Heritage Commerce Corp Reports Financial Results for Second Quarter 2009

• Press Release
• Source: Heritage Bank of Commerce
• On 8:17 pm EDT, Thursday July 23, 2009

SAN JOSE, Calif., July 23, 2009 (GLOBE NEWSWIRE) -- Heritage Commerce Corp (Nasdaq:HTBK - News), parent company of Heritage Bank of Commerce, today reported a second quarter 2009 net loss available to common shareholders of $6.0 million, or $(0.51) per diluted common share, which included a $10.7 million provision for loan losses and $591,000 in dividends and discount accretion on preferred stock. In the second quarter a year ago, the net loss available to common shareholders was $3.1 million, or $(0.26) per diluted common share, which included a $7.8 million provision for loan losses and no preferred dividends.

Related Quotes

Symbol	Price	Change
HTBK	3.87	-0.17

{"s" : "htbk","k" : "c10,l10,p20,t10","o" : "","j" : ""}

For the first half of 2009, the Company reported a net loss available to common shareholders of $10.5 million, or $(0.89) per diluted common share, which included a $21.1 million provision for loan losses and $1.2 million in dividends and discount accretion on preferred stock. For the first half of 2008, the net loss available to common shareholders was $1.4 million, or $(0.11) per diluted common share, which included a $9.5 million provision for loan losses and no preferred dividends.

Second Quarter Developments

 * The net interest margin increased 20 basis points to 3.55% in the 
   second quarter of 2009 from 3.35% in the first quarter of 2009.

 * The leverage ratio was 9.8% at June 30, 2009.

 * Total assets were $1.44 billion, a decrease of 3% from a year ago
   and a decrease of 2% over the past quarter.

 * $20.5 million of SBA loans were transferred to loans held-for-
   sale at June 30, 2009 in anticipation of loan sales.

 * Loans, excluding loans held-for-sale, decreased 4% to $1.16
   billion from $1.21 billion a year ago and March 31, 2009, with
   land and construction loans down $13.4 million to $230.8 million 
   from March 31, 2009.

 * Deposits remained flat at $1.16 billion at June 30, 2009,
   compared to $1.17 billion at the end of the prior quarter. 

 * Nonperforming assets increased $4.9 million to $61.7
   million, or 4.30% of total assets, from $56.9 million, or 3.89%
   of total assets at March 31, 2009.

 * The allowance for loan losses increased to $31.4 million, or 
   2.70% of total loans, compared to $20.9 million, or 1.73%, 
   a year ago, and $23.9 million, or 1.97%, at March 31, 2009.

"While nonperforming assets increased in the quarter, the rate of increase slowed from earlier this year. The substantial provision for loan losses resulted in a loss for the second quarter," said Walter Kaczmarek, President and Chief Executive Officer. "However, we are seeing increased sales activity in our residential housing portfolio, which is reflected in paydowns on our land and construction loans. With low mortgage rates, the tax incentives for home buyers and rising affordability, we are seeing buyers entering the market." According to the California Association of Realtors, the unsold inventory of single-family homes in May fell to a 4.2 months supply -- less than half the 8.7 month supply a year ago.

"We continue to focus on preserving capital, credit quality and improving the net interest margin in what continues to be a very challenging economic environment," Mr. Kaczmarek continued. "We are proceeding cautiously in the execution of our business plan. We have filed a shelf registration statement with the SEC to provide more options and flexibility to raise capital in the future in the event strategic opportunities and/or favorable market conditions present themselves."

Balance Sheet, Capital Management and Credit Quality

At June 30, 2009, the Company's assets totaled $1.44 billion, compared to $1.49 billion a year ago and $1.46 billion at March 31, 2009. The Company transferred $20.5 million of SBA loans to loans held-for-sale in the second quarter of 2009. The Company plans to sell these loans, as well as at least a portion of new SBA loans, to enhance its liquidity position and improve noninterest income in future periods. Loans, excluding loans held-for-sale, totaled $1.16 billion at June 30, 2009, compared to $1.21 billion at June 30, 2008 and $1.21 billion at March 31, 2009. Deposits remained essentially flat at $1.16 billion at June 30, 2009, compared to June 30, 2008 and March 31, 2009. Commercial loans account for 39% of the total loan portfolio and commercial real estate loans, of which more than half are owner occupied, account for 36% of the portfolio. Land and construction loans decreased $13.4 million from March 31, 2009 and account for 20% of the portfolio, and consumer and home equity loans account for the remaining 5% of the total.

The securities portfolio of $101.8 million at June 30, 2009 consisted primarily of U.S. government sponsored entities' debt securities, short-term U.S. Treasury securities, mortgage-backed securities, collateralized mortgage obligations, and municipal bonds.

Nonperforming assets totaled $61.7 million, or 4.30% of total assets at June 30, 2009, compared to $14.3 million, or 0.96% of total assets a year ago, and $56.9 million, or 3.89% of total assets at March 31, 2009. The majority of nonperforming assets are in the construction and land development portfolio, accounting for 63% of nonperforming assets, with commercial and industrial loans accounting for 18%, commercial real estate loans accounting for 4%, SBA loans at 10% and other real estate owned ("OREO") at 5%.

Total OREO was $3.1 million, comprised of six properties, at June 30, 2009, up from $802,000, comprised of two properties, at March 31, 2009. In the second quarter of 2009, five properties moved from nonaccrual status into OREO and one property was sold. The increase in OREO during the quarter was primarily from a small commercial building in Santa Clara County, and a land parcel in Contra Costa County.

The allowance for loan losses at June 30, 2009 was $31.4 million, or 2.70% of total loans, and represented 53.51% of nonperforming loans. The allowance for loan losses a year ago was $20.9 million, or 1.73% of total loans and 152.14% of nonperforming loans. The allowance for loan losses at March 31, 2009, was $23.9 million, or 1.97% of total loans and 42.63% of nonperforming loans.

Shareholders' equity was $174.6 million, or $11.55 book value per common share, at June 30, 2009, compared to $141.7 million, or $12.01 book value per common share, a year ago. The increase in shareholders' equity was due to the issuance of $40 million in preferred stock to the U.S. Treasury as a participant in its Capital Purchase Program during the fourth quarter of 2008. Shareholders' equity was $180.3 million, or $12.04 book value per common share, at March 31, 2009. The Company's consolidated leverage ratio at June 30, 2009, was 9.80%, compared to 8.36% at June 30, 2008, and 10.41% at March 31, 2009.

Operating Results

Net interest income decreased 10% to $11.7 million for the second quarter of 2009, compared to $13.0 million for the second quarter of 2008, but increased 5% from $11.2 million for the first quarter of 2009. The net interest margin was 3.55% for the second quarter of 2009, compared to 4.00% for the second quarter a year ago and 3.35% for the first quarter of 2009. The 20 basis point increase in the net interest margin for the second quarter of 2009 compared to the first quarter of 2009 was primarily due to lower cost of funds. The decrease in the net interest margin from the second quarter of 2008 was primarily the result of the 275 basis point decline in short-term interest rates from March 18, 2008 through December 16, 2008.

Noninterest income was $1.6 million for the second quarter of 2009, compared to $1.8 million for the second quarter of 2008 and $1.6 million for the first quarter of 2009. In the first six months of 2009, noninterest income was $3.2 million, compared to $3.3 million in the first six months a year ago.

Noninterest expense was $12.1 million for the second quarter of 2009, compared to $11.0 million in the second quarter of 2008 and $11.4 million in the first quarter of 2009. In the first six months of 2009, noninterest expense was $23.4 million, compared to $21.6 million in the first six months a year ago. Regulatory assessments were $1.2 million in the second quarter of 2009, including a $657,000 charge for the FDIC special assessment levied on all FDIC insured banks, compared to $196,000 in the second quarter of 2008, and $739,000 in the first quarter of 2009. Professional fees were $1.2 million in the second quarter of 2009, compared to $980,000 in the second quarter of 2008, and $913,000 in the first quarter of 2009. The increase in professional fees was primarily due to legal fees related to problem loans and the branch acquisition transaction that was terminated in the second quarter of 2009. Other noninterest expense increased primarily due to problem loan expense. Problem loan expense was $298,000 in the second quarter of 2009, compared to $5,000 in the second quarter of 2008, and $6,000 in the first quarter of 2009.

The income tax benefit for the quarter ended June 30, 2009 was $4.1 million, as compared to $955,000 in the second quarter a year ago, and $5.1 million in the first quarter of 2009. In the first six months of 2009, the income tax benefit was $9.2 million, compared to $271,000 in the first six months a year ago. The negative effective income tax rates are due to the loss before income taxes. The difference in the effective tax rate compared to the combined federal and state statutory tax rate of 42% is primarily the result of the Company's investment in life insurance policies whose earnings are not subject to taxes, tax credits related to investments in low income housing limited partnerships and interest income from tax-free municipal securities.

The efficiency ratio was 90.90% in the second quarter of 2009, compared to 74.51% in the second quarter of 2008 and 88.94% in the first quarter of 2009. The efficiency ratio for the first six months of 2009 increased to 89.94% from 73.45% a year ago. The efficiency ratio increased in 2009 primarily due to compression of the net interest margin and an increase in noninterest expense, as discussed above.

Investor Conference

Heritage Commerce Corp is scheduled to present at the Keefe, Bruyette & Woods 10th Annual Community Bank Investor Conference in New York. Walter T. Kaczmarek, President and Chief Executive Officer, and Lawrence D. McGovern, Chief Financial Officer, are scheduled to present on Tuesday, July 28th at 11:00 a.m. EDT. The presentation will be archived for 60 days after the conference, and can be viewed at http://www.kbw.com/news/conferences.html.

Heritage Commerce Corp, a bank holding company established in February 1998, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose with full-service branches in Los Gatos, Fremont, Danville, Pleasanton, Walnut Creek, Morgan Hill, Gilroy, Mountain View, and Los Altos. Heritage Bank of Commerce is an SBA Preferred Lender with Loan Production Offices in Sacramento, Oakland and Santa Rosa, California. For more information, please visit www.heritagecommercecorp.com.

Forward Looking Statement Disclaimer

Forward-looking statements are based on management's knowledge and belief as of today and include information concerning the Company's possible or assumed future financial condition, and its results of operations, business and earnings outlook. These forward-looking statements are subject to risks and uncertainties. A number of factors, some of which are beyond the Company's ability to control or predict, could cause future results to differ materially from those contemplated by such forward-looking statements. These factors include (1) difficult and adverse conditions in the global and domestic capital and credit markets, (2) continued volatility and further deterioration of the capital and credit markets, (3) significant changes in banking laws or regulations, including, without limitation, as a result of the Emergency Economic Stabilization Act, the American Reinvestment and Recovery Act, and possible amendments to the Troubled Asset Relief Program (TARP), including the Capital Purchase Program and related executive compensation requirements, (4) continued uncertainty about the impact of TARP and other recent federal programs on the financial markets including levels of volatility and credit availability, (5) a more adverse than expected decline or continued weakness in general business and economic conditions, either nationally, regionally or locally in areas where the Company conducts its business, which may affect, among other things, the level of nonperforming assets, charge-offs and loan provision expense, (6) changes in interest rates, reducing interest rate margins or increasing interest rate risks, (7) changes in market liquidity which may reduce interest margins and impact funding sources, (8) increased competition in the Company's markets, (9) changes in the financial performance and/or condition of the Company's borrowers, (10) current and further deterioration in the housing and commercial real estate markets particularly in California, and (11) increases in Federal Deposit Insurance Corporation premiums due to market developments and regulatory changes. For a discussion of factors which could cause results to differ, please see the Company's reports on Forms 10-K and 10-Q as filed with the Securities and Exchange Commission and the Company's press releases. Readers should not place undue reliance on the forward-looking statements, which reflect management's view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.

                                                          Percent
                     For the Three Months Ended:        Change From:
                ------------------------------------ -----------------
 CONSOLIDATED
  INCOME
  STATEMENTS
 (in $000's,     June 30,      Mar. 31,    June 30,  Mar. 31,  June 30,
  unaudited)       2009         2009         2008      2009     2008
 --------------------------------------------------- -----------------
 Interest
  Income        $   15,824   $   16,033   $   18,699     -1%    -15%
 Interest
  Expense            4,135        4,881        5,731    -15%    -28%
                ------------------------------------
   Net
    Interest
    Income          11,689       11,152       12,968      5%    -10%
 Provision for
  Loan Losses       10,704       10,420        7,800      3%     37%
                ------------------------------------
   Net
    Interest
    income
    after
    Provision
    for Loan
    Losses             985          732        5,168     35%    -81%
 Noninterest
  Income:
   Servicing
    Income             408          420          377     -3%      8%
   Increase in
    Cash
    Surrender
    Value of
    Life
    Insurance          415          412          418      1%     -1%
   Service
    Charges
    and Other
    Fees on
    Deposit
    Accounts           537          571          537     -6%      0%
   Other               241          220          460     10%    -48%
                ------------------------------------
 Total
  Noninterest
  Income             1,601        1,623        1,792     -1%    -11%
                ------------------------------------

 Noninterest
  Expense:
   Salaries
    and
    Employee
    Benefits         5,643        6,458        5,970    -13%     -5%
   Professional
    Fees             1,229          913          980     35%     25%
   Regulatory
    Assessments      1,220          739          196     65%    522%
   Occupancy
    and
    Equipment          972          916        1,044      6%     -7%
   Other             3,016        2,336        2,808     29%      7%
                ------------------------------------
 Total
  Noninterest
  Expense           12,080       11,362       10,998      6%     10%
                ------------------------------------
 Income (Loss)
  Before
  Income
  Taxes             (9,494)      (9,007)      (4,038)     5%    135%
 Income Tax
  Expense
  (Benefit)         (4,113)      (5,052)        (955)   -19%    331%
                ------------------------------------
 Net Income
  (Loss)        $   (5,381)  $   (3,955)  $   (3,083)    36%     75%
 Dividends
  and Discount
  Accretion on
  Preferred
  Stock               (591)        (585)          --      1%    N/A
                ------------------------------------
 Net Income
  (Loss)
  Available to
  Common
  Shareholders  $   (5,972)  $   (4,540)  $   (3,083)    32%     94%
                ====================================

 PER COMMON
  SHARE DATA
 (unaudited)
 Basic
  Earnings
  (Loss) Per
  Share         $    (0.51)  $    (0.38)  $    (0.26)    34%     96%
 Diluted
  Earnings
  (Loss) Per
  Share         $    (0.51)  $    (0.38)  $    (0.26)    34%     96%
 Common
  Shares
  Outstanding
  at
  Period-End    11,820,509   11,820,509   11,806,167      0%      0%
 Book Value
  Per Share     $    11.55   $    12.04   $    12.01     -4%     -4%
 Tangible
  Book Value
  Per Share     $     7.56   $     8.04   $     7.96     -6%     -5%

 KEY
  FINANCIAL
  RATIOS
 (unaudited)
 Annualized
  Return on
  Average
  Equity            -11.90%      -8.65%        -8.34%   -38%    -43%
 Annualized
  Return on
  Average
  Tangible
  Equity            -16.08%      -11.62%      -12.30%   -38%    -31%
 Annualized
  Return on
  Average
  Assets             -1.48%       -1.08%       -0.85%   -37%    -74%
 Annualized
  Return on
  Average
  Tangible
  Assets             -1.53%       -1.12%       -0.88%   -37%    -74%
 Net Interest
  Margin              3.55%        3.35%        4.00%     6%    -11%
 Efficiency
  Ratio              90.90%       88.94%       74.51%     2%     22%

 AVERAGE
  BALANCES
 (in $000's,
  unaudited)
 Average
  Assets        $1,457,162   $1,484,544   $1,456,396     -2%      0%
 Average
  Tangible
  Assets        $1,409,973   $1,437,195   $1,408,536     -2%      0%
 Average
  Earning
  Assets        $1,320,604   $1,351,921   $1,304,987     -2%      1%
 Average
  Loans Held-
  for-Sale      $      225   $       --   $       --    N/A     N/A
 Average
  Total Loans   $1,206,254   $1,236,361   $1,170,274     -2%      3%
 Average
  Deposits      $1,150,220   $1,163,552   $1,169,860     -1%     -2%
 Average
  Demand
  Deposits -
  Noninterest
  Bearing       $  255,011   $  253,481   $  260,361      1%     -2%
 Average
  Interest
  Bearing
  Deposits      $  895,209   $  910,071   $  909,499     -2%     -2%
 Average
  Interest
  Bearing
  Liabilities   $  992,010   $1,016,395   $1,018,685     -2%     -3%
 Average
  Equity        $  181,396   $  185,424   $  148,660     -2%     22%
 Average
  Tangible
  Equity        $  134,207   $  138,075   $  100,800     -3%     33%



                            For the Six Months Ended:
                            -------------------------
 CONSOLIDATED
  INCOME
  STATEMENTS
 (in $000's,                  June 30,     June 30,       Percent
  unaudited)                    2009         2008          Change
                            -------------------------     -------
 Interest
  Income                     $   31,857   $   38,594         -17%
 Interest
  Expense                         9,016       12,522         -28%
                            -------------------------
   Net
    Interest
    Income                       22,841       26,072         -12%
 Provision for
  Loan Losses                    21,124        9,450         124%
                            -------------------------
  Net
    Interest
    income
    after
    Provision
    for Loan
    Losses                        1,717       16,622         -90%
 Noninterest
  Income:
   Servicing
    Income                          828          856          -3%
   Increase in
    Cash
    Surrender
    Value of
    Life
    Insurance                       827          816           1%
   Service
    Charges
    and Other
    Fees on
    Deposit
    Accounts                      1,108          952          16%
   Other                            461          682         -32%
                            -------------------------
 Total
  Noninterest
  Income                          3,224        3,306          -2%
                            -------------------------

 Noninterest
  Expense:
   Salaries
    and
    Employee
    Benefits                     12,101       12,029           1%
   Professional
    Fees                          2,142        1,644          30%
   Regulatory
    Assessments                   1,959          388         405%
   Occupancy
    and
    Equipment                     1,888        2,163         -13%
   Other                          5,352        5,354           0%
                            -------------------------
 Total
  Noninterest
  Expense                         23,442      21,578           9%
                            -------------------------
 Income (Loss)
  Before
  Income
  Taxes                         (18,501)      (1,650)       1021%
 Income Tax
  Expense
  (Benefit)                      (9,165)        (271)       3282%
                            -------------------------
 Net Income
  (Loss)                     $   (9,336)  $   (1,379)        577%
 Dividends
  and Discount
  Accretion on
  Preferred
  Stock                          (1,176)          --        N/A
                            -------------------------
 Net Income
  (Loss)
  Available to
  Common
  Shareholders               $  (10,512)  $   (1,379)        662%
                            =========================

 PER COMMON
  SHARE DATA
 (unaudited)
 Basic
  Earnings
  (Loss) Per
  Share                      $    (0.89)  $    (0.11)        709%
 Diluted
  Earnings
  (Loss) Per
  Share                      $    (0.89)  $    (0.11)        709%
 Common
  Shares
  Outstanding
  at
  Period-End                 11,820,509   11,806,167           0%
 Book Value
  Per Share                  $    11.55   $    12.01          -4%
 Tangible
  Book Value
  Per Share                  $     7.56   $     7.96          -5%

 KEY
  FINANCIAL
  RATIOS
 (unaudited)
 Annualized
  Return on
  Average
  Equity                         -10.27%       -1.81%       -467%
 Annualized
  Return on
  Average
  Tangible
  Equity                         -13.83%       -2.63%       -426%
 Annualized
  Return on
  Average
  Assets                          -1.28%       -0.20%       -540%
 Annualized
  Return on
  Average
  Tangible
  Assets                          -1.32%       -0.20%       -560%
 Net Interest
  Margin                           3.45%        4.15%        -17%
 Efficiency
  Ratio                           89.94%       73.45%         22%

 AVERAGE
  BALANCES
 (in $000's,
  unaudited)
 Average
  Assets                     $1,470,782   $1,415,295           4%
 Average
  Tangible
  Assets                     $1,423,513   $1,367,319           4%
 Average
  Earning
  Assets                     $1,336,162   $1,261,938           6%
 Average
  Loans Held-
  for-Sale                   $      113   $       --         N/A
 Average
  Total Loans                $1,221,216   $1,122,940           9%
 Average
  Deposits                   $1,156,848   $1,136,283           2%
 Average
  Demand
  Deposits -
  Noninterest
  Bearing                    $  254,250   $  254,767           0%
 Average
  Interest
  Bearing
  Deposits                   $  902,598   $  881,516           2%
 Average
  Interest
  Bearing
  Liabilities                $1,004,134   $  979,591           3%
 Average
  Equity                     $  183,401   $  153,544          19%
 Average
  Tangible
  Equity                     $  136,132   $  105,568          29%

 
                                                          Percent
 CONSOLIDATED                   End of Period:          Change From:
  BALANCE SHEETS   --------------------------------- -----------------
 (in $000's,       June 30,    March 31,    June 30, March 31, June 30,
 unaudited)          2009        2009         2008      2009    2008
 --------------------------------------------------- -----------------
 ASSETS
 Cash and Due
  from Banks      $  31,315    $  30,720   $  42,642      2%      -27%
 Federal Funds
  Sold                  150          100         150     50%        0%
 Securities
   Available-
   for-Sale,
   at Fair
   Value            101,837       97,340     116,594      5%      -13%
 Loans Held-
  for-Sale           20,506           --          --    N/A       N/A
 Loans:
   Commercial
    Loans           457,981      500,616     509,887     -9%      -10%
   Real
    Estate-
    Mortgage        412,430      406,182     403,526      2%        2%
   Real Estate
    -Land and
    Construction    230,798      244,181     243,731     -5%       -5%
   Home Equity       55,372       54,011      45,991      3%       20%
   Consumer Loans     3,596        4,025       4,686    -11%      -23%
                  ----------------------------------
     Loans        1,160,177    1,209,015   1,207,821     -4%       -4%
 Deferred Loan
  Costs, net          1,489        1,556       1,301     -4%       14%
                  ----------------------------------
   Total Loans,
    Net of
    Deferred
    Costs         1,161,666    1,210,571   1,209,122     -4%       -4%
 Allowance for
  Loan Losses       (31,398)     (23,900)    (20,865)    31%       50%
                  ----------------------------------
   Net Loans      1,130,268    1,186,671   1,188,257     -5%       -5%
 Company Owned
  Life Insurance     41,476       41,061      39,819      1%        4%
 Premises &
  Equipment,
  net                 9,312        9,383       9,052     -1%        3%
 Goodwill            43,181       43,181      43,181      0%        0%
 Intangible
  Assets              3,910        4,071       4,584     -4%      -15%
 Accrued
  Interest
  Receivable
  and Other
  Assets             55,069       48,216      42,708     14%       29%
                 -----------------------------------
   Total Assets  $1,437,024   $1,460,743  $1,486,987     -2%       -3%
                 ===================================

 LIABILITIES & SHAREHOLDERS'
  EQUITY
 Liabilities:
  Deposits
   Demand Deposits
    -Noninterest
    Bearing       $ 258,464  $   254,823  $  262,813     1%        -2%
   Demand Deposits
    -Interest
    Bearing         134,318      133,183     145,151      1%       -7%
   Savings and
    Money Market    331,444      358,848     435,754     -8%      -24%
   Time Deposits,
    Under $100       43,772       46,078      33,911     -5%       29%
   Time Deposits,
    $100 and
    Over            170,858      177,308     173,766     -4%       -2%
   Brokered
    Deposits        224,691      195,763     108,623     15%      107%
                  ----------------------------------
 Total Deposits   1,163,547    1,166,003   1,160,018      0%        0%
 Securities
  Sold under
  Agreement to
  Repurchase         30,000       30,000      35,000      0%      -14%
 Note payable            --           --      12,000    N/A      -100%
 Other
  Short-term
  Borrowing          15,000       32,000      86,000    -53%      -83%
 Notes Payable
  To Subsidiary
  Grantor
  Trusts             23,702       23,702      23,702      0%        0%
 Accrued Interest
  Payable and
  Other
  Liabilities        30,193       28,757      28,518      5%        6%
                  ----------------------------------
 Total
  Liabilities     1,262,442    1,280,462   1,345,238     -1%      -6%

 Shareholders' Equity:
   Preferred
    Stock, Net       38,070       37,985          --      0%      N/A
   Common Stock      79,524       79,153      75,941      0%        5%
   Accumulated
    Other
    Comprehensive
    Income
    (Loss)              (68)         115        (930)  -159%      -93%
   Retained
    Earnings         57,056       63,028      66,738     -9%      -15%
                  ----------------------------------
  Total
   Shareholders'
   Equity           174,582      180,281     141,749     -3%       23%
                  ----------------------------------
 Total Liabilities
  & Shareholders'
  Equity         $1,437,024   $1,460,743  $1,486,987     -2%       -3%
                 ===================================

 CREDIT QUALITY DATA
 (in $000's, unaudited)
 Nonaccrual
  Loans           $  57,889    $  54,291   $  12,226      7%      373%
 Loans Over
  90 Days Past
  Due and Still
  Accruing              786        1,774       1,488    -56%      -47%
                  ----------------------------------
   Total
    Nonperforming
    Loans            58,675       56,065      13,714      5%      328%
 Other Real
  Estate Owned        3,062          802         580    282%      428%
                  ----------------------------------
   Total
    Nonperforming
    Assets        $  61,737    $  56,867   $  14,294      9%      332%
                 ===================================
 Net
  Charge-offs
  (Recoveries)    $   3,206    $  11,527   $     370    -72%      766%
 Allowance for
  Loan Losses
  to Total
  Loans                2.70%        1.97%       1.73%    37%       56%
 Allowance for
  Loan Losses
  to Nonperforming
  Loans               53.51%       42.63%     152.14%    26%      -65%
 Nonperforming
  Assets to
  Total Assets         4.30%        3.89%       0.96%    11%      348%
 Nonperforming
  Loans to
  Total Loans          5.05%        4.63%       1.13%     9%      347%

 OTHER PERIOD-END
 STATISTICS
 (unaudited)
 Shareholders'
  Equity/Total
  Assets              12.15%       12.34%       9.53%    -2%       27%
 Loan to
  Deposit Ratio       99.84%      103.82%     104.23%    -4%       -4%
 Noninterest
  Bearing Deposits
  /Total Deposits     22.21%       21.85%      22.66%     2%       -2%
 Leverage Ratio        9.80%       10.41%       8.36%    -6%       17%

              For the Three Months Ended  For the Three Months Ended
                      June 30, 2009              June 30, 2008
              ---------------------------  --------------------------
 NET INTEREST
  INCOME AND
  NET INTEREST
  MARGIN                 Interest Average            Interest  Average
 (in $000's,    Average   Income/  Yield/   Average   Income/   Yield/
  unaudited)    Balance   Expense   Rate    Balance   Expense    Rate
              ----------  -------  ------ ----------  -------   ------
  Assets:
 Loans, gross $1,206,479  $14,862   4.94% $1,170,274  $17,250    5.93%
 Securities      107,158      958   3.59%    131,428    1,433    4.39%
 Interest
  bearing
  deposits
  in other
  financial
  institutions     6,828        4   0.23%        470        2    1.71%
 Federal
  funds sold         139       --   0.00%      2,815       14    2.00%
              ----------  -------         ----------  -------
   Total
    interest
    earning
    assets     1,320,604   15,824   4.81%  1,304,987   18,699    5.76%
                          -------                     -------
 Cash and due
  from banks      23,090                      35,476
 Premises and
  equipment,
  net              9,380                       9,144
 Goodwill and
  other
  intangible
  assets          47,189                      47,860
 Other assets     56,899                      58,929
              ----------                  ----------
  Total
    assets    $1,457,162                  $1,456,396
              ==========                  ==========

 Liabilities
  and
  shareholders'
  equity:
 Deposits:
 Demand,
  interest
  bearing     $  134,141       79   0.24% $  155,130      367    0.95%
 Savings and
  money market   346,847      662   0.77%    467,428    1,862    1.60%
 Time
  deposits,
  under $100      44,612      259   2.33%     34,507      271    3.16%
 Time
  deposits,
  $100 and
  over           169,954      718   1.69%    174,534    1,363    3.14%
 Brokered
  time
  deposits       199,655    1,676   3.37%     77,900      793    4.09%
 Notes
  payable to
  subsidiary
  grantor
  trusts          23,702      487   8.24%     23,702      526    8.93%
 Securities
  sold under
  agreement to
  repurchase      30,000      227   3.03%     35,890      255    2.86%
 Note payable         --       --    N/A      10,407       75    2.90%
 Other
  short-term
  borrowings      43,099       27   0.25%     39,187      219    2.25%
              ----------  -------         ----------  -------
   Total
    interest
    bearing
    lia-
    bilities     992,010    4,135   1.67%  1,018,685    5,731    2.26%
                          -------                     -------
 Demand,
  noninterest
  bearing        255,011                     260,361
 Other
  liabilities     28,745                      28,690
              ----------                  ----------
   Total
    lia-
    bilities   1,275,766                   1,307,736
 Shareholders'
  equity         181,396                     148,660
              ----------                  ----------
  Total
   liabilities
   and
   share-
   holders'
   equity     $1,457,162                  $1,456,396
              ==========                  ==========

 Net interest
  income /
  margin                  $11,689   3.55%             $12,968    4.00%
                          =======                     =======

               For the Six Months Ended     For the Six Months Ended
                     June 30, 2009               June 30, 2008
              ---------------------------  --------------------------
 NET INTEREST
  INCOME AND
  NET INTEREST
  MARGIN                 Interest Average            Interest  Average
 (in $000's,    Average   Income/  Yield/   Average   Income/   Yield/
  unaudited)    Balance   Expense   Rate    Balance   Expense    Rate
              ----------  -------  ------ ----------  -------   ------

 Assets:
 Loans, gross $1,221,329  $29,892   4.94% $1,122,940  $35,605    6.38%
 Securities      108,655    1,957   3.63%    134,619    2,934    4.38%
 Interest
  bearing
  deposits in
  other
  financial
  institutions     6,021        8   0.27%        768        9    2.36%
 Federal
  funds sold         157       --   0.00%      3,611       46    2.56%
              ----------  -------         ----------  -------
   Total
    interest
    earning
    assets     1,336,162   31,857   4.81%  1,261,938   38,594    6.15%
                          -------                     -------
 Cash and
  due from
  banks           23,786                      37,017
 Premises and
  equipment,
  net              9,424                       9,208
 Goodwill and
  other
  intangible
  assets          47,269                      47,976
 Other assets     54,141                      59,156
              ----------                  ----------
   Total
    assets    $1,470,782                  $1,415,295
              ==========                  ==========

 Liabilities
  and
  share-
  holders'
  equity:
 Deposits:
 Demand,
  interest
  bearing     $  135,223      178   0.27% $  151,800      968    1.28%
 Savings and
  money market   346,851    1,454   0.85%    472,009    4,751    2.02%
 Time
  deposits,
  under $100      45,356      555   2.47%     34,566      591    3.44%
 Time
  deposits,
  $100 and
  over           173,377    1,592   1.85%    160,633    2,753    3.45%
 Brokered
  time
  deposits       201,791    3,645   3.64%     62,508    1,311    4.22%
 Notes
  payable to
  subsidiary
  grantor
  trusts          23,702      987   8.40%     23,702    1,083    9.19%
 Securities
  sold under
  agreement to
  repurchase      31,354      469   3.02%     29,027      410    2.84%
 Note payable      5,110       82   3.24%      5,780       84    2.92%
 Other short-
  term
  borrowings      41,370       54   0.26%     39,566      571    2.90%
              ----------  -------         ----------  -------
   Total
    interest
    bearing
    lia-
    bilities   1,004,134    9,016   1.81%    979,591   12,522    2.57%
                          -------                     -------
 Demand,
  noninterest
  bearing        254,250                     254,767
 Other
  liabilities     28,997                      27,393
              ----------                  ----------
   Total
    lia-
    bilities   1,287,381                   1,261,751
 Shareholders'
  equity         183,401                     153,544
              ----------                  ----------
   Total
    liabilities
    and
    share-
    holders'
    equity    $1,470,782                  $1,415,295
              ==========                  ==========

 Net interest
  income /
  margin                  $22,841   3.45%             $26,072    4.15%
                          =======                     =======

Heritage Commerce Corp
Janet Walworth, SVP General Counsel/Corporate Secretary
(408) 792-4024