UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.          )

HERITAGE COMMERCE CORP

April 7, 2008

Dear Shareholder:

        You are cordially invited to attend the 2008 Annual Meeting of Shareholders, which will be held at 1:00 p.m. on Thursday, May 22, 2008, at Heritage Commerce Corp's offices, located at 150 Almaden Boulevard, San Jose, California, 95113.

        The accompanying Notice of Annual Meeting and proxy statement describe the business that will be conducted at the meeting and provide information about Heritage Commerce Corp. We have also enclosed our 2007 Annual Report on Form 10-K.

        Your continued support is appreciated and we hope you will attend the Annual Meeting. Whether or not you are personally present, it is very important that your shares be represented at the Meeting. Accordingly, please sign, date, and mail the enclosed proxy card promptly. You may also vote electronically over the Internet or by telephone by following the instructions on the proxy card. If you attend the meeting and prefer to vote in person, you may do so.

Sincerely,

Jack W. Conner		Walter T. Kaczmarek
Chairman of the Board		President and Chief Executive Officer

150 Almaden Boulevard, San Jose, California 95113    •    Telephone (408) 947-6900    •    Fax (408) 947-6910

HERITAGE COMMERCE CORP
150 Almaden Boulevard
San Jose, California 95113

Notice of Annual Meeting of Shareholders

        The Annual Meeting of Shareholders of Heritage Commerce Corp (the "Company") will be held at the Company's offices, located at 150 Almaden Boulevard, San Jose, California 95113 on May 22, 2008, at 1:00 p.m., for the following purposes:

        1.     To elect 13 members of the Board of Directors each for a term of one year;

        2.     To approve an amendment to the Heritage Commerce Corp 2004 Stock Option Plan to increase the number of shares for issuance under the Plan.

        3.     To ratify the selection of Crowe Chizek and Company LLP as the Company's independent registered public accounting firm for the year ending December 31, 2008.

        4.     To consider and transact such other business as may properly be brought before the meeting.

        The Board of Directors recommends that shareholders vote FOR all proposals.

        Shareholders of record at the close of business on March 25, 2008 are entitled to notice of and to vote at the Annual Meeting or any postponement or adjournment of the meeting.

        Provisions of our Bylaws govern nominations for election of members of the Board of Directors, as follows:

        Nomination for election of directors may be made by the Board of Directors or by any holder of any outstanding class of capital stock of the Company entitled to vote for the election of directors. Notice of intention to make any nominations shall be made in writing and shall be delivered or mailed to the president of the Company not less than 21 days, nor more than 60 days prior to any meeting of shareholders called for the election of directors; provided, however, that if less than 21 days notice is given to shareholders, such notice of intention to nominate shall be mailed or delivered to the president of the Company not later than the close of business on the tenth day following the day on which the notice of such meeting is sent by third class mail (if permitted by law), no notice of intention to make nominations shall be required. Such notification shall contain the following information to the extent known to the notifying shareholder: (i) the name and address of each proposed nominee; (ii) the principal occupation of each proposed nominee; (iii) the number of shares of capital stock of the corporation owned by each proposed nominee; (iv) the name and residence address of the notifying shareholder; (v) the number of shares of capital stock of the corporation owned by the notifying shareholder; (vi) the number of shares of capital stock of any bank, bank holding company, savings and loan association or other depository institution owned beneficially by the nominee or by the notifying shareholder and the identities and locations of any such institutions; (vii) whether the proposed nominee has ever been convicted of or pleaded nolo contendere to any criminal offense involving dishonesty or breach of trust, filed a petition in bankruptcy or been adjudged bankrupt; and (viii) a statement regarding the nominee's compliance with Section 2.3 of the Bylaws.

        Nominees for the Board of Directors must meet certain qualifications set forth in Section 2.3 of our Bylaws, which prohibit the election as a director of any person who is a director, executive officer, branch manager or trustee for any unaffiliated commercial bank, savings bank, trust company, savings and loan association, building and loan association, industrial bank or credit union that is engaged in business in (i) any city, town or village in which the Company or any affiliate or subsidiary thereof has offices, or (ii) any city, town or village adjacent to a city, town or village in which the Company or any affiliate or subsidiary thereof has offices.

        Nominations not made in accordance with our Bylaws will be disregarded by the chairperson of the meeting, and upon the chairman's instructions, the inspector of election may disregard all votes cast for each nominee. Additional information regarding shareholders recommending nominees for directors is discussed in the accompanying proxy statement under the heading "Nomination of Directors."

        All shareholders are cordially invited to attend the meeting in person. To ensure your representation at the meeting, you are requested to date, execute and return the enclosed proxy card, without delay, in the enclosed postage-paid envelope whether or not you plan to attend the meeting. You may also vote electronically over the Internet or by telephone by following the instructions on the proxy card. If you do attend the meeting, you may then withdraw your proxy and vote in person.

		By Order Of The Board Of Directors
		Rebecca A. Levey Senior Vice President and Corporate Secretary

April 7, 2008
San Jose, California

WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING,
PLEASE SIGN AND RETURN THE ENCLOSED PROXY CARD
AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
YOU MAY ALSO VOTE ELECTRONICALLY BY TELEPHONE OR OVER THE
INTERNET BY FOLLOWING THE INSTRUCTIONS ON THE PROXY CARD.

TABLE OF CONTENTS

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PROXY STATEMENT
FOR
HERITAGE COMMERCE CORP

2008 ANNUAL MEETING OF SHAREHOLDERS
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING

Why did you send me this proxy statement?

        We sent you this proxy statement and the enclosed proxy card because our Board of Directors is soliciting your proxy to vote at the 2008 Annual Meeting of Shareholders. This proxy statement summarizes the information you need to know to cast an informed vote at the Annual Meeting. However, you do not need to attend the Annual Meeting to vote your shares. Instead, you may simply complete, sign and return the enclosed proxy card. You may also vote electronically by telephone or the Internet by following the instructions on the proxy card.

        Along with this proxy statement, we are also sending you the Heritage Commerce Corp 2007 Annual Report on Form 10-K, which includes our financial statements. Heritage Commerce Corp is also referred to in this proxy statement as the "Company."

Who is entitled to vote?

        We will begin sending this proxy statement, the attached Notice of Annual Meeting and the enclosed proxy card on or about April 7, 2008 to all shareholders entitled to vote. Shareholders who were the record owners of the Company common stock at the close of business on March 25, 2008 are entitled to vote. On this record date, there were 12,794,726 shares of common stock outstanding.

What constitutes a quorum?

        A majority of the outstanding shares of the common stock entitled to vote at the Annual Meeting must be present, in person or by proxy, in order to constitute a quorum. We can only conduct the business of the Annual Meeting if a quorum has been established. We will include proxies marked as abstentions and broker non-votes in determining the number of shares present at the Annual Meeting.

How many votes do I have?

        Each share of common stock entitles you to one vote in person or by proxy, for each share of common stock standing in your name on the books of the Company as of March 25, 2008, the record date for the Annual Meeting on any matter submitted to a vote of the shareholders, except that in connection with the election of directors (Proposal 1), you may cumulate your shares (see "What is cumulative voting and how do I cumulate my shares" below). The proxy card indicates the number of votes that you have as of the record date.

How do I vote by proxy?

        You may vote by granting a proxy or for shares held in street name, by submitting voting instructions to your broker or other nominee. If your shares are held by a broker or other nominee, you will receive instructions that you must follow to have your shares voted. If you hold your shares as a shareholder of record, you may vote by completing, signing and dating the enclosed proxy card and returning it promptly in the envelope provided. You may also vote electronically by telephone or the Internet (see below). Returning the proxy card will not affect your right to attend the Annual Meeting and vote.

        If you properly fill in your proxy card and send it to us in time to vote, your "proxy" (one of the individuals named on your proxy card) will vote your shares as you have directed. If you sign the proxy card but do not make specific choices, your proxy will vote your shares as recommended by the Board of Directors as follows:

•

"FOR" the election of all 13 nominees for director;

•

"FOR" the amendment to the Heritage Commerce Corp 2004 Stock Option Plan to increase the number of shares for issuance; and



•

"FOR" the ratification of the selection of Crowe Chizek and Company LLP as our independent registered public accounting firm for 2008.

        For the election of directors (Proposal 1), a shareholder may withhold authority for the proxy holders to vote for any one or more of the nominees by marking the enclosed proxy card in the manner instructed on the proxy card. Unless authority to vote for the nominees is so withheld, the proxy holders will vote the proxies received by them for the election of the nominees listed on the proxy card as directors of the Company. Your proxy does not have an obligation to vote for nominees not identified on the preprinted proxy card (that is, write-in candidates). Should any shareholder attempt to "write in" a vote for a nominee not identified on the preprinted card (and described in these proxy materials), your proxy will NOT vote the shares represented by your proxy card for any such write-in candidate, but will instead vote the shares for any and all other indicated candidates. If any of the nominees should be unable or decline to serve, which is not now anticipated, your proxy will have discretionary authority to vote for a substitute who shall be designated by the present Board of Directors to fill the vacancy. In the event that additional persons are nominated for election as directors, your proxy intends to vote all of the proxies in such a manner, in accordance with the cumulative voting, as will assure the election of as many of the nominees identified on the proxy card as possible. In such event, the specific nominees to be voted for will be determined by the proxy holders, in their sole discretion.

What do I have to do to vote my shares if they are held in the name of my broker?

        If your shares are held by your broker, sometimes called "street name" shares, you must vote your shares through your broker. You should receive a form from your broker asking how you want to vote your shares. Follow the instructions on that form to give voting instructions to your broker. Under the rules that govern brokers who are voting with respect to shares held in street name, brokers have the discretion to vote such shares on routine matters (such as election of directors and ratification of the public accounting firm), but not on non-routine matters. If you do not give instructions to your broker, with respect to the election of directors and/or ratification of our public accounting firm, your broker will vote your shares at its discretion on your behalf. Brokers may not use their discretionary authority to vote (broker non-votes) on Proposal 2—Amendment to the 2004 Stock Option Plan. Broker non-votes on Proposal 2 will be deemed shares not entitled to vote on the proposal, will not be counted as votes for or against the proposal, but since the broker non-votes are counted toward a quorum, a broker non-vote will have the same effect as a vote against the proposal.

How do I vote in person?

        If you plan to attend the Annual Meeting and desire to vote in person, we will give you a ballot form when you arrive. However, if your shares are held in the name of your broker, bank or other nominee, you must bring a power of attorney from your nominee in order to vote at the Annual Meeting.

May I vote electronically over the Internet or by telephone?

        Shareholders whose shares are registered in their own names may vote either over the Internet or by telephone. Special instructions for voting over the Internet or by telephone are set forth on the enclosed proxy card. The Internet and telephone voting procedures are designed to authenticate the shareholder's identity and to allow shareholders to vote their shares and confirm that their voting instructions have been properly recorded.

        If your shares are registered in the name of a bank or brokerage firm you may be eligible to vote your shares electronically by telephone. A large number of banks and brokerage firms are participating in the

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ADP Investor Communication Services online program. This program provides eligible shareholders who receive a paper copy of their proxy statement the opportunity to vote over the Internet or by telephone. If your bank or brokerage firm is participating in ADP's program, your proxy card will provide the instructions. If your proxy card does not reference Internet or telephone information, please complete and return the proxy card in the self-addressed, postage paid envelope provided.

What is cumulative voting and how do I cumulate my shares?

        For the election of directors (Proposal 1), California law provides that a shareholder of a California corporation, or his/her proxy, may cumulate votes in the election of directors. That is, each shareholder may cast that number of votes equal to the number of shares owned by him/her, multiplied by the number of directors to be elected, and he/she may cumulate such votes for a single candidate or distribute such votes among as many candidates as he/she deems appropriate.

        Certain affirmative steps must be taken by you in order to be entitled to vote your shares cumulatively in the election of directors. At the shareholders' meeting at which directors are to be elected, no shareholder is entitled to cumulate votes (i.e., cast for any one or more candidates a number of votes greater than the number of the shareholder's shares) unless the candidates' names have been placed in nomination prior to the commencement of the voting and at least one shareholder has given notice prior to commencement of the voting of the shareholder's intention to cumulate votes. If any shareholder has given such notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are entitled, or distribute the shareholder's votes on the same principle among any or all of the candidates, as the shareholder thinks appropriate. The candidates receiving the highest number of votes, up to the number of directors to be elected, will be elected.

        The proxies designated on your proxy card do not, at this time, intend to cumulate votes, to the extent they have the shareholder's discretionary authority to do so, pursuant to the proxies solicited in this proxy statement unless another shareholder gives notice to cumulate, in which case your proxy may cumulate votes in accordance with the recommendations of the Board of Directors. Therefore, discretionary authority to cumulate votes in such event is solicited in this proxy statement.

May I change my vote after I return my proxy?

        If you fill out and return the enclosed proxy card, or vote by telephone or the Internet, you may change your vote at any time before the vote is conducted at the Annual Meeting. You may change your vote in any one of four ways:

•

You may send to the Company's corporate secretary another completed proxy card with a later date.



•

You may notify the Company's corporate secretary in writing before the Annual Meeting that you have revoked your proxy.



•

You may attend the Annual Meeting and vote in person.



•

If you have voted your shares by telephone or the Internet, you can revoke your prior telephone or Internet vote by recording a different vote, or by signing and returning a proxy card dated as of a date that is later than your last telephone or Internet vote.

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How will voting on any other business be conducted?

        Your proxy card confers discretionary authority to your proxy to vote your shares on the matters of which may properly be presented for action at the Annual Meeting, and may include action with respect to procedural matters pertaining to the conduct of the Annual Meeting.

What are the costs of soliciting these proxies?

        We will pay all the costs of soliciting these proxies. In addition to mailing proxy soliciting material, our directors, officers and employees also may solicit proxies in person, by telephone or by other electronic means of communication for which they will receive no compensation. We will ask banks, brokers and other institutions, nominees and fiduciaries to forward the proxy materials to their principals and to obtain authority to execute proxies. We will then reimburse them for their reasonable expenses. We have hired

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Advantage Proxy to seek the proxies of custodians, such as brokers, who hold shares which belong to other people. This service will cost the Company approximately $4,500.

How do I obtain an Annual Report on Form 10-K?

        A copy of our 2007 Annual Report on Form 10-K accompanies this proxy statement. If you would like another copy of this report, we will send you one without charge. The Annual Report on Form 10-K includes a list of exhibits filed with the SEC, but does not include the exhibits. If you wish to receive copies of the exhibits, we will send them to you. Expenses for copying and mailing them to you will be your responsibility. Please write to:

Heritage Commerce Corp
150 Almaden Boulevard
San Jose, California 95113
Attention: Corporate Secretary

        You can also find out more information about us at our website www.heritagecommercecorp.com. Our website is available for information purposes only and should not be relied upon for investment purposes, nor is it incorporated by reference into this proxy statement. On our website you can access electronically filed copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Section 16 filings, and amendments to those reports and filings, free of charge. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding SEC registrants, including the Company.

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BENEFICIAL OWNERSHIP OF COMMON STOCK

        The following table sets forth information as of February 15, 2008, pertaining to beneficial ownership of the Company's common stock by persons known to the Company to own five percent or more of the Company's common stock, current directors of the Company, nominees to be elected to the Board of Directors, the officers named in the Summary Compensation Table presented in this proxy statement, and all directors and executive officers of the Company, as a group. This information has been obtained from the Company's records, or from information furnished directly by the individual or entity to the Company.

        For purposes of the following table, shares issuable pursuant to stock options which may be exercised within 60 days of February 15, 2008 are deemed to be issued and outstanding and have been treated as outstanding in determining the amount and nature of beneficial ownership and in calculating the percentage of ownership of those individuals possessing such interest, but not for any other individuals.

1.

Except as otherwise noted, the address for all persons is c/o Heritage Commerce Corp, 150 Almaden Boulevard, San Jose, California, 95113.

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2.

Subject to applicable community property laws and shared voting and investment power with a spouse, the persons listed have sole voting and investment power with respect to such shares unless otherwise noted. Listed amounts reflect all previous stock splits and stock dividends.

3.

Includes shares beneficially owned (including options exercisable within 60 days of February 15, 2008, as shown in the "Exercisable Options" column), both directly and indirectly together with associates.

4.

Includes 4,286 shares held as trustee of the Edith Lico Simoni Trust, 79,009 shares as one of two trustees of the Bisceglia Family Trust, and 15,450 shares held in a personal Individual Retirement Account.

5.

Includes 38,602 shares held in a personal Individual Retirement Account, 160 shares held by his spouse, and 27,244 shares held as trustee for the Blair Family Trust.

6.

Includes 37,000 shares held in a trust account, and 2,700 shares held by his spouse.

7.

Includes 79,949 shares held in a personal Individual Retirement Account, 49,000 shares held as one of two trustees of the Del Biaggio Family Trust, and 5,716 shares held in the name of Helen N. Del Biaggio, his spouse.

8.

Includes 2,342 shares held in a personal Individual Retirement Account.

9.

Includes 104,623 shares held in a trust account.

10.

Includes 51,000 restricted shares held by Mr. Kaczmarek and 31,000 shares held in a personal Individual Retirement Account. Mr. Kaczmarek was awarded 51,000 restricted shares of the Company common stock pursuant to the terms of a Restricted Stock Agreement, dated March 17, 2005. Under the terms of the Restricted Stock Agreement, the restricted shares will vest 25% per year at the end of years three, four, five and six, provided Mr. Kaczmarek is still with the Company, subject to accelerated vesting upon termination, termination by Mr. Kaczmarek for (as defined by his employment agreement), death or disability. Mr. Kaczmarek has the right to vote the shares prior to the time they vest.

11.

Includes 11,550 shares held by Mr. Lefanowicz and 28,679 shares held in a personal Individual Retirement Account.

12.

Includes 52,932 shares held by Mr. Mayer.

13.

Includes 1,650 shares held in a personal Individual Retirement Account.

14.

Includes 18,295 shares held by Mr. Moles' spouse.

15.

Includes 128,190 shares as trustee of the Louis and Margaret Normandin Trust.

16.

Includes 1,000 shares held by Mr. Parker.

17.

Includes 116,884 shares as one of two trustees for the Peckham Revocable Trust.

18.

Includes 12,765 shares held in a personal Individual Retirement Account and 623 shares held by his spouse.

19.

Includes 150 shares held by Linda O. Toeniskoetter, Mr. Toeniskoetter's spouse, and 12,250 shares in the Toeniskoetter & Breeding, Inc. Profit Sharing Plan.

20.

Includes 447,698 shares held by Mr. Webster.

21.

OZ Management LP, a Delaware limited partnership, is the investment manager for OZ Master Fund and exercises voting and dispositive power over the shares held by OZ Master Fund. Och-Ziff Holding Corporation, a Delaware Corporation, serves as the general partner of OZ Management LP. Och-Ziff Capital Management LLC, a Delaware limited liability company, is the sole shareholder of Och-Ziff

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Holding Corporation and such it may be deemed to control Och-Ziff Holding Corporation. Mr. Daniel Och is chief executive officer at Och-Ziff Capital Management Group LLC and may be deemed to control such entity. OZ Master Fund holds 978,895 shares. In addition to the 978,895 shares held by OZ Master Fund, OZ Management LP also has beneficial ownership of 101,549 additional shares. The address for each of these entities except Oz Master Fund is 9 West 57^th Street, 39^th Floor, New York, NY 10019. The address for OZ Master Fund is Goldman Sachs (Cayman) Trust, Limited, P.O. Box 896, G.T. Harbour Centre, Second Floor, North Church Street, George Town, Grand Cayman, Cayman Islands. All of the foregoing information has been obtained from Schedule 13/G filed with the SEC on February 14, 2008 by each of these entities.

22.

Mr. Kaczmarek and Mr. McGovern are two of the three trustees of the Employee Stock Ownership Plan. As trustees, they have the power to vote any unallocated shares of Employee Stock Ownership Plan and allocated shares for which voting instructions are not otherwise provided. Our Employee Stock Ownership Plan owns 142,000 shares of our common stock. These include shares held for the account of the following named executive officers: Mr. Kaczmarek 1,077 shares, Mr. McGovern 4,207 shares, Mr. Hagarty 1,716 shares, Mr. Del Biaggio, Jr. 1,971 shares and Mr. Parker 830 shares.

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CORPORATE GOVERNANCE AND BOARD MATTERS

        The Board of Directors is committed to good business practices, transparency in financial reporting and the highest level of corporate governance. To that end, the Board continually reviews its governance policies and practices, as well as the requirements of the Sarbanes-Oxley Act of 2002 and the listing standards of The Nasdaq Stock Market, to help ensure that such policies and practices are compliant and up to date.

Board of Directors

Board Independence

        A majority of the Board of Directors consists of independent directors, as defined by the applicable rules and regulations of The Nasdaq Stock Market, as follows:

Frank G. Bisceglia
James R. Blair
Jack W. Conner, Chairman of the Board
Mark E. Lefanowicz
Robert T. Moles
Louis ("Lon") O. Normandin
Jack L. Peckham
Humphrey P. Polanen
Charles J. Toeniskoetter
Ranson W. Webster

        The non-independent directors of the Board are Walter T. Kaczmarek, William J. Del Biaggio, Jr. and John J. Hounslow.

Board and Committee Meeting Attendance

        During the fiscal year ended December 31, 2007, our Board of Directors held a total of twelve meetings. Each incumbent director who was a director during 2007 attended at least 75% of the aggregate of (a) the total number of such meetings and (b) the total number of meetings held by all committees of the Board on which such director served during 2007.

Director Attendance at Annual Meetings of Shareholders

        The Board believes it is important for all directors to attend the Annual Meeting of shareholders in order to show their support for the Company and to provide an opportunity for shareholders to communicate any concerns to them. The Company's policy is to encourage, but not require, attendance by each director at the Company's Annual Meeting of Shareholders. All of our current directors attended our Annual Meeting of Shareholders in 2007.

Communications with the Board

        Shareholders may communicate with the Board of Directors, including a committee of the Board or individual directors by writing to the corporate secretary, Heritage Commerce Corp, 150 Almaden Boulevard, San Jose, California 95113-9940. Each communication from a shareholder should include the following information in order to permit shareholder status to be confirmed and to provide an address to forward a response if deemed appropriate:

•

The name, mailing address and telephone number of the shareholder sending the communication.



•

If the shareholder is not a record holder of our common stock, the name of the record holder of our common stock beneficially owned must be identified along with the shareholder.

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        Our corporate secretary will forward all appropriate communications to the Board or individual members of the Board specified in the communication. Our corporate secretary may (but is not required to) review all correspondence addressed to the Board or any individual member of the Board, for any inappropriate correspondence more suitably directed to management. Communications may be deemed inappropriate for this purpose if it is reasonably apparent from the face of the correspondence that it relates principally to a customer dispute. Our policies regarding the handling of security holder communications were approved by a majority of our independent directors.

Nomination of Directors

        The Company has a Corporate Governance and Nominating Committee. The duties of the Corporate Governance and Nominating Committee include the recommendation of candidates for election to the Company's Board of Directors.

        The Corporate Governance and Nominating Committee's minimum qualifications for a director are persons of high ethical character and who have both personal and professional integrity, which are consistent with the image and values of the Company. In addition, Section 2.3 of the Company's Bylaws provides that no person shall be a member of the Board of Directors who is a director, executive officer, branch manager or trustee for any unaffiliated commercial bank, savings bank, trust company, savings and loan association, building and loan association, industrial bank or credit union that is engaged in business in (i) any city, town or village in which the corporation or any affiliate or subsidiary thereof has offices, or (ii) any city, town or village adjacent to a city, town or village in which the corporation or any affiliate or subsidiary thereof has offices. The Corporate Governance and Nominating Committee also consider some or all of the following criteria in considering candidates to serve as directors:

•

commitment to ethical conduct and personal and professional integrity as evidenced through the person's business associations, service as a director or executive officer or other commitment to ethical conduct and personal and professional integrity as evidenced organizations and/or education;



•

objective perspective and mature judgment developed through business experiences and/or educational endeavors;



•

the candidate's ability to work with other members of the Board of Directors and management to further our goals and increase stockholder value; the ability and commitment to devote sufficient time to carry out the duties and responsibilities as a director;



•

demonstrated experience at policy making levels in various organizations and in areas that are relevant to our activities;



•

the skills and experience of the potential nominee in relation to the capabilities already present on the Board of Directors; and



•

such other attributes, including independence, relevant in constituting a board that also satisfies the requirements imposed by the SEC and The Nasdaq Stock Market.

        The Corporate Governance and Nominating Committee does not have a separate policy for consideration of any director candidates recommended by shareholders. Instead, the Corporate Governance and Nominating Committee considers any candidate meeting the requirements for nomination by a shareholder set forth in the Company's Bylaws (as well as applicable laws and regulations) in the same manner as any other director candidate. The Corporate Governance and Nominating Committee believes that requiring shareholder recommendations for director candidates to comply with the requirements for nominations in accordance with the Company's Bylaws ensures that the Corporate Governance and Nominating Committee receives at least the minimum information necessary for it to begin an appropriate evaluation of any such director nominee.

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        The Corporate Governance and Nominating Committee will consider director nominees recommended by shareholders who adhere to the following procedure. The Company Bylaws provide that any shareholder must give written notice to the president of the Company's of an intention to nominate a director at a shareholder meeting. Generally, notice of intention to make any nominations shall be made in writing and must be delivered or mailed to the president of the Company not less than 21 days nor more than 60 days prior to any meeting of shareholders called for the election of directors. Nominees for the Board of Directors must meet the qualifications set forth in Section 2.3 of the Company's Bylaws as noted above. The Bylaws contain additional requirements for nominations. A copy of the requirements is available upon request directed to the corporate secretary, Heritage Commerce Corp, 150 Almaden Boulevard, San Jose, California 95113-9940.

        The Corporate Governance and Nominating Committee's goal is to recommend candidates for the Board of Directors that bring a variety of perspectives and skill derived from high quality business and professional experience. The Company identifies new director candidates through recommendations from existing directors and through other business associates of the Company. Each candidate should be prepared to represent the best interests of all shareholders and not just one particular constituency or interest group. At the same time, the Corporate Governance and Nominating Committee and the entire Board of Directors recognize that larger numbers of directors create additional challenges and expense and believe that thirteen members is the right size for our Board of Directors at this time.

Term of Office

        Directors serve for a one-year term or until their successors are elected. The Board does not have term limits, instead preferring to rely upon the evaluation procedures described herein as the primary methods of ensuring that each director continues to act in a manner consistent with the best interests of the shareholders and the Company.

Number and Composition of Board Committees

        The Board may delegate portions of its responsibilities to committees of its members. These standing committees of the Board meet at regular intervals to attend to their particular areas of responsibility. Our Board has six standing committees: Audit Committee, Corporate Governance and Nominating Committee, Compensation Committee, Loan Committee, Finance and Investment Committee and Strategic Issues Committee. An independent director, as defined by the applicable rules and regulations of The Nasdaq Stock Market, chairs the Board and its other standing committees. The chair determines the agenda, the frequency and the length of the meetings and receives input from Board members.

Executive Sessions

        Independent directors meet in executive sessions throughout the year including meeting annually to consider and act upon the recommendation of the Compensation Committee regarding the compensation and performance of the chief executive officer.

Evaluation of Board Performance

        A Board assessment and director self-evaluation are conducted annually in accordance with an established evaluation process and includes performance of committees. The Corporate Governance and Nominating Committee oversees this process and reviews the assessment and self-evaluation with the full Board.

Management Performance and Compensation

        The Compensation Committee reviews and approves the chief executive officer's evaluation of the top management team on an annual basis. The Board (largely through the Compensation Committee)

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evaluates the compensation plans for senior management and other employees to ensure they are appropriate, competitive and properly reflect objectives and performance.

Director Stock Ownership Guidelines

        Each member of the Board is expected to hold, at a minimum, 10,000 shares of the Company's common stock. Any director not meeting the minimum level as of the effective date of the policy has one year to bring his or her holdings up to this minimum level.

Code of Ethics

        The Board expects all directors, as well as officers and employees, to display the highest standard of ethics, consistent with the principles that have guided the Company over the years.

        The Board has adopted an Executive and Principal Financial Officers Code of Ethics that applies to the chief executive officer, chief financial officer and the senior financial officers of the Company to help ensure that the financial affairs of the Company are conducted honestly, ethically, accurately, objectively, consistent with generally accepted accounting principles and in compliance with all applicable governmental law, rules and regulations. We will disclose any amendment to, or a waiver from a provision of our Code of Ethics on our website. The Executive and Principal Financial Officers Code of Ethics is available on our website at www.heritagecommercecorp.com.

Reporting of Complaints/Concerns Regarding Accounting or Auditing Matters

        The Company's Board of Directors has adopted procedures for receiving and responding to complaints or concerns regarding accounting and auditing matters. These procedures were designed to provide a channel of communication for employees and others who have complaints or concerns regarding accounting or auditing matters involving the Company.

        Employee concerns may be communicated in a confidential or anonymous manner to the Audit Committee of the Board. The Audit Committee Chairman will make a determination on the level of inquiry, investigation or disposal of the complaint. All complaints are discussed with the Company's senior management and monitored by the Audit Committee for handling, investigation and final disposition. The chairman of the Audit Committee will report the status and disposition of all complaints to the Board of Directors.

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Executive Officers of the Company

        Set forth below is certain information with respect to the executive officers of the Company:

        Lawrence D. McGovern has served as Executive Vice President and Chief Financial Officer of the Company since July, 1998.

        Richard Hagarty was promoted to Executive Vice President and Chief Credit Officer in July, 2006. Mr. Hagarty has served on the credit administration team for Heritage Bank of Commerce for over 10 years. He has extensive experience in the greater Silicon Valley banking community. Prior to joining the bank, he worked for Greater Bay Bank, California Business Bank, San Jose National Bank and Crocker National Bank. Mr. Hagarty earned a Bachelor of Arts degree from the University of San Francisco.

        James Mayer is the former president of Diablo Valley Bank. He joined the Company as Executive Vice President/East Bay Division in 2007 at the time the Company acquired Diablo Valley Bank.

        Raymond Parker has served as Executive Vice President of Heritage Bank of Commerce/Banking Division since May, 2005. From January, 2005 until joining Heritage Bank of Commerce, Mr. Parker served as a consultant and then a director to Exadel, Inc. From February, 2002 through May, 2002, Mr. Parker served as the president and chief executive officer of Loan Excel, Inc. From 1974 through 1999, he was employed in various capacities by Union Bank of California including executive vice president of the banking group.

        Biographical information for William J. Del Biaggio, Jr. and Walter T. Kaczmarek are found under "Proposal 1—Election of Directors."

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INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS

The Board of Directors

        The Board of Directors oversees our business and monitors the performance of management. In accordance with corporate governance principles, the Board does not involve itself in day-to-day operations. The directors keep themselves informed through, among other things, discussions with the chief executive officer, other key executives and our principal outside advisors (legal counsel, outside auditors, and other consultants), by reading reports and other materials that we send them and by participating in Board and committee meetings.

        The Company's Bylaws currently permit the number of Board members to range from 11 to 21, leaving the Board authority to fix the exact number of directors within that range. The Board has currently fixed the number of directors at 13.

The Committees of the Board

        The Board may delegate portions of its responsibilities to committees of its members. These standing committees of the Board meet at regular intervals to attend to their particular areas of responsibility. Our Board has six standing committees: the Audit Committee, Corporate Governance and Nominating Committee, Compensation Committee, Loan Committee, Finance and Investment Committee, and Strategic Issues Committee.

        Audit Committee.    The Company has a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The Audit Committee charter adopted by the Board sets out the responsibilities, authority and specific duties of the Audit Committee. The Audit Committee charter is available on the Company's web site at www.heritagecommercecorp.com.

        The responsibilities of the Audit Committee include the following:

•

Oversight of our financial, accounting and reporting process, our system of internal accounting and financial controls, and our compliance with related legal and regulatory requirements.



•

The appointment, compensation, retention and oversight of our independent auditors, including conducting a review of their independency, reviewing and approving the planned scope of our annual audit, overseeing the independent auditor's work, reviewing and pre-approving any audit and non-audit services that may be performed by them.



•

Review with management and our independent auditors the adequacy of our internal financial controls.



•

Approve the scope, planning and staffing of external audit services; review significant accounting policies and adjustments recommended by the independent auditors and address any significant, unresolved disagreements between the independent auditors and management.



•

Review and discuss the annual audited financial statements with management and the independent auditors prior to publishing the annual report and filing the SEC Form 10-K.



•

Review and discuss with management and the independent auditors any significant changes, significant deficiencies and material weaknesses regarding internal controls over financial reporting required by the Sarbanes-Oxley Act. Oversee the corrective action taken to mitigate any significant deficiencies and material weaknesses identified.



•

Review with management and the independent auditors the effect of any regulatory and accounting initiatives, changes, and pronouncements as well as unique transactions and financial relationships.

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•

Review with the independent auditors the matters required to be discussed by the Statement on Auditing Standards No. 61, and receive and discuss with the independent auditors disclosures regarding the auditors' independence.



•

Oversee the internal audit department and the audits directed under its auspices.



•

Establish policy to ensure all non-audit services provided by the independent auditors are approved prior to work being performed.

        Each member of the Audit Committee meets the independence criteria as defined by applicable rules and regulations of the Securities and Exchange Commission for audit committee membership and is independent and is "financially sophisticated" as defined by the applicable rules and regulations of The Nasdaq Stock Market. The members of the Audit Committee in 2007 were Mark E. Lefanowicz, Louis ("Lon") O. Normandin, Jack L. Peckham and Humphrey P. Polanen, Committee Chair. The Audit Committee met 8 times during 2007.

        The Board of Directors has determined that Mr. Mark E. Lefanowicz has: (i) an understanding of generally accepted accounting principles and financial statements; (ii) the ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves; (iii) experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by our financial statements, or experience actively supervising one or more persons engaged in such activities; (iv) an understanding of internal control over financial reporting; and (v) an understanding of audit committee functions.

        Therefore, the Board has determined that Mr. Lefanowicz meets the definition of "audit committee financial expert" under the applicable rules and regulations of the SEC and is "financially sophisticated" as defined by the applicable rules and regulations of The Nasdaq Stock Market. The designation of a person as an audit committee financial expert does not result in the person being deemed an expert for any purpose, including under Section 11 of the Securities Act of 1933. The designation does not impose on the person any duties, obligations or liability greater than those imposed on any other audit committee member or any other director and does not affect the duties, obligations or liability of any other member of the Audit Committee or Board of Directors.

        The Audit Committee Report for 2007 appears on page 54 of this proxy statement.

        Corporate Governance and Nominating Committee.    The Company has a separately designated Corporate Governance and Nominating Committee, which consists of entirely independent directors under the applicable rules and regulations of The Nasdaq Stock Market. The Committee has adopted a charter, which is available on the Company's website at www.heritagecommercecorp.com.

        The purposes of the Corporate Governance and Nominating Committee include the following responsibilities:

•

Identifying individuals qualified to become Board members and making recommendations to the full Board of candidates for election to the Board.



•

Recommending to the Board corporate governance guidelines.



•

Leading the Board in an annual review of its performance.



•

Recommending director appointments to Board committees.

        The members of the Corporate Governance and Nominating Committee in 2007 were Robert T. Moles, Louis ("Lon") O. Normandin, Humphrey P. Polanen, Charles J. Toeniskoetter, and Ranson W. Webster, Committee Chair. The Committee met 6 times in 2007.

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        Compensation Committee.    The Company has a separately designated Compensation Committee, which consists entirely of independent directors as defined by the applicable rules and regulations of The Nasdaq Stock Market. The Compensation Committee has adopted a charter, which is available on the Company's web site at www.heritagecommercecorp.com. The Compensation Committee has the following responsibilities:

•

Review and approve our compensation philosophy.



•

Review industry compensation practices and our relative compensation positioning.



•

Approve compensation paid to our chief executive officer and other executive officers.



•

Review and approve the Compensation Discussion and Analysis appearing in our proxy statement.



•

Review director compensation programs, plans and awards.



•

Administer our short-term and long-term executive incentive plans and stock or stock-based plans.



•

Review and approve general employee welfare benefit plans and other plans on an as needed basis.



•

Retain advisors in its sole discretion to assist the Compensation Committee in the performance of its directors.

        The members of the Compensation Committee in 2007 were Frank G. Bisceglia, Robert T. Moles, Jack L. Peckham, Committee Chair, and Ranson W. Webster. The Committee met 7 times in 2007.

        Loan Committee.    The Loan Committee is responsible for the approval and supervision of loans and the development of the Company's loan policies and procedures. The members of the Loan Committee in 2007 were Frank G. Bisceglia, Committee Chair, James R. Blair, John J. Hounslow, Robert T. Moles, and Charles J. Toeniskoetter. The Loan Committee met 12 times during 2007.

        Finance and Investment Committee.    The Finance and Investment Committee is responsible for the development of policies and procedures related to liquidity and asset-liability management, supervision of the Company's investments and preparation of the Company's annual budget. The members of the Finance and Investment Committee in 2007 were Frank G. Bisceglia, James R. Blair, Jack W. Conner, Committee Chair, William J. Del Biaggio, Jr., John J. Hounslow, Walter T. Kaczmarek and Mark E. Lefanowicz. The Finance and Investment Committee met 12 times during 2007.

        Strategic Issues Committee.    The principal duties of the Strategic Issues Committee are to provide oversight and guidance to senior management regarding the strategic direction of the Company, including development of overall strategic business plan. The members of the Strategic Issues Committee in 2007 were Jack W. Conner, John J. Hounslow, Walter T. Kaczmarek, Charles J. Toeniskoetter, Committee Chair, and Ranson W. Webster. The Strategic Issues Committee met 4 times during 2007.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

        Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors, executive officers and persons who own more than ten percent of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company's officers, directors and greater than ten percent shareholders are required by SEC rules and regulations to furnish the Company with copies of all Section 16(a) forms they file.

        To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with during the year ended December 31, 2007.

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Transactions with Management

        In June 2007, the Company completed the acquisition of Diablo Valley Bank. In connection with this transaction, the Company entered into agreements with John J. Hounslow, one of our Board members, and James Mayer, our Executive President/East Bay Division.

        John J. Hounslow Agreements.    The Company entered into a consulting agreement with Mr. Hounslow pursuant to which Mr. Hounslow provided consulting regarding post-merger transition issues, including retention and transition of employees and customers, marketing the "Heritage" brand name and such other services as were assigned to him from time to time by the president of Heritage Bank of Commerce. The agreement became effective on the effective date of the merger and extended for a term that expired on December 31, 2007. Mr. Hounslow received a consulting fee of $400,000 payable to him pro rata over a 30 month period that commenced in July 2007. Mr. Hounslow also agreed to enter into a 3-year non-competition, non-solicitation and confidentiality agreement with the Company which pays him $200,000 payable pro rata over 30 months commencing in July 2007. In consideration for entering into those agreements, Mr. Hounslow agreed to forgo an amount equal to 12 months of salary due him for severance under his employment agreement with Diablo Valley Bank and agreed to terminate the employment agreement.

        James Mayer Agreements.    The Company entered into a 3 year employment agreement with Mr. Mayer that became effective on the effective date of the merger. He will receive an annual base salary of $220,000 for the first 12 months, $240,000 for the second 12 months and $250,000 for the third 12 months. At the end of 18 months Mr. Mayer will have the opportunity for a 30-day period to terminate the agreement and his employment with 30 days prior written notice and from the effective date of termination receive a severance amount of $300,000 payable pro rata over the next following 18 months. If Mr. Mayer is otherwise terminated without cause or terminated in connection with a change of control he will be entitled to accrued salary and benefits and a lump sum severance payment equal to the greater of (x) 12 months of base salary then in effect, plus the highest annual bonus paid or payable during the term of the agreement (not to exceed $100,000), or (y) an amount equal to the number of months remaining on the term of the agreement at the time of termination multiplied by the base salary then in effect at the time of termination. The employment agreement may be terminated for cause by the Company. Mr. Mayer is entitled to participate in the Management Incentive Plan, subject to the terms of such plan. Mr. Mayer will participate in other benefit programs offered to executives of the Company. The Company will lease an automobile up to $750 per month for Mr. Mayer. Mr. Mayer was also granted 20,000 stock options under the 2004 Stock Option Plan. Under the terms of the employment agreement, Mr. Mayer has agreed to not solicit employees and customers in accordance with the terms and for the periods set forth in the employment agreement. Mr. Mayer also agreed to enter into a 3-year non-competition, non-solicitation and confidentiality agreement with the Company. Mr. Mayer agreed to forgo an amount equal to 12 months of his salary due him for severance under his employment agreement with Diablo Valley Bank and agreed to terminate the employment agreement.

        Some of the Company's directors and executive officers, as well as their immediate family and associates, are customers of, and have had banking transactions with, the Company's subsidiary, Heritage Bank of Commerce, in the ordinary course of business, and the Bank expects to have such ordinary banking transactions with these persons in the future. In the opinion of the management of the Company and the Bank, all loans and commitments to lend included in such transactions were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing for comparable transactions with other persons of similar creditworthiness, and do not involve more than the normal risk of collectability or present other unfavorable features. Loans to individual directors and officers must comply with the Bank's lending policies and statutory lending limits. In addition, prior approval of the Bank's Board of Directors is required for all such loans.

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Policies and Procedures for Approving Related Person Transactions

        The Board of Directors has adopted a written Statement of Policy with Respect to Related Party Transactions. Under this policy, any "related party transaction" shall be consummated or shall continue only if the Audit Committee approves or ratifies the transaction in accordance with the guidelines in the policy and if the transaction is on terms comparable to those that could be obtained in arm's length dealings with an unrelated third party. For purposes of this policy, a "related person" means: (i) any person who is, or at any time since the beginning of the Company's last fiscal year was, a director or executive officer of the Company or a nominee to become a director of the Company; (ii) any person who is known to be the beneficial owner of more than 5% of any class of the Company's voting securities; (iii) any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the director, executive officer, nominee or more than 5% beneficial owner, and any person (other than a tenant or employee) sharing the household of such director, executive officer, nominee or more than 5% beneficial owner; and (iv) any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner or principal or in a similar position or in which such person has a 10% or greater beneficial ownership interest.

        A "related party transaction" is a transaction between the Company and any related person (including any transaction requiring disclosure under Item 404 of Regulation S-K under the Securities Exchange Act of 1934).

        The Board of Directors has determined that the Audit Committee is best suited to review and approve related party transactions. Accordingly, at each calendar year's first regularly scheduled Audit Committee meeting, management shall recommend related party transactions to be entered into by the Company for that calendar year, including the proposed aggregate value of such transactions if applicable. After review, the Committee shall approve or disapprove such transactions and at each subsequently scheduled meeting, management shall update the Committee as to any material change to those proposed transactions. The Committee shall consider all of the relevant facts and circumstances available to the Committee, including (if applicable) but not limited to: the benefits to the Company; the impact on a director's independence in the event the related person is a director, an immediate family member of a director or an entity in which a director is a partner, shareholder or executive officer; the availability of other sources for comparable products or services; the terms of the transaction; and the terms available to unrelated third parties or to employees generally. No member of the Audit Committee may participate in any review, consideration or approval of any related person transaction with respect to which such member or any of his or her immediate family members is the related person. The Committee will approve only those related person transactions that are in, or are not inconsistent with, the best interests of the Company and its stockholders, as the Committee determines in good faith. The Audit Committee, shall convey the decision to the chief executive officer, who shall convey the decision to the appropriate persons within the Company. In the event management recommends any further related party transactions subsequent to the first calendar year meeting, such transactions may be presented to the Audit Committee for approval or preliminarily entered into by management subject to ratification by the Audit Committee; provided that if ratification shall not be forthcoming, management shall make all reasonable efforts to cancel or annul such transaction.

Compensation Discussion And Analysis

Overview of Compensation Program

        The Compensation Committee (for purposes of this analysis, the "Committee") of the Board of Directors has responsibility for establishing, implementing and continually monitoring the compensation structure, policies and programs of the Company. The Committee is responsible for assessing and approving the total compensation structure paid to the chief executive officer ("CEO") and the other

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executive officers. Thus, the Committee is responsible for determining whether the compensation paid to each of these executive officers is fair, reasonable and competitive, and whether it serves the interest of the Company's shareholders.

        The individuals who served as the Company's CEO and chief financial officer during 2007, as well as the other individuals included in the Summary Compensation Table, are referred to as the "Named Executives." With respect to the Named Executives, this Compensation Discussion and Analysis identifies the Company's current compensation philosophy and objectives and describes the various methodologies, polices and practices for establishing and administering the compensation programs of the Named Executives.

Overview of Compensation Philosophy

        The Committee believes that the most effective executive compensation programs are those that align the interests of the executive with those of the Company's shareholders. The Committee believes that a properly structured compensation program will attract and retain talented individuals and motivate them to achieve specific short-term and long-term strategic objectives. The Committee believes that a significant percentage of executive pay should be based on the principles of pay-for-performance. However, the Committee also recognizes that the Company must maintain its ability to attract and retain highly talented executives. For this reason, an important objective of the Committee is to ensure the compensation programs of the Named Executives are competitive as compared to similar positions within our peer-group companies ("Compensation Peer Group").

        The Committee believes executive compensation packages provided by the Company to its executives, including the Named Executives, should include base salary and variable performance-based cash and stock-based compensation. We believe we should balance each of those elements. In part, we reviewed our Compensation Peer Group and other comparative survey data to determine an appropriate mix of each element. We also use our Compensation Peer Group and other comparative survey data to assess appropriate compensation levels as discussed in more detail later in this report.

        We provide our executives the opportunity to significantly increase their annual cash compensation through our variable performance-based cash incentive program by improving the Company's performance in each of the relevant financial areas on an annual basis. We also expect that as those improvements are maintained and built upon, the Company's stock price will reflect these improvements. We use stock options to reward the long-term efforts of management. These equity awards serve to increase the ownership stake of our management in the Company, further aligning the interests of the executives with those of our shareholders. We also consider other forms of executive pay, including our supplemental executive retirement plan and severance arrangements (including change of control provisions) as a means to attract and retain our executive officers including the Named Executives.

Compensation Program Objectives and Rewards

        The Company's compensation and benefits programs are driven by our business environment and are designed to enable us to achieve our mission and adhere to company values. The programs' objectives are to:

•

Reflect our position as a leading community bank in our service areas;



•

Attract, engage and retain the workforce that helps ensure our future success;



•

Motivate and inspire employee behavior that fosters a high-performance culture;



•

Support a one-company culture;



•

Support overall business objectives; and

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•

Provide shareholders with a superior rate of return.

Consequently the guiding principles of our programs are to:

•

Promote and maintain a high performance banking organization;



•

Remain competitive in our marketplace for talent; and



•

Balance our compensation costs with our desire to provide value to employees and shareholders.

To this end, we will measure success of our programs by:

•

Overall business performance and employee engagement;



•

Ability to attract and retain key talent;



•

Costs and business risks that are limited to levels that optimize risk and return; and



•

Employee understanding and perceptions that ensure program value equals or exceeds program cost.

All of our compensation and benefits for our Named Executives described below have as a primary purpose our need to attract, retain and motivate the highly talented individuals who will engage in the behaviors necessary to enable us to succeed in creating shareholder value in a highly competitive marketplace. Beyond that, different elements have specific purposes designed to reward different behaviors.

•

Base salary and benefits are designed to:



•

Reward core competence in the executive role relative to skills, position and contributions to the Company; and



•

Provide fixed cash compensation with merit increases competitive with the market place.



•

Annual incentive variable cash awards are designed to:



•

Focus employees on annual financial objectives derived from the business plan that lead to long-term success;



•

Provide annual variable performance-based cash awards that are not subject to the volatility of the stock market to reward and motivate achievement of critical annual performance metrics selected by the Committee; and



•

Foster a pay for performance culture that aligns our compensation programs with our overall business strategy.



•

Equity-based compensation awards are designed to:



•

Link compensation rewards to the creation of shareholder wealth;



•

Promote teamwork by tying compensation significantly to the value of our common stock;



•

Attract the next generation of management by providing significant capital accumulation opportunities; and



•

Retain executives by providing a long term oriented program whose value could only be achieved by remaining with and performing for the Company.



•

A supplemental executive retirement plan facilitates our ability to attract and retain executives as we compete for talented employees in a marketplace where retirement programs are commonly offered.

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•

Change of control and separation benefits with certain officers:  



•

Individual employment contracts with certain executives provide for change of control and separation benefits.



•

Separation benefits provide benefits to ease an employee's transition due to an unexpected employment termination by the Company due to on-going changes in the Company's employment needs.



•

Change in control benefits encourage key executives to remain focused on the Company's business in the event of rumored or actual fundamental corporate changes which will enhance shareholder value.

The use of these programs enables us to reinforce our pay for performance philosophy, as well as strengthen our ability to attract and retain highly qualified executives. We believe that this combination of programs provides an appropriate mix of fixed and variable pay, balances short-term operational performance with long-term shareholder value, and encourages executive recruitment and retention. Total compensation is generally targeted at the 75th percentile of our Compensation Peer Group.

Role of Compensation Committee for Setting Compensation

        The Committee is responsible for all compensation decisions for the CEO and other Named Executives. The CEO annually reviews the performance of each executive officer and elected officer (other than the CEO whose performance is reviewed by the Board of Directors). The conclusions reached and recommendations based on these reviews, including with respect to salary adjustments and annual incentive cash award amounts, are presented to the Committee for approval. The Committee exercises its discretion in modifying any recommended adjustments or awards to executive officers. The Committee has absolute discretion as to whether it approves the recommendations of the CEO or makes adjustments, as it deems appropriate.

        In 2005, the Committee undertook a comprehensive review of the Company's compensation programs for executive officers, other elected officers, selected staff and the Board of Directors. The Committee engaged the compensation consulting firm of Carl D. Jacobs Group LLC (the "Jacobs Group") to assist in formulating an overall compensation strategy. The Jacobs Group provided an independent analysis of the Company's executive compensation policies and practices and provided analyses on the pay practices of the Compensation Peer Group and other comparable market data. The Jacobs Group, with consultation with the Committee, selected a peer group of financial institutions to establish a Compensation Peer Group. The companies included in the Compensation Peer Group were selected from publicly traded banks in California and several from neighboring states based on: (i) compatibility of the Company based on size as measured through total assets between one and four billion dollars, (ii) similarly of their product lines and business focus, and (iii) the competitive market for executive talent. The Compensation Peer Group consisted of 16 publicly-traded independent community banks, with the majority located in the San Francisco area. In addition to the Compensation Peer Group, Jacobs also assembled, reviewed and compiled data from nine published compensation surveys. Published surveys included California banks located in our service areas, as well as local area data drawn from national surveys. The Comparative Peer Group and the comparative survey data was used to benchmark executive compensation levels against banks that have executive positions with responsibilities similar in breadth and scope to ours and that compete with us for executive talent. With such information, the Committee reviewed and analyzed compensation for each executive and made adjustments as appropriate. This information was updated in 2007.

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The Company Compensation Program

Base Salary

        The Committee targets base salary to be close to the 60th percentile of the Compensation Peer Group data for the base salaries of the chief executive officer and executive officers including the Named Executives. The allocation of total cash between base salary and annual bonus is based on a variety of factors. The Committee also considers a combination of the executive's performance, the performance of the Company and the individual business or corporate function for which the executive is responsible, the nature and importance of the position and role within the Company, the scope of the executive's responsibility (including risk management and corporate strategic initiatives), the individual's success in promoting our core values and demonstrating leadership, and the current compensation package in place for that executive, including the executive's current annual salary and potential bonus awards under the Company's Management Incentive Plan (discussed in more detail below).

Chief Executive Officer Compensation

        The Committee meets with the other independent directors each year in executive session to evaluate the performance of the CEO.

        The Committee also consulted with its independent consultant in setting the CEO's compensation. The Committee confers with the CEO when setting his base salary. In 2007, the Committee considered management's continuing achievement of its short- and long-term goals versus its strategic objectives as well as financial targets.

        In determining an appropriate salary adjustment for the CEO for 2007, the Committee considered the Company's overall performance, including the then pending acquisition of Diablo Valley Bank. Emphasis was also placed on performance factors of the Company's business units, along with the results of the independent consultant's analysis of the pay practices of the Compensation Peer Group and comparative survey data and personal performance goals established annually by the Committee. The Committee determined that the CEO's base salary should be more closely aligned with the Company's compensation philosophy to pay at the 60th percentile of the Compensation Peer Group. The Committee approved a merit increase to raise his base salary to $324,000 at its February 2007 meeting. The increase was effective on March 1, 2007.

Named Executives' Compensation

        The CEO met with the Committee to review his compensation recommendations for the other Named Executives. He described the findings of his performance evaluation of each Named Executive and provided the basis of his recommendations with the Committee, including the scope of their duties, oversight responsibilities, and the executive officers' individual objectives and goals against results achieved for 2006.

        For fiscal year 2007, the Committee approved base salary adjustments at its February 2007 meeting for the Named Executives (to take effect on March 1, 2007). In its analysis of the other Named Executives, the Committee applied the same rationale to this group as they applied when considering the CEO's base salary. The Committee also considered the pay practices of the Compensation Peer Group and the analyses and recommendations provided by its independent consultant. In its review of base salaries for executive officers, the Committee concluded that the base salary of the Named Executives were generally positioned slightly below the 60th percentile.

        In approving the increase in the base salaries for the Named Executive Officers, the Committee reviewed the minimum, mid-range and maximum salaries paid to similarly situated positions at companies in the Compensation Peer Group and selected salary levels that placed the executives modestly over the mid-range.

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        Base salary drives the formula used in the Management Incentive Plan as discussed below under "Management Incentive Plan." Base salary is the only element of compensation that is used in determining the amount of contributions permitted under the Company's 401(k) plan. Base salary is also a component used in determining benefits under our supplemental executive retirement plan.

Executive Amended and Restated Employment Agreements

        In 2007, the Compensation Committee considered, reviewed and approved amended and restated employment agreements for each of the CEO and the other Named Executives. The Committee undertook this project in order to bring uniformity to the executive contracts, consider and modify as necessary contractual provisions to conform to new requirements under Section 409A of the Internal Revenue Code for deferred compensation arrangements, to clarify and strengthen non-compete and non-solicitation restrictions for the executives once they leave the Company, and provide for so-called "gross-up" provisions that will reimburse executives should any payment made to the executives trigger certain penalties under the Internal Revenue Code. The Committee considered and analyzed the desirability of the "gross-up" provisions and concluded that many of the Company's competitors in the financial industry provide such provisions and that to remain competitive in the marketplace, the Committee believed they were appropriate.

Management Incentive Plan

        The Management Incentive Plan (the "Incentive Plan") is an annual variable performance-based cash incentive program. The Incentive Plan provides guidelines for the calculation of annual non-equity incentive performance based compensation, subject to Committee oversight and modification. During the first quarter of each year, the Committee considers whether a cash-based bonus plan authorized by the Incentive Plan should be established for the succeeding year and, if so, approves the group of employees eligible to participate in the Incentive Plan for that year. Each year the Committee with recommendations from the CEO establishes financial objectives that must be met in order for awards to be paid.

        The Committee sets threshold, target and maximum levels for each financial objective. Payment of awards under the Incentive Plan are based upon the achievement of such financial objectives relative to the weight assigned to each financial objective for the current year. For 2007, a minimum hurdle of expected performance was required to be satisfied before any payments were made under the program. The hurdle level of performance was a minimum return on assets of 1.20%, and once the hurdle was satisfied, executive officers participating in the Incentive Plan were eligible for the awards based on meeting specified measures. The Incentive Plan included various incentive levels with award opportunities established as a percentage of base salary. For 2007 those levels were as follows:

        The Committee did not adjust the incentive levels for Named Executives in 2007 from 2006.

        These award opportunities were derived in part from comparative data provided by our independent consultant and in part by the Committee's judgment on internal equity of the positions, their relative value to the Company and the desire to maintain a consistent annual incentive target for the CEO and the other Named Executives.

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        The payouts for executives under the Incentive Plan are targeted at the 75th percentile of comparative data provided by our independent consultant in years when we reach the annual financial performance. If we reach, but do not exceed, the financial plan for any given year, the incentive payout, given current salary levels, should approximate the 70th percentile of comparative data. However, the Incentive Plan is designed so that in years that financial performance significantly exceeds our financial plan, the payouts of the short-term incentive program should reach approximately the 80th percentile of the comparative data. Actual relative compensation levels will vary based on salary levels and relative market position.

        Management recommends and the Committee reviews and approves the financial objectives that must be met in order for awards to be paid. These financial objectives as weighted are intended to motivate and reward eligible executives to strive for continued financial improvement of the Company, consistent with increasing shareholder value. The Committee has initially identified up to five key measures from which the financial objectives may be drawn which may be revised from year-to-year to reflect current business situations.

        The financial objectives selected for 2007 were net income, efficiency ratio, average assets and return on assets (the fifth measure, return on equity was not used). The Committee believes net income is a very good measurement in assessing how well or how poorly the Company is performing from a financial standpoint. Net income is an accepted accounting measure that drives earnings per share and shareholder returns over the long-term. The Committee in consultation with the CEO recognized for 2007 that management should continue to focus on total average assets, return on assets and efficiency ratio to improve performance toward the top quarter percentile of our peer banks. Average assets and the return on those assets are accepted measures of growth in the banking industry. The efficiency ratio is also a commonly used measure in the banking industry that measures success in controlling non interest expenses that contribute to overall profitability.

        Financial objectives for the performance results are generally developed through our annual financial planning process, whereby we assess the future operating environment and establish a financial plan for financial outcomes. The financial plan as developed by management is reviewed and approved by the Board of Directors.

        The Committee determines the weighting of financial objective goals each year based upon recommendations from the CEO. For 2007, the compensation committee weighted the financial objectives as follow:

        For 2007 as compared to 2006, the Company increased the weighting for total average assets from 15% to 20% and decreased the efficiency ratio from 15% to 10% in order to underscore the growth of the Company as a primary objective for the year. There was no change in the weighting for net income and return on assets from the 2006 levels.

        Upon completion of the fiscal year, the Committee assesses the performance of the Company for each financial objective comparing the actual fiscal year results to the pre-determined threshold, target and maximum levels for each financial objective calculated with reference to the pre-determined weight accorded the financial objective and an overall percentage amount for the award is calculated. In addition, the Committee may include qualitative subjective measures which may increase an award up to an additional 15% of base salary. This positive discretion may be utilized to address completion of special projects, initiatives or achievements reflected by favorable regulatory exam results. The Committee may also use its discretion in adjusting financial objectives and performance measurements for unexpected economic conditions or changes in the business of the Company.

24

        The "target" level equates to the approved financial plan. The "threshold" performance level is set at 95% of the target level, and maximum level is set at 105% of the target level. In making the annual determination of the threshold, target and maximum levels, the Committee may consider the specific circumstances encountered by the Company during the coming year. Generally, the Committee sets the threshold, target and maximum levels such that the relative difficulty of achieving the target level is consistent from year to year.

        The Committee believed that targets established for the Incentive Plan in 2007 were sufficiently challenging given the level of growth and improvement in the various financial objectives that would have to occur to meet the various performance levels.

        In June 2007, the Company acquired Diablo Valley Bank. The consolidation of Diablo Valley Bank, including the costs associated with completing the transaction, as well as certain accounting consequences including, but not limited to, the creation of goodwill and amortization of intangibles and an increase in employee expenses had a material effect on the financial performance objectives previously approved by the Committee for 2007. Because the acquisition was completed mid-year and the specific effects of the acquisition on the Company's results were not certain at the time of the acquisition, the Committee did not revise the financial performance objectives for 2007.

        For 2007, the threshold requirement for return on assets was 1.20%, however the actual ratio for return on assets was 1.18%. The return on tangible assets (which excludes goodwill and other intangibles resulting from the acquisition of Diablo Valley Bank) was 1.21%. In view of the acquisition, the Committee concluded that a better measure of performance was return on tangible assets and since the return on tangible assets exceeded the 1.20% hurdle requirement the Committee made awards under the Incentive Plan as follows:

•

Total average assets for 2007 reached the financial objective that permitted the payment of the "maximum" level of bonus payment; and



•

The Committee utilized its positive discretionary authority as authorized under the plan to award an additional 15% of base salary to the CEO and the other Named Executive Officers.

        In considering these awards the Committee concluded that because of the successful acquisition of Diablo Valley Bank and the integration of its business, systems and employees with the Company, the Named Executives had performed at a level that deserved specific recognition by way of the positive discretionary authority exercised by the Committee. While the Committee recognized that the Company's total average assets for 2007 was materially enhanced by the acquisition, this offset the effect of the acquisition on the other identified financial performance objectives. The Committee also took into consideration that the bonus awards for 2007 would be 35% to 40% lower for the Named Executive Officers than the amount of the awards in 2006.

        Awards paid to named executive officers under the Incentive Plan for performance in 2007 are reflected in column (g) of the Summary Compensation Table on page 28.

Stock Options

        Long-term incentive awards are the third component of the Company's total compensation package. The Committee believes that equity-based compensation ensures that the Company's officers have a continuing stake in the long-term success of the Company. The Company's 2004 Stock Option Plan (the "Plan") provides for the grant of non-qualified and incentive stock options. The Committee approves all awards under the Plan and acts as the administrator of this Plan. Stock options provide for financial gain derived from the potential appreciation in stock price from the date that the option is granted until the date that the option is exercised. The exercise price of stock option grants is set at fair market value on grant date. Under the stockholder-approved Plan, we may not grant stock options at a discount to fair market value or reduce the exercise price of outstanding stock options except in the case of a stock split or

25

other similar event. We do not grant stock options with a so-called "reload" feature, nor do we loan funds to employees to enable them to exercise stock options. Our long-term performance ultimately determines the value of stock options, because gains from stock option exercises are entirely dependent on the long-term appreciation of our stock price. Stock options generally vest prorated daily over four years and expire ten years from the grant date.

        Because a financial gain from stock options is only possible after the price of our common stock has increased, we believe grants encourage executives and other employees to focus on behaviors and initiatives that should lead to an increase in the price of our common stock, which benefits our shareholders.

        The Committee established a stock option policy in 2006 which recognizes that stock options have an impact on the profits of the Company under current accounting rules and also have a dilutive effect on the Company's shareholders. Accordingly they are recognized as a scarce resource and option grants are given the same consideration as any other form of compensation. As a result of the 2005 compensation study, the Committee has established ranges for the amount of options that may be granted that depend on the individual's position with the Company and whether the option is awarded as an incentive to attract an individual, to retain an individual or to reward performance. Stock option award levels with established ranges were determined based on market data. The Committee has targeted the 75th percentile of the comparative data with respect to these long-term incentive awards. More recently within the last several years, the Committee has approved nonstatutory stock options instead of incentive stock options because of the tax advantages available to the Company for nonstatutory options and because employees generally do not take full advantage of the tax benefits available to them from incentive stock options.

        We do not backdate options or grant options retroactively. In addition, we do not plan to coordinate grants of options so that they are made before announcement of favorable information, or after announcement of unfavorable information. The Company's options are granted at fair market value on a fixed date or event (the first day of service for new hires and the date of Committee approval for existing employees), with all required approvals obtained in advance of or on the actual grant date. All grants to executive officers require the approval of the Committee and the Board of Directors. Beginning in April 2007, the Company's general practice has been to grant options only on the annual grant date at the Committee and Board of Directors' regular March meeting for current staff (although for 2008 the Company moved this date to its May meeting because of the need to amend its 2004 Stock Option Plan), and at any other Committee meeting (whether a regular meeting or otherwise) held on the same date as regularly scheduled board meeting (which meets monthly) as required to attract new staff, retain staff or recognize key specific achievements. In 2006 and prior years there were occasions when grants were made on other dates.

        Except as noted below, fair market value has been consistently determined as the closing price on The Nasdaq Global Select market on the grant date. In order to ensure that its exercise price fairly reflects all material information-without regard to whether the information seems positive or negative - every grant of options is contingent upon an assurance by management and legal counsel that the Company is not in possession of material undisclosed information. If the Company is in a "black-out" period for trading under its trading policy or otherwise in possession of inside information, date of grant is suspended until the second business day after public dissemination of the information.

        Grants made to the CEO, the chief financial officer and the other Named Executive Officers are reflected in the Summary Compensation Table on page 28 and in the Grant of Plan-Based Awards Table on page 32.

Stock Ownership Policy

        In 2007, the Board of Directors adopted a stock ownership policy for its non-employee directors. Under the policy each director must own a minimum of 10,000 shares of the Company's common stock.

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Prohibition on Speculation in Company Stock

        Our stock trading guidelines prohibit executives from speculating in our stock, which includes, but is not limited to, short selling (profiting if the market price of the securities decreases); buying or selling publicly traded options, including writing covered calls; and hedging or any other type of derivative arrangement that has a similar economic effect.

Compensation Recovery Policy

        The Committee does not have a specific policy on seeking reimbursement of compensation awards, however it will evaluate on a case by case basis whether to seek the reimbursement of certain compensation awards paid to an executive officer if such executive engages in material misconduct that caused or partially caused a restatement of financial results, in accordance with Section 304 of the Sarbanes-Oxley Act of 2002. If circumstances warrant, we will seek to claw back appropriate portions of the executive officer's compensation for the relevant period, as provided by law.

Change of Control Provisions

        The Company does not have company-wide change of control agreements with its executive officers and other elected officers. Instead, the Chief Executive Officer and the other Named Executives have specific change of control and severance provisions in their respective employment contracts. The Committee to date has considered the use of change of control provisions and severance provisions on a case by case basis depending on the individual's position with the Company and the need to attract and/or retain the individuals. The Committee considers the triggering events and amounts payable to be reasonable and necessary from a competitive perspective. See "Executive Contracts" on page 29.

Compensation Committee Report

        The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 401(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

Heritage Commerce Corp Compensation Committee

Jack Peckham, Chairman
Frank Bisceglia
Robert Moles
Ranson Webster

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Executive Compensation Tables

        The following table provides for the periods shown, information as to compensation for services of the Company's principal executive officer, principal financial officer and the three other executive officers of the Company who had the highest total compensation (as defined in accordance with applicable regulations) with respect to the year ended 2007 (collectively referred to as the "named executive officers").

Summary Compensation Table

(1)

The amounts in column (c) include amounts voluntarily deferred by each of the named executive officers into their 401(k) plan accounts. For 2007, Mr. Kaczmarek deferred $20,500, Mr. McGovern deferred $20,000, Mr. Del Biaggio deferred $6,000, Mr. Hagarty deferred $20,500 and Mr. Parker deferred $20,500.

(2)

The amounts shown in column (f) represent the dollar amounts recognized for financial statement reporting purposes in fiscal years 2007 and 2006 with regard to share-based awards, as determined pursuant to Statement of Financial Accounting Standards No. 123 (revised), "Share Based Payment" (SFAS 123R), and not the value of the awards made in 2007 and 2006. See the Company's Annual Report on Form 10-K, at Note 10 to the Company's Consolidated Financial Statements for the year ended December 31, 2007.

(3)

The amounts in column (g) reflect cash awards paid to named executive officers in 2008 under the Incentive Plan. These amounts were earned under the plan for the year ended December 31, 2007 and were approved for payment in 2008 after completion of the audited financial statements for the year ended December 31, 2007.

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(4)

The amounts shown in column (h) represent only the aggregate change in the actuarial present value of the accumulated benefit under the Company's Supplemental Executive Retirement Plan from December 31, 2006 to December 31, 2007. The amounts in column (h) were determined using interest rate and mortality rate assumptions consistent with those used in the Company's financial statements and includes amounts which the named executive officer may not currently be entitled to receive because such amounts are not vested. Assumptions used in the calculation of these amounts are included in Note 12 to the Company's audited financial statements for the fiscal year ended December 31, 2007 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008.

(5)

The amounts shown in column (i) include the following for each named executive.

        The economic value of the death benefit amounts shown above reflects the annual income imputed to each executive in connection with Company owned split-dollar life insurance policies for which the Company has fully paid the applicable premiums. These policies are discussed under "Supplemental Retirement Plan for Executive Officers."

Executive Contracts

        Walter T. Kaczmarek—On October 17, 2007, the Company entered into an Amended and Restated Employment Agreement with Walter T. Kaczmarek. The employment contract is for three years and is automatically renewed each month for three additional years. Under the agreement, Mr. Kaczmarek will receive an annual salary of $324,000 with annual increases, if any, as determined by the Board of Directors' annual review of executive salaries. In 2008, Mr. Kaczmarek's base salary was increased to $334,000. In addition to his base salary, he will be eligible to participate in the Management Incentive Compensation Plan which, subject to achievement of performance incentive targets, shall be the greater of 100% or the maximum percentage permitted under such plan. The Company will provide to Mr. Kaczmarek, at no cost to him, group life, health, accident and disability insurance coverage for himself and his dependents. Mr. Kaczmarek will be provided with life insurance coverage in the amount of two times his then current salary but no more than $700,000. He will also be provided with long term care insurance, with a lifetime benefit of $432,000, and he will participate in the standard group short and long term disability coverage.

        Mr. Kaczmarek will be eligible to participate in the Company's 401(k) plan, under which he will receive matching contributions up to $1,500. He also participates in the Company's Employee Stock Ownership Plan. The Company will reimburse Mr. Kaczmarek for up to $1,200 of expenses incurred by him for tax consultation and preparation of tax returns and any excess of insurance coverage for an annual physical examination. Mr. Kaczmarek will also be reimbursed for monthly dues for one country club and one business club membership. He will receive an automobile allowance in the amount of $1,000 per month, together with reimbursements for gasoline and maintenance expenditures.

        Under his employment agreement, Mr. Kaczmarek is entitled to certain severance benefits on termination of his employment, including a change of control. See "Change of Control Arrangements and Termination of Employment."

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        Lawrence D. McGovern—On October 17, 2007, the Company entered into an Amended and Restated Employment Agreement with Lawrence D. McGovern. The employment contract is for one year and is automatically renewed for one year terms. Under the agreement, Mr. McGovern will receive an annual salary of $215,000 with annual increases, if any, as determined by the Company's chief executive officer and Board of Directors' annual review of executive salaries. In 2008, Mr. McGovern's base salary was increased to $220,000. In addition to his salary, he will be eligible to participate in the Management Incentive Compensation Plan. Mr. McGovern will also be eligible to participate in the Company's 401(k) plan, under which he will receive matching contributions up to $1,500. He also participates in the Company's Employee Stock Ownership Plan. Further, the Company will provide to Mr. McGovern, at no cost to him, group life, health, accident and disability insurance coverage for himself and his dependents. Mr. McGovern will also receive an automobile allowance in the amount of $500 per month, together with reimbursements for gasoline expenditures. Mr. McGovern will be provided with life insurance coverage in the amount of two times his then current salary but no more than $700,000. He will also be provided with long term care insurance, which will provide a lifetime benefit of up to $72,000, and he will participate in the standard group short and long term disability coverage.

        Under his employment agreement, Mr. McGovern is entitled to certain severance benefits on termination of his employment, including a change of control. See "Change of Control Arrangements and Termination of Employment."

        Raymond Parker—On October 17, 2007, the Company entered into an Amended and Restated Employment Agreement with Raymond Parker. The employment contract is for one year and is automatically renewed for one year terms. Under the agreement, Mr. Parker will receive an annual salary of $243,000 with annual increases, if any, as determined by the Company's chief executive officer and Board of Directors' annual review of executive salaries. In 2008, Mr. Parker's base salary was increaseed to $250,300. In addition to his salary, he will be eligible to participate in the Management Incentive Compensation Plan. Mr. Parker also will be eligible to participate in the Company's 401(k) plan, under which he will receive matching contributions up to $1,500. He also participates in the Company's Employee Stock Ownership Plan. Further, the Company will provide to Mr. Parker, at no cost to him, group life, health, accident and disability insurance coverage for himself and his dependents. Mr. Parker will also be reimbursed for monthly dues for membership at one country club. He will also receive an automobile allowance in the amount of $700 per month, together with reimbursements for gasoline expenditures. Mr. Parker will be provided with life insurance coverage in the amount of two times his then current salary but no more than $700,000. He will also be provided with long term care insurance, which will provide a lifetime benefit of up to $72,000, and he will participate in the standard group short and long term disability coverage.

        Under his employment agreement, Mr. Parker is entitled to certain severance benefits on termination of his employment, including a change of control. See "Change of Control Arrangements and Termination of Employment."

        Richard Hagarty—On October 17, 2007, the Company entered into an Amended and Restated Employment Agreement with Richard Hagarty. The employment contract is for one year and is automatically renewed for one year terms. Under the agreement, Mr. Hagarty will receive an annual salary of $158,000 with annual increases, if any, as determined by the Company's chief executive officer and Board of Directors' annual review of executive salaries. In 2008, Mr. Hagarty's base salary was increased to $162,700. In addition to his base salary, he is eligible to participate in the Management Incentive Compensation Plan. Mr. Hagarty will also be eligible to participate in the Company's 401(k) plan, under which he will receive matching contributions up to $1,500. He also participates in the Company's Employee Stock Ownership Plan. Further, the Company will provide to Mr. Hagarty, at no cost to him, group life, health, accident and disability insurance coverage for himself and his dependents. Mr. Hagarty will also receive an automobile allowance in the amount of $500 per month, together with reimbursements for gasoline and maintenance expenditures. Mr. Hagarty will be provided with life insurance coverage in

30

the amount of two times his then current salary but no more than $700,000. He will also be provided with long term care insurance, which will provide a lifetime benefit of up to $72,000, and he will participate in the standard group short and long term disability coverage.

        Under his employment agreement, Mr. Hagarty is entitled to certain severance benefits on termination of his employment, including a change of control. See "Change of Control Arrangements and Termination of Employment."

Plan Based Awards

        Stock Option Plans.    In 1994, the Board of Directors adopted the Heritage Bank of Commerce 1994 Tandem Stock Option Plan (the "1994 Plan") in order to promote the long-term success of the Bank and the creation of shareholder value. In 1998, the 1994 Plan was restated and adopted by the Company as the successor corporation to Heritage Bank of Commerce. The 1994 Stock Option Plan expired on June 8, 2004. As a result, in 2004 the Board of Directors adopted the Heritage Commerce Corp 2004 Stock Option Plan ("2004 Stock Option Plan"), which obtained shareholder approval in 2004. The 1994 Stock Option Plan and the 2004 Stock Option Plan authorize the Company to grant stock options to officers, employees and directors of the Company and its affiliates.

        The 2004 Stock Option Plan assists the Company in attracting, retaining and rewarding valued employees and directors by offering them a greater stake in the Company's success and to encourage ownership in its common stock by these employees and directors. The Compensation Committee administers the 2004 Stock Option Plan on behalf of the Board of Directors with regard to executive officers and has discretion to determine which individuals are eligible to receive option awards, the time or times when the option awards are to be made, the number of shares subject to each award, the status of any grant as either an incentive stock option or a non-qualified stock option, the vesting schedule in effect for the option award, the term for which any option is to remain outstanding and the other principal terms and conditions of each option. Stock options recommended by the Compensation Committee have an exercise price equal to the fair market value of a share on the grant date. The options generally vest within one to four years and expire ten years after the date of grant, contingent on the employee's continued employment with the Company. Each year the Company's chief executive officer will make periodic recommendations with respect to the level of stock options to be granted to each eligible employee, and the Committee reviews and approves those recommendations based on a variety of factors related to the recognition of contributions or potential contributions to the business interests of the Company. The Company has established a stock option policy for determining the range of options that may be granted employees, including the executive officers, based on the position of the employee within the Company and the purpose of the grant (i.e., hiring, performance or retention). In addition, the stock option policy sets forth procedures for the granting of stock options under the 2004 Stock Option Plan including the setting of the grant date and exercise price.

        Management Incentive Plan.    The Company maintains a Management Incentive Plan adopted by the Board of Directors in 2005. Executive officers are eligible for target bonuses which are expressed as a percentage of their respective base salaries which increase as the level of performance of established goals increases. The bonuses are tied directly to the satisfaction of overall company performance for the year. In 2007, management presented to the Compensation Committee performance goals based on the 2007 budget. For 2007 Company financial objectives were established for:

•

Net Income



•

Total Average Assets



•

Efficiency Ratio



•

Return on Assets

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        For each financial objective, a threshold, target and maximum performance measure is established. Each goal is given a weighting with net income having the most significant weighting. If not all of the financial objectives are satisfied at the threshold level, then those financial objectives that are satisfied at the threshold level are weighted and a partial payment of the bonus will be paid for satisfying some, but not all of the financial objectives. As financial objectives meet or exceed the threshold, target and maximum performance levels, the participants earn a greater percentage of their base salary as a bonus. The maximum bonus that may be paid varies from 110% of base salary for the chief executive officer, 85% of base salary for the executive vice president of the banking division, and 75% for the other executives. In addition to a bonus based on the achievement of the financial objectives, the Compensation Committee has the discretion to award up to 15% of an executive's base salary for performance related to the completion of special projects, initiatives, or achievements reflected by favorable regulatory exam results. The Management Incentive Plan also permits the Compensation Committee to use its discretion in adjusting financial objectives and performance measurements for unexpected economic conditions or changes in the business of the Company.

        Upon completion of the year-end financial statements, the chief executive officer will prepare an analysis of the achievement of the quantitative measures for the year and make recommendations for bonuses for quantitative measures for each executive. These results will be presented to the Compensation Committee and upon the Compensation Committee's recommendation and approval by the Board of Directors the bonuses are paid.

        The following table provides information on stock options granted in 2007 and potential cash-based performance awards available if defined performance objectives were achieved in 2007 for each of the Company's named executive officers. There can be no assurance that the grant date fair value of the stock option awards will ever be realized.

Grants of Plan-Based Awards

(1)

These potential cash-based awards were established under the Management Incentive Plan for 2007 and are further described above in the Compensation and Discussion Analysis section and discussion under Plan Based Awards—Management Incentive Plan and do not represent the actual payments made to the named executive officers. The actual payments earned are included in column (g) in the Summary Compensation Table.

(2)

Amounts reflect awards under the 2004 Stock Option Plan. See discussion above under "Plan Awards—Stock Option Plans."

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Equity Compensation Plan Information

        The following shows the number and weighted-average exercise price of securities to be issued upon exercise of outstanding options, warrants and rights, and the number of securities remaining available for future issuance under equity compensation plans, at December 31, 2007:

(1)

Consists of 246,201 options to acquire shares of common stock issued under 1994 Plan, and 764,461 options to acquire shares of common stock issued under the 2004 Stock Option Plan.

(2)

Consists of restricted stock issued to Mr. Kaczmarek pursuant to a restricted stock agreement dated March 17, 2005 entered into when he joined the Company.

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Outstanding Equity Awards

        The following table shows the number of Company shares of common stock covered by exercisable and unexercisable stock options and the number of Company unvested shares of restricted common stock held by the Company's named executive officers as of December 31, 2007:

Outstanding Equity Awards at Year End

(1)

Restricted stock issued to Mr. Kaczmarek pursuant to a restricted stock agreement dated March 17, 2005 entered into when Mr. Kaczmarek joined the Company. The restricted stock shares vest 25% per year at the end of years three, four, five and six.

(2)

The market value of the shares of restricted stock that have not vested is calculated by multiplying the number of shares of stock that have not vested by the closing price of our common stock at December 31, 2007 as reported on The Nasdaq Global Select Market, which was $18.39.

(3)

The options vest daily over 4 years beginning 3/17/2005 and have a term of 10 years.

(4)

The options vest daily over 4 years beginning 8/3/2006 and have a term of 10 years.

(5)

The options vest daily over 4 years beginning 5/4/2007 and have a term of 10 years.

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(6)

The options vest daily over 4 years beginning 7/16/1998 and have a term of 10 years.

(7)

The options vest daily over 4 years beginning 4/25/2002 and have a term of 10 years.

(8)

The options vest daily over 4 years beginning 5/27/2004 and have a term of 10 years.

(9)

The options vest daily over 4 years beginning 8/11/2005 and have a term of 10 years.

(10)

The options vest daily over 4 years beginning 8/3/2006 and have a term of 10 years.

(11)

The options vest daily over 4 years beginning 5/4/2007 and have a term of 10 years.

(12)

The options vest daily over 4 years beginning 9/17/1998 and have a term of 10 years.

(13)

The options vest daily over 4 years beginning 12/16/1999 and have a term of 10 years.

(14)

The options vest daily over 4 years beginning 10/24/2002 and have a term of 10 years.

(15)

The options vest daily over 4 years beginning 5/26/2005 and have a term of 10 years.

(16)

The options vest daily over 4 years beginning 8/3/2006 and have a term of 10 years.

(17)

The options vest daily over 4 years beginning 5/4/2007 and have a term of 10 years.

(18)

The options vest daily over 4 years beginning 7/25/2002 and have a term of 10 years.

(19)

The options vest daily over 4 years beginning 5/27/2004 and have a term of 10 years.

(20)

The options vest daily over 4 years beginning 8/3/2006 and have a term of 10 years.

(21)

The options vest daily over 4 years beginning 5/4/2007 and have a term of 10 years.

(22)

The options vest daily over 4 years beginning 5/16/2005 and have a term of 10 years.

(23)

The options vest daily over 4 years beginning 8/11/2005 and have a term of 10 years.

(24)

The options vest daily over 4 years beginning 8/3/2006 and have a term of 10 years.

(25)

The options vest daily over 4 years beginning 5/4/2007 and have a term of 10 years.

Option Exercises and Vested Stock Options

        The following table sets forth information with regard to the exercise and vesting of stock options and vesting of shares of restricted stock for the year ended December 31, 2007 for each of the named executive officers.

Option Exercises and Stock Vested

401(k) Plan

        The Company has established a broad-based employee benefit plan under Section 401(k) of the Internal Revenue Code of 1986 ("401(k) Plan"). The purpose of the 401(k) Plan is to encourage

35

employees to save for retirement. Eligible employees may make contributions to the plan subject to the limitations of Section 401(k). The 401(k) Plan trustees administer the Plan. The Company matches the first $1,500 of each employee's contributions. The 401(k) Plan allows highly compensated employees to contribute up to a maximum percentage of their base salary, up to the limits imposed by the Internal Revenue Code for 2007, on a pre-tax basis. Participants choose to invest their account balances from an array of investment options as selected by plan fiduciaries. The 401(k) Plan is designed to provide for distributions in a lump sum after termination of service. However, loans and in-service distributions under certain circumstances such as hardship, attainment of age 59-1/2, or a disability are permitted. For named executive officers, these amounts are included in the Summary Compensation Table under "All Other Compensation."

Employee Stock Ownership Plan

        In 1997, Heritage Bank of Commerce initiated a broad-based employee stock ownership plan ("Stock Ownership Plan"). The Stock Ownership Plan was subsequently adopted by the Company as the successor corporation to Heritage Bank of Commerce. The Stock Ownership Plan allows the Company, at its option, to purchase shares of the Company common stock on the open market. To be eligible to receive an award of shares under the Stock Ownership Plan, an employee must have worked at least 1,000 hours during the year and must be employed by the Company on December 31. The executive officers have the same eligibility to receive awards as other employees of the Company. Awards under the Stock Ownership Plan generally vest over four years. In addition, the value of a participant's account becomes fully vested upon reaching the age of 65 or termination of employment by death or disability. The Company may discontinue its contributions at any time. The amounts of contributions to the Stock Ownership Plan for named executive officers are included in the Summary Compensation Table in the column entitled "All Other Compensation."

Supplemental Retirement Plan for Executive Officers

        The Company has established the 2005 Amended and Restated a Supplemental Executive Retirement Plan (the "SERP" or the "Plan") covering key executives including the named executive officers. The SERP is a nonqualified defined benefit plan and is unsecured and unfunded and there are no plan assets. When the Company offers key executives participation in the SERP, the supplemental retirement benefit awarded is based on the individual's position within the Company and a vesting schedule determined by the desirability of incentivizing the retention element of the program. In order to be eligible for early retirement, the plan requires the participant to terminate employment (for reasons other than for cause, because of a disability, or following a change of control) after the date that the participant is at least 55 years old but prior to the normal retirement age as defined in the participants' participation agreement, which is generally 62 years old. Except for Mr. McGovern, each of the named executive officers are currently eligible for early retirement under the Plan. If a participant elects to retire on or after the early retirement date but prior to the normal retirement date, then the participant will receive the actuarial equivalent (determined as of the date benefits commence) of the portion of his or her supplemental retirement benefit that has vested as of the actual early retirement date. Unless otherwise selected by the participant, the early retirement benefit will be paid monthly, with payments to commence on the first day of the month following the participant's early retirement date and continuing until the death of the participant.

        A participant whose employment terminates after the normal retirement date (generally age 62) will receive 100% of his or her supplemental retirement benefit, payable monthly, commencing on the first month following retirement continuing until the death of the participant. If a participant's employment is terminated without cause or the participant resigns before the early retirement date, the participant shall be eligible to receive the actuarial equivalent (determined as of the date benefits commence) of the portion of his or her supplemental retirement benefit that has vested as of the effective date of termination, payable monthly commencing on the first month following the attainment of an age between

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55 and age 62 (as selected by the participant) and continuing until death of the participant. In the event a participant becomes disabled, the participant will receive 100% of his or her supplemental retirement benefit, payable monthly, commencing on the first month following determination that the participant is disabled and continuing until the death of the participant. If a participant's employment is terminated for cause the participant forfeits any rights the participant may have under the SERP. If a participant's employment is terminated for any reason (except cause) within two years following a change of control the participant will receive 100% of his or her supplemental retirement benefit (reduced to its actuarial equivalent determined when payments commence) commencing at the later of the participant's termination or the attainment of an age between age 55 and age 62 (as selected by the participant) and continuing until the death of the participant.

        Company owned split-dollar life insurance policies support the Company's obligations under the SERP. The premiums on the policies are paid by the Company. The cash value accrued on the policies supports the payment of the supplemental benefits for each participant. In the case of death of the participant, the participant's designated beneficiaries will receive 80% of the net-at-risk insurance (which means amount of the death benefit in excess of the cash value of the policy).

        The following table shows the present value of accumulated benefit payable to each of the named executive officers, including the number of service years credited to each named executive officer under the supplemental executive retirement plan.

(1)

The amounts in column (d) were determined using interest rate and mortality rate assumptions consistent with those used in the Company's financial statements and includes amounts which the named executive officer may not currently be entitled to receive because such amounts are not vested. Assumptions used in the calculation of these amounts are included in Note 12 to the Company's audited financial statements for the fiscal year ended December 31, 2007 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 17, 2008.

(2)

The following vesting percentages apply to the named executive officers:

Management Deferral Plan

        In January 2004, the Company adopted the Heritage Commerce Corp Nonqualified Deferred Compensation Plan for certain executive officers. The purpose of the plan is to offer those employees an opportunity to elect to defer the receipt of compensation in order to provide termination of employment

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and related benefits taxable pursuant to section 451 of the Internal Revenue Code of 1986, as amended (the "Code"). The plan is intended to be a "top-hat" plan (i.e., an unfunded deferred compensation plan maintained for a select group of management or highly-compensated employees) under sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974 ("ERISA"). The executive may elect to defer up to 100% of any bonus and 50% of any regular salary into the Management Deferral Plan. Amounts deferred are invested in a portfolio of approved investment choices as directed by the executive. Under the Management Deferral Plan, the Company may make discretionary contributions for the executive, but has not done so. Amounts deferred by executives to the plan will be distributed at a future date they have selected or upon termination of employment. The executive can select a distribution schedule of up to fifteen years. To date, none of the Company executive officers have elected to participate in the plan.

Change of Control Arrangements and Termination of Employment

        Stock Option Plans.    Each of the named executives holds options granted under the 2004 Stock Option Plan or the 1994 Stock Option Plan. Under these Plans, option holders will be given 30 days advance notice of the consummation of a change of control transaction during which time the option holder will have the right to exercise their options, and all outstanding options become immediately vested. The options terminate on the consummation of the change of control. In the event the option holder dies or becomes disabled, the option holder or his or her estate will have 12 months to exercise those options that have vested as of the date of termination of employment from a disability or death.

        Supplemental Executive Retirement Plan.    Each of the named executives are participants in the Executive Retirement Plan. If a participant's employment is terminated for any reason (except cause) within two years following a change of control, the participant will receive 100% of his or her supplemental retirement benefit (reduced to its actuarial equivalent determined when payments commence) commencing at the later of the participant's termination or the attainment of an age between age 55 and age 62 as selected by the participant at the time the participant entered into the program, and continuing until the participant's death. If a participant is terminated without cause or the participant voluntarily resigns, then the participant will be entitled to the actuarial equivalent (as determined as of the date benefits commence) of the portion of the participant's supplemental retirement benefit that has vested as of the date of termination, payable monthly commencing on the first month following the attainment of an age between age 55 and age 62, as selected by the participant at the time the participant entered the program, and continuing until the participant's death. If a participant becomes disabled, the participant's supplemental retirement benefit will become fully vested and payable beginning one month after the month of the separation from service until the participant's death.

        Mr. Kaczmarek's Employment Agreement.    If Mr. Kaczmarek's employment is terminated without cause or he resigns for good reason, he will be entitled to a lump sum payment equal to 2 times his base salary and his highest annual bonus. If he is terminated or he resigns for good reason 120 days before or within two years after a change of control he will be paid a lump sum of 2.75 times his base salary and highest annual bonus. If his employment is terminated by the Company without cause, or he resigns for good reason, or as a result of a change of control the Company terminates his employment or he resigns, his participation in group insurance coverages will continue on at least the same level as at the time of termination for a period of 36 months from the date of termination. In the event that the amounts payable to Mr. Kaczmarek under the agreement constitute "excess parachute payments" under the Internal Revenue Code of 1986 that are subject to an excise or similar tax, the amounts payable to Mr. Kaczmarek will be increased so that he receives substantially the same economic benefit under the Agreement had there been no such tax imposed. Additionally, following the termination of his employment, Mr. Kaczmarek has agreed to refrain from certain activities that would be competitive with the Company within the counties in California in which the Company has located its headquarters or branch offices, including refraining for 12 months from the date of termination from soliciting Company employees and customers.

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        Mr. McGovern's Employment Agreement.    If Mr. McGovern's employment is terminated without cause, he will be entitled to a lump sum payment equal to one times his base salary, his highest annual bonus and his annual automobile allowance. In the event that Mr. McGovern's employment is terminated by the Company or he resigns for good reason 120 days before or within 2 years after a change in control, he will be entitled to a lump sum payment of 1.5 times his base salary, his highest annual bonus and his annual automobile allowance. If the employment agreement is terminated by the Company without cause, or as a result of a change of control the Company terminates his employment or he resigns, his participation in group insurance coverage will continue on at least the same level as at the time of termination for a period of 12 months from the date of termination. In the event that the amounts payable to Mr. McGovern under the agreement constitute "excess parachute payments" under the Internal Revenue Code of 1986 that are subject to an excise or similar tax, the amounts payable to Mr. McGovern will be increased so that he receives substantially the same economic benefit under the Agreement had there been no such tax imposed. Additionally, following the termination of his employment, Mr. McGovern has agreed to refrain from certain activities that would be competitive with the Company within the counties in California in which the Company has located its headquarters or branch offices, including refraining for 12 months from the date of termination from soliciting Company employees or customers.

        Mr. Parker's Employment Agreement.    If Mr. Parker's employment is terminated without cause, he will be entitled to a lump sum payment equal to one times his base salary and his highest annual bonus. In the event that Mr. Parker's employment is terminated by the Company or he resigns for good reason 120 days of or within 24 months after a change in control, he will be entitled to a lump sum payment of 2 times his base salary and his highest annual bonus. If the employment is terminated by the Company without cause, his participation in group insurance coverage will continue on at least the same level as at the time of termination for a period of 12 months from the date of termination. If Mr. Parker's employment is terminated by the Company as a result of a change in control, or he resigns, these benefits will continue for an additional 24 months from the date of termination. In the event that the amounts payable to Mr. Parker under the agreement constitute "excess parachute payments" under the Internal Revenue Code of 1986 that are subject to an excise or similar tax, the amounts payable to Mr. Parker will be increased so that he receives substantially the same economic benefit under the Agreement had there been no such tax imposed. Additionally, following the termination of his employment, Mr. Parker has agreed to refrain from certain activities that would be competitive with the Company within the counties in California in which the Company has located its headquarters or branch offices, including refraining for 12 months from the date of termination from soliciting Company employees or customers.

        Mr. Hagarty's Employment Agreement.    If Mr. Hagarty's employment is terminated without cause, he will be entitled to a lump sum payment equal to 75% each of his base salary and his highest annual bonus. In the event that Mr. Hagarty's employment is terminated by the Company or he resigns for good reason 120 days of or within 24 months after a change in control, he will be entitled to a lump sum payment of 1.25 times his base salary and his highest annual bonus. If the employment agreement is terminated by the Company without cause, his participation in group insurance coverage will continue on at least the same level as at the time of termination for a period of 9 months from the date of termination. If Mr. Hagarty's employment is terminated as a result of a change in control or he resigns, these benefits will continue for an additional 15 months from the date of termination. In the event that the amounts payable to Mr. Hagarty under the agreement constitute "excess parachute payments" under the Internal Revenue Code of 1986 that are subject to an excise or similar tax, the amounts payable to Mr. Hagarty will be increased so that he receives substantially the same economic benefit under the Agreement had there been no such tax imposed. Additionally, following the termination of his employment, Mr. Hagarty has agreed to refrain from certain activities that would be competitive with the Company within the counties in California in which the Company has located its headquarters or branch offices, including refraining for 12 months from the date of termination from soliciting Company employees or customers.

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        Mr. Kaczmarek's Restricted Stock Agreement.    On March 17, 2005, the Company entered into a restricted stock agreement pursuant which Mr. Kaczmarek was granted 51,000 shares of common stock. The restricted stock vests 25% each year at the end of years three, four, five and six, provided Mr. Kaczmarek is still with the Company. The restricted stock becomes fully vested on a change of control, disability, death, termination of employment by the Company without cause, or termination of employment by Mr. Kaczmarek for good reason.

        Below is a table showing estimated payments assuming the various hypothetical events occurred on December 31, 2007:

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