Heritage Commerce (HTBK) 8-K Entry into a Material Definitive Agreement

Exhibit 99.2

Heritage Commerce Corp Reports Second Quarter Profits Rise 25%

San Jose, CA - July 31, 2006 — Heritage Commerce Corp (Nasdaq: HTBK), parent company of Heritage Bank of Commerce, today reported improving efficiencies and an expanding net interest margin which produced a 25% increase in second quarter profits and 43% rise in year to date earnings, compared to the year earlier periods. For the second quarter ended June 30, 2006, net income was $4.2 million, or $0.35 per diluted share, compared to $3.3 million, or $0.27 per diluted share, for the same quarter a year ago. For the first half of 2006, net income rose to $8.6 million, or $0.71 per diluted share, compared to $6.0 million, or $0.49 per diluted share, in the first half of 2005.

Financial Highlights:

2Q06 vs. 2Q05 and 1Q06

·   Net interest margin increased to 4.98%, up 47 basis points from 2Q05 and up 8 basis points from 1Q06.

·   Net interest income increased to $12.6 million, a 9% increase from 2Q05 and up 4% from 1Q06.

·   The efficiency ratio improved to 57.06% from 62.22% in 2Q05 and 58.08% in 1Q06.

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

·   Return on average assets was 1.55%, compared to 1.08% a year ago.

·   Return on average equity was 14.93%, compared to 11.81% a year ago.

·   Nonperforming assets to total assets dropped to 0.15% from 0.51% a year ago.

·   Diluted earnings per share increased 45% to $0.71, compared to $0.49 a year ago.

“Higher yields on earning assets which improved our net interest margin, sound credit quality, and improved efficiency were keys to our profitability,” said Walter T. Kaczmarek, President and Chief Executive Officer.

Operating Results

Net interest income increased 9% to $12.6 million for the second quarter of 2006, compared to $11.6 million for the second quarter of 2005. For the first half of 2006, net interest income rose 9% to $24.8 million from $22.8 million for the same period of 2005. The net interest margin was 4.98% for the three months ended June 30, 2006, compared to 4.90% for the first quarter of 2006 and 4.51% for the three months ended June 30, 2005. For the first six months of 2006, net interest margin improved to 4.94% from 4.45% for the first six months of 2005.

Noninterest income was $2.3 million for the second quarter of 2006, down 14% when compared to $2.6 million for second quarter of 2005 and down 22% when compared to $2.9 million for the first quarter of 2006. In the first quarter of 2006, gain on sale of loans was augmented by a $671,000 gain from a loan portfolio sale. In the second quarter of 2005, equipment leasing contributed a total of $351,000 in noninterest income, and the bank exited this product line in mid-2005. Noninterest income was primarily comprised of the gain on sale of Small Business Administration (“SBA”) and other guaranteed loans, loan servicing income, the increase in cash surrender value of life insurance, and service charges on deposit accounts. In the first six months of 2006, noninterest income was $5.2 million, compared to $5.0 million in the first six months a year ago.

Noninterest expense decreased 4% to $8.5 million for the second quarter of 2006, compared to $8.9 million for the second quarter of 2005, and decreased 3% compared to the first quarter of 2006. In the first six months of 2006, noninterest expense decreased 5% to $17.3 million from $18.2 million in the first six months a year ago. Compensation expense decreased 9% from the first quarter to the second quarter, and decreased 8% compared to the second quarter a year ago. The decrease in compensation expense was primarily due to no executive severance payments and lower commission expense during the second quarter of 2006. Executive severance expense was $356,000 during the second quarter of 2005. Compensation expense decreased 4% for the first six months of 2006, compared to the first six months of 2005.

The efficiency ratio improved to 57.06% in the second quarter of 2006, compared to 58.08% in the first quarter of 2006, and 62.22% in the second quarter of 2005. The efficiency ratio for the first six months of 2006 improved to 57.57% from 65.35% a year ago. The annualized returns on average assets and average equity for the second quarter of 2006 were 1.50% and 14.35%, compared to 1.19% and 12.91% for the second quarter ended June 30, 2005, respectively. Returns on average assets and average equity for the first six months of 2006 were 1.55% and 14.93%, compared to 1.08% and 11.81% for the first six months of 2005, respectively.

Balance Sheet, Capital Management and Credit Quality

At June 30, 2006, total assets were $1.09 billion, compared to $1.10 billion at June 30, 2005, and $1.12 billion at March 31, 2006. Total deposits were $908.5 million at June 30, 2006, compared to $909.4 million at June 30, 2005, and $934.7 million at March 31, 2006. Total loans, excluding loans held for sale, were $713.8 million at June 30, 2006, compared to $713.7 million at June 30, 2005, and $695.9 million at March 31, 2006.

Nonperforming assets dropped to $1.6 million, or 0.15% of total assets, at June 30, 2006, compared to $5.6 million, or 0.51% of total assets, at June 30, 2005, and $2.5 million, or 0.23% of total assets, at March 31, 2006. A reverse provision for loan losses of $114,000 was recognized in the second quarter of 2006, and $489,000 in the first quarter of 2006, for a total of $603,000 year-to-date. Provision for loan losses was $394,000 and $807,000 for the three and six months ended June 30, 2005.

The allowance for loan losses was $9.1 million at June 30, 2006, representing 1.27% of total loans and 564% of nonperforming loans. The allowance for loan losses was $11.4 million at June 30, 2005, representing 1.60% of total loans and 206% of nonperforming loans. At March 31, 2006, the allowance for loan losses was $9.7 million or 1.40% of total loans and 385% of nonperforming loans. Net charge-offs in the second quarter of 2006 were $536,000, or 0.31% of average loans. Net charge-offs were $207,000, or 0.11% of average loans, in the second quarter of 2005. Net recoveries were $13,000, or 0.01% of average loans, at March 31, 2006.

Shareholders’ equity increased 13% to $118.0 million, or $9.98 book value per share, at June 30, 2006, compared to $104.2 million, or $8.87 book value per share, a year ago, and $115.2 million, or $9.73 book value per share, at March 31, 2006. Capital ratios continue to be above the well-capitalized guidelines established by regulatory agencies. The Company’s leverage ratio at June 30, 2006, was 12.70%, compared to 11.25% at June 30, 2005, and 12.49% at March 31, 2006.

During the second quarter of 2006, the Company repurchased 40,000 shares of its common stock with an average price of $23.44 under the Company’s $10 million common stock repurchase program, which was approved by the Company’s Board of Directors in February, 2006. Shares were purchased on the open market using available cash. The repurchase program, which is financed by available cash, may be modified, suspended or terminated by the Board of Directors at any time without notice. The repurchase program expires on June 30, 2007. The extent to which the Company repurchases its shares and the timing of such repurchases will depend upon market conditions and other corporate considerations.

Heritage Commerce Corp, a bank holding company established in February 1998, is the parent company of Heritage Bank of Commerce, established in 1994 and headquartered in San Jose with offices in Los Gatos, Fremont, Danville, Morgan Hill, Gilroy, Mountain View and Los Altos. Heritage Bank of Commerce is also an SBA Preferred Lender, operating from offices in San Jose, Fremont, Fresno, Santa Cruz, Watsonville and Pittsburg, California.

Forward Looking Statement Disclaimer

This release may contain forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties may include, but are not necessarily limited to, fluctuations in interest rates and monetary policy established by the Federal Reserve, inflation, government regulations, general economic conditions, competition within the business areas in which the Company is conducting its operations, including the real estate market in California, the ability to recognize identified cost savings, and other factors beyond the Company's control. Such risks and uncertainties could cause results for subsequent interim periods or for the entire year to differ materially from those indicated. For a discussion of factors which could cause results to differ, please see the Company's reports on Forms 10-K and 10-Q as filed with the Securities and Exchange Commission and the Company's press releases. Readers should not place undue reliance on the forward-looking statements, which reflect management's view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances.

Member FDIC

	For the Three Months Ended:									Percent Change From:						For the Six Months Ended:
CONSOLIDATED INCOME STATEMENTS	June 30,			March 31,			June 30,			March 31,			June 30,			June 30,			June 30,			Percent
(in $000's, unaudited)		2006			2006			2005			2006			2005			2006			2005			Change
Interest Income	$	18,392		$	17,260		$	15,299			7	%		20	%	$	35,652		$	29,698			20	%
Interest Expense		5,766			5,069			3,668			14	%		57	%		10,835			6,864			58	%
Net Interest Income		12,626			12,191			11,631			4	%		9	%		24,817			22,834			9	%
Provision for Loan Losses		(114	)		(489	)		394			77	%		-129	%		(603	)		807			-175	%
Net Interest income after Provision for Loan Losses		12,740			12,680			11,237			0	%		13	%		25,420			22,027			15	%
Noninterest Income:
Gain on Sale of Loans		842			1,497			698			-44	%		21	%		2,339			1,458			60	%
Servicing Income		441			468			466			-6	%		-5	%		909			858			6	%
Gain on Sale of Leased Equipment		0			0			299			N/	A		-100	%		0			299			-100	%
Increase in Cash Surrender Value of Life Insurance		360			347			290			4	%		24	%		707			556			27	%
Service Charges and Other Fees on Deposit Accounts		327			327			395			0	%		-17	%		654			788			-17	%
Equipment Leasing		0			0			52			N/	A		-100	%		0			131			-100	%
Other		287			255			438			13	%		-34	%		542			905			-40	%
Total Noninterest Income		2,257			2,894			2,638			-22	%		-14	%		5,151			4,995			3	%
Noninterest Expense:
Salaries & Employee Benefits		4,653			5,109			5,044			-9	%		-8	%		9,762			10,215			-4	%
Occupancy & Equipment		922			886			1,045			4	%		-12	%		1,808			2,095			-14	%
Other		2,917			2,766			2,789			5	%		5	%		5,683			5,878			-3	%
Total Noninterest Expense		8,492			8,761			8,878			-3	%		-4	%		17,253			18,188			-5	%
Income Before Income Taxes		6,505			6,813			4,997			-5	%		30	%		13,318			8,834			51	%
Provision for Income Taxes		2,316			2,437			1,657			-5	%		40	%		4,753			2,841			67	%
Net Income	$	4,189		$	4,376		$	3,340			-4	%		25	%	$	8,565		$	5,993			43	%
PER SHARE DATA
(unaudited)
Basic Earnings Per Share	$	0.35		$	0.37		$	0.28			-5	%		25	%	$	0.72		$	0.51			41	%
Diluted Earnings Per Share	$	0.35		$	0.36		$	0.27			-3	%		30	%	$	0.71		$	0.49			45	%
Common Shares Outstanding		11,820,563			11,834,846			11,741,309			0	%		1	%		11,820,563			11,741,309			1	%
Book Value Per Share	$	9.98		$	9.73		$	8.87			3	%		13	%	$	9.98		$	8.87			13	%
Tangible Book Value Per Share	$	9.98		$	9.73		$	8.87			3	%		13	%	$	9.98		$	8.87			13	%
KEY FINANCIAL RATIOS
(unaudited)
Annualized Return on Average Equity		14.35	%		15.53	%		12.91	%		-8	%		11	%		14.93	%		11.81	%		26	%
Annualized Return on Average Assets		1.50	%		1.59	%		1.19	%		-6	%		26	%		1.55	%		1.08	%		44	%
Net Interest Margin		4.98	%		4.90	%		4.51	%		2	%		10	%		4.94	%		4.45	%		11	%
Efficiency Ratio		57.06	%		58.08	%		62.22	%		-2	%		-8	%		57.57	%		65.35	%		-12	%
AVERAGE BALANCES
(in $000's, unaudited)
Average Assets	$	1,120,108		$	1,114,248		$	1,123,575			1	%		0	%	$	1,117,193		$	1,122,321			0	%
Average Earning Assets	$	1,017,290		$	1,009,869		$	1,035,083			1	%		-2	%	$	1,013,600		$	1,034,131			-2	%
Average Total Loans	$	702,817		$	691,082		$	723,130			2	%		-3	%	$	702,376		$	726,586			-3	%
Average Loans Held For Sale	$	32,494		$	49,315		$	33,232			-34	%		-2	%	$	35,464		$	35,426			0	%
Average Deposits	$	929,000		$	919,944		$	928,959			1	%		0	%	$	924,496		$	927,485			0	%
Average Demand Deposits - Noninterest Bearing	$	228,891		$	235,288		$	257,054			-3	%		-11	%	$	232,072		$	259,251			-10	%
Average Interest Bearing Deposits	$	700,109		$	684,656		$	671,905			2	%		4	%	$	692,424		$	668,234			4	%
Average Interest Bearing Liabilities	$	749,533		$	740,911		$	742,785			1	%		1	%	$	745,245		$	740,600			1	%
Average Equity	$	117,126		$	114,268		$	103,745			3	%		13	%	$	115,705		$	102,342			13	%
OTHER FINANCIAL INFORMATION
(in $000's, unaudited)	$	15,344		$	14,721		$	13,121			4	%		17	%	$	30,065		$	25,466			18	%
Interest Income on Gross Loans (including loan fees)	$	5,033		$	4,319		$	2,883			17	%		75	%	$	9,352		$	5,293			77	%
Interest Expense on Interest Bearing Deposits

		End of Period:									Percent Change From:
CONSOLIDATED BALANCE SHEETS			June 30,			March 31,			June 30,			March 31,		June 30,
(in $000's, unaudited)			2006			2006			2005			2006		2005
ASSETS
Cash and Due from Banks		$	39,390		$	40,065			34,685			-2	%	14	%
Federal Funds Sold			47,000			94,200			26,300			-50	%	79	%
Securities Available-for-Sale, at Fair Value			191,471			186,168			226,630			3	%	-16	%
Loans Held For Sale			30,325			30,745			35,702			-1	%	-15	%
Loans:
Commercial Loans			273,208			262,625			291,774			4	%	-6	%
Real Estate-Mortgage			242,125			232,790			240,287			4	%	1	%
Real Estate-Land and Construction			149,168			156,468			129,708			-5	%	15	%
Home Equity			46,690			41,429			49,184			13	%	-5	%
Consumer Loans			1,389			1,495			1,945			-7	%	-29	%
Total Loans			712,580			694,807			712,898			3	%	0	%
Deferred Loan Costs			1,184			1,058			793			12	%	49	%
Loans, Net of Deferred Costs			713,764			695,865			713,691			3	%	0	%
Allowance for Loan Losses			(9,098	)		(9,748	)		(11,436	)		-7	%	-20	%
Net Loans			704,666			686,117			702,255			3	%	0	%
Premises & Equipment, Net			2,406			2,389			2,846			1	%	-15	%
Accrued Interest Receivable and Other Assets			79,406			80,358			69,278			-1	%	15	%
Total Assets		$	1,094,664		$	1,120,042		$	1,097,696			-2	%	0	%
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Demand Deposits-Noninterest Bearing		$	221,438		$	243,816			256,859			-9	%	-14	%
Demand Deposits-Interest Bearing			144,120			154,277			129,655			-7	%	11	%
Savings and Money Market			366,892			352,304			322,229			4	%	14	%
Time Deposits, Under $100			31,476			33,003			37,841			-5	%	-17	%
Time Deposits, $100 and Over			110,513			115,293			124,760			-4	%	-11	%
Brokered Deposits, $100 and Over			34,048			36,040			38,090			-6	%	-11	%
Total Deposits			908,487			934,733			909,434			-3	%	0	%
Securities Sold under Agreement to Repurchase			21,800			26,100			40,700			-16	%	-46	%
Notes Payable To Subsidiary Grantor Trusts			23,702			23,702			23,702			0	%	0	%
Accrued Interest Payable and Other Liabilities			22,708			20,310			19,675			12	%	15	%
Total Liabilities			976,697			1,004,845			993,511			-3	%	-2	%
Shareholders' Equity:
Common Stock			66,726			67,120			66,644			-1	%	0	%
Accumulated Other Comprehensive Loss			(3,681	)		(3,247	)		(1,545	)		13	%	138	%
Retained Earnings			54,922			51,324			39,086			7	%	41	%
Total Shareholders' Equity			117,967			115,197			104,185			2	%	13	%
Total Liabilities & Shareholders' Equity		$	1,094,664		$	1,120,042		$	1,097,696			-2	%	0	%
CREDIT QUALITY DATA
(in $000's, unaudited)
Nonaccrual Loans		$	1,612		$	2,292		$	5,016			-30	%	-68	%
Loans Over 90 Days Past Due and Still Accruing			0			238			545			-100	%	-100	%
Total Nonperforming Loans			1,612			2,530			5,561			-36	%	-71	%
Other Real Estate Owned			0			0			0			N/	A	N/	A
Total Nonperforming Assets		$	1,612		$	2,530		$	5,561			-36	%	-71	%
Net Charge-offs (Recoveries)		$	536		$	(13	)	$	207			4223	%	159	%
Net Charge-offs (Recoveries) as Percent of Average Loans			0.31	%		-0.01	%		0.11	%		3200	%	182	%
Allowance for Loan Losses to Total Loans			1.27	%		1.40	%		1.60	%		-9	%	-21	%
Allowance for Loan Losses to Nonperforming Loans			564.39	%		385.30	%		205.65	%		46	%	174	%
Nonperforming Assets to Total Assets	��		0.15	%		0.23	%		0.51	%		-35	%	-71	%
Nonperforming Loans to Total Loans			0.23	%		0.36	%		0.78	%		-36	%	-71	%
OTHER PERIOD-END STATISTICS
(unaudited)
Shareholders' Equity / Total Assets			10.78	%		10.29	%		9.49	%		5	%	14	%
Loan to Deposit Ratio			78.57	%		74.45	%		78.48	%		6	%	0	%
Noninterest Bearing Deposits / Total Deposits			24.37	%		26.08	%		28.24	%		-7	%	-14	%
Leverage Ratio			12.70	%		12.49	%		11.25	%		2	%	13	%

	For the Three Months Ended							For the Three Months Ended
	June 30, 2006							June 30, 2005
			Interest		Average					Interest		Average
NET INTEREST INCOME AND NET INTEREST MARGIN	Average		Income/		Yield/			Average		Income/		Yield/
(in $000's unaudited)	Balance		Expense		Rate			Balance		Expense		Rate
Assets:
Loans, gross	$	735,311	$	15,344		8.37	%	$	756,362	$	13,121		6.96	%
Securities		195,743		1,977		4.05	%		230,781		1,835		3.19	%
Interest bearing deposits in other financial institutions		2,728		42		6.18	%		2,724		18		2.65	%
Federal funds sold		83,508		1,029		4.94	%		45,216		325		2.88	%
Total interest earning assets		1,017,290		18,392		7.25	%		1,035,083		15,299		5.93	%
Cash and due from banks		36,224							36,326
Premises and equipment, net		2,393							2,934
Other assets		64,201							49,232
Total assets	$	1,120,108						$	1,123,575
Liabilities and shareholders' equity:
Deposits:
Demand, interest bearing	$	148,635	$	830		2.24	%	$	133,184	$	393		1.18	%
Savings and money market		373,697		2,698		2.90	%		341,168		1,196		1.41	%
Time deposits, under $100		32,264		283		3.52	%		37,897		224		2.37	%
Time deposits, $100 and over		111,024		897		3.24	%		121,146		717		2.37	%
Brokered time deposits, $100 and over		34,489		325		3.78	%		38,510		353		3.68	%
Notes payable to subsidiary grantor trusts		23,702		575		9.73	%		23,702		525		8.88	%
Securities sold under agreement to repurchase		25,722		158		2.46	%		47,178		260		2.21	%
Total interest bearing liabilities		749,533	$	5,766		3.09	%		742,785	$	3,668		1.98	%
Demand, noninterest bearing		228,891							257,054
Other liabilities		24,558							19,991
Total liabilities		1,002,982							1,019,830
Shareholders' equity:		117,126							103,745
Total liabilities and shareholders' equity	$	1,120,108						$	1,123,575
Net interest income / margin			$	12,626		4.98	%			$	11,631		4.51	%

	For the Six Months Ended							For the Six Months Ended
	June 30, 2006							June 30, 2005
			Interest		Average					Interest		Average
NET INTEREST INCOME AND NET INTEREST MARGIN	Average		Income/		Yield/			Average		Income/		Yield/
(in $000's unaudited)	Balance		Expense		Rate			Balance		Expense		Rate
Assets:
Loans, gross	$	737,840	$	30,065		8.22	%	$	762,012	$	25,466		6.74	%
Securities		198,394		3,769		3.83	%		232,611		3,699		3.21	%
Interest bearing deposits in other financial institutions		2,783		60		4.35	%		2,639		31		2.37	%
Federal funds sold		74,583		1,758		4.75	%		36,869		502		2.75	%
Total interest earning assets		1,013,600		35,652		7.09	%		1,034,131		29,698		5.79	%
Cash and due from banks		36,588							37,407
Premises and equipment, net		2,435							3,031
Other assets		64,570							47,752
Total assets	$	1,117,193						$	1,122,321
Liabilities and shareholders' equity:
Deposits:
Demand, interest bearing	$	153,288	$	1,668		2.19	%	$	130,113	$	686		1.06	%
Savings and money market		360,983		4,779		2.67	%		350,659		2,319		1.33	%
Time deposits, under $100		33,232		557		3.38	%		37,879		408		2.17	%
Time deposits, $100 and over		109,656		1,690		3.11	%		115,429		1,266		2.21	%
Brokered time deposits, $100 and over		35,265		658		3.76	%		34,154		614		3.63	%
Notes payable to subsidiary grantor trusts		23,702		1,137		9.67	%		23,702		1,037		8.82	%
Securities sold under agreement to repurchase		29,119		346		2.40	%		48,664		534		2.21	%
Total interest bearing liabilities		745,245	$	10,835		2.93	%		740,600	$	6,864		1.87	%
Demand, noninterest bearing		232,072							259,251
Other liabilities		24,171							20,128
Total liabilities		1,001,488							1,019,979
Shareholders' equity:		115,705							102,342
Total liabilities and shareholders' equity	$	1,117,193						$	1,122,321
Net interest income / margin			$	24,817		4.94	%			$	22,834		4.45	%