Bridge Capital Holdings - FORM 10-K

Attached files

file	filename
EX-21 - EX-21 - Bridge Capital Holdings	v213875_ex21.htm
EX-23.1 - EX-23.1 - Bridge Capital Holdings	v213875_ex23-1.htm
EX-32.2 - EX-32.2 - Bridge Capital Holdings	v213875_ex32-2.htm
EX-32.1 - EX-32.1 - Bridge Capital Holdings	v213875_ex32-1.htm
EX-31.1 - EX-31.1 - Bridge Capital Holdings	v213875_ex31-1.htm
EX-31.2 - EX-31.2 - Bridge Capital Holdings	v213875_ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2010 or

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

For the transition period from to

000-50974

(Commission File Number)

Bridge Capital Holdings

(Exact name of registrant as specified in its charter)

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

55 Almaden Boulevard, San Jose, CA 95113

(Address of principal executive offices, Zip Code)

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

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

	Name of each exchange
Title of each class	on which registered
Common Stock, no par value	Nasdaq Capital Market

Securities registered pursuant to Section 12 (g) of the Act: None

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

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

Bridge Capital Holdings (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate be check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

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

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

Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company x
		(Do not check if a smaller reporting company)

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

The aggregate market value of the voting stock held by non-affiliates of Bridge Capital Holdings was $57,246,453 as of June 30, 2010.

As of March 1, 2011, Bridge Capital Holdings had 14,611,611 shares of common stock outstanding.

Documents incorporated by reference: The Company’s Proxy Statement for its 2011 Annual Meeting of Shareholders is incorporated herein by reference in Part III, Items 10 through 14.

Forward-looking Statements

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

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

PART 1

Item 1. Business

General

Bridge Capital Holdings (the “Company”) is a bank holding company. The Company was incorporated in the State of California on April 6, 2004 for the purpose of becoming the holding company for its subsidiary, Bridge Bank, National Association (the “Bank”). As a bank holding company, the Company is supervised by the Board of Governors of the Federal Reserve System (the “FRB”).

The Company acquired 100% of the voting shares of the Bank effective October 1, 2004 following approval of the Bank’s shareholders on May 20, 2004. Prior to becoming a subsidiary of the Company, the common stock of the Bank had been registered with the Comptroller of the Currency (the “Comptroller”) under the Securities and Exchange Act of 1934, as amended. After becoming the Bank’s holding company, the Company’s common stock was registered with the Securities and Exchange Commission. Filings by Bridge Capital Holdings are made with the SEC rather than the Comptroller and are available on the SEC’s website, http://www.sec.gov as well as on the Company’s website http://www.bridgebank.com.

The Bank is a national banking association chartered by the Comptroller. The Bank was organized on December 6, 2000 and commenced operations on May 14, 2001.

The Bank engages in general commercial banking business, and accepts checking and savings deposits, makes commercial, real estate, auto and other installment and term loans, and provides other customary banking services. The Bank attracts the majority of its loan and deposit business from the residents and numerous small and middle market businesses and professional firms located in Santa Clara County. Its headquarters office is located at 55 Almaden Boulevard, San Jose, California 95113. It maintains two branch offices and five loan production offices, primarily in the Silicon Valley and San Francisco Bay areas of California.

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

The Bank does not offer trust services, but it will attempt to make such services available to the Bank's customers through correspondent institutions. The deposits of the Bank are insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to applicable limits, and the Bank is a member of the Federal Reserve System.

In 2002, the Bank opened a full-service branch office in Palo Alto, California. Also in 2002, it established a U.S. Small Business Administration Lending Group and launched Bridge Capital Finance Group, a factoring and asset-based lending group. In 2003, the Bank opened an office in downtown San Jose. In 2005, the Bank launched its Technology Banking Group and the International Banking Group. In addition, the Bank operates loan production offices in San Francisco and Pleasanton, California, Dallas, Texas and Reston, Virginia.

Deposits

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

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

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

Lending Activities

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

The Bank finances real estate construction projects, primarily for the construction of owner occupied and 1 to 4 unit residential developments and commercial buildings.

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

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

Business Hours

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

For additional information concerning the Bank, see Selected Financial Data under Item 6 on page 26.

Competition

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

Larger banks may have a competitive advantage because of higher lending limits and major advertising and marketing campaigns. They also perform services, such as trust services, discount brokerage and insurance services, which the Bank is not authorized or prepared to offer currently. The Bank has made arrangements with its correspondent banks and with others to provide such services for its customers. For borrowers requiring loans in excess of the Bank's legal lending limit, the Bank has offered, and intends to offer in the future, such loans on a participating basis with its correspondent banks and with other independent banks, retaining the portion of such loans which is within its lending limit. As of December 31, 2010, the Bank's unsecured legal lending limit to a single borrower and such borrower's related parties was $18.9 million based on regulatory capital of $125.7 million. However, for risk management purposes, the Bank has established internal policies, which at present provide lending limits that are less than the Bank’s legal lending limit.

The Bank's business is concentrated in its service area, which primarily encompasses Santa Clara County, and also includes, to a lesser extent, the contiguous areas of Alameda, San Mateo and Santa Cruz counties. In certain lines of business the Bank has extended beyond its primary service area.

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

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

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

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

Supervision and Regulation

General

The Company and the Bank are subject to extensive regulation under both federal and state law. This regulation is intended primarily for the protection of depositors, the deposit insurance fund, and the banking system as a whole, and not the protection of shareholders of the Company. Set forth below is a summary description of the significant laws and regulations applicable to the Company and the Bank. The description is qualified in its entirety by reference to the applicable laws and regulations.

Dodd-Frank Wall Street Reform and Consumer Protection Act

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law. The Dodd-Frank Act is intended to effect a fundamental restructuring of federal banking regulation. Among other things, the Dodd-Frank Act creates a new Financial Stability Oversight Council to identify systemic risks in the financial system and gives federal regulators new authority to take control of and liquidate financial firms. The Dodd-Frank Act also creates a new independent federal regulator to administer federal consumer protection laws. The Dodd-Frank Act is expected to have a significant impact on our business operations as its provisions take effect. Among the provisions that are likely to affect us are the following:

Holding Company Capital Requirements. The Dodd-Frank Act requires the FRB to apply consolidated capital requirements to depository institution holding companies that are no less stringent than those currently applied to depository institutions. Under these standards, trust preferred securities will be excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010 by a bank holding company with less than $15 billion in assets. The Dodd-Frank Act also requires capital requirements to be countercyclical so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness.

Deposit Insurance. The Dodd-Frank Act permanently increases the maximum deposit insurance amount for banks, savings institutions and credit unions to $250,000 per depositor, and extends unlimited deposit insurance to non-interest bearing transaction accounts through December 31, 2012. The Dodd-Frank Act also broadens the base for FDIC insurance assessments. Assessments will now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act requires the FDIC to increase the reserve ratio of the Deposit Insurance Fund from 1.15% to 1.35% of insured deposits by 2020 and eliminates the requirement that the FDIC pay dividends to insured depository institutions when the reserve ratio exceeds certain thresholds. Effective one year from the date of enactment, the Dodd-Frank Act eliminates the federal statutory prohibition against the payment of interest on business checking accounts.

Corporate Governance. The Dodd-Frank Act will require publicly traded companies to give shareholders a non-binding vote on executive compensation at their first annual meeting taking place six months after the date of enactment and at least every three years thereafter and on so-called “golden parachute” payments in connection with approvals of mergers and acquisitions unless previously voted on by shareholders. The new legislation also authorizes the SEC to promulgate rules that would allow shareholders to nominate their own candidates using a company’s proxy materials. The Dodd-Frank Act directs the federal banking regulators to promulgate rules prohibiting excessive compensation paid to executives of depository institutions and their holding companies with assets in excess of $1.0 billion, regardless of whether the company is publicly traded or not. It also gives the SEC authority to prohibit broker discretionary voting on elections of directors and executive compensation matters.

Prohibition Against Charter Conversions of Troubled Institutions. Effective one year after enactment, the Dodd-Frank Act prohibits a depository institution from converting from a state to federal charter or vice versa while it is the subject of a cease and desist order or other formal enforcement action or a memorandum of understanding with respect to a significant supervisory matter unless the appropriate federal banking agency gives notice of the conversion to the federal or state authority that issued the enforcement action and that agency does not object within 30 days.

Interstate Branching. The Dodd-Frank Act authorizes national and state banks to establish branches in other states to the same extent as a bank chartered by that state would be permitted to branch. Previously, banks could only establish branches in other states if the host state expressly permitted out-of-state banks to establish branches in that state. Accordingly, banks will be able to enter new markets more freely.

Limits on Derivatives. Effective 18 months after enactment, the Dodd-Frank Act prohibits state-chartered banks from engaging in derivatives transactions unless the loans to one borrower limits of the state in which the bank is chartered take into consideration credit exposure to derivatives transactions. For this purpose, derivative transaction includes any contract, agreement, swap, warrant, note or option that is based in whole or in part on the value of, any interest in, or any quantitative measure or the occurrence of any event relating to, one or more commodities securities, currencies, interest or other rates, indices or other assets.

Transactions with Affiliates and Insiders. Effective one year from the date of enactment, the Dodd-Frank Act expands the definition of affiliate for purposes of quantitative and qualitative limitations of Section 23A of the Federal Reserve Act to include mutual funds advised by a depository institution or its affiliates. The Dodd-Frank Act will apply Section 23A and Section 22(h) of the Federal Reserve Act (governing transactions with insiders) to derivative transactions, repurchase agreements and securities lending and borrowing transactions that create credit exposure to an affiliate or an insider. Any such transactions with affiliates must be fully secured. The current exemption from Section 23A for transactions with financial subsidiaries will be eliminated.

Consumer Financial Protection Bureau. The Dodd-Frank Act creates a new, independent federal agency called the Consumer Financial Protection Bureau (“CFPB”), which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act and certain other statutes. The CFPB will have examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets. Smaller institutions will be subject to rules promulgated by the CFPB but will continue to be examined and supervised by federal banking regulators for consumer compliance purposes. The CFPB will have authority to prevent unfair, deceptive or abusive practices in connection with the offering of consumer financial products. The Dodd-Frank Act authorizes the CFPB to establish certain minimum standards for the origination of residential mortgages including a determination of the borrower’s ability to repay. In addition, the Dodd-Frank Act will allow borrowers to raise certain defenses to foreclosure if they receive any loan other than a “qualified mortgage” as defined by the CFPB. The Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.

Emergency Economic Stabilization Act and American Recovery and Reinvestment Act

On October 3, 2008, Congress adopted the Emergency Economic Stabilization Act (“EESA”), including a Troubled Asset Relief Program (“TARP”). TARP gave the United States Treasury Department (“Treasury”) authority to deploy up to $700 billion into the financial system for the purpose of improving liquidity in capital markets. On October 14, 2008, Treasury announced plans to direct $250 billion of this authority into preferred stock investments in banks and bank holding companies through a Capital Purchase Program (“CPP”). Certain terms of this CPP are as follows:

Treasury’s preferred stock earns 5% dividends for the first five years and 9% dividends thereafter; dividends on preferred stock issued by holding companies are cumulative; dividends on preferred stock issued by banks without holding companies are non-cumulative;

No increase in common stock dividends for three years while Treasury is an investor;

Treasury’s consent is required for stock repurchases;

Treasury receives warrants for common stock equal to 15% of Treasury’s total investment, with an exercise price based on the common stock’s market price;

Participating bank executives must agree to certain compensation restrictions and executive compensation above $500,000 may not be claimed as a tax deduction;

If an issuer fails to pay dividends for six quarters, whether or not consecutive, Treasury is entitled to appoint two persons to the issuer’s board of directors.

In December of 2008, in order to continue to support our current and prospective clients during this period of extreme economic uncertainty, the Company elected to participate in the CPP by issuing $23,864,000 in preferred stock to Treasury. The transaction documents for the Capital Purchase Program give Treasury the unilateral right to change or add additional terms to the agreements.

On February 10, 2011, the Company received notification from the Treasury that it had been approved to redeem the Treasury's investment in Bridge Capital Holdings under the Capital Purchase Program. The Company’s redemption is in process and is being made from existing cash at the holding company. The redemption will be completed prior to the end of the first quarter of 2011.

The American Recovery and Reinvestment Act of 2009 (“ARRA”) was signed into law on February 17, 2009. ARRA includes a wide variety of programs intended to stimulate the economy. In addition, ARRA imposes executive compensation and expenditure limits on all previous and future TARP CPP recipients, such as the Company, and expands the class of employees to whom the limits and restrictions apply. ARRA also provides the opportunity for additional repayment flexibility for existing TARP CPP recipients.

Among other things, ARRA prohibits the payment of bonuses, other incentive compensation and severance to certain of the Company’s most highly paid employees (except in the form of restricted stock subject to specified limitations and conditions), and requires each TARP recipient to comply with certain other executive compensation related requirements. The Treasury guidelines adopted regulations in June 2009 to provide additional guidance regarding how the executive compensation restrictions under the ARRA and EESA are to be applied.

Bank Holding Company Act

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

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

“Source of Strength” Policy

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

Securities and Exchange Commission

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

Sarbanes-Oxley Act

The Sarbanes-Oxley Act of 2002 implemented legislative reforms intended to address corporate and accounting fraud. In addition to the establishment of an accounting oversight board to enforce auditing, quality control and independence standards, the law restricts provision of both auditing and consulting services by accounting firms. To ensure auditor independence, any non-audit services being provided to an audit client require pre-approval by the company's audit committee members. In addition, the audit partners assigned to the company must be rotated every five years. The Act requires chief executive officers and chief financial officers, or their equivalent, to certify to the accuracy of periodic reports filed with the SEC, subject to civil and criminal penalties if they knowingly or willfully violate the certification requirement. In addition, under the Act legal counsel are required to report evidence of a material violation of the securities laws or a breach of fiduciary duty by a company to its chief executive officer or its chief legal officer, and, if such officer does not appropriately respond, to report such evidence to the audit committee or other similar committee of the board of directors or the board itself.

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

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

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

Regulation of the Bank

The Bank is regulated and supervised by the Comptroller and is subject to periodic examination by the Comptroller. Deposits of the Bank's customers are insured by the FDIC up to the maximum limit of $250,000 and unlimited for certain non-interest bearing deposits accounts; and, as an insured bank, the Bank is subject to certain regulations of the FDIC. As a national bank, the Bank is a member of the Federal Reserve System and is also subject to the regulations of the FRB.

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

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

The OCC can pursue an enforcement action against the Bank for unsafe and unsound practices in conducting its business, or for violations of any law, rule or regulation or provision, any consent order with any agency, any condition imposed in writing by the agency, or any written agreement with the agency. During periods of economic stress, regulatory oversight can be expected to increase and regulatory agencies become more aggressive in responding to concerns and trends identified in examinations. One result of this heightened activity is an increase in the issuance of enforcement actions. Enforcement actions may include the imposition of a conservator or receiver, cease-and-desist orders and written agreements, the termination of insurance of deposits, the imposition of civil money penalties and removal and prohibition orders against institution-affiliated parties.

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

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

Effect of State Law

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

Interstate Banking

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

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

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

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

California law expressly prohibits a foreign (other state) bank which does not already have a California branch office from (i) purchasing a branch office of a California bank (as opposed to purchasing the entire bank) and thereby establishing a California branch office or (ii) establishing a California branch on a de novo basis.

The Interstate Banking Act has contributed to the accelerated consolidation of the banking industry as a number of the largest bank holding companies have expanded into different parts of the country that were previously restricted. The Interstate Banking Act and California law are expected to continue to increase competition in the environment in which the Bank operates to the extent that out-of-state financial institutions may directly or indirectly enter the Bank’s market areas.

Change in Bank Control

The Bank Holding Company Act of 1956, as amended, and the Change in Bank Control Act of 1978, as amended, together with regulations of the FRB and the Comptroller, require that, depending on the particular circumstances, either FRB approval must be obtained or notice must be furnished to the Comptroller and not disapproved prior to any person or company acquiring "control" of a national bank, such as the Bank, subject to exemptions for some transactions. Control is conclusively presumed to exist if an individual or company (i) acquires 25% or more of any class of voting securities of the bank or (ii) has the direct or indirect power to direct or cause the direction of the management and policies of the Bank, whether through ownership of voting securities, by contract or otherwise; provided that no individual will be deemed to control the Bank solely on account of being director, officer or employee of the Bank. Control is presumed to exist if a person acquires 10% or more but less than 25% of any class of voting securities and either the company has registered securities under Section 12 of the Exchange Act or no other person will own a greater percentage of that class of voting securities immediately after the transaction.

Regulation W

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

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

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

Tying Arrangements and Transactions with Affiliated Persons

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

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

Capital Adequacy Requirements

Federal regulations establish guidelines for calculating “risk-adjusted” capital ratios. These guidelines, which apply to banks and bank holding companies, establish a systematic approach of assigning risk weights to bank assets and commitments, making capital requirements more sensitive to differences in risk profiles among banking organizations. For these purposes, “Tier 1” capital consists of common equity, non-cumulative perpetual preferred stock and minority interests in the equity accounts of consolidated subsidiaries and excludes goodwill. “Tier 2” capital consists of cumulative perpetual preferred stock, limited-life preferred stock, mandatory convertible securities, subordinated debt and (subject to a limit of 1.25% of risk-weighted assets) general loan loss reserves. In calculating the relevant ratio, a bank’s assets and off-balance sheet commitments are risk-weighted; thus, for example, generally loans are included at 100% of their book value while assets considered less risky are included at a percentage of their book value (20%, for example, for inter-bank obligations and Government Agency securities, and 0% for vault cash and U.S. Government securities). Under these regulations, to be considered adequately capitalized, banks and bank holding companies are required to maintain a risk-based capital ratio of 8%, with Tier 1 risk-based capital (primarily shareholders’ equity) constituting at least 50% of total qualifying capital or 4% of risk-weighted assets. The Comptroller may impose additional capital requirements on banks based on market risk.

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

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

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

Under certain circumstances, the Comptroller may determine that the capital ratios for a national bank must be maintained at levels which are higher than the minimum levels required by the guidelines. A national bank which does not achieve and maintain required capital levels may be subject to supervisory action by the Comptroller through the issuance of a capital directive to ensure the maintenance of required capital levels. In addition, the Bank is required to meet certain guidelines of the Comptroller concerning the maintenance of an adequate allowance for loan and lease losses.

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

The regulations establish procedures for the classification of financial institutions within the capital categories, for filing and reviewing capital restoration plans required under the regulations, and for the issuance of directives by the appropriate regulatory agency, among other matters. See “Supervision and Regulation — Prompt Corrective Action” for additional discussion regarding regulations.

An institution that is less than well-capitalized cannot accept brokered deposits without the consent of the FDIC. The appropriate federal banking agency, after notice and an opportunity for a hearing, is authorized to treat a well capitalized, adequately capitalized or undercapitalized insured depository institution as if it had a lower capital-based classification if it is in an unsafe and unsound condition or engaging in an unsafe and unsound practice. Thus, an adequately capitalized institution can be subjected to the restrictions (described below) that are imposed on undercapitalized institutions (provided that a capital restoration plan cannot be required of the institution), and an undercapitalized institution can be subjected to the restrictions (also described below) applicable to significantly undercapitalized institutions. See “Supervision and Regulation — Prompt Corrective Action” for additional discussion regarding federal banking agency supervision.

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

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

At December 31, 2010, the Company and the Bank have capital ratios that place them in the “well capitalized” category. See Footnote 16 to the Bank’s Financial Statements included under Item 8 of this Annual Report.

Payment of Dividends

Historically the Company has not paid dividends but has retained earnings to support growth. The ability of the Company to make dividend payments is subject to statutory and regulatory restrictions. A California corporation such as the Company may make a distribution to its shareholders if the corporation’s retained earnings equal at least the amount of the proposed distribution. In the event sufficient retained earnings are not available for the proposed distribution, a California corporation may nevertheless make a distribution to its shareholders if, after giving effect to the distribution, the corporation’s assets equal at least 125 percent of its liabilities and certain other conditions are met. Most bank holding companies are unable to meet this last test and so must have sufficient retained earnings to fund a proposed distribution.

The primary source of funds for payment of any dividends by the Company to its shareholders will be the receipt of dividends and management fees from the Bank. FDIC policies generally allow cash dividends to be paid only from net operating income, and do not permit dividends to be paid until an appropriate allowance for loans and lease losses has been established and overall capital is adequate. See “Supervision and Regulation – Capital Adequacy Requirements” for additional discussion regarding capital adequacy.

The Board of Directors of a national bank may declare the payment of dividends depending upon the earnings, financial condition and cash needs of the bank and general business conditions. A national bank may not pay dividends from its capital. All dividends must be paid out of net profits then on hand, after deducting losses and bad debts. The approval of the Comptroller is required for the payment of dividends if the total of all dividends declared by the bank in any calendar year would exceed the total of its net profits of that year combined with its retained net profits of the two preceding years, less any required transfers to surplus or a fund for the retirement of any preferred stock.

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

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

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

Provisions of the CPP prohibit any increase in common stock dividends without Treasury’s approval so long as the Company’s preferred stock issued under the CPP remains outstanding.

Community Reinvestment Act

Pursuant to the Community Reinvestment Act (“CRA”) of 1977, the federal regulatory agencies that oversee the banking industry are required to use their authority to encourage financial institutions to help meet the credit needs of the local communities in which such institutions are chartered, consistent with safe and sound banking practices. When conducting an examination of a financial institution such as the Bank, the agencies assess the institution’s record of meeting the credit needs of its entire community, including low- and moderate- income neighborhoods. This record is taken into account in an agency’s evaluation of an application for creation or relocation of domestic branches or for merger with another institution. Failure to address the credit needs of a bank’s community may also result in the imposition of certain other regulatory sanctions, including a requirement that corrective action be taken.

Institutions with $250 million or more in assets are required to compile and report data on their lending activities to measure the performance of their loan portfolio. Some of this data is already required under other laws, such as the Equal Credit Opportunity Act. Institutions have the option of being evaluated for CRA purposes in relation to their own pre-approved strategic plan. A strategic plan must be submitted to the institution’s regulator three months before its effective date and must be published for public comment.

Audit Requirements

Depository institutions are required to have an annual examination of their financial records. Depository institutions with assets greater than $500 million are required to have annual, independent audits and to prepare all financial statements in compliance with generally accepted accounting principles. Depository institutions are also required to have an independent audit committee comprised entirely of outside directors, independent of the institution’s management.

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

Deposit Insurance Coverage and Premiums

The Bank is a member of the Deposit Insurance Fund (“DIF”), which is administered by the FDIC. Deposits at the Bank are insured up to the applicable limits by the FDIC.

In 2008, the FDIC established a Temporary Liquidity Guarantee Program (“TLGP”), which includes the Transaction Account Guarantee Program, which provides unlimited deposit insurance coverage for noninterest-bearing transaction accounts and certain funds swept into noninterest-bearing savings accounts (“TAGP”). The TAGP was originally scheduled to expire on December 31, 2009, was initially extended through June 30, 2010 and on April 13, 2010 was again extended through December 31, 2010. Through December 31, 2009, institutions participating in the TAGP paid a 10 basis point fee (annualized) on the balance of each covered account in excess of $250,000. This fee was increased to 15 to 25 basis points beginning January 1, 2010. The enactment of the Dodd-Frank Act effectively extended the TAGP through December 31, 2012, as the Dodd-Frank Act extends full deposit insurance coverage to non-interest bearing transaction accounts, effective January 1, 2011 through December 31, 2012.

The FDIC assesses deposit insurance premiums on each FDIC-insured institution quarterly based on annualized rates for one of four risk categories applied to its deposits subject to certain adjustments. Each institution is assigned to one of four risk categories based on its capital, supervisory ratings and other factors. Well capitalized institutions that are financially sound with only a few minor weaknesses are assigned to Risk Category I. Risk Categories II, III and IV present progressively greater risks to the DIF. Under FDIC’s risk-based assessment rules, effective April 1, 2009, the initial base assessment rates prior to adjustments range from 12 to 16 basis points for Risk Category I, and are 22 basis points for Risk Category II, 32 basis points for Risk Category III, and 45 basis points for Risk Category IV. Initial base assessment rates are subject to adjustments based on an institution’s unsecured debt, secured liabilities and brokered deposits, such that the total base assessment rates after adjustments range from 7 to 24 basis points for Risk Category I, 17 to 43 basis points for Risk Category II, 27 to 58 basis points for Risk Category III, and 40 to 77.5 basis points for Risk Category IV. Rates increase uniformly by 3 basis points effective January 1, 2011.

The Dodd-Frank Act requires the FDIC to amend its regulations to define the assessment base against which deposit insurance premiums are calculated as a depository institution’s average total consolidated assets less the institution’s average tangible equity. Assessment rates on this larger assessment base will initially range from 5 to 35 basis points. After potential adjustment for certain risk elements, the range will be 2.5 to 45 basis points.

In addition to the regular quarterly assessments, due to losses and projected losses attributed to failed institutions, the FDIC imposed a special assessment of 5 basis points on the amount of each depository institution’s assets reduced by the amount of its Tier 1 capital (not to exceed 10 basis points of its assessment base for regular quarterly premiums) as of June 30, 2009, which was collected on September 30, 2009.

As a result of a decline in the reserve ratio (the ratio of the DIF to estimated insured deposits) and concerns about expected failure costs and available liquid assets in the DIF, the FDIC adopted a rule requiring each insured institution to prepay on December 30, 2009 the estimated amount of its quarterly assessments for the fourth quarter of 2009 and all quarters through the end of 2012 (in addition to the regular quarterly assessment for the third quarter which is due on December 30, 2009). The prepaid amount is recorded as an asset with a zero risk weight and the institution will continue to record quarterly expenses for deposit insurance. For purposes of calculating the prepaid amount, assessments were measured at the institution’s assessment rate as of September 30, 2009, with a uniform increase of 3 basis points effective January 1, 2011, and were based on the institution’s assessment base for the third quarter of 2009, with growth assumed quarterly at annual rate of 5%. If events cause actual assessments during the prepayment period to vary from the prepaid amount, institutions will pay excess assessments in cash or receive a rebate of prepaid amounts not exhausted after collection of assessments due on June 13, 2013, as applicable. Collection of the prepayment does not preclude the FDIC from changing assessment rates or revising the risk-based assessment system in the future. The rule includes a process for exemption from the prepayment for institutions whose safety and soundness would be affected adversely.

The Dodd-Frank Act increased the minimum reserve ratio (the ratio of the net worth of the DIF to estimated insured deposits) from 1.15% of estimated deposits to 1.35% of estimated deposits (or a comparable percentage of the asset-based assessment base described above). The Dodd-Frank Act requires the FDIC to offset the effect of the increase in the minimum reserve ratio when setting assessments for insured depository institutions with less than $10 billion in total consolidated assets, including the Bank. The FDIC has until September 30, 2020 to achieve the new minimum reserve ratio of 1.35%.

FDIC insured institutions are required to pay a Financing Corporation assessment, in order to fund the interest on bonds issued to resolve thrift failures in the 1980s. For the quarterly period ended December 31, 2009, the Financing Corporation assessment equaled 1.02 basis points for each $100 in domestic deposits. These assessments, which may be revised based upon the level of deposits, will continue until the bonds mature in the years 2017 through 2019.

The FDIC may terminate the deposit insurance of any insured depository institution, including the Bank, if it determines after a hearing that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital.

Prompt Corrective Action

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

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

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

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

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

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

Potential Enforcement Actions and Supervisory Agreements

Under federal law, national banks and their institution-affiliated parties may be the subject of potential enforcement actions by the Comptroller for unsafe and unsound practices in conducting their businesses, or for violations of any law, rule or regulation or provision, any consent order with any agency, any condition imposed in writing by the agency or any written agreement with the agency. During periods of economic stress, regulatory oversight can be expected to increase and regulatory agencies become more aggressive in responding to concerns and trends identified in examinations. One result of this heightened activity is an increase in the issuance of enforcement actions. Enforcement actions may include the imposition of a conservator or receiver, cease-and-desist orders and written agreements, the termination of insurance of deposits, the imposition of civil money penalties and removal and prohibition orders against institution-affiliated parties.

USA PATRIOT Act

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

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

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

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

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

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

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

·	The designation of a compliance officer;

·	An ongoing employee training program; and

·	An independent audit function to test the programs.

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

Money Laundering Control Act

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

Gramm-Leach-Bliley Act

The Gramm-Leach-Bliley Act, adopted in 1999, eliminated many of the barriers that separated the insurance, securities and banking industries since the Great Depression. The major provisions of the Gramm-Leach-Bliley Act are:

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

Subject to the approval of the Comptroller and certain other conditions, activities permissible for financial subsidiaries of national banks include, but are not limited to, the following: (a) lending, exchanging, transferring, investing for others, or safeguarding money or securities; (b) providing certain insurance products (c) providing financial, investment, or economic advisory services, including advising an investment company; (d) issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly; and (e) underwriting, dealing in, or making a market in securities.

Securities Activities. Title II narrows the exemptions from the securities laws previously enjoyed by banks.

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

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

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

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

·	a reasonable method for customers to "opt out" of disclosures to nonaffiliated third parties.

Safeguarding Confidential Customer information. Under Title V, federal banking regulators were required to adopt rules requiring financial institutions to implement a program to protect confidential customer information, and the federal banking agencies have adopted guidelines requiring financial institutions to establish an information security program. The federal bank regulatory agencies have established standards for safeguarding nonpublic personal information about customers that implement provisions of the Gramm-Leach Bliley Act (the “Guidelines”). Among other things, the Guidelines require each financial institution, under the supervision and ongoing oversight of its Board of Directors or an appropriate committee thereof, to develop, implement and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information, to protect against any anticipated threats or hazards to the security or integrity of such information, and to protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.

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

Fair Credit Reporting

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

Consumer Laws and Regulations

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

Exposure to and Management of Risk

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

Safety and Soundness Standards

Federal banking regulators have adopted guidelines prescribing standards for safety and soundness. The guidelines create standards for a wide range of operational and managerial matters including (a) internal controls, information systems, and internal audit systems; (b) loan documentation; (c) credit underwriting; (d) interest rate exposure; (e) asset growth; (f) compensation and benefits; and (g) asset quality and earnings. Although meant to be flexible, an institution that falls short of the guidelines’ standards may be requested to submit a compliance plan or be subjected to regulatory enforcement actions.

Impact of Government Monetary Policy

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

Programs to Mitigate Identity Theft

In November 2007, federal banking agencies together with the NCUA and FTC adopted regulations under the Fair and Accurate Credit Transactions Act of 2003 to require financial institutions and other creditors to develop and implement a written identity theft prevention program to detect, prevent and mitigate identity theft in connection with certain new and existing accounts. Covered accounts generally include consumer accounts and other accounts that present a reasonably foreseeable risk of identity theft. Each institution’s program must include policies and procedures designed to: (i) identify indicators, or “red flags,” of possible risk of identity theft; (ii) detect the occurrence of “red flags”; (iii) respond appropriately to “red flags” that are detected; and (iv) ensure that the program is updated periodically as appropriate to address changing circumstances. The regulations include guidelines that each institution must consider and, to the extent appropriate, include in this program.

Legislation and Proposed Changes

From time to time, legislation is enacted which has the effect of increasing the cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between banks and other financial institutions. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies and other financial institutions are frequently made in Congress and before various bank regulatory agencies. For example, certain proposals to substantially revise the structure of regulation of financial services are under consideration. No prediction can be made as to the likelihood of any major changes or the impact that new laws or regulations might have on the Company or the Bank.

Conclusion

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

Item 1A. Risk Factors

RISK FACTORS

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

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

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

Risks Related to the Credit Crisis

Current market developments may adversely affect our industry, business and results of operations.

Dramatic declines in the housing market during the prior year, with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to credit default swaps and other derivative securities, have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Many lenders and institutional investors, concerned about the stability of the financial markets generally and the strength of counterparties, have reduced or ceased to provide funding to borrowers, including other financial institutions. The resulting lack of available credit, lack of confidence in the financial sector, increased volatility in the financial markets and reduced business activity could materially and adversely affect our business, financial condition and results of operations.

The soundness of other financial institutions could adversely affect us.

Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be increased when the collateral we hold cannot be realized or is liquidated at prices not sufficient to recover the full amount of the secured obligation. There is no assurance that any such losses would not materially and adversely affect our results of operations or earnings.

Current levels of market volatility are unprecedented.

The capital and credit markets have been experiencing volatility and disruption for more than 12 months. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength. If current levels of market disruption and volatility continue or worsen, there can be no assurance that we will not experience an adverse effect, which may be material, on our ability to access capital and on our business, financial condition and results of operations.

There can be no assurance that the recently enacted Dodd-Frank Act, Emergency Economic Stabilization Act of 2008 (“EESA”) and American Recovery and Reinvestment Act (“ARRA”) will help stabilize the U.S. financial system.

On October 3, 2008, President Bush signed into law the EESA, which evolved from the U.S. Treasury’s initial proposal in response to the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions. This was followed by the ARRA on February 17, 2009 and the Dodd-Frank Act on July 21, 2010. The U.S. Treasury and banking regulators are implementing a number of programs under this legislation to address capital and liquidity issues in the banking system. There can be no assurance, however, as to the actual impact that the Dodd-Frank Act, EESA or ARRA will have on the financial markets, including the extreme levels of volatility and limited credit availability currently being experienced. The failure of the Dodd-Frank Act, EESA or ARRA to help stabilize the financial markets and a continuation or worsening of current financial market conditions could materially and adversely affect our business, financial condition, results of operations, access to credit or the trading price of our common stock.

Premiums for federal deposit insurance will increase and may increase more.

The Federal Deposit Insurance Corporation uses the Deposit insurance Fund (“DIF”) to cover insured deposits in the event of a bank failure, and maintains the fund by assessing member banks an insurance premium. Recent failures have caused the DIF to fall below the minimum balance required by law, forcing the FDIC to consider action to rebuild the fund by raising the insurance premiums assessed member banks. Depending on the frequency and severity of bank failures, future increases in premiums or assessments could be significant and negatively affect our earnings.

As a financial services company, adverse changes in general business or economic conditions could have a material adverse effect on our financial condition and results of operations.

The United States is currently in a serious economic downturn, as are economies around the world. Financial markets are volatile, business and consumer spending has declined, and overall business activities have slowed. A sustained or continuing weakness or weakening in business and economic conditions generally or specifically in the principal markets in which we do business could have one or more of the following adverse impacts on our business:

a decrease in the demand for loans and other products and services offered by us;

a decrease in the value of our loans held for sale;

an increase or decrease in the usage of unfunded commitments;

an impairment of certain intangible assets, such as goodwill;

an increase in the number of clients and counterparties who become delinquent, file for protection under bankruptcy laws or default on their loans or other obligations to us. An increase in the number of delinquencies, bankruptcies or defaults could result in a higher level of nonperforming assets, net charge-offs, provision for loan losses, and valuation adjustments on loans held for sale.

Market and Interest Rate Risks

Changes in interest rates could reduce income and cash flow

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

Recent decreases in market interest rates have caused the Company’s interest rate spread to decline significantly, which reduces revenue and net income. Sustained low levels of market interest rates will likely continue to put pressure on our profitability. Any material reduction in interest rate spread could have a material adverse effect on our business, profitability and financial position.

Liquidity risk could impair our ability to fund operations and jeopardize our financial condition

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, capital offerings and other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities, or on terms attractive to us, could be impaired by factors that impact us specifically or the financial services industry in general. Factors that could detrimentally impact our access to liquidity sources include a reduction in the level of business activity due to a market downturn or adverse regulatory action against us, or a decrease in depositor or investor confidence in us. Further, as a business bank, a significant portion of our deposits are raised from companies in amounts that exceed levels covered by FDIC insurance. In addition, our ability to borrow could also be impaired by factors that are not specific to us, such as the severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole as the recent turmoil faced by banking in the domestic and worldwide credit markets deteriorates.

Risks Related to the nature and geographical location of Bridge Capital Holdings’ business

Bridge Capital Holdings’ invests in loans that contain inherent credit risks that may cause us to incur losses

In our business as a lender, we face the risk that borrowers will fail to pay their loans when due. If borrower defaults cause large aggregate losses, it could have a material adverse impact on our business, profitability and financial condition. The Company closely monitors the markets in which it conducts its lending operations and adjusts its strategy to control exposure to loans with higher credit risk. Asset reviews are performed using grading standards and criteria similar to those employed by bank regulatory agencies. We have established an evaluation process designed to determine the adequacy of our allowance for loan losses. While this process uses historical and other objective information, the classification of loans and the forecasts and establishment of loan losses are dependent to a great extent on our subjective assessment based upon our experience and judgment. During 2008, the rapid deterioration of real estate values prompted us to take substantial charges and provisions to the allowance for loan losses. We can provide no assurance that the credit quality of our loans will not deteriorate in the future and that such deterioration will not adversely affect the Company and that our allowance for loan losses will be adequate to absorb actual losses in the future.

Bridge Capital Holdings' operations are concentrated geographically in California, and poor economic conditions in California may cause us to incur losses.

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

The markets in which Bridge Capital Holdings operates are subject to the risk of earthquakes and other natural disasters

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

Substantial competition in the California banking market could adversely affect us

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

Regulatory Risks

Restrictions on dividends and other distributions could limit amounts payable to us

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

Adverse effects of, or changes in, banking or other laws and regulations or governmental fiscal or monetary policies could adversely affect us

We are subject to significant federal and state regulation and supervision, which is primarily for the benefit and protection of our customers and not for the benefit of investors. In the past, our business has been materially affected by these regulations. This trend is likely to continue in the future. Laws, regulations or policies, including accounting standards and interpretations currently affecting us and our subsidiaries, may change at any time. Regulatory authorities may also change their interpretation of these statutes and regulations. During periods of economic stress, regulatory oversight can be expected to increase and regulatory agencies become more aggressive in responding to concerns and trends identified in examinations. Such a regulatory response may effect, among other things, growth rates, business mix, capital levels and payment of dividends Therefore, our business may be adversely affected by any future changes in laws, regulations, policies or interpretations or regulatory approaches to compliance and enforcement, including legislative and regulatory reactions to the current credit crisis, the terrorist attack on September 11, 2001 and future acts of terrorism, and major U.S. corporate bankruptcies and reports of accounting irregularities at U.S. public companies.

As noted above, on October 3, 2008, President Bush signed into law the EESA, which evolved from the U.S. Treasury’s initial proposal in response to the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions. This was followed by the ARRA on February 17, 2009 and the Dodd-Frank Act on July 21, 2010. Each of these laws contains provisions that allow for significantly increased supervisory activities and many new studies and regulations. We can give no assurance as to what form these regulations might take or whether and when they could be invoked. The laws also set limits on executive compensation which may adversely impact our ability to attract and/or retain qualified executives.

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

See “Supervision and Regulation – Legislation and Proposed Changes” for additional discussion regarding adverse effects of, or changes in, banking or other laws and regulations and governmental fiscal or monetary policies.

Systems, Accounting and Internal Control Risks

The accuracy of the Company’s judgments and estimates about financial and accounting matters will impact operating results and financial condition

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

The Company’s information systems may experience an interruption or breach in security

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

The Company’s controls and procedures may fail or be circumvented

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

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

At December 31, 2010, the Company’s operations included facilities as follows:

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

An additional full service banking office is located at 525 University Avenue, City of Palo Alto, County of Santa Clara, State of California. The office consists of approximately 6,495 square feet located in Suite 31 in the building known as the Palo Alto Office Center. The Lease is an amendment to a lease which ended November 30, 2006 and is for a term of 86 months commencing on February 1, 2007 and ending on January 31, 2014. The Lease provides for a base rent of $29,228 through the first anniversary of the lease date. Effective with the first anniversary date the lease payments will be adjusted by a factor that is tied to the Consumer Price Index. The foregoing description is qualified by reference to the lease agreement dated October 15, 2001 attached as exhibit 10.6 to this Report and the amendment to this lease agreement dated March 9, 2006 exhibit 10.17 to this Report.

In addition, the Bank operates loan production offices in San Francisco and Pleasanton, California, Dallas, Texas and Reston, Virginia.

Item 3. Legal Proceedings

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

Item 4. Reserved

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

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

	Sales Price of
	Common Stock (1)
Three Months Ended	Low		High

March 31, 2008	$	17.77	$	22.43
June 30, 2008	$	11.73	$	21.28
September 30, 2008	$	9.00	$	14.04
December 31, 2008	$	3.30	$	11.46

March 31, 2009	$	3.70	$	7.55
June 30, 2009	$	4.50	$	6.39
September 30, 2009	$	5.25	$	7.31
December 31, 2009	$	6.45	$	7.47

March 31, 2010	$	6.85	$	9.15
June 30, 2010	$	8.96	$	11.49
September 30, 2010	$	8.64	$	9.44
December 31, 2010	$	8.05	$	9.19

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

The Company had 242 common shareholders of record as of December 31, 2010.

The Company's shareholders are entitled to receive dividends, when and as declared by its Board of Directors, out of funds legally available, subject to statutory, regulatory, and contractual restrictions. See “Supervision and Regulation – Payment of Dividends” for additional discussion regarding dividends. A California corporation such as Bridge Capital Holdings generally may make a distribution to its shareholders if the corporation’s retained earnings equal at least the amount of the proposed distribution.

In a policy statement, the FRB has advised bank holding companies that it believes that payment of cash dividends in excess of current earnings from operations is inappropriate and may be cause for supervisory action. Additionally, the FRB’s position that holding companies are expected to provide a source of managerial and financial strength to their subsidiary banks potentially restricts a bank holding company’s ability to pay dividends.

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

The following chart reflects the total return performance of the Company’s common stock for the years ended December 31, 2010, 2009, 2008, 2007, and 2006.

Item 6. Selected Financial Data

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

(dollars in thousands, except per share data)	As of and for the year ended December 31,
	2010			2009			2008			2007			2006
Statement of Operations Data:
Interest income	$	45,188		$	44,572		$	58,692		$	66,745		$	52,962
Interest expense		3,071			6,763			13,827			19,160			14,271
Net interest income		42,117			37,809			44,865			47,585			38,691
Provision for credit losses		(4,700	)		(9,200	)		(31,520	)		(2,275	)		(1,372	)
Net interest income after provision
for credit losses		37,417			28,609			13,345			45,310			37,319
Other income		6,849			10,312			9,971			6,713			3,837
Other expenses		(39,720	)		(38,071	)		(36,318	)		(33,574	)		(27,279	)
Income before income taxes		4,546			850			(13,002	)		18,449			13,877
Income taxes		(1,955	)		585			5,661			(7,583	)		(5,243	)
Net income (loss)	$	2,591		$	1,435		$	(7,341	)	$	10,866		$	8,634
Preferred Dividends		1,955			4,203			152			-			-
Net income (loss) available to
common shareholders	$	636		$	(2,768	)	$	(7,493	)	$	10,866		$	8,634

Per Share Data:
Basic income (loss) per share	$	0.06		$	(0.42	)	$	(1.15	)	$	1.70		$	1.38
Diluted income (loss) per share		0.06			(0.42	)		(1.15	)		1.57			1.27
Book value per common share		8.16			7.81			8.51			10.04			7.77
Cash dividend per common share		-			-			-			-			-

Balance Sheet Data:
Balance sheet totals:
Assets	$	1,029,731		$	844,067		$	947,596		$	774,832		$	721,979
Loans, net		634,557			558,977			679,451			642,265			531,956
Deposits		847,946			705,046			777,245			671,356			644,987
Shareholders' equity		142,303			109,314			112,490			65,084			49,094

Average balance sheet amounts:
Assets	$	897,140		$	868,166		$	831,958		$	750,538		$	606,506
Loans, net		573,173			593,352			671,065			581,253			458,648
Deposits		751,119			719,001			725,952			665,925			535,472
Shareholders' equity		114,624			110,447			67,551			56,192			44,646

Selected Ratios:
Return on average equity		2.26	%		1.30	%		-10.87	%		19.34	%		19.34	%
Return on average assets		0.29	%		0.17	%		-0.88	%		1.45	%		1.42	%
Efficiency ratio		81.12	%		79.12	%		66.23	%		61.83	%		64.14	%
Total risk based capital ratio		20.87	%		19.45	%		16.90	%		11.67	%		11.74	%
Net chargeoffs (recoveries) to average
gross loans		0.85	%		1.92	%		3.14	%		0.17	%		0.00	%
Allowance for loan losses to total
gross loans		2.39	%		2.78	%		2.65	%		1.32	%		1.36	%
Average equity to average assets		12.78	%		12.72	%		8.12	%		7.49	%		7.36	%

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

In addition to the historical information, this annual report contains certain forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and which are subject to the “Safe Harbor” created by those sections. The reader of this annual report should understand that all such forward-looking statements are subject to various uncertainties and risks that could affect their outcome. The Company’s actual results could differ materially from those suggested by such forward-looking statements. Such risks and uncertainties include, among others, (1) competitive pressure in the banking industry increases significantly; (2) changes in 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 annual 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. Accounting policies are described in detail in Note 1 to the Consolidated Financial Statements. Our most complex accounting policies require management’s judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. We have established detailed policies and procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of our current accounting policies involving significant management valuation judgments.

Allowance for Loan Losses

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

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

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

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 collectability 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.

Sale of SBA Loans

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 December 31, 2010 and December 31, 2009, 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 Bank performs an allocation based on the relative fair values of the sold portion and retained portions of the loan. The Company assumptions are validated by reference to external market information.

Available-for-Sale Securities

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

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.

Deferred Tax Assets

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

Operating Results

The Company reported net operating income of $2.6 million for the twelve months ended December 31, 2010 representing an increase of $1.2 million, compared to net operating income of $1.4 million for the same period one year ago. Net income available to common shareholders was reduced by preferred dividends of $2.0 million and $4.2 million during the years ended 2010 and 2009, respectively, resulting in earnings per diluted share of $0.06 and a loss per diluted share of $(0.42), respectively. For the year ended December 31, 2008, the Company reported an operating loss of $(7.3) million. Net income available to common shareholders was reduced by preferred dividends of $152,000 resulting in a loss per diluted share of $(1.15) for the year ended December 31, 2008.

The increase in earnings during 2010 compared to 2009 resulted primarily from a decrease in provision for credit losses and a decrease in interest expense related to deposits. The increase in earnings during 2009 compared to 2008 resulted primarily from a decrease in provision for credit losses. See the specific sections below for details regarding these changes.

Net Interest Income and Margin

Net interest income is the principal source of the Company’s operating earnings. Net interest income is affected by changes in the nature and volume of earning assets held during the year, the rates earned on such assets and the rates paid on interest-bearing liabilities. The following table shows the composition of average earning assets and average funding sources, average yields and rates, and the net interest margin for the three years ended December 31, 2010, 2009 and 2008.

AVERAGE BALANCES, RATES AND YIELDS

(dollars in thousands)	Year Ended December 31,
	2010							2009							2008
			Interest							Interest							Interest
	Average		Income/		Yields/			Average		Income/		Yields/			Average		Income/		Yields/
	Balance		Expense		Rates			Balance		Expense		Rates			Balance		Expense		Rates
Assets
Interest earning assets (2):
Loans (1)	$	590,334	$	42,071		7.1	%	$	612,318	$	43,350		7.1	%	$	686,107	$	56,302		8.2	%
Federal funds sold		112,940		263		0.2	%		167,434		395		0.2	%		74,635		1,066		1.4	%
Interest bearing deposits		5,775		121		2.1	%		16,843		363		2.2	%		3,757		119		3.2	%
Investment securities		134,349		2,733		2.0	%		28,259		464		1.6	%		24,218		1,205		5.0	%
Total earning assets		843,398		45,188		5.4	%		824,854		44,572		5.4	%		788,717		58,692		7.4	%

Noninterest earning assets:
Cash and due from banks		18,792							17,965							18,638
All other assets (3)		34,950							25,347							24,603
TOTAL	$	897,140						$	868,166						$	831,958

Liabilities and
shareholders' equity
Interest-bearing liabilities:
Deposits:
Demand	$	6,079		6		0.1	%	$	4,776		5		0.1	%	$	5,139		12		0.2	%
Savings		306,461		1,223		0.4	%		292,464		2,150		0.7	%		380,460		8,155		2.1	%
Time		58,285		736		1.3	%		128,367		3,261		2.5	%		111,834		4,259		3.8	%
Other		17,622		1,106		6.3	%		26,431		1,347		5.1	%		28,554		1,401		4.9	%
Total interest-bearing
Liabilities		388,447		3,071		0.8	%		452,038		6,763		1.5	%		525,987		13,827		2.6	%

Noninterest-bearing liabilities:
Demand deposits		380,295							293,394							228,519
Accrued expenses and
other liabilities		13,775							12,287							9,901
Shareholders' equity		114,623							110,447							67,551
TOTAL	$	897,140						$	868,166						$	831,958

Net interest income
and margin			$	42,117		5.0	%			$	37,809		4.6	%			$	44,865		5.7	%

1)	Includes amortization of loan fees of $4.1 million for 2010, $4.3 million for 2009 and $5.5 million for 2008. Nonperforming loans have been included in average loan balances.

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

3)	Net of average allowance for credit losses of $15.6 million and average deferred loan fees of $1.5 million for 2010, $17.5 million and average deferred loan fees of $1.4 million for 2009 and $13.3 million and $1.8 million for 2008, respectively.

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

The following table shows the effect on the interest differential of volume and rate changes for the years ended December 31, 2010, 2009 and 2008:

(dollars in thousands)	Year Ended December 31,
	2010 vs. 2009									2009 vs. 2008
	Increase (decrease)									Increase (decrease)
	due to change in									due to change in
	Average			Average			Total			Average			Average			Total
	Volume			Rate			Change			Volume			Rate			Change
Interest income:
Loans	$	(1,566	)	$	287		$	(1,279	)	$	(5,224	)	$	(7,728	)	$	(12,952	)
Federal funds sold		(127	)		(5	)		(132	)		219			(890	)		(671	)
Other		(232	)		(10	)		(242	)		282			(38	)		244
Investment securities		2,158			111			2,269			66			(807	)		(741	)
Total interest income		233			383			616			(4,656	)		(9,464	)		(14,120	)

Interest expense:
Demand		1			(0	)		1			(0	)		(7	)		(7	)
Savings		56			(983	)		(927	)		(646	)		(5,359	)		(6,005	)
Time		(885	)		(1,640	)		(2,525	)		420			(1,418	)		(998	)
Other		(552	)		312			(241	)		(108	)		54			(54	)
Total interest expense		(1,380	)		(2,312	)		(3,692	)		(334	)		(6,729	)		(7,064	)

Change in net interest income	$	1,613		$	2,695		$	4,308		$	(4,322	)	$	(2,735	)	$	(7,056	)

Net interest income was $42.1 million in 2010, comprised of $45.2 million in interest income and $3.1 million in interest expense. Net interest income was $37.8 million in 2009, comprised of $44.6 million in interest income and $6.8 million in interest expense. The increase of $4.3 million in net interest income in 2010 was primarily due to a decrease of $3.7 million in interest expense in addition to an increase of $0.6 million in interest income.

The decrease of $7.1 million in net interest income in 2009 was primarily due to a decrease of $14.1 million in interest income, offset, in part, by a decrease of $7.1 million in interest expense.

The net interest margin (net interest income divided by average earning assets) was 5.0% for the year ended December 31, 2010, as compared to 4.6% for the year ended December 31, 2009 and 5.7% for 2008. The increase in net interest margin in 2010 was primarily the result of a lower cost of funds, an increase in earning assets, and a decrease in average nonperforming loans, offset in part by decreased leverage. Nonperforming loans had a negative impact on net interest margin of only 14 basis points compared to 24 basis points in 2009 and 15 basis points in 2008.

The decline in net interest margin in 2009 compare to 2008 was primarily the result of a decrease in short term interest rates, a decrease in income from interest rate swaps, an increase in nonperforming loans, and decreased balance sheet leverage. During the year ended December 31, 2009, the net settlement from interest rate swaps contributed $0.4 million to support net interest income compared to $2.0 million for the year ended December 31, 2008.

Average loans represented 70.0% of average earning assets in 2010 compared to 74.2% in 2009 and 87.0% in 2008. In addition, in 2010 the Bank’s ratio of average loans to average deposits was 78.6% down from 85.2% in 2009 and 94.5% in 2008 reflecting faster deposit funding relative to loan growth during the year.

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 and changes in short-term interest rates. 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 3.25%, 3.25% and 5.09% for the years ended 2010, 2009, and 2008, respectively.

Interest Income

For the year ended December 31, 2010, the Company reported interest income of $45.2 million, an increase of $0.6 million or 1.4% over $44.6 million reported in 2009. The increase in interest income primarily reflects a substantial increase in the average securities portfolio of $106.1 million over $28.3 million in 2009; this was partially offset by a decrease in the average loan portfolio in 2010 of $22.0 million from $612.3 million in 2009. In addition, a higher rate of interest was earned on both of these instruments during 2010. Average earning assets were $843.4 million for the year ended December 31, 2010 an increase of $18.5 million, or 2.3%, over $824.9 million for the year ended December 31, 2009.

For the year ended December 31, 2009, the Company reported interest income of $44.6 million, a decrease of $14.1 million, or 24.1%, over $58.7 million reported in 2008. The decrease in interest income primarily reflects a decrease in short term interest rates, a decrease in income from interest rate swaps, and an increase in non-performing assets. Average earning assets were $824.9 million for the year ended December 31, 2009 an increase of $36.1 million or 4.6% over $788.7 million for the year ended December 31, 2008.

Interest Expense

Interest expense was $3.1 million for the year ended December 31, 2010, which represented a decrease of $3.7 million or 54.6% compared to $6.8 million for the year ended December 31, 2009. The decrease in interest expense reflects the lower interest rates paid on liabilities as well as a lower balance of interest-bearing liabilities in 2010 compared to 2009. Average interest-bearing liabilities were $388.4 million for the year ended December 31, 2010, a decrease of $63.6 million or 14.1% from $452.0 million for the year ended December 31, 2009.

Interest expense was $6.8 million for the year ended December 31, 2009, which represented a decrease of $7.1 million or 51.1% compared to $13.8 million for the year ended December 31, 2008. The decrease in interest expense reflects the lower interest rates paid on liabilities in 2009 compared to 2008. Average interest-bearing liabilities were $452.0 million for the year ended December 31, 2009, a decrease of $73.9 million or 14.1% from $526.0 million for the year ended December 31, 2008.

Credit Risk and Provision for Credit Losses

The Bank maintains an allowance for credit losses which is based, in part, on the loss experience of the Bank and the California banking industry, the impact of economic conditions within the Bank's market area, and, as applicable, the State of California, the value of underlying collateral, loan performance and inherent risks in the loan portfolio. The allowance is reduced by charge-offs and increased by provisions for credit losses charged to operating expense and recoveries of previously charged-off loans. Based on management’s evaluation of such risks, additions of $4.7 million, $9.2 million, and $31.5 million were made to the allowance for credit losses in 2010, 2009 and 2008, respectively. The significant increase in provision for 2008 came in response to increased risk posed by significant deterioration in real estate values and economic conditions generally, in addition to charge offs taken on specifically identified exposures in real estate loans. During 2010, the Bank had $8.2 million in charge offs, and had recoveries of $3.0 million as compared to $12.8 million in charge offs and recoveries of $1.1 million in 2009. During 2008, the Bank had $21.7 million in charge offs and $120,000 in recoveries. The allowance for credit losses was $15.5 million representing 2.39% of total loans at December 31, 2010, as compared to $16.0 million representing 2.78% of total loans at December 31, 2009 and $18.6 million representing 2.65% of total loans at December 31, 2008.

Management is of the opinion that the allowance for credit losses is maintained at a level adequate for inherent losses in the loan portfolio. However, the Bank's loan portfolio, which includes approximately $188.4 million in real estate loans, representing approximately 28.9% of the portfolio, could be adversely affected if California economic conditions continue to contract and the real estate market in the Bank's market area were to further weaken. The effect of such events, although uncertain at this time, could result in an increase in the level of non-performing loans and Other Real Estate Owned (“OREO”) and the level of the allowance for loan losses, which could adversely affect the Bank's future growth and profitability.

See “Allowance for Loan Losses” for additional discussion regarding the allowance for credit losses and nonperforming assets.

Non-interest Income

The following table sets forth the components of other income and the percentage distribution of such income for the years ended December 31, 2010, 2009 and 2008:

(dollars in thousands)	Year Ended December 31,
	2010					2009					2008
	Amount		Percent			Amount		Percent			Amount		Percent

Service charges on deposit accounts	$	2,417		35.3	%	$	1,900		18.4	%	$	1,166		11.7	%
International fee income		1,785		26.1	%		1,583		15.4	%		1,830		18.4	%
Gain on sale of OREO		1,011		14.8	%		1,628		15.8	%		161		1.6	%
SBA loan servicing fee income		380		5.5	%		436		4.2	%		445		4.5	%
Increase in value-bank owned life insurance		392		5.7	%		421		4.1	%		400		4.0	%
Gain on sale of securities		165		2.4	%		-		0.0	%		711		7.1	%
Off-balance sheet management fee		63		0.9	%		158		1.5	%		351		3.5	%
Other income-cash flow hedge		48		0.7	%		3,286		31.9	%		3,870		38.8	%
Warrant income		36		0.5	%		81		0.8	%		3		0.0	%
Gain on sale of SBA loans		-		0.0	%		615		6.0	%		603		6.0	%
Other non-interest income		552		8.2	%		204		2.1	%		431		4.3	%

	$	6,849		100.0	%	$	10,312		100.0	%	$	9,971		100.0	%

Non-interest income totaled $6.8 million in 2010, a decrease of $3.5 million or 33.6% over $10.3 million in 2009. Non-interest income of $10.3 million in 2009 represented an increase of $0.3 million or 3.4% over $10.0 million in 2008. Non-interest income generally consists primarily of service charge income on deposit accounts, international fee income, gain on sales of OREO and gains recognized on sales of SBA loans. However, the decrease in non-interest income during the year ending December 31, 2010 was primarily attributable to the decrease in cash flow hedge of $3.3 million. In 2010, the Company did not recognize any benefit from acceleration of deferred gains on terminated interest rate swaps; whereas in 2009 and 2008, the Company recognized $3.3 million and $3.9 million, respectively, due to the termination of interest rate swaps having a combined notional value of $100.0 million.

The increase in non-interest income in 2009 compared to 2008 was primarily attributable to the increase in gain on sale of OREO of $1.5 million. During 2010, 2009, and 2008, the Company recognized $1.0 million, $1.6 million, and $161,000, respectively, in gains on the sale of OREO properties.

For the year ended December 31, 2010 service charge income on deposit accounts was $2.4 million, representing an increase of $517,000, or 27.2%, compared to $1.9 million for the same period one year ago. The service charge income on deposit accounts for 2009 compared to $1.2 million in 2008, representing an increase of $734,000 or 63.0%. The increase in 2010 and 2009 was attributable to an increase in deposit accounts and deposit related analysis charges.

The Company generates international fee income on spot contracts (binding agreements for the purchase or sale of currency for immediate delivery and settlement) and forward contracts (a contractual commitment for a fixed amount of foreign currency on a future date at an agreed upon exchange rate) in connection with client’s cross-border activities. The transactions incurred are during the ordinary course of business and are not speculative in nature. The Company recognizes income on a cash basis at the time of contract settlement in an amount equal to the spread created by the exchange rate charged to the client versus the actual exchange rate negotiated by the Company in the open market. During 2010, the Company recognized $1.8 million in international fee income, representing an increase of $202,000, or 12.8%, compared to $1.6 million for the same period one year ago. The increase was primarily caused by an increase in client demand for international services as a result of the recovering economic environment. The international fee income for 2009 compared to $1.8 million in 2008, representing a decrease of $247,000, or 13.5%. The decrease was primarily caused by a decrease in client demand as result of the depressed economic market in 2009.

Revenue from sales of SBA loans is dependent on the Company’s decision to sell versus retain loans as well as consistent origination and funding of new loan volumes, the timing of which may be impacted 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. The Company did not recognize any gains of sales of SBA loans during 2010 compared to gains of $615,000 and $603,000 recognized during 2009 and 2008, respectively.

Non-interest Expenses

The components of other expense as a percentage of average assets are set forth in the following table for the years ended December 31, 2010, 2009 and 2008.

	Year Ended December 31,
(dollars in thousands)	2010					2009					2008
	Amount		Percent			Amount		Percent			Amount		Percent

Salaries and benefits	$	21,292		2.4	%	$	20,286		2.3	%	$	21,399		2.6	%
Occupancy		3,343		0.4	%		3,457		0.4	%		3,608		0.4	%
Data services		2,913		0.3	%		2,526		0.3	%		2,439		0.3	%
Professional services		2,106		0.2	%		1,939		0.2	%		1,174		0.1	%
Assessments		2,500		0.3	%		2,629		0.3	%		665		0.1	%
OREO expense		1,975		0.2	%		1,231		0.1	%		589		0.0	%
Deposit services/supplies		909		0.1	%		1,015		0.1	%		725		0.1	%
Marketing		1,012		0.1	%		916		0.1	%		1,312		0.2	%
Director/Shareholder expenses		1,273		0.1	%		916		0.1	%		1,078		0.1	%
Furniture and equipment		699		0.1	%		920		0.1	%		982		0.1	%
Other		1,698		0.2	%		2,236		0.3	%		2,347		0.4	%

	$	39,720		4.4	%	$	38,071		4.4	%	$	36,318		4.4	%

Non-interest expenses were $39.7 million in 2010 as compared to $38.1 million in 2009 and $36.3 million in 2008. Non-interest expense increased approximately $1.6 million in 2010 compared to 2009. This increase was primarily attributable to increased salaries and benefits, data services, OREO expense, and director/shareholder expenses. Non-interest expense increased approximately $1.8 million in 2009 compared to 2008. This increase was primarily attributable to increased assessments, professional services and OREO expense. Non-interest expenses measured as a percentage of average assets were 4.4% in 2010, 2009 and 2008.

Salaries and related benefits was the largest component of the Bank’s non-interest expense. Salaries and benefits were $21.3 million for the year ended December 31, 2010 as compared to $20.3 million and $21.4 million for the years ended December 31, 2009 and 2008, respectively. The Bank had 170 FTE at December 31, 2010 as compared to 164 FTE at December 31, 2009 and 171 FTE at December 31, 2008. The increase in salaries and related benefits in 2010 compared to 2009 was primarily attributable to the increase in full time equivalent employees (FTE), and conversely, the decrease in salaries and benefits expense in 2009 versus 2008 was primarily attributable to the decrease in full time equivalent employees. Additionally, salaries and related benefits for 2010 included an increase in commissions and incentive compensation directly related to increased loan and deposit production during the current year.

Occupancy expense for the year ended December 31, 2010 was $3.3 million and represented a decrease of approximately $114,000 from $3.5 million for the prior year. The decrease in occupancy expense was primarily attributed to the termination of the Santa Clara lease in the fourth quarter of 2009. Occupancy expense for the year ended December 31, 2009 represented a decrease of approximately $151,000 over $3.6 million for the prior year. The decrease was again primarily due to the termination of the Santa Clara lease in the fourth quarter of 2009.

The Company contracts with third-party vendors for most data processing needs and to support technical infrastructure. Data processing expense in 2010 was $2.9 million which represented an increase of approximately $387,000 over $2.5 million one year earlier. Data processing expense in 2009 was $2.5 million which represented an increase of approximately $86,000 over $2.4 million one year earlier. The increase in data processing in both years was primarily due to an increase in deposit transaction volumes.

Legal and professional expenses were $2.1 million for the years ended December 31, 2010, which represents a $167,000 increase over $1.9 million one year earlier. Legal and professional expenses were $1.2 million for the year ended December 31, 2008. The increase in legal and professional expenses was primarily due to loan related legal fees.

In 2008, the FDIC proposed changes to the deposit insurance assessment system that went into effect in the second quarter of 2009. These changes were intended to apportion a larger percentage of the increase in deposit assessment to institutions categorized as “riskier” based on the four risk categories defined by the FDIC. Based upon the Company’s risk profile under the new assessment system, the Company’s FDIC assessments for 2010 were $2.5 million and $2.6 million for 2009, compared to $665,000 under the previous assessment system in 2008. However, the increase in regulatory assessments during 2010 and 2009 was primarily attributed to participation in the Transaction Guarantee Program as well as FDIC insurance related to deposit balances.

OREO expense for the year ended December 31, 2010 was $2.0 million, which represents an increase of $744,000 over $1.2 million for the same period one year earlier. This increase reflects the loan related legal fees, sales related expenses, and write-downs of property values during the year on the increased level of OREO activity in 2010 compared to 2009. December 31, 2009 OREO expense reflects an increase of $642,000 over $589,000 in 2008.

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

Income Taxes

The Company’s effective tax rate was 43.0% for the year ended December 31, 2010, (68.8)% for the year ended December 31, 2009 and (43.5)% for the year ended December 31, 2008. See Note 8 to the financial statements for additional information on income taxes.

Quarterly Income

The unaudited income statement data of the Bank, in the opinion of management, includes all normal and recurring adjustments necessary to state fairly the information set forth herein. The results of operations are not necessarily indicative of results for any future period. The following table shows the Bank’s unaudited quarterly income statement data for the years 2010, 2009, and 2008.

(dollars in thousands, except share amounts)	Three Months Ended
	March 31			June 30			September 30			December 31
Year Ended December 31, 2010:
Interest income	$	10,757		$	10,990		$	11,369		$	12,072
Interest expense		882			835			701			653
Net interest income		9,875			10,155			10,668			11,419
Provision for credit losses		1,250			1,150			350			1,950
Other income		1,626			1,703			1,433			2,087
Other expense		9,653			9,659			9,268			11,140
Income before income taxes		598			1,049			2,483			416
Income taxes		233			294			1,161			267
Net income (loss)	$	365		$	755		$	1,322		$	149
Preferred dividends		1,060			298			299			298
Net income available to common shareholders	$	(695	)	$	457		$	1,023		$	(149	)

Earnings (loss) per share - basic	$	(0.11	)	$	0.04		$	0.10		$	(0.01	)
Earnings (loss) per share - diluted	$	(0.11	)	$	0.04		$	0.09		$	(0.01	)

Year Ended December 31, 2009:
Interest income	$	11,960		$	11,476		$	10,515		$	10,621
Interest expense		2,310			1,783			1,523			1,147
Net interest income		9,650			9,693			8,992			9,474
Provision for credit losses		3,650			4,000			650			900
Other income		4,004			2,326			1,689			2,294
Other expense		9,463			9,343			9,202			10,064
Income before income taxes		541			(1,324	)		829			804
Income taxes		208			(482	)		290			(601	)
Net income (loss)	$	333		$	(842	)	$	539		$	1,405
Preferred dividends		1,017			1,057			1,064			1,065
Net income available to common shareholders	$	(684	)	$	(1,899	)	$	(525	)	$	340

Earnings (loss) per share - basic	$	(0.10	)	$	(0.29	)	$	(0.08	)	$	0.05
Earnings (loss) per share - diluted	$	(0.10	)	$	(0.29	)	$	(0.08	)	$	0.05

Year Ended December 31, 2008:
Interest income	$	16,021		$	14,948		$	14,258		$	13,465
Interest expense		3,989			3,224			3,271			3,343
Net interest income		12,032			11,724			10,987			10,122
Provision for credit losses		2,370			6,200			19,000			3,950
Other income		1,671			1,715			1,955			4,630
Other expense		8,736			9,511			9,802			8,269
Income before income taxes		2,597			(2,272	)		(15,860	)		2,533
Income taxes		1,075			(945	)		(6,655	)		864
Net income (loss)	$	1,522		$	(1,327	)	$	(9,205	)	$	1,669
Preferred dividends		-			-			-			152
Net income available to common shareholders	$	1,522		$	(1,327	)	$	(9,205	)	$	1,517

Earnings (loss) per share - basic	$	0.24		$	(0.20	)	$	(1.41	)	$	0.22
Earnings (loss) per share - diluted	$	0.23		$	(0.20	)	$	(1.41	)	$	0.23

FINANCIAL CONDITION AND EARNING ASSETS

As of December 31, 2010, total assets were $1.0 billion, gross loans were $651.5 million and deposits were $847.9 million. Assets increased $185.7 million, a 22.0% increase from $844.1 million at December 31, 2009. Gross loans increased $75.1 million, or 13.0% from $576.4 million at December 31, 2009. Deposits increased $142.9 million, a 20.3% increase from $705.0 million at December 31, 2009.

As of December 31, 2009, total assets were $844.1 million, gross loans were $576.4 million and deposits were $705.0 million. Assets decreased $103.5 million, a 10.9% decrease from $947.6 million at December 31, 2008. Gross loans decreased $123.2 million, or 17.6% from $699.6 million at December 31, 2008. Deposits decreased $72.2 million, a 9.3% decrease from $777.2 million at December 31, 2008.

Federal Funds Sold

Federal funds sold were $114.2 million at December 31, 2010 as compared to $104.3 million at December 31, 2009. The Company’s investment in federal funds sold reflects the Company’s current strategy of deploying other earning assets primarily in federal funds sold to address the potential volatility of deposit balances and to accommodate projected loan funding throughout the remainder of the current economic cycle.

The average balance of federal funds sold was $112.9 million in 2010 and $167.4 million in 2009. These balances represented 15.0% and 23.3% of average deposits for 2010 and 2009, respectively. They are maintained primarily for the short-term liquidity needs of the Bank.

Securities

The following table shows the composition of the securities portfolio at December 31, 2010 and 2009. As of December 31, 2008, the Company did not own any investment securities.

(dollars in thousands)	As of December 31,
	2010				2009
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value

Debt securities:
U.S. government agencies		49,417		49,574		80,324		80,277
Mortgage backed securities		121,105		119,620		24,936		24,728
Corporate bonds		7,908		7,956		-		-
Total debt securities		178,430		177,150		105,260		105,005
Equity securities		40,153		40,153		-		-
Total securities available for sale		218,583		217,303		105,260		105,005

Total investment securities	$	218,583	$	217,303	$	105,260	$	105,005

The maturities and yields of the debt securities included in the investment portfolio at December 31, 2010 are shown in the table below. The equity securities had a weighted average yield of 1.2% during 2010.

			Due in one year					Due after one year					Due greater than
(dollars in thousands)			or less					through five years					five years
					Weighted					Weighted					Weighted
	Amortized				Average					Average					Average
	Cost		Amount		Yield			Amount		Yield			Amount		Yield

As of December 31, 2010:
U.S. government agencies		49,417		16,164		1.3	%		30,257		1.9	%		2,996		1.8	%
Mortgage backed securities		121,105		2,729		2.8	%		34,025		2.5	%		84,351		2.5	%
Corporate bonds		7,908		5,031		1.2	%		2,877		2.2	%		-		-
Total debt securities	$	178,430	$	23,924		1.4	%	$	67,159		2.1	%	$	87,347		2.4	%

As of December 31, 2009:
U.S. government agencies		80,324		-		0.0	%		80,324		1.7	%		-		-
Mortgage backed securities		24,936		-		0.0	%		21,640		2.5	%		3,296		3.1	%
Total debt securities	$	105,260	$	-		0.0	%	$	101,964		1.8	%	$	3,296		3.1	%

Investment securities are classified as available for sale. Any unrealized gain or loss on investment securities available for sale is reflected in the carrying value of the security and reported net of income taxes in the equity section of the balance sheet. The pre-tax unrealized loss on securities available for sale at December 31, 2010 was $256,000 and $255,000 at December 31, 2009. There was no pre-tax unrealized gain or loss on securities available for sale at December 31, 2008.

Loan Portfolio

The following table shows the Bank’s loans by type and their percentage distribution at December 31, 2010, 2009, 2008, 2007, and 2006.

(dollars in thousands)	As of December 31,
	2010			2009			2008			2007			2006

Commercial	$	269,034		$	253,776		$	301,024		$	272,660		$	197,174
Real estate construction		40,705			20,601			98,105			85,378			103,710
Land loans		9,072			12,763			23,535			61,987			41,811
Real estate other		138,633			149,617			134,767			109,055			73,502
Factoring and asset based lending		122,542			66,660			55,761			57,662			56,924
SBA		67,538			67,629			77,043			56,945			59,888
Other		4,023			5,395			9,371			9,042			7,771
Total gross loans		651,547			576,441			699,606			652,729			540,780
Unearned fee income		(1,444	)		(1,452	)		(1,601	)		(1,856	)		(1,495	)
Total loan portfolio	$	650,103		$	574,989		$	698,005		$	650,873		$	539,285

Commercial		41.3	%		44.0	%		43.0	%		41.8	%		36.5	%
Real estate construction		6.2	%		3.6	%		14.0	%		13.1	%		19.2	%
Land loans		1.4	%		2.2	%		3.4	%		9.5	%		7.6	%
Real estate other		21.3	%		26.0	%		19.3	%		16.7	%		13.6	%
Factoring and asset based lending		18.8	%		11.6	%		8.0	%		8.8	%		10.5	%
SBA		10.4	%		11.7	%		11.0	%		8.7	%		11.1	%
Other		0.6	%		0.9	%		1.3	%		1.4	%		1.5	%
Total gross loans		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

Gross loan balances increased to $651.5 million at December 31, 2010, which represented an increase of $75.1 million or 13.0% as compared to $576.4 million at December 31, 2009. The increase in loans was primarily attributable to growth in the factoring and asset based lending portfolio. The overall increase in the total loan portfolio was a result of a concerted effort to prudently grow the balance of loans in our portfolio while managing risk. Gross loan balances of $576.4 million at December 31, 2009, represented a decrease of $123.2 million or 17.6% as compared to $699.6 million at December 31, 2008. The decrease in loans was primarily in real estate construction and commercial loans. The decrease was consistent with our concerted effort to lower the composition of loans in these categories in order to manage risk more effectively.

The Bank’s commercial loan portfolio represents loans to small and middle-market businesses primarily in the Santa Clara county region as well as loans to technology-based emerging growth companies. Commercial loans were $269.0 million at December 31, 2010, which represented an increase of $15.3 million or 6.0% over $253.8 million at December 31, 2009. At December 31, 2010, commercial loans comprised 41.3% of total loans outstanding as compared to 44.0% at December 31, 2009. Commercial loans were $253.8 million at December 31, 2009, which represented a decrease of $47.2 million or 15.7% versus $301.0 million at December 31, 2008. At December 31, 2009, commercial loans comprised 44.0% of total loans outstanding as compared to 43.0% at December 31, 2008.

Other real estate loans consist of commercial real estate and home equity lines of credit. Other real estate loans decreased $11.0 million, or 7.34%, to $138.6 million at December 31, 2010 as compared to $149.6 million at December 31, 2009. The decrease was primarily attributable to other real estate term loans. At December 31, 2010, other real estate term loans were primarily comprised of office and industrial investment properties which represented approximately 39% of the total and approximately 34% were to finance buildings occupied by clients of the bank. Less than 33% of term real estate loans at December 31, 2010 were to finance retail properties. Other real estate loans increased $14.9 million or 11.0% to $149.6 million at December 31, 2009 as compared to $134.8 million at December 31, 2008. The increase was primarily attributable to other real estate term loans. At December 31, 2009, other real estate term loans were primarily comprised of office and industrial investment properties which represented approximately 33% of the total and approximately 34% were to finance buildings occupied by clients of the bank. Less than 30% of term real estate loans at December 31 were to finance retail properties. At December 31, 2010, other real estate loans represented 21.3% of total loans as compared to 26.0% at December 31, 2009 and 19.3% at December 31, 2008.

The Bank’s land loan portfolio consists of land and land development loans related to future construction credits. Land loans decreased $3.7 million or 28.9% to $9.1 million at December 31, 2010 as compared to $12.8 million at December 31, 2009. Land loan balances at December 31, 2010 comprised 1.4% of total loans as compared to 2.2% at December 31, 2009. In 2009 and 2008, collateral values securing land loans declined severely as residential development projects declined in value. Consequently the Bank undertook a focused effort to reduce outstanding balances in this category of loans through valuation charges and collections. Land loans decreased $10.8 million to $12.8 million at December 31, 2009 compared to $23.5 million at December 31, 2008. Land loan balances at December 31, 2009 comprised 2.2% of total loans as compared to 3.4% at December 31, 2008.

Approximately half of the Bank’s construction loan portfolio consists of loans to finance individual single-family residential homes in markets in the Peninsula and South Bay region of Silicon Valley. The remainder is comprised of commercial and multi-family development projects. Construction loans increased $20.1 million, or 97.6%, to $40.7 million at December 31, 2010 as compared to $20.6 million at December 31, 2009. Construction loan balances at December 31, 2010 comprised 6.2% of total loans as compared to 3.6% at December 31, 2009. Construction loans decreased $77.5 million, or 79.0%, to $20.6 million at December 31, 2009 as compared to $98.1 million at December 31, 2008. Construction loan balances at December 31, 2009 comprised 3.6% of total loans as compared to 14.0% at December 31, 2008.

Factoring and asset-based lending represents purchased accounts receivable (factoring) and a structured accounts receivable lending program where the Bank receives client specific payment for client invoices. Under the factoring program, the Bank purchases accounts receivable invoices from its clients and then receives payment directly from the party obligated for the receivable. In most cases the Bank purchases the receivables subject to recourse from the Bank’s factoring client. The asset-based lending program requires a security interest in all of a client’s accounts receivable. At December 31, 2010, factoring and asset based loans totaled $122.5 million or 18.8% of total loans as compared to $66.7 million or 11.6% of total loans at December 31, 2009.

The SBA line of business operates primarily in Santa Clara County. The Bank, as a Preferred Lender, originates SBA loans and participates in the SBA 7A and 504 lending programs. Under the 7A program, a loan is made for commercial or real estate purposes. The SBA guarantees these loans and the guarantee may range from 70% to 90% of the total loan. In addition, the loan could be collateralized by a deed of trust on real estate.

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

At December 31, 2010, SBA loans comprised $67.5 million or 10.4% of total loans as compared to $67.6 million or 11.7% of total loans at December 31, 2009. The Bank has the intent to sell all or a portion of the SBA loans and, as such, carries the saleable portion of SBA loans at the lower of aggregate cost or fair value. At December 31, 2010 and 2009, the fair value of SBA loans exceeded aggregate cost and therefore, SBA loans were carried at aggregate cost.

Other loans consist primarily of loans to individuals for personal uses, such as installment purchases, overdraft protection loans and a variety of other consumer purposes. At December 31, 2010, other loans totaled $4.0 million as compared to $5.4 million at December 31, 2009.

Allowance for Loan Losses

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

Economic conditions

Borrowers’ financial condition

Loan impairment

Evaluation of industry trends

Historic losses, migrations and delinquency trends

Industry and other concentrations

Loans which are contractually current as to payment terms but demonstrate a higher degree of risk as identified by management

Continuing evaluation of the performing loan portfolio

Periodic review and evaluation of problem loans

Off balance sheet risks

Assessments by regulators and other third parties

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

The following table summarizes the activity in the allowance for loan losses for the years ended December 31, 2010, 2009, 2008, 2007, and 2006.

(dollars in thousands)	Year ended December 31,
	2010		2009		2008		2007		2006

Balance, beginning of period	$	16,012	$	18,554	$	8,608	$	7,329	$	5,936
Loans charged off by category:
Commercial and other		1,406		3,108		1,995		562		-
Real estate construction		1,274		4,561		5,536		-		-
Real estate land		748		2,674		13,518		-		-
Real estate other		4,013		2,452		645		16		-
Factoring and asset-based lending		132		-		-		677		-
Consumer		606		-		-		-		-
Total charge-offs		8,179		12,795		21,694		1,255		-
Recoveries by category:
Commercial and other		1,100		739		83		259		21
Real estate construction		799		206		37		-		-
Real estate land		134		-		-		-		-
Real estate other		686		108		-		-		-
Factoring and asset-based lending		43		-		-		-		-
Consumer		251		-		-		-		-
Total recoveries		3,013		1,053		120		259		21
Net charge-offs (recoveries)		5,166		11,742		21,574		996		(21	)
Provision charged to expense		4,700		9,200		31,520		2,275		1,372
Balance, end of year	$	15,546	$	16,012	$	18,554	$	8,608	$	7,329

The decrease in the allowance for loan losses of $0.5 million from December 31, 2009 to $15.5 million at December 31, 2010 is attributable to a decrease in net charge-offs in 2010, and a decrease in unidentified probable, estimable losses due to stress from the credit crisis and general deterioration in economic conditions, offset by an increase in gross loan balances.

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

(dollars in thousands)	As of December 31,
	2010			2009			2008			2007			2006

Commercial and other	$	4,616		$	6,313		$	6,179		$	3,124		$	1,831
Real estate other		5,358			5,173			2,495			2,356			1,152
Real estate construction		1,628			1,376			5,197			783			1,082
Land loans		622			764			1,592			-			-
Factoring / asset based lending		1,575			1,061			1,222			1,239			1,415
SBA		1,670			1,175			1,673			1,053			1,803
Other		77			150			196			53			46
	$	15,546		$	16,012		$	18,554		$	8,608		$	7,329

Commercial and other		0.7	%		1.1	%		0.9	%		0.5	%		0.3	%
Real estate other		0.8	%		0.9	%		0.4	%		0.4	%		0.2	%
Real estate construction		0.2	%		0.2	%		0.7	%		0.1	%		0.2	%
Land loans		0.1	%		0.1	%		0.2	%		0.0	%		0.0	%
Factoring / asset based lending		0.2	%		0.2	%		0.2	%		0.2	%		0.3	%
SBA		0.3	%		0.2	%		0.2	%		0.2	%		0.3	%
Other		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
		2.39	%		2.78	%		2.65	%		1.32	%		1.36	%

Beginning in the second quarter of 2008, deterioration in economic conditions within the Company's market area and, as applicable, the State of California and/or national macroeconomic conditions resulted in increased stress to the loan portfolio, specifically construction and land development loans outside of the Company’s primary market of Santa Clara County and contiguous portions of San Mateo and Alameda counties.

In response to the deteriorating market conditions, the Company undertook steps to aggressively reduce the exposure to construction and land development loans with particular emphasis on loans outside of its primary market. Management curtailed new loan origination, thoroughly reviewed collateral values of projects approaching maturity and conservatively evaluated the market prospects of collateral for indications of impairments. During 2010, the Company selectively originated new construction loans within its primary market that met the Company’s conservative underwriting standards.

At December 31, 2010, the Company’s land development portfolio was reduced to $9.1 million with just $4.4 million remaining exposure outside of the primary market area. Further, approximately 40% of the remaining loans in this category are underwritten to amortizing term structures supported by cash flow from liquidity of the borrowers.

Construction loans at December 31, 2010 increased to $40.7 million with $4.2 million remaining on projects outside of the primary market area. In addition, at that date $21.8 million, or 53.6%, were loans to finance commercial projects and $4.4 million, or 10.8% were loans to finance residential projects of five or more units.

The aggressive management of credits in this category has resulted in elevated levels of nonperforming assets as loans are placed on nonaccrual through the marketing phase of the underlying project. In addition, loans placed on nonaccrual have been reduced to the level of indicated impairments. This has resulted in an elevated level of charge-offs. Management believes that this practice results in a recorded level of nonperforming assets that generally has been reduced to a net liquidation value, and as these assets are liquidated do not expect to incur additional significant losses. Nonperforming loans at December 31, 2010, on average, have been reduced by approximately 28% of the remaining contractual balance, which was taken as a charge-off against the allowance for loan losses.

In response to the elevated level of charge-offs, migration of construction and land portfolios, and general deterioration in economic conditions the Company also increased provisions for potential loans losses and built the reserve to approximately 2.39% of total loans. The coverage ratio, the ratio of allowance for loan losses to nonperforming loans was 93.11% at December 31, 2010. Management believes that the coverage ratio reflects the conservative charge-off practice and that the allowance is adequate for losses not specifically identified in impairment analyses.

At December 31, 2010 nonperforming assets represented 2.27% of total assets, compared to 2.79% of total assets on December 31, 2009. Total nonperforming assets as of December 31, 2010 have remained relatively unchanged since December 31, 2009; however, there has been a considerable churn in the loans that comprise this category. In addition, one legacy construction loan totaling $6.9 million was transferred from a Troubled Debt Restructuring (TDR) into non-performing loans as a result of a liquidity covenant violation. Despite being current on interest payments, as a result of a covenant violation the Company deemed the loan to be collateral dependent and therefore recognized an impairment charge of $800,000 related to this loan in the second quarter of 2010. The loan continued to remain current as of December 31, 2010 and no additional impairment charges have been taken. The following summarizes nonperforming assets and loans restructured and in compliance with modified terms at December 31, 2010, 2008, 2007, 2006, and 2005.

	As of December 31,
(dollars in thousands)	2010		2009		2008		2007		2006

Loans accounted for on a non-accrual basis	$	16,696	$	17,009	$	15,772	$	4,914	$	437
Loans with principal or interest contracturally past due 90 days or more		-		-		-		-		-
Nonperforming loans		16,696		17,009		15,772		4,914		437
Other real estate owned		6,645		6,509		1,096		425		-
	$	23,341	$	23,518	$	16,868	$	5,339	$	437

Loans restructured and in compliance with modified terms		4,494		16,834		-		-		-

Nonperforming assets and restructured loans	$	27,835	$	40,352	$	16,868	$	5,339	$	437

There were fifteen non-accrual loans totaling $16.7 million at December 31, 2010, as compared to twenty-four non-accrual loans totaling $17.0 million at December 31, 2009 and sixteen non-accrual loans totaling $15.8 million at December 31, 2008. 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 collectability 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 following table sets forth the components of nonperforming loans as of December 31, 2010:

(dollars in thousands)

December 31, 2010
Classification	Amount		Collateral

Land		1,723	Lots for retail development in Sacramento County
Land		667	Lots for single family homes in Santa Clara County
Land		474	Lots for single family homes in Idaho
Land		270	Lots for single family homes in Calaveras County
Land		42	Lot for commercial development in Calaveras County
		3,176

Construction		3,051	Residential condos in Santa Clara County
Construction		2,291	Commercial condos in Santa Clara County
		5,342

Real estate other		6,633	Special purpose facility located in Santa Cruz County
Real estate other		759	Commercial building in Santa Clara County
Real estate other		198	Commercial office space in Santa Clara County
Real estate other		187	Single family residence in San Francisco County
Real estate other		71	Single family residence in Santa Cruz County
Real estate other		18	Commercial building in Stanislaus County
Real estate other		12	Light industrial warehouse space in Santa Clara County
		7,878

Commercial		300	Business assets

Total nonperforming loans	$	16,696

Management undertakes significant processes in order to identify potential problem loans in a timely manner. In addition to regular interaction with the Company’s borrowers, the relationship managers review the credit ratings for each loan on a monthly basis and identify any potential downgrades. For commercial, SBA, and factoring and asset-based lending loans, the Company receives quarterly financial statements and other pertinent reporting, such as borrowing bases for asset-based facilities, so as to identify any deteriorating financial trends. Covenant compliance for these loans is also monitored on a quarterly basis. For real estate construction and land loans, the development, construction and lease up or sell out status of each project is monitored on a monthly basis. For loans secured by standing commercial or residential property, the Company receives updated rent rolls and operating statements on an annual basis. In addition, home equity loans are reviewed annually for deterioration in either the underlying property value or the borrower’s payment history. Management also engages a third party loan review firm that reviews the loan portfolio every four months to further identify potential problem loans. The loan review includes assessment of underwriting, quality of legal documents, management of the loan relationship, and adherence to the credit policy along with acceptable risk mitigation and rationale for exceptions to the policy.

As part of the loan approval process, management identifies the nature and type of underlying collateral supporting individual loans. Prior to or at the time of initial advances, any required lien positions are verified using UCC lien searches for personal property collateral, or title insurance for real property collateral. The Company engages a third party loan review firm to conduct an annual review of its loan documentation and the related policies and procedures regarding the loan documentation process.

The Company primarily relies on fair market appraisals to determine the value of underlying collateral. Appraisals are required for real property secured loans of $250,000 or more, including increases to existing loans of $250,000 or more. In the event there is evidence of deterioration in values, an evaluation of the collateral value and/or a full new appraisal is required for an extension of the loan maturity. Potential problem loans are reappraised at a minimum of every 6-12 months depending on current economic conditions. The appraisals are performed by Board approved appraisers that have appropriate licensing and experience. When a prospective loan amount exceeds $1.5 million, the completed appraisal is further reviewed by a qualified third party review appraiser. To determine the value of underlying collateral for formula lines of credit that are predicated on a borrowing base of eligible assets, the Company requires a pre loan funding field audit of the borrower’s financial records to verify the accounts receivable, their eligibility for inclusion in the borrowing base, performance of the collateral and any asset concentrations.

On a monthly basis, relationship managers assess the collateral position of individual loans and identify any potential collateral shortfalls which, if left uncorrected, could result in deterioration of the repayment prospects for the loan at some future date. Any potential collateral shortfalls are incorporated into a written corrective action plan. The status of the correction action plans are reviewed by executive management. Review of ability to acquire additional collateral and the related timeframes are addressed on an individual loan basis.

At the time a loan is classified as substandard (which includes any loans on non-accrual), the Company performs an impairment analysis of the collateral based on appraisals, field audits, other market value indicators, and Management’s judgment. Any shortfall between the collateral’s realization value and the loan balance is charged-off at that time. Impairment analyses are updated on a monthly basis. Additionally, as underlying collateral is reappraised the value of the collateral is reassessed and any additional charge-off is taken at that time. A similar practice is followed for downward adjustments to the Company’s OREO carrying value.

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, land, and other real estate loan portfolios, representing approximately 28.9% 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.

Funding

Deposits represent the Bank’s principal source of funds. Most of the Bank’s deposits are obtained from professionals, small- to medium sized businesses and individuals within the Bank’s market area. The Bank’s deposit base consists of non-interest and interest-bearing demand deposits, savings and money market accounts and certificates of deposit. The following table summarizes the composition of deposits as of December 31, 2010, 2009 and 2008.

(dollars in thousands)	As of December 31,
	2010					2009					2008
	Amount		Percent			Amount		Percent			Amount		Percent

Noninterest-bearing demand	$	443,806		52.34	%	$	333,171		47.26	%	$	284,319		36.58	%
Interest-bearing demand		5,275		0.62	%		4,830		0.69	%		4,267		0.55	%
Money market and savings		355,772		41.96	%		275,850		39.13	%		335,200		43.13	%
Certificates of deposit:
Less than $100,000		9,212		1.09	%		29,782		4.22	%		92,997		11.96	%
$100,000 and more		33,881		4.00	%		61,413		8.71	%		60,462		7.78	%

Total deposit portfolio	$	847,946		100.00	%	$	705,046		100.00	%	$	777,245		100.00	%

Deposits increased $142.9 million or 20.3% from $705.0 million at December 31, 2009 to $847.9 million at December 31, 2010. The increase in deposits was primarily in non-interest bearing demand and money market and savings.

Leverage

Total gross loan balances at December 31, 2010 were $651.5 million. The resulting loan to deposit ratio was 76.84%. Other earning assets at December 31, 2010 were primarily comprised of investment securities, federal funds sold and interest-bearing deposits of $334.1 million. To date, the Company has deployed other 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. When deploying other earning assets, the Company implements strategic decisions that may have a beneficial or adverse impact on net interest income and on the net interest margin to manage the business through a variety of economic cycles.

During the fourth quarter of 2008 and throughout 2010, as part of a strategic decision the Company effectively repositioned the composition of its balance sheet and improved its liquidity position by deploying other earning assets primarily in federal funds in direct response to the recent economic downturn and potential volatility of the deposit portfolio.

Capital Resources

The Company's capital resources consist of shareholders' equity, trust preferred securities and (for regulatory purposes) the allowance for credit losses (subject to limitations). At December 31, 2010, the Company’s capital resources increased $36.1 million to $171.8 million from $135.7 million at December 31, 2009. Tier 1 capital increased $55.0 million to $161.4 million primarily due to the conversion of $30.0 million of preferred stock to common stock during the first quarter of 2010 and a $30.0 million private placement of common equity during the fourth quarter of 2010. Tier 2 capital decreased $18.8 million primarily due to the conversion of $30.0 million of preferred stock to common stock during the first quarter of 2010.

The Company and the Bank are subject to the capital guidelines and regulations governing capital adequacy for bank holding companies and national banks. Additional capital requirements may be imposed on banks based on market risk. The FDIC requires a leverage ratio of 8.00% for new banks during the first three years of operation.

After the first three years of operations, the Comptroller requires a minimum leverage ratio of 3.00% for national banks that have received the highest composite regulatory rating (a regulatory measurement of capital, assets, management, earnings and liquidity) and that are not anticipating or experiencing any significant growth. All other institutions are required to maintain a leverage ratio of at least 100 to 200 basis points above the 3.00% minimum.

The Comptroller's regulations also require national banks to maintain a minimum ratio of qualifying total capital to risk-weighted assets of 8.00%. Risk-based capital ratios are calculated with reference to risk-weighted assets, including both on and off-balance sheet exposures, which are multiplied by certain risk weights assigned by the Comptroller to those assets. At least one-half of the qualifying capital must be in the form of Tier 1 capital.

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

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

Finally, institutions with significant trading activities must measure and hold capital for exposure to general market risk arising from fluctuations in interest rates, equity prices, foreign exchange rates and commodity prices and exposure to specific risk associated with debt and equity positions in the trading portfolio. General market risk refers to changes in the market value of on-balance-sheet assets and off-balance-sheet items resulting from broad market movements. Specific market risk refers to changes in the market value of individual positions due to factors other than broad market movements and includes such risks as the credit risk of an instrument’s issuer. The additional capital requirements apply effective January 1, 1998 to institutions with trading assets and liabilities equal to 10.0% or more of total assets or trading activity of $1.0 billion or more. The federal banking agencies may apply the market risk regulations on a case-by-case basis to institutions not meeting the eligibility criteria if necessary for safety and soundness reasons.

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.

In response to increasing risk perceived in the economic environment, during the fourth quarter of 2008 the Company raised $53.9 million of additional capital. Additionally, to support tangible common equity as a component of Tier 1 capital and to ensure resources for the eventual TARP repayment, the Company successfully completed the sale of $30.0 million in common stock to a group of institutional investors in a private placement transaction during the fourth quarter of 2010. The following is a summary of these issuances:

Private Placement (2010)

On November 23, 2010, investors purchased $30.0 million of the Company’s common stock in a private placement transaction. The investors in the private placement purchased 3,508,771 shares of common stock at a price per share of $8.55. The price per share in the private placement was equal to the Nasdaq closing bid price of the Company’s common stock on November 18, 2010.

Under a Stock Purchase Agreement dated as of December 4, 2008 (see below), as amended, by and between the Company and Carpenter Fund Manager G.P., LLC, the Company granted certain participation rights to Carpenter Community BancFund, L.P., Carpenter Community BancFund-A, L.P. and Carpenter Community BancFund-CA, L.P. (collectively, the “Carpenter Funds”). As part of the November 23, 2010 private placement transaction, Carpenter Funds agreed to purchase an additional 1,103,275 common shares pursuant to the Stock Purchase Agreement. As a result, after the closing of this transaction, the Carpenter Funds held a total of 4,906,928 shares of the Company’s common stock or approximately 33.9% of the Company’s outstanding shares of common stock. Other than Carpenter, no Investor owned more than 9.9% of the Company’s common stock as a result of the sale of these common shares.

Private Placement (2008)

On December 4, 2008, the Carpenter Funds agreed to purchase $30.0 million of the Company’s Series B and B-1 Mandatorily Convertible Cumulative Perpetual Preferred Stock in a private placement, subject to the United States Department of the Treasury approving our participation in the TARP Capital Purchase Program (see discussion below) and the Company satisfying all legal requirements for selling equity securities to the Treasury under the program.

On December 17, 2008, the Company completed the private placement sale of 131,901 shares of its Series B Mandatorily Convertible Cumulative Perpetual Preferred Stock and 168,099 shares of its Series B-1 Mandatorily Convertible Cumulative Perpetual Preferred Stock, for aggregate consideration of $30.0 million, which is $100 per share for both series of shares, to a private fund. The Series B and Series B-1 shares accrue dividends at a rate of 10% per annum, payable quarterly.

On March 31, 2010, the Company strengthened its capital position with the completion of an early conversion of the Series B and B-1 preferred shares. As a result of the conversion, the Company issued a total of 3,710,289 shares of its common stock and convertible promissory notes in the aggregate principal amount of $789,860 (the “Notes”) upon conversion of the Preferred Stock and as payment of all accrued but unpaid dividends thereon through September 30, 2010 pursuant to an agreement dated as of March 23, 2010. The effective conversion price of the Series B and B-1 Preferred was $8.46 per share, which was the closing price of the common stock reported on the Nasdaq Global Select Market on the date of the agreement.

The principal amount of the Notes accrued interest at the rate of 10% per annum and was convertible to common stock at the price of $8.46 per share. On June 17, 2010, the Notes were converted into 93,364 shares of common stock. As result of the conversion, there are no shares of Series B and B-1 Preferred outstanding, no shares of common stock issuable upon conversion of Notes.

Troubled Assets Relief Program (TARP)

On November 13, 2008, the United States Department of the Treasury (the Treasury) approved the Company’s participation in the TARP Capital Purchase Program, subject to the Company raising additional equity in an amount satisfactory to the Treasury. On December 4, 2008, investors agreed to purchase $30.0 million of the Company’s Series B and B-1 Mandatorily Convertible Cumulative Perpetual Preferred Stock in a private placement (see discussion above), subject to the Treasury approving the Company’s participation in the TARP Capital Purchase Program and its ability to satisfy all legal requirements for selling equity securities to the Treasury under the program. Based on discussions with the Treasury representatives, the Company understood that raising $30 million would satisfy the requirement of the Company raising additional equity.

On December 23, 2008, the Company issued 23,864 shares of its Fixed Rate Cumulative Perpetual Series C Preferred Stock, having a liquidation value of $23.9 million, to the Treasury. Dividends accrue at the rate of 5% per annum for the first five years and then 9% per annum thereafter. The dividends will be paid only as declared by the Board of Directors of the Company. However, in the event such dividends have not been paid for six or more quarters, whether or not consecutive, the Holders of the Series C Preferred shares will have the right to elect two members to the Company’s Board of Directors.

In addition the Company issued a warrant to purchase up to 396,412 shares of the Company’s common stock at a purchase price of $9.03 per share, subject to certain adjustment provisions such as stock splits, issuances of Common Stock at or below a specified price relative to the then current market price of the stock, and other provisions. The Warrant expires ten years from the issuance date. The Warrant is exercisable in whole or in part at any time except that the Treasury may not exercise more than one-half of the shares underlying the Warrant prior to the earlier of i) December 31, 2010 or ii) the date on which the Company receives gross proceeds of not less than $23.9 million in one or more Qualified Equity Offerings. In addition, the Treasury has agreed not to exercise voting power with respect to any shares of Common Stock issued upon exercise of the Warrant.

Prior to December 31, 2011, unless the Company has redeemed the Series C Preferred shares or the Treasury has transferred the Series C Preferred Shares to a third party, consent of the Treasury will be required for the Company to 1) pay any dividend or other distribution to the holders of the Common Stock or 2) redeem, purchase or acquire any shares of Common Stock or other equity securities other than in connection with benefit plans consistent with past practices. In addition, the Company’s ability to declare common dividends or repurchase Common Stock or other equity securities will be subject to restrictions in the event the Company fails to declare and pay, or set aside for payment, the full amount of dividends on the Series C Preferred Shares. Finally, the Company has agreed, so long as the Treasury holds any securities of the Company, to ensure that its benefit plans with respect to its senior executive officers comply with the applicable provisions of the Emergency Economic Stabilization Act of 2008 and the American Recovery and Reinvestment Act of 2009.

Issuance costs of $600,000 incurred in connection with the issuance of both the private placements and TARP securities have been charged against Additional Paid in Capital.

The Company is subject to capital adequacy guidelines issued by the Board of Governors and the OCC. The Company is required to maintain total capital equal to at least 8.0% of assets and commitments to extend credit, weighted by risk, of which at least 4.0% must consist primarily of common equity including retained earnings (Tier 1 capital) and the remainder may consist of subordinated debt, cumulative preferred stock or a limited amount of allowance for credit losses. Certain assets and commitments to extend credit present less risk than others and will be assigned to lower risk-weighted categories requiring less capital allocation than the 8.0% total ratio. For example, cash and government securities are assigned to a 0.0% risk-weighted category, most home mortgage loans are assigned to a 50.0% risk-weighted category requiring a 4.0% capital allocation and commercial loans are assigned to a 100.0% risk-weighted category requiring an 8.0% capital allocation. As of December 31, 2010, the Company's and the Bank’s total risk-based capital ratios were 20.87% and 15.42%, respectively (19.45% for the Company and 17.11% for the Bank at December 31, 2009).

The following table reflects the Company's capital ratios for the period ended December 31, 2010 and 2009 as well as the minimum capital ratios required to be deemed “well capitalized” under the regulatory framework.

(dollars in thousands)	As of December 31,
	2010					2009
	Amount		Ratio			Amount		Ratio
Company Capital Ratios
Tier 1 Capital	$	161,448		19.61	%	$	106,489		15.26	%
(to Risk Weighted Assets)
Tier 1 capital minimum requirement	$	49,403		6.00	%	$	41,861		6.00	%

Total Capital	$	171,805		20.87	%	$	135,678		19.45	%
(to Risk Weighted Assets)
Total capital minimum requirement	$	82,339		10.00	%	$	69,768		10.00	%

Company leverage
Tier 1 Capital	$	161,448		16.67	%	$	106,489		12.53	%
(to Average Assets)
Total capital minimum requirement	$	48,429		5.00	%	$	42,494		5.00	%

Bank Risk Based Capital Ratios
Tier 1 Capital	$	115,439		14.16	%	$	110,517		15.85	%
(to Risk Weighted Assets)
Tier 1 capital minimum requirement	$	48,903		6.00	%	$	41,837		6.00	%

Total Capital	$	125,693		15.42	%	$	119,323		17.11	%
(to Risk Weighted Assets)
Total capital minimum requirement	$	81,505		10.00	%	$	69,728		10.00	%

Bank leverage
Tier 1 Capital	$	115,439		11.93	%	$	110,517		13.01	%
(to Average Assets)
Total capital minimum requirement	$	48,389		5.00	%	$	42,459		5.00	%

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

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

Item 7a. Quantitative and Qualitative Disclosures about Market Risk

Liquidity/Interest Rate Sensitivity

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

The Bank is primarily a business and professional bank and, as such, its deposit base is more susceptible to economic fluctuations. The Bank strives to maintain a balanced position of liquid assets to volatile and cyclical deposits. At December 31, 2010, liquid assets as a percentage of deposits were 40.1% as compared to 33.2% in 2009. In addition to cash and due from banks, liquid assets include interest-bearing deposits with other banks, federal funds sold, and unpledged securities available for sale.

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

The following table sets forth the distribution of repricing opportunities, based on contractual terms, of the Company's earning assets and interest-bearing liabilities at December 31, 2010, the interest rate sensitivity gap (i.e. interest rate sensitive assets less interest rate sensitive liabilities), the cumulative interest rate sensitivity gap, the interest rate sensitivity gap ratio (i.e. interest rate gap divided by interest rate sensitive assets) and the cumulative interest rate sensitivity gap ratio.

(dollars in thousands)	As of December 31, 2010
				After three			After six		After one
	Within			months but			months but		year but		After
	three			within six			within one		within		five
	months			months			year		five years		years		Total

Federal funds sold	$	114,240		$	-		$	-	$	-	$	-	$	114,240
Interest bearing deposits in other banks		768			1,771			-		-		-		2,539
Investment securities		51,221			6,082			6,900		67,142		85,958		217,303
Loans		176,490			42,237			71,462		196,561		164,796		651,547
Total earning assets	$	342,719		$	50,090		$	78,362	$	263,703	$	250,754	$	985,629

Interest checking, money market and savings deposits		361,047			-			-		-		-		361,047
Certificates of deposit:
Less than $100,000		4,805			1,438			2,828		141		-		9,212
$100,000 or more		23,974			1,766			7,789		352		-		33,881
Total interest-bearing liabilities		389,826			3,204			10,617		493		0		404,140

Interest rate gap	$	(47,107	)	$	46,887		$	67,745	$	263,210	$	250,754	$	581,489
Cumulative interest rate gap	$	(47,107	)	$	(220	)	$	67,525	$	330,735	$	581,489

Interest rate gap ratio		(0.14	)		0.94			0.86		1.00		1.00
Cumulative interest rate gap ratio		(0.14	)		(0.00	)		0.14		0.45		0.59

Based on the contractual terms of its assets and liabilities, the Bank’s balance sheet at December 31, 2010 was asset sensitive in terms of its short-term exposure to interest rates. That is, at December 31, 2010 the volume of assets that might reprice within the next year exceeded the volume of liabilities that might reprice. This position provides a hedge against rising interest rates, but has a detrimental effect during times of rate decreases. Net interest income is negatively impacted by a decline in interest rates and positively impacted by an increase in interest rates. To partially mitigate the adverse impact of declining rates, the majority of variable rate loans made by the Bank have been written with a minimum “floor” rate.

The following table shows maturity and interest rate sensitivity of the loan portfolio at December 31, 2010 and 2009. At December 31, 2010, approximately 77.0% 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 December 31, 2010
					Due after one
			Due one year		year through		Due after
	Amount		or less		five years		five years

Commercial	$	269,034	$	143,890	$	103,977	$	21,167
Real estate construction		40,705		17,153		17,386		6,166
Real estate land		9,072		4,239		1,603		3,230
Real estate other		138,633		20,446		47,380		70,807
Factoring and asset based lending		122,542		98,722		23,820
SBA		67,538		2,867		1,245		63,426
Other		4,023		2,873		1,150
Total loans	$	651,547	$	290,190	$	196,561	$	164,796

	As of December 31, 2009
					Due after one
			Due one year		year through		Due after
	Amount		or less		five years		five years

Commercial	$	253,776	$	143,154	$	86,671	$	23,951
Real estate construction		20,601		19,302				1,299
Real estate land		12,763		9,519		1,038		2,206
Real estate other		149,617		22,217		46,696		80,704
Factoring and asset based lending		66,660		61,540		5,120		-
SBA		67,629		3,843		2,304		61,482
Other		5,395		4,567		828		-
Total loans	$	576,441	$	264,142	$	142,657	$	169,642

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.

In the ordinary course of business, we have issued certain guarantees which qualify as off-balance sheet arrangements. As of December 31, 2010 those guarantees include the following:

Financial Letters of Credit in the amount of $16.8 million

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

(dollars in thousands)	As of December 31, 2010
	Payments due by period
			Less Than		1 - 3		3 - 5		More than
Contractural Obligations	Total		1 year		years		years		5 years

Long-term contracts	$	4,379	$	899	$	1,392	$	1,392	$	696

Operating leases		9,703		1,731		3,525		2,930		1,517

Total	$	14,082	$	2,630	$	4,917	$	4,322	$	2,213

Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

		Page

Reports of Independent Registered Public Accounting Firm		54-55

Balance Sheets, December 31, 2010 and 2009		56

Statements of Operations for the years ended December 31, 2010, 2009 and 2008		57

Statement of Shareholders' Equity and Comprehensive Income for the years ended
December 31, 2010, 2009 and 2008		58

Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008		59

Notes to Financial Statements		60-86

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

* * * * *

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Bridge Capital Holdings

We have audited the accompanying consolidated balance sheets of Bridge Capital Holdings and Subsidiary as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in shareholders’ equity and comprehensive income, and cash flows for each of the years in the three year period ended December 31, 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bridge Capital Holdings and Subsidiary as of December 31, 2010 and 2009 and the consolidated results of their operations and their cash flows for each of the years in the three year period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Oversight Board (United States), Bridge Capital Holdings and Subsidiary’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 7, 2011, expressed an unqualified opinion.

Rancho Cucamonga, California

March 7, 2011

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Bridge Capital Holdings and Subsidiary

San Jose, California

We have audited Bridge Capital Holdings and Subsidiary’s (the Company) internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

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

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

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

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheet of the Company as of December 31, 2010 and 2009 and the related consolidated statements of operations, shareholders’ equity and comprehensive income and cash flows for the three years in the period ended December 31, 2010, and our report dated March 7, 2011 expressed an unqualified opinion on those financial statements.

Rancho Cucamonga, California

March 7, 2011

Bridge Capital Holdings and Subsidiary

Consolidated Balance Sheets

(dollars in thousands)

	As of December 31,
	2010			2009
Assets:
Cash and due from banks	$	8,676		$	14,893
Federal funds sold		114,240			104,260
Total cash and equivalents		122,916			119,153

Interest bearing deposits in other banks		2,539			9,980
Investment securities available for sale		217,303			105,005
Loans, net of allowance for credit losses of $15,546 at December 31, 2010 and $16,012 at December 31, 2009		634,557			558,977
Premises and equipment, net		2,580			3,566
Other real estate owned		6,645			6,509
Accrued interest receivable		3,439			2,829
Other assets		39,752			38,048
Total assets	$	1,029,731		$	844,067

Liabilities and Shareholders' Equity:
Deposits:
Demand noninterest-bearing	$	443,806		$	333,171
Demand interest-bearing		5,275			4,830
Savings		355,772			275,850
Time		43,093			91,195
Total deposits		847,946			705,046

Junior subordinated debt securities		17,527			17,527
Other borrowings		7,672			-
Accrued interest payable		48			121
Other liabilities		14,235			12,059
Total liabilities		887,428			734,753

Commitments and contingencies		-			-

Shareholders' Equity:
Preferred stock, no par value; 10,000,000 shares authorized; 23,864 shares issued and outstanding at December 31, 2010; 323,864 shares issued and outstanding at December 31, 2009;		23,864			53,864
Common stock, no par value; 30,000,000 shares authorized; 14,510,379 shares issued and outstanding at December 31, 2010; 7,098,164 shares issued and outstanding at December 31, 2009;		100,435			37,293
Additional paid in capital		4,408			3,626
Retained earnings		15,784			15,148
Accumulated other comprehensive (loss)		(2,188	)		(617	)
Total shareholders' equity		142,303			109,314
Total liabilities and shareholders' equity	$	1,029,731		$	844,067

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

Bridge Capital Holdings and Subsidiary

Consolidated Statements of Operations

(dollars in thousands, except share data)

	Year Ended December 31,
	2010		2009			2008
Interest Income:
Loans	$	42,071	$	43,350		$	56,302
Federal funds sold		263		395			1,066
Interest bearing deposits in other banks		121		363			119
Investment securities available for sale		2,733		464			1,205
Total interest income		45,188		44,572			58,692

Interest Expense:
Deposits		1,965		5,415			12,426
Other		1,106		1,348			1,401
Total interest expense		3,071		6,763			13,827

Net interest income		42,117		37,809			44,865
Provision for credit losses		4,700		9,200			31,520
Net interest income after provision for credit losses		37,417		28,609			13,345

Non-Interest Income:
Service charges on deposit accounts		2,417		1,900			1,166
International fee income		1,785		1,583			1,830
Gain on sale – OREO		1,011		1,628			161
SBA loan servicing fee income		380		436			445
Other income - CF hedges		48		3,286			3,870
Gain on sale of SBA loans		-		615			603
Other non-interest income		1,208		864			1,896
Total non-interest income		6,849		10,312			9,971

Operating Expenses:
Salaries and benefits		21,292		20,286			21,399
Occupancy and equipment		4,042		4,377			4,590
Assessments		2,500		2,629			665
Data services		2,913		2,526			2,439
Professional services		2,106		1,939			1,174
OREO expense		1,975		1,231			589
Deposit services/supplies		909		1,015			725
Other		3,983		4,068			4,737
Total operating expenses		39,720		38,071			36,318

Income (loss) before income taxes		4,546		850			(13,002	)
Income taxes		1,955		(585	)		(5,661	)
Net income (loss)	$	2,591	$	1,435		$	(7,341	)

Preferred dividends		1,955		4,203			152
Net income (loss) available to common shareholders	$	636	$	(2,768	)	$	(7,493	)

Basic earnings (loss) per share	$	0.06	$	(0.42	)	$	(1.15	)
Diluted earnings (loss) per share	$	0.06	$	(0.42	)	$	(1.15	)
Average common shares outstanding		9,820,755		6,571,479			6,502,376
Average common and equivalent shares outstanding		10,234,535		6,571,479			6,502,376

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

Bridge Capital Holdings and Subsidiary

Consolidated Statement of Shareholders' Equity and Comprehensive Income

For the three Years Ended December 31, 2010

(dollars in thousands, except share data)

													Accumulated			Total
	Common Stock and						Preferred						Other			Share-
	Additional Paid in Capital						Stock			Retained			Comprehensive			holders'
	Shares			Amount			Amount			Earnings			Income (loss)			Equity

Balance at December 31, 2007		6,485,630		$	37,697		$	-		$	25,409		$	1,978		$	65,084

Restricted stock issued		255,240			-			-			-			-			-
Stock options exercised		147,554			572			-			-			-			572
Issuance of preferred stock		-			-			53,864			-			-			53,864
Stock issuance cost		-			(469	)		-			-			-			(469	)
Tax benefit from exercise of non qualified stock options		-			508			-			-			-			508
Dividends paid on preferred stock		-						-			(152	)		-			(152	)
Stock based compensation		-			1,347			-			-			-			1,347
Other comprehensive (loss)		-			-			-			-			(923	)		(923	)
Net (loss) for the year		-			-			-			(7,341	)		-			(7,341	)

Balance at December 31, 2008		6,888,424		$	39,655		$	53,864		$	17,916		$	1,055		$	112,490

Restricted stock issued		209,740			-			-			-			-			-
Stock issuance cost		-			(101	)		-			-			-			(101	)
Dividends paid on preferred stock		-			-			-			(4,203	)		-			(4,203	)
Stock based compensation		-			1,365			-			-			-			1,365
Other comprehensive (loss)		-			-			-			-			(1,672	)		(1,672	)
Net income for the year		-			-			-			1,435			-			1,435

Balance at December 31, 2009		7,098,164		$	40,919		$	53,864		$	15,148		$	(617	)	$	109,314

Restricted stock issued		8,200			60			-			-			-			60
Restricted stock forfeited		(10,240	)		(126	)		-			-			-			(126	)
Stock options exercised		169,700			920			-			-			-			920
and related tendered shares		(67,869	)		(550	)		-			-			-			(550	)
Common stock issued -
conversion of preferred stock		3,546,099			30,000			(30,000	)		-			-			-
Common stock issued - dividends on preferred stock		257,554			2,179			-			-			-			2,179
Common stock issued -
private placement		3,508,771			30,000			-			-			-			30,000
Stock issuance cost		-			(30	)		-			-			-			(30	)
Tax benefit from exercise of non qualified stock options		-			171			-			-			-			171
Cash dividends on preferred stock		-			-			-			(1,955	)		-			(1,955	)
Stock based compensation		-			1,300			-			-			-			1,300
Other comprehensive (loss)		-			-			-			-			(1,571	)		(1,571	)
Net income for the year		-			-			-			2,591			-			2,591

Balance at December 31, 2010		14,510,379		$	104,843		$	23,864		$	15,784		$	(2,188	)	$	142,303

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

Bridge Capital Holdings and Subsidiary

Consolidated Statements of Cash Flows

(dollars in thousands)

	Year Ended December 31,
	2010			2009			2008

Cash Flows From Operating Activities:

Net (loss) income	$	2,591		$	1,435		$	(7,341	)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Provision for credit losses		4,700			9,200			31,520
Depreciation and amortization		1,351			1,550			1,565
Gain on sale of OREO		(1,011	)		(738	)		-
Deferred income tax (credit)		(167	)		(433	)		(4,835	)
Stock based compensation		1,300			1,365			1,347
Proceeds from loan sales		145			18,164			20,774
Loans originated for sale		(23,205	)		(15,360	)		(45,267	)
Gain on sale of securities		165			-			711
Increase in accrued interest receivable and other assets		(2,314	)		(6,910	)		(5,290	)
Increase in accrued interest payable and other liabilities		2,103			3,685			3,709
Net cash provided (used in) by operating activities		(14,342	)		11,958			(3,107	)

Cash Flows From Investing Activities:

Proceeds from sale of securities available for sale		21,141			-			-
Purchase of securities available for sale		(222,406	)		(106,450	)		-
Proceeds from paydowns/maturities of securities available for sale		88,802			1,445			54,039
Proceeds from sale of OREO		7,608			6,864			-
Purchase of interest bearing deposits		-			(2,712	)		(7,268	)
Proceeds from maturities of interest bearing deposits		7,441			-			-
Net (increase) decrease in loans		(65,252	)		96,931			(44,884	)
Purchase of fixed assets		(365	)		(326	)		(1,373	)
Net cash provided (used in) investing activities		(163,031	)		(4,248	)		514

Cash Flows From Financing Activities:

Net increase (decrease) in deposits		142,900			(72,199	)		105,889
Proceeds from sale of preferred stock		-			-			53,864
Proceeds from sale of common stock		30,370			-			572
Stock issuance cost		(30	)		(101	)		(469	)
Payment of cash dividends		(1,955	)		(4,203	)		(152	)
Common stock issued - preferred dividends		2,179			-			-
Increase (decrease) in other borrowings		7,672			(30,000	)		20,000
Net cash provided (used in) financing activities		181,136			(106,503	)		179,704

Net (Decrease) Increase in Cash and Equivalents:		3,763			(98,793	)		177,111
Cash and equivalents at beginning of period		119,153			217,946			40,835
Cash and equivalents at end of period	$	122,916		$	119,153		$	217,946

Other Cash Flow Information:
Cash paid for interest	$	1,825		$	5,095		$	13,386
Cash paid for income taxes	$	3,207		$	19		$	4,647
Transfer of loans to OREO	$	8,032		$	11,539		$	1,096
Conversion of preferred stock to common stock	$	30,000		$	-		$	-

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

BRIDGE CAPITAL HOLDINGS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 and 2008

1. SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

Principles of Consolidation - The financial statements include the accounts of Bridge Capital Holdings and its subsidiary, Bridge Bank, N.A. (“the Bank”) collectively referred to herein as “the Company”.

Basis of Presentation – The accounting and reporting policies of Bridge Capital Holdings and Bridge Bank, N.A. conform to generally accepted accounting principles and prevailing practices within the banking industry.

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

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.

Recent Accounting Pronouncements – During the current year, the FASB issued guidance regarding the following new accounting standards:

In June 2009, the Financial Accounting Standards Board (“FASB”) issued guidance which amended accounting standards to clarify when a transferor has surrendered control over transferred financial assets and thus is entitled to account for the transfer as a sale. The amendments establish specific conditions for accounting for the transfer of a financial asset, or a portion of a financial asset, as a sale. This guidance was effective for transfers occurring on or after January 1, 2010 and impacted when a loan participation or SBA loan sale could be accounted for as a sale and the related transferred asset derecognized by the Bank. Adoption of the standard by the Bank in 2010 did not have a material impact on its balance sheet or statement of operations other than a three month delay in the recognition of the sale and related gain on SBA loan sales due to the existence of recourse provisions commonly found in SBA loan sale agreements.

In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU 2010-06 which added disclosure requirements about significant transfers into and out of Levels 1 and 2, clarified existing fair value disclosure requirements about the appropriate level of disaggregation, and clarified that a description of the valuation techniques and inputs used to measure fair value was required for recurring and nonrecurring Level 2 and 3 fair value measurements. The Company adopted these provisions of the ASU in preparing the Consolidated Financial Statements for the period ended March 31, 2010. The adoption of these provisions of this ASU, which was subsequently codified into Accounting Standards Codification Topic 820, “Fair Value Measurements and Disclosures,” only affected the disclosure requirements for fair value measurements and as a result had no impact on the Company’s statements of income and condition. See Note 13 to the Consolidated Financial Statements for the disclosures required by this ASU.

This ASU also requires that Level 3 activity about purchases, sales, issuances, and settlements be presented on a gross basis rather than as a net number as currently permitted. This provision of the ASU is effective for the Company’s reporting period ending March 31, 2011. As this provision amends only the disclosure requirements for fair value measurements, the adoption will have no impact on the Company’s statements of income and condition.

In February 2010, the FASB issued ASU No. 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. The amendments remove the requirement for an SEC registrant to disclose the date through which subsequent events were evaluated as this requirement would have potentially conflicted with SEC reporting requirements. Removal of the disclosure requirement is not expected to affect the nature or timing of subsequent events evaluations performed by the Company. This ASU became effective upon issuance.

FASB ASU 2010-18, Effect of a Loan Modification When the Loan is Part of a Pool that is Accounted for as a Single Asset (Topic 310), was issued April 2010 and is effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending after July 15, 2010. As a result of the amendments in this Update, modification of loans within the pool does not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a trouble debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. However, loans within the scope of Subtopic 310-30 that are accounted for individually will continue to be subject to the troubled debt restructuring accounting provisions.

The provisions of this Update will be applied prospectively with early application permitted. Upon initial adoption of the guidance in this Update, an entity may make a one-time election to terminate accounting for loans as a pool under Subtopic 310-30. The election may be applied on a pool-by-pool basis and does not preclude an entity from applying pool accounting to subsequent acquisitions of loans with credit deterioration.

The Company does not have any pools of loans accounted for in accordance with Subtopic 310-30, and therefore, the adoption of this Update will not have a significant effect on the Company’s financial statements.

FASB ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (Topic 310), was issued July 2010. The guidance will significantly expand the disclosures that the Company must make about the credit quality of financing receivables and the allowance for credit losses. The objectives of the enhanced disclosures are to provide financial statement users with additional information about the nature of credit risks inherent in the Company’s financing receivables, how credit risk is analyzed and assessed when determining the allowance for credit losses, and the reasons for the change in the allowance for credit losses. Although this statement addresses only disclosure and does not seek to change recognition or measurement, the disclosure represents a meaningful change in practice. New period-end related disclosures are reflected in these financial statements while new activity related disclosures will be effective in 2011.

Fair Value Measurement - Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Current accounting guidance establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

See Note 13 to the financial statements for more information and disclosures relating to the Company’s fair value measurements.

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 or warrants 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.

Cash Equivalents – For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, Federal Funds sold and highly liquid debt instruments purchased with an original maturity of three months or less. The Company is required to maintain non-interest earning cash reserves against certain of the deposit accounts. As of December 31, 2010, aggregate reserves (in the form of deposits with the Federal Reserve Bank) of $25,000 were maintained.

Securities - The Company classifies its investment securities into two categories, available for sale and held to maturity, at the time of purchase. Securities available for sale are reported at fair value with net unrealized holding gains or losses, net of tax, recorded as a separate component of shareholders' equity. Securities held to maturity are measured at amortized cost based on the Company’s positive intent and ability to hold the securities to maturity. As of December 31, 2010 and 2009 all of the Company’s securities were classified as available for sale.

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

Management evaluates securities for other-than-temporary impairment (“OTTI”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: OTTI related to credit loss, which must be recognized in the income statement and; OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

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

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

Loans Held For Sale - Small Business Administration (“SBA”) loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Net unrealized gains are recognized through a valuation allowance by credits to income. Certain recourse provisions in SBA sales agreements cause a delay in the recognition of the sale transaction under current accounting standards. Proceeds from SBA loan sales are recognized as a secured borrowing until the recourse provisions expire, which is typically three months after the settlement date. Upon expiration of the recourse provisions, the Bank recognizes a gain on the sale and derecognizes the loan receivable and the related secured borrowing. Gains and losses on sales of loans are included in non-interest income.

The Company has adopted guidance issued by the Financial Accounting Standards Board (“FASB”) that clarifies the accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. Under this guidance, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished.

Servicing Rights - Servicing rights are recognized separately when they are acquired through sale of loans. The Company has adopted guidance issued by the FASB that clarifies the accounting for servicing rights. Servicing rights are initially recorded at fair value with the income statement effect recorded in gain on sale of loans. Fair value is based on a valuation model that calculates the present value of estimated future cash flows from the servicing assets. The valuation model uses assumptions that market participants would use in estimating cash flows from servicing assets, such as the cost to service, discount rates and prepayment speeds. The Company compares the valuation model inputs and results to published industry data in order to validate the model results and assumptions. All classes of servicing assets are subsequently measured using the amortization method which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.

Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type. For purposes of measuring impairment, the Company has identified each servicing asset with the underlying loan being serviced. A valuation allowance is recorded where the fair value is below the carrying amount of the asset. If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds and changes in the discount rates.

Servicing fee income which is reported on the income statement as servicing income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal and recorded as income when earned. The amortization of servicing rights and changes in the valuation allowance are netted against loan servicing income.

Allowance for Credit Losses - The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

Commercial and real estate loans are individually evaluated for impairment. Generally Accepted Accounting Principles specify that if a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. However, it is currently the Bank’s practice to immediately charge-off any identified financial loss pertaining to impaired loans versus providing a specific reserve.

Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Bank determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

General reserves cover non-impaired loans and are based on historical loss rates for each portfolio segment, adjusted for the effects of qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the portfolio segment’s historical loss experience. Qualitative factors include consideration of the following: changes in lending policies and procedures; changes in economic conditions, changes in the nature and volume of the portfolio; changes in the experience, ability and depth of lending management and other relevant staff; changes in the volume and severity of past due, nonaccrual and other adversely graded loans; changes in the loan review system; changes in the value of the underlying collateral for collateral-dependent loans; concentrations of credit and the effect of other external factors such as competition and legal and regulatory requirements.

Portfolio segments identified by the Bank include construction and land development, commercial real estate, commercial and industrial and consumer loans. Relevant risk characteristics for these portfolio segments generally include debt service coverage, loan-to-value ratios and financial performance on non-consumer loans and credit scores, debt-to income, collateral type and loan-to-value ratios for consumer loans.

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

Other Real Estate Owned - Other real estate owned (“OREO”) consist of properties acquired through foreclosure. The Company values these properties at fair value less estimated costs to sell at the time it acquires them, which establishes the new cost basis. The Company charges against the allowance for credit losses any losses arising at the time of acquisition of such properties. After it acquires them, the Company carries such properties at the lower of cost or fair value less estimated selling costs. If the Company records any write-downs or losses from disposition of such properties after acquiring them, it includes this amount in other non-interest expense. Development and improvement costs relating to OREO are capitalized (assuming they are recoverable). At December 31, 2010 there were three other real estate properties valued at $5.6 million, two construction properties valued at $733,000, and three land development properties valued at $344,000 owned by the Bank that were acquired through the foreclosure process. At December 31, 2009 there were three construction properties valued at $5.5 million, two land development properties valued at $393,000, one other real estate property valued at $486,000 and two commercial properties valued at $104,000 that were categorized as “other real estate owned”.

Income Taxes - Deferred income taxes are computed using the asset and liability method, which recognizes a liability or asset representing the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events that have been recognized in the financial statements. A valuation allowance is established to reduce the deferred tax asset to the level at which it is “more likely than not” that the tax asset or benefits will be realized. Realization of tax benefits of deductible temporary differences and operating loss carry-forwards depends on having sufficient taxable income of an appropriate character within the carry-forward periods.

The Company has adopted guidance issued by the FASB that clarifies the accounting for uncertainty in tax positions taken or expected to be taken on a tax return and provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by the taxing authorities. Interest and penalties related to uncertain tax positions are recorded as part of income tax expense.

Stock-Based Compensation – The Company has adopted guidance issued by the FASB that clarifies 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. The Company has recorded an incremental $1.3 million ($882,000 net of tax), $1.4 million ($1.1 million net of tax), and $1.3 million ($1.1 million net of tax) of stock-based compensation expense during the years ended December 31, 2010, 2009, and 2008, respectively as a result of the adoption of the guidance issued by the FASB.

No stock-based compensation costs were capitalized as part of the cost of an asset as of December 31, 2010. As of December 31, 2010, $2.4 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 3.1 years.

Stock-based compensation expense reduced basic earnings per share by $0.09, $0.16, and $0.25 and diluted earnings per share by $0.08, $0.16, and $0.25 for the years ended December 31, 2010, 2009, and 2008, respectively.

Comprehensive Income – The Company has adopted accounting guidance issued by the FASB that requires 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. The guidance also requires that an entity classify items of other comprehensive earnings by their nature in an annual financial statement. Other comprehensive earnings include an 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 an accumulated other comprehensive loss totaling $(2.2) million, net of tax, at December 31, 2010, an accumulated other comprehensive loss totaling $(617,000), net of tax, at December 31, 2009 and an accumulated other comprehensive gain of $1.1 million, net of tax, at December 31, 2008.

(dollars in thousands)	Year ended December 31,
	2010			2009			2008

Net income (loss)	$	2,591		$	1,435		$	(7,341	)

Other comprehensive earnings-
Net unrealized gains (losses) on FAS 158 adjustment-supplemental executive retirement plan		(168	)		335			(667	)
Net unrealized gains (losses) on cash flow hedges		(788	)		(1,854	)		2,156
Net unrealized gains (losses) on securities available for sale		(615	)		(153	)		489

Total comprehensive income (loss)	$	1,020		$	(237	)	$	(5,363	)

Segments of an Enterprise and Related Information – The Company has adopted guidance issued by the FASB that 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.

Derivative Instruments and Hedging Activities – The Company has adopted guidance issued by the FASB that clarifies the disclosure requirements for derivative instruments and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The guidance requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.

As required by the guidance, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualified as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and that qualify as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting under current accounting guidance. See Note 14 to the financial statements for additional information on derivative instruments and hedging activities.

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 or warrants and vesting of restricted stock. 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):

(dollars in thousands, except share data)	Year ended December 31,
	2010			2009			2008

Net income (loss)	$	2,591		$	1,435		$	(7,341	)
Less:
Dividends on preferred shares		(1,955	)		(4,203	)		(152	)
Net income (loss) available to common shareholders	$	636		$	(2,768	)	$	(7,493	)

Weighted average shares used in computing:
Basic common shares		9,820,755			6,571,479			6,502,376
Dilutive potential common shares related to stock options, restricted stock, warrants, and preferred shares using the treasury stock method		413,780			0			0
Total average common shares and equivalents		10,234,535			6,571,479			6,502,376

Basic earnings (loss) per share	$	0.06		$	(0.42	)	$	(1.15	)
Diluted earnings (loss) per share	$	0.06		$	(0.42	)	$	(1.15	)

There were 1,216,260 options to acquire common stock (including those issuable pursuant to contingent stock agreements), 500,055 shares of issued and outstanding restricted common stock, and warrants convertible to 396,412 shares of common stock that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for year ended December 31, 2010.

3.	SECURITIES

The amortized cost and estimated fair values of securities as of December 31, 2010 and December 31, 2009 are reflected in the following table.

(dollars in thousands)	As of December 31, 2010
	Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value

Debt securities:
U.S. government agency securities		49,417		218		(61	)		49,574
Mortgage backed securities		121,105		360		(1,845	)		119,620
Corporate Bonds		7,908		48		-			7,956
Total debt securities		178,430		626		(1,906	)		177,150
Equity securities		40,153		-		-			40,153
Total securities available for sale		218,583		626		(1,906	)		217,303

Total investment securities	$	218,583	$	626	$	(1,906	)	$	217,303

(dollars in thousands)	As of December 31, 2009
	Amortized		Gross Unrealized					Fair
	Cost		Gains		Losses			Value

Debt securities:
U.S. government agency securities		80,324		259		(306	)		80,277
Mortgage backed securities		24,936		8		(216	)		24,728
Total securities available for sale		105,260		267		(522	)		105,005

Total investment securities	$	105,260	$	267	$	(522	)	$	105,005

The scheduled maturities of investment securities available for sale at December 31, 2010 were as follows:

(dollars in thousands)	December 31, 2010
	Amortized		Fair
	Cost		Value

Due in one year or less	$	23,924	$	24,050
Due after one year through five years		67,159		67,142
Due after five years through ten years		38,207		37,364
Due after ten years		49,140		48,594
Total debt securities available for sale		178,430		177,150

Total equity securities available for sale		40,153		40,153

Total investment securities	$	218,583	$	217,303

(dollars in thousands)	December 31, 2009
	Amortized		Fair
	Cost		Value

Due in one year or less	$	-	$	-
Due after one year through five years		101,964		101,709
Due after five years through ten years		-		-
Due after ten years		3,296		3,296
Total debt securities available for sale		105,260		105,005

Total investment securities	$	105,260	$	105,005

As of December 31, 2010 and December 31, 2009, no investment securities were pledged as collateral. As of December 31, 2010, $11,000 in unrealized losses was attributable to one security that had been in an unrealized loss position for greater than 12 months. This unrealized loss (on a mortgage backed security) which has been in an unrealized loss position for one year or longer as of December 31, 2010, was caused by market interest rate increases subsequent to the purchase of the security. Because the Bank has the ability to hold this investment until a recovery in fair value, which may be maturity, this investment is not considered to be other-than-temporarily impaired as of December 31, 2010.

4. LOANS AND ALLOWANCES FOR CREDIT LOSSES

The following summarizes the characteristics of the loan portfolio for the years ended December 31, 2010 and 2009:

A summary of loans is as follows:
(dollars in thousands)	As of December 31,
	2010			2009

Commercial	$	269,034		$	253,776
Real estate construction		40,705			20,601
Land loans		9,072			12,763
Real estate other		138,633			149,617
Factoring and asset based lending		122,542			66,660
SBA		67,538			67,629
Other		4,023			5,395
Total gross loans		651,547			576,441
Unearned fee income		(1,444	)		(1,452	)
Total loan portfolio		650,103			574,989
Less allowance for credit losses		(15,546	)		(16,012	)
Total loan portfolio, net	$	634,557		$	558,977

The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Bank analyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. The Bank uses the following definitions for loan risk ratings:

Pass – Loans classified as pass include larger non-homogenous loans not meeting the risk rating definitions below and smaller, homogeneous loans not assessed on an individual basis.

Special Mention (Performing/Criticized) - Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard (Performing/Criticized) - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Impaired (Nonaccrual) – A loan is considered impaired, when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement.

Troubled Debt Restructurings – Loans, for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are generally considered troubled debt restructurings and classified as impaired; however, in some circumstances a troubled debt restructuring may be performing in compliance with modified terms for an extended period of time and therefore be placed on accrual status and deemed unimpaired. On December 31, 2010 troubled debt restructurings on accrual status and deemed unimpaired totaled $4.5 million compared to $16.8 million at December 31, 2009.

Risk category of loans:
(dollars in thousands)	As of December 31, 2010
			Performing
	Pass		(Criticized)		Impaired		Total

Commercial	$	258,336	$	9,568	$	1,130	$	269,034
Real estate construction		31,395		3,968		5,342		40,705
Land loans		4,384		1,512		3,176		9,072
Real estate other		93,959		38,041		6,633		138,633
Factoring and asset based lending		121,753		789		-		122,542
SBA		60,315		6,995		228		67,538
Other		822		3,014		187		4,023
Total gross loans	$	570,964	$	63,887	$	16,696	$	651,547

Past due and nonaccrual loans:

(dollars in thousands)	As of December 31, 2010
	Still Accruing
	30-89 Days		Over 90 Days		Nonaccrual /
	Past Due		Past Due		Impaired

Commercial	$	1,860	$	-	$	1,130
Real estate construction		-		-		5,342
Land loans		-		-		3,176
Real estate other		-		-		6,633
Factoring and asset based lending		-		-		-
SBA		19		-		228
Other		-		-		187
Total gross loans	$	1,879	$	-	$	16,696

There were fifteen loans, totaling $16.7 million, on non-accrual and deemed impaired at December 31, 2010. There were twenty-four loans, totaling $17.0 million, on non-accrual and deemed impaired at December 31, 2009 and sixteen loans, totaling $15.8 million, on non-accrual and deemed impaired at December 31, 2008.

Average impaired loans for the years ended December 31, 2010, 2009, and 2008 were $17.9 million, $23.8 million, and $19.6 million, respectively. The following summarizes the breakdown of impaired loans by category as of December 31, 2010:

Average recorded investment in impaired loans:	As of
(dollars in thousands)	December 31, 2010

Commercial	$	1,020
Real estate construction		5,632
Land loans		4,132
Real estate other		6,441
Factoring and asset based lending		77
SBA		369
Other		190
Total gross loans	$	17,860

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

The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The entire allowance is available for any loan that, in management’s judgment should be charged-off.

The allowance generally consists of specific and general reserves. Specific reserves relate to loans that are individually classified as impaired; however, it is currently the Bank’s practice to immediately charge-off any identified financial loss pertaining to impaired loans versus providing a specific reserve. As such, the allowance for credit losses as of December 31, 2010, 2009, and 2008 reflected general reserves for non-impaired loans and was based on historical loss rates for each portfolio segment, adjusted for the effects of qualitative or environmental factors that were likely to cause estimated credit losses as of the evaluation date to differ from the portfolio segment’s historical loss experience. Qualitative factors included consideration of the following: changes in lending policies and procedures; changes in economic conditions, changes in the nature and volume of the portfolio; changes in the experience, ability and depth of lending management and other relevant staff; changes in the volume and severity of past due, nonaccrual and other adversely graded loans; changes in the loan review system; changes in the value of the underlying collateral for collateral-dependent loans; concentrations of credit and the effect of other external factors such as competition and legal and regulatory requirements.

The following table summarizes the activity in the allowance for loan losses for the years ended December 31, 2010, 2009, and 2008.

Analysis of the allowance for credit losses:
(dollars in thousands)	Year ended December 31,
	2010		2009		2008

Balance, beginning of period	$	16,012	$	18,554	$	8,608
Loans charged off by category:
Commercial and other		1,406		3,108		1,995
Real estate construction		1,274		4,561		5,536
Real estate land		748		2,674		13,518
Real estate other		4,013		2,452		645
Factoring and asset-based lending		132		-		-
Consumer		606		-		-
Total charge-offs		8,179		12,795		21,694
Recoveries by category:
Commercial and other		1,100		739		83
Real estate construction		799		206		37
Real estate land		134		-		-
Real estate other		686		108		-
Factoring and asset-based lending		43		-		-
Consumer		251		-		-
Total recoveries		3,013		1,053		120
Net charge-offs (recoveries)		5,166		11,742		21,574
Provision charged to expense		4,700		9,200		31,520
Balance, end of year	$	15,546	$	16,012	$	18,554

5.	PREMISES AND EQUIPMENT

Premises and equipment are comprised of the following:

(dollars in thousands)	As of December 31,
	2010			2009			2008

Leasehold improvements	$	5,427		$	5,399		$	5,378
Furniture and equipment		3,431			3,225			3,164
Capitalized software		3,220			3,089			2,816
Premises and equipment		12,078			11,713			11,358
Less accumulated depreciation and amortization		(9,498	)		(8,147	)		(6,568	)
Premises and equipment, net	$	2,580		$	3,566		$	4,790

Depreciation and amortization amounted to $1.4 million, $1.6 million, and $1.6 million for the years ended December 31, 2010, 2009 and 2008, respectively, and has been included in occupancy and/or furniture and equipment expense, depending on the nature of the expense, in the accompanying statements of operations.

DEPOSITS

The Bank’s deposit base consists of non-interest and interest-bearing demand deposits, savings and money market accounts and certificates of deposit. The following table summarizes the composition of deposits as of December 31, 2010, 2009 and 2008.

(dollars in thousands)	As of December 31,
	2010					2009					2008
	Amount		Percent			Amount		Percent			Amount		Percent

Noninterest-bearing demand	$	443,806		52.34	%	$	333,171		47.26	%	$	284,319		36.58	%
Interest-bearing demand		5,275		0.62	%		4,830		0.69	%		4,267		0.55	%
Money market and savings		355,772		41.96	%		275,850		39.13	%		335,200		43.13	%
Certificates of deposit:
Less than $100,000		9,212		1.09	%		29,782		4.22	%		92,997		11.96	%
$100,000 and more		33,881		4.00	%		61,413		8.71	%		60,462		7.78	%

Total deposit portfolio	$	847,946		100.00	%	$	705,046		100.00	%	$	777,245		100.00	%

At December 31, 2010, time deposits of $100,000 or more have remaining maturities as follows:

(in thousands)

3 months or less	$	23,974
Over 3 months to 6 months		1,766
Over 6 months to 12 months		7,789
Over 1 year to 5 years		352
TOTAL	$	33,881

At December 31, 2010, the scheduled maturities of all time deposits are as follows:

(in thousands)

2011		42,600
2012		392
2013		101
2014		-
	$	43,093

7.	JUNIOR SUBORDINATED DEBT SECURITIES AND OTHER BORROWINGS

Junior Subordinated Debt Securities

On December 21, 2004, the Company issued $12,372,000 of junior subordinated debt securities (the “debt securities”) to Bridge Capital Trust I, a statutory trust created under the laws of the State of Delaware. 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.

Based upon accounting guidance, these Trusts are not consolidated into the company’s financial statements. 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

At December 31, 2010, other borrowings consisted of $7.7 million of SBA loans sold in the fourth quarter 2010. Certain recourse provisions in SBA sales agreements cause a delay in the recognition of the sale transaction under current accounting standards. Proceeds from SBA loan sales are recognized as a secured borrowing until the recourse provisions expire, which is typically three months after the settlement date. Upon expiration of the recourse provisions, the Bank recognizes a gain on the sale and derecognizes the loan receivable and the related secured borrowing. Gains deferred on SBA loan sales amounted to $738,000 as of December 31, 2010.

The Company had no other borrowings at December 31, 2009.

As of December 31, 2010, the Bank had a total borrowing capacity of approximately $376.0 million. The Bank also has unsecured borrowing lines with correspondent banks totaling $25.0 million. At December 31, 2010, there were no balances outstanding on these lines.

8.	INCOME TAXES

Income tax expense (benefit) consists of the following for the years ended December 31, 2010, 2009 and 2008:

(dollars in thousands)	Year ended December 31,
	2010			2009			2008
Current:
Federal	$	1,784		$	(172	)	$	(980	)
State		338			20			154
Total current		2,122			(152	)		(826	)

Deferred:
Federal		(121	)		(146	)		(2,994	)
State		(46	)		(287	)		(1,841	)
Total deferred		(167	)		(433	)		(4,835	)
Income tax provision	$	1,955		$	(585	)	$	(5,661	)

Deferred income taxes reflect the net tax effect of temporary differences between carrying amount of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. The tax effects of temporary differences that gave rise to significant portions of deferred tax assets at December 31, 2010, 2009 and 2008 are as follows:

(dollars in thousands)	As of ended December 31,
	2010		2009		2008
Deferred tax assets (liability):
Deferred loan fee	$	486	$	508	$	560
Allowance for credit losses		5,441		5,604		6,365
State income taxes		2,574		2,566		2,278
Fixed assets		690		485		298
Accrued expenses		271		634		694
Other		2,753		2,250		1,419
Net deferred tax asset	$	12,215	$	12,047	$	11,614

In addition to the above net deferred tax asset, the Company has additional deferred tax assets / (liabilities) arising from adjustments to other comprehensive income aggregating $1.5 million as of December 31, 2010 and $433,000 as of December 31, 2009.

Income tax returns for the years ended December 31, 2009, 2008 and 2007 are open to audit by the federal authorities and income tax returns for the years ended December 31, 2009, 2008, 2007 and 2006 are open to audit by California authorities. Unrecognized tax benefits are not expected to significantly increase or decrease within the next twelve months.

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

	Year ended December 31,
	2010			2009			2008

Federal statutory rate		35.00	%		35.00	%		-35.00	%
State income tax, net of federal effect		4.17	%		-20.39	%		-7.05	%
BOLI income		-3.02	%		-17.35	%		-1.08	%
Low income housing credits		-6.84	%		-98.98	%		-2.14	%
Stock-based compensation		2.53	%		25.22	%		2.11	%
Other, net		11.16	%		7.69	%		-0.38	%
Income taxes		43.00	%		-68.81	%		-43.54	%

9.	STOCK BASED COMPENSATION

On May 18, 2006, the Company’s shareholders approved the 2006 Equity Incentive Plan (the “Plan”) which supersedes the Stock Option Plan that was established in 2001. The total authorized shares that are available for issuance under the Plan is 1,303,283 shares. The Plan provides for the following types of stock-based awards: incentive stock options; nonqualified stock options; stock appreciation rights; restricted stock awards; restricted stock units; performance units; and stock grants. As of December 31, 2010, the Company has issued incentive stock options, nonqualified stock options, and restricted stock awards under the Plan.

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

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

The vesting of any award granted under the plan may be accelerated in the event of a merger or sale of the Company if the acquiring entity does not assume or replace the awards with comparable awards.

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

As of December 31, 2010, there were 1,716,315 shares underlying outstanding awards under the Company’s stock-based compensation plans and 295,003 shares available for future grants under the 2006 Equity Incentive Plan.

A summary of the Company’s non-vested shares of restricted stock awards as of December 31, 2010 and changes during the period ended on that date is presented below:

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

Balances, December 31, 2009		526,095		$	6.99

Granted		8,200			7.31
Vested		(24,000	)		4.56
Forfeited		(10,240	)		12.06

Balances, December 31, 2010		500,055		$	7.00

A summary of the Company’s stock option awards as of December 31, 2010 and changes during the period ended on that date are presented below:

	Stock Option Awards Outstanding
				Weighted
	Number			Average
	of Shares			Exercise Price

Balances, December 31, 2009		1,336,029		$	11.42

Granted		91,000			8.14
Exercised (aggregate intrinsic value of $515,891)		(169,700	)		5.42
Cancelled		(6,675	)		17.47
Expired		(34,394	)		17.52

Balances, December 31, 2010		1,216,260		$	11.81

The following table summarizes information about stock options outstanding at December 31, 2010.

		Stock Option Awards Outstanding						Stock Option Awards Exercisable
				Weighted		Weighted				Weighted		Weighted
				Remaining		Exercise				Remaining		Exercise
Exercise Price range		Shares		Life (Years)		Price		Shares		Life (Years)		Price

$	4.40 - $ 6.75		489,725		2.1	$	5.32		411,225		1.0	$	5.30
$	6.76 - $ 12.50		122,100		7.0		8.08		40,400		1.9		7.47
$	12.51 - $ 19.40		353,550		4.1		14.94		342,275		4.0		14.96
$	19.41 - $ 22.75		250,885		5.1		21.88		231,151		5.0		21.86

			1,216,260		3.8	$	11.81		1,025,051		2.9	$	12.35

The aggregate intrinsic value of stock option awards outstanding and stock option awards exercisable at December 31, 2010 was $1.8 million and $1.5 million, respectively.

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 2010, 2009, and 2008 and the resulting estimates of weighted-average fair value per share of stock options granted during those periods are as follows:

	Year ended December 31,
	2010			2009			2008

Expected life	75 months			75 months			75 months

Stock volatility		45.0	%		28.0	%		22.0	%

Risk free interest rate		2.7	%		2.3	%		3.2	%

Dividend yield		0.0	%		0.0	%		0.0	%

Fair value per share	$	3.80		$	1.77		$	4.59

10.	PENSION BENEFIT PLANS

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

The following table reflects the accumulated benefit obligation and funded status of the SERP for the years ended December 31, 2010, 2009 and 2008:

(dollars in thousands)	Year ended December 31,
	2010			2009			2008
Change in benefit obligation
Benefit obligation at beginning of year	$	3,469		$	3,492		$	2,897
Service cost		340			346			563
Interest cost		213			167			159
Amendments		-			-			-
Actuarial (gains)/losses		325			(477	)		(127	)
Acquisitions/(divestitures)		-			-			-
Expected benefits paid		(59	)		(59	)		-
Projected benefit obligation at end of year	$	4,288		$	3,469		$	3,492

Unfunded projected/accumulated benefit obligation		(4,288	)		(3,469	)		(3,492	)
Additional liability	$	-		$	-		$	-

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

The components of net periodic benefit cost recognized for the years ended December 31, 2010 and 2009 and the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost during the year ended December 31, 2011 are as follows:

(dollars in thousands)	Year ended December 31,
	2011			2010			2009
Components of net periodic benefit cost
Service cost	$	426		$	340		$	346
Interest cost		245			213			167
Expected return on plan assets		-			-			-
Amortization of transition obligation (asset)		-			-			-
Amortization of prior service cost		85			85			85
Amortization of actuarial (gains)/losses		(16	)		(45	)		(6	)
Net periodic benefit cost	$	740		$	593		$	592

Other comprehensive income (cost)	$	(40	)	$	(40	)	$	(556	)

11.	RELATED PARTY TRANSACTIONS

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

12.	COMMITMENTS AND CONTINGENT LIABILITIES

Lease Commitments

The Bank's San Jose and Palo Alto locations are leased under non-cancelable operating leases that expire in 2016 and 2014, respectively. The Bank has renewal options with adjustments to the lease payments based on changes in the consumer price index.

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

Future lease payments
For years ended December 31,

2011	$	1,731
2012		1,770
2013		1,756
2014		1,458
2015		2,988
Thereafter		-
	$	9,703

Rental expense under operating leases was $2.0 million in 2010, $2.0 million in 2009 and $2.3 million in 2008.

Other Commitments

In the normal course of business, there are outstanding commitments to extend credit, which are not reflected in the consolidated financial statements. These commitments involve, to varying degrees, credit risk in excess of the amount recognized as either an asset or a liability in the balance sheet. The Bank controls the credit risk through its credit approval process. The same credit policies are used when entering into such commitments.

The Bank is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments of $286.8 million, $222.3 million and $263.2 million at December 31, 2010, 2009 and 2008, respectively. The Bank's exposure to credit loss is limited to amounts funded or drawn; however, at December 31, 2010, no losses are anticipated as a result of these commitments.

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

Undisbursed loan commitments were comprised of the following at December 31, 2010 (dollars in thousands):

Loan Category	Amount

Commercial	$	196,770
SBA		420
Real estate construction		20,223
Land loans		-
Real estate term		27,187
Factoring/ABL		33,610
Other		8,594

Total	$	286,804

13.	DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS

In accordance with accounting guidance, 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 assets 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.

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 December 31, 2010

	Total			Level 1		Level 2			Level 3

Securities available for sale	$	217,303		$	-	$	217,303		$	-
Cash flow hedge		(1,750	)		-		(1,750	)		-
Warrant portfolio		724			-		-			724

Total	$	216,277		$	-	$	215,553		$	724

	As of December 31, 2009

	Total			Level 1		Level 2			Level 3

Securities available for sale	$	105,005		$	-	$	105,005		$	-
Cash flow hedge		(776	)		-		(776	)		-
Warrant portfolio		729			-		-			729

Total	$	104,958		$	-	$	104,229		$	729

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis were not material for the year ended December 31, 2010.

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 for the years ended December 31, 2010 and 2009 included OREO of $6.6 million and $6.5 million, respectively. The fair value of OREO was determined using Level 2 assumptions. The Company charged-off $1.2 million and $890,000 during the years ended December 31, 2010 and 2009, respectively, as a result of declines in the OREO property values. The assets measured at fair value on a non-recurring basis for the years ended December 31, 2010 and 2009 also included impaired loans of $16.7 million and $17.0 million, respectively. The fair value of impaired loans was determined using Level 3 assumptions. The Company charged-off $8.2 million and $12.8 million during the years ended December 31, 2010 and 2009, respectively, as a result of impaired loans.

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

The following table presents the carrying amount and estimated fair value of certain assets and liabilities of the Company at December 31, 2010 and 2009. The carrying amounts reported in the balance sheets approximate fair value for the following financial instruments: cash and due from banks, federal funds sold, interest-bearing deposits in other banks, demand and savings deposits, bank owned life insurance, and cash flow hedge (see Note 3 for information regarding securities).

(dollars in thousands)	Year ended December 31,
	2010						2009
	Carrying			Fair			Carrying			Fair
	Value			Value			Value			Value

Financial assets:
Cash and due from banks	$	8,676		$	8,676		$	14,893		$	14,893
Federal funds sold		114,240			114,240			104,260			104,260
Interest bearing Deposits in other Banks		2,539			2,539			9,980			9,954
Investments securities		217,303			217,303			105,005			105,005
Loans and leases, gross		650,103			663,030			574,989			589,748
Bank owned life insurance		10,393			10,393			10,001			10,001

Financial liabilities:
Deposits		847,946			846,701			705,046			703,362
Trust preferred securities		17,527			17,607			17,527			8,058
Other borrowings		7,672			7,650			-			-
Cash flow hedge		(1,750	)		(1,750	)		(776	)		(776	)

Loans

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

Time deposits

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

Commitments to extend credit and standby letters of credit

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

14.	DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to certain variable rate loan assets and variable rate borrowings. The Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated in qualifying hedging relationships.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Company’s derivative instruments that were liabilities, as well as their classification on the balance sheet, as of December 31, 2010 and December 31, 2009. The Company did not have any derivative instruments that were assets as of December 31, 2010 and December 31, 2009.

(dollars in thousands)

		Fair Value
Derivatives Designated as Hedging	Balance Sheet	December 31,		December 31,
Instruments Under SFAS 133	Location	2010		2009

Interest rate contracts	Other assets	$	-	$	-
Interest rate contracts	Other liabilities		1,750		776

Total hedged derivatives		$	1,750	$	776

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. For hedges of the Company’s variable-rate loan assets, interest rate swaps designated as cash flow hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. For hedges of the Company’s variable-rate borrowings, interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments. As of December 31, 2010, the Company had two interest rate swaps with an aggregate notional amount of $17.5 million that were designated as cash flow hedges of interest rate risk associated with the Company’s variable-rate borrowings.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income (“AOCI”) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the years ended December 31, 2010 and 2009, such derivatives were used to hedge the forecasted variable cash outflows associated with subordinated debt related to trust preferred securities. During the year ended December 31, 2010, the amount of pre-tax gain/(loss) recorded in AOCI due to the effective portion of changes in fair value of derivatives designated as cash flow hedges was $(1.4) million. During the year ended December 31, 2009, the amount of pre-tax gain recorded in AOCI due to the effective portion of changes in fair value of derivatives designated as cash flow hedges was $636,000. During the year ended December 31, 2010, $(105,000) was reclassified into earnings related to the effective portion of cash flow hedges. During the year ended December 31, 2009, $579,000 was reclassified into earnings related to the effective portion of cash flow hedges.

The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. No hedge ineffectiveness was recognized during the years ended December 31, 2010 and 2009.

Amounts reported in AOCI related to derivatives will be reclassified to interest income or expense, as applicable, as interest payments are received / made on the Company’s variable-rate assets/liabilities. During the next twelve months, the Company estimates that $4,900 will be reclassified as an increase to interest income and $573,000 will be reclassified as an increase to interest expense. During the years ended December 31, 2010 and 2009, the Company accelerated the reclassification of amounts in other comprehensive income to earnings as a result of the hedged forecasted transactions related to certain terminated interest rate swaps becoming probable not to occur. The accelerated amounts for the years ended December 31, 2010 and 2009 were gains of $43,000 and $3.3 million, respectively.

The table below presents the effect of the Company’s derivative financial instruments, interest rate contracts, on the income statement for the years ended December 31, 2010 and 2009.

(dollars in thousands)	Interest Income					Non-Interest Income				Total Income
	Twelve months ended					Twelve months ended				Twelve months ended
	December 31,					December 31,				December 31,
	2010			2009		2010		2009		2010			2009

Amount of gain reclassified from AOCI into income - effective portion	$	(105	)	$	579	$	43	$	3,286	$	(62	)	$	3,865

Amount of gain recognized in income on derivative - ineffective portion and amount excluded from effectiveness testing		-			-		-		-		-			-

Total derivative income	$	(105	)	$	579	$	43	$	3,286	$	(62	)	$	3,865

Credit Risk Related Contingent Features

The Company has an agreement with one of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

The Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well / adequate capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

As of December 31, 2010 the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $1.8 million. As of December 31, 2010, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of $2.4 million against its obligations under these agreements. If the Company had breached any of these provisions at December 31, 2010, it would have been required to settle its obligations under the agreements at the termination value.

15. BRIDGE CAPITAL HOLDINGS

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

BALANCE SHEETS

(dollars in thousands)	As of December 31,
	2010			2009
Assets:
Cash and due from banks	$	5,294		$	17,228
Investments		40,153			-
Investment in bank & subsidiaries		114,871			110,957
Other assets		1,430			1,054
Total Assets	$	161,748		$	129,239
Liabilities:
Junior Subordinated Debt	$	17,527		$	17,527
Other liabilities		1,918			2,398
Total Liabilities		19,445			19,925
Capital:
Common stock		104,843			40,919
Preferred stock		23,864			53,864
Retained earnings		13,193			13,713
Current year net income		2,591			1,435
Other Comprehensive income		(2,188	)		(617	)
Total Capital		142,303			109,314
Total Liabilities and Capital	$	161,748		$	129,239

STATEMENTS OF OPERATIONS

(dollars in thousands)	Year ended December 31,
	2010			2009			2008

Interest income	$	32		$	76		$	42
Interest expense		1,086			1,042			1,044
Noninterest income		36
Noninterest expense		647			591			679
Income (loss) before income taxes		(1,665	)		(1,557	)		(1,681	)
Income taxes		-			-			-
Income before undistributed income
of the bank		(1,665	)		(1,557	)		(1,681	)
Equity in undistributed income of the bank		4,256			2,992			(5,660	)
Net income (loss)	$	2,591		$	1,435		$	(7,341	)

STATEMENTS OF CASH FLOWS

(dollars in thousands)	Year ended December 31,
	2010			2009			2008

Cash Flow From Operating Activities:
Net income (loss)	$	2,591		$	1,435		$	(7,341	)
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings (loss) of subsidiaries		(4,256	)		(2,992	)		5,660
Net change in other assets		(230	)		(536	)		810
Net change in other liabilities		(480	)		2,215			153
Net cash (used in) provided by operating activities		(2,375	)		122			(718	)

Cash Flow From Investing Activities:
Purchase of investments available for sale		(40,153	)		-			-
Investment in subsidiary		-			-			(34,543	)
Net cash provided by financing activities		(40,153	)		-			(34,543	)

Cash Flow From Financing Activities:
Proceeds from sale of Common stock		30,370			-			572
Proceeds from sale of Preferred stock		-			-			53,864
Common stock issued - preferred dividends		2,179			-			-
Payment of cash dividends		(1,955	)		(4,203	)		-
Net cash provided by financing activities		30,594			(4,203	)		54,436

Net increase (decrease) in cash and equivalents		(11,934	)		(4,081	)		19,175
Cash and equivalents at beginning of period		17,228			21,309			2,134
Cash and equivalents at end of period	$	5,294		$	17,228		$	21,309

16. REGULATORY MATTERS

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined in the regulations), and of Tier I capital (as defined in the regulations) to average assets (as defined in the regulations). Management believes, as of December 31, 2010, that the Company meets all capital adequacy requirements to which they are subject.

The following table shows the Company’s capital ratios at December 31, 2010 and 2009 as well as the minimum capital ratios required to be deemed “well capitalized” under the regulatory framework.

(dollars in thousands)	As of December 31,
	2010					2009
	Amount		Ratio			Amount		Ratio
Company Capital Ratios
Tier 1 Capital	$	161,448		19.61	%	$	106,489		15.26	%
(to Risk Weighted Assets)
Tier 1 capital minimum requirement	$	49,403		6.00	%	$	41,861		6.00	%

Total Capital	$	171,805		20.87	%	$	135,678		19.45	%
(to Risk Weighted Assets)
Total capital minimum requirement	$	82,339		10.00	%	$	69,768		10.00	%

Company leverage
Tier 1 Capital	$	161,448		16.67	%	$	106,489		12.53	%
(to Average Assets)
Total capital minimum requirement	$	48,429		5.00	%	$	42,494		5.00	%

Bank Risk Based Capital Ratios
Tier 1 Capital	$	115,439		14.16	%	$	110,517		15.85	%
(to Risk Weighted Assets)
Tier 1 capital minimum requirement	$	48,903		6.00	%	$	41,837		6.00	%

Total Capital	$	125,693		15.42	%	$	119,323		17.11	%
(to Risk Weighted Assets)
Total capital minimum requirement	$	81,505		10.00	%	$	69,728		10.00	%

Bank leverage
Tier 1 Capital	$	115,439		11.93	%	$	110,517		13.01	%
(to Average Assets)
Total capital minimum requirement	$	48,389		5.00	%	$	42,459		5.00	%

17. Preferred Stock

On November 13, 2008, the United States Treasury Department (the Treasury) approved the Company’s participation in the TARP Capital Purchase Program, subject to the Company raising additional equity in an amount satisfactory to Treasury. On December 4, 2008, investors agreed to purchase $30 million of the Company’s Series B and B-1 Mandatorily Convertible Cumulative Perpetual Preferred Stock in a private placement, subject to the Treasury approving the Company’s participation in the TARP Capital Purchase Program and its ability to satisfy all legal requirements for selling equity securities to the Treasury under the program. Based on discussions with the Treasury representatives, the Company understood that raising $30 million would satisfy the requirement that we raise additional equity. The Company sold $30 million of our Series B and B-1 Preferred Stock in a private placement on December 17, 2008 and subsequently sold $23.9 million in TARP securities to the Treasury on December 23, 2008. In addition the Company issued a warrant to the Treasury to purchase up to 396,412 shares of the Company’s common stock. On March 31, 2010 the $30 million of Series B and B-1 Preferred Stock was converted to common stock. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Capital Resources” for additional preferred and common stock discussion.

The Company performed a net present value calculation to determine a relative fair value of $17.7 million for the preferred stock issued to the U.S. Treasury Department. The calculation assumed that the preferred stock would be repurchased by the Company in five years and utilized a twelve percent discount rate.

The Company performed a Black-Scholes calculation to determine a relative fair value of $52,000 for the warrants issued to the U.S. Treasury Department. The calculation assumed the following:

Company Stock Price	$	4.40

Warrant Conversion Price	$	9.03

Expected Life (Years)		5.00

Annualized Volatility		22.00	%

Annual Dividend Rate		0.00	%

Discount Rate (Bond Equivalent Rate)		1.53	%

In order to determine the amount of TARP capital that should be allocated to the warrants, the Company calculated a warrant allocation ratio. This ratio is equal to the value of the fair value of the warrants divided by the sum of the fair value of the warrants plus the fair value of the straight preferred stock. This ratio was then multiplied by the total amount of TARP capital issued resulting in a value of approximately $70,000 being allocated to the warrants (i.e. the discount on the TARP related preferred stock). The assumed life of the warrants is five years and therefore the discount is being amortized over that time period. Due to immateriality, the discount is being amortized utilizing the straight-line method. Additionally, the amortization of the discount has been immaterial to net income available to common shareholders and has had no impact on earnings per common share.

18. Subsequent Events

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

Item 9a. Controls and Procedures

Disclosure Controls and Procedures

As required by SEC rules, the Company’s management evaluated the effectiveness, as of December 31, 2010, of the Company’s disclosure controls and procedures. The Company’s chief executive officer and chief financial officer participated in the evaluation. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2010 to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to its management, including its principal executive and principal officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures..

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 or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. No change occurred during the fourth quarter of 2010 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Management’s report on internal control over financial reporting is set forth below, and should be read with these limitations in mind.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Based on this assessment, management concluded that as of December 31, 2010, the Company’s internal control over financial reporting was effective.

Vavrinek, Trine, Day & Co., LLP, the independent registered public accounting firm that audited the Company’s financial statements included in the Annual Report, issued an audit report on the Company’s internal control over financial reporting as of, and for the year ended December 31, 2010. Vavrinek, Trine, Day & Co., LLP’s audit report appears on Page 55.

Item 9b. Other Information

Not applicable

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required hereunder is incorporated by reference from the Company’s definitive proxy statement for the Company’s 2011 Annual Meeting of Shareholders (to be filed pursuant to Regulation 14A).

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following chart provides information as of December 31, 2010 concerning the Company’s equity compensation plans:

(A)

(B)

(C)

Number of Securities

Remaining Available

To Be Issued Upon

Weighted Average

For Future Issuance

Exercise of

Grant Price of

Under Equity

Outstanding Options,

Compensation Plans

Restricted Stock,

(Excluding Securities

Warrants, and Rights

Reflected in Column (A)

Equity compensation plans approved by security holders

1,716,315

10.41

295,003

Equity compensation plans not approved by security holders

Total

1,716,315

10.41

295,003

The additional information required hereunder is incorporated by reference from the Company’s definitive proxy statement for the Company’s 2011 Annual Meeting of Shareholders (to be filed pursuant to Regulation 14A).

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accounting Fees and Services

PART IV

Item 15. Exhibits, Financial Statement Schedules

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

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

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

(b)	See (a) (3).

(c)	See (a) (2).

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BRIDGE CAPITAL HOLDINGS

Date:	March 7, 2011	By:	/s/ Daniel P. Myers
		Daniel P. Myers, President
		(Principal Executive Officer)

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

Name	Title	Date

/s/Owen Brown	Director	March 7, 2011
Owen Brown

/s/Howard N. Gould	Director	March 7, 2011
Howard Gould

/s/Dr. Francis J. Harvey	Director	March 7, 2011
Dr. Francis J. Harvey
	Chairman
/s/Allan C. Kramer, M.D.	Director	March 7, 2011
Allan C. Kramer, M.D.

/s/Robert P. Latta	Director	March 7, 2011
Robert Latta

	Vice Chairman
/s/Thomas M. Quigg	Director	March 7, 2011
Thomas M. Quigg
	President
	Chief Executive Officer
/s/Daniel P. Myers	Director	March 7, 2011
Daniel P. Myers	(Principal Executive Officer)

/s/Terry Schwakopf	Director	March 7, 2011
Terry Schwakopf

/s/Barry A. Turkus	Director	March 7, 2011
Barry A. Turkus

	Executive Vice President
/s/Thomas A. Sa	Chief Financial Officer	March 7, 2011
Thomas A. Sa	(Principal Financial
	and Accounting Officer)

INDEX TO EXHIBITS

Exhibit
Number		Description of Exhibit

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

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

(3.3)		The Company’s Certificate of Determination of Preferences and Rights of Series B Mandatorily Convertible Cumulative Perpetual Preferred Stock and Series B-1 Mandatorily Convertible Cumulative Perpetual Preferred Stock [incorporated by reference to Exhibit 3.1 of the registrant’s Current Report on Form 8-K dated 12/19/08]

(3.4)		Certificates of Amendment of Certificates of Determination filed with the California Secretary of State on December 18, 2008 [incorporated by reference to Exhibits 3.2 and 3.3 of the registrant’s Current Report on Form 8-K dated 12/24/08]

(3.5)		The Company’s Certificate of Determination of Preferences and Rights of Fixed Rate Cumulative Perpetual Preferred Stock, Series C, [incorporated by reference to Exhibit 3.2 of the registrant’s Current Report on Form 8-K dated 12/19/08]

(3.6)		Bylaws as amended through December 18, 2008 [incorporated by reference to Exhibit 3.4 of the registrant’s Amendment No. 1 to Form S-3 dated February 19, 2009]

(3.7)		Certificate of Determination specifying the terms of the Series A Junior Participating Preferred Stock [incorporated herein by reference to Exhibit 3.1 of the registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 22, 2008]

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

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

(4.3)		Warrant to Purchase Common Stock dated December 23, 2008 [incorporated by reference to Exhibit 4.2 of the registrant’s Current Report on Form 8-K dated 12/24/08]

(4.4)		Rights Agreement between the Company and American Stock Transfer & Trust Company, LLC dated as of August 21, 2008, which includes as Exhibit A the form of Certificate of Determination for the Series A Junior Participating Preferred Stock, as Exhibit B the Form of Rights Certificate and as Exhibit C a Summary of Rights to Purchase Shares of Preferred Stock [incorporated herein by reference to Exhibit 4.1 of the registrant’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 22, 2008]

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

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

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

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

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

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

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

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

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

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

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

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

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

(10.14)		Lease for additional space (fourth floor) at the Principal Executive Office located at 55 Almaden Boulevard, Suite 200, City of San Jose, County of Santa Clara, State of California [incorporated by reference to Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K dated 12/31/06]

(10.15)		Amendment to lease for banking office located at 525 University Avenue, City of Palo Alto, County of Santa Clara, State of California [incorporated by reference to Exhibit 10.17 to the Registrant’s Annual Report on Form 10-K dated 12/31/07]

(10.16)		Stock Purchase Agreement dated December 4, 2008 between the Company and Carpenter Fund Manager GP, LLC on behalf of Carpenter Community BancFund, L.P., Carpenter Community BancFund-A, L.P. and Carpenter Community BancFund-CA, L.P. [incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated 12/05/08]

(10.17)		Amendment No. 1 to Stock Purchase Agreement dated December 17, 2008 between the Company and Carpenter Fund Manager GP, LLC on behalf of Carpenter Community BancFund, L.P., Carpenter Community BancFund-A, L.P. and Carpenter Community BancFund-CA, L.P. [incorporated by reference to Exhibit 10.2 of the registrant’s Current Report on Form 8-K dated 12/19/08]

(10.18)		Management Rights Letter dated as of December 17, 2008 by and between the Company and Carpenter Fund Manager GP, LLC. [incorporated by reference to Exhibit 10.3 of the registrant’s Current Report on Form 8-K dated 12/19/08]

(10.19)		Registration Rights Agreement dated as of December 17, 2008 by and between the Company and Carpenter Fund Manager GP, LLC on behalf of Carpenter Community BancFund, L.P., Carpenter Community BancFund-A, L.P. and Carpenter Community BancFund-CA, L.P. [incorporated by reference to Exhibit 10.4 of the registrant’s Current Report on Form 8-K dated 12/19/08]

(10.20)		Form of Voting Agreement by and between each of the Company’s directors and Carpenter Fund Manager GP, LLC. [incorporated by reference to Exhibit 10.5 of the registrant’s Current Report on Form 8-K dated 12/19/08]

(10.21)		Letter Agreement, dated as of December 23, 2008, including the Securities Purchase Agreement – Standard Terms incorporated by reference therein, between the Company and the United States Department of the Treasury [incorporated by reference to Exhibit 10.1 of the registrant’s Current Report on Form 8-K dated 12/24/08]

(10.22)		Additional Letter Agreement, dated as of December 23, 2008, between the Company and the United States Department of the Treasury [incorporated by reference to Exhibit 10.2 of the registrant’s Current Report on Form 8-K dated 12/24/08]

(10.23)		Form of Consent, executed by each of Daniel P. Myers, Thomas A. Sa, and Timothy W. Boothe [incorporated by reference to Exhibit 10.3 of the registrant’s Current Report on Form 8-K dated 12/24/08] **

(10.24)		Form of Waiver, executed by each of Daniel P. Myers, Thomas A. Sa, and Timothy W. Boothe [incorporated by reference to Exhibit 10.4 of the registrant’s Current Report on Form 8-K dated 12/24/08] **

(10.25)		Registration Rights Agreement dated November 18, 2010 by and among the Company and the investors party thereto [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated 11/23/10]

(21)		Subsidiaries

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

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

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

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

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

(99.1)		Fiscal Year Certification under Troubled Assets Relief Program executed by Daniel P. Myers

(99.2)		Fiscal Year Certification under Troubled Assets Relief Program executed by Thomas A. Sa

**Management contract or compensatory plan or arrangement

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