##### 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 THESECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from  to
 Commission file number 0-25135
 Bank of Commerce Holdings
 California
    
    94-2823865(State or jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification Number)1901 Churn Creek Road Redding, California
    
    96002(Address of principal executive offices)
    
    (Zip Code)
    þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 Index to Form 10-Q
 PAGE NUMBERPART I FINANCIAL INFORMATIONItem 1 Financial StatementsCondensed Consolidated Balance Sheets
September 30, 2008, December 31, 2007 and September 30, 2007
    
    
    4Condensed Consolidated Statements of Income
Three and Nine months ended September 30, 2008 and 2007
    
    
    5Consolidated Statement of Stockholders Equity
    
    
    6Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 2008 and 2007
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2 Managements Discussion and Analysis
Of Financial Condition and Results of Operations
    
    
    18Company Overview
    
    
    18Risk Factors
    
    
    21Economic Conditions and Geographic Concentration
    
    
    21Changes in interest rates could reduce the Companys Net interest Income and Earnings
    
    
    21Lending Risks Associated with Commercial Banking and Construction Activities
    
    
    22Adequacy of Allowance for Loan and Lease Losses (ALLL)
    
    
    22Potential Volatility of Deposits
    
    
    22Dividends
    
    
    23Government Regulation and Legislation
    
    
    23Certain Ownership Restrictions under California and Federal Law
    
    
    24Negative publicity could Damage our Reputation
    
    
    24Environmental Risks
    
    
    24Shares Eligible for Future Sale
    
    
    25Technology and Computer Systems
    
    
    25Company Stock Price may be volatile due to Other Factors
    
    
    25Executive Overview
    
    
    26Sources of Income
    
    
    26Financial Highlights  Results of Operations
    
    
    27Net Interest Income and Net Interest Margin
    
    
    27Liquidity
    
    
    28Capital Management
    
    
    28Short term borrowings
    
    
    29Provision for loan and lease losses
    
    
    29Factors that may affect future results
    
    
    30Critical accounting policies
    
    
    30Average balances, Interest Income/Expense and Yields/Rates paid
    
    
    33Analysis of changes in net interest income and interest expense
    
    
    34Noninterest Income
    
    
    35Noninterest Expense
    
    
    35Income taxes
    
    
    36Asset quality
    
    
    37Allowance for loan and lease losses (ALLL)
    
    
    39Quarterly Income Statement
    
    
    41EX-31.1EX-31.2EX-32
  2




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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 Index
 PAGE NUMBERItem 3 Quantitative and Qualitative Disclosure about Market Risk
    
    
    42Item 4 Controls and Procedures
    
    
    44PART
II. OTHER INFORMATIONItem 1 Legal Proceedings
    
    
    44Item 1a Risk Factors
    
    
    44Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    44Item 3 Defaults Upon Senior Securities
    
    
    44Item 4 Submission of Matters to a Vote of Security Holders
    
    
    44Item 5 Other Information
    
    
    44Item 6 Exhibits
    
    
    44SIGNATURES
    
    
    45
 3




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1.
Financial Statements
 BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
(Unaudited)
 The following condensed balance sheet as of December 31, 2007, which has been derived from
audited financial statements audited by Moss Adams, LLP, independent public accountants, as
indicated in their report not included herein, and the unaudited condensed financial statements
have been prepared pursuant to the rules and regulations of the Securities and Exchange
Commission.
 September 30,
    
    
    December 31,
    
    
    September 30,Dollars in thousands
    
    2008
    
    
    2007
    
    
    2007ASSETSCash and due from banks
    
    $
    12,617
    
    
    $
    13,839
    
    
    $
    12,366Federal funds sold and securities purchased under
agreements to resell
    
    
    20,135
    
    
    
    8,395
    
    
    
    7,980Cash and cash equivalents
    
    
    32,752
    
    
    
    22,234
    
    
    
    20,346Securities available-for-sale (including pledged
collateral of $58,939 at September 30, 2008,
$61,329 at December 31, 2007 and $85,574 at
September 30, 2007)
    
    
    74,863
    
    
    
    67,906
    
    
    
    93,423Securities held-to-maturity, at cost ($10,632 at
December 31, 2007 and $10,538 at September 30,
2007)
    
    
    0
    
    
    
    10,559
    
    
    
    10,592Loans, net of the allowance for loan losses of
$6,128 at September 30, 2008, $8,233 at December
31, 2007 and $5,061 at September 30, 2007
    
    
    503,348
    
    
    
    486,283
    
    
    
    461,171Bank premises and equipment, net
    
    
    10,893
    
    
    
    10,964
    
    
    
    10,464Other assets
    
    
    28,688
    
    
    
    20,381
    
    
    
    19,979TOTAL ASSETS
    
    $
    650,544
    
    
    $
    618,327
    
    
    $
    615,975LIABILITIES AND STOCKHOLDERS EQUITYDemand  noninterest bearing
    
    $
    80,168
    
    
    $
    75,718
    
    
    $
    70,809Demand  interest bearing
    
    
    138,319
    
    
    
    142,821
    
    
    
    136,219Savings accounts
    
    
    69,469
    
    
    
    41,376
    
    
    
    44,406Certificates of deposit
    
    
    215,095
    
    
    
    213,716
    
    
    
    220,803Total deposits
    
    
    503,051
    
    
    
    473,631
    
    
    
    472,237Securities sold under agreements to repurchase
    
    
    13,580
    
    
    
    15,513
    
    
    
    26,755Federal Home Loan Bank borrowings
    
    
    65,000
    
    
    
    60,000
    
    
    
    50,000Other liabilities
    
    
    7,863
    
    
    
    7,554
    
    
    
    6,734Junior subordinated debt payable to unconsolidated
subsidiary grantor trust
    
    
    15,465
    
    
    
    15,465
    
    
    
    15,465Total Liabilities
    
    
    604,959
    
    
    
    572,163
    
    
    
    571,191Commitments and contingenciesStockholders Equity:Preferred stock, no par value, 2,000,000 authorized
no shares issued and outstanding in 2008 and 2007
    
    
    
    
    
    
    
    
    
    
    Common stock , no par value, 50,000,000 shares
authorized; 8,711,495 at September 30, 2008,
8,757,445 at December 31, 2007
and 8,784,359 at September 30, 2007
    
    
    9,619
    
    
    
    9,996
    
    
    
    10,252Retained earnings
    
    
    37,364
    
    
    
    36,605
    
    
    
    35,617Accumulated other comprehensive loss, net of tax
    
    
    (1,398
    )
    
    
    (437
    )
    
    
    (1,085
    )Total stockholders equity
    
    
    45,585
    
    
    
    46,164
    
    
    
    44,784TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    650,544
    
    
    $
    618,327
    
    
    $
    615,975
 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 nine months ended September 30, 2008 and 2007
 Three Months Ended
    
    
    Nine Months EndedAmounts in thousands, except for per share data
    
    Sept. 30, 2008
    
    
    Sept. 30, 2007
    
    
    Sept. 30, 2008
    
    
    Sept. 30, 2007Interest income:Interest and fees on loans
    
    $
    8,252
    
    
    $
    9,350
    
    
    $
    25,554
    
    
    $
    26,779Interest on tax exempt securities
    
    
    308
    
    
    
    324
    
    
    
    884
    
    
    
    936Interest on U.S. government securities
    
    
    582
    
    
    
    798
    
    
    
    1,596
    
    
    
    2,446Interest on federal funds sold and securities purchased
under agreements to resell
    
    
    116
    
    
    
    190
    
    
    
    264
    
    
    
    580Interest on other securities
    
    
    13
    
    
    
    22
    
    
    
    58
    
    
    
    67Total interest income
    
    
    9,271
    
    
    
    10,684
    
    
    
    28,356
    
    
    
    30,808Interest expense:Interest on demand deposits
    
    
    514
    
    
    
    791
    
    
    
    1,762
    
    
    
    1,935Interest on savings deposits
    
    
    543
    
    
    
    359
    
    
    
    1,193
    
    
    
    885Interest on time deposits
    
    
    1,963
    
    
    
    2,702
    
    
    
    6,577
    
    
    
    7,934Securities sold under agreements to repurchase
    
    
    32
    
    
    
    289
    
    
    
    151
    
    
    
    1,012Interest on FHLB and other borrowing expense
    
    
    662
    
    
    
    628
    
    
    
    2,174
    
    
    
    1,799Interest on junior subordinated debt payable to
unconsolidated subsidiary grantor trust
    
    
    317
    
    
    
    274
    
    
    
    793
    
    
    
    814Total interest expense
    
    
    4,031
    
    
    
    5,043
    
    
    
    12,650
    
    
    
    14,379Net interest income
    
    
    5,240
    
    
    
    5,641
    
    
    
    15,706
    
    
    
    16,429Provision for loan and lease losses
    
    
    1,300
    
    
    
    115
    
    
    
    2,900
    
    
    
    121Net interest income after provision for loan losses
    
    
    3,940
    
    
    
    5,526
    
    
    
    12,806
    
    
    
    16,308Noninterest income:Service charges on deposit accounts
    
    
    91
    
    
    
    70
    
    
    
    203
    
    
    
    215Payroll and benefit processing fees
    
    
    107
    
    
    
    90
    
    
    
    335
    
    
    
    287Earnings on cash surrender value  bank owned life insurance
    
    
    86
    
    
    
    100
    
    
    
    254
    
    
    
    294Net gain on sale of securities available-for-sale
    
    
    159
    
    
    
    0
    
    
    
    595
    
    
    
    46Net loss on sale of derivative swap transaction
    
    
    0
    
    
    
    0
    
    
    
    (225
    )
    
    
    0Merchant credit card service income, net
    
    
    99
    
    
    
    109
    
    
    
    279
    
    
    
    297Mortgage brokerage fee income
    
    
    2
    
    
    
    21
    
    
    
    17
    
    
    
    56Other income
    
    
    207
    
    
    
    136
    
    
    
    575
    
    
    
    447Total non-interest income
    
    
    751
    
    
    
    526
    
    
    
    2,033
    
    
    
    1,642Noninterest expense:Salaries and related benefits
    
    
    1,909
    
    
    
    2,402
    
    
    
    5,750
    
    
    
    6,458Occupancy and equipment expense
    
    
    613
    
    
    
    635
    
    
    
    1,897
    
    
    
    1,636FDIC insurance premium
    
    
    113
    
    
    
    13
    
    
    
    284
    
    
    
    39Data processing fees
    
    
    81
    
    
    
    82
    
    
    
    224
    
    
    
    227Professional service fees
    
    
    146
    
    
    
    216
    
    
    
    397
    
    
    
    663Payroll and benefit fees
    
    
    26
    
    
    
    25
    
    
    
    86
    
    
    
    81Deferred compensation expense
    
    
    118
    
    
    
    105
    
    
    
    342
    
    
    
    303Stationery and supplies
    
    
    50
    
    
    
    34
    
    
    
    192
    
    
    
    141Postage
    
    
    32
    
    
    
    39
    
    
    
    104
    
    
    
    106Directors expense
    
    
    81
    
    
    
    86
    
    
    
    223
    
    
    
    207Other expenses
    
    
    443
    
    
    
    391
    
    
    
    1,290
    
    
    
    1,356Total non-interest expense
    
    
    3,612
    
    
    
    4,028
    
    
    
    10,789
    
    
    
    11,217Income before provision for income taxes
    
    
    1,079
    
    
    
    2,024
    
    
    
    4,050
    
    
    
    6,733Provision for income taxes
    
    
    362
    
    
    
    693
    
    
    
    1,197
    
    
    
    2,315Net Income
    
    $
    717
    
    
    $
    1,331
    
    
    $
    2,853
    
    
    $
    4,418Basic earnings per share
    
    $
    0.08
    
    
    $
    0.15
    
    
    $
    0.33
    
    
    $
    0.50Weighted average shares  basic
    
    
    8,711
    
    
    
    8,904
    
    
    
    8,713
    
    
    
    8,893Diluted earnings per share
    
    $
    0.08
    
    
    $
    0.15
    
    
    $
    0.33
    
    
    $
    0.49Weighted average shares  diluted
    
    
    8,713
    
    
    
    8,929
    
    
    
    8,729
    
    
    
    8,983
 See accompanying notes to condensed consolidated financial statements.
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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 Condensed Consolidated Statements of Stockholders Equity
Nine months ended September 30, 2008
 AccumulatedOtherComprehensiveStockholders Equity
    
    Comprehensive
    
    
    Common
    
    
    Stock
    
    
    Retained
    
    
    Income (Loss),(Dollars in thousands)
    
    Income
    
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    net of tax
    
    
    TotalBalance at December 31, 2007
    
    
    
    
    
    
    8,757
    
    
    $
    9,996
    
    
    $
    36,605
    
    
    $
    (437
    )
    
    $
    46,164Comprehensive Income:Net Income
    
    
    1,229
    
    
    
    
    
    
    
    
    
    
    
    1,229
    
    
    
    
    
    
    
    1,229Other Comprehensive Income:Unrealized gains on securities
    
    
    381Net of reclassification
adjustment
for gains included in net
income, net of tax
    
    
    (245
    )Other Comprehensive Income
    
    
    136
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    136
    
    
    
    136Total Comprehensive Income
    
    $
    1,365Cash dividends ($0.08 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (699
    )
    
    
    
    
    
    
    (699
    )Compensation expense associated with stock options
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    29Share Repurchase
    
    
    
    
    
    
    (59
    )
    
    
    (504
    )
    
    
    
    
    
    
    
    
    
    
    (504
    )Stock options exercised
    
    
    
    
    
    
    9
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    29Balance at March 31, 2008
    
    
    
    
    
    
    8,707
    
    
    $
    9,550
    
    
    $
    37,135
    
    
    $
    (301
    )
    
    $
    46,384Comprehensive Income:Net Income
    
    
    906
    
    
    
    
    
    
    
    
    
    
    
    906
    
    
    
    
    
    
    
    906Other Comprehensive Income:Other Comprehensive Income net of taxUnrealized losses on securities
    
    
    (538
    )Net of reclassification adjustment
for gains included in net income, net of tax
    
    
    (66
    )Other Comprehensive Income
    
    
    (604
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (604
    )
    
    
    (604
    )Total Comprehensive Income
    
    $
    302Cash dividends ($0.08 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (697
    )
    
    
    
    
    
    
    (697
    )Compensation expense associated with stock options
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    28Stock options exercised
    
    
    
    
    
    
    4
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    12Balance at June 30, 2008
    
    
    
    
    
    
    8,711
    
    
    $
    9,590
    
    
    $
    37,344
    
    
    $
    (905
    )
    
    $
    46,029Comprehensive Income:Net Income
    
    
    717
    
    
    
    
    
    
    
    
    
    
    
    717
    
    
    
    
    
    
    
    717Other Comprehensive Income:Unrealized losses on securities
    
    
    (434
    )Net of reclassification adjustment
for gains included in net income, net of tax
    
    
    (59
    )Other Comprehensive Income
    
    
    (493
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (493
    )
    
    
    (493
    )Total Comprehensive Income
    
    $
    224Cash dividends ($0.08 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (697
    )
    
    
    
    
    
    
    (697
    )Compensation expense associated with stock options
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    29Balance at September 30, 2008
    
    
    
    
    
    
    8,711
    
    
    $
    9,619
    
    
    $
    37,364
    
    
    $
    (1,398
    )
    
    $
    45,585
 See accompanying notes to condensed consolidated financial statements.
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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 2008 and 2007
 Dollars in thousands
    
    September 30, 2008
    
    
    September 30, 2007Cash flows from operating activities:Net Income
    
    $
    2,853
    
    
    $
    4,418Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan and lease losses
    
    
    2,900
    
    
    
    121Provision for depreciation and amortization
    
    
    872
    
    
    
    759Compensation expense associated with stock options
    
    
    86
    
    
    
    23Tax benefits from the exercise of stock options
    
    
    0
    
    
    
    (118
    )Gain on sale of securities available for sale
    
    
    (595
    )
    
    
    46Loss on sale of derivative
    
    
    225
    
    
    
    0Amortization of investment premiums and accretion of discounts, net
    
    
    45
    
    
    
    4Gain on sale of fixed assets
    
    
    3
    
    
    
    (31
    )Proceeds from sales of loans
    
    
    0
    
    
    
    0Deferred income taxes
    
    
    560
    
    
    
    27Changes in operating assets and liabilities:Increase in Cash Surrender Value
    
    
    (254
    )
    
    
    (294
    )(Increase) Decrease in Other Assets
    
    
    (8,460
    )
    
    
    278Changes in Deferred Compensation
    
    
    325
    
    
    
    218Decrease in Deferred loan fees
    
    
    (299
    )
    
    
    (66
    )Decrease in Other liabilities
    
    
    (16
    )
    
    
    (685
    )Net cash (used) provided by operating activities
    
    
    (1,755
    )
    
    
    4,700Cash flows from investing activities:Proceeds from maturities of available-for-sale securities
    
    
    7,428
    
    
    
    5,210Proceeds from sales of available-for-sale securities
    
    
    42,901
    
    
    
    20,236Proceeds from maturities of held-to-maturity securities
    
    
    208
    
    
    
    220Purchases of available-for-sale securities
    
    
    (47,725
    )
    
    
    (23,495
    )Loan originations, net of principal repayments
    
    
    (19,666
    )
    
    
    (52,236
    )Purchases of premises and equipment
    
    
    (807
    )
    
    
    (2,597
    )Proceeds from sale of equipment
    
    
    3
    
    
    
    0Net cash used by investing activities
    
    
    (17,658
    )
    
    
    (52,662
    )Cash flows from financing activities:Net (decrease) increase in deposits
    
    
    29,420
    
    
    
    32,831Net (decrease) increase in securities sold under agreement to repurchase
    
    
    (1,933
    )
    
    
    (10,362
    )Proceeds from Federal Home Loan Bank advances
    
    
    65,000
    
    
    
    10,000Repayments of Federal Home Loan Bank advances
    
    
    (60,000
    )
    
    
    0Cash dividends paid on common stock
    
    
    (2,093
    )
    
    
    (2,138
    )Proceeds from stock options exercised
    
    
    41
    
    
    
    498Common Stock Repurchased
    
    
    (504
    )
    
    
    (1,930
    )Excess tax benefits from the exercise of stock options
    
    
    0
    
    
    
    143Net cash provided by financing activities
    
    
    29,931
    
    
    
    29,042Net increase (decrease) in cash and cash equivalents
    
    
    10,518
    
    
    
    (18,920
    )Cash and cash equivalents, beginning of period
    
    
    22,234
    
    
    
    39,266Cash and cash equivalents, end of period
    
    $
    32,752
    
    
    $
    20,346Supplemental disclosures:Cash paid during the period for:Income taxes
    
    $
    0
    
    
    $
    2,533Interest12,155
    
    
    
    14,461
 See accompanying notes to condensed consolidated financial statements.
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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 Notes to Unaudited Condensed Consolidated Financial Statements
 1. Consolidation and Basis of Presentation
    2. Recent Accounting pronouncements
 On October 10, 2008, the FASB issued FAS 157-3, Determining the Fair Value of a Financial Asset
When the Market for That Asset is Not Active Fair Value Measurements,
 The FASB has decided to amend SFAS No. 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities  a replacement of FASB Statement No. 125 Consolidation of Variable
Interest Entities  an interpretation of ARB No. 51
 On March 19, 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB No. 133 (SFAS 161). Disclosures about Fair Value of Financial Instruments.
 On December 4, 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
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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
    
    
    Nine Months EndedEarnings Per Share
    
    Sept. 30, 2008
    
    
    Sept. 30, 2007
    
    
    Sept. 30, 2008
    
    
    Sept. 30, 2007Basic EPS Calculation:Numerator (net income)
    
    $
    717
    
    
    $
    1,331
    
    
    $
    2,853
    
    
    $
    4,418Denominator (average common
shares outstanding)
    
    
    8,711
    
    
    
    8,904
    
    
    
    8,713
    
    
    
    8,893Basic earnings per Share
    
    $
    0.08
    
    
    $
    0.15
    
    
    $
    0.33
    
    
    $
    0.50Diluted EPS Calculation:Numerator (net income)
    
    $
    717
    
    
    $
    1,331
    
    
    $
    2,853
    
    
    $
    4,418Denominator:Average common shares outstanding
    
    
    8,711
    
    
    
    8,904
    
    
    
    8,713
    
    
    
    8,893Options
    
    
    2
    
    
    
    25
    
    
    
    16
    
    
    
    908,713
    
    
    
    8,929
    
    
    
    8,729
    
    
    
    8,983Diluted earnings per Share
    
    $
    0.08
    
    
    $
    0.15
    
    
    $
    0.33
    
    
    $
    0.49Anti-dilutive options not included in
EPS Calculation
    
    
    49,434
    
    
    
    74,217
    
    
    
    146,167
    
    
    
    133,575
  4. Stock Option Plans
    9




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)
 5. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedComprehensive Income
    
    September 30, 2008
    
    
    September 30, 2007
    
    
    September 30, 2008
    
    
    September 30, 2007Net income as reported
    
    $
    717
    
    
    $
    1,331
    
    
    $
    2,853
    
    
    $
    4,418Components of other
comprehensive income:Holding (loss) gain
arising during period
on AFS securities, net
of tax
    
    
    (434
    )
    
    
    783
    
    
    
    (591
    )
    
    
    (148
    )Reclassification
adjustment on AFS
securities, net of tax
    
    
    (59
    )
    
    
    (0
    )
    
    
    (370
    )
    
    
    (27
    )Holding gain (loss)
arising during period
on derivative
transactions, net of
tax
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    51Reclassification
adjustment on
derivative
transactions, net of
tax
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (24
    )Total comprehensive income
    
    $
    224
    
    
    $
    2,114
    
    
    $
    1,892
    
    
    $
    4,270
 6. Securities Portfolio
      As of September 30, 2008(Dollars in thousands)
    
    
    
    
    
    
    
    
    EstimatedAvailable for sale securities
    
    Amortized Costs
    
    
    Unrealized Gains
    
    
    Unrealized Losses
    
    
    Fair ValueU.S. government & agencies
    
    $
    10,023
    
    
    $
    3
    
    
    $
    (301
    )
    
    $
    9,725Obligations of state and political subdivisions
    
    
    30,911
    
    
    
    108
    
    
    
    (1,590
    )
    
    
    29,429Mortgage backed securities
    
    
    36,266
    
    
    
    66
    
    
    
    (623
    )
    
    
    35,709Other securities
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    $
    77,200
    
    
    $
    177
    
    
    $
    (2,514
    )
    
    $
    74,863
 10




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)
 As of December 31, 2007(Dollars in thousands)
    
    
    
    
    
    
    
    
    EstimatedAvailable for sale securities
    
    Amortized Costs
    
    
    Unrealized Gains
    
    
    Unrealized Losses
    
    
    Fair ValueU.S. government & agencies
    
    $
    15,989
    
    
    $
    26
    
    
    $
    (104
    )
    
    $
    15,911Obligations of state and political subdivisions
    
    
    19,017
    
    
    
    28
    
    
    
    (263
    )
    
    
    18,782Mortgage backed securities
    
    
    31,638
    
    
    
    10
    
    
    
    (354
    )
    
    
    31,294Corporate Bonds
    
    
    2,000
    
    
    
    0
    
    
    
    (81
    )
    
    
    1,919Total
    
    $
    68,644
    
    
    $
    64
    
    
    $
    (802
    )
    
    $
    67,906
  other-than-temporary-impairment
   Less than 12 months
    
    
    12 months or more
     
    
    TotalUnrealized
    
    
    
    
    
    Unrealized
    
    
    
    
    
    UnrealizedSecurities Portfolio
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesU.S. Treasury securities
and Obligations of U. S.
Agencies
    
    $
    6,694,925
    
    
    $
    (301,497
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    6,694,925
    
    
    $
    (301,497
    )Obligations of state and
political subdivisions
    
    $
    23,918,787
    
    
    $
    (1,453,933
    )
    
    $
    868,992
    
    
    $
    (136,957
    )
    
    $
    23,918,787
    
    
    $
    (1,590,891
    )Mortgage-backed securities
    
    $
    30,772,855
    
    
    $
    (152,787
    )
    
    $
    6,983,924
    
    
    $
    (468,997
    )
    
    $
    30,722,855
    
    
    $
    (621,783
    )Corporate Bonds
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    (0
    )
    
    $
    0
    
    
    $
    (0
    )Total temporarily
impaired securities
    
    $
    61,386,567
    
    
    $
    (1,908,217
    )
    
    $
    7,852,916
    
    
    $
    (605,954
    )
    
    $
    61,336,567
    
    
    $
    (2,514,171
    )
   11




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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES  Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)
 7. Junior Subordinated Debt Payable to Unconsolidated Subsidiary Grantor Trust
          12




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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)
 8. Commitments and contingent liabilities
 Lease Commitments 
  Operating Leases2008
    
    $
    1312009
    
    $
    5152010
    
    $
    5242011
    
    $
    4542012
    
    $
    279Thereafter
    
    $
    761Total
    
    $
    2,664Minimum rental due in the future
Under non-cancelable subleases
    
    $
    12
 Legal Proceedings 
 13




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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)
 FHLB Advances 
 Advance Amount
    
    Interest Rate
    
    Maturity$15,000,000
    
    
    2.89
    %
    
    
    01/22/2009$35,000,000
    
    
    3.97
    %
    
    
    11/23/2009$15,000,000
    
    
    3.41
    %
    
    
    04/29/2011$65,000,000
  Off-Balance Sheet Financial Instruments
    September 30, 2008
    
    
    September 30, 2007Credit CommitmentsUnfunded loan commitments
    
    $
    150,616,771
    
    
    $
    184,065,127Standby letters of credit
    
    
    8,674,216
    
    
    
    6,600,143Guaranteed commitments outstanding
    
    
    1,350,399
    
    
    
    1,375,998$
    160,641,386
    
    
    $
    192,041,268
 14




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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)
 9.
    
    Accounting for Income Tax Uncertainties (FIN 48)In June 2006, the FASB issued Interpretation 48, Accounting for Uncertainty in Income Taxes
(FIN 48), an interpretation of FASB Statement No. 109, Accounting for Income Taxes.
FIN 48 clarifies the accounting and reporting for income taxes where interpretation of the
law is uncertain. FIN 48 prescribes a comprehensive model for the financial statement
recognition, measurement, presentation and disclosure of income tax uncertainties with
respect to positions taken or expected to be taken in income tax returns. FIN 48 is effective
for fiscal years beginning after December 15, 2006. The Company adopted this Statement on
January 1, 2007. As a result of the implementation of Interpretation 48, it was not
necessary for the Company to recognize any increase in the liability for unrecognized tax
benefits.The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and
California state jurisdictionThe Company recognizes interest and penalties accrued related to unrecognized tax benefits in
income tax expense.10.
    
    Fair Value MeasurementSFAS No. 157 defines fair value, establishes a framework for measuring fair value under GAAP,
and expands disclosures about fair value measurement. Effective 1/1/08 the Company adopted
SFAS No. 157, which enhances the disclosures about financial instruments carried at fair
value.In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in
active markets for identical assets or liabilities that the Company has the ability to
access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices
included in Level 1 that are observable for the asset or liability, either directly or
indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active
markets, and inputs other than quoted prices that are observable for the asset or liability,
such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs for the asset or liability, and include situations
where there is little, if any, market activity for the asset or liability.In certain cases, the inputs used to measure fair value may fall into different levels of the
fair value hierarchy. In such cases, the level in the fair value hierarchy within which the
fair value measurement in its entirety falls has been determined based on the lowest level
input that is significant to the fair value measurement in its entirety.The Companys assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment, and considers factors specific to the asset or
liability. The following table presents information about the Companys assets and
liabilities measured at fair value on a recurring basis as of September 30, 2008, and
indicate the fair value hierarchy of the valuation techniques utilized by the Company to
determine such fair value.
 15




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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)
  Recurring Basis
 Fair Value MeasurementsAt September 30, 2008Quoted Prices in
    
    
    Significant Other
    
    
    SignificantFair Value
    
    
    Active Markets For
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2008
    
    
    Level (1)
    
    
    (Level 2)
    
    
    (Level 3)Available for sale securities
    
    $
    74,863
    
    
    $
    0
    
    
    $
    74,863
    
    
    $
    0Total Assets Measured at fair value
    
    $
    74,863
    
    
    $
    0
    
    
    $
    74,863
    
    
    $
    0Derivative Liabilities
    
    $
    57
    
    
    
    
    
    
    $
    57Total Liabilities Measured at fair
value
    
    $
    57
    
    
    
    
    
    
    $
    57
  Securities available-for-sale
 Derivatives
-
  Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
  16




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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)
 Non Recurring Basis
 Fair Value MeasurementsAt September 30, 2008Quoted Prices in
    
    
    Significant Other
    
    
    SignificantFair Value
    
    
    Active Markets For
    
    
    Observable
    
    
    UnobservableSeptember 30,
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2008
    
    
    Level (1)
    
    
    (Level 2)
    
    
    (Level 3)Impaired Loans
    
    $
    11,058
    
    
    $
    0
    
    
    $
    0
    
    
    $
    11,058Total Assets Measured at fair value
    
    $
    11,058
    
    
    $
    0
    
    
    $
    0
    
    
    $
    11,058Liabilities
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0Total Liabilities Measured at fair
value
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
 Impaired loans  Accounting by Creditors for Impairment of a Loan, (
    The fair value measurements recorded during the period
  17




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##### Table of Contents



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,
2007 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, 2007 to September 30, 2008. Also discussed
are significant trends and changes in the Companys results of operations for the three and nine
months ended September 30, 2008, compared to the same period in 2007. 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
  Bank of Choice bank of choice
  18




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##### Table of Contents



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
       19




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
        
 20




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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
    21




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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
   22




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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
    23




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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
  24




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Shares Eligible for Future Sale
  
 Technology and Computer Systems
  
 Company Stock Price may be volatile due to Other Factors
  
    
    General business and economic conditions;
    
    Recommendations by securities analysts;
    
    New technologies introduced or services offered by our competitors;
    
    News reports relating to trends, concerns and other issues in the financial services industry;
    
    Natural disasters; and
    
    Geopolitical conditions, such as acts or threats of terrorism or military conflicts.
 25




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Executive Overview
 high-quality
     
 Sources of Income
  26




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 September 30, 2008
    
    
    September 30, 2007Profitability RatiosNet Interest Income to Average Assets
    
    
    3.21
    %
    
    
    3.76
    %Net Income to Average Equity
    
    
    8.11
    %
    
    
    9.76
    %Efficiency
Ratio1
    
    
    60.82
    %
    
    
    62.07
    %Capital RatiosLeverage Ratio
    
    
    8.77
    %
    
    
    9.40
    %Risk Based Capital
    
    $
    63,494,408
    
    
    $
    61,318,404Tier 1 Capital
    
    
    9.54
    %
    
    
    10.19
    %Total Capital
    
    
    10.63
    %
    
    
    11.18
    %Per Common Share DataDividend Payout Ratio
    
    
    73.38
    %
    
    
    48.38
    %Book Value
    
    $
    5.24
    
    
    $
    5.04Market Price
    
    $
    6.88
    
    
    $
    11.00High
    
    $
    8.59
    
    
    $
    12.50Low
    
    $
    5.50
    
    
    $
    9.45
 
 Financial Highlights  Results of Operations
   
 Net Interest Income and Net Interest Margin
   
 1
    
    The efficiency ratio is noninterest expense divided by total revenue (net interest income and
noninterest income) 27




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
    
 Liquidity
    
 Capital Management
     28




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  Well
    
    
    MinimumActual
    
    
    Capitalized
    
    
    CapitalSeptember 30, 2008
    
    Capital
    
    
    Ratio
    
    
    Requirement
    
    
    RequirementThe Company
Leverage
    
    $
    56,983,019
    
    
    
    8.77
    %
    
    
    n/a
    
    
    
    4.0
    %Tier 1 Risk-Based
    
    
    56,983,019
    
    
    
    9.54
    %
    
    
    n/a
    
    
    
    4.0
    %Total Risk-Based
    
    
    63,494,408
    
    
    
    10.63
    %
    
    
    n/a
    
    
    
    8.0
    %Redding Bank of Commerce
Leverage
    
    $
    59,582,565
    
    
    
    9.21
    %
    
    
    5.0
    %
    
    
    4.0
    %Tier 1 Risk-Based
    
    
    59,582,565
    
    
    
    9.98
    %
    
    
    6.0
    %
    
    
    4.0
    %Total Risk-Based
    
    
    66,093,955
    
    
    
    11.07
    %
    
    
    10.00
    %
    
    
    8.0
    %
 
 Short and Long Term Borrowings
   
 Provision for Loan and Lease Losses
  most significant
   29




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Factors that may affect future results
        
 Critical Accounting Policies
  30




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  Preparation of financial statements
  Use of estimates
  Accounting Principles Generally Accepted in the United States of America
   Allowance for Loan and Lease Losses (ALLL)
 most significant
 Accounting for Contingencies Accounting by Creditors for
Impairment of a Loan
  31




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
   Revenue recognition
  Stock-based Compensation
 Accounting for Stock Based
Compensation
  Income Taxes
  32




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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)
 Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2008
    
    
    September 30, 2007Average
    
    
    
    
    
    
    Yield/

    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate

    
    Balance
    
    
    Interest
    
    
    RateEarning AssetsPortfolio Loans
    
    $
    519,255
    
    
    $
    25,554
    
    
    
    6.56
    %
    
    $
    424,593
    
    
    $
    26,779
    
    
    
    8.41
    %Tax-exempt Securities
    
    
    29,754
    
    
    
    884
    
    
    
    3.96
    %
    
    
    31,774
    
    
    
    936
    
    
    
    3.93
    %US Government Securities
    
    
    45,390
    
    
    
    1,596
    
    
    
    4.69
    %
    
    
    73,810
    
    
    
    2,446
    
    
    
    4.42
    %Federal Funds Sold
    
    
    16,498
    
    
    
    264
    
    
    
    2.13
    %
    
    
    14,809
    
    
    
    580
    
    
    
    5.22
    %Other Securities
    
    
    1,730
    
    
    
    58
    
    
    
    4.47
    %
    
    
    2,000
    
    
    
    67
    
    
    
    4.47
    %Average Earning Assets
    
    $
    612,627
    
    
    $
    28,356
    
    
    
    6.17
    %
    
    $
    546,986
    
    
    $
    30,808
    
    
    
    7.51
    %Cash & Due From Banks
    
    $
    13,287
    
    
    
    
    
    
    
    
    
    
    $
    14,084Bank Premises
    
    
    11,191
    
    
    
    
    
    
    
    
    
    
    
    9,938Allowance for Loan and Lease Losses
    
    
    ( 6,630
    )
    
    
    
    
    
    
    
    
    
    
    ( 4,916
    )Other Assets
    
    
    11,556
    
    
    
    
    
    
    
    
    
    
    
    16,996Average Total Assets
    
    $
    642,031
    
    
    
    
    
    
    
    
    
    
    $
    583,088Interest Bearing Liabilities
DemandInterest Bearing
    
    $
    138,034
    
    
    $
    1,762
    
    
    
    1.70
    %
    
    $
    115,937
    
    
    $
    1,935
    
    
    
    2.23
    %Savings Deposits
    
    
    53,244
    
    
    
    1,193
    
    
    
    2.99
    %
    
    
    38,553
    
    
    
    885
    
    
    
    3.06
    %Certificates of Deposit
    
    
    223,630
    
    
    
    6,577
    
    
    
    3.92
    %
    
    
    215,219
    
    
    
    7,934
    
    
    
    4.92
    %Repurchase Agreements
    
    
    13,814
    
    
    
    151
    
    
    
    1.46
    %
    
    
    35,427
    
    
    
    1,012
    
    
    
    3.81
    %FHLB Borrowings
    
    
    81,587
    
    
    
    2,174
    
    
    
    3.55
    %
    
    
    44,396
    
    
    
    1,799
    
    
    
    5.40
    %Trust Preferred Borrowings
    
    
    15,000
    
    
    
    793
    
    
    
    7.05
    %
    
    
    15,000
    
    
    
    814
    
    
    
    7.24
    %Average Interest Bearing Liabilities
    
    $
    525,309
    
    
    $
    12,650
    
    
    
    3.21
    %
    
    
    464,532
    
    
    $
    14,379
    
    
    
    4.13
    %Non interest Demand
    
    
    68,920
    
    
    
    
    
    
    
    
    
    
    
    71,880Other Liabilities
    
    
    890
    
    
    
    
    
    
    
    
    
    
    
    1,419Shareholder Equity
    
    
    46,912
    
    
    
    
    
    
    
    
    
    
    
    45,257Average Liabilities and
Stockholders Equity
    
    $
    642,031
    
    
    
    
    
    
    
    
    
    
    $
    583,088Net Interest Income and
Net Interest Margin
    
    
    
    
    
    $
    15,706
    
    
    
    3.42
    %
    
    
    
    
    
    $
    16,429
    
    
    
    4.00
    %
  33




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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)
 September 30, 2008
    
    
    Over
    
    
    September 30, 2007(Dollars in thousands)
    
    Volume
    
    
    Rate
    
    
    TotalIncrease(Decrease) In Interest IncomePortfolio Loans
    
    $
    4,658
    
    
    $
    (5,883
    )
    
    $
    (1,225
    )Tax-exempt Securities
    
    
    (60
    )
    
    
    8
    
    
    
    (52
    )US Government Securities
    
    
    (999
    )
    
    
    149
    
    
    
    (850
    )Federal Funds Sold
    
    
    27
    
    
    
    (343
    )
    
    
    (316
    )Other Securities
    
    
    (9
    )
    
    
    0
    
    
    
    (9
    )Total Increase
    
    $
    3,617
    
    
    $
    (6,069
    )
    
    $
    (2,452
    )Increase(Decrease) In Interest ExpenseInterest Bearing Demand
    
    $
    282
    
    
    $
    (455
    )
    
    $
    (173
    )Savings Deposits
    
    
    329
    
    
    
    (21
    )
    
    
    308Certificates of Deposit
    
    
    247
    
    
    
    (1,604
    )
    
    
    (1,357
    )Repurchase Agreements
    
    
    (236
    )
    
    
    (625
    )
    
    
    (861
    )FHLB Borrowings
    
    
    991
    
    
    
    (616
    )
    
    
    375Trust Preferred Borrowings
    
    
    0
    
    
    
    (21
    )
    
    
    (21
    )Total Increase
    
    $
    1,613
    
    
    $
    (3,342
    )
    
    $
    (1,729
    )Net Increase
    
    $
    2,004
    
    
    $
    (2,727
    )
    
    $
    (723
    )
     34




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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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,(Dollars in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Service charges on deposit accounts
    
    $
    91
    
    
    $
    70
    
    
    $
    203
    
    
    $
    215Payroll and benefit processing fees
    
    
    107
    
    
    
    90
    
    
    
    335
    
    
    
    287Earnings on cash surrender value -bank
owned insurance
    
    
    86
    
    
    
    100
    
    
    
    254
    
    
    
    294Net gain on
sale of securities available-for-sale
    
    
    159
    
    
    
    0
    
    
    
    595
    
    
    
    46Net loss on sale of derivative swap transaction
    
    
    0
    
    
    
    0
    
    
    
    (225
    )
    
    
    0Merchant credit card service income, net
    
    
    99
    
    
    
    109
    
    
    
    279
    
    
    
    297Mortgage brokerage fee income
    
    
    2
    
    
    
    21
    
    
    
    17
    
    
    
    56Other Income
    
    
    207
    
    
    
    136
    
    
    
    575
    
    
    
    447Total Noninterest income
    
    $
    751
    
    
    $
    526
    
    
    $
    2,033
    
    
    $
    1,642
   
 Noninterest Expense
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,(Dollars in thousands)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Noninterest ExpenseSalaries and related benefits
    
    $
    1,909
    
    
    $
    2,402
    
    
    $
    5,750
    
    
    $
    6,458Occupancy and equipment expense
    
    
    613
    
    
    
    635
    
    
    
    1,897
    
    
    
    1,636FDIC insurance premium
    
    
    113
    
    
    
    13
    
    
    
    284
    
    
    
    39Data processing fees
    
    
    81
    
    
    
    82
    
    
    
    224
    
    
    
    227Professional service fees
    
    
    146
    
    
    
    216
    
    
    
    397
    
    
    
    663Payroll and Benefit fees
    
    
    26
    
    
    
    25
    
    
    
    86
    
    
    
    81Deferred compensation expense
    
    
    118
    
    
    
    105
    
    
    
    342
    
    
    
    303Stationery and Supplies
    
    
    50
    
    
    
    34
    
    
    
    192
    
    
    
    141Postage
    
    
    32
    
    
    
    39
    
    
    
    104
    
    
    
    106Directors expense
    
    
    81
    
    
    
    86
    
    
    
    223
    
    
    
    207Other expenses
    
    
    443
    
    
    
    391
    
    
    
    1,290
    
    
    
    1,356Total Noninterest expense
    
    $
    3,612
    
    
    $
    4,028
    
    
    $
    10,789
    
    
    $
    11,217
  35




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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
    
    
    Nine Months Ended(Dollars in thousands)
    
    September 30, 2008
    
    
    September 30, 2007
    
    
    September 30, 2008
    
    
    September 30, 2007Income TaxesTax provision
    
    $
    362
    
    
    $
    693
    
    
    $
    1,197
    
    
    $
    2,315Effective tax rate
    
    
    33.55
    %
    
    
    34.2
    %
    
    
    29.56
    %
    
    
    34.4
    %
  Accounting for Uncertainty in Income Taxes
 36




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
    September 30, 2008
    
    
    September 30, 2007Deferred Tax AssetsState Franchise taxes
    
    $
    8,330
    
    
    $
    197,031Deferred compensation
    
    
    2,107,697
    
    
    
    1,888,885Loan loss reserves
    
    
    2,851,650
    
    
    
    2,260,163Other Comprehensive Income
    
    
    938,477
    
    
    
    758,747Other
    
    
    174,848
    
    
    
    187,857Total Deferred Tax Assets
    
    $
    6,081,002
    
    
    $
    5,292,683Deferred Tax LiabilitiesDepreciation
    
    
    (65,674
    )
    
    
    (152,602
    )Deferred loan origination costs
    
    
    (447,283
    )
    
    
    (552,014
    )Deferred state taxes
    
    
    (383,406
    )
    
    
    (270,315
    )Other
    
    
    0
    
    
    
    (158,240
    )Total Deferred Tax Liabilities
    
    
    (896,363
    )
    
    
    (1,133,171
    )Total Net Deferred Tax Asset
    
    $
    5,184,639
    
    
    $
    4,159,512
 
 Asset Quality
   Redding Bank of Commerce does not
originate or hold sub-prime loans, nor do we hold collateralized debt obligations or asset backed
securities backed by sub-prime loans in our securities portfolio
 37




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
  (Dollars in thousands)
    
    September 30, 2008
    
    
    December 31, 2007Portfolio
LoansCommercial and financial loans
    
    $
    156,815
    
    
    $
    173,704Real estate-construction loans
    
    
    90,008
    
    
    
    106,977Real estate-commercial
    
    
    203,147
    
    
    
    175,013Real estate-mortgage
    
    
    21,568
    
    
    
    10,787Real estate-other
    
    
    36,971
    
    
    
    26,818Installment
    
    
    132
    
    
    
    226Other loans
    
    
    974
    
    
    
    1,223Less:Net deferred loan costs (fees)
    
    
    (139
    )
    
    
    (232
    )Allowance for loan losses
    
    
    (6,128
    )
    
    
    (8,233
    )Total net loans
    
    $
    503,348
    
    
    $
    486,283
     (Dollars in thousands)
    
    September 30, 2008
    
    
    December 31, 2007Non performing assetsNonaccrual loans
    
    $
    11,057
    
    
    $
    12,40990 days past due and still accruing interest
    
    
    0
    
    
    
    0Total nonaccrual loans
    
    
    11,057
    
    
    
    12,409Other Real Estate Owned
    
    
    4,869
    
    
    
    0Total non performing assets
    
    $
    15,926
    
    
    $
    12,409
    38




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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)
    Accounting for Contingencies Accounting by Creditors for Impairment of a Loan. Accounting for Contingencies
   39




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
   (Dollars in thousands)
    
    Three Months Ended
    
    
    Nine Months EndedAllowance for Loan and Lease Losses
    
    September 30, 2008
    
    
    September 30, 2007
    
    
    September 30, 2008
    
    
    September 30, 2007Beginning balance for Loan Losses
    
    $
    5,017
    
    
    $
    4,943
    
    
    $
    8,233
    
    
    $
    4,904Provision for Loan Losses
    
    
    1,300
    
    
    
    115
    
    
    
    2,900
    
    
    
    121Charge offs:Commercial
    
    
    (155
    )
    
    
    (0
    )
    
    
    (888
    )
    
    
    (0
    )Real Estate
    
    
    (35
    )
    
    
    (0
    )
    
    
    (4,122
    )
    
    
    (0
    )Other
    
    
    (0
    )
    
    
    (0
    )
    
    
    (0
    )
    
    
    (0
    )Total Charge offs
    
    
    (190
    )
    
    
    (0
    )
    
    
    (5,010
    )
    
    
    (0
    )Recoveries:Commercial
    
    
    0
    
    
    
    1
    
    
    
    0
    
    
    
    26Real Estate
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Other
    
    
    1
    
    
    
    2
    
    
    
    5
    
    
    
    10Total Recoveries
    
    
    1
    
    
    
    3
    
    
    
    5
    
    
    
    36Ending Balance
    
    $
    6,128
    
    
    $
    5,061
    
    
    $
    6,128
    
    
    $
    5,061ALLL to total loans
    
    
    1.20
    %
    
    
    1.09
    %
    
    
    1.20
    %
    
    
    1.09
    %Net Charge offs to average loans
    
    
    0.04
    %
    
    
    0.00
    %
    
    
    0.96
    %
    
    
    0.00
    %
      40




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 QUARTERLY INCOME STATEMENT
 September 30,
    
    
    June 30,
    
    
    March 31,
    
    
    December 31,
    
    
    September 30,Dollars in thousands, except for per share data
    
    2008
    
    
    2008
    
    
    2008
    
    
    2007
    
    
    2007Interest income:Interest and fees on loans
    
    $
    8,252
    
    
    $
    8,171
    
    
    $
    9,131
    
    
    $
    9,355
    
    
    $
    9,350Interest on tax-exempt securities
    
    
    308
    
    
    
    302
    
    
    
    274
    
    
    
    293
    
    
    
    324Interest on U.S. government securities
    
    
    582
    
    
    
    533
    
    
    
    481
    
    
    
    639
    
    
    
    798Interest on federal funds sold and securities purchased
under agreements to resell
    
    
    116
    
    
    
    90
    
    
    
    58
    
    
    
    101
    
    
    
    190Interest on other securities
    
    
    13
    
    
    
    23
    
    
    
    22
    
    
    
    23
    
    
    
    22Total interest income
    
    
    9,271
    
    
    
    9,119
    
    
    
    9,966
    
    
    
    10,411
    
    
    
    10,684Interest expense:Interest on demand deposits
    
    
    514
    
    
    
    498
    
    
    
    750
    
    
    
    800
    
    
    
    791Interest on savings deposits
    
    
    543
    
    
    
    360
    
    
    
    290
    
    
    
    331
    
    
    
    359Interest on certificates of deposit
    
    
    1,963
    
    
    
    2,238
    
    
    
    2,376
    
    
    
    2,637
    
    
    
    2,702Securities sold under repurchase agreements
    
    
    32
    
    
    
    35
    
    
    
    84
    
    
    
    165
    
    
    
    289Interest on FHLB and other borrowings
    
    
    662
    
    
    
    781
    
    
    
    731
    
    
    
    623
    
    
    
    628Interest on junior subordinated debt payable to
unconsolidated subsidiary grantor trust
    
    
    317
    
    
    
    161
    
    
    
    315
    
    
    
    271
    
    
    
    274Total interest expense
    
    
    4,031
    
    
    
    4,073
    
    
    
    4,546
    
    
    
    4,827
    
    
    
    5,043Net interest income
    
    
    5,240
    
    
    
    5,046
    
    
    
    5,420
    
    
    
    5,584
    
    
    
    5,641Provision for loan and lease losses
    
    
    1,300
    
    
    
    1,000
    
    
    
    600
    
    
    
    3,170
    
    
    
    115Net interest income after provision for loan and lease losses
    
    
    3,940
    
    
    
    4,046
    
    
    
    4,820
    
    
    
    2,414
    
    
    
    5,526Noninterest income:Service charges on deposit accounts
    
    
    91
    
    
    
    50
    
    
    
    62
    
    
    
    63
    
    
    
    70Payroll and benefit processing fees
    
    
    107
    
    
    
    99
    
    
    
    129
    
    
    
    212
    
    
    
    90Earnings on cash surrender value  bank owned life insurance
    
    
    86
    
    
    
    85
    
    
    
    83
    
    
    
    96
    
    
    
    100Life insurance policy benefits
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    2,437
    
    
    
    0Net gain on sale of securities available-for-sale
    
    
    159
    
    
    
    194
    
    
    
    242
    
    
    
    0
    
    
    
    0Net loss on sale of derivative swap transaction
    
    
    0
    
    
    
    0
    
    
    
    (225
    )
    
    
    0
    
    
    
    0Merchant credit card service income, net
    
    
    99
    
    
    
    97
    
    
    
    83
    
    
    
    91
    
    
    
    109Mortgage brokerage fee income
    
    
    2
    
    
    
    5
    
    
    
    10
    
    
    
    0
    
    
    
    21Other income
    
    
    207
    
    
    
    187
    
    
    
    181
    
    
    
    (6
    )
    
    
    136Total noninterest income
    
    
    751
    
    
    
    717
    
    
    
    565
    
    
    
    2,893
    
    
    
    526Noninterest expense:Salaries and related benefits
    
    
    1,909
    
    
    
    1,892
    
    
    
    1,949
    
    
    
    2,208
    
    
    
    2,402Occupancy and equipment expense
    
    
    613
    
    
    
    640
    
    
    
    644
    
    
    
    737
    
    
    
    635FDIC insurance premium
    
    
    113
    
    
    
    113
    
    
    
    58
    
    
    
    12
    
    
    
    13Data processing fees
    
    
    81
    
    
    
    65
    
    
    
    78
    
    
    
    169
    
    
    
    82Professional service fees
    
    
    146
    
    
    
    133
    
    
    
    118
    
    
    
    365
    
    
    
    216Payroll processing fees
    
    
    26
    
    
    
    27
    
    
    
    33
    
    
    
    27
    
    
    
    25Deferred compensation expense
    
    
    118
    
    
    
    113
    
    
    
    111
    
    
    
    108
    
    
    
    105Stationery and supplies
    
    
    50
    
    
    
    80
    
    
    
    62
    
    
    
    116
    
    
    
    34Postage
    
    
    32
    
    
    
    38
    
    
    
    34
    
    
    
    32
    
    
    
    39Directors expense
    
    
    81
    
    
    
    94
    
    
    
    48
    
    
    
    105
    
    
    
    86Other expenses
    
    
    443
    
    
    
    418
    
    
    
    430
    
    
    
    649
    
    
    
    391Total noninterest expense
    
    
    3,612
    
    
    
    3,613
    
    
    
    3,565
    
    
    
    4,528
    
    
    
    4,028Income before provision for income taxes
    
    
    1,079
    
    
    
    1,150
    
    
    
    1,820
    
    
    
    779
    
    
    
    2,024Provision for income taxes
    
    
    362
    
    
    
    244
    
    
    
    591
    
    
    
    (910
    )
    
    
    693Net income
    
    $
    717
    
    
    $
    906
    
    
    $
    1,229
    
    
    $
    1,689
    
    
    $
    1,331Basic earnings per share
    
    $
    0.08
    
    
    $
    0.10
    
    
    $
    0.14
    
    
    $
    0.19
    
    
    $
    0.15Weighted average shares  basic
    
    
    8,711
    
    
    
    8,748
    
    
    
    8,719
    
    
    
    8,755
    
    
    
    8,904Diluted earnings per share
    
    $
    0.08
    
    
    $
    0.10
    
    
    $
    0.14
    
    
    $
    0.19
    
    
    $
    0.15Weighted average shares  diluted
    
    
    8,713
    
    
    
    8,751
    
    
    
    8,748
    
    
    
    8,802
    
    
    
    8,929Cash dividends per share
    
    $
    0.08
    
    
    $
    0.08
    
    
    $
    0.08
    
    
    $
    0.08
    
    
    $
    0.08
 41




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##### Table of Contents



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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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
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ITEM 4. CONTROLS AND PROCEDURES
   
 PART II. Other Information
 
 Item 1. Legal proceedings
  
 Item 1a. Risk Factors
  
 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
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SIGNATURES
  BANK OF COMMERCE HOLDINGS(Registrant)Date: November 7, 2008
    
    
    
    /s/ Linda J. Miles

Linda J. MilesExecutive Vice President andChief Financial Officer
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