Heritage Commerce, the parent company of San Jose-based Heritage Bank of Commerce, decided to take up the Treasury Department’s offer for an infusion of $40 million in cash in exchange for 40,000 shares of preferred shares and warrants to buy 462,963 shares of its common stock. As is the case with its investments in other U.S. banks, the preferred shares will earn a 5 percent annual dividend for the first five years with a bump up to 9 percent thereafter.
The warrants, which have a 10-year term and are immediately exercisable subject to “antidilution adjustments”, with a strike price of $12.96 per share.
Not that the bank needed the funds, according to its filing, which described itself as “well-financed” for “bank regulatory purposes”. Had the deal been struck as of the close of its last quarter, its consolidated leverage ratio would have increased to 10.72% from 8.27%, the Tier 1 risked-based capital ratio would have increased to 11.70% from 8.83%, and the total risk-based capital ratio would have increased to 12.95% from 10.08%.
Heritage, you will recall, was founded by William J. Del Biaggio Jr., who is an executive vice president of the company and has served as its business development officer since 2002.
He resigned from its board in June after the bank sued his son, William ”Boots” Del Biaggio III (pictured here with his father), accusing him of using trading accounts that were not his to secure a $4 million loan with the bank that he has not repaid.
Father and son founded Heritage Bank in 1994 with the intention of creating a bank designed to help small, closely-held businesses and their owners in San Jose and the surrounding communities.