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Heritage Commerce Corp (Nasdaq: HTBK), the holding company (the “Company”) for Heritage Bank of Commerce (the “Bank”), today reported net income of $2.5 million for the third quarter of 2012. Impacting earnings for the third quarter and the nine months ended September 30, 2012, was a one-time charge of $601,300 related to the redemption of the Company’s $14 million fixed-rate subordinated debt prior to its maturity date. The redemption will eliminate $1.5 million of annual interest expense while maintaining all capital ratios in excess of well-capitalized regulatory requirements. Net income for the third quarter of 2011 was $4.8 million, which included a $2.5 million tax benefit. The tax benefit for the third quarter and the first nine months of 2011, was primarily the result of a $3.0 million reduction of a partial valuation allowance on deferred taxes.
“Our capital management strategy this year has generated $2.0 million annual savings with the elimination of the preferred stock dividend earlier this year, and will generate additional annual savings with the reduction in interest payments resulting from the redemption of the $14 million fixed-rate subordinated debt of approximately $1.5 million (pre-tax),” said Walter Kaczmarek, President and Chief Executive Officer. “We have been focused on growing our loans for the last several quarters, and we are seeing some traction in loan demand in a very competitive and challenging market. At the same time, strong deposit growth continues, credit quality remains sound, and we are also focused on controlling expenses.” Pre-tax income for the third quarter of 2012 was $3.4 million, compared to $2.3 million for the third quarter of 2011, and $3.9 million for the second quarter of 2012.
Net income available to common shareholders was $2.5 million, or $0.08 per average diluted common share, for the third quarter of 2012. There were no dividends or discount accretion on preferred stock in the third quarter of 2012, following the redemption of the Company’s $40 million Series A Preferred Stock earlier this year. For the third quarter of 2011, following the reduction of a partial valuation allowance on deferred taxes referred to above, and after accrued dividends and discount accretion on preferred stock of $532,000, net income available to common shareholders was $4.3 million, or $0.13 per average diluted common share. For the nine months ended September 30, 2012, net income available to common shareholders was $6.0 million, or $0.19 per average diluted common share, compared to $6.8 million, or $0.21 per average diluted common share, for the same period a year ago. All results are unaudited.