UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


**Washington,
      D.C. 20549**





**FORM
      10-Q/A**


**Amendment
      No. 1**








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**





** ̈**
            **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  ̈




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


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





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


Yes
 ̈No
x




The
      number of shares of Common Stock outstanding as of September 4, 2008:
      6,598,819





**TABLE
      OF CONTENTS**





**PART
                I - FINANCIAL INFORMATION**Item
                1
            Financial
                StatementsInterim
                Consolidated Balance Sheets
            5Interim
                Consolidated Statements of Operations
            6Interim
                Consolidated Statements of Cash Flows
            7Notes
                to Interim Consolidated Financial Statements
            8Item
                2
            Management's
                Discussion and Analysis of Financial Condition andResults
                of Operations
            15Item
                3
            Quantitative
                and Qualitative Disclosures About Market Risk
            35Item
                4
            Controls
                and Procedures
            37**PART
                II - OTHER INFORMATION**Item
                1
            Legal
                Proceedings
            38Item
                1A
            Risk
                Factors
            38Item
                2
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            38Item
                3
            Defaults
                Upon Senior Securities
            38Item
                4
            Submission
                of Matters to a Vote of Security Holders
            38Item
                5
            Other
                Information
            39Item
                6
            Exhibits
            39Signatures
            40Index
                to Exhibits
            41


2





**EXPLANATORY
      NOTE**





Bridge
      Capital Holdings (“Company”), parent of Bridge Bank N.A. (“Bank”), has restated
      its previously reported results for the second quarter and six months ended
      June
      30, 2008, primarily to reflect an additional provision to its allowance for
      credit losses.





The
      increase in the provision to its allowance for credit losses follows a
      reassessment of the risks posed by deterioration in national macroeconomic
      conditions and heightened regulatory scrutiny. As a result of the reassessment,
      the Company is providing an additional $5.0 million to the allowance for credit
      losses as of June 30, 2008.





While
      at
      present the Company’s core market does not appear to be experiencing the same
      degree of economic stress as elsewhere in California and other sections of
      the
      country, management determined that it was prudent to expand its risk assessment
      to consider broader macroeconomic conditions that could impact the Company’s
      core market, regulatory considerations, and other factors. The perspective
      of
      bank regulatory agencies, in particular, has the benefit of a broad view of
      conditions across a wide spectrum of markets, many of which are exhibiting
      significant economic stress. Therefore, subsequent to filing the second quarter
      10-Q, the Company worked closely with its regulators to evaluate its loan
      administration practices, to implement enhanced lending oversight and to
      reassess risk in its loan portfolio.





In
      reassessing risks in the portfolio at June 30, 2008, the Company expanded its
      stress-testing of the construction and land development portfolio to incorporate
      an adverse scenario under which the Company’s core market would experience the
      degree of deterioration in values experienced in other more impacted markets.
      The additional provision was entirely based upon a conservative risk assessment
      of these general market factors and does not reflect a change in the Company’s
      assessment of loss at June 30, 2008 as it relates to nonperforming assets or
      specifically identified loans in the portfolio.





As
      a
      result of the Company’s reassessment of risks noted above, the Company
      determined that one additional construction loan totaling $1.6 million and
      two
      additional land development loans totaling $5.9 million should be included
      in
      nonperforming assets as of June 30, 2008. In each case, although the loans
      were
      current as of June 30, 2008, uncertainties regarding secondary sources of
      repayment have resulted in a high degree of dependence on the sale or refinance
      of the underlying collateral to repay the loans. Recent appraisals of the
      collateral reflect a weighted average loan to value of 51.0% for these loans
      and
      the Company expects to collect all amounts owed. The reclassification of these
      loans to nonperforming assets did not require additional reserves to the
      allowance for credit losses.





Finally,
      the Company charged-off approximately $1.7 million of balances that were
      previously recognized as impairment reserves in the allowance for credit losses
      at June 30, 2008.





At
      June
      30, 2008 the restated balance of nonperforming assets totaled $28.9 million,
      or
      3.58% 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.





As
      a
      result of the restatement, the Company recognized a net loss of $1.3 million
      (or
      $0.20 diluted loss per share) for the quarter ended June 30, 2008 rather than
      net income of $1.6 million (or $0.23 diluted earnings per share), and net income
      for the first six months of 2008 of $195,000 (or $0.03 diluted earnings per
      share) rather than $3.1 million (or $0.45 diluted earnings per share) as
      originally reported. The Company’s and the Bank’s capital ratios remain above
      minimum well-capitalized standards.





The
      Company has adopted an action plan to strengthen its loan operations and reduce
      concentration risk associated with construction and land development in order
      to
      meet the challenges of economic conditions. Additionally, the Company
      anticipates that it will enter into an understanding with its regulators
      confirming that it will take appropriate steps similar to those in its action
      plan that already is being implemented.


3


**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.*


4


**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 $14,608 at June 30, 2008 and
                $8,608
                at December 31, 2007
            
            
            690,431
            
            
            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
            
            $
            805,352
            
            $
            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
            
            
            4,605
            
            
            10,655Total
                liabilities
            
            
            739,170
            
            
            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
            
            
            25,604
            
            
            25,409Accumulated
                other comprehensive income
            
            
            1,875
            
            
            1,978Total
                shareholders' equity
            
            
            66,182
            
            
            65,084Total
                liabilities and shareholders' equity
            
            $
            805,352
            
            $
            774,832





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


5


**BRIDGE
      CAPITAL HOLDINGS AND SUBSIDIARY**


**Interim
      Consolidated Statements of Operations (unaudited)**


(dollars
      in thousands, except per share data)





**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
            
            
            6,200
            
            
            1,000
            
            
            8,570
            
            
            1,200Net
                interest income after provision for credit losses
            
            
            5,524
            
            
            10,926
            
            
            15,186
            
            
            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/(loss)
                before income taxes
            
            
            (2,272
            )
            
            5,117
            
            
            325
            
            
            9,309Income
                taxes
            
            
            (945
            )
            
            2,134
            
            
            130
            
            
            3,882Net
                income/(loss)
            
            $
            (1,327
            )
            $
            2,983
            
            $
            195
            
            $
            5,427Basic
                earnings/(loss) per share
            
            $
            (0.20
            )
            $
            0.47
            
            $
            0.04
            
            $
            0.85Diluted
                earnings(loss) per share
            
            $
            (0.20
            )
            $
            0.43
            
            $
            0.03
            
            $
            0.78Average
                common shares outstanding
            
            
            6,492,647
            
            
            6,381,493
            
            
            6,463,773
            
            
            6,356,192Average
                common and equivalent shares outstanding
            
            
            6,492,647
            
            
            6,933,273
            
            
            6,909,913
            
            
            6,908,338





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


6


**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
            
            $
            195
            
            $
            5,427Adjustments
                to reconcile net income to net cash provided by operating
                activities:Provision
                for credit losses
            
            
            8,570
            
            
            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 receivable and other assets
            
            
            637
            
            
            (2,490
            )Decrease
                in accrued interest payable and other liabilities
            
            
            (5,690
            )
            
            (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.


7


**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.


8







**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.


(dollars
                  in thousands)
              
              Three months ended
                June 30,
              
              Six months ended
                June 30,2008
              
              2007
              
              2008
              
              2007Net
                  income/(loss)
              
              $
              (1,327
              )
              $
              2,983
              
              $
              195
              
              $
              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/(loss)
              
              $
              (3,352
              )
              $
              2,016
              
              $
              92
              
              $
              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):


9




Three
                months ended
            
            Six
                months ended(dollars
                in thousands)
            
            June
                30,
            
            June
                30,2008
            
            2007
            
            2008
            
            2007Net
                income/(loss)
            
            $
            (1,327
            )
            $
            2,983
            
            $
            195
            
            $
            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
            
            
            0
            
            
            551,780
            
            
            446,140
            
            
            552,146Total
                average common equivalent shares
            
            
            6,492,647
            
            
            6,933,273
            
            
            6,909,913
            
            
            6,908,338Basic
                earnings/(loss) per share
            
            $
            (0.20
            )
            $
            0.47
            
            $
            0.04
            
            $
            0.85Diluted
                earnings/(loss) per share
            
            $
            (0.20
            )
            $
            0.43
            
            $
            0.03
            
            $
            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
            
            $
            -
            
            $
            28,879As
                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




10




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
            
            $
            292,731
            
            $
            272,660SBA
            
            
            64,596
            
            
            56,945Real
                estate construction
            
            
            99,712
            
            
            85,378Land
                development
            
            
            58,863
            
            
            56,196Real
                estate other
            
            
            132,341
            
            
            114,846Factoring
                and asset based lending
            
            
            46,819
            
            
            57,662Other
            
            
            12,048
            
            
            9,042Loans,
                gross
            
            
            707,110
            
            
            652,729Unearned
                fee income
            
            
            (2,071
            )
            
            (1,856
            )Total
                loan portfolio
            
            
            705,039
            
            
            650,873Less
                allowance for credit losses
            
            
            (14,608
            )
            
            (8,608
            )Loans,
                net
            
            $
            690,431
            
            $
            642,265




11




**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, 2008Accumulated
            
            Net
                BookCost
            
            Depreciation
            
            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, 2007Accumulated
            
            Net
                bookCost
            
            Depreciation
            
            ValueLeasehold
                improvements
            
            $
            4,855
            
            $
            (1,548
            )
            $
            3,307Furniture
                and fixtures
            
            
            1,027
            
            
            (627
            )
            
            400Capitalized
                software
            
            
            2,285
            
            
            (1,567
            )
            
            718Equipment
            
            
            1,798
            
            
            (1,218
            )
            
            580Construction
                in process
            
            
            -
            
            
            -
            
            
            -Totals
            
            $
            9,965
            
            $
            (4,960
            )
            $
            5,005




**6.
      Junior Subordinated Debt Securities and Other Borrowings**





**Junior
      Subordinated Debt Securities**





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





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





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





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


12





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.


13





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.


14




**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.
  15
   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.
  16
 
 **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
              
              Six months endedJune 30,
              
              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
              
              
              6,200
              
              
              1,000
              
              
              8,570
              
              
              1,200Net
                  interest income after provision for credit losses
              
              
              5,524
              
              
              10,926
              
              
              15,186
              
              
              21,678Other
                  income
              
              
              1,715
              
              
              2,613
              
              
              3,386
              
              
              3,907Other
                  expenses
              
              
              9,511
              
              
              8,422
              
              
              18,247
              
              
              16,276Income/(loss)
                  before income taxes
              
              
              (2,272
              )
              
              5,117
              
              
              325
              
              
              9,309Income
                  taxes
              
              
              (945
              )
              
              2,134
              
              
              130
              
              
              3,882Net
                  income/(loss)
              
              $
              (1,327
              )
              $
              2,983
              
              $
              195
              
              $
              5,427**Per
                  Share Data:**Basic
                  earnings/(loss) per share
              
              $
              (0.20
              )
              $
              0.47
              
              $
              0.04
              
              $
              0.85Diluted
                  earnings/(loss) per share
              
              $
              (0.20
              )
              
              0.43
              
              
              0.03
              
              
              0.78Shareholders'
                  equity per share
              
              
              10.06
              
              
              8.61
              
              
              10.06
              
              
              8.61Cash
                  dividend per common share
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Balance
                  Sheet Data:**Balance
                  sheet totals:Assets
              
              $
              805,352
              
              $
              763,797Loans,
                  net
              
              
              690,431
              
              
              597,056Deposits
              
              
              716,814
              
              
              681,126Shareholders'
                  equity
              
              
              66,182
              
              
              54,986Average
                  balance sheet amounts:Assets
              
              $
              806,637
              
              $
              759,905
              
              $
              792,479
              
              $
              724,208Loans,
                  net
              
              
              675,607
              
              
              583,529
              
              
              662,550
              
              
              559,696Deposits
              
              
              705,699
              
              
              678,773
              
              
              690,890
              
              
              644,593Shareholders'
                  equity
              
              
              69,337
              
              
              54,171
              
              
              68,403
              
              
              52,487**Selected
                  Ratios:**Return
                  on average assets
              
              
              -0.66
              %
              
              1.57
              %
              
              0.05
              %
              
              1.51
              %Return
                  on average equity
              
              
              -7.70
              %
              
              22.09
              %
              
              0.57
              %
              
              20.85
              %Efficiency
                  ratio
              
              
              70.77
              %
              
              57.93
              %
              
              67.23
              %
              
              60.77
              %Risk
                  based capital ratio
              
              
              11.37
              %
              
              11.56
              %Net
                  chargeoffs to average gross loans
              
              
              0.37
              %
              
              0.16
              %
              
              0.38
              %
              
              0.17
              %Allowance
                  for loan losses to total loans
              
              
              2.07
              %
              
              1.25
              %Average
                  equity to average assets
              
              
              8.60
              %
              
              7.13
              %
              
              8.63
              %
              
              7.25
              %
  17
 
 **Summary
        of Financial Results – Quarter ended June 30, 2008**
 
 The
        Company reported a net loss of $1.3 million (or $0.20 basic and $0.20 diluted
        loss per share) for the quarter ended June 30, 2008 as compared to net income
        of
        $3.0 million (or $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
        an increase in the provision for credit losses.
 
 The
        table
        below highlights the changes in the nature and sources of income and expense.
 
  Three
                  months endedJune
                  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
              
              
              6,200
              
              
              1,000
              
              
              5,200Net
                  interest income after provision for credit losses
              
              
              5,524
              
              
              10,926
              
              
              (5,402
              )Other
                  income
              
              
              1,715
              
              
              2,613
              
              
              (898
              )Other
                  expenses
              
              
              9,511
              
              
              8,422
              
              
              1,089Income/(loss)
                  before income taxes
              
              
              (2,272
              )
              
              5,117
              
              
              (7,389
              )Income
                  taxes
              
              
              (945
              )
              
              2,134
              
              
              (3,079
              )Net
                  income/(loss)
              
              $
              (1,327
              )
              $
              2,983
              
              $
              (4,310
              )
 
 **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.
  18
  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
              
              2007Yields
              
              Interest
              
              
              
              Yields
              
              InterestAverage
              
              or
              
              Income/
              
              Average
              
              or
              
              Income/Balance
              
              Rates
              
              Expense
              
              Balance
              
              Rates
              
              ExpenseASSETSInterest
                  earning assets (2):Loans
                  (1)
              
              $
              688,339
              
              
              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
              
              
              762,557
              
              
              7.9
              %
              
              14,948
              
              
              708,927
              
              
              9.6
              %
              
              16,936Noninterest-earning
                  assets:Cash
                  and due from banks
              
              
              20,546
              
              
              
              
              
              
              
              
              29,985All
                  other assets (3)
              
              
              23,534
              
              
              
              
              
              
              
              
              20,993TOTAL
              
              $
              806,637
              
              
              
              
              
              
              
              $
              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
              
              
              9,767
              
              
              
              
              
              
              
              
              9,434Shareholders'
                  equity
              
              
              69,337
              
              
              
              
              
              
              
              
              54,171TOTAL
              
              $
              806,637
              
              
              
              
              
              
              
              $
              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.
  19
  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
              
              $
              (1,718
              )
              $
              (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.
  20
  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 and/or
        national macroeconomic conditions, the value of underlying collateral, loan
        performance, and inherent risks in the loan portfolio. The allowance is reduced
        by charge-offs and increased by provisions for credit losses charged to
        operating expense and recoveries of previously charged-off loans.
 
 As
        previously reported, the Company originally provided $1.2 million to the
        allowance for credit losses for the three months ended June 30, 2008, compared
        to $1.0 million for the same period in 2007. Subsequent to the quarter ended
        June 30, 2008, the Company reassessed the risks posed by the deterioration
        in
        national macroeconomic conditions and heightened regulatory scrutiny. As
        a
        result of the reassessment, the Company is providing an additional $5.0 million
        to the allowance for credit losses as of June 30, 2008.
 
 While
        at
        present the Company’s core market does not appear to be experiencing the same
        degree of economic stress as reflected elsewhere in California and other
        sections of the country, management determined that it was prudent to expand
        its
        risk assessment to consider broader macroeconomic conditions that could impact
        the Company’s core market, regulatory considerations, and other factors. The
        perspective of bank regulatory agencies, in particular, has the benefit of
        a
        broad view of conditions across a wide spectrum of markets, many of which
        are
        exhibiting significant economic stress. Therefore, subsequent to filing the
        second quarter 10-Q, the Company worked closely with its regulators to evaluate
        its loan administration practices, to implement enhanced lending oversight,
        and
        to reassess risk in its loan portfolio.
 
 In
        reassessing risks in the portfolio at June 30, 2008, the Company expanded
        its
        stress-testing of the construction and land development portfolio to incorporate
        an adverse scenario under which the Company’s core market would experience the
        degree of deterioration in values experienced in other more impacted markets.
        The additional provision was entirely based upon a conservative risk assessment
        of these general market factors and does not reflect a change in the Company’s
        assessment of loss at June 30, 2008 as it relates to nonperforming assets
        or
        specifically identified loans in the portfolio.
 
 As
        previously reported, 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. As a result of the Company’s reassessment of risks noted above,
        the Company charged-off an additional $1.7 million of balances as of June
        30,
        2008 that were previously included as part of the impairment reserves in
        the
        allowance for credit losses. 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 restated allowance for credit losses was $14.6 million,
        representing 2.1% 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
        for
        the quarter ended June 30, 2008 and 2007, respectively:
  21
 
  Three months ended(dollars
                  in thousands)
              
              June
                  30,2008
              
              2007Balance,
                  beginning of period
              
              $
              10,978
              
              $
              7,533Provision
                  for credit losses
              
              
              6,200
              
              
              1,000Charge-offs
              
              
              (2,571
              )
              
              (943
              )Recoveries
              
              
              1
              
              
              -Balance,
                  end of period
              
              $
              14,608
              
              $
              7,590
 
 As
        previously reported, 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 $654,000 categorized as “other real estate
        owned”, and one commercial property valued at $325,000 categorized as “other
        real estate owned”.
 
 As
        previously reported, 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. As a result of the Company’s reassessment of risks noted
        above, the Company charged-off the estimated loss exposure of $1.3 million
        pertaining to these loans as of June 30, 2008 and, as such, the remaining
        relationship totals $6.3 million. 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.
 
 As
        previously reported, 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. As a result of the Company’s reassessment of risks noted above, the
        Company charged-off $430,000 pertaining to these loans as of June 30,
        2008.
 
 As
        a
        result of the Company’s reassessment of risks noted above, the Company
        determined that one additional construction loan totaling $1.6 million and
        two
        additional land development loans totaling $5.9 million should be included
        in
        nonperforming assets as of June 30, 2008. In each case, although the loans
        were
        current as of June 30, 2008, uncertainties regarding secondary sources of
        repayment have resulted in a high degree of dependence on the sale or refinance
        of the underlying collateral to repay the loans. Recent appraisals of the
        collateral reflect a weighted average loan to value of 51.0% for these loans
        and
        the Company expects to collect all amounts owed. The reclassification of
        these
        loans to nonperforming assets did not require additional reserves to the
        allowance for credit losses.
 
 At
        June
        30, 2008 the restated balance of nonperforming assets totaled $28.9 million,
        or
        3.58% 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
        following summarizes nonperforming assets at June 30, 2008 and December 31,
        2007.
  22
 
 June 30,
              
              December 31,(dollars in thousands)
              
              2008
              
              2007Loans
                  accounted for on a non-accrual basis
              
              $
              27,872
              
              $
              -Loans
                  restructured and in compliance with modified terms
              
              
              -
              
              
              -Other
                  loans with principal or interest contracturally past due 90 days
                  or
                  more
              
              
              -
              
              
              -Total
                  nonperforming loans
              
              
              27,872
              
              
              -Other
                  real estate owned
              
              
              979
              
              
              425Total
                  nonperforming assets
              
              $
              28,851
              
              $
              425
 
 Based
        on
        an evaluation of the individual credits, historical credit loss experience
        by
        loan type, economic conditions, and the Company’s reassessment of risks noted
        above, management has allocated the allowance for loan losses as follows
        for the
        periods ending June 30, 2008 and December 31, 2007:
 
  (dollars
                  in thousands)
              
              June 30, 2008
              
              December 31, 2007Percent of
              
              
              
              Percent ofloans in each
              
              
              
              loans in eachcategory to
              
              
              
              category toAmount
              
              gross loans
              
              Amount
              
              gross loansCommercial
              
              $
              4,877
              
              
              41.4
              %
              $
              3,124
              
              
              41.8
              %SBA
              
              
              1,792
              
              
              9.1
              %
              
              1,053
              
              
              8.7
              %Real
                  estate construction
              
              
              2,994
              
              
              14.1
              %
              
              783
              
              
              13.1
              %Land
                  loans
              
              
              1,917
              
              
              8.3
              %
              
              1,584
              
              
              8.6
              %Real
                  estate other
              
              
              1,839
              
              
              18.7
              %
              
              772
              
              
              17.5
              %Factoring/ABL
              
              
              992
              
              
              6.6
              %
              
              1,239
              
              
              8.8
              %Other
              
              
              197
              
              
              1.8
              %
              
              53
              
              
              1.4
              %$
              14,608
              
              
              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 22.4% 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:
  23
  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
              %
  24
 
 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 $195,000 ($0.04 basic and $0.03 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 endedJune 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
                  
                  
                  8,570
                  
                  
                  1,200
                  
                  
                  7,370Net
                      interest income after provision for credit losses
                  
                  
                  15,186
                  
                  
                  21,678
                  
                  
                  (6,492
                  )Other
                      income
                  
                  
                  3,386
                  
                  
                  3,907
                  
                  
                  (521
                  )Other
                      expenses
                  
                  
                  18,247
                  
                  
                  16,276
                  
                  
                  1,971Income/(loss)
                      before income taxes
                  
                  
                  325
                  
                  
                  9,309
                  
                  
                  (8,984
                  )Income
                      taxes
                  
                  
                  130
                  
                  
                  3,882
                  
                  
                  (3,752
                  )Net
                      income/(loss)
                  
                  $
                  195
                  
                  $
                  5,427
                  
                  $
                  (5,232
                  )
  **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.
  25
 
 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)
              
              $
              674,211
              
              
              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
              
              
              748,364
              
              
              8.3
              %
              
              30,969
              
              
              673,666
              
              
              9.6
              %
              
              32,314Noninterest-earning
                  assets:Cash
                  and due from banks
              
              
              19,521
              
              
              
              
              
              
              
              
              30,426All
                  other assets (3)
              
              
              24,594
              
              
              
              
              
              
              
              
              20,116TOTAL
              
              $
              792,479
              
              
              
              
              
              
              
              $
              724,208LIABILITIES
                  AND SHAREHOLDERS' 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 and other liabilities
              
              
              10,598
              
              
              
              
              
              
              
              
              9,602Shareholders'
                  equity
              
              
              68,403
              
              
              
              
              
              
              
              
              52,487TOTAL
              
              $
              792,479
              
              
              
              
              
              
              
              $
              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.
  26
 
 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.
  27
 
 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 and/or
        national macroeconomic conditions, the value of underlying collateral, loan
        performance and inherent risks in the loan portfolio. The allowance is reduced
        by charge-offs and increased by provisions for credit losses charged to
        operating expense and recoveries of previously charged-off loans.
 
 As
        previously reported, the Company originally provided $3.6 million to the
        allowance for credit losses for the six months ended June 30, 2008, compared
        to
        $1.2 million for the same period in 2007. Subsequent to the six months ended
        June 30, 2008, the Company reassessed the risks posed by the deterioration
        in
        national macroeconomic conditions and heightened regulatory scrutiny. As
        a
        result of the reassessment, the Company is providing an additional $5.0 million
        to the allowance for credit losses as of June 30, 2008.
 
 While
        at
        present the Company’s core market does not appear to be experiencing the same
        degree of economic stress as reflected elsewhere in California and other
        sections of the country, management determined that it was prudent to expand
        its
        risk assessment to consider broader macroeconomic conditions that could impact
        the Company’s core market, regulatory considerations, and other factors. The
        perspective of bank regulatory agencies, in particular, has the benefit of
        a
        broad view of conditions across a wide spectrum of markets, many of which
        are
        exhibiting significant economic stress. Therefore, subsequent to filing the
        second quarter 10-Q, the Company worked closely with its regulators to evaluate
        its loan administration practices, to implement enhanced lending oversight,
        and
        to reassess risk in its loan portfolio.
 
 In
        reassessing risks in the portfolio at June 30, 2008, the Company expanded
        its
        stress-testing of the construction and land development portfolio to incorporate
        an adverse scenario under which the Company’s core market would experience the
        degree of deterioration in values experienced in other more impacted markets.
        The additional provision was entirely based upon a conservative risk assessment
        of these general market factors and does not reflect a change in the Company’s
        assessment of loss at June 30, 2008 as it relates to nonperforming assets
        or
        specifically identified loans in the portfolio.
 
 As
        previously reported, the Company’s loan charge-offs totaled $885,000 during the
        six months ended June 30, 2008, compared to $943,000 for the same period
        one
        year earlier. As a result of the Company’s reassessment of risks noted above,
        the Company charged-off an additional $1.7 million of balances as of June
        30,
        2008 that were previously included as part of the impairment reserves in
        the
        allowance for credit losses. The Company recognized $1,000 and $4,000 in
        loan
        recoveries for the six months ended June 30, 2008 and 2007,
        respectively.
 
 At
        June
        30, 2008, the restated allowance for credit losses was $14.6 million,
        representing 2.1% 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
        for
        the six months ended June 30, 2008 and 2007, respectively:
  28
 
 Six months ended(dollars
                  in thousands)
              
              June
                  30,2008
              
              2007Balance,
                  beginning of period
              
              $
              8,608
              
              $
              7,329Provision
                  for credit losses
              
              
              8,570
              
              
              1,200Charge-offs
              
              
              (2,571
              )
              
              (943
              )Recoveries
              
              
              1
              
              
              4Balance,
                  end of period
              
              $
              14,608
              
              $
              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:
 
 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.
  29
 
 **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.
 
 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 June 30, 2008 were $805.4 million, an increase of
        $30.5
        million, or 3.9%, 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.
  30


(dollars in thousands)
            
            June 30,
            
            December 31,2008
            
            2007Commercial
            
            $
            292,731
            
            $
            272,660SBA
            
            
            64,596
            
            
            56,945Real
                estate construction
            
            
            99,712
            
            
            85,378Land
                loans
            
            
            58,863
            
            
            56,196Real
                estate other
            
            
            132,341
            
            
            114,846Factoring
                and asset based lending
            
            
            46,819
            
            
            57,662Other
            
            
            12,048
            
            
            9,042Total
                gross loans
            
            
            707,110
            
            
            652,729Unearned
                fee income
            
            
            (2,071
            )
            
            (1,856
            )Total
                gross loans
            
            
            705,039
            
            
            650,873Less
                allowance for credit losses
            
            
            (14,608
            )
            
            (8,308
            )Total
                loans, net
            
            $
            690,431
            
            $
            642,565Commercial
            
            
            41.4
            %
            
            41.8
            %SBA
            
            
            9.1
            %
            
            8.7
            %Real
                estate construction
            
            
            14.1
            %
            
            13.1
            %Land
                loans
            
            
            8.3
            %
            
            8.6
            %Real
                estate other
            
            
            18.7
            %
            
            17.5
            %Factoring
                and asset based lending
            
            
            6.6
            %
            
            8.8
            %Other
            
            
            1.8
            %
            
            1.4
            %Total
                gross loans
            
            
            100.0
            %
            
            100.0
            %





Net
      loan
      balances increased to $690.4 million at June 30, 2008, which represented an
      increase of $47.9 million, or 7.4%, 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 $292.7
      million at June 30, 2008, which represented an increase of $20.1 million, or
      7.4%, compared to $272.7 million at December 31, 2007. At June 30, 2008,
      commercial loans comprised 41.4% 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 $64.6 million, or 9.1%, of total loans, an increase of $7.7 million,
      or 13.4%, 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 16.8%,
      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 $20.2 million or 11.8% to $191.2 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 27.0% of
      total
      loans at June 30, 2008 compared to 26.2% at December 31, 2007.


31





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 $707.1 million. The resulting loan
      to
      deposit ratio was 98.6%. 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 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.




32




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 $81.3 million, which was comprised
      of $38.7 million of capital stock and surplus, $25.6 million in retained
      earnings and trust preferred securities up to the allowable limit of $17.0
      million.





33




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.





As of June 30,
            
            As of December 31,(dollars in thousands)
            
            2008
            
            2007Amount
            
            Ratio
            
            Amount
            
            Ratio**Company
                Capital Ratios**Tier
                1 Capital
            
            $
            81,281
            
            
            10.12
            %
            $
            80,024
            
            
            10.54
            %(to
                Risk Weighted Assets)Tier
                1 capital minimum requirement
            
            $
            48,171
            
            
            6.00
            %
            $
            45,564
            
            
            6.00
            %Total
                Capital
            
            $
            91,317
            
            
            11.37
            %
            $
            88,632
            
            
            11.67
            %(to
                Risk Weighted Assets)Total
                capital minimum requirement
            
            $
            80,285
            
            
            10.00
            %
            $
            75,940
            
            
            10.00
            %Company
                LeverageTier
                1 Capital
            
            $
            81,281
            
            
            10.26
            %
            $
            80,024
            
            
            10.66
            %(to
                Average Assets)Tier
                1 capital minimum requirement
            
            $
            39,624
            
            
            5.00
            %
            $
            37,527
            
            
            5.00
            %**Bank
                Capital Ratios**Tier
                1 Capital
            
            $
            78,827
            
            
            9.83
            %
            $
            77,096
            
            
            10.17
            %(to
                Risk Weighted Assets)Tier
                1 capital minimum requirement
            
            $
            48,097
            
            
            6.00
            %
            $
            45,491
            
            
            6.00
            %Total
                Capital
            
            $
            88,847
            
            
            11.08
            %
            $
            85,704
            
            
            11.30
            %(to
                Risk Weighted Assets)Total
                capital minimum requirement
            
            $
            80,161
            
            
            10.00
            %
            $
            75,819
            
            
            10.00
            %Bank
                LeverageTier
                1 Capital
            
            $
            78,827
            
            
            9.96
            %
            $
            77,096
            
            
            10.27
            %(to
                Average Assets)Tier
                1 capital minimum requirement
            
            $
            39,571
            
            
            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.


34


**ITEM
      3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**




**Liquidity/Interest
      Rate Sensitivity**




The
      Company manages its liquidity to provide adequate funds at an acceptable cost
      to
      support borrowing requirements and deposit flows of its customers. The increased
      level of nonperforming assets at June 30, 2008 may have the potential to impact
      the Company’s ability to raise deposits and could result in higher deposit costs
      and/or lower liquidity. At 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
            
            
            394,646
            
            
            42,998
            
            
            62,145
            
            
            135,362
            
            
            71,959
            
            
            707,110Total
                earning assets
            
            $
            410,422
            
            $
            49,128
            
            $
            73,685
            
            $
            143,560
            
            $
            71,959
            
            $
            748,754Interest
                checking, moneymarket
                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
            
            $
            (8,359
            )
            $
            31,949
            
            $
            35,199
            
            $
            135,116
            
            $
            54,432
            
            $
            248,337Cumulative
                interest rate gap
            
            $
            (8,359
            )
            $
            23,590
            
            $
            58,789
            
            $
            193,905
            
            $
            248,337Interest
                rate gap ratio
            
            
            (0.02
            )
            
            0.65
            
            
            0.48
            
            
            0.94
            
            
            0.76Cumulative
                interest rategap
                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.


35





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
            
            $
            292,731
            
            $
            154,019
            
            $
            113,864
            
            $
            24,848SBA
            
            
            64,596
            
            
            9,180
            
            
            4,174
            
            
            51,242Real
                estate construction
            
            
            99,712
            
            
            90,389
            
            
            9,323
            
            
            -Land
                loans
            
            
            58,863
            
            
            54,284
            
            
            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
            
            $
            707,110
            
            $
            382,315
            
            $
            170,586
            
            $
            154,209





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.




36




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.




37


**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**




The
      2008
      Annual Meeting of Stockholders was held on May 15, 2008. There were 6,512,171
      shares of common stock outstanding and entitled to vote at the meeting. A total
      of 5,103,760 shares of common stock were represented at the meeting in person
      or
      by proxy, representing 78.4% of the shares outstanding and entitled to vote
      at
      the meeting.





At
      the
      meeting, stockholders:





1)
            re-elected
                all 11 of the Company’s incumbent directors to serve for the ensuing year;
                and


2)
            ratified
                the selection of Vavrinek, Trine, Day & Co. LLP as the Company’s
                independent public accounting firm for its fiscal year ending December
                31,
                2008.





The
      voting results of the above matters were as follows:





1)
            Election
                of directors:





Shares VotedIn Favor
            
            WithheldSheryle Bolton
            
            
            5,071,239
            
            
            32,521Richard
                M. Brenner
            
            
            5,076,499
            
            
            27,261Lawrence
                Owen Brown
            
            
            5,085,099
            
            
            18,661David
                V. Campbell
            
            
            5,076,189
            
            
            27,571Robert
                P. Gionfriddo
            
            
            5,089,842
            
            
            13,918Robert
                B. Kaplan
            
            
            5,085,099
            
            
            18,661Allan
                C. Kramer, M.D.
            
            
            5,075,392
            
            
            28,368Robert
                P. Latta
            
            
            5,085,099
            
            
            18,661Daniel
                P. Myers
            
            
            5,089,842
            
            
            13,918Thomas
                M. Quigg
            
            
            5,085,099
            
            
            18,661Barry
                A. Turkus
            
            
            5,090,099
            
            
            13,661





38


2)
            Ratification
                of selection of Vavrinek, Trine, Day & Co. LLP as the Company’s
                independent public accounting firm for its fiscal year ending December
                31,
                2008:






Shares VotedFor
            
            
            5,053,770Against
            
            
            19,615Abstain
            
            
            30,375Broker
                non-vote
            
            
            0




**ITEM
      5 – OTHER INFORMATION**




Not
      applicable




**ITEM
      6 – EXHIBITS**




**(a)
      Exhibits**




See
      Index
      to Exhibits at page 41 of this Quarterly Report on Form 10-Q.




39




**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:
                September 4, 2008
            By:
            /s/
                Daniel P. MyersDaniel
              P. MyersPresident
              and Chief Executive Officer(Principal
              Executive Officer)Dated:
                September 4, 2008
            By:
            /s/
                Thomas A. SaThomas
              A. SaExecutive
              Vice PresidentChief
              Administrative Officer and Chief Financial Officer(Principal
              Financial and Accounting Officer)


40


**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


41