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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from 
to
 Commission File Number 0-25135
 
  California
    
    94-2823865(State or jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification Number)1901 Churn Creek RoadRedding, California
    
    96002(Address of principal executive offices)
    
    (Zip Code)
    Common Stock, No Par Value per share
    
    NASDAQ Global Market
 o þ
 o þ
  þ o
 o o
 o þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ
     DOCUMENTS INCORPORATED BY REFERENCE




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Bank of Commerce Holdings Form 10-K
 Table of Contents
 Part I.Item 1. Business
    
    
    4Item 1A Risk Factors
    
    
    18Item 1B Unresolved Staff Comments
    
    
    31Item 2. Properties
    
    
    31Item 3. Legal Proceedings
    
    
    31Item 4. (Removed and Reserved)
    
    
    31Part II.Item 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
    
    
    32Item 6. Selected Financial Data
    
    
    36Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    37Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    70Item 8. Financial Statements and Supplementary Data
    
    
    73Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    146Item 9A. Controls and Procedures
    
    
    146Item 9B. Other Information
    
    
    147Part III.Item 10. Directors, Executive Officers and Corporate Governance
    
    
    148Item 11. Executive Compensation
    
    
    148Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
    
    
    148Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    148Item 14. Principal Accounting Fees and Services
    
    
    148Part IV.Item 15. Exhibits and Financial Statement Schedules
    
    
    149EX-23.1EX-31.1EX-31.2EX-32.1EX-99.1EX-99.2
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PART I
 Special Note Regarding Forward-Looking Statements
 This report includes forward-looking statements within the meaning of the Securities Exchange Act
of 1934 (Exchange Act) and the Private Securities Litigation Reform Act of 1995. These
statements are based on managements beliefs and assumptions, and on information available to
management as of the date of this document. Forward-looking statements include the information
concerning possible or assumed future results of operations of the Company set forth under the
heading Managements Discussion and Analysis of Financial Condition and Results of Operations.
Forward-looking statements also include statements in which words such as expects, anticipates,
intend, plan, believes, estimate, consider or similar expressions or conditional verbs
such as will, should, would and could are intended to identify such forward looking
statements. Forward-looking statements are not guarantees of future performance. They involve
risks, uncertainties and assumptions. The Companys actual future results and shareholder values
may differ materially from those anticipated and expressed in these forward-looking statements.
Many of the factors that will determine these results and values are beyond the Companys ability
to control or predict. Investors are cautioned not to put undue reliance on any forward-looking
statements. In addition, the Company does not have any intention and assumes no obligation to
update forward-looking statements after the date of the filing of this report, even if new
information, future events or other circumstances have made such statements incorrect or
misleading. Except as specifically noted herein all references to the Company refer to Bank of
Commerce Holdings, a California corporation, and its consolidated subsidiaries.
 The following factors, among others, could cause our actual results to differ materially from those
expressed in such forward-looking statements:
 
    
    The strength of the United States economy in general and the strength of the local
economies in which we conduct operations, the duration of current financial and economic
volatility and decline and actions taken by the United States Congress and governmental
agencies, including the United States Department of the Treasury (the Treasury), to deal
with challenges to the United States financial system;
    
    The effects of, and changes in, trade, monetary and fiscal policies and laws, including
interest rate policies of the Board of Governors of the Federal Reserve System, or the
Federal Reserve Board
    
    Inflation, interest rate, market and monetary fluctuations, the risks presented by a
continued economic recession, which could adversely affect credit quality, collateral
values, investment values and liquidity;
    
    Changes in the financial performance and/or condition of our borrowers;
    
    Changes in consumer spending, borrowing and savings habits;
    
    Changes in the level of our nonperforming assets and charge-offs;
    
    Oversupply of inventory and continued deterioration in values of real estate in
California and the United States generally, both residential and commercial;
    
    Changes in securities markets, public debt markets and other capital markets;
    
    Possible other-than-temporary impairments of securities held by us;
    
    The timely development of competitive new products and services and the acceptance of
these products and services by new and existing customers;
    
    The willingness of customers to substitute competitors products and services for our
products and services;
    
    The impact of changes in financial services policies, laws and regulations, including
laws, regulations and policies concerning taxes, banking, securities and insurance, and
the application thereof by regulatory bodies;
    
    Technological changes could expose us to new risks, including potential systems
failures or fraud;
    
    The timing and effect of acquisitions we may make, if any, including, without
limitation, the failure to achieve the expected revenue growth and/or expense savings from
such acquisitions;
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
    
    Possible impairment of goodwill that has been recorded in connection with acquisitions
which may have a material adverse impact on our earnings;
    
    The effect of changes in accounting policies and practices, as may be adopted from
time-to-time by bank regulatory agencies, the Securities and Exchange Commission (the
SEC), the Public Company Accounting Oversight Board, the Financial Accounting Standards
Board or other accounting standards setters;
    
    The impact of current governmental efforts to restructure the United States financial
regulatory system, including changes in the scope and cost of FDIC insurance and other
coverages and changes in the Treasurys Capital Purchase Program;
    
    Ability to attract deposits and other sources of liquidity at acceptable costs;
    
    Changes in the competitive environment among financial and bank holding companies and
other financial service providers;
    
    The loss of critical personnel and the challenge of hiring qualified personnel at
reasonable compensation levels;
    
    Geopolitical conditions, including acts or threats of war or terrorism, actions taken
by the United States or other governments in response to acts or threats of war or
terrorism and/or military conflicts, which could impact business and economic conditions
in the United States and abroad;
    
    Unanticipated regulatory or judicial proceedings; and
    
    Our ability to manage the risks involved in the foregoing.
 If our assumptions regarding one or more of the factors affecting our forward-looking information
and statements proves incorrect, then our actual results, performance or achievements could differ
materially from those expressed in, or implied by, forward-looking information and statements
contained in this prospectus and in the information incorporated by reference in this prospectus.
Therefore, we caution you not to place undue reliance on our forward-looking information and
statements. We will not update the forward-looking statements to reflect actual results or changes
in the factors affecting the forward-looking statements.
 Forward-looking statements should not be viewed as predictions, and should not be the primary basis
upon which investors evaluate us. Any investor in our common stock should consider all risks and
uncertainties discussed in BUSINESS RISK FACTORS and in the MD&A.
 
 ITEM 1. BUSINESS
 tm tm tm tm
  4




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tm tm
      Utilize the Strength of Our Management Team.
 Leverage Our Existing Foundation for Additional Growth
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Maintain Local Decision-Making and Accountability.
 Focus on Asset Quality and Strong Underwriting.
 Build a Stable Core Deposit Base.
  General
 Parent Bank Holding Company.
 Subsidiary Bank.
 Nonbank Subsidiary.
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Parent Holding Company Activities
 Financial in Nature Requirement.
      Principal Markets
  
 7




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Principal Products and Services
         8




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Government Supervision and Regulation
 The Holding Company and Bank are subject to extensive federal and state supervision and regulation.
The following discussion describes the elements of the regulatory framework applicable to
financial holding companies and banks and specific information about the Holding Company and its
subsidiaries. Federal regulation of banks, bank holding companies and financial holding companies
is intended primarily for the protection of depositors and the Deposit Insurance Fund rather than
for the protection of shareholders and creditors. The following discussion of laws and regulations
is only a summary. This discussion is qualified in its entirety by reference to such laws and
regulations.
 Dividend Restrictions
      9




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Interstate Banking
  Capital Standards
    10




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December 31, 2010Actual
    
    
    Well Capitalized
    
    
    Minimum CapitalCapital
    
    
    Ratio
    
    
    Requirement
    
    
    RequirementThe CompanyLeverage
    
    $
    115,541
    
    
    
    12.48
    %
    
    
    n/a
    
    
    
    4.00
    %Tier 1 Risk-Based
    
    
    115,541
    
    
    
    13.74
    %
    
    
    n/a
    
    
    
    4.00
    %Total Risk-Based
    
    
    126,085
    
    
    
    15.00
    %
    
    
    n/a
    
    
    
    8.00
    %Redding Bank of
CommerceLeverage
    
    $
    106,747
    
    
    
    11.60
    %
    
    
    5.00
    %
    
    
    4.00
    %Tier 1 Risk-Based
    
    
    106,747
    
    
    
    13.34
    %
    
    
    6.00
    %
    
    
    4.00
    %Total Risk-Based
    
    
    116,791
    
    
    
    14.59
    %
    
    
    10.00
    %
    
    
    8.00
    %
     Prompt Corrective Action and Other Enforcement Mechanisms
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Fiscal and Monetary Policies
  Privacy Provisions of the Gramm-Leach-Bliley Act
  Sarbanes-Oxley Act of 2002
  12




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Patriot Act and Anti-Money Laundering
  Economic Emergency Stabilization Act of 2008
     Temporary Liquidity Guarantee Program
   13




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Federal Deposit Insurance Premiums
   The Impact of New Financial Reform Legislation
    14




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Future Legislation
  State Regulation and Supervision
   15




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Safety and Soundness Standards
   Community Reinvestment Act and Fair Lending Developments
  Enforcement Powers
   Competition
  16




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Employees
  Available Information
 www.sec.gov
 17




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ITEM 1A. RISK FACTORS
 Our business is subject to various economic risks that could adversely impact our results of
operations and financial condition.
   
    
    Loan delinquencies may further increase causing additional increases in our provision
and allowance for loan losses;
    
    Financial sector regulators may adopt more restrictive practices or interpretations of
existing regulations, or adopt new regulations;
    
    Collateral for loans made by the Bank, especially real estate related, may continue to
decline in value, which in turn could reduce a clients borrowing power, and reduce the
value of assets and collateral associated with our loans held for investment;
    
    Consumer confidence levels may decline and cause adverse changes in payment patterns,
resulting in increased delinquencies and default rates on loans and other credit
facilities and decreased demand for our products and services; and
    
    Performance of the underlying loans in the private label mortgage backed securities we
hold may deteriorate due to the economic downturn, potentially causing
other-than-temporary impairment markdowns to our investment portfolio.
 Nonperforming assets take significant time to resolve and adversely affect our
results of operations and financial condition.
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We have a concentration risk in real estate related loans.
   Monitoring and servicing our Individual Tax Identification Number (ITIN) residential mortgage
loans could prove more costly and time consuming than previously modeled.
  Future loan losses may exceed the allowance for loan losses.
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Defaults may negatively impact us.
   Interest rate fluctuations, which are out of our control, could harm profitability.
  Changes in the fair value of our securities may reduce our shareholders equity and net income.
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Conditions in the financial markets may limit our access to additional funding to meet our
liquidity needs.
  The condition of other financial institutions could negatively affect us.
   Changes in laws, government regulation and monetary policy may have a material effect on our
results of operations.
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Because of our participation in the Troubled Asset Relief Program we are subject to several
restrictions including, without limitation, restrictions on our ability to declare or pay dividends
and repurchase our shares as well as restrictions on compensation paid to our executives.
   Our Series A Preferred Stock diminishes the net income available to our common shareholders and
earnings per common share.
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Our holders of the Series A Preferred Stock have certain voting rights that may adversely
affect our common shareholders, and the holders of the Series A Preferred Stock may have interests
different from our common shareholders.
  
    
    Any authorization or issuance of shares ranking senior to the Series A Preferred Stock;
    
    Any amendments to the rights of the Series A Preferred Stock so as to adversely affect
the rights, preferences, privileges or voting power of the Series A Preferred Stock; or
    
    Consummation of any merger, share exchange or similar transaction unless the shares of
Series A Preferred Stock remain outstanding, or if we are not the surviving entity in such
transaction, are converted into or exchanged for preference securities of the surviving
entity and the shares of Series A Preferred Stock remaining outstanding or such preference
securities have the rights, preferences, privileges and voting power of the Series A
Preferred Stock.
  We rely heavily on our management team and the loss of key officers may adversely affect
operations.
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Internal control systems could fail to detect certain events.
  Our operations could be interrupted if third party service providers experience difficulty,
terminate their services or fail to comply with banking regulations.
  Confidential customer information transmitted through the Banks online banking service is
vulnerable to security breaches and computer viruses, which could expose the Bank to litigation and
adversely affect its reputation and ability to generate deposits.
  Potential acquisitions may disrupt our business and dilute shareholder value.
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
    
    Potential exposure to unknown or contingent liabilities of the target company;
    
    Exposure to potential asset quality issues of the target company;
    
    Difficulty and expense of integrating the operations and personnel of the target
company;
    
    Potential disruption to our business;
    
    The possible loss of key employees and customers of the target company;
    
    Difficulty in estimating the value of the target company; and
    
    Potential changes in banking or tax laws or regulations that may affect the target
company.
 We are subject to extensive regulation which could adversely affect our business.
   Higher FDIC deposit insurance premiums and assessments could adversely affect our financial
condition.
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Shares eligible for future sale could have a dilutive effect.
  Changes in accounting standards may impact how we report our consolidated financial condition and
consolidated results of operations.
  A natural disaster or recurring energy shortage, especially in California, could harm our business.
  The price of our common stock may fluctuate significantly, and this may make it difficult for you
to resell shares of common stock owned by you at times or at prices you find attractive.
  
    
    Actual or anticipated variations in quarterly results of operations;
    
    Recommendations by securities analysts;
    
    Operating and stock price performance of other companies that investors deem comparable
to us;
    
    News reports relating to trends, concerns and other issues in the financial services
industry, including the failures of other financial institutions in the current economic
downturn;
    
    Perceptions in the marketplace regarding us and/or our competitors;
    
    Public sentiments toward the financial services and banking industry generally;
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
    
    New technology used, or services offered, by competitors;
    
    Significant acquisitions or business combinations, strategic partnerships, joint
ventures or capital commitments by or involving us or our competitors;
    
    Failure to integrate acquisitions or realize anticipated benefits from acquisitions;
    
    Changes in government regulations; and
    
    Geopolitical conditions such as acts or threats of terrorism or military conflicts.
  Our profitability measures could be adversely affected if we are unable to effectively deploy the
capital raised in our latest offering.
    Only a limited trading market exists for our common stock, which could lead to significant price
volatility.
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Anti-takeover provisions in our articles of incorporation could make a third party
acquisition of us difficult.
   There may be future sales or other dilutions of our equity which may adversely affect the market
price of our common stock.
   The holders of our preferred stock and trust preferred securities have rights that are senior to
those of our holders of common stock and that may impact our ability to pay dividends on our common
stock to our common shareholders and reduce net income available to our common shareholders.
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Our future ability to pay dividends and repurchase stock is subject to restrictions.
   Potential Volatility of Deposits
   Negative Publicity could Damage our Reputation
  Mortgage banking interest rate and market risk
   29




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Mortgage banking revenue can be volatile from quarter to quarter
  30




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ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
      
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. (REMOVED AND RESERVED)
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PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
  Sales
Price Per Share
 Quarter Ended:
    
    High
    
    
    Low
    
    
    VolumeMarch 31, 2010
    
    $
    5.68
    
    
    $
    4.30
    
    
    
    1,770,615June 30, 2010
    
    $
    5.45
    
    
    $
    4.55
    
    
    
    1,611,878September 30, 2010
    
    $
    4.85
    
    
    $
    3.75
    
    
    
    930,147December 31, 2010
    
    $
    4.25
    
    
    $
    3.47
    
    
    
    616,925March 31, 2009
    
    $
    5.05
    
    
    $
    3.90
    
    
    
    123,989June 30, 2009
    
    $
    6.52
    
    
    $
    4.08
    
    
    
    74,922September 30, 2009
    
    $
    6.30
    
    
    $
    4.50
    
    
    
    129,689December 31, 2009
    
    $
    5.99
    
    
    $
    5.10
    
    
    
    156,391
  Dividends
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Securities Authorized for Issuance Under Equity Compensation Plans
  Number of securitiesremaining available forfuture issuance underNumber of securities to
    
    
    
    
    
    equity compensationbe issued upon exercise
    
    Weighted average
    
    plans (excludingof outstanding options,
    
    exercise price of
    
    securities reflected inPlan Category
    
    warrants and rights
    
    outstanding options
    
    column (a))Equity compensation
plans approved by
security holders
    
    
    300,080
    
    
    $
    8.17
    
    
    
    586,500Equity compensation
plans not approved
by security holders
    
    None
    
    
     None
    
    
    NoneTotal
    
    
    300,080
    
    
    $
    8.17
    
    
    
    586,500
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Stock Performance Graph
  Bank of Commerce Holdings
Five  Year Performance Graph
 
 Stock Performance Graph(1)
 SNL Securities LC (C) 2010
    
    (888) 275-2822
 
 (1)
    
    Assumes $100 invested on December 31, 2005, in the Companys Common Stock, the NASDAQ, and the
SNL Securities Index. The model assumes reinvestment of dividends. Source: SNL Securities (share
prices for the Companys Common Stock was furnished to SNL Securities through the NASDAQ). Sales of Unregistered Securities
  34




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##### Table of Contents



Purchase of Equity Securities by the Issuer and Affiliated Purchasers
  (d)(c)
    
    MaximumTotal Number of
    
    Number of SharesShares Purchased
    
    That May Yet be(a)
    
    (b)
    
    As Part of Publicly
    
    Purchased UnderTotal Number of
    
    Average Price
    
    Announced Plans
    
    the Plans or2010 Period
    
    Shares Purchased
    
    Paid Per Share
    
    or Programs
    
    ProgramsTotal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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ITEM 6.
    
    SELECTED FINANCIAL DATA
  In Thousands (Except Ratios and Per Share Data)
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Statements of IncomeTotal Interest Income
    
    $
    42,391
    
    
    $
    41,329
    
    
    $
    37,690
    
    
    $
    41,128
    
    
    $
    37,610Net Interest Income
    
    
    32,993
    
    
    
    28,994
    
    
    
    21,348
    
    
    
    22,012
    
    
    
    22,035Provision for Loan Losses
    
    
    12,850
    
    
    
    9,475
    
    
    
    6,520
    
    
    
    3,291
    
    
    
    226Total Noninterest Income
    
    
    19,818
    
    
    
    10,063
    
    
    
    2,623
    
    
    
    4,535
    
    
    
    1,928Total Noninterest Expense
    
    
    30,328
    
    
    
    20,624
    
    
    
    15,296
    
    
    
    15,744
    
    
    
    13,333Total Revenues
    
    
    62,209
    
    
    
    51,392
    
    
    
    40,313
    
    
    
    45,753
    
    
    
    39,539Net Income
    
    $
    6,220
    
    
    $
    6,005
    
    
    $
    2,194
    
    
    $
    6,107
    
    
    $
    6,568Balance SheetsTotal Assets
    
    $
    939,133
    
    
    $
    813,406
    
    
    $
    774,214
    
    
    $
    618,327
    
    
    $
    583,442Total Gross Portfolio Loans
    
    
    600,796
    
    
    
    601,439
    
    
    
    527,463
    
    
    
    494,748
    
    
    
    414,191Allowance for Loan Losses
    
    
    12,841
    
    
    
    11,207
    
    
    
    8,429
    
    
    
    8,233
    
    
    
    4,904Total Deposits
    
    
    648,702
    
    
    
    640,464
    
    
    
    555,282
    
    
    
    473,631
    
    
    
    439,407Shareholders Equity
    
    $
    103,727
    
    
    $
    68,807
    
    
    $
    62,578
    
    
    $
    46,164
    
    
    $
    43,916Performance Ratios 1Return on Average Assets 2
    
    
    0.69
    %
    
    
    0.75
    %
    
    
    0.33
    %
    
    
    1.04
    %
    
    
    1.20
    %Return on Average Shareholders Equity 3
    
    
    6.50
    %
    
    
    9.01
    %
    
    
    4.99
    %
    
    
    13.39
    %
    
    
    15.59
    %Dividend Payout
    
    
    41.18
    %
    
    
    34.81
    %
    
    
    127.04
    %
    
    
    46.47
    %
    
    
    40.36
    %Average Equity to Average Assets
    
    
    10.55
    %
    
    
    8.28
    %
    
    
    8.91
    %
    
    
    9.43
    %
    
    
    9.49
    %Tier 1 Risk-Based Capital  Holding Company 4
    
    
    13.74
    %
    
    
    12.06
    %
    
    
    11.58
    %
    
    
    9.97
    %
    
    
    11.42
    %Total Risk-Based Capital  Holding Company
    
    
    15.00
    %
    
    
    13.31
    %
    
    
    12.84
    %
    
    
    11.22
    %
    
    
    12.54
    %Net Interest Margin 5
    
    
    4.06
    %
    
    
    3.94
    %
    
    
    3.47
    %
    
    
    3.98
    %
    
    
    4.26
    %Average Earning Assets to Total Average Assets
    
    
    89.63
    %
    
    
    91.42
    %
    
    
    92.86
    %
    
    
    93.74
    %
    
    
    94.20
    %Nonperforming Assets to Total Assets 6
    
    
    2.43
    %
    
    
    1.92
    %
    
    
    2.98
    %
    
    
    2.01
    %
    
    
    0.00
    %Net Charge-offs to Average Loans
    
    
    1.84
    %
    
    
    1.14
    %
    
    
    1.22
    %
    
    
    0.00
    %
    
    
    -0.09
    %Allowance for Loan Losses to Total Loans
    
    
    2.14
    %
    
    
    1.86
    %
    
    
    1.60
    %
    
    
    1.66
    %
    
    
    1.18
    %Nonperforming Loans to Allowance for Loan Losses
    
    
    159.73
    %
    
    
    113.50
    %
    
    
    239.10
    %
    
    
    150.72
    %
    
    
    0.00
    %Efficiency Ratio 7
    
    
    57.43
    %
    
    
    52.80
    %
    
    
    63.81
    %
    
    
    59.31
    %
    
    
    55.64
    %Share DataAverage Common Shares Outstanding  basic
    
    
    14,951
    
    
    
    8,711
    
    
    
    8,713
    
    
    
    8,858
    
    
    
    8,760Average Common Shares Outstanding  diluted
    
    
    14,951
    
    
    
    8,711
    
    
    
    8,724
    
    
    
    8,938
    
    
    
    8,932Book Value Per Common Share
    
    $
    4.97
    
    
    $
    5.72
    
    
    $
    5.23
    
    
    $
    5.27
    
    
    $
    4.96Basic Earnings Per Common Share
    
    $
    0.35
    
    
    $
    0.58
    
    
    $
    0.25
    
    
    $
    0.69
    
    
    $
    0.75Diluted Earnings Per Common Share
    
    $
    0.35
    
    
    $
    0.58
    
    
    $
    0.25
    
    
    $
    0.68
    
    
    $
    0.74Cash Dividends Per Common Share
    
    $
    0.18
    
    
    $
    0.24
    
    
    $
    0.32
    
    
    $
    0.33
    
    
    $
    0.29
 
 1
    
    Regulatory Capital Ratios and Asset Quality Ratios are end of period ratios. With the
exception of end of period ratios, all ratios are based on average daily balances during the
indicated period.2
    
    Return on average assets is net income divided by average total assets.3
    
    Return on average equity is net income divided by average shareholders equity.4
    
    Regulatory capital ratios are defined in detail in the table on page 675
    
    Net interest margin equals net interest income as a percent of average
interest-earning assets.6
    
    Nonperforming assets include all nonperforming loans (nonaccrual loans, loans 90 days
past due and still accruing interest and restructured loans that are nonperforming) and real estate
acquired by foreclosure.7
    
    The efficiency ratio is calculated by dividing non-interest expense by the sum of net
interest income and noninterest income. The efficiency ratio measures how the Company spends in
order to generate each dollar of net revenue. 36




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##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward-Looking Statements Risk Factors
 2010 Highlights
  Overview
    37




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##### Table of Contents



Risk Management
 Overview
  Board Committees
  
    
    Loan Committee reviews credit risks and the adequacy of the allowance for loan and lease
losses.
    
    ALCO reviews liquidity and market risks.
    
    Audit and Qualified Legal Compliance Committee reviews the scope and coverage of internal
and external audit activities; and
    
    Nominating and Corporate Governance Committee evaluates corporate governance structure,
charters, committee performance and acts in best interests of the corporation and its
shareholders with regard to the appointment of director nominees.
  Senior Leadership Committees
  38




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##### Table of Contents




    
    The Senior Leadership Committee establishes short and long-term strategies and operating
plans. The committee establishes performance measures and reviews performance to plan on a
monthly basis:
    
    The Credit Round Table Committee recommends corporate credit administration practices and
limits including industry concentration limits, approval requirements, and exceptions:
    
    The Technology Steering Committee establishes technological strategies, makes technology
investment decisions, and manages the implementation process:
    
    The ALCO Round Table Committee establishes and monitors liquidity ranges, pricing,
maturities, investment goals, and interest spread on balance sheet accounts: and
    
    The SOX 404 Compliance Committee has established the master plan for full documentation of
the Companys internal controls and compliance with Section 404 of the Sarbanes-Oxley Act of
2002.
 Risk Management Controls
  Liquidity Risk Management
 Liquidity Risk
      39




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##### Table of Contents



Other Borrowings
  2010
    
    
    2009
    
    
    2008Securities sold under
agreements to repurchase
with weighted average
interest rates of 0.34%,
0.49% and 0.62% at
December 31, 2010, 2009
and 2008, respectively
    
    $
    13,547,562
    
    
    $
    9,620,867
    
    
    $
    13,853,255Federal Home Loan Bank
borrowings with weighted
average interest rates of
0.29%, 0.85% and 2.41% at
December 31, 2010, 2009
and 2008, respectively
    
    
    141,000,000
    
    
    
    70,000,000
    
    
    
    120,000,000Total Other Borrowings
    
    $
    154,547,562
    
    
    $
    79,620,867
    
    
    $
    133,853,255
 2010
    
    
    2009
    
    
    2008Securities sold under agreements to repurchase:Maximum outstanding at any month end
    
    $
    18,820,233
    
    
    $
    12,359,119
    
    
    $
    14,581,881Average balance during the year
    
    
    12,274,351
    
    
    
    11,006,007
    
    
    
    13,038,870Weighted average interest rate during year
    
    
    0.42
    %
    
    
    0.46
    %
    
    
    1.32
    %Federal Home Loan Bank borrowings:Maximum outstanding at any month end
    
    $
    147,000,000
    
    
    $
    130,000,000
    
    
    $
    120,000,000Average Balance during the year
    
    
    112,783,562
    
    
    
    103,317,808
    
    
    
    83,048,645Weighted average interest rate during year
    
    
    0.56
    %
    
    
    1.93
    %
    
    
    3.40
    %
 Credit Risk Management
  Commercial portfolio credit risk management
   40




---



##### Table of Contents



Real estate portfolio credit risk management
   Concentrations of credit risk
  Nonperforming assets
  Allowance for loan and lease losses (ALLL)
  41




---



##### Table of Contents



42




---



##### Table of Contents



Market Risk Management
 General
   Securities Portfolio
 available-for-sale held-to-maturity held-to-maturity available-for-sale
 Operational Risk Management
  Critical Accounting Policies
 General
  43




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##### Table of Contents



Valuation of Investments and Impairment of Securities
       Allowance for Loan and Lease Losses (ALLL)
  44




---



##### Table of Contents



Stock-Based Compensation
  Revenue recognition
  Income Taxes
  45




---



##### Table of Contents



Mortgages Held for Sale
   Derivative Loan Commitments
  Fair Value Measurements
   Other Real Estate Owned
  46




---



##### Table of Contents



Financial Highlights  Results of Operations
  Key Financial Ratios
 2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006ProfitabilityReturn on average assets
    
    
    0.69
    %
    
    
    0.75
    %
    
    
    0.33
    %
    
    
    1.04
    %
    
    
    1.20
    %Return on average equity
    
    
    6.50
    %
    
    
    9.01
    %
    
    
    4.99
    %
    
    
    13.39
    %
    
    
    15.59
    %Average earning assets to total average assets
    
    
    89.63
    %
    
    
    91.42
    %
    
    
    92.86
    %
    
    
    93.74
    %
    
    
    94.20
    %Interest MarginNet interest margin
    
    
    4.06
    %
    
    
    3.94
    %
    
    
    3.47
    %
    
    
    3.98
    %
    
    
    4.26
    %Asset QualityAllowance for loan losses to total loans
    
    
    2.14
    %
    
    
    1.86
    %
    
    
    1.60
    %
    
    
    1.66
    %
    
    
    1.18
    %Nonperforming assets to total assets
    
    
    2.43
    %
    
    
    1.92
    %
    
    
    2.98
    %
    
    
    2.01
    %
    
    
    0.00
    %Net charge-offs to average loans
    
    
    1.84
    %
    
    
    1.14
    %
    
    
    1.22
    %
    
    
    0.00
    %
    
    
    -0.09
    %LiquidityLoans to deposits
    
    
    92.60
    %
    
    
    93.87
    %
    
    
    93.28
    %
    
    
    102.67
    %
    
    
    93.08
    %Liquidity ratio
    
    
    41.86
    %
    
    
    38.84
    %
    
    
    22.56
    %
    
    
    18.49
    %
    
    
    27.96
    %CapitalTier 1 risk-based capital  Bank
    
    
    13.34
    %
    
    
    11.57
    %
    
    
    11.58
    %
    
    
    9.97
    %
    
    
    11.42
    %Total risk-based capital  Bank
    
    
    14.59
    %
    
    
    12.83
    %
    
    
    12.84
    %
    
    
    11.22
    %
    
    
    12.54
    %EfficiencyEfficiency ratio
    
    
    57.43
    %
    
    
    52.80
    %
    
    
    63.81
    %
    
    
    59.31
    %
    
    
    55.64
    %
 www.fdic.gov
 47




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##### Table of Contents



Balance Sheet
   Asset Quality
  Capital
  Sources of Income
  48




---



##### Table of Contents



Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
   49




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##### Table of Contents



50




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##### Table of Contents



Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
          51




---



##### Table of Contents



Net Interest Income and Net Interest Margin
     52




---



##### Table of Contents



Average Balances, Interest Income/Expense and Yields/Rates Paid
Years Ended December 31,
 (Dollars in thousands)
    
    2010
    
    
    2009
    
    
    2008Average
    
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Yield/Rate
    
    
    Balance
    
    
    Interest
    
    
    Yield/Rate
    
    
    Balance
    
    
    Interest
    
    
    Yield/RateInterest Earning AssetsPortfolio loans1
    
    $
    640,213
    
    
    $
    37,000
    
    
    
    5.78
    %
    
    $
    589,336
    
    
    $
    35,860
    
    
    
    6.08
    %
    
    $
    518,759
    
    
    $
    33,582
    
    
    
    6.47
    %Tax-exempt securities
    
    
    42,172
    
    
    
    1,692
    
    
    
    4.01
    %
    
    
    28,384
    
    
    
    1,164
    
    
    
    4.10
    %
    
    
    24,399
    
    
    
    1,197
    
    
    
    4.91
    %US government securities
    
    
    27,423
    
    
    
    617
    
    
    
    2.25
    %
    
    
    8,606
    
    
    
    343
    
    
    
    3.99
    %
    
    
    13,637
    
    
    
    553
    
    
    
    4.06
    %Mortgage backed securities
    
    
    48,972
    
    
    
    1,466
    
    
    
    2.99
    %
    
    
    53,722
    
    
    
    3,107
    
    
    
    5.78
    %
    
    
    37,328
    
    
    
    1,916
    
    
    
    5.13
    %Federal funds sold
    
    
    995
    
    
    
    2
    
    
    
    0.20
    %
    
    
    13,438
    
    
    
    32
    
    
    
    0.24
    %
    
    
    17,987
    
    
    
    303
    
    
    
    1.68
    %Other securities
    
    
    52,322
    
    
    
    1,614
    
    
    
    3.08
    %
    
    
    41,305
    
    
    
    823
    
    
    
    1.99
    %
    
    
    2,918
    
    
    
    139
    
    
    
    4.76
    %Average Earning Assets
    
    $
    812,097
    
    
    $
    42,391
    
    
    
    5.22
    %
    
    $
    734,791
    
    
    $
    41,329
    
    
    
    5.62
    %
    
    $
    615,028
    
    
    $
    37,690
    
    
    
    6.13
    %Cash & due from banks
    
    
    28,748
    
    
    
    
    
    
    
    
    
    
    
    26,841
    
    
    
    
    
    
    
    
    
    
    
    16,298Bank premises
    
    
    9,814
    
    
    
    
    
    
    
    
    
    
    
    10,322
    
    
    
    
    
    
    
    
    
    
    
    11,097Other assets
    
    
    55,440
    
    
    
    
    
    
    
    
    
    
    
    32.257
    
    
    
    
    
    
    
    
    
    
    
    19,866Average Total Assets
    
    $
    906,099
    
    
    
    
    
    
    
    
    
    
    $
    804,211
    
    
    
    
    
    
    
    
    
    
    $
    662,289Interest Bearing LiabilitiesInterest bearing demand
    
    $
    141,983
    
    
    $
    968
    
    
    
    0.68
    %
    
    $
    145,542
    
    
    $
    1,015
    
    
    
    0.70
    %
    
    $
    138,743
    
    
    $
    2,173
    
    
    
    1.57
    %Savings deposits
    
    
    76,718
    
    
    
    921
    
    
    
    1.20
    %
    
    
    62,846
    
    
    
    963
    
    
    
    1.53
    %
    
    
    56,914
    
    
    
    1,576
    
    
    
    2.77
    %Certificates of deposit
    
    
    321,051
    
    
    
    6,151
    
    
    
    1.92
    %
    
    
    317,417
    
    
    
    7,628
    
    
    
    2.40
    %
    
    
    234,493
    
    
    
    8,552
    
    
    
    3.65
    %Repurchase agreements
    
    
    12,274
    
    
    
    52
    
    
    
    0.42
    %
    
    
    11,006
    
    
    
    51
    
    
    
    0.46
    %
    
    
    13,043
    
    
    
    173
    
    
    
    1.33
    %Other borrowings
    
    
    134,255
    
    
    
    1,306
    
    
    
    0.97
    %
    
    
    122,057
    
    
    
    2,678
    
    
    
    2.19
    %
    
    
    98,518
    
    
    
    3,868
    
    
    
    3.93
    %Average Interest Liabilities
    
    $
    686,281
    
    
    $
    9,398
    
    
    
    1.37
    %
    
    $
    658,868
    
    
    $
    12,335
    
    
    
    1.87
    %
    
    $
    541,711
    
    
    $
    16,342
    
    
    
    3.02
    %Noninterest bearing demand
    
    
    92,433
    
    
    
    
    
    
    
    
    
    
    
    69,250
    
    
    
    
    
    
    
    
    
    
    
    70,933Other liabilities
    
    
    31,748
    
    
    
    
    
    
    
    
    
    
    
    9,467
    
    
    
    
    
    
    
    
    
    
    
    5,660Shareholders equity
    
    
    95,637
    
    
    
    
    
    
    
    
    
    
    
    66,626
    
    
    
    
    
    
    
    
    
    
    
    43,985Average Liabilities and
Shareholders Equity
    
    $
    906,099
    
    
    
    
    
    
    
    
    
    
    $
    804,211
    
    
    
    
    
    
    
    
    
    
    $
    662,289Net Interest Income and Net
Interest Margin
    
    
    
    
    
    $
    32,993
    
    
    
    4.06
    %
    
    
    
    
    
    $
    28,994
    
    
    
    3.94
    %
    
    
    
    
    
    $
    21,348
    
    
    
    3.47
    %
    
 1
    
    Average nonaccrual loans and average
loans held for sale of $20.5 and $30.6 million are included respectively 53




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##### Table of Contents



Analysis of Changes in Net Interest Income
Years ended December 31,
 (Dollars in thousands)
    
    2010 over 2009
    
    
    2009 over 2008Variance
    
    
    Variance
    
    
    
    
    
    
    Variance
    
    
    Variancedue to
    
    
    due to
    
    
    
    
    
    
    due to
    
    
    due toAverage
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    AverageVolume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    TotalIncrease (Decrease)In Interest Income:Portfolio loans
    
    $
    2,490
    
    
    
    ($1,350
    )
    
    $
    1,140
    
    
    $
    3,791
    
    
    
    ($1,512
    )
    
    $
    2,279Tax-exempt securities
    
    
    547
    
    
    
    (19
    )
    
    
    528
    
    
    
    115
    
    
    
    (147
    )
    
    
    (32
    )US government securities
    
    
    386
    
    
    
    (112
    )
    
    
    274
    
    
    
    (203
    )
    
    
    (7
    )
    
    
    (210
    )Mortgage backed securities
    
    
    (517
    )
    
    
    (1,124
    )
    
    
    (1,641
    )
    
    
    1,009
    
    
    
    182
    
    
    
    1,191Federal funds sold
    
    
    (26
    )
    
    
    (4
    )
    
    
    (30
    )
    
    
    (8
    )
    
    
    (99
    )
    
    
    (107
    )Other securities
    
    
    453
    
    
    
    338
    
    
    
    791
    
    
    
    480
    
    
    
    38
    
    
    
    518Total Increase (Decrease)
    
    
    3,333
    
    
    
    (2,271
    )
    
    
    1,062
    
    
    
    5,184
    
    
    
    (1,545
    )
    
    
    3,639(Decrease) IncreaseIn Interest Expense:Interest bearing demand
    
    
    (30
    )
    
    
    (17
    )
    
    
    (47
    )
    
    
    (254
    )
    
    
    (904
    )
    
    
    (1,158
    )Savings accounts
    
    
    114
    
    
    
    (156
    )
    
    
    (42
    )
    
    
    (85
    )
    
    
    (528
    )
    
    
    (613
    )Certificates of deposit
    
    
    (317
    )
    
    
    (1,160
    )
    
    
    (1,477
    )
    
    
    1,263
    
    
    
    (2,188
    )
    
    
    (925
    )Repurchase agreements
    
    
    4
    
    
    
    (3
    )
    
    
    1
    
    
    
    (37
    )
    
    
    (84
    )
    
    
    (121
    )Other borrowings
    
    
    (164
    )
    
    
    (1,208
    )
    
    
    (1,372
    )
    
    
    5
    
    
    
    (1,195
    )
    
    
    (1,190
    )Total Increase (Decrease)
    
    
    (393
    )
    
    
    (2,544
    )
    
    
    (2,937
    )
    
    
    892
    
    
    
    (4,899
    )
    
    
    (4,007
    )Net Increase (Decrease)
    
    $
    3,726
    
    
    $
    273
    
    
    $
    3,999
    
    
    $
    4,292
    
    
    $
    3,354
    
    
    $
    7,646
  
  54




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##### Table of Contents



Noninterest Income
  (Dollars in thousands)
    
    Years Ended December 31,2010
    
    
    2009
    
    
    2008Noninterest income:Service charges on deposit accounts
    
    $
    260
    
    
    $
    390
    
    
    $
    311Payroll and benefit processing fees
    
    
    448
    
    
    
    452
    
    
    
    453Earnings on cash surrender value-Bank owned life insurance
    
    
    438
    
    
    
    418
    
    
    
    340Net gain on sale of securities available-for-sale
    
    
    1,981
    
    
    
    2,438
    
    
    
    628Net loss on sale of derivative swap transaction
    
    
    
    
    
    
    
    
    
    
    (225
    )Net gain on transfer of financial assets
    
    
    
    
    
    
    341
    
    
    
    Gain on settlement of put reserve
    
    
    1,750
    
    
    
    
    
    
    
    Mortgage brokerage fee income
    
    
    14,214
    
    
    
    5,327
    
    
    
    21Other income
    
    
    727
    
    
    
    697
    
    
    
    1,095Total Noninterest income
    
    $
    19,818
    
    
    $
    10,063
    
    
    $
    2,623
      55




---



##### Table of Contents



Noninterest Expense
  (Dollars in thousands)
    
    Years ended December 31,2010
    
    
    2009
    
    
    2008Salaries & related benefits
    
    $
    15,903
    
    
    $
    10,882
    
    
    $
    7,751Occupancy & equipment expense
    
    
    3,660
    
    
    
    3,405
    
    
    
    2,501Write down of other real
estate owned
    
    
    1,571
    
    
    
    161
    
    
    
    735FDIC insurance premium
    
    
    1,016
    
    
    
    1,274
    
    
    
    383Data processing fees
    
    
    270
    
    
    
    282
    
    
    
    276Professional service fees
    
    
    1,726
    
    
    
    820
    
    
    
    667Deferred compensation expense
    
    
    493
    
    
    
    478
    
    
    
    461Stationery & supplies
    
    
    258
    
    
    
    185
    
    
    
    262Postage
    
    
    198
    
    
    
    147
    
    
    
    134Directors expenses
    
    
    266
    
    
    
    299
    
    
    
    294Goodwill impairment
    
    
    32
    
    
    
    
    
    
    
    Other expenses
    
    
    4,935
    
    
    
    2,691
    
    
    
    1,832Total Noninterest expense
    
    $
    30,328
    
    
    $
    20,624
    
    
    $
    15,296
      56




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##### Table of Contents



Income Taxes
   (Dollars in thousands)
    
    Years Ended December 31,2010
    
    
    2009
    
    
    2008Income tax provision
(benefit)
    
    $
    3,159
    
    
    $
    2,690
    
    
    
    ($40
    )Effective tax rate
    
    
    32.79
    %
    
    
    30.02
    %
    
    
    -1.83
    %
  Asset Quality
    57




---



##### Table of Contents



(Dollars in 
thousands)
    
    As of December 31,2010
    
    
    %
    
    
    2009
    
    
    %
    
    
    2008
    
    
    %
    
    
    2007
    
    
    %
    
    
    2006
    
    
    %Commercial &
industrial
    
    $
    133,199
    
    
    
    22.17
    %
    
    $
    133,080
    
    
    
    23.13
    %
    
    $
    164,083
    
    
    
    31.11
    %
    
    $
    173,704
    
    
    
    35.11
    %
    
    $
    125,725
    
    
    
    30.36
    %Real Estate loansConstruction
    
    
    41,327
    
    
    
    6.88
    %
    
    
    59,524
    
    
    
    9.90
    %
    
    
    84,218
    
    
    
    15.97
    %
    
    
    106,977
    
    
    
    21.62
    %
    
    
    110,693
    
    
    
    26.73
    %Commercial
    
    
    262,340
    
    
    
    43.67
    %
    
    
    260,024
    
    
    
    42.23
    %
    
    
    217,914
    
    
    
    41.31
    %
    
    
    175,013
    
    
    
    35.37
    %
    
    
    159,370
    
    
    
    38.48
    %ITIN loan pool
    
    
    70,585
    
    
    
    11.75
    %
    
    
    78,250
    
    
    
    13.04
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other first
lien
mortgages
    
    
    19,299
    
    
    
    3.21
    %
    
    
    20,525
    
    
    
    3.38
    %
    
    
    20,285
    
    
    
    3.85
    %
    
    
    10,787
    
    
    
    2.18
    %
    
    
    4,278
    
    
    
    1.04
    %Equity loans
    
    
    69,590
    
    
    
    11.58
    %
    
    
    45,601
    
    
    
    7.58
    %
    
    
    39,915
    
    
    
    7.57
    %
    
    
    26,818
    
    
    
    5.42
    %
    
    
    12,986
    
    
    
    3.14
    %Installment
    
    
    2,303
    
    
    
    0.38
    %
    
    
    2,223
    
    
    
    0.37
    %
    
    
    145
    
    
    
    0.03
    %
    
    
    226
    
    
    
    0.05
    %
    
    
    202
    
    
    
    0.05
    %Other loans
    
    
    2,153
    
    
    
    0.36
    %
    
    
    2,212
    
    
    
    0.37
    %
    
    
    903
    
    
    
    0.16
    %
    
    
    1,223
    
    
    
    0.25
    %
    
    
    937
    
    
    
    0.20
    %Gross Loans
    
    
    600,796
    
    
    
    100.00
    
    
    
    601,439
    
    
    
    100.00
    
    
    
    527,463
    
    
    
    100.00
    %
    
    
    494,748
    
    
    
    100.00
    %
    
    $
    414,191
    
    
    
    100.00
    %Less:Deferred loan
fees and costs
    
    
    90
    
    
    
    
    
    
    
    209
    
    
    
    
    
    
    
    87
    
    
    
    
    
    
    
    232
    
    
    
    
    
    
    
    298Allowance for
Loan losses
    
    
    12,841
    
    
    
    
    
    
    
    11,207
    
    
    
    
    
    
    
    8,429
    
    
    
    
    
    
    
    8,233
    
    
    
    
    
    
    
    4,904Net Loans
    
    $
    587,865
    
    
    
    
    
    
    $
    590,023
    
    
    
    
    
    
    $
    518,947
    
    
    
    
    
    
    $
    486,283
    
    
    
    
    
    
    $
    408,989
 58




---



##### Table of Contents



(Dollars in thousands)
 Percent of gross loanLoan Type
    
    Balance
    
    
    portfolioCommercial real estate  construction
    
    $
    18,356
    
    
    
    3.06
    %Commercial lots
    
    
    14,951
    
    
    
    2.49
    %1-4 family subdivision loans
    
    
    5,592
    
    
    
    0.93
    %1-4 family individual residential lots
    
    
    1,757
    
    
    
    0.29
    %1-4 family construction speculative
    
    
    671
    
    
    
    0.11
    %Total Real estate-construction
    
    $
    41,327
    
    
    
    6.88
    %
  (Dollars in thousands)
 % of Gross loanLoan Type
    
    Balance
    
    
    portfolioCommercial- investor
    
    $
    194,285
    
    
    
    32.34
    %Commercial-owner occupied
    
    
    68,055
    
    
    
    11.33
    %Total Commercial
    
    
    262,340
    
    
    
    43.67
    %
    Mortgages held for sale
   59




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##### Table of Contents



Nonperforming Assets
  (Dollars in thousands)
 As of December 31,Nonperforming assets
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Commercial & industrial
    
    $
    2,302
    
    
    $
    237
    
    
    $
    2,279
    
    
    $
    
    
    
    $
    Secured by
1-4 family, closed end 1st lien
    
    1,166
    
    
    
    623
    
    
    
    1,047
    
    
    
    
    
    
    
    Secured by 1-4 family  revolving
    
    
    97
    
    
    
    199
    
    
    
    350
    
    
    
    83
    
    
    
    Secured by RE - 1-4 construction
    
    
    242
    
    
    
    849
    
    
    
    6,989
    
    
    
    9,022
    
    
    
    Secured by RE  other construction
    
    
    100
    
    
    
    
    
    
    
    9,489
    
    
    
    3,304
    
    
    
    Secured by NFNR
    
    
    7,066
    
    
    
    5,759
    
    
    
    
    
    
    
    
    
    
    
    Nonaccrual loan portfolio
    
    $
    10,973
    
    
    $
    7,667
    
    
    $
    20,154
    
    
    $
    12,409
    
    
    $
    Nonaccrual  ITIN loan pool
    
    $
    9,538
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Nonaccrual  home equity loan pool
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90 days past due and still accruing interest
    
    
    
    
    
    
    5,052
    
    
    
    
    
    
    
    
    
    
    
    Other real estate owned
    
    
    2,288
    
    
    
    2,880
    
    
    
    2,934
    
    
    
    
    
    
    
    Total nonperforming assets
    
    $
    22,799
    
    
    $
    15,599
    
    
    $
    23,088
    
    
    $
    12,409
    
    
    $
    
   60




---



##### Table of Contents




    
    Increasing delinquencies  20% of the portfolio was delinquent 30 days or more as of
12/31/2010
    
    Servicer modification efforts were generally extending beyond a typical timeframe
    
    Mortgage insurance  A small number of mortgage insurance claims have been denied and
management has not been able to identify a trend regarding any potential future denials
    
    Sale of other real estate owned (OREO)  An emerging trend in the lengthening
disposition of ITIN other real estate owned had developed including the potential for
decreased recoveries and consequently increased net charge offs.
   61




---



##### Table of Contents



(Dollars in thousands)
 Troubled debt restructurings
    
    December 31, 2010
    
    
    December 31, 2009Nonaccrual
    
    $
    11,977
    
    
    $
    4,937Accruing
    
    
    12,668
    
    
    
    5,730Total troubled debt restructurings
    
    $
    24,645
    
    
    $
    10,667
   62




---



##### Table of Contents



(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Beginning balance
    
    $
    11,207
    
    
    $
    8,429
    
    
    $
    8,233
    
    
    $
    4,904
    
    
    $
    4,316Provision for loan loss charged to expense
    
    
    12,850
    
    
    
    9,475
    
    
    
    6,520
    
    
    
    3,291
    
    
    
    226Loans charged off
    
    
    (12,089
    )
    
    
    (6,871
    )
    
    
    (6,329
    )
    
    
    
    
    
    
    (299
    )Loan loss recoveries
    
    
    873
    
    
    
    174
    
    
    
    5
    
    
    
    38
    
    
    
    661Ending balance
    
    $
    12,841
    
    
    $
    11,207
    
    
    $
    8,429
    
    
    $
    8,233
    
    
    $
    4,904Gross portfolio loans outstanding at period end
    
    $
    600,707
    
    
    $
    601,230
    
    
    $
    527,376
    
    
    $
    494,516
    
    
    $
    413,893Ratio of allowance for loan losses to total loans
    
    
    2.14
    %
    
    
    1.86
    %
    
    
    1.60
    %
    
    
    1.66
    %
    
    
    1.18
    %Nonaccrual loans at period end:Commercial
    
    $
    2,302
    
    
    $
    237
    
    
    $
    2,279
    
    
    $
    
    
    
    $
    Construction
    
    
    342
    
    
    
    849
    
    
    
    16,478
    
    
    
    12,326
    
    
    
    Commercial real estate
    
    
    7,066
    
    
    
    5,759
    
    
    
    
    
    
    
    
    
    
    
    Residential real estate
    
    
    10,704
    
    
    
    623
    
    
    
    1,047
    
    
    
    
    
    
    
    Home equity
    
    
    97
    
    
    
    199
    
    
    
    350
    
    
    
    83
    
    
    
    Total nonaccrual loans
    
    $
    20,511
    
    
    $
    7,667
    
    
    $
    20,154
    
    
    $
    12,409
    
    
    $
    Accruing troubled-debt restructured loansConstruction
    
    $
    2,804
    
    
    $
    2,219
    
    
    $
    
    
    
    $
    
    
    
    $
    Commercial real estate
    
    
    3,621
    
    
    
    3,511
    
    
    
    
    
    
    
    
    
    
    
    Residential real estate
    
    
    6,243
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total accruing restructured loans
    
    $
    12,668
    
    
    $
    5,730
    
    
    $
    
    
    
    $
    
    
    
    $
    All other accruing impaired loans
    
    
    737
    
    
    
    
    
    
    
    
    
    
    
    1,576
    
    
    
    Total impaired loans
    
    $
    33,916
    
    
    $
    13,397
    
    
    $
    20,154
    
    
    $
    13,985
    
    
    $
    Allowance for loan losses to nonaccrual loans at
period end
    
    
    62.61
    %
    
    
    146.17
    %
    
    
    41.82
    %
    
    
    66.35
    %
    
    
    0.00
    %Nonaccrual loans to total loans
    
    
    3.41
    %
    
    
    1.28
    %
    
    
    3.82
    %
    
    
    2.51
    %
    
    
    0.00
    %
  (Dollars in thousands)
 Dec. 31, 2010
    
    Dec. 31, 2009
    
    Dec. 31, 2008
    
    Dec. 31, 2007
    
    Dec. 31, 2006%
    
    
    
    
    
    %
    
    
    
    
    
    %
    
    
    
    
    
    %
    
    
    
    
    
    %Loan
    
    
    
    
    
    Loan
    
    
    
    
    
    Loan
    
    
    
    
    
    Loan
    
    
    
    
    
    LoanAmount
    
    Category
    
    Amount
    
    Category
    
    Amount
    
    Category
    
    Amount
    
    Category
    
    Amount
    
    CategoryBalance at end of
period applicable
to:Commercial and
financial
    
    $
    4,393
    
    
    
    34.21
    %
    
    $
    5,306
    
    
    
    47.35
    %
    
    $
    3,249
    
    
    
    38.55
    %
    
    $
    1,946
    
    
    
    23.64
    %
    
    $
    2,111
    
    
    
    43.05
    %Commercial real
estate 
constructions
    
    
    1,271
    
    
    
    9.90
    %
    
    $
    1,188
    
    
    
    10.60
    %
    
    $
    1,913
    
    
    
    22.70
    %
    
    $
    4,627
    
    
    
    56.20
    %
    
    $
    1,244
    
    
    
    25.37
    %Commercial real
estate  other
    
    
    2,422
    
    
    
    18.86
    %
    
    $
    2,348
    
    
    
    20.95
    %
    
    $
    2,225
    
    
    
    26.40
    %
    
    $
    1,295
    
    
    
    15.73
    %
    
    $
    1,210
    
    
    
    24.67
    %ITIN loan pool
    
    
    2,857
    
    
    
    22.25
    %
    
    
    1,227
    
    
    
    10.95
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other residential
    
    
    1,632
    
    
    
    12.71
    %
    
    
    853
    
    
    
    7.61
    %
    
    $
    692
    
    
    
    8.21
    %
    
    $
    213
    
    
    
    2.59
    %
    
    $
    139
    
    
    
    2.83
    %Consumer
    
    
    46
    
    
    
    0.36
    %
    
    
    35
    
    
    
    0.31
    %
    
    $
    42
    
    
    
    0.50
    %
    
    $
    41
    
    
    
    0.50
    %
    
    $
    24
    
    
    
    0.49
    %Unallocated
    
    
    220
    
    
    
    1.71
    %
    
    
    250
    
    
    
    2.23
    %
    
    $
    308
    
    
    
    3.64
    %
    
    $
    111
    
    
    
    1.34
    %
    
    $
    176
    
    
    
    3.59
    %Total allowance for
loan and lease
losses
    
    $
    12,841
    
    
    
    100.00
    %
    
    $
    11,207
    
    
    
    100.00
    %
    
    $
    8,429
    
    
    
    100.00
    %
    
    $
    8,233
    
    
    
    100.00
    %
    
    $
    4,904
    
    
    
    100.00
    %
 63




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##### Table of Contents



Loan Maturity Schedule
  (Dollars in thousands)
    
    Within One Year
    
    After One Through Five Years
    
    
    After Five Years
    
    
    TotalCommercial & financial
    
    $
    64,181
    
    
    $
    40,002
    
    
    $
    29,016
    
    
    $
    133,199Real estate loansConstruction
    
    
    25,841
    
    
    
    11,099
    
    
    
    4,387
    
    
    
    41,327Commercial
    
    
    10,800
    
    
    
    74,068
    
    
    
    177,472
    
    
    
    262,340ITIN loan pool
    
    
    
    
    
    
    
    
    
    
    70,585
    
    
    
    70,585Other mortgage
    
    
    1,029
    
    
    
    5,176
    
    
    
    13,094
    
    
    
    19,299Equity lines
    
    
    994
    
    
    
    21,430
    
    
    
    47,166
    
    
    
    69,590Installment
    
    
    2,142
    
    
    
    161
    
    
    
    
    
    
    
    2,303Other loans
    
    
    781
    
    
    
    1,272
    
    
    
    100
    
    
    
    2,153Total gross loans
    
    $
    105,768
    
    
    $
    153,208
    
    
    $
    341,820
    
    
    $
    600,796Loans due after one year
with:Fixed Rates
    
    $
    
    
    
    $
    61,857
    
    
    $
    110,137
    
    
    $
    171,994Variable Rates
    
    
    
    
    
    
    91,351
    
    
    
    231,683
    
    
    
    323,034Total
    
    $
    
    
    
    $
    153,208
    
    
    $
    341,820
    
    
    $
    495,028
 Available-for-sale securities
  Over One through
    
     
    Over Five through(Dollars in thousands)
    

    Within One Year
    
    
    Five Years
    
    
    Ten Years
    
    
    Over Ten Years
    
    
    TotalAmount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    YieldU.S. government & agencies
    
    $
    
    
    
    
    
    
    
    $
    7,054
    
    
    
    1.35
    %
    
    $
    19,760
    
    
    
    2.37
    %
    
    $
    
    
    
    
    
    
    
    $
    26,814
    
    
    
    2.10
    %Obligations of state and
political subdivisions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,543
    
    
    
    3.56
    %
    
    
    59,461
    
    
    
    4.34
    %
    
    
    67,004
    
    
    
    4.25
    %Mortgage backed securities
and collateralized mortgage
obligations
    
    
    7,963
    
    
    
    1.42
    %
    
    
    38,547
    
    
    
    2.84
    %
    
    
    7,364
    
    
    
    3.36
    %
    
    
    11,178
    
    
    
    3.69
    %
    
    
    65,052
    
    
    
    2.87
    %Corporate securities
    
    
    
    
    
    
    
    
    
    
    12,212
    
    
    
    3.21
    %
    
    
    16,807
    
    
    
    3.79
    %
    
    
    
    
    
    
    
    
    
    
    29,019
    
    
    
    3.54
    %Other asset backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,569
    
    
    
    1.74
    %
    
    $
    4,569
    
    
    
    1.74
    %Total
    
    $
    7,963
    
    
    
    1.42
    %
    
    $
    57,813
    
    
    
    2.74
    %
    
    
    51,474
    
    
    
    3.15
    %
    
    $
    75,208
    
    
    
    4.08
    %
    
    $
    192,458
    
    
    
    3.32
    %
  64




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##### Table of Contents



Deposit Structure
  (Dollars in thousands)
 Years Ended December 31,2010
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    2008Amount
    
    
    Yield
    
    
    Amount
    
    
    Yield
    
    
    Amount
    
    
    YieldNOW accounts
    
    $
    38,843
    
    
    
    0.58
    %
    
    $
    58,437
    
    
    
    0.51
    %
    
    $
    51,215
    
    
    
    0.88
    %Savings
    
    
    76,718
    
    
    
    1.20
    %
    
    
    62,846
    
    
    
    1.53
    %
    
    
    56,914
    
    
    
    2.77
    %Money market accounts
    
    
    103,140
    
    
    
    0.72
    %
    
    
    87,105
    
    
    
    0.84
    %
    
    
    87,528
    
    
    
    1.97
    %Certificates of deposit
    
    
    321,051
    
    
    
    1.92
    %
    
    
    317,417
    
    
    
    2.40
    %
    
    
    234,493
    
    
    
    3.65
    %Interest bearing deposits
    
    
    539,752
    
    
    
    1.49
    %
    
    
    525,805
    
    
    
    1.83
    %
    
    
    430,150
    
    
    
    2.87
    %Noninterest bearing deposits
    
    
    92,433
    
    
    
    
    
    
    
    69,250
    
    
    
    
    
    
    
    70,933Average total deposits
    
    $
    632,185
    
    
    
    
    
    
    $
    595,055
    
    
    
    
    
    
    $
    501,083Average other borrowings
    
    $
    146,529
    
    
    
    0.93
    %
    
    $
    133,063
    
    
    
    2.06
    %
    
    $
    111,561
    
    
    
    3.62
    %
  Deposit Maturity Schedule
 (Dollars in thousands)
 2010Maturing in:Three months or less
    
    $
    67,135Three through six months
    
    
    42,820Six through twelve months
    
    
    47,165Over twelve months
    
    
    76,570Total
    
    $
    233,690
 Capital Management and Adequacy
    65




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##### Table of Contents



(Dollars in thousands)
 Well
    
    
    MinimumActual
    
    
    Capitalized
    
    
    CapitalDecember 31, 2010
    
    Capital
    
    
    Ratio
    
    
    Requirement
    
    
    RequirementThe CompanyLeverage
    
    $
    115,541
    
    
    
    12.48
    %
    
    
    n/a
    
    
    
    4.00
    %Tier 1 Risk-Based
    
    
    115,541
    
    
    
    13.74
    %
    
    
    n/a
    
    
    
    4.00
    %Total Risk-Based
    
    
    126,085
    
    
    
    15.00
    %
    
    
    n/a
    
    
    
    8.00
    %The BankLeverage
    
    $
    106,747
    
    
    
    11.60
    %
    
    
    5.00
    %
    
    
    4.00
    %Tier 1 Risk-Based
    
    
    106,747
    
    
    
    13.34
    %
    
    
    6.00
    %
    
    
    4.00
    %Total Risk-Based
    
    
    116,791
    
    
    
    14.59
    %
    
    
    10.00
    %
    
    
    8.00
    %
      66




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##### Table of Contents



Lending Transactions with Related Parties
    (Dollars in thousands)
 Years Ended December 31,2010
    
    
    2009Balance at beginning of year
    
    $
    9,469
    
    
    $
    7,911New loan additions
    
    
    1,248
    
    
    
    1,418Advances on existing lines of credit
    
    
    15,704
    
    
    
    11,497Principal repayments
    
    
    (17,017
    )
    
    
    (11,642
    )Reclassification
    
    
    (176
    )
    
    
    285Balance at end of year
    
    $
    9,228
    
    
    $
    9,469
 Impact of Inflation
  Commitments
 Off-Balance Sheet Financial Instruments
 67




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##### Table of Contents



(Dollars in thousands)
 Years Ended December 31,2010
    
    
    2009Off-balance sheet commitments:Commitments to extend credit
    
    $
    146,915
    
    
    $
    122,872Standby letters of credit
    
    
    3,509
    
    
    
    4,844Guaranteed commitments outstanding
    
    
    1,299
    
    
    
    1,325$
    151,723
    
    
    $
    129,041
       68




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##### Table of Contents



Commitments and Contingent Liabilities
  (Dollars in thousands)
 Less than
    
    
    
    
    
    
    
    
    
    More than 5
    
    IndeterminateTotal
    
    One Year
    
    13 Years
    
    35 Years
    
    years
    
    Maturity (1)Preferred Stock and
Warrants
    
    $
    17,000
    
    
    $
    
    
    
    $
    
    
    
    $
    17,000
    
    
    $
    
    
    
    $
    Junior Subordinated
Debentures
    
    
    15,465
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,465
    
    
    
    FHLB Borrowings
    
    
    141,000
    
    
    
    126,000
    
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    Operating lease
obligations
    
    
    2,802
    
    
    
    775
    
    
    
    1,094
    
    
    
    663
    
    
    
    270
    
    
    
    Repurchase
Agreements
    
    
    13,548
    
    
    
    13,548
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deposits (1)
    
    
    648,702
    
    
    
    204,551
    
    
    
    98,408
    
    
    
    8,808
    
    
    
    
    
    
    
    336,935Total
    
    $
    838,517
    
    
    $
    344,874
    
    
    $
    114,502
    
    
    $
    26,471
    
    
    $
    15,735
    
    
    $
    336,935
 (1)
    
    Represents interest-bearing and non-interest bearing checking, money market, savings
accounts, and time deposits. 69




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
       70




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(Dollars in thousands)
 GAP AnalysisWithin 3
    
    
    3 Months to
    
    
    One Year to
    
    
    Over FiveMonths
    
    
    One Year
    
    
    Five Years
    
    
    Years
    
    
    TotalInterest-Earning AssetsAvailable-for-sale securities
    
    $
    13,374
    
    
    $
    6,514
    
    
    $
    53,932
    
    
    $
    115,415
    
    
    $
    189,235Other investments
    
    
    11,655
    
    
    
    28,815
    
    
    
    
    
    
    
    
    
    
    
    40,470Loans, gross
    
    
    163,033
    
    
    
    148,148
    
    
    
    162,426
    
    
    
    127,190
    
    
    
    600,797Total Interest-earning Assets
    
    $
    188,062
    
    
    $
    183,477
    
    
    $
    216,358
    
    
    $
    242,605
    
    
    $
    830,502Interest-Bearing LiabilitiesDemand  interest bearing
    
    $
    23,921
    
    
    $
    40,564
    
    
    $
    57,208
    
    
    $
    40,565
    
    
    $
    162,258Savings accounts
    
    
    6,705
    
    
    
    20,951
    
    
    
    35,102
    
    
    
    20,894
    
    
    
    83,652Certificates of deposit
    
    
    79,792
    
    
    
    124,759
    
    
    
    107,216
    
    
    
    
    
    
    
    311,767Other borrowings
    
    
    44,013
    
    
    
    126,000
    
    
    
    
    
    
    
    
    
    
    
    170,013Total Interest-bearing Liabilities
    
    $
    154,431
    
    
    $
    312,274
    
    
    $
    199,526
    
    
    $
    61,459
    
    
    $
    727,690GAP in dollars
    
    $
    33,631
    
    
    $
    (128,797
    )
    
    $
    16,832
    
    
    $
    181,146
    
    
    $
    102,812Cumulative GAP in dollars
    
    $
    33,631
    
    
    $
    (95,166
    )
    
    $
    (78,334
    )
    
    $
    102,812
    
    
    $
    102,812As a percentage of earning assets:GAP Ratio
    
    
    1.22
    
    
    
    0.59
    
    
    
    1.08
    
    
    
    3.95
    
    
    
    1.14Cumulative GAP Ratio
    
    
    1.22
    
    
    
    0.80
    
    
    
    0.88
    
    
    
    1.14
    
    
    
    1.14Gap as % of Earning Assets
    
    
    4.05
    %
    
    
    -15.51
    %
    
    
    2.03
    %
    
    
    21.81
    %
    
    
    12.38
    %Cumulative Gap as % of Earning Assets
    
    
    4.05
    %
    
    
    -11.46
    %
    
    
    -9.43
    %
    
    
    12.38
    %
    
    
    12.38
    %
  71




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72




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Index to Consolidated Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    
    74Management Report on Internal Control Over Financial Reporting
    
    
    76Consolidated Balance Sheets as of December 31, 2010 and 2009
    
    
    77Consolidated Statements of Income for the years ended December 31, 2010, 2009 and 2008
    
    
    78Consolidated Statements of Shareholders Equity for the years ended December 31, 2010, 2009 and 2008
    
    
    79Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008
    
    
    81Notes to Consolidated Financial Statements for the years ended December 31, 2010, 2009 and 2008
    
    
    83
 73




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control  Integrated
Framework
     74




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Internal Control  Integrated Framework
  
 75




---



##### Table of Contents



Managements Report on Internal Control over Financial Reporting and Compliance with Applicable
Laws and Regulations
   Internal Control  Integrated Framework
  /s/ Patrick J. Moty

Patrick J. Moty, President and Chief Executive Officer/s/ Samuel D. Jimenez

Samuel D. Jimenez, SVP and Chief Financial Officer
 76




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
  (Dollars in thousands)
 2010
    
    
    2009ASSETSCash and due from banks
    
    $
    23,786
    
    
    $
    36,902Interest bearing due from banks
    
    
    39,470
    
    
    
    31,338Cash and cash equivalents
    
    
    63,256
    
    
    
    68,240Securities available-for-sale (including pledged collateral of $101,248 at
December 31, 2010 and $55,672 at December 31, 2009)
    
    
    189,235
    
    
    
    80,062Mortgage loans held for sale
    
    
    42,995
    
    
    
    27,288Loans, net of the allowance for loan and lease losses of $12,841 at
December 31, 2010 and $11,207 at December 31, 2009
    
    
    587,865
    
    
    
    590,023Premises and equipment, net
    
    
    9,697
    
    
    
    9,980Goodwill
    
    
    3,695
    
    
    
    3,727Other real estate owned
    
    
    2,288
    
    
    
    2,880Other assets
    
    
    40,102
    
    
    
    31,206TOTAL ASSETS
    
    $
    939,133
    
    
    $
    813,406LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Demand  noninterest bearing
    
    $
    91,025
    
    
    $
    69,447Demand  interest bearing
    
    
    162,258
    
    
    
    163,814Savings accounts
    
    
    83,652
    
    
    
    65,414Certificates of deposit
    
    
    311,767
    
    
    
    341,789Total deposits
    
    
    648,702
    
    
    
    640,464Securities sold under agreements to repurchase
    
    
    13,548
    
    
    
    9,621Federal Home Loan Bank borrowings
    
    
    141,000
    
    
    
    70,000Other liabilities
    
    
    16,691
    
    
    
    9,049Junior subordinated debt payable to unconsolidated subsidiary grantor trust
    
    
    15,465
    
    
    
    15,465Total liabilities
    
    
    835,406
    
    
    
    744,599Commitments and contingencies (Note 23)Shareholders equity:Preferred stock (liquidation preference of $1,000 per share; issued 2008);
2,000,000 shares authorized; 17,000 shares issued and outstanding in 2010
and 2009
    
    
    16,731
    
    
    
    16,641Common stock, no par value; 50,000,000 shares authorized; 16,991,495
shares issued and outstanding in 2010 and 8,711,495 outstanding in 2009
    
    
    42,755
    
    
    
    9,730Common stock warrant
    
    
    449
    
    
    
    449Retained earnings
    
    
    41,722
    
    
    
    39,004Accumulated other comprehensive (loss) income, net of tax
    
    
    (509
    )
    
    
    658Total Equity  Bank of Commerce Holdings
    
    
    101,148
    
    
    
    66,482Non controlling interest in subsidiary
    
    
    2,579
    
    
    
    2,325Total shareholders equity
    
    
    103,727
    
    
    
    68,807TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    939,133
    
    
    $
    813,406
 See accompanying notes to consolidated financial statements
 77




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
  (Dollars in thousands, except per share data)
    
    2010
    
    
    2009
    
    
    2008Interest income:Interest and fees on loans
    
    $
    37,000
    
    
    $
    35,860
    
    
    $
    33,582Interest on tax-exempt securities
    
    
    1,692
    
    
    
    1,164
    
    
    
    1,197Interest on U.S. government securities
    
    
    2,083
    
    
    
    3,450
    
    
    
    2,469Interest on federal funds sold and securities purchased under agreement to resell
    
    
    2
    
    
    
    32
    
    
    
    303Interest on other securities
    
    
    1,614
    
    
    
    823
    
    
    
    138Total interest income
    
    
    42,391
    
    
    
    41,329
    
    
    
    37,689Interest expense:Interest on demand deposits
    
    
    968
    
    
    
    1,015
    
    
    
    2,173Interest on savings deposits
    
    
    921
    
    
    
    963
    
    
    
    1,576Interest on certificates of deposit
    
    
    6,151
    
    
    
    7,628
    
    
    
    8,552Interest on securities sold under repurchase agreements
    
    
    52
    
    
    
    51
    
    
    
    173Interest on FHLB borrowings
    
    
    626
    
    
    
    1,833
    
    
    
    2,812Interest on junior subordinated debt payable to unconsolidated subsidiary grantor trusts
    
    
    680
    
    
    
    845
    
    
    
    1,056Total interest expense
    
    
    9,398
    
    
    
    12,335
    
    
    
    16,342Net interest income
    
    
    32,993
    
    
    
    28,994
    
    
    
    21,347Provision for loan and lease losses
    
    
    12,850
    
    
    
    9,475
    
    
    
    6,520Net interest income after provision for loan and lease losses
    
    
    20,143
    
    
    
    19,519
    
    
    
    14,827Noninterest income:Service charges on deposit accounts
    
    
    260
    
    
    
    390
    
    
    
    311Payroll and benefit processing fees
    
    
    448
    
    
    
    452
    
    
    
    453Earnings on cash surrender value  Bank owned life insurance
    
    
    438
    
    
    
    418
    
    
    
    340Net gain on sale of securities available-for-sale
    
    
    1,981
    
    
    
    2,438
    
    
    
    628Net loss on sale of derivative swap transaction
    
    
    
    
    
    
    
    
    
    
    (225
    )Net gain transfer of financial assets
    
    
    
    
    
    
    341
    
    
    
    Gain on settlement of put reserve
    
    
    1,750
    
    
    
    
    
    
    
    Mortgage brokerage fee income
    
    
    14,214
    
    
    
    5,327
    
    
    
    21Other income
    
    
    727
    
    
    
    697
    
    
    
    1,095Total noninterest income
    
    
    19,818
    
    
    
    10,063
    
    
    
    2,623Noninterest expense:Salaries and related benefits
    
    
    15,903
    
    
    
    10,882
    
    
    
    7,751Occupancy and equipment expense
    
    
    3,660
    
    
    
    3,405
    
    
    
    2,501Write down of other real estate owned
    
    
    1,571
    
    
    
    161
    
    
    
    735FDIC insurance premium
    
    
    1,016
    
    
    
    1,274
    
    
    
    383Data processing fees
    
    
    270
    
    
    
    282
    
    
    
    276Professional service fees
    
    
    1,726
    
    
    
    820
    
    
    
    667Deferred compensation expense
    
    
    493
    
    
    
    478
    
    
    
    461Stationery and supplies
    
    
    258
    
    
    
    185
    
    
    
    262Postage
    
    
    198
    
    
    
    147
    
    
    
    134Directors expenses
    
    
    266
    
    
    
    299
    
    
    
    294Goodwill impairment
    
    
    32
    
    
    
    
    
    
    
    Other expenses
    
    
    4,935
    
    
    
    2,691
    
    
    
    1,832Total noninterest expense
    
    
    30,328
    
    
    
    20,624
    
    
    
    15,296Income before provision (benefit) for income taxes
    
    
    9,633
    
    
    
    8,958
    
    
    
    2,154Provision (benefit) for income taxes
    
    
    3,159
    
    
    
    2,690
    
    
    
    (40
    )Net income
    
    
    6,474
    
    
    
    6,268
    
    
    
    2,194Less: Net income attributable to non-controlling interest
    
    
    254
    
    
    
    263
    
    
    
    Net income attributable to Bank of Commerce Holdings
    
    $
    6,220
    
    
    $
    6,005
    
    
    $
    2,194Less: preferred dividend and accretion on preferred stock
    
    
    940
    
    
    
    942
    
    
    
    Income available to common shareholders
    
    $
    5,280
    
    
    $
    5,063
    
    
    $
    2,194Basic earnings per share
    
    $
    0.35
    
    
    $
    0.58
    
    
    $
    0.25Weighted average shares  basic
    
    
    14,950,838
    
    
    
    8,711,495
    
    
    
    8,712,873Diluted earnings per share
    
    $
    0.35
    
    
    $
    0.58
    
    
    $
    0.25Weighted average shares  diluted
    
    
    14,950,838
    
    
    
    8,711,495
    
    
    
    8,774,550Cash dividends declared
    
    $
    0.18
    
    
    $
    0.24
    
    
    $
    0.29
 See accompanying notes to consolidated financial statements.
 78




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
  Accumulated
    
    
    Subtotal
    
    
    NonOther
    
    
    Bank of
    
    
    ControllingComprehensive
    
    
    Preferred
    
    
    
    
    
    
    Common
    
    
    Stock
    
    
    Retained
    
    
    Comprehensive
    
    
    Commerce
    
    
    Interest in(Dollars in Thousands)
    
    Income
    
    
    Amount
    
    
    Warrant
    
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    (Loss) Income
    
    
    Holdings
    
    
    Subsidiary
    
    
    TotalBalance at
December 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,757
    
    
    $
    9,996
    
    
    $
    36,605
    
    
    $
    (437
    )
    
    $
    46,164
    
    
    
    
    
    
    $
    46,164Comprehensive Income:Net Income
    
    $
    2,194
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,194
    
    
    
    
    
    
    
    2,194
    
    
    
    
    
    
    
    2,194Other
Comprehensive
Income:Unrealized gains
on securities
and derivatives
, net of tax
    
    
    711Reclassification
adjustment for
gains included
in net income,
net of tax
    
    
    (355
    )Total Comprehensive
Income  BOCH
    
    $
    2,550
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    356
    
    
    
    356
    
    
    
    
    
    
    
    356Preferred stock issued
    
    
    
    
    
    
    16,551
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,551
    
    
    
    
    
    
    
    16,551Warrants
    
    
    
    
    
    
    
    
    
    
    449
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    449
    
    
    
    
    
    
    
    449Common cash dividends
($0.29 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,790
    )
    
    
    
    
    
    
    (2,790
    )
    
    
    
    
    
    
    (2,790
    )Compensation expense
associated with stock
options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    116
    
    
    
    
    
    
    
    116Share repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59
    )
    
    
    (504
    )
    
    
    
    
    
    
    
    
    
    
    (504
    )
    
    
    
    
    
    
    (504
    )Stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    42
    
    
    
    
    
    
    
    42Balance at
December 31, 2008
    
    
    
    
    
    $
    16,551
    
    
    $
    449
    
    
    
    8,711
    
    
    $
    9,650
    
    
    $
    36,009
    
    
    $
    (81
    )
    
    $
    62,578
    
    
    
    
    
    
    $
    62,578Comprehensive Income:Net Income
    
    $
    6,268
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,005
    
    
    
    
    
    
    
    6,005
    
    
    
    263
    
    
    
    6,268Other
Comprehensive
Income:Unrealized gains
on securities
and derivatives,
net of tax
    
    
    2,173Reclassification
adjustment for
gains included
in net income,
net of tax
    
    
    (1,434
    )Total Other
Comprehensive Income
    
    
    7,007Less: Other
Comprehensive income
non-controlling
interest
    
    
    (263
    )Total Comprehensive
Income  BOCH
    
    $
    6,744
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    739
    
    
    
    739
    
    
    
    
    
    
    
    739Accretion on Preferred
Stock
    
    
    
    
    
    
    90
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (67
    )
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    23Common cash dividends
($0.24 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,091
    )
    
    
    
    
    
    
    (2,091
    )
    
    
    
    
    
    
    (2,091
    )Preferred stock
dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (852
    )
    
    
    
    
    
    
    (852
    )
    
    
    
    
    
    
    (852
    )Compensation expense
associated with stock
options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    
    
    
    
    80Fair value of
non-controlling
interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,062
    
    
    
    2,062Balance at
December 31, 2009
    
    
    
    
    
    $
    16,641
    
    
    $
    449
    
    
    
    8,711
    
    
    $
    9,730
    
    
    $
    39,004
    
    
    $
    658
    
    
    $
    66,482
    
    
    $
    2,325
    
    
    $
    68,807
 79




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (continued)
 Accumulated
    
    
    Subtotal
    
    
    NonOther
    
    
    Bank of
    
    
    ControllingComprehensive
    
    
    Preferred
    
    
    
    
    
    
    Common
    
    
    Stock
    
    
    Retained
    
    
    Comprehensive
    
    
    Commerce
    
    
    Interest in(Dollars in Thousands)
    
    Income
    
    
    Amount
    
    
    Warrant
    
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    (Loss) Income
    
    
    Holdings
    
    
    Subsidiary
    
    
    TotalBalance at
December 31, 2009
    
    
    
    
    
    $
    16,641
    
    
    $
    449
    
    
    
    8,711
    
    
    $
    9,730
    
    
    $
    39,004
    
    
    $
    658
    
    
    $
    66,482
    
    
    $
    2,325
    
    
    $
    68,807Comprehensive Income:Net Income (loss)
    
    $
    6,474
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,220
    
    
    
    
    
    
    
    6,220
    
    
    
    254
    
    
    
    6,474Other
Comprehensive
Income:Unrealized loss
on securities
and
derivatives,
net of tax
    
    
    (1
    )Reclassification
adjustment for
gains included
in net income,
net of tax
    
    
    (1,166
    )Total Other
Comprehensive income
    
    
    5,307Less: Other
Comprehensive income
non-controlling
interest
    
    
    (254
    )Total Comprehensive
Income-BOCH
    
    $
    5,053
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,167
    )
    
    
    (1,167
    )
    
    
    
    
    
    
    (1,167
    )Accretion on preferred
stock
    
    
    
    
    
    
    90
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (90
    )Common cash dividends
($0.18 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,562
    )
    
    
    
    
    
    
    (2,562
    )
    
    
    
    
    
    
    (2,562
    )Preferred stock
dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (850
    )
    
    
    
    
    
    
    (850
    )
    
    
    
    
    
    
    (850
    )Compensation expense
associated with stock
options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    
    
    
    
    
    
    
    
    54
    
    
    
    
    
    
    
    54Issuance of new
shares, net of
issuance costs ($4.25
per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,280
    
    
    
    32,971
    
    
    
    
    
    
    
    
    
    
    
    32,971
    
    
    
    
    
    
    
    32,971Balance at
December 31, 2010
    
    
    
    
    
    $
    16,731
    
    
    $
    449
    
    
    
    16,991
    
    
    $
    42,755
    
    
    $
    41,722
    
    
    
    ($509
    )
    
    $
    101,148
    
    
    $
    2,579
    
    
    $
    103,727
 See accompanying notes to consolidated financial statements.
 80




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  (Dollars in thousands)
    
    2010
    
    
    2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    6,474
    
    
    $
    6,268
    
    
    $
    2,194Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan and lease losses
    
    
    12,850
    
    
    
    9,475
    
    
    
    6,520Provision for depreciation and amortization
    
    
    959
    
    
    
    1,222
    
    
    
    1,145Goodwill impairment
    
    
    32
    
    
    
    
    
    
    
    Compensation expense associated with stock options
    
    
    54
    
    
    
    80
    
    
    
    116Gain on sale of securities available-for-sale
    
    
    (1,981
    )
    
    
    (2,438
    )
    
    
    (628
    )Amortization (accretion) of investment premiums and discounts, net
    
    
    492
    
    
    
    (227
    )
    
    
    98Gain on transfer of financial assets
    
    
    
    
    
    
    (341
    )
    
    
    Gross proceeds from sales of loans held for sale
    
    
    764,752
    
    
    
    449,280
    
    
    
    Gross originations of loans held for sale
    
    
    (780,459
    )
    
    
    (445,269
    )
    
    
    Gain on settlement of put reserve
    
    
    (1,750
    )
    
    
    
    
    
    
    (Gain) loss on sale of fixed assets
    
    
    (1
    )
    
    
    1
    
    
    
    3Loss (gain) loss on sale of other real estate owned
    
    
    126
    
    
    
    (20
    )
    
    
    Write down of other real estate owned
    
    
    1,571
    
    
    
    161
    
    
    
    735Loss on sale of derivative
    
    
    
    
    
    
    
    
    
    
    225(Increase) decrease in deferred income taxes
    
    
    (1,538
    )
    
    
    (1,159
    )
    
    
    29Increase in cash surrender value of bank owned life policies
    
    
    (372
    )
    
    
    (1,564
    )
    
    
    (286
    )Increase in other assets
    
    
    (4,263
    )
    
    
    (4,250
    )
    
    
    (9,607
    )Increase in deferred compensation, net
    
    
    433
    
    
    
    449
    
    
    
    392(Decrease) increase in deferred loan fees
    
    
    (119
    )
    
    
    122
    
    
    
    (128
    )Increase (decrease) in other liabilities
    
    
    9,406
    
    
    
    (485
    )
    
    
    (1,064
    )Net cash provided (used) by operating activities
    
    
    6,666
    
    
    
    11,305
    
    
    
    (256
    )Cash flows from investing activities:Proceeds from maturities and payments of available-for-sale securities
    
    
    58,978
    
    
    
    32,699
    
    
    
    9,126Proceeds from sale of available-for-sale securities
    
    
    79,680
    
    
    
    78,773
    
    
    
    44,828Purchases of available-for-sale securities
    
    
    (250,665
    )
    
    
    (55,928
    )
    
    
    (105,861
    )Purchases of ITIN loan portfolio
    
    
    
    
    
    
    (66,694
    )
    
    
    Purchases of home equity loan portfolio
    
    
    (14,801
    )
    
    
    
    
    
    
    Loan originations, net of principal repayments
    
    
    (332
    )
    
    
    (33,334
    )
    
    
    (39,056
    )Maturities of held-to-maturity securities
    
    
    
    
    
    
    
    
    
    
    98Purchase of premises and equipment
    
    
    (676
    )
    
    
    (374
    )
    
    
    (865
    )Proceeds on sale of fixed assets
    
    
    1
    
    
    
    0
    
    
    
    5Proceeds from the sale of other real estate owned
    
    
    3,454
    
    
    
    315
    
    
    
    1,200Cash acquired in acquisition, net of cash consideration paid
    
    
    
    
    
    
    265
    
    
    
    Net cash used in investing activities
    
    
    (124,361
    )
    
    
    (44,278
    )
    
    
    (90,525
    )Cash flows from financing activities:Net increase in demand deposits and savings accounts
    
    
    38,260
    
    
    
    7,680
    
    
    
    31,080Net (decrease) increase in certificates of deposit
    
    
    (30,022
    )
    
    
    77,502
    
    
    
    50,570Net increase (decrease) in securities sold under agreements to repurchase
    
    
    3,927
    
    
    
    (4,233
    )
    
    
    (1,660
    )Federal Home Loan Bank advances
    
    
    752,000
    
    
    
    475,140
    
    
    
    215,000Federal Home Loan Bank advance repayments
    
    
    (681,000
    )
    
    
    (525,140
    )
    
    
    (155,000
    )Net change in other short term borrowings
    
    
    
    
    
    
    (11,810
    )
    
    
    Cash dividends paid on common stock
    
    
    (2,575
    )
    
    
    (2,265
    )
    
    
    (2,790
    )Cash dividends paid on preferred stock
    
    
    (850
    )
    
    
    (852
    )
    
    
    Proceeds from stock options exercised
    
    
    
    
    
    
    
    
    
    
    42Common stock repurchased
    
    
    
    
    
    
    
    
    
    
    (504
    )Proceeds from issuance of preferred stock and warrants
    
    
    
    
    
    
    
    
    
    
    17,000Net proceeds from the issuance of common stock
    
    
    32,971
    
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    112,711
    
    
    
    16,022
    
    
    
    153,738Net (decrease) increase in cash and cash equivalents
    
    
    (4,984
    )
    
    
    (16,951
    )
    
    
    62,957Cash and cash equivalents at beginning of year
    
    
    68,240
    
    
    
    85,191
    
    
    
    22,234Cash and cash equivalents at end of year
    
    $
    63,256
    
    
    $
    68,240
    
    
    $
    85,191
 See accompanying notes to financial statements
 81




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
    
    2010
    
    2009
    
    2008Supplemental disclosures of non cash investment activities:Cash paid during the period for:Income taxes
    
    $
    3,711
    
    
    $
    3,496
    
    
    $
    316Interest
    
    $
    9,505
    
    
    $
    12,415
    
    
    $
    16,510Transfer of loans to OREO
    
    $
    4,559
    
    
    $
    402
    
    
    $
    4,869Changes in unrealized (loss) gain on investment securities available for sale
    
    $
    4,323
    
    
    $
    (1,255
    )
    
    $
    (582
    )Changes in deferred tax asset related to the changes in unrealized (loss) gain on investment securities
    
    $
    (1,777
    )
    
    $
    516
    
    
    $
    226Changes in accumulated other comprehensive income due to changes in unrealized (loss) gain on
investment securities
    
    $
    (2,546
    )
    
    $
    739
    
    
    $
    356Reclassification of held-to-maturity securities to available for sale
    
    
    
    
    
    
    
    
    
    $
    8,805Acquisition at fair value:Assets Acquired
    
    
    
    
    
    $
    14,857
    
    
    
    Liabilities Assumed
    
    
    
    
    
    $
    14,057
    
    
    
    
 See accompanying notes to consolidated financial statements.
 82




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1. THE BUSINESS OF THE COMPANY
 tm tm
  NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Financial Statement Presentation
  83




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Principles of Consolidation
 Cash and Cash Equivalents
 Securities
Purchased under Agreements to Resell
 Securities
  84




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Loans
   85




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Allowance for Loan and Lease Losses
 Premises and Equipment
 Securities Sold under Agreements to Repurchase
 Federal Home Loan Bank Borrowings
 Goodwill and Other Intangibles
 86




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Earnings Per Share
   (Amounts in thousands, except per share data)
 Earnings Per Share
    
    2010
    
    
    2009
    
    
    2008Basic EPS Calculation:Net income attributable to Bank of Commerce Holdings
    
    $
    6,220
    
    
    $
    6,005
    
    
    $
    2,194Less: dividend on preferred stock
    
    
    850
    
    
    
    852
    
    
    
    Less: accretion on preferred stock
    
    
    90
    
    
    
    90
    
    
    
    Numerator: earnings available to common shareholders
    
    $
    5,280
    
    
    $
    5,063
    
    
    $
    2,194Denominator (average common shares outstanding)
    
    
    14,950,838
    
    
    
    8,711,495
    
    
    
    8,712,873Basic earnings per share
    
    $
    0.35
    
    
    $
    0.58
    
    
    $
    0.25Diluted EPS Calculation:Net income
    
    $
    6,220
    
    
    $
    6,005
    
    
    $
    2,194Less: dividend on preferred stock
    
    
    850
    
    
    
    852
    
    
    
    Less: accretion on preferred stock
    
    
    90
    
    
    
    90
    
    
    
    Numerator: earnings available to common shareholders
    
    $
    5,280
    
    
    $
    5,063
    
    
    $
    2,194Denominator:Average common shares outstanding
    
    
    14,950,838
    
    
    
    8,711,495
    
    
    
    8,712,873Plus incremental shares from assumed conversionsStock options
    
    
    
    
    
    
    
    
    
    
    11,677Warrants
    
    
    
    
    
    
    
    
    
    
    14,950,838
    
    
    
    8,711,495
    
    
    
    8,724,550Diluted earnings per share
    
    $
    0.35
    
    
    $
    0.58
    
    
    $
    0.25Anti-dilutive options not included in EPS calculation
    
    
    300,080
    
    
    
    282,080
    
    
    
    185,666Anti-dilutive warrants not included in EPS calculation
    
    
    405,405
    
    
    
    405,405
    
    
    
    405,405
 87




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Other
Real Estate Owned
   Segment Reporting
  Income
Taxes
  Stock Option Plan
 Description of Stock-Based Compensation Plan
 88




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Comprehensive Income (Loss)
 Transfer
of Financial Assets
  89




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     Preferred Stock
  Warrants
 Mortgages Loans Held for Sale
 90




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Advertising Costs
 Derivative Financial Instruments and Hedging Activities
 
    
    Derivative Loan Commitments  The Company, through its majority owned subsidiary, Bank
of Commerce Mortgage, enters into forward delivery contracts to sell residential mortgage
loans at specific prices and dates in order to hedge the interest rate risk in its
portfolio of mortgage loans held for sale and its residential mortgage loan commitments.
Generally, the Company enters into a best efforts interest rate lock commitment (IRLC)
with borrowers and forward delivery contracts with investors associated with mortgage
loans receivable held for sale.These derivative instruments consist primarily of IRLCs executed with borrowers and
mandatory forward purchase commitments with investor lenders. These derivative instruments
are accounted for as fair value hedges, with the changes in fair value reflected in
earnings as a component of mortgage brokerage fee income.At December 31, 2010, the Company did not maintain any open positions or any other
outstanding derivative loan commitments.
    
    Interest Rate Swap Agreements As part of the Companys risk management strategy, the
Company enters into interest rate swap agreements or other derivatives to mitigate the
interest rate risk inherent in certain assets and liabilities. These derivative
instruments are accounted for as cash flow hedges, with the changes in fair value
reflected in other comprehensive income and subsequently reclassified to earnings when
gains or losses are realized on the hedged item.
 91




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Recent Accounting Pronouncements
 FASB
ASU No. 2011-01, Receivables (Topic 310): Deferral of the Effective Date of
Disclosures about Troubled Debt Restructurings in Update No. 2010-20. Receivables (Topic 310): Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses
 FASB ASU No. 2010-29 Business Combinations (Topic 805)Disclosure of Supplementary Pro
Forma Information for Business Combinations.
 FASB ASU No. 2010-28 IntangiblesGoodwill and Other (Topic 350)When to Perform Step 2
of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.
 FASB ASU 2010-20 Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses (Topic 310)
 92




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   FASB ASU 2010-18 Effect of a Loan Modification When the Loan is Part of a Pool that is
Accounted for as a Single Asset (Topic 310)
   FASB
ASU 2010-13 Effect of Denominating the Exercise Price of a Share-Based Payment Award
in the Currency of the Market in Which the Underlying Equity Security Trades.
 FASB ASU 2010-09 Subsequent Events (Topic 855): Amendments to Certain Recognition and
Disclosure Requirements
 93




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   FASB ASU 2010-06 Fair Value Measurements and Disclosures (Topic 820) Improving Disclosures
about Fair Value Measurements FASB Accounting Standards Codification
  FASB ASU 2010-01 Equity (Topic 505): Accounting for Distributions to Shareholders with
Components of Stock and Cash
 94




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 3. BUSINESS COMBINATIONS
       95




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Purchase Price and Goodwill
  (Dollars in thousands)Cash paid  at fair value
    
    $
    1,500Earn out payable  at fair value
    
    
    965Total consideration at fair value
    
    
    2,465Fair value of non-controlling interest
    
    
    2,062$
    4,527Net acquisition date fair value of assets acquired
    
    $
    (800
    )Goodwill at date of acquisition
    
    $
    3,727
   (Dollars in thousands)Cash and cash equivalents
    
    $
    1,765Accounts receivable
    
    
    10Other receivables
    
    
    437Loans held for sale
    
    
    12,006Prepaid expenses
    
    
    57Notes receivable
    
    
    414Total Current Assets:
    
    
    14,689Fixed assets
    
    
    155Other assets
    
    
    13TOTAL ASSETS
    
    $
    14,857Accounts payable
    
    $
    99Accrued expenses
    
    
    232Branch payables
    
    
    191Total Payables:
    
    
    522Current portion capital lease
    
    
    39Impounds payable
    
    
    67Mortgage warehouse lines of credit
    
    
    11,810Total Other Current Liabilities:
    
    
    11,916Total Current Liabilities:
    
    
    12,438Long term capital lease payable
    
    
    15Due to shareholder
    
    
    224Notes payable
    
    
    1,380Total Long Term Liabilities:
    
    
    1,619TOTAL LIABILITIES
    
    $
    14,057Net assets
    
    $
    800
 96




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   (Dollars in thousands)
    
    2009
    
    
    2008Net interest income
    
    $
    28,965
    
    
    $
    21,283Provision for loan and lease losses
    
    
    9,475
    
    
    
    6,520Noninterest income
    
    
    12,776
    
    
    
    7,523Noninterest expense
    
    
    22,863
    
    
    
    20,030Income before income tax
    
    
    9,403
    
    
    
    2,256Provision (benefit) for income tax
    
    
    2,691
    
    
    
    60Net Income
    
    
    6,712
    
    
    
    2,196Less: income attributable to non-controlling interest
    
    
    481
    
    
    
    (58
    )Net income attributable to Bank of Commerce Holdings
    
    $
    6,231
    
    
    $
    2,254Net income per common share  basic
    
    $
    0.60
    
    
    $
    0.26Net income per common share  diluted
    
    $
    0.60
    
    
    $
    0.25
 NOTE 4. RESTRICTIONS ON CASH AND DUE FROM BANKS
  NOTE 5. SECURITIES
  (Dollars in thousands)
    
    As of December 31, 2010Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    EstimatedAvailable for sale securities
    
    Amortized Costs
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueU.S. Treasury and agencies
    
    $
    26,814
    
    
    $
    6
    
    
    $
    (489
    )
    
    $
    26,331Obligations of state and
political subdivisions
    
    
    67,004
    
    
    
    82
    
    
    
    (2,935
    )
    
    
    64,151Residential mortgage backed
securities and
collateralized mortgage
obligations
    
    
    65,052
    
    
    
    446
    
    
    
    (251
    )
    
    
    65,247Corporate securities
    
    
    29,019
    
    
    
    28
    
    
    
    (90
    )
    
    
    28,957Other asset backed securities
    
    
    4,569
    
    
    
    
    
    
    
    (20
    )
    
    
    4,549Total
    
    $
    192,458
    
    
    $
    562
    
    
    $
    (3,785
    )
    
    $
    189,235
 97




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars in thousands)
    
    As of December 31, 2009Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    EstimatedAvailable for sale securities
    
    Amortized Costs
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueU.S.- Treasury and agencies
    
    $
    18,500
    
    
    $
    101
    
    
    $
    
    
    
    $
    18,601Obligations of state and
political subdivisions
    
    
    32,184
    
    
    
    547
    
    
    
    (85
    )
    
    
    32,646Residential mortgage backed
securities and
collateralized mortgage
obligations
    
    
    28,278
    
    
    
    869
    
    
    
    (332
    )
    
    
    28,815Total
    
    $
    78,962
    
    
    $
    1,517
    
    
    $
    (417
    )
    
    $
    80,062
  Available for Sale(Dollars in thousands)
    
    Amortized Cost
    
    
    Fair ValueAMOUNTS MATURING IN:One year or less
    
    $
    7,963
    
    
    $
    8,092One year through five years
    
    
    57,813
    
    
    
    57,708Five years through ten years
    
    
    51,473
    
    
    
    51,006After ten years
    
    
    75,209
    
    
    
    72,429$
    192,458
    
    
    $
    189,235
     Other-Than-Temporarily Impaired Debt Securities
  98




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    As of December 31, 2010Less than 12 months
    
    12 months or more
    
    TotalFair
    
    Unrealized
    
    Fair
    
    Unrealized
    
    Fair
    
    Unrealized(Dollars in thousands)
    
    Value
    
    Losses
    
    Value
    
    Losses
    
    Value
    
    LossesU.S. government and
agencies
    
    $
    18,829
    
    
    $
    (489
    )
    
    $
    
    
    
    $
    
    
    
    $
    18,829
    
    
    $
    (489
    )Obligations of state and
political subdivisions
    
    
    52,414
    
    
    
    (2,935
    )
    
    
    
    
    
    
    
    
    
    
    52,414
    
    
    
    (2,935
    )Residential mortgage
backed securities and
collateralized mortgage
obligations
    
    
    26,477
    
    
    
    (251
    )
    
    
    
    
    
    
    
    
    
    
    26,477
    
    
    
    (251
    )Corporate securities
    
    
    14,494
    
    
    
    (90
    )
    
    
    
    
    
    
    
    
    
    
    14,494
    
    
    
    (90
    )Other asset backed
securities
    
    
    4,549
    
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    4,549
    
    
    
    (20
    )Total temporarily
impaired securities
    
    $
    116,763
    
    
    $
    (3,785
    )
    
    $
    
    
    
    $
    
    
    
    $
    116,763
    
    
    $
    (3,785
    )
 As of December 31, 2009Less than 12 months
    
    12 months or more
    
    TotalFair
    
    Unrealized
    
    Fair
    
    Unrealized
    
    Fair
    
    Unrealized(Dollars in thousands)
    
    Value
    
    Losses
    
    Value
    
    Losses
    
    Value
    
    LossesU.S. government and
agencies
    
    $
    3,994
    
    
    $
    (1
    )
    
    $
    
    
    
    $
    
    
    
    $
    3,994
    
    
    $
    (1
    )Obligations of state and
political subdivisions
    
    
    8,517
    
    
    
    (84
    )
    
    
    500
    
    
    
    (1
    )
    
    
    9,017
    
    
    
    (85
    )Residential mortgage
backed securities and
collateralized mortgage
obligations
    
    
    7,516
    
    
    
    (331
    )
    
    
    
    
    
    
    
    
    
    
    7,516
    
    
    
    (331
    )Corporate securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other asset backed
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total temporarily
impaired securities
    
    $
    20,027
    
    
    $
    (416
    )
    
    $
    500
    
    
    $
    (1
    )
    
    $
    20,527
    
    
    $
    (417
    )
  99




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   NOTE 6. LOANS AND ALLOWANCE FOR LOAN AND LEASE LOSSES
  (Dollars in thousands)2010
    
    
    2009Commercial and industrial loans
    
    $
    133,199
    
    
    $
    133,080Real estate  construction loans
    
    
    41,327
    
    
    
    59,524Real estate  commercial (investor)
    
    
    194,285
    
    
    
    197,023Real estate  commercial (owner occupied)
    
    
    68,055
    
    
    
    63,001Real estate  ITIN loans
    
    
    70,585
    
    
    
    78,250Real estate  mortgage
    
    
    19,299
    
    
    
    20,525Real estate  equity lines
    
    
    69,590
    
    
    
    45,601Installment loans
    
    
    2,303
    
    
    
    2,223Other
    
    
    2,153
    
    
    
    2,212$
    600,796
    
    
    
    601,439Less:Deferred loan fees, net
    
    
    90
    
    
    
    209Allowance for loan and lease losses
    
    
    12,841
    
    
    
    11,207$
    587,865
    
    
    $
    590,023
 100




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Dollars in thousands)
    
    As of December 31,Recorded60-89
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Investment30-59
    
    Days
    
    Greater
    
    
    
    
    
    
    
    
    
    
    
    
    
    > 90 DaysDays
    
    Past
    
    Than 90
    
    Total
    
    
    
    
    
    
    
    
    
    andPast Due
    
    Due
    
    Days
    
    Past Due
    
    Current
    
    Total
    
    Accruing2010Commercial
    
    $
    1,625
    
    
    $
    
    
    
    $
    677
    
    
    $
    2,302
    
    
    $
    130,897
    
    
    $
    133,199
    
    
    $
    Commercial real estate:Construction
    
    
    342
    
    
    
    
    
    
    
    
    
    
    
    342
    
    
    
    40,985
    
    
    
    41,327
    
    
    
    Other
    
    
    5,168
    
    
    
    
    
    
    
    2,520
    
    
    
    7,688
    
    
    
    254,652
    
    
    
    262,340
    
    
    
    Residential:1-4 family
    
    
    7,857
    
    
    
    2,404
    
    
    
    6,720
    
    
    
    16,981
    
    
    
    72,903
    
    
    
    89,884
    
    
    
    Home equities
    
    
    450
    
    
    
    
    
    
    
    
    
    
    
    450
    
    
    
    69,140
    
    
    
    69,590
    
    
    
    Consumer
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    4,437
    
    
    
    4,456
    
    
    
    Total
    
    $
    15,461
    
    
    $
    2,404
    
    
    $
    9,917
    
    
    $
    27,782
    
    
    $
    573,014
    
    
    $
    600,7962009Commercial
    
    $
    237
    
    
    $
    
    
    
    $
    5
    
    
    $
    242
    
    
    $
    132,836
    
    
    $
    133,080
    
    
    $
    5Commercial real estate:Construction
    
    
    719
    
    
    
    
    
    
    
    130
    
    
    
    849
    
    
    
    58,675
    
    
    
    59,524
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    5,759
    
    
    
    5,759
    
    
    
    254,265
    
    
    
    260,024
    
    
    
    Residential:1-4 family
    
    
    4,236
    
    
    
    2,221
    
    
    
    5,047
    
    
    
    11,504
    
    
    
    87,272
    
    
    
    98,775
    
    
    
    5,047Home equities
    
    
    102
    
    
    
    104
    
    
    
    97
    
    
    
    303
    
    
    
    45,298
    
    
    
    45,601
    
    
    
    Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,436
    
    
    
    4,435
    
    
    
    Total
    
    $
    5,294
    
    
    $
    2,325
    
    
    $
    11,038
    
    
    $
    18,657
    
    
    $
    582,782
    
    
    $
    601,439
    
    
    $
    5,052
   101




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Year-end nonaccrual loans, segregated by class of loans, were as follows:
 (Dollars in thousands)
    
    December 31,2010
    
    
    2009Commercial
    
    $
    2,302
    
    
    $
    237Commercial real estate:Construction
    
    
    342
    
    
    
    849Other
    
    
    7,066
    
    
    
    5,759Residential:1-4 family
    
    
    10,704
    
    
    
    623Home equities
    
    
    97
    
    
    
    199Consumer
    
    
    
    
    
    
    Total
    
    $
    20,511
    
    
    $
    7,667
   
    
    An impairment assessment has been completed on the TDR loan, as prescribed by ASC 310,
and no impairment has been identified,
    
    the borrower has not been delinquent 90 or more days prior to the loan modification
date, and
    
    it is more likely than not that the modified payment amounts will continue into the
foreseeable future.
 102




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   (Dollars in thousands)
    
    As of December 31, 2010Unpaid
    
    
    
    
    
    
    Average
    
    
    InterestRecorded
    
    
    Principal
    
    
    Related
    
    
    Recorded
    
    
    IncomeInvestment
    
    
    Balance
    
    
    Allowance
    
    
    Investment
    
    
    RecognizedWith no related allowance recorded:Commercial
    
    $
    120
    
    
    $
    120
    
    
    $
    
    
    
    $
    445
    
    
    $
    Commercial real estate:Construction
    
    
    718
    
    
    
    947
    
    
    
    
    
    
    
    2,002
    
    
    
    2Other
    
    
    9,527
    
    
    
    12,421
    
    
    
    
    
    
    
    9,942
    
    
    
    10Residential:1-4 family
    
    
    8,067
    
    
    
    9,745
    
    
    
    
    
    
    
    8,393
    
    
    
    78Home equities
    
    
    97
    
    
    
    105
    
    
    
    
    
    
    
    236
    
    
    
    Total with no related allowance recorded
    
    $
    18,529
    
    
    $
    23,338
    
    
    $
    
    
    
    $
    21,018
    
    
    $
    90With an allowance recorded:Commercial
    
    $
    2,182
    
    
    $
    9,372
    
    
    $
    449
    
    
    $
    2,532
    
    
    $
    Commercial real estate:Construction
    
    
    2,428
    
    
    
    3,347
    
    
    
    139
    
    
    
    2,374
    
    
    
    74Other
    
    
    1,160
    
    
    
    3,022
    
    
    
    111
    
    
    
    923
    
    
    
    27Residential:1-4 family
    
    
    8,716
    
    
    
    9,298
    
    
    
    599
    
    
    
    4,562
    
    
    
    30Home equities
    
    
    901
    
    
    
    901
    
    
    
    90
    
    
    
    
    
    
    
    Total with an allowance recorded
    
    $
    15,387
    
    
    $
    25,940
    
    
    $
    1,388
    
    
    $
    10,391
    
    
    $
    131Subtotal:Commercial
    
    $
    2,302
    
    
    $
    9,492
    
    
    $
    449
    
    
    $
    2,977
    
    
    $
    Commercial real estate
    
    $
    13,833
    
    
    $
    19,737
    
    
    $
    250
    
    
    $
    15,241
    
    
    $
    113Residential
    
    $
    17,781
    
    
    $
    20,049
    
    
    $
    689
    
    
    $
    13,191
    
    
    $
    108Total
    
    $
    33,916
    
    
    $
    49,278
    
    
    $
    1,388
    
    
    $
    31,409
    
    
    $
    221
 103




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars in thousands)
    
    As of December 31, 2009Unpaid
    
    
    
    
    
    
    Average
    
    
    InterestRecorded
    
    
    Principal
    
    
    Related
    
    
    Recorded
    
    
    IncomeInvestment
    
    
    Balance
    
    
    Allowance
    
    
    Investment
    
    
    RecognizedWith no related allowance recorded:Commercial
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    111
    
    
    $
    Commercial real estate:Construction
    
    
    672
    
    
    
    4,576
    
    
    
    
    
    
    
    5,483
    
    
    
    Other
    
    
    8,740
    
    
    
    9,172
    
    
    
    
    
    
    
    5,273
    
    
    
    2Residential:1-4 family
    
    
    623
    
    
    
    1,087
    
    
    
    
    
    
    
    1,143
    
    
    
    Home equities
    
    
    199
    
    
    
    206
    
    
    
    
    
    
    
    150
    
    
    
    Total with no related allowance recorded
    
    $
    10,234
    
    
    $
    15,041
    
    
    $
    
    
    
    $
    12,160
    
    
    $
    2With an allowance recorded:Commercial
    
    $
    237
    
    
    $
    243
    
    
    $
    130
    
    
    $
    269
    
    
    $
    Commercial real estate:Construction
    
    
    2,396
    
    
    
    2,399
    
    
    
    45
    
    
    
    1,154
    
    
    
    Other
    
    
    530
    
    
    
    530
    
    
    
    70
    
    
    
    132
    
    
    
    2Residential:1-4 family
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Home equities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total with an allowance recorded
    
    $
    3,163
    
    
    $
    3,172
    
    
    $
    245
    
    
    $
    1,555
    
    
    $
    2Subtotal:Commercial
    
    $
    237
    
    
    $
    243
    
    
    $
    130
    
    
    $
    380
    
    
    $
    Commercial real estate
    
    $
    12,338
    
    
    $
    16,677
    
    
    $
    115
    
    
    $
    12,042
    
    
    $
    4Residential
    
    $
    822
    
    
    $
    1,293
    
    
    $
    
    
    
    $
    1,293
    
    
    $
    Total
    
    $
    13,397
    
    
    $
    18,213
    
    
    $
    245
    
    
    $
    13,715
    
    
    $
    4
  (Dollars in thousands)
    
    2010Pre-Modification
    
    Post-ModificationOutstanding Recorded
    
    Outstanding RecordedTroubled Debt Restructurings
    
    Number of Contracts
    
    Investment
    
    InvestmentCommercial
    
    
    2
    
    
    $
    3,562
    
    
    $
    3,562Commercial real estate:Construction
    
    
    5
    
    
    
    931
    
    
    
    931Other
    
    
    9
    
    
    
    5,994
    
    
    
    5,994Residential:1-4 family
    
    
    69
    
    
    
    9,379
    
    
    
    9,379Home equities
    
    
    4
    
    
    
    215
    
    
    
    215Consumer
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    89
    
    
    $
    20,081
    
    
    $
    20,081
 104




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars in thousands)
    
    2009Pre-Modification
    
    Post-ModificationOutstanding Recorded
    
    Outstanding RecordedTroubled Debt Restructurings
    
    Number of Contracts
    
    Investment
    
    InvestmentCommercial
    
    
    
    
    
    $
    
    
    
    $
    Commercial real estate:Construction
    
    
    4
    
    
    
    12,159
    
    
    
    12,159Other
    
    
    4
    
    
    
    8,319
    
    
    
    8,319Residential:1-4 family
    
    
    
    
    
    
    
    
    
    
    Home equities
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    8
    
    
    $
    20,478
    
    
    $
    20,478
  
    
    Residential Mortgages (1-4 Family)  With the exception of two loans, the concession
granted was an interest rate reduction for a period of up to 5 years. The two exception
loans also included an extended maturity of 10 years in conjunction with an interest rate
reduction.
    
    Commercial RE  The concessions granted on the twenty loans was an interest rate
reduction in combination with an interest-only period of up to 3 years.
    
    Commercial and Industrial Loans   The concessions granted on the twenty loans was an
interest rate reduction in combination with an interest-only period of up to 3 years.
  (Dollars in thousands)
    
    2010Troubled Debt RestructuringsThat Subsequently Defaulted
    
    Number of Contracts
    
    Recorded InvestmentCommercial
    
    
    
    
    
    $
    Commercial real estate:Construction
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    Residential:1-4 family
    
    
    10
    
    
    
    811Home equities
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    Total
    
    
    10
    
    
    $
    811
 105




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars in thousands)
    
    2009Troubled Debt RestructuringsThat Subsequently Defaulted
    
    Number of Contracts
    
    Recorded InvestmentCommercial
    
    
    
    
    
    $
    Commercial real estate:Construction
    
    
    3
    
    
    
    4,346Other
    
    
    3
    
    
    
    7,790Residential:1-4 family
    
    
    
    
    
    
    Home equities
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    Total
    
    
    6
    
    
    $
    12,136
   (Dollars in thousands)
    

    2010Performing
    
    Nonperforming
    
    TotalCommercial
    
    $
    130,897
    
    
    $
    2,302
    
    
    $
    133,199Commercial real estate:Construction
    
    
    40,985
    
    
    
    342
    
    
    
    41,327Other
    
    
    255,274
    
    
    
    7,066
    
    
    
    262,340Residential:1-4 family
    
    
    79,180
    
    
    
    10,704
    
    
    
    89,884Home equities
    
    
    69,493
    
    
    
    97
    
    
    
    69,590Consumer
    
    
    4,456
    
    
    
    
    
    
    
    4,456Total
    
    $
    580,285
    
    
    $
    20,511
    
    
    $
    600,796
 (Dollars in thousands)
    

    2009Performing
    
    Nonperforming
    
    TotalCommercial
    
    $
    132,838
    
    
    $
    242
    
    
    $
    133,080Commercial real estate:Construction
    
    
    58,675
    
    
    
    849
    
    
    
    59,524Other
    
    
    254,265
    
    
    
    5,759
    
    
    
    260,024Residential:1-4 family
    
    
    93,105
    
    
    
    5,670
    
    
    
    98,775Home equities
    
    
    45,402
    
    
    
    199
    
    
    
    45,601Consumer
    
    
    4,435
    
    
    
    
    
    
    
    4,435Total
    
    $
    588,720
    
    
    $
    12,719
    
    
    $
    601,439
 106




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   
    
    Strong cashflows  borrowers cashflows must meet or exceed the Companys minimum
Debt Service Coverage Ratio.
 
    
    Collateral margin  generally, the borrower must have pledged an acceptable collateral
class with an adequate collateral margin.
  
    
    Qualitative Factors  in addition to meeting the Companys minimum cashflow and
collateral requirements, a number of other quantitative and qualitative factors are also
factored into assigning a pass grade including the borrowers level of leverage (Debt to
Equity), prospects, history and experience in their industry, credit history, and any
other relevant factors including a borrowers character.
  
    
    Adequate Cashflows  borrowers in this category demonstrate adequate cashflows and
Debt Service Coverage Ratios, but also exhibit one or more less than positive conditions
such as declining trends in the level of cashflows, increasing or sole reliance on
secondary sources of cashflows, and/or do not meet the Companys minimum Debt Service
Coverage Ratio. However, cashflow remains at acceptable levels to meet debt service
requirements.
 
    
    Adequate Collateral Margin  the collateral securing the debt remains adequate but
also exhibits a declining trend in value or expected volatility due to macro or industry
specific conditions. The current collateral value, less selling costs, remains adequate to
cover the outstanding debt under a liquidation scenario.
 
    
    Qualitative Factors  while the borrowers cashflow and collateral margin generally
remain adequate, one or more quantitative and qualitative factors may also factor into
assigning a Watch Grade including the borrowers level of leverage (Debt to Equity),
deterioration in prospects, limited experience in their industry, newly formed company,
overall deterioration in the industry, negative trends or recent events in a borrowers
credit history, deviation from core business, and any other relevant factors.
  107




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
    
    Adequate Cashflows  borrowers in this category demonstrate adequate cashflows and
Debt Service Coverage Ratios, but also reflect adverse trends in operations or continuing
financial deterioration that, if does not stabilize and reverse in a reasonable timeframe,
retirement of the debt may be jeopardized.
 
    
    Adequate Collateral Margin  the collateral securing the debt remains adequate but
also exhibits a continuing declining trend in value or volatility due to macro or industry
specific conditions. The current collateral value, less selling costs, remains adequate,
but should the negative collateral trend continue, the full recovery of the outstanding
debt under a liquidation scenario could be jeopardized.
 
    
    Qualitative Factors  while the borrowers cashflow and/or collateral margin continue
to deteriorate but generally remain adequate, one or more quantitative and qualitative
factors may also be factoring into assigning a Special Mention Grade including inadequate
or incomplete loan documentation, perfection of collateral, inadequate credit structure,
borrower unable or unwilling to produce current and adequate financial information, and
any other relevant factors.
   
    
    Sustained or substantial deteriorating financial trends
 
    
    Unresolved management problems
 
    
    Collateral is insufficient to repay debt; collateral is not sufficiently supported by
independent sources, such as asset-based financial audits, appraisals, or equipment
evaluations
 
    
    Improper perfection of lien position, which is not readily correctable
 
    
    Unanticipated and severe decline in market values
 
    
    High reliance on secondary source of repayment
 108




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
    
    Legal proceedings, such as bankruptcy or a divorce, which has substantially
decreased the borrowers capacity to repay the debt
 
    
    Fraud committed by the borrower
 
    
    IRS liens that take precedence
 
    
    Forfeiture statutes for assets involved in criminal activities
 
    
    Protracted repayment terms outside of policy that are for longer than the same type of
credit in the Company portfolio
 
    
    Any other relevant quantitative or qualitative factor that negatively affects the
current net worth and paying capacity of the borrower or of the collateral pledged, if
any.
  
    
    Proposed merger(s)
 
    
    Acquisition or liquidation procedures
 
    
    Capital injection
 
    
    Perfecting liens on additional collateral
 
    
    Refinancing plans
  109




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Dollars in thousands)
    

    December 31, 2010SpecialPass
    
    Watch
    
    Mention
    
    Substandard
    
    Doubtful
    
    TotalCommercial
    
    $
    99,953
    
    
    $
    22,458
    
    
    $
    2,454
    
    
    $
    12,153
    
    
    $
    2,181
    
    
    $
    133,199Commercial real estate:Construction
    
    
    26,960
    
    
    
    8,228
    
    
    
    44
    
    
    
    5,995
    
    
    
    100
    
    
    
    41,327Other
    
    
    221,033
    
    
    
    29,061
    
    
    
    1,125
    
    
    
    8,401
    
    
    
    2,720
    
    
    
    262,340Residential:1-4 family
    
    
    58,869
    
    
    
    
    
    
    
    11,534
    
    
    
    18,580
    
    
    
    901
    
    
    
    89,884Home equities
    
    
    59,018
    
    
    
    4,428
    
    
    
    1,231
    
    
    
    4,913
    
    
    
    
    
    
    
    69,590Consumer
    
    
    3,923
    
    
    
    362
    
    
    
    73
    
    
    
    98
    
    
    
    
    
    
    
    4,456Total
    
    $
    463,756
    
    
    $
    64,537
    
    
    $
    16,461
    
    
    $
    50,140
    
    
    $
    5,902
    
    
    $
    600,796
 (Dollars in thousands)
    
    December 31, 2009SpecialPass
    
    Watch
    
    Mention
    
    Substandard
    
    Doubtful
    
    TotalCommercial
    
    $
    95,254
    
    
    $
    20,296
    
    
    $
    1,902
    
    
    $
    15,628
    
    
    $
    
    
    
    $
    133,080Commercial real estate:Construction
    
    
    43,554
    
    
    
    8,457
    
    
    
    2,949
    
    
    
    4,564
    
    
    
    
    
    
    
    59,524Other
    
    
    217,197
    
    
    
    30,708
    
    
    
    35
    
    
    
    12,084
    
    
    
    
    
    
    
    260,024Residential:1-4 family
    
    
    96,415
    
    
    
    2,360
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,775Home equities
    
    
    39,294
    
    
    
    2,051
    
    
    
    2,886
    
    
    
    1,370
    
    
    
    
    
    
    
    45,601Consumer
    
    
    4,074
    
    
    
    250
    
    
    
    65
    
    
    
    46
    
    
    
    
    
    
    
    4,435Total
    
    $
    495,788
    
    
    $
    64,122
    
    
    $
    7,837
    
    
    $
    33,692
    
    
    $
    
    
    
    $
    601,439
  (Dollars in thousands)
    
    As of December 31,2010CommercialCommercial
    
    Real Estate
    
    Consumer
    
    Residential
    
    Unallocated
    
    TotalAllowance for credit losses:Beginning balance
    
    $
    5,306
    
    
    $
    3,535
    
    
    $
    35
    
    
    $
    2,059
    
    
    $
    272
    
    
    $
    11,207Charge-offs
    
    
    (4,192
    )
    
    
    (3,391
    )
    
    
    
    
    
    
    (4,506
    )
    
    
    
    
    
    
    (12,089
    )Recoveries
    
    
    393
    
    
    
    154
    
    
    
    8
    
    
    
    318
    
    
    
    
    
    
    
    873Provision
    
    
    2,886
    
    
    
    3,394
    
    
    
    3
    
    
    
    6,690
    
    
    
    (123
    )
    
    
    12,850Ending balance
    
    $
    4,393
    
    
    $
    3,692
    
    
    $
    46
    
    
    $
    4,561
    
    
    $
    149
    
    
    $
    12,841Ending
balance: individually evaluated for
impairment
    
    $
    449
    
    
    $
    250
    
    
    $
    
    
    
    $
    689
    
    
    $
    
    
    
    $
    1,388Ending
balance: collectively evaluated for
impairment
    
    $
    3,944
    
    
    $
    3,442
    
    
    $
    46
    
    
    $
    3,872
    
    
    $
    149
    
    
    $
    11,453Financing receivablesEnding balance
    
    $
    133,199
    
    
    $
    303,667
    
    
    $
    4,456
    
    
    $
    159,474
    
    
    $
    
    
    
    $
    600,796Ending balance individually
evaluated for impairment
    
    $
    2,302
    
    
    $
    13,833
    
    
    $
    
    
    
    $
    17,781
    
    
    $
    
    
    
    $
    33,916Ending balance collectively
evaluated for impairment
    
    $
    130,897
    
    
    $
    289,834
    
    
    $
    4,456
    
    
    $
    141,693
    
    
    $
    
    
    
    $
    566,880
 110




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars in thousands)
    
    As of December 31, 2009CommercialCommercial
    
    Real Estate
    
    Consumer
    
    Residential
    
    Unallocated
    
    TotalAllowance for credit losses:Beginning balance
    
    $
    3,249
    
    
    $
    4,138
    
    
    $
    42
    
    
    $
    692
    
    
    $
    308
    
    
    $
    8,429Charge-offs
    
    
    (2,517
    )
    
    
    (4,268
    )
    
    
    (3
    )
    
    
    (83
    )
    
    
    
    
    
    
    (6,871
    )Recoveries
    
    
    170
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    174Provision
    
    
    4,404
    
    
    
    3,665
    
    
    
    (8
    )
    
    
    1,450
    
    
    
    (36
    )
    
    
    9,475Ending balance
    
    $
    5,306
    
    
    $
    3,535
    
    
    $
    35
    
    
    $
    2,059
    
    
    $
    272
    
    
    $
    11,207Ending balance: individually
evaluated for impairment
    
    $
    130
    
    
    $
    115
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    245Ending balance: collectively
evaluated for impairment
    
    $
    5,176
    
    
    $
    3,420
    
    
    $
    35
    
    
    $
    2,059
    
    
    $
    272
    
    
    $
    10,962Financing receivablesEnding balance
    
    $
    133,080
    
    
    $
    319,548
    
    
    $
    4,435
    
    
    $
    144,376
    
    
    $
    
    
    
    $
    601,439Ending balance individually
evaluated for impairment
    
    $
    237
    
    
    $
    12,338
    
    
    $
    
    
    
    $
    822
    
    
    $
    
    
    
    $
    13,397Ending balance collectively
evaluated for impairment
    
    $
    132,843
    
    
    $
    307,210
    
    
    $
    4,435
    
    
    $
    143,554
    
    
    $
    
    
    
    $
    588,042
    Commercial and Industrial (C&I) Loans
 111




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Commercial Real Estate (CRE) Loans
   Consumer Loans
  112




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        113




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Valuation allowances specific to the ITIN and purchased Home Equity Portfolios
 ITIN Portfolio
 
    
    Increased delinquencies  20% of the portfolio was delinquent 30 days or more as of
12/31/2010.
 
    
    Servicer modification efforts were generally extending beyond a typical timeframe
 
    
    Mortgage insurance  A small number of mortgage insurance claims have been denied and
management has not been able to identify a trend regarding any potential future denials.
 
    
    Sale of other real estate owned (OREO)  An emerging trend in the lengthening
disposition of ITIN other real estate owned had developed, including the potential for
decreased recoveries and consequently increased net charge-offs.
 
    
    Lack of loss guaranty due to settlement.
  Home Equity Portfolio
    114




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   NOTE 7. PREMISES AND EQUIPMENT
  (Dollars in thousands)
    
    2010
    
    2009Land
    
    $
    1,508
    
    
    $
    1,508Land improvements
    
    
    189
    
    
    
    189Bank buildings
    
    
    8,383
    
    
    
    8,318Furniture, fixtures and equipment
    
    
    7,061
    
    
    
    6,767Construction in progress
    
    
    2
    
    
    
    3Total premises and equipment
    
    
    17,143
    
    
    
    16,785Less: Accumulated depreciation and amortization
    
    
    (7,446
    )
    
    
    (6,805
    )Premises and equipment, net
    
    $
    9,697
    
    
    $
    9,980
  NOTE 8. GOODWILL
  Mortgage ServicesAccumulated(Dollars in thousands)
    
    Gross
    
    
    Impairment
    
    TotalBalance, December 31, 2008
    
    $
    
    
    
    $
    
    
    
    $
    Net additions
    
    
    3,727
    
    
    
    
    
    
    
    3,727Balance, December 31, 2009
    
    
    3,727
    
    
    
    
    
    
    
    3,727Impairment
    
    
    
    
    
    
    (32
    )
    
    
    (32
    )Balance, December 31, 2010
    
    $
    3,727
    
    
    $
    (32
    )
    
    $
    3,695
  115




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
        NOTE 9. OTHER REAL ESTATE OWNED
  116




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Years Ended December 31,2010
    
    
    2009
    
    
    2008Balance at beginning of year
    
    $
    2,880
    
    
    $
    2,934
    
    
    $
    Additions to OREO
    
    
    4,559
    
    
    
    402
    
    
    
    4,869Dispositions of OREO
    
    
    (3,580
    )
    
    
    (295
    )
    
    
    (1,200
    )Valuation adjustments in the period
    
    
    (1,571
    )
    
    
    (161
    )
    
    
    (735
    )$
    2,288
    
    
    $
    2,880
    
    
    $
    2,934
  NOTE 10. DERIVATIVES
    117




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Cash flow hedges
     (Dollars in thousands)
 Description
    
    Notional Amount
    
    Effective Date
    
    MaturityForward starting
interest rate swap
    
    $
    75,000
    
    
    March 1, 2012
    
    September 1, 2012Forward starting
interest rate swap
    
    $
    75,000
    
    
    September 4, 2012
    
    September 1, 2013Forward starting
interest rate swap
    
    $
    75,000
    
    
    September 3, 2013
    
    September 1, 2014Forward starting
interest rate swap
    
    $
    75,000
    
    
    September 2, 2014
    
    September 1, 2015Forward starting
interest rate swap
    
    $
    75,000
    
    
    September 1, 2015
    
    March 1, 2017
    118




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Dollars in thousands)
 Underlying
    
    
    
    
    
    Balance Sheet
    
    December 31,Risk Exposure
    
    Description
    
    Location
    
    2010
    
    MaturityAsset DerivativesInterest rate contract
    
    Forward starting interest rate swaps
    
    Other assets
    
    $
    (22
    )
    
    September 1, 2012Interest rate contract
    
    Forward starting interest rate swaps
    
    Other assets
    
    $
    198
    
    
    September 1, 2013Interest rate contract
    
    Forward starting interest rate swaps
    
    Other assets
    
    $
    443
    
    
    September 1, 2014Interest rate contract
    
    Forward starting interest rate swaps
    
    Other assets
    
    $
    611
    
    
    September 1, 2015Interest rate contract
    
    Forward starting interest rate swaps
    
    Other assets
    
    $
    1,111
    
    
    March 1, 2017Total
    
    $
    2,341
     119




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 11. OTHER ASSETS
  (Dollars in thousands)2010
    
    
    2009Cash surrender value of bank owned life insurance policies
    
    $
    9,351
    
    
    $
    8,979Deferred tax asset, net
    
    
    7,928
    
    
    
    5,574Interest receivable on loans
    
    
    2,319
    
    
    
    2,428Interest receivable on investment securities
    
    
    1,526
    
    
    
    624California affordable housing credits
    
    
    2,108
    
    
    
    2,289Prepaid FDIC deposit insurance assessments
    
    
    2,408
    
    
    
    3,331Interest rate swap  fair value
    
    
    2,341
    
    
    
    Taxes receivable  Bank
    
    
    555
    
    
    
    490Federal Home Loan Bank stock
    
    
    7,943
    
    
    
    6,110Investment in junior subordinated debt payable to subsidiary grantor trust
    
    
    465
    
    
    
    465Prepaid expenses
    
    
    701
    
    
    
    419Other
    
    
    2,457
    
    
    
    497$
    40,102
    
    
    $
    31,206
 NOTE 12. DEPOSITS
  (Dollars in thousands)Balance
    
    
    Interest Expense2010
    
    $
    233,690
    
    
    $
    4,4642009
    
    $
    250,779
    
    
    $
    5,1662008
    
    $
    168,810
    
    
    $
    5,785
  (Dollars in thousands)Amounts due in:One year or less
    
    $
    204,551One to three years
    
    
    98,408Three to five years
    
    
    8,808Over five years
    
    
    Total time deposits
    
    $
    311,767
 120




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 13. OTHER LIABILITIES
  (Dollars in thousands)2010
    
    
    2009Deferred compensation  retired officers
    
    $
    692
    
    
    $
    818Deferred compensation  directors fees
    
    
    2,935
    
    
    
    2,803Deferred compensation  salary continuation
    
    
    2,023
    
    
    
    1,596Accrued 401(k) match payable
    
    
    62
    
    
    
    73Interest payable
    
    
    388
    
    
    
    458Reserve for off-balance sheet commitments
    
    
    422
    
    
    
    422Interest payable Junior Subordinated Debentures
    
    
    70
    
    
    
    103Dividend payable
    
    
    510
    
    
    
    523Note payable /earn out agreement  fair value
    
    
    986
    
    
    
    965Warehouse line of credit
    
    
    4,983
    
    
    
    Taxes payable  Mortgage Services
    
    
    785
    
    
    
    89Other
    
    
    2,835
    
    
    
    1,199$
    16,691
    
    
    $
    9,049
 NOTE 14. WHOLESALE ADVANCES
 FHLB Advances 
  (Dollars in thousands)Advance Amount
    
    
    Interest Rate
    
    
    Maturity$
    120,000
    
    
    
    0.29
    %
    
    June 6, 20116,000
    
    
    
    0.26
    %
    
    June 6, 201115,000
    
    
    
    0.31
    %
    
    March 5, 2013
   121




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   FRB Advances
 NOTE 15. PREFERRED STOCK AND WARRANTS
     122




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       NOTE 16. JUNIOR SUBORDINATED DEBTENURES
  123




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          124




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   NOTE 17. SEGMENT REPORTING
    (Dollars in thousands)
    
    Year ended December 31, 2010Bank
    
    
    Mortgage
    
    
    Parent
    
    
    Elimination
    
    
    ConsolidatedNet interest income (expense)
    
    $
    33,886
    
    
    $
    (1
    )
    
    $
    (440
    )
    
    $
    (452
    )
    
    $
    32,993Provision for loan and lease losses
    
    
    12,850
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,850Total noninterest income
    
    
    5,621
    
    
    
    13,745
    
    
    
    
    
    
    
    452
    
    
    
    19,818Total noninterest expense
    
    
    18,117
    
    
    
    11,640
    
    
    
    571
    
    
    
    
    
    
    
    30,328Income before provision for income taxes
    
    
    8,540
    
    
    
    2,104
    
    
    
    (1,011
    )
    
    
    
    
    
    
    9,633Provision for income taxes
    
    
    2,042
    
    
    
    1,116
    
    
    
    1
    
    
    
    
    
    
    
    3,159Net income
    
    
    6,498
    
    
    
    988
    
    
    
    (1,012
    )
    
    
    
    
    
    
    6,474Less: net income attributable to non-controlling interest
    
    
    
    
    
    
    254
    
    
    
    
    
    
    
    
    
    
    
    254Net income attributable to Bank of Commerce Holdings
    
    $
    6,498
    
    
    $
    734
    
    
    $
    (1,012
    )
    
    $
    
    
    
    $
    6,220
 125




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars in thousands)
    
    Year ended December 31, 2009Bank
    
    
    Mortgage
    
    
    Parent
    
    
    Elimination
    
    
    ConsolidatedNet interest income (expense)
    
    $
    29,552
    
    
    $
    (13
    )
    
    $
    (545
    )
    
    $
    
    
    
    $
    28,994Provision for loan and lease losses
    
    
    9,475
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,475Total noninterest income
    
    
    4,770
    
    
    
    5,293
    
    
    
    
    
    
    
    
    
    
    
    10,063Total noninterest expense
    
    
    15,908
    
    
    
    4,415
    
    
    
    301
    
    
    
    
    
    
    
    20,624Income before provision for income taxes
    
    
    8,939
    
    
    
    865
    
    
    
    (846
    )
    
    
    
    
    
    
    8,958Provision for income taxes
    
    
    2,363
    
    
    
    326
    
    
    
    1
    
    
    
    
    
    
    
    2,690Net income
    
    
    6,576
    
    
    
    539
    
    
    
    (847
    )
    
    
    
    
    
    
    6,268Less: net income attributable to non-controlling interest
    
    
    
    
    
    
    263
    
    
    
    
    
    
    
    
    
    
    
    263Net income attributable to Bank of Commerce Holdings
    
    $
    6,576
    
    
    $
    276
    
    
    $
    (847
    )
    
    $
    
    
    
    $
    6,005
  (Dollars in thousands)
    
    Year Ended December 31, 2010Bank
    
    
    Mortgage
    
    
    Parent
    
    
    Elimination
    
    
    ConsolidatedTotal assets
    
    $
    923,832
    
    
    $
    23,912
    
    
    $
    118,173
    
    
    $
    (126,784
    )
    
    $
    939,133Total portfolio loans, gross
    
    $
    606,646
    
    
    $
    
    
    
    $
    2,289
    
    
    $
    (8,139
    )
    
    $
    600,796Total deposits
    
    $
    655,802
    
    
    $
    
    
    
    $
    
    
    
    $
    (7,100
    )
    
    $
    648,702
 (Dollars in thousands)
    
    Year Ended December 31, 2009Bank
    
    
    Mortgage
    
    
    Parent
    
    
    Elimination
    
    
    ConsolidatedTotal assets
    
    $
    807,216
    
    
    $
    15,001
    
    
    $
    83,532
    
    
    $
    (92,343
    )
    
    $
    813,406Total portfolio loans, gross
    
    $
    606,682
    
    
    $
    
    
    
    $
    2,469
    
    
    $
    (7,712
    )
    
    $
    601,439Total deposits
    
    $
    643,581
    
    
    $
    
    
    
    $
    
    
    
    $
    (3,117
    )
    
    $
    640,464
 NOTE 18. INCOME TAXES
  (Dollars in thousands)
    
    Years Ended December 31,2010
    
    
    2009
    
    
    2008Current:Federal
    
    $
    3,948
    
    
    $
    3,070
    
    
    $
    158State
    
    
    749
    
    
    
    779
    
    
    
    (227
    )Total current provision (benefit)
    
    $
    4,697
    
    
    $
    3,849
    
    
    $
    (69
    )Deferred:Federal
    
    
    (1,421
    )
    
    
    (784
    )
    
    
    103State
    
    
    (117
    )
    
    
    (375
    )
    
    
    (74
    )Total deferred (benefit) provision
    
    
    (1,538
    )
    
    
    (1,159
    )
    
    
    29Total provision (benefit) for income taxes
    
    $
    3,159
    
    
    $
    2,690
    
    
    $
    (40
    )
 126




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    2010
    
    
    2009
    
    
    2008Income tax at the Federal statutory rate
    
    
    34.00
    %
    
    
    34.00
    %
    
    
    34.00
    %State franchise tax, net of Federal tax benefit
    
    
    3.58
    %
    
    
    2.98
    %
    
    
    -12.16
    %Tax-exempt interest
    
    
    -5.58
    %
    
    
    -4.07
    %
    
    
    -15.79
    %Officer life insurance
    
    
    -1.29
    %
    
    
    -1.53
    %
    
    
    -4.51
    %Affordable housing credits
    
    
    -0.99
    %
    
    
    -1.95
    %
    
    
    -7.39
    %Other
    
    
    3.07
    %
    
    
    0.59
    %
    
    
    4.02
    %Effective Tax Rate
    
    
    32.79
    %
    
    
    30.02
    %
    
    
    -1.83
    %
  (Dollars in thousands)
    
    2010
    
    
    2009Deferred tax assets:State franchise taxes
    
    $
    143
    
    
    $
    127Deferred compensation
    
    
    2,533
    
    
    
    2,3339Loan loss reserves
    
    
    5,851
    
    
    
    5,130Unrealized (gains) losses other comprehensive income
    
    
    356
    
    
    
    (460
    )Other
    
    
    328
    
    
    
    223Total deferred tax assets
    
    $
    9,211
    
    
    $
    7,359Deferred tax liabilities:Depreciation
    
    
    (106
    )
    
    
    (591
    )Deferred loan origination costs
    
    
    (351
    )
    
    
    (466
    )Deferred state taxes
    
    
    (672
    )
    
    
    (572
    )Other  California Affordable Housing
    
    
    (154
    )
    
    
    (156
    )Total deferred tax liabilities
    
    $
    (1,283
    )
    
    $
    (1,785
    )Net deferred tax asset
    
    $
    7,928
    
    
    $
    5,574
  127




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   NOTE 19. STOCK OPTION PLAN
    Activity in stock-based compensation plan
  WeightedAverageWeighted
    
    
    
    
    
    
    RemainingAverage
    
    
    Aggregate
    
    
    ContractualNumber of Shares
    
    
    Exercise Price
    
    
    Intrinsic Value
    
    
    TermOptions outstanding December 31, 2008
    
    
    298,080
    
    
    $
    8.64
    
    
    $
    
    
    
    
    5.77Granted
    
    
    4,000
    
    
    $
    5.00
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (20,000
    )
    
    $
    10.40
    
    
    
    
    
    
    
    Options outstanding December 31, 2009
    
    
    282,080
    
    
    $
    8.46
    
    
    
    
    
    
    
    4.70Granted
    
    
    18,000
    
    
    $
    3.62
    
    
    $
    11,340
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options outstanding December 31, 2010
    
    
    300,080
    
    
    $
    8.17
    
    
    
    
    
    
    
    4.07Exercisable at December 31, 2010
    
    
    245,620
    
    
    $
    8.44
    
    
    $
    11,340
  128




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   2010
    
    
    2009
    
    
    2008Volatility
    
    
    58.53
    %
    
    
    67.60
    %
    
    
    32.10
    %Risk free interest rate
    
    
    1.18
    %
    
    
    1.82
    %
    
    
    2.97
    %Expected dividends
    
    $
    0.21
    
    
    $
    0.30
    
    
    $
    0.32Annual dividend rate
    
    
    5.80
    %
    
    
    4.53
    %
    
    
    4.56
    %Assumed forfeiture rate
    
    
    0
    
    
    
    0
    
    
    
    0Expected Life
    
    
    7
    
    
    
    7
    
    
    
    7
   NOTE 20. CAPITAL STOCK
    129




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    NOTE 21. RETIREMENT BENEFITS
 Profit sharing plan
 Salary continuation plan
   130




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Retired employees deferred compensation
 Directors deferred fee compensation
  NOTE 22. RELATED PARTY TRANSACTIONS
   (Dollars in thousands)
    
    2010
    
    
    2009Balance at beginning of year
    
    $
    9,469
    
    
    $
    7,911New loan additions
    
    
    1,248
    
    
    
    1,418Advances on existing lines of credit
    
    
    15,704
    
    
    
    11,497Principal repayments
    
    
    (17,017
    )
    
    
    (11,642
    )Reclassifications (1)
    
    
    (176
    )
    
    
    285Balance at end of year
    
    $
    9,228
    
    
    $
    9,469
 (1)
    
    Represents existing loans that were added or subtracted from the balances
because their related party classification was changed. 131




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
  NOTE 23. COMMITMENTS AND CONTINGENCIES
 Lease Commitments 
 (Dollars in thousands)Amounts due in:2011
    
    $
    7752012
    
    
    6062013
    
    
    4882014
    
    
    4992015
    
    
    164Thereafter
    
    
    270Total
    
    $
    2,802
  Off-Balance Sheet Financial Instruments
   (Dollars in thousands)
    
    December 31,2010
    
    
    2009Off-balance sheet commitments:Commitments to extend credit
    
    $
    146,915
    
    
    $
    122,872Standby letters of credit
    
    
    3,509
    
    
    
    4,844Guaranteed commitments outstanding
    
    
    1,299
    
    
    
    1,325$
    151,723
    
    
    $
    129,041
 132




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       Litigation
 NOTE 24. REGULATORY MATTERS
  133




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
       134




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (Dollars in thousands)
 For CapitalAdequacy
    
    To beActual
    
    Purposes
    
    Well CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAt December 31, 2010:CompanyLeverage capital (to average assets)
    
    $
    115,541
    
    
    
    12.48
    %
    
    $
    37,036
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aTier 1 capital (to risk-weighted assets)
    
    $
    115,541
    
    
    
    13.74
    %
    
    $
    33,631
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aTotal capital (to risk-weighted assets)
    
    $
    126,085
    
    
    
    15.00
    %
    
    $
    67,262
    
    
    
    8.00
    %
    
    
    n/a
    
    
    
    n/aBankLeverage capital (to average assets)
    
    $
    106,747
    
    
    
    11.60
    %
    
    $
    36,820
    
    
    
    4.00
    %
    
    $
    46,025
    
    
    
    5.00
    %Tier 1 capital (to risk-weighted assets)
    
    $
    106,747
    
    
    
    13.34
    %
    
    $
    32,013
    
    
    
    4.00
    %
    
    $
    48,020
    
    
    
    6.00
    %Total capital (to risk-weighted assets)
    
    $
    116,791
    
    
    
    14.59
    %
    
    $
    64,026
    
    
    
    8.00
    %
    
    $
    80,033
    
    
    
    10.00
    %At December 31, 2009:CompanyLeverage capital (to average assets)
    
    $
    79,422
    
    
    
    9.89
    %
    
    $
    32,168
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aTier 1 capital (to risk-weighted assets)
    
    $
    79,422
    
    
    
    12.06
    %
    
    $
    26,347
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aTotal capital (to risk-weighted assets)
    
    $
    87,697
    
    
    
    13.31
    %
    
    $
    52,693
    
    
    
    8.00
    %
    
    
    n/a
    
    
    
    n/aBankLeverage capital (to average assets)
    
    $
    76,262
    
    
    
    9.37
    %
    
    $
    32,603
    
    
    
    4.00
    %
    
    $
    40,754
    
    
    
    5.00
    %Tier 1 capital (to risk-weighted assets)
    
    $
    76,262
    
    
    
    11.57
    %
    
    $
    26,366
    
    
    
    4.00
    %
    
    $
    39,549
    
    
    
    6.00
    %Total capital (to risk-weighted assets)
    
    $
    84,543
    
    
    
    12.83
    %
    
    $
    52,732
    
    
    
    8.00
    %
    
    $
    65,915
    
    
    
    10.00
    %
 135




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 25. FAIR VALUES OF FINANCIAL INSTRUMENTS
   December 31, 2010
    
    December 31, 2009Carrying
    
    
    
    
    
    Carrying(Dollars in thousands)
    
    Amounts
    
    Fair Value
    
    Amounts
    
    Fair ValueFinancial assetsCash and cash equivalents
    
    $
    63,256
    
    
    $
    63,256
    
    
    $
    68,240
    
    
    $
    68,240Portfolio loans, net
    
    
    587,865
    
    
    
    595,442
    
    
    
    590,023
    
    
    
    611,099Mortgages held for sale
    
    
    42,995
    
    
    
    42,995
    
    
    
    27,288
    
    
    
    27,288Interest receivable
    
    
    3,845
    
    
    
    3,845
    
    
    
    3,087
    
    
    
    3,087Financial liabilitiesDeposits
    
    
    648,702
    
    
    
    650,200
    
    
    
    640,465
    
    
    
    642,917Securities sold under
agreement to repurchase
    
    
    13,548
    
    
    
    13,548
    
    
    
    9,621
    
    
    
    9,621Federal home loan borrowings
    
    
    141,000
    
    
    
    141,000
    
    
    
    70,000
    
    
    
    70,000Subordinated debenture
    
    
    15,465
    
    
    
    6,411
    
    
    
    15,465
    
    
    
    6,978Interest payable
    
    
    388
    
    
    
    388
    
    
    
    495
    
    
    
    495
 Contract
    
    ContractOff balance sheet financial instruments:
    
    Amount
    
    AmountCommitments to extend credit
    
    $
    146,915
    
    
    $
    122,872Standby letters of credit
    
    $
    3,509
    
    
    $
    4,844Guaranteed commitments outstanding
    
    $
    1,299
    
    
    $
    1,325
  Cash and cash equivalents
 Portfolio loans receivable
 136




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Interest receivable and payable
 Mortgage loans held for sale
 Federal Home Loan Bank borrowings
 Junior subordinated debt payable to unconsolidated subsidiary grantor trust
 Deposit liabilities
 Securities sold under agreements to repurchase
 Earn out payable
 Commitments
  137




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Fair Value Hierarchy
        (Dollars in thousands)
    
    Fair Value at December 31, 2010Recurring basis
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Available for sale securitiesObligations of states and political
subdivisions
    
    $
    64,151
    
    
    $
    
    
    
    $
    64,151
    
    
    $
    Corporate securities
    
    
    28,957
    
    
    
    
    
    
    
    28,957
    
    
    
    Other investment securities (1)
    
    
    96,127
    
    
    
    
    
    
    
    96,127
    
    
    
    Derivatives
    
    
    2,341
    
    
    
    
    
    
    
    2,341
    
    
    
    Total assets measured at fair value
    
    $
    191,576
    
    
    $
    
    
    
    $
    191,576
    
    
    $
    Earn out payable
    
    
    986
    
    
    
    
    
    
    
    
    
    
    
    986Total liabilities measured at fair value
    
    $
    986
    
    
    $
    
    
    
    $
    
    
    
    $
    986
 (1)
    
    Principally represents U.S. Treasury and agencies or residential mortgage-backed securities
issued or guaranteed by governmental agencies. 138




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars in thousands)
    
    Fair Value at December 31, 2009Recurring basis
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Available for sale securitiesObligations of states and political
subdivisions
    
    $
    32,646
    
    
    $
    
    
    
    $
    32,646
    
    
    $
    Corporate securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other investment securities (1)
    
    
    47,416
    
    
    
    
    
    
    
    47,416
    
    
    
    Total assets measured at fair value
    
    $
    80,062
    
    
    $
    
    
    
    $
    80,062
    
    
    $
    Earn out payable
    
    
    965
    
    
    
    
    
    
    
    
    
    
    
    965Total liabilities measured at fair value
    
    $
    965
    
    
    $
    
    
    
    $
    
    
    
    $
    965
 
 (1)
    
    Principally represents U.S. Treasury and agencies or residential mortgage-backed securities
issued or guaranteed by governmental agencies.  (Dollars in thousands)
    
    2010
    
    2009Beginning Balance
    
    $
    965
    
    
    $
    Transfers into Level 3
    
    
    
    
    
    
    965Transfers out of Level 3
    
    
    
    
    
    
    Total lossesIncluded in earnings (or changes in net liabilities)
    
    
    (21
    )
    
    
    Included in other comprehensive income
    
    
    
    
    
    
    Purchases, issuances, sales, and settlementsPurchases
    
    
    
    
    
    
    Issuances
    
    
    
    
    
    
    Sales
    
    
    
    
    
    
    Settlements
    
    
    
    
    
    
    Ending balance
    
    $
    986
    
    
    $
    965
   139




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##### Table of Contents



BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Assets and Liabilities Recorded at Fair Value on a Non Recurring Basis
    (Dollars in thousands)
    
    Fair Value at December 31, 2010
    
    TotalNon recurring basis
    
    Total
    
    Level 1
    
    Level 2
    
    Level 3
    
    (Losses)Impaired loans
    
    $
    12,982
    
    
    $
    
    
    
    $
    
    
    
    $
    12,982
    
    
    $
    (6,726
    )Other real estate owned
    
    
    1,994
    
    
    
    
    
    
    
    
    
    
    
    1,994
    
    
    
    (1,571
    )Goodwill
    
    
    3,695
    
    
    
    
    
    
    
    
    
    
    
    3,695
    
    
    
    (32
    )Total assets measured at fair value
    
    $
    18,671
    
    
    $
    
    
    
    $
    
    
    
    $
    18,671
    
    
    $
    (8,329
    )
 (Dollars in thousands)
    
    Fair Value at December 31, 2009
    
    TotalNon recurring basis
    
    Total
    
    Level 1
    
    Level 2
    
    Level 3
    
    (Losses)Impaired loans
    
    $
    5,278
    
    
    $
    
    
    
    $
    
    
    
    $
    5,278
    
    
    $
    (1,289
    )Other real estate owned
    
    
    2,880
    
    
    
    
    
    
    
    
    
    
    
    2,880
    
    
    
    (125
    )Total assets measured at fair value
    
    $
    8,158
    
    
    $
    
    
    
    $
    
    
    
    $
    8,158
    
    
    $
    (1,414
    )
  
    
    Collateral dependent impaired loans with a carrying amount of $19.7 million were written
down to their fair value of $13.0 million resulting in a $6.7 million adjustment to the
allowance for loan and lease losses.
    
    Other real estate owned with a carrying amount of $3.6 million was written down to fair
value of $2.0 million resulting in a loss of $1.6 million which was included in earnings
for the period.
    
    Goodwill with a carrying amount of $3.7 million was written down to the fair value of
$3.69 million resulting in an impairment charge of $32 thousand which was included in
earnings for the period.
 140




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     Limitations
   141




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 26. PARENT COMPANY ONLY FINANCIAL STATEMENTS
 Years EndedDecember 31,(Dollars in thousands)
    
    2010
    
    
    2009Condensed Balance SheetsAssets:Cash
    
    $
    4,246
    
    
    $
    977Participation loans, net of allowance for loan and lease losses of $38,850
in 2010 and 2009
    
    
    2,250
    
    
    
    2,431Investment in subsidiaries
    
    
    110,177
    
    
    
    80,124Other assets
    
    
    1,500
    
    
    
    Total assets
    
    $
    118,173
    
    
    $
    83,532Liabilities:Junior subordinated debt payable to unconsolidated subsidiary grantor trust
    
    $
    15,465
    
    
    $
    15,465Other liabilities
    
    
    1,560
    
    
    
    1,585Equity:Shareholders equity
    
    
    101,148
    
    
    
    66,482Total liabilities and shareholders equity
    
    $
    118,173
    
    
    $
    83,532
 Years Ended December 31,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    2008Condensed Statements of IncomeIncome:Interest income
    
    $
    239
    
    
    $
    300
    
    
    $
    1,097Dividends from subsidiaries
    
    
    1,033
    
    
    
    2,503
    
    
    
    1,4971,272
    
    
    
    2,803
    
    
    
    2,594Expenses:
    
    
    1,250
    
    
    
    1,146
    
    
    
    1,011Income before income taxes and equity in undistributed net
income of subsidiaries
    
    
    22
    
    
    
    1,657
    
    
    
    1,583Provision for income taxes
    
    
    1
    
    
    
    1
    
    
    
    1Income before equity in undistributed net income of subsidiaries
    
    
    21
    
    
    
    1,656
    
    
    
    1,582Equity in undistributed net income of subsidiaries
    
    
    6,453
    
    
    
    4,612
    
    
    
    612Net income
    
    $
    6,474
    
    
    $
    6,268
    
    
    $
    2,194Less: Net income attributable to non-controlling interest
    
    
    254
    
    
    
    263
    
    
    
    Net income attributable to Bank of Commerce Holdings
    
    $
    6,220
    
    
    $
    6,005
    
    
    $
    2,194
 142




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Years Ended December 31,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    2008Statements of Cash FlowsCash flows from operating activities:Net income
    
    $
    6,474
    
    
    $
    6,268
    
    
    $
    2,194Adjustments to reconcile net income to net cash
provided by operating activities:Compensation associated with stock options
    
    
    34
    
    
    
    34
    
    
    
    33Effect of changes in:Other Assets
    
    
    (1,500
    )
    
    
    80
    
    
    
    79Other Liabilities
    
    
    (12
    )
    
    
    (71
    )
    
    
    45Equity in undistributed net income of subsidiaries
    
    
    (6,453
    )
    
    
    (4,612
    )
    
    
    (612
    )Net cash (used) provided by operating activities
    
    
    (1,457
    )
    
    
    1,699
    
    
    
    1,739Cash flows from investing activities:Investment in subsidiaries
    
    
    (25,000
    )
    
    
    
    
    
    
    (14,200
    )Participation loan payments
    
    
    180
    
    
    
    631
    
    
    
    2,935Participation loan purchased
    
    
    
    
    
    
    1,578
    
    
    
    (2,400
    )Cash paid in acquisition of mortgage subsidiary
    
    
    
    
    
    
    (1,500
    )
    
    
    Net cash (used) provided by investing activities
    
    
    (24,820
    )
    
    
    709
    
    
    
    (13,665
    )Cash flows from financing activities:Net proceeds from issuance of common stock
    
    
    32,971
    
    
    
    
    
    
    
    Equity transactions, net
    
    
    
    
    
    
    22
    
    
    
    15,183Cash dividends paid on common stock
    
    
    (2,575
    )
    
    
    (2,265
    )
    
    
    (2,790
    )Cash dividends paid on preferred stock
    
    
    (850
    )
    
    
    (852
    )
    
    
    Net cash provided (used) by financing activities
    
    
    29,546
    
    
    
    (3,095
    )
    
    
    12,393Increase (decrease) in cash and cash equivalents
    
    
    3,269
    
    
    
    (687
    )
    
    
    467Cash and cash equivalents at beginning of year
    
    
    977
    
    
    
    1,664
    
    
    
    1,197Cash and cash equivalents at end of year
    
    $
    4,246
    
    
    $
    977
    
    
    $
    1,664
 143




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 27. 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 31,2010
    
    
    2010
    
    
    2010
    
    


    2010Net interest income
    
    $
    7,517
    
    
    $
    8,172
    
    
    $
    8,640
    
    
    $
    8,664Provision for loan losses
    
    
    2,250
    
    
    
    1,600
    
    
    
    4,450
    
    
    
    4,550Noninterest income
    
    
    3,942
    
    
    
    3,337
    
    
    
    5,683
    
    
    
    6,856Noninterest expense
    
    
    7,185
    
    
    
    7,510
    
    
    
    7,293
    
    
    
    8,340Income before taxes
    
    
    2,024
    
    
    
    2,399
    
    
    
    2,580
    
    
    
    2,630Provision for income tax
    
    
    744
    
    
    
    750
    
    
    
    916
    
    
    
    749(Less) Income non-controlling interest
    
    
    (255
    )
    
    
    144
    
    
    
    105
    
    
    
    260Net income
    
    
    1,535
    
    
    
    1,505
    
    
    
    1,559
    
    
    
    1,621(Less) Preferred dividend and accretion on
preferred stock
    
    
    235
    
    
    
    236
    
    
    
    235
    
    
    
    234Income available to common shareholders
    
    $
    1,300
    
    
    $
    1,269
    
    
    $
    1,324
    
    
    $
    1,387Per common share:Basic earnings per share
    
    $
    0.15
    
    
    $
    0.08
    
    
    $
    0.08
    
    
    $
    0.08Diluted earnings per share
    
    $
    0.15
    
    
    $
    0.08
    
    
    $
    0.08
    
    
    $
    0.08Dividends declared per share
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.03
    
    
    $
    0.03
 (Dollars in thousands, except per share data)
    
    
    
    
    For the Quarter EndedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,2009
    
    
    2009
    
    
    2009
    
    


    2009Net interest income
    
    $
    6,400
    
    
    $
    7,498
    
    
    $
    7,406
    
    
    $
    7,690Provision for loan losses
    
    
    1,425
    
    
    
    3,056
    
    
    
    1,844
    
    
    
    3,150Noninterest income
    
    
    865
    
    
    
    3,195
    
    
    
    2,944
    
    
    
    3,059Noninterest expense
    
    
    3,960
    
    
    
    4,893
    
    
    
    5,654
    
    
    
    6,117Income before taxes
    
    
    1,880
    
    
    
    2,744
    
    
    
    2,852
    
    
    
    1,482Provision for income tax
    
    
    610
    
    
    
    1,027
    
    
    
    1,010
    
    
    
    43(Less) Income non-controlling interest
    
    
    
    
    
    
    101
    
    
    
    129
    
    
    
    33Net income
    
    
    1,270
    
    
    
    1,616
    
    
    
    1,713
    
    
    
    1,406(Less)
Preferred dividend and accretion on preferred stock
    
    
    237
    
    
    
    235
    
    
    
    235
    
    
    
    235Income available to common shareholders
    
    $
    1,033
    
    
    $
    1,381
    
    
    $
    1,478
    
    
    $
    1,171Per common share:Basic earnings per share
    
    $
    0.12
    
    
    $
    0.16
    
    
    $
    0.17
    
    
    $
    0.13Diluted earnings per share
    
    $
    0.12
    
    
    $
    0.16
    
    
    $
    0.17
    
    
    $
    0.13Dividends declared per share
    
    $
    0.06
    
    
    $
    0.00
    
    
    $
    0.12
    
    
    $
    0.06
 144




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BANK OF COMMERCE HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 28. GAIN ON SETTLEMENT OF PUT RESERVE
    145




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##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Report on Internal Control over Financial Reporting
    146




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ITEM 9B. OTHER INFORMATION
   147




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 ITEM 11. EXECUTIVE COMPENSATION.
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
  148




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)
    
    The following documents are filed as a part of this Form 10-K:
 (1)
    
    Financial Statements:
  (2)
    
    Financial Statement Schedules:
  (3)
    
    Exhibits:
 ExhibitNumber
    
    Description of Document3.1
    
    Articles of Incorporation, as amended, incorporated by reference to EX-3.1 of the Form
10-12G filed 12/4/1998.3.2
    
    Bylaws, as amended, incorporated by reference to EX-3.1 of the Form 8-K filed 05/15/2007.4.1
    
    Specimen Common Stock Certificate, incorporated by reference to EX-4.1 of the Form 10-12G filed
12/4/1998.4.2
    
    Certificate of determination for the Series A Preferred Stock, incorporated by reference to
EX-4.1 of the Form 8-K filed 11/19/2008.4.3
    
    Form of Certificate for the Series A Preferred Stock, incorporated by reference to EX-4.2 of the
Form 8-K filed 11/19/2008.4.4
    
    Warrant for purchase of shares of Common stock, incorporated by reference to EX-4.3 of the Form
8-K filed 11/19/2008.10.1
    
    Letter Agreement, dated November 14, 2008, between Bank of Commerce Holdings and the United
States Department of the Treasury, which includes the Securities Purchase Agreement Standard
terms attached thereto, with respect to the issuance of the Series A Preferred Stock and Warrant,
incorporated by reference to EX-10.1 of the Form 8-K filed 11/19/2008.10.2
    
    Office Building Lease between Gairn Partnership/First Avenue Square and Redding Bank of Commerce
dated July 16, 1998, incorporated by reference to EX-10.2 of the Form 10-12G filed 12/4/1998.10.3
    
    1998 Stock Option Plan, incorporated by reference to EX-10.3 of the Form 10-12G filed 12/4/1998.10.4
    
    Form of Incentive Stock Option Agreement used in connection with 1998 Stock Option Plan,
incorporated by reference to EX-10.4 of the Form 10-12G filed 12/4/1998.10.5
    
    Form of Non-statutory Stock Option Agreement used in connection with 1998 Stock Option Plan,
incorporated by reference to EX-10.5 of the Form 10-12G filed 12/4/1998.10.7
    
    Directors Deferred Compensation Plan, incorporated by reference to EX-10.7 of the Form 10-12G
filed 12/4/1998.10.8
    
    Form of Deferred Compensation Agreement Used In Connection With Directors Deferred Compensation
Plan, incorporated by reference to EX-10.8 of the Form 10-12G filed 12/4/1998.10.10
    
    Employment contracts dated April 2001, incorporated by reference to EX-10.10 of the Form 8-K
filed 9/27/2001.10.11
    
    Affiliated Business Arrangement Agreement, incorporated by reference to EX-10.11 of the Form 8-K
filed 8/20/2004.10.12
    
    Office building lease by and between Waybright #3 Partners and Redding Bank of Commerce dated
9/23/2005 incorporated by reference to EX-99.1 of the Form 8-K filed 9/26/2005.10.13
    
    Amendment to Employment contracts dated April 2001, incorporated by reference to EX-99.1 &99.2 of
the Form 8-K filed 12/21/2005.10.14
    
    Change in Control Agreements, incorporated by reference to EX-99.1-99.4 of the Form 8-K filed
12/21/2005.10.15
    
    Salary Continuation Blais, incorporated by reference to EX-10.15 of the Form 8-K filed 12/19/2006.10.16
    
    Salary Continuation Moty, incorporated by reference to EX-10.16 of the Form 8-K filed 12/19/2006.10.17
    
    Salary Continuation Eslick, incorporated by reference to EX-10.17 of the Form 8-K filed
12/19/2006.10.19
    
    Employment Agreement Miles, incorporated by reference to EX-10.19 of the Form 8-K filed 1/03/2007.10.21
    
    Salary Continuation Miles, incorporated by reference to EX-10.21 of the Form 8-K filed 1/03/2007.
 149




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##### Table of Contents



ExhibitNumber
    
    Description of Document10.22
    
    Employment Agreement Moty, incorporated by reference to EX-10.22 of the Form 8-K filed 9/27/2007.10.23
    
    Salary Continuation Moty, incorporated by reference to EX-10.23 of the Form 8-K filed 9/28/2007.10.24
    
    Employment contracts dated October 14, 2008, incorporated by reference to EX-10.22 of the Form
8-K filed 10/17/2008.10.25
    
    Employment Agreement Matranga, incorporated by reference to EX-10.22 of the Form 8-K filed
11/26/2008.14.0
    
    Bank of Commerce Code of Ethics, incorporated by reference to EX-10.12 of the Form 8-K filed
2/26/2003.21.1
    
    Subsidiaries of the Company, incorporated by reference to EX-21.1 of the Form 10-12G filed
12/4/1998.23.1
    
    Consent of Moss Adams LLP24.1
    
    Power of Attorney-see page 151.31.1
    
    Certification of Patrick J. Moty pursuant to Exchange Act Rule 13a-14(a) or 15d  14(a) as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Samuel D. Jimenez pursuant to Exchange Act Rule 13a-14(a) or 15d  14(a) as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification pursuant to Section 1350.99.1
    
    Certification of Chief Executive Officer Pursuant to Section 111(b)(4) of the Emergency Economic
Stabilization Act of 200899.2
    
    Certification of Chief Financial Officer Pursuant to Section 111(b)(4) of the Emergency Economic
Stabilization Act of 2008
 150




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##### Table of Contents



SIGNATURES
  BANK OF COMMERCE HOLDINGSBy
    
    /s/ Patrick J. Moty

Patrick J. MotyPresident, Chief ExecutiveOfficer and Director of Redding Bank ofCommerce
 POWER OF ATTORNEY
  151




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##### Table of Contents



Name
    
    Title
    
    Date/s/ Patrick J. Moty
    
    President, Chief Executive Officer and
    
    March 04, 2011/s/ Samuel D. Jimenez
    
    Senior Vice President and Chief
    
    March 04, 2011Financial Officer (Principal Financialand Accounting Officer)/s/ Kenneth R. Gifford, Jr.
    
    Chairman of the Board
    
    March 04, 2011/s/ Russell L. Duclos
    
    Director
    
    March 04, 2011/s/ David H. Scott
    
    Director
    
    March 04, 2011/s/ Lyle L. Tullis
    
    Director
    
    March 04, 2011/s/ Jon Halfhide
    
    Director
    
    March 04, 2011/s/ Orin Bennett
    
    Director
    
    March 04, 2011/s/ Gary Burks
    
    Director
    
    March 04, 2011/s/ Joseph Gibson
    
    Director
    
    March 04, 2011
 152




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description of Document3.1
    
    Articles of Incorporation as amended, incorporated by reference to EX-3.1 of the Form 10-12G filed 12/4/1998.3.2
    
    Bylaws as amended, incorporated by reference to EX-3.1 of the Form 8-K filed 05/15/2007.4.1
    
    Specimen Common Stock Certificate, incorporated by reference to EX-4.1 of the Form 10-12G filed 12/4/1998.4.2
    
    Certificate of determination for the Series A Preferred Stock, incorporated by reference to EX-4.1 of the
Form 8-K filed 11/19/2008.4.3
    
    Form of Certificate for the Series A Preferred Stock, incorporated by reference to EX-4.2 of the Form 8-K
filed 11/19/2008.4.4
    
    Warrant for purchase of shares of Common stock, incorporated by reference to EX-4.3 of the Form 8-K filed
11/19/2008.10.1
    
    Letter Agreement, dated November 14, 2008, between Bank of Commerce Holdings and the United States
Department of the Treasury, which includes the Securities Purchase Agreement Standard terms attached
thereto, with respect to the issuance of the Series A Preferred Stock and Warrant, incorporated by
reference to EX-10.1 of the Form 8-K filed 11/19/2008.10.2
    
    Office Building Lease between Gairn Partnership/First Avenue Square and Redding Bank of Commerce dated July
16, 1998, incorporated by reference to EX-10.2 of the Form 10-12G filed 12/4/1998.10.3
    
    1998 Stock Option Plan, incorporated by reference to EX-10.3 of the Form 10-12G filed 12/4/1998.10.4
    
    Form of Incentive Stock Option Agreement used in connection with 1998 Stock Option Plan, incorporated by
reference to EX-10.4 of the Form 10-12G filed 12/4/1998.10.5
    
    Form of Non-statutory Stock Option Agreement used in connection with 1998 Stock Option Plan,
incorporated by reference to EX-10.5 of the Form 10-12G filed 12/4/1998.10.7
    
    Directors Deferred Compensation Plan, incorporated by reference to EX-10.7 of the Form 10-12G filed
12/4/1998.10.8
    
    Form of Deferred Compensation Agreement Used In Connection With Directors Deferred Compensation Plan,
incorporated by reference to EX-10.8 of the Form 10-12G filed 12/4/1998.10.10
    
    Employment contracts dated April 2001, incorporated by reference to EX-10.10 of the Form 8-K filed
9/27/2001.10.11
    
    Affiliated Business Arrangement Agreement, incorporated by reference to EX-10.11 of the Form 8-K filed
8/20/2004.10.12
    
    Office building lease by and between Waybright #3 Partners and Redding Bank of Commerce dated 9/23/2005
incorporated by reference to EX-99.1 of the Form 8-K filed 9/26/2005.10.13
    
    Amendment to Employment contracts dated April 2001, incorporated by reference to EX-99.1 &99.2 of the Form
8-K filed 12/21/2005.10.14
    
    Change in Control Agreements, incorporated by reference to EX-99.1-99.4 of the Form 8-K filed 12/21/2005.10.15
    
    Salary Continuation Blais, incorporated by reference to EX-10.15 of the Form 8-K filed 12/19/2006.10.16
    
    Salary Continuation Moty, incorporated by reference to EX-10.16 of the Form 8-K filed 12/19/2006.10.17
    
    Salary Continuation Eslick, incorporated by reference to EX-10.17 of the Form 8-K filed 12/19/2006.10.19
    
    Employment Agreement Miles, incorporated by reference to EX-10.19 of the Form 8-K filed 1/03/2007.10.21
    
    Salary Continuation Miles, incorporated by reference to EX-10.21 of the Form 8-K filed 1/03/2007.10.22
    
    Employment Agreement Moty, incorporated by reference to EX-10.22 of the Form 8-K filed 9/27/2007.10.23
    
    Salary Continuation Moty,
incorporated by reference to EX-10.23 of the Form 8-K filed
9/28/07.10.24
    
    Employment contracts dated October 14, 2008, incorporated by reference to EX-10.22 of the Form 8-K filed
10/17/2008.10.25
    
    Employment Agreement Matranga, incorporated by reference to EX-10.22 of the Form 8-K filed 11/26/2008.14.0
    
    Bank of Commerce Code of Ethics, incorporated by reference to EX-10.12 of the Form 8-K filed 2/26/2003.21.1
    
    Subsidiaries of the Company, incorporated by reference to EX-21.1 of the Form 10-12G filed 12/4/1998.23.1
    
    Consent of Moss Adams LLP24.1
    
    Power of Attorney-see page 151.31.1
    
    Certification of Patrick J. Moty pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Samuel D. Jimenez pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification pursuant to Section 1350.99.1
    
    Certification of Chief Executive Officer Pursuant to Section 111(b)(4) of the Emergency Economic
Stabilization Act of 200899.2
    
    Certification of Chief Financial Officer Pursuant to Section 111(b)(4) of the Emergency Economic
Stabilization Act of 2008
 153