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: June 30, 2008**
 
 **OR**
 
 **o**
              **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
                incorporation
                  or organization)
              
              (I.R.S.
                  Employer Identification Number)
 
 **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
        o
  Indicate
        by checkmark whether registrant is a large accelerated filer, an accelerated
        filer, or a non-accelerated filer. See definition of “accelerated file and large
        accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 Large
                    accelerated filer o
                Accelerated
                    filer **x**
                Non-accelerated
                    filer o
 Indicate
        by checkmark whether the registrant is a shell company (as defined in Rule
        12b-2
        of the Act). Yes oNo
**x**
  The
        number of shares of Common Stock outstanding as of August 5, 2008:
        6,598,819
  
  **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 Results of
                  Operations
              14Item
                  3
              Quantitative
                  and Qualitative Disclosures About Market Risk
              33Item
                  4
              Controls
                  and Procedures
              35**PART
                  II - OTHER INFORMATION**Item
                  1
              Legal
                  Proceedings
              36Item
                  1A
              Risk
                  Factors
              36Item
                  2
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              36Item
                  3
              Defaults
                  Upon Senior Securities
              36Item
                  4
              Submission
                  of Matters to a Vote of Security Holders
              36Item
                  5
              Other
                  Information
              36Item
                  6
              Exhibits
              36Signatures
              37Index
                  to Exhibits
              38
  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)****June
                  30,**
              
              **December
                  31,****2008**
              
              **2007****ASSETS**Cash
                  and due from banks
              
              $
              31,458
              
              $
              27,440Federal
                  funds sold
              
              
              12,765
              
              
              13,395Total
                  cash and equivalents
              
              
              44,223
              
              
              40,835Interest
                  bearing deposits in other banks
              
              
              5,606Investment
                  securities available for sale
              
              
              28,879
              
              
              55,482Loans,
                  net of allowance for credit losses of $11,294 atJune
                  30, 2008 and $8,608 at December 31, 2007
              
              
              695,431
              
              
              642,265Premises
                  and equipment, net
              
              
              5,093
              
              
              5,005Other
                  Real Estate Owned
              
              
              979
              
              
              425Accrued
                  interest receivable
              
              
              3,325
              
              
              4,400Other
                  assets
              
              
              26,816
              
              
              26,420Total
                  assets
              
              $
              810,352
              
              $
              774,832**LIABILITIES
                  AND SHAREHOLDERS' EQUITY**Deposits:Demand
                  noninterest-bearing
              
              $
              229,329
              
              $
              198,641Demand
                  interest-bearing
              
              
              4,439
              
              
              5,350Savings
              
              
              386,332
              
              
              372,923Time
              
              
              96,714
              
              
              94,442Total
                  deposits
              
              
              716,814
              
              
              671,356Junior
                  subordinated debt securities
              
              
              17,527
              
              
              17,527Other
                  borrowings
              
              
              -
              
              
              10,000Accrued
                  interest payable
              
              
              224
              
              
              210Other
                  liabilities
              
              
              6,674
              
              
              10,655Total
                  liabilities
              
              
              741,239
              
              
              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;6,579,694
                  shares issued and outstanding at June 30, 2008;6,485,630
                  shares issued and outstanding at December 31, 2007.
              
              
              38,703
              
              
              37,697Retained
                  earnings
              
              
              28,535
              
              
              25,409Accumulated
                  other comprehensive income (loss)
              
              
              1,875
              
              
              1,978Total
                  shareholders' equity
              
              
              69,113
              
              
              65,084Total
                  liabilities and shareholders' equity
              
              $
              810,352
              
              $
              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)
 
 **Three
                  months ended**
              
              **Six
                  months ended****June
                  30,**
              
              **June
                  30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****INTEREST
                  INCOME:**Loans
              
              $
              14,248
              
              $
              15,433
              
              $
              29,475
              
              $
              29,617Federal
                  funds sold
              
              
              146
              
              
              753
              
              
              323
              
              
              1,277Investment
                  securities available for sale
              
              
              554
              
              
              750
              
              
              1,171
              
              
              1,420Total
                  interest income
              
              
              14,948
              
              
              16,936
              
              
              30,969
              
              
              32,314**INTEREST
                  EXPENSE:**Deposits:Interest-bearing
                  demand
              
              
              3
              
              
              10
              
              
              7
              
              
              23Money
                  market and savings
              
              
              1,997
              
              
              3,628
              
              
              4,578
              
              
              6,625Certificates
                  of deposit
              
              
              941
              
              
              1,112
              
              
              2,029
              
              
              2,268Other
              
              
              283
              
              
              260
              
              
              599
              
              
              520Total
                  interest expense
              
              
              3,224
              
              
              5,010
              
              
              7,213
              
              
              9,436Net
                  interest income
              
              
              11,724
              
              
              11,926
              
              
              23,756
              
              
              22,878Provision
                  for credit losses
              
              
              1,200
              
              
              1,000
              
              
              3,570
              
              
              1,200Net
                    interest income after provisionfor
                    credit losses
              
              
              10,524
              
              
              10,926
              
              
              20,186
              
              
              21,678**NON-INTEREST
                  INCOME:**Service
                  charges on deposit accounts
              
              
              258
              
              
              181
              
              
              487
              
              
              332Gain
                  on sale of SBA loans
              
              
              186
              
              
              1,890
              
              
              469
              
              
              2,622Other
                  non interest income
              
              
              1,271
              
              
              542
              
              
              2,430
              
              
              953Total
                  non-interest income
              
              
              1,715
              
              
              2,613
              
              
              3,386
              
              
              3,907**OPERATING
                  EXPENSES:**
              
              
              -Salaries
                  and benefits
              
              
              5,912
              
              
              5,265
              
              
              11,562
              
              
              10,267Premises
                  and fixed assets
              
              
              1,156
              
              
              1,026
              
              
              2,261
              
              
              1,975Other
              
              
              2,443
              
              
              2,131
              
              
              4,424
              
              
              4,034Total
                  operating expenses
              
              
              9,511
              
              
              8,422
              
              
              18,247
              
              
              16,276Income
                  before income taxes
              
              
              2,728
              
              
              5,117
              
              
              5,325
              
              
              9,309Income
                  taxes
              
              
              1,124
              
              
              2,134
              
              
              2,199
              
              
              3,882****Net
                  income
              
              $
              1,604
              
              $
              2,983
              
              $
              3,126
              
              $
              5,427Basic
                  earnings per share
              
              $
              0.25
              
              $
              0.47
              
              $
              0.49
              
              $
              0.85Diluted
                  earnings per share
              
              $
              0.23
              
              $
              0.43
              
              $
              0.45
              
              $
              0.78Average
                  common shares outstanding
              
              
              6,492,647
              
              
              6,381,493
              
              
              6,463,773
              
              
              6,356,192Average
                  common and equivalentshares
                  outstanding
              
              
              6,861,043
              
              
              6,933,273
              
              
              6,909,913
              
              
              6,908,338
 
 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)
 
 **Six
                  months ended June 30,****2008**
              
              **2007**CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              $
              3,126
              
              $
              5,427Adjustments
                  to reconcile net income to net cash provided
                  by operating activities:Provision
                  for credit losses
              
              
              3,570
              
              
              1,200Depreciation
                  and amortization
              
              
              760
              
              
              468Stock
                  based compensation
              
              
              707
              
              
              559Loans
                  originated for sale
              
              
              (29,816
              )
              
              (44,080
              )Proceeds
                  from loan sales
              
              
              16,566
              
              
              56,519Increase
                  (decrease) in accrued interest receivableand
                  other assets
              
              
              637
              
              
              (2,490
              )Decrease
                  in accrued interest payableand
                  other liabilities
              
              
              (3,621
              )
              
              (1,162
              )Net
                  cash provided by operating activities
              
              
              (8,071
              )
              
              16,441CASH
                  FLOWS FROM INVESTING ACTIVITIES:Purchase
                  of securities available for sale
              
              
              -
              
              
              (38,361
              )Proceeds
                  from sale/maturity of securities available for sale
              
              
              26,337
              
              
              9,000Purchase
                  of interest bearing deposits
              
              
              (5,606
              )
              
              -Net
                  increase in loans
              
              
              (44,167
              )
              
              (78,739
              )Purchase
                  of fixed assets
              
              
              (862
              )
              
              (2,100
              )Net
                  cash used in investing activities
              
              
              (24,298
              )
              
              (110,200
              )CASH
                  FLOW FROM FINANCING ACTIVITIES:Net
                  increase in deposits
              
              
              45,458
              
              
              36,138Decrease
                  in other borrowings
              
              
              (10,000
              )
              
              -Common
                  stock issued
              
              
              299
              
              
              480Net
                  cash provided by financing activities
              
              
              35,757
              
              
              36,618NET
                  INCREASE (DECREASE) IN CASH AND EQUIVALENTS:
              
              
              3,388
              
              
              (57,141
              )Cash
                  and equivalents at beginning of period
              
              
              40,835
              
              
              118,205Cash
                  and equivalents at end of period
              
              $
              44,223
              
              $
              61,064OTHER
                  CASH FLOW INFORMATION:Cash
                  paid for interest
              
              $
              7,204
              
              $
              9,540Cash
                  paid for income taxes
              
              $
              4,638
              
              $
              4,800
  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 June 30, 2008 and for the three and six months
        ended June 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 six months ended June 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
        $341,000 ($286,000 net of tax) of stock-based compensation expense during
        the
        three months ended March 31, 2008 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 June 30, 2008.  As of June 30, 2008, $3.5 million of total
        unrecognized compensation cost related to stock options and restricted stock
        units are expected to be recognized over a weighted-average period of 4 years.
 
 The
        impact of implementing SFAS No. 123R reduced basic earnings per share by
        $0.04
        and $0.08 and diluted earnings per share by $0.04 and $0.07 for the three
        and
        six months ended June 30, 2008.
 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 $1.9 million, net of tax, as of June 30, 2008 and $2.0 million,
        net of tax, as of December 31, 2007.
 
 Three
                  months ended
              
              Six
                  months ended(dollars
                  in thousands)
              
              June
                  30,
              
              June
                  30,2008
              
              2007
              
              2008
              
              2007Net
                  income
              
              $
              1,604
              
              $
              2,983
              
              $
              3,126
              
              $
              5,427Other
                comprehensive earnings-Net
                  unrealized gains (losses) on securities available for sale
              
              
              (564
              )
              
              (106
              )
              
              (213
              )
              
              (45
              )Net
                  unrealized gains (losses) on FAS 158 adjustment - supplemental
                  executive
                  retirement plan
              
              
              69
              
              
              11
              
              
              102
              
              
              21Net
                    unrealized gains (losses) on cash flow hedges
              
              
              (1,530
              )
              
              (872
              )
              
              8
              
              
              (550
              )Total
                  comprehensive income
              
              $
              (421
              )
              $
              2,016
              
              $
              3,023
              
              $
              4,853
 
 **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
              
              Six
                  months ended(dollars
                  in thousands)
              
              June
                  30,
              
              June
                  30,2008
              
              2007
              
              2008
              
              2007Net
                  income
              
              $
              1,604
              
              $
              2,983
              
              $
              3,126
              
              $
              5,427Weighted
                    average shares used in computing:Basic
                  common shares
              
              
              6,492,647
              
              
              6,381,493
              
              
              6,463,773
              
              
              6,356,192Diluted
                  potential common shares related to stock based awards, using the
                  treasury
                  stock method
              
              
              368,396
              
              
              551,780
              
              
              446,140
              
              
              552,146Total
                  average common equivalent shares
              
              
              6,861,043
              
              
              6,933,273
              
              
              6,909,913
              
              
              6,908,338Basic
                  earnings per share
              
              $
              0.25
              
              $
              0.47
              
              $
              0.49
              
              $
              0.85Diluted
                  earnings per share
              
              $
              0.23
              
              $
              0.43
              
              $
              0.45
              
              $
              0.78
  **3.**  **Securities**
  The
        amortized cost and approximate fair values of securities at June 30, 2008
        and
        December 31, 2007 are as follows:
  (dollars
                  in thousands)
              
              As
                  of June 30, 2008Gross
                  Unrealized
              
              FairCost
              
              Gains
              
              Losses
              
              ValueU.S.
                  government treasury notes
              
              $
              100
              
              $
              1
              
              $
              -
              
              $
              101U.S.
                  government agency notes
              
              
              28,308
              
              
              470
              
              
              -
              
              
              28,778Total
                  securities available for sale
              
              
              28,408
              
              
              471
              
              
              -
              
              
              28,879Total
                  investment securities
              
              $
              28,408
              
              $
              471
              
              $
              -
              
              $
              28,879
 
 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 June 30, 2008 and
        December 31, 2007 were as follows:
  (dollars
                  in thousands)
              
              June
                  30, 2008Amortized
              
              FairCost
              
              ValueDue
                  in one year or less
              
              $
              20,427
              
              $
              20,681Due
                  after one year through five years
              
              
              7,981
              
              
              8,198Due
                  after five years through ten years
              
              
              -
              
              
              -Due
                  after ten years
              
              
              -
              
              
              -Total
                  securities available for sale
              
              
              28,408
              
              
              28,879Total
                  investment securities
              
              $
              28,408
              
              $
              28,879
 
 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
        June 30, 2008, investment securities with carrying values of approximately
        $100,000 were pledged as collateral. As of June 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 June 30, 2008
        and
        December 31, 2007:
  June
                  30,
              
              December
                  31,(dollars
                  in thousands)
              
              2008
              
              2007Commercial
              
              $
              293,034
              
              $
              272,660SBA
              
              
              64,725
              
              
              56,945Real
                  estate construction
              
              
              99,712
              
              
              85,378Land
                  development
              
              
              60,117
              
              
              56,196Real
                  estate other
              
              
              132,341
              
              
              114,846Factoring
                  and asset based lending
              
              
              46,819
              
              
              57,662Other
              
              
              12,048
              
              
              9,042Loans,
                  gross
              
              
              708,796
              
              
              652,729Unearned
                  fee income
              
              
              (2,071
              )
              
              (1,856
              )Total
                  loan portfolio
              
              
              706,725
              
              
              650,873Less
                  allowance for credit losses
              
              
              (11,294
              )
              
              (8,608
              )Loans,
                  net
              
              $
              695,431
              
              $
              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 June 30, 2008 and December 31, 2007 are comprised of the
      following:





(dollars
                in thousands)
            
            June
                30, 2008Cost
            
            Accumulated
                Depreciation
            
            Net
                Book ValueLeasehold
                improvements
            
            $
            4,957
            
            $
            (1,868
            )
            $
            3,089Furniture
                and fixtures
            
            
            1,035
            
            
            (693
            )
            
            342Capitalized
                software
            
            
            2,717
            
            
            (1,801
            )
            
            916Equipment
            
            
            1,901
            
            
            (1,385
            )
            
            516Construction
                in process
            
            
            230
            
            
            -
            
            
            230Totals
            
            $
            10,840
            
            $
            (5,747
            )
            $
            5,093





December
                31, 2007Cost
            
            Accumulated
                Depreciation
            
            Net
                book 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 no other borrowings at June 30, 2008 and $10.0 million in other borrowings
      at December 31, 2007.





As
      of
      June 30, 2008, the Company had a total borrowing capacity with the Federal
      Home
      Loan Bank of San Francisco of approximately $108.0 million for which the Company
      had collateral in place to borrow $75.0 million. As of June 30, 2008, $10.0
      million of this borrowing capacity was pledged to secure a letter of credit.





The
      Bank
      also has unsecured borrowing lines with correspondent banks totaling $35.0
      million. At June 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 month periods ended June 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
            
            Six
                months endedJune
                30,
            
            June
                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
            
            
            3.50
            %
            
            4.80
            %
            
            3.27
            %
            
            4.76
            %Dividend
                yield
            
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %Fair
                value per share
            
            $
            4.53
            
            $
            9.40
            
            $
            5.51
            
            $
            9.40




**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.





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.




12





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 June 30, 2008Total
            
            Level
                1
            
            Level
                2
            
            Level
                3Securities
                available for sale
            
            $
            28,879
            
            $
            28,879
            
            $
            -
            
            $
            -Cash
                flow hedge
            
            
            4,130
            
            
            -
            
            
            4,130
            
            
            -Warrant
                portfolio
            
            
            661
            
            
            -
            
            
            -
            
            
            661Total
            
            $
            33,670
            
            $
            28,879
            
            $
            4,130
            
            $
            661





The
      changes in Level 3 assets and liabilities measured at fair value on a recurring
      basis were not material for the quarter ended June 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 June 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 June 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 six months ended June 30, 2008 and 2007.




(dollars
      in thousands, except per share data)





Three
                months ended
              June
                30,
            
            Six
                months ended
              June
                30,**Statement
                of Operations Data:**
            
            2008
            
            2007
            
            2008
            
            2007Interest
                income
            
            $
            14,948
            
            $
            16,936
            
            $
            30,969
            
            $
            32,314Interest
                expense
            
            
            3,224
            
            
            5,010
            
            
            7,213
            
            
            9,436Net
                interest income
            
            
            11,724
            
            
            11,926
            
            
            23,756
            
            
            22,878Provision
                for credit losses
            
            
            1,200
            
            
            1,000
            
            
            3,570
            
            
            1,200Net
                      interest income after provision for credit
                      losses
            
            
            10,524
            
            
            10,926
            
            
            20,186
            
            
            21,678Other
                income
            
            
            1,715
            
            
            2,613
            
            
            3,386
            
            
            3,907Other
                expenses
            
            
            9,511
            
            
            8,422
            
            
            18,247
            
            
            16,276Income
                before income taxes
            
            
            2,728
            
            
            5,117
            
            
            5,325
            
            
            9,309Income
                taxes
            
            
            1,124
            
            
            2,134
            
            
            2,199
            
            
            3,882Net
                income
            
            $
            1,604
            
            $
            2,983
            
            $
            3,126
            
            $
            5,427**Per
                Share Data:**Basic
                earnings per share
            
            $
            0.25
            
            $
            0.47
            
            $
            0.49
            
            $
            0.85Diluted
                earnings per share
            
            
            0.23
            
            
            0.43
            
            
            0.45
            
            
            0.78Shareholders'
                equity per share
            
            
            10.50
            
            
            8.61
            
            
            10.50
            
            
            8.61Cash
                dividend per common share
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Balance
                Sheet Data:**Balance
                sheet totals:Assets
            
            $
            810,352
            
            $
            763,797Loans,
                net
            
            
            695,431
            
            
            597,056Deposits
            
            
            716,814
            
            
            681,126Shareholders'
                equity
            
            
            69,113
            
            
            54,986Average
                balance sheet amounts:Assets
            
            $
            806,692
            
            $
            759,905
            
            $
            792,506
            
            $
            724,208Loans,
                net
            
            
            675,662
            
            
            583,529
            
            
            662,577
            
            
            559,696Deposits
            
            
            705,699
            
            
            678,773
            
            
            690,890
            
            
            644,593Shareholders'
                equity
            
            
            69,370
            
            
            54,171
            
            
            68,419
            
            
            52,487**Selected
                Ratios:**Return
                on average assets
            
            
            0.80
            %
            
            1.57
            %
            
            0.79
            %
            
            1.51
            %Return
                on average equity
            
            
            9.30
            %
            
            22.09
            %
            
            9.19
            %
            
            20.85
            %Efficiency
                ratio
            
            
            70.77
            %
            
            57.93
            %
            
            67.23
            %
            
            60.77
            %Risk
                based capital ratio
            
            
            11.72
            %
            
            11.56
            %Net
                chargeoffs to average gross loans
            
            
            0.13
            %
            
            0.16
            %
            
            0.13
            %
            
            0.17
            %Allowance
                for loan losses to total loans
            
            
            1.59
            %
            
            1.25
            %Average
                equity to average assets
            
            
            8.60
            %
            
            7.13
            %
            
            8.63
            %
            
            7.25
            %





16





**Summary
      of Financial Results - Quarter ended June 30, 2008**





The
      Company reported net income of $1.6 million ($0.25 basic and $0.23 diluted
      earnings per share) for the quarter ended June 30, 2008 as compared to $3.0
      million ($0.47 basic and $0.43 diluted earnings per share) for the quarter
      ended
      June 30, 2007. The decrease in net income resulted primarily from a decrease
      in
      other income and an increase in other 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.





Three
                months ended
              June
                30,
            
            Increase(dollars
                in thousands)
            
            2008
            
            2007
            
            (Decrease)Interest
                income
            
            $
            14,948
            
            $
            16,936
            
            $
            (1,988
            )Interest
                expense
            
            
            3,224
            
            
            5,010
            
            
            (1,786
            )Net
                interest income
            
            
            11,724
            
            
            11,926
            
            
            (202
            )Provision
                for credit losses
            
            
            1,200
            
            
            1,000
            
            
            200Net
                    interest income after provision for credit
                    losses
            
            
            10,524
            
            
            10,926
            
            
            (402
            )Other
                income
            
            
            1,715
            
            
            2,613
            
            
            (898
            )Other
                expenses
            
            
            9,511
            
            
            8,422
            
            
            1,089Income
                before income taxes
            
            
            2,728
            
            
            5,117
            
            
            (2,389
            )Income
                taxes
            
            
            1,124
            
            
            2,134
            
            
            (1,010
            )Net
                income
            
            $
            1,604
            
            $
            2,983
            
            $
            (1,379
            )





**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 June 30, 2008 was $11.7 million, which
      was
      comprised of $14.9 million in interest income and $3.2 million in interest
      expense. Net interest income for the quarter ended June 30, 2007 was $11.9
      million, which was comprised of $16.9 million in interest income and $5.0
      million in interest expense. Net interest income for the quarter ended June
      30,
      2008 represented a decrease of $200,000 or 1.7% over the same period one year
      earlier.





The
      composition of the average balance sheet impacts growth in net interest income.
      For the quarter ended June 30, 2008 average earning assets of $762.6 million
      represented an increase of $53.7 million, or 7.6%, compared to $708.9 million
      for the same period in 2007. The Company’s loan-to-deposit ratio, a measure of
      leverage, averaged 97.54% during the quarter ended June 30, 2008, which
      represented an increase compared to an average of 87.28% 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 5.08% in the quarter ended June 30, 2008 compared to 8.25% in the
      same
      period one year earlier.





The
      Company’s net interest margin (net interest income divided by average earning
      assets) for the quarter ended June 30, 2008 was 6.18% compared to 6.75% 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 June 30, 2008, the net settlement from interest rate swaps
      contributed $602,000 to support net interest income compared to a loss of
      $106,000 for the quarter ended June 30, 2007.




17





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 June 30, 2008 and 2007.


Three
                  months ended June 30,(dollars
                  in thousands)
              
              2008
              
              2007Average
                Balance
              
              Yields
                or
                Rates
              
              Interest
                Income/
                Expense
              
              Average
                Balance
              
              Yields
                or
                Rates
              
              Interest
                Income/
                ExpenseASSETSInterest
                  earning assets (2):Loans
                  (1)
              
              $
              688,358
              
              
              8.3
              %
              $
              14,248
              
              $
              592,461
              
              
              10.5
              %
              $
              15,433Federal
                  funds sold
              
              
              27,876
              
              
              2.1
              %
              
              146
              
              
              57,851
              
              
              5.2
              %
              
              753Investment
                  securities
              
              
              41,973
              
              
              5.0
              %
              
              518
              
              
              58,615
              
              
              5.1
              %
              
              750Other
              
              
              4,369
              
              
              3.3
              %
              
              36
              
              
              -
              
              
              -
              
              
              -Total
                  interest earning assets
              
              
              762,576
              
              
              7.9
              %
              
              14,948
              
              
              708,927
              
              
              9.6
              %
              
              16,936Noninterest-earning
                  assets:Cash
                  and due from banks
              
              
              20,546
              
              
              
              
              
              
              
              
              29,985All
                  other assets (3)
              
              
              23,570
              
              
              
              
              
              
              
              
              20,993TOTAL
              
              $
              806,692
              
              
              
              
              
              
              
              $
              759,905LIABILITIES
                  AND SHAREHOLDERS' EQUITYInterest
                  bearing liabilities:Deposits:Demand
              
              $
              5,519
              
              
              0.2
              %
              $
              3
              
              $
              5,408
              
              
              0.7
              %
              $
              10Savings
              
              
              381,882
              
              
              2.1
              %
              
              1,997
              
              
              376,293
              
              
              3.9
              %
              
              3,629Time
              
              
              97,726
              
              
              3.9
              %
              
              941
              
              
              91,712
              
              
              4.9
              %
              
              1,111Other
              
              
              21,834
              
              
              5.2
              %
              
              283
              
              
              17,527
              
              
              6.0
              %
              
              260Total
                  interest bearing liabilities
              
              
              506,961
              
              
              2.6
              %
              
              3,224
              
              
              490,940
              
              
              4.1
              %
              
              5,010Noninterest-bearing
                  liabilities:Demand
                  deposits
              
              
              220,572
              
              
              
              
              
              
              
              
              205,360Accrued
                  expenses and other liabilities
              
              
              9,789
              
              
              
              
              
              
              
              
              9,434Shareholders'
                  equity
              
              
              69,370
              
              
              
              
              
              
              
              
              54,171TOTAL
              
              $
              806,692
              
              
              
              
              
              
              
              $
              759,905Net
                  interest income and margin
              
              
              
              
              
              6.2
              %
              $
              11,724
              
              
              
              
              
              6.8
              %
              $
              11,926





(1)
            Loan
                fee amortization of $1.4 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 $11.0 million and $7.5
                million,
                respectively.




18


The
      following table shows the effect of the interest differential of volume and
      rate
      changes for the quarters ended June 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 June 30,2008
                vs. 2007Increase
                (decrease)due
                to change inAverage
            
            Average
            
            TotalVolume
            
            Rate
            
            ChangeInterest
                income:Loans
            
            $
            1,985
            
            $
            (3,170
            )
            $
            (1,185
            )Federal
                funds sold
            
            
            (157
            )
            
            (450
            )
            
            (607
            )Investment
                securities
            
            
            (205
            )
            
            (27
            )
            
            (232
            )Other
            
            
            36
            
            
            -
            
            
            36Total
                interest income
            
            
            1,659
            
            
            (3,647
            )
            
            (1,988
            )Interest
                expense:Demand
            
            
            0
            
            
            (7
            )
            
            (7
            )Savings
            
            
            29
            
            
            (1,661
            )
            
            (1,632
            )Time
            
            
            58
            
            
            (228
            )
            
            (170
            )Other
            
            
            56
            
            
            (33
            )
            
            23Total
                interest expense
            
            
            143
            
            
            (1,929
            )
            
            (1,786
            )Change
                in net interest income
            
            $
            1,516
            
            $
            (1,717
            )
            $
            (202
            )





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 $14.9 million in the quarter ended June 30, 2008 represented a
      decrease of $2.0 million, or 11.7%, from $16.9 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 $688.4 million for three months ended June 30, 2008, an
      increase of $95.9 million or 16.2% over $592.5 million for the same period
      one
      year earlier. Average loans comprised 90.3% of average earning assets in the
      three months ended June 30, 2008 compared to 83.6% in the second quarter of
      2007.





The
      average yield on earning assets was 7.9% for the quarter ended June 30, 2008
      and
      9.6% for the quarter ended June 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 $74.2 million for the quarter ended June
      30,
      2008, a decrease of $42.3 million or 36.3% from $116.5 million for the three
      months ended June 30, 2007.




**Interest
      Expense**




Interest
      expense was $3.2 million for the quarter ended June 30, 2008, which represented
      a decrease of $1.8 million, or 35.6% over $5.0 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 $507.0
      million for the three months ended June 30, 2008, an increase of $16.0 million,
      or 3.3%, over $491.0 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 $485.1 million
      for the quarter ended June 30, 2008, which represented 68.7% of total average
      deposits and was an increase of $11.7 million, or 2.5%, over $473.4 million
      representing 69.7% of total average deposits in the second 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 $21.8 million and $17.5 million in the three months ended June 30,
      2008
      and 2007, respectively.




The
      average rate paid on interest-bearing liabilities of 2.6% in the quarter ended
      June 30, 2008 compared to 4.1% in the second 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, 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 $1.2 million to the allowance for credit
      losses for the three months ended June 30, 2008, as compared to $1.0 million
      for
      the same period in 2007. The Company’s loan charge-offs totaled $885,000 during
      the second quarter ended June 30, 2008 compared to $943,000 for the same period
      one year earlier. The Company recognized $1,000 in loan recoveries and no loan
      recoveries for the three months ended June 30, 2008 and 2007, respectively.
      At
      June 30, 2008, the allowance for credit losses was $11.3 million, representing
      1.6% of total loans, as compared to $8.6 million, representing 1.3% of total
      loans, at December 31, 2007.





The
      following schedule provides an analysis of the allowance for credit
      losses:




Three
                months ended(dollars
                in thousands)
            
            June
                30,2008
            
            2007Balance,
                beginning of period
            
            $
            10,978
            
            $
            7,533Provision
                for credit losses
            
            
            1,200
            
            
            1,000Charge-offs
            
            
            (885
            )
            
            (943
            )Recoveries
            
            
            1
            
            
            -Balance,
                end of period
            
            $
            11,294
            
            $
            7,590





At
      June
      30, 2008 nonperforming assets totaled $23.3 million, or 2.87% of total assets,
      compared to $15.9 million, or 2.03% of total assets, on March 31, 2008, and
      $5.3
      million, or 0.69% of total assets, on December 31, 2007. The nonperforming
      assets at June 30, 2008 consisted of eight lending relationships totaling $22.3
      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
      $325,000 categorized as “other real estate owned”.





Included
      in the non-performing loans were three lending relationships, two of which
      were
      also included in nonperforming assets at March 31, 2008, totaling $19.6 million
      at June 30, 2008 that were collateralized by undeveloped land. The largest
      of
      the relationships, representing $10.0 million, is secured by farmland in the
      Coachella Valley area of Southern California. Based upon a recent appraisal,
      this loan is adequately collateralized and did not require an impairment
      reserve. The second relationship, representing $7.6 million, represents two
      loans secured by lots for luxury single family construction in Monterey County.
      These loans and the related estimated loss exposure were included in
      nonperforming loans and the allowance for loan losses at March 31, 2008. There
      were no changes to the status of these loans as of June 30, 2008. The third
      relationship is a land development loan for $2.0 million in Fresno County.
      This
      loan was included in non-performing assets at March 31, 2008 and during the
      second quarter was paid down by $1.7 million.




20





Also
      included in the non-performing loans was a construction loan totaling $1.8
      million as of June 30, 2008. The loan is secured by three completed luxury
      homes
      in the hills of the East Bay region of the San Francisco Bay area. This loan
      was
      included in non-performing assets at March 31, 2008 and during the second
      quarter the Company charged-off $792,000. As such, this loan no longer had
      an
      indicated potential loss exposure and did not require an impairment reserve.
      The
      three other relationships comprising the balance of non-performing loans at
      June
      30, 2008 consisted of two SBA loans totaling $402,000 and a technology division
      relationship consisting of three loans totaling approximately $500,000 secured
      by accounts receivable and business assets.





At
      June
      30, 2008, the allowance for loan and lease losses included approximately $1.8
      million representing the estimated impairment related to nonperforming
      loans.





The
      following summarizes nonperforming assets at June 30, 2008 and December 31,
      2007.





June
                30,
            
            December
                31,(dollars
                in thousands)
            
            2008
            
            2007Loans
                accounted for on a non-accrual basis
            
            $
            22,290
            
            $
            -Loans
                restructured and in compliance with modified terms
            
            
            -
            
            
            -Other
                loans with principal or interest contracturally past due90
                days or more
            
            
            -
            
            
            -Total
                nonperforming loans
            
            
            22,290
            
            
            -Other
                real estate owned
            
            
            979
            
            
            425Total
                nonperforming assets
            
            $
            23,269
            
            $
            425





Based
      on
      an evaluation of the individual credits, historical credit loss experience
      by
      loan type, and economic conditions, management has allocated the allowance
      for
      loan losses as follows for the periods ending June 30, 2008 and December 31,
      2007:







(dollars
                in thousands)
            
            June
                30, 2008
            
            December
                31, 2007Amount
            
            Percent
            
            Amount
            
            PercentCommercial
                and other
            
            $
            3,948
            
            
            35.0
            %
            $
            3,124
            
            
            36.3
            %SBA
            
            
            1,480
            
            
            13.1
            %
            
            1,053
            
            
            12.2
            %Real
                estate construction
            
            
            1,484
            
            
            13.1
            %
            
            783
            
            
            9.1
            %Land
                loans
            
            
            2,466
            
            
            21.8
            %
            
            1,584
            
            
            18.4
            %Real
                estate other
            
            
            1,059
            
            
            9.4
            %
            
            772
            
            
            9.0
            %Factoring/ABL
            
            
            717
            
            
            6.3
            %
            
            1,239
            
            
            14.4
            %Other
            
            
            140
            
            
            1.2
            %
            
            53
            
            
            0.6
            %$
            11,294
            
            
            100.0
            %
            $
            8,608
            
            
            100.0
            %





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 22.5% 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 June 30, 2008 and
      2007:


21


Three
                  months ended June 30,(dollars
                  in thousands)
              
              2008
              
              2007Amount
              
              Percent
              
              Amount
              
              PercentGain
                  on sale of securities
              
              $
              298
              
              
              17.4
              %
              $
              -
              
              
              0.0
              %International
                  fee income
              
              
              290
              
              
              16.9
              %
              
              195
              
              
              7.5
              %Depositor
                  service charges
              
              
              258
              
              
              15.0
              %
              
              181
              
              
              6.9
              %Gain
                  on sale of SBA loans
              
              
              183
              
              
              10.7
              %
              
              1,825
              
              
              69.8
              %Other
                  income - cash flow hedge
              
              
              172
              
              
              10.0
              %
              
              -
              
              
              0.0
              %SBA
                  loan servicing income
              
              
              97
              
              
              5.7
              %
              
              171
              
              
              6.5
              %Increase
                  in value of life insurance
              
              
              97
              
              
              5.7
              %
              
              86
              
              
              3.3
              %Other
                  operating income
              
              
              320
              
              
              18.7
              %
              
              155
              
              
              5.9
              %$
              1,715
              
              
              100.0
              %
              $
              2,613
              
              
              100.0
              %





Non-interest
      income totaled $1.7 million in the second quarter of 2008, a decrease of
      $897,000 or 34.3% from $2.6 million in the second 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, and a hedge accounting adjustment.





For
      the
      quarter ended June 30, 2008 international fee income was $290,000 compared
      to
      $195,000 for the quarter ended June 30, 2007. Additionally, included in
      non-interest income for the quarter ended June 30, 2008 was a hedge accounting
      adjustment of $172,000 pertaining to the Company’s interest rate swap and
      $298,000 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 $183,000 in the quarter
      ended June 30, 2008 which represented a decrease of $1.6 million or 90.0%
      compared to $1.8 million the same period one year earlier. During the quarter
      ended June 30, 2008, the Company sold SBA loans totaling $8.0 million compared
      to $31.2 million for the same period in 2007. The loans sold during the second
      quarter 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 earnings assets are
      set
      forth in the following table for the three months ended June 30, 2008 and
      2007.




Three
                months ended June 30,(dollars
                in thousands)
            
            2008
            
            2007Amount
            
            Percent
            
            Amount
            
            PercentSalaries
                and benefits
            
            $
            5,912
            
            
            3.1
            %
            $
            5,265
            
            
            2.9
            %Occupancy
            
            
            906
            
            
            0.5
            %
            
            791
            
            
            0.4
            %Data
                processing
            
            
            578
            
            
            0.3
            %
            
            494
            
            
            0.3
            %Marketing
                and advertising
            
            
            365
            
            
            0.2
            %
            
            391
            
            
            0.2
            %Legal
                and professional
            
            
            338
            
            
            0.2
            %
            
            396
            
            
            0.2
            %Furniture
                and equipment
            
            
            250
            
            
            0.1
            %
            
            235
            
            
            0.1
            %Deposit
                services
            
            
            211
            
            
            0.1
            %
            
            226
            
            
            0.1
            %Director/shareholder
                expense
            
            
            248
            
            
            0.1
            %
            
            128
            
            
            0.1
            %Other
            
            
            703
            
            
            0.4
            %
            
            331
            
            
            0.2
            %$
            9,511
            
            
            4.9
            %
            $
            8,257
            
            
            4.6
            %


22





Operating
      expenses were $9.5 million for the three months ended June 30, 2008, an increase
      of $1.1 million or 12.9% from $8.4 million at June 30, 2007. As a percentage
      of
      average earning assets, other expenses for the three months ended June 30,
      2008
      and 2007 were 4.9% 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 $5.3 million in 2007. The increase in salaries and
      benefits was primarily due to the additional headcount related to expansion
      of
      the business. At June 30, 2008, the Company employed 178 full-time equivalents
      (FTE) compared to 161 FTE on the same date one year earlier. In addition,
      salaries and benefits included a charge of $341,000 and $282,000 to recognize
      compensation related to stock option grants as a result of the implementation
      of
      FAS No. 123R in the second quarter of 2008 and 2007, respectively. Occupancy
      and
      data processing expense for the second quarter of 2008 was $1.5 million compared
      to $1.3 million for the same period one year earlier. The increase was primarily
      due to expansion of the business. Other expense for the quarter ended June
      30,
      2008 was $703,000 compared to $331,000 for the same period in 2007. The increase
      was primarily attributable to increases in fees and assessments.





**Summary
      of Financial Results – Six months ended June 30, 2008**





The
      Company reported net income of $3.1 million ($0.49 basic and $0.45 diluted
      earnings per share) for the six months ended June 30, 2008 as compared to $5.4
      million ($0.85 basic and $0.78 diluted earnings per share) for the six months
      ended June 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
      an increase in net interest income and a decrease in income taxes.





The
      table
      below highlights the changes in the nature and sources of income and
      expense.





Six
                  months ended
                  June
                    30,
            
            Increase(dollars
                in thousands)
            
            2008
            
            2007
            
            (Decrease)Interest
                income
            
            $
            30,969
            
            $
            32,314
            
            $
            (1,345
            )Interest
                expense
            
            
            7,213
            
            
            9,436
            
            
            (2,223
            )Net
                interest income
            
            
            23,756
            
            
            22,878
            
            
            878Provision
                for credit losses
            
            
            3,570
            
            
            1,200
            
            
            2,370Net
                    interest income after provision for credit
                    losses
            
            
            20,186
            
            
            21,678
            
            
            (1,492
            )Other
                income
            
            
            3,386
            
            
            3,907
            
            
            (521
            )Other
                expenses
            
            
            18,247
            
            
            16,276
            
            
            1,971Income
                before income taxes
            
            
            5,325
            
            
            9,309
            
            
            (3,984
            )Income
                taxes
            
            
            2,199
            
            
            3,882
            
            
            (1,683
            )Net
                income
            
            $
            3,126
            
            $
            5,427
            
            $
            (2,301
            )





**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 six months ended June 30, 2008 was $23.8 million, which
      was comprised of $31.0 million in interest income and $7.2 million in interest
      expense. Net interest income for the six months ended June 30, 2007 was $22.9
      million, which was comprised of $32.3 million in interest income and $9.4
      million in interest expense. Net interest income for the six months ended June
      30, 2008 represented an increase of $878,000 or 3.8% over the same period one
      year earlier. The average balance sheet and the general interest rate
      environment drive net interest income.


23





The
      Company’s net interest margin (net interest income divided by average earning
      assets) for the six months ended June 30, 2008 was 6.38% compared to 6.81%
      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 loan related fees and
      income from interest rate swaps. During the six months ended June 30, 2008,
      the
      Company recognized $400,000 as a success fee resulting from the completion
      of a
      capital raising event of a loan client. In addition, the net settlement from
      interest rate swaps contributed $941,000 to support net interest income in
      the
      six months ended June 30, 2008 compared to a loss of $204,000 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 six months ended June 30, 2008 and 2007.





Six
                months ended June 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)
            
            $
            674,220
            
            
            8.8
            %
            $
            29,475
            
            $
            568,542
            
            
            10.5
            %
            $
            29,617Federal
                funds sold
            
            
            26,028
            
            
            2.5
            %
            
            323
            
            
            49,241
            
            
            5.2
            %
            
            1,277Investment
                securities
            
            
            45,937
            
            
            5.0
            %
            
            1,135
            
            
            55,883
            
            
            5.1
            %
            
            1,420Other
            
            
            2,188
            
            
            3.3
            %
            
            36Total
                interest earning assets
            
            
            748,373
            
            
            8.3
            %
            
            30,969
            
            
            673,666
            
            
            9.6
            %
            
            32,314Noninterest-earning
                assets:Cash
                and due from banks
            
            
            19,521
            
            
            
            
            
            
            
            
            30,426All
                other assets (3)
            
            
            24,612
            
            
            
            
            
            
            
            
            20,116TOTAL
            
            $
            792,506
            
            
            
            
            
            
            
            $
            724,208LIABILITIES
                ANDSHAREHOLDERS'
                EQUITYInterest
                bearing liabilities:Deposits:Demand
            
            $
            5,236
            
            
            0.3
            %
            $
            7
            
            $
            5,462
            
            
            0.8
            %
            $
            23Savings
            
            
            374,902
            
            
            2.5
            %
            
            4,578
            
            
            346,552
            
            
            3.8
            %
            
            6,625Time
            
            
            97,872
            
            
            4.2
            %
            
            2,029
            
            
            94,855
            
            
            4.8
            %
            
            2,268Other
            
            
            22,588
            
            
            5.3
            %
            
            599
            
            
            17,527
            
            
            6.0
            %
            
            520Total
                interest bearing liabilities
            
            
            500,598
            
            
            2.9
            %
            
            7,213
            
            
            464,396
            
            
            4.1
            %
            
            9,436Noninterest-bearing
                liabilities:Demand
                deposits
            
            
            212,880
            
            
            
            
            
            
            
            
            197,723Accrued
                expenses andother
                liabilities
            
            
            10,609
            
            
            
            
            
            
            
            
            9,602Shareholders'
                equity
            
            
            68,419
            
            
            
            
            
            
            
            
            52,487TOTAL
            
            $
            792,506
            
            
            
            
            
            
            
            $
            724,208Net
                interest income and margin
            
            
            
            
            
            6.4
            %
            $
            23,756
            
            
            
            
            
            6.8
            %
            $
            22,878





(1)
            Loan
                fee amortization of $3.1 million and $2.8 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 $9.9 million and $7.4 million,
                respectively.


24





The
      following table shows the effect of the interest differential of volume and
      rate
      changes for the quarters ended June 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)
            
            Six
                months ended June 30,2008
                vs. 2007Increase (decrease)due to change inAverage
            
            Average
            
            TotalVolume
            
            Rate
            
            ChangeInterest
                income:Loans
            
            $
            4,620
            
            
            (4,762
            )
            $
            (142
            )Federal
                funds sold
            
            
            (288
            )
            
            (666
            )
            
            (954
            )Investment
                securities
            
            
            (246
            )
            
            (39
            )
            
            (285
            )Other
            
            
            36
            
            
            -
            
            
            36Total
                interest income
            
            
            4,122
            
            
            (5,467
            )
            
            (1,345
            )Interest
                expense:Demand
            
            
            (0
            )
            
            (16
            )
            
            (16
            )Savings
            
            
            346
            
            
            (2,393
            )
            
            (2,047
            )Time
            
            
            63
            
            
            (302
            )
            
            (239
            )Other
            
            
            134
            
            
            (55
            )
            
            79Total
                interest expense
            
            
            543
            
            
            (2,766
            )
            
            (2,223
            )Change
                in net interest income
            
            $
            3,579
            
            $
            (2,701
            )
            $
            878





**Interest
      Income**





Interest
      income of $31.0 million in the six months ended June 30, 2008 represented a
      decrease of $1.3 million, or 4.2%, from $32.3 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 six months ended June 30, 2008 were $748.4 million and
      represented growth of $74.7 million or 11.1% over $673.7 million for the same
      period in 2007.





Average
      gross loans were $674.2 million for six months ended June 30, 2008, an increase
      of $105.7 million or 18.6% over $568.5 million for the same period one year
      earlier. Average loans comprised 90.1% of average earning assets in the six
      months ended June 30, 2008 compared to 84.4% in the second quarter of 2007.
      During the six months ended June 30, 2008, the ratio of average gross loans
      to
      average deposits (one measure of leverage) was 97.6%, compared to 88.2% in
      the
      comparable period of 2007.





The
      average yield on earning assets was 8.3% for the six months ended June 30,
      2008
      and 9.6% for the six months ended June 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 5.65% in the six months ended June 30, 2008
      compared to 8.25% in the same period one year earlier.





Other
      earning assets, consisting of investment securities, federal funds sold and
      interest-bearing deposits, averaged $74.1 million for the six months ended
      June
      30, 2008, a decrease of $31.0 million or 29.5% from $105.1 million for the
      six
      months ended June 30, 2006.




**Interest
      Expense**




Interest
      expense was $7.2 million for the six months ended June 30, 2008, which
      represented a decrease of $2.2 million or 23.6% from $9.4 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 $500.6 million for the six months ended June 30, 2008, an
      increase of $36.2 million, or 7.8%, over $464.4 million for the same period
      one
      year earlier.


25





Growth
      in
      average interest bearing liabilities was primarily due to growth in average
      interest bearing deposits. Average interest bearing deposits were $478.0 million
      for the six months ended June 30, 2008, which represented 69.2% of total average
      deposits and was an increase of $31.1 million, or 7.0%, over $446.9 million
      representing 69.3% of total average deposits in the first six months 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 $22.6 million in the six months ended June 30, 2008 compared to $17.5
      million for the same period one year earlier.




The
      average rate paid on interest-bearing liabilities of 2.9% in the six months
      ended June 30, 2008 compared to 4.1% in the first six 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, 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 $3.6 million to the allowance for credit
      losses for the six months ended June 30, 2008, as compared to $1.2 million
      for
      the same period in 2007. There were loan charge-offs of $885,000 and $1,000
      in
      recoveries during the six months ended June 30, 2008 as compared to loan
      charge-offs of $943,000 and $4,000 in recoveries during the six months ended
      June 30, 2007. At June 30, 2008, the allowance for credit losses was $11.3
      million, representing 1.6% of total loans, as compared to $8.6 million,
      representing 1.3% of total loans, at December 31, 2007.





The
      following schedule provides an analysis of the allowance for credit
      losses:





Six
                months ended(dollars
                in thousands)
            
            June
                30,2008
            
            2007Balance,
                beginning of period
            
            $
            8,608
            
            $
            7,329Provision
                for credit losses
            
            
            3,570
            
            
            1,200Charge-offs
            
            
            (885
            )
            
            (943
            )Recoveries
            
            
            1
            
            
            4Balance,
                end of period
            
            $
            11,294
            
            $
            7,590





See
      “Summary of Financial Results – Quarter ended June 30, 2008 –
Provision for Credit Losses” for a discussion of nonperforming
      assets.





**Non-interest
      Income**





The
      following table sets forth the components of other income and the percentage
      distribution of such income for the six months ended June 30, 2008 and
      2007:


26





Six
                months ended June 30,(dollars
                in thousands)
            
            2008
            
            2007Amount
            
            Percent
            
            Amount
            
            PercentInternational
                fee income
            
            $
            534
            
            
            15.8
            %
            $
            272
            
            
            7.0
            %Depositor
                service charges
            
            
            487
            
            
            14.4
            %
            
            332
            
            
            8.5
            %Gain
                on sale of SBA loans
            
            
            469
            
            
            13.9
            %
            
            2,499
            
            
            64.0
            %Other
                income - cash flow hedge
            
            
            452
            
            
            13.3
            %
            
            -
            
            
            0.0
            %Gain
                on sale of securities
            
            
            298
            
            
            8.8
            %
            
            -
            
            
            0.0
            %Increase
                in value of life insurance
            
            
            206
            
            
            6.1
            %
            
            211
            
            
            5.4
            %SBA
                loan servicing income
            
            
            196
            
            
            5.8
            %
            
            341
            
            
            8.7
            %Other
                operating income
            
            
            744
            
            
            22.0
            %
            
            252
            
            
            6.4
            %$
            3,386
            
            
            100.0
            %
            $
            3,907
            
            
            100.0
            %





Non-interest
      income totaled $3.4 million in the first six months of 2008, a decrease of
      $521,000 or 13.3% from $3.9 million in 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. The increase in non-interest income for the first
      six months of 2008 was primarily a result of increased international fee income,
      a hedge accounting adjustment, and gains recognized on sales of securities
      offset, in part, by a decrease in gains on sales of SBA loans.





For
      the
      six months ended June 30, 2008 international fee income was $534,000 compared
      to
      $272,000 for the six months ended June 30, 2007. Additionally, included in
      non-interest income for the six months ended June 30, 2008 was a hedge
      accounting adjustment of $452,000 pertaining to the Company’s interest rate swap
      and $298,000 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 $469,000 in the six months
      ended June 30, 2008 which represented a decrease of $2.0 million or 81.2%
      compared to $2.5 million for the same period one year earlier. The decrease
      was
      attributed to a lower volume of loans sold during the six months ended June
      30,
      2008. During the first six months of 2008 the Company sold $16.6 million in
      loans compared to $54.7 million sold in the same period one year earlier. The
      SBA loans sold during the first six 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 six months ended June 30, 2008 and
      2007.


27





Six
                months ended June 30,(dollars
                in thousands)
            
            2008
            
            2007Amount
            
            Percent
            
            Amount
            
            PercentSalaries
                and benefits
            
            $
            11,562
            
            
            3.1
            %
            $
            10,267
            
            
            3.1
            %Occupancy
            
            
            1,783
            
            
            0.5
            %
            
            1,539
            
            
            0.5
            %Data
                processing
            
            
            1,159
            
            
            0.3
            %
            
            980
            
            
            0.3
            %Marketing
                and advertising
            
            
            684
            
            
            0.2
            %
            
            716
            
            
            0.2
            %Director/shareholder
                expense
            
            
            496
            
            
            0.1
            %
            
            315
            
            
            0.1
            %Furniture
                and equipment
            
            
            478
            
            
            0.1
            %
            
            436
            
            
            0.1
            %Deposit
                services
            
            
            388
            
            
            0.1
            %
            
            484
            
            
            0.1
            %Legal
                and professional
            
            
            305
            
            
            0.1
            %
            
            614
            
            
            0.2
            %Other
            
            
            1,392
            
            
            0.4
            %
            
            925
            
            
            0.3
            %$
            18,247
            
            
            4.9
            %
            $
            16,276
            
            
            4.9
            %





Operating
      expenses were $18.2 million for the six months ended June 30, 2008, an increase
      of $2.0 million or 12.1% from $16.2 million for the six months ended June 30,
      2007. As a percentage of average earning assets, other expenses for the six
      months ended June 30, 2008 and 2007 were 4.9% and 4.9%, respectively, on an
      annualized basis. In 2008, operating expenses were comprised primarily of
      salaries and benefits of $11.6 million, which compared to $10.3 million in
      2007.
      The increase in salaries and benefits was primarily due to the additional
      headcount related to expansion of the business. At June 30, 2008, the Company
      employed 178 FTE compared to 161 FTE on the same date one year earlier. In
      addition, salaries and benefits included a charge of $707,000 and $559,000
      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 six months of 2008 was $2.9 million
      representing an increase of $423,000, or 16.8%, compared to $2.5 million for
      the
      same period one year earlier. The increase was primarily due to expansion of
      the
      business. Other expense for the six months ended June 30, 2008 was $1.4 million
      compared to $925,000 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 March 31, 2008 were $810.4million, an increase of
      $35.5
      million, or 4.6%, 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 June 30, 2008 and December 31,
      2007.


28




(dollars
                in thousands)
            
            June
                30,
            
            December
                31,2008
            
            2007Commercial
            
            $
            293,034
            
            $
            272,660SBA
            
            
            64,725
            
            
            56,945Real
                estate construction
            
            
            99,712
            
            
            85,378Land
                loans
            
            
            60,117
            
            
            56,196Real
                estate other
            
            
            132,341
            
            
            114,846Factoring
                and asset based lending
            
            
            46,819
            
            
            57,662Other
            
            
            12,048
            
            
            9,042Total
                gross loans
            
            
            708,796
            
            
            652,729Unearned
                fee income
            
            
            (2,071
            )
            
            (1,856
            )Total
                gross loans
            
            
            706,725
            
            
            650,873Less
                allowance for credit losses
            
            
            (11,294
            )
            
            (8,308
            )Total
                loans, net
            
            $
            695,431
            
            $
            642,565Commercial
            
            
            41.3
            %
            
            41.8
            %SBA
            
            
            9.1
            %
            
            8.7
            %Real
                estate construction
            
            
            14.1
            %
            
            13.1
            %Land
                loans
            
            
            8.5
            %
            
            8.6
            %Real
                estate other
            
            
            18.7
            %
            
            17.5
            %Factoring
                and asset based lending
            
            
            6.6
            %
            
            8.8
            %Other
            
            
            1.7
            %
            
            1.4
            %Total
                gross loans
            
            
            100.0
            %
            
            100.0
            %





Net
      loan
      balances increased to $695.4 million at June 30, 2008, which represented an
      increase of $52.9 million, or 8.2%, as compared to $642.6 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.





The
      Company’s commercial loan portfolio represents loans to small and middle-market
      businesses in the Santa Clara County region. Commercial loans were $293.0
      million at June 30, 2008, which represented an increase of $20.4 million, or
      7.5%, compared to $272.7 million at December 31, 2007. At June 30, 2008,
      commercial loans comprised 41.3% 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 June, 2008, SBA loans
      comprised $64.7 million, or 9.1%, of total loans, an increase of $7.8 million,
      or 13.7%, 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 June 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 $14.3 million, or 16.82%,
      to $99.7 million at June 30, 2008 over $85.4 million at December 31, 2007.
      Construction loan balances at June 30, 2008 and December 31, 2007 comprised
      14.1% and 13.1%, respectively, of total loans.





Other
      real estate loans increased $21.4 million or 12.5% to $192.5 million at June
      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 27.2% of
      total
      loans at March 31, 2008 compared to 26.2% at December 31, 2007.


29





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 June 30, 2008,
      factoring/asset- based loans totaled $46.8 million or 6.6% 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 June 30, 2008, other loans totaled $12.0 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 June 30, 2008 and December 31, 2007.





(dollars
                in thousands)
            
            June
                30,
            
            December
                31,2008
            
            2007Amount
            
            Percent
            
            Amount
            
            PercentNoninterest-bearing
                demand
            
            $
            229,329
            
            
            31.99
            %
            $
            198,641
            
            
            29.59
            %Interest-bearing
                demand
            
            
            4,439
            
            
            0.62
            %
            
            5,350
            
            
            0.80
            %Money
                market and savings
            
            
            386,332
            
            
            53.90
            %
            
            372,923
            
            
            55.55
            %Certificates
                of deposit:Less
                than $100
            
            
            29,225
            
            
            4.08
            %
            
            22,896
            
            
            3.41
            %$100
                and more
            
            
            67,489
            
            
            9.42
            %
            
            71,546
            
            
            10.66
            %Total
                deposits
            
            $
            716,814
            
            
            100.00
            %
            $
            671,356
            
            
            100.00
            %





Deposits
      increased $45.4 million or 6.8% from $671.4 million at December 31, 2007 to
      $716.8 million at June 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 June 30, 2008, demand deposits
      and
      core deposits continued to represent 32.0% and 86.5%, respectively.





**Leverage**





Total
      gross loan balances at June 30, 2008 were $708.8 million. The resulting loan
      to
      deposit ratio was 98.9%. Other earning assets at June 30, 2008 were primarily
      comprised of investment securities, federal funds sold and interest-bearing
      deposits of $47.3 million. To date, the Company has deployed earning assets
      primarily in federal funds sold to address the potential volatility of the
      title
      company 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.


30




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.




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 June 30, 2008 was $84.2 million, which was comprised
      of $38.7 million of capital stock and surplus, $28.5 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 June 30, 2008 and December
      31, 2007 as well as the minimum capital ratios required to be deemed “well
      capitalized” under the regulatory framework.




31




(dollars in thousands)
            
            As of June 30,
              2008
            
            As of December 31,
              2007Amount
            
            Ratio
            
            Amount
            
            Ratio**Company
                Capital Ratios**Tier
                1 Capital
            
            $
            84,212
            
            
            10.47
            %
            $
            80,024
            
            
            10.54
            %(to
                Risk Weighted Assets)Tier
                1 capital minimum requirement
            
            $
            48,272
            
            
            6.00
            %
            $
            45,564
            
            
            6.00
            %Total
                Capital
            
            $
            94,269
            
            
            11.72
            %
            $
            88,632
            
            
            11.67
            %(to
                Risk Weighted Assets)Total
                capital minimum requirement
            
            $
            80,453
            
            
            10.00
            %
            $
            75,940
            
            
            10.00
            %Company
                LeverageTier
                1 Capital
            
            $
            84,212
            
            
            10.63
            %
            $
            80,024
            
            
            10.66
            %(to
                Average Assets)Tier
                1 capital minimum requirement
            
            $
            39,625
            
            
            5.00
            %
            $
            37,527
            
            
            5.00
            %**Bank
                Capital Ratios**Tier
                1 Capital
            
            $
            81,757
            
            
            10.18
            %
            $
            77,096
            
            
            10.17
            %(to
                Risk Weighted Assets)Tier
                1 capital minimum requirement
            
            $
            48,198
            
            
            6.00
            %
            $
            45,491
            
            
            6.00
            %Total
                Capital
            
            $
            91,798
            
            
            11.43
            %
            $
            85,704
            
            
            11.30
            %(to
                Risk Weighted Assets)Total
                capital minimum requirement
            
            $
            80,330
            
            
            10.00
            %
            $
            75,819
            
            
            10.00
            %Bank
                LeverageTier
                1 Capital
            
            $
            81,757
            
            
            10.33
            %
            $
            77,096
            
            
            10.27
            %(to
                Average Assets)Tier
                1 capital minimum requirement
            
            $
            39,572
            
            
            5.00
            %
            $
            37,523
            
            
            5.00
            %





The
      Company and the Bank were considered well capitalized at June 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 June
      30, 2008, no share repurchases have occurred.




32


**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. At June
      30,
      2008 and December 31, 2007, liquid assets as a percentage of deposits were
      11.0%
      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 $35.0 million in Federal funds
      lines of credit available with correspondent banks to meet liquidity needs.
      At
      June 30, 2008, there were no balances outstanding on these lines. Additionally,
      as of June 30, 2008, the Company had a total borrowing capacity with the Federal
      Home Loan Bank of San Francisco of approximately $108.0 million for which the
      Company had collateral in place to borrow $75.0 million. As of June 30, 2008,
      $10.0 million of this borrowing capacity was pledged to secure a letter of
      credit.





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 June 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 June 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
            
            $
            12,765
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            12,765U.S.
                Treasury securities
            
            
            -
            
            
            101
            
            
            -
            
            
            -
            
            
            -
            
            
            101Agency
                securities
            
            
            3,011
            
            
            6,029
            
            
            11,540
            
            
            8,198
            
            
            -
            
            
            28,778Loans
            
            
            396,305
            
            
            42,998
            
            
            62,145
            
            
            135,362
            
            
            71,986
            
            
            708,796Total
                earning assets
            
            $
            412,081
            
            $
            49,128
            
            $
            73,685
            
            $
            143,560
            
            $
            71,986
            
            $
            750,440Interest
                checking, money market and savings
            
            
            386,176
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            386,176Certificates
                of deposit:Less
                than $100,000
            
            
            4,529
            
            
            4,240
            
            
            16,503
            
            
            3,953
            
            
            -
            
            
            29,225$100,000
                or more
            
            
            28,076
            
            
            12,939
            
            
            21,983
            
            
            4,491
            
            
            
            
            
            67,489Other
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            17,527
            
            
            17,527Total
                interest-bearing liabilities
            
            $
            418,781
            
            $
            17,179
            
            $
            38,486
            
            $
            8,444
            
            $
            17,527
            
            $
            500,417Interest
                rate gap
            
            $
            (6,700
            )
            $
            31,949
            
            $
            35,199
            
            $
            135,116
            
            $
            54,459
            
            $
            250,023Cumulative
                interest rate gap
            
            $
            (6,700
            )
            $
            25,249
            
            $
            60,448
            
            $
            195,564
            
            $
            250,023Interest
                rate gap ratio
            
            
            (0.02
            )
            
            0.65
            
            
            0.48
            
            
            0.94
            
            
            0.76Cumulative
                interest rate gap ratio
            
            
            (0.02
            )
            
            0.05
            
            
            0.11
            
            
            0.29
            
            
            0.33





Based
      on
      the contractual terms of its assets and liabilities, the Company’s balance sheet
      at June 30, 2008 was asset sensitive in terms of its short-term exposure to
      interest rates. That is, at June 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.




33




The
      following table shows maturity and interest rate sensitivity of the loan
      portfolio at June 30, 2008 and December 31, 2007. At June 30, 2008,
      approximately 82.1% 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 June 30, 2008Due after oneDue one year
            
            year through
            
            Due afterAmount
            
            or less
            
            five years
            
            five yearsCommercial
                and other
            
            $
            293,034
            
            $
            154,020
            
            $
            114,166
            
            $
            24,848SBA
            
            
            64,725
            
            
            9,179
            
            
            4,174
            
            
            51,372Real
                estate construction
            
            
            99,712
            
            
            90,389
            
            
            9,323
            
            
            -Land
                loans
            
            
            60,117
            
            
            55,538
            
            
            2,293
            
            
            2,286Real
                estate-other
            
            
            132,341
            
            
            17,553
            
            
            38,955
            
            
            75,833Factoring
                / Asset-Based Lending
            
            
            46,819
            
            
            45,567
            
            
            1,252
            
            
            -Other
            
            
            12,048
            
            
            11,323
            
            
            725
            
            
            -Total
                loans
            
            $
            708,796
            
            $
            383,569
            
            $
            170,888
            
            $
            154,339





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


·
            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.




34




In
      the
      ordinary course of business, we have issued certain guarantees which qualify
      as
      off-balance sheet arrangements, as of June 30, 2008 those guarantees include
      the
      following:





·
            Standby
                Letters of Credit in the amount of $15.6
                million.





The
      table
      below summarizes the Company’s off-balance sheet contractual
      obligations:





(dollars
                in thousands)
            
            As of June 30, 2008Payments due by periodLess than
            
            1 - 3
            
            3 - 5
            
            More thanTotal
            
            1 year
            
            years
            
            years
            
            5 yearsLong-term
                contracts
            
            
            2,591
            
            $
            969
            
            $
            1,419
            
            $
            203
            
            $
            -Operating
                leases
            
            
            14,146
            
            
            1,686
            
            
            3,675
            
            
            3,391
            
            
            5,394Total
            
            $
            16,737
            
            $
            2,655
            
            $
            5,094
            
            $
            3,594
            
            $
            5,394





**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 June 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 second
      quarter of 2008 that has materially affected, or is reasonably likely to
      materially affect, the Company’s internal control over financial reporting.




35




**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 38 of this Quarterly Report on Form 10-Q.




36




**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:
                August 7, 2008
            By:
            /s/
                Daniel P. MyersDaniel
                P. MyersPresident
                and Chief Executive Officer(Principal
                Executive Officer)Dated:
                August 7, 2008
            By:
            /s/
                Thomas A. SaThomas
                A. SaExecutive
                Vice PresidentChief
                Administrative Officer and Chief Financial Officer(Principal
                Financial and Accounting Officer)




37





**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




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