OVERVIEW

Bank of Florida Corporation is a multi-bank holding company with $1.5 billion in assets as of December 31, 2008 and was incorporated in Florida in September 1998. Our subsidiary Banks are separately chartered community banks with local boards that provide full-service commercial banking in a private banking environment. Our Trust Company offers investment management, trust administration, estate planning, and financial planning services largely to the Banks' commercial borrowers and other high net worth individuals. The Company's overall focus is to develop a total financial services relationship with its client base, which is primarily businesses, professionals, and entrepreneurs with commercial real estate borrowing needs. The Banks also provide technology-based cash management and other depository services. The holding company structure provides flexibility for expansion of the Company's banking business, including possible acquisitions of other financial institutions, and provision of support and additional banking-related services to its subsidiary banks.

Our corporate vision is to achieve $2.0 billion in assets over the next two or three years, excluding acquisitions, and be recognized as a premier financial services company in our markets, while maintaining a well-controlled environment. Our primary strategy to achieve this vision is to focus on core deposit growth with current products and services, focus lending on commercial real estate properties in the $1 million to $10 million size range, and leverage our operating efficiencies.

CRITICAL ACCOUNTING POLICIES

The Company's consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. The financial information contained within these statements is, to a significant extent, based on approximate measures of the financial effects of transactions and events that have already occurred. Critical accounting policies are those that involve the most complex and subjective decisions and assessments, and have the greatest potential impact on the Company's stated results of operations. The notes to the consolidated financial statements include a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. Management believes that, of our significant accounting policies, the following involve a higher degree of judgment and complexity. Our management has discussed these critical accounting assumptions and estimates with the Board of Directors' Audit Committee.

Allowance for Loan Losses:

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to operations. Loan losses are charged against the allowance when management believes the collectibility of a loan balance is unlikely. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is comprised of: (1) a component for individual loan impairment measured according to SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", and (2) a measure of collective loan impairment according to SFAS No. 5, "Accounting for Contingencies". The allowance for loan losses is established and maintained at levels deemed adequate to cover losses inherent in the portfolio as of the balance sheet date. This estimate is based upon management's evaluation of the risks in the loan portfolio and changes in the nature and volume of loan activity. Estimates for loan losses are derived by analyzing historical loss experience, current trends in delinquencies and charge-offs, historical peer bank experience, changes in the size and composition of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Larger impaired credits that are measured according to SFAS No. 114 have been defined to include loans which are classified as doubtful, substandard or special mention risk grades where the borrower relationship is greater than $150,000. For such loans that are considered impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.

Loans made outside the scope of SFAS No. 114 are measured according to SFAS No. 5 and include commercial and industrial and commercial real estate loans that are performing or have not been specifically identified under SFAS No. 114, and large groups of smaller balance homogeneous loans evaluated based on regulatory guidelines and historical peer bank loss experience which are adjusted for qualitative factors.

Income Taxes:

Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, as well as net operating loss carryforwards and tax credit carryforwards. Deferred tax assets and liabilities are included in the consolidated financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. In the event of changes in the tax laws, deferred tax assets and liabilities are adjusted in the period of the enactment of those changes, with the cumulative effects included in the current year's income tax provision. Net deferred tax assets, whose realization is dependent on taxable earnings of future years, are recognized when a more-likely-than-not criterion is met. The Company and its subsidiaries file consolidated tax returns.

Acquisitions:

The Company accounts for business combinations based on the purchase method of accounting. The purchase method of accounting requires us to fair value the tangible net assets and identifiable intangible assets acquired. The fair values are based on available information and current economic conditions at the date of acquisition. Fair value may be obtained from independent appraisers, discounted cash flow present value techniques, management valuation models, quoted prices on national markets or quoted market prices from brokers. These fair value estimates will affect future earnings through the disposition or amortization of the underlying assets and liabilities. While management believes the sources utilized to arrive at the fair value estimates are reliable, different sources or methods could have yielded different fair value estimates. Such different value estimates could affect future earnings through different values being utilized for the disposition or amortization of the underlying assets and liabilities acquired.

Year Ended December 31, 2008 Compared to

Year Ended December 31, 2007

FINANCIAL CONDITION

The Company's balance sheet continued to grow in 2008 with an emphasis on investment securities, credit quality and loan growth, reaching $1.5 billion in total assets, up $239 million or 18.2% over the prior year-end. Total earning assets, which the Company defines as any asset that earns interest, climbed $211 million or 17.7% to $1.4 billion. This compares with $353 million or 42.1% growth in 2007. Bank of Florida - Southwest contributed $67.9 million of this growth, reaching $747.2 million, while Bank of Florida - Southeast contributed $82.9 million, for a total of $538.6 million in assets. Bank of Florida-Tampa Bay, which has been open for slightly over four years, contributed $65.8 million for a total of $255.7 million in total assets.

Investment Securities and Overnight Investments

Total investment securities and Federal Funds sold were $118.0 million at December 31, 2008, an increase of $80.3 million from December 31, 2007. Securities available for sale totaled $114.7 million, an increase of $80.0 million compared to those held at December 31, 2007. The Company does not currently engage in trading activities and, therefore, did not hold any securities classified as trading at December 31, 2008 or 2007.

Federal Funds sold totaled $313 thousand at December 31, 2008, an increase of $313 thousand from December 31, 2007. This category of earning assets is normally used as a temporary investment vehicle to support the Company's daily funding requirements and, as a result, fluctuates with loan demand.

Loan Portfolio

Total gross loans outstanding (including loans held for sale) were $1.3 billion at December 31, 2008. Loans climbed $130.5 million or 11.4% for the year. Bank of Florida - Southwest accounted for $35.9 million (27.5%) of the increase. Bank of Florida - Southeast, accounted for $51.0 million (39.1%) and Bank of Florida
- Tampa Bay contributed the remaining $43.6 million (33.4%).

Real estate construction loans decreased $78.7 million to $318.6 million (24.9% of total loans) at December 31, 2008, while commercial loans secured by real estate increased $158.5 million to $576.5 million (45.1% of total loans). Making up the rest of the loan portfolio were multi-family and residential loans at $205.7 million (16.1% of total loans), up $34.5 million from the end of 2007, followed by commercial business loans at $118.9 million (9.3% of total loans), consumer lines of credit at $44.7 million (3.5% of total loans) and other consumer loans at $12.6 million (1.1% of total loans).

Asset Quality

The Banks' loan portfolios are subject to periodic reviews by our internal loan review department, our external loan review consultant and state and federal bank regulators. The Company's nonperforming loans (nonaccruals and 90+ days past due) totaled $71.9 million at December 31, 2008. Consequently, nonperformers as a percent of loans outstanding increased from 1.24% at December 31, 2007, to 5.63% as of December 31, 2008. Thirty-to-ninety day delinquent loans were $22.7 million or 1.78% of loans outstanding at December 31, 2008. There were $9.2 million in net charge-offs during 2008, resulting in net charge-offs to average loans of 0.78%. The increased level of nonperforming assets in 2008 is a result of a slowing economy and real estate market.

Deposits

Total deposits increased $229.2 million or 24.5% in 2008 to end the year at $1.2 billion. Deposit growth in the Bank of Florida - Southwest comprised $94.5 million of this increase, up 21.4% to $536.2 million in deposits at December 31, 2008, while deposits at Bank of Florida - Southeast climbed $57.9 million or 16.7% to $404.9 million. Bank of Florida - Tampa Bay ended the year with $225.2 million in deposits, up $76.8 million or 51.8%.

Deposit growth consisted primarily of increases in certificates of deposit (up $276.3 million), demand deposit (DDA) accounts (up $11.2 million), net of decreases in low-cost NOW accounts (down $10.5 million) and money market deposits (down $47.5 million) and savings (down $0.3 million). As of year end 2008, these accounts comprised 58.2%, 9.9%, 4.2% and 27.2%, respectively, of total deposits.

The average rate paid on total interest bearing deposits in 2008 was 3.56%, a decrease of 90 basis points compared to 2007. The decrease resulted primarily from the lower interest rate environment under which we currently operate.

Borrowings

While client deposits remain our primary source of funding for asset growth, management uses other borrowings as a funding source for loan growth, regulatory capital needs, and as a tool to manage the Company's interest rate risk and margin. At December 31, 2008, borrowings totaled $188.5 million, an increase of $17.4 million compared to December 31, 2007. Total borrowings at December 31, 2008, consisted of $20.0 million of other borrowings, $16 million in subordinated debt and $152.5 million in Federal Home Loan Bank ("FHLB") Advances compared to $16 million in subordinated debt and $155.1 million in FHLB Advances, respectively, at the end of 2007. FHLB advances include $34.0 million that mature daily. The maturities of all borrowings range from March 2010 through July 2017.

See "Note 11-Subordinated Debt and Other Borrowings" and "Note 12-Federal Home Loan Bank Advances" of the "Notes to Consolidated Financial Statements" for further information.

Aggregate Contractual Obligations

Contractual obligations for payments under long-term debt and lease obligations
are shown as follows, stratified by remaining term to contractual maturity (In
Thousands):



                                                                           More
                                    Less than      1 - 3       3 - 5      than 5
                                      1 Year       Years       Years      Years       Total
  Real estate operating leases      $    3,995   $   8,199   $   8,476   $ 31,715   $  52,385
  Equipment operating leases               516         770         134          1       1,421
  Certificates of Deposit              461,465     195,229      22,582         -      679,276
  Subordinated Debt                         -        3,000      13,000         -       16,000
  Repurchase Agreements                     -           -       20,000         -       20,000
  Federal Home Loan Bank advances       34,000      25,274      83,200     10,000     152,474


  Total                             $  499,976   $ 232,472   $ 147,392   $ 41,716   $ 921,556

Further discussion of the nature of each obligation is included in "Note 10-Deposits", "Note 11-Subordinated Debt and Other Borrowings", Note 12-Federal Home Loan Bank Advances" and "Note 14-Commitments and Contingencies" of the "Notes to Consolidated Financial Statements".

RESULTS OF OPERATIONS

The Company's net loss for 2008 was $13.2 million or ($1.03) per diluted share, $16.0 million less than 2007. Pretax net loss increased $25.6 million to $21.1 million. The primary factors explaining the deterioration were a $20.2 million increase in provision for loan losses in addition to a $1.3 million or 2.8% decrease in top-line revenue mostly attributable to the decline in interest rates. Top-line revenue is a non-GAAP measure which the Company defines as net interest income plus noninterest income (excluding net securities gains/losses). The Company considers top-line revenue to be useful in explaining financial performance as it combines the Company's spread income with its fee income, both of which often pertain to the same customer base and can be managed against the underlying noninterest expense to generate those revenue components.

Net Interest Income

Net interest income decreased $432 thousand or 1.0% in 2008 to $42.8 million, the result of a 400 basis point reduction in interest rates during the year. Net interest spread, the difference between the yield on interest-earning assets and the rate paid on interest-bearing liabilities, was 2.75% on average in 2008, which was a decrease of 38 basis points when compared to 2007, while, the net interest margin, which is net interest income divided by average interest-earning assets, averaged 3.26% in 2008, a 70 basis points decrease over 2007. The margin continues to be pressured in this declining rate environment.

Interest income decreased $828 thousand or 1.0% to $83.3 million in 2008, the result of a 135 basis point decrease in the average yield earned on interest earning assets that was partially offset by continued loan growth. Total average interest-earning assets increased $219.2 million during the year resulting in a $13.4 million increase in interest income while the average yield on interest-earning assets decreased to 6.36%, accounting for $14.5 million decline in interest income with the day count difference accounting for the remainder of the improvement. Approximately 65.2% of loans outstanding at December 31, 2008 are variable rate loans compared to 73.9% at December 31, 2007.

Interest expense totaled $40.5 million in 2008, a decrease of $396 thousand or 1.0%. The overall cost of interest-bearing liabilities was 3.61% compared to 4.58% one year ago. Noninterest-bearing deposits averaged $104.2 million for 2008 compared to $103.1 million last year. Money market rates were 143 basis points lower on average, while the average cost of certificates of deposit decreased 84 basis points. During the year ended December 31, 2008, the Company increased its use of FHLB advances as an alternative funding source. The average outstanding amount of FHLB advances for 2008 were $163.8 million at an average cost of 3.7% compared to $105.9 million at an average cost of 5.0% for 2007.

The following table represents, for the years indicated, certain information related to our average balance sheet and average yields on assets and average costs of liabilities (In Thousands).

                                                           For the Years Ended December 31,
                                                    2008                                      2007
                                                   Interest       Average                    Interest       Average
                                      Average         and         Yield/        Average         and         Yield/
                                      Balance      Dividends       Rate         Balance      Dividends       Rate
Assets:
Earning assets:
Loans 2                             $ 1,209,843   $    78,441        6.48 %   $ 1,033,918   $    81,145        7.85 %
Interest earning deposits                   560            15        2.71 %         1,291            76        5.44 %
Securities 1                             91,136         4,716        5.17 %        48,199         2,580        5.36 %
Federal funds sold                        9,187           155        1.68 %         8,144           354        4.35 %

Total interest-earning assets         1,310,726        83,327        6.36 %     1,091,552        84,155        7.71 %

Non interest-earning assets             114,294                                    91,642

Total Assets                        $ 1,425,020                               $ 1,183,194


Liabilities:
Interest-bearing liabilities:
Interest bearing checking           $    49,785           247        0.50 %   $    57,058           684        1.20 %
Money market accounts                   338,357        10,215        3.02 %       341,374        15,180        4.45 %
Savings                                   6,228            34        0.55 %         7,625            49        0.64 %
Time deposits                           547,730        23,076        4.21 %       367,992        18,609        5.06 %
Other borrowings                        179,801         6,963        3.87 %       120,331         6,409        5.33 %

Total interest-bearing
liabilities                           1,121,901        40,535        3.61 %       894,380        40,931        4.58 %
Non-interest bearing deposits           104,224                                   103,149
Other liabilities                         1,406                                     7,247
Stockholders' equity                    197,489                                   178,418

Total Liabilities & Stockholders'
Equity                              $ 1,425,020                               $ 1,183,194

Net interest income                               $    42,792                               $    43,224

Interest-rate spread                                                 2.75 %                                    3.13 %
Net interest margin                                                  3.26 %                                    3.96 %
Ratio of average interest-bearing
liabilities to average earning
assets                                                   85.6 %                                    81.9 %

INCREASE (DECREASE) DUE TO CHANGE IN (IN THOUSANDS)



                                               VOLUME        RATE        DAYS     CHANGE
   Increase (decrease) in interest income:
   Loans2                                     $ 11,185     $ (14,111 )   $ 222   $ (2,704 )
   Other investments1                            2,195          (127 )       7      2,075
   Federal funds sold                               17          (217 )       1       (199 )

   Total interest income                        13,397       (14,455 )     230       (828 )


   Increase (decrease) in interest expense:
   NOW and Money Market deposits                  (170 )      (5,275 )      43     (5,402 )
   Savings deposits                                 (8 )          (7 )      -         (15 )
   Time deposits                                 7,521        (3,105 )      51      4,467
   Other borrowings                              2,215        (1,678 )      17        554

   Total interest expense                        9,558       (10,065 )     111       (396 )


   Total change in net interest income        $  3,839     $  (4,390 )   $ 119   $   (432 )

1 Tax-exempt income, to the extent included in the amounts above, is not reflected on a tax equivalent basis.

2 For purpose of this analysis, non-accruing loans are included in the average balances.

Noninterest Income

Noninterest income declined $886 thousand or 15.9% over 2007, primarily due to decreases in gains on sale of assets of $646,000 (down 91.5%) and trust fees of $298,000 (down 9.9%). Service charges and other income rose approximately $58,000. The decrease in fee income earned by the Trust Company, which totaled $2.7 million in 2008, was primarily the result of contraction in the average assets under advice during the year and the decline in market values.

Noninterest Expenses

Noninterest expenses rose $4.1 million or 10.2% over 2007. The increase is primarily comprised of higher occupancy and equipment related expense ($2.2 million or 26.7%). Building lease costs rose due to additional space required for business expansion, and equipment rental, maintenance, and depreciation expense increased accordingly. Other increases occurred in the areas of repossession expenses ($1.3 million or 2,770%) associated with foreclosed real estate, regulatory assessments ($438,000 or 77.2%) and professional fees ($274,000 or 17.8%).

Asset Quality and Provision for Loan Losses

Nonperforming loans (90+ days past due and non-accruals) totaled $71.9 million, or 5.63% of loans outstanding. The increase from prior year was primarily caused by the downturn in the residential real estate market which negatively impacted the liquidity of a number of borrowers. The ratio of net charge-offs to average loans for 2008 grew seventy four basis points to 0.78%. The Company's asset quality can also be measured by the coverage of the loan loss allowance to nonperforming loans (.41 times). These measures are worse than the Company's historic norm.

The provision for loan losses increased $20.2 million or 475.6%, as a result of loan downgrades and an increased level of net charge-offs due to the continued weakness in real estate values, and an 11.4% growth in loans. The allowance for loan losses, which is established through a charge to provision for loan losses as losses are estimated, totaled $29.5 million or 2.32% of loans outstanding at December 31, 2008. In comparison, the allowance for loan losses totaled $14.4 million or 1.26% of loans outstanding at December 31, 2007. Actual loan losses are charged against the allowance when management believes the collectibility of a loan balance is unlikely. Subsequent recoveries, if any, are credited to the allowance. The Company recorded net charge-offs during 2008 of $9.2 million, compared to $401,000 in 2007. The primary factor impacting the amount of these charge-offs is the continued decline in property values across the Southwest Florida markets.

Quarterly Operating Results

The following table presents condensed information relating to quarterly periods
in the years ended December 31, 2008 and 2007 (In Thousands, except per share
data).



                                                                  Quarter Ended:
                                         Dec. 31,          Sept. 30,           June 30,          Mar. 31,
               2008
Total interest income                  $     20,428       $     20,980       $     20,994      $     20,925
Total interest expense                       10,639             10,059              9,647            10,190

Net interest income before
provision for loan losses                     9,789             10,921             11,347            10,735
Provision for loan losses                    16,026              6,190              1,585               687

Net interest income after provision
for loan losses                              (6,237 )            4,731              9,762            10,048
Non-interest income                           1,195              1,162              1,049             1,296
Non-interest expense                         10,951             11,388             10,770            10,952

(Loss) Income before taxes                  (15,993 )           (5,495 )               41               392
Income taxes (benefit)                       (5,979 )           (2,050 )               37               159

Net (loss) income                      $    (10,014 )     $     (3,445 )     $          4      $        233


Basic (loss) income per share          $      (0.78 )     $      (0.27 )     $       0.00      $       0.02
Diluted (loss) income per share        $      (0.78 )     $      (0.27 )     $       0.00      $       0.02

Weighted average shares - basic          12,779,020         12,779,020         12,779,020        12,779,020
Weighted average shares - diluted        12,779,020         12,779,020         12,779,020        12,779,376

Return on average assets                      (2.65 %)           (0.95 %)            0.00 %            0.07 %
Return on average common equity              (20.89 %)           (6.96 %)            0.01 %            0.47 %

Net interest margin                            2.89 %             3.33 %             3.58 %            3.62 %
Efficiency ratio                              99.70 %            94.48 %            86.88 %           91.01 %

Total assets                           $  1,549,013       $  1,545,054       $  1,414,689      $  1,404,034
. . .