Safe and Sound

Heritage Bank of Commerce

San Jose, CA
4
Star Rating
Founded in 1994, Heritage Bank of Commerce is an FDIC-insured bank based in San Jose, CA. The bank has equity of $286.8 million on assets of $2.84 billion, according to December 31, 2017, regulatory filings.

Thanks to the work of 278 full-time employees in 13 offices in CA, the bank has amassed loans and leases worth $1.57 billion, including $1.05 billion worth of real estate loans. The bank currently holds $2.51 billion in deposits from U.S. customers.

Overall, Bankrate believes that, as of December 31, 2017, Heritage Bank of Commerce exhibited a good condition, earning 4 out of 5 stars for safety and soundness. Here's a breakdown of how the bank did on the three major criteria Bankrate used to grade U.S. banks.

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THE INSTITUTION'S SCORE

Capital Score

When it comes to measuring an an institution's financial resilience, capital is crucial. It acts as a bulwark against losses and as protection for depositors during periods of economic instability for the bank. When looking at safety and soundness, more capital is better.

On our test to measure the adequacy of a bank's capital, Heritage Bank of Commerce received a score of 8 out of a possible 30 points, failing to reach the national average of 13.13.

A bank's Tier 1 capital ratio is an important measure of this buffer. Heritage Bank of Commerce's Tier 1 capital ratio was 12.22 percent, above the 6 percent level regulators consider adequate, but under the national average of 25.65 percent. The higher the capital ratio, the better the bank will be able to weather economic challenges.

Overall, Heritage Bank of Commerce held equity amounting to 10.09 percent of its assets, which was lower than the national average of 12.03 percent.

Asset Quality Score

This test's purpose is to try to understand how the bank's reserves set aside to cover loan losses, as well as overall capitalization, could be affected by troubled assets, such as past-due loans.

Having large numbers of these kinds of assets suggests a bank could have to use capital to cover losses, diminishing its cushion of equity. Many of those assets are also likely to be in non-accrual status and thus aren't earning money, resulting in lower earnings and potentially more risk of a future failure.

Heritage Bank of Commerce scored above the national average of 37.49 on Bankrate's test of asset quality, racking up 40 out of a possible 40 points .

A widely used indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.16 percent of Heritage Bank of Commerce's loans were noncurrent -- in other words, they were more than 90 days past due or were in non-accrual status. That's below the national average of 1.01 percent.

Banks maintain a reserve known as an "allowance for loan and lease losses" to deal with problem assets . Comparing how large that reserve is to the total amount of problematic loans can be a useful indicator when evaluating a bank's ability to manage troubled assets. Unfortunately, the FDIC did not provide information on Heritage Bank of Commerce's loan loss allowance in its most recent filings.

Earnings score

A bank's earnings performance has an effect on its safety and soundness. Earnings may be retained by the bank, boosting its capital buffer, or be used to address problematic loans, potentially making the bank better able to withstand financial shocks. Losses, on the other hand, take away from a bank's ability to do those things.

Heritage Bank of Commerce exceeded the national average on Bankrate's earnings test, achieving a score of 18 out of a possible 30.

One widely used measure of a bank's earnings is return on equity, calculated by dividing net income (profit, essentially) by total equity. The most recent annualized quarterly return on equity for Heritage Bank of Commerce was 9.46 percent, above the national average of 8.10 percent.

The bank earned net income of $26.1 million on total equity of $286.8 million for the twelve months ended December 31, 2017. The bank experienced an annualized return on average assets, or ROA, of 0.96 percent, below the 1 percent deemed satisfactory in accordance with industry standards and below the average for U.S. banks of 1.00 percent.

WHAT IS SAFE & SOUND?

Bankrate.com's Safe & Sound Ratings provide a star rating system to evaluate the current financial status of financial institutions. The information gathered about banks, credit unions and thrifts is updated as set forth in the Terms of Use of Safe & Sound Ratings and Reports. The Safe & Sound Ratings information is grouped by categories of banks, thrifts and credit unions.

Scoring methodology

Bankrate.com evaluates the financial condition of institutions and assigns a one- to five-star rating for each with five stars representing the highest rating. Institutions with satisfactory performance will generally receive a rating of three or more stars. The majority of institutions fall into the three- to four-star range. An institution with an "NR" rating may be too new to rate or may have limited the publicly available information in their regulatory filings. The "NR" is not an indication of financial strength or weakness. The Safe & Sound rating is believed to be reliable, but the information is not guaranteed. In addition, events since the information was collected may have altered the institution's financial condition.