Heritage Commerce Bancorp Inc. in San Jose has received approval from its regulators and the Treasury Department to repay the $40 million it received from the Treasury's Troubled Asset Relief Program.
The $1.3 billion-asset company, which swung to a $9 million profit in 2011 from $58 million loss in 2010, said in a news release Wednesday that it would redeem the shares it issued to the Treasury primarily with cash on hand and would not need to raise additional capital. It also said that its capital ratios would remain significantly above what regulators consider to be well capitalized after the repayment is completed March 7.
In a research note to investors Thursday, Sandler O'Neill & Partners LP, called the news of the TARP repayment "another step in the right direction" for Heritage Commerce. In the fourth quarter, Heritage Commerce reversed a previously recorded $3.7 million deferred tax valuation asset, a sign that the company expects to achieve sustained profitability going forward.
Sandler O'Neill estimates that repayment will reduce first-quarter net income by about $1.2 million, but said that overall the repayment would save the company roughly $2 million a year. It maintained its buy rating on the stock with a price target of $6. Heritage Commerce's shares were up more than 2% early Thursday, to $5.36.
