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Heritage Commerce Corp Receives Approval To Exit TARP By Repurchasing $40 Million In Preferred Stock From The U.S. Treasury

Heritage Commerce Corp (Nasdaq: HTBK), the holding company ("the Company") of Heritage Bank of Commerce (“HBC”) announced today that it has received the approval from its regulators and the U.S. Treasury Department to repay the $40 million of Series A preferred stock issued to the U.S. Treasury Department under the TARP Capital Purchase Program. The repayment is expected to be completed on March 7, 2012.

The Company’s strong capital levels, balance sheet, and profitability allow the Company to exit TARP without raising any additional capital or debt. The Company will use available cash (including a $30 million cash distribution from HBC) to fund the repurchase of the preferred stock of $40 million and payment of the final dividend of approximately $117,000.

The Company’s and HBC’s December 31, 2011 regulatory capital ratios and pro forma capital ratios excluding the repurchased $40 million preferred stock and the $30 million cash contribution from HBC are detailed in the tables below. The Company’s and HBC’s pro forma December 31, 2011 regulatory capital ratios all significantly exceed the well-capitalized requirements.

     
Pro Forma
December 31, Well
Actual 2011 Capitalized
December 31, Excluding

Regulatory

Heritage Commerce Corp: 2011 TARP (1) Requirements
Total risk-based capital ratio 21.9 % 17.7 % 10.0 %
Tier 1 risk-based capital ratio 20.6 %

16.5

% 6.0 %
Leverage ratio 15.3 % 12.2 % N/A
 

(1) Assumes redemption of $40 million Series A Preferred Stock at December 31, 2011.

 
Pro Forma
December 31, Well
Actual 2011 Capitalized
December 31, Excluding

Regulatory

Heritage Bank of Commerce: 2011 TARP (2) Requirements
Total risk-based capital ratio 19.7 % 16.6 % 10.0 %
Tier 1 risk-based capital ratio 18.5 % 15.4 % 6.0 %
Leverage ratio 13.7 % 11.4 % 5.0 %
 
(2) Assumes HBC $30 million cash distribution at December 31, 2011.
 

The preferred stock was issued at a discount and the repurchase will accelerate the accretion of the discount on the preferred stock. While the accelerated accretion will not impact net income, it will result in a one-time non-cash reduction in net income available to common shareholders of approximately $765,000 in the first quarter of 2012. Total dividends and discount accretion on preferred stock, including the accelerated accretion, will reduce net income available to common shareholders by approximately $1.2 million in the first quarter of 2012. The repayment of the TARP funds will save the Company $2.0 million in preferred dividend payments on an annual basis, beginning in the second quarter of 2012.

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