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Mar 31, 2020
Heritage Commerce Q1 2020 Earnings Report
Net income decreased due to CECL provision for credit losses and merger-related costs.
Key Takeaways
Heritage Commerce Corp reported a net income of $1.9 million for Q1 2020, a significant decrease compared to $12.1 million in Q1 2019. The results were impacted by a $13.3 million pre-tax CECL related provision for credit losses and $2.4 million of pre-tax merger-related costs.
Net income for the first quarter of 2020 was $1.9 million, or $0.03 per diluted share.
Earnings were impacted by a $13.3 million pre-tax CECL provision for credit losses on loans and $2.4 million of pre-tax merger-related costs.
Loan growth of 38% and total deposit growth of 28% from a year ago were supported by the Presidio Bank merger.
Net interest margin remained stable at 4.25%.
Heritage Commerce
Heritage Commerce
Forward Guidance
The company expects pressure on interest income and net interest margin due to the lower interest rate environment, while closely monitoring the Coronavirus pandemic and taking steps to protect stakeholders.
Positive Outlook
- The Company believes its strong capital base and substantial liquidity position will enable it to proactively address the challenges related to the Coronavirus.
- The Presidio systems and integration conversion was successfully completed in the first quarter of 2020.
- The majority of the cost savings were implemented by the end of the first quarter of 2020.
- As of April 16, 2020, the Company had processed 597 PPP loan applications with potential outstanding balances of $225.3 million.
- The Company intends to continue to participate in the PPP loan program should additional funding become available.
Challenges Ahead
- The Company expects interest income and net interest margin will come under pressure as the full effect of the lower interest rate environment is realized.
- State and local health measures have immediately weighed on the economy.
- California statewide initial jobless claims jumped to 660,996 for the week ending April 11, 2020 from 57,606 for the week ending March 14, 2020.
- CECL provision for credit losses on loans, as we proactively prepare for the economic effects of the pandemic.
- Due to delays and restrictions created by California’s and Santa Clara County’s Shelter-in-Place declarations because of the Coronavirus, we must delay the move to later in the year.