UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 Form 10-K
 
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 0-25135
 (BANK OF COMMERCE HOLDINGS LOGO)
  California
(State or jurisdiction of incorporation or organization)
    
    94-2823865
(I.R.S. Employer Identification Number)1901 Churn Creek Road 
Redding, California
(Address of principal executive offices)
    
    96002
(Zip Code)
    Common Stock, No Par Value per share
    
    NASDAQ National Market
 o þ
 o þ
  þ o
 þ
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ(Do not check if a smaller reporting company)
Smaller reporting company o o þ
    Class
    
    Outstanding at February 28, 2009Preferred Stock, $1,000 par value
    
    
    17,000Common Stock, No par value per share
    
    
    8,711,495
 DOCUMENTS INCORPORATED BY REFERENCE
 Document
    
    Parts Into Which IncorporatedProxy Statement for the Annual Meeting of
Stockholders
    
    Part IIITo be held May 12, 2009 (Proxy Statement)




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Bank of Commerce Holdings Form 10-K
 Table of Contents
 Part I.Item 1 .
    
    Business
    
    
    4General
    
    
    4Preferred Stock
    
    
    5Junior Subordinated Debentures
    
    
    6Primary market areas
    
    
    7Products and services
    
    
    7Government supervision and regulation
    
    
    8GeneralDividend Restrictions
    
    
    8Interstate Banking
    
    
    9Capital standards
    
    
    9Overview of the New Accord
    
    
    9Fiscal and Monetary Policies
    
    
    10Privacy Provisions of Gramm-Leach-Bliley Act
    
    
    10Sarbanes-Oxley Act of 2002
    
    
    10Patriot Act
    
    
    11Future Legislation
    
    
    11State regulation and supervision
    
    
    11Prompt corrective action and other enforcement mechanisms
    
    
    11Safety and soundness standards
    
    
    12Community reinvestment act and fair lending developments
    
    
    12Recently enacted accounting rules
    
    
    13Competition
    
    
    14Employees
    
    
    14Item 1(A)
    
    Risk factors that may affect results
    
    
    15Overview
    
    
    15Lending risks associated with commercial banking and construction activities
    
    
    16Dependence on real estate
    
    
    16Risks specific to operations in California
    
    
    16Interest rate risk
    
    
    16Potential volatility of deposits
    
    
    17Dividends
    
    
    17Government regulation and legislation
    
    
    17Economic conditions and geographical concentration
    
    
    17Reliance on key employees and others
    
    
    17Adequacy of allowance for loan and lease losses (ALLL)
    
    
    18Certain ownership restrictions under California and Federal law
    
    
    18Shares eligible for future sale
    
    
    18Technology and computer systems
    
    
    18Environmental risks
    
    
    19Item 1(B)
    
    Unresolved staff comments
    
    
    19Item 2.
    
    Properties
    
    
    20Item 3.
    
    Legal proceedings
    
    
    20Item 4.
    
    Submission of matters to a vote of security holders
    
    
    20Part II.Item 5.
    
    Market for Registrants common equity and related Shareholder matters and Issuer purchases of equity securities
    
    
    21Equity compensation plan information
    
    
    22Stock Performance Chart
    
    
    23Item 6.
    
    Selected consolidated financial data
    
    
    24
 2




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Item 7.
    
    Managements discussion and analysis of financial condition and results of operations
    
    
    25Executive overview
    
    
    25Risk Management
    
    
    26Liquidity risk management
    
    
    27Credit risk management
    
    
    28Market risk management
    
    
    31Operational risk management
    
    
    32Critical accounting policies
    
    
    32General
    
    
    32Valuation of Investments and Impairment of Securities
    
    
    32Allowance for loan and lease losses (ALLL
    
    
    33Stock-based compensation
    
    
    33Revenue recognition
    
    
    34Income taxes
    
    
    34Financial highlights - Results of operations
    
    
    35Key Financial Ratios
    
    
    35Balance Sheet
    
    
    35Sources of Income
    
    
    36Year ended December 31, 2008 compared to Year ended December 31, 2007
    
    
    37Year ended December 31, 2007 compared to Year ended December 31, 2006
    
    
    38Net Interest Income and net interest margin
    
    
    38Noninterest Income
    
    
    41Noninterest Expense
    
    
    41Income taxes
    
    
    42Asset Quality
    
    
    42Nonperforming assets
    
    
    43Available-for-sale securities
    
    
    44Deposit structure
    
    
    44Capital management and adequacy
    
    
    45Lending transactions with related parties
    
    
    46Impact of inflation
    
    
    46Commitments
    
    
    46Item 7a.
    
    Quantitative and qualitative disclosures to market risk
    
    
    48Item 8.
    
    Financial Statements and supplementary data
    
    
    51Item 9.
    
    Changes in and disagreements with accountants on accounting and financial disclosures
    
    
    93Item 9A.
    
    Controls and procedures
    
    
    93Item 9B.
    
    Other Information
    
    
    93Part III.Item 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    94Item 11.
    
    Executive compensation
    
    
    95Item 12.
    
    Security ownership of beneficial owners and management and related stockholder matters
    
    
    95Item 13.
    
    Certain relationships and related transactions, and Director independence
    
    
    95Item 14.
    
    Principal Accountant fees and services
    
    
    95Part IV.Item 15.
    
    Exhibits, financial statements, certifications
    
    
    97
 Documents Incorporated By Reference
  3




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PART I
 
 Item 1. BUSINESS
  Bank of Choice bank of choice
    www.bankofcommerceholdings.com www.sec.gov
 
 General
 Parent Bank Holding Company.
 Subsidiary Bank.
 Nonbank Subsidiary.
 4




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Parent Bank Holding Company Activities
 Financial in Nature Requirement.
   Regulatory Approval.
 
 Preferred Stock
  5




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Junior Subordinated Debentures
   6




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Primary Market Areas
  
 Products and Services
        7




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Government Supervision and Regulation
 The following discussion describes the elements of an extensive regulatory framework applicable to
financial holding companies and banks and specific information about the Holding Company and its
subsidiaries. Federal regulation of banks, bank holding companies and financial holding companies
is intended primarily for the protection of depositors and the Bank Insurance Fund rather than for
the protection of stockholders and creditors.
 
 Dividend Restrictions
     8




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Interstate Banking
 de novo
 
 Capital Standards
    
 Overview of the New Accord
 . does not does
  9




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Fiscal and Monetary Policies
  
 Privacy Provisions of the Gramm-Leach-Bliley Act
  
 Sarbanes-Oxley Act of 2002
  10




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Patriot Act
  
 Future Legislation
  
 State Regulation and Supervision
   
 Prompt Corrective Action and Other Enforcement Mechanisms
  11




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As of December 31, 2008, well
capitalized
 Actual
    
    
    Well Capitalized
    
    
    Minimum CapitalDecember 31, 2008
    
    Capital
    
    
    Ratio
    
    
    Requirement
    
    
    RequirementThe Company
Leverage
    
    $
    73,983,019
    
    
    
    10.66
    %
    
    
    n/a
    
    
    
    4.0
    %Tier 1 Risk-Based
    
    
    73,983,019
    
    
    
    11.87
    %
    
    
    n/a
    
    
    
    4.0
    %Total Risk-Based
    
    
    81,787,582
    
    
    
    13.12
    %
    
    
    n/a
    
    
    
    8.0
    %Redding Bank of
Commerce
Leverage
    
    $
    72,204,835
    
    
    
    10.45
    %
    
    
    5.0
    %
    
    
    4.0
    %Tier 1 Risk-Based
    
    
    72,204,835
    
    
    
    11.58
    %
    
    
    6.0
    %
    
    
    4.0
    %Total Risk-Based
    
    
    80,009,398
    
    
    
    12.84
    %
    
    
    10.00
    %
    
    
    8.0
    %
   
 Safety and Soundness Standards
   
 Community Reinvestment Act and Fair Lending Developments
  12




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Recently Enacted Accounting Rules
 On October 14, 2008 Accounting for Certain
Investments in Debt and Equity Securities
 On October 10, 2008, the FASB issued FAS 157-3, Determining the Fair Value of a Financial Asset
When the Market for That Asset is Not Active Fair Value Measurements,
 On September 12, 2008, the FASB issued Staff Position No. 133-1 and FIN 45-4, Disclosures about
Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161 . Accounting for
Derivative Instruments and Hedging Activities , Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness to Others
 The FASB has decided to amend SFAS No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities  a replacement of FASB Statement No. 125 Consolidation of Variable Interest
Entities  an interpretation of ARB No. 51
 On March 19, 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB No. 133 (SFAS 161). Disclosures about Fair Value of Financial Instruments.
 On December 4, 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
 13




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Competition
    
 Employees
  14




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ITEM 1A.
 Forward Looking Statements and Risk Factors That May Affect Results
 This report includes forward-looking statements within the meaning of the Securities Exchange Act
of 1934 (the Exchange Act) and the Private Securities Litigation Reform Act of 1995. These
statements are based on managements beliefs and assumptions, and on information available to
management as of the date of this document. Forward-looking statements include the information
concerning possible or assumed future results of operations of the Company set forth under the
heading Managements Discussion and Analysis of Financial Condition and Results of Operations.
Forward-looking statements also include statements in which words such as expects, anticipates,
intend, plan, believes, estimate, consider or similar expressions or conditional verbs
such as will, should, would and could are intended to identify such forward looking
statements.. Forward-looking statements are not guarantees of future performance. They involve
risks, uncertainties and assumptions, including the risks discussed under the heading Risk Factors
That May Affect Results and elsewhere in this report. The Companys actual future results and
shareholder values may differ materially from those anticipated and expressed in these
forward-looking statements. Many of the factors that will determine these results and values,
including those discussed under the heading Risk Factors That May Affect Results, are beyond the
Companys ability to control or predict. Investors are cautioned not to put undue reliance on any
forward-looking statements. In addition, the Company does not have any intention or and assumes no
obligation to update forward-looking statements after the date of the filing of this report, even
if new information, future events or other circumstances have made such statements incorrect or
misleading. Except as specifically noted herein all references to the Company refer to Bank of
Commerce Holdings, a California corporation, and its consolidated subsidiaries.
 
 Overview
     15




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Lending Risks Associated with Commercial Banking and Construction Activities
  
 Dependence on Real Estate
   
 Risks Specific to Operations in California
  
 Interest Rate Risk
  16




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Potential Volatility of Deposits
  
 Dividends
  
 Government Regulation and Legislation
  
 Economic Conditions and Geographic Concentration
  
 Reliance on Key Employees and Others
  17




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Adequacy of Allowance for Loan and Lease Losses (ALLL)
  
 Certain Ownership Restrictions under California and Federal Law
   
 Shares Eligible for Future Sale
  
 Technology and Computer Systems
  18




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Environmental Risks
  
 ITEM 1(b). UNRESOLVED STAFF COMMENTS
  19




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Item 2. PROPERTIES
   express
office
  
 Item 3. LEGAL PROCEEDINGS
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  20




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PART II
 
 Item 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
  Sales Price Per ShareQuarter Ended:
    
    High
    
    Low
    
    VolumeMarch 31, 2008
    
    $
    8.59
    
    
    $
    6.00
    
    
    
    211,299June 30, 2008
    
    $
    8.34
    
    
    $
    6.10
    
    
    
    71,390September 30, 2008
    
    $
    6.95
    
    
    $
    5.50
    
    
    
    89,184December 31, 2008
    
    $
    6.60
    
    
    $
    3.92
    
    
    
    135,589March 31, 2007
    
    $
    12.29
    
    
    $
    10.98
    
    
    
    112,197June 30, 2007
    
    $
    12.50
    
    
    $
    10.82
    
    
    
    55,221September 30, 2007
    
    $
    11.54
    
    
    $
    9.45
    
    
    
    447,215December 31, 2007
    
    $
    11.64
    
    
    $
    8.45
    
    
    
    381,865
    maximum
 21




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Equity Compensation Plan Information
  Number ofsecuritiesremaining availableNumber of
    
    
    
    
    
    
    for future issuancesecurities to be
    
    
    
    
    
    
    under equityissued upon
    
    
    Weighted average
    
    
    compensation plansexercise of
    
    
    exercise price of
    
    
    (excludingoutstanding
    
    
    outstanding
    
    
    securitiesoptions, warrants
    
    
    options, warrants
    
    
    reflected inand rights
    
    
    and rights
    
    
    column (a)).Plan category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    298,080
    
    
    $
    6.35
    
    
    
    588,500Equity compensation
plans not approved
by security holders
    
    None
    
    
    None
    
    
    NoneTotal
    
    
    298,080
    
    
    $
    6.35
    
    
    
    588,500
  Purchase of Equity Securities by the Issuer and Affiliated Purchasers
 (c)
    
    
    (d)Total number of
    
    
    Maximum number ofshares purchased as
    
    
    shares that may yet(a)
    
    
    (b)
    
    
    part of publicly
    
    
    be purchased underTotal number of
    
    
    Average price paid
    
    
    announced plans or
    
    
    the plans orPeriod
    
    shares purchased
    
    
    per share
    
    
    programs
    
    
    programs01/01/08 - 01/31/08
    
    
    34,452
    
    
    $
    8.50
    
    
    
    34,452
    
    
    
    24,34802/01/08 - 02/29/08
    
    
    24,348
    
    
    $
    8.92
    
    
    
    24,348
    
    
    
    0Total 2008
    
    
    58,800
    
    
    $
    8.57
    
    
    
    58,800
    
    
    
    0
 22




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Stock Price Performance Graph
  Bank of Commerce Holdings
Five  Year Performance Graph
 
 Stock Performance Graph(1)
 SNL Securities LC (C)2008
    
    (804) 977-1600
 
 (1)
    
    Assumes $100 invested on December 31, 2003, in the Companys Common Stock, the NASDAQ, the S&P
500 and the SNL Securities Index. The model assumes reinvestment of dividends. Source: SNL
Securities (share prices for the Companys Common Stock was furnished to SNL Securities through the
NASDAQ). 23




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Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
  In Thousands (Except Ratios and Per Share Data)
    
    2008
    
    2007
    
    2006
    
    2005
    
    2004Statements of IncomeTotal Interest Income
    
    $
    37,690
    
    
    $
    41,128
    
    
    $
    37,610
    
    
    $
    27,864
    
    
    $
    20,996Net Interest Income
    
    $
    21,348
    
    
    $
    22,012
    
    
    $
    22,035
    
    
    $
    20,238
    
    
    $
    16,887Provision for Loan Losses
    
    $
    6,520
    
    
    $
    3,291
    
    
    $
    226
    
    
    $
    448
    
    
    $
    554Total Noninterest Income
    
    $
    2,623
    
    
    $
    4,535
    
    
    $
    1,928
    
    
    $
    2,124
    
    
    $
    2,196Total Noninterest Expense
    
    $
    15,296
    
    
    $
    15,744
    
    
    $
    13,333
    
    
    $
    11,749
    
    
    $
    10,620Total Revenues
    
    $
    40,313
    
    
    $
    45,753
    
    
    $
    39,539
    
    
    $
    29,988
    
    
    $
    23,192Net Income
    
    $
    2,194
    
    
    $
    6,107
    
    
    $
    6,568
    
    
    $
    6,278
    
    
    $
    4,978Balance SheetsTotal Assets
    
    $
    774,214
    
    
    $
    618,327
    
    
    $
    583,442
    
    
    $
    511,644
    
    
    $
    438,545Total Net Loans
    
    $
    518,947
    
    
    $
    486,283
    
    
    $
    408,989
    
    
    $
    363,305
    
    
    $
    318,801Allowance for Loan Losses
    
    $
    8,429
    
    
    $
    8,233
    
    
    $
    4,904
    
    
    $
    4,316
    
    
    $
    3,866Total Deposits
    
    $
    555,282
    
    
    $
    473,631
    
    
    $
    439,407
    
    
    $
    372,116
    
    
    $
    352,878Stockholders Equity
    
    $
    62,578
    
    
    $
    46,164
    
    
    $
    43,916
    
    
    $
    39,138
    
    
    $
    35,283Performance Ratios 1Return on Average Assets 2
    
    
    0.33
    %
    
    
    1.04
    %
    
    
    1.20
    %
    
    
    1.34
    %
    
    
    1.22
    %Return on Average Stockholders Equity 3
    
    
    4.99
    %
    
    
    13.39
    %
    
    
    15.59
    %
    
    
    18.35
    %
    
    
    18.18
    %Dividend Payout
    
    
    127.04
    %
    
    
    46.47
    %
    
    
    40.36
    %
    
    
    35.74
    %
    
    
    39.29
    %Average Equity to Average Assets
    
    
    8.91
    %
    
    
    9.43
    %
    
    
    9.49
    %
    
    
    9.43
    %
    
    
    7.91
    %Tier 1 Risk-Based Capital-Bank 4
    
    
    11.58
    %
    
    
    9.97
    %
    
    
    11.42
    %
    
    
    12.08
    %
    
    
    10.80
    %Total Risk-Based Capital-Bank
    
    
    12.84
    %
    
    
    11.22
    %
    
    
    12.54
    %
    
    
    13.11
    %
    
    
    11.88
    %Net Interest Margin 5
    
    
    3.47
    %
    
    
    3.98
    %
    
    
    4.26
    %
    
    
    4.59
    %
    
    
    4.45
    %Average Earning Assets to Total Average Assets
    
    
    92.86
    %
    
    
    93.74
    %
    
    
    94.20
    %
    
    
    94.04
    %
    
    
    92.62
    %Nonperforming Assets to Total Assets 6
    
    
    2.98
    %
    
    
    2.01
    %
    
    
    0.00
    %
    
    
    0.08
    %
    
    
    0.54
    %Net Charge-offs to Average Loans
    
    
    1.22
    %
    
    
    .00
    %
    
    
    -.09
    %
    
    
    0.00
    %
    
    
    0.12
    %Allowance for Loan Losses to Total Loans
    
    
    1.60
    %
    
    
    1.66
    %
    
    
    1.18
    %
    
    
    1.17
    %
    
    
    1.20
    %Nonperforming Loans to Allowance for Loan Losses
    
    
    239.10
    %
    
    
    150.72
    %
    
    
    0.00
    %
    
    
    9.15
    %
    
    
    61.64
    %Efficiency Ratio 7
    
    
    63.81
    %
    
    
    59.31
    %
    
    
    55.64
    %
    
    
    52.54
    %
    
    
    55.65
    %Share DataAverage Common Shares Outstanding  basic
    
    
    8,713
    
    
    
    8,858
    
    
    
    8,760
    
    
    
    8,600
    
    
    
    8,283Average Common Shares Outstanding  diluted
    
    
    8,724
    
    
    
    8,938
    
    
    
    8,932
    
    
    
    8,845
    
    
    
    8,703Book Value Per Common Share
    
    $
    5.23
    
    
    $
    5.27
    
    
    $
    4.96
    
    
    $
    4.52
    
    
    $
    4.27Basic Earnings Per Common Share
    
    $
    0.25
    
    
    $
    0.69
    
    
    $
    0.75
    
    
    $
    0.73
    
    
    $
    0.60Diluted Earnings Per Common Share
    
    $
    0.25
    
    
    $
    0.68
    
    
    $
    0.74
    
    
    $
    0.71
    
    
    $
    0.57Cash Dividends Per Common Share 8
    
    $
    0.32
    
    
    $
    0.33
    
    
    $
    0.29
    
    
    $
    0.26
    
    
    $
    0.23
 
 1
    
    Regulatory Capital Ratios and Asset Quality Ratios are end of period ratios. With the
exception of end of period ratios, all ratios are based on average daily balances during the
indicated period.2
    
    Return on average assets is net income divided by average total assets.3
    
    Return on average equity is net income divided by average stockholders equity.4
    
    Regulatory capital ratios are defined in detail in the table on pages 42-43..5
    
    Net interest margin equals net interest income as a percent of average
interest-earning assets.6
    
    Non-performing assets includes all nonperforming loans (nonaccrual loans, loans 90
days past due and still accruing interest and restructured loans) and real estate acquired by
foreclosure.7
    
    The efficiency ratio is calculated by dividing non-interest expense by the sum of net
interest income and noninterest income. The efficiency ratio measures how the Company spends in
order to generate each dollar of net revenue.8
    
    Cash dividends declared during the current fiscal year 24




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Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
 The following discussion should be read in conjunction with the Consolidated Financial Statements
of the Company and related notes thereto appearing elsewhere in this report. This report includes
forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the Exchange
Act) and the Private Securities Litigation Reform Act of 1995. These statements are not
guarantees of future performance and involve certain risks. These statements are based on
managements beliefs and assumptions, and on information available to management as of the date of
this document. Forward-looking statements include the information concerning possible or assumed
future results of operations of the Company set forth under the heading Managements Discussion
and Analysis of Financial Condition and Results of Operations. Forward-looking statements also
include statements in which words such as expects, anticipates, intend, plan, believes,
estimate, consider or similar expressions or conditional verbs such as will should would
and could are intended to identify such forward looking statements. The Companys actual future
results and stockholder values may differ materially from those anticipated and expressed in these
forward-looking statements. Many of the factors that will determine these results and values,
including those discussed under the heading Risk Factors That May Affect Results, are beyond the
Companys ability to control or predict. Investors are cautioned not to put undue reliance on any
forward-looking statements. In addition, the Company does not have any intention to and assumes no
obligation to update forward-looking statements after the date of the filing of this report, even
if new information, future events or other circumstances have made such statements incorrect or
misleading. Except as specifically noted herein all referenced to the Company refer to Bank of
Commerce Holdings, a California corporation, and its consolidated subsidiaries.
 
 Executive Overview
      25




---



##### 



Risk Management
 Overview
  Board Committees
  
    
    Loan Committee reviews credit risks and the adequacy of the allowance for loan losses.
    
    Asset/Liability Management Committee (ALCO) reviews liquidity and market risks.
    
    Audit Committee reviews the scope and coverage of internal and external audit activities.
    
    Nominating and Corporate Governance Committee evaluates corporate governance structure,
charters, committee performance and acts in best interests of the corporation and its
stockholders with regard to the appointment of director nominees.
  Senior Leadership Committees
  
    
    The Senior Leadership Committee establishes short and long-term strategies and operating
plans. The committee establishes performance measures and reviews performance to plan on a
monthly basis.
    
    The Credit Round Table Committee recommends corporate credit practices and limits,
including industry concentration limits and approval requirements and exceptions.
    
    The Technology Steering Committee establishes technological strategies, makes technology
investment decisions, and manages the implementation process.
    
    The ALCO Round Table Committee establishes and monitors liquidity ranges, pricing,
maturities, investment goals, and interest spread on balance sheet accounts.
    
    The SOX 404 Compliance Team has established the master plan for full documentation of the
Companies internal controls and compliance with the Sarbanes-Oxley Act, Section 404.
 Risk Management Controls
  26




---



##### 



Liquidity Risk Management
 Liquidity Risk
       Federal Home Loan Bank borrowings
  2008
    
    
    2007
    
    
    2006Securities sold under
agreements to repurchase
with weighted average
interest rates of 0.62%,
2.84% and 4.00% at December
31, 2008, 2007 and 2006,
respectively
    
    
    13,853,255
    
    
    $
    15,513,211
    
    
    $
    37,116,610Federal Home Loan Bank
borrowings with weighted
average interest rates of
2.41%, 4.30% and 5.64% at
December 31, 2008, 2007
and 2006, respectively
    
    
    120,000,000
    
    
    
    60,000,000
    
    
    
    40,000,000Total FHLB borrowings
    
    $
    133,853,255
    
    
    $
    75,513,211
    
    
    $
    77,116,610
 27




---



##### 



2008
    
    
    2007
    
    
    2006Securities sold under
agreements to repurchase:Maximum outstanding at any month end
    
    $
    14,581,881
    
    
    $
    46,417,358
    
    
    $
    37,116,610Average balance during the year
    
    
    13,038,870
    
    
    
    32,237,000
    
    
    
    29,708,000Weighted average interest rate during year
    
    
    1.32
    %
    
    
    3.65
    %
    
    
    3.84
    %Federal Home Loan Bank borrowings:Maximum outstanding at any month end
    
    $
    120,000,000
    
    
    $
    60,000,000
    
    
    $
    80,000,000Average Balance during the year
    
    
    83,048,645
    
    
    
    46,630,462
    
    
    
    59,059,300Weighted average interest rate during year
    
    
    3.40
    %
    
    
    5.20
    %
    
    
    5.21
    %
 
 Credit Risk Management
  Commercial portfolio credit risk management
   Real estate portfolio credit risk management
   28




---



##### 



Concentrations of credit risk
  Nonperforming assets
  Allowance for loan and lease losses (ALLL)
   Accounting for Contingencies Accounting by Creditors for
Impairment of a Loan
   29




---



##### 



Years Ended December 31,(Dollars in thousands)
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Beginning Balance:
    
    $
    8,233
    
    
    $
    4,904
    
    
    $
    4,316
    
    
    $
    3,866
    
    
    $
    3,675
    
    
    $
    3,529Provision for loan losses
    
    
    6,520
    
    
    
    3,291
    
    
    
    226
    
    
    
    448
    
    
    
    554
    
    
    
    515Charge-offs:Commercial & Financial
    
    
    (1,007
    )
    
    
    (0
    )
    
    
    (274
    )
    
    
    (83
    )
    
    
    (367
    )
    
    
    (379
    )Real Estate
    
    
    (5,322
    )
    
    
    (0
    )
    
    
    (0
    )
    
    
    (0
    )
    
    
    (0
    )
    
    
    (0
    )Other
    
    
    (0
    )
    
    
    (0
    )
    
    
    (25
    )
    
    
    (10
    )
    
    
    (1
    )
    
    
    (1
    )Total Charge-offs
    
    
    (6,329
    )
    
    
    (0
    )
    
    
    ( 299
    )
    
    
    (93
    )
    
    
    (368
    )
    
    
    (380
    )Recoveries:Commercial & Financial
    
    
    0
    
    
    
    26
    
    
    
    655
    
    
    
    93
    
    
    
    2
    
    
    
    11Real Estate
    
    
    5
    
    
    
    12
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Other
    
    
    0
    
    
    
    0
    
    
    
    6
    
    
    
    2
    
    
    
    3
    
    
    
    0Total Recoveries
    
    
    5
    
    
    
    38
    
    
    
    661
    
    
    
    95
    
    
    
    5
    
    
    
    11Net Charge-offs
    
    
    (6,324
    )
    
    
    38
    
    
    
    362
    
    
    
    2
    
    
    
    (363
    )
    
    
    (369
    )Ending Balance
    
    $
    8,429
    
    
    $
    8,233
    
    
    $
    4,904
    
    
    $
    4,316
    
    
    $
    3,866
    
    
    $
    3,675Allowance for loan losses to
total loans
    
    
    1.60
    %
    
    
    1.66
    %
    
    
    1.18
    %
    
    
    1.17
    %
    
    
    1.20
    %
    
    
    1.30
    %Net Charge-offs to average loans
    
    
    1.22
    %
    
    
    .00
    %
    
    
    -.09
    %
    
    
    .00
    %
    
    
    .12
    %
    
    
    .13
    %
   30




---



##### 



Dec. 31, 2008
    
    
    Dec. 31, 2007
    
    
    Dec. 31, 2006
    
    
    Dec. 31, 2005
    
    
    Dec. 31, 2004Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percentof
    
    
    
    
    
    
    of
    
    
    
    
    
    
    of
    
    
    
    
    
    
    of
    
    
    
    
    
    
    ofcategory
    
    
    
    
    
    
    category
    
    
    
    
    
    
    category
    
    
    
    
    
    
    category
    
    
    
    
    
    
    categoryto total
    
    
    
    
    
    
    to total
    
    
    
    
    
    
    to total
    
    
    
    
    
    
    to total
    
    
    
    
    
    
    to total(Dollars in thousands)
    
    Amount
    
    
    loans
    
    
    Amount
    
    
    loans
    
    
    Amount
    
    
    loans
    
    
    Amount
    
    
    loans
    
    
    Amount
    
    
    loansBalance at end of
period applicable to:Commercial and Financial
    
    $
    3,415
    
    
    
    31.11
    %
    
    $
    1,722
    
    
    
    35.11
    %
    
    $
    2,033
    
    
    
    30.36
    %
    
    $
    1,900
    
    
    
    30.76
    %
    
    $
    2,087
    
    
    
    32.64
    %Commercial Real Estate
    
    $
    2,900
    
    
    
    41.31
    %
    
    $
    1,512
    
    
    
    35.37
    %
    
    $
    1,364
    
    
    
    41.62
    %
    
    $
    1,375
    
    
    
    41.11
    %
    
    $
    1,149
    
    
    
    41.83
    %Construction and Development
    
    $
    1,913
    
    
    
    15.97
    %
    
    $
    4,594
    
    
    
    21.62
    %
    
    $
    1,244
    
    
    
    26.73
    %
    
    $
    936
    
    
    
    27.57
    %
    
    $
    588
    
    
    
    23.95
    %Installment Loans
    
    $
    60
    
    
    
    0.03
    %
    
    $
    44
    
    
    
    0.05
    %
    
    $
    28
    
    
    
    0.23
    %
    
    $
    28
    
    
    
    0.53
    %
    
    $
    23
    
    
    
    0.21
    %Other Loans
    
    $
    116
    
    
    
    0.17
    %
    
    $
    56
    
    
    
    0.25
    %
    
    $
    41
    
    
    
    0.05
    %
    
    $
    0
    
    
    
    0.00
    %
    
    $
    0
    
    
    
    0.00
    %Unallocated
    
    $
    25
    
    
    
    11.41
    %
    
    $
    305
    
    
    
    7.60
    %
    
    $
    194
    
    
    
    1.01
    %
    
    $
    77
    
    
    
    0.03
    %
    
    $
    19
    
    
    
    1.37
    %Total Allowance for loan and lease losses
    
    $
    8,429
    
    
    
    100.00
    %
    
    $
    8,233
    
    
    
    100.00
    %
    
    $
    4,904
    
    
    
    100.00
    %
    
    $
    4,316
    
    
    
    100.00
    %
    
    $
    3,866
    
    
    
    100.00
    %
 
 Market Risk Management
   Securities Portfolio
 available-for-sale held-to-maturity held-to-maturity available-for-sale held-to-maturity available-for-sale
 31




---



##### 



Operational Risk Management
  
 Critical Accounting Policies
 
 General
  
 Valuation of Investments and Impairment of Securities
       32




---



##### 



Allowance for Loan and Lease Losses (ALLL)
    
 Stock-Based Compensation
 Share-Based
Payment,
  33




---



##### 



Revenue recognition
  
 Income Taxes
  34




---



##### 



Financial Highlights  Results of Operations
  
 Key Financial Ratios
    
    2008
    
    2007
    
    2006
    
    2005
    
    2004ProfitabilityReturn on average assets
    
    
    0.33
    %
    
    
    1.04
    %
    
    
    1.20
    %
    
    
    1.34
    %
    
    
    1.22
    %Return on average equity
    
    
    4.99
    %
    
    
    13.39
    %
    
    
    15.59
    %
    
    
    18.35
    %
    
    
    18.18
    %Average earning assets to total average assets
    
    
    92.86
    %
    
    
    93.74
    %
    
    
    94.20
    %
    
    
    94.04
    %
    
    
    92.62
    %Interest MarginNet interest margin
    
    
    3.47
    %
    
    
    3.98
    %
    
    
    4.26
    %
    
    
    4.59
    %
    
    
    4.45
    %Asset QualityAllowance for loan losses to total loans
    
    
    1.60
    %
    
    
    1.66
    %
    
    
    1.18
    %
    
    
    1.17
    %
    
    
    1.20
    %Nonperforming assets to total assets
    
    
    2.98
    %
    
    
    2.01
    %
    
    
    0.00
    %
    
    
    0.08
    %
    
    
    0.54
    %Net charge-offs to average loans
    
    
    1.22
    %
    
    
    0.00
    %
    
    
    -0.09
    %
    
    
    0.00
    %
    
    
    0.12
    %LiquidityLoans to deposits
    
    
    93.28
    %
    
    
    102.67
    %
    
    
    93.08
    %
    
    
    97.63
    %
    
    
    90.34
    %Liquidity ratio
    
    
    22.56
    %
    
    
    18.49
    %
    
    
    27.96
    %
    
    
    23.57
    %
    
    
    23.23
    %CapitalTier 1 risk-based capital  Bank
    
    
    11.58
    %
    
    
    9.97
    %
    
    
    11.42
    %
    
    
    12.08
    %
    
    
    10.80
    %Total risk-based capital  Bank
    
    
    12.84
    %
    
    
    11.22
    %
    
    
    12.54
    %
    
    
    13.11
    %
    
    
    11.88
    %EfficiencyEfficiency ratio
    
    
    63.81
    %
    
    
    59.31
    %
    
    
    55.64
    %
    
    
    52.54
    %
    
    
    55.65
    %
 www.fdic.gov
 
 Balance Sheet
  core eight months
  35




---



##### 



qualifying
  
 Sources of Income
   36




---



##### 



Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
 
     37




---



##### 



Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
     
 Net Interest Income and Net Interest Margin
   38




---



##### 



Average Balances, Interest Income/Expense and Yields/Rates Paid
Years Ended December 31,
 (Dollars in thousands)
    
    2008
    
    
    2007
    
    
    2006Average Balance
    
    
    Interest
    
    
    Yield/Rate
    
    
    Average Balance
    
    
    Interest
    
    
    Yield/Rate
    
    
    Average Balance
    
    
    Interest
    
    
    Yield/RateInterest Earning AssetsPortfolio loans
    
    $
    518,759
    
    
    $
    33,582
    
    
    
    6.47
    %
    
    $
    437,217
    
    
    $
    36,134
    
    
    
    8.26
    %
    
    $
    394,152
    
    
    $
    32,394
    
    
    
    8.22
    %Tax-exempt securities
    
    
    24,399
    
    
    
    1,197
    
    
    
    4.91
    %
    
    
    30,727
    
    
    
    1,229
    
    
    
    4.00
    %
    
    
    21,112
    
    
    
    787
    
    
    
    3.73
    %US government
securities
    
    
    13,637
    
    
    
    553
    
    
    
    4.06
    %
    
    
    26,782
    
    
    
    1,112
    
    
    
    4.15
    %
    
    
    39,576
    
    
    
    1,593
    
    
    
    4.03
    %Mortgage backed
securities
    
    
    37,328
    
    
    
    1,916
    
    
    
    5.13
    %
    
    
    43,122
    
    
    
    1,973
    
    
    
    4.58
    %
    
    
    42,476
    
    
    
    1,828
    
    
    
    4.30
    %Federal funds sold
    
    
    17,987
    
    
    
    303
    
    
    
    1.68
    %
    
    
    13,099
    
    
    
    681
    
    
    
    5.20
    %
    
    
    17,124
    
    
    
    872
    
    
    
    5.09
    %Other securities
    
    
    2,918
    
    
    
    139
    
    
    
    4.76
    %
    
    
    2,000
    
    
    
    90
    
    
    
    4.50
    %
    
    
    3,075
    
    
    
    136
    
    
    
    4.42
    %Average Earning Assets
    
    $
    615,028
    
    
    $
    37,690
    
    
    
    6.13
    %
    
    $
    552,947
    
    
    $
    41,219
    
    
    
    7.45
    %
    
    $
    517,515
    
    
    $
    37,610
    
    
    
    7.27
    %Cash & due from banks
    
    
    16,298
    
    
    
    
    
    
    
    
    
    
    
    14,273
    
    
    
    
    
    
    
    
    
    
    
    14,113Bank premises and
fixed assets
    
    
    11,097
    
    
    
    
    
    
    
    
    
    
    
    10,155
    
    
    
    
    
    
    
    
    
    
    
    6,878Other assets
    
    
    19,866
    
    
    
    
    
    
    
    
    
    
    
    17,986
    
    
    
    
    
    
    
    
    
    
    
    11,022Average Total Assets
    
    $
    662,289
    
    
    
    
    
    
    
    
    
    
    $
    595,361
    
    
    
    
    
    
    
    
    
    
    $
    549,528Interest Bearing
LiabilitiesInterest bearing demand
    
    $
    138,743
    
    
    $
    2,173
    
    
    
    1.57
    %
    
    $
    121,281
    
    
    $
    2,735
    
    
    
    2.26
    %
    
    $
    108,066
    
    
    $
    1,504
    
    
    
    1.39
    %Savings deposits
    
    
    56,914
    
    
    
    1,576
    
    
    
    2.77
    %
    
    
    39,565
    
    
    
    1,216
    
    
    
    3.07
    %
    
    
    24,633
    
    
    
    289
    
    
    
    1.17
    %Certificates of deposit
    
    
    234,493
    
    
    
    8,552
    
    
    
    3.65
    %
    
    
    215,511
    
    
    
    10,571
    
    
    
    4.91
    %
    
    
    190,568
    
    
    
    8,486
    
    
    
    4.45
    %Repurchase Agreements
    
    
    13,043
    
    
    
    173
    
    
    
    1.33
    %
    
    
    32,237
    
    
    
    1,177
    
    
    
    3.65
    %
    
    
    29,708
    
    
    
    1,138
    
    
    
    3.83
    %Other borrowings
    
    
    98,518
    
    
    
    3,868
    
    
    
    3.93
    %
    
    
    62,095
    
    
    
    3,507
    
    
    
    5.65
    %
    
    
    69,014
    
    
    
    4,158
    
    
    
    6.02
    %Average Interest
Liabilities
    
    $
    541,711
    
    
    $
    16,342
    
    
    
    3.02
    %
    
    $
    470,689
    
    
    $
    19,206
    
    
    
    4.08
    %
    
    $
    421,989
    
    
    
    15,575
    
    
    
    3.69
    %Noninterest bearing
Demand
    
    
    70,933
    
    
    
    
    
    
    
    
    
    
    
    72,545
    
    
    
    
    
    
    
    
    
    
    
    79,245Other liabilities
    
    
    5,660
    
    
    
    
    
    
    
    
    
    
    
    6,502
    
    
    
    
    
    
    
    
    
    
    
    6,154Stockholders equity
    
    
    43,985
    
    
    
    
    
    
    
    
    
    
    
    45,625
    
    
    
    
    
    
    
    
    
    
    
    42,140Average Liabilities
and Stockholders
equity
    
    $
    662,289
    
    
    
    
    
    
    
    
    
    
    $
    595,361
    
    
    
    
    
    
    
    
    
    
    $
    549,528Net Interest Income
and Net Interest
Margin
    
    
    
    
    
    $
    21,348
    
    
    
    3.47
    %
    
    
    
    
    
    $
    22,013
    
    
    
    3.98
    %
    
    
    
    
    
    $
    22,035
    
    
    
    4.26
    %
  39




---



##### 



Analysis of Changes in Net Interest Income
Years ended December 31,
 (Dollars in thousands)
    
    2008 over 2007
    
    2007 over 2006Variance due to
    
    
    Variance due to
    
    
    
    
    
    
    Variance due to
    
    
    Variance due toAverage Volume
    
    
    Average Rate
    
    
    Total
    
    
    Average Volume
    
    
    Average Rate
    
    
    TotalIncrease (Decrease)In Interest Income:Portfolio loans
    
    $
    5,279
    
    
    
    (7,831
    )
    
    
    ($2,552
    )
    
    $
    3,559
    
    
    
    180
    
    
    $
    3,739Tax-exempt securities
    
    
    (310
    )
    
    
    278
    
    
    
    (32
    )
    
    
    385
    
    
    
    57
    
    
    
    442US government securities
    
    
    (533
    )
    
    
    (26
    )
    
    
    (559
    )
    
    
    (531
    )
    
    
    50
    
    
    
    (481
    )Mortgage backed securities
    
    
    (297
    )
    
    
    240
    
    
    
    (57
    )
    
    
    30
    
    
    
    115
    
    
    
    145Federal funds sold
    
    
    82
    
    
    
    (460
    )
    
    
    (378
    )
    
    
    (209
    )
    
    
    18
    
    
    
    (191
    )Other securities
    
    
    44
    
    
    
    5
    
    
    
    49
    
    
    
    (48
    )
    
    
    2
    
    
    
    (46
    )Total Increase (Decrease)
    
    
    4,265
    
    
    
    (7,794
    )
    
    
    (3,529
    )
    
    
    3,186
    
    
    
    422
    
    
    
    3,608(Decrease) IncreaseIn Interest Expense:Interest bearing demand
    
    
    273
    
    
    
    (835
    )
    
    
    (562
    )
    
    
    298
    
    
    
    933
    
    
    
    1,231Savings accounts
    
    
    480
    
    
    
    (120
    )
    
    
    360
    
    
    
    459
    
    
    
    468
    
    
    
    927Certificates of deposit
    
    
    692
    
    
    
    (2,711
    )
    
    
    (2,019
    )
    
    
    1,223
    
    
    
    862
    
    
    
    2,085Repurchase agreements
    
    
    (255
    )
    
    
    (749
    )
    
    
    (1,004
    )
    
    
    92
    
    
    
    (53
    )
    
    
    39Other borrowings
    
    
    1,228
    
    
    
    (867
    )
    
    
    361
    
    
    
    (1,683
    )
    
    
    1,032
    
    
    
    (651
    )Total Increase (Decrease)
    
    
    2,418
    
    
    
    (5,282
    )
    
    
    (2,864
    )
    
    
    389
    
    
    
    3,242
    
    
    
    3,631Net Increase (Decrease)
    
    
    1,847
    
    
    
    (2,512
    )
    
    
    (665
    )
    
    $
    2,797
    
    
    $
    (2,820
    )
    
    $
    (23
    )
 40




---



##### 



Noninterest Income
  (Dollars in thousands)
    
    Years Ended December 31,2008
    
    
    2007
    
    
    2006Noninterest income:Service charges on deposit accounts
    
    $
    311
    
    
    $
    278
    
    
    $
    346Payroll and benefit processing fees
    
    
    453
    
    
    
    383
    
    
    
    386Earnings on cash surrender-Bank owned life insurance
    
    
    340
    
    
    
    331
    
    
    
    329Life Insurance policy benefits
    
    
    0
    
    
    
    2,400
    
    
    
    0Net realized gain (loss) on sale of securities
available-for-sale
    
    
    628
    
    
    
    46
    
    
    
    (171
    )Net loss on sale of derivative swap transaction
    
    
    (225
    )
    
    
    0
    
    
    
    0Net gain on sale of loans
    
    
    0
    
    
    
    0
    
    
    
    90Merchant credit card service income, net
    
    
    364
    
    
    
    388
    
    
    
    380Mortgage brokerage fee income
    
    
    21
    
    
    
    50
    
    
    
    71Other income
    
    
    731
    
    
    
    659
    
    
    
    497Total Noninterest income
    
    $
    2,623
    
    
    $
    4.535
    
    
    $
    1,928
   
 Noninterest Expense
  (Dollars in thousands)
    
    Years Ended December 31,2008
    
    
    2007
    
    
    2006Salaries & related benefits
    
    $
    7,751
    
    
    $
    8,666
    
    
    $
    8,020Occupancy & equipment expense
    
    
    2,501
    
    
    
    2,373
    
    
    
    1,846OREO expense
    
    
    735
    
    
    
    0
    
    
    
    0FDIC insurance premium
    
    
    383
    
    
    
    51
    
    
    
    48Data processing fees
    
    
    276
    
    
    
    395
    
    
    
    216Professional service fees
    
    
    667
    
    
    
    1,027
    
    
    
    684Payroll and benefit fees
    
    
    116
    
    
    
    108
    
    
    
    104Deferred compensation expense
    
    
    461
    
    
    
    411
    
    
    
    369Stationery & supplies
    
    
    262
    
    
    
    257
    
    
    
    231Postage
    
    
    134
    
    
    
    138
    
    
    
    113Directors expenses
    
    
    294
    
    
    
    312
    
    
    
    243Other expenses
    
    
    1,716
    
    
    
    2,006
    
    
    
    1,459Total Noninterest expense
    
    $
    15,296
    
    
    $
    15,744
    
    
    $
    13,333
 41




---



##### 



Income Taxes
    Years Ended December 31,(Dollars in thousands)
    
    2008
    
    
    2007
    
    
    2006Income tax provision
    
    
    ($40
    )
    
    $
    1,405
    
    
    $
    3,837Effective tax rate
    
    
    -1.83
    %
    
    
    18.7
    %
    
    
    36.9
    %
 
 Asset Quality
  As of December 31,(Dollars in thousands)
    
    2008
    
    
    %
    
    
    2007
    
    
    %
    
    
    2006
    
    
    %
    
    
    2005
    
    
    %
    
    
    2004
    
    
    %Commercial & industrial
    
    $
    164,083
    
    
    
    31.11
    %
    
    $
    173,704
    
    
    
    35.11
    %
    
    $
    125,725
    
    
    
    30.36
    %
    
    $
    115,401
    
    
    
    31.36
    %
    
    $
    105,545
    
    
    
    32.64
    %Real Estate-construction
    
    
    84,218
    
    
    
    15.97
    %
    
    
    106,977
    
    
    
    21.62
    %
    
    
    110,693
    
    
    
    26.73
    %
    
    
    105,094
    
    
    
    28.56
    %
    
    
    77,439
    
    
    
    23.95
    %Real Estate-commercial
    
    
    217,914
    
    
    
    41.31
    %
    
    
    175,013
    
    
    
    35.37
    %
    
    
    159,370
    
    
    
    38.48
    %
    
    
    129,202
    
    
    
    35.11
    %
    
    
    128,317
    
    
    
    39.69
    %Real Estate- mortgage
    
    
    20,285
    
    
    
    3.85
    %
    
    
    10,787
    
    
    
    2.18
    %
    
    
    4,278
    
    
    
    1.04
    %
    
    
    3,669
    
    
    
    1.00
    %
    
    
    4,423
    
    
    
    1.37
    %Real Estate  other
    
    
    39,915
    
    
    
    7.57
    %
    
    
    26,818
    
    
    
    5.42
    %
    
    
    12,986
    
    
    
    3.14
    %
    
    
    13,790
    
    
    
    3.75
    %
    
    
    6,943
    
    
    
    2.14
    %Installment
    
    
    145
    
    
    
    0.03
    %
    
    
    226
    
    
    
    0.05
    %
    
    
    202
    
    
    
    0.05
    %
    
    
    439
    
    
    
    0.12
    %
    
    
    300
    
    
    
    0.10
    %Other loans
    
    
    903
    
    
    
    0.16
    %
    
    
    1,223
    
    
    
    0.25
    %
    
    
    937
    
    
    
    0.20
    %
    
    
    446
    
    
    
    0.10
    %
    
    
    353
    
    
    
    0.11
    %Gross Loans
    
    
    527,463
    
    
    
    100.00
    %
    
    
    494,748
    
    
    
    100.00
    %
    
    $
    414,191
    
    
    
    100.00
    %
    
    $
    368,041
    
    
    
    100.00
    %
    
    $
    323,320
    
    
    
    100.00
    %Less:Deferred loan fees and
costs
    
    
    87
    
    
    
    
    
    
    
    232
    
    
    
    
    
    
    
    298
    
    
    
    
    
    
    
    420
    
    
    
    
    
    
    
    653Allowance for Loan losses
    
    
    8,429
    
    
    
    
    
    
    
    8,233
    
    
    
    
    
    
    
    4,904
    
    
    
    
    
    
    
    4,316
    
    
    
    
    
    
    
    3,866Net Loans
    
    $
    518,947
    
    
    
    
    
    
    $
    486,283
    
    
    
    
    
    
    $
    408,989
    
    
    
    
    
    
    $
    363,305
    
    
    
    
    
    
    $
    318,801
 42




---



##### 



Nonperforming Assets
  (Dollars in thousands)
    
    As of December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Nonaccrual loans
    
    $
    20,154
    
    
    $
    12,409
    
    
    $
    0
    
    
    $
    372
    
    
    $
    2,38390 days past due and still accruing interest
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total nonperforming loans
    
    
    20,154
    
    
    
    12,409
    
    
    
    0
    
    
    
    372
    
    
    
    2,383Other real estate owned
    
    
    2,934
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total nonperforming assets
    
    $
    23,088
    
    
    $
    12,409
    
    
    $
    0
    
    
    $
    372
    
    
    $
    2,383
  Loan Maturity Schedule
  After One through(Dollars in thousands)
    
    Within One Year
    
    
    Five Years
    
    
    After Five Years
    
    
    TotalCommercial & industrial
    
    $
    77,673
    
    
    $
    57,280
    
    
    $
    29,130
    
    
    $
    164,083Real Estate   construction
    
    
    64,494
    
    
    
    15,065
    
    
    
    4,659
    
    
    
    84,218Real Estate  commercial
    
    
    7,556
    
    
    
    43,656
    
    
    
    166,703
    
    
    
    217,914Real Estate  mortgage
    
    
    206
    
    
    
    2,030
    
    
    
    18,050
    
    
    
    20,285Real Estate  other
    
    
    1,729
    
    
    
    11,876
    
    
    
    26,310
    
    
    
    39,915Installment loans
    
    
    116
    
    
    
    29
    
    
    
    0
    
    
    
    145Other loans
    
    
    858
    
    
    
    45
    
    
    
    0
    
    
    
    903Total gross loans
    
    $
    152,632
    
    
    $
    129,981
    
    
    $
    244,852
    
    
    $
    527,463Loans due after one year
with:Fixed Rates
    
    
    
    
    
    $
    57,133
    
    
    $
    32,860
    
    
    $
    89,993Variable Rates
    
    
    
    
    
    
    72,848
    
    
    
    211,992
    
    
    
    284,840Total
    
    
    
    
    
    $
    129,981
    
    
    $
    244,852
    
    
    $
    374,833
 43




---



##### 



Available-for-sale securities
  Over One through Five
    
    
    Over Five through Ten(Dollars in thousands)
    
    Within One Year
    
    
    Years
    
    
    Years
    
    
    Over Ten Years
    
    
    TotalAmount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    YieldU.S. government & agencies
    
    $
    1,010
    
    
    
    2.19
    %
    
    $
    8,000
    
    
    
    3.62
    %
    
    $
    1,996
    
    
    
    5.02
    %
    
    $
    5,000
    
    
    
    5.42
    %
    
    $
    16,006
    
    
    
    4.04
    %Obligations of state and
political subdivisions
    
    
    0
    
    
    
    0.00
    %
    
    
    5,377
    
    
    
    3.73
    %
    
    
    3,974
    
    
    
    3.57
    %
    
    
    22,827
    
    
    
    4.15
    %
    
    
    32,178
    
    
    
    4.00
    %Mortgage backed securities
    
    
    0
    
    
    
    0.00
    %
    
    
    5,800
    
    
    
    4.08
    %
    
    
    6,504
    
    
    
    4.19
    %
    
    
    71,353
    
    
    
    5.34
    %
    
    
    83,657
    
    
    
    5.42
    %Corporate and other bonds
    
    
    0
    
    
    
    0.00
    %
    
    
    0
    
    
    
    0.00
    %
    
    
    0
    
    
    
    0.00
    %
    
    
    0
    
    
    
    0.00
    %
    
    
    0
    
    
    
    0.00
    %Bankers Acceptances
    
    
    0
    
    
    
    0.00
    %
    
    
    0
    
    
    
    0.00
    %
    
    
    0
    
    
    
    0.00
    %
    
    
    0
    
    
    
    0.00
    %
    
    
    0
    
    
    
    0.00
    %Total
    
    $
    1,010
    
    
    
    2.19
    %
    
    $
    19,177
    
    
    
    3.79
    %
    
    $
    12,474
    
    
    
    4.12
    %
    
    $
    99,180
    
    
    
    5.29
    %
    
    $
    131,841
    
    
    
    4.94
    %
 
 Deposit Structure
  Years Ended December 31,(Dollars in thousands)
    
    2008
    
    
    
    
    
    
    2007
    
    
    
    
    
    
    2006Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    YieldNOW accounts
    
    $
    51,215
    
    
    
    0.88
    %
    
    $
    61,391
    
    
    
    1.58
    %
    
    $
    79,885
    
    
    
    1.22
    %Savings
    
    
    56,914
    
    
    
    2.77
    %
    
    
    39,518
    
    
    
    3.08
    %
    
    
    24,633
    
    
    
    1.17
    %Money market accounts
    
    
    87,528
    
    
    
    1.97
    %
    
    
    59,814
    
    
    
    2.95
    %
    
    
    28,181
    
    
    
    1.90
    %Certificates of deposit
    
    
    234,493
    
    
    
    3.65
    %
    
    
    215,498
    
    
    
    4.94
    %
    
    
    190,568
    
    
    
    4.45
    %Interest bearing deposits
    
    
    430,150
    
    
    
    2.87
    %
    
    
    376,221
    
    
    
    4.00
    %
    
    
    323,267
    
    
    
    3.69
    %Noninterest bearing deposits
    
    
    70,933
    
    
    
    
    
    
    
    72,545
    
    
    
    
    
    
    
    79,245Average Total Deposits
    
    $
    501,083
    
    
    
    
    
    
    $
    448,766
    
    
    
    
    
    
    $
    402,512Average Other borrowings
    
    $
    111,561
    
    
    
    3.62
    %
    
    
    78,852
    
    
    
    4.57
    %
    
    
    98,722
    
    
    
    5.37
    %
  Deposit Maturity Schedule
 (Dollars in thousands)2008Three months or less
    
    $
    77,037Three through six months
    
    
    21,072Six through twelve months
    
    
    27,543Over twelve months
    
    
    43,158Total
    
    $
    168,810
 44




---



##### 



Capital Management and Adequacy
      Actual
    
    
    Well Capitalized
    
    
    Minimum CapitalDecember 31, 2008
    
    Capital
    
    
    Ratio
    
    
    Requirement
    
    
    RequirementThe Company
Leverage
    
    $
    73,983,019
    
    
    
    10.66
    %
    
    
    n/a
    
    
    
    4.0
    %Tier 1 Risk-Based
    
    
    73,983,019
    
    
    
    11.87
    %
    
    
    n/a
    
    
    
    4.0
    %Total Risk-Based
    
    
    81,787,582
    
    
    
    13.12
    %
    
    
    n/a
    
    
    
    8.0
    %Redding Bank of
CommerceLeverage
    
    $
    72,204,835
    
    
    
    10.45
    %
    
    
    5.0
    %
    
    
    4.0
    %Tier 1 Risk-Based
    
    
    72,204,835
    
    
    
    11.58
    %
    
    
    6.0
    %
    
    
    4.0
    %Total Risk-Based
    
    
    80,009,398
    
    
    
    12.84
    %
    
    
    10.00
    %
    
    
    8.0
    %
   45




---



##### 



qualifying
   
 Lending Transactions with Related Parties
    December 31,2008
    
    
    2007Balance at beginning of year
    
    $
    3,600,342
    
    
    $
    2,849,533New loan additions
    
    
    153,737
    
    
    
    25,312Advances on existing lines of credit
    
    
    826,080
    
    
    
    2,184,045Principal repayments
    
    
    (405,735
    )
    
    
    (1,458,548
    )Balance at end of year
    
    $
    4,174,424
    
    
    $
    3,600,342
 
 Impact of Inflation
  
 Commitments
 Off-Balance
Sheet Financial Instruments
  46




---



##### 



December 31,2008
    
    
    2007Off-balance sheet commitments:Commitments to extend credit
    
    $
    156,707,887
    
    
    $
    192,815,902Standby letters of credit
    
    
    8,556,547
    
    
    
    6,627,409Guaranteed commitments outstanding
    
    
    1,350,399
    
    
    
    1,375,999$
    166,614,833
    
    
    $
    200,819,310
    Commitments and Contingent Liabilities
   Less than
    
    
    
    
    
    
    
    
    
    
    More than 5
    
    
    IndeterminateContractual Obligations
    
    Total
    
    
    One Year
    
    
    1 3 Years
    
    
    35 Years
    
    
    years
    
    
    Maturity (1)Preferred Stock and Warrants
    
    $
    17,000
    
    
    
    
    
    
    
    
    
    
    $
    17,000
    
    
    
    Junior
Subordinated Debentures
    
    $
    15,465
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    15,465
    
    
    
    FHLB Borrowings
    
    $
    120,000
    
    
    $
    105,000
    
    
    $
    15,000
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    $
    2,534
    
    
    $
    515
    
    
    $
    978
    
    
    $
    434
    
    
    $
    607
    
    
    
    Repurchase Agreements
    
    $
    13,853
    
    
    $
    13,853
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deposits (1)
    
    $
    555,282
    
    
    $
    169,782
    
    
    $
    58,668
    
    
    $
    35,846
    
    
    
    0
    
    
    
    290,986Total
    
    $
    724,134
    
    
    $
    289,150
    
    
    $
    74,646
    
    
    $
    53,280
    
    
    $
    16,072
    
    
    $
    290,986
 
 (1)
    
    Represents interest-bearing and non-interest bearing checking, money market, savings
and time accounts. 47




---



##### 



ITEM 7-A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
      48




---



##### 



49




---



##### 



At December 31, 2008Within 3
    
    
    3 Months to
    
    
    One Year to(Dollars in thousands)
    
    Months
    
    
    One Year
    
    
    Five Years
    
    
    Over Five Years
    
    
    TotalInterest-Earning AssetsHeld-to-maturity securities
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0Available-for-sale securities
    
    
    0
    
    
    
    1,010
    
    
    
    19,401
    
    
    
    111,500
    
    
    
    131,911Federal funds sold
    
    
    51,475
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    51,475Loans, gross
    
    
    284,735
    
    
    
    152,342
    
    
    
    57,133
    
    
    
    33,253
    
    
    
    527,463Total Interest-earning Assets
    
    $
    336,210
    
    
    $
    153,352
    
    
    $
    76,534
    
    
    $
    144,753
    
    
    $
    710,849Interest-Bearing LiabilitiesDemand  Interest bearing
    
    $
    71,936
    
    
    $
    43,161
    
    
    $
    28,774
    
    
    $
    0
    
    
    $
    143,871Savings Accounts
    
    
    40,282
    
    
    
    13,427
    
    
    
    13,427
    
    
    
    0
    
    
    
    67,136Certificates of deposit
    
    
    84,891
    
    
    
    84,881
    
    
    
    94,514
    
    
    
    0
    
    
    
    264,286Repurchase Agreements
    
    
    13,853
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    13,853Other borrowings
    
    
    70,000
    
    
    
    35,000
    
    
    
    15,000
    
    
    
    0
    
    
    
    120,000Total Interest-bearing Liabilities
    
    $
    280,962
    
    
    $
    176,469
    
    
    $
    151,715
    
    
    $
    0
    
    
    $
    609,146GAP in dollars
    
    $
    55,249
    
    
    
    ($23,118
    )
    
    
    ($75,181
    )
    
    $
    144,753
    
    
    $
    101,703Cumulative GAP in dollars
    
    
    
    
    
    $
    32,131
    
    
    
    ($43,050
    )
    
    $
    101,703As a percentage of earning assets:GAP Ratio
    
    
    1.20
    
    
    
    0.87
    
    
    
    0.50
    
    
    
    0.97
    
    
    
    1.17Cumulative GAP Ratio
    
    
    1.20
    
    
    
    (0.15
    )
    
    
    (0.98
    )
    
    
    1.00Gap as % of Earning Assets
    
    
    7.77
    %
    
    
    -3.25
    %
    
    
    -10.58
    %
    
    
    20.36
    %
    
    
    14.31
    %Cumulative Gap as % of Earning
Assets
    
    
    7.77
    %
    
    
    4.52
    %
    
    
    -6.06
    %
    
    
    14.31
    %
  50




---



##### 



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Index to Consolidated Financial Statements
 PageReport of Independent Registered Public Accounting Firm.
    
    
    52Consolidated Balance Sheets as of December 31, 2008 and 2007.
    
    
    53Consolidated Statements of Income for the years ended December 31, 2008, 2007 and 2006.
    
    
    54Consolidated Statements of Stockholders Equity for the years ended December 31, 2008, 2007 and 2006.
    
    
    55Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006.
    
    
    57Notes to Consolidated Financial Statements for the years ended December 31, 2008, 2007 and 2006.
    
    
    59
 51




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 52




---



##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES  CONSOLIDATED BALANCE SHEETS
 2008
    
    
    2007ASSETSCash and due from banks
    
    $
    33,716,062
    
    
    $
    13,839,123Federal funds sold and securities purchased under agreements to resell
    
    
    51,475,000
    
    
    
    8,395,000Cash and cash equivalents
    
    
    85,191,062
    
    
    
    22,234,123Securities available-for-sale (including pledged collateral of
$68,735,000 at December 31, 2008 and $61,329,000 at December 31,
2007)
    
    
    131,686,600
    
    
    
    67,906,386Securities held-to-maturity, at cost (estimated fair value of $0 at
December 31, 2008 and $10,632,208 at December 31, 2007)
    
    
    
    
    
    
    10,558,765Loans, net of the allowance for loan and lease losses of $8,429,383
at December 31, 2008 and $8,232,970 at December 31, 2007
    
    
    518,946,461
    
    
    
    486,282,571Bank premises and equipment, net
    
    
    10,672,211
    
    
    
    10,963,975Other assets
    
    
    27,717,626
    
    
    
    20,381,095TOTAL ASSETS
    
    $
    774,213,960
    
    
    $
    618,326,915LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Demand  noninterest bearing
    
    $
    79,988,122
    
    
    $
    75,717,742Demand  interest bearing
    
    
    143,871,441
    
    
    
    142,820,773Savings accounts
    
    
    67,135,736
    
    
    
    41,376,296Certificates of deposit
    
    
    264,286,604
    
    
    
    213,716,486Total Deposits
    
    
    555,281,903
    
    
    
    473,631,297Securities sold under agreements to repurchase
    
    
    13,853,255
    
    
    
    15,513,211Federal Home Loan Bank borrowings
    
    
    120,000,000
    
    
    
    60,000,000Other liabilities
    
    
    7,036,161
    
    
    
    7,553,559Junior subordinated debt payable to unconsolidated subsidiary grantor
trust
    
    
    15,465,000
    
    
    
    15,465,000Total liabilities
    
    
    711,636,319
    
    
    
    572,163,067Commitments and contingencies (Note 17)Stockholders equity:Preferred stock (liquidation preference of $1,000 per share; issued
2008); 2,000,000 shares authorized; 17,000 shares issued and
outstanding in 2008 and no shares outstanding in 2007
    
    
    16,551,268
    
    
    
    Common stock, no par value; 50,000,000 shares authorized; 8,711,495
shares issued and outstanding in 2008 and 8,757,445 shares issued
and outstanding in 2007
    
    
    9,649,673
    
    
    
    9,995,517Common Stock Warrant
    
    
    448,732
    
    
    
    Retained earnings
    
    
    36,008,865
    
    
    
    36,604,902Accumulated other comprehensive loss, net of tax
    
    
    (80,897
    )
    
    
    (436,571
    )Total stockholders equity
    
    
    62,577,641
    
    
    
    46,163,848TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    774,213,960
    
    
    $
    618,326,915
 See
accompanying notes to consolidated financial statements
 53




---



##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF INCOME
 2008
    
    
    2007
    
    
    2006Interest income:Interest and fees on loans
    
    $
    33,582,112
    
    
    $
    36,134,170
    
    
    $
    32,394,766Interest on tax-exempt securities
    
    
    1,196,662
    
    
    
    1,228,944
    
    
    
    786,972Interest on U.S. government securities
    
    
    2,468,749
    
    
    
    3,084,672
    
    
    
    3,421,191Interest on federal funds sold and securities purchased
under agreement to resell
    
    
    303,227
    
    
    
    680,578
    
    
    
    871,879Interest on other securities
    
    
    138,645
    
    
    
    89,686
    
    
    
    135,651Total interest income
    
    
    37,689,395
    
    
    
    41,218,050
    
    
    
    37,610,459Interest expense:Interest on demand deposits
    
    
    2,172,704
    
    
    
    2,735,170
    
    
    
    1,504,180Interest on savings deposits
    
    
    1,576,351
    
    
    
    1,215,920
    
    
    
    288,883Interest on certificates of deposit
    
    
    8,552,217
    
    
    
    10,570,776
    
    
    
    8,485,799Interest on securities sold under repurchase agreements
    
    
    172,743
    
    
    
    1,177,417
    
    
    
    1,138,242Interest on FHLB borrowings
    
    
    2,811,982
    
    
    
    2,421,636
    
    
    
    3,079,432Interest on junior subordinated debt payable to
unconsolidated subsidiary grantor trusts
    
    
    1,056,284
    
    
    
    1,084,990
    
    
    
    1,078,884Total interest expense
    
    
    16,342,281
    
    
    
    19,205,909
    
    
    
    15,575,420Net interest income
    
    
    21,347,114
    
    
    
    22,012,141
    
    
    
    22,035,039Provision for loan and lease losses
    
    
    6,520,000
    
    
    
    3,291,250
    
    
    
    225,900Net interest income after provision for loan and lease
losses
    
    
    14,827,114
    
    
    
    18,720,891
    
    
    
    21,809,139Noninterest income:Service charges on deposit accounts
    
    
    311,266
    
    
    
    277,769
    
    
    
    345,737Payroll and benefit processing fees
    
    
    452,852
    
    
    
    382,738
    
    
    
    385,867Earnings on
cash surrender value 
Bank owned life insurance
    
    
    340,220
    
    
    
    331,251
    
    
    
    328,743Life Insurance policy benefits
    
    
    
    
    
    
    2,400,000
    
    
    
    Net gain (loss) on sale of securities available-for-sale
    
    
    627,879
    
    
    
    45,670
    
    
    
    (170,524
    )Net loss on sale of derivative swap transaction
    
    
    (225,442
    )
    
    
    
    
    
    
    Net gain on sale of loans
    
    
    
    
    
    
    
    
    
    
    89,851Merchant credit card service income, net
    
    
    364,391
    
    
    
    388,438
    
    
    
    380,066Mortgage brokerage fee income
    
    
    21,019
    
    
    
    49,995
    
    
    
    71,350Other income
    
    
    731,233
    
    
    
    658,893
    
    
    
    497,141Total noninterest income
    
    
    2,623,418
    
    
    
    4,534,754
    
    
    
    1,928,231Noninterest expense:Salaries and related benefits
    
    
    7,750,980
    
    
    
    8,665,679
    
    
    
    8,020,136Occupancy and equipment expense
    
    
    2,500,557
    
    
    
    2,372,617
    
    
    
    1,845,664OREO expense
    
    
    735,000
    
    
    
    
    
    
    
    FDIC insurance premium
    
    
    382,722
    
    
    
    51,077
    
    
    
    47,670Data processing fees
    
    
    276,165
    
    
    
    395,558
    
    
    
    216,313Professional service fees
    
    
    667,015
    
    
    
    1,027,671
    
    
    
    683,602Payroll processing fees
    
    
    115,932
    
    
    
    107,856
    
    
    
    103,518Deferred compensation expense
    
    
    461,640
    
    
    
    411,191
    
    
    
    368,809Stationery and supplies
    
    
    262,087
    
    
    
    256,799
    
    
    
    230,843Postage
    
    
    133,909
    
    
    
    137,740
    
    
    
    112,740Directors expenses
    
    
    293,918
    
    
    
    311,777
    
    
    
    243,428Other expenses
    
    
    1,715,747
    
    
    
    2,005,729
    
    
    
    1,460,008Total noninterest expense
    
    
    15,295,672
    
    
    
    15,743,694
    
    
    
    13,332,731Income before provision for income taxes
    
    
    2,154,860
    
    
    
    7,511,951
    
    
    
    10,404,639(Benefit) Provision for income taxes
    
    
    (39,526
    )
    
    
    1,405,053
    
    
    
    3,836,930Net Income
    
    $
    2,194,386
    
    
    $
    6,106,898
    
    
    $
    6,567,709Basic earnings per share
    
    $
    0.25
    
    
    $
    0.69
    
    
    $
    0.75Weighted average shares
    
    
    8,712,873
    
    
    
    8,857,627
    
    
    
    8,759,568Diluted earnings per share
    
    $
    0.25
    
    
    $
    0.68
    
    
    $
    0.74Weighted average shares  diluted
    
    
    8,724,550
    
    
    
    8,937,736
    
    
    
    8,931,584
 See accompanying notes to consolidated financial statements.
 54




---



##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 AccumulatedOtherComprehensive
    
    
    Common
    
    
    Stock
    
    
    Retained
    
    
    ComprehensiveIncome
    
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    (Loss), net of tax
    
    
    TotalComprehensive Income:Net Income
    
    
    6,567,709
    
    
    
    
    
    
    
    
    
    
    
    6,567,709
    
    
    
    
    
    
    
    6,567,709Other Comprehensive Income:Unrealized (loss) gain
arising during the period
on derivative transactions,
net
    
    
    (27,280
    )Net holding loss on
derivatives
    
    
    (27,280
    )Unrealized gains on
securities, net of
reclassification adjustment
    
    
    279,692Less: reclassification
adjustment for gains
included in net income, net
of tax
    
    
    100,524Other Comprehensive Income
    
    
    352,936
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    352,936
    
    
    
    352,936Total Comprehensive Income
    
    $
    6,920,645Cash dividends ($0.29 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,650,320
    )
    
    
    
    
    
    
    (2,650,320
    )Compensation expense associated
with stock options
    
    
    
    
    
    
    
    
    
    
    64,493
    
    
    
    
    
    
    
    
    
    
    
    64,493Share Repurchase
    
    
    
    
    
    
    (92,000
    )
    
    
    (1,089,868
    )
    
    
    
    
    
    
    
    
    
    
    (1,089,868
    )Stock options exercised
    
    
    
    
    
    
    281,146
    
    
    
    879,279
    
    
    
    
    
    
    
    
    
    
    
    879,279Tax benefit on exercise of options
    
    
    
    
    
    
    
    
    
    
    654,118
    
    
    
    
    
    
    
    
    
    
    
    654,118Balance at December 31, 2006
    
    
    
    
    
    
    8,847,042
    
    
    $
    11,517,368
    
    
    $
    33,336,032
    
    
    
    ($937,150
    )
    
    $
    43,916,250Comprehensive Income:Net Income
    
    
    6,106,898
    
    
    
    
    
    
    
    
    
    
    
    6,106,898
    
    
    
    
    
    
    
    6,106,898Other Comprehensive Income:Unrealized gains arising
during the period on
derivative transactions,
net
    
    
    49,425Less: reclassification
adjustment for gains
included in net income, net
of tax
    
    
    (25,000
    )Net holding gain on
derivatives
    
    
    24,425Unrealized gains on
securities
    
    
    503,026Net of reclassification
adjustment for gains
included in net income, net
of tax
    
    
    (26,872
    )Other Comprehensive Income
    
    
    500,579
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500,579
    
    
    
    500,579Total Comprehensive Income
    
    $
    6,607,477Cash dividends ($0.33 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,838,028
    )
    
    
    
    
    
    
    (2,838,028
    )Compensation expense associated
with stock options
    
    
    
    
    
    
    
    
    
    
    116,880
    
    
    
    
    
    
    
    
    
    
    
    116,880Share Repurchase
    
    
    
    
    
    
    (200,000
    )
    
    
    (2,270,242
    )
    
    
    
    
    
    
    
    
    
    
    (2,270,242
    )Stock options exercised
    
    
    
    
    
    
    110,403
    
    
    
    486,881
    
    
    
    
    
    
    
    
    
    
    
    486,881Tax benefit on exercise of options
    
    
    
    
    
    
    
    
    
    
    144,630
    
    
    
    
    
    
    
    
    
    
    
    144,630Balance at December 31, 2007
    
    
    
    
    
    
    8,757,445
    
    
    $
    9,995,517
    
    
    $
    36,604,902
    
    
    
    ($436,571
    )
    
    $
    46,163,848
 See accompanying notes to the consolidated financial statements (Continues)
 55




---



##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 Accumulated OtherComprehensiveComprehensive
    
    
    Preferred
    
    
    Preferred
    
    
    Common
    
    
    Stock
    
    
    Retained
    
    
    (Loss),Income
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    net of tax
    
    
    TotalBalance at December 31, 2007
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    8,757,445
    
    
    $
    9,995,517
    
    
    $
    36,604,902
    
    
    
    ($436,571
    )
    
    $
    46,163,848Comprehensive Income:Net Income
    
    
    2,194,386
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,194,386
    
    
    
    
    
    
    
    2,194,386Other Comprehensive Income:Unrealized
(loss) gain arising during the period on
derivative transactions, net
    
    
    2,854Net holding loss on derivatives
    
    
    2,854Unrealized
gains on securities, net of
reclassification adjustment
    
    
    708,627Less: reclassification adjustment for gains included
in net income, net of tax
    
    
    (355,807
    )Other Comprehensive Income
    
    
    355,674
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    355,674
    
    
    
    355,674Total Comprehensive Income
    
    
    2,550,061Preferred Stock Issued
    
    
    
    
    
    
    16,551
    
    
    
    16,551,268
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,551,268Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    448,732
    
    
    
    
    
    
    
    
    
    
    
    448,732Cash dividends ($0.29 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,790,423
    )
    
    
    
    
    
    
    (2,790,423
    )Compensation expense associated with
stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116,446
    
    
    
    
    
    
    
    
    
    
    
    116,446Share Repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,800
    )
    
    
    (503,796
    )
    
    
    
    
    
    
    
    
    
    
    (503,796
    )Stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,850
    
    
    
    41,506
    
    
    
    
    
    
    
    
    
    
    
    41,506Balance at December 31, 2008
    
    
    
    
    
    
    16,551
    
    
    
    16,551,268
    
    
    
    8,711,495
    
    
    $
    10,098,404
    
    
    $
    36,008,865
    
    
    
    ($80,897
    )
    
    $
    62,577,641
 See accompanying notes to consolidated financial statements
 56




---



##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CASH FLOWS
 2008
    
    
    2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    2,194,386
    
    
    $
    6,106,898
    
    
    $
    6,567,709Adjustments to reconcile net income to net cash provided by
operating activities:Provision for loan and lease losses
    
    
    6,520,000
    
    
    
    3,291,250
    
    
    
    225,900Provision for depreciation and amortization
    
    
    1,145,000
    
    
    
    1,035,660
    
    
    
    732,906Compensation expense associated with stock options
    
    
    116,446
    
    
    
    116,880
    
    
    
    64,494Tax benefits from the exercise of stock options
    
    
    
    
    
    
    (144,630
    )
    
    
    (654,118
    )(Gain) Loss on sale of securities available-for-sale
    
    
    (627,879
    )
    
    
    (45,670
    )
    
    
    170,524Amortization of securities premiums and accretion of discounts, net
    
    
    97,783
    
    
    
    (3,687
    )
    
    
    15,402Loss (Gain) on sale of derivative
    
    
    225,442
    
    
    
    (41,000
    )
    
    
    (Gain) on sale of loans
    
    
    
    
    
    
    
    
    
    
    (89,851
    )Loss (Gain) on sale of fixed assets
    
    
    3,125
    
    
    
    (48,398
    )
    
    
    8,158Proceeds from sale of loans
    
    
    
    
    
    
    
    
    
    
    2,089,851Loans originated for sale
    
    
    
    
    
    
    
    
    
    
    (2,000,000
    )Deferred income taxes
    
    
    29,120
    
    
    
    (1,646,563
    )
    
    
    (408,197
    )(Increase) in cash surrender value of bank owned life policies
    
    
    (285,786
    )
    
    
    (1,256,708
    )
    
    
    (3,295,772
    )Changes in operating assets and liabilities:(Increase) decrease in other assets
    
    
    (7,671,976
    )
    
    
    (514,427
    )
    
    
    (616,829
    )Changes in deferred compensation
    
    
    391,707Decrease in deferred loan fees
    
    
    (127,999
    )
    
    
    (65,385
    )
    
    
    (122,449
    )Other liabilities
    
    
    (1,064,976
    )
    
    
    367,188
    
    
    
    (342,423
    )Net cash provided by operating activities
    
    
    944,393
    
    
    
    7,151,408
    
    
    
    3,030,151Cash flows from investing activities:Proceeds from maturities of available-for-sale securities
    
    
    9,125,749
    
    
    
    6,313,987
    
    
    
    10,049,495Proceeds from sale of available-for-sale securities
    
    
    44,828,323
    
    
    
    47,072,143
    
    
    
    10,258,020Purchases of available-for-sale securities
    
    
    (105,861,274
    )
    
    
    (24,486,679
    )
    
    
    (21,736,709
    )Purchases of held-to-maturity securities
    
    
    
    
    
    
    
    
    
    
    (4,418,146
    )Maturities of held-to-maturity securities
    
    
    97,786
    
    
    
    248,569
    
    
    
    549,809Key life benefit proceeds
    
    
    
    
    
    
    2,400,000
    
    
    
    Loan originations, net of principal repayments
    
    
    (39,055,891
    )
    
    
    (80,519,208
    )
    
    
    (45,787,518
    )Purchase of Bank premises and equipment, net
    
    
    (865,084
    )
    
    
    (3,439,403
    )
    
    
    (4,036,100
    )Proceeds on sale of fixed assets
    
    
    5,000
    
    
    
    83,210
    
    
    
    330,676Net cash used in investing activities
    
    
    (91,725,391
    )
    
    
    (52,327,381
    )
    
    
    (54,790,473
    )Cash flows from financing activities:Net increase in demand deposits and savings accounts
    
    
    31,080,488
    
    
    
    32,949,640
    
    
    
    4,105,641Net increase (decrease) in certificates of deposit
    
    
    50,570,118
    
    
    
    1,274,228
    
    
    
    63,186,019Net(decrease) increase in securities sold under agreements to
repurchase
    
    
    (1,659,956
    )
    
    
    (21,603,399
    )
    
    
    14,230,952Proceeds from Federal Home Loan Bank advances
    
    
    120,000,000
    
    
    
    75,000,000
    
    
    
    70,000,000Repayments of Federal Home Loan Bank advances
    
    
    (60,000,000
    )
    
    
    (55,000,000
    )
    
    
    (85,000,000
    )Junior subordinated debt payable to unconsolidated subsidiary
grantor trust
    
    
    
    
    
    
    
    
    
    
    155,000Proceeds from issuance of Preferred Stock
    
    
    17,000,000
    
    
    
    
    
    
    
    Cash dividends paid on common stock
    
    
    (2,790,423
    )
    
    
    (2,838,028
    )
    
    
    (2,650,320
    )Proceeds from stock options exercised
    
    
    41,506
    
    
    
    486,881
    
    
    
    879,279Common Stock Repurchased
    
    
    (503,796
    )
    
    
    (2,270,242
    )
    
    
    (1,089,868
    )Excess tax benefits from the exercise of stock options
    
    
    
    
    
    
    144,630
    
    
    
    651,118Net cash provided by financing activities
    
    
    153,737,937
    
    
    
    28,143,710
    
    
    
    64,470,821Net (decrease) increase in cash and cash equivalents
    
    
    62,956,939
    
    
    
    (17,032,263
    )
    
    
    12,710,499Cash and cash equivalents at beginning of year
    
    
    22,234,123
    
    
    
    39,266,386
    
    
    
    26,555,887Cash and cash equivalents at end of year
    
    $
    85,191,062
    
    
    $
    22,234,123
    
    
    $
    39,266,386
 See accompanying notes to financial statements
 57




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##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CASH FLOWS
 Supplemental disclosures:
    
    2008
    
    2007
    
    2006Cash paid during the period for:Income taxes
    
    $
    316,000
    
    
    $
    2,752,860
    
    
    $
    3,507,000Interest
    
    $
    16,510,235
    
    
    $
    19,279,879
    
    
    $
    15,164,624Transfer of loans to OREO
    
    $
    2,934,000
    
    
    
    0
    
    
    
    0Reclassification of
held-to-maturity securities to
available-for-sale
    
    $
    8,804,998
    
    
    
    0
    
    
    
    0
 See
accompanying notes to consolidated financial statements.
 58




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##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 2.
    
    THE BUSINESS OF THE COMPANYBank of Commerce Holdings (the Holding Company), is a financial holding company (FHC)
with its principal offices in Redding, California. A financial holding company may engage in
commercial banking, insurance, securities business and offer other financial products to
customers. The Company received notification from the Federal Reserve Board approving the
election to change to a financial holding company on April 22, 2001. The election to change
to a financial holding company has had no impact to date on the operations of the Company.
As a financial holding company, Bank of Commerce Holdings is subject to the Financial
Holding Company Act and to supervision by the Board of Governors of the Federal Reserve
System (the FRB). The Holding Companys wholly-owned subsidiaries are Redding Bank of
Commerce (the Bank) and Bank of Commerce Mortgage, (collectively the Company). The
Company has an unconsolidated subsidiary in Bank of Commerce Holdings Trust and Bank of
Commerce Holdings Trust II. Bank of Commerce Mortgage offers mortgage brokerage services
through an affiliate agreement with BWC Mortgage Services. The Bank is principally
supervised and regulated by the California Department of Financial Institutions (DFI) and
the Federal Deposit Insurance Corporation (FDIC). Substantially all of the Companys
activities are carried out through the Bank. The Bank was incorporated as a California
banking corporation on November 25, 1981. The Bank operates four full service branches in
Redding, and Roseville, California.The Bank conducts a general commercial banking business in the counties of El Dorado,
Placer, Shasta, Sacramento, and Tehama, California. The Company considers Northern
California to be the major market area of the Bank. The services offered by the Bank include
those traditionally offered by commercial banks of similar size and character in California,
including checking, interest-bearing (NOW) and savings accounts, money market deposit
accounts; commercial, real estate, and construction loans; travelers checks, safe deposit
boxes, collection services and electronic banking activities. The primary focus of the Bank
is to provide services to the business and professional community of its major market area,
including Small Business Administration loans, payroll and accounting packages, benefit
administration and billing programs. The Bank does not offer trust services or international
banking services and does not plan to do so in the near future. Most of the customers of the
Bank are small to medium sized businesses and individuals with medium to high net worth.2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe accounting and reporting policies of the Company conform to accounting principles
generally accepted in the United States of America and general practices within the banking
industry. In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. Certain amounts for prior periods
have been reclassified to conform to the current financial statement presentation.Principles of Consolidation The consolidated financial statements include the accounts of
the Holding Company, the Bank and Bank of Commerce Mortgage. All significant intercompany
balances and transactions have been eliminated in consolidation.
 59




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##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents
include amounts due from correspondent banks and the Federal Reserve Bank, federal funds
sold and securities purchased under agreements to resell. Generally, federal funds sold are
for a one-day period and securities purchased under agreements to resell are for no more
than a 90-day period.Balances held in federal funds sold may exceed FDIC
Insurance limits.Securities purchased under agreements to resell-The Company enters into purchases of
securities under agreements to resell substantially identical securities. Securities
purchased under agreements to resell consist primarily of U.S. Treasury, Agency and
Municipal securities. The amounts advanced under these agreements are reflected as assets in
the consolidated balance sheet. It is the Companys policy to take possession of securities
purchased under agreements to resell. Agreements with third parties specify the Companys
rights to request additional collateral, based on its monitoring of the fair value of the
underlying securities on a daily basis. The securities are delivered by appropriate entry
into the Companys account maintained at the Federal Reserve Bank or into a third-party
custodians account designated by the Company under a written custodial agreement that
explicitly recognizes the Companys interest in the securities. In general, these
agreements mature within 90 days and no material amount of agreements to resell securities
purchased is outstanding with any individual dealer.Securities At the time of purchase, the Company designates the security as
held-to-maturity or available-for-sale, based on its investment objectives, operational
needs and intent to hold. The Company does not engage in trading activity. Securities
designated as held-to-maturity are carried at cost adjusted for the accretion of discounts
and amortization of premiums. The Company has the ability and intent to hold these
securities to maturity. Securities designated as available-for-sale may be sold to implement
the Companys asset/liability management strategies and in response to changes in interest
rates, prepayment rates and similar factors. Securities designated as available-for-sale are
recorded at fair value and unrealized gains or losses, net of income taxes, are reported as
part of accumulated other comprehensive income(loss), a separate component of stockholders
equity. Gains or losses on sale of securities are based on the specific identification
method. The market value and underlying rating of the security is monitored for quality.
Securities may be adjusted to reflect changes in valuation as a result of
other-than-temporary declines in value. Investments with fair values that are less than
amortized cost are considered impaired. Impairment may result from either a decline in the
financial condition of the issuing entity or, in the case of fixed rate investments, from
changes in interest rates. At each financial statement date, management assesses each
investment to determine if impaired investments are temporarily impaired or if the
impairment is other than temporary based upon the positive and negative evidence available.
Evidence evaluated includes, but is not limited to, industry analyst reports, credit market
conditions, and interest rate trends. If negative evidence outweighs positive evidence that
the carrying amount is recoverable within a reasonable period of time, the impairment is
deemed other-than-temporary and the security is written down in the period in which such
determination is made.Loans Loans are stated at the principal amounts outstanding less deferred loan fees and
costs and the allowance for loan losses. Interest on commercial, installment and real
estate loans is accrued daily based on the principal outstanding. Loan origination and
commitment fees and certain origination costs are deferred and the net amount is amortized
over the contractual life of the loans as an adjustment of their yield. A loan is impaired
when, based on current information and events, management believes it is probable that the
Company will not be able to collect all amounts due according to the contractual terms of
the loan agreement. Impairment is measured based upon the present value of future cash flows
discounted at the loans effective rate, the loans observable market price, or the fair
value of collateral if the loan is collateral dependent. Interest on impaired loans is
recognized on a cash basis, and only when the principal is not considered impaired.
 60




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##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 The Companys practice is to place an asset on nonaccrual status when one of the following
events occurs: (i) Any installment of principal or interest is 90 days or more past due
(unless in managements opinion the loan is well-secured and in the process of collection),
(ii) management determines the ultimate collection of principal or interest to be unlikely
or (iii) the terms of the loan have been renegotiated due to a serious weakening of the
borrowers financial condition. Nonperforming loans may be on nonaccrual, are 90 days past
due and still accruing, or have been restructured. Accruals are resumed on loans only when
they are brought fully current with respect to interest and principal and when the loan is
estimated to be fully collectible. Restructured loans are those loans on which concessions
in terms have been granted because of the borrowers financial or legal difficulties.
Interest is generally accrued on such loans in accordance with the new terms.Allowance for Loan and Lease Losses The allowance for loan and lease losses are
established through a provision charged to expense. Loans are charged off against the
allowance for loan losses when management believes that the collectibility of the principal
is unlikely. The allowance is an amount that management believes will be adequate to absorb
losses inherent in existing loans and overdrafts based on evaluations of collectibility and
prior loss experience. The evaluations take into consideration such factors as changes in
the nature and volume of the portfolio, overall portfolio quality, loan concentrations,
specific problem loans, and current economic conditions that may affect the borrowers
ability to pay. Material estimates relating to the determination of the allowance for loan
losses are particularly susceptible to significant change in the near term. While management
uses available information to recognize losses on loans, future additions to the allowance
may be necessary based on changes in economic conditions. In addition, the FDIC and DFI, as
an integral part of their examination process, periodically review the Banks allowance for
loan losses. The FDIC or DFI may require the Bank to recognize additions to the allowance
based on their judgment about information available to them at the time of their
examination.Bank Premises and Equipment Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the related assets. Expenditures for major renewals and
improvements are capitalized and those for maintenance and repairs are charged to expense as
incurred.Securities Sold under Agreements to Repurchase At December 31, 2008 and 2007, securities
sold under agreements to repurchase consist of commercial repurchase agreements, where the
Company has an agreement with the depositor to sell and repurchase, on a daily basis, a
proportionate interest in municipal securities. These securities are held as collateral for
non-FDIC insured deposits.Federal Home Loan Bank Borrowings As part of its asset/liability management strategy the
Company has obtained advances from the Federal Home Loan Bank. The Company has pledged
collateral of commercial real estate loans and specific securities to support the
borrowings.Goodwill and Other Intangibles Net assets of companies acquired in purchase transactions
are recorded at fair value at the date of acquisition, as such, the historical cost basis of
individual assets and liabilities are adjusted to reflect their fair value. Identified
intangibles are amortized on a straight-line basis over the period benefited. In June 2001,
the Company purchased a bank branch office. The Company recorded core deposit intangibles,
which are amortized over seven years by the straight-line method. Amortization expense for
the year ended December 31, 2007 and 2006 was $154,209 and $106,800, respectively. The
premium was fully amortized in 2007.
 61




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##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
 Earnings Per Share The table below illustrates basic earnings per share excluding
dilution and is computed by dividing net income available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in the issuance
of common stock that subsequently shared in the earnings of the entity. The following table
reconciles the numerator and denominator used in computing both basic earnings per share and
diluted earnings per share for the years ended December 31.
  Earnings Per Share
    
    2008
    
    
    2007
    
    
    2006Basic EPS Calculation:Net Income
    
    $
    2,194,386
    
    
    $
    6,106,898
    
    
    $
    6,567,709Less: preferred dividend
    
    
    
    
    
    
    
    
    
    
    Numerator: Earnings available to
common stockholders
    
    $
    2,194,386
    
    
    $
    6,106,898
    
    
    $
    6,567,709Denominator (average common
shares outstanding)
    
    
    8,712,873
    
    
    
    8,857,627
    
    
    
    8,759,568Basic earnings per Share
    
    $
    0.25
    
    
    $
    0.69
    
    
    $
    0.75Diluted EPS Calculation:Net Income
    
    $
    2,194,386
    
    
    $
    6,106,898
    
    
    $
    6,567,709Less: preferred dividend
    
    
    
    
    
    
    
    
    
    
    Numerator: Earnings available to
common stockholders
    
    $
    2,194,386
    
    
    $
    6,106,898
    
    
    $
    6,567,709Denominator:Average
common shares outstanding Plus incremental shares from
assumed conversions
    
    
    8,712,873
    
    
    
    8,857,627
    
    
    
    8,759,568Stock Options
    
    
    11,677
    
    
    
    80,109
    
    
    
    172,016Warrants
    
    
    
    
    
    
    
    
    
    
    8,724,550
    
    
    
    8,937,736
    
    
    
    8,931,584Diluted earnings per Share
    
    $
    0.25
    
    
    $
    0.68
    
    
    $
    0.74Anti-dilutive options not included in EPS Calculation
    
    
    185,666
    
    
    
    120,884
    
    
    
    128,615Anti-dilutive warrants not included in EPS Calculation
    
    
    405,405
    
    
    
    
    
    
    
    
 Other Real Estate Owned Real estate acquired by foreclosure, is carried at the lower of
the recorded investment in the property or its fair value less estimated selling costs.
Prior to foreclosure, the value of the underlying loan is written down to the fair value of
the real estate to be acquired, less costs to sell, by a charge to the allowance for loan
losses, if necessary. Fair value of other real estate is generally determined based on an
appraisal of the property. Any subsequent write-downs are charged against noninterest
expenses. Operating expenses of such properties, net of related income, and gains and
losses on their disposition are included in other expenses. Gain recognition on the
disposition of real estate is dependent upon the transaction meeting certain criteria
relating to the nature of the property sold and the terms of the sale. This includes the
buyers initial and continuing investment, the degree of continuing involvement by the
Company with the property after the sale, and other matters. Under certain circumstances,
revenue recognition may be deferred until these criteria are met.
 62




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##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Income Taxes The Company accounts for income taxes under the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using currently enacted tax rates applied
to such taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.Stock Option Plan The Company adopted Statement of Financial Accounting Standards No.
123R (FAS 123R), Share-Based Payment,on January 1, 2006. The scope of FAS 123R includes a
wide range of stock-based compensation arrangements including stock options, restricted
stock plans, performance-based awards, stock appreciation rights, and employee stock
purchase plans. FAS 123R requires the Company to measure the cost of employee services
received in exchange for an award of equity instruments. The cost is determined based on the
fair value of the award on the grant date. That cost must be recognized in the income
statement over the service period of the award. Under the modified prospective transition
method, awards that are granted, modified or settled beginning at the date of adoption will
be measured and accounted for in accordance with FAS 123R. In addition, expense must be
recognized in the income statement for unvested awards that were granted prior to the date
of adoption.During 2008, the fair value of options granted was determined on the date of the grant using
a binomial option-pricing model with the following assumptions: a current volatility rate of
32.10%, a risk-free interest rate of 2.97% (based upon the five year treasury coupon rate at
the time the options were issued), expected dividends of $0.32 per share per year, an annual
dividend rate of 4.56%, an assumed forfeiture rate of zero and an expected life of seven
years.Description of stock-based compensation planThe 1998 Stock Option Plan which was approved by the Companys stockholders on April 21,
1998, expired on May 1, 2008. The 2008 Stock Option Plan (the Plan) which was approved by
the Companys stockholders on May 15, 2007 replaced the 1998 Stock Option Plan.The Plan provides for awards in the form of options, which may constitute incentive
stock options (Incentive Options) under Section 422(a) of the Internal Revenue Code of
1986, as amended (the Code), or non-statutory stock options (NSOs) to key personnel of
the Company, including directors. The Plan provides that Incentive Options under the Plan
may not be granted at less than 100% of fair market value of the Companys common stock on
the date of the grant. The strike price of NSOs may not be granted at less than 85% of the
fair market value of the common stock on the date of the grant.The Companys stock option plans provide for awards of incentive and nonqualified stock
options. Incentive options must have an exercise price at or above fair market value of the
stock at the date of the grant and a term of no more than 10 years. Options generally become
exercisable over five years from the date of the grant. Nonqualified stock options must have
an exercise price of no less than 85% of the fair market value of the stock at the date of
the grant and for a term of no more than 10 years. Nonqualified stock options generally
become exercisable over five years from the date of the grant.
 63




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##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 A total of 620,000 shares of the Companys common stock are reserved for grant under the
Plan. At December 31, 2008, 588,500 shares were available for future grants under the Plan.
At December 31, 2008, 209,485 shares were available to be exercised. The weighted average
grant exercise price for options at December 31, 2008 was $6.35. The total intrinsic value
(which is the amount by which the stock price exceeded the exercise price) of options
exercised during the twelve months ended December 31, 2007 and December 31, 2008 was
$40,863.Comprehensive Income (Loss) Comprehensive income represents net earnings and any revenues,
expenses, gains and losses that, under accounting principles generally accepted in the
United States of America, are excluded from net earnings and recognized directly as a
component of stockholders equity. The Companys sources of other comprehensive income
(loss) include unrealized gains and losses on securities available-for-sale and unrealized
gains and losses on derivative activities. Reclassification adjustments result from gains
or losses on securities that were realized and included in net income of the current period
that also had been included in other comprehensive income (loss) as unrealized holding gains
or losses in the period in which they arose.Operating Segments Reportable operating segments are generally defined as components of an
enterprise for which discrete financial information is available, whose operating results
are regularly reviewed by the organizations management and whose revenue is 10 percent or
more of total revenue. Under this definition the Company does not have reportable operating
segments. In the years 2008, 2007 and 2006, the Company accounted for its operations as one
operating segment.Transfer of Financial Assets Transfers of financial assets are accounted for as sales,
when control over the assets has been surrendered. Control over transferred assets is deemed
surrendered when (1) the assets have been isolated from the Corporation, (2) the transferee
obtains the right (free of conditions that constrain it from taking advantage of that right)
to pledge or exchange the transferred assets, and (3) the Corporation does not maintain
effective control over the transferred assets through an agreement to repurchase them before
their maturity. The Company services, for others, SBA loans that are sold with a principal
balance of $4,635,027, $5,316,219 and $3,494,130 as of December 31, 2008, 2007 and 2006,
respectively.Preferred Stock The Company is authorized to issue up to 2,000,000 shares of preferred
stock without par value. Preferred shares outstanding rank senior to common shares both as
to dividends and liquidation preference, but have no voting rights. The Emergency Economic
Stabilization Act (EESA) authorizes the United States Treasury Department to use
appropriated funds to restore liquidity and stability to the U.S. financial system. As part
of this authority, and pursuant to a Letter Agreement dated November 14, 2008, and the
Securities Purchase Agreement  Standard Terms, the Company issued to the United States
Department of the Treasury (Treasury Department) 17,000 shares of Bank of Commerce
Holdings Series A Fixed Rate Perpetual Preferred Stock, without par value (the Series A
Preferred Stock), having a liquidation amount per share equal to $1,000 for a total price
of $17 million.Warrants As part of its purchase of the Series A Preferred Stock, the Treasury Department
received a warrant (the Warrant) to purchase 405,405 shares of the Companys common stock
at an initial per share exercise price of $6.29. The Warrant provides for the adjustment of
the exercise price and the number of shares of our common stock issuable upon exercise
pursuant to customary anti-dilution provisions, such as upon stock splits or distributions
of securities or other assets to holders of our common stock, and upon certain issuances of
our common stock at or below a specified price relative to the initial exercise price.
 64




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##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 The Warrant expires ten years from the issuance date. If, on or prior to December 31, 2009,
the Company receives aggregate gross cash proceeds of not less than $17 million from
qualified equity offerings announced after November 14, 2008, the number of shares of
common stock issuable pursuant to the Treasury Departments exercise of the Warrant will be
reduced by one-half of the original number of shares, taking into account all adjustments,
underlying the Warrant. Pursuant to the Securities Purchase Agreement, the Treasury
Department has agreed not to exercise voting power with respect to any shares of common
stock issued upon exercise of the Warrant.
 Recent Accounting Pronouncements
 On October 10, 2008, the FASB issued FAS 157-3, Determining the Fair Value of a Financial Asset
When the Market for That Asset is Not Active Fair Value Measurements,
 The FASB has decided to amend SFAS No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities  a replacement of FASB Statement No. 125 Consolidation of Variable Interest
Entities  an interpretation of ARB No. 51
 On March 19, 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB No. 133 (SFAS 161). Disclosures about Fair Value of Financial Instruments.
 On December 4, 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
 On February 15, 2007 the FASB issued FAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities, Including an amendment of FASB Statement 115.
 65




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##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 3.
    
    RESTRICTIONS ON CASH AND DUE FROM BANKSThe Bank maintains compensating balances with its primary correspondent, which totaled
$2,000,000 at December 31, 2008, December 31, 2007 and December 31, 2006.4.
    
    SECURITIESThe amortized cost and estimated fair value of securities available-for-sale are summarized
as follows:
 December 31, 2008Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury securities
and obligations of U.S.
agencies
    
    $
    16,006,571
    
    
    $
    69,080
    
    
    $
    0
    
    
    $
    16,075,651Obligations of state and
political subdivisions
    
    
    32,177,891
    
    
    
    145,647
    
    
    
    (1,302,628
    )
    
    
    31,020,910Mortgage-backed securities
    
    
    83,657,023
    
    
    
    1,278,263
    
    
    
    (345,247
    )
    
    
    84,590,039$
    131,841,485
    
    
    $
    1,492,990
    
    
    
    ($1,647,875
    )
    
    $
    131,686,600
 December 31, 2007Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury securities
and obligations of U.S.
agencies
    
    $
    15,988,936
    
    
    $
    26,031
    
    
    $
    (103,535
    )
    
    $
    15,911,432Obligations of state and
political subdivisions
    
    
    19,016,813
    
    
    
    27,424
    
    
    
    (262,596
    )
    
    
    18,781,641Mortgage-backed securities
    
    
    31,637,544
    
    
    
    10,250
    
    
    
    (353,929
    )
    
    
    31,293,865Corporate Bonds
    
    
    2,000,204
    
    
    
    0
    
    
    
    (80,756
    )
    
    
    1,919,448$
    68,643,497
    
    
    $
    63,705
    
    
    $
    (800,816
    )
    
    $
    67,906,386
 All held-to-maturity securities were transferred to available-for-sale in the third quarter
2008 to provide the Company greater liquidity resources. The following table represents the
amortized cost and fair value of securities held-to-maturity at the time of transfer:
 September 30, 2008Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueObligations of
state and political
subdivisions
    
    $
    8,804,998
    
    
    $
    106,665
    
    
    $
    (203,335
    )
    
    $
    8,708,328$
    8,804,998
    
    
    $
    106.665
    
    
    $
    (203,335
    )
    
    $
    8,708,328
 66




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##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 The amortized cost and estimated fair value of securities held-to-maturity are
summarized as follows:
 December 31, 2007Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueMortgage backed securities
    
    $
    1,632,816
    
    
    $
    13,706
    
    
    $
    
    
    
    $
    1,646,522Obligations of state and
political Subdivisions
    
    
    8,925,949
    
    
    
    62,107
    
    
    
    (2,370
    )
    
    
    8,985,686$
    10,558,765
    
    
    $
    75,813
    
    
    $
    (2,370
    )
    
    $
    10,632,208
 The amortized cost and estimated fair value of securities at December 31, 2008 by
contractual maturity are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or repay obligations with or without
call or prepayment penalties.
 Available-for-SaleEstimatedAmortized
    
    
    FairCost
    
    
    ValueDue in one year or less
    
    $
    1,010,193
    
    
    $
    1,029,063Due after one year through five years
    
    
    19,331,317
    
    
    
    19,445,179Due after five years through ten years
    
    
    12,319,780
    
    
    
    12,433,476Due after ten years
    
    
    99,180,195
    
    
    
    98,778,882$
    131,841,485
    
    
    $
    131,686,600
 The following tables present the current fair value and associated unrealized losses on
investments with unrealized losses at December 31, 2007 and December 31, 2008. The tables
also disclose whether these securities have had unrealized losses for less than 12 months or
for 12 months or longer.
 December 31, 2007
 Less than 12 months
    
    
    12 months or more
    
    
    TotalFair
    
    
    
    
    
    
    Fair
    
    
    
    
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Unrealized Losses
    
    
    Value
    
    
    Unrealized Losses
    
    
    Value
    
    
    LossesU.S. Treasury
securities and
Obligations of U.
S. Agencies
    
    $
    0
    
    
    $
    0
    
    
    $
    12,894,359
    
    
    
    ($103,535
    )
    
    $
    12,894,359
    
    
    
    ($103,535
    )Obligations of
state and political
subdivisions
    
    $
    11,047,188
    
    
    
    ($228,589
    )
    
    $
    3,360,969
    
    
    
    ($36,378
    )
    
    $
    14,408,156
    
    
    
    ($264,967
    )Mortgage-backed
securities
    
    $
    4,779,905
    
    
    
    ($29,487
    )
    
    $
    21,557,410
    
    
    
    ($324,441
    )
    
    $
    26,337,315
    
    
    
    ($353,928
    )Corporate Bonds
    
    $
    0
    
    
    $
    0
    
    
    $
    1,919,448
    
    
    
    ($80,756
    )
    
    $
    1,919,448
    
    
    
    ($80,756
    )Total temporarily
impaired securities
    
    $
    15,827,093
    
    
    
    ($258,076
    )
    
    $
    39,732,186
    
    
    
    ($545,110
    )
    
    $
    55,559,279
    
    
    
    ($803,186
    )
 67




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##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2008
 Less than 12 months
    
    
    12 months or more
    
    
    TotalFair
    
    
    
    
    
    
    Fair
    
    
    
    
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Unrealized Losses
    
    
    Value
    
    
    Unrealized Losses
    
    
    Value
    
    
    LossesU.S. Treasury
securities and
Obligations of U.
S. Agencies
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0Obligations of
state and political
subdivisions
    
    $
    21,125,047
    
    
    
    ($1,140,217
    )
    
    $
    843,658
    
    
    
    ($162,412
    )
    
    $
    21,968,705
    
    
    
    ($1,302,628
    )Mortgage-backed
securities
    
    $
    16,666,493
    
    
    
    ($105,783
    )
    
    $
    5,375,203
    
    
    
    ($239,463
    )
    
    $
    22,041,696
    
    
    
    ($345,247
    )Total temporarily
impaired securities
    
    $
    37,791,540
    
    
    
    ($1,246,000
    )
    
    $
    6,218,861
    
    
    
    ($401,875
    )
    
    $
    44,010,401
    
    
    
    ($1,647,875
    )
 Invested assets are exposed to various risks, such as interest rate, market and credit
risks. Due to the level of risk associated with certain invested assets and the level of
uncertainty related to changes in the fair value of these assets, it is possible that
changes in risks in the near term could have an adverse material impact on our results of
operations or equity. Our investment portfolio is subject to market declines below amortized
cost that may be other-than-temporary. A significant judgment in the valuation of
investments is the determination of when an other-than-temporary impairment has occurred.
The ALCO Committee reviews the investment portfolio on at least a quarterly basis, with
ongoing analysis as new information becomes available. Any decline that is determined to be
other-than-temporary is recorded as an other-than-temporary impairment loss in the results
of operations in the period in which the determination occurred.An investment is impaired if the fair value of the investment is less than its cost
adjusted for accretion, amortization and OTTI, otherwise defined as an unrealized loss. When
an investment is impaired, the impairment is evaluated to determine whether it is temporary
or other-than-temporary. Significant judgment is required in the determination of whether an
OTTI has occurred for an investment. The Company follows a consistent and systematic process
for determining and recording an OTTI loss. The Company has designated the ALCO Committee
responsible for the OTTI process.The ALCO Committees assessment of whether an OTTI loss should be recognized incorporates
both quantitative and qualitative information. The ALCO Committee considers a number of
factors including, but not limited to: (a) the length of time and the extent to which the
fair value has been less than amortized cost, (b) the financial condition and near term
prospects of the issuer, (c) the intent and ability of the Company to retain its investment
for a period of time sufficient to allow for an anticipated recovery in value, (d) whether
the debtor is current on interest and principal payments and (e) general market conditions
and industry or sector specific outlook. For securities considered to be OTTI, the security
is adjusted to fair value and the resulting losses are recognized in Realized investment
gains (losses) on the Consolidated Statement of Income.
 68




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##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 The Company maintains that it is probable that all amounts due according to the contractual
terms of debt securities will be repaid. The Company does not hold equity securities.At December 31, 2008 forty securities were in a loss position. Management has evaluated each
security in an unrealized loss position to determine if the impairment is
other-than-temporary. Management has determined that no security is other than temporarily
impaired. The unrealized losses are due to interest rate changes and the Company has the
ability and intent to hold all securities with identified impairments to the earlier of the
forecasted recovery or the maturity of the underlying security.At December 31, 2008, the Company has pledged book values of $1,000,000 in securities for
treasury, tax and loan accounts, $17,218,434 for deposits of public funds, $12,453,000 for
collateralized repurchase agreements, and $38,063,566 for Federal Home Loan borrowings.Gross realized gains and gross realized losses, respectively, on available-for-sale
securities were $632,639 and $4,760 in 2008, $268,078 and $222,408 in 2007, and $5,062 and
$175,586 in 2006.5.
    
    LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSESOutstanding loan balances consist of the following at:
 December 31,2008
    
    
    2007Commercial and industrial loans
    
    $
    164,082,996
    
    
    $
    173,703,638Real estate  construction loans
    
    
    84,217,532
    
    
    
    106,976,522Real estate  commercial
    
    
    217,914,475
    
    
    
    175,013,372Real estate  mortgage
    
    
    20,285,225
    
    
    
    10,787,433Real estate  other
    
    
    39,915,224
    
    
    
    26,817,909Installment loans
    
    
    144,634
    
    
    
    226,102Other
    
    
    902,584
    
    
    
    1,223,036527,462,670
    
    
    
    494,748,012Less:Deferred loan fees, net
    
    
    86,826
    
    
    
    232,471Allowance for loan and lease losses
    
    
    8,429,383
    
    
    
    8,232,970$
    518,946,461
    
    
    $
    486,282,571
 Included in total loans are nonaccrual loans of $20,153,737 and $12,408,613 at December 31,
2008 and 2007, respectively. A loan is impaired when, based on current information and
events, management believes it is probable that the Bank will not be able to collect all
amounts due according to the contractual terms of the loan agreement. If interest on
nonaccrual loans at December 31, 2008 and 2007 had been accrued, such interest income would
have approximated $147,100 and $92,000, respectively.
 69




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##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 The average outstanding balances of impaired loans were $23,078,874, $13,001,847 and $0, for
the years ended December 31, 2008, 2007 and 2006 respectively. There was interest of
$627,000, $0 and $20,000 recognized on impaired loans during the year ended December 31,
2008, 2007 and 2006, respectively. At December 31, 2008, 2007 and 2006 impairment allowances
were $1,103,290, $3,200,000, and $0 held towards impaired loans at December 31, 2008, 2007
and 2006 respectively.The Company concentrates its lending activities primarily within Shasta, El Dorado, Placer,
Sacramento and Tehama counties, in California, and the location of the four full service
offices of the Bank. Although the Company has a diversified loan portfolio, a significant
portion of its customers ability to repay the loans is dependent upon the professional
services and investor commercial real estate sectors. Generally, the loans are secured by
real estate or other assets and are expected to be repaid from cash flows of the borrowers
business or cash flows from real estate investments.The Companys exposure to credit loss, if any, is the difference between the fair value of
the collateral, and the outstanding balance of the loan. At December 31, 2008 and 2007, the
Company had pledged $96,721,113 and $58,343,819, respectively, in loans as available
collateral for Federal Home Loan Bank borrowings. In the ordinary course of business, the
Company enters various types of transactions, which involve financial instruments with
off-balance sheet risk. These instruments include commitments to extend credit and stand-by
letters of credit, which are not reflected in the consolidated balance sheets. These
transactions may involve, to varying degrees, credit and interest rate risk more than the
amount, if any recognized in the consolidated balance sheets. Commitments to extend credit
and standby letters of credit bear similar credit risk characteristics as outstanding loans.
An allowance for unfunded loan commitments and letters of credit is determined using
estimates of the probability of funding. This reserve is carried as a liability on the
consolidated balance sheet.Changes in the allowance for loan losses consist of the following:
 Years Ended December 31,2008
    
    
    2007
    
    
    2006Balance at beginning of year
    
    $
    8,232,970
    
    
    $
    4,904,266
    
    
    $
    4,316,379Provision for loan losses
    
    
    6,520,000
    
    
    
    3,291,250
    
    
    
    225,900Loans charged off
    
    
    (6,329,176
    )
    
    
    0
    
    
    
    (299,421
    )Recoveries of loans
previously charged off
    
    
    5,589
    
    
    
    37,454
    
    
    
    661,408Balance at end of year
    
    $
    8,429,383
    
    
    $
    8,232,970
    
    
    $
    4,904,266
 70




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##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 6.
    
    BANK PREMISES AND EQUIPMENTBank premises and equipment consist of the following:
 Estimated
    
    
    December 31,Lives
    
    
    2008
    
    
    2007Land
    
    
    
    
    
    $
    1,507,628
    
    
    $
    1,507,628Land Improvements
    
    
    
    
    
    
    188,845
    
    
    
    188,845Bank buildings
    
    39.0 years
    
    
    8,138,044
    
    
    
    8,114,721Furniture, fixtures and
equipment
    
    3 - 7 years
    
    
    6,703,866
    
    
    
    6,163,23616,538,383
    
    
    
    15,974,430Less accumulated depreciation
    
    
    
    
    
    
    (5,933,372
    )
    
    
    (5,919,593
    )10,605,011
    
    
    
    10,054,837Construction in progress
    
    
    
    
    
    
    67,200
    
    
    
    909,138$
    10,672,211
    
    
    $
    10,963,975
 Depreciation expense, included in net occupancy and equipment expense, is $1,145,000,
$1,035,660, and $732,906 for the years ended December 31, 2008, 2007 and 2006, respectively.7.
    
    OTHER ASSETSOther assets consist of the following:
 December 31,2008
    
    
    2007Cash surrender value of bank owned life insurance policies
    
    $
    7,415,413
    
    
    $
    7,129,627Deferred tax asset, net
    
    
    4,932,051
    
    
    
    5,209,973Accrued interest on loans
    
    
    2,051,386
    
    
    
    2,497,124Accrued interest on investment securities
    
    
    1,079,110
    
    
    
    538,410California Affordable Housing Credits
    
    
    2,414,517
    
    
    
    933,659Other Real Estate Owned
    
    
    2,934,152
    
    
    
    Goldman Sachs Sweep account receivable
    
    
    
    
    
    
    267,984Taxes receivable
    
    
    447,865
    
    
    
    181,911Federal Home Loan Bank Stock
    
    
    5,640,000
    
    
    
    2,852,200Investment in junior subordinated debt payable to
subsidiary grantor trust
    
    
    465,000
    
    
    
    465,000Other
    
    
    338,132
    
    
    
    305,207$
    27,717,626
    
    
    $
    20,381,095
 8.
    
    DEPOSITSTime certificates of deposit of $100,000 or more totaled $168,810,092 and $153,583,629 at
December 31, 2007 and 2006, respectively. Interest expense on such deposits was $5,785,386,
$6,062,259 and $5,025,273 during 2007, 2006 and 2005, respectively.
 71




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##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 At December 31, 2008, the scheduled maturities for all time deposits are as follows:
 Time Deposit Maturity ScheduleOne year or less
    
    $
    169,782,140One to three years
    
    
    58,668,045Three to five years
    
    
    35,836,419Over five years
    
    
    0Total
    
    $
    264,286,604
 9.
    
    OTHER LIABILITIESOther liabilities consist of the following:
 December 31,2008
    
    
    2007Deferred Compensation  Retired Officers
    
    
    931,777
    
    
    $
    1,035,064Deferred Compensation  Directors fees
    
    
    2,600,231
    
    
    
    2,310,824Deferred Compensation  Salary Continuation
    
    
    1,235,605
    
    
    
    1,030,020Employee incentive payable
    
    
    0
    
    
    
    476,843FHLB accrued interest payable
    
    
    154,396
    
    
    
    242,637Accrued 401(k) match payable
    
    
    66,365
    
    
    
    71,981Accrued interest payable
    
    
    618,890
    
    
    
    787,844Reserve for off-balance sheet commitments
    
    
    421,877
    
    
    
    421,877Interest payable Junior Subordinated Debentures
    
    
    158,621
    
    
    
    112,538Dividend payable
    
    
    696,920
    
    
    
    700,460Other
    
    
    151,479
    
    
    
    363,471$
    7,036,161
    
    
    $
    7,553,559
 10.
    
    FEDERAL HOME LOAN BANK ADVANCESIncluded in other borrowings are advances from the Federal Home Loan Bank of San Francisco
(FHLB) totaling $120,000,000 as of December 31, 2008 and $60,000,000 as of December 31,
2007. The FHLB advances bear fixed rates of interest ranging from 0.80% to 3.97%.
 Amount
    
    Interest Rate
    
    Maturity$15,000,000
    
    
    2.89
    %
    
    
    01/22/2009$55,000,000
    
    
    0.80
    %
    
    
    01/26/2009$35,000,000
    
    
    3.97
    %
    
    
    11/23/2009$15,000,000
    
    
    3.41
    %
    
    
    04/29/2011$120,000,000
 72




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##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 These borrowings are secured by an investment in FHLB stock and certain real estate mortgage
loans which have been specifically pledged to the FHLB pursuant to their collateral
requirements. Based upon the level of FHLB advances, the Company was required to hold a
minimum investment in FHLB stock of $5,640,000 at December 31, 2008 and to pledge
$96,721,113, $58,343,819 and $52,365,899 of its real estate mortgage loans to the FHLB as
collateral as of December 31, 2008, 2007 and 2006. At December 31, 2008 the Bank had
available borrowing lines at the FHLB of $58,020,207 and additional federal fund borrowing
lines at two correspondent banks totaling $20,000,000.11.
    
    PREFERRED STOCK AND WARRANTSPursuant to a Letter Agreement dated November 14, 2008, and the Securities Purchase
Agreement  Standard Terms the Company issued to the United States Department of the
Treasury (Treasury Department) 17,000 shares of Bank of Commerce Holdings Series A Fixed
Rate Perpetual Preferred Stock, without par value (the Series A Preferred Stock), having a
liquidation amount per share equal to $1,000 for a total price of $17 million. The Series A
Preferred Stock pays cumulative dividends at a rate of 5% per year for the first five years
and thereafter at a rate of 9% per year. The Company may not redeem the Series A Preferred
Stock during the first three years except with the proceeds from a qualified equity
offering (as defined in the Certificate of Determination described in Item 5.03). After
three years, the Company may, at our option, redeem the Series A Preferred Stock at par
value plus accrued and unpaid dividends. The Series A Preferred Stock is generally
non-voting. Prior to November 14, 2011, unless the Company has redeemed the Series A
Preferred Stock or the Treasury Department has transferred the Series A Preferred Stock to a
third party, the consent of the Treasury Department will be required for the Company to
increase our common stock dividend or repurchase our common stock or other equity or capital
securities, other than in connection with benefit plans consistent with past practice and
certain other circumstances specified in the Securities Purchase Agreement. A consequence of
the Series A Preferred Stock purchase includes certain restrictions on executive
compensation that could limit the tax deductibility of compensation we pay to executive
management.As part of its purchase of the Series A Preferred Stock, the Treasury Department received a
warrant (the Warrant) to purchase 405,405 shares of the Companys common stock at an
initial per share exercise price of $6.29. The Warrant provides for the adjustment of the
exercise price and the number of shares of our common stock issuable upon exercise pursuant
to customary anti-dilution provisions, such as upon stock splits or distributions of
securities or other assets to holders of our common stock, and upon certain issuances of our
common stock at or below a specified price relative to the initial exercise price. The
Warrant expires ten years from the issuance date. If, on or prior to December 31, 2009, the
Company receives aggregate gross cash proceeds of not less than $17 million from qualified
equity offerings announced after November 14, 2008, the number of shares of common stock
issuable pursuant to the Treasury Departments exercise of the Warrant will be reduced by
one-half of the original number of shares, taking into account all adjustments, underlying
the Warrant. Pursuant to the Securities Purchase Agreement, the Treasury Department has
agreed not to exercise voting power with respect to any shares of common stock issued upon
exercise of the Warrant.Both the Series A Preferred Stock and Warrant will be accounted for as components of Tier 1
capital.
 73




---



##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 The Series A Preferred Stock and the Warrant were issued in a private placement exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. Upon the
request of the Treasury Department at any time, we have agreed to promptly enter into a
deposit arrangement pursuant to which the Series A Preferred Stock may be deposited and
depositary shares (Depositary Shares) may be issued. Neither the Series A Preferred Stock
nor the Warrant will be subject to any contractual restrictions on transfer, except that the
Treasury Department may only transfer or exercise an aggregate of one-half of the Warrant
Shares prior to the earlier of the redemption of 100% of the shares of Series A Preferred
Stock and December 31, 2009.In the Securities Purchase Agreement, the Company agreed that, until such time as the
Treasury Department ceases to own any securities acquired from us pursuant to the Securities
Purchase Agreement, the Company will take all necessary action to ensure that our benefit
plans with respect to our senior executive officers comply with Section 111(b) of the
Emergency Economic Stabilization Act of 2008 (EESA) as implemented by any guidance or
regulation under Section 111(b) of EESA that has been issued and is in effect as of the date
of issuance of the Series A Preferred Stock and the Warrant and not adopt any benefit plans
with respect to, or which cover, our senior executive officers that do not comply with EESA.
The applicable executives have consented to the foregoing.Prior to November 14, 2011, unless the Company has redeemed the Series A Preferred Stock or
the Treasury Department has transferred the Series A Preferred Stock to a third party, the
consent of the Treasury Department will be required for us to (1) declare or pay any
dividend or make any distribution on our common stock (other than regular quarterly cash
dividends of not more than $0.08 per share of common stock) or (2) redeem, purchase or
acquire any shares of the Companys common stock or other equity or capital securities,
other than in connection with benefit plans consistent with past practice and certain other
circumstances specified in the Securities Purchase Agreement.Capital Purchase Plan participants may opt out by repaying the capital without raising
additional capital subject to consultation with the appropriate Federal regulator.12.
    
    JUNIOR SUBORDINATED DEBT PAYABLE TO UNCONSOLIDATED SUBSIDIARY GRANTOR TRUSTSDuring the first quarter 2003, Bank of Commerce Holdings formed a wholly-owned Delaware
statutory business trust, Bank of Commerce Holdings Trust (the grantor trust), which issued
$5.0 million of guaranteed preferred beneficial interests in Bank of Commerce Holdings
junior subordinated debentures (the trust notes) to the public and $155,000 common
securities to the Company. These debentures qualify as Tier 1 capital under Federal Reserve
Board guidelines. The proceeds from the issuance of the trust notes were transferred from the
grantor trust to the Holding Company and from the Holding Company to the Bank as surplus
capital. The trust notes accrue and pay distributions on a quarterly basis at three month
London Interbank Offered Rate (LIBOR) plus 3.30%. The rate at December 31, 2008 was 8.12%.
The rate increase is capped at 2.75% annually and the lifetime cap is 12.5%. The final
maturity on the trust notes is March 18, 2033, and the debt allows for prepayment after five
years on the quarterly payment date.
 74




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##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 On July 29, 2005, Bank of Commerce Holdings (the Company) participated in a private
placement to an institutional investor of $10 million of fixed rate trust preferred
securities (the Trust Preferred Securities); through a newly formed Delaware trust
affiliate, Bank of Commerce Holdings Trust II (the Trust). The Trust Preferred Securities
mature on September 15, 2035, and are redeemable at the Companys option on any March 15,
June 15, September 15 or December 15 on or after September 15, 2010. In addition, the Trust
Preferred Securities require quarterly distributions by the Trust to the holder of the Trust
Preferred Securities at a rate of 6.115%, until September 10, 2010 after which the rate will
reset quarterly to equal three month LIBOR plus 1.58%. The Trust simultaneously issued
$310,000 common securities to the Company.The proceeds from the sale of the Trust Preferred Securities were used by the Trust to
purchase from the Company the aggregate principal amount of $10,310,000 of the Companys
floating rate junior subordinate notes (the Notes). The net proceeds to the Company from
the sale of the Notes to the Trust were used by the Company for general corporate purposes,
including funding the growth of the Companys various financial services.The Notes were issued pursuant to a Junior Subordinated Indenture (the Indenture), dated
July 29, 2005, by and between the Company and J.P. Morgan Chase Bank, National Association,
as trustee. Like the Trust Preferred Securities, the Notes bear interest at a floating
rate, at 6.115% until September 10, 2010, after which the rate will reset on a quarterly
basis to equal three month LIBOR plus 1.58%. The interest payments by the Company will be
used to pay the quarterly distributions payable by the Trust to the holder of the Trust
Preferred Securities. However, so long as no event of default, as described below, has
occurred under the Notes, the Company may, at any time and from time to time, defer interest
payments on the Notes (in which case the Trust will be entitled to defer distributions
otherwise due on the Trust Preferred Securities) for up to twenty (20) consecutive quarters.The Notes are subordinated to the prior payment of other indebtedness of the Company that,
by its terms, is not similarly subordinated. Although the Notes will be recorded as a long
term liability on the Companys balance sheet, for regulatory purposes, the Notes are
expected to be treated as Tier 1 or Tier 2 capital under rulings of the Federal Reserve
Board, the Companys primary federal regulatory agency.The Notes mature on September 15, 2035, but may be redeemed at the Companys option at any
time on or after September 15, 2010 or at any time upon certain events, such as a change in
the regulatory capital treatment of the Notes, the Trust being deemed to be an investment
company or the occurrence of certain adverse tax events. In each case, the Company may
redeem the Notes for their aggregate principal amount, plus accrued interest, if any.
 75




---



##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 13.
    
    INCOME TAXES
 Provision for income taxes consists of the following:
 Years Ended December 31,2008
    
    
    2007
    
    
    2006Current:Federal
    
    $
    158,421
    
    
    $
    2,448,140
    
    
    $
    3,260,200State
    
    
    (227,067
    )
    
    
    603,476
    
    
    
    984,927Total currently payable
    
    
    (68,646
    )
    
    
    3,051,616
    
    
    
    4,245,127Deferred:Federal
    
    
    102,507
    
    
    
    (1,167,545
    )
    
    
    (315,359
    )State
    
    
    (73,387
    )
    
    
    (479,018
    )
    
    
    (92,838
    )Total deferred provision
    
    
    29,120
    
    
    
    (1,646,563
    )
    
    
    (408,197
    )Total (benefit) provision for income taxes
    
    
    ($39,526
    )
    
    $
    1,405,053
    
    
    $
    3,836,930
 In October 2006, the Company invested in the California Affordable Housing Fund -2006 I,
LLC. The investment provides funding for low income housing projects in our local markets
in return for federal and state tax credits. The original commitment of $2.5 million will
be fully disbursed during 2009. The tax benefit summary as of December 2008 is $159,340
for federal and $167,822 for state.Income tax expense attributable to income before income taxes differed from the amounts
computed by applying the U.S. federal income tax rate of 34 percent to income before income
taxes because of the following:
 % of Pretax Income2008
    
    2007
    
    2006Income tax at the Federal statutory rate
    
    
    34.00
    %
    
    
    34.00
    %
    
    
    34.00
    %State franchise tax, net of Federal tax benefit
    
    
    (12.16
    )
    
    
    1.09
    
    
    
    5.66Tax-exempt interest
    
    
    (15.79
    )
    
    
    (4.48
    )
    
    
    (2.02
    )Key Life benefit proceeds
    
    
    (0.00
    )
    
    
    (8.84
    )
    
    
    (0.00
    )Officer Life Insurance
    
    
    (4.51
    )
    
    
    (1.54
    )
    
    
    (0.97
    )Affordable Housing credits
    
    
    (7.39
    )
    
    
    (2.51
    )
    
    
    (0.00
    )Other
    
    
    4.02
    
    
    
    .98
    
    
    
    .21(1.83
    %)
    
    
    18.70
    %
    
    
    36.88
    %
 76




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##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities consist of the following:
 2008
    
    
    2007Deferred tax assets:Deferred compensation
    
    
    2,137,799
    
    
    
    1,962,157Loan loss reserves
    
    
    3,779,735
    
    
    
    3,585,204Net
unrealized losses on securities available-for-sale
    
    
    56,590
    
    
    
    305,392Other
    
    
    24,767
    
    
    
    217,417Total deferred tax assets
    
    
    5,998,891
    
    
    
    6,070,170Deferred tax liabilities:State franchise taxes
    
    
    ($72,046
    )
    
    $
    186,193Depreciation
    
    
    (68,095
    )
    
    
    (180,882
    )Deferred loan origination costs
    
    
    (426,715
    )
    
    
    (452,281
    )Deferred state taxes
    
    
    (443,992
    )
    
    
    (413,227
    )Other  California Affordable Housing
    
    
    (55,992
    )
    
    
    (0
    )Total deferred tax liabilities
    
    
    (1,066,840
    )
    
    
    (860,197
    )Net deferred tax asset
    
    $
    4,932,051
    
    
    $
    5,209,973
 The Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, on January 1, 2007. The Company had no unrecognized tax
benefits which would have required an adjustment to the January 1, 2007 beginning balance
of retained earnings. The Company has no unrecognized tax benefits at January 1, 2008 and
at December 31, 2008. The Company recognizes interest accrued and penalties related to
unrecognized tax benefits in tax expense. During the years ended December 31, 2008, 2007
and 2006 the Company recognized no interest and penalties.The Company or one of its subsidiaries files income tax returns in the U.S. federal
jurisdiction, and the State of California. With few exceptions, the Company is no longer
subject to U.S. federal or State and local income tax examinations by tax authorities for
the years before 2005.14.
    
    STOCK OPTION PLANOn May 1, 2008 the 1998 Stock Option Plan which was approved by the Companys stockholders
on April 21, 1998 expired and was replaced by the 2008 Stock Option Plan (the Plan) which
was approved by the Companys stockholders on May 15, 2007. The Plan provides for awards in
the form of options, which may constitute incentive stock options (Incentive Options)
under Section 422(a) of the Internal Revenue Code of 1986, as amended (the Code), or
non-statutory stock options (NSOs) to key personnel of the Company, including directors.
The Plan provides that Incentive Options under the Plan may not be granted at less than 100%
of fair market value of the Companys common stock on the date of the grant. NSOs may not be
granted at less than 85% of the fair market value of the common stock on the date of the
grant. The purpose of the plan is to promote the long-term success of the Company and the
creation of stockholder value by (a) encouraging key personnel to focus on critical long
range objectives, (b) increasing the ability of the Company to attract and retain key
personnel and (c) linking key personnel directly to stockholder interests through increased
stock ownership.
 77




---



##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 A total of 620,000 shares of the Companys common stock are reserved for grant under the
Plan.The Plan provides that all options under the Plan shall vest at a rate of at least 20% per
year from the date of the grant. Vesting may be accelerated in case of an optionees death,
disability, and retirement or in case of a change of control.During 2008, stock option compensation expense charged against income was $116,446 ($68,500
net of tax), or less than one cent per diluted share. At December 31, 2008, there was
$271,723 of total unrecognized compensation costs related to non-vested share based payments
which is expected to be recognized over a weighted average period of three years. Twelve new
options totaling 31,500 shares were granted during 2008.Activity in stock-based compensation planThe following table presents the changes in outstanding stock options for the periods
indicated:
 Weighted
    
    
    AggregateNumber of
    
    
    Average
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    ValueOptions outstanding, December 31, 2006
    
    
    377,745
    
    
    $
    6.93
    
    
    $
    1,793,156Granted
    
    
    32,500
    
    
    $
    10.98
    
    
    $
    0Exercised
    
    
    (110,403
    )
    
    $
    4.65
    
    
    $
    452,652Forfeited
    
    
    (20,412
    )
    
    $
    10.20
    
    
    
    Options outstanding, December 31, 2007
    
    
    279,430
    
    
    $
    8.65
    
    
    $
    27,943Granted
    
    
    31,500
    
    
    $
    6.50
    
    
    
    0Exercised
    
    
    (12,850
    )
    
    $
    3.23
    
    
    $
    40,863Forfeited
    
    
    0
    
    
    
    
    
    
    
    Options outstanding December 31, 2008
    
    
    298,080
    
    
    $
    6.35
    
    
    
    0Exercisable at December 31, 2008
    
    
    209,485
 The total intrinsic value (which is the amount by which the stock price exceeded the
exercise price on the date of exercise) of options exercised during 2008 and 2007 was
$40,863 and $452,652, respectively. At December 31, 2008, 588,500 shares were available for
future grants under the Plan. As of December 31, 2008, 2007 and 2006, respectively, 209,485,
200,993 and 300,631 shares respectively were available to be exercised. The weighted average
exercise price for outstanding options for December 31, 2008, 2007 and 2006, respectively,
was $6.35, $8.65 and $6.93, respectively.The fair value of the options granted during 2008, 2007 and 2006, is estimated as $44,236,
$91,539 and $194,745, respectively, on the date of grant using a binomial option-pricing
model with the following assumptions: volatility of 32.10%, 29.98% and 32.03%, respectively,
risk-free interest rate of 2.97%, 3.40% and 4.65%, respectively, expected dividends of $0.32
per share per year for 2008 and $0.33 per share in 2007, annual dividend rate of 4.56%,
2.89% and 3.07%, assumed forfeiture rate of zero and an expected life of seven years. There
were 31,500 options granted in 2008, 32,500 options granted in 2007 and 52,000 options
granted in 2006. The fair value per share of the 2008, 2007 and 2006 awards was $1.38, $2.82
and $3.75, respectively.
 78




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##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 15.
    
    CAPITAL STOCKThe Company paid a quarterly cash dividend of $0.08, $0.08, $0.08 and $0.08 on January 11,
2008, April 11, 2008, July 11, 2008 and October 10, 2008, respectively, to stockholders of
record as of December 31, 2007, March 31, 2008, June 30, 2008 and September 30, 2008,
respectively. On April 20, 1999, the Board of Directors authorized 2,000,000 shares of
preferred stock. As of December 31, 2008, Pursuant to a Letter Agreement dated November 14,
2008, and the Securities Purchase Agreement  Standard Terms the Company issued to the
United States Department of the Treasury (Treasury Department) 17,000 shares of Bank of
Commerce Holdings Series A Fixed Rate Perpetual Preferred Stock, without par value (the
Series A Preferred Stock), having a liquidation amount per share equal to $1,000 for a
total price of $17 million.In January 2008, the Board of Directors authorized a common stock repurchase of
approximately 550,000 shares, of the Companys common stock. During the first quarter 2008,
58,800 shares were repurchased at an average price of $8.57. There were 200,000 shares
repurchased during 2007 at an average price of $11.35 per share. There were 92,000 shares
repurchased during 2006 at an average price of $11.85. Shares purchased are retired by a
charge to common stock for the cost. To date, the Company has repurchased 2,219,107 shares
at an average price of $7.85.16.
    
    RETIREMENT BENEFITSProfit Sharing Plan -In 1985, the Company adopted a profit sharing 401(k) plan for eligible
employees to be funded out of the earnings of the Company. The employees contributions are
limited to the maximum amount allowable under IRS Section 402(G). The Companys
contributions include a matching contribution of 100% of the first 3% of salary deferred and
50% of the next 2% of salary deferred. Discretionary contributions are also permitted. The
Company made matching contributions aggregating $233,922, $247,500 and $224,000 for the
years ended December 31, 2007, 2006 and 2005, respectively. No discretionary contributions
were made in 2007, 2006 or 2005.Salary Continuation Plan In April 2001, the Board of Directors approved the implementation
of the Supplemental Executive Retirement Plan (SERP), which is a non-qualified executive
benefit plan in which the Bank agrees to pay the executives covered by the SERP plan
additional benefits in the future in return for continued satisfactory performance by the
executives. Benefits under the salary continuation plan include a benefit generally payable
commencing upon a designated retirement date for a fixed period of ten to twenty years;
disability or termination of employment, and a death benefit for the participants designated
beneficiaries. Key-man life insurance policies were purchased as an investment to provide
for the Banks contractual obligation to pay pre-retirement death benefits and to recover
the Banks cost of providing benefits. The executive is the insured under the policy, while
the Bank is the owner and beneficiary. The assets of the SERP, under Internal Revenue
Service Regulations, are the property of the Company and are available to the Companys
general creditors. The insured executive has no claim on the insurance policy, its cash
value or the proceeds thereof.
 79




---



##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 The retirement benefit is derived from accruals to a benefit account during the
participants employment. At the end of the executives period of service, the aggregate
amount accrued should equal the then present value of the benefits expected to be paid to
the executive. Accrued compensation expense under the salary continuation plan totaled
$179,063, $240,745 and $160,917 for 2008, 2007 and 2006, respectively. As of December 31,
2008, 2007 and 2006, the vested benefit payable was $1,235,605, $1,030,020, and $706,391
respectively.Retired Employees deferred compensation Effective April 1, 1990, the Board of Directors
approved an Employee Deferred Compensation plan for two executives, which is a
non-qualified plan in which the selected employees may elect to defer all or any part of
their compensation to be payable to the employee upon retirement over a period not to exceed
fifteen years. Interest on Retired Employees deferred compensation is fixed at ten percent
(10%) per the plan. Participants in this plan have since retired and funds are being
disbursed. As of December 31, 2008, 2007 and 2006, the vested benefit payable was $931,777,
$1,035,064 and $1,128,911, respectively.Directors deferred fee compensation Effective January 1, 1993, the Board of Directors
approved the implementation of the Directors Deferred Fee Compensation Plan, which is a
non-qualified plan in which a Director may elect to defer the payment of all or any part of
the fee compensation to which such director would otherwise be entitled to as directors
fees or committee fees to be payable upon retirement of the director in a lump sum
distribution or over a period not to exceed fifteen years. Interest on Directors deferred
compensation is fixed at ten percent (10%) per the plan. Deferred compensation expense
totaled $461,640, $411,191 and $368,809 at December 31, 2008, 2007, and 2006 respectively.
As of December 31, 2008, 2007 and 2006, the vested benefit payable was $2,600,231,
$2,310,824 and $2,035,218, respectively.17.
    
    RELATED PARTY TRANSACTIONSSome of the directors, officers and principal stockholders of the Company and their
associates were customers of and had banking transactions with the Bank in the ordinary
course of the Banks business during 2008 and the Bank expects to have such transactions in
the future. All deposits, loans and commitments to loans included in such transactions were
made in compliance with the applicable laws 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 in the opinion of the Company, did not
involve more than a normal risk of collectibility or present other unfavorable features.
  December 31,2008
    
    
    2007Balance at beginning of year
    
    $
    3,600,342
    
    
    $
    2,849,533New loan additions
    
    
    153,737
    
    
    
    25,312Advances on existing lines of credit
    
    
    826,080
    
    
    
    2,184,045Principal repayments
    
    
    (405,735
    )
    
    
    (1,458,548
    )Balance at end of year
    
    $
    4,174,424
    
    
    $
    3,600,342
 As of December 31, 2008 and 2007 there were no related party loans, which were past due or
classified. At December 31, 2008 there was $237,991 available in commitments to related party
loans.
 80




---



##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 18.
    
    COMMITMENTS AND CONTINGENCIESLease Commitments The Company leases certain facilities where it conducts its operations.
Future minimum lease commitments under all non-cancelable operating leases as of December
31, 2008 are below:
 (Dollars in thousands)2009
    
    
    5152010
    
    
    5242011
    
    
    4542012
    
    
    2792013
    
    
    155Thereafter
    
    
    607Total
    
    
    2,534
 Rental expense for the years ended December 31, 2008, 2007 and 2006 was $588,866, $482,994
and $453,450, respectively.Off-Balance Sheet Financial Instruments In the ordinary course of business, the Company
enters various types of transactions, which involve financial instruments with off-balance
sheet risk. These instruments include commitments to extend credit and standby letter of
credits, which are not reflected in the accompanying consolidated balance sheets. These
transactions may involve, to varying degrees, credit and interest rate risk more than the
amount, if any recognized in the consolidated balance sheets.The off-balance sheet credit risk exposure of the Company is the contractual amount of
commitments to extend credit and stand-by letters of credit. The Company applies the same
credit standards to these contracts as it uses for loans recorded on the balance sheet.
 December 31,2008
    
    
    2007Off-balance sheet commitments:Commitments to extend credit
    
    $
    156,707,887
    
    
    $
    192,815,902Standby letters of credit
    
    
    8,556,547
    
    
    
    6,627,409Guaranteed commitments outstanding
    
    
    1,350,399
    
    
    
    1,375,999$
    166,614,833
    
    
    $
    200,819,310
 Commitments to extend credit are agreements to lend to customers. These commitments have
specified interest rates and generally have fixed expiration dates but may be terminated by
the Company if certain conditions of the contract are violated. Although currently subject
to draw down, many of the commitments do not necessarily represent future cash requirements.
Collateral held relating to these commitments varies, but generally includes real estate,
securities and cash.
 81




---



##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Standby letters of credit are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Credit risk arises in these transactions from
the possibility that a customer may not be able to repay the Bank upon default of
performance. Collateral held for standby letters of credit is based on an individual
evaluation of each customers creditworthiness, but may include cash and securities.Commitments to extend credit and standby letters of credit bear similar credit risk
characteristics as outstanding loans.Litigation The Company is subject to various pending and threatened legal actions arising
in the ordinary course of business. The Company maintains reserves for losses from legal
actions that are both probable and estimable. In the opinion of management the disposition
of claims currently pending will not have a material effect on the Companys consolidated
financial position or results of operations.19.
    
    REGULATORY MATTERSThe Company and the Bank are subject to various regulatory capital requirements administered
by the federal and state 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 and Consolidated
Financial Statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and the Bank must meet specific capital guidelines
that involve quantitative measures of their assets, liabilities and certain off-balance
sheet items as calculated under regulatory accounting practices.The capital amounts and the Banks prompt corrective action classifications are also subject
to qualitative judgments by the regulators about components, risk weightings and other
factors. Prompt corrective action provisions are not applicable to Bank Holding Companies.
Quantitative measures established by regulation to ensure capital adequacy require the
Company and the Bank to maintain minimum amounts and ratios (set forth in the following
table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets
and of Tier 1 capital to average assets. Management believes as of December 31, 2008 that
the Company and the Bank met all capital adequacy requirements to which they are subject.As of December 31, 2008, the most recent notification from the FDIC categorized the Bank as
well capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, an institution must maintain minimum total risk-based, Tier
1 risk-based, and Tier 1 leverage ratios as set forth in the following table. There are no
conditions or events since that notification that management believes have changed the
Banks category. The Companys and the Banks actual capital amounts and ratios as of
December 31, 2008 and 2007 are also presented in the table.
 82




---



##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 To BeCategorized asWell CapitalizedFor Capital
    
    Under PromptActual
    
    Adequacy Purposes
    
    Corrective ActionAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAt December 31, 2008:CompanyLeverage capital (to
average assets)
    
    $
    73,983,019
    
    
    
    10.66
    %
    
    $
    19,800,000
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aTier 1 capital (to
risk-weighted
assets)
    
    
    73,983,019
    
    
    
    11.87
    %
    
    
    16,734,380
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aTotal capital (to
risk-weighted
assets)
    
    
    81,787,582
    
    
    
    13.12
    %
    
    
    33,468,760
    
    
    
    8.00
    %
    
    
    n/a
    
    
    
    n/aBankLeverage capital (to
average assets)
    
    $
    72,204,835
    
    
    
    10.45
    %
    
    $
    19,783,694
    
    
    
    4.00
    %
    
    $
    24,729,617
    
    
    
    5.00
    %Tier 1 capital (to
risk-weighted
assets)
    
    
    72,204,835
    
    
    
    11.58
    %
    
    
    16,734,380
    
    
    
    4.00
    %
    
    
    25,101,570
    
    
    
    6.00
    %Total capital (to
risk-weighted
assets)
    
    
    80,009,398
    
    
    
    12.84
    %
    
    
    33,468,760
    
    
    
    8.00
    %
    
    
    41,835,950
    
    
    
    10.00
    %At December 31, 2007:CompanyLeverage capital (to
average assets)
    
    $
    56,857,387
    
    
    
    9.26
    %
    
    $
    19,800,000
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aTier 1 capital (to
risk-weighted
assets)
    
    
    56,857,387
    
    
    
    10.12
    %
    
    
    16,734,380
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aTotal capital (to
risk-weighted
assets)
    
    
    63,881,556
    
    
    
    11.37
    %
    
    
    33,468,760
    
    
    
    8.00
    %
    
    
    n/a
    
    
    
    n/aBankLeverage capital (to
average assets)
    
    $
    56,025,174
    
    
    
    9.20
    %
    
    $
    19,783,694
    
    
    
    4.00
    %
    
    $
    24,729,617
    
    
    
    5.00
    %Tier 1 capital (to
risk-weighted
assets)
    
    
    56,025,174
    
    
    
    9.97
    %
    
    
    16,734,380
    
    
    
    4.00
    %
    
    
    25,101,570
    
    
    
    6.00
    %Total capital (to
risk-weighted
assets)
    
    
    63,049,343
    
    
    
    11.22
    %
    
    
    33,468,760
    
    
    
    8.00
    %
    
    
    41,835,950
    
    
    
    10.00
    %
 The principal sources of cash for the Holding Company are dividends from the Bank.
Dividends from the Bank to the Holding Company are restricted under California law to the
lesser of the Banks retained earnings or the Banks net income for the latest three fiscal
years, less dividends previously declared during that period, or, with the approval of
California Superintendent of Banks, to the greater of the retained earnings of the Bank, the
net income of the Bank for its last fiscal year, or the net income of the Bank for its
current fiscal year. As of December 31, 2008, the maximum amount available for dividend
distribution under this restriction was approximately $7,681,000.The Bank is subject to certain restrictions under the Federal Reserve Act, including
restrictions on the extension of credit to affiliates. In particular, it is prohibited from
lending to an affiliated company unless the loans are secured by specific types of
collateral. Such secured loans and other advances from the subsidiaries are limited to 10
percent of the subsidiarys equity. No such loans or advances were outstanding during 2008
or 2007.
 83




---



##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 20.
    
    FAIR VALUES OF FINANCIAL INSTRUMENTSSFAS No. 157 defines fair value, establishes a framework for measuring fair value under
GAAP, and expands disclosures about fair value measurement. Effective 1/1/08 the Company
adopted SFAS No. 157, which enhances the disclosures about financial instruments carried at
fair value.In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in
active markets for identical assets or liabilities that the Company has the ability to
access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices
included in Level 1 that are observable for the asset or liability, either directly or
indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in
active markets, and inputs other than quoted prices that are observable for the asset or
liability, such as interest rates and yield curves that are observable at commonly quoted
intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include
situations where there is little, if any, market activity for the asset or liability.In certain cases, the inputs used to measure fair value may fall into different levels of
the fair value hierarchy. In such cases, the level in the fair value hierarchy within which
the fair value measurement in its entirety falls has been determined based on the lowest
level input that is significant to the fair value measurement in its entirety.The Companys assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment, and considers factors specific to the asset
or liability. The following table presents information about the Companys assets and
liabilities measured at fair value on a recurring basis as of December 31, 2008, and
indicate the fair value hierarchy of the valuation techniques utilized by the Company to
determine such fair value.
  Recurring Basis
    
    
    
    
    
    
    
    
    
    Fair Value MeasurementsAt December 31, 2008Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets For
    
    
    Observable
    
    
    UnobservableFair Value
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    December 31, 2008
    
    
    Level (1)
    
    
    (Level 2)
    
    
    (Level 3)Available for sale securities
    
    $
    131,686,600
    
    
    $
    
    
    
    $
    131,686,600
    
    
    $
    Total Assets Measured at fair value
    
    $
    131,686,600
    
    
    $
    
    
    
    $
    131,686,600
    
    
    $
    Total Liabilities Measured at fair
value
    
    $
    
    
    
    
    
    
    
    $
    
 84




---



##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 The following methods were used to estimate the fair value of each class of financial
instrument above:Securities available-for-sale Securities classified as available-for-sale are reported at
fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value
measurements from an independent pricing service. The fair value measurements consider
observable data that may include dealer quotes, market spreads, cash flows, the U.S.
Treasury yield curve, live trading levels, trade execution data, market consensus prepayment
speeds, credit information and the bonds terms and conditions among other things.Assets and Liabilities Recorded at Fair Value on a Nonrecurring BasisThe Company may be required, from time to time, to measure certain assets at fair value on a
nonrecurring basis in accordance with U.S. generally accepted accounting principles. These
include assets that are measured at the lower of cost or market that were recognized at fair
value below cost at the end of the period. Assets measured at fair value on a nonrecurring
basis are included in the table below.
 Non Recurring Basis
 Fair Value MeasurementsAt December 31, 2008Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets For
    
    
    Observable
    
    
    UnobservableFair Value
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    December 31, 2008
    
    
    Level (1)
    
    
    (Level 2)
    
    
    (Level 3)Impaired Loans
    
    $
    23,078,874
    
    
    $
    
    
    
    $
    
    
    
    $
    23,078,874Total Assets Measured at fair value
    
    $
    23,078,874
    
    
    $
    
    
    
    $
    
    
    
    $
    23,078,874Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Total Liabilities Measured at fair
value
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 85




---



##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Impaired loans When available, we use observable market data, including pricing on recent
closed market transactions, to value loans. The Company does not record loans at fair value
on a recurring basis. However, from time to time, a loan is considered impaired and an
allowance for loan losses is established. Loans for which it is probable that payment of
interest and principal will not be made in accordance with the contractual terms of the loan
agreement are considered impaired. Once a loan is identified as individually impaired,
management measures impairment in accordance with SFAS 114, Accounting by Creditors for
Impairment of a Loan, (SFAS 114).The fair value of impaired loans is estimated using one of several methods, including
collateral value, market value of similar debt, enterprise value, liquidation value and
discounted cash flows. Those impaired loans not requiring an allowance represent loans for
which the fair value of the expected repayments or collateral exceed the recorded
investments in such loans. At December 31, 2008, substantially all of the total impaired
loans were evaluated based on the fair value of the collateral. In accordance with SFAS 157,
impaired loans where an allowance is established based on the fair value of collateral
require classification in the fair value hierarchy. When the fair value of the collateral is
based on an observable market price or a current appraised value, the Company records the
impaired loan as nonrecurring Level 2. When an appraised value is not available or
management determines the fair value of the collateral is further impaired below the
appraised value and there is no observable market price, the Company records the impaired
loan as nonrecurring Level 3.The Company had outstanding balances of $23 million and $13 million in impaired loans as of
December 31, 2008 and December 31, 2007, respectively. Impairment allowances totaled $1.1
million and $3.2 million at December 31, 2008 and December 31, 2007, respectively.The fair value measurements recorded during the periodThe Company recognized a $6.3 million write-down related to non-recurring fair value
measurements of impaired loans during 2008. Interest reversed from income during 2008 due to
impaired loans was $147,100.Method for determining fair valuesThe following methods and assumptions were used by the Company in estimating its fair value
disclosures for financial instruments:Cash and cash equivalents The carrying amounts reported in the consolidated balance sheets
for cash and cash equivalents are a reasonable estimate of fair value.Securities Fair values for securities are based on quoted market prices, where available.
If quoted market prices are not available, fair values are based on quoted market prices of
comparable instruments. Securities available-for-sale are carried at their aggregate fair
value, while securities held-to-maturity are carried at amortized cost.Loans receivable For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair values for fixed
rate loans are estimated using discounted cash flow analysis, using interest rates currently
being offered for loans with similar terms to borrowers of similar credit quality. The
carrying amount of accrued interest receivable approximates its fair value.
 86




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##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Commitments to extend credit and standby letters of credit The fair value of commitments
is the off-balance sheet amount of loan commitments and outstanding letters of credit.Federal Home Loan Bank borrowings The fair value of borrowed funds is based on carrying
amounts due to the short term nature of the borrowing.Junior subordinated debt payable to unconsolidated subsidiary grantor trust The fair value
of variable rate junior subordinated debt payable to subsidiary grantor trust is based on
carrying amounts.Deposit liabilities The fair values disclosed for demand deposits (e.g., interest and
noninterest checking, passbook savings, and money market accounts) are, by definition, equal
to the amount payable on demand at the reporting date (i.e., their carrying amounts). The
fair values for fixed-rate certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits. The carrying amount of
accrued interest payable approximates its fair value.Securities purchased under agreements to resell The fair value of securities purchased
under agreements to resell is estimated by discounting the contractual cash flows under
outstanding borrowings at rates prevailing in the marketplace today for similar borrowings,
rates and collateral.Limitations Fair value estimates are made at a specific point in time, based on relevant
market information and other information about the financial instrument. These estimates do
not reflect any premium or discount that could result from offering for sale at one time the
Companys entire holdings of a particular financial instrument.Because no market exists for a significant portion of the Companys financial instruments,
fair value estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial instruments, and
other factors.These estimates are subjective in nature, involve uncertainties and matters of significant
judgment, and therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.Fair value estimates are based on current on and off-balance sheet financial instruments
without attempting to estimate the value of anticipated future business and the value of
assets and liabilities that are not considered financial instruments. Other significant
assets and liabilities that are not considered financial assets or liabilities include
deferred tax assets and liabilities, and property, plant and equipment. In addition, the
tax ramifications related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in any of the
estimates.
 87




---



##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  December 31, 2008Contract
    
    CarryingAmount
    
    Amount
    
    Fair ValueFinancial Assets:Cash and cash equivalents
    
    
    
    
    
    $
    85,191,062
    
    
    $
    85,191,062Securities
    
    
    
    
    
    
    131,686,600
    
    
    
    131,686,600Loans, net
    
    
    
    
    
    
    518,946,461
    
    
    
    522,674,555Accrued interest on loans
    
    
    
    
    
    
    2,051,386
    
    
    
    2,051,386Accrued interest on securities
    
    
    
    
    
    
    1,079,110
    
    
    
    1,079,110Financial Liabilities:Demand and savings
    
    
    
    
    
    $
    290,995,299
    
    
    $
    290,995,299Fixed rate certificates
    
    
    
    
    
    
    256,084,780
    
    
    
    258,684,915Variable certificates
    
    
    
    
    
    
    8,201,824
    
    
    
    8,201,824Accrued interest payable
    
    
    
    
    
    
    618,890
    
    
    
    618,890Securities sold under agreements to repurchase
    
    
    
    
    
    
    13,853,255
    
    
    
    13,853,255Federal Home Loan Borrowings
    
    
    
    
    
    
    120,000,000
    
    
    
    120,000,000Junior subordinated debt payable to unconsolidated subsidiary grantor trust
    
    
    
    
    
    
    15,465,000
    
    
    
    15,465,000Off balance sheet financial instruments:Commitments to extend credit
    
    $
    156,707,887
    
    
    
    
    
    
    $
    156,707,887Standby letters of credit
    
    
    8,556,547
    
    
    
    
    
    
    
    8,556,547Guaranteed commitments outstanding
    
    
    1,350,399
    
    
    
    
    
    
    
    1,350,399
 88




---



##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2007Contract
    
    CarryingAmount
    
    Amount
    
    Fair ValueFinancial Assets:Cash and cash equivalents
    
    
    
    
    
    $
    22,234,123
    
    
    $
    22,234,123Securities
    
    
    
    
    
    
    78,465,151
    
    
    
    78,538,594Loans, net
    
    
    
    
    
    
    486,282,571
    
    
    
    487,801,021Accrued interest on loans
    
    
    
    
    
    
    2,497,124
    
    
    
    2,497,124Accrued interest on securities
    
    
    
    
    
    
    538,410
    
    
    
    538,410Financial Liabilities:Demand and savings
    
    
    
    
    
    $
    259,914,811
    
    
    $
    259,914,811Fixed rate certificates
    
    
    
    
    
    
    185,517,044
    
    
    
    187,227,845Variable certificates
    
    
    
    
    
    
    28,199,442
    
    
    
    28,199,442Accrued interest payable
    
    
    
    
    
    
    787,844
    
    
    
    787,844Securities sold under agreements to repurchase
    
    
    
    
    
    
    15,513,211
    
    
    
    15,513,211Federal Home Loan Borrowings
    
    
    
    
    
    
    60,000,000
    
    
    
    60,000,000Junior
subordinated debt payable to unconsolidated subsidiary grantor trust
    
    
    
    
    
    
    15,465,000
    
    
    
    15,465,000Off balance sheet financial instruments:Commitments to extend credit
    
    $
    192,815,902
    
    
    
    
    
    
    $
    192,815,902Standby letters of credit
    
    
    6,627,409
    
    
    
    
    
    
    
    6,627,409Guaranteed commitments outstanding
    
    
    1,375,999
    
    
    
    
    
    
    
    1,375,999
 89




---



##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 21.
    
    BANK OF COMMERCE HOLDINGS (PARENT COMPANY ONLY) FINANCIAL INFORMATION
 December 31,2008
    
    
    2007Condensed Balance SheetsAssets:Cash
    
    $
    1,663,934
    
    
    $
    1,196,921Time deposit with subsidiary
    
    
    0
    
    
    
    0Cash and cash equivalents
    
    
    1,663,934
    
    
    
    1,196,921Participation loans, net of allowance for
loan and lease losses of $38,850 in 2008 and
2007
    
    
    4,640,017
    
    
    
    5,174,536Investment in subsidiaries
    
    
    72,519,180
    
    
    
    56,070,932Other assets
    
    
    86,000
    
    
    
    7,500Total assets
    
    $
    78,909,131
    
    
    $
    62,449,889Junior subordinated debt payable to
unconsolidated subsidiary grantor trust
    
    
    15,465,000
    
    
    
    15,465,000Other liabilities
    
    
    866,490
    
    
    
    821,042Stockholders equity
    
    
    62,577,641
    
    
    
    46,163,848Total liabilities and stockholders equity
    
    $
    78,909,131
    
    
    $
    62,449,889
 Years Ended December 31,2008
    
    
    2007
    
    
    2006Condensed Statements of IncomeIncome:Interest income
    
    $
    1,097,452
    
    
    $
    53,488
    
    
    $
    93,167Dividends from subsidiaries
    
    
    1,496,583
    
    
    
    6,738,029
    
    
    
    4,641,3522,594,035
    
    
    
    6,791,517
    
    
    
    4,734,519Expenses:
    
    
    1,010,641
    
    
    
    1,809,492
    
    
    
    1,405,409Income before income taxes and equity in
undistributed net income of subsidiaries
    
    
    1,583,394
    
    
    
    4,982,025
    
    
    
    3,329,110Provision for income taxes
    
    
    800
    
    
    
    800
    
    
    
    800Income before equity in undistributed net income of subsidiaries
    
    
    1,582,594
    
    
    
    4,981,225
    
    
    
    3,328,310Equity in undistributed net income of subsidiaries
    
    
    611,793
    
    
    
    1,125,673
    
    
    
    3,239,399Net income
    
    $
    2,194,386
    
    
    $
    6,106,898
    
    
    $
    6,567,709
 90




---



##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Years Ended December 31,2008
    
    
    2007
    
    
    2006Statements of Cash FlowsCash flows from operating activities:Net income
    
    $
    2,194,386
    
    
    $
    6,106,898
    
    
    $
    6,567,709Adjustments to reconcile net income to net cash
provided by operating activities:Provision for loan losses
    
    
    0
    
    
    
    19,950
    
    
    
    18,900Compensation associated with stock options
    
    
    33,116
    
    
    
    32,637
    
    
    
    7,672Effect of changes in:Other Assets
    
    
    78,500
    
    
    
    30,000
    
    
    
    30,000Other Liabilities
    
    
    45,249
    
    
    
    (97,439
    )
    
    
    134,958Equity in undistributed net income of subsidiaries
    
    
    (611,793
    )
    
    
    (1,125,673
    )
    
    
    (3,239,399
    )Net cash provided by operating activities
    
    
    1,739,458
    
    
    
    4,966,373
    
    
    
    3,519,840Cash flows from investing activities:Investment in subsidiary trust
    
    
    0
    
    
    
    0
    
    
    
    (155,000
    )Capital contribution to Bank
    
    
    (14,200,000
    )
    
    
    0
    
    
    
    0Participation loan payments
    
    
    2,934,519
    
    
    
    272,058
    
    
    
    0Participation loan purchased
    
    
    (2,400,000
    )
    
    
    (1,861,603
    )
    
    
    (981,523
    )Net cash
(used) provided by investing activities
    
    
    (13,665,481
    )
    
    
    (1,589,545
    )
    
    
    (1,136,523
    )Cash flows from financing activities:Equity transactions, net
    
    
    15,183,459
    
    
    
    (1,758,656
    )
    
    
    (210,589
    )Cash dividends
    
    
    (2,790,423
    )
    
    
    (2,838,029
    )
    
    
    (2,650,320
    )Net cash
provided (used) by financing activities
    
    
    12,393,036
    
    
    
    (4,596,685
    )
    
    
    (2,860,909
    )(Decrease) Increase in cash and cash equivalents
    
    
    467,013
    
    
    
    (1,219,857
    )
    
    
    (477,592
    )Cash and cash equivalents at beginning of year
    
    
    1,196,921
    
    
    
    2,416,778
    
    
    
    2,894,370Cash and cash equivalents at end of year
    
    $
    1,663,934
    
    
    $
    1,196,921
    
    
    $
    2,416,778
 91




---



##### 



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 22.
    
    UNAUDITED QUARTERLY RESULTS
 UNAUDITED QUARTERLY STATEMENTS OF INCOME DATA
 For the Quarter Ended(Dollars in thousands, except per
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,share data)
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008Net interest income
    
    $
    5,420
    
    
    $
    5,046
    
    
    $
    5,240
    
    
    $
    5,642Provision for loan losses
    
    
    (600
    )
    
    
    (1,000
    )
    
    
    (1,300
    )
    
    
    (3,620
    )Noninterest income
    
    
    565
    
    
    
    717
    
    
    
    751
    
    
    
    590Noninterest expense
    
    
    (3,565
    )
    
    
    (3,613
    )
    
    
    (3,612
    )
    
    
    (4,507
    )Income before taxes
    
    
    1,820
    
    
    
    1,150
    
    
    
    1,079
    
    
    
    1,895Provision for income tax
    
    
    (591
    )
    
    
    (244
    )
    
    
    (362
    )
    
    
    1,237Net Income
    
    $
    1,229
    
    
    $
    906
    
    
    $
    717
    
    
    
    ($658
    )Per common share:Basic earnings per share
    
    $
    0.14
    
    
    $
    0.10
    
    
    $
    0.08
    
    
    
    ($0.07
    )Diluted earnings per share
    
    $
    0.14
    
    
    $
    0.10
    
    
    $
    0.08
    
    
    
    ($0.07
    )Dividends per share
    
    $
    0.08
    
    
    $
    0.08
    
    
    $
    0.08
    
    
    $
    0.08
 For the Quarter Ended(Dollars in thousands, except per
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,share data)
    
    2007
    
    
    2007
    
    
    2007
    
    
    2007Net interest income
    
    $
    5,327
    
    
    $
    5,461
    
    
    $
    5,641
    
    
    $
    5,584Provision for loan losses
    
    
    (6
    )
    
    
    0
    
    
    
    (115
    )
    
    
    (3,170
    )Noninterest income
    
    
    498
    
    
    
    618
    
    
    
    526
    
    
    
    2,893Noninterest expense
    
    
    (3,488
    )
    
    
    (3,701
    )
    
    
    (4,028
    )
    
    
    (4,528
    )Income before taxes
    
    
    2,331
    
    
    
    2,378
    
    
    
    2,024
    
    
    
    779Provision for income tax
    
    
    (844
    )
    
    
    (778
    )
    
    
    (693
    )
    
    
    910Net Income
    
    $
    1,487
    
    
    $
    1,600
    
    
    $
    1,331
    
    
    $
    1,689Per common share:Basic earnings per share
    
    $
    0.17
    
    
    $
    0.18
    
    
    $
    0.15
    
    
    $
    0.19Diluted earnings per share
    
    $
    0.17
    
    
    $
    0.18
    
    
    $
    0.15
    
    
    $
    0.18Dividends per share
    
    $
    0.09
    
    
    $
    0.08
    
    
    $
    0.08
    
    
    $
    0.08
 For the Quarter Ended(Dollars in thousands, except per
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,share data)
    
    2006
    
    
    2006
    
    
    2006
    
    
    2006Net interest income
    
    $
    5,413
    
    
    $
    5,674
    
    
    $
    5,530
    
    
    $
    5,418Provision for loan losses
    
    
    (11
    )
    
    
    (143
    )
    
    
    (72
    )
    
    
    (0
    )Noninterest income
    
    
    448
    
    
    
    512
    
    
    
    428
    
    
    
    541Noninterest expense
    
    
    (3,238
    )
    
    
    (3,310
    )
    
    
    (3,299
    )
    
    
    (3,486
    )Income before taxes
    
    
    2,612
    
    
    
    2,733
    
    
    
    2,587
    
    
    
    2,473Provision for income tax
    
    
    (1,020
    )
    
    
    (1,044
    )
    
    
    (915
    )
    
    
    (858
    )Net Income
    
    $
    1,592
    
    
    $
    1,689
    
    
    $
    1,672
    
    
    $
    1,615Per common share:Basic earnings per share
    
    $
    0.19
    
    
    $
    0.19
    
    
    $
    0.19
    
    
    $
    0.18Diluted earnings per share
    
    $
    0.18
    
    
    $
    0.19
    
    
    $
    0.19
    
    
    $
    0.18Dividends per share
    
    $
    0.08
    
    
    $
    0.07
    
    
    $
    0.07
    
    
    $
    0.07
 92




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##### 



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Report on Internal Control over Financial Reporting
  Internal
Control-Integrated Framework.
 Changes in Internal Control over Financial Reporting
  
 ITEM 9B. OTHER INFORMATION
  
 ITEM 9B. OTHER INFORMATION
   
 PART III
  93




---



##### 



ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 Executive Officers of the Registrant
  Name
    
    Age
    
    Position(s)Patrick J. Moty
    
    
    51
    
    
    President and Chief Executive Officer Redding
Bank of Commerce and Director of Redding Bank of
CommerceLinda J. Miles
    
    
    55
    
    
    Executive Vice President, Chief Financial Officer
and Assistant Secretary
 Patrick J. Moty
 Linda J. Miles
 Audit Committee Information
  Code of Ethics and Business Conduct
  94




---



##### 



Additional Information
  
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
   
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 Audit Fees
  Audit-Related Fees
  Tax Fees
  All Other Fees
  95




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96




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PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES
 (a)
    
    The following documents are filed as a part of this Form 10-K:
 (1)
    
    Financial Statements:
  (2)
    
    Financial Statement Schedules:
  (3)
    
    Exhibits:
 ExhibitNumber
    
    Description of Document3.1
    
    Articles of Incorporation, as amended filed 12/4/1998.*3.2
    
    Bylaws, as amended filed 05/15/2007.*4.1
    
    Specimen Common Stock Certificate filed 12/4/1998.*4.2
    
    Certificate of determination for the Series A Preferred Stock filed 11/17/08*4.3
    
    Form of Certificate for the Series A Preferred Stock filed 11/17/08*4.4
    
    Warrant for purchase of shares of Common stock filed 11/17/08*10.1
    
    Letter Agreement, dated November 14, 2008, between Bank of Commerce Holdings and
the United States Department of the Treasury, which includes the Securities
Purchase Agreement  Standard Terms attached thereto, with respect to the
issuance of the Series A Preferred Stock and Warrant filed 11/17/08*10.2
    
    Office Building Lease between Garian Partnership/First Avenue Square and Redding
Bank of Commerce dated July 16, 1998 filed 12/4/1998.*10.3
    
    1998 Stock Option Plan filed 12/4/1998.*10.4
    
    Form of Incentive Stock Option Agreement used in connection with 1998 Stock
Option Plan filed 12/4/1998.*10.5
    
    Form of Non-statutory Stock Option Agreement used in connection with 1998 Stock
Option Plan filed 12/4/1998.*10.7
    
    Directors Deferred Compensation Plan filed 12/4/1998.*10.8
    
    Form of Deferred Compensation Agreement Used In Connection With Directors
Deferred Compensation Plan filed 12/4/1998.*10.10
    
    Employment contracts dated April 2001 filed 9/27/2001.*10.11
    
    Affiliated Business Arrangement Agreement filed 8/20/2004*10.12
    
    Office building lease by and between Wainright #3 Partners and Redding Bank of
Commerce dated 9/23/2005 and filed 9/26/2005*10.13
    
    Amendment to Employment contracts dated April 2001, filed 12/20/2005*10.14
    
    Change in Control Agreements filed on 12/21/2005*10.15
    
    Salary Continuation  Blais filed on 12/19/2006*10.16
    
    Salary Continuation  Moty filed on 12/19/2006*10.17
    
    Salary Continuation  Eslick filed on 12/19/2006*10.19
    
    Employment Agreement  Miles filed on 12/29/06*10.21
    
    Salary Continuation  Miles filed on 12/29/06*10.22
    
    Employment Agreement  Moty filed on 9/28/07*10.23
    
    Salary Continuation  Moty filed on 9/28/07*10.24
    
    Employment contracts dated October 14, 2008 filed on 10/16/08*10.25
    
    Employment Agreement  Matranga filed on 11/25/08*11.1
    
    Statement re: Computation of Earnings per Share (see page _63_).14.0
    
    Bank of Commerce Code of Ethics filed on 2/26/2003*16.1
    
    Letter on Change in Certifying Accountants filed 12/4/1998. *21.1
    
    Subsidiaries of the Company filed 12/4/1998. *23.1
    
    Consent of Moss Adams LLP24.1
    
    Power of Attorney (see page ___100___)31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of the Companys Chief Executive Officer.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of the Companys Chief Executive Officer.32.1
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ___
 
 *
    
    Previously filed with the Companys Registration Statement on Form 10 and by the Companys
filing of reports on Form 8-K. (b)
    
    Reports on Form 8-K:
 97




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##### 



SIGNATURES
  BANK OF COMMERCE HOLDINGSBy
    /s/ Patrick J.  MotyPatrick J. MotyPresident, Chief Executive
Officer and Director of Redding Bank of Commerce POWER OF ATTORNEY
  98




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##### 



Name
    
    Title
    
    Date/s/Patrick J. Moty

Patrick J. Moty
    
    President, Chief Executive
OfficerRedding Bank of
Commerce andDirector of
Redding Bank of Commerce
    
    March 13, 2009/s/Linda J. Miles

Linda J. Miles
    
    Executive Vice President
and ChiefFinancial
Officer and Assistant
Secretary(Principal
Financial and Accounting
Officer)
    
    March 13, 2009/s/Kenneth R. Gifford, Jr.

Kenneth R. Gifford, Jr.
    
    Chairman of the Board
    
    March 13, 2009/s/Welton L. Carrel

Welton L. Carrel
    
    Director
    
    March 13, 2009/s/Russell L. Duclos

Russell L. Duclos
    
    Director
    
    March 13, 2009/s/David H. Scott

David H. Scott
    
    Director
    
    March 13, 2009/s/Lyle L. Tullis

Lyle L. Tullis
    
    Director
    
    March 13, 2009/s/ Jon Halfhide

Jon Halfhide
    
    Director
    
    March 13, 2009/s/ Orin Bennett

Orin Bennett
    
    Director
    
    March 13, 2009/s/ Gary Burks

Gary Burks
    
    Director
    
    March 13, 2009/s/ Dave Bonuccelli

Dave Bonuccelli
    
    Director
    
    March 13, 2009
 99




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##### 



EXHIBIT INDEX
 ExhibitNumber
    
    Description of Document3.1
    
    Articles of Incorporation, as amended filed 12/4/1998.*3.2
    
    Bylaws, as amended filed 05/15/2007.*4.1
    
    Specimen Common Stock Certificate filed 12/4/1998.*4.2
    
    Certificate of determination for the Series A Preferred Stock filed 11/17/08*4.3
    
    Form of Certificate for the Series A Preferred Stock filed 11/17/08*4.4
    
    Warrant for purchase of shares of Common stock filed 11/17/08*10.1
    
    Letter Agreement, dated November 14, 2008, between Bank of Commerce Holdings
and the United States Department of the Treasury, which includes the
Securities Purchase Agreement  Standard Terms attached thereto, with
respect to the issuance of the Series A Preferred Stock and Warrant filed
11/17/08*10.2
    
    Office Building Lease between Garian Partnership/First Avenue Square and
Redding Bank of Commerce dated July 16, 1998 filed 12/4/1998.*10.3
    
    1998 Stock Option Plan filed 12/4/1998.*10.4
    
    Form of Incentive Stock Option Agreement used in connection with 1998 Stock
Option Plan filed 12/4/1998.*10.5
    
    Form of Non-statutory Stock Option Agreement used in connection with 1998
Stock Option Plan filed 12/4/1998.*10.7
    
    Directors Deferred Compensation Plan filed 12/4/1998.*10.8
    
    Form of Deferred Compensation Agreement Used In Connection With Directors
Deferred Compensation Plan filed 12/4/1998.*10.10
    
    Employment contracts dated April 2001 filed 9/27/2001.*10.11
    
    Affiliated Business Arrangement Agreement filed 8/20/2004*10.12
    
    Office building lease by and between Wainright #3 Partners and Redding Bank
of Commerce dated 9/23/2005 and filed 9/26/2005*10.13
    
    Amendment to Employment contracts dated April 2001, filed 12/20/2005*10.14
    
    Change in Control Agreements filed on 12/21/2005*10.15
    
    Salary Continuation  Blais filed on 12/19/2006*10.16
    
    Salary Continuation  Moty filed on 12/19/2006*10.17
    
    Salary Continuation  Eslick filed on 12/19/2006*10.19
    
    Employment Agreement  Miles filed on 12/29/06*10.21
    
    Salary Continuation  Miles filed on 12/29/06*10.22
    
    Employment Agreement  Moty filed on 9/28/07*10.23
    
    Salary Continuation  Moty filed on 9/28/07*10.24
    
    Employment contracts dated October 14, 2008 filed on 10/16/08*10.25
    
    Employment Agreement  Matranga filed on 11/25/08*11.1
    
    Statement re: Computation of Earnings per Share (see page _63_).14.0
    
    Bank of Commerce Code of Ethics filed on 2/26/2003*16.1
    
    Letter on Change in Certifying Accountants filed 12/4/1998. *21.1
    
    Subsidiaries of the Company filed 12/4/1998. *23.1
    
    Consent of Moss Adams LLP24.1
    
    Power of Attorney (see page ___100___)31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of the companys Chiek Executive Officer.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of the companys Chiek Executive Officer.32.1
    
    Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Previously filed with the Companys Registration Statement on Form 10 and by the Companys filing
of reports on Form 8-K.