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Business Combinations | 6 Months Ended
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Jun. 30, 2020
Business Combinations |
Business Combinations | 6) Business Combinations ​ On October 11, 2019, the Company completed its merger with Presidio for an aggregate transaction value of $185,598,000. Shareholders of Presidio received a fixed exchange ratio at closing of 2.47 shares of the Company’s common stock for each share of Presidio common stock. Upon closing of the transaction, the Company issued 15,684,064 shares of the Company’s common stock to Presidio shareholders and holders of restricted stock units for a total value of $178,171,000 based on the Company’s closing stock price of $11.36 on the closing date of October 11, 2019. In addition, the consideration for Presidio stock options exchanged for the Company’s stock options totaled $7,426,000 and cash-in-lieu of fractional shares totaled $1,000 on October 11, 2019. Presidio’s results of operations have been included in the Company’s results of operations beginning October 12, 2019. The following table summarizes the consideration paid for Presidio: ​
​ | ​ | ​ | ​
​ | ​ | (Dollars in thousands)
Issuance of 15,684,064 shares of common stock | ​ | ​ | ​
to Presidio shareholders and holders of restricted stock | ​ | ​ | ​
(stock price = $11.36 on October 11, 2019) | ​ | $ | 178,171
Consideration for Presidio stock options exchanged for | ​ | ​ | ​
Heritage Commerce Corp stock options | ​ | ​ | 7,426
Cash paid for fractional shares | ​ | ​ | 1
Total consideration | ​ | $ | 185,598
​ ​ The following table summarizes the estimated fair values of the Presidio assets acquired and liabilities assumed at the date of the merger. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | As | ​ | ​ | ​ | ​ | ​ | ​ | As
​ | ​ | Recorded | ​ | Fair | ​ | ​ | ​ | Recorded
​ | ​ | by | ​ | Value | ​ | ​ | ​ | at
​ | ​ | Presidio | ​ | Adjustments | ​ | ​ | ​ | Acquisition
​ | ​ | (Dollars in thousands)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Assets acquired: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Cash and cash equivalents | ​ | $ | 117,989 | ​ | $ | (1) | ​ | (a) | ​ | $ | 117,988
Securities available-for-sale | ​ | ​ | 44,647 | ​ | ​ | 422 | ​ | (b) | ​ | ​ | 45,069
Securities held-to-maturity | ​ | ​ | 463 | ​ | ​ | — | ​ | ​ | ​ | ​ | 463
Loans | ​ | ​ | 698,493 | ​ | ​ | (12,529) | ​ | (c) | ​ | ​ | 685,964
Allowance for loan losses | ​ | ​ | (7,463) | ​ | ​ | 7,463 | ​ | (d) | ​ | ​ | —
Premises and equipment, net | ​ | ​ | 1,756 | ​ | ​ | — | ​ | ​ | ​ | ​ | 1,756
Other intangible assets | ​ | ​ | — | ​ | ​ | 11,147 | ​ | (e) | ​ | ​ | 11,147
Other assets, net | ​ | ​ | 43,539 | ​ | ​ | (1,378) | ​ | (f) | ​ | ​ | 42,161
Total assets acquired | ​ | $ | 899,424 | ​ | $ | 5,124 | ​ | ​ | ​ | ​ | 904,548
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Liabilities assumed: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Deposits | ​ | $ | 774,260 | ​ | $ | (1) | ​ | (g) | ​ | ​ | 774,259
Subordinated Debt | ​ | ​ | 10,000 | ​ | ​ | — | ​ | (h) | ​ | ​ | 10,000
Other borrowings | ​ | ​ | 442 | ​ | ​ | — | ​ | ​ | ​ | ​ | 442
Other liabilities | ​ | ​ | 17,916 | ​ | ​ | 211 | ​ | (i) | ​ | ​ | 18,127
Total liabilities assumed | ​ | $ | 802,618 | ​ | $ | 210 | ​ | ​ | ​ | ​ | 802,828
Net assets acquired | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 101,720
Purchase price | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 185,598
Goodwill recorded in the merger | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | $ | 83,878
​ Explanation of certain fair value related adjustments for the Presidio merger: (a)Represents cash paid for fractional shares in the transaction. (b)Represents the fair value adjustment on investment securities available-for-sale. (c)Represents the fair value adjustment to the net book value of loans includes an interest rate mark and credit mark adjustment. (d)Represents the elimination of Presidio’s allowance for loan losses. (e)Represents intangible assets recorded to reflect the fair value of core deposits and an above market lease. The core deposit asset was recorded as an identifiable intangible asset and is amortized on an accelerated basis over the estimated average life of the deposit base. The above market lease liability will be accreted on the straight line method over 60 months. (f)Represents an adjustment to net deferred tax assets resulting from the fair value adjustments related to the acquired assets, liabilities assumed and identifiable intangible assets recorded. (g)Represents the fair value adjustment on time deposits, which was amortized as interest expense. (h)The Company acquired $10,000,000 of subordinated debt from the Presidio transaction. The Presidio subordinated debt was redeemed on December 19, 2019. (i)Represents adjustments to accrued accounts payable. ​ Presidio’s results of operations have been included in the Company’s results of operations beginning October 12, 2019. ​ The Company believes the merger provided the opportunity to combine independent business banking franchises with similar philosophies and cultures into a business bank based in San Jose, California that exceeds $4.0 billion. The pooling of the banks’ resources and knowledge enhance the Company’s capabilities, operational efficiencies, and community outreach. The Company also believes the combined bank is much better positioned to meet the needs of the Company’s customers, shareholders and the community. ​ The acquisition was accounted for under the acquisition method of accounting. The fair value of net assets acquired includes fair value adjustments to certain receivables of which some were considered impaired and some were not considered impaired as of the acquisition date. The fair value adjustments were determined using discounted contractual cash flows, adjusted for expected losses and prepayments, where appropriate. The receivables that were not considered impaired at the acquisition date were not subject to the guidance relating to purchased credit impaired loans, which have shown evidence of credit deterioration since origination. There were no Purchased Credit Impaired Loans (“PCI”) as of December 31, 2019 and Pucharsed Credit Deteriorated (“PCD”) loans as of June 30, 2020. ​ Goodwill of $83,878,000 arising from the Presidio merger is largely attributable to synergies and cost savings resulting from combining the operations of the companies. As this transaction was structured as a tax-free exchange, the goodwill will not be deductible for tax purposes. Management’s preliminary valuation of the tangible and intangible assets acquired and liabilities assumed from the Presidio merger, which are based on assumptions that are subject to change, and the resulting allocation of the consideration paid for the allocation is reflected in the table above. Prior to the end of the one-year measurement period for finalizing the consideration paid allocation, if information becomes available which would indicate adjustments are required to the allocation, such adjustments will be included in the allocation in the reporting period in which the adjustment amounts are determined. Loan valuations may be adjusted based on new information obtained by the Company in future periods that may reflect conditions or events that existed on the acquisition date. Deferred tax assets may be adjusted for purchase accounting adjustments on open areas such as loans or upon filing final “stub” period tax returns for October 11, 2019 for Presidio. The increase in Presidio goodwill at June 30, 2020 from December 31, 2019 was due to adjustments to accrued accounts payable.

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