##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 Form 10-K/A    x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004  Commission File Number 0-25135 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________ (BANK LOGO) BANK OF COMMERCE HOLDINGS  California
    
    94-2823865(State or jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification Number)
 1951 Churn Creek RoadRedding, California
    
    96002(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (530) 224-3333 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value per share Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of
the Registrants knowledge, in definitive proxy or information statements
incorporated by reference to Part III of this Form 10-K or any amendment to this
Form 10-K. o Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act) Yes o No x As of May 31, 2005 there were 8,571,781 total shares of the Registrants common
stock outstanding.   1




---



##### Table of Contents



Bank of Commerce Holdings Form 10-K/A (Amendment No. 2) Explanation: On March 4, 2005 Bank of Commerce Holdings electronically filed their Annual Form 10-K
as of December 31, 2004. In the filing, the original signature the companies independent
registered public accounting firm (Moss Adams LLP) was missing. In addition, Exhibit item
23.1 Consent of Independent Registered Public Accounting Firm (Moss Adams LLP) was not
included. Instead Exhibit 23.2 (Deloitte & Touche LLP) was reproduced twice. The purpose of this filing is to incorporate the missing original signatures and to
re-file Item No. 8 Financial Statements and Supplementary Data to include such original
signatures. /s/ Linda J. Miles
Linda J. Miles
Principal Accounting Officer 2




---



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements PageReport of Independent Registered Public Accounting Firm
    
    
    4Consolidated Balance Sheets as of December 31, 2004 and 2003
    
    
    6Consolidated Statements of Income for the years ended December 31, 2004, 2003 and 2002
    
    
    7Consolidated Statements of Stockholders Equity for the years ended December 31, 2004, 2003 and 2002
    
    
    8Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002
    
    
    10Notes to Consolidated Financial Statements for the years ended December 31, 2004, 2003 and 2002
    
    
    12Exhibit 23.1Exhibit 23.2Exhibit 23.3Exhibit 32.1
  3




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Directors of
Bank of Commerce Holdings We have audited the accompanying consolidated balance sheet of Bank of Commerce Holdings and
subsidiaries (the Company) as of December 31, 2004, and the related consolidated statements of
income, stockholders equity, and cash flows for the year ended December 31, 2004. These financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Bank of Commerce Holdings and subsidiaries as of December 31,
2004, and the results of their operations and their cash flows for the year ended December 31,
2004, in conformity with accounting principles generally accepted in the United States of America. (MOSS ADAMS LLP) Stockton, California
January 14, 2005 4




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Directors of
Bank of Commerce Holdings: We have audited the consolidated balance sheet of Bank of Commerce Holdings (formerly Redding
Bancorp) and subsidiaries (the Company) as of December 31, 2003, and the related consolidated
statements of income, stockholders equity, and cash flows for each of the two years in the period
ended December 31, 2003. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our
audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of Bank of Commerce Holdings and subsidiaries as of December 31, 2003, and
the results of their operations and their cash flows for each of the two years in the period ended
December 31, 2003, in conformity with accounting principles generally accepted in the United States
of America. (DELOITTE & TOUCHE LLP) San Francisco, California
February 24, 2004
(February 24, 2005 as to the effects of the stock split described in Note 2) 5




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2004 and 2003 
 ASSETS
    
    2004
    
    
    2003Cash and due from banks
    
    $
    13,120,951
    
    
    $
    23,843,864Federal funds sold and securities purchased under agreements to resell
    
    
    6,120,000
    
    
    
    8,195,000Cash and cash equivalents
    
    
    19,240,951
    
    
    
    32,038,864Securities available-for-sale (including pledged collateral of
$35,345,000 at December 31, 2004 and $10,589,000 at December 31, 2003)
    
    
    82,443,193
    
    
    
    70,034,442Securities held-to-maturity, at cost
(estimated fair value of $487,092 at December 31 2004
and $1,460,052 at December 31 2003)
    
    
    448,753
    
    
    
    1,390,851Loans, net of the allowance for loan losses of $3,866,498
at December 31, 2004 and $3,675,084 at December 31, 2003
    
    
    318,800,587
    
    
    
    278,203,553Bank premises and equipment, net
    
    
    5,484,196
    
    
    
    5,812,789Other assets
    
    
    12,127,127
    
    
    
    13,677,153TOTAL ASSETS
    
    $
    438,544,807
    
    
    $
    401,157,652LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Demand  noninterest bearing
    
    $
    82,262,500
    
    
    $
    71,221,552Demand  interest bearing
    
    
    108,644,844
    
    
    
    94,051,087Savings accounts
    
    
    23,471,100
    
    
    
    22,196,598Certificates of deposit
    
    
    138,499,839
    
    
    
    140,069,406Total Deposits
    
    
    352,878,283
    
    
    
    327,538,643Securities sold under agreements to repurchase
    
    
    2,003,712
    
    
    
    3,748,797Federal Home Loan Bank borrowings
    
    
    35,000,000
    
    
    
    30,000,000Other liabilities
    
    
    8,379,475
    
    
    
    4,359,019Junior subordinated debt payable to unconsolidated
subsidiary grantor trust
    
    
    5,000,000
    
    
    
    5,000,000Total liabilities
    
    
    403,261,470
    
    
    
    370,646,459Commitments and contingencies (Note 17)Stockholders equity:Preferred stock, no par value; 2,000,000 shares authorized;
no shares issued and outstanding in 2004 and 2003
    
    
    
    
    
    
    Common stock, no par value; 10,000,000 shares
authorized; 8,502,831 shares issued and outstanding in 2004
and 8,130,174 shares issued and outstanding in 2003
    
    
    10,536,562
    
    
    
    9,539,752Retained earnings
    
    
    25,079,522
    
    
    
    21,236,140Accumulated other comprehensive (loss) income, net of tax
    
    
    (332,747
    )
    
    
    (264,699
    )Total stockholders equity
    
    
    35,283,337
    
    
    
    30,511,193TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    438,544,807
    
    
    $
    401,157,652
 See accompanying notes to consolidated financial statements. 6




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 
 2004
    
    
    2003
    
    
    2002Interest income:Interest and fees on loans
    
    $
    18,444,703
    
    
    $
    17,655,479
    
    
    $
    16,812,119Interest on tax-exempt securities
    
    
    225,976
    
    
    
    139,895
    
    
    
    138,573Interest on U.S. government securities
    
    
    2,175,274
    
    
    
    1,290,481
    
    
    
    1,299,956Interest on federal funds sold and securities purchased
under agreement to resell
    
    
    143,449
    
    
    
    193,089
    
    
    
    226,854Interest on other securities
    
    
    6,788
    
    
    
    0
    
    
    
    87,691Total interest income
    
    
    20,996,190
    
    
    
    19,278,944
    
    
    
    18,565,193Interest expense:Interest on demand deposits
    
    
    429,699
    
    
    
    463,708
    
    
    
    596,646Interest on savings deposits
    
    
    103,670
    
    
    
    132,758
    
    
    
    144,845Interest on certificates of deposit
    
    
    2,876,236
    
    
    
    3,570,686
    
    
    
    5,115,243Interest on FHLB and other borrowings
    
    
    449,432
    
    
    
    233,649
    
    
    
    191,194Interest on junior subordinated debt payable to
unconsolidated subsidiary grantor trust
    
    
    250,495
    
    
    
    183,805
    
    
    
    0Total interest expense
    
    
    4,109,532
    
    
    
    4,584,606
    
    
    
    6,047,928Net interest income
    
    
    16,886,658
    
    
    
    14,694,338
    
    
    
    12,517,265Provision for loan and lease losses
    
    
    593,000
    
    
    
    515,000
    
    
    
    620,000Net interest income after provision for loan and lease losses
    
    
    16,293,658
    
    
    
    14,179,338
    
    
    
    11,897,265Noninterest income:Service charges on deposit accounts
    
    
    475,971
    
    
    
    348,086
    
    
    
    289,042Payroll and benefit processing fees
    
    
    343,086
    
    
    
    331,492
    
    
    
    301,983Earnings on cash surrender value -
Bank owned life insurance
    
    
    258,539
    
    
    
    233,094
    
    
    
    246,796Net gain on sale of securities available-for-sale
    
    
    0
    
    
    
    88,395
    
    
    
    275,425Net gain on sale of loans
    
    
    94,878
    
    
    
    101,005
    
    
    
    59,604Merchant credit card service income, net
    
    
    433,822
    
    
    
    407,945
    
    
    
    424,557Mortgage brokerage fee income
    
    
    186,188
    
    
    
    250,451
    
    
    
    161,439Other income
    
    
    403,437
    
    
    
    389,698
    
    
    
    332,108Total noninterest income
    
    
    2,195,921
    
    
    
    2,150,166
    
    
    
    2,090,954Noninterest expense:Salaries and related benefits
    
    
    5,938,672
    
    
    
    5,450,874
    
    
    
    4,709,133Occupancy and equipment expense
    
    
    1,534,490
    
    
    
    1,470,722
    
    
    
    1,463,252FDIC insurance premium
    
    
    47,843
    
    
    
    49,431
    
    
    
    47,852Data processing fees
    
    
    253,895
    
    
    
    217,169
    
    
    
    88,589Professional service fees
    
    
    802,742
    
    
    
    653,698
    
    
    
    440,985Deferred compensation expense
    
    
    280,771
    
    
    
    255,612
    
    
    
    239,128Stationery and supplies
    
    
    208,102
    
    
    
    219,473
    
    
    
    234,991Postage
    
    
    96,780
    
    
    
    102,650
    
    
    
    105,597Directors expenses
    
    
    266,911
    
    
    
    241,384
    
    
    
    256,672Other expenses
    
    
    1,150,790
    
    
    
    999,157
    
    
    
    680,416Total noninterest expense
    
    
    10,580,996
    
    
    
    9,660,170
    
    
    
    8,266,615Income before income taxes
    
    
    7,908,583
    
    
    
    6,669,334
    
    
    
    5,721,604Provision for income taxes
    
    
    2,930,908
    
    
    
    2,486,658
    
    
    
    2,025,144Net Income
    
    $
    4,977,675
    
    
    $
    4,182,676
    
    
    $
    3,696,460Basic earnings per share
    
    $
    0.60
    
    
    $
    0.52
    
    
    $
    0.46Weighted average shares  basic
    
    
    8,282,588
    
    
    
    8,033,484
    
    
    
    8,012,667Diluted earnings per share
    
    $
    0.57
    
    
    $
    0.50
    
    
    $
    0.43Weighted average shares  diluted
    
    
    8,702,611
    
    
    
    8,326,908
    
    
    
    8,604,219
 See accompanying notes to consolidated financial statements. 7




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 
 AccumulatedOtherComprehensiveComprehensive
    
    
    Common
    
    
    Stock
    
    
    Retained
    
    
    Income(Loss),Income
    
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    net of tax
    
    
    TotalBalance at January 1, 2002
    
    
    
    
    
    
    8,110,371
    
    
    $
    8,850,826
    
    
    
    18,397,061
    
    
    
    (8,038
    )
    
    
    27,239,849Comprehensive Income:Net Income
    
    $
    3,696,460
    
    
    
    
    
    
    
    
    
    
    
    3,696,460
    
    
    
    
    
    
    
    3,696,460Other Comprehensive Income:Unrealized holding gains arising
during period, net of tax
    
    
    324,623Less: reclassification adjustment
for gains included in net
income, net of tax
    
    
    (177,925
    )Other Comprehensive Income
    
    
    146,698
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146,698
    
    
    
    146,698Total Comprehensive Income
    
    $
    3,843,158Cash dividends ($0.22 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,721,279
    )
    
    
    
    
    
    
    (1,721,279
    )Compensation expense associated with stock options
    
    
    
    
    
    
    
    
    
    
    67,200
    
    
    
    
    
    
    
    
    
    
    
    67,200Stock options exercised
    
    
    
    
    
    
    93,180
    
    
    
    102,141
    
    
    
    197,566
    
    
    
    
    
    
    
    299,707Purchase and retirement of common stock
    
    
    
    
    
    
    (278,943
    )
    
    
    (305,400
    )
    
    
    (1,782,102
    )
    
    
    
    
    
    
    (2,087,502
    )Tax benefit on exercise of options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,997
    
    
    
    
    
    
    
    25,997Balance at December 31, 2002
    
    
    
    
    
    
    7,924,608
    
    
    $
    8,714,767
    
    
    $
    18,813,703
    
    
    $
    138,660
    
    
    $
    27,667,130Comprehensive Income:Net Income
    
    
    4,182,676
    
    
    
    
    
    
    
    
    
    
    
    4,182,676
    
    
    
    
    
    
    
    4,182,676Other Comprehensive Income:Unrealized holding losses arising
during period, net of tax
    
    
    (347,918
    )Less: reclassification adjustment
for gains included in net
income, net of tax
    
    
    (55,441
    )Other Comprehensive Income
    
    
    (403,359
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (403,359
    )
    
    
    (403,359
    )Total Comprehensive Income
    
    $
    3,779,317Cash dividends ($0.22 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,760,239
    )
    
    
    
    
    
    
    (1,760,239
    )Compensation expense associated with stock options
    
    
    
    
    
    
    
    
    
    
    22,404
    
    
    
    
    
    
    
    
    
    
    
    22,404Stock options exercised
    
    
    
    
    
    
    205,566
    
    
    
    621,452
    
    
    
    
    
    
    
    
    
    
    
    621,452Tax benefit on exercise of options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    181,129
    
    
    
    
    
    
    
    181,129Balance at December 31, 2003
    
    
    
    
    
    
    8,130,174
    
    
    $
    9,358,623
    
    
    $
    21,417,269
    
    
    
    ($264,699
    )
    
    $
    30,511,193
 (Continues) See accompanying notes to the consolidated financial statements. 8




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 AccumulatedOtherComprehensiveComprehensive
    
    
    Common
    
    
    Stock
    
    
    Retained
    
    
    Income (Loss),Income
    
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    net of tax
    
    
    TotalBalance at December 31, 2003
    
    
    
    
    
    
    8,130,174
    
    
    $
    9,358,623
    
    
    $
    21,417,269
    
    
    
    ($264.699
    )
    
    $
    30,511,193Comprehensive Income:Net Income
    
    
    4,977,675
    
    
    
    
    
    
    
    
    
    
    
    4,977,675
    
    
    
    
    
    
    
    4,977,675Other Comprehensive Income:Unrealized holding losses arising
during period, net of tax
    
    
    (68,048
    )Less: reclassification adjustment
for gains included in net
income, net of tax
    
    
    (0
    )Other Comprehensive Income
    
    
    (68,048
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (68,048
    )
    
    
    (68,048
    )Total Comprehensive Income
    
    $
    4,909,627Cash dividends ($0.23 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,955,584
    )
    
    
    
    
    
    
    (1,955,584
    )Compensation expense associated with stock options
    
    
    
    
    
    
    
    
    
    
    3,856
    
    
    
    
    
    
    
    
    
    
    
    3,856Stock options exercised
    
    
    
    
    
    
    372,657
    
    
    
    1,174,083
    
    
    
    
    
    
    
    
    
    
    
    1,174,083Tax benefit on exercise of options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    640,162
    
    
    
    
    
    
    
    640,162Balance at December 31, 2004
    
    
    
    
    
    
    8,502,831
    
    
    $
    10,536,562
    
    
    $
    25,079,522
    
    
    
    ($332,747
    )
    
    $
    35,283,337
 9




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 2004
    
    
    2003
    
    
    2002Cash flows from operating activities:Net income
    
    $
    4,977,675
    
    
    $
    4,182,676
    
    
    $
    3,696,460Adjustments to reconcile net income to net cash
provided by operating activities:Provision for loan losses
    
    
    593,000
    
    
    
    515,000
    
    
    
    620,000Provision for depreciation and amortization
    
    
    610,997
    
    
    
    691,859
    
    
    
    737,020Compensation expense associated with stock options
    
    
    3,856
    
    
    
    22,404
    
    
    
    67,200Gain on sale of securities available-for-sale
    
    
    0
    
    
    
    (88,395
    )
    
    
    (275,425
    )Amortization of securities premiums and accretion
of discounts, net
    
    
    272,479
    
    
    
    325,112
    
    
    
    534,180Gain on sale of loans
    
    
    (94,878
    )
    
    
    (101,005
    )
    
    
    (59,604
    )Gain on sale of fixed assets
    
    
    (50
    )
    
    
    (2,036
    )
    
    
    (18,806
    )Proceeds from sale of loans
    
    
    1,664,878
    
    
    
    1,193,689
    
    
    
    1,326,629Loans originated for sale
    
    
    (1,570,000
    )
    
    
    (1,092,684
    )
    
    
    (1,386,233
    )Deferred income taxes
    
    
    314,555
    
    
    
    (514,197
    )
    
    
    (319,820
    )Effect of changes in:Other assets
    
    
    1,283,062
    
    
    
    (364,438
    )
    
    
    (2,115,248
    )Deferred loan fees
    
    
    158,604
    
    
    
    (89,540
    )
    
    
    448,944Other liabilities
    
    
    4,660,608
    
    
    
    479,422
    
    
    
    317,047Net cash provided by operating activities
    
    
    12,874,786
    
    
    
    5,157,867
    
    
    
    3,572,344Cash flows from investing activities:Proceeds from maturities of available-for-sale
securities
    
    
    32,797,174
    
    
    
    20,115,204
    
    
    
    18,539,071Proceeds from sale of available-for-sale securities
    
    
    0
    
    
    
    15,244,634
    
    
    
    42,062,130Purchases of available-for-sale securities
    
    
    (45,599,957
    )
    
    
    (73,979,119
    )
    
    
    (52,074,912
    )Maturities of held-to-maturity securities
    
    
    948,022
    
    
    
    1,025,791
    
    
    
    1,711,823Loan originations, net of principal repayments
    
    
    (41,348,638
    )
    
    
    1,721,867
    
    
    
    (64,002,564
    )Purchase of Bank premises and equipment, net
    
    
    (282,354
    )
    
    
    (1,017,857
    )
    
    
    (626,255
    )Net cash used in investing activities
    
    
    (53,485,753
    )
    
    
    (36,889,480
    )
    
    
    (54,390,707
    )Cash flows from financing activities:Net increase in demand deposits and savings accounts
    
    
    26,909,207
    
    
    
    23,252,044
    
    
    
    32,765,223Net (decrease) increase in certificates of deposit
    
    
    (1,569,567
    )
    
    
    (10,160,051
    )
    
    
    245,883Increase (decrease) in securities sold under
agreements to repurchase
    
    
    (1,745,085
    )
    
    
    44,412
    
    
    
    (3,075,847
    )Proceeds from Federal Home Loan Bank advances
    
    
    95,000,000
    
    
    
    55,000,000
    
    
    
    28,000,000Repayments of Federal Home Loan Bank advances
    
    
    (90,000,000
    )
    
    
    (43,000,000
    )
    
    
    (10,000,000
    )Junior subordinated debt payable to unconsolidated
subsidiary grantor trust
    
    
    0
    
    
    
    5,000,000
    
    
    
    0Cash dividends
    
    
    (1,955,584
    )
    
    
    (1,760,239
    )
    
    
    (1,721,279
    )Equity transactions, net
    
    
    1,174,083
    
    
    
    802,582
    
    
    
    (1,761,798
    )Net cash provided by financing activities
    
    
    27,813,054
    
    
    
    29,178,748
    
    
    
    44,452,182Net increase (decrease) in cash and cash equivalents
    
    
    (12,797,913
    )
    
    
    (2,552,865
    )
    
    
    (6,366,181
    )Cash and cash equivalents at beginning of year
    
    
    32,038,864
    
    
    
    34,591,729
    
    
    
    40,957,910Cash and cash equivalents at end of year
    
    $
    19,240,951
    
    
    $
    32,038,864
    
    
    $
    34,591,729
 10




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 (Continued) Supplemental disclosures:Cash paid during the period for:Income taxes
    
    $
    1,959,700
    
    
    $
    2,258,200
    
    
    $
    1,915,800Interest
    
    $
    4,083,048
    
    
    $
    4,655,112
    
    
    $
    6,161,458Supplemental Schedule of Non cash Investing and Financing ActivitiesTransfer from loans to other real estate owned
    
    $
    0
    
    
    $
    0
    
    
    $
    337,977
 See accompanying notes to consolidated financial statements. 11




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002  1.
    THE BUSINESS OF THE COMPANYOn May 18, 2004 the Holding Company (Redding Bancorp) amended the
Articles of Incorporation to change the Companys name to Bank of Commerce Holdings. Bank 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, (formerly RBC Mortgage Services)
(collectively the Company). The Company has an unconsolidated subsidiary in Bank of
Commerce Holdings Trust (formerly Redding Bancorp Trust). On January 2, 2003, Redding
Service Corporation changed names to RBC Mortgage Services and on March 18, 2004, RBC
Mortgage Services changed its name to Bank of Commerce Mortgage. The subsidiary offers
mortgage brokerage services through an affiliate agreement with BWC Mortgage Services, an
affiliate of Bank of Walnut Creek. 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, a
suburb of the greater Sacramento metro area.The Bank conducts a general commercial banking business in the counties of El Dorado,
Placer, Shasta, and Sacramento, California. The Company considers 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 with 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. All
references to share and per share information have been adjusted to reflect the July 21,
2004 three-for-one stock split on a retroactive basis. The more significant accounting and
reporting policies and estimates applied in the preparation of the accompanying consolidated
financial statements are discussed below. 12




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 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. Cash and Cash Equivalents- For purposes of reporting cash flows, cash and cash equivalents
include amounts due from banks, 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. 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 and Agency
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 matured 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. 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. 13




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 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, overdrafts and
commitments to extend credit (off-balance sheet liabilities) 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 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 included in
occupancy and equipment expenses 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,
2004 and 2003, 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 US Government and Agency
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. Core Deposit Intangibles- In June 2001, the Company purchased a bank branch office.
Because of this acquisition, the Company recorded core deposit intangibles, which are being
amortized over seven years by the straight-line method. 14




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 Amortization expense for the year ended December 31, 2004, 2003 and 2002 was $108,800,
$118,800 and $118,800, respectively. Estimated amortization expense for 2005, 2006, 2007 and
2008 is approximately $109,000 per year. Deposit retention, growth and activities are
evaluated for impairment on an annual basis. Earnings Per Share- Basic earnings per share (EPS) excludes dilution and is computed by
dividing net income by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share is computed by dividing net income by the sum of the
weighted-average number of common shares outstanding for the period plus the dilutive effect
that could occur if the Companys outstanding stock options were exercised and converted
into common stock, net of estimated shares that could be reacquired with proceeds from the
exercise of such options. Stock options are considered to be common stock equivalents. 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. All
references to issued and outstanding per share information have been adjusted to reflect the
stock split on a retroactive basis. 2004
    
    
    2003
    
    
    2002Basic EPS CalculationNumerator (net income)
    
    $
    4,977,675
    
    
    $
    4,182,676
    
    
    $
    3,696,460Denominator (weighted average common shares
outstanding)
    
    
    8,282,588
    
    
    
    8,033,484
    
    
    
    8,012,667Basic EPS
    
    $
    0.60
    
    
    $
    0.52
    
    
    $
    0.46Diluted EPS CalculationNumerator (net income)
    
    $
    4,977,675
    
    
    $
    4,182,676
    
    
    $
    3,696,460Denominator:Weighted average common shares outstanding
    
    
    8,282,588
    
    
    
    8,033,484
    
    
    
    8,012,667Diluted effect of stock options
    
    
    420,023
    
    
    
    293,424
    
    
    
    591,552Adjusted weighted average common shares
outstanding
    
    
    8,702,611
    
    
    
    8,326,908
    
    
    
    8,604,219Diluted EPS
    
    $
    0.57
    
    
    $
    0.50
    
    
    $
    0.43
 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. 15




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 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 accounts for its stock option plan under the
intrinsic value method in accordance with the provisions of Accounting Principles Board
Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeds the exercise price. As required by the
Statement of Financial Accounting Standards, (SFAS) No. 123, Accounting for Stock-Based
Compensation,as amended, by SFAS No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosurethe Company provides pro forma net income and pro forma earnings
per share disclosures for employee stock option grants. The following table illustrates the
effect on net income and earnings per share if the Company had applied the fair value
recognition provisions of SFAS Statement No. 123, to stock-based employee compensation. All
references to share and per share information have been adjusted to reflect the July 21,
2004 three-for-one stock split on a retroactive basis. Net income before option expense less compensation
expense associated with stock options Year Ended December 312004
    
    
    2003
    
    
    2002Net income before option expense less
compensation expense associated with stock options
    
    $
    4,981,531
    
    
    $
    4,205,080
    
    
    $
    3,763,660(3,856
    )
    
    
    (22,404
    )
    
    
    (67,200
    )Net income as reported
    
    $
    4,977,675
    
    
    $
    4,182,676
    
    
    $
    3,696,460Deduct:Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of tax
    
    
    (149,639
    )
    
    
    (77,803
    )
    
    
    (168,352
    )Pro forma net income
    
    $
    4,828,036
    
    
    $
    4,104,873
    
    
    $
    3,528,108Earnings per share:Basic  as reported
    
    $
    0.60
    
    
    $
    0.52
    
    
    $
    0.46Basic  pro forma
    
    $
    0.58
    
    
    $
    0.51
    
    
    $
    0.44Diluted  as reported
    
    $
    0.57
    
    
    $
    0.50
    
    
    $
    0.43Diluted  pro forma
    
    $
    0.55
    
    
    $
    0.49
    
    
    $
    0.41
 16




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 In 2004, 2003 and 2002 there were no shares that could potentially dilute basis EPS in
the future that were excluded from the calculation of diluted EPS because their effect would
be anti-dilutive. Comprehensive Income- Comprehensive income includes net income and other comprehensive
income (loss). The Companys only source of other comprehensive income (loss) is unrealized
gains and losses on securities available-for-sale. 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. They are excluded from
comprehensive income of the current period to avoid double counting. Segment Reporting-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 segments.
In prior reporting periods, The Company has two reportable segments: commercial banking and
credit card services. Commercial banking includes all services to the Companys customers
except credit card services. Credit card services are limited to those revenues, net of
related data processing costs, associated with the Banks agreement to provide credit and
debit card processing services for merchants solicited by an ISO or the Bank who accept
credit and debit cards as payments for goods and services. In the years 2004 and 2003, the
Company accounted for its operations as one operating segment. Income before income taxes:
    
    2004
    
    
    2003
    
    
    2002Commercial Banking
    
    $
    7,908,583
    
    
    $
    6,669,334
    
    
    $
    5,297,047Merchant credit card
service income, net
    
    
    
    
    
    
    
    
    
    
    424,557$
    7,908,583
    
    
    $
    6,669,334
    
    
    $
    5,721,604
 Derivative Instruments and Hedging Activities The Company did not enter into any
freestanding derivative contracts or identify any embedded derivatives requiring bifurcation
and separate valuation during 2004 or 2003. The meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments In March 2004, the Financial Accounting Standards Board (FASB) ratified the
consensuses reached by the Emerging Issues Task Force (EITF) regarding Issue 03-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.
Issue 03-1 provides guidance in the recognition and measurement of other-than-temporary
impairment for certain securities, including:  
    All debt securities and equity securities that are subject to the scope of SFAS No.
115, Accounting for Certain Investments in Debt and Equity Securities; and
    Equity securities that are not subject to the scope of SFAS No. 115 and that are
accounted for under the cost method of accounting, or cost method investments. Issue 03-1 also provides guidance on disclosure requirements for other-than-temporary
impairment for cost method investments. The guidance in these areas is effective for fiscal
years ending after June 15, 2004. 17




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 The implementation of these areas of Issue 03-1 did not have a material impact to our
financial
statements. The Company has previously adopted the disclosure provisions of Issue 03-1 for
debt and equity investments that are accounted for under SFAS No.115. Those requirements
were effective for fiscal years ending after December 15, 2003. On September 30, 2004, the FASB issued a proposed Board-directed Staff Position, FSP
EITF Issue 03-1-a, Implementation Guidance for the Application of Paragraph 16 of EITF issue
No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments.The proposed FSP would provide implementation guidance with respect to debt
securities that are impaired solely due to interest rates and/or sector spreads and analyzed
for other-than-temporary impairment under paragraph 16 of Issue 03-1. The accounting standard
setters have decided to delay the effective date of and provide further implementation
guidance for the rule that would require financial institutions to recognize unrealized
losses of debt securities from rising interest rates as an expense item. This delay does not
suspend the requirement to recognize other-than-temporary impairments as required by existing
authoritative literature. The delay of the effective date for paragraphs 10-20 of Issue 03-1
will be superseded concurrent with the final issuance of FSB EITF Issue 03-1-a. Application of Accounting Principles to Loan Commitments (SAB105) On March 9, 2004, the
Securities and Exchange Commission issued Staff Accounting Bulletin No. 105 Application of
Accounting Principles to Loan Commitments(SAB 105), which specifies that servicing assets
embedded in commitments for loans to be held for sale should be recognized only when the
servicing asset has been contractually separated from the associated loans by sale or
securitization. SAB 105 is effective for commitments entered into after March 31, 2004. SAB
105 has had no effect on the Companys results of operations or financial condition. Statement of Financial Accounting Standards No. 123 (revised 2004) In December
2004 the FASB revised SFAS No. 123, Accounting for Stock Based Compensation.This statement
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees,and its related
implementation guidance. The Statement establishes standards for the accounting of
transactions in which an entity exchanges its equity instruments for goods and services. It
also addresses transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entitys equity instruments or that may be
settled by the issuance of those equity instruments. The Statement focuses primarily on
accounting for transactions in which an entity obtains employee services in share-based
payment transactions. This Statement does not change the accounting guidance for share-based
payment transactions with parties other than employees provided in Statement No. 123 as
originally issued and EITF Issue No. 96-18, Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services. The Statement requires a public entity to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value of the award.
The cost will be recognized over the period during which an employee is required to provide
service in exchange for the award  the requisite service period (usually the vesting
period). No compensation cost is recognized for equity instruments for which employees do
not render the requisite service. A public entity will initially measure the cost of
employee services received in exchange for an award of liability instruments based on its
current fair value; the fair value of that award will be remeasured subsequently at each
reporting date through the settlement date. 18




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 Changes in fair value during the requisite service period will be recognized as
compensation cost over that period. The grant-date fair value of employee share options and similar instruments will be
estimated using option-pricing models adjusted for the unique characteristics of those
instruments. If an equity award is modified after the grant date, incremental compensation
cost will be recognized in amount equal to the excess of the fair value of the modified
award over the fair value of the original award immediately before the modification. The
notes to financial statements of both public and nonpublic entities will disclose
information to assist users of financial information to understand the nature of share-based
payment transactions and the effects of those transactions on the financial statements. This Statement is effective for public entities that do not file as small business issuers
as of the beginning of the first interim or annual reporting period that begins after June
15, 2005. The Statement applies to all awards granted after the required effective date and
to awards modified, repurchased or cancelled after that date. The cumulative effect of
initially applying this Statement, if any, will be recognized as of the required effective
date. Under the transition method, compensation cost is recognized on or after the required
effective date for the portion of outstanding awards, for which the requisite service has
not yet been rendered, based on the grant-date fair value of those awards calculated under
Statement No. 123 for either recognition or pro forma disclosures. The Company will adopt
the value based method of accounting for stock based employee compensation effective for
financial statements after July 1, 2005. Management believes that the adoption of this rule
will not have a material impact on the Companys results of operations or financial
condition. 3. RESTRICTIONS ON CASH AND DUE FROM BANKS During 2004 the Bank implemented a deposit reclassification program which reduced required
average reserve balances at the Federal Reserve Bank to zero. Previously the Bank was
required to maintain average reserve balances with the Federal Reserve Bank. The average
amount of these reserve balances for the years ended December 31, 2004 and 2003 was
approximately $0 and $7,760,000 respectively. The Bank maintains compensating balances with
its primary correspondent, which totaled $2,500,000 at December 31, 2004 and 2003. 4. SECURITIES The amortized cost and estimated fair value of securities available-for-sale are summarized as follows: December 31, 2004EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury securities and
obligations of U.S. agencies
    
    $
    34,012,555
    
    
    $
    14,897
    
    
    $
    (436,410
    )
    
    $
    33,591,042Obligations of state and political
subdivisions
    
    
    6,517,077
    
    
    
    59,603
    
    
    
    (101,592
    )
    
    
    6,475,088Mortgage-backed securities
    
    
    42,478,977
    
    
    
    41,595
    
    
    
    (143,509
    )
    
    
    42,377,063$
    83,008,609
    
    
    $
    116,095
    
    
    $
    (681,511
    )
    
    $
    82,443,193
 19




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 December 31, 2003EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueU.S. Treasury securities and
obligations of U.S. agencies
    
    $
    21,767,536
    
    
    $
    60,402
    
    
    $
    (464,721
    )
    
    $
    21,363,217Obligations of state and political
subdivisions
    
    
    6,442,310
    
    
    
    68,697
    
    
    
    (125,878
    )
    
    
    6,385,129Bankers acceptances
    
    
    9,993,211
    
    
    
    0
    
    
    
    0
    
    
    
    9,993,211Mortgage-backed securities
    
    
    32,281,173
    
    
    
    115,202
    
    
    
    (103,490
    )
    
    
    32,292,885$
    70,484,230
    
    
    $
    244,301
    
    
    $
    (694,089
    )
    
    $
    70,034,442
 The amortized cost and estimated fair value of securities held-to-maturity at
December 31, 2004 and 2003 consist of the following: December 31, 2004EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueMortgage backed securities
    
    $
    448,753
    
    
    $
    38,339
    
    
    $
    0
    
    
    $
    487,092
 December 31, 2003EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueMortgage backed securities
    
    $
    1,390,851
    
    
    $
    69,201
    
    
    $
    0
    
    
    $
    1,460,052
 The amortized cost and estimated fair value of securities at December 31, 2004 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-Sale
    
    
    Held-to-MaturityEstimated
    
    
    
    
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    6,029,795
    
    
    $
    6,023,153
    
    
    $
    0
    
    
    $
    0Due after one year through five years
    
    
    28,165,152
    
    
    
    27,905,031
    
    
    
    0
    
    
    
    0Due after five years through ten years
    
    
    24,920,024
    
    
    
    24,715,891
    
    
    
    0
    
    
    
    0Due after ten years
    
    
    23,893,638
    
    
    
    23,799,118
    
    
    
    448,753
    
    
    
    487,092$
    83,008,609
    
    
    $
    82,443,193
    
    
    $
    448,753
    
    
    $
    487,092
 20




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 At December 31, 2004, the Companys securities available-for-sale shown below have been
in a continuous loss position for periods less than 12 months as shown below: Less than 12 months
    
    
    12 months or more
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. Treasury
securities and
Obligations of U.
S. Agencies
    
    $
    18,018,818
    
    
    
    ($54,815
    )
    
    $
    9,000,546
    
    
    
    ($381,595
    )
    
    $
    27,019,364
    
    
    
    ($436,410
    )Obligations of
state and political
subdivisions
    
    $
    617,632
    
    
    
    ($1,918
    )
    
    $
    3,775,579
    
    
    
    ($99,674
    )
    
    $
    4,393,211
    
    
    
    ($101,592
    )Mortgage-backed
securities
    
    $
    16,739,302
    
    
    
    ($87,202
    )
    
    $
    6,624,003
    
    
    
    ($56,307
    )
    
    $
    23,363,305
    
    
    
    ($143,509
    )Total temporarily
impaired securities
    
    $
    35,375,752
    
    
    
    ($143,935
    )
    
    $
    19,400,128
    
    
    
    ($537,576
    )
    
    $
    54,775,880
    
    
    
    ($681,511
    )
 Economic factors may affect market pricing over the stated maturity of the security.
The Company recognizes an impairment charge when the decline in the fair value of its
investments below the cost basis is judged to be other than temporary. As of December 31,
2004, thirty-three securities were in a loss position. The Company has determined the loss
position to be temporary and no impairment charges have occurred. Security income is accrued
when earned and included in interest income. The Company requires a credit rating of A or
higher on its initial acquisition of investments and maintains an average rating of AAA on
the overall portfolio. The Company believes it has the ability to hold available-for-sale
securities to maturity. At December 31, 2004, the Company has pledged book values of $1,000,000 in securities for
treasury, tax and loan accounts, $7,341,000 for deposits of public funds, $2,004,000 for
collateralized repurchase agreements, and $25,000,000 for Federal Home Loan borrowings. Gross realized gains and gross realized losses, respectively, on available-for-sale
securities were $0 and $0 in 2004 and $93,528 and $5,133 in 2003. Gross unrealized gains and
gross unrealized losses, respectively, on available-for-sale securities were $116,095 and
$681,511 in 2004 and $244,301 and $694,089 in 2003. There were no gains or losses recognized
in securities held-to-maturity in 2004, 2003 and 2002. 5. LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES Outstanding loan balances consist of the following: December 31,2004
    
    
    2003Commercial and financial loans
    
    $
    105,544,794
    
    
    $
    104,508,704Real estate  construction loans
    
    
    77,438,755
    
    
    
    66,741,598Real estate  commercial
    
    
    135,260,186
    
    
    
    102,952,921Real estate  mortgage
    
    
    4,423,104
    
    
    
    7,085,683Installment loans
    
    
    300,337
    
    
    
    451,567Other
    
    
    352,879
    
    
    
    632,529323,320,055
    
    
    
    282,373,002Less:Deferred loan fees, net
    
    
    652,970
    
    
    
    494,365Allowance for loan and lease losses
    
    
    3,866,498
    
    
    
    3,675,084$
    318,800,587
    
    
    $
    278,203,553
 21




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 Included in total loans are nonaccrual loans of $2,382,886 and $3,930,810 at December
31, 2004 and 2003, respectively. If interest on nonaccrual loans at December 31, 2004 and
2003 had been accrued, such interest income would be $146,276 and $184,785 during the years
ended December 31, 2004 and 2003, 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. The Bank
had outstanding balances of $3,214,492 and $4,028,004 in impaired loans that had impairment
allowances of $867,590 and $837,000 as of December 31, 2004 and 2003, respectively. The average outstanding balances of impaired loans were $3,601,274, $2,235,293 and $14,277,
for the years ended December 31, 2004, 2003 and 2002 respectively. There was interest of
$57,058, $0 and $0 recognized on impaired loans during the year ended December 31, 2004,
2003 and 2002, respectively. The Company services, for others, loans and participation of
loans that are sold of $4,550,992 and $5,971,387 as of December 31, 2004 and 2003,
respectively. The Company concentrates its lending activities primarily within Shasta, El Dorado, Placer
and Sacramento 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
residential real estate development industry sectors. Generally, the loans are secured by
real estate or other assets and are expected to be repaid from cash flows of the borrower or
proceeds from the sale of the collateral. 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, 2004 and 2003, the
Company had pledged $44,982,725 and $35,689,544, 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 31,2004
    
    
    2003
    
    
    2002Balance at beginning of year
    
    $
    3,675,084
    
    
    $
    3,528,968
    
    
    $
    2,915,906Provision for loan losses
    
    
    593,000
    
    
    
    515,000
    
    
    
    620,000Loans charged off
    
    
    (368,300
    )
    
    
    (379,717
    )
    
    
    (25,839
    )Recoveries of loans previously charged off
    
    
    5,714
    
    
    
    10,833
    
    
    
    18,901Transfer to off-balance sheet liabilities
    
    
    (39,000
    )
    
    
    
    
    
    
    Balance at end of year
    
    $
    3,866,498
    
    
    $
    3,675,084
    
    
    $
    3,528,968
 22




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 6. BANK PREMISES AND EQUIPMENT Bank premises and equipment consist of the following: Estimated
    
    
    December 31,Lives
    
    
    2004
    
    
    2003Land
    
    
    
    
    
    $
    1,507,628
    
    
    $
    1,507,628Bank buildings
    
    31.5 years
    
    
    3,723,075
    
    
    
    4,049,397Furniture, fixtures and equipment
    
    3 - 7 years
    
    
    5,255,257
    
    
    
    4,440,83410,485,960
    
    
    
    9,997,859Less accumulated depreciation
    
    
    
    
    
    
    (5,056,342
    )
    
    
    (4,485,843
    )5,429,618
    
    
    
    5,512,016Construction in progress
    
    
    
    
    
    
    54,578
    
    
    
    300,773$
    5,484,196
    
    
    $
    5,812,789
 Depreciation expense, included in net occupancy and equipment expense, is $610,997,
$691,859, and $737,020 for the years ended December 31, 2004, 2003 and 2002, respectively. 7. OTHER ASSETS Other assets consist of the following: December 31,2004
    
    
    2003Cash surrender value of bank owned life insurance
policies
    
    $
    4,810,851
    
    
    $
    4,593,005Deferred tax asset, net
    
    
    2,683,763
    
    
    
    2,369,208Accrued interest on loans
    
    
    1,495,967
    
    
    
    1,135,786Accrued interest on investment securities
    
    
    474,451
    
    
    
    288,590Goldman Sachs Sweep account receivable
    
    
    176,172
    
    
    
    2,607,284Federal Home Loan Bank Stock
    
    
    1,678,300
    
    
    
    1,500,000Core Deposit Intangible, net of accumulated
amortization of $401,336 and $292,536
    
    
    367,809
    
    
    
    476,609Other
    
    
    439,814
    
    
    
    706,671$
    12,127,127
    
    
    $
    13,677,153
 8. DEPOSITS Time certificates of deposit of $100,000 or more totaled $83,514,897 and $79,931,791 at
December 31, 2004 and 2003, respectively. Interest expense on such deposits was $1,760,780,
$1,937,164 and $2,260,692 during 2004, 2003 and 2002, respectively. At December 31,
2004, the scheduled maturities for all time deposits are as follows: 23




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 Time Deposit Maturity Schedule2005
    
    $
    115,830,0862006
    
    
    16,848,6482007
    
    
    5,616,2152008
    
    
    204,8902009
    
    
    0Thereafter
    
    
    0Total
    
    $
    138,499,839
 9. OTHER LIABILITIES Other liabilities consist of the following: December 31,2004
    
    
    2003Deferred compensation
    
    $
    3,161,765
    
    
    $
    2,830,193Employee incentive payable
    
    
    518,852
    
    
    
    401,026Accrued 401(k) match payable
    
    
    35,000
    
    
    
    136,166Accrued interest payable
    
    
    228,934
    
    
    
    202,450Reserve for off-balance sheet commitments
    
    
    302,876
    
    
    
    263,876Investment purchase payable
    
    
    3,320,384
    
    
    
    0Taxes payable
    
    
    572,623
    
    
    
    352,363Other
    
    
    239,041
    
    
    
    172,945$
    8,379,475
    
    
    $
    4,359,019
 10. FEDERAL HOME LOAN BANK ADVANCES Included in other borrowings are advances from the Federal Home Loan Bank of San Francisco
(FHLB) totaling $35,000,000 as of December 31, 2004 and $30,000,000 as of December 31,
2003. The FHLB advances bear fixed rates of interest ranging from 1.39% to 2.87%. Interest is
payable on a monthly basis. FHLB advances due as follows: $10,000,000 maturing January 24,
2005 at 1.92%, $10,000,000 maturing February 4, 2005 at 1.39% and $5,000,000 maturing May 9,
2005 at 2.47% and $10,000,000 maturing on November 25, 2005 at 2.87% . 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 $1,678,300 at December 31, 2004 and to pledge $44,982,725 and $35,689,544 of its real
estate mortgage loans to the FHLB as collateral as of December 31, 2004 and 2003. At December
31, 2004 the Bank had available borrowing lines at the FHLB of $49,437,000 and additional
federal fund borrowing lines at two correspondent banks totaling $15,000,000. 24




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 11. JUNIOR SUBORDINATED DEBT PAYABLE TO UNCONSOLIDATED SUBSIDIARY GRANTOR TRUST During 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 3 month London
Interbank Offered Rate (LIBOR) plus 3.30%. The rate at December 31, 2004 was 5.37%. 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. 12. INCOME TAXES Provision for income taxes consists of the following: Years Ended December 31,2004
    
    
    2003
    
    
    2002Current:Federal
    
    $
    2,571,071
    
    
    $
    2,171,432
    
    
    $
    1,966,162State
    
    
    674,392
    
    
    
    568,351
    
    
    
    459,196Total currently payable
    
    
    3,245,463
    
    
    
    2,739,783
    
    
    
    2,425,358Deferred:Federal
    
    
    (224,682
    )
    
    
    (153,895
    )
    
    
    (305,390
    )State
    
    
    (89,873
    )
    
    
    (99,230
    )
    
    
    (94,824
    )Total deferred provision
    
    
    (314,555
    )
    
    
    (253,125
    )
    
    
    (400,214
    )Total provision for income taxes
    
    $
    2,930,908
    
    
    $
    2,486,658
    
    
    $
    2,025,144
 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 Income2004
    
    
    2003
    
    
    2002Income tax at the Federal statutory rate
    
    
    34.00
    %
    
    
    34.00
    %
    
    
    34.00
    %State franchise tax, net of Federal tax benefit
    
    
    4.85
    
    
    
    4.64
    
    
    
    4.20Tax-exempt interest
    
    
    (0.91
    )
    
    
    (0.67
    )
    
    
    (0.76
    )Other
    
    
    (0.88
    )
    
    
    (0.69
    )
    
    
    (2.05
    )37.06
    %
    
    
    37.28
    %
    
    
    35.39
    %
 25




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 2004 and 2003 consist of
the following: 2004
    
    
    2003Deferred tax assets:State franchise taxes
    
    $
    174,456
    
    
    $
    173,511Deferred compensation
    
    
    1,417,735
    
    
    
    1,269,059Loan loss reserves
    
    
    1,475,084
    
    
    
    1,296,097Net unrealized losses on securities available-for-sale
    
    
    232,669
    
    
    
    185,088Other
    
    
    227,384
    
    
    
    184,189Total deferred tax assets
    
    
    3,527,328
    
    
    
    3,107,944Deferred tax liabilities:Depreciation
    
    
    (318,439
    )
    
    
    (264,068
    )Deferred loan origination costs
    
    
    (333,658
    )
    
    
    (310,942
    )Deferred state taxes
    
    
    (191,468
    )
    
    
    (163,726
    )Total deferred tax liabilities
    
    
    (843,565
    )
    
    
    (738,736
    )Net deferred tax asset
    
    $
    2,683,763
    
    
    $
    2,369,208
 13. STOCK OPTION PLAN On February 17, 1998, the Board of Directors adopted the 1998 Stock Option Plan (the Plan)
which was approved by the Companys stockholders on April 21, 1998. 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. All references to share and per share information have been adjusted to reflect the July 21,
2004 three-for-one stock split on a retroactive basis. A total of 1,782,000 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. 26




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 The following table presents the changes in outstanding stock options for the periods
indicated: WeightedNumber
    
    
    Averageof
    
    
    ExerciseShares
    
    
    PriceOptions outstanding, December 31, 2001
    
    
    1,283,550
    
    
    $
    3.29Granted
    
    
    66,900
    
    
    $
    6.67Exercised
    
    
    (93,180
    )
    
    $
    3.22Forfeited
    
    
    (19,938
    )
    
    $
    5.12Options outstanding, December 31, 2002
    
    
    1,237,332
    
    
    $
    3.53Granted
    
    
    13,500
    
    
    $
    6.75Exercised
    
    
    (205,566
    )
    
    $
    3.03Forfeited
    
    
    (10,470
    )
    
    $
    5.76Options outstanding, December 31, 2003
    
    
    1,034,796
    
    
    $
    3.50Granted
    
    
    111,000
    
    
    $
    10.63Exercised
    
    
    (372,665
    )
    
    $
    3.15Forfeited
    
    
    (7,200
    )
    
    $
    5.89Options outstanding, December 31, 2004
    
    
    765,931
    
    
    $
    4.80
 At December 31, 2004, 122,190 shares were available for future grants under the Plan. As of
December 31, 2004, 2003 and 2002, respectively, 572,488, 916,536 and 859,101 shares
respectively were available to be exercised. The Company uses the intrinsic value based method for measuring compensation cost
related to the Plan. Under the intrinsic value based method, compensation cost is the
excess, if any, of the quoted market price of the stock at grant date over the amount an
employee or director must pay to acquire the stock. This cost is amortized on a
straight-line basis over the vesting period of the options granted. Compensation cost
related to the discount on non-qualified options as of December 31, 2004, 2003 and 2002 was
$3,856, $22,404 and $67,200 respectively. 27




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 Additional information regarding options outstanding as of December 31, 2004 is as
follows: Weighted Avg.Contractual RemainingExercise
    
    
    Options Outstanding
    
    
    Life (Years)
    
    Options ExercisablePrices$
    2.75
    
    
    
    381,740
    
    
    3.3
    
    
    381,740$
    3.23
    
    
    
    109,536
    
    
    3.3
    
    
    109,536$
    5.42
    
    
    
    29,250
    
    
    6.4
    
    
    17,550$
    6.67
    
    
    
    63,000
    
    
    6.6
    
    
    37,800$
    7.30
    
    
    
    57,905
    
    
    6.4
    
    
    23,162$
    6.75
    
    
    
    13,500
    
    
    8.0
    
    
    2,700$
    10.72
    
    
    
    25,500
    
    
    9.4
    
    
    0$
    10.60
    
    
    
    82,500
    
    
    9.5
    
    
    0$
    10.76
    
    
    
    3,000
    
    
    9.5
    
    
    0765,931
    
    
    
    
    
    572,488
 The fair value of the options granted during 2004, 2003 and 2002, is estimated as $364,769,
$28,142 and $95,061, respectively, on the date of grant using a binomial option-pricing
model with the following assumptions: volatility of 30.88%, 22.75% and 29.55%, respectively,
risk-free interest rate of 3.62%, 3.27% and 2.71%, respectively, expected dividends of $0.23
per share per year for 2004 and $0.22 per share in 2003, annual dividend rate of 2.00%,
3.55% and 3.06%, assumed forfeiture rate of zero and an expected life of seven years. There were 111,000 options granted in 2004, 13,500 options granted in 2003 and 66,900
options granted in 2002. The fair value per share of the 2004, 2003 and 2002 awards was
$3.29, $2.22 and $1.55, respectively. 14. CAPITAL STOCK On August 24, 2001, the Board of Directors authorized a common stock repurchase of up
to 5%, or approximately 425,000 shares, of the Companys common stock on an annual basis for
the next seven years. The number of shares is adjusted on an annual basis to coincide with
new issues and forfeitures. No shares were repurchased during 2004 or 2003. Shares purchased
are retired by a charge to common stock and retained earnings for the cost. To date, the
Company has repurchased 1,423,311 shares at an average price of $6.84. On October 22, 2004 and 2003, a cash dividend of $0.23 and $0.22 per share, respectively,
was paid to shareholders of record as of October 1, 2004 and 2003. On April 20, 1999, the
Board of Directors authorized 2,000,000 shares of preferred stock. As of December 31, 2004,
no preferred shares had been issued. 28




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002  15.
    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 $134,570, $120,000 and $122,716 for the
years ended December 31, 2004, 2003 and 2002, respectively. No discretionary contributions
were made in 2004, 2003 or 2002.Salary Continuation Plan  In April 2002, the Board of Directors approved the
implementation of the Executive Salary Continuation Plan (SCP), which is a non-qualified
executive benefit plan in which the Bank agrees to pay the executives covered by the SCP
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 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 insured executive has no claim on the insurance
policy, its cash value or the proceeds thereof.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
$104,376 and $84,840 for 2004 and 2003, respectively. As of December 31, 2004 and 2003, the
vested benefit payable was $339,099 and $228,087, respectively.Directors deferred fee compensation Effective January 1, 1993, the Board of Directors
approved the implementation of the Directors Deferred 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 10% per the plan. Deferred compensation expense totaled $280,771
and $255,612 at December 31, 2004 and 2003, respectively. As of December 31, 2004 and 2003,
the vested benefit payable was $1,571,260 and $1,279,974, respectively.16.
    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 2004 and the Bank expects to have such transactions in
the future. 29




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 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. An analysis of the activity in related party loans consists of the following: December 31,2004
    
    
    2003Balance at beginning of year
    
    $
    4,123,712
    
    
    $
    5,150,404New loan additions
    
    
    541,097
    
    
    
    2,559,874Principal repayments
    
    
    (1,042,059
    )
    
    
    (3,586,566
    )Balance at end of year
    
    $
    3,622,750
    
    
    $
    4,123,712
  As of December 31, 2004 and 2003 there were no related party loans, which were past due or
classified. At December 31, 2004 there was approximately $4,200,000 available in commitments
to related party loans.17.
    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, 2004 are below: (Dollars in thousands)2005
    
    $
    4622006
    
    $
    3712007
    
    $
    3772008
    
    $
    3832009
    
    $
    340Thereafter
    
    $
    1,238Total
    
    $
    3,171Minimum rental due in the future
under noncancellable subleases
    
    $
    103
 Rental expense for the years ended December 31, 2004, 2003 and 2002 was $424,205,
$449,818 and $326,521, 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. 30




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 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 31,2004
    
    
    2003Off-balance sheet commitments:Commitments to extend credit
    
    $
    128,837,320
    
    
    $
    90,768,902Standby letters of credit
    
    
    7,064,798
    
    
    
    4,594,010
  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.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.18.
    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. 31




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 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,
2004 that the Company and the Bank met
all capital adequacy requirements to
which they are subject. As of
December 31, 2004, 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,
2004 and 2003 are also presented in the
table. To BeCategorized asWell CapitalizedFor Capital
    
    
    Under PromptActual
    
    
    Adequacy Purposes
    
    
    Corrective ActionAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioAt December 31, 2004:CompanyLeverage capital (to average assets)
    
    $
    40,616,084
    
    
    
    9.27
    %
    
    $
    13,680,000
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aTier 1 capital (to risk-weighted assets)
    
    
    40,616,084
    
    
    
    11.34
    %
    
    
    11,818,412
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aTotal capital (to risk-weighted assets)
    
    
    44,482,582
    
    
    
    12.42
    %
    
    
    23,636,824
    
    
    
    8.00
    %
    
    
    n/a
    
    
    
    n/aBankLeverage capital (to average assets)
    
    $
    38,684,893
    
    
    
    8.91
    %
    
    $
    15,575,720
    
    
    
    4.00
    %
    
    $
    19,650,000
    
    
    
    5.00
    %Tier 1 capital (to risk-weighted assets)
    
    
    38,684,893
    
    
    
    10.80
    %
    
    
    12,792,094
    
    
    
    4.00
    %
    
    
    19,188,141
    
    
    
    6.00
    %Total capital (to risk-weighted assets)
    
    
    42,551,391
    
    
    
    11.88
    %
    
    
    25,584,187
    
    
    
    8.00
    %
    
    
    31,980,234
    
    
    
    10.00
    %At December 31, 2003:CompanyLeverage capital (to average assets)
    
    $
    35,775,892
    
    
    
    9.10
    %
    
    $
    13,680,000
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aTier 1 capital (to risk-weighted assets)
    
    
    35,775,892
    
    
    
    11.19
    %
    
    
    11,818,412
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aTotal capital (to risk-weighted assets)
    
    
    39,773,421
    
    
    
    12.44
    %
    
    
    23,636,824
    
    
    
    8.00
    %
    
    
    n/a
    
    
    
    n/aBankLeverage capital (to average assets)
    
    $
    34,430,147
    
    
    
    8.84
    %
    
    $
    15,575,720
    
    
    
    4.00
    %
    
    $
    19,650,000
    
    
    
    5.00
    %Tier 1 capital (to risk-weighted assets)
    
    
    34,430,147
    
    
    
    10.77
    %
    
    
    12,792,094
    
    
    
    4.00
    %
    
    
    19,188,141
    
    
    
    6.00
    %Total capital (to risk-weighted assets)
    
    
    38,427,676
    
    
    
    12.02
    %
    
    
    25,584,187
    
    
    
    8.00
    %
    
    
    31,980,234
    
    
    
    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, 2004, the maximum amount available for dividend
distribution under this restriction was approximately $7,419,709. 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 2004 or 2003. 32




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002  19.
    FAIR VALUES OF FINANCIAL INSTRUMENTSThe 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.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 with
maturities less than one year is based on carrying amounts.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. 33




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 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. The estimated fair values of the Companys financial instruments are approximately as
follows: December 31, 2004Contract
    
    
    Carrying
    
    
    FairAmount
    
    
    Amount
    
    
    ValueFinancial Assets:Cash and cash equivalents
    
    
    
    
    
    $
    19,240,951
    
    
    $
    19,240,951Securities
    
    
    
    
    
    
    82,891,946
    
    
    
    82,930,285Loans, net
    
    
    
    
    
    
    318,800,587
    
    
    
    318,555,822Accrued interest on loans
    
    
    
    
    
    
    1,495,967
    
    
    
    1,495,967Financial Liabilities:Demand and savings
    
    
    
    
    
    $
    214,378,444
    
    
    $
    214,378,444Fixed rate certificates
    
    
    
    
    
    
    131,311,824
    
    
    
    131,291,349Variable certificates
    
    
    
    
    
    
    7,188,015
    
    
    
    7,188,015Accrued interest payable
    
    
    
    
    
    
    228,934
    
    
    
    228,934Securities sold under agreements to repurchase
    
    
    
    
    
    
    2,003,712
    
    
    
    2,033,712Federal Home Loan Borrowings
    
    
    
    
    
    
    35,000,000
    
    
    
    35,000,000Junior subordinated debt payable to unconsolidated
subsidiary grantor trust
    
    
    
    
    
    
    5,000,000
    
    
    
    5,000,000Off balance sheet financial instruments:Commitments to extend credit
    
    $
    128,837,320
    
    
    
    
    
    
    $
    128,837,320Standby letters of credit
    
    
    7,064,798
    
    
    
    
    
    
    
    7,064,798
 34




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 December 31, 2003Contract
    
    
    Carrying
    
    
    FairAmount
    
    
    Amount
    
    
    ValueFinancial Assets:Cash and cash equivalents
    
    
    
    
    
    $
    32,038,864
    
    
    $
    32,038,864Securities
    
    
    
    
    
    
    71,425,293
    
    
    
    71,494,494Loans, net
    
    
    
    
    
    
    278,203,553
    
    
    
    282,580,019Accrued interest on loans
    
    
    
    
    
    
    1,135,786
    
    
    
    1,135,786Financial Liabilities:Demand and savings
    
    
    
    
    
    $
    187,469,237
    
    
    $
    187,469,237Fixed rate certificates
    
    
    
    
    
    
    137,567,137
    
    
    
    138,334,185Variable certificates
    
    
    
    
    
    
    2,502,269
    
    
    
    2,502,269Accrued interest payable
    
    
    
    
    
    
    202,450
    
    
    
    202,450Securities sold under agreements to repurchase
    
    
    
    
    
    
    3,748,797
    
    
    
    3,748,797Federal Home Loan Borrowings
    
    
    
    
    
    
    30,000,000
    
    
    
    30,000,000Junior subordinated debt payable to unconsolidated
subsidiary grantor trust
    
    
    
    
    
    
    5,000,000
    
    
    
    5,000,000Off balance sheet financial instruments:Commitments to extend credit
    
    $
    90,768,902
    
    
    
    
    
    
    $
    90,768,902Standby letters of credit
    
    
    4,594,010
    
    
    
    
    
    
    
    4,594,010
  20.
    BANK OF COMMERCE HOLDINGS (PARENT COMPANY ONLY)FINANCIAL INFORMATION December 31,2004
    
    
    2003Condensed Balance SheetsAssets:Cash
    
    $
    613,049
    
    
    $
    23,822Time deposit with subsidiary
    
    
    550,000
    
    
    
    300,000Cash and cash equivalents
    
    
    1,163,049
    
    
    
    323,822Investment in subsidiaries
    
    
    39,093,279
    
    
    
    34,937,365Other assets
    
    
    97,500
    
    
    
    308,630Total assets
    
    $
    40,353,828
    
    
    $
    35,569,817Junior subordinated debt payable to unconsolidated
subsidiary grantor trust
    
    
    5,000,000
    
    
    
    5,000,000Other liabilities
    
    
    70,491
    
    
    
    58,624Stockholders equity
    
    
    35,283,337
    
    
    
    30,511,193Total liabilities and stockholders equity
    
    $
    40,353,828
    
    
    $
    35,569,817
 35




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 Years Ended December 31,2004
    
    
    2003
    
    
    2002Condensed Statements of IncomeIncome:Interest on time deposit
    
    $
    13,852
    
    
    $
    5,497
    
    
    $
    2,261Dividend from subsidiary
    
    
    1,955,584
    
    
    
    1,760,239
    
    
    
    3,721,2791,969,436
    
    
    
    1,765,736
    
    
    
    3,723,540Expenses
    
    
    549,431
    
    
    
    394,050
    
    
    
    153,901Income before income taxes and
equity in undistributed net income
of subsidiaries
    
    
    1,420,005
    
    
    
    1,371,686
    
    
    
    3,569,639Provision for income taxes
    
    
    800
    
    
    
    800
    
    
    
    800Income before equity in undistributed
net income of subsidiaries
    
    
    1,419,205
    
    
    
    1,370,886
    
    
    
    3,568,839Equity in undistributed net income of
subsidiaries
    
    
    3,558,470
    
    
    
    2,811,790
    
    
    
    127,621Net income
    
    $
    4,977,675
    
    
    $
    4,182,676
    
    
    $
    3,696,460
 Years Ended December 31,2004
    
    
    2003
    
    
    2002Statements of Cash FlowsCash flows from operating activities:Net income
    
    $
    4,977,675
    
    
    $
    4,182,676
    
    
    
    3,696,460Adjustments to reconcile net income to
net cash provided by operating activities:Compensation associated with stock options
    
    
    3,856
    
    
    
    22,404
    
    
    
    67,200Equity in undistributed net income of
subsidiaries
    
    
    (3,558,470
    )
    
    
    (2,811,790
    )
    
    
    (127,621
    )Other assets, net
    
    
    197,667
    
    
    
    (250,006
    )
    
    
    0Net cash provided by operating activities
    
    
    1,620,728
    
    
    
    1,143,284
    
    
    
    3,636,039Cash flows from investing activities:Investment in subsidiary trust
    
    
    0
    
    
    
    (155,000
    )
    
    
    0Capital contribution to Bank
    
    
    0
    
    
    
    (5,000,000
    )
    
    
    0Net cash used by investing activities
    
    
    0
    
    
    
    (5,155,000
    )
    
    
    0Cash flows from financing activities:Equity transactions, net
    
    
    1,174,083
    
    
    
    802,582
    
    
    
    (1,787,794
    )Proceeds from unconsolidated subsidiaryGrantor trust
    
    
    0
    
    
    
    5,000,000
    
    
    
    0Cash dividends
    
    
    (1,955,584
    )
    
    
    (1,760,239
    )
    
    
    (1,721,279
    )Net cash used by financing activities
    
    
    ( 781,501
    )
    
    
    4,042,343
    
    
    
    (3,509,073
    )Increase (decrease) in cash and cash equivalents
    
    
    839,227
    
    
    
    30,627
    
    
    
    126,966Cash and cash equivalents at beginning of year
    
    
    323,822
    
    
    
    293,195
    
    
    
    166,229Cash and cash equivalents at end of year
    
    $
    1,163,049
    
    
    $
    323,822
    
    
    $
    293,195
 36




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002  22.
    UNAUDITED QUARTERLY RESULTS UNAUDITED QUARTERLY STATEMENTS OF INCOME DATA(Dollars in thousands, except per share data)
    
    For the Quarter EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2004
    
    
    2004
    
    
    2004
    
    
    2004Net interest income
    
    $
    3,915
    
    
    $
    4,087
    
    
    $
    4,269
    
    
    $
    4,606Provision for loan losses
    
    
    (192
    )
    
    
    (97
    )
    
    
    (131
    )
    
    
    (173
    )Noninterest income
    
    
    466
    
    
    
    494
    
    
    
    573
    
    
    
    634Noninterest expense
    
    
    (2,425
    )
    
    
    (2,640
    )
    
    
    (2,641
    )
    
    
    (2,836
    )Income before taxes
    
    
    1,764
    
    
    
    1,844
    
    
    
    2,070
    
    
    
    2,231Provision for income tax
    
    
    (652
    )
    
    
    (683
    )
    
    
    (803
    )
    
    
    (793
    )Net Income
    
    $
    1,112
    
    
    $
    1,161
    
    
    $
    1,267
    
    
    $
    1,438Per common share:Basic earnings per share
    
    $
    0.14
    
    
    $
    0.14
    
    
    $
    0.15
    
    
    $
    0.17Diluted earnings per share
    
    $
    0.13
    
    
    $
    0.13
    
    
    $
    0.14
    
    
    $
    0.17Dividends per share
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.23
 (Dollars in thousands, except per share data)
    
    For the Quarter EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2003
    
    
    2003
    
    
    2003
    
    
    2003Net interest income
    
    $
    3,506
    
    
    $
    3,559
    
    
    $
    3,734
    
    
    $
    3,918Provision for loan losses
    
    
    (175
    )
    
    
    (200
    )
    
    
    (40
    )
    
    
    (100
    )Noninterest income
    
    
    471
    
    
    
    609
    
    
    
    584
    
    
    
    462Noninterest expense
    
    
    (2,316
    )
    
    
    (2,487
    )
    
    
    (2,459
    )
    
    
    (2,396
    )Income before taxes
    
    
    1,486
    
    
    
    1,481
    
    
    
    1,819
    
    
    
    1,884Provision for income tax
    
    
    (560
    )
    
    
    (596
    )
    
    
    (565
    )
    
    
    (766
    )Net Income
    
    $
    926
    
    
    $
    885
    
    
    $
    1,254
    
    
    $
    1,118Per common share:Basic earnings per share
    
    $
    0.12
    
    
    $
    0.11
    
    
    $
    0.15
    
    
    $
    0.14Diluted earnings per share
    
    $
    0.11
    
    
    $
    0.11
    
    
    $
    0.15
    
    
    $
    0.13Dividends per share
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.22
    
    
    $
    0.00
 Dollars in thousands, except per share data)
    
    For the Quarter EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2002
    
    
    2002
    
    
    2002
    
    
    2002Net interest income
    
    $
    2,616
    
    
    $
    3,044
    
    
    $
    3,364
    
    
    $
    3,493Provision for loan losses
    
    
    (65
    )
    
    
    (125
    )
    
    
    (105
    )
    
    
    (325
    )Noninterest income
    
    
    443
    
    
    
    458
    
    
    
    565
    
    
    
    625Noninterest expense
    
    
    (1,885
    )
    
    
    (2,007
    )
    
    
    (2,228
    )
    
    
    (2,147
    )Income before taxes
    
    
    1,109
    
    
    
    1,370
    
    
    
    1,596
    
    
    
    1,646Provision for income tax
    
    
    (368
    )
    
    
    (523
    )
    
    
    (483
    )
    
    
    (651
    )Net Income
    
    $
    741
    
    
    $
    847
    
    
    $
    1,113
    
    
    $
    995Per common share:Basic earnings per share
    
    $
    0.09
    
    
    $
    0.11
    
    
    $
    0.14
    
    
    $
    0.13Diluted earnings per share
    
    $
    0.09
    
    
    $
    0.10
    
    
    $
    0.13
    
    
    $
    0.12Dividends per share
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.22
 37




---



##### Table of Contents



EXHIBITS AND FINANCIAL STATEMENT SCHEDULES  (a)
    The following documents are filed as a part of this Form 10-K/A (Amendment No. 2):  (1)
    Financial Statements: Reference is made to the Index to Consolidated Financial Statements under Item 8 in
Part II of this Form 10-K/A (Amendment No. 2).  (2)
    Financial Statement Schedules: All schedules are omitted because they are not applicable or the required information
is shown in the financial statements or notes thereto.  (3)
    Exhibits: ExhibitNumber
    
    Description of Document23.1
    
    Consent of Moss Adams LLP23.2
    
    Consent of Deloitte & Touche LLP23.3
    
    Updated Consent of Moss Adams LLP32.1
    
    Certification pursuant to Section 906 of the Sarbannes-Oxley Act of 2002
 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on June 3, 2005. BANK OF COMMERCE HOLDINGSBy
    
    /s/ Linda J. MilesLinda J. MilesPrincipal Financial Officer
 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints Michael C. Mayer and Linda J. Miles, and each of them, his or her true and lawful
attorneys-in-fact, each with full power of substitution, for him or her in any and all capacities,
to sign any amendments to this report on Form 10-K and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes
may do or cause to be done by virtue hereof. 38




---



##### Table of Contents



CERTIFICATIONS  I, Michael C. Mayer, certify that:1)
    I have reviewed this annual report on Form 10-K/A (Amendment No. 2) of Bank of Commerce
Holdings (the registrant);2)
    Based on my knowledge, this annual report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this annual report;3)
    Based on my knowledge, the financial statements, and other financial information included in
this annual report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this
annual report;4)
    The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13-a-14 and
15d-14) for the registrant and we have:  (a)
    Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;(b)
    Evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and(c)
    Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date.  5)
    The registrants other certifying officer and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit committee of the registrants board of
directors;  (a)
    All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified for
the registrants auditors any material weaknesses in internal controls: and(b)
    Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and  6)
    The registrants other certifying officer and I have indicated in this annual report whether
or not there were significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and material
weaknesses. /s/MICHAEL C. MAYER Michael C. Mayer
President & Chief Executive Officer
(Principal Executive Officer) Dated June 3, 2005 39




---



##### Table of Contents



CERTIFICATIONS  I, Linda J. Miles, certify that:1)
    I have reviewed this annual report on Form 10-K/A (Amendment No. 2) of Bank of Commerce
Holdings (the registrant);2)
    Based on my knowledge, this annual report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this annual report;3)
    Based on my knowledge, the financial statements, and other financial information included in
this annual report, fairly present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the periods presented in this
annual report;4)
    The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13-a-14 and
15d-14) for the registrant and we have:  (a)
    Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;(b)
    Evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and(c)
    Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;  5)
    The registrants other certifying officer and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit committee of the registrants board of
directors:  (a)
    All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified for
the registrants auditors any material weaknesses in internal controls: and(b)
    Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and  6)
    The registrants other certifying officer and I have indicated in this annual report whether
or not there were significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and material
weaknesses. /s/LINDA J. MILES Linda J. Miles
Executive Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer) Dated June 3, 2005 40