UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


**Washington,
      D.C. 20549**





**FORM
      10-Q**





**x**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**


**For
      the Quarterly Period Ended: September 30, 2008**





**OR**





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


**For
      the Transition Period From ____________ to _____________**





**000-50914**


(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, including zip code)





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





Bridge
      Bank, N.A. (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 whether registrant is a large accelerated filer, an accelerated
      filer, or a non-accelerated filer. See definition of “accelerated filer”, “large
      accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
      Act. (Check one):





Large accelerated filer ̈
            Accelerated filerx
            Non-accelerated filer ̈
            Smaller reporting company ̈(Do
                not check if a smallerreporting
                company)





Indicate
      by checkmark whether the registrant is a shell company (as defined in Rule
      12b-2
      of the Act).




Yes  ̈ No x




The
      number of shares of Common Stock outstanding as of November 6, 2008:
      6,598,289





**TABLE
        OF CONTENTS**
 
 **PART
                  I - FINANCIAL INFORMATION**Item
                  1
              Financial
                  StatementsInterim
                  Consolidated Balance Sheets
              4Interim
                  Consolidated Statements of Operations
              5Interim
                  Consolidated Statements of Cash Flows
              6Notes
                  to Interim Consolidated Financial Statements
              7Item
                  2
              Management's
                  Discussion and Analysis of Financial Condition and
              14Results
                  of OperationsItem
                  3
              Quantitative
                  and Qualitative Disclosures About Market Risk
              34Item
                  4
              Controls
                  and Procedures
              36**PART
                  II - OTHER INFORMATION**Item
                  1
              Legal
                  Proceedings
              37Item
                  1A
              Risk
                  Factors
              37Item
                  2
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              37Item
                  3
              Defaults
                  Upon Senior Securities
              37Item
                  4
              Submission
                  of Matters to a Vote of Security Holders
              37Item
                  5
              Other
                  Information
              37Item
                  6
              Exhibits
              37Signatures
              38Index
                  to Exhibits
              39
  2
  **FORWARD-LOOKING
        STATEMENTS**
 
 *IN
        ADDITION TO THE HISTORICAL INFORMATION, THIS QUARTERLY 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 QUARTERLY 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 MARGIN; (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;
        AND (10) THE INVOLVEMENT OF THE UNITED STATES IN WAR OR OTHER HOSTILITIES.
        THEREFORE,* **** *THE
        INFORMATION IN THIS QUARTERLY REPORT SHOULD BE CAREFULLY CONSIDERED 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.*
 
 *The
        Company’s primary 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.*
 
 *The
        reader should refer to the more complete discussion of such risks in the
        Company’s Annual Reports on Form 10-K.*
  3
  **PART
        I - FINANCIAL INFORMATION**
 
 **ITEM
        1 – FINANCIAL STATEMENTS**
 
 **BRIDGE
        CAPITAL HOLDINGS AND SUBSIDIARY**
 **Interim
        Consolidated Balance Sheets**
 (dollars
        in thousands)
  **(unaudited)****September 30,**
              
              **December 31,****2008**
              
              **2007****ASSETS**Cash
                  and due from banks
              
              $
              21,286
              
              $
              27,440Federal
                  funds sold
              
              
              113,735
              
              
              13,395Total
                  cash and equivalents
              
              
              135,021
              
              
              40,835Interest
                  bearing deposits in other banks
              
              
              4,915Investment
                  securities available for sale
              
              
              101
              
              
              55,482Loans,
                  net of allowance for credit losses of $17,764 at September 30,
                  2008 and
                  $8,608 at December 31, 2007
              
              
              667,142
              
              
              642,265Premises
                  and equipment, net
              
              
              5,044
              
              
              5,005Other
                  Real Estate Owned
              
              
              862
              
              
              425Accrued
                  interest receivable
              
              
              3,217
              
              
              4,400Other
                  assets
              
              
              39,105
              
              
              26,420Total
                  assets
              
              $
              855,407
              
              $
              774,832**LIABILITIES
                  AND SHAREHOLDERS' EQUITY**Deposits:Demand
                  noninterest-bearing
              
              $
              223,843
              
              $
              198,641Demand
                  interest-bearing
              
              
              4,224
              
              
              5,350Savings
              
              
              404,212
              
              
              372,923Time
              
              
              106,460
              
              
              94,442Total
                  deposits
              
              
              738,739
              
              
              671,356Junior
                  subordinated debt securities
              
              
              17,527
              
              
              17,527Other
                  borrowings
              
              
              30,000
              
              
              10,000Accrued
                  interest payable
              
              
              274
              
              
              210Other
                  liabilities
              
              
              11,176
              
              
              10,655Total
                  liabilities
              
              
              797,716
              
              
              709,748Commitments
                  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; 6,598,289 shares
                  issued
                  and outstanding at September 30, 2008; 6,485,630 shares issued
                  and
                  outstanding at December 31, 2007.
              
              
              39,139
              
              
              37,697Retained
                  earnings
              
              
              16,399
              
              
              25,409Accumulated
                  other comprehensive income
              
              
              2,153
              
              
              1,978Total
                  shareholders' equity
              
              
              57,691
              
              
              65,084Total
                  liabilities and shareholders' equity
              
              $
              855,407
              
              $
              774,832
 
 The
        accompanying notes are an integral part of the financial
        statements.
  4
 
 **BRIDGE
        CAPITAL HOLDINGS AND SUBSIDIARY**
 **Interim
        Consolidated Statements of Operations (unaudited)**
 (dollars
        in thousands, except per share data)
 
 **Three months ended**
              
              **Nine months ended****September 30,**
              
              **September 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****INTEREST
                  INCOME:**Loans
              
              $
              13,632
              
              $
              15,585
              
              $
              43,107
              
              $
              45,202Federal
                  funds sold
              
              
              512
              
              
              1,138
              
              
              835
              
              
              2,415Investment
                  securities available for sale
              
              
              114
              
              
              904
              
              
              1,285
              
              
              2,324Total
                  interest income
              
              
              14,258
              
              
              17,627
              
              
              45,227
              
              
              49,941**INTEREST
                  EXPENSE:**Deposits:Interest-bearing
                  demand
              
              
              3
              
              
              10
              
              
              10
              
              
              33Money
                  market and savings
              
              
              2,083
              
              
              3,984
              
              
              6,662
              
              
              10,609Certificates
                  of deposit
              
              
              894
              
              
              1,039
              
              
              2,923
              
              
              3,307Other
              
              
              291
              
              
              262
              
              
              889
              
              
              782Total
                  interest expense
              
              
              3,271
              
              
              5,295
              
              
              10,484
              
              
              14,731Net
                  interest income
              
              
              10,987
              
              
              12,332
              
              
              34,743
              
              
              35,210Provision
                  for credit losses
              
              
              19,000
              
              
              475
              
              
              27,570
              
              
              1,675Net
                  interest income after provision for credit losses
              
              
              (8,013
              )
              
              11,857
              
              
              7,173
              
              
              33,535**NON-INTEREST
                  INCOME:**Service
                  charges on deposit accounts
              
              
              327
              
              
              166
              
              
              814
              
              
              497Gain
                  on sale of SBA loans
              
              
              87
              
              
              363
              
              
              556
              
              
              2,986Other
                  non interest income
              
              
              1,541
              
              
              906
              
              
              3,971
              
              
              1,859Total
                  non-interest income
              
              
              1,955
              
              
              1,435
              
              
              5,341
              
              
              5,342**OPERATING
                  EXPENSES:**Salaries
                  and benefits
              
              
              5,859
              
              
              5,530
              
              
              17,421
              
              
              15,796Premises
                  and fixed assets
              
              
              1,163
              
              
              1,173
              
              
              3,424
              
              
              3,149Other
              
              
              2,780
              
              
              2,012
              
              
              7,204
              
              
              6,046Total
                  operating expenses
              
              
              9,802
              
              
              8,715
              
              
              28,049
              
              
              24,991Income
                  (loss) before income taxes
              
              
              (15,860
              )
              
              4,577
              
              
              (15,535
              )
              
              13,886Income
                  taxes
              
              
              (6,655
              )
              
              1,825
              
              
              (6,525
              )
              
              5,707Net
                  income (loss)
              
              $
              (9,205
              )
              $
              2,752
              
              $
              (9,010
              )
              $
              8,179Basic
                  earnings (loss) per share
              
              $
              (1.41
              )
              $
              0.43
              
              $
              (1.38
              )
              $
              1.28Diluted
                  earnings (loss) per share
              
              $
              (1.41
              )
              $
              0.40
              
              $
              (1.38
              )
              $
              1.18Average
                  common shares outstanding
              
              
              6,533,545
              
              
              6,397,140
              
              
              6,487,200
              
              
              6,369,991Average
                  common and equivalent Shares outstanding
              
              
              6,533,545
              
              
              6,947,833
              
              
              6,487,200
              
              
              6,923,726
 
 The
        accompanying notes are an integral part of the financial
        statements.
  5
 
 **BRIDGE
        CAPITAL HOLDINGS AND SUBSIDIARY**
 **Interim
        Consolidated Statements of Cash Flows (unaudited)**
 (dollars
        in thousands)
 
 **Nine months ended September 30,****2008**
              
              **2007**CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income (loss)
              
              $
              (9,010
              )
              $
              8,179Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Provision
                  for credit losses
              
              
              27,570
              
              
              1,675Depreciation
                  and amortization
              
              
              1,200
              
              
              745Stock
                  based compensation
              
              
              1,029
              
              
              850Loans
                  originated for sale
              
              
              (38,419
              )
              
              (74,210
              )Proceeds
                  from loan sales
              
              
              20,254
              
              
              76,799Increase
                  (decrease) in accrued interest receivable and other assets
              
              
              (10,137
              )
              
              (3,008
              )Decrease
                  in accrued interest payable and other liabilities
              
              
              351
              
              
              (1,119
              )Net
                  cash provided by operating activities
              
              
              (7,162
              )
              
              9,911CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchase
                  of securities available for sale
              
              
              -
              
              
              (38,361
              )Proceeds
                  from sale/maturity of securities available for sale
              
              
              54,650
              
              
              17,000Purchase
                  of interest bearing deposits
              
              
              (4,915
              )
              
              -Net
                  increase in loans
              
              
              (34,963
              )
              
              (73,895
              )Purchase
                  of fixed assets
              
              
              (1,220
              )
              
              (2,102
              )Net
                  cash used in investing activities
              
              
              13,552
              
              
              (97,358
              )CASH
                  FLOW FROM FINANCING ACTIVITIES:Net
                  increase in deposits
              
              
              67,383
              
              
              57,862Decrease
                  in other borrowings
              
              
              20,000
              
              
              -Common
                  stock issued
              
              
              413
              
              
              611Net
                  cash provided by financing activities
              
              
              87,796
              
              
              58,473NET
                  INCREASE (DECREASE) IN CASH AND EQUIVALENTS:
              
              
              94,186
              
              
              (28,974
              )Cash
                  and equivalents at beginning of period
              
              
              40,835
              
              
              118,205Cash
                  and equivalents at end of period
              
              $
              135,021
              
              $
              89,231OTHER
                  CASH FLOW INFORMATION:Cash
                  paid for interest
              
              $
              10,355
              
              $
              14,859Cash
                  paid for income taxes
              
              $
              4,638
              
              $
              6,902
 
 The
        accompanying notes are an integral part of the financial
        statements.
  6
  **BRIDGE
        CAPITAL HOLDINGS AND SUBSIDIARY**
 **Notes
        to Interim Consolidated Financial Statements (Unaudited)**
 
 **1.**  **Summary
        of Significant Accounting Policies**
 
 **Basis
        of Presentation**
 
 The
        accompanying unaudited financial statements of Bridge Capital Holdings and
        Bridge Bank, N.A. have been prepared in accordance with generally accepted
        accounting principles and pursuant to the rules and regulations of the SEC.
        The
        interim financial data as of September 30, 2008 and for the three and nine
        months ended September 30, 2008 is unaudited; however, in the opinion of
        the
        Company, the interim data includes all adjustments, consisting only of normal
        recurring adjustments, necessary for a fair statement of the results for
        the
        interim periods. Certain information and note disclosures normally included
        in
        annual financial statements have been omitted pursuant to SEC rules and
        regulations; however, the Company believes the disclosures made are adequate
        to
        ensure that the information presented is not misleading. Results of operations
        for the quarter and nine months ended September 30, 2008 are not necessarily
        indicative of full year results.
 
 The
        comparative balance sheet information as of December 31, 2007 is derived
        from
        the audited financial statements; however, it does not include all disclosures
        required by accounting principles generally accepted in the United States
        of
        America.
 
 **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 and vesting of restricted stock.
        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.
 
 **Stock-Based
        Compensation**
 
 On
        January 1, 2006, the Company adopted 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.
        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 recorded an incremental
        $322,000 ($272,000 net of tax) and $1.0 million ($877,000 net of tax) of
        stock-based compensation expense during the three and nine months ended
        September 30, 2008, respectively, as a result of the adoption of SFAS
        No. 123R.
 
 No
        stock-based compensation costs were capitalized as part of the cost of an
        asset
        as of September 30, 2008.  As of September 30, 2008, $3.1 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 4 years.
 
 The
        impact of implementing SFAS No. 123R reduced basic earnings per share by
        $0.04
        and $0.13 and diluted earnings per share by $0.04 and $0.12 for the three
        and
        nine months ended September 30, 2008, respectively.
  7
  **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 cumulative other comprehensive
        income totaling $2.2 million, net of tax, as of September 30, 2008 and $2.0
        million, net of tax, as of December 31, 2007.
 
 Three months ended
              
              Nine months ended(dollars in thousands)
              
              September 30,
              
              September 30,2008
              
              2007
              
              2008
              
              2007Net
                  income (loss)
              
              $
              (9,205
              )
              $
              2,752
              
              $
              (9,010
              )
              $
              8,179Other
                  comprehensive earnings-Net
                  unrealized gains (losses) on securities available for sale
              
              
              (276
              )
              
              377
              
              
              (489
              )
              
              332Net
                  unrealized gains (losses) onFAS
                  158 adjustment - supplemental executive retirement plan
              
              
              70
              
              
              10
              
              
              172
              
              
              31Net
                  unrealized gains (losses) on cash flow hedges
              
              
              484
              
              
              1,468
              
              
              492
              
              
              918Total
                  comprehensive income (loss)
              
              $
              (8,927
              )
              $
              4,607
              
              $
              (8,835
              )
              $
              9,460
 
 **Segment
        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 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.
 
 **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):
  8
  
 Three
                  months ended
              
              Nine
                  months ended(dollars
                  in thousands)
              
              September
                  30,
              
              September
                  30,2008
              
              2007
              
              2008
              
              2007Net
                  income (loss)
              
              $
              (9,205
              )
              $
              2,752
              
              $
              (9,010
              )
              $
              8,179Weighted
                  average shares used incomputing:Basic
                  common shares
              
              
              6,533,545
              
              
              6,397,140
              
              
              6,487,200
              
              
              6,369,991Diluted
                  potential common sharesrelated
                  to stock based awards,using
                  the treasury stock method
              
              
              0
              
              
              550,693
              
              
              0
              
              
              553,735Total
                  average common equivalent shares
              
              
              6,533,545
              
              
              6,947,833
              
              
              6,487,200
              
              
              6,923,726Basic
                  earnings (loss) per share
              
              $
              (1.41
              )
              $
              0.43
              
              $
              (1.38
              )
              $
              1.28Diluted
                  earnings (loss) per share
              
              $
              (1.41
              )
              $
              0.40
              
              $
              (1.38
              )
              $
              1.18
  **3.**  **Securities**
  The
        amortized cost and approximate fair values of securities at September 30,
        2008
        and December 31, 2007 are as follows:
  (dollars
                  in thousands)
              
              As
                  of September 30, 2008Gross
                  Unrealized
              
              FairCost
              
              Gains
              
              Losses
              
              ValueU.S.
                  government treasury notes
              
              $
              100
              
              $
              1
              
              $
              -
              
              $
              101U.S.
                  government agency notes
              
              
              -
              
              
              -
              
              
              -
              
              
              -Total
                  securities available for sale
              
              
              100
              
              
              1
              
              
              -
              
              
              101Total
                  investment securities
              
              $
              100
              
              $
              1
              
              $
              -
              
              $
              101
 
 As
                  of December 31, 2007Gross
                  Unrealized
              
              FairCost
              
              Gains
              
              Losses
              
              ValueU.S.
                  government treasury notes
              
              $
              201
              
              $
              1
              
              $
              -
              
              $
              202U.S.
                  government agency notes
              
              
              54,450
              
              
              831
              
              
              (1
              )
              
              55,280Total
                  securities available for sale
              
              
              54,651
              
              
              832
              
              
              (1
              )
              
              55,482Total
                  investment securities
              
              $
              54,651
              
              $
              832
              
              $
              (1
              )
              $
              55,482
  9
  The
        scheduled maturities of securities available for sale at September 30, 2008
        and
        December 31, 2007 were as follows:
  
 (dollars
                  in thousands)
              
              September
                  30, 2008Amortized
              
              FairCost
              
              ValueDue
                  in one year or less
              
              $
              100
              
              $
              101Due
                  after one year through five years
              
              
              -
              
              
              -Due
                  after five years through ten years
              
              
              -
              
              
              -Due
                  after ten years
              
              
              -
              
              
              -Total
                  securities available for sale
              
              
              100
              
              
              101Total
                  investment securities
              
              $
              100
              
              $
              101
 
 December
                  31, 2007Amortized
              
              FairCost
              
              ValueDue
                  in one year or less
              
              $
              24,143
              
              $
              24,200Due
                  after one year through five years
              
              
              30,508
              
              
              31,282Due
                  after five years through ten years
              
              
              -
              
              
              -Due
                  after ten years
              
              
              -
              
              
              -Total
                  securities available for sale
              
              
              54,651
              
              
              55,482Total
                  investment securities
              
              $
              54,651
              
              $
              55,482
 
 As
        of
        September 30, 2008, investment securities with carrying values of approximately
        $100,000 were pledged as collateral. As of September 30, 2008, there were
        no
        unrealized losses attributable to securities maturing in greater than 12
        months.
  **4.**  **Loans**
  The
        balances in the various loan categories are as follows as of September 30,
        2008
        and December 31, 2007:
 
 September 30,
              
              December 31,(dollars in thousands)
              
              2008
              
              2007Commercial
              
              $
              286,793
              
              $
              272,660SBA
              
              
              69,921
              
              
              56,945Real
                  estate construction
              
              
              97,255
              
              
              85,378Land
                  development
              
              
              41,136
              
              
              56,196Real
                  estate other
              
              
              130,845
              
              
              114,846Factoring
                  and asset based lending
              
              
              50,006
              
              
              57,662Other
              
              
              10,767
              
              
              9,042Loans,
                  gross
              
              
              686,723
              
              
              652,729Unearned
                  fee income
              
              
              (1,817
              )
              
              (1,856
              )Total
                  loan portfolio
              
              
              684,906
              
              
              650,873Less
                  allowance for credit losses
              
              
              (17,764
              )
              
              (8,608
              )Loans,
                  net
              
              $
              667,142
              
              $
              642,265
  10
  **5.** **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, generally three to fifteen years, or the estimated
        useful lives of the assets, generally three to five years.
  Premises
        and equipment at September 30, 2008 and December 31, 2007 are comprised of
        the
        following:
 
  (dollars
                  in thousands)
              
              September
                  30, 2008Accumulated
              
              Net
                  BookCost
              
              Depreciation
              
              ValueLeasehold
                  improvements
              
              $
              5,571
              
              $
              (2,261
              )
              $
              3,310Furniture
                  and fixtures
              
              
              1,051
              
              
              (726
              )
              
              325Capitalized
                  software
              
              
              2,812
              
              
              (1,933
              )
              
              879Equipment
              
              
              1,991
              
              
              (1,471
              )
              
              520Construction
                  in process
              
              
              10
              
              
              -
              
              
              10Totals
              
              $
              11,435
              
              $
              (6,391
              )
              $
              5,044
 
 December
                  31, 2007Accumulated
              
              Net
                  bookCost
              
              Depreciation
              
              ValueLeasehold
                  improvements
              
              $
              4,855
              
              $
              (1,548
              )
              $
              3,307Furniture
                  and fixtures
              
              
              1,027
              
              
              (627
              )
              
              400Capitalized
                  software
              
              
              2,285
              
              
              (1,567
              )
              
              718Equipment
              
              
              1,798
              
              
              (1,218
              )
              
              580Construction
                  in process
              
              
              -
              
              
              -
              
              
              -Totals
              
              $
              9,965
              
              $
              (4,960
              )
              $
              5,005
 
 **6.
        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.
  11
  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 $30.0 million in other borrowings at September 30, 2008 and $10.0 million
        in other borrowings at December 31, 2007.
 
 As
        of
        September 30, 2008, the Company had a total borrowing capacity with the Federal
        Home Loan Bank of San Francisco of approximately $121.0 million for which
        the
        Company had collateral in place to borrow $76.0 million. As of September
        30,
        2008, $10.0 million of this borrowing capacity was pledged to secure a letter
        of
        credit and $30.0 million pledged to secure other borrowings.
 
 The
        Bank
        also has unsecured borrowing lines with correspondent banks totaling $25.0
        million. At September 30, 2008, there were no balances outstanding on these
        lines.
 
 **7.**  **Stock-Based
        Compensation**
 
 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 the three and nine month periods ended
        September 30, 2008 and 2007 and the resulting estimates of weighted-average
        fair
        value per share of stock-based awards granted during those periods are as
        follows:
  Three
                  months ended
              
              Nine
                  months endedSeptember
                  30,
              
              September
                  30,2008
              
              2007
              
              2008
              
              2007Expected
                  life
              
              
              75
                  months
              
              
              60
                  months
              
              
              75
                  months
              
              
              60
                  monthsStock
                  volatility
              
              
              22.00
              %
              
              28.43
              %
              
              22.00
              %
              
              28.43
              %Risk
                  free interest rate
              
              
              3.19
              %
              
              4.39
              %
              
              3.25
              %
              
              4.71
              %Dividend
                  yield
              
              
              0.00
              %
              
              0.00
              %
              
              0.00
              %
              
              0.00
              %Fair
                  value per share
              
              $
              3.53
              
              $
              10.81
              
              $
              4.96
              
              $
              9.59
 
 **8.**  **Fair
        Values of Assets and Liabilities**
 
 In
        accordance with SFAS No. 157, the Company groups its financial assets and
        financial liabilities measured at fair value in three levels, based on the
        markets in which the assets and liabilities are traded and the reliability
        of
        the assumptions used to determine fair value. These levels are:
 
 Level
        1 –
Valuations for assts and liabilities traded in active exchange markets, such
        as
        the New York Stock Exchange. Level 1 also includes U.S. Treasury, other U.S.
        government and agency mortgage-backed securities that are traded by dealers
        or
        brokers in active markets. Valuations are obtained from readily available
        pricing sources for market transactions involving identical assets or
        liabilities.
  12
  Level
        2 –
Valuations for assets and liabilities traded in less active dealer or broker
        markets. Valuations are obtained from third party pricing services for identical
        or comparable assets or liabilities.
 
 Level
        3 –
Valuations for assets and liabilities that are derived from other valuation
        methodologies, including option pricing models, discounted cash flow models
        and
        similar techniques, and not based on market exchange, dealer, or broker traded
        transactions. Level 3 valuations incorporate certain assumptions and projections
        in determining the fair value assigned to such assets or
        liabilities.
 
 The
        balances of assets and liabilities measured at fair value on a recurring
        basis
        are as follows:
 
 (dollars
                  in thousands)
              
              As
                  of September 30, 2008Total
              
              Level
                  1
              
              Level
                  2
              
              Level
                  3Securities
                  available for sale
              
              $
              100
              
              $
              100
              
              $
              -
              
              $
              -Cash
                  flow hedge
              
              
              4,798
              
              
              -
              
              
              4,798
              
              
              -Warrant
                  portfolio
              
              
              697
              
              
              -
              
              
              -
              
              
              697Mortgage
                  servicing rights
              
              
              729
              
              
              -
              
              
              729
              
              
              -Total
              
              $
              6,324
              
              $
              100
              
              $
              5,527
              
              $
              697
 
 The
        changes in Level 3 assets and liabilities measured at fair value on a recurring
        basis were not material for the quarter ended September 30, 2008.
 
 The
        Company may be required, from time to time, to measure certain other financial
        assets at fair value on a non-recurring basis in accordance with GAAP. These
        adjustments to fair value usually result from application of
        lower-of-cost-or-market accounting or write-downs of individual assets. The
        assets measured at fair value on a non-recurring basis were not material
        for the
        quarter ended September 30, 2008.
  13
  **ITEM
        2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
        OPERATIONS**
 
 In
        addition to the historical information, this quarterly 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 quarterly 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 interest rate environment
        reduces margin; (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 of terrorist threats
        or acts, or apprehension about possible future occurrences of acts of this
        type;
        and (10) the involvement of the United States in war or other hostilities.
        Therefore, the information in this quarterly report should be carefully
        considered when evaluating the business prospects of the Company.
 
 **Critical
        Accounting Policies**
 
 Our
        accounting policies are integral to understanding the results reported. 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 control procedures that are intended to
        ensure
        that 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, in economic conditions,
        in
        historical loss experience and in 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.
 
 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.
  The
        Company has the ability and the intent to sell all or a portion of certain
        SBA
        loans in the loan portfolio and, as such, carries the saleable portion of
        these
        loans at the lower of aggregate cost or fair value. At September 30, 2008
        and
        December 31, 2007, the fair value of SBA loans exceeded aggregate cost and
        therefore, SBA loans were carried at aggregate cost.
  In
        calculating gain on the sale of SBA loans, the Company performs an allocation
        based on the relative fair values of the sold portion and retained portion
        of
        the loan.  The Company’s assumptions are validated by reference to external
        market information.
  14
  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.
 
 Supplemental
        Employee Retirement Plan: The Company has entered into supplemental employee
        retirement agreements with certain executive and senior officers. The
        measurement of the liability under these agreements includes estimates involving
        life expectancy, length of time before retirement, and expected benefit levels.
        Should these estimates prove materially wrong, we could incur additional
        or
        reduced expense to provide the benefits.
  15
  **Selected
        Financial Data**
 
 The
        following table reflects selected financial data and ratios as of and for
        the
        quarters and nine months ended September 30, 2008 and 2007.
 
 (dollars
        in thousands, except per share data)
 
 Three
                  months ended
              
              Nine
                  months endedSeptember
                  30,
              
              September
                  30,**Statement
                  of Operations Data:**
              
              2008
              
              2007
              
              2008
              
              2007Interest
                  income
              
              $
              14,258
              
              $
              17,627
              
              $
              45,227
              
              $
              49,941Interest
                  expense
              
              
              3,271
              
              
              5,295
              
              
              10,484
              
              
              14,731Net
                  interest income
              
              
              10,987
              
              
              12,332
              
              
              34,743
              
              
              35,210Provision
                  for credit losses
              
              
              19,000
              
              
              475
              
              
              27,570
              
              
              1,675Net
                  interest income after provisionfor
                  credit losses
              
              
              (8,013
              )
              
              11,857
              
              
              7,173
              
              
              33,535Other
                  income
              
              
              1,955
              
              
              1,435
              
              
              5,341
              
              
              5,342Other
                  expenses
              
              
              9,802
              
              
              8,715
              
              
              28,049
              
              
              24,991Income
                  (loss) before income taxes
              
              
              (15,860
              )
              
              4,577
              
              
              (15,535
              )
              
              13,886Income
                  taxes
              
              
              (6,655
              )
              
              1,825
              
              
              (6,525
              )
              
              5,707Net
                  income (loss)
              
              $
              (9,205
              )
              $
              2,752
              
              $
              (9,010
              )
              $
              8,179**Per
                  Share Data:**Basic
                  earnings (loss) per share
              
              $
              (1.41
              )
              $
              0.43
              
              $
              (1.38
              )
              $
              1.28Diluted
                  earnings (loss) per share
              
              $
              (1.41
              )
              
              0.40
              
              
              (1.38
              )
              
              1.18Shareholders'
                  equity per share
              
              
              8.74
              
              
              9.32
              
              
              8.74
              
              
              9.32Cash
                  dividend per common share
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Balance
                  Sheet Data:**Balance
                  sheet totals:Assets
              
              $
              855,407
              
              $
              789,877Loans,
                  net
              
              
              667,142
              
              
              601,587Deposits
              
              
              738,739
              
              
              702,850Shareholders'
                  equity
              
              
              57,691
              
              
              60,015Average
                  balance sheet amounts:Assets
              
              $
              858,555
              
              $
              801,249
              
              $
              814,683
              
              $
              750,171Loans,
                  net
              
              
              687,738
              
              
              587,926
              
              
              671,025
              
              
              569,209Deposits
              
              
              763,361
              
              
              714,918
              
              
              715,224
              
              
              668,292Shareholders'
                  equity
              
              
              67,222
              
              
              57,400
              
              
              68,017
              
              
              54,143**Selected
                  Ratios:**Return
                  on average assets
              
              
              -4.27
              %
              
              1.36
              %
              
              -1.48
              %
              
              1.46
              %Return
                  on average equity
              
              
              -54.48
              %
              
              19.02
              %
              
              -17.69
              %
              
              20.20
              %Efficiency
                  ratio
              
              
              75.74
              %
              
              63.30
              %
              
              69.98
              %
              
              61.63
              %Risk
                  based capital ratio
              
              
              10.27
              %
              
              11.80
              %Net
                  chargeoffs to average gross loans
              
              
              2.31
              %
              
              0.01
              %
              
              2.69
              %
              
              0.17
              %Allowance
                  for loan losses to total loans
              
              
              2.59
              %
              
              1.31
              %Average
                  equity to average assets
              
              
              7.83
              %
              
              7.16
              %
              
              8.35
              %
              
              7.22
              %
  16
  **Summary
        of Financial Results – Quarter ended September 30, 2008**
 
 The
        Company reported a net loss of $(9.2) million, or $(1.41) basic and $(1.41)
        diluted earnings per share for the quarter ended September 30, 2008 as compared
        to net income of $2.8 million, or $0.43 basic and $0.40 diluted earnings
        per
        share for the quarter ended September 30, 2007. The decrease in net income
        resulted primarily from an increase in the provision for credit losses, offset
        in part by a decrease in income taxes.
 
 The
        table
        below highlights the changes in the nature and sources of income and expense.
 
 Three
                  months endedSeptember
                  30,
              
              Increase(dollars
                  in thousands)
              
              2008
              
              2007
              
              (Decrease)Interest
                  income
              
              $
              14,258
              
              $
              17,627
              
              $
              (3,369
              )Interest
                  expense
              
              
              3,271
              
              
              5,295
              
              
              (2,024
              )Net
                  interest income
              
              
              10,987
              
              
              12,332
              
              
              (1,345
              )Provision
                  for credit losses
              
              
              19,000
              
              
              475
              
              
              18,525Net
                  interest income after provision for credit losses
              
              
              (8,013
              )
              
              11,857
              
              
              (19,870
              )Other
                  income
              
              
              1,955
              
              
              1,435
              
              
              520Other
                  expenses
              
              
              9,802
              
              
              8,715
              
              
              1,087Income
                  (loss) before income taxes
              
              
              (15,860
              )
              
              4,577
              
              
              (20,437
              )Income
                  taxes
              
              
              (6,655
              )
              
              1,825
              
              
              (8,480
              )Net
                  income (loss)
              
              $
              (9,205
              )
              $
              2,752
              
              $
              (11,957
              )
 
 **Net
        Interest Income and Margin**
 
 Net
        interest income, the difference between interest earned on loans and investments
        and interest paid on deposits is the principal component of the Company's
        earnings. Net interest income is affected by changes in the nature and volume
        of
        earning assets held during the quarter, the rates earned on such assets and
        the
        rates paid on interest bearing liabilities.
 
 Net
        interest income for the quarter ended September 30, 2008 was $11.0 million,
        which was comprised of $14.3 million in interest income and $3.3 million
        in
        interest expense. Net interest income for the quarter ended September 30,
        2007
        was $12.3 million, which was comprised of $17.6 million in interest income
        and
        $5.3 million in interest expense. Net interest income for the quarter ended
        September 30, 2008 represented a decrease of $1.3 million or 10.9% from the
        same
        period one year earlier.
 
 The
        composition of the average balance sheet impacts growth in net interest income.
        For the quarter ended September 30, 2008 average earning assets of $821.2
        million represented an increase of $64.0 million, or 8.5%, compared to $757.2
        million for the same period in 2007. The Company’s loan-to-deposit ratio, a
        measure of leverage, averaged 92.41% during the quarter ended September 30,
        2008, which represented an increase compared to an average of 83.54% for
        the
        same quarter of 2007 as a result of faster loan growth relative to deposit
        funding.
 
 Changes
        in short-term interest rates also impact growth in net interest income as
        the
        interest rate earned on a majority of the Company’s assets, specifically the
        loan portfolio, adjust with changes in short-term market rates. As such,
        the
        nature of the Company’s balance sheet is that, over time as short-term interest
        rates change, income on interest earning assets has a greater impact on net
        interest income than interest paid on liabilities. The Company’s prime rate
        averaged 5.00% in the quarter ended September 30, 2008 compared to 8.18%
        in the
        same period one year earlier.
  17
  The
        Company’s net interest margin (net interest income divided by average earning
        assets) for the quarter ended September 30, 2008 was 5.32% compared to 6.46%
        in
        the same period one year earlier primarily as a result of the decrease in
        short
        term interest rates offset, in part, by income from interest rate swaps.
        During
        the quarter ended September 30, 2008, the net settlement from interest rate
        swaps contributed $550,000 to support net interest income compared to a loss
        of
        $92,000 for the quarter ended September 30, 2007.
 
 The
        following table details the average balances, interest income and expense
        and
        the effective yields/rates for earning assets and interest-bearing liabilities
        for the quarters ended September 30, 2008 and 2007.
 
 Three
                  months ended September 30,(dollars
                  in thousands)
              
              2008
              
              2007Yields
              
              
              Interest
              
              
              
              
              
              Yields
              
              
              InterestAverage
              
              
              or
              
              
              Income/
              
              
              Average
              
              
              or
              
              
              Income/Balance
              
              
              Rates
              
              
              Expense
              
              
              Balance
              
              
              Rates
              
              
              ExpenseASSETSInterest
                  earning assets (2):Loans
                  (1)
              
              $
              705,402
              
              
              7.7
              %
              $
              13,632
              
              $
              597,214
              
              
              10.4
              %
              $
              15,585Federal
                  funds sold
              
              
              104,909
              
              
              1.9
              %
              
              512
              
              
              89,483
              
              
              5.1
              %
              
              1,138Investment
                  securities
              
              
              5,419
              
              
              5.1
              %
              
              69
              
              
              70,498
              
              
              5.1
              %
              
              904Other
              
              
              5,481
              
              
              3.3
              %
              
              45
              
              
              -
              
              
              0.0
              %
              
              -Total
                  interest earning assets
              
              
              821,211
              
              
              6.9
              %
              
              14,258
              
              
              757,195
              
              
              9.3
              %
              
              17,627Noninterest-earning
                  assets:Cash
                  and due from banks
              
              
              18,154
              
              
              
              
              
              
              
              
              20,882All
                  other assets (3)
              
              
              19,190
              
              
              
              
              
              
              
              
              23,172TOTAL
              
              $
              858,555
              
              
              
              
              
              
              
              $
              801,249LIABILITIES
                  AND SHAREHOLDERS' EQUITYInterest
                  bearing liabilities:Deposits:Demand
              
              $
              5,340
              
              
              0.2
              %
              $
              3
              
              $
              5,761
              
              
              0.7
              %
              $
              10Savings
              
              
              420,900
              
              
              2.0
              %
              
              2,083
              
              
              417,255
              
              
              3.8
              %
              
              3,984Time
              
              
              99,290
              
              
              3.6
              %
              
              894
              
              
              84,149
              
              
              4.9
              %
              
              1,039Other
              
              
              21,386
              
              
              5.4
              %
              
              291
              
              
              17,527
              
              
              5.9
              %
              
              262Total
                  interest bearing liabilities
              
              
              546,916
              
              
              2.4
              %
              
              3,271
              
              
              524,692
              
              
              4.0
              %
              
              5,295Noninterest-bearing
                  liabilities:Demand
                  deposits
              
              
              237,831
              
              
              
              
              
              
              
              
              207,753Accrued
                  expenses andother
                  liabilities
              
              
              6,586
              
              
              
              
              
              
              
              
              11,404Shareholders'
                  equity
              
              
              67,222
              
              
              
              
              
              
              
              
              57,400TOTAL
              
              $
              858,555
              
              
              
              
              
              
              
              $
              801,249Net
                  interest income and margin
              
              
              
              
              
              5.3
              %
              $
              10,987
              
              
              
              
              
              6.5
              %
              $
              12,332
 
 (1)
              Loan
                  fee amortization of $1.2 million and $1.5 million, respectively,
                  is
                  included in interest income. Nonperforming loans have been included
                  in
                  average loan balances.
 (2)
              Interest
                  income is reflected on an actual basis, not a fully taxable equivalent
                  basis. Yields are based on amortized
                  cost.
 (3)
              Net
                  of average allowance for credit losses of $15.8 million and $7.8
                  million,
                  respectively.
  18
  The
        following table shows the effect of the interest differential of volume and
        rate
        changes for the quarters ended September 30, 2008 and 2007. The change in
        interest due to both rate and volume has been allocated in proportion to
        the
        relationship of absolute dollar amounts of change in each.
  (dollars
                  in thousands)
              
              Three
                  months ended September 30,2008
                  vs. 2007Increase
                  (decrease)due
                  to change inAverage
              
              Average
              
              TotalVolume
              
              Rate
              
              ChangeInterest
                  income:Loans
              
              $
              2,091
              
              $
              (4,044
              )
              $
              (1,953
              )Federal
                  funds sold
              
              
              75
              
              
              (701
              )
              
              (626
              )Investment
                  securities
              
              
              (829
              )
              
              (6
              )
              
              (835
              )Other
              
              
              45
              
              
              -
              
              
              45Total
                  interest income
              
              
              1,383
              
              
              (4,752
              )
              
              (3,369
              )Interest
                  expense:Demand
              
              
              (0
              )
              
              (7
              )
              
              (7
              )Savings
              
              
              18
              
              
              (1,919
              )
              
              (1,901
              )Time
              
              
              136
              
              
              (281
              )
              
              (145
              )Other
              
              
              53
              
              
              (24
              )
              
              29Total
                  interest expense
              
              
              207
              
              
              (2,231
              )
              
              (2,024
              )Change
                  in net interest income
              
              $
              1,177
              
              $
              (2,522
              )
              $
              (1,345
              )
 
 Net
        interest income is the principal source of the Company’s operating earnings.
        Significant factors affecting net interest income are: rates, volumes and
        mix of
        the loan, investment and deposit portfolios. Due to the nature of the Company’s
        lending markets, in which the majority of loans are generally tied to prime
        rate, it is believed that an increase in interest rates should positively
        affect
        the Company’s future earnings, while a decline should 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**
 
 Interest
        income of $14.3 million in the quarter ended September 30, 2008 represented
        a
        decrease of $3.3 million, or 19.1%, from $17.6 million in the same quarter
        one
        year earlier. The decrease in interest income was primarily due to a decrease
        in
        interest rates, offset in part by growth in average earning assets.
 
 Average
        gross loans were $705.4 million for three months ended September 30, 2008,
        an
        increase of $108.2 million or 18.1% over $597.2 million for the same period
        one
        year earlier. Average loans comprised 85.9% of average earning assets in
        the
        three months ended September 30, 2008 compared to 78.9% in the third quarter
        of
        2007.
 
 The
        average yield on earning assets was 6.9% for the quarter ended September
        30,
        2008 and 9.3% for the quarter ended September 30, 2007. As noted above, the
        majority of the Company’s earning assets, including a majority of loans, are
        priced to adjust with movements in short-term interest rates, particularly
        the
        prime rate, and the decrease in yield was primarily due to decreases in the
        prime rate during 2008 offset, in part, by income from interest rate swaps.
 
 Other
        earning assets, consisting of investment securities, federal funds sold and
        interest-bearing deposits, averaged $115.8 million for the quarter ended
        September 30, 2008, a decrease of $44.2 million or 27.6% from $160.0 million
        for
        the three months ended September 30, 2007.
  **Interest
        Expense**
  Interest
        expense was $3.3 million for the quarter ended September 30, 2008, which
        represented a decrease of $2.0 million, or 38.2% over $5.3 million for the
        comparable period of 2007. The decrease in interest expense reflects lower
        interest rates paid on liabilities in 2008 compared to 2007, offset in part
        by
        growth in average interest-bearing liabilities. Average interest-bearing
        liabilities were $546.9 million for the three months ended September 30,
        2008,
        an increase of $22.2 million, or 4.2%, over $524.7 million for the same period
        one year earlier.
  19
  Growth
        in
        average interest bearing liabilities was primarily due to growth in average
        interest bearing deposits. Average interest bearing deposits were $525.5
        million
        for the quarter ended September 30, 2008, which represented 68.8% of total
        average deposits and was an increase of $18.4 million, or 3.6%, over $507.2
        million representing 70.9% of total average deposits in the third quarter
        of
        2007.
 
 Other
        (non-deposit) interest bearing liabilities are primarily comprised of junior
        subordinated debt securities issued by the Company. The junior subordinated
        debt
        is intended to supplement capital requirements of the Company at a rate of
        interest that is fixed for five years. Other interest bearing liabilities
        averaged $21.4 million and $17.5 million in the three months ended September
        30,
        2008 and 2007, respectively.
  The
        average rate paid on interest-bearing liabilities of 2.4% in the quarter
        ended
        September 30, 2008 compared to 4.0% in the third quarter of 2007.
 
 **Credit
        Risk and Provision for Credit Losses**
 
 The
        Company maintains an allowance for credit losses which is based, in part,
        on the
        Company's and industry loss experience, the impact of economic conditions
        within
        the Company's market area and, as applicable, the State of California and/or
        national macroeconomic conditions, 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.
 
 The
        Company provided $19.0 million to the allowance for credit losses for the
        three
        months ended September 30, 2008, compared to $475,000 for the same period
        in
        2007.
 
 The
        Company’s loan charge-offs totaled $15.9 million during the third quarter ended
        September 30, 2008, compared to $312,000 for the same period one year earlier.
        The Company recognized $34,000 and $250,000 in loan recoveries for the three
        months ended September 30, 2008 and 2007, respectively.
 
 The
        following schedule provides an analysis of the allowance for credit losses
        for
        the quarter ended September 30, 2008 and 2007, respectively:
 
 20
  Three
                  months ended(dollars
                  in thousands)
              
              September
                  30,2008
              
              2007Balance,
                  beginning of period
              
              $
              14,608
              
              $
              7,590Provision
                  for credit losses
              
              
              19,000
              
              
              475Charge-offs
              
              
              (15,878
              )
              
              (312
              )Recoveries
              
              
              34
              
              
              250Balance,
                  end of period
              
              $
              17,764
              
              $
              8,003
 
 At
        September 30, 2008, the allowance for credit losses was $17.8 million,
        representing 2.6% of total loans, as compared to $8.6 million, representing
        1.3%
        of total loans, at December 31, 2007.
 
 Based
        on
        an evaluation of the individual credits, historical credit loss experience
        by
        loan type, economic conditions, and the Company’s reassessment of risks noted
        above, management has allocated the allowance for loan losses as follows
        for the
        periods ending September 30, 2008 and December 31, 2007:
 
 (dollars
                  in thousands)
              
              September
                  30, 2008
              
              December
                  31, 2007Percent
                  of
              
              
              
              Percent
                  ofloans
                  in each
              
              
              
              loans
                  in eachcategory
                  to
              
              
              
              category
                  toAmount
              
              gross
                  loans
              
              Amount
              
              gross
                  loansCommercial
              
              $
              6,075
              
              
              0.9
              %
              $
              3,124
              
              
              0.5
              %SBA
              
              
              2,056
              
              
              0.3
              %
              
              1,053
              
              
              0.2
              %Real
                  estate construction
              
              
              4,608
              
              
              0.7
              %
              
              783
              
              
              0.1
              %Land
                  loans
              
              
              1,303
              
              
              0.2
              %
              
              1,584
              
              
              0.2
              %Real
                  estate other
              
              
              2,284
              
              
              0.3
              %
              
              772
              
              
              0.1
              %Factoring/ABL
              
              
              1,262
              
              
              0.2
              %
              
              1,239
              
              
              0.2
              %Other
              
              
              176
              
              
              0.0
              %
              
              53
              
              
              0.0
              %$
              17,764
              
              
              2.6
              %
              $
              8,608
              
              
              1.3
              %
  The
        following summarizes nonperforming assets at September 30, 2008 and December
        31,
        2007.
 
 September
                  30,
              
              December
                  31,(dollars
                  in thousands)
              
              2008
              
              2007Loans
                  accounted for on a non-accrual basis
              
              $
              19,316
              
              $
              8,428Loans
                  restructured and in compliance with modified terms
              
              
              -
              
              
              -Other
                  loans with principal or interest contracturally past due 90 days
                  or
                  more
              
              
              -
              
              
              -Total
                  nonperforming loans
              
              
              19,316
              
              
              8,428Other
                  real estate owned
              
              
              862
              
              
              425Total
                  nonperforming assets
              
              $
              20,178
              
              $
              8,853
 
 At
        September 30, 2008 nonperforming assets represented 2.36% of total assets,
        compared to 0.69% of total assets on December 31, 2007.
 
 Nonperforming
        assets at September 30, 2008 consisted of thirteen lending relationships
        totaling $19.3 million that were on non-accrual status and determined to
        be
        impaired based upon the criteria set forth in SFAS No. 114, undeveloped land
        valued at $658,000 categorized as “other real estate owned”, and one commercial
        property valued at $204,000 categorized as “other real estate owned”.
 
 The
        following table sets forth the components of nonperforming loans as of September
        30, 2008.
  21
 
 (dollars
        in thousands)
 
 September
                  30, 2008Classification
              
              Amount
              
              CollateralLand
              
              $
              7,350
              
              
              Farmland
                  in the Coachella Valley area of Southern CaliforniaLand
              
              
              949
              
              
              Lots
                  for luxury single family homes in Monterey CountyLand
              
              
              2,784
              
              
              Commercial
                  lot in Santa Clara CountyLand
              
              
              109
              
              
              Lots
                  for single family homes in Amador CountyLand
              
              
              1,818
              
              
              Lots
                  for single family homes in Fresno CountyLand
              
              
              709
              
              
              Lots
                  for single family homes in Alameda County13,718Construction
              
              
              700
              
              
              Lots
                  for single family homes and commercial office space in Alameda
                  CountyConstruction
              
              
              790
              
              
              Lots
                  for single family homes in Santa Clara CountyConstruction
              
              
              1,000
              
              
              Completed
                  luxury single family home in Alameda CountyConstruction
              
              
              386
              
              
              Completed
                  luxury single family home in the hills of the East Bay region of
                  the San
                  Francisco Bay AreaConstruction
              
              
              131
              
              
              Lot
                  for commercial office space in Placer County3,008Commercial
              
              
              1,043
              
              
              Business
                  assetsReal
                  estate other
              
              
              1,547
              
              
              Single
                  family residencesTotal
                  nonperforming loans
              
              $
              19,316
 
 During
        the third quarter of 2008, the Company charged-off $15.9 million of identified
        loss exposure pertaining to nonperforming loans. As a result, there no longer
        was an indicated potential loss exposure pertaining to nonperforming loans
        and
        no impairment reserves were required to be included in the allowance for
        credit
        losses.
 
 Management
        is of the opinion that the allowance for credit losses is maintained at a
        level
        adequate for known and unidentified losses inherent in the loan portfolio.
        However, the Company's construction and land loan portfolios, representing
        approximately 20.2% of the total loan portfolio, could be adversely affected
        if
        California economic conditions and the real estate market in the Company'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 and the level of the allowance for loan losses, which
        could adversely affect the Company's future growth and
        profitability.
 
 **Non-interest
        Income**
 
 The
        following table sets forth the components of other income and the percentage
        distribution of such income for the three months ended September 30, 2008
        and
        2007:
  22
 
 Three
                  months ended September 30,(dollars
                  in thousands)
              
              2008
              
              2007Amount
              
              Percent
              
              Amount
              
              PercentInternational
                  fee income
              
              $
              594
              
              
              30.4
              %
              $
              174
              
              
              12.1
              %Gain
                  on sale of securities
              
              
              413
              
              
              21.1
              %
              
              -
              
              
              0.0
              %Depositor
                  service charges
              
              
              327
              
              
              16.7
              %
              
              166
              
              
              11.6
              %Other
                  income - cash flow hedge
              
              
              151
              
              
              7.7
              %
              
              -
              
              
              0.0
              %SBA
                  loan servicing income
              
              
              113
              
              
              5.8
              %
              
              121
              
              
              8.4
              %Increase
                  in value of life insurance
              
              
              97
              
              
              5.0
              %
              
              97
              
              
              6.8
              %Gain
                  on sale of SBA loans
              
              
              87
              
              
              4.5
              %
              
              363
              
              
              25.3
              %Other
                  operating income
              
              
              173
              
              
              8.8
              %
              
              514
              
              
              35.8
              %$
              1,955
              
              
              100.0
              %
              $
              1,435
              
              
              100.0
              %
 
 Non-interest
        income totaled $2.0 million in the third quarter of 2008, a decrease of $520,000
        or 36.2% from $1.4 million in the third quarter of 2007. Non-interest income
        consists primarily of gains recognized on sales of SBA loans, foreign exchange
        income, SBA loan servicing income, and packaging fees and service charge
        income
        on deposit accounts. The decrease in non- interest income was primarily the
        result of decreased gains on the sale of SBA loans, offset in part by increased
        gains on the sale of securities, increased international fee income, increased
        depositor service charges and a hedge accounting adjustment.
 
 For
        the
        quarter ended September 30, 2008 international fee income was $594,000 compared
        to $174,000 for the quarter ended September 30, 2007. Additionally, included
        in
        non-interest income for the quarter ended September 30, 2008 was a hedge
        accounting adjustment of $151,000 pertaining to the Company’s interest rate swap
        and $413,000 from the sale of securities.
 
 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) adjustments to programs by the
        SBA;
        (4) changes in activities of secondary market participants and; (5) other
        factors. Gains recognized on sales of SBA loans were $87,000 in the quarter
        ended September 30, 2008 which represented a decrease of $276,000 or 76.0%
        compared to $363,000 the same period one year earlier. During the quarter
        ended
        September 30, 2008, the Company sold SBA loans totaling $2.9 million compared
        to
        $20.3 million for the same period in 2007.
 
 **Non-interest
        Expense**
 
 The
        components of other expense as a percentage of average earnings assets are
        set
        forth in the following table for the three months ended September 30, 2008
        and
        2007.
  Three
                  months ended September 30,(dollars
                  in thousands)
              
              2008
              
              2007Amount
              
              Percent
              
              Amount
              
              PercentSalaries
                  and benefits
              
              $
              5,859
              
              
              2.8
              %
              $
              5,530
              
              
              2.9
              %Occupancy
              
              
              910
              
              
              0.4
              %
              
              910
              
              
              0.5
              %Data
                  processing
              
              
              609
              
              
              0.3
              %
              
              491
              
              
              0.3
              %Legal
                  and professional
              
              
              433
              
              
              0.2
              %
              
              247
              
              
              0.1
              %Director/shareholder
                  expense
              
              
              318
              
              
              0.2
              %
              
              158
              
              
              0.1
              %Marketing
                  and advertising
              
              
              309
              
              
              0.1
              %
              
              389
              
              
              0.2
              %Furniture
                  and equipment
              
              
              253
              
              
              0.1
              %
              
              263
              
              
              0.1
              %Deposit
                  services
              
              
              224
              
              
              0.1
              %
              
              235
              
              
              0.1
              %Other
              
              
              887
              
              
              0.4
              %
              
              492
              
              
              0.3
              %$
              9,802
              
              
              4.7
              %
              $
              8,715
              
              
              4.6
              %
  23
  Operating
        expenses were $9.8 million for the three months ended September 30, 2008,
        an
        increase of $1.1 million or 12.5% from $8.7 million at September 30, 2007.
        As a
        percentage of average earning assets, other expenses for the three months
        ended
        September 30, 2008 and 2007 were 4.7% and 4.6%, respectively, on an annualized
        basis. In 2008, operating expenses were comprised primarily of salaries and
        benefits of $5.9 million, which compared to $5.5 million in 2007. The increase
        in salaries and benefits was primarily due to the additional headcount related
        to expansion of the business. At September 30, 2008, the Company employed
        170
        full-time equivalents (FTE) compared to 164 FTE on the same date one year
        earlier. In addition, salaries and benefits included a charge of $322,000
        and
        $291,000 to recognize compensation related to stock option grants as a result
        of
        the implementation of FAS No. 123R in the third quarter of 2008 and 2007,
        respectively. Occupancy and data processing expense for the third quarter
        of
        2008 was $1.5 million compared to $1.4 million for the same period one year
        earlier. The increase was primarily due to expansion of the business. Legal
        and
        professional expense for the quarter ended September 30, 2008 was $433,000
        compared to $247,000 for the same period in 2007. The increase was primarily
        attributable to loan related legal fees.
 
 **Summary
        of Financial Results – Nine months ended September 30,
        2008**
 
 The
        Company reported a net loss of $(9.0) million, or $(1.38) basic and $(1.38)
        diluted earnings per share for the nine months ended September 30, 2008 as
        compared to $8.2 million, or $1.28 basic and $1.18 diluted earnings per share
        for the nine months ended September 30, 2007. The decrease in net income
        was
        primarily the result of increases in provision for loan loss and operating
        expenses, offset in part by a decrease in income taxes.
 
 The
        table
        below highlights the changes in the nature and sources of income and
        expense.
 
 Nine
                  months endedSeptember
                  30,
              
              Increase(dollars
                  in thousands)
              
              2008
              
              2007
              
              (Decrease)Interest
                  income
              
              $
              45,227
              
              $
              49,941
              
              $
              (4,714
              )Interest
                  expense
              
              
              10,484
              
              
              14,731
              
              
              (4,247
              )Net
                  interest income
              
              
              34,743
              
              
              35,210
              
              
              (467
              )Provision
                  for credit losses
              
              
              27,570
              
              
              1,675
              
              
              25,895Net
                  interest income after provisionfor
                  credit losses
              
              
              7,173
              
              
              33,535
              
              
              (26,362
              )Other
                  income
              
              
              5,341
              
              
              5,342
              
              
              (1
              )Other
                  expenses
              
              
              28,049
              
              
              24,991
              
              
              3,058Income
                  before income taxes
              
              
              (15,535
              )
              
              13,886
              
              
              (29,421
              )Income
                  taxes
              
              
              (6,525
              )
              
              5,707
              
              
              (12,232
              )Net
                  income
              
              $
              (9,010
              )
              $
              8,179
              
              $
              (17,189
              )
 
 **Net
        Interest Income and Margin**
 
 Net
        interest income, the difference between interest earned on loans and investments
        and interest paid on deposits is the principal component of the Company's
        earnings. Net interest income is affected by changes in the nature and volume
        of
        earning assets held during the six months, the rates earned on such assets
        and
        the rates paid on interest bearing liabilities.
 
 Net
        interest income for the nine months ended September 30, 2008 was $34.7 million,
        which was comprised of $45.2 million in interest income and $10.5 million
        in
        interest expense. Net interest income for the nine months ended September
        30,
        2007 was $32.5 million, which was comprised of $49.9 million in interest
        income
        and $14.7 million in interest expense. Net interest income for the nine months
        ended September 30, 2008 represented a decrease of $467,000 or 1.3% over
        the
        same period one year earlier. The average balance sheet and the general interest
        rate environment drive net interest income.
  24
  The
        Company’s net interest margin (net interest income divided by average earning
        assets) for the nine months ended September 30, 2008 was 6.01% compared to
        6.68%
        for the same period one year earlier primarily as a result of the decrease
        in
        short term interest rates offset, in part, by an increase in income from
        interest rate swaps. During the nine months ended September 30, 2008, the
        net
        settlement from interest rate swaps contributed $1.5 million to support net
        interest income compared to a loss of $296,000 for the same period in 2007.
 
 The
        following table details the average balances, interest income and expense
        and
        the effective yields/rates for earning assets and interest-bearing liabilities
        for the nine months ended September 30, 2008 and 2007.
 
 Nine
                  months ended September 30,(dollars
                  in thousands)
              
              2008
              
              2007Yields
              
              Interest
              
              
              
              Yields
              
              InterestAverage
              
              or
              
              Income/
              
              Average
              
              or
              
              Income/Balance
              
              Rates
              
              Expense
              
              Balance
              
              Rates
              
              ExpenseASSETSInterest
                  earning assets (2):Loans
                  (1)
              
              $
              684,690
              
              
              8.4
              %
              $
              43,107
              
              $
              578,204
              
              
              10.4
              %
              $
              45,202Federal
                  funds sold
              
              
              52,514
              
              
              2.1
              %
              
              835
              
              
              62,803
              
              
              5.1
              %
              
              2,415Investment
                  securities
              
              
              32,332
              
              
              5.0
              %
              
              1,204
              
              
              60,809
              
              
              5.1
              %
              
              2,324Other
              
              
              3,294
              
              
              3.3
              %
              
              81
              
              
              -
              
              
              0.0
              %
              
              -Total
                  interest earning assets
              
              
              772,830
              
              
              7.8
              %
              
              45,227
              
              
              701,816
              
              
              9.5
              %
              
              49,941Noninterest-earning
                  assets:Cash
                  and due from banks
              
              
              19,062
              
              
              
              
              
              
              
              
              27,210All
                  other assets (3)
              
              
              22,791
              
              
              
              
              
              
              
              
              21,145TOTAL
              
              $
              814,683
              
              
              
              
              
              
              
              $
              750,171LIABILITIES
                      AND SHAREHOLDERS' EQUITYInterest
                  bearing liabilities:Deposits:Demand
              
              $
              5,271
              
              
              0.3
              %
              $
              10
              
              $
              5,563
              
              
              0.8
              %
              $
              33Savings
              
              
              390,347
              
              
              2.3
              %
              
              6,662
              
              
              370,379
              
              
              3.8
              %
              
              10,609Time
              
              
              98,349
              
              
              4.0
              %
              
              2,923
              
              
              91,247
              
              
              4.8
              %
              
              3,307Other
              
              
              22,184
              
              
              5.4
              %
              
              889
              
              
              17,527
              
              
              6.0
              %
              
              782Total
                  interest bearing liabilities
              
              
              516,151
              
              
              2.7
              %
              
              10,484
              
              
              484,716
              
              
              4.1
              %
              
              14,731Noninterest-bearing
                  liabilities:Demand
                  deposits
              
              
              221,257
              
              
              
              
              
              
              
              
              201,103Accrued
                  expenses andother
                  liabilities
              
              
              9,258
              
              
              
              
              
              
              
              
              10,209Shareholders'
                  equity
              
              
              68,017
              
              
              
              
              
              
              
              
              54,143TOTAL
              
              $
              814,683
              
              
              
              
              
              
              
              $
              750,171Net
                  interest income and margin
              
              
              
              
              
              6.0
              %
              $
              34,743
              
              
              
              
              
              6.7
              %
              $
              35,210
 
 (1)
              Loan
                  fee amortization of $4.3 million and $4.3 million, respectively,
                  is
                  included in interest income. Nonperforming loans have been included
                  in
                  average loan balances.
 (2)
              Interest
                  income is reflected on an actual basis, not a fully taxable equivalent
                  basis. Yields are based on amortized
                  cost.
 (3)
              Net
                  of average allowance for credit losses of $11.9 million and $7.5
                  million,
                  respectively.
  The
        following table shows the effect of the interest differential of volume and
        rate
        changes for the nine months ended September 30, 2008 and 2007. The change
        in
        interest due to both rate and volume has been allocated in proportion to
        the
        relationship of absolute dollar amounts of change in each.
  25
 
 (dollars
                  in thousands)
              
              Nine
                  months ended September 30,2008
                  vs. 2007Increase
                  (decrease)due
                  to change inAverage
              
              Average
              
              TotalVolume
              
              Rate
              
              ChangeInterest
                  income:Loans
              
              $
              6,704
              
              
              (8,799
              )
              $
              (2,095
              )Federal
                  funds sold
              
              
              (164
              )
              
              (1,416
              )
              
              (1,580
              )Investment
                  securities
              
              
              (1,060
              )
              
              (60
              )
              
              (1,120
              )Other
              
              
              81
              
              
              -
              
              
              81Total
                  interest income
              
              
              5,561
              
              
              (10,275
              )
              
              (4,714
              )Interest
                  expense:Demand
              
              
              (1
              )
              
              (22
              )
              
              (23
              )Savings
              
              
              341
              
              
              (4,288
              )
              
              (3,947
              )Time
              
              
              211
              
              
              (595
              )
              
              (384
              )Other
              
              
              187
              
              
              (80
              )
              
              107Total
                  interest expense
              
              
              738
              
              
              (4,985
              )
              
              (4,247
              )Change
                  in net interest income
              
              $
              4,823
              
              $
              (5,290
              )
              $
              (467
              )
 
 **Interest
        Income**
 
 Interest
        income of $45.2 million in the nine months ended September 30, 2008 represented
        a decrease of $4.7 million, or 9.4%, from $49.9 million in the same period
        one
        year earlier. The decrease in interest income was primarily due to a decrease
        in
        interest rates, offset in part by growth in average earning assets. Average
        earning assets for the nine months ended September 30, 2008 were $772.8 million
        and represented growth of $71.0 million or 10.1% over $701.8 million for
        the
        same period in 2007.
 
 Average
        gross loans were $684.7 million for the nine months ended September 30, 2008,
        an
        increase of $106.5 million or 18.4% over $578.2 million for the same period
        one
        year earlier. Average loans comprised 88.6% of average earning assets in
        the
        nine months ended September 30, 2008 compared to 82.4% in the first nine
        months
        of 2007. During the nine months ended September 30, 2008, the ratio of average
        gross loans to average deposits (one measure of leverage) was 95.7%, compared
        to
        86.5% in the comparable period of 2007.
 
 The
        average yield on earning assets was 7.8% for the nine months ended September
        30,
        2008 and 9.5% for the nine months ended September 30, 2007. The majority
        of the
        Company’s earning assets, including a majority of loans, are priced to adjust
        with movements in short-term interest rates, particularly the prime rate,
        and
        the decrease in yield was primarily due to decreases in the prime rate during
        2008. The Company’s prime rate averaged 5.43% in the nine months ended September
        30, 2008 compared to 8.23% in the same period one year earlier.
 
 Other
        earning assets, consisting of investment securities, federal funds sold and
        interest-bearing deposits, averaged $88.1 million for the nine months ended
        September 30, 2008, a decrease of $35.5 million or 28.7% from $123.6 million
        for
        the nine months ended September 30, 2006.
  **Interest
        Expense**
  Interest
        expense was $10.5 million for the nine months ended September 30, 2008, which
        represented a decrease of $4.2 million or 28.8% from $14.7 million for the
        comparable period of 2007. The decrease in interest expense reflects and
        lower
        interest rates paid on liabilities in 2008 compared to 2007, offset in part
        by
        growth in average interest-bearing liabilities. Average interest-bearing
        liabilities were $516.2 million for the nine months ended September 30, 2008,
        an
        increase of $31.5 million, or 6.5%, over $484.7 million for the same period
        one
        year earlier.
 Growth
        in
        average interest bearing liabilities was primarily due to growth in average
        interest bearing deposits. Average interest bearing deposits were $494.0
        million
        for the nine months ended September 30, 2008, which represented 69.1% of
        total
        average deposits and was an increase of $26.8 million, or 5.7%, over $467.2
        million representing 69.9% of total average deposits in the first nine months
        of
        2007.
  26
  Other
        (non-deposit) interest bearing liabilities are primarily comprised of junior
        subordinated debt securities issued by the Company. The junior subordinated
        debt
        is intended to supplement capital requirements of the Company at a rate of
        interest that is fixed for five years. Other interest bearing liabilities
        averaged $22.2 million in the nine months ended September 30, 2008 compared
        to
        $17.5 million for the same period one year earlier.
  The
        average rate paid on interest-bearing liabilities of 2.7% in the nine months
        ended September 30, 2008 compared to 4.1% in the first nine months of
        2007.
  Net
        interest income is the principal source of the Company’s operating earnings.
        Significant factors affecting net interest income are: rates, volumes and
        mix of
        the loan, investment and deposit portfolios. Due to the nature of the Company’s
        lending markets, in which the majority of loans are generally tied to prime
        rate, it is believed that an increase in interest rates should positively
        affect
        the Company’s future earnings, while a decline should 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.
 
 **Credit
        Risk and Provision for Credit Losses**
 
 The
        Company maintains an allowance for credit losses which is based, in part,
        on the
        Company's and industry loss experience, the impact of economic conditions
        within
        the Company's market area and, as applicable, the State of California and/or
        national macroeconomic conditions, 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.
 
 The
        Company provided $27.6 million to the allowance for credit losses for the
        nine
        months ended September 30, 2008, compared to $1.7 million for the same period
        in
        2007.
 
 The
        Company’s loan charge-offs totaled $18.4 million during the nine months ended
        September 30, 2008, compared to $1.3 million for the same period one year
        earlier. The Company recognized $35,000 and $254,000 in loan recoveries for
        the
        nine months ended September 30, 2008 and 2007, respectively.
 
 The
        following schedule provides an analysis of the allowance for credit losses
        for
        the nine months ended September 30, 2008 and 2007, respectively:
 
 Nine
                  months ended(dollars
                  in thousands)
              
              September
                  30,2008
              
              2007Balance,
                  beginning of period
              
              $
              8,608
              
              $
              7,329Provision
                  for credit losses
              
              
              27,570
              
              
              1,675Charge-offs
              
              
              (18,449
              )
              
              (1,255
              )Recoveries
              
              
              35
              
              
              254Balance,
                  end of period
              
              $
              17,764
              
              $
              8,003
 
 See
        “Summary of Financial Results – Quarter ended September 30, 2008 – Provision for
        Credit Losses” for a discussion of the allowance for credit losses and
        nonperforming assets.
 
 **Non-interest
        Income**
 
 The
        following table sets forth the components of other income and the percentage
        distribution of such income for the nine months ended September 30, 2008
        and
        2007:
  27
 
 Nine
                  months ended September 30,(dollars
                  in thousands)
              
              2008
              
              2007Amount
              
              Percent
              
              Amount
              
              PercentInternational
                  fee income
              
              $
              1,403
              
              
              26.3
              %
              $
              434
              
              
              8.1
              %Depositor
                  service charges
              
              
              814
              
              
              15.2
              %
              
              497
              
              
              9.3
              %Gain
                  on sale of securities
              
              
              711
              
              
              13.3
              %
              
              -
              
              
              0.0
              %SBA
                  loan servicing income
              
              
              326
              
              
              6.1
              %
              
              338
              
              
              6.3
              %Other
                  income - cash flow hedge
              
              
              603
              
              
              11.3
              %
              
              -
              
              
              0.0
              %Gain
                  on sale of SBA loans
              
              
              556
              
              
              10.4
              %
              
              2,985
              
              
              55.9
              %Increase
                  in value of life insurance
              
              
              303
              
              
              5.7
              %
              
              308
              
              
              5.8
              %Other
                  operating income
              
              
              625
              
              
              11.7
              %
              
              780
              
              
              14.6
              %$
              5,341
              
              
              100.0
              %
              $
              5,342
              
              
              100.0
              %
 
 Non-interest
        income totaled $5.3 million in the first nine months of 2008 and 2007.
        Non-interest income consists primarily of international fee income, gains
        recognized on sales of securities and SBA loans, SBA loan servicing income,
        and
        packaging fees and service charge income on deposit accounts.
 
 For
        the
        nine months ended September 30, 2008 international fee income was $1.4 million
        compared to $434,000 for the nine months ended September 30, 2007. Additionally,
        included in non-interest income for the nine months ended September 30, 2008
        was
        a hedge accounting adjustment of $603,000 pertaining to the Company’s interest
        rate swap and $711,000 from the sale of securities.
 
 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) adjustments to programs by the
        SBA;
        (4) changes in activities of secondary market participants and; (5) other
        factors. Gains recognized on sales of SBA loans were $556,000 in the nine
        months
        ended September 30, 2008 which represented a decrease of $2.4 million or
        81.4%
        compared to $3.0 million for the same period one year earlier. The decrease
        was
        attributed to a lower volume of loans sold during the nine months ended
        September 30, 2008. During the nine six months of 2008 the Company sold $20.3
        million in loans compared to $75.0 million sold in the same period one year
        earlier. The SBA loans sold during the first nine months of 2007 included
        $11.3
        million of un-guaranteed loans which resulted in an additional $1.2 million
        of
        non-interest income from the gain on sale for that period.
 
 **Non-interest
        Expense**
 
 The
        components of other expense as a percentage of average earning assets are
        set
        forth in the following table for the nine months ended September 30, 2008
        and
        2007.
 
 Nine
                  months ended September 30,(dollars
                  in thousands)
              
              2008
              
              2007Amount
              
              Percent
              
              Amount
              
              PercentSalaries
                  and benefits
              
              $
              17,421
              
              
              3.0
              %
              $
              15,796
              
              
              3.0
              %Occupancy
              
              
              2,693
              
              
              0.5
              %
              
              2,450
              
              
              0.5
              %Data
                  processing
              
              
              1,769
              
              
              0.3
              %
              
              1,471
              
              
              0.3
              %Marketing
                  and advertising
              
              
              993
              
              
              0.2
              %
              
              1,105
              
              
              0.2
              %Director/shareholder
                  expense
              
              
              815
              
              
              0.1
              %
              
              473
              
              
              0.1
              %Legal
                  and professional
              
              
              738
              
              
              0.1
              %
              
              860
              
              
              0.2
              %Furniture
                  and equipment
              
              
              731
              
              
              0.1
              %
              
              699
              
              
              0.1
              %Deposit
                  services
              
              
              612
              
              
              0.1
              %
              
              719
              
              
              0.1
              %Other
              
              
              2,277
              
              
              0.4
              %
              
              1,418
              
              
              0.3
              %$
              28,049
              
              
              4.8
              %
              $
              24,991
              
              
              4.8
              %
 
  28
  Operating
        expenses were $28.1 million for the nine months ended September 30, 2008,
        an
        increase of $3.1 million or 12.2% from $25.0 million for the nine months
        ended
        September 30, 2007. As a percentage of average earning assets, other expenses
        for the nine months ended September 30, 2008 and 2007 were 4.8% and 4.8%,
        respectively, on an annualized basis. In 2008, operating expenses were comprised
        primarily of salaries and benefits of $17.4 million, which compared to $15.8
        million in 2007. The increase in salaries and benefits was primarily due
        to the
        additional headcount related to expansion of the business. At September 30,
        2008, the Company employed 170 FTE compared to 164 FTE on the same date one
        year
        earlier. In addition, salaries and benefits included a charge of $1.0 million
        and $850,000 to recognize compensation related to stock option grants as
        a
        result of the implementation of FAS No. 123R in 2008 and 2007, respectively.
        Occupancy and data processing expense for the first nine months of 2008 was
        $4.5
        million representing an increase of $541,000, or 13.8%, compared to $3.9
        million
        for the same period one year earlier. The increase was primarily due to
        expansion of the business. Other expense for the nine months ended September
        30,
        2008 was $2.3 million compared to $1.4 million for the same period in 2007.
        The
        increase was primarily attributable to increases in fees and
        assessments.
 
 **Balance
        Sheet**
 
 Total
        assets of the Company at September 30, 2008 were $855.4 million, an increase
        of
        $80.6 million, or 10.4%, as compared to $774.8 million at December 31, 2007.
        Growth in total assets was principally due to an increase in loan balances.
 
 The
        following table shows the Company’s loans by type and their percentage
        distribution for the periods ended September 30, 2008 and December 31,
        2007.
 
  (dollars
                  in thousands)
              
              September 30,
              
              December 31,2008
              
              2007Commercial
              
              $
              286,793
              
              $
              272,660SBA
              
              
              69,921
              
              
              56,945Real
                  estate construction
              
              
              97,255
              
              
              85,378Land
                  loans
              
              
              41,136
              
              
              56,196Real
                  estate other
              
              
              130,845
              
              
              114,846Factoring
                  and asset based lending
              
              
              50,006
              
              
              57,662Other
              
              
              10,767
              
              
              9,042Total
                  gross loans
              
              
              686,723
              
              
              652,729Unearned
                  fee income
              
              
              (1,817
              )
              
              (1,856
              )Total
                  gross loans
              
              
              684,906
              
              
              650,873Less
                  allowance for credit losses
              
              
              (17,764
              )
              
              (8,608
              )Total
                  loans, net
              
              $
              667,142
              
              $
              642,265Commercial
              
              
              41.7
              %
              
              41.8
              %SBA
              
              
              10.2
              %
              
              8.7
              %Real
                  estate construction
              
              
              14.2
              %
              
              13.1
              %Land
                  loans
              
              
              6.0
              %
              
              8.6
              %Real
                  estate other
              
              
              19.0
              %
              
              17.6
              %Factoring
                  and asset based lending
              
              
              7.3
              %
              
              8.8
              %Other
              
              
              1.6
              %
              
              1.4
              %Total
                  gross loans
              
              
              100.0
              %
              
              100.0
              %
 
 Net
        loan
        balances increased to $667.1 million at September 30, 2008, which represented
        an
        increase of $24.9 million, or 3.9%, as compared to $642.3 million at December
        31, 2007. The increase in loans was primarily in commercial and industrial
        loans
        and commercial real estate loans without a concentration in any one specific
        category of loans.
  29
  The
        Company’s commercial loan portfolio represents loans to small and middle-market
        businesses in the Santa Clara County region. Commercial loans were $286.8
        million at September 30, 2008, which represented an increase of $14.1 million,
        or 5.2%, compared to $272.7 million at December 31, 2007. At September 30,
        2008,
        commercial loans comprised 41.7% of total loans outstanding compared to 41.8%
        at
        December 31, 2007.
 
 The
        Company, 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 75% to 85% of the total loan. In addition, the loan
        could be collateralized by a deed of trust on real estate. Under the 504
        program, the Company lends directly to the borrower and takes a first deed
        of
        trust to the subject property. In addition the SBA, through a Certified
        Development Corporation, makes an additional loan to the borrower and takes
        a
        deed of trust subject to the Company’s position. At September, 2008, SBA loans
        comprised $69.9 million, or 10.2%, of total loans, an increase of $13.0 million,
        or 22.8%, from $56.9 million at December 31, 2007. The Company has the ability
        and 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 September 30, 2008 and December 31, 2007, the fair value of SBA loans
        exceeded aggregate cost and therefore, SBA loans were carried at aggregate
        cost.
 
 The
        Company’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 $11.9 million, or 13.9%,
        to $97.3 million at September 30, 2008 over $85.4 million at December 31,
        2007.
        Construction loan balances at September 30, 2008 and December 31, 2007 comprised
        14.2% and 13.1%, respectively, of total loans.
 
 Other
        real estate loans increased $939,000 or 0.5% to $172.0 million at September
        30,
        2008 over $171.0 million at December 31, 2007. The increase in other real
        estate
        loans was approximately equally split between home equity lines of credit
        and
        other real estate term loans. Other real estate loans represented 25.0% of
        total
        loans at September 30, 2008 compared to 26.2% at December 31, 2007.
 
 Factoring
        and asset-based lending represents purchased accounts receivable (factoring)
        and
        a structured accounts receivable lending program where the Company receives
        client specific payment for client invoices. Under the factoring program,
        the
        Company purchases accounts receivable invoices from its clients and then
        receives payment directly from the party obligated for the receivable. In
        most
        cases the Company purchases the receivables subject to recourse from the
        Company’s factoring client. The asset-based lending program requires a security
        interest in all of a client’s accounts receivable. At September 30, 2008,
        factoring/asset- based loans totaled $50.0 million or 7.3% of total loans,
        a
        slight decrease as compared to $57.7 million or 8.8% of total loans at December
        31, 2007.
 
 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 September 30, 2008, other loans totaled $10.8 million
        as
        compared to $9.0 million at December 31, 2007.
 
 Deposits
        represent the Company’s principal source of funds. Most of the Company’s
        deposits are obtained from professionals, small- to medium sized businesses
        and
        individuals within the Company’s market area. The Company’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 September 30, 2008 and December 31,
        2007.
 
 (dollars
                  in thousands)
              
              September
                  30,
              
              December
                  31,2008
              
              2007Amount
              
              Percent
              
              Amount
              
              PercentNoninterest-bearing
                  demand
              
              $
              223,843
              
              
              30.30
              %
              $
              198,641
              
              
              29.59
              %Interest-bearing
                  demand
              
              
              4,224
              
              
              0.57
              %
              
              5,350
              
              
              0.80
              %Money
                  market and savings
              
              
              404,212
              
              
              54.72
              %
              
              372,923
              
              
              55.55
              %Certificates
                  of deposit:Less
                  than $100
              
              
              45,232
              
              
              6.12
              %
              
              22,896
              
              
              3.41
              %$100
                  and more
              
              
              61,228
              
              
              8.29
              %
              
              71,546
              
              
              10.65
              %Total
                  deposits
              
              $
              738,739
              
              
              100.00
              %
              $
              671,356
              
              
              100.00
              %
  30
  Deposits
        increased $67.4 million or 10.0% from $671.4 million at December 31, 2007
        to
        $738.7 million at September 30, 2008. The increase in deposits was primarily
        in
        noninterest-bearing demand accounts. The increase was a result of marketing
        efforts to attract such deposits in order to meet the Bank’s liquidity needs and
        to accommodate projected loan funding. As of September 30, 2008, demand deposits
        and core deposits continued to represent 30.8% and 85.6%,
        respectively.
 
 **Leverage**
 
 Total
        gross loan balances at September 30, 2008 were $686.7million. The resulting
        loan
        to deposit ratio was 93.0%. Other earning assets at September 30, 2008 were
        primarily comprised of investment securities, federal funds sold and
        interest-bearing deposits of $118.8 million. To date, the Company has deployed
        earning assets primarily in federal funds sold to address the potential
        volatility of deposit balances and to accommodate projected loan funding,
        and in
        short term fixed rate investments to mitigate interest rate risk associated
        with
        the Company’s asset-sensitive balance sheet.
 
 **Capital
        Resources**
  The
        Company and the Bank are subject to the capital guidelines and regulations
        governing capital adequacy for bank holding companies and national banks.
        Additional capital requirements may be imposed on banks based on market risk.
        The FDIC requires a leverage ratio of 8.00% 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 3.00% for national banks that have received the highest composite
        regulatory rating (a regulatory measurement of capital, assets, management,
        earnings and liquidity) and that are not anticipating or experiencing any
        significant growth. All other institutions are required to maintain a leverage
        ratio of at least 100 to 200 basis points above the 3.00% minimum.
  The
        Comptroller's regulations also require national banks to maintain a minimum
        ratio of qualifying total capital to risk-weighted assets of 8.00%. 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.
  The
        risk-based capital ratio focuses principally on broad categories of credit
        risk,
        and might 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 Company’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, should 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 financial intermediary, it introduces volatility to bank
        earnings and to the economic value of the Company. 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 effective January 1, 1998 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.
  31
  In
        connection with the recent regulatory attention to market risk and interest
        rate
        risk, the federal banking agencies will evaluate an institution in its periodic
        examination on 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 will 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 shall be maintained at levels, which are higher than the
        minimum
        levels required by the guidelines. A national bank which does not achieve
        and
        maintain adequate capital levels as required 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 Company is required
        to meet certain guidelines of the Comptroller concerning the maintenance
        of an
        adequate allowance for loan and lease losses.
  The
        Company’s Tier 1 capital at September 30, 2008 was $72.5 million, which was
        comprised of $39.1 million of capital stock and surplus, $16.4 million in
        retained earnings and trust preferred securities up to the allowable limit
        of
        $17.0 million.
 
 The
        following table shows the Company’s capital ratios at September 30, 2008 and
        December 31, 2007 as well as the minimum capital ratios required to be deemed
        “well capitalized” under the regulatory framework.
 
 As
                  of September 30,
              
              As
                  of December 31,(dollars
                  in thousands)
              
              2008
              
              2007Amount
              
              Ratio
              
              Amount
              
              Ratio**Company
                  Capital Ratios**Tier
                  1 Capital
              
              $
              72,466
              
              
              9.02
              %
              $
              80,024
              
              
              10.54
              %(to
                  Risk Weighted Assets)Tier
                  1 capital minimum requirement
              
              $
              48,226
              
              
              6.00
              %
              $
              45,564
              
              
              6.00
              %Total
                  Capital
              
              $
              82,513
              
              
              10.27
              %
              $
              88,632
              
              
              11.67
              %(to
                  Risk Weighted Assets)Total
                  capital minimum requirement
              
              $
              80,377
              
              
              10.00
              %
              $
              75,940
              
              
              10.00
              %Company
                  LeverageTier
                  1 Capital
              
              $
              72,466
              
              
              8.44
              %
              $
              80,024
              
              
              10.66
              %(to
                  Average Assets)Tier
                  1 capital minimum requirement
              
              $
              42,928
              
              
              5.00
              %
              $
              37,527
              
              
              5.00
              %**Bank
                  Capital Ratios**Tier
                  1 Capital
              
              $
              70,394
              
              
              8.77
              %
              $
              77,096
              
              
              10.17
              %(to
                  Risk Weighted Assets)Tier
                  1 capital minimum requirement
              
              $
              48,154
              
              
              6.00
              %
              $
              45,491
              
              
              6.00
              %Total
                  Capital
              
              $
              80,426
              
              
              10.02
              %
              $
              85,704
              
              
              11.30
              %(to
                  Risk Weighted Assets)Total
                  capital minimum requirement
              
              $
              80,256
              
              
              10.00
              %
              $
              75,819
              
              
              10.00
              %Bank
                        LeverageTier
                  1 Capital
              
              $
              70,394
              
              
              8.21
              %
              $
              77,096
              
              
              10.27
              %(to
                  Average Assets)Tier
                  1 capital minimum requirement
              
              $
              42,866
              
              
              5.00
              %
              $
              37,523
              
              
              5.00
              %
  32
  The
        Company and the Bank were considered well capitalized at September 30, 2008.
 
 **Stock
        Repurchase Program**
 
 Effective
        May 5 2008, the Company announced a stock repurchase program to repurchase
        up to
        $5.0 million in shares of the Company for a nineteen month period extending
        to
        December 31, 2009. Buying under the program will be at management’s discretion
        taking into consideration such factors as the market price of the stock,
        available cash flow, general economic conditions and other factors. As of
        September 30, 2008, no share repurchases have occurred.
  33
  **ITEM
        3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
        RISK**
  **Liquidity/Interest
        Rate Sensitivity**
  The
        Company manages its liquidity to provide adequate funds at an acceptable
        cost to
        support borrowing requirements and deposit flows of its customers. The increased
        level of nonperforming assets at September 30, 2008 may have the potential
        to
        impact the Company’s ability to raise deposits and could result in higher
        deposit costs and/or lower liquidity. At September 30, 2008 and December
        31,
        2007, liquid assets as a percentage of deposits were 19.0% and 14.4%,
        respectively. In addition to cash and due from banks, liquid assets include
        interest-bearing deposits in other banks, Federal funds sold and securities
        available for sale. The Company has $25.0 million in Federal funds lines
        of
        credit available with correspondent banks to meet liquidity needs. At September
        30, 2008, there were no balances outstanding on these lines. Additionally,
        as of
        September 30, 2008, the Company had a total borrowing capacity with the Federal
        Home Loan Bank of San Francisco of approximately $121.0 million for which
        the
        Company had collateral in place to borrow $76.0 million. As of September
        30,
        2008, $10.0 million of this borrowing capacity was pledged to secure a letter
        of
        credit and $30.0 million pledged to secure other borrowings.
 
 The
        Company’s balance sheet position is asset-sensitive (based upon the significant
        amount of variable rate loans and the repricing characteristics of its deposit
        accounts). This balance sheet position generally provides a hedge against
        rising
        interest rates, but has a detrimental effect during times of interest rate
        decreases. Net interest income is generally negatively impacted in the short
        term by a decline in interest rates. Conversely, an increase in interest
        rates
        should have a short-term positive impact on net interest income.
 
 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 September 30, 2008, 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 sensitive assets divided by interest rate sensitive
        liabilities) and the cumulative interest rate sensitivity gap
        ratio.
 
 (dollars
                  in thousands)
              
              As
                  of September 30, 2008After
                  three
              
              After
                  six
              
              After
                  oneWithin
              
              months
                  but
              
              months
                  but
              
              year
                  but
              
              Afterthree
              
              within
                  six
              
              within
                  one
              
              within
              
              fivemonths
              
              months
              
              year
              
              five
                  years
              
              years
              
              TotalFederal
                  funds sold
              
              $
              113,735
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              113,735Interest
                  bearing deposits inother
                  banks
              
              
              1,380
              
              
              981
              
              
              2,554
              
              
              -
              
              
              -
              
              
              4,915U.S.
                  Treasury securities
              
              
              101
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              101Agency
                  securities
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Loans
              
              
              360,573
              
              
              23,597
              
              
              76,140
              
              
              98,722
              
              
              127,691
              
              
              686,723Total
                  earning assets
              
              $
              475,789
              
              $
              24,578
              
              $
              78,694
              
              $
              98,722
              
              $
              127,691
              
              $
              805,474Interest
                  checking, moneymarket
                  and savings
              
              
              408,436
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              408,436Certificates
                  of deposit:Less
                  than $100,000
              
              
              4,093
              
              
              14,683
              
              
              21,858
              
              
              4,598
              
              
              -
              
              
              45,232$100,000
                  or more
              
              
              27,478
              
              
              23,710
              
              
              6,636
              
              
              3,404
              
              
              
              
              
              61,228Other
              
              
              -
              
              
              20,000
              
              
              10,000
              
              
              -
              
              
              17,527
              
              
              47,527Total
                  interest-bearing liabilities
              
              $
              440,007
              
              $
              58,393
              
              $
              38,494
              
              $
              8,002
              
              $
              17,527
              
              $
              562,423Interest
                  rate gap
              
              $
              35,782
              
              $
              (33,815
              )
              $
              40,200
              
              $
              90,720
              
              $
              110,164
              
              $
              243,051Cumulative
                  interest rate gap
              
              $
              35,782
              
              $
              1,967
              
              $
              42,167
              
              $
              132,887
              
              $
              243,051Interest
                  rate gap ratio
              
              
              0.08
              
              
              (1.38
              )
              
              0.51
              
              
              0.92
              
              
              0.86Cumulative
                  interest rategap
                  ratio
              
              
              0.08
              
              
              0.00
              
              
              0.07
              
              
              0.20
              
              
              0.30
  34
  Based
        on
        the contractual terms of its assets and liabilities, the Company’s balance sheet
        at September 30, 2008 was asset sensitive in terms of its short-term exposure
        to
        interest rates. That is, at September 30, 2008 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, a significant portion of variable rate loans made by the
        Company have been written with a minimum “floor” rate. In addition, the Company
        has invested in short-term fixed rate securities and entered into interest
        rate
        swaps to hedge the variable cash flows associated with $100.0 million of
        existing variable-rate assets.
 
 The
        following table shows maturity and interest rate sensitivity of the loan
        portfolio at September 30, 2008 and December 31, 2007. At September 30, 2008,
        approximately 83.4% of the loan portfolio is priced with floating interest
        rates
        which limit the exposure to interest rate risk on long-term loans.
 
 (dollars
                  in thousands)
              
              As
                  of September 30, 2008Due
                  after oneDue
                  one year
              
              year
                  through
              
              Due
                  afterAmount
              
              or
                  less
              
              five
                  years
              
              five
                  yearsCommercial
                  and other
              
              $
              286,793
              
              $
              156,639
              
              $
              103,603
              
              $
              26,551SBA
              
              
              69,921
              
              
              6,689
              
              
              4,261
              
              
              58,971Real
                  estate construction
              
              
              97,255
              
              
              92,489
              
              
              4,766
              
              
              -Land
                  loans
              
              
              41,136
              
              
              36,608
              
              
              2,254
              
              
              2,274Real
                  estate-other
              
              
              130,845
              
              
              22,271
              
              
              31,605
              
              
              76,969Factoring
                  / Asset-Based Lending
              
              
              50,006
              
              
              47,304
              
              
              2,702
              
              
              -Other
              
              
              10,767
              
              
              10,267
              
              
              500
              
              
              -Total
                  loans
              
              $
              686,723
              
              $
              372,267
              
              $
              149,691
              
              $
              164,765
 
 As
                  of December 31, 2007Due
                  after oneDue
                  one year
              
              year
                  through
              
              Due
                  afterAmount
              
              or
                  less
              
              five
                  years
              
              five
                  yearsCommercial
                  and other
              
              $
              272,660
              
              $
              161,013
              
              $
              84,173
              
              $
              27,474SBA
              
              
              56,945
              
              
              12,059
              
              
              3,174
              
              
              41,712Real
                  estate construction
              
              
              85,378
              
              
              74,457
              
              
              10,921
              
              
              -Land
                  loans
              
              
              56,196
              
              
              52,880
              
              
              3,316
              
              
              -Real
                  estate-other
              
              
              114,846
              
              
              5,790
              
              
              39,245
              
              
              69,811Factoring
                  / Asset-Based Lending
              
              
              57,662
              
              
              55,834
              
              
              1,828
              
              
              -Other
              
              
              9,042
              
              
              8,272
              
              
              770
              
              
              -Total
                  loans
              
              $
              652,729
              
              $
              370,305
              
              $
              143,427
              
              $
              138,997
 
 **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:
 
 ·
              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”);
 ·
              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;
 ·
              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
  35
  ·
              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 September 30, 2008 those guarantees
        include the following:
 
 ·
              Standby
                  Letters of Credit in the amount of $17.1
                  million.
 
 The
        table
        below summarizes the Company’s off-balance sheet contractual
        obligations:
 (dollars
                    in thousands)
                
                As of September 30, 2008Payments due by periodLess than
                
                1 - 3
                
                3 - 5
                
                More thanTotal
                
                1 year
                
                years
                
                years
                
                5 yearsLong-term
                    contracts
                
                
                13,728
                
                $
                941
                
                $
                4,315
                
                $
                3,069
                
                $
                5,403Operating
                    leases
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Total
                
                $
                13,728
                
                $
                941
                
                $
                4,315
                
                $
                3,069
                
                $
                5,403
  **ITEM
        4 – CONTROLS AND PROCEDURES**
 
 **Disclosure
        Controls and Procedures**
 
 As
        required by SEC rules, the Company’s management evaluated the effectiveness, as
        of September 30, 2007, 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 September 30, 2008.
 
 **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:
 
 Pertain
        to the maintenance of records that in reasonable detail accurately and fairly
        reflect the transactions and dispositions of assets of the company; 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 provide reasonable assurance regarding prevention or timely
        detection of unauthorized acquisition, use of 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 third
        quarter of 2008 that has materially affected, or is reasonably likely to
        materially affect, the Company’s internal control over financial reporting.
  36
  **PART
        II – OTHER INFORMATION**
  **ITEM
        1 – LEGAL PROCEEDINGS**
 
 The
        Company is not a defendant in any pending material legal proceedings and
        no such
        proceedings are known to be contemplated. No director, officer, affiliate,
        more
        than 5% 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
        1A – RISK FACTORS**
  There
        were no material changes in the risk factors that were disclosed in Item
        1A,
        under the caption “Risk Factors” in Part I of our Annual Report on Form 10-K for
        our fiscal year ended December 31, 2007.
  **ITEM
        2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
        PROCEEDS**
  Not
        applicable
  **ITEM
        3 – DEFAULTS UPON SENIOR SECURITIES**
  Not
        applicable
  **ITEM
        4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
  Not
        applicable
  **ITEM
        5 – OTHER INFORMATION**
  Not
        applicable
  **ITEM
        6 – EXHIBITS**
  **(a)
        Exhibits**
  See
        Index
        to Exhibits at page 39 of this Quarterly Report on Form 10-Q.
  37
  **SIGNATURES**
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, the Registrant
        has
        duly caused this report to be signed on its behalf by the undersigned, thereunto
        duly authorized.
  **BRIDGE
                  CAPITAL HOLDINGS**Dated:
                  November 6, 2008
              By:
              /s/
                  Daniel P. MyersDaniel
                  P. MyersPresident
                  and Chief Executive Officer(Principal
                  Executive Officer)Dated:
                  November 6, 2008
              By:
              /s/
                  Thomas A. SaThomas
                  A. SaExecutive
                  Vice PresidentChief
                  Administrative Officer and Chief Financial Officer(Principal
                  Financial and Accounting
                  Officer)
  38
  **INDEX
        TO EXHIBITS**
  **Exhibit****Number**
              
              **Description
                  of Exhibit**(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
  39