##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 0-25135
 Bank of Commerce Holdings
  California
    
    94-2823865(State or other jurisdiction of incorporation or organization) 
1901 Churn Creek Road Redding, California
    
    (I.R.S. Employer Identification No.)96002(Address of principal executive offices)
    
    (Zip code)
   
 þ o
  o o þ
 o þ




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 Index to Form 10-Q
 Page:PART I. FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Condensed Balance Sheets June 30, 2007, December 31, 2006 and June 30, 2006
    
    
    4Consolidated Condensed Statements of Income Six months ended June 30, 2007 and 2006
    
    
    5Consolidated Condensed Statements of Cash Flows Three and six months ended June 30, 2007 and 2006
    
    
    6Notes to Consolidated Condensed Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Company Overview
    
    
    14Risk Factors
    
    
    17Economic Conditions and Geographic Concentration
    
    
    17Changes in interest rates could reduce the Companys Net Interest Income and Earnings
    
    
    17Lending Risks Associated with Commercial Banking and Construction Activities
    
    
    18Adequacy of Allowance for Loan and Lease Losses (ALLL)
    
    
    18Potential Volatility of Deposits
    
    
    18Dividends
    
    
    19Government Regulation and Legislation
    
    
    19Certain Ownership Restrictions under California and Federal Law
    
    
    20Negative Publicity could Damage our Reputation
    
    
    20Environmental Risks
    
    
    20Shares Eligible for Future Sale
    
    
    21Unresolved Staff Comments
    
    
    21Executive Overview
    
    
    22Sources of Income
    
    
    22Financial Highlights  Results of Operations
    
    
    23Net Interest Income and Net Interest Margin
    
    
    23Liquidity
    
    
    24Capital Management
    
    
    24Short term borrowings
    
    
    25Provision for loan losses
    
    
    25Factors that may affect future results
    
    
    26Critical accounting policies
    
    
    27Average balances, Interest Income/Expense and yields/rates paid
    
    
    30Analysis of changes in net interest income and interest expense
    
    
    31Noninterest Income
    
    
    32Noninterest Expense
    
    
    32Income taxes
    
    
    33Asset quality
    
    
    34Allowance for loan and lease losses (ALLL)
    
    
    35Securities portfolio
    
    
    37Item 3.
    
    Quantitative and Qualitative Disclosure about Market Risk
    
    
    38Item 4.
    
    Controls and Procedures
    
    
    40
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BANK OF COMMERCE HOLDINGS & SUBSIDIARIESIndex to Form 10-QPage:PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    41Item 1a.
    
    Risk Factors
    
    
    41Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    41Item 3.
    
    Defaults Upon Senior Securities
    
    
    41Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    41Item 5.
    
    Other Information
    
    
    41Item 6.
    
    Exhibits
    
    
    41SIGNATURES
    
    
    41Exhibit 31.1Exhibit 31.2Exhibit 32EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
(Unaudited)
 Amounts in thousands, except per share data
    
    June 30, 2007
    
    
    Dec. 31, 2006
    
    
    June 30, 2006ASSETSCash and due from banks
    
    $
    18,206
    
    
    $
    14,661
    
    
    $
    12,668Federal funds sold and securities purchased under
agreements to resell
    
    
    14,115
    
    
    
    24,605
    
    
    
    14,155Cash and cash equivalents
    
    
    32,321
    
    
    
    39,266
    
    
    
    26,823Securities available-for-sale (including pledged collateral
of $93,790 at June 30, 2007; $71,686 at December 31, 2006
and $83,080 at June 30, 2006)
    
    
    94,029
    
    
    
    95,601
    
    
    
    97,366Securities held-to-maturity (estimated fair value of $10,369
at June 30, 2007, $10,892 at December 31, 2006
and $10,889 at June 30, 2006)
    
    
    10,637
    
    
    
    10,810
    
    
    
    11,141Loans, net of the allowance for loan losses of $4,943 at
June 30, 2007, $4,904 at December 31, 2006
and $4,502 at June 30, 2006
    
    
    437,821
    
    
    
    408,990
    
    
    
    401,185Bank premises and equipment, net
    
    
    10,329
    
    
    
    8,595
    
    
    
    6,690Other assets
    
    
    20,440
    
    
    
    20,180
    
    
    
    20,942TOTAL ASSETS
    
    $
    605,577
    
    
    $
    583,442
    
    
    $
    564,147LIABILITIES AND STOCKHOLDERS EQUITYDemand  noninterest bearing
    
    $
    69,842
    
    
    $
    84,779
    
    
    $
    74,505Demand  interest bearing
    
    
    114,530
    
    
    
    119,437
    
    
    
    101,492Savings
    
    
    45,082
    
    
    
    22,749
    
    
    
    23,112Certificates of deposits
    
    
    211,794
    
    
    
    212,442
    
    
    
    189,577Total deposits
    
    
    441,248
    
    
    
    439,407
    
    
    
    388,686Securities sold under agreements to repurchase
    
    
    46,655
    
    
    
    37,117
    
    
    
    32,507Federal Home Loan Bank borrowings
    
    
    50,000
    
    
    
    40,000
    
    
    
    80,000Other liabilities
    
    
    7,114
    
    
    
    7,537
    
    
    
    6,536Guaranteed preferred beneficial interests in companys
junior subordinated debt payable to unconsolidated
subsidiary grantor trust
    
    
    15,465
    
    
    
    15,465
    
    
    
    15,465Total Liabilities
    
    
    560,482
    
    
    
    539,526
    
    
    
    523,194Commitments and contingenciesStockholders Equity:Preferred stock, no par value, 2,000,000 authorized no
shares issued and outstanding in 2007 and 2006
    
    
    
    
    
    
    
    
    
    
    Common stock , no par value, 50,000,000 shares
authorized; 8,908,880 shares
issued and outstanding
at June 30, 2007, 8,847,042 at December 31, 2006
and 8,729,672 at June 30, 2006
    
    
    11,966
    
    
    
    11,517
    
    
    
    11,441Retained earnings
    
    
    34,997
    
    
    
    33,336
    
    
    
    31,479Accumulated other comprehensive (loss), net of tax
    
    
    (1,868
    )
    
    
    (937
    )
    
    
    (1,967
    )Total Stockholders equity
    
    
    45,095
    
    
    
    43,916
    
    
    
    40,953TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    605,577
    
    
    $
    583,442
    
    
    $
    564,147
 See accompanying notes to condensed consolidated financial statements.
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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 Condensed Consolidated Statements of Income (Unaudited)
Three and six months ended June 30, 2007 and 2006
 Three Months Ended
    
    
    Six Months EndedAmounts in thousands, except for per share data
    
    June 30, 2007
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    June 30, 2006Interest income:Interest and fees on loans
    
    $
    8,965
    
    
    $
    8,149
    
    
    $
    17,429
    
    
    $
    15,380Interest on tax exempt securities
    
    
    334
    
    
    
    140
    
    
    
    612
    
    
    
    263Interest on U.S. government securities
    
    
    816
    
    
    
    864
    
    
    
    1,648
    
    
    
    1,726Interest on federal funds sold and
securities purchased under
agreements to resell
    
    
    190
    
    
    
    145
    
    
    
    390
    
    
    
    275Interest on other securities
    
    
    9
    
    
    
    44
    
    
    
    45
    
    
    
    88Total interest income
    
    
    10,314
    
    
    
    9,342
    
    
    
    20,124
    
    
    
    17,732Interest expense:Interest on demand deposits
    
    
    587
    
    
    
    286
    
    
    
    1,144
    
    
    
    519Interest on savings deposits
    
    
    355
    
    
    
    75
    
    
    
    526
    
    
    
    140Interest on time deposits
    
    
    2,627
    
    
    
    1,872
    
    
    
    5,232
    
    
    
    3,421Securities sold under agreements to
repurchase
    
    
    381
    
    
    
    267
    
    
    
    723
    
    
    
    466Interest on FHLB and other borrowing
expense
    
    
    632
    
    
    
    902
    
    
    
    1,171
    
    
    
    1,574Interest on junior subordinated debt
payable to
unconsolidated subsidiary grantor
trust
    
    
    271
    
    
    
    266
    
    
    
    540
    
    
    
    524Total interest expense
    
    
    4,853
    
    
    
    3,668
    
    
    
    9,336
    
    
    
    6,644Net interest income
    
    
    5,461
    
    
    
    5,674
    
    
    
    10,788
    
    
    
    11,088Provision for loan and lease losses
    
    
    0
    
    
    
    143
    
    
    
    6
    
    
    
    154Net interest income after
provision for loan losses
    
    
    5,461
    
    
    
    5,531
    
    
    
    10,782
    
    
    
    10,934Noninterest income:Service charges on deposit accounts
    
    
    76
    
    
    
    86
    
    
    
    145
    
    
    
    174Payroll and benefit processing fees
    
    
    89
    
    
    
    89
    
    
    
    197
    
    
    
    198Earnings on cash surrender value -
Bank owned life insurance
    
    
    99
    
    
    
    98
    
    
    
    194
    
    
    
    151Net gain (loss) on sale of securities
available-for-sale
    
    
    0
    
    
    
    0
    
    
    
    46
    
    
    
    0Merchant credit card service income,
net
    
    
    96
    
    
    
    93
    
    
    
    188
    
    
    
    170Mortgage brokerage fee income
    
    
    29
    
    
    
    35
    
    
    
    35
    
    
    
    52Other income
    
    
    229
    
    
    
    111
    
    
    
    311
    
    
    
    214Total non-interest income
    
    
    618
    
    
    
    512
    
    
    
    1,116
    
    
    
    959Noninterest expense:Salaries and related benefits
    
    
    1,959
    
    
    
    1,996
    
    
    
    4,056
    
    
    
    3,874Occupancy and equipment expense
    
    
    543
    
    
    
    448
    
    
    
    1,001
    
    
    
    883FDIC insurance premium
    
    
    13
    
    
    
    12
    
    
    
    26
    
    
    
    24Data processing fees
    
    
    90
    
    
    
    58
    
    
    
    145
    
    
    
    116Professional service fees
    
    
    252
    
    
    
    150
    
    
    
    447
    
    
    
    354Payroll and Benefit fees
    
    
    25
    
    
    
    25
    
    
    
    56
    
    
    
    54Deferred compensation expense
    
    
    101
    
    
    
    90
    
    
    
    198
    
    
    
    178Stationery and Supplies
    
    
    46
    
    
    
    49
    
    
    
    107
    
    
    
    109Postage
    
    
    34
    
    
    
    34
    
    
    
    67
    
    
    
    65Directors expense
    
    
    76
    
    
    
    65
    
    
    
    121
    
    
    
    125Other expenses
    
    
    562
    
    
    
    383
    
    
    
    965
    
    
    
    766Total non-interest expense
    
    
    3,701
    
    
    
    3,310
    
    
    
    7,189
    
    
    
    6,548Income before income taxes
    
    
    2,378
    
    
    
    2,733
    
    
    
    4,709
    
    
    
    5,345Provision for income taxes
    
    
    778
    
    
    
    1,044
    
    
    
    1,622
    
    
    
    2,064Net Income
    
    $
    1,600
    
    
    $
    1,689
    
    
    $
    3,087
    
    
    $
    3,281Basic earnings per share
    
    $
    0.18
    
    
    $
    0.19
    
    
    $
    0.35
    
    
    $
    0.38Weighted average shares  basic
    
    
    8,908
    
    
    
    8,723
    
    
    
    8,887
    
    
    
    8,702Diluted earnings per share
    
    $
    0.18
    
    
    $
    0.19
    
    
    $
    0.34
    
    
    $
    0.37Weighted average shares  diluted
    
    
    9,063
    
    
    
    8,912
    
    
    
    8,985
    
    
    
    8,896
 See accompanying notes to condensed consolidated financial statements.
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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 2007 and 2006
 Dollars in thousands
    
    June 30, 2007
    
    
    June 30, 2006Cash flows from operating activities:Net Income
    
    $
    3,087
    
    
    $
    3,281Adjustments to reconcile net income to net
cash provided by operating activities:Provision for loan and lease losses
    
    
    6
    
    
    
    154Provision for depreciation and amortization
    
    
    469
    
    
    
    321Compensation expense associated with stock options
    
    
    36
    
    
    
    27Tax benefits from the exercise of stock options
    
    
    (118
    )
    
    
    (134
    )(Gain ) Loss on sale of securities available for sale
    
    
    (46
    )
    
    
    0Amortization of investment premiums and accretion of
discounts, net
    
    
    (5
    )
    
    
    (13
    )Gain on sale of fixed assets
    
    
    (16
    )
    
    
    0Deferred income taxes
    
    
    (955
    )
    
    
    (461
    )Changes in operating assets and liabilities:Other assets
    
    
    1,364
    
    
    
    (4,499
    )Deferred loan fees
    
    
    (47
    )
    
    
    0Other liabilities
    
    
    (331
    )
    
    
    (658
    )Net cash provided by operating activities
    
    
    3,444
    
    
    
    (1,982
    )Cash flows from investing activities:Proceeds from maturities of available-for-sale securities
    
    
    3,121
    
    
    
    5,105Proceeds from sales of available-for-sale securities
    
    
    20,569
    
    
    
    0Proceeds from maturities of held-to-maturity securities
    
    
    171
    
    
    
    216Purchases of available-for-sale securities
    
    
    (23,495
    )
    
    
    (14,019
    )Loan originations, net of principal repayments
    
    
    (28,790
    )
    
    
    (38,034
    )Purchases of premises and equipment
    
    
    (2,239
    )
    
    
    (1,380
    )Net cash used by investing activities
    
    
    (30,663
    )
    
    
    (48,112
    )Cash flows from financing activities:Net increase in deposits
    
    
    1,840
    
    
    
    16,570Net increase in securities sold under agreement to repurchase
    
    
    9,538
    
    
    
    9,622Proceeds from Federal Home Loan Bank advances
    
    
    10,000
    
    
    
    45,000Repayments of Federal Home Loan Bank advances
    
    
    (0
    )
    
    
    (20,000
    )Cash dividends paid on common stock
    
    
    (1,517
    )
    
    
    (1,221
    )Proceeds from stock options exercised
    
    
    295
    
    
    
    256Excess tax benefits from the exercise of stock options
    
    
    118
    
    
    
    134Net cash provided by financing activities
    
    
    20,274
    
    
    
    50,361Net decrease in cash and cash equivalents
    
    
    (6,945
    )
    
    
    (267
    )Cash and cash equivalents, beginning of period
    
    
    39,266
    
    
    
    26,556Cash and cash equivalents, end of period
    
    $
    32,321
    
    
    $
    26,823Supplemental disclosures:Cash paid during the period for:Income taxes
    
    $
    1,618
    
    
    $
    1,782Interest
    
    
    8,836
    
    
    
    6,579
 See accompanying notes to condensed consolidated financial statements.
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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 Notes to Unaudited Condensed Consolidated Financial Statements
 1. Consolidation and Basis of Presentation
     2. Recent Accounting pronouncements
 On July 13, 2006, the Financial Accounting Standards Board (FASB) issued Financial Interpretation
No. 48 Accounting for Income Tax Uncertainties (FIN 48). FIN 48 supplements Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (FAS 109),
 On September 15, 2006, the FASB issued FAS 157, Fair Value Measurements ,
 On September 29, 2006, the FASB issued FAS 158, Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans 
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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)
  On February 15, 2007 the FASB issued FAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities, Including an amendment of FASB Statement 115.
 3. Earnings per Share
  Three Months Ended
    
    Six Months Ended(Amounts in thousands, except per share data)
    
    June 30, 2007
    
    June 30, 2006
    
    June 30, 2007
    
    June 30, 2006Basic EPS Calculation:Numerator (net income)
    
    $
    1,600
    
    
    $
    1,689
    
    
    $
    3,087
    
    
    $
    3,281Denominator (average common
shares outstanding)
    
    
    8,908
    
    
    
    8,723
    
    
    
    8,887
    
    
    
    8,702Basic earnings per Share
    
    $
    0.18
    
    
    $
    0.19
    
    
    $
    0.35
    
    
    $
    0.38Diluted EPS Calculation:Numerator (net income)
    
    $
    1,600
    
    
    $
    1,689
    
    
    $
    3,087
    
    
    $
    3,281Denominator:Average common shares outstanding
    
    
    8,908
    
    
    
    8,723
    
    
    
    8,887
    
    
    
    8,702Dilutive effect of Stock Options
    
    
    155
    
    
    
    189
    
    
    
    98
    
    
    
    194Adjusted average common shares
outstanding  diluted
    
    
    9,063
    
    
    
    8,912
    
    
    
    8,985
    
    
    
    8,896Diluted earnings per Share
    
    $
    0.18
    
    
    $
    0.19
    
    
    $
    0.34
    
    
    $
    0.37
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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)
 4. Stock Option Plans
      5. Comprehensive Income
  9




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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)
  Three Months Ended
    
    Six Months EndedJune 30, 2007
    
    June 30, 2006
    
    June 30, 2007
    
    June 30, 2006Net income as reported
    
    $
    1,600
    
    
    $
    1,689
    
    
    $
    3,087
    
    
    $
    3,281Other comprehensive income:Holding gain (loss) arising during
period on AFS securities, net of tax
    
    
    (1,076
    )
    
    
    (579
    )
    
    
    (931
    )
    
    
    (677
    )Reclassification adjustment on AFS
securities, net of tax
    
    
    
    
    
    
    
    
    
    
    (27
    )Holding gain (loss) arising during
period on derivative transactions, net
of tax
    
    
    (105
    )
    
    
    0
    
    
    
    51
    
    
    
    0Reclassification adjustment on
derivative transactions, net of tax
    
    
    (24
    )
    
    
    
    
    
    
    (24
    )Total comprehensive income
    
    $
    395
    
    
    $
    1,110
    
    
    $
    2,156
    
    
    $
    2,604
 6. Junior Subordinated Debt Payable to Unconsolidated Subsidiary Grantor Trust
    10




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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)
    7. Commitments and contingent liabilities
 Lease Commitments 
 (Dollars in thousands)2007
    
    $
    2472008
    
    $
    5002009
    
    $
    4442010
    
    $
    4002011
    
    $
    308Thereafter
    
    $
    128Total
    
    $
    2,027Minimum rental due in the futureUnder non-cancelable subleases
    
    $
    0
 Legal Proceedings 
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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)
 FHLB Advances 
 Amount
    
    Interest Rate
    
    Maturity$10,000,000
    
    
    5.43
    %
    
    
    01/24/2008$10,000,000
    
    
    5.47
    %
    
    
    01/24/2011$5,000,000
    
    
    5.23
    %
    
    
    04/28/2008$15,000,000
    
    
    5.39
    %
    
    
    11/30/2007$10,000,000
    
    
    5.27
    %
    
    
    08/03/2007$50,000,000
  Off-Balance Sheet Financial Instruments
    June 30, 2007
    
    June 30, 2006Commitment lines of credit
    
    $
    170,281,351
    
    
    $
    156,695,891Standby letters of credit
    
    
    8,334,120
    
    
    
    14,177,689Guaranteed commitments outstanding
    
    
    1,375,999
    
    
    
    248,000$
    179,991,470
    
    
    $
    171,121,580
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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)
 8. Accounting for Income Tax Uncertainties (FIN 48)
    13




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward Looking Statements and Risk Factors
 An investment in the Company has risk. The discussion below and elsewhere in this Report and in
other documents the Company files with the SEC incorporates various risk factors that could cause
the Companys financial results and condition to vary significantly from period to period.
Information in the accompanying financial statements contains certain forward-looking statements,
which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. We caution the investor that such statements are subject to risks and uncertainties
that could cause actual results to differ materially from those stated. These risks and
uncertainties include the Companys ability to maintain or expand its market share and net interest
margins, or to implement its marketing and growth strategies. Further, actual results may be
affected by the Companys ability to compete on price and other factors with other financial
institutions; customer acceptance of new products and services; and general trends in the banking
and the regulatory environment, as they relate to the Companys cost of funds and return on assets.
The reader is advised that this list of risks is not exhaustive and should not be construed as any
prediction by the Company as to which risks would cause actual results to differ materially from
those indicated by the forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements.
 For additional information concerning risks and uncertainties related to the Company and its
operations please refer to the Companys Annual Report on Form 10-K for the year ended December 31,
2006 under the heading Risk factors that may affect results. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to revise or publicly release the results of any revision to these
forward-looking statements to reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events.
 The following sections discuss significant changes and trends in the financial condition, capital
resources and liquidity of the Company from December 31, 2006 to June 30, 2007. Also discussed are
significant trends and changes in the Companys results of operations for the three and six months
ended June 30, 2007, compared to the same period in 2006. The consolidated financial statements and
related notes appearing elsewhere in this report are condensed and unaudited. The following
discussion and analysis is intended to provide greater detail of the Companys financial condition
and results.
 
 Company Overview
 th
  14




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  www.bankofcommerceholdings.com www.reddingbankofcommerce.com www.rosevillebankofcommerce.com, www.sutterbankofcommerce.com www.bankofcommercemortgage.com www.sec.gov
       15




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
     16




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Risk Factors
 
 Economic Conditions and Geographic Concentration
   
 Changes in Interest Rates could reduce the Companys Net Interest Income and Earnings
     17




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  
 Lending Risks Associated with Commercial Banking and Construction Activities
  
 Adequacy of Allowance for Loan and Lease Losses (ALLL)
   
 Potential Volatility of Deposits
   18




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Dividends
  Changes in Accounting Policies or Accounting Standards, and Changes in How Accounting Standards are
interpreted or applied, Could Materially Affect How the Company Reports its Financial Results and
Condition
 Critical
Accounting Policies).
  
 Government Regulation and Legislation
    19




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  
 Certain Ownership Restrictions under California and Federal Law
    
 Negative Publicity could Damage our Reputation
  
 Environmental Risks
  20




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Shares Eligible for Future Sale
  
 UNRESOLVED STAFF COMMENTS
  21




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Executive Overview
 high-quality
     
 Sources of Income
  22




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 June 30, 2007
    
    June 30, 2006Profitability RatiosNet Interest Income to Average Assets
    
    
    3.76
    %
    
    
    4.21
    %Net Income to Average Equity
    
    
    13.69
    %
    
    
    15.94
    %Efficiency Ratio2
    
    
    60.39
    %
    
    
    54.35
    %Capital RatiosLeverage Ratio
    
    
    9.74
    %
    
    
    9.62
    %Risk Based Capital
    
    $
    62,286,773
    
    
    $
    52,921,000Tier 1 Capital
    
    
    10.79
    %
    
    
    11.36
    %Total Capital
    
    
    11.80
    %
    
    
    12.41
    %Per Common Share DataDividend Payout Ratio
    
    
    38.75
    %
    
    
    31.40
    %Book Value
    
    $
    5.06
    
    
    $
    4.69Market Price
    
    $
    10.82
    
    
    $
    10.45High
    
    $
    11.63
    
    
    $
    11.00Low
    
    $
    10.82
    
    
    $
    9.14
 
 Financial Highlights  Results of Operations
   
 Net Interest Income and Net Interest Margin
   
 2
    
    The efficiency ratio is noninterest expense
divided by total revenue (net inter `est income and noninterest income) 23




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
    
 Liquidity
    
 Capital Management
    24




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  Well
    
    
    MinimumActual
    
    
    Capitalized
    
    
    CapitalJune 30, 2007
    
    Capital
    
    
    Ratio
    
    
    Requirement
    
    
    RequirementThe Company
Leverage
    
    $
    56,962,856
    
    
    
    9.74
    %
    
    
    n/a
    
    
    
    4.0
    %Tier 1 Risk-Based
    
    
    56,962,856
    
    
    
    10.79
    %
    
    
    n/a
    
    
    
    4.0
    %Total Risk-Based
    
    
    62,286,773
    
    
    
    11.80
    %
    
    
    n/a
    
    
    
    8.0
    %Redding Bank of
CommerceLeverage
    
    $
    56,840,937
    
    
    
    9.87
    %
    
    
    5.0
    %
    
    
    4.0
    %Tier 1 Risk-Based
    
    
    56,840,937
    
    
    
    10.77
    %
    
    
    6.0
    %
    
    
    4.0
    %Total Risk-Based
    
    
    62,175,700
    
    
    
    11.78
    %
    
    
    10.00
    %
    
    
    8.0
    %
 
 Short and Long Term Borrowings
   
 Provision for Loan and Lease Losses
  most significant
  25




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Factors that may affect future results
       26




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##### Table of Contents



Critical Accounting Policies
   Preparation of financial statements
  Use of estimates
  Accounting Principles Generally Accepted in the United States of America
   27




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 Allowance for Loan and Lease Losses (ALLL)
 most significant
 Accounting for Contingencies Accounting by Creditors for
Impairment of a Loan
   Revenue recognition
  Stock-based Compensation
 Accounting for Stock Based
Compensation
 28




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  Income Taxes
  29




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  Table 1.
 
 Average Balances, Interest Income/Expense and Yields/Rates Paid
 (Unaudited, Dollars in thousands)
 Six Months Ended
    
    
    
    Six Months EndedJune 30, 2007
    
    
    
    June 30, 2006Average
    
    
    
    
    
    
    Yield/
    
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    
    Balance
    
    
    Interest
    
    
    RateEarning AssetsPortfolio Loans
    
    $
    416,141
    
    
    $
    17,429
    
    
    
    8.38
    %
    
    
    $
    381,070
    
    
    $
    15,380
    
    
    
    8.07
    %Tax-exempt Securities
    
    
    30,548
    
    
    
    612
    
    
    
    4.01
    %
    
    
    
    14,911
    
    
    
    263
    
    
    
    3.53
    %US Government Securities
    
    
    72,937
    
    
    
    1,648
    
    
    
    4.52
    %
    
    
    
    84,890
    
    
    
    1,726
    
    
    
    4.07
    %Federal Funds Sold
    
    
    14,823
    
    
    
    390
    
    
    
    5.26
    %
    
    
    
    11,463
    
    
    
    275
    
    
    
    4.80
    %Other Securities
    
    
    2,000
    
    
    
    45
    
    
    
    4.50
    %
    
    
    
    4,053
    
    
    
    88
    
    
    
    4.34
    %Average Earning Assets
    
    $
    536,449
    
    
    $
    20,124
    
    
    
    7.50
    %
    
    
    $
    496,387
    
    
    $
    17,732
    
    
    
    7.14
    %Cash & Due From Banks
    
    $
    13,473
    
    
    
    
    
    
    
    
    
    
    
    $
    14,078Bank Premises
    
    
    9,742
    
    
    
    
    
    
    
    
    
    
    
    
    6,249Allowance for Loan and Lease Losses
    
    
    ( 4,890
    )
    
    
    
    
    
    
    
    
    
    
    
    ( 4,372
    )Other Assets
    
    
    19,690
    
    
    
    
    
    
    
    
    
    
    
    
    14,537Average Total Assets
    
    $
    574,464
    
    
    
    
    
    
    
    
    
    
    
    $
    526,879Interest Bearing LiabilitiesDemand Interest Bearing
    
    $
    110,668
    
    
    $
    1,144
    
    
    
    2.07
    %
    
    
    $
    104,439
    
    
    $
    519
    
    
    
    0.99
    %Savings Deposits
    
    
    35,957
    
    
    
    526
    
    
    
    2.93
    %
    
    
    
    26,736
    
    
    
    140
    
    
    
    1.05
    %Certificates of Deposit
    
    
    213,721
    
    
    
    5,232
    
    
    
    4.90
    %
    
    
    
    172,074
    
    
    
    3,421
    
    
    
    3.98
    %Repurchase Agreements
    
    
    37,064
    
    
    
    723
    
    
    
    3.90
    %
    
    
    
    25,972
    
    
    
    466
    
    
    
    3.59
    %FHLB Borrowings
    
    
    43,260
    
    
    
    1,171
    
    
    
    5.41
    %
    
    
    
    63,370
    
    
    
    1,574
    
    
    
    4.93
    %Trust Preferred Borrowings
    
    
    15,000
    
    
    
    540
    
    
    
    7.20
    %
    
    
    
    15,000
    
    
    
    524
    
    
    
    7.16
    %Average Interest Bearing Liabilities
    
    
    455,670
    
    
    $
    9,336
    
    
    
    4.53
    %
    
    
    
    407,591
    
    
    $
    6,644
    
    
    
    3.26
    %Non interest Demand
    
    
    72,321
    
    
    
    
    
    
    
    
    
    
    
    
    77,213Other Liabilities
    
    
    1,370
    
    
    
    
    
    
    
    
    
    
    
    
    5,903Shareholder Equity
    
    
    45,103
    
    
    
    
    
    
    
    
    
    
    
    
    36,172Average Liabilities and
Stockholders Equity
    
    $
    574,464
    
    
    
    
    
    
    
    
    
    
    
    $
    526,879Net Interest Income and Net
Interest Margin
    
    
    
    
    
    $
    10,788
    
    
    
    4.02
    %
    
    
    
    
    
    
    $
    11,088
    
    
    
    4.47
    %
   30




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  Table 2.
 
 Analysis of Changes in Net Interest Income and Interest Expense
 (Unaudited)June 30, 2007 over June 30, 2006(Dollars in thousands)
    
    Volume
    
    
    Rate
    
    
    TotalIncrease(Decrease) In
Interest IncomePortfolio Loans
    
    $
    1,469
    
    
    $
    580
    
    
    $
    2,049Tax-exempt Securities
    
    
    313
    
    
    
    36
    
    
    
    349US Government Securities
    
    
    (270
    )
    
    
    192
    
    
    
    (79
    )Federal Funds Sold
    
    
    58
    
    
    
    57
    
    
    
    115Other Securities
    
    
    (46
    )
    
    
    3
    
    
    
    (43
    )Total Increase
    
    $
    1,524
    
    
    $
    868
    
    
    $
    2,392Increase(Decrease) In
Interest ExpenseInterest Bearing Demand
    
    $
    64
    
    
    $
    561
    
    
    $
    625Savings Deposits
    
    
    135
    
    
    
    251
    
    
    
    386Certificates of Deposit
    
    
    1,020
    
    
    
    791
    
    
    
    1,811Repurchase Agreements
    
    
    216
    
    
    
    41
    
    
    
    257FHLB Borrowings
    
    
    (544
    )
    
    
    154
    
    
    
    (390
    )Trust Preferred
Borrowings
    
    
    0
    
    
    
    3
    
    
    
    3Total Increase
    
    $
    891
    
    
    $
    1,801
    
    
    $
    2,692Net Increase
    
    $
    633
    
    
    $
    (933
    )
    
    $
    (300
    )
    31




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
 
 Noninterest Income
 
 Three Months Ended
    
    
    Six Months Ended(Dollars in thousands)
    
    June 30, 2007
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    June 30, 2006Noninterest incomeService charges on deposit accounts
    
    $
    76
    
    
    $
    86
    
    
    $
    145
    
    
    $
    174Payroll and benefit processing fees
    
    
    89
    
    
    
    89
    
    
    
    197
    
    
    
    198Earnings on cash surrender value -
Bank owned insurance
    
    
    99
    
    
    
    98
    
    
    
    194
    
    
    
    151Net gain on sale of securities available-for-sale
    
    
    0
    
    
    
    0
    
    
    
    46
    
    
    
    0Merchant credit card service income, net
    
    
    96
    
    
    
    93
    
    
    
    188
    
    
    
    170Mortgage brokerage fee income
    
    
    29
    
    
    
    35
    
    
    
    35
    
    
    
    52Other Income
    
    
    229
    
    
    
    111
    
    
    
    311
    
    
    
    214Total Noninterest income
    
    $
    618
    
    
    $
    512
    
    
    $
    1,116
    
    
    $
    959
   
 Noninterest Expense
 Three Months Ended
    
    
    Six Months Ended(Dollars in Thousands)
    
    June 30, 2007
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    June 30, 2006Noninterest ExpenseSalaries and related benefits
    
    $
    1,959
    
    
    $
    1,996
    
    
    $
    4,056
    
    
    $
    3,874Occupancy and equipment expense
    
    
    543
    
    
    
    448
    
    
    
    1,001
    
    
    
    883FDIC insurance premium
    
    
    13
    
    
    
    12
    
    
    
    26
    
    
    
    24Data processing fees
    
    
    90
    
    
    
    58
    
    
    
    145
    
    
    
    116Professional service fees
    
    
    252
    
    
    
    150
    
    
    
    447
    
    
    
    354Payroll and Benefit fees
    
    
    25
    
    
    
    25
    
    
    
    56
    
    
    
    54Deferred compensation expense
    
    
    101
    
    
    
    90
    
    
    
    198
    
    
    
    178Stationery and Supplies
    
    
    46
    
    
    
    49
    
    
    
    107
    
    
    
    109Postage
    
    
    34
    
    
    
    34
    
    
    
    67
    
    
    
    65Directors expense
    
    
    76
    
    
    
    65
    
    
    
    121
    
    
    
    125Other expenses
    
    
    562
    
    
    
    383
    
    
    
    965
    
    
    
    766Total Noninterest expense
    
    $
    3,701
    
    
    $
    3,310
    
    
    $
    7,189
    
    
    $
    6,548
 32




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
   
 Income Taxes
    Three Months Ended
    
    Six Months Ended(Dollars in thousands)
    
    June 30, 2007
    
    June 30, 2006
    
    June 30, 2007
    
    June 30, 2006Income TaxesTax provision
    
    $
    778
    
    
    $
    1,044
    
    
    $
    1,622
    
    
    $
    2,064Effective tax rate
    
    
    32.72
    %
    
    
    38.2
    %
    
    
    34.44
    %
    
    
    38.6
    %
  Accounting for Uncertainty in Income Taxes
 33




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
    June 30, 2007
    
    
    December 31, 2006Deferred Tax AssetsState Franchise taxes
    
    
    133,741
    
    
    
    276,048Deferred compensation
    
    
    1,833,076
    
    
    
    1,735,541Loan loss reserves
    
    
    2,005,505
    
    
    
    1,926,296Net unrealized losses on securities available-for-sale
    
    
    1,312,265
    
    
    
    655,559Other
    
    
    383,764
    
    
    
    208,910Total Deferred Tax Assets
    
    
    5,668,351
    
    
    
    4,802,354Deferred Tax LiabilitiesDepreciation
    
    
    (90,171
    )
    
    
    (229,998
    )Deferred loan origination costs
    
    
    (491,421
    )
    
    
    (413,431
    )Deferred state taxes
    
    
    (265,455
    )
    
    
    (245,348
    )Other
    
    
    (158,240
    )
    
    
    0Total Deferred Tax Liabilities
    
    
    (1,005,287
    )
    
    
    (888,777
    )Total Net Deferred Tax Asset
    
    $
    4,663,064
    
    
    $
    3,913,577
 
 Asset Quality
  34




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
  June 30, 2007
    
    
    December 31, 2006Portfolio LoansCommercial and financial loans
    
    $
    146,207
    
    
    $
    121,754Real estate-construction loans
    
    
    104,807
    
    
    
    110,693Real estate-commercial
    
    
    162,719
    
    
    
    159,370Real estate-other
    
    
    15,726
    
    
    
    12,986Real estate-mortgage
    
    
    1,366
    
    
    
    4,278Installment
    
    
    179
    
    
    
    203Agricultural
    
    
    6,687
    
    
    
    3,971Other loans
    
    
    5,324
    
    
    
    937Less:Net deferred loan fees
    
    
    (251
    )
    
    
    (298
    )Allowance for loan losses
    
    
    (4,943
    )
    
    
    (4,904
    )Total net loans
    
    $
    437,821
    
    
    $
    408,990
    (Dollars in thousands)
    
    June 30, 2007
    
    
    December 31, 2006Non performing assetsNonaccrual loans
    
    $
    0
    
    
    $
    090 days past due and still accruing
interest
    
    
    0
    
    
    
    0Total nonaccrual loans
    
    
    0
    
    
    
    0Other Real Estate Owned
    
    
    0
    
    
    
    0Total non performing assets
    
    $
    0
    
    
    $
    0
 
 Allowance for Loan and Lease Losses (ALLL)
  35




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
 Accounting for Contingencies Accounting by Creditors for Impairment of a Loan. Accounting for Contingencies
     Three Months Ended
    
    
    Six Months Ended(Dollars in thousands)
    
    June 30, 2007
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    June 30, 2006Allowance for Loan LossesBeginning balance for Loan
Losses
    
    $
    4,933
    
    
    $
    4,295
    
    
    $
    4,904
    
    
    $
    4,316Provision for Loan Losses
    
    
    0
    
    
    
    143
    
    
    
    6
    
    
    
    154Charge offs:Commercial
    
    
    (0
    )
    
    
    (120
    )
    
    
    (0
    )
    
    
    (269
    )Real Estate
    
    
    (0
    )
    
    
    (0
    )
    
    
    (0
    )
    
    
    (0
    )Other
    
    
    (0
    )
    
    
    (1
    )
    
    
    (0
    )
    
    
    (1
    )Total Charge offs
    
    
    (0
    )
    
    
    (121
    )
    
    
    (0
    )
    
    
    (270
    )Recoveries:Commercial
    
    
    9
    
    
    
    180
    
    
    
    30
    
    
    
    296Real Estate
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Other
    
    
    1
    
    
    
    5
    
    
    
    3
    
    
    
    6Total Recoveries
    
    
    10
    
    
    
    185
    
    
    
    33
    
    
    
    302Ending Balance
    
    $
    4,943
    
    
    $
    4,502
    
    
    $
    4,943
    
    
    $
    4,502ALLL to total loans
    
    
    1.11
    %
    
    
    1.11
    %
    
    
    1.12
    %
    
    
    1.11
    %Net Charge offs to average loans
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
 36




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
 
 Securities Portfolio
      as of June 30, 2007Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Estimated(Dollars in thousands)
    
    Costs
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueU.S. government & agencies
    
    $
    26,990
    
    
    $
    0
    
    
    $
    (593
    )
    
    $
    26,397Obligations of state and
political subdivisions
    
    
    24,119
    
    
    
    0
    
    
    
    (983
    )
    
    
    23,136Mortgage backed securities
    
    
    44,094
    
    
    
    0
    
    
    
    (1,575
    )
    
    
    42,519Other securities
    
    
    2,000
    
    
    
    0
    
    
    
    (23
    )
    
    
    1,977Total
    
    $
    97,203
    
    
    $
    0
    
    
    $
    (3,174
    )
    
    $
    94,029
 as of June 30, 2007Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Estimated(Dollars in thousands)
    
    Costs
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueU.S. government & agencies
    
    $
    44,337
    
    
    $
    0
    
    
    $
    (1,314
    )
    
    $
    43,023Obligations of state and
political subdivisions
    
    
    13,941
    
    
    
    20
    
    
    
    (267
    )
    
    
    13,694Mortgage backed securities
    
    
    38,371
    
    
    
    0
    
    
    
    (1,718
    )
    
    
    36,653Other securities
    
    
    4,060
    
    
    
    0
    
    
    
    (64
    )
    
    
    3,996Total
    
    $
    100,709
    
    
    $
    20
    
    
    $
    (3,363
    )
    
    $
    97,366
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
   
    
    Assets and liabilities may mature or reprice at different times (for example, if assets
reprice faster than liabilities and interest rates fall, earnings will initially decline);
    
    Assets and liabilities may reprice at the same time but by different amounts (for
example, the level of interest rates in the market is falling and the Company may reduce
rates paid on checking and savings deposit accounts by an amount that is less than the
general decline in market rates);
    
    Short-term and long-term market interest rates may change by different amounts (for
example, the shape of the yield curve may affect new loan yields and funding costs
differently); or
    
    The remaining maturities of various assets and liabilities may shorten or lengthen as
interest rates change (for example, if long-term mortgage rates decline sharply,
mortgage-backed securities held in the securities available-for-sale may prepay
significantly earlier than anticipated, which could reduce portfolio income.)
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ITEM 4. CONTROLS AND PROCEDURES
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PART II. Other Information
 
 Item 1. Legal proceedings
  
 Item 1a. Risk Factors
 There have been no material changes from the risk factors previously disclosed in the registrants
Form 10-K.
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of Matters to a vote of Security Holders
 
 
 Item 5. Other Information
 
 Item 6. Exhibits
    
 SIGNATURES
  BANK OF COMMERCE HOLDINGS(Registrant)Date: August 10, 2007
    
    
    
    /s/ Linda J. Miles

Linda J. MilesExecutive Vice President &Chief Financial Officer
 41