##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
 For the transition period from  to
 Commission file number 0-25135
 
 California
(State or other jurisdiction of incorporation or organization) 
1901 Churn Creek Road Redding, California
    
    94-2823865
(I.R.S. Employer Identification No.)96002(Address of principal executive offices)
    
    (Zip code)
   
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 Index to Form 10-Q
 Page:PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets
June 30, 2008, December 31, 2007 and June 30, 2007
    
    
    4Condensed Consolidated Statements of Income
Three and Six months ended June 30, 2008, and 2008
    
    
    5Consolidated Statement of Stockholders Equity
    
    
    6Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 2008 and 2007
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Discussion and Analysis
of Financial Condition and Results of Operations
    
    
    16Company Overview
    
    
    16Risk Factors
    
    
    19Economic Conditions and Geographic Concentration
    
    
    19Changes in interest rates could reduce the Companys Net Interest Income and Earnings
    
    
    19Lending Risks Associated with Commercial Banking and Construction Activities
    
    
    20Adequacy of Allowance for Loan and Lease Losses (ALLL)
    
    
    20Potential Volatility of Deposits
    
    
    20Dividends
    
    
    21Government Regulation and Legislation
    
    
    21Certain Ownership Restrictions under California and Federal Law
    
    
    22Negative Publicity could Damage our Reputation
    
    
    22Environmental Risks
    
    
    22Shares Eligible for Future Sale
    
    
    23Technology and Computer Systems
    
    
    23Company Stock Price may be volatile due to Other Factors
    
    
    23Executive Overview
    
    
    24Sources of Income
    
    
    24Financial Highlights  Results of Operations
    
    
    25Net Interest Income and Net Interest Margin
    
    
    25Liquidity
    
    
    26Capital Management
    
    
    26Short term borrowings
    
    
    27Provision for loan and lease losses
    
    
    27Factors that may affect future results
    
    
    28Critical accounting policies
    
    
    28Average balances, Interest Income/Expense and yields/rates paid
    
    
    31Analysis of changes in net interest income and interest expense
    
    
    32Noninterest Income
    
    
    33Noninterest Expense
    
    
    33Income taxes
    
    
    34Asset quality
    
    
    35Allowance for loan and lease losses (ALLL)
    
    
    37Securities portfolio
    
    
    39Quarterly Income Statement
    
    
    41Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    42Item 4. Controls and Procedures
    
    
    44EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
  2




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 Index to Form 10-Q
 Page:PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    44Item 1a. Risk Factors
    
    
    44Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    44Item 3. Defaults Upon Senior Securities
    
    
    44Item 4. Submission of Matters to a Vote of Security Holders
    
    
    44Item 5. Other Information
    
    
    44Item 6. Exhibits
    
    
    44SIGNATURES
    
    
    45EXHIBITSExhibit 31.1Exhibit 31.2Exhibit 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)
 The following condensed balance sheet and income statement as of December 31, 2007, which has been
derived from audited financial statements audited by Moss Adams, LLP, independent public
accountants, as indicated in their report not included herein, and the unaudited condensed
financial statements have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission.
 Dollars in thousands
    
    June 30, 2008
    
    

Dec. 31, 2007
    
    
    June 30, 2007ASSETSCash and due from banks
    
    $
    16,660
    
    
    $
    13,839
    
    
    $
    18,206Federal funds sold and securities purchased under
agreements to resell
    
    
    11,585
    
    
    
    8,395
    
    
    
    14,115Cash and cash equivalents
    
    
    28,245
    
    
    
    22,234
    
    
    
    32,321Securities available-for-sale (including pledged
collateral of $68,165 at June 30, 2008, $61,329 at
December 31, 2007 and $93,790 at June 30, 2007)
    
    
    66,728
    
    
    
    67,906
    
    
    
    94,029Securities held-to-maturity, at cost (estimated fair
value of $10,285 at June 30, 2008, $10,632 at
December 31, 2007 and $10,369 at June 30, 2007)
    
    
    10,385
    
    
    
    10,559
    
    
    
    10,637Loans, net of the allowance for loan losses of $5,017
at June 30, 2008, $8,233 at December 31, 2007 and
$4,943 at June 30, 2007
    
    
    507,651
    
    
    
    486,283
    
    
    
    437,821Bank premises and equipment, net
    
    
    11,068
    
    
    
    10,964
    
    
    
    10,329Other assets
    
    
    22,531
    
    
    
    20,381
    
    
    
    20,440TOTAL ASSETS
    
    $
    646,608
    
    
    $
    618,327
    
    
    $
    605,577LIABILITIES AND STOCKHOLDERS EQUITYDemand  noninterest bearing
    
    $
    68,625
    
    
    $
    75,718
    
    
    $
    69,842Demand  interest bearing
    
    
    128,994
    
    
    
    142,821
    
    
    
    114,530Savings accounts
    
    
    52,453
    
    
    
    41,376
    
    
    
    45,082Certificates of deposit
    
    
    218,303
    
    
    
    213,716
    
    
    
    211,794Total deposits
    
    
    468,375
    
    
    
    473,631
    
    
    
    441,248Securities sold under agreements to repurchase
    
    
    14,343
    
    
    
    15,513
    
    
    
    46,655Federal Home Loan Bank borrowings
    
    
    95,000
    
    
    
    60,000
    
    
    
    50,000Other liabilities
    
    
    7,396
    
    
    
    7,554
    
    
    
    7,114Junior subordinated debt payable to unconsolidated
subsidiary grantor trust
    
    
    15,465
    
    
    
    15,465
    
    
    
    15,465Total Liabilities
    
    
    600,579
    
    
    
    572,163
    
    
    
    560,482Commitments and contingenciesStockholders Equity:Preferred stock, no par value, 2,000,000 authorized
no shares issued and outstanding in 2008 and 2007
    
    
    
    
    
    
    
    
    
    
    Common stock , no par value, 50,000,000 shares
authorized; 8,711,495 shares issued and outstanding
at June 30, 2008, 8,757,445 at December 31, 2007 and
8,908,880 at June 30, 2007
    
    
    9,590
    
    
    
    9,996
    
    
    
    11,966Retained earnings
    
    
    37,344
    
    
    
    36,605
    
    
    
    34,997Accumulated other comprehensive loss, net of tax
    
    
    (905
    )
    
    
    (437
    )
    
    
    (1,868
    )Total stockholders equity
    
    
    46,029
    
    
    
    46,164
    
    
    
    45,095TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    646,608
    
    
    $
    618,327
    
    
    $
    605,577
 See accompanying notes to condensed consolidated financial statements.
 4




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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 Condensed Consolidated Statements of Income (Unaudited)
 Three and six months ended June 30, 2008 and 2007
 Three Months Ended
    
    
    Six Months EndedAmounts in thousands, except for per share data
    
    June 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2008
    
    
    June 30, 2007Interest income:Interest and fees on loans
    
    $
    8,171
    
    
    $
    8,965
    
    
    $
    17,302
    
    
    $
    17,429Interest on tax exempt securities
    
    
    302
    
    
    
    334
    
    
    
    576
    
    
    
    612Interest on U.S. government securities
    
    
    533
    
    
    
    816
    
    
    
    1,014
    
    
    
    1,648Interest on federal funds sold and
securities purchased under agreements
to resell
    
    
    90
    
    
    
    190
    
    
    
    148
    
    
    
    390Interest on other securities
    
    
    23
    
    
    
    9
    
    
    
    45
    
    
    
    45Total interest income
    
    
    9,119
    
    
    
    10,314
    
    
    
    19,085
    
    
    
    20,124Interest expense:Interest on demand deposits
    
    
    498
    
    
    
    587
    
    
    
    1,248
    
    
    
    1,144Interest on savings deposits
    
    
    360
    
    
    
    355
    
    
    
    650
    
    
    
    526Interest on time deposits
    
    
    2,238
    
    
    
    2,627
    
    
    
    4,614
    
    
    
    5,232Securities sold under agreements to
repurchase
    
    
    35
    
    
    
    381
    
    
    
    119
    
    
    
    723Interest on FHLB and other borrowing
expense
    
    
    781
    
    
    
    632
    
    
    
    1,512
    
    
    
    1,171Interest on junior subordinated debt
payable to unconsolidated subsidiary
grantor trust
    
    
    161
    
    
    
    271
    
    
    
    476
    
    
    
    540Total interest expense
    
    
    4,073
    
    
    
    4,853
    
    
    
    8,619
    
    
    
    9,336Net interest income
    
    
    5,046
    
    
    
    5,461
    
    
    
    10,466
    
    
    
    10,788Provision for loan and lease losses
    
    
    1,000
    
    
    
    0
    
    
    
    1,600
    
    
    
    6Net interest income after
provision for loan losses
    
    
    4,046
    
    
    
    5,461
    
    
    
    8,866
    
    
    
    10,782Noninterest income:Service charges on deposit accounts
    
    
    50
    
    
    
    76
    
    
    
    112
    
    
    
    145Payroll and benefit processing fees
    
    
    99
    
    
    
    89
    
    
    
    228
    
    
    
    197Earnings on cash surrender value -Bank owned life insurance
    
    
    85
    
    
    
    99
    
    
    
    168
    
    
    
    194Net gain on sale of securities
available-for-sale
    
    
    194
    
    
    
    0
    
    
    
    436
    
    
    
    46Net loss on sale of derivative swap
transaction
    
    
    0
    
    
    
    0
    
    
    
    (225
    )
    
    
    0Merchant credit card service income,
net
    
    
    97
    
    
    
    96
    
    
    
    180
    
    
    
    188Mortgage brokerage fee income
    
    
    5
    
    
    
    29
    
    
    
    15
    
    
    
    35Other income
    
    
    187
    
    
    
    229
    
    
    
    368
    
    
    
    311Total non-interest income
    
    
    717
    
    
    
    618
    
    
    
    1,282
    
    
    
    1,116Noninterest expense:Salaries and related benefits
    
    
    1,892
    
    
    
    1,959
    
    
    
    3,841
    
    
    
    4,056Occupancy and equipment expense
    
    
    640
    
    
    
    543
    
    
    
    1,284
    
    
    
    1,001FDIC insurance premium
    
    
    113
    
    
    
    13
    
    
    
    171
    
    
    
    26Data processing fees
    
    
    65
    
    
    
    90
    
    
    
    143
    
    
    
    145Professional service fees
    
    
    133
    
    
    
    252
    
    
    
    251
    
    
    
    447Payroll and benefit fees
    
    
    27
    
    
    
    25
    
    
    
    60
    
    
    
    56Deferred compensation expense
    
    
    113
    
    
    
    101
    
    
    
    224
    
    
    
    198Stationery and supplies
    
    
    80
    
    
    
    46
    
    
    
    142
    
    
    
    107Postage
    
    
    38
    
    
    
    34
    
    
    
    72
    
    
    
    67Directors expense
    
    
    94
    
    
    
    76
    
    
    
    142
    
    
    
    121Other expenses
    
    
    418
    
    
    
    562
    
    
    
    847
    
    
    
    965Total non-interest expense
    
    
    3,613
    
    
    
    3,701
    
    
    
    7,177
    
    
    
    7,189Income before provision for income taxes
    
    
    1,150
    
    
    
    2,378
    
    
    
    2,971
    
    
    
    4,709Provision for income taxes
    
    
    244
    
    
    
    778
    
    
    
    835
    
    
    
    1,622Net Income
    
    $
    906
    
    
    $
    1,600
    
    
    $
    2,136
    
    
    $
    3,087Basic earnings per share
    
    $
    0.10
    
    
    $
    0.18
    
    
    $
    0.25
    
    
    $
    0.35Weighted average shares  basic
    
    
    8,748
    
    
    
    8,908
    
    
    
    8,714
    
    
    
    8,887Diluted earnings per share
    
    $
    0.10
    
    
    $
    0.18
    
    
    $
    0.24
    
    
    $
    0.34Weighted average shares  diluted
    
    
    8,751
    
    
    
    9,063
    
    
    
    8,732
    
    
    
    8,985
 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
 Six months ended June 30, 2008
 AccumulatedOtherComprehensiveComprehensive
    
    
    Common
    
    
    
    
    
    
    Retained
    
    
    Income (Loss),Income
    
    
    Shares
    
    
    Stock Amount
    
    
    Earnings
    
    
    net of tax
    
    
    TotalBalance at December 31, 2007
    
    
    
    
    
    
    8,757
    
    
    $
    9,996
    
    
    $
    36,605
    
    
    
    ($437
    )
    
    $
    46,164Comprehensive Income:Net Income
    
    
    1.229
    
    
    
    
    
    
    
    
    
    
    
    1,229
    
    
    
    
    
    
    
    1,229Other Comprehensive Income:Other Comprehensive Income, net
of taxUnrealized losses arising during
the period on derivative
transactions, net
    
    
    (423
    )Less: reclassification adjustment
for losses included in net income,
net of tax
    
    
    132Net holding loss on derivatives
    
    
    (291
    )Unrealized gains on securities
    
    
    569Net of reclassification adjustment
for gains included in net income,
net of tax
    
    
    (142
    )Other Comprehensive
Income
    
    
    136
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    136
    
    
    
    136Total Comprehensive Income
    
    $
    1,365Cash dividends ($0.08 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (699
    )
    
    
    
    
    
    
    (699
    )Compensation expense associated with stock options
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    29Share Repurchase
    
    
    
    
    
    
    (59
    )
    
    
    (504
    )
    
    
    
    
    
    
    
    
    
    
    (504
    )Stock options exercised
    
    
    
    
    
    
    9
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    29Balance at March 31, 2008
    
    
    
    
    
    
    8,707
    
    
    $
    9,550
    
    
    $
    37,135
    
    
    
    ($301
    )
    
    $
    46,384Comprehensive Income:Net Income
    
    
    906
    
    
    
    
    
    
    
    
    
    
    
    906
    
    
    
    
    
    
    
    906Other Comprehensive Income:Other Comprehensive Income, net of taxUnrealized gains on securities
    
    
    (538
    )Net of reclassification adjustment
for gains included in net income, net of tax
    
    
    (66
    )Other
Comprehensive Income
    
    
    (604
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (604
    )
    
    
    (604
    )Total Comprehensive Income
    
    $
    302Cash dividends ($0.08 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (697
    )
    
    
    
    
    
    
    (697
    )Compensation expense associated with stock options
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    28Stock options exercised
    
    
    
    
    
    
    4
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    12Balance at June 30, 2008
    
    
    
    
    
    
    8,711
    
    
    $
    9,590
    
    
    $
    37,344
    
    
    
    ($905
    )
    
    $
    46,029
 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)
 Six months ended June 30, 2008 and 2007
 Dollars in thousands
    
    June 30, 2008
    
    
    June 30, 2007Cash flows from operating activities:Net Income
    
    $
    2,136
    
    
    $
    3,087Adjustments to reconcile net income to net cash provided by operating
activities:Provision for loan and lease losses
    
    
    1,600
    
    
    
    6Provision for depreciation and amortization
    
    
    598
    
    
    
    469Compensation expense associated with stock options
    
    
    57
    
    
    
    36Tax benefits from the exercise of stock options
    
    
    0
    
    
    
    (118
    )Gain on sale of securities available for sale
    
    
    (436
    )
    
    
    (46
    )Loss on sale of derivative
    
    
    225
    
    
    
    0Amortization of investment premiums and accretion of discounts, net
    
    
    18
    
    
    
    (5
    )Gain on sale of fixed assets
    
    
    (5
    )
    
    
    (16
    )Deferred income taxes
    
    
    (707
    )
    
    
    (955
    )Changes in operating assets and liabilities:Increase in Cash Surrender Value
    
    
    (141
    )
    
    
    (176
    )Increase in Other Assets
    
    
    (860
    )
    
    
    1,333Changes in Deferred Compensation
    
    
    219
    
    
    
    207Decrease in Deferred loan fees
    
    
    (31
    )
    
    
    (47
    )Decrease in Other liabilities
    
    
    (378
    )
    
    
    (331
    )Net cash provided by operating activities
    
    
    2,295
    
    
    
    3,444Cash flows from investing activities:Proceeds from maturities of available-for-sale securities
    
    
    4,071
    
    
    
    3,121Proceeds from sales of available-for-sale securities
    
    
    26,444
    
    
    
    20,569Proceeds from maturities of held-to-maturity securities
    
    
    172
    
    
    
    171Purchases of available-for-sale securities
    
    
    (30,052
    )
    
    
    (23,495
    )Loan originations, net of principal repayments
    
    
    (22,938
    )
    
    
    (28,790
    )Purchases of premises and equipment
    
    
    (697
    )
    
    
    (2,239
    )Net cash used by investing activities
    
    
    (23,000
    )
    
    
    (30,663
    )Cash flows from financing activities:Net (decrease) increase in deposits
    
    
    (5,255
    )
    
    
    1,840Net (decrease) increase in securities sold under agreement to
repurchase
    
    
    (1,170
    )
    
    
    9,538Proceeds from Federal Home Loan Bank advances
    
    
    65,000
    
    
    
    10,000Repayments of Federal Home Loan Bank advances
    
    
    (30,000
    )
    
    
    (0
    )Cash dividends paid on common stock
    
    
    (1,396
    )
    
    
    (1,517
    )Proceeds from stock options exercised
    
    
    41
    
    
    
    295Common Stock Repurchased
    
    
    (504
    )
    
    
    0Excess tax benefits from the exercise of stock options
    
    
    0
    
    
    
    118Net cash provided by financing activities
    
    
    26,716
    
    
    
    20,274Net increase (decrease) in cash and cash equivalents
    
    
    6,011
    
    
    
    (6,945
    )Cash and cash equivalents, beginning of period
    
    
    22,234
    
    
    
    39,266Cash and cash equivalents, end of period
    
    $
    28,245
    
    
    $
    32,321Supplemental disclosures:Cash paid during the period for:Income taxes
    
    $
    
    
    
    $
    1,618Interest
    
    
    8,970
    
    
    
    8,836
 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. Consolidation and Basis of Presentation
    2. Recent Accounting pronouncements
 On September 15, 2006, the FASB issued FAS 157, Fair Value Measurements ,
 On February 15, 2007 the FASB issued FAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities, Including an amendment of FASB Statement 115.
 In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities  an Amendment of FASB Statement No. 133. Accounting for Derivative Instruments and Hedging Activities,
 8




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued) (Unaudited)
 3. Earnings per Share
   Three Months Ended
    
    
    Six Months EndedJune 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2008
    
    
    June 30, 2007Basic EPS Calculation:Numerator (net income)
    
    $
    906
    
    
    $
    1,600
    
    
    $
    2,136
    
    
    $
    3,087Denominator (average common
shares outstanding)
    
    
    8,748
    
    
    
    8,908
    
    
    
    8,714
    
    
    
    8,887Basic earnings per Share
    
    $
    0.10
    
    
    $
    0.18
    
    
    $
    0.25
    
    
    $
    0.35Diluted EPS Calculation:Numerator (net income)
    
    $
    906
    
    
    $
    1,600
    
    
    $
    2,136
    
    
    $
    3,087Denominator:Average common shares outstanding
    
    
    8,748
    
    
    
    8,908
    
    
    
    8,714
    
    
    
    8,887Dilutive effect of Stock Options
    
    
    3
    
    
    
    155
    
    
    
    18
    
    
    
    98Adjusted average common shares
outstanding  diluted
    
    
    8,751
    
    
    
    9,063
    
    
    
    8,732
    
    
    
    8,985Diluted earnings per Share
    
    $
    0.10
    
    
    $
    0.18
    
    
    $
    0.24
    
    
    $
    0.34
  4. Stock Option Plans
    9




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)
 5. Comprehensive Income
  Three Months Ended
    
    
    Six Months EndedJune 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2008
    
    
    June 30, 2007Net income as reported
    
    $
    906
    
    
    $
    1,600
    
    
    $
    2,136
    
    
    $
    3,087Other comprehensive income:Holding gain (loss)
arising during period on
AFS securities, net of
tax
    
    
    (538
    )
    
    
    (1,076
    )
    
    
    (159
    )
    
    
    (931
    )Reclassification
adjustment on AFS
securities, net of tax
    
    
    (66
    )
    
    
    0
    
    
    
    (310
    )
    
    
    (27
    )Holding gain (loss)
arising during period on
derivative transactions,
net of tax
    
    
    0
    
    
    
    (105
    )
    
    
    0
    
    
    
    51Reclassification
adjustment on derivative
transactions, net of tax
    
    
    0
    
    
    
    (24
    )
    
    
    3
    
    
    
    (24
    )Total comprehensive income
    
    $
    302
    
    
    $
    395
    
    
    $
    1,667
    
    
    $
    2,156
 6. Junior Subordinated Debt Payable to Unconsolidated Subsidiary Grantor Trust
      10




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)
     7. Commitments and contingent liabilities
 Lease Commitments 
  2008
    
    $
    2822009
    
    $
    5582010
    
    $
    5242011
    
    $
    4542012
    
    $
    279Thereafter
    
    $
    761Total
    
    $
    2,858Minimum rental due in the futureUnder non-cancelable subleases
    
    $
    24
 Legal Proceedings 
 11




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)
 FHLB Advances 
 Amount
    
    Interest Rate
    
    Maturity$15,000,000
    
    
    2.87
    %
    
    01/26/2009$15,000,000
    
    
    2.89
    %
    
    01/22/2009$35,000,000
    
    
    3.97
    %
    
    11/23/2009$15,000,000
    
    
    2.82
    %
    
    01/22/2010$15,000,000
    
    
    3.41
    %
    
    04/29/2011$95,000,000
  Off-Balance Sheet Financial Instruments
    June 30, 2008
    
    
    June 30, 2007Unfunded loan commitments
    
    $
    150,784,540
    
    
    $
    170,281,351Standby letters of credit
    
    
    6,074,834
    
    
    
    8,334,120Guaranteed commitments outstanding
    
    
    1,357,724
    
    
    
    1,375,999$
    158,217,098
    
    
    $
    179,991,470
 12




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)
 8. Accounting for Income Tax Uncertainties (FIN 48)
   6. Fair Value Measurement
     13




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES  Notes to Unaudited Condensed Consolidated Financial Statements (Continued)  (Unaudited)
  Fair Value Measurementsat June 30, 2008, UsingQuoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets for
    
    
    Observable
    
    
    UnobservableFair Value
    
    
    Identical Assets
    
    
    Inputs
    
    
    InputsDescription
    
    June 30, 2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Available-for-sale securities
    
    $
    66,728
    
    
    $
    
    
    
    $
    66,728To Total assets measured at fair value
    
    $
    66,728
    
    
    $
    
    
    
    $
    66,728
    
    
    $
    Derivative Liabilities
    
    $
    119
    
    
    
    
    
    
    
    119Total liabilities measured at fair value
    
    $
    119
    
    
    $
    
    
    
    $
    119
    
    
    $
    
  Securities available-for-sale
 Derivatives -
  Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
  14




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##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES  Notes to Unaudited Condensed Consolidated Financial Statements (Continued)  (Unaudited)
  June 30, 2008
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Impaired Loans
    
    $
    18,870
    
    
    $
    
    
    
    $
    
    
    
    $
    18,870Total assets at fair value
    
    $
    18,870
    
    
    $
    
    
    
    $
    
    
    
    $
    18,870Total liabilities at fair value
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Impaired loans  Accounting by Creditors for Impairment of a Loan, (
    The fair value measurements recorded during the period
  15




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 Forward Looking Statements and Risk Factors
 An investment in the Company has risk. The discussion below and elsewhere in this Report and in
other documents the Company files with the SEC incorporates various risk factors that could cause
the Companys financial results and condition to vary significantly from period to period.
Information in the accompanying financial statements contains certain forward-looking statements,
which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. We caution the investor that such statements are subject to risks and uncertainties
that could cause actual results to differ materially from those stated. These risks and
uncertainties include the Companys ability to maintain or expand its market share and net interest
margins, or to implement its marketing and growth strategies. Further, actual results may be
affected by the Companys ability to compete on price and other factors with other financial
institutions; customer acceptance of new products and services; and general trends in the banking
and the regulatory environment, as they relate to the Companys cost of funds and return on assets.
The reader is advised that this list of risks is not exhaustive and should not be construed as any
prediction by the Company as to which risks would cause actual results to differ materially from
those indicated by the forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements.
 For additional information concerning risks and uncertainties related to the Company and its
operations please refer to the Companys Annual Report on Form 10-K for the year ended December 31,
2007 under the heading Risk factors that may affect results. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to revise or publicly release the results of any revision to these
forward-looking statements to reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events.
 The following sections discuss significant changes and trends in the financial condition, capital
resources and liquidity of the Company from December 31, 2007 to June 30, 2008. Also discussed are
significant trends and changes in the Companys results of operations for the three and six months
ended June 30, 2008, compared to the same period in 2007. The consolidated financial statements and
related notes appearing elsewhere in this report are condensed and unaudited. The following
discussion and analysis is intended to provide greater detail of the Companys financial condition
and results.
 
 Company Overview
  Bank of Choice bank of choice
  16




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
 www.bankofcommerceholdings.com www.reddingbankofcommerce.com www.rosevillebankofcommerce.com, www.sutterbankofcommerce.com www.bankofcommercemortgage.com www.sec.gov
       17




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
       18




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Risk Factors
 
 Economic Conditions and Geographic Concentration
   
 Changes in Interest Rates could reduce the Companys Net Interest Income and Earnings
    19




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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
   20




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Dividends
  Changes in Accounting Policies or Accounting Standards, and Changes in How Accounting Standards are
interpreted or applied, Could Materially Affect How the Company Reports its Financial Results and
Condition
 Critical
Accounting Policies).
  
 Government Regulation and Legislation
    21




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Continued)
  
 Certain Ownership Restrictions under California and Federal Law
    
 Negative Publicity could Damage our Reputation
  
 Environmental Risks
  22




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Shares Eligible for Future Sale
  
 Technology and Computer Systems
  
 Company Stock Price may be volatile due to Other Factors
  
    
    General business and economic conditions;
    
    Recommendations by securities analysts;
    
    New technologies introduced or services offered by our competitors;
    
    News reports relating to trends, concerns and other issues in the financial services
industry;
    
    Natural disasters; and
    
    Geopolitical conditions, such as acts or threats of terrorism or military conflicts.
 
 23




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Executive Overview
 high-quality
     
 Sources of Income
  24




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 June 30, 2008
    
    June 30, 2007Profitability RatiosNet Interest Income to Average Assets
    
    
    3.22
    %
    
    
    3.76
    %Net Income to Average Equity
    
    
    9.05
    %
    
    
    13.69
    %Efficiency Ratio2
    
    
    61.09
    %
    
    
    60.39
    %Capital RatiosLeverage Ratio
    
    
    8.81
    %
    
    
    9.74
    %Risk Based Capital
    
    $
    62,725,450
    
    
    $
    62,286,773Tier 1 Capital
    
    
    9.75
    %
    
    
    10.79
    %Total Capital
    
    
    10.67
    %
    
    
    11.80
    %Per Common Share DataDividend Payout Ratio
    
    
    65.40
    %
    
    
    38.75
    %Book Value
    
    $
    5.28
    
    
    $
    5.06Market Price
    
    $
    6.96
    
    
    $
    10.82High
    
    $
    11.64
    
    
    $
    11.63Low
    
    $
    6.00
    
    
    $
    10.82
 
 Financial Highlights  Results of Operations
   
 Net Interest Income and Net Interest Margin
   
 2
    
    The efficiency ratio is noninterest expense divided by
total revenue (net interest income and noninterest income) 25




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
    
 Liquidity
    
 Capital Management
     26




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  Well
    
    
    MinimumActual
    
    
    Capitalized
    
    
    CapitalJune 30, 2008
    
    Capital
    
    
    Ratio
    
    
    Requirement
    
    
    RequirementThe CompanyLeverage
    
    $
    56,934,000
    
    
    
    8.68
    %
    
    
    n/a
    
    
    
    4.0
    %Tier 1 Risk-Based
    
    
    56,934,000
    
    
    
    9.68
    %
    
    
    n/a
    
    
    
    4.0
    %Total Risk-Based
    
    
    62,333,922
    
    
    
    10.60
    %
    
    
    n/a
    
    
    
    8.0
    %Redding Bank of
CommerceLeverage
    
    $
    57,325,528
    
    
    
    8.81
    %
    
    
    5.0
    %
    
    
    4.0
    %Tier 1 Risk-Based
    
    
    57,325,528
    
    
    
    9.75
    %
    
    
    6.0
    %
    
    
    4.0
    %Total Risk-Based
    
    
    62,725,450
    
    
    
    10.67
    %
    
    
    10.00
    %
    
    
    8.0
    %
 
 Short and Long Term Borrowings
   
 Provision for Loan and Lease Losses
  most significant
   27




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Factors that may affect future results
       
 Critical Accounting Policies
  28




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  Preparation of financial statements
  Use of estimates
  Accounting Principles Generally Accepted in the United States of America
   Allowance for Loan and Lease Losses (ALLL)
 most significant
 Accounting for Contingencies Accounting by Creditors for
Impairment of a Loan
  29




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
   Revenue recognition
  Stock-based Compensation
 Accounting for Stock Based
Compensation
  Income Taxes
  30




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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)
 Six Months Ended
    
    
    
    Six Months EndedJune 30, 2008
    
    
    
    June 30, 2007Average
    
    
    
    
    
    
    Yield/
    
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    
    Balance
    
    
    Interest
    
    
    RateEarning AssetsPortfolio Loans
    
    $
    516,938
    
    
    $
    17,302
    
    
    
    6.69
    %
    
    
    $
    416,141
    
    
    $
    17,429
    
    
    
    8.38
    %Tax-exempt Securities
    
    
    30,402
    
    
    
    576
    
    
    
    3.79
    %
    
    
    
    30,548
    
    
    
    612
    
    
    
    4.01
    %US Government Securities
    
    
    45,561
    
    
    
    1,014
    
    
    
    4.45
    %
    
    
    
    72,937
    
    
    
    1,648
    
    
    
    4.52
    %Federal Funds Sold
    
    
    17,561
    
    
    
    148
    
    
    
    1.69
    %
    
    
    
    14,823
    
    
    
    390
    
    
    
    5.26
    %Other Securities
    
    
    2,000
    
    
    
    45
    
    
    
    4.50
    %
    
    
    
    2,000
    
    
    
    45
    
    
    
    4.50
    %Average Earning Assets
    
    $
    612,462
    
    
    $
    19,085
    
    
    
    6.23
    %
    
    
    $
    536,449
    
    
    $
    20,124
    
    
    
    7.50
    %Cash & Due From Banks
    
    $
    13,252
    
    
    
    
    
    
    
    
    
    
    
    $
    13,473Bank Premises
    
    
    11,264
    
    
    
    
    
    
    
    
    
    
    
    
    9,742Allowance for Loan and Lease Losses
    
    
    ( 5,946
    )
    
    
    
    
    
    
    
    
    
    
    
    ( 4,890
    )Other Assets
    
    
    17,745
    
    
    
    
    
    
    
    
    
    
    
    
    19,690Average Total Assets
    
    $
    648,777
    
    
    
    
    
    
    
    
    
    
    
    $
    574,464Interest Bearing LiabilitiesDemand Interest Bearing
    
    $
    132,543
    
    
    $
    1,248
    
    
    
    1.88
    %
    
    
    $
    110,668
    
    
    $
    1,144
    
    
    
    2.07
    %Savings Deposits
    
    
    48,987
    
    
    
    650
    
    
    
    2.65
    %
    
    
    
    35,957
    
    
    
    526
    
    
    
    2.93
    %Certificates of Deposit
    
    
    229,245
    
    
    
    4,614
    
    
    
    4.03
    %
    
    
    
    213,721
    
    
    
    5,232
    
    
    
    4.90
    %Repurchase Agreements
    
    
    12,925
    
    
    
    119
    
    
    
    1.84
    %
    
    
    
    37,064
    
    
    
    723
    
    
    
    3.90
    %FHLB Borrowings
    
    
    91,869
    
    
    
    1,512
    
    
    
    3.29
    %
    
    
    
    43,260
    
    
    
    1,171
    
    
    
    5.41
    %Trust Preferred Borrowings
    
    
    15,000
    
    
    
    476
    
    
    
    6.35
    %
    
    
    
    15,000
    
    
    
    540
    
    
    
    7.20
    %Average Interest Bearing Liabilities
    
    
    530,569
    
    
    $
    8,619
    
    
    
    3.25
    %
    
    
    
    455,670
    
    
    $
    9,336
    
    
    
    4.10
    %Non interest Demand
    
    
    66,606
    
    
    
    
    
    
    
    
    
    
    
    
    72,321Other Liabilities
    
    
    4,391
    
    
    
    
    
    
    
    
    
    
    
    
    1,370Shareholder Equity
    
    
    47,211
    
    
    
    
    
    
    
    
    
    
    
    
    45,103Average Liabilities and
Stockholders Equity
    
    $
    648,777
    
    
    
    
    
    
    
    
    
    
    
    $
    574,464Net Interest Income and Net Interest Margin
    
    $
    10,466
    
    
    
    3.42
    %
    
    
    
    
    
    
    $
    10,788
    
    
    
    4.02
    %
  31




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  
 Table 2. Analysis of Changes in Net Interest Income and Interest Expense
 (Unaudited)
 June 30, 2008
    
    
    over
    
    
    June 30, 2007Volume
    
    
    Rate
    
    
    Total(Dollars in thousands)Increase(Decrease) In Interest IncomePortfolio Loans
    
    $
    3,374
    
    
    $
    (3,501
    )
    
    $
    (127
    )Tax-exempt Securities
    
    
    (3
    )
    
    
    (33
    )
    
    
    (36
    )US Government Securities
    
    
    (609
    )
    
    
    (25
    )
    
    
    (634
    )Federal Funds Sold
    
    
    23
    
    
    
    (265
    )
    
    
    (242
    )Other Securities
    
    
    0
    
    
    
    0
    
    
    
    0Total Increase
    
    $
    2,785
    
    
    $
    (3,824
    )
    
    $
    (1,039
    )Increase(Decrease) In Interest
ExpenseInterest Bearing Demand
    
    $
    206
    
    
    $
    (102
    )
    
    $
    104Savings Deposits
    
    
    173
    
    
    
    (49
    )
    
    
    124Certificates of Deposit
    
    
    312
    
    
    
    (930
    )
    
    
    (618
    )Repurchase Agreements
    
    
    (222
    )
    
    
    (382
    )
    
    
    (604
    )FHLB Borrowings
    
    
    800
    
    
    
    (459
    )
    
    
    341Trust Preferred Borrowings
    
    
    0
    
    
    
    (64
    )
    
    
    (64
    )Total Increase
    
    $
    1,269
    
    
    $
    (1,986
    )
    
    $
    (717
    )Net Increase
    
    $
    1,516
    
    
    $
    (1,838
    )
    
    $
    (322
    )
     32




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
 
 Noninterest Income
  (Dollars in thousands)
    
    Three Months Ended
    
    
    Six Months EndedJune 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2008
    
    
    June 30, 2007Noninterest incomeService charges on deposit accounts
    
    $
    50
    
    
    $
    76
    
    
    $
    112
    
    
    $
    145Payroll and benefit processing fees
    
    
    99
    
    
    
    89
    
    
    
    228
    
    
    
    197Earnings on
cash surrender value -Bank owned
insurance
    
    
    85
    
    
    
    99
    
    
    
    168
    
    
    
    194Net gain on sale of securities available-for-sale
    
    
    194
    
    
    
    0
    
    
    
    436
    
    
    
    46Net loss on sale of derivative swap transaction
    
    
    0
    
    
    
    0
    
    
    
    (225
    )
    
    
    0Merchant credit card service income, net
    
    
    97
    
    
    
    96
    
    
    
    180
    
    
    
    188Mortgage brokerage fee income
    
    
    5
    
    
    
    29
    
    
    
    15
    
    
    
    35Other Income
    
    
    187
    
    
    
    229
    
    
    
    368
    
    
    
    311Total Noninterest income
    
    $
    717
    
    
    $
    618
    
    
    $
    1,282
    
    
    $
    1,116
   
 Noninterest Expense
 Three Months Ended
    
    
    Six Months Ended(Dollars in Thousands)
    
    June 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2008
    
    
    June 30, 2007Noninterest ExpenseSalaries and related benefits
    
    $
    1,892
    
    
    $
    1,959
    
    
    $
    3,841
    
    
    $
    4,056Occupancy and equipment expense
    
    
    640
    
    
    
    543
    
    
    
    1,284
    
    
    
    1,001FDIC insurance premium
    
    
    113
    
    
    
    13
    
    
    
    171
    
    
    
    26Data processing fees
    
    
    65
    
    
    
    90
    
    
    
    143
    
    
    
    145Professional service fees
    
    
    133
    
    
    
    252
    
    
    
    251
    
    
    
    447Payroll and Benefit fees
    
    
    27
    
    
    
    25
    
    
    
    60
    
    
    
    56Deferred compensation expense
    
    
    113
    
    
    
    101
    
    
    
    224
    
    
    
    198Stationery and Supplies
    
    
    80
    
    
    
    46
    
    
    
    142
    
    
    
    107Postage
    
    
    38
    
    
    
    34
    
    
    
    72
    
    
    
    67Directors expense
    
    
    94
    
    
    
    76
    
    
    
    142
    
    
    
    121Other expenses
    
    
    418
    
    
    
    562
    
    
    
    847
    
    
    
    965Total Noninterest expense
    
    $
    3,613
    
    
    $
    3,701
    
    
    $
    7,177
    
    
    $
    7,189
  33




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
  
 Income Taxes
     (Dollars in thousands)
    
    Three Months Ended
    Six Months EndedIncome Taxes
    
    June 30, 2008
    
    June 30, 2007
    
    June 30, 2008
    
    June 30, 2007Tax provision
    
    $
    244
    
    
    $
    778
    
    
    $
    835
    
    
    $
    1,622Effective tax rate
    
    
    21.20
    %
    
    
    32.72
    %
    
    
    28.11
    %
    
    
    34.44
    %
  Accounting for Uncertainty in Income Taxes
 34




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
    June 30, 2008
    
    
    June 30, 2007Deferred Tax AssetsState Franchise taxes
    
    
    (87,095
    )
    
    
    133,741Deferred compensation
    
    
    2,078,634
    
    
    
    1,833,076Loan loss reserves
    
    
    2,284,938
    
    
    
    2,005,505Other Comprehensive Income
    
    
    633,449
    
    
    
    1,312,265Other
    
    
    (37,979
    )
    
    
    383,764Total Deferred Tax Assets
    
    
    4,871,947
    
    
    
    5,668,351Deferred Tax LiabilitiesDepreciation
    
    
    (132,760
    )
    
    
    (90,171
    )Deferred loan origination costs
    
    
    (466,348
    )
    
    
    (491,421
    )Deferred state taxes
    
    
    (316,661
    )
    
    
    (265,455
    )Other
    
    
    0
    
    
    
    (158,240
    )Total Deferred Tax Liabilities
    
    
    (915,769
    )
    
    
    (1,005,287
    )Total Net Deferred Tax Asset
    
    $
    3,956,178
    
    
    $
    4,663,064
 
 Asset Quality
   Redding Bank of
Commerce does not originate or hold sub-prime loans, nor do we hold collateralized debt obligations
or asset backed securities backed by sub-prime loans in our securities portfolio
 35




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
  June 30, 2008
    
    
    December 31, 2007Portfolio LoansCommercial and financial loans
    
    $
    176,680
    
    
    $
    173,704Real estate-construction loans
    
    
    88,037
    
    
    
    106,977Real estate-commercial
    
    
    189,762
    
    
    
    175,013Real estate-mortgage
    
    
    20,443
    
    
    
    10,787Real estate-other
    
    
    35,367
    
    
    
    26.818Installment
    
    
    128
    
    
    
    226Other loans
    
    
    2,453
    
    
    
    1,223Less:Net deferred loan fees
    
    
    (202
    )
    
    
    (232
    )Allowance for loan losses
    
    
    (5,017
    )
    
    
    (8,233
    )Total net loans
    
    $
    507,651
    
    
    $
    486,283
     (Dollars in thousands)
    
    June 30, 2008
    
    
    December 31, 2007Non performing assetsNonaccrual loans
    
    $
    18,870
    
    
    $
    12,40990 days past due and still accruing
interest
    
    
    0
    
    
    
    0Total nonaccrual loans
    
    
    18,870
    
    
    
    12,409Other Real Estate Owned
    
    
    0
    
    
    
    0Total non performing assets
    
    $
    18,870
    
    
    $
    12,409
    36




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
 Allowance for Loan and Lease Losses (ALLL)
    Accounting for Contingencies Accounting by Creditors for Impairment of a Loan. Accounting for Contingencies
   37




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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
    
    
    Six Months EndedJune 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2008
    
    
    June 30, 2007Allowance for Loan LossesBeginning balance for Loan
Losses
    
    $
    5,815
    
    
    $
    4,933
    
    
    $
    8,233
    
    
    $
    4,904Provision for Loan Losses
    
    
    1,000
    
    
    
    0
    
    
    
    1,600
    
    
    
    6Charge offs:Commercial
    
    
    (733
    )
    
    
    (0
    )
    
    
    (733
    )
    
    
    (0
    )Real Estate
    
    
    (1,067
    )
    
    
    (0
    )
    
    
    (4,087
    )
    
    
    (0
    )Other
    
    
    (0
    )
    
    
    (0
    )
    
    
    (0
    )
    
    
    (0
    )Total Charge offs
    
    
    (1,800
    )
    
    
    (0
    )
    
    
    (4,820
    )
    
    
    (0
    )Recoveries:Commercial
    
    
    0
    
    
    
    9
    
    
    
    0
    
    
    
    30Real Estate
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Other
    
    
    2
    
    
    
    1
    
    
    
    4
    
    
    
    3Total Recoveries
    
    
    2
    
    
    
    10
    
    
    
    4
    
    
    
    33Ending Balance
    
    $
    5,017
    
    
    $
    4,943
    
    
    $
    5,017
    
    
    $
    4,943ALLL to total loans
    
    
    0.98
    %
    
    
    1.11
    %
    
    
    0.98
    %
    
    
    1.12
    %Net Charge offs to average loans
    
    
    0.35
    %
    
    
    0.00
    %
    
    
    0.93
    %
    
    
    0.00
    %
      38




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
 
 Securities Portfolio
      (Dollars in thousands)
    
    as of June 30, 2008Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCosts
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueU.S. government & agencies
    
    $
    13,012
    
    
    $
    0
    
    
    $
    (226
    )
    
    $
    12,786Obligations of state and
political subdivisions
    
    
    22,193
    
    
    
    38
    
    
    
    (476
    )
    
    
    21,755Mortgage backed securities
    
    
    30,961
    
    
    
    10
    
    
    
    (775
    )
    
    
    30,196Other securities
    
    
    2,000
    
    
    
    0
    
    
    
    (9
    )
    
    
    1,991Total
    
    $
    68,166
    
    
    $
    48
    
    
    $
    (1,486
    )
    
    $
    66,728
 (Dollars in thousands)
    

as of December 31, 2007Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCosts
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueU.S. government & agencies
    
    $
    15,989
    
    
    $
    26
    
    
    $
    (104
    )
    
    $
    15,911Obligations of state and
political subdivisions
    
    
    19,017
    
    
    
    28
    
    
    
    (263
    )
    
    
    18,782Mortgage backed securities
    
    
    31,638
    
    
    
    10
    
    
    
    (354
    )
    
    
    31,294Corporate Bonds
    
    
    2,000
    
    
    
    0
    
    
    
    (81
    )
    
    
    1,919Total
    
    $
    68,644
    
    
    $
    64
    
    
    $
    (802
    )
    
    $
    67,906
  39




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
  Less than 12 months
    
    
    12 months or more
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. Treasury
securities and
Obligations of U.
S. Agencies
    
    $
    12,785,725
    
    
    ($
    225,950
    )
    
    $
    0
    
    
    $
    0
    
    
    $
    12,785,725
    
    
    ($
    225,950
    )Obligations of
state and political
subdivisions
    
    $
    21,230,777
    
    
    ($
    518,464
    )
    
    $
    909,805
    
    
    ($
    96,023
    )
    
    $
    22,140,582
    
    
    ($
    614,487
    )Mortgage-backed
securities
    
    $
    22,111,834
    
    
    ($
    474,047
    )
    
    $
    7,435,534
    
    
    ($
    331,422
    )
    
    $
    29,547,368
    
    
    ($
    805,469
    )Corporate Bonds
    
    $
    0
    
    
    $
    0
    
    
    $
    1,991,577
    
    
    ($
    8,470
    )
    
    $
    1,991,577
    
    
    ($
    8,470
    )Total temporarily
impaired securities
    
    $
    56,128,336
    
    
    ($
    1,218,461
    )
    
    $
    10,336,916
    
    
    ($
    435,915
    )
    
    $
    66,465,252
    
    
    ($
    1,654,376
    )
   40




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##### Table of Contents



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




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##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
   
    
    Assets and liabilities may mature or reprice at different times (for example, if assets
reprice faster than liabilities and interest rates fall, earnings will initially decline);
    
    Assets and liabilities may reprice at the same time but by different amounts (for
example, the level of interest rates in the market is falling and the Company may reduce
rates paid on checking and savings deposit accounts by an amount that is less than the
general decline in market rates);
    
    Short-term and long-term market interest rates may change by different amounts (for
example, the shape of the yield curve may affect new loan yields and funding costs
differently); or
    
    The remaining maturities of various assets and liabilities may shorten or lengthen as
interest rates change (for example, if long-term mortgage rates decline sharply,
mortgage-backed securities held in the securities available-for-sale may prepay
significantly earlier than anticipated, which could reduce portfolio income.)
    42




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43




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
   
 PART II. Other Information
 
 Item 1. Legal proceedings
  
 Item 1a. Risk Factors
 There have been no material changes from the risk factors previously disclosed in the registrants
Form 10-K.
 
 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
    44




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##### Table of Contents



SIGNATURES
  BANK OF COMMERCE HOLDINGS
(Registrant)Date:  August 08, 2008
    /s/ Linda J. MilesLinda J. MilesExecutive Vice President &

Chief Financial Officer 45