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COMMERCE CORP
2009 Notice of Annual Meeting
of Shareholders, May 28, 2009
2009 Projcy Statement of
Heritage Commerce Corp
2008 Annual Report on Form 10-K
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Filings Services
APR 24 2009
SNL Financial, LC
1-800-969-4121
To our SharehoLderd
April 20, 2009
Dear Fellow Shareholders,
It was a year for the record books, and the pundits will no doubt be writing about the historic events of 2008 for years to come. While no
one can predict the magnitude ofthis recession, there is no doubt the United States is facing a serious economic situation. While Heritage
Commerce Corp and its subsidiary, Heritage Bank of Commerce, are certainly not immune to the turmoil in the financial markets, we
have maintained a solid capital position and steady market growth. In 2008 we earned $1.8 million, or SO. 13 per diluted common share,
which was well below 2007's profits of $14,1 million, or $1,12 per diluted common share. There were two primary reasons for the lower
level of profits in 2008 compared to 2007, First, the prime rate was reduced by 500 basis points—8.25% to 3.25%—from September 18,
2007, through December 31, 2008, resulting in margin compression. Second, the allowance for loan losses on our balance sheet doubled
to $25 million or 2.00% oftotal loans, with the 2008 provision for loan losses totaling $15.5 million and net charge-offs of $2.7 million.
Thie initiatives we launched in 2007 proved their worth in 2008, The acquisition of Diablo Valley Bank, the expansion into Walnut Creek
and the rebuilding and expansion ofour lending teams were all important contributors to our growth in 2008, Overall, we grew our
loan portfolio by 20% and our deposit base by 8% year-over-year. Loan demand remains solid although, with lower real estate values and
reduced net worth of many loan applicants, there are fewer qualified borrowers today than there were before.
The economic downturn has negatively impacted the asset quality ofour loan portfolio, particularly for land and construction loans that
make up about 21% ofour total loans. Our SBA portfolio is performing in line with the general economy, Nonperforming assets were
2,74% oftotal assets at year end and, as a result, we are staying focused on loan quality.
In November, we were approved for the U,S. Treasury's Capital Purchase Program and we raised $40 million in new capital through the
placement ofpreferred shares. As a well-capitalized institution, both before and after receiving these funds, we chose to participate in this
program to provide the additional capital base to increase our ability to meet the needs ofthe customers and communities we serve. Until
we fully understand the length and depth ofthis recession, we felt it prudent to accept the government's investment. Healthier community
banks were key recipients of the funds.
We began deploying these funds almost immediately and from November 21, 2008, to December 31, 2008, we made more than $32
million (or 80% of CPP money) in new loan commitments and $46 million in renewed loan commitments.
In an effort to preserve capital in these difficult economic times and maintain our ability to lend money to local businesses, we decided
to reduce the dividend paid on our common stock. Our commitment to our shareholders, customers, and communities is to deploy the
capital wisely and to continue to build a strong and vibrant franchise in our markets.
We are working hard to prudently manage your Company through these disconcerting economic times. We are extremely proud ofour
employees. As our 2008 growth demonstrates, everyone on our team has gone the extra mile to be more efficient and diligent, and has
worked hard not to be distracted by industry turmoil. In an effort to ensure we control our costs appropriately, the executive management
team will not receive any bonuses for 2008 performance or salary raises for 2009.
We will be celebrating our 15th anniversary this year, although in a different way than in years past. The wonderful anniversary party we
have hosted each ofthe past 14 years will not be held this year. Instead, we will save a portion ofthe cost to conserve capital and we will
use a portion of the savings to make significant contributions to several local charities to help those less fortunate in our community. We
believe that being a good corporate citizen is more important than ever.
As we renew our commitment to our loyal shareholders, employees, customers, and local communities, we invite you to join our
management team in recognizing the accomplishments we have achieved at our upcoming annual shareholders' meeting on May 28,
2009, at 1:00 p.m. We look forward to seeing you there.
We thank you for your banking business and for your investment in Heritage Commerce Corp, We know that times are difficult right
now, and all indications are that these challenges will remain for all or most of 2009. Nevertheless, we believe that our future is bright and
that together, we can persevere and emerge from these challenging times. In closing, we leave you with the words of wisdom that Warren
Buffet penned in his shareholder letter this year;
"Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no
other system has, and it will continue to do so. America's hest days lie ahead. "
Sincerely,
ack W. Conner
Chairman ofthe Board
Walter T Kaczmarek
President and Chief Executive Officer
Corporate In^
formation
B o a rd of Directors
Jack W. Conner, Chairman
Frank G. Bisceglia
James R. Blair
John J, Hounslow
Walter T. Kaczmarek
Mark E. Lefanowicz
Robert T. Moles
Louis ("Lon") O. Normandin
Humphrey P. Polanen
Charles J. Toeniskoetter
Ranson W. Webster
Executive M a n a g e m e nt
Walter T. Kaczmarek
President
ChiefExecutive Officer
William J. Del Biaggio, Jr,
Executive Vice President
Founding Chairman
James A. Mayer
Executive Vice President
East Bay Division
Lawrence D, McGovern
Executive Vice President
ChiefFinancial Officer
Michael R. Ong
Executive Vice President
Chief Credit Officer
Raymond Parker
Executive Vice President
Banking Division
Subsidiary B a nk Offices
H e r i t a ge B a nk of C o m m e r ce
San Jose Main
150 Almaden Boulevard
San Jose, CA 95113
408.947.6900
1 10 tl 'VI 11^
387 Diablo Road
Danville, CA 94526
925.314.2851
Fremont
3077 Stevenson Boulevard
Fremont, CA 94538
510.445.0400
Gilroy
7598 Monterey Street
Suite 110
Gilroy, CA 95020
408.842.8310
Los Altos
419 S. San Antonio Road
Los Altos, CA 94022
650,941,9300
Los Gatos
15575 Los Gatos Boulevard
Building B
Los Gatos, CA 95032
408.356.6190
Morgan Hill
Cochrane Business Ranch
18625 Sutter Boulevard
Morgan Hill, CA 95037
408.778.2320
Mountain View
175 East El Camino Real
Mountain View, CA 94040
650.941.9300
Pleasanton
300 Main Street
Pleasanton, CA 94566
925.314.2876
Walnut Creek
101 Ygnacio Valley Road
Suite 100
Walnut Creek, CA 94596
925.930.9287
H e r i t a ge C o m m e r ce C o rp
Investor Relations C o n t a ct
Janet R. Walworth
Senior Vice President
General Counsel 1 Corporate Secretary
Transfer Agent
Wells Fargo Bank, N.A.
Shareowner Services
North Concord Exchange Street
South St. Paul, Minnesota 55164
1,800.468.9716
I n d e p e n d e nt A u d i t o rs
Crowe Horwath LLP
One Mid America Plaza
Suite 700
Oak Brook, Illinois 60522
630,574.7878
C o r p o r a te C o u n s el
Buchalter Nemer
A Professional Corporation
1000 Wilshire Boulevard
Suite 1500
Los Angeles, California 90017
213.891.0700
To get further information on Heritage
Commerce Corp, or to receive regular
financial updates, please visit our web
site heritagecommercecorp.com and
click on "Information Request."
heritagebankofcommerce.com
f^ Equal Housing Lender
Member FDIC
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