##### 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 September 30, 2009
 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 þ
   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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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 Index to Form 10-Q
  
 PAGE NUMBERPART I FINANCIAL INFORMATIONItem 1 Financial Statements UnauditedCondensed Consolidated Balance Sheets
September 30, 2009, December 31, 2008 and September 30, 2008
    
    
    4Condensed Consolidated Statements of Income
Three and Nine Months Ended September 30, 2009 and 2008
    
    
    5Condensed Consolidated Statement of Stockholders Equity
    
    
    6Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2009 and 2008
    
    
    7Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    81. Summary of Significant Accounting Policies
    
    
    82. Business Combinations
    
    
    83. Recent Accounting Pronouncements
    
    
    114. Earnings Per Share
    
    
    125. Stock Option Plans
    
    
    126. Securities Available for Sale
    
    
    137. Mortgages Held for Sale
    
    
    158. Goodwill
    
    
    159. Junior Subordinated Debt Payable to Unconsolidated Subsidiary Grantor Trust
    
    
    1510. Preferred Stock and Warrants
    
    
    1611. Commitments and Contingent Liabilities
    
    
    1712. Accounting for Income Tax Uncertainties
    
    
    1913. Fair Value Measurement
    
    
    1914. Transfer of Financial Assets
    
    
    2215. Segment Reporting
    
    
    2316. Subsequent Events
    
    
    25Item 2 Managements Discussion and Analysis
Of Financial Condition and Results of Operations
    
    
    26Company Overview
    
    
    26Risk Factors
    
    
    27Economic Conditions and Geographic Concentration
    
    
    27Current Financial and Credit Market Conditions May Persist or Worsen
    
    
    28Valuation of Investments and Impairment of Securities
    
    
    28Changes in Interest Rates Could Reduce the Companys Net Interest Income
and Earnings
    
    
    28Lending Risks Associated with Commercial Banking and Construction Activities
    
    
    29Adequacy of Allowance for Loan and Lease Losses (ALLL)
    
    
    29Potential Volatility of Deposits
    
    
    29Dividends
    
    
    30Participation in the Treasury Departments Capital Purchase Program Restricts Our Ability to Raise the
Common Stock Dividend and May Result in Dilution of Common Stockholders
    
    
    30Changes in Accounting Policies or Accounting Standards Could Materially
Affect How the Company Reports its Financial Results and Condition
    
    
    30Government Regulation and Legislation
    
    
    31Certain Ownership Restrictions under California and Federal Law
    
    
    31Negative Publicity could Damage our Reputation
    
    
    32Environmental Risks
    
    
    32Shares Eligible for Future Sale
    
    
    32Technology and Computer Systems
    
    
    32Company Stock Price May Be Volatile Due to Other Factors
    
    
    33Mortgage Banking Interest Rate and Market Risk
    
    
    33Mortgage Banking Revenue can be Volatile from Quarter to Quarter
    
    
    33Executive Overview
    
    
    34Sources of Income
    
    
    34Financial Highlights  Results of Operations
    
    
    35Net Interest Income and Net Interest Margin
    
    
    37
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PAGE NUMBERLiquidity
    
    
    37Capital Management
    
    
    37Short and Long Term Borrowings
    
    
    38Provision for Loan and Lease Losses
    
    
    38Factors That May Affect Future Results
    
    
    39Critical Accounting Policies
    
    
    40Average Balances, Interest Income/Expense and Yields/Rates Paid
    
    
    43Analysis of Changes in Net Interest Income and Interest Expense
    
    
    44Noninterest Income
    
    
    45Noninterest Expense
    
    
    45Income Taxes
    
    
    46Asset Quality
    
    
    47Mortgages Held for Sale
    
    
    47Allowance for Loan and Lease Losses (ALLL)
    
    
    48Quarterly Income Statement
    
    
    51Item 3   Quantitative and Qualitative Disclosure about Market Risk
    
    
    52Item 4T Controls and Procedures
    
    
    54PART
II. OTHER INFORMATIONItem 1   Legal Proceedings
    
    
    54Item 1a Risk Factors
    
    
    54Item 2   Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    55Item 3   Defaults Upon Senior Securities
    
    
    55Item 4   Submission of Matters to a Vote of Security Holders
    
    
    55Item 5   Other Information
    
    
    55Item 6   Exhibits
    
    
    55SIGNATURES
    
    
    56EX-31.1EX-31.2EX-32
  3




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
(Unaudited)
 September 30,
    
    
    December 31,
    
    
    September 30,Dollars in thousands
    
    2009
    
    
    2008
    
    
    2008ASSETSCash and due from banks, non interest bearing
    
    $
    20,224
    
    
    $
    10,216
    
    
    $
    12,617Interest bearing due from banks
    
    
    56,208
    
    
    
    23,500
    
    
    
    0Federal funds sold and securities purchased under agreements to resell
    
    
    0
    
    
    
    51,475
    
    
    
    20,135Cash and cash equivalents
    
    
    76,432
    
    
    
    85,191
    
    
    
    32,752Securities available-for-sale, at fair value (including pledged
collateral of $61,345 at September 30, 2009, $68,735 at December 31,
2008 and $58,939 at September 30, 2008)
    
    
    86,499
    
    
    
    131,687
    
    
    
    74,863Portfolio Loans, net of the allowance for loan losses of $8,899 at
September 30, 2009, $8,429 at December 31, 2008 and $6,128 at
September 30, 2008
    
    
    590,885
    
    
    
    518,946
    
    
    
    503,348Mortgages held for sale, at fair value
    
    
    16,787
    
    
    
    
    
    
    
    Bank premises and equipment, net
    
    
    10,201
    
    
    
    10,672
    
    
    
    10,893Goodwill
    
    
    2,927
    
    
    
    
    
    
    
    Other real estate owned
    
    
    2,934
    
    
    
    2,934
    
    
    
    4,869Other assets
    
    
    27,215
    
    
    
    24,784
    
    
    
    23,819TOTAL ASSETS
    
    $
    813,880
    
    
    $
    774,214
    
    
    $
    650,544LIABILITIES AND STOCKHOLDERS EQUITYDemand  noninterest bearing
    
    $
    70,491
    
    
    $
    79,988
    
    
    $
    80,168Demand  interest bearing
    
    
    156,233
    
    
    
    143,871
    
    
    
    138,319Savings accounts
    
    
    59,982
    
    
    
    67,136
    
    
    
    69,469Certificates of deposit
    
    
    312,968
    
    
    
    264,287
    
    
    
    215,095Total deposits
    
    
    599,674
    
    
    
    555,282
    
    
    
    503,051Securities sold under agreements to repurchase
    
    
    10,038
    
    
    
    13,853
    
    
    
    13,580Federal Home Loan Bank and Federal Reserve Bank borrowings
    
    
    100,000
    
    
    
    120,000
    
    
    
    65,000Mortgage warehouse lines of credit
    
    
    12,285
    
    
    
    
    
    
    
    Other liabilities
    
    
    8,967
    
    
    
    7,036
    
    
    
    7,863Junior subordinated debt payable to unconsolidated
subsidiary grantor trust
    
    
    15,465
    
    
    
    15,465
    
    
    
    15,465Total Liabilities
    
    
    746,429
    
    
    
    711,636
    
    
    
    604,465Commitments and contingenciesStockholders Equity:Preferred stock (liquidation preference of $1,000 per share; issued
2008) 2,000,000 authorized; 17,000 shares issued and outstanding in
2009, and December 31, 2008, none outstanding at September 30, 2008
    
    
    16,619
    
    
    
    16,551
    
    
    
    Common stock , no par value, 50,000,000 shares authorized; 8,711,495
shares issued and outstanding at September 30,
2009, December 31, 2008 and at September 30, 2008
    
    
    9,709
    
    
    
    9,650
    
    
    
    9,619Common Stock Warrant
    
    
    449
    
    
    
    449
    
    
    
    Retained earnings
    
    
    38,355
    
    
    
    36,009
    
    
    
    37,364Accumulated other comprehensive income (loss), net of tax
    
    
    827
    
    
    
    (81
    )
    
    
    (1,398
    )Total Equity  Bank of Commerce Holdings
    
    
    65,959
    
    
    
    62,578
    
    
    
    45,585Non controlling interest in subsidiary
    
    
    1,492
    
    
    
    
    
    
    
    Total stockholders equity
    
    
    67,451
    
    
    
    62,578
    
    
    
    45,585TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    813,880
    
    
    $
    774,214
    
    
    $
    650,544
 See accompanying notes to condensed consolidated financial statements.
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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 Condensed Consolidated Statements of Income (Unaudited)
 Three and Nine Months Ended September 30, 2009 and September 30, 2008
 For Three Months Ended:
    
    
    For Nine Months Ended:September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,Amounts in thousands, except for per share data
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Interest income:Interest and fees on loans
    
    $
    9,355
    
    
    $
    8,252
    
    
    $
    26,676
    
    
    $
    25,554Interest on tax-exempt securities
    
    
    278
    
    
    
    308
    
    
    
    853
    
    
    
    884Interest on U.S. government securities
    
    
    628
    
    
    
    582
    
    
    
    2,774
    
    
    
    1,596Interest on federal funds sold and
securities purchased under agreements to resell
    
    
    1
    
    
    
    116
    
    
    
    31
    
    
    
    264Interest on other securities
    
    
    309
    
    
    
    13
    
    
    
    557
    
    
    
    58Total interest income
    
    
    10,571
    
    
    
    9,271
    
    
    
    30,891
    
    
    
    28,356Interest expense:Interest on demand deposits
    
    
    240
    
    
    
    514
    
    
    
    786
    
    
    
    1,762Interest on savings deposits
    
    
    223
    
    
    
    543
    
    
    
    742
    
    
    
    1,193Interest on certificates of deposit
    
    
    1,941
    
    
    
    1,963
    
    
    
    5,722
    
    
    
    6,577Securities sold under agreements to repurchase
    
    
    13
    
    
    
    32
    
    
    
    38
    
    
    
    151Interest on FHLB and other borrowings
    
    
    514
    
    
    
    662
    
    
    
    1,634
    
    
    
    2,174Interest on junior subordinated debt payable to
unconsolidated subsidiary grantor trust
    
    
    234
    
    
    
    317
    
    
    
    665
    
    
    
    793Total interest expense
    
    
    3,165
    
    
    
    4,031
    
    
    
    9,587
    
    
    
    12,650Net interest income
    
    
    7,406
    
    
    
    5,240
    
    
    
    21,304
    
    
    
    15,706Provision for loan and lease losses
    
    
    1,844
    
    
    
    1,300
    
    
    
    6,325
    
    
    
    2,900Net interest income after provision for loan losses
    
    
    5,562
    
    
    
    3,940
    
    
    
    14,979
    
    
    
    12,806Noninterest income:Service charges on deposit accounts
    
    
    108
    
    
    
    91
    
    
    
    296
    
    
    
    203Payroll and benefit processing fees
    
    
    109
    
    
    
    107
    
    
    
    347
    
    
    
    335Earnings on
cash surrender value 
Bank owned life insurance
    
    
    108
    
    
    
    86
    
    
    
    311
    
    
    
    264Net gain on sale of securities available-for-sale
    
    
    506
    
    
    
    159
    
    
    
    1,984
    
    
    
    595Net gain on transfer of financial assets
    
    
    
    
    
    
    
    
    
    
    340
    
    
    
    Net loss on sale of derivative swap transaction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (225
    )Merchant credit card service income, net
    
    
    80
    
    
    
    99
    
    
    
    229
    
    
    
    279Mortgage brokerage fee income
    
    
    1,913
    
    
    
    2
    
    
    
    3,215
    
    
    
    17Other income
    
    
    120
    
    
    
    207
    
    
    
    282
    
    
    
    575Total noninterest income
    
    
    2,944
    
    
    
    751
    
    
    
    7,004
    
    
    
    2,033Noninterest expense:Salaries and related benefits
    
    
    2,902
    
    
    
    1,909
    
    
    
    7,673
    
    
    
    5,750Occupancy and equipment expense
    
    
    1,124
    
    
    
    613
    
    
    
    2,426
    
    
    
    1,897FDIC insurance premium
    
    
    421
    
    
    
    113
    
    
    
    995
    
    
    
    284Data processing fees
    
    
    52
    
    
    
    81
    
    
    
    231
    
    
    
    224Professional service fees
    
    
    220
    
    
    
    146
    
    
    
    674
    
    
    
    397Payroll and benefit fees
    
    
    27
    
    
    
    26
    
    
    
    88
    
    
    
    86Deferred compensation expense
    
    
    118
    
    
    
    118
    
    
    
    360
    
    
    
    342Stationery and supplies
    
    
    62
    
    
    
    50
    
    
    
    141
    
    
    
    192Postage
    
    
    
    
    
    
    32
    
    
    
    111
    
    
    
    104Directors expense
    
    
    75
    
    
    
    81
    
    
    
    232
    
    
    
    223Other expenses
    
    
    653
    
    
    
    443
    
    
    
    1,576
    
    
    
    1,290Total noninterest expense
    
    
    5,654
    
    
    
    3,612
    
    
    
    14,507
    
    
    
    10,789Income before provision for income taxes
    
    
    2,852
    
    
    
    1,079
    
    
    
    7,476
    
    
    
    4,050Provision for income taxes
    
    
    1,010
    
    
    
    362
    
    
    
    2,647
    
    
    
    1,197Net Income
    
    
    1,842
    
    
    
    717
    
    
    
    4,829
    
    
    
    2,853Less: Net income attributable to non-controlling interest
    
    
    129
    
    
    
    
    
    
    
    230
    
    
    
    Net Income attributable to Bank of Commerce Holdings
    
    $
    1,713
    
    
    $
    717
    
    
    $
    4,599
    
    
    $
    2,853Less: preferred dividend and accretion on preferred stock
    
    
    235
    
    
    
    
    
    
    
    707
    
    
    
    Income available to common shareholders
    
    $
    1,478
    
    
    $
    717
    
    
    $
    3,892
    
    
    $
    2,853Basic earnings per share
    
    $
    0.17
    
    
    $
    0.08
    
    
    $
    0.45
    
    
    $
    0.33Weighted average shares  basic
    
    
    8,711
    
    
    
    8,711
    
    
    
    8,711
    
    
    
    8,713Diluted earnings per share
    
    $
    0.17
    
    
    $
    0.08
    
    
    $
    .45
    
    
    $
    0.33Weighted average shares  diluted
    
    
    8,711
    
    
    
    8,713
    
    
    
    8,712
    
    
    
    8,729Cash Dividends declared
    
    $
    0.12
    
    
    $
    0.08
    
    
    $
    0.18
    
    
    $
    0.24
 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 Stockholders Equity
Three and Nine Months Ended September 30, 2009
 Accumulated
    
    
    Subtotal
    
    
    NonOther Comp-
    
    
    Bank of
    
    
    ControllingComprehensive
    
    
    Preferred
    
    
    
    
    
    
    Common
    
    
    Stock
    
    
    Retained
    
    
    Income (Loss),
    
    
    Commerce
    
    
    Interest inDollars in Thousands
    
    Income
    
    
    Amount
    
    
    Warrant
    
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    net of tax
    
    
    Holdings
    
    
    Subsidiary
    
    
    TotalBalance at December 31, 2008
    
    
    
    
    
    $
    16,551,268
    
    
    $
    448,732
    
    
    
    8,711,495
    
    
    $
    9,649,672
    
    
    $
    36,008,866
    
    
    
    ($80,897
    )
    
    $
    62,577,641
    
    
    $
    0
    
    
    $
    62,577,641Comprehensive Income:Net Income
    
    
    1,270,015
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,270,015
    
    
    
    
    
    
    
    1,270,015
    
    
    
    
    
    
    
    1,270,015Other Comprehensive Income:Unrealized gains on securities, net of reclassification adjustment
    
    
    473,885Less: reclassification adjustment for gains included in net income, net of tax
    
    
    (237,796
    )Other Comprehensive Income
    
    
    Total Comprehensive Income
    
    
    1,506,104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    236,089
    
    
    
    236,089
    
    
    
    
    
    
    
    236,089Accretion on Preferred Stock
    
    
    
    
    
    
    22,437
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,437
    
    
    
    
    
    
    
    22,437Common cash dividends ($0.06 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (522,690
    )
    
    
    
    
    
    
    (522,690
    )
    
    
    
    
    
    
    (522,690
    )Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (214,861
    )
    
    
    
    
    
    
    (214,861
    )
    
    
    
    
    
    
    (214,861
    )Compensation expense associated with stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,902
    
    
    
    
    
    
    
    
    
    
    
    28,902
    
    
    
    
    
    
    
    28,902Balance at March 31, 2009
    
    
    
    
    
    $
    16,573,705
    
    
    $
    448,732
    
    
    
    8,711,495
    
    
    $
    9,678,574
    
    
    $
    36,541,330
    
    
    $
    155,192
    
    
    $
    63,397,533
    
    
    $
    0
    
    
    $
    63,397,533Net Income
    
    
    1,717,020
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,615,771
    
    
    
    
    
    
    
    1,615,771
    
    
    
    101,249
    
    
    
    1,717,020Comprehensive Income:Other Comprehensive Income:Unrealized gains on securities, net of reclassification adjustment
    
    
    506,451Less: reclassification adjustment for gains included in net income, net of tax
    
    
    (631,627
    )Total Other Comprehensive Income
    
    
    1,591,844Less: Other Comprehensive Income non-controlling interest
    
    
    (101,249
    )Total Comprehensive Income  BOCH
    
    
    1,490,595
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (125,176
    )
    
    
    (125,176
    )
    
    
    
    
    
    
    (125,176
    )Accretion on Preferred Stock
    
    
    
    
    
    
    22,437
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,437
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (212,500
    )
    
    
    
    
    
    
    (212,500
    )
    
    
    
    
    
    
    (212,500
    )Compensation expense associated with stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,434
    
    
    
    
    
    
    
    
    
    
    
    9,434
    
    
    
    
    
    
    
    9,434Cash distribution to non controlling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,061,812
    
    
    
    2,061,812Balance at June 30, 2009
    
    
    
    
    
    $
    16,596,142
    
    
    $
    448,732
    
    
    
    8,711,495
    
    
    $
    9,688,008
    
    
    $
    37,922,164
    
    
    $
    30,016
    
    
    $
    64,685,062
    
    
    $
    2,163,061
    
    
    $
    66,848,123Net Income
    
    
    1,842,391
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,713,162
    
    
    
    
    
    
    
    1,713,162
    
    
    
    129,229
    
    
    
    1,842,391Comprehensive Income:Other Comprehensive Income:Unrealized gains on securities, net of reclassification adjustment
    
    
    1,094,914Less: reclassification adjustment for gains included in net income, net of tax
    
    
    (297,950
    )Total Other Comprehensive Income
    
    
    2,639,355Less: Other Comprehensive Loss non-controlling interest
    
    
    (129,229
    )Total Comprehensive Income  BOCH
    
    
    2,510,126
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    796,964
    
    
    
    796,964
    
    
    
    
    
    
    
    796,964Accretion on Preferred Stock
    
    
    
    
    
    
    22,437
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,437
    )Common cash dividends ($0.12 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,045,380
    )
    
    
    
    
    
    
    (1,045,380
    )
    
    
    
    
    
    
    (1,045,380
    )Preferred stock dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (212,500
    )
    
    
    
    
    
    
    (212,500
    )
    
    
    
    
    
    
    (212,500
    )Compensation expense associated with stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,168
    
    
    
    
    
    
    
    
    
    
    
    21,168
    
    
    
    
    
    
    
    21,168Distribution to non controlling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (800,000
    )
    
    
    (800,000
    )Balance at September 30, 2009
    
    
    
    
    
    $
    16,618,579
    
    
    $
    448,732
    
    
    
    8,711,495
    
    
    $
    9,709,176
    
    
    $
    38,355,009
    
    
    $
    826,980
    
    
    $
    65,958,476
    
    
    $
    1,492,290
    
    
    $
    67,450,766
 See accompanying notes to condensed consolidated financial statements.
 6




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2009 and 2008
 September 30,
    
    
    September 30,Dollars in thousands
    
    2009
    
    
    2008Cash flows from operating activities:Net income
    
    $
    4,599
    
    
    $
    2,853Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan and lease losses
    
    
    6,325
    
    
    
    2,900Provision for depreciation and amortization
    
    
    943
    
    
    
    876Compensation expense associated with stock options
    
    
    60
    
    
    
    86Gain on transfer of financial assets
    
    
    (340
    )
    
    
    Gain on sale of securities available-for-sale
    
    
    (1,984
    )
    
    
    (595
    )Gain on sale of other real estate owned
    
    
    (20
    )Amortization of investment premiums and accretion of discounts, net
    
    
    (90
    )
    
    
    45Loss on sale of derivative swap transaction
    
    
    
    
    
    
    225Loss on sale of fixed assets
    
    
    1
    
    
    
    3(Increase)/decrease in Deferred income taxes
    
    
    (580
    )
    
    
    560Increase in cash surrender value of bank owned life policies
    
    
    (1,471
    )
    
    
    (254
    )Effect of changes in:Other assets
    
    
    (3,215
    )
    
    
    (8,460
    )Deferred compensation
    
    
    337
    
    
    
    325Deferred loan fees
    
    
    145
    
    
    
    (299
    )Other liabilities
    
    
    (3,077
    )
    
    
    (16
    )Net cash from operating activities
    
    
    1,633
    
    
    
    (1,755
    )Cash flows from investing activities:Proceeds from maturities and payments of available-for-sale securities
    
    
    22,653
    
    
    
    7,428Proceeds from sales of available-for-sale securities
    
    
    67,874
    
    
    
    42,901Purchases of available-for-sale securities
    
    
    (41,468
    )
    
    
    (47,725
    )Purchases of ITIN loan portfolio
    
    
    (66,696
    )
    
    
    Loan origination, net of principal repayments
    
    
    (16,549
    )
    
    
    (19,666
    )Purchases of Bank premises and equipment, net
    
    
    (286
    )
    
    
    (804
    )Proceeds from the sale of other real estate owned
    
    
    315Cash acquired in merger, net of cash consideration paid
    
    
    1,065
    
    
    
    Net cash used from investing activities
    
    
    (33,092
    )
    
    
    (17,658
    )Cash flows from financing activities:Net increase in deposits
    
    
    44,522
    
    
    
    29,420Net decrease in securities sold under agreement to repurchase
    
    
    (3,815
    )
    
    
    (1,933
    )Net change in FHLB advances
    
    
    (20,000
    )
    
    
    65,000Net change in other short term borrowings
    
    
    4,375
    
    
    
    (60,000
    )Cash dividends paid on common stock
    
    
    (1,742
    )
    
    
    (2,093
    )Cash dividends paid on preferred stock
    
    
    (640
    )
    
    
    Proceeds from stock options exercised
    
    
    0
    
    
    
    41Common stock repurchased
    
    
    0
    
    
    
    (504
    )Net cash from financing activities
    
    
    22,700
    
    
    
    29,931Net (decrease) increase in cash and cash equivalents
    
    
    (8,759
    )
    
    
    10,518Cash and cash equivalents, beginning of period
    
    
    85,191
    
    
    
    22,234Cash and cash equivalents, end of period
    
    $
    76,432
    
    
    $
    32,752Supplemental disclosures:Cash paid during the period for:Income taxes
    
    $
    2,189
    
    
    $
    Interest
    
    
    9,635
    
    
    
    12,155Transfer of loans to other real estate owned
    
    
    3,229
    
    
    
    4,869
 See accompanying notes to condensed consolidated financial statements.
 7




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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
    8




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
   Purchase Price and Goodwill
  (In Thousands)Cash paid  at fair value
    
    $
    1,500Earn out payable  at fair value
    
    
    965Fair value of non-controlling interest
    
    
    2,062Total Consideration at fair value
    
    $
    4,527Net acquisition date fair value of assets acquired
    
    $
    (1,600
    )Goodwill
    
    $
    2,927
   (In Thousands)Cash and Cash Equivalents
    
    $
    1,765Restricted Cash
    
    
    800Accounts Receivable
    
    
    10Other Receivables
    
    
    437Loans held for sale, net of deferred income
    
    
    12,006Prepaid Expenses
    
    
    57Notes Receivable
    
    
    414Total Current Assets:
    
    
    15,489Fixed Assets
    
    
    155Other Assets
    
    
    13TOTAL ASSETS
    
    
    15,657Accounts Payable
    
    
    99Accrued Expenses
    
    
    232Branch Payables
    
    
    191Total Payables:
    
    
    522Current portion Capital Lease
    
    
    39Impounds payable
    
    
    67Mortgage warehouse lines of credit
    
    
    11,810Total Other Current Liabilities:
    
    
    11,916Total Current Liabilities:
    
    
    12,438Long Term Capital Lease Payable
    
    
    15Due to stockholder
    
    
    224Notes Payable
    
    
    1,380Total Long Term Liabilities:
    
    
    1,619TOTAL LIABILITIES
    
    
    14,057Net Assets
    
    $
    1,600,000
 9




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
  (In Thousands)
    
    Nine Months Ended September 30, 2009Pro-Forma Income Statement
    
    Bank
    
    
    Mortgage
    
    
    Parent
    
    
    Intercompany
    
    
    ConsolidatedInterest income:Total interest income
    
    $
    30,663
    
    
    $
    
    
    
    $
    246
    
    
    $
    (18
    )
    
    $
    30,891Interest expense:Total interest expense
    
    
    8,955
    
    
    
    41
    
    
    
    638
    
    
    
    (18
    )
    
    
    9,616Net interest income
    
    
    21,708
    
    
    
    (41
    )
    
    
    (392
    )
    
    
    
    
    
    
    21,275Provision for loan and lease losses
    
    
    6,325
    
    
    
    0
    
    
    
    0
    
    
    
    
    
    
    
    6,325Net interest income after provision for
loan losses
    
    
    15,383
    
    
    
    (41
    )
    
    
    (392
    )
    
    
    
    
    
    
    14,950Noninterest income:Mortgage brokerage fee income
    
    
    27
    
    
    
    5,898
    
    
    
    
    
    
    
    
    
    
    
    5,925Other noninterest income
    
    
    3,789
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    3,791Total noninterest income
    
    
    3,816
    
    
    
    5,900
    
    
    
    0
    
    
    
    
    
    
    
    9,716Noninterest expense:Salaries and related benefits
    
    
    6,209
    
    
    
    2,768
    
    
    
    98
    
    
    
    
    
    
    
    9,075Occupancy and equipment expense
    
    
    1,872
    
    
    
    840
    
    
    
    
    
    
    
    
    
    
    
    2,712Other noninterest expense
    
    
    3,743
    
    
    
    1,062
    
    
    
    153
    
    
    
    
    
    
    
    4,958Total noninterest expense
    
    
    11,824
    
    
    
    4,670
    
    
    
    251
    
    
    
    
    
    
    
    16,745Income before provision for income taxes
    
    
    7,375
    
    
    
    1,189
    
    
    
    (643
    )
    
    
    
    
    
    
    7,921Provision for income taxes
    
    
    2,373
    
    
    
    275
    
    
    
    
    
    
    
    
    
    
    
    2,648Net Income
    
    
    5,002
    
    
    
    914
    
    
    
    (643
    )
    
    
    
    
    
    
    5,273Less: Net income attributable to non-controlling interest
    
    
    
    
    
    
    (448
    )
    
    
    
    
    
    
    
    
    
    
    (448
    )Net Income attributable to Bank of Commerce Holdings
    
    $
    5,002
    
    
    $
    466
    
    
    $
    (643
    )
    
    
    
    
    
    $
    4,825Less: Preferred dividend and accretion on preferred stock
    
    
    
    
    
    
    
    
    
    
    (707
    )
    
    
    
    
    
    
    (707
    )Income available to common shareholders
    
    $
    5,002
    
    
    $
    466
    
    
    $
    (1,350
    )
    
    
    
    
    
    $
    4,118Basic earnings per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0.47Diluted earnings per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0.47
 Nine Months Ended September 30, 2008Pro-Forma Income Statement
    
    Bank
    
    
    Mortgage
    
    
    Parent
    
    
    Intercompany
    
    
    ConsolidatedInterest income:Total interest income
    
    $
    28,155
    
    
    $
    3
    
    
    $
    245
    
    
    $
    (44
    )
    
    $
    28,359Interest expense:Total interest expense
    
    
    11,911
    
    
    
    42
    
    
    
    782
    
    
    
    (44
    )
    
    
    12,691Net interest income
    
    
    16,244
    
    
    
    (39
    )
    
    
    (537
    )
    
    
    
    
    
    
    15,668Provision for loan and lease losses
    
    
    2,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,900Net interest income after provision for
loan losses
    
    
    13,344
    
    
    
    (39
    )
    
    
    (537
    )
    
    
    
    
    
    
    12,768Noninterest income:Mortgage brokerage fee income
    
    
    0
    
    
    
    4,177
    
    
    
    
    
    
    
    
    
    
    
    4,177Other noninterest income
    
    
    2,013
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    2,019Total noninterest income
    
    
    2,013
    
    
    
    4,183
    
    
    
    
    
    
    
    
    
    
    
    6,196Noninterest expense:Salaries and related benefits
    
    
    5,629
    
    
    
    2,067
    
    
    
    98
    
    
    
    
    
    
    
    7,794Occupancy and equipment expense
    
    
    1,836
    
    
    
    1,044
    
    
    
    
    
    
    
    
    
    
    
    2,880Other noninterest expense
    
    
    3,002
    
    
    
    1,117
    
    
    
    134
    
    
    
    
    
    
    
    4,253Total noninterest expense
    
    
    10,467
    
    
    
    4,228
    
    
    
    232
    
    
    
    
    
    
    
    14,927Income before provision for income taxes
    
    
    4,890
    
    
    
    (84
    )
    
    
    (769
    )
    
    
    
    
    
    
    4,037Provision for income taxes
    
    
    1,197
    
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    1,197Net Income
    
    
    3,693
    
    
    
    (84
    )
    
    
    (769
    )
    
    
    
    
    
    
    2,840Less: Net income attributable to non-controlling interest
    
    
    
    
    
    
    (41
    )
    
    
    
    
    
    
    
    
    
    
    (41
    )Net Income attributable to Bank of Commerce Holdings
    
    $
    3,693
    
    
    $
    (43
    )
    
    $
    (769
    )
    
    
    
    
    
    $
    2,881Less: Preferred dividend and accretion on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income available to common shareholders
    
    $
    3,693
    
    
    $
    (43
    )
    
    $
    (769
    )
    
    
    
    
    
    $
    2,881Basic earnings per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0.33Diluted earnings per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0.33
 10




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
 
 3. Recent Accounting Pronouncements
      
  11




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
 
 4. Earnings per Share
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,Earnings Per Share
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Basic EPS Calculation:Net Income
attributable to Bank of Commerce Holdings
    
    $
    1,713
    
    
    $
    717
    
    
    $
    4,599
    
    
    $
    2,853Less: dividend on Preferred Stock
    
    
    213
    
    
    
    
    
    
    
    640
    
    
    
    Less: accretion on Preferred Stock
    
    
    22
    
    
    
    
    
    
    
    67
    
    
    
    Numerator: Earnings available to common
stockholders
    
    $
    1,478
    
    
    $
    717
    
    
    $
    3,892
    
    
    $
    2,853Denominator (average common shares outstanding)
    
    
    8,711
    
    
    
    8,711
    
    
    
    8,711
    
    
    
    8,713Basic earnings per Share
    
    $
    0.17
    
    
    $
    0.08
    
    
    $
    0.45
    
    
    $
    0.33Diluted EPS Calculation:Net Income
attributable to Bank of Commerce Holdings
    
    $
    1,713
    
    
    $
    717
    
    
    $
    4,599
    
    
    $
    2,853Less: dividend on Preferred Stock
    
    
    213
    
    
    
    
    
    
    
    640
    
    
    
    Less: accretion on Preferred Stock
    
    
    22
    
    
    
    
    
    
    
    67
    
    
    
    Numerator: Earnings available to common
stockholders
    
    $
    1,478
    
    
    $
    717
    
    
    $
    3,892
    
    
    $
    2,853Denominator:Average common shares outstanding
    
    
    8,711
    
    
    
    8,711
    
    
    
    8,711
    
    
    
    8,713Plus incremental shares from assumed conversionsStock Options
    
    
    0
    
    
    
    2
    
    
    
    1
    
    
    
    16Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,711
    
    
    
    8,713
    
    
    
    8,712
    
    
    
    8,729Diluted earnings per Share
    
    $
    0.17
    
    
    $
    0.08
    
    
    $
    0.45
    
    
    $
    0.33Anti-dilutive options not included in EPS Calculation
    
    
    621,605
    
    
    
    49,434
    
    
    
    621,605
    
    
    
    146,167Anti-dilutive warrants not included in EPS Calculation
    
    
    405,405
    
    
    
    
    
    
    
    405,405
    
    
    
    
 
 5. Stock Option Plans
   12




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
 
 6. Securities Available-for-Sale
    (Dollars in thousands)
    
    
    
    
    
    As of September 30, 2009Gross
    
    
    Gross
    
    
    EstimatedAvailable for sale securities
    
    Amortized Costs
    
    
    Unrealized Gains
    
    
    Unrealized Losses
    
    
    Fair ValueU.S. government & agencies
    
    $
    11,502
    
    
    $
    15
    
    
    $
    0
    
    
    $
    11,517Obligations of state and political subdivisions
    
    
    30,677
    
    
    
    1,400
    
    
    
    (8
    )
    
    
    32,069Mortgage backed securities
    
    
    40,449
    
    
    
    1,015
    
    
    
    (940
    )
    
    
    40,524Asset backed securities
    
    
    2,483
    
    
    
    0
    
    
    
    (94
    )
    
    
    2,389Total
    
    $
    85,111
    
    
    $
    2,430
    
    
    $
    (1,042
    )
    
    $
    86,499
 (Dollars in thousands)
    
    
    
    
    
    As of December 31, 2008Gross
    
    
    Gross
    
    
    EstimatedAvailable for sale securities
    
    Amortized Costs
    
    
    Unrealized Gains
    
    
    Unrealized Losses
    
    
    Fair ValueU.S. government & agencies
    
    $
    16,006
    
    
    $
    70
    
    
    $
    
    
    
    $
    16,076Obligations of state and political subdivisions
    
    
    32,178
    
    
    
    146
    
    
    
    (1,303
    )
    
    
    31,021Mortgage backed securities
    
    
    83,657
    
    
    
    1,278
    
    
    
    (345
    )
    
    
    84,590Asset backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    131,841
    
    
    $
    1,494
    
    
    $
    (1,648
    )
    
    $
    131,687
  Amortized Cost
    
    
    Estimated Fair ValueDue in one year or lessDue after one year through five years
    
    $
    10,308
    
    
    $
    10,358Due after five years through ten years
    
    
    7,710
    
    
    
    7,785Due after ten years
    
    
    67,093
    
    
    
    68,356Total
    
    $
    85,111
    
    
    $
    86,499
  13




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 Notes to Unaudited Condensed Consolidated Financial Statements
    As of September 30, 2009Less than 12 months
    
    
    12 months or more
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized(In Thousands)
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. government &
agencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Obligations of state
and
political subdivisions
    
    
    
    
    
    
    
    
    
    $
    494
    
    
    $
    (8
    )
    
    $
    494
    
    
    $
    (8
    )Mortgage backed
securities
    
    $
    12,845
    
    
    $
    (931
    )
    
    $
    2,019
    
    
    $
    (9
    )
    
    $
    14,864
    
    
    $
    (940
    )Asset backed
securities
    
    $
    2,390
    
    
    $
    (94
    )
    
    
    
    
    
    
    
    
    
    $
    2,390
    
    
    $
    (94
    )Total temporarily
impaired securities
    
    $
    15,235
    
    
    $
    (1,025
    )
    
    $
    2,513
    
    
    $
    (17
    )
    
    $
    17,748
    
    
    $
    (1,042
    )
 As of December 31, 2008Less than 12 months
    
    
    12 months or more
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized(In Thousands)
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. government &
agencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Obligations of
state and political
subdivisions
    
    $
    21,125
    
    
    $
    (1,140
    )
    
    $
    844
    
    
    $
    (162
    )
    
    $
    21,969
    
    
    $
    (1,303
    )Mortgage-backed
securities
    
    $
    16,667
    
    
    $
    (106
    )
    
    $
    5,375
    
    
    $
    (240
    )
    
    $
    22,041
    
    
    $
    (345
    )Total temporarily
impaired securities
    
    $
    37,792
    
    
    $
    (1,246
    )
    
    $
    6,219
    
    
    $
    (402
    )
    
    $
    44,010
    
    
    $
    (1,648
    )
 Obligations of state and political subdivisions
  14




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 Notes to Unaudited Condensed Consolidated Financial Statements
  Mortgage-Backed securities
  Asset-Backed securities
  
 7. Mortgages held for sale
  
 8. Goodwill
   
 9. Junior Subordinated Debt Payable to Unconsolidated Subsidiary Grantor Trust
    15




---



##### Table of Contents



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




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 Notes to Unaudited Condensed Consolidated Financial Statements
     
 11.    Commitments and contingent liabilities
 Lease Commitments 
  Operating Leases2009
    
    $
    6342010
    
    
    8602011
    
    
    6902012
    
    
    4832013
    
    
    258Thereafter
    
    
    606Total
    
    $
    3,531
 Legal Proceedings 
 17




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
 FHLB Advances 
 (In Thousands)Advance Amount

    
    Interest Rate
    
    Maturity$  20,000
    
    
    
    0.25
    %
    
    10/13/2009$  35,000
    
    
    
    3.97
    %
    
    11/23/2009$  30,000
    
    
    
    0.30
    %
    
    11/23/2009$  15,000
    
    
    3.41%
    
    4/29/2011$100,000
  FRB Term Auction Facility Advances
 Off-Balance Sheet Financial Instruments
    Credit Commitments
    
    September 30, 2009
    
    
    September 30, 2008Unfunded loan commitments
    
    $
    137,964,010
    
    
    $
    150,616,771Standby letters of credit
    
    
    5,489,388
    
    
    
    8,674,216Guaranteed commitments outstanding
    
    
    1,324,799
    
    
    
    1,350,399$
    144,778,197
    
    
    $
    160,641,386
 18




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
 
 12. Accounting for Income Tax and Uncertainties
 
  
 13. Fair Value Measurement
  Fair Value Hierarchy
        19




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
 (In Thousands)Recurring Basis
    
    
    
    
    
    Fair Value MeasurementsAt September 30, 2009Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets For
    
    
    Observable
    
    
    UnobservableFair Value
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    September 30, 2009
    
    
    Level (1)
    
    
    (Level 2)
    
    
    (Level 3)Available-for-sale securities
    
    $
    86,499
    
    
    $
    0
    
    
    $
    86,499
    
    
    $
    0Mortgages held for sale
    
    $
    16,787
    
    
    $
    16,787
    
    
    $
    0
    
    
    $
    0Total assets measured at fair value
    
    $
    103,286
    
    
    $
    16,787
    
    
    $
    86,499
    
    
    $
    0Total liabilities measured at fair
value
    
    $
    
    
    
    
    
    
    
    $
    
  Securities available-for-sale
 Mortgages held for sale 
 Assets and Liabilities Recorded at Fair Value on a Non Recurring Basis
  (In Thousands)Non Recurring Basis
    
    
    
    
    
    Fair Value MeasurementsAt September 30, 2009Quoted Prices in
    
    
    Significant
    
    
    
    
    
    
    Gains
    
    
    GainsActive Markets
    
    
    Other
    
    
    Significant
    
    
    (Losses)
    
    
    (Losses)For
    
    
    Observable
    
    
    Unobservable
    
    
    During 3
    
    
    During 9Fair Value
    
    
    Identical Assets
    
    
    Inputs
    
    
    Inputs
    
    
    months ended
    
    
    months endedDescription
    
    September 30, 2009
    
    
    Level (1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    September 30, 2009
    
    
    September 30, 2009Impaired Loans
    
    $
    6,138
    
    
    
    
    
    
    
    
    
    
    $
    6,138
    
    
    $
    628
    
    
    $
    (5,182
    )Total assets
measured at fair
value
    
    $
    6,138
    
    
    
    
    
    
    
    
    
    
    $
    6,138
    
    
    $
    628
    
    
    $
    (5,182
    )Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    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
 Impaired loans 
  Method for determining fair values
  Cash and cash equivalents
 Securities available-for-sale
 Portfolio loans
 Mortgages held for sale 
 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 sold under agreements to repurchase 
 Limitations
 21




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
     September 30, 2009Contract
    
    
    Carrying(In Thousands)
    
    Amount
    
    
    Amount
    
    
    Fair ValueFinancial Assets:Cash and cash equivalents
    
    
    
    
    
    $
    76,432
    
    
    $
    76,432Securities
    
    
    
    
    
    
    86,499
    
    
    
    86,499Portfolio Loans, net
    
    
    
    
    
    
    590,885
    
    
    
    598,386Mortgages held for sale, at fair value
    
    
    
    
    
    
    16,787
    
    
    
    16,787Accrued interest on loans
    
    
    
    
    
    
    2,590
    
    
    
    2,590Accrued interest on securities
    
    
    
    
    
    
    808
    
    
    
    808Financial Liabilities:Demand and savings
    
    
    
    
    
    
    271
    
    
    
    271Fixed rate certificates
    
    
    
    
    
    
    306,642
    
    
    
    309,447Variable certificates
    
    
    
    
    
    
    6,326
    
    
    
    6,326Accrued interest payable
    
    
    
    
    
    
    495
    
    
    
    495Securities sold under agreements to repurchase
    
    
    
    
    
    
    10,038
    
    
    
    10,038Federal Home Loan Borrowings
    
    
    
    
    
    
    100,000
    
    
    
    100,000Mortgage Warehouse Line of Credit
    
    
    
    
    
    
    12,285
    
    
    
    12,285Junior subordinated debt payable to
unconsolidated subsidiary grantor trust
    
    
    
    
    
    
    15,465
    
    
    
    15,465Off balance sheet financial instruments:Commitments to extend credit
    
    $
    137,964
    
    
    
    
    
    
    
    Standby letters of credit
    
    
    5,489
    
    
    
    
    
    
    
    55Guaranteed commitments outstanding
    
    
    1,325
    
    
    
    
    
    
    
    13
 
 14. Transfer of Financial Assets
   22




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
   
 15. Segment Reporting
    (In Thousands)Income Statement
    
    Bank
    
    
    Mortgage
    
    
    Parent
    
    
    Intercompany
    
    
    ConsolidatedInterest income:Interest and fees on loans
    
    $
    26,468
    
    
    
    
    
    
    $
    208
    
    
    
    
    
    
    $
    26,676Interest on tax-exempt securities
    
    
    853
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    853Interest on U.S. government securities
    
    
    2,774
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,774Interest on federal funds sold and
securities purchased under
agreements to resale
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31Interest on other securities
    
    
    538
    
    
    
    
    
    
    
    37
    
    
    
    (18
    )
    
    
    557Total interest income
    
    
    30,664
    
    
    
    
    
    
    
    245
    
    
    
    (18
    )
    
    
    30,891Interest expense:Interest on demand deposits
    
    
    786
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    786Interest on savings deposits
    
    
    742
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    742Interest on certificates of deposit
    
    
    5,740
    
    
    
    
    
    
    
    
    
    
    
    (18
    )
    
    
    5,722Securities sold under agreements to
repurchase
    
    
    38
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38Interest on FHLB and other borrowings
    
    
    1,622
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    1,634Interest on junior subordinated debt payable
to unconsolidated subsidiary
grantor trust
    
    
    
    
    
    
    
    
    
    
    665
    
    
    
    
    
    
    
    665Total interest expense
    
    
    8,928
    
    
    
    12
    
    
    
    665
    
    
    
    (18
    )
    
    
    9,587Net interest income
    
    
    21,736
    
    
    
    (12
    )
    
    
    (420
    )
    
    
    
    
    
    
    21,304Provision for loan and lease losses
    
    
    6,325
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,325Net interest income after provision for
loan losses
    
    
    15,411
    
    
    
    (12
    )
    
    
    (420
    )
    
    
    
    
    
    
    14,979Noninterest income:Service charges on deposit accounts
    
    
    296
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    296Payroll and benefit processing fees
    
    
    347
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    347Earnings on cash surrender value -
Bank owned life insurance
    
    
    311
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    311
 23




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 Notes to Unaudited Condensed Consolidated Financial Statements
 Income Statement (continued)
    
    Bank
    
    Mortgage
    
    Parent
    
    Intercompany
    
    ConsolidatedNet gain on sale of securities
    
    
    1,984
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,984Net gain on transfer of financial assets
    
    
    340
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    340Merchant credit card service income, net
    
    
    229
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    229Mortgage brokerage fee income
    
    
    27
    
    
    
    3,188
    
    
    
    
    
    
    
    
    
    
    
    3,215Other income
    
    
    282
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    282Total noninterest income
    
    
    3,816
    
    
    
    3,188
    
    
    
    
    
    
    
    
    
    
    
    7,004Noninterest expense:Salaries and related benefits
    
    
    6,208
    
    
    
    1,367
    
    
    
    97
    
    
    
    
    
    
    
    7,673Occupancy and equipment expense
    
    
    1,873
    
    
    
    553
    
    
    
    
    
    
    
    
    
    
    
    2,426FDIC insurance premium
    
    
    995
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    995Data processing fees
    
    
    231
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    231Professional service fees
    
    
    533
    
    
    
    14
    
    
    
    127
    
    
    
    
    
    
    
    674Payroll and benefit fees
    
    
    88
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88Deferred compensation expense
    
    
    360
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    360Stationery and supplies
    
    
    123
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    141Postage
    
    
    99
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    111Directors expense
    
    
    206
    
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    232Other expenses
    
    
    1,108
    
    
    
    468
    
    
    
    
    
    
    
    
    
    
    
    1,576Total noninterest expense
    
    
    11,824
    
    
    
    2,432
    
    
    
    250
    
    
    
    
    
    
    
    14,507Income before provision for income taxes
    
    
    7,403
    
    
    
    744
    
    
    
    (670
    )
    
    
    
    
    
    
    7,476Provision for income taxes
    
    
    2,373
    
    
    
    274
    
    
    
    0
    
    
    
    
    
    
    
    2,647Net Income
    
    
    5,030
    
    
    
    470
    
    
    
    (670
    )
    
    
    
    
    
    
    4,829Less: Net income attributable to non-controlling interest
    
    
    
    
    230
    
    
    
    
    
    
    
    
    
    
    
    230Net Income attributable to Bank of Commerce Holdings
    
    $
    5,030
    
    
    $
    240
    
    
    $
    (670
    )
    
    
    
    
    
    $
    4,599Dollars in thousands
    
    Bank
    
    Mortgage
    
    Parent
    
    Intercompany
    
    ConsolidatedASSETSCash and due from banks, non interest bearing
    
    $
    19,645
    
    
    $
    2,227
    
    
    $
    1,342
    
    
    $
    (2,990
    )
    
    $
    20,224Interest bearing due from banks
    
    
    56,208
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,208Federal funds sold and securities purchased under
agreements to resell
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Cash and cash equivalents
    
    
    75,853
    
    
    
    2,227
    
    
    
    1,342
    
    
    
    (2,990
    )
    
    
    76,432Securities available-for-sale at fair value
(including pledged collateral of $61,345 at
September 30, 2009)
    
    
    86,499
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86,499Portfolio loans
    
    
    601,171
    
    
    
    
    
    
    
    2,513
    
    
    
    (3,900
    )
    
    
    599,784Allowance for loan and lease losses
    
    
    (8,860
    )
    
    
    
    
    
    
    (39
    )
    
    
    
    
    
    
    (8,899
    )Portfolio loans net of allowance
    
    
    592,311
    
    
    
    
    
    
    
    2,474
    
    
    
    (3,900
    )
    
    
    590,885Mortgages held for sale, at fair value, net of
deferred income
    
    
    
    
    
    
    16,787
    
    
    
    
    
    
    
    
    
    
    
    16,787Premises and equipment, net
    
    
    10,072
    
    
    
    129
    
    
    
    
    
    
    
    
    
    
    
    10,201Investment in Bank of Commerce Mortgage
    
    
    
    
    
    
    
    
    
    
    2,705
    
    
    
    (2,705
    )
    
    
    Investment in Trust
    
    
    
    
    
    
    
    
    
    
    465
    
    
    
    
    
    
    
    465Investment in Bank
    
    
    
    
    
    
    
    
    
    
    75,937
    
    
    
    (75,937
    )
    
    
    Goodwill
    
    
    
    
    
    
    2,927
    
    
    
    
    
    
    
    
    
    
    
    2,927Other real estate owned
    
    
    2,934
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,934Other assets
    
    
    27,657
    
    
    
    620
    
    
    
    
    
    
    
    (1,527
    )
    
    
    26,750TOTAL ASSETS
    
    $
    795,326
    
    
    $
    22,690
    
    
    $
    82,923
    
    
    $
    (87,059
    )
    
    $
    813,880
 24




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES  Notes to Unaudited Condensed Consolidated Financial Statements
 LIABILITIES AND STOCKHOLDERS EQUITY
    
    Bank
    
    
    Mortgage
    
    
    Parent
    
    
    Intercompany
    
    
    ConsolidatedDemand  noninterest bearing
    
    $
    73,481
    
    
    
    
    
    
    
    
    
    
    
    ($2,990
    )
    
    $
    70,491Demand  interest bearing
    
    
    156,233
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156,233Savings accounts
    
    
    59,982
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59,982Certificates of deposit
    
    
    312,968
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    312,968Total deposits
    
    
    602,664
    
    
    
    
    
    
    
    
    
    
    
    (2,990
    )
    
    
    599,674Securities sold under agreements to repurchase
    
    
    10,038
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,038Federal Home Loan Bank borrowings
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000Mortgage warehouse lines of credit
    
    
    
    
    
    
    16,185
    
    
    
    
    
    
    
    (3,900
    )
    
    
    12,285Other liabilities
    
    
    6,686
    
    
    
    2,308
    
    
    
    1,500
    
    
    
    (1,527
    )
    
    
    8,967Junior
subordinated debt payable to unconsolidated subsidiary grantor trust
    
    
    
    
    
    
    
    
    
    
    15,465
    
    
    
    
    
    
    
    15,465Total Liabilities
    
    
    719,388
    
    
    
    18,493
    
    
    
    16,965
    
    
    
    (8,415
    )
    
    
    746,429Commitments and contingenciesStockholders Equity:Preferred
stock (liquidation preference of $1,000 per share; issued 2008) 2,000,000 authorized;
17,000 shares issued and outstanding in 2009, and
December 31, 2008, none outstanding at September 30, 2008
    
    
    13,000
    
    
    
    
    
    
    
    16,619
    
    
    
    ($13,000
    )
    
    
    16,619Common stock
, no par value, 50,000,000 shares authorized; 8,711,495 shares issued and
outstanding at September 30, 2009
    
    
    2,341
    
    
    
    1
    
    
    
    9,709
    
    
    
    (2,342
    )
    
    
    9,709Common Stock Warrant
    
    
    
    
    
    
    
    
    
    
    449
    
    
    
    
    
    
    
    449Additional Paid in Capital
    
    
    28,010
    
    
    
    2,704
    
    
    
    
    
    
    
    (30,714
    )
    
    
    Retained Earnings
    
    
    31,760
    
    
    
    
    
    
    
    38,355
    
    
    
    (31,760
    )
    
    
    38,355Accumulated other comprehensive income, net of tax
    
    
    827
    
    
    
    
    
    
    
    827
    
    
    
    (827
    )
    
    
    827Total Equity  Bank of Commerce Holdings
    
    
    75,938
    
    
    
    2,705
    
    
    
    65,958
    
    
    
    (78,643
    )
    
    
    65,959Non controlling interest in subsidiary
    
    
    
    
    
    
    1,492
    
    
    
    
    
    
    
    
    
    
    
    1,492Total stockholders equity
    
    
    75,938
    
    
    
    4,197
    
    
    
    65,958
    
    
    
    (78,643
    )
    
    
    67,451TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    795,326
    
    
    $
    22,690
    
    
    $
    82,923
    
    
    $
    (87,059
    )
    
    $
    813,880
 
 16. 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,
2008 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, 2008 to September 30, 2009. Also discussed
are significant trends and changes in the Companys results of operations for the three and nine
months ended September 30, 2009, compared to the same period in 2008. The consolidated financial
statements and related notes appearing elsewhere in this report are condensed and unaudited. The
following discussion and analysis is intended to provide greater detail of the Companys financial
condition and results.
 
 Company Overview
  Bank of Choice bank of choice
    26




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 www.bankofcommerceholdings.com www.reddingbankofcommerce.com www.rosevillebankofcommerce.com, www.bankofcommercemortgage.com www.sec.gov
     
 Risk Factors
 
 Economic Conditions and Geographic Concentration
    27




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Current financial and credit market conditions may persist or worsen, making it more difficult to
access capital markets on favorable terms
  
 Valuation of Investments and Impairment of Securities
      
 Changes in Interest Rates could reduce the Companys Net Interest Income and Earnings
   28




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
    
 Lending Risks Associated with Commercial Banking and Construction Activities
  
 Adequacy of Allowance for Loan and Lease Losses (ALLL)
   
 Potential Volatility of Deposits
   29




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Dividends
    
 Participation in the Treasury Departments Capital Purchase Program restricts our ability to raise
the common stock dividend and may result in dilution of common stockholders
    
 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).
  30




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Government Regulation and Legislation
        
 Certain Ownership Restrictions under California and Federal Law
  31




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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
  
 Technology and Computer Systems
  32




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 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.
 
 Mortgage banking interest rate and market risk
     
 Mortgage banking revenue can be volatile from quarter to quarter
  33




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Executive Overview
 high-quality
     
 Sources of Income
    34




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 Key Performance Ratios
    
    September 30, 2009
    
    
    September 30, 2008Profitability RatiosNet Interest Income to Average Assets
    
    
    3.57
    %
    
    
    3.21
    %Net Income to Average Equity
    
    
    8.88
    %
    
    
    8.11
    %Efficiency Ratio1
    
    
    51.25
    %
    
    
    60.82
    %Capital RatiosLeverage Ratio
    
    
    9.44
    %
    
    
    8.77
    %Risk Based Capital
    
    $
    83,234,175
    
    
    $
    63,494,408Tier 1 Capital
    
    
    11.58
    %
    
    
    9.54
    %Total Capital
    
    
    12.83
    %
    
    
    10.63
    %Per Common Share DataDividend Payout Ratio
    
    
    40.29
    %
    
    
    73.38
    %Book Value
    
    $
    7.86
    
    
    $
    5.24Market Price
    
    $
    5.50
    
    
    $
    6.88High
    
    $
    6.25
    
    
    $
    8.59Low
    
    $
    3.92
    
    
    $
    5.50
 
 Financial Highlights  Results of Operations
 Balance Sheet
     
 1
    
    The efficiency ratio is calculated by dividing
non-interest expense by the sum of net interest income and noninterest income.
The efficiency ratio measures how the Company spends in order to generate each
dollar of net revenue. 35




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
         Income Statement
    36




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Net Interest Income and Net Interest Margin
     
 Liquidity
     
 Capital Management
    37




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
   Well
    
    
    MinimumActual
    
    
    Capitalized
    
    
    CapitalSeptember 30, 2009
    
    Capital

    
    
    Ratio

    
    
    Requirement
    
    
    RequirementThe CompanyLeverage
    
    $
    77,204,443
    
    
    
    9.46
    %
    
    
    n/a
    
    
    
    4.0
    %Tier 1 Risk-Based
    
    
    77,204,443
    
    
    
    11.79
    %
    
    
    n/a
    
    
    
    4.0
    %Total Risk-Based
    
    
    85,404,056
    
    
    
    13.01
    %
    
    
    n/a
    
    
    
    8.0
    %Redding Bank of CommerceLeverage
    
    $
    75,110,532
    
    
    
    9.44
    %
    
    
    5.0
    %
    
    
    4.0
    %Tier 1 Risk-Based
    
    
    75,110,532
    
    
    
    11.58
    %
    
    
    6.0
    %
    
    
    4.0
    %Total Risk-Based
    
    
    83,234,175
    
    
    
    12.83
    %
    
    
    10.00
    %
    
    
    8.0
    %
 
 Short and Long Term Borrowings
   
 Provision for Loan and Lease Losses
    38




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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
     39




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##### Table of Contents



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
   Valuation of Investments and Impairment of Securities
   40




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
    Allowance for Loan and Lease Losses (ALLL)
 most significant
 critical to our financial results
   41




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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
  42




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  Table
1.
 
 Average Balances, Interest Income/Expense and Yields/Rates Paid
(Unaudited, Dollars in thousands)
 Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2009
    
    
    September 30, 2008Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateEarning AssetsPortfolio
Loans2
    
    $
    589,802
    
    
    $
    26,676
    
    
    
    6.03
    %
    
    $
    519,255
    
    
    $
    25,554
    
    
    
    6.56
    %Tax-exempt
Securities3
    
    
    27,859
    
    
    
    853
    
    
    
    4.08
    %
    
    
    29,754
    
    
    
    884
    
    
    
    3.96
    %US Government Securities
    
    
    7,721
    
    
    
    252
    
    
    
    4.33
    %
    
    
    9,124
    
    
    
    395
    
    
    
    5.77
    %Mortgage backed Securities
    
    
    59,892
    
    
    
    2,522
    
    
    
    5.61
    %
    
    
    36,266
    
    
    
    1,201
    
    
    
    4.42
    %Federal Funds Sold
    
    
    41,996
    
    
    
    31
    
    
    
    0.23
    %
    
    
    16,498
    
    
    
    264
    
    
    
    2.13
    %Other Securities
    
    
    17,499
    
    
    
    557
    
    
    
    1.77
    %
    
    
    1,730
    
    
    
    58
    
    
    
    4.47
    %Average Earning Assets
    
    $
    744,769
    
    
    $
    30,891
    
    
    
    5.53
    %
    
    $
    612,627
    
    
    $
    28,356
    
    
    
    6.17
    %Cash & Due From Banks
    
    $
    21,890
    
    
    
    
    
    
    
    
    
    
    $
    13,287Bank Premises
    
    
    10,435
    
    
    
    
    
    
    
    
    
    
    
    11,191Allowance for Loan Losses
    
    
    (8,475
    )
    
    
    
    
    
    
    
    
    
    
    (6,630
    )Other Assets
    
    
    32,230
    
    
    
    
    
    
    
    
    
    
    
    11,556Average Total Assets
    
    $
    800,849
    
    
    
    
    
    
    
    
    
    
    $
    642,031Interest Bearing LiabilitiesDemand Interest Bearing
    
    $
    141,493
    
    
    $
    786
    
    
    
    0.74
    %
    
    $
    138,034
    
    
    $
    1,762
    
    
    
    1.70
    %Savings Deposits
    
    
    62,554
    
    
    
    742
    
    
    
    1.58
    %
    
    
    53,244
    
    
    
    1,193
    
    
    
    2.99
    %Certificates of Deposit
    
    
    305,237
    
    
    
    5,722
    
    
    
    2.50
    %
    
    
    223,630
    
    
    
    6,577
    
    
    
    3.92
    %Repurchase Agreements
    
    
    11,202
    
    
    
    38
    
    
    
    0.45
    %
    
    
    13,814
    
    
    
    151
    
    
    
    1.46
    %FHLB Borrowings
    
    
    122,601
    
    
    
    1,634
    
    
    
    1.81
    %
    
    
    81,587
    
    
    
    2,174
    
    
    
    3.55
    %Trust Preferred Borrowings
    
    
    15,000
    
    
    
    665
    
    
    
    5.67
    %
    
    
    15,000
    
    
    
    793
    
    
    
    7.05
    %658,087
    
    
    
    9,587
    
    
    
    1.94
    %
    
    
    525,309
    
    
    $
    12,650
    
    
    
    3.21
    %Noninterest bearing demand
    
    
    71,718
    
    
    
    
    
    
    
    
    
    
    
    68,920Other Liabilities
    
    
    5,800
    
    
    
    
    
    
    
    
    
    
    
    890Stockholders Equity
    
    
    65,244
    
    
    
    
    
    
    
    
    
    
    
    46,912Average Liabilities and Stockholders
Equity
    
    $
    800,849
    
    
    
    
    
    
    
    
    
    
    $
    642,031Net Interest Income and Net
Interest Margin
    
    
    
    
    
    $
    21,304
    
    
    
    3.81
    %
    
    
    
    
    
    $
    15,706
    
    
    
    3.42
    %
  
 2
    
    Average non-performing loans of $14.2
million are included3
    
    The yield on tax-exempt securities has not
been adjusted to a tax-equivalent yield basis. 43




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  Table
2
 
 Analysis of Changes in Net Interest Income and Interest Expense (Unaudited)
 September 30, 2009
    
    
    Over
    
    
    September 30, 2008(Dollars in thousands)
    
    Volume
    
    
    Rate
    
    
    TotalIncrease(Decrease) In Interest IncomePortfolio Loans
    
    $
    3,191
    
    
    $
    (2,069
    )
    
    $
    1,122Tax-exempt Securities
    
    
    (58
    )
    
    
    27
    
    
    
    (31
    )US Government Securities
    
    
    (46
    )
    
    
    (98
    )
    
    
    (144
    )Mortgage Back Securities
    
    
    995
    
    
    
    326
    
    
    
    1,321Federal Funds Sold
    
    
    2
    
    
    
    (236
    )
    
    
    (234
    )Other Securities
    
    
    536
    
    
    
    (35
    )
    
    
    501Total Increase (Decrease)
    
    $
    4,620
    
    
    $
    (2,085
    )
    
    
    2,535Increase(Decrease) In Interest ExpenseInterest Bearing Demand
    
    $
    19
    
    
    $
    (995
    )
    
    
    (976
    )Savings Deposits
    
    
    110
    
    
    
    (561
    )
    
    
    (451
    )Certificates of Deposit
    
    
    1,530
    
    
    
    (2,384
    )
    
    
    (854
    )Repurchase Agreements
    
    
    (9
    )
    
    
    (104
    )
    
    
    (113
    )FHLB Borrowings
    
    
    555
    
    
    
    (1,069
    )
    
    
    (514
    )Trust Preferred Borrowings
    
    
    0
    
    
    
    (155
    )
    
    
    (155
    )Total Increase (Decrease)
    
    $
    2,205
    
    
    $
    (5,268
    )
    
    $
    (3,063
    )Net Increase
    
    $
    2,415
    
    
    $
    3,183
    
    
    $
    5,598
     44




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  
 (Dollars in thousands)
    
    Three Months Ended
    
    
    Nine Months EndedNoninterest income
    
    September 30, 2009
    
    
    September 30, 2008
    
    
    September 30, 2009
    
    
    September 30, 2008Service charges on deposit accounts
    
    $
    108
    
    
    $
    91
    
    
    $
    296
    
    
    $
    203Payroll and benefit processing fees
    
    
    109
    
    
    
    107
    
    
    
    347
    
    
    
    335Earnings on cash surrender value -
Bank owned insurance
    
    
    108
    
    
    
    86
    
    
    
    311
    
    
    
    254Net gain on
sale of securities available-for-sale
    
    
    506
    
    
    
    159
    
    
    
    1,984
    
    
    
    595Net loss on
sale of derivative swap transaction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (225
    )Net gain on transfer of financial assets
    
    
    
    
    
    
    
    
    
    
    340
    
    
    
    Merchant credit card service income, net
    
    
    80
    
    
    
    99
    
    
    
    229
    
    
    
    279Mortgage brokerage fee income
    
    
    1,913
    
    
    
    2
    
    
    
    3,215
    
    
    
    17Other Income
    
    
    120
    
    
    
    207
    
    
    
    282
    
    
    
    575Total Noninterest income
    
    $
    2,944
    
    
    $
    751
    
    
    $
    7,004
    
    
    $
    2,033
   
 (Dollars in Thousands)
    
    Three Months Ended
    
    
    Nine Months EndedNoninterest Expense
    
    September 30, 2009
    
    
    September 30, 2008
    
    
    September 30, 2009
    
    
    September 30, 2008Salaries and related benefits
    
    $
    2,902
    
    
    $
    1,909
    
    
    $
    7,673
    
    
    $
    5,750Occupancy and equipment expense
    
    
    1,124
    
    
    
    613
    
    
    
    2,426
    
    
    
    1,897FDIC insurance premium
    
    
    421
    
    
    
    113
    
    
    
    995
    
    
    
    284Data processing fees
    
    
    52
    
    
    
    81
    
    
    
    231
    
    
    
    224Professional service fees
    
    
    220
    
    
    
    146
    
    
    
    674
    
    
    
    397Payroll and Benefit fees
    
    
    27
    
    
    
    26
    
    
    
    88
    
    
    
    86Deferred compensation expense
    
    
    118
    
    
    
    118
    
    
    
    360
    
    
    
    342Stationery and Supplies
    
    
    62
    
    
    
    50
    
    
    
    141
    
    
    
    192Postage
    
    
    
    
    
    
    32
    
    
    
    111
    
    
    
    104Directors expense
    
    
    75
    
    
    
    81
    
    
    
    232
    
    
    
    223Other expenses
    
    
    653
    
    
    
    443
    
    
    
    1,576
    
    
    
    1,290Total Noninterest expense
    
    $
    5,654
    
    
    $
    3,612
    
    
    
    14,507
    
    
    $
    10,789
   45




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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
    
    
    Nine Months EndedIncome Taxes
    
    September 30, 2009
    
    
    September 30, 2008
    
    
    September 30, 2009
    
    
    September 30, 2008Tax provision
    
    $
    1,010
    
    
    $
    362
    
    
    $
    2,647
    
    
    $
    1,197Effective tax rate
    
    
    35.41
    %
    
    
    33.55
    %
    
    
    35.41
    %
    
    
    29.56
    %
     Deferred Tax Assets (In Thousands)
    
    September 30, 2009
    
    
    September 30, 2008State Franchise Taxes
    
    $
    173
    
    
    $
    8Deferred compensation
    
    
    2,289
    
    
    
    2,108Loan loss reserves
    
    
    3,990
    
    
    
    2,852Other Comprehensive Income
    
    
    (578
    )
    
    
    938Other
    
    
    184
    
    
    
    175Total Deferred Tax Assets
    
    $
    6,058
    
    
    $
    6,081State Franchise taxes
    
    
    (473
    )
    
    
    Depreciation
    
    
    (146
    )
    
    
    (66
    )Deferred loan origination costs
    
    
    (406
    )
    
    
    (447
    )Deferred state taxes
    
    
    
    
    
    
    (383
    )Other
    
    
    (156
    )
    
    
    Total Deferred Tax Liabilities
    
    
    (1,181
    )
    
    $
    (896
    )Total Net Deferred Tax Asset
    
    $
    4,877
    
    
    $
    5,185
 46




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
 Asset Quality
    (Dollars in thousands)Portfolio Loans
    
    September 30, 2009
    
    
    December 31, 2008Commercial and financial loans
    
    $
    141,464
    
    
    $
    164,083Real estate-construction loans
    
    
    68,842
    
    
    
    84,218Real estate-commercial
    
    
    241,421
    
    
    
    217,914Real estate  ITIN loan pool
    
    
    79,220
    
    
    
    Real estate-mortgage
    
    
    20,368
    
    
    
    20,285Real estate-other
    
    
    44,575
    
    
    
    39,915Installment
    
    
    2,395
    
    
    
    145Other loans
    
    
    1,730
    
    
    
    902Less:Net deferred loan fees
    
    
    (231
    )
    
    
    (87
    )Allowance for loan losses
    
    
    (8,899
    )
    
    
    (8,429
    )Total net portfolio loans
    
    $
    590,885
    
    
    $
    518,946
   
 Mortgages held for sale
   47




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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
    
    September 30, 2009
    
    
    December 31, 2008Nonaccrual loans
    
    $
    11,307
    
    
    $
    20,154Total nonaccrual loans
    
    
    11,307
    
    
    
    20,15490 days past due and still accruing interest
    
    
    2,619
    
    
    
    0Other Real Estate Owned
    
    
    2,934
    
    
    
    2,934Total non performing assets
    
    $
    16,860
    
    
    $
    23,088
    
 Allowance for Loan and Lease Losses (ALLL)
 most significant
 critical to our
financial results
   48




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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.
    (Dollars in thousands)
    
    Three Months Ended
    
    
    Nine Months EndedAllowance for Loan Losses
    
    September 30, 2009
    
    
    September 30, 2008
    
    
    September 30, 2009
    
    
    September 30, 2008Beginning
balance for Loan Losses
    
    $
    8,496
    
    
    $
    5,017
    
    
    $
    8,429
    
    
    $
    8,233Provision for Loan Losses
    
    
    1,844
    
    
    
    1,300
    
    
    
    6,325
    
    
    
    2,900Charge offs:Commercial
    
    
    (86
    )
    
    
    (155
    )
    
    
    (2,518
    )
    
    
    (888
    )Real Estate
    
    
    (1,375
    )
    
    
    (35
    )
    
    
    (3,475
    )
    
    
    (4,122
    )Other
    
    
    (0
    )
    
    
    (0
    )
    
    
    (12
    )
    
    
    (0
    )Total Charge offs
    
    
    (1,461
    )
    
    
    (190
    )
    
    
    (6,005
    )
    
    
    (5,010
    )Recoveries:Commercial
    
    
    19
    
    
    
    0
    
    
    
    147
    
    
    
    0Real Estate
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    0Other
    
    
    1
    
    
    
    1
    
    
    
    3
    
    
    
    5Total Recoveries
    
    
    20
    
    
    
    1
    
    
    
    150
    
    
    
    5Ending Balance
    
    $
    8,899
    
    
    $
    6,128
    
    
    $
    8,899
    
    
    $
    6,128ALLL to total loans
    
    
    1.48
    %
    
    
    1.20
    %
    
    
    1.48
    %
    
    
    1.20
    %Net Charge offs to average loans
    
    
    0.24
    %
    
    
    0.04
    %
    
    
    0.99
    %
    
    
    0.96
    %
 49




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
   50




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 QUARTERLY INCOME STATEMENT
 September 30,
    
    
    June 30,
    
    
    March 31,
    
    
    December 31,
    
    
    September 30,Dollars in thousands, except for per share data
    
    2009
    
    
    2009
    
    
    2009
    
    
    2008
    
    
    2008Interest income:Interest and fees on loans
    
    $
    9,355
    
    
    $
    9,272
    
    
    $
    8,049
    
    
    $
    8,028
    
    
    $
    8,252Interest on tax-exempt securities
    
    
    278
    
    
    
    279
    
    
    
    296
    
    
    
    313
    
    
    
    308Interest on U.S. government securities
    
    
    628
    
    
    
    954
    
    
    
    1,192
    
    
    
    873
    
    
    
    582Interest on federal funds sold and securities
repurchased under agreements to resell
    
    
    1
    
    
    
    5
    
    
    
    25
    
    
    
    39
    
    
    
    116Interest on other securities
    
    
    309
    
    
    
    131
    
    
    
    117
    
    
    
    81
    
    
    
    13Total interest income
    
    
    10,571
    
    
    
    10,641
    
    
    
    9,679
    
    
    
    9,334
    
    
    
    9,271Interest expense:Interest on demand deposits
    
    
    240
    
    
    
    239
    
    
    
    307
    
    
    
    411
    
    
    
    514Interest on savings deposits
    
    
    223
    
    
    
    238
    
    
    
    281
    
    
    
    383
    
    
    
    543Interest on certificates of deposit
    
    
    1,941
    
    
    
    1,900
    
    
    
    1,881
    
    
    
    1,975
    
    
    
    1,963Securities sold under repurchase agreements
    
    
    13
    
    
    
    11
    
    
    
    14
    
    
    
    22
    
    
    
    32Interest on FHLB and other borrowings
    
    
    514
    
    
    
    539
    
    
    
    581
    
    
    
    638
    
    
    
    662Interest on junior subordinated debt payable to
unconsolidated subsidiary grantor trust
    
    
    234
    
    
    
    216
    
    
    
    215
    
    
    
    263
    
    
    
    317Total interest expense
    
    
    3,165
    
    
    
    3,143
    
    
    
    3,279
    
    
    
    3,692
    
    
    
    4,031Net interest income
    
    
    7,406
    
    
    
    7,498
    
    
    
    6,400
    
    
    
    5,642
    
    
    
    5,240Provision for loan and lease losses
    
    
    1,844
    
    
    
    3,056
    
    
    
    1,425
    
    
    
    3,620
    
    
    
    1,300Net interest income after provision for loan and
lease losses
    
    
    5,562
    
    
    
    4,442
    
    
    
    4,975
    
    
    
    2,022
    
    
    
    3,940Noninterest income:Service charges on deposit accounts
    
    
    108
    
    
    
    96
    
    
    
    92
    
    
    
    108
    
    
    
    91Payroll and benefit processing fees
    
    
    109
    
    
    
    104
    
    
    
    134
    
    
    
    118
    
    
    
    107Earnings on cash surrender value  bank owned
life insurance
    
    
    108
    
    
    
    117
    
    
    
    86
    
    
    
    86
    
    
    
    86Net gain on sale of securities available-for-sale
    
    
    506
    
    
    
    1,074
    
    
    
    404
    
    
    
    33
    
    
    
    159Net gain on sale of loans
    
    
    0
    
    
    
    340
    
    
    
    
    
    
    
    
    
    
    
    Merchant credit card service income, net
    
    
    80
    
    
    
    75
    
    
    
    74
    
    
    
    85
    
    
    
    99Mortgage brokerage fee income
    
    
    1,913
    
    
    
    1,302
    
    
    
    
    
    
    
    4
    
    
    
    2Other income
    
    
    120
    
    
    
    87
    
    
    
    75
    
    
    
    156
    
    
    
    207Total noninterest income
    
    
    2,944
    
    
    
    3,195
    
    
    
    865
    
    
    
    590
    
    
    
    751Noninterest expense:Salaries and related benefits
    
    
    2,902
    
    
    
    2,644
    
    
    
    2,127
    
    
    
    2,001
    
    
    
    1,909Occupancy and equipment expense
    
    
    1,124
    
    
    
    730
    
    
    
    572
    
    
    
    1,339
    
    
    
    613FDIC insurance premium
    
    
    421
    
    
    
    301
    
    
    
    273
    
    
    
    99
    
    
    
    113Data processing fees
    
    
    52
    
    
    
    68
    
    
    
    111
    
    
    
    52
    
    
    
    81Professional service fees
    
    
    220
    
    
    
    295
    
    
    
    159
    
    
    
    270
    
    
    
    146Payroll processing fees
    
    
    27
    
    
    
    27
    
    
    
    34
    
    
    
    30
    
    
    
    26Deferred compensation expense
    
    
    118
    
    
    
    123
    
    
    
    119
    
    
    
    120
    
    
    
    118Stationery and supplies
    
    
    62
    
    
    
    26
    
    
    
    53
    
    
    
    70
    
    
    
    50Postage
    
    
    0
    
    
    
    76
    
    
    
    81
    
    
    
    30
    
    
    
    32Directors expense
    
    
    75
    
    
    
    120
    
    
    
    37
    
    
    
    71
    
    
    
    81Other expenses
    
    
    653
    
    
    
    483
    
    
    
    394
    
    
    
    425
    
    
    
    443Total noninterest expense
    
    
    5,654
    
    
    
    4,893
    
    
    
    3,960
    
    
    
    4,507
    
    
    
    3,612Income (loss) before provision for income taxes
    
    
    2,852
    
    
    
    2,744
    
    
    
    1,882
    
    
    
    (1,895
    )
    
    
    1,079Provision (benefit) for income taxes
    
    
    1,010
    
    
    
    1,027
    
    
    
    610
    
    
    
    (1,237
    )
    
    
    362Less: Income non-controlling interest
    
    
    129
    
    
    
    101
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    1,713
    
    
    $
    1,616
    
    
    $
    1,270
    
    
    $
    (658
    )
    
    $
    717Less preferred dividend and accretion on preferred
stock
    
    $
    (235
    )
    
    $
    (235
    )
    
    $
    (237
    )
    
    $
    (0
    )
    
    $
    (0
    )Income available to common shareholders
    
    
    1,478
    
    
    $
    1,381
    
    
    $
    1,033
    
    
    $
    (658
    )
    
    $
    717Basic earnings (loss) per share
    
    $
    0.17
    
    
    $
    0.16
    
    
    $
    0.12
    
    
    $
    (0.07
    )
    
    $
    0.08Weighted average shares  basic
    
    
    8,711
    
    
    
    8,711
    
    
    
    8,711
    
    
    
    8,755
    
    
    
    8,711Diluted earnings (loss) per share
    
    $
    0.17
    
    
    $
    0.16
    
    
    $
    0.12
    
    
    $
    (0.07
    )
    
    $
    0.08Weighted average shares  diluted
    
    
    8,711
    
    
    
    8,712
    
    
    
    8,711
    
    
    
    8,802
    
    
    
    8,713Cash dividends per share
    
    $
    0.12
    
    
    $
    0.00
    
    
    $
    0.06
    
    
    $
    0.08
    
    
    $
    0.08
 51




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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.)
    52




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##### Table of Contents



QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued)
       53




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##### Table of Contents



ITEM 4T.
    
    CONTROLS AND PROCEDURES
   
 PART II. Other Information
 
 Item 1.
    
    Legal proceedings
  
 Item 1a. Risk Factors
  Mortgage banking interest rate and market risk
     Mortgage banking revenue can be volatile from quarter to quarter
  54




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##### Table of Contents



Recent legislative and regulatory initiatives to support the financial services industry have been
coupled with numerous restrictions and requirements that could detrimentally affect the Companys
business and require us to raise additional capital
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3.
    
    Defaults upon Senior Securities
  
 Item 4.
    
    Submission of Matters to a vote of Security Holders
  
 Item 5.
    
    Other Information
 
 Item 6.
    
    Exhibits
    55




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##### Table of Contents



SIGNATURES
  BANK OF COMMERCE HOLDINGS
                      (Registrant)Date: November 6, 2009
    /s/ Samuel D. JimenezSamuel D. JimenezSenior Vice President and
Chief Financial Officer 56