HERITAGE COMMERCE CORPHTBK
HERITAGE COMMERCE CORP Income Taxes Disclosure
Income Taxes
Income tax expense consisted of the following for the year ended December 31, 2025. The Company does not have pretax income from continuing foreign operations or foreign tax expense.
| 2025 | 2024 | 2023 | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Currently tax expense: | |||||||||||||||||
| Federal | $ | 14,797 | $ | 9,639 | $ | 15,888 | |||||||||||
| State | 8,424 | 6,029 | 9,241 | ||||||||||||||
| Total current tax | 23,221 | 15,668 | 25,129 | ||||||||||||||
| Deferred tax expense (benefit): | |||||||||||||||||
| Federal | (2,199) | 582 | 616 | ||||||||||||||
| State | (1,063) | (104) | 231 | ||||||||||||||
| Total deferred tax | (3,262) | 478 | 847 | ||||||||||||||
| Income tax expense | $ | 19,959 | $ | 16,146 | $ | 25,976 | |||||||||||
The effective tax rate differs from the Federal statutory rate for the years ended December 31, as follows:
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||
| Income before income tax expense | $ | 67,789 | N/A | $ | 56,674 | N/A | $ | 90,419 | N/A | ||||||||||||||||||||||||||
| Income tax expense components: | |||||||||||||||||||||||||||||||||||
| Statutory Federal income tax rate | 14,235 | 21.0 | % | 11,902 | 21.0 | % | 18,988 | 21.0 | % | ||||||||||||||||||||||||||
State income taxes, net of federal tax benefit (1) | 5,818 | 8.6 | % | 4,675 | 8.3 | % | 7,478 | 8.3 | % | ||||||||||||||||||||||||||
| Tax credits: | |||||||||||||||||||||||||||||||||||
| Low income housing credits, net of investment losses | (197) | (0.3) | % | (124) | (0.2) | % | (139) | (0.2) | % | ||||||||||||||||||||||||||
| Nontaxable or nondeductible items: | |||||||||||||||||||||||||||||||||||
| Merger related costs | 424 | 0.6 | % | — | — | % | — | — | % | ||||||||||||||||||||||||||
| Non-taxable interest income | (165) | (0.2) | % | (177) | (0.3) | % | (187) | (0.2) | % | ||||||||||||||||||||||||||
| Increase in cash surrender value of life insurance | (465) | (0.7) | % | (440) | (0.8) | % | (426) | (0.5) | % | ||||||||||||||||||||||||||
| Stock option/restricted stock windfall tax benefit | (77) | (0.1) | % | 280 | (0.2) | % | 54 | 0.1 | % | ||||||||||||||||||||||||||
| Other, net | 386 | 0.5 | % | 30 | 0.7 | % | 208 | 0.2 | % | ||||||||||||||||||||||||||
| Income tax expense and effective tax rate | $ | 19,959 | 29.4 | % | $ | 16,146 | 28.5 | % | $ | 25,976 | 28.7 | % | |||||||||||||||||||||||
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(1)State taxes in California made up the majority (greater than 50 percent) of the tax effect in this category).
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Income taxes paid, net of refunds received, for the year ended December 31 were as follows:
2025 | 2024 | ||||||||||
(Dollars in thousands) | |||||||||||
Federal | $ | 13,700 | $ | 7,800 | |||||||
State and local: | |||||||||||
California | 7,650 | 5,100 | |||||||||
Other states | 108 | 319 | |||||||||
Total income tax expense | $ | 21,458 | $ | 13,219 | |||||||
Deferred tax assets and liabilities that result from the tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes at December 31, are as follows:
| 2025 | 2024 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Deferred tax assets: | |||||||||||
| Allowance for credit losses on loans | $ | 14,687 | $ | 14,380 | |||||||
| Lease accounting | 8,363 | 8,979 | |||||||||
| Defined postretirement benefit obligation | 7,583 | 7,451 | |||||||||
| Accrued expenses | 5,510 | 3,241 | |||||||||
| State income taxes | 1,688 | 1,266 | |||||||||
| Stock compensation | 1,427 | 1,647 | |||||||||
| Premises and equipment | 1,230 | 1,267 | |||||||||
| California net operating loss carryforwards | 986 | 986 | |||||||||
| Federal net operating loss carryforwards | 894 | 1,148 | |||||||||
| Split-dollar life insurance benefit plan | 79 | 75 | |||||||||
| Nonaccrual interest | 59 | 97 | |||||||||
| Securities available-for-sale | — | 1,483 | |||||||||
| Other | 225 | 296 | |||||||||
| Total deferred tax assets | 42,731 | 42,316 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Lease accounting | (8,363) | (8,979) | |||||||||
| Loan fees | (2,385) | (2,265) | |||||||||
| Intangible liabilities | (1,002) | (1,337) | |||||||||
| Prepaid expenses | (757) | (1,531) | |||||||||
| Securities available-for-sale | (159) | — | |||||||||
| FHLB stock | (156) | (156) | |||||||||
| I/O strips | (5) | (19) | |||||||||
| Other | (213) | (212) | |||||||||
| Total deferred tax liabilities | (13,040) | (14,499) | |||||||||
| Net deferred tax assets | $ | 29,691 | $ | 27,817 | |||||||
At December 31, 2025, the Company's federal net operating loss (“NOL”) carryforwards were $4,256,000 and the Company's California net operating loss carryforwards were $11,505,000. These amounts are attributable to the prior merger transactions. The realization of these NOL carryforwards for Federal and State tax purposes are limited on the amount of net operating losses that can be utilized annually under the current tax law. The above NOL carryforwards are presented net of the losses that will expire unutilized under current tax law. Since the NOL carryforwards are already presented net of the amounts that will expire by operation of current tax law, there is no need for a valuation allowance as the Company fully expects to utilize the amounts disclosed.
Under generally accepted accounting principles, a valuation allowance is required if it is “more likely than not” that a deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning management’s evaluation of both positive and negative evidence, including forecasts of future income, cumulative losses, applicable tax planning strategies, and assessments of current and future economic and business conditions. At December 31, 2025 and 2024 the Company recorded amount of uncertain tax positions was not considered significant for financial reporting and the Company does not expect this amount to significantly increase or decrease.
At December 31, 2025 and December 31, 2024 the Company had net deferred tax assets of $29,691,000 and $27,817,000, respectively. At December 31, 2025 and December 31, 2024, management determined that a valuation allowance for deferred tax assets was not necessary.
The Company and its subsidiaries are subject to U.S. Federal income tax as well as income tax of the State of California. The Company is no longer subject to examination by Federal and state taxing authorities for years before 2022, and by the State of California taxing authority for years before 2021.
The following table reflects the carrying amounts of the low income housing investments included in accrued interest receivable and other assets, and the future commitments included in accrued interest payable and other liabilities for the periods indicated:
| December 31, 2025 | December 31, 2024 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Low income housing investments | $ | 4,709 | $ | 2,201 | |||||||
| Future commitments | $ | 2,695 | $ | 475 | |||||||
The Company expects $874,000 of the future commitments to be paid in 2026, and $1,219,000 in 2027 through 2028.
For tax purposes, the Company recognized low income housing tax credits of $399,000 and $563,000 for the years ended December 31, 2025 and December 31, 2024, respectively, and low income housing investment expense of $905,000 and $594,000, respectively. The Company recognizes low income housing investment expenses as a component of income tax expensHistorical 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 Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.