##### 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, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 0-25135
 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
  o o
   Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ(Do not check if a smaller reporting company)
Smaller Reporting Company o  o þ




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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
June 30, 2010, December 31, 2009 and June 30, 2009
    
    
    3Condensed Consolidated Statements of Income
Three and Six Months Ended June 30, 2010 and June 30, 2009
    
    
    4Condensed Consolidated Statement of Stockholders Equity
Three and Six Months Ended June 30, 2010
    
    
    5Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2010 and 2009
    
    
    6Notes to unaudited Condensed Consolidated Financial Statements
    
    
    7Item 2
    
    Managements Discussion and Analysis
Of Financial Condition and Results of Operations
    
    
    26Item 3
    
    Quantitative and Qualitative Disclosure about Market Risk
    
    
    59Item 4T
    
    Controls and Procedures
    
    
    61PART II.
    
    OTHER INFORMATIONItem 1
    
    Legal Proceedings
    
    
    61Item 1a
    
    Risk Factors
    
    
    62Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    62Item 3
    
    Defaults Upon Senior Securities
    
    
    63Item 4
    
    (Removed and Reserved)
    
    
    63Item 5
    
    Other Information
    
    
    63Item 6
    
    Exhibits
    
    
    63SIGNATURE PAGE
    
    
    64EX-31.1EX-31.2EX-32.0
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 BANK OF COMMERCE HOLDINGS & SUBSIDIARIES  Condensed Consolidated Balance Sheets  June 30, 2010 (unaudited), December 31, 2009 and June 30, 2009 (unaudited)
 June 30,
    
    
    December 31,
    
    
    June 30,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    2009ASSETSCash and due from banks, noninterest bearing
    
    $
    36,815
    
    
    $
    36,902
    
    
    $
    36,352Interest bearing due from banks
    
    
    39,492
    
    
    
    31,338
    
    
    
    27,512Federal funds sold and securities purchased under agreements to resell
    
    
    
    
    
    
    
    
    
    
    15,140Cash and cash equivalents
    
    
    76,307
    
    
    
    68,240
    
    
    
    79,004Securities available-for-sale, at fair value (including pledged
collateral of $42,079 at June 30, 2010, $55,672 at December 31, 2009
and $60,678 at June 30, 2009)
    
    
    176,001
    
    
    
    80,062
    
    
    
    75,480Portfolio Loans, net of the allowance for loan losses of $12,767 at
June 30, 2010, $11,207 at December 31, 2009 and $8,496 at June 30,
2009
    
    
    600,832
    
    
    
    590,023
    
    
    
    587,637Mortgage loans held for sale
    
    
    26,875
    
    
    
    27,288
    
    
    
    20,225Bank premises and equipment, net
    
    
    9,988
    
    
    
    9,980
    
    
    
    10,586Goodwill
    
    
    3,695
    
    
    
    3,727
    
    
    
    3,727Other real estate owned
    
    
    2,039
    
    
    
    2,880
    
    
    
    3,229Other assets
    
    
    34,008
    
    
    
    31,206
    
    
    
    27,231TOTAL ASSETS
    
    $
    929,745
    
    
    $
    813,406
    
    
    $
    807,119LIABILITIES AND STOCKHOLDERS EQUITYDemand  noninterest bearing
    
    $
    66,040
    
    
    $
    69,448
    
    
    $
    69,957Demand  interest bearing
    
    
    165,871
    
    
    
    163,814
    
    
    
    142,210Savings accounts
    
    
    76,438
    
    
    
    65,414
    
    
    
    59,432Certificates of deposit
    
    
    334,676
    
    
    
    341,788
    
    
    
    295,508Total deposits
    
    
    643,025
    
    
    
    640,464
    
    
    
    567,107Securities sold under agreements to repurchase
    
    
    13,444
    
    
    
    9,621
    
    
    
    10,843Federal Home Loan Bank and Federal Reserve Bank borrowings
    
    
    145,000
    
    
    
    70,000
    
    
    
    120,000Mortgage warehouse lines of credit
    
    
    
    
    
    
    
    
    
    
    17,512Other liabilities
    
    
    10,118
    
    
    
    9,050
    
    
    
    9,344Junior subordinated debt payable to unconsolidated
subsidiary grantor trust
    
    
    15,465
    
    
    
    15,465
    
    
    
    15,465Total Liabilities
    
    
    827,052
    
    
    
    744,600
    
    
    
    740,271Commitments and contingenciesStockholders Equity:Preferred stock (liquidation preference of $1,000 per share; issued
2008) 2,000,000 authorized; 17,000 shares issued and outstanding on
June 30, 2010, December 31, 2009, and June 30, 2009
    
    
    16,686
    
    
    
    16,641
    
    
    
    16,596Common stock , no par value, 50,000,000 shares authorized; 16,991,495
shares issued and outstanding at June 30, 2010, 8,711,495 issued and
outstanding on December 31, 2009 and at June 30, 2009
    
    
    42,870
    
    
    
    9,730
    
    
    
    9,688Common stock warrant
    
    
    449
    
    
    
    449
    
    
    
    449Retained earnings
    
    
    40,031
    
    
    
    39,004
    
    
    
    37,922Accumulated other comprehensive income, net of tax
    
    
    443
    
    
    
    657
    
    
    
    30Total Equity  Bank of Commerce Holdings
    
    
    100,479
    
    
    
    66,481
    
    
    
    64,685Non controlling interest in subsidiary
    
    
    2,214
    
    
    
    2,325
    
    
    
    2,163Total stockholders equity
    
    
    102,693
    
    
    
    68,806
    
    
    
    66,848TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    929,745
    
    
    $
    813,406
    
    
    $
    807,119
 See accompanying notes to condensed consolidated financial statements.
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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES  Condensed Consolidated Statements of Income  Three and Six Months Ended June 30, 2010 and June 30, 2009 (Unaudited)
 For Three Months Ended:
    
    
    For Six Months Ended:June 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,(Amounts in thousands, except for per share data)
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Interest income:Interest and fees on loans
    
    $
    9,302
    
    
    $
    9,272
    
    
    $
    18,353
    
    
    $
    17,321Interest on tax-exempt securities
    
    
    381
    
    
    
    279
    
    
    
    703
    
    
    
    575Interest on U.S. government securities
    
    
    507
    
    
    
    954
    
    
    
    945
    
    
    
    2,146Interest on federal funds sold and
securities purchased under agreements to resell
    
    
    
    
    
    
    5
    
    
    
    1
    
    
    
    30Interest on other securities
    
    
    343
    
    
    
    131
    
    
    
    614
    
    
    
    248Total interest income
    
    
    10,533
    
    
    
    10,641
    
    
    
    20,616
    
    
    
    20,320Interest expense:Interest on demand deposits
    
    
    226
    
    
    
    239
    
    
    
    456
    
    
    
    546Interest on savings deposits
    
    
    221
    
    
    
    238
    
    
    
    440
    
    
    
    519Interest on certificates of deposit
    
    
    1,554
    
    
    
    1,900
    
    
    
    3,315
    
    
    
    3,781Securities sold under agreements to repurchase
    
    
    15
    
    
    
    11
    
    
    
    27
    
    
    
    25Interest on FHLB and other borrowings
    
    
    138
    
    
    
    539
    
    
    
    274
    
    
    
    1,120Interest on junior subordinated debt payable to
unconsolidated subsidiary grantor trust
    
    
    207
    
    
    
    216
    
    
    
    415
    
    
    
    431Total interest expense
    
    
    2,361
    
    
    
    3,143
    
    
    
    4,927
    
    
    
    6,422Net interest income
    
    
    8,172
    
    
    
    7,498
    
    
    
    15,689
    
    
    
    13,898Provision for loan and lease losses
    
    
    1,600
    
    
    
    3,056
    
    
    
    3,850
    
    
    
    4,481Net interest income after provision for loan losses
    
    
    6,572
    
    
    
    4,442
    
    
    
    11,839
    
    
    
    9,417Noninterest income:Service charges on deposit accounts
    
    
    62
    
    
    
    96
    
    
    
    144
    
    
    
    188Payroll and benefit processing fees
    
    
    100
    
    
    
    104
    
    
    
    228
    
    
    
    238Earnings on cash surrender value -
Bank owned life insurance
    
    
    107
    
    
    
    117
    
    
    
    215
    
    
    
    203Net gain on sale of securities available-for-sale
    
    
    133
    
    
    
    1,074
    
    
    
    1,064
    
    
    
    1,478Net gain on transfer of financial assets
    
    
    
    
    
    
    340
    
    
    
    
    
    
    
    340Merchant credit card service income, net
    
    
    64
    
    
    
    75
    
    
    
    117
    
    
    
    149Mortgage brokerage fee income
    
    
    2,753
    
    
    
    1,302
    
    
    
    5,292
    
    
    
    1,302Other income
    
    
    118
    
    
    
    87
    
    
    
    219
    
    
    
    162Total noninterest income
    
    
    3,337
    
    
    
    3,195
    
    
    
    7,279
    
    
    
    4,060Noninterest expense:Salaries and related benefits
    
    
    3,365
    
    
    
    2,644
    
    
    
    7,076
    
    
    
    4,771Occupancy and equipment expense
    
    
    924
    
    
    
    730
    
    
    
    1,853
    
    
    
    1,302Write down of other real estate owned
    
    
    1,064
    
    
    
    
    
    
    
    1,245
    
    
    
    FDIC insurance premium
    
    
    254
    
    
    
    301
    
    
    
    505
    
    
    
    574Data processing fees
    
    
    64
    
    
    
    68
    
    
    
    153
    
    
    
    179Professional service fees
    
    
    543
    
    
    
    295
    
    
    
    943
    
    
    
    454Deferred compensation expense
    
    
    122
    
    
    
    123
    
    
    
    240
    
    
    
    242Stationery and supplies
    
    
    96
    
    
    
    26
    
    
    
    176
    
    
    
    79Postage
    
    
    45
    
    
    
    76
    
    
    
    87
    
    
    
    157Directors expense
    
    
    68
    
    
    
    120
    
    
    
    152
    
    
    
    157Goodwill impairment
    
    
    32
    
    
    
    
    
    
    
    32
    
    
    
    Other expenses
    
    
    929
    
    
    
    510
    
    
    
    2,229
    
    
    
    938Total noninterest expense
    
    
    7,510
    
    
    
    4,893
    
    
    
    14,695
    
    
    
    8,853Income before provision for income taxes
    
    
    2,399
    
    
    
    2,744
    
    
    
    4,423
    
    
    
    4,624Provision for income taxes
    
    
    750
    
    
    
    1,027
    
    
    
    1,494
    
    
    
    1,637Net Income
    
    
    1,649
    
    
    
    1,717
    
    
    
    2,929
    
    
    
    2,987Less: Net income (loss) attributable to non-controlling
interest
    
    
    144
    
    
    
    101
    
    
    
    (111
    )
    
    
    101Net Income attributable to Bank of Commerce Holdings
    
    $
    1,505
    
    
    $
    1,616
    
    
    $
    3,040
    
    
    $
    2,886Less: preferred dividend and accretion on preferred stock
    
    
    236
    
    
    
    235
    
    
    
    471
    
    
    
    472Income available to common shareholders
    
    $
    1,269
    
    
    $
    1,381
    
    
    $
    2,569
    
    
    $
    2,414Basic earnings per share
    
    $
    0.08
    
    
    $
    0.16
    
    
    $
    0.20
    
    
    $
    0.28Weighted average shares  basic
    
    
    16,837
    
    
    
    8,711
    
    
    
    12,877
    
    
    
    8,711Diluted earnings per share
    
    $
    0.08
    
    
    $
    0.16
    
    
    $
    0.20
    
    
    $
    0.28Weighted average shares  diluted
    
    
    16,837
    
    
    
    8,712
    
    
    
    12,877
    
    
    
    8,712Cash Dividends declared
    
    $
    0.06
    
    
    $
    0.00
    
    
    $
    0.12
    
    
    $
    0.06
 See accompanying notes to condensed consolidated financial statements.
 4




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES  Condensed Consolidated Statements of Stockholders Equity  Three and Six Months Ended June 30, 2010 (Unaudited)
 Accumulated OtherComp - Income
    
    
    Subtotal
    
    
    Non ControllingComprehensive
    
    
    Preferred
    
    
    
    
    
    
    Common
    
    
    Stock
    
    
    
    
    
    
    (Loss),
    
    
    Bank of Commerce
    
    
    Interest in(Dollars in Thousands)
    
    Income
    
    
    Amount
    
    
    Warrant
    
    
    Shares
    
    
    Amount
    
    
    Retained Earnings
    
    
    net of tax
    
    
    Holdings
    
    
    Subsidiary
    
    
    TotalBalance at December 31, 2009
    
    
    
    
    
    $
    16,641
    
    
    $
    449
    
    
    
    8,711,495
    
    
    $
    9,730
    
    
    $
    39,004
    
    
    $
    657
    
    
    $
    66,481
    
    
    $
    2,325
    
    
    $
    68,806Comprehensive Income:Net Income (loss)
    
    $
    1,280
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,535
    
    
    
    
    
    
    
    1,535
    
    
    
    (255
    )
    
    
    1,280Other Comprehensive
Income:Unrealized gains on securities, net of
tax
    
    
    244Less: reclassification
adjustment for gains
included in net
income, net of tax
    
    
    (549
    )Total Other Comprehensive Income
    
    
    975Less: Other Comprehensive
loss non-controlling
interest
    
    
    (255
    )Total Comprehensive Income
- BOCH
    
    $
    1,230
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (304
    )
    
    
    (304
    )
    
    
    
    
    
    
    (304
    )Accretion on Preferred Stock
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common cash dividends
($0.06 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (523
    )
    
    
    
    
    
    
    (523
    )
    
    
    
    
    
    
    (523
    )Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (213
    )
    
    
    
    
    
    
    (213
    )
    
    
    
    
    
    
    (213
    )Compensation expense associated with stock
options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    13Issuance of new shares, net
of issuance
costs ($4.25 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,200,000
    
    
    
    28,752
    
    
    
    
    
    
    
    
    
    
    
    28,752
    
    
    
    
    
    
    
    28,752Balance at March 31, 2010
    
    
    
    
    
    $
    16,663
    
    
    $
    449
    
    
    
    15,911,495
    
    
    $
    38,495
    
    
    $
    39,781
    
    
    $
    353
    
    
    $
    95,741
    
    
    $
    ,2,070
    
    
    $
    97,811Comprehensive Income:Net Income
    
    $
    1,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,505
    
    
    
    
    
    
    
    1,505
    
    
    
    144
    
    
    
    1,649Other Comprehensive
Income:Unrealized gains on
securities, net of
tax
    
    
    167Less: reclassification
adjustment for gains
included in net
income, net of tax
    
    
    (78
    )Total Other Comprehensive
Income
    
    
    1,738Less: Other Comprehensive
income non-controlling
interest
    
    
    144Total Comprehensive Income
- BOCH
    
    $
    1,594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90
    
    
    
    90
    
    
    
    
    
    
    
    90Accretion on Preferred Stock
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23
    )Common cash dividends
($0.06 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,019
    )
    
    
    
    
    
    
    (1,019
    )
    
    
    
    
    
    
    (1,019
    )Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (213
    )
    
    
    
    
    
    
    (213
    )
    
    
    
    
    
    
    (213
    )Compensation expense
associated with stock
options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    14Issuance of new shares, net
of issuance
costs ($4.25 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,080,000
    
    
    
    4,361
    
    
    
    
    
    
    
    
    
    
    
    4,361
    
    
    
    
    
    
    
    4,361Balance at June 30, 2010
    
    
    
    
    
    $
    16,686
    
    
    $
    449
    
    
    
    16,991,495
    
    
    $
    42,870
    
    
    $
    40,031
    
    
    $
    443
    
    
    $
    100,479
    
    
    $
    2,214
    
    
    $
    102,693
 See accompanying notes to condensed consolidated financial statements.
 5




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2010 and 2009
 June 30,
    
    
    June 30,(Dollars in thousands)
    
    2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    2,929
    
    
    $
    2,987Adjustments to reconcile net income to net
cash provided by operating activities:Provision for loan and lease losses
    
    
    3,850
    
    
    
    4,481Provision for depreciation and amortization
    
    
    473
    
    
    
    592Goodwill
Impairment
    
    
    32
    
    
    
    Compensation expense associated with stock options
    
    
    27
    
    
    
    38Gain on transfer of financial assets
    
    
    
    
    
    
    (340
    )Gross proceeds from sales of loans held for sale
    
    
    291,689
    
    
    
    115,836Gross originations of loans held for sale
    
    
    (291,276
    )
    
    
    (125,096
    )Gain on sale of securities available-for-sale
    
    
    (1,064
    )
    
    
    (1,478
    )Amortization of investment premiums and accretion of discounts, net
    
    
    42
    
    
    
    (61
    )Loss on sale of other real estate owned
    
    
    84
    
    
    
    Write down of other real estate owned
    
    
    1,249
    
    
    
    Increase in deferred income taxes
    
    
    (861
    )
    
    
    (809
    )Increase in cash surrender value of bank owned life policies
    
    
    (184
    )
    
    
    (1,379
    )Effect of changes in:Other assets
    
    
    (3,086
    )
    
    
    (777
    )Deferred compensation
    
    
    240
    
    
    
    216Deferred loan fees
    
    
    (15
    )
    
    
    167Other liabilities
    
    
    322
    
    
    
    (1,652
    )Net cash from (used in) operating activities
    
    
    4,451
    
    
    
    (7,275
    )Cash flows from investing activities:Proceeds from maturities and payments of available for sale securities
    
    
    14,808
    
    
    
    19,734Proceeds from sales of available-for-sale securities
    
    
    24,205
    
    
    
    54,427Purchases of available-for-sale securities
    
    
    (134,296
    )
    
    
    (16,004
    )Purchase of ITIN loan portfolio
    
    
    
    
    
    
    (66,696
    )Purchases of home equity loan portfolio
    
    
    (14,801
    )
    
    
    Loan origination, net of principal repayments
    
    
    1,050
    
    
    
    (5,267
    )Purchases of Bank premises and equipment, net
    
    
    (551
    )
    
    
    (326
    )Proceeds from the sales of other real estate owned
    
    
    175
    
    
    
    Cash acquired in merger, net of cash consideration paid
    
    
    
    
    
    
    265Net cash from (used in) investing activities
    
    
    (109,410
    )
    
    
    (13,867
    )Cash flows from financing activities:Net increase (decrease) in demand deposits and savings accounts
    
    
    9,673
    
    
    
    (19,419
    )Net increase (decrease) increase in certificates of deposit
    
    
    (7,112
    )
    
    
    31,221Net increase (decrease) in securities sold under agreement to repurchase
    
    
    3,823
    
    
    
    (3,009
    )Net change in FHLB advances
    
    
    75,000
    
    
    
    (20,000
    )Net change in other short term borrowings
    
    
    
    
    
    
    27,809Cash dividends paid on common stock
    
    
    (1,045
    )
    
    
    (1,220
    )Cash dividends paid on preferred stock
    
    
    (426
    )
    
    
    (427
    )Net proceeds from issuance of common stock
    
    
    33,113
    
    
    
    Net cash from financing activities
    
    
    113,026
    
    
    
    14,955Net increase (decrease) in cash and cash equivalents
    
    
    8,067
    
    
    
    (6,187
    )Cash and cash equivalents, beginning of period
    
    
    68,240
    
    
    
    85,191Cash and cash equivalents, end of period
    
    $
    76,307
    
    
    $
    79,004Supplemental disclosures:Cash paid during the period for:Income taxes
    
    $
    2,382
    
    
    $
    1,132Interest
    
    
    4,848
    
    
    
    6,474Transfer of loans to other real estate owned
    
    
    667
    
    
    
    3,229
 See accompanying notes to condensed consolidated financial statements.
 6




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
 1. Summary of Significant Accounting Policies
    2. Business Combinations
      7




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
  Purchase Price and Goodwill
  (Dollars in thousands)GoodwillTotal consideration at fair value
    
    $
    2,465Fair value of non-controlling interest
    
    
    2,062$
    4,527Acquisition date fair value of net assets acquired
    
    
    ($800
    )Goodwill at date of acquisition
    
    $
    3,727
   (Dollars in thousands)
    
    
    
    
    
    Six Months Ended June 30, 2009Pro-Forma Income Statement
    
    Bank
    
    
    Mortgage
    
    
    Parent
    
    
    Intercompany
    
    
    ConsolidatedInterest income:Total interest income
    
    $
    20,165
    
    
    
    
    
    
    $
    182
    
    
    $
    (27
    )
    
    $
    20,320Interest expense:Total interest expense
    
    
    6,015
    
    
    
    3
    
    
    
    431
    
    
    
    (27
    )
    
    
    6,422Net interest income
    
    
    14,150
    
    
    
    (3
    )
    
    
    (249
    )
    
    
    
    
    
    
    13,898Provision for loan and lease losses
    
    
    4,475
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    4,481Net interest income after provision for
loan losses
    
    
    9,675
    
    
    
    (9
    )
    
    
    (249
    )
    
    
    
    
    
    
    9,417Noninterest income:Mortgage brokerage fee income
    
    
    8
    
    
    
    3,939
    
    
    
    
    
    
    
    
    
    
    
    3,947Other noninterest income
    
    
    2,758
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,758Total noninterest income
    
    
    2,766
    
    
    
    3,939
    
    
    
    
    
    
    
    
    
    
    
    6,705Noninterest expense:Salaries and related benefits
    
    
    4,148
    
    
    
    1,959
    
    
    
    65
    
    
    
    
    
    
    
    6,172Occupancy and equipment expense
    
    
    1,215
    
    
    
    449
    
    
    
    
    
    
    
    
    
    
    
    1,664Other noninterest expense
    
    
    2,420
    
    
    
    699
    
    
    
    98
    
    
    
    
    
    
    
    3,217Total noninterest expense
    
    
    7,783
    
    
    
    3,107
    
    
    
    163
    
    
    
    
    
    
    
    11,053Income before provision for income taxes
    
    
    4,658
    
    
    
    823
    
    
    
    (412
    )
    
    
    
    
    
    
    5,069Provision for income taxes
    
    
    1,466
    
    
    
    173
    
    
    
    
    
    
    
    
    
    
    
    1,639Net Income
    
    
    3,192
    
    
    
    650
    
    
    
    (412
    )
    
    
    
    
    
    
    3,430Less: Net income attributable to non-controlling interest
    
    
    
    
    
    
    319
    
    
    
    
    
    
    
    
    
    
    
    319Net Income attributable to Bank of Commerce Holdings
    
    $
    3,192
    
    
    $
    331
    
    
    $
    (412
    )
    
    
    
    
    
    $
    3,111Less: Preferred dividend and accretion on preferred stock
    
    
    
    
    
    
    
    
    
    
    472
    
    
    
    
    
    
    
    472Income available to common shareholders
    
    $
    3,192
    
    
    $
    331
    
    
    $
    (884
    )
    
    
    
    
    
    $
    2,639
 8




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
 3. Recent Accounting Pronouncements
 FASB ASU 2010-20 Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses (Topic 310)
  FASB ASU 2010-18 Effect of a Loan Modification When the Loan is Part of a Pool that is
Accounted for as a Single Asset (Topic 310)
   FASB ASU 2010-13 Effect of Denominating the Exercise Price of a Share-Based Payment Award
in the Currency of the Market in Which the Underlying Equity Security Trades.
 FASB ASU 2010-09 Subsequent Events (Topic 855): Amendments to Certain Recognition and
Disclosure Requirements
 9




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
 FASB ASU 2010-06 Fair Value Measurements and Disclosures (Topic 820) Improving Disclosures
about Fair Value Measurements FASB Accounting Standards Codification
  FASB ASU 2010-01 Equity (Topic 505): Accounting for Distributions to Shareholders with
Components of Stock and Cash
 10




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
 4. Earnings per Share
  (Dollars in thousands, except per share data)
    
    Three Months Ended:
    
    
    Six Months Ended:Earnings Per Share
    
    June 30, 2010
    
    
    June 30, 2009
    
    
    June 30, 2010
    
    
    June 30, 2009Basic EPS Calculation:Net Income attributable to Bank
of Commerce Holdings
    
    $
    1,505
    
    
    $
    1,616
    
    
    $
    3,040
    
    
    $
    2,886Less: dividend on Preferred Stock
    
    
    213
    
    
    
    213
    
    
    
    426
    
    
    
    427Less: accretion on Preferred Stock
    
    
    23
    
    
    
    22
    
    
    
    45
    
    
    
    45Numerator: Earnings available to
common stockholders
    
    $
    1,269
    
    
    $
    1,381
    
    
    
    2,569
    
    
    $
    2,414Denominator (average common
shares outstanding)
    
    
    16,837
    
    
    
    8,711
    
    
    
    12,877
    
    
    
    8,711Basic earnings per Share
    
    $
    0.08
    
    
    $
    0.16
    
    
    $
    0.20
    
    
    $
    0.28Diluted EPS Calculation:Net Income attributable to Bank
of Commerce Holdings
    
    $
    1,505
    
    
    $
    1,616
    
    
    $
    3,040
    
    
    $
    2,886Less: dividend on Preferred Stock
    
    
    213
    
    
    
    213
    
    
    
    426
    
    
    
    427Less: accretion on Preferred Stock
    
    
    23
    
    
    
    22
    
    
    
    45
    
    
    
    45Numerator: Earnings available to
common stockholders
    
    $
    1,269
    
    
    $
    1,381
    
    
    $
    2,569
    
    
    $
    2,414Denominator:Average common shares outstanding
    
    
    16,837
    
    
    
    8,711
    
    
    
    12,877
    
    
    
    8711Plus incremental shares from
assumed conversions
    
    
    Stock Options
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,837
    
    
    
    8,712
    
    
    
    12,877
    
    
    
    8,712Diluted earnings per Share
    
    $
    0.08
    
    
    $
    0.16
    
    
    $
    0.20
    
    
    $
    0.28Anti-dilutive options not included in
EPS Calculation
    
    
    282
    
    
    
    188
    
    
    
    282
    
    
    
    188Anti-dilutive warrants not included in
EPS Calculation
    
    
    405
    
    
    
    405
    
    
    
    405
    
    
    
    405
 5. Stock Option Plans
  11




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
 6. Securities Available-for-Sale
    As of June 30, 2010(Dollars in thousands)
    
    
    
    
    
    Gross
    
    
    Gross
    
    
    EstimatedAvailable for sale securities
    
    Amortized Costs
    
    
    Unrealized Gains
    
    
    Unrealized Losses
    
    
    Fair ValueU.S. Treasury and agencies
    
    $
    34,734
    
    
    $
    86
    
    
    $
    (2
    )
    
    $
    34,818Obligations of state and political subdivisions
    
    
    58,022
    
    
    
    604
    
    
    
    (291
    )
    
    
    58,335Residential mortgage backed securities and
collateralized mortgage obligations
    
    
    77,453
    
    
    
    492
    
    
    
    (212
    )
    
    
    77,733Other asset backed securities
    
    
    5,057
    
    
    
    58
    
    
    
    
    
    
    
    5,115Total
    
    $
    175,266
    
    
    $
    1,240
    
    
    $
    (505
    )
    
    $
    176,001
 As of December 31, 2009(Dollars in thousands)
    
    
    
    
    
    Gross
    
    
    Gross
    
    
    EstimatedAvailable for sale securities
    
    Amortized Costs
    
    
    Unrealized Gains
    
    
    Unrealized Losses
    
    
    Fair ValueU.S.- Treasury and agencies
    
    $
    18,500
    
    
    $
    101
    
    
    $
    
    
    
    $
    18,601Obligations of state and political subdivisions
    
    
    32,184
    
    
    
    547
    
    
    
    (85
    )
    
    
    32,646Residential mortgage backed
securities and
collateralized mortgage
obligations
    
    
    28,278
    
    
    
    869
    
    
    
    (332
    )
    
    
    28,815Total
    
    $
    78,962
    
    
    $
    1,517
    
    
    $
    (417
    )
    
    $
    80,062
  (Dollars in thousands)
    
    Amortized Cost
    
    
    Estimated Fair ValueDue in one year or less
    
    $
    0
    
    
    $
    0Due after one year through five years
    
    
    18,959
    
    
    
    19,109Due after five years through ten years
    
    
    29,334
    
    
    
    29,447Due after ten years
    
    
    126,973
    
    
    
    127,445Total
    
    $
    175,266
    
    
    $
    176,001
  12




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
    As of June 30, 2010
 Less than 12 months
    
    
    12 months or more
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized(Dollars in thousands)
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. Treasury and agencies
    
    $
    2,998
    
    
    $
    (2
    )
    
    
    
    
    
    
    
    
    
    $
    2,998
    
    
    $
    (2
    )Obligations of state and
political subdivisions
    
    
    20,484
    
    
    
    (291
    )
    
    
    
    
    
    
    
    
    
    
    20,484
    
    
    
    (291
    )Residential mortgage
backed securities and
collateralized mortgage
obligations
    
    
    8,488
    
    
    
    (76
    )
    
    
    4,921
    
    
    
    (136
    )
    
    
    13,409
    
    
    
    (212
    )Total temporarily
impaired securities
    
    $
    31,970
    
    
    $
    (369
    )
    
    $
    4,921
    
    
    $
    (136
    )
    
    $
    36,891
    
    
    $
    (505
    )
 As of December 31, 2009
 Less than 12 months
    
    
    12 months or more
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized(Dollars in thousands)
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. Treasury and agencies
    
    $
    3,994
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,994
    
    
    $
    Obligations of state and
political subdivisions
    
    
    8,517
    
    
    
    (84
    )
    
    
    500
    
    
    
    (1
    )
    
    
    9,017
    
    
    
    (85
    )Residential mortgage
backed securities and
collateralized mortgage
obligations
    
    
    7,516
    
    
    
    (332
    )
    
    
    
    
    
    
    
    
    
    
    7,516
    
    
    
    (332
    )Total temporarily
impaired securities
    
    $
    20,027
    
    
    $
    (416
    )
    
    $
    500
    
    
    $
    (1
    )
    
    $
    20,527
    
    
    $
    (417
    )
 U.S. Treasury and agency securities
  Obligations of state and political subdivisions
  13




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
  Residential mortgage-backed securities and collateralized mortgage obligations
  7. Mortgages held for sale
  8. Goodwill
  Mortgage ServicesAccumulated(Dollars in thousands)
    
    Gross
    
    Impairment
    
    TotalBalance, December 31, 2008
    
    $
    
    
    
    $
    
    
    
    $
    Net additions
    
    
    3,727
    
    
    
    
    
    
    
    3,727Amortization
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 2009
    
    
    3,727
    
    
    
    
    
    
    
    3,727Net additions
    
    
    
    
    
    
    
    
    
    
    Amortization
    
    
    
    
    
    
    (32
    )
    
    
    (32
    )Balance, June 30, 2010
    
    $
    3,727
    
    
    $
    (32
    )
    
    $
    3,695
    14




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
    9. Junior Subordinated Debt Payable to Unconsolidated Subsidiary Grantor Trust
        15




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
   10. Preferred Stock and Warrants
       16




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
   11. Commitments and contingent liabilities
 Lease Commitments
 (Dollars in thousands)Operating Leases2010
    
    $
    4172011
    
    
    7752012
    
    
    6062013
    
    
    4882014
    
    
    498Thereafter
    
    
    447Total
    
    $
    3,231
 Legal Proceedings
 FHLB Advances
   (Dollars in thousands)FHLB AdvancesAdvance Amount
    
    Interest Rate
    
    Maturity$
    130,000
    
    
    
    0.08
    %
    
    
    7/1/2010$
    15,000
    
    
    
    0.55
    %
    
    
    3/5/2013
  FRB Advances
 Off-Balance Sheet Financial Instruments
 17




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
     (Dollars in thousands)Credit Commitments
    
    June 30, 2010
    
    June 30, 2009Unfunded loan commitments
    
    $
    128,828
    
    
    $
    144,215,Standby letters of credit
    
    
    3,634
    
    
    
    5,733,Guaranteed commitments outstanding
    
    
    1,299
    
    
    
    1,325,$
    133,761
    
    
    $
    151,273,
    12. Accounting for Income Tax and Uncertainties
  18




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
   13. Fair Value Measurement
  Fair Value Hierarchy
        Fair Value MeasurementsAt June 30, 2010Quoted Prices in
    
    Significant Other
    
    Significant(Dollars in thousands)
    
    
    
    
    
    Active Markets For
    
    Observable
    
    UnobservableRecurring Basis
    
    Fair Value
    
    Identical Assets
    
    Inputs
    
    InputsDescription
    
    June 30, 2010
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Available-for-sale securities
    
    $
    176,001
    
    
    $
    
    
    
    $
    176,001
    
    
    $
    Total assets measured at fair value
    
    $
    176,001
    
    
    $
    
    
    
    $
    176,001
    
    
    $
    Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Total liabilities measured at fair
value
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 19




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
 Fair Value MeasurementsAt December 31, 2009Quoted Prices in
    
    Significant Other
    
    Significant(Dollars in thousands)
    
    Fair Value
    
    Active Markets For
    
    Observable
    
    UnobservableRecurring Basis
    
    December 31,
    
    Identical Assets
    
    Inputs
    
    InputsDescription
    
    2009
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Available for sale securities
    
    $
    80,062
    
    
    $
    
    
    
    $
    80,062
    
    
    $
    Total Assets Measured at fair value
    
    $
    80,062
    
    
    $
    
    
    
    $
    80,062
    
    
    $
    Total Liabilities Measured at fair value
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  Securities available-for-sale
 Assets and Liabilities Recorded at Fair Value on a Non Recurring Basis
  Fair Value MeasurementsAt June 30, 2010Quoted Prices in
    
    
    Significant Other
    
    
    Significant(Dollars in thousands)
    
    
    
    
    
    Active Markets For
    
    
    Observable
    
    
    UnobservableNon Recurring Basis
    
    Fair Value
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    June 30, 2010
    
    
    Level (1)
    
    
    (Level 2)
    
    
    (Level 3)Impaired Loans
    
    $
    16,012
    
    
    $
    
    
    
    $
    
    
    
    $
    16,012Other real estate owned
    
    
    2,039
    
    
    
    
    
    
    $
    
    
    
    
    2,039Total Assets Measured
at fair value
    
    $
    18,051
    
    
    $
    
    
    
    $
    
    
    
    $
    18,051Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Total liabilities
measured at fair value
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 20




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES  Notes to Unaudited Condensed Consolidated Financial Statements
 Fair Value MeasurementsAt December 31, 2009Quoted Prices in
    
    
    Significant Other
    
    
    Significant(Dollars in thousands)
    
    
    
    
    
    Active Markets For
    
    
    Observable
    
    
    UnobservableNon Recurring Basis
    
    Fair Value
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    Dec 31, 2009
    
    
    Level (1)
    
    
    (Level 2)
    
    
    (Level 3)Impaired Loans
    
    $
    5,278
    
    
    $
    
    
    
    $
    
    
    
    $
    5,278Other real estate owned
    
    
    2,880
    
    
    
    
    
    
    
    
    
    
    
    2,880Total Assets Measured
at fair value
    
    $
    8,158
    
    
    $
    
    
    
    $
    
    
    
    $
    8,158Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Total liabilities
measured at fair value
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Impaired loans 
   Other Real Estate Owned
 Method for determining fair values
  Cash
and cash equivalents
 Loans
receivable
 Mortgage Loans held for sale
 21




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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES  Notes to Unaudited Condensed Consolidated Financial Statements
 Commitments
to extend credit and standby letters of credit
 Federal Home Loan Bank borrowings-
 Junior subordinated debt payable to unconsolidated subsidiary grantor trust 
 Deposit
liabilities
 Securities purchased under agreements to resell 
 Earn out payable 
 Limitations
   22




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES  Notes to Unaudited Condensed Consolidated Financial Statements
  June 30, 2010(Dollars in thousands)
    
    Contract Amount
    
    Carrying Amount
    
    Fair ValueFinancial Assets:Cash and cash equivalents
    
    
    
    
    
    $
    76,307
    
    
    $
    76,307Portfolio Loans, net
    
    
    
    
    
    
    600,832
    
    
    
    613,428Mortgages held for sale
    
    
    
    
    
    
    26,875
    
    
    
    26,875Accrued interest on loans
    
    
    
    
    
    
    2,461
    
    
    
    2,461Accrued interest on securities
    
    
    
    
    
    
    1,003
    
    
    
    1,003Financial Liabilities:Demand and savings
    
    
    
    
    
    
    308,349
    
    
    
    308,349Fixed rate certificates
    
    
    
    
    
    
    333,145
    
    
    
    334,385Variable certificates
    
    
    
    
    
    
    1,531
    
    
    
    1,531Accrued interest on deposits and borrowings
    
    
    
    
    
    
    442
    
    
    
    442Securities sold under agreements to repurchase
    
    
    
    
    
    
    13,444
    
    
    
    13,444Federal Home Loan Borrowings
    
    
    
    
    
    
    145,000
    
    
    
    145,000Earn out payable
    
    
    
    
    
    
    976
    
    
    
    976Junior subordinated debt payable to
unconsolidated subsidiary grantor trust
    
    
    
    
    
    
    15,465
    
    
    
    15,465Off balance sheet financial instruments:Commitments to extend credit
    
    $
    128,828,22Standby letters of credit
    
    $
    3,633,616Guaranteed commitments outstanding
    
    $
    1,299,199
 14. Transfer of Financial Assets
   23




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES  Notes to Unaudited Condensed Consolidated Financial Statements
 15. Segment Reporting
    (Dollars in thousands)
    
    Bank
    
    
    Mortgage
    
    
    Parent
    
    
    Elimination
    
    
    ConsolidatedNet interest income (expense)
    
    $
    16,201
    
    
    $
    (1
    )
    
    $
    (296
    )
    
    $
    (215
    )
    
    $
    15,689Provision for loan and lease losses
    
    
    3,850
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,850Total noninterest income
    
    
    2,003
    
    
    
    5,061
    
    
    
    
    
    
    
    215
    
    
    
    7,279Total noninterest expense
    
    
    9,305
    
    
    
    4,902
    
    
    
    488
    
    
    
    
    
    
    
    14,695Income before provision for income taxes
    
    
    5,050
    
    
    
    158
    
    
    
    (785
    )
    
    
    
    
    
    
    4,423Provision for income taxes
    
    
    1,370
    
    
    
    124
    
    
    
    
    
    
    
    
    
    
    
    1,494Net Income
    
    
    3,680
    
    
    
    34
    
    
    
    (785
    )
    
    
    
    
    
    
    2,929Less: Net loss attributable to non-controlling interest
    
    
    
    
    
    
    (111
    )
    
    
    
    
    
    
    
    
    
    
    (111
    )Net Income attributable to Bank of Commerce Holdings
    
    $
    3,680
    
    
    $
    145
    
    
    $
    (785
    )
    
    
    
    
    
    $
    3,040Bank
    
    Mortgage
    
    Parent
    
    Elimination
    
    ConsolidatedTotal assets
    
    $
    921,927
    
    
    $
    14,781
    
    
    $
    2,826
    
    
    $
    (9,789
    )
    
    $
    929,745Total loans, gross
    
    $
    618,533
    
    
    $
    
    
    
    $
    2,381
    
    
    $
    (7,315
    )
    
    $
    613,599Total deposits
    
    $
    651,698
    
    
    $
    
    
    
    $
    
    
    
    $
    (8,673
    )
    
    $
    643,025
 16. Common Stock Offering
    24




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES  Notes to Unaudited Condensed Consolidated Financial Statements
 17. Other Real Estate Owned
   18. Subsequent Events
  25




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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,
2009 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, 2009 to June 30, 2010. Also discussed are
significant trends and changes in the Companys results of operations for the three and six months
ended June 30, 2010, compared to the same period in 2009. 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
 tm tm tm tm
 ï Bank of Choice tm
 tm tm
  26




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
     Utilize the Strength of Our Management Team.
 Leverage Our Existing Foundation for Additional Growth
 Maintain Local Decision-Making and Accountability.
 Focus on Asset Quality and Strong Underwriting.
 27




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 Build a Stable Core Deposit Base.
  Risk Factors
 Our business is subject to various economic risks that could adversely impact our results of
operations and financial condition.
   
    
    Loan delinquencies may further increase causing additional increases in our provision
and allowance for loan losses;
    
    Financial sector regulators may adopt more restrictive practices or interpretations of
existing regulations, or adopt new regulations;
    
    Collateral for loans made by the Bank, especially real estate related, may continue to
decline in value, which in turn could reduce a clients borrowing power, and reduce the
value of assets and collateral associated with our loans held for investment;
    
    Consumer confidence levels may decline and cause adverse changes in payment patterns,
resulting in increased delinquencies and default rates on loans and other credit facilities
and decreased demand for our products and services; and
    
    Performance of the underlying loans in the private label mortgage backed securities we
hold may continue to deteriorate as the recession continues, potentially causing
other-than-temporary impairment markdowns to our investment portfolio.
 Nonperforming assets take significant time to resolve and adversely affect our results of
operations and financial condition.
   28




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  We have a concentration risk in real estate related loans.
  Monitoring and servicing our Individual Tax Identification Number (ITIN) residential mortgage
loans could prove more costly and time consuming than previously modeled.
  Future loan losses may exceed the allowance for loan losses.
  Defaults may negatively impact us.
   Interest rate fluctuations, which are out of our control, could harm profitability.
  29




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  Changes in the fair value of our securities may reduce our stockholders equity and net income.
   Conditions in the financial markets may limit our access to additional funding to meet our
liquidity needs.
  The condition of other financial institutions could negatively affect us.
   Changes in laws, government regulation and monetary policy may have a material effect on our
results of operations.
   30




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
    Because of our participation in the Troubled Asset Relief Program we are subject to several
restrictions including, without limitation, restrictions on our ability to declare or pay dividends
and repurchase our shares as well as restrictions on compensation paid to our executives.
   Our Series A Preferred Stock diminishes the net income available to our common shareholders and
earnings per common share.
   Our holders of the Series A Preferred Stock have certain voting rights that may adversely affect
our common shareholders, and the holders of the Series A Preferred Stock may have interests
different from our common shareholders.
  31




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  
    
    Any authorization or issuance of shares ranking senior to the Series A Preferred Stock;
    
    Any amendments to the rights of the Series A Preferred Stock so as to adversely affect
the rights, preferences, privileges or voting power of the Series A Preferred Stock; or
    
    Consummation of any merger, share exchange or similar transaction unless the shares of
Series A Preferred Stock remain outstanding, or if we are not the surviving entity in such
transaction, are converted into or exchanged for preference securities of the surviving
entity and the shares of Series A Preferred Stock remaining outstanding or such preference
securities have the rights, preferences, privileges and voting power of the Series A
Preferred Stock.
  We rely heavily on our management team and the loss of key officers may adversely affect
operations.
       Internal control systems could fail to detect certain events.
  32




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 Our operations could be interrupted if third party service providers experience difficulty,
terminate their services or fail to comply with banking regulations.
  Confidential customer information transmitted through the Banks online banking service is
vulnerable to security breaches and computer viruses, which could expose the Bank to litigation and
adversely affect its reputation and ability to generate deposits.
  Potential acquisitions may disrupt our business and dilute shareholder value.
    
    
    Potential exposure to unknown or contingent liabilities of the target company;
    
    Exposure to potential asset quality issues of the target company;
    
    Difficulty and expense of integrating the operations and personnel of the target
company;
    
    Potential disruption to our business;
    
    The possible loss of key employees and customers of the target company;
    
    Difficulty in estimating the value of the target company; and
    
    Potential changes in banking or tax laws or regulations that may affect the target
company.
 33




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 We are subject to extensive regulation which could adversely affect our business.
   Higher FDIC deposit insurance premiums and assessments could adversely affect our financial
condition.
  Shares eligible for future sale could have a dilutive effect.
  Changes in accounting standards may impact how we report our financial condition and results of
operations.
  A natural disaster or recurring energy shortage, especially in California, could harm our business.
  34




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 The price of our common stock may fluctuate significantly, and this may make it difficult for you
to resell shares of common stock owned by you at times or at prices you find attractive.
  
    
    Actual or anticipated variations in quarterly results of operations;
    
    Recommendations by securities analysts;
    
    Operating and stock price performance of other companies that investors deem comparable
to us;
    
    News reports relating to trends, concerns and other issues in the financial services
industry, including the failures of other financial institutions in the current economic
downturn;
    
    Perceptions in the marketplace regarding us and/or our competitors;
    
    Public sentiments toward the financial services and banking industry generally;
    
    New technology used, or services offered, by competitors;
    
    Significant acquisitions or business combinations, strategic partnerships, joint
ventures or capital commitments by or involving us or our competitors;
    
    Failure to integrate acquisitions or realize anticipated benefits from acquisitions;
    
    Changes in government regulations; and
    
    Geopolitical conditions such as acts or threats of terrorism or military conflicts.
  Our profitability measures could be adversely affected if we are unable to effectively deploy the
capital raised in our latest offering.
   Only a limited trading market exists for our common stock, which could lead to significant price
volatility.
  35




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 Anti-takeover provisions in our articles of incorporation could make a third party acquisition
of us difficult.
   There may be future sales or other dilutions of our equity which may adversely affect the market
price of our common stock.
   The holders of our preferred stock and trust preferred securities have rights that are senior to
those of our holders of common stock and that may impact our ability to pay dividends on our common
stock to our common shareholders and reduce net income available to our common shareholders.
   Our future ability to pay dividends and repurchase stock is subject to restrictions.
  36




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 Potential Volatility of Deposits
   Negative Publicity could Damage our Reputation
  Mortgage banking interest rate and market risk
     Mortgage banking revenue can be volatile from quarter to quarter
  37




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 The Impact of New Financial Reform Legislation is Yet to be Determined
        38




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 Executive Overview
       Sources of Income
    39




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
     40




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 June 30, 2010
    
    
    June 30, 2009ProfitabilityReturn on average assets
    
    
    0.73
    %
    
    
    0.73
    %Return on average equity
    
    
    7.14
    %
    
    
    8.36
    %Average earning assets to total average
assets
    
    
    90.31
    %
    
    
    93.63
    %Interest MarginNet interest margin
    
    
    4.15
    %
    
    
    3.77
    %Asset QualityAllowance for loan losses to total loans
    
    
    2.08
    %
    
    
    1.43
    %Nonperforming assets to total assets
    
    
    2.74
    %
    
    
    1.60
    %Net charge-offs to average loans
    
    
    0.17
    %
    
    
    0.39
    %LiquidityLoans to deposits
    
    
    93.44
    %
    
    
    103.62
    %Liquidity ratio
    
    
    32.84
    %
    
    
    34.33
    %CapitalTier 1 risk-based capital  Bank
    
    
    14.21
    %
    
    
    11.57
    %Total risk-based capital  Bank
    
    
    15.47
    %
    
    
    12.82
    %Tier 1 risk-based capital  Company
    
    
    15.03
    %
    
    
    12.65
    %Total risk-based capital  Company
    
    
    16.29
    %
    
    
    13.27
    %EfficiencyEfficiency ratio
    
    
    63.94
    %
    
    
    49.30
    %
 Financial Highlights  Results of Operations
 Balance Sheet
     41




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
   Income Statement
    Net Interest Income and Net Interest Margin
     42




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
   Liquidity
     Capital Management
      43




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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, 2010
    
    Capital
    
    
    Ratio
    
    
    Requirement
    
    
    RequirementThe CompanyLeverage
    
    
    113,554,769
    
    
    
    13.26
    %
    
    
    n/a
    
    
    
    4.0
    %Tier 1 Risk-Based
    
    
    113,554,769
    
    
    
    15.03
    %
    
    
    n/a
    
    
    
    4.0
    %Total Risk-Based
    
    
    123,045,832
    
    
    
    16.28
    %
    
    
    n/a
    
    
    
    8.0
    %Redding Bank of CommerceLeverage
    
    
    103,924,836
    
    
    
    12.30
    %
    
    
    5.0
    %
    
    
    4.0
    %Tier 1 Risk-Based
    
    
    103,924,836
    
    
    
    14.21
    %
    
    
    6.0
    %
    
    
    4.0
    %Total Risk-Based
    
    
    113,114,699
    
    
    
    15.47
    %
    
    
    10.0
    %
    
    
    8.0
    %
 Short and Long Term Borrowings
   Allowance for Loan and Lease Losses
     44




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
    most significant
   Factors that may affect future results
    45




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
     Critical Accounting Policies
   General
  Preparation of financial statements
  Use of estimates
  46




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 Accounting Principles Generally Accepted in the United States of America
   Valuation of Investments and Impairment of Securities
     Allowance for Loan and Lease Losses (ALLL)
 most significant
 critical to our financial results
 47




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
    
    
    Changes in lending policies and procedures, including underwriting, collection,
charge-off and recovery practices not considered elsewhere in estimating credit losses;
    
    Changes in regional, local and business conditions and developments that affect the
collectability of loans, including the conditions of various market segments;
    
    Changes in the nature and volume of the loan portfolio and in the terms of loans;
    
    Changes in the experience, ability and depth of lending management and other relevant
staff;
    
    Changes in the volume and severity of past due loans, the volume of nonaccrual loans and
the volume and severity of adversely classified or graded loans;
    
    Changes in the quality of the Companys loan review systems or the degree of oversight
by the board of directors;
    
    Changes in the value of underlying collateral for all collateral dependent loans;
    
    The existence and effects of any concentrations of credit and changes in the level of
such concentrations;
    
    The effect of other external factors such as competition and legal and regulatory
requirements on the level of estimated credit losses;
    
    Loan loss history over the past 18 months has contributed significantly to the
percentage of loss allocations. Accordingly the loan loss history component of the
provision for loan and lease losses has been adjusted to weight toward recent history with
80% of the allocation to the last two and one half years.
  Revenue recognition
  Income Taxes
  48




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 Mortgages Held for Sale
  Derivative Loan Commitments
   Other Real Estate Owned
  49




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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)
 Six Months Ended
    
    
    Six Months EndedJune 30, 2010
    
    
    June 30, 2009Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/(Dollars in thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateEarning AssetsPortfolio Loans1
    
    $
    622,525
    
    
    $
    18,353
    
    
    
    5.90
    %
    
    $
    574,206
    
    
    $
    17,321
    
    
    
    6.04
    %Tax-exempt Securities2
    
    
    34,288
    
    
    
    703
    
    
    
    4.10
    %
    
    
    28,245
    
    
    
    575
    
    
    
    4.07
    %US Government Securities
    
    
    21,329
    
    
    
    292
    
    
    
    2.74
    %
    
    
    8,624
    
    
    
    192
    
    
    
    4.45
    %Mortgage backed Securities
    
    
    32,076
    
    
    
    653
    
    
    
    4.07
    %
    
    
    69,253
    
    
    
    1,954
    
    
    
    5.64
    %Federal Funds Sold
    
    
    990
    
    
    
    1
    
    
    
    0.20
    %
    
    
    25,771
    
    
    
    30
    
    
    
    0.23
    %Other Securities
    
    
    44,236
    
    
    
    614
    
    
    
    2.78
    %
    
    
    31,905
    
    
    
    248
    
    
    
    1.55
    %Average Earning Assets
    
    $
    755,444
    
    
    $
    20,616
    
    
    
    5.45
    %
    
    $
    738,004
    
    
    $
    20,320
    
    
    
    5.51
    %Cash & Due From Banks
    
    $
    39,431
    
    
    
    
    
    
    
    
    
    
    $
    19,388Bank Premises
    
    
    9,911
    
    
    
    
    
    
    
    
    
    
    
    13,480Other Assets
    
    
    31,679
    
    
    
    
    
    
    
    
    
    
    
    17,333Average Total Assets
    
    $
    836,465
    
    
    
    
    
    
    
    
    
    
    $
    788,205Interest Bearing LiabilitiesDemand Interest Bearing
    
    $
    143,813
    
    
    $
    456
    
    
    
    0.63
    %
    
    $
    137,938
    
    
    $
    546
    
    
    
    0.79
    %Savings Deposits
    
    
    71,789
    
    
    
    440
    
    
    
    1.23
    %
    
    
    63,499
    
    
    
    519
    
    
    
    1.63
    %Certificates of Deposit
    
    
    333,239
    
    
    
    3,315
    
    
    
    1.99
    %
    
    
    289,925
    
    
    
    3,781
    
    
    
    2.61
    %Repurchase Agreements
    
    
    11,215
    
    
    
    27
    
    
    
    0.48
    %
    
    
    11,523
    
    
    
    25
    
    
    
    0.43
    %FHLB Borrowings
    
    
    74,227
    
    
    
    274
    
    
    
    0.74
    %
    
    
    124,393
    
    
    
    1,120
    
    
    
    1.80
    %Trust Preferred Borrowings
    
    
    15,465
    
    
    
    415
    
    
    
    5.37
    %
    
    
    15,000
    
    
    
    431
    
    
    
    5.75
    %649,748
    
    
    $
    4,927
    
    
    
    1.52
    %
    
    
    642,278
    
    
    $
    6,422
    
    
    
    2.00
    %Noninterest bearing demand
    
    
    74,713
    
    
    
    
    
    
    
    
    
    
    
    72,009Other Liabilities
    
    
    26,893
    
    
    
    
    
    
    
    
    
    
    
    8,674Stockholders Equity
    
    
    85,111
    
    
    
    
    
    
    
    
    
    
    
    65,244Average Liabilities and Stockholders
Equity
    
    $
    836,465
    
    
    
    
    
    
    
    
    
    
    $
    788,205Net Interest Income and Net Interest Margin
    
    
    
    
    
    $
    15,689
    
    
    
    4.15
    %
    
    
    
    
    
    $
    13,898
    
    
    
    3.77
    %
  
 1
    
    Average non accrual loans and average
loans held for sale of $14.4 and $17.7 million are included respectively2
    
    The yield on tax-exempt securities has not
been adjusted to a tax-equivalent yield basis. 50




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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, 2010
    
    
    Over
    
    
    June 30, 2009(Dollars in thousands)
    
    Volume
    
    
    Rate
    
    
    TotalIncrease(decrease) In Interest IncomePortfolio Loans
    
    $
    1,425
    
    
    $
    (393
    )
    
    $
    1,032Tax-exempt Securities
    
    
    124
    
    
    
    4
    
    
    
    128US Government Securities
    
    
    174
    
    
    
    (74
    )
    
    
    100Mortgage Back Securities
    
    
    (757
    )
    
    
    (544
    )
    
    
    (1,301
    )Federal Funds Sold
    
    
    (25
    )
    
    
    (4
    )
    
    
    (29
    )Other Securities
    
    
    171
    
    
    
    195
    
    
    
    366Total Increase (Decrease)
    
    
    1,112
    
    
    
    (816
    )
    
    
    296Increase(decrease) In Interest ExpenseInterest Bearing Demand
    
    
    18
    
    
    
    (108
    )
    
    
    (90
    )Savings Deposits
    
    
    51
    
    
    
    (130
    )
    
    
    (79
    )Certificates of Deposit
    
    
    431
    
    
    
    (897
    )
    
    
    (466
    )Repurchase Agreements
    
    
    (1
    )
    
    
    3
    
    
    
    2FHLB Borrowings
    
    
    (185
    )
    
    
    (661
    )
    
    
    (846
    )Trust Preferred Borrowings
    
    
    
    
    
    
    (16
    )
    
    
    (16
    )Total Increase (Decrease)
    
    
    314
    
    
    
    (1,809
    )
    
    
    (1,495
    )Net Increase
    
    $
    798
    
    
    $
    993
    
    
    $
    1,791
    51




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
  Three Months Ended
    
    
    Six Months Ended(Dollars in thousands)
    
    June 30, 2010
    
    
    June 30, 2009
    
    
    June 30, 2010
    
    
    June 30, 2009Noninterest incomeService charges on deposit accounts
    
    $
    62
    
    
    $
    96
    
    
    $
    144
    
    
    $
    188Payroll and benefit processing fees
    
    
    100
    
    
    
    104
    
    
    
    228
    
    
    
    238Earnings on cash surrender value 
Bank owned insurance
    
    
    107
    
    
    
    117
    
    
    
    215
    
    
    
    203Net gain on sale of securities
available-for-sale
    
    
    133
    
    
    
    1,074
    
    
    
    1,064
    
    
    
    1,478Net gain on sale of loans
    
    
    
    
    
    
    340
    
    
    
    
    
    
    
    340Merchant credit card service income, net
    
    
    64
    
    
    
    75
    
    
    
    117
    
    
    
    149Mortgage brokerage fee income
    
    
    2,753
    
    
    
    1,302
    
    
    
    5,292
    
    
    
    1,302Other Income
    
    
    118
    
    
    
    87
    
    
    
    219
    
    
    
    162Total Noninterest income
    
    $
    3,337
    
    
    $
    3,195
    
    
    $
    7,279
    
    
    $
    4,060
    Three Months Ended
    
    
    Six Months Ended(Dollars in thousands)
    
    June 30, 2010
    
    
    June 30, 2009
    
    
    June 30, 2010
    
    
    June 30, 2009Noninterest ExpenseSalaries and related benefits
    
    $
    3,365
    
    
    $
    2,644
    
    
    $
    7,076
    
    
    $
    4,771Occupancy and equipment expense
    
    
    924
    
    
    
    730
    
    
    
    1,853
    
    
    
    1,302Write down of other real estate owned
    
    
    1,064
    
    
    
    
    
    
    
    1,245
    
    
    
    FDIC insurance premium
    
    
    254
    
    
    
    301
    
    
    
    505
    
    
    
    574Data processing fees
    
    
    64
    
    
    
    68
    
    
    
    153
    
    
    
    179Professional service fees
    
    
    543
    
    
    
    295
    
    
    
    943
    
    
    
    454Deferred compensation expense
    
    
    122
    
    
    
    123
    
    
    
    240
    
    
    
    242Stationery and Supplies
    
    
    96
    
    
    
    26
    
    
    
    176
    
    
    
    79Postage
    
    
    45
    
    
    
    76
    
    
    
    87
    
    
    
    157Directors expense
    
    
    68
    
    
    
    120
    
    
    
    152
    
    
    
    157Other expenses
    
    
    965
    
    
    
    510
    
    
    
    2,265
    
    
    
    938Total Noninterest expense
    
    $
    7,510
    
    
    $
    4,893
    
    
    $
    14,695
    
    
    $
    8,853
  52




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
        Income Taxes
    (Dollars in thousands)
    
    Three Months Ended
    
    
    Six Months EndedIncome Taxes
    
    June 30, 2010
    
    
    June 30, 2009
    
    
    June 30, 2010
    
    
    June 30, 2009Tax provision
    
    $
    750
    
    
    $
    1,027
    
    
    $
    1,494
    
    
    $
    1,637Effective tax rate
    
    
    31.26
    %
    
    
    37.43
    %
    
    
    33.78
    %
    
    
    35.40
    %
  53




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
  Deferred Tax Assets
    
    June 30, 2010
    
    
    June 30, 2009State Franchise taxes
    
    $
    162,447
    
    
    $
    Deferred compensation
    
    
    2,446,342
    
    
    $
    2,249,218Loan loss reserves
    
    
    5,829,858
    
    
    
    4,577,887Other
    
    
    270,259
    
    
    
    24,768Total Deferred Tax Assets
    
    $
    8,708,906
    
    
    $
    6,851,873Deferred Tax LiabilitiesState Franchise taxes
    
    $
    
    
    
    
    ($83,382
    )Unrealized gain on
available-for-sale investment
securities
    
    
    (284,217
    )
    
    
    (20,997
    )Depreciation
    
    
    (241,565
    )
    
    
    (84,559
    )Deferred loan origination costs
    
    
    (412,264
    )
    
    
    (426,715
    )Deferred state taxes
    
    
    (643,872
    )
    
    
    (516,580
    )Other
    
    
    (155,513
    )
    
    
    (55,992
    )Total Deferred Tax Liabilities
    
    $
    (1,737,431
    )
    
    $
    (1,188,225
    )Total Net Deferred Tax Asset
    
    $
    6,971,475
    
    
    $
    5,663,648
 Asset Quality
    (Dollars in thousands)Portfolio Loans
    
    June 30, 2010
    
    
    December 31, 2009Commercial and financial loans
    
    $
    135,806
    
    
    $
    133,079Real estate  construction loans
    
    
    43,266
    
    
    
    59,524Real estate   commercial (investor)
    
    
    186,455
    
    
    
    197,023Real estate  commercial (owner
occupied)
    
    
    71,529
    
    
    
    63,001Real estate  ITIN loan pool
    
    
    73,953
    
    
    
    78,250Real estate  other mortgage
    
    
    19,864
    
    
    
    20,526Real estate  equity lines
    
    
    76,976
    
    
    
    45,601Installment
    
    
    2,505
    
    
    
    2,223Other loans
    
    
    3,438
    
    
    
    2,212Less:Net deferred loan fees
    
    
    193
    
    
    
    209Allowance for loan losses
    
    
    12,767
    
    
    
    11,207Total net portfolio loans
    
    $
    600,832
    
    
    $
    590,023
 54




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  (Dollars in thousands)
 % of TotalLoan Type
    
    Balance
    
    
    net portfolio loansCommercial lots and entitled commercial land
    
    $
    18,413
    
    
    
    3.06
    %Commercial real estate  construction
    
    
    16,385
    
    
    
    2.73
    %1-4 family subdivision loans
    
    
    5,748
    
    
    
    0.96
    %1-4 family individual residential lots
    
    
    1,838
    
    
    
    0.31
    %1-4 family construction speculative
    
    
    882
    
    
    
    0.14
    %Total real estate- construction
    
    $
    43,266
    
    
    
    7.20
    %
  Mortgages held for sale
   Non performing Assets
  (Dollars in thousands)Non performing assets
    
    June 30, 2010
    
    
    December 31, 2009Nonaccrual Loan Portfolio
    
    $
    17,288
    
    
    $
    7,667Nonaccrual  ITIN Loan Pool
    
    
    5,237
    
    
    
    Nonaccrual  Home Equity Loan Pool
    
    
    304
    
    
    
    90 days past due and still accruing interest
    
    
    592
    
    
    
    5,052Other real estate owned
    
    
    2,039
    
    
    
    2,880Total non performing assets
    
    $
    25,460
    
    
    $
    15,599
  55




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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)
     
    
    Changes in lending policies and procedures, including underwriting, collection,
charge-off and recovery practices not considered elsewhere in estimating credit losses;
    
    Changes in regional, local and business conditions and developments that affect the
collectability of loans, including the conditions of various market segments;
    
    Changes in the nature and volume of the loan portfolio and in the terms of loans;
    
    Changes in the experience, ability and depth of lending management and other relevant
staff;
    
    Changes in the volume and severity of past due loans, the volume of nonaccrual loans and
the volume and severity of adversely classified or graded loans;
    
    Changes in the quality of the Companys loan review systems or the degree of oversight
by the board of directors;
    
    Changes in the value of underlying collateral for all collateral dependent loans;
 56




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
 
    
    The existence and effects of any concentrations of credit and changes in the level of
such concentrations;
    
    The effect of other external factors such as competition and legal and regulatory
requirements on the level of estimated credit losses;
    
    Loan loss history over the past 18 months has contributed significantly to the
percentage of loss allocations. Accordingly the loan loss history component of the
provision for loan and lease losses has been adjusted to weight toward recent history with
80% of the allocation to the last two and one half years.
     (Dollars in thousands)
    
    Three Months Ended
    
    
    Six Months EndedAllowance for Loan Losses
    
    June 30, 2010
    
    
    June 30, 2009
    
    
    June 30, 2010
    
    
    June 30, 2009Beginning balance for Loan
Losses
    
    $
    12,197
    
    
    $
    7,701
    
    
    $
    11,207
    
    
    $
    8,429Provision for Loan Losses
    
    
    1,600
    
    
    
    3,056
    
    
    
    3,850
    
    
    
    4,481Charge offs:Commercial
    
    
    (399
    )
    
    
    (774
    )
    
    
    (789
    )
    
    
    (2,432
    )Real Estate
    
    
    (795
    )
    
    
    (1,603
    )
    
    
    (2,093
    )
    
    
    (2,100
    )Other
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    (12
    )Total Charge offs
    
    
    (1,194
    )
    
    
    (2,389
    )
    
    
    (2,882
    )
    
    
    (4,544
    )Recoveries:Commercial
    
    
    1
    
    
    
    127
    
    
    
    397
    
    
    
    128Real Estate
    
    
    162
    
    
    
    0
    
    
    
    193
    
    
    
    0Other
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    2Total Recoveries
    
    
    164
    
    
    
    128
    
    
    
    592
    
    
    
    130Ending Balance
    
    $
    12,767
    
    
    $
    8,496
    
    
    $
    12,767
    
    
    $
    8,496ALLL to total loans
    
    
    2.08
    %
    
    
    1.43
    %
    
    
    2.08
    %
    
    
    1.43
    %Net Charge offs to average loans
    
    
    0.17
    %
    
    
    0.39
    %
    
    
    0.38
    %
    
    
    0.77
    %
    57




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
QUARTERLY INCOME STATEMENT
 June 30,
    
    
    March 31,
    
    
    
    
    
    
    September 30,
    
    
    June 30,(Dollars in thousands, except for per share data)
    
    2010
    
    
    2010
    
    
    December 31, 2009
    
    
    2009
    
    
    2009Interest income:Interest and fees on loans
    
    $
    9,302
    
    
    $
    9,051
    
    
    $
    9,184
    
    
    $
    9,355
    
    
    $
    9,272Interest on tax-exempt securities
    
    
    381
    
    
    
    322
    
    
    
    311
    
    
    
    278
    
    
    
    279Interest on U.S. government securities
    
    
    507
    
    
    
    439
    
    
    
    676
    
    
    
    628
    
    
    
    954Interest on federal funds sold and securities
repurchased under agreements to resell
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    5Interest on other securities
    
    
    343
    
    
    
    270
    
    
    
    266
    
    
    
    309
    
    
    
    131Total interest income
    
    
    10,533
    
    
    
    10,083
    
    
    
    10,438
    
    
    
    10,571
    
    
    
    10,641Interest expense:Interest on demand deposits
    
    
    226
    
    
    
    230
    
    
    
    229
    
    
    
    240
    
    
    
    239Interest on savings deposits
    
    
    221
    
    
    
    219
    
    
    
    221
    
    
    
    223
    
    
    
    238Interest on certificates of deposit
    
    
    1,554
    
    
    
    1,761
    
    
    
    1,906
    
    
    
    1,941
    
    
    
    1,900Securities sold under repurchase agreements
    
    
    15
    
    
    
    12
    
    
    
    13
    
    
    
    13
    
    
    
    11Interest on FHLB and other borrowings
    
    
    138
    
    
    
    136
    
    
    
    172
    
    
    
    514
    
    
    
    539Interest on junior subordinated debt payable to
unconsolidated subsidiary grantor trust
    
    
    207
    
    
    
    208
    
    
    
    208
    
    
    
    234
    
    
    
    216Total interest expense
    
    
    2,361
    
    
    
    2,566
    
    
    
    2,749
    
    
    
    3,165
    
    
    
    3,143Net interest income
    
    
    8,172
    
    
    
    7,517
    
    
    
    7,689
    
    
    
    7,406
    
    
    
    7,498Provision for loan and lease losses
    
    
    1,600
    
    
    
    2,250
    
    
    
    3,150
    
    
    
    1,844
    
    
    
    3,056Net interest income after provision for loan and
lease losses
    
    
    6,572
    
    
    
    5,267
    
    
    
    4,539
    
    
    
    5,562
    
    
    
    4,442Noninterest income:Service charges on deposit accounts
    
    
    62
    
    
    
    82
    
    
    
    94
    
    
    
    108
    
    
    
    96Payroll and benefit processing fees
    
    
    100
    
    
    
    128
    
    
    
    105
    
    
    
    109
    
    
    
    104Earnings on cash surrender value  bank owned
life insurance
    
    
    107
    
    
    
    108
    
    
    
    107
    
    
    
    108
    
    
    
    117Net gain on sale of securities available-for-sale
    
    
    133
    
    
    
    931
    
    
    
    454
    
    
    
    506
    
    
    
    1,074Net gain on sale of loans
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    340Merchant credit card service income, net
    
    
    64
    
    
    
    54
    
    
    
    68
    
    
    
    80
    
    
    
    75Mortgage brokerage fee income
    
    
    2,753
    
    
    
    2,539
    
    
    
    2,112
    
    
    
    1,913
    
    
    
    1,302Other income
    
    
    118
    
    
    
    100
    
    
    
    119
    
    
    
    120
    
    
    
    87Total noninterest income
    
    
    3,337
    
    
    
    3,942
    
    
    
    3,060
    
    
    
    2,944
    
    
    
    3,195Noninterest expense:Salaries and related benefits
    
    
    3,365
    
    
    
    3,711
    
    
    
    3,209
    
    
    
    2,902
    
    
    
    2,644Occupancy and equipment expense
    
    
    924
    
    
    
    929
    
    
    
    1,178
    
    
    
    1,121
    
    
    
    730Write down of other real estate owned
    
    
    1,064
    
    
    
    181
    
    
    
    161
    
    
    
    3
    
    
    
    FDIC insurance premium
    
    
    254
    
    
    
    251
    
    
    
    279
    
    
    
    421
    
    
    
    301Data processing fees
    
    
    64
    
    
    
    89
    
    
    
    51
    
    
    
    52
    
    
    
    68Professional service fees
    
    
    543
    
    
    
    400
    
    
    
    146
    
    
    
    220
    
    
    
    295Deferred compensation expense
    
    
    122
    
    
    
    118
    
    
    
    118
    
    
    
    118
    
    
    
    123Stationery and supplies
    
    
    96
    
    
    
    80
    
    
    
    44
    
    
    
    62
    
    
    
    26Postage
    
    
    45
    
    
    
    42
    
    
    
    36
    
    
    
    
    
    
    
    76Directors expense
    
    
    68
    
    
    
    84
    
    
    
    67
    
    
    
    75
    
    
    
    120Other expenses
    
    
    965
    
    
    
    1,271
    
    
    
    802
    
    
    
    653
    
    
    
    483Total noninterest expense
    
    
    7,510
    
    
    
    7,185
    
    
    
    6,117
    
    
    
    5,654
    
    
    
    4,893Income before provision for income taxes
    
    
    2,399
    
    
    
    2,024
    
    
    
    1,482
    
    
    
    2,852
    
    
    
    2,744Provision for income taxes
    
    
    750
    
    
    
    744
    
    
    
    43
    
    
    
    1,010
    
    
    
    1,027Net Income
    
    
    1,649
    
    
    
    1,280
    
    
    
    1,439
    
    
    
    1,842
    
    
    
    1,717Less: Net income (loss) attributable to non-
controlling interest
    
    
    144
    
    
    
    (255
    )
    
    
    33
    
    
    
    129
    
    
    
    101Net income attributable to Bank of Commerce Holdings
    
    $
    1,505
    
    
    $
    1,535
    
    
    $
    1,406
    
    
    $
    1,713
    
    
    $
    1,616Less preferred dividend and accretion on preferred
stock
    
    $
    236
    
    
    $
    235
    
    
    $
    235
    
    
    $
    235
    
    
    $
    235Income available to common stockholders
    
    $
    1,269
    
    
    $
    1,300
    
    
    $
    1,171
    
    
    $
    1,478
    
    
    $
    1,381Basic earnings per share
    
    $
    0.08
    
    
    $
    0.15
    
    
    $
    0.13
    
    
    $
    0.17
    
    
    $
    0.16Weighted average shares  basic
    
    
    16,837
    
    
    
    8,871
    
    
    
    8,711
    
    
    
    8,711
    
    
    
    8,711Diluted earnings per share
    
    $
    0.08
    
    
    $
    0.15
    
    
    $
    0.13
    
    
    $
    0.17
    
    
    $
    0.16Weighted average shares  diluted
    
    
    16,837
    
    
    
    8,871
    
    
    
    8,711
    
    
    
    8,711
    
    
    
    8,712Cash dividends per share
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.12
    
    
    $
    0.00
 58




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
         59




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##### Table of Contents



QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
   60




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##### Table of Contents



ITEM 4T. CONTROLS AND PROCEDURES
         
 PART II. Other Information
 
 Item 1. Legal Proceedings
  61




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##### Table of Contents



Item 1a. Risk Factors
         
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
     62




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Item 3. Defaults upon Senior Securities
  
 Item 4. (Removed and Reserved)
  
 Item 5. Other Information
  
 Item 6. Exhibits
 (31.1)
    
    Certification of Chief Executive Officer pursuant to Sarbanes-Oxley Act of 2002(31.2)
    
    Certification of Chief Financial Officer pursuant to Sarbanes-Oxley Act of 2002(32.0)
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to
Sarbanes-Oxley Act of 2002
 63




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SIGNATURES
  BANK OF COMMERCE HOLDINGS
(Registrant)Date: August 13, 2010
    /s/ Samuel D. JimenezSamuel D. JimenezSenior Vice President and
Chief Financial Officer 64