To Our Shareholders:

Total assets jumped 48.1% to $556.8 million, firmly establishing Bank of Commerce as one of the fastest growing, most profitable and largest publicly traded independent banks headquartered in San Diego, California. 1997 also reaffirmed Bank of Commerce's market dominance in Small Business Administration (SBA) lending, as we retained our position as America's #1 SBA Bank Lender.

Our achievements - and the strategies behind them - caught the approval of Wall Street in 1997, resulting in a 397% appreciation in our share price. We are proud to report that our stock had the highest appreciation of all bank and financial company stocks on either the New York Stock Exchange, American Stock Exchange or the NASDAQ National Market System. Our stock also ranked #1 among San Diego-area companies in stock appreciation and #10 of all stocks on NASDAQ in 1997.

Our stellar performance reflects the fulfillment of a well-executed plan by the Board of Directors and Management initiated three years ago to accomplish three specific goals: (1) to be the nation's largest bank SBA lender, in dollars loaned; (2) to be a half billion dollar bank; (3) to increase the financial markets' awareness of our Bank, thus increasing shareholder value.

Our first goal was achieved with exceptional results. In the bank SBA arena, Bank of Commerce is a clear market leader. Our market dominance and niche expertise is so great that every other bank, even Wells Fargo, Citibank and Bank of America, has loaned fewer 7(a) SBA dollars to small businesses on an annual basis than Bank of Commerce over the last three years.

Our extensive loan production network, which services six western states, has allowed us to capitalize on the exceptionally strong SBA loan demand in the western United States. As a Preferred Lender for the SBA for more than a decade, we have the authority to approve loans directly for the SBA, giving us the ability to provide fast quality service.

In 1997, demand for Bank of Commerce's SBA loan expertise was so great that the size of the Bank's SBA loan portfolio nearly doubled, creating a phenomenon where we were generating more loans than we could portfolio based on current capital requirements. In response, the Board of Directors implemented a strategy to increase capital and enhance earnings by resuming the sale of a portion of the Bank's SBA loan portfolio to the secondary market. In 1997, $10 million in additional capital was raised internally, allowing the Bank to meet its current loan demand and grow our assets to be the half billion bank we are today.

The Bank's exceptional growth has propelled Bank of Commerce into the elite position of being the largest locally headquartered bank in San Diego County in 1997. Total deposits jumped 48.3%, giving tribute to San Diego and Riverside counties' lucrative deposit base. This rapid increase in market share, customer relationships and competitive strength in the local market also speaks volumes to the community's confidence in Bank of Commerce.

To further expand the Bank's premier position of being San Diego's largest locally headquartered bank, Bank of Commerce entered into an agreement on February 9, 1998 to acquire Rancho Vista National Bank, a $123 million San Diego County community bank with offices in Vista, Carlsbad and Orange, California. The merger, which is subject to regulatory and shareholder approval, is anticipated to close in mid-1998. Rancho Vista National Bank Director Albert Colucci has been invited to join Bank of Commerce's Board upon conclusion of the merger.

Bank of Commerce's Board of Directors are all active members of the local community, serving in a variety of business and charitable organizations. These activities are not just good for the community, they also bring recognition to the Bank. For example, in 1997, I was honored by being named "Financial Services Advocate of the Year" by the SBA for the third time.

Having successfully achieved all our objectives to date, the Board of Directors has set three new goals: (1) to be the largest SBA lender in the nation, not just among bank SBA lenders but among non-bank lenders as well; (2) to be a billion dollar bank; and (3) to continue to expand the investor community's awareness of Bank of Commerce with the objective of maximizing shareholder value. We have already set these plans into motion with a major cross-country expansion planned for 1998. New loan production offices (LPOs) are earmarked to open in the fruitful SBA markets of Texas, Georgia, Illinois, Idaho and Utah, significantly increasing the size of our LPO network from six to 11 states across the United States.

Our achievements this year, while exceptional, are, in our opinion, only one rung on the ladder toward our success. We believe we are in an excellent position to capitalize on today's potential and tomorrow's opportunities. Thank you for your loyalty and continued support in Bank of Commerce.

Peter Q. Davis
Chairman of the Board, President & Chief Executive Officer

Statements concerning future performance, developments or events concerning expectations for growth and market forecasts, and any other guidance on future periods, constitute forward-looking statements which are subject to a number of risks and uncertainties which may cause actual results to differ materially from stated expectations. These factors include, but are not limited to, stock price volatility, the effect of changes in government regulation, pricing and demand for SBA loans in the secondary market, changes in SBA policy or funding, competition in the financial services market for both deposits and loans and general economic conditions.