Heritage Commerce Corp Reports Earnings of $5.7 Million for the Fourth Quarter of 2019 and Record Earnings of $40.5 Million for the Full Year of 2019; Merger with Presidio Bank Completed

SAN JOSE, Calif., Jan. 23, 2020 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (Nasdaq: HTBK), the holding company (the “Company”) for Heritage Bank of Commerce (the “Bank”), today announced fourth quarter 2019 net income of $5.7 million, or $0.10 per average diluted common share, compared to $13.2 million, or $0.30 per average diluted common share, for the fourth quarter of 2018, and $11.3 million, or $0.26 per average diluted common share, for the third quarter of 2019.  For the year ended December 31, 2019, the Company reported record net income of $40.5 million, or $0.84 per average diluted common share, compared to $35.3 million, or $0.84 per average diluted common share, for the year ended December 31, 2018.  All results are unaudited.

Earnings for the third and fourth quarters of 2019, and for the year ended December 31, 2019 were reduced by pre-tax merger-related costs of $661,000, $9.9 million, and $11.1 million, respectively, related to the merger with Presidio Bank (“Presidio”) which was completed on October 11, 2019 (the “Presidio merger date”). Pre-tax earnings for the fourth quarter of 2019 were further reduced by an additional $2.0 million of provision for loan losses for certain non-impaired loans acquired at a premium from Presidio.  Earnings for the fourth quarter of 2018 and for the year ended December 31, 2018 were reduced by pre-tax merger-related costs of $139,000 and $9.2 million, respectively, for the acquisitions of Tri-Valley Bank (“Tri-Valley”) and United American Bank (“United American”) which were completed on April 6, 2018 and May 4, 2018, respectively.  The effective tax rate for the year ended December 31, 2019 was 28.1%, compared to an effective tax rate of 27.4% for the year ended December 31, 2018.

“The fourth quarter of 2019 saw a significant accomplishment for Heritage Bank of Commerce with the completion of the Presidio Bank merger thereby creating the San Francisco Bay Area’s premier community business bank with a strong depth of banking talent and an extensive and diverse customer base,” said Keith A. Wilton, President and Chief Executive Officer. “Credit quality remains strong and the Bank continued to generate solid earnings for the fourth quarter and the full year of 2019, though these were partially reduced by anticipated merger-related costs from the Presidio merger.”

“We ended 2019 with over $4.1 billion in total assets, $2.5 billion in total loans and $3.4 billion in total deposits, with noninterest-bearing deposits increasing 42% from a year ago to 42% of total deposits,” added Mr. Wilton.  “Net interest income was up 19% for the fourth quarter of 2019, over a year ago, and increased 8% for the full year.  Also, in spite of the linked quarter margin compression, and the lower interest rate environment in general, our net interest margin remained strong at 4.15% for the fourth quarter and 4.28% for the full year.  Credit quality continues to improve, with nonperforming assets declining 34% from a year ago to $9.8 million, or 0.24% of total assets.  In the fourth quarter of 2019 we booked an elevated provision for loan losses of $3.2 million, of which $2.0 million was a provision for certain non-impaired loans acquired at a premium from Presidio.”

“We remain focused on the long-term success of our Company and will continue to invest in the future of our franchise.  To that end, we are planning our systems conversion and integration of Presidio during the first quarter of 2020, for which we will incur anticipated additional merger-related costs,” said Mr. Wilton.  “I would also like to thank our many dedicated legacy employees and new employees from Presidio Bank for all that they do to create value, each and every day, for our customers, communities and shareholders.”

2019 Highlights (as of, or for the periods ended December 31, 2019, compared to December 31, 2018, and September 30, 2019, except as noted):

Operating Results:

♦ Diluted earnings per share were $0.10 for the fourth quarter of 2019, compared to $0.30 for the fourth quarter of 2018, and $0.26 for the third quarter of 2019.   Diluted earnings per share were $0.84 for the years ended December 31, 2019 and 2018.

• Earnings for the fourth quarter of 2019, third quarter of 2019, and the year ended December 31, 2019 were reduced by merger-related costs for the transaction with Presidio, and earnings for the fourth quarter of 2018, and for the year ended December 31, 2018 were reduced by merger-related costs for the acquisitions of Tri-Valley and United American, as follows:

• The Company acquired $10.0 million of subordinated debt from the Presidio transaction, which was redeemed on December 19, 2019.  As a result of the redemption of the subordinated debt, the Company paid a pre-payment penalty of $300,000 during the fourth quarter of 2019.
  

♦ On October 11, 2019, the Company completed its merger with Presidio for an aggregate transaction value of $185.6 million. Shareholders of Presidio received a fixed exchange ratio at closing of 2.47 shares of the Company’s common stock for each share of Presidio common stock. Upon closing of the transaction, the Company issued 15,684,064 shares of the Company’s common stock to Presidio shareholders and holders of restricted stock units for a total value of $178.2 million based on the Company’s closing stock price of $11.36 on the closing date of October 11, 2019. In addition, the consideration for Presidio stock options exchanged for the Company’s stock options totaled $7.4 million and cash-in-lieu of fractional shares totaled $1,000 on October 11, 2019.  The Company recorded goodwill of $83.7 million for the Presidio merger, which represents the excess of consideration paid for the net assets acquired marked to their market values, as follows:

• Presidio’s results of operations have been included in the Company’s results of operations beginning October 12, 2019.

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

♦ Net interest income, before provision for loan losses, increased 19% to $39.2 million for the fourth quarter of 2019, compared to $33.1 million for the fourth quarter of 2018, and increased 28% from $30.6 million for the third quarter of 2019. Net interest income increased 8% to $131.8 million for the year ended December 31, 2019, compared to $122.0 million for the year ended December 31, 2018. The decrease in the return on average tangible assets and average tangible equity for the fourth quarter of 2019 and the year ended 2019 was primarily due to higher merger-related costs.

• The fully tax equivalent (“FTE”) net interest margin contracted 27 basis points to 4.15% for the fourth quarter of 2019, from 4.42% for the fourth quarter of 2018, primarily due to a decline in the average yield of loans, investment securities, and overnight funds, a decrease in the average balance of Bay View Funding’s factored receivables, partially offset by an increase in the average balance of loans, and an increase in the accretion of the loan discount into loan interest income from a merger during the fourth quarter of 2019.  The net interest margin contracted nine basis points for the fourth quarter of 2019 from 4.24% for the third quarter of 2019, primarily due to a decline in the average yield of loans and overnight funds, partially offset by a higher average balance of loans, and an increase in the accretion of the loan discount into loan interest income from a merger during the fourth quarter of 2019.
  
  
• For the year ended December 31, 2019, the net interest margin contracted three basis points to 4.28%, compared to 4.31% for the year ended December 31, 2018, primarily due to a higher cost of deposits, a decrease in the average balance of Bay View Funding’s factored receivables, partially offset by an increase in the average balance of loans and securities, and an increase in the accretion of the loan purchase discount into loan interest income from a merger during the year ended December 31, 2019.

♦ 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 decreased to 5.76% for the fourth quarter of 2019, compared to 6.01% for the fourth quarter of 2018, primarily due to decreases in the prime rate on loans during the latter part of 2019, and a decrease in the average balance of Bay View Funding’s factored receivables, partially offset by an increase in the accretion of the loan purchase discount into loan interest income from the acquisitions.
  

• The average yield on the total loan portfolio decreased to 5.76% for the fourth quarter of 2019, compared to 5.83% for the third quarter of 2019, primarily due to decreases in the prime rate on loans during the latter part of 2019, partially offset by an increase in the accretion of the loan purchase discount into loan interest income from the acquisitions.
  

• The average yield on the total loan portfolio decreased to 5.86% for the year ended December 31, 2019, compared to 5.87% for the year ended December 31, 2018, primarily due to a decrease in the average balance of Bay View Funding’s factored receivables, partially offset by the impact of the increasing prime rate on loans over the course of 2018 (prior to the prime rate decreasing in the latter part of 2019), and an increase in the accretion of the loan purchase discount into loan interest income from the acquisitions.
  
  
• The total net purchase discount on loans from the Focus Business Bank (“Focus”) loan portfolio was $5.4 million on the acquisition date of August 20, 2015, of which $418,000 remains outstanding as of December 31, 2019.  The total net purchase discount on loans from the Tri-Valley loan portfolio was $2.6 million on the acquisition date of April 6, 2018, of which $1.6 million remains outstanding as of December 31, 2019.  The total net purchase discount on loans from the United American loan portfolio was $4.7 million on the acquisition date of May 4, 2018, of which $2.7 million remains outstanding as of December 31, 2019.  The total net purchase discount on loans from Presidio loan portfolio was $12.5 million on the Presidio merger date, of which $11.6 million remains outstanding as of December 31, 2019.

♦ The cost of total deposits was 0.26% for the fourth quarter of 2019, compared to 0.25% for the fourth quarter of 2018 and 0.31% for the third quarter of 2019. The cost of total deposits was 0.29% for the year ended December 31, 2019, compared to 0.21% for the year ended December 31, 2018.

♦ There was a $3.2 million provision for loan losses for the fourth quarter of 2019, compared to a $142,000 provision for loan losses for the fourth quarter of 2018, and a $576,000 credit to the provision for loan losses for the third quarter of 2019.  The provision for loan losses for the fourth quarter of 2019 included $2.0 million related to certain non-impaired loans acquired at a premium from Presidio. This premium was due to higher interest rates on the loans versus market interest rates at the time of the merger. Due to the net premium on these loans, a provision for loan losses was required and it was not due to credit deterioration since the Presidio merger date. There was an $846,000 provision for loan losses for the year ended December 31, 2019, compared to a $7.4 million provision for loan losses for the year ended December 31, 2018.  The higher provision for loan losses for the year ended December 31, 2018 included a $7.0 million specific reserve for a lending relationship that was placed on nonaccrual during the second quarter of 2018.

♦ Total noninterest income was $2.4 million for the fourth quarters of 2019 and 2018.  An increase in the gain on sales of Small Business Administration (“SBA”) loans, and an increase in the cash surrender value of life insurance, was offset by a loss on sale of securities for the fourth quarter of 2019.  Total noninterest income for the fourth quarter of 2019 decreased from $2.6 million for the third quarter of 2019, primarily due to a loss on sale of securities, partially offset by an increase in the gain on sale of SBA loans, an increase in the cash surrender value of life insurance, and higher service charges and fees on deposits accounts.

• For the year ended December 31, 2019, total noninterest income increased to $10.2 million, compared to $9.6 million for the year ended December 31, 2018. The increase in noninterest income for the year ended December 31, 2019, was primarily due to higher service charges and fees on deposit accounts, and an increase in the cash surrender value of life insurance, partially offset by an increase in the gain on sale of securities, and proceeds from a legal settlement in the year ended December 31, 2018.
  
  
• The Company received $1.3 million in 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 fourth quarter of 2019 increased to $30.6 million, compared to $16.9 million for the fourth quarter of 2018, and $17.9 million for the third quarter of 2019, primarily due to higher merger-related costs.  Total noninterest expense for the fourth quarter of 2019 included total merger-related costs of $9.9 million for the Presidio merger, of which $6.6 million was included in salaries and employee benefits, and $3.3 million was included in other noninterest expense.  Total merger-related costs were $139,000 for the fourth quarter of 2018 for the Tri-Valley and United American acquisitions.  Total merger-related costs were $661,000 for the third quarter of 2019 for the Presidio merger.

• Total noninterest expense for the year ended December 31, 2019 increased to $84.9 million, compared to $75.5 million for the year ended December 31, 2018, primarily due to higher merger-related costs, and a full year of additional operating costs of Tri-Valley and United American, in addition to the operating costs of Presidio for the fourth quarter of 2019.  Total noninterest expense for the year ended December 31, 2019 included total merger-related costs of $11.1 million for the Presidio merger of which $6.6 million was included in salaries and employee benefits, and $4.5 million was included in other noninterest expense.  Total merger-related costs were $9.2 million for the year ended December 31, 2018 for the Tri-Valley and United American acquisitions, of which $3.6 million was included in salaries and employee benefits and $5.6 million was included in other noninterest expense. Professional fees for the year ended December 31, 2018 included a recovery of $922,000 from a legal settlement.
  
  
• Full time equivalent employees were 357 at December 31, 2019, 302 at December 31, 2018, and 308 at September 30, 2019.

♦ The efficiency ratio was 73.58% for the fourth quarter of 2019, compared to 47.78% for the fourth quarter of 2018, and 53.87% for the third quarter of 2019.  The efficiency ratio for the year ended December 31, 2019 was 59.76%, compared to 57.39% for the year ended December 31, 2018.   The increase in the efficiency ratio for the fourth quarter of 2019 and the year ended December 31, 2019 was primarily due to higher merger-related costs.

♦ Income tax expense was $2.1 million for the fourth quarter of 2019, compared to $5.1 million for the fourth quarter of 2018, and $4.6 million for the third quarter of 2019.  Income tax expense for the year ended December 31, 2019 was $15.9 million, compared to $13.3 million for the year ended December 31, 2018. The effective tax rate for the fourth quarter of 2019 was 26.9%, compared to 28.0% for the fourth quarter of 2018, and 29.1% for the third quarter of 2019.  The effective tax rate for the year ended December 31, 2019 was 28.1%, compared to 27.4% for the year ended December 31, 2018.

• The difference in the effective tax rate for the periods reported compared to the combined Federal and state statutory tax rate of 29.6% 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 Quality:

♦ Total assets increased 33% to $4.11 billion at December 31, 2019, compared to $3.10 billion at December 31, 2018 and increased 29% from $3.18 billion at September 30, 2019, primarily due to the Presidio merger. 

♦ Securities available-for-sale, at fair value, totaled $404.8 million at December 31, 2019, compared to $459.0 million at December 31, 2018, and $333.1 million at September 30, 2019.  At December 31, 2019, the Company’s securities available-for-sale portfolio comprised $284.4 million of agency mortgage-backed securities (all issued by U.S. Government sponsored entities), and $120.4 million of U.S. Treasury securities. The pre-tax unrealized gain on securities available-for-sale at December 31, 2019 was $2.3 million, compared to a pre-tax unrealized loss on securities available-for-sale of ($7.7) million at December 31, 2018, and a pre-tax unrealized gain on securities available-for-sale of $1.7 million at September 30, 2019.  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 from Presidio totaled $45.1 million, at fair value, at the Presidio merger date. During the fourth quarter of 2019, the Company sold $68.8 million of securities available-for-sale for a net loss of ($217,000).  During the fourth quarter of 2019, the Company purchased $112.0 million of securities available-for-sale, with a book yield of 2.40%, and an average life of 5.26 years.

♦ At December 31, 2019, securities held-to-maturity, at amortized cost, totaled $366.6 million, compared to $377.2 million at December 31, 2018, and $342.0 million at September 30, 2019.  At December 31, 2019, the Company’s securities held-to-maturity portfolio was comprised of $285.4 million of agency mortgage-backed securities, and $81.2 million of tax-exempt municipal bonds.

• Investment securities held-to-maturity from Presidio totaled $463,000, at fair value, at the Presidio merger date. During the fourth quarter of 2019, the Company purchased $41.7 million of securities held-to-maturity, with a book yield of 2.53%, and an average life of 6.02 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, excluding loans held-for-sale, increased $647.4 million or 34%, to $2.53 billion at December 31, 2019, compared to $1.89 billion at December 31, 2018, which included $669.5 million in loans from Presidio, at fair value, a decrease of $11.3 million in the Company’s legacy portfolio, a decrease of $6.5 million in purchased CRE loans, and a decrease of $4.3 million in purchased residential loans. Loans, excluding loans held-for-sale, increased $658.5 million or 35%, to $2.53 billion at December 31, 2019, compared to $1.88 billion September 30, 2019, which included $669.5 million in loans from Presidio, at fair value, a decrease of $7.1 million in the Company’s legacy portfolio, and a decrease of $3.2 million in purchased CRE loans.
  
  
• Commercial and Industrial (“C&I”) line usage was 35% at December 31, 2019, compared to 36% at December 31, 2018, and 35% at September 30, 2019.
  
  
• At December 31, 2019, 34% of the CRE loan portfolio was secured by owner-occupied real estate.

♦ The following table summarizes the allowance for loan losses (“ALLL”) for the periods indicated:

• The ALLL was 0.92% of total loans at December 31, 2019, compared to 1.48% at December 31, 2018, and 1.38% at September 30, 2019.  The ALLL to total nonperforming loans was 236.93% at December 31, 2019, compared to 187.06% at December 31, 2018, and 181.76% at September 30, 2019.  The loans acquired from Presidio are included in total loans.  Due to the addition of the Presidio loans at fair value with no allowance, the ALLL to total loans decreased at December 31, 2019.  However, the Company provided an additional $2.0 million in provision for loan losses to increase the ALLL at December 31, 2019 for certain non-impaired loans acquired at a premium from Presidio.
  
  
• Net charge-offs totaled $5.8 million for the fourth quarter of 2019, compared to net recoveries of $280,000 for the fourth quarter of 2018, and net charge-offs of $160,000 for the third quarter of 2019.   Net charge-offs of $5.8 million for the fourth quarter of 2019 primarily consisted of three lending relationships totaling $5.5 million, including one large relationship which was previously disclosed and specifically reserved for during the second and third quarters of 2018. The three lending relationships totaling $5.5 million in net charge-offs had a total of $4.7 million in specific reserves.

♦ The following is a breakout of nonperforming assets (“NPAs”) at the periods indicated:

• NPAs totaled $9.8 million, or 0.24% of total assets, at December 31, 2019, compared to $14.9 million, or 0.48% of total assets, at December 31, 2018, and $14.2 million, or 0.45% of total assets, at September 30, 2019.
  
  
  
  • There were no foreclosed assets at December 31, 2019, December 31, 2018, or September 30, 2019.
    
    
• Classified assets increased to $32.6 million, or 0.79% of total assets, at December 31, 2019, compared to $23.4 million, or 0.76% of total assets, at December 31, 2018, and $20.2 million, or 0.64% of total assets, at September 30, 2019.  The increase in classified assets for the fourth quarter of 2019 was primarily due to classified assets acquired from Presidio.

♦ On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842).  Under the new guidance, the Company recognizes the following for all leases, at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. While the new standard impacts lessors, the Company is impacted as a lessee of the offices and real estate used for operations.  The Company's lease agreements include options to renew at the Company's discretion. The extensions are not reasonably certain to be exercised, therefore they are not considered in the calculation of the ROU asset and lease liability. Total assets and total liabilities were $12.2 million on its consolidated statement of financial condition at December 31, 2019, as a result of recognizing right-of-use assets, included in other assets, and lease liabilities, included in other liabilities, related to non-cancelable operating lease agreements for office space. 

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

• Total deposits increased $777.2 million, or 29%, to $3.41 billion at December 31, 2019, compared to $2.64 billion at December 31, 2018, which included $723.0 million in deposits from Presidio, at fair value, and an increase of $54.2 million in the Company’s legacy deposits.  Total Deposits increased $725.8 million or 27% from $2.69 billion at September 30, 2019, which included $723.0 million in deposits from Presidio, at fair value, and an increase of $2.8 million in the Company’s legacy deposits.   
  
  
• Deposits, excluding all time deposits and CDARS deposits, increased $753.8 million, or 30%, to $3.23 billion at December 31, 2019, compared to $2.48 billion at December 31, 2018, which included $699.4 million in deposits from Presidio, at fair value, and an increase of $54.4 million in the Company’s legacy deposits.  Deposits, excluding all time deposits and CDARS deposits increased $709.2 million or 28%, compared to $2.52 billion at September 30, 2019, which included $669.4 million in deposits from Presidio, at fair value, and an increase of $9.8 million in the Company’s legacy deposits.

♦ The Company’s consolidated capital ratios exceeded regulatory guidelines and the Bank’s capital ratios exceeded the 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 December 31, 2019, as reflected in the following table:

(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:

• The increase in the negative balance of the supplemental executive retirement plan liability at December 31, 2019 was primarily due to a decrease in interest rates.
  

♦ Tangible equity increased to $388.9 million at December 31, 2019, compared to $271.7 million at December 31, 2018, and $301.2 million at September 30, 2019.  Tangible book value per share was $6.55 at December 31, 2019, compared to $6.28 at December 31, 2018, and $6.92 at September 30, 2019.

Heritage Commerce Corp, a bank holding company established in February 1998, 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 Santa Clara, 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, 2018, and the following: (1) 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; (2) 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; (3) our ability to anticipate interest rate changes and manage interest rate risk; (4) changes in inflation, interest rates, and market liquidity which may impact interest margins and impact funding sources; (5) volatility in credit and equity markets and its effect on the global economy; (6) 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; (7) our ability to achieve loan growth and attract deposits; (8) risks associated with concentrations in real estate related loans; (9) the relative strength or weakness of the commercial and real estate markets where our borrowers are located, including related asset and market prices; (10) other than temporary impairment charges to our securities portfolio; (11) changes in the level of nonperforming assets and charge offs and other credit quality measures, and their impact on the adequacy of the Company’s allowance for loan losses and the Company’s provision for loan losses; (12) increased capital requirements  for our continual growth or as imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all; (13) regulatory limits on Heritage Bank of Commerce’s ability to pay dividends to the Company; (14) changes in our capital management policies, including those regarding business combinations, dividends, and share repurchases; (15) operational issues stemming from, and/or capital spending necessitated by, the potential need to adapt to industry changes in information technology systems, on which we are highly dependent; (16) our inability to attract, recruit,  and retain qualified officers and other personnel could harm our ability to implement our strategic plan, impair our relationships with customers and adversely affect our business, results of operations and growth prospects; (17) the potential increase in reserves and allowance for loan loss as a result of the transition to the current expected credit loss standard (“CECL”) established by the Financial Accounting Standards Board to account for expected credit losses; (18) possible impairment of our goodwill and other intangible assets; (19) possible  adjustment of the valuation of our deferred tax assets; (20) our ability to keep pace with technological changes, including our ability to identify and address cyber-security risks such as data security breaches, “denial of service” attacks, “hacking” and identity theft; (21) inability of our framework to manage risks associated with our business, including operational risk and credit risk; (22) risks of loss of funding of Small Business Administration or SBA loan programs, or changes in those programs; (23) compliance with governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities , accounting and tax matters; (24) significant changes in applicable laws and regulations, including those concerning taxes, banking and securities; (25) effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; (26) costs and effects of legal and regulatory developments, including resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews; (27) availability of and competition for acquisition opportunities; (28) risks resulting from domestic terrorism; (29) risks of natural disasters (including earthquakes) and other events beyond our control; (30) the expected cost savings, synergies and other financial benefits from the Presidio Bank merger might not be realized within the expected time frames or at all; and (31) our success in managing the risks involved in the foregoing factors.

Member FDIC

For additional information, contact:

Debbie Reuter
EVP, Corporate Secretary
Direct:  (408) 494-4542