Unassociated Document

Exhibit 99.1

Heritage Commerce Corp Reports Financial Results for 2008

San Jose, CA – January 29, 2009 — Heritage Commerce Corp (Nasdaq: HTBK), parent company of Heritage Bank of Commerce, announced today earnings for 2008 of $1.8 million, or $0.13 per diluted common share. Heritage Commerce Corp earned $14.1 million, or $1.12 per diluted common share, for the year ended December 31, 2007. In the fourth quarter of 2008, net income was $700,000, or $0.04 per diluted common share, compared to $2.8 million, or $0.21 per diluted common share for the same quarter a year ago.

Fourth Quarter Financial Highlights

The Company raised $40 million in new capital as a participant in the U.S. Department of the Treasury’s Capital Purchase Program (“CPP”). The Company has made $32 million (or 80% of CPP money) in new loan commitments and $46 million in renewed loan commitments from the date of the investment by the U.S. Treasury on November 21, 2008 through the end of the year.

¨	Capital ratios exceed regulatory well-capitalized standards, including a leverage ratio of 11.03% at December 31, 2008.

¨	Total assets were $1.5 billion, an increase of 11% from December 31, 2007.

¨	Loans increased 20% to $1.25 billion, an increase of $212 million from December 31, 2007.

¨	Commercial loans accounted for 42% of the loan portfolio, compared to 40% a year ago.

¨	The Company has no direct exposure to subprime loans or securities.

“Our focus on building a strong relationship lending team and expanding our East Bay market continues to prove its value to our franchise,” said Walter Kaczmarek, President and Chief Executive Officer. “Despite the continuing problems in the national and regional economy, we ended the year with an after-tax profitable quarter and positive earnings for the full year. We anticipate some of the issues that impacted operations in 2008 will continue in 2009, including pressure on margins from low interest rates, declining real estate values and overall economic contraction. Our focus on relationship lending, coupled with the CPP capital infusion completed in November 2008, has allowed us to continue to provide lending to our customers and build value for our shareholders.”

Balance Sheet and Capital Management

Heritage’s assets totaled $1.5 billion at December 31, 2008, compared to $1.35 billion a year ago, and $1.51 billion at September 30, 2008. Total loans were $1.25 billion at December 31, 2008, compared to $1.04 billion at December 31, 2007, and $1.25 billion at September 30, 2008. Deposits totaled $1.15 billion at December 31, 2008, compared to $1.06 billion at December 31, 2007, and $1.19 billion at September 30, 2008.

The securities portfolio of $104.5 million at December 31, 2008 consisted primarily of short term U.S. Treasury securities, U.S. government sponsored entities’ debt securities, mortgage-backed securities, collateralized mortgage obligations, and municipal bonds. The Company has no direct exposure to so-called subprime loans or securities, nor does it own any Fannie Mae or Freddie Mac equity securities.

The Company’s loan portfolio at December 31, 2008 consisted of 42% commercial loans, 32% commercial real estate mortgage loans, 21% land and construction, and 5% home equity and consumer loans.

Total deposits decreased $32.1 million in the fourth quarter of 2008, compared to the third quarter of 2008, primarily due to lower balances in title insurance company, escrow, and real estate exchange facilitators’ accounts. These decreases were partially offset by an $11.2 million increase in brokered deposits.

Shareholders’ equity increased to $184.3 million, or $8.37 tangible book value per common share, at December 31, 2008, compared to $164.8 million, or $9.20 tangible book value per share, a year ago, and increased from $144.3 million, or $8.18 tangible book value per share, at September 30, 2008. Capital ratios continue to be above the well-capitalized guidelines established by regulatory agencies. The leverage ratio at December 31, 2008 was 11.03%, compared to 11.05% at December 31, 2007, and 8.27% at September 30, 2008.

On November 21, 2008, the Company completed its $40 million capital raise through the issuance of preferred stock and common stock warrants to the U.S. Department of Treasury. This transaction was part of the U.S. Treasury’s Capital Purchase Program to encourage U.S. financial institutions to build capital to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy. The preferred shares will pay a 5% dividend for the first five years, after which the rate will increase to 9% if the preferred shares are not redeemed by the Company. Proceeds from this capital infusion enhanced the Company’s already well-capitalized position and increased our ability to meet the needs of our customers and the communities we serve.

From the time the Company received the investment from the Treasury through December 31, 2008, the Company made $32 million (or 80% of CPP money) in new loan commitments and $46 million in renewed loan commitments. Total loans increased $212 million, or 20%, for the year ended December 31, 2008.

Credit Quality

Primarily due to a softening in the real estate market, which is expected to continue well into 2009, nonperforming assets (“NPAs”) increased by $16.0 million from September 30, 2008 to December 31, 2008. Nonperforming assets totaled $41.1 million, or 2.74% of total assets, at December 31, 2008, compared to $4.5 million, or 0.34% of total assets at December 31, 2007, and $25.1 million, or 1.66% of total assets at September 30, 2008.

Other real estate owned (“OREO”) was $660,000 at December 31, 2008, compared to $1.1 million at December 31, 2007, and $970,000 at September 30, 2008. Two OREO properties were sold during the fourth quarter of 2008, resulting in a net loss of $93,000.

Net charge-offs in the fourth quarter of 2008 were $1.8 million or 0.59% of average loans, compared to net recoveries of $21,000 or (0.01%) of average loans in the fourth quarter of 2007. Net charge-offs in the third quarter of 2008 were $129,000 or 0.04% of average loans. For the full year, net charge-offs totaled $2.7 million, or 0.23% of average loans, compared to net recoveries of $825,000 or (0.10%) of average loans in 2007.

The allowance for loan losses was $25.0 million at December 31, 2008, representing 2.00% of total loans and 62% of nonperforming loans, compared to $12.2 million at December 31, 2007, representing 1.18% of total loans and 353% of nonperforming loans. At September 30, 2008, the allowance for loan losses was $22.3 million or 1.79% of total loans and 93% of nonperforming loans.

Operating Results

Net income during 2008 was impacted by the net interest margin compression, a higher provision for loan losses, and lower noninterest income resulting from the Company’s strategic decision to retain, rather than sell, SBA loan production.

Net interest income decreased to $12.4 million in the fourth quarter of 2008 from $13.8 million in the fourth quarter of 2007, and $13.0 million in the third quarter of 2008. The fourth quarter of 2008 net interest margin was 3.64%, down 19 basis points, compared to 3.83% for the third quarter this year, and down 106 basis points from 4.70% in the fourth quarter a year ago. For 2008, the net interest margin decreased 92 basis points to 3.94% from 4.86% in 2007. Decreases in the net interest margin are primarily the result of the 500 basis points decline in short-term interest rates from September 18, 2007 through December 31, 2008.

Noninterest income was $1.8 million for the fourth quarter of 2008, compared to $1.6 million for the fourth quarter of 2007, and $1.7 million for the prior quarter. Noninterest income was $6.8 million in 2008, compared to $8.1 million a year ago. Gains on sales of SBA loans were $0 in 2008, compared to $1.8 million in 2007. Noninterest income was primarily comprised of loan servicing income, the increase in cash surrender value of Company owned life insurance, and service charges on deposit accounts.

Noninterest expense was $10.4 million for the fourth quarter of 2008, compared to $10.2 million for the fourth quarter of 2007, and $10.4 million for the third quarter of 2008. Noninterest expense increased to $42.4 million in 2008, compared to $37.5 million in 2007. Operating expenses increased in 2008 due to the full year impact of the acquisition of Diablo Valley Bank on June 20, 2007, the new office in Walnut Creek, the addition of experienced banking professionals, the write-off of leasehold improvements in the third quarter of 2008 due to the consolidation of our two offices in Los Altos, higher regulatory assessments, and an increase in legal fees and OREO expense.

The income tax benefit for the quarter and the year ended December 31, 2008 was $1.4 million, as compared to income tax expense of $1.7 million and $8.1 million for the same periods in 2007. The negative effective income tax rates for the quarter and year ended December 31, 2008 were due to reduced pre-tax earnings. The negative tax rates correspond to a benefit, rather than expense, of $1.4 million for the quarter and for the year ended December 31, 2008. The effective income tax rates for the fourth quarter and year ended 2007 were 37.5% and 36.6%, respectively. 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 investments in tax-free municipal securities. The effective tax rates in 2008 are lower compared to 2007 because pre-tax income decreased substantially while benefits from tax advantaged investments did not.

The efficiency ratio was 73.40% in the fourth quarter of 2008, compared to 70.56% in the third quarter of 2008, and 66.17% in the fourth quarter of 2007. The efficiency ratio in 2008 increased to 72.71% from 62.81% a year ago. The efficiency ratio increased in 2008 primarily due to compression of the net interest margin, a decrease in noninterest income, and an increase in expenses, as discussed above.

The annualized returns on average assets (ROAA) and average equity (ROAE) for the fourth quarter of 2008 were 0.19% and 1.71%, compared to 0.84% and 6.62% for the fourth quarter of 2007, respectively. ROAA and ROAE were 0.12% and 1.15% for 2008, compared to 1.18% and 9.47% for 2007, respectively. The annualized returns on average tangible assets (ROATA) and average tangible equity (ROATE) for the fourth quarter of 2008 were 0.19% and 2.42%, compared to 0.87% and 9.26% for the fourth quarter of 2007, respectively. ROATA and ROATE were 0.13% and 1.67% for 2008, compared to 1.21% and 11.43% for 2007, respectively.

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 Fresno, 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 and the creation of 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 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.

Member FDIC

	For the Three Months Ended:						Percent Change From:				At and For the Year Ended:
CONSOLIDATED INCOME STATEMENTS	Dec. 31,		Sep. 30,		Dec. 31,		Sep. 30,		Dec. 31,		Dec. 31,		Dec. 31,		Percent
(in $000's, unaudited)	2008		2008		2007		2008		2007		2008		2007		Change
Interest Income	$	18,166	$	19,197	$	21,056		-5%		-14%	$	75,957	$	78,712		-4%
Interest Expense		5,771		6,151		7,261		-6%		-21%		24,444		27,012		-10%
Net Interest Income		12,395		13,046		13,795		-5%		-10%		51,513		51,700		0%
Provision for Loan Losses		4,500		1,587		725		184%		521%		15,537		(11)		141345%
Net Interest Income after Provision for Loan Losses		7,895		11,459		13,070		-31%		-40%		35,976		51,711		-30%
Noninterest Income:
Gain on Sale of SBA Loans		-		-		-		N/A		N/A		-		1,766		-100%
Servicing Income		443		491		584		-10%		-24%		1,790		2,181		-18%
Increase in Cash Surrender Value of Life Insurance		413		416		373		-1%		11%		1,645		1,443		14%
Service Charges and Fees on Deposit Accounts		550		505		329		9%		67%		2,007		1,284		56%
Other		391		276		350		42%		12%		1,349		1,378		-2%
Total Noninterest Income		1,797		1,688		1,636		6%		10%		6,791		8,052		-16%

Noninterest Expense:
Salaries & Employee Benefits		4,930		5,665		5,747		-13%		-14%		22,624		21,160		7%
Occupancy & Equipment		1,112		1,348		1,262		-18%		-12%		4,623		4,195		10%
Other		4,375		3,384		3,202		29%		37%		15,145		12,175		24%
Total Noninterest Expense		10,417		10,397		10,211		0%		2%		42,392		37,530		13%
Income (Loss) Before Income Taxes		(725)		2,750		4,495		-126%		-116%		375		22,233		-98%
Income Tax Expense (Benefit)		(1,425)		309		1,687		-561%		-184%		(1,387)		8,137		-117%
Net Income		700		2,441		2,808		-71%		-75%		1,762		14,096		-88%
Dividends and Discount Accretion on Preferred Stock		255		-		-		N/A		N/A		255		-		N/A
Net Income Available to Common Shareholders	$	445	$	2,441	$	2,808		-82%		-84%	$	1,507	$	14,096		-89%

PER COMMON SHARE DATA
(unaudited)
Basic Earnings Per Share	$	0.04	$	0.21	$	0.22		-81%		-82%	$	0.13	$	1.14		-89%
Diluted Earnings Per Share	$	0.04	$	0.21	$	0.21		-81%		-81%	$	0.13	$	1.12		-88%
Common Shares Outstanding at Period End		11,820,509		11,820,509		12,774,926		0%		-7%		11,820,509		12,774,926		-7%
Book Value Per Share	$	12.38	$	12.21	$	12.90		1%		-4%	$	12.38	$	12.90		-4%
Tangible Book Value Per Share	$	8.37	$	8.18	$	9.20		2%		-9%	$	8.37	$	9.20		-9%

KEY FINANCIAL RATIOS
(unaudited)
Annualized Return on Average Equity		1.71%		6.78%		6.62%		-75%		-74%		1.15%		9.47%		-88%
Annualized Return on Average Tangible Equity		2.42%		10.15%		9.26%		-76%		-74%		1.67%		11.43%		-85%
Annualized Return on Average Assets		0.19%		0.65%		0.84%		-71%		-77%		0.12%		1.18%		-90%
Annualized Return on Average Tangible Assets		0.19%		0.67%		0.87%		-72%		-78%		0.13%		1.21%		-89%
Net Interest Margin		3.64%		3.83%		4.70%		-5%		-23%		3.94%		4.86%		-19%
Efficiency Ratio		73.40%		70.56%		66.17%		4%		11%		72.71%		62.81%		16%

AVERAGE BALANCES
(in $000's, unaudited)
Average Assets	$	1,494,245	$	1,499,734	$	1,324,242		0%		13%	$	1,456,361	$	1,193,890		22%
Average Tangible Assets	$	1,446,732	$	1,452,044	$	1,276,392		0%		13%	$	1,408,573	$	1,168,380		21%
Average Earning Assets	$	1,354,829	$	1,353,730	$	1,165,127		0%		16%	$	1,308,358	$	1,063,062		23%
Average Total Loans	$	1,233,763	$	1,231,931	$	978,310		0%		26%	$	1,178,194	$	835,712		41%
Average Loans Held-For-Sale	$	-	$	-	$	-		N/A		N/A	$	-	$	9,216		-100%
Average Deposits	$	1,179,456	$	1,191,151	$	1,092,387		-1%		8%	$	1,160,926	$	981,713		18%
Average Demand Deposits - Noninterest Bearing	$	263,301	$	261,578	$	264,404		1%		0%	$	258,624	$	242,308		7%
Average Interest Bearing Deposits	$	916,155	$	929,573	$	827,983		-1%		11%	$	902,302	$	739,405		22%
Average Interest Bearing Liabilities	$	1,039,814	$	1,066,264	$	867,965		-2%		20%	$	1,016,515	$	779,362		30%
Average Equity	$	162,465	$	143,318	$	168,207		13%		-3%	$	153,216	$	148,835		3%
AverageTangible Equity	$	114,952	$	95,628	$	120,357		20%		-4%	$	105,428	$	123,504		-15%

	End of Period:									Percent Change From:
CONSOLIDATED BALANCE SHEETS	December 31,			Sep. 30,			December 31,			Sep. 30,			December 31,
(in $000's, unaudited)	2008			2008			2007			2008			2007
ASSETS
Cash and Due from Banks	$	29,996		$	35,718		$	39,793			-16	%		-25	%
Federal Funds Sold		100			100			9,300			0	%		-99	%
Securities Available-for-Sale, at Fair Value		104,475			107,565			135,402			-3	%		-23	%
Loans:
Commercial Loans		525,080			532,367			411,251			-1	%		28	%
Real Estate-Mortgage		405,530			405,897			361,211			0	%		12	%
Real Estate-Land and Construction		256,567			253,134			215,597			1	%		19	%
Home Equity		55,490			51,981			44,187			7	%		26	%
Consumer Loans		4,310			5,549			3,044			-22	%		42	%
Loans		1,246,977			1,248,928			1,035,290			0	%		20	%
Deferred Loan Costs, Net		1,654			1,412			1,175			17	%		41	%
Total Loans, Net of Deferred Costs		1,248,631			1,250,340			1,036,465			0	%		20	%
Allowance for Loan Losses		(25,007	)		(22,323	)		(12,218	)		12	%		105	%
Net Loans		1,223,624			1,228,017			1,024,247			0	%		19	%
Company Owned Life Insurance		40,649			40,236			38,643			1	%		5	%
Premises & Equipment, Net		9,517			9,318			9,308			2	%		2	%
Goodwill		43,181			43,181			42,614			0	%		1	%
Intangible Assets		4,231			4,407			4,696			-4	%		-10	%
Accrued Interest Receivable and Other Assets		43,454			43,339			43,469			0	%		0	%
Total Assets	$	1,499,227		$	1,511,881		$	1,347,472			-1	%		11	%

LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Demand Deposits-Noninterest Bearing	$	261,337		$	257,739		$	268,005			1	%		-2	%
Demand Deposits-Interest Bearing		134,814			139,377			150,527			-3	%		-10	%
Savings and Money Market		344,767			400,863			432,293			-14	%		-20	%
Time Deposits, Under $100		45,615			34,792			34,092			31	%		34	%
Time Deposits, $100 and Over		171,269			168,361			139,562			2	%		23	%
Brokered Deposits		196,248			185,052			39,747			6	%		394	%
Total Deposits		1,154,050			1,186,184			1,064,226			-3	%		8	%
Securities Sold Under Agreement to Repurchase		35,000			35,000			10,900			0	%		221	%
Note Payable		15,000			15,000			-			0	%		N/	A
Other Short-term Borrowings		55,000			80,000			60,000			-31	%		-8	%
Notes Payable To Subsidiary Grantor Trusts		23,702			23,702			23,702			0	%		0	%
Accrued Interest Payable and Other Liabilities		32,208			27,711			23,820			16	%		35	%
Total Liabilities		1,314,960			1,367,597			1,182,648			-4	%		11	%

Shareholders' Equity:
Preferred Stock, Net		37,900			-			-			N/	A		N/	A
Common Stock		78,854			76,490			92,414			3	%		-15	%
Accumulated Other Comprehensive Loss		(291	)		(512	)		(888	)		-43	%		-67	%
Retained Earnings		67,804			68,306			73,298			-1	%		-7	%
Total Shareholders' Equity		184,267			144,284			164,824			28	%		12	%
Total Liabilities & Shareholders' Equity	$	1,499,227		$	1,511,881		$	1,347,472			-1	%		11	%


CREDIT QUALITY DATA
(in $000's, unaudited)
Nonaccrual Loans	$	39,981		$	23,095		$	3,363			73	%		1089	%
Loans Over 90 Days Past Due and Still Accruing		460			1,016			101			-55	%		355	%
Total Nonperforming Loans		40,441			24,111			3,464			68	%		1067	%
Other Real Estate Owned		660			970			1,062			-32	%		-38	%
Total Nonperforming Assets	$	41,101		$	25,081		$	4,526			64	%		808	%
Net Charge-offs (Recoveries)	$	1,816		$	129		$	(21	)		1308	%		8748	%
Net Charge-offs as Percent of Average Loans		0.59	%		0.04	%		-0.01	%		1375	%		6000	%
Allowance for Loan Losses to Total Loans		2.00	%		1.79	%		1.18	%		12	%		69	%
Allowance for Loan Losses to Nonperforming Loans		61.84	%		92.58	%		352.71	%		-33	%		-82	%
Nonperforming Assets to Total Assets		2.74	%		1.66	%		0.34	%		65	%		706	%
Nonperforming Loans to Total Loans		3.24	%		1.93	%		0.33	%		68	%		882	%

OTHER PERIOD-END STATISTICS
(unaudited)
Shareholders' Equity / Total Assets		12.29	%		9.54	%		12.23	%		29	%		0	%
Loan to Deposit Ratio		108.20	%		105.41	%		97.39	%		3	%		11	%
Noninterest Bearing Deposits / Total Deposits		22.65	%		21.73	%		25.18	%		4	%		-10	%
Leverage Ratio		11.03	%		8.27	%		11.05	%		33	%		0	%

	For the Three Months Ended							For the Three Months Ended
	December 31, 2008							December 31, 2007
			Interest		Average					Interest		Average
NET INTEREST INCOME AND NET INTEREST MARGIN	Average		Income/		Yield/			Average		Income/		Yield/
(in $000's, unaudited)	Balance		Expense		Rate			Balance		Expense		Rate
Assets:
Loans, gross	$	1,233,763	$	16,964		5.47	%	$	978,310	$	18,864		7.65	%
Securities		116,256		1,193		4.08	%		151,588		1,783		4.67	%
Interest bearing deposits in other financial institutions		1,814		7		1.54	%		3,744		37		3.92	%
Federal funds sold		2,996		2		0.27	%		31,485		372		4.69	%
Total interest earning assets		1,354,829	$	18,166		5.33	%		1,165,127	$	21,056		7.17	%
Cash and due from banks		29,137							40,843
Premises and equipment, net		9,486							9,483
Goodwill and other intangible assets		47,513							47,850
Other assets		53,280							60,939
Total assets	$	1,494,245						$	1,324,242

Liabilities and shareholders' equity:
Deposits:
Demand, interest bearing	$	134,861	$	237		0.70	%	$	144,149	$	745		2.05	%
Savings and money market		376,344		1,304		1.38	%		467,199		3,647		3.10	%
Time deposits, under $100		42,142		285		2.69	%		33,164		326		3.90	%
Time deposits, $100 and over		157,846		963		2.43	%		138,164		1,287		3.70	%
Brokered time deposits		204,962		1,962		3.81	%		45,307		537		4.70	%
Notes payable to subsidiary grantor trusts		23,702		537		9.01	%		23,702		580		9.71	%
Securities sold under agreement to repurchase		35,000		263		2.99	%		10,900		76		2.77	%
Note payable		15,000		108		2.86	%		-		-		N/	A
Other short-term borrowings		49,957		112		0.89	%		5,380		63		4.65	%
Total interest bearing liabilities		1,039,814	$	5,771		2.21	%		867,965	$	7,261		3.32	%
Demand, noninterest bearing		263,301							264,404
Other liabilities		28,665							23,666
Total liabilities		1,331,780							1,156,035
Shareholders' equity		162,465							168,207
Total liabilities and shareholders' equity	$	1,494,245						$	1,324,242

Net interest income / margin			$	12,395		3.64	%			$	13,795		4.70	%

	For the Year Ended							For the Year Ended
	December 31, 2008							December 31, 2007
			Interest		Average					Interest		Average
NET INTEREST INCOME AND NET INTEREST MARGIN	Average		Income/		Yield/			Average		Income/		Yield/
(in $000's, unaudited)	Balance		Expense		Rate			Balance		Expense		Rate
Assets:
Loans, gross	$	1,178,194	$	70,488		5.98	%	$	844,928	$	68,405		8.10	%
Securities		126,223		5,395		4.27	%		165,884		7,636		4.60	%
Interest bearing deposits in other financial institutions		881		16		1.82	%		3,132		141		4.50	%
Federal funds sold		3,060		58		1.90	%		49,118		2,530		5.15	%
Total interest earning assets		1,308,358	$	75,957		5.81	%		1,063,062	$	78,712		7.40	%
Cash and due from banks		34,339							37,435
Premises and equipment, net		9,273							6,218
Goodwill and other intangible assets		47,788							25,331
Other assets		56,603							61,844
Total assets	$	1,456,361						$	1,193,890

Liabilities and shareholders' equity:
Deposits:
Demand, interest bearing	$	145,785	$	1,513		1.04	%	$	143,801	$	3,154		2.19	%
Savings and money market		433,839		7,679		1.77	%		393,750		12,368		3.14	%
Time deposits, under $100		36,301		1,101		3.03	%		32,196		1,243		3.86	%
Time deposits, $100 and over		162,298		4,853		2.99	%		119,812		5,151		4.30	%
Brokered time deposits		124,079		4,889		3.94	%		49,846		2,295		4.60	%
Notes payable to subsidiary grantor trusts		23,702		2,148		9.06	%		23,702		2,329		9.83	%
Securities sold under agreement to repurchase		32,030		937		2.93	%		14,504		387		2.67	%
Note payable		10,243		292		2.85	%		-		-		N/	A
Other short-term borrowings		48,238		1,032		2.14	%		1,751		85		4.85	%
Total interest bearing liabilities		1,016,515	$	24,444		2.40	%		779,362	$	27,012		3.47	%
Demand, noninterest bearing		258,624							242,308
Other liabilities		28,006							23,385
Total liabilities		1,303,145							1,045,055
Shareholders' equity		153,216							148,835
Total liabilities and shareholders' equity	$	1,456,361						$	1,193,890

Net interest income / margin			$	51,513		3.94	%			$	51,700		4.86	%