8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 23, 2014

HERITAGE COMMERCE CORP

(Exact name of registrant as specified in its charter)

California	000-23877		77-0469558
(State or other jurisdiction of incorporation)	(Commission File Number)		(IRS Employer Identification No.)
150 Almaden Boulevard, San Jose, California		95113
(Address of principal executive offices)		(Zip Code)
Registrant’s telephone number, including area code: (408) 947-6900
Not Applicable
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (See General Instruction A.2. below):

□ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

□ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

□ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

□ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.02   RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On January 23, 2014, Heritage Commerce Corp, the holding company (the “Company”) of Heritage Bank of Commerce (the “Bank”) issued a press release announcing preliminary unaudited results for the quarter ended December 31, 2013.  A copy of the press release is attached as Exhibit 99.1 to this Current Report and is incorporated herein by reference.

The information in this report set forth under this Item 2.02 shall not be treated as "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933 or the Securities Act of 1934, except as expressly stated by specific reference in such filing.

ITEM 8.01 OTHER EVENTS

QUARTERLY DIVIDEND

On January 23, 2014, the Company announced that its Board of Directors declared a $0.04 per share quarterly cash dividend to holders of common stock and Series C preferred stock (on an as converted basis).  The dividend will be paid on February 25, 2014, to shareholders of record on February 5, 2014.  A copy of the press release is attached as Exhibit 99.2 to this Current Report and is incorporated herein by reference.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS

(D) Exhibits.

99.1   Press Release, dated January 23, 2014, entitled “Heritage Commerce Corp Earnings Increase 26% to $3.4 Million for the Fourth Quarter of 2013 from the Fourth Quarter of 2012”

99.2   Press Release, dated January 23, 2014, entitled “Heritage Commerce Corp Raises Quarterly Cash Dividend of $0.04 Per Share”

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: January 23, 2014      

Heritage Commerce Corp

By: /s/ Lawrence D. McGovern

Name: Lawrence D. McGovern

Executive Vice President and Chief Financial Officer

INDEX TO EXHIBITS

EXHIBIT NO.      DESCRIPTION

99.1                   Press Release, dated January 23, 2014, entitled “Heritage Commerce Corp Earnings                         Increase 26% to $3.4 Million for the Fourth Quarter of 2013 from the Fourth Quarter                         of 2012”

99.2                   Press Release, dated January 23, 2014, entitled “Heritage Commerce Corp Raises                         Quarterly Cash Dividend of $0.04 Per Share”

EX-99.1

Exhibit 99.1

Heritage Commerce Corp Earnings Increase 26% to $3.4 Million for the Fourth Quarter of 2013 from the Fourth Quarter of 2012

San Jose, CA – January 23, 2014 – Heritage Commerce Corp (Nasdaq: HTBK), the holding company (the “Company”) for Heritage Bank of Commerce (the “Bank”), today reported net income of $3.4 million for the fourth quarter of 2013, or $0.10 per average diluted common share.  Net income increased 26% compared to $2.7 million, or $0.08 per average diluted common share, from the fourth quarter of 2012, and increased 4% compared to $3.2 million for the third quarter of 2013.  For the year ended December 31, 2013, net income available to common shareholders increased 33% to $11.5 million, or $0.36 per average diluted common share from $8.7 million, or $0.27 per average diluted common share for the year ended December 31, 2012.  All results are unaudited.

“Highlighted by strong loan production and continued credit improvement, our quarterly results capped a solid year of profits,” said Walter Kaczmarek, President and Chief Executive Officer.  “The growth of our loan portfolio demonstrates our continuing ability to expand and deepen relationships with our current customer base, as well as gain new customers and market share.  Our investment in additional loan production personnel has also added to our growth.  Credit quality continued to improve with nonperforming assets declining 36% year-over-year, which are at their lowest levels since the third quarter of 2008.  The improvement in credit trends resulted in an $816,000 credit to the provision for loan losses for the year, while reserve levels remained strong at 2.09% of total loans and 162.16% of total nonperforming loans.”

“We remain committed to building shareholder value, and are increasing our quarterly cash dividend to $0.04 per share for the first quarter of 2014, from $0.03 per share distributed for the fourth quarter of 2013,” added Mr. Kaczmarek.

“Heritage Bank of Commerce opened its doors in June, 1994, and we will be celebrating the Bank’s 20th anniversary this year,” Mr. Kaczmarek stated.  “We have been through times of both prosperity and hardship since 1994.  Thanks to the hard work of our entire team and the support of our shareholders and customers, we are healthy, profitable, and well positioned for future growth.”

2013 Highlights (as of, or for the period ended December 31, 2013, except as noted):

u Diluted earnings per share increased 25% to $0.10 for the fourth quarter of 2013, compared to $0.08 per diluted share for the fourth quarter of 2012, and remained flat from the third quarter of 2013.  Diluted earnings per share increased 33% to $0.36 for the year ended December 31, 2013, compared to $0.27 per diluted share for the year ended December 31, 2012.

u   Net interest income increased 7% to $13.0 million for the fourth quarter of 2013, compared to $12.2 million for the fourth quarter of 2012, and increased 2% from $12.8 million for the third quarter of 2013.  Net interest income increased 4% to $50.2 million for the year ended December 31, 2013, compared to $48.4 million for the year ended December 31, 2012.

u   During the fourth quarters of both 2013 and 2012, the Company received significantly large amount of deposits from one customer, which were placed in the Bank on a short-term basis.  As a result of the short-term nature of the deposits, the funds were placed in low interest earning deposits at the Federal Reserve Bank.  In the fourth quarter of 2013, these deposits totaled $194.1 million in a combination of noninterest-bearing demand deposit and money market accounts, of which $19.0 million remained in a money market account at December 31, 2013.  In the fourth quarter of 2012, these deposits totaled $467.5 million in a noninterest-bearing demand deposit account, of which $195.6 million were withdrawn prior to year end, for a net outstanding balance of $271.9 million at December 31, 2012.  An additional $233.7 million of these deposits were withdrawn in January 2013, as originally planned by the customer.

u   During the fourth quarter of 2013, the Company received $27.5 million in deposits from a law firm for legal settlements which were placed in a CDARS money market account.  All of the $27.5 million in deposits from the law firm were withdrawn in January, 2014.  As a result of the short-term nature of the deposits, these funds were also placed in low interest earning deposits at the Federal Reserve Bank.

u   The net interest margin increased 6 basis points to 3.80% for the fourth quarter of 2013, from 3.74% for the fourth quarter of 2012, and decreased 14 basis points from 3.94% for the third quarter of 2013. The increase in the fourth quarter of 2013 from the fourth quarter of 2012 was primarily due to a lower cost of funds, higher yields on securities, and a higher average loan balance, partially offset by a lower yield on loans.  The decrease in the fourth quarter of 2013 from the third quarter of 2013 was primarily due to a lower yield on loans and a higher average balance of short-term deposits at the Federal Reserve Bank as a result of the large short-term deposits from one customer.  For the year ended December 31, 2013, the net interest margin decreased 4 basis points to 3.84%, compared to 3.88% for the year ended December 31, 2012, primarily due to a lower yield on loans, and a higher average balance of short-term deposits at the Federal Reserve Bank.

u   Loans (excluding loans-held-for-sale) increased 13% to $914.9 million at December 31, 2013, compared to $812.3 million at December 31, 2012, and increased 2% from $893.1 million at September 30, 2013.

u   Credit quality remained favorable as nonperforming assets declined to $12.4 million, or 0.83% of total assets, at December 31, 2013, compared to $19.5 million, or 1.15% of total assets, at December 31, 2012, and $15.7 million, or 1.12% of total assets, at September 30, 2013.

u   Classified assets, net of Small Business Administration (“SBA”) guarantees, decreased 36% to $23.6 million at December 31, 2013, from $36.8 million at December 31, 2012, and increased 1% from $23.3 million at September 30, 2013.

u   Net charge-offs totaled $166,000 for the fourth quarter of 2013, compared to net charge-offs of $766,000 for the fourth quarter of 2012, and net recoveries of $534,000 for the third quarter of 2013.

u   There was a $12,000 credit to the provision for loan losses for the fourth quarter of 2013, compared to a provision for loan losses of $669,000 for the fourth quarter of 2012, and credit to the provision for loan losses of $534,000 for the third quarter of 2013.  There was an $816,000 credit to the provision for loan losses for the year ended December 31, 2013, compared to a $2.8 million provision for loan losses for the year ended December 31, 2012.

u   The allowance for loan losses (“ALLL”) was 2.09% of total loans at December 31, 2013, compared to 2.34% at December 31, 2012, and 2.17% at September 30, 2013.

u   Total deposits decreased 13% to $1.29 billion at December 31, 2013, compared to $1.48 billion at December 31, 2012, and increased 8% from $1.20 billion at September 30, 2013.  Deposits (excluding all time deposits, CDARS deposits, and short-term deposits from one customer of $19.0 million at December 31, 2013 and $271.9 million at December 31, 2012) increased $70.8 million, or 8%, to $954.6 million at December 31, 2013, from $883.8 million at December 31, 2012, and increased $53.5 million, or 6%, from $901.0 million at September 30, 2013.

u   During the third quarter of 2013, the Company completed the redemption of its $9 million floating-rate subordinated debt.

u   The Company announced it will pay a quarterly cash dividend of $0.04 per share in the first quarter of 2014 to holders of common stock and Series C Preferred Stock (on an as converted basis), an increase from $0.03 per share paid in the fourth quarter of 2013.

u   Capital ratios exceeded regulatory requirements for a well-capitalized financial institution on a holding company and bank level at December 31, 2013:

Capital Ratios	Heritage Commerce Corp	Heritage Bank of Commerce	Well-Capitalized Financial Institution Regulatory Guidelines
Total Risk-Based	15.2%	13.8%	10.0%
Tier 1 Risk-Based	14.0%	12.6%	6.0%
Leverage	11.1%	10.0%	5.0%

Operating Results

Net interest income increased to $13.0 million for the fourth quarter of 2013, compared to $12.2 million for the fourth quarter of 2012, and $12.8 million for the third quarter of 2013.  For the year ended December 31, 2013, net interest income was $50.2 million, compared to $48.4 million for the year ended December 31, 2012. The increase in net interest income was driven primarily by higher average loan balances and a lower cost of funds.

The net interest margin expanded 6 basis points to 3.80% for the fourth quarter of 2013, from 3.74% for the fourth quarter of 2012, and decreased 14 basis points from 3.94% for the third quarter of 2013. The increase in the fourth quarter of 2013 from the fourth quarter of 2012 was primarily due to a lower cost of funds, higher yields on securities, and a higher average loan balance, partially offset by a lower yield on loans.  The decrease in the fourth quarter of 2013 from the third quarter of 2013 was primarily due to a lower yield on loans and a higher average balance of short-term deposits at the Federal Reserve Bank as a result of the large short-term deposits from one customer.  For the year ended December 31, 2013, the net interest margin decreased 4 basis points to 3.84%, compared to 3.88% for the year ended December 31, 2012, primarily due to a lower yield on loans, and a higher average balance of short-term deposits at the Federal Reserve Bank.

Solid asset quality and net recoveries for the year ended December 31, 2013, led to a $12,000 credit to the provision for loan losses for the fourth quarter of 2013, and a credit to the provision for loan losses of $816,000 for the year ended December 31, 2013.  The provision for loan losses was $669,000 for the fourth quarter of 2012 and $2.8 million for the year ended December 31, 2012.  There was a credit to the provision for loan losses of $534,000 for the third quarter of 2013. Net charge-offs totaled $166,000 for the fourth quarter of 2013, while net recoveries totaled $953,000 for the year ended December 31, 2013.

Noninterest income was $1.9 million for the fourth quarter of 2013, compared to $2.1 million for the fourth quarter of 2012, and $1.7 million for the third quarter of 2013.  Noninterest income decreased for the fourth quarter of 2013 compared to the fourth quarter of 2012, primarily due to a lower gain on sales of securities.  For the year ended December 31, 2013, noninterest income decreased to $7.2 million, compared to $8.9 million for the year ended December 31, 2012, primarily due to a lower gain on sales of securities and SBA loans.  There was a $38,000 gain on sales of securities and $449,000 gain on sales of SBA loans for the year ended December 31, 2013, compared to $1.6 million and $702,000, respectively, for the year ended December 31, 2012.

Total noninterest expense for the fourth quarter of 2013 was $10.2 million, an increase of 4% from $9.8 million for the fourth quarter of 2012, and a decrease of 2% from $10.4 million for the third quarter of 2013.  Noninterest expense for the year ended December 31, 2013 increased 4% to $41.7 million, compared to $40.3 million for the year ended December 31, 2012. The increase in noninterest expense for the fourth quarter and the year ended December 31, 2013, compared to the same periods a year ago, reflects increased salaries and employee benefits expense due to annual salary increases and hiring of additional lending relationship officers.

Income tax expense for the fourth quarter of 2013 was $1.4 million, compared to $1.2 million for the fourth quarter of 2012, and $1.5 million for the third quarter of 2013. The effective tax rate for the fourth quarter of 2013 decreased to 30%, compared to 31% for the fourth quarter of 2012, and 32% for the third quarter of 2013.  Income tax expense for the year ended December 31, 2013 was $5.0 million, compared to $4.3 million for the year ended December 31, 2012. The effective tax rate for the years ended December 31, 2013 and 2012 was 30%.  The difference in the effective tax rate for the periods reported, compared to the combined Federal and state statutory tax rate of 42%, is primarily the result of the Company’s investment in life insurance policies whose earnings are not subject to taxes, tax credits related to investments in low income housing limited partnerships, and tax-exempt interest income earned on municipal bonds.

The efficiency ratio for the fourth quarter of 2013 was 68.05%, compared to 68.45% for the fourth quarter of 2012, and 71.25% for the third quarter of 2013.  The efficiency ratio was 72.69% for the year ended December 31 2013, compared to 70.32% for the year ended December 31, 2012, as a result of higher noninterest expense and lower noninterest income.

Balance Sheet Review, Capital Management and Credit Quality

Total assets were $1.49 billion at December 31, 2013, compared to $1.69 billion December 31, 2012, and $1.40 billion at September 30, 2013.  Excluding the Company’s excess funds held at the Federal Reserve Bank offsetting the short-term deposits of $46.5 million at December 31, 2013, and $271.9 million at December 31, 2013, total assets at December 31, 2013 increased 2% from December 31, 2012, and increased 3% from September 30, 2013.

The investment securities available-for-sale portfolio totaled $280.1 million at December 31, 2013, compared to $367.9 million at December 31, 2012, and $280.5 million at September 30, 2013.  At December 31, 2013, the securities available-for-sale portfolio was comprised of $207.6 million agency mortgage-backed securities (all issued by U.S. Government sponsored entities), $52.1 million of corporate bonds, and $20.4 million of single entity issue trust preferred securities.  The pre-tax unrealized loss on securities available-for-sale at December 31, 2013 was ($2.4) million, compared to a pre-tax unrealized gain on securities available-for-sale at December 31, 2012 of $11.8 million, and a pre-tax unrealized loss on securities available-for-sale at September 30, 2013 of ($125,000).

At December 31, 2013, investment securities held-to-maturity totaled $95.9 million, compared to $51.5 million at December 31, 2012, and $89.7 million at September 30, 2013.  At December 31, 2013, the securities held-to-maturity portfolio, at amortized cost, was comprised of $80.0 million tax-exempt municipal bonds and $15.9 million agency mortgage-backed securities.

Loans, excluding loans held-for-sale, increased 13% to $914.9 million at December 31, 2013, from $812.3 million at December 31, 2012, and increased 2% from $893.1 million at September 30, 2013.  The loan portfolio remains well-diversified with commercial and industrial (“C&I”) loans accounting for 43% of the portfolio at December 31, 2013.  Commercial and residential real estate loans accounted for 46% of the total loan portfolio, of which 48% were owner-occupied by businesses.  Consumer and home equity loans accounted for 8% of total loans, and land and construction loans accounted for the remaining 3% of total loans at December 30, 2013.

The yield on the loan portfolio was 4.79% for the fourth quarter of 2013, compared to 5.00% for the same period in 2012, and 4.85% for the third quarter of 2013.  The yield on the loan portfolio was 4.92% for the year ended December 31, 2013, compared to 5.18% for the year ended December 31, 2012.

Credit trends remain favorable with nonperforming assets (“NPAs”) declining to $12.4 million, or 0.83% of total assets, at December 31, 2013, compared to $19.5 million, or 1.15% of total assets, a year ago, and $15.7 million, or 1.12% of total assets, at September 30, 2013.  The following is a breakout of NPAs at December 31, 2013:

NONPERFORMING ASSETS
(in $000's, unaudited)	Balance		% of Total
Commercial real estate loans	$	4,363	35%
SBA loans		3,810	31%
Land and construction loans		1,761	14%
Home equity and consumer loans		788	6%
Commercial and industrial loans		604	5%
Foreclosed assets		575	5%
Restructured and loans over 90 days past due and accruing		492	4%
	$	12,393	100%

At December 31, 2013, the $12.4 million of NPAs included $607,000 of loans guaranteed by the SBA and $492,000 of restructured loans still accruing interest income.  Foreclosed assets were $575,000 at December 31, 2013, compared to $1.3 million at December 31, 2012, and $631,000 at September 30, 2013.

Classified assets (net of SBA guarantees) decreased 36% to $23.6 million at December 31, 2013, from $36.8 million at December 31, 2012, and increased 1% from $23.3 million at September 30, 2013.

The following table summarizes the allowance for loan losses:

	For the Quarter Ended:						For the Year Ended:
ALLOWANCE FOR LOAN LOSSES	December 31,		September 30,		December 31,		December 31,		December 31,
(in $000's, unaudited)	2013		2013		2012		2013		2012
Balance at beginning of period	$	19,342	$	19,342	$	19,124	$	19,027	$	20,700
Provision (credit) for loan losses during the period		(12)		(534)		669		(816)		2,784
Net recoveries (charge-offs) during the period		(166)		534		(766)		953		(4,457)
Balance at end of period	$	19,164	$	19,342	$	19,027	$	19,164	$	19,027
Total loans	$	914,913	$	893,052	$	812,313	$	914,913	$	812,313
Total nonperforming loans	$	11,818	$	15,117	$	18,194	$	11,818	$	18,194
Allowance for loan losses to total loans		2.09%		2.17%		2.34%		2.09%		2.34%
Allowance for loan losses to total nonperforming loans		162.16%		127.95%		104.58%		162.16%		104.58%

The allowance for loan losses was 2.09% of total loans at December 31, 2013, compared to 2.34% at December 31, 2012, and 2.17% at September 30, 2013.  The decrease in the allowance for loan losses to total loans at December 31, 2013, was primarily due to a decline in problem loans, as well as a decline in historical charge-off levels.

Deposits totaled $1.29 billion at December 31, 2013, compared to $1.48 billion at December 31, 2012, and $1.20 billion at September 30, 2013.  Noninterest-bearing deposits decreased 5% to $431.1 million at December 31, 2013, from $455.8 million, (excluding the short-term demand deposits of $271.9 million to one customer) at December 31, 2012, and increased 5% from $409.3 million at September 30, 2013.  Interest-bearing demand deposits increased 25% to $195.5 million at December 31, 2013, from $156.0 million at December 31, 2012, and increased 9% from $178.8 million at September 30, 2013.  Savings and money market deposits increased 21% to $328.0 million (excluding the short-term money market deposits of $19.0 million to one customer) at December 31, 2013, from $272.0 million at December 31, 2012, and increased 5% from $313.0 million at September 30, 2013. At December 31, 2013, brokered deposits decreased 43% to $55.5 million, from $97.8 million at December 31, 2012, and decreased 12% from $62.8 million at September 30, 2013.  Primarily due to $27.5 million in deposits received from a law firm for legal settlements, CDARS money market and time deposits increased to $40.5 million at December 31, 2013, compared to $10.2 million at December 31, 2012, and $14.3 million at September 30, 2013.  Deposits (excluding all time deposits, CDARS deposits, and short-term deposits from one customer of $19.0 million at December 31, 2013 and $271.9 million at December 31, 2012) increased $70.8 million, or 8%, to $954.6 million at December 31, 2013, from $883.8 million at December 31, 2012, and increased $53.5 million, or 6%, from $901.0 million at September 30, 2013.

The total cost of deposits decreased 4 basis points to 0.18% for the fourth quarter of 2013, from 0.22% for the fourth quarter of 2012, and decreased 1 basis point from 0.19% for the third quarter of 2013.  The total cost of deposits decreased 6 basis points to 0.19% for the year ended December 31, 2013, from 0.25% for the year ended December 31, 2012.

During the third quarter of 2013, the Company completed the redemption of its $9 million floating-rate subordinated debt.  Consequently, there was no subordinated debt at the end of the third and fourth quarters of 2013, compared to $9.3 million at December 31, 2012.

Tangible equity was $171.9 million at December 31, 2013, compared to $167.7 million at December 31, 2012 and $168.8 million at September 30, 2013.  Tangible book value per common share was $5.78 at December 31, 2013, compared to $5.63 a year ago, and $5.67 at September 30, 2013.  There were 21,004 shares of Series C Preferred Stock outstanding at December 31, 2013, December 31, 2012, and September 30, 2013, and the Series C Preferred Stock is convertible into an aggregate of 5.6 million shares of common stock at a conversion price of $3.75, upon a transfer of the Series C Preferred Stock in a widely dispersed offering.  Pro forma tangible book value per common share, assuming the Company’s outstanding Series C Preferred Stock was converted into common stock, was $5.38 at December 31, 2013, compared to $5.25 a year ago, and $5.29 at September 30, 2013.

Accumulated other comprehensive loss was ($4.0) million at December 31, 2013, compared to accumulated other comprehensive income of $2.7 million a year ago, and accumulated other comprehensive loss of ($4.3) million at September 30, 2013. The decrease was primarily due to an unrealized loss on securities available-for-sale of ($1.4) million, net of taxes, at December 31, 2013, compared to an unrealized gain on securities available-for-sale of $6.9 million, net of taxes, at December 31, 2012.  At September 30, 2013 the unrealized loss on securities available-for-sale was ($69,000), net of taxes.  The components of other comprehensive loss, net of taxes, at December 31, 2013 include the following: an unrealized loss on available-for-sale securities of ($1.4) million; the remaining unamortized unrealized gain on securities available-for-sale transferred to held-to-maturity of $465,000; a liability adjustment on split dollar insurance contracts of ($1.9) million; a liability adjustment on the supplemental executive retirement plan of ($2.2) million; and an unrealized gain on interest-only strip from SBA loans of $956,000.

Heritage Commerce Corp, a bank holding company established in February 1998, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose with full-service branches in Danville, Fremont, Gilroy, Los Altos, Los Gatos, Morgan Hill, Pleasanton, Sunnyvale, and Walnut Creek.  Heritage Bank of Commerce is an SBA Preferred Lender with an additional Loan Production Office in Lincoln, California.  For more information, please visit www.heritagecommercecorp.com.

Forward Looking Statement Disclaimer

Forward-looking statements are based on management’s knowledge and belief as of today and include information concerning the Company’s possible or assumed future financial condition, and its results of operations, business and earnings outlook. These forward-looking statements are subject to risks and uncertainties. A number of factors, some of which are beyond the Company’s ability to control or predict, could cause future results to differ materially from those contemplated by such forward-looking statements. The forward-looking statements could be affected by many factors, including but not limited to: (1) competition for loans and deposits and failure to attract or retain deposits and loans; (2) local, regional, and national economic conditions and events and the impact they may have on us and our customers, and our assessment of that impact on our estimates including, the allowance for loan losses; (3) risks associated with concentrations in real estate related loans; (4) changes in the level of nonperforming assets and charge-offs and other credit quality measures, and their impact on the adequacy of the Company’s allowance for loan losses and the Company’s provision for loan losses; (5) the effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Federal Open Market Committee of the Federal Reserve Board; (6) stability of funding sources and continued availability of borrowings;  (7) our ability to raise capital or incur debt on reasonable terms; (8) regulatory limits on Heritage Bank of Commerce’s ability to pay dividends to the Company; (9) continued volatility in credit and equity markets and its effect on the global economy; (10) the impact of reputational risk on such matters as business generation and retention, funding and liquidity; (11) a prolonged  deterioration in values of California real estate; (12) a prolonged slowdown in construction activity; (13) the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and executive compensation) which we must comply, including but not limited to, the Dodd-Frank Act of 2010; (14) the effects of security breaches and computer viruses that may affect our computer systems; (15) changes in consumer spending, borrowings and saving habits; (16) changes in the competitive environment among financial or bank holding companies and other financial service providers; (17) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; (18) the costs and effects of legal and regulatory developments, including resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews; (19) the ability to increase market share and control expenses; and (20) our success in managing the risks involved in the foregoing items. For a discussion of factors which could cause results to differ, please see the Company’s reports on Forms 10-K and 10-Q as filed with the Securities and Exchange Commission and the Company’s press releases. Readers should not place undue reliance on the forward-looking statements, which reflect management's view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.

Member FDIC

	For the Quarter Ended:						Percent Change From:		For the Year Ended:
CONSOLIDATED INCOME STATEMENTS	Dec. 31,		Sep. 30,		Dec. 31,		Sep. 30,	Dec. 31,	Dec. 31,		Dec. 31,		Percent
(in $000's, unaudited)	2013		2013		2012		2013	2012	2013		2012		Change
Interest income	$	13,623	$	13,458	$	12,958	1%	5%	$	52,786	$	52,565	0%
Interest expense		574		627		747	-8%	-23%		2,600		4,187	-38%
Net interest income before provision for loan losses		13,049		12,831		12,211	2%	7%		50,186		48,378	4%
Provision (credit) for loan losses		(12)		(534)		669	98%	-102%		(816)		2,784	-129%
Net interest income after provision for loan losses		13,061		13,365		11,542	-2%	13%		51,002		45,594	12%
Noninterest income:
Service charges and fees on deposit accounts		617		645		567	-4%	9%		2,457		2,333	5%
Increase in cash surrender value of life insurance		414		414		428	0%	-3%		1,654		1,720	-4%
Servicing income		365		331		407	10%	-10%		1,446		1,743	-17%
Gain on sales of SBA loans		76		103		69	-26%	10%		449		702	-36%
Gain on sales of securities		-		-		396	N/A	-100%		38		1,560	-98%
Other		426		245		237	74%	80%		1,170		807	45%
Total noninterest income		1,898		1,738		2,104	9%	-10%		7,214		8,865	-19%
Noninterest expense:
Salaries and employee benefits		5,803		5,772		5,342	1%	9%		23,450		21,722	8%
Occupancy and equipment		961		986		993	-3%	-3%		4,043		3,997	1%
Professional fees		604		602		608	0%	-1%		2,588		2,876	-10%
Other		2,804		3,020		2,856	-7%	-2%		11,641		11,661	0%
Total noninterest expense		10,172		10,380		9,799	-2%	4%		41,722		40,256	4%
Income before income taxes		4,787		4,723		3,847	1%	24%		16,494		14,203	16%
Income tax expense		1,433		1,510		1,178	-5%	22%		4,954		4,294	15%
Net income		3,354		3,213		2,669	4%	26%		11,540		9,909	16%
Dividends and discount accretion on preferred stock		-		-		-	N/A	N/A		-		(1,206)	-100%
Net income available to common shareholders	$	3,354	$	3,213	$	2,669	4%	26%	$	11,540	$	8,703	33%
PER COMMON SHARE DATA
(unaudited)
Basic earnings per share	$	0.10	$	0.10	$	0.08	0%	25%	$	0.36	$	0.27	33%
Diluted earnings per share	$	0.10	$	0.10	$	0.08	0%	25%	$	0.36	$	0.27	33%
Common shares outstanding at period-end		26,350,938		26,341,021		26,322,147	0%	0%		26,350,938		26,322,147	0%
Pro forma common shares outstanding at period-end, assuming
Series C preferred stock was converted  into common stock		31,951,938		31,942,021		31,923,147	0%	0%		31,951,938		31,923,147	0%
Book value per share	$	5.84	$	5.73	$	5.71	2%	2%	$	5.84	$	5.71	2%
Tangible book value per share	$	5.78	$	5.67	$	5.63	2%	3%	$	5.78	$	5.63	3%
Pro forma tangible book value per share, assuming Series C
preferred stock was converted into common stock	$	5.38	$	5.29	$	5.25	2%	2%	$	5.38	$	5.25	2%
KEY FINANCIAL RATIOS
(unaudited)
Annualized return on average equity		7.74%		7.58%		6.25%	2%	24%		6.77%		5.75%	18%
Annualized return on average tangible equity		7.81%		7.65%		6.32%	2%	24%		6.84%		5.83%	17%
Annualized return on average assets		0.89%		0.90%		0.75%	-1%	19%		0.81%		0.73%	11%
Annualized return on average tangible assets		0.89%		0.90%		0.75%	-1%	19%		0.81%		0.73%	11%
Net interest margin		3.80%		3.94%		3.74%	-4%	2%		3.84%		3.88%	-1%
Efficiency ratio		68.05%		71.25%		68.45%	-4%	-1%		72.69%		70.32%	3%
AVERAGE BALANCES
(in $000's, unaudited)
Average assets	$	1,489,600	$	1,419,481	$	1,409,298	5%	6%	$	1,431,398	$	1,353,434	6%
Average tangible assets	$	1,488,001	$	1,417,765	$	1,407,222	5%	6%	$	1,429,624	$	1,351,176	6%
Average earning assets	$	1,388,239	$	1,316,037	$	1,305,332	5%	6%	$	1,329,936	$	1,249,020	6%
Average loans held-for-sale	$	4,942	$	6,780	$	3,036	-27%	63%	$	5,051	$	2,735	85%
Average total loans	$	881,830	$	870,637	$	796,045	1%	11%	$	840,252	$	784,297	7%
Average deposits	$	1,282,358	$	1,211,678	$	1,191,895	6%	8%	$	1,220,044	$	1,123,762	9%
Average demand deposits - noninterest-bearing	$	437,661	$	418,657	$	457,214	5%	-4%	$	427,299	$	392,131	9%
Average interest-bearing deposits	$	844,697	$	793,021	$	734,681	7%	15%	$	792,745	$	731,631	8%
Average interest-bearing liabilities	$	844,771	$	797,931	$	745,067	6%	13%	$	798,690	$	752,201	6%
Average equity	$	171,952	$	168,254	$	170,004	2%	1%	$	170,391	$	172,193	-1%
Average tangible equity	$	170,353	$	166,538	$	167,928	2%	1%	$	168,617	$	169,935	-1%

	End of Period:						Percent Change From:
CONSOLIDATED BALANCE SHEETS	December 31,		September 30,		December 31,		September 30,	December 31,
(in $000's, unaudited)	2013		2013		2012		2013	2012
ASSETS
Cash and due from banks	$	20,158	$	32,571	$	16,520	-38%	22%
Federal funds sold and interest-bearing
deposits in other financial institutions		92,447		9,327		357,045	891%	-74%
Securities available-for-sale, at fair value		280,100		280,471		367,912	0%	-24%
Securities held-to-maturity, at amortized cost		95,921		89,732		51,472	7%	86%
Loans held-for-sale - SBA, including deferred costs		3,148		6,975		3,409	-55%	-8%
Loans:
Commercial		393,074		410,933		375,469	-4%	5%
Real estate:
Commercial and residential		423,288		387,777		354,934	9%	19%
Land and construction		31,443		30,780		22,352	2%	41%
Home equity		51,815		50,100		43,865	3%	18%
Consumer		15,677		13,712		15,714	14%	0%
Loans		915,297		893,302		812,334	2%	13%
Deferred loan fees		(384)		(250)		(21)	54%	1729%
Total loans, net of deferred fees		914,913		893,052		812,313	2%	13%
Allowance for loan losses		(19,164)		(19,342)		(19,027)	-1%	1%
Loans, net		895,749		873,710		793,286	3%	13%
Company owned life insurance		50,012		49,598		48,358	1%	3%
Premises and equipment, net		7,240		7,390		7,469	-2%	-3%
Intangible assets		1,527		1,645		2,000	-7%	-24%
Accrued interest receivable and other assets		45,330		49,216		45,841	-8%	-1%
Total assets	$	1,491,632	$	1,400,635	$	1,693,312	6%	-12%
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, noninterest-bearing	$	431,085	$	409,269	$	727,684	5%	-41%
Demand, interest-bearing		195,451		178,783		155,951	9%	25%
Savings and money market		347,052		312,991		272,047	11%	28%
Time deposits - under $100		21,646		22,029		25,157	-2%	-14%
Time deposits - $100 and over		195,005		195,321		190,502	0%	2%
Time deposits - brokered		55,524		62,833		97,807	-12%	-43%
CDARS - money market and time deposits		40,458		14,311		10,220	183%	296%
Total deposits		1,286,221		1,195,537		1,479,368	8%	-13%
Subordinated debt		-		-		9,279	N/A	-100%
Accrued interest payable and other liabilities		32,015		34,613		34,924	-8%	-8%
Total liabilities		1,318,236		1,230,150		1,523,571	7%	-13%
Shareholders' Equity:
Series C preferred stock, net		19,519		19,519		19,519	0%	0%
Common stock		132,561		132,298		131,820	0%	1%
Retained earnings		25,345		22,949		15,721	10%	61%
Accumulated other comprehensive income (loss)		(4,029)		(4,281)		2,681	6%	-250%
Total shareholders' equity		173,396		170,485		169,741	2%	2%
Total liabilities and shareholders' equity	$	1,491,632	$	1,400,635	$	1,693,312	6%	-12%

	End of Period:						Percent Change From:
	December 31,		September 30,		December 31,		September 30,	December 31,
	2013		2013		2012		2013	2012
CREDIT QUALITY DATA
(in $000's, unaudited)
Nonaccrual loans - held-for-investment	$	11,326	$	14,615		17,335	-23%	-35%
Restructured and loans over 90 days past due and still accruing		492		502		859	-2%	-43%
Total nonperforming loans		11,818		15,117		18,194	-22%	-35%
Foreclosed assets		575		631		1,270	-9%	-55%
Total nonperforming assets	$	12,393	$	15,748	$	19,464	-21%	-36%
Other restructured loans still accruing	$	-	$	10	$	1,450	-100%	-100%
Net (recoveries) charge-offs during the quarter	$	166	$	(534)	$	766	131%	-78%
Provision (credit) for loan losses during the quarter	$	(12)	$	(534)	$	669	98%	-102%
Allowance for loan losses	$	19,164	$	19,342	$	19,027	-1%	1%
Classified assets*	$	23,631	$	23,342	$	36,810	1%	-36%
Allowance for loan losses to total loans		2.09%		2.17%		2.34%	-4%	-11%
Allowance for loan losses to total nonperforming loans		162.16%		127.95%		104.58%	27%	55%
Nonperforming assets to total assets		0.83%		1.12%		1.15%	-26%	-28%
Nonperforming loans to total loans		1.29%		1.69%		2.24%	-24%	-42%
Classified assets* to Heritage Commerce Corp Tier 1
capital plus allowance for loan losses		13%		13%		21%	0%	-38%
Classified assets* to Heritage Bank of Commerce Tier 1
capital plus allowance for loan losses		14%		14%		22%	0%	-36%
OTHER PERIOD-END STATISTICS
(in $000's, unaudited)
Heritage Commerce Corp:
Tangible equity	$	171,869	$	168,840	$	167,741	2%	2%
Tangible common equity	$	152,350	$	149,321	$	148,222	2%	3%
Shareholders' equity / total assets		11.62%		12.17%		10.02%	-5%	16%
Tangible equity / tangible assets		11.53%		12.07%		9.92%	-4%	16%
Tangible common equity / tangible assets		10.22%		10.67%		8.76%	-4%	17%
Loan to deposit ratio		71.13%		74.70%		54.91%	-5%	30%
Noninterest-bearing deposits / total deposits		33.52%		34.23%		49.19%	-2%	-32%
Total risk-based capital ratio		15.2%		15.2%		16.2%	0%	-6%
Tier 1 risk-based capital ratio		14.0%		14.0%		15.0%	0%	-7%
Leverage ratio		11.1%		11.5%		11.5%	-3%	-3%
Heritage Bank of Commerce:
Total risk-based capital ratio		13.8%		13.7%		15.3%	1%	-10%
Tier 1 risk-based capital ratio		12.6%		12.5%		14.0%	1%	-10%
Leverage ratio		10.0%		10.2%		10.7%	-2%	-7%
*Net of SBA guarantees

	For the Quarter Ended					For the Quarter Ended
	December 31, 2013					December 31, 2012
			Interest		Average			Interest		Average
NET INTEREST INCOME AND NET INTEREST MARGIN	Average		Income/		Yield/	Average		Income/		Yield/
(in $000's, unaudited)	Balance		Expense		Rate	Balance		Expense		Rate
Assets:
Loans, gross(1)	$	886,772	$	10,696	4.79%	$	799,081	$	10,046	5.00%
Securities - taxable		305,615		2,365	3.07%		422,830		2,765	2.60%
Securities - tax exempt(2)		77,159		752	3.87%		16,878		165	3.88%
Federal funds sold and interest-bearing
deposits in other financial institutions		118,693		74	0.25%		66,543		40	0.24%
Total interest earning assets(2)		1,388,239		13,887	3.97%		1,305,332		13,016	3.97%
Cash and due from banks		24,095					22,341
Premises and equipment, net		7,357					7,569
Intangible assets		1,599					2,076
Other assets		68,310					71,980
Total assets	$	1,489,600				$	1,409,298
Liabilities and shareholders' equity:
Deposits:
Demand, noninterest-bearing	$	437,661				$	457,214
Demand, interest-bearing		188,869		72	0.15%		156,638		56	0.14%
Savings and money market		352,158		160	0.18%		278,019		123	0.18%
Time deposits - under $100		21,823		18	0.33%		25,668		27	0.42%
Time deposits - $100 and over		195,780		170	0.34%		176,144		226	0.51%
Time deposits - brokered		59,992		151	1.00%		92,702		222	0.95%
CDARS - money market and time deposits		26,075		2	0.03%		5,510		1	0.07%
Total interest-bearing deposits		844,697		573	0.27%		734,681		655	0.35%
Total deposits		1,282,358		573	0.18%		1,191,895		655	0.22%
Subordinated debt		-		-	N/A		9,279		91	3.90%
Short-term borrowings		74		1	5.36%		1,107		1	0.36%
Total interest-bearing liabilities		844,771		574	0.27%		745,067		747	0.40%
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds		1,282,432		574	0.18%		1,202,281		747	0.25%
Other liabilities		35,216					37,013
Total liabilities		1,317,648					1,239,294
Shareholders' equity		171,952					170,004
Total liabilities and shareholders' equity	$	1,489,600				$	1,409,298
Net interest income(2) / margin				13,313	3.80%				12,269	3.74%
Less tax equivalent adjustment(2)				(264)					(58)
Net interest income			$	13,049				$	12,211
(1)Includes loans held-for-sale. Yield amounts earned on loans include loan fees and costs. Nonaccrual loans are included in average balance.
(2)Reflects tax equivalent adjustment for tax exempt income based on a 35% tax rate.

	For the Year Ended					For the Year Ended
	December 31, 2013					December 31, 2012
			Interest		Average			Interest		Average
NET INTEREST INCOME AND NET INTEREST MARGIN	Average		Income/		Yield/	Average		Income/		Yield/
(in $000's, unaudited)	Balance		Expense		Rate	Balance		Expense		Rate
Assets:
Loans, gross(1)	$	845,303	$	41,570	4.92%	$	787,032	$	40,800	5.18%
Securities - taxable		339,778		9,472	2.79%		404,913		11,519	2.84%
Securities - tax exempt(2)		61,636		2,355	3.82%		4,575		172	3.77%
Federal funds sold and interest-bearing
deposits in other financial institutions		83,219		214	0.26%		52,500		134	0.26%
Total interest earning assets(2)		1,329,936		53,611	4.03%		1,249,020		52,625	4.21%
Cash and due from banks		23,510					21,583
Premises and equipment, net		7,500					7,774
Intangible assets		1,774					2,258
Other assets		68,678					72,799
Total assets	$	1,431,398				$	1,353,434
Liabilities and shareholders' equity:
Deposits:
Demand, noninterest-bearing	$	427,299				$	392,131
Demand, interest-bearing		172,615		246	0.14%		150,476		223	0.15%
Savings and money market		308,510		544	0.18%		288,980		611	0.21%
Time deposits - under $100		23,069		80	0.35%		27,337		132	0.48%
Time deposits - $100 and over		194,587		747	0.38%		167,804		958	0.57%
Time deposits - brokered		75,968		745	0.98%		91,278		867	0.95%
CDARS - money market and time deposits		17,996		7	0.04%		5,756		9	0.16%
Total interest-bearing deposits		792,745		2,369	0.30%		731,631		2,800	0.38%
Total deposits		1,220,044		2,369	0.19%		1,123,762		2,800	0.25%
Subordinated debt		5,816		229	3.94%		19,052		1,383	7.26%
Short-term borrowings		129		2	1.55%		1,518		4	0.26%
Total interest-bearing liabilities		798,690		2,600	0.33%		752,201		4,187	0.56%
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds		1,225,989		2,600	0.21%		1,144,332		4,187	0.37%
Other liabilities		35,018					36,909
Total liabilities		1,261,007					1,181,241
Shareholders' equity		170,391					172,193
Total liabilities and shareholders' equity	$	1,431,398				$	1,353,434
Net interest income(2) / margin				51,011	3.84%				48,438	3.88%
Less tax equivalent adjustment(2)				(825)					(60)
Net interest income			$	50,186				$	48,378
(1)Includes loans held-for-sale. Yield amounts earned on loans include loan fees and costs. Nonaccrual loans are included in average balance.
(2)Reflects tax equivalent adjustment for tax exempt income based on a 35% tax rate.

EX-99.2

Exhibit 99.2

Heritage Commerce Corp Raises Quarterly Cash Dividend to $0.04 Per Share

San Jose, California – January 23, 2014 – Heritage Commerce Corp (Nasdaq:HTBK), today announced that its Board of Directors increased the quarterly cash dividend to $0.04 per share, from $0.03 per share, to holders of common stock and Series C Preferred Stock (on an as converted basis).  The dividend will be paid on February 25, 2014, to shareholders of record on February 5, 2014.

“We are pleased with our year’s performance and the continued successful execution of our strategies to deliver improved profitability to Heritage.  The increase in our cash dividend is a way for us to share this success with our shareholders,” said Walter Kaczmarek, President and Chief Executive Officer.

Heritage Commerce Corp, a bank holding company established in February 1998, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose with full-service branches in Danville, Fremont, Gilroy, Los Altos, Los Gatos, Morgan Hill, Pleasanton, Sunnyvale, and Walnut Creek.  Heritage Bank of Commerce is an SBA Preferred Lender with an additional Loan Production Office in Lincoln, California.  For more information, please visit www.heritagecommercecorp.com.

Forward Looking Statement Disclaimer

Forward-looking statements are based on management’s knowledge and belief as of today and include information concerning the Company’s possible or assumed future financial condition, and its results of operations, business and earnings outlook. These forward-looking statements are subject to risks and uncertainties. A number of factors, some of which are beyond the Company’s ability to control or predict, could cause future results to differ materially from those contemplated by such forward-looking statements. The forward-looking statements could be affected by many factors, including but not limited to: (1) competition for loans and deposits and failure to attract or retain deposits and loans; (2) local, regional, and national economic conditions and events and the impact they may have on us and our customers, and our assessment of that impact on our estimates including, the allowance for loan losses; (3) risks associated with concentrations in real estate related loans; (4) changes in the level of nonperforming assets and charge-offs and other credit quality measures, and their impact on the adequacy of the Company’s allowance for loan losses and the Company’s provision for loan losses; (5) the effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Federal Open Market Committee of the Federal Reserve Board; (6) stability of funding sources and continued availability of borrowings;  (7) our ability to raise capital or incur debt on reasonable terms; (8) regulatory limits on Heritage Bank of Commerce’s ability to pay dividends to the Company; (9) continued volatility in credit and equity markets and its effect on the global economy; (10) the impact of reputational risk on such matters as business generation and retention, funding and liquidity; (11) a prolonged  deterioration in values of California real estate; (12) a prolonged slowdown in construction activity; (13) the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities, and executive compensation) which we must comply, including but not limited to, the Dodd-Frank Act of 2010; (14) the effects of security breaches and computer viruses that may affect our computer systems; (15) changes in consumer spending, borrowings and saving habits; (16) changes in the competitive environment among financial or bank holding companies and other financial service providers; (17) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; (18) the costs and effects of legal and regulatory developments, including resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews; (19) the ability to increase market share and control expenses; and (20) our success in managing the risks involved in the foregoing items. For a discussion of factors which could cause results to differ, please see the Company’s reports on Forms 10-K and 10-Q as filed with the Securities and Exchange Commission and the Company’s press releases. Readers should not place undue reliance on the forward-looking statements, which reflect management's view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.

Member FDIC