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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 March 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the transition period from  to
 Commission file number 0-25135
 Bank of Commerce Holdings
  California
    
    94-2823865(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)1951 Churn Creek Road Redding, California96002(Address of principal executive offices)
    
    (Zip code)
   
 þ o
  o o þ
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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 Index to Form 10-Q
 Page:PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets
March 31, 2007, December 31, 2006 and March 31, 2006
    
    
    4Condensed Consolidated Statements of Income
Three months ended March 31, 2007 and 2006
    
    
    5Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 2007 and 2006
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis
of Financial Condition and Results of Operations
    
    
    13Forward Looking Statements and Risk Factors
    
    
    13Company Overview
    
    
    13Risk Factors
    
    
    16Economic Conditions and Geographic Concentrations
    
    
    16Changes in Interest rates could reduce the Companys Net Interest Income and Earnings
    
    
    16Lending Risks Associated with Commercial Real Estate and Construction Activities
    
    
    17Adequacy of the Allowance for Loan and Lease Losses
    
    
    17Potential Volatility of Deposits
    
    
    17Dividends
    
    
    17Changes in Accounting Policies or Accounting Standards, and Changes in How Accounting
Standards are interpreted or applied, Could Materially affect how the Company Reports its
Financial Results and Condition
    
    
    18Government Regulation and Legislation
    
    
    18Certain Ownership Restrictions under California and Federal Law
    
    
    18Negative Publicity could Damage our Reputation
    
    
    19Environmental Risks
    
    
    19Shares Eligible for Future Sale
    
    
    19Technology and Computer Systems
    
    
    20Company Stock Price may be volatile due to other factors
    
    
    20Unresolved Staff Comments
    
    
    20Executive Overview
    
    
    21Sources of Income
    
    
    21Profitability Ratios
    
    
    22Financial Highlights  Results of Operations
    
    
    22Net Interest Income and Net Interest Margin
    
    
    22Liquidity
    
    
    23Capital Management
    
    
    23Short and Long term borrowings
    
    
    24Allowance for loan and lease losses
    
    
    24Factors that may affect future results
    
    
    25Critical accounting policies
    
    
    26Average balances, Interest Income/Expense and yields/rates paid
    
    
    28Analysis of changes in net interest income and interest expense
    
    
    29Noninterest Income
    
    
    30Noninterest Expense
    
    
    30Income taxes
    
    
    31Asset quality
    
    
    32Allowance for loan and lease losses (ALLL)
    
    
    33
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Page:Securities portfolio
    
    
    35Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    36Item 4. Controls and Procedures
    
    
    38PART II. OTHER INFORMATIONItem 1. Legal proceedings
    
    
    39Item 1a. Risk Factors
    
    
    39Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 3. Defaults Upon Senior Securities
    
    
    39Item 4. Submission of Matters to a Vote of Security Holders
    
    
    39Item 5. Other Information
    
    
    39Item 6. Exhibits
    
    
    39SIGNATURES
    
    
    39EXHIBITS
    
    
    40, 41, 42EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
 (Unaudited)
 Dollars in thousands
    
    March 31, 2007
    
    
    Dec. 31,2006
    
    
    March 31,2006ASSETSCash and due from banks
    
    $
    12,597
    
    
    $
    14,661
    
    
    $
    11,819Federal funds sold and securities purchased under agreements to
resell
    
    
    21,195
    
    
    
    24,605
    
    
    
    9,835Cash and cash equivalents
    
    
    33,792
    
    
    
    39,266
    
    
    
    21,654Securities available-for-sale (including pledged collateral of
$68,261 at March 31, 2007, $71,686 at December 31, 2006 and $54,514
at March 31, 2006)
    
    
    93,769
    
    
    
    95,601
    
    
    
    93,645Securities held-to-maturity, at cost (estimated fair value of $10,693
at March 31, 2007, $10,792 at Dec. 31, 2006
and $7,533 at March 31, 2006)
    
    
    10,673
    
    
    
    10,810
    
    
    
    7,620Loans, net of the allowance for loan losses of $4,933 at March 31,
2007, $4,904 at Dec. 31, 2006 and $4,295 at March 31,
2006
    
    
    411,357
    
    
    
    408,990
    
    
    
    374,983Bank premises and equipment, net
    
    
    9,992
    
    
    
    8,595
    
    
    
    6,261Other assets
    
    
    18,513
    
    
    
    20,180
    
    
    
    18,733TOTAL ASSETS
    
    $
    578,096
    
    
    $
    583,442
    
    
    $
    522,896LIABILITIES AND STOCKHOLDERS EQUITYDemand - noninterest bearing
    
    $
    70,035
    
    
    $
    84,779
    
    
    $
    74,519Demand - interest bearing
    
    
    112,550
    
    
    
    119,437
    
    
    
    102,003Savings accounts
    
    
    41,537
    
    
    
    22,749
    
    
    
    28,477Certificates of deposit
    
    
    211,422
    
    
    
    212,442
    
    
    
    173,106Total deposits
    
    
    435,544
    
    
    
    439,407
    
    
    
    378,105Securities sold under agreements to repurchase
    
    
    35,053
    
    
    
    37,117
    
    
    
    25,117Federal Home Loan Bank borrowings
    
    
    40,000
    
    
    
    40,000
    
    
    
    55,000Other liabilities
    
    
    6,646
    
    
    
    7,537
    
    
    
    8,864Junior subordinated debt payable to unconsolidated
subsidiary grantor trust
    
    
    15,465
    
    
    
    15,465
    
    
    
    15,465Total Liabilities
    
    
    532,708
    
    
    
    539,526
    
    
    
    482,551Commitments and contingenciesStockholders Equity:Preferred stock, no par value, 2,000,000 authorized
no shares issued and outstanding in 2007 and 2006
    
    
    
    
    
    
    
    
    
    
    Common stock , no par value, 50,000,000 shares
authorized; 8,907,680 shares issued and outstanding
at March 31, 2007, 8,847,042 at Dec. 31, 2006
and 8,716,872 at March 31, 2006
    
    
    11,940
    
    
    
    11,517
    
    
    
    11,198Retained earnings
    
    
    34,110
    
    
    
    33,336
    
    
    
    30,535Accumulated other comprehensive (loss), net of tax
    
    
    (662
    )
    
    
    (937
    )
    
    
    (1,388
    )Total stockholders equity
    
    
    45,388
    
    
    
    43,916
    
    
    
    40,345TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    578,096
    
    
    $
    583,442
    
    
    $
    522,896
 See accompanying notes to condensed consolidated financial statements.
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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 Condensed Consolidated Statements of Income (Unaudited)
Three months ended March 31, 2007 and 2006
 Three Months EndedDollars in thousands, except for per share data
    
    March 31, 2007
    
    
    March 31, 2006Interest income:Interest and fees on loans
    
    $
    8,464
    
    
    $
    7,230Interest on tax exempt securities
    
    
    278
    
    
    
    123Interest on U.S. government securities
    
    
    832
    
    
    
    862Interest on federal funds sold and
securities purchased under agreements to resell
    
    
    200
    
    
    
    130Interest on other securities
    
    
    36
    
    
    
    44Total interest income
    
    
    9,810
    
    
    
    8,389Interest expense:Interest on demand deposits
    
    
    557
    
    
    
    233Interest on savings deposits
    
    
    171
    
    
    
    65Interest on time deposits
    
    
    2,605
    
    
    
    1,549Securities sold under agreements to repurchase
    
    
    342
    
    
    
    199Interest on FHLB and other borrowings
    
    
    539
    
    
    
    672Interest on junior subordinated debt payable to unconsolidated
subsidiary grantor trust
    
    
    269
    
    
    
    258Total interest expense
    
    
    4,483
    
    
    
    2,976Net interest income
    
    
    5,327
    
    
    
    5,413Provision for loan and lease losses
    
    
    6
    
    
    
    11Net interest income after provision for loan and lease losses
    
    
    5,321
    
    
    
    5,402Noninterest income:Service charges on deposit accounts
    
    
    69
    
    
    
    88Payroll and benefit processing fees
    
    
    108
    
    
    
    109Earnings on cash surrender value -
Bank owned life insurance
    
    
    95
    
    
    
    53Net loss on sale of securities available-for-sale
    
    
    46
    
    
    
    0Net gain on sale of loans
    
    
    0
    
    
    
    1Merchant credit card service income, net
    
    
    92
    
    
    
    77Mortgage brokerage fee income
    
    
    6
    
    
    
    17Other income
    
    
    82
    
    
    
    103Total noninterest income
    
    
    498
    
    
    
    448Noninterest expense:Salaries and related benefits
    
    
    2,097
    
    
    
    1,878Occupancy and equipment expense
    
    
    458
    
    
    
    435FDIC insurance premium
    
    
    13
    
    
    
    12Data processing fees
    
    
    55
    
    
    
    58Professional service fees
    
    
    195
    
    
    
    204Payroll processing fees
    
    
    31
    
    
    
    29Deferred compensation expense
    
    
    97
    
    
    
    88Stationery and supplies
    
    
    61
    
    
    
    60Postage
    
    
    33
    
    
    
    31Directors expense
    
    
    45
    
    
    
    60Other expenses
    
    
    403
    
    
    
    383Total noninterest expense
    
    
    3,488
    
    
    
    3,238Income before provision for income taxes
    
    
    2,331
    
    
    
    2,612Provision for income taxes
    
    
    844
    
    
    
    1,020Net income
    
    $
    1,487
    
    
    $
    1,592Basic earnings per share
    
    $
    0.17
    
    
    $
    0.18Weighted
average shares - basic
    
    
    8,864
    
    
    
    8,680Diluted earnings per share
    
    $
    0.17
    
    
    $
    0.17Weighted
average shares - diluted
    
    
    8,976
    
    
    
    8,880Cash dividends per share
    
    $
    0.08
    
    
    $
    0.07
 See accompanying notes to condensed consolidated financial statements.
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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, 2007 and 2006
 Dollars in thousands
    
    March 31, 2007
    
    
    March 31, 2006Cash flows from operating activities:Net income
    
    $
    1,487
    
    
    $
    1,592Adjustments
to reconcile net income to net cash provided by operating activities:Provision for loan and lease losses
    
    
    6
    
    
    
    11Provision for depreciation and amortization
    
    
    207
    
    
    
    147Compensation expense associated with stock options
    
    
    4
    
    
    
    1Tax benefits from the exercise of stock options
    
    
    (118
    )
    
    
    (134
    )Loss (Gain) on sale of securities available-for-sale
    
    
    46
    
    
    
    0Amortization of investment premiums and accretion of
discounts, net
    
    
    8
    
    
    
    8Gain on sale of loans
    
    
    0
    
    
    
    0Gain on sale of fixed assets
    
    
    (2
    )
    
    
    0Deferred income taxes
    
    
    349
    
    
    
    69Increase in cash surrender value of bank owned life policies
    
    
    (95
    )
    
    
    (3,042
    )Effect of changes in:Other assets
    
    
    680
    
    
    
    (264
    )Deferred loan fees
    
    
    (31
    )
    
    
    (22
    )Other liabilities
    
    
    (883
    )
    
    
    1,669Net cash from operating activities
    
    
    1,658
    
    
    
    35Cash flows from investing activities:Proceeds from maturities of available-for-sale securities
    
    
    1,627
    
    
    
    1,232Proceeds from sales of available-for-sale securities
    
    
    20,372
    
    
    
    0Proceeds from maturities of held-to-maturity securities
    
    
    136
    
    
    
    186Purchases of available-for-sale securities
    
    
    (19,102
    )
    
    
    (974
    )Purchases of held-to-maturity securities
    
    
    0
    
    
    
    (869
    )Loan origination, net of principal repayments
    
    
    (2,342
    )
    
    
    (11,666
    )Purchases of Bank premises and equipment, net
    
    
    (1,601
    )
    
    
    (777
    )Net cash from investing activities
    
    
    (910
    )
    
    
    (12,868
    )Cash flows from financing activities:Net (decrease) in deposit and savings accounts
    
    
    (2,843
    )
    
    
    (17,861
    )Net (decrease) increase in certificates of deposit
    
    
    (1,020
    )
    
    
    23,850Net (decrease) increase in securities sold under agreement
to repurchase
    
    
    (2,064
    )
    
    
    2,231Proceeds from Federal Home Loan Bank advances
    
    
    0
    
    
    
    20,000Repayments of Federal Home Loan Bank advances
    
    
    (0
    )
    
    
    (20,000
    )Cash dividends paid on common stock
    
    
    (713
    )
    
    
    (610
    )Proceeds from stock options exercised
    
    
    284
    
    
    
    175Stock option expense
    
    
    16
    
    
    
    12Tax benefits from the exercise of stock options
    
    
    118
    
    
    
    134Net cash from financing activities
    
    
    (6,222
    )
    
    
    7,931Net increase in cash and cash equivalents
    
    
    (5,474
    )
    
    
    (4,902
    )Cash and cash equivalents, beginning of period
    
    
    39,266
    
    
    
    26,556Cash and cash equivalents, end of period
    
    $
    33,792
    
    
    $
    21,654Supplemental disclosures:Cash paid during the period for:Income taxes
    
    $
    0
    
    
    $
    0Interest
    
    
    4,639
    
    
    
    2,933
 See accompanying notes to condensed consolidated financial statements.
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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 1. Consolidation and Basis of Presentation
     2. Recent Accounting pronouncements
 On July 13, 2006, the Financial Accounting Standards Board (FASB) issued Financial Interpretation
No. 48 Accounting for Income Tax Uncertainties (FIN 48). FIN 48 supplements Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (FAS 109),
 On September 15, 2006, the FASB issued FAS 157, Fair Value Measurements ,
 On September 29, 2006, the FASB issued FAS 158, Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans 
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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)
  On February 15, 2007 the FASB issued FAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities, Including an amendment of FASB Statement 115.
 3. Earnings per Share
  Three Months Ended(Dollars in thousands, except per share data)
    
    March 31, 2007
    
    
    March 31, 2006Basic EPS calculation:Numerator (net income)
    
    $
    1,487
    
    
    $
    1,592Denominator
(average common shares outstanding)
    
    
    8,864
    
    
    
    8,680Basic EPS
    
    $
    0.17
    
    
    $
    0.18Diluted EPS calculation:Numerator (net income)
    
    $
    1,487
    
    
    $
    1,592Denominator:Average common shares outstanding
    
    
    8,864
    
    
    
    8,680Dilutive effect of stock options
    
    
    112
    
    
    
    200Adjusted weighted average common shares outstanding
    
    
    8,976
    
    
    
    8,880Diluted EPS
    
    $
    0.17
    
    
    $
    0.17
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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)
 4. Stock Option Plans
      9




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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)
 5. Comprehensive Income
  Three Months Ended(Dollars in thousands)
    
    March 31, 2007
    
    
    March 31, 2006Net income as reported
    
    $
    1,487
    
    
    $
    1,592Other
comprehensive income, net of tax:Unrealized holding (loss) gain
on
securities available for
sale
    
    
    164
    
    
    
    (98
    )Reclassification adjustment for
gain on available for sale
securities, net of tax
    
    
    (46
    )
    
    
    0Unrealized gains arising during
the period on
derivative transactions, net
    
    
    157
    
    
    
    0Total other comprehensive (loss) income
    
    
    275
    
    
    
    (98
    )Total comprehensive income
    
    $
    1,762
    
    
    $
    1,494
  6. Junior Subordinated Debt Payable to Unconsolidated Subsidiary Grantor Trust
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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)
      7. Commitments and Contingent Liabilities
 Lease Commitments 
 (Dollars in thousands)2007
    
    $
    3652008
    
    $
    5002009
    
    $
    4442010
    
    $
    4002011
    
    $
    308Thereafter
    
    $
    128Total
    
    $
    2,145Minimum rental due in the future
Under noncancellable subleases
    
    $
    4
 Legal Proceedings 
 FHLB Advances 
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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)
  Advance #
    
    Amount
    
    
    Interest Rate

    
    Maturity#059277
    
    $
    10,000,000
    
    
    
    5.43%
    
    
    
    01/24/2008#080890
    
    $
    10,000,000
    
    
    
    5.47%
    
    
    
    11/24/2011#087416
    
    $
    5,000,000
    
    
    
    5.23%
    
    
    
    04/28/2008#077383
    
    $
    15,000,000
    
    
    
    5.39%
    
    
    
    11/30/2007$
    40,000,000
 These borrowings are secured by an investment in FHLB stock and certain real estate mortgage
loans which have been specifically pledged to the FHLB pursuant to their collateral
requirements. Based upon the level of FHLB advances, the Company was required to hold a
minimum investment of $2,470,700 in FHLB stock and pledge collateral of $52,274,812 in real
estate mortgage loans as of March 31, 2007. At March 31, 2007, the Bank had available
borrowing lines at the FHLB of $104,912,000 and additional federal fund borrowing lines at
two correspondent banks totaling $25,000,000.Off-Balance Sheet Financial Instruments- In the ordinary course of
business, the Company enters various types of transactions, which involve financial
instruments with off-balance sheet risk. These instruments include commitments to extend
credit and standby letter of credits, which are not reflected in the accompanying
consolidated balance sheets. These transactions may involve, to varying degrees, credit
and interest rate risk more than the amount, if any recognized in the consolidated
balance sheets. Commitments to extend credit are agreements to lend to customers.These commitments have specified interest rates and generally have fixed expiration
dates but may be terminated by the Company if certain conditions of the contract are
violated. Although currently subject to draw down, many of the commitments do not
necessarily represent future cash requirements. Collateral held relating to these
commitments varies, but generally includes real estate, securities and cash. Standby letters
of credit are conditional commitments issued by the Bank to guarantee the performance of a
customer to a third party. Credit risk arises in these transactions from the possibility that
a customer may not be able to repay the Bank upon default of performance. Collateral held
for standby letters of credit is based on an individual evaluation of each customers
creditworthiness, but may include cash and securities. Commitments to extend credit and
standby letters of credit bear similar credit risk characteristics as outstanding loans.8.
    
    Accounting for Income Tax Uncertainties (FIN 48)In June 2006, the FASB issued Interpretation 48, Accounting for Uncertainty in Income
Taxes (FIN 48), an interpretation of FASB Statement No. 109, Accounting for Income
Taxes. FIN 48 clarifies the accounting and reporting for income taxes where interpretation
of the law is uncertain. FIN 48 prescribes a comprehensive model for the financial statement
recognition, measurement, presentation and disclosure of income tax uncertainties with
respect to positions taken or expected to be taken in income tax returns. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The Company adopted this
Statement on January 1, 2007. As a result of the implementation of Interpretation 48, it
was not necessary for the Company to recognize any increase in the liability for
unrecognized tax benefits.The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction
and California state jurisdictionThe Company recognizes interest and penalties accrued related to unrecognized tax benefits
in income tax expense.
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Forward Looking Statements and Risk Factors
 An investment in the Company has risk. The discussion below and elsewhere in this Report and in
other documents the Company files with the SEC incorporates various risk factors that could cause
the Companys financial results and condition to vary significantly from period to period.
Information in the accompanying financial statements contains certain forward-looking statements,
which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. We caution the investor that such statements are subject to risks and uncertainties
that could cause actual results to differ materially from those stated. These risks and
uncertainties include the Companys ability to maintain or expand its market share and net interest
margins, or to implement its marketing and growth strategies. Further, actual results may be
affected by the Companys ability to compete on price and other factors with other financial
institutions; customer acceptance of new products and services; and general trends in the banking
and the regulatory environment, as they relate to the Companys cost of funds and return on assets.
The reader is advised that this list of risks is not exhaustive and should not be construed as any
prediction by the Company as to which risks would cause actual results to differ materially from
those indicated by the forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements.
 For additional information concerning risks and uncertainties related to the Company and its
operations please refer to the Companys Annual Report on Form 10-K for the year ended December 31,
2006 under the heading Risk factors that may affect results. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to revise or publicly release the results of any revision to these
forward-looking statements to reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events.
 The following sections discuss significant changes and trends in the financial condition, capital
resources and liquidity of the Company from December 31, 2006 to March 31, 2007. Also discussed are
significant trends and changes in the Companys results of operations for the three months ended
March 31, 2007, compared to the same period in 2006. The consolidated financial statements and
related notes appearing elsewhere in this report are condensed and unaudited. The following
discussion and analysis is intended to provide greater detail of the Companys financial condition
and results.
 
 Company Overview
 th
  13




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  www.reddingbankofcommerce.com www.rosevillebankofcommerce.com, www.sutterbankofcommerce.com www.sec.gov
     reddingbankofcommerce.com rosevillebankofcommerce.com sutterbankofcommerce.com bankofcommercemortgage.com
  14




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
     15




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
 Risk Factors
 
 Economic Conditions and Geographic Concentration
   
 Changes in Interest Rates could reduce the Companys Net Interest Income and Earnings
     16




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Lending Risks Associated with Commercial Real Estate and Construction Activities
  
 Adequacy of Allowance for Loan and Lease Losses (ALLL)
   
 Potential Volatility of Deposits
   
 Dividends
  17




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Changes in Accounting Policies or Accounting Standards, and Changes in How Accounting Standards are
interpreted or applied, Could Materially Affect How the Company Reports its Financial Results and
Condition
 Critical
Accounting Policies).
  
 Government Regulation and Legislation
     
 Certain Ownership Restrictions under California and Federal Law
  18




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
   
 Negative Publicity could Damage our Reputation
  
 Environmental Risks
  
 Shares Eligible for Future Sale
  19




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
 Technology and Computer Systems
  
 Company Stock Price may be volatile due to Other Factors
  
    
    General business and economic conditions;
    
    Recommendations by securities analysts;
    
    New technologies introduced or services offered by our competitors;
    
    News reports relating to trends, concerns and other issues in the financial services industry;
    
    Natural disasters; and
    
    Geopolitical conditions, such as acts or threats of terrorism or military conflicts.
 
 UNRESOLVED STAFF COMMENTS
  20




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Executive Overview
 high-quality
     
 Sources of Income
   21




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 March 31, 2007
    
    March 31, 2006Profitability RatiosNet Income to Average Assets
    
    
    3.77
    %
    
    
    4.22
    %Net Income to Average Equity
    
    
    11.98
    %
    
    
    14.65
    %Efficiency Ratio1
    
    
    59.88
    %
    
    
    55.25
    %Capital RatiosLeverage Ratio
    
    
    9.75
    %
    
    
    10.05
    %Risk Based Capital
    
    $
    56,050,000
    
    
    $
    51,733,000Tier 1 Capital
    
    
    11.23
    %
    
    
    12.00
    %Total Capital
    
    
    12.29
    %
    
    
    13.09
    %Per Common Share DataDividend Payout Ratio
    
    
    47.94
    %
    
    
    38.32
    %Book Value
    
    $
    5.10
    
    
    $
    4.63Market Price
    
    $
    11.75
    
    
    $
    10.23High
    
    $
    12.29
    
    
    $
    10.64Low
    
    $
    10.98
    
    
    $
    9.14
 
 Financial Highlights  Results of Operations
  
 Net Interest Income and Net Interest Margin
    
 1
    
    The efficiency ratio is noninterest expense
divided by total revenue (net interest income and noninterest income) 22




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  
 Liquidity
     
 Capital Management
     23




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 Well
    
    
    MinimumActual
    
    
    Capitalized
    
    
    CapitalAs of March 31, 2007
    
    Capital
    
    
    Ratio
    
    
    Requirement
    
    
    RequirementThe CompanyLeverage
    
    $
    56,050,000
    
    
    
    9.75
    %
    
    
    n/a
    
    
    
    4.0
    %Tier 1 Risk-Based
    
    
    56,050,000
    
    
    
    11.23
    %
    
    
    n/a
    
    
    
    4.0
    %Total Risk-Based
    
    
    61,373,917
    
    
    
    12.29
    %
    
    
    n/a
    
    
    
    8.0
    %Redding Bank of
CommerceLeverage
    
    $
    55,612,000
    
    
    
    9.81
    %
    
    
    5.0
    %
    
    
    4.0
    %Tier 1 Risk-Based
    
    
    55,612,000
    
    
    
    11.14
    %
    
    
    6.0
    %
    
    
    4.0
    %Total Risk-Based
    
    
    60,936,129
    
    
    
    12.21
    %
    
    
    10.00
    %
    
    
    8.0
    %
 
 Short and Long Term Borrowings
   
 Allowance for Loan and Lease Losses
  most significant
   24




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Factors that may affect future results
       25




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 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)
 most significant
 Accounting for Contingencies Accounting by Creditors for
Impairment of a Loan
 26




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
   Revenue recognition
  Stock-based Compensation
 Accounting for Stock Based
Compensation
  Income Taxes
  27




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
  
 Table 1.
    
    Average Balances, Interest Income/Expense and Yields/Rates Paid(Unaudited, Dollars in thousands)
 Three Months Ended
    
    
    Three Months EndedMarch 31, 2007
    
    
    March 31, 2006Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateEarning AssetsPortfolio Loans
    
    $
    407,758
    
    
    $
    8,464
    
    
    
    8.30
    %
    
    $
    369,589
    
    
    $
    7,230
    
    
    
    7.82
    %Tax-exempt Securities
    
    
    29,712
    
    
    
    278
    
    
    
    3.74
    %
    
    
    14,099
    
    
    
    123
    
    
    
    3.49
    %US Government Securities
    
    
    33,722
    
    
    
    356
    
    
    
    4.22
    %
    
    
    43,052
    
    
    
    423
    
    
    
    3.93
    %Mortgage backed Securities
    
    
    41,919
    
    
    
    476
    
    
    
    4.54
    %
    
    
    41,910
    
    
    
    439
    
    
    
    4.19
    %Federal Funds Sold
    
    
    15,540
    
    
    
    200
    
    
    
    5.15
    %
    
    
    11,587
    
    
    
    130
    
    
    
    4.49
    %Other Securities
    
    
    2,302
    
    
    
    36
    
    
    
    6.26
    %
    
    
    4,049
    
    
    
    44
    
    
    
    4.35
    %Average Earning Assets
    
    $
    530,953
    
    
    $
    9,810
    
    
    
    7.39
    %
    
    $
    484,286
    
    
    $
    8,389
    
    
    
    6.93
    %Cash & Due From Banks
    
    $
    12,939
    
    
    
    
    
    
    
    
    
    
    $
    13,937Bank Premises
    
    
    9,288
    
    
    
    
    
    
    
    
    
    
    
    5,943Allowance for Loan Losses
    
    
    ( 4,892
    )
    
    
    
    
    
    
    
    
    
    
    ( 4,364
    )Other Assets
    
    
    17,226
    
    
    
    
    
    
    
    
    
    
    
    12,877Average Total Assets
    
    $
    565,514
    
    
    
    
    
    
    
    
    
    
    $
    512,679Interest Bearing LiabilitiesDemand Interest Bearing
    
    $
    112,910
    
    
    $
    557
    
    
    
    1.97
    %
    
    $
    103,500
    
    
    $
    233
    
    
    
    0.90
    %Savings Deposits
    
    
    28,864
    
    
    
    171
    
    
    
    2.37
    %
    
    
    28,093
    
    
    
    65
    
    
    
    0.93
    %Certificates of Deposit
    
    
    214,094
    
    
    
    2,605
    
    
    
    4.87
    %
    
    
    164,752
    
    
    
    1,549
    
    
    
    3.76
    %Repurchase Agreements
    
    
    34,860
    
    
    
    342
    
    
    
    3.92
    %
    
    
    24,057
    
    
    
    199
    
    
    
    3.31
    %FHLB Borrowings
    
    
    40,000
    
    
    
    539
    
    
    
    5.39
    %
    
    
    57,611
    
    
    
    672
    
    
    
    4.67
    %Trust Preferred Borrowings
    
    
    15,000
    
    
    
    269
    
    
    
    7.17
    %
    
    
    15,000
    
    
    
    258
    
    
    
    6.88
    %445,728
    
    
    $
    4,483
    
    
    
    4.02
    %
    
    
    393,013
    
    
    $
    2,976
    
    
    
    3.03
    %Noninterest bearing demand
    
    
    73,977
    
    
    
    
    
    
    
    
    
    
    
    78,339Other Liabilities
    
    
    1,333
    
    
    
    
    
    
    
    
    
    
    
    4,376Stockholders Equity
    
    
    44,476
    
    
    
    
    
    
    
    
    
    
    
    36,951Average Liabilities and
Stockholders Equity
    
    $
    565,514
    
    
    
    
    
    
    
    
    
    
    $
    512,679Net Interest Income and Net
Interest Margin
    
    
    
    
    
    $
    5,327
    
    
    
    4.01
    %
    
    $
    5,413
    
    
    
    4.47
    %
 28




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  
   (Dollars in thousands)
    
    Volume
    
    
    Rate
    
    
    TotalIncrease (Decrease) InInterest IncomePortfolio Loans
    
    $
    792
    
    
    $
    442
    
    
    $
    1,234Tax-exempt Securities
    
    
    146
    
    
    
    9
    
    
    
    155US Government Securities
    
    
    (98
    )
    
    
    31
    
    
    
    (67
    )Mortgage back Securities
    
    
    0
    
    
    
    37
    
    
    
    37Federal Funds Sold
    
    
    51
    
    
    
    19
    
    
    
    70Other Securities
    
    
    (27
    )
    
    
    19
    
    
    
    (8
    )Total Increase (Decrease)
    
    $
    864
    
    
    $
    557
    
    
    $
    1,421Increase (Decrease) InInterest ExpenseInterest Bearing Demand
    
    $
    46
    
    
    $
    278
    
    
    $
    324Savings Deposits
    
    
    5
    
    
    
    101
    
    
    
    106Certificates of Deposit
    
    
    600
    
    
    
    456
    
    
    
    1,056Repurchase Agreements
    
    
    106
    
    
    
    37
    
    
    
    143FHLB Borrowings
    
    
    (237
    )
    
    
    104
    
    
    
    (133
    )Trust Preferred Borrowings
    
    
    0
    
    
    
    11
    
    
    
    11Total Increase (Decrease)
    
    $
    520
    
    
    $
    987
    
    
    $
    1,507Net Increase
    
    $
    344
    
    
    $
    (430
    )
    
    $
    (86
    )
    29




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
 Noninterest Income
  (Dollars in thousands)
    
    Three Months EndedMarch 31, 2007
    
    
    March 31, 2006Noninterest incomeService charges on deposit accounts
    
    $
    69
    
    
    $
    88Payroll and benefit processing fees
    
    
    108
    
    
    
    109Earnings on cash surrender value -Bank owned life insurance
    
    
    95
    
    
    
    53Net gain on sale of securities available-for-sale
    
    
    46
    
    
    
    0Net gain on sale of loans
    
    
    0
    
    
    
    1Merchant credit card service income, net
    
    
    92
    
    
    
    77Mortgage brokerage fee income
    
    
    6
    
    
    
    17Other income
    
    
    82
    
    
    
    103Total noninterest income
    
    $
    498
    
    
    $
    448
  
 Noninterest Expense
    
    Three Months Ended(Dollars in thousands)
    
    March 31, 2007
    
    
    March 31, 2006Noninterest expenseSalaries and related benefits
    
    $
    2,097
    
    
    $
    1,878Occupancy and equipment expense
    
    
    458
    
    
    
    435FDIC insurance premium
    
    
    13
    
    
    
    12Data processing fees
    
    
    55
    
    
    
    58Professional service fees
    
    
    195
    
    
    
    204Payroll processing fees
    
    
    31
    
    
    
    29Deferred compensation expense
    
    
    97
    
    
    
    88Stationery and supplies
    
    
    61
    
    
    
    60Postage
    
    
    33
    
    
    
    31Directors expense
    
    
    45
    
    
    
    60Other expenses
    
    
    403
    
    
    
    383Total noninterest expense
    
    $
    3,488
    
    
    $
    3,238
  30




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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 EndedIncome Taxes
    
    March 31, 2007
    
    
    March 31, 2006Tax provision
    
    $
    844
    
    
    $
    1,020Effective tax rate
    
    
    36.2
    %
    
    
    39.1
    %
  Accounting for Uncertainty in Income Taxes
   31




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  March 31, 2007Deferred Tax AssetsState Franchise taxes
    
    
    276,048Deferred compensation
    
    
    1,735,541Loan loss reserves
    
    
    1,926,296Net unrealized losses on securities available-for-sale
    
    
    554,133Other
    
    
    367,151Total Deferred Tax Assets
    
    
    4,859,169Deferred Tax LiabilitiesDepreciation
    
    
    (229,998
    )Deferred loan origination costs
    
    
    (413,431
    )Deferred state taxes
    
    
    (245,348
    )Other
    
    
    (248,809
    )Total Deferred Tax Liabilities
    
    
    (1,137,586
    )Total Net Deferred Tax Asset
    
    $
    3,721,583
 
 Asset Quality
   (Dollars in thousands)Portfolio Loans
    
    March 31, 2007
    
    
    December 31, 2006Commercial and financial loans
    
    $
    120,801
    
    
    $
    121,754Real estate-construction loans
    
    
    114,658
    
    
    
    110,693Real estate-commercial
    
    
    155,830
    
    
    
    159,370Real estate- other
    
    
    16,848
    
    
    
    12,986Real estate-mortgage
    
    
    1,372
    
    
    
    4,278Installment
    
    
    179
    
    
    
    203Agricultural
    
    
    5,719
    
    
    
    3,971Other loans
    
    
    1,150
    
    
    
    937Less:Net deferred loan fees
    
    
    (267
    )
    
    
    (298
    )Allowance for loan losses
    
    
    (4,933
    )
    
    
    (4,904
    )Total net loans
    
    $
    411,357
    
    
    $
    408,990
  32




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
   (Dollars in thousands)Non performing assets
    
    March 31, 2007
    
    
    December 31, 2006Nonaccrual loans
    
    $
    0
    
    
    $
    090 days past due and still accruing
interest
    
    
    0
    
    
    
    0Total nonaccrual loans
    
    
    0
    
    
    
    0Other Real Estate Owned
    
    
    0
    
    
    
    0Total non performing assets
    
    $
    0
    
    
    $
    0
 
 Allowance for Loan and Lease Losses (ALLL)
     33




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
   (Dollars in thousands)
    
    March 31, 2007
    
    
    March 31, 2006Allowance for Loan and Lease LossesBeginning balance for Loan and Lease Losses
    
    $
    4,904
    
    
    $
    4,316Provision for Loan and Lease Losses
    
    
    6
    
    
    
    11Charge offs:Commercial
    
    
    (0
    )
    
    
    (149
    )Real Estate
    
    
    (0
    )
    
    
    (0
    )Other
    
    
    (0
    )
    
    
    (0
    )Total Charge offs
    
    
    (0
    )
    
    
    (149
    )Recoveries:Commercial
    
    
    19
    
    
    
    116Real Estate
    
    
    0
    
    
    
    0Other
    
    
    4
    
    
    
    1Total Recoveries
    
    
    23
    
    
    
    117Ending Balance
    
    $
    4,933
    
    
    $
    4,295ALLL to total loans
    
    
    1.18
    %
    
    
    1.13
    %Net Charge offs to average loans
    
    
    0.00
    %
    
    
    0.01
    %
 34




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Securities Portfolio
       (Dollars in thousands)
    
    as of March 31, 2007Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCosts
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueU.S. government & agencies
    
    $
    26,988
    
    
    $
    0
    
    
    $
    (473
    )
    
    $
    26,515Obligations of state and
political subdivisions
    
    
    20,539
    
    
    
    85
    
    
    
    (102
    )
    
    
    20,522Mortgage backed securities
    
    
    45,588
    
    
    
    0
    
    
    
    (837
    )
    
    
    44,751Corporate Bonds
    
    
    2,000
    
    
    
    0
    
    
    
    (19
    )
    
    
    1,981Total
    
    $
    95,115
    
    
    $
    85
    
    
    $
    (1,431
    )
    
    $
    93,769
 (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
 35




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##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
   
    
    Assets and liabilities may mature or reprice at different times (for example, if assets
reprice faster than liabilities and interest rates fall, earnings will initially decline);
    
    Assets and liabilities may reprice at the same time but by different amounts (for
example, the level of interest rates in the market is falling and the Company may reduce
rates paid on checking and savings deposit accounts by an amount that is less than the
general decline in market rates);
    
    Short-term and long-term market interest rates may change by different amounts (for
example, the shape of the yield curve may affect new loan yields and funding costs
differently); or
    
    The remaining maturities of various assets and liabilities may shorten or lengthen as
interest rates change (for example, if long-term mortgage rates decline sharply,
mortgage-backed securities held in the securities available-for-sale may prepay
significantly earlier than anticipated, which could reduce portfolio income.)
     36




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37




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ITEM 4. CONTROLS AND PROCEDURES
     38




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##### 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
 st
   st
 
 SIGNATURES
  BANK OF COMMERCE HOLDINGS
  /s/ Linda J. MilesLinda J. MilesExecutive Vice President &
Chief Financial Officer 39