##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark
One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission
file number 0-25135
 
 Bank of Commerce Holdings
  California
    
    94-2823865(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)1951 Churn Creek Road Redding, California
 96002(Address of principal executive offices)
    
    (Zip code)
   
 þ o
  o o þ
 o þ




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
  Page:PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance SheetsMarch 31, 2006, December 31, 2005 and March 31, 2005
    
    
    4Condensed Consolidated Statements of Income Three months ended March 31, 2006 and 2005
    
    
    5Condensed Consolidated Statements of Cash Flows Three months ended March 31, 2006 and 2005
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Forward Looking Statements and Risk Factors
    
    
    14Corporate Overview
    
    
    14Lending Risks associated with Commercial Banking and Construction activities
    
    
    17Dependence on Real Estate
    
    
    17Risks specific to Operations in California
    
    
    17Interest Rate Risk
    
    
    17Potential Volatility of Deposits
    
    
    18Dividends
    
    
    18Government Regulation and Legislation
    
    
    18Economic Conditions and Geographic Concentration
    
    
    18Reliance on Key Employees and Others
    
    
    18Adequacy of Allowance for Loan and Lease Losses (ALLL)
    
    
    19Certain Ownership Restrictions under California and Federal Law
    
    
    19Shares Eligible for Future Sale
    
    
    19Technology and Computer Systems
    
    
    20Environmental Risks
    
    
    20Dilution
    
    
    20Unresolved Staff Comments
    
    
    20Executive Overview
    
    
    21Sources of Income
    
    
    21Financial Highlights  Results of Operations
    
    
    22Net Interest Income and Net Interest Margin
    
    
    22Liquidity
    
    
    22Capital Management
    
    
    23Short term borrowings
    
    
    23Provision for loan losses
    
    
    23Factors that may affect future results
    
    
    24Critical accounting policies
    
    
    25Average balances, Interest Income/Expense and yields/rates paid
    
    
    27Analysis of changes in net interest income and interest expense
    
    
    28Noninterest Income
    
    
    29Noninterest Expense
    
    
    29Income taxes
    
    
    30Asset quality
    
    
    30Allowance for loan losses (ALLL)
    
    
    31Securities portfolio
    
    
    33Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    34
 2




---



##### Table of Contents



Page:Item 4. Controls and Procedures
    
    
    36PART II. OTHER INFORMATIONItem 1. Legal proceedings
    
    
    37Item 1a. Risk Factors
    
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3. Defaults Upon Senior Securities
    
    
    37Item 4. Submission of Matters to a Vote of Security Holders
    
    
    37Item 5. Other Information
    
    
    37Item 6. Exhibits
    
    
    37SIGNATURES
    
    
    37EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
 3




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
 (Unaudited)
 Dollars in thousands
    
    March 31, 2006
    
    
    Dec. 31,2005
    
    
    March 31,2005ASSETSCash and due from banks
    
    $
    11,819
    
    
    $
    17,436
    
    
    $
    14,167Federal funds sold and securities purchased under agreements to
resell
    
    
    9,835
    
    
    
    9,120
    
    
    
    19,760Cash and cash equivalents
    
    
    21,654
    
    
    
    26,556
    
    
    
    33,927Securities available-for-sale (including pledged collateral of
$54,514 at March 31, 2006, $50,102 at December 31, 2005 and $38,884
at March 31, 2005)
    
    
    93,645
    
    
    
    94,014
    
    
    
    77,276Securities held-to-maturity, at cost (estimated fair value of $7,533
at March 31, 2006, $6,881 at Dec. 31, 2005
and $457 at March 31, 2005)
    
    
    7,620
    
    
    
    6,933
    
    
    
    423Loans, net of the allowance for loan losses of $4,295 at March 31,
2006, $4,316 at Dec. 31, 2005 and $4,044 at March 31,
2005
    
    
    374,983
    
    
    
    363,305
    
    
    
    320,453Bank premises and equipment, net
    
    
    6,261
    
    
    
    5,631
    
    
    
    5,436Other assets
    
    
    18,733
    
    
    
    15,205
    
    
    
    13,207TOTAL ASSETS
    
    $
    522,896
    
    
    $
    511,644
    
    
    $
    450,722LIABILITIES AND STOCKHOLDERS EQUITYDemand  noninterest bearing
    
    $
    74,519
    
    
    $
    86,219
    
    
    $
    75,393Demand  interest bearing
    
    
    102,003
    
    
    
    109,101
    
    
    
    111,723Savings accounts
    
    
    28,477
    
    
    
    27,540
    
    
    
    24,367Certificates of deposit
    
    
    173,106
    
    
    
    149,256
    
    
    
    144,051Total deposits
    
    
    378,105
    
    
    
    372,116
    
    
    
    355,534Securities sold under agreements to repurchase
    
    
    25,117
    
    
    
    22,886
    
    
    
    13,517Federal Home Loan Bank borrowings
    
    
    55,000
    
    
    
    55,000
    
    
    
    35,000Other liabilities
    
    
    8,864
    
    
    
    7,194
    
    
    
    5,705Junior subordinated debt payable to unconsolidated
subsidiary grantor trust
    
    
    15,465
    
    
    
    15,310
    
    
    
    5,000Total Liabilities
    
    
    482,551
    
    
    
    472,506
    
    
    
    414,756Commitments and contingenciesStockholders Equity:Preferred stock, no par value, 2,000,000 authorized
no shares issued and outstanding in 2006 and 2005
    
    
    
    
    
    
    
    
    
    
    Common stock , no par value, 10,000,000 shares
authorized; 8,716,872 shares issued and
outstanding
at March 31,2006, 8,657,896 at Dec. 31, 2005
and 8,571,781 at March 31, 2005
    
    
    11,198
    
    
    
    11,009
    
    
    
    10,756Retained earnings
    
    
    30,535
    
    
    
    29,419
    
    
    
    26,067Accumulated other comprehensive (loss), net of tax
    
    
    (1,388
    )
    
    
    (1,290
    )
    
    
    (857
    )Total stockholders equity
    
    
    40,345
    
    
    
    39,138
    
    
    
    35,966TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    522,896
    
    
    $
    511,644
    
    
    $
    450,722
 See accompanying notes to condensed consolidated financial statements.
 4




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 Condensed Consolidated Statements of Income (Unaudited)
 Three months ended March 31, 2006 and 2005
 Three Months EndedDollars in thousands, except for per share data
    
    March 31, 2006
    
    
    March 31, 2005Interest income:Interest and fees on loans
    
    $
    7,230
    
    
    $
    5,407Interest on tax exempt securities
    
    
    123
    
    
    
    54Interest on U.S. government securities
    
    
    862
    
    
    
    651Interest on federal funds sold and
securities purchased under agreements to resell
    
    
    130
    
    
    
    79Interest on other securities
    
    
    44
    
    
    
    0Total interest income
    
    
    8,389
    
    
    
    6,191Interest expense:Interest on demand deposits
    
    
    233
    
    
    
    139Interest on savings deposits
    
    
    65
    
    
    
    24Interest on time deposits
    
    
    1,549
    
    
    
    830Securities sold under agreements to repurchase
    
    
    199
    
    
    
    19Interest on FHLB and other borrowings
    
    
    672
    
    
    
    246Interest on junior subordinated debt payable to unconsolidated
subsidiary grantor trust
    
    
    258
    
    
    
    77Total interest expense
    
    
    2,976
    
    
    
    1,335Net interest income
    
    
    5,413
    
    
    
    4,856Provision for loan and lease losses
    
    
    11
    
    
    
    177Net interest income after provision for loan and lease losses
    
    
    5,402
    
    
    
    4,679Noninterest income:Service charges on deposit accounts
    
    
    88
    
    
    
    103Payroll and benefit processing fees
    
    
    109
    
    
    
    99Earnings on
cash surrender value 
Bank owned life insurance
    
    
    53
    
    
    
    51Net loss on sale of securities available-for-sale
    
    
    0
    
    
    
    (2
    )Net gain on sale of loans
    
    
    1
    
    
    
    19Merchant credit card service income, net
    
    
    77
    
    
    
    99Mortgage brokerage fee income
    
    
    17
    
    
    
    86Other income
    
    
    103
    
    
    
    87Total noninterest income
    
    
    448
    
    
    
    542Noninterest expense:Salaries and related benefits
    
    
    1,878
    
    
    
    1,693Occupancy and equipment expense
    
    
    435
    
    
    
    387FDIC insurance premium
    
    
    12
    
    
    
    12Data processing fees
    
    
    58
    
    
    
    41Professional service fees
    
    
    204
    
    
    
    205Payroll processing fees
    
    
    29
    
    
    
    36Deferred compensation expense
    
    
    88
    
    
    
    73Stationery and supplies
    
    
    60
    
    
    
    59Postage
    
    
    31
    
    
    
    28Directors expense
    
    
    60
    
    
    
    74Other expenses
    
    
    382
    
    
    
    312Total noninterest expense
    
    
    3,237
    
    
    
    2,920Income before income taxes
    
    
    2,612
    
    
    
    2,301Provision for income taxes
    
    
    1,020
    
    
    
    925Net income
    
    $
    1,592
    
    
    $
    1,376Basic earnings per share
    
    $
    0.18
    
    
    $
    0.16Weighted average shares  basic
    
    
    8,680
    
    
    
    8,533Diluted earnings per share
    
    $
    0.17
    
    
    $
    0.16Weighted average shares  diluted
    
    
    8,880
    
    
    
    8,780Cash dividends per share
    
    $
    0.07
    
    
    $
    0.06
 See accompanying notes to condensed consolidated financial statements.
 5




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
 Three months ended March 31, 2006 and 2005
 Dollars in thousands
    
    March 31, 2006
    
    
    March 31, 2005Cash flows from operating activities:Net income
    
    $
    1,592
    
    
    $
    1,376Adjustments to reconcile net income to netcash provided by operating activities:Provision for loan and lease losses
    
    
    11
    
    
    
    177Provision for depreciation and amortization
    
    
    147
    
    
    
    140Compensation expense associated with stock options
    
    
    1
    
    
    
    1Loss (Gain) on sale of securities available-for-sale
    
    
    0
    
    
    
    2Amortization of investment premiums and accretion of
discounts, net
    
    
    8
    
    
    
    59Gain on sale of loans
    
    
    0
    
    
    
    (19
    )Gain on sale of fixed assets
    
    
    0
    
    
    
    0Proceeds from sale of loans
    
    
    0
    
    
    
    279Loans originated for sale
    
    
    0
    
    
    
    (260
    )Effect of changes in:Other assets
    
    
    (3,371
    )
    
    
    (713
    )Deferred loan fees
    
    
    (22
    )
    
    
    (72
    )Other liabilities
    
    
    1,669
    
    
    
    (2,548
    )Net cash from operating activities
    
    
    35
    
    
    
    (1,578
    )Cash flows from investing activities:Proceeds from maturities of available-for-sale securities
    
    
    1,232
    
    
    
    5,000Proceeds from sales of available-for-sale securities
    
    
    0
    
    
    
    141Proceeds from maturities of held-to-maturity securities
    
    
    186
    
    
    
    2,065Purchases of available-for-sale securities
    
    
    (974
    )
    
    
    (2,965
    )Purchases of held-to-maturity securities
    
    
    (869
    )
    
    
    0Loan origination, net of principal repayments
    
    
    (11,666
    )
    
    
    (1,758
    )Purchases of Bank premises and equipment, net
    
    
    (777
    )
    
    
    (92
    )Net cash from investing activities
    
    
    (12,868
    )
    
    
    2,391Cash flows from financing activities:Net increase (decrease) in deposit and savings accounts
    
    
    (17,861
    )
    
    
    (2,895
    )Net increase (decrease) in certificates of deposit
    
    
    23,850
    
    
    
    5,551Net increase in securities sold under agreement to repurchase
    
    
    2,231
    
    
    
    11,513Proceeds from Federal Home Loan Bank advances
    
    
    20,000
    
    
    
    23,000Repayments of Federal Home Loan Bank advances
    
    
    (20,000
    )
    
    
    (23,000
    )Equity transactions, net
    
    
    (289
    )
    
    
    (296
    )Net cash from financing activities
    
    
    7,931
    
    
    
    13,873Net increase in cash and cash equivalents
    
    
    (4,902
    )
    
    
    14,686Cash and cash equivalents, beginning of period
    
    
    26,556
    
    
    
    19,241Cash and cash equivalents, end of period
    
    $
    21,654
    
    
    $
    33,927Supplemental disclosures:Cash paid during the period for:Income taxes
    
    $
    0
    
    
    $
    0Interest
    
    
    2,933
    
    
    
    1,288
 See accompanying notes to condensed consolidated financial statements.
 6




---



##### Table of Contents



1. Consolidation and Basis of Presentation
     2. Recent Accounting pronouncements
 On February 16, 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 155, Accounting for Certain Hybrid Instruments (SFAS 155),
 On May 5, 2005, the FASB issued Statement No. 154, Accounting Changes and Error Corrections (SFAS
154), replacing APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting
Accounting Changes in Interim Financial Statements .
 On August 11, 2005, The Financial Accounting Standards Board Issues Revised Exposure Draft on
Accounting for Transfers of Financial Assets 
 7




---



##### Table of Contents



3. Earnings per Share
   Three Months EndedMarch 31, 2006
    
    
    March 31, 2005Basic EPS calculation:Numerator (net income)
    
    $
    1,592
    
    
    $
    1,376Denominator (average common
shares outstanding)
    
    
    8,680
    
    
    
    8,533Basic EPS
    
    $
    0.18
    
    
    $
    0.16Diluted EPS calculation:Numerator (net income)
    
    $
    1,592
    
    
    $
    1,376Denominator:Average common shares outstanding
    
    
    8,680
    
    
    
    8,533Dilutive effect of stock options
    
    
    200
    
    
    
    247Adjusted weighted average common shares outstanding
    
    
    8,880
    
    
    
    8,780Diluted EPS
    
    $
    0.18
    
    
    $
    0.16
 4. Stock Option Plans
  8




---



##### Table of Contents



(Continued)
(Unaudited)
   Three Months EndedMarch 31, 2005Net income as reported
    
    $
    1,376Add:Stock-based employee compensation expense recognized during
the period, net of tax
    
    
    0Deduct:Total stock-based employee compensation expense determined
under fair value based method for all awards, net of tax
    
    
    (37
    )Pro forma net income
    
    $
    1,339Earnings per share:Basic  as reported
    
    $
    0.16Basic  pro forma
    
    $
    0.16Diluted  as reported
    
    $
    0.16Diluted  pro forma
    
    $
    0.15
  March 31, 2006
    
    March 31, 2005Risk-free interest rate
    
    
    4.99
    %
    
    
    3.92
    %Dividend Yield
    
    
    2.82
    %
    
    
    2.49
    %Volatility
    
    
    35.11
    %
    
    
    32.36
    %Expected lives (years)
    
    
    7
    
    
    
    7Weighted average grant-date fair value
per share of options granted
    
    $
    3.42
    
    
    $
    3.35
 Description of stock-based compensation plans
  9




---



##### Table of Contents



(Continued)
(Unaudited)
  Activity in stock-based compensation plans
  WeightedAverageNumber of Shares
    
    
    Exercise PriceOptions outstanding, January 1, 2006
    
    
    608,316
    
    
    $
    5.20Granted
    
    
    0
    
    
    $
    0.00Exercised
    
    
    (58,976
    )
    
    $
    2.97Forfeited
    
    
    (1,425
    )
    
    $
    10.60Options outstanding, March 31, 2006
    
    
    547,915
    
    
    $
    3.91Exercisable at March 31, 2006
    
    
    515,889
    
    
    $
    4.15
   Weighted AverageRemaining ContractualExercise Price
    
    Options Outstanding
    
    
    life (Years)
    
    
    Options Exercisable$  2.75
    
    
    219,600
    
    
    
    1.3
    
    
    
    219,600$  3.23
    
    
    63,360
    
    
    
    1.3
    
    
    
    63,360$  5.42
    
    
    29,250
    
    
    
    4.4
    
    
    
    29,250$  6.67
    
    
    60,500
    
    
    
    4.6
    
    
    
    60,500$  7.30
    
    
    55,130
    
    
    
    5.5
    
    
    
    44,104$  6.75
    
    
    13,500
    
    
    
    6.0
    
    
    
    8,100$10.72
    
    
    7,500
    
    
    
    7.4
    
    
    
    7,500$10.60
    
    
    72,075
    
    
    
    7.5
    
    
    
    72,075$10.76
    
    
    3,000
    
    
    
    7.9
    
    
    
    3,000$  9.11
    
    
    18,000
    
    
    
    7.3
    
    
    
    7,200$11.59
    
    
    3,500
    
    
    
    8.4
    
    
    
    700$10.20
    
    
    2,500
    
    
    
    8.4
    
    
    
    500547,915
    
    
    
    
    
    
    
    515,889
  10




---



##### Table of Contents



(Continued)
(Unaudited)
  5. Comprehensive Income
  (Dollars in thousands)
    
    Three Months EndedMarch 31, 2006
    
    
    March 31, 2005Net income as reported
    
    $
    1,592
    
    
    $
    1,376Other comprehensive income,
net of tax:Unrealized holding (loss) gain
on
securities available for
sale
    
    
    (98
    )
    
    
    (524
    )Reclassification adjustment for
gain on available for sale
securities, net of tax
    
    
    0
    
    
    
    2Total other comprehensive (loss) income
    
    
    (98
    )
    
    
    (522
    )Total comprehensive income
    
    $
    1,494
    
    
    $
    854
 6. Junior Subordinated Debt Payable to Unconsolidated Subsidiary Grantor Trust
     11




---



##### Table of Contents



(Continued)
(Unaudited)
     7. Commitments and Contingent Liabilities
 Lease Commitments 
  2006
    
    $
    5702007
    
    $
    6022008
    
    $
    6362009
    
    $
    5622010
    
    $
    497Thereafter
    
    $
    446Total
    
    $
    3,313Minimum rental due in the future
Under noncancellable subleases
    
    $
    198
 Legal Proceedings 
 FHLB
Advances 
 12




---



##### Table of Contents



(Continued)
(Unaudited)
 Off-Balance
Sheet Financial Instruments
  13




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
     
   14




---



##### Table of Contents



www.reddingbankofcommerce.com www.rosevillebankofcommerce.com, www.sutterbankofcommerce.com www.bankofcommercemortgage.com www.sec.gov
       15




---



##### Table of Contents



reddingbankofcommerce.com rosevillebankofcommerce.com sutterbankofcommerce.com bankofcommercemortgage.com
     16




---



##### Table of Contents



Lending Risks Associated with Commercial Banking and Construction Activities
  
 Dependence on Real Estate
   
 Risks Specific to Operations in California
  
 Interest Rate Risk
  17




---



##### Table of Contents



Potential Volatility of Deposits
  
 Dividends
  
 Government Regulation and Legislation
  
 Economic Conditions and Geographic Concentration
  
 Reliance on Key Employees and Others
  18




---



##### Table of Contents



Adequacy of Allowance for Loan and Lease Losses (ALLL)
  
 Certain Ownership Restrictions under California and Federal Law
   
 Shares Eligible for Future Sale
  19




---



##### Table of Contents



Technology and Computer Systems
   
 Environmental Risks
  
 Dilution
  
 UNRESOLVED STAFF COMMENTS
  20




---



##### Table of Contents



Executive Overview
       
 Sources of Income
   21




---



##### Table of Contents



Financial Highlights  Results of Operations
  
 Net Interest Income and Net Interest Margin
    
 Liquidity
    22




---



##### Table of Contents



Capital Management
   Well
    
    
    MinimumActual
    
    
    Capitalized
    
    
    CapitalCapital
    
    
    Ratio
    
    
    Requirement
    
    
    RequirementThe Company
Leverage
    
    $
    51,733,000
    
    
    
    10.05
    %
    
    
    n/a
    
    
    
    4.0
    %Tier 1 Risk-Based
    
    
    51,733,000
    
    
    
    12.00
    %
    
    
    n/a
    
    
    
    4.0
    %Total Risk-Based
    
    
    56,433,245
    
    
    
    13.09
    %
    
    
    n/a
    
    
    
    8.0
    %Redding Bank of
Commerce
Leverage
    
    $
    51,991,151
    
    
    
    10.14
    %
    
    
    5.0
    %
    
    
    4.0
    %Tier 1 Risk-Based
    
    
    51,991,151
    
    
    
    12.06
    %
    
    
    6.0
    %
    
    
    4.0
    %Total Risk-Based
    
    
    56,691,396
    
    
    
    13.15
    %
    
    
    10.00
    %
    
    
    8.0
    %
 
    
 Provision for Loan and Lease Losses
   23




---



##### Table of Contents



Factors that may affect future results
       24




---



##### Table of Contents



Critical Accounting Policies
   Preparation of financial statements
  Use of estimates
  Accounting Principles Generally Accepted in the United States of America
   Allowance for Loan and Lease Losses (ALLL)
  25




---



##### Table of Contents



Revenue recognition
  Stock-based Compensation
 Accounting for Stock Based
Compensation
  26




---



##### Table of Contents



Income Taxes
   
 Table 1. Average Balances, Interest Income/Expense and Yields/Rates Paid
 (Unaudited, Dollars in thousands)
 Three Months Ended
    
    
    Three Months EndedMarch 31, 2006
    
    
    March 31, 2005Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateEarning AssetsPortfolio Loans
    
    $
    369,589
    
    
    $
    7,230
    
    
    
    7.82
    %
    
    $
    324,055
    
    
    $
    5,407
    
    
    
    6.67
    %Tax-exempt Securities
    
    
    14,099
    
    
    
    123
    
    
    
    3.49
    %
    
    
    6,447
    
    
    
    54
    
    
    
    3.35
    %US Government Securities
    
    
    43,052
    
    
    
    423
    
    
    
    3.93
    %
    
    
    31,966
    
    
    
    245
    
    
    
    3.07
    %Mortgage backed Securities
    
    
    41,910
    
    
    
    439
    
    
    
    4.19
    %
    
    
    42,055
    
    
    
    406
    
    
    
    3.86
    %Federal Funds Sold
    
    
    11,587
    
    
    
    130
    
    
    
    4.49
    %
    
    
    12,321
    
    
    
    79
    
    
    
    2.56
    %Other Securities
    
    
    4,049
    
    
    
    44
    
    
    
    4.35
    %
    
    
    0
    
    
    
    0
    
    
    
    0.00
    %Average Earning Assets
    
    $
    484,286
    
    
    $
    8,389
    
    
    
    6.93
    %
    
    $
    416,844
    
    
    $
    6,191
    
    
    
    5.94
    %Cash & Due From Banks
    
    $
    13,937
    
    
    
    
    
    
    
    
    
    
    $
    15,255Bank Premises
    
    
    5,943
    
    
    
    
    
    
    
    
    
    
    
    5,481Allowance for Loan Losses
    
    
    ( 4,364
    )
    
    
    
    
    
    
    
    
    
    
    ( 3,954
    )Other Assets
    
    
    12,877
    
    
    
    
    
    
    
    
    
    
    
    11,411Average Total Assets
    
    $
    512,679
    
    
    
    
    
    
    
    
    
    
    $
    445,037Interest Bearing LiabilitiesDemand Interest Bearing
    
    $
    103,500
    
    
    $
    233
    
    
    
    0.90
    %
    
    $
    111,227
    
    
    $
    139
    
    
    
    0.50
    %Savings Deposits
    
    
    28,093
    
    
    
    65
    
    
    
    0.93
    %
    
    
    23,852
    
    
    
    24
    
    
    
    0.40
    %Certificates of Deposit
    
    
    164,752
    
    
    
    1,549
    
    
    
    3.76
    %
    
    
    143,705
    
    
    
    830
    
    
    
    2.31
    %Repurchase Agreements
    
    
    24,057
    
    
    
    199
    
    
    
    3.31
    %
    
    
    5,642
    
    
    
    19
    
    
    
    1.35
    %FHLB Borrowings
    
    
    57,611
    
    
    
    672
    
    
    
    4.67
    %
    
    
    36,000
    
    
    
    243
    
    
    
    2.70
    %Trust Preferred Borrowings
    
    
    15,000
    
    
    
    258
    
    
    
    6.88
    %
    
    
    5,000
    
    
    
    80
    
    
    
    6.40
    %393,013
    
    
    $
    2,976
    
    
    
    3.03
    %
    
    
    325,426
    
    
    $
    1,335
    
    
    
    1.64
    %Noninterest bearing demand
    
    
    78,339
    
    
    
    
    
    
    
    
    
    
    
    79,489Other Liabilities
    
    
    4,376
    
    
    
    
    
    
    
    
    
    
    
    5,494Stockholders Equity
    
    
    36,951
    
    
    
    
    
    
    
    
    
    
    
    34,628Average Liabilities and
Stockholders Equity
    
    $
    512,679
    
    
    
    
    
    
    
    
    
    
    $
    445,037Net Interest Income and Net Interest Margin
    
    
    
    
    
    $
    5,413
    
    
    
    4.47
    %
    
    
    
    
    
    $
    4,856
    
    
    
    4.66
    %
 27




---



##### Table of Contents



Table 2. Analysis of Changes in Net Interest Income and Interest Expense
 March 31, 2006 over March 31, 2005(Dollars in thousands)
    
    Volume
    
    
    Rate
    
    
    TotalIncrease (Decrease) In
Interest IncomePortfolio Loans
    
    $
    891
    
    
    $
    932
    
    
    $
    1,823Tax-exempt Securities
    
    
    67
    
    
    
    2
    
    
    
    69US Government Securities
    
    
    109
    
    
    
    69
    
    
    
    178Mortgage back Securities
    
    
    (2
    )
    
    
    35
    
    
    
    33Federal Funds Sold
    
    
    (8
    )
    
    
    59
    
    
    
    51Other Securities
    
    
    44
    
    
    
    0
    
    
    
    44Total Increase
(Decrease)
    
    $
    1,101
    
    
    $
    1,097
    
    
    $
    2,198Increase (Decrease) In
Interest ExpenseInterest Bearing Demand
    
    $
    (17
    )
    
    $
    111
    
    
    $
    94Savings Deposits
    
    
    10
    
    
    
    31
    
    
    
    41Certificates of Deposit
    
    
    198
    
    
    
    521
    
    
    
    719Repurchase Agreements
    
    
    152
    
    
    
    28
    
    
    
    180FHLB Borrowings
    
    
    252
    
    
    
    177
    
    
    
    429Trust Preferred
Borrowings
    
    
    172
    
    
    
    6
    
    
    
    178Total Increase
(Decrease)
    
    $
    767
    
    
    $
    874
    
    
    $
    1,641Net Increase
    
    $
    334
    
    
    $
    223
    
    
    $
    557
    28




---



##### Table of Contents



Noninterest Income
  Three Months Ended(Dollars in thousands)
    
    March 31, 2006
    
    
    March 31, 2005Noninterest incomeService charges on deposit accounts
    
    $
    88
    
    
    $
    103Payroll and benefit processing fees
    
    
    109
    
    
    
    99Earnings on
cash surrender value 
Bank owned life insurance
    
    
    53
    
    
    
    51Net gain on sale of securities available-for-sale
    
    
    0
    
    
    
    (2
    )Net gain on sale of loans
    
    
    1
    
    
    
    19Merchant credit card service income, net
    
    
    77
    
    
    
    99Mortgage brokerage fee income
    
    
    213
    
    
    
    86Other income
    
    
    102
    
    
    
    87Total noninterest income
    
    $
    643
    
    
    $
    542
  
  Three Months Ended(Dollars in thousands)
    
    March 31, 2006
    
    
    March 31, 2005Noninterest expenseSalaries and related benefits
    
    $
    2,052
    
    
    $
    1,693Occupancy and equipment expense
    
    
    435
    
    
    
    387FDIC insurance premium
    
    
    12
    
    
    
    12Data processing fees
    
    
    58
    
    
    
    41Professional service fees
    
    
    204
    
    
    
    205Payroll processing fees
    
    
    29
    
    
    
    36Deferred compensation expense
    
    
    88
    
    
    
    73Stationery and supplies
    
    
    60
    
    
    
    59Postage
    
    
    31
    
    
    
    28Directors expense
    
    
    60
    
    
    
    74Other expenses
    
    
    404
    
    
    
    312Total noninterest expense
    
    $
    3,433
    
    
    $
    2,920
  29




---



##### Table of Contents



Income Taxes
    Three Months Ended(Dollars in thousands)
    
    March 31, 2006
    
    
    March 31, 2005Income TaxesTax provision
    
    $
    1,020
    
    
    $
    925Effective tax rate
    
    
    39.1
    %
    
    
    40.2
    %
  
 Asset Quality
    (Dollars in thousands)
    
    March 31, 2006
    
    
    December 31, 2005Portfolio LoansCommercial and financial loans
    
    $
    116,310
    
    
    $
    115,401Real estate-construction loans
    
    
    105,908
    
    
    
    100,786Real estate-commercial
    
    
    137,390
    
    
    
    133,510Real estate- other
    
    
    14,442
    
    
    
    13,790Real estate-mortgage
    
    
    3,593
    
    
    
    3,669Installment
    
    
    96
    
    
    
    439Other loans
    
    
    1,937
    
    
    
    446Less:Net deferred loan fees
    
    
    (398
    )
    
    
    (420
    )Allowance for loan losses
    
    
    (4,295
    )
    
    
    (4,316
    )Total net loans
    
    $
    374,983
    
    
    $
    363,305
 30




---



##### Table of Contents



(Dollars in thousands)
    
    March 31, 2006
    
    
    December 31, 2005Non performing assetsNonaccrual loans
    
    $
    120
    
    
    $
    37290 days past due and still accruing
interest
    
    
    0
    
    
    
    0Total nonaccrual loans
    
    
    120
    
    
    
    372Other Real Estate Owned
    
    
    0
    
    
    
    0Total non performing assets
    
    $
    120
    
    
    $
    372
 
     31




---



##### Table of Contents



(Dollars in thousands)
    
    March 31, 2006
    
    
    March 31, 2005Allowance for Loan and Lease LossesBeginning balance for Loan and Lease Losses
    
    $
    4,316
    
    
    $
    3,866Provision for Loan and Lease Losses
    
    
    11
    
    
    
    177Charge offs:Commercial
    
    
    (149
    )
    
    
    (0
    )Real Estate
    
    
    (0
    )
    
    
    (0
    )Other
    
    
    (0
    )
    
    
    (0
    )Total Charge offs
    
    
    (149
    )
    
    
    (0
    )Recoveries:Commercial
    
    
    116
    
    
    
    1Real Estate
    
    
    0
    
    
    
    0Other
    
    
    1
    
    
    
    0Total Recoveries
    
    
    117
    
    
    
    1Ending Balance
    
    $
    4,295
    
    
    $
    4,044ALLL to total loans
    
    
    1.13
    %
    
    
    1.25
    %Net Charge offs to average loans
    
    
    0.01
    %
    
    
    0.00
    %
 32




---



##### Table of Contents



Securities Portfolio
    (Dollars in thousands)
    
    as of March 31, 2006Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCosts
    
    
    Gains
    
    
    Losses

    Fair ValueU.S. government & agencies
    
    $
    42,316
    
    
    $
    0
    
    
    $
    (957
    )
    
    $
    41,359Obligations of state and
political subdivisions
    
    
    7,316
    
    
    
    29
    
    
    
    (171
    )
    
    
    7,174Mortgage backed securities
    
    
    42,318
    
    
    
    0
    
    
    
    (1,220
    )
    
    
    41,098Corporate Bonds
    
    
    4,054
    
    
    
    0
    
    
    
    (40
    )
    
    
    4,014Total
    
    $
    96,004
    
    
    $
    29
    
    
    $
    (2,388
    )
    
    $
    93,645
 (Dollars in thousands)
    
    as of March 31, 2005Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCosts
    
    
    Gains
    
    
    Losses
    
    Fair ValueU.S. government & agencies
    
    $
    31,957
    
    
    $
    0
    
    
    $
    (679
    )
    
    $
    31,278Obligations of state and
political subdivisions
    
    
    6,373
    
    
    
    39
    
    
    
    (150
    )
    
    
    6,262Mortgage backed securities
    
    
    40,402
    
    
    
    0
    
    
    
    (666
    )
    
    
    39,736Total
    
    $
    78,732
    
    
    $
    39
    
    
    $
    (1,495
    )
    
    $
    77,276
 33




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
      34




---



##### Table of Contents



35




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
     36




---



##### Table of Contents



PART II. Other Information
 
 Item 1. Legal proceedings
  
 Item 1a. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of Matters to a vote of Security Holders
  
 Item 5. Other Information
  
 Item 6A. Exhibits
 
 Item 6B. Reports on Form 8-K
 
 
 SIGNATURES
  BANK OF COMMERCE HOLDINGS
  /s/ Linda J. MilesLinda J. MilesExecutive Vice President &Chief Financial Officer
 37