I o 2007 Notice of Annual Meeting of Shareholders, to be held May24,2007 0 2007 Proxy Statement of Heritage Commerce COT 0 2006 Annual Report on Form IO-K C O M M E R C E C O K P 150 Almaden Boulevard San Jose, California 95113 408.947.6900 www, heritagecornrnercecorp. corn April 6,2007 Dear Fellow Shareholders: In 2006, we once again achieved record results, with earnings growing 20%. The operating leverage we have built with strong productivity gains and improving profitability resulted from the fine efforts of all our team mcmbers. Below are highlighted some of our financial accomplishments in 2006: Fully diluted earnings per share increased 21% to $1.44 from $1.19 in 2005 Profitability ratios all improved over 2005 levels: Net interest margin increased 48 basis points to 5,06% Annualized return on average assets grcw 30 basis points to 1.57% Annualized return 011 average equity improved 89 basis points to 14.62% The efficiency ratio improved 466 basis points to 56.86% Rook value per share of $10.54 was up 12% from a year ago Over the past few years, we have invested in and developed an excellent team of professional bankers who believe in a “relationship banking” approach and are poised to take advantage of the opportunities in our market. Silicon Valley attracted more than 35% of the $25.5 billion in venture capital investments nationwide in 2006, garnering $9.2 billion in capital, an increase of 13% from a year ago? This infusion of capital not only fuels growth in new companies, but also builds and supports existing service firms and infrastructure in the markets we serve. Another of the benefits Heritage brings to the markets we serve is our Preferred Small Business Adminis- tration (SBA) lender status. Once again, we were among the top 10 SBA lenders in the 13-county area serviced by the San Francisco SBA office. Our SBA lending department originated $65.8 million in SBA and USDA Business and Industry loans in 2006. In addition to continuing to streamline our operations in 2006, we also pursued opportunities to expand our franchise. The results of those efforts paid off in February of this year, when we announced we had agreed to acquire Diablo Valley Bank. This transaction will bring a premier California franchise with a strong business banking culture and a respected team of local bankers to our organization. It will also enhance our position in the affluent East Bay communities of Danvillc and Pleasanton, which have exceptional demographics for attracting deposits and a very strong entrepreneurial business community. We expect the acquisition to close later this year, subject to Diablo Valley Bank shareholder approval and regulatory review and approval, and we believe the acquisition will add to our profitability in 2008 and beyond. With a record breaking year in 2006 k h i n d us, we are excited about our prospects for 2007. We Very much appreciate the efforts of our Board of Directors, our employees and our clients. With the support of our communities and shareholders, w e will continue to work hard to build an organization of which we can all be proud. Sincerelv. Jack W. Conner ’ Chairman of the Board Walter T. Ka&rnarek President and Chief Executive Oflicer “1-23-2007: PricewaterhouseCooperdNatianaI Venture Capital Association “MoneyTree” Report: Oats: Thornson Financial Board of Directors Jack W. Comer Chairman Frank G. Bisceglia 0 James R. Blair William J. Del Biaggio, Jr. Walter T. Kaczrnarek Robert T. Moles Louis 0. Normandin Jack L. Peckham Humphrey F! Fblancn Charles J. Toeniskoetter Ranson W. Webster Executive Management Walter T. Kaczmarek President and Chief Executive Oflcer William J. Del Eiaggio, Jr. Founditlg Chairman and Executive vice President Richard Hagarty Execurivt: Vice President and Chief Credit Oficer Lawrence D. McGovcrn Executive Vice President and Chief Financial Oficer Raymond Parker Executive Vice Presidenr, flanking Division Subsidiary Bank 0 d ces Heritage Bank of Commerce San Jose Main 150 Almaden Blvd. San Jose, CA 95113 408.947.6900 Danville 310 Hanz Avenue Danville, CA 44526 925,831.1706 Fremont 3077 Stevenson Blvd. Fremont, CA 94538 5 10.44s. 0400 Gilroy 7598 Monterey Street Suite 110 Gilroy, CA 95020 408.842.8310 Los Gatos 15575 Los Gatos Blvd. Building B Los Gatos, CA 95032 408.356.6190 Los Altos 4546 El Camino Real Las Altos, CA 94022 650.941.9300 Los Altos 369 S. San Antonio Rd. LOS Altos, CA 94022 650.941.9300 Morgan Hill Cochrane Business Ranch 18625 Sutter Boulevard Morgan Hill, CA 95037 408.778.2320 Mountain Mew 175 East El Camino Real Mountain View, CA 94040 650.941.9300 www.heritagebankofcomrnerce.com . .. Heritage Commerce C o p Investor Relations Contuac Rebecca A. Levey Senior Vice President/ Marketing 8r Shareholder Relations/ Corporate Secrerary Agent and Registrar -fer U, S, Stock Transfer Corporation 1745 Gardena Avenue Glendale, California 91204-2991 (818) 502-1404 Independent Auditors Crowe Chizek and Company, LLP One Mid America Plaza Suite 700 Oak Brook, Illinois 60522-3697 (630) 574-7878 Corporate Counsel Buchalter Nemcr A Professional Corporation 1000 Wilshire Boulevard Suite 1500 Los Angclcs, California 90017-2457 (213) 891-0700 To get further information on Heritage Commerce C o p , or to receive regular financial updates, please visir our web site www. heritagecomrnercecorp. corn and click on “Information Request .” Member FDIC