HERITAGE COMMERCE CORPHTBK
HERITAGE COMMERCE CORP Fair Value Disclosure
Fair Value
Accounting guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data (for example, interest rates and yield curves observable at commonly quoted intervals, prepayment speeds, credit risks, and default rates).
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Financial Assets and Liabilities Measured on a Recurring Basis
The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The Company uses matrix pricing (Level 2 inputs) to establish the fair value of its securities available-for-sale.
The fair value of interest-only (“I/O”) strip receivable assets is based on a valuation model used by a third party. The Company is able to compare the valuation model inputs and results to widely available published industry data for reasonableness (Level 2 inputs).
| Fair Value Measurements Using | |||||||||||||||||||||||
| Balance | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Assets at December 31, 2025 | |||||||||||||||||||||||
| Available-for-sale securities: | |||||||||||||||||||||||
| Agency mortgage-backed securities | $ | 280,919 | $ | — | $ | 280,919 | $ | — | |||||||||||||||
| Collateralized mortgage obligations | 256,730 | — | 256,730 | — | |||||||||||||||||||
| U.S. Treasury | 55,309 | 55,309 | — | — | |||||||||||||||||||
| I/O strip receivables | 33 | — | 33 | — | |||||||||||||||||||
| Assets at December 31, 2024 | |||||||||||||||||||||||
| Available-for-sale securities: | |||||||||||||||||||||||
| U.S. Treasury | $ | 186,183 | $ | 186,183 | $ | — | $ | — | |||||||||||||||
| Agency mortgage-backed securities | 70,091 | — | 70,091 | — | |||||||||||||||||||
| I/O strip receivables | 82 | — | 82 | — | |||||||||||||||||||
Assets and Liabilities Measured on a Non-Recurring Basis
The fair value of collateral dependent loans individually evaluated with specific allocations of the allowance for credit losses on loans is generally based on recent real estate appraisals. The appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Collateral dependent loans carried at fair value on a non-recurring basis are immaterial.
Foreclosed assets are valued at the time the loan is foreclosed upon and the asset is transferred to foreclosed assets. The fair value is based primarily on third party appraisals, less costs to sell. The appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales and income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. At December 31, 2025 and December 31, 2024, there were no foreclosed assets on the balance sheet.
Fair Value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments at December 31, 2025 are as follows:
| Estimated Fair Value | |||||||||||||||||||||||||||||
| Carrying Amounts | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 647,028 | $ | 647,028 | $ | — | $ | — | $ | 647,028 | |||||||||||||||||||
| Securities available-for-sale | 592,958 | 55,309 | 537,649 | — | 592,958 | ||||||||||||||||||||||||
| Securities held-to-maturity | 529,711 | — | 465,767 | — | 465,767 | ||||||||||||||||||||||||
| Loans (including loans held-for-sale) | 3,654,382 | (1) | — | 1,322 | 3,501,954 | 3,503,276 | |||||||||||||||||||||||
| FHLB stock, FRB stock, and other | |||||||||||||||||||||||||||||
| investments | 32,568 | — | — | — | N/A | ||||||||||||||||||||||||
| Accrued interest receivable | 16,379 | 510 | 3,124 | 12,745 | 16,379 | ||||||||||||||||||||||||
| I/O strips receivables | 33 | — | 33 | — | 33 | ||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| Time deposits | $ | 528,240 | $ | — | $ | 528,990 | $ | — | $ | 528,990 | |||||||||||||||||||
| Other deposits | 4,374,846 | — | 4,374,846 | — | 4,374,846 | ||||||||||||||||||||||||
| Subordinated debt | 39,805 | — | 37,605 | — | 37,605 | ||||||||||||||||||||||||
| Accrued interest payable | 5,746 | — | 5,746 | — | 5,746 | ||||||||||||||||||||||||
_______________________________________________________
(1)Before allowance for credit losses on loans of $49,999,000.
_______________________________________________________
The carrying amounts and estimated fair values of financial instruments at December 31, 2024 are as follows:
| Estimated Fair Value | ||||||||||||||||||||
| Carrying Amounts | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 968,123 | $ | 968,123 | $ | — | $ | — | $ | 968,123 | ||||||||||
| Securities available-for-sale | 256,274 | 186,183 | 70,091 | — | 256,274 | |||||||||||||||
| Securities held-to-maturity | 590,016 | — | 497,012 | — | 497,012 | |||||||||||||||
| Loans (including loans held-for-sale) | 3,494,312 | (1) | — | 2,375 | 3,304,196 | 3,306,571 | ||||||||||||||
| FHLB stock, FRB stock, and other | ||||||||||||||||||||
| investments | 32,556 | — | — | — | N/A | |||||||||||||||
| Accrued interest receivable | 14,940 | 506 | 2,141 | 12,293 | 14,940 | |||||||||||||||
| I/O strips receivables | 82 | — | 82 | — | 82 | |||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Time deposits | $ | 564,447 | $ | — | $ | 566,695 | $ | — | $ | 566,695 | ||||||||||
| Other deposits | 4,255,584 | — | 4,255,584 | — | 4,255,584 | |||||||||||||||
| Subordinated debt | 39,653 | — | 34,853 | — | 34,853 | |||||||||||||||
| Accrued interest payable | 6,350 | — | 6,350 | — | 6,350 | |||||||||||||||
_______________________________________________________
(1)Before allowance for credit losses on loans of $48,953,000.
_______________________________________________________
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 9, 2026 | Showing above |
| 2024 | Mar 10, 2025 | |
| 2023 | Mar 11, 2024 | |
| 2022 | Mar 9, 2023 | |
| 2021 | Mar 4, 2022 | |
| 2020 | Mar 5, 2021 | |
| 2019 | Mar 11, 2020 | |
| 2018 | Mar 14, 2019 | |
| 2017 | Mar 16, 2018 | |
| 2016 | Mar 3, 2017 | |
| 2015 | Mar 7, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.