Unassociated Document

Exhibit 99.1

Heritage Commerce Corp Reports Improved Third Quarter Profits

Year-to-Date Earnings Increase 29% to $1.08 Per Share

San Jose, CA - October 30, 2006 —Heritage Commerce Corp (Nasdaq: HTBK), parent company of Heritage Bank of Commerce, today reported improving efficiencies and an expanding net interest margin which helped produce a 4% increase in third quarter profits and a 27% rise in year-to-date earnings, compared to the year earlier periods. For the third quarter ended September 30, 2006, net income was $4.4 million, or $0.36 per diluted share, compared to $4.2 million, or $0.35 per diluted share, for the same quarter a year ago. For the first nine months of 2006, net income rose 27% to $12.9 million, or $1.08 per diluted share, compared to $10.2 million, or $0.84 per diluted share, for the like period a year ago.

Financial Highlights:

3Q06 vs. 3Q05 and 2Q06

·	Net interest margin increased 62 basis points to 5.22% from 3Q05 and up 24 basis points from 2Q06.

·	Net interest income increased 5% to $12.8 million from 3Q05 and up 1% from 2Q06.

·	The efficiency ratio improved significantly to 55.00% from 58.78% in 3Q05and 57.06% in 2Q06.

2006 Year-to-Date vs. 2005 Year-to-Date

·	Return on average assets was 1.57%, compared to 1.20% a year ago.

·	Return on average equity was 14.76%, compared to 13.13% a year ago.

·	Diluted earnings per share increased 29% to $1.08, compared to $0.84 a year ago.

“Our focus on improving profitability is generating solid results this year. A more profitable mix of assets on our balance sheet contributed to a solid expansion in net interest margin, while improved efficiencies helped boost profitability,” said Walter T. Kaczmarek, President and Chief Executive Officer.

Operating Results

Net interest income increased 5% to $12.8 million for the third quarter of 2006, compared to $12.2 million for the third quarter of 2005. Year to date, net interest income rose 7% to $37.6 million from $35.0 million for the same period in 2005. The net interest margin expanded to 5.22% for the third quarter of 2006, and up 24 basis points compared to 4.98% for the second quarter this year and up 62 basis points from 4.60% in the third quarter a year ago. Year-to-date, the net interest margin improved 53 basis points to 5.03% from 4.50% for the first nine months of 2005.

Noninterest income was $2.3 million for the third quarter of 2006, up 3% when compared to $2.2 million for third quarter of 2005. In the second quarter of this year, Heritage’s noninterest income totaled $2.3 million. In the first nine months of 2006, noninterest income was $7.5 million, compared to $7.2 million in the first nine months a year ago. Gain on sale of loans in the third quarter rose 19% from a year ago, reflecting strong SBA loan activity and sales. The first quarter sale of specialty loans contributed $671,000 to 2006 noninterest income and more than offset the $431,000 generated last year from leasing activities, an area exited in 2005.

Noninterest expense decreased 2% to $8.3 million for the third quarter of 2006, compared to $8.5 million for both the third quarter of 2005 and the second quarter of 2006. In the first nine months of 2006, noninterest expense decreased 4% to $25.6 million from $26.7 million the first nine months a year ago. Compensation expense increased 6% from the second quarter to the third quarter and increased 5% compared to the third quarter a year ago. The increase in compensation expense was primarily due to employee stock option expense, which added $215,000 to third quarter expenses and $550,000 year-to-date. In 2005, stock option expense was not included in compensation, but rather footnoted in the financial statements at $119,000 for the third quarter and $348,000 for the first nine months of the year. Despite the inclusion of options expense in 2006, compensation expense decreased 1% for the first nine months of 2006, compared to the first nine months of 2005.

The efficiency ratio improved to 55.00% in the third quarter of 2006, compared to 57.06% in the second quarter of 2006, and 58.78% in the third quarter of 2005. The efficiency ratio for the first nine months of 2006 improved to 56.71% from 63.11% a year ago. The annualized returns on average assets and average equity for the third quarter of 2006 were 1.61% and 14.43%, compared to 1.45% and 15.64% for the third quarter ended September 30, 2005, respectively. Returns on average assets and average equity for the first nine months of 2006 were 1.57% and 14.76%, compared to 1.20% and 13.13% for the first nine months of 2005, respectively.

Balance Sheet, Capital Management and Credit Quality

At September 30, 2006, total assets were $1.06 billion, compared to $1.16 billion at September 30, 2005, and $1.09 billion at June 30, 2006. Total deposits were $876 million at September 30, 2006, compared to $975 million at September 30, 2005, and $908 million at June 30, 2006. The decreases were primarily due to reductions in title company, real estate exchange company, and escrow deposit accounts. Total loans, excluding loans held for sale, were $714 million at September 30, 2006, compared to $738 million at September 30, 2005 and $714 million June 30, 2006.

Nonperforming assets totaled $3.0 million, or 0.28% of total assets, at September 30, 2006, compared to $2.7 million, or 0.23% of total assets, at September 30, 2005, and $1.6 million, or 0.15% of total assets, at June 30, 2006.

The allowance for loan losses was $9.4 million at September 30, 2006, representing 1.31% of total loans and 317% of nonperforming loans. The allowance for loan losses was $11.1 million at September 30, 2005, representing 1.51% of total loans and 409% of nonperforming loans. At June 30, 2006, the allowance for loan losses was $9.1 million or 1.27% of total loans and 564% of nonperforming loans. Net recoveries in the third quarter of 2006 were $281,000, or 0.16% of average loans, compared to net recoveries of $130,000, or 0.07% of average loans, in the third quarter of 2005. Net charge-offs were $536,000, or 0.31% of average loans, in the quarter ended June 30, 2006.

Shareholders’ equity increased 11% to $119 million, or $10.22 per share, at September 30, 2006, compared to $107 million, or $9.09 per share, a year ago, and $118 million, or $9.98 per share, at June 30, 2006. Capital ratios continue to be above the well-capitalized guidelines established by regulatory agencies. The Company’s leverage ratio at September 30, 2006, was 13.24%, compared to 11.23% at September 30, 2005, and 12.70% at June 30, 2006.

During the third quarter of 2006, the Company repurchased 210,900 shares of its common stock with an average price of $23.63 under the $10 million common stock repurchase program, which was approved by the Company’s Board of Directors in February 2006. Shares were purchased on the open market using available cash. The repurchase program may be modified, suspended or terminated by the Board of Directors at any time without notice. The repurchase program expires on June 30, 2007. The extent to which the Company repurchases its shares and the timing of such repurchases will depend upon market conditions and other corporate considerations.

On October 10, 2006, the Gilroy branch moved to its new location at 7598 Monterey Street. The new location is in downtown Gilroy in a brand new building and is considerably larger than the previous location. “Located 20 miles south of San Jose, Gilroy is the fastest growing city in Santa Clara County, according to the San Jose Mercury News. Well know for its regional outlet mall and as the Garlic Capital of the World, Gilroy’s population grew 2.6% in 2004 and is estimated to grow 38% over the next 25 years by the Association of Bay Area Governments,” said Kaczmarek.

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 offices in Los Gatos, Fremont, Danville, Morgan Hill, Gilroy, Mountain View and Los Altos. Heritage Bank of Commerce is also an SBA Preferred Lender, operating from offices in San Jose, Fremont, Fresno, Santa Cruz, Watsonville and Pittsburg, California.

Forward Looking Statement Disclaimer

This release may contain forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties may include, but are not necessarily limited to, fluctuations in interest rates and monetary policy established by the Federal Reserve, inflation, government regulations, general economic conditions, competition within the business areas in which the Company is conducting its operations, including the real estate market in California, the ability to recognize identified cost savings, and other factors beyond the Company's control. Such risks and uncertainties could cause results for subsequent interim periods or for the entire year to differ materially from those indicated. 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:						For the Nine Months Ended:
CONSOLIDATED INCOME STATEMENTS	September 30,			June 30,			September 30,			June 30,			September 30,			September 30,			September 30,		Percent
(in $000's, unaudited)	2006			2006			2005			2006			2005			2006			2005		Change
Interest Income	$	18,568		$	18,392		$	16,469			1	%		13	%	$	54,220		$	46,167		17	%
Interest Expense		5,754			5,766			4,269			0	%		35	%		16,589			11,133		49	%
Net Interest Income		12,814			12,626			12,200			1	%		5	%		37,631			35,034		7	%
Provision for Loan Losses		0			(114)			(494)			-100	%		-100	%		(603)			313		-293	%
Net Interest income after Provision for Loan Losses		12,814			12,740			12,694			1	%		1	%		38,234			34,721		10	%
Noninterest Income:
Gain on Sale of Loans		832			842			702			-1	%		19	%		3,171			2,160		47	%
Servicing Income		412			441			510			-7	%		-19	%		1,321			1,368		-3	%
Increase in Cash Surrender Value of Life Insurance		363			360			331			1	%		10	%		1,070			887		21	%
Service Charges and Other Fees on Deposit Accounts		354			327			332			8	%		7	%		1,008			1,120		-10	%
Gain on Sale of Leased Equipment		0			0			0			N/	A		N/	A		0			299		-100	%
Equipment Leasing		0			0			0			N/	A		N/	A		0			131		-100	%
Other		338			287			349			18	%		-3	%		880			1,254		-30	%
Total Noninterest Income		2,299			2,257			2,224			2	%		3	%		7,450			7,219		3	%

Noninterest Expense:
Salaries & Employee Benefits		4,941			4,653			4,697			6	%		5	%		14,703			14,912		-1	%
Occupancy & Equipment		913			922			960			-1	%		-5	%		2,721			3,055		-11	%
Other		2,458			2,917			2,821			-16	%		-13	%		8,141			8,699		-6	%
Total Noninterest Expense		8,312			8,492			8,478			-2	%		-2	%		25,565			26,666		-4	%
Income Before Income Taxes		6,801			6,505			6,440			5	%		6	%		20,119			15,274		32	%
Income Tax Expense		2,448			2,316			2,245			6	%		9	%		7,201			5,086		42	%
Net Income	$	4,353		$	4,189		$	4,195			4	%		4	%	$	12,918		$	10,188		27	%

PER SHARE DATA
(unaudited)
Basic Earnings Per Share	$	0.37		$	0.35		$	0.36			6	%		3	%	$	1.09		$	0.86		27	%
Diluted Earnings Per Share	$	0.36		$	0.35		$	0.35			3	%		3	%	$	1.08		$	0.84		29	%
Common Shares Outstanding at Period End		11,681,297			11,820,563			11,779,858			-1	%		-1	%		11,681,297			11,779,858		-1	%
Book Value Per Share	$	10.22		$	9.98		$	9.09			2	%		12	%	$	10.22		$	9.09		12	%
Tangible Book Value Per Share	$	10.22		$	9.98		$	9.09			2	%		12	%	$	10.22		$	9.09		12	%

KEY FINANCIAL RATIOS
(unaudited)
Annualized Return on Average Equity		14.43	%		14.35	%		15.64	%		1	%		-8	%		14.76	%		13.13	%	12	%
Annualized Return on Average Assets		1.61	%		1.50	%		1.45	%		7	%		11	%		1.57	%		1.20	%	31	%
Net Interest Margin		5.22	%		4.98	%		4.60	%		5	%		13	%		5.03	%		4.50	%	12	%
Efficiency Ratio		55.00	%		57.06	%		58.78	%		-4	%		-6	%		56.71	%		63.11	%	-10	%

AVERAGE BALANCES
(in $000's, unaudited)
Average Assets	$	1,074,903		$	1,120,108		$	1,147,789			-4	%		-6	%	$	1,102,942		$	1,131,120		-2	%
Average Earning Assets	$	973,556		$	1,017,290		$	1,053,049			-4	%		-8	%	$	1,000,106		$	1,040,720		-4	%
Average Total Loans	$	706,587		$	702,817		$	720,043			1	%		-2	%	$	703,795		$	724,594		-3	%
Average Loans Held For Sale	$	32,534		$	32,494		$	35,579			0	%		-9	%	$	34,477		$	35,478		-3	%
Average Deposits	$	886,976		$	929,000		$	962,814			-5	%		-8	%	$	911,852		$	939,390		-3	%
Average Demand Deposits - Noninterest Bearing	$	218,766		$	228,891		$	262,628			-4	%		-17	%	$	227,588		$	260,389		-13	%
Average Interest Bearing Deposits	$	668,210		$	700,109		$	700,186			-5	%		-5	%	$	684,264		$	679,001		1	%
Average Interest Bearing Liabilities	$	713,712		$	749,533		$	757,110			-5	%		-6	%	$	734,619		$	746,163		-2	%
Average Equity	$	119,690		$	117,126		$	106,418			2	%		12	%	$	117,048		$	103,716		13	%

	End of Period:									Percent Change From:
CONSOLIDATED BALANCE SHEETS	September 30,			June 30,			September 30,			June 30,			September 30,
(in $000's, unaudited)	2006			2006			2005			2006			2005
ASSETS
Cash and Due from Banks	$	41,438		$	39,390		$	44,061			5	%		-6	%
Federal Funds Sold		41,000			47,000			63,700			-13	%		-36	%
Securities Available-for-Sale, at Fair Value		173,723			191,471			209,415			-9	%		-17	%
Loans Held For Sale		23,108			30,325			39,664			-24	%		-42	%
Loans:
Commercial		281,488			273,208			298,900			3	%		-6	%
Real Estate-Mortgage		227,732			242,125			242,141			-6	%		-6	%
Real Estate-Land and Construction		160,137			149,168			148,650			7	%		8	%
Home Equity		41,784			46,690			45,477			-11	%		-8	%
Consumer		1,387			1,389			1,776			0	%		-22	%
Total Loans		712,528			712,580			736,944			0	%		-3	%
Deferred Loan Costs		1,172			1,184			1,035			-1	%		13	%
Total Loans, Net of Deferred Costs		713,700			713,764			737,979			0	%		-3	%
Allowance for Loan Losses		(9,379)			(9,098)			(11,112)			3	%		-16	%
Net Loans		704,321			704,666			726,867			0	%		-3	%
Company Owned Life Insurance		35,805			35,442			33,016			1	%		8	%
Premises & Equipment, Net		2,494			2,406			2,695			4	%		-7	%
Accrued Interest Receivable and Other Assets		40,939			43,964			41,173			-7	%		-1	%
Total Assets	$	1,062,828		$	1,094,664		$	1,160,591			-3	%		-8	%

LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Demand Deposits-Noninterest Bearing	$	226,297		$	221,438		$	258,464			2	%		-12	%
Demand Deposits-Interest Bearing		133,636			144,120			130,327			-7	%		3	%
Savings and Money Market		349,436			366,892			397,070			-5	%		-12	%
Time Deposits, Under $100		31,522			31,476			37,685			0	%		-16	%
Time Deposits, $100 and Over		101,198			110,513			113,609			-8	%		-11	%
Brokered Deposits, $100 and Over		34,009			34,048			38,039			0	%		-11	%
Total Deposits		876,098			908,487			975,194			-4	%		-10	%
Securities Sold under Agreement to Repurchase		21,800			21,800			32,700			0	%		-33	%
Notes Payable To Subsidiary Grantor Trusts		23,702			23,702			23,702			0	%		0	%
Accrued Interest Payable and Other Liabilities		21,892			22,708			21,938			-4	%		0	%
Total Liabilities		943,492			976,697			1,053,534			-3	%		-10	%

Shareholders' Equity:
Common Stock		62,959			66,726			66,377			-6	%		-5	%
Accumulated Other Comprehensive Loss		(2,306)			(3,681)			(2,602)			-37	%		-11	%
Retained Earnings		58,683			54,922			43,282			7	%		36	%
Total Shareholders' Equity		119,336			117,967			107,057			1	%		11	%
Total Liabilities & Shareholders' Equity	$	1,062,828		$	1,094,664		$	1,160,591			-3	%		-8	%


CREDIT QUALITY DATA
(in $000's, unaudited)
Nonaccrual Loans	$	2,083		$	1,612		$	2,715			29	%		-23	%
Loans Over 90 Days Past Due and Still Accruing		879			0			0			N/	A		N/	A
Total Nonperforming Loans		2,962			1,612			2,715			84	%		9	%
Other Real Estate Owned		0			0			0			N/	A		N/	A
Total Nonperforming Assets	$	2,962		$	1,612		$	2,715			84	%		9	%
Net Charge-offs (Recoveries)	$	(281)		$	536		$	(130)			-152	%		116	%
Net Charge-offs (Recoveries) as Percent of Average Loans		-0.16	%		0.31	%		-0.07	%		-152	%		129	%
Allowance for Loan Losses to Total Loans		1.31	%		1.27	%		1.51	%		3	%		-13	%
Allowance for Loan Losses to Nonperforming Loans		316.64	%		564.39	%		409.28	%		-44	%		-23	%
Nonperforming Assets to Total Assets		0.28	%		0.15	%		0.23	%		87	%		22	%
Nonperforming Loans to Total Loans		0.42	%		0.23	%		0.37	%		83	%		14	%

OTHER PERIOD-END STATISTICS
(unaudited)
Shareholders' Equity / Total Assets		11.23	%		10.78	%		9.22	%		4	%		22	%
Loan to Deposit Ratio		81.46	%		78.57	%		75.68	%		4	%		8	%
Noninterest Bearing Deposits / Total Deposits		25.83	%		24.37	%		26.50	%		6	%		-3	%
Leverage Ratio		13.24	%		12.70	%		11.23	%		4	%		18	%

	For the Three Months Ended							For the Three Months Ended
	September 30, 2006							September 30, 2005
			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	$	739,121	$	15,958		8.57	%	$	755,621	$	14,066		7.39	%
Securities		189,491		2,013		4.21	%		225,042		1,775		3.13	%
Interest bearing deposits in other financial institutions		2,849		36		5.01	%		3,379		27		3.17	%
Federal funds sold		42,095		561		5.29	%		69,007		601		3.46	%
Total interest earning assets		973,556	$	18,568		7.57	%		1,053,049	$	16,469		6.20	%
Cash and due from banks		36,575							40,214
Premises and equipment, net		2,450							2,818
Other assets		62,322							51,708
Total assets	$	1,074,903						$	1,147,789

Liabilities and shareholders' equity:
Deposits:
Demand, interest bearing	$	140,205	$	783		2.22	%	$	131,037	$	441		1.34	%
Savings and money market		357,003		2,676		2.97	%		375,927		1,727		1.82	%
Time deposits, under $100		30,987		264		3.38	%		37,154		231		2.47	%
Time deposits, $100 and over		105,984		979		3.66	%		117,984		777		2.61	%
Brokered time deposits, $100 and over		34,031		325		3.79	%		38,084		355		3.70	%
Notes payable to subsidiary grantor trusts		23,702		587		9.83	%		23,702		543		9.09	%
Securities sold under agreement to repurchase		21,800		140		2.55	%		33,222		195		2.33	%
Total interest bearing liabilities		713,712	$	5,754		3.20	%		757,110	$	4,269		2.24	%
Demand, noninterest bearing		218,766							262,628
Other liabilities		22,735							21,633
Total liabilities		955,213							1,041,371
Shareholders' equity:		119,690							106,418
Total liabilities and shareholders' equity	$	1,074,903						$	1,147,789

Net interest income / margin			$	12,814		5.22	%			$	12,200		4.60	%

	For the Nine Months Ended							For the Nine Months Ended
	September 30, 2006							September 30, 2005
			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	$	738,272	$	46,023		8.33	%	$	760,072	$	39,532		6.95	%
Securities		195,394		5,782		3.96	%		230,060		5,474		3.18	%
Interest bearing deposits in other financial institutions		2,805		96		4.58	%		2,889		58		2.68	%
Federal funds sold		63,635		2,319		4.87	%		47,699		1,103		3.09	%
Total interest earning assets		1,000,106	$	54,220		7.25	%		1,040,720	$	46,167		5.93	%
Cash and due from banks		36,584							38,353
Premises and equipment, net		2,439							2,959
Other assets		63,813							49,088
Total assets	$	1,102,942						$	1,131,120

Liabilities and shareholders' equity:
Deposits:
Demand, interest bearing	$	148,879	$	2,451		2.20	%	$	130,424	$	1,127		1.16	%
Savings and money market		359,642		7,455		2.77	%		359,175		4,046		1.51	%
Time deposits, under $100		32,475		761		3.13	%		37,634		619		2.20	%
Time deposits, $100 and over		108,419		2,729		3.37	%		116,290		2,063		2.37	%
Brokered time deposits, $100 and over		34,849		983		3.77	%		35,478		969		3.65	%
Notes payable to subsidiary grantor trusts		23,702		1,724		9.72	%		23,702		1,580		8.91	%
Securities sold under agreement to repurchase		26,653		486		2.44	%		43,460		729		2.24	%
Total interest bearing liabilities		734,619	$	16,589		3.02	%		746,163	$	11,133		1.99	%
Demand, noninterest bearing		227,588							260,389
Other liabilities		23,687							20,852
Total liabilities		985,894							1,027,404
Shareholders' equity:		117,048							103,716
Total liabilities and shareholders' equity	$	1,102,942						$	1,131,120

Net interest income / margin			$	37,631		5.03	%			$	35,034		4.50	%