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26.07.2018 23:34:33

Heritage Commerce Corp Reports Second Quarter 2018 Earnings; Acquisitions of Tri-Valley Bank and United American Bank Completed

SAN JOSE, Calif., July 26, 2018 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (NASDAQ:HTBK), the holding company (the "Company") for Heritage Bank of Commerce (the "Bank" or "HBC"), today reported net income of $915,000, or $0.02 per average diluted common share for the second quarter of 2018, compared to $7.4 million, or $0.19 per average diluted common share for the second quarter of 2017, and $8.8 million, or $0.23 per average diluted common share for the first quarter of 2018.  For the six months ended June 30, 2018, net income was $9.7 million, or $0.24 per average diluted common share, compared to $14.0 million, or $0.36 per average diluted common share, for the six months ended June 30, 2017.   Earnings for the second quarter of 2018 and for the first six months of 2018 were negatively impacted by merger-related costs of $8.2 million and $8.8 million, respectively, associated with the acquisitions of Tri-Valley Bank ("Tri-Valley") on April 6, 2018, and United American Bank ("United American") on May 4, 2018, as well as a $6.1 million specific reserve for a lending relationship that was placed on nonaccrual during the second quarter of 2018. These costs were partially offset by a $1.3 million legal settlement recovery. All results are unaudited."We successfully completed the mergers of Tri-Valley and United American into HBC during the second quarter of 2018, increasing our assets by approximately $500 million. These acquisitions expand our market presence in San Mateo County and Alameda County and improve our access to San Francisco County, bolstering our position in the San Francisco Bay Area, and marks our fourth successful strategic transaction in the last four years," said Walter Kaczmarek, President and Chief Executive Officer. "We welcome our new customers, employees and shareholders to Heritage and look forward to providing for their needs.""With the system conversion and integration costs related to the Tri-Valley and United American acquisitions behind us, we are positioned to continue our focus on high quality earnings growth.  The acquisitions already resulted in the net interest margin improving by 17 basis points for the second quarter of 2018, compared to the first quarter of 2018, and the loan to deposit ratio increasing to 72.91% at June 30, 2018, compared to 65.69% at March 31,2018," added Mr. Kaczmarek.  Severance, retention, acquisition, and integration costs related to the two mergers totaled $8.2 million for the second quarter of 2018, and $8.8 million for the first six months of 2018."With the exception of one lending relationship and resulting increase in nonperforming loans, asset quality remains solid," said Mr. Kaczmarek.  Second Quarter 2018 Highlights (as of, or for the periods ended June 30, 2018, compared to March 31, 2018 and June 30, 2017, except as noted):Diluted earnings per share was $0.02 for the second quarter of 2018, compared to $0.19 for the second quarter of 2017, and $0.23 for the first quarter of 2018.  Diluted earnings per share totaled $0.24 for the first six months of 2018, compared to $0.36 per diluted share for the first six months of 2017.   For the second quarter of 2018, the return on average tangible assets decreased to 0.12%, and the return on average tangible equity decreased to 1.49%, compared to 1.14% and 14.00%, respectively, for the second quarter of 2017, and 1.31% and 16.30%, respectively, for the first quarter of 2018.  The return on average tangible assets was 0.69%, and the return on average tangible equity was 8.43%, for the first six months of 2018, compared to 1.10% and 13.41%, respectively, for the first six months of 2017.Net interest income before provision for loan losses increased 21% to $30.2 million for the second quarter of 2018, compared to $24.9 million for the second quarter of 2017, and increased 14% from $26.3 million for the first quarter of 2018. For the first six months of 2018, net interest income increased 16% to $56.5 million, compared to $48.8 million for the first six months of 2017.  For the second quarter of 2018, the fully tax equivalent ("FTE") net interest margin improved 23 basis points to 4.30% from 4.07% for the second quarter of 2017.  The improvement was primarily due to a higher average balance of loans and securities, an increase in the accretion of the loan purchase discount into loan interest income from the Tri-Valley Bank and the United American Bank acquisitions in the second quarter of 2018, and the impact of increases in the prime rate on loan yields and overnight funds.The net interest margin improved 17 basis points to 4.30% for the second quarter of 2018, from 4.13% for the first quarter of 2018.  The improvement was primarily due to higher average balances and yields on loans, an increase in the accretion of the loan purchase discount into loan interest income from the acquisitions, the impact of increases in the prime rate on overnight funds, and a lower average balance of lower yielding excess funds at the Federal Reserve Bank. For the first six months of 2018, the net interest margin increased 16 basis points to 4.22%, compared to 4.06% for the first six months of 2017, primarily due to a higher average balance of loans and securities, an increase in the accretion of the loan purchase discount into loan interest income from the acquisitions, and the impact of increases in the prime rate on loan yields and overnight funds.The total purchase discount on loans from Focus Business Bank ("Focus") loan portfolio was $5.4 million on the acquisition date of August 20, 2015, of which $892,000 remains as of June 30, 2018.  The total purchase discount on loans from Tri-Valley loan portfolio was $2.6 million on the acquisition date of April 6, 2018, of which $2.5 million remains as of June 30, 2018.  The total purchase discount on loans from United American loan portfolio was $4.7 million on the acquisition date of May 4, 2018, of which $4.4 million remains as of June 30, 2018.The accretion of the loan purchase discount into loan interest income from the three acquisitions was $669,000 for the second quarter of 2018, compared to $257,000 for the second quarter of 2017, and $57,000 for the first quarter of 2018.The accretion of the loan purchase discount into loan interest income from the three acquisitions was $726,000 for the first six months of 2018, compared to $470,000 for the first six months of 2017.Loans, excluding loans held-for-sale, increased $390.3 million, or 25%, to $1.96 billion at June 30, 2018, compared to $1.57 billion at June 30, 2017, which included $209.3 million in loans from United American, at fair value, $117.4 million in loans from Tri-Valley, at fair value, and an increase of $72.9 million, or 5% in the Company's legacy portfolio, partially offset by a decrease of $8.0 million in purchased residential mortgage loans.Loans increased $365.4 million, or 23%, to $1.96 billion at June 30, 2018, compared to $1.59 billion at March 31, 2018, which included $209.3 million in loans from United American, $117.4 million in loans from Tri-Valley, and an increase of $41.3 million, or 3% in the Company's legacy portfolio. The allowance for loan losses ("ALLL") was 1.36% of total loans at June 30, 2018, compared to 1.24% at June 30, 2017, and 1.27% at March 31, 2018.  The ALLL to total nonperforming loans decreased to 100.45% at June 30, 2018, compared to 614.22% at June 30, 2017, and 530.67% at March 31, 2018, primarily due to the $22.9 million lending relationship that was placed on nonaccrual during the second quarter of 2018 and the Tri-Valley and United American acquisitions.  The loans acquired from Tri-Valley and United American are included in total loans; however, there was minimal allowance for loan losses attributed to these loans at June 30, 2018 because upon acquisition they were marked to fair value.Nonperforming assets ("NPAs") increased to $26.5 million, or 0.85% of total assets, at June 30, 2018, compared to $3.3 million, or 0.12% of total assets, at June 30, 2017, and $3.8 million, or 0.14% of total assets, at March 31, 2018, primarily due to the $22.9 million lending relationship that was placed on nonaccrual during the second quarter of 2018. Based on information received in July 2018 from a borrower regarding events that occurred in the second quarter of 2018, management of the Company determined that secured loans associated with that borrower's $22.9 million lending relationship became impaired and were placed on nonaccrual status as of June 30, 2018. The Company recorded a $6.1 million specific reserve for this relationship, and accordingly, increased the provision for loan losses by $6.1 million for the second quarter of 2018.Classified assets increased to $32.3 million, or 1.03% of total assets, at June 30, 2018, compared to $7.5 million, or 0.27% of total assets, at June 30, 2017, primarily due to the $22.9 million lending relationship that was moved to classified assets.  Classified assets were $30.8 million, or 1.10% of total assets, at March 31, 2018.Net charge-offs totaled $673,000 for the second quarter of 2018, compared to net recoveries of $308,000 for the second quarter of 2017, and net charge-offs of $25,000 for the first quarter of 2018.  The net charge-offs of $673,000 for the second quarter of 2018 included a $750,000 unsecured commercial loan, partially offset by smaller net recoveries.There was a $7.2 million provision for loan losses for the second quarter of 2018, compared to a ($46,000) credit to provision for loan losses for the second quarter of 2017, and a $506,000 provision for loan losses for the first quarter of 2018.  There was a $7.7 million provision for loan losses for the six months ended June 30, 2018, compared to a $275,000 provision for loan losses for the six months ended June 30, 2017.  The increase in the provision for loan losses for the second quarter of 2018 and first six months of 2018 was primarily due to the $6.1 million specific reserve on the $22.9 million lending relationship.Total deposits increased $308.9 million, or 13%, to $2.68 billion at June 30, 2018, compared to $2.37 billion at June 30, 2017, which included $273.7 million, at fair value, in deposits from United American, $92.7 million, at fair value, in deposits from Tri-Valley, and an increase of $7.5 million in the Company's legacy deposits, partially offset by the maturity of $65.0 million State of California certificates of deposits.Total deposits increased $261.4 million, or 11%, to $2.68 billion at June 30, 2018, compared to $2.42 billion at March 31, 2018, which included $273.7 million in deposits from United American, and $92.7 million in deposits from Tri-Valley, partially offset by a decrease of $105.0 million in the Company's legacy deposits, of which $46.0 million were real estate exchange balances that liquidated.The Company's consolidated capital ratios exceeded regulatory guidelines and the Bank's capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at June 30, 2018.                     Well-capitalized Fully Phased-in        Financial Basel III        Institution Minimal  Heritage Heritage Basel III Requirement (1)  Commerce Bank of Regulatory EffectiveCAPITAL RATIOS Corp Commerce Guidelines January 1, 2019Total Risk-Based  13.5%   12.5%   10.0%   10.5%Tier 1 Risk-Based  10.7%   11.4%   8.0%   8.5%Common Equity Tier 1 Risk-Based  10.7%   11.4%   6.5%   7.0%Leverage  8.7%   9.3%   5.0%   4.0%(1) Fully phased in Basel III requirements for both the Company and the Bank include a 2.5% capital conservation buffer, except the leverage ratio.Operating ResultsNet interest income before the provision for loan losses increased 21% to $30.2 million for the second quarter of 2018, compared to $24.9 million for the second quarter of 2017, and increased 14% from $26.3 million for the first quarter of 2018. Net interest income increased 16% to $56.5 million for the first six months of 2018, compared to $48.8 million for the first six months of 2017. Net interest income increased for the second quarter of 2018 and the first six months of 2018, compared to the respective periods in 2017, primarily due to the impact of the increase in loans and deposits from the Tri-Valley and United American acquisitions, in addition to modest organic loan growth.For the second quarter of 2018, the net interest margin (FTE) increased 23 basis points to 4.30% from 4.07% for the second quarter of 2017.  The increase was primarily due to a higher average balance of loans and securities, an increase in the accretion of the loan purchase discount into loan interest income from the Tri-Valley Bank and United American Bank acquisitions in the second quarter of 2018, and the impact of increases in the prime rate on loan yields and overnight funds.  The net interest margin improved 17 basis points from 4.13% for the first quarter of 2018.  The improvement was primarily due to higher average balances and yields on loans, an increase in the accretion of the loan purchase discount into loan interest income from the acquisitions, the impact of increases in the prime rate on overnight funds, and a lower average balance of lower yielding excess funds at the Federal Reserve Bank.         For the first six months of 2018, the net interest margin increased 16 basis points to 4.22%, compared to 4.06% for the first six months of 2017, primarily due to a higher average balance of loans and securities, an increase in the accretion of the loan purchase discount into loan interest income from the acquisitions, and the impact of increases in the prime rate on loan yields and overnight funds.There was a $7.2 million provision for loan losses for the second quarter of 2018, compared to a credit to the provision for loan losses of ($46,000) for the second quarter of 2017, and a $506,000 provision for loan losses for the first quarter of 2018. There was a $7.7 million provision for loan losses for the six months ended June 30, 2018, compared to a $275,000 provision for loan losses for the six months ended June 30, 2017.  The increase in the provision for loan losses for the second quarter of 2018 and first six months of 2018 was primarily due to the $6.1 million specific reserve on the $22.9 million lending relationship.Total noninterest income increased to $2.8 million for the second quarter of 2018, compared to $2.3 million for the second quarter of 2017 and $2.2 million for the first quarter of 2018.  For the six months ended June 30, 2018, noninterest income increased to $5.0 million, compared to $4.6 million for the six months ended June 30, 2017.  The increase in noninterest income for the second quarter of 2018 and first six months of 2018, was primarily due to a legal settlement recovery. The Company received $1.3 million proceeds from a legal settlement during the second quarter of 2018, of which $377,000 was recorded in other noninterest income, and $922,000 was credited to professional fees for recaptured legal fees previously paid by the Company.Total noninterest expense for the second quarter of 2018 was $24.9 million, compared to $15.3 million for the second quarter of 2017 and $16.0 million the first quarter of 2018.  Noninterest expense for the six months ended June 30, 2018 was $40.9 million, compared to $30.6 million for the six months ended June 30, 2017. The increase in noninterest expense in the second quarter of 2018 and the first six months of 2018, compared to the respective periods in 2017, was primarily due to costs related to the merger transactions and higher salaries and employee benefits as a result of annual salary increases, and additional operating costs of Tri-Valley and United American, partially offset by lower professional fees.  Other noninterest expense included pre-tax acquisition and integration costs of $4.8 million and $5.4 million for the second quarter of 2018 and first six months of 2018, respectively. In addition, salaries and employee benefits included severance and retention expense of $3.4 million related to the Tri-Valley and United American acquisitions, for total severance, retention, acquisition and integration costs of $8.2 million for the second quarter of 2018 and $8.8 million first six months of 2018.  Professional fees decreased to ($289,000) for the second quarter of 2018, compared to $673,000 for the second quarter of 2017, and $684,000 for the first quarter of 2018, primarily due to the recovery of $922,000 of professional fees from a legal settlement in the second quarter of 2018.   Full time equivalent employees were 303 at June 30, 2018, 269 at June 30, 2017, and 271 at March 31, 2018. The efficiency ratio for the second quarter of 2018 was 75.47%, compared to 56.03% for the second quarter of 2017, and 56.02% for the first quarter of 2018.  The efficiency ratio for the six months ended June 30, 2018 was 66.44%, compared to 57.33% for the six months ended June 30, 2017.   The income tax benefit for the second quarter of 2018 was ($31,000), compared to income tax expense of $4.6 million for the second quarter of 2017, and income tax expense of $3.2 million for the first quarter of 2018.  The effective tax rate for the second quarter of 2018 decreased to (3.5%), compared to 38.0% for the second quarter of 2017, primarily due to lower pre-tax income in the second quarter of 2018, compared to the first quarter of 2018, resulting in a year-to-date tax adjustment and a lower federal corporate tax rate for the second quarter of 2018.  On December 22, 2017, H.R.1, commonly known as the Tax Cuts and Jobs Act (the "Tax Act"), was signed into law, which among other items reduced the federal corporate tax rate to 21% from 35%, effective January 1, 2018.  The effective tax rate was 26.9% for the first quarter of 2018.   Income tax expense for the six months ended June 30, 2018 was $3.2 million, compared to $8.5 million for the six months ended June 30, 2017. The effective tax rate for the six months ended June 30, 2018 was 24.8%, compared to 37.8% for the six months ended June 30, 2017. The difference in the effective tax rate for the periods reported compared to the combined Federal and state statutory tax rate of 29.6% for the second quarter of 2018 and the first six months of 2018, and 42% for the second quarter of 2017 and first six months of 2017, is primarily the result of the Company's investment in life insurance policies whose earnings are not subject to taxes, tax credits related to investments in low income housing limited partnerships (net of low income housing investment losses), and tax-exempt interest income earned on municipal bonds. Balance Sheet Review, Capital Management and Credit QualityTotal assets increased 14% to $3.12 billion at June 30, 2018, compared to $2.73 billion at June 30, 2017, and increased 12% from $2.79 billion at March 31, 2018.  The increase in total assets at June 30, 2018 was primarily due to the Tri-Valley and United American acquisitions.  Tri-Valley added $117.4 million in loans, at fair value, and $92.7 in deposits, at fair value, at June 30, 2018.  United American added $7.4 million in investment securities available-for-sale, at fair value, $209.3 million in loans, at fair value, and $273.7 million in deposits, at fair value, at June 30, 2018.Securities available-for-sale, at fair value, totaled $335.9 million at June 30, 2018, compared to $369.9 million at June 30, 2017, and $344.8 million at March 31, 2018.  At June 30, 2018, the Company's securities available-for-sale portfolio was comprised of $328.5 million agency mortgage-backed securities (all issued by U.S. Government sponsored entities) and $7.4 million U.S. Government sponsored entities debt securities. The pre-tax unrealized loss on securities available-for-sale at June 30, 2018 was ($10.8) million, compared to a pre-tax unrealized gain on securities available-for-sale of $472,000 at June 30, 2017, and a pre-tax unrealized loss on securities available-for-sale of ($9.5) million at March 31, 2018.  All other factors remaining the same, when market interest rates are rising, the Company will experience a lower unrealized gain (or a higher unrealized loss) on the securities portfolio. Investment securities available-for-sale acquired from United American totaled $63.7 million, at fair value, on May 4, 2018.  Subsequent to closing, the Company sold $55.4 million of these securities, for a gain on sale of securities of $179,000.At June 30, 2018, securities held-to-maturity, at amortized cost, totaled $388.6 million, compared to $368.3 million at June 30, 2017, and $395.3 million at March 31, 2018.  At June 30, 2018, the Company's securities held-to-maturity portfolio was comprised of $300.7 million agency mortgage-backed securities, and $87.9 million tax-exempt municipal bonds.   During the second quarter of 2018, the Company purchased $6.3 million of agency mortgage-backed securities held-to-maturity, with a weighted average book yield of 3.39%, and a weighted average duration of 6.79 years.Loans, excluding loans held-for-sale, increased $390.3 million, or 25%, to $1.96 billion at June 30, 2018, compared to $1.57 billion at June 30, 2017, which included $209.3 million in loans from United American, $117.4 million in loans from Tri-Valley, and an increase of $72.9 million, or 5% in the Company's legacy portfolio, partially offset by a decrease of $8.0 million in purchased residential mortgage loans. Loans increased $365.4 million, or 23%, to $1.96 billion at June 30, 2018, compared to $1.59 billion at March 31, 2018, which included $209.3 million in loans from United American, $117.4 million in loans from Tri-Valley, and an increase of $41.3 million, or 3% in the Company's legacy portfolio.The loan portfolio remains well-diversified with commercial and industrial ("C&I") loans accounting for 31% of the loan portfolio at June 30, 2018, which included $63.5 million of factored receivables. Commercial real estate ("CRE") loans accounted for 53% of the total loan portfolio, of which 39% were occupied by businesses that own them.  Consumer and home equity loans accounted for 7% of total loans, land and construction loans accounted for 6% of total loans, and residential mortgage loans accounted for the remaining 3% of total loans at June 30, 2018.  The commercial loan portfolio decreased $1.2 million to $609.5 million at June 30, 2018, from $610.7 million at June 30, 2017, which included a decrease of $30.9 million in the Company's legacy portfolio, partially offset by $18.7 million of loans added from United American, and $11.0 million of loans added from Tri-Valley. The commercial loan portfolio increased $36.7 million from $572.8 million at March 31, 2018, which included $18.7 million of loans added from United American, $11.0 million of loans added from Tri-Valley, and an increase of $7.0 million, or 1%, in the Company's legacy portfolio. C&I line usage was 37% at June 30, 2018 and March 31, 2018, compared to 40% at June 30, 2017.The CRE loan portfolio increased $299.3 million, or 41%, to $1.03 billion at June 30, 2018, compared to $731.5 million at June 30, 2017, which included $140.3 million of loans added from United American, $94.6 million of loans added from Tri-Valley, and an increase of $65.8 million, or 9%, in the Company's legacy portfolio, partially offset by a decrease of $1.4 million in purchased CRE loans.  The CRE loan portfolio increased $255.3 million, or 33%, from $775.5 million at March 31, 2018, which included $140.3 million of loans added from United American, $94.6 million of loans added from Tri-Valley, and an increase of $20.9 million, or 3% in the Company's legacy portfolio. Land and construction loans increased $46.0 million, or 56%, to $128.9 million at June 30, 2018, compared to $82.9 million at June 30, 2017, and increased $15.4 million, or 14% from $113.5 million at March 31, 2018, primarily due to organic growth and $1.4 million of loans added from United American.Home equity lines of credit increased $41.3 million, or 52%, to $121.3 million at June 30, 2018, compared to $79.9 million at June 30, 2017, which included $34.6 million of loans added from United American, and $11.8 million of loans added from Tri-Valley, partially offset by a decrease of $5.1 million in the Company's legacy portfolio.  Home equity lines of credit increased $45.2 million, or 59%, compared to $76.1 million at March 31, 2018, which included $34.7 million of loans added from United American, and $11.8 million of loans added from Tri-Valley. Residential mortgage loans increased $5.6 million, or 12%, to $54.4 million at June 30, 2018, compared to $48.7 million at June 30, 2017, primarily due to $13.6 million of loans added from United American, partially offset by an $8.0 million decrease in purchased residential mortgage loans.  Residential mortgage loans increased $11.5 million, or 27%, at June 30, 2018, compared to $42.9 million at March 31, 2018, primarily due to $13.6 million of loans added from United American, partially offset by a $2.1 million decrease in purchased residential mortgage loans.The average yield on the loan portfolio increased to 5.75% for the second quarter of 2018, compared to 5.64% for the second quarter of 2017, primarily due to an increase in the accretion of the loan purchase discount into loan interest income from the acquisitions, and remained relatively flat from 5.76% for the first quarter of 2018. The average yield on the Company's legacy loan portfolio (excluding the purchased residential loans, purchased CRE loans, factored receivables portfolio, and accretion of the loan purchase discount from the acquisitions) decreased 2 basis points for the second quarter of 2018, compared to the second quarter of 2017, and decreased 12 basis points from the first quarter of 2018. The average yield on the purchased residential loans was 2.71% for the second quarter of 2018, compared to 2.82% for the second quarter of 2017, and 2.73% for the first quarter of 2018. The average yield on the purchased CRE loans was 3.58% for the second quarter of 2018, compared to 3.51% the second quarter of 2017, and 3.52% the first quarter of 2018.The yield on the loan portfolio increased to 5.76% for the first six months of 2018, compared to 5.59% for the first six months of 2017, primarily due to an increase in accretion of the loan purchase discount into loan interest income from the acquisitions.  The yield on the Company's legacy loan portfolio (excluding the purchased residential loans, purchased CRE loans, factored receivables portfolio, and accretion of the loan purchase discount from the acquisitions) increased 9 basis points for the first six months of 2018, compared to the first six months of 2017.  The yield on the purchased residential loans was 2.72% for the first six months of 2018, compared to 2.66% for the first six months of 2017.  The yield on the purchased CRE loans was 3.55% for the first six months of 2018, compared to 3.50% for the first six months of 2017.The accretion of the loan purchase discount into loan interest income from the three acquisitions was $669,000 for the second quarter of 2018, compared to $257,000 for the second quarter of 2017, and $57,000 for the first quarter of 2018.  The accretion of the loan purchase discount into loan interest income from the three acquisitions was $726,000 for the first six months of 2018, compared to $470,000 for the first six months of 2017.  The total purchase discount on loans from Focus loan portfolio was $5.4 million on the acquisition date of August 20, 2015, of which $892,000 remains as of June 30, 2018.  The total purchase discount on loans from Tri-Valley loan portfolio was $2.6 million on the acquisition date of April 6, 2018, of which $2.5 million remains as of June 30, 2018.  The total purchase discount on loans from United American loan portfolio was $4.7 million on the acquisition date of May 4, 2018, of which $4.4 million remains as of June 30, 2018.At June 30, 2018, NPAs were $26.7 million, or 0.85% of total assets, compared to $3.3 million, or 0.12% of total assets, at June 30, 2017, and $3.8 million, or 0.14% of total assets, at March 31, 2018, primarily due to the $22.9 million lending relationship that was placed on nonaccrual during the second quarter of 2018.  There were no foreclosed assets at June 30, 2018 and March 31, 2018, compared to $183,000 at June 30, 2017.  The following is a breakout of NPAs at the periods indicated:                   End of Period: NONPERFORMING ASSETS June 30, 2018 March 31, 2018 June 30, 2017 (in $000's, unaudited) Balance % of Total Balance % of Total Balance % of Total Commercial and industrial loans $ 19,545  74% $ 2,291  60% $ 1,512  45%CRE loans   5,801  22%   501  13%   501  15%Restructured and loans over 90 days past due and still accruing   511  2%   158  4%   171  5%Home equity and consumer loans   351  1%   364  10%   401  12%SBA loans   337  1%   481  13%   384  11%Land and construction loans   —  —   —  —   189  6%Foreclosed assets   —  —   —  —   183  6%Total nonperforming assets $ 26,545  100% $ 3,795  100% $ 3,341  100%Classified assets increased to $32.3 million, or 1.03% of total assets, at June 30, 2018, compared to $7.5 million, or 0.27% of total assets, at June 30, 2017, primarily due to the $22.9 million lending relationship that was moved to classified assets. Classified assets were $30.8 million, or 1.10% of total assets, at March 31, 2018.The following table summarizes the allowance for loan losses:                   For the Quarter Ended For the Six Months Ended  ALLOWANCE FOR LOAN LOSSES June 30,  March 31,  June 30,  June 30,  June 30,  (in $000's, unaudited) 2018  2018  2017  2018  2017 Balance at beginning of period $ 20,139  $ 19,658  $ 19,135  $ 19,658  $ 19,089 Provision (credit) for loan losses during the period   7,198    506    (46)   7,704    275 Net recoveries (charge-offs) during the period   (673)   (25)   308    (698)   33 Balance at end of period $ 26,664  $ 20,139  $ 19,397  $ 26,664  $ 19,397                  Total loans, net of deferred fees $ 1,956,633  $ 1,591,201  $ 1,566,324  $ 1,956,633  $ 1,566,324 Total nonperforming loans $ 26,545  $ 3,795  $ 3,158  $ 26,545  $ 3,158 Allowance for loan losses to total loans   1.36 %   1.27 %   1.24 %  1.36 %   1.24%Allowance for loan losses to total nonperforming loans   100.45 %   530.67 %   614.22 %  100.45 %   614.22%The ALLL at June 30, 2018 was 1.36% of total loans, compared to 1.24% at June 30, 2017, and 1.27% at March 31, 2018.  The ALLL to total nonperforming loans decreased to 100.45% at June 30, 2018, compared to 614.22% at June 30, 2017, and 530.67% at March 31, 2018, primarily due to the $22.9 million lending relationship that was placed on nonaccrual during the second quarter of 2018 and the Tri-Valley and United American acquisitions.  The loans acquired from Tri-Valley and United American are included in total loans; however, there was minimal allowance for loan losses attributed to these loans at June 30, 2018 because upon acquisition they were marked to fair value.Net charge-offs totaled $673,000 for the second quarter of 2018, compared to net recoveries of $308,000 for the second quarter of 2017, and net charge-offs of $25,000 for the first quarter of 2018.  The net charge-offs of $673,000 for the second quarter of 2018 included a $750,000 unsecured commercial loan, partially offset by smaller net recoveries.Total deposits increased $308.9 million, or 13%, to $2.68 billion at June 30, 2018, compared to $2.37 billion at June 30, 2017, which included $273.7 million in deposits from United American, $92.7 million in deposits from Tri-Valley, and an increase of $7.5 million in the Company's legacy deposits, partially offset by the maturity of $65.0 million State of California certificates of deposits. Total deposits increased $261.4 million, or 11%, to $2.68 billion at June 30, 2018, compared to $2.42 billion at March 31, 2018, which included $273.7 million in deposits from United American, and $92.7 million in deposits from Tri-Valley, partially offset by a decrease of $105.0 million in the Company's legacy deposits, of which $46.0 million were real estate exchange balances that liquidated.Deposits, excluding all time deposits and CDARS deposits, increased $355.9 million, or 16%, to $2.51 billion at June 30, 2018, compared to $2.16 billion at June 30, 2017, which included $237.5 million of deposits added from United American, $83.0 million of deposits added from Tri-Valley, and an increase of $35.4 million, or 2%, in the Company's legacy deposits.  Deposits, excluding all time deposits and CDARS deposits, increased $227.7 million, or 10%, compared to $2.29 billion at March 31, 2018, which included $237.5 million of deposits added from United American, $83.0 million of deposits added from Tri-Valley, partially offset by a decrease of $92.8 million, or (4%), in the Company's legacy deposits, of which $46.0 million were real estate exchange balances that liquidated.Time deposits of $250,000 and over decreased $65.8 million, or (45%), to $81.4 million at June 30, 2018, compared to $147.2 million at June 30, 2017, which included the maturity of $65.0 million State of California certificates of deposits, and a decrease of $21.8 million, or (27%), in the Company's legacy deposits, partially offset by $16.7 million of deposits added from United American, and $4.3 million of deposits added from Tri-Valley.  Time deposits of $250,000 and over increased $9.9 million, or 14%, compared to $71.4 million at March 31, 2018, which included $16.7 million of deposits added from United American, and $4.3 million of deposits added from Tri-Valley, partially offset by a decrease of $11.1 million, or (15%), in the Company's legacy deposits.   The cost of total deposits was 0.19% for the second quarter of 2018, compared to 0.16% for the second quarter of 2017 and the first quarter of 2018. The total cost of deposits was 0.18% for the six months ended June 30, 2018, and 0.16% for the six months ended June 30, 2017.Tangible equity increased to $249.6 million at June 30, 2018, compared to $217.4 million at June 30, 2017, and $220.0 million at March 31, 2018, primarily due to the Tri-Valley and United American acquisitions.  Tangible book value per share was $5.77 at June 30, 2018, compared to $5.70 at June 30, 2017, and $5.75 at March 31, 2018. Accumulated other comprehensive loss was ($15.9) million at June 30, 2018, compared to ($6.5) million at June 30, 2017, and ($15.0) million at March 31, 2018. The unrealized gain (loss) on securities available-for-sale, net of taxes, included in accumulated other comprehensive loss was ($7.7) million at June 30, 2018, compared to unrealized gain of $280,000 at June 30, 2017, and an unrealized loss of ($6.8) million at March 31, 2018.  The components of accumulated other comprehensive loss, net of taxes, at June 30, 2018 include the following: an unrealized loss on securities available-for-sale of ($7.7) million; the remaining unamortized unrealized gain on securities available-for-sale transferred to held-to-maturity of $358,000; a split dollar insurance contracts liability of ($3.7) million; a supplemental executive retirement plan liability of ($5.5) million; and an unrealized gain on interest-only strip from SBA loans of $653,000.On April 6, 2018, the Company completed its acquisition of Tri-Valley for a transaction value of $32.3 million. At closing the Company issued 1,889,613 shares of the Company's common stock with an aggregate market value of $30.7 million on the date of closing. The number of shares issued was based on a fixed exchange ratio of 0.0489 shares of the Company's common stock for each outstanding share of Tri-Valley common stock. In addition, at closing the Company paid cash to the holder of a stock warrant and holders of outstanding stock options and related fees and fractional shares totaling $1.6 million. The Company recorded goodwill of $13.8 million for the Tri-Valley acquisition, which represents the excess of consideration paid for the nets assets acquired marked to their market values, as follows:      April 6, 2018  (Dollars in thousands)    Cash paid for:   Warrant $ 889 Options   615 Other   91 Total cash paid   1,595     Issuance of 1,889,613 shares of common stock   to Tri-Valley shareholders at $16.26 per share   30,725     Total Consideration Paid $ 32,320     Net assets pre-acquisitionFull story available on Benzinga.com
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