company or a group of persons deemed to be “acting in concert” from, directly or indirectly, acquiring more than 10% (5% if the acquirer is a bank holding company) of any class of our voting stock or obtaining the ability to control in any manner the election of a majority of our directors or otherwise direct the management or policies of our company without prior notice or application to and the approval of the Fed.
Furthermore, with certain limited exceptions, federal regulations prohibit a person or company or a group of persons deemed to be “acting in 41 Table of Content s concert” from, directly or indirectly, acquiring more than 10% (5% if the acquirer is a bank holding company) of any class of our voting stock or obtaining the ability to control in any manner the election of a majority of our directors or otherwise direct the management or policies of our company without prior notice or application to and the approval of the Fed.
In addition, any default by the U.S. government on its obligations or any prolonged government shutdown could, among other things, impede our ability to originate SBA loans or sell such loans in the secondary market, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, any 27 Table of Content s default by the U.S. government on its obligations or any prolonged government shutdown could, among other things, impede our ability to originate SBA loans or sell such loans in the secondary market, which could have a material adverse effect on our business, financial condition and results of operations.
Such events could affect the financial markets, reduce access to liquidity, 21 ​ Table of Contents impair our client’s financial condition, affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause us to incur additional expenses.
Such events could affect the financial markets, reduce access to liquidity, impair our client’s financial condition, affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause us to incur additional expenses.
Correspondingly, declining interest rates tend to increase the value of fixed-rate securities issued in times of relatively higher rates, but those declines also affect our net interest income because they force us to pay above-market rates on certificates of deposit and other longer-term obligations, and clients tend to exit those investments less frequently under those conditions because their earning capacity in other investments is relatively less attractive.
Correspondingly, declining interest rates tend to increase the value of fixed-rate securities issued in times of relatively higher rates, but those declines also affect our net interest income because they force us to pay above-market 33 Table of Content s rates on certificates of deposit and other longer-term obligations, and clients tend to exit those investments less frequently under those conditions because their earning capacity in other investments is relatively less attractive.
Unlike home mortgage loans, which generally are made on the basis of the borrowers’ ability to make repayment from their employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial loans typically are made on the basis of the borrowers’ 23 ​ Table of Contents ability to make repayment from the cash flow of the commercial venture.
Unlike home mortgage loans, which generally are made on the basis of the borrowers’ ability to make repayment from their employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial loans typically are made on the basis of the borrowers’ ability to make repayment from the cash flow of the commercial venture.
In addition, we are subject to various examinations by our regulators during the course of the year. Regulatory authorities who conduct these examinations have extensive discretion in their interpretation of various 32 ​ Table of Contents laws and regulations and in their supervisory and enforcement activities, including the authority to restrict our operations and certain corporate actions.
In addition, we are subject to various examinations by our regulators during the course of the year. Regulatory authorities who conduct these examinations have extensive discretion in their interpretation of various laws and regulations and in their supervisory and enforcement activities, including the authority to restrict our operations and certain corporate actions.
We receive substantially all of our revenue from dividends 36 ​ Table of Contents paid to us by HBC, which we use as the principal source of funds to pay our expenses and to pay dividends to our shareholders, if any. Various federal and/or state laws and regulations limit the amount of dividends that HBC may pay us.
We receive substantially all of our revenue from dividends paid to us by HBC, which we use as the principal source of funds to pay our expenses and to pay dividends to our shareholders, if any. Various federal and/or state laws and regulations limit the amount of dividends that HBC may pay us.
These obligations generally include protecting such confidential information in the same manner and to the same extent as we protect our own confidential information, and in some instances may impose indemnity obligations on us relating to unlawful or unauthorized disclosure of any such 33 ​ Table of Contents information.
These obligations generally include protecting such confidential information in the same manner and to the same extent as we protect our own confidential information, and in some instances may impose indemnity obligations on us relating to unlawful or unauthorized disclosure of any such information.
Our access to funding sources in amounts adequate to finance or capitalize our activities on terms that are acceptable to us could be 31 ​ Table of Contents impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry.
Our access to funding sources in amounts adequate to finance or capitalize our activities on terms that are acceptable to us could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry.
These market developments have negatively impacted client confidence in the safety and soundness in the financial services industry, which persisted throughout 2024. We cannot offer assurances that the risks underlying negative publicity and public opinion have ameliorated or that adverse media stories, other bank failures, or geopolitical and market conditions will not exacerbate or continue these conditions.
These market developments have negatively impacted client confidence in the safety and soundness in the financial services industry. We cannot offer assurances that the risks underlying negative publicity and public opinion have ameliorated or that adverse media stories, other bank failures, or geopolitical and market conditions will not exacerbate or continue these conditions.
Many of our loans are to commercial borrowers, which may have a higher degree of risk than other types of borrowers. At December 31, 2024, commercial loans totaled $531.4 million or 15% of our loan portfolio (including SBA loans, asset-based lending, and factored receivables). Commercial loans are often larger and involve greater risks than other types of lending.
Many of our loans are to commercial borrowers, which may have a higher degree of risk than other types of borrowers. At December 31, 2025, commercial loans totaled $550.4 million or 15% of our loan portfolio (including SBA loans, asset-based lending, and factored receivables). Commercial loans are often larger and involve greater risks than other types of lending.
Further, we generally retain the non-guaranteed portions of the SBA loans that we originate and sell, and to the extent the borrowers of such loans experience financial difficulties, our financial condition and results of operations could be adversely impacted. Risks Related to our Credit Quality Our business depends on our ability to successfully manage credit risk.
Further, we generally retain the non-guaranteed portions of the SBA loans that we originate and sell, and to the extent the borrowers of such loans experience financial difficulties, our financial condition and results of operations could be adversely impacted. 28 Table of Content s Risks Related to our Credit Quality Our business depends on our ability to successfully manage credit risk.
If our service providers experience difficulties or terminate their services and we are unable to replace them, our operations could be interrupted. It may be difficult for us to timely replace some of our service providers, which may be at a higher cost due to the unique services they provide.
If our service providers experience difficulties or terminate their services and we are unable to replace 22 Table of Content s them, our operations could be interrupted. It may be difficult for us to timely replace some of our service providers, which may be at a higher cost due to the unique services they provide.
If our allowance for credit losses on loans is inaccurate, for any of the reasons discussed above (or other reasons), and is inadequate to cover the loan losses that we actually experience, the resulting losses could have a material adverse effect on our business, financial condition and results of operations.
If our allowance for credit losses on loans is inaccurate, for any of the reasons discussed above (or other reasons), and is inadequate to cover the loan losses that we actually 29 Table of Content s experience, the resulting losses could have a material adverse effect on our business, financial condition and results of operations.
When we originate SBA loans, we incur credit risk on the non-guaranteed portion of the loans, and if a client defaults on a loan, we 24 ​ Table of Contents share any loss and recovery related to the loan pro-rata with the SBA.
When we originate SBA loans, we incur credit risk on the non-guaranteed portion of the loans, and if a client defaults on a loan, we share any loss and recovery related to the loan pro-rata with the SBA.
Included in CRE loans were owner occupied loans of $601.6 million, or 17 % of total loans. The real estate securing our loan portfolio is concentrated in California. The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located.
Included in CRE loans were owner occupied loans of $623.3 million, or 17% of total loans. The real estate securing our loan portfolio is concentrated in California. The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located.
In addition, events occurring after the initial appraisal may cause the value of the real estate to decrease. As a result of any of these factors the value of collateral securing a loan may be less than estimated, and if a default occurs, we may not recover the outstanding balance of the loan.
In addition, events occurring after the initial appraisal 26 Table of Content s may cause the value of the real estate to decrease. As a result of any of these factors the value of collateral securing a loan may be less than estimated, and if a default occurs, we may not recover the outstanding balance of the loan.
The risk that we may be perceived as less creditworthy relative to other market participants is increased in the current market environment, where the consolidation of financial institutions, including major global financial institutions, is resulting in a smaller number of much larger counterparties and competitors.
The risk that we may be perceived as less creditworthy relative to other market participants is 31 Table of Content s increased in the current market environment, where the consolidation of financial institutions, including major global financial institutions, is resulting in a smaller number of much larger counterparties and competitors.
If the Company is unable to maintain or grow its deposits, it may be subject to paying higher funding costs. The composition of our deposit base, and particularly the extent to which our deposits are not federally insured, may present a heightened risk of withdrawal.
If the Company is unable to maintain or grow its deposits, it may 34 Table of Content s be subject to paying higher funding costs. The composition of our deposit base, and particularly the extent to which our deposits are not federally insured, may present a heightened risk of withdrawal.
The unrealized losses resulting from holding these securities would be recognized in accumulated other comprehensive income and reduce total shareholders’ equity. Unrealized losses do not negatively impact our regulatory capital ratios. However, tangible 29 ​ Table of Contents common equity and the associated ratios would be reduced.
The unrealized losses resulting from holding these securities would be recognized in accumulated other comprehensive income and reduce total shareholders’ equity. Unrealized losses do not negatively impact our regulatory capital ratios. However, tangible common equity and the associated ratios would be reduced.
Negative publicity regarding our business, team members, or clients, with or without merit, may result in the loss of clients, investors and team members, costly litigation, a decline in revenues and increased governmental regulation and have a material adverse effect on business, financial condition and results of operations.
Negative publicity regarding our industry, business, team members, or clients, with or without merit, may result in the loss of clients, investors and team 25 Table of Content s members, costly litigation, a decline in revenues and increased governmental regulation and have a material adverse effect on business, financial condition and results of operations.
If required payments on our debt obligations are not made or are deferred, or dividends on any preferred stock we may issue are not paid, we will be prohibited from paying dividends on our common stock. We have limited the circumstances in which our directors will be liable for monetary damages.
If required 40 Table of Content s payments on our debt obligations are not made or are deferred, or dividends on any preferred stock we may issue are not paid, we will be prohibited from paying dividends on our common stock. We have limited the circumstances in which our directors will be liable for monetary damages.
Significant errors in assumptions used to compute gains on sale of loans or servicing asset valuations could result in material revenue misstatements, which may have a material adverse effect on our business, financial condition and results of operations. We originated $38.8 million of SBA loans for the year ended December 31, 2024.
Significant errors in assumptions used to compute gains on sale of loans or servicing asset valuations could result in material revenue misstatements, which may have a material adverse effect on our business, financial condition and results of operations. We originated $35.7 million of SBA loans for the year ended December 31, 2025.
Risks Related to our SBA Loan Program Small Business Administration lending is an important part of our business. Our SBA lending program is dependent upon the U.S. federal government, and we face specific risks associated with originating SBA loans. At December 31, 2024, SBA loans totaled $29.9 million, which are included in the commercial loan portfolio.
Risks Related to our SBA Loan Program Small Business Administration lending is an important part of our business. Our SBA lending program is dependent upon the U.S. federal government, and we face specific risks associated with originating SBA loans. At December 31, 2025, SBA loans totaled $25.8 million, which are included in the commercial loan portfolio.
We expect that gains on the sale of U.S. government guaranteed loans will contribute to noninterest income. The gains on such sales recognized for the year ended December 31, 2024 was $473,000.
We expect that gains on the sale of U.S. government guaranteed loans will contribute to noninterest income. The gains on such sales recognized for the year ended December 31, 2025 was $215,000.
We maintain an allowance for credit losses on loans to provide for loan defaults and non-performance, which reflects our estimate of the current expected credit losses in our loan portfolio at the relevant balance sheet date. Our allowance for credit losses was $49.0 million, or 1.40% expressed as a percentage of loans, at December 31, 2024.
We maintain an allowance for credit losses on loans to provide for loan defaults and non-performance, which reflects our estimate of the current expected credit losses in our loan portfolio at the relevant balance sheet date. Our allowance for credit losses was $50.0 million, or 1.37% expressed as a percentage of loans, at December 31, 2025.
Allowance for credit losses on loans is funded from a provision for credit losses on loans, which is a charge to our income statement. The Company had a provision for credit losses on loans of $2.1 million for the year ended December 31, 2024.
Allowance for credit losses on loans is funded from a provision for credit losses on loans, which is a charge to our income statement. The Company had a provision for credit losses on loans of $1.8 million for the year ended December 31, 2025.
ITEM 1A. RIS K FACTORS Our business, financial condition and results of operations are subject to various risks, including those discussed below.
ITEM 1A. RISK FACTORS Our business, financial condition and results of operations are subject to various risks, including those discussed below.
We sold $5.9 million of the guaranteed portion of our SBA loans for the year ended December 31, 2024. We generally retain the non-guaranteed portions of the SBA loans that we originate.
We sold $2.9 million of the guaranteed portion of our SBA loans for the year ended December 31, 2025. We generally retain the non-guaranteed portions of the SBA loans that we originate.
We cannot determine all potential events, facts and circumstances that could result in loss and our investigation or mitigation efforts may be insufficient to protect against any such loss.
We cannot determine all potential events, facts and 30 Table of Content s circumstances that could result in loss and our investigation or mitigation efforts may be insufficient to protect against any such loss.
Summary of Risk Factors Risks Related to Our Operations ● Interruptions, cyberattacks, fraud and other security breaches ● Difficulties from our third-party providers ● Failure to attract and retain well-qualified directors, management and other skilled professionals ● The soundness of other financial institutions ● Failure of our risk management framework ● Team member misconduct ● Inaccurate information provided to us by clients or counterparties ● Environmental, social and governance practices ● Severe weather, natural disasters, pandemics, acts of war or terrorism, social unrest and other external events Risks Related to Our Business ● Geographic concentration in the Greater San Francisco Bay Area ● Failure to maintain a favorable reputation with our clients and communities ​ Risks Related to Our Loans ● Negative changes affecting real estate values and liquidity ● Risks involved with land and construction development loans ● Increased scrutiny by regulators of commercial real estate concentrations ● Unreliability of loan appraisals used in real property loan decisions ● Commercial loans are more sensitive to the borrower’s successful operations or property development ● Small and medium business loans are subject to greater risks from adverse business developments ​ Risks Related to Our SBA Loan Program ● Dependence on U.S. federal government SBA loan program ● Recognition of gains on sale of loans and servicing asset valuations reflect certain assumptions we use ​ Risks Related to Our Credit Quality ● Managing credit risk ● The allowance for credit losses on loans may be insufficient ● Nonperforming assets can affect our financial results and require management time to resolve ● Exposure to environmental liabilities on foreclosed real estate collateral ​ Risks Related to our Growth Strategy ● Risks associated with acquisitions, including availability of suitable targets and integration risks ● Impairment of the goodwill recorded from an acquisition ● Managing our branch growth strategy ● Managing risks of adding new lines of business and new products ​ Risks Related to Our Financial Strength and Liquidity ● Actual or perceived reduction in our financial strength ● Increased challenges in credit markets 17 ​ Table of Contents ● Fluctuations in interest rates may reduce net income and impact our business ● Failure to maintain effective internal controls over financial reporting ● Significant deferred tax assets may not be fully realized ● Unrealized losses on our securities portfolio, particularly from the impact of increased interest rates on our securities available-for-sale portfolio ● Adverse changes in credit ratings ● Liquidity risks, particularly from limited access to lines of credit, deposits, and other traditional forms of funding ​ Risks Related to Our Capital ● More stringent capital requirements ​ Risks Related to Our Legal and Regulatory Environment ● Complexity and scope of regulatory oversight and the costs of managing compliance with applicable laws and regulations ● Changes in accounting standards ● Litigation, regulatory actions, investigations or similar matters, could subject us to uninsured liabilities and reputational harm and otherwise materially affect our business, financial condition and results of operations. ● Costs and risks associated with potential data breaches and associated litigation or regulatory actions ​ Risks from Competition ● Competition for client deposits and other business ● Rapid technological developments in the financial services industry ​ Risks Related to Our Common Stock ● Investment in our common stock is not an insured deposit ● Dilution affect resulting from the issuance of common stock consideration for acquisitions ● Limited trading volume ● Volatile trading price of our common stock ● Dividends may change without notice and payment thereof is subject to restrictions ● Limitations on director liability for monetary damages for failure to exercise their fiduciary duty ● Issuance of preferred stock which may have rights and preferences over our common stock ● Holders of our debt obligations may have rights and preferences over holders of our common stock ● Our charter documents and California law may have an anti-takeover effect limiting changes of control ​ Risks Relating to Our Operations Interruptions, cyberattacks, fraudulent activity or other security breaches may have a material adverse effect on our business.
Summary of Risk Factors Risks Related to the Merger • Termination of the merger agreement could negatively impact us • Market value of the merger consideration may fluctuate • The merger may be more difficult, costly or time consuming than expected to realize and the combined company may fail to realize the anticipated benefits of the merger • The combined company may be unable to retain key personnel after completion of the merger • Required regulatory approvals may not be obtained in a timely manner • Announcement of the merger could disrupt our business relationships • Our shareholders will have a reduced ownership and voting interest in the combined company 17 Table of Content s • We may incur costs or other negative impacts as a result of shareholder litigation Risks Related to Our Operations • Interruptions, cyberattacks, fraud and other security breaches • Difficulties from our third-party providers • Failure to attract and retain well-qualified directors, management and other skilled professionals • The soundness of other financial institutions • Failure of our risk management framework • Team member misconduct • Inaccurate information provided to us by clients or counterparties • Environmental, social and governance practices • Severe weather, natural disasters, pandemics, acts of war or terrorism, social unrest and other external events Risks Related to Our Business • Geographic concentration in the Greater San Francisco Bay Area • Failure to maintain a favorable reputation with our clients and communities Risks Related to Our Loans • Negative changes affecting real estate values and liquidity • Risks involved with land and construction development loans • Increased scrutiny by regulators of commercial real estate concentrations • Unreliability of loan appraisals used in real property loan decisions • Commercial loans are more sensitive to the borrower’s successful operations or property development • Small and medium business loans are subject to greater risks from adverse business developments Risks Related to Our SBA Loan Program • Dependence on U.S. federal government SBA loan program • Recognition of gains on sale of loans and servicing asset valuations reflect certain assumptions we use Risks Related to Our Credit Quality • Managing credit risk • The allowance for credit losses on loans may be insufficient • Nonperforming assets can affect our financial results and require management time to resolve • Exposure to environmental liabilities on foreclosed real estate collateral Risks Related to our Growth Strategy • Risks associated with acquisitions, including availability of suitable targets and integration risks • Impairment of the goodwill recorded from an acquisition • Managing our franchise growth strategy • Managing risks of adding new lines of business and new products Risks Related to Our Financial Strength and Liquidity • Actual or perceived reduction in our financial strength • Increased challenges in credit markets • Fluctuations in interest rates may reduce net income and impact our business • Failure to maintain effective internal controls over financial reporting • Significant deferred tax assets may not be fully realized • Unrealized losses on our securities portfolio, particularly from the impact of increased interest rates on our securities available-for-sale portfolio • Adverse changes in credit ratings • Liquidity risks, particularly from limited access to lines of credit, deposits, and other traditional forms of funding Risks Related to Our Capital • More stringent capital requirements 18 Table of Content s Risks Related to Our Legal and Regulatory Environment • Complexity and scope of regulatory oversight and the costs of managing compliance with applicable laws and regulations • Changes in accounting standards • Risks of uninsured liabilities and reputational harm in the event of regulatory sanctions or litigation. • Inaccurate or inadequate estimates regarding expected losses from litigation • Costs and effects of litigation, investigations or similar matters • Costs and risks associated with potential data breaches and associated litigation or regulatory actions Risks from Competition • Competition for client deposits and other business • Rapid technological developments in the financial services industry Risks Related to Our Common Stock • Investment in our common stock is not an insured deposit • Dilution affect resulting from the issuance of common stock consideration for acquisitions • Limited trading volume • Volatile trading price of our common stock • Dividends may change without notice and payment thereof is subject to restrictions • Limitations on director liability for monetary damages for failure to exercise their fiduciary duty • Issuance of preferred stock which may have rights and preferences over our common stock • Holders of our debt obligations may have rights and preferences over holders of our common stock • Our charter documents and California law may have an anti-takeover effect limiting changes of control Risks Relating to the Merger Termination of the merger agreement could negatively affect us .
At December 31, 2024, $2.4 million, or 7.35%, consisted of the guaranteed portion of SBA loans which we intend to sell in 2025. The non-guaranteed portion of SBA loans have a higher degree of credit risk and risk of loss as compared to the guaranteed portion of such loans and make up a substantial majority of our remaining SBA loans.
At December 31, 2025, $1.3 million, or 4.90%, consisted of the guaranteed portion of SBA loans which we intend to sell in 2026. The non-guaranteed portion of SBA loans have a higher degree of credit risk and risk of loss as compared to the guaranteed portion of such loans and make up a substantial majority of our remaining SBA loans.
Real estate lending (including commercial, land development and construction, home equity, multifamily, and residential mortgage loans) is a large portion of our loan portfolio. At December 31, 2024, approximately $2.9 billion, or 84% of our loan portfolio, was comprised of loans with real estate as a primary or secondary component of collateral.
Real estate lending (including commercial, land development and construction, home equity, multifamily, and residential mortgage loans) is a large portion of our loan portfolio. At December 31, 2025, approximately $3.1 billion, or 85% of our loan portfolio, was comprised of loans with real estate as a primary or secondary component of collateral.
If the models we use to measure the fair value of financial instruments are inadequate, the fair value of such financial instruments may fluctuate unexpectedly or may not accurately reflect what we could realize upon sale or settlement of such financial instruments.
If the models we use to measure the fair value of financial instruments are inadequate, or the underlying data or assumptions used in such models are inaccurate or insufficient, the fair value of such financial instruments may fluctuate unexpectedly or may not accurately reflect what we could realize upon sale or settlement of such financial instruments.
If we do not properly comply with privacy regulations and contractual obligations that require us to protect confidential information, or if we experience a security breach or network compromise, we could face regulatory sanctions, penalties or fines, increased compliance costs, remedial costs such as providing credit monitoring or other services to affected clients, litigation and damage to our reputation, which in turn could result in decreased revenues and loss of clients, any or all of which would have a material adverse effect on our business, financial condition, results of operations and capital position.
Nonetheless, our measures may be insufficient to prevent all physical and electronic break-ins, denial of service and other cyber-attacks or security breaches. 37 Table of Content s If we do not properly comply with privacy regulations and contractual obligations that require us to protect confidential information, or if we experience a security breach or network compromise, we could face regulatory sanctions, penalties or fines, increased compliance costs, remedial costs such as providing credit monitoring or other services to affected clients, litigation and damage to our reputation, which in turn could result in decreased revenues and loss of clients, any or all of which would have a material adverse effect on our business, financial condition, results of operations and capital position.
As of December 31, 2024, our nonperforming loans (which consist of nonaccrual loans, loans past due 90 days or more and still accruing interest) totaled $7.7 million, or 0.22% of our loan portfolio, and our nonperforming assets (which include nonperforming loans plus other real estate owned) also totaled $7.7 million, or 0.14% of total assets.
As of December 31, 2025, our nonperforming loans (which consist of nonaccrual loans, loans past due 90 days or more and still accruing interest) totaled $2.8 million, or 0.08% of our loan portfolio, and our nonperforming assets (which include nonperforming loans plus other real estate owned) also totaled $2.8 million, or 0.05% of total assets.
We do not record interest income on nonaccrual loans or other real estate owned, thereby adversely affecting our net interest income, net income and returns 26 ​ Table of Contents on assets and equity, and our loan administration costs increase, which together with reduced interest income adversely affects our efficiency ratio.
Our nonperforming assets adversely affect our net income in various ways. We do not record interest income on nonaccrual loans or other real estate owned, thereby adversely affecting our net interest income, net income and returns on assets and equity, and our loan administration costs increase, which together with reduced interest income adversely affects our efficiency ratio.
As a result, the trading volume in our common stock may fluctuate more than usual and cause significant price variations to occur. 35 ​ Table of Contents The trading price of the shares of our common stock will depend on many factors, which may change from time to time and which may be beyond our control, including, without limitation, our financial condition, performance, creditworthiness and prospects, future sales or offerings of our equity or equity related securities, and other factors identified above under “Cautionary Note Regarding Forward Looking Statements” and “Risk Factors” contained in this report.
The trading price of the shares of our common stock will depend on many factors, which may change from time to time and which may be beyond our control, including, without limitation, our financial condition, performance, creditworthiness and prospects, future sales or offerings of our equity or equity related securities, and other factors identified above under “Cautionary Note Regarding Forward Looking Statements” and “Risk Factors” contained in this report.
SBA loans held-for-sale totaled $2.4 million at December 31, 2024. Our SBA lending program is dependent upon the U.S. federal government.
SBA loans held-for-sale totaled $1.3 million at December 31, 2025. Our SBA lending program is dependent upon the U.S. federal government.
Many of these laws are complex, especially those governing fair lending, predatory or unfair or deceptive practices, and other consumer-focused practices. Similarly, these laws and regulations have expanded substantially in terms of scope and complexity in recent years, and this expansion can be expected to continue.
Many of the applicable laws are complex, especially those governing fair lending, predatory or unfair or 35 Table of Content s deceptive practices, and other consumer-focused practices, as well as labor and employment matters. Similarly, these laws and regulations have expanded substantially in terms of scope and complexity in recent years, and this expansion can be expected to continue.
Fluctuations in market interest rates may have a material effect on the value of the Company’s securities portfolio. As of December 31, 2024, the fair value of our securities portfolio was approximately $753.3 million, of which approximately $256.3 million were categorized as available-for-sale.
Fluctuations in market interest rates may have a material effect on the value of the Company’s securities portfolio. As of December 31, 2025, the fair value of our securities portfolio was approximately $1.1 billion, of which approximately $593.0 million were categorized as available-for-sale.
Additional Board and/or leadership changes will occur from time to time, and we cannot always anticipate or control the timing of these changes, Similarly, we cannot offer assurance that we would be able to recruit additional qualified personnel on a timely basis, either to fill vacancies created by departures or to grow our executive team to respond to and prepare for the expansion of our business.
Similarly, we cannot offer assurance that we would be able to recruit additional qualified personnel on a timely basis, either to fill vacancies created by departures or to grow our executive team to respond to and prepare for the expansion of our business.
Events such as these may also result in potentially adverse changes to laws or regulations governing banks and bank holding companies or result in the imposition of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on our business.
Events such as these may also result in potentially adverse changes to laws or regulations governing banks and bank holding companies or result in the imposition of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on our business. 23 Table of Content s Our risk management framework may not be effective in mitigating risks and/or losses to us.
Our risk management framework may not be effective in mitigating risks and/or losses to us. Our risk management framework is comprised of various processes, systems and strategies, and is designed to manage the types of risk to which we are subject, including, among others, credit, market, liquidity, interest rate and compliance.
Our risk management framework is comprised of various processes, systems and strategies, and is designed to manage the types of risk to which we are subject, including, among others, credit, market, liquidity, interest rate and compliance. Our risk management framework may not be effective under all circumstances and may not adequately mitigate any risk or loss.
We could have to raise interest rates to retain deposits, thereby increasing our funding costs and reducing net interest income and net income. Additional liquidity is provided by our ability to borrow from the Federal Reserve Bank of San Francisco and the Federal Home Loan Bank of San Francisco. We also may borrow from third-party lenders from time to time.
We could have to raise interest rates to retain deposits or seek alternative, more costly sources of funding, thereby increasing our funding costs and reducing net interest income and net income. Additional liquidity is provided by our ability to borrow from the Federal Reserve Bank of San Francisco and the Federal Home Loan Bank of San Francisco.
Operations in our market could be disrupted by both the evacuation of large portions of the population as well as damage to and/or lack of access to our banking and operation facilities.
Accordingly, earthquakes, wildfires or other natural disasters could severely disrupt our or our clients' operations. Operations in our market could be disrupted by both the evacuation of large portions of the population as well as damage to and/or lack of access to our banking and operation facilities.
We may also be subject to potentially adverse regulatory consequences. 20 ​ Table of Contents Team member misconduct could expose us to significant legal liability and reputational harm. We are vulnerable to reputational harm because we operate in an industry in which integrity and the confidence of our clients are of critical importance.
Team member misconduct could expose us to significant legal liability and reputational harm. We are vulnerable to reputational harm because we operate in an industry in which integrity and the confidence of our clients are of critical importance.
In addition, such insurance coverage may not continue to be available to us at a reasonable cost or at all.
In addition, such insurance coverage may not continue to be available to us at a reasonable cost or at all. As a result, we may be exposed to substantial uninsured liabilities.
If the models we use for determining the allowance for credit losses on loans are inadequate, the allowance for credit losses on loans may not be sufficient to support future charge-offs.
If the models we use for determining the allowance for credit losses on loans are inadequate, or the underlying data or assumptions used in such models are inaccurate or insufficient, the allowance for credit losses on loans may not be sufficient to support future charge-offs.
At December 31, 2024, land and construction loans, (including land acquisition and development loans) totaled $127.8 million or 4% of our portfolio. Of these loans, 18% were comprised of owner occupied and 82% non-owner occupied land and construction loans.
At December 31, 2025, land and construction loans, (including land acquisition and development loans) totaled $133.6 million or 4% of our portfolio. Of these loans, 17% were comprised of owner occupied and 83% non-owner occupied land and construction loans.
Consequently, as of December 31, 2024, we held $32.3 million of SBA loans (including loans held-for-sale) on our balance sheet, $18.3 million of which consisted of the non-guaranteed portion of SBA loans, and $14.0 million of which consisted of the guaranteed portion of SBA loans.
Consequently, as of December 31, 2025, we held $27.0 million of SBA loans (including loans held-for-sale) on our balance sheet, $15.4 million of which consisted of the non-guaranteed portion of SBA loans, and $11.6 million of which consisted of the guaranteed portion of SBA loans.
These losses or defaults could have a material adverse effect on our business, financial condition and results of operations. The 2023 high-profile bank failures of Silicon Valley Bank, Signature Bank and First Republic have generated significant market volatility among publicly traded bank holding companies.
These losses or defaults could have a material adverse effect on our business, financial condition and results of operations. Several high-profile bank failures within recent years, including two of our regional participants, have generated significant market volatility among publicly traded bank holding companies.
Increasing challenges in credit markets and the effects on our current and future borrowers have adversely affected, and in the future may adversely affect, our loan portfolio and may result in losses or increasing provision expense.
Changing interest rates, economic conditions and tariff policies, immigration policies, and the effects on our current and future borrowers have adversely affected, and in the future may adversely affect, our loan portfolio and may result in losses or increasing provision expense.
At December 31, 2024, we had a net deferred tax asset of $27.8 million.
At December 31, 2025, we had a net deferred tax asset of $29.7 million.
Correspondingly, additional rate reductions may affect our net interest income as we seek to price our deposit products in a way that remains competitive and attractive to clients, while also mitigating the risk that future declines may leave us with elevated borrowing costs. 30 ​ Table of Contents Additional factors beyond our control can further significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities.
Correspondingly, additional rate reductions may affect our net interest income as we seek to price our deposit products in a way that remains competitive and attractive to clients, while also mitigating the risk that future declines may leave us with elevated borrowing costs.
In addition, these provisions will also render the removal of our Board or management more difficult. Such provisions include a requirement that shareholder approval for any action proposed by the Company must be obtained at a shareholders meeting and may not be obtained by written consent.
Such provisions include a requirement that shareholder approval for any action proposed by the Company must be obtained at a shareholders meeting and may not be obtained by written consent.
There have been a number of recent and well-publicized incidents involving various types of cybersecurity lapses, and many of these have had substantial impacts upon targeted businesses and on clients of even some of the world’s most prominent cybersecurity firms.
There have been a number of recent and well-publicized incidents involving various types of cybersecurity lapses, and many of these have had substantial impacts upon targeted businesses and on clients of even some of the world’s most prominent cybersecurity firms. Similarly, extremely sophisticated criminal and nation-state organizations routinely target and exploit information technology networks, data systems, and other critical infrastructure.
The complexity of those rules creates additional potential liability for us because noncompliance could result in significant regulatory action, including restrictions on operations and fines, and could lead to class action lawsuits from shareholders, consumers and employees. In addition, various states, particularly California, where substantially all our operations and banking activities take place, have their own laws and regulations.
The complexity of those rules creates additional potential liability for us because noncompliance could result in significant regulatory action, including restrictions on operations and fines, and could lead to class action lawsuits from shareholders, consumers and employees.
To mitigate the cost of some of these matters, we maintain insurance coverage in amounts and with deductibles that we believe are appropriate for our operations.
Any claims asserted against us, regardless of merit or eventual outcome may harm our reputation. To mitigate the cost of some of these claims, we maintain insurance coverage in amounts and with deductibles that we believe are appropriate for our operations.
Increased ESG-related compliance costs for us as well as among our suppliers, vendors and various other parties within our supply chain could result in increases to our overall operational costs. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.
In addition, increased ESG-related compliance costs for us as well as among our suppliers, vendors and various other parties within our supply chain could result in increases to our overall operational costs.
If we are unable to attract and retain banking clients and expand our loan and deposit growth, then we may be unable to continue to grow our business which could have a material adverse effect on our financial condition and results of operations. 34 ​ Table of Contents We have a continuing competitive need for technological change, and we may not have the resources to effectively implement new technology or we may experience operational challenges when implementing new technology.
If we are unable to attract and retain banking clients and expand our loan and deposit growth, then we may be unable to continue to grow our business which could have a material adverse effect on our financial condition and results of operations.
As a result, we may be exposed to substantial uninsured liabilities, reputational harm, regulatory sanctions or other effects which could adversely affect our business, prospects, financial condition, results of operations and capital position. ​ The failure to protect our clients' confidential information, data and privacy could adversely affect our business.
As a result of any or a combination of these factors, we may be exposed to substantial uninsured liabilities, which could adversely affect our business, prospects, financial condition, results of operations and capital position.
Although management has established disaster recovery policies and procedures, the occurrence of any such events could have a material adverse effect on our business, financial condition and results of operations. Risks Relating to Our Business Our profitability is dependent upon the geographic concentration of the markets in which we operate.
Although management has established disaster recovery policies and procedures, there is no guarantee that such policies and procedures will be successful, and the occurrence of any such events could have a material adverse effect on our business, financial condition and results of operations.
Changes in interest rates can also affect the level of loan refinancing activity, which impacts the amount of prepayment penalty income we receive on loans we hold.
Loan origination volume usually declines during periods of rising or high interest rates and increases during periods of declining or low interest rates. 32 Table of Content s Changes in interest rates can also affect the level of loan refinancing activity, which impacts the amount of prepayment penalty income we receive on loans we hold.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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As part of its risk management program, management analyzes the specific risks associated with each third-party relationship, including but not limited to, cybersecurity and information security related risks. Risks from Cybersecurity Threats We have not encountered cybersecurity risks or threats that have materially impaired our business strategy, results of operations, or financial condition.
As part of its risk management program, management analyzes the specific risks associated with each third-party relationship, including but not limited to, cybersecurity and information security related risks. Risks from Cybersecurity Incidents We have not encountered cybersecurity risks or threats that have materially impaired our business strategy, results of operations, or financial condition.
The Chief Information Security Officer may determine that an incident has the potential to be materially relevant and would escalate that determination to the Cybersecurity Incident Disclosure Team comprised of the senior leaders, including the Chief Executive Officer, Chief Risk Officer, Chief Information Officer, Chief Financial Officer, outside counsel and other leaders and advisors to the Company.
The Chief Information Security Officer may determine that an incident has the potential to be materially relevant and would escalate that determination to the Cybersecurity Incident Disclosure Team comprised of the senior leaders, including the Chief Executive Officer, Chief Risk Officer, Chief Information Officer, Chief Financial Officer, General Counsel and other leaders and advisors to the Company.
He reports quarterly to the Audit Committee on a range of topics, including: ● Current cybersecurity landscape and risks; 39 ​ Table of Contents ● Status of ongoing cybersecurity incidents, threats and strategies; ● Cybersecurity incident reporting and post-incident reviews; and ● Compliance with regulatory requirements and evolving industry trends.
He reports quarterly to the Audit Committee on a range of topics, including: • Current cybersecurity landscape and risks; • Status of ongoing cybersecurity incidents, threats and strategies; • Cybersecurity incident reporting and post-incident reviews; and • Compliance with regulatory requirements and evolving industry trends.
The Chief Risk Officer is responsible for development and implementation of third-party risk management policies, procedures, and practices, commensurate with the Company’s strategic goals, risk appetite and the level of risk and complexity of its third-party relationships. The Chief Risk Officer periodically provides reports to the Audit Committee on third-party risk management activities.
The Chief Risk Officer is responsible for development and implementation of third-party risk management policies, procedures, and practices, commensurate with the Company’s strategic goals, risk appetite and the level of risk and complexity of its third-party relationships. The Chief Risk Officer periodically provides reports to the 42 Table of Content s Audit Committee on third-party risk management activities.
Our Company team members are responsible for complying with our cybersecurity standards and complete training to understand the behaviors and technical requirements necessary to keep information secure. ​ 38 ​ Table of Contents Engaging Third Parties for Risk Management We recognize the complexity and evolving nature of cybersecurity threats, which is why we engage a range of external experts, including cybersecurity consultants, in evaluating and testing our risk management systems.
Engaging Third Parties for Risk Management We recognize the complexity and evolving nature of cybersecurity threats, which is why we engage a range of external experts, including cybersecurity consultants, in evaluating and testing our risk management systems.
Risk Management Personnel Primary responsibility for assessing, monitoring and managing our cybersecurity risks rests with our Chief Information Security Officer, who has more than 20 years of cybersecurity experience working with large financial institutions and actively maintains multiple information security certifications. Additionally, our Chief Information Security Officer oversees our cybersecurity incident disclosure and communications.
The Audit Committee also receives quarterly reports from the Risk Management Steering Committee, the Company’s Internal Audit department, and IT department in order to stay informed on all aspects of cybersecurity risk affecting the Company. 43 Table of Content s Risk Management Personnel Primary responsibility for assessing, monitoring and managing our cybersecurity risks rests with our Chief Information Security Officer, who has more than 20 years of cybersecurity experience working with large financial institutions and actively maintains multiple information security certifications.
Our Chief Risk Officer separately chairs our Risk Management Steering Committee. Our Chief Risk Officer has served in her position since 2014 and is an accomplished banking professional with more than 40 years of experience in compliance and risk management. Monitoring Cybersecurity Incidents The Company monitors cybersecurity events using multiple methods.
Additionally, our Chief Information Security Officer oversees our cybersecurity incident disclosure and communications. Our Chief Risk Officer separately chairs our Risk Management Steering Committee. Risks of Cybersecurity Threats and Incidents The Company monitors cybersecurity events using multiple methods.
Removed
The Audit Committee also receives quarterly reports from the Risk Management Steering Committee, the Company’s Internal Audit department, and IT department in order to stay informed on all aspects of cybersecurity risk affecting the Company.
Added
Our Company team members are responsible for complying with our cybersecurity standards and complete training to understand the behaviors and technical requirements necessary to keep information secure.

Item 2. Properties

Properties — owned and leased real estate

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In January 2020, The Company amended the lease expiration date to October 31, 2030, and executed a new lease for additional space on the tenth floor for approximately 5,023 square feet. The current monthly rent payment for the combined space of approximately 8,086 square feet is $67,998, subject to annual increases of 3%, until the lease expires October 31, 2030.
In January 2020, The Company amended the lease expiration date to October 31, 2030, and executed a new lease for additional space on the tenth floor for approximately 5,023 square feet. The current monthly rent payment for the combined space of approximately 8,086 square feet is $67,922, subject to annual increases of 3%, until the lease expires October 31, 2030.
In May of 2023, the Company amended the lease to include an additional 916 square feet, for a total of 5,104 square feet. The current monthly rent payment for the combined space is $22,179, subject to annual increases of 3%, until the lease expires on December 31, 2027.
In May of 2023, the Company amended the lease to include an additional 916 square feet, for a total of 5,104 square feet. The current monthly rent payment for the combined space is $22,844, subject to annual increases of 3%, until the lease expires on December 31, 2027.
PROPERTIES The main and executive offices of Heritage Commerce Corp and Heritage Bank of Commerce are located at 224 Airport Parkway in San Jose, California 95110, with branch offices located at 15575 Los Gatos Boulevard in Los Gatos, 40 ​ Table of Contents California 95032, at 3137 Stevenson Boulevard in Fremont, California 94538, at 387 Diablo Road in Danville, California 94526, at 300 Main Street in Pleasanton, California 94566, at 1990 N.
PROPERTIES The main and executive offices of Heritage Commerce Corp and Heritage Bank of Commerce are located at 224 Airport Parkway in San Jose, California 95110, with branch offices located at 15575 Los Gatos Boulevard in Los Gatos, California 95032, at 3137 Stevenson Boulevard in Fremont, California 94538, at 387 Diablo Road in Danville, California 94526, at 300 Main Street in Pleasanton, California 94566, at 1990 N.
The Company has reserved the right to extend the term of the lease for one additional period of five years. 41 ​ Table of Contents In August of 2022, the Company extended its lease for approximately 4,188 square feet on the first floor in a multi-tenant office building located at 999 5th Avenue in San Rafael, California.
The Company has reserved the right to extend the term of the lease for one additional period of five years. In August of 2022, the Company extended its lease for approximately 4,188 square feet on the first floor in a multi-tenant office building located at 999 5th Avenue in San Rafael, California.
California Boulevard in Walnut Creek, California. The current monthly rent payment is $31,560, subject to annual increases of 3%, until the lease expires December 31, 2027. The Company has reserved the right to extend the lease for one additional period of five years.
California Boulevard in Walnut Creek, California. The current monthly rent payment is $32,474, subject to annual increases of 3%, until the lease expires December 31, 2027. The Company has reserved the right to extend the lease for one additional period of five years.
The Company has reserved the right to extend the term of the lease for two additional periods of five years. In October of 2019, as part of the acquisition of Presidio Bank, the Company assumed a lease for approximately 7,029 square feet on the first floor in a multi-tenant office building located at 1990 N.
The Company has reserved the right to extend the term of the lease for one additional period of five years. In October of 2019, as part of the acquisition of Presidio Bank, the Company assumed a lease for approximately 7,029 square feet on the first floor in a multi-tenant office building located at 1990 N.
The current monthly rent payment is $33,915, subject to annual increases of 3% until the lease expires on April 30, 2030. The Company has reserved the right to extend the term of the lease for one additional period of five years.
The current monthly rent payment is $34,933, subject to annual increases of 3% until the lease expires on April 30, 2030. The Company has reserved the right to extend the term of the lease for one additional period of five years.
The Company has reserved the right to extend the lease for two additional period of five years. In January of 2021, the Company amended and extended its lease for approximately 6,233 square feet on the twenty third floor in a multi-tenant office building located at 120 Kearny Street in San Francisco, California.
The Company has reserved the right to extend the lease for two additional periods of five years. In April of 2025, the Company amended and extended its lease for approximately 6,233 square feet on the twenty third floor in a multi-tenant office building located at 120 Kearny Street in San Francisco, California.
The current monthly rent payment is $31,793, which is included in the main office of HBC’s total rent of $250,794, and is subject to 3% annual increases, until the sublease expires July 31, 2030.
The current monthly rent payment is $31,793, which is included in the main office of HBC’s total rent of $251,443, and is subject to 3% annual increases, until the sublease expires July 31, 2030.
The current monthly rent payment is $13,059, subject to annual increases of 3%, until the lease expires on October 31, 2028. In November of 2023, the Company extended its lease for approximately 1,920 square feet in a one-story stand alone building located in an office complex at 15575 Los Gatos Boulevard in Los Gatos, California.
In November of 2023, the Company extended its lease for approximately 1,920 square feet in a one-story stand alone building located in an office complex at 15575 Los Gatos Boulevard in Los Gatos, California. The current monthly rent payment is $7,231, subject to annual increases of 3%, until the lease expires on November 30, 2028.
For additional information on operating leases and rent expense, refer to Note 7 to the Consolidated Financial Statements following “Item 15 — Exhibits and Financial Statement Schedules .” 42 ​ Table of Contents
For additional information on operating leases and rent expense, refer to Note 7 to the Consolidated Financial Statements following “Item 15 — Exhibits and Financial Statement Schedules. ”
The current monthly rent payment is $5,730, until the lease expires on June 30, 2029. The Company has reserved the right to extend the term of the lease for one additional period of five years.
The current monthly rent payment is $9,456 until the lease expires on September 30, 2029. The Company has reserved the right to extend the term of the lease for one additional period of five years.
In May of 2021, the Company extended its lease for approximately 4,716 square feet in a one-story multi tenant office building located at 18625 Sutter Boulevard in Morgan Hill, California. The current monthly rent payment is $6,256, subject to annual increases of 2%, until the lease expires on October 31, 2026.
The current monthly rent payment is $41,034, subject to annual increases of 3%, until the lease expires on August 31, 2031. In May of 2021, the Company extended its lease for approximately 4,716 square feet in a one-story multi tenant office building located at 18625 Sutter Boulevard in Morgan Hill, California.
In May of 2019, the Company amended its lease for approximately 4,096 square feet in a one story stand alone office building located at 300 Main Street in Pleasanton, California. The current monthly rent payment is $23,736, subject to 3% annual increases, until the lease expires on April 30, 2026.
In October of 2025, the Company amended its lease for approximately 4,096 square feet in a one story stand alone office building located at 300 Main Street in Pleasanton, California. The current monthly rent payment is $24,448, subject to 3% annual increases, until the lease expires on April 30, 2031.
The current monthly rent payment is $48,244, subject to annual increases of 3%, until the lease expires on March 31, 2026. The Company has reserved the right to extend the term of the lease for one additional period of five years.
The current monthly rent payment is $6,380, subject to annual increases of 2%, until the lease expires on October 31, 2026. The Company has reserved the right to extend the term of the lease for one additional period of five years.
In May of 2024, the Company extended its lease for an additional seven years for approximately 4,154 square feet on the first floor in a multi-tenant office building located at 325 Lytton Avenue in Palo Alto, California. The current monthly rent payment is $33,855, until the lease expires on January 31, 2032.
The current monthly rent payment is $11,174, subject to annual increases of 3%, until the lease expires on February 28, 2027. In May of 2024, the Company extended its lease for an additional seven years for approximately 4,154 square feet on the first floor in a multi-tenant office building located at 325 Lytton Avenue in Palo Alto, California.
Branch Offices In June of 2007, as part of the acquisition of Diablo Valley Bank, the Company took ownership of an 8,285 square foot one story commercial office building, including the land, located at 387 Diablo Road in Danville, California.
The Company has reserved the right to extend the term of the lease for one additional period of five years. 44 Table of Content s Branch Offices In June of 2007, as part of the acquisition of Diablo Valley Bank, the Company took ownership of an 8,285 square foot one story commercial office building, including the land, located at 387 Diablo Road in Danville, California.
The Company has reserved the right to extend the term of the lease for one additional period of two years. In October of 2023, the Company extended its lease for approximately 2,369 square feet on the first floor of a two-story multi-tenant multi-use building located at 2400 Broadway in Redwood City, California.
The Company has reserved the right to extend the term of the lease for one additional period of five years. In July of 2024, the Company extended its lease for approximately 3,772 square feet on the first and second floors in a two-story multi-tenant multi-use building located at 1987 First Street in Livermore, California.
The Company has reserved the right to extend the lease for one additional period of five years. In July of 2024, the Company extended its lease for an additional five years for approximately 3,391 square feet in a two-story multi tenant commercial center located at 351 Tres Pinos in Hollister, California.
In July of 2024, the Company extended its lease for an additional five years for approximately 3,391 square feet in a two-story multi tenant commercial center located at 351 Tres Pinos in Hollister, California. The current monthly rent payment is $5,696, until the lease expires on June 30, 2029.
California Boulevard in Walnut Creek, California 94596, at 1987 First Street in Livermore, California 94550, at 18625 Sutter Boulevard in Morgan Hill, California 95037, at 7598 Monterey Street in Gilroy, California 95020, at 351 Tres Pinos Road in Hollister, California 95023, at 419 S.
California Boulevard in Walnut Creek, California 94596, at 1987 First Street in Livermore, California 94550, at 18625 Sutter Boulevard in Morgan Hill, California 95037, at 351 Tres Pinos Road in Hollister, California 95023, at 419 S. San Antonio Road in Los Altos, California 94022, at 325 Lytton Avenue in Palo Alto, California 94301, at 400 S.
The current monthly rent payment is $7,020, subject to annual increases of 3%, until the lease expires on November 30, 2028. The Company has reserved the right to extend the term of the lease for one additional period of five years.
The current monthly rent payment is $33,855, until the lease expires on January 31, 2032. The Company has reserved the right to extend the lease for one additional period of five years.
The Company has reserved the right to extend the term of the lease for one additional period of five years. In December of 2021, the Company entered into a new lease agreement for approximately 4,099 square feet on the sixteenth floor in a multi-tenant office building located at 1111 Broadway in Oakland, California.
In December of 2021, the Company entered into a new lease agreement for approximately 4,099 square feet on the sixteenth floor in a multi-tenant office building located at 1111 Broadway in Oakland, California. The current monthly rent payment is $25,754, subject to annual increases of 3%, until the lease expires on June 30, 2029.
In February 2024, the Company extended its lease for approximately 3,172 square feet in a one-story multi tenant multi use building located at 3137 Stevenson Boulevard in Fremont, California. The current monthly rent payment is $11,174, subject to annual increases of 3%, until the lease expires on February 28, 2027.
In October of 2023, the Company extended its lease for approximately 2,369 square feet on the first floor of a two-story multi-tenant multi-use building located at 2400 Broadway in Redwood City, California. The current monthly rent payment is $13,712, subject to annual increases of 3%, until the lease expires on October 31, 2028.
The current monthly rent payment is $25,005, subject to annual increases of 3%, until the lease expires on June 30, 2029.
The current monthly rent payment is $251,443, subject to 3% annual increases.
The Company has reserved the right to extend the term of the lease for one additional period of five years.
The Company has reserved the right to extend the term of the lease for one additional period of five years. 45 Table of Content s In February 2024, the Company extended its lease for approximately 3,172 square feet in a one-story multi-tenant multi-use building located at 3137 Stevenson Boulevard in Fremont, California.
Removed
San Antonio Road in Los Altos, California 94022, at 325 Lytton Avenue in Palo Alto, California 94301, at 400 S.
Removed
The current monthly rent payment is $250,794, subject to 3% annual increases. The Company has reserved the right to extend the term of the lease for one additional period of five years.
Removed
In September of 2023, the Company extended its lease for approximately 2,505 square feet on the first floor in a three-story multi tenant multi use building located at 7598 Monterey Street in Gilroy, California. The current monthly rent payment is $6,287 until the lease expires on September 30, 2025.
Removed
In July of 2024, the Company extended its lease for approximately 3,772 square feet on the first and second floors in a two-story multi-tenant multi-use building located at 1987 First Street in Livermore, California. The current monthly rent payment is $9,456 until the lease expires on September 30, 2029.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Item 4. Mine Safety Disclosures 43 ​ PART II. ​ Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 43 Item 6. [RESERVED] 44 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 45 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 82
Item 4. Mine Safety Disclosures 46 PART II. Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 46 Item 6. [RESERVED] 48 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 49 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 94 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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As of February 14, 2025, there were approximately 756 holders of record of common stock. There are no other classes of common equity outstanding. Dividend Policy The amount of future dividends will depend upon our earnings, financial condition, capital requirements and other factors, and will be determined by our Board on a quarterly basis.
As of February 19, 2026, there were approximately 709 holders of record of common stock. There are no other classes of common equity outstanding. Dividend Policy The amount of future dividends will depend upon our earnings, financial condition, capital requirements and other factors, and will be determined by our Board on a quarterly basis.
For information on the statutory and regulatory limitations on the ability of the Company to pay dividends and on HBC to pay dividends to HCC see “ Item 1 — Business — Supervision and Regulation — Heritage Commerce Corp – Dividend Payments, Stock Redemptions, and Repurchases and – Heritage Bank of Commerce – Dividend Payments. ” 43 ​ Table of Contents Performance Graph ​ The following graph compares the stock performance of the Company from December 31, 2019 to December 31, 2024, to the performance of several specific industry indices.
For information on the statutory and regulatory limitations on the ability of the Company to pay dividends and on HBC to pay dividends to HCC see “ Item 1 — Business — Supervision and Regulation — Heritage Commerce Corp – Dividend Payments, Stock Redemptions, and Repurchases and – Heritage Bank of Commerce – Dividend Payments. ” 47 Table of Content s Performance Graph The following graph compares the stock performance of the Company from December 31, 2020 to December 31, 2025, to the performance of several specific industry indices.
The performance of the S&P 500 Index, NASDAQ Composite Index and KBW NASDAQ Bank Index were used as comparisons to the Company’s stock performance.
The following chart compares the stock performance of the Company from December 31, 2020 to December 31, 2025, to the performance of several specific industry indices. The performance of the S&P 500 Index, NASDAQ Composite Index and KBW NASDAQ Bank Index were used as comparisons to the Company’s stock performance.
Management believes that a performance comparison to these indices provides meaningful information and has therefore included those comparisons in the following graph. ​ ​ The following chart compares the stock performance of the Company from December 31, 2019 to December 31, 2024, to the performance of several specific industry indices.
The performance of the S&P 500 Index, NASDAQ Composite Index and KBW NASDAQ Bank Index were used as comparisons to the Company’s stock performance. Management believes that a performance comparison to these indices provides meaningful information and has therefore included those comparisons in the following graph.
The performance of the S&P 500 Index, NASDAQ Composite Index and KBW NASDAQ Bank Index were used as comparisons to the Company’s stock performance. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Period Ending Index 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24 Heritage Commerce Corp * ​ 100 ​ 74 ​ 104 ​ 118 ​ 96 ​ 96 S&P 500 Index * 100 118 ​ 152 ​ 125 ​ 158 ​ 197 NASDAQ Composite Index* 100 145 ​ 177 ​ 119 ​ 173 ​ 224 KBW NASDAQ Bank Index* 100 90 ​ 124 ​ 98 ​ 97 ​ 133 * Source: S&P Global Market Intelligence — (434) 977-1600 ​
Period Ending Index 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24 12/31/25 Heritage Commerce Corp * 100 141 160 129 130 175 S&P 500 Index * 100 129 105 133 166 196 NASDAQ Composite Index* 100 122 82 119 154 187 KBW NASDAQ Bank Index* 100 138 109 108 148 196 _______________________________________________________ * Source: S&P Global Market Intelligence — (434) 977-1600 _______________________________________________________
Removed
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information The Company’s common stock is listed on the Nasdaq Global Select Market under the symbol “HTBK.” The closing price of our common stock on February 14, 2025 was $10.65 per share as reported by the Nasdaq Global Select Market.
Added
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES At December 31, 2025, the Company was authorized to repurchase up to $30.0 million of the Company’s shares of its issued and outstanding common stock under a share repurchase program (the “Repurchase Program”) adopted by the Board of Directors (the "Board") in July 2024, as amended on October 23, 2025.
Added
The following table shows the share repurchase activity during 2025, and the maximum value of the shares that may yet be purchased: 46 Table of Content s Total Number of Maximum Value of Total Average Shares Purchased Shares that May Yet Be Number Price as Part of Publicly Purchased Under the of Shares Paid Announced Plans Plans or Programs Period Purchased per Share or Programs (in thousands) First Quarter of 2025 — $ — — April 1 - 30, 2025 32,923 9.06 32,923 May 1- 31, 2025 175,066 9.22 175,066 June 1 - 30, 2025 — — — Second Quarter of 2025 207,989 9.19 207,989 July 1 - 31, 2025 — — — August 1- 31, 2025 231,198 9.24 231,198 September 1 - 30, 2025 — — — Third Quarter of 2025 231,198 9.24 231,198 Fourth Quarter of 2025 — — — Full Year 2025 439,187 $ 9.22 439,187 $ 25,951 Market Information The Company’s common stock is listed on the Nasdaq Global Select Market under the symbol “HTBK.” The closing price of our common stock on February 19, 2026 was $13.33 per share as reported by the Nasdaq Global Select Market.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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A reconciliation of GAAP to non-GAAP financial measures are presented in the tables under “Reconciliation of Non-GAAP Financial Measures.” Our most significant accounting policies are described in Note 1 — Summary of Significant Accounting Policies in the consolidated financial statements included in this Form 10-K.
A reconciliation of GAAP to non-GAAP financial measures are presented in the tables under “ Reconciliation of Non-GAAP Financial Measures. ” Our most significant accounting policies are described in Note 1 — Summary of Significant Accounting Policies in the consolidated financial statements included in this Form 10-K.
There were no securities sold under agreements to repurchase at December 31, 2024 and 20223 Capital Resources The Company uses a variety of measures to evaluate capital adequacy. Management reviews various capital measurements on a regular basis and takes appropriate action to ensure that such measurements are within established internal and external guidelines.
There were no securities sold under agreements to repurchase at December 31, 2025 and 2024. Capital Resources The Company uses a variety of measures to evaluate capital adequacy. Management reviews various capital measurements on a regular basis and takes appropriate action to ensure that such measurements are within established internal and external guidelines.
While management utilizes its best judgement and current information available, the adequacy of the ACLL is significantly determined by certain factors outside the Company’s control, such as the performance of our loan portfolio, changes in the economic environment including economic uncertainty, changes in interest rates, and any regulatory changes.
While management utilizes its best judgment and current information available, the adequacy of the ACLL is significantly determined by certain factors outside the Company’s control, such as the performance of our loan portfolio, changes in the economic environment including economic uncertainty, changes in interest rates, and any regulatory changes.
These commitments are obligations that represent a potential credit risk to the Company, yet are not reflected in any form within the Company’s consolidated balance sheets. Total unused commitments to extend credit were $1.0 billion and $1.2 billion at December 31, 2024 and December 31, 2023, respectively.
These commitments are obligations that represent a potential credit risk to the Company, yet are not reflected in any form within the Company’s consolidated balance sheets. Total unused commitments to extend credit were $1.2 billion and $1.0 billion at December 31, 2025 and December 31, 2024, respectively.
Management has reviewed these critical accounting estimates and related disclosures with our Board of Director’s Audit Committee. ​ Allowance for Credit Losses on Loans (“ACLL”) The allowance for credit losses, or ACLL, on loans represents management’s estimate of all expected credit losses over the expected contractual life of the loan portfolio, utilizing the current expected credit loss (“CECL”) model.
Management has reviewed these critical accounting estimates and related disclosures with our Board of Director’s Audit Committee. 49 Table of Content s Allowance for Credit Losses on Loans (“ACLL”) The allowance for credit losses, or ACLL, on loans represents management’s estimate of all expected credit losses over the expected contractual life of the loan portfolio, utilizing the current expected credit loss (“CECL”) model.
Unused commitments represented 30% of outstanding gross loans at December 31, 2024 and 34% at December 31, 2023. The effect on the Company’s revenues, expenses, cash flows and liquidity from the unused portion of the commitments to provide credit cannot be reasonably predicted, because there is no certainty that the lines of credit will ever be fully utilized.
Unused commitments represented 32% of outstanding gross loans at December 31, 2025 and 30% at December 31, 2024. The effect on the Company’s revenues, expenses, cash flows and liquidity from the unused portion of the commitments to provide credit cannot be reasonably predicted, because there is no certainty that the lines of credit will ever be fully utilized.
In addition to other tools used to monitor liquidity and funding, the Company prepares liquidity stress scenarios that include lower-probability, higher impact scenarios, with various levels of severity. The liquidity stress scenarios incorporate the impact of moderate risk and higher risk situations, at least on a quarterly basis, or more often as circumstances require.
In addition to other tools used to monitor liquidity and funding, the Company prepares liquidity stress scenarios that include lower-probability, higher impact scenarios, with various levels of severity. The liquidity stress scenarios incorporate the impact of moderate risk and higher risk situations, at least on a 79 Table of Content s quarterly basis, or more often as circumstances require.
There was no valuation allowance at December 31, 2024 and 2023, as the fair value of the assets was greater than the carrying value.
There was no valuation allowance at December 31, 2025 and 2024, as the fair value of the assets was greater than the carrying value.
The value of a financial instrument may change as a result of changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market risk sensitive 74 ​ Table of Contents instruments.
The value of a financial instrument may change as a result of changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market risk sensitive instruments.
Activity for the interest-only (“I/O”) strip receivable was as follows for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ 2024 2023 2022 ​ ​ ​ (Dollars in thousands) Beginning of period balance ​ ​ $ 117 ​ $ 152 ​ $ 221 Unrealized holding loss ​ ​ (35) ​ (35) ​ (69) End of period balance ​ ​ $ 82 ​ $ 117 ​ $ 152 Management reviews the key economic assumptions used to estimate the fair value of I/O strip receivables on a quarterly basis.
Activity for the interest-only (“I/O”) strip receivable was as follows for the periods indicated: Year Ended December 31, 2025 2024 2023 (Dollars in thousands) Beginning of period balance $ 82 $ 117 $ 152 Unrealized holding loss (49) (35) (35) End of period balance $ 33 $ 82 $ 117 Management reviews the key economic assumptions used to estimate the fair value of I/O strip receivables on a quarterly basis.
When the guaranteed portion of an SBA loan is sold the Company retains the servicing rights for the sold portion. During 2024, loans were sold resulting in a gain on sales of SBA loans of $473,000, compared to a gain on sales of SBA loans of $482,000 for 2023, and $491,000 for 2022.
When the guaranteed portion of an SBA loan is sold the Company retains the servicing rights for the sold portion. During 2025, loans were sold resulting in a gain on sales of SBA loans of $215,000, compared to a gain on sales of SBA loans of $473,000 for 2024, and $482,000 for 2023.
All of these factors are considered in monitoring the Company’s exposure to interest rate risk. 76 ​ Table of Contents Selected Financial Data The following table presents a summary of selected financial information that should be read in conjunction with the Company’s Consolidated Financial Statements and notes thereto following Item 15 — Exhibits and Financial Statement Schedules.
All of these factors are considered in monitoring the Company’s exposure to interest rate risk. 85 Table of Content s Selected Financial Data The following table presents a summary of selected financial information that should be read in conjunction with the Company’s Consolidated Financial Statements and notes thereto following Item 15 — Exhibits and Financial Statement Schedules .
The securities portfolio serves the following purposes: (i) it provides a source of pledged assets for securing certain deposits and borrowed funds, as may be required by law or by specific agreement with a depositor or lender; (ii) it provides liquidity to even out cash flows from the loan and deposit activities of clients; (iii) it can be used as an interest rate risk management tool, since it provides a large base of assets, the maturity and interest rate characteristics of which can be changed more readily than the loan portfolio to better match changes in the deposit base and other funding sources of the Company; and (iv) it is an alternative interest-earning use of funds when loan demand is weak or when deposits grow more rapidly than loans.
(2) Gross of the allowance for credit losses of ($11,000) at December 31, 2025. _______________________________________________________ The securities portfolio serves the following purposes: (i) it provides a source of pledged assets for securing certain deposits and borrowed funds, as may be required by law or by specific agreement with a depositor or lender; (ii) it provides liquidity to even out cash flows from the loan and deposit activities of clients; (iii) it can be used as an interest rate risk management tool, since it provides a large base of assets, the maturity and interest rate characteristics of which can be changed more readily than the loan portfolio to better match changes in the deposit base and other funding sources of the Company; and (iv) it is an alternative interest-earning use of funds when loan demand is weak or when deposits grow more rapidly than loans.
The Company does not have any material concentrations by industry or group of industries in its loan portfolio; however, 85% of its gross loans were secured by real property at December 31, 58 ​ Table of Contents 2024, and December 31, 2023.
The Company does not have any material concentrations by industry or group of industries in its loan portfolio; however, 85% of its gross loans were secured by real property at December 31, 2025, and December 31, 2024.
The liquidity stress scenarios include a dashboard showing key liquidity ratios compared to established target limits and estimated cash flows for the next several quarters. ​ One of the measures of liquidity is the loan to deposit ratio. The loan to deposit ratio was 72.45% at December 31, 2024, compared to 76.52% at December 31, 2023.
The liquidity stress scenarios include a dashboard showing key liquidity ratios compared to established target limits and estimated cash flows for the next several quarters. One of the measures of liquidity is the loan to deposit ratio. The loan to deposit ratio was 74.51% at December 31, 2025, compared to 72.45% at December 31, 2024.
The Company had the net deferred tax assets of $27.8 million and $29.8 million at December 31, 2024, and December 31, 2023, respectively.
The Company had the net deferred tax assets of $29.7 million and $27.8 million at December 31, 2025, and December 31, 2024, respectively.
See “Reconciliation of Non-GAAP Financial Measures” below. (2) Average balances used in this table are based on daily averages. (3) Average loans net of the average allowance for credit losses on loans and exclude loans held-for-sale.
See “ Reconciliation of Non-GAAP Financial Measures ” below. (2) Average balances used in this table are based on daily averages. (3) Average loans net of the average allowance for credit losses on loans and exclude loans held-for-sale.
Activity for loan servicing rights was as follows for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2024 2023 2022 ​ ​ (Dollars in thousands) Beginning of period balance ​ $ 415 ​ $ 549 ​ $ 655 Additions ​ 110 ​ 126 ​ 124 Amortization ​ (181) ​ (260) ​ (230) End of period balance ​ $ 344 ​ $ 415 ​ $ 549 ​ Loan servicing rights are included in accrued interest receivable and other assets on the consolidated balance sheets and reported net of amortization.
Activity for loan servicing rights was as follows for the periods indicated: Year Ended December 31, 2025 2024 2023 (Dollars in thousands) Beginning of period balance $ 344 $ 415 $ 549 Additions 47 110 126 Amortization (140) (181) (260) End of period balance $ 251 $ 344 $ 415 Loan servicing rights are included in accrued interest receivable and other assets on the consolidated balance sheets and reported net of amortization.
The following table shows the effective tax rate at the dates indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2024 2023 2022 Effective income tax rate 28.5% ​ 28.7% ​ 29.5% ​ The Company’s Federal and state income tax expense in 2024 was $16.1 million, compared to $26.0 million in 2023, and $27.8 million in 2022.
The following table shows the effective tax rate at the dates indicated: Year Ended December 31, 2025 2024 2023 Effective income tax rate 29.4 % 28.5 % 28.7 % The Company’s Federal and state income tax expense in 2025 was $20.0 million, compared to $16.1 million in 2024, and $26.0 million in 2023.
Management believes that, as of December 31, 2024, December 31, 2023, and December 31, 2022, the Company and HBC met all capital adequacy guidelines to which they were subject. There are no conditions or events since December 31, 2024, that management believes have changed the categorization of the Company or HBC as well-capitalized.
Management believes that, as of December 31, 2025, December 31, 2024, and December 31, 2023, the Company and HBC met all capital adequacy guidelines to which they were subject. There are 82 Table of Content s no conditions or events since December 31, 2025, that management believes have changed the categorization of the Company or HBC as well-capitalized.
Foreclosed assets consist of properties and other assets acquired by foreclosure or similar means that management is offering or will offer for sale. ​ There were no foreclosed assets on the balance sheet at December 31, 2024 or December 31, 2023. There were no CRE loans in NPAs as of December 31, 2024 or December 31, 2023.
Foreclosed assets consist of properties and other assets acquired by foreclosure or similar means that management is offering or will offer for sale. There were no foreclosed assets on the balance sheet at December 31, 2025 or December 31, 2024.
Liquidity, Asset/Liability Management and Available Lines of Credit The Company’s liquidity position supports its ability to maintain cash flows sufficient to fund operations, meet all of its financial obligations and commitments, and accommodate unexpected sudden changes in balances of loans and demand for deposits in a timely manner.
A reconciliation of GAAP to non-GAAP financial measures are presented in the tables under “ Reconciliation of Non-GAAP Financial Measures. ” _______________________________________________________ Liquidity, Asset/Liability Management and Available Lines of Credit The Company’s liquidity position supports its ability to maintain cash flows sufficient to fund operations, meet all of its financial obligations and commitments, and accommodate unexpected sudden changes in balances of loans and demand for deposits in a timely manner.
Commercial and industrial line usage increased to 34% at December 31, 2024, compared to 29% at December 31, 2023. ​ The Company’s CRE loans consist primarily of loans based on the borrower’s cash flow and are secured by deeds of trust on commercial property to provide a secondary source of repayment.
Commercial and industrial line utilization decreased to 32% at December 31, 2025, compared to 34% at December 31, 2024. The Company’s CRE loans consist primarily of loans based on the borrower’s cash flow and are secured by deeds of trust on commercial property to provide a secondary source of repayment.
Additionally, the level of ACLL may fluctuate based on the balance and mix of the loan portfolio. ​ Qualitative factors are evaluated each period and applied in instances when management assesses that additional risks not captured in the quantitative estimate should be factored into the overall ACLL estimate.
Additionally, the level of ACLL may fluctuate based on the balance and mix of the loan portfolio. Qualitative factors are evaluated each period and applied in instances when management assesses that additional risks not captured in the quantitative estimate should be factored into the overall ACLL estimate. These risks include loan performance trends, collateral value risk and portfolio growth characteristics.
See Note 7 to the consolidated financial statements. ​ Deposits The composition and cost of the Company’s deposit base are important components in analyzing the Company’s net interest margin and balance sheet liquidity characteristics, both of which are discussed in greater detail in other sections herein.
Deposits The composition and cost of the Company’s deposit base are important components in analyzing the Company’s net interest margin and balance sheet liquidity characteristics, both of which are discussed in greater detail in other sections herein.
The Bank’s clients are primarily closely held businesses and professionals. We also have limited operations in other regions primarily by virtue of Bay View Funding, the Bank’s factoring subsidiary, which provides factoring and other alternative corporate financing services. Performance Overview 2024 was a year of solid progress.
The Bank’s clients are primarily closely held businesses and professionals. We also have limited operations in other regions primarily by virtue of Bay View Funding, the Bank’s factoring subsidiary, which provides factoring and other alternative corporate financing services.
For more information regarding the Company’s off-balance sheet arrangements, see Note 15 to the consolidated financial statements located elsewhere herein.
For more 69 Table of Content s information regarding the Company’s off-balance sheet arrangements, see Note 15 to the consolidated financial statements located elsewhere herein.
At December 31, 2024, key economic assumptions and the sensitivity of the 62 ​ Table of Contents fair value of the I/O strip receivables to immediate changes to the CPR assumption of 10% and 20%, and changes to the discount rate assumption of 1% and 2%, are as follows: ​ ​ ​ ​ ​ ​ (Dollars in thousands) Carrying amount/fair value of Interest-Only (I/O) strip ​ $ 82 Prepayment speed assumption (annual rate) ​ 19.1% Impact on fair value of 10% adverse change in prepayment speed (CPR 21.0%) ​ $ (1) Impact on fair value of 20% adverse change in prepayment speed (CPR 22.9%) ​ $ (2) Residual cash flow discount rate assumption (annual) ​ ​ 14.7% Impact on fair value of 1% adverse change in discount rate (14.9% discount rate) ​ $ (1) Impact on fair value of 2% adverse change in discount rate (15.0% discount rate) ​ $ (2) ​ Off-Balance Sheet Arrangements In the normal course of business, the Company makes commitments to extend credit to its clients as long as there are no violations of any conditions established in contractual arrangements.
At December 31, 2025, key economic assumptions and the sensitivity of the fair value of the I/O strip receivables to immediate changes to the CPR assumption of 10% and 20%, and changes to the discount rate assumption of 1% and 2%, are as follows: (Dollars in thousands) Carrying amount/fair value of Interest-Only (I/O) strip $ 33 Prepayment speed assumption (annual rate) 18.6 % Impact on fair value of 10% adverse change in prepayment speed (CPR 20.5%) $ (1) Impact on fair value of 20% adverse change in prepayment speed (CPR 22.4%) $ (1) Residual cash flow discount rate assumption (annual) 13.5 % Impact on fair value of 1% adverse change in discount rate (13.6% discount rate) $ — Impact on fair value of 2% adverse change in discount rate (13.7% discount rate) $ (1) Off-Balance Sheet Arrangements In the normal course of business, the Company makes commitments to extend credit to its clients as long as there are no violations of any conditions established in contractual arrangements.
There were no Shared National Credits or material purchased participations included in NPAs or total loans at December 31, 2024 or December 31, 2023. ​ 64 ​ Table of Contents The following table summarizes the Company’s nonperforming assets at the dates indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2024 2023 ​ ​ (Dollars in thousands) Nonaccrual loans — held-for-investment ​ $ 7,178 ​ $ 6,818 ​ Loans 90 days past due and still accruing ​ 489 ​ 889 ​ Total nonperforming loans ​ 7,667 ​ 7,707 ​ Foreclosed assets ​ — ​ — ​ Total nonperforming assets ​ $ 7,667 ​ $ 7,707 ​ ​ ​ ​ ​ ​ ​ ​ ​ Nonperforming assets as a percentage of loans ​ ​ ​ ​ ​ ​ ​ plus foreclosed assets ​ ​ 0.22 % ​ 0.23 % Nonperforming assets as a percentage of total assets ​ 0.14 % 0.15 % ​ The following table presents the amortized cost basis of nonperforming loans and loans past due over 90 days and still accruing at the dates indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2024 ​ ​ Nonaccrual ​ Nonaccrual ​ Loans ​ ​ ​ ​ with no Special ​ with Special ​ over 90 Days ​ ​ ​ ​ ​ Allowance for ​ Allowance for ​ Past Due ​ ​ ​ ​ ​ Credit ​ Credit ​ and Still ​ ​ ​ Losses Losses ​ Accruing Total ​ ​ (Dollars in thousands) Commercial ​ $ 313 ​ $ 701 ​ $ 489 ​ $ 1,503 Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ CRE - Owner Occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — CRE - Non-Owner Occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — Land and construction ​ ​ 5,874 ​ ​ — ​ ​ — ​ ​ 5,874 Home equity ​ ​ 77 ​ ​ — ​ ​ — ​ ​ 77 Consumer and other ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total ​ $ 6,264 ​ $ 914 ​ $ 489 ​ $ 7,667 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ Nonaccrual ​ Nonaccrual ​ Loans ​ ​ ​ ​ with no Special ​ with Special ​ over 90 Days ​ ​ ​ ​ ​ Allowance for ​ Allowance for ​ Past Due ​ ​ ​ ​ ​ Credit ​ Credit ​ and Still ​ ​ ​ Losses Losses ​ Accruing Total ​ ​ (Dollars in thousands) Commercial ​ $ 946 ​ $ 290 ​ $ 889 ​ $ 2,125 Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ CRE - Owner Occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — CRE - Non-Owner Occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — Land and construction ​ ​ 4,661 ​ ​ — ​ ​ — ​ ​ 4,661 Home equity ​ ​ 142 ​ ​ — ​ ​ — ​ ​ 142 Residential mortgages ​ ​ 779 ​ ​ — ​ ​ — ​ ​ 779 Total ​ $ 6,528 ​ $ 290 ​ $ 889 ​ $ 7,707 ​ Loans with a well-defined weakness, which are characterized by the distinct possibility that the Company will sustain a loss if the deficiencies are not corrected, are categorized as “classified.” Classified loans include all loans considered as substandard, substandard-nonaccrual, and doubtful, and may result from problems specific to a borrower’s business or from economic downturns that affect the borrower’s ability to repay or that cause a decline in the value of the underlying collateral (particularly real estate).
There were no Shared National Credits or material purchased participations included in NPAs or total loans at December 31, 2025 or December 31, 2024. 71 Table of Content s The following table summarizes the Company’s nonperforming assets at the dates indicated: December 31, 2025 2024 (Dollars in thousands) Nonaccrual loans — held-for-investment $ 2,048 $ 7,178 Loans 90 days past due and still accruing 735 489 Total nonperforming loans 2,783 7,667 Foreclosed assets — — Total nonperforming assets $ 2,783 $ 7,667 Nonperforming assets as a percentage of loans plus foreclosed assets 0.08 % 0.22 % Nonperforming assets as a percentage of total assets 0.05 % 0.14 % The following table presents the amortized cost basis of nonperforming loans and loans past due over 90 days and still accruing at the dates indicated: December 31, 2025 Restructured Nonaccrual Nonaccrual Loans with no Specific with Specific over 90 Days Allowance for Allowance for Past Due Credit Credit and Still Losses Losses Accruing Total (Dollars in thousands) Commercial $ 41 $ 313 $ 735 $ 1,089 Real estate: CRE - Owner Occupied 31 — — 31 Land and construction 1,663 — — 1,663 Total $ 1,735 $ 313 $ 735 $ 2,783 December 31, 2024 Nonaccrual Nonaccrual Loans with no Specific with Specific over 90 Days Allowance for Allowance for Past Due Credit Credit and Still Losses Losses Accruing Total (Dollars in thousands) Commercial $ 313 $ 701 $ 489 $ 1,503 Real estate: Land and construction 5,874 — — 5,874 Home equity 77 — — 77 Consumer and other — 213 — 213 Total $ 6,264 $ 914 $ 489 $ 7,667 Loans with a well-defined weakness, which are characterized by the distinct possibility that the Company will sustain a loss if the deficiencies are not corrected, are categorized as “classified.” Classified loans include all loans considered as substandard, substandard-nonaccrual, and doubtful, and may result from problems specific to a borrower’s business or from economic downturns that affect the borrower’s ability to repay or that cause a decline in the value of the underlying collateral (particularly real estate).
The Company’s total liquidity and borrowing capacity at December 31, 2024 was $3.3 billion, all of which remained available. The available liquidity and borrowing capacity was 69% of the Company’s total deposits and approximately 155% of the Bank’s estimated uninsured deposits at December 31, 2024.
The Company’s total liquidity and borrowing capacity at December 31, 2025 was $3.3 billion, all of which remained available. The available liquidity and borrowing capacity was 67% of the Company’s total deposits and approximately 140% of the Bank’s estimated uninsured deposits at December 31, 2025.
The net pre-tax unrecognized loss on the securities held-to-maturity portfolio was ($93.0) million, or ($65.5) million net of taxes, which was 9.5% of total shareholders’ equity at December 31, 2024. The unrealized and unrecognized losses in both the available-for-sale and held-to-maturity portfolios were due to higher interest rates at December 31, 2024 compared to when the securities were purchased.
The net pre-tax unrecognized loss on the securities held-to-maturity portfolio was $64.0 million, or $45.1 million net of taxes, which was 6% of total shareholders’ equity at December 31, 2025. The unrealized gains and unrecognized losses in both the available-for-sale and held-to-maturity portfolios were due to higher interest rates at December 31, 2025 compared to when the securities were purchased.
Land and construction loans decreased ($12.7) million, or (9%), to $127.8 million at December 31, 2024, from $140.5 million at December 31, 2023. ​ The Company makes home equity lines of credit available to its existing clients. Home equity lines of credit are underwritten initially with a maximum 75% loan to value ratio.
Land and construction loans increased $5.7 million, or 4%, to $133.6 million at December 31, 2025, from $127.8 million at December 31, 2024. The Company makes home equity lines of credit available to its existing clients. Home equity lines of credit are underwritten initially with a maximum 75% loan to value ratio.
The ACLL is a valuation amount that is deducted from the amortized cost basis of loans, and is adjusted each period by an expense or credit for credit losses, which is recognized in earnings, and reduced by loan charge-offs, net of recoveries.
The ACLL is a valuation amount that is deducted from the amortized cost basis of loans, and is adjusted each period by an expense or credit for credit losses, which is recognized in earnings, and reduced by loan charge-offs, net of recoveries. Determining the appropriateness of the ACLL is complex and requires judgment by management about inherently uncertain factors.
These risks include loan performance trends, collateral value risk and portfolio growth characteristics. Changes in the assessment of these qualitative factors could significantly impact the calculated estimated credit loss. ​ Other key assumptions used to calculate the ACLL include the forecast and reversion to mean time periods for the economic factor inputs, and prepayment and curtailment assumptions.
Changes in the assessment of these qualitative factors could significantly impact the calculated estimated credit loss. Other key assumptions used to calculate the ACLL include the forecast and reversion to mean time periods for the economic factor inputs, and prepayment and curtailment assumptions.
Total assets and total liabilities included $30.6 million and $31.7 million at December 31, 2024 and December 31, 2023, respectively, as a result of recognizing right-of-use assets, which are included in other assets, and lease liabilities, included in other liabilities, related to non-cancelable operating lease agreements for office space.
Total assets and total liabilities included $28.5 million and $30.6 million at December 31, 2025 and December 31, 2024, respectively, as a result of recognizing right-of-use assets, which are included in other assets, and lease liabilities, included in other liabilities, related to non-cancelable operating lease agreements for office space. See Note 7 to the consolidated financial statements.
The following table reflects the components of accumulated other comprehensive loss, net of taxes, at the dates indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ Accumulated Other Comprehensive Loss ​ 2024 ​ 2023 ​ ​ ​ (Dollars in thousands) Unrealized loss on securities available-for-sale ​ $ (3,656) ​ $ (7,116) ​ Split dollar insurance contracts liability ​ (2,339) ​ (2,809) ​ Supplemental executive retirement plan liability ​ (2,173) ​ (2,892) ​ Unrealized gain on interest-only strip from SBA loans ​ 63 ​ 87 ​ Total accumulated other comprehensive loss ​ $ (8,105) ​ $ (12,730) ​ ​ ​ ​ ​ ​ ​ Market Risk Market risk is the risk of loss of future earnings, fair values, or future cash flows that may result from changes in the price of a financial instrument.
The following table reflects the components of accumulated other comprehensive loss, net of taxes, at the dates indicated: December 31, Accumulated Other Comprehensive Loss 2025 2024 (Dollars in thousands) Actuarial losses associated with: Supplemental executive retirement plan $ (2,747) $ (2,173) Split dollar insurance contracts (2,296) (2,339) Unrealized gain (loss) on securities available-for-sale 295 (3,656) Unrealized gain on interest-only strip from SBA loans 28 63 Total accumulated other comprehensive loss $ (4,720) $ (8,105) Market Risk Market risk is the risk of loss of future earnings, fair values, or future cash flows that may result from changes in the price of a financial instrument.
Full-time equivalent employees were 355 at December 31, 2024, and 349 at December 31, 2023, and 340 at December 31, 2022. ​ 55 ​ Table of Contents Income Tax Expense The Company computes its provision for income taxes on a monthly basis.
Full-time equivalent employees were 342 at December 31, 2025, and 355 at December 31, 2024, and 349 at December 31, 2023. Income Tax Expense The Company computes its provision for income taxes on a monthly basis.
In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis using tax rates effective as of the end of the period.
In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis using tax rates effective as of the end of the period. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources.
Total medical/dental office exposure in the non-owner occupied CRE portfolio consisted of 15 loans totaling $12.3 million, with a weighted average LTV and DSCR ratio of 37.1% and 3.05 times, respectively, at December 31, 2024. ​ The following table presents the weighted average LTV and DSCR by collateral type for CRE loans at December 31, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ CRE - Non-owner Occupied ​ CRE - Owner Occupied ​ Total CRE Collateral Type Outstanding LTV DSCR Outstanding LTV Outstanding LTV Retail ​ ​ 26 % ​ ​ 37.4 % ​ ​ 2.18 ​ ​ ​ 16 % ​ ​ 46.1 % ​ ​ 24 % ​ ​ 38.9 % Industrial ​ 18 % ​ ​ 38.7 % ​ ​ 2.98 ​ ​ 33 % ​ ​ 42.9 % ​ 22 % ​ ​ 40.3 % Mixed-Use, Special ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Purpose and Other ​ 19 % ​ ​ 41.6 % ​ ​ 1.99 ​ ​ 35 % ​ ​ 40.6 % ​ 22 % ​ ​ 41.2 % Office ​ 20 % ​ ​ 41.5 % ​ ​ 2.16 ​ ​ 16 % ​ ​ 44.1 % ​ 19 % ​ ​ 42.1 % Multifamily ​ 17 % ​ ​ 42.9 % ​ ​ 1.91 ​ ​ 0 % ​ ​ 0.0 % ​ 13 % ​ ​ 42.9 % Hotel/Motel ​ ​ % ​ ​ 16.3 % ​ ​ 1.32 ​ ​ ​ 0 % ​ ​ 0.0 % ​ ​ % ​ ​ 16.3 % Total ​ ​ 100 % ​ ​ 40.0 % ​ ​ 2.24 ​ ​ ​ 100 % ​ ​ 42.8 % ​ ​ 100 % ​ ​ 40.8 % ​ ​ 60 ​ Table of Contents The following table presents the weighted average LTV and DSCR by county for CRE loans at December 31, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ CRE - Non-owner Occupied ​ CRE - Owner Occupied ​ Total CRE County Outstanding LTV DSCR Outstanding LTV Outstanding LTV Alameda ​ ​ 25 % ​ ​ 43.8 % ​ ​ 1.92 ​ ​ ​ 19 % ​ ​ 45.3 % ​ ​ 23 % ​ ​ 44.1 % Contra Costa ​ 7 % ​ ​ 41.6 % ​ ​ 1.77 ​ ​ 8 % ​ ​ 46.9 % ​ 7 % ​ ​ 43.1 % Marin ​ 6 % ​ ​ 45.9 % ​ ​ 2.02 ​ ​ 1 % ​ ​ 51.7 % ​ 5 % ​ ​ 46.3 % Monterey ​ 2 % ​ ​ 42.8 % ​ ​ 1.82 ​ ​ 2 % ​ ​ 40.8 % ​ 2 % ​ ​ 42.1 % Napa ​ % ​ ​ 29.1 % ​ ​ 2.40 ​ ​ 1 % ​ ​ 51.6 % ​ % ​ ​ 36.8 % Out of Area ​ ​ 9 % ​ ​ 42.3 % ​ ​ 2.04 ​ ​ 9 % ​ ​ 48.9 % ​ 9 % ​ ​ 44.0 % San Benito ​ ​ 1 % ​ ​ 38.3 % ​ ​ 1.84 ​ ​ 3 % ​ ​ 39.3 % ​ 2 % ​ ​ 38.7 % San Francisco ​ ​ 9 % ​ ​ 37.3 % ​ ​ 2.19 ​ ​ 4 % ​ ​ 39.5 % ​ 8 % ​ ​ 37.6 % San Mateo ​ ​ 11 % ​ ​ 38.1 % ​ ​ 2.33 ​ ​ 15 % ​ ​ 40.0 % ​ 12 % ​ ​ 38.7 % Santa Clara ​ ​ 24 % ​ ​ 36.9 % ​ ​ 2.80 ​ ​ 34 % ​ ​ 40.7 % ​ 27 % ​ ​ 38.3 % Santa Cruz ​ ​ 2 % ​ ​ 32.2 % ​ ​ 1.75 ​ ​ 1 % ​ ​ 49.6 % ​ 2 % ​ ​ 35.5 % Solano ​ ​ 1 % ​ ​ 32.5 % ​ ​ 2.91 ​ ​ 1 % ​ ​ 37.5 % ​ 1 % ​ ​ 33.9 % Sonoma ​ ​ 3 % ​ ​ 38.7 % ​ ​ 2.58 ​ ​ 2 % ​ ​ 42.8 % ​ 2 % ​ ​ 39.6 % Total ​ ​ 100 % ​ ​ 40.0 % ​ ​ 2.24 ​ ​ ​ 100 % ​ ​ 42.8 % ​ ​ 100 % ​ ​ 40.8 % ​ The Company’s land and construction loans are primarily to finance the development/construction of commercial and single family residential properties.
Total medical/dental office exposure in the non-owner occupied CRE portfolio consisted of 18 loans totaling $20 million, with a weighted average LTV and DSCR ratio of 41% and 2.70 times, respectively, at December 31, 2025. 66 Table of Content s The following table presents the weighted average LTV and DSCR by collateral type for CRE loans at December 31, 2025: CRE - Non-owner Occupied CRE - Owner Occupied Total CRE Collateral Type Outstanding LTV DSCR Outstanding LTV Outstanding LTV Retail 26 % 37.1 % 2.08 14 % 46.0 % 23 % 38.5 % Industrial 19 % 38.8 % 2.49 35 % 42.4 % 23 % 40.2 % Mixed-Use, Special Purpose and Other 18 % 42.0 % 1.91 33 % 40.3 % 22 % 41.3 % Office 20 % 41.9 % 2.10 18 % 43.7 % 20 % 42.4 % Multifamily 17 % 42.9 % 1.91 0% 0% 12 % 42.9 % Hotel/Motel 15.7 % 0.64 0% 0% 15.7 % Total 100 % 40.1 % 2.10 100 % 42.4 % 100 % 40.7 % The following table presents the weighted average LTV and DSCR by county for CRE loans at December 31, 2025: CRE - Non-owner Occupied CRE - Owner Occupied Total CRE County Outstanding LTV DSCR Outstanding LTV Outstanding LTV Alameda 24 % 43.4 % 1.78 17 % 43.7 % 22 % 43.5 % Contra Costa 7 % 39.7 % 1.90 9 % 43.3 % 7 % 40.9 % Marin 6 % 44.8 % 2.01 3 % 56.1 % 5 % 46.5 % Monterey 2 % 37.8 % 2.13 2 % 37.2 % 2 % 37.6 % Napa 28.4 % 2.89 1 % 45.3 % 33.1 % Out of Area 8 % 43.4 % 1.83 9 % 48.4 % 8 % 44.8 % San Benito 1 % 37.3 % 2.15 2 % 38.8 % 1 % 38.0 % San Francisco 9 % 38.3 % 2.26 4 % 40.3 % 8 % 38.5 % San Mateo 13 % 40.3 % 2.20 15 % 40.5 % 14 % 40.4 % Santa Clara 24 % 37.3 % 2.33 34 % 40.9 % 27 % 38.6 % Santa Cruz 2 % 31.6 % 1.86 1 % 47.0 % 2 % 34.3 % Solano 2 % 35.2 % 3.23 1 % 35.2 % 2 % 35.2 % Sonoma 2 % 37.8 % 2.49 2 % 42.1 % 2 % 38.7 % Total 100 % 40.1 % 2.10 100 % 42.4 % 100 % 40.7 % The Company’s land and construction loans are primarily to finance the development/construction of commercial and single family residential properties.
The Company’s business is not generally seasonal in nature. Public funds were less than 1% of deposits at December 31, 2024 and December 31, 2023. 69 ​ Table of Contents Total deposits increased $441.6 million, or 10% to $4.8 billion at December 31, 2024, compared to $4.4 billion at December 31, 2023.
The Company’s business is not generally seasonal in nature. Public funds were less than 1% of deposits at December 31, 2025 and December 31, 2024. Total deposits increased $83.1 million, or 2% to $4.9 billion at December 31, 2025, compared to $4.8 billion at December 31, 2024.
For the year ended December 31, 2024, the non-GAAP FTE net interest margin decreased (42) basis points to 3.28% for the year ended December 31, 2024, compared to 3.70% for the year ended December 31, 2023, primarily due to higher rates paid on client deposits, a decrease in the average balance of noninterest-bearing deposits, and a lower average yield on investment securities, partially offset by an increase in the average balances of loans and overnight funds. ​ Net interest income increased 2% to $183.2 million for the year ended December 31, 2023, compared to $179.9 million for the year ended December 31, 2022.
For the year ended December 31, 2024, the non-GAAP FTE net interest margin decreased 43 basis points to 3.25% for the year ended December 31, 2024, compared to 3.68% for the year ended December 31, 2023, primarily due to higher rates paid on client deposits, a decrease in the average balance of noninterest- 57 Table of Content s bearing deposits, and a lower average yield on investment securities, partially offset by an increase in the average balances of loans and overnight funds.
The Company’s asset quality has suffered in the past from the impact of national and regional economic recessions, consumer bankruptcies, and depressed real estate values. ​ Nonperforming assets are comprised of the following: loans for which the Company is no longer accruing interest; restructured loans which have been current under six months; loans 90 days or more past due and still accruing interest (although they are generally placed on nonaccrual when they become 90 days past due, unless they are both well-secured and in the process of collection); and foreclosed assets.
Nonperforming assets are comprised of the following: loans for which the Company is no longer accruing interest; restructured loans which have been current under six months; loans 90 days or more past due and still accruing interest (although they are generally placed on nonaccrual when they become 90 days past due, unless they are both well-secured and in the process of collection); and foreclosed assets.
Monthly adjustments are made to reflect changes in the fair value of the Company’s available-for-sale securities. 57 ​ Table of Contents The following table shows the net pre-tax unrealized and unrecognized (loss) on securities available-for-sale and securities held-to-maturity and the allowance for credit losses at the dates indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2024 2023 ​ ​ (Dollars in thousands) Securities available-for-sale pre-tax unrealized (loss): ​ ​ ​ ​ ​ ​ ​ U.S.
Monthly adjustments are made to reflect changes in the fair value of the Company’s available-for-sale securities. 63 Table of Content s The following table shows the net pre-tax unrealized and unrecognized gain (loss) on securities available-for-sale and securities held-to-maturity and the allowance for credit losses at the dates indicated: December 31, 2025 2024 (Dollars in thousands) Securities available-for-sale pre-tax unrealized gain (loss): Agency mortgage-backed securities $ (561) $ (4,148) Collateralized mortgage obligations 472 — U.S.
The fully tax equivalent (“FTE”) net interest margin decreased (42) basis points to 3.28% for the year ended December 31, 2024, from 3.70% for the year ended December 31, 2023, primarily due to higher rates paid on client deposits, a decrease in the average balance of noninterest-bearing deposits, and a lower average yield on investment securities, partially offset by an increase in the average balances of loans and overnight funds.
The fully tax equivalent (“FTE”) net interest margin increased 31 basis points to 3.56% for the year ended December 31, 2025, from 3.25% for the year ended December 31, 2024, primarily due to lower rates paid on client deposits, an increase in the average balance of interest-earning assets, and an increase in the average yields on loans and securities, partially offset by a decrease in the average yield on overnight funds.
The average life of the factored receivables was 34 days for the year ended December 31, 2024, and 37 days for the year ended December 31, 2023, and 38 days for the year ended December 31, 2022.
The average life of the factored receivables was 34 days for the year ended December 31, 2025 65 Table of Content s and December 31, 2024, and 37 days for the year ended December 31, 2023.
Even with perfectly matched repricing of assets and liabilities, risks remain in the form of prepayment of loans or securities or in the form of delays in the adjustment of rates of interest applying to either earning assets with floating rates or to interest-bearing liabilities. ​ Interest rate changes do not affect all categories of assets and liabilities equally or at the same time.
Even with perfectly matched repricing of assets and liabilities, risks remain in the form of prepayment of loans or securities or in the form of delays in the adjustment of rates of interest applying to either earning assets with floating rates or to interest-bearing liabilities.
The ACLL at December 31, 2023, was $48.0 million, or 1.43% of total loans, representing 622.27% of nonperforming loans. ● Total deposits increased $441.6 million or 10% to $4.8 billion at December 31, 2024, compared to $4.4 billion at December 31, 2023. ● Migration of client deposits into insured interest-bearing accounts resulted in an increase in ICS/ CDARS deposits to $1.1 billion at December 31, 2024, compared to $854.1 million at December 31, 2023. ● Noninterest-bearing demand deposits decreased ($78.3) million, or (6%), to $1.2 billion at December 31, 2024 from $1.3 billion at December 31, 2023. ● The ratio of noncore funding (which consists of time deposits of $250,000 and over, brokered deposits, securities under agreement to repurchase, subordinated debt and short-term borrowings) to total assets was 4.37% at December 31, 2024, compared to 4.46% at December 31, 2023. ● The loan to deposit ratio was 72.45% at December 31, 2024, compared to 76.52% at December 31, 2023. ​ ​ ​ 49 ​ Table of Contents Capital Adequacy: ● The Company’s consolidated capital ratios exceeded regulatory guidelines and HBC’s capital ratios exceeded the prompt corrective action (“PCA”) regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at December 31, 2024, as reflected in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Well-capitalized ​ ​ ​ ​ Heritage ​ Heritage ​ Financial Institution ​ Basel III Minimum ​ ​ Commerce ​ Bank of ​ PCA Regulatory ​ Regulatory Capital Ratios Corp Commerce ​ Guidelines ​ Requirements (1) Total Capital ​ ​ 15.6 % ​ ​ 15.1 % ​ ​ 10.0 % ​ ​ 10.5 % Tier 1 Capital ​ 13.4 % ​ ​ 13.9 % ​ ​ 8.0 % ​ ​ 8.5 % Common Equity Tier 1 Capital ​ 13.4 % ​ ​ 13.9 % ​ ​ 6.5 % ​ ​ 7.0 % Tier 1 Leverage ​ 9.6 % ​ ​ 10.0 % ​ ​ 5.0 % ​ ​ 4.0 % Tangible common equity / tangible assets (2) ​ 9.4 % ​ ​ 9.8 % ​ ​ N/A ​ ​ ​ N/A ​ (1) Basel III minimum regulatory requirements for both HCC and HBC include a 2.5% capital conservation buffer, except the Tier 1 Leverage ratio.
The ACLL at December 31, 2024, was $49.0 million, or 1.40% of total loans, representing 638% of nonperforming loans. • Total deposits increased $83.1 million or 2% to $4.9 billion at December 31, 2025, compared to $4.8 billion at December 31, 2024. • The Company’s total available liquidity and borrowing capacity was $3.3 billion at both December 31, 2025 and December 31, 2024. • The ratio of noncore funding (which consists of time deposits of $250,000 and over, brokered deposits, securities under agreement to repurchase, subordinated debt and short-term borrowings) to total assets was 4.52% at December 31, 2025, compared to 4.37% at December 31, 2024. • The loan to deposit ratio was 74.51% at December 31, 2025, compared to 72.45% at December 31, 2024. 53 Table of Content s Capital Adequacy: • The Company’s consolidated capital ratios exceeded regulatory guidelines and HBC’s capital ratios exceeded the prompt corrective action (“PCA”) regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at December 31, 2025, as reflected in the following table: Well-capitalized Regulatory Regulatory Heritage Heritage Financial Institution Basel III Minimum Commerce Bank of PCA Regulatory Regulatory Capital Ratios Corp Commerce Guidelines Requirements (1) Total Capital 15.1 % 14.8 % 10.0 % 10.5 % Tier 1 Capital 12.9 % 13.6 % 8.0 % 8.5 % Common Equity Tier 1 Capital 12.9 % 13.6 % 6.5 % 7.0 % Tier 1 Leverage 9.6 % 10.1 % 5.0 % 4.0 % Tangible common equity / tangible assets (2) 9.6 % 10.1 % N/A N/A _______________________________________________________ (1) Basel III minimum regulatory requirements for both HCC and HBC include a 2.5% capital conservation buffer, except the Tier 1 Leverage ratio.
The following table shows the balance of factored receivables at period-end, average balances during the period, and full time equivalent employees of Bay View Funding at period-end: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ 2024 2023 ​ ​ (Dollars in thousands) Total factored receivables at period-end ​ $ 68,897 ​ $ 57,458 ​ Average factored receivables: ​ ​ ​ ​ ​ ​ ​ For the year ended ​ ​ 55,717 ​ ​ 62,642 ​ Total full time equivalent employees at period-end ​ 30 ​ 28 ​ ​ The commercial loan portfolio increased $67.6 million, or 15%, to $531.4 million at December 31, 2024, from $463.8 million at December 31, 2023.
The following table shows the balance of factored receivables at period-end, average balances during the period, and full time equivalent employees of Bay View Funding at period-end: December 31, 2025 2024 (Dollars in thousands) Total factored receivables at period-end $ 118,503 $ 68,897 Average factored receivables: For the year ended $ 74,189 $ 55,717 Total full time equivalent employees at period-end 30 30 The commercial loan portfolio increased $19.0 million, or 4%, to $550.4 million at December 31, 2025, from $531.4 million at December 31, 2024.
The allowance for credit losses on loans to total nonperforming loans was 638.49% at December 31, 2024, compared to 622.27% at December 31, 2023.
The allowance for credit losses on loans to total nonperforming loans was 1,797% at December 31, 2025, compared to 638% at December 31, 2024.
The following table shows the collateral value of loans and securities pledged for the lines of credit 71 ​ Table of Contents (if collateralized), total available lines of credit, the amounts outstanding, and the remaining available at the dates indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2024 ​ Collateral Total ​ ​ ​ ​ Remaining ​ ​ Value ​ Available ​ Outstanding ​ ​ Available ​ ​ (Dollars in thousands) FHLB collateralized borrowing capacity ​ $ 1,233,768 ​ $ 815,760 ​ $ — ​ $ 815,760 FRB discount window collateralized line of credit ​ ​ 1,755,347 ​ ​ 1,383,149 ​ ​ — ​ ​ 1,383,149 Federal funds purchase arrangements ​ ​ N/A ​ ​ 90,000 ​ ​ — ​ ​ 90,000 Holding company line of credit ​ N/A ​ 25,000 ​ ​ — ​ 25,000 ​ ​ $ 2,989,115 ​ $ 2,313,909 ​ $ — ​ $ 2,313,909 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ Collateral Total ​ ​ ​ ​ Remaining ​ ​ Value ​ Available ​ Outstanding ​ ​ Available ​ ​ (Dollars in thousands) FHLB collateralized borrowing capacity ​ $ 1,600,371 ​ $ 1,100,931 ​ $ — ​ $ 1,100,931 FRB discount window collateralized line of credit ​ ​ 1,658,642 ​ ​ 1,235,573 ​ ​ — ​ ​ 1,235,573 Federal funds purchase arrangements ​ ​ N/A ​ ​ 90,000 ​ ​ — ​ ​ 90,000 Holding company line of credit ​ N/A ​ 20,000 ​ ​ — ​ 20,000 Total ​ $ 3,259,013 ​ $ 2,446,504 ​ $ — ​ $ 2,446,504 ​ HBC may also utilize securities sold under repurchase agreements to manage our liquidity position.
The following table shows the collateral value of loans and securities pledged for the lines of credit (if collateralized), total available lines of credit, the amounts outstanding, and the remaining available at the dates indicated: December 31, 2025 Collateral Total Remaining Value Available Outstanding Available (Dollars in thousands) FHLB collateralized borrowing capacity $ 1,229,392 $ 816,066 $ — $ 816,066 FRB discount window collateralized line of credit 1,497,471 1,193,854 — 1,193,854 Federal funds purchase arrangements N/A 75,000 — 75,000 Total $ 2,726,863 $ 2,084,920 $ — $ 2,084,920 December 31, 2024 Collateral Total Remaining Value Available Outstanding Available (Dollars in thousands) FHLB collateralized borrowing capacity $ 1,233,768 $ 815,760 $ — $ 815,760 FRB discount window collateralized line of credit 1,755,347 1,383,149 — 1,383,149 Federal funds purchase arrangements N/A 90,000 — 90,000 Holding company line of credit N/A 25,000 — 25,000 Total $ 2,989,115 $ 2,313,909 $ — $ 2,313,909 HBC may also utilize securities sold under repurchase agreements to manage our liquidity position.
The fair value is expected to recover as the securities approach their maturity date and/or interest rates decline. ​ Loans The Company’s loans represent the largest portion of earning assets, substantially greater than the securities portfolio or any other asset category, and the quality and diversification of the loan portfolio is an important consideration when reviewing the Company’s financial condition.
Loans The Company’s loans represent the largest portion of earning assets, substantially greater than the securities portfolio or any other asset category, and the quality and diversification of the loan portfolio is an important consideration when reviewing the Company’s financial condition.
The following table indicates the contractual maturity schedule of the Company’s uninsured time deposits in excess of $250,000 at December 31, 2024: ​ ​ ​ ​ ​ ​ ​ ​ Balance % of Total ​ ​ (Dollars in thousands) Three months or less ​ $ 50,918 34 % Over three months through six months ​ 38,286 26 % Over six months through twelve months ​ 33,761 23 % Over twelve months ​ 24,540 17 % Total ​ $ 147,505 100 % ​ The Company focuses primarily on providing and servicing business deposit accounts that are frequently over $250,000 in average balance per account.
The following table indicates the contractual maturity schedule of the Company’s uninsured time deposits in excess of $250,000 at December 31, 2025: Balance % of Total (Dollars in thousands) Three months or less $ 50,122 30 % Over three months through six months 38,560 23 % Over six months through twelve months 50,321 31 % Over twelve months 25,712 16 % Total $ 164,715 100 % The Company focuses primarily on providing and servicing business deposit accounts that are frequently over $250,000 in average balance per account.
Loans held for sale are carried at the lower of cost or estimated fair value, and are not allocated an allowance for credit losses. ​ 65 ​ Table of Contents The amortized cost basis of collateral-dependent commercial loans, collateralized by business assets, totaled $701,000 and $290,000 at December 31, 2024 and December 31, 2023, respectively. ​ When management determines that foreclosures are probable, expected credit losses for collateral-dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
The amortized cost basis of collateral-dependent loans, collateralized by business assets, totaled $701,000 at December 31, 2024. When management determines that foreclosures are probable, expected credit losses for collateral-dependent loans are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
The Company had net charge-offs of $1.1 million, or 0.03% of average loans, for the year ended December 31, 2024, compared to 303,000, or 0.01% of average loans, for the year ended December 31, 2023, and net recoveries of ($3.5) million, or (0.11)% of average loans, for the year ended December 31, 2022. ​ 68 ​ Table of Contents The following table shows the drivers of change in ACLL for the year ended December 31, 2024: ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) ACLL at December 31, 2023 ​ $ 47,958 Portfolio changes during the first quarter of 2024 ​ ​ (234) Qualitative and quantitative changes during the first ​ ​ ​ quarter of 2024 including changes in economic forecasts ​ ​ 164 ACLL at March 31, 2024 ​ ​ 47,888 Portfolio changes during the second quarter of 2024 ​ ​ 616 Qualitative and quantitative changes during the second ​ ​ ​ quarter of 2024 including changes in economic forecasts ​ ​ (550) ACLL at June 30, 2024 ​ ​ 47,954 Portfolio changes during the third quarter of 2024 ​ ​ 599 Qualitative and quantitative changes during the third ​ ​ ​ quarter of 2024 including changes in economic forecasts ​ ​ (734) ACLL at September 30, 2024 ​ ​ 47,819 Portfolio changes during the fourth quarter of 2024 ​ ​ 1,912 Qualitative and quantitative changes during the fourth ​ ​ ​ quarter of 2024 including changes in economic forecasts ​ ​ (778) ACLL at December 31, 2024 ​ $ 48,953 ​ Leases The Company recognizes the following for all leases, at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
The Company had net charge-offs of $770,000, or 0.02% of average loans, for the year ended December 31, 2025, compared to $1.1 million, or 0.03% of average loans, for the year ended December 31, 2024, and $303,000, or 0.01% of average loans, for the year ended December 31, 2023. 76 Table of Content s The following table shows the drivers of change in ACLL for the year ended December 31, 2025: (Dollars in thousands) ACLL at December 31, 2024 $ 48,953 Portfolio changes during the first quarter of 2025 (299) Qualitative and quantitative changes during the first quarter of 2025 including changes in economic forecasts (392) ACLL at March 31, 2025 48,262 Portfolio changes during the second quarter of 2025 716 Qualitative and quantitative changes during the second quarter of 2025 including changes in economic forecasts (345) ACLL at June 30, 2025 48,633 Portfolio changes during the third quarter of 2025 620 Qualitative and quantitative changes during the third quarter of 2025 including changes in economic forecasts 174 ACLL at September 30, 2025 $ 49,427 Portfolio changes during the fourth quarter of 2025 1,170 Qualitative and quantitative changes during the fourth quarter of 2025 including changes in economic forecasts (598) ACLL at December 31, 2025 $ 49,999 Leases The Company recognizes the following for all leases, at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
Home equity lines of credit increased $8.8 million, or 7%, to $127.9 million at December 31, 2024, from $119.1 million at December 31, 2023. ​ Multifamily loans increased $5.8 million, or 2%, to $275.5 million at December 31, 2024, compared to $269.7 million at December 31, 2023. ​ From time to time the Company has purchased single family residential mortgage loans.
Home equity lines of credit decreased $1.9 million, or 1%, to $126.1 million at December 31, 2025, from $128.0 million at December 31, 2024 Multifamily loans increased $20.1 million, or 7%, to $295.6 million at December 31, 2025, compared to $275.5 million at December 31, 2024. From time to time the Company has purchased single family residential mortgage loans.
The book value per share was $11.24 at December 31, 2024, compared to $11.00 at December 31, 2023. Tangible common equity was $515.7 million at December 31, 2024, compared to $496.6 million at December 31, 2023. The tangible book value per share was $8.41 at December 31, 2024, compared to $8.12 at December 31, 2023.
The book value per share was $11.55 at December 31, 2025, compared to $11.24 at December 31, 2024. Tangible common equity was $536.3 million at December 31, 2025, compared to $515.7 million at December 31, 2024. The tangible book value per share was $8.74 at December 31, 2025, compared to $8.41 at December 31, 2024.
The Company does not engage in the trading of financial instruments, nor does the Company have exposure to currency exchange rates. ​ The principal objective of interest rate risk management (often referred to as “asset/liability management”) is to manage the financial components of the Company in a manner that will optimize the risk/reward equation for earnings and capital in relation to changing interest rates.
The principal objective of interest rate risk management (often referred to as “asset/liability management”) is to manage the financial components of the Company in a manner that will optimize the risk/reward equation for earnings and capital in relation to changing interest rates. Interest rate risk is the potential of economic losses due to future interest rate changes.
(2) This is a non-GAAP financial measure that represents shareholders’ equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets. RESULTS OF OPERATIONS The Company earns income from two primary sources. The first is net interest income, which is interest income generated by earning assets less interest expense on interest-bearing liabilities.
(2) This is a non-GAAP financial measure that represents shareholders’ equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets. _______________________________________________________ 54 Table of Content s RESULTS OF OPERATIONS The Company earns income from two primary sources.
Qualitative factors are also applied by management to reflect increased portfolio risks from such factors as collateral value risk, portfolio growth, or loan grade and performance trends that management has assessed as not being fully captured in the quantitative estimate. ​ The ACLL represents management’s best estimate of potential loan losses, but significant changes in prevailing economic conditions could result in material changes in the allowance.
Qualitative factors are also applied by management to reflect increased portfolio risks from such factors as collateral value risk, portfolio growth, or loan grade and performance trends that management has assessed as not being fully captured in the quantitative estimate.
SELECTED FINANCIAL DATA ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ AT OR FOR THE YEAR ENDED DECEMBER 31, ​ 2024 2023 2022 2021 2020 ​ ​ (Dollars in thousands, except per share data) INCOME STATEMENT DATA: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest income ​ $ 242,699 ​ $ 234,298 ​ $ 188,828 ​ $ 153,256 ​ $ 150,471 ​ Interest expense ​ 79,051 ​ 51,074 ​ 8,948 ​ 7,131 ​ 8,581 ​ Net interest income before provision for credit losses on loans ​ 163,648 ​ 183,224 ​ 179,880 ​ 146,125 ​ 141,890 ​ Provision for (recapture of) credit losses on loans ​ 2,139 ​ 749 ​ 766 ​ (3,134) ​ 13,233 ​ Net interest income after provision for credit losses on loans ​ 161,509 ​ 182,475 ​ 179,114 ​ 149,259 ​ 128,657 ​ Noninterest income ​ 8,748 ​ 8,998 ​ 10,111 ​ 9,688 ​ 9,922 ​ Noninterest expense ​ 113,583 ​ 101,054 ​ 94,859 ​ 93,077 ​ 89,511 ​ Income before income taxes ​ 56,674 ​ 90,419 ​ 94,366 ​ 65,870 ​ 49,068 ​ Income tax expense ​ 16,146 ​ 25,976 ​ 27,811 ​ 18,170 ​ 13,769 ​ Net income ​ $ 40,528 ​ $ 64,443 ​ $ 66,555 ​ $ 47,700 ​ $ 35,299 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ PER COMMON SHARE DATA: ​ ​ ​ ​ ​ ​ Basic earnings per share ​ $ 0.66 ​ $ 1.06 ​ $ 1.10 ​ $ 0.79 ​ $ 0.59 ​ Diluted earnings per share ​ $ 0.66 ​ $ 1.05 ​ $ 1.09 ​ $ 0.79 ​ $ 0.59 ​ Book value per share ​ $ 11.24 ​ $ 11.00 ​ $ 10.39 ​ $ 9.91 ​ $ 9.64 ​ Tangible book value per share (1) ​ $ 8.41 ​ $ 8.12 ​ $ 7.46 ​ $ 6.91 ​ $ 6.57 ​ Dividend payout ratio ​ 78.61 % 49.25 % 47.32 % 65.56 % 88.04 % Weighted average number of shares outstanding — basic ​ 61,270,730 ​ 61,038,857 ​ 60,602,962 ​ 60,133,821 ​ 59,478,343 ​ Weighted average number of shares outstanding — diluted ​ 61,527,372 ​ 61,311,318 ​ 61,090,290 ​ 60,689,062 ​ 60,169,139 ​ Common shares outstanding at period-end ​ 61,348,095 ​ 61,146,835 ​ 60,852,723 ​ 60,339,837 ​ 59,917,457 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ BALANCE SHEET DATA: ​ ​ ​ ​ ​ ​ Securities (available-for sale and held-to-maturity) ​ $ 846,290 ​ $ 1,093,201 ​ $ 1,204,586 ​ $ 760,649 ​ $ 533,163 ​ Total loans, net of deferred fees ​ $ 3,491,937 ​ $ 3,350,378 ​ $ 3,298,550 ​ $ 3,087,326 ​ $ 2,619,261 ​ Allowance for credit losses on loans ​ $ (48,953) ​ $ (47,958) ​ $ (47,512) ​ $ (43,290) ​ $ (44,400) ​ Loans, net ​ $ 3,442,984 ​ $ 3,302,420 ​ $ 3,251,038 ​ $ 3,044,036 ​ $ 2,574,861 ​ Goodwill and other intangible assets ​ $ 174,070 ​ $ 176,258 ​ $ 178,664 ​ $ 181,299 ​ $ 184,295 ​ Total assets ​ $ 5,645,006 ​ $ 5,194,095 ​ $ 5,157,580 ​ $ 5,499,409 ​ $ 4,634,114 ​ Total deposits ​ $ 4,820,031 ​ $ 4,378,458 ​ $ 4,389,604 ​ $ 4,759,412 ​ $ 3,914,486 ​ Subordinated debt, net of issuance costs ​ $ 39,653 ​ $ 39,502 ​ $ 39,350 ​ $ 39,925 ​ $ 39,740 ​ Total shareholders’ equity ​ $ 689,727 ​ $ 672,901 ​ $ 632,456 ​ $ 598,028 ​ $ 577,889 ​ Tangible common equity (1) ​ $ 515,657 ​ $ 496,643 ​ $ 453,792 ​ $ 416,729 ​ $ 393,594 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SELECTED PERFORMANCE RATIOS: (2) ​ ​ ​ ​ ​ ​ Return on average assets ​ 0.76 % 1.21 % 1.23 % 0.92 % 0.80 % Return on average tangible assets (1) ​ 0.78 % 1.26 % 1.27 % 0.96 % 0.83 % Return on average equity ​ 5.97 % 9.88 % 10.95 % 8.15 % 6.12 % Return on average tangible common equity (1) ​ 8.05 % 13.57 % 15.57 % 11.86 % 9.04 % Net interest margin (FTE) (1) ​ 3.28 % 3.70 % 3.57 % 3.05 % 3.50 % Efficiency ratio (1) ​ 65.88 % 52.57 % 49.93 % 59.74 % 58.96 % Average net loans as a percentage of average deposits (3) ​ 73.01 % 71.89 % 66.10 % 61.39 % 69.58 % Average total shareholders’ equity as a percentage ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ of average total assets ​ 12.71 % 12.29 % 11.25 % 11.33 % 13.00 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SELECTED CREDIT QUALITY DATA: (4) ​ ​ ​ ​ ​ ​ Net charge-offs (recoveries) to average loans ​ 0.03 % 0.01 % (0.11) % (0.07) % 0.03 % Allowance for credit losses on loans to total loans ​ 1.40 % 1.43 % 1.44 % 1.40 % 1.70 % Nonperforming loans to total loans ​ 0.22 % 0.23 % 0.07 % 0.12 % 0.30 % Nonperforming assets to total assets ​ 0.14 % 0.15 % 0.05 % 0.07 % 0.17 % Nonperforming assets ​ $ 7,667 ​ $ 7,707 ​ $ 2,425 ​ $ 3,738 ​ $ 7,869 ​ Classified assets ​ $ 41,661 ​ $ 31,763 ​ $ 14,544 ​ $ 33,846 ​ $ 34,028 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ HERITAGE COMMERCE CORP CAPITAL RATIOS: ​ ​ ​ ​ ​ ​ Tangible common equity to tangible assets (1) ​ 9.43 % 9.90 % 9.11 % 7.84 % 8.85 % Total capital ratio ​ 15.6 % 15.5 % 14.8 % 14.4 % 16.5 % Tier 1 capital ratio ​ 13.4 % 13.3 % 12.7 % 12.3 % 14.0 % Common equity Tier 1 capital ratio ​ 13.4 % 13.3 % 12.7 % 12.3 % 14.0 % Tier 1 leverage ratio ​ 9.6 % 10.0 % 9.2 % 7.9 % 9.1 % Notes: (1) This is a non-GAAP financial measure.
SELECTED FINANCIAL DATA AT OR FOR THE YEAR ENDED DECEMBER 31, 2025 2024 2023 2022 2021 (Dollars in thousands, except per share data) INCOME STATEMENT DATA: Interest income $ 256,999 $ 240,344 $ 232,149 $ 186,882 $ 151,362 Interest expense 71,624 79,051 51,074 8,948 7,131 Net interest income before provision for credit losses on loans 185,375 161,293 181,075 177,934 144,231 Provision for (recapture of) credit losses on loans 1,816 2,139 749 766 (3,134) Net interest income after provision for credit losses on loans 183,559 159,154 180,326 177,168 147,365 Noninterest income 12,089 11,103 11,147 12,057 11,582 Noninterest expense 127,859 113,583 101,054 94,859 93,077 Income before income taxes 67,789 56,674 90,419 94,366 65,870 Income tax expense 19,959 16,146 25,976 27,811 18,170 Net income $ 47,830 $ 40,528 $ 64,443 $ 66,555 $ 47,700 PER COMMON SHARE DATA: Basic earnings per share $ 0.78 $ 0.66 $ 1.06 $ 1.10 $ 0.79 Diluted earnings per share $ 0.78 $ 0.66 $ 1.05 $ 1.09 $ 0.79 Book value per share $ 11.55 $ 11.24 $ 11.00 $ 10.39 $9.91 Tangible book value per share (1) $ 8.74 $ 8.41 $ 8.12 $ 7.46 $6.91 Dividend payout ratio 78.61 % 49.25 % 47.32 % 65.56 % Weighted average number of shares outstanding — basic 61,407,520 61,270,730 61,038,857 60,602,962 60,133,821 Weighted average number of shares outstanding — diluted 61,702,095 61,527,372 61,311,318 61,090,290 60,689,062 Common shares outstanding at period-end 61,368,708 61,348,095 61,146,835 60,852,723 60,339,837 BALANCE SHEET DATA: Securities (available-for sale and held-to-maturity) $ 1,122,669 $ 846,290 $ 1,093,201 $ 1,204,586 $ 760,649 Total loans HFI, net of deferred fees $ 3,653,060 $ 3,491,937 $ 3,350,378 $ 3,298,550 $ 3,087,326 Allowance for credit losses on loans $ (49,999) $ (48,953) $ (47,958) $ (47,512) $ (43,290) Loans, net $ 3,603,061 $ 3,442,984 $ 3,302,420 $ 3,251,038 $ 3,044,036 Goodwill and other intangible assets $ 172,256 $ 174,070 $ 176,258 $ 178,664 $ 181,299 Total assets $ 5,764,697 $ 5,645,006 $ 5,194,095 $ 5,157,580 $ 5,499,409 Total deposits $ 4,903,086 $ 4,820,031 $ 4,378,458 $ 4,389,604 $ 4,759,412 Subordinated debt, net of issuance costs $ 39,805 $ 39,653 $ 39,502 $ 39,350 $ 39,925 Total shareholders’ equity $ 708,566 $ 689,727 $ 672,901 $ 632,456 $ 598,028 Tangible common equity (1) $ 536,310 $ 515,657 $ 496,643 $ 453,792 $ 416,729 SELECTED PERFORMANCE METRICS: (2) Return on average assets 0.86 % 0.76 % 1.21 % 1.23 % 0.92 % Return on average tangible assets (1) 0.88 % 0.78 % 1.26 % 1.27 % 0.96 % Return on average equity 6.86 % 5.97 % 9.88 % 10.95 % 8.15 % Return on average tangible common equity (1) 9.12 % 8.05 % 13.57 % 15.57 % 11.86 % Net interest margin (FTE) (1) 3.56 % 3.25 % 3.68 % 3.55 % 3.03 % Total revenue $197,464 $172,396 $192,222 $189,991 $155,813 Pre-provision net revenue $69,605 $58,813 $91,168 $95,132 $62,736 Efficiency ratio 64.75 % 65.88 % 52.57 % 49.93 % 59.74 % Average net loans as a percentage of average deposits (3) 73.06 % 73.01 % 71.89 % 66.10 % 61.39 % Average total shareholders’ equity as a percentage of average total assets 12.49 % 12.71 % 12.29 % 11.25 % 11.33 % SELECTED CREDIT QUALITY DATA: (4) Net charge-offs (recoveries) to average loans 0.02 % 0.03 % 0.01 % (0.11) % (0.07) % Allowance for credit losses on loans to total loans 1.37 % 1.40 % 1.43 % 1.44 % 1.40 % Nonperforming loans to total loans 0.08 % 0.22 % 0.23 % 0.07 % 0.12 % Nonperforming assets to total assets 0.05 % 0.14 % 0.15 % 0.05 % 0.07 % Nonperforming assets $ 2,783 $ 7,667 $ 7,707 $ 2,425 $ 3,738 Classified assets $ 29,223 $ 41,661 $ 31,763 $ 14,544 $ 33,846 HERITAGE COMMERCE CORP CAPITAL RATIOS: Tangible common equity to tangible assets (1) 9.59 % 9.43 % 9.90 % 9.11 % 7.84 % Total capital ratio 15.1 % 15.6 % 15.5 % 14.8 % 14.4 % Tier 1 capital ratio 12.9 % 13.4 % 13.3 % 12.7 % 12.3 % Common equity Tier 1 capital ratio 12.9 % 13.4 % 13.3 % 12.7 % 12.3 % Tier 1 leverage ratio 9.6 % 9.6 % 10.0 % 9.2 % 7.9 % _______________________________________________________ Notes: (1) This is a non-GAAP financial measure.
At December 31, 2024, the Company had total shareholders’ equity of $689.7 million, compared to $672.9 million at December 31, 2023. At December 31, 2024, total shareholders’ equity included $510.1 million in common stock, $187.7 million in retained earnings, and ($8.1) million of accumulated other comprehensive loss.
At December 31, 2025, the Company had total shareholders’ equity of $708.6 million, compared to $689.7 million at December 31, 2024. At December 31, 2025, total shareholders’ equity included $509.6 million in common stock, $203.7 million in retained earnings, and ($4.7) million of accumulated other comprehensive loss.
In future periods, evaluations of the overall loan portfolio in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and credit loss expense in those future periods. ​ The allowance level is influenced by loan volumes, loan risk rating migration or delinquency status, changes in historical loss experience, and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions.
The allowance level is influenced by loan volumes, loan risk rating migration or delinquency status, changes in historical loss experience, and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions.
An integral part of the Company’s ability to manage its liquidity position appropriately is derived from its 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. ​ The Company manages liquidity to be able to meet unexpected sudden changes in levels of its assets or deposit liabilities without maintaining excessive amounts of balance sheet liquidity.
An integral part of the Company’s ability to manage its liquidity position appropriately is derived from its 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.
Maturities for CRE loans are generally between five and ten years (with amortization ranging from fifteen to twenty-five years and a balloon payment due at maturity), however, SBA, and certain other real estate loans that can be sold in the secondary market, may be granted for longer maturities. 59 ​ Table of Contents The CRE owner occupied loan portfolio increased $18.3 million, or 3% to $601.6 million at December 31, 2024, from $583.3 million at December 31, 2023.
Maturities for CRE loans are generally between five and ten years (with amortization ranging from fifteen to twenty-five years and a balloon payment due at maturity), however, SBA, and certain other real estate loans that can be sold in the secondary market, may be granted for longer maturities.
These economic factors included variables such as California state gross product, California unemployment rate, California home price index, and a commercial real estate value index.
Management uses an economic forecast provided by a third-party for these model inputs. These economic factors included variables such as California state gross product, California unemployment rate, California home price index, and a commercial real estate value index.
Net interest income decreased 11% to $163.6 million for the year ended December 31, 2024, compared to $183.2 million for the year ended December 31, 2023.
Net interest income decreased 11% to $161.3 million for the year ended December 31, 2024, compared to $181.1 million for the year ended December 31, 2023.
Loans, excluding residential mortgages, increased $166.8 million, or 6%, to $3.0 billion at December 31, 2024, compared to $2.9 billion at December 31, 2023.
Loans, excluding residential mortgages, increased $200.6 million, or 7%, to $3.2 billion at December, 2025, compared to $3.0 billion at December 31, 2024. Total deposits increased $83.1 million or 2% to $4.9 billion at December 31, 2025, compared to $4.8 billion at December 31, 2024.
This evaluation is performed in accordance with the Company’s underwriting policy. ​ The ACLL is calculated by using the CECL methodology. The ACLL estimation process involves procedures to appropriately consider the unique characteristics of loan portfolio segments. These segments are further disaggregated into loan classes, the level at which credit risk is monitored.
The ACLL estimation process involves procedures to appropriately consider the unique characteristics of loan portfolio segments. These segments are further disaggregated into loan classes, the level at which credit risk is monitored.
Treasury ​ (912) ​ (5,621) ​ Agency mortgage-backed securities ​ $ (4,148) ​ $ (4,313) ​ Total ​ $ (5,060) ​ $ (9,934) ​ Securities held-to-maturity pre-tax unrecognized (loss): ​ ​ ​ Agency mortgage-backed securities ​ $ (91,585) ​ $ (85,729) ​ Municipals — exempt from Federal tax ​ ​ (1,431) ​ ​ (721) ​ Total ​ $ (93,016) ​ $ (86,450) ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses on municipal securities ​ ​ (12) ​ ​ (12) ​ ​ The net pre-tax unrealized loss on the securities available-for-sale portfolio was ($5.1) million, or ($3.7) million net of taxes, which was less than 1% of total shareholders’ equity at December 31, 2024.
Treasury 622 (912) Total $ 533 $ (5,060) Securities held-to-maturity pre-tax unrecognized (loss): Agency mortgage-backed securities $ (63,568) $ (91,585) Municipals — exempt from Federal tax (387) (1,431) Total $ (63,955) $ (93,016) Allowance for credit losses on municipal securities $ (11) $ (12) The net pre-tax unrealized gain on the securities available-for-sale portfolio was $533,000, or $295,000 net of taxes, which was less than 1% of total shareholders’ equity at December 31, 2025.
Also, any weakness of a prolonged nature in the technology industry would have a negative impact on the local market. The effect of such events, although uncertain at this time, could result in an increase in the level of nonperforming loans and increased loan losses, which could adversely affect the Company’s future growth and profitability.
The effect of such events, although uncertain at this time, could result in an increase in the level of nonperforming loans and increased loan losses, which could adversely affect the Company’s future growth and profitability.
The use of the simplifying assumption that short-term and long-term rates change by the same degree may also misstate historic rate patterns, which rarely show parallel yield curve shifts. Further, the model assumes that certain assets and liabilities of similar maturity or period to repricing will react in the same way to changes in rates.
The model assumes interest rate changes are instantaneous parallel shifts in the yield curve. In reality, rate changes are rarely instantaneous. The use of the simplifying assumption that short-term and long-term rates change by the same degree may also misstate historic rate patterns, which rarely show parallel yield curve shifts.
Expected cash flows are estimated for each loan and discounted using the contractual terms of the loan, calculated probabilities of default, loss given default, prepayment and curtailment estimates as well as qualitative factors. The probability-of-default estimates are generated using a regression model used to estimate the likelihood of a loan being charged-off within the life of the loan.
Management utilizes a discounted cash flow methodology to estimate the ACLL. Expected cash flows are estimated for each loan and discounted using the contractual terms of the loan, calculated probabilities of default, loss given default, prepayment and curtailment estimates as well as qualitative factors.
The allocation presented should not be interpreted as an indication that charges to the allowance for credit losses on loans will be incurred in these amounts or proportions, or that the portion of the allowance allocated to each category represents the total amount available for charge-offs that may occur within these classes. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ 2024 ​ 2023 ​ 2022 ​ 2021 ​ 2020 ​ ​ ​ ​ ​ Percent ​ ​ ​ Percent ​ ​ ​ Percent ​ ​ ​ Percent ​ ​ ​ Percent ​ ​ ​ ​ of Loans ​ ​ ​ of Loans ​ ​ ​ of Loans ​ ​ ​ of Loans ​ ​ ​ of Loans ​ ​ ​ ​ in each ​ ​ ​ in each ​ ​ ​ in each ​ ​ ​ in each ​ ​ ​ in each ​ ​ ​ ​ category ​ ​ ​ category ​ ​ ​ category ​ ​ ​ category ​ ​ ​ category ​ ​ ​ ​ to total ​ ​ ​ to total ​ ​ ​ to total ​ ​ ​ to total ​ ​ ​ to total ​ Allowance loans Allowance loans Allowance loans Allowance loans Allowance loans ​ ​ (Dollars in thousands) Commercial ​ $ 6,060 15 % $ 5,853 14 % $ 6,617 16 % $ 8,414 22 % $ 11,587 32 % Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ CRE - owner occupied ​ 5,225 17 % 5,121 17 % 5,751 19 % ​ 7,954 19 % ​ 8,560 ​ 21 % CRE - non-owner occupied ​ 26,779 38 % 25,323 37 % 22,135 32 % 17,125 29 % 16,416 27 % Land and construction ​ 1,400 4 % 2,352 4 % 2,941 5 % 1,831 5 % 2,509 6 % Home equity ​ ​ 798 ​ 4 % ​ 644 ​ 4 % ​ 666 ​ 4 % ​ 864 ​ 4 % ​ 1,297 ​ 4 % Multifamily ​ 4,735 8 % 5,053 8 % 3,366 7 % 2,796 7 % 2,804 6 % Residential mortgages ​ ​ 3,618 ​ 14 % ​ 3,425 ​ 15 % ​ 5,907 ​ 16 % ​ 4,132 ​ 13 % ​ 943 ​ 3 % Consumer and other ​ 338 % 187 1 % 129 1 % 174 1 % 284 1 % Total ​ $ 48,953 100 % $ 47,958 100 % $ 47,512 100 % $ 43,290 100 % $ 44,400 100 % ​ The ACLL totaled $49.0 million, or 1.40% of total loans, at December 31, 2024, compared to $48.0 million, or 1.43% of total loans at December 31, 2023.
December 31, 2025 2024 2023 2022 2021 Allowance Percent of Loans in each category to total loans Allowance Percent of Loans in each category to total loans Allowance Percent of Loans in each category to total loans Allowance Percent of Loans in each category to total loans Allowance Percent of Loans in each category to total loans (Dollars in thousands) Commercial $ 5,373 15 % $ 6,060 15 % $ 5,853 14 % $ 6,617 16 % $ 8,414 22 % Real estate: CRE - owner occupied 6,084 17 % 5,225 17 % 5,121 17 % 5,751 19 % 7,954 19 % CRE - non-owner occupied 28,454 38 % 26,779 38 % 25,323 37 % 22,135 32 % 17,125 29 % Land and construction 2,039 4 % 1,400 4 % 2,352 4 % 2,941 5 % 1,831 5 % Home equity 838 4 % 798 4 % 644 4 % 666 4 % 864 4 % Multifamily 4,301 8 % 4,735 8 % 5,053 8 % 3,366 7 % 2,796 7 % Residential mortgages 2,714 14 % 3,618 14 % 3,425 15 % 5,907 16 % 4,132 13 % Consumer and other 196 % 338 % 187 1 % 129 1 % 174 1 % Total $ 49,999 100 % $ 48,953 100 % $ 47,958 100 % $ 47,512 100 % $ 43,290 100 % The ACLL totaled $50.0 million, or 1.37% of total loans, at December 31, 2025, compared to $49.0 million, or 1.40% of total loans at December 31, 2024.
The Company’s annualized return on average tangible assets was 0.78% and annualized return on average tangible common equity was 8.05% for the year ended December 31, 2024, compared to 1.26% and 13.57%, respectively, for the year ended December 31, 2023, and 1.27% and 15.57%, respectively, for the year ended December 31, 2022.
The Company’s annualized return on average assets was 0.86%, the annualized return on average equity was 6.86%, and the annualized return on average tangible common equity was 9.12% for the year ended December 31, 2025, compared to 0.76%, 5.97% and 8.05%, respectively, for the year ended December 31, 2024, and 1.22%, 9.88% and 13.57%, respectively, for the year ended December 31, 2023.
Securities held-to-maturity, at amortized cost, were $590.0 million at December 31, 2024, a decrease of (9%) from $650.6 million at December 31, 2023. Loans, excluding loans held-for-sale, increased $141.6 million, or 4%, to $3.5 billion at December 31, 2024, compared to $3.4 billion at December 31, 2023.
Securities held-to-maturity, at amortized cost, were $529.7 million at December 31, 2025, a decrease of 10% from $590.0 million at December 31, 2024, due to maturities and paydowns. Loans, excluding loans held-for-sale, increased $161.1 million, or 5%, to $3.7 billion at December 31, 2025, compared to $3.5 billion at December 31, 2024.
No assurance of the ultimate level of credit 66 ​ Table of Contents losses can be given with any certainty. ​ Changes in the allowance for credit losses on loans were as follows for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2024 2023 2022 2021 2020 ​ ​ (Dollars in thousands) Beginning of year balance ​ $ 47,958 ​ $ 47,512 ​ $ 43,290 ​ $ 44,400 ​ $ 23,285 Charge-offs: ​ ​ ​ ​ ​ Commercial ​ (1,305) ​ (750) ​ (434) ​ ​ (520) ​ ​ (1,776) Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ CRE - owner occupied ​ — ​ — ​ — ​ ​ — ​ ​ — CRE - non-owner occupied ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Home equity ​ — ​ (246) ​ — ​ ​ — ​ ​ — Consumer and other ​ (299) ​ (15) ​ — ​ ​ — ​ ​ (104) Total charge-offs ​ (1,604) ​ (1,011) ​ (434) ​ (520) ​ (1,880) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Recoveries: ​ ​ ​ ​ ​ Commercial ​ 336 ​ 346 ​ 427 ​ ​ 1,354 ​ ​ 998 Real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ CRE - owner occupied ​ ​ 27 ​ ​ 11 ​ ​ 15 ​ ​ 16 ​ ​ 1 CRE - non-owner occupied ​ — ​ — ​ — ​ ​ — ​ ​ — Land and construction ​ — ​ ​ — ​ ​ — ​ ​ 884 ​ ​ 70 Home equity ​ 97 ​ ​ 351 ​ ​ 105 ​ ​ 93 ​ ​ 93 Consumer and other ​ — ​ ​ — ​ ​ 3,343 ​ ​ 197 ​ ​ 30 Total recoveries ​ 460 ​ 708 ​ 3,890 ​ 2,544 ​ 1,192 Net (charge-offs) recoveries ​ (1,144) ​ ​ (303) ​ ​ 3,456 ​ 2,024 ​ (688) Impact of adopting Topic 326 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 8,570 Provision for (recapture of) credit losses on loans ​ 2,139 ​ 749 ​ 766 ​ (3,134) ​ 13,233 End of year balance ​ $ 48,953 ​ $ 47,958 ​ $ 47,512 ​ $ 43,290 ​ $ 44,400 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2024 ​ ​ ​ ​ ​ CRE ​ CRE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Owner ​ Non-owner ​ Land & ​ Home ​ Multi- ​ Residential ​ Consumer ​ ​ ​ ​ Commercial Occupied ​ Occupied Construction ​ Equity ​ Family ​ Mortgages ​ and Other ​ Total ​ ​ (Dollars in thousands) Beginning of period balance ​ $ 5,853 ​ $ 5,121 ​ $ 25,323 ​ $ 2,352 ​ $ 644 ​ $ 5,053 ​ $ 3,425 ​ $ 187 ​ $ 47,958 Charge-offs ​ ​ (1,305) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (299) ​ ​ (1,604) Recoveries ​ ​ 336 ​ ​ 27 ​ ​ — ​ ​ — ​ ​ 97 ​ ​ — ​ ​ — ​ ​ — ​ ​ 460 Net (charge-offs) recoveries ​ ​ (969) ​ ​ 27 ​ ​ — ​ ​ — ​ ​ 97 ​ ​ — ​ ​ — ​ ​ (299) ​ ​ (1,144) Provision for (recapture of) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ credit losses on loans ​ ​ 1,176 ​ ​ 77 ​ ​ 1,456 ​ ​ (952) ​ ​ 57 ​ ​ (318) ​ ​ 193 ​ ​ 450 ​ ​ 2,139 End of period balance ​ $ 6,060 ​ $ 5,225 ​ $ 26,779 ​ $ 1,400 ​ $ 798 ​ $ 4,735 ​ $ 3,618 ​ $ 338 ​ $ 48,953 Percent of ACLL to Total ACLL ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ at end of period ​ ​ 12% ​ ​ 11% ​ ​ 55% ​ ​ 3% ​ ​ 1% ​ ​ 10% ​ ​ 7% ​ ​ 1% ​ ​ 100% ​ 67 ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2023 ​ ​ ​ ​ ​ CRE ​ CRE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Owner ​ Non-owner ​ Land & ​ Home ​ Multi- ​ Residential ​ Consumer ​ ​ ​ ​ Commercial Occupied ​ Occupied Construction ​ Equity ​ Family ​ Mortgages ​ and Other ​ Total ​ ​ (Dollars in thousands) Beginning of period balance ​ $ 6,617 ​ $ 5,751 ​ $ 22,135 ​ $ 2,941 ​ $ 666 ​ $ 3,366 ​ $ 5,907 ​ $ 129 ​ $ 47,512 Charge-offs ​ ​ (750) ​ ​ — ​ ​ — ​ ​ — ​ ​ (246) ​ ​ — ​ ​ — ​ ​ (15) ​ ​ (1,011) Recoveries ​ ​ 346 ​ ​ 11 ​ ​ — ​ ​ — ​ ​ 351 ​ ​ — ​ ​ — ​ ​ 0 ​ ​ 708 Net (charge-offs) recoveries ​ ​ (404) ​ ​ 11 ​ ​ — ​ ​ — ​ ​ 105 ​ ​ — ​ ​ — ​ ​ (15) ​ ​ (303) Provision for (recapture of) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ credit losses on loans ​ ​ (360) ​ ​ (641) ​ ​ 3,188 ​ ​ (589) ​ ​ (127) ​ ​ 1,687 ​ ​ (2,482) ​ ​ 73 ​ ​ 749 End of period balance ​ $ 5,853 ​ $ 5,121 ​ $ 25,323 ​ $ 2,352 ​ $ 644 ​ $ 5,053 ​ $ 3,425 ​ $ 187 ​ $ 47,958 Percent of ACLL to Total ACLL ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ at end of period ​ ​ 12% ​ ​ 11% ​ ​ 53% ​ ​ 5% ​ ​ 1% ​ ​ 11% ​ ​ 7% ​ ​ 0% ​ ​ 100% ​ The increase in the allowance for credit losses on loans of $995,000 for the year ended December 31, 2024, was primarily attributed to a net increase of $632,000 in specific reserves for individually evaluated loans and net increase of $363,000 in the reserve for pooled loans compared to December 31, 2023.
No assurance of the ultimate level of credit losses can be given with any certainty. 73 Table of Content s Changes in the allowance for credit losses on loans were as follows for the periods indicated: 2025 2024 2023 2022 2021 (Dollars in thousands) Beginning of year balance $ 48,953 $ 47,958 $ 47,512 $ 43,290 $ 44,400 Charge-offs: Commercial (1,241) (1,305) (750) (434) (520) Real estate: CRE - owner occupied — — — — — CRE - non-owner occupied — — — — — Home equity — — (246) — — Consumer and other (197) (299) (15) — — Total charge-offs (1,438) (1,604) (1,011) (434) (520) Recoveries: Commercial 136 336 346 427 1,354 Real estate: CRE - owner occupied 43 27 11 15 16 CRE - non-owner occupied — — — — — Land and construction — — — — 884 Home equity 296 97 351 105 93 Consumer and other 193 — — 3,343 197 Total recoveries 668 460 708 3,890 2,544 Net (charge-offs) recoveries (770) (1,144) (303) 3,456 2,024 Provision for (recapture of) credit losses on loans 1,816 2,139 749 766 (3,134) End of year balance $ 49,999 $ 48,953 $ 47,958 $ 47,512 $ 43,290 Year Ended December 31, 2025 CRE CRE Owner Non-owner Land & Home Multi- Residential Consumer Commercial Occupied Occupied Construction Equity Family Mortgages and Other Total (Dollars in thousands) Beginning of period balance $ 6,060 $ 5,225 $ 26,779 $ 1,400 $ 798 $ 4,735 $ 3,618 $ 338 $ 48,953 Charge-offs (1,241) — — — — — — (197) (1,438) Recoveries 136 43 — — 296 — — 193 668 Net (charge-offs) recoveries (1,105) 43 — — 296 — — (4) (770) Provision for (recapture of) credit losses on loans 418 816 1,675 639 (256) (434) (904) (138) 1,816 End of period balance $ 5,373 $ 6,084 $ 28,454 $ 2,039 $ 838 $ 4,301 $ 2,714 $ 196 $ 49,999 Percent of ACLL to Total ACLL at end of period 11 % 12 % 57 % 4 % 2 % 9 % 5 % 100 % 74 Table of Content s Year Ended December 31, 2024 CRE CRE Owner Non-owner Land & Home Multi- Residential Consumer Commercial Occupied Occupied Construction Equity Family Mortgages and Other Total (Dollars in thousands) Beginning of period balance $ 5,853 $ 5,121 $ 25,323 $ 2,352 $ 644 $ 5,053 $ 3,425 $ 187 $ 47,958 Charge-offs (1,305) — — — — — — (299) (1,604) Recoveries 336 27 — — 97 — — — 460 Net (charge-offs) recoveries (969) 27 — — 97 — — (299) (1,144) Provision for (recapture of) credit losses on loans 1,176 77 1,456 (952) 57 (318) 193 450 2,139 End of period balance $ 6,060 $ 5,225 $ 26,779 $ 1,400 $ 798 $ 4,735 $ 3,618 $ 338 $ 48,953 Percent of ACLL to Total ACLL at end of period 12 % 11 % 55 % 3 % 1 % 10 % 7 % 100 % The increase in the allowance for credit losses on loans of $1.0 million for the year ended December 31, 2025, was primarily attributed to loan growth. 75 Table of Content s The following table provides a summary of the allocation of the allowance for credit losses on loans by class at the dates indicated.
The Company did not repurchase any of its common stock during the year ended December 31, 2024. On May 11, 2022, the Company completed a private placement offering of $40.0 million aggregate principal amount of its 5.00% fixed-to-floating rate subordinated notes due May 15, 2032 (“Sub Debt due 2032”).
At December 31, 2025, the remaining capacity under the Repurchase Program was $26.0 million. 80 Table of Content s On May 11, 2022, the Company completed a private placement offering of $40.0 million aggregate principal amount of its 5.00% fixed-to-floating rate subordinated notes due May 15, 2032 (“Sub Debt due 2032”).
The following table summarizes components of the annualized return on average tangible assets and the annualized return on average tangible common equity for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2024 ​ 2023 ​ 2022 ​ 2021 ​ 2020 ​ ​ (Dollars in thousands) ​ Net income ​ $ 40,528 ​ $ 64,443 ​ $ 66,555 ​ $ 47,700 ​ $ 35,299 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average tangible assets components: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average Assets (GAAP) ​ $ 5,338,705 ​ $ 5,289,375 ​ $ 5,401,220 ​ $ 5,166,294 ​ $ 4,434,329 ​ Less: Goodwill ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) ​ Less: Other Intangible Assets ​ ​ (7,589) ​ ​ (9,905) ​ ​ (12,430) ​ ​ (15,256) ​ ​ (18,608) ​ Total Average Tangible Assets (non-GAAP) ​ $ 5,163,485 ​ $ 5,111,839 ​ $ 5,221,159 ​ $ 4,983,407 ​ $ 4,248,090 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Annualized return on average tangible assets (non-GAAP) ​ ​ 0.78 % ​ 1.26 % ​ 1.27 % ​ 0.96 % ​ 0.83 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average tangible common equity components: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average Equity (GAAP) ​ $ 678,543 ​ $ 652,449 ​ $ 607,603 ​ $ 585,156 ​ $ 576,675 ​ Less: Goodwill ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) ​ Less: Other Intangible Assets ​ ​ (7,589) ​ ​ (9,905) ​ ​ (12,430) ​ ​ (15,256) ​ ​ (18,608) ​ Total Average Tangible Common Equity (non-GAAP) ​ $ 503,323 ​ $ 474,913 ​ $ 427,542 ​ $ 402,269 ​ $ 390,436 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Annualized return on average tangible common ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ equity (non-GAAP) ​ ​ 8.05 % ​ 13.57 % ​ 15.57 % ​ 11.86 % ​ 9.04 % ​ ​ ​ ​ ​ ​ The following table summarizes components of the tangible common equity to tangible assets ratio of the Company at the dates indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2024 2023 ​ 2022 ​ 2021 ​ 2020 ​ ​ (Dollars in thousands) Capital components: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Equity (GAAP) ​ $ 689,727 ​ $ 672,901 ​ $ 632,456 ​ $ 598,028 ​ $ 577,889 ​ Less: Preferred Stock ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ Total Common Equity ​ ​ 689,727 ​ ​ 672,901 ​ ​ 632,456 ​ ​ 598,028 ​ ​ 577,889 ​ Less: Goodwill ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) ​ Less: Other Intangible Assets ​ ​ (6,439) ​ ​ (8,627) ​ ​ (11,033) ​ ​ (13,668) ​ ​ (16,664) ​ Total Tangible Common Equity (non-GAAP) ​ $ 515,657 ​ $ 496,643 ​ $ 453,792 ​ $ 416,729 ​ $ 393,594 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Asset components: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Assets (GAAP) ​ $ 5,645,006 ​ $ 5,194,095 ​ $ 5,157,580 ​ $ 5,499,409 ​ $ 4,634,114 ​ Less: Goodwill ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) ​ Less: Other Intangible Assets ​ ​ (6,439) ​ ​ (8,627) ​ ​ (11,033) ​ ​ (13,668) ​ ​ (16,664) ​ Total Tangible Assets (non-GAAP) ​ $ 5,470,936 ​ $ 5,017,837 ​ $ 4,978,916 ​ $ 5,318,110 ​ $ 4,449,819 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tangible common equity to tangible assets (non-GAAP) ​ ​ 9.43 % ​ 9.90 % ​ 9.11 % ​ 7.84 % ​ 8.85 % ​ ​ 80 ​ Table of Contents The following table summarizes components of the tangible common equity to tangible assets ratio of HBC at the dates indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2024 2023 ​ 2022 ​ 2021 ​ ​ 2020 ​ ​ (Dollars in thousands) Capital components: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Equity (GAAP) ​ $ 709,379 ​ $ 690,918 ​ $ 649,545 ​ $ 616,108 ​ $ 595,681 ​ Less: Preferred Stock ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ Total Common Equity ​ ​ 709,379 ​ ​ 690,918 ​ ​ 649,545 ​ ​ 616,108 ​ ​ 595,681 ​ Less: Goodwill ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) ​ Less: Other Intangible Assets ​ ​ (6,439) ​ ​ (8,627) ​ ​ (11,033) ​ ​ (13,668) ​ ​ (16,664) ​ Total Tangible Common Equity (non-GAAP) ​ $ 535,309 ​ $ 514,660 ​ $ 470,881 ​ $ 434,809 ​ $ 411,386 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Asset components: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Assets (GAAP) ​ $ 5,641,646 ​ $ 5,190,829 ​ $ 5,157,093 ​ $ 5,496,724 ​ $ 4,632,230 ​ Less: Goodwill ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) ​ Less: Other Intangible Assets ​ ​ (6,439) ​ ​ (8,627) ​ ​ (11,033) ​ ​ (13,668) ​ ​ (16,664) ​ Total Tangible Assets (non-GAAP) ​ $ 5,467,576 ​ $ 5,014,571 ​ $ 4,978,429 ​ $ 5,315,425 ​ $ 4,447,935 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tangible common equity to tangible assets (non-GAAP) ​ ​ 9.79 % ​ 10.26 % ​ 9.46 % ​ 8.18 % ​ 9.25 % ​ The following table summarizes components of the tangible book value per share at the dates indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2024 ​ 2023 ​ 2022 ​ 2021 ​ 2020 ​ ​ (Dollars in thousands, except per share amounts) Capital components: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Equity (GAAP) ​ $ 689,727 ​ $ 672,901 ​ $ 632,456 ​ $ 598,028 ​ $ 577,889 Less: Preferred Stock ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total Common Equity ​ ​ 689,727 ​ ​ 672,901 ​ ​ 632,456 ​ ​ 598,028 ​ ​ 577,889 Less: Goodwill ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) ​ ​ (167,631) Less: Other Intangible Assets ​ ​ (6,439) ​ ​ (8,627) ​ ​ (11,033) ​ ​ (13,668) ​ ​ (16,664) Total Tangible Common Equity (non-GAAP) ​ $ 515,657 ​ $ 496,643 ​ $ 453,792 ​ $ 416,729 ​ $ 393,594 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common shares outstanding at period-end ​ ​ 61,348,095 ​ ​ 61,146,835 ​ ​ 60,852,723 ​ ​ 60,339,837 ​ ​ 59,917,457 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tangible book value per share (non-GAAP) ​ $ 8.41 ​ $ 8.12 ​ $ 7.46 ​ $ 6.91 ​ $ 6.57 ​ ​ 81 ​ Table of Contents ​ ​
The following table summarizes components of the annualized return on average tangible assets and the annualized return on average tangible common equity for the periods indicated: December 31, 2025 2024 2023 2022 2021 (Dollars in thousands) Reported net income (GAAP) $ 47,830 $ 40,528 $ 64,443 $ 66,555 $ 47,700 Add: pre-tax legal settlement, merger and other charges 11,251 — — — 4,500 Less: related income taxes (2,633) — — — (1,283) Adjusted net income (non-GAAP) $ 56,448 $ 40,528 $ 64,443 $ 66,555 $ 50,917 Average Assets (GAAP) $ 5,583,975 $ 5,338,705 $ 5,289,375 $ 5,401,220 5,166,294 Reported annualized return on average assets (GAAP) 0.86 % 0.76 % 1.22 % 1.23 % 0.92 % Adjusted annualized return on average assets (non-GAAP) 1.01 % 0.76 % 1.22 % 1.23 % 0.99 % Average tangible common equity components: Average Equity (GAAP) $ 697,463 $ 678,543 $ 652,449 $ 607,603 $ 585,156 Less: Goodwill (167,631) (167,631) (167,631) (167,631) (167,631) Less: Other Intangible Assets (5,578) (7,589) (9,905) (12,430) (15,256) Total Average Tangible Common Equity (non-GAAP) $ 524,254 $ 503,323 $ 474,913 $ 427,542 $ 402,269 Reported annualized return on average equity (GAAP) 6.86 % 5.97 % 9.88 % 10.95 % 8.15 % Adjusted annualized return on average equity (non-GAAP) 8.09 % 5.97 % 9.88 % 10.95 % 8.70 % Reported annualized return on average tangible common equity (non-GAAP) 9.12 % 8.05 % 13.57 % $ 15.57 % $ 11.86 % Adjusted annualized return on average tangible common equity (non-GAAP) 10.77 % 8.05 % 13.57 % 15.57 % 12.66 % 91 Table of Content s The following table summarizes components of the tangible common equity to tangible assets ratio of the Company at the dates indicated: December 31, 2025 2024 2023 2022 2021 (Dollars in thousands) Capital components: Total Equity (GAAP) $ 708,566 $ 689,727 $ 672,901 $ 632,456 $ 598,028 Less: Preferred Stock — — — — — Total Common Equity 708,566 689,727 672,901 632,456 598,028 Less: Goodwill (167,631) (167,631) (167,631) (167,631) (167,631) Less: Other Intangible Assets (4,625) (6,439) (8,627) (11,033) (13,668) Total Tangible Common Equity (non-GAAP) $ 536,310 $ 515,657 $ 496,643 $ 453,792 $ 416,729 Asset components: Total Assets (GAAP) $ 5,764,697 $ 5,645,006 $ 5,194,095 $ 5,157,580 $ 5,499,409 Less: Goodwill (167,631) (167,631) (167,631) (167,631) (167,631) Less: Other Intangible Assets (4,625) (6,439) (8,627) (11,033) (13,668) Total Tangible Assets (non-GAAP) $ 5,592,441 $ 5,470,936 $ 5,017,837 $ 4,978,916 $ 5,318,110 Tangible common equity to tangible assets (non-GAAP) 9.59 % 9.43 % 9.90 % 9.11 % 7.84 % The following table summarizes components of the tangible common equity to tangible assets ratio of HBC at the dates indicated: December 31, 2025 2024 2023 2022 2021 (Dollars in thousands) Capital components: Total Equity (GAAP) $ 733,802 $ 709,379 $ 690,918 $ 649,545 $ 616,108 Less: Preferred Stock — — — — — Total Common Equity 733,802 709,379 690,918 649,545 616,108 Less: Goodwill (167,631) (167,631) (167,631) (167,631) (167,631) Less: Other Intangible Assets (4,625) (6,439) (8,627) (11,033) (13,668) Total Tangible Common Equity (non-GAAP) $ 561,546 $ 535,309 $ 514,660 $ 470,881 $ 434,809 Asset components: Total Assets (GAAP) $ 5,760,786 $ 5,641,646 $ 5,190,829 $ 5,157,093 $ 5,496,724 Less: Goodwill (167,631) (167,631) (167,631) (167,631) (167,631) Less: Other Intangible Assets (4,625) (6,439) (8,627) (11,033) (13,668) Total Tangible Assets (non-GAAP) $ 5,588,530 $ 5,467,576 $ 5,014,571 $ 4,978,429 $ 5,315,425 Tangible common equity to tangible assets (non-GAAP) 10.05 % 9.79 % 10.26 % 9.46 % 8.18 % 92 Table of Content s The following table summarizes components of the tangible book value per share at the dates indicated: December 31, 2025 2024 2023 2022 2021 (Dollars in thousands, except per share amounts) Capital components: Total Equity (GAAP) $ 708,566 $ 689,727 $ 672,901 $ 632,456 $ 598,028 Less: Preferred Stock — — — — — Total Common Equity 708,566 689,727 672,901 632,456 598,028 Less: Goodwill (167,631) (167,631) (167,631) (167,631) (167,631) Less: Other Intangible Assets (4,625) (6,439) (8,627) (11,033) (13,668) Total Tangible Common Equity (non-GAAP) 536,310 515,657 496,643 453,792 416,729 Add: pre-tax legal settlement, merger and other charges 15,751 4,500 4,500 4,500 4,500 Less: related income taxes (3,916) (1,283) (1,283) (1,283) (1,283) Adjusted tangible common equity (non-GAAP) $ 548,145 $ 518,874 $ 499,860 $ 457,009 $ 419,946 Common shares outstanding at period-end 61,368,708 61,348,095 61,146,835 60,852,723 60,339,837 Reported tangible book value per share (non-GAAP) $ 8.74 $ 8.41 $ 8.12 $ 7.46 $ 6.91 Adjusted tangible book value per share (non-GAAP) $ 8.93 $ 8.46 $ 8.17 $ 7.51 $ 6.96 93 Table of Content s
The contractual maturity of total deposits at December 31, 2024, are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less Than ​ One to ​ Three to ​ After ​ ​ ​ ​ One Year Three Years Five Years Five Years Total ​ ​ (Dollars in thousands) Deposits (1) ​ $ 4,762,847 ​ $ 56,880 ​ $ 22 ​ $ 282 ​ $ 4,820,031 ​ (1) Deposits with indeterminate maturities, such as demand, savings and money market accounts, are reflected as obligations due in less than one year. ​ 70 ​ Table of Contents Return on Equity and Assets The following table indicates the ratios for return on average assets and average equity, and average equity to average assets for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ ​ 2024 2023 2022 Return on average assets 0.76 % 1.22 % 1.23 % Return on average tangible assets (1) 0.78 % 1.26 % 1.27 % Return on average equity 5.97 % 9.88 % 10.95 % Return on average tangible common equity (1) 8.05 % 13.57 % 15.57 % Average equity to average assets ratio 12.71 % 12.62 % 11.25 % ​ (1) This is a non-GAAP financial measure.
The account activity for some account types and client types necessitates appropriate liquidity management practices by the Company to ensure its ability to fund deposit withdrawals. 78 Table of Content s The contractual maturity of total deposits at December 31, 2025, are as follows: Less Than One Year One to Three Years Three to Five Years After Five Years Total (Dollars in thousands) Deposits (1) $ 4,854,872 $ 47,662 $ 269 $ 283 $ 4,903,086 _______________________________________________________ (1) Deposits with indeterminate maturities, such as demand, savings and money market accounts, are reflected as obligations due in less than one year. _______________________________________________________ Return on Equity and Assets The following table indicates the ratios for return on average assets and average equity, and average equity to average assets for the periods indicated: Year Ended December 31, 2025 2024 2023 Return on average assets 0.86 % 0.76 % 1.22 % Return on average tangible assets (1) 0.88 % 0.78 % 1.26 % Return on average equity 6.86 % 5.97 % 9.88 % Return on average tangible common equity (1) 9.12 % 8.05 % 13.57 % Average equity to average assets ratio 12.49 % 12.71 % 12.62 % Adjusted: Return on average assets (1) 1.01 % 0.76 % 1.22 % Return on average tangible common equity (1) 10.77 % 8.05 % 13.57 % _______________________________________________________ (1) This is a non-GAAP financial measure.
Unless we state otherwise or the context indicates otherwise, references to the “Company,” “Heritage,” “we,” “us,” and “our,” in this Report on Form 10-K refer to Heritage Commerce Corp and its subsidiaries.
Unless we state otherwise or the context indicates otherwise, references to the “Company,” “Heritage,” “we,” “us,” and “our,” in this Report on Form 10-K refer to Heritage Commerce Corp and its subsidiaries. Merger Agreement with CVB Financial Corp. On December 17, 2025, CVB Financial Corp. ("CVBF") and the Company jointly announced that they have entered into a definitive merger agreement.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Based upon the nature of the Company’s operations, the Company is not subject to foreign exchange or commodity price risk. The Company has no market risk sensitive instruments held for trading purposes. At December 31, 2024, the Company did not use interest rate derivatives to hedge its interest rate risk.
Based upon the nature of the Company’s operations, the Company is not subject to foreign exchange or commodity price risk. The Company has no market risk sensitive instruments held for trading purposes. At December 31, 2025, the Company did not use interest rate derivatives to hedge its interest rate risk.
The information concerning quantitative and qualitative disclosure or market risk called for by Item 305 of Regulation S-K is included as part of Item 7 of this report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and report of the Independent Registered Public Accounting Firm are set forth on pages 89 through 143. ITEM 9.
The information concerning quantitative and qualitative disclosure or market risk called for by Item 305 of Regulation S-K is included as part of Item 7 of this report.
Removed
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None.

Other HTBK 10-K year-over-year comparisons