♦	The following table indicates the ratios for the return on average tangible assets and the return on average tangible equity for the periods indicated:


	For the Quarter Ended			For the Nine Months Ended
	September 30,	June 30,	September 30,	September 30,	September 30,
(unaudited)	2021	2021	2020	2021	2020
Return on average tangible assets	1.10%	0.73%	1.02%	0.94%	0.76%
Return on average tangible equity	13.49%	8.84%	11.41%	11.29%	8.12%

♦

Net interest income, before provision for credit losses on loans, increased 12% to $38.2 million for the third quarter of 2021, compared to $34.2 million for the third quarter of 2020, and increased 9% from $34.9 million for the second quarter of 2021, primarily due to higher interest and fees on PPP loans and prepayment fees, and an increase in the accretion of the loan purchase discount into interest income from acquired loans.

●

For the first nine months of 2021, net interest income, before provision for credit losses on loans, increased to $108.0 million, compared to $107.7 million for the first nine months of 2020, primarily due to higher interest and fees on PPP loans and prepayment fees, and an increase in the accretion of the loan purchase discount into interest income from acquired loans, partially offset by decreases in the prime rate and decreases in yields on investment securities and overnight funds.

●

The fully tax equivalent (“FTE”) net interest margin contracted 6 basis points to 3.18% for the third quarter of 2021, from 3.24% for the third quarter of 2020, primarily due to declines in the average yields on investment securities and overnight funds, partially offset by an increase in the average yield on loans supported by higher loan prepayment fees and fees on PPP loans, an increase in the accretion of the loan purchase discount into interest income from acquired loans, and a decline in the cost of interest-bearing liabilities. The FTE net interest margin expanded 18 basis points for the third quarter of 2021 from 3.00% for the second quarter of 2021, primarily due to an increase in the average yield on loans resulting primarily from the accretion of the loan purchase discount into interest income from acquired loans, higher fees on PPP loans and higher prepayment fees.

●

For the first nine months of 2021, the FTE net interest margin contracted 49 basis points to 3.13%, compared to 3.62% for the first nine months of 2020, primarily due to declines in the average yields on loans, investment securities, and overnight funds, partially offset by an increase in the accretion of the loan purchase discount into interest income from acquired loans and higher interest and fee income from PPP loans and prepayment fees.

♦	The following tables present the average balance of loans outstanding, interest income, and the average yield for the periods indicated:

●

The average yield on the total loan portfolio increased to 5.18% for the third quarter of 2021, compared to 4.86% for the third quarter of 2020, primarily due to higher fees on PPP loans and prepayment fees, and an increase in the accretion of the loan purchase discount into interest income from acquired loans, partially offset by a decline in the core bank and asset-based lending average yield.


	For the Quarter Ended						For the Quarter Ended
	September 30, 2021						September 30, 2020
	Average		Interest		Average		Average		Interest		Average
(in $000’s, unaudited)	Balance		Income		Yield		Balance		Income		Yield
Loans, core bank and asset-based lending	$	2,361,442	$	26,062	4.38	%	$	2,266,227	$	26,354	4.63	%
Prepayment fees		—		1,282	0.22	%		—		154	0.03	%
SBA PPP loans		218,098		548	1.00	%		324,518		816	1.00	%
PPP fees, net		—		2,508	4.56	%		—		1,305	1.60	%
Bay View Funding factored receivables		50,674		2,815	22.04	%		40,300		2,431	24.00	%
Purchased residential mortgages		141,073		1,019	2.87	%		29,399		180	2.44	%
Purchased CRE loans		9,177		91	3.93	%		22,603		195	3.43	%
Loan fair value mark / accretion		(8,923)		1,882	0.32	%		(13,353)		1,200	0.21	%
Total loans (includes loans held-for-sale)	$	2,771,541	$	36,207	5.18	%	$	2,669,694	$	32,635	4.86	%

●

The average yield on the total loan portfolio increased to 5.18% for the third quarter of 2021, compared to 4.80% for the second quarter of 2021, primarily due to higher fees on PPP loans and prepayment fees, and an increase in the accretion of the loan purchase discount into interest income from acquired loans, partially offset by a decline in the core bank and asset-based lending average yield.


	For the Quarter Ended						For the Quarter Ended
	September 30, 2021						June 30, 2021
	Average		Interest		Average		Average		Interest		Average
(in $000’s, unaudited)	Balance		Income		Yield		Balance		Income		Yield
Loans, core bank and asset-based lending	$	2,361,442	$	26,062	4.38	%	$	2,293,398	$	25,500	4.46	%
Prepayment fees		—		1,282	0.22	%		—		504	0.09	%
SBA PPP loans		218,098		548	1.00	%		334,604		831	1.00	%
PPP fees, net		—		2,508	4.56	%		—		1,876	2.25	%
Bay View Funding factored receivables		50,674		2,815	22.04	%		48,993		2,772	22.69	%
Purchased residential mortgages		141,073		1,019	2.87	%		113,467		981	3.47	%
Purchased CRE loans		9,177		91	3.93	%		14,602		110	3.02	%
Loan fair value mark / accretion		(8,923)		1,882	0.32	%		(10,643)		865	0.15	%
Total loans (includes loans held-for-sale)	$	2,771,541	$	36,207	5.18	%	$	2,794,421	$	33,439	4.80	%

●

The average yield on the total loan portfolio decreased to 5.07% for the nine months ended September 30, 2021, compared to 5.10% for the nine months ended September 30, 2020, primarily due to decreases in the prime rate on loans, and increases in the average balances of lower yielding PPP loans and purchased residential mortgages, partially offset by increases in interest and fees on PPP loans and prepayment fees, and in the accretion of the loan purchase discount into interest income from acquired loans.


	For the Nine Months Ended						For the Nine Months Ended
	September 30, 2021						September 30, 2020
	Average		Interest		Average		Average		Interest		Average
(in $000’s, unaudited)	Balance		Income		Yield		Balance		Income		Yield
Loans, core bank and asset-based lending	$	2,293,892	$	76,629	4.47	%	$	2,351,369	$	83,440	4.74	%
Prepayment fees		—		2,303	0.13	%		—		864	0.05	%
SBA PPP loans		290,253		2,163	1.00	%		186,497		1,398	1.00	%
PPP fees, net		—		7,784	3.59	%		—		1,942	1.39	%
Bay View Funding factored receivables		49,263		8,237	22.36	%		44,102		7,871	23.84	%
Purchased residential mortgages		92,680		2,118	3.06	%		31,224		607	2.60	%
Purchased CRE loans		13,618		372	3.65	%		25,152		655	3.48	%
Loan fair value mark / accretion		(10,387)		3,876	0.23	%		(14,672)		3,485	0.20	%
Total loans (includes loans held-for-sale)	$	2,729,319	$	103,482	5.07	%	$	2,623,672	$	100,262	5.10	%

●

In aggregate, the original total net purchase discount on loans from the Focus Business Bank, Tri-Valley Bank, United American Bank, and Presidio Bank loan portfolios was $25.2 million. In aggregate, the remaining net purchase discount on total loans acquired was $8.3 million at September 30, 2021.

♦

The average cost of total deposits was 0.10% for the third quarter of 2021, compared to 0.16% for the third quarter of 2020 and 0.11% for the second quarter of 2021. The average cost of total deposits was 0.11% for the nine months ended September 30, 2021, compared to 0.18% for the nine months ended September 30, 2020.

♦

During the third quarter of 2021, there was a $514,000 negative provision for credit losses on loans, primarily due to recoveries on previously charged-off loans, compared to a $197,000 provision for credit losses on loans taken in the third quarter of 2020, and a $493,000 negative provision for credit losses on loans for the second quarter of 2021. There was a $2.5 million negative provision for credit losses on loans for the nine months ended September 30, 2021, compared to a $14.6 million provision for credit losses on loans for the nine months ended September 30, 2020.

●

The higher provision for credit losses on loans for the first nine months of 2020 was driven primarily by a significantly deteriorating economic outlook resulting from the Coronavirus pandemic. Ongoing impacts of the current expected credit losses (“CECL”) methodology will be dependent upon changes in economic conditions and forecasts, originated and acquired loan portfolio composition, portfolio duration, and other factors.

million of U.S. Treasury securities. The pre-tax unrealized gain on securities available-for-sale at September 30, 2021 was $4.0 million, compared to a pre-tax unrealized gain on securities available-for-sale of $6.9 million at September 30, 2020, and a pre-tax unrealized gain on securities available-for-sale of $4.3 million at June 30, 2021. All other factors remaining the same, when market interest rates are decreasing, the Company will experience a higher unrealized gain (or a lower unrealized loss) on the securities portfolio.

♦

At September 30, 2021, securities held-to-maturity, at amortized cost, totaled $537.3 million, compared to $295.6 million at September 30, 2020, and $421.3 million at June 30, 2021. At September 30, 2021, the Company’s securities held-to-maturity portfolio was comprised of $480.3 million of agency mortgage-backed securities, and $57.0 million of tax-exempt municipal bonds. During the third quarter of 2021, the Company purchased $140.5 million of agency mortgage-backed securities (securities held-to-maturity), with a book yield of 1.43% and an average life of 5.50 years. During the first nine months of 2021, the Company purchased $322.5 million of agency mortgage-backed securities (securities held-to-maturity), with a book yield of 1.49% and an average life of 5.67 years.

♦	The loan portfolio remains well-diversified as reflected in the following table which summarizes the distribution of loans, excluding loans held-for-sale, and the percentage of distribution in each category for the periods indicated:


LOANS	September 30, 2021				June 30, 2021				September 30, 2020
(in $000’s, unaudited)	Balance		% to Total		Balance		% to Total		Balance		% to Total
Commercial	$	578,944	20	%	$	557,686	20	%	$	574,359	21	%
Paycheck Protection Program Loans		164,506	6	%		286,461	10	%		323,550	12	%
Real estate:
CRE - owner occupied		580,624	20	%		583,091	21	%		561,528	21	%
CRE - non-owner occupied		829,022	29	%		742,135	26	%		713,563	27	%
Land and construction		141,277	5	%		129,426	4	%		142,632	5	%
Home equity		106,690	4	%		107,873	4	%		111,468	4	%
Multifamily		205,952	7	%		198,771	7	%		169,791	6	%
Residential mortgages		211,467	8	%		205,904	7	%		91,077	3	%
Consumer and other		20,106	1	%		21,519	1	%		17,511	1	%
Total Loans		2,838,588	100	%		2,832,866	100	%		2,705,479	100	%
Deferred loan costs (fees), net		(5,729)	—			(8,070)	—			(8,463)	—
Loans, net of deferred costs and fees	$	2,832,859	100	%	$	2,824,796	100	%	$	2,697,016	100	%

●

Loans, excluding loans held-for-sale, increased $135.8 million, or 5%, to $2.83 billion at September 30, 2021, compared to $2.70 billion at September 30, 2020, and increased $8.0 million from $2.82 billion at June 30, 2021. Total loans at September 30, 2021 included $164.5 million of PPP loans, compared to $323.6 million at September 30, 2020 and $286.5 million at June 30, 2021. Total loans at September 30, 2021 included $211.5 million of residential mortgages, compared to $91.1 million at September 30, 2020 and $205.9 million at June 30, 2021.

●

In response to economic stimulus laws passed by Congress in 2020 and 2021, the Bank funded two rounds of PPP loans. At September 30, 2021, after accounting for loan payoffs and SBA loan forgiveness, “Round 1” PPP loans were $5.8 million and “Round 2” PPP loans were $158.7 million. In total, the Bank had $164.5 million in outstanding PPP loan balances at September 30, 2021. The following table shows interest income, fee income and deferred origination costs generated by the PPP loans, outstanding PPP loan balances and related deferred fees and costs for the periods indicated:


	At or For the Quarter Ended:						At or For the Nine Months Ended:
PPP LOANS	September 30,		June 30,		September 30,		September 30,		September 30,
(in $000’s, unaudited)	2021		2021		2020		2021		2020
Interest income	$	548	$	831	$	816	$	2,163	$	1,398
Fee income, net		2,508		1,876		1,305		7,784		1,942
Total	$	3,056	$	2,707	$	2,121	$	9,947	$	3,340

Deferred origination costs (contra expense)	$	—	$	41	$	—	$	807	$	1,240

PPP loans outstanding at period end:
Round 1	$	5,795	$	91,849	$	323,550	$	5,795	$	323,550
Round 2		158,711		194,612		—		158,711		—
Total	$	164,506	$	286,461	$	323,550	$	164,506	$	323,550

Deferred fees outstanding at period end	$	(4,831)	$	(7,747)	$	(8,966)	$	(4,831)	$	(8,966)
Deferred costs outstanding at period end		461		869		995		461		995
Total	$	(4,370)	$	(6,878)	$	(7,971)	$	(4,370)	$	(7,971)

●

During the third quarter of 2021, the Company purchased a single family residential mortgage loan portfolio totaling $41.9 million, tied to homes all located in California, with average principal balances of $974,000, and a weighted average yield of approximately 2.92% (net of servicing fees). During the second quarter of 2021, the Company purchased two single family residential mortgage loan portfolios totaling $140.0 million, tied to homes all located in California, with average principal balances of $585,000, and a weighted average yield of approximately 3.37% (net of servicing fees).

●

C&I line usage relatively steady at 27% at September 30, 2021, compared to 28% at September 30, 2020, and 27% at June 30, 2021.

●

At September 30, 2021, 41% of the CRE loan portfolio was secured by owner-occupied real estate.

●

At September 30, 2021, approximately 42% of the Company’s loan portfolio consisted of floating interest rate loans.

♦	The following table summarizes the allowance for credit losses on loans for the periods indicated:


	For the Quarter Ended									For the Nine Months Ended
ALLOWANCE FOR CREDIT LOSSES ON LOANS	September 30,			June 30,			September 30,			September 30,			September 30,
(in $000’s, unaudited)	2021			2021			2020			2021			2020
Balance at beginning of period	$	43,956		$	44,296		$	45,444		$	44,400		$	23,285
Charge-offs during the period		(65)			(105)			(598)			(433)			(1,736)
Recoveries during the period		303			258			379			2,232			722
Net recoveries (charge-offs) during the period		238			153			(219)			1,799			(1,014)
Impact of adopting Topic 326		—			—			—						8,570
Provision for (recapture of) credit losses on loans during the period		(514)			(493)			197			(2,519)			14,581
Balance at end of period	$	43,680		$	43,956		$	45,422		$	43,680		$	45,422

Total loans, net of deferred fees	$	2,832,859		$	2,824,796		$	2,697,016		$	2,832,859		$	2,697,016
Total nonperforming loans	$	4,733		$	6,180		$	10,262		$	4,733		$	10,262
Allowance for credit losses on loans ("ACLL") to total loans		1.54	%		1.56	%		1.68	%		1.54	%		1.68	%
ACLL to total nonperforming loans		922.88	%		711.26	%		442.62	%		922.88	%		442.62	%

●

The ACLL was 1.54% of total loans at September 30, 2021 while the ACLL to total nonperforming loans was 922.88%. The ACLL was 1.68% of total loans and the ACLL to nonperforming loans was 442.62% at September 30, 2020. The ACLL was 1.56% of total loans and the ACLL to total nonperforming loans was 711.26% at June 30, 2021. The ACLL to total loans, excluding PPP loans, was 1.63% at September 30, 2021, 1.91% at September 30, 2020 and 1.73% at June 30, 2021.

●

The following table shows the drivers of change in ACLL under CECL for each of the first three quarters of 2021:


DRIVERS OF CHANGE IN ACLL UNDER CECL
(in $000’s, unaudited)
ACLL at December 31, 2020	$	44,400
Net recoveries during the first quarter of 2021		1,408
Portfolio changes during the first quarter of 2021		313
Economic and qualitative factor changes during the first quarter of 2021		(1,825)
ACLL at March 31, 2021		44,296
Net recoveries during the second quarter of 2021		153
Portfolio changes during the second quarter of 2021		2,153
Economic and qualitative factor changes during the second quarter of 2021		(2,646)
ACLL at June 30, 2021		43,956
Net recoveries during the third quarter of 2021		238
Portfolio changes during the third quarter of 2021		2,485
Qualitative and quantitative changes during the third
quarter of 2021 including changes in economic forecasts		(2,999)
ACLL at September 30, 2021	$	43,680

●

Net recoveries totaled $238,000 for the third quarter of 2021, compared to net charge-offs of $219,000 for the third quarter of 2020, and net recoveries of $153,000 for the second quarter of 2021.

●

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


	End of Period:
NONPERFORMING ASSETS	September 30, 2021				June 30, 2021				September 30, 2020
(in $000’s, unaudited)	Balance		% of Total		Balance		% of Total		Balance		% of Total
CRE loans	$	2,260	48	%	$	2,923	47	%	$	4,328	42	%
Commercial loans		1,330	28	%		1,793	29	%		2,908	28	%
Restructured and loans over 90 days past due and still accruing		642	13	%		889	14	%		601	6	%
Consumer and other loans		407	9	%		407	7	%		1,464	14	%
Home equity loans		94	2	%		168	3	%		961	10	%
Total nonperforming assets	$	4,733	100	%	$	6,180	100	%	$	10,262	100	%

●

NPAs totaled $4.7 million, or 0.09% of total assets, at September 30, 2021, compared to $10.3 million, or 0.22% of total assets, at September 30, 2020, $6.2 million, or 0.12% of total assets, at June 30, 2021.

●

There were no foreclosed assets on the balance sheet at September 30, 2021, September 30, 2020, or June 30, 2021.

●

Classified assets decreased to $31.9 million, or 0.58% of total assets, at September 30, 2021, compared to $33.0 million, or 0.72% of total assets, at September 30, 2020, and decreased from $32.4 million, or 0.64% of total assets, at June 30, 2021.

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


DEPOSITS	September 30, 2021				June 30, 2021				September 30, 2020
(in $000’s, unaudited)	Balance		% to Total		Balance		% to Total		Balance		% to Total
Demand, noninterest-bearing	$	1,804,965	38	%	$	1,840,516	42	%	$	1,698,027	44	%
Demand, interest-bearing		1,141,944	24	%		1,140,867	26	%		926,041	24	%
Savings and money market		1,600,754	34	%		1,174,587	27	%		1,108,252	28	%
Time deposits — under $250		39,628	1	%		42,118	1	%		46,684	1	%
Time deposits — $250 and over		103,046	2	%		110,111	3	%		92,276	2	%
CDARS — interest-bearing demand,
money market and time deposits		36,044	1	%		36,273	1	%		19,121	1	%
Total deposits	$	4,726,381	100	%	$	4,344,472	100	%	$	3,890,401	100	%

●

Total deposits increased $836.0 million, or 21%, to $4.73 billion at September 30, 2021, compared to $3.89 billion at September 30, 2020, and increased $381.9 million, or 9%, from $4.34 billion at June 30, 2021.

●

Deposits, excluding all time deposits and CDARS deposits, increased $815.3 million, or 22%, to $4.55 billion at September 30, 2021, compared to $3.73 billion at September 30, 2020, and increased $391.7 million, or 9%, compared to $4.16 billion at June 30, 2021.

●

Total deposits at September 30, 2021 included $336.0 million of temporary deposits of one customer held in a money market account. Excluding the $336.0 million temporary deposits, total deposits increased $500.0 million, or 13%, to $4.39 billion at September 30, 2021, compared to $3.89 billion at September 30, 2020, and increased $45.9 million from $4.34 billion at June 30, 2021. Deposits, excluding the $336.0 million in temporary deposits as well as all time deposits and CDARS deposits, increased $479.3 million, or 13%, to $4.21 billion at September 30, 2021, compared to $3.73 billion at September 30, 2020, and increased $55.7 million, compared to $4.16 billion at June 30, 2021.

♦

The Company’s consolidated capital ratios exceeded regulatory guidelines and the Bank’s capital ratios exceeded regulatory guidelines under the Basel III prompt corrective action (“PCA”) regulatory guidelines for a well-capitalized financial institution, and the Basel III minimum regulatory requirements at September 30, 2021, as reflected in the following table:


					Well-capitalized
					Financial
					Institution		Basel III
	Heritage		Heritage		Basel III PCA		Minimum
	Commerce		Bank of		Regulatory		Regulatory
CAPITAL RATIOS (unaudited)	Corp		Commerce		Guidelines		Requirement⁽¹⁾
Total Capital	15.1	%	14.5	%	10.0	%	10.5	%
Tier 1 Capital	12.9	%	13.5	%	8.0	%	8.5	%
Common Equity Tier 1 Capital	12.9	%	13.5	%	6.5	%	7.0	%
Tier 1 Leverage	8.6	%	9.0	%	5.0	%	4.0	%

(1)

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

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


ACCUMULATED OTHER COMPREHENSIVE LOSS	September 30,		June 30,		September 30,
(in $000’s, unaudited)	2021		2021		2020
Unrealized gain on securities available-for-sale	$	2,434	$	2,674	$	4,495
Remaining unamortized unrealized gain on securities
available-for-sale transferred to held-to-maturity		234		243		271
Split dollar insurance contracts liability		(6,143)		(6,142)		(4,839)
Supplemental executive retirement plan liability		(8,409)		(8,506)		(6,662)
Unrealized gain on interest-only strip from SBA loans		178		199		351
Total accumulated other comprehensive loss	$	(11,706)	$	(11,532)	$	(6,384)

♦	Tangible equity was $408.1 million at September 30, 2021, compared to $392.5 million at September 30, 2020, and $400.6 million at June 30, 2021. Tangible book value per share was $6.77 at September 30, 2021, compared to $6.55 at September 30, 2020, and $6.65 at June 30, 2021.

Heritage Commerce Corp, a bank holding company established in October 1997, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose, CA with full-service branches in Danville, Fremont, Gilroy, Hollister, Livermore, Los Altos, Los Gatos, Morgan Hill, Palo Alto, Pleasanton, Redwood City, San Francisco, San Jose, San Mateo, San Rafael, Sunnyvale, and Walnut Creek. Heritage Bank of Commerce is an SBA Preferred Lender. Bay View Funding, a subsidiary of Heritage Bank of Commerce, is based in San Jose, CA and provides business-essential working capital factoring financing to various industries throughout the United States. For more information, please visit www.heritagecommercecorp.com.

Forward-Looking Statement Disclaimer

These forward-looking statements are subject to various risks and uncertainties that may be outside our control and our actual results could differ materially from our projected results. Risks and uncertainties that could cause our financial performance to differ materially from our goals, plans, expectations and projections expressed in forward-looking statements include those set forth in our filings with the Securities and Exchange Commission (“SEC”), Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, and the following: (1) the effect of the COVID-19 pandemic, and other infectious illness outbreaks that may arise in the future, on our customers, employees, businesses, liquidity, and financial results; (2) current and future economic and market conditions in the United States generally or in the communities we serve, including the effects of declines in property values and overall slowdowns in economic growth should these events occur; (3) effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Federal Open Market Committee of the Federal Reserve Board; (4) our ability to anticipate interest rate changes and manage interest rate risk; (5) changes in inflation, interest rates, and market liquidity which may impact interest margins and impact funding sources; (6) volatility in credit and equity markets and its effect on the global economy; (7) our ability to effectively compete with other banks and financial services companies and the effects of competition in the financial services industry on our business; (8) our ability to achieve loan growth and attract deposits; (9) risks associated with concentrations in real estate related loans; (10) the relative strength or weakness of the commercial and real estate markets where our borrowers are located, including related asset and market prices; (11) credit related impairment charges to our securities portfolio; (12) changes in the level of nonperforming assets and charge offs and other credit quality measures, and their impact on the adequacy of our allowance


	For the Quarter Ended:									Percent Change From:				For the Nine Months Ended:
CONSOLIDATED INCOME STATEMENTS	September 30,			June 30,			September 30,			June 30,		September 30,		September 30,			September 30,			Percent
(in $000’s, unaudited)	2021			2021			2020			2021		2020		2021			2020			Change
Interest income	$	39,907		$	36,632		$	36,252		9	%	10	%	$	113,300		$	114,326		(1)	%
Interest expense		1,725			1,756			2,087		(2)	%	(17)	%		5,284			6,641		(20)	%
Net interest income before provision
for credit losses on loans		38,182			34,876			34,165		9	%	12	%		108,016			107,685		0	%
Provision for (recapture of) credit losses on loans		(514)			(493)			197		(4)	%	(361)	%		(2,519)			14,581		(117)	%
Net interest income after provision
for credit losses on loans		38,696			35,369			33,968		9	%	14	%		110,535			93,104		19	%
Noninterest income:
Gain on sales of SBA loans		594			83			400		616	%	49	%		1,227			467		163	%
Service charges and fees on deposit accounts		584			659			632		(11)	%	(8)	%		1,844			2,251		(18)	%
Increase in cash surrender value of
life insurance		470			458			464		3	%	1	%		1,384			1,380		0	%
Servicing income		129			104			187		24	%	(31)	%		415			575		(28)	%
Gain on proceeds from company owned life insurance		109			396			—		(72)	%	N/A			571			—		N/A
Gain on the disposition of foreclosed assets		—			—			—		N/A		N/A			—			791		(100)	%
Gain on sales of securities		—			—			—		N/A		N/A			—			270		(100)	%
Other		522			469			912		11	%	(43)	%		1,437			2,132		(33)	%
Total noninterest income		2,408			2,169			2,595		11	%	(7)	%		6,878			7,866		(13)	%
Noninterest expense:
Salaries and employee benefits		12,461			12,572			11,967		(1)	%	4	%		38,991			38,470		1	%
Occupancy and equipment		2,151			2,247			2,283		(4)	%	(6)	%		6,672			5,821		15	%
Professional fees		1,211			1,771			1,352		(32)	%	(10)	%		4,701			3,942		19	%
Other		6,008			9,185			5,566		(35)	%	8	%		20,486			19,721		4	%
Total noninterest expense		21,831			25,775			21,168		(15)	%	3	%		70,850			67,954		4	%
Income before income taxes		19,273			11,763			15,395		64	%	25	%		46,563			33,016		41	%
Income tax expense		5,555			2,950			4,198		88	%	32	%		12,828			9,340		37	%
Net income	$	13,718		$	8,813		$	11,197		56	%	23	%	$	33,735		$	23,676		42	%

PER COMMON SHARE DATA
(unaudited)
Basic earnings per share	$	0.23		$	0.15		$	0.19		53	%	21	%	$	0.56		$	0.40		40	%
Diluted earnings per share	$	0.23		$	0.15		$	0.19		53	%	21	%	$	0.56		$	0.39		44	%
Weighted average shares outstanding - basic		60,220,717			60,089,327			59,589,243		0	%	1	%		60,078,953			59,432,178		1	%
Weighted average shares outstanding - diluted		60,760,189			60,730,141			60,141,412		0	%	1	%		60,635,304			60,143,763		1	%
Common shares outstanding at period-end		60,266,316			60,202,766			59,914,987		0	%	1	%		60,266,316			59,914,987		1	%
Dividend per share	$	0.13		$	0.13		$	0.13		0	%	0	%	$	0.39		$	0.39		0	%
Book value per share	$	9.79		$	9.69		$	9.64		1	%	2	%	$	9.79		$	9.64		2	%
Tangible book value per share	$	6.77		$	6.65		$	6.55		2	%	3	%	$	6.77		$	6.55		3	%

KEY FINANCIAL RATIOS
(unaudited)
Annualized return on average equity		9.29	%		6.06	%		7.73	%	53	%	20	%		7.74	%		5.49	%	41	%
Annualized return on average tangible equity		13.49	%		8.84	%		11.41	%	53	%	18	%		11.29	%		8.12	%	39	%
Annualized return on average assets		1.06	%		0.70	%		0.98	%	51	%	8	%		0.90	%		0.73	%	23	%
Annualized return on average tangible assets		1.10	%		0.73	%		1.02	%	51	%	8	%		0.94	%		0.76	%	24	%
Net interest margin (FTE)		3.18	%		3.00	%		3.24	%	6	%	(2)	%		3.13	%		3.62	%	(14)	%
Efficiency ratio		53.78	%		69.58	%		57.58	%	(23)	%	(7)	%		61.67	%		58.81	%	5	%

AVERAGE BALANCES
(in $000’s, unaudited)
Average assets	$	5,139,239		$	5,047,097		$	4,562,412		2	%	13	%	$	4,988,076		$	4,344,067		15	%
Average tangible assets	$	4,956,738		$	4,863,814		$	4,376,533		2	%	13	%	$	4,804,814		$	4,157,370		16	%
Average earning assets	$	4,778,574		$	4,678,084		$	4,203,902		2	%	14	%	$	4,626,853		$	3,982,386		16	%
Average loans held-for-sale	$	4,810		$	4,053		$	5,169		19	%	(7)	%	$	4,112		$	3,689		11	%
Average total loans	$	2,766,731		$	2,790,368		$	2,664,525		(1)	%	4	%	$	2,725,207		$	2,619,983		4	%
Average deposits	$	4,396,315		$	4,307,555		$	3,846,652		2	%	14	%	$	4,252,214		$	3,632,556		17	%
Average demand deposits - noninterest-bearing	$	1,835,219		$	1,808,638		$	1,700,972		1	%	8	%	$	1,786,035		$	1,600,522		12	%
Average interest-bearing deposits	$	2,561,096		$	2,498,917		$	2,145,680		2	%	19	%	$	2,466,179		$	2,032,034		21	%
Average interest-bearing liabilities	$	2,601,002		$	2,538,747		$	2,185,439		2	%	19	%	$	2,506,025		$	2,071,813		21	%
Average equity	$	586,012		$	583,009		$	576,135		1	%	2	%	$	582,751		$	576,042		1	%
Average tangible equity	$	403,511		$	399,726		$	390,256		1	%	3	%	$	399,489		$	389,345		3	%


	For the Quarter Ended:
CONSOLIDATED INCOME STATEMENTS	September 30,			June 30,			March 31,			December 31,			September 30,
(in $000’s, unaudited)	2021			2021			2021			2020			2020
Interest income	$	39,907		$	36,632		$	36,761		$	36,145		$	36,252
Interest expense		1,725			1,756			1,803			1,940			2,087
Net interest income before provision
for credit losses on loans		38,182			34,876			34,958			34,205			34,165
Provision for (recapture of) credit losses on loans		(514)			(493)			(1,512)			(1,348)			197
Net interest income after provision
for credit losses on loans		38,696			35,369			36,470			35,553			33,968
Noninterest income:
Gain on sales of SBA loans		594			83			550			372			400
Service charges and fees on deposit accounts		584			659			601			608			632
Increase in cash surrender value of
life insurance		470			458			456			465			464
Servicing income		129			104			182			98			187
Gain on proceeds from company owned life insurance		109			396			66			—			—
Gain on sales of securities		—			—			—			7			—
Other		522			469			446			506			912
Total noninterest income		2,408			2,169			2,301			2,056			2,595
Noninterest expense:
Salaries and employee benefits		12,461			12,572			13,958			12,457			11,967
Occupancy and equipment		2,151			2,247			2,274			2,197			2,283
Professional fees		1,211			1,771			1,719			1,396			1,352
Other		6,008			9,185			5,293			5,507			5,566
Total noninterest expense		21,831			25,775			23,244			21,557			21,168
Income before income taxes		19,273			11,763			15,527			16,052			15,395
Income tax expense		5,555			2,950			4,323			4,429			4,198
Net income	$	13,718		$	8,813		$	11,204		$	11,623		$	11,197

PER COMMON SHARE DATA
(unaudited)
Basic earnings per share	$	0.23		$	0.15		$	0.19		$	0.19		$	0.19
Diluted earnings per share	$	0.23		$	0.15		$	0.19		$	0.19		$	0.19
Weighted average shares outstanding - basic		60,220,717			60,089,327			59,926,816			59,616,951			59,589,243
Weighted average shares outstanding - diluted		60,760,189			60,730,141			60,404,213			60,247,296			60,141,412
Common shares outstanding at period-end		60,266,316			60,202,766			59,932,334			59,917,457			59,914,987
Dividend per share	$	0.13		$	0.13		$	0.13		$	0.13		$	0.13
Book value per share	$	9.79		$	9.69		$	9.71		$	9.64		$	9.64
Tangible book value per share	$	6.77		$	6.65		$	6.64		$	6.57		$	6.55

KEY FINANCIAL RATIOS
(unaudited)
Annualized return on average equity		9.29	%		6.06	%		7.85	%		7.99	%		7.73	%
Annualized return on average tangible equity		13.49	%		8.84	%		11.50	%		11.75	%		11.41	%
Annualized return on average assets		1.06	%		0.70	%		0.95	%		0.98	%		0.98	%
Annualized return on average tangible assets		1.10	%		0.73	%		0.99	%		1.02	%		1.02	%
Net interest margin (FTE)		3.18	%		3.00	%		3.22	%		3.15	%		3.24	%
Efficiency ratio		53.78	%		69.58	%		62.38	%		59.45	%		57.58	%

AVERAGE BALANCES
(in $000’s, unaudited)
Average assets	$	5,139,239		$	5,047,097		$	4,773,878		$	4,703,154		$	4,562,412
Average tangible assets	$	4,956,738		$	4,863,814		$	4,589,861		$	4,518,279		$	4,376,533
Average earning assets	$	4,778,574		$	4,678,084		$	4,419,963		$	4,338,117		$	4,203,902
Average loans held-for-sale	$	4,810		$	4,053		$	3,458		$	2,772		$	5,169
Average total loans	$	2,766,731		$	2,790,368		$	2,616,876		$	2,652,019		$	2,664,525
Average deposits	$	4,396,315		$	4,307,555		$	4,048,953		$	3,980,017		$	3,846,652
Average demand deposits - noninterest-bearing	$	1,835,219		$	1,808,638		$	1,712,903		$	1,749,837		$	1,700,972
Average interest-bearing deposits	$	2,561,096		$	2,498,917		$	2,336,050		$	2,230,180		$	2,145,680
Average interest-bearing liabilities	$	2,601,002		$	2,538,747		$	2,375,851		$	2,269,960		$	2,185,439
Average equity	$	586,012		$	583,009		$	579,157		$	578,560		$	576,135
Average tangible equity	$	403,511		$	399,726		$	395,140		$	393,685		$	390,256


	End of Period:						Percent Change From:
CONSOLIDATED BALANCE SHEETS	September 30,		June 30,		September 30,		June 30,		September 30,
(in $000’s, unaudited)	2021		2021		2020		2021		2020
ASSETS
Cash and due from banks	$	33,013	$	41,904	$	33,353	(21)	%	(1)	%
Other investments and interest-bearing deposits
in other financial institutions		1,588,334		1,286,418		926,915	23	%	71	%
Securities available-for-sale, at fair value		121,000		145,955		294,438	(17)	%	(59)	%
Securities held-to-maturity, at amortized cost		537,285		421,286		295,609	28	%	82	%
Loans held-for-sale - SBA, including deferred costs		3,678		4,344		3,565	(15)	%	3	%
Loans:
Commercial		578,944		557,686		574,359	4	%	1	%
SBA PPP loans		164,506		286,461		323,550	(43)	%	(49)	%
Real estate:
CRE - owner occupied		580,624		583,091		561,528	0	%	3	%
CRE - non-owner occupied		829,022		742,135		713,563	12	%	16	%
Land and construction		141,277		129,426		142,632	9	%	(1)	%
Home equity		106,690		107,873		111,468	(1)	%	(4)	%
Multifamily		205,952		198,771		169,791	4	%	21	%
Residential mortgages		211,467		205,904		91,077	3	%	132	%
Consumer and other		20,106		21,519		17,511	(7)	%	15	%
Loans		2,838,588		2,832,866		2,705,479	0	%	5	%
Deferred loan fees, net		(5,729)		(8,070)		(8,463)	(29)	%	(32)	%
Total loans, net of deferred costs and fees		2,832,859		2,824,796		2,697,016	0	%	5	%
Allowance for credit losses on loans		(43,680)		(43,956)		(45,422)	(1)	%	(4)	%
Loans, net		2,789,179		2,780,840		2,651,594	0	%	5	%
Company-owned life insurance		77,509		77,393		77,059	0	%	1	%
Premises and equipment, net		9,821		10,040		10,412	(2)	%	(6)	%
Goodwill		167,631		167,631		167,631	0	%	0	%
Other intangible assets		14,423		15,177		17,628	(5)	%	(18)	%
Accrued interest receivable and other assets		121,129		121,887		128,581	(1)	%	(6)	%
Total assets	$	5,463,002	$	5,072,875	$	4,606,785	8	%	19	%

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, noninterest-bearing	$	1,804,965	$	1,840,516	$	1,698,027	(2)	%	6	%
Demand, interest-bearing		1,141,944		1,140,867		926,041	0	%	23	%
Savings and money market		1,600,754		1,174,587		1,108,252	36	%	44	%
Time deposits-under $250		39,628		42,118		46,684	(6)	%	(15)	%
Time deposits-$250 and over		103,046		110,111		92,276	(6)	%	12	%
CDARS - money market and time deposits		36,044		36,273		19,121	(1)	%	89	%
Total deposits		4,726,381		4,344,472		3,890,401	9	%	21	%
Subordinated debt, net of issuance costs		39,878		39,832		39,693	0	%	0	%
Accrued interest payable and other liabilities		106,625		105,127		98,884	1	%	8	%
Total liabilities		4,872,884		4,489,431		4,028,978	9	%	21	%

Shareholders’ Equity:
Common stock		496,622		495,665		493,126	0	%	1	%
Retained earnings		105,202		99,311		91,065	6	%	16	%
Accumulated other comprehensive loss		(11,706)		(11,532)		(6,384)	(2)	%	(83)	%
Total shareholders' equity		590,118		583,444		577,807	1	%	2	%
Total liabilities and shareholders’ equity	$	5,463,002	$	5,072,875	$	4,606,785	8	%	19	%


	End of Period:
CONSOLIDATED BALANCE SHEETS	September 30,		June 30,		March 31,		December 31,		September 30,
(in $000’s, unaudited)	2021		2021		2021		2020		2020
ASSETS
Cash and due from banks	$	33,013	$	41,904	$	36,534	$	30,598	$	33,353
Other investments and interest-bearing deposits
in other financial institutions		1,588,334		1,286,418		1,406,520		1,100,475		926,915
Securities available-for-sale, at fair value		121,000		145,955		196,718		235,774		294,438
Securities held-to-maturity, at amortized cost		537,285		421,286		306,535		297,389		295,609
Loans held-for-sale - SBA, including deferred costs		3,678		4,344		2,834		1,699		3,565
Loans:
Commercial		578,944		557,686		559,698		555,707		574,359
SBA PPP loans		164,506		286,461		349,744		290,679		323,550
Real estate:
CRE - owner occupied		580,624		583,091		568,637		560,362		561,528
CRE - non-owner occupied		829,022		742,135		700,117		693,103		713,563
Land and construction		141,277		129,426		159,504		144,594		142,632
Home equity		106,690		107,873		104,303		111,885		111,468
Multifamily		205,952		198,771		168,917		166,425		169,791
Residential mortgages		211,467		205,904		82,181		85,116		91,077
Consumer and other		20,106		21,519		19,872		18,116		17,511
Loans		2,838,588		2,832,866		2,712,973		2,625,987		2,705,479
Deferred loan fees, net		(5,729)		(8,070)		(8,266)		(6,726)		(8,463)
Total loans, net of deferred fees		2,832,859		2,824,796		2,704,707		2,619,261		2,697,016
Allowance for credit losses on loans		(43,680)		(43,956)		(44,296)		(44,400)		(45,422)
Loans, net		2,789,179		2,780,840		2,660,411		2,574,861		2,651,594
Company-owned life insurance		77,509		77,393		77,421		77,523		77,059
Premises and equipment, net		9,821		10,040		10,220		10,459		10,412
Goodwill		167,631		167,631		167,631		167,631		167,631
Other intangible assets		14,423		15,177		15,931		16,664		17,628
Accrued interest receivable and other assets		121,129		121,887		120,635		121,041		128,581
Total assets	$	5,463,002	$	5,072,875	$	5,001,390	$	4,634,114	$	4,606,785

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Demand, noninterest-bearing	$	1,804,965	$	1,840,516	$	1,813,962	$	1,661,655	$	1,698,027
Demand, interest-bearing		1,141,944		1,140,867		1,101,807		960,179		926,041
Savings and money market		1,600,754		1,174,587		1,189,566		1,119,968		1,108,252
Time deposits-under $250		39,628		42,118		42,596		45,027		46,684
Time deposits-$250 and over		103,046		110,111		102,508		103,746		92,276
CDARS - money market and time deposits		36,044		36,273		28,663		23,911		19,121
Total deposits		4,726,381		4,344,472		4,279,102		3,914,486		3,890,401
Subordinated debt, net of issuance costs		39,878		39,832		39,786		39,740		39,693
Accrued interest payable and other liabilities		106,625		105,127		100,839		101,999		98,884
Total liabilities		4,872,884		4,489,431		4,419,727		4,056,225		4,028,978

Shareholders’ Equity:
Common stock		496,622		495,665		494,617		493,707		493,126
Retained earnings		105,202		99,311		98,314		94,899		91,065
Accumulated other comprehensive loss		(11,706)		(11,532)		(11,268)		(10,717)		(6,384)
Total shareholders' equity		590,118		583,444		581,663		577,889		577,807
Total liabilities and shareholders’ equity	$	5,463,002	$	5,072,875	$	5,001,390	$	4,634,114	$	4,606,785


	End of Period:									Percent Change From:
CREDIT QUALITY DATA	September 30,			June 30,			September 30,			June 30,		September 30,
(in $000’s, unaudited)	2021			2021			2020			2021		2020
Nonaccrual loans - held-for-investment	$	4,091		$	5,291		$	9,661		(23)	%	(58)	%
Restructured and loans over 90 days past due
and still accruing		642			889			601		(28)	%	7	%
Total nonperforming loans		4,733			6,180			10,262		(23)	%	(54)	%
Foreclosed assets		—			—			—		N/A		N/A
Total nonperforming assets	$	4,733		$	6,180		$	10,262		(23)	%	(54)	%
Other restructured loans still accruing	$	90		$	93		$	98		(3)	%	(8)	%
Net charge-offs (recoveries) during the quarter	$	(238)		$	(153)		$	219		(56)	%	(209)	%
Provision for (recapture of) credit losses on loans during the quarter	$	(514)		$	(493)		$	197		(4)	%	(361)	%
Allowance for credit losses on loans	$	43,680		$	43,956		$	45,422		(1)	%	(4)	%
Classified assets	$	31,937		$	32,402		$	33,024		(1)	%	(3)	%
Allowance for credit losses on loans to total loans		1.54	%		1.56	%		1.68	%	(1)	%	(8)	%
Allowance for credit losses on loans to total nonperforming loans		922.88	%		711.26	%		442.62	%	30	%	109	%
Nonperforming assets to total assets		0.09	%		0.12	%		0.22	%	(25)	%	(59)	%
Nonperforming loans to total loans		0.17	%		0.22	%		0.38	%	(23)	%	(55)	%
Classified assets to Heritage Commerce Corp
Tier 1 capital plus allowance for credit losses on loans		7	%		7	%		7	%	0	%	0	%
Classified assets to Heritage Bank of Commerce
Tier 1 capital plus allowance for credit losses on loans		7	%		7	%		7	%	0	%	0	%

OTHER PERIOD-END STATISTICS
(in $000’s, unaudited)
Heritage Commerce Corp:
Tangible common equity ⁽¹⁾	$	408,064		$	400,636		$	392,548		2	%	4	%
Shareholders’ equity / total assets		10.80	%		11.50	%		12.54	%	(6)	%	(14)	%
Tangible common equity / tangible assets ⁽²⁾		7.73	%		8.19	%		8.88	%	(6)	%	(13)	%
Loan to deposit ratio		59.94	%		65.02	%		69.32	%	(8)	%	(14)	%
Noninterest-bearing deposits / total deposits		38.19	%		42.36	%		43.65	%	(10)	%	(13)	%
Total capital ratio		15.1	%		15.6	%		16.0	%	(3)	%	(6)	%
Tier 1 capital ratio		12.9	%		13.3	%		13.5	%	(3)	%	(4)	%
Common Equity Tier 1 capital ratio		12.9	%		13.3	%		13.5	%	(3)	%	(4)	%
Tier 1 leverage ratio		8.6	%		8.6	%		9.3	%	0	%	(8)	%
Heritage Bank of Commerce:
Total capital ratio		14.5	%		15.0	%		15.2	%	(3)	%	(5)	%
Tier 1 capital ratio		13.5	%		13.9	%		14.1	%	(3)	%	(4)	%
Common Equity Tier 1 capital ratio		13.5	%		13.9	%		14.1	%	(3)	%	(4)	%
Tier 1 leverage ratio		9.0	%		9.0	%		9.7	%	0	%	(7)	%

(1)

Represents shareholders' equity minus goodwill and other intangible assets

(2)

Represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets


	End of Period:
CREDIT QUALITY DATA	September 30,			June 30,			March 31,			December 31,			September 30,
(in $000’s, unaudited)	2021			2021			2021			2021			2020
Nonaccrual loans - held-for-investment	$	4,091		$	5,291		$	5,542		$	7,788		$	9,661
Restructured and loans over 90 days past due
and still accruing		642			889			51			81			601
Total nonperforming loans		4,733			6,180			5,593			7,869			10,262
Foreclosed assets		—			—			—			—			—
Total nonperforming assets	$	4,733		$	6,180		$	5,593		$	7,869		$	10,262
Other restructured loans still accruing	$	90		$	93		$	152		$	169		$	98
Net charge-offs (recoveries) during the quarter	$	(238)		$	(153)		$	(1,408)		$	(326)		$	219
Provision for (recapture of) credit losses on loans during the quarter	$	(514)		$	(493)		$	(1,512)		$	(1,348)		$	197
Allowance for credit losses on loans	$	43,680		$	43,956		$	44,296		$	44,400		$	45,422
Classified assets	$	31,937		$	32,402		$	33,420		$	34,028		$	33,024
Allowance for credit losses on loans to total loans		1.54	%		1.56	%		1.64	%		1.70	%		1.68	%
Allowance for credit losses on loans to total nonperforming loans		922.88	%		711.26	%		791.99	%		564.24	%		442.62	%
Nonperforming assets to total assets		0.09	%		0.12	%		0.11	%		0.17	%		0.22	%
Nonperforming loans to total loans		0.17	%		0.22	%		0.21	%		0.30	%		0.38	%
Classified assets to Heritage Commerce Corp
Tier 1 capital plus allowance for credit losses on loans		7	%		7	%		7	%		7	%		7	%
Classified assets to Heritage Bank of Commerce
Tier 1 capital plus allowance for credit losses on loans		7	%		7	%		7	%		7	%		7	%

OTHER PERIOD-END STATISTICS
(in $000’s, unaudited)
Heritage Commerce Corp:
Tangible common equity ⁽¹⁾	$	408,064		$	400,636		$	398,101		$	393,594		$	392,548
Shareholders’ equity / total assets		10.80	%		11.50	%		11.63	%		12.47	%		12.54	%
Tangible common equity / tangible assets ⁽²⁾		7.73	%		8.19	%		8.26	%		8.85	%		8.88	%
Loan to deposit ratio		59.94	%		65.02	%		63.21	%		66.91	%		69.32	%
Noninterest-bearing deposits / total deposits		38.19	%		42.36	%		42.39	%		42.45	%		43.65	%
Total capital ratio		15.1	%		15.6	%		16.5	%		16.5	%		16.0	%
Tier 1 capital ratio		12.9	%		13.3	%		14.0	%		14.0	%		13.5	%
Common Equity Tier 1 capital ratio		12.9	%		13.3	%		14.0	%		14.0	%		13.5	%
Tier 1 leverage ratio		8.6	%		8.6	%		9.1	%		9.1	%		9.3	%
Heritage Bank of Commerce:
Total capital ratio		14.5	%		15.0	%		15.8	%		15.8	%		15.2	%
Tier 1 capital ratio		13.5	%		13.9	%		14.7	%		14.6	%		14.1	%
Common Equity Tier 1 capital ratio		13.5	%		13.9	%		14.7	%		14.6	%		14.1	%
Tier 1 leverage ratio		9.0	%		9.0	%		9.5	%		9.5	%		9.7	%

(1)

Represents shareholders' equity minus goodwill and other intangible assets

(2)

Represents shareholders' equity minus goodwill and other intangible assets divided by total assets minus goodwill and other intangible assets


	For the Quarter Ended						For the Quarter Ended
	September 30, 2021						September 30, 2020
			Interest		Average				Interest		Average
NET INTEREST INCOME AND NET INTEREST MARGIN	Average		Income/		Yield/		Average		Income/		Yield/
(in $000’s, unaudited)	Balance		Expense		Rate		Balance		Expense		Rate
Assets:
Loans, gross⁽¹⁾⁽²⁾	$	2,771,541	$	36,207	5.18	%	$	2,669,694	$	32,635	4.86	%
Securities - taxable		557,890		2,320	1.65	%		550,423		2,481	1.79	%
Securities - exempt from Federal tax ⁽³⁾		58,679		485	3.28	%		72,625		586	3.21	%
Other investments and interest-bearing deposits
in other financial institutions		1,390,464		998	0.28	%		911,160		673	0.29	%
Total interest earning assets⁽³⁾		4,778,574		40,010	3.32	%		4,203,902		36,375	3.44	%
Cash and due from banks		37,963						36,505
Premises and equipment, net		9,962						9,884
Goodwill and other intangible assets		182,501						185,879
Other assets		130,239						126,242
Total assets	$	5,139,239					$	4,562,412

Liabilities and shareholders’ equity:
Deposits:
Demand, noninterest-bearing	$	1,835,219					$	1,700,972

Demand, interest-bearing		1,142,762		473	0.16	%		934,892		506	0.22	%
Savings and money market		1,234,109		513	0.16	%		1,052,800		762	0.29	%
Time deposits - under $100		14,721		7	0.19	%		17,298		16	0.37	%
Time deposits - $100 and over		132,247		147	0.44	%		121,949		219	0.71	%
CDARS - money market and time deposits		37,257		1	0.01	%		18,741		1	0.02	%
Total interest-bearing deposits		2,561,096		1,141	0.18	%		2,145,680		1,504	0.28	%
Total deposits		4,396,315		1,141	0.10	%		3,846,652		1,504	0.16	%

Subordinated debt, net of issuance costs		39,851		583	5.80	%		39,663		583	5.85	%
Short-term borrowings		55		1	7.21	%		96		—	0.00	%
Total interest-bearing liabilities		2,601,002		1,725	0.26	%		2,185,439		2,087	0.38	%
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds		4,436,221		1,725	0.15	%		3,886,411		2,087	0.21	%
Other liabilities		117,006						99,866
Total liabilities		4,553,227						3,986,277
Shareholders’ equity		586,012						576,135
Total liabilities and shareholders’ equity	$	5,139,239					$	4,562,412

Net interest income ⁽³⁾ / margin				38,285	3.18	%				34,288	3.24	%
Less tax equivalent adjustment⁽³⁾				(103)						(123)
Net interest income			$	38,182					$	34,165

(1)	Includes loans held-for-sale. Nonaccrual loans are included in average balances.

(2)

Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $2,809,000 for the third quarter of 2021 (of which $2,508,000 was from PPP loans), compared to $1,441,000 for the third quarter of 2020 (of which $1,305,000 was from PPP loans). Prepayment fees totaled $1,282,000 for the third quarter of 2021, compared to $154,000 for the third quarter of 2020.

(3)	Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate.


	For the Quarter Ended						For the Quarter Ended
	September 30, 2021						June 30, 2021
			Interest		Average				Interest		Average
NET INTEREST INCOME AND NET INTEREST MARGIN	Average		Income/		Yield/		Average		Income/		Yield/
(in $000’s, unaudited)	Balance		Expense		Rate		Balance		Expense		Rate
Assets:
Loans, gross⁽¹⁾⁽²⁾	$	2,771,541	$	36,207	5.18	%	$	2,794,421	$	33,439	4.80	%
Securities - taxable		557,890		2,320	1.65	%		479,419		1,944	1.63	%
Securities - exempt from Federal tax ⁽³⁾		58,679		485	3.28	%		62,257		511	3.29	%
Other investments and interest-bearing deposits
in other financial institutions		1,390,464		998	0.28	%		1,341,987		845	0.25	%
Total interest earning assets⁽³⁾		4,778,574		40,010	3.32	%		4,678,084		36,739	3.15	%
Cash and due from banks		37,963						42,449
Premises and equipment, net		9,962						10,147
Goodwill and other intangible assets		182,501						183,283
Other assets		130,239						133,134
Total assets	$	5,139,239					$	5,047,097

Liabilities and shareholders’ equity:
Deposits:
Demand, noninterest-bearing	$	1,835,219					$	1,808,638

Demand, interest-bearing		1,142,762		473	0.16	%		1,139,090		477	0.17	%
Savings and money market		1,234,109		513	0.16	%		1,179,321		528	0.18	%
Time deposits - under $100		14,721		7	0.19	%		15,335		8	0.21	%
Time deposits - $100 and over		132,247		147	0.44	%		133,935		164	0.49	%
CDARS - money market and time deposits		37,257		1	0.01	%		31,236		2	0.03	%
Total interest-bearing deposits		2,561,096		1,141	0.18	%		2,498,917		1,179	0.19	%
Total deposits		4,396,315		1,141	0.10	%		4,307,555		1,179	0.11	%

Subordinated debt, net of issuance costs		39,851		583	5.80	%		39,802		577	5.81	%
Short-term borrowings		55		1	7.21	%		28		—	0.00	%
Total interest-bearing liabilities		2,601,002		1,725	0.26	%		2,538,747		1,756	0.28	%
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds		4,436,221		1,725	0.15	%		4,347,385		1,756	0.16	%
Other liabilities		117,006						116,703
Total liabilities		4,553,227						4,464,088
Shareholders’ equity		586,012						583,009
Total liabilities and shareholders’ equity	$	5,139,239					$	5,047,097

Net interest income ⁽³⁾ / margin				38,285	3.18	%				34,983	3.00	%
Less tax equivalent adjustment⁽³⁾				(103)						(107)
Net interest income			$	38,182					$	34,876

(1)	Includes loans held-for-sale. Nonaccrual loans are included in average balances.

(2)

Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $2,809,000 for the third quarter of 2021 (of which $2,508,000 was from PPP loans), compared to $2,192,000 for the second quarter of 2021 (of which $1,876,000 was from PPP loans). Prepayment fees totaled $504,000 for the second quarter of 2021, compared to $154,000 for the third quarter of 2020.

(3)	Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate.


	For the Nine Months Ended						For the Nine Months Ended
	September 30, 2021						September 30, 2020
			Interest		Average				Interest		Average
NET INTEREST INCOME AND NET INTEREST MARGIN	Average		Income/		Yield/		Average		Income/		Yield/
(in $000’s, unaudited)	Balance		Expense		Rate		Balance		Expense		Rate
Assets:
Loans, gross⁽¹⁾⁽²⁾	$	2,729,319	$	103,482	5.07	%	$	2,623,672	$	100,262	5.10	%
Securities - taxable		491,832		5,992	1.63	%		610,590		9,584	2.10	%
Securities - exempt from Federal tax ⁽³⁾		62,454		1,538	3.29	%		76,371		1,845	3.23	%
Other investments, interest-bearing deposits in other
financial institutions and Federal funds sold		1,343,248		2,611	0.26	%		671,753		3,022	0.60	%
Total interest earning assets⁽³⁾		4,626,853		113,623	3.28	%		3,982,386		114,713	3.85	%
Cash and due from banks		40,401						39,575
Premises and equipment, net		10,158						9,198
Goodwill and other intangible assets		183,262						186,697
Other assets		127,402						126,211
Total assets	$	4,988,076					$	4,344,067

Liabilities and shareholders’ equity:
Deposits:
Demand, noninterest-bearing	$	1,786,035					$	1,600,522

Demand, interest-bearing		1,103,114		1,429	0.17	%		875,501		1,573	0.24	%
Savings and money market		1,184,108		1,613	0.18	%		994,314		2,470	0.33	%
Time deposits - under $100		15,315		24	0.21	%		17,964		56	0.42	%
Time deposits - $100 and over		132,347		482	0.49	%		127,360		801	0.84	%
CDARS - money market and time deposits		31,295		4	0.02	%		16,894		4	0.03	%
Total interest-bearing deposits		2,466,179		3,552	0.19	%		2,032,034		4,904	0.32	%
Total deposits		4,252,214		3,552	0.11	%		3,632,556		4,904	0.18	%

Subordinated debt, net of issuance costs		39,804		1,731	5.81	%		39,617		1,737	5.86	%
Short-term borrowings		42		1	3.18	%		162		—	0.00	%
Total interest-bearing liabilities		2,506,025		5,284	0.28	%		2,071,813		6,641	0.43	%
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds		4,292,060		5,284	0.16	%		3,672,335		6,641	0.24	%
Other liabilities		113,265						95,690
Total liabilities		4,405,325						3,768,025
Shareholders’ equity		582,751						576,042
Total liabilities and shareholders’ equity	$	4,988,076					$	4,344,067

Net interest income ⁽³⁾ / margin				108,339	3.13	%				108,072	3.62	%
Less tax equivalent adjustment⁽³⁾				(323)						(387)
Net interest income			$	108,016					$	107,685

(1)	Includes loans held-for-sale. Nonaccrual loans are included in average balances.

(2)

Yield amounts earned on loans include fees and costs. The accretion of net deferred loan fees into loan interest income was $8,690,000 for the first nine months of 2021 (of which $7,784,000 was from PPP loans), compared to $2,353,000 for the first nine months of 2020 (of which $1,942,000 was from PPP loans). Prepayment fees totaled $2,303,000 for the first nine months of 2021, compared to $864,000 for the first nine months of 2020.

(3)	Reflects the FTE adjustment for Federal tax-exempt income based on a 21% tax rate.


	For the Quarter Ended						For the Nine Months Ended
MERGER-RELATED COSTS	September 30,		June 30,		September 30,		September 30,		September 30,
(in $000’s, unaudited)	2021		2021		2020		2021		2020
Salaries and employee benefits	$	—	$	—	$	—	$	—	$	356
Other		(7)		(24)		17		27		2,144
Total merger-related costs	$	(7)	$	(24)	$	17	$	27	$	2,500