##### 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, 2005
 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
(State or other jurisdiction of incorporation or organization)
1951 Churn Creek Road Redding, California
    
    94-2823865
(I.R.S. Employer Identification No.)96002(Address of principal executive offices)
    
    (Zip code)
   
 þ o
 o þ
 o þ




---



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 Index to Form 10-Q
 Page:PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Condensed Balance Sheets September 30, 2005, December 31, 2004 and September 30, 2004
    
    
    3Consolidated Condensed Statements of Income Three and nine months ended September 30, 2005 and 2004
    
    
    4Consolidated Condensed Statements of Cash Flows Three and nine months ended September 30, 2005 and 2004
    
    
    5Notes to Consolidated Condensed Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Corporate Overview
    
    
    12Executive Overview
    
    
    14Sources of Income
    
    
    15Financial Highlights  Results of Operations
    
    
    15Net Interest Income and Net Interest Margin
    
    
    15Liquidity
    
    
    16Capital Management
    
    
    16Short term borrowings
    
    
    17Provision for loan losses
    
    
    17Factors that may affect future results
    
    
    17Specific risks to operations in California
    
    
    18Critical accounting policies
    
    
    19Average balances, Interest Income/Expense rates and yields
    
    
    20Volume/ Rate analysis
    
    
    23Noninterest Income
    
    
    23Noninterest Expense
    
    
    24Income taxes
    
    
    25Asset quality
    
    
    26Allowance for loan and lease losses (ALLL)
    
    
    26Securities
portfolio
    
    
    27Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    30PART II. OTHER INFORMATIONItem 1. Legal proceedings
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    31Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    31SIGNATURES
    
    
    31EXHIBITSEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 31.2
  2




---



##### 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,Amounts in thousands, except per share data
    
    2005
    
    
    2004
    
    
    2004ASSETSCash and due from banks
    
    $
    14,759
    
    
    $
    13,121
    
    
    $
    13,816Federal funds sold and securities purchased under agreements to
resell
    
    
    8,550
    
    
    
    6,120
    
    
    
    12,155Cash and cash equivalents
    
    
    23,309
    
    
    
    19,241
    
    
    
    25,971Securities available-for-sale (including pledged collateral of
$52,988 at September 30, 2005, $33,345 at December 31, 2004
and $40,049 at September 30, 2004)
    
    
    98,107
    
    
    
    82,443
    
    
    
    78,475Securities held-to-maturity, at cost (estimated fair value of $5,834
at September 30, 2005, $487 at December 31, 2004
and $534 at September 30, 2004)
    
    
    5,813
    
    
    
    449
    
    
    
    490Loans, net of the allowance for loan losses of $4,251
at September 30, 2005, $3,866 at December 31, 2004 and $3,732
at September 30, 2004
    
    
    342,004
    
    
    
    318,801
    
    
    
    306,531Bank premises and equipment, net
    
    
    5,547
    
    
    
    5,484
    
    
    
    5,589Other assets
    
    
    13,228
    
    
    
    12,127
    
    
    
    11,496TOTAL ASSETS
    
    $
    488,008
    
    
    $
    438,545
    
    
    $
    428,552LIABILITIES AND STOCKHOLDERS EQUITYDemand  noninterest bearing
    
    $
    80,516
    
    
    $
    82,263
    
    
    $
    79,409Demand  interest bearing
    
    
    116,137
    
    
    
    108,645
    
    
    
    108,348Savings
    
    
    26,078
    
    
    
    23,471
    
    
    
    25,112Certificates of deposits
    
    
    150,260
    
    
    
    138,500
    
    
    
    139,104Total deposits
    
    
    372,991
    
    
    
    352,879
    
    
    
    351,973Securities sold under agreements to repurchase
    
    
    20,461
    
    
    
    2,004
    
    
    
    1,489Federal Home Loan Bank borrowings
    
    
    35,000
    
    
    
    35,000
    
    
    
    30,000Other liabilities
    
    
    5,809
    
    
    
    8,379
    
    
    
    4,266Guaranteed Preferred Beneficial Interests in Companys
Junior Subordinated Debt payable to unconsolidated subsidiary
grantor trust
    
    
    15,310
    
    
    
    5,000
    
    
    
    5,000Total Liabilities
    
    
    449,571
    
    
    
    403,262
    
    
    
    392,728Commitments and contingenciesStockholders Equity:Preferred stock, no par value, 2,000,000 authorized
no shares issued and outstanding in 2005 and 2004
    
    
    
    
    
    
    
    
    
    
    Common stock , no par value, 10,000,000 shares
authorized; 8,654,896 shares issued and outstanding
at September 30, 2005, 8,502,831 at December 31, 2004
and 8,502,539 at September 30, 2004
    
    
    10,998
    
    
    
    10,537
    
    
    
    10,714Retained earnings
    
    
    28,240
    
    
    
    25,079
    
    
    
    25,416Accumulated other comprehensive (loss) , net of tax
    
    
    (801
    )
    
    
    (333
    )
    
    
    (306
    )Total Stockholders equity
    
    
    38,437
    
    
    
    35,283
    
    
    
    35,824TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    488,008
    
    
    $
    438,545
    
    
    $
    428,552
 See accompanying notes to condensed consolidated financial statements.
 3




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 Condensed Consolidated Statements of Income (Unaudited)
 Three and nine months ended September 30, 2005 and 2004
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,Amounts in thousands, except for per share data
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Interest income:Interest and fees on loans
    
    $
    6,146
    
    
    $
    4,627
    
    
    $
    17,393
    
    
    $
    13,416Interest on tax exempt securities
    
    
    99
    
    
    
    58
    
    
    
    230
    
    
    
    171Interest on U.S. government securities
    
    
    718
    
    
    
    567
    
    
    
    2,026
    
    
    
    1,549Interest on federal funds sold and
securities purchased under agreements to resell
    
    
    220
    
    
    
    49
    
    
    
    385
    
    
    
    90Interest on other securities
    
    
    16
    
    
    
    0
    
    
    
    16
    
    
    
    7Total interest income
    
    
    7,199
    
    
    
    5,301
    
    
    
    20,050
    
    
    
    15,233Interest expense:Interest on demand deposits
    
    
    276
    
    
    
    114
    
    
    
    688
    
    
    
    314Interest on savings deposits
    
    
    56
    
    
    
    26
    
    
    
    127
    
    
    
    79Interest on time deposits
    
    
    1,190
    
    
    
    711
    
    
    
    3,051
    
    
    
    2,106Securities sold under agreements to repurchase
    
    
    146
    
    
    
    0
    
    
    
    264
    
    
    
    2Interest on FHLB and other borrowing expense
    
    
    235
    
    
    
    113
    
    
    
    746
    
    
    
    271Interest on junior subordinated debt payable to
unconsolidated subsidiary grantor
trust
    
    
    171
    
    
    
    68
    
    
    
    332
    
    
    
    180Total interest expense
    
    
    2,074
    
    
    
    1,032
    
    
    
    5,208
    
    
    
    2,952Net interest income
    
    
    5,125
    
    
    
    4,269
    
    
    
    14,842
    
    
    
    12,281Provision for loan losses
    
    
    88
    
    
    
    131
    
    
    
    442
    
    
    
    420Net interest income after provision for loan losses
    
    
    5,037
    
    
    
    4,138
    
    
    
    14,400
    
    
    
    11,861Noninterest income:Service charges on deposit accounts
    
    
    98
    
    
    
    133
    
    
    
    303
    
    
    
    358Payroll and benefit processing fees
    
    
    81
    
    
    
    81
    
    
    
    264
    
    
    
    260Earnings on
cash surrender value Bank owned life insurance
    
    
    52
    
    
    
    52
    
    
    
    156
    
    
    
    160Net (loss) gain on sale of securities
available-for-sale
    
    
    0
    
    
    
    0
    
    
    
    (2
    )
    
    
    0Net gain on sale of loans
    
    
    23
    
    
    
    2
    
    
    
    91
    
    
    
    38Merchant credit card service income, net
    
    
    91
    
    
    
    139
    
    
    
    268
    
    
    
    330Mortgage brokerage fee income
    
    
    85
    
    
    
    64
    
    
    
    242
    
    
    
    112Other income
    
    
    85
    
    
    
    102
    
    
    
    283
    
    
    
    304Total non-interest income
    
    
    515
    
    
    
    573
    
    
    
    1,605
    
    
    
    1,562Noninterest expense:Salaries and related benefits
    
    
    1,750
    
    
    
    1,500
    
    
    
    5,088
    
    
    
    4,261Occupancy and equipment expense
    
    
    437
    
    
    
    395
    
    
    
    1,173
    
    
    
    1,127FDIC insurance premium
    
    
    11
    
    
    
    11
    
    
    
    36
    
    
    
    36Data processing fees
    
    
    71
    
    
    
    69
    
    
    
    209
    
    
    
    185Professional service fees
    
    
    199
    
    
    
    177
    
    
    
    577
    
    
    
    619Deferred compensation expense
    
    
    85
    
    
    
    71
    
    
    
    234
    
    
    
    207Stationery and Supplies
    
    
    40
    
    
    
    48
    
    
    
    159
    
    
    
    156Directors expense
    
    
    45
    
    
    
    67
    
    
    
    188
    
    
    
    225Postage
    
    
    30
    
    
    
    25
    
    
    
    84
    
    
    
    73Other expenses
    
    
    427
    
    
    
    278
    
    
    
    1,154
    
    
    
    856Total non-interest expense
    
    
    3,095
    
    
    
    2,641
    
    
    
    8,902
    
    
    
    7,745Income before income taxes
    
    
    2,457
    
    
    
    2,070
    
    
    
    7,103
    
    
    
    5,678Provision for income taxes
    
    
    897
    
    
    
    803
    
    
    
    2,696
    
    
    
    2,138Net Income
    
    $
    1,560
    
    
    $
    1,267
    
    
    $
    4,407
    
    
    $
    3,540Basic earnings per share
    
    $
    0.18
    
    
    $
    0.15
    
    
    $
    0.51
    
    
    $
    0.43Weighted average shares  basic
    
    
    8,619
    
    
    
    8,260
    
    
    
    8,582
    
    
    
    8,192Diluted earnings per share
    
    $
    0.18
    
    
    $
    0.15
    
    
    $
    0.50
    
    
    $
    0.42Weighted average shares  diluted
    
    
    8,874
    
    
    
    8,641
    
    
    
    8,911
    
    
    
    8,494
 See accompanying notes to condensed consolidated financial statements .
 4




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
 Nine months ended September 30, 2005 and 2004
 Amounts in thousands
    
    September 30,
    
    
    September 30,2005
    
    
    2004Cash flows from operating activities:Net Income
    
    $
    4,407
    
    
    $
    3,540Adjustments to reconcile net income to net
cash provided by operating activities:Provision for loan losses
    
    
    442
    
    
    
    420Provision for depreciation and amortization
    
    
    421
    
    
    
    468Compensation expense associated with stock options
    
    
    4
    
    
    
    2Loss on sale of securities available for sale
    
    
    2
    
    
    
    0Amortization of investment premiums and accretion of
discounts, net
    
    
    100
    
    
    
    (189
    )Gain on sale of loans
    
    
    (91
    )
    
    
    (38
    )Proceeds from sales of loans
    
    
    2,351
    
    
    
    638Loans originated for sale
    
    
    (2,260
    )
    
    
    (600
    )Effect of changes in:Other assets
    
    
    (231
    )
    
    
    2,660Deferred loan fees
    
    
    (302
    )
    
    
    136Other liabilities
    
    
    (2,266
    )
    
    
    546Net cash provided by operating activities
    
    
    2,577
    
    
    
    7,583Cash flows from investing activities:Proceeds from maturities of available-for-sale securities
    
    
    20,005
    
    
    
    27,524Proceeds from sales of available-for-sale securities
    
    
    121
    
    
    
    0Proceeds from maturities of held-to-maturity securities
    
    
    141
    
    
    
    895Purchases of available-for-sale securities
    
    
    (42,426
    )
    
    
    (36,289
    )Loan originations, net of principal repayments
    
    
    (23,343
    )
    
    
    (28,884
    )Purchases of premises and equipment
    
    
    (484
    )
    
    
    (244
    )Net cash used by investing activities
    
    
    (45,986
    )
    
    
    (36,998
    )Cash flows from financing activities:Net increase in deposits
    
    
    20,112
    
    
    
    24,435Net (decrease) increase in securities sold under
agreement to repurchase
    
    
    18,458
    
    
    
    (2,260
    )Proceeds from Federal Home Loan Bank advances
    
    
    38,000
    
    
    
    90,000Repayments of Federal Home Loan Bank advances
    
    
    (38,000
    )
    
    
    (90,000
    )Proceeds from issuance of Junior Subordinated Debt
    
    
    10,000
    
    
    
    0Common stock transactions, net
    
    
    (1,094
    )
    
    
    1,172Net cash provided by financing activities
    
    
    47,476
    
    
    
    23,347Net (decrease) increase in cash and cash equivalents
    
    
    4,068
    
    
    
    (6,068
    )Cash and cash equivalents, beginning of period
    
    
    19,241
    
    
    
    32,039Cash and cash equivalents, end of period
    
    $
    23,309
    
    
    $
    25,971Supplemental disclosures:Cash paid during the period for:Income taxes
    
    $
    2,582
    
    
    $
    1,315Interest
    
    
    4,979
    
    
    
    3,565
 See accompanying notes to condensed consolidated financial statements.
 5




---



##### 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
 Statement of Financial Accounting Standards No. 123 (revised 2004)  In December 2004 the FASB
revised SFAS No. 123, Accounting for Stock Based Compensation. Accounting for Stock Issued to Employees,
    6




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
   On March 30, 2005, the FASB issued Interpretation No. 47 , Accounting for Conditional Asset
Retirement Obligations  an Interpretation of FASB Statement No. 143 (FIN 47). .
 On May 5, 2005, the FASB issued Statement No. 154, Accounting Changes and Error Corrections (FAS
154), replacing APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting
Accounting Changes in Interim Financial Statements .
 On August 11, 2005, The Financial Accounting Standards Board Issues Revised Exposure Draft on
Accounting for Transfers of Financial Assets  Accounting for Transfers of Financial Assets. Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,
 7




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
 3. Earnings per Share
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Basic EPS Calculation:Numerator (net income)
    
    $
    1,560
    
    
    $
    1,267
    
    
    $
    4,407
    
    
    $
    3,540Denominator (average common
shares outstanding)
    
    
    8,619
    
    
    
    8,260
    
    
    
    8,582
    
    
    
    8,192Basic earnings per Share
    
    $
    0.18
    
    
    $
    0.15
    
    
    $
    0.51
    
    
    $
    0.43Diluted EPS Calculation:Numerator (net income)
    
    $
    1,560
    
    
    $
    1,267
    
    
    $
    4,407
    
    
    $
    3,540Denominator:Average common shares outstanding
    
    
    8,619
    
    
    
    8,260
    
    
    
    8,582
    
    
    
    8,192Options
    
    
    255
    
    
    
    381
    
    
    
    329
    
    
    
    3028,874
    
    
    
    8,641
    
    
    
    8,911
    
    
    
    8,494Diluted earnings per Share
    
    $
    0.18
    
    
    $
    0.15
    
    
    $
    0.50
    
    
    $
    0.42
 4. Stock Option Plans
 Accounting for Stock Issued to
Employees Accounting for
Stock-Based Compensation Accounting for Stock-Based Compensation -
Transition and Disclosure, Accounting for Stock-Based Compensation,
 8




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net incomeAs reported
    
    $
    1,560
    
    
    $
    1,267
    
    
    $
    4,407
    
    
    $
    3,540Deduct:Total
stock-based
employee
compensation
expense
determined
under fair
value based
method for
all awards,
net of related
tax effects
    
    
    (37
    )
    
    
    (37
    )
    
    
    (147
    )
    
    
    (112
    )Pro forma net income
    
    $
    1,523
    
    
    $
    1,230
    
    
    $
    4,260
    
    
    $
    3,428Earnings per share:Basic  as reported
    
    $
    0.18
    
    
    $
    0.15
    
    
    $
    0.51
    
    
    $
    0.43Basic  pro forma
    
    $
    0.18
    
    
    $
    0.15
    
    
    $
    0.50
    
    
    $
    0.42Diluted  as reported
    
    $
    0.18
    
    
    $
    0.15
    
    
    $
    0.50
    
    
    $
    0.42Diluted  pro forma
    
    $
    0.17
    
    
    $
    0.14
    
    
    $
    0.48
    
    
    $
    0.40
  5. Comprehensive Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net Income as reported
    
    $
    1,560
    
    
    $
    1,267
    
    
    $
    4,407
    
    
    $
    3,540Other comprehensive income
net of tax:Unrealized holding (loss)gain
on
securities available for sale
    
    
    (232
    )
    
    
    743
    
    
    
    (468
    )
    
    
    (41
    )Reclassification adjustment for
loss on available for sale
securities
    
    
    (0
    )
    
    
    (0
    )
    
    
    2
    
    
    
    (0
    )Total other comprehensive income
    
    
    (232
    )
    
    
    743
    
    
    
    (466
    )
    
    
    (41
    )Total comprehensive income
    
    $
    1,328
    
    
    $
    2,010
    
    
    $
    3,941
    
    
    $
    3,499
 9




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
 6. Junior Subordinated Debentures (Trust Preferred Securities)
       10




---



##### Table of Contents



BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
 7. Commitments and contingent liabilities
 Lease Commitments The Company leases certain facilities at which it conducts its
operations. Future minimum lease commitments under all non-cancelable operating leases as of
September 30, 2005 are below:
 (Dollars in thousands)2005
    
    $
    932006
    
    $
    4562007
    
    $
    4642008
    
    $
    4722009
    
    $
    430Thereafter
    
    $
    1,246Total
    
    $
    3,161
 Legal Proceedings The Company is involved in various pending and threatened legal actions
arising in the ordinary course of business. The Company maintains reserves for losses from
legal actions, which are both probable and estimable. In the opinion of management, the
disposition of claims, currently pending will not have a material adverse affect on the
Companys financial position or results of operations.FHLB Advances Included in other borrowings are advances from the Federal Home Loan Bank of
San Francisco (FHLB) totaling $35,000,000 as of September 30, 2005 and $35,000,000 as of
September 30, 2004. The FHLB advances bear fixed or floating rates of interest ranging from
2.87% to 3.78%. Interest is payable on a monthly basis. FHLB advances are due as follows:
$15,000,000 maturing on October 31, 2005, $10,000,000 maturing November 24, 2005 at 2.87%,
$10,000,000 maturing January 24, 2008 at current prime rate minus 281 basis points floating,
currently 3.69%. These borrowings are secured by an investment in FHLB stock and certain real
estate mortgage loans which have been specifically pledged to the FHLB pursuant to their
collateral requirements. Based upon the level of FHLB advances, the Company was required to
hold a minimum investment in FHLB stock of $1,902,900 and to pledge $44,906,728 of its real
estate mortgage loans to the FHLB as collateral as of September 30, 2005.Off-Balance Sheet Financial Instruments- In the ordinary course of business, the
Company enters various types of transactions, which involve financial instruments with
off-balance sheet risk. These instruments include commitments to extend credit and standby
letter of credits, which are not reflected in the accompanying consolidated balance sheets.
These transactions may involve, to varying degrees, credit and interest rate risk more than
the amount, if any recognized in the consolidated balance sheets. Commitments to extend
credit were $125,925,924 and $102,617,680 as of September 30, 2005 and 2004, respectively.
Standby letters of credit outstanding were $10,029,239 and $6,877,706 as of September 30,
2005 and 2004, respectively.
 11




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 Forward looking statements and risk factors
 This discussion and 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. 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,
2004 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 financial condition, capital
resources and liquidity of the Company from December 31, 2004 to September 30, 2005. Also discussed
are significant trends and changes in the Companys results of operations for the three and
nine-months ended September 30, 2005, compared to the same period in 2004. 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.
 
 Corporate Overview
  12




---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
          13




---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
    
 Executive Overview
   14




---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  
 Sources of Income
  
 Financial Highlights  Results of Operations
   
 Net Interest Income and Net Interest Margin
   15




---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
    
 Liquidity
    
 Capital Management
   16




---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
 Well
    
    
    MinimumActual
    
    
    Capitalized
    
    
    CapitalSeptember 30, 2005
    
    Capital
    
    
    Ratio
    
    
    Requirement
    
    
    RequirementThe Company
Leverage
    
    $
    49,238,000
    
    
    
    10.05
    %
    
    
    n/a
    
    
    
    4.0
    %Tier 1 Risk-Based
    
    
    49,238,000
    
    
    
    12.36
    %
    
    
    n/a
    
    
    
    4.0
    %Total Risk-Based
    
    
    53,489,548
    
    
    
    13.43
    %
    
    
    n/a
    
    
    
    8.0
    %Redding Bank of
Commerce Leverage
    
    $
    48,397,051
    
    
    
    10.14
    %
    
    
    5.0
    %
    
    
    4.0
    %Tier 1 Risk-Based
    
    
    48,397,051
    
    
    
    12.15
    %
    
    
    6.0
    %
    
    
    4.0
    %Total Risk-Based
    
    
    52,648,600
    
    
    
    13.22
    %
    
    
    10.00
    %
    
    
    8.0
    %
 
 Short term borrowings
   
 Provision for loan losses
   
 Factors that may affect future results
   17




---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
       
 Specific Risks to operations in California
  18




---



##### 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
  Generally Accepted Accounting Principles in the United States of America
   Allowance for Loan and Lease Losses (ALLL)
  19




---



##### 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
  20




---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 Income Taxes
   Table 1.
    
    Average Balances, Interest Income/Expense and Yields/Rates Paid(Unaudited, Dollars in thousands)
 Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2005
    
    
    September 30, 2004Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
Rate
    
    
Balance
    
    
Interest
    
    
RateEarning AssetsPortfolio Loans
    
    $
    332,476
    
    
    $
    17,393
    
    
    
    6.98
    %
    
    $
    293,101
    
    
    $
    13,416
    
    
    
    6.10
    %Tax-exempt Securities
    
    
    9,235
    
    
    
    230
    
    
    
    3.32
    %
    
    
    6,604
    
    
    
    171
    
    
    
    3.45
    %US Government Securities
    
    
    73,162
    
    
    
    2,026
    
    
    
    3.69
    %
    
    
    61,106
    
    
    
    1,549
    
    
    
    3.38
    %Federal Funds Sold
    
    
    16,818
    
    
    
    385
    
    
    
    3.05
    %
    
    
    10,324
    
    
    
    90
    
    
    
    1.16
    %Other Securities
    
    
    488
    
    
    
    16
    
    
    
    4.37
    %
    
    
    0
    
    
    
    7
    
    
    
    0.00
    %Average Earning Assets
    
    $
    432,179
    
    
    $
    20,050
    
    
    
    6.19
    %
    
    $
    371,135
    
    
    $
    15,233
    
    
    
    5.47
    %Cash & Due From Banks
    
    $
    15,211
    
    
    
    
    
    
    
    
    
    
    $
    17,935Bank Premises
    
    
    5,543
    
    
    
    
    
    
    
    
    
    
    
    5,718Allowance for Loan and Lease Losses
    
    
    (4,091
    )
    
    
    
    
    
    
    
    
    
    
    ( 3,789
    )Other Assets
    
    
    11,188
    
    
    
    
    
    
    
    
    
    
    
    10,981Average Total Assets
    
    $
    460,030
    
    
    
    
    
    
    
    
    
    
    $
    401,980Interest Bearing LiabilitiesDemand Interest Bearing
    
    $
    112,259
    
    
    $
    688
    
    
    
    0.82
    %
    
    $
    99,796
    
    
    $
    314
    
    
    
    0.42
    %Savings Deposits
    
    
    25,884
    
    
    
    127
    
    
    
    0.65
    %
    
    
    23,176
    
    
    
    79
    
    
    
    0.45
    %Certificates of Deposit
    
    
    147,834
    
    
    
    3,051
    
    
    
    2.75
    %
    
    
    137,621
    
    
    
    2,106
    
    
    
    2.04
    %Borrowings
    
    
    47,682
    
    
    
    1,342
    
    
    
    3.75
    %
    
    
    29,785
    
    
    
    4532.03
    %333,659
    
    
    $
    5,208
    
    
    
    2.08
    %
    
    
    290,378
    
    
    $
    2,952
    
    
    
    1.36
    %Non interest Demand
    
    
    79,612
    
    
    
    
    
    
    
    
    
    
    
    70,373Other Liabilities
    
    
    15,003
    
    
    
    
    
    
    
    
    
    
    
    9,140Stockholder Equity
    
    
    31,756
    
    
    
    
    
    
    
    
    
    
    
    32,089Average
Liabilities and Stockholders Equity
    
    $
    460,030
    
    
    
    
    
    
    
    
    
    
    $
    401,980Net Interest Income and Net Interest
Margin
    
    
    
    
    
    $
    14,842
    
    
    
    4.58
    %
    
    
    
    
    
    $
    12,281
    
    
    
    4.41
    %
 21




---



##### 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
 September 30, 2005
    
    
    over
    
    
    September 30, 2004(Dollars in thousands)
    
    Volume
    
    
    Rate
    
    
    TotalIncrease(Decrease) In Interest
IncomePortfolio Loans
    
    $
    2,699
    
    
    $
    1,278
    
    
    $
    3,977Tax-exempt Securities
    
    
    63
    
    
    
    (4
    )
    
    
    59US Government Securities
    
    
    382
    
    
    
    95
    
    
    
    477Federal Funds Sold
    
    
    197
    
    
    
    98
    
    
    
    295Other Securities
    
    
    9
    
    
    
    0
    
    
    
    9Total Increase (Decrease)
    
    $
    3,350
    
    
    $
    1,467
    
    
    $
    4,817Increase(Decrease) In
Interest ExpenseInterest Bearing Demand
    
    $
    176
    
    
    $
    198
    
    
    $
    374Savings Deposits
    
    
    25
    
    
    
    23
    
    
    
    48Certificates of Deposit
    
    
    456
    
    
    
    489
    
    
    
    945Borrowings
    
    
    632
    
    
    
    257
    
    
    
    889Total Increase (Decrease)
    
    $
    1,289
    
    
    $
    967
    
    
    $
    2,256Net Increase
    
    $
    2,061
    
    
    $
    500
    
    
    $
    2,561
      22




---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
 Noninterest Income
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Noninterest incomeService charges on deposit accounts
    
    $
    98
    
    
    $
    133
    
    
    $
    303
    
    
    $
    358Payroll and benefit processing fees
    
    
    81
    
    
    
    81
    
    
    
    264
    
    
    
    260Earnings on cash surrender value -
Bank owned insurance
    
    
    52
    
    
    
    52
    
    
    
    156
    
    
    
    160Net (loss) gain on sale of securities
available-for-sale
    
    
    0
    
    
    
    0
    
    
    
    (2
    )
    
    
    0Net gain on sale of loans
    
    
    23
    
    
    
    2
    
    
    
    91
    
    
    
    38Merchant credit card service income, net
    
    
    91
    
    
    
    139
    
    
    
    268
    
    
    
    330Mortgage brokerage fee income
    
    
    85
    
    
    
    64
    
    
    
    242
    
    
    
    112Other Income
    
    
    85
    
    
    
    102
    
    
    
    283
    
    
    
    304Total Noninterest income
    
    $
    515
    
    
    $
    573
    
    
    $
    1,605
    
    
    $
    1,562
   
 Noninterest Expense
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Noninterest ExpenseSalaries and related benefits
    
    $
    1,750
    
    
    $
    1,500
    
    
    $
    5,088
    
    
    $
    4,261Occupancy and equipment expense
    
    
    437
    
    
    
    395
    
    
    
    1,173
    
    
    
    1,127FDIC insurance premium
    
    
    11
    
    
    
    11
    
    
    
    36
    
    
    
    36Data processing fees
    
    
    71
    
    
    
    69
    
    
    
    209
    
    
    
    185Professional service fees
    
    
    199
    
    
    
    177
    
    
    
    577
    
    
    
    619Deferred compensation expense
    
    
    85
    
    
    
    71
    
    
    
    234
    
    
    
    207Stationery and Supplies
    
    
    40
    
    
    
    48
    
    
    
    159
    
    
    
    156Directors expense
    
    
    45
    
    
    
    67
    
    
    
    188
    
    
    
    225Postage
    
    
    30
    
    
    
    25
    
    
    
    84
    
    
    
    73Business Development
    
    
    38
    
    
    
    18
    
    
    
    83
    
    
    
    51Telephone
    
    
    35
    
    
    
    35
    
    
    
    111
    
    
    
    95Payroll processing expense
    
    
    24
    
    
    
    18
    
    
    
    86
    
    
    
    28Off balance sheet provisions
    
    
    89
    
    
    
    0
    
    
    
    89
    
    
    
    0Other expenses
    
    
    241
    
    
    
    207
    
    
    
    785
    
    
    
    682Total Noninterest expense
    
    $
    3,095
    
    
    $
    2,641
    
    
    $
    8,902
    
    
    $
    7,745
 23




---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
   
 Income Taxes
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,Income Taxes
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Tax provision
    
    $
    897
    
    
    $
    803
    
    
    $
    2,696
    
    
    $
    2,138Effective tax rate
    
    
    36.5
    %
    
    
    38.8
    %
    
    
    38.0
    %
    
    
    37.7
    %
   24




---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
 
 Asset Quality
     Portfolio Loans
    
    September 30, 2005
    
    
    December 31, 2004Commercial and financial
    
    $
    115,220
    
    
    $
    105,545Real
estateconstruction
    
    
    82,911
    
    
    
    77,439Real estatecommercial
    
    
    144,628
    
    
    
    135,260Real estatemortgage
    
    
    3,093
    
    
    
    4,423Installment
    
    
    237
    
    
    
    300Other loans
    
    
    517
    
    
    
    353Less:Net deferred loan fees
    
    
    (351
    )
    
    
    (653
    )Allowance for loan losses
    
    
    (4,251
    )
    
    
    (3,866
    )Total net loans
    
    $
    342,004
    
    
    $
    318,801
    25




---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
   Nonperforming assets
    
    September 30, 2005
    
    
    December 31, 2004Non-accrual loans
    
    $
    1,502
    
    
    $
    2,38390 days past due and still
accruing interest
    
    
    0
    
    
    
    01,502
    
    
    
    2,383Other Real Estate Owned
    
    
    0
    
    
    
    0Total non-performing assets
    
    $
    1,502
    
    
    $
    2,383
 
 Allowance for Loan and Lease Losses (ALLL)
  Accounting for Contingencies Accounting by Creditors for Impairment of a Loan. Accounting for Contingencies
    26




---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
   Three Months Ended
    
    
    Nine Months EndedAllowance for Loan Losses
    
    September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Beginning balance for Loan
Losses
    
    $
    4,148
    
    
    $
    3,618
    
    
    $
    3,866
    
    
    $
    3,675Provision for Loan Losses
    
    
    88
    
    
    
    131
    
    
    
    442
    
    
    
    420Charge offs:Commercial
    
    
    (3
    )
    
    
    (18
    )
    
    
    (80
    )
    
    
    (367
    )Real Estate
    
    
    (0
    )
    
    
    (0
    )
    
    
    0
    
    
    
    0Other
    
    
    (0
    )
    
    
    (0
    )
    
    
    0
    
    
    
    0Total Charge offs
    
    
    (3
    )
    
    
    (18
    )
    
    
    (80
    )
    
    
    (367
    )Recoveries:Commercial
    
    
    18
    
    
    
    1
    
    
    
    23
    
    
    
    4Real Estate
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total Recoveries
    
    
    18
    
    
    
    1
    
    
    
    23
    
    
    
    4Ending Balance
    
    $
    4,251
    
    
    $
    3,732
    
    
    $
    4,251
    
    
    $
    3,732ALLL to total loans
    
    
    1.23
    %
    
    
    1.20
    %
    
    
    1.23
    %
    
    
    1.20
    %Net Charge offs to average loans
    
    
    0.02
    %
    
    
    0.12
    %
    
    
    0.02
    %
    
    
    0.12
    %
 
 Available-for-Sale Securities Portfolio
     27




---



##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
  (Dollars in thousands)
    
    as of September 30, 2005Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCosts
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueU.S. government & agencies
    
    $
    44,772
    
    
    $
    1
    
    
    $
    (583
    )
    
    $
    44,190Obligations of state and
political subdivisions
    
    
    6,351
    
    
    
    39
    
    
    
    (123
    )
    
    
    6,267Mortgage backed securities
    
    
    44,306
    
    
    
    0
    
    
    
    (689
    )
    
    
    43,617Corporate bonds
    
    
    4,040
    
    
    
    0
    
    
    
    (7
    )
    
    
    4,033Total
    
    $
    99,469
    
    
    $
    40
    
    
    $
    (1,402
    )
    
    $
    98,107
 (Dollars in thousands)
    
    as of December 31, 2004Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCosts
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueU.S. government & agencies
    
    $
    34,013
    
    
    $
    14
    
    
    $
    (436
    )
    
    $
    33,591Obligations of state and
political subdivisions
    
    
    6,517
    
    
    
    60
    
    
    
    (102
    )
    
    
    6,475Mortgage backed securities
    
    
    42,479
    
    
    
    42
    
    
    
    (144
    )
    
    
    42,377Total
    
    $
    83,009
    
    
    $
    116
    
    
    $
    (682
    )
    
    $
    82,443
  28




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
        29




---



##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
     30




---



##### Table of Contents



PART II. Other Information
 
 Item 1. Legal proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of Matters to a vote of Security Holders
  
 Item 5. Other Information
  
 Item 6A. Exhibits
   Item 6B. Reports on Form 8-K
        
 SIGNATURES
  BANK OF COMMERCE HOLDINGS
 Date: November 10, 2005/s/ Linda J. MilesLinda J. MilesExecutive Vice President &Chief Financial Officer
 31