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


                                    FORM 10-K


 (Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

                 For the fiscal year ended DECEMBER 31, 2006 or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

               For the transition period from __________________to


                                    000-50974
                            ________________________
                            (Commission File Number)


                            BRIDGE CAPITAL HOLDINGS
             ______________________________________________________
             (Exact name of registrant as specified in its charter)


          CALIFORNIA                                   80-0123855
_______________________________          _______________________________________
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
 incorporation or organization)


                    55 ALMADEN BOULEVARD, SAN JOSE, CA 95113
               __________________________________________________
               (Address of principal executive offices, Zip Code)


       Registrant's telephone number, including area code: (408) 423-8500


Securities registered pursuant to Section 12 (b) of the Act:

                                                           NAME OF EACH EXCHANGE
   TITLE OF EACH CLASS                                      ON WHICH REGISTERED
__________________________                                 _____________________
Common Stock, no par value                                 Nasdaq Capital Market

 Securities registered pursuant to Section 12 (g) of the Act:

                               TITLE OF EACH CLASS
                               ___________________
                                      None


     Indicate by check mark if the registrant is a well-known  seasoned  issuer,
as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

     Indicate by check mark if the  registrant  is not  required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

     Bridge Capital  Holdings (1) has filed all reports  required to be filed by
section 13 or 15(d) of the Securities  Exchange Act of 1934 during the preceding
12 months and (2) has been subject to such filing  requirements  for the past 90
days. Yes X No .

     Indicate by checkmark if disclosure of delinquent  filers  pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
(Check one): Large accelerated  filer [ ] Accelerated filer [X]  Non-accelerated
filer [ ]

     Indicate  by check mark  whether  the  registrant  is a shell  company  (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]

     The aggregate  market value of the voting stock held by  non-affiliates  of
Bridge Capital Holdings was $95,314,418 as of June 30, 2006.

     As of March 1, 2007,  Bridge  Capital  Holdings  had  6,368,224,  shares of
common stock outstanding.

     Documents incorporated by reference:  The Company's Proxy Statement for its
2007 Annual Meeting of Shareholders is incorporated  herein by reference in Part
III, Items 10 through 14.


                                       1


<PAGE>

FORWARD-LOOKING STATEMENTS

IN ADDITION TO THE HISTORICAL  INFORMATION,  THIS ANNUAL REPORT CONTAINS CERTAIN
FORWARD-LOOKING  INFORMATION WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS  AMENDED,  AND  WHICH  ARE  SUBJECT  TO THE "SAFE  HARBOR"  CREATED  BY THOSE
SECTIONS.  THE READER OF THIS  ANNUAL  REPORT  SHOULD  UNDERSTAND  THAT ALL SUCH
FORWARD-LOOKING  STATEMENTS ARE SUBJECT TO VARIOUS  UNCERTAINTIES AND RISKS THAT
COULD AFFECT THEIR OUTCOME. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM  THOSE  SUGGESTED  BY  SUCH  FORWARD-LOOKING  STATEMENTS.  SUCH  RISKS  AND
UNCERTAINTIES  INCLUDE,  AMONG OTHERS,  (1) COMPETITIVE  PRESSURE IN THE BANKING
INDUSTRY INCREASES  SIGNIFICANTLY;  (2) CHANGES IN THE INTEREST RATE ENVIRONMENT
REDUCES  MARGINS;  (3)  GENERAL  ECONOMIC   CONDITIONS,   EITHER  NATIONALLY  OR
REGIONALLY, ARE LESS FAVORABLE THAN EXPECTED,  RESULTING IN, AMONG OTHER THINGS,
A DETERIORATION  IN CREDIT QUALITY;  (4) CHANGES IN THE REGULATORY  ENVIRONMENT;
(5) CHANGES IN BUSINESS  CONDITIONS  AND  INFLATION;  (6) COSTS AND  EXPENSES OF
COMPLYING WITH THE INTERNAL CONTROL PROVISIONS OF THE SARBANES-OXLEY ACT AND OUR
DEGREE OF SUCCESS IN ACHIEVING  COMPLIANCE;  (7) CHANGES IN SECURITIES  MARKETS;
(8) FUTURE CREDIT LOSS EXPERIENCE;  (9) CIVIL  DISTURBANCES OR TERRORIST THREATS
OR ACTS, OR APPREHENSION  ABOUT POSSIBLE FUTURE OCCURANCES OF ACTS OF THIS TYPE;
(10) THE INVOLVEMENT OF THE UNITED STATES IN WAR OR OTHER HOSTILITIES;  AND (11)
THE MATTERS  DISCUSSED IN THIS REPORT UNDER "ITEM 1A - RISK FACTORS" AND "ITEM 7
-  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF
OPERATIONS - CRITICAL ACCOUNTING  POLICIES.  THEREFORE,  THE INFORMATION IN THIS
ANNUAL REPORT SHOULD BE CAREFULLY  CONSIDERED  AGAINST THESE  UNCERTAINTIES  AND
RISKS WHEN EVALUATING THE BUSINESS PROSPECTS OF THE COMPANY.

FORWARD-LOOKING  STATEMENTS ARE GENERALLY  IDENTIFIABLE BY THE USE OF TERMS SUCH
AS "BELIEVE," "EXPECT," "INTEND," "ANTICIPATE," "ESTIMATE," "PROJECT," "ASSUME,"
"PLAN," "PREDICT," "FORECAST," "IN MANAGEMENT'S OPINION," "MANAGEMENT CONSIDERS"
OR SIMILAR  EXPRESSIONS.  WHEREVER SUCH PHRASES ARE USED, SUCH STATEMENTS ARE AS
OF AND BASED UPON THE KNOWLEDGE OF MANAGEMENT,  AT THE TIME MADE AND ARE SUBJECT
TO CHANGE BY THE PASSAGE OF TIME AND/OR SUBSEQUENT  EVENTS, AND ACCORDINGLY SUCH
STATEMENTS  ARE  SUBJECT TO THE SAME RISKS AND  UNCERTAINTIES  NOTED  ABOVE WITH
RESPECT TO FORWARD-LOOKING STATEMENTS.

ALL OF THE  COMPANY'S  OPERATIONS  AND  MOST OF ITS  CUSTOMERS  ARE  LOCATED  IN
CALIFORNIA.  OTHER EVENTS, INCLUDING THOSE OF SEPTEMBER 11, 2001, HAVE INCREASED
THE  UNCERTAINTY  RELATED TO THE NATIONAL AND  CALIFORNIA  ECONOMIC  OUTLOOK AND
COULD HAVE AN EFFECT ON THE FUTURE  OPERATIONS OF THE COMPANY OR ITS  CUSTOMERS,
INCLUDING BORROWERS.  THE COMPANY DOES NOT UNDERTAKE, AND SPECIFICALLY DISCLAIMS
ANY OBLIGATION, TO UPDATE ANY FORWARD-LOOKING  STATEMENTS TO REFLECT OCCURRENCES
OR UNANTICIPATED EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS.


                                       2


<PAGE>


                                     PART 1


ITEM 1.  BUSINESS


GENERAL

On July 26, 2000 an Application to Obtain a National Banking Charter and Federal
Deposit   Insurance  was  filed  with  the  Comptroller  of  the  Currency  (the
"Comptroller") and with the Federal Deposit Insurance  Corporation (the "FDIC").
The  Comptroller  approved  the  Application  on November  17, 2000 and the FDIC
approved the Bank's  Application for Federal Deposit  Insurance for Bridge Bank,
National  Association.  On December 6, 2000, the Bank's  Articles of Association
and  Organizers'  Certificate  were  adopted  by the  Bank's  organizers,  which
established  the Bank's  corporate  existence.  There are no predecessors to the
Bank.

The Bank  commenced  operations  on May 14,  2001.  The Bank  engages in general
commercial  banking business,  and accepts checking and savings deposits,  makes
commercial, real estate, auto and other installment and term loans, and provides
other customary banking services. The Bank attracts the majority of its loan and
deposit  business  from the  residents  and  numerous  small and  middle  market
businesses  and   professional   firms  located  in  Santa  Clara  County.   Its
headquarters  office is located at 55 Almaden  Boulevard,  San Jose,  California
95113.

In  2002,  the  Bank  opened  a  full-service  branch  office  in Palo  Alto and
established a U.S. Small Business  Administration  Lending Group that includes a
regional loan production office in Sacramento  county.  Also, it launched Bridge
Capital Finance Group, a factoring and asset-based  lending division with a loan
production  office in Santa Clara.  During the year ended December 31, 2003, the
Bank opened an office in downtown San Jose and established a U.S. Small business
Administration regional loan production office in San Diego county.

On October 1, 2004,  Bridge Bank,  National  Association (the "Bank")  announced
completion  of  a  bank  holding   company   structure  which  was  approved  by
shareholders  at the Bank's annual  shareholders'  meeting held on May 20, 2004.
The bank holding company,  formed as a California  corporation,  is named Bridge
Capital  Holdings  (the  "Company").  Information  in this report dated prior to
September 30, 2004 is for Bridge Bank, National Association.

Bridge  Capital  Holdings  was formed for the  purpose of serving as the holding
company for Bridge Bank, National  Association and is supervised by the Board of
Governors  of the Federal  Reserve  System.  Effective  October 1, 2004,  Bridge
Capital  Holdings  acquired 100% of the voting  shares of Bridge Bank,  National
Association.  As a result of the transaction,  the former shareholders of Bridge
Bank, National  Association received one share of common stock of Bridge Capital
Holdings  for  every  one  share  of  common  stock  of  Bridge  Bank,  National
Association owned.

Prior to the share  exchange,  the common stock of the Bank had been  registered
with the  Office  of  Comptroller  of the  Currency.  As a result  of the  share
exchange,  common stock of Bridge Capital Holdings is now considered  registered
with the  Securities and Exchange  Commission.  Future filings will be made with
the SEC rather than the Office of the  Comptroller  of the  Currency and will be
available on the SEC's website,  HTTP://WWW.SEC.GOV  as well as on the Company's
website HTTP://WWW.BRIDGEBANK.COM.


The Bank provides the local  business and  professional  community  with banking
services  tailored to the unique needs of the Silicon Valley.  The Bank does not
offer trust services, but it will attempt to make such services available to the
Bank's customers through  correspondent  institutions.  The deposits of the Bank
are insured by the FDIC,  up to applicable  limits,  and the Bank is a member of
the Federal Reserve System.

In addition, the Bank provides some specialized services to its customers. These
services  include  courier  deposit  services  to  key  locations  or  customers
throughout the Bank's service area, Small Business  Administration  (SBA) loans,
factoring  and  asset-based  loans and Internet  banking.  The Bank reserves the
right to change  its  business  plan at any time and no  assurance  can be given
that,  if  the  Bank's  proposed  business  plan  is  followed,  it  will  prove
successful.

At December  31,  2006,  the Company had total  assets of  approximately  $722.0
million,  total  gross  loans of $540.8  million  and total  deposits  of $645.0
million.  At  December  31,  2006,  the  Company  had 134  full-time  equivalent
employees.


                                       3


<PAGE>


DEPOSITS

The Bank offers a wide range of deposit  accounts  designed to attract small and
medium size commercial  businesses as well as business  professionals and retail
customers,  including a complete line of checking and savings products,  such as
passbook savings, "Money Market Deposit" accounts which require minimum balances
and frequency of withdrawal  limitations,  NOW accounts,  and bundled  accounts.
Other accounts offered by the Bank include term certificates of deposit.

Other  deposit  services  include  a full  complement  of  convenience  oriented
services,  including  direct  payroll  and social  security  deposit,  post-paid
bank-by-mail,   and  Internet  banking,  including  on-line  access  to  account
information.  However, at this time, the Bank does not open accounts through the
Internet.  Any plans to offer online account opening must be approved in advance
by the  Comptroller.  No  assurance  can be given  that,  if applied  for,  such
approval will be obtained.

As the Bank has no automated teller machines, the Bank may refund all or portion
of transaction charges incurred by its customers for their use of another bank's
ATM. The majority of the Bank's deposits are obtained from businesses located in
the Bank's primary service area.


LENDING ACTIVITIES

The Bank  engages  in a full  range of  lending  products  designed  to meet the
specialized  needs of its customers,  including  commercial  lines of credit and
term  loans,   constructions   loans,   equipment  loans,  and  mortgage  loans.
Additionally,  the Bank extends  accounts  receivable,  factoring  and inventory
financing  to  qualified  customers.  Loans are also  offered  through the Small
Business  Administration  guarantee 7(a) and 504 loan programs  (described below
under "Item 7. Management's  Discussion and Analysis of Financial  Condition and
Results of Operations--FINANCIAL CONDITION AND EARNING ASSETS--Loan Portfolio").

The  Bank  finances  real  estate  construction  projects,   primarily  for  the
construction  of owner  occupied and 1 to 4 unit  residential  developments  and
commercial buildings under $3 million in loan size.

The Bank directs its commercial  lending  principally  toward  businesses  whose
demands for credit fall within the Bank's lending limit.  In the event there are
customers whose  commercial  loan demands exceed the Bank's lending limits,  the
Bank  seeks to  arrange  for such  loans on a  participation  basis  with  other
financial institutions.

The Bank also  extends  lines of credit to  individual  borrowers,  and provides
homeowner equity loans, home improvement loans, auto financing, credit and debit
cards and overdraft/cash reserve accounts.


BUSINESS HOURS

In order to attract loan and deposit  business,  the Bank  maintains lobby hours
currently  between 9:00 a.m. and 5:00 p.m. Monday through Friday.

For additional  information  concerning  the Bank,  see Selected  Financial Data
under Item 6 on page 25.


COMPETITION

The banking business in Santa Clara County, as it is elsewhere in California, is
highly competitive, and each of the major branch banking institutions has one or
more offices in the Bank's  service area.  The Bank competes in the  marketplace
for deposits and loans,  principally against these banks,  independent community
banks, savings and loan associations,  thrift and loan companies, credit unions,
mortgage  banking  companies,  and  non-bank  institutions  such as mutual  fund
companies and investment brokerage firms that claim a portion of the market.

Larger banks may have a competitive  advantage  because of higher lending limits
and major advertising and marketing campaigns.  They also perform services, such
as trust  services,  international  banking,  discount  brokerage  and insurance
services,  which the Bank is not authorized or prepared to offer currently.  The
Bank has made  arrangements  with its  correspondent  banks  and with  others to
provide such services for its customers. For borrowers requiring loans in excess
of the Bank's legal lending limit, the Bank has offered, and intends to offer in
the future, such loans on a participating basis with its correspondent banks and
with other  independent  banks,  retaining  the  portion of such loans  which is
within its lending limit.  As of December 31, 2006, the Bank's  unsecured  legal
lending limit to a single borrower and such borrower's related parties was $10.7
million  based  on  regulatory  capital  of  $71.5  million.  However,  for risk
management  purposes,  the  Bank has  established  internal  policies,  which at
present  provide  lending  limits  that are less than the Bank's  legal  lending
limit.

The Bank's  business  is  concentrated  in its  service  area,  which  primarily
encompasses  Santa Clara County,  and also  includes,  to a lesser  extent,  the



                                       4


<PAGE>


contiguous areas of Alameda, San Mateo and Santa Cruz counties. During 2002, the
Bank established an SBA loan production  office in Sacramento  county and during
2003, a SBA loan production office in San Diego county.

In order to compete with major  financial  institutions  in its primary  service
area,  the Bank uses to the fullest  extent  possible  the  flexibility  that is
accorded by its  independent  status.  This includes an emphasis on  specialized
services,  local  promotional  activity,  and  personal  contacts  by the Bank's
officers,  directors  and  employees.  The Bank also  seeks to  provide  special
services  and  programs  for  individuals  in its primary  service  area who are
employed in the  agricultural,  professional and business fields,  such as loans
for  equipment,  furniture,  and tools of the trade or expansion of practices or
businesses.

Banking is a business that depends on interest rate  differentials.  In general,
the difference between the interest rate paid by the Bank to obtain its deposits
and its other  borrowings  and the interest  rate  received by the Bank on loans
extended  to its  customers  and on  securities  held  in the  Bank's  portfolio
comprises the major portion of the Bank's earnings.

Commercial  banks  compete with savings and loan  associations,  credit  unions,
other financial institutions and other entities for funds. For instance,  yields
on corporate and government  debt securities and other  commercial  paper affect
the ability of commercial  banks to attract and hold deposits.  Commercial banks
also  compete  for loans with  savings  and loan  associations,  credit  unions,
consumer finance companies, mortgage companies and other lending institutions.

The interest rate  differentials  of the Bank,  and therefore its earnings,  are
affected not only by general economic conditions, both domestic and foreign, but
also by the monetary and fiscal policies of the United States as set by statutes
and as implemented by federal agencies,  particularly the Federal Reserve Board.
This agency can and does implement national monetary policy,  such as seeking to
curb  inflation and combat  recession,  by its open market  operations in United
States  government  securities,  adjustments  in the  amount  of  interest  free
reserves that banks and other financial  institutions  are required to maintain,
and adjustments to the discount rates  applicable to borrowing by banks from the
Federal  Reserve  Board.  These  activities  influence the growth of bank loans,
investments  and deposits and also affect  interest  rates  charged on loans and
paid on deposits.



SUPERVISION AND REGULATION



BANK HOLDING COMPANY ACT

The Company is  registered  as a bank  holding  company  under the Bank  Holding
Company Act of 1956,  as amended  ("BHCA").  As a bank holding  company,  Bridge
Capital Holdings is subject to examination by the Federal Reserve Board ("FRB").
Pursuant to the BHCA, the Company is also subject to limitations on the kinds of
businesses in which it can engage directly or through subsidiaries.  The Company
may, of course,  manage or control  banks.  Generally,  however,  the Company is
prohibited, with certain exceptions, from acquiring direct or indirect ownership
or control of more than five percent of any class of voting  shares of an entity
engaged in non-banking  activities,  unless the FRB finds such  activities to be
"so  closely  related to banking"  as to be deemed "a proper  incident  thereto"
within the meaning of the BHCA. As a bank holding  company,  the Company may not
acquire more than five percent of the voting shares of any domestic bank without
the prior  approval of (or, for "well managed"  companies,  prior written notice
to) the FRB.

The BHCA includes minimum capital  requirements for bank holding companies.  See
the  section   titled   "Regulation   and   Supervision  -  Regulatory   Capital
Requirements".  Under  certain  conditions,  the FRB may  conclude  that certain
actions of a bank holding company, such as the payment of a cash dividend, would
constitute an unsafe and unsound banking practice.


"SOURCE OF STRENGTH" POLICY

Regulations and policies of the FRB also require a bank holding company to serve
as a source of financial and managerial  strength to its subsidiary banks. It is
the FRB's policy that a bank holding company should stand ready to use available
resources to provide  adequate capital funds to a subsidiary bank during periods
of financial  stress or  adversity  and that it should  maintain  the  financial
flexibility and capital-raising  capacity needed to obtain additional  resources
for assisting the subsidiary bank.




                                       5


<PAGE>


SECURITIES AND EXCHANGE COMMISSION FILINGS

Under Section 13 of the Securities Exchange Act of 1934 ("Exchange Act") and the
SEC's rules, the Company must  electronically  file periodic and current reports
as well as proxy  statements  with the Securities and Exchange  Commission  (the
"SEC").  The Company  electronically  files the following  reports with the SEC:
Form 10-K (Annual Report),  Form 10-Q (Quarterly Report),  and Form 8-K (Current
Report).  The  Company  may  prepare  additional  filings as  required.  The SEC
maintains  an  Internet  site,  HTTP://WWW.SEC.GOV,  at which  all  forms  filed
electronically  may be  accessed.  Our SEC  filings  are also  available  on our
website at HTTP://WWW.BRIDGEBANK.COM.



REGULATION OF THE BANK


The Bank is regulated and  supervised by the  Comptroller of the Currency and is
subject to  periodic  examination  by the  Comptroller.  Deposits  of the Bank's
customers are insured by the FDIC up to the maximum  limit of $100,000,  and, as
an insured bank,  the Bank is subject to certain  regulations  of the FDIC. As a
national  bank,  the Bank is a member of the Federal  Reserve System and is also
subject to the regulations of the FRB.


The regulations of those federal bank regulatory agencies govern most aspects of
the Bank's business and operations,  including but not limited to, requiring the
maintenance of non-interest  bearing  reserves on deposits,  limiting the nature
and amount of investments  and loans which may be made,  regulating the issuance
of  securities,  restricting  the  payment  of  dividends  and  regulating  bank
expansion and bank activities.  The Bank also is subject to the requirements and
restrictions of various consumer laws and regulations.


Statutes, regulations and policies affecting the banking industry are frequently
under review by Congress and by the federal bank  regulatory  agencies  that are
charged with  supervisory and examination  authority over banking  institutions.
Changes in the banking and  financial  services  industry are likely to occur in
the future. Some of the changes may create opportunities for the Bank to compete
in  financial  markets with less  regulation.  However,  these  changes also may
create new competitors in geographic and product markets which have historically
been limited by law to insured depository institutions such as the Bank. Changes
in  the  statutes,   regulations,  or  policies  that  affect  the  Bank  cannot
necessarily be predicted and may have a material  effect on the Bank's  business
and earnings. In addition,  the regulatory agencies which have jurisdiction over
the Bank have broad discretion in exercising their supervisory powers.


The OCC can pursue an enforcement action against the Bank for unsafe and unsound
practices in  conducting  its  business,  or for  violations of any law, rule or
regulation  or  provision,  any  consent  order with any agency,  any  condition
imposed in writing by the  agency,  or any  written  agreement  with the agency.
Enforcement  actions may include the  imposition of a  conservator  or receiver,
cease-and-desist orders and written agreements,  the termination of insurance of
deposits,  the imposition of civil money  penalties and removal and  prohibition
orders against institution-affiliated parties.


In addition to the  regulation and  supervision  outlined  above,  banks must be
prepared for judicial  scrutiny of their lending and collection  practices.  For
example,  some banks have been found liable for exercising  remedies which their
loan  documents  authorized  upon the borrower's  default.  This has occurred in
cases where the exercise of those  remedies was  determined  to be  inconsistent
with the  previous  course of dealing  between the bank and the  borrower.  As a
result,  banks  must  exercise  caution,  incur  expense  and face  exposure  to
liability when dealing with delinquent loans.


The following  description of selected  statutory and regulatory  provisions and
proposals is not intended to be a complete description of these provisions or of
the many laws and regulations to which the Bank is subject,  and is qualified in
its entirety by reference to the particular  statutory or regulatory  provisions
discussed.


A.       Effect of State Law


The laws of the State of California  affect the Bank's  business and operations.
For  example,  under 12 U.S.C.  36, as  amended  by the  Riegle-Neal  Interstate
Banking and Branching  Efficiency Act of 1994,  state laws  regarding  community
reinvestment,  consumer protection, fair lending and establishment of intrastate
branches may affect the  operations of national banks in states other than their
home states.  On a similar basis,  12 U.S.C. 85 provides that state law, in most
circumstances, determines the maximum rate of interest which a national bank may
charge on a loan. As  California  law exempts all  state-chartered  and national
banks from the  application of its usury laws,  national banks are also provided
such an exemption by 12 U.S.C. 85.




                                       6


<PAGE>


B.       Interstate Banking


The  Riegle-Neal  Interstate  Banking and Branching  Efficiency Act of 1994 (the
"Interstate Banking Act") regulates the interstate  activities of banks and bank
holding companies and establishes a framework for nationwide  interstate banking
and branching.  In general,  a bank in one state has generally been permitted to
merge with a bank in  another  state  without  the need for  explicit  state law
authorization.  However, when the Interstate Banking Act was enacted states were
given the ability to prohibit  interstate  mergers with banks in their own state
by "opting-out"  (enacting state legislation  applying to all out-of-state banks
prohibiting such mergers).

Adequately capitalized and managed bank holding companies have been permitted to
acquire banks located in any state,  subject to two  exceptions:  first, a state
may still  prohibit bank holding  companies  from acquiring a bank which is less
than five years old; and second, no interstate acquisition can be consummated by
a bank  holding  company  if the  acquiror  would  control  more than 10% of the
deposits held by insured  depository  institutions  nationwide or 30% or more of
the deposits held by insured  depository  institutions in any state in which the
target bank has branches.

A bank may also establish and operate DE NOVO branches in any state in which the
bank  does not  maintain  a branch  if that  state has  enacted  legislation  to
expressly permit all out-of-state banks to establish branches in that state.

Among  other  things,   the   Interstate   Banking  Act  amended  the  Community
Reinvestment  Act to require that in the event a bank has  interstate  branches,
the  appropriate  federal  banking  regulatory  agency  must  prepare  for  that
institution a written evaluation of (i) the bank's record of CRA performance and
(ii) the bank's CRA performance in each applicable  state.  Interstate  branches
are now  prohibited  from being  used as deposit  production  offices.  Also,  a
foreign (other state) bank is permitted to establish branches in any state other
than its home state to the same  extent  that a bank  chartered  by the  foreign
(other state) bank's home state may establish such branches.

In California, the Caldera,  Weggeland, and Killea California Interstate Banking
and Branching Act of 1995 (the "Caldera  Weggeland Act")  implemented  important
provisions  of  the  Interstate   Banking  Act  discussed   above  and  repealed
California's  previous  interstate banking laws, which were largely preempted by
the Interstate Banking Act.

As indicated above, the Interstate  Banking Act generally  permits a bank in one
state to merge with a bank in another state without the need for explicit  state
law  authorization.  However,  the Caldera  Weggeland Act expressly  prohibits a
foreign  (other  state) bank which does not  already  have a  California  branch
office from (i)  purchasing a branch office of a California  bank (as opposed to
purchasing the entire bank) and thereby  establishing a California branch office
or (ii) establishing a California branch on a DE NOVO basis.

The Interstate  Banking Act also requires,  among other things,  approval of the
state  bank   supervisor  of  the  target  bank's  home  state  for   interstate
acquisitions  of banks by bank  holding  companies.  The Caldera  Weggeland  Act
authorizes  the  Commissioner  to approve such an interstate  acquisition if the
Commissioner  finds that the  transaction  is consistent  with certain  criteria
specified by law.

The Interstate Banking Act and Caldera Weggeland Act are expected to continue to
increase competition in the environment in which the Bank operates to the extent
that  out-of-state  financial  institutions may directly or indirectly enter the
Bank's market areas. It appears that the Interstate  Banking Act has contributed
to the accelerated consolidation of the banking industry in that a number of the
largest bank holding companies have expanded into different parts of the country
that were  previously  restricted.  While  some  large  out-of-state  banks have
entered  the  California  market  as a  result  of this  legislation,  it is not
possible to predict the precise  impact of this  legislation on the Bank and the
competitive environment in which it operates.



C.       Change in Bank Control


The Bank Holding Company Act of 1956, as amended, and the Change in Bank Control
Act of  1978,  as  amended,  together  with  regulations  of  the  FRB  and  the
Comptroller, require that, depending on the particular circumstances, either FRB
approval must be obtained or notice must be furnished to the Comptroller and not
disapproved  prior to any person or company  acquiring  "control"  of a national
bank, such as the Bank, subject to exemptions for some transactions.  Control is
conclusively  presumed to exist if an  individual or company (i) acquires 25% or
more of any class of  voting  securities  of the bank or (ii) has the  direct or
indirect  power to direct or cause the direction of the  management and policies
of the Bank,  whether  through  ownership of voting  securities,  by contract or
otherwise; provided that no individual will be deemed to control the Bank solely
on accord of being  director,  officer  or  employee  of the  Bank.  Control  is
rebuttably  presumed to exist if a person acquires 10% or more but less than 25%
of any  class of  voting  securities  and  either  the  company  has  registered


                                       7


<PAGE>


securities  under Section 12 of the Securities  Exchange Act of 1934, as amended
(the "Exchange  Act"), or no other person will own a greater  percentage of that
class of voting securities immediately after the transaction.



D. Regulation W


The FRB has adopted Regulation W to  comprehensively  implement sections 23A and
23B of the Federal Reserve Act.


Sections  23A  and  23B  and  Regulation  W  limit  the  risks  to a  bank  from
transactions between the bank and its affiliates and limit the ability of a bank
to transfer to its  affiliates  the benefits  arising from the bank's  access to
insured deposits,  the payment system and the discount window and other benefits
of the Federal  Reserve  system.  The statute and rule impose  quantitative  and
qualitative  limits on the  ability of a bank to extend  credit to, or engage in
certain  other  transactions  with,  an  affiliate  (and  a  nonaffiliate  if an
affiliate  benefits from the transaction).  However,  certain  transactions that
generally  do not  expose  a bank to  undue  risk or abuse  the  safety  net are
exempted from coverage under Regulation W.

Historically,  a  subsidiary  of a bank  was not  considered  an  affiliate  for
purposes  of  Sections  23A and 23B,  since  their  activities  were  limited to
activities permissible for the bank itself.  However, the Gramm-Leach-Bliley Act
authorized   "financial   subsidiaries"   that  may  engage  in  activities  not
permissible  for  a  bank.  These  financial  subsidiaries  are  now  considered
affiliates.  Certain  transactions  between a financial  subsidiary  and another
affiliate  of a bank  are  also  covered  by  sections  23A and  23B  and  under
Regulation W.


Regulation W provides certain exemptions, including:

o    For   state-chartered   banks,  an  exemption  for  subsidiaries   lawfully
     conducting nonbank activities before issuance of the final rule.

o    An exemption  for  extensions  of credit by a bank under a general  purpose
     credit  card  where  the  borrower  uses the  credit to  purchase  goods or
     services  from an  affiliate  of the bank,  so long as less than 25% of the
     aggregate amount of purchases with the card are purchases from an affiliate
     of the bank (a bank that does not have  non-financial  affiliates is exempt
     from the 25% test).

o    An  exemption  for loans by a bank to a third party  secured by  securities
     issued  by a mutual  fund  affiliate  of the bank  (subject  to a number of
     conditions).

o    Subject to a number of conditions, an exemption that would permit a banking
     organization  to  engage  more  expeditiously  in  internal  reorganization
     transactions involving a bank's purchase of assets from an affiliate.

The final rule contains new  valuation  rules for a bank's  investments  in, and
acquisitions of, affiliates.

The Federal  Reserve  expects  examiners and other  supervisory  staff to review
intercompany   transactions   closely  for  compliance  with  the  statutes  and
Regulation W and to resolve any violations or potential violations quickly.


E.       Tying Arrangements and Transactions with Affiliated Persons


A bank is prohibited  from tie-in  arrangements in connection with any extension
of credit,  sale or lease of property or  furnishing  of services.  For example,
with some  exceptions,  a bank may not  condition  an  extension  of credit on a
promise by its  customer to obtain  other  services  provided by it, its holding
company or other  subsidiaries  (if any), or on a promise by its customer not to
obtain other services from a competitor.

Directors,  officers and principal  shareholders  of the Bank, and the companies
with which they are associated,  may have banking  transactions with the Bank in
the ordinary  course of business.  Any loans and commitments to loan included in
these  transactions  must  be  made  in  compliance  with  the  requirements  of
applicable law, on substantially  the same terms,  including  interest rates and
collateral,  as those  prevailing at the time for comparable  transactions  with
other persons of similar creditworthiness,  and on terms not involving more than
the normal risk of collectibility or presenting other unfavorable features.




                                       8


<PAGE>



F.       Capital Adequacy Requirements

The Bank is subject to the  Comptroller 's capital  guidelines  and  regulations
governing  capital  adequacy  for national  banks.  The  Comptroller  may impose
additional  capital  requirements on banks based on market risk. The Comptroller
requires a leverage  ratio of 8.0% for new banks during the first three years of
operation.


After the first three years of operations,  the  Comptroller  requires a minimum
leverage  ratio of 3.0% for  national  banks  that  have  received  the  highest
composite  regulatory  rating (a  regulatory  measurement  of  capital,  assets,
management,  earnings,  liquidity  and  sensitivity  to  risk)  and that are not
anticipating or experiencing any significant growth. All other institutions will
be  required to  maintain a leverage  ratio of at least 100 to 200 basis  points
above the 3.0% minimum.


The Comptroller's  regulations also require national banks to maintain a minimum
ratio of qualifying  total capital to risk-weighted  assets of 8.0%.  Risk-based
capital ratios are calculated with reference to risk-weighted assets,  including
both on and off-balance  sheet  exposures,  which are multiplied by certain risk
weights  assigned by the  Comptroller to those assets.  At least one-half of the
qualifying capital must be in the form of Tier 1 capital/1/.


The risk-based  capital ratio focuses  principally on broad categories of credit
risk,  and may not take into account many other factors that can affect a bank's
financial condition.  These factors include overall interest rate risk exposure;
liquidity,  funding  and  market  risks;  the  quality  and  level of  earnings;
concentrations  of  credit  risk;  certain  risks  arising  from  nontraditional
activities; the quality of loans and investments;  the effectiveness of loan and
investment  policies;  and  management's  overall ability to monitor and control
financial and operating risks, including the risk presented by concentrations of
credit and  nontraditional  activities.  The  Comptroller  has addressed many of
these areas in related rule-making proposals.  In addition to evaluating capital
ratios,  an overall  assessment of capital adequacy must take account of each of
these other factors including, in particular,  the level and severity of problem
and adversely classified assets. For this reason, the final supervisory judgment
on a bank's capital adequacy may differ  significantly from the conclusions that
might be drawn solely from the absolute level of the bank's  risk-based  capital
ratio.  The  Comptroller has stated that banks generally are expected to operate
above the minimum  risk-based  capital ratio.  Banks  contemplating  significant
expansion plans, as well as those institutions with high or inordinate levels of
risk, are required to hold capital  consistent  with the level and nature of the
risks to which they are exposed.


Further,  the banking  agencies  have adopted  modifications  to the  risk-based
capital  regulations  to include  standards  for interest  rate risk  exposures.
Interest rate risk is the exposure of a bank's  current and future  earnings and
equity  capital  arising from movements in interest  rates.  While interest rate
risk is inherent in a bank's role as a  financial  intermediary,  it  introduces
volatility to bank earnings and to the economic  value of the bank.  The banking
agencies  have  addressed  this problem by  implementing  changes to the capital
standards to include a bank's  exposure to declines in the economic value of its
capital due to changes in interest  rates as a factor that the banking  agencies
consider  in  evaluating  an  institution's  capital  adequacy.  Bank  examiners
consider a bank's historical financial  performance and its earnings exposure to
interest rate movements as well as qualitative factors such as the adequacy of a
bank's internal interest rate risk management.


Finally,  institutions with significant trading activities must measure and hold
capital  for  exposure to general  market  risk  arising  from  fluctuations  in
interest rates,  equity prices,  foreign exchange rates and commodity prices and
exposure to  specific  risk  associated  with debt and equity  positions  in the
trading portfolio.  General market risk refers to changes in the market value of
on-balance-sheet  assets and off-balance-sheet items resulting from broad market
movements.  Specific  market  risk  refers to  changes  in the  market  value of
individual  positions  due to  factors  other than broad  market  movements  and
includes such risks as the credit risk of an instrument's issuer. The additional
capital  requirements  apply to institutions with trading assets and liabilities
equal to 10.0% or more of total  assets or trading  activity of $1.0  billion or
more. The federal  banking  agencies may apply the market risk  regulations on a
case by case basis to  institutions  not  meeting  the  eligibility  criteria if
necessary for safety and soundness reasons.


During an examination the federal banking agencies  evaluate an institution with
respect  to the degree to which  changes in  interest  rates,  foreign  exchange
rates,  commodity  prices or equity prices can affect a financial  institution's
earnings or capital.  In addition,  the agencies focus in the  examination on an
institution's  ability to monitor and manage its market  risk,  and they provide
management with a clearer and more focused indication of supervisory concerns in
this area.


Under certain  circumstances,  the  Comptroller  may determine  that the capital
ratios for a national  bank must be  maintained  at levels which are higher than
the minimum levels  required by the  guidelines.  A national bank which does not


__________________

/1/ Tier 1 capital is generally  defined as the sum of the core capital elements
less goodwill and certain  intangibles.  The following items are defined as core
capital   elements:   (i)   common   stockholders'   equity;   (ii)   qualifying
non-cumulative perpetual preferred stock and related surplus; and (iii) minority
interests in the equity accounts of consolidated subsidiaries.


                                       9


<PAGE>


achieve  and  maintain  required  capital  levels may be subject to  supervisory
action by the Comptroller  through the issuance of a capital directive to ensure
the maintenance of required capital levels. In addition, the Bank is required to
meet certain  guidelines of the  Comptroller  concerning  the  maintenance of an
adequate allowance for loan and lease losses.


The federal  banking  agencies,  including  the OCC,  have  adopted  regulations
implementing  a system of prompt  corrective  action  under the Federal  Deposit
Insurance Corporation Improvement Act ("FDICIA"). The regulations establish five
capital categories with the following  characteristics:  (1) "Well capitalized,"
consisting of  institutions  with a total  risk-based  capital ratio of 10.0% or
greater,  a Tier 1  risk-based  capital  ratio of 6.0% or greater and a leverage
ratio of 5.0% or greater  and which are not  operating  under an order,  written
agreement,   capital  directive  or  prompt  corrective  action  directive;  (2)
"Adequately  capitalized,"  consisting of institutions  with a total  risk-based
capital ratio of 8.0% or greater, a Tier 1 risk-based capital of 4.0% or greater
and a leverage  ratio of 4.0% or greater and which do not meet the definition of
a  "well  capitalized"  institution;   (3)  "Undercapitalized,"   consisting  of
institutions  with a total risk-based  capital ratio of less than 8.0%, a Tier 1
risk-based  capital  ratio of less than 4.0%,  or a leverage  ratio of less than
4.0%; (4)  "Significantly  undercapitalized,"  consisting of institutions with a
total  risk-based  capital ratio of less than 6.0%, a Tier 1 risk-based  capital
ratio of less  than  3.0%,  or a  leverage  ratio  of less  than  3.0%;  and (5)
"Critically  undercapitalized,"  consisting  of  institutions  with a  ratio  of
tangible equity to total assets that is equal to or less than 2.0%.

The  regulations  establish  procedures  for  the  classification  of  financial
institutions  within the capital  categories,  for filing and reviewing  capital
restoration  plans  required  under the  regulations,  and for the  issuance  of
directives  by the  appropriate  regulatory  agency,  among other  matters.  See
"SUPERVISION AND REGULATION -- Prompt Corrective Action."

The appropriate  federal  banking agency,  after notice and an opportunity for a
hearing,  is authorized to treat a well capitalized,  adequately  capitalized or
undercapitalized   insured   depository   institution  as  if  it  had  a  lower
capital-based  classification  if it is in an unsafe and  unsound  condition  or
engaging in an unsafe and unsound  practice.  Thus,  an  adequately  capitalized
institution  can be subjected  to the  restrictions  (described  below) that are
imposed on  undercapitalized  institutions  (provided that a capital restoration
plan cannot be required of the institution), and an undercapitalized institution
can be  subjected to the  restrictions  (also  described  below)  applicable  to
significantly  undercapitalized institutions. See "SUPERVISION AND REGULATION --
Prompt Corrective Action."

An insured depository institution cannot make a capital distribution (as broadly
defined  to  include,  among  other  things,  dividends,  redemptions  and other
repurchases  of stock),  or pay  management  fees to any person or persons  that
control  the  institution,   if  it  would  be  undercapitalized  following  the
distribution. However, a federal banking agency may (after consultation with the
FDIC) permit an insured depository institution to repurchase,  redeem, retire or
otherwise  acquire its shares if (i) the action is taken in connection  with the
issuance of additional  shares or obligations  in at least an equivalent  amount
and (ii) the action  will  reduce the  institution's  financial  obligations  or
otherwise improve its financial  condition.  An undercapitalized  institution is
generally  prohibited  from  increasing  its average total  assets,  and is also
generally  prohibited from making  acquisitions,  establishing new branches,  or
engaging  in  any  new  line  of  business  except  under  an  accepted  capital
restoration  plan or with the  approval  of the  FDIC.  In  addition,  a federal
banking  agency  has  authority  with  respect  to  undercapitalized  depository
institutions  to take any of the  actions  it is  required  to or may take  with
respect to a significantly  undercapitalized institution (as described below) if
it  determines  "that those  actions are  necessary to carry out the purpose" of
FDICIA.

The federal  banking  agencies have adopted a joint agency  policy  statement to
provide  guidance on managing  interest rate risk. The statement  indicates that
the adequacy and effectiveness of a bank's interest rate risk management process
and the  level of its  interest  rate  exposures  are  critical  factors  in the
agencies'  evaluation  of the bank's  capital  adequacy.  If a bank has material
weaknesses in its risk management process or high levels of exposure relative to
its  capital,  the  agencies  will direct it to take  corrective  action.  These
directives  may  include  recommendations  or  directions  to  raise  additional
capital,  strengthen  management expertise,  improve management  information and
measurement  systems,  or  reduce  levels  of  exposure,  or to  undertake  some
combination of these actions.

The federal banking  agencies have also issued an interagency  policy  statement
that, among other things,  establishes benchmark ratios of loan loss reserves to
specified  classified assets. The benchmark  established by the policy statement
is the sum of (a) 100% of assets  classified loss; (b) 50% of assets  classified
doubtful;  (c) 15% of assets  classified  substandard;  and (d) estimated credit
losses on other  assets over the  upcoming  12 months.  This amount is neither a
"floor"  nor a "safe  harbor"  level  for an  institution's  allowance  for loan
losses.

At  December  31,  2006,  the  Bank  is in  compliance  with  the  Comptroller's
risk-based  and  leverage  ratios.  See  Footnote  15 to  the  Bank's  Financial
Statements included under Item 8 of this Annual Report.


                                       10


<PAGE>


G.       Payment of Dividends


The ability of the Company to make dividend payments is subject to statutory and
regulatory  restrictions.  FDIC policies  generally  preclude  dividend payments
during the first three years of operation,  allow cash dividends to be paid only
from net  operating  income,  and do not  permit  dividends  to be paid until an
appropriate  allowance  for loans  and lease  losses  has been  established  and
overall  capital is adequate.  The FDIC requires  that a depository  institution
maintain a leverage  ratio of not less than 8.0% during the first three years of
operation. See "SUPERVISION AND REGULATION - Capital Adequacy Requirements."

After the first three years of operations,  the Board of Directors of a national
bank may declare the payment of dividends depending upon the earnings, financial
condition and cash needs of the bank and general business conditions. A national
bank may not pay dividends  from its capital.  All dividends must be paid out of
net profits then on hand,  after deducting losses and bad debts. A national bank
is further  prohibited  from  declaring a dividend on its shares of common stock
until its surplus fund equals the amount of capital  stock or until 10.0% of the
bank's  net  profits  of the  preceding  half year in the case of  quarterly  or
semiannual dividends,  or the preceding two consecutive half-year periods in the
case of an annual dividend, are transferred to the surplus fund. The approval of
the  Comptroller  is required  for the payment of  dividends if the total of all
dividends  declared by the bank in any  calendar  year would exceed the total of
its net profits of that year  combined  with its retained net profits of the two
preceding  years,  less any  required  transfers  to  surplus  or a fund for the
retirement of any preferred stock.

In addition to the above requirements, guidelines adopted by the Comptroller set
forth factors which are to be considered by a national bank in  determining  the
payment of dividends. A national bank, in assessing the payment of dividends, is
to  evaluate  the  bank's  capital  position,  its  maintenance  of an  adequate
allowance  for loan and  lease  losses,  and the need to  revise  or  develop  a
comprehensive capital plan.


The  Comptroller  also has broad  authority  to  prohibit a  national  bank from
engaging in banking practices which it considers to be unsafe or unsound.  It is
possible,  depending  upon  the  financial  condition  of the  national  bank in
question and other factors,  that the Comptroller may assert that the payment of
dividends or other payments by a bank is considered an unsafe or unsound banking
practice and therefore, implement corrective action to address such a practice.

Accordingly,  the future  payment of cash dividends by the Company will not only
depend upon the Bank's  earnings  during any fiscal  period but will also depend
upon the assessment of its Board of Directors of capital  requirements and other
factors,  including  dividend  guidelines  and the  maintenance  of an  adequate
allowance for loan and lease losses.



H.       Community Reinvestment Act


Under the Community  Reinvestment Act ("CRA")  regulations,  the federal banking
agencies determine a bank's CRA rating by evaluating its performance on lending,
service and investment  tests,  with the lending test being the most  important.
The tests are applied in an "assessment context" that is developed by the agency
for the  particular  institution.  The  assessment  context  takes into  account
demographic data about the community, the community's characteristics and needs,
the  institution's   capacities  and  constraints,   the  institution's  product
offerings and business strategy,  the institution's prior performance,  and data
on similarly  situated  lenders.  Since the assessment  context for each bank is
developed by the bank regulatory agencies, a particular bank does not know until
it is examined whether its CRA programs and efforts have been sufficient.

Institutions,  like the Bank, with $250.0 million or more in assets are required
to  compile  and  report  data  on  their  lending  activities  to  measure  the
performance of their loan portfolio. Some of this data is already required under
other laws,  such as the Equal Credit  Opportunity  Act.  Institutions  have the
option of being evaluated for CRA purposes in relation to their own pre-approved
strategic  plan.  A  strategic  plan  must  be  submitted  to the  institution's
regulator  three months  before its  effective  date and must be  published  for
public comment.



I.       Audit Requirements


Depository  institutions  are  required to have an annual  examination  of their
financial  records.  Depository  institutions  with assets  greater  than $500.0
million  are  required  to have  annual,  independent  audits and to prepare all
financial   statements  in  compliance   with  generally   accepted   accounting
principles.  Depository  institutions  are also required to have an  independent
audit  committee  comprised  entirely of outside  directors,  independent of the
institution's management.




                                       11


<PAGE>

The Bank's  accounting and reporting  policies  conform with generally  accepted
accounting principles and the practices prevalent in the banking industry.



J.       Insurance Premiums and Assessments


The FDIC has authority to impose a special  assessment on members of the Deposit
Insurance  Fund (the "DIF") to insure that there will be  sufficient  assessment
income for repayment of DIF obligations and for any other purpose which it deems
necessary.  The FDIC is authorized to set semi-annual  assessment  rates for DIF
members at levels sufficient to maintain the DIF's reserve ratio to a designated
level of 1.25% of insured deposits.

Under  FDICIA,  the FDIC has  developed a risk-based  assessment  system,  which
provides that the assessment  rate for an insured  depository  institution  will
vary according to the level of risk incurred in its activities. An institution's
risk  category  is based  upon  whether  the  institution  is well  capitalized,
adequately  capitalized  or  less  than  adequately  capitalized.  Each  insured
depository  institution  is also to be  assigned  to one of  three  "supervisory
subgroups":  Subgroup A institutions are financially  sound  institutions with a
few minor weaknesses;  Subgroup B institutions are institutions that demonstrate
weaknesses which, if not corrected,  could result in significant  deterioration;
and Subgroup C institutions  are  institutions  for which there is a substantial
probability  that the FDIC will suffer a loss in connection with the institution
unless  effective  action is taken to correct  the areas of  weakness.  The FDIC
assigns  each DIF  member  institution  an annual  FDIC  assessment  rate on DIF
insured deposits.

In December  2006,  the FDIC issued  amended rules  intended to make the deposit
insurance assessment system react more quickly and more accurately to changes in
institutions' risk profiles, create a new system for risk-based assessments, and
set  assessment  rates for the period  beginning  January 1, 2007.  Among  other
things,  the amendments  provide that (i) deposit insurance  assessments will be
collected  for one  quarter  at the end of the next  quarter,  (ii) an  existing
institution with $1.0 billion or more in assets and any institution that becomes
insured on or after  January 1, 2007 will have its  assessment  base  determined
using average  daily  balances,  (iii) the float  deduction  previously  used to
determine the  assessment  base is  eliminated,  (iv) the nine  assessment  rate
categories that were used previously were consolidated into four new categories,
and (v) the designated  reserve ratio is being  maintained at 1.25%,  subject to
annual review.  The amended rules also establish that effective  January 1, 2007
the  assessment  rates will range from 5 to 7 basis  points for Risk  Category I
institutions and will be 10 basis points for Risk Category II  institutions,  28
basis points for Risk  Category III  institutions,  and 43 basis points for Risk
Category IV institutions.



K.       Prompt Corrective Action


The FDIC has authority:  (a) to request that an institution's primary regulatory
agency (in the case of the Bank,  the OCC) take  enforcement  action  against it
based upon an examination  by the FDIC or the agency,  (b) if no action is taken
within 60 days and the FDIC  determines that the institution is in an unsafe and
unsound  condition or that failure to take the action will result in continuance
of unsafe and  unsound  practices,  to order that  action be taken  against  the
institution,  and (c) to exercise  this  enforcement  authority  under  "exigent
circumstances"  merely upon notification to the institution's primary regulatory
agency.  This authority gives the FDIC the same enforcement  powers with respect
to any institution and its subsidiaries and affiliates as the primary regulatory
agency has with respect to those entities.

An  undercapitalized  institution  is required to submit an  acceptable  capital
restoration  plan to its primary federal bank regulatory  agency.  The plan must
specify  (a)  the  steps  the  institution   will  take  to  become   adequately
capitalized,  (b) the  capital  levels to be  attained  each  year,  (c) how the
institution will comply with any regulatory sanctions then in effect against the
institution  and (d) the types and levels of activities in which the institution
will engage. The banking agency may not accept a capital restoration plan unless
the agency determines,  among other things, that the plan "is based on realistic
assumptions,  and is likely to succeed in restoring the  institution's  capital"
and "would not  appreciably  increase the risk . . . to which the institution is
exposed." A requisite element of an acceptable  capital  restoration plan for an
undercapitalized  institution is a guaranty by its parent  holding  company that
the institution will comply with the capital  restoration  plan.  Liability with
respect to this guaranty is limited to the lesser of (i) 5% of the institution's
assets  at the  time  when it  becomes  undercapitalized  and  (ii)  the  amount
necessary to bring the  institution  into  capital  compliance  with  applicable
capital  standards as of the time when the institution  fails to comply with the
plan.  The  guaranty   liability  is  limited  to  companies   controlling   the
undercapitalized  institution and does not affect other affiliates. In the event
of a bank  holding  company's  bankruptcy,  any  commitment  by the bank holding
company  to a federal  bank  regulatory  agency to  maintain  the  capital  of a
subsidiary  bank will be assumed  by the  bankruptcy  trustee  and  entitled  to
priority of payment over the claims of other creditors, including the holders of
the company's long-term debt.




                                       12


<PAGE>

FDICIA provides that the appropriate  federal  regulatory agency must require an
insured depository institution that is significantly  undercapitalized,  or that
is undercapitalized and either fails to submit an acceptable capital restoration
plan  within the time  period  allowed by  regulation  or fails in any  material
respect to  implement a capital  restoration  plan  accepted by the  appropriate
federal banking agency, to take one or more of the following  actions:  (a) sell
enough shares,  including voting shares, to become adequately  capitalized;  (b)
merge with (or be sold to) another institution (or holding company), but only if
grounds exist for appointing a conservator or receiver;  (c) restrict  specified
transactions  with banking  affiliates as if the "sister bank"  exception to the
requirements  of Section  23A of the  Federal  Reserve  Act did not  exist;  (d)
otherwise restrict  transactions with bank or non-bank affiliates;  (e) restrict
interest rates that the  institution  pays on deposits to "prevailing  rates" in
the  institution's  "region";  (f) restrict asset growth or reduce total assets;
(g) alter, reduce or terminate activities; (h) hold a new election of directors;
(i) dismiss any  director or senior  executive  officer who held office for more
than  180 days  immediately  before  the  institution  became  undercapitalized,
provided that in requiring  dismissal of a director or senior executive officer,
the agency must comply with procedural  requirements,  including the opportunity
for an appeal in which the  director or officer  will have the burden of proving
his or her value to the  institution;  (j) employ  "qualified"  senior executive
officers;   (k)  cease   accepting   deposits  from   correspondent   depository
institutions;  (l) divest  non-depository  affiliates which pose a danger to the
institution; (m) be divested by a parent holding company; and (n) take any other
action  which the agency  determines  would better carry out the purposes of the
prompt corrective action provisions.

In  addition  to the  foregoing  sanctions,  without  the prior  approval of the
appropriate federal banking agency, a significantly undercapitalized institution
may not pay any bonus to any senior  executive  officer or increase  the rate of
compensation for a senior executive officer without regulatory  approval.  If an
undercapitalized  institution  has failed to submit or implement  an  acceptable
capital restoration plan the appropriate federal banking agency is not permitted
to approve the payment of a bonus to a senior executive officer.

Not later than 90 days after an institution becomes critically undercapitalized,
the institution's primary federal bank regulatory agency must appoint a receiver
or a  conservator,  unless  the  agency,  with  the  concurrence  of  the  FDIC,
determines that the purposes of the prompt corrective action provisions would be
better served by another course of action. Any alternative determination must be
documented by the agency and reassessed on a periodic basis. Notwithstanding the
foregoing,  a  receiver  must be  appointed  after  270  days  unless  the  FDIC
determines  that the institution has positive net worth, is in compliance with a
capital plan, is profitable or has a sustainable  upward trend in earnings,  and
is reducing its ratio of  non-performing  loans to total  loans,  and unless the
head of the  appropriate  federal banking agency and the chairperson of the FDIC
certify that the institution is viable and not expected to fail.

The FDIC is required,  by  regulation  or order,  to restrict the  activities of
critically   undercapitalized   institutions.   The  restrictions  must  include
prohibitions on the institution's  doing any of the following without prior FDIC
approval:  entering  into any material  transactions  not in the usual course of
business, extending credit for any highly leveraged transaction; engaging in any
"covered  transaction"  (as defined in Section 23A of the Federal  Reserve  Act)
with an  affiliate;  paying  "excessive  compensation  or  bonuses";  and paying
interest on "new or renewed  liabilities"  that would increase the institution's
average cost of funds to a level significantly exceeding prevailing rates in the
market.



L.       Potential Enforcement Actions; Supervisory Agreements


Under federal law, national banks and their  institution-affiliated  parties may
be the  subject  of  potential  enforcement  actions  by the OCC for  unsafe and
unsound practices in conducting their businesses,  or for violations of any law,
rule or  regulation  or  provision,  any  consent  order  with any  agency,  any
condition  imposed in writing by the agency or any  written  agreement  with the
agency.  Enforcement  actions may include the  imposition  of a  conservator  or
receiver,  cease-and-desist  orders and written  agreements,  the termination of
insurance of deposits,  the imposition of civil money  penalties and removal and
prohibition orders against institution-affiliated parties.




M.       Sarbanes-Oxley Act


The  Sarbanes-Oxley  Act of 2002  implemented  legislative  reforms  intended to
address  corporate and accounting  fraud. In addition to the establishment of an
accounting oversight board to enforce auditing, quality control and independence
standards,  the law restricts provision of both auditing and consulting services
by accounting  firms.  To ensure auditor  independence,  any non-audit  services
being provided to an audit client require  pre-approval  by the company's  audit
committee members. In addition,  the audit partners assigned to the company must
be rotated every five years. The Act requires chief executive officers and chief
financial officers, or their equivalent,  to certify to the accuracy of periodic
reports  filed with the SEC,  subject to civil and  criminal  penalties  if they
knowingly or willfully violate the certification requirement. In addition, under
the Act legal counsel are required to report evidence of a material violation of


                                       13


<PAGE>


the  securities  laws or a breach of  fiduciary  duty by a company  to its chief
executive  officer or its chief legal  officer,  and, if such  officer  does not
appropriately  respond,  to report such evidence to the audit committee or other
similar committee of the board of directors or the board itself.

In addition,  longer  prison terms and  increased  penalties  apply to corporate
executives who violate federal  securities laws, the period during which certain
types of suits can be brought against a company or its officers is extended, and
bonuses issued to top executives  prior to restatement of a company's  financial
statements are subject to  disgorgement  if the restatement was due to corporate
misconduct.   Executives  are  also   prohibited  from  insider  trading  during
retirement  plan  "blackout"  periods,  and  loans  to  company  executives  are
restricted.  The Act  accelerates  the time  frame  for  disclosures  by  public
companies,  as they must  immediately  disclose  any  material  changes in their
financial  condition or operations.  Directors and executive  officers must also
provide  information  for most changes in  ownership  in a company's  securities
within two business days of the change.

The Act also  prohibits any officer or director of a company or any other person
acting under their direction from taking any action to  fraudulently  influence,
coerce,  manipulate or mislead any  independent  public or certified  accountant
engaged in the audit of the company's  financial  statements  for the purpose of
rendering the financial statement's materially misleading.  The Act requires the
SEC to prescribe  rules  requiring  inclusion of an internal  control report and
assessment by both management and the external  auditors in the annual report to
stockholders.  In addition, the Act requires that each financial report required
to be prepared in  accordance  with (or  reconciled  to)  accounting  principles
generally  accepted  in the United  States and filed  with the SEC  reflect  all
material  correcting  adjustments  that are  identified by a "registered  public
accounting firm" in accordance with accounting  principles generally accepted in
the United States and the rules and regulations of the SEC.

A  company's  chief  executive  officer  and chief  financial  officer  are each
required  to certify  that the  Company's  quarterly  and annual  reports do not
contain  any  untrue  statement  of a  material  fact.  The rules  have  several
requirements, including having these officers certify that: they are responsible
for establishing,  maintaining and regularly evaluating the effectiveness of the
Bank's  internal  controls;  they have made  certain  disclosures  to the Bank's
auditors and the audit  committee of the Board of Directors  about the company's
internal controls; and they have included information in the Company's quarterly
and  annual  reports  about  their   evaluation  and  whether  there  have  been
significant  changes in the Bank's  internal  controls or in other  factors that
could significantly affect internal controls subsequent to the evaluation.



N. USA PATRIOT Act


Pursuant to USA PATRIOT Act, financial  institutions are subject to prohibitions
against specified  financial  transactions and account  relationships as well as
enhanced due diligence and "know your customer" standards in their dealings with
foreign financial institutions and foreign customers.  For example, the enhanced
due diligence  policies,  procedures,  and controls  generally require financial
institutions to take reasonable steps:

o    To conduct  enhanced  scrutiny of account  relationships  to guard  against
     money laundering and report any suspicious transaction;

o    To ascertain the identity of the nominal and beneficial  owners of, and the
     source of funds  deposited  into,  each account as needed to guard  against
     money laundering and report any suspicious transactions;

o    To  ascertain  for any foreign  bank,  the shares of which are not publicly
     traded,  the identity of the owners of the foreign bank, and the nature and
     extent of the ownership interest of each such owner; and

o    To ascertain  whether any foreign bank provides  correspondent  accounts to
     other  foreign  banks and, if so, the identity of those  foreign  banks and
     related due diligence information.

The USA PATRIOT Act,  requires  financial  institutions to establish  anti-money
laundering  programs  and sets  forth  minimum  standards  for  these  programs,
including:

o    The development of internal policies, procedures, and controls;

o    The designation of a compliance officer;

o    An ongoing employee training program; and

o    An independent audit function to test the programs.


                                       14


<PAGE>

The Bank has  adopted  comprehensive  policies  and  procedures  to address  the
requirements  of the USA PATRIOT Act, and  management  believes that the Bank is
currently in compliance with the Act.



O.       Money Laundering Control Act


The Money Laundering  Control Act of 1986 provides  sanctions for the failure to
report high levels of cash deposits to non-bank financial institutions.  Federal
banking  regulators  possess  the  power to  revoke  the  charter  or  appoint a
conservator for any institution  convicted of money laundering.  Offending banks
could  lose  their  federal  deposit  insurance,  and bank  officers  could face
lifetime bans from working in financial institutions.  The Community Development
Act,  which  includes a number of  provisions  that amend the Bank  Secrecy Act,
allows the Secretary of the Treasury to exempt specified  currency  transactions
from reporting  requirements and permits the federal bank regulatory agencies to
impose civil money penalties on banks for violations of the currency transaction
reporting requirements.



P.       Gramm-Leach-Bliley Act


The  Gramm-Leach-Bliley  Act eliminated  many of the barriers that separated the
insurance,  securities and banking  industries since the Great  Depression.  The
Gramm-Leach-Bliley  Act is the  result of a decade  of  debate  in the  Congress
regarding a fundamental reformation of the nation's financial system. The law is
subdivided into seven titles, by functional area.

The major provisions of the Gramm-Leach-Bliley Act are:

FINANCIAL  HOLDING  COMPANIES  AND FINANCIAL  ACTIVITIES.  Title I establishes a
comprehensive framework to permit affiliations among commercial banks, insurance
companies,  securities  firms, and other financial service providers by revising
and expanding the BHC Act framework to permit a holding company system to engage
in a full range of financial  activities  through  qualification as a new entity
known as a financial holding company.

Activities permissible for financial subsidiaries of national banks include, but
are not  limited  to, the  following:  (a)  Lending,  exchanging,  transferring,
investing  for  others,  or  safeguarding  money or  securities;  (b)  Insuring,
guaranteeing,  or indemnifying against loss, harm, damage, illness,  disability,
or death, or providing and issuing annuities, and acting as principal, agent, or
broker for purposes of the  foregoing,  in any State;  (c) Providing  financial,
investment,  or economic  advisory  services,  including  advising an investment
company; (d) Issuing or selling instruments  representing  interests in pools of
assets  permissible for a bank to hold directly;  and (e) Underwriting,  dealing
in, or making a market in securities.

SECURITIES ACTIVITIES.  Title II narrows the exemptions from the securities laws
previously enjoyed by banks.

INSURANCE ACTIVITIES. Title III restates the proposition that the states are the
functional  regulators  for all  insurance  activities,  including the insurance
activities of  federally-chartered  banks,  and bars the states from prohibiting
insurance activities by depository institutions.

PRIVACY.  Under Title V, federal banking regulators were required to adopt rules
that have  limited  the  ability of banks and other  financial  institutions  to
disclose non-public  information about consumers to nonaffiliated third parties.
These  limitations  require  disclosure of privacy policies to consumers and, in
some  circumstances,  allow consumers to prevent  disclosure of certain personal
information  to  a  nonaffiliated  third  party.  Under  the  rules,   financial
institutions must provide:

o    initial notices to customers about their privacy  policies,  describing the
     conditions under which they may disclose nonpublic personal  information to
     nonaffiliated third parties and affiliates;

o    annual notices of their privacy policies to current customers; and

o    a reasonable method for customers to "opt out" of disclosures to nonaffili-
     ated third parties.

SAFEGUARDING  CONFIDENTIAL CUSTOMER INFORMATION.  Under Title V, federal banking
regulators  were required to adopt rules  requiring  financial  institutions  to
implement  a program  to  protect  confidential  customer  information,  and the
federal   banking   agencies  have  adopted   guidelines   requiring   financial
institutions  to establish an  information  security  program.  The federal bank
regulatory  agencies  have  established  standards  for  safeguarding  nonpublic
personal   information   about  customers  that  implement   provisions  of  the
Gramm-Leach  Bliley Act (the  "Guidelines").  Among other things, the Guidelines


                                       15


<PAGE>


require each financial institution,  under the supervision and ongoing oversight
of its Board of  Directors  or an  appropriate  committee  thereof,  to develop,
implement and maintain a  comprehensive  written  information  security  program
designed to ensure the security and confidentiality of customer information,  to
protect against any anticipated  threats or hazards to the security or integrity
of such  information,  and to protect against  unauthorized  access to or use of
such  information  that could result in substantial harm or inconvenience to any
customer.

The Bank implemented a security  program  appropriate to its size and complexity
and the nature and scope of its  operations  prior to the July 1, 2001 effective
date of the  regulatory  guidelines,  and since initial  implementation  has, as
necessary updated and improved that program.

COMMUNITY REINVESTMENT ACT SUNSHINE  REQUIREMENTS.  The federal banking agencies
have adopted regulations implementing Section 711 of Title VII, the CRA Sunshine
Requirements.  The regulations require  nongovernmental  entities or persons and
insured  depository  institutions  and  affiliates  that are  parties to written
agreements  made in connection  with the  fulfillment of the  institution's  CRA
obligations to make available to the public and the federal  banking  agencies a
copy of each  agreement.  The Bank is not a party to any agreement that would be
the subject of reporting pursuant to the CRA Sunshine Requirements.

The Bank intends to comply with all provisions of the Gramm-Leach-Bliley Act and
all implementing regulations as they become effective.



Q.       Fair Credit Reporting


The  Fair  Credit   Reporting  Act  (the  "FCRA")  was  adopted  to  ensure  the
confidentiality,  accuracy,  relevancy and proper utilization of consumer credit
report  information.  Under the  framework  of the FCRA,  the United  States has
developed  a  highly  advanced  and  efficient  credit  reporting  system.   The
information  contained in that broad  system is used by financial  institutions,
retailers  and  other  creditors  of  every  size in  making a wide  variety  of
decisions  regarding  financial  transactions.  Employers  and  law  enforcement
agencies have also made wide use of the information  collected and maintained in
databases made possible by the FCRA. The FCRA  affirmatively  preempts state law
in a number of areas,  including  the ability of entities  affiliated  by common
ownership to share and exchange  information  freely, the requirements on credit
bureaus  to  reinvestigate  the  contents  of reports in  response  to  consumer
complaints, among others.



R.       Consumer Laws and Regulations


The Bank must also comply with consumer laws and  regulations  that are designed
to  protect  consumers  in  transactions  with  banks.  While  the  list  is not
exhaustive,  these laws and  regulations  include the Truth in Lending  Act, the
Truth in Savings Act, the  Electronic  Funds  Transfer Act, the Expedited  Funds
Availability  Act, the Equal Credit  Opportunity  Act, and the Fair Housing Act,
among others.  These laws and regulations  mandate  disclosure  requirements and
regulate the manner in which  financial  institutions  must deal with  customers
when taking  deposits or making loans.  The Bank must comply with the applicable
provisions of these  consumer  protection  laws and  regulations  as part of its
ongoing regulatory compliance and customer relations efforts.



S.       Exposure to and Management of Risk


The federal  banking  agencies  examine  banks and bank holding  companies  with
respect to their  exposure to and  management  of different  categories of risk.
Categories of risk  identified by the agencies  include legal risk,  operational
risk, market risk, credit risk, interest rate risk, price risk, foreign exchange
risk,  transaction risk, compliance risk, strategic risk, credit risk, liquidity
risk, and reputation risk. This  examination  approach causes bank regulators to
focus on risk management  procedures,  rather than simply  examining every asset
and transaction.  This approach supplements rather than replaces existing rating
systems based on the evaluation of an institution's capital, assets, management,
earnings and liquidity.


                                       16


<PAGE>


T.       Safety and Soundness Standards


Federal  banking  regulators  have  adopted  a  Safety  and  Soundness  Rule and
Interagency  Guidelines  Prescribing  Standards  for Safety and  Soundness.  The
guidelines  create  standards  for a wide range of  operational  and  managerial
matters including (a) internal controls, information systems, and internal audit
systems;  (b) loan  documentation;  (c) credit  underwriting;  (d) interest rate
exposure; (e) asset growth; (f) compensation and benefits; and (g) asset quality
and earnings.

The Community  Development Act requires the federal bank regulatory  agencies to
prescribe standards prohibiting as an unsafe and unsound practice the payment of
excessive  compensation  that  could  result in  material  financial  loss to an
institution,  and  to  specify  when  compensation,   fees  or  benefits  become
excessive.  These  guidelines  characterize  compensation  as excessive if it is
unreasonable  or  disproportionate  to the  services  actually  performed by the
executive   officer,   employee,   director  or  principal   shareholder   being
compensated.

Federal  regulators have stated that the guidelines are meant to be flexible and
general  enough  to allow  each  institution  to  develop  its own  systems  for
compliance. With the exception of the standards for compensation and benefits, a
failure to comply with the guidelines' standards does not necessarily constitute
an unsafe and unsound  practice or condition.  On the other hand, an institution
in conformance  with the standards may still be found to be engaged in an unsafe
and unsound practice or to be in an unsafe and unsound condition.

Although  meant  to  be  flexible,  an  institution  that  falls  short  of  the
guidelines'  standards  may be  requested  to  submit  a  compliance  plan or be
subjected to regulatory  enforcement  actions.  Generally,  the federal  banking
agencies will request a compliance plan if an institution's  failure to meet one
or more of the  standards  is of  sufficient  severity to threaten  the safe and
sound operation of the  institution.  An institution must file a compliance plan
within 30 days of request by its primary federal regulator,  which is the OCC in
the  case of the  Bank.  The  guidelines  provide  for  prior  notice  of and an
opportunity to respond to the agency's proposed order. An enforcement action may
be commenced  if, after being  notified  that it is in violation of a safety and
soundness  standard,  the institution  fails to submit an acceptable  compliance
plan or fails in any material respect to implement an accepted plan. The Federal
Deposit  Insurance  Act provides the agencies  with a wide range of  enforcement
powers. An agency may, for example, obtain an enforceable cease and desist order
in the United States District Court, or may assess civil money penalties against
an institution or its affiliated parties.



U.       Impact of Government Monetary Policy


The earnings of the Bank are and will be affected by the policies of  regulatory
authorities, including the Federal Reserve. An important function of the Federal
Reserve is to regulate the national supply of bank credit. Among the instruments
used to implement these objectives are open market operations in U.S. Government
securities,  changes in reserve requirements against bank deposits,  and changes
in the  discount  rate which  banks pay on  advances  from the  Federal  Reserve
System.  These instruments are used in varying combinations to influence overall
growth and distribution of bank loans,  investments and deposits,  and their use
may also affect interest rates on loans or interest rates paid for deposits. The
monetary  policies  of the FRB have had a  significant  effect on the  operating
results of commercial banks in the past and are expected to continue to do so in
the  future.  The  effect,  if any, of such  policies  upon the future  business
earnings of the Bank cannot be predicted.



V.       Legislation and Proposed Changes


From time to time, legislation is enacted which has the effect of increasing the
cost  of  doing  business,  limiting  or  expanding  permissible  activities  or
affecting  the   competitive   balance   between   banks  and  other   financial
institutions.  Proposals  to  change  the laws  and  regulations  governing  the
operations  and taxation of banks,  bank holding  companies and other  financial
institutions  are frequently made in Congress and before various bank regulatory
agencies.  For  example,  from  time to time  Congress  has  considered  various
proposals to eliminate the federal thrift  charter,  create a uniform  financial
institutions charter, conform holding company regulation, and abolish the Office
of Thrift Supervision.  Typically,  the intent of this type of legislation is to
strengthen the banking industry, even if it may on occasion prove to be a burden
on  management's  plans.  No prediction  can be made as to the likelihood of any
major changes or the impact that new laws or regulations might have on the Bank.



                                       17


<PAGE>


W.       Conclusions


It is impossible to predict with any certainty the  competitive  impact the laws
and regulations  described above will have on commercial  banking in general and
on the business of the Bank in particular,  or to predict whether or when any of
the proposed legislation and regulations  described above will be adopted. It is
anticipated  that  banking  will  continue  to be a highly  regulated  industry.
Additionally, there has been a continued lessening of the historical distinction
between the services  offered by  financial  institutions  and other  businesses
offering financial services,  and the trend toward nationwide interstate banking
is expected to continue.  As a result of these factors,  it is anticipated banks
will  experience  increased  competition  for deposits and loans and,  possibly,
further increases in their cost of doing business.



















































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<PAGE>


ITEM 1A.  RISK FACTORS


                                  RISK FACTORS

Readers and prospective  investors in our securities  should carefully  consider
the  following  risk  factors  as well as the  other  information  contained  or
incorporated by reference in this report.

The risks and  uncertainties  described  below are not the only ones  facing us.
Additional risks and uncertainties that management is not aware of or focused on
or that  management  currently  deems  immaterial  may also impair our  business
operations. This report is qualified in its entirety by these risk factors.

If any of the following risks actually occur, the Company's  financial condition
and results of operations  could be materially and adversely  affected.  If this
were  to  happen,   the  value  of  the  Company's   securities   could  decline
significantly, and you could lose all or part of your investment.




MARKET AND INTEREST RATE RISK



CHANGES IN INTEREST RATES COULD REDUCE INCOME AND CASH FLOW


The  discussion  in this report  under  "Item 7a  Quantitative  and  Qualitative
Disclosures  About Market Risk" is  incorporated by reference in this paragraph.
The  Company's  income and cash flow depend to a great extent on the  difference
between the interest earned on loans and investment securities, and the interest
paid on deposits and other  borrowings.  We cannot control or prevent changes in
the level of interest  rates.  They  fluctuate  in response to general  economic
conditions and the policies of various governmental and regulatory agencies,  in
particular,  the FRB. Changes in monetary policy,  including changes in interest
rates, will influence the origination of loans, the purchase of investments, the
generation of deposits and the rates received on loans and investment securities
and paid on deposits and other liabilities.


RISKS  RELATED  TO THE  NATURE  AND  GEOGRAPHICAL  LOCATION  OF  BRIDGE  CAPITAL
HOLDINGS' BUSINESS



BRIDGE CAPITAL  HOLDINGS'  INVESTS IN LOANS THAT CONTAIN  INHERENT  CREDIT RISKS
THAT MAY CAUSE US TO INCUR LOSSES


The  Company  closely  monitors  the  markets in which it  conducts  its lending
operations  and  adjusts its  strategy to control  exposure to loans with higher
credit risk.  Asset reviews are performed  using grading  standards and criteria
similar  to those  employed  by bank  regulatory  agencies.  We can  provide  no
assurance  that the  credit  quality of our loans  will not  deteriorate  in the
future and that such deterioration will not adversely affect the Company.




BRIDGE  CAPITAL   HOLDINGS'   OPERATIONS  ARE  CONCENTRATED   GEOGRAPHICALLY  IN
CALIFORNIA, AND POOR ECONOMIC CONDITIONS MAY CAUSE US TO INCUR LOSSES.


Substantially all of Bridge Capital Holdings' business is located in California.
Bridge  Capital  Holdings'  financial  condition and  operating  results will be
subject  to  changes  in  economic  conditions  in  California.  In the early to
mid-1990s,  California  experienced a significant and prolonged  downturn in its
economy, which adversely affected financial institutions. Economic conditions in
California  are subject to various  uncertainties  at this time,  including  the
decline in the technology sector,  the California state  government's  budgetary
difficulties and continuing fiscal difficulties.  The Company will be subject to
changes in economic  conditions.  We can provide no assurance that conditions in
the  California  economy  will not  deteriorate  in the  future  and  that  such
deterioration will not adversely effect Bridge Capital Holdings.



THE MARKETS IN WHICH BRIDGE CAPITAL HOLDINGS OPERATES ARE SUBJECT TO THE RISK OF
EARTHQUAKES AND OTHER NATURAL DISASTERS


                                       19


<PAGE>


Most of the  properties of Bridge  Capital  Holdings are located in  California.
Also,  most of the real and  personal  properties  which  currently  secure  the
company's loans are located in California.  California is a state which is prone
to earthquakes,  brush fires, flooding and other natural disasters.  In addition
to  possibly  sustaining  damage  to its own  properties,  if  there  is a major
earthquake,  flood or other natural disaster,  Bridge Capital Holdings faces the
risk that many of its borrowers may experience  uninsured  property  losses,  or
sustained job interruption and/or loss which may materially impair their ability
to meet the terms of their loan obligations. A major earthquake,  flood or other
natural  disaster in California  could have a material  adverse effect on Bridge
Capital Holdings' business,  financial condition, results of operations and cash
flows.



SUBSTANTIAL  COMPETITION IN THE CALIFORNIA BANKING MARKET COULD ADVERSELY AFFECT
US


Banking is a highly competitive business. We compete actively for loan, deposit,
and other financial services business in California.  Our competitors  include a
large number of state and national banks, thrift institutions and credit unions,
as well as many financial and non-financial firms that offer services similar to
those offered by us. Other competitors include large financial institutions that
have  substantial  capital,  technology  and  marketing  resources.  Such  large
financial  institutions  may have greater access to capital at a lower cost than
us, which may adversely affect our ability to compete effectively.


REGULATORY RISKS


RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS COULD LIMIT AMOUNTS PAYABLE TO
US


Various statutory  provisions  restrict the amount of dividends our subsidiaries
can pay to us without  regulatory  approval.  In addition,  if any subsidiary of
ours were to liquidate,  that subsidiary's creditors will be entitled to receive
distributions from the assets of that subsidiary to satisfy their claims against
it  before  we, as a holder of an equity  interest  in the  subsidiary,  will be
entitled to receive any of the assets of the subsidiary.


ADVERSE  EFFECTS OF, OR CHANGES  IN,  BANKING OR OTHER LAWS AND  REGULATIONS  OR
GOVERNMENTAL FISCAL OR MONETARY POLICIES COULD ADVERSELY AFFECT US

We are subject to  significant  federal and state  regulation  and  supervision,
which is primarily  for the benefit and  protection of our customers and not for
the benefit of investors. In the past, our business has been materially affected
by these  regulations.  This trend is likely to continue  in the  future.  Laws,
regulations  or policies,  including  accounting  standards and  interpretations
currently affecting us and our subsidiaries,  may change at any time. Regulatory
authorities  may  also  change  their   interpretation  of  these  statutes  and
regulations.  Therefore,  our business  may be adversely  affected by any future
changes  in  laws,  regulations,   policies  or  interpretations  or  regulatory
approaches to compliance and enforcement,  including  legislative and regulatory
reactions  to the  terrorist  attack on  September  11,  2001 and future acts of
terrorism,  and major U.S.  corporate  bankruptcies  and  reports of  accounting
irregularities at U.S. public companies.

Additionally,  our business is affected significantly by the fiscal and monetary
policies  of the  federal  government  and  its  agencies.  We are  particularly
affected by the  policies of the Federal  Reserve  Board,  which  regulates  the
supply of money and credit in the U.S. Under long-standing policy of the Federal
Reserve  Board,  a bank  holding  company  is  expected  to act as a  source  of
financial  strength for its subsidiary banks. As a result of that policy, we may
be required to commit  financial and other  resources to our subsidiary  bank in
circumstances  where we might not  otherwise  do so.  Among the  instruments  of
monetary  policy  available to the Federal Reserve Board are (a) conducting open
market operations in U.S. government securities, (b) changing the discount rates
of borrowings by depository  institutions,  and (c) imposing or changing reserve
requirements  against certain  borrowings by banks and their  affiliates.  These
methods are used in varying  degrees  and  combinations  to directly  affect the
availability  of bank loans and deposits,  as well as the interest rates charged
on loans and paid on  deposits.  The policies of the Federal  Reserve  Board may
have a material  effect on our  business,  results of  operations  and financial
condition.


SYSTEMS, ACCOUNTING AND INTERNAL CONTROL RISKS


THE ACCURACY OF THE  COMPANY'S  JUDGMENTS  AND  ESTIMATES  ABOUT  FINANCIAL  AND
ACCOUNTING MATTERS WILL IMPACT OPERATING RESULTS AND FINANCIAL CONDITION

The discussion under "Critical Accounting Policies and Estimates" in this report
and the information  referred to in that discussion is incorporated by reference
in this  paragraph.  The  Company  makes  certain  estimates  and  judgments  in
preparing its financial statements.  The quality and accuracy of those estimates
and  judgments  will have an  impact  on the  Company's  operating  results  and
financial condition.


                                       20


<PAGE>


THE COMPANY'S  INFORMATION  SYSTEMS MAY EXPERIENCE AN  INTERRUPTION OR BREACH IN
SECURITY

The Company relies heavily on communications and information  systems to conduct
its business.  Any failure,  interruption or breach in security of these systems
could result in failures or disruptions in the Company's  customer  relationship
management  and  systems.  There  can be no  assurance  that any such  failures,
interruptions  or security  breaches  will not occur or, if they do occur,  that
they will be  adequately  corrected by the Company.  The  occurrence of any such
failures,   interruptions  or  security  breaches  could  damage  the  Company's
reputation,  result in a loss of  customer  business,  subject  the  Company  to
additional regulatory scrutiny, or expose the Company to litigation and possible
financial  liability,  any of which could have a material  adverse effect on the
Company's financial condition and results of operations.


THE COMPANY'S CONTROLS AND PROCEDURES MAY FAIL OR BE CIRCUMVENTED

Management  regularly  reviews and updates the Company's  internal  control over
financial   reporting,   disclosure  controls  and  procedures,   and  corporate
governance  policies  and  procedures.  Any system of controls  and  procedures,
however well designed and operated,  is based in part on certain assumptions and
can provide only reasonable, not absolute, assurances that the objectives of the
system are met.  Any failure or  circumvention  of the  Company's  controls  and
procedures  or failure  to comply  with  regulations  related  to  controls  and
procedures  could  have a material  adverse  effect on the  Company's  business,
results of operations and financial condition.



ITEM 1B.  UNRESOLVED STAFF COMMENTS


None



ITEM 2.  PROPERTIES


At December 31, 2006, the Company's operations included facilities as follows:

The principal  executive  office and a full service banking office is located at
55  Almaden  Boulevard,  City of San  Jose,  County  of  Santa  Clara,  State of
California.  The office  consists of  approximately  42,337 square feet on three
floors of an eight-story  office  building.  24,767 square feet of the space was
originally sublet from a prior tenant in a sublease which commenced December 26,
2003 and terminated December 31, 2006. The sublease provided for an initial base
rent of  $28,730  with  annual  escalations  to $45,819 in the final year of the
sublease.  The Bank has entered  into a direct  lease with the  landlord,  which
commenced  immediately  following the expiration of the sublease term on January
1, 2007 for 120 months  ending on December 31, 2016.  The direct lease  provides
for an initial  twelve-month  period of reduced rent  followed by a base rent of
$47,305  beginning on January 1, 2008 and  increasing  3.0% on each  anniversary
date thereafter.  The Bank has also entered into an additional direct lease with
the landlord to occupy 17,570 square feet, which commenced  November 1, 2006 and
terminates  on December  31,  2016.  The direct  lease  provides  for an initial
twelve-month  period with no rent  followed  by an initial  base rent of $36,897
with annual escalations to $48,142 in the final year of the lease. The foregoing
description is qualified by reference to the lease  agreement  dated November 1,
2006 attached as Exhibit 10.16 herein.

A  non-banking  administrative  office is located at 2120 El Camino Real, in the
City of Santa Clara,  County of Santa Clara, State of California.  The office is
located in a freestanding,  two-story building, consisting of 5,430 square feet,
located at the  intersection of El Camino Real and McCormick Drive. The premises
include 42 parking spaces situated on a 35,719 square foot parcel.  The premises
are sublet from Washington Mutual Bank. The sublease provides for a base rent of
$13,583 per month from the commencement  date until the first anniversary of the
sublease. On each anniversary date of the commencement of the sublease, the base
rent will be  increased by 4.0% of the amount of the basic rent during the prior
year. The Bank is also  responsible  for real estate taxes and insurance  costs.
The sublease is for a period of ten (10) years,  terminating  on  September  30,
2010. There is no option to extend the sublease beyond that date.  Current lease
payments are $17,186 per month through the anniversary of the commencement date.
The foregoing  description  of the office is qualified by reference to the lease
agreement dated August 31, 2000 exhibit 10.4 to this Report.




                                       21


<PAGE>

An additional full service  banking office is located at 525 University  Avenue,
City of Palo  Alto,  County of Santa  Clara,  State of  California.  The  office
consists of approximately  2,975 square feet consisting of Suites 101 and 103 on
the first floor of the building known as the Palo Alto Office Center.  The lease
is for a term of 60 months commencing on December 1, 2001 and ending on November
30, 2006.  The Bank has continued this lease on a month to month basis since the
lease expired.  The Lease provided for a base rent of $12,198  through the first
anniversary  of the lease date.  Effective with the first  anniversary  date the
lease  payments will be adjusted by a factor that is tied to the Consumer  Price
Index.  Current lease payments are $16,651 per month. The foregoing  description
is qualified by reference to the lease agreement dated October 15, 2001 attached
as exhibit 10.12 to this Report.

In addition,  the Bank operates  loan  production  offices in Redwood City,  San
Ramon and Fresno, California as well as Dallas, Texas and Reston, Virginia.



ITEM 3.  LEGAL PROCEEDINGS


The Company is not a  defendant  in any pending  legal  proceedings  and no such
proceedings are known to be contemplated.  No director, officer, affiliate, more
than 5.0%  shareholder  of the Company or any  associate  of these  persons is a
party adverse to the Company or has a material  interest  adverse to the Company
in any material legal proceeding.



ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted  during the fourth quarter of the fiscal year covered by
this Annual Report to a vote of security  holders,  through the  solicitation of
proxies or otherwise.






















                                       22


<PAGE>

                                     PART II


ITEM 5. MARKET FOR REGISTRANT'S  COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND
        ISSUER PURCHASES OF EQUITY SECURITIES


The Company's  Common Stock trades on the Nasdaq Capital Market under the symbol
"BBNK".  The following  table  summarizes  those trades of which the Company has
knowledge,  setting  forth  the  high  and low  sales  prices  for  the  periods
indicated.

                                             Sales Price of
                                            Common Stock /1/
                                           _____________________
                                            Low           High
                                           ______        _______

                 Three Months Ended
                 __________________

                 March 31, 2005            $ 14.14       $ 16.12
                 June 30, 2005             $ 14.35       $ 15.95
                 September 30, 2005        $ 15.75       $ 19.76
                 December 31, 2005         $ 16.25       $ 19.34

                 March 31, 2006            $ 17.40       $ 19.97
                 June 30, 2006             $ 19.00       $ 20.49
                 September 30, 2006        $ 19.15       $ 22.70
                 December 31, 2006         $ 20.10       $ 22.98


/1/ Prices  represent the actual trading  history on the Nasdaq Capital  Market.
Additionally,  since trading in the Company's common stock is limited, the range
of prices stated is not necessarily  representative of prices which would result
from a more active market.

The Company had 315 shareholders of record as of December 31, 2006.

The  Company's  shareholders  are  entitled  to receive  dividends,  when and as
declared by its Board of Directors,  out of funds legally available,  subject to
statutory and regulatory restrictions. See "SUPERVISION AND REGULATION - Payment
of Dividends".

A California corporation such as Bridge Capital Holdings may make a distribution
to its shareholders if the  corporation's  retained  earnings equal at least the
amount of the proposed  distribution.  In the event sufficient retained earnings
are not available for the proposed  distribution,  a California  corporation may
nevertheless  make a distribution to its shareholders if, after giving effect to
the  distribution,  the  corporation's  assets equal at least 125 percent of its
liabilities and certain other conditions are met. Since the 125 percent ratio is
equivalent  to a  minimum  capital  ratio  of  20  percent,  most  bank  holding
companies,  including  Bridge  Bancorp  based on its current  projected  capital
ratios,  are unable to meet this last test and so must have sufficient  retained
earnings to fund the proposed distribution.

In a policy  statement,  the FRB has  advised  bank  holding  companies  that it
believes  that  payment of cash  dividends  in excess of current  earnings  from
operations is inappropriate and may be cause for supervisory action. As a result
of this policy,  banks and their holding  companies may find it difficult to pay
dividends  out of retained  earnings from  historical  periods prior to the most
recent fiscal year or to take advantage of earnings  generated by  extraordinary
items such as sales of  buildings  or other  large  assets in order to  generate
profits to enable payment of future dividends.  Additionally, the FRB's position
that  holding  companies  are  expected  to provide a source of  managerial  and
financial  strength  to their  subsidiary  banks  potentially  restricts  a bank
holding company's ability to pay dividends.

The Company has not declared  dividends since inception of the Bank's existence.
In the future, the Company may consider cash and stock dividends, subject to the
restrictions on the payment of cash dividends as described above, depending upon
the level of earnings, management's assessment of future capital needs and other
factors considered by the Board of Directors.

The  following  chart  reflects the total return  performance  of the  Company's
common stock for the years ended December 31, 2006,  2005, 2004, 2003, and 2002,
including  the  performance  of shares of common  stock of the Bank prior to the
formation of the Company as holding company for the Bank on October 1, 2004.


                                       23


<PAGE>


             [TOTAL RETURN PERFORMANCE GRAPH APPEARS HERE]


<TABLE>
<CAPTION>


                                                           Period Ended
                            _________________________________________________________________________
Index                       12/31/01     12/31/02     12/31/03     12/31/04     12/31/05     12/31/06
_______________________     ________     ________     ________     ________     ________     ________
<S>                         <C>          <C>          <C>          <C>          <C>          <C>

Bridge Capital Holdings      100.00        72.94       152.82       188.00       217.65       240.47
NASDAQ Composite             100.00        68.76       103.67       113.16       115.57       127.58
SNL Western Bank Index       100.00       109.41       148.21       168.43       175.36       197.86

</TABLE>


                                       24


<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA


The  following  table  presents  certain  consolidated   financial   information
concerning  the  business of the  Company.  This  information  should be read in
conjunction   with  the  Financial   Statements  and  the  notes  thereto,   and
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations contained elsewhere herein.


<TABLE>
<CAPTION>


(dollars in thousands, except per share data)                           As of and for the years ended
                                                                                December 31,
                                                        ____________________________________________________________
                                                          2006         2005         2004         2003         2002
                                                        ____________________________________________________________
<S>                                                     <C>          <C>          <C>          <C>          <C>

STATEMENT OF OPERATIONS DATA:
Interest income                                         $ 52,962     $ 34,118     $ 19,457     $ 12,133     $  7,002
Interest expense                                          14,271        6,615        2,896        2,235        1,192
                                                        ____________________________________________________________
Net interest income                                       38,691       27,503       16,561        9,898        5,810
Provision for credit losses                               (1,372)      (2,162)      (1,671)        (843)      (1,424)
Net interest income after provision
  for credit losses                                       37,319       25,341       14,890        9,055        4,386
                                                        ____________________________________________________________
Other income                                               3,837        4,197        3,855        2,664        1,460
Other expenses                                           (27,279)     (19,981)     (13,596)     (10,214)      (8,530)
                                                        ____________________________________________________________
Income before income taxes                                13,877        9,557        5,149        1,505       (2,684)
Income taxes                                              (5,243)      (3,832)      (2,112)       1,868           (1)
                                                        ____________________________________________________________
Net income (loss)                                       $  8,634     $  5,725     $  3,037     $  3,373     $ (2,685)
                                                        ============================================================

PER SHARE DATA:
Basic income (loss) per share                           $   1.38     $   0.93     $   0.50     $   0.56     $  (0.53)
Diluted income (loss) per share                             1.27         0.85         0.46         0.53        (0.53)
Shareholders' equity per share                              7.77         6.36         5.43         4.95         4.39
Cash dividend per common share                                 -            -            -            -

BALANCE SHEET DATA:
Balance sheet totals:
  Assets                                                $721,979     $536,520     $402,037     $278,579     $181,188
  Loans, net                                             531,956      432,667      289,467      191,053      126,345
  Deposits                                               644,987      468,158      352,456      246,394      153,359
  Shareholders' equity                                    49,094       39,714       33,122       29,954       26,564

Average balance sheet amounts:
  Assets                                                $606,506     $465,944     $341,466     $222,454     $133,830
  Loans, net                                             458,648      348,592      240,465      156,587       86,892
  Deposits                                               535,472      411,678      307,471      193,765      111,607
  Shareholders' equity                                    44,646       36,017       30,768       27,075       21,126

SELECTED RATIOS:
Return on average equity                                   19.34%       15.90%        9.87%       12.46%      -12.71%
Return on average assets                                    1.42%        1.23%        0.89%        1.52%       -2.01%
Efficiency ratio                                           64.14%       63.03%       66.59%       81.31%      117.33%
Risk based capital ratio                                   11.74%       11.58%       13.77%       14.68%       20.39%
Net chargeoffs (recoveries) to average gross loans          0.00%        0.06%        0.08%       -0.50%        0.20%
Allowance for loan losses to total gross loans              1.36%        1.35%        1.41%        1.38%        1.37%
Average equity to average assets                            7.36%        7.73%        9.01%       12.17%       15.79%

</TABLE>


                                       25


<PAGE>


ITEM  7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS


Certain matters  discussed or incorporated by reference in this Annual Report on
Form  10-K  are  forward-looking  statements  that  are  subject  to  risks  and
uncertainties  that could cause actual results to differ  materially  from those
projected.  Please see  "Forward-Looking  Statements" on page 2. Therefore,  the
information  set forth therein should be carefully  considered  when  evaluating
business prospects of the Company.


CRITICAL ACCOUNTING POLICIES


Our  accounting  policies are integral to  understanding  the results  reported.
Accounting  policies  are  described  in  detail  in Note 1 to the  Consolidated
Financial Statements.  Our most complex accounting policies require management's
judgment to ascertain  the  valuation of assets,  liabilities,  commitments  and
contingencies.  We have  established  detailed  policies and procedures that are
intended  to  ensure   valuation   methods  are  well   controlled  and  applied
consistently from period to period. In addition, the policies and procedures are
intended  to ensure that the process  for  changing  methodologies  occurs in an
appropriate  manner.  The  following  is a  brief  description  of  our  current
accounting policies involving significant management valuation judgments.


ALLOWANCE FOR LOAN LOSSES


The allowance for loan losses  represents  management's  best estimate of losses
inherent  in the  existing  loan  portfolio.  The  allowance  for loan losses is
increased  by the  provision  for loan losses  charged to expense and reduced by
loans  charged  off,  net of  recoveries.  The  provision  for  loan  losses  is
determined  based on  management's  assessment of several  factors:  reviews and
evaluation  of  specific  loans,  changes  in the  nature and volume of the loan
portfolio,  current  economic  conditions  and the  related  impact on  specific
borrowers and industry groups,  historical loan loss  experiences,  the level of
classified and nonperforming loans and the results of regulatory examinations.

Loans are considered impaired if, based on current information and events, it is
probable that we will be unable to collect the  scheduled  payments of principal
or interest when due according to the  contractual  terms of the loan agreement.
The  measurement  of impaired  loans is generally  based on the present value of
expected future cash flows discounted at the historical  effective interest rate
stipulated in the loan agreement, except that all collateral-dependent loans are
measured for impairment based on the fair value of the collateral.  In measuring
the fair value of the collateral,  management uses assumptions and methodologies
consistent with those that would be utilized by unrelated third parties.

Changes in the financial condition of individual borrowers, economic conditions,
historical  loss  experience,  and the condition of the various markets in which
collateral  may be sold may all affect the required  level of the  allowance for
loan losses and the associated provision for loan losses.


SALE OF SBA LOANS


In  calculating  gain on the sale of SBA loans,  the Bank performs an allocation
based on the relative  fair values of the sold portion and retained  portions of
the loan. The company  assumptions are validated by reference to external market
information.


AVAILABLE-FOR-SALE SECURITIES


The fair value of most securities  classified as  available-for-sale is based on
quoted market prices. If quoted market prices are not available, fair values are
extrapolated from the quoted prices of similar instruments.



DEFERRED TAX ASSETS


Our deferred tax assets are  explained in Note 8 to the  Consolidated  Financial
Statements.  The Company has  sufficient  taxable  income from current and prior
periods to support our position that the benefit of our deferred tax assets will
be  realized.  As such,  we have  provided no  valuation  allowance  against our
deferred tax assets.


                                       26


<PAGE>


OPERATING RESULTS


For the year ended  December 31, 2006,  the Company  reported net income of $8.6
million or $1.38 basic and $1.27 diluted  earnings per share,  compared with net
income of $5.7 million or $0.93 basic and $0.85  diluted  earnings per share for
the year ended  December  31,  2005 and $3.0  million  or $0.50  basic and $0.46
diluted earnings per share for the year ended December 31, 2004. The improvement
in net income for 2006 resulted  primarily  from an increase of $11.2 million in
net  interest  income and by a decrease  of  $800,000  in  provision  for credit
losses,  offset,  in part, by an increase of $7.3 million in other expense.  See
the specific sections below for details regarding these changes.

Net income for 2005  represented  an increase of $2.7  million  compared to 2004
primarily due to an increase of $10.9 million in net interest income, offset, in
part,  by an increase of $0.5  million in provision  for credit  losses and $6.4
million in other expense.



NET INTEREST INCOME AND MARGIN


Net interest income is the principal source of the Company's operating earnings.
Net  interest  income is affected by changes in the nature and volume of earning
assets held during the year,  the rates earned on such assets and the rates paid
on  interest-bearing  liabilities.  The following table shows the composition of
average  earning assets and average funding  sources,  average yields and rates,
and the net interest  margin for the three years ended  December 31, 2006,  2005
and 2004.


                                       27


<PAGE>


<TABLE>
<CAPTION>


(dollars in thousands)                                             Year Ended December 31,
                                  _________________________________________________________________________________________
                                              2006                           2005                          2004
                                  ____________________________   ____________________________   ___________________________
                                            INTEREST                       INTEREST                       INTEREST
                                   AVERAGE    INCOME/ YIELDS/     AVERAGE    INCOME/ YIELDS/     AVERAGE    INCOME/ YIELDS/
                                   BALANCE    EXPENSE   RATES     BALANCE    EXPENSE   RATES     BALANCE    EXPENSE   RATES
                                  ____________________________   ____________________________   ___________________________
<S>                               <C>         <C>         <C>    <C>         <C>         <C>    <C>         <C>        <C>

ASSETS

Interest earning assets(2):
  Loans (1)                        $466,529   $48,248    10.3%   $ 354,552   $31,983     9.0%   $ 244,600   $18,378    7.5%
  Federal funds sold                 78,946     3,990     5.1%      52,234     1,703     3.3%      43,000       546    1.3%
  Investment securities              17,523       724     4.1%      18,712       432     2.3%      30,002       533    1.8%
                                  ____________________________   ____________________________   ___________________________
      Total earning assets          562,998    52,962     9.4%     425,498    34,118     8.0%     317,602    19,457    6.1%%
                                  ____________________________   ____________________________   ___________________________
Noninterest earning assets:
  Cash and due from banks            27,748                         27,767                         18,272
  All Other assets (3)               15,760                         12,679                          5,592
                                  _________                      _________                   ____________
    TOTAL                         $ 606,506                      $ 465,944                      $ 341,466
                                  =========                      =========                   ============
LIABILITIES AND
  SHAREHOLDERS' EQUITY

Interest-bearing liabilities:
  Deposits:
    Demand                        $   3,902        34     0.9%   $   3,363        25     0.7%   $   3,543        21    0.6%
    Savings                         261,251     8,858     3.4%     193,088     4,192     2.2%     138,776     1,833    1.3%
    Time                             99,924     4,290     4.3%      56,183     1,657     2.9%      47,008     1,020    2.2%
    Other                            19,106     1,089     5.7%      13,426       741     5.5%         361        22    6.1%
                                  ____________________________   ____________________________   ___________________________
    Total interest-bearing
      Liabilities                   384,183    14,271     3.7%     266,060     6,615     2.5%     189,688     2,896    1.5%
                                  ____________________________   ____________________________   ___________________________
Noninterest-bearing liabilities:
  Demand deposits                   170,395                        159,044                        118,144
  Accrued expenses and
    other liabilities                 7,282                          4,823                          2,866
Shareholders' equity                 44,646                         36,017                         30,768
                                  _________                      _________                      _________
    TOTAL                         $ 606,506                      $ 465,944                      $ 341,466
                                  =========                      =========                      =========
Net interest income and margin                $38,691     6.9%               $27,503     6.5%               $16,561    5.2%
                                              ================               ================               ===============

<FN>

1)   Includes  amortization  of loan fees of $4.2 million for 2006,  $3.5 million for 2005 and $2.0 million for
     2004.  Nonperforming loans have been included in average loan balances.

2)   Interest  income is reflected on an actual  basis,  not on a fully  taxable  equivalent basis. Yields are
     based on amortized cost.

3)   Net of average  allowance  for credit  losses of $6.5  million  and average deferred loan fees of $1.4 million
     for 2006,  average  allowance for credit losses of $4.9 million and deferred  loan fees of $1.1 million for 2005
     and average  allowance for credit losses of $3.3 million and deferred loan fees of $787,000 for 2004.

</FN>
</TABLE>

Interest  differential is affected by changes in volume,  changes in rates and a
combination of changes in volume and rates. Volume changes are caused by changes
in the levels of average earning assets and average  interest  bearing  deposits
and borrowings.  Rate changes result from changes in yields earned on assets and
rates paid on  liabilities.  Changes not solely  attributable to volume or rates
have been allocated to the rate component.

The following table shows the effect on the interest  differential of volume and
rate changes for the years ended December 31, 2006, 2005 and 2004:


                                       28


<PAGE>


<TABLE>
<CAPTION>

(dollars in thousands)                                       Year Ended December 31,
                                         _______________________________________________________________
                                                 2006 vs. 2005                      2005 vs. 2004
                                         _______________________________________________________________
                                                 Increase (decrease)                Increase (decrease)
                                                   due to change in                   due to change in
                                         _______________________________________________________________
                                         Average    Average     Total       Average    Average    Total
                                         Volume      Rate      Change       Volume      Rate     Change
                                         _______________________________________________________________
<S>                                       <C>       <C>        <C>           <C>        <C>      <C>

 Interest income:
   Loans                                 $11,581    $ 4,684    $16,265       $9,919   $ 3,686    $13,605
   Federal funds sold                      1,350        937      2,287          301       856      1,157
   Investment securities                     (49)       341        292         (261)      160       (101)
                                          ____________________________       ___________________________
      Total interest income               12,882      5,962     18,844        9,959     4,702     14,661
                                          ____________________________       ___________________________

 Interest expense:
   Demand                                      5          4          9           (1)        5          4
   Savings                                 2,312      2,354      4,666        1,180     1,179      2,359
   Time                                    1,878        755      2,633          271       366        637
   Other                                     324         24        348          722        (2)       719
                                          ____________________________       ___________________________
       Total interest expense              4,518      3,138      7,656        2,170     1,549      3,719
                                          ____________________________       ___________________________

 Change in net interest income            $8,363    $ 2,824    $11,188       $7,789   $ 3,153    $10,942
                                          ============================       ===========================

</TABLE>


Net interest  income was $38.7  million in 2006,  comprised of $53.0  million in
interest  income and $14.3 million in interest  expense.  Net interest income in
2005 was 27.5 million,  comprised of $34.1  million in interest  income and $6.6
million in  interest  expense.  The  increase of $11.2  million in net  interest
income in 2006 was  primarily  due to an increase  of $18.9  million in interest
income offset, in part, by an increase of $7.7 million in interest expense.

Net interest income for the year ended December 31, 2005 represented an increase
of $10.9  million over $16.6 million for the year ended  December 31, 2004.  The
increase in net interest  income was  primarily a result of an increase of $14.6
million in interest  income  offset,  in part, by an increase of $3.7 million in
interest expense.

The net interest  margin (net interest income divided by average earning assets)
was 6.9% for the year ended  December 31, 2006, as compared to 6.5% for the year
ended  December  31, 2005 and 5.2% for 2004.  The  improvement  in net  interest
margin in 2006  compared to 2005 was  primarily  the result of  increases in the
prime rate during the year, a shift in the mix of loans toward  higher  yielding
product  lines and an increase in Federal  funds sold.  The  improvement  in net
interest  margin in 2005  compared to 2004 was primarily the result of increases
in the prime rate and a shift in the mix of loans toward higher yielding product
lines.  Average  loans  represented  82.9% of  average  earning  assets  in 2006
compared  to 83.3% in 2005 and 77.0% in 2004.  In  addition,  in 2006 the Bank's
ratio of average loans to average  deposits was 87.1%, up from 86.1% in 2005 and
79.6% in 2004.

Significant factors affecting net interest income are: rates,  volumes,  and mix
of the loan, investment and deposit portfolios.  Due to the nature of the Bank's
lending  markets,  in which the  majority of loans are  generally  tied to Prime
Rate, we believe that an increase in interest rates should positively affect the
Bank's future earnings, while a decline will have a negative impact. However, it
is not feasible to provide an accurate  measure of such a change  because of the
many factors (many of them uncontrollable) influencing the result.



INTEREST INCOME


For the year ended December 31, 2006, the Company  reported  interest  income of
$53.0 million, an increase of $18.9 million or 55.4% over $34.1 million reported
in 2005. The increase in interest income  primarily  reflects an increase in the
volume of average  earning  assets in 2006  compared  to 2005.  Average  earning
assets were $563.0  million for the year ended  December 31, 2006 an increase of
$137.5  million or 32.3% over  $425.5  million for the year ended  December  31,
2005.  In  addition,  the  majority  of the  Bank's  earning  assets  have  rate
structures that re-price with movements in short-term interest rates,  primarily
the prime rate and fed funds rate.  During 2006, each of these indices increased
by 100 basis points.


                                       29


<PAGE>


For the year ended December 31, 2005, the Company  reported  interest  income of
$34.1 million, an increase of $14.6 million or 74.9% over $19.5 million reported
in 2004. The increase in interest income  primarily  reflects an increase in the
volume of average  earning  assets in 2005  compared  to 2004.  Average  earning
assets were $425.5  million for the year ended  December 31, 2005 an increase of
$107.9  million or 34.0% over  $317.6  million for the year ended  December  31,
2004.  In  addition,  the  majority  of the  Bank's  earning  assets  have  rate
structures that re-price with movements in short-term interest rates,  primarily
the prime rate and fed funds rate.  During 2005, each of these indices increased
by 200 basis points.


INTEREST EXPENSE


Interest  expense was $14.3 million for the year ended December 31, 2006,  which
represented  an increase of $7.7 million or 116.7%  compared to $6.6 million for
the year ended December 31, 2005. The increase in interest  expense  reflects an
increase in the rate on and volume of average  interest-bearing  liabilities  in
2006 compared to 2005. Average interest-bearing  liabilities were $384.2 million
for the year ended  December  31, 2006,  an increase of $118.1  million or 44.4%
from $266.1 million for the year ended December 31, 2005.

Interest  expense was $6.6 million for the year ended  December 31, 2005,  which
represented  an increase of $3.7 million or 127.6%  compared to $2.9 million for
the year ended  December 31, 2004.  The increase in interest  expense  primarily
reflects an increase in average interest-bearing liabilities in 2005 compared to
2004.  Average  interest-bearing  liabilities  were $266.1  million for the year
ended  December  31,  2005,  an increase  of $76.4  million or 40.3% from $189.7
million for the year ended December 31, 2004.


CREDIT RISK AND PROVISION FOR CREDIT LOSSES


The Bank  maintains an allowance for credit  losses which is based,  in part, on
the loss experience of the Bank and the California banking industry,  the impact
of economic  conditions  within the Bank's market area, and, as applicable,  the
State of California,  the value of underlying  collateral,  loan performance and
inherent  risks in the loan  portfolio.  The allowance is reduced by charge-offs
and increased by provisions for credit losses  charged to operating  expense and
recoveries of previously charged-off loans. Based on management's  evaluation of
such risks,  additions of $1.4 million,  $2.2 million and $1.7 million were made
to the allowance for credit losses in 2006, 2005 and 2004, respectively.  During
2006,  the Bank had no charge offs and had  recoveries of $21,000 as compared to
$384,000 in charge offs and $12,000 in recoveries in 2005 and $240,000 in charge
offs and $32,000 in recoveries in 2004. The allowance for credit losses was $7.3
million  representing  1.36% of total loans at December  31, 2006 as compared to
$5.9  million  representing  1.35% of total loans at December  31, 2005 and $4.1
million representing 1.41% of total loans at December 31, 2004.

The  accrual of  interest  on loans is  discontinued  and any accrued and unpaid
interest is reversed  when, in the opinion of  management,  there is significant
doubt as to the  collectibility  of interest or principal or when the payment of
principal or interest is ninety days past due, unless the amount is well-secured
and in the process of collection.  There were two non-accrual  loans at December
31, 2006 totaling  $437,000 as compared to one non-accrual  loan at December 31,
2005 totaling $2.3 million and two  non-accrual  loans  totaling $1.0 million at
December 31, 2004. At December 31, 2006, the two non-accrual  loans consisted of
commercial  loans  secured by business  assets and real  property with values in
excess of the loan's carrying value.

In addition,  at December 31, 2006, 2005 and 2004,  there were no loans past due
90 days or more as to principal or interest and still accruing interest.

At December 31, 2006,  2005 and 2004 there were no properties  owned by the Bank
acquired through the foreclosure process.

Management  is of the opinion that the allowance for credit losses is maintained
at a level  adequate for inherent  losses in the loan  portfolio.  However,  the
Bank's loan  portfolio,  which  includes  approximately  $219.0  million in real
estate  loans,  representing  approximately  40.5%  of the  portfolio,  could be
adversely affected if California  economic conditions and the real estate market
in the Bank's  market area were to weaken.  The effect of such events,  although
uncertain  at  this  time,   could  result  in  an  increase  in  the  level  of
non-performing  loans and Other Real Estate Owned  ("OREO") and the level of the
allowance for loan losses, which could adversely affect the Bank's future growth
and profitability.


                                       30


<PAGE>


NON-INTEREST INCOME


The following table sets forth the components of other income and the percentage
distribution  of such income for the years ended  December  31,  2006,  2005 and
2004:

<TABLE>
<CAPTION>


                                                                 Year Ended December 31,
                                          ____________________________________________________________________
(dollars in thousands)                           2006                     2005                     2004
                                          __________________       __________________       __________________
                                          Amount     Percent       Amount     Percent       Amount     Percent
                                          __________________       __________________       __________________
<S>                                       <C>          <C>         <C>          <C>         <C>          <C>

 Gain on sale of SBA loans                $1,320       34.4%       $2,290       54.6%       $2,737       71.0%
 SBA loan servicing income                   548       14.3%          528       12.6%          358        9.3%
 Depositor service charges                   498       13.0%          354        8.4%          362        9.4%
 Increase in value of life insurance         320        8.3%          377        9.0%          181        4.7%
 International fee income                    234        6.1%           86        2.0%           -         0.0%
 Other operating income                      917       23.9%          562       13.4%          217        5.6%
                                          __________________       __________________       __________________
                                          $3,837      100.0%       $4,197      100.0%       $3,855      100.0%
                                          ======      ======       ======      ======       ======      ======

</TABLE>


Non-interest income totaled $3.8 million in 2006, a decrease of $400,000 or 9.5%
over $4.2 million in 2005.  Non-interest income increased $342,000, or 8.9% from
2004 to 2005.  Non-interest  income  consists  primarily of gains  recognized on
sales of SBA loans,  SBA loan  servicing  income and  service  charge  income on
deposit accounts.  The decrease in non-interest  income in 2006 compared to 2005
was primarily due to decreased SBA loan sales,  partially offset by increases in
depositor service charges, international fee income, the amortization of the SBA
valuation allowance, and warrant income. The increases in non-interest income in
2005 compared to 2004 are primarily due to increased SBA loan  servicing  income
and an increase in the value of Bank owned life insurance,  offset by a decrease
in gains recognized on sale of SBA loans.

Revenue  from sales of SBA loans is  dependant  on  consistent  origination  and
funding of new loan volumes,  the timing of which may be impacted,  from time to
time,  by (1)  increased  competition  from  other  lenders;  (2)  the  relative
attractiveness  of SBA borrowing to other financing  options;  (3) adjustment of
programs by the SBA; (4) changes in activities of secondary market  participants
and; (5) other factors. Gains recognized on sales of SBA loans were $1.3 million
in 2006 which  represented a decrease of $1.0 million or 43.5%  compared to $2.3
million the same period one year earlier. The decrease was attributed to a lower
volume  of loans  sold  during  the year as a result of the  cyclical  impact of
increased  competition  from mortgage lenders together with the inversion of the
yield curve.  During 2006 the  Company's  SBA group funded $66.3  million in new
loans and sold $51.4  million which  compared to $69.8 million  funded and $66.6
million sold in 2005 and $84.9 million funded and $68.4 million sold in 2004..


NON-INTEREST EXPENSES


The  components of other  expense are set forth in the  following  table for the
years ended December 31, 2006, 2005 and 2004.


                                       31


<PAGE>


<TABLE>
<CAPTION>


 Other Expense as a Percent of Average Assets

                                                                 Year Ended December 31,
                                          ____________________________________________________________________

(dollars in thousands)                          2006                     2005                     2004
                                          __________________       __________________       __________________
                                          Amount     Percent       Amount     Percent       Amount     Percent
                                          __________________       __________________       __________________
<S>                                       <C>          <C>         <C>          <C>         <C>          <C>

 Salaries and benefits                   $17,417       2.9%       $12,127        2.6%       $8,081        2.4%
 Occupancy                                 2,132       0.4%         1,652        0.4%        1,420        0.4%
 Data processing                           1,528       0.3%         1,085        0.2%          763        0.2%
 Third party services                        925       0.2%         1,065        0.2%           95        0.0%
 Marketing and advertising                 1,081       0.2%           925        0.2%          612        0.2%
 Professional services                       825       0.1%           746        0.2%          645        0.2%
 Furniture and equipment                     701       0.1%           583        0.1%          585        0.2%
 Deposit services/supplies                   525       0.1%           401        0.1%          311        0.1%
 Other                                     2,145       0.4%         1,397        0.3%        1,084        0.3%
                                          __________________       __________________       __________________
                                         $27,279       4.5%       $19,981        4.3%      $13,596        4.0%
                                         =======       ====       =======        ====      =======        ====

</TABLE>


Non-interest expenses were $27.3 million in 2006 as compared to $20.0 million in
2005 and $13.6 million in 2004.  Non-interest  expense  increased  approximately
$7.3 million in 2006 compared to 2005. This increase was primarily  attributable
to increased salaries and benefits cost, occupancy cost, data services, director
and shareholder cost, and loan related charges.  Non-interest expenses increased
approximately  $6.4  million for the year ended  December  31, 2005  compared to
2004.  This  increase  was  primarily  attributable  to  increased  salaries and
benefits  cost and third party  services.  Non-interest  expenses  measured as a
percentage of average  assets were 4.5% in 2006, as compared to 4.3% in 2005 and
4.0% in 2004.

The increases in  non-interest  expenses  reflect the impact of expansion of the
business  during  2006,  2005  and  2004.  During  2006,  the Bank  opened  loan
production offices in Dallas, Texas and Reston, Virginia.  During 2005, the Bank
launched a technology  banking  division and opened a loan production  office in
San  Ramon,  California  to serve the East Bay  region.  During  2004,  the Bank
consolidated  offices  and moved its  headquarters  to a larger  facility in San
Jose,  California;  launched two new product lines,  international trade finance
and  investment  services;  and added an SBA loan  production  office in Fresno,
California.

Salaries  and  related   benefits  is  the  largest   component  of  the  Bank's
non-interest  expense.  Salaries  and benefits  were $17.4  million for the year
ended  December  31, 2006 as compared to $12.1  million and $8.1 million for the
years ended  December  31, 2005 and 2004,  respectively.  The  increases in 2006
compared to 2005,  and 2005 compared to 2004 are primarily  attributable  to the
increase in full time  equivalent  employees  (FTE)  related to expansion of the
business and to higher  incentive  compensation  related to  performance  of the
Bank.  The Bank  had 134 FTE at  December  31,  2006 as  compared  to 103 FTE at
December 31, 2005 and 80 FTE at December 31, 2004.

Occupancy  expense for the year ended  December  31,  2006 was $2.1  million and
represented  an increase of  approximately  $400,000  over $1.7  million for the
prior year. The increase was primarily due to additional rent expense related to
the facility at 55 Almaden Boulevard, San Jose, California and the addition of a
loan production office in the technology banking and asset-based lending groups.
Occupancy  expense for the year ended  December  31,  2005 was $1.7  million and
represented  an increase of $232,000  over $1.4 million for the prior year.  The
increase in occupancy expense in 2005 is primarily due to expense related to the
facility at 55 Almaden Blvd,  San Jose,  California and the new facility at 2010
Crow Canyon Place, Suite 100 San Ramon, California.

The Company  contracts with  third-party  vendors for most data processing needs
and to support  technical  infrastructure.  Data processing  expense in 2006 was
$1.5 million which  represented an increase of approximately  $400,000 over $1.1
million one year earlier.  In 2005, data processing costs increased  $322,000 to
$1.1 million  compared to $763,000 in 2004. The increases in data  processing in
both years are  primarily  due to  increases in deposit  transaction  volumes in
addition to increases in FTE.

Legal and  professional  expenses were $825,000 for the year ended  December 31,
2006 which  represented  an  increase  of $79,000  over  $746,000  in 2005.  The
increase  in 2006 was  primarily  due to  increases  in ongoing  accounting  and
auditing services.  Legal and professional  expenses for the year ended December
31, 2005 represented an increase of $101,000 over $645,000 in 2004. The increase
in 2005 was due, in part,  to  nonrecurring  legal costs related to expansion of
business lines as well as increases in ongoing accounting and audit services..


                                       32


<PAGE>


Furniture,  fixtures and equipment (FF&E) expense of $701,000 for the year ended
December 31, 2006  represented  an increase of $118,000  compared to $583,000 in
the same period one year earlier.  The increase in 2006 was primarily related to
the increase in FTE.  FF&E  expense of $583,000 for the year ended  December 31,
2005  represented a slight  decrease of $2,000  compared to $585,000 in the same
period one year earlier. The decrease in 2005 was due primarily to a decrease in
depreciation  expense as a result of fully depreciated assets,  offset, in part,
by purchase of new FF&E related to the increase in FTE.

As pressure  continues on net interest margins and net asset growth,  management
of operating expenses will continue to be a priority.


INCOME TAXES


The Company's effective tax rate was 37.8% for the year ended December 31, 2006,
40.1% for the year ended December 31, 2005 and 41.0% for the year ended December
31, 2004. See Note 8 to the financial  statements for additional  information on
income taxes.


                                       33


<PAGE>


QUARTERLY INCOME


The unaudited  income  statement data of the Bank, in the opinion of management,
includes  all normal and  recurring  adjustments  necessary  to state fairly the
information  set forth  herein.  The results of operations  are not  necessarily
indicative  of results  for any future  period.  The  following  table shows the
Bank's  unaudited  quarterly income statement data for the years 2006, 2005, and
2004.


<TABLE>
<CAPTION>


(dollars in thousands, except                      Three Months Ended
share amounts)                    _____________________________________________________
                                  March 31     June 30     September 30     December 31
                                  _____________________________________________________
<S>                               <C>          <C>           <C>              <C>

YEAR ENDED DECEMBER 31, 2006:

Interest income                   $10,928      $12,479       $14,329          $15,226
Interest expense                    2,386        3,221         4,239            4,425
                                  ___________________________________________________
Net interest income                 8,542        9,258        10,090           10,801
Provision for credit losses           222          450           100              600
Other income                        1,083        1,078           799              877
Other expense                       6,338        6,630         7,066            7,245
                                  ___________________________________________________
Income before income taxes          3,065        3,256         3,723            3,833
Income taxes                        1,134        1,237         1,415            1,457
                                  ___________________________________________________
Net income                        $ 1,931      $ 2,019       $ 2,308          $ 2,376
                                  ===================================================

Earnings per share - basic        $  0.31      $  0.32       $  0.37          $  0.38
Earnings per share - diluted      $  0.29      $  0.29       $  0.34          $  0.35


YEAR ENDED DECEMBER 31, 2005:

Interest income                   $ 6,615      $ 7,915       $ 9,173          $10,415
Interest expense                    1,188        1,637         1,749            2,041
                                  ___________________________________________________
Net interest income                 5,427        6,278         7,424            8,374
Provision for credit losses           333          429           800              600
Other income                          784        1,136           994            1,283
Other expense                       4,315        4,642         5,123            5,901
                                  ___________________________________________________
Income before income taxes          1,563        2,343         2,495            3,156
Income taxes                          606          964           990            1,272
                                  ___________________________________________________
Net income                        $   957      $ 1,379       $ 1,505          $ 1,884
                                  ===================================================

Earnings per share - basic        $  0.16      $  0.22       $  0.24          $  0.31
Earnings per share - diluted      $  0.14      $  0.21       $  0.22          $  0.28


YEAR ENDED DECEMBER 31, 2004:

Interest income                   $ 3,873      $ 4,397       $ 5,154          $ 6,033
Interest expense                      682          655           684              875
                                  ___________________________________________________
Net interest income                 3,191        3,742         4,470            5,158
Provision for credit losses           405          369           611              286
Other income                        1,122          779           834            1,120
Other expense                       3,115        3,094         3,308            4,079
                                  ___________________________________________________
Income before income taxes            793        1,058         1,385            1,913
Income taxes                          327          434           568              783
                                  ___________________________________________________
Net income                        $   466      $   624       $   817          $ 1,130
                                  ===================================================

Earnings per share - basic        $  0.08      $  0.10       $  0.13          $  0.19
Earnings per share - diluted      $  0.07      $  0.09       $  0.12          $  0.18

</TABLE>


                                       34


<PAGE>


FINANCIAL CONDITION AND EARNING ASSETS


As of December 31,  2006,  assets were $722.0  million,  gross loans were $540.8
million and deposits were $645.0 million.  Assets  increased  $185.5 million,  a
34.6% increase from $536.5 million at December 31, 2005.  Gross loans  increased
$100.8  million,  or 22.9% from $440.0  million at December 31,  2005.  Deposits
increased  $176.8 million,  a 37.8% increase from $468.2 million at December 31,
2005.

As of December 31,  2005,  assets were $536.5  million,  gross loans were $440.0
million and deposits were $468.2 million.  Assets  increased  $134.5 million,  a
33.5% increase from $402.0 million at December 31, 2004.  Gross loans  increased
$145.4  million,  or 49.4% from $294.6  million at December 31,  2004.  Deposits
increased  $115.7 million,  a 32.8% increase from $352.5 million at December 31,
2004.


FEDERAL FUNDS SOLD


Federal  funds sold were $93.8 million at December 31, 2006 as compared to $46.7
million at December 31, 2005.  This  increase is primarily due to an increase in
short term  deposits,  primarily in the savings and money market  category.  The
average  balance  of  federal  funds  sold was $78.9  million  in 2006 and $52.2
million in 2005. These balances  represented 14.7% and 12.7% of average deposits
for  2006  and  2005,  respectively.  They  are  maintained  primarily  for  the
short-term liquidity needs of the Bank.


SECURITIES


The  following  table  shows the  composition  of the  securities  portfolio  at
December 31, 2006, 2005 and 2004.

<TABLE>
<CAPTION>


                                                                    As of December 31,
                                             ________________________________________________________________
(dollars in thousands)                              2006                   2005                   2004
                                             ________________________________________________________________
                                             Amortized   Fair       Amortized   Fair       Amortized   Fair
                                               Cost      Value        Cost      Value        Cost      Value
                                             ________________________________________________________________
<S>                                          <C>        <C>         <C>        <C>         <C>        <C>

U. S. Treasury                               $   200    $   200     $   199    $   199     $   100    $   100
U. S. Government Agencies                     43,815     43,733      12,355     12,184      26,400     26,198
                                             ________________________________________________________________
Total securities available for sale           44,015     43,933      12,554     12,383      26,500     26,298
                                             ________________________________________________________________

Total investment securities                  $44,015    $43,933     $12,554    $12,383     $26,500    $26,298
                                             ================================================================

</TABLE>


The maturities and yields of the investment portfolio are shown below:

<TABLE>
<CAPTION>

                                                       Due in one         Due after one year
(dollars in thousands)                                year or less        through five years
                                                   __________________     __________________
                                                             Weighted               Weighted
                                     Amortized                Average                Average
                                       Value       Amount      Yield      Amount      Yield
                                     ________________________________     __________________
<S>                                      <C>         <C>        <C>       <C>          <C>

AT DECEMBER 31, 2006:

  U. S. Treasury                       $   200     $   100       4.3%     $   100       4.3%
  U. S. Government Agencies             43,815      16,942       4.0%      26,873       4.8%
                                       _____________________________      _________________
  Total investment securities          $44,015     $17,042       4.0%     $26,973       4.8%
                                       =============================      =================
AT DECEMBER 31, 2005:

  U. S. Treasury                       $   199     $   199       3.4%     $     -         -
  U. S. Government Agencies             12,355      10,337       2.4%       2,018      3.31%
                                       _____________________________      _________________
  Total investment securities          $12,554     $10,536       2.4%     $ 2,018      3.31%
                                       =============================      =================

</TABLE>


                                       35


<PAGE>


Investment  securities are classified as available for sale. Any unrealized gain
or loss on investment securities available for sale is reflected in the carrying
value of the security and reported net of income taxes in the equity  section of
the balance sheet. The pre-tax unrealized loss on securities  available for sale
at December  31, 2006 was  ($82,000) as compared to  ($102,000)  at December 31,
2005 and (119,000) at December 31, 2004.



LOAN PORTFOLIO


The  following  table  shows  the  Bank's  loans  by type and  their  percentage
distribution  for the five years ended December 31, 2006,  2005,  2004, 2003 and
2002.

<TABLE>
<CAPTION>


(dollars in thousands)                                                As of December 31,
                                   ________________________________________________________________________________________
                                     2006               2005                 2004               2003                 2002
                                   ________________________________________________________________________________________
<S>                                <C>                <C>                 <C>                 <C>                 <C>

Commercial                         $ 197,174          $ 182,396           $ 100,681           $  73,846           $  50,235
Real estate construction             103,710             84,792              42,323              35,065              32,613
Real estate other                    115,313             83,748              80,044              28,036              16,804
SBA                                   59,888             46,867              45,251              39,412              24,314
Factoring and asset based lending     56,924             38,184              22,342              13,106               1,537
Other                                  7,771              4,011               3,945               4,984               3,200
                                   ________________________________________________________________________________________
Total gross loans                    540,780            439,998             294,586             194,449             128,703
Unearned fee income                   (1,495)            (1,395)               (973)               (713)               (593)
                                   ________________________________________________________________________________________
  Total loan portfolio             $ 539,285          $ 438,603           $ 293,613           $ 193,736           $ 128,110
                                   ========================================================================================

Commercial                              36.5%              41.5%               34.2%               38.0%               39.0%
Real estate construction                19.2%              19.3%               14.3%               18.0%               25.3%
Real estate other                       21.3%              19.0%               27.2%               14.4%               13.1%
SBA                                     11.1%              10.7%               15.4%               20.3%               18.9%
Factoring and asset based lending       10.5%               8.7%                7.6%                6.7%                1.2%
Other                                    1.4%               0.9%                1.3%                2.6%                2.5%
                                   _________________________________________________________________________________________
Total gross loans                      100.0%             100.0%              100.0%              100.0%              100.0%
                                   =========================================================================================

</TABLE>


Gross loan  balances  increased to $540.8  million at December  31, 2006,  which
represented an increase of $100.8 million or 22.9% as compared to $440.0 million
at December 31, 2005. The increase in loans was primarily in commercial and real
estate term (includes longer term real estate loans,  land loans and home equity
lines),  without a  concentration  in any one  specific  category of loans.  The
increase  was a  result  of  general  marketing  efforts.  Gross  loan  balances
increased to $440.0 million at December 31, 2005, which  represented an increase
of $145.0  million or 49.4% as compared to $294.6  million at December 31, 2004.
The increase in loans was primarily in commercial and real estate term,  without
a concentration in any one specific category of loans. The increase was a result
of general marketing efforts.

The Bank's commercial loan portfolio represents loans to small and middle-market
businesses  primarily in the Santa Clara county  region.  Commercial  loans were
$197.2  million at December 31,  2006,  which  represented  an increase of $14.8
million or 8.1% over $182.4  million at December 31, 2005. At December 31, 2006,
commercial loans comprised 36.5% of total loans outstanding as compared to 41.5%
at December 31, 2005. Commercial loans were $182.4 million at December 31, 2005,
which  represented  an increase of $81.7 million or 81.2% over $100.7 million at
December 31, 2004. At December 31, 2005,  commercial  loans  comprised  41.5% of
total loans outstanding as compared to 34.2% at December 31, 2004.

In March of 2002, the Bank  established an SBA lending group in Santa Clara with
a loan  production  office in Sacramento  County.  In October of 2003,  the Bank
established a loan production  office in the San Diego county region.  The Bank,
as a Preferred  Lender,  originates SBA loans and participates in the SBA 7A and
504 SBA lending programs. Under the 7A program, a loan is made for commercial or
real estate purposes. The SBA guarantees these loans and the guarantee may range
from 70% to 90% of the total loan. In addition, the loan could be collateralized
by a deed of trust on real estate.


                                       36


<PAGE>


Under the 504 program, the Bank lends directly to the borrower and takes a first
deed of trust to the subject property.  In addition the SBA, through a Community
Development  Corporation  makes an  additional  loan to the borrower and takes a
deed of trust subject to the Bank's position. The Bank's position in relation to
the real estate "piggyback" loans can range from 50% to 70% loan to value.

At December 31, 2006, SBA loans  comprised $59.9 million or 11.1% of total loans
as  compared to $46.9  million or 10.7% of total loans at December  31, 2005 and
$45.3  million or 15.4% of total loans at December  31,  2004.  The Bank has the
intent  to sell all or a portion  of the SBA loans  and,  as such,  carries  the
saleable  portion of SBA loans at the lower of aggregate cost or fair value.  At
December 31, 2006, 2005 and 2004, the fair value of SBA loans exceeded aggregate
cost and therefore, SBA loans were carried at aggregate cost.

The Bank's  construction loan portfolio  primarily  consists of loans to finance
individual  single-family  residential  homes,  approximately  half of which are
owner-occupied  projects.  Construction loans increased $18.9 million, or 22.3%,
to $103.7  million at December 31, 2006 as compared to $84.8 million at December
31, 2005.  Construction  loan balances at December 31, 2006  comprised  19.2% of
total  loans as  compared  to 19.3% at December  31,  2005.  Construction  loans
increased  $42.5  million,  or 100.3%,  to $84.8 million at December 31, 2005 as
compared to $42.3  million at December 31, 2004.  Construction  loan balances at
December  31,  2005  comprised  19.3% of total  loans  as  compared  to 14.3% at
December 31, 2004.

Other real estate loans consist of commercial real estate, land loans related to
future construction  credits and home equity lines of credit.  Other real estate
loans increased $31.6 million or 37.8% to $115.3 million at December 31, 2006 as
compared to $83.7  million at December  31, 2005.  The  increase  was  primarily
attributable to other real estate term loans.  Other real estate loans increased
$3.7 million or 4.6% to $83.7  million at December 31, 2005 as compared to $80.0
million at December 31, 2004. In 2005,  the increase was primarily in other real
estate term loans.  At December  31, 2006,  other real estate loans  represented
21.3% of total  loans as  compared  to 19.0% at  December  31, 2005 and 27.2% at
December 31, 2004.

Factoring and  asset-based  lending  represents  purchased  accounts  receivable
(factoring) and a structured  accounts receivable lending program where the Bank
receives  client  specific  payment  for client  invoices.  Under the  factoring
program,  the Bank purchases accounts  receivable  invoices from its clients and
then receives payment  directly from the party obligated for the receivable.  In
most cases the Bank  purchases  the  receivables  subject to  recourse  from the
Bank's  factoring  client.  The asset-based  lending program requires a security
interest  in all of a  client's  accounts  receivable.  At  December  31,  2006,
factoring and asset based loans totaled $56.9 million or 10.5% of total loans as
compared to $38.2 million or 8.7% of total loans at December 31, 2005.

Other loans consist primarily of loans to individuals for personal uses, such as
installment  purchases,  overdraft  protection  loans  and a  variety  of  other
consumer  purposes.  At December 31, 2006,  other loans  totaled $7.8 million as
compared to $4.0  million at December  31, 2005 and $3.9 million at December 31,
2004.



ALLOWANCE FOR LOAN LOSSES


A consequence  of lending  activities  is the potential for loss.  The amount of
such losses will vary from time to time depending upon the risk  characteristics
of the loan portfolio as affected by economic conditions,  rising interest rates
and the financial  experience of the  borrowers.  The allowance for loan losses,
which provides for the risk of losses inherent in the credit extension  process,
is increased by the provision  for loan losses  charged to expense and decreased
by the amount of charge-offs  net of  recoveries.  There is no precise method of
estimating  specific  losses or amounts  that  ultimately  may be charged off on
particular  segments  of the loan  portfolio.  Similarly,  the  adequacy  of the
allowance for loan losses and the level of the related provision for loan losses
is determined in management's judgment based on consideration of:

     -        Economic conditions
     -        Borrowers' financial condition
     -        Loan impairment
     -        Evaluation of industry trends
     -        Historic losses, migrations and delinquency trends
     -        Industry and other concentrations
     -        Loans which are contractually current as to payment terms but
              demonstrate  a higher  degree of risk as identified by management
     -        Continuing evaluation of the performing loan portfolio
     -        Periodic review and evaluation of problem loans


                                       37


<PAGE>


     -        Off balance sheet risks
     -        Assessments by regulators and other third parties

 In addition to the internal  assessment  of the loan  portfolio,  the Bank also
 retains a consultant  who performs  credit  reviews on a regular basis and then
 provides an assessment  of the adequacy of the  allowance for loan losses.  The
 federal  banking  regulators  also conduct  examinations  of the loan portfolio
 periodically.

 The following table summarizes the activity in the allowance for loan losses.

<TABLE>
<CAPTION>


(dollars in thousands)                                             Year ended December 31,
                                                 ____________________________________________________________________
                                                  2006            2005           2004           2003           2002
                                                 ____________________________________________________________________
<S>                                               <C>            <C>            <C>            <C>              <C>

Balance, beginning of period                     $  5,936        $ 4,146        $ 2,683       $  1,765        $   511
Loans charged off by category:
  Commercial and other                                  -            384            240              -            170
  Real estate construction                              -              -              -              -              -
  Real estate other                                     -              -              -              -              -
  Factoring and asset-based lending                     -              -              -              -              -
  Consumer                                              -              -              -             10              -
                                                 ____________________________________________________________________
    Total charge-offs                                   -            384            240             10            170
                                                 ____________________________________________________________________
Recoveries by category:
  Commercial and other                                 21             12             32             85              -
  Real estate construction                              -              -              -              -              -
  Real estate other                                     -              -              -              -              -
  Factoring and asset-based lending                     -              -              -              -              -
  Consumer                                              -              -              -              -              -
                                                 ____________________________________________________________________
    Total recoveries                                   21             12             32             85              -
                                                 ____________________________________________________________________
Net (recoveries) charge-offs                          (21)           372            208            (75)           170
Provision charged to expense                        1,372          2,162          1,671            843          1,424
                                                 ____________________________________________________________________
Balance, end of year                             $  7,329        $ 5,936        $ 4,146       $  2,683        $ 1,765
                                                 ====================================================================

Ratio of net charge-offs during
  the period to average gross loans
  outstanding                                       0.00%          0.06%          0.08%         -0.05%          0.20%
Ratio of allowance for credit
  losses to gross loans outstanding
  at end of year                                    1.36%          1.35%          1.41%          1.38%          1.37%
Allowance to nonperforming loans
  at end of year                                 1677.12%        255.87%        404.09%       4547.46%          0.00%

</TABLE>


Based  on an  evaluation  of the  individual  credits,  historical  credit  loss
experienced by loan type and economic  conditions,  management has allocated the
allowance for loan losses as follows for the five years ended December 31:


                                       38


<PAGE>

<TABLE>
<CAPTION>


(dollars in thousands)                                                  As of December 31,
                                                 ____________________________________________________________________
                                                  2006           2005          2004           2003           2002
                                                 ____________________________________________________________________
 <S>                                                 <C>            <C>              <C>            <C>            <C>

Commercial and other                                1,831          2,029            998            666            771
SBA                                                 1,803          1,975          1,231          1,042            198
Real estate construction                            1,082            742            444            400            410
Real estate other                                   1,152            721          1,132            288            359
Factoring / asset based lending                     1,415            443            312            261              -
Other                                                  46             26             29             26             27
                                                 ____________________________________________________________________
                                                 $  7,329        $ 5,936        $ 4,146        $ 2,683        $ 1,765
                                                 ====================================================================

Commercial and other                                25.0%          34.2%          24.1%          24.8%          43.7%
SBA                                                 24.6%          33.3%          29.7%          38.8%          11.2%
Real estate construction                            14.8%          12.5%          10.7%          14.9%          23.2%
Real estate other                                   15.7%          12.1%          27.3%          10.7%          20.3%
Factoring / asset based lending                     19.3%           7.5%           7.5%           9.7%           0.0%
Other                                                0.6%           0.4%           0.7%           1.0%           1.5%
                                                 ____________________________________________________________________
                                                   100.0%         100.0%         100.0%         100.0%         100.0%
                                                 ====================================================================

</TABLE>


RISK ELEMENTS


Loans for which the accrual of interest has been suspended,  restructured loans,
and other loans with  principal  or interest  contractually  past due 90 days or
more as set forth in the following table as of December 31 of each year:

<TABLE>
<CAPTION>


                                                                           As of December 31,
                                                          ___________________________________________________________
(dollars in thousands)                                    2006        2005          2004           2003          2002
                                                          ___________________________________________________________
<S>                                                       <C>        <C>           <C>             <C>            <C>

Loans accounted for on a non-accrual basis                $ 437      $ 2,320       $ 1,026         $ 59           $ -
Loans restructured and in compliance with
     modified terms                                           -            -             -            -             -
Other loans with principal or interest
     contracturally past due 90 days or more                  -            -             -            -             -
                                                          ___________________________________________________________
                                                          $ 437      $ 2,320       $ 1,026         $ 59           $ -
                                                          ===========================================================

</TABLE>


There were two loans on non-accrual at December 31, 2006 totaling $437,000,  one
non-accrual loan at December 31, 2005 totaling $2.3 million, and two non-accrual
loans at December 31, 2004 totaling $1.0 million.  At December 31, 2006, the two
non-accrual  loans consisted of commercial  loans secured by business assets and
real  property  with  values in excess of the  carrying  value of the loans.  At
December 31, 2005,  the  non-accrual  loans  consisted  of one  commercial  loan
secured  by  business  assets  and real  property  with  values in excess of the
carrying  value of the  loan.  At  December  31,  2004,  the  non-accrual  loans
consisted  of two SBA  loans  of  which  $712,000  was  guaranteed  by the  U.S.
Government. The remaining balance of $314,000 was secured by business assets and
real  property.  Of the two loans on  non-accrual at December 31, 2004, one loan
was  determined to be impaired and its carrying value reflects the fair value of
the collateral securing the loan.

Income on such loans is only  recognized to the extent that cash is received and
where the future  collection  of principal  is probable.  Accrual of interest is
resumed only when principal and interest are brought fully current and when such
loans are considered to be collectible as to both principal and interest.

At December 31, 2006,  2005,  and 2004,  there were no loans past due 90 days or
more as to principal or interest and still accruing interest.


                                       39


<PAGE>



FUNDING


Deposits  represent  the Bank's  principal  source of funds.  Most of the Bank's
deposits are obtained from professionals,  small- to medium sized businesses and
individuals  within the Bank's market area.  The Bank's deposit base consists of
non-interest  and  interest-bearing  demand  deposits,  savings and money market
accounts  and  certificates  of deposit.  The  following  table  summarizes  the
composition of deposits as of December 31, 2006, 2005 and 2004.

<TABLE>
<CAPTION>


(dollars in thousands)                                              As of December 31,
                                       _____________________________________________________________________________
                                               2006                       2005                        2004
                                       _____________________________________________________________________________
                                       Amount       Percent       Amount        Percent       Amount       Percent
                                       _____________________________________________________________________________
<S>                                    <C>             <C>        <C>              <C>        <C>             <C>

Noninterest-bearing  demand            $ 198,639       30.80%     $ 185,557        39.64%     $ 126,895       36.00%
Interest-bearing demand                    3,901        0.60%         2,866         0.61%         3,946        1.12%
Money market and savings                 333,838       51.76%       210,011        44.86%       169,801       48.18%
Certificates of deposit:
  Less than $100                          28,918        4.48%        19,228         4.11%        16,182        4.59%
  $100 and more                           79,691       12.36%        50,496        10.79%        35,632       10.11%
                                       _____________________________________________________________________________

Total deposit portfolio                $ 644,987      100.00%     $ 468,158       100.00%     $ 352,456      100.00%
                                       =============================================================================

</TABLE>


Deposits  increased  $176.8 million or 37.8% from $468.2 million at December 31,
2005 to $645.0  million at December  31,  2006.  The  increase  in deposits  was
primarily in  non-interest  bearing  demand,  money market and  certificates  of
deposit  raised  from the  Bank's  primary  market in Santa  Clara  County.  The
increase can be attributed  to marketing  efforts from the Bank's main office in
San Jose and branch office in Palo Alto and  certificates of deposit raised from
institutions  in order to manage balance sheet  liquidity.  Deposits at December
31,  2006  included  $27.3  million,  or 4.2% of the total,  in title and escrow
company  account  balances  compared to $70.6 million,  or 15.1% at December 31,
2005 and $55.3  million,  or 15.6% at December  31,  2004.  Excluding  title and
escrow company  account  balances,  deposits  increased  $220.1 million or 47.0%
compared to December 31, 2005,  and increased  $100.4 million or 33.8% from 2004
to 2005.



CAPITAL RESOURCES


The Company's capital resources consist of shareholders' equity, trust preferred
securities  and (for  regulatory  purposes)  the  allowance  for  credit  losses
(subject to limitations).  At December 31, 2006, the Company's capital resources
increased  $16.7  million to $74.2  million  from $57.5  million at December 31,
2005. Tier 1 capital  increased $14.9 million to $66.5 million  primarily due to
net  income  of  $8.6  million  and  issuance  of  additional   trust  preferred
securities.  Tier 2 capital increased $1.8 million primarily due to the increase
in the allowance for credit losses of $1.4 million.

The  Company is subject to capital  adequacy  guidelines  issued by the Board of
Governors  and the OCC. The Company is required to maintain  total capital equal
to at least 8.0% of assets and  commitments to extend credit,  weighted by risk,
of which at least  4.0%  must  consist  primarily  of  common  equity  including
retained earnings (Tier 1 capital) and the remainder may consist of subordinated
debt,  cumulative  preferred  stock or a limited  amount of allowance for credit
losses.  Certain assets and  commitments to extend credit present less risk than
others and will be assigned to lower  risk-weighted  categories  requiring  less
capital  allocation than the 8.0% total ratio. For example,  cash and government
securities  are assigned to a 0.0%  risk-weighted  category,  most home mortgage
loans are assigned to a 50.0%  risk-weighted  category  requiring a 4.0% capital
allocation and commercial loans are assigned to a 100.0% risk-weighted  category
requiring an 8.0% capital allocation. As of December 31, 2006, the Company's and
the Bank's total risk-based  capital ratios were 11.7% and 11.3%,  respectively,
(11.6% for the Company and 11.7% for the Bank at December 31, 2005).

The following table reflects the Company's Leverage, Tier 1 and total risk-based
capital ratios for the period ended December 31, 2006 and 2005.


                                       40


<PAGE>



<TABLE>
<CAPTION>


                                                          As of December 31,
                                             ____________________________________________
(dollars in thousands)                              2006                     2005
                                             ___________________      ___________________
                                              Amount      Ratio        Amount      Ratio
                                             ___________________      ___________________
<S>                                          <C>          <C>         <C>          <C>

COMPANY CAPITAL RATIOS

Tier 1 Capital                               $ 66,533     10.52%      $ 51,593     10.38%
(to Risk Weighted Assets)
Tier 1 capital minimum requirement           $ 25,293      4.00%      $ 19,879      4.00%

Total Capital                                $ 74,229     11.74%      $ 57,529     11.58%
(to Risk Weighted Assets)
Total capital minimum requirement            $ 50,587      8.00%      $ 39,758      8.00%

Company leverage
Tier 1 Capital                               $ 66,533     10.97%      $ 51,593     11.07%
(to Average Assets)
Total capital minimum requirement            $ 24,260      4.00%      $ 18,638      4.00%

BANK RISK BASED CAPITAL RATIOS

Tier 1 Capital                               $ 64,145     10.15%      $ 49,748     10.49%
(to Risk Weighted Assets)
Tier 1 capital minimum requirement           $ 25,272      4.00%      $ 18,970      3.82%

Total Capital                                $ 71,474     11.31%      $ 55,684     11.74%
(to Risk Weighted Assets)
Total capital minimum requirement            $ 50,544      7.99%      $ 37,939      7.63%

Bank leverage
Tier 1 Capital                               $ 64,145     10.59%      $ 49,748      9.98%
(to Average Assets)
Total capital minimum requirement            $ 24,240      4.00%      $ 19,931      4.00%

</TABLE>


The federal  banking  agencies,  including  the OCC,  have  adopted  regulations
implementing a system of prompt corrective action under FDICIA.  The regulations
establish five capital categories with the following characteristics:  (1) "Well
capitalized,"  consisting of institutions with a total risk-based  capital ratio
of 10.0% or greater,  a Tier 1 risk-based capital ratio of 6.0% or greater and a
leverage  ratio of 5.0% or greater and which are not  operating  under an order,
written agreement,  capital directive or prompt corrective action directive; (2)
"Adequately  capitalized,"  consisting of institutions  with a total  risk-based
capital ratio of 8.0% or greater, a Tier 1 risk-based capital of 4.0% or greater
and a leverage  ratio of 4.0% or greater and which do not meet the definition of
a  "well  capitalized"  institution;   (3)  "Undercapitalized,"   consisting  of
institutions  with a total risk-based  capital ratio of less than 8.0%, a Tier 1
risk-based  capital  ratio of less than 4.0%,  or a leverage  ratio of less than
4.0%; (4)  "Significantly  undercapitalized,"  consisting of institutions with a
total  risk-based  capital ratio of less than 6.0%, a Tier 1 risk-based  capital
ratio of less  than  3.0%,  or a  leverage  ratio  of less  than  3.0%;  and (5)
"Critically  undercapitalized,"  consisting  of  institutions  with a  ratio  of
tangible equity to total assets that is equal to or less than 2.0%.

Financial  institutions  classified as  undercapitalized or below are subject to
various limitations including,  among other matters, certain supervisory actions
by bank regulatory authorities and restrictions related to (i) growth of assets,
(ii)  payment  of  interest  on  subordinated  indebtedness,  (iii)  payment  of
dividends or other capital distributions, and (iv) payment of management fees to
a parent holding company. The FDICIA requires the bank regulatory authorities to
initiate  corrective action regarding  financial  institutions that fail to meet
minimum capital  requirements.  Such action may result in orders to, among other
matters,  augment capital and reduce total assets.  Critically  undercapitalized
financial  institutions  may also be subject  to  appointment  of a receiver  or
implementation of a capitalization plan.


                                       41


<PAGE>


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



LIQUIDITY/INTEREST RATE SENSITIVITY


The Bank  strives  to manage  its  liquidity  to  provide  adequate  funds at an
acceptable cost to support the borrowing  requirements  and deposit flows of its
customers.  Liquidity  requirements  are evaluated by taking into  consideration
factors such as deposit  concentrations,  seasonality and  maturities,  loan and
lease demand,  capital  expenditures  and  prevailing and  anticipated  economic
conditions.   The  Bank's  business  is  generated  primarily  through  customer
referrals and employee business development efforts.

The Bank is primarily a business and professional bank and, as such, its deposit
base is more susceptible to economic fluctuations.  The Bank strives to maintain
a balanced  position of liquid  assets to volatile  and  cyclical  deposits.  At
December  31, 2006,  liquid  assets as a  percentage  of deposits  were 25.1% as
compared to 17.5% in 2005. In addition to cash and due from banks, liquid assets
include  interest-bearing  deposits with other banks,  federal  funds sold,  and
unpledged securities available for sale.

Management  regularly  reviews general economic and financial  conditions,  both
external and internal,  and determines  whether the positions taken with respect
to liquidity and interest rate sensitivity continue to be appropriate.  The Bank
utilizes  a monthly  "Gap"  report as well as a  quarterly  simulation  model to
identify  interest rate  sensitivity  over the short- and long-term.  Management
considers the results of these analyses when implementing its interest rate risk
management  activities,  including  the  utilization  of certain  interest  rate
hedges.

The  following  table sets forth the  distribution  of repricing  opportunities,
based on contractual terms, of the Company's earning assets and interest-bearing
liabilities  at December  31,  2006,  the interest  rate  sensitivity  gap (i.e.
interest rate sensitive  assets less interest rate sensitive  liabilities),  the
cumulative  interest rate  sensitivity  gap, the interest rate  sensitivity  gap
ratio (i.e. interest rate gap divided by interest rate sensitive assets) and the
cumulative interest rate sensitivity gap ratio.

Based on the contractual terms of its assets and liabilities, the Bank's balance
sheet at  December  31,  2006 was  asset  sensitive  in terms of its  short-term
exposure to interest  rates.  That is, at December 31, 2006 the volume of assets
that might reprice within the next year exceeded the volume of liabilities  that
might reprice. This position provides a hedge against rising interest rates, but
has a detrimental effect during times of rate decreases.  Net interest income is
negatively impacted by a decline in interest rates and positively impacted by an
increase  in  interest  rates.  To  partially  mitigate  the  adverse  impact of
declining  rates, the majority of variable rate loans made by the Bank have been
written with a minimum  "floor" rate. In addition,  the Bank has entered into an
interest rate swap to hedge the variable cash flows  associated with $50 million
of existing variable-rate assets.


                                       42


<PAGE>

<TABLE>
<CAPTION>


(dollars in thousands)                                            As of December 31, 2006
                                         ____________________________________________________________________________
                                                    After three    After six     After one
                                          Within     months but    months but    year but       After
                                          three      within six    within one     within        five
                                          months       months         year       five years     years          Total
                                         ____________________________________________________________________________
<S>                                      <C>          <C>           <C>           <C>          <C>           <C>

Federal funds sold                       $ 93,845     $      -      $      -      $      -     $      -      $ 93,845
U.S. treasury and
  agency securities                         1,994          995        14,004        26,940            -        43,933
Loans                                     479,596          763         2,669        41,375       16,377       540,780
                                         ____________________________________________________________________________
 Total earning assets                     575,435        1,758        16,673        68,315       16,377       678,558
                                         ____________________________________________________________________________

Interest checking, money
  market and savings deposits             337,739            -             -             -            -       337,739
Certificates of deposit:
 Less than $100,000                         8,196        2,178         7,570        10,974            -        28,918
  $100,000 or more                         41,905       11,547        11,318        14,921            -        79,691
                                         ____________________________________________________________________________
 Total interest-bearing liabilities       345,935        2,178         7,570        10,974            0       446,348
                                         ____________________________________________________________________________

Interest rate gap                        $229,500        ($420)       $9,103       $57,341      $16,377      $232,210
                                         ============================================================================
Cumulative interest rate gap             $229,500     $229,080      $238,183      $295,524     $311,901
                                         ==============================================================

Interest rate gap ratio                      0.40        (0.24)         0.55          0.84         1.00
                                         ==============================================================
Cumulative interest rate gap ratio           0.40         0.40          0.40          0.45         0.46
                                         ==============================================================

</TABLE>


The following  table shows  maturity and interest rate  sensitivity  of the loan
portfolio  at December 31, 2006 and 2005.  At December  31, 2006,  approximately
73.3% of the loan  portfolio is priced with floating  interest rates which limit
the exposure to interest rate risk on long-term loans.


                                       43


<PAGE>

<TABLE>
<CAPTION>



(dollars in thousands)                                                   As of December 31, 2006
                                                       ______________________________________________________________
                                                                                       Due after one
                                                                       Due one year     year through        Due after
                                                        Amount           or less         five years         five years
                                                       ______________________________________________________________
<S>                                                    <C>               <C>               <C>               <C>

Commercial                                             $197,174          $102,870          $82,154           $12,150
SBA                                                      59,888             8,857              186            50,845
Real estate construction                                103,710           102,005            1,705                 -
Real estate other                                       115,313            44,802           25,633            44,878
Factoring and asset based lending                        56,924            56,924                -                 -
Other                                                     7,771             4,656            3,115                 -
                                                       ______________________________________________________________
  Total loans                                          $540,780          $320,114         $112,793          $107,873
                                                  ==============    ==============   ==============    ==============


                                                                         As of December 31, 2005
                                                       ______________________________________________________________
                                                                                       Due after one
                                                                       Due one year     year through        Due after
                                                        Amount           or less         five years         five years
                                                       ______________________________________________________________

Commercial                                             $182,396           $99,900          $76,216            $6,280
SBA                                                      46,867             5,976              135            40,756
Real estate construction                                 84,792            80,609            4,183                 -
Real estateother                                         83,748            28,215            6,627            48,906
Factoring and asset based lending                        38,184            37,134            1,050                 -
Other                                                     4,011             3,755              256                 -
                                                       ______________________________________________________________
  Total loans                                          $439,998          $255,589          $88,467           $95,942
                                                       ==============================================================

</TABLE>


OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS


The definition of "off-balance  sheet  arrangements"  includes any  transaction,
agreement or other  contractual  arrangement to which an entity is a party under
which we have:

o        Any obligation under a guarantee contract that has the  characteristics
         as defined in paragraph 3 of FASB  Interpretation No. 45,  "Guarantor's
         Accounting and Disclosure Requirements for Guarantee including Indirect
         Guarantees of Indebtedness to Others" ("FIN 45");

o        A  retained  or  contingent   interest  in  assets  transferred  to  an
         unconsolidated  entity or similar  arrangement  that  serves as credit,
         liquidity or market risk  support to that entity for such assets,  such
         as  a  subordinated   retained   interest  in  a  pool  of  receivables
         transferred to an unconsolidated entity;

o        Any  obligation,  including a contingent  obligation,  under a contract
         that would be accounted for as a derivative instrument,  except that it
         is both  indexed  to the  registrant's  own  stock  and  classified  in
         stockholders' equity; or

o        Any  obligation,  including  contingent  obligations,  arising out of a
         material variable interest,  as defined in FASB  Interpretation No. 46,
         "Consolidation  of  Variable  Interest  Entities"  ("FIN  46"),  in  an
         unconsolidated entity that provides financing,  liquidity,  market risk
         or credit  risk  support to the  registrant,  or  engages  in  leasing,
         hedging or research and development services with the registrant.

In the ordinary  course of business,  we have issued  certain  guarantees  which
qualify  as  off-balance  sheet  arrangements.  As of  December  31,  2006 those
guarantees include the following:

         Financial Letters of Credit in the amount of $12.1 million

The table below summarizes the Bank's off-balance sheet contractual obligations.


                                       44


<PAGE>


<TABLE>
<CAPTION>


                                                         As of December 31, 2006
                                  _____________________________________________________________________
                                                         Payments due by period
                                  _____________________________________________________________________
                                                  Less than       1 - 3         3 - 5        More than
Contractural Obligations             Total         1 year         years         years         5 years
                                  _____________________________________________________________________
<S>                               <C>            <C>           <C>           <C>            <C>

Long-term contracts               $     2,294    $       749   $       713   $       832    $         -

Operating leases                       15,997            927         3,674         3,513          7,883
                                  _____________________________________________________________________
Total                             $    18,291    $     1,676   $     4,387   $     4,345    $     7,883
                                  =====================================================================

</TABLE>










                                       45


<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



                         INDEX TO FINANCIAL STATEMENTS


                                                                            PAGE

Reports of Independent Registered Public Accounting Firms                  47-49

Balance Sheets, December 31, 2006 and 2005                                  50

Statements of operations for the years ended December 31, 2006, 2005
and 2004                                                                    51

Statement of Shareholders' Equity and Comprehensive Income for the
Years ended December 31, 2006, 2005 and 2004                                52

Statements of Cash Flows for the years ended December 31, 2006, 2005
and 2004                                                                    53

Notes to Financial Statements                                              54-76


All schedules have been omitted since the required information is not present or
not  present in amounts  sufficient  to require  submission  of the  schedule or
because the  information  required is included in the  Financial  Statements  or
notes thereto.

                                    * * * * *


                                       46


<PAGE>




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Bridge Capital Holdings


We have audited the  consolidated  balance sheets of Bridge Capital Holdings and
Subsidiary  as of December  31, 2006 and 2005,  and the  related  statements  of
operations,  changes in stockholders' equity and comprehensive  income, and cash
flows for the two years then ended. These consolidated  financial statements are
the responsibility of the Company's management. Our responsibility is to express
opinions on these consolidated financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
consolidated  financial statements are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the  consolidated  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall consolidated  financial statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinions.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated financial position of Bridge
Capital Holdings and Subsidiary as of December 31, 2006 and 2005 and the results
of their operations and their cash flows for the years then ended, in conformity
with U.S. generally accepted accounting principles.

Vavrinek, Trine, Day & Co.  LLP

Palo Alto, California
February 27, 2007


                                       47


<PAGE>


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Bridge Capital Holdings:

In our opinion,  the  accompanying  consolidated  statements of  operations,  of
shareholders' equity and comprehensive income, and of cash flows present fairly,
in all material  respects,  the results of  operations  and cash flows of Bridge
Capital  Holdings and its  subsidiaries for the year ended December 31, 2004, in
conformity with accounting principles generally accepted in the United States of
America.  These  financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements  based on our audit.  We conducted  our audit of these  statements in
accordance with the standards of the Public Company  Accounting  Oversight Board
(United States).  Those standards  require that we plan and perform the audit to
obtain reasonable  assurance about whether the financial  statements are free of
material  misstatement.  An audit includes examining,  on a test basis, evidence
supporting the amounts and  disclosures in the financial  statements,  assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall  financial  statement  presentation.  We believe that our
audit provides a reasonable basis for our opinion.


PricewaterhouseCoopers LLP
March 8, 2005


                                       48


<PAGE>


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Bridge Capital Holdings and Subsidiary
San Jose, California


We have audited management's assessment,  included in the accompanying Report of
Management,   that  Bridge  Capital  Holdings  and  Subsidiary  (the  "Company")
maintained  effective  internal control over financial  reporting as of December
31,  2006,  based on  criteria  established  in  Internal  Control -  Integrated
Framework  issued by the Committee of Sponsoring  Organizations  of the Treadway
Commission  (COSO).  The Company's  management is  responsible  for  maintaining
effective  internal  control over financial  reporting and for its assessment of
the   effectiveness   of  internal   control  over  financial   reporting.   Our
responsibility  is to  express  an opinion  on  management's  assessment  and an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain  reasonable  assurance  about whether  effective
internal  control  over  financial  reporting  was  maintained  in all  material
respects. Our audit included obtaining an understanding of internal control over
financial reporting,  evaluating management's assessment, testing and evaluating
the design and operating  effectiveness of internal control, and performing such
other  procedures as we considered  necessary in the  circumstances.  We believe
that our audit provides a reasonable basis for our opinion.

A company's  internal control over financial  reporting is a process designed to
provide reasonable  assurance  regarding the reliability of financial  reporting
and the preparation of financial  statements for external purposes in conformity
with U.S. generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit  preparation of financial  statements in accordance  with U.S.  generally
accepted accounting principles, and the receipts and expenditures of the company
are  being  made  only in  accordance  with  authorizations  of  management  and
directors  of the  company;  and  (3)  provide  reasonable  assurance  regarding
prevention or timely detection of unauthorized acquisition,  use, or disposition
of the  company's  assets  that could have a  material  effect on the  financial
statements.

Because of its inherent  limitations,  internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may deteriorate.

In our  opinion,  management's  assessment  that  Bridge  Capital  Holdings  and
Subsidiary  maintained effective internal control over financial reporting as of
December 31, 2006, is fairly stated, in all material respects, based on criteria
established in Internal  Control - Integrated  Framework issued by the Committee
of  Sponsoring  Organizations  of the Treadway  Commission  (COSO).  Also in our
opinion,  the Company maintained,  in all material respects,  effective internal
control over  financial  reporting  as of December  31, 2006,  based on criteria
established in Internal  Control - Integrated  Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).

We have also  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board,  the consolidated  balance sheet as of December 31,
2006 and the related consolidated statements of income,  stockholders equity and
cash flows for the year then  ended,  and our report  dated  February  27,  2007
expressed an unqualified opinion.


/s/ Vavrinek, Trine, Day & Co., LLP
Palo Alto, California
February 27, 2007


                                       49


<PAGE>

<TABLE>
<CAPTION>



                     BRIDGE CAPITAL HOLDINGS AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)


                                                                                     As of December 31,
                                                                                ___________________________
                                                                                  2006              2005
                                                                                ___________________________
<S>                                                                             <C>                <C>

Assets:
Cash and due from banks                                                         $ 24,360           $ 22,880
Federal funds sold                                                                93,845             46,660
                                                                                ___________________________
  Total cash and equivalents                                                     118,205             69,540
                                                                                ___________________________

Investment securities available for sale                                          43,933             12,383
Loans, net of allowance for credit losses of $7,329 at
     December 31, 2006 and $5,936 at December 31, 2005                           531,956            432,667

Premises and equipment, net                                                        3,479              2,337
Other real estate owned                                                                -                  -
Accrued interest receivable                                                        4,292              2,202
Other assets                                                                      20,114             17,391
                                                                                ___________________________
     Total assets                                                               $721,979           $536,520
                                                                                ===========================

Liabilities and Shareholders' Equity:
Deposits:
  Demand noninterest-bearing                                                    $198,639           $185,557
  Demand interest-bearing                                                          3,901              2,866
  Savings                                                                        333,838            210,011
  Time                                                                           108,609             69,724

     Total deposits                                                              644,987            468,158
                                                                                ___________________________

Junior subordinated debt securities                                               17,527             12,372
Other borrowings                                                                       -             10,000
Accrued interest payable                                                             318                130
Other liabilities                                                                 10,053              6,146
                                                                                ___________________________
     Total liabilities                                                           672,885            496,806
                                                                                ___________________________

Commitments and contingencies                                                          -                   -

Shareholders' Equity:
Preferred stock, no par value; 10,000,000 shares authorized;
     none issued                                                                       -                   -
Common stock, no par value; 30,000,000 shares authorized;
     6,318,694 shares issued and outstanding at December 31, 2006;
     6,227,596 shares issued and outstanding at December 31, 2005.                34,406             33,787
Additional paid in capital                                                         1,021                120
Retained earnings                                                                 14,543              5,909
Accumulated other comprehensive (loss)                                              (876)              (102)
                                                                                ___________________________
     Total shareholders' equity                                                   49,094             39,714
                                                                                ___________________________
     Total liabilities and shareholders' equity                                 $721,979           $536,520
                                                                                ===========================

The accompanying notes are an integral part of the financial statements.

</TABLE>


                                       50


<PAGE>

<TABLE>
<CAPTION>




                     BRIDGE CAPITAL HOLDINGS AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)


                                                                        Year Ended December 31,
                                                           ________________________________________________
                                                           2006               2005               2004
                                                           ________________________________________________
<S>                                                        <C>                 <C>                <C>

Interest Income:
Loans                                                      $  48,248           $  31,983          $  18,378
Federal funds sold                                             3,990               1,703                546
Investment securities available for sale                         724                 432                533
                                                           ________________________________________________
     Total interest income                                    52,962              34,118             19,457
                                                           ________________________________________________

Interest Expense:
Deposits                                                      13,182               5,874              2,874
Other                                                          1,089                 741                 22
                                                           ________________________________________________
    Total interest expense                                    14,271               6,615              2,896
                                                           ________________________________________________

Net interest income                                           38,691              27,503             16,561
Provision for credit losses                                    1,372               2,162              1,671
                                                           ________________________________________________
Net interest income after provision
     for credit losses                                        37,319              25,341             14,890
                                                           ________________________________________________

Non-Interest Income:
Gain on sale of SBA loans                                      1,320               2,290              2,737
SBA loan servicing fee income                                    548                 528                358
Service charges on deposit accounts                              498                 354                362
Other non-interest income                                      1,471               1,025                398
                                                           ________________________________________________
     Total non-interest income                                 3,837               4,197              3,855
                                                           ________________________________________________

Operating Expenses:
Salaries and benefits                                         17,417              12,127              8,081
Occupancy                                                      2,132               1,652              1,420
Data services                                                  1,528               1,085                763
Marketing                                                      1,081                 925                612
Third party services                                             925               1,065                 95
Professional services                                            825                 746                645
Furniture and equipment                                          701                 583                585
Deposit services/supplies                                        525                 401                311
Other                                                          2,145               1,397              1,084
                                                           ________________________________________________
     Total operating expenses                                 27,279              19,981             13,596
                                                           ________________________________________________

Income before income taxes                                    13,877               9,557              5,149
Income taxes                                                   5,243               3,832              2,112
                                                           ________________________________________________
Net income                                                 $   8,634           $   5,725          $   3,037
                                                           ================================================

Basic earnings per share                                   $    1.38           $    0.93          $    0.50
                                                           ================================================
Diluted earnings per share                                 $    1.27           $    0.85          $    0.46
                                                           ================================================
Average common shares outstanding                          6,274,051           6,164,898          6,063,028
                                                           ================================================
Average common and equivalent shares
  outstanding                                              6,816,700           6,730,947          6,595,413
                                                           ================================================

The accompanying notes are an integral part of the financial statements.

</TABLE>


                                       51


<PAGE>

<TABLE>
<CAPTION>



                     BRIDGE CAPITAL HOLDINGS AND SUBSIDIARY
    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                    (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)



                                                Common Stock and                     Accumulated     Total
                                            Additional Paid in Capital                 Other        Share-
                                            __________________________  Retained    Comprehensive  holders'
                                              Shares       Amount       Earnings    Income (loss)   Equity
                                              _______________________________________________________________
<S>                                           <C>           <C>           <C>               <C>      <C>

Balance at December 31, 2003                  6,051,646     $ 32,800      $ (2,853)         $ 7      $ 29,954

Stock options exercised                          46,051          257             -            -           257

Other comprehensive income- unrealized
  loss on securities available for sale, net          -            -             -         (126)         (126)

Net income for the year                               -            -         3,037            -         3,037

                                              _______________________________________________________________
Balance at December 31, 2004                  6,097,697     $ 33,057         $ 184       $ (119)     $ 33,122
                                              ===============================================================

Stock options exercised                         129,899          730             -            -           730

Tax benefit from exercise of
  non qualified stock options                         -          120             -            -           120

Other comprehensive income- unrealized
  gain on securities available for sale, net          -            -             -           17            17

Net income for the year                               -            -         5,725            -         5,725

                                              _______________________________________________________________
Balance at December 31, 2005                  6,227,596     $ 33,907       $ 5,909       $ (102)     $ 39,714
                                              ===============================================================

Stock options exercised                          91,098          619             -            -           619

Tax benefit from exercise of
  non qualified stock options                         -          141             -            -           141

Stock based compensation                              -          760             -            -           760

Other comprehensive income                            -            -             -         (774)         (774)

Net income for the year                               -            -         8,634            -         8,634

                                              _______________________________________________________________
Balance at December 31, 2006                  6,318,694     $ 35,427      $ 14,543       $ (876)     $ 49,094
                                              ===============================================================

The accompanying notes are an integral part of the financial statements.

</TABLE>


                                       52


<PAGE>

<TABLE>
<CAPTION>


                     BRIDGE CAPITAL HOLDINGS AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)


                                                                              Year Ended December 31,
                                                                       _____________________________________
                                                                        2006           2005          2004
                                                                       _____________________________________
<S>                                                                    <C>            <C>           <C>

Cash Flows From Operating Activities:

  Net income                                                           $   8,634      $  5,725      $  3,037
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Provision for credit losses                                          1,372         2,162         1,671
      Depreciation and amortization                                          840           853           908
      Stock based compensation                                               760             -             -
      Proceeds from loan sales                                            51,359        66,578        84,889
      Loans originated for sale                                          (66,268)      (69,843)      (68,459)
      Increase in accrued interest receivable and other assets            (4,290)       (4,747)       (3,102)
      Increase in accrued interest payable and other liabilities           2,478         2,176         2,314
                                                                       _____________________________________
          Net cash (used in) provided by operating activities             (5,115)        2,904        21,258
                                                                       _____________________________________

Cash Flows From Investing Activities:

  Purchase of securities available for sale                              (41,984)      (50,394)      (17,554)
  Proceeds from maturities of securities available for sale               10,625        64,300        15,200
  Net increase in loans                                                  (85,752)     (142,097)     (116,515)
  Purchase of life insurance                                                   -             -        (8,000)
  Purchase of fixed assets                                                (2,085)         (935)       (1,417)
                                                                       _____________________________________
          Net cash used in investing activities                         (119,196)     (129,126)     (128,286)
                                                                       _____________________________________

Cash Flows From Financing Activities:

  Net increase in deposits                                               176,830       115,702       106,062
  Proceeds from sale of common stock                                         619           850           257
  Increase in other borrowings                                            (4,473)       10,000        12,372
                                                                       _____________________________________
         Net cash provided by financing activities                       172,976       126,552       118,691
                                                                       _____________________________________

Net Increase in Cash and Equivalents:                                     48,665           330        11,663
Cash and equivalents at beginning of period                               69,540        69,210        57,547
                                                                       _____________________________________
Cash and equivalents at end of period                                  $ 118,205      $ 69,540      $ 69,210
                                                                       =====================================

Other Cash Flow Information:
  Cash paid for interest                                               $  14,082      $  6,554      $  2,694
                                                                       =====================================
  Cash paid for income taxes                                           $   6,895      $  4,665      $  2,101
                                                                       =====================================

The accompanying notes are an integral part of the financial statements.

</TABLE>


                                       53


<PAGE>


BRIDGE CAPITAL HOLDINGS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004


1.       SIGNIFICANT ACCOUNTING POLICIES


PRINCIPLES OF CONSOLIDATION - The financial  statements  include the accounts of
Bridge  Capital  Holdings and its  subsidiary,  Bridge Bank,  N.A.  ("the Bank")
collectively referred to herein as "the Company".


BUSINESS - Bridge Bank, N.A.  commenced  business in Santa Clara,  California on
May 14,  2001.  Its main  office  is  located  at 55  Almaden  Blvd,  San  Jose,
California,  95113.  The Bank conducts  commercial and retail banking  business,
which  includes   accepting  demand,   savings  and  time  deposits  and  making
commercial,  real estate and consumer  loans. It also issues  cashier's  checks,
sells travelers checks and provides other customary banking services.

On October 1, 2004,  the Bank  announced  completion  of a bank holding  company
structure which was approved by shareholders at the Bank's annual  shareholders'
meeting held on May 20, 2004. The bank holding  company,  formed as a California
corporation, is named Bridge Capital Holdings.  Information in this report dated
prior to September 30, 2004 is for Bridge Bank, N.A.

Bridge Capital Holdings (the "Company") was formed for the purpose of serving as
the holding  company for Bridge  Bank,  N.A. and is  supervised  by the Board of
Governors  of the Federal  Reserve  System.  Effective  October 1, 2004,  Bridge
Capital  Holdings  acquired 100% of the voting shares of Bridge Bank, N.A.. As a
result of the transaction, the former shareholders of Bridge Bank, N.A. received
one share of  common  stock of Bridge  Capital  Holdings  for every one share of
common stock of Bridge Bank, N.A. owned.

Prior to the share  exchange,  the common stock of the Bank had been  registered
with the  Office  of  Comptroller  of the  Currency.  As a result  of the  share
exchange,  common stock of Bridge Capital  Holdings is now  registered  with the
Securities and Exchange  Commission.  Filings under the federal  securities laws
are made with the SEC rather than the Office of the  Comptroller of the Currency
and are  available on the SEC's  website,  http://www.sec.gov  as well as on the
Company's website http://www.bridgebank.com.


BASIS OF PRESENTATION - The accounting and reporting  policies of Bridge Capital
Holdings  and  Bridge  Bank,  N.A.  conform  to  generally  accepted  accounting
principles and prevailing practices within the banking industry.


USE OF ESTIMATES - The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect reported amounts of assets,  liabilities,  revenues
and expenses,  and  disclosure of contingent  assets and  liabilities  as of the
dates and for the periods  presented.  A  significant  estimate  included in the
accompanying  financial  statements  is the  allowance  for loan losses.  Actual
results could differ from those estimates.


EARNINGS  PER SHARE - Basic net income per share is  computed  by  dividing  net
income  applicable  to common  shareholders  by the weighted  average  number of
common  shares  outstanding  during the period.  Diluted net income per share is
determined using the weighted average number of common shares outstanding during
the  period,  adjusted  for the  dilutive  effect of common  stock  equivalents,
consisting of shares that might be issued upon exercise of common stock options.
Common  stock  equivalents  are  included  in the  diluted  net income per share
calculation to the extent these shares are dilutive. See Note 2 to the financial
statements for additional information on earnings per share.


CASH  EQUIVALENTS  - For  purposes  of  reporting  cash  flows,  cash  and  cash
equivalents include cash on hand, amounts due from banks, Federal Funds sold and
highly  liquid debt  instruments  purchased  with an original  maturity of three
months or less.  The Company is required to maintain  non-interest  earning cash
reserves  against  certain of the deposit  accounts.  As of December  31,  2006,
aggregate  reserves (in the form of deposits  with the Federal  Reserve Bank) of
$6.5 million were maintained.


SECURITIES  -  The  Company  classifies  its  investment   securities  into  two
categories,  available  for sale and held to maturity,  at the time of purchase.
Securities  available  for sale are  reported at fair value with net  unrealized
holding  gains or  losses,  net of tax,  recorded  as a  separate  component  of
shareholders' equity. Securities held to maturity are measured at amortized cost


                                       54


<PAGE>

based on the  Company's  positive  intent and ability to hold the  securities to
maturity. As of December 31, 2006 and 2005, all of the Company's securities were
classified as available for sale.

Premiums and  discounts  are  amortized or accreted over the life of the related
security as an adjustment to yield using the effective interest method. Dividend
and interest  income is  recognized  when  earned.  Gains and losses on sales of
securities are computed on a specific identification basis.


LOANS - Loans are stated at the principal amount  outstanding less the allowance
for credit losses and net deferred  loan fees.  Interest on loans is credited to
income as  earned.  Loans are  generally  placed on  nonaccrual  status  and any
accrued  and unpaid  interest  is  reversed  when the  payment of  principal  or
interest  is 90 days past due  unless the loan is both well  secured  and in the
process of  collection.  Interest  accruals  are resumed on such loans only when
they are brought current with respect to interest and principal and when, in the
judgment of  management,  the loans are estimated to be fully  collectible as to
both principal and interest.

Loan  origination  fees and costs are  deferred  and  amortized to income at the
instrument  level using the effective  interest  method based on the contractual
lives adjusted for prepayments.


LOANS HELD FOR SALE - Small Business Administration ("SBA") loans originated and
intended  for sale in the  secondary  market are carried at the lower of cost or
estimated  market value in the aggregate.  Net  unrealized  gains are recognized
through a valuation allowance by credits to income.  Gains or losses realized on
the sales of loans are  recognized at the time of sale and are determined by the
difference  between the net sales  proceeds and the carrying  value of the loans
sold,  adjusted for any servicing asset or liability.  Gains and losses on sales
of loans are included in non-interest income.

The Bank has adopted SFAS No. 140  "Accounting  for  Transfers  and Servicing of
Financial Assets and  Extinguishments  of Liabilities."  The Statement  provides
accounting  and  reporting  standards  for  transfers and servicing of financial
assets  and  extinguishments  of  liabilities.  Under  this  Statement,  after a
transfer of financial  assets,  an entity recognizes the financial and servicing
assets it controls  and  liabilities  it has  incurred,  derecognizes  financial
assets when control has been  surrendered,  and  derecognizes  liabilities  when
extinguished.

To calculate the gain (loss) on sale of loans, the Bank's investment in the loan
is allocated among the retained portion of the loan, the servicing retained, the
interest-only strip and the sold portion of the loan, based on the relative fair
market value of each  portion.  That portion of the excess  servicing  fees that
represents  contractually  specified  servicing fees (contractual  servicing) is
reflected as a servicing asset which is amortized over an estimated life using a
method  approximating  the level yield method.  The portion of excess  servicing
fees  in  excess  of  the   contractual   servicing  fees  is  reflected  as  an
interest-only (I/O) strip receivable,  which is classified as available for sale
and  carried at fair value.  The gain (loss) on the sold  portion of the loan is
recognized at the time of sale based on the difference between the sale proceeds
and the allocated investment. As a result of the relative fair value allocation,
the carrying  value of the  retained  portion is  discounted,  with the discount
accreted to interest income over the life of the loan.


ALLOWANCE FOR CREDIT  LOSSES - The  allowance  for credit losses is  established
through a  provision  charged to  expense.  Loans are  charged  off  against the
allowance when management believes that the collection of principal is unlikely.
The allowance is an amount that  management  believes will be adequate to absorb
known and probable  losses in the loan  portfolio.  The  allowance is based on a
number of factors including  prevailing  economic trends,  industry  experience,
estimated collateral values,  management's assessment of credit risk inherent in
the portfolio,  delinquency trends, historical loss experience, specific problem
loans and other relevant factors. Because the allowance for loan losses is based
on estimates, ultimate losses may vary from current estimates.

ACCOUNTING  FOR  IMPAIRED  LOANS  - A loan  is  considered  impaired  when it is
probable  that  interest and  principal  will not be collected  according to the
contractual  terms of the loan  agreement.  Any  allowance on impaired  loans is
generally based on three methods. 1) present value of expected future cash flows
discounted  at  the  loan's  effective  interest  rate  or,  2)  as a  practical
expedient,  at the loan's  observable  market  price or 3) the fair value of the
collateral if the loan is collateral  dependent.  Income recognition on impaired
loans is consistent with the policy for income  recognition on non-accrual loans
described above.

PREMISES  AND  EQUIPMENT  -  Premises  and  equipment  are  stated  at cost less
accumulated  depreciation  and  amortization.  Depreciation and amortization are
computed  on a  straight-line  basis  over the  shorter of the lease term or the
estimated  useful  lives of the  assets,  which are  generally  three  years for
computer  equipment,  three to five years for furniture,  fixtures and equipment
and five to ten years for leasehold improvements.

OTHER REAL ESTATE OWNED - Other real estate owned ("OREO") consist of properties
acquired through  foreclosure.  The Company values these properties at the lower


                                       55


<PAGE>

of cost or fair value less estimated costs to sell at the time it acquires them,
which  establishes the new cost basis. The Company charges against the allowance
for  credit  losses  any  losses  arising  at the  time of  acquisition  of such
properties.  After it acquires them, the Company  carries such properties at the
lower of cost or fair value less estimated selling costs. If the Company records
any write-downs or losses from  disposition of such  properties  after acquiring
them, it includes this amount in other  non-interest  expense.  Development  and
improvement   costs  relating  to  OREO  are  capitalized   (assuming  they  are
recoverable). The Company has no OREO at December 31, 2006 or 2005.

INCOME TAXES - Deferred tax assets and  liabilities  are recognized at currently
enacted  rates  applicable  to the period in which the  deferred  tax assets and
liabilities  are expected to be realized and settled.  Deferred income taxes are
provided  on income and  expense  items  recognized  in  different  periods  for
financial statement and tax reporting purposes.

STOCK-BASED  COMPENSATION - On January 1, 2006, the Company implemented SFAS No.
123 (revised 2004) (SFAS No. 123R),  Share-Based  Payments,  which addresses the
accounting for stock-based payment  transactions in which an enterprise receives
employee  services in exchange for (a) equity  instruments  of the enterprise or
(b)  liabilities  that are based on the fair  value of the  enterprise's  equity
instruments  or that may be settled by the issuance of such equity  instruments.
SFAS No. 123R  eliminates  the ability to account for  stock-based  compensation
transactions using the intrinsic value method under Accounting  Principles Board
(APB)  Opinion No. 25,  Accounting  for Stock Issued to  Employees,  and instead
generally   requires   that  such   transactions   be  accounted   for  using  a
fair-value-based  method.  The  Company  uses the  Black-Scholes-Merton  ("BSM")
option-pricing  model to determine the  fair-value of  stock-based  awards under
SFAS No. 123R,  consistent with that used for pro forma  disclosures  under SFAS
No. 123,  Accounting for Stock-Based  Compensation.  The Company has elected the
modified  prospective  transition  method  as  permitted  by SFAS  No.  123R and
accordingly  prior  periods have not been restated to reflect the impact of SFAS
No. 123R. The modified  prospective  transition method requires that stock-based
compensation  expense  be  recorded  for  all new and  unvested  stock  options,
restricted  stock,  restricted  stock units,  and employee  stock  purchase plan
shares that are ultimately expected to vest as the requisite service is rendered
beginning on January 1, 2006,  the first day of the Company's  fiscal year 2006.
Stock-based  compensation expense for awards granted prior to January 1, 2006 is
based on the grant date fair-value as determined  under the pro forma provisions
of SFAS No. 123. The Company has recorded an incremental  $760,000 ($710,000 net
of tax) of  stock-based  compensation  expense  during  2006 as a result  of the
adoption of SFAS No.  123R.  The impact of  implementing  SFAS No. 123R  reduced
basic  earnings  per share by $0.11 and diluted  earnings per share by $0.06 for
the year ended December 31, 2006.

No  stock-based  compensation  costs were  capitalized as part of the cost of an
asset as of December  31, 2006.  As of December 31, 2006,  $3.5 million of total
unrecognized  compensation  cost related to stock options and  restricted  stock
units are expected to be recognized over a  weighted-average  period of 5 years.
The total fair value of shares vested during the years ended  December 31, 2006,
2005, and 2004 was $587,000, $429,000, and $438,000, respectively.

Prior to the  adoption  of SFAS No.  123R,  the  Company  measured  compensation
expense for its  employee  stock-based  compensation  plans using the  intrinsic
value  method  prescribed  by APB  Opinion  No.  25.  The  Company  applied  the
disclosure provisions of SFAS No. 123 as amended by SFAS No. 148, Accounting for
Stock-Based  Compensation - Transition and Disclosure as if the fair-value-based
method had been applied in measuring compensation expense. Under APB Opinion No.
25, when the exercise price of the Company's employee stock options was equal to
the  market  price  of the  underlying  stock  on the  date  of  the  grant,  no
compensation expense was recognized.

The  following  table  illustrates  the effect on net income after taxes and net
income per common share as if the Company had applied the fair value recognition
provisions of SFAS No. 123R to stock-based compensation during 2005 and 2004 (in
thousands, except per share amounts):


                                       56


<PAGE>


                                            Year ended December 31,
                                            _______________________
(dollars in thousands, except share data)      2005        2004
                                              ___________________

Net income                                    $ 5,725     $ 3,037

Stock based employee
compensation, net of tax, that
would have been included in
the determination of net
income if the fair value method
had been applied to all awards                   (317)       (214)
                                              ___________________
Pro forma net income                          $ 5,408     $ 2,823
                                              ===================
Basic earnings per share:
  As reported                                 $  0.93     $  0.50
  Pro forma                                   $  0.88     $  0.47
Diluted earnings per share:
  As reported                                 $  0.85     $  0.46
  Pro forma                                   $  0.80     $  0.43


RECENT  ACCOUNTING  ANNOUNCEMENTS  -  In  May  2005,  the  Financial  Accounting
Standards Board issued SFAS No. 154, "Accounting Changes and Error Corrections".
SFAS No. 154 provides guidance on the accounting for and reporting of accounting
changes  and  error   corrections.   It   establishes,   unless   impracticable,
retrospective  application  as the  required  method for  reporting  a change in
accounting principle in the absence of explicit transition requirements specific
to the  newly  adopted  accounting  principle.  SFAS No.  154 is  effective  for
accounting  changes and  corrections  of errors made in fiscal  years  beginning
after  December 15, 2005.  The  adoption of SFAS No. 154,  effective  January 1,
2006, did not have any impact on our financial condition or operating results.

In February 2006,  the Financial  Accounting  standards  Board released SFAS No.
155, "Accounting for Certain Hybrid Financial  Instruments".  SFAS No. 155 is an
amendment of SFAS No. 133,  "Accounting  for Derivative  Instruments and Hedging
Activities",  and SFAS No. 140,  "Accounting  for  Transfers  and  Servicing  of
Financial Assets and  Extinguishment of Liabilities".  SFAS No. 155 establishes,
amount other items, the accounting for certain derivative  instruments  embedded
within other types of financial instruments; and eliminates a restriction on the
passive  derivative  instruments  that a qualifying  special-purpose  entity may
hold.  Effective  for the  Company  for  January  1,  2007,  SFAS No. 155 is not
expected to have any impact on our financial position,  results of operations or
cash flows.

In March 2006, the Financial  Accounting  standards Board released SFAS No. 156,
"Accounting for Servicing of Financial  Assets",  an amendment of SFAS Statement
No. 140,  "Accounting  for  Transfers  and  Servicing  of  Financial  Assets and
Extinguishment of Liabilities". SFAS No. 156 amends SFAS No. 140 to require that
all separately  recognized  servicing  assets and liabilities in accordance with
SFAS No. 140 be initially  measured at fair value, if practicable.  Furthermore,
this  standard  permits,  but  does  not  require  fair  value  measurement  for
separately  recognized  servicing assets and liabilities in subsequent reporting
periods.  SFAS No. 156 is also  effective for the Company  beginning  January 1,
2007; however,  the standard is not expected to have a material on the Company's
financial position, results of operations or cash flows.

In June  2006,  the  Financial  Accounting  standards  Board  issued FIN No. 48,
"Accounting for Uncertainty in Income Taxes". This interpretation  clarifies the
accounting for uncertainty in income taxes in a company's financial  statements,
in accordance with SFAS No. 109,  "Accounting for Income Taxes",  by prescribing
the  minimum  recognition  threshold  a tax  position  must  meet  before  being
recognized in the  financial  statements.  FIN No. 48 also provides  guidance on
derecognition,  measurement,  classification, interest and penalties, accounting
in interim  periods,  disclosure,  and transition.  We do not expect FIN No. 48,
which is effective for fiscal years beginning after December 15, 2006, to have a
material impact on our financial condition or operating results.

In September 2006, the Financial Accounting standards Board issued SFAS No. 157,
"Fair Value  Measurement",  a standard that provides enhanced guidance for using
fair value to measure  assets and  liabilities.  The standard  also  responds to
investors' requests for expanded information about the extent to which a company
measures assets and liabilities at fair value,  the information  used to measure
fair value, and the effect of fair value measurements on earnings.  The standard


                                       57


<PAGE>

applies whenever other standards require (or permit) assets or liabilities to be
measured at fair value. Under the standard,  fair value refers to the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction  between  market  participants  in the market in which the reporting
entity transacts.  The standard clarifies that fair value should be based on the
assumptions  market  participants would use when pricing the asset or liability.
In support of this  principle,  the standard  establishes a fair value hierarchy
that  prioritizes the information  used to develop those  assumptions.  The fair
value  hierarchy  gives the highest  priority to quoted prices in active markets
and the lowest  priority  to  unobservable  data,  for  example,  the  reporting
entity's  own  data.  Under  the  standard,  fair  value  measurements  would be
separately  disclosed  by level within the fair value  hierarchy.  We will adopt
SFAS No. 157 on January 1, 2008,  and we do not expect the  adoption of SFAS No.
157 to have a material impact on our financial condition or operating results.

In September 2006, the Financial Accounting standards Board issued SFAS No. 158,
"Employers'  Accounting  for Defined  Benefit  Pension and Other  Postretirement
Plans",  which requires employers to fully recognize the obligations  associated
with  single-employer  defined  benefit  pension,  retiree  healthcare and other
postretirement  plans in their financial  statements.  The standard will make it
easier for investors, employees, retirees and others to understand and assess an
employer's  financial  position and its ability to fulfill the obligations under
its  benefit  plans.  Specifically,  SFAS No. 158  requires  an  employer to (a)
recognize  in its  balance  sheet an asset for a plan's  overfunded  status or a
liability for a plan's  underfunded  status; (b) measure a plan's assets and its
obligations  that  determine its funded  status as of the end of the  employer's
fiscal year (with limited  exceptions);  and (c) recognize changes in the funded
status of a defined benefit postretirement plan in the year in which the changes
occur. Those changes are reported as a component of other comprehensive  income.
The  adoption  of SFAS No. 158 did not have a material  impact on our  financial
condition or operating  results.  The requirement to recognize the funded status
of a benefit plan and the disclosure  requirements  are effective as of December
31, 2006. See Note 10 to the financial statements.

RECLASSIFICATIONS  -  Certain   reclassifications  were  made  to  prior  years'
presentations  to conform to the current year.  These  reclassifications  had no
effect on net income or earnings per share.

COMPREHENSIVE INCOME - SFAS No. 130, "Reporting  Comprehensive  Income" requires
that  all  items  recognized   under  accounting   standards  as  components  of
comprehensive  earnings  be reported in an annual  financial  statement  that is
displayed with the same prominence as other annual  financial  statements.  This
Statement  also requires that an entity  classify  items of other  comprehensive
earnings by their nature in an annual financial  statement.  Other comprehensive
earnings  include the SFAS No. 158  adjustment to fully  recognize the liability
associated with the supplemental executive retirement plan, unrealized gains and
losses, net of tax, on cash flow hedges, and unrealized gains and losses, net of
tax, on marketable securities classified as available-for-sale.  The Company had
accumulated  other  comprehensive  losses  totaling  ($876,000),  net of tax, at
December 31, 2006, ($102,000),  net of tax, at December 31, 2005 and ($119,000),
net of tax, at December 31, 2004.

<TABLE>
<CAPTION>


(dollars in thousands)                                      Year ended December 31,
                                             _____________________________________________________
                                              2006                   2005                   2004
                                             _____________________________________________________
<S>                                          <C>                    <C>                    <C>

Net income                                   $ 8,634                $ 5,725                $ 3,037

Other comprehensive earnings-
   Net unrealized gains (losses) on
    FAS 158 adjustment-supplemental
    executive retirement plan                   (711)
   Net unrealized gains (losses) on
    cash flow hedges                            (114)
   Net unrealized gains (losses) on
     securities available for sale                51                     17                   (126)
                                             _____________________________________________________

Total comprehensive income                   $ 7,860                $ 5,742                $ 2,911
                                             =====================================================
</TABLE>


SEGMENTS OF AN ENTERPRISE  AND RELATED  INFORMATION - SFAS No. 131,  "Disclosure
about  Segments of an  Enterprise  and  Related  Information,  requires  certain
information  about the  operating  segments of the  Company.  The  objective  of
requiring disclosures about segments of an enterprise and related information is
to provide information about the different types of business activities in which


                                       58


<PAGE>

an  enterprise  engages  and the  different  economic  environment  in  which it
operates  to  help  users  of  financial   statements   better   understand  its
performance,  better  assess its  prospects  for future cash flows and make more
informed  judgments about the enterprise as a whole.  The Company has determined
that it has  one  segment,  general  commercial  banking,  and  therefore  it is
appropriate  to  aggregate  the  Company's  operations  into a single  operating
segment.


DERIVATIVE  INSTRUMENTS AND HEDGING  ACTIVITIES - SFAS No. 133,  "Accounting for
Derivative  Instruments  and Hedging  Activities",  as amended and  interpreted,
establishes  accounting  and  reporting  standards for  derivative  instruments,
including certain derivative  instruments  embedded in other contracts,  and for
hedging activities. As required by SFAS 133, the Company records all derivatives
on the balance sheet at fair value. The accounting for changes in the fair value
of  derivatives  depends on the intended use of the derivative and the resulting
designation. Derivatives used to hedge the exposure to changes in the fair value
of an asset,  liability,  or firm commitment  attributable to a particular risk,
such as interest rate risk, are considered fair value hedges.  Derivatives  used
to hedge the exposure to  variability  in expected  future cash flows,  or other
types of forecasted transactions, are considered cash flow hedges.

For derivatives designated as cash flow hedges, the effective portion of changes
in the fair value of the derivative is initially reported in other comprehensive
income (outside of earnings) and subsequently  reclassified to earnings when the
hedged transaction  affects earnings,  and the ineffective portion of changes in
the fair value of the derivative is recognized directly in earnings. The Company
assesses the effectiveness of each hedging relationship by comparing the changes
in cash flows of the  derivative  hedging  instrument  with the  changes in cash
flows of the designated hedged item or transaction.

The  Company's  objective in using  derivatives  is to add stability to interest
income and to manage its exposure to interest rate movements or other identified
risks. To accomplish this objective, the Company primarily uses an interest rate
swap as part of its cash flow hedging  strategy.  Interest rate swaps designated
as cash flow hedges  involve the receipt of  fixed-rate  amounts in exchange for
variable-rate  payments over the life of the agreements  without exchange of the
underlying  principal amount.  During 2006, the derivative was used to hedge the
variable  cash flows  associated  with $50.0  million of existing  variable-rate
assets.

As of December 31, 2006, no derivatives  were designated as fair value hedges or
hedges of net investments in foreign operations.  Additionally, the Company does
not use derivatives  for trading or speculative  purposes and currently does not
have any derivatives that are not designated as hedges.

At December 31, 2006, derivatives with a fair value of $183,000 were included in
other  liabilities.  The change in net  unrealized  losses of  $183,000  (net of
income tax benefit of $69,000) in 2006 for  derivatives  designated as cash flow
hedges is  separately  disclosed in the  statement  of changes in  comprehensive
income. No hedge ineffectiveness on cash flow hedges was recognized during 2006.

Amounts  reported  in  accumulated   other   comprehensive   income  related  to
derivatives  will be reclassified  to interest  income as interest  payments are
received on the Company's  variable-rate  assets.  The change in net  unrealized
losses on cash  flow  hedges  reflects  a  reclassification  of  $12,000  of net
unrealized losses from accumulated other comprehensive income to interest income
during  2006.   During  2007,  the  Company  estimates  that  $174,000  will  be
reclassified.



2.          EARNINGS PER SHARE


Basic net earnings per share is computed by dividing net earnings  applicable to
common  shareholders by the weighted average number of common shares outstanding
during the  period.  Diluted  net  earnings  per share is  determined  using the
weighted average number of common shares outstanding during the period, adjusted
for the dilutive effect of common stock  equivalents,  consisting of shares that
might be issued upon exercise of common stock options.  Common stock equivalents
are  included in the diluted net earnings  per share  calculation  to the extent
these shares are dilutive.  A  reconciliation  of the numerator and  denominator
used in the calculation of basic and diluted net earnings per share available to
common shareholders is as follows (in thousands, except for per share amounts):


                                       59


<PAGE>

<TABLE>
<CAPTION>


(dollars in thousands, except share data)                                            Year ended December 31,
                                                                      ____________________________________________________
                                                                         2006                 2005                 2004
                                                                      ____________________________________________________
<S>                                                                   <C>                  <C>                  <C>

Net income                                                            $    8,634           $    5,725           $    3,037
Weighted average shares used in computing:

Basic common  shares                                                   6,274,051            6,164,898            6,063,028
Dilutive potential common shares related to stock options
  and restricted stock, using the treasury stock method                  542,649              566,049              532,385
                                                                      ____________________________________________________
Total average common shares and equivalents                            6,816,700            6,730,947            6,595,413

Basic earnings  per share                                             $     1.38           $     0.93           $     0.50
                                                                      ====================================================
Diluted earnings per share                                            $     1.27           $     0.85           $     0.46
                                                                      ====================================================

</TABLE>


There were 331,265  options  (including  those  issuable  pursuant to contingent
stock agreements) that could potentially  dilute basic earnings per share in the
future that were not included in the  computation of diluted  earnings per share
because to do so would have been antidilutive for the period(s) presented.


                                       60


<PAGE>


3.       SECURITIES


The amortized cost and estimated fair values of securities are as follows:

<TABLE>
<CAPTION>



(dollars in thousands)                                             As of December 31, 2006
                                             ______________________________________________________________
                                                                      Gross Unrealized
                                             Amortized             ______________________           Fair
                                               Cost                Gains           Losses           Value
                                             ______________________________________________________________
<S>                                             <C>                 <C>               <C>             <C>

U.S. government treasury securities             $ 200               $ -               $ -             $ 200
U.S. government agency securities              43,815                24              (106)           43,733
                                             ______________________________________________________________
Total seurities available for sale             44,015                24              (106)           43,933
                                             ______________________________________________________________

Total investment securities                  $ 44,015              $ 24            $ (106)         $ 43,933
                                             ==============================================================


                                                                   As of December 31, 2005
                                             ______________________________________________________________
                                                                      Gross Unrealized
                                             Amortized             ______________________           Fair
                                               Cost                Gains           Losses           Value
                                             ______________________________________________________________

U.S. government treasury securities             $ 199               $ -               $ -             $ 199
U.S. government agency securities              12,355                 -              (171)           12,184

Total seurities available for sale             12,554                 -              (171)           12,383
                                             ______________________________________________________________

Total investment securities                  $ 12,554               $ -            $ (171)         $ 12,383
                                             ==============================================================


                                                                   As of December 31, 2004
                                             ______________________________________________________________
                                                                      Gross Unrealized
                                             Amortized             ______________________           Fair
                                               Cost                Gains           Losses           Value
                                             ______________________________________________________________

U.S. government treasury securities             $ 100               $ -               $ -             $ 100
U.S. government agency securities              26,400                 -              (202)           26,198
                                             ______________________________________________________________
Total seurities available for sale             26,500                 -              (202)           26,298
                                             ______________________________________________________________

Total investment securities                  $ 26,500               $ -            $ (202)         $ 26,298
                                             ==============================================================

</TABLE>


As  of  December  31,  2006,  investment  securities  with  carrying  values  of
approximately  $200,000  were  pledged as  collateral.  As of December 31, 2006,
$36,000 in unrealized  losses was attributable to securities  positioned for the
period  greater than 12 months.  The  unrealized  losses on  investments in U.S.
Government  agency securities which have been in an unrealized loss position for
one year or longer  as of  December  31,  2006 (a total of 2  securities),  were
caused by market  interest  rate  increases  subsequent  to the  purchase of the
securities.  Because the Bank has the ability to hold these  investments until a
recovery in fair value,  which may be maturity,  the unrealized  losses on these
investments  are not  considered  to be  other-than-temporarily  impaired  as of
December 31, 2006.

The scheduled maturities of securities (other than equity securities)  available
for sale at December 31, 2006, 2005 and 2004 were as follows:


                                       61


<PAGE>

<TABLE>
<CAPTION>


(dollars in thousands)                                           December 31, 2006
                                                          _______________________________
                                                          Amortized                Fair
                                                            Cost                   Value
                                                          _______________________________
<S>                                                       <C>                    <C>

Due in one year or less                                   $ 17,042               $ 16,993
Due after one year through five years                       26,973                 26,940
Due after five years through ten years                           -                      -
Due after ten years                                              -                      -
                                                          _______________________________
Total securities available for sale                         44,015                 43,933
                                                          _______________________________

Total Investment securities                               $ 44,015               $ 43,933
                                                          ===============================


                                                                 December 31, 2005
                                                          _______________________________
                                                          Amortized                Fair
                                                            Cost                   Value
                                                          _______________________________

Due in one year or less                                   $ 10,536               $ 10,429
Due after one year through five years                        2,018                  1,954
Due after five years through ten years                           -                      -
Due after ten years                                              -                      -
                                                          _______________________________
Total securities available for sale                         12,554                 12,383
                                                          _______________________________

Total Investment securities                               $ 12,554               $ 12,383
                                                          ===============================


                                                                 December 31, 2004
                                                          _______________________________
                                                          Amortized                Fair
                                                            Cost                   Value
                                                          _______________________________

Due in one year or less                                   $ 14,116               $ 14,074
Due after one year through five years                       12,384                 12,224
Due after five years through ten years                           -                      -
Due after ten years                                              -                      -
                                                          _______________________________
Total securities available for sale                         26,500                 26,298
                                                          _______________________________

Total Investment securities                               $ 26,500               $ 26,298
                                                          ===============================

</TABLE>


                                       62


<PAGE>


4.       LOANS AND ALLOWANCES FOR CREDIT LOSSES


The following summarizes loans and activity in the allowance for loan losses for
the years ended December 31, 2006, 2005 and 2004.

<TABLE>
<CAPTION>


A SUMMARY OF LOANS IS AS FOLLOWS:
(dollars in thousands)                                                   As of December 31,
                                                         ___________________________________________________
                                                           2006                 2005                 2004
                                                         ___________________________________________________
<S>                                                      <C>                  <C>                  <C>

Commercial                                               $ 197,174            $ 182,396            $ 100,681
SBA                                                         59,888               46,867               45,251
Real estate construction                                   103,710               84,792               42,323
Real estate other                                          115,313               83,748               80,044
Factoring and asset based lending                           56,924               38,184               22,342
Other                                                        7,771                4,011                3,945
                                                         ___________________________________________________
  Total gross loans                                        540,780              439,998              294,586
Unearned fee income                                         (1,495)              (1,395)                (973)
                                                         ___________________________________________________
  Total loan portfolio                                     539,285              438,603              293,613
Less allowance for credit losses                            (7,329)              (5,936)              (4,146)
                                                         ___________________________________________________
     Total loan portfolio, net                           $ 531,956            $ 432,667            $ 289,467
                                                         ===================================================


ANALYSIS OF THE ALLOWANCE FOR CREDIT LOSSES:
(dollars in thousands)                                                   As of December 31,
                                                         ___________________________________________________
                                                           2006                 2005                 2004
                                                         ___________________________________________________

Balance, beginning of period                               $ 5,936              $ 4,146              $ 2,683
Provision for credit losses                                  1,372                2,162                1,671
Charge-offs                                                      -                 (384)                (240)
Recoveries                                                      21                   12                   32
                                                         ___________________________________________________
Balance, end of period                                     $ 7,329              $ 5,936              $ 4,146
                                                         ===================================================

</TABLE>


There were two loans on non-accrual at December 31, 2006 totaling $437,000,  one
non-accrual loan at December 31, 2005 totaling $2.3 million, and two non-accrual
loans at December 31, 2004 totaling $1.0 million.  At December 31, 2006, the two
non-accrual  loans consisted of commercial  loans secured by business assets and
real  property  with  values in excess of the  carrying  value of the loans.  At
December 31, 2005,  the  non-accrual  loans  consisted  of one  commercial  loan
secured  by  business  assets  and real  property  with  values in excess of the
carrying  value of the  loan.  At  December  31,  2004,  the  non-accrual  loans
consisted  of two SBA  loans  of  which  $712,000  was  guaranteed  by the  U.S.
Government. The remaining balance of $314,000 was secured by business assets and
real  property.  Of the two loans on  non-accrual at December 31, 2004, one loan
was  determined to be impaired and its carrying value reflects the fair value of
the collateral securing the loan.

Income on such loans is only  recognized to the extent that cash is received and
where the future  collection  of principal  is probable.  Accrual of interest is
resumed only when principal and interest are brought fully current and when such
loans are considered to be collectible as to both principal and interest.

At December 31, 2006,  2005,  and 2004,  there were no loans past due 90 days or
more as to principal or interest and still accruing interest.

There was no OREO at December 31, 2006, 2005, or 2004.


                                       63


<PAGE>



5.       PREMISES AND EQUIPMENT


Premises and equipment are comprised of the following:

<TABLE>
<CAPTION>


(dollars in thousands)                                                      As of December 31,
                                                             _________________________________________________
                                                              2006                 2005                 2004
                                                             _________________________________________________
<S>                                                          <C>                  <C>                  <C>

Leasehold improvements                                       $ 3,374              $ 1,981              $ 1,590
Furniture and equipment                                        2,047                1,752                1,488
Capitalized software                                           1,691                1,344                1,066
                                                             _________________________________________________
     Premises and equipment                                    7,112                5,077                4,144
Less accumulated depreciation and amortization                (3,633)              (2,740)              (1,929)
                                                             _________________________________________________
     Premises and equipment, net                             $ 3,479              $ 2,337              $ 2,215
                                                             =================================================

</TABLE>


Depreciation  and amortization  amounted to $943,000,  $813,000 and $717,000 for
the years ended December 31, 2006,  2005 and 2004,  respectively,  and have been
included in occupancy and/or furniture and equipment  expense,  depending on the
nature of the expense, in the accompanying statements of operations.



6.       DEPOSITS


The Bank's deposit base consists of  non-interest  and  interest-bearing  demand
deposits,  savings and money market accounts and  certificates  of deposit.  The
following table  summarizes the composition of deposits as of December 31, 2006,
2005 and 2004.


<TABLE>
<CAPTION>


(dollars in thousands)                                              As of December 31,
                                       _____________________________________________________________________________
                                               2006                       2005                        2004
                                       _____________________________________________________________________________
                                       Amount       Percent       Amount        Percent       Amount       Percent
                                       _____________________________________________________________________________
<S>                                    <C>             <C>        <C>              <C>        <C>             <C>

Noninterest-bearing  demand            $ 198,639       30.80%     $ 185,557        39.64%     $ 126,895       36.00%
Interest-bearing demand                    3,901        0.60%         2,866         0.61%         3,946        1.12%
Money market and savings                 333,838       51.76%       210,011        44.86%       169,801       48.18%
Certificates of deposit:
  Less than $100                          28,918        4.48%        19,228         4.11%        16,182        4.59%
  $100 and more                           79,691       12.36%        50,496        10.79%        35,632       10.11%
                                       _____________________________________________________________________________

Total deposit portfolio                $ 644,987      100.00%     $ 468,158       100.00%     $ 352,456      100.00%
                                       =============================================================================

</TABLE>


Deposits at December 31, 2006 included $27.3 million,  or 4.2% of the total,  in
title and escrow company account balances compared to $70.6 million, or 15.1% at
December 31, 2005 and $55.3 million, or 15.6% at December 31, 2004.


                                       64


<PAGE>


At  December  31,  2006,  time  deposits  of  $100,000  or more  have  remaining
maturities as follows:

                       (in thousands)

                       3 months or less                      $ 41,905
                       Over 3 months to 6 months               11,547
                       Over 6 months to 12 months              11,318
                       Over 1 year to 5 years                  14,921
                                                             ________
                           TOTAL                             $ 79,691
                                                             ========

At December 31,  2006,  the  scheduled  maturities  of all time  deposits are as
follows:

(dollars in thousands)


                       2007                                  $ 82,713
                       2008                                    18,947
                       2009                                     6,750
                       2010                                       199
                                                             ________
                                                             $108,609
                                                             ========


7.       JUNIOR SUBORDINATED DEBT SECURITIES AND OTHER BORROWINGS


JUNIOR SUBORDINATED DEBT SECURITIES

On December 21, 2004, the Company issued $12,372,000 of junior subordinated debt
securities (the "debt  securities") to Bridge Capital Trust I, a statutory trust
created under the laws of the State of  California.  These debt  securities  are
subordinated  to  effectively  all  borrowings  of the  Company  and are due and
payable in March 2035. Interest is payable quarterly on these debt securities at
a fixed rate of 5.9% for the first five years,  and thereafter  interest accrues
at LIBOR plus 1.98%. The debt securities can be redeemed at par at the Company's
option  beginning  in March  2010;  they can also be  redeemed at par if certain
events  occur that  impact the tax  treatment  or the capital  treatment  of the
issuance.

The Company also purchased a 3% minority  interest in the Trust.  The balance of
the  equity  of the  Trust is  comprised  of  mandatorily  redeemable  preferred
securities.

On March 30, 2006 the Company  issued  $5,155,000  of junior  subordinated  debt
securities (the "debt securities") to Bridge Capital Trust II, a statutory trust
created  under the laws of the State of  Delaware.  These  debt  securities  are
subordinated  to  effectively  all  borrowings  of the  Company  and are due and
payable in March 2037. Interest is payable quarterly on these debt securities at
a fixed rate of 6.60% for the first five years, and thereafter  interest accrues
at LIBOR plus 1.38%. The debt securities can be redeemed at par at the Company's
option  beginning  in April  2011;  they can also be  redeemed at par if certain
events  occur that  impact the tax  treatment  or the capital  treatment  of the
issuance.

The Company also purchased a 3% minority  interest in the Trust.  The balance of
the  equity  of the  Trust is  comprised  of  mandatorily  redeemable  preferred
securities.

Under FASB  Interpretation  No.46 (FIN 46),  Consolidation of Variable  Interest
Entities,  an  interpretation  of ARB No. 51, these Trusts are not  consolidated
into the company's financial  statements.  Prior to the issuance of FIN 46, bank
holding companies  typically  consolidated  these entities.  The Federal Reserve
Board has ruled  that  subordinated  notes  payable  to  unconsolidated  special
purpose  entities  ("SPE's")  such as  these  Trusts,  net of the  bank  holding
company's  investment in the SPE, qualify as Tier 1 Capital,  subject to certain
limits.


OTHER BORROWINGS

There were no other  borrowings  at  December  31,  2006.  Other  borrowings  at
December 31, 2005 were  comprised of one advance from the Federal Home Loan Bank
of San Francisco for $10,000,000  with a fixed rate of 4.38% and a maturity date
of January 6, 2006.  The  advance was  secured by loans  totaling  approximately
$16.0 million.


                                       65


<PAGE>


As  of  December  31,  2006,  the  Bank  had  a  total  borrowing   capacity  of
approximately  $113.0 million.  The Bank also has unsecured borrowing lines with
correspondent  banks totaling $27.0 million. At December 31, 2006, there were no
balances outstanding on these lines.


8.       INCOME TAXES


Income tax  expense  (benefit)  consists  of the  following  for the years ended
December 31, 2006, 2005 and 2004:

<TABLE>
<CAPTION>


(dollars in thousands)                             Year ended December 31,
                                      _________________________________________________
                                       2006                 2005                 2004
                                      _________________________________________________
<S>                                   <C>                  <C>                  <C>

Current:

  Federal                             $ 5,058              $ 4,081              $ 1,826
  State                                 1,525                1,057                  489
                                      _________________________________________________
     Total current                      6,583                5,138                2,315
                                      _________________________________________________

Deferred:
  Federal                                (982)              (1,006)                (211)
  State                                  (358)                (300)                   8
                                      _________________________________________________
    Total deferred                     (1,340)              (1,306)                (203)
                                      _________________________________________________
       Income tax provision           $ 5,243              $ 3,832              $ 2,112
                                      =================================================
</TABLE>



Deferred  income  taxes  reflect  the net tax  effect of  temporary  differences
between  carrying  amount of assets  and  liabilities  for  financial  reporting
purposes  and the  amount  used for  income  tax  purposes.  The tax  effects of
temporary  differences  that gave rise to  significant  portions of deferred tax
assets at December 31, 2006, 2005 and 2004 are as follows:

<TABLE>
<CAPTION>



(dollars in thousands)                             Year ended December 31,
                                      _________________________________________________
                                       2006                 2005                 2004
                                      _________________________________________________
<S>                                   <C>                  <C>                  <C>

Deferred tax assets (liability):
  Deferred loan fee                   $   523              $    488             $   340
  Allowance for credit losses           2,276                 1,756               1,246
  Deferred pre-opening expenses            15                    29                 153
  State income taxes                    1,343                   957                 536
  Fixed assets                            115                   (27)               (113)
  Other                                    (3)                  292                   -
  Accrued expenses                        656                    91                 119
                                      _________________________________________________
Net Deferred Tax Asset                $ 4,925              $  3,586             $ 2,281
                                      =================================================

</TABLE>


In  addition to the above net  deferred  tax asset,  the Company has  additional
deferred  tax assets  arising from  adjustments  to other  comprehensive  income
aggregating $575,000 as of December 31, 2006.


                                       66


<PAGE>



The effective tax rate differs from the federal statutory rate as follows:

<TABLE>
<CAPTION>


                                                               Year ended December 31,
                                                  ________________________________________________
                                                   2006                 2005                 2004
                                                  ________________________________________________
<S>                                               <C>                  <C>                  <C>

Federal statutory rate                            35.00%               35.00%               35.00%
State income tax, net of federal effect            5.47%                5.15%                6.27%
BOLI income                                       -0.81%               -1.38%                0.00%
Other, net                                        -1.88%                1.33%               -0.25%
                                                  ________________________________________________
     Income taxes                                 37.78%               40.10%               41.02%
                                                  ================================================
</TABLE>


9.       STOCK BASED COMPENSATION


On May 18, 2006, the Company's  shareholders  approved the 2006 Equity Incentive
Plan (the "Plan") which supersedes the Stock Option Plan that was established in
2001. The total authorized shares that are available for issuance under the Plan
is 500,000  shares.  The Plan  provides for the following  types of  stock-based
awards: incentive stock options;  nonqualified stock options; stock appreciation
rights;  restricted stock awards; restricted stock units; performance units; and
stock grants.  As of December 31, 2006, the Company has issued  incentive  stock
options, nonqualified stock options, and restricted stock awards under the Plan.

Options  issued  under the Plan may be granted  to  employees  and  non-employee
directors and may be either  incentive or nonqualified  stock options as defined
under current tax laws.  The exercise price of each option must equal the market
price of the  Company's  stock on the date of the grant.  The term of the option
may not exceed 10 years and generally vests over a 4 year period.

Restricted  stock awards  issued under the Plan may be granted to employees  and
non-employee  directors.  The grant  price of each  award  generally  equals the
market  price  of the  Company's  stock  on the date of the  grant.  The  awards
generally  vest  after  a 5 year  period.  During  the  period  of  restriction,
participants  holding  restricted  stock  awards have full  voting and  dividend
rights on the shares.

At the time the 2006 Equity  Incentive  Plan was adopted,  the total  authorized
shares  available  for issuance  under the 2001 Stock Option Plan was  1,813,225
shares and the number of shares  available for future grant was 253,577  shares.
As the 2006 Equity  Incentive  Plan  supersedes  the 2001 Stock Option Plan,  no
further  grants may be made under the 2001 plan and as such,  the 253,577 shares
that  were  available  for  future  grant  under  the 2001 plan may no longer be
awarded.

As of December 31, 2006,  there were  1,481,728  shares  underlying  outstanding
awards under the Company's  stock-based  compensations  plans and 279,185 shares
available for future grants under the 2006 Equity Incentive Plan.

A summary of the Company's  stock option  awards as of December 31, 2006,  2005,
and 2004 and changes during the periods ended on those date are presented below:


                                       67


<PAGE>


                                             Stock Option Awards Outstanding
                                              _____________________________
                                               Number      Weighted Average
                                              of Shares     Exercise Price
                                              _____________________________

Balances, December 31, 2003                   1,108,925         $ 5.65

Granted                                         193,850         $13.14
Exercised (aggregate intrinsic value
  of $367,000)                                  (46,051)        $ 5.58
Cancelled                                          (750)        $ 6.44
Expired                                               -              -
                                              ________________________

Balances, December 31, 2004                   1,255,974         $ 6.81

Granted                                         235,750         $15.30
Exercised (aggregated intrinsic value
  of $1.4 million)                             (129,899)        $ 5.62
Cancelled                                       (26,488)        $14.08
Expired                                               -              -
                                              ________________________

Balances, December 31, 2005                   1,335,337         $ 8.30

Granted                                         267,935         $20.92
Exercised (aggregate intrinsic value
  of $1.2 million)                              (91,098)        $ 6.79
Cancelled                                       (61,576)        $14.96
Expired                                               -              -
                                              ________________________
Balances, December 31, 2006                   1,450,598         $10.48
                                              ========================


The following table summarizes  information  about stock options  outstanding at
December 31, 2006.


<TABLE>
<CAPTION>


                            Stock Option Awards Outstanding            Stock Option Awards Exercisable
                           _______________________________________________________________________________
                                          Weighted     Weighted                  Weighted         Weighted
                                         remaining     exercise                 remaining         exercise
   Exercise Price range     Shares      life (years)    price       Shares     life (years)        price
__________________________________________________________________________________________________________

<S>    <C>     <C>           <C>            <C>        <C>          <C>              <C>          <C>
       $ 5.00 - $ 5.99       580,275        4.2        $ 5.00       580,275          4.2          $  5.00
       $ 6.00 - $12.99       375,638        6.1        $ 8.73       301,775          5.9          $  7.94
       $13.00 - $15.99       202,550        8.3        $14.85        55,885          8.3          $ 14.84
       $16.00 - $20.99       158,400        9.3        $19.08         7,423          8.9          $ 17.68
       $21.00 - $22.99       133,735        9.8        $22.39             -            -          $     -
                           _______________________________________________________________________________
                           1,450,598        6.4        $10.48       945,358          5.0          $  6.62
                           ===============================================================================
</TABLE>


The  aggregate  intrinsic  value of stock option  awards  outstanding  and stock
option  awards  exercisable  at December  31,  2006 was $14.7  million and $13.1
million, respectively.


                                       68


<PAGE>


A summary of the Company's  non-vested  shares of restricted  stock awards as of
December 31, 2006, and changes during the period ended on that date is presented
below:

                                         Non-Vested Restricted Stock Awards
                                         __________________________________
                                                               Weighted
                                             Number          Average Grant
                                            of Shares       Date Fair Value
                                         ________________  ________________

Balances, December 31, 2005                            -    $           -

Granted                                           31,130    $         22.42
Vested                                                 -    $           -
Forfeited                                              -    $           -
                                         ________________  ________________

Balances, December 31, 2006                       31,130    $         22.42
                                         ================  ================

SFAS No. 123R requires the use of a valuation  model to calculate the fair value
of  stock-based  awards.  The Company has elected to use the BSM  option-pricing
model, which incorporates  various assumptions  including  volatility,  expected
life,  and interest  rates.  The expected  volatility is based on the historical
volatility  of  the   Company's   common  stock  over  the  most  recent  period
commensurate  with the estimated  expected life of the Company's  stock options,
adjusted for the impact of unusual fluctuations not reasonably expected to recur
and other relevant factors including implied volatility in market traded options
on the  Company's  common  stock.  The  expected  life of an  award  is based on
historical  experience  and on the terms  and  conditions  of the  stock  awards
granted to employees.

The weighted average assumptions used for 2006, 2005, and 2004 and the resulting
estimates of weighted-average fair value per share of stock-based awards granted
during those periods are as follows:


                                 Year ended December 31,
                            __________________________________
                              2,005        2,004       2,003
                            __________________________________

Expected life               60 months    58 months   60 months

Stock Volatility                32.9%        24.8%       21.9%

Risk free interest rate          4.7%         3.7%        3.2%

Dividend yield                  0.00%        0.00%       0.00%

Fair value per share        $    9.36    $    6.10   $    3.48



10.      PENSION BENEFIT PLANS


Effective  August 1,  2004,  the Bank  established  the  Supplemental  Executive
Retirement  Plan (SERP),  an unfunded  noncontributory  defined  benefit pension
plan. The SERP provides  retirement benefits to a select group of key executives
and senior officers based on years of service and final average salary. The Bank
uses a December 31 measurement date for this plan.

The following  table  reflects the  accumulated  benefit  obligation  and funded
status of the SERP for the years ended December 31, 2006 and 2005.


                                       69


<PAGE>

<TABLE>
<CAPTION>


(dollars in thousands)                                     Year ended December 31,
                                                        ______________________________
                                                           2006               2005
                                                        ______________________________
<S>                                                     <C>                <C>

CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year                 $ 1,680,169        $ 1,213,358
Service cost                                                386,985            311,438
Interest cost                                               117,283             91,488
Amendments                                                        -                  -
Actuarial (gains)/losses                                    166,351             63,885
Acquisitions/(divestitures)                                       -                  -
Expected benefits paid                                            -                  -
                                                        ______________________________
Projected benefit obligation at end of year             $ 2,350,788        $ 1,680,169
                                                        ==============================

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year          $         -        $         -
Actual return on plan assets                                      -                  -
Acquisitions/(divestitures)                                       -                  -
Employer contributions                                            -                  -
Expected benefits paid                                            -                  -
                                                        ______________________________
Fair value of plan assets at end of year                $         -        $         -
                                                        ==============================

Funded status                                           $(2,350,788)       $(1,680,169)
Unrecognized net actuarial (gain) loss                      230,236             63,885
Unrecognized prior service cost                             852,099            922,342
Unrecognized net transition obligation (asset)                    -                  -
                                                        ______________________________
(Accrued)/prepaid benefit cost                          $(1,268,453)       $  (693,942)
                                                        ==============================

Unfunded projected/accumulated benefit obligation       $(2,350,788)       $  (925,200)
                                                        ______________________________
Additional liability                                    $(1,082,335)       $  (231,258)
                                                        ==============================

Intangible asset                                        $         -        $   231,257
                                                        ______________________________
Impact on retained earnings                             $(2,350,788)       $  (925,200)
                                                        ==============================

Weighted average assumptions to determine benefit
obligation as of December 31:
     Discount rate                                            5.75%              5.70%
     Rate of compensation increase                            5.00%              5.00%

</TABLE>


The  components  of net  periodic  benefit cost  recognized  for the years ended
December 31, 2006 and 2005 and the amounts in  accumulated  other  comprehensive
income  expected to be recognized  as  components  of net periodic  benefit cost
during the year ended December 31, 2007 are as follows:

<TABLE>
<CAPTION>


(dollars in thousands)                                           Year ended December 31,
                                                      _______________________________________________
                                                        2007              2006                2005
                                                      _______________________________________________
<S>                                                   <C>              <C>                  <C>

COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost                                          $ 414,159        $   386,985          $ 311,438
Interest cost                                           158,984            117,283             91,488
Expected return on plan assets                                -                  -                  -
Amortization of transition obligation (asset)                 -                  -            220,773
Amortization of prior service cost                       70,243             70,243             70,243
Amortization of actuarial (gains)/losses                      -                  -                  -
                                                      _______________________________________________
Net periodic benefit cost                             $ 643,386        $   574,511          $ 693,942
                                                      ===============================================

                                                      _______________________________________________
Other comprehensive income (cost)                     $  70,243        $(1,082,335)         $       -
                                                      ===============================================

</TABLE>


                                       70


<PAGE>


11.      RELATED PARTY TRANSACTIONS


There are no existing or proposed material interests or transactions between the
Bank and/or any of its officers or directors  outside the ordinary course of the
Bank's business.



12.      COMMITMENTS AND CONTINGENT LIABILITIES


LEASE COMMITMENTS

The Bank's  Santa  Clara,  San Jose and Palo Alto  locations  are  leased  under
non-cancelable   operating   leases  that   expire  in  2010,   2016  and  2006,
respectively.  The  Bank has  renewal  options  with  adjustments  to the  lease
payments based on changes in the consumer price index.

Future minimum annual lease payments are as follows (dollars in thousands):


       Future lease payments
       For years ended December 31,

       2007                                           $   927
       2008                                             1,821
       2009                                             1,853
       2010                                             1,854
       2011                                             1,659
       thereafter                                       7,883
                                                      _________
                                                      $15,997
                                                      =========


Rental expense under operating  leases was $1.3 million in 2006, $1.1 million in
2005 and $977,000 in 2004.


                                       71


<PAGE>



OTHER COMMITMENTS

In the normal course of business,  there are  outstanding  commitments to extend
credit, which are not reflected in the consolidated financial statements.  These
commitments  involve,  to varying  degrees,  credit risk in excess of the amount
recognized  as either an asset or a  liability  in the balance  sheet.  The Bank
controls the credit risk through its credit  approval  process.  The same credit
policies are used when  entering  into such  commitments.  Amounts  committed to
extend credit under normal lending agreements  aggregated  approximately  $250.1
million for  undisbursed  variable  loan  commitments  and  approximately  $12.1
million for commitments under unused letters of credit at December 31, 2006.

The Bank is party to financial  instruments with  off-balance-sheet  risk in the
normal course of business to meet the financing  needs of its  customers.  These
financial instruments include loan commitments of $267.6 million, $188.1 million
and $99.6 million at December 31, 2006, 2005 and 2004, respectively.  The Bank's
exposure  to credit  loss is  limited to amounts  funded or drawn;  however,  at
December 31, 2006, no losses are anticipated as a result of these commitments.

Loan  commitments are typically  contingent  upon the borrowers  meeting certain
financial  and  other  covenants  and  such  commitments  typically  have  fixed
expiration dates and require payment of a fee. As many of these  commitments are
expected  to expire  without  being  drawn upon,  the total  commitments  do not
necessarily  represent  future  cash  requirements.   The  Bank  evaluates  each
potential  borrower  and  the  necessary  collateral  on  an  individual  basis.
Collateral varies, and may include real property,  bank deposits, or business or
personal assets.

Undisbursed  loan  commitments  were  comprised of the following at December 31,
2006:


       Commercial                                     $ 152,910
       SBA                                                9,242
       Real estate construction                          56,975
       Real estate term                                  32,424
       Factoring/ABL                                      5,297
       Other                                             10,702
                                                      _________

       Total                                          $ 267,550
                                                      =========



13.      DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS


The  following  estimated  fair  value  amounts  have been  determined  by using
available market information and appropriate valuation  methodologies.  However,
considerable  judgment  is  required  to  interpret  market  data to develop the
estimates  of  fair  value.   Accordingly,   the  estimates  presented  are  not
necessarily indicative of the amounts that could be realized in a current market
exchange.  The use of different market assumptions and/or estimation  techniques
may have a material effect on the estimated fair value amounts.

The following  table  presents the carrying  amount and estimated  fair value of
certain  assets and  liabilities  of the Company at December 31, 2006,  2005 and
2004. The carrying amounts reported in the balance sheets approximate fair value
for the following financial instruments:  cash and due from banks, federal funds
sold, interest bearing deposits in other banks, demand and savings deposits (see
Note 3 for information regarding securities).


                                       72


<PAGE>

<TABLE>
<CAPTION>


(dollars in thousands)                                Year ended December 31,
                                   _____________________________________________________________
                                              2006                               2005
                                   _____________________________________________________________
                                   Carrying           Fair            Carrying           Fair
                                    Value             Value            Value             Value
                                   _____________________________________________________________
<S>                                <C>               <C>              <C>               <C>

Financial assets:
  Cash and due from banks          $ 24,360          $ 24,360         $ 22,880          $ 22,880
  Federal funds sold                 93,845            93,845           46,660            46,660
  Investments securities             43,933            43,933           12,383            12,383
  Loans and leases, gross           540,780           547,193          439,998           445,798
  Bank owned life insurance           8,777             8,777            8,457             8,457

Financial liabilities:
  Deposits                          644,987           639,784          468,158           464,000
  Trust preferred securities         17,527            17,621           12,372            11,998
  Other borrowings                        -                 -           10,000            10,000

</TABLE>


LOANS

The fair value of loans with fixed rates is estimated by discounting  the future
cash flows using current rates at which similar loans would be made to borrowers
with similar  credit  ratings.  For loans with  variable  rates that adjust with
changes  in market  rates of  interest,  the  carrying  amount  is a  reasonable
estimate of fair value.


TIME DEPOSITS

The fair value of fixed  maturity  certificates  of deposit is  estimated  using
rates currently offered for deposits of similar remaining maturities.


COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT

Commitments  to extend  credit and  standby  letters of credit are issued in the
normal course of business by the Bank.  Commitments  to extend credit are issued
with  variable  interest  rates  tied to market  interest  rates at the time the
commitments  are  funded  and the amount of the  commitments  equals  their fair
value.  Standby  letters of credit are supported by commitments to extend credit
with  variable  interest  rates  tied to market  interest  rates at the time the
commitments are funded.



14.      BRIDGE CAPITAL HOLDINGS


The following are the financial  statements of Bridge Capital  Holdings  (parent
company only):


                                       73


<PAGE>

<TABLE>
<CAPTION>


                                 BALANCE SHEETS

(dollars in thousands)                                                  As of December 31,
                                                                    __________________________
                                                                      2006              2005
                                                                    __________________________
<S>                                                                 <C>               <C>

Assets:
Cash and due from banks                                             $  2,790          $  1,979
Investment in bank & subsidiaries                                     63,435            50,018
Other assets                                                             432               130
                                                                    __________________________
Total Assets                                                        $ 66,657          $ 52,126
                                                                    ==========================

Liabilities:
Junior Subordinated Debt                                            $ 17,527          $ 12,372
Other liabilities                                                         36                41
                                                                    __________________________
Total Liabilities                                                     17,563            12,413
                                                                    __________________________

Capital:
Common stock                                                          35,428            33,908
Retained earnings                                                      5,908               183
Current year net income                                                8,634             5,725
Other Comprehensive income                                              (876)             (102)
                                                                    __________________________
Total Capital                                                         49,094            39,714
                                                                    __________________________

Total Liabilities and Capital                                       $ 66,657          $ 52,126
                                                                    ==========================



                            STATEMENTS OF OPERATIONS


(dollars in thousands)                                       Year ended December 31,
                                                   ___________________________________________
                                                    2006              2005              2004
                                                   ___________________________________________

Interest income                                    $    87          $     31          $      4
Interest expense                                       960               704                22
Noninterest expense                                    200               174               106
                                                   ___________________________________________

Income before income taxes                          (1,073)             (847)             (124)
Income taxes                                           432                 -                 -
                                                   ___________________________________________
Income before undistributed income
  of the bank                                         (641)             (847)             (124)
Equity in undistributed income of the bank           9,275             6,572             3,161
                                                   ___________________________________________
Net income                                         $ 8,634          $  5,725          $  3,037
                                                   ===========================================

</TABLE>


                                       74


<PAGE>

<TABLE>
<CAPTION>



                     STATEMENTS OF CASH FLOWS

(dollars in thousands)                                                       Year ended December 31,
                                                                   ___________________________________________
                                                                    2006              2005              2004
                                                                   ___________________________________________
<S>                                                                <C>               <C>               <C>

Cash Flow From Operating Activities:
  Net income (loss)                                                $ 8,634           $ 5,725           $ 3,037
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Equity in undistributed (earnings) of subsidiaries            (9,275)           (6,572)           (3,161)
      Net change in other assets                                      (161)               (9)                -
      Net change in other liabilities                                   (6)               10                31
                                                                   ___________________________________________
Net cash (used in) provided by operating activities                   (808)             (846)              (93)
                                                                   ___________________________________________

Cash Flow From Investing Activities:
Investment in subsidiary                                            (4,155)                            (10,441)
                                                                   ___________________________________________
Net cash provided by financing activities                           (4,155)                -           (10,441)
                                                                   ___________________________________________

Cash Flow From Financing Activities:
  Proceeds from sale of Common stock                                   619               730               257
  Proceeds from issuance of junior subordinated debentures           5,155                              12,372
                                                                   ___________________________________________
Net cash provided by financing activities                            5,774               730            12,629
                                                                   ___________________________________________

Net increase (decrease) in cash and equivalents                        811              (116)            2,095
Cash and equivalents at beginning of period                          1,979             2,095                 -
                                                                   ___________________________________________
Cash and equivalents at end of period                              $ 2,790           $ 1,979           $ 2,095
                                                                   ===========================================

</TABLE>


15.      REGULATORY MATTERS


The Bank and the  Holding  Company  are  subject to various  regulatory  capital
requirements  administered by federal banking agencies.  Failure to meet minimum
capital  requirements can initiate certain mandatory,  and possibly  additional,
discretionary  actions by regulators  that, if  undertaken,  could have a direct
material effect on the Company's  financial  statements.  Under capital adequacy
guidelines  and the  regulatory  framework  for prompt  corrective  action,  the
Company must meet specific capital guidelines that involve quantitative measures
of the Company's assets,  liabilities,  and certain  off-balance-sheet  items as
calculated under regulatory accounting practices.  The Company's capital amounts
and classification  are also subject to qualitative  judgments by the regulators
about components, risk weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
below)  of  total  and  Tier  1  capital  (as  defined  in the  regulations)  to
risk-weighted assets (as defined in the regulations),  and of Tier I capital (as
defined in the  regulations) to average assets (as defined in the  regulations).
Management believes, as of December 31, 2006, that the Company meets all capital
adequacy requirements to which they are subject.

The following table shows the Company's  capital ratios at December 31, 2006 and
2005  as  well  as the  minimum  capital  ratios  required  to be  deemed  "well
capitalized" under the regulatory framework.


                                       75


<PAGE>

<TABLE>
<CAPTION>


(dollars in thousands)                                       As of December 31,
                                         ___________________________________________________________
                                                     2006                            2005
                                          __________________________________________________________
                                           Amount            Ratio          Amount            Ratio
                                          __________________________________________________________
<S>                                       <C>                <C>          <C>                 <C>

COMPANY CAPITAL RATIOS
Tier 1 Capital                            $ 66,533           10.52%       $ 51,593            10.38%
(to Risk Weighted Assets)
Tier 1 capital minimum requirement        $ 25,293            4.00%       $ 19,879             4.00%

Total Capital                             $ 74,229           11.74%       $ 57,529            11.58%
(to Risk Weighted Assets)
Total capital minimum requirement         $ 50,587            8.00%       $ 39,758             8.00%

Company leverage
Tier 1 Capital                            $ 66,533           10.97%       $ 51,593            11.07%
(to Average Assets)
Total capital minimum requirement         $ 24,260            4.00%       $ 18,638             4.00%



BANK RISK BASED CAPITAL RATIOS
Tier 1 Capital                            $ 64,145           10.15%       $ 49,748            10.49%
(to Risk Weighted Assets)
Tier 1 capital minimum requirement        $ 25,272            4.00%       $ 18,970             3.82%

Total Capital                             $ 71,474           11.31%       $ 55,684            11.74%
(to Risk Weighted Assets)
Total capital minimum requirement         $ 50,544            7.99%       $ 37,939             7.63%

Bank leverage
Tier 1 Capital                            $ 64,145           10.59%       $ 49,748             9.98%
(to Average Assets)
Total capital minimum requirement         $ 24,240            4.00%       $ 19,931             4.00%

</TABLE>


                                       76


<PAGE>


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE


There  are  no  current  or  anticipated  changes  in,  or  disagreements  with,
accountants  on any matter of  accounting  principles  or  practices,  financial
statement disclosure or auditing scope or procedure.



ITEM 9A. CONTROLS AND PROCEDURES


DISCLOSURE CONTROLS AND PROCEDURES

As required by SEC rules, the Company's  management evaluated the effectiveness,
as of December 31, 2006, of the Company's  disclosure  controls and  procedures.
The Company's chief executive officer and chief financial  officer  participated
in the  evaluation.  Based on this  evaluation,  the Company's  chief  executive
officer and chief  financial  officer  concluded  that the Company's  disclosure
controls and procedures were effective as of December 31, 2006.


INTERNAL CONTROL OVER FINANCIAL REPORTING

Internal  control  over  financial   reporting  is  defined  in  Rule  13a-15(f)
promulgated under the Securities  Exchange Act of 1934 as a process designed by,
or under the  supervision  of, the company's  principal  executive and principal
financial officers and effected by the company's board of directors,  management
and other personnel,  to provide reasonable  assurance regarding the reliability
of financial reporting and the preparation of financial  statements for external
purposes  in  accordance  with  generally  accepted  accounting  principles  and
includes those policies and procedures that:

o    Pertain to the maintenance of records that in reasonable  detail accurately
     and fairly  reflect  the  transactions  and  dispositions  of assets of the
     company;

o    provide reasonable assurance that transactions are recorded as necessary to
     permit  preparation  of financial  statements in accordance  with generally
     accepted accounting  principles,  and that receipts and expenditures of the
     company are being made only in accordance with authorizations of management
     and directors of the company; and

o    provide reasonable  assurance  regarding  prevention or timely detection of
     unauthorized  acquisition,  use or disposition of the company's assets that
     could have a material effect on the financial statements.

Because of its inherent  limitations,  internal control over financial reporting
may not  prevent  or detect  misstatements.  Projections  of any  evaluation  of
effectiveness to future periods are subject to the risk that controls may become
inadequate  because of changes in  conditions,  or that the degree of compliance
with the policies or procedures may  deteriorate.  No change occurred during the
fourth quarter of 2006 that has materially affected,  or is reasonably likely to
materially  affect,  the Company's  internal  control over financial  reporting.
Management's  report on internal  control over financial  reporting is set forth
below, and should be read with these limitations in mind.


MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The  Company's  management  is  responsible  for  establishing  and  maintaining
adequate internal control over financial  reporting for the Company.  Management
assessed the  effectiveness  of the Company's  internal  control over  financial
reporting as of December 31, 2006, using the criteria set forth by the Committee
of  Sponsoring  Organizations  of the  Treadway  Commission  (COSO) in  Internal
Control - Integrated Framework.  Based on this assessment,  management concluded
that as of December 31, 2006,  the  Company's  internal  control over  financial
reporting was effective.

Vavrinek,  Trine, Day & Co., LLP, the independent  registered  public accounting
firm that  audited the  Company's  financial  statements  included in the Annual
Report,  issued an audit  report on  management's  assessment  of the  Company's
internal control over financial  reporting.  Vavrinek,  Trine, Day & Co.'s audit
report appears on Page 49.



ITEM 9B.  OTHER INFORMATION


Not applicable


                                       77


<PAGE>


                                   PART III


ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The  information  required  hereunder  is  incorporated  by  reference  from the
Company's  definitive  proxy  statement for the Company's 2007 Annual Meeting of
Shareholders (to be filed pursuant to Regulation 14A).


ITEM 11.  EXECUTIVE COMPENSATION

The  information  required  hereunder  is  incorporated  by  reference  from the
Company's  definitive  proxy  statement for the Company's 2007 Annual Meeting of
Shareholders (to be filed pursuant to Regulation 14A).


ITEM 12.  SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following chart provides  information as of December 31, 2006 concerning the
Company's equity compensation plans:

<TABLE>
<CAPTION>

                                  (A)                      (B)                        (C)
                          Number of securities       Weighted average        Number of securities
                           to be issued upon         grant price of          remaining available
                              exercise of          outstanding options,       for future issuance
                          outstanding options,      restricted stock,            under equity
                          warrants, and rights    warrants, and rights        compensation plans
                                                                            (excluding securities
                                                                            reflected in column (A)
                          ____________________     ____________________     _______________________
<S>                            <C>                        <C>                       <C>

Equity compensation
plans approved by
security holders               1,481,728                  $10.74                    279,185

Equity compensation
plans not approved by
security holders                       -                       -                          -
                               _________                  ______                    _______

Total                          1,481,728                  $10.74                    279,185
                               =========                  ======                    =======

</TABLE>


The additional  information required hereunder is incorporated by reference from
the Company's  definitive  proxy statement for the Company's 2007 Annual Meeting
of Shareholders (to be filed pursuant to Regulation 14A).


ITEM 13.  CERTAIN   RELATIONSHIPS   AND   RELATED   TRANSACTIONS,  AND  DIRECTOR
          INDEPENDENCE

The  information  required  hereunder  is  incorporated  by  reference  from the
Company's  definitive  proxy  statement for the Company's 2007 Annual Meeting of
Shareholders (to be filed pursuant to Regulation 14A).


ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

The  information  required  hereunder  is  incorporated  by  reference  from the
Company's  definitive  proxy  statement for the Company's 2007 Annual Meeting of
Shareholders (to be filed pursuant to Regulation 14A).


                                       78


<PAGE>


                                     PART IV


ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES


(a) (1)  Financial Statements. This information is included in Part II, Item
         8.

(a) (2)  Financial  Statement  Schedules.  All  schedules  have been omitted
         since the  required  information  is not  present or is not  present in
         amounts sufficient to require submission of the schedule or because the
         information  required is included in Consolidated  Financial Statements
         or notes thereto.

(a) (3)  Exhibits. The exhibit list required by this item is incorporated by
         reference  to the  accompanying  Exhibit  Index  filed  as part of this
         report.

(b)      See (a) (3).

(c)      See (a) (2).


                                       79


<PAGE>


                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) 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.




BRIDGE CAPITAL HOLDINGS


Date:     MARCH 1, 2007             By: /s/ DANIEL P. MYERS
                                        _________________________________
                                            Daniel P. Myers, President
                                            (Principal Executive Officer)


                                       80


<PAGE>


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.


          Name                          Title                      Date
__________________________       ____________________       ____________________



/s/ RICHARD M. BRENNER                Director                March 1, 2007
__________________________       ____________________       ____________________
Richard M. Brenner


/s/ OWEN BROWN                        Director                March 1, 2007
__________________________       ____________________       ____________________
Owen Brown


/s/ DAVID V. CAMPBELL                 Director                March 1, 2007
__________________________       ____________________       ____________________
David V. Campbell


/s/ ROBERT P. GIONFRIDDO              Director                March 1, 2007
__________________________       ____________________       ____________________
Robert P. Gionfriddo

                                      Chairman
/s/ ALLAN C. KRAMER                   Director                March 1, 2007
__________________________       ____________________       ____________________
Allan C. Kramer, M.D.


/s/ ROBERT P. LATTA                   Director                March 1, 2007
__________________________       ____________________       ____________________
Robert Latta


/s/ THOMAS M. QUIGG                   Director                March 1, 2007
__________________________       ____________________       ____________________
Thomas M. Quigg
                                  President, Chief
                                  Executive Officer
/s/ DANIEL P. MYERS                   Director                March 1, 2007
__________________________       ____________________       ____________________
Daniel P. Myers                  (Principal Executive
                                 Officer)


/s/ BARRY A. TURKUS                   Director                March 1, 2007
__________________________       ____________________       ____________________
Barry A. Turkus
                                   Executive Vice
                                  President, Chief
                                  Administrative
                                  Officer, Chief
/s/ THOMAS A. SA                  Financial Officer           March 1, 2007
__________________________       ____________________       ____________________
Thomas A. Sa                        (Principal Financial
                                  and Accounting Officer)



                                       81


<PAGE>

                                INDEX TO EXHIBITS


EXHIBIT
NUMBER      DESCRIPTION OF EXHIBIT


(2.1)       Agreement and Plan of  Reorganization  among Bridge Capital Holdings
            and  Bridge  Bank  dated as of  October  1,  2004  [incorporated  by
            reference to Exhibit 2.1 to the registrant's  Current Report on Form
            8-K dated 10/1/04]

(3.1)       Articles  of  Incorporation  of  the  registrant   [incorporated  by
            reference to Exhibit 3(i)(a) to the  registrant's  Current Report on
            Form 8-K dated 10/1/04]

(3.2)       Amendment to the registrant's Articles of Incorporation dated August
            27,  2004  [incorporated  by  reference  to  Exhibit  3(i)(b) to the
            registrant's Current Report on Form 8-K dated 10/1/04]

(3.3)       Registrant's  By-Laws  [incorporated by reference to Exhibit 3(i)(c)
            to the registrant's Current Report on Form 8-K dated 10/1/04]

(4.1)       Indenture  dated as of December  21,  2004  between  Bridge  Capital
            Holdings  and JP  Morgan  Chase  Bank as  Trustee  [incorporated  by
            reference to Exhibit 4.1 to the  registrant's  Annual Report on Form
            10-K dated 12/31/04]

(4.2)       Amended and Restated Declaration of trust of Bridge Capital Holdings
            Trust I dated December 21, 2004 Trustee  [incorporated  by reference
            to Exhibit 4.2 to the registrant's  Annual Report on Form 10-K dated
            12/31/04]

(10.1)      Bridge  Bank   Amended   and   Restated   2001  Stock   Option  Plan
            [Incorporated  by  reference  to  Exhibit  10.1 to the  Registrant's
            Annual Report on Form 10-K dated 12/31/04]**

(10.2)      Bridge Bank, National Association  Supplemental Executive Retirement
            Plan  [Incorporated by reference to Exhibit 10.2 to the Registrant's
            Annual Report on Form 10-K dated 12/31/04]**

(10.3)      Sublease  for  premises  at  2120  El  Camino  Real,   Santa  Clara,
            California  [Incorporated  by  reference  to  Exhibit  10.3  to  the
            Registrant's Annual Report on Form 10-K dated 12/31/04].

(10.4)      Bridge Capital Holdings 2006 Equity Incentive Plan  [Incorporated by
            reference  to  Annex A to the  Registrant's  Proxy  Statement  dated
            04/07/06].

(10.5)      Lease for banking office located at 6601 Koll Center  Parkway,  City
            of Pleasanton,  County of Alameda, State of California [incorporated
            by reference to Exhibit 10.10 to the  Quarterly  Report on Form 10-Q
            for the quarter ended September 30, 2006].

(10.6)      Lease for banking office located at 525 University  Avenue,  City of
            Palo Alto, County of Santa Clara, State of California  [Incorporated
            by reference to Exhibit 10.6 to the  Registrant's  Annual  Report on
            Form 10-K dated 12/31/04].

(10.7)      Lease for banking office located at 3035 Prospect Park Drive,  Suite
            100,  Rancho  Cordova,  County of  Sacramento,  State of  California
            [Incorporated  by  reference  to  Exhibit  10.7 to the  Registrant's
            Annual Report on Form 10-K dated 12/31/04].

(10.8)      Wire Transfer  Service  Agreement with  BankServ,  Inc dated 6/25/02
            California  [Incorporated  by  reference  to  Exhibit  10.8  to  the
            Registrant's Annual Report on Form 10-K dated 12/31/04].

(10.9)      Performance Incentive Compensation Plan California  [Incorporated by
            reference to Exhibit 10.9 to the Registrant's  Annual Report on Form
            10-K dated 12/31/04].**

(10.10)     Information  Technology Services Agreement between Fidelity National
            Information  Services and Bridge Bank,  N.A. dated November 17, 2006
            and the schedules  thereto  [incorporated by reference to Exhibit 10
            to the  Registrant's  Current  Report on Form 8-K,  Amendment No. 1,
            filed 02/16/07].


                                       82


<PAGE>


(10.11)     Employment  Agreements between Bridge Capital Holdings and Daniel P.
            Myers,  Thomas A. Sa, Timothy W. Boothe,  Robert P. Gionfriddo,  and
            Kenneth B.  Silveira  [incorporated  by reference to Exhibits  10.1,
            10.2,  10.3,  10.4,  and  10.5,  respectfully,  to the  Registrant's
            Current Report on Form 8-K filed 02/16/07].**

(10.12)     Form of Restricted  Stock Purchase Award  Agreement under the Bridge
            Capital  Holdings  2006  Equity  Incentive  Plan   [incorporated  by
            reference to Exhibit 10.1 to the Registrant's Current Report on Form
            8-K dated 11/16/06].**

(10.13)     Form of Stock  Option  Award  Agreement  under  the  Bridge  Capital
            Holdings 2006 Equity  Incentive Plan  [incorporated  by reference to
            Exhibit 10.2 to the  Registrant's  Current  Report on Form 8-K dated
            11/16/06].**

(10.14)     Amendment to the Company's  2001 Stock Option Plan to permit the net
            exercise of  nonstatutory  options  [incorporated  by  reference  to
            Exhibit 10.3 to the  Registrant's  Current  Report on Form 8-K dated
            11/16/06].**

(10.15)     Lease for Principal Executive Office and full service banking office
            located at 55 Almaden Boulevard, Suite 200, City of San Jose, County
            of Santa Clara,  State of California  [incorporated  by reference to
            Exhibit 10.16 to the  Registrant's  Annual Report on Form 10-K dated
            12/31/03].

(10.16)     Lease for additional space (fourth floor) at the Principal Executive
            Office located at 55 Almaden Boulevard, Suite 200, City of San Jose,
            County of Santa Clara, State of California.

(21)        Subsidiaries

(23.1)      Consent of Independent Registered Public Accounting Firm - Vavrinek,
            Trine, Day & Co., LLP

(23.2)      Consent  of  Independent   Registered   Public   Accounting  Firm  -
            PricewaterhouseCoopers LLP

(31.1)      Certification of Principal Executive Officer pursuant to Section 302
            of the Sarbanes-Oxley Act of 2002

(31.2)      Certification of Principal Financial Officer pursuant to Section 302
            of the Sarbanes-Oxley Act of 2002

(32.1)      Certification of Principal  Executive  Officer pursuant to 18 U.S.C.
            Section 1350

(32.2)      Certification of Principal  Financial  Officer pursuant to 18 U.S.C.
            Section 1350


            **Management contract or compensatory plan or arrangement


                                       83