UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1999 Or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transitional period from to Commission File No. 000-23877 HERITAGE COMMERCE CORP (Exact name of registrant as specified in its charter) California 77-0469558 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 150 Almaden Blvd., San Jose, California 95113 (Address of principal executive offices) (Zip Code) (408) 947-6900 (Registrant's telephone number, including area code) None (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS: The Registrant had 5,594,669 shares of Common Stock outstanding on August 13, 1999.
HERITAGE COMMERCE CORP AND SUBSIDIARIES QUARTERLY REPORT ON FORM 10-Q Table of Contents Part I - Financial Information Page Item 1. Condensed Consolidated Statements of Financial Condition At June 30, 1999 and December 31, 1998 1 Condensed Consolidated Statements of Income For the three months ended June 30, 1999 and 1998 2 Condensed Consolidated Statements of Cash Flows For the three months ended June 30, 1999 and 1998 3 Condensed Consolidated Notes to Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 Part II - Other Information Item 1. Legal Proceedings 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 6. Exhibits and Reports on Form 8-K 20 Signatures 21
<TABLE> <CAPTION> HERITAGE COMMERCE CORP AND SUBSIDIARIES Condensed Consolidated Statements of Financial Condition ASSETS June 30, 1999 December 31, 1998 (Unaudited) <S> <C> <C> Cash and due from banks $ 21,098,000 $ 18,039,000 Federal funds sold 59,120,000 28,600,000 Total cash and cash equivalents 80,218,000 46,639,000 Securities available-for-sale, at fair value 31,631,000 50,249,000 Securities held-to-maturity, at amortized cost (fair value of $13,783,000 and $27,240,000, respectively) 13,856,000 26,544,000 Loan held for sale, at fair value 11,675,000 33,079,000 Loans 245,336,000 236,307,000 Allowance for loan losses (4,337,000) (3,825,000) Loans, net 240,999,000 232,482,000 Premises and equipment, net 3,103,000 3,238,000 Accrued interest receivable and other assets 12,593,000 7,240,000 Other investments 9,140,000 5,460,000 TOTAL $ 403,215,000 $ 404,931,000 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Deposits Demand, noninterest bearing $ 124,160,000 $ 120,854,000 Demand, interest bearing 9,171,000 9,035,000 Savings and money market 129,095,000 131,518,000 Time deposits, under $100,000 38,785,000 29,793,000 Time deposits, $100,000 and over 63,381,000 58,847,000 Total deposits 364,592,000 350,047,000 Deposits held for sale --- 18,911,000 Accrued interest payable and other liabilities 7,150,000 5,276,000 Total liabilities 371,742,000 374,234,000 Commitments and contingencies Shareholders' equity: Preferred Stock, 10,000,000 shares authorized; none outstanding --- --- Common Stock, no par value; 30,000,000 shares authorized; Shares issued and outstanding: 5,592,184 at June 30, 1999 and 5,554,552 at December 31, 1998 29,642,000 29,418,000 Accumulated other comprehensive (loss) income, net of taxes (92,000) 658,000 Retained Earnings 1,923,000 621,000 Total shareholders' equity 31,473,000 30,697,000 TOTAL $ 403,215,000 $ 404,931,000 See notes to condensed consolidated financial statements </TABLE>
<TABLE> <CAPTION> HERITAGE COMMERCE CORP AND SUBSIDIARIES Condensed Consolidated Statements of Income (Unaudited) <S> <C> <C> <C> <C> Three months ended June 30, Six months ended June 30, 1999 1998 1999 1998 Interest income: Loans, including fees $ 6,218,000 $ 4,206,000 $ 12,249,000 $ 7,756,000 Securities, taxable 450,000 1,380,000 1,075,000 2,613,000 Securities, non-taxable 146,000 168,000 319,000 288,000 Federal funds sold 311,000 295,000 647,000 512,000 Total interest income 7,125,000 6,049,000 14,290,000 11,169,000 Interest expense: Deposits 2,211,000 1,667,000 4,371,000 3,009,000 Other --- --- 11,000 --- Total interest expense 2,211,000 1,667,000 4,382,000 3,009,000 Net interest income before provision for loan losses 4,914,000 4,382,000 9,908,000 8,160,000 Provision for loan losses 484,000 350,000 1,127,000 510,000 Net interest income after provision for loan losses 4,430,000 4,032,000 8,781,000 7,650,000 Other income: Gain on sale of loans held-for-sale 84,000 49,000 250,000 50,000 Gain on sale of securities available-for-sale 233,000 49,000 1,004,000 67,000 Service charges and other fees 73,000 48,000 142,000 98,000 Other investment income 49,000 57,000 128,000 109,000 Other income 248,000 40,000 387,000 50,000 Total other income 687,000 243,000 1,911,000 374,000 Other expenses: Salaries and employee benefits 2,542,000 1,790,000 4,963,000 3,370,000 Client services 135,000 559,000 797,000 919,000 Furniture and equipment 283,000 183,000 580,000 353,000 Advertising and promotion 227,000 189,000 376,000 369,000 Occupancy 261,000 191,000 493,000 342,000 Professional fees 75,000 149,000 245,000 313,000 Loan origination costs 140,000 114,000 257,000 195,000 Stationery & supplies 56,000 53,000 135,000 108,000 Telephone expense 54,000 35,000 104,000 81,000 Software subscriptions 60,000 14,000 84,000 30,000 Other 330,000 185,000 717,000 400,000 Total other expenses 4,163,000 3,462,000 8,751,000 6,480,000 Net income before income taxes 954,000 813,000 1,941,000 1,544,000 Income taxes 280,000 283,000 640,000 561,000 Net income $ 674,000 $ 530,000 $ 1,301,000 $ 983,000 Earnings per share: Basic $ 0.12 $ 0.11 $ 0.23 $ 0.19 Diluted $ 0.11 $ 0.09 $ 0.20 $ 0.16 See notes to condensed consolidated financial statements </TABLE>
<TABLE> <CAPTION> HERITAGE COMMERCE CORP Condensed Consolidated Statements of Cash Flows (Unaudited) <S> <C> <C> Six Months ended June 30, 1999 1998 Cash flows from operating activities: Net income $ 1,301,000 $ 913,000 Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization 414,000 271,000 Provision for loan losses 1,127,000 510,000 Gain on sale of securities available-for-sale (1,004,000) (67,000) Net amortization of premiums/accretion of discounts (234,000) 37,000 Proceeds from sales of loans 4,785,000 (33,000) Originations of loans held for sale --- (2,157,000) Maturities of loans held for sale --- 67,000 Increase in accrued interest receivable and other assets (5,502,000) (861,000) Decrease in accrued interest payable and other liabilities 2,367,000 225,000 Net cash provided by (used by) operating activities 3,254,000 (1,095,000) Cash flows from investing activities: Net decrease (increase) in loans 6,975,000 (39,290,000) Purchases of investment securities available-for-sale (26,334,000) (23,971,000) Maturities of investment securities available-for-sale 7,005,000 7,513,000 Sales of investment securities available-for-sale 49,512,000 2,067,000 Purchases of investment securities held-to-maturity --- (7,014,000) Maturities of investment securities held-to-maturity 1,115,000 5,311,000 Purchases of corporate owned life insurance (3,528,000) (809,000) Capital expenditures (278,000) (1,235,000) Net cash provided by (used by) investing activities 34,467,000 (57,428,000) Cash flows from financing activities: Net (decrease) increase in deposits (4,366,000) 80,673,000 Proceeds from exercise of stock options 224,000 --- Net cash (used by) provided by financing activities (4,142,000) 80,673,000 Net increase in cash and cash equivalents 33,579,000 22,150,000 Cash and cash equivalents, beginning of period 46,639,000 43,185,000 Cash and cash equivalents, end of period $ 80,218,000 $ 65,335,000 Other cash flow information: Interest paid in cash $ 4,786,000 $ 2,876,000 Income taxes paid in cash $ 1,710,000 $ 521,000 See notes to condensed consolidated financial statements </TABLE>
HERITAGE COMMERCE CORP AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements June 30, 1999 (Unaudited) 1) Basis of Presentation The unaudited condensed consolidated financial statements of Heritage Commerce Corp and its wholly owned subsidiaries, Heritage Bank of Commerce and Heritage Bank East Bay, have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain information and notes required by generally accepted accounting principles for complete financial statements are not included herein. The interim statements should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K Annual Report for the year ended December 31, 1998. In the Company's opinion, all adjustments necessary for a fair presentation of these condensed consolidated financial statements have been included and are of a normal and recurring nature. Certain reclassifications have been made to prior year amounts to conform to current year presentation. The results for the three months and six months ended June 30, 1999 are not necessarily indicative of the results expected for any subsequent period or for the entire year ending December 31, 1999. 2) Share and Per Share Amounts Earnings per common share (basic) are calculated based on the weighted average number of shares outstanding during the period. Earnings per common and common equivalent share (diluted) are calculated based on the weighted average number of shares outstanding during the period, plus equivalent shares representing the dilutive effect of stock options using the treasuring stock method. All share numbers have been restated for the stock split in February, 1999. Reconciliation of weighted average shares used in computing earnings per share are as follows: <TABLE> <CAPTION> <S> <C> <C> <C> <C> Three months end June 30, Six months ended June 30, 1999 1998 1999 1998 Weighted average common shares outstanding 5,582,308 4,943,844 5,569,613 5,242,516 Diluted effect of stock options outstanding 781,801 736,325 817,744 728,853 Shares used in computing diluted earnings per share 6,364,109 5,680,169 6,387,357 5,971,369 </TABLE> 3) Adoption of FAS 133 In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133 , "Accounting for Derivative Instruments and Hedging Activities." The Company adopted the provisions of SFAS No. 133 effective February 1, 1999. Because of the Company's minimal use of derivatives, the adoption of SFAS No. 133 did not significantly impact the Company's earnings or financial position. As allowed by SFAS No. 133 the Company transferred approximately $11.67 million of certain securities from the held-to-maturity to available-for-sale classification. The realized and unrealized gains on the securities transferred were not material to the Company.
4) Comprehensive Income In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income", which requires that an enterprise report and display, by major components and as a single total, the change in its net assets during the period from non-owner sources. This Statement is effective for fiscal years beginning after December 15, 1997. The adoption of this Statement in the second quarter of 1999 resulted in a change in the financial statement presentation, but did not have an impact on the Company's consolidated financial position, results of operations or cash flows. Certain amounts in the prior period have been reclassified to conform to the current presentation under SFAS No. 130. Total comprehensive income for the three months ended June 30, 1999 and 1998 was $357,000 and $623,000, respectively. Total comprehensive income for the six months ended June 30, 1999 and 1998 was $551,000 and $1,111,000, respectively. The following is a summary of the components of accumulated other comprehensive income: <TABLE> <CAPTION> <S> <C> <C> <C> <C> For the Three Months Ended For the Six Months Ended June 30, 1999 June 30, 1998 June 30,1999 June 30,1998 Net Income $ 674,000 $ 530,000 $ 1,301,000 $ 983,000 Other comprehensive income, net of tax: Net unrealized gain (loss) on securities available-for-sale during the period (84,000) 142,000 254,000 195,000 Less: reclassification adjustment for realized gains on available-for-sale securities included in net income during the period (233,000) (49,000) (1,004,000) (67,000) Other comprehensive income (loss) (317,000) 93,000 (750,000) 128,000 Comprehensive income $ 357,000 $ 623,000 $ 551,000 $ 1,111,000 </TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Net income for the quarter and six months ended June 30, 1999 was $674,000 and $1,301,000, or $0.11 and $0.20 per diluted share, as compared to net income of $530,000 and $983,000, or $0.09 and $0.16 per diluted share, for the same period in 1998. The increase was attributable to growth in the level of average earning assets overall, and of loans in particular, funded by new deposits at favorable weighted average rates of interest. Return on average assets annualized for the first six months of 1999 and 1998 was 0.72% and 0.69%. Annualized return on average equity for the first six months of 1999 was 8.41%, compared to 8.65% for the first six months of 1998. Average interest earning assets for the quarter and six months ended June 30, 1999 were up $51,861,000 and $73,479,000, or 19% and 28% over 1998, with much of the increase primarily attributable to growth in loans. The average rate earned on loans in the second quarter and six months of 1999 was 9.72% and 9.79%, compared to 10.98% and 10.87% in the second quarter and six months of 1998. The average rate on earning assets was 8.65% and 8.67% for the quarter and six months ended June 30, 1999, compared to 8.71% and 8.71% for the quarter and six months ended June 30, 1998. Average interest bearing liabilities increased $47,481,000 and $65,831,000, or 27% and 40% from three months and six months ended June 30, 1998 to the same periods in 1999, with the increase attributable to growth in interest bearing demand deposits, money market accounts, growth in time deposits of $100,000 or more, and growth in time deposits in support of the internet credit card program. The average rate paid on interest bearing liabilities increased to 3.92% and 3.85% from 3.74% and 3.70% at the three and six months ended June 30, 1999 and 1998, respectively. The Company's net interest margin was 5.97% and 6.02% in the second quarter and six months ended June 30, 1999, compared with 6.31% and 6.36% in the second quarter and the six months ended June 30, 1998. The Company's non-performing assets increased to $1,776,000 at June 30, 1999 from zero at June 30, 1998, due to local market conditions and the increase in size of the loan portfolio. Shareholders' equity increased $776,000 to $31,473,000, or 7.81% of assets, at June 30, 1999, from $30,697,000 or 7.58% of assets, at December 31, 1998. The Company's Tier 1 and total risk-based capital ratios were 9.8% and 11.1% at June 30, 1999, compared to 9.2% and 10.4%, respectively, at December 31, 1998, and 11.5% and 13.0%, respectively, at June 30, 1998. Due to the overall growth in total assets, more specifically the growth in the loan portfolio, the Company's leverage capital ratio stood at 8.6% at June 30, 1999. This compares with a leverage ratio of 9.0% at December 31, 1998 and 7.2% at June 30, 1998.
RESULTS OF OPERATIONS Net Interest Income and Net Interest Margin The following table presents the Company's average balance sheet, net interest income and the resultant yields for the periods presented: <TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> <C> For the Three Months Ended For the Three Months Ended June 30, 1999 June 30, 1998 Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ (Dollars in thousands) Balance Expense Rate Balance Expense Rate Assets: Loans, gross $ 256,633 $ 6,218 9.72% $ 153,643 $ 4,206 10.98% Investments securities 46,845 596 5.10% 102,986 1,548 6.03% Federal funds sold 26,937 311 4.63% 21,925 295 5.40% Total interest earning assets $ 330,415 $ 7,125 8.65% $ 278,554 $ 6,049 8.71% Cash and due from banks 15,420 21,644 Premises and equipment, net 3,136 2,813 Other assets 15,918 6,224 Total assets $ 364,889 $ 309,235 Liabilities and shareholders' equity: Deposits: Demand, interest bearing $ 10,280 $ 40 1.55% $ 6,921 $ 34 1.97% Savings and Money market 116,719 941 3.23% 113,090 908 3.22% Time deposits, less than $100,000 33,125 431 5.22% 9,694 121 5.02% Time deposits, $100,000 and over 59,895 710 4.75% 48,968 604 4.95% Brokered Deposits 6,135 89 5.85% - - - Total interest bearing liabilities $ 226,154 $ 2,211 3.92% $ 178,673 $ 1,667 3.74% Demand deposits 102,233 104,990 Other liabilities 5,180 2,461 Total liabilities 107,413 107,451 Shareholders' equity 31,322 23,111 Total liabilities and shareholders' equity $ 364,889 $ 309,235 Net interest income/margin $ 4,914 5.97% $ 4,382 6.31% Note: Yields and amounts earned on loans include loan fees of $476,000 and $362,000 for the three month periods ended June 30, 1999 and 1998, respectively. For the Six Months Ended For the Six Months Ended June 30, 1999 June 30, 1998 Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ (Dollars in thousands) Balance Expense Rate Balance Expense Rate Assets: Loans, gross $ 252,354 $ 12,249 9.79% $ 143,917 $ 7,756 10.87% Investments securities 51,857 1,394 5.42% 95,721 2,901 6.11% Federal funds sold 27,981 647 4.67% 19,075 512 5.42% Total interest earning assets $ 332,192 $ 14,290 8.67% $ 258,713 $ 11,169 8.71% Cash and due from banks 16,226 20,587 Premises and equipment, net 3,184 2,557 Other assets 14,159 5,884 Total assets $ 365,761 $ 287,741 Liabilities and shareholders' equity: Deposits: Demand, interest bearing $ 9,870 $ 74 1.51% $ 6,565 $ 63 1.93% Savings and Money market 123,952 1,928 3.14% 104,413 1,646 3.18% Time deposits, less than $100,000 32,854 857 5.26% 8,609 207 4.84% Time deposits, $100,000 and over 56,318 1,340 4.80% 44,272 1,093 4.98% Brokered Deposits 6,150 172 5.64% - - - Other borrowings 552 11 4.00% 6 - 11.35% Total interest bearing liabilities $ 229,696 $ 4,382 3.85% $ 163,865 $ 3,009 3.70% Demand deposits 99,583 98,541 Other liabilities 5,299 2,412 Total liabilities 104,882 100,953 Shareholders' equity 31,183 22,923 Total liabilities and shareholders' equity $ 365,761 $ 287,741 Net interest income/margin $ 9,908 6.02% $ 8,160 6.36% Note: Yields and amounts earned on loans include loan fees of $932,000 and $639,000 for the six month periods ended June 30, 1999 and 1998, respectively. </TABLE>
The Company's net interest income for the second quarter and six months end of 1999 was $4,914,000 and $9,908,000, an increase of $532,000 and $1,748,000 over the second quarter and six months end of 1998. When compared to the second quarter and six months end of 1998, average earning assets increased by $51,861,000 and $73,479,000. The net yield on average earning assets was 5.97% and 6.02% in the second quarter and the first six months of 1999, compared to 6.31% and 6.36% in the second quarter and the first six months of 1998. The increase in net interest income was primarily due to an increase in the volume of interest earning assets, primarily loans. The following table sets forth an analysis of the changes in interest income and interest expense. The total change is shown in the column designated "Net Change" and is allocated in the columns to the left, to the portions respectively attributable to volume changes and rate changes that occurred during the period indicated. Changes due to both volume and rate have been allocated between the volume and rate categories in proportion to the relationship of the changes due solely to the changes in volume and rate, respectively. <TABLE> <CAPTION> Three Months Ended June 30 1999 vs. 1998 Increase (Decrease) Due to Change In: <S> <C> <C> <C> Average Average Net (Dollars in thousands) Volume Rate Change Interest earning assets Loans, gross $ 2,495 $ (483) $ 2,012 Investments securities (716) (236) (952) Federal funds sold 58 (42) 16 Total interest earning assets $ 1,837 $ (761) $ 1,076 Interest bearing liabilities Demand, interest bearing $ 13 $ (7) $ 6 Money Market and Savings 30 3 33 Time deposits, less than $100,000 305 5 310 Time deposits, $100,000 and over 130 (24) 106 Brokered Deposits 89 - 89 Total interest bearing liabilities $ 567 $ (23) $ 544 Net interest income $ 1,270 $ (738) $ 532 Six Months Ended June 30 1999 vs. 1998 Increase (Decrease) Due to Change In: Average Average Net (Dollars in thousands) Volume Rate Change Interest earning assets Loans, gross $ 5,262 $ (769) $ 4,493 Investments securities (1,179) (328) (1,507) Federal funds sold 205 (70) 135 Total interest earning assets $ 4,288 $(1,167) $ 3,121 Interest bearing liabilities Demand, interest bearing $ 25 $ (14) $ 11 Money Market and Savings 302 (20) 282 Time deposits, less than $100,000 632 18 650 Time deposits, $100,000 and over 286 (39) 247 Brokered Deposits 172 - 172 Other borrowings 11 - 11 Total interest bearing liabilities $ 1,428 $ (55) $ 1,373 Net interest income $ 2,860 $(1,112) $ 1,748 </TABLE> Provision for Loan Losses During the second quarter of 1999, the provision for loan losses was $484,000, up $134,000 from $350,000 for the second quarter of 1998. The increase in the provision was due to the overall growth of the loan portfolio.
Noninterest Income The following table sets forth the various components of the Company's noninterest income for the periods indicated: <TABLE> <CAPTION> Increase Three months ended June 30 1999 versus 1998 (Dollars in thousands) 1999 1998 Amount Percent <S> <C> <C> <C> <C> Service charges and other fees $ 73 $ 48 $ 25 52% Gain on sale of securities available-for-sale 233 49 184 375% Gain on sale of loans 84 49 35 71% Other investment income 49 57 (8) (14%) Other income 248 40 208 520% Total $ 687 $ 243 $ 444 183% Increase Six months ended June 30 1999 versus 1998 (Dollars in thousands) 1999 1998 Amount Percent Service charges and other fees $ 142 $ 98 $ 44 45% Gain on sale of securities available-for-sale 1,004 67 937 1,399% Gain on sale of loans 250 50 200 400% Other investment income 128 109 19 17% Other income 387 50 337 674% Total $ 1,911 $ 374 $ 1,537 411% </TABLE> Noninterest income for the second quarter and the first six months ended June 30, 1999 was $687,000 and $1,911,000, up $444,000, or 183%, and $1,537,000, or 411%, from $243,000 and $374,000 for the second quarter and the six months ended June 30, 1998. This increase was primarily the result of gains recognized on the sale of securities available-for-sale (up $184,000 and $937,000) and the increase in other income (up $151,000 and $337,000). The sale of securities represents favorable market conditions to sell securities. The increase in other income is primarily due to fee income associated with the Company's internet credit card program. Noninterest Expense The following table sets forth the various components of the Company's noninterest expenses for the periods indicated: <TABLE> <CAPTION> For The Three Months Ended June 30, Percent Increase Increase (Dollars in thousands) 1999 1998 (Decrease) (Decrease) <S> <C> <C> <C> <C> Salaries and benefits $ 2,542 $ 1,790 $ 752 42% Client services 135 559 (424) (76%) Furniture and equipment 283 183 100 55% Occupancy 261 191 70 37% Advertising and promotion 227 189 38 20% Loan origination costs 140 114 26 23% Professional fees 75 149 (74) (50%) Stationery & Supplies 56 53 3 6% Telephone expense 54 35 19 54% Software subscriptions 60 14 46 329% All other 330 185 145 78% Total $ 4,163 $ 3,462 $ 701 20% </TABLE>
<TABLE> <CAPTION> For The Six Months Ended June 30, Percent Increase Increase (Dollars in thousands) 1999 1998 (Decrease) (Decrease) <S> <C> <C> <C> <C> Salaries and benefits $ 4,963 $ 3,370 $ 1,593 47% Client services 797 919 (122) (13%) Furniture and equipment 580 353 227 64% Occupancy 493 342 151 44% Advertising and promotion 376 369 7 2% Loan origination costs 257 195 62 32% Professional fees 245 313 (68) (22%) Stationery & Supplies 135 108 27 25% Telephone expense 104 81 23 28% Software subscriptions 84 30 54 183% All other 717 400 317 79% Total $ 8,751 $ 6,480 $ 2,271 35% </TABLE> Noninterest expenses for the second quarter of 1999 were $4,163,000, up $701,000, or 20%, from $3,462,000 for the second quarter of 1998. Nonintrest expenses for the first six months of 1999 were $8,751,000, up $2,271,000,or 35%, from $6,480,000 for the first six months of 1998. The increase in noninterest expenses reflects the growth in infrastructure to support the Company's loan and deposit growth and the opening of a branch office in the South Valley in city of Morgan Hill, California. Noninterest expenses consist primarily of salaries and employee benefits (61% and 52% of total noninterest expenses for the second quarter of 1999 and 1998, respectively; 57% and 52% of total noninterest expenses for the six months ended June 30, 1999 and 1998, respectively) and client services (3% and 16% of total non-interest expenses for the second quarter of 1999 and 1998, respectively; 9% and 14% of total noninterest expenses for the first six months of 1999 and 1998, respectively). The increase in salaries and benefits expenses was primarily attributable to an increase in the number of employees. The Company employed 152 people at June 30, 1999, up 39 from 113 employees at June 30, 1998. Client services expenses include courier and armored car costs, imprinted check costs, and other client services costs, all of which are directly related to the amount of funds on deposit at the Company. Due to lower balances in these accounts in the second quarter of 1999, the expense was less than the previous year. The increase in furniture and equipment expenses and in occupancy expenses was primarily attributable to an increase in the number of employees and new banking locations.
FINANCIAL CONDITION Total assets increased 15% to $403,215,000 at June 30, 1999, compared to $349,674,000 at June 30, 1998. The growth was primarily due to increases in the Company's loan portfolio funded by growth in deposits. Securities Portfolio The following table summarizes the composition of the Company's investment securities and the weighted average yields at June 30, 1999: <TABLE>
June 30, 1999 Maturity After One Year After Five Years Within and Within and Within Total One Year Five Years Ten Years After Ten Years Amortized Cost (Dollars in thousands) Amount Yiel Amount Yield Amount Yield Amount Yield Amount Yield <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Securities available-for-sale: U.S. Treasury $ 16,075 4.75% $ 10,085 5.19% $ --- --- $ --- --- $ 26,160 4.92% Municipals - taxable --- --- 457 6.51% --- --- --- --- 457 6.51% Municipals - non-taxable --- --- --- --- 2,843 4.69% 2,171 4.78% 5,014 4.73% Total available-for-sale $ 16,075 4.75% $ 10,542 5.25% $ 2,843 4.69% $ 2,171 4.78% $ 31,631 4.91% Securities held-to-maturity: Municipals - taxable $ 1,000 6.34% $ 4,919 6.48% $ 516 6.45% --- --- $ 6,435 6.46% Municipals - non taxable --- --- 267 4.90% 6,036 4.51% 1,118 4.59% 7,421 4.54% Total held-to-maturity $ 1,000 6.34% $ 5,186 6.40% $ 6,552 4.66% $ 1,118 4.59% $ 13,856 5.43% Total securities $ 17,074 4.85% $ 15,729 5.63% $ 9,395 4.68% $ 3,289 4.72% $ 45,487 5.08% Note: Yield on non-taxable municipal securities are not a fully tax equivalent basis. </TABLE> Loans Total gross loans increased 4% to $245,336,000 at June 30, 1999, as compared to $236,307,000 at December 31, 1998. The increase in loan balances was due to the business development efforts of the Company's loan teams. The following table indicates the Company's loan portfolio for the periods indicated: <TABLE> <CAPTION> June 30 % of December 31, % of (Dollars in thousands) 1999 Total 1998 Total <S> <C> <C> <C> <C> Commercial $ 99,130 40% $ 79,567 34% Real estate - mortgage 61,516 25% 57,216 24% Real estate - land and construction 61,239 25% 49,270 21% Consumer 23,512 10% 50,349 21% Total loans 245,397 100% 236,402 100% Deferred loan fees (61) (95) Allowance for loan losses (4,337) (3,825) Loans, net $ 240,999 $ 232,482 </TABLE> The change in the Company's loan portfolio is primarily due to the increase in the commercial loan portfolio offset by a decline in the consumer credit card portfolio.
The Company's loan portfolio is concentrated in commercial (primarily to companies engaged in manufacturing, wholesale, and service businesses) and real estate lending, with the balance in consumer loans. However, while no specific industry concentration is considered significant, the Company's lending operations are located in the Company's market areas that are dependent on the technology and real estate industries and their supporting companies. Thus, the Company's borrowers could be adversely impacted by a downturn in these sectors of the economy which could reduce the demand for loans and adversely impact the borrowers' abilities to repay their loans. In February 1998, the Company entered into a contract with Internet Access Financial Corporation to provide a credit card over the Internet. The customers for the credit cards were not limited to Northern California, the Companys' primarily market area, as the product was available to anyone across the country. The growth in 1998 in the consumer loan portfolio was attributable to the introduction of this Internet credit card. As noted in the above table, the consumer loans category declined from $50,349,000 to $ 23,512,000 at June 30, 1999. Subsequent to June 30, 1999, the Company sold the outstanding Internet credit card loan balance of approximately $22 million to Internet Access Financial Corporation. The Company has continued its relationship with Internet AccessFinancial Corporation as a provider of certain administrative services to them in conjunctionwith the issuance of credit cards. The following table sets forth the maturity distribution of the Company's loans at June 30, 1999: <TABLE>
Over One Year Over Due in One But Less Than Five (Dollars in thousands) Year or Less Five Years Years Total <S> <C> <C> <C> <C> Commercial $ 92,309 $ 6,466 $ 173 $ 98,948 Real estate-mortgage 26,255 19,107 16,154 61,516 Real estate-land and construction 61,239 --- --- 61,239 Consumer 22,729 888 16 23,633 Total loans $ 202,532 $ 26,461 $ 16,343 $ 245,336 Loans with variable interest rates $ 167,336 $ 5,952 $ 308 $ 173,596 Loans with fixed interest rates 35,196 20,509 16,035 71,740 Total $ 202,532 $ 26,461 $ 16,343 $ 245,336 Note: Total shown is net of deferred loan fees of $61,000 at June 30, 1999. </TABLE> The table shows the distribution of such loans between those loans with predetermined (fixed) interest rates and those with variable (floating) interest rates. Floating rates generally fluctuate with changes in the prime rate as reflected in the western edition of The Wall Street Journal. At June 30, 1999, approximately 71% of the Company's loan portfolio consisted of floating interest rate loans. Allowance for Loan Losses Management conducts a critical evaluation of the loan portfolio monthly. This evaluation includes an assessment of the following factors: past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, and current economic conditions. Management has established an evaluation process designed to determine the adequacy of the allowance for loan losses. This process attempts to assess the risk of loss inherent in the portfolio by segregating the allowance for loan losses into four components: "watch", "special mention", "substandard" and "doubtful". It is the policy of management to maintain the allowance for loan losses at a level adequate for known and future risks inherent in the loan portfolio. Based on information currently available to analyze loan loss delinquency and a history of actual charge-offs, management believes that the loan loss provision and allowance are adequate; however, no assurance of the ultimate level of credit losses can be given with any certainty. Loans are charged against the allowance when management believes that the collectibility of the principal is unlikely.
The following table summarizes the Companys' loan loss experience as well as transactions in the allowance for loan losses and certain pertinent ratios for the periods indicated: <TABLE> <CAPTION> Year ended Six months ended June 30, December 31, (Dollars in thousands) 1999 1998 1998 <S> <C> <C> <C> Balance, beginning of period/year $ 3,825 $ 2,285 $ 2,285 Charge-offs (616) (6) (173) Less recoveries 1 95 137 Net loans charged-off (615) 89 (36) Provision for loan losses 1,127 510 1,576 Balance, end of period/year $ 4,337 $ 2,884 $ 3,825 Ratios: Net charge-offs to average loans outstanding 0.24% 0.06% 0.02% Allowance for loan losses to average loans 1.72% 1.88% 2.11% Allowance for loan losses to total loans 1.77% 1.69% 1.62% Allowance for loan losses to non-performing loans 244% N/A 297% </TABLE> The increase in charge-offs relates primarily to the Company's consumer credit card portfolio. The following table summarizes the allocation of the allowance for loan losses by loan type and the allocated allowance as a percent of loans outstanding in each loan category at the dates indicated: <TABLE> <CAPTION> June 30, 1999 June 30, 1998 December 31, 1998 Percent of Percent of Percent of loans in each loans in each loans in each category to category to category to (Dollars in thousands) Amount total loans Amount total loans Amount total loans <S> <C> <C> <C> <C> <C> <C> Commercial $ 2,113 2.13% $ 1,256 1.67% $ 1,567 1.98% Real estate - mortgage 238 0.39% 175 0.40% 224 0.39% Real estate - land and construction 972 1.59% 614 1.51% 815 1.65% Consumer 1,014 4.31% 105 0.99% 1,146 2.28% Unallocated --- --- 734 --- 73 --- Total $ 4,337 1.77% $ 2,884 1.69% $ 3,825 1.62% </TABLE> The increase in the allowance for loan losses reflects increasing on a percentage basis the reserve for the Company's consumer credit card portfolio. It also reflects the increase in non-performing assets in the general loan portfolio. The Company maintains an allowance for loan losses to provide for estimated losses in the loan portfolio. Additions to the allowance are made by charges to operating expenses in the form of a provision for loan losses. All loans that are judged to be uncollectable are charged against the allowance and any recoveries are credited to the allowance. Management conducts a critical evaluation of the loan portfolio monthly. This evaluation includes an assessment of the following factors: past credit quality trends, collateral values, loan volumes and concentrations, seasoning of the loan portfolio, specific industry conditions within portfolio segments, recent loss experience in particular segments of the portfolio, duration of the current business cycle, and bank regulatory examination results.
Deposits Deposits totaled $364,592,000 at June 30, 1999, an increase of 4%, as compared to total deposits of $350,047,000 at December 31, 1998. The increase in deposits was primarily due to increases in time deposit accounts. Noninterest bearing deposits were $124,160,000 at June 30, 1999, an increase of 3%, as compared to $120,854,000 at December 31, 1998. Interest bearing deposits were $240,432,000 at June 30, 1999, an increase of 5% as compared to $229,193,000 at December 31, 1998. The following table summarizes the distribution of average deposits and the average rates paid for the periods indicated: <TABLE> <CAPTION> Six months ended Year ended June 30, 1999 December 31, 1998 Average Average Average Average (Dollars in thousands) Balance Rate Paid Balance Rate Paid <S> <C> <C> <C> <C> Demand, non-interest bearing $ 99,583 --- $ 102,834 --- Demand, interest bearing 9,870 1.51% 7,368 1.85% Saving and money market 123,952 3.14% 122,157 3.46% Time deposits less than $100,000 32,854 5.26% 16,638 5.28% Time deposits, $100,000 and over 56,318 4.80% 48,861 5.04% Brokered deposits 6,150 5.64% 3,826 5.87% Total average deposits $ 328,727 2.68% $ 301,684 2.63% </TABLE> Deposit Concentration and Deposit Volatility The following table indicates the maturity schedule of the Company's time deposit of $100,000 or more as of June 30, 1999. <TABLE> <CAPTION> (Dollars in thousands) Balance % of Total <S> <C> <C> Three months or less $ 36,402 57% Over three months through twelve months 20,010 32% Over twelve months 6,969 11% Total $ 63,381 100% </TABLE> The Company focuses primarily on servicing business accounts that are frequently over $100,000 in average size. Certain types of accounts that the Company makes available are typically in excess of $100,000 in average balance per account, and certain types of business clients whom the Company serves typically carry deposits in excess of $100,000 on average. 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. Interest Rate Risk The planning of asset and liability maturities is an integral part of the management of an institution's net yield. To the extent maturities of assets and liabilities do not match in a changing interest rate environment, net yields may change over time. Even with perfectly matched repricing of assets and liabilities, risks remain in the form of prepayment of loans or investments 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 Company has generally been able to control its exposure to changing interest rates by maintaining primarily floating interest rate loans and a majority of its time certificates in relatively short maturities.
The following table sets forth the interest rate sensitivity of the Company's interest-earning assets and interest-bearing liabilities at June 30, 1999, using the rate sensitivity gap ratio. For purposes of the following table, an asset or liability is considered rate-sensitive within a specified period when it can be repriced or when it is scheduled to mature within the specified time frame: <TABLE> <CAPTION> Within Due in Three Due After Three to Twelve One to Five Due After Not Rate- (Dollars in thousands) Months Months Years Five Years Sensitive Total <S> <C> <C> <C> <C> <C> <C> Interest earning assets: Federal funds sold $ 59,120 $ --- $ --- $ --- $ --- $ 59,120 Securities 8,015 9,059 15,729 12,684 --- 45,487 Total loans 184,029 30,178 26,461 16,343 --- 257,011 Total interest earning assets 251,164 39,237 42,190 29,027 --- 361,618 Cash and due from banks 21,098 21,098 Other assets 20,499 20,499 Total assets $ 251,164 $ 39,237 $ 42,190 $ 29,027 $ 41,597 $ 403,215 Interest bearing liabilities: Demand, interest bearing $ 9,171 $ --- $ --- $ --- $ --- $ 9,171 Savings and money market 129,095 --- --- --- --- 129,095 Time deposits 53,607 39,841 8,718 --- --- 102,166 Total interest bearing liabilities 191,873 39,841 8,718 --- --- 240,432 Noninterest demand deposits 124,160 124,160 Other liabilities 7,150 7,150 Shareholders' equity 31,473 31,473 Total liabilities and shareholders' equity $ 191,873 $ 39,841 $ 8,718 $ --- $ 162,783 $ 403,215 Interest rate sensitivity GAP $ 59,291 $ (604) $ 33,472 $ 29,027 $(121,186) --- Cumulative interest rate sensitivity GAP $ 59,291 $ 58,687 $ 92,159 $ 121,186 --- --- Cumulative interest rate sensitivity GAP ratio 14.70% 14.55% 22.86% 30.05% </TABLE> The foregoing table demonstrates that the Company had a positive cumulative one year gap of $58.7 million, or 14.6% of total assets, at June 30, 1999. In theory, this would indicate that $58.7 million more in assets than liabilities would reprice if there was a change in interest rates over the next year. If interest rates were to increase, the positive gap would tend to result in a higher net interest margin. However, changes in the mix of earning assets or supporting liabilities can either increase or decrease the net margin without affecting interest rate sensitivity. This characteristic is referred to as a basis risk and, generally, relates to the repricing characteristics of short-term funding sources such as certificates of deposit. Varying interest rate environments can create unexpected changes in prepayment levels of assets and liabilities which are not reflected in the interest sensitivity analysis table. These prepayments may have significant effects on the Company's net interest margin. Because of these factors, an interest sensitivity gap report may not provide a complete assessment of the Company's exposure to changes in interest rates. Liquidity and Liability Management To meet liquidity needs, the Company maintains a portion of its funds in cash deposits in other banks, in Federal funds sold, and in investment securities. At June 30, 1999, the Company's primary liquidity ratio was 27.08%, comprised of $26.6 million in investment securities available-for-sale of maturity (or probable calls) of up to five years, less $11.1 million of securities that were pledged to secure public and certain other deposits as required by law and contract; Federal funds sold of $59.1 million, and $21.1 million in cash and due from banks, as a percentage of total unsecured deposits of $353.5 million.
Capital Resources The following table summarizes risk-based capital, risk-weighted assets, and risk-based capital ratios of the Company: <TABLE> <CAPTION> <S> <C> <C> <C> <C> June 30, December 31, (Dollars in thousands) 1999 1998 1998 Capital components: Tier 1 Capital $ 31,400 $ 22,817 $ 29,850 Tier 2 Capital 4,004 2,884 3,825 Total risk-based capital $ 35,404 $ 25,701 $ 33,675 Risk-weighted assets $ 319,953 $ 198,183 $ 323,688 Average assets $ 364,447 $ 315,095 $ 332,062 Minimum Regulatory Requirements Capital ratios: Total risk-based capital 11.1% 13.0% 10.4% 8.0% Tier 1 risk-based capital 9.8% 11.5% 9.2% 4.0% Leverage ratio (1) 8.6% 7.2% 9.0% 4.0% (1) Tier 1 capital divided by average assets (excluding goodwill). </TABLE> On June 1, 1999, Heritage Commerce Corp (the "Company") announced that it has received an order from the Securities and Exchange Commission declaring its recently filed Registration Statement effective as of June 1, 1999, and permitting the Company to begin a public stock offering on that date. The Company intends to sell up to 700,000 new shares at a price of $15.00 per share on a best effort basis. Year 2000 The possible inability of computers, software, and other equipment utilizing microprocessors to recognize and properly process data fields containing a two-digit year is commonly referred to as the year 2000 problem. On January 1, 2000, such systems may be unable to accurately process certain date-based information. This discussion of the implications of the year 2000 problem for the Company contains numerous forward-looking statements based on inherently uncertain information. The cost of the project and the date on which the Company plans to complete the internal year 2000 modifications are based on management's best estimates of future events. The Company cannot guarantee these estimates and actual results could differ. Although management believes it will be able to make the necessary modifications in advance, failure to modify the systems may have a material adverse effect on the Company. The Company has developed a plan to assess its year 2000 preparedness, consisting of the following phases: - Awareness of the year 2000 problems - Risk assessment of internal and external systems - Renovation of problems found in the risk assessment phase - Validation of renovated systems - Implementation of validated systems
Resolution of the year 2000 problem is among the Company's highest priorities, and the Company is preparing for the century change with a comprehensive enterprise-wide year 2000 program. The Company has identified all of the major systems and has sought external and internal resources to renovate and test the systems. The Company is testing purchased software and systems supported by external parties as part of the program. The Company is evaluating customers and vendors that have significant relationships with the Company to determine whether they are adequately preparing for the year 2000. In addition, the Company is developing contingency plans to reduce the impact of some potential events that may occur. The Company cannot guarantee, however, that the systems of vendors or customers with whom it does business will be completed on a timely basis, or that contingency plans will shield operations from failures that may occur. The Company has identified over 90 individual year-2000 projects. The projects vary in size, importance and materiality, from large undertakings, such as remediating complicated data systems, to smaller, but still important, projects such as installing compliant computer utility systems. All of the projects currently identified have begun, and approximately 95% have been completed. The Company assigns projects a priority, indicating the importance of the function to the Company's continuing operation. This prioritization facilitates reporting on projects based on their relative importance. The Company has prioritized projects as "High Priority - In House", "High Priority - Not In House" and "Medium Priority". Both High Priority categories have projects classified as "Mission Critical". Mission Critical projects are defined as: - systems vital to the continuance of a broad core business activity; - functions, the interruption of which for longer than 3 days would threaten the Company's viability; or - functions that provide the environment and infrastructure necessary to continue the broad core business activities. Testing of all mission critical systems was complete as of March 12, 1999 and the Company has completed a follow-up assessment of many of its clients' year 2000 preparedness. Currently, the Company's focus is on vendor follow-up and contingency plans. The Company has communicated with all vendors with whom it does significant business to determine their year 2000 compliance readiness and the extent to which the Company is vulnerable to any third-party year 2000 risks. Of all the vendors that present year 2000 risks, approximately 75% have passed testing. The Company does not significantly rely on "embedded technology" in its critical processes. All building systems in the Company's main offices use mechanical systems rather than embedded technology and therefore do not pose any year 2000 risk. Risks The principal risks associated with the year 2000 problem can be grouped into three categories: - the Company does not successfully ready its operations for the next century, - disruption of the Company's operations due to operational failures of third parties, and - business interruption among fund providers and obligors such that expected funding and repayment does not take place The only risk largely under the Company's control is preparing the Company's internal operations for the year 2000. The Company, like other financial institutions, is heavily dependent on its computer systems. The complexity of these systems and their interdependence make it impractical to convert to alternative systems without interruptions if necessary modifications are not completed on schedule. Management believes the Company will be able to make the necessary modifications on schedule.
Failure of third parties may jeopardize the Company's operations, but the seriousness of this risk depends on the nature and duration of the failures. The most serious impact on the Company's operations from vendors would result if basic services such as telecommunications, electric power, and services provided by other financial institutions and governmental agencies were disrupted. Some public disclosure about readiness preparation among basic infrastructure and other suppliers is now available. The Company is unable, however, to estimate the likelihood of significant disruptions among its basic infrastructure suppliers. In view of the unknown probability of occurrence and impact on its operations, the Company considers the loss of basic infrastructure services to be the most reasonably likely worst case year 2000 scenario. Operational failures among the Company's customers could affect their ability to continue to provide funding or meet obligations when due. The information the Company develops in the customer assessments described earlier allows the Company to identify those customers that exhibit a risk of not making adequate preparations for the century change. The Company is taking appropriate actions to manage these risks. Contingency Plans The Company is developing year 2000 remediation contingency plans and business resumption contingency plans specific to the year 2000. Remediation contingency plans address the actions the Company would take if the current approach to remediating a system is falling behind schedule or otherwise appears to be in jeopardy of failing to deliver year 2000-ready systems when needed. Business resumption contingency plans address the actions that the Company would take if critical business functions cannot be carried out in the normal manner upon entering the next century due to system or supplier failure. Cost The total cost to the Company of year 2000 compliance issues, which includes testing, system replacement and any anticipated lost revenue, has been approximately $20,000 and is not anticipated to increase substantially through the completion of all projects. These costs and the date on which the Company plans to complete the year 2000 modifications and testing process are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third-party modification plans, and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ from those plans. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK No material changes have occurred during the quarter to the Company's market risk profile or information. For further information refer to the Company's annual report on Form 10-K.
Part II - Other Information Item 1. - Legal Proceedings To the best of the Company's knowledge, there are no pending legal proceedings to which the Company is a party which may have a materially adverse effect on the Company's financial condition, results of operations, or cash flows. Item 4. - Submission of Matters to a Vote of Security Holders The Company held its 1999 Annual Meeting of Shareholders on May 27, 1999 (the "1999 Annual Meeting"). There were 5,561,656 issued and outstanding shares of Company Common Stock on April 8, 1999, the Record Date for the 1999 Annual Meeting. Each of the shares voting at the meeting was entitled to one vote. At the 1999 Annual Meeting, the following actions were taken: Election of Directors At the 1999 Annual Meeting, eighteen directors of the Company were elected. The following chart indicates the number of shares cast for each elected director: <TABLE> <CAPTION> <S> <C> <C> Name of director Votes for Votes withheld Frank G. Bisceglia 4,337,108 992 James R. Blair 4,321,486 16,614 Arthur C. Carmichael, Jr. 4,321,486 16,614 Richard L. Conniff 4,335,716 2,384 William Del Biaggio, Jr. 4,337,108 992 Anneke Dury 4,337,623 447 Tracey A. Enfantino 4,334,731 3,369 Glenn A. George 4,337,858 242 Robert P. Gionfriddo 4,335,025 3,075 P. Michael Hunt 4,337,108 992 John Larsen 4,334,966 3,134 Louis O. Normandin 4,337,108 992 Jack L. Peckham 4,327,516 10,584 Robert W. Peters 4,336,466 1,634 Humphrey P. Polanen 4,322,236 15,864 John E. Rossell III 4,337,858 242 Kirk Rossman 4,322,386 15,714 Brad Smith 4,337,858 242 </TABLE> Amendment of the Company's Stock Option Plan: The following chart indicates the results of the vote on the approval of the amendment to the Company's Restated 1994 Tandem Stock Option Plan. This amendment is for an increase in the number of shares available for grants of stock options to directors and key employees of the Company. FOR 4,148,472 AGAINST 109,714
Ratification of Auditors The following chart indicates the result of the vote on the ratification of the Board of Directors' selection of Deloitte & Touche LLP to serve as the Company's independent auditors for the fiscal year ending December 31, 1999. FOR 4,325,441 AGAINST 7,029 Item 6. - Exhibits and Reports on Form 8-K (a) Exhibits included with this filing: Exhibit Number Name 10.1 Employment agreement January 1, 1999 with William B. Nethercott 10.2 Employment agreement January 1, 1999 with Denise Van Houten 10.3 Employment agreement January 1, 1999 with Richard L. Conniff 27.1 Financial Data Schedule (b) Reports on Form 8-K On July 21, 1999 the Company filed Form 8-K to report Robert Gionfriddo's new role as Banking Consultant to Heritage Commerce Corp and Heritage Bank of Commerce announces promotion of Daniel P. Myers to EVP/COO. On July 21, 1999, the Company filed its quarterly earnings press release with the SEC on Form 8-K.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Heritage Commerce Corp (Registrant) Aug 13, 1999 /s/ John E. Rossell Date John E. Rossell, III, President and CEO Aug 13, 1999 /s/ Lawrence D. McGovern Date Lawrence D. McGovern, Chief Financial Officer