Heritage Commerce Corp. (NASDAQ:HTBK) Q3 2019 Earnings Conference Call - Final Transcript

Oct 24, 2019 • 02:00 pm ET


Heritage Commerce Corp. (NASDAQ:HTBK) Q3 2019 Earnings Conference Call - Final Transcript


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Ladies and gentlemen, thank you for standing by, and welcome to the Heritage Financial Third Quarter Earnings Call. [Operator Instructions] And then later, we will conduct a question-and-answer session. Instructions will be given at that time. [Operator Instructions] As a reminder, the conference is being recorded.

And I would now like to turn the conference over to our host, President and CEO, Mr. Jeff Deuel. Please go ahead.

Jeffrey J. Deuel

Thank you, Lori. Welcome to all who called in and those who may listen later. This is Jeff Deuel, CEO of Heritage. Attending with me are Don Hinson, our CFO; and Bryan McDonald, our Chief Operating Officer. Our earnings press release went out this morning pre-market, and hopefully, you have had an opportunity to review it prior to the call. Please refer to the forward-looking statements in the press release.

We're pleased with our progress, as we continue to build our franchise and generate attractive financial results for our shareholders. As you know, we've made significant investments in Seattle, Bellevue and Portland, and we're seeing the benefits of the two acquisitions we completed in 2018, as well as the teams we've added in those markets. Together, the Seattle, Bellevue and Portland markets represent significant opportunities for Heritage, and we believe we have positioned ourselves well to continue to execute in those markets. We also see good performance in our traditional markets along the I-5 Corridor.

Despite significant loan production, our net loan growth continued to be a challenge due to the elevated loan payoffs. On the bright side, the loan pipeline has grown nicely, and we have strong originations -- had strong originations during the quarter. We believe we have laid down a good foundation, which will continue to produce attractive results for our Company in the future. While we have continued to see competition for deposits in the third quarter, our loan-to-deposit ratio of 82% has enabled us to carefully manage pricing competition and maximize our NIM. We continue to focus on protecting our core deposit franchise, which we view as one of our key strengths.

Don Hinson will now take a few minutes to cover our financial statement results, including color on our core operating metrics.

Donald J. Hinson

Thank you, Jeff. I'm going to start with a quick overview of earnings before heading into more detail on our balance sheet, credit quality, income statement and capital management. Our diluted earnings per share for Q3 was $0.48, which were up from $0.43 in Q2. The increase in earnings from Q2 was due mostly to a combination of an increase in non-interest income and decreases in non-interest expense and the provision for loan losses.

Moving on to the balance sheet. Total asset growth was strong in Q3, due to a $215 million increase in total deposits. This increase in deposits is net of $20 million of brokered CDs that matured and were not renewed in Q3. Approximately 50% of the deposit growth in the quarter was due to a $109 million increase in non-interest-bearing demand